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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-SB
GENERAL FORM FOR
REGISTRATION OF SECURITIES
OF SMALL BUSINESS ISSUERS
UNDER SECTION 12(G) OF
THE SECURITIES EXCHANGE ACT OF 1934
LEGACY BRANDS, INC.
(Exact Name of Small Business Issuer in its Charter)
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<S> <C>
CALIFORNIA 680323138
(State or Jurisdiction (I.R.S. Employer
of Incorporation or Organization) Identification No.)
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2200-B DOUGLAS BLVD., SUITE 130
ROSEVILLE, CA 95661
(916) 782-2029
(Address and telephone number of principal executive offices)
Securities to be registered
under Section 12(g) of the Act:
Common Stock
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COMPANY OVERVIEW
Legacy Brands, Inc. (the "Company") was formed to produce and market super
premium, branded food products to be sold in supermarkets, club stores, and mass
merchandise stores throughout North America. The Company holds an exclusive
license from Mrs. Fields Development Corporation ("Mrs. Fields"), to produce,
market and distribute frozen cookie dough products, frozen baked goods and other
related frozen dessert products utilizing trademarks, trade names and service
marks for Mrs. Fields Cookies, Mrs. Fields Brownies and Mrs. Fields in any
product. Such licensing arrangements have an initial term of five years, of
which two and a half years have passed, with periodic options to renew for a
total of 30 years. The Company currently markets Mrs. Fields Cookie Dough in
supermarkets nationwide, the Sam's Club wholesale division of Wal-Mart stores,
BJ's and Costco club stores. The Company's frozen cookie dough products include
semi-sweet chocolate chip, semi-sweet chocolate chip with walnuts, white chunk
macadamia nut, oatmeal raisin, a chocolate lovers pack and a baking kit for the
Christmas holidays. The Company has an informal manufacturing agreement with Van
den Bergh Foods ("Van den Bergh") to manufacture its frozen cookie dough
products according to Mrs. Fields' specifications. This agreement generally
allows the Company to have its products produced without any advance payments to
Van den Bergh for manufacturing or packaging. The products are then delivered by
Van den Bergh, as agent for the Company, directly to wholesale and retail
warehouses who pay Van den Bergh for such product. Van den Bergh then
distributes to the Company the proceeds after deducting manufacturing and other
costs. Mrs. Fields super premium products planned for future introduction
include assorted cheesecakes, double fudge brownies, muffins, cinnamon rolls,
macadamia nut waffles and chocolate chip pancakes. The Company has recently
received orders for its new Mrs. Fields cookie ice cream sandwiches from the
Southland Corporation to supply this product to over 5,000 7-Eleven convenience
stores.
Products from other licensors fitting a profile similar to the Mrs. Fields
brand products will be introduced beginning in 1997. The Company also holds a
non-exclusive license from AJM Marketing Enterprises, Inc., to use certain names
and characters from the television show, "Adventures of Gumby," (sometimes
collectively referred to as "Gumby") in connection with the manufacture,
marketing and distribution of freeze pops, fruit roll-up products and beverage
coolers bearing the Gumby images. The Company has commenced marketing the Gumby
products. Lucky Stores of Northern California has recently approved Gumby Pops
for distribution in 185 of their stores, beginning in July 1997. This will be
the first time that Gumby food products have ever been produced by any entity.
The Company plans to sell Gumby food products in toy stores and large discount
department stores utilizing marketing methods similar to those used for Mrs.
Fields products.
Management believes an opportunity exists to develop new products which
fulfill unmet consumer needs in the underdeveloped premium frozen food market.
Convenience and ease of preparation appear to be the most important factors
affecting purchases of frozen dessert items. The Company has seen an increase in
the number of supermarket retailer and wholesaler accounts selling the Company's
products from 15 such accounts during its fiscal year ended January 31, 1996, to
63 accounts during its fiscal year ended January 31, 1997, an increase of over
320%. Such 63 accounts represent 18% of the top 347 supermarket retailer and
wholesaler companies ranked by national sales according to PROGRESSIVE GROCER'S
1997 MARKETING GUIDE BOOK. Management believes that there is a growing consumer
demand for partially prepared food products which require only minimal final
preparation at home. For example, while the Mrs. Fields brand has been reported
by Corey, Canapary & Galanis, a market research firm, to be recognized by 94% of
consumers, management is of the view that it has not yet been fully exploited in
the retail segment, which should provide growth opportunities for the Company.
The Company was incorporated in California in February 1994. The Company's
principal offices are located at 2200-B Douglas Blvd., Suite 130, Roseville,
California 95661, and its telephone number is (916) 782-2029.
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PART I
THE BUSINESS
COMPANY BACKGROUND
Legacy Brands, Inc., currently produces and markets super premium, Mrs.
Fields brand frozen food products throughout North America. The Company intends
to expand by increasing sales of Mrs. Fields products and by producing and
marketing other similar, well recognized brand name products.
The Company was founded in early 1994 and initially focused its activities
on acquiring licenses for producing and marketing Odwalla frozen juice bars and
Fog City Diner soups. These licenses were allowed to expire as the Company
acquired licenses for other products, including Mrs. Fields Cookie Dough. The
Company has entered into an agreement, which has not been reduced to writing in
a single formal instrument, with Van den Bergh to manufacture and package the
Mrs. Fields Cookie Dough products. This agreement and course of conduct followed
by the parties allows the Company to have the products produced without advance
payments to Van den Bergh. The agreement was made possible by Mrs. Fields
Cookies' relationship with Van den Bergh. The Company also then entered into a
distribution agreement with Haagen-Dazs.
The Company had losses of approximately $3.5 million through August 1995.
At that point, the Company established a committee of four principal
shareholders in order to: (i) administer the affairs of the Company until a
Chief Executive Officer could be hired; (ii) hire a Chief Executive Officer
experienced in the industry; (iii) authorize negotiations with Mrs. Fields
Cookies to restructure the terms of the license; (iv) negotiate with the
Company's suppliers regarding payment terms for aged inventory and negotiate
with trade creditors; and (v) arrange for interim financing. The Company
formalized this process by entering into a Memorandum of Agreement on August 8,
1995, that also provided for the restructuring and recapitalization of the
Company.
In September 1995, the Company hired Thomas E. Kees as its Chief Executive
Officer and redirected its objectives. The Company began to concentrate on
licensing only well-known national brands. The Haagen-Dazs distribution
agreement was terminated in September 1995, effective in October 1995. The
strategy of direct distribution to wholesalers and retailers was thereupon
formulated and implemented. Marketing efforts were then focused on in-store
promotions and increased efforts to add new retail accounts and increase gross
profits. In addition, a new management team was hired to implement the Company's
strategies. Since that time, sales have increased 47% over the previous year and
management anticipates that operating expenses as a percentage of sales will
decrease, creating an environment for potential future profitable operations.
INDUSTRY BACKGROUND AND COMPETITION
Sales of frozen baked goods, the subcategory listing for the Company's
current products, topped $1.2 billion in 1994, according to THE FROZEN FOOD
EXECUTIVE. Moreover, the December 1995 issue of THE FROZEN FOOD EXECUTIVE stated
that the frozen, ready-to-eat cookie/frozen cookie dough market segment had the
highest annual growth rate among frozen baked goods, going from 1.29 million
units in 1994 to 2.14 million units in 1995, an increase of 66%. This percentage
increase in unit volume (66%) is significantly higher than the increase recorded
for any other category. By comparison, the second and third fastest growing
product types, frozen bakery bread and frozen bagels, enjoyed increases of 24%
and 20%, respectively.
Management believes that the Company is uniquely positioned to take
advantage of these latest trends in the multi-billion dollar frozen food
business and a particular opportunity exists to develop new products in the
super premium frozen food sector, which management believes to be
underdeveloped. According to A.C. Nielsen, as quoted in the December 1995 FROZEN
FOOD EXECUTIVE, convenience and ease of preparation appear to be the most
important factors affecting purchases of frozen dessert items. The Company is
confident that its products can meet the growing consumer demand for partially
prepared food products which require only minimal final preparation at home.
The Company's Mrs. Fields Cookie Dough products have become a leader in the
frozen cookie dough market. According to Information Resources, Inc. ("IRI")
data, the frozen cookie dough category totaled only $3.5 million in sales in
1994 at a time when the Company had barely begun distribution of Mrs. Fields
Cookie Dough products. In 1995, category sales jumped to $7.2 million, an
increase of $3.7 million, or 107%. All of this
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increase was attributable to the growth in sales of Mrs. Fields' products, the
market share of which went to 49%, compared to 34.1% for Otis Spunkmeyer. In
1996, the category grew slightly to $7.3 million with Mrs. Fields commanding a
51% share of all unit sales in the category. Management believes that since the
bulk of its store distribution increases occurred in the last quarter of the
year, these sales figures indicate a significant upward trend in category
dominance by Mrs. Fields.
In the opinion of management, the only significant competitor in the frozen
cookie dough category is Otis Spunkmeyer, a Northern California based company,
which produces lower priced frozen dough cookies. Management believes that in
nearly all instances in which supermarkets offer both the Company's products and
Otis Spunkmeyer products, the Company's products outsell the Spunkmeyer
products.
BUSINESS STRATEGY
The Company will attempt to build a portfolio of highly profitable,
branded, premium food products. The Company believes an opportunity exists to
develop new products in the currently underdeveloped premium snack and
children's food categories. To achieve this goal, the Company will seek to
develop agreements which leverage underutilized brand equity, manufacturing and
distribution capacities to bring to market new foods which fulfill currently
unmet consumer needs. Thus, the Company is primarily a licensing company, and
intends to continue this method of operation.
Mrs. Fields Cookie Dough was the fastest growing product in the frozen
baked goods category, according to information compiled by IRI which appeared in
the January 1996 issue of THE FROZEN FOOD EXECUTIVE. The Company is confident
that this brand will continue to benefit from consumers' growing demand for
partially-prepared, quality food products, which consumers can finish preparing
at home. The Company intends to make a concerted effort to gain wider
distribution and acceptance of the current products. In accomplishing this goal,
the Company intends to concentrate on geographic regions which have longer
baking seasons, primarily the Northern states, and areas where Mrs. Fields
Cookie stores are most popular. In this regard, Mrs. Fields Cookies has recently
added 203 stores in areas where that company previously had little presence.
Supermarkets and club stores in these areas where Mrs. Fields is expanding its
presence will be prime targets of the Company's distribution program.
The Company recently introduced Mrs. Fields cookie ice cream sandwiches.
The Company also plans to develop additional products for the Mrs. Fields
super premium line. These products include, but are not limited to, assorted
cheesecakes and double fudge brownies. It is anticipated that as the number of
products and their sales increase, the Company will seek to establish dedicated
Mrs. Fields spaces in frozen foods sections of supermarkets similar to those for
equivalent products marketed by Weight Watchers and Sara Lee.
The Company's new management team has considerable experience in all
aspects of the supermarket industry. The Company believes it can generate quick
acceptance of its products by wholesalers and retailers, and thereby continue to
increase the number of outlets carrying the product line. Additionally,
management believes that the cachet provided by the Mrs. Fields brand name will
enable the Company to negotiate lower slotting fees. (Slotting fees must be paid
by most food product distributors in order to obtain shelf space or "slots" for
their products in retail stores).
In addition, the Company plans to acquire additional licenses to produce
other premium, branded food items. The Company has already obtained a
non-exclusive license to sell certain food products relating to the cartoon
character, Gumby, throughout the United States. Gumby freeze pops (a
popsicle-like product which is purchased at room temperature and frozen at home)
will be the first Gumby related product. Sales of this product will most likely
be greatest during the summer, which is currently the slowest sales period for
Mrs. Fields Cookie Dough products. Thus, the Company believes that sales of
cookie ice cream sandwiches and Gumby Pops will reduce the seasonality of the
Company's business. The Company plans to obtain one additional food license some
time in late 1997 or early 1998.
In introducing these new product lines, the Company intends to rely heavily
on its experiences gained in connection with the development, marketing,
production and distribution of the Mrs. Fields Cookie Dough products. The
Company anticipates that it will be able to use its existing channels to speed
acceptance of other products which it develops.
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MARKETING, SALES AND DISTRIBUTION STRATEGY
Beginning in September 1995, with the hiring of Mr. Thomas Kees as Chief
Executive Officer, the Company redirected its marketing efforts. Prior to that
time, the Company had utilized both in-store and out-of-store marketing methods.
In particular, newspaper coupons had been used with little success. The Company
determined that its marketing funds should be used solely for in-store marketing
whenever possible. This strategy of sales reliance on in-store marketing was
implemented and has continued to the present. The Company intends to continue
pursuing this course in the future.
The philosophy behind this strategy is that the Mrs. Fields, Gumby and
future licensed brand names are already well-known to the general public. For
example, according to a 1994 survey taken by the marketing firm of Corey,
Canapary & Galanis for Mrs. Fields Cookies, 94% of all consumers are familiar
with the Mrs. Fields brand name. According to the Corey, Canapary survey, large
expenditures for mass advertising in magazines, on television, and similar mass
media outlets are not cost effective and probably are not needed in view of the
broad recognition of the Mrs. Fields brand name. The Company has, therefore,
planned for only limited expenditures in these areas. Consumers who visit their
local supermarket and see that there is a Mrs. Fields Cookie Dough product
already have an opinion about the brand. The Corey, Canapary survey states that
in this case, the opinion most likely will be favorable.
In-store advertising, however, helps the consumer notice the product in the
freezer case. The main types of in-store advertising currently being utilized by
the Company will be continued over the next year. These advertising methods
include special discount price promotions to retailers (known as off-invoice
promotions), which are passed on to consumers, in-store coupons, product
advertising stickers to be placed on freezer cases and in-store bake offs
featuring in-store product preparation. Customers may then sample the product
while they shop. In-store bake offs have been a most effective marketing tool
for the Company. According to the 18th Annual Direct Survey of Consumers by the
Cox Market Research Group, nearly one half (47%) of those polled said they would
switch brands if they like a food sample provided to them. One hundred percent
of the grocery retailers surveyed by Corey, Canapary, found that although
product sampling is not the only factor in the consumer's purchasing decision,
it is an effective method by which to increase sales. An Internet marketing
program is also being designed for introduction in the Fall of 1997.
Mrs. Fields Cookie Dough is currently sold nationally in more than 63 of
the 347 leading supermarket retailer and wholesaler accounts ranked by sales,
according to PROGRESSIVE GROCER'S 1997 MARKETING GUIDEBOOK. The product is also
sold through the Sam's Club wholesale division of Wal-Mart Stores and in BJ's
and Costco club stores. The number of such accounts increased from 15 in the
fiscal year ended January 31, 1996, to 63 in fiscal year ended January 31, 1997.
Market penetration is a key goal of the Company, especially within the large
military commissary business. Additional retailers and wholesalers have also
committed to introduce the Mrs. Fields products in time for the Fall selling
season and several club stores have been targeted by the Company for
distribution. The Company has recently received orders for its Mrs. Fields
cookie ice cream sandwiches from the Southland Corporation to supply this
product to over 5,000 7-Eleven convenience stores.
In September 1995, the Company switched from distribution of its products
through Haagen-Dazs to direct distribution. The Company has no sales force.
Under the current marketing method, a network of food brokers acts as a sales
force. Personal direct contact between management and wholesalers and retailers,
along with similar contact between food brokers and the same entities, maximizes
product retail exposure. Management believes that product slotting is
fundamental to the success of any supermarket product and is further of the view
that slotting will be easier due to the perceived cachet of the Mrs. Fields
brand name.
CURRENT PRODUCTS
Management of the Company believes that its business strategy has a strong
foundation in the two quality name brand product licenses it already has. The
Company has an exclusive license to produce products under the Mrs. Fields brand
name including frozen cookie dough, frozen baked goods and other related frozen
food products. The Company also has a non-exclusive license to use the names and
likenesses of Gumby, Pokey and other characters and names derived from the
television series, "Adventures of Gumby" in conjunction with products including
freeze pops, beverage coolers and fruit forms. The Company has introduced the
first Gumby product and has received approval from Lucky Stores for Gumby Pops
for 185 stores in Northern California.
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Mrs. Fields Cookie Dough is a super premium quality product in which the
cookie dough is individually pre-formed and ready to bake. The recipe used in
making the dough is identical to the one used to bake the cookies sold in Mrs.
Fields Cookies retail stores. Currently, there are eight different Mrs. Fields
products marketed by the Company. These products include:
Semi-Sweet Chocolate Chip Cookies (1 lb.)
Semi-Sweet Chocolate Chip Cookies (3 lb.)**
Semi-Sweet Chocolate Chip Cookies with Walnuts (1 lb.)
White Chunk Macadamia Nut Cookies (1 lb.)
Oatmeal Raisin Cookies (1 lb.)
Holiday Cookie Baking Kit (3 lb.)*
Cookie Ice Cream Sandwiches***
Two Pound Chocolate Lover's Pack**
* The Holiday Cookie Baking Kit is marketed only in the Christmas
season which extends from approximately the end of October to the
New Year holiday in each year.
** The two and three pound size is marketed only to club stores.
*** Not currently sold in Mrs. Fields Cookies Stores.
NEW PRODUCTS
All new product concepts are developed by the Company, taking into
consideration the value of the existing brand, how the new product might
leverage the brand's strength and consumer demand for the product.
MRS. FIELDS PRODUCTS
At least seven new Mrs. Fields super premium products will be added by the
Company during 1997. Some of these products currently can be found in Mrs.
Fields Cookies retail stores, and some will be exclusive to the Company, but
will still carry the Mrs. Fields brand name. A list of these products and
currently estimated product introduction dates (calendar year) appears below:
Triple Chocolate Cookies (1 lb.) 3rd Qtr. 1997
Cheesecakes-various flavors* 3rd Qtr. 1997
Double Fudge Brownies 4th Qtr. 1997
Muffins 1st Qtr. 1998
Macadamia Nut Waffles* 1st Qtr. 1998
Chocolate Chip Pancakes* 1st Qtr. 1998
Cinnamon Rolls 1st Qtr. 1998
* Not currently sold in Mrs. Fields Cookies
stores. These products are being formulated and
developed by the Company, and do not use
existing Mrs. Fields recipes, although they will
carry the Mrs. Fields brand name.
GUMBY PRODUCTS
The Company has recently acquired a non-exclusive license to sell certain
food products relating to the animated character, Gumby, throughout the United
States. Management believes this is the first time a license to produce Gumby
food products of any type has been issued. The Gumby family of characters has
been well accepted by the American public for 40 years. There is a Gumby fan
club, a daily television show on the Nickelodeon cable channel and numerous
branded Gumby toys are sold in retail outlets. In addition, a Gumby movie is
currently in production and Gumby is also appearing on television commercials
for Frosted Cheerios.
The Company believes it can capitalize on this brand name popularity to
generate significant sales. The Company intends to produce several Gumby
products including freeze pops (frozen ice treats similar to a popsicle in
flavor), beverage coolers (fruit beverages for children) and fruit forms (dried
fruit snacks).
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The first Gumby product to be introduced will be the freeze pops. Gumby
freeze pops contain liquid in 1 to 2 oz. plastic tubes, which are purchased at
room temperature and frozen at home before consumption. The pops are eaten by
tearing the top from the tube and squeezing the frozen liquid gradually upward.
Gumby freeze pops provide a key potential benefit to the Company. Sales of
the product will most likely be greater during the summer, which is currently
the slowest sales period for Mrs. Fields Cookie Dough products. Thus, the
seasonality of the Company's business should be reduced. Lucky Stores of
Northern California have recently approved Gumby freeze pops for distribution in
185 stores beginning July 1997.
Freeze pops will not be sold in a frozen state. They are shelf stable and
will be sold at room temperature and frozen at home by the consumer. Thus, the
number of potential outlets for product distribution is far greater than for
typical frozen desserts. Management believes that toy stores are a viable outlet
for the product, as are mass merchandise stores such as K-Mart and Wal-Mart.
Additionally, because the freeze pops are not frozen, off-shelf end displays can
be utilized to increase exposure. The Company appears to have three major
competitors in the freeze pop area: Kraft Foods, Jel Sert, and Otter Pops
(recently acquired by Jel Sert). There is no reliable information available
regarding the current market size for this relatively new food type. However,
the Company estimates it to be in the $50 million to $100 million range. The
other products (except for Otter Pops) are sold primarily in the Midwest and
Northeast. Since the competing products do not have licensed characters
associated with their brands, and since Gumby is quite popular with children,
the Company expects the Gumby product to enjoy high name recognition which will
facilitate customer acceptance and market penetration.
OTHER LICENSED PRODUCTS
The Company intends to acquire at least one additional license to produce a
product line which fits the Company's product profile (well recognized branded
food products), most likely in late 1997 or early 1998.
LICENSING AGREEMENTS
MRS. FIELDS
In August 1994, the Company and Mrs. Fields entered into a licensing
agreement ("the Mrs. Fields License") whereby the Company was awarded the
exclusive right and license to use the Mrs. Fields Cookies, Mrs. Fields Cookies
and Brownies and Mrs. Fields names and trademarks in any format (the License
Names and Marks as defined by the Mrs. Fields License) to market cookies,
muffins, brownies, pound cakes, baked goods, and frozen dessert items including
ice cream containing Mrs. Fields Cookie Dough (the "Royalty Bearing Products")
throughout North America, Hawaii and Puerto Rico (the "Territory") relying on
grocery stores, supermarkets, convenience stores and club stores as distribution
channels. The license does not include the ice cream novelty markets for Canada.
The Mrs. Fields License is scheduled to last through December 31, 1999 (the
"Initial Term") with the Company having an option to extend the Mrs. Fields
License for five (5) five year periods (the "Option Periods") until December 31,
2024. Mrs. Fields may terminate the Mrs. Fields License in any Option Period by
providing written notice to the Company of its intent to do so by the end of
such Option Period. In the event Mrs. Fields exercises its right to terminate
the Mrs. Fields License, it must pay to the Company an amount equal to three
times the average gross margin for sales reported by the Company for the last
three years of the Option Period in which such notice of termination is given.
The amount determined to be due shall be payable over three years in twelve
equal quarterly payments.
The Company also has the right of first refusal to acquire the exclusive
license for the sale of Royalty Bearing Products in the Territory, and to
acquire the exclusive license to sell in the Territory and to include in the
definition of Royalty Bearing Products all other non-frozen products, at an
amount equal to 75% of the sales price offered by a third party, and on the
terms set forth in writing by any bona fide ready, willing and able licensee
("First Offer"). The Company also has the right of first refusal to acquire the
license to sell in the Territory all other frozen food products including ice
cream at an amount equal to 75% of the price and on the terms set forth by any
prospective licensee.
The Company has the right to expand the definition of Territory to include
additional areas, at no additional cost.
The Company is obligated to sell a minimum number of cases of Royalty
Bearing Products during the Initial Term (the "Minimum Volume Commitments"),
and, if the license is extended, in Option Periods. Pursuant to the
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amendment to the Mrs. Fields License entered into in March 1996, the Minimum
Volume Commitment beginning January 1, 1997 for the 1997 calendar year is
285,000 twelve pound equivalent cases, increasing over the life of the Mrs.
Fields License to 583,434 twelve pound equivalent cases in 2015, continuing at
that level for the remainder of the Mrs. Fields License. To the extent that the
Company does not meet the Minimum Volume Commitment to maintain the Mrs. Fields
License, it shall be required to pay the royalty which would otherwise have been
earned by Mrs. Fields on the amount of the shortfall from the Minimum Volume
Commitment for the relevant period. The Company sold 135,213 and 161,463 twelve
pound equivalent cases during the calendar years ended December 31, 1995 and
1996, respectively. While no assurance can be provided that these Minimum Volume
Commitments will be achieved, the Company is of the view that it can meet the
requirements of the Mrs. Fields License during its term.
In addition to complying with any and all applicable laws, the Company must
seek Mrs. Fields' approval before selling any Royalty Bearing Product, provide
Mrs. Fields with a written summary of customer complaints regarding the quality
of products, and purchase ingredients from sources approved by Mrs. Fields. Mrs.
Fields also has the right to request samples of any Royalty Bearing Product
being sold by the Company free of charge. The Company has the duty to obtain and
keep in force product liability insurance in favor of Mrs. Fields.
The Company is in full compliance with all provisions of the Mrs. Fields
License.
GUMBY
In September 1996, the Company and AJM Marketing Enterprises, Inc. ("AJM")
entered into a licensing agreement (the "Gumby License") whereby the Company was
awarded the non-exclusive right and license to use certain Names and Characters
(Gumby, Pokey, and other characters derived from the television show "Adventures
of Gumby") to market freezer pops, beverage coolers and fruit forms (the
"Licensed Products") throughout the United States and its territories and
possessions (the "Gumby Territory"). The Name and Characters will be marketed
through grocery stores, supermarkets, convenience stores, club stores, toy
stores and drug stores and mass merchandise stores such as K-Mart and Wal-Mart.
Following the Company's initial payment of $12,500, the Company is
obligated to pay an additional $112,500 by August 31, 1998, which is also the
date the license terminates unless renewed by the parties for an additional two
year period.
The Company must seek written approval from AJM before selling any licensed
product. AJM has the right to request samples of the Licensed Products from the
Company free of charge. The Company has complied with the requirement to begin
the manufacture, distribution and sale of fruit forms, beverage coolers and
freezer pops by February 1997. The Company must maintain a product and personal
liability insurance policy in the amount of $1,000,000 in favor of the Company
and AJM which is currently in effect. The Company has begun the actual
manufacture and ordering of product to establish an inventory in anticipation of
orders, such as the order from Lucky Stores of Northern California. The Company
believes it is in full compliance with all provisions of the Gumby License.
MANUFACTURING
Contract manufacturing for Mrs. Fields Cookie Dough products is provided by
Van den Bergh. Van den Bergh manufactures these products according to Mrs.
Fields specifications. The Company believes that the informal agreement with Van
den Bergh is beneficial to the Company and unusual in the food industry. This
agreement generally allows the Company to have its products produced without any
advance payments to Van den Bergh for manufacturing or packing. Distribution of
products is managed directly between the co-packer (Van den Bergh) and
warehouses on a contract trucking basis. Van den Bergh is listed as the vendor
of record with retailers and such retailers pay to Van den Bergh the gross sales
price for the product. Van den Bergh, in turn, pays the Company the net proceeds
after deducting manufacturing and other costs, markup and $2 per case in payment
of the Van den Bergh Obligation. Therefore, no up-front cash outlay by the
Company is generally required for manufacturing. Accounts receivable credit risk
exposure from retail customers is assumed by Van den Bergh, except that the
Company is liable to Van den Bergh for the Company's gross margin on
uncollectible receivables and spoiled inventory. The Company has entered into an
agreement with a Canadian company to manufacture, package, label and distribute
Gumby Pops.
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The Company has reached an agreement in principle with a company in New
Jersey to manufacture, package, label and distribute its Mrs. Fields cookie ice
cream sandwiches. No assurances can be given that a definitive agreement will be
entered into by the parties.
OBLIGATIONS ARISING OUT OF DISCARDED INVENTORY
The Company is engaged in negotiations with Van den Bergh to restructure
its agreements to repay the original aggregate sum of approximately $2,500,000,
claimed to be owing as a result of the over ordering of cookie dough during
1994. The cookie dough was either discarded by Van den Bergh due to obsolescence
or reworked and sold to reduce the loss (the "Van den Bergh Obligation"), which
obligation has been reduced to approximately $1,398,000 at January 31, 1997.
[Update] The Company and Van den Bergh have agreed to continue the arrangements
which have been followed since March of 1995, whereby Van den Bergh is deducting
from the Van den Bergh Obligation $2.00 per case delivered on behalf of the
Company. In December 1996, Van den Bergh offered to place a ceiling of
$1,000,000 on the remaining amount claimed as due. The Company is continuing its
negotiations with Van den Bergh to obtain a further discount for early payoff of
the obligation. However, neither such ceiling amount nor a further reduction for
early payoff have yet been reduced to a formal written agreement.
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Registration Statement contains forward-looking statements and
information that is based upon management's beliefs and assumptions, as well as
information currently available to management. When used in this document the
words "anticipates," "estimates," "believes," "expects," "intend" and similar
expressions are intended to identify forward-looking statements. Such
forward-looking statements involve known and unknown risks, uncertainties and
other factors which may cause the actual results, performance or achievements of
the Company, or industry results, to be materially different from any future
results, performance or achievements or expectations expressed or implied by
such forward-looking statements. Among the key factors that may have a direct
bearing on the Company's operating results are fluctuations in the economy, the
degree and nature of competition, acceptance of, and demand for, frozen baked
goods, the Company's ability to locate and obtain other licenses and the success
of the Company's expansion strategy. The Company disclaims any obligation to
update any such factors or to announce the result of any revisions to any of the
forward-looking statements contained herein to reflect future developments.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
INTRODUCTION
Management's discussion and analysis of financial condition and results of
operations is designed to provide a better understanding of significant changes
and trends related to the Company's financial condition, results of operations,
liquidity, and capital resources. The discussion should be read in conjunction
with, and is qualified in its entirety by, the Financial Statements of the
Company and Notes thereto. The Company's fiscal year ends on January 31st of
each year.
The ability of the Company to continue as a going concern is contingent
upon its ability to complete the private equity Offering. In addition, the
problems, expenses and general difficulties related to entry into already
established markets or the creation of new markets are factors which must be
considered in connection with the Company's ability to continue as a going
concern.
BACKGROUND
The Company currently markets Mrs. Fields super premium frozen cookie dough
products and cookie ice cream sandwiches, which are distributed throughout North
America in supermarkets, club stores, convenience stores such as 7-Eleven and
other mass merchandisers and has commenced the same with respect to the Gumby
freeze pops. The Company intends to expand the channels of distribution for its
Mrs. Fields products and others which are developed to include military
commissaries, drug stores, convenience stores, toy stores and mass merchandise
stores such as K-Mart and Wal-Mart.
The Company holds an exclusive license from Mrs. Fields Development
Corporation for frozen cookie dough, frozen baked goods and other dessert
products. The initial term is for a period of five years, expiring in December
1999. The Company has the option to extend the Mrs. Fields License for five
consecutive five-year periods, expiring in December 2024. Mrs. Fields may
terminate the Mrs. Fields License during each option period by providing written
notice of its intention to do so at the expiration of such option period and
paying to the Company an amount equal to three times the average gross margin
for sales reported by the Company over the last three years of the then current
option period. Additionally, the Company holds a non-exclusive license for the
Gumby family of characters for food and beverage products such as freeze pops,
beverage coolers and fruit roll-up products.
The Company is also currently seeking to add other well recognized brands
to its portfolio and to utilize copackers to help reduce overhead costs.
8
<PAGE>
The results discussed herein reflect only sales of the Mrs. Fields Cookie
Dough products. During the Company's most recent fiscal year, the number of
supermarket retailer and wholesaler accounts carrying the Company's Mrs. Fields
products increased from 15 accounts to 63 accounts, an increase of 320%. These
Mrs. Fields products are now sold in over 40 major markets in the United States.
The Company expects to continue to expand its store base by enhancing the
sales prospects not only for its Mrs. Fields products, but to provide a network
for the introduction of new items within the Mrs. Fields line and for new brands
such as Gumby.
Throughout management's discussion of results one of the most significant
factors affecting operating results is the change in distribution methods from
direct store delivery through Haagen-Dazs, the Company's distributor through
October 1995, to direct warehouse delivery. From fiscal year end 1996 to fiscal
year end 1997, the number of cases sold of Mrs. Fields Cookie Dough increased
from 132,525 to 177,574 resulting from the expansion in the number of retail
outlets and increased product recognition. During the same period, average gross
revenue per case increased from $25.36 to $27.17, largely as a result of the
change in distribution methods and increased economies of scale.
RESULTS OF OPERATIONS
The following table sets forth selected statement of operations data of the
Company expressed as a percentage of sales for the periods indicated:
<TABLE>
<CAPTION>
PERCENTAGE OF SALES
FOR THE YEARS ENDED
JANUARY JANUARY
31, 1996 31, 1997
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Sales......................................................................... 100.0% 100.0%
Cost of Goods Sold............................................................ 67.0 64.0
Gross Profit.................................................................. 33.0 36.0
Operating Expenses:
Marketing expenses............................................................ 19.1 20.6
General and administrative expenses........................................... 18.6 17.7
Operating (Loss).............................................................. (4.7) (2.3)
Interest and other............................................................ 2.2 13.4
Net (Loss).................................................................... (6.9) (15.7)
</TABLE>
COMPARISON OF YEAR ENDED JANUARY 31, 1996, TO YEAR ENDED JANUARY 31, 1997
REVENUES. Revenues increased from $3,289,347 for the fiscal year ended
January 31, 1996, to $4,824,706 for the fiscal year ended January 31, 1997, an
increase of 46.6 %. All revenues were generated from sales of Mrs. Fields Cookie
Dough. This sales increase was due primarily to the increase in the number of
supermarket retailer and wholesaler outlets carrying the Company's products from
15 accounts in the fiscal year ended January 31, 1996, to 63 accounts in the
fiscal year ended January 31, 1997, including the BJ and Costco club store
accounts.
COST OF GOODS SOLD. Cost of Goods Sold was $2,202,783 for the fiscal year
ended January 31, 1996, and $3,087,833 for the fiscal year ended January 31,
1997. These totals represent 67.0% and 64.0% of revenues respectively. The
primary reason for this percentage decrease was an increase in direct sales
which have a better profit margin for the Company, for the fiscal year ended
January 31, 1997 as compared to fiscal year ended January 31, 1996. Direct sales
commenced in August 1995. The Company's cost of production from the manufacturer
remained the same for both years.
GROSS PROFIT. The Company's gross profit for the fiscal year ended January
31, 1996, was $1,086,564. Gross profit for the fiscal year ended January 31,
1997, totaled $1,736,873. The comparative gross profit as a percent of sales was
33.0% and 36.0% for the fiscal years ended January 1996 and 1997, respectively.
These were a result of the change in distribution methods, as described above.
9
<PAGE>
MARKETING. Marketing expenses were approximately $628,000 for the fiscal
year ended January 31, 1996, and $992,000 for the fiscal year ended January 31,
1997. These expenses represent 19.1% and 20.6% of revenues, respectively. This
increase in marketing expenses is attributable to the addition of new stores and
market expansion costs associated with the approximate three fold increase in
accounts carrying the Company's Mrs. Fields Cookie Dough products during the
fiscal year ended January 1997.
SEASONALITY. Sales of Mrs. Fields Cookie Dough have been seasonal, with
higher sales during the traditional baking months of September to March.
Therefore, sales tend to be higher during the first and fourth quarters of each
fiscal year. As a result, fixed overhead, primarily general and administrative
expenses, has represented a disproportionate percentage of revenues during the
second and third quarters of each fiscal year. The Company introduced Gumby
freeze pops and Mrs. Fields cookie ice cream sandwiches in July 1997 which will
generate additional revenues during the months of decreased sales of cookie
dough.
GENERAL AND ADMINISTRATIVE. The Company's general and administrative
expense was approximately $612,000 for the fiscal year ended January 31, 1996,
and $854,000 for the fiscal year ended January 31, 1997. This represents a
percentage of sales of 18.6% and 17.7% respectively. This increase of
approximately $242,000 is primarily attributable to the hiring of a Chief
Financial Officer and a Senior Vice President of Marketing and Sales in February
1996, and a Chief Executive Officer in September 1995. Accordingly, for the
fiscal year ended January 1996, only five months of the Chief Executive
Officer's salary was reflected as compared to twelve months of salary reflected
for the fiscal year ended January 1997.
OPERATING LOSS. The operating loss of the Company for the fiscal year ended
January 31, 1996, was $(153,177) as compared to $(109,818) for the fiscal year
ended January 31, 1997. As a percentage of sales, operating loss decreased from
4.7% for the fiscal year ended January 31, 1996, to 2.3% for the fiscal year
ended January 31, 1997. This decrease in operating loss was primarily
attributable to increased revenues.
INTEREST EXPENSE. Interest expense increased from approximately $52,200 for
the fiscal year ended January 31, 1996, to $622,800 for the fiscal year ended
January 31, 1997. This increase was due primarily to the amortization of debt
issuance costs of approximately $470,000, as well as the Company's incurring
approximately $850,000 of additional interest bearing debt during the fiscal
year ended January 31, 1997.
NET LOSS. Net loss for the fiscal year ended January 31, 1996, was
$(227,390), while the net loss for the fiscal year ended January 31, 1997 was
$(757,703). The difference in net loss between the two years is primarily
attributable to an increase of interest expense of $570,554 from the fiscal year
ended January 1996 to 1997. In addition, during the 1997 fiscal year additional
management staff was hired.
COMPARISON OF THREE MONTHS ENDED APRIL 30, 1996, TO THREE MONTHS
ENDED APRIL 30, 1997.
REVENUES. Revenues were approximately $883,000 and $1,249,000 for the three
months ended April 30, 1996 and 1997, respectively. The percentage of sales
increase for the period from 1996 as compared to 1997 was 41.5%. All sales were
generated from the sales of Mrs. Fields Cookie Dough. The increase was primarily
attributable to the increase in the number of supermarket retailer and
wholesaler outlets carrying the Company's product.
COST OF GOODS SOLD. Cost of goods sold were approximately $535,000 and
$743,000 for the three months ended April 30, 1996, and 1997, respectively.
These totals represent 60.6% and 59.5% of revenues, respectively with the
decrease primarily attributable to declining use of off-invoice discounts. The
Company's per case cost of production from the manufacturer remained the same
for both periods.
GROSS PROFIT. The Company's gross profit increased by approximately
$158,000 from approximately $348,000 for the three months ended April 30, 1996,
as compared to approximately $506,000 for the three months ended April 30, 1997.
The comparative gross profit percentages were 39.4% and 40.5% as of April 30,
1996 and 1997, respectively. The increase was primarily attributable to
increased sales.
MARKETING. Marketing expenses were approximately $157,000 for the three
month period ended April 30, 1996, and approximately $261,000 for the three
month period ended April 30, 1997. These expenses represent 17.8% and 20.9% of
revenues, respectively. The increase in marketing expenses is attributable to
the increased use of in-store promotions and the addition of new markets and
stores with related expansion costs.
10
<PAGE>
GENERAL AND ADMINISTRATIVE. The Company's general and administrative
expense increased from approximately $174,000 to $216,000 for the three month
period ended April 30, 1996 and 1997, respectively. These totals represent 19.8%
and 17.3% of revenues, respectively. The increase is primarily attributable to
additional salary expense resulting from a shift from part-time to full-time
status by certain officers, which was only partially offset by reductions in
other expenses.
OPERATING PROFIT. The operating profit of the Company was approximately
$16,000 for the three months ended April 30, 1996, as compared to approximately
$28,000 for the three months ended April 30, 1997. These totals represent 1.8%
and 2.3% of revenues for the three months ended April 30, 1996 and 1997,
respectively. The slight increase in operating profit is primarily attributable
to increased revenues offset by increased marketing expenses and salary expenses
associated with the general and administrative category.
INTEREST EXPENSE. Interest expense was approximately $92,000 and $184,000
for the three month periods ended April 30, 1996 and 1997, respectively. These
expenses represent 10.4% and 14.7% of revenues for the three month periods ended
April 30, 1996 and 1997, respectively. Of the comparative expenses,
approximately $15,000 and $46,000, respectively, was attributable to the
increase in principal amounts with respect to the PAG and C Brands debt
obligations from $565,000 at April 30, 1996 to $1,217,500 at April 30, 1997.
The additional increase in interest expense is attributable to the amortization
of debt issuance costs which were approximately $71,000 and $131,000 for the
three month periods ended April 30, 1996 and 1997, respectively.
NET LOSS. The net loss for the three month period ended April 30, 1996, was
approximately $(85,000) as compared to approximately $(166,000) for the same
period ended April 30, 1997. Although operating profits were slightly higher for
the three month period ended April 30, 1997, as compared to the period ended
April 30, 1996, the increase in net loss is primarily attributable to the
increase in interest expense in the April 30, 1997, as compared to April 30,
1996.
LIQUIDITY AND CAPITAL RESOURCES.
The Company has primarily financed its activities through the issuance of
common stock and debt. The cumulative losses from the Company's inception
through April 30, 1997, total $(4,803,797) with a total shareholders' deficit
of $(677,981) as of April 30, 1997.
Current liabilities exceeded current assets by $(2,203,282) and
$(1,939,734) as of April 30, 1997, and January 31, 1997, respectively. From
January 31, 1997, to April 30, 1997, current assets increased by approximately
$87,000 and current liabilities increased by approximately $350,000. The
increase in current liabilities is primarily attributable to the borrowings
under the DayStar Credit Facility which increased from zero to approximately
$225,000 from January 31, 1997, to April 30, 1997. Long-term liabilities
decreased by approximately $86,000 from January 31, 1997 to April 30, 1997. Upon
closing of the private equity Offering, $622,500 of debt attributable to
C.Brands will be converted into 124,500 shares of common stock of the Company.
Management anticipates satisfying certain liabilities from the proceeds of the
private equity offering, including the DayStar Credit Facility, the supplemental
DayStar borrowing of $400,000 (the "Supplemental DayStar Credit Facility") and
certain other outstanding debt. Accounts payable at April 30, 1997 includes
approximately $422,000 of debt incurred by prior management, primarily in
unsuccessful development of the Odwalla juice bars. The debt dates back to
mid-year, 1994. During the fiscal year ended January 31, 1997, creditors which
demanded payment were able to substantiate $4,500 as being valid debt and it was
paid by the Company. No such payables were presented, or paid, by the Company
during the three months ended April 30, 1997. As such, management estimates the
Company may pay an amount less than the $422,000 accrued. The exact amount which
will eventually by paid on these contested liabilities is not currently
determinable.
The negative effects of the Company's lack of liquidity were mitigated by
the cooperation of its manufacturer, Van den Bergh, which was owed approximately
$1,398,000 for spoiled inventory as of January 31, 1997. Repayments of
approximately $93,000 reduced the obligations to approximately $1,305,000 as of
April 30, 1997. The manufacturer has agreed to accept repayment from the
Company's future sales.
During the fiscal year ended January 31, 1997, and the three month period
ended April 30, 1997, the Company has been able to meet its trade payable
obligations when due. Management anticipates that existing products will
generate adequate cash to fund operational overhead, exclusive of new product
development. Funds for new product development are anticipated from the
proceeds of the private equity Offering.
As of April 30, 1997, the Company held three notes, originally issued in
1994, payable to two unrelated parties and a third party that is currently the
beneficial owner of in excess of 5% of the common Stock, totaling $60,000 in
principal amount. The Company intends to repay these obligations from the
proceeds of this Offering.
11
<PAGE>
FACILITIES
The Company's headquarters are located at 2200-B Douglas Blvd., Suite 130,
Roseville, California 95661, and its telephone number is (916) 782-2029. The
facility consists of 1,500 square feet of office space shared with Capitol Bay
Securities (See "Certain Transactions") which is leased under a month to month
arrangement expiring in September 1997. Arrangements have been made to relocate
the headquarters to a new building being constructed by an entity in which
Messrs. Kees and Kircher are principals. The lease for such new premises will be
on terms and conditions which are no less favorable than those prevailing for
similar premises in the area. The Company considers that these facilities are
and will be adequate for its purposes, as all manufacturing activities are
currently performed off-site. It is anticipated that similar manufacturing
arrangements will be entered into with respect to any other products sold by the
Company. See "Certain Transactions."
12
<PAGE>
PRINCIPAL SHAREHOLDERS
The following sets forth certain information regarding beneficial ownership
defined in Item 403 of Regulation S-B under the Act) of Common Stock as of after
giving effect to the 1:10 reverse stock split effective October 31, 1996 and as
adjusted to reflect the Offering (i) each executive officer of the Company by
each person who is known by the Company to beneficially own more than five
percent of the Common Stock, (ii) each director of the Company by each of the
Company's directors, (iii) by all executive officers and directors as a group,
and (iv) each person or entity known by the Company to be the beneficial owner
of more than five percent of the Common Stock. Except as otherwise indicated,
the persons named in the table have sole voting and investment power with
respect to all shares beneficially owned, subject to community property laws
where applicable. All of the calculations below assume the 65,100 Note Shares
are outstanding and that the total number of shares of Common Stock outstanding
is 4,487,645, and include 1,600,000 shares of Common Stock offered in the
private equity offering, and exclude the exercise of the Placement Agent's
Over-Allotment Option, shares of Common Stock underlying the Placement Agent's
Warrants, 145,000 shares of Common Stock underlying certain warrants, shares
underlying warrants issuable to DayStar and additional shares issuable to PAG
pursuant to the PAG Restatement. See "Recent Financing Transactions."
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
NAME AND ADDRESS OF OWNED (1) PERCENTAGE
BENEFICIAL OWNER (2) NUMBER OWNED (1)
<S> <C> <C>
EXECUTIVE OFFICERS AND DIRECTORS:
Thomas E. Kees (3)............................................................. 400,000 8.91%
Craig C. Connerty (3).......................................................... 60,000 1.34%
Michael E. Banks (3)........................................................... 60,000 1.34%
Steven Riccardelli (3)......................................................... 60,000 1.34%
Arthur L. Patch................................................................ 2,000* 0.04%
All directors and officers as a group.......................................... 582,000 12.97%
OTHER 5% SHAREHOLDERS:
Gregory B. Plunkett (4)........................................................ 400,000 8.91%
c/o Tobin & Tobin
1 Montgomery Street, 15th Floor
San Francisco, CA 94102
Douglas Shannon (4)............................................................ 200,000 4.46%
P.O. Box 1959
Aptos, CA 94102
BKP Partners (4)............................................................... 282,256 6.29%
Citicorp Center, Suite 3900
One Sansome Street
San Francisco, CA 94102
PAG (5)........................................................................ 190,000 4.23%
21800 Burbank Blvd., Third Floor
Woodland Hills, CA 91367
CBG Partnership (6)............................................................ 196,667 4.38%
100 The Embarcadero, Penthouse
San Francisco, CA 94105
C Brands (4) (7)............................................................... 224,500 5.00%
2200-B Douglas Blvd., Suite 100
Roseville, CA 95661
Capitol Bay Group (4) (7)...................................................... 298,090 6.64%
2200-B Douglas Blvd., Suite 100
Roseville, CA 95661
Stephen C. Kircher (4) (7)..................................................... 298,090 6.64%
2200-B Douglas Blvd., Suite 100
Roseville, CA 95661
</TABLE>
* Less than 1%
13
<PAGE>
(1) Unless otherwise indicated, each person has sole investment and voting power
with respect to the shares indicated. For the purpose of this table, a
person or group of persons is deemed to have "beneficial ownership" as of a
given date of any shares which such person has the right to acquire within
60 days after such date. For purposes of computing the percentage of
outstanding shares held by each person or group of persons named on a given
data, any security which such person has the right to acquire within 60 days
after such date is deemed to be outstanding for the purpose of computing the
percentage ownership of such person or persons, but is not deemed
outstanding for the purposes of computing the percentage ownership of any
other person.
(2) Where no address is indicated, the address is in care of the Company.
(3) Represents Stock Purchase Shares as to which the holder possesses full
voting power pursuant to the Employee Stock Purchase Plan, but which may not
be sold, transferred, pledged or otherwise disposed of, except upon issuance
of a Certificate of Vesting by the Board of Directors and payment by the
holder of amounts due under such holder's Purchase Note. As of June 1, 1997,
70,000 and 35,000 Stock Purchase Shares vested with respect to Messrs. Kees
and Riccardelli respectively. As of May 1, 1997, 25,000 Stock Purchase
Shares vested with respect to each of Messrs. Banks and Connerty. See
"Management-Employee Stock Purchase Plan."
(4) Mr. Plunkett has disputed the validity of the 200,000 shares shown as held
by Mr. Shannon, 70,000 shares shown as held by BKP Partners and 108,500
shares shown as held by Capital Bay Group, C Brands and Mr. Kircher and
claims that his shareholdings are 930,000 shares. The Company believes that
such claims by Mr. Plunkett are without merit and believes the information
set forth in this table is accurate. See "Potential Litigation with
Founder."
(5) The percentage of shares shown as held by PAG before the Offering were
issued in consideration for services rendered to the Company by PAG pursuant
to a Bridge Loan and Consulting Agreement PAG has advised the Company that,
except with respect to 47,020 shares held for its own account, PAG disclaims
beneficial ownership of the 142,980 shares listed above as owned by it. The
shares as to which PAG has disclaimed beneficial ownership were acquired for
the benefit its shareholders and certain of its officers and directors. PAG
disclaims beneficial ownership to all but 47,020 shares listed above as
owned by it. See "Recent Financing Transactions."
(6) Includes 13,333 shares of Common Stock and 10,000 Note Shares held by Mr. W.
Bruce Berkovich, a partner of the CBG Partnership.
(7) Mr. Stephen C. Kircher, the manager of C Brands and president of Capitol Bay
Group, is the beneficial owner of 9,000 shares. Mr. Kircher disclaims
beneficial ownership of the 224,500 shares held by C Brands and 64,590
shares held by Capitol Bay Group. The total number of shares held by C
Brands, Capitol Bay Group and Mr. Kircher, as an individual, totals 298,090.
The 224,500 shares held by C Brands includes 124,500 shares issuable upon
conversion of the C Brands Notes at the close of the private equity
Offering, which amounts are included in those shown for Capitol Bay Group
and Mr. Kircher.
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table sets forth certain information regarding directors and
executive officers of the Company
<TABLE>
<CAPTION>
NAME AGE POSITION
<S> <C> <C>
Thomas E. Kees 46 President, Chief Executive Officer,
and Chairman of the Board
Michael E. Banks 49 Senior Vice-President of Marketing
and Sales
Craig C. Connerty 40 Chief Financial Officer, Treasurer
and Secretary
Steven Riccardelli 32 Vice-President of Operations
Arthur L. Patch 56 Director
</TABLE>
14
<PAGE>
THOMAS E. KEES, President, Chief Executive Officer, and Chairman of the Board of
Directors
Thomas E. Kees has served as the President, Chief Executive Officer and
Chairman since September 1, 1995. From 1994 to 1995 he was the Senior Vice
President of Retail Development at A.C. Nielsen where he founded and chaired the
Nielsen Retail Advisory Board. Mr. Kees served as Executive Vice-President of
Raley's Supermarkets and Drug Centers, a regional sales operator of 85 stores in
Northern California and Nevada, from 1992 to 1994. From 1990 to 1992, he was
Senior Vice-President of Apple Tree Markets, Houston, Texas, a 94 store chain in
the Southwest. Previously, Mr. Kees was Vice-President, Grocery Marketing for
Lucky Stores for over 20 years. During that time his responsibilities included
supervision of buying, merchandising and advertising for 180 stores in Northern
California. Mr. Kees holds a Bachelor of Science in Education from Oregon State
University, a Master of Arts Degree from the University of California at
Berkeley, and a Masters in Business Administration from St. Mary's College.
MICHAEL E. BANKS, Senior Vice-President of Marketing and Sales
Mr. Banks has served with the Company since February 1996. In 1995 he
served as the President of AdPix, a digital imaging and archiving firm. From
1993 to 1994, he was the Vice President of Advertising for Raley's Supermarkets.
From 1988 to 1993 he was responsible for marketing the Checkout Coupon product
for Catalina Marketing. During this time the number of store installations grew
from 1,500 to 6,000. Mr. Banks has been the leader for advertising agency teams
that won numerous awards including a gold CLIO (for best computer animated
commercial), and a Golden Effy (for advertising effectiveness) from the American
Marketing Association. Mr. Banks was also the leader of the advertising team
responsible for the DANCING RAISINS campaign for the Raisin Advisory Board. Mr.
Banks holds a Bachelor's Degree in Marketing and Advertising from the University
of Kansas and has completed graduate work at the University of Texas.
CRAIG C. CONNERTY, Chief Financial Officer, Treasurer and Secretary
Mr. Connerty became the Chief Financial Officer in February 1996. He is a
certified public accountant and has sixteen years of experience in public
accounting, ten of those years as a partner in the Northern California
accounting firm of Douglas, Connerty & Company Certified Public Accountants. His
focus was in the fields of taxation, consulting and litigation. Mr. Connerty
holds a Bachelor's degree from the University of California at Los Angeles. He
is a member of the American Institute of Certified Public Accountants and the
California Society of Certified Public Accountants.
STEVEN RICCARDELLI, Vice-President of Operations
Mr. Riccardelli has been with the Company since 1994. From 1991 to 1994 he
was an Account Executive with Goldberg Moser O'Neil Advertising in San Francisco
where his clients included Dreyer's Grand Ice Cream and Sutter Home Winery. Mr.
Riccardelli also spent five years as an Account Executive and Media Planner with
Jordan McGrath Case & Taylor Advertising in New York, where he worked with
accounts for large food and consumer products companies. He holds a Bachelor of
Arts from Tulane University in New Orleans.
ARTHUR L. PATCH, Director
Mr. Patch was elected to the Board of Directors in October 1996. Since
1992, Mr. Patch has served as Vice President of Operations for Save Mart
Supermarkets in Modesto, California, a company with annual sales of $1.2
billion. From 1989 to 1992, Mr. Patch was President and Chief Executive Officer
of Apple Tree Markets in Houston, Texas.
BOARD OF DIRECTORS
ADDITION OF DIRECTORS
The Board of Directors currently consists of two members, Thomas E. Kees,
and Arthur L. Patch with two vacancies: . The Company intends to expand
the size of the Board and appoint three additional directors who will not be
employees of the Company. The Company also intends to establish an audit
committee which will be comprised of at least two independent directors.
DIRECTOR COMPENSATION
The Company reimburses its directors for travel and out-of-pocket expenses
in connection with their attendance at meetings of the Board of Directors. The
Company intends to establish a compensation committee.
15
<PAGE>
EMPLOYEE STOCK PURCHASE PLAN
The Company's Board of Directors adopted and ratified an Employee Stock
Purchase Plan (the "Plan") October 18, 1996, as amended in June, 1997, in which
all employees of the Company are eligible to participate. Each employee
designated to participate (a "Participant") by the Board of Directors is
required to enter into a Restricted Stock Purchase Agreement. The Participant is
required to issue a promissory note (the "Purchase Note") to the Company for the
full purchase price for that number of shares (the "Stock Purchase Shares")
granted by the Board of Directors. The Participant must also enter into a Stock
Pledge Agreement as security for the repayment of the Purchase Note. The
purchase price shall be as determined by the Board of Directors. The
Participant's right to sell, transfer, pledge, hypothecate or otherwise dispose
("Disposition Rights") of the Stock Purchase Shares vests in quarterly
increments over a period of between three and ten (10) equal years ("Vesting")
commencing at such time as the Board shall determine (the "Commencement Date"),
so long as the Participant meets all of its obligations under the Restricted
Stock Purchase Agreement and the Purchase Note. The Board has full discretionary
authority to determine the Commencement Date, so long as the employee shall have
been employed by the Company as of such Commencement Date, and to determine the
period for Vesting which shall be not less than three, nor more than ten years.
Vesting shall be evidenced by a Certificate of Vesting to be issued by the Board
on an annual basis. At such time as a Certificate of Vesting is issued, interest
commences to accrue on the purchase price with respect to that number of Stock
Purchase Shares covered by the Certificate of Vesting. In the event that the
Participant shall exercise any Disposition Rights, the full principal and
accrued interest with respect to the number of Stock Purchase Shares which are
to be subject to such Disposition Rights must be paid by the Participant.
Amounts due, including accrued but unpaid interest, under the Purchase Note have
to be paid by the Participant at the earlier of; (i) such time as Disposition
Rights shall have been exercised with respect thereto; or (ii) at such time as
the employee shall be fully vested if Disposition Rights with respect to all
Stock Purchase Shares have not been exercised, all as permitted under California
law with respect to employee stock purchase plans. The Plan allows the
participant to vote the total number of Stock Purchase Shares granted pursuant
to the Plan at all times after the initial grant.
If the Participant's employment with the Company is terminated for other
than disability, cause or death, the Participant's rights under the Purchase
Agreement expire within one month of the date of termination. If the
Participant's employment with the Company is terminated by death or disability,
the Participant, or its estate, shall be deemed fully vested and shall have the
right to acquire the total number of Stock Purchase Shares granted under the
Restricted Stock Purchase Agreement upon payment of the Purchase Note. If the
Participant is terminated for cause, that portion of the Stock Purchase Shares
granted that has not Vested and any Stock Purchase Shares which have Vested but
as to which payment has not been made shall expire immediately. The Company has
certain rights to repurchase (the "Repurchase Rights") the Stock Purchase
Shares. The Company may exercise such Repurchase Rights at any time with respect
to any unvested Stock Purchase Shares or in the event of termination of
employment with respect to Stock Purchase Shares which are vested but as to
which payment has not been made. The effect of the exercise of such Repurchase
Rights by the Company is the retirement of the Stock Purchase Shares and the
Purchase Note is deemed paid in full.
The Board of Directors shall annually determine the interest rate
applicable to the Purchase Note for that year, which rate shall not be less than
the Applicable Federal Rate. The Board has determined that an interest rate of
6.72% per annum is applicable for vested amounts during 1995, 1996 and 1997.
In the event that the number of outstanding shares of Common Stock of the
Company is changed by a stock dividend, recapitalization, reclassification,
stock split, reverse stock split or similar change in the capital structure of
the Company without consideration, appropriate adjustments will be made to the
number and price of the shares subject to the Plan and appropriate amendments
will be made to any Restricted Stock Purchase Agreements executed in conjunction
therewith. In the event of a recapitalization or reorganization pursuant to
which the Company is not the surviving entity, the Board of Directors shall
adjust the number and price of the Stock Purchase Shares to reflect the
restructuring event.
The Board of Directors has granted to Messrs Kees, Banks, Riccardelli and
Connerty the right to purchase an aggregate of 580,000 Stock Purchase Shares at
a price per share of $2.50, as compared to the determined fair market value of
$1.90 per share. Each Participant issued a Purchase Note to the Company for the
full purchase price, at the time of grant, aggregating $1,450,000, bearing
interest at a rate of 6.72% per annum. The Board of Directors determined a
Commencement Date of September 1, 1995, for Messrs Kees and Riccardelli and
February 1, 1996, for Messrs Banks and Connerty.
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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 Company's years ended January
31, 1996 and 1997, respectively. No other executive officers of the Company had
total salary and bonus which exceeded $100,000 for the Company's fiscal year
ended January 31, 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION
FISCAL YEAR
NAME AND PRINCIPAL POSITION ENDED JAN. 31 SALARY(1)(2)
<S> <C> <C>
Thomas E. Kees 1997 $202,033
Chairman of the Board, Chief Executive 1996 $ 34,000(2)
Officer and President
</TABLE>
(1) Includes small Christmas bonuses paid.
(2) Does not include acquisition of 400,000 Stock Purchase Shares by Mr. Kees on
October 31, 1996, at a price of $2.50 per share at which time the determined
fair market value was $1.90 per share. Mr. Kees gave his Purchase Note to
the Company in the amount of $1,000,000 bearing interest at the initial rate
of 6.72 % per annum. As of June 1, 1997, Mr. Kees is Vested with respect to
70,000 Stock Purchase Shares and a Certificate of Vesting is issuable as of
September 1, 1996 (one year from the Commencement Date of September 1, 1995
as determined by the Board of Directors) with respect to 40,000 Stock
Purchase Shares and interest with respect to $100,000 of the Purchase Note
commenced to accrue on such date. See "Management -- Employee Stock Purchase
Plan."
EXECUTIVE EMPLOYMENT AGREEMENTS
The Company has entered into Employment Agreements ("Employment
Agreements") with Mr. Kees, Mr. Banks, Mr. Riccardelli and Mr. Connerty (the
"Executives"). The terms of these agreements, which are similar, are as follows:
The Employment Agreements, as amended on February 28, 1997, provide for
employment by the Company for a term of three years from September 1, 1996, for
all of the Executives. Mr. Kees' annual base salary as of September 1, 1996, is
$200,000. Messrs. Banks and Connerty's annual base salary for the same period is
$120,000. Mr. Riccardelli's annual base salary as of September 1, 1996, is
$80,000. The Employment Agreements provide that the Board of Directors, with
respect to Mr. Kees, (and the CEO with respect to all other employees) may, at
their discretion, increase the base amount of salary at any time during the
contract period. An annual bonus is based on a comparison of actual profits with
a target profit amount, as approved by the CEO, which is calculated according to
a formula consisting of earnings from operations before interest, taxes,
depreciation and amortization. Each employee is eligible to participate in the
Employee Stock Purchase Plan. Each Executive is offered an opportunity to
participate in the Employee Stock Purchase Plan and may do so by executing a
Purchase Agreement pursuant to which he is granted shares of Common Stock of the
Company. The Company is obligated to use its best efforts to procure and
maintain a group health insurance policy covering the Executives.
The Company may terminate employment for cause, and the terminated employee
must keep confidential and not disclose all trade secrets, confidential
information, knowledge, data or other information of the Company, and must
promptly return and surrender all records, materials, drawings and data of any
nature pertaining to any confidential information of the Company. The Company
may terminate employment without cause and the terminated employee shall be
bound by the same confidentiality provisions as would an employee that was
terminated with cause. In the event of termination by death, the compensation
shall end on the date of the employee's death. In the event of termination by
disability, compensation will be determined as if the employee had been
terminated for cause. In the event of a termination for cause, the Company has
the option to compensate the employee pursuant to the Employee Agreement for a
period of up to two months from the date of such termination in which event the
employee has certain duties and obligations with respect to the Company. In the
event the employee terminates the Employment Agreement, he forfeits his
compensation and bonuses remaining under the Employment Agreement and that
portion of the Stock Purchase Shares as provided in the Employment Agreement.
Mr. Kees' Employment Agreement differs from that of the other Executives in
that: (i) the Company is obligated to use its best efforts to provide Mr. Kees
with the following benefits to which the others are not entitled disability
insurance (so as to provide Mr. Kees with a monthly income equal to his average
monthly
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<PAGE>
income for the twelve months immediately preceding the disability and until Mr.
Kees reaches the age of sixty-five), medical and dental insurance (as determined
by the Board of Directors from time to time), and fringe benefits (which may be
authorized and approved by the Board of Directors); (ii) if Mr Kees is
terminated for cause he is entitled to receive fifty (50%) percent of the amount
of annual base salary to which he would have been entitled had he completed the
full term of the Employment Agreement; and (iii) unlike the other Executives,
Mr. Kees cannot be placed on administrative leave.
STOCK OPTION PLAN
The Company's Board of Directors adopted a Stock Option Plan (the "Plan"),
effective October 18, 1996, and approved by the shareholders on October 31,
1996, intending it to qualify as an employee stock option plan within the
meaning of Section 423 of the Internal Revenue Code (the "IRC") of 1986, as
amended. Under the Plan, the Company has reserved an amount equal to 10% of the
outstanding shares of Common Stock for issuance pursuant to the exercise of
options. Options may be granted to selected employees, officers, directors,
consultants, or advisors.
The Plan will be administered by the Board of Directors, or by a committee
appointed by the Board of Directors to administer the Plan. Options may be
granted only to such employees, officers, directors, consultants and advisors
of the Company, as the committee shall select from time to time in its sole
discretion, provided, however, that only employees of the Company may be
granted Incentive Stock Options (ISOs).
Under the Plan, the Company may grant either ISOs or options which are not
qualified as incentive stock options (NQSO). The committee shall determine the
number of shares for which the option shall be granted, the execise price of the
option, the periods during which the option may be exercised, and all terms and
conditions of the options. The exercise price of an option shall not be less
than 85% of the fair market value of the Common Stock at the time the option is
granted. The exercise price of any ISO granted to a person owning more than 10%
of the total combined voting power of all classes of stock of the Company shall
be equal to at least 110% of the fair market value of the shares at the time of
the grant. The term of these options may not exceed ten years.
In the event that the number of outstanding shares of Common Stock of the
Company is changed by a stock dividend, stock split, reverse stock split,
combination, reclassification or similar change in the capital structure of the
Company without consideration, the number of shares available under this Plan,
the number of shares subject to outstanding options, and the exercise price per
share of such options shall be proportionately adjusted, subject to any
required action by the Board or shareholders of the Company. Upon a change in
control of the Company, the committee shall be permitted to take any actions it
deems appropriate with regard to stock options outstanding under the Plan. Such
actions may include, without limitation, accelerating exercisability of the
options and requiring the optionee to surrender options held for certain
consideration described in the Plan. In the event of a recapitalization or
reorganization after which the Company is not the surviving corporation, the
committee may adjust the number, price or options to reflect the restructuring
event.
INCENTIVE COMPENSATION
The Company has instituted an incentive bonus plan for all of its
employees, including officers, based upon performance. A bonus shall be payable
based upon a comparison of the actual profit achieved by the Company to the
budgeted profit for such fiscal year. The bonus payable to each participant is
calculated based upon a pre-determined formula. The Company believes that this
practice is prevalent within its industry and is a necessary component to
attract and retain qualified persons.
RECENT FINANCING TRANSACTIONS
ALL INFORMATION PERTAINING TO OUTSTANDING SHARES HEREIN ARE DETERMINED AS
IF THE 1:10 REVERSE STOCK SPLIT EFFECTIVE AS OF OCTOBER 1996 HAD BEEN EFFECTIVE
AT ALL RELEVANT TIMES HEREIN.
The Company is currently engaged in a private equity offering of up to
1,600,000 shares of Common Stock (the "Shares") at a price per share of $2.50
for a total offering of up to $4,000,000 (exclusive of Placement Agent's fifteen
(15%) percent over-allotment option hereinafter "Over-Allotment Option") (the
"private equity Offering"). The Shares are being offered to investors in
accordance with an exemption from registration afforded by Regulation D of the
Securities Act of 1933 pursuant to a Private Placement Memorandum dated June 18,
1997, as amended July 3, 1997. The private equity Offering is expected to close
in September 1997.
On July 1, 1997, the Company entered into a second agreement with DayStar
pursuant to which DayStar agreed to provide to the Company a supplemental credit
facility (the "Supplemental DayStar Credit Facility") in the aggregate amount of
$400,000, plus a facility fee of 2% of the amount advanced, to be used to repay
certain Bridge Notes (defined below) which matured on June 30, 1997. Pursuant to
the Supplemental DayStar Credit Facility, the Company has executed a promissory
note providing for the payment of interest on the amounts outstanding at a rate
of 1% per week that the principal amount remains outstanding, all payable from
the proceeds of the private equity Offering. The total amount payable under the
Bridge Notes, including accrued but unpaid interest of approximately $619,000
was paid on July 2, 1997, utilizing the proceeds of the Supplemental DayStar
Credit Facility, amounts available under the DayStar Credit Facility and from
the working capital of the Company.
In March of 1997, the Company entered into an agreement with DayStar
pursuant to which DayStar agreed to provide a credit facility (the "DayStar
Credit Facility") to the Company in an amount not to exceed $440,000, including
a facility fee of 10% of the amount advanced up to a maximum of $40,000, to be
used for working capital purposes. As of July 1997, a total of $440,000 had
been advanced as to which a facility fee of $44,000 is payable. Pursuant to the
DayStar Credit Facility, the Company will execute a promissory note providing
for the payment of interest on amounts outstanding at the initial rate of 12%
per annum, payable at the maturity of the note. The DayStar Credit Facility
provides that all of the outstanding principal and interest shall be paid out of
the proceeds of the Offering. In the event the Offering shall not have been
concluded at the expiration of seven months from the date of the last advance,
the DayStar Credit Facility shall be extended to thirteen months from the date
of the last advance and the interest rate shall increase to 15% per annum. If
the note has not been repaid at that time, the Company shall thereupon repay the
principal and interest outstanding in monthly amounts of $20,000 with any unpaid
amounts due and payable at the expiration of 24 months.
In consideration for the granting of the DayStar Credit Facility the
Company has agreed to issue to DayStar warrants to purchase 200,000 shares of
Common Stock of the Company at an exercise price of $2.25 per share and 100,000
shares of Common Stock at an exercise price of $5.00 per share (collectively the
"Warrants"). Each Warrant is exercisable for a period of three (3) years
commencing at the later of (i) the date upon which the last advance of funds was
made; (ii) 90 days following the date upon which the Common Stock of the Company
commences trading in a public market; or (iii) the expiration of any waiting
period as required by an underwriter retained by the Company with respect to a
public offering of its securities. In the event the Offering has not been
completed upon the expiration of seven months from the date of the last advance
under the DayStar Credit Facility, the number of Warrants issuable to DayStar
shall increase, in the same ratio of $2.25 Warrants and $5.00
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<PAGE>
Warrants, by 4% per month until the earlier of such time as the DayStar Credit
Facility shall have been paid in full or the Offering or an offering equivalent
thereto shall have been completed. Under no circumstances shall the number of
Warrants issuable to DayStar exceed 400,000. The Warrants are issuable to
DayStar within ten days of the Company's receipt of a written request from
DayStar.
The Company issued an initial convertible promissory note to C Brands in
1995 secured by the Company's interest in the Mrs. Fields license which was
replaced by a convertible promissory note (the "Initial Note") to C Brands
issued on January 31, 1996 in exchange for funds provided in the amount of
$215,000. On October 31, 1996, the Company issued a second convertible
promissory note in the principal amount of $407,500 (the "Supplemental Note").
The Initial Note and Supplemental Note shall collectively be referred to as the
"C Brands Notes." The C Brands Notes bear interest at a rate of 12% per annum,
mature three years from their respective dates of issuance and are convertible
into Common Stock at the rate of one share for each five dollars of outstanding
indebtedness. The C Brands Notes are secured by the Company's interest in the
Mrs. Fields license. Pursuant to notice given by C Brands on or about June 17,
1997, the total indebtedness represented by the C Brands Notes will
automatically be converted into shares of Common Stock of the Company upon the
closing of the private equity Offering. As a result, after the closing of the
private equity Offering, the C Brands Notes will not be outstanding, having been
converted into 124,500 shares of Common Stock, and the security interest in the
Mrs. Fields License will be released, all at no cost to the Company. See
"Certain Transactions" and "Note 4 of Notes to Financial Statements."
[VERIFY]
The manager of C Brands is Mr. Stephen C. Kircher, and although, as the
manager, Mr. Kircher has the right to vote the stock held by C Brands, he holds
no equity interest in C Brands and disclaims beneficial ownership of the Common
Stock held by C Brands. Mr. Kircher is also a shareholder of the Company (See
"Principal Shareholders") and is President of Capitol Bay Securities, which has
served as a placement agent with respect to certain of the private placements
previously made by the Company. The Company subleases its office space from
Capitol Bay Group, an affiliate of Capitol Bay Securities.
Warrants to purchase 60,000 shares of Common Stock at $2.50 per share were
issued to Capitol Bay Securities during the fiscal year ended January 31, 1996,
for services performed in connection with certain private placements provided to
the Company. These warrants expired, unexercised, on January 31, 1997.
During the period commencing in November 1995 and ending in March 1996, the
Company engaged in a private placement pursuant to which it sold $300,000 of its
promissory notes (the "Bridge Notes") each in the principal amount of not less
than $5,000, bearing interest at a rate of 15% per annum and maturing on the
anniversary of the date of issuance. In June 1996, the Company sold an
additional $300,000 of the Bridge Notes, each in the principal amount of not
less than $5,000, bearing interest at a rate of 15% per annum and maturing on
the anniversary of the date of issuance. The Bridge Notes are secured by all of
the tangible assets of the Company. The maturity dates for substantially all of
such Bridge Notes were extended to June 30, 1997, and the interest rate was
increased to 16% per annum. A payment of one point, totaling $5,950, was made to
the holders of such Bridge Notes who agreed to such extensions. The Bridge Notes
were offered to investors in accordance with an exemption from registration
afforded by Regulation D of the Securities Act, pursuant to two separate Private
Placement Memoranda. The Company initially issued 190,000 shares of Common Stock
to PAG for services provided by PAG in connection with these private placements
and granted certain registration and other rights to PAG. The Company and PAG
have entered into a Second Amended and Restated Bridge Loan and Consulting
Agreement, as of June 1997 (the "PAG Restatement"), to clarify the original
understanding of the parties with respect to the amount and value of the stock
issuable to PAG. Pursuant to the PAG Restatement the Company has agreed to grant
additional shares to PAG such that the value of PAG's share holdings shall
approximate $1,300,000 as measured by the highest ten (10) day average closing
price of the Company's stock during the twelve (12) month period following
commencement of trading of the Company's stock. Additionally, the Company has
granted certain "Piggyback" Registration Rights to PAG pursuant to which PAG
shall be entitled to cause all or a portion of the stock so issued to be
registered for sale at such time as the Company shall engage in a public
offering of its securities. PAG has informed the Company that, except with
respect to 47,020 shares of Common Stock held for the account of PAG, the Common
Stock issuable pursuant to the foregoing is held by PAG for the benefit of the
PAG shareholders (the "PAG Shareholders"). PAG has disclaimed beneficial
ownership of the shares of Common Stock held for the account of the PAG
Shareholders (the shares held by PAG, whether for its own benefit or for the
benefit of its shareholders, shall collectively be referred to as the "PAG
Shares").
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<PAGE>
In connection with certain private placements made to individual investors
in 1994 and 1995, the Company issued warrants (the "Note Warrants") to purchase
226,503 shares of Common Stock at $1 per share and 60,000 shares of Common Stock
at $2.50 per share collectively, (the "Note Shares"), which Note Warrants with
respect to 81,503 shares and 60,000 shares, respectively expired in January
1997. The remaining Note Warrants to purchase 145,000 shares exercisable at $1
per share expire in March 1998. The Note Warrants with respect only to those
exercised by January 31, 1997 provide that the holder may pay for the issuance
of Common Stock upon exercise of such Note Warrants by issuing a promissory note
bearing interest at the rate of 6.72% per annum, all due and payable in one year
from the date of issuance (the "1994 Notes"). In January 1997, holders of 65,100
Note Warrants exercised their warrants and executed 1994 Notes for the aggregate
purchase price of $65,100 for 65,100 shares. Pursuant to California law, the
Note Shares will not be issuable, nor will any holder thereof have any rights as
a shareholder, until his or her 1994 Notes have been paid. However, such Note
Shares are deemed to be outstanding for certain purposes pursuant to applicable
accounting principles and are reflected as being outstanding in certain tables
herein, as may be noted.
CERTAIN TRANSACTIONS
The Company shares office space with Capitol Bay Securities, a registered
NASD broker-dealer, whose President is Mr. Stephen C. Kircher, a shareholder of
the Company. Mr. Kircher directly owns 9,000 shares of Common Stock of the
Company. The Company subleases office space from Capitol Bay Group (an affiliate
of Capitol Bay Securities), on a month to month basis pursuant to a sublease
which expires in September 1997. Upon the expiration of the existing sublease,
the Company intends to enter into a lease for new office space with an entity in
which Messrs. Kircher and Kees, the Company's CEO, are principals. Such premises
will be in a building currently under construction by such entity and the lease
will be on terms and conditions no less favorable than would be entered into
with a party not affiliated with the Company.
In late 1995 and early 1996, the Company periodically borrowed various
amounts from Capital Bay Group, not exceeding $50,000 at any one time
outstanding, which amounts were repaid in full by May 1996. No interest was paid
by the Company with respect to these borrowings. During November 1996, the
Company loaned $135,000 to the Capitol Bay Group, which was repaid within six
days. Interest in the amount of $400 with respect thereto was paid in January
1997.
Capitol Bay Group, an entity which is affiliated with Capitol Bay
Securities and with which Mr. Kircher is affiliated, is the beneficial owner of
64,590 shares of Common Stock. Mr. Kircher is the Manager of C Brands, which has
provided Bridge Financing to the Company in the amount of $622,500. Arthur
Patch, a director of the Company, owns a membership interest in C Brands,
representing less than 1.0% of the total membership interests. C Brands is the
record owner of 224,500 shares of Common Stock of the Company including 124,500
shares of Common Stock issuable upon conversion of the C Brands Notes, but has
informed the Company that disclaims beneficial ownership of such shares. Mr.
Kircher has previously served on the Company's management committee pursuant to
a Memorandum of Agreement. See "The Business-Company Background."
The Company's previous legal counsel, the law firm of Kay & Merkle, of San
Francisco, California is the beneficial owner of 196,667 shares of Common Stock
of the Company.
Mr. W. Bruce Bercovich, a partner of the CBG Partnership, was issued
warrants to purchase 10,000 shares of Common Stock at an exercise price of
$1.00 per share which were exercised in January 1997.
Mr. Robert Pryt, a former member of the management committee, is associated
with an entity called BKP Partners of San Francisco, California, which is the
beneficial owner of 282,256 shares of Common Stock of the Company.
The Company has entered into a Placement Agent Agreement with Capitol Bay
Securities ("CBS") in connection with the private equity Offering (the
"Placement Agent Agreement"). Pursuant to the Placement Agent Agreement,
Capitol Bay Securities will receive selling discounts and commissions equal to
fifteen (15%) percent of the private equity Offering as well as three year
warrants to purchase ten (10%) percent of the shares of Common Stock sold in
the private equity Offering at an exercise price of $2.50 per share (the
"Placement Agent Warrants). The Company has also granted to Capitol Bay
Securities a 60 day option to offer and sell up to an additional 240,000 shares
of Common Stock to cover over-allotments (the "Over-Allotment Option").
Entities which are affiliated with the Company's current legal counsel the
law firm of Rosen & Gyemant are the beneficial owners of 17,500 shares of Common
Stock.
20
<PAGE>
DESCRIPTION OF SECURITIES
SHARES OF COMMON STOCK
The Company is authorized to issue 30,000,000 shares of Common Stock,
without par value. As of June 1, 1997, 2,763,145 shares of Common Stock were
issued and outstanding and held by 109 holders of record.
Holders of Common Stock are entitled to cast one vote for each share held
of record for all matters submitted to a vote of the shareholders, including
election of directors. Every person entitled to vote at an election for
directors may cumulate his or her votes. Stockholders holding a majority of the
voting power of the Common Stock issued and outstanding and entitled to vote,
represented in person or by proxy, are necessary to constitute a quorum at any
meeting of the Company's stockholders, and the vote by the holders of a majority
of such outstanding shares is required to effect certain fundamental corporate
changes such as liquidation, merger or amendment of the Company's Articles of
Incorporation.
The Company has not made any provision for the payment of dividends.
Holders of Common Stock are not entitled to preemptive or subscription or
conversion rights, and there are no redemption or sinking fund provisions
applicable to the Common Stock. Upon liquidation, dissolution or winding up of
the Company, the assets legally available for distribution to shareholders are
distributable ratably among the holders of the Common Stock outstanding at the
time after payment of claims of creditors. All outstanding shares of Common
Stock are, fully paid and non-assessable.
LEGAL PROCEEDINGS
The Company is not currently involved in any material pending legal
proceedings.
POTENTIAL LITIGATION WITH FOUNDER
Gregory B. Plunkett, the founder and former director of the Company and a
shareholder holding in excess of 5% of the Company's outstanding common stock,
has asserted certain claims against the Company with respect to amounts alleged
to be due to him for back wages and with respect to amounts purportedly advanced
by him to the Company in the latter part of 1994. Mr. Plunkett has also asserted
claims with respect to alleged breaches of the August 8, 1995 Memorandum of
Agreement, pursuant to which a restructuring of management of the Company was to
be achieved along with an infusion of new capital and Mr. Plunkett was required
to distribute a portion of his stock in the Company to various parties thereto.
Management is currently engaged in negotiations with Mr. Plunkett seeking to
resolve these issues. While no assurances can be given with respect to the
likelihood of resolving these issues through such negotiations or the ultimate
outcome of any proceedings which might be initiated by Mr. Plunkett, management
of the Company is of the view that all of the provisions of the August 8, 1995
Memorandum have been complied with and that it has substantial defenses to and
offsets against any claims which may ultimately be set forth in any litigation
brought by Mr. Plunkett against the Company. See "Principal Shareholders."
EMPLOYEES
The Company has five full time employees. The Company's employees are not
represented by any collective bargaining organization, and the Company has never
experienced a work stoppage. The Company believes that its relations with its
employees are satisfactory.
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<PAGE>
PART II
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the filing of this Registration Statement, there has been no
public market for Common Stock. No prediction can be made of the effect, if any,
that future market sales of shares of Common Stock under Rule 144 or otherwise
will have on the prevailing market price, if any, of the Common Stock following
this filing. Nevertheless, sales of substantial amounts of such shares could
adversely affect the prevailing market price of the Common Stock, if any.
As of June 1, 1997, the Company has 2,763,145 outstanding shares of Common
Stock (See "Description of Securities") which will, subject to any applicable
state law restrictions on secondary trading, be freely tradeable without
restriction under the Securities Act, except that any shares purchased by an
"affiliate" of the Company (as that term is defined in Rule 144 of the
Securities Act) will be subject to the resale restrictions of Rule 144.
In general, under Rule 144, as recently amended and in effect as of April
20, 1997, a person (or persons whose shares are required to be aggregated) who
has beneficially owned, for at least one year, shares of Common Stock that have
not been registered under the Securities Act or that were acquired from an
"affiliate" of the Company (in a transaction or chain of transactions not
involving a public offering) is entitled to sell within any three month period a
number of shares of Common Stock which does not exceed the greater of 1% of the
number of then outstanding shares or the average weekly reported trading volume
during the four calendar weeks preceding the sale. Sales under Rule 144 are also
subject to certain notice requirements and to the availability of current public
information about the Company and must be made in unsolicited brokers'
transactions or to a market maker. A person (or persons whose shares are
aggregated) who is not an "affiliate" of the Company under the Securities Act
during the three months preceding a sale and who has beneficially owned such
shares for at least two years is entitled to sell such shares under Rule 144 (k)
without regard to the requirements discussed above, other than a requirement
that such sales be made in unsolicited brokers' transactions.
Except as described below, the Company intends to obtain an agreement from
all of the current shareholders who own more than 25,000 shares of the
outstanding options and warrants, certain other shareholders of the Company, and
its officers and directors not to offer, sell, grant any option for the sale of
or otherwise dispose of any equity securities of the Company for a period of 6
months after the closing of the Company's private equity Offering, without the
prior written consent of the Placement Agent (except for the issuance of shares
of Common Stock upon the issuance of currently outstanding options and warrants)
(the "Lock-Up"). Shareholders who each own less than 25,000 shares of the
outstanding Common Stock, comprising an aggregate of 669,706 shares, are not
subject to the Lock-Up, but are subject to the provisions of Rule 144. On July
1, 1997, approximately 1,132,339 shares of Common Stock became eligible for
immediate sale without restriction pursuant to Rule 144(k) and an additional
243,890 shares became subject to immediate sale under Rule 144, subject to
compliance with the provisions of Rule 144 and the Lock-Up.
Any employee or consultant to the Company who purchased shares pursuant to
a written compensation plan or contract is entitled to rely on the resale
provisions of Rule 701, which permit non-affiliates to sell their Rule 701
shares without having to comply with the public information, holding period,
volume limitations or notice provisions of Rule 144 and permits affiliates to
sell their Rule 701 shares without having to comply with the Rule 144 holding
period restrictions, in each case commencing 90 days after the date of this
Registration Statement.
DIVIDEND POLICY
The Company has not declared or paid dividends on its Common Stock. The
Company currently intends to retain all available funds for use in its business
and therefore does not anticipate paying any cash or other dividends in the
foreseeable future. Future cash dividends, if any, will be determined by the
Board of Directors and will be based upon the Company's earnings, capital
requirements, financial condition and other factors deemed relevant by the Board
of Directors.
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DIVIDENDS
The Company has never paid any dividends on its Common Stock and does not
anticipate that dividends will be paid in the foreseeable future, as it intends
to follow a policy of retaining earnings, if any, to finance future growth. See
"Dividend Policy."
RECENT SALES OF UNREGISTERED SECURITIES
The following securities were offered for cash (unless otherwise
specified):
In May 1994, the Company offered 300,000 shares of Common Stock at a per
share price of $1.50. The shares were issued pursuant to an exemption from
registration provided by Regulation D, promulgated under the Securities Act of
1933, as amended (the "Act"), as set forth in the Company's Private Placement
Memorandum dated March 23, 1994. The Company reasonably believes it complied
with all investor suitability requirements set forth under Regulation D,
including the requirement that no more than 35 "non-accredited" purchasers
invest in a Regulation D offering. The Company also issued warrants to
the placement agent to purchase 25,490 shares of Common Stock at $1.00
per share which were exercised in July 1995 and July 1996.
In mid 1994, the Company granted warrants to Mr. Randy Shemano to
acquire 16,403 shares of Common Stock at an exercise price of $1.00 per share.
Mr. Shemano's warrants expired unexercised on January 31, 1997. The warrants
were issued pursuant to Section 4(2) and 3(a)(11) of the Act.
In August 1994, the Company offered 282,255 shares of Common Stock at $4.43
per share plus consulting services valued at $90,000 to BKP Partners pursuant
to Section 3(a)(11) and 4(2) under the Act. No underwriters were involved in
the issuance of such shares. The Company reasonably believes that it complied
with all of the applicable requirements under the Act.
In December 1994, the Company entered into a finders agreement with Mr.
Randy Haag and Mr. Steve Jizmagian which provided for certain compensation in
connection with the efforts of Messrs. Haag and Jizmagian in assisting the
Company in obtaining financing. As compensation for the efforts of Messrs. Haag
and Jizmagian, on March 7, 1995 the Company issued to several individuals
(including Messrs. Haag and Jizmagian) warrants to purchase 150,000 shares of
Common Stock of the Company exercisable at $1.00 per share and due to expire on
March 6, 1998. No general forms of advertising were used in connection with the
issuance of the warrants. The warrants were issued for investment purposes and
not with a view to distribution. The issuance of the warrants described above
was exempt from the registration provisions of the Act by virtue of Section 4(2)
and Section 3(a)(11) of the Act.
In the period between December 1994 and April 1995, the Company offered and
sold approximately 300,000 shares of Common Stock pursuant to Section 4(2) and
Regulation D under the Act at $5.00 per share. Current management attempted to
contact such investors to obtain additional information regarding their
investment. Based upon limited information available, the Company reasonably
believes it has complied with all of the applicable requirements under the Act.
On June 15, 1995, the Company entered into an agreement with Mr. Hassan S.
Samhan whereby it agreed to issue warrants to purchase 50,100 shares of Common
Stock, at an exercise price of $1.00, to Ms. Donna Sizemore as compensation for
Mr. Samhan's efforts in securing financing for the Company. The Company has been
advised that Ms. Sizemore later assigned warrants to purchase 6,600 shares to
several individuals. The warrants were exercisable by the issuance of a
promissory note to the Company which bears interest at a rate of 6.72% per annum
and matures one year from the date of issuance. No general forms of advertising
were used in connection with the issuance of the warrants. The warrants were
issued for investment purposes and not with a view to distribution. The issuance
of the warrants described above was exempt from the registration provisions of
the Act by virtue of Section 4(2) and Section 3(a)(11) of the Act.
In December 1995, the Company offered $300,000 aggregate principal amount
of promissory notes each in the principal amount of $5,000 bearing interest at
the rate of fifteen (15%) percent per annum and maturing on the anniversary of
the date of issuance. The notes were offered pursuant to an exemption from
registration provided by Regulation D, promulgated under the Act, as set forth
in the Company's Private Placement Memorandum delivered in November, 1995. The
Company complied with all investor suitability requirements set forth under
Regulation D, including the requirement that no more than 35 "non-accredited"
purchasers invest in a Regulation D offering. The parties who purchased in the
offering are:
23
<PAGE>
<TABLE>
<CAPTION>
NAME AMOUNT
<S> <C>
Gloria S. Stansbery and Daniel K. Stansbery........................................ $10,000
Peggy J. Johnson................................................................... 10,000
Forest R. Walker and Helen E. Walker............................................... 10,000
Frank J. Lyons..................................................................... 25,000
Marian E. Hunt..................................................................... 5,000
John Cliffe and Paul Cliffe........................................................ 5,000
Maximilliam W. Munk Trust.......................................................... 25,000
Philip La Chapelle and Helga La Chapelle........................................... 5,000
Paul R. Sedovic.................................................................... 10,000
Philip W. Damon.................................................................... 10,000
Willa V. Ray Family Trust.......................................................... 5,000
Darusmont Trust.................................................................... 10,000
Jane Dubuc......................................................................... 10,000
Francis F. Ball, Jr. and Janet Ball................................................ 5,000
Lawrence Rosen and Taubie Rosen.................................................... 5,000
Tommie Smith....................................................................... 5,000
Nels & Maryann Nelson Trust........................................................ 10,000
Viola J. Elford.................................................................... 10,000
Ronald and Joan Moss Revocable Trust............................................... 20,000
Frank J. Dever, Jr................................................................. 10,000
Robert E. Thomas................................................................... 10,000
Anna L Bleich...................................................................... 24,000
Clarence H. Ahlgrim................................................................ 5,000
Keith Hyatt........................................................................ 5,000
Jane Dubuc......................................................................... 10,000
C. Edwin Zimmer.................................................................... 5,000
Bernadette Mortell................................................................. 10,000
Bridges to Riches (Tireel/Van Metel)............................................... 26,000
</TABLE>
In December 1995, the Company issued 15,000 shares of Common Stock to PAG
pursuant to Regulation D, Section 3(a)(11) and 4(2) under the Act. The shares
were issued to PAG in exchange for PAG's assistance in securing financing for
the Company. The Company believes that it complied with all of the applicable
requirements under the Act.
The Company issued an initial covertible promissory note secured by the
Company's interest in the Mrs. Fields license which was replaceed by a
convertible promissory note (the "Initial Note") to C.Brands Management, LLC
("C Brands") in exchange for funds provided in the amount of $215,000 on or
around January 31, 1996. On October 31, 1996 the Company issued a second
convertible promissory note in the principal amount of $407,500 (the
"Supplemental Note"). The Initial Note and Supplemental Note shall
collectively be referred to as the "C Brands Notes." The C Brands Notes were
issued pursuant to an exemption from registration under Section 4(2) and
Section 3(a)(ii) of the Act. The C Brands Notes bear interest at a rate of 12%
per annum, mature three years from their respective dates of issuance and are
convertible into Common Stock at the rate of one share for each five dollars
of outstanding indebtedness. Pursuant to notice given by C Brands on or
about June 17, 1997, the total indebtedness represented by the Initial
and Supplemental Notes will automatically be converted into shares of Common
Stock of the Company upon the closing of the private equity Offering. The
conversion of the C Brands Notes will be exempt from registration under Section
4(2) and Section 3(a)(ii) of the Act. As a result, after the closing of the
private equity Offering, the C Brands Notes will not be outstanding, having been
converted into 124,500 shares of Common Stock, and the security interest in the
Mrs. Fields License will be released.
In late 1995 the Company granted warrants to Capitol Bay Securities to
purchase 60,000 shares of Common Stock at an exercise price of $2.50. The
Warrants were granted in exchange for CBS's assistance in securing financing for
the Company. CBS' warrants expired unexercised on January 31, 1997.
In June of 1996, the Company sold $300,000 aggregate principal amount of
promissory notes each in the principal amount of $5,000 bearing interest at the
rate of fifteen (15%) percent per annum and maturing on the anniversary of the
date of issuance. The notes were offered pursuant to an exemption from
registration provided by Regulation D, promulgated under the Act, as set forth
in the Company's Private Placement Memorandum dated June, 1996. The Company
complied with all investor suitability requirements set forth under Regulation
D, including the requirement that no more than 35 "non-accredited" purchasers
invest in a Regulation D offering. The parties who purchased in the offering
are:
24
<PAGE>
<TABLE>
<CAPTION>
NAME AMOUNT
<S> <C>
Gloria S. Stansbery and Daniel K. Stansbery........................................ $10,000
Frank J. Lyons..................................................................... 50,000
Paul R. Sedovic.................................................................... 5,000
Philip La Chapelle and Helga La Chapelle........................................... 5,000
Richard H. Meese................................................................... 10,000
Chander Basho...................................................................... 5,000
Michael Schoendorf................................................................. 10,000
Yvone Holland...................................................................... 10,000
Noel Holland....................................................................... 10,000
Duane Edling....................................................................... 25,000
Wayne Haigh and Linda Haigh........................................................ 10,000
Michael S. Schur................................................................... 75,000
Edith Edna Hansston Trust.......................................................... 10,000
Walter Bahrke...................................................................... 65,000
</TABLE>
In June 1996, the Company issued 175,000 shares of Common Stock to PAG
pursuant to Regulation D, Section 3(a)(11) and 4(2) under the Act. The shares
were issued to PAG in exchange for PAG's assistance in securing financing for
the Company. The Company believes that it complied with all of the applicable
requirements under the Act.
In October 1996, the Company issued shares of its Common Stock to four key
employees pursuant to the Company's Employee Stock Purchase Plan (the "Plan").
Each employee issued a promissory note to the Company in payment for the shares
issued pursuant to the Plan and related agreements. The shares were issued for
investment purposes and not with a view to distribution. The holder of the
shares has signed an agreement providing that the shares may not be offered,
sold or otherwise transferred other than pursuant to an effective registration
statement under the Act, or pursuant to an applicable exemption from
registration. The issuance of the shares described above was exempt from the
registration provisions of the Act by virtue of Regulation D, Section 4(2) and
Section 3(a)(11) of the Act.
In March of 1997, the Company entered into an agreement with Daystar, LLC
("Daystar") pursuant to which Daystar agreed to provide a credit facility to the
Company in an amount not to exceed $440,000. As compensation for these services,
the Company has agreed to issue to DayStar warrants to purchase 200,000 shares
of Common Stock of the Company at an exercise price of $2.25 per share and
100,000 shares of Common Stock at an exercise price of $5.00 per share
(collectively the "Warrants"). Each Warrant is exercisable for a period of three
(3) years commencing at the later of (i) the date upon which the last advance of
funds was made; (ii) 90 days following the date upon which the Common Stock of
the Company commences trading in a public market; or (iii) the expiration of any
waiting period as required by an underwriter retained by the Company with
respect to a public offering of its securities. In the event the private equity
Offering has not been completed upon the expiration of seven months from the
date of the last advance under the DayStar Credit Facility, the number of
Warrants issuable to DayStar shall increase, in the same ratio of $2.25 Warrants
and $5.00 Warrants, by 4% per month until the earlier of such time as the
DayStar Credit Facility shall have been paid in full or the private equity
Offering or an offering equivalent thereto shall have been completed. Daystar
has signed an agreement providing that the warrants and the shares issuable upon
exercise may not be offered, sold or otherwise transferred other than pursuant
to an effective registration statement under the Act, or pursuant to an
applicable exemption from registration. The issuance of the warrants described
above was exempt from the registration provisions of the Act by virtue of
Section 4(2) and Section 3(a)(11) of the Act.
Pursuant to the Placement Agent Agreement, entered into in June 1997, the
Company granted to CBS three year warrants to purchase up to ten percent of the
number of shares sold in the private equity Offering at an exercise price of
$2.50 a share. The issuance of the Placement Agent's Warrants will be exempt
from the registration provisions of the Act by virtue of Section 4(2) of the
Act.
On July 1, 1997, the Company entered into a second agreement with DayStar
pursuant to which DayStar agreed to provide to the Company a supplemental credit
facility (the "Supplemental DayStar Credit Facility") in the aggregate amount of
$400,000, plus a facility fee of 2% of the amount advanced, to be used to repay
the Bridge Notes which matured on June 30, 1997. Pursuant to the Supplemental
DayStar Credit Facility, the Company executed a promissory note providing for
the payment of interest on the amounts outstanding at a rate of 1% per week that
the principal amount remains outstanding, all payable from the proceeds of the
private equity Offering. The promissory note was issued in reliance upon Section
4(2) and 3(a)(11) of the Securities Act.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
The Articles of Incorporation of Legacy Brands, Inc. (the "Company") limit
the liability of directors for monetary damages to the fullest extent permitted
under California law. The effect of this provision is that the Company and
shareholders, through derivative suits, may not recover monetary damages against
a director for
25
<PAGE>
any alleged failure to discharge one's duties as a director, with certain
exceptions. Directors may still be liable for monetary damages for failure to
discharge such duties for: i) acts or omissions that involve intentional
misconduct or a knowing and culpable violation of the law, ii) acts and
omissions that a director believes to be contrary to the best interests of the
Company or its shareholders or that involve the absence of good faith on the
part of the director, iii) any transaction from which a director derived an
improper personal benefit, iv) acts or omissions that show a reckless disregard
for the director's duty to the Company or its shareholders in the circumstances
in which the director was aware, or should have been aware, in the ordinary
course of performing a director's duties, of a risk of a serious injury to the
Company or its shareholders, v) acts or omissions that constitute an unexcused
pattern of inattention that amounts to an abdication of the director's duty to
the Company or its shareholders, and vi) any act or omission as an officer,
notwithstanding that the officer is also a director or that his or her actions,
if negligent or improper, have been ratified by the directors.
The Articles of Incorporation also allow the Company to indemnify any
director, officer, employee, agent or other person serving at the request of the
Company (collectively known as "Agent") for breach of duty to the Company and
its shareholders to the fullest extent allowed by California law. Generally
speaking the Company shall have the duty to indemnify any Agent who prevails on
the merits in defense of any action brought against him or her relating to
breach of Agent's duty to the Company or its Shareholders. The Company may
provide indemnification where Agent has acted in good faith and in a manner that
Agent reasonably believed was in the best interests of the Company and in the
case of a criminal proceeding where Agent had no reasonable cause to believe
that its conduct was unlawful. The Company shall not, with certain exceptions,
provide indemnification where it appears i) that it would be inconsistent with a
provision of the articles, bylaws, a resolution of the shareholders, or an
agreement in effect at the time of the accrual of the alleged cause of action
asserted in the proceeding in which the expenses were incurred or other amounts
were paid, which prohibits or otherwise limits indemnification, and ii) that it
would be inconsistent with any condition expressly imposed by a court in
approving a settlement.
26
<PAGE>
PART F/S
REPORT OF INDEPENDENT ACCOUNTANTS
TO THE BOARD OF DIRECTORS
LEGACY BRANDS, INC.
Roseville, California
We have audited the accompanying balance sheet of Legacy Brands, Inc. as of
January 31, 1997, and the related statements of operations, changes in
shareholders' equity (deficit) and cash flows for each of the two years then
ended. 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 audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits 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 audits provide 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 Legacy Brands, Inc. as of
January 31, 1997, and the results of its operations and its cash flows for each
of the two years then ended 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 2 to the
financial statements, the Company has suffered recurring losses and negative
cash flows from operations, has substantial negative working capital, and has a
license compliance confirmation expiring on July 31, 1997 and debt maturing on
June 30, 1997, that raises substantial doubt about its ability to continue as a
going concern. Management's plans in regards to these matters are also described
in Note 2. The financial statements do not include any adjustments that might
result from the outcome of this uncertainty.
The financial statements for the year ended January 31, 1996, have been restated
as described in Note 12.
Sacramento, California
June 17, 1997, except for
the last four paragraphs of Note 14,
as to which the date is July 2, 1997
27
<PAGE>
LEGACY BRANDS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
JANUARY
31, APRIL 30,
1997 1997
<S> <C> <C>
(UNAUDITED)
ASSETS
CURRENT ASSETS:
Cash................................................................................ $ 22,246 $ 299
Receivable from manufacturer........................................................ 22,921 107,895
Inventory of supplies............................................................... 50,000 50,000
Prepaid expenses and other.......................................................... 6,996 30,874
TOTAL CURRENT ASSETS........................................................ 102,163 189,068
Office equipment, net of accumulated depreciation of $3,992 and $4,679 (unaudited),
respectively........................................................................ 8,277 19,932
Debt issuance costs, net.............................................................. 267,496 157,013
Organization costs, net............................................................... 2,000 1,750
Licenses, net......................................................................... 2,430,556 2,409,723
Deferred offering costs............................................................... 336,054 466,914
TOTAL ASSETS................................................................ $3,146,546 $3,244,400
LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)
CURRENT LIABILITIES:
Line of credit...................................................................... $ -- $ 225,472
Accounts payable.................................................................... 550,702 618,056
Accrued expenses and other liabilities.............................................. 488,103 545,730
Notes payable, current:
Related parties.................................................................. 60,000 60,000
Others........................................................................... 595,000 595,000
Liability to manufacturer, current.................................................. 348,092 348,092
TOTAL CURRENT LIABILITIES...................................................... 2,041,897 2,392,350
Notes payable, noncurrent, to related parties......................................... 566,430 573,037
Liability to manufacturer, noncurrent................................................. 1,049,770 956,994
TOTAL LIABILITIES........................................................... 3,658,097 3,922,381
COMMITMENTS AND CONTINGENCIES (Notes 1, 10, 13 and 14)
SHAREHOLDERS' EQUITY (deficit):
Common stock, no par value; 30,000,000 shares authorized; 2,763,145 shares issued
and outstanding at January 31, 1997 and April 30, 1997 (unaudited)............... 5,093,587 5,093,587
Contributed capital................................................................. 559,500 559,500
Notes receivable from shareholders.................................................. (1,527,271) (1,527,271)
Accumulated deficit................................................................. (4,637,367) (4,803,797)
TOTAL SHAREHOLDERS' EQUITY (deficit)........................................ (511,551) (677,981)
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (deficit)........................ $3,146,546 3,244,400
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
LEGACY BRANDS, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JANUARY 31, APRIL 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
Sales.................................................... $3,289,347 4,824,706 882,870 $1,249,340
Cost of goods sold....................................... 2,202,783 3,087,833 535,145 743,298
Gross profit........................................... 1,086,564 1,736,873 347,725 506,042
Operating expense:
Marketing.............................................. 627,708 992,258 157,193 261,343
General and administrative............................. 612,033 854,433 174,374 216,315
Operating (loss) income................................ (153,177) (109,818) 16,158 28,384
Other income (expense):
Interest expense....................................... (52,239) (622,793) (92,247) (184,014)
Other (expense) income, net............................ (21,174) (24,292) (8,000) (10,000)
Loss before provision for income taxes................. (226,590) (756,903) (84,089) (165,630)
Provision for income taxes............................... (800) (800) (800) (800)
Net loss................................................. $ (227,390) (757,703) (84,889) $ (166,430)
Net loss per share....................................... $ (0.11) $ (0.36) $ (0.04) $ (0.07)
Weighted average number of shares outstanding............ 2,012,812 2,083,717 1,937,445 2,243,270
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
LEGACY BRANDS, INC.
STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (DEFICIT)
FOR THE YEARS ENDED JANUARY 31, 1996 AND 1997 AND THE THREE MONTHS ENDED APRIL
30, 1997 (UNAUDITED)
<TABLE>
<CAPTION>
ADVANCES TO
AND NOTES TOTAL
COMMON STOCK RECEIVABLE SHAREHOLDERS'
NUMBER CONTRIBUTED FROM ACCUMULATED EQUITY
OF SHARES AMOUNT CAPITAL SHAREHOLDERS DEFICIT (DEFICIT)
<S> <C> <C> <C> <C> <C> <C>
BALANCE JANUARY 31, 1995... 2,011,155 $2,602,751 $ 150,000 $ (69,883) $ (3,652,274) $ (969,406)
Issuance of common stock
for cash upon exercise of
warrants................. 22,090 221 -- -- -- 221
Issuance of common stock
for cash in a private
placement................ 99,200 496,000 -- -- -- 496,000
Common stock returned by
shareholders to
Company.................. (215,000) -- -- -- -- --
Capital contributed by
shareholders for
services................. -- -- 409,500 -- -- 409,500
Issuance of common stock
for services............. 5,000 4,500 -- -- -- 4,500
Issuance of common stock
warrants for services.... -- 1,200 -- -- -- 1,200
Issuance of common stock
for services............. 15,000 20,250 -- -- -- 20,250
Write-off of shareholder
advance.................. -- -- -- 69,883 -- 69,883
Net loss for the year...... -- -- -- -- (227,390) (227,390)
BALANCE JANUARY 31, 1996... 1,937,445 3,124,922 559,500 -- (3,879,664) (195,242)
Issuance of common stock
for services, including
the Contingent Shares
Guarantee (Note 4)....... 177,200 441,360 -- -- -- 441,360
Issuance of common stock
for cash upon exercise of
warrants................. 3,400 34 -- -- -- 34
Issuance of common stock to
employees for notes...... 580,000 1,450,000 -- (1,450,000) -- --
Interest on employee
notes.................... -- 12,171 -- (12,171) -- --
Issuance of common stock
for notes upon exercise
of warrants.............. 65,100 65,100 -- (65,100) -- --
Net loss for the year...... -- -- -- -- (757,703) (757,703)
BALANCE JANUARY 31, 1997... 2,763,145 5,093,587 559,500 (1,527,271) (4,637,367) (511,551)
Net loss for the period
(UNAUDITED).............. -- -- -- -- (166,430) (166,430)
BALANCE APRIL 30, 1997
(UNAUDITED).............. 2,763,145 $5,093,587 $ 559,500 $ (1,527,271) $ (4,803,797) $ (677,981)
</TABLE>
The accompanying notes are an integral part of these financial statements.
30
<PAGE>
LEGACY BRANDS, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED JANUARY 31, APRIL 30,
1996 1997 1996 1997
<S> <C> <C> <C> <C>
(UNAUDITED) (UNAUDITED)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss................................................ $ (227,390) $ (757,703) $ (84,889) $ (166,430)
Adjustments to reconcile net loss to net cash
(used in) operating activities:
Depreciation and amortization...................... 95,500 110,307 27,339 28,376
Amortization of debt issuance costs................ 18,029 468,528 70,860 130,980
Common stock issued for services................... 4,500 3,960 -- --
Capital contribution for services.................. 270,000 -- -- --
Write-off of shareholder advance................... 69,883 -- -- --
Changes in assets and liabilities:
(Increase) decrease in accounts receivable from
related parties.................................... (22,158) 22,158 22,158 --
Increase in receivable from manufacturer............. -- (22,921) (91,657) (84,974)
(Increase) decrease in other receivables............. (2,284) 14,785 2,773 --
Increase in inventory of supplies.................... -- (50,000) -- --
Increase in prepaid expenses and other............... -- (6,996) -- (23,878)
(Decrease) increase in accounts payable.............. (419,070) (32,239) (26,777) 67,354
(Decrease) increase in accrued expenses and
other liablities................................... (231,521) 19,195 (4,193) (23,272)
Payments of liability to manufacturer................ (230,592) (346,959) (59,336) (92,776)
Net cash used in operating activities.............. (675,103) (577,885) (143,722) (164,620)
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of office equipment............................ -- (6,079) -- (12,342)
Payment toward purchase of license...................... -- (12,500) -- --
Net cash used in investing activities.............. -- (18,579) -- (12,342)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock.................. 496,221 34 -- --
Proceeds from issuance of loans payable................. 155,000 445,000 -- --
Payment of loan payable................................. -- (5,000) -- --
Proceeds from issuance of notes and advances payable to
related parties...................................... 243,000 454,000 239,000 --
Payments on notes and advances payable
to related parties................................... (69,254) (46,500) -- --
Payments of debt issuance costs......................... (82,715) (163,038) (101,988) (20,497)
Issuance of advance to related party.................... -- (135,000) -- --
Proceeds from repayment of advance
to related party..................................... -- 135,000 -- --
Payment of deferred offering costs...................... -- (147,354) -- (49,960)
Proceeds from draws on line of credit................... -- -- -- 225,472
Net cash provided by financing activities.......... 742,252 537,142 137,012 155,015
INCREASE (decrease) in cash............................... 67,149 (59,322) (6,710) (21,947)
CASH, beginning of period................................. 14,419 81,568 81,568 22,246
CASH, end of period....................................... $ 81,568 $ 22,246 $ 74,858 $ 299
Supplemental disclosure of cash flow information:
Cash payments for interest.............................. $ 7,444 $ 61,615 -- $ 29,645
Cash payments for income taxes.......................... $ 800 $ 800 $ 800 $ 800
</TABLE>
The accompanying notes are an integral part of these financial statements.
31
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND OPERATIONS
Legacy Brands, Inc. (Company) is a California corporation that markets
frozen cookie dough through alliances with Mrs. Fields Cookies and a single
manufacturer, as described below.
The Company changed its name from Greg Plunkett, Inc., in 1996.
CONCENTRATION OF MANUFACTURER AND PRODUCT
The Company currently maintains an informal relationship with one
manufacturing company to process its product. The Company believes that several
other suppliers are capable of providing substantially similar services. The
Company currently markets one product, frozen cookie dough, which is available
in retail stores in four flavors, through a network of brokers.
The manufacturer produces the product and bills the retailer for sales upon
approval by the Company. Sales proceeds, net of manufacturing and certain other
costs, are remitted to the Company by the manufacturer. Revenue is recognized by
the Company when the product is shipped to the retailer by the manufacturer.
Until October 1995, all sales were to a single distributor at a fixed price
per case. Subsequently, sales are made directly to retailers (primarily
supermarkets and club stores).
Accounts receivable credit risk exposure from retail customers is assumed
by the manufacturer, except that the Company is liable to the manufacturer for
the Company's gross margin on uncollectible receivables and spoiled inventory.
CASH
The Company includes all cash accounts and all highly liquid instruments
purchased with an original maturity of three months or less as cash.
INVENTORY OF SUPPLIES
Inventory of supplies, at lower of cost (average cost) or market, consists
of components of the 1996 Holiday Cookie Kit, other than cookie dough and other
food products. Such supplies were purchased directly by the Company and supplied
to the manufacturer who assembled and shipped kits to retailers in November and
December 1996. The remaining supplies inventory will be utilized in the 1997
Holiday Cookie Kit.
OFFICE EQUIPMENT
Office equipment is recorded at cost. Depreciation is computed using the
straight-line method over the assets' useful lives ranging from five to ten
years. Expenditures for maintenance, repairs and minor renewal and betterments
are charged to expense. The cost and related accumulated depreciation of
equipment sold or retired are removed from the accounts and the resulting gain
or loss is included in Other (expense) income.
32
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
DEBT ISSUANCE COSTS
Costs incurred in obtaining debt financing are deferred and amortized over
the term of the associated debt agreements using the interest method and include
the following:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
<S> <C> <C>
(UNAUDITED)
Costs related to issuance of convertible notes payable, net of
accumulated amortization of $38,947 and $49,373 (unaudited) at
January 31, 1997 and April 30, 1997, respectively............. $ 105,753 $ 95,324
Costs related to issuance of loans payable, net of accumulated
amortization of $447,610 and $568,161 (unaudited) at January
31, 1997 and April 30, 1997, respectively..................... 161,743 41,192
Costs related to issuance of line of
credit facility (unaudited)................................... -- 20,497
$ 267,496 $ 157,013
</TABLE>
ORGANIZATION COSTS
Organization costs consist of legal fees of $5,000 incurred to incorporate
and are recorded at cost. Amortization is computed using the straight-line
method over a period of five years. Accumulated amortization was $3,000 and
$3,250 (unaudited) at January 31, 1997 and April 30, 1997, respectively.
DEFERRED OFFERING COSTS
Deferred offering costs consist primarily of legal and accounting fees and
will be netted against the proceeds of the proposed offering of common stock
described in Note 11. If the offering does not occur, such costs will be
expensed.
LICENSE AGREEMENTS
MRS. FIELDS LICENSE
The Company entered into a five-year (Initial Term) trademark license
agreement (Mrs. Fields License) with Mrs. Fields Development Corporation (Mrs.
Fields) whereby the Company has the exclusive right and license to use the
licensed names to market products through certain designated distribution
channels in North America, Hawaii and Puerto Rico. The Initial Term of the Mrs.
Fields License expires in December 1999. The Company has the option to extend
the Mrs. Fields License for five consecutive five-year periods (Option Periods)
that expire in December 2024.
However, Mrs. Fields may terminate the Mrs. Fields License upon the
commencement of each Option Period by notifying the Company of its intention to
terminate the Mrs. Fields License as of the end of the Initial Term or prior
Option Period. Mrs. Fields must also provide written notice and pay the Company
an amount equal to three times the average gross margin for sales reported by
the Company over the last three years of the current option term in accordance
with the Mrs. Fields License (Buy Out Amount). The Buy Out Amount would be
payable in cash over three years in twelve equal quarterly installments.
The Mrs. Fields License held by the Company is subject to cancellation in
the event of nonperformance. In accordance with the Mrs. Fields License, the
Company is obligated to maintain specified levels of product sales (Minimum
Volume Commitment) during the Initial Term and during each Option Period. If the
Company fails to
33
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
meet the Minimum Volume Commitment, the Company must pay a royalty in an amount
equal to the royalty that would have been paid if the Company had met its
Minimum Volume Commitment. If the Company is determined to be insolvent, or
files a petition in bankruptcy or for reorganization, then the Mrs. Fields
License may be terminated upon notice by Mrs. Fields. Mrs. Fields has confirmed
that the Company is in compliance with the terms of the license agreement as of
March 4, 1997, and has waived its rights and remedies related to the insolvency
provision of the Mrs. Fields License until such time as an offering of equity
securities shall have been completed (Note 11), but not later than July 31,
1997, unless there shall have been a bankruptcy filing of the Company.
In March 1996, the Mrs. Fields License was amended to require that the
Company meet revised Minimum Volume Commitments beginning January 1, 1997 on a
calendar year basis. The Minimum Volume Commitments were substantially reduced
from the prior commitments. The Minimum Volume Commitment for calendar year 1997
is 285,000 twelve pound equivalent cases, which increases to certain specified
quantities over the life of the agreement to 583,434 twelve pound equivalent
cases in 2015, and remains at that level until the expiration of the license
periods. Twelve pound equivalent case volume sold during the years ended January
31, 1996 and 1997 and the three months ended April 30, 1997, were approximately
132,000, 177,000 and 46,000 (unaudited), respectively.
As part of the Mrs. Fields License, the Company paid a non-refundable fee
described as a prepaid royalty of $2,500,000 to Mrs. Fields. The fee is being
amortized on a straight-line basis over the life of the Mrs. Fields License plus
each extension term for a total of 30 years. In addition, the Company pays a
royalty equal to $1 per 12 pound equivalent case sold, net of damages, returns
and credits. Such royalties included in marketing expense were $132,525 and
$177,574 for the years ended January 31, 1996 and 1997, respectively, and
$29,670 (unaudited) and $46,388 (unaudited) for the three months ended April 30,
1996 and 1997, respectively.
Management believes the carrying value of the Mrs. Fields License to be
recoverable over future periods based upon current sales forecasts. Should
anticipated volumes not be achieved and the Company not be able to make the
required royalty payment to meet its commitment under the license agreement or
should Mrs. Fields elect to terminate the Mrs. Fields License in future periods
because of nonperformance by the Company related to other provisions of the Mrs.
Fields License, the carrying value of the Mrs. Fields License may need to be
reduced accordingly.
GUMBY LICENSE
In September 1996, the Company entered into a trademark license agreement
(Gumby License Agreement) whereby the Company has a nonexclusive right and
license to distribute throughout the United States certain food products
displaying the Gumby cartoon character. The initial two year term of the Gumby
License Agreement began September 1, 1996 and ends August 31, 1998. The Company
has a renewal option for an additional two year period which is dependent upon
performance during the initial term.
As consideration for the Gumby License Agreement, the Company paid $12,500
in September 1996, and agreed to pay monthly royalties equal to 5% of net sales
of Gumby products, with such royalties guaranteed to aggregate a minimum of
$112,500 by August 31, 1998. Amortization of the minimum royalty is over the
initial term of the license at the greater of straight line amortization or 5%
of net sales.
MARKETING COSTS
The costs of marketing, including advertising, are charged to expense in
the period incurred.
New market distribution costs (slotting allowances) are also charged to
expense in the period incurred.
34
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
INCOME TAXES
The Company reports income taxes under the liability method. Accordingly,
deferred tax assets and liabilities arise from the differences between the tax
basis of an asset or liability and its reported amount in the financial
statements. Deferred tax amounts are determined using the tax rates expected to
be in effect when the taxes will actually be paid or refunds received, as
provided under currently enacted tax law. Valuation allowances are established
when necessary to reduce deferred tax assets to the amount expected to be
realized. At January 31, 1997 and April 30, 1997 (unaudited), the Company has
recorded a 100% valuation allowance against the net deferred tax assets.
ACCOUNTING ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles (GAAP) 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.
NET LOSS PER SHARE
Net loss per share has been computed based on the weighted average number
of shares outstanding during the period presented. Common share equivalents,
consisting of restricted stock issued to employees for notes, stock issued on
notes upon the exercise of warrants and warrants issued by the Company, are
anti-dilutive for each of the periods presented and, therefore, are not included
in the computation of net loss per share.
NEW ACCOUNTING PRONOUNCEMENT
In February 1997, Statement of Financial Accounting Standard (SFAS) No.
128, EARNINGS PER SHARE, was issued. SFAS 128 specifies the computation,
presentation, and disclosure requirements for earnings per share (EPS). SFAS 128
is designed to improve the EPS information presented in the financial statements
by simplifying the existing computational guidelines, revising the disclosure
requirements, and increasing the comparability of IPS data on an international
basis. This statement is effective for financial statements issued for periods
ending after December 15, 1997, including interim periods. Earlier application
is not permitted.
The Company will adopt SFAS No. 128 for fiscal year ending January 31,
1998. The Company is currently determining the impact of the adoption of SFAS
No. 128 on its financial statements.
STOCK-BASED COMPENSATION
In October 1995, Statement of Financial Accounting Standards (SFAS) No.
123, ACCOUNTING FOR STOCK-BASED COMPENSATION was issued. SFAS No. 123
establishes fair value based accounting and reporting standards for stock-based
employee compensation plans. The statement defines a fair value based method of
accounting for employee stock options or similar equity instruments and allows
parties to elect to continue to measure compensation costs using the intrinsic
value based method of accounting prescribed by Accounting Principles Board (APB)
Opinion No. 25, ACCOUNTING FOR STOCK ISSUED TO EMPLOYEES. SFAS No. 123 requires,
for those electing to remain with APB Opinion No. 25 accounting, pro forma
disclosure of net income (loss) as if the fair value based method had been
applied.
The Company adopted SFAS No. 123 at January 31, 1997, and elected to
measure and record compensation cost as defined in APB Opinion No. 25. As there
was no additional compensation cost, pro forma disclosures were not required at
January 31, 1997 and April 30, 1997, under the fair value method.
35
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES, continued
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amount of cash approximates fair value due to the short-term
nature of these instruments.
Due to uncertainties regarding the Company's financial status, it is not
practicable to determine the fair value of the Company's line of credit,
accounts payable, notes payable and the liability to manufacturer.
2. BASIS OF PRESENTATION
The accompanying financial statements have been prepared assuming the
Company will continue as a going concern. The Company has incurred significant
operating losses, has negative cash flows from operations and substantial
negative working capital. As explained in Notes 1 and 4, the Company's license
compliance confirmation with respect to the Mrs. Fields license agreement
expires July 31, 1997, and $595,000 of loans payable mature on June 30, 1997.
These factors raise substantial doubt about the Company's ability to continue as
a going concern.
Management plans to improve profitability through increases in sales
volume, reduction of overhead expenses and stronger controls over product
development and marketing and is seeking additional financing. The Company is
currently pursuing an offering of equity securities. There can be no assurance
that management's plans to achieve profitability and raise sufficient financing
will be successful. The financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
3. ACCOUNTS PAYABLE
The Company is currently in the process of negotiating settlements of
certain old accounts payable, primarily dating back to the summer of 1994, which
have been recorded at the billed amounts. These negotiations relate to
substantiation of the extent of goods and services received in relation to the
billed amounts. Such amounts included in accounts payable total $422,202 at
January 31, 1997 and April 30, 1997 (unaudited). Any reduction of the payables
will be recorded when settlements occur. The ultimate amount to be paid is
uncertain.
4. NOTES PAYABLE
Notes payable consist of the following:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
<S> <C> <C>
(UNAUDITED)
Uncollateralized notes payable to related parties bearing interest at 12%,
principal and interest payable on demand................................ $ 60,000 $ 60,000
Convertible notes payable, to C. Brands Management, L.L.C., collateralized
by the Mrs. Fields license, principal and interest due upon maturity
between August 1998 and October 1999, net of unaccreted discount of
$56,070 and $49,463 (unaudited) at
January 31, 1997 and April 30, 1997, respectively....................... 566,430 573,037
Loans payable, collateralized by substantially all assets of the Company,
guaranteed by Pacific Acquisition Group, interest due quarterly,
principal and any remaining interest due as described below............. 595,000 595,000
1,221,430 1,228,037
Less current maturities................................................... (655,000) (655,000)
$ 566,430 $ 573,037
</TABLE>
36
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE, continued
CONVERTIBLE NOTES PAYABLE
In the period August 1995 through October 1996, C. Brands Management,
L.L.C. (C. Brands), a company whose principal management is a shareholder of
Legacy Brands, Inc., received notes from the Company, for cash consideration of
$622,500. In connection with services provided related to the issuance of the
notes, the Company paid Capitol Bay Securities (a related party) 15 percent of
the principal amount of the notes plus other costs ($94,000), 55,000 shares of
common stock, valued at $49,500, and warrants to purchase 60,000 shares of
common stock, valued at $1,200. In addition, C. Brands received 100,000 shares
of common stock from the Founders (Note 7), which has been valued at $90,000 and
recorded as debt discount. The debt discount is being accreted over the life of
the debt agreement using the interest method. Including debt issuance costs, the
effective rate of interest on the convertible notes payable at January 31, 1997,
is approximately 32%. The stated rate of interest is 12% per annum.
Pursuant to an election by C. Brands under the terms of the note agreement,
the C. Brands debt will automatically convert into 124,500 shares of the
Company's common stock at the effective date of the Company's planned offering
of equity securities (Note 11). The conversion rate shall be two-tenths of a
share for each dollar of indebtedness outstanding at the date of conversion.
LOANS PAYABLE
In the period November 1995 through March 1996, Pacific Acquisition Group
(PAG) made loans (First Bridge Loan), through investors, to the Company totaling
$300,000, of which $155,000 had been received by the Company at January 31,
1996. In connection with services provided by PAG related to the First Bridge
Loan, the Company paid PAG an aggregate amount of approximately 15 percent of
the principal amount of the First Bridge Loan plus other costs ($49,715) and
issued PAG 15,000 shares of common stock, valued at $20,250, as of January 31,
1996. In May 1996, the First Bridge Loan Agreement was amended to include
certain registration right provisions.
As consideration for receiving an additional $300,000 bridge loan (Second
Bridge Loan), the Company paid PAG other issuance costs of $101,988 and issued
PAG an additional 15,000 shares. The 15,000 shares issued to PAG in connection
with the Second Bridge Loan were also subject to certain registration right
provisions. The Company also issued an additional 160,000 shares to PAG in
connection with the debt issuance agreements. These shares issued (175,000) were
valued at $315,000 and recorded as additional debt issuance costs.
In addition, the Company agreed that it would issue additional shares of
common stock to PAG to reach a $1,300,000 minimum value (Contingent Shares
Guarantee). The Contingent Shares Guarantee was valued at $122,400 and recorded
as an addition to debt issuance costs and common stock.
In April 1997, the Company and PAG executed an agreement to issue 35,000
additional shares to PAG in exchange for cancellation of the Contingent Shares
Guarantee. In June 1997, the April 1997 agreement to issue an additional 35,000
shares was rescinded and replaced by an agreement to issue a limited number of
additional shares of common stock to PAG if the $1,300,000 minimum value amount
is not achieved. The maximum amount of additional shares issuable under the June
1997 agreement is 200,000. The determination of the additional shares is based
on a valuation of the Company's common stock at the expiration of twelve months
after the date upon which the common stock shares shall have commenced trading
on the electronic bulletin board or the NASDAQ Small Cap Market. The valuation
shall be based upon the highest average closing price for shares of common stock
for any consecutive ten days in which the common stock shall have traded. These
subsequent agreements to issue additional shares did not change the original
accounting for the Contingent Shares Guarantee noted above.
37
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
4. NOTES PAYABLE, continued
The June 1997 agreement gave PAG certain piggy back registration rights in
connection with any future initial public offering, subject to the underwriter's
discretion.
Including the debt issuance costs, the effective rate of interest on the
loans payable at January 31, 1997, is in excess of 1,000%. The stated rate is
15% per annum.
In the event of default on the bridge loans, the debt can be converted into
shares of Series B Convertible Preferred Stock of PAG at a rate as stipulated in
PAG's guarantee of this debt.
Under the original terms, the bridge loans matured or would have matured
prior to the proposed offering. As a result, the original bridge loan maturity
dates were extended in February and March 1997 and the interest rate was
increased to 16%. Substantially all loans are now due June 30, 1997, or have
otherwise been provided for (see Note 14).
Aggregate principal payments required in future years on all notes payable
at January 31, 1997 and April 30, 1997 (unaudited), are as follows:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
<S> <C> <C>
(UNAUDITED)
PERIOD ENDING:
1998........................................................ $ 655,000 $ 655,000
1999........................................................ 215,000 215,000
2000........................................................ 407,500 407,500
$ 1,277,500 $ 1,277,500
</TABLE>
5. LIABILITY TO MANUFACTURER
During 1994, the Company arranged for the manufacture of approximately
$2,500,000 of frozen cookie dough product. In 1995, all of this product was
either discarded by the manufacturer due to obsolescence or reworked and sold to
reduce the loss. Based upon a troubled debt restructuring negotiated with the
manufacturer, $2 per case of new product sold since March 1995 is deducted from
the monthly amount received by the Company from the manufacturer related to
current product sales and applied to the liability. The Company may negotiate
with the manufacturer related to a discount for early payoff of the liability.
Such discount, if any, will be recorded when final settlement is made.
The Company recorded a provision for loss on inventory disposal for the
period ended January 31, 1995, in the amount of $2,579,478, which represents the
inventory produced and later discarded due to obsolescence, less amounts
recovered from reworking the product (approximately $476,000), plus holding
costs until rework and ultimate disposal (approximately $604,000).
Estimated aggregate future payments based on historical data are as
follows:
<TABLE>
<CAPTION>
JANUARY 31 APRIL 30
<S> <C> <C>
(UNAUDITED)
PERIOD ENDING:
1998........................................................ $ 348,092 $ 348,092
1999........................................................ 348,092 348,092
2000........................................................ 348,092 348,092
2001........................................................ 353,586 260,810
Total....................................................... 1,397,862 1,305,086
Less current portion........................................ (348,092) (348,092)
Noncurrent portion.......................................... $1,049,770 $ 956,994
</TABLE>
38
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
6. INCOME TAXES
The net deferred tax asset consists of the following:
<TABLE>
<CAPTION>
JANUARY 31, APRIL 30,
1997 1997
<S> <C> <C>
(UNAUDITED)
Deferred tax assets, net:
Net operating loss carryforwards............................ $ 422,269 $ 502,972
Old accounts payable........................................ 8,314 8,314
License, net................................................ (87,803) (94,865)
Built-in-losses............................................. 124,710 124,710
Other....................................................... (34,588) (39,332)
432,902 501,799
Less valuation allowance...................................... (432,902) (501,799)
Net deferred tax asset........................................ $ -- $ --
</TABLE>
As a result of providing a valuation allowance equal to the net deferred
tax assets, there is no federal tax provision. The provision for tax in the
years ended January 31, 1996 and 1997, and the three-month periods ended April
30, 1996 (unaudited) and April 30, 1997 (unaudited), is the state minimum tax.
At January 31, 1997, the Company had approximately $973,500 in net
operating losses for both federal and state tax purposes, available to be
carried forward to future periods. These amounts increased to approximately
$1,160,000 (unaudited) at April 30, 1997. The carryforwards expire from 2011 to
2012 for federal purposes and in 2004 for state purposes.
During fiscal year ended January 31, 1996, the Company had more than a 50%
change in ownership. Section 382 of the Internal Revenue Code and comparable
state statutes impose certain annual limitations on the utilization of net
operating loss carryforwards to offset income in future periods. The amounts
shown above for the operating loss carryforwards consider the reductions under
the Code due to such ownership change.
The Company has plans for future equity transactions, including conversions
of debt to equity, employee stock incentive plans and issuance of new shares to
outside investors. If these transactions are all completed, it is likely that
another 50% ownership change will occur within the meaning of Section 382 of the
Internal Revenue Code. If this occurs, there may be further reductions in the
ability to use the net operating losses of the Company in future periods.
7. SHAREHOLDERS' EQUITY
REVERSE STOCK SPLIT
In October 1996, the Company amended its articles of incorporation to
effect a one-for-ten reverse stock split. All common share information in these
financial statements has been adjusted to reflect the reverse stock split.
SHAREHOLDERS' EQUITY TRANSACTIONS FOR THE PERIOD FROM FEBRUARY 16, 1994
(INCEPTION) TO JANUARY 31, 1995
In February 1994, the Company issued 1,020,000 and 340,000 shares to Greg
Plunkett and CBG Partnership (each a Founder), respectively, in exchange for
forgiveness of a $8,035 note payable to one of the Founders and certain license
rights which were subsequently abandoned and have been assigned no value.
During August 1994, the Company completed a private placement offering of
263,900 shares for $319,716 (net of $60,502 of offering costs). As part of the
offering, the underwriter (Capitol Bay Securities, a related party)
39
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. SHAREHOLDERS' EQUITY, continued
received warrants to purchase 25,490 shares of common stock at $.01 per share,
which were exercised in July 1995 and July 1996.
During October 1994, notes payable of $150,000 to two Founders were
converted to contributed capital.
In November 1994, an investor paid $1,250,000 for 182,255 shares of common
stock.
During January 1995, investors purchased 205,000 shares for $1,025,000
under a private offering that was eventually completed in March 1995.
SHAREHOLDERS' EQUITY TRANSACTIONS FOR THE YEAR ENDED JANUARY 31, 1996
From February to March 1995, individual investors purchased 99,200 shares
for $496,000 in completion of the private offering begun in January 1995.
In August 1995, as part of an agreement between the Founders and other
shareholders, the Founders reconveyed a total of 215,000 shares to the Company,
without consideration.
In addition, as part of the August 1995 agreement, the Founders transferred
100,000 shares of common stock, which are valued at $90,000, to a related party
for consulting services provided to the Company; transferred 55,000 shares of
common stock, which are valued at $49,500, to a related party for services
performed in obtaining debt financing for the Company, transferred the 100,000
shares described in Note 4 (valued at $90,000) to C. Brands; and the Founders
transferred 200,000 shares of common stock, valued at $180,000, to a consultant
for services performed for the Company. These transactions are reflected as
contributions of capital by the Founders with charges to operations and debt
discount. The shares were valued at $.90 per share based on an independent
valuation.
During September 1995, a consultant to the company was issued 5,000 shares
valued at $4,500 for services performed for the Company. The shares were valued
at $.90 per share based on an independent valuation.
In December 1995, the Company issued 15,000 shares of common stock to an
investment broker (PAG) which have been valued at $20,250 for services provided
in obtaining debt financing. The shares were valued at $1.35 per share based on
an independent valuation.
SHAREHOLDERS' EQUITY TRANSACTIONS FOR THE YEAR ENDED JANUARY 31, 1997
In May 1996, 2,200 shares valued at $3,960 were issued to an outside party
for services rendered to the Company.
In June 1996, the Company issued 175,000 shares of common stock to PAG
valued at $315,000 and the Contingent Shares Guarantee valued at $122,400 for
services provided in obtaining debt financing.
These shares issued were valued at $1.80 per share based on an independent
valuation.
In October 1996, the Company, in connection with management compensation
agreements, issued restricted shares aggregating 580,000 to four key employees
in exchange for notes aggregating $1,450,000 and treated as nonrecourse (Note
10). The Company recorded $12,171 of interest on such notes during the year
ended January 31, 1997.
In January 1997, warrants issued in the original private placement offering
in 1994 were exercised; and the Company issued 65,100 shares in exchange for
notes totaling $65,100 bearing interest at 6.72% per annum and maturing one year
from the exercise date.
40
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
7. SHAREHOLDERS' EQUITY, continued
COMMON STOCK WARRANTS
As part of the original private placement offerings in 1994 and 1995, the
Company issued warrants to purchase 226,503 shares of common stock at $1.00 per
share to several individuals, of which 16,403 expired January 31, 1997, and
65,100 were exercised as described above and 145,000 remain outstanding at
January 31, 1997, and expire March 6, 1998. The Company has agreed to include
shares issuable under the 145,000 remaining warrants in any future initial
public offering, subject to the underwriter's discretion.
Warrants to purchase 60,000 shares of common stock at $2.50 per share,
valued at $1,200, were issued to the Capitol Bay Securities during the year
ended January 31, 1996, for services performed to locate investors in connection
with the convertible notes payable. These warrants expired January 31, 1997.
Additional warrants were issuable subsequent to April 30, 1997, as
described in Note 14.
COMMON STOCK RESERVED
At June 16, 1997, approximately 1,000,000 shares have been reserved for
conversion of C. Brands debt, options that may be issued under the stock option
plan, the shares issuable under the PAG Contingent Shares Guarantee and for
outstanding warrants, including those described in Note 14.
8. STOCK OPTION PLAN
In October 1996, the Company adopted a Stock Option Plan (Plan) which
provides for the issuance of incentive stock options or nonqualified stock
options to certain employees, officers, directors, and non-employees of up to
10% of the outstanding common shares of the Company in accordance with the Plan.
Under this Plan, incentive and nonqualified stock options are granted at prices
determined by the Stock Option Plan Committee but shall not be less than 85% of
the fair market value of the underlying stock on the date of grant. The exercise
price of any incentive stock option granted under the Plan to a more than 10%
shareholder shall be equal to at least 110% of the fair market value of the
underlying stock on the date of the grant. The term of options granted under the
plan may not exceed ten years.
The Plan was approved by shareholders in October 1996. No options have been
granted under the Plan.
9. RELATED-PARTY TRANSACTIONS
The following are related-party transactions not disclosed elsewhere in the
financial statements.
From October 1994 through June 1995, the Company shared office space and
administrative expenses with a company controlled by a shareholder.
Administrative expenses were allocated to the Company based on usage. For the
year ended January 31, 1996, these office and administrative costs were $13,000.
During September 1995, the Company began sharing office space and related
administrative expenses for a monthly flat rate of $2,000 with a company
controlled by another shareholder, Capitol Bay Group. For the years ended
January 31, 1996 and 1997, and for the three month periods ended April 30, 1996
and 1997, these office and administrative expenses amounted to $10,000, $24,000,
$6,000 (unaudited) and $6,000 (unaudited), respectively, under a month-to-month
agreement, which expires in September 1997.
The Company intends to enter into an office lease with a related party,
including the Company's Chief Executive Officer and another shareholder of the
Company. The lease terms have not yet been completed.
From November 1995 through January 1996, the Company utilized the services
of C. Brands to oversee the shipment and invoicing of Mrs. Fields frozen cookie
dough products to a distributor for distribution in the Southern California
area. For the year ended January 31, 1996, sales and cost of sales through C.
Brands totaled
41
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
9. RELATED-PARTY TRANSACTIONS, continued
$134,425 and $93,594, respectively. During the year ended January 31, 1996, the
Company also paid $12,500 in fees to this entity, which are included in
marketing expense. As of January 31, 1996, $22,158 was receivable from C. Brands
for sales described above. Such amounts were received during the year ended
January 31, 1997.
Included in interest expense, excluding amortization of debt issuance
costs, are amounts to related parties of $22,308, $49,808, and $6,182
(unaudited) and $20,475 (unaudited) for the years ended January 31, 1996 and
1997, and for the three month periods ended April 30, 1996 and 1997,
respectively.
The Company had advances receivable from a Founder of $69,883, which was
recorded as an offset to shareholders' equity at January 31, 1995, and was
written off in the year ended January 31, 1996, under the terms of the August
1995 agreement described in Note 7.
In late calendar 1995 and continuing into calendar 1996, the Company
periodically borrowed various amounts not exceeding $50,000 at any time from
Capitol Bay Group, which amounts were repaid by May 1996, without interest.
In November 1996, the Company loaned $135,000 to Capitol Bay Group, which
was repaid within six days. Interest related to the loan approximated $400 and
was received in January 1997.
A director of the Company owns less than a 1% interest in C. Brands.
10. COMMITMENTS
CONSULTING SERVICES AGREEMENT
In February 1996, the Company completed renegotiating an agreement for
consulting services with an individual. Under terms of the agreement, the
Company paid the consultant as current compensation $5,000 each month from
February 1996 through January 1997. Additionally, the agreement provided for the
payment of a maximum bonus of $60,000 contingent upon a company sales target for
the fiscal year ended January 31, 1997, which was not achieved. The agreement
also stipulated that all prior agreements with the Company and the individual be
canceled. In exchange for the cancellation of all prior agreements, the Company
agreed to pay $5,000 each month for twelve months with the final payment in
January 1997. The Company accrued the $60,000 liability as of January 31, 1996.
The Company extended the monthly consulting portion of the agreement increasing
the compensation to $6,000 per month for the year ending January 31, 1998,
without any bonus arrangement.
In connection with the original consulting agreement, the individual
received 200,000 shares of common stock (Note 7).
MANAGEMENT COMPENSATION
Pursuant to the Board of Director's approval in October 1996, effective
September 1, 1996, and as amended on February 28, 1997, the Company entered into
employment agreements with four key employees for three-year terms, which will
be automatically extended for an additional year unless canceled by either
party. Compensation may be increased by the Board of Directors with respect to
the chief executive officer or by the chief executive officer with respect to
the other employees during the term of the agreements. The minimum aggregate
compensation expense under these agreements is as follows:
<TABLE>
<S> <C>
YEAR ENDING JANUARY 31,
1998.......................................... $579,000
1999.......................................... 640,000
</TABLE>
42
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
10. COMMITMENTS, continued
In addition to the minimum compensation described above, such individuals
are entitled to an annual bonus calculated on targeted earnings for the year, as
defined. The bonus could reach 50% of the annual minimum salary noted above,
plus additional amounts based upon earnings levels. Such bonuses are paid to the
individuals during the year based on predetermined percentages and adjusted
after year-end based on audited data.
Certain reductions were made in the minimum compensation expense for the
year ended January 31, 1997. Additionally, bonuses were not earned related to
the compensation agreements for the 1997 fiscal year and for the first quarter
of the 1998 fiscal year (unaudited).
As part of the compensation agreements described above, each individual was
granted the right to purchase shares of common stock of the Company pursuant to
a Restricted Stock Purchase Agreement. Vesting occurs over a three year period
based on the terms of the agreements. Although vesting occurs quarterly, vesting
certificates are issued annually over the three-year vesting period. Vesting and
payment provisions were amended in June 1997 to provide for vesting and payment
for future stock purchases ratably over a ten-year period. Vesting for one of
the key employees, as well as his $1,000,000 note payment term, was also
extended to ten years in the June 1997 amendment.
In October, 1996, shares aggregating 580,000 were purchased under these
agreements at $2.50 per share by the issuance of notes in the aggregate
principal amount of $1,450,000, interest payable at 6.72%, maturing on the third
anniversary of the first issuance of a certificate of vesting by the Company,
subject to forfeiture in the event of early termination, certain repurchase
rights of the Company, and with certain anti-dilution protection. Such shares
are pledged as collateral on the notes. Effective January 31, 1997, the Company
and the key employees amended the note agreements to eliminate all prepayment
provisions. Therefore, in future periods, the Company will not be required to
evaluate compensation expense based on increases in the value of the Company's
common stock. Compensation expense was not recorded currently by the Company as
the value of the Company's stock at October 31, 1996 and January 31, 1997, of
$1.90 and $2.25 per share, respectively, based on an independent valuation, is
below the stock purchase price (including interest).
The shares, pursuant to the restricted stock purchase agreements described
above, were issued in accordance with an Employee Stock Purchase Plan adopted by
the Board of Directors in October 1996. Such plan was effective as of September
1, 1995, and is subject to approval of the shareholders (within twelve months of
adoption) and qualification with the California Commissioner of Corporations.
11. PROPOSED OFFERING OF EQUITY SECURITIES
In August 1996, the Company signed a letter of intent with an underwriting
firm in connection with a proposed public offering. In May 1997, the proposed
public offering was postponed.
The Company is planning to offer to private investors, on a best efforts
basis, up to 1,600,000 shares of its common stock at a price of $2.50 per share,
or a total of $4,000,000.
In connection with the proposed offering, the Company plans to enter into
an underwriting agreement with Capitol Bay Securities and others (see Note 14).
Upon the completion of its planned private placement of equity securities,
the Company plans to file a registration statement on Form 10SB with the
Securities and Exchange Commission.
43
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
12. RESTATEMENT OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
The Company issued unaudited compiled financial statements without footnote
disclosures as of and for the year ended January 31, 1996. Those financial
statements have been restated as a result of the audits of the Company's
financial statements, as follows:
<TABLE>
<CAPTION>
AS PREVIOUSLY AS
REPORTED ADJUSTMENTS ADJUSTED
<S> <C> <C> <C>
Shareholders' equity (deficit) at
January 31, 1995............................ $ 1,497,166 $(2,466,572) $ (969,406)
Total assets at January 31, 1996.............. $ 2,527,352 $ 122,267 $2,649,619
Total liabilities at January 31, 1996......... $ 3,135,671 $ (290,810) $2,844,861
Shareholders' equity (deficit) at
January 31, 1996............................ $ (608,319) $ 413,077 $ (195,242)
Net loss for the year ended
January 31, 1996............................ $ (2,873,985) $ 2,646,595 $ (227,390)
Net loss per share for the year ended January
31, 1996.................................... $ (1.43) $ 1.32 $ (0.11)
</TABLE>
Substantial adjustments were made to the previously issued financial
statements in order to properly reflect the statements under generally accepted
accounting principles. These adjustments generally relate to debt issuance
costs, common stock, contributed capital, advances to shareholder, and provision
for loss on inventory disposal.
13. CONTINGENCIES
The founder and former director of the Company, who is a shareholder
holding in excess of 5% of the Company's outstanding common stock, has advised
the Company that he has a number of claims against the Company and others. These
claims relate to an agreement entered into by the shareholder and the Company
and other parties in August 1995, and to alleged back wages and amounts
allegedly advanced by him to the Company.
The August 1995 agreement provided for the establishment of a management
committee to restructure the Company. The August 1995 restructuring involved the
infusion of new capital and the distribution of certain of the shareholder's
shares to certain parties as described in Note 7. The August 1995 agreement also
contained mutual releases and a waiver of certain provisions of the California
Civil Code, the effect of which was to waive the right of any party to raise
claims of which they might not have been aware at the time the general release
was given.
The shareholder claims there is a note due from the Company in the amount
of $112,500, based on the August 1995 agreement, that is still outstanding, plus
accrued interest, and that the transfer of certain shares of the common stock of
the Company in 1995 pursuant to the August 1995 agreement is not valid.
Although the matter is not in litigation, in the opinion of Counsel and
management, the estimated maximum exposure to the Company, if any, is
approximately $120,000. Counsel and management are also of the opinion that the
transfer of certain shares of common stock pursuant to the August 1995 agreement
are valid and in force. The Company also believes it has substantial defenses to
and offsets against any claims which may be ultimately be set forth in any
future litigation brought by the shareholder with respect to these matters.
44
<PAGE>
LEGACY BRANDS, INC.
NOTES TO FINANCIAL STATEMENTS, CONTINUED
13. CONTINGENCIES, continued
As a result, the Company has not accrued a liability with respect to these
contingencies. In the opinion of management, the outcome of this matter will not
have a material adverse effect on the financial position of the Company.
14. SUBSEQUENT EVENTS
Effective June 10, 1997, the Company entered into a formal agreement with
DayStar L.L.C. (DayStar), pursuant to which DayStar has agreed to provide a
credit facility to the Company in an amount not to exceed $440,000 to be used
for working capital purposes (DayStar Credit Facility). Since March 1997, the
Company operated under an informal agreement with DayStar. As of June 10, 1997,
approximately $200,000 had been advanced. Pursuant to the DayStar Credit
Facility, the Company will execute a promissory note providing for the payment
of interest on amounts outstanding at the initial rate of 12% per annum, payable
at the maturity of the note, as described below. The DayStar Credit Facility
provides that all of the outstanding principal and interest shall be paid out of
the proceeds of the proposed offering (Note 11). In the event the offering shall
not have been concluded at the expiration of seven months from the date of the
last advance, the DayStar Credit Facility shall be extended to thirteen months
from the date of the last advance and the interest rate shall increase to 15%
per annum. If the note has not been repaid at the maturity date, the Company
shall thereupon repay the principal and interest outstanding in monthly amounts
of $20,000 with any unpaid amounts due and payable at the expiration of 24
months. As additional consideration for the DayStar Credit Facility, the Company
has agreed to grant to DayStar three year warrants to purchase 200,000 shares of
common stock at $2.25 per share and 100,000 shares of common stock at $5.00 per
share.
In the event the offering has not been completed upon the expiration of
seven months from the date of the last advance, the number of warrants issuable
to DayStar shall increase, at the same ratio of $2.25 warrants and $5.00
warrants to each other as to the price as originally issued, by 4% per month
until the earlier of such time as the DayStar Credit Facility shall have been
paid in full or the offering of the Company's common stock shall have been
completed. Under no circumstances shall the number of warrants issuable to
DayStar exceed 400,000 in the aggregate.
The Company is required to pay a due diligence fee of approximately $40,000
under the terms of the agreement. In addition, to the extent other security
interests have been subordinated, the Company has pledged substantially all of
its assets as collateral on this obligation.
Certain piggy back registration rights were given to DayStar in connection
with the first 1933 Act registration statement, subject to the underwriter's
discretion.
On July 1, 1997, the Company entered into a Supplemental Credit Facility
Agreement with DayStar providing for an additional credit facility of up to
$408,000. Interest on the note executed as part of the agreement is 1% per week
(52% annual rate) plus a fee of $8,000. Principal and interest are due twelve
months from the date of the last advance of funds made pursuant to the Agreement
or five business days after the closing of the proposed offering of equity
securities described in Note 11.
On July 2, 1997, the Company drew down the entire proceeds of the
Supplemental Credit Facility and the remaining funds available under the
original DayStar credit facility, and paid the loans payables plus accrued
interest (approximately $619,000) due June 30, 1997, as described in Note 4.
On June 25, 1997, the Company entered into an agreement with Capital Bay
Securities (Note 11) providing for a 15% commission of the proposed offering
plus three year warrants to purchase up to 184,000 shares of the Company's
common stock at an exercise price of $2.50 per share. The 184,000 shares
represent 10% of the number of shares in the proposed offering, including an
over-allotment option granted to Capital Bay Securities.
45
<PAGE>
PART III
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT NUMBER DESCRIPTION
<S> <C> <C>
2.1 Articles of Incorporation
2.2 Certificate of Amendment of Articles of Incorporation dated March 10, 1994
2.3 Certificate of Amendment of Articles of Incorporation dated January 27, 1995
2.4 Certificate of Amendment of Articles of Incorporation dated March 6, 1996
2.5 By-laws of Legacy Brands, Inc.
3.1 *Form of Lock-Up Agreement
3.2 Form of Bridge Financing Note and Form of Bridge Loan and Security Agreement
3.3 Form of Promissory Note issued to C.Brands, LLC
6.1 Trademark License Agreement between Mrs. Fields Development Corporation and Plunkett,
Inc. dated August 14, 1994
6.2 First Amendment to the Trademark License Agreement between Mrs. Fields Development
Corporation and Plunkett, Inc. dated August 14, 1994 of March 28, 1996
6.3 License Agreement by and between AJM Marketing Enterprises, Inc./Prema Toy Co., Inc. and
Legacy Brands, Inc. dated September 1, 1996
6.4 Stock Option Plan, Form of Incentive Stock Option Agreement, Form of Non-Qualified Stock
Option Agreement
6.5 *Form of Employee Stock Purchase Plan
6.6 Employment Agreement, dated October 30, 1996, by and between Legacy Brands, Inc. and
Thomas E. Kees
6.7 Amendment to the Employment Agreement, dated February 28, 1997, by and between Legacy
Brands, Inc. and Thomas E. Kees of October 30, 1996
6.8 Restricted Stock Purchase Agreement by and between Legacy Brands, Inc. and Thomas E. Kees
dated October 30, 1996
6.9 Form of Promissory Note issued in connection with the Restricted Stock Purchase Agreement
6.10 *Bridge Loan and Consulting Agreement by and between Pacific Acquisition Group, Inc., and
Greg Plunkett, Inc. dated December 20, 1995
6.11 *Addendum to the Bridge Loan and Consulting Agreement by and between Pacific Acquisition
Group, Inc. and Greg Plunkett, Inc. dated December 20, 1995, of May 15, 1996
6.12 *Second Amended and Restated Bridge Loan and Consulting Agreement by and between Pacific
Acquisition Group, Inc. and Legacy Brands, Inc., dated June, 1997
6.13 *Investment Banking Compensation Agreement between Greg Plunkett, Inc. and Steve Jizmagian
and Randy Haag dated March 7, 1995
6.14 *Agreement for Termination, Release and Waiver of Rights between Legacy Brands, Inc.,
Steve Jizmagian, Randy Haag, Michael J. Staskus and Thomas O'Stasik, Sr. dated
6.15 Common Stock Purchase Warrant issued in connection with the Termination, Release and
Waiver of Rights between Legacy Brands, Inc. and Steve Jizmagian and
Randy Haag and Michael J. Staskus and Thomas O'Stasik
6.16 Credit Facility Agreement by and between Legacy Brands, Inc., and Daystar, LLC
6.17 Supplemental Credit Facility Agreement by and between Legacy Brands, Inc. and DayStar,
LLC
6.18 *Form of Credit Facility Promissory Note
6.19 Form of Supplemental Credit Facility Promissory Note
6.20 *Warrant Agreement between Legacy Brands, Inc., and Daystar, LLC
6.21 **Certain correspondence between Legacy Brands, Inc., and Van den Bergh Foods Company dated
*March 16, 1995, January 15, 1996, January 22, 1996, June 14, 1996, October 9, 1996,
November 1, 1996, December 11, 1996, December 27, 1996, and March 4, 1997
6.22 Stock Pledge Agreement by and between Legacy Brands, Inc., and Thomas E. Kees dated
October 30, 1996
6.23 *Manufacturing Agreement by and between Legacy Brands, Inc., and Kisko Products dated May
28, 1997
</TABLE>
46
<PAGE>
<TABLE>
<S> <C> <C>
6.24 Placement Agent Agreement between Legacy Brands, Inc. and Capitol Bay Securities dated
June 25, 1997
6.25 *Placement Agent Warrant Agreement between Legacy Brands, Inc. and Capitol Bay Securities
11 Financial Statements contained in Part F/S
</TABLE>
*INDICATES TO BE SUPPLIED BY AMENDMENT
**INDICATES CONFIDENTIAL TREATMENT REQUESTED
47
<PAGE>
SIGNATURES
In accordance with Section 12 of the Securities Exchange Act of 1934, the
registrant caused this registration statement to be signed on its behalf by the
undersigned, thereunto duly authorized.
Legacy Brands, Inc.
(Registrant)
Date: July 29, 1997
By: /s/ Thomas E. Kees
Thomas E. Kees
Chief Executive Officer
48
2.1
ARTICLES OF INCORPORATION
<PAGE>
[STATE OF CALIFORNIA
OFFICE OF THE SECRETARY OF STATE LOGO]
CORPORATION DIVISION
I, MARCH FONG EU, Secretary of State of the State of California, hereby
certify:
That the annexed transcript has been compared with the corporate
record on file in this office, of which it purports to be a copy, and that
same is full, true and correct.
IN WITNESS WHEREOF, I execute this certificate
and affix the Great Seal of the State
of California this
FEB. 16, 1994
-------------------
/s/ March Fong Eu
----------------------
Secretary of State
[THE GREAT SEAL OF THE STATE OF CALIFORNIA]
<PAGE>
ARTICLES OF INCORPORATION
OF
GREG PLUNKETT, INC.
I
The name of this Corporation is Greg Plunkett, Inc.
II
The purpose of this corporation is to engage in any lawful act
or activity for which a corporation may be organized under the General
Corporation Law of California other than the banking business, the trust
company business, or the practice of a profession permitted to be
incorporated by the California Corporations Code.
III
The name and address in the State of California of this corporation's
initial agent for service of process is: Steven Kay, 100 The Embarcadero,
Penthouse, San Francisco, California 94105.
IV
This Corporation is authorized to issue only one class of shares
of stock, and the total number of shares which this Corporation
is authorized to issue is Seventy Five Thousand (75,000).
V
The liability of the directors of the Corporation for monetary
damages shall be eliminated to the fullest extent permitted under California
law.
VI
Any director, officer, employee or other agent of this Corporation or
other person serving at the request of this Corporation, shall be indemnified
for breach of duty to the Corporation and its stockholders to the fullest
extent permitted under California law.
Dated: 2/14/97 /s/ STEVEN KAY
---------------
Steven Kay
2.2
Certificate of Amendment of Articles of
Incorporation dated March 10, 1994
<PAGE>
[LOGO] State of California
OFFICE OF THE SECRETARY OF STATE
I, TONY MILLER, Acting Secretary of State of the State of California,
hereby certify:
That the annexed transcript has been compared with the record of file
in this office, of which it purports to be a copy, and that same is full,
true and correct.
[SEAL] THE GREAT SEAL OF THE STATE OF CALIFORNIA
IN WITNESS WHEREOF, I execute this certificate and affix the Great Seal of the
State of California
/s/ TONY MILLER
--------------------------
Acting Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GREG PLUNKETT, INC.
GREGORY B. PLUNKETT AND STEVEN KAY certify that
1. They are the president and the secretary, respectively, of GREG
PLUNKETT, INC., a California corporation.
2. Article IV of the Articles of Incorporation is amended to read as
follows:
"This Corporation is authorized to issue only one class of shares of
stock, and the total number of shares which this Corporation is
authorized to issue is Twenty Million (20,000,000). Upon the
amendment of this article, each outstanding share is converted into or
reconstituted as 1,000 shares."
3. The amendment herein set forth has been duly approved by the board
of directors.
4. The amendment herein set forth has been duly approved by the
required vote of the shareholders in accordance with Section 902 of the
Corporations Code. The corporation has only one class of shares and the number
of outstanding shares is 13,600. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
for the approval of the amendment herein set forth was more than 50%.
Dated: March 8, 1994
/s/ Gregory B. Plunkett
------------------------------
Gregory B. Plunkett, President
/s/ Steven Kay
------------------------------
Steven Kay, Secretary
<PAGE>
Verification by Written Declaration
Each of the undersigned declares under penalty of perjury under the laws
of the State of California that he has read the foregoing certificate and knows
the contents thereof and that the same is true of his own knowledge.
Dated: March 8, 1994
/s/ Gregory B. Plunkett
------------------------------
Gregory B. Plunkett, President
/s/ Steven Kay
---------------------------
Steven Kay, Secretary
2.3
Certificate of Amendment of Articles of
Incorporation dated January 27, 1995
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GREG PLUNKETT,INC.
Gregory B. Plunkett and Steven Kay certify that
1. They are the president and the secretary, respectively, of Greg
Plunkett, Inc., a California corporation.
2. Article IV of the Articles of Incorporation is amended to read as
follows:
"This Corporation is authorized to issue only one class of shares of
stock, and the total number of shares which this Corporation is
authorized to issue is Thirty Million (30,000,000)."
3. The amendment herein set forth has been duly approved by the board
of directors.
4. The amendment herein set forth has been duly approved by the
required vote of the shareholders in accordance with Section 902 of the
Corporations Code. The corporation has only one class of shares and the number
of outstanding shares is 16,298,996. The number of shares voting in favor of the
amendment equaled or exceeded the vote required. The percentage vote required
for the approval of the amendment herein set forth was more than 50%.
/s/ Gregory B. Plunkett
Dated: January 26, 1995 ---------------------------------
Gregory B. Plunkett, President
/s/ Steven Kay
---------------------------------
Steven Kay, Secretary
<PAGE>
Verification by Written Declaration
Each of the undersigned declares under penalty of perjury under the laws
of the State of California that he has read the foregoing certificate and knows
the contents thereof and that the same is true of his own knowledge.
/s/ Gregory B. Plunkett
Dated: January 26, 1995 ---------------------------------
Gregory B. Plunkett, President
/s/ Steven Kay
---------------------------------
Steven Kay, Secretary
2.4
Certificate of Amendment of Articles of
Incorporation dated March 6, 1996
<PAGE>
[LOGO]
SECRETARY OF STATE
CORPORATION DIVISION
I, BILL JONES, Secretary of State of California, hereby certify:
That the annexed transcript has been compared with the corporate record
on file in this office, of which it purports to be a copy, and that same is
full, true and correct.
IN WITNESS WHEREOF, I execute
this certificate and affix
the Great Seal of the State
of California this
MAR 13 1996
---------------------------
/s/ Bill Jones
Secretary of State
<PAGE>
CERTIFICATE OF AMENDMENT
OF
ARTICLES OF INCORPORATION
OF
GREG PLUNKETT, INC.
I, Thomas E. Kees, the Chairman of the Board, CEO, President and
Treasurer of Greg Plunkett, Inc., a corporation duly organized and existing
under the laws of State of California, do hereby certify:
1. That I am the Chairman of the Board, CEO, President and Treasurer of
Greg Plunkett, Inc., a California corporation.
2. That an amendment to the articles of incorporation of this
corporation has been approved by the board of directors.
3. The amendment so approved by the board of directors is as follows:
Article I of the articles of incorporation of this corporation is amended to
read as follows:
"The name of this corporation is Legacy Brands, Inc."
4. That the shareholders have approved said amendment by a vote at a
meeting. That the wording of said amendment as approved by the vote of the
shareholders is the same as that set above.
That the amendment was approved by the affirmative vote of the holders
of outstanding shares having not less than the minimum number of required votes
of shareholders necessary to approve said amendment in accordance with section
902 of the California
<PAGE>
Corporations Code.
5. That the corporation has only one class of shares and the number of
outstanding shares is 17,878,455.
6. That the number of shares which voted in favor of said amendment
equaled or exceeded the minimum percentage vote required.
7. That the percentage vote required for the approval of the amendment
was more than 50%.
The undersigned declares under penalty of perjury that the statements
contained in the foregoing certificate are true of his own knowledge.
Executed at Sacramento, California, on 3-1-96
------
/s/ Thomas E. Kees
---------------------------------
Thomas E. Kees, Chairman of
the Board, CEO, President and
Treasurer
2.5
By-Laws of Legacy Brands, Inc.
<PAGE>
BY-LAWS
OF
GREG PLUNKETT, INC.
ARTICLE I
OFFICES
Section 1.01 PRINCIPAL OFFICE. The principal executive office of this
Corporation shall be located at such place as the Board of Directors may from
time to time authorize.
Section 1.02 OTHER OFFICES. Additional offices of this Corporation
shall be located at such place or places, within or outside the State of
California, as the Board of Directors may from time to time authorize.
ARTICLE II
MEETING OF SHAREHOLDERS
Section 2.01 PLACE OF MEETINGS. Meetings of the Shareholders shall be
held at any place within or outside of the State of California, designated by
the Board of Directors. In the absence of any such designation, Shareholder's
Meetings shall be held at the principal executive office of the Corporation.
Section 2.02 ANNUAL MEETING. The annual meeting of Shareholders shall
be held on the 1st of May in each year at 10:00 a.m. However, if this day falls
on a Saturday, Sunday or legal holiday, then the meeting shall be held at the
same time and place on the next succeeding full business day. At this meeting,
Directors shall be elected, and any other proper business within the power of
the Shareholders may be transacted.
Section 2.03 SPECIAL MEETING. A special meeting of the Shareholders may
be called at any time by the Board of Directors, or by the Chairman of the
Board, or by the President or Vice-President, or by one or more Shareholders
holding shares in the aggregate entitled to cast not less than ten percent (10%)
of the votes at that meeting.
A special meeting shall be called by any person or persons other than
the Board of Directors, by a request in writing made to the Chairman of the
Board of Directors, the President, any Vice-President, or the Secretary of the
Corporation. Such officer shall promptly cause Notice to be given to the
Shareholders entitled to vote, that a meeting will be held at a time
requested by the person or persons calling the meeting, not less
than thirty-five (35) nor more than sixty (60) days after receipt of such
request. If such notice is not given within twenty (20) days after receipt
of such request, the person or persons calling the meeting may give
notice thereof in the manner provided by law or by these By-Laws. Nothing
contained in this paragraph of this Section 2.03 shall be construed as
limiting, fixing or affecting the time when a meeting of Shareholders called
by action of the Board of Directors may be held.
Section 2.04 NOTICE OF SHAREHOLDERS' MEETING. All notices of meetings
of Shareholders shall be sent or otherwise delivered in accordance with Section
2.05 of this ARTICLE II, not less than ten (10) nor more than sixty (60) days
before the date of the meeting. The notice shall specify the place, date and
hour of the meeting and (i) in the case of a special meeting, the
<PAGE>
general nature of the business to be transacted, or (ii) in the case of the
annual meeting, those matters which the Board of Directors, at the time of
giving notice, intend to present for action by the Shareholders. The notice of
any meeting in which Directors are to be elected shall include the name of any
nominee or nominees who, at the time of the notice, management intends to
present for election.
If action is proposed to be taken at any meeting for approval of (a)
a contract or transaction in which a Director has a direct or indirect
financial interest under Section 310 of the Corporations Code of California,
(b) an amendment of the Articles of Incorporation under Section 902 of that
Code, (c) the reorganization of the Corporation under Section 1201 of that Code,
(d) a voluntary dissolution of the Corporation under Section 1900 of that
Code, or (e) a distribution in dissolution other than in accordance with the
rights of outstanding preferred shares under Section 2007 of that Code, the
notice shall also state the general nature of that proposal.
Section 2.05 MANNER OF GIVING NOTICE. Notice of a Shareholders' Meeting
shall be given personally or by mail, or other means of written communication,
addressed to each Shareholder at the address of such Shareholder appearing
on the books of the Corporation, or given by such Shareholder to the
Corporation for the purpose of notice. Notice shall be deemed to have been given
at the time when delivered personally or deposited in the United States Post
Office or sent by other means of written communication.
All such notices shall be given to each Shareholder entitled to vote
at the meeting not less than ten (10) nor more than sixty (60) days before the
meeting.
Section 2.06 QUORUM. The presence in person or by proxy of the holders
of a majority of the shares entitled to vote at any meeting of the Shareholders
shall constitute a quorum for the transaction of business. The Shareholders
present at a duly called or held meeting at which a quorum is present may
continue to do business until adjourned notwithstanding the withdrawal of
enough Shareholders to be less than a quorum, if any action taken (other than
adjournment) is approved by at least a majority of the Shareholders required
to constitute a quorum.
Section 2.07 Adjourned Meeting. Any Shareholders' Meeting, whether or
not a quorum is present, may be adjourned by the vote of a majority of the
shares represented at that meeting, either in person or by proxy, but in the
absence of a quorum, no other business may be transacted at that meeting,
except as provided in Section 2.06 of this ARTICLE II.
When any meeting of the Shareholders is adjourned to another time and
place, notice need not be given of the adjourned meeting if the time and place
are announced at the meeting in which the adjournment is taken, unless a new
record date for the adjourned meeting is fixed, or unless the adjournment is
for more than forty-five (45) days from the date set for the original meeting,
in which case the Board of Directors shall set a new record date. Notice of any
such adjournment, if required shall be given to each Shareholder of record
entitled to vote at the adjourned meeting in accordance with the provisions
of Sections 2.04 and 2.05 of this ARTICLE II. At any adjourned meeting, the
corporation may transact any business that might have been transacted at the
original meeting.
Section 2.08 VOTING. Voting at any meeting of Shareholders need not be
by ballot; provided, however, that elections for Board of Directors must be
by ballot if balloting is demanded by a Shareholder at the meeting and before
the voting begins.
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In the absence of any contrary provisions in the Articles of
Incorporation or any relevant statutes, each Shareholder shall be entitled to
one (1) vote for each share held.
Every person entitled to vote at an election for Directors may cumulate
his votes, that is, he may cast a total number of votes equal to the number of
Directors to be elected multiplied by the number of votes to which his shares
are entitled and may cast said total number of votes for one or more candidates
in such proportions as he thinks fit. No Shareholder shall be entitled to so
cumulate his votes unless the candidates for which he is voting have been placed
in nomination prior to the voting and a Shareholder has given notice at the
meeting, prior to the vote, of his intention to cumulate votes. The candidates
receiving the highest number of votes, up to the number of Directors to be
elected, are elected.
Section 2.09 WAIVER OF NOTICE OR CONSENT BY ABSENT SHAREHOLDERS. The
transactions of any meeting of Shareholders, either annual or special, however
called and noticed, and wherever held, shall be as valid as though had at a
meeting duly held after regular call and notice, if a quorum is present either
in person or by proxy, and if, either before or after the meeting, each person
entitled to vote who is not present in person or by proxy, signs a written
waiver of notice or consent to the holding of a meeting, or approval of the
minutes. The waiver of notice or consent need not specify either the business
to be transacted or the purpose of any annual or special meeting of the
Shareholders, except if action is taken or proposed to be taken for approval of
any of those matters specified in the second Paragraph of Section 2.04 of this
ARTICLE II, the waiver of notice or consent shall state the general nature of
the proposal. All such waivers, consents, or approvals shall be filed with the
corporate records and made a part of the minutes of the meeting.
Attendance by a person at a meeting shall also constitute a waiver of
notice of that meeting, except when a person objects, at the beginning of a
meeting, to the transaction of any business because the meeting is not
lawfully called or convened, and except that attendance at a meeting is not a
waiver of any right to object to the consideration of matters required by
law to be included in the notice of the meeting, but not so included, if that
objection is expressly made at the meeting.
Section 2.10 SHAREHOLDERS' ACTION BY WRITTEN CONSENT WITHOUT A MEETING.
Any action which may be taken at any meeting of Shareholders may be taken
without a meeting and without prior notice, if written consents, setting forth
the action so taken, are signed by the holders of outstanding shares having
not less than the minimum number of votes that may be necessary to authorize
or take such action at a meeting at which all shares entitled to vote on
such action were present and voted.
Directors may not be elected by written consent, except by unanimous
written consent of all shares entitled to vote for the election of Directors,
provided, however, that Shareholders may fill a vacancy or vacancies on the
Board of Directors by written consent of a majority of outstanding shares
entitled to vote.
Unless consent of all Shareholders entitled to vote has been solicited
in writing, notice of any Shareholder approval without a meeting by less than a
unanimous written consent shall be promptly given pursuant to Section 2.05 of
this ARTICLE II. Such notice shall be given within ten (10) days in cases where
Shareholders' approval relates to (a) contracts or transactions in which a
Director has a direct or indirect financial interest under Section 310 of the
Corporations Code of California, (b) indemnification of agents of the
Corporation under Section 317 of that Code (c) a reorganization of the
Corporation under Section 3001 of that Code, or (d) a
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distribution and dissolution other than in accordance with the rights of
outstanding preferred shares, under Section 2007 of that Code.
Any Shareholder giving a written consent may revoke the consent by a
writing received by the Secretary of the Corporation prior to the time that
written consents of the number of shares required to authorize the proposed
action have been filed with the Secretary. Such revocation is effective upon its
receipt by the Secretary.
Section 2.11 RECORD DATE FOR SHAREHOLDERS' NOTICE, VOTING AND GIVING
CONSENT. For purposes of determining the Shareholders entitled to notice of any
meeting or to vote or to give consent to corporate action without a meeting, the
Board of Directors may fix, in advance, a record date, which shall not be more
than sixty (60) days or less than ten (10) days before the date of any such
meeting or more than sixty (60) days before any such action without a meeting,
and in this event only Shareholders or record of the date so fixed are entitled
to notice and to vote or to give consent, as the case may be, notwithstanding
any transfer of any shares on the books of the Corporation after the record
date, except as otherwise provided in the California General Corporations Law.
If the Board of Directors do not so fix a record date, (a) the record
date for determining Shareholders entitled to notice of or to vote at a meeting
of Shareholders shall be (i) at the close of business on the business date next
preceding the day on which notice is given, or (ii) if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held; (b) the record date for determining Shareholders entitled to
give consent to corporate action in writing without a meeting (i) when no prior
action by the Board has been taken shall be the day on which the first written
consent is given, or (ii) when prior action by the Board has been taken shall be
at the close of business on the day on which the Board adopts the resolution
relating to that action, or the 60th day before the date of such other action,
whichever is later.
Section 2.12 PROXIES. Every person entitled to vote or execute consents
may do so either in person or by one or more agents authorized to act by written
proxy executed by the person or such person's duly authorized agent, and filed
with the Secretary of the Corporation; provided that no such proxy shall be
valid after expiration of eleven (11) months from the date of its execution,
unless it states the period during which it is valid and it is held by one of
the persons specified in Section 705(e) of the California Corporations Code. The
manner of execution, suspension, revocation and exercise of a proxy is governed
by law.
ARTICLE III
BOARD OF DIRECTORS
Section 3.01 POWERS. Subject to the provisions of law and to any
limitations in the Articles of Incorporation or these By-Laws as to action
required to be approved by the Shareholders or by the outstanding shares, the
business and affairs of the Corporation shall be managed and all corporate
powers shall be exercised by or under the direction of the Board of Directors.
The Board of Directors may delegate the management of the day to day operation
of the business of the Corporation to a management company or other person,
provided that the business and affairs of the Corporation shall be managed and
all corporate powers shall be exercised under the ultimate direction of the
Board of Directors.
Section 3.02 NUMBER AND QUALIFICATION OF DIRECTORS. The authorized
number of Directors shall be three (3) until changed by a duly adopted amendment
to the Articles of
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Incorporation or by amendment to these By-Laws adopted by the vote or written
consent of holders of a majority of the outstanding shares entitled to vote.
Section 3.03 ELECTION AND TERM OF OFFICE OF DIRECTORS. Directors shall
be elected at each annual meeting of Shareholders to hold office until the next
annual meeting. Each Director, including a Director elected to fill a vacancy
shall hold office until the expiration of the term for which elected and until
his successor has been elected and qualified.
Section 3.04 RESIGNATIONS. Any Director of the Corporation may resign
effective upon a written notice to the Chairman of the Board, President,
Secretary or the Board of Directors of the Corporation, unless the notice
specifies a later time for the effectiveness of such resignation.
Section 3.05 VACANCIES. A vacancy or vacancies on the Board of Directors
shall be deemed to exist in the event of the death, resignation or removal of
any Director or if the Board of Directors by resolution declares vacant the
office of a Director who has been declared of unsound mind by an order of the
court, or convicted of a felony, or if the authorized number of Directors is
increased, or if the Shareholders fail at any meeting of the Shareholders at
which any Director or Directors are elected to elect the number of Directors to
be voted for at that meeting, or if for whatever reason there are fewer
Directors on the Board of Directors than the full number authorized.
Vacancies on the Board of Directors may be filled by a majority of the
remaining Directors whether or not less than a quorum, or by a sole remaining
Director, except that a vacancy created by the removal of a Director by the vote
or written consent of the Shareholders or by court order may be filled by only
the vote of a majority of the shares entitled to vote represented at a duly held
meeting at which a quorum is present, or by the written consent of holders of a
majority of the outstanding shares entitled to vote.
The Shareholders may elect a Director or Directors at any time to fill
any vacancy or vacancies not filled by the Directors, but any such election by
written consent shall require the consent of a majority of the outstanding
shares entitled to vote.
Section 3.06 PLACE OF MEETINGS AND MEETINGS BY TELEPHONE. Regular
meetings of the Board of Directors may be held at any place within or outside
the State of California that has been designated from time to time by the Board.
In the absence of such a designation, regular meetings shall be held at the
principal executive office of the Corporation. Special Meetings of the Board of
Directors shall be held at any place within or outside the State of California
that has been designated in the notice of the meeting or, if not stated in the
notice or if there is no notice, the principal executive office of the
Corporation. Any meeting, regular or special, may be held by conference
telephone or similar communication equipment, as long as all Directors
participating in the meeting can hear one another, and all such Directors shall
be deemed to be present in person at the meeting.
Section 3.07 ANNUAL MEETING. Immediately following each annual meeting
of Shareholders, the Board of Directors shall hold a regular meeting at the
place that the annual meeting of Shareholders was held or at any other place
that shall have been designated by the Board of Directors, for the purpose of
organization, any desired election of the Board of Directors, and the
transaction of other business. Notice of this meeting shall not be required.
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Section 3.08 SPECIAL MEETINGS. Special meetings of the Board of
Directors for any purpose or purposes shall be called at any time by the
Chairman of the Board or the President or any Vice-President, Secretary or any
two (2) Directors.
Notice of any special meeting of the Board shall be given to each
Director by first class mail, postage prepaid, at least four (4) days in advance
of the meeting or delivered in person or by telephone or telegraphic device at
least forty-eight (48) hours in advance of the meeting.
Section 3.09 QUORUM. A majority of the authorized number of Directors
shall constitute a quorum for the transaction of business. Except as otherwise
specifically provided in the Articles of Incorporation of this Corporation, in
these By-Laws, or by law, every act or decision done or made by a majority of
the Directors present at a duly held meeting at which a quorum is present is the
act of the Board, provided, however, that any meeting in which a quorum was
initially present may continue to transact business notwithstanding the
withdrawal of Directors, if any action taken is approved by at least a majority
of the required quorum for such meeting.
Section 3.10 WAIVER OF NOTICE AND CONSENT TO MEETING. The transactions
of any meeting of the Board of Directors, however called and noticed, and
wherever held, shall be as valid as though had a meeting duly held after regular
call and notice if a quorum is present and if, either before or after the
meeting, each of the Directors not present signs a written waiver of notice, a
consent to holding a meeting or approval of the minutes thereof. All such
waivers, consents and approvals shall be filed with the appropriate records or
made a part of the minutes of the meeting. Notice of a meeting shall also be
deemed duly given to any Director who attends the meeting without protesting,
before or at its commencement, the lack of notice to that Director.
Section 3.11 ACTION WITHOUT MEETING. Any action required or permitted to
be taken by the Board of Directors pursuant to the Articles of Incorporation or
these By-Laws may be taken without a meeting, if all members of the Board of
Directors individually or collectively consent in writing to such action. Such
written consent or consents shall be filed with the minutes of the proceedings
of the Board of Directors. Such action by written consent shall have the same
force and effect as a unanimous vote of such Directors.
Section 3.12 ADJOURNMENT AND NOTICE OF ADJOURNMENT. A majority of the
Directors present at any meeting, whether or not a quorum is present, may
adjourn the meeting to another time and place. If the meeting is adjourned for
more than twenty-four (24) hours, notice of the adjournment to another time or
place must be given prior to the time of the adjourned meeting to the Directors
who were not present at the time of the adjournment.
Section 3.13 COMPENSATION. Directors and members of committees shall
receive such compensation for their services and reimbursement for their
expenses as shall be determined from time to time by resolution of the Board of
Directors. This section 3.13 shall not be construed to preclude any Director
from serving the Corporation in any other capacity as an officer, agent,
employee or otherwise and receiving compensation for those services.
Section 3.14 COMMITTEES. The Board of Directors may, by resolution
adopted by a majority of the authorized number of Directors, designate one or
more committees, each consisting of two or more Directors, to serve at the
pleasure of the Board of Directors. The Board may designate one or more
Directors as alternate members of any committee. Any committee to the extent
provided in the resolution of the Board shall have all the authority of the
Board, except with respect to (a) the approval of any action for which
Shareholder approval or approval of the outstanding shares is required by the
California Corporations Code; (b) the filing of vacancies on the Board of
Directors or any of its committees; (c) the fixing of
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compensation of Directors for serving on the Board of Directors or any of its
committees; (d) the adoption, amendment or repeal of these By-Laws; (e) the
amendment or repeal of any resolution of the Board of Directors which by its
express terms is not so amendable or repealable; (f) a distribution to the
Shareholders, except at a rate or periodic amount within a price range
determined by the Board of Directors; or (g) the appointment of other
committees of the Board of Directors or the members thereof.
ARTICLE IV
OFFICERS
Section 4.01 OFFICERS OF CORPORATION. The Corporation shall have a
Chairman of the Board or a President or both, a Secretary, a Chief Financial
Officer and such other officers with such titles and duties as the Board of
Directors may determine from time to time, are necessary. Any two or more
offices may be held by the same person.
Section 4.02 APPOINTMENT. All officers shall be chosen and appointed
by the Board of Directors and serve at its pleasure, subject to the rights, if
any, of an officer under a contract of employment.
Section 4.03 INABILITY TO ACT. In the case of absence or inability to
act on the part of any officer of the Corporation or of any person authorized
by these By-Laws to act in his place, the Board of Directors may from time to
time delegate the powers or duties of such officer to any other officer, or
any Director or other person who they may select, for such period of time as
the Board of Directors deems necessary.
Section 4.04 REMOVAL AND RESIGNATION OF OFFICERS. Subject to the
rights, if any, of an officer under any contract of employment, any officer
may be removed, either with or without cause, by the Board of Directors, at any
regular or special meeting of the Board, or, except in the case of an officer
chosen by the Board of Directors, by any officer upon whom such power of
removal may be confirmed by the Board of Directors. Any officer may resign at
any time by giving written notice to the Corporation. Any resignation shall
take effect at the date of receipt of that notice, or at any later time
specified in that notice, and, unless otherwise specifically specified in that
notice, the acceptance of that resignation shall not be necessary to make it
effective. Any resignation is without prejudice as to the rights, if any, of
the Corporation under any contract to which the officer is a party.
Section 4.05 CHAIRMAN OF THE BOARD. The Chairman of the Board of
Directors, if such an officer exists, shall, if present, preside at meetings of
the Board of Directors and exercise and perform such other powers and duties as
may be from time to time assigned to him by the Board of Directors or prescribed
by the By-Laws. If there is no President, the Chairman of the Board shall in
addition be the Chief Executive Officer of the Corporation and shall have the
power and duties prescribed in Section 4.06 of this ARTICLE IV.
Section 4.06 PRESIDENT. Subject to such powers, if any, as may be
given by the By-Laws or Board of Directors to the Chairman of the Board, if
there is such an officer, the President shall be the general manager and Chief
Executive Officer of the Corporation and shall, subject to control of the
Board of Directors, have general supervision, direction, and control of the
business and the officers of the Corporation. He shall preside at all meetings
of the Shareholders and in the absence of the Chairman of the Board, or, if
there is none, at all meetings of the Board of Directors. He shall have the
general power and duties of management usually vested
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in the office of President of a Corporation and shall have such other powers and
duties as may be prescribed by the Board of Directors or the By-Laws.
Section 4.07 VICE-PRESIDENT. The Vice-President or the Vice-Presidents
in the order of their seniority, may assume and perform the duties of the
President in the absence or disability of the President or whenever the office
of the President is vacant and shall perform such other duties and have such
other powers as the Board or the President shall from time to time designate.
Section 4.08 SECRETARY. The Secretary shall (a) keep or cause to be
kept minutes of all meetings of the Corporation, Shareholders, Board of
Directors and Committees of the Board of Directors, if any, and such minutes
shall be kept in written form; (b) keep or cause to be kept at the principal
executive office of the Corporation, or at the office of its transfer agent or
registrar, if any, a record of the Corporation's Shareholders, showing the names
and addresses of the Shareholders, and the number and class of shares held by
each. Such records shall be kept in written form or any other form capable of
being converted into written form; (c) give or cause to be given notice of all
meetings of Shareholders and Directors, as required by law, or by these By-Laws;
(d) exercise such powers and perform such duties as are usually vested in the
office of Secretary of the Corporation, and exercise such other powers and
perform such other duties as may be prescribed from time to time by the Board of
Directors or by these By-Laws.
Section 4.09 CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall (a) keep and maintain or cause to be kept and maintained adequate and
correct books and records of account for the Corporation; (b) deposit all
monies and other valuables in the name and to the credit of the Corporation
with depositaries as may be designated by the Board of Directors; (c) disburse
the funds of the Corporation as may be ordered by the Board of Directors;
(d) render a statement of the financial condition of the Corporation at any
meeting of or upon demand by the Board of Directors and make a full financial
report at any annual meeting of the Shareholders if called upon to do so;
(e) exercise such powers and perform such duties as are usually vested in the
office of Chief Financial Officer of the Corporation, and exercise such other
powers and perform such other duties as may be prescribed by the Board of
Directors or these By-Laws.
ARTICLE V
EXECUTION OF DOCUMENTS
Section 5.01 EXECUTION OF CONTRACT AND OTHER INSTRUMENTS. Except as
these By-Laws otherwise provide, the Board of Directors or its duly appointed
and authorized committee 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 authorization may be general or
confined to specific instances. Except as so authorized or otherwise
expressly provided in these By-Laws, no officer, agent or employee shall have
any power or authority to bind the Corporation by any contract or engagement
or to pledge its credit or to render it liable for any purpose or in any
amount.
ARTICLE VI
ISSUANCE AND TRANSFER OF SHARES
Section 6.01 CERTIFICATE FOR SHARES. Certificate or certificates for
shares of the capital stock of the Corporation shall be issued to each
Shareholder when any of these shares are fully paid, and the Board of Directors
may authorize the issuance of certificates or shares as partly paid, provided
that these certificates shall state the amount of the consideration to be paid
for
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them and the amount paid. A certificate shall be in such form as shall be
provided by the Board of Directors and shall fully comply with the provisions
of the Corporation's Code of the State of California. All certificates shall
be signed in the name of the Corporation by the Chairman of the Board or
Vice-Chairman of the Board or the President or Vice-President and by the
Chief Financial Officer or an Assistant Treasurer or the Secretary or any
Assistant Secretary, certifying the number of shares and the class or series
of shares owned by the Shareholder. Any or all of the signatures on the
certificate may be a facsimile.
Section 6.02 SURRENDER OF CERTIFICATES. If the Articles of
Incorporation are amended in any way affecting the statements contained in the
certificates for outstanding shares, or it becomes desirable for any reason,
in the discretion of the Board of Directors, to cancel any outstanding
certificate for shares and issue a new certificate therefor conforming to the
rights of the holder, the Board may order any holders of outstanding
certificates to surrender and exchange them for new certificates within a
reasonable time to be fixed by the Board.
Section 6.03 LOST CERTIFICATES. Except as provided in this Section
6.03, no new certificates for shares shall be issued to replace an old
certificate unless the latter is surrendered to the Corporation and canceled
at the same time. The Board of Directors may, in case any share certificate
or certificates for any other security is lost, stolen or destroyed, authorize
the issuance of a replacement certificate on such terms and conditions as the
Board may require, including provision for indemnification of the Corporation
secured by bond or other adequate security sufficient to protect the
Corporation against any claim that may be made against the Corporation,
including any expense or liability, on account of the alleged loss, theft, or
destruction of the certificate or the issuance of the replacement certificate.
Section 6.04 TRANSFER ON THE BOOKS. The Corporation shall be under a
duty to record a transfer of shares on the books of the Corporation, to cancel
the old certificate and to issue a new certificate to the person entitled
thereto, upon surrender to the Secretary or transfer agent of the Corporation
of a certificate for shares duly endorsed or accompanied by proper evidence of
succession, assignment or authority to transfer and upon compliance with the
applicable federal and state securities laws, and if the Corporation has no
statutory duty to inquire into adverse claims or has discharged any such duty
and if any applicable law relating to the collection of taxes has been complied
with.
Section 6.05 PARTLY PAID SHARES. The transferor and transferee of
partly paid shares, if any are issued, shall be liable to the Corporation for
the unpaid balance of such shares as provided by law.
ARTICLE VII
RECORDS AND REPORTS
Section 7.01 MAINTENANCE AND INSPECTION OF RECORD OF SHAREHOLDERS. The
Corporation shall keep at its principal executive office, or at the office of
its transfer agent, or registrar, if either be appointed and as determined by
resolution of the Board of Directors, a record of its Shareholders, giving the
names and addresses of all Shareholders and the number and class of shares
held by each Shareholder. A Shareholder or holder of a voting trust certificate
shall be entitled to inspect such records as provided by law.
Section 7.02 MAINTENANCE AND INSPECTION OF BY-LAWS. The Corporation
shall keep at its principal executive office, or if its principal executive
office is not in the State of California, at its principal business office
in the State, the original or a copy of the By-Laws as amended to
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date, which shall be open for inspection by the Shareholders at all reasonable
times during office hours.
Section 7.03 MAINTENANCE AND INSPECTION OF OTHER RECORDS. The
accounting books and records and minutes of the proceedings of Shareholders
and the Board of Directors and any committee or committees of the Board of
Directors shall be kept at such place or places designated by the Board of
Directors, or, in the absence of such designation, at the principal executive
office of the Corporation. Minutes shall be kept in written form and accounting
books and records shall be kept either in written form or in any other form
capable of being converted into written form. The minutes and accounting books
and records shall be open to inspection upon the written demand of any
Shareholder or holder of a voting trust certificate, at any reasonable time
during usual business hours, for a purpose reasonably related to the holder's
interest as a Shareholder or as a holder of a voting trust certificate.
Inspection may be made in person or by agent or attorney and shall include
the right to copy and make extracts. These rights of inspection shall extend
to the records of each subsidiary corporation of the Corporation.
Section 7.04 INSPECTION BY DIRECTORS. Every Director shall have the
absolute right at any reasonable time to inspect all books, records and
documents of every kind and nature and the physical properties of the
Corporation and each of its subsidiary corporations. This inspection by a
Director may be made in person or by an agent or attorney, and the right of
inspection includes the right to copy and make extracts of documents.
Section 7.05 ANNUAL REPORTS TO SHAREHOLDERS. The annual report to
Shareholders referred to in Section 1501 of the California Corporations Law
is expressly dispensed with, but nothing herein shall be interpreted as
prohibiting the Board of Directors from issuing annual or other periodic
reports to the Shareholders of the Corporation as they consider appropriate.
Section 7.06 FINANCIAL STATEMENTS. A copy of any annual financial
statement and any income statement of the Corporation for each quarterly period
of each fiscal year, and any accompanying balance sheet of the Corporation as
of the end of each such period, that has been prepared by the Corporation shall
be kept on file at the principal executive office of the Corporation for
twelve (12) months. Each such statement shall be exhibited at all reasonable
times to any Shareholder demanding an examination of any such statement, or a
copy shall be mailed to any such Shareholder.
If a Shareholder or Shareholders holding at least five percent (5%)
of the outstanding shares of any class of stock of the Corporation makes a
written request to the Corporation for an income statement of the Corporation
for the three (3) month, six (6) month or nine (9) month period of the
current fiscal year ended more than thirty (30) days before the date of the
request, and a balance sheet of the Corporation as of the end of that period,
the Chief Financial Officer shall cause that statement to be prepared if not
already prepared, and shall deliver personally or mail that statement or
statements to the person making the request within thirty (30) days after the
receipt of the request.
The Corporation shall also, on the written request of any Shareholder,
mail to the Shareholder a copy of the last annual, semi-annual or quarterly
income statement which has been prepared, and a balance sheet as of the end
of that period.
The quarterly income statements and balance sheets referred to in this
Section shall be accompanied by the report, if any, of any independent
accountants engaged by the Corporation or the certificate of an authorized
officer of the Corporation, that the financial statements were prepared without
audit of the books and records of the Corporation.
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ARTICLE VIII
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS
The Corporation shall, to the maximum extent permitted by the California
General Corporations Law, have power to indemnify each of its agents against
expenses, judgments, fines, settlements and other amounts actually and
reasonably incurred in connection with any proceeding arising by reason of the
fact any such person is or was an agent of the Corporation, and shall have power
to advance to each such agent expenses incurred in defining any such proceedings
to the maximum extent permitted by that law. For purposes of this ARTICLE VIII,
an agent of the Corporation includes any person who is or was a Director,
Officer, Employee, or other 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 enterprises, or
was a Director, Officer, Employee, or Agent of a corporation, which was a
predecessor corporation of the Corporation or of another enterprise at the
request of such predecessor corporation.
ARTICLE IX
GENERAL MATTERS
Section 9.01 BY-LAW AMENDMENTS. Except as otherwise provided by law,
the Articles of Incorporation or these By-Laws, these By-Laws may be amended or
repealed, or new By-Laws may be adopted, by the affirmative vote or written
consent of the majority of the outstanding shares entitled to vote, and the
affirmative vote of a majority of the outstanding shares of each class or series
entitled by law or by the Articles of Incorporation to vote as a class or series
on the amendment, repeal or adoption of any By-Law or By-Laws. Subject to said
right of the Shareholders to amend, repeal, or adopt By-Laws, these By-Laws may
be amended or repealed or new By-Laws may be adopted, by the Board of Directors;
except that the Board of Directors shall have no power to amend, repeal, or
adopt a By-Law changing the authorized number of Directors. At any time the
Shareholders may adopt a By-Law limiting or restricting the power of the
Directors to amend, repeal or adopt by-laws, or depriving them of such power
altogether.
Section 9.02 CONSTRUCTION AND DEFINITIONS. Unless the context requires
otherwise, the general provisions, rules of construction, and definitions of the
California General Corporations Law shall govern the construction of these
By-Laws. Without limiting the generality of this provision, the singular number
includes the plural, the plural includes the singular, and the term "person"
includes both a corporation and a natural person.
Section 9.03 REIMBURSEMENT. If all or part of the salary or other
compensation paid to, or entertainment expense incurred by, an employee,
officer, or director of the Corporation is finally determined not to be
allowable as a federal or state income tax deduction, the employee, officer or
director shall repay to the Corporation the amount disallowed. The Board of
Directors shall enforce repayment of each such amount disallowed.
ARTICLE X
CERTIFICATE OF SECRETARY
I certify that:
I am the Secretary of Greg Plunkett, Inc., a California corporation.
-11-
<PAGE>
The attached By-Laws are the By-Laws of the Corporation approved by the
written consent of the Board of Directors.
Dated: February 24, 1994 /s/ Steven Kay
__________________ __________________________
Steven Kay, Secretary
-12-
3.1
FORM OF LOCK-UP AGREEMENT
[TO COME]
3.2
FORM OF BRIDGE FINANCING NOTE AND
FORM OF BRIDGE LOAN AND SECURITY AGREEMENT
BRIDGE LOAN AND SECURITY AGREEMENT
Page 1 of 16
BRIDGE LOAN AND SECURITY AGREEMENT
BY AND BETWEEN
GREG PLUNKETT, INC.
A CALIFORNIA CORPORATION
AND
, AN INDIVIDUAL
This BRIDGE LOAN AND SECURITY AGREEMENT (the "Agreement") is made this
day of , 1995, by and between
, an individual (the "Investor"), and Greg Plunkett, Inc., a
California Corporation ("Plunkett"). The Investor and Plunkett are referred to
collectively herein as the "Parties."
In consideration of the mutual covenants, agreements, representations,
and warranties contained in this agreement, the Parties agree as follows:
1. Loan Amount. The Investor agrees to loan, on , 1995, to Plunkett
the aggregate principal amount of $ (the "Loan"). The Loan will be
made for the purpose of paying normal and reasonable operating expenses and
obtaining and paying for professional services in connection with the offering
of securities of Plunkett.
2. Promissory Note. In consideration thereof, Plunkett will issue, cause to be
executed and deliver to the Investor, upon the execution hereof, a promissory
note in the principal amount equal to the amount of the Loan, upon the terms and
conditions specified herein, and in the form set forth in Exhibit A, hereto (the
"Note").
3. Periodic Finance Charges. All principal and interest then outstanding
shall bear interest at the lesser of fifteen (15%) percent per annum, or the
maximum legal rate.
4. Payments.
4.1 All interest outstanding shall be due and payable on a quarterly
basis, fifteen (15) days after the end of each calendar quarter.
4.2 Plunkett shall make payments of principal and accrued interest of
the Note to Investor upon the closing of any offering of securities by Plunkett,
regardless of whether such offering is registered with the Securities and
Exchange Commission or exempt from such registration (an "Offering"), or upon
the closing of a merger of Plunkett with or into another entity, or other such
change in control of Plunkett (a "Business Combination"), as follows:
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 2 of 16
Plunkett shall pay to the Investor a pro rata share of twenty-five percent (25%)
of the net proceeds of each Offering or Business Combination, or subsequent
Offering or Business Combination, or portion thereof, until such time as the
entire principal amount, and accrued interest of the Note is paid in full. For
purposes of this section 5.2, the term "closing" shall mean the occurrence of
any event after which Plunkett shall have the right to receive proceeds of the
Offering or Business Combination. For purposes hereof, Investor's pro rata share
of any distribution made pursuant to this Section 5.2 shall be calculated as a
percentage derived as follows: (i) the principal amount of the Notes held by
Investor, divided by (ii) the aggregate principal amount of all Notes placed or
issued by Plunkett in the Notes Offering. For purposes of this section 5.2, the
term "net proceeds" shall mean the proceeds of any Offering or Business
Combination less the reasonable expenses of such Offering or Business
Combination.
4.3 If the principal and accrued interest on the Note remains
outstanding on the close of business on the first anniversary of the date of
issuance hereof, Plunkett shall pay to the Investor the entire principal amount
owing under the terms of this Agreement and the accompanying promissory note,
such that the Note, including accrued interest, shall be paid in full.
4.4 Plunkett may, from time to time, in its sole discretion, make one
or more periodic payments to the Investor. Such payments shall be credited to
Plunkett's account on the date that such payment is placed in the United States
Mail, first class postage prepaid, by Plunkett. Such payments shall be applied
first to accrued and unpaid interest, and then to the principal amount then
outstanding.
5. Guarantee of Repayment. Pursuant to the Guarantee Agreement between Pacific
Acquisition Group, Inc. ("PAG") and the Investor, executed separately and
attached hereto as Exhibit "B," and incorporated herein by reference in its
entirety, PAG hereby agrees to issue to Investor shares of Series B Convertible
Preferred Stock of PAG, in the event that Plunkett fails to make payment under
the terms prescribed above in Section 5.
6. Default Provisions. The occurrence of one or more of the following
events shall constitute an event of default of this entire Agreement:
6.1 The nonpayment of any principal or interest by Plunkett on this
loan when the same shall have become due and payable.
6.2 The entry of a decree or order by a court having appropriate
jurisdiction adjudging Plunkett a bankrupt or insolvent, or approving as
properly filed a petition seeking reorganization, arrangement, adjustment or
composition of or in respect of Plunkett under the federal Bankruptcy Act or any
other applicable federal or state law, or appointing a receiver, liquidator,
assignee or trustee of Plunkett, or any substantial part if its property, or if
the Collateral, as defined in Section 10, or ordering the winding up or
liquidation of its affairs, and the continuance of any such decree
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 3 of 16
or order unstayed and in effect for a period of sixty (60) consecutive days.
6.3 The institution by Plunkett of proceedings to be adjudicated a
bankrupt or insolvent, or the consent by it to the institution of bankruptcy or
insolvency proceedings against it, or the filing by it of a petition or answer
or consent seeking reorganization or relief under the federal Bankruptcy Act or
any other applicable federal or state law, or the consent by it to the filing of
any such petition or to the appointment of a receiver, liquidator, assignee or
trustee of the company, or of any substantial part of its property, or if the
Collateral, as defined in Section 10, shall become subject to the jurisdiction
of a federal bankruptcy court or similar state court, or if Plunkett shall make
an assignment for the benefit of its creditors, or if there is an attachment,
receivership, execution or other judicial seizure, or if there is an admission
in writing by Plunkett of its inability to pay its debts generally as they
become due, or the taking of corporate action by Plunkett in furtherance of any
such action.
6.4 Default in the obligation of Plunkett for borrowed money, other
than this Loan, which shall continue for a period of sixty (60) days, or any
event that results in acceleration of the maturity of any indebtedness of
Plunkett under any note, indenture, contract, or agreement.
6.5 Plunkett's failure to comply with any material term, obligation,
covenant, or condition contained in this Agreement, within 10 days after receipt
of written notice from the Investor demanding such compliance.
6.6 Any warranty, covenant, or representation made to the Investor by
Plunkett under this Agreement, proves to have been false in any material respect
when made or furnished.
6.7 Any levy, seizure, attachment, lien, or encumbrance of or on the
Collateral, other than those existing as of the date hereof, which is not
discharged by Plunkett within 10 days.
6.8 Any sale, transfer, or disposition of any interest in the
Collateral, other than in the ordinary course of business, without the written
consent of the Investor.
7. Acceleration. At the option of the Lender, and without demand or notice, all
principal and any unpaid interest shall become immediately due and payable upon
a default as set forth in Section 7 above. Any attorneys' fees and other
expenses incurred by the Investor in connection with Plunkett's bankruptcy or
any of the other events described in Section 7 shall be additional indebtedness
of Plunkett secured by this Agreement.
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 4 of 16
8. Appointment of PAG as Agent of Investor. Investor hereby appoints PAG as its
agent for the purpose of enforcing its rights prescribed under Section 10,
hereof, which appointment shall remain in effect until the earlier of (i)
termination of PAG's Guarantee of Plunkett's indebtedness to Investor, or (ii)
payment in full by Plunkett of all indebtedness to Investor as provided
hereunder. The parties agree that if PAG's agency is terminated by Investor
prior to the payment in full by Plunkett of all indebtedness to Investor, as
provided hereunder, PAG's Guarantee of Plunkett's indebtedness to Investor shall
be immediately terminated. All references in Section 10, hereof, to the rights
and duties of Investor shall be carried out by PAG as agent for investor, in
agents sole discretion. PAG may conclusively rely on, and shall be protected
when it acts in good faith upon, any statement, certificate, notice, request,
consent, order or other document which it believes to be genuine and which has
been signed by the proper party. Provided it uses due care, PAG shall have no
duty or liability to verify any such statement, certificate notice, request
consent, order or other document and its sole responsibility shall be to act
only as expressly set forth in this Agreement. PAG shall be under no obligation
to institute or defend any action, suit or proceeding in connection with this
Agreement unless it is indemnified to its satisfaction. PAG may consult counsel
in respect of a question arising under this Agreement and shall not be liable
for any action taken, or omitted, in good faith upon advise of such counsel.
PAG is not required to defend any legal proceedings which may be
instituted against it with respect to the subject matter of this Agreement,
unless the full cost and expense of such defense, to the satisfaction of PAG, is
provided for by Plunkett or Investor. Investor specifically agrees to fully
indemnify and hold harmless PAG from any expense, cost or liability incurred by
any of them by reason of this Agreement, including without limitation, attorneys
fees, costs or other expenses. If PAG does incur any out-of-pocket expenses in
the performance of its duties under this Agreement, including without limitation
reasonable attorneys fees and costs, Investor agrees to reimburse PAG for all
such reasonable expenses immediately upon demand.
9. Security Agreement.
9.1 Grant of Security Interest. Plunkett, in consideration of the
indebtedness described in this Agreement, hereby grants, conveys, and assigns to
the Investors, collectively, for security, all of Plunkett's existing and future
right, title and interest in the property listed in Section 9.2 of this
Agreement. This security interest is granted to the Investors, collectively, to
secure (a) the payment of the indebtedness evidenced by the certain promissory
notes in the aggregate principal amount of $300,000, bearing interest at 15% per
annum, and maturing one year from the issuance thereof, issued by Plunkett (the
"Notes"), including all renewals, extensions, and modification thereof; (b) the
payment, performance and observance of all warranties, obligations, covenants
and agreements to be paid, performed or observed by under this Agreement; and
(c) the payment of all other sums, with interest thereon, advanced under the
terms of this Agreement.
9.2 Property. The property subject to the security interest (the
"Collateral") is as follows:
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 5 of 16
9.2.1 Equipment. All equipment of Plunkett.
9.2.2 Accounts Receivable and Other Intangibles. All of
Plunkett's accounts, chattel paper, contract rights, commissions, warehouse
receipts, bills of lading, delivery orders, drafts, acceptances, notes,
securities and other instruments; documents; general intangibles and all other
forms of receivables, and all guaranties and securities therefor.
9.2.3 Inventory and Other Tangible Personal Property. All of
Plunkett's inventory, including all goods, merchandise, materials, raw
materials, work in progress, finished goods, now owned or hereinafter acquired
and held for sale or lease or furnished or to be furnished under contracts or
service agreements or to be used or consumed in Plunkett's business and all
other tangible personal property of Plunkett.
9.2.4 After-Acquired Property. All property of the types
described in Sections 9.2.1 - 9.2.3, or similar thereto, that at any time
hereafter may be acquired by Plunkett, including but not limited to all
accessions, parts, additions, and replacements.
9.2.5 Proceeds. All proceeds of the sale or other disposition
of any of the Collateral described or referred to in Sections 9.2.1 - 9.2.4.
Sale or disposition of Collateral is prohibited except as provided herein.
9.3. Covenants of Plunkett. Plunkett agrees and covenants as
follows:
9.3.1 Payment of Principal and Interest. Plunkett shall
promptly pay when due the principal of and interest on the indebtedness
evidenced by the Notes, any prepayment and late charges provided in the Notes,
and all other sums secured by this Agreement and the Notes.
9.3.2 Corporate Existence. Plunkett is a corporation duly
organized and existing under the laws of the state of California and is duly
qualified in every other state in which it is doing business.
9.3.3 Corporate Authority. The execution, delivery, and
performance of this Agreement, and the execution and payment of the Notes are
within Plunkett's corporate powers, have been duly authorized, and are not in
contravention of law or the terms of Plunkett's articles of incorporation and
bylaws, or of any indenture, agreement, or undertaking to which Plunkett is a
party or by which it is bound.
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 6 of 16
9.3.4 Ownership of Collateral. Plunkett is the sole owner of
the Collateral and will defend the Collateral against the claims and demands of
all other persons at any time claiming the same or any interest therein.
9.3.5 Issuance of Shares. That the shares of common stock
contemplated to be issued hereby are duly authorized, fully paid and
non-assessable.
9.4 Attorney Certification. Plunkett agrees to deliver to the Investor
within ten (10) days of the execution hereof, an opinion of counsel, licensed to
practice law in the state of California, that provides substantially as
described in Section 9.3.2 - 9.3.5, above.
9.5 Removal of Collateral Prohibited. Plunkett shall not remove
the Collateral from its premises, other than in the ordinary coarse of business,
without the written consent of the Investor.
9.6 Taxes and Assessments. Plunkett will pay or cause to be paid
promptly when due all taxes and assessments on the Collateral. Plunkett may,
however, withhold payment of any tax assessment or claim if a good faith dispute
exists as to the obligation to pay.
9.7 Insurance. Plunkett shall have and maintain, or cause to be
maintained, insurance at all times with respect to all Collateral except
accounts receivable, against such risks, and in such form, for such periods, and
written by such companies as may be satisfactory to the Investor. All policies
of insurance shall have endorsed a loss payable clause acceptable to the
Investor or such other endorsements as the Investor may from time to time
request, and Plunkett will promptly provide the Investor with the original
policies or certificates of such insurance. Plunkett shall promptly notify the
Investor of any loss or damage that may occur to the Collateral. The Investor is
hereby authorized to make proof of loss if it is not made promptly by Plunkett.
All proceeds of any insurance on the Collateral shall be held by the Investor as
a part of the Collateral. Such proceeds shall be paid out from time to time upon
order of Plunkett for the purpose of paying the reasonable cost of repairing or
restoring the property damaged. Any proceeds that have not been so paid out
within 120 days following their receipt by the Investor shall be applied to the
prepayment of principal on the Notes according to the terms hereof. In the event
of failure to provide insurance as herein provided, Investor may, at its option,
provide such insurance at Plunkett's expense.
9.8 Protection of the Investor's Security. If Plunkett fails to perform
the covenants and agreements contained or incorporated in this Agreement, or if
any action or proceeding is commenced which affects the Collateral or title
thereto or the interest of the Investor therein, including, but not limited to
eminent domain, insolvency, code enforcement, or arrangements or proceedings
involving a bankrupt or decedent, then the Investor may make such appearance,
disburse such sums, and take such action as the Investor deems necessary, in its
sole discretion, to protect the Investor's interest, including but not limited
to (i) disbursement of attorneys' fees,
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 7 of 16
(ii) entry upon Plunkett's property to make repairs to the Collateral, and (iii)
procurement of satisfactory insurance. Any amounts disbursed by the Investor
pursuant to this Section, with interest thereon, shall become additional
indebtedness of Plunkett secured by this Agreement. Unless Plunkett and the
Investor agree to other terms of payment, such amounts shall be immediately due
and payable and shall bear interest from the date of disbursement at the default
rate stated in the Note unless collection from Plunkett of interest at such rate
would be contrary to applicable law, in which event such amounts shall bear
interest at the highest rate which may be collected from Plunkett under
applicable law. Nothing contained in this Section shall require the Investor to
incur any expense or take any action.
9.9 Inspection. The Investor may make or cause to be made
reasonable entries upon and inspections of Plunkett's premises to
inspect the Collateral.
9.10 Plunkett and Lien Not Released. From time to time, the Investor
may, at the Investor's option, without giving notice to or obtaining the consent
of Plunkett or its successors or assigns or of any other lienholder or
guarantors, without liability on the Investor's part, and notwithstanding
Plunkett's breach of any covenant or agreement of Plunkett in this Agreement,
extend the time for payment of said indebtedness or any part thereof, reduce the
payments thereon, release anyone liable on any of said indebtedness, accept a
renewal note or notes therefor, modify the terms and the time of payment of said
indebtedness, release from the lien of this Agreement any part of the
Collateral, take or release other or additional security, reconvey any part of
the Collateral, consent to any map or plan of the Collateral, consent to the
granting of any easement, join in any extension or subordination agreement, and
agree in writing with Plunkett to modify the rate of interest or period of
amortization of the Note or change the amount of any installments payable
thereunder. Any actions taken by the Investor pursuant to the terms of this
Section shall not affect the obligation of Plunkett or Plunkett's successors or
assigns to pay the sums secured by this Agreement and to observe the covenants
of Plunkett contained herein, shall not affect the guaranty of any person,
corporation, partnership, or other entity for payment of the indebtedness
secured hereby, and shall not affect the lien or priority of lien hereof on the
Collateral. Plunkett shall pay the Investor a reasonable service charge,
together with such title insurance premiums and attorneys' fees as may be
incurred at the Investor's option for any such action if taken at Plunkett's
request.
9.11 Forbearance by the Investor Not a Waiver. Any forbearance by the
Investor 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 right
or remedy. The acceptance by the Investor of payment of any sum secured by this
Agreement after the due date of such payment shall not be a waiver of the
Investor'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. The
procurement of insurance or the payment of taxes, rents or other liens or
charges by the Investor shall not be a waiver of the Investor's right to
accelerate the maturity of the indebtedness secured by this Agreement, nor shall
the Investor's receipt of any awards, proceeds or damages as provided in this
Agreement
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 8 of 16
operate to cure or waive Plunkett's default in payment of sums secured by this
Agreement.
9.12 Uniform Commercial Code Security Agreement. This Agreement is
intended to be a security agreement pursuant to the Uniform Commercial Code for
any of the items specified above as part of the Collateral which, under
applicable law, may be subject to a security interest pursuant to the Uniform
Commercial Code, and Plunkett hereby grants the Investors, collectively, a
security interest in said items. Plunkett agrees to execute and file financing
statements, as well as extensions, renewals and amendments thereof, and
reproductions of this Agreement, and do whatever may be necessary under the
applicable Uniform Commercial Code in the state where the Collateral is located,
to perfect and continue the Investors' interest in the Collateral, all at
Plunkett's expense. The parties agree that such financing statements, extensions
and renewals may be filed in the name of, or for the benefit of PAG, on behalf
of the Investor and all other holders of the Notes, collectively. Plunkett also
agrees that the Investor may file on behalf of the Investors any appropriate
document in the appropriate index as a financing statement for any of the items
specified above as part of the Collateral. Plunkett 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 the Investor may reasonably require. Without
the prior written consent of the Investor, Plunkett shall not create or allow to
be created, pursuant to the Uniform Commercial Code, any other security interest
in the Collateral, including replacements and additions thereto. Upon the
occurrence of an event of default, Investor shall have the remedies of a secured
party under the Uniform Commercial Code and, at the Investor's option, may also
invoke the other remedies provided in this Agreement as to such items. In
exercising any of said remedies, the Investor may proceed against the items of
real property and any items of personal property specified above as part of the
Collateral separately or together and in any order whatsoever, without in any
way affecting the availability of the Investor's remedies under the Uniform
Commercial Code or of the other remedies provided in this Agreement.
9.13 Events of Default. The Debtor shall be in default under this
Agreement when any of the following events or conditions occurs:
9.13.1 Plunkett shall be in default under the Notes or any
Note.
9.13.2 Plunkett fails to comply with any material term,
obligation, covenant, or condition contained in this Agreement and/or in the
Sales/Loan Agreement, within 10 days after receipt of written notice from the
Secured Party demanding such compliance.
9.13.3 Any warranty, covenant, or representation made to the
Investors by Plunkett under this Agreement, and under the Bridge Loan
Agreements, proves to have been false in any material respect when made or
furnished.
9.13.4 Any event that results in acceleration of the
maturity of any indebtedness
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 9 of 16
of Plunkett in the outstanding principal amount of $50,000 or more, under any
note, indenture, contract, or agreement.
9.13.5 Any levy, seizure, attachment, lien, or encumbrance of
or on the Collateral, other than those existing as of the date hereof, which is
not discharged by the Debtor within 10 days or, any sale, transfer, or
disposition of any interest in the Collateral, other than in the ordinary course
of business, without the written consent of the Secured Party.
9.14 Acceleration in Case of Borrower's Insolvency. If the Debtor shall
voluntarily file a petition under the federal Bankruptcy Act, as such Act 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 an involuntary
proceeding admitting insolvency or inability to pay debts, or if the Debtor
shall be adjudged a bankrupt, or if a trustee or receiver shall be appointed for
the Debtor's property, or if the Collateral shall become subject to the
jurisdiction of a federal bankruptcy court or similar state court, or if the
Debtor shall make an assignment for the benefit of its creditors, or if there is
an attachment, receivership, execution or other judicial seizure, then the
Secured Party may, at the Secured Party's option, declare all of the sums
secured by this Agreement to be immediately due and payable without prior notice
to the Debtor, and the Secured Party may invoke any remedies permitted by this
Agreement. Any attorneys' fees and other expenses incurred by the Secured Party
in connection with the Debtor's bankruptcy or any of the other events described
in this Section shall be additional indebtedness of the Debtor secured by this
Agreement.
9.15 Rights of the Investor.
9.15.1 Upon default the Investor may require Plunkett to
assemble the Collateral and make it available to the Investor at the place to be
designated by the Investor which is reasonably convenient to both parties. The
Investor may sell all or any part of the Collateral as reasonably necessary to
satisfy Plunkett's obligations herunder to Investor, as a whole or in parcels
either by public auction, private sale, or any other reasonable method of
disposition. Nothing in this Section 10.15.1 shall be construed to limit any
other of Investor's rights in connection with any and all of the Collateral as
provided herein. The Investor may bid at any public sale on all or any portion
of the Collateral. Unless the Collateral is perishable or threatens to rapidly
decline in value or is of the type customarily sold on a recognized market, the
Investor shall give Plunkett reasonable notice of the time and place of any
public sale, or of the time after which any private sale or other disposition of
the Collateral is to be made, and notice given at least 10 days before the time
of the sale or other disposition shall be conclusively presumed to be
reasonable. A public sale in the following fashion shall be conclusively
presumed to be reasonable:
9.15.2 Notice shall be given at least 10 days before the date
of sale by publication once in a newspaper of general circulation published in
the county in which the sale is to be held;
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 10 of 16
9.15.3 The sale shall be held in a county in which the
Collateral or any part is located or in a county in which Plunkett has a place
of business;
9.15.4 Payment shall be in cash or by certified check
immediately following the close of the sale;
9.15.5 The sale shall be by auction, but it need not be by a
professional auctioneer;
9.15.6 The Collateral may be sold as is and without any
preparation for sale.
9.16 Obligation to Sell Collateral. Notwithstanding any provision of
this Agreement, Investor shall be under no obligation to offer to sell the
Collateral. In the event any Investor offers to sell the Collateral, there will
be no obligation to consummate a sale of the Collateral if, in Investor's
reasonable business judgment, none of the offers received by it reasonably
approximates the fair value of the Collateral. In the event the Investor elects
not to sell the Collateral, Investor may elect to follow the procedures set
forth in the Uniform Commercial Code for retaining the Collateral in
satisfaction of Plunkett's obligation, subject to Plunkett's rights under such
procedures.
9.17 Receiver. In addition to the rights under this Agreement, in the
event of a default by Plunkett, the Investor shall be entitled to the
appointment of a receiver for the Collateral as a matter of right whether or not
the apparent value of the Collateral exceeds the outstanding principal amount of
the Note.
9.18 Waiver of Marshalling. Notwithstanding the existence of any other
security interest in the Collateral held by the Investor or by any other party,
the Investor shall have the right to determine the order in which any or all of
the Collateral shall be subjected to the remedies provided by this Agreement.
the Investor shall have the right to determine the order in which any or all
portions of the indebtedness secured by this Agreement are satisfied from the
proceeds realized upon the exercise of the remedies provided in this Agreement.
Plunkett, any party who consents to this Agreement, and any party who now or
hereafter acquires a security interest in the Collateral and who has actual or
constructive notice of this Agreement, hereby waive any and all rights to
require the marshalling of assets in connection with the exercise of any of the
remedies permitted by applicable law or by this Agreement.
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 11 of 16
9.19 Provisions of Agreement. Plunkett agrees to comply with the
covenants and conditions of this Agreement. All sums disbursed by the Investor
to protect the security of this Agreement up to the principal amount of the Note
shall be treated as disbursements pursuant to such Agreements. All such sums
shall bear interest from the date of disbursement at the rate stated in the
Note, unless collection from Plunkett of interest at such rate would be contrary
to applicable law in which event such amount shall bear interest at the highest
rate which may be collected from Plunkett under applicable law. In case of a
breach by Plunkett of the covenants and conditions of the Agreement, the
Investor at the Investor's option (i) may invoke any of the rights or remedies
provided in the Agreement, (ii) may accelerate the sums secured by this
Agreement and invoke the remedies provided in this Agreement or, (iii) may do
both.
10. Remedies Cumulative. Each remedy provided in this Agreement is
distinct and cumulative to all other rights or remedies under this Agreement or
afforded by law or equity, and may be exercised concurrently, independently, or
successively, in any order.
11. Waiver of Statute of Limitations. Plunkett hereby waives the right to
assert any statute of limitations as a bar to the enforcement of this Agreement
or to any action brought to enforce the Note or any other obligation secured by
this Agreement.
12. Notices and Delivery.
Any notices permitted or required under this Agreement shall be deemed
given upon the date of personal delivery or 48 hours after deposit in the United
States mail, postage fully prepaid, return receipt requested, addressed as
follows:
Plunkett:
Greg Plunkett, Inc., a
California Corporation
2200-B Douglas Blvd., Suite 100
Roseville, CA 95661
Attn: Greg Plunkett
The Investor:
Social Secrity Number:
Telephone ( )
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 12 of 16
or at any other address as any party may, from time to time, designate by notice
given in compliance with this Section. Any deliveries required under this
Agreement must be made by personal delivery at the applicable address listed
above.
13. Indemnification.
13.1 General Agreement. In the event the Investor was, is, or
becomes a participant in, or is threatened to be made a
participant in, a proceeding arising, in whole or in part,
from its duties, rights or obligations described in this
agreement, and (i) a material breach of this Agreement by
Plunkett: (ii) an untrue statement of a material fact or
omission to state a material fact, or allegation of an untrue
statement of a material fact or omission to state a material
fact, by Plunkett in any documents or information provided to
Investor or approved by Plunkett in connection with provision
of the Loan or issuance of the Notes, as described herein,
which was necessary in order to make the statements made, in
light of the circumstances under which they were made, not
misleading, to the extent such breach, untrue statement or
omission is a cause of the loss, claim, damage, liability or
expense. Plunkett shall indemnify the Investor from and
against any and all expenses to the fullest extent permitted
by law, as the same exists or may hereafter be amended or
interpreted (but in the case of any such amendment or
interpretation, only to the extent that such amendment or
interpretation permits Plunkett to provide broader
indemnification rights than were permitted prior thereto). The
parties hereto intend that this Agreement shall provide for
indemnification in excess of that expressly permitted by
statute, including, without limitation, any indemnification
provided by Plunkett's articles of incorporation, its bylaws,
a vote of its shareholders or disinterested directors, or
applicable law.
13.2 Expense Advances. If so requested by the Investor, Plunkett
shall, within 10 business days after such request, advance all
expenses to the Investor. The terms "expenses" shall mean (i)
any expense, liability, or loss, including attorney fees,
judgments, fines, ERISA excise taxes and penalties, and
amounts paid or to be paid in settlement; (ii) any interest,
assessments, or other charges imposed on any of the items in
part (i) of this subsection; and (iii) any federal, state,
local, or foreign taxes imposed as a result of the actual or
deemed receipt of any payments under this Agreement paid or
incurred in connection with investigating, defending, being a
witness in, participating in (including on appeal), or
preparing for any of the foregoing in any proceeding relating
to any indemnifiable event.
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 13 of 16
13.3 Mandatory Indemnification. Notwithstanding any other provision
of this Agreement, to the extent that the Investor has been
successful on the merits in defense of any proceeding relating
in whole or in part to an indemnifiable event or in defense of
any issue or matter in such proceeding, the Investor shall be
indemnified against all expenses incurred in connection
therewith.
13.4 Partial Indemnification. If the Investor is entitled under
any provision of this Agreement to indemnification by Plunkett
for a portion of expenses, but not for the total amount of
expenses, Plunkett shall indemnify the Investor for the
portion to which the Investor is entitled.
13.5 Indemnification Payment. The Investor shall receive
indemnification of expenses from Plunkett in accordance with
this Agreement as soon as practicable after the Investor has
made written demand on Plunkett for indemnification. If the
Investor has not received full indemnification within 30 days
after making a demand in accordance with the terms hereof, the
Investor shall have the right to enforce its indemnification
rights under this Agreement by commencing litigation in any
court in the State of California seeking an initial
determination by the court. Plunkett hereby consents to
service of process and to appear in any such proceeding. The
remedy provided for in this Section shall be in addition to
any other remedies available to the Investor in law or equity.
Plunkett shall indemnify the Investor against any and all
expenses. If requested by the Investor, Plunkett shall, within
10 business days after such request, advance to the Investor
such expenses as are incurred by the Investor in connection
with any claim asserted against or action brought by the
Investor for:
13.5.1 indemnification of expenses or advances of expenses
by Plunkett under this Agreement, or any other
agreement, or under applicable law, or Plunkett's
articles of incorporation or bylaws now or hereafter
in effect relating to indemnification for
indemnifiable events; or
13.5.2 recovery under directors' and officers' liability
insurance policies maintained by Plunkett, for
amounts paid in settlement if the independent counsel
has approved the settlement.
13.6 Plunkett shall not settle any proceeding in any manner that
would impose any penalty or limitation on the Investor without
the Investor's written consent. Neither Plunkett nor the
Investor will unreasonably withhold its consent to any
proposed settlement. Plunkett shall not be liable to indemnify
the Investor under this Agreement with regard to any judicial
award if Plunkett was not given a reasonable and timely
opportunity, at its expense, to participate in the defense of
such action; however, Plunkett's liability under this
Agreement shall not be excused if
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 14 of 16
participation in the proceeding by Plunkett was barred by this
Agreement.
14. Entire Agreement.
This Agreement, the Note, and the Security Agreement, and all exhibits
and attachments thereto, contains the entire understanding between and among the
Parties and supersedes any prior understandings and agreements among them
respecting the subject matter of this Agreement.
15. Agreement Binding.
This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the Parties hereto.
16. Amendment and Modification.
Subject to applicable law, this Agreement may be amended, modified, or
supplemented only by a written agreement signed by the Parties.
17. Attorney Fees.
In the event arbitration, suit or action is brought by any party under
this Agreement to enforce any of its terms, and in any appeal therefrom, it is
agreed that the prevailing party shall be entitled to reasonable attorneys fees
to be fixed by the arbitrator, trial court, or appellate court.
18. Arbitration.
If at any time during the term of this Agreement any dispute,
difference, or disagreement shall arise upon or in respect of the Agreement, and
the meaning and construction hereof, every such dispute, difference, and
disagreement shall be referred to a single arbiter agreed upon by the Parties,
or if no single arbiter can be agreed upon, an arbiter or arbiters shall be
selected in accordance with the rules of the American Arbitration Association
and such dispute, difference, or disagreement shall be settled by binding
arbitration in accordance with the then prevailing commercial rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbiter may be entered in any court having jurisdiction thereof. The parties
hereto each jointly and severally waive any and all rights to appeal the
judgement or award of such arbitrator.
<PAGE>
BRIDGE LOAN AND SECURITY AGREEMENT
Page 15 of 16
19. Law Governing.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
20. Titles and Captions.
All section titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context nor effect the
interpretation of this Agreement.
21. Further Action.
The Parties hereto shall execute and deliver all documents, provide all
information and take or forbear from all such action as may be necessary or
appropriate to achieve the purposes of the Agreement.
"INVESTOR"
Dated: , 1995 By:
---------------------------
GREG PLUNKETT, INC.
A CALIFORNIA CORPORATION
Dated: , 1995 By:
---------------------------
Title:
---------------------------
<PAGE>
EXHIBIT A
PROMISSORY NOTE
IN THE PRINCIPAL AMOUNT OF $_________
<PAGE>
PROMISSORY NOTE
Dated as of
, 1995
Amount : $
FOR VALUE RECEIVED, the undersigned, Greg Plunkett, Inc., a
California corporation ("Maker"), promises to pay to the order of ("Lender"),
the principal sum of $___________, (the "Amount Advanced") on or before
____________________, 1996 (the "Maturity Date"), which principal sum shall be
advanced to Maker by Lender as set forth herein.
1. Advance of Funds.
Lender shall, upon the execution of the accompanying
Bridge Loan Agreement, advance to Maker an amount not less than $____________
("Advance").
2. Interest Rate.
The unpaid Amount Advanced under this Promissory Note
shall bear interest at a rate of
fifteen percent (15%) per anum, payable in four equal installments on March 31,
June 30, September 30, and December 31, fifteen (15) days after the end of each
calendar quarter.
3. Computation.
Interest chargeable hereunder shall be calculated
from the date each Incremental Advance shall have been made, on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed.
Interest not paid when due shall be added to the unpaid principal balance and
shall thereafter bear interest at the same rate as principal. All payments
(including prepayments) hereunder are to be applied first to the payment of
accrued interest and the balance remaining applied to the payment of principal.
4. Payments.
Except as otherwise set forth in the Bridge Loan and
Security Agreement, by and between Maker and Lender, dated , 1995 ("Bridge Loan
Agreement"), and as set forth herein, the unpaid Amount Advanced under this
Promissory Note plus all accrued but unpaid interest thereon shall be payable on
the Maturity Date.
5. Voluntary Prepayment.
Maker may, at any time, upon five (5) Business Days
prior written notice to Lender, prepay
the unpaid Amount Advanced evidenced by this Promissory Note, in whole or in
part, without penalty or premium, by paying to Lender, in cash or by wire
transfer or immediately available federal funds, the amount of such prepayment.
If any such prepayment is less than a full repayment, then such prepayment shall
be applied first to the payment of accrued interest and the balance remaining
applied to the payment of principal.
6. Lawful Money; Designated Places of Payment.
All principal and interest due hereunder is payable in lawful
money of the United States of America, in immediately available funds, at
Lender's designated address not later than 6:00 p.m., Pacific time, on the day
of payment.
PROMISSORY NOTE
PAGE 1 OF 3
<PAGE>
7. Waivers.
Except as set forth elsewhere herein or in the Bridge Loan
Agreement, Maker, for itself and its legal representatives, successors, and
assigns, expressly waives presentment, protest, demand, notice of dishonor,
notice of nonpayment, notice of maturity, notice of protest, notice of intent to
accelerate, notice of acceleration, presentment for the purpose of accelerating
maturity, and diligence in collection.
8. DEFAULT; SECURITY INTERESTS.
IT IS EXPRESSLY AGREED THAT, UPON THE OCCURRENCE OF AN EVENT
OF DEFAULT UNDER THE BRIDGE LOAN AGREEMENT, THE UNPAID PRINCIPAL BALANCE OF THIS
PROMISSORY NOTE, TOGETHER WITH INTEREST ACCRUED HEREON, SHALL BE DUE AND PAYABLE
AS PROVIDED IN THE LOAN AND SECURITY AGREEMENT, WITHOUT PRESENTMENT, DEMAND,
PROTEST, OR NOTICE OF PROTEST, OF ANY KIND, ALL OF WHICH ARE HEREBY EXPRESSLY
WAIVED. IT IS FURTHER UNDERSTOOD THAT THIS NOTE IS SECURED BY, AMONG OTHER
THINGS, ANY OF THE SECURITY INTERESTS GRANTED TO LENDER UNDER THE LOAN AND
SECURITY AGREEMENT AND UNDER ANY OTHER AGREEMENT BETWEEN LENDER AND MAKER WHICH
IS EXECUTED IN CONNECTION WITH THE LOAN AND SECURITY AGREEMENT, IN CONNECTION
HEREWITH, OR IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREUNDER
("COLLATERAL DOCUMENTS"). ALL OF THE COVENANTS, CONDITIONS, WARRANTIES,
REPRESENTATIONS AND AGREEMENTS CONTAINED IN SUCH COLLATERAL DOCUMENTS, ARE
HEREBY INCORPORATED HEREIN AND MADE A PART HEREOF.
9. Maximum Interest Rate.
Notwithstanding anything to the contrary contained in this
Promissory Note, Maker shall not be obligated to pay, and the holder hereof
shall not be entitled to charge, collect, receive, reserve, or take interest
("interest" being defined, for purposes of this paragraph, as the aggregate of
all charges which constitute interest under applicable law that are contracted
for, charged, reserved, received, or paid under this Promissory Note) in excess
of the maximum rate allowed by applicable law. During any period of time in
which the interest rate specified herein exceeds such maximum rate, interest
shall accrue and be payable at such maximum rate; provided, however, that, if
the interest rate declines below such maximum rate, interest shall continue to
accrue and be payable at such maximum rate (so long as there remains any unpaid
principal balance due under this Note) until the interest that has been paid on
this Note equals the amount of interest that would have been paid if interest
had at all times accrued and been payable at the interest rate specified in this
Note.
For purposes of this Promissory Note, the term "applicable
law" shall mean that law in effect from time to time and applicable to the loan
transaction between Maker and the holder of this Promissory Note which lawfully
permits the charging and collection of the highest permissible, lawful,
non-usurious rate of interest on such loan transaction and this Promissory Note,
including laws of the State of California and, to the extent controlling, laws
of the United States of America.
10. Attorneys' Fees.
In the event it should become necessary to employ counsel to
collect this Promissory Note, Maker agrees to pay the attorneys' fees and costs
of the holder hereof, irrespective of whether suit is brought.
11. Capitalized Terms.
Any and all capitalized terms used in this Promissory Note and
not separately defined herein shall have the meaning ascribed thereto in the
Bridge Loan Agreement.
PROMISSORY NOTE
PAGE 2 OF 3
<PAGE>
12. Section Headings.
Headings and numbers have been set forth for
convenience only. Unless the contrary is compelled by the context, everything
contained in each paragraph applies equally to this entire Promissory Note.
13. Amendments in Writing.
This Promissory Note may not be changed, modified, amended, or
terminated orally.
14. CHOICE OF LAW; WAIVER OF TRIAL BY JURY.
THIS PROMISSORY NOTE AND ALL TRANSACTIONS HEREUNDER AND/OR
EVIDENCED HEREBY SHALL BE GOVERNED BY, CONSTRUED UNDER, AND ENFORCED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA. MAKER HEREBY WAIVES, TO THE
EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT TO TRIAL BY JURY IN ANY ACTION
OR PROCEEDING RELATING TO THIS PROMISSORY NOTE.
Made and Executed at
Greg Plunkett Inc.
a California Corporation
By
-------------------
Title:
-------------------
PROMISSORY NOTE
PAGE 3 OF 3
<PAGE>
EXHIBIT B
GUARANTEE OF REPAYMENT
BY THE PACIFIC ACQUISITION GROUP, INC.
PROMISSORY NOTE
PAGE 4 OF 3
<PAGE>
GUARANTEE AGREEMENT
Amount : $ Dated as of
, 1995
BORROWER : GREG PLUNKETT, INC., A CALIFORNIA CORPORATION
LENDER : , an individual
GUARANTOR : THE PACIFIC ACQUISITION GROUP, INC., A COLORADO CORPORATION
FOR GOOD AND VALUABLE CONSIDERATION, the undersigned, Pacific
Acquisition Group, Inc., a Colorado Corporation ("Guarantor"), hereby promises
to issue or cause to be issued to , an individual (the "Lender") or his order,
shares of Series B Convertible Preferred Stock of Guarantor at the rate of one
share of PAG Stock per $6.50 the principal amount of Indebtedness, as defined
below, of Greg Plunkett, Inc., a California Corporation (the "Borrower"), on the
terms and conditions set forth in this Guarantee.
1. Definitions.
The following words shall have the following meanings when used in this
Guarantee:
Borrower: The word "Borrower" shall mean Greg
Plunkett, Inc., a California corporation.
Default: The word "Default" shall mean the occurrence
of any incidence of default as described in
the Bridge Loan and Security Agreement
entered into by and between Lender and
Borrower, dated __________________, 1995,
(the "Bridge Loan Agreement").
Lender: The word "Lender" shall mean .
Guarantor: The word "Guarantor" shall mean PACIFIC
ACQUISITION GROUP, INC.
Guarantee: The word "Guarantee" shall mean this
Guarantee Agreement between Guarantor and
Lender.
Indebtedness: The word "Indebtedness" shall mean the
outstanding principal advanced by Lender to
Borrower on _________________, 1995,
pursuant to the Bridge Loan Agreement, in
the principal amount of $___________, dated
_______________, 1995, and as evidenced by a
Promissory Note executed _______________,
1995 (the "Note"), by Borrower in favor of
Lender, due and payable in full on
_________________, 1996, bearing interest at
a rate of fifteen (15%) percent per annum.
2. Nature of Guarantee.
Upon Default of the Note by Borrower, and subject to the terms hereof,
Guarantor hereby agrees to issue to Lender shares of Series B Convertible
Preferred Stock of Pacific Acquisition Group, Inc. ("PAG Stock") at the rate of
one share of PAG Stock per $6.50 of Indebtedness of Borrower that remains
outstanding upon such Default. Guarantor's liability under this Guarantee shall
be open and continuous for as long as any portion of the principal balance on
the Note, and any accrued and unpaid interest thereon, remains outstanding. No
payments made upon the Indebtedness will discharge or diminish the continuing
liability of Guarantor in connection with the remaining portions
GUARANTEE AGREEMENT
PAGE 1 OF 4
<PAGE>
of the Indebtedness as of yet unpaid by Borrower.
3. Conditions Precedent to Obligations of Guarantor.
Notwithstanding any other provision hereof, the obligation of Guarantor
to issue PAG Stock in connection with the Default of the Note by Borrower shall
be contingent upon, and subject to the occurrence of the following:
3.1 The agreement by the Lender to (i) assign all right, title and
interest in the Note to Guarantor, and (ii) grant to Guarantor
any and all subrogation rights that Investor may have in
connection with the Note, in the form attached hereto as
Exhibit A.
3.2 Exhaustion of all reasonable collection efforts by Lender
against Borrower, including foreclosing on all liens and
security interests in any and all collateral granted to Lender
in connection with the Bridge Loan Agreement; and
Lender hereby acknowledges that the PAG Stock may not be sold,
transferred, or otherwise disposed of by an investor without the prior written
consent of the Guarantor. Before giving such consent, Guarantor may require an
effective registration statement under the Securities Act of 1933, as amended,
and any applicable state securities laws, or an opinion of counsel, to be
obtained at the expense of the transferor, acceptable to the company, to the
effect that such registration is not required. Any such sales must also comply
with any applicable state securities requirements. Certificates for the
securities will bear a legend to that effect.
4. Duration of Guarantee.
This Guarantee will take effect when received by Lender without the
necessity of any acceptance by Lender, or any notice to Guarantor or to
Borrower, and will continue in full force until the earlier of (i) payment in
full and satisfaction of all Indebtedness incurred or contracted, or (ii)
revocation of the agency of Pacific Acquisition Group, Inc. by Lender, as
described in the Bridge Loan Agreement, the terms of which are incorporated
herein by reference. If Guarantor elects to revoke this Guarantee, Guarantor may
only do so in writing. Guarantor's writing of revocation must be delivered to
Lender at the address of Lender listed above or such other place as Lender may
designate in writing. Written revocation of this Guarantee will apply only to
advances or new Indebtedness created after actual receipt by Lender of
Guarantor's written revocation. For this purpose and without limitation the term
"new Indebtedness" does not include Indebtedness which at the time of notice of
revocation is contingent, unliquidated, undetermined or not due and which later
becomes absolute, liquidated, determined or due.
This Guarantee will continue to bind Guarantor for all Indebtedness
incurred by Borrower or committed by Lender prior to receipt of Guarantor's
written notice of revocation, including any extensions, renewals, substitutions
or modifications of the Indebtedness. All renewals, extensions, substitutions,
and modifications of the Indebtedness granted after Guarantor's revocation, are
contemplated under this Guarantee and, specifically will not be considered to be
new Indebtedness.
5. Guarantor's Representations and Warranties.
Guarantor represents and warrants to Lender that (a) this Guarantee is
executed at Borrower's request and not at the request of Lender; (b) Lender has
made no representation to Guarantor as to the credit worthiness of Borrower; (c)
upon Lender's request, Guarantor will provide to Lender financial and credit
information in form acceptable to Lender, and all such financial information
provided to Lender is true and correct in all material respects and fairly
presents the financial condition of Guarantor as of the dates thereof, and no
material adverse change has occurred in the financial condition of Guarantor
since the date of the financial statements; (d) Guarantor is a Colorado
corporation, existing in good standing and qualified to do business in
California; and (e) the PAG Shares will be validly issued, fully paid and non
assessable.
GUARANTEE AGREEMENT
PAGE 2 OF 4
<PAGE>
Lender agrees to notify Guarantor of any facts, events, or
circumstances which might materially affect Guarantor's risks under this
Guarantee. Guarantor agrees that, absent a request for information, Lender shall
have no additional obligation to disclose to Guarantor any information or
documents acquired by Lender in the course of its relationship with Borrower.
6. Guarantor's Waivers.
Except as prohibited by applicable law, Guarantor also waives any and
all rights or defenses arising by reason of (a) any disability or other defense
of Borrower, any other guarantor or surety or any other person; (b) the
cessation for any cause whatsoever, other than payment in full, of the
Indebtedness; (c) the application of proceeds of the Indebtedness by Borrower
for purposes other than the purposes understood and intended by Guarantor and
Lender; (d) any act of omission or commission by Lender which directly or
indirectly results in or contributes to the discharge of Borrower or any other
guarantor or surety, or the Indebtedness, or the loss or release of any
collateral by operation of law or otherwise; (e) any modification or change in
terms of the Indebtedness, whatsoever, including without limitation, the
renewal, extension, acceleration, or other change in the time payment of the
Indebtedness is due and any change in the interest rate, and including any such
modification or change in terms after revocation of this Guarantee on
Indebtedness incurred prior to such revocation.
7. Agreement Binding.
This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the Parties hereto.
8. Amendment and Modification.
Subject to applicable law, this Agreement may be amended, modified, or
supplemented only by a written agreement signed by the Parties.
9. Attorney Fees.
In the event arbitration, suit or action is brought by any party under
this Agreement to enforce any of its terms, and in any appeal therefrom, it is
agreed that the prevailing party shall be entitled to reasonable attorneys fees
to be fixed by the arbitrator, trial court, or appellate court.
10. Arbitration.
If at any time during the term of this Agreement any dispute,
difference, or disagreement shall arise upon or in respect of the Agreement, and
the meaning and construction hereof, every such dispute, difference, and
disagreement shall be referred to a single arbiter agreed upon by the Parties,
or if no single arbiter can be agreed upon, an arbiter or arbiters shall be
selected in accordance with the rules of the American Arbitration Association
and such dispute, difference, or disagreement shall be settled by binding
arbitration in accordance with the then prevailing commercial rules of the
American Arbitration Association, and judgment upon the award rendered by the
arbiter may be entered in any court having jurisdiction thereof. The parties
hereto each jointly and severally waive any and all rights to appeal the
judgement or award of such arbitrator.
GUARANTEE AGREEMENT
PAGE 3 OF 4
<PAGE>
11. CHOICE OF LAW; WAIVER OF TRIAL BY JURY.
THIS GUARANTEE AND ALL TRANSACTIONS HEREUNDER AND/OR EVIDENCED HEREBY
SHALL BE GOVERNED BY, CONSTRUED UNDER, AND ENFORCED IN ACCORDANCE WITH THE LAWS
OF THE STATE OF CALIFORNIA. MAKER HEREBY WAIVES, TO THE EXTENT PERMITTED UNDER
APPLICABLE LAW, ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING RELATING
TO THIS GUARANTEE.
THE UNDERSIGNED GUARANTOR ACKNOWLEDGES HAVING READ ALL OF THE PROVISIONS OF THIS
GUARANTEE AND AGREES TO ITS TERMS. IN ADDITION, THE GUARANTOR UNDERSTANDS THAT
THIS GUARANTEE IS EFFECTIVE UPON GUARANTOR'S EXECUTION AND DELIVERY OF THIS
GUARANTEE TO LENDER AND THAT THE GUARANTEE WILL CONTINUE UNTIL TERMINATED IN THE
MANNER SET FORTH IN "DURATION OF GUARANTEE." NO FORMAL ACCEPTANCE BY LENDER IS
NECESSARY TO MAKE THIS GUARANTEE EFFECTIVE.
Made and Executed at GUARANTOR:
PACIFIC ACQUISITION GROUP, INC.
a Colorado Corporation
By:
--------------------
Title:
--------------------
GUARANTEE AGREEMENT
PAGE 4 OF 4
<PAGE>
EXHIBIT A
ASSIGNMENT
<PAGE>
ASSIGNMENT
FOR GOOD AND VALUABLE CONSIDERATION, the receipt of which is hereby
acknowledged, the undersigned hereby assigns transfers all of the undersigned's
right, title and interest in and to the following:
1. The Bridge Loan and Security Agreement by and between the
undersigned and Greg Plunkett, Inc., a California
corporation,, dated ____________________, 1995, a true and
correct copy of which is attached hereto as Exhibit A, and
2. The Promissory Note executed ____________________, 1995 (the
"Note"), by Greg Plunkett, Inc., a California corporation, in
favor of the undersigned, in the principal amount of
$____________, due and payable in full on ________________,
1996, bearing interest at a rate of fifteen (15%) percent per
annum, a true and correct copy of which is attached hereto as
Exhibit B.
Dated: _________________________ By:_________________________________
3.3
FORM OF PROMISSORY NOTE ISSUED TO C-BRANDS, LLC.
<PAGE>
PROMISSORY NOTE
Dated as of
October 31, 1996
Amount : $407,500
FOR VALUE RECEIVED, the undersigned Legacy Brands, Inc., a
California corporation ("Maker"), promises to pay to the order of C.Brands
Management, LLC. ("Lender"), the principal sum of $407,500, together with
interest on the unpaid principal balance on the third anniversary of the date of
this Note (the "Maturity Date"), except as set forth in Section 3 below.
1. INTEREST RATE.
The unpaid principal under this Promissory Note shall bear
interest at a rate of twelve percent (12%) per anum simple interest.
2. COMPUTATION.
Interest chargeable hereunder shall be calculated from the
date hereof, on the basis of a three hundred sixty (360) day year for the actual
number of days elapsed. Interest not paid when due shall be added to the unpaid
principal balance and shall thereafter bear interest at the same rate as
principal. All payments (including prepayments) hereunder are to be applied
first to the payment of accrued interest and the balance remaining applied to
the payment of principal.
3. PAYMENTS.
Except as otherwise set forth herein, the unpaid principal
under this Promissory Note plus all accrued but unpaid interest thereon shall be
payable upon the Maturity Date.
4. VOLUNTARY PREPAYMENT.
Maker may, at any time, upon five (5) Business Days prior
written notice to Lender, prepay the unpaid Amount Advanced evidenced by this
Promissory Note, in whole or in part, without penalty or premium, by paying to
Lender, in cash or by wire transfer or immediately available federal funds, the
amount of such prepayment. If any such prepayment is less than a full repayment,
then such prepayment shall be applied first to the payment of accrued interest
and the balance remaining applied to the payment of principal.
<PAGE>
5. CONVERSION OF INDEBTEDNESS INTO EQUITY.
The Lender may elect to convert the outstanding principal
balance remaining on this Note into shares of Common Stock of the Maker. The
conversion rate shall be two shares of Maker's Common Stock for each dollar of
indebtedness, including principal and interest which remains outstanding as of
the date the right to conversion was exercised. In the event Lender chooses to
convert pursuant to this Section 5, the parties agree that this Note shall be
canceled.
6. LAWFUL MONEY; DESIGNATED PLACES OF PAYMENT.
All principal and interest due hereunder is payable in
lawful money of the United States of America, in immediately available funds, at
Lender's designated address not later than 6:00 p.m., Pacific time, on the day
of payment.
7. WAIVERS.
Except as set forth elsewhere herein, Maker, for itself and
its legal representatives, successors, and assigns, expressly waives
presentment, protest, demand, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest, notice of intent to accelerate, notice of
acceleration, presentment for the purpose of accelerating maturity, and
diligence in collection.
8. DEFAULT.
Maker will be in default if any of the following
happens: (a) Maker fails to make payments when due, (b) Maker breaks any promise
made herein to Lender, or Maker fails to perform at the time and strictly in the
manner provided in this Note, (c) Any representation or statement made or
furnished to Lender by Maker or on Maker's behalf is false or misleading in
any material respect, (d) Maker becomes insolvent, a receiver is appointed for
any part of maker's property, Maker makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Maker or against Maker under
any bankruptcy or insolvency laws, and (e) Any creditor tries to take any of
Maker's property on or in which Lender has a lien or security interest. It is
expressly agreed that, upon the occurrence of an event of default, as defined
herein, the unpaid principal balance of this promissory note, together with
interest accrued hereon, shall be due and payable without presentment, demand,
protest, or notice of protest, all of which are hereby expressly waived.
9. SECURITY INTERESTS.
It is further understood that this Note is secured by, among
other things, security interests granted to Lender under other agreements.
PROMISSORY NOTE
PAGE 2 OF 3
<PAGE>
10. ATTORNEYS' FEES.
In the event it should become necessary to employ counsel to
collect this Promissory Note, Maker agrees to pay the reasonable attorneys' fees
and costs of the holder hereof, incurred in connection with the holder's
collection efforts, irrespective of whether suit is brought.
11. SECTION HEADINGS.
Headings and numbers have been set forth for convenience
only. Unless the contrary is compelled by the context, everything contained in
each paragraph applies equally to this entire Promissory Note.
12. AMENDMENTS IN WRITING.
This Promissory Note may be changed, modified, amended, only
by a writing signed by both parties.
13. CHOICE OF LAW.
This Promissory Note and all transactions hereunder and/or
evidenced hereby shall be governed by, construed under, and enforced in
accordance with the laws of the State of California.
14. WAIVER OF TRIAL BY JURY.
Maker hereby waives, to the extent permitted under
applicable law, any right to trial by jury in any action or proceeding relating
to this promissory note.
Made and Executed at
Legacy Brands, Inc.,
a California corporation
By
Title:
PROMISSORY NOTE
PAGE 3 OF 3
<PAGE>
6.1
Trademark License Agreement between
Mrs. Fields Development and Plunkett, Inc.
Dated August 14, 1994
<PAGE>
TRADEMARK LICENSE AGREEMENT
between
MRS. FIELDS DEVELOPMENT CORPORATION
a Delaware corporation
and
PLUNKETT, INC.
a California corporation
DATED: August 17, 1994
<PAGE>
TABLE OF CONTENTS
RECITALS ................................................................... 1
AGREEMENT .................................................................. 1
1. DEFINITIONS ..................................................... 1
2. GRANT OF LICENSE ................................................ 3
3. RESERVATION OF RIGHTS AND PRODUCT RIGHTS ........................ 4
4. LICENSE TRANSFER ................................................ 5
5. LICENSE FEE AND ROYALTIES ....................................... 5
6. VOLUME COMMITMENT ............................................... 6
7. LICENSE RETENTION ............................................... 7
8. PLUNKETT REPORTS ................................................ 7
9. DEVELOPMENT OF ROYALTY BEARING PRODUCTS ......................... 8
10. ADVERTISING AND PROMOTION REQUIREMENTS .......................... 9
11. ROYALTY-BEARING PRODUCTS APPROVAL STANDARDS ..................... 10
12. USE OF LICENSED NAMES AND MARKS ................................. 11
13. INFRINGEMENT .................................................... 12
14. INSURANCE ....................................................... 12
15. CONFIDENTIALITY ................................................. 13
16. TERM AND TERMINATION ............................................ 14
17. DISPOSAL OF INVENTORY UPON EXPIRATION ........................... 17
18. FINAL STATEMENT UPON TERMINATION OR EXPIRATION .................. 17
19. REPRESENTATIONS AND WARRANTIES .................................. 18
20. INDEMNIFICATION ................................................. 18
21. NOTICES ......................................................... 19
22. GENERAL PROVISIONS .............................................. 20
EXHIBIT "A" - LICENSED NAMES AND MARKS
EXHIBIT "B" - ROYALTY BEARING PRODUCTS
i
<PAGE>
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT is made and entered into this __ day of August 1994, by and
between MRS. FIELDS DEVELOPMENT CORPORATION, a Delaware corporation ("Mrs.
Fields"), and PLUNKETT, INC., a California corporation ("Plunkett").
RECITALS
WHEREAS, Mrs. Fields is the sole owner of certain trademarks, service
marks, and trade names, including "Mrs. Fields", which have become associated
with high quality food products;
WHEREAS, Plunkett is desirous of obtaining a license to utilize the
trademarks, service marks and trade names in connection with the development,
distribution, and sale of certain high quality, pre-packaged for retail sale,
dry mix cookie dough products; and
WHEREAS, Mrs. Fields is agreeable to such use by Plunkett of such
trademarks, service marks, and trade names, subject to the provisions of this
Agreement;
AGREEMENT
NOW THEREFORE, in consideration of the premises and the covenants and
agreements contained herein and other valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto agree as
follows:
1. DEFINITIONS
(a) "Designated Distribution Channels" shall mean grocery stores,
supermarkets, convenience stores, club stores, and other similar retail
prepackaged food and snack distribution channels.
(b) "Guaranteed Amounts" shall have the meaning set forth in Section
5 hereof.
(c) "Initial Term" shall have the meaning set forth in Section 16
hereof.
(d) "Licensed Names and Marks" shall mean those trademarks, trade
names and service marks identified on Exhibit A hereto and such other
marks as Mrs. Fields may later adopt which include the name "Mrs. Fields"
in any format.
(e) "Option" shall have the meaning set forth in Section 16 hereof.
(f) "Packaging Specifications" shall mean those specifications for
packaging approved by Mrs. Fields pursuant to Section 11 hereof.
(g) "Product Specifications" shall mean those specifications for
Royalty Bearing Products approved by Mrs. Fields pursuant to Section 11
hereof.
<PAGE>
(h) "Protected Information" shall mean Mrs. Fields' recipes, formulations,
systems, programs, procedures, manuals, confidential reports and communications,
marketing techniques and arrangements, purchasing information, pricing policies,
quoting procedures, financial information, employee, customer, supplier and
distributor data, all of the materials or information relating to the business
or activities of Mrs. Fields' which were not otherwise known to Plunkett prior
to the commencement of the negotiations leading to this Agreement, or generally
known to others engaged in similar businesses or activities, and all
modifications, improvements and enhancements which are derived from or relate to
Plunkett's access to or knowledge of any of the above enumerated materials or
information (whether or not any of the above are reduced to writing or whether
or not patentable or protectable by copyright) which Plunkett's receives,
receives access to, conceives or develops or has received, received access to,
conceived or developed, in whole or in part, directly or indirectly, in
connection with Plunkett's license hereunder. Information which is independently
developed by Plunkett, or which was already in the possession of Plunkett prior
to the date of this Agreement and which was not obtained in connection with the
transactions contemplated by this Agreement, or information which is or becomes
publicly available without breach of (i) this Agreement, (ii) any other
agreement or instrument to which Plunkett is a party or a beneficiary, or (iii)
any duty owed to Mrs. Fields by Plunkett, shall not be considered Protected
Information hereunder.
(i) "Royalty-Bearing Product(s)" shall mean the items, articles or
food products described on Exhibit B hereto, and any other products which
become Royalty Bearing Products pursuant to the terms hereof, which
products are sold as prepackaged products using the Licensed Names and
Marks.
(j) "Royalty Default Rate" shall mean the interest rate which is the
lesser of (i) the annual rate from time to time publicly announced by
Citibank, N.A. at its "base rate" or "prime rate" (or any successor rate)
plus two percent (2%) or (ii) the highest applicable legal rate.
(k) "Running Royalty" or "Running Royalties" shall mean the royalty
or royalties from time to time payable pursuant to Section 5.
(l) "Territory" shall mean North America, Hawaii and Puerto Rico.
(m) "Volume Commitment" shall have the meaning set forth in Section
6 hereof.
2
<PAGE>
2. GRANT OF LICENSE
(a) Grant. Subject to the terms and conditions of this Agreement,
Mrs. Fields hereby grants to Plunkett, and Plunkett hereby accepts the
grant by Mrs. Fields of, the exclusive right and license to use the
Licensed Names and Marks to market Royalty-Bearing Products through
Designated Distribution Channels throughout the Territory. Except as
stated in Section 3, Mrs. Fields shall not compete with Plunkett in the
(i) use of any trademark, service mark or tradename which includes the
name "Mrs. Fields" in any format in marketing Royalty Bearing Products in
Designated Distribution Channels in the Territory or (ii) license any
third party to use the same in marketing any Royalty Bearing Products in
Designated Distribution Channels in the Territory.
(b) First Right of Refusal - Territory. Mrs. Fields hereby grants to
Plunkett the first-right-of-refusal to acquire the license for the sale of
Royalty Bearing Products in, and include in the definition of Territory,
any and all European countries at an amount equal to seventy-five percent
(75 %) of the price and on the terms set forth in writing by any ready,
willing and able prospective licensee (the "First Offeror") who has made a
bona fide, enforceable offer in writing to Mrs. Fields containing no
contingencies (the "First Offer"). Mrs. Fields shall be obligated to give
Plunkett written notice and a copy of such First Offer and Plunkett shall
have sixty (60) days after receipt of such notice to exercise its first
right of refusal by giving written notice to Mrs. Fields of its intention
to acquire the license for a price equal to 75% of the price and upon the
terms and conditions set forth in such First Offer. In the event Plunkett
exercises its first right of refusal, the acquisition shall occur within
thirty (30) days of the date of exercise or on such later date as may be
provided for closing in the First Offer. In the event that Plunkett does
not exercise its right of first refusal, Mrs. Fields shall be free for
ninety (90) days after the expiration of Plunkett's sixty (60) day period
to agree to sell to the First Offeror on the precise terms and conditions
set forth in the First Offer. Any proposed sale by Mrs. Fields containing
different terms or conditions or beyond the ninety (90) day period shall
be subject to a further right of refusal on the terms set forth herein.
(c) First Right of Refusal - Products. Mrs. Fields hereby grants to
Plunkett the first-right-of-refusal to acquire the License to sell in the
Territory, and include in the definition of Royalty Bearing Products, all
other dry mix food products at an amount equal to seventy-five percent
(75%) of the price and on the terms set forth in writing by any ready,
willing and able prospective licensee (the "first Offeror") who has made a
bona fide, enforceable offer in writing to Mrs. Fields containing no
contingencies (the "First Offer"). Mrs. Fields shall be obligated to give
Plunkett written notice and a copy of such First Offer and Plunkett shall
have sixty (60) days after receipt of such notice to exercise its first
right of refusal by giving written notice to Mrs. Fields of its intention
to acquire the license for a price equal to 75% of the price and upon the
terms and conditions set forth in such First Offer. In the event Plunkett
exercises its first right of refusal, the acquisition shall occur within
thirty (30) days of the date of exercise or on such later date as may be
provided for closing in the First Offer. In the event that Plunkett does
not exercise its right of first refusal, Mrs. Fields shall be free for
ninety
3
<PAGE>
(90) days after the expiration of Plunkett's sixty (60) day period to
agree to sell to the First Offeror on the precise terms and conditions set
forth in the First Offer. Any proposed sale by Mrs. Fields containing
different terms or conditions or beyond the ninety (90) day period shall
be subject to a further right of refusal on the terms set forth herein.
(d) Expansion. In the event Plunkett desires to expand the
definition of Territory to include additional areas, it may do so at no
additional fee, upon written notice to Mrs. Fields and upon receiving Mrs.
Fields' written consent which shall not be unreasonably withheld. Upon
express or deemed consent, the Territory shall be automatically expanded
to include the additional areas set forth in the Notice. Consent shall be
deemed given sixty (60) days after receipt of Plunkett's notice unless
Mrs. Fields has notified Plunkett that consent is withheld. It shall not
be unreasonable for Mrs. Fields to withhold consent if it has received an
offer from a third party at which time Plunkett's expansion request shall
be governed by Paragraph 2(b).
3. RESERVATION OF RIGHTS AND PRODUCT RIGHTS
(a) Reservation. Mrs. Fields reserves all rights with respect to the
Licensed Names and Marks not expressly licensed to Plunkett hereunder, and
Mrs. Fields may use or grant licenses to others to use the Licensed Names
and Marks in any other manner or in connection with any goods or services,
other than for sale of Royalty Bearing Products in Designated Distribution
Channels in the Territory. Without limiting the foregoing, the license
granted pursuant to this Agreement shall be exclusive to Plunkett except
that Mrs. Fields shall not be precluded from, and hereby expressly retains
the right to: (i) own, operate, and grant or license others the right to
own and operate Mrs. Fields Cookies stores which sell cookie, bakery
and/or ice cream products (whether or not such products are Royalty
Bearing Products) under the Licensed Names and Marks at locations within
the Territory on such terms and conditions, as Mrs. Fields, in its sole
discretion, deems appropriate, and (ii) offer for sale and sell, and
license others to offer for sale and sell, any products or services under
the Licensed Names and Marks which are not Royalty Bearing Products.
(b) Products. Mrs. Fields shall have the right to purchase from
Plunkett, at a "most favored nations" price, and sell Royalty-Bearing
Products at Mrs. Fields Cookies store locations owned and operated by Mrs.
Fields, its franchisees and licensees which are licensed by Mrs. Fields to
operate Mrs. Fields Cookies stores pursuant to Mrs. Fields' Uniform
Franchise Offering Circular or under an exemption to the Federal Trade
Commission Regulations governing the sale of franchises.
4
<PAGE>
4. LICENSE TRANSFER
This Agreement shall be binding upon and inure to the benefit of the
parties to this Agreement and their successors or assigns; provided, that
the rights of the parties under this Agreement may only be assigned (i)
upon written consent by Mrs. Fields or (ii) without consent to a parent
corporation which owns at least fifty-one percent (51%) of such assigning
party, a fifty-one percent (51%) owned subsidiary corporation of such
party, a fifty-one percent (51%) owned subsidiary of a parent of such
party if such parent owns at least fifty-one percent (51%) of such party,
or to such other business organization which shall succeed to
substantially all of the assets and business of the parties, a parent, or
a subsidiary. Plunkett shall not have the right to grant sublicenses under
this Agreement; provided, that Plunkett shall have the right to contract
with a third party for the actual manufacturing of the Royalty-Bearing
Products ("co-pack agreements"), if such co-packer and the co-pack
agreement (with respect to Royalty Bearing Products) are approved in
writing by Mrs. Fields, which approval will not be unreasonably withheld,
and provided further that such co-packer signs a confidentiality agreement
with Mrs. Fields, containing substantially the obligations of Plunkett as
set forth in paragraph 15 hereof. Plunkett's obligations as set forth in
this Agreement shall not be altered in any manner as a result of the
existence of any co-pack agreements with third party manufacturers. Any
assignment, franchise, sublicense, or transfer, not expressly permitted by
this Section 4, is prohibited and will be deemed to be null and void.
5. LICENSE FEE AND ROYALTIES
(a) Guaranteed Pre-paid Royalty Fees and Running Royalties. Plunkett
shall pay to Mrs. Fields a non-refundable, pre-paid royalty fee of
$500,000 on July 1, 1995 (date subject to discussion). The foregoing
pre-paid royalty fee payment is hereinafter referred to as the "Guaranteed
Amounts" and shall represent a payment of $0.75 per case, for the first
3,333,334 cases sold, or retail packages of Royalty Bearing Products sold
("Running Royalties"), (over and above the Running Royalty of $0.75 per
case referenced below). Throughout the term (including Option Periods) of
this Agreement the Running Royalty shall be reduced to $0.75 per each case
of twelve retail packages of Royalty Bearing Products sold, less damages,
returns and credits. In the event that Plunkett distributes in cases
containing less than twelve retail packages, then the Running Royalty will
be adjusted proportionately and accordingly to the number of individual
retail packages per case. Plunkett shall remit such Running Royalties to
Mrs. Fields on the last day of the month following the end of each
calendar quarter covered by the Agreement. All Guaranteed Amounts and
Running Royalties shall be fully earned when paid and Plunkett shall not
be entitled to any refund with respect to such amounts for any reason
whatsoever.
(b) Payments. All fees, royalties, and amounts payable hereunder
shall be paid to Mrs. Fields in U.S. currency in immediately available
funds at such address or to such account as shall be designated in writing
by Mrs. Fields.
5
<PAGE>
(c) Interest on Late Payments. Plunkett shall pay interest on all
overdue amounts hereunder from the due date of such amounts until paid at
the Royalty Default Rate.
6. VOLUME COMMITMENT
(a) Plunkett will sell a minimum number of cases of Royalty Bearing
Products during the Initial Term hereof and during each Option Period as
set forth on the following schedule:
INITIAL TERM
1995 750,000 cases
1996 900,000 cases
1997 l,000,000 cases
1998 l,100,000 cases
1999 1,200,000 cases
1ST OPTION PERIOD
2000 1,260,000 cases
2001 1,323,000 cases
2002 1,389,150 cases
2003 1,458,608 cases
2004 1,531,538 cases
2ND OPTION PERIOD
2005 1,608,ll5 cases
2006 1,688,521 cases
2007 1,772,9
47 cases
2008 1,861,594 cases
2009 1,954,674 cases
3RD OPTION PERIOD
2010 2,052,407 cases
2011 2,155,028 cases
2012 2,262,779 cases
2013 2,375,918 cases
2014 2,494,714 cases
6
<PAGE>
(b) The foregoing numbers of cases shall be referred to herein as
the "Volume Commitment".
7. LICENSE RETENTION
If Plunkett fails to meet its Volume Commitment as set forth in Section
6(a) hereof with respect to Royalty Bearing Products, Plunkett shall have
the option to pay Running Royalties to Mrs. Fields in the manner and in an
amount equal to the Running Royalties that would have been paid had
Plunkett met its Volume Commitment, and if paid, Plunkett shall have the
right to retain the exclusive license described herein.
8. PLUNKETT REPORTS
(a) Periodic Reports. On or before the last day of the month
following the last month of each calendar quarter covered by this
Agreement, Plunkett shall deliver to Mrs. Fields a written statement
prepared, signed, and certified to be true and correct by Plunkett's chief
financial officer, or his designee, setting forth the amount of
Royalty-Bearing Products sold, including sufficient information and detail
to confirm the calculations, which report shall be accompanied by payment
in full of the amount of Running Royalties then due.
(b) Annual Reports. Within ninety (90) days following the end of
each calendar year of this Agreement, beginning with the first such year
in which Plunkett has sales of Royalty-Bearing Products, Plunkett shall
deliver to Mrs. Fields a written statement setting forth the amount of
Royalty-Bearing Products sold and the calculations, including sufficient
information and detail to confirm the calculations, used to determine such
amounts, which calculations shall be signed and certified as true and
correct by an independent certified public accounting firm chosen by
Plunkett and acceptable to Mrs. Fields, which acceptance shall not be
withheld unreasonably. If this statement discloses that the amount of
Running Royalties paid during any period to which the report relates was
less than the amount required to be paid or that any other amount is due
Mrs. Fields, Plunkett immediately shall pay such amounts, together with
accrued interest at the Royalty Default Rate in cash or other immediately
available funds.
7
<PAGE>
9. DEVELOPMENT OF ROYALTY BEARING PRODUCTS
Plunkett hereby covenants, agrees, warrants and represents that:
(a) Product Development. All Royalty-Bearing Products shall be
developed, manufactured, marketed, and sold as "premium" products
containing all natural ingredients or as otherwise may be consistent with
Mrs. Fields then existing image. Plunkett accepts full responsibility for
and agrees to pay all costs it incurs associated with the development of
all Royalty-Bearing Products and all advertising and promotion, packaging
design, graphics, and packaging materials for Royalty-Bearing Products.
Mrs. Fields shall cooperate with Plunkett in development of
Royalty-Bearing Products, primarily through the suggestion of ideas,
concepts, and recipes for products and packaging; provided, however, that
Mrs. Fields shall have no obligation to develop Royalty-Bearing Products
or any other products.
(b) Mrs. Fields Approval. Plunkett shall not sell any initial
Royalty Bearing Product or any newly flavored Royalty Bearing Products
until Mrs. Fields, in its reasonable judgment, funds that such product in
mass production quantities is satisfactory to Mrs. Fields, pursuant to
Section 11 hereof. The license to Plunkett granted by this Agreement to
distribute the Royalty Bearing Products under the Licensed Names and Marks
is expressly contingent upon such final approval by Mrs. Fields which
approval shall not be unreasonably withheld.
(c) Compliance with Specifications. Plunkett will manufacture, sell
and distribute the Royalty Bearing Products in accordance with the Product
Specifications and will package and label the Royalty Bearing Products in
accordance with the Packaging Specifications.
(d) Capital Costs. Plunkett will secure all plant, equipment and
technical skills necessary for the manufacture of the Royalty Bearing
Products according to the Product and Packaging Specifications, and Mrs.
Fields shall have no liability or responsibility with respect thereto.
(e) Compliance with Laws. The Royalty Bearing Products will be
manufactured in compliance with, and will not be adulterated or misbranded
within the meaning of, the Federal Food, Drug and Cosmetic Act of 1938, or
any other federal, state, foreign or local laws or regulations applicable
thereto, will not constitute an article which may not be introduced into
interstate commerce and will be manufactured in substantial compliance
with all applicable federal, state, foreign or local laws and regulations
applicable thereto. Unless Mrs. Fields otherwise agrees in writing,
Plunkett will destroy all inventories which are not in conformity with
Food and Drug Administration rules and regulations and all applicable
federal, state, foreign and local laws. Plunkett agrees to notify Mrs.
Fields promptly of any regulatory action of which Plunkett has knowledge
that is taken in relation to it by any federal, state, foreign, county or
municipal authority which relates to or affects the manufacture, storage,
distribution or sale of the Royalty Bearing Products.
8
<PAGE>
(f) Customer Complaints. Plunkett shall provide Mrs. Fields a
summary of all written consumer complaints received regarding the quality
of the Royalty-Bearing Products and shall maintain all written consumer
complaints and a telephone log for all consumer complaints received by
telephone for a period of one year. Plunkett will send a written report to
Mrs. Fields each month containing the comments received, names of
complaining persons, with addresses and telephone numbers (if available).
Comments will be organized and summarized by type of comment or complaint
and by the geographical location of the complaint. Such information will
also be available for inspection by Mrs. Fields during normal working
hours upon reasonable notice. Plunkett further agrees that it will respond
to any written customer complaint within fourteen (14) days of receipt of
such complaint by written response with either a refund of the customer's
money or a coupon for the same type of Royalty Bearing Product purchased,
depending upon the complaining customer's request. Plunkett further agrees
that any complaints about Mrs. Fields products which are not Royalty
Bearing Products will be forwarded to Mrs. Fields within five (5) days of
receipt. Mrs. Fields agrees that all customer complaints and comments
received by it with respect to Royalty Bearing Products will be forwarded
to Plunkett within five (5) days of receipt. Plunkett shall further
provide Mrs. Fields with copies of all responses to complaints, upon
request.
(g) Ingredient Approval. Plunkett will purchase for its own account
all flavoring ingredients, raw materials and packaging which is
proprietary to Mrs. Fields from sources which are approved by Mrs. Fields,
which approval shall not be unreasonably withheld.
10. ADVERTISING AND PROMOTION REQUIREMENTS
(a) Plunkett Promotion. Plunkett shall market Royalty-Bearing
Products as premium products or as is otherwise consistent with Mrs.
Fields' then existing image so that such marketing shall not reflect
adversely upon Royalty-Bearing Products, the good name of Mrs. Fields, or
the Licensed Names and Marks. Mrs. Fields shall have a prior-to-use
reasonable right of approval for all promotional, marketing and
advertising materials and concepts for each promotional campaign Plunkett
uses to market Royalty-Bearing Products. In that regard, Mrs. Fields shall
have a right of reasonable approval, prior to the development of final
television, radio or printed advertisements, the final "story boards" with
respect to television advertising, the final "script" with respect to
radio spots and the final "layouts" with respect to printed
advertisements. Mrs. Fields shall also have a right of reasonable approval
with respect to the actors or actresses used in connection with any such
advertising campaigns; provided, that Plunkett shall have the right to
make minor variations in promotional, marketing and advertising materials
used in connection with the approved promotional campaigns. All
advertisements and advertising campaigns shall conform in all material
respects to the approvals given by Mrs. Fields. Mrs. Fields shall have
five (5) business days following the receipt of the proposed promotional,
marketing or advertising materials to send Plunkett written notice of its
disapproval which shall include an explanation of the basis for
disapproval. If such written disapproval is not received by Plunkett
within this five (5) business day period, the marketing, promotional or
advertising material submitted to Mrs. Fields shall be
9
<PAGE>
deemed approved. Any material modifications to any such materials
previously approved by Mrs. Fields shall be subject to approval pursuant
to this Section 10. Once a promotional campaign has been approved by Mrs.
Fields, if no material changes are made to it by Plunkett, Mrs. Fields
shall not rescind its approval and Plunkett may proceed accordingly on the
basis that it is approved.
11. ROYALTY-BEARING PRODUCTS APPROVAL STANDARDS
(a) Approval Standards. Prior to initial marketing of each
Royalty-Bearing Product, Plunkett shall provide Mrs. Fields with (i)
notice of the proposed predetermined product content specifications for
approval (as so approved by Mrs. Fields, the "Product Specifications"),
and (ii) without charge, representative samples of the proposed product
and related packaging materials, labels, and package inserts, for approval
(as so approved by Mrs. Fields, the "Packaging Specifications"). Approval
of product content specifications, product quality, packaging, labels and
inserts shall be in Mrs. Fields' reasonable discretion. Unless within ten
(10) business days after sending the above notice and samples Plunkett
receives from Mrs. Fields' notice indicating disapproval of proposed
predetermined product content specifications, product quality or other
items described above, together with an explanation of the basis of
disapproval, such predetermined product content specifications, product
quality, or other items shall be deemed approved. Plunkett shall market
all Royalty Bearing Products in accordance with the approval received from
Mrs. Fields with respect to product content specifications, quality,
packaging and labeling, and in accordance with all governmental laws,
rules, and regulations applicable in the Territory.
(b) Examination By Mrs. Fields. Periodically Mrs. Fields shall have
the right to request and upon such request Plunkett shall provide to Mrs.
Fields, free of charge, representative samples of any Royalty-Bearing
Products then being sold, together with any packaging, packaging inserts,
labels, wrapping, advertising, marketing and promotional material then in
use. Mrs. Fields shall examine any such samples, packaging, promotional or
marketing materials, and advertisements within ten (10) days after
receipt. If as a result of such examination Mrs. Fields believes that any
Royalty-Bearing Product is not in substantial conformity with the Product
Specifications or product quality approved by Mrs. Fields, or that any
packaging, advertising, marketing or promotional materials are not in
substantial conformity with any previous approvals given by Mrs. Fields,
or any Licensed Names or Marks are not being used in conformity with the
requirements of this Agreement, Mrs. Fields shall promptly notify
Plunkett. After receipt of any such notice from Mrs. Fields, Plunkett
shall have ten (10) business days to correct the lack of conformity
identified by Mrs. Fields. Plunkett recognizes that representatives of
Mrs. Fields may also inspect Royalty-Bearing Products after delivery into
Designated Distribution Channels and Plunkett shall cooperate with Mrs.
Fields in obtaining Plunkett's customers cooperation in such inspections.
Notwithstanding the foregoing, Mrs. Fields' right to request and receive
samples shall be limited to once per calendar quarter, unless in any
quarter such samples are non-conforming as described above in which case
Mrs. Fields may request additional samples from time to time during such
quarter and the next succeeding calendar quarter to ensure conformity.
10
<PAGE>
(c) Labelling; Trademark Notices. Whenever Plunkett uses the
Licensed Names and Marks, Plunkett shall affix the appropriate trademark
notice and agrees to use the registration symbol of "R" in connection with
its use of the Licensed Names and Marks, or "TM" where the mark has not
been registered federally, and in each instance where appropriate
accompanied by the words "Reg. TM of Mrs. Fields" or a reasonable
facsimile thereof or such other reference as may be designated by Mrs.
Fields from time to time. Where a Licensed Name and Mark is used more than
once on packaging, in copy or advertising or on the Royalty Bearing
Products, the "(R)" or "TM" designation need only be used once either on
the most prominent use of the Licensed Name and Mark, or if all uses are
of equal prominence, then on the first use of the Licensed Name and Mark
in or on each package, copy, advertisement, or product. Plunkett shall use
the Licensed Names and Marks only as trademarks, service marks, or trade
names and shall affix the notice as specified. Plunkett shall not have the
right, unless previously agreed in writing by Mrs. Fields, to use other
trademarks, service marks, or trade names in marketing and promoting
Royalty-Bearing Products. Mrs. Fields shall have the right to own and
register any such other trademark, service mark, or trade name which is
registerable, including a Licensed Name or Mark or "Fields" in any format,
and such trademarks, service marks, and trade names owned or registered by
Mrs. Fields shall be included in the Licensed Names and Marks, and
Plunkett shall cooperate with Mrs. Fields by providing packaging,
labelling, and documentation as may be required to obtain and maintain
such registration.
12. USE OF LICENSED NAMES AND MARKS
(a) Restrictions On Use. Unless Mrs Fields consents in writing which
consent shall not be unreasonably withheld, Plunkett shall use the
Licensed Names and Marks:
(i) only for the purposes of and pursuant to this Agreement,
(ii) only in a manner consistent with the scope of the
relevant registration of the Licensed Names and Marks or
applications therefor in the Territory,
(iii) only in the manner permitted and prescribed by Mrs
Fields as set forth herein,
(iv) only with respect to Royalty Bearing Products, and
(v) only to sell Royalty Bearing Products through Designated
Distribution Channels.
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(b) Recognition of Goodwill. Plunkett recognizes the value of the
goodwill associated with the Licensed Names and Marks and acknowledges
that the Licensed Names and Marks and all rights therein and goodwill
pertaining thereto belong exclusively to Mrs. Fields.
(c) Validity of Other Agreements. Plunkett agrees that it will not,
during the term of this Agreement or thereafter, attack the title or any
rights of Mrs. Fields in and to the Licensed Names and Marks, or any other
license agreement involving the Licensed Names and Marks to which Mrs.
Fields is a party.
(d) Validity of Licensed Names and Marks. Plunkett agrees that it
will not intentionally destroy, impair or in any way impede the effect and
validity of the Licensed Names and Marks.
13. INFRINGEMENT
Plunkett agrees to assist Mrs. Fields, at Mrs. Fields's cost and expense,
to the extent necessary in the procurement of any protection or to protect
any of Mrs. Fields's rights to the Licensed Names and Marks, and Mrs.
Fields, if it so desires, may commence or prosecute any claims or suits in
its own name or, with Plunkett's consent, in the name of Plunkett or join
Plunkett as a party thereto. Plunkett shall notify Mrs. Fields in writing
of any infringements or imitations by others of the Licensed Names and
Marks which may come to Plunkett's attention, and Mrs. Fields shall have
the sole right to determine whether or not any action shall be taken on
account of any such infringements or imitations at Mrs. Fields' cost and
expense. Plunkett shall not institute any suit or take any action on
account of any such infringements or imitations without first obtaining
the written consent of Mrs. Fields so to do.
14. INSURANCE
Plunkett shall obtain and keep in force, at its sole expense, product
liability insurance providing adequate insurance for Mrs. Fields against
any claims and suits involving product liability arising out of, or with
respect to, the transactions contemplated by this Agreement, in no less
than ten million dollars ($10,000,000) combined single limit on bodily
injuries and/or property damage. Within thirty (30) days after the date of
this Agreement, Plunkett shall submit to Mrs. Fields a certificate of
insurance naming Mrs. Fields as an additional insured and providing that
any cancellation or material change or alteration which reduces coverage
or any benefits accruing to Mrs. Fields shall become effective only upon
thirty (30) days prior notice to Mrs. Fields.
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15. CONFIDENTIALITY
(a) Acknowledgment of Confidentiality. Plunkett understands that any
Protected Information disclosed to it by Mrs. Fields under this Agreement
is secret, proprietary and of great value to Plunkett, which value may be
impaired if the secrecy of the Protected Information is not maintained.
(b) Reasonable Security Measures. Mrs. Fields has taken and will
continue to take reasonable security measures to preserve and protect the
secrecy of the Protected Information and Plunkett agrees to take all
measures reasonably necessary to protect the secrecy of such information
in order to prevent it from falling into the public domain or into the
possession of persons not bound to maintain the secrecy of such
information.
(c) Non-Disclosure Obligation. Plunkett agrees not to disclose the
Protected Information obtained pursuant to this Agreement, to any person
or entity (other than Plunkett's key officers and employees to whom
disclosure is necessary), during the term of this Agreement or at any time
following the expiration or termination of this Agreement.
(d) Burden of Proof. Plunkett hereby acknowledges and agrees that if
Plunkett shall disclose, divulge, reveal, report, publish, transfer or
use, for any purpose whatsoever, except as authorized herein, any
Protected Information, and Plunkett shall assert as a defense that such
information (i) was already known to Plunkett or developed prior to the
execution of this Agreement, (ii) was independently developed by Plunkett,
(iii) was disclosed to third parties without violation of this Agreement,
(vi) was already in the public domain prior to the execution of this
Agreement, or (v) entered the public domain without violation of this
Agreement, Plunkett shall bear the burden of proof with respect to the
same.
(e) Mutuality of Obligations. Mrs. Fields hereby agrees that any
information which it receives from Plunkett which is within the scope of
the definition of Protected Information, shall be treated as confidential
by Mrs. Fields, and Mrs. Fields hereby agrees to be bound by the terms of
this Agreement with respect to any such information it receives from
Plunkett, to the same extent that Plunkett is bound by the terms of this
Agreement with respect to Protected Information, as set forth above in
paragraphs 15(a), (b), (c) and (d).
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16. TERM AND TERMINATION
(a) Term. The initial term of this Agreement shall begin upon the
execution hereof and extend through December 31, 1999 ("Initial Term"). So
long as Plunkett is not in material default and has met and/or paid
Running Royalties based on its Volume Commitment as described in paragraph
6(a) hereof, Plunkett shall have the option ("Option") to extend this
Agreement for five (5) consecutive five (5) year Option Periods, until
December 31, 2024. The Options may be exercised by Plunkett, in its sole
discretion, by the giving of written notice to Mrs. Fields, not later than
ninety (90) days prior to the expiration of the Initial Term (or current
Option Period) hereof.
(b) Termination. This Agreement may be terminated as follows:
(c) If Plunkett defaults in the payment of any Running Royalties or
Guaranteed Amounts to Mrs. Fields when the same become due and payable
hereunder, then this Agreement and the license granted hereunder may be
terminated upon notice by Mrs. Fields effective thirty (30) days after
receipt of such notice, without prejudice to any and all other rights and
remedies Mrs. Fields may have hereunder or by law provided, and all rights
of Plunkett hereunder shall cease.
(i) If Plunkett fails to meet its Volume Commitment as set
forth in paragraph 6(a) hereof, then, except as provided in Section
7, this Agreement and the license granted hereunder may be
terminated upon receipt of such notice, unless cured by Plunkett
during such thirty (30) day period by payment of amounts due
together with interest on such amounts pursuant to Paragraph 5(c),
without prejudice to any and all other rights and remedies Mrs.
Fields may have hereunder or by law provided, and all rights of
Plunkett hereunder shall cease.
(ii) If Plunkett fails to perform in accordance with any
material term or condition of this Agreement (other than as
described in paragraph l6(b)(i) and (ii) above) and such default
continues unremedied for thirty (30) days after the date on which
Plunkett receives written notice of default, unless such remedy
cannot be accomplished in such time period and Plunkett has
commenced diligent efforts within such time period and continues
such effort until the remedy is complete, then this Agreement may be
terminated upon notice by Mrs. Fields, effective upon receipt of
such notice, without prejudice to any and all other rights and
remedies Mrs. Fields may have hereunder or by law provided.
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<PAGE>
(iii) If Plunkett is determined to be insolvent, or files a
petition in bankruptcy or for reorganization, or takes advantage of
any insolvency statute, or makes an assignment for the benefit of
creditors, or undertakes any similar action, under any federal,
state or foreign bankruptcy, insolvency or similar law, unless such
is dismissed, removed or otherwise cured within thirty (30) days or
unless Plunkett has filed for Chapter 11 Reorganization protection
under Federal Bankruptcy Laws, then this Agreement and the License
granted hereunder may be terminated upon notice by Mrs. Fields,
effective upon receipt of such notice, without prejudice to any and
all other rights and remedies Mrs. Fields may have hereunder or by
law provided, and the license herein granted shall not constitute an
asset in reorganization, bankruptcy, or insolvency which may be
assigned or which may accrue to any court or creditor appointed
referee, receiver, or committee.
(v) Beginning with the first Option Period and thereafter, if
not more than twelve (12) months nor less than three (3) months
prior to the end of the any Option Period Mrs. Fields provides
written notice to Plunkett that it intends to terminate this License
Agreement as of the end of such Option Period and by providing
written acknowledgement of Mrs. Fields' obligation to pay Plunkett a
Buy Out Amount equal to three (3) times, the average gross margin
for sales reported by Plunkett over the last three years of the
current Option Period term. Average gross margin shall be calculated
by taking net sales (gross revenues from Royalty-Bearing Product
sales less any discounts), minus allowance for spoilage, returns,
and costs of goods sold (amounts paid by Plunkett for Licensed
Products FOB the co-packet). The Buy Out Amount shall be paid to
Plunkett in cash over three (3) years in twelve (12) equal quarterly
installments with interest on the unpaid balance at the previous
quarter's average reference rate reported from time to time by the
Bank of America NT&SA San Francisco headquarters branch on
commercial loans to its most creditworthy commercial borrowers, with
the first payment due on the last day of the first calendar quarter
following the termination. The "previous quarter's average reference
rate" to be applied during a quarter shall be calculated by taking
the average of the reference rates in effect on the first day of
each of the three (3) months of the preceding quarter. Mrs. Fields
may repay this obligation in whole or in part at any time without
prepayment premium or penalty.
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<PAGE>
(vi) If Mrs. Fields is determined to be insolvent, or files a
petition in bankruptcy or for reorganization, or takes advantage of
any insolvency statute, or makes an assignment for the benefit of
creditors, or undertakes any similar action, under any federal,
state or foreign bankruptcy, insolvency or similar law, or fails to
perform in accordance with any material term or condition of this
Agreement and such default continues for thirty (30) days after Mrs.
Fields receives written notice of default, then this Agreement and
the License granted hereunder may be terminated upon notice by
Plunkett, effective upon receipt of such notice, without prejudice
to any and all other rights and remedies Plunkett may have hereunder
or by law provided, and the license herein granted shall not
constitute an asset in reorganization, bankruptcy, or insolvency
which may be assigned or which may accrue to any court or creditor
appointed referee, receiver, or committee.
(vii) If Mrs. Fields fails to perform in accordance with any
material term or condition of this Agreement and such default
continues unremedied for thirty (30) days after the date on which
Mrs. Fields receives written notice of default, then this Agreement
may be terminated upon notice by Plunkett, effective upon receipt of
such notice, without prejudice to any and all other rights and
remedies Plunkett may have hereunder or by law provided.
(d) Rights Upon Termination or Cancellation. On any cancellation,
termination or expiration of this Agreement;
(i) Plunkett agrees to immediately pay to Mrs. Fields all
amounts due and owing hereunder and to return all Protected
Information, confidential documents and other material supplied by
Mrs. Fields to Plunkett and agrees never to use, disclose to others,
nor assist others in using the Protected Information.
(ii) Plunkett will be deemed to have automatically and
irrevocably assigned, transferred, and conveyed to Mrs. Fields any
rights, equities, good will, titles or other rights in and to the
Licensed Names and Marks which may have been obtained by Plunkett or
which may have vested in Plunkett in pursuance of any endeavors
covered hereby, and Plunkett will execute any instruments requested
by Mrs. Fields to accomplish or confirm the foregoing. Any such
assignment, transfer or conveyance shall be without other
consideration than the mutual covenants and considerations of this
Agreement.
(iii) Except as provided in Section 17 below, Plunkett further
agrees that it shall forthwith discontinue the use of all Licensed
Names and Marks, including packaging and other paper goods and other
objects bearing any Licensed Names and Marks.
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<PAGE>
(e) Licensing of Licensed Names and Marks, After Termination. Upon
any expiration or earlier termination of this Agreement, Mrs. Fields may
license others to use the Licensed Names and Marks to produce, sell,
market and advertise products similar or identical to the Royalty Bearing
Products through Designated Distribution Channels in the Territory.
(f) Packaging Designs. In the event this Agreement is properly
terminated, Mrs. Fields shall have the right to purchase the packaging
designs for the Royalty-Bearing Products from Plunkett at a price equal to
the amount expended by Plunkett on such packaging designs. To exercise
this right, Mrs. Fields shall notify Plunkett in writing of Mrs. Fields'
intent to purchase the packaging design, not later than 30 days after
termination. Upon receipt of such notice, Plunkett shall provide Mrs.
Fields with the amount of Plunkett's cost for packaging design, whereupon,
Mrs. Fields may rescind its offer within five (5) business days of receipt
of the price of such costs for packaging design, otherwise Mrs. Fields
shall be deemed to have accepted such cost as the purchase price for such
packaging.
17. DISPOSAL OF INVENTORY UPON EXPIRATION
For a period of six (6) months following the termination or expiration of
this Agreement, Plunkett shall have the right to sell any Royalty Bearing
Products in Plunkett's inventory which have been packaged in packages
bearing the Licensed Names and Marks, and Mrs. Fields shall have the right
to purchase at Plunkett's fully allocated cost, any packaging materials
using the Licensed Names and Marks then in Plunkett's inventory. Any sales
of Royalty Bearing Products under this Section shall be, at all times, in
accordance with the policies, prices, and standards established for
marketing and distribution of Royalty-Bearing Products pursuant to this
Agreement, and shall include payment of all Running Royalties accrued in
accordance with Section 5 hereof.
18. FINAL STATEMENT UPON TERMINATION OR EXPIRATION
As soon as practicable after termination or expiration of the license
granted hereunder, but in no event more than thirty (30) days thereafter,
Plunkett shall deliver to Mrs. Fields a statement indicating the number
and description of Royalty Bearing Products packaged in packaging using
the Licensed Names and Marks then in Plunkett's inventory and the number
and description of unused packaging materials bearing the Licensed Names
and Marks then in Plunkett's inventory. Mrs. Fields shall have the option
to conduct a physical inventory to ascertain or verify such statement.
With respect to a partial termination due to a failure by Plunkett to meet
its Volume Commitment, this paragraph shall only apply to the items for
which the Agreement is terminated.
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<PAGE>
19. REPRESENTATIONS AND WARRANTIES
(a) Title. Mrs. Fields represents and warrants and Plunkett
acknowledges that Mrs. Fields has represented that Mrs. Fields is the
owner of all right, title, and interest in and to the Licensed Names and
Marks. Plunkett further acknowledges the good will associated with the
Licensed Names and Marks and that such Licensed Names and Marks have
acquired secondary meaning in the mind of the public. Plunkett shall not
during the term of this Agreement dispute or contest, directly or
indirectly, or due or cause to be done, any action which in any way
contests, impairs, or tends to impair Mrs. Fields' exclusive rights and
title to the Licensed Names and Marks or the validity of any registrations
thereof and Plunkett shall not assist others in so doing. Plunkett shall
not in any manner represent that it owns any rights in the Licensed Names
and Marks (and/or registrations therefor), but may, only during the term
of this Agreement, and only if Plunkett has complied with all laws,
regulations and registration requirements within the jurisdiction for so
doing, represent that it is a "licensee" or "official licensee" hereunder.
Plunkett shall not register or attempt to register in its own name, or
that of any third party, any Licensed Name or Mark. Subject to the terms
and conditions of this Agreement, Plunkett agrees that any and all uses by
Plunkett of the Licensed Names and Marks under this Agreement shall be on
behalf of and accrue and inure to the benefit of Mrs. Fields.
(b) Right To Enter Into This Agreement. Mrs. Fields and Plunkett
each warrant and represent for itself that it has the right to enter into
this Agreement, that it will not knowingly subsequently take any action
contrary to this Agreement, and that the entering into of this Agreement
will not knowingly violate any other agreement to which it is a party or
conflict with or violate any law, rule or regulation by which it is bound.
not
(c) Mrs. Fields' Image. Mrs. Fields represents and warrants that it
will intentionally do anything to destroy or impair its existing image.
20. INDEMNIFICATION
(a) Mrs. Fields Indemnification. Mrs Fields hereby indemnifies
Plunkett and forever holds Plunkett harmless from and against all claims,
suits, actions, proceedings, damages, losses or liabilities, costs or
expenses (including reasonable attorneys' fees and expenses) arising out
of, based upon, or in connection with (i) any breach of any of Mrs. Fields
warranties or representations set forth in this Agreement or (ii) any
claim that the use by Plunkett of the Licensed Names and Marks as provided
in this Agreement infringes upon any third party trademark, service mark,
or trade name.
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(b) Plunkett Indemnification. Plunkett hereby indemnifies Mrs.
Fields and forever holds Mrs. Fields harmless from and against all claims,
suits, actions, proceedings, damages, losses or liabilities, costs or
expenses (including reasonable attorneys' fees and expenses) arising out
of, based upon, or in connection with, unless it is at the direction of
Mrs. Fields (i) any breach of any of Plunkett's warranties or
representations set forth in this Agreement, (ii) any use of any patent,
process, method, or device by Plunkett in connection with the
Royalty-Bearing Products; (iii) any alleged defects or dangers inherent in
the Royalty-Bearing Products or the manufacture, distribution, sale, or
use thereof; (iv) any injuries or damages to purchasers, users, or
consumers of Royalty-Bearing Products arising from or related to the use
or consumption of Royalty-Bearing Products; (v) any injuries or damages
arising from Plunkett's or any of Plunkett's customers, advertising,
marketing or promotion of the Licensed Names and Marks or Royalty-Bearing
Products; or (vi) any alleged infringement of any third party's copyright,
patent, or trademark unless and to the extent such alleged infringement is
based upon Plunkett's use of the Licensed Names and Marks as authorized in
this Agreement.
(c) Conditions of Indemnification. As a condition of indemnification
under this Section 20, the party seeking indemnification shall give the
other party (for purposes of this Section 20 called the "Indemnifying
Party") immediate notice of and copies of all pleadings and correspondence
related to the assertion of any such claim, proceeding, action, or suit
and agrees not to settle, compromise, or otherwise dispose of any such
claim, proceeding, action or suit without the prior written consent of the
Indemnifying Party. The Indemnifying Party shall have the right (but not
the obligation) to assume the defense or settlement of any such claim,
proceeding, action, or suit at its expense, by counsel of its choice. If
the Indemnifying Parry assumes such defense, the Party seeking indemnity
shall cooperate fully with the Indemnifying Party in defense of the action
and the Indemnifying Party shall not be liable to pay or reimburse the
other party for attorneys' fees or expenses, except such out-of-pocket
costs or expenses incurred by the Indemnified Party in cooperating with
the Indemnifying Party.
21. NOTICES
All notices Provided by this Agreement shall be in writing and shall be
given by facsimile or registered mail, postage prepaid, or by personal
delivery, by one party to the other, addressed to such other Party at the
applicable address set forth below, or to such other addresses as may be
given for such purpose by such other party by notice duly given hereunder.
Notice shall be deemed properly given on the date of a confirmed facsimile
transmission, three (3) days after the date mailed if given by first class
mail. or on the date of delivery, which ever applies:
19
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To Mrs. Fields: Mrs. Fields Inc.
333 Main Street
Park City, Utah 84060
Attention: Corporate Secretary
Fax No: (801) 645-2179
To Plunkett: Plunkett, Inc.
Gregory B. Plunkett, President
28 Lyford Drive
Tiburon, California 94920
Fax No: (415) 435-8059
22. GENERAL PROVISIONS
(a) No Fiduciary or Other Relationship. It is understood and agreed
by the parties hereto that this Agreement does not create a fiduciary
relationship between them, that Mrs. Fields and Plunkett are and shall be
independent contractors and that nothing in this Agreement is intended to
make either party a general or special agent, joint venturer, partner or
employee of the other for any purpose whatsoever.
(b) Use of Licensed Names and Marks in Contracts. Plunkett shall not
employ any of the Licensed Names and Marks in sighing any contract or
applying for any license or permit or in a manner that may result in Mrs.
Fields' liability for any of Plunkett's indebtedness or obligations, nor
may Plunkett use the Licensed Names and Marks in any way not expressly
authorized by Mrs. Fields. Except as expressly authorized in writing,
neither Mrs. Fields nor Plunkett shall make any express or implied
agreements, warranties, guarantees or representations or incur any debt in
the name or on behalf of the other, represent that their relationship is
other than licensor and licensee or be obligated by or have any liability
under any agreements or representations made by the other that are not
expressly authorized in writing.
20
<PAGE>
(c) Severability. Except as expressly provided to the contrary
herein, each Section, paragraph, term and provision of this Agreement, and
any portion thereof, shall be considered severable and if, for any reason,
any such provision of this Agreement is held to be invalid, contrary to or
in conflict with any applicable present or future law or regulation in a
final, unappealable ruling issued by any court, agency or tribunal with
competent jurisdiction in a proceeding to which Mrs. Fields is a party,
that ruling shall not impair the operation of, or have any other effect
upon, such other portions of this Agreement as may remain otherwise
intelligible, which shall continue to be given full force and effect and
bind the parties hereto, although any portion held to be invalid shall be
deemed not to be a part of this Agreement from the date the time for
appeal expires, if Plunkett is a party thereto, otherwise upon Plunkett's
receipt of a notice of non-enforcement thereof from Mrs. Fields. If any
covenant herein which restricts competitive activity is deemed
unenforceable by virtue of its scope in terms of area, business activity
prohibited and/or length of time, but would be enforceable by reducing any
part or all thereof, Plunkett and Mrs. Fields agree that the same shall be
enforced to the fullest extent permissible under the laws and public
policies applied in the jurisdiction in which enforcement is sought.
(d) Substitution of Provisions. If any applicable and binding law or
rule of any jurisdiction requires a greater prior notice of the
termination of this Agreement than is required hereunder, or the taking of
some other action not required hereunder, or if, under any applicable and
binding law or rule of any jurisdiction, any provision of this Agreement
is invalid or unenforceable, the prior notice and/or other action required
by such law or rule shall be substituted for the comparable provisions
hereof. Plunkett agrees to be bound by any promise or covenant imposing
the maximum duty permitted by law which is subsumed within the terms of
any provision hereof, as though it were separately articulated in and made
a part of this Agreement, that may result from striking from any of the
provisions hereof, any portion or portions which a court may hold to be
unenforceable in a final decision to which Mrs. Fields is a party, or from
reducing the scope of any promise or covenant to the extent required to
comply with such a court order. Such modifications to this Agreement shall
be effective only in such jurisdiction, unless Mrs. Fields elects to give
them greater applicability, and shall be enforced as originally made and
entered into in all other jurisdictions.
(e) Waiver. Mrs. Fields and Plunkett may by written instrument
unilaterally waive or reduce any obligation of or restriction upon the
other under this Agreement, effective upon delivery of written notice
thereof to the other or such other effective date stated in the notice of
waiver. Any waiver so granted by the waiving party shall be without
prejudice to any other rights the waiving party may have, will be subject
to continuing review by the waiving party and may be revoked, in the
waiving party's sole discretion, at any time and for any reason, effective
upon delivery to the other party of ten (10) days' prior written notice.
21
<PAGE>
(f) Waiver by Custom or Practice. Mrs. Fields and Plunkett shall not
be deemed to have waived or impaired any right, power or option reserved
by this Agreement (including, without limitation, the right to demand
exact compliance with every term, condition and covenant herein or to
declare any breach thereof to be a default and to terminate this Agreement
prior to the expiration of its term) by virtue of any custom or practice
of the parties at variance with the terms hereof; any failure, refusal or
neglect of Mrs. Fields or Plunkett to exercise any right under this
Agreement or to insist upon exact compliance by the other with its
obligations hereunder, any waiver, forbearance, delay, failure or omission
by Mrs. Fields or Plunkett to exercise any right, power or option, whether
of the same, similar or different nature, or Mrs. Fields' acceptance of
any payments due from Plunkett after any breach of this Agreement.
(g) Force Majeure. Neither Mrs. Fields nor Plunkett shall be liable
for loss or damage or deemed to be in breach of this Agreement if their
failure to perform obligations results from:
(i) compliance with any law, regulation, requirement or
instruction of any federal, state, municipal or foreign
government or any department or agency thereof;
(ii) acts of God;
(iii) fires, strikes, embargoes, war or riot; or
(iv) any other similar event or cause.
Any delay resulting from any of said causes shall extend performance
accordingly or excuse performance, in whole or in part, as may be
reasonable, except that said causes shall not excuse payments of amounts
owed at the time of such occurrence or payment of any Running Royalties or
Guaranteed Amounts for Royalty Bearing Products due on any sales
thereafter.
(h) Temporary Restraining Orders. Notwithstanding anything to the
contrary contained in this Agreement, Mrs. Fields and Plunkett shall each
have the right in a proper case to obtain temporary restraining orders and
temporary or preliminary injunctive relief from a court of competent
jurisdiction.
(i) Rights Cumulative. The rights of Mrs. Fields and Plunkett
hereunder are cumulative and no exercise or enforcement by Mrs. Fields or
Plunkett of any right or remedy hereunder shall preclude the exercise or
enforcement by Mrs. Fields or Plunkett of any other right or remedy
hereunder which Mrs. Fields or Plunkett is entitled by law to enforce.
22
<PAGE>
(j) Costs and Attorney Fees. If a claim for amounts owed by Plunkett
to Mrs. Fields or its affiliates is asserted in any judicial proceeding or
appeal thereof, or if Mrs. Fields or Plunkett is required to enforce this
Agreement in any judicial proceeding or appeal thereof, the party
prevailing in such proceeding shall be entitled to reimbursement of its
reasonable costs and expenses, including reasonable accounting and legal
fees, whether incurred prior to, in preparation for, or in contemplation
of the filing of any written demand, claim, action, hearing or proceeding
to enforce the obligations of this Agreement. If Mrs. Fields incurs
expenses in connection with Plunkett's failure to pay when due amounts
owing to Mrs. Fields, to submit when due any reports, information or
supporting records or otherwise to comply with this Agreement, or if
Plunkett incurs expenses in connection with Mrs. Fields failure to comply
with this Agreement, including, but not limited to legal and accounting
fees, the party incurring the expense shall be reimbursed by the other
party for any such reasonable costs and expenses which it incurs.
(k) Governing Law. Except to the extent governed by the United
States Trademark Act of 1946 (Lanham Act, 15 U.S.C. ss.ss. 1051 et seq.)
or other federal law, this Agreement, and the relationship between
Plunkett and Mrs. Fields, shall be governed by the laws of the State of
Utah.
(l) Jurisdiction. Plunkett and Mrs. Fields hereby irrevocably
consent and agree that any legal action, suit or proceeding arising out of
or in any way in connection with this Agreement may be instituted or
brought in the United States District Court for the District of
California, or if that venue is unavailable due to lack of federal
jurisdiction, then in the state courts of Arizona, and Plunkett and Mrs.
Fields hereby irrevocably consent and submit to, for themselves and in
respect of their property, generally and unconditionally, the jurisdiction
of such Court, and to all proceedings in such Court. Further, Plunkett and
Mrs. Fields irrevocably consent to actual receipt of any summons and/or
legal process at their respective addresses as set forth in this Agreement
as constituting in every respect sufficient and effective service of
process in any such legal action or proceeding. Plunkett and Mrs. Fields
further agree that final judgment in any such legal action, suit or
proceeding shall be conclusive and may be enforced in any other
jurisdiction, whether within or outside the United States of America, by
suit under judgment, a certified or exemplified copy of which will be
conclusive evidence of the fact and the amount of the liability.
(m) Waiver of Punitive Damages. Except with respect to the
indemnification obligations of the parties hereunder, the parties waive to
the fullest extent permitted by law any right to or claim for any punitive
or exemplary damages against the other and agree that, in the event of a
dispute between them, the party making a claim shall be limited to
recovery of any actual damages it sustains.
23
<PAGE>
(n) Headings. The headings of the several sections and paragraphs
hereof are for convenience only and do not define, limit or construe the
contents of such sections or paragraphs.
(o) Entire Agreement. This Agreement and the Exhibits hereto
represent the entire agreement between Mrs. Fields and Plunkett with
respect to the subject matter hereof and supersede any prior agreements
and negotiations between the parties.
(p) Exhibits. All Exhibits hereto form part of this Agreement.
(q) Counterparts. This Agreement may be executed simultaneously in
two counterparts, each of which shall be deemed an original, but both of
which together shall constitute one and the same agreement, binding upon
both parties hereto, notwithstanding that both parties are not signatories
to the original or the same counterpart.
(r) Expenses. Each party shall bear its own expenses (including
attorneys' fees and expenses) in connection with the preparation,
negotiation, execution, and delivery of this Agreement.
IN WITNESS THEREOF, this Agreement has been executed by the Parties hereto
as of the date and year first written above.
PLUNKETT INC.
By: /s/ [illegible]
---------------------------------------
Its: President and C.E.O.
August 18, 1994
MRS. FIELD DEVELOPMENT CORPORATION
By: /s/ [illegible]
---------------------------------------
Its: President C.E.O.
24
<PAGE>
EXHIBIT "A"
LICENSED NAMES AND MARKS
25
<PAGE>
Int. Cl.: 30
Prior U.S. Cl.: 46
Reg. No. 1,791,781
United States Patent and Trademark Office Registered Sep. 7, 1993
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
[Insert Mrs. Fields logo]
MRS. FIELDS DEVELOPMENT CORPORA-
TION (DELAWARE CORPORATION), DBA
MRS. FIELDS ICE CREAM
333 MAIN STREET
P.O. BOX 4000
PARK CITY, UT 84060
FOR: ICE CREAM, IN CLASS 30 (U.S. CL. 46).
FIRST USE 4-1-1992; IN COMMERCE
4-1-1992.
OWNER OF U.S. REG. NOS. 449,876, 1,299,149
AND OTHERS.
THE NAME "MRS. FIELDS" IS THE NAME
OF A LIVING INDIVIDUAL WHOSE CON-
SENT IS OF RECORD.
"MRS. FIELDS" IS THE NAME OF A LIVING
INDIVIDUAL WHOSE CONSENT TO THE USE
OF HER NAME IS OF RECORD.
SER. NO. 74-319,021, FILED 10-1-1992.
MICHELLE S. WISEMAN, EXAMINING AT-
TORNEY
<PAGE>
Int. Cl.: 30
Prior U.S. Cl.: 46
Reg. No. 1,456,702
United States Patent and Trademark Office Registered Sep. 8, 1987
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
[Insert Mrs. Fields logo]
MRS. FIELDS COOKIES (CALIFORNIA COR-
PORATION)
SUITE F200
1500 KEARNS BOULEVARD
PARK CITY, UT 84060
FOR: BAKERY GOODS, NAMELY COOKIES
AND BROWNIES, IN CLASS 30 (U.S. CL. 46).
FIRST USE 11-15-1981: IN COMMERCE
11-15-1981.
OWNER OF U.S. REG. NOS. 1,197,025, 1,299,149
AND OTHERS.
SEC. 2(F).
SER. NO. 530,088, FILED 4-1-1985.
JESSIE N. MARSHALL, EXAMINING ATTOR-
NEY
<PAGE>
Int. Cl.: 30
Prior U.S. Cl.: 46
Reg. No. 1,256,315
United States Patent and Trademark Office Registered Nov. 1, 1983
- --------------------------------------------------------------------------------
TRADEMARK
PRINCIPAL REGISTER
[Insert Mrs. Fields logo]
Mrs. Fields' Chocolate Chippery (California
corporation)
2935 Whipple Rd.
Union City, Calif. 94587
For: BAKERY GOODS--NAMELY, COOKIES
AND BROWNIES, in CLASS 30 (U.S. Cl. 46).
First use Nov. 15, 1981; in commerce Nov. 15,
1981.
Owner of U.S. Reg. Nos. 1,197,025, 1,206,373 and
others.
No claim is made to the exclusive right to use the
word "Cookies", apart from the mark as shown.
"Mrs. Fields" is the name of a living individual
whose consent is of record.
Ser. No. 368,469, filed Jun. 7, 1982.
JESSIE N. MARSHALL, Examining Attorney
<PAGE>
EXHIBIT "B"
ROYALTY BEARING PRODUCTS
Dry mix for cookie dough pre-packaged for retail sale
26
6.2
First Amendment to the Trademark License
Agreement between Mrs. Fields Development
Corporation and Plunkett, Inc.
Dated August 14, 1994
<PAGE>
FIRST AMENDMENT TO
TRADEMARK LICENSING AGREEMENT
This Amendment to Trademark License Agreement ("Amendment") is entered into as
of this 28th day of March, 1996, by and between Mrs. Field's Development
Corporation, a Delaware corporation ("Mrs. Fields") and Legacy Brands, Inc., a
California corporation formerly known as Plunkett, Inc. ("Legacy").
RECITALS
This Amendment is made with respect to the following facts and circumstances:
A. In August 1994, Mrs. Fields and Legacy entered into that certain
Trademark License Agreement ("License Agreement").
B. Mrs. Fields and Legacy desire to amend and modify the provisions of the
License Agreement as set forth in this Amendment.
Now, Therefore, the parties hereto agree as follows:
1. First Right of Refusal. Effective as of the date of this Amendment, the
First Right of Refusal as provided in 2b of the License Agreement with respect
to the European countries is terminated. Subsequent to this Amendment, Legacy
shall no longer have a First Right of Refusal with respect to the European
countries.
1a. Ice Cream Novelty rights will also be terminated for the Canadian
market.
2. Running Royalties. With reference to 5a of the License Agreement, the
Running Royalty shall be equal to $1.00 for each Retail Unit (as defined below)
sold less damages, returns and credits. For purposes of this paragraph, a
"Retail Unit" shall refer to a case containing 12 pounds of Royalty Bearing
Products. In the event that Legacy distributes cases containing less or more
than 12 pounds, then the Running Royalty will be adjusted proportionately in
accordance with the number of pounds of Royalty Bearing Products packaged in the
applicable case.
3. Volume Commitment. With reference to 6a of the License Agreement, the
minimum number of cases (i.e., Retail unit) of Royalty Bearing Products during
the Initial Term and during each Option Period shall be amended to be as
follows:
Initial Term
------------
1995 0 cases
1996 0 cases
1997 285,000 cases
1998 350,000 cases
1999 425,000 cases
<PAGE>
1ST OPTION PERIOD
-----------------
2000 435,500 cases
2001 442,170 cases
2002 451,013 cases
2003 460,034 cases
2004 469,234 cases
2ND OPTION PERIOD
-----------------
2005 478,619 cases
2006 488,191 cases
2007 497,955 cases
2008 507,914 cases
2009 518,073 cases
3RD OPTION PERIOD
-----------------
2010 528,434 cases
2011 539,003 cases
2012 549,383 cases
2013 560,778 cases
2014 571,994 cases
4TH OPTION PERIOD
-----------------
2015 583,434 cases
and thereafter
4. Notices. Commencing as of the date of this Amendment, any and all
notices to Legacy (formerly Plunkett, Inc.) shall be addressed to:
Legacy Brands, Inc.
2200-B Douglas Blvd. Suite 100
Roseville, CA 95661
FAX: 916-782-6779
5. Definition. Unless specifically defined in this Amendment, the defined
terms as employed in this Amendment shall have the same meaning as ascribed to
such terms in the License Agreement.
6. Full Force and Effect. Except as modified by the provisions of this
Amendment, the License Agreement shall remain in full force and effect and
unmodified.
<PAGE>
7. Inconsistencies. Any inconsistencies between the provisions of this
Amendment and the provisions of the License Agreement shall be governed by the
provisions of this Amendment.
IN WITNESS WHEREOF, this First Amendment to Trademark License Agreement has
been executed by the parties hereto as of the date and year first written above.
Mrs. Fields: Legacy:
Mrs. Fields Development Corporation, Legacy Brands, Inc., a California
a Delaware corporation corporation formerly known as Plunkett,
Inc.
By: /s/ Larry Hodges By: /s/ Thomas E. Kees
- --------------------------------- --------------------------------
Name: Larry Hodges Name: Thomas E. Kees
Title: President Title: President & CEO
6.3
License Agreement by and between AJM
Marketing Enterprises, Inc./Perma Toy Co., Inc.
and Legacy Brands, Inc.
Dated September 1, 1996
<PAGE>
LICENSE AGREEMENT made September 1, 1996 by and between AJM Marketing
Enterprise, Inc,/Prema Toy Co., Inc. (hereinafter referred to as "Licensor") and
Legacy Brands, Inc.,(hereinafter referred to as "Licensee").
WITNESSETH:
The parties hereto hereby agree as follows
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following respective Meanings:
(a) "NAME AND CHARACTER":
Gumby; Pokey; and other characters and names derived from the
Television Series "Adventures of Gumby" produced by Clokey
Productions, Inc., prior to 1973.
(b) "LICENSED PRODUCT(S)":
Freezer Pops, Coolers, Fruit Forms.
For purposes of interpretation throughout this Agreement, every
application and utilization of each Name and Character listed above as
to any given item covered by this Agreement shall be considered as a
separate Licensed Product.
(c) "TERRITORY":
United States, its territories and possessions.
(d) "MARKETING DATE": For the purposes of subdivision 16(a)(vii), the
Marketing Date for the Licensed Products shall be: Freezer Pops,
February 1997; Coolers and Fruit Forms, February 1997
2. GRANT OF LICENSE. Upon the terms and conditions hereinafter set forth,
Licensor hereby grants to Licensee and Licensee hereby accepts for the term
of this Agreement, a license to utilize the Name and Character solely upon
or in connection with the manufacture, distribution, advertisement,
promotion, and sale of the Licensed Product(s) throughout the Territory on
a non-exclusive basis. No television commercials may be utilized under this
License without the specific prior approval of Licensor.
3. TERM.
(a) TERM: The term of this Agreement shall be the period commencing the
1st day of September, 1996 and terminating the 31st day of
August,1998.
(b) OPTION TO RENEW: In the event Licensee has faithfully performed each
and every obligation of this Agreement during the term referred to in
subparagraph 3(a) above, Licensee shall have the option to renew this
Agreement for a two-year period, provided Licensee shall have earned
and paid to Licensor, no less than $250,000.00 during the term
referred to in subparagraph 3(a) above and provided, further, that
Licensee gives written notice thereof to Licensor no later than SIXTY
(60) days preceding the effective date of such renewal period (time
being of the essence).
(c) RENEWAL NEGOTIATIONS: In the event Licensee has faithfully performed
each and every obligation of this Agreement during the term referred
to in subparagraph 3(a) and the renewal period referred to in
subparagraph 3(b). Licensor agrees to negotiate in good faith with
Licensee in respect to an additional renewal period for such period of
time and upon such terms and conditions as the parties may mutually
agree.
4. CONSIDERATION. In full consideration for the rights, licenses, and
privileges herein granted to Licensee, Licensee shall pay to Licensor, in
United States dollars, the following:
(a) GUARANTEED CONSIDERATION: For the term as provided in subparagraph
3(a) hereof, the sum of $125,000.00 payable as follows:
$12,500.00 Upon Execution of Contract
$112,500.00 by August 31,1998
<PAGE>
All guaranteed Consideration paid by Licensee pursuant to subparagraph
4(a) above shall be applied against such royalties as are or have
become due Licensor for such period(s). No part of such Guaranteed
Consideration shall be repayable to Licensee, except as is expressly
provided for herein.
(b) ROYALTY PAYMENTS: Licensee shall pay to Licensor a sum equal to 5
Percent of all net sales by Licensee or any of its affiliated,
associated, or subsidiary companies of the Licensed Product(s) covered
by this Agreement (as such term "net sales" is defined herein) wherein
the sales price is FOB any shipping point within the territory as
provided in subparagraph 1(c) herein.
Royalties shall be payable concurrently with the periodic statements
required in paragraph 7 hereof, except to the extent offset by
Guaranteed Consideration therefore remitted. The term "net sales"
shall mean the gross invoice price billed customers, less quantity
discounts, and returns, but no deduction shall be made for
uncollectible accounts. No costs incurred in the manufacture, sale,
distribution, or exploitation of the Licensed Product(s) shall be
deducted from any royalties payable by Licensee.
(c) ADVERTISING SPACE: For the purpose of Licensor's promotion of The
Gumby Fan Club, Licensee shall provide reasonable space, where
available, on or in either: 1. all packaging containing licensed
products; or 2. hang tags connected to licensed products. Licensor
will provide Licensee with appropriate art work for said advertising
space at no cost to Licensee.
5. RESERVATION RIGHTS; EXCLUSIVITY. Licensor retains all rights not expressly
and exclusively conveyed to Licensee hereunder, and Licensor may grant
licenses to others to use the Name and Character, art work, and textual
matter in connection with identical products. Nothing in this agreement
shall be construed to prevent licensor from granting any other licenses for
the use of the Licensed Product(s) or from using the Licensed Product(s) in
any manner whatsoever. Further, Licensor reserves the right to use, or
license others to use and/or manufacture, identical products as premiums.
It is understood that all rights relating thereto are reserved by Licensor
except for the license granted hereunder and then only as specifically and
expressly provided in this Agreement.
6. PREMIUMS. Licensee agrees that it will not use, or knowingly permit the use
of, and will exercise the due care that as customers likewise will refrain
from the use of, the Licensed Product(s) as a premium, except with the
prior written consent of Licensor. For purposes of this agreement the term
"premium" shall be defined as including, but not necessarily limited to,
combination sales, free or self-liquidating items offered to the public in
conjunction with the sale or promotion of a product or service, including
traffic building or community visits by the consumer/customer, or any
similar scheme or device, the prime intent of which is to use the Licensed
Products in such a way as to promote, publicize and or sell the products,
services, or business [Illegible] of the user of such item.
7. PERIODIC STATEMENTS. Within THIRTY (30) days after the initial shipment of
the Licensed Product(s) and promptly on the last day of the month following
every calendar quarter thereafter, Licensee shall furnish to Licensor
complete and accurate statements certified to be accurate by Licensee, or
if a corporation, by an officer of Licensee, showing the number, country in
which manufactured, country in which sold or to which shipped, description
and gross sales price, itemized deductions from gross sales price, and net
sales price of the Licensed Product(s) distributed and/or sold by Licensee
during the preceding calendar quarter. Such statements shall be furnished
to Licensor whether or not any of the Licensed Products(s) have been sold
during the calendar quarters to which such statements refer. Receipt or
acceptance by Licensor of any of the statements furnished pursuant to this
Agreement or of any sums paid hereunder shall not preclude Licensor from
questioning the correctness thereof at any time, and in the event that any
inconsistencies or mistakes are discovered in such statements or payments,
they shall immediately be rectified and the appropriate payments made by
Licensee. Upon demand of Licensor, Licensee shall at its own expense, but
not more that once in any twelve (12) month period, furnish to Licensor a
detailed statement by an independent certified public accountant showing
the number, country in which manufactured, country in which sold or to
which shipped, description, gross sales price, itemized deductions from
gross sales price and net sales price of the Licensed Product(s) covered by
this Agreement distributed and/or sold by Licensee to the date of Licensors
demand.
8. BOOKS AND RECORDS. Licensee shall keep, maintain and preserve (in
Licensee's principal place of business) for at least two (2) years
following termination or expiration of the term of this Agreement or any
renewal(s) hereof, complete and accurate records of accounts including,
without limitation, invoices, correspondence, banking and financial and
other
2
<PAGE>
records pertaining to the various items required to be submitted by
Licensee. Such records and accounts shall be available for inspection and
audit at any time or times during or after the term of this Agreement or
any renewal hereof during reasonable business hours and upon reasonable
notice by Licensor or its nominees. Licensee agrees not to cause or permit
any interference with Licensor or nominees of Licensor in the performance
of their duties of inspection and audit.
The exercise by Licensor in whole or in part, or at any time or times of
the right to audit records and accounts or any other right herein granted,
the acceptance by Licensor of any statement or statements or the receipt
and deposit by Licensor of any payment tendered by or on behalf of the
Licensee shall be without prejudice to any rights or remedies of Licensor
and shall not stop or prevent Licensor from thereafter disputing the
accuracy of any such statement or payment.
9. INDEMNIFICATIONS.
(a) Licensor hereby indemnifies Licensee and shall hold it harmless from
any loss, liability, damage, cost or expense (including reasonable
counsel fees), arising out of any claims or suits which may be brought
or made against Licensee by reason of the breach by Licensor of the
warranties or representations as set forth in paragraph 14 hereof,
provided that Licensee shall give prompt written notice, cooperation
and assistance to Licensor relative to any such claim or suit, and
provided, further, that Licensor shall have the option to undertake
and conduct the defense of any suit so brought.
(b) Licensee hereby indemnifies and agrees to hold Licensor harmless from
any loss, liability, damage, cost, or expense (including reasonable
counsel fees), arising out of any claims or suits which may be brought
or made against Licensor by reason of any unauthorized use by Licensee
in connection with the Licensed Product(s) or the Name and Character
covered by this Agreement as well as any alleged defects or inherent
damages in said Licensed Product(s) or the use thereof. Upon receipt
of notice of a third party claim alleging the breach by Licensee of
any warranty, undertaking, representation or agreement entered herein
or hereunder. Licensor shall give prompt written notice of such claim
to Licensee. Licensee shall have the right to assume the defense of
such claim at Licensee's sole cost and expense by furnishing Licensor
with written notice of same. Licensee shall be liable for all losses,
costs, expenses, damages or recoveries (including without limitation
amounts paid in settlement), suffered, made or incurred by either
Licensor or Licensee with connection with such third party claim. In
the event Licensee chooses not to assume such defense, Licensee shall
indemnify and save harmless Licensor and its officers, directors and
employees against any and all claims, demands, lawsuits, costs,
expenses (including, without limitation, reasonable attorney's fees
and disbursements), damages or recoveries (including without
limitation, amounts paid in settlement) suffered, made, incurred or
assumed by Licensor by reason of the breach by Licensee of any
warranty, undertaking, representation or agreement made or entered
into herein or hereunder and resulting from a final adjudication of
each such action, claim or suit, or a settlement thereof entered into
with Licensee's prior written consent. Licensee agrees to obtain, at
its own expense, product liability and personal liability insurance
with a minimum combined single limit of liability of not less than one
million U.S. dollars ($1,000,000.00) for each occurrence. Within
thirty (30) days from the date hereof, Licensee shall provide Licensor
with a policy endorsement in the form of Vendor's Broad Form Policy
Endorsement to Licensee's Product Liability insurance coverage naming
Licensor as additional insured. Licensee will submit to Licensor a
fully paid policy or certificate of insurance naming Licensor as an
insured party, requiring that the insurer shall not terminate or
materially modify such without written notice to Licensor at least
thirty (30) days in advance thereof.
10. COPYRIGHT AND TRADEMARK NOTICES.
(a) The Licensee shall cause to be imprinted irrevocably and legibly on
each Licensed Product manufactured distributed or sold under this
Agreement, including, but not limited to, advertising, promotional,
packaging and wrapping material and any other such material wherein
the Name and Character appear, either (i) the appropriate copyright
notice, including year date, following an encircled "c" [illegible],
and /or (ii) the initials "TM" [illegible] of an encircled "R"
[illegible], as directed in subparagraph (b) hereof, as may be amended
from time to time by Licensor. Licensee agrees to deliver to Licensor
free of cost twelve (12) of each of the Licensed Product(s) together
with their packaging and wrapping material for trademark registration
purposes in compliance with applicable laws. Any copyrights or
trademarks with respect to the Licensed Product(s) shall be procured
by and for the benefit of Licensor and at Licensor's expense. Licensee
further agrees to provide Licensor with the date of the first use of
3
<PAGE>
the Licensed product(s) in interstate and intrastate commerce. It is
expressly understood, however, that notwithstanding any other
provision of this Agreement including, without limitation, the above
provisions, Licensor is not acquiring, and will not acquire, any
right, title and interest to any of Licensee's trademarks, copyrights
or other proprietary rights pursuant to this Agreement or the
activities contemplated by this Agreement.
(b) The appropriate copyright notice reads as follows: Gumby and Gumby
characters are registered trademarks of Prema Toy Co., Inc. All Rights
Reserved. [illegible] 1996 Prema Toy Co., Inc.
(c) Licensee shall assist Licensor, to the extent necessary, in the
procurement of any protection or to protect any of Licensor's rights
to the Name and Character, and Licensor if it so desires may commence
or prosecute any claims or suits in its own name or in the name of
Licensee or join Licensee as a party thereto. Licensee shall notify
Licensor in writing of any infringements or imitations by others of
the Name and Character on articles similar to the Licensed Product(s)
if and when such become known to Licensee. Licensor shall have the
sole right to determine whether or not any action shall be taken on
account of such infringements or imitations. Licensee shall not
institute any suit or take any action on account of any such
infringements or imitations except with the prior written consent of
Licensor to do so. Notwithstanding any other provision of this
Agreement, including, without limitation, the above provisions,
Licensee may take any action necessary or desirable to protect
Licensee's copyrights, trademarks, or other proprietary rights that
are incorporated into the Licensed Product(s).
11. APPROVALS. The Licensee agrees to furnish Licensor free of costs for its
written approval as to quality and style, samples of each of the Licensed
Product(s), together with their packaging, hangtags, and wrapping material,
before [ILLEGIBLE] manufacture, sale, or distribution, whichever first
occurs, and no Licensed Product shall be manufactured, sold, or distributed
by the Licensee without such written approval. Subject, in each instance,
to the prior written approval of Licensor, the Licensee or its agents may
use textual and/or pictorial matter pertaining the Name and Character on
such promotional display and advertising material as may, in its judgment,
promote the sale of the Licensed Product(s). Subsequent to final approval,
a reasonable number of production samples will periodically be sent to
Licensor to insure quality control, and should Licensor require additional
samples for any reasonable reason, Licensor may purchase such at Licensee's
Cost.
12. DISTRIBUTION: SUB-LICENSE MANUFACTURE.
(a) The Licensee shall sell the Licensed Product(s) either to jobbers,
wholesalers, distributors, or retailers for sale or resale and
distribution directly to the public. If Licensee sells or distributes
the Licensed Product(s) at a special price, directly or indirectly, to
itself, including without limitation, any subsidiary of any Licensee
or to any other person, firm, or corporation affiliated with the
Licensee or its officers, directors, or major stockholders, for
ultimate sale to unrelated third parties, the Licensee shall pay
royalties with respect to such sales or distribution, based upon the
price generally charged the trade by Licensee.
(b) Licensee shall not be entitled to sub-license any of its rights under
this Agreement except, in the event [illegible] is not the
manufacturer of the Licensed Product(s). Licensee shall be, subject to
the prior written approval of Licensor (which approval shall not be
unreasonably withheld), entitled to utilized a third party
manufacturer in connection with the manufacture and production of the
Licensed Product(s) provided that such manufacturer shall execute a
letter in the form of Exhibit 1 attached hereto and by this reference
made a part hereof. In such event, Licensee shall remain primarily
obligated under all of the provisions of this Agreement. In no event
shall any such sublicense agreement include the right to grant any
further sublicenses.
13. GOOD WILL. The licensee recognizes the great value of the publicity and
good will associated with the Name and Character and, in such connection,
acknowledges, that such good will exclusively belongs to Licensor and its
Grantors and that the Name and Character have acquired a secondary meaning
in the mind of the purchasing public. Licensee further recognizes and
acknowledges that a breach by Licensee of any of its covenants, agreements
or undertakings hereunder related to the protection of such goodwill will
cause Licensor irreparable damage, which cannot be readily remedied in
damages in an action at law, and may, in addition thereto, constitute an
infringement of Licensor's copyrights in the licensed characters, thereby
entitling Licensor to equitable remedies, costs, and reasonable attorney's
fees.
4
<PAGE>
14. LICENSOR'S WARRANTIES AND REPRESENTATIONS. Licensor represents and warrants
to Licensee that:
(a) It has, and will have throughout the term of this Agreement, the right
to license the Name and Character to Licensee in accordance with the
terms and provisions of this Agreement; and,
(b) The making of this Agreement by Licensor does not violate any
agreements, rights, or obligations existing between Licensor and any
other person, firm or corporation.
15. SPECIFIC UNDERTAKINGS OF LICENSEE. During the term and any renewal period
herein provided for, Licensee agrees that:
(a) It will not attack the title of Licensor or its Grantors in and to the
Name and Character of any copyright or trademark pertaining thereto,
nor will it attack the validity of the License granted hereunder;
(b) It will not harm, misuse or bring into dispute the Name and Character;
(c) It will manufacture, sell, and distribute the Licensed Product(s) in
an ethical manner and in accordance with the terms and intent of this
Agreement;
(d) It will not create any expenses chargeable to Licensor without the
prior written approval of Licensor;
(e) It will protect to the best of its ability its right to manufacture,
sell, and distribute the Licensed Product(s) hereunder;
(f) It will comply with all laws and regulations relating or pertaining to
the manufacture, sale, advertising or use of the Licensed Product(s)
and shall maintain the highest quality and standards, and shall comply
with any regulatory agencies which shall have jurisdiction over the
Licensed Product(s); and,
(g) It will provide Licensor with the date(s) of first use of the Licensed
Product(s) in interstate and intrastate commerce.
16. TERMINATION BY LICENSOR.
(a) Licensor shall have the right to terminate its Agreement without
prejudice to any rights which it may have in the premises, whether
under the provisions of the Agreement, in law, or in equity, or
otherwise, upon the occurrence of any one or more of the following
events (herein called "defaults"):
(i) If Licensee defaults in the performance of any of its
obligations provided for in this Agreement; or
(ii) The Licensee shall have failed to deliver to Licensor or to
maintain in full force and effect the insurance referred to in
subparagraph 9(b)hereof; or
(iii) If the Licensee shall fail to make any payment due hereunder
on the date due; or
(iv) If the Licensee shall fail to deliver any of the statements
hereinabove referred to or to give access to the premises
and/or license records pursuant to the provisions hereof to
Licensor's authorized representatives for the purposes
permitted hereunder; or
(v) If any governmental agency finds that the Licensed Product(s)
are defective in any way, manner, or form; or
(vi) If the Licensee shall be unable to pay its debts when due, or
shall make any assignment for the benefit of creditors, or
shall file any petition under the bankruptcy or insolvency laws
of any jurisdiction, county, or place, or shall have or suffer
a receiver or trustee to be appointed for its business or
property, or be adjudicated a bankrupt or an insolvent; or
(vii) In the event that the Licensee does not commence in good
faith to manufacture, distribute, and sell each Licensed
Product throughout the Territory and on or before the date
specified in subparagraph
5
<PAGE>
1(d) (but such default and Licensor's resultant right of termination
shall only apply to the specific Licensed Product(s) and/or the
specific nation(s) which or wherein Licensee fails to meet said
marketing date requirements); or
(viii) If Licensee shall manufacture, sell, or distribute, whichever
first occurs, any of the Licensed Product(s) without the prior
written approval of Licensor as provided in paragraph 11 hereof;
or
(ix) If a manufacturer approved pursuant to subparagraph 12(b) shall
engage in conduct, which conduct if engaged in by Licensee would
entitle Licensor to terminate this Agreement; or
(x) If Licensee shall breach any other agreement in effect between
Licensee on the one hand and Licensor or any other client of
Licensor on the other.
(b) In the event any of these defaults occur, Licensor shall give notice
of termination in writing to Licensee by certified mail. The Licensee
shall have ten (10) days in which to correct any of these defaults
(except subdivisions (vii) and (viii) above), and failing such, this
Agreement shall terminate, and any and all payments then or later due
from Licensee hereunder (including Guaranteed Consideration) shall
then be promptly due and payable and no portion of prior payments
shall be repayable to Licensee.
17. FINAL STATEMENT UPON TERMINATION OR EXPIRATION. Licensee shall deliver, as
soon as practicable to Licensor following expiration or termination, a
statement indicating the number and description of Licensed Product(s) on
hand. Following expiration or termination, Licensee may manufacture no more
Licensed Product(s), but may continue to distribute and sell its remaining
inventory for a period not to exceed SIXTY (60) days following such
termination or expiration, subject to payment of applicable royalties
thereto. Licensor shall have the right to conduct a physical inventory in
order to ascertain or verify such inventory and/or statement. In the event
Licensee refuses to permit Licensor to conduct such physical inventory, the
Licensee shall forfeit its right hereunder to dispose of such inventory. In
addition to such forfeiture, Licensor shall have recourse to all other
legal remedies available to it.
18. PAYMENTS AND NOTICES. All notices which either party hereto is required or
may desire to give to the other shall be given by addressing the same to
the other at the address hereinafter in this paragraph set forth, or at
such other address as may be designated in writing by any such party in a
notice to the other given in the manner prescribed in the paragraph. All
such notices shall be sufficiently given when the same shall be deposited
so addressed, postage prepaid, in the United States mail and/or when the
same shall have been delivered, so addressed, to a telegraph or cable
company toll prepaid and the date of said mailing or telegraphing shall be
the date of giving of such notice. The address to which any such notices,
accountings, payments, or statements shall be given are the following;
TO LICENSOR: TO LICENSEE:
AJM Marketing Enterprises, Inc. Legacy Brands, Inc.
1515 Woodfield Rd., Suite 360 2200 B. Douglas Boulevard, Suite 100
Schaumburg, IL 60173 Roseville, CA 95661
19. NO PARTNERSHIP, ETC. This Agreement does not constitute and shall not be
construed as constituting a partnership or joint venture between Licensor
and Licensee. Neither party shall have any right to obligate or bind the
other party in any manner whatsoever, and nothing herein contained shall
give, or is intended to give, any rights of any kind to any third persons.
20. NON ASSIGNABILITY. This Agreement shall bind and innure to the benefit of
Licensor, its successors and assigns. This Agreement is personal to
Licensee, and Licensee shall not sublicense nor franchise (except as set
forth in such paragraph 12(b) hereof), and neither this Agreement nor any
of the rights of Licensee hereunder shall be sold, transferred or assigned
by Licensee and no rights hereunder shall devolve by operation of law
or otherwise upon any receiver, liquidator, trustee, or other party.
21. CONSTRUCTION. This Agreement shall be construed in accordance with the laws
of the State of Illinois of the United States of America.
6
<PAGE>
22. WAIVER, MODIFICATION, ETC. No waiver, modification or cancellation of any
term or condition of this Agreement shall be effective unless executed in
writing by the party charged therewith. No written waiver shall excuse the
performance of any act other than those specifically referred to therein,
Licensor makes no warranties to the Licensee except those specifically
expressed herein.
23. ACCEPTANCE BY LICENSOR. This instrument, when signed by Licensee, shall be
deemed an application for a license and not a binding agreement unless and
until accepted by AJM Marketing Enterprises, Inc. by signature of a duly
authorized officer and the delivery of such a signed copy to Licensee. The
receipt and/or deposit by AJM Marketing Enterprises, Inc. of any check or
other consideration given by Licensee and/or the delivery of any material
by AJM Marketing Enterprises, Inc. to Licensee shall not be deemed an
acceptance by AJM Marketing Enterprises, Inc. of this application. The
foregoing shall apply to any documents relating to renewals or
modifications hereof.
IN WITNESS WHEREOF, the parties hereto have signed this Agreement as
of the day and year first above written.
LICENSOR: LICENSEE:
AJM Marketing Enterprises, Inc./Prema Legacy Brands, Inc.
Toy Co., Inc.
By: /s/ A Marsigler By: /s/ Thomas E. Kees
---------------------- ------------------------
Title: President/CEO Title: President/CEO
Date: 8-26-96 Date: 9/6/96
7
<PAGE>
Exhibit 1
Dated ________, 19__
Gentlemen:
This letter will serve as notice to you that pursuant to subparagraph 12(b) of
the License Agreement dated __________, 19__, between AJM Marketing Enterprises,
Inc./Prema Toy Co., Inc. And Legacy Brands, Inc., we have been engaged as the
manufacturer for Legacy Brands, Inc., in connection with the manufacture of
Licensed Product(s) as defined in the aforesaid License Agreement. We hereby
acknowledge that we have received a copy and are cognizant of the terms and
conditions set forth in said License Agreement and hereby agree to observe those
provisions of said License Agreement which are applicable to our function as
Manufacturer of the Licensed Product(s). It is understood that this engagement
is on a royalty free basis.
We understand that our engagement as the manufacturer for Legacy Brands, Inc.,
is subject to your written approval. We request, therefore, that you sign in the
space below, thereby showing your acceptance of our engagements as aforesaid.
Very truly yours,
(NAME OF MANUFACTURER)
By:
---------------------------------
Title:
------------------------------
Date:
-------------------------------
AGREED TO AND ACCEPTED:
AJM Marketing Enterprises, Inc./Prema Toy Co., Inc.
By:
---------------------------------
Title: President/CEO
------------------------------
Date:
-------------------------------
8
6.4
Stock Option Plan, Form of Incentive Stock
Option Agreement, Form of Non-Qualified
Stock Option Agreement
<PAGE>
LEGACY BRANDS, INC.
STOCK OPTION PLAN
1 PURPOSE. The purpose of the Legacy Brands, Inc. Stock Option Plan (the "Plan")
is to provide to employees, officers, directors, consultants and independent
contractors of the Legacy Brands, Inc., a California corporation
("Corporation"), or any of its subsidiaries (including dealers, distributors,
and other business entities or persons providing services on behalf of the
Corporation or any of its subsidiaries) added incentive for high levels of
performance and unusual efforts to increase the earnings of the Corporation. The
Plan seeks to accomplish this purpose by enabling specified persons to purchase
shares of the common stock of the Corporation, thereby increasing their
proprietary interest in the Corporation's success and encouraging them to remain
in the employ or service of the Corporation.
2 CERTAIN DEFINITIONS. As used in this Plan, the following words
and phrases shall have the respective meanings set forth below,
unless the context clearly indicates a contrary meaning:
2.1 "Board of Directors": The Board of Directors of the
Corporation.
2.2 "Committee": The Committee which shall administer the Plan shall
consist of no fewer than two outside Directors of the Corporation, or,
alternatively, an independent, third-party Plan Administrator retained by the
Corporation.
2.3 "Fair Market Value Per Share": The fair market value per share of
the Shares as determined by the Committee in good faith. The Committee is
authorized to make its determination as to the fair market value per share of
the Shares on the following basis: (i) if the Shares are traded only otherwise
than on a securities exchange and are not quoted on the National Association of
Securities Dealers' Automated Quotation System ("NASDAQ"), but are quoted in the
"pink sheets" published by the National Daily Quotation Bureau, the greater of
(a) the average of the mean between the average daily bid and average daily
asked prices of the Shares during the thirty (30) day period preceding the date
of grant of an Option, as quoted in the "pink sheets" published by the National
Daily Quotation Bureau, or (b) the mean between the average daily bid and
average daily asked prices of the Shares on
<PAGE>
the date of grant, as published in such "pink sheets;" (ii) if the Shares are
traded only otherwise than on a securities exchange and are quoted on NASDAQ,
the greater of (a) the average of the mean between the closing bid and closing
asked prices of the Shares during the thirty (30) day period preceding the date
of grant of an Option, as reported by the Wall Street Journal and (b) the mean
between the closing bid and closing asked prices of the Shares on the date of
grant of an Option, as reported by the Wall Street Journal; (iii) if the Shares
are admitted to trading on a securities exchange, the greater of (a) the average
of the daily closing prices of the Shares during the ten (10) trading days
preceding the date of grant of an Option, as quoted in the Wall Street Journal,
or (b) the daily closing price of the Shares on the date of grant of an Option,
as quoted in the Wall Street Journal; or (iv) if the Shares are traded only
otherwise than as described in (i), (ii) or (iii) above, or if the Shares are
not publicly traded, the value determined by the Committee in good faith based
upon the fair market value as determined by completely independent and well
qualified experts.
2.4 "Option": A stock option granted under the Plan.
2.5 "Incentive Stock Option": An Option intended to qualify
for treatment as an incentive stock option under Code Sections 421
and 422, and designated as an Incentive Stock Option.
2.6 "Nonqualified Option": An Option not qualifying as an
Incentive Stock Option.
2.7 "Optionee": The holder of an Option.
2.8 "Option Agreement": The document setting forth the terms
and conditions of each Option.
2.9 "Shares": The shares of common stock of the Corporation.
2.10 "Code": The Internal Revenue Code of 1986, as amended.
2.11 "Subsidiary": Any corporation of which fifty percent (50%) or more
of total combined voting power of all classes of stock of such corporation is
owned by the Corporation or another Subsidiary (as so defined).
3 ADMINISTRATION OF PLAN.
<PAGE>
3.1 In General. This Plan shall be administered by the Committee. Any
action of the Committee with respect to administration of the Plan shall be
taken pursuant to (i) a majority vote at a meeting of the Committee (to be
documented by minutes), or (ii) the unanimous written consent of its members.
3.2 Authority. Subject to the express provisions of this Plan, the
Committee shall have the authority to: (i) construe and interpret the Plan,.
decide all questions and settle all controversies and disputes which may arise
in connection with the Plan and to define the terms used therein; (ii)
prescribe, amend and rescind rules and regulations relating to administration of
the Plan; (iii) determine the purchase price of the Shares covered by each
Option and the method of payment of such price, individuals to whom, and the
time or times at which, Options shall be granted and exercisable and the number
of Shares covered by each Option; (iv) determine the terms and provisions of the
respective Option Agreements (which need not be identical); (v) determine the
duration and purposes of leaves of absence which may be granted to participants
without constituting a termination of their employment for purposes of the Plan;
and (vi) make all other determinations necessary or advisable to the
administration of the Plan. Determinations of the Committee on matters referred
to in this Section 3 shall be conclusive and binding on all parties howsoever
concerned. With respect to Incentive Stock Options, the Committee shall
administer the Plan in compliance with the provisions of Code Section 422 as the
same may hereafter be amended from time to time. No member of the Committee
shall be liable for any action or determination made in good faith with respect
to the Plan or any Option.
4 ELIGIBILITY AND PARTICIPATION.
4.1 In General. Only officers, employees and directors who are also
employees of the Corporation or any Subsidiary shall be eligible to receive
grants of Incentive Stock Options. Officers, employees and directors (whether or
not they are also employees) of the Corporation or any Subsidiary, as well as
consultants, independent contractors or other service providers of the
Corporation or any Subsidiary shall be eligible to receive grants of
Nonqualified Options. Within the foregoing limits, the Committee, from time to
time, shall determine and designate persons to whom Options may be granted. All
such designations shall be made in the absolute discretion of the Committee and
shall not require the approval of the stockholders. In determining (i) the
number of
<PAGE>
Shares to be covered by each Option, (ii) the purchase price for such Shares and
the method of payment of such price (subject to the other sections hereof),
(iii) the individuals of the eligible class to whom Options shall be granted,
(iv) the terms and provisions of the respective Option Agreements, and (v) the
times at which such Options shall be granted, the Committee shall take into
account such factors as it shall deem relevant in connection with accomplishing
the purpose of the Plan as set forth in Section 1. An individual who has been
granted an Option may be granted an additional Option or Options if the
Committee shall so determine. No Option shall be granted under the Plan after
April 21, 2004, but Options granted before such date may be exercisable after
such date.
4.2 Certain Limitations. In no event shall Incentive Stock Options be
granted to an Optionee such that the sum of (i) aggregate fair market value
(determined at the time the Incentive Stock Options are granted) of the Shares
subject to all Options granted under the Plan which are exercisable for the
first time during the same calendar year, plus (ii) the aggregate fair market
value (determined at the time the options are granted) of all stock subject to
all other incentive stock options granted to such Optionee by the Corporation,
its parent and Subsidiaries which are exercisable for the first time during such
calendar year, exceeds One Hundred Thousand Dollars ($100,000). For purposes of
the immediately preceding sentence, fair market value shall be determined as of
the date of grant based on the Fair Market Value Per Share as determined
pursuant to Section 2.3.
5 AVAILABLE SHARES AND ADJUSTMENTS UPON CHANGES IN
CAPITALIZATION.
5.1 Shares. Subject to adjustment as provided in Section 5.2 below, the
total number of Shares to be subject to Options granted pursuant to this Plan
shall not exceed 10% of the outstanding Shares. Shares subject to the Plan may
be either authorized but unissued shares or shares that were once issued and
subsequently reacquired by the Corporation; the Committee shall be empowered to
take any appropriate action required to make Shares available for Options
granted under this Plan. If any Option is surrendered before exercise or lapses
without exercise in full or for any other reason ceases to be exercisable, the
Shares reserved therefore shall continue to be available under the Plan.
5.2 Adjustments. As used herein, the term "Adjustment Event"
<PAGE>
means an event pursuant to which the outstanding Shares of the Corporation are
increased, decreased or changed into, or exchanged for a different number or
kind of shares or securities, without receipt of consideration by the
Corporation, through reorganization, merger, recapitalization, reclassification,
stock split, reverse stock split, stock dividend, stock consolidation or
otherwise. Upon the occurrence of an Adjustment Event, (i) appropriate and
proportionate adjustments shall be made to the number and kind of shares and
exercise price for the shares subject to the Options which may thereafter be
granted under this Plan, (ii) appropriate and proportionate adjustments shall be
made to the number and kind of and exercise price for the shares subject to the
then outstanding Options granted under this Plan, and (iii) appropriate
amendments to the Option Agreements shall be executed by the Corporation and the
Optionees if the Committee determines that such an amendment is necessary or
desirable to reflect such adjustments. If determined by the Committee to be
appropriate, in the event of an Adjustment Event which involves the substitution
of securities of a corporation other than the Corporation, the Committee shall
make arrangements for the assumptions by such other corporation of any Options
then or thereafter outstanding under the Plan. Notwithstanding the foregoing,
such adjustment in an outstanding Option shall be made without change in the
total exercise price applicable to the unexercised portion of the Option, but
with an appropriate adjustment to the number of shares, kind of shares and
exercise price for each share subject to the Option. The determination by the
Committee as to what adjustments, amendments or arrangements shall be made
pursuant to this Section 5.2, and the extent thereof, shall be final and
conclusive. No fractional Shares shall be issued under the Plan on account of
any such adjustment or arrangement.
6 TERMS AND CONDITIONS OF OPTIONS.
6.1 Intended Treatment as Incentive Stock Options. Incentive Stock
Options granted pursuant to this Plan are intended to be "incentive stock
options" to which Code Sections 421 and 422 apply, and the Plan shall be
construed and administered to implement that intent. If all or any part of an
Incentive Stock Option shall not be an "incentive stock option" subject to
Sections 421 or 422 of the Code, such Option shall nevertheless be valid and
carried into effect. All Options granted under this Plan shall be subject to the
terms and conditions set forth in this Section 6 (except as provided in Section
5.2) and to such other terms and conditions as the Committee shall determine to
be appropriate to accomplish the
<PAGE>
purpose of the Plan as set forth in Section 1.
6.2 Amount and Payment of Exercise Price.
6.2.1 Exercise Price. The exercise price per Share for each
Share which the Optionee is entitled to purchase under a Nonqualified Option
shall be determined by the Committee but shall not be less than eighty-five
percent (85%) of the Fair Market Value Per Share on the date of the grant of the
Nonqualified Option. The exercise price per Share for each Share which the
Optionee is entitled to purchase under an Incentive Stock Option shall be
determined by the Committee but shall not be less than the Fair Market Value Per
Share on the date of the grant of the Incentive Stock Option; provided, however,
that the exercise price shall not be less than one hundred ten percent (110%) of
the Fair Market Value Per Share on the date of the grant of the Incentive Stock
Option in the case of an individual then owning (within the meaning of Code
Section 424(d)) more than ten percent (10%) of the total combined voting power
of all classes of stock of the Corporation or of its parent or Subsidiaries.
6.2.2 Payment of Exercise Price. The consideration to be paid
for the Shares to be issued upon exercise of an Option, including the method of
payment, shall be determined by the Committee and may consist of promissory
notes, shares of the common stock of the Corporation or such other consideration
and method of payment for the Shares as may be permitted under applicable state
and federal laws.
6.3 Exercise of Options.
6.3.1 Each Option granted under this Plan shall be exercisable
at such times and under such conditions as may be determined by the Committee at
the time of the grant of the Option and as shall be permissible under the terms
of the Plan; provided, however, in no event shall an Option be exercisable after
the expiration of ten (10) years from the date it is granted, and in the case of
an Optionee owning (within the meaning of Code Section 424(d)), at the time an
Incentive Stock Option is granted, more than ten percent (10%) of the total
combined voting power of all classes of stock of the Corporation or of its
parent or Subsidiaries, such Incentive Stock Option shall not be exercisable
later than five (5) years after the date of grant.
6.3.2 An Optionee may purchase less than the total
<PAGE>
number of Shares for which the Option is exercisable, provided that a partial
exercise of an Option may not be for less than One Hundred (100) Shares and
shall not include any fractional shares.
6.4 Nontransferability of Options. All Options granted under this Plan
shall be nontransferable, either voluntarily or by operation of law, otherwise
than by will or the laws of descent and distribution, and shall be exercisable
during the Optionee's lifetime only by such Optionee.
6.5 Effect of Termination of Employment or Other Relationship. Except
as otherwise determined by the Committee in connection with the grant of
Nonqualified Options, the effect of termination of an Optionee's employment or
other relationship with the Corporation on such Optionee's rights to acquire
Shares pursuant to the Plan shall be as follows:
6.5.1 Termination for Other than Disability. Cause or Death.
If an Optionee ceases to be employed by, or ceases to have a relationship with,
the Corporation for any reason other than for disability, cause, or death, such
Optionee's Options shall expire not later than three (3) months thereafter.
During such three (3) month period and prior to the expiration of the Option by
its terms, the Optionee may exercise any Option granted to him, but only to the
extent such Options were exercisable on the date of termination of his
employment or relationship and except as so exercised, such Options shall expire
at the end of such three (3) month period unless such Options by their terms
expire before such date. The decision as to whether a termination for a reason
other than disability, cause or death has occurred shall be made by the
Committee, whose decision shall be final and conclusive, except that employment
shall not be considered terminated in the case of sick leave or other bona fide
leave of absence approved by the Corporation.
6.5.2 Disability. If an Optionee ceases to be employed by, or
ceases to have a relationship with, the Corporation by reason of disability
(within the meaning of Code Section 22(e)(3)), such Optionee's Options shall
expire not later than one (1) year thereafter. During such one (1 ) year period
and prior to the expiration of the Option by its terms, the Optionee may
exercise any Option granted to him, but only to the extent such Options were
exercisable on the date the Optionee ceased to be employed by, or ceased to have
a relationship with, the Corporation by reason of disability and except as so
exercised, such Options shall expire at
<PAGE>
the end of such one (1) year period unless such Options by their terms expire
before such date. The decision as to whether a termination by reason of
disability has occurred shall be made by the Committee, whose decision shall be
final and conclusive.
6.5.3 Termination for Cause. If an Optionee's employment by,
or relationship with, the Corporation is terminated for cause, such Optionee's
Option shall expire immediately; provided, however, the Committee may, in its
sole discretion, within thirty (30) days of such termination, waive the
expiration of the Option by giving written notice of such waiver to the Optionee
at such Optionee's last known address. In the event of such waiver, the Optionee
may exercise the Option only to such extent, for such time, and upon such terms
and conditions as if such Optionee had ceased to be employed by, or ceased to
have a relationship with, the Corporation upon the date of such termination for
a reason other than disability, cause, or death. Termination for cause shall
include termination for malfeasance or gross misfeasance in the performance of
duties or conviction of illegal activity in connection therewith or any conduct
detrimental to the interests of the Corporation. The determination of the
Committee with respect to whether a termination for cause has occurred shall be
final and conclusive.
6.5.4 Death of an Optionee. If the Optionee ceases to be
employed by, or ceases to have a relationship with, the Corporation by reason of
death, such Optionee's Options shall expire not later than six (6) months
thereafter. During such six (6) month period and prior to the expiration of the
Option by its terms, such Option may be exercised by his executor or
administrator or the person or persons to whom the Option is transferred by will
or the applicable laws of descent and distribution, but only to the extent such
Options were exercisable on the date Optionee ceased to be employed by, or
ceased to have a relationship with, the Corporation by reason of death.
6.6 Withholding of Taxes. As a condition to the exercise, in whole or
in part, of any Options the Board of Directors may in its sole discretion
require the Optionee to pay, in addition to the purchase price of the Shares
covered by the Option an amount equal to any Federal, state or local taxes that
may be required to be withheld in connection with the exercise of such Option.
6.7 No Rights to Continued Employment or Relationship.
Nothing contained in this Plan or in any Option Agreement shall
obligate the Corporation to employ or have another relationship
<PAGE>
with any Optionee for any period or interfere in any way with the right of the
Corporation to reduce such Optionee's compensation or to terminate the
employment of or relationship with any Optionee at any time.
6.8 Time of Granting Options. The time an Option is granted, sometimes
referred to herein as the date of grant, shall be the day the Corporation
executes the Option Agreement; provided, however, that if appropriate
resolutions of the Committee indicate that an Option is to be granted as of and
on some prior or future date, the time such Option is granted shall be such
prior or future date.
6.9 Privileges of Stock Ownership. No Optionee shall be entitled to the
privileges of stock ownership as to any Shares not actually issued and delivered
to such Optionee. No Shares shall be purchased upon the exercise of any Option
unless and until, in the opinion of the Corporation's counsel, any then
applicable requirements of any laws or governmental or regulatory agencies
having jurisdiction and of any exchanges upon which the stock of the Corporation
may be listed shall have been fully complied with.
6.10 Securities Laws Compliance. The Corporation will diligently
endeavor to comply with all applicable securities laws before any Options are
granted under the Plan and before any Shares are issued pursuant to Options.
Without limiting the generality of the foregoing, the Corporation may require
from the Optionee such investment representation or such agreement, if any, as
counsel for the Corporation may consider necessary or advisable in order to
comply with the Securities Act of 1933 as then in effect, and may require that
the Optionee agree that any sale of the Shares will be made only in such manner
as is permitted by the Committee. The Committee in its discretion may cause the
Shares underlying the Options to be registered under the Securities Act of 1933,
as amended, by the filing of a Form S-8 Registration Statement covering the
Options and Shares underlying such Options. Optionee shall take any action
reasonably requested by the Corporation in connection with registration or
qualification of the Shares under federal or state securities laws.
6.11 Option Agreement. Each Incentive Stock Option and
Nonqualified Option granted under this Plan shall be evidenced by
the appropriate written Stock Option Agreement ("Option
<PAGE>
Agreement") executed by the Corporation and the Optionee in a form substantially
the same as the appropriate form of Option Agreement attached as Exhibit I or II
hereto (and made a part hereof by this reference) and shall contain each of the
provisions and agreements specifically required to be contained therein pursuant
to this Section 6, and such other terms and conditions as are deemed desirable
by the Committee and are not inconsistent with the purpose of the Plan as set
forth in Section 1.
7 PLAN AMENDMENT AND TERMINATION.
7.1 Authority of Committee. The Committee may at any time discontinue
granting Options under the Plan or otherwise suspend, amend or terminate the
Plan and may, with the consent of an Optionee, make such modification of the
terms and conditions of such Optionee's Option as it shall deem advisable;
provided that, except as permitted under the provisions of Section 5.2, the
Committee shall have no authority to make any amendment or modification to this
Plan or any outstanding Option thereunder which would: (i) increase the maximum
number of shares which may be purchased pursuant to Options granted under the
Plan, either in the aggregate or by an Optionee (except pursuant to Section
5.2); (ii) change the designation of the class of the employees eligible to
receive Incentive Stock Options; (iii) extend the term of the Plan or the
maximum Option period thereunder; (iv) decrease the minimum Incentive Stock
Option price or permit reductions of the price at which shares may be purchased
for Incentive Stock Options granted under the Plan; or (v) cause Incentive Stock
Options issued under the Plan to fail to meet the requirements of incentive
stock options under Code Section 422. An amendment or modification made pursuant
to the provisions of this Section 7 shall be deemed adopted as of the date of
the action of the Committee effecting such amendment or modification and shall
be effective immediately, unless otherwise provided therein, subject to approval
thereof (1 ) within twelve (12) months before or after the effective date by
stockholders of the Corporation holding not less than a majority vote of the
voting power of the Corporation voting in person or by proxy at a duly held
stockholders meeting when required to maintain or satisfy the requirements of
Code Section 422 with respect to Incentive Stock Options, and (2) by any
appropriate governmental-agency. No Option may be granted during any suspension
or after termination of the Plan.
<PAGE>
7.2 Ten (10) Year Maximum Term. Unless previously
terminated by the Committee, this Plan shall terminate on April
5, 2006, and no Options shall be granted under the Plan
thereafter.
7.3 Effect on Outstanding Options. Amendment, suspension or
termination of this Plan shall not, without the consent of the
Optionee, alter or impair any rights or obligations under any
Option theretofore granted.
8 EFFECTIVE DATE OF PLAN. This Plan shall be effective as of the date the Plan
was adopted by resolution of the Board of Directors of Legacy Brands, Inc.,
subject to the approval of the Plan by the unanimous written consent of the
Shareholders or the affirmative vote of a majority of the issued and outstanding
Shares of common stock of the Corporation represented and voting at a duly held
meeting at which a quorum is present within twelve (12) months thereafter. The
Committee shall be authorized and empowered to make grants of Options pursuant
to this Plan prior to such approval of this Plan by the stockholders; provided,
however, in such event the Option grants shall be made subject to the approval
of this Plan and such Option grants by the stockholders in accordance with the
provisions of this Section 8.
9 MISCELLANEOUS PROVISIONS.
9.1 Exculpation and Indemnification. The Corporation shall indemnify
and hold harmless the Committee from and against any and all liabilities, costs
and expenses incurred by such persons as a result of any act, or omission to
act, in connection with the performance of such persons' duties,
responsibilities and obligations under the Plan, other than such liabilities,
costs and expenses as may result from the gross negligence, bad faith, willful
conduct and/or criminal acts of such persons.
9.2 Governing Law. The Plan shall be governed and construed
in accordance with the laws of the State of California and the
Code.
9.3 Compliance with Applicable Laws. The inability of the Corporation
to obtain from any regulatory body having jurisdiction authority deemed by the
Corporation's counsel to be necessary to the lawful issuance and sale of any
Shares upon the exercise of an Option shall relieve the Corporation of any
liability in respect of the non-issuance or sale of such Shares
<PAGE>
as to which such requisite authority shall not have been
obtained.
<PAGE>
INCENTIVE STOCK OPTION AGREEMENT
THIS INCENTIVE STOCK OPTION AGREEMENT ("Agreement") is entered into as
of , , by and between Legacy Brands, Inc., a California corporation
("Corporation"), and ("Optionee").
R E C I T A L S
A. On ______________, the Board of Directors of the Corporation
adopted, subject to the approval of the Corporation's shareholders, the Legacy
Brands, Inc. Stock Option Plan (the "Plan").
B. Pursuant to the Plan, on , , the Board of Directors of the
Corporation acting as the Plan Committee ("Committee") authorized granting to
Optionee options to purchase shares of the common stock of the Corporation
("Shares") for the term and subject to the terms and conditions hereinafter set
forth.
A G R E E M E N T
It is hereby agreed as follows:
1. CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context
otherwise clearly requires, terms with initial capital letters used herein shall
have the meanings assigned to such terms in the Plan.
2. GRANT OF OPTIONS. The Corporation hereby grants to Optionee, options
("Options") to purchase all or any part of Shares, upon and subject to the terms
and conditions of the Plan, which is incorporated in full herein by this
reference, and upon the other terms and conditions set forth herein.
3. OPTION PERIOD. The Options shall be exercisable at any time during
the period commencing on the following dates (subject to the provisions of
Section 18) and expiring on the date ( ) years from the date of grant,
unless earlier terminated pursuant to Section 7:
Number of Options Exercisable On or After
1
<PAGE>
4. METHOD OF EXERCISE. The Options shall be exercisable by Optionee by
giving written notice to the Corporation of the election to purchase and of the
number of Shares Optionee elects to purchase, such notice to be accompanied by
such other executed instruments or documents as may be required by the Committee
pursuant to this Agreement, and unless otherwise directed by the Committee,
Optionee shall at the time of such exercise tender the purchase price of the
Shares he has elected to purchase. An Optionee may purchase less than the total
number of Shares for which the Option is exercisable, provided that a partial
exercise of an Option may not be for less than One Hundred (100) Shares. If
Optionee shall not purchase all of the Shares which he is entitled to purchase
under the Options, his right to purchase the remaining unpurchased Shares shall
continue until expiration of the Options. The Options shall be exercisable with
respect of whole Shares only, and fractional Share interests shall be
disregarded.
5. AMOUNT OF PURCHASE PRICE. The purchase price per Share for each
Share which Optionee is entitled to purchase under the Options shall be per
Share.
6. PAYMENT OF PURCHASE PRICE. At the time of Optionee's notice of
exercise of the Options, Optionee shall tender in cash or by certified or bank
cashier's check payable to the Corporation, the purchase price for all Shares
then being purchased. Provided, however, the Board of Directors may, in its sole
discretion, permit payment by the Corporation of the purchase price in whole or
in part with Shares. If the Optionee is so permitted, and the Optionee elects to
make payment with Shares, the Optionee shall deliver to the Corporation
certificates representing the number of Shares in payment for new Shares, duly
endorsed for transfer to the Corporation, together with any written
representations relating to title, liens and encumbrances, securities laws,
rules and regulatory compliance, or other matters, reasonably requested by the
Board of Directors. The value of Shares so tendered shall be their Fair Market
Value Per Share on the date of the Optionee's notice of exercise.
7. EFFECT OF TERMINATION OF EMPLOYMENT. If an Optionee's employment or
other relationship with the Corporation (or a Subsidiary) terminates, the effect
of the termination on the Optionee's rights to acquire Shares shall be as
follows:
7.1 Termination for Other than Disability Cause or Death. If
an Optionee ceases to be employed by, or ceases to have a relationship with, the
Corporation or a Subsidiary for any reason other than for disability, cause or
death, such Optionee's Options shall expire not later than three (3) months
thereafter. During such three (3) month period and prior to the expiration of
the Option by its terms, the Optionee may exercise any Option granted to him,
but only to the extent such Options were exercisable on the date of termination
of his employment or relationship and except as so exercised, such Options shall
expire at the end of such three (3) month period unless such Options by their
terms expire before such date. The decision as to whether a termination for a
reason other than disability, cause or death has occurred shall be made by the
Committee, whose decision shall be final and conclusive, except that employment
shall not be considered terminated in the case of sick leave or other bona fide
leave of absence approved by the Corporation
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7.2 Disability. If an Optionee ceases to be employed by, or
ceases to have a relationship with, the Corporation or a Subsidiary by reason of
disability (within the meaning of Code Section 22(e)(3)), such Optionee's
Options shall expire not later than one (1) year thereafter. During such one (1)
year period and prior to the expiration of the Option by its terms, the Optionee
may exercise any Option granted to him, but only to the extent such Options were
exercisable on the date the Optionee ceased to be employed by, or ceased to have
a relationship with, the Corporation or Subsidiary by reason of disability. The
decision as to whether a termination by reason of disability has occurred shall
be made by the Committee, whose decision shall be final and conclusive.
7.3 Termination for Cause. If an Optionee's employment by, or
relationship with, the Corporation or a Subsidiary is terminated for cause, such
Optionee's Option shall expire immediately; provided, however, the Committee
may, in its sole discretion, within thirty (30) days of such termination, waive
the expiration of the Option by giving written notice of such waiver to the
Optionee at such Optionee's last known address. In the event of such waiver, the
Optionee may exercise the Option only to such extent, for such time, and upon
such terms and conditions as if such Optionee had ceased to be employed by, or
ceased to have a relationship with, the Corporation or a Subsidiary upon the
date of such termination for a reason other than disability, cause or death.
Termination for cause shall include termination for malfeasance or gross
misfeasance in the performance of duties or conviction of illegal activity in
connection therewith or any conduct detrimental to the interests of the
Corporation or a Subsidiary. The determination of the Committee with respect to
whether a termination for cause has occurred shall be final and conclusive.
7.4 Death of an Optionee. If an Optionee ceases to be employed
by, or ceases to have a relationship with, the Corporation by reason of death,
Optionee's Options shall expire not later than six (6) months thereafter. During
such six (6) month period and prior to the expiration of the Option by its
terms, such Options may be exercised by his executor or administrator or the
person or persons to whom the Option is transferred by will or the applicable
laws of descent and distribution, but only to the extent such Options were
exercisable on the date Optionee ceased to be employed by, or ceased to have a
relationship with, the Corporation or a Subsidiary by reason of death.
8. NONTRANSFERABILITY OF OPTIONS. The Options shall not be
transferable, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution and shall be exercisable during the
Optionee's lifetime only by Optionee.
9. ADDITIONAL RESTRICTIONS REGARDING DISPOSITIONS OF SHARES. The
Shares acquired pursuant to the exercise of Options shall be subject to the
restrictions set forth in Exhibit "A" attached hereto and incorporated herein as
if fully set forth.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. As used herein, the
term "Adjustment Event" means an event pursuant to which the outstanding Shares
of the
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Corporation are increased, decreased or changed into, or exchanged for a
different number or kind of shares or securities, without receipt of
consideration by the Corporation, through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split, stock
dividend, stock consolidation or otherwise. Upon the occurrence of an Adjustment
Event, (i) appropriate and proportionate adjustments shall be made to the number
and kind and exercise price for the shares subject to the Options, and (ii)
appropriate amendments to this Agreement shall be executed by the Corporation
and Optionee if the Committee determines that such an amendment is necessary or
desirable to reflect such adjustments. If determined by the Committee to be
appropriate, in the event of an Adjustment Event which involves the substitution
of securities of a corporation other than the Corporation, the Committee shall
make arrangements for the assumptions by such other corporation of the Options.
Notwithstanding the foregoing, any such adjustment to the Options shall be made
without change in the total exercise price applicable to the unexercised portion
of the Options, but with an appropriate adjustment to the number of shares, kind
of shares and exercise price for each share subject to the Options. The
determination by the Committee as to what adjustments, amendments or
arrangements shall be made pursuant to this Section 10, and the extent thereof,
shall be final and conclusive. No fractional Shares shall be issued on account
of any such adjustment or arrangement.
11. NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing
contained in this Agreement shall obligate the Corporation to employ or have
another relationship with Optionee for any period or interfere in any way with
the right of the Corporation to reduce Optionee's compensation or to terminate
the employment of or relationship with Optionee at any time.
12. TIME OF GRANTING OPTIONS. The time the Options shall be deemed
granted, sometimes referred to herein as the "date of grant," shall be
___________________.
13. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not be entitled to
the privileges of stock ownership as to any Shares not actually issued and
delivered to Optionee. No Shares shall be purchased upon the exercise of any
Options unless and until, in the opinion of the Corporation's counsel, any then
applicable requirements of any laws, or governmental or regulatory agencies
having jurisdiction, and of any exchanges upon which the stock of the
Corporation may be listed shall have been fully complied with.
14. SECURITIES LAWS COMPLIANCE. The Corporation will diligently
endeavor to comply with all applicable securities laws before any stock is
issued pursuant to the Options. Without limiting the generality of the
foregoing, the Corporation may require from the Optionee such investment
representation or such agreement, if any, as counsel for the Corporation may
consider necessary in order to comply with the Securities Act of 1933 as then in
effect, and may require that the Optionee agree that any sale of the Shares will
be made only in such manner as is permitted by the Committee. The Committee may
in its discretion cause the Shares underlying the Options to be registered under
the Securities Act of 1933 as amended by filing a Form S-8 Registration
Statement covering the Options and the Shares underlying the Options. Optionee
shall
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take any action reasonably requested by the Corporation in connection with
registration or qualification of the Shares under federal or state securities
laws.
15. INTENDED TREATMENT AS INCENTIVE STOCK OPTIONS. The Options
granted herein are intended to be "incentive stock options" to which Sections
421 and 422 of the Internal Revenue Code of 1986, as amended from time to time
("Code") apply, and shall be construed to implement that intent. If all or any
part of the Options shall not be subject to Sections 421 and 422 of the Code,
the Options shall nevertheless be valid and carried into effect.
16. PLAN CONTROLS. The Options shall be subject to and governed by the
provisions of the Plan. All determinations and interpretations of the Plan made
by the Committee shall be final and conclusive.
17. SHARES SUBJECT TO LEGEND. If deemed necessary by the Corporation's
counsel, all certificates issued to represent Shares purchased upon exercise of
the Options shall bear such appropriate legend conditions as counsel for the
Corporation shall require.
18. CONDITIONS TO OPTIONS.
18.1 Compliance with Applicable Laws. THE CORPORATION'S
OBLIGATION TO ISSUE SHARES OF ITS COMMON STOCK UPON EXERCISE OF THE OPTIONS IS
EXPRESSLY CONDITIONED UPON THE COMPLETION BY THE CORPORATION OF ANY REGISTRATION
OR OTHER QUALIFICATION OF SUCH SHARES UNDER ANY STATE AND/OR FEDERAL LAW OR
RULINGS OR REGULATIONS OF ANY GOVERNMENTAL REGULATORY BODY, OR THE MAKING OF
SUCH INVESTMENT REPRESENTATIONS OR OTHER REPRESENTATIONS AND UNDERTAKINGS BY THE
OPTIONEE OR ANY PERSON ENTITLED TO EXERCISE THE OPTION IN ORDER TO COMPLY WITH
THE REQUIREMENTS OF ANY EXEMPTION FROM ANY SUCH REGISTRATION OR OTHER
QUALIFICATION OF SUCH SHARES WHICH THE COMMITTEE SHALL, IN ITS SOLE DISCRETION,
DEEM NECESSARY OR ADVISABLE. SUCH REQUIRED REPRESENTATIONS AND UNDERTAKINGS MAY
INCLUDE REPRESENTATIONS AND AGREEMENTS THAT THE OPTIONEE OR ANY PERSON ENTITLED
TO EXERCISE THE OPTION (i) IS NOT PURCHASING SUCH SHARES FOR DISTRIBUTION AND
(ii) AGREES TO HAVE PLACED UPON THE FACE AND REVERSE OF ANY CERTIFICATES A
LEGEND SETTING FORTH ANY REPRESENTATIONS AND UNDERTAKINGS WHICH HAVE BEEN GIVEN
TO THE COMMITTEE OR A REFERENCE THERETO.
18.2 Shareholder Approval of Plan. IF THE OPTIONS GRANTED
HEREBY ARE GRANTED PRIOR TO APPROVAL OF THE PLAN BY THE SHAREHOLDERS OF THE
CORPORATION PURSUANT TO SECTION 8 OF THE PLAN, THE GRANT OF THE OPTIONS MADE
HEREBY IS EXPRESSLY CONDITIONED UPON AND SUCH OPTIONS SHALL NOT BE EXERCISABLE
UNTIL THE APPROVAL OF THE PLAN BY THE
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SHAREHOLDERS OF THE CORPORATION IN ACCORDANCE WITH THE PROVISIONS OF SECTION 8
OF THE PLAN.
18.3 Maximum Exercise Period. Notwithstanding any provision of
this Agreement to the contrary, the Options shall expire no later than ten years
from the date hereof or five years if, as of the date hereof, the Optionee owns
or is considered to own by reason of Code Section 424(d) more than 10% of the
total combined voting power of all classes of stock of the Corporation or any
Subsidiary or parent corporation of the Corporation .
19. MISCELLANEOUS.
19.1 Binding Effect. This Agreement shall bind and inure to
the benefit of the successors, assigns, transferees, agents, personal
representatives, heirs and legatees of the respective parties.
19.2 Further Acts. Each party agrees to perform any further
acts and execute and deliver any documents which may be necessary to carry out
the provisions of this Agreement.
19.3 Amendment. This Agreement may be amended at any time by
the written agreement of the Corporation and the Optionee.
19.4 Syntax. Throughout this Agreement, whenever the context
so requires, the singular shall include the plural, and the masculine gender
shall include the feminine and neuter genders. The headings and captions of the
various Sections hereof are for convenience only and they shall not limit,
expand or otherwise affect the construction or interpretation of this Agreement.
19.5 Choice of Law. The parties hereby agree that this
Agreement has been executed and delivered in the State of California and shall
be construed, enforced and governed by the laws thereof. This Agreement is in
all respects intended by each party hereto to be deemed and construed to have
been jointly prepared by the parties and the parties hereby expressly agree that
any uncertainty or ambiguity existing herein shall not be interpreted against
either of them.
19.6 Severability. In the event that any provision of this
Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
19.7 Notices. All notices and demands between the parties
hereto shall be in writing and shall be served either by registered or certified
mail, and such notices or demands shall be deemed given and made forty-eight
(48) hours after the deposit thereof in the United States mail, postage prepaid,
addressed to the party to whom such notice or demand is to be given or made, and
the issuance of the registered receipt therefor. If served by telegraph, such
notice
6
<PAGE>
or demand shall be deemed given and made at the time the telegraph agency shall
confirm to the sender, delivery thereof to the addressee. All notices and
demands to Optionee or the Corporation may be given to them at the following
addresses:
If to Optionee:
If to Corporation:
Legacy Brands, Inc.
2200-B Douglas Blvd. Suite 100
Roseville, CA 95661
Such parties may designate in writing from time to time such other place or
places that such notices and demands may be given.
19.8 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
this Agreement supersedes all prior and contemporaneous agreements and
understandings of the parties, and there are no warranties, representations or
other agreements between the parties in connection with the subject matter
hereof except as set forth or referred to herein. No supplement, modification or
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall constitute a waiver of any other provision hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
19.9 Attorneys' Fees. In the event that any party to this
Agreement institutes any action or proceeding, including, but not limited to,
litigation or arbitration, to preserve, to protect or to enforce any right or
benefit created by or granted under this Agreement, the prevailing party in each
respective such action or proceeding shall be entitled, in addition to any and
all other relief granted by a court or other tribunal or body, as may be
appropriate, to an award in such action or proceeding of that sum of money which
represents the attorneys' fees reasonably incurred by the prevailing party
therein in filing or otherwise instituting and in prosecuting or otherwise
pursuing or defending such action or proceeding, and, additionally, the
attorneys' fees reasonably incurred by such prevailing party in negotiating any
and all matters underlying such action or proceeding and in preparation for
instituting or defending such action or proceeding.
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<PAGE>
IN WITNESS WHEREOF, the parties have entered into this
Agreement as of the date first set forth above.
"CORPORATION"
LEGACY BRANDS, INC.
a California corporation
By:
-----------------
"OPTIONEE"
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NON-QUALIFIED STOCK OPTION AGREEMENT
THIS NON-QUALIFIED STOCK OPTION AGREEMENT ("Agreement") is entered into
as of , , by and between Legacy Brands, Inc., a California corporation
("Corporation"), and ("Optionee").
R E C I T A L S
A. On ___________, the Board of Directors of the Corporation adopted,
subject to the approval of the Corporation's shareholders, the Legacy Brands,
Inc., Stock Option Plan (the "Plan").
B. Pursuant to the Plan, on , , the Board of Directors of
the Corporation acting as the Plan Committee ("Committee") authorized granting
to Optionee options to purchase shares of the common stock of the Corporation
("Shares") for the term and subject to the terms and conditions hereinafter set
forth.
A G R E E M E N T
It is hereby agreed as follows:
1. CERTAIN DEFINITIONS. Unless otherwise defined herein, or the context
otherwise clearly requires, terms with initial capital letters used herein shall
have the meanings assigned to such terms in the Plan.
2. GRANT OF OPTIONS. The Corporation hereby grants to Optionee, options
("Options") to purchase all or any part of Shares, upon and subject to the terms
and conditions of the Plan, which is incorporated in full herein by this
reference, and upon the other terms and conditions set forth herein.
3. OPTION PERIOD. The Options shall be exercisable at any time during
the period commencing on the following dates (subject to the provisions of
Section 18) and expiring on the date ( ) years from the date of
grant, unless earlier termination pursuant to Section 7:
Number of Options Exercisable On or After
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<PAGE>
4. METHOD OF EXERCISE. The Options shall be exercisable by Optionee by
giving written notice to the Corporation of the election to purchase and of the
number of Shares Optionee elects to purchase, such notice to be accompanied by
such other executed instruments or documents as may be required by the Committee
pursuant to this Agreement and unless otherwise directed by the Committee,
Optionee shall at the time of such exercise tender the purchase price of the
Shares he has elected to purchase. An Optionee may purchase less than the total
number of Shares for which the Option is exercisable, provided that a partial
exercise of an Option may not be for less than One Hundred (100) Shares. If
Optionee shall not purchase all of the Shares which he is entitled to purchase
under the Options, his right to purchase the remaining unpurchased Shares shall
continue until expiration of the Options. The Options shall be exercisable with
respect of whole Shares only, and fractional Share interests shall be
disregarded.
5. AMOUNT OF PURCHASE PRICE. The purchase price per Share for each
Share which Optionee is entitled to purchase under the Options shall be per
Share.
6. PAYMENT OF PURCHASE PRICE. At the time of Optionee's notice of
exercise of the Options, Optionee shall tender in cash or by certified or bank
cashier's check payable to the Corporation, the purchase price for all Shares
then being purchased. Provided, however, the Board of Directors may, in its sole
discretion, permit payment by the Corporation of the purchase price in whole or
in part with Shares. If the Optionee is so permitted, and the Optionee elects to
make payment with Shares, the Optionee shall deliver to the Corporation
certificates representing the number of Shares in payment for new Shares, duly
endorsed for transfer to the Corporation, together with any written
representations relating to title, liens and encumbrances, securities laws,
rules and regulatory compliance, or other matters, reasonably requested by the
Board of Directors. The value of Shares so tendered shall be their Fair Market
Value Per Share on the date of the Optionee's notice of exercise.
7. EFFECT OF TERMINATION OF EMPLOYMENT. If an Optionee's employment or
other relationship with the Corporation (or a Subsidiary) terminates, the effect
of the termination on the Optionee's rights to acquire Shares shall be as
follows:
7.1 Termination for Other than Disability Cause or Death. If
an Optionee ceases to be employed by, or ceases to have a relationship with, the
Corporation or a Subsidiary for any reason other than for disability, cause or
death, such Optionee's Options shall expire not later than three (3) months
thereafter. During such three (3) month period and prior to the expiration of
the Option by its terms, the Optionee may exercise any Option granted to him,
but only to the extent such Options were exercisable on the date of termination
of his employment or relationship and except as so exercised, such Options shall
expire at the end of such three (3) month period unless such Options by their
terms expire before such date. The decision as to whether a termination for
2
<PAGE>
a reason other than disability, cause or death has occurred shall be made by the
Committee, whose decision shall be final and conclusive, except that employment
shall not be considered terminated in the case of sick leave or other bona fide
leave of absence approved by the Corporation.
7.2 Disability. If an Optionee ceases to be employed by, or
ceases to have a relationship with, the Corporation or a Subsidiary by reason of
disability (within the meaning of Code Section 22(e)(3)), such Optionee's
Options shall expire not later than one (1) year thereafter. During such one (1)
year period and prior to the expiration of the Option by its terms, the Optionee
may exercise any Option granted to him, but only to the extent such Options were
exercisable on the date the Optionee ceased to be employed by, or ceased to have
a relationship with, the Corporation or Subsidiary by reason of disability. The
decision as to whether a termination by reason of disability has occurred shall
be made by the Committee, whose decision shall be final and conclusive.
7.3 Termination for Cause. If an Optionee's employment by, or
relationship with, the Corporation or a Subsidiary is terminated for cause, such
Optionee's Option shall expire immediately; provided, however, the Committee
may, in its sole discretion, within thirty (30) days of such termination, waive
the expiration of the Option by giving written notice of such waiver to the
Optionee at such Optionee's last known address. In the event of such waiver, the
Optionee may exercise the Option only to such extent, for such time, and upon
such terms and conditions as if such Optionee had ceased to be employed by, or
ceased to have a relationship with, the Corporation or a Subsidiary upon the
date of such termination for a reason other than disability, cause or death.
Termination for cause shall include termination for malfeasance or gross
misfeasance in the performance of duties or conviction of illegal activity in
connection therewith or any conduct detrimental to the interests of the
Corporation or a Subsidiary. The determination of the Committee with respect to
whether a termination for cause has occurred shall be final and conclusive.
7.4 Death of an Optionee. If an Optionee ceases to be employed
by, or ceases to have a relationship with, the Corporation by reason of death,
Optionee's Options shall expire not later than six (6) months thereafter. During
such six (6) month period and prior to the expiration of the Option by its
terms, such Options may be exercised by his executor or administrator or the
person or persons to whom the Option is transferred by will or the applicable
laws of descent and distribution, but only to the extent such Options were
exercisable on the date Optionee ceased to be employed by, or ceased to have a
relationship with, the Corporation or a Subsidiary by reason of death.
8. NONTRANSFERABILITY OF OPTIONS. The Options shall not be
transferable, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution and shall be exercisable during the
Optionee's lifetime only by Optionee.
9. ADDITIONAL RESTRICTIONS REGARDING DISPOSITIONS OF SHARES. The Shares
acquired pursuant to the exercise of Options shall be subject to the
restrictions set forth in
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<PAGE>
Exhibit "A" attached hereto and incorporated herein as if fully set forth.
10. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. As used herein, the
term "Adjustment Event" means an event pursuant to which the outstanding Shares
of the Corporation are increased, decreased or changed into, or exchanged for a
different number or kind of shares or securities, without receipt of
consideration by the Corporation, through reorganization, merger,
recapitalization, reclassification, stock split, reverse stock split, stock
dividend, stock consolidation or otherwise. Upon the occurrence of an Adjustment
Event, (i) appropriate and proportionate adjustments shall be made to the number
and kind and exercise price for the shares subject to the Options, and (ii)
appropriate amendments to this Agreement shall be executed by the Corporation
and Optionee if the Committee determines that such an amendment is necessary or
desirable to reflect such adjustments. If determined by the Committee to be
appropriate, in the event of an Adjustment Event which involves the substitution
of securities of a corporation other than the Corporation, the Committee shall
make arrangements for the assumptions by such other corporation of the Options.
Notwithstanding the foregoing, any such adjustment to the Options shall be made
without change in the total exercise price applicable to the unexercised portion
of the Options, but with an appropriate adjustment to the number of shares, kind
of shares and exercise price for each share subject to the Options. The
determination by the Committee as to what adjustments, amendments or
arrangements shall be made pursuant to this Section 10, and the extent thereof,
shall be final and conclusive. No fractional Shares shall be issued on account
of any such adjustment or arrangement.
11. NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing
contained in this Agreement shall obligate the Corporation to employ or have
another relationship with Optionee for any period or interfere in any way with
the right of the Corporation to reduce Optionee's compensation or to terminate
the employment of or relationship with Optionee at any time.
12. TIME OF GRANTING OPTIONS. The time the Options shall be deemed
granted, sometimes referred to herein as the "date of grant," shall be
________________.
13. PRIVILEGES OF STOCK OWNERSHIP. Optionee shall not be entitled to
the privileges of stock ownership as to any Shares not actually issued and
delivered to Optionee. No Shares shall be purchased upon the exercise of any
Options unless and until, in the opinion of the Corporation's counsel, any then
applicable requirements of any laws, or governmental or regulatory agencies
having jurisdiction, and of any exchanges upon which the stock of the
Corporation may be listed shall have been fully complied with.
14. SECURITIES LAWS COMPLIANCE. The Corporation will diligently
endeavor to comply with all applicable securities laws before any stock is
issued pursuant to the Options. Without limiting the generality of the
foregoing, the Corporation may require from the Optionee such investment
representation or such agreement, if any, as counsel for the Corporation may
consider necessary in order to comply with the Securities Act of 1933 as then in
effect, and may
4
<PAGE>
require that the Optionee agree that any sale of the Shares will be made only in
such manner as is permitted by the Committee. The Committee may in its
discretion cause the Shares underlying the Options to be registered under the
Securities Act of 1933 as amended by filing a Form S-8 Registration Statement
covering the Options and the Shares underlying the Options. Optionee shall take
any action reasonably requested by the Corporation in connection with
registration or qualification of the Shares under federal or state securities
laws.
15. INTENDED TREATMENT AS NON-QUALIFIED STOCK OPTIONS. The Options
granted herein are intended to be non-qualified stock options described in U.S.
Treasury Regulation ("Treas. Reg.") ss.1.83-7 to which Sections 421 and 422 of
the Internal Revenue Code of 1986, as amended from time to time ("Code") do not
apply, and shall be construed to implement that intent. If all or any part of
the Options shall not be described in Treas. Reg. ss.1.83-7 or be subject to
Sections 421 and 422 of the Code, the Options shall nevertheless be valid and
carried into effect.
16. PLAN CONTROLS. The Options shall be subject to and governed by the
provisions of the Plan. All determinations and interpretations of the Plan made
by the Committee shall be final and conclusive.
17. SHARES SUBJECT TO LEGEND. If deemed necessary by the Corporation's
counsel, all certificates issued to represent Shares purchased upon exercise of
the Options shall bear such appropriate legend conditions as counsel for the
Corporation shall require.
18. CONDITIONS TO OPTIONS.
18.1 Compliance with Applicable Laws. THE CORPORATION'S
OBLIGATION TO ISSUE SHARES OF ITS COMMON STOCK UPON EXERCISE OF THE OPTIONS IS
EXPRESSLY CONDITIONED UPON THE COMPLETION BY THE CORPORATION OF ANY REGISTRATION
OR OTHER QUALIFICATION OF SUCH SHARES UNDER ANY STATE AND/OR FEDERAL LAW OR
RULINGS OR REGULATIONS OF ANY GOVERNMENTAL REGULATORY BODY, OR THE MAKING OF
SUCH INVESTMENT REPRESENTATIONS OR OTHER REPRESENTATIONS AND UNDERTAKINGS BY THE
OPTIONEE OR ANY PERSON ENTITLED TO EXERCISE THE OPTION IN ORDER TO COMPLY WITH
THE REQUIREMENTS OF ANY EXEMPTION FROM ANY SUCH REGISTRATION OR OTHER
QUALIFICATION OF SUCH SHARES WHICH THE COMMITTEE SHALL, IN ITS SOLE DISCRETION,
DEEM NECESSARY OR ADVISABLE. SUCH REQUIRED REPRESENTATIONS AND UNDERTAKINGS MAY
INCLUDE REPRESENTATIONS AND AGREEMENTS THAT THE OPTIONEE OR ANY PERSON ENTITLED
TO EXERCISE THE OPTION (i) IS NOT PURCHASING SUCH SHARES FOR DISTRIBUTION AND
(ii) AGREES TO HAVE PLACED UPON THE FACE AND REVERSE OF ANY CERTIFICATES A
LEGEND SETTING FORTH ANY REPRESENTATIONS AND UNDERTAKINGS WHICH HAVE BEEN GIVEN
TO THE COMMITTEE OR A REFERENCE THERETO.
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<PAGE>
18.2 Shareholder Approval of Plan. IF THE OPTIONS GRANTED
HEREBY ARE GRANTED PRIOR TO APPROVAL OF THE PLAN BY THE SHAREHOLDERS OF THE
CORPORATION PURSUANT TO SECTION 8 OF THE PLAN, THE GRANT OF THE OPTIONS MADE
HEREBY IS EXPRESSLY CONDITIONED UPON AND SUCH OPTIONS SHALL NOT BE EXERCISABLE
UNTIL THE APPROVAL OF THE PLAN BY THE SHAREHOLDERS OF THE CORPORATION IN
ACCORDANCE WITH THE PROVISIONS OF SECTION 8 OF THE PLAN.
19. MISCELLANEOUS.
19.1 Binding Effect. This Agreement shall bind and inure to
the benefit of the successors, assigns, transferees, agents, personal
representatives, heirs and legatees of the respective parties.
19.2 Further Acts. Each party agrees to perform any further
acts and execute and deliver any documents which may be necessary to carry out
the provisions of this Agreement.
19.3 Amendment. This Agreement may be amended at any time by
the written agreement of the Corporation and the Optionee.
19.4 Syntax. Throughout this Agreement, whenever the context
so requires, the singular shall include the plural, and the masculine gender
shall include the feminine and neuter genders. The headings and captions of the
various Sections hereof are for convenience only and they shall not limit,
expand or otherwise affect the construction or interpretation of this Agreement.
19.5 Choice of Law. The parties hereby agree that this
Agreement has been executed and delivered in the State of California and shall
be construed, enforced and governed by the laws thereof. This Agreement is in
all respects intended by each party hereto to be deemed and construed to have
been jointly prepared by the parties and the parties hereby expressly agree that
any uncertainty or ambiguity existing herein shall not be interpreted against
either of them.
19.6 Severability. In the event that any provision of this
Agreement shall be held invalid or unenforceable, such provision shall be
severable from, and such invalidity or unenforceability shall not be construed
to have any effect on, the remaining provisions of this Agreement.
19.7 Notices. All notices and demands between the parties
hereto shall be in writing and shall be served either by registered or certified
mail, and such notices or demands shall be deemed given and made forty-eight
(48) hours after the deposit thereof in the United States mail, postage prepaid,
addressed to the party to whom such notice or demand is to be given or made, and
the issuance of the registered receipt therefor. If served by telegraph, such
notice or demand shall be deemed given and made at the time the telegraph agency
shall confirm to the
6
<PAGE>
sender, delivery thereof to the addressee. All notices and demands to Optionee
or the Corporation may be given to them at the following addresses:
If to Optionee:
If to Corporation:
Legacy Brands, Inc.
2200-B Douglas Blvd. Suite 100
Roseville, CA 95661
Such parties may designate in writing from time to time such other place or
places that such notices and demands may be given.
19.8 Entire Agreement. This Agreement constitutes the entire
agreement between the parties hereto pertaining to the subject matter hereof,
this Agreement supersedes all prior and contemporaneous agreements and
understandings of the parties, and there are no warranties, representations or
other agreements between the parties in connection with the subject matter
hereof except as set forth or referred to herein. No supplement, modification or
waiver or termination of this Agreement shall be binding unless executed in
writing by the party to be bound thereby. No waiver of any of the provisions of
this Agreement shall constitute a waiver of any other provision hereof (whether
or not similar) nor shall such waiver constitute a continuing waiver.
19.9 Attorneys' Fees. In the event that any party to this
Agreement institutes any action or proceeding, including, but not limited to,
litigation or arbitration, to preserve, to protect or to enforce any right or
benefit created by or granted under this Agreement, the prevailing party in each
respective such action or proceeding shall be entitled, in addition to any and
all other relief granted by a court or other tribunal or body, as may be
appropriate, to an award in such action or proceeding of that sum of money which
represents the attorneys' fees reasonably incurred by the prevailing party
therein in filing or otherwise instituting and in prosecuting or otherwise
pursuing or defending such action or proceeding, and, additionally, the
attorneys' fees reasonably incurred by such prevailing party in negotiating any
and all matters underlying such action or proceeding and in preparation for
instituting or defending such action or proceeding.
7
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the date
first set forth above.
"CORPORATION"
Legacy Brands, Inc.,
a California corporation
By:
-------------------------
"OPTIONEE"
8
<PAGE>
EXHIBIT I
INCENTIVE STOCK OPTION AGREEMENT
EXHIBIT II
NON-QUALIFIED STOCK OPTION AGREEMENT
6.5
FORM OF EMPLOYEE STOCK PURCHASE PLAN
[TO COME]
6.6
Employment Agreement, dated October 30, 1996
Between Legacy Brands, Inc. and
Thomas E. Kees
<PAGE>
EMPLOYMENT AGREEMENT
THIS AGREEMENT, dated____________, hereinafter referred to as the
"Agreement", is by and between Legacy Brands, Inc., hereinafter referred to as
the "Employer", and Thomas E. Kees, hereinafter referred to as the "Employee".
ARTICLE 1
Term
1.1 Term of Employment. The Employer hereby employs the Employee and the
Employee hereby accepts employment as Chairman, President and CEO of the
Employer for a period of three (3) years (the "Term") beginning on September 1,
1995 (the "effective date"), and which will be automatically extended on the
anniversary date hereof, for an additional twelve (12) month period, unless
canceled by either party as described herein.
1.2 Notice of Cancellation. Following the expiration of the Term hereof,
the automatic extension of this Agreement may be canceled by either party by
giving written notice to the other party not later than 60 days before the
anniversary date hereof, that the Agreement shall not be extended ("Notice of
Cancellation"). In the event that either party cancels the automatic extension
of this Agreement, such failure to extend the Agreement shall be considered a
termination of the Employee as described in Article 6, herein, and such
termination shall be subject to the termination provisions provided therein.
This Agreement may be terminated earlier as hereinafter provided.
ARTICLE 2
Duties of Employee
2.1 Duties of Employee. As Chairman, President and CEO, Employee shall be
responsible for all facets of the operations of the Employer. From time to time,
the Board of Directors may give Employee specific directions on certain aspects
of managing the Employer. The parties hereto agree that Employee's services are
unique. Duties include, but are not limited to, providing the Employer's Board
of Directors advice with respect to management decisions and actions necessary
to return the Employer to a sound financial condition and profitability, to work
towards its future success, and participating in negotiations of new ventures
and public financing of the Employer.
2.2 Best Efforts of Employee. Employee agrees that he will at all times
faithfully, industriously, and to the best of his ability, experience, and
talents, perform all of the duties that may be required of and from him pursuant
to the express and implicit terms hereof to the reasonable satisfaction of
Employer. Such duties shall be rendered at the home office of Employer, and at
such other place or places as Employer shall in good faith require or as the
interest, needs, business or opportunity of Employer shall require.
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 2
2.3 Engaging in Other Employment. The Employee shall devote his productive
time, ability, and attention to the business of the Employer during the term of
this Agreement. The Employee shall not, during his employment:
(i) within any jurisdiction or marketing area in which the Employer or
any of its subsidiaries or affiliates is doing business or is qualified to do
business, directly or indirectly own, manage, operate, control, be employed by
or participate in ownership, management operation or control of or be connected
in any manner with any business engaged in and in competition with the business
conducted by Employer or any of its subsidiaries or affiliates. For these
purposes, ownership of securities of not in excess of one (1%) percent of any
class of securities of a public company shall not be considered to be
competition with Employer or any of its subsidiaries or affiliates; or
(ii) solicit for himself or any person other than the Employer or any
of its subsidiaries, the business of any company which is a customer or client
of the Employer, or any of its subsidiaries, or was a customer or client of
Employer within two (2) years prior to the date of this Agreement; or
(iii) persuade or attempt to persuade any employee of the Employer or
any of its subsidiaries to leave the Employer's or subsidiary's employ or to
become employed by any person other than the Employer or subsidiary.
2.4 Regulations. The Employee agrees to comply with all federal, state and
local laws, ordinances and regulations in the conduct of his business on behalf
of Employer.
If and when licenses or other registrations become required by law or
pertinent regulatory bodies or agencies, the Employee shall undertake to make
any necessary applications or do what may be required to secure such licenses or
registrations.
ARTICLE 3
Duties of Employer
3.1 Payment of Compensation and Provision of Benefits. During the term
hereof, Employer agrees to pay all compensation due to Employee on at least a
monthly basis as provided in Article 4, as well as to provide benefits,
allowances and vacation as set forth therein.
3.2 Working Environment. During the term hereof, Employer agrees to create
a suitable working environment, including all office amenities appropriate for
Employee's position
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 3
and employment responsibilities. Such environment shall include freedom from
unreasonable interference during office hours or after office hours.
3.3 Advance Costs of Certain Litigation. During the term hereof and
subsequent thereto, Employer agrees to advance and incur any litigation costs
incurred by Employee in connection with any act or omission under this
Agreement, or with any product liability, tampering, officer or director
litigation brought by any investor or non-party to this Agreement. In exchange
for the Employer's promise to advance any such costs, the Employee agrees to
cooperate fully in the investigation and defense of any such claims.
ARTICLE 4
Compensation
4.1 Basic Compensation. As compensation for services rendered under this
Agreement, the Employee shall be entitled to receive from the Employer a minimum
annual salary ("Annual Base Salary"), payable to Employee bi-monthly on the 1st
and 15th days of each month of the term hereof, as follows:
For the
Period: Amount
------- ------
1995-1996 ................................$200,000;
1996-1997 ................................$225,000;
1997-1998 ................................$250,000;
The amount of Employee's actual compensation, including Annual Base Salary
and benefits, may be increased by unanimous vote of the disinterested Directors
of Employer at any time above the minimum Annual Base Salary described herein,
and such increase shall not effect the operation or validity of any other
provision of this Agreement.
4.2 Bonus. The Employee is entitled to the payment of a bonus calculated on
a target profit amount for each year. The target profit amount is the amount
approved by the CEO and shall be calculated based upon a formula consisting of
earnings from operations before interest, taxes, depreciation and amortization.
If, in any year hereof, the Employer attains 80% to 99% of the target profit
amount, the Employee is entitled to a bonus of 50% of his Annual Base Salary for
the year, minus one percentage point for each percentage point the target profit
amount is less than 100%. If the target profit amount is met exactly, the bonus
shall be 50% of the Annual Base Salary. If the target profit amount is exceeded
by 1% to 10%, the bonus shall be 50% plus 2% of the Annual Base Salary for each
percentage point over 100%. If the target profit amount is
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 4
exceeded by 111% up to a ceiling of 150%, the bonus shall be 70% of the Annual
Base Salary plus 3% of the Annual Base Salary for each percentage point over
110%. Such bonus shall based upon the Employer's fiscal year. Bonuses will be
paid in three installments, the first payment representing 40% of the total
bonus shall be made no later than seven (7) months after the beginning of the
Employer's fiscal year, and will be calculated using Employer's unaudited
budgeted profits, the second payment representing another 40% of the bonus shall
be made no later than thirteen (13) months after the beginning of the Employer's
fiscal year and shall be calculated using Employer's unaudited actual financial
figures, and the third payment representing the final 20% shall be made no
sooner than the date upon which the Employer receives audited financial
statements. Any adjustments will be made at the time of the third payment. Any
overpayments shall be offset in the first and subsequent bonus payment(s) of the
following and subsequent fiscal year(s) until repaid. Any retroactive change in
accounting principles which might affect any prior year(s) profit shall not give
rise to any claim by the Employer against the Employee for any bonus payment.
Furthermore, any change in accounting principles which was not contemplated in
calculating the budgeted or actual profit shall not apply to the calculation of
the Employee's bonus.
4.3 Employee Benefits.
4.3.1 Insurance. So long as Employee is employed by Employer, Employer
shall use its best efforts to establish and maintain a group insurance policy as
follows, into which the Employee, and his dependents may participate:
(a) Disability. To be obtained from a highly rated insurance company
so as to provide the Employee with a monthly income equal to the twelve months
average immediately preceding the disability and until the Employee reaches the
age of sixty-five (65) years.
In the event the insurance company refuses to honor a claim against the
policy in force, and for any month benefits are not or partially not paid to the
Employee, the Employer's Board of Directors may decide, at its sole discretion,
to make monthly disability payments to the Employee to such extent that the
Employee receives a monthly income equal to the expected income under the
disability insurance.
(b) Medical and Dental. Employee shall receive medical and dental
benefits for him and his dependents as may be determined from time to time by
the Board of Directors of the Employer.
4.3.2 Fringe Benefits. Commencing on the date hereof, Employee shall be
entitled to all rights and benefits to which he is otherwise eligible under any
generally instituted
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 5
insurance plans and benefits of Employer, and any additional fringe benefits
which may be authorized and approved from time to time by the Board of
Directors.
4.4 Expenses. During the Term, Employee shall be reimbursed for his
reasonable travel, entertainment, business meeting and similar expenditures for
the benefit of Employer, but only in accordance with the policies of Employer as
adopted by the Board from time to time. With respect to any expenses which are
reimbursed by Employer to Employee, Employee shall account to Employer in
sufficient detail to allow Employer to claim an income tax deduction for such
paid item, if such item is deductible.
4.5 Restricted Stock Award. The Employee shall be offered, pursuant to a
separate Restricted Stock Purchase Agreement, an opportunity to purchase shares
of Common Stock of the Employer (the "Shares"). The Employee's right to receive
the full amount of shares owed under the Restricted Stock Purchase Agreement
shall be contingent on the Employee's continued employment with the Employer. In
the event of a change of control resulting in a merger or acquisition, the
Employee shall be granted securities of the new entity and adjusted to assure no
diminution of the Employee's ownership in the Employer.
4.6 Vesting. The Employee is entitled to receive annually, but based on a
quarterly calculation, a certificate of vesting from the Employer evidencing the
completion of twelve months of service under this Agreement calculated from
September 1, 1995, in the form attached hereto as Exhibit A, which the Employee
shall deliver to the Pledge Holder, as provided in the Stock Pledge Agreement,
along with certain other documents pursuant to the terms of the Restricted Stock
Purchase Agreement in order to transfer, assign or convey Shares purchased under
the Restricted Stock Purchase Agreement. Upon the expiration of one year from
September 1, 1995, and delivery of a certificate of vesting together with other
required documents, the Employee shall have the right to dispose of one-third of
the Shares and shall be obligated to pay, or otherwise satisfy, one-third of the
principal amount of the Promissory Note plus interest, if any, pursuant to the
Restricted Stock Purchase Agreement and related Promissory Note. Such right to
dispose of a percentage of Shares and corresponding duty to pay, or otherwise
satisfy, amounts owed shall increase to two-thirds on September 1, 1997. The
Employee shall not have the right to dispose of all of the Shares or the
obligation to pay, or otherwise satisfy, the full principal amount and interest
thereupon under the Promissory Note until September 1, 1998.
Once any portion of the Shares has vested and corresponding payments
have been made pursuant to this paragraph, or under the Promissory Note, or the
debt has been forgiven, such Shares are not subject to repurchase by the
Employer. In the event the Employee is terminated without cause pursuant to
Article 6.4, upon the sale of the business or a change in CEO and a portion of
the Shares has vested, but the corresponding payments under the Promissory Note
have not been made, the Employee shall have a period of ten (10) days from such
termination to make
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 6
the necessary payments under the Promissory Note. Failure to pay within thirty
days shall subject the Shares to repurchase by the Employer.
4.7 Vacation. Employee shall be entitled to vacation of up to thirty (30)
calendar days per year, which vacation may accrue if not taken. Employee shall
be entitled to observe all nationally observed holidays and to take and accrue
such vacation time and sick days as determined by Employer's policy on such
accruals for all employees.
ARTICLE 5
Confidentiality
5.1 Confidentiality. During the course of employment, Employee shall become
aware of certain methods, practices and procedures with which Employer conducts
its business, including but not limited to: any trade secrets, confidential
information, knowledge, data or other information of Employer relating to
products, processes, know how, designs, customer lists, business plans,
marketing plans and strategies, and pricing strategies or any subject matter
pertaining to any business of Employer or any of its clients, licensees or
affiliates, all of which Employer and Employee agree are proprietary information
and as such are trade secrets. Employee agrees to keep confidential, except as
Employer may otherwise consent, and not to disclose, or make any use of except
for the benefit of Employer, at any time either during or subsequent to his
employment, any said trade secrets.
5.2 Return of Confidential Material. In the event of Employee's termination
of employment with Employer, for any reason whatsoever, Employee agrees to
promptly surrender and deliver to Employer all records, materials, equipment,
drawings and data of any nature pertaining to any invention or confidential
information of Employer or to his employment. Employee agrees not take with him
any description containing or pertaining to any confidential information,
knowledge or data of Employer which he may produce or obtain during the course
of his employment.
ARTICLE 6
Termination
and
Severance Pay
6.1 Termination by Death or Disability. This Agreement terminates upon the
death or disability of the Employee. Compensation provided in the case of
disability is to be determined as if the Employee had been terminated for cause
per 6.3 below. All compensation ends on the
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 7
date of the Employee's death.
6.2 Termination by Employee. If the Employee terminates this Agreement with
or without cause, he shall forfeit his compensation and bonuses remaining in
this Agreement, and shall forfeit that portion of his restricted stock award as
provided elsewhere in this Agreement. Any termination by Employee shall be with
60 days notice to the Employer.
6.3 Termination by Employer for Cause. For purposes of this Agreement, an
event or occurrence constituting "Cause" shall mean, as determined by Employer:
6.3.1 Employee's willful failure or refusal after notice
thereof, to perform specific directives of the Board of
Directors of Employer, when such directives are consistent
with the scope and nature of Employees' duties and
responsibilities as set forth in clause 2.1. hereof; or
6.3.2 Dishonesty of Employee affecting Employer; or
6.3.3 Drunkenness or use of drugs which interferes with the
performance of Employee's duties and responsibilities under
this Agreement; or
6.3.4 Any gross or willful conduct of Employee resulting in
substantial loss to Employer, substantial damage to
Employer's reputation, or theft or defalcation from
Employer; or
6.3.5 Gross incompetence on the part of the Employee in the
performance of the duties and responsibilities under this
Agreement; or
6.3.6 Any material breach (not covered by any of subclauses
6.3.1 through 6.3.5) of Article 2 or Article 5 of this
Agreement if such breach is not cured within 10 days after
written notice thereof to Employee by Employer.
In the event the Employee is terminated for cause, the Employee shall be
entitled to receive fifty percent (50%) of the amount of Annual Base Salary to
which he would have been entitled had he completed the full term of three years
hereof. The Employee shall continue to be bound by Article 5 hereof.
6.4 Termination of Employee Without Cause. In the event the Employee is
terminated for any reason other than for cause, the Employee shall be entitled
to the compensation and bonuses he would have been paid had the Employer not
terminated the Employee and the Employee had continued to provide services
hereunder throughout the term of this Agreement.
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 8
The Employee shall continue to be bound by Article 5 hereof.
6.5 Termination of Employee upon Sale of Business. This Agreement shall
survive a merger, consolidation or other business combination for the longer of
the remaining term of this Agreement or one year. In the event the Employer
decides to terminate the Employee without cause pursuant to this Article 6.5,
the Employer shall:
6.5.1 Have the duty to compensate the Employee under the
terms of this Agreement for the remaining term of this
Agreement;
6.5.2 Waive the vesting requirement as to any unvested
Shares such that the Employee will have the right to dispose
of all of the Shares contemplated by and pursuant to the
restricted Stock Purchase Agreement; and
6.5.3 Provide the Employee with an Executive Placement
Package.
6.6 Effect of Termination on other Employees. In the event of termination,
the Employee shall not for a period of at least three (3) years after
termination persuade or attempt to persuade any employee of the Employer or any
of its subsidiaries to leave the Employer's or subsidiary's employ or to become
employed by any person other than the Employer or subsidiary.
6.7 Effect of Termination on Article 5. In the event of the termination of
this Agreement, Article 5.1 and 5.2 will survive termination of this Agreement.
6.8 Pre-Termination Election. In the event the Employee or the Employer
does not elect to renew this Agreement for a new term, for the last 12 months of
the term hereof, the Employee and the Employer may mutually elect to convert the
Employee's duties and title under this Agreement to the duties and title of
consultant. Upon the expiration of this Agreement, the Employee may continue his
employment as a consultant.
ARTICLE 7
General Provisions
7.1 Succession. This Agreement shall inure to the benefit of and shall be
binding upon Employer, its successors and assigns. The obligations and duties of
Employee hereunder shall be personal and not assignable.
7.2 Notices. Any notices to be given hereunder by either party to the other
may be effected either by personal delivery in writing or by mail, registered or
certified, postage prepaid
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 9
with return receipt requested. Notices delivered personally shall be deemed
communicated as of actual receipt; mailed notices shall be deemed communicated
as of five (5) days after mailing. Mailed notices shall be addressed to the
parties as follows, but each party may change his address by written notice in
accordance with this paragraph:
If to Employer:
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 100
Roseville, California 95611
Attn: Secretary
If to Employee:
Thomas E. Kees
7.3 Inclusion of Entire Agreement Herein. This Agreement supersedes any and
all other agreements, either oral or in writing, between the parties hereto with
respect to the employment of the Employee by the Employer and contains all of
the covenants and agreements between the parties with respect to such employment
in any manner whatsoever with exception of such stock bonus plans, stock options
or other deferred compensation as may from time to time be granted to Employee
by action of the Board of Directors of Employer.
7.4 Law Governing Agreement. This Agreement shall be governed by and
construed in accordance with the laws of the State of California.
It is the desire and intent of the parties to this Agreement
that the provisions of this Agreement shall be enforced to the fullest
extent permissible under the laws and public policies applied in each
jurisdiction in which enforcement is sought; and that if any
particular provisions or portion of this Agreement shall adjudicated
to be invalid or unenforceable, such agreement shall be deemed amended
to delete therefrom such provision or portion adjudicated to be
invalid or unenforceable, such amendment to apply only with respect to
the operation of such provision or portion in the particular
jurisdiction in which such adjudication is made.
The parties to this Agreement recognize that the performance
of the obligations under this Agreement is special, unique and
extraordinary in character and that in the event of the
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 10
breach by Employee of the terms and conditions of this Agreement to be
performed, the Employer shall be entitled, if it so elects, to institute and
prosecute proceedings in any court of competent jurisdiction, either in law or
in equity, to obtain damages for any breach of this Agreement or to enforce the
specific performance thereof by Employee or to enjoin Employee from performing
services for any such other person, firm or corporation.
7.5 Arbitration. In the event of any dispute arising under this Employment
Agreement, including any dispute regarding the nature, scope or quality of
services provided by either party hereto, it is hereby agreed that such dispute
shall be resolved by binding arbitration to be conducted by the American
Arbitration Association (AAA), to be arbitrated in accordance with their rules
and procedures in Sacramento, California. In the event of any such arbitration,
pending resolution of the arbitration and award of costs by the arbitrator, each
party hereto shall advance one-half of the amounts, if any, requested to be
advanced to the arbitrator and/or the sponsoring organization.
7.6 Attorney's Fees and Costs. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement, the prevailing
party shall be entitled to reasonable attorney's fees, costs and necessary
disbursements in addition to any other relief to which may be entitled.
7.7 Payment of Money Due Deceased Employee. If the Employee dies prior to
the expiration of the term of employment, any money that may be due him from the
Employer under this Agreement as of the date of his death shall be paid to his
executors, administrators, heirs, personal representatives, successors, and
assigns.
7.8 Modification or Extension of Agreement. This Agreement may not be
changed, modified, released, discharged, abandoned, or otherwise amended, in
whole or in part, except in writing, signed by the Employee and the Employer,
but only after written approval of the Employer's Board of Directors. Employee
agrees that any subsequent change or changes in his duties, salary or
compensation shall not effect the validity or scope of this Agreement.
If, on the request or with the consent of Employer, Employee continues in
his employment beyond the period described in Article 1, this Agreement shall
remain in effect during continuance of such service.
<PAGE>
EMPLOYMENT AGREEMENT
LEGACY BRANDS, INC. AND
THOMAS E. KEES
Page 11
IN WITNESS WHEREOF, the parties have executed this Agreement at the
Employer's offices in Roseville, California, this ____ day of______, 1996.
EMPLOYER:
Legacy Brands, Inc.
By:--------------------------
Name:
Title:
EMPLOYEE:
By:--------------------------
Thomas E. Kees
6.7
Amendment to the Employment Agreement,
dated February 28, 1997, by and between
Legacy Brands, Inc. and Thomas E. Kees
<PAGE>
Amendment to Employment Agreement
This Amendment made effective this ___ day of February, 1997, by and among
Thomas E. Kees (the "Employee") and Legacy Brands, Inc. (the "Employer"),
amending that certain Employment Agreement dated October 30, 1996. Terms used
herein not otherwise defined shall have the meaning ascribed to them in the
Employment Agreement.
RECITALS
This Amendment is being entered into in connection with a revision to the
Employment Agreement.
NOW, THEREFORE, in consideration of the promises and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
Section 1
Section 1.1 of the Employment Agreement is hereby amended to read as
follows:
The Employer hereby Employs the Employee and the Employee hereby accepts
employment as Chairman, Preisdent and CEO of the Employer for a period of three
(3) years (the "Term") beginning on September 1, 1996 and which will
automatically be extended on the third anniversary date hereof, for an
additional twelve month period, unless canceled by either party as described
herein. Prior to the execution of this Agreement, and since September 1, 1995,
Mr. Kees was at-will employee of the Employer.
Section 2
The dates referred to in Section 4.1 of the Employment Agreement are hereby
amended to read:
For the
Period
1996-1997
1997-1998
1998-1999
Section 3
The first sentence in Section 4.6 is amended to read as follows:
The Employee is entitled to receive annually, but based on a
quarterly
<PAGE>
calculation, a certificate of vesting from the Employer evidencing the
completion of twelve months of service to the Employer calculated from September
1, 1995, in the form attached hereto as Exhibit A, which the Employee shall
deliver to the Pledge Holder, as provided in the Stock Pledge Agreement, along
with certain other documents pursuant to the terms of the Restricted Stock
Purchase Agreement in order to transfer, assign, or convey the Shares purchased
under the Restricted Stock Purchase Agreement.
Section 4
Warranties and Representations
The Employer and the Employee warrant and represent that each of them
has the requisite power and authority to enter into this Amendment, and the
Employer represents that all of the corporate action necessary for the execution
of this Amendment has been taken.
Section 5
Miscellaneous
5.1 This Amendment shall be governed by the laws of the State of
California.
5.2 This Amendment may be executed in any number of counterparts, each of
which shall be an original, but all of which together shall constitute one
instrument.
IN WITNESS WHEREOF, the parties have caused this Amendment to be executed
as of the date first written above.
EMPLOYER EMPLOYEE
Legacy Brands, Inc. Thomas E. Kees
By:
--------------------- ----------------------
Thomas E. Kees
Title: _____________________
2
6.8
Restricted Stock Purchase Agreement between
Legacy Brands, Inc. and Thomas E. Kees
Dated October 30, 1996
<PAGE>
RESTRICTED STOCK PURCHASE AGREEMENT
THIS RESTRICTED STOCK PURCHASE AGREEMENT ("Agreement") is entered into as
of__________,__________, by and between Legacy Brands, Inc., a California
corporation (the "Company"), and Thomas E. Kees (the "Purchaser").
R E C I T A L S
A. The Purchaser is a full-time employee of the Company serving as
Chairman, President and Chief Executive Officer.
B. The Board of Directors of the Company has determined that retaining the
services of the Purchaser is in the best interests of the Company and the
shareholders.
C. Equity ownership in the shares of Common Stock of the Company (the
"Shares") based upon earned years in service is considered by the Board of
Directors to be a valuable employment incentive to the Purchaser.
A G R E E M E N T
It is hereby agreed as follows:
1. PURCHASE OF SHARES AND PURCHASE PRICE. As of the date of this Agreement
and subject to the terms, conditions, provisions and limitations contained in
this Agreement, the Company shall sell, transfer, convey and assign to Purchaser
free and clear of any and all liens and charges, except as specifically set
forth herein, and the Purchaser shall acquire 4,000,000 Shares from the
Purchaser in exchange for the Purchase Price, as defined and set forth below. As
consideration for the Shares, the Purchaser shall execute a promissory note, in
the form set forth in Exhibit A, in favor of the Company in the amount of
$1,000,000 bearing interest at a rate of 6.72% per annum (the "Purchase Price").
2. PURCHASE RIGHTS, VESTING AND DEPOSIT OF SHARES. The Parties agree that
until such time as the Purchaser's right to transfer, convey and assign the
Shares has been perfected said Shares will be deposited with the Pledge Holder
pursuant to the terms and conditions of a Stock Pledge Agreement (the "Pledge
Agreement") attached hereto as Exhibit B. The Parties agree that the right to
transfer, convey and assign the Shares, or any portion thereof, will vest
quarterly, but will only be exercisable annually on each anniversary of the date
specified in Section 11, over a period of three years from such date (the
"Purchase Rights"). In no event will there be a pro-rata vesting of the Purchase
Rights hereunder, unless the Board of Directors waives this requirement. The
Board of Directors, in its sole discretion, may accelerate vesting without
regard to years of service. The Parties agree that the Purchaser's right to
acquire the
1-Stock Purchase Agreement
<PAGE>
Shares hereunder is expressly conditioned upon his continued service as an
employee under the Employment Agreement dated ________.
3. REPURCHASE RIGHTS. Once any portion of the Shares has vested and
corresponding payments have been made under the Promissory Note, or the debt has
been satisfied or forgiven, such Shares shall not be subject to repurchase by
the Company.
The Company shall have the right to repurchase any unvested portion of the
Shares (the "Repurchase Right") for the purchase price and on the terms and
conditions set forth in Section 4. In the event the Purchaser is terminated for
other than cause pursuant to the Employment Agreement between the Purchaser and
the Company, and a portion of the Shares has vested, but the Promissory Note has
neither been satisfied nor forgiven, the Purchaser shall have a period of ten
(10) days from such termination to make the necessary payments under the
Promissory Note. Failure to pay any amounts due within thirty days will subject
such Shares to repurchase by the Company.
In the event of a sale of business, Purchaser shall be deemed fully vested
and the Company shall not have any Repurchase Rights with respect to such
Shares.
4. PURCHASE PRICE, TERMS AND CONDITIONS FOR REPURCHASES. The purchase price
with respect to the exercise of a Repurchase Right shall be on the same terms as
the Purchase Right granted to the Purchaser (the "Repurchase Price"). The
Company shall notify the Purchaser, in writing, of its intent to exercise its
Repurchase Right. The Purchaser shall, within fifteen (15) days of the receipt
of such notice, deliver the Shares to be repurchased according to the
instructions of the Company. Said Shares shall be transferred to the Company
free and clear of all liens, charges or encumbrances.
5. EFFECT OF TERMINATION OF EMPLOYMENT. If the Purchaser's employment or
other relationship with the Company (or a Subsidiary) terminates, the effect of
the termination on the Purchaser's rights to acquire Shares shall be as follows:
5.1 Termination for Other than Disability, Cause or Death. If the
Purchaser ceases to be employed by, or ceases to have a relationship with, the
Company or a Subsidiary for any reason other than for disability, cause or
death, the Purchase Rights pursuant described in Section 2 shall expire not
later than one (1) month after the Company issues a certificate of vesting to
the Purchaser. During such one (1) month period and prior to the expiration of
the Purchase Right, the Purchaser may exercise any right to purchase Shares
granted to him, but only to the extent and in such amount that such right
existed on the date of termination of his employment or relationship. The
decision as to whether a termination for a reason other than disability, cause
or death has occurred shall be made by the Board of Directors, whose decision
shall be final and conclusive, except that employment shall not be considered
terminated in the case of sick leave or other bona fide leave of absence
approved by the Company.
2-Stock Purchase Agreement
<PAGE>
5.2 Disability. If the Purchaser ceases to be employed by, or ceases
to have a relationship with, the Company or a Subsidiary by reason of disability
(within the meaning of Internal Revenue Code Section 22(e)(3)), the Purchaser
shall be deemed to be fully vested and shall be entitled to all of the Shares
hereunder conditioned upon payment in full, or satisfaction, of the Promissory
Note. The decision as to whether a termination by reason of disability has
occurred shall be made by the Board of Directors, whose decision shall be final
and conclusive.
5.3 Termination for Cause. If the Purchaser's employment by, or
relationship with, the Company or a Subsidiary is terminated for cause, that
portion of the Purchase Rights which has not vested shall expire immediately and
any Shares that have not vested and been paid for shall be forfeited and any
remaining balance due under the Promissory Note shall be canceled; provided,
however, the Board of Directors may, in its sole discretion, within thirty (30)
days of such termination, waive the expiration of the Purchase Rights by giving
written notice of such waiver to the Purchaser at such Purchaser's last known
address. In the event of such waiver, the Purchaser may exercise the Purchase
Rights only to such extent, for such time, and upon such terms and conditions as
if such Purchaser had ceased to be employed by, or ceased to have a relationship
with, the Company or a Subsidiary upon the date of such termination for a reason
other than disability, cause or death. In addition, the Company shall have up to
thirty (30) days after the date of termination to exercise its Repurchase Rights
to the Shares, or any portion thereof, or to waive such rights and provide
notice of such exercise or waiver to the Pledge Holder. Termination for cause
shall include any conduct so defined by the Employment Agreement between the
Company and the Purchaser, or any conduct detrimental to the interests of the
Company or a Subsidiary. The determination of the Board of Directors with
respect to whether a termination for cause has occurred shall be final and
conclusive. The Purchaser agrees to waive any right to a judicial determination
of termination under this Article 5.3.
5.4 Death of an Purchaser. If an Purchaser ceases to be employed by,
or ceases to have a relationship with, the Company by reason of death, the
Purchaser shall be deemed to be fully vested and shall be entitled to all of the
Shares hereunder conditioned upon the payment in full, or satisfaction, of the
Promissory Note. The Purchase Rights shall expire six (6) months after the
Company issues a certificate of vesting to the Purchaser, or his heirs, or his
estate. The Purchase Rights may be transferred by will or the applicable laws of
descent and distribution, but only to the extent such rights were exercisable on
the date Purchaser ceased to be employed by, or ceased to have a relationship
with, the Company or a Subsidiary by reason of death.
6. TRANSFERABILITY OF PURCHASE RIGHTS. The Purchase Rights shall not be
transferable, either voluntarily or by operation of law, otherwise than by will
or the laws of descent and distribution, and shall be exercisable during the
Purchaser's lifetime only by Purchaser.
7. TRANSFERABILITY OF SHARES. The Purchaser may transfer, assign or convey
Shares only upon delivery of a certificate of vesting, an opinion of legal
counsel to the Company, a certificate from the Company verifying that payment or
satisfaction has been made under the
3-Stock Purchase Agreement
<PAGE>
Promissory Note, and a certificate from the Company waiving its Repurchase
Rights to the Pledge Holder. Pursuant to the terms of the Employment Agreement
by and between the Company and the Purchaser, the Purchaser shall be entitled to
receive annually, based on a quarterly calculation, a certificate of vesting
from the Employer, but shall only be able to dispose of vested Shares upon each
anniversary of the date specified in Section 11. The opinion of legal counsel
required hereunder shall certify that such transfer of Shares will not result in
a violation of state and/or federal law, or the rulings and regulations of any
governmental body. Within ten days of receipt of the certificate of vesting,
opinion of legal counsel, certificate of payment of the Promissory Note and
certificate of waiver from the Purchaser, the Pledge Holder shall deliver the
designated Shares to the Purchaser. The Company may waive any of the foregoing
requirements and in such event shall notify the Pledge Holder of the same.
8. CANCELLATION OF INDEBTEDNESS; REFUND OF PURCHASE PRICE. In the event the
Board of Directors, or Employer, decides to forgive any indebtedness in
connection with the promissory notes executed in connection with this Agreement
by a person who has entered into an Employment Agreement with the Company, then
any person then under an Employment Agreement that has made the required
payments for vested Shares shall be entitled to a refund of the Purchase Price,
or any portion thereof, payable in cash or equity securities of the Company.
9. ADJUSTMENTS UPON CHANGES IN CAPITALIZATION. As used herein, the term
"Adjustment Event" means an event pursuant to which the outstanding Shares of
the Company are increased, decreased or changed into, or exchanged for a
different number or kind of shares or securities, without receipt of
consideration by the Company, through reorganization, merger, recapitalization,
reclassification, stock split, reverse stock split, stock dividend, stock
consolidation or otherwise. Upon the occurrence of an Adjustment Event, (i)
appropriate and proportionate adjustments shall be made to the number and kind
and price for the shares subject to the Purchase Rights, and (ii) appropriate
amendments to this Agreement shall be executed by the Company and Purchaser if
the Board of Directors determines that such an amendment is necessary or
desirable to reflect such adjustments. If determined by the Board of Directors
to be appropriate, in the event of an Adjustment Event which involves the
substitution of securities of a company other than the Company, the Board of
Directors shall make arrangements for the assumptions by such other corporation
of the Purchase Rights. Notwithstanding the foregoing, any such adjustment to
the Purchase Rights shall be made without change in the total price applicable
to the unvested portion of the Purchase Rights, but with an appropriate
adjustment to the number of shares, kind of shares and price for each share
subject to the Purchase Rights. The determination by the Board of Directors as
to what adjustments, amendments or arrangements shall be made pursuant to this
Section 9, and the extent thereof, shall be final and conclusive. No fractional
Shares shall be issued on account of any such adjustment or arrangement.
10. NO RIGHTS TO CONTINUED EMPLOYMENT OR RELATIONSHIP. Nothing contained in
this Agreement shall obligate the Company to employ or have another relationship
with Purchaser for any period or interfere in any way with the right of the
Company to reduce Purchaser's compensation or to terminate the employment of or
relationship with Purchaser at any
4-Stock Purchase Agreement
<PAGE>
time. The Employment Agreement, incorporated herein by reference, by and between
the Company and the Purchaser contains all the terms and conditions of
employment.
11. TIME OF VESTING. The time the Purchase Rights shall be deemed vested,
sometimes referred to herein as the "date of vesting," shall be quarterly over a
period of three years from September 1, 1995.
12. PRIVILEGES OF STOCK OWNERSHIP. Purchaser shall be entitled to the
privileges of stock ownership as of the date of this Agreement as to all Shares
to be issued and delivered to Purchaser pursuant to this Agreement. No Shares
shall be transferred by the Purchaser upon the exercise of any Purchase Rights
unless and until, in the opinion of the Company's counsel, any then applicable
requirements of any laws, or governmental or regulatory agencies having
jurisdiction, and of any exchanges upon which the stock of the Company may be
listed shall have been fully complied with.
13. SECURITIES LAWS COMPLIANCE. The Company will diligently endeavor to
comply with all applicable securities laws before any stock is issued pursuant
to this Agreement. Without limiting the generality of the foregoing, the Company
may require from the Purchaser such investment representation or such agreement,
if any, as counsel for the Company may consider necessary in order to comply
with the Securities Act of 1933 as then in effect, and may require that the
Purchaser agree that any sale of the Shares will be made only in such manner as
is permitted by the Board of Directors. The Purchaser shall take any action
reasonably requested by the Company in connection with registration or
qualification of the Shares under federal or state securities laws.
14. SHARES SUBJECT TO LEGEND. If deemed necessary by the Company's counsel,
all certificates issued to represent Shares purchased upon exercise of the
Purchase Rights shall bear such appropriate legend conditions as counsel for the
Company shall require.
15. CONDITIONS TO PURCHASE RIGHTS.
15.1 Compliance with Applicable Laws. The Company's obligation to
issue Shares is expressly conditioned upon the completion by the Company of any
registration or other qualification of such Shares under any state and/or
federal law or rulings or regulations of any governmental regulatory body, or
the making of such investment representations or other representations by the
Purchaser or any person entitled to exercise the Purchase Rights in order to
comply with the requirements of any exemption from any such registration or
other qualification of Shares which the Board of Directors shall, in its sole
discretion, deem necessary or advisable. Such required representations and
undertakings may include representations and agreements that the Purchaser or
any person entitled to exercise the Purchase Rights (i) is not purchasing such
Shares for distribution, and (ii) agrees to have placed upon the face and
reverse of any certificates a legend setting forth any representations and
undertakings which have been given to the Board of Directors or a reference
thereto.
5-Stock Purchase Agreement
<PAGE>
15.2 Board of Directors Approval of Agreement. If the Purchase Rights
granted hereby are granted prior to approval of this Agreement by the Board of
Directors of the Company, the grant of the Purchase Rights made hereby is
expressly conditioned upon and such Purchase Rights shall not be exercisable
until the approval of this Agreement by the Board of Directors of the Company.
15.3 Maximum Exercise Period. Notwithstanding any provision of this
Agreement to the contrary, the Purchase Rights shall expire no later than six
years from the date hereof or five years if, as of the date hereof, the
Purchaser owns or is considered to own by reason of Internal Revenue Code
Section 424(d) more than 10% of the total combined voting power of all classes
of stock of the Company or any Subsidiary or parent corporation of the Company.
15.4 Opinion of Counsel. The Company's obligation to issue Shares to
the Purchaser is expressly conditioned upon the receipt of an opinion from
counsel to the Company certifying that the issuance of Shares and exercise of
Purchase Rights is not in violation of any state and/or federal law or rulings
or regulations of any governmental body.
16. MISCELLANEOUS.
16.1 Binding Effect. This Agreement shall bind and inure to the
benefit of the successors, assigns, transferees, agents, personal
representatives, heirs and legatees of the respective parties.
16.2 Further Acts. Each party agrees to perform any further acts and
execute and deliver any documents which may be necessary to carry out the
provisions of this Agreement.
16.3 Amendment. This Agreement may be amended at any time by the
written agreement of the Company and the Purchaser.
16.4 Syntax. Throughout this Agreement, whenever the context so
requires, the singular shall include the plural, and the masculine gender shall
include the feminine and neuter genders. The headings and captions of the
various Sections hereof are for convenience only and they shall not limit,
expand or otherwise affect the construction or interpretation of this Agreement.
16.5 Interpretation. Any conflict between the provisions of this
Agreement and the Employment Agreement between the Company and the Purchaser
shall be governed by the Employment Agreement.
16.6 Choice of Law. The parties hereby agree that this Agreement has
been executed and delivered in the State of California and shall be construed,
enforced and governed by the laws thereof. This Agreement is in all respects
intended by each party hereto to be deemed and construed to have been jointly
prepared by the parties and the parties hereby expressly agree
6-Stock Purchase Agreement
<PAGE>
that any uncertainty or ambiguity existing herein shall not be interpreted
against either of them.
16.7 Severability. In the event that any provision of this Agreement
shall be held invalid or unenforceable, such provision shall be severable from,
and such invalidity or unenforceability shall not be construed to have any
effect on, the remaining provisions of this Agreement.
16.8 Notices. All notices and demands between the parties hereto shall
be in writing and shall be served either by registered or certified mail, and
such notices or demands shall be deemed given and made forty-eight (48) hours
after the deposit thereof in the United States mail, postage prepaid, addressed
to the party to whom such notice or demand is to be given or made, and the
issuance of the registered receipt therefor. If served by telegraph, such notice
or demand shall be deemed given and made at the time the telegraph agency shall
confirm to the sender, delivery thereof to the addressee. All notices and
demands to Purchaser or the Company may be given to them at the following
addresses:
If to Purchaser:
Thomas E. Kees
If to Company:
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 100
Roseville, California 95661
Such parties may designate in writing from time to time such other place or
places that such notices and demands may be given.
16.9 Entire Agreement. This Agreement constitutes the entire agreement
between the parties hereto pertaining to the subject matter hereof, this
Agreement supersedes all prior and contemporaneous agreements and understandings
of the parties, and there are no warranties, representations or other agreements
between the parties in connection with the subject matter hereof except as set
forth or referred to herein. No supplement, modification or waiver or
termination of this Agreement shall be binding unless executed in writing by the
party to be bound thereby. No waiver of any of the provisions of this Agreement
shall constitute a waiver of any other provision hereof (whether or not similar)
nor shall such waiver constitute a continuing waiver.
16.10 Arbitration. In the event of any dispute arising under this
Agreement, including any dispute regarding the nature or scope of any Purchase
Rights hereunder, it is hereby
7-Stock Purchase Agreement
<PAGE>
agreed that such dispute shall be resolved by binding arbitration to be
conducted by the American Arbitration Association (AAA), to be arbitrated in
accordance with their rules and procedures in Sacramento, California. In the
event of any such arbitration, pending resolution of the arbitration and award
of costs by the arbitrator, each party hereto shall advance one-half of the
amounts, if any, requested to be advanced to the arbitrator and/or the
sponsoring organization.
16.11 Attorneys' Fees. In the event that any party to this Agreement
institutes any action or proceeding, including, but not limited to, litigation
or arbitration, to preserve, to protect or to enforce any right or benefit
created by or granted under this Agreement, the prevailing party in each
respective such action or proceeding shall be entitled, in addition to any and
all other relief granted by a court or other tribunal or body, as may be
appropriate, to an award in such action or proceeding of that sum of money which
represents the attorneys' fees reasonably incurred by the prevailing party
therein in filing or otherwise instituting and in prosecuting or otherwise
pursuing or defending such action or proceeding, and, additionally, the
attorneys' fees reasonably incurred by such prevailing party in negotiating any
and all matters underlying such action or proceeding and in preparation for
instituting or defending such action or proceeding.
IN WITNESS WHEREOF, the parties have entered into this Agreement as of the
date first set forth above.
"COMPANY"
LEGACY BRANDS, INC.
a California corporation
By:--------------------------
"PURCHASER"
--------------------------
Thomas E. Kees
8-Stock Purchase Agreement
<PAGE>
EXHIBIT A
PROMISSORY NOTE
<PAGE>
EXHIBIT B
STOCK PLEDGE AGREEMENT
FORM OF PROMISSORY NOTE ISSUED IN CONNECTION
WITH THE RESTRICTED STOCK PURCHASE AGREEMENT
Dated as of
Amount : $1,000,000 ___________, 1996
FOR VALUE RECEIVED, the undersigned Thomas E. Kees ("Maker"),
promises to pay to the order of Legacy Brands, Inc. ("Lender"), the principal
sum of $1,000,000 ("Principal"), together with interest on the unpaid principal
balance ("Amount Owed") on the third anniversary of the first issuance of a
certificate of vesting by Lender to Maker (the "Maturity Date"), except as set
forth in Section 3 below.
1. Interest Rate.
The unpaid principal under this Promissory Note shall bear
interest at a rate of six and seventy-two hundredths (6.72%) percent per annum
simple interest. (6.72% is the October , 1996 Mid Term Applicable Federal Rate
listed in Revenue Ruling 96-49)
2. Computation.
Interest chargeable hereunder shall be calculated from the
date Lender issues a certificate of vesting to Maker, and on the basis of a
three hundred sixty (360) day year for the actual number of days elapsed. Such
interest shall be calculated based upon vested shares of Common Stock for which
the Maker has received a vesting certificate from the Lender based upon an
anticipated reverse stock split of 1:10. If for any reason the stock split does
not take place, or the capitalization of the Lender changes the principal
hereunder will be changed accordingly. Interest not paid when due shall be added
to the unpaid principal balance and shall thereafter bear interest at the same
rate as principal. All payments (including prepayments) hereunder are to be
applied first to the payment of accrued interest and the balance remaining
applied to the payment of principal.
3. Payments.
Except as otherwise set forth herein, the unpaid principal
under this Promissory Note plus all accrued but unpaid interest thereon shall be
payable upon the Maturity Date. The Maker is obligated to pay only that portion
of the Principal for which he has received a vesting certificate.
4. Voluntary Prepayment.
Maker may, at any time, upon five (5) Business Days prior
written notice
<PAGE>
to Lender, prepay the unpaid Amount Owed evidenced by this Promissory Note, in
whole or in part, without penalty or premium, by paying to Lender, in cash or by
wire transfer or immediately available federal funds, the amount of such
prepayment. If any such prepayment is less than a full repayment, then such
prepayment shall be applied first to the payment of accrued interest and the
balance remaining applied to the payment of principal.
5. Lawful Money; Designated Places of Payment.
All principal and interest due hereunder is payable in lawful
money of the United States of America, in immediately available funds, at
Lender's designated address not later than 6:00 p.m., Pacific time, on the
Maturity Date.
6. Waivers.
Except as set forth elsewhere herein, Maker, for itself and
its legal representatives, successors, and assigns, expressly waives
presentment, protest, demand, notice of dishonor, notice of nonpayment, notice
of maturity, notice of protest, notice of intent to accelerate, notice of
acceleration, presentment for the purpose of accelerating maturity, and
diligence in collection.
7. Default.
Maker will be in default if any of the following happens: (a)
Maker fails to perform at the time and strictly in the manner provided in this
Note, (b) Maker becomes insolvent, a receiver is appointed for any part of
Maker's property, Maker makes an assignment for the benefit of creditors, or any
proceeding is commenced either by Maker or against Maker under any bankruptcy or
insolvency laws, (c) any failure in the performance or observance of the Stock
Pledge Agreement dated ____, by and between Maker and Lender and (d) Any
creditor tries to take any of Maker's property on or in which Lender has a lien
or security interest. It is expressly agreed that, upon the occurrence of an
event of default, as defined herein, the unpaid principal balance of this
promissory note, together with interest accrued hereon, shall be due and payable
without presentment, demand, protest, or notice of protest, all of which are
hereby expressly waived.
8. Termination.
In the event Lender terminates Maker pursuant to the
Employment Agreement between the parties, Maker is released from the obligation
to pay the Amount Owed with respect to shares which have not vested as of the
date of termination.
PROMISSORY NOTE
PAGE 2 OF 4
<PAGE>
9. Cancellation.
In the event Lender becomes insolvent, a receiver is appointed
for any part of Lender's property, Lender makes an assignment for the benefit of
creditors, or any proceeding is commenced either by Lender or against Lender
under any bankruptcy or insolvency laws, or any creditor tries to take any of
Lender's property on or in which creditor has a lien or security interest, the
parties agree that this promissory Note shall be canceled in its entirety.
10. Attorneys' Fees.
In the event it should become necessary to employ counsel to
collect this Promissory Note, Maker agrees to pay the reasonable attorneys' fees
and costs of the holder hereof, incurred in connection with the holder's
collection efforts, irrespective of whether suit is brought.
11. Section Headings.
Headings and numbers have been set forth for convenience only.
Unless the contrary is compelled by the context, everything contained in each
paragraph applies equally to this entire Promissory Note.
12. Amendments in Writing.
This Promissory Note may be changed, modified, amended, only
by a writing signed by both parties.
13. Choice of Law.
This Promissory Note and all transactions hereunder and/or
evidenced hereby shall be governed by, construed under, and enforced in
accordance with the laws of the State of California.
14. Waiver of Trial by Jury.
Maker hereby waives, to the extent permitted under applicable
law, any
PROMISSORY NOTE
PAGE 3 OF 4
<PAGE>
right to trial by jury in any action or proceeding relating to this promissory
note.
Made and Executed at
____________________
Date
____________________
By
----------------------
Thomas E. Kees
PROMISSORY NOTE
PAGE 4 OF 4
6.10
BRIDGE LOAN AND CONSULTING AGREEMENT
BY AND BETWEEN PACIFIC ACQUISITION GROUP, INC.
AND GREG PLUNKETT, INC. DATED DECEMBER 20, 1995
[TO COME]
6.11
ADDENDUM TO THE BRIDGE LOAN AND CONSULTING AGREEMENT
BY AND BETWEEN PACIFIC ACQUISITION GROUP, INC.
AND GREG PLUNKETT, INC. DATED DECEMBER 20, 1995, OF MAY 15, 1996
[TO COME]
6.12
SECOND AMENDED AND RESTATED BRIDGE LOAN AND CONSULTING AGREEMENT
BY AND BETWEEN PACIFIC ACQUISITION GROUP, INC.
AND LEGACY BRANDS, INC., DATED JUNE, 1997
[TO COME]
6.13
INVESTMENT BANKING COMPENSATION AGREEMENT BETWEEN
GREG PLUNKETT, INC. AND STEVE JIZMAGIAN AND RANDY HAAG DATED MARCH 7, 1995
[TO COME]
6.14
AGREEMENT FOR TERMINATION, RELEASE AND WAIVER OF RIGHTS
BETWEEN LEGACY BRANDS, INC., STEVE JIZMAGIAN, RANDY HAAG,
MICHAEL J. STASKUS AND THOMAS O'STASIK, SR. DATED
[TO COME]
6.15
COMMON STOCK PURCHASE WARRANT ISSUED IN CONNECTION WITH THE
TERMINATION, RELEASE AND WAIVER OF RIGHTS BETWEEN
LEGACY BRANDS, INC. AND STEVE JIZMAGIAN AND RANDY HAAG
AND MICHAEL J. STASKUS AND THOMAS O'STASIK
<PAGE>
THE SECURITIES REPRESENTED BY THIS WARRANT HAVE BEEN ACQUIRED FOR INVESTMENT FOR
THE HOLDER'S OWN ACCOUNT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH
ANY DISTRIBUTION OF THE SECURITIES. THE SECURITIES HAVE NOT BEEN REGISTERED OR
QUALIFIED UNDER THE SECURITIES ACT OF 1933 ("SECURITIES ACT") OR UNDER ANY
APPLICABLE STATE SECURITIES LAWS ("BLUE SKY LAWS"). AN OFFER TO SELL OR TRANSFER
OR THE SALE OR TRANSFER OF THESE SECURITIES IS UNLAWFUL UNLESS MADE PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR PERMIT, AS APPLICABLE, UNDER THE
SECURITIES ACT OR APPLICABLE BLUE SKY LAWS OR UNLESS AN EXEMPTION FROM
REGISTRATION AND/OR QUALIFICATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE
SKY LAWS IS AVAILABLE AND AN OPINION OF COUNSEL OR OTHER EVIDENCE REASONABLY
SATISFACTORY TO THE COMPANY IS PROVIDED TO THE COMPANY TO THE EFFECT THAT SUCH
REGISTRATION OR QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT AND
APPLICABLE BLUE SKY LAWS.
Warrant No. 97-
COMMON STOCK PURCHASE WARRANT
, 1997
THIS CERTIFIES THAT, for value received, Randy Haag ("Warrantholder")
is entitled to subscribe for and purchase from Legacy Brands, Inc., a California
corporation (the "Company"), that number of shares of the Company's Common
Stock, no par value, established in Section 4 (b) hereof at the Exercise Price
(as hereafter determined) at any time from the date hereof to and including the
Expiration Date (as defined below), subject to the terms and conditions stated
herein. For purposes of this Warrant, the term "Expiration Date" shall mean 5:00
p.m. Pacific time on March 6, 1998; provided, however, that such date shall be
extended for a period of time equal to the period(s) of any delays in
registration as provided in Section 8(b).
1. Exercise of Warrant.
(a) The rights represented by this Warrant may be exercised,
in whole or in part (subject to the minimum exercise limitation set forth in
this Section 1), by the holder hereof ninety (90) days after the termination of
the Company's private equity offering which is expected to terminate no later
than October 31, 1997 pursuant to a Private Placement Memorandum dated June 18,
1997 (the "Commencement Date"), but on or before the
1
<PAGE>
Expiration Date by the surrender of this Warrant and delivery of an executed
Subscription Agreement in the form attached hereto as Exhibit A to the Company
at its principal executive office, or such other place as the Company shall
designate in writing, accompanied by payment for the Warrant Stock (as defined
in Section 10) so subscribed for in cash or check, in good funds. In the event
of a partial exercise of this Warrant, a substitute Warrant representing the
number of shares of Warrant Stock which were not acquired upon the exercise of
the Warrant shall be issued to the holder of this Warrant. No exercise of this
Warrant may be made for less than one-fourth of the number of shares of Warrant
Stock initially subject to this Warrant or such lesser number as shall then
constitute the balance of shares purchasable hereunder.
2. Investment Representation. The holder by accepting this Warrant
represents that the Warrant is acquired for the holder's own account for
investment purposes and not with a view to any offering or distribution and that
the holder has no present intention of selling or otherwise disposing of the
Warrant or the Warrant Stock in violation of applicable securities laws. Upon
exercise, the holder will confirm, in respect of securities obtained upon such
exercise, that the holder is acquiring such securities for the holder's own
account and not with a view to any offering or distribution in violation of
applicable securities laws. The holder acknowledges that the certificate(s)
representing the Warrant Stock issued upon exercise of this Warrant shall be
endorsed with the legend set forth on this Warrant and all other legends, if
any, required by applicable federal, state and foreign securities laws to be
placed on the certificate(s).
3. Validity of Warrant Stock. The Company warrants and agrees that all
shares of Warrant Stock which may be issued upon the exercise of this Warrant
will, upon issuance, be validly issued, fully paid and nonassessable and free
from all taxes, liens and charges with respect to the issue thereof. The Company
further warrants and agrees that during the period within which this Warrant may
be exercised, the Company will at all times have authorized and reserved a
sufficient number of shares of Warrant Stock to provide for the exercise of this
Warrant.
4. Exercise Price; Number of Warrant Shares; and Manner of Payment.
(a) The Exercise Price shall be $1.00, subject to adjustment
pursuant to this Section 4.
(b) The number of shares of Warrant Stock to be issued upon
exercise of this Warrant shall be 60,000, whereas the Warrantholder previously
assigned 2,500 shares of Warrant Stock to Donna Sizemore.
(c) Upon occurrence of any of the following, the Exercise
Price and the number of shares of Warrant Stock to be issued upon exercise of
this Warrant shall be adjusted as follows:
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(i) If at any time after the date hereof the number
of shares of Common Stock outstanding is increased by a stock dividend
payable in shares of Common Stock or by a subdivision or split-up of
shares of Common Stock, then, on the record date of such stock
dividend, subdivision, or split-up, the Exercise Price shall be
appropriately decreased and the number of shares of Warrant Stock
issuable on exercise of this Warrant shall be appropriately increased
in proportion to such increase of outstanding shares.
(ii) If at any time after the date hereof the number
of shares of Common Stock outstanding is decreased by a combination of
the outstanding shares of Common Stock, then, on the effective date of
such combination, the Exercise Price shall be appropriately increased
and the number of shares of Warrant Stock issuable on exercise of this
Warrant shall be appropriately decreased in proportion to such decrease
in outstanding shares.
(d) All calculation under this Section 4 shall be made to the
nearest cent or to the nearest whole share, as the case may be. No fractional
shares of Warrant Stock shall be issued upon exercise of this Warrant. Any
fractional shares of Warrant Stock which might otherwise be issued upon exercise
of this Warrant shall be rounded to the nearest whole share (with one-half
rounded up).
(e) If the Exercise Price shall be adjusted, the Company shall
prepare and mail to the holder hereof a certificate setting forth the event
requiring the adjustment, the amount of the adjustment, the method by which the
adjustment was calculated, and (after giving effect to the adjustment) the
Exercise Price.
(f) A calculation of any adjustment under this Section 4
evidenced by a certificate of any firm of independent certified public
accountants of recognized standing selected by the Company and satisfactory to
the holder hereof (which may be the firm of independent certified public
accountants regularly employed by the Company) shall be presumed a correct
calculation of the adjustment for purposes of this Section 4. The foregoing
presumption shall constitute a rebuttable presumption, with the party disputing
the calculation bearing the burden of proving the incorrectness of the
calculation.
5. Notice of Certain Events. If at any time:
(a) The Company shall declare any dividend upon the Common
Stock, whether payable in cash, property or capital stock, or make any
distribution to the holders of Common Stock;
(b) There shall be any recapitalization or reclassification
of the capital stock of the Company, or consolidation or merger of the Company
with another corporation;
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(c) There shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Company; or
(d) The Company shall propose to enter into a transaction not
covered by the preceding paragraphs (a) through (c),
then, in each case, the Company shall give to the holder of this Warrant, at the
holder's address registered on the books of the Company, not less than 20 days'
prior written notice of the proposed event, by first class certified mail,
postage prepaid and return receipt requested, of (i) the date on which the books
of the Company shall close or a record shall be taken for purposes of
ascertaining which stockholders will be entitled to vote on such
reclassification, reorganization, consolidation, merger, dissolution,
liquidation or winding up, as the case may be; (ii) the date on which the vote
shall be taken concerning such reclassification, reorganization, consolidation,
merger, dissolution, liquidation or winding up, as the case may be; and (iii)
the date on which such dividend or distribution is to be paid or such
reclassification, reorganization, consolidation, merger, dissolution,
liquidation or winding up, as the case may be, is to be effective. Such notice
shall also specify the date as of which the record holders of capital stock of
the Company shall participate in said dividend or distribution or shall be
entitled to exchange their shares of capital stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, dissolution, liquidation or winding up, as the case may be.
6. Transfer of Warrant.
(a) Subject to Section 6 (b) below, the holder of this Warrant
agrees to give the Company not less than 20 days' prior written notice before
transferring this Warrant. The foregoing notice shall describe the manner of any
proposed transfer of this Warrant or any interest therein and the consideration
to be received by the holder.
(b) Each assignment of this Warrant shall be deemed a
partitioned right which is separately enforceable by the assignee, transferee or
other beneficiary. Each assignee, transferee or other beneficiary shall be
entitled to the full benefit of the Warrant assigned, subject to any conditions
to which the Warrant is subject and provided always that such assignee,
transferee or other beneficiary shall carry out all the obligations, liabilities
and responsibilities of the holder of the Warrant hereunder. No person, company
or other entity may enjoy the benefit of any Warrant unless it is an accredited
investor as that term is defined in Regulation D of the Securities Act of 1933,
as amended, and such party executes and delivers to the Company certain
subscription documents evidencing the investor's status and has a pre-existing
business or financial relationship with the Warrantholder.
(c) No transfer or assignment of this Warrant shall be made
without compliance with the provisions of Section 2 and the legend set forth on
the first page of this Warrant.
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(d) Notwithstanding the provisions of Section 6(b) above, this
Warrant may not be assigned, held in trust, or otherwise transferred to any
person or entity in amounts of less than one-fourth of the number of shares
subject to this Warrant.
7. No Stockholder Rights. This Warrant shall not entitle the holder
hereof to any voting rights or other rights as a stockholder of the Company, or
to any other rights whatsoever except the rights herein expressed, and no cash
dividend paid out of earnings or surplus or interest shall be payable or accrue
in respect of this Warrant or the interest represented hereby or the shares
which may be subscribed for and purchased hereunder until and unless and except
to the extent that the rights represented by this Warrant shall be exercised.
8. Reporting Company; Registration Rights
(a) Reporting Issuer The Company agrees to use its best
efforts to commence, on or before August 31, 1997, actions necessary to become a
"Reporting Issuer" under the Securities Exchange Act of 1934, as amended (the
"1934 Act"), and in any event shall file a Form 10 with the Securities and
Exchange Commission ("SEC") on or before December 31, 1997, if it has not become
a Reporting Issuer by such date.
(b) Registration Rights
(i) If at any time after the Commencement Date, but
before December 31, 1997, the Company proposes to register any shares of its
Common Stock under the Securities Act of 1933, as amended, (the "Act"), the
Company will give written notice of its intention to do so to Warrantholder, and
on the written request of Warrantholder given within thirty (30) days after
receipt of the notice, the Company shall use its best efforts to cause the
shares of Common Stock underlying this Warrant and/or warrants issuable to
Warrantholder pursuant to a certain Principal Selling Agreement with Capitol Bay
Securities ("Selling Agreement Warrants") and shares of Common Stock underlying
such Selling Agreement Warrants or such portion thereof as shall be included in
the notice provided by Warrantholder (the "Piggy-Back Registerable Securities"),
to be included with the securities to be registered under the Act. Such request
by Warrantholder hereby shall be referred to as a "Piggy-Back Registration"
request. The Company shall keep such registration covering the Registerable
Securities effective for a period of twelve (12) months. The Company shall give
written notice to Warrantholder of the proposed filing of such a registration
statement at least thirty (30) days prior to such filing during the period
referred to in this Section 8(b)(i) and a prompt written notice of the proposed
filing of amendments to such registration statement. Warrantholder shall be
limited to one such "Piggy-Back Registration" request. The Company shall not be
obligated to include the Piggy-Back Registerable Securities in the registration
statement if such registration statement covers only securities on behalf of the
Company and if the Underwriter, in its sole discretion, determines that the sale
or inclusion of such shares will not materially adversely affect the success of
a current or proposed offering of the Company (the
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"Offering"), provided that the Underwriter shall not unreasonably withhold its
consent to the inclusion of Warrantholder's shares in the registration
statement. Warrantholder will be deemed to have waived its rights to a
Piggy-Back Registration in a particular Offering if it does not provide timely
notice to the Company of its intention to include the shares in the registration
statement and the registration statement is declared effective by the SEC. For
the purposes of this Section 8(b)(i), the term, the Underwriter, shall include
the representatives of the Underwriters in the proposed Offering and any other
Underwriter or investment banker with which the Company has or may have a
contractual relationship from time to time.
(ii) In the event and to the extent that the
Piggy-Back Registrable Securities have not been included in a registration
statement filed under the Act by December 31, 1997, the Warrantholder shall for
a period of two years thereafter have the following registration rights on two
occasions only. If the Warrantholder requests ("Demand Registration Request")
that the Company file a registration statement under the Act ("Registration
Statement"), the Company agrees to use its best efforts to file a Registration
Statement covering the shares of Common Stock underlying this Warrant, the
Selling Agreement Warrants, shares of Common Stock underlying the Selling
Agreement Warrants and Warrants issued to Steve Jizmagian, Thomas O'Stasik, Jr.
and Michael J. Staskus ("Demand Registrable Securities") if so requested and to
obtain effectiveness thereof, to file post-effective amendments, and to make
appropriate qualifications under federal and state securities laws as may be
requested except in any jurisdiction where the Company would be required to
execute a general consent to service of process unless otherwise required to do
so by the Act or any applicable law. Messrs. Jizmagian, Staskus and O'Stasik
have appointed Randy Haag to act as their agent for all purposes and have
granted an unrestricted and irrevocable power of attorney to the Warrantholder
in connection with the exercise of the Demand Registration Rights and any and
all acts pertaining thereto. The Company shall keep such Registration Statement
effective for a period of twelve (12) months. Such rights are hereinafter
referred to as the "Demand Registration Rights." The Company shall be obligated
to file a Registration Statement and include the Demand Registrable Securities,
or any part thereof, only if the Underwriter, as herein defined, determines, in
its sole discretion, that the filing of a Registration Statement and inclusion
of such Demand Registrable Securities will not have a material adverse affect on
a current or proposed offering of the Company (the "Offering"), provided that
the Underwriter shall not unreasonably withhold its consent to the inclusion of
the Demand Registrable Securities in the registration statement and that such
Registration Statement includes securities only on behalf of the Company and has
been filed or will be filed within sixty days of the Company's receipt of a
Demand Registration request. The Demand Registration Rights may be delayed by
the Company for a period of sixty days on one occasion only every twelve months,
except in the event of an IPO. To the extent the Underwriter shall determine not
to include some or all of the Demand Registrable Securities, then the Demand
Registration Rights shall continue to be in force and effect as to such Demand
Registrable Securities which has not been registered. In the event the Company
has filed a Registration Statement under the Act pursuant to an initial public
offering of its
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securities ("IPO") or will do so within sixty days of its receipt of a Demand
Registration request, the Company shall have the right to delay the exercise of
the Demand Registration Rights until the completion of the Company's IPO; but in
no event shall such delay exceed an aggregate of one hundred twenty (120) days.
The Warrantholder shall not be entitled to more than one Demand Registration
request in any one fiscal year of the Company. For the purposes of this Section
8(b)(ii), the term, the Underwriter, shall include the representatives of the
Underwriters in the proposed Offering and any other Underwriter or investment
banker with which the Company has or may have a contractual relationship from
time to time.
In the event of an IPO whereby only securities on behalf of the
Company are being registered and not those of any selling shareholder, the
Warrantholder agrees not to sell, transfer, or otherwise dispose of any Warrant
Stock or Registrable Securities for a period of one hundred eighty (180) days
and shall enter into a customary lock-up agreement required by the Underwriter.
The Warrantholder agrees that stop transfer instructions may be given to the
Company's transfer agent regarding the foregoing lock-up arrangement.
(c) Information and Documents In the event the Company shall
be required by the provisions of this Section 8 to effect the registration of
any securities, the Warrantholder shall furnish, in writing, such information as
is reasonably requested by the Company or the Underwriter or their
representatives, including their representative legal counsel and accountants,
for inclusion in the Registration Statement relating to such Offering and such
other information and documentation as the Company shall request. In addition,
the Warrantholder shall execute and deliver such agreements certifications and
other documents, including, without limitation, selling shareholder
instructions, powers-of-attorney, and custody agreements, as the Company or
Underwriter may reasonably request. The Company's obligation to register any
securities hereunder shall be subject to the fulfilment of the duty of the
Warrantholder to cooperate fully with the Company and the Underwriter and their
representatives in the preparation of the Registration Statement covering any
securities registrable pursuant to Section 8.
(d) Expenses. All expenses incurred in connection with any
registration under this Section 8, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and expenses of any special
audits incident to or required by any such registration are herein called
"Registration Expenses." All underwriting discounts and selling commissions
applicable to any sales of securities herein are called "Selling Expenses." The
Company will pay all Registration Expenses in connection with any registration
pursuant to this Section 8. To the extent allowed by law, the Company shall bear
the Selling Expenses. Otherwise, all Selling Expenses in connection with any
registration pursuant to Section 8 shall be borne by the Company, the
Warrantholder and any other shareholders whose shares are to be included in the
Registration Statement, pro rata in proportion to the shares registered thereby
being sold or registered by each of them. The Warrantholder shall bear the fees
and costs of its own counsel.
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(e) Prospectus Delivery The Warrantholder shall comply with
the prospectus delivery requirements of federal or state securities laws in
connection with any registration. If any prospectus becomes outdated,
inaccurate, or misleading, any Warrantholder shall cease using all such
prospectuses upon notice thereof from the Company and shall return all copies of
such prospectuses under control of such person to the Company.
(f) "Market Stand-off" Agreement The Warrantholder shall not
sell or otherwise transfer or dispose of any Registrable Securities or any other
shares of Common Stock held by such persons, for a period of 180 days in
connection with any IPO of the Company covering only the Company's securities
and not those of any selling shareholder. The Warrantholder shall seek the
written consent of the Underwriter to transfer, convey or assign any securities
of the Company during the 180 day period specified above.
(g) No Registration Required The Company shall not be required
to effect a registration under this Section 8 if the Warrantholder would
otherwise be able to publicly sell the number of shares sought to be registered
at the time of the registration without registration pursuant to Rule 144
promulgated by the SEC as then in effect or pursuant to any other exemption from
the registration provisions of the Act then available to the Warrantholder
(collectively referred to as "Rule 144") so long as the purchaser thereof shall
acquire shares that are not subject to any restriction on resale as may
otherwise be imposed pursuant to Rule 144.
(h) Termination of Rights The Company's obligations to
register the Registrable Securities pursuant to this Section 8 shall cease and
terminate as to the Registrable Securities upon the occurrence of either of the
following: (i) the registration of the Registrable Securities under the Act
pursuant to the provisions of this Warrant; or (ii) at any time the Registrable
Securities become freely transferable without registration under the Act. Upon
becoming subject to the reporting requirements of the 1934 Act, the Company
agrees to use its best efforts to make Rule 144 available to the Warrantholder
and to continue do so until the expiration of the registration rights specified
in Section 8 herein.
(i) Duty to Cooperate The Company's obligations to register
the Registrable Securities shall be further contingent upon the Warrantholder
providing its full and complete cooperation to the Company in timely providing
such information, documents, certifications and representations as the Company
and its counsel or any Underwriter may determine to be necessary in order to
prepare, file and otherwise complete the registration process with respect to
the Registrable Securities.
9. No Impairment. The Company will not, by amendment of its articles of
incorporation or bylaws or through any reorganization, transfer of assets,
consolidation, merger, dissolution, or any voluntary action avoid or seek to
avoid the observance or performance of any of the terms of this Warrant.
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10. Miscellaneous Matters.
(a) As used herein, the term "Warrant Stock" shall mean the
Company's presently authorized Common Stock no par value, and stock of any other
series or class into which such presently authorized Common Stock may hereafter
have been converted or changed pursuant to any recapitalization or change in
such Common Stock.
(b) As used herein, the word "person" shall mean an
individual or entity.
(c) This Warrant and the name and address of the holder will
be registered in a Warrant Register that is kept at the principal office of the
Company, and the Company may treat the holder so registered as the owner of this
Warrant for all purposes.
(d) This Warrant shall be governed by and interpreted in
accordance with the internal laws, and not the law of conflicts, of the State of
California.
(e) Successors and assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Warrant by or on
behalf of any of the parties hereto shall bind and inure to the benefit of
respective successors and assigns of the parties to the extent permitted by law.
(f) Attorney Fees. In the event arbitration, suit or action is
brought by any party under this Warrant to enforce any of its terms, and in any
appeal therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys' fees to be fixed by the arbitrator, trial court, or
appellate court.
(g) Savings Clause. If any provision of this Warrant, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Warrant, or the application of such provision to
persons or circumstances other than those as to which it is held invalid, shall
not be affected thereby.
(h) Specific Performance. Each party's obligation under this
Warrant is unique. If any party should default in its obligations under this
Warrant, the parties each acknowledge that it may be extremely impracticable to
measure the resulting damages; accordingly, the non-defaulting party, in
addition to any other rights or remedies available, may sue in equity for
specific performance, and upon satisfactory proof thereof, it may be entitled to
obtain such specific performance.
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IN WITNESS WHEREOF, the Company has executed this Warrant effective as
of the date first written above.
LEGACY BRANDS, INC.,
a California corporation
By:
THOMAS E. KEES, President
10
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EXHIBIT A
SUBSCRIPTION AGREEMENT
, 19
To: Legacy Brands, Inc.
The undersigned, pursuant to the provisions set forth in
Warrant No. 96- , hereby agrees to subscribe for and purchase shares of the
Warrant Stock covered by such Warrant, and makes payment herewith in full for
such Warrant Stock at the Exercise Price.
Signature:
Printed Name
and Title:
Address:
ASSIGNMENT
FOR VALUE RECEIVED hereby sells, assigns and transfers all of
the rights of the undersigned under Warrant No. 96- , with respect to the number
of shares of Warrant Stock covered thereby set forth below unto:
Name of Assignee Address No. of Shares
Dated: , 19
Signature:
Printed Name
and Title:
11
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Address:
12
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6.16
CREDIT FACILITY AGREEMENT BY AND BETWEEN
LEGACY BRANDS, INC., AND DAYSTAR, LLC
This Credit Facility Agreement (the "Agreement") is effective as of the
10th day of June, 1997 by and between Legacy Brands, Inc., a California
corporation (the "Company"), and DayStar, L.L.C. a _________ limited liability
company ("DayStar"). DayStar and the Company are collectively referred to
hereinafter as the "Parties".
RECITALS
WHEREAS, the Company is engaged in the production and marketing of
super premium branded frozen desserts and other food items;
WHEREAS, the Company is seeking funds to be used for working capital
purposes;
WHEREAS, the Company intends to raise up to $3,750,000 through an
offering of its securities in one or more private placements pursuant to one or
more exemptions from registration under applicable federal and state securities
laws and regulations (the "PPO") commencing in June 1997;
WHEREAS, the Company intends to repay the Loan from the proceeds of
the PPO;
WHEREAS, DayStar has agreed to provide the Company with a credit
facility of up to $440,000.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
1. CREDIT FACILITY AMOUNT.
Pursuant to this Agreement, DayStar has agreed to loan the Company a
principal amount of up to $440,000 (the "Loan").
2. PROMISSORY NOTE.
In consideration thereof, the Company will issue, cause to be executed
and deliver to DayStar, concurrent with its execution hereof, a promissory note
("Note") equal to the maximum amount of the Loan plus the fee specified in
Section 6.1, upon the terms and conditions specified herein and therein, and in
the form attached hereto as Exhibit A.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 2
3. PAYMENTS.
3.1 All interest and principal outstanding shall be due and payable on
the Maturity Date as set forth in the Note.
3.2 The Company may, from time to time, in its sole discretion, make
one or more periodic payments to DayStar.
4. WARRANTS OF THE COMPANY.
4.1 The Company agrees to issue, convey and transfer, and cause to be
issued, conveyed and transferred to DayStar, warrants to purchase 200,000 shares
of Common Stock of the Company at an exercise price of $2.25 per share and
100,000 shares of the Common Stock at $5.00 per share (collectively the
"Warrants"), each Warrant being exercisable for a period of three (3) years
commencing at the later of: i) the date upon which the last advance of funds
under this Agreement shall have been made; ii) 90 days following the date upon
which the Common Stock of the Company commences trading in public market; or
iii) the expiration of any waiting period as may be required by any Underwriter
as defined herein. For the purposes of this Agreement, the term "the
Underwriter," shall include the representative or representatives of the
Underwriters in any proposed public offering and any other investment banker or
placement agent with which Legacy has or may have a contractual relationship
from time to time.
In the event the PPO has not been completed by the expiration of seven
(7) months after the date of the last advance in connection with the Loan, the
number of Warrants issuable to DayStar shall increase, in the same ratio to each
other as to price as originally issued, at a rate of four (4%) percent per
month, until the earlier of: i) such time as the Note shall have been paid in
full or; ii) the completion of the PPO. In no event shall the number of Warrants
exceed 400,000 in the aggregate.
The Company shall issue the Warrants to DayStar within ten (10)
business days of its receipt of a written request for issuance of such Warrants
from DayStar.
5. REGISTRATION RIGHTS
5.1 GENERAL If at any time within one year after the date of this
Agreement, the Company proposes to register any shares of its Common Stock under
the Securities Act of 1933, as amended, (the "Act"), the Company will give
written notice of its intention to do so to DayStar, and on the written request
of DayStar given within thirty (30) days after receipt of the
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 3
notice, the Company shall use its best efforts to cause the shares of Common
Stock underlying the Warrants or such portion thereof as shall be included in
the notice provided by DayStar (the "Registerable Securities"), to be included
with the securities to be registered under the Act. Such request by DayStar
hereby shall be referred to as a "Piggy-Back Registration" request. The Company
shall keep such registration covering the Registerable Securities effective for
a period of two years. The Company shall give written notice to DayStar of the
proposed filing of such a registration statement at least thirty (30) days prior
to such filing during the one year period referred to in this Section 5.1 and a
prompt written notice of the proposed filing of amendments to such registration
statement. DayStar shall be limited to one such "Piggy-Back Registration"
request. The Company shall only be obligated to include the Registerable
Securities in the registration statement if the Underwriter of such offering
determines, in its sole discretion, that the sale or inclusion of such shares
will not materially adversely affect the success of the offering, provided that
the Underwriter shall not unreasonably withhold its consent to the inclusion of
DayStar's shares in the registration statement. DayStar will be deemed to have
waived its rights to a Piggy-Back Registration in a particular offering if it
does not provide timely notice to the Company of its intention to include the
shares in the registration statement and the registration statement is declared
effective by the Securities and Exchange Commission (the "SEC").
5.2 RIGHTS TO TRANSFER Except as hereinafter set forth, the Warrants
shall be transferable. The Registration Rights set forth in Section 5.1 shall be
transferred with such Warrants.
5.3 LIMITATION ON TRANSFER DayStar agrees not to sell, transfer, or
otherwise dispose of any Registerable Securities under this Agreement for such
period as is determined by the Underwriter and shall enter into a customary
lock-up agreement required by the Underwriter in the form required by such
Underwriter. DayStar agrees that stop transfer instructions may be given to the
Company's transfer agent regarding the foregoing lock-up arrangement.
5.4 INFORMATION AND DOCUMENTS. If and when the Company is required by
the provisions of this Section 5 to effect the registration of the Registerable
Securities under the Act, DayStar will furnish in writing such information as is
requested by the Company or its representatives, including legal counsel and
accountants, for inclusion in the registration statement relating to such
offering and such other information and documentation as the Company shall
request. In addition, DayStar shall execute and deliver such agreements and
other documents, including, without limitation, selling shareholder
instructions, powers-of-attorney, and custody agreements, as the Company or
Underwriter may reasonably request. The Company's obligations to register the
Registerable Securities shall be further contingent upon DayStar providing its
full and
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 4
complete cooperation to the Company in timely providing such information,
documents, certifications and representations as the Company and its counsel or
any Underwriter may determine to be reasonably necessary in order to prepare,
file and otherwise complete the registration process with respect to the
Registerable Securities.
5.5 EXPENSES. All expenses incurred in connection with any registration
under this Section 5, including, without limitation all registration and filing
fees, printing expenses, fees and disbursements of counsel for the Company, blue
sky fees and expenses, and expenses of any special audits incident to or
required by any such registration are herein called "Registration Expenses." All
underwriting discounts and selling commissions applicable to any herein are
called "Selling Expenses." The Company will pay all Registration Expenses in
connection with any registration pursuant to this Section 5. All Selling
Expenses in connection with any registration pursuant to Section 5 shall be
borne by DayStar, pro rata in proportion to the shares registered thereby being
sold or registered. DayStar shall bear the fees and costs of its own counsel.
Notwithstanding the foregoing provisions of this Section 5.4, DayStar shall pay
for all Registration and Selling Expenses which applicable state securities or
other regulatory agencies (whether governmental or other) require to be paid by
persons selling as a condition to qualification or registration of the
securities being sold.
5.6 PROSPECTUS DELIVERY DayStar shall comply with the prospectus
delivery requirements of federal or state securities laws in connection with any
registration. If any prospectus becomes outdated, inaccurate, or misleading,
DayStar shall cease using all such prospectuses upon notice thereof from the
Company and shall return all copies of such prospectuses under control of such
person to the Company.
5.7 NO REGISTRATION REQUIRED The Company shall not be required to
effect a registration under this Section 5 if DayStar would otherwise be able to
sell the number of shares sought to be registered at the time of the
registration without registration under the Act pursuant to Rule 144 under the
Act as then in effect or pursuant to any other exemption from the registration
provisions of the Act then available to DayStar (collectively referred to as
"Rule 144") so long as the purchaser thereof shall acquire shares that are not
subject to any restriction on resale as may otherwise be imposed pursuant to
Rule 144.
5.8 TERMINATION OF RIGHTS The Company's obligations to register the
Registerable Securities pursuant to this Section 5 shall cease and terminate as
to the Registerable Securities upon the occurrence of either of the following:
(i) the registration of the Registerable Securities under the Act; or (ii) at
any time the Registerable Securities become freely transferable without
registration under the Act.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 5
6. FEES; COSTS.
6.1 DUE DILIGENCE FEE. The Company will pay to DayStar a due diligence
fee of either $40,000 or ten (10%) percent of the amounts advanced to the
Company, whichever is less which amount shall be added to the amounts payable
under the Note.
6.2 INTENTIONALLY LEFT BLANK
6.3 LEGAL COSTS. All legal costs and expenses incurred by the Company
in connection with this Agreement shall be borne by the Company.
7. SECURITY AGREEMENT.
7.1 GRANT OF SECURITY INTEREST.
DayStar understands that other persons and/or entities have
security interests in all of the Company's assets. To the extent that such
persons shall agree to have their security interests subordinated, the Company,
in consideration of the loan described in this Agreement, hereby grants,
conveys, and assigns to DayStar, as security, all of the Company's existing and
future right, title and interest in the property listed in Section 7.2 of this
Agreement. This security interest is granted to DayStar to secure the payment of
the indebtedness evidenced by the Note attached hereto as Exhibit A, including
all renewals, extensions, and modification thereof.
7.2 PROPERTY.
The property subject to the security interest (the
"Collateral") is as follows:
7.2.1 EQUIPMENT.
All equipment of the Company.
7.2.2 INVENTORY AND OTHER TANGIBLE PERSONAL PROPERTY.
All inventory of the Company, including all goods,
merchandise, materials, raw materials, work in progress, finished goods, now
owned or hereafter acquired and held for sale or lease or furnished or to be
furnished under contracts or service agreements or to be used or
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CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 6
consumed in the Company's business and all other tangible personal property of
the Company.
7.2.3 ALL GENERAL INTANGIBLES.
All general intangibles now owned by the Company or
hereafter acquired by the Company, subject to any restrictions or limitations in
any agreements pertaining thereto.
7.2.4 AFTER-ACQUIRED PROPERTY.
All property of the types described in Sections 7.2.1
- - 7.2.3, or similar thereto, that at any time hereafter may be acquired by the
Company, including but not limited to all accessions, parts, additions, and
replacements.
7.2.5 PROCEEDS.
All proceeds, in any type or form arising from the
sale or other disposition of any of the Collateral described or referred to in
Sections 7.2.1 - 7.2.4. Sale or disposition of Collateral is prohibited except
as provided herein.
7.3 PROTECTION OF DAYSTAR'S SECURITY.
If the Company fails to perform the covenants and agreements
contained or incorporated in this Agreement, or if any action or proceeding is
commenced which affects the Collateral or title thereto or the interest of
DayStar therein, including, but not limited to, eminent domain, insolvency, code
enforcement, or arrangements or proceedings involving a bankrupt or decedent,
then DayStar may make such appearance, and take such action as reasonably
necessary to protect DayStar's interest. Any amounts disbursed by DayStar
pursuant to this Section 7.3, with interest thereon, shall become additional
indebtedness of the Company secured by this Agreement.
7.4 INSPECTION.
DayStar may make or cause to be made reasonable entries upon
and inspections of the Company's premises to inspect the Collateral.
7.5 LIEN NOT RELEASED.
From time to time, DayStar may, at DayStar's option, without
giving notice to or obtaining the consent of the Company or its successors or
assigns or of any other lienholders,
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CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 7
without liability on DayStar's part, and notwithstanding a breach by the Company
of any covenant or agreement set forth in this Agreement, extend the time for
payment of said indebtedness or any part thereof, reduce the payments thereon,
release anyone liable on any of said indebtedness, accept a renewal note or
notes therefor, modify the terms and the time of payment of said indebtedness,
release from the lien of this Agreement any part of the Collateral, take or
release other or additional security, reconvey any part of the Collateral, join
in any extension or subordination agreement, and agree in writing with the
Company to modify the rate of interest or period of amortization of the Note or
change the amount of any installments payable thereunder. Any actions taken by
DayStar pursuant to the terms of this Section shall not affect the obligation of
the Company or its successors or assigns to pay the sums secured by this
Agreement and to observe the covenants of the Company contained herein, shall
not affect the guaranty of any person, corporation, partnership, or other entity
for payment of the indebtedness secured hereby, and shall not affect the lien or
priority of lien hereof on the Collateral, unless otherwise agreed by the
parties.
7.6 UNIFORM COMMERCIAL CODE SECURITY AGREEMENT.
This Agreement is intended to be a security agreement pursuant
to the Uniform Commercial Code for each of the items specified in Section 7.2 as
Collateral. The Company hereby grants DayStar a security interest in said items.
The Company agrees to cooperate in the filing of financing statements, as well
as extensions, renewals and amendments thereof, and reproductions of this
Agreement, and do whatever may be necessary under the applicable Uniform
Commercial Code in the state where the Collateral is located, to perfect and
continue DayStar's interest in the Collateral. The Parties agree that such
financing statements will be filed in the name of DayStar. The Company shall pay
all costs of filing such financing statements and any extensions, renewals,
amendments, and releases thereof. Without the prior written consent of DayStar,
the Company shall not create or allow to be created, pursuant to the Uniform
Commercial Code, any other security interest in the Collateral, including
replacements and additions thereto. Upon the occurrence of an event of default,
DayStar shall have the remedies of a creditor under the Uniform Commercial Code
and, at DayStar's option, may also invoke any other remedy provided for in this
Agreement. In exercising any of said remedies, DayStar may proceed against any
part of the Collateral separately or together and in any order whatsoever,
without in any way affecting the availability of DayStar's remedies under the
Uniform Commercial Code, or of DayStar's other remedies provided in this
Agreement.
7.6 RIGHTS OF DAYSTAR.
7.6.1 Upon default, DayStar may require the Company to
assemble the Collateral and make it available to DayStar, with not less than 30
days' notice, at the place to be
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CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 8
designated by DayStar which is reasonably convenient to the Parties. DayStar may
sell all or any part of the Collateral, as reasonably necessary to satisfy the
obligations of the Company hereunder to DayStar, as a whole or in parcels either
by public auction, private sale, or any other reasonable method of disposition.
Nothing in this Section 7.6.1 shall be construed to limit any of DayStar's
rights in connection with any of the Collateral as provided herein. DayStar may
bid at any public sale on all or any portion of the Collateral. Unless the
Collateral is perishable or threatens to rapidly decline in value or is of the
type customarily sold on a recognized market, DayStar shall give the Company
reasonable notice of the time and place of any public sale, or of the time after
which any private sale or other disposition of the Collateral is to be made.
Notice must be provided at least ten (10) days prior to the time of the sale or
other disposition. A public sale in the following fashion shall be conclusively
presumed to be reasonable:
7.6.2 Notice shall be given at least ten (10) days before the
date of sale by publication, at least once, in a newspaper of general
circulation published in the county in which the sale is to be held;
7.6.3 The sale shall be held in a county in which the
Collateral or any part is located or in a county in which the Company has a
place of business;
7.6.4 Payment shall be in cash or by certified check
immediately following the close of the sale;
7.6.5 The sale shall be by auction, but it need not be by a
professional auctioneer;
7.6.6 The Collateral may be sold as is and without any
preparation for sale.
7.7 OBLIGATION TO SELL COLLATERAL.
Notwithstanding any provision of this Agreement, DayStar shall
be under no obligation to offer to sell the Collateral. In the event any DayStar
offers to sell the Collateral, there will be no obligation to consummate a sale
of the Collateral if, in DayStar's reasonable business judgment, none of the
offers received by it reasonably approximate the fair value of the Collateral.
In the event DayStar elects not to sell the Collateral, DayStar may elect to
follow the procedures set forth in the Uniform Commercial Code for retaining the
Collateral in satisfaction of the obligation of the Company, subject to the
rights of the Company under such procedures.
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CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 9
8. COVENANTS OF THE COMPANY.
The Company agrees and covenants as follows:
8.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall promptly pay when due the principal and
interest evidenced by the Note, and late charges provided in the Note, if any,
and all other sums secured by this Agreement and the Note.
8.2 CORPORATE EXISTENCE.
The Company is a corporation duly organized and existing under
the laws of the State of California and is duly qualified in every other state
in which it must qualify to do business.
8.3 CORPORATE AUTHORITY.
The execution, delivery, and performance of this Agreement,
and the execution and payment of the Note is within the corporate powers of the
Company, has been duly authorized, is not in contravention of law or the terms
of the Company articles of incorporation and bylaws, or of any indenture,
agreement, or undertaking to which the Company is a party or by which it is
bound.
8.4 OWNERSHIP OF COLLATERAL.
The Company is the sole owner of the Collateral.
8.5 ISSUANCE OF WARRANTS.
The Warrants contemplated to be issued hereby are duly
authorized and shares of common stock to be issued pursuant to the exercise
thereof, have been reserved for issuance therefor under valid authority.
9. COVENANTS OF DAYSTAR.
DayStar warrants and represents that none of its members or
shareholders are affiliates of the Company or Capitol Bay Securities
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 10
10. DEFAULT PROVISIONS.
The occurrence of one or more of the following events shall constitute
an event of default of this entire Agreement:
10.1 Failure to pay amounts due, on or before the Maturity Date as
specified in the Note, which failure has not been cured pursuant to the
provisions of Section 3.
10.2 The institution by the Company of bankruptcy proceedings to be
adjudicated a bankrupt or insolvent or the consent by it to the institution of
bankruptcy or insolvency proceedings against it or the cessation of the primary
business activity of the Company which has not been cured within ten business
days.
11. NOTICES AND DELIVERY.
Any notice, request, consent, waiver or other communication required or
permitted under or in connection with this Agreement will be deemed
satisfactorily given if it is in writing and is delivered either personally to
the addressee thereof or by prepaid registered or certified U.S. mail (return
receipt requested), or by a nationally recognized commercial courier service
with next-day delivery charges prepaid, or by telegraph, or by facsimile (voice
confirmed), or by any other reasonable means of personal delivery to the Party
entitled thereto, with all such notices being given to the addressee at its
respective address set forth below. If any Party fails to insert an address
below, then such failure shall constitute a designation of its last known
address as the address for all notices. Any Party to this Agreement may change
its address or facsimile number for notice purposes by giving notice thereof to
the other Parties hereto in accordance with this Section, provided that such
change shall not be effective until two (2) calendar days after notice of such
change. All such notices and other communications will be deemed given and
effective (a) if by mail, then upon actual receipt or five (5) calendar days
after mailing as provided above (whichever is earlier), or (b) if by facsimile,
then upon successful transmittal to such Party's designated number, or (c) if by
telegraph, then upon actual receipt or two business days after delivery to the
telegraph company (whichever is earlier), or (d) if by nationally recognized
commercial courier service, then upon actual receipt or two business days after
delivery to the courier service (whichever is earlier), or if otherwise
delivered, then upon actual receipt.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 11
if to the Company
Thomas E. Kees
President and Chief Executive Officer
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 130
Roseville, CA 95661
if to DayStar:
Larry Wells
DayStar, LLC
10600 N. De Anza Blvd.
Cupertino, CA 95014
12. ENTIRE AGREEMENT.
This Agreement, the Note, all exhibits and attachments hereto and other
related agreements, contain the entire understanding between and among the
Parties and supersedes any prior understandings and agreements among them
respecting the subject matter of this Agreement.
13. AGREEMENT BINDING.
This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the Parties hereto.
14. AMENDMENT AND MODIFICATION.
Subject to applicable law, this Agreement may be amended, modified, or
supplemented only by a written agreement signed by the Parties.
15. ATTORNEY FEES.
In the event arbitration, suit or action is brought by any party under
this Agreement to enforce any of its terms, and in any appeal therefrom, it is
agreed that the prevailing party shall be entitled to its reasonable attorneys
fees and to be fixed by the arbitrator, trial court, or appellate court.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 12
16. ARBITRATION.
Any controversy or claim between or among the parties, including but
not limited to those arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection herewith
and based on or arising in contract or in tort, shall, at the request of any
party be determined by arbitration. The arbitration shall be conducted in Placer
County, California, United States of America, or such other place as the parties
may agree, in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Agreement, and under
the Commercial Rules of the American Arbitration Association ("AAA"). Any
controversy concerning whether an issue is arbitrable shall be determined by the
arbitrator. The arbitrator shall not have the authority to award punitive
damages. Judgement upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief. The arbitrator shall determine the prevailing party for the purposes of
awarding payment of reasonable attorney's fees.
17. LAW GOVERNING.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
18. SAVINGS CLAUSE.
If any provision of this Agreement, or the application of such
provision to any person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
19. TITLES AND CAPTIONS.
All section titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context nor effect the
interpretation of this Agreement.
20. FURTHER ACTION.
The Parties hereto shall execute and deliver all documents, provide
all information and take
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 13
or forbear from all such action as may be necessary or appropriate to achieve
the purposes of the Agreement, including, but not limited to, executing such
financing statements, as the DayStar may deem necessary and appropriate to
protect its interests.
21. COUNTERPARTS.
The terms of the Agreement are contractual and not merely recital. The
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. Furthermore, facsimile copies shall be deemed the same as
originals. The Agreement shall be deemed fully executed and effective when all
Parties have executed at least one of the counterparts, even though no single
counterpart bears all such signatures.
IN WITNESS WHEREOF, the Parties hereby execute this Agreement as of the
date first written above.
LEGACY BRANDS, INC.
_______________________________________
Thomas E. Kees, Chief Executive Officer
DayStar,
a ___________ limited liability company
By: ______________________________________
Print Name: _______________________________
Title: _____________________________________
<PAGE>
SUPPLEMENTAL CREDIT FACILITY AGREEMENT
This Supplemental Credit Facility Agreement (the "Agreement") is
effective as of the 1st day of July, 1997 by and between Legacy Brands, Inc., a
California corporation (the "Company"), and DayStar, L.L.C. a _________ limited
liability company ("DayStar"). DayStar and the Company are collectively referred
to hereinafter as the "Parties".
RECITALS
WHEREAS, the Company is engaged in the production and marketing of
super premium branded frozen desserts and other food items;
WHEREAS, the Company is seeking funds to be used for working capital
purposes;
WHEREAS, the Company intends to raise up to $4,000,000 through an
offering of its securities in one or more private placements pursuant to one or
more exemptions from registration under applicable federal and state securities
laws and regulations (the "PPO") commencing in June 1997;
WHEREAS, the Company intends to repay the Loan from the proceeds of
the PPO;
WHEREAS, the Company and DayStar entered into a Credit Facility
Agreement in June 1997 pursuant to which DayStar agreed to provide a credit
facility of up to $440,000 to the Company in exchange for payment of certain
fees and issuance of warrants; and
WHEREAS, DayStar has agreed to provide the Company with an additional
credit facility of up to $400,000 on the terms and conditions described herein.
NOW, THEREFORE, in consideration of the mutual covenants and promises
set forth herein, the sufficiency of which is hereby acknowledged, the Parties
agree as follows:
1. CREDIT FACILITY AMOUNT.
Pursuant to this Agreement, DayStar has agreed to loan the Company a
principal amount of up to $400,000 (the "Loan").
2. PROMISSORY NOTE.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 2
In consideration thereof, the Company will issue, cause to be executed
and deliver to DayStar, concurrent with its execution hereof, a promissory note
("Note") equal to the amount advanced hereunder, not expected to exceed
$400,000, plus the facility fee described in Section 4.1 below, upon the terms
and conditions specified herein and therein, and in the form attached hereto as
Exhibit A.
3. PAYMENTS.
3.1 All interest and principal outstanding shall be due and payable on
the Maturity Date as set forth in the Note.
3.2 The Company may, from time to time, in its sole discretion, make
one or more periodic payments to DayStar.
4. FEES; COSTS.
4.1 FACILITY FEE. The Company will pay to DayStar a facility fee of two
(2%) percent of the amounts advanced to the Company, which amount shall be added
to the amounts payable under the Note, but which shall not accrue interest.
4.2 LEGAL COSTS. All legal costs and expenses incurred by the Company
in connection with this Agreement shall be borne by the Company.
5. COVENANTS OF THE COMPANY.
The Company agrees and covenants as follows:
5.1 PAYMENT OF PRINCIPAL AND INTEREST.
The Company shall promptly pay when due the principal and
interest evidenced by the Note, and late charges provided in the Note, if any,
and all other sums secured by this Agreement and the Note.
5.2 CORPORATE EXISTENCE.
The Company is a corporation duly organized and existing under
the laws of the State of California and is duly qualified in every other state
in which it must qualify to do business.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 3
5.3 CORPORATE AUTHORITY.
The execution, delivery, and performance of this Agreement,
and the execution and payment of the Note is within the corporate powers of the
Company, has been duly authorized, is not in contravention of law or the terms
of the Company articles of incorporation and bylaws, or of any indenture,
agreement, or undertaking to which the Company is a party or by which it is
bound.
6. COVENANTS OF DAYSTAR.
DayStar warrants and represents that none of its members or
shareholders are affiliates of the Company or Capitol Bay Securities
7. DEFAULT PROVISIONS.
The occurrence of one or more of the following events shall constitute
an event of default of this entire Agreement:
7.1 Failure to pay amounts due, on or before the Maturity Date as
specified in the Note, which failure has not been cured pursuant to the
provisions of Note.
7.2 The institution by the Company of bankruptcy proceedings to be
adjudicated a bankrupt or insolvent or the consent by it to the institution of
bankruptcy or insolvency proceedings against it or the cessation of the primary
business activity of the Company which has not been cured within ten business
days.
8. NOTICES AND DELIVERY.
Any notice, request, consent, waiver or other communication required or
permitted under or in connection with this Agreement will be deemed
satisfactorily given if it is in writing and is delivered either personally to
the addressee thereof or by prepaid registered or certified U.S. mail (return
receipt requested), or by a nationally recognized commercial courier service
with next-day delivery charges prepaid, or by telegraph, or by facsimile (voice
confirmed), or by any other reasonable means of personal delivery to the Party
entitled thereto, with all such notices being given to the addressee at its
respective address set forth below. If any Party fails to insert an address
below, then such failure shall constitute a designation of its last known
address as the address for all notices. Any Party to this Agreement may change
its address or facsimile number for notice purposes by giving notice thereof to
the other Parties hereto in accordance with this Section, provided that such
change shall not be effective until two (2) calendar days after notice of such
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 4
change. All such notices and other communications will be deemed given and
effective (a) if by mail, then upon actual receipt or five (5) calendar days
after mailing as provided above (whichever is earlier), or (b) if by facsimile,
then upon successful transmittal to such Party's designated number, or (c) if by
telegraph, then upon actual receipt or two business days after delivery to the
telegraph company (whichever is earlier), or (d) if by nationally recognized
commercial courier service, then upon actual receipt or two business days after
delivery to the courier service (whichever is earlier), or if otherwise
delivered, then upon actual receipt.
if to the Company
Thomas E. Kees
President and Chief Executive Officer
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 130
Roseville, CA 95661
if to DayStar:
Larry Wells
DayStar, LLC
10600 N. De Anza Blvd.
Cupertino, CA 95014
9. ENTIRE AGREEMENT.
This Agreement, the Note, all exhibits and attachments hereto and other
related agreements, contain the entire understanding between and among the
Parties and supersedes any prior understandings and agreements among them
respecting the subject matter of this Agreement.
10. AGREEMENT BINDING.
This Agreement shall be binding upon the heirs, executors,
administrators, successors and assigns of the Parties hereto.
11. AMENDMENT AND MODIFICATION.
Subject to applicable law, this Agreement may be amended, modified, or
supplemented only
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 5
by a written agreement signed by the Parties.
12. ATTORNEY FEES.
In the event arbitration, suit or action is brought by any party under
this Agreement to enforce any of its terms, and in any appeal therefrom, it is
agreed that the prevailing party shall be entitled to its reasonable attorneys
fees and to be fixed by the arbitrator, trial court, or appellate court.
13. ARBITRATION.
Any controversy or claim between or among the parties, including but
not limited to those arising out of or relating to this Agreement or any
agreements or instruments relating hereto or delivered in connection herewith
and based on or arising in contract or in tort, shall, at the request of any
party be determined by arbitration. The arbitration shall be conducted in Placer
County, California, United States of America, or such other place as the parties
may agree, in accordance with the United States Arbitration Act (Title 9, U.S.
Code), notwithstanding any choice of law provision in this Agreement, and under
the Commercial Rules of the American Arbitration Association ("AAA"). Any
controversy concerning whether an issue is arbitrable shall be determined by the
arbitrator. The arbitrator shall not have the authority to award punitive
damages. Judgement upon the arbitration award may be entered in any court having
jurisdiction. The institution and maintenance of an action for judicial relief
or pursuit of provisional or ancillary remedy shall not constitute a waiver of
the right of any party, including the plaintiff, to submit the controversy or
claim to arbitration if any other party contests such action for judicial
relief. The arbitrator shall determine the prevailing party for the purposes of
awarding payment of reasonable attorney's fees.
14. LAW GOVERNING.
This Agreement shall be governed by and construed in accordance with
the laws of the State of California.
15. SAVINGS CLAUSE.
If any provision of this Agreement, or the application of such
provision to any person or circumstance, shall be held invalid, the remainder of
this Agreement, or the application of such provision to persons or circumstances
other than those as to which it is held invalid, shall not be affected thereby.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 6
16. TITLES AND CAPTIONS.
All section titles or captions contained in this Agreement are for
convenience only and shall not be deemed part of the context nor effect the
interpretation of this Agreement.
17. FURTHER ACTION.
The Parties hereto shall execute and deliver all documents, provide all
information and take or forbear from all such action as may be necessary or
appropriate to achieve the purposes of the Agreement, including, but not limited
to, executing such financing statements, as the DayStar may deem necessary and
appropriate to protect its interests.
18. COUNTERPARTS.
The terms of the Agreement are contractual and not merely recital. The
Agreement may be signed in one or more counterparts, each of which shall be
deemed an original. Furthermore, facsimile copies shall be deemed the same as
originals. The Agreement shall be deemed fully executed and effective when all
Parties have executed at least one of the counterparts, even though no single
counterpart bears all such signatures.
<PAGE>
CREDIT FACILITY AGREEMENT
Legacy Brands, Inc.
DayStar, LLC
Page 7
IN WITNESS WHEREOF, the Parties hereby execute this Agreement as of the
date first written above.
LEGACY BRANDS, INC.
_______________________________________
Thomas E. Kees, Chief Executive Officer
DayStar,
a ___________ limited liability company
By: ___________________________________
Print Name: ___________________________
Title: ________________________________
<PAGE>
EXHIBIT A
PROMISSORY NOTE
<PAGE>
6.18
FORM OF CREDIT FACILITY PROMISSORY NOTE
[TO COME]
6.19
FORM OF SUPPLEMENTAL CREDIT FACILITY PROMISSORY NOTE
THIS PROMISSORY NOTE HAS BEEN ACQUIRED FOR INVESTMENT FOR THE HOLDER'S OWN
ACCOUNT AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
OF THE SECURITIES. THE SECURITIES HAVE NOT BEEN REGISTERED OR QUALIFIED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED ("SECURITIES ACT") OR UNDER ANY STATE
SECURITIES LAWS ("BLUE SKY LAWS"). AN OFFER TO SELL OR TRANSFER OR THE SALE OR
TRANSFER OF THESE SECURITIES IS UNLAWFUL UNLESS MADE PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT OR PERMIT, AS APPLICABLE, UNDER THE SECURITIES ACT OR
APPLICABLE BLUE SKY LAWS OR UNLESS AN EXEMPTION FROM REGISTRATION AND/OR
QUALIFICATION UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY LAWS IS AVAILABLE
OR AN OPINION OF COUNSEL, OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE
COMPANY, IS PROVIDED TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION OR
QUALIFICATION IS NOT REQUIRED UNDER THE SECURITIES ACT AND APPLICABLE BLUE SKY
LAWS.
1
<PAGE>
LEGACY BRANDS, INC.
PROMISSORY NOTE
Amount: Amount Advanced (see below) Dated: July 3, 1997
FOR VALUE RECEIVED, the undersigned, Legacy Brands, Inc. a California
corporation ("Maker"), promises to pay to the order of DayStar, L.L.C.
("Lender"), a principal sum equal to the amount actually advanced to the Maker
pursuant to a Supplemental Credit Facility Agreement between the Maker and the
Lender, in the amount of $400,000 ("Amount Advanced") plus $8,000 on the earlier
of the expiration of twelve (12) months from the date of the last advance of
funds made pursuant to this Promissory Note (the "Note") or five business days
after the closing of a private placement with respect to the Maker's equity
securities ("Maturity Date"). Maker and Lender are collectively referred to
hereinafter as the "Parties."
1. INTEREST RATE.
The Amount Advanced under this Note shall bear interest at the
rate of one percent (1%) per week that the Amount Advanced remains outstanding
calculated from July 3, 1997.
2. COMPUTATION.
All payments (including prepayments) hereunder are to be
applied first to the payment of accrued interest and the remaining balance shall
be applied to the payment of principal.
3. PAYMENTS.
Except as otherwise set forth herein, the unpaid principal
under this Note, plus all accrued but unpaid interest thereon, shall be due and
payable at the Maturity Date.
4. VOLUNTARY PREPAYMENT.
Maker may, at any time, prepay the unpaid Amount Advanced
evidenced by this Note and any interest hereunder, in whole or in part, without
penalty or premium, by paying to Lender, in cash or by wire transfer or
immediately available federal funds, the amount of such prepayment. If any such
prepayment is less than a full repayment, then such prepayment
2
<PAGE>
shall be applied first to the payment of accrued interest and the remaining
balance shall be applied to the payment of principal.
5. LAWFUL MONEY; DESIGNATED PLACES OF PAYMENT.
All principal and interest due hereunder is payable in lawful
money of the United States of America, in immediately available funds, at
Lender's address of record no later than 5:00 p.m., Pacific Standard Time, on
the day payment is due.
6. USURY MATTERS
It is expressly stipulated and agreed to be the intent of
Maker and Lender to comply with, at all times, the applicable state law
governing the maximum rate or amount of interest payable on the Note (or
applicable federal law to the extent that it permits the Lender to contract for,
charge, take, reserve or receive a greater amount of interest than under
applicable state law). In the event the applicable law is judicially interpreted
so as to render usurious any amount called for under the Note or contracted for,
charged, taken, reserved or received with respect to such indebtedness, or if
any prepayment by Maker results in Maker having paid any interest in excess of
that permitted by applicable law, then it is the express intent of both Maker
and Lender that all excess amounts theretofore collected by Lender be credited
to the principal balance of the Note (or, if this Note has been or would thereby
be paid in full, refunded to Maker). In the event such judicial determination is
applied to this Note, the provisions of the Note shall immediately be deemed
amended and the amounts thereafter collectible hereunder and thereunder reduced,
without the necessity of the execution of any new, or amendment to any existing,
document, so as to comply with the applicable law, but so as to permit the
recovery of the fullest amount otherwise called for hereunder.
7. DEFAULT.
Maker shall be deemed in default if any of the following
events occur:
7.1 Failure to pay on or before the Maturity Date any
interest or principal which shall then be due, except as provided hereinbelow:
7.1.1 If the Note has not been paid or
otherwise satisfied by the Maturity Date, Maker may cure by commencing, within
ten business days of the Maturity Date, payments in the amount of $20,000 per
month until the Note has been paid in full. Such repayment shall not exceed
twenty four (24) months. Any amounts owing at the end of the twenty four month
period shall be due and payable as a balloon payment.
7.2 The institution by Maker of bankruptcy
proceedings to be adjudicated a bankrupt or insolvent or the consent by it to
the institution of bankruptcy or
3
<PAGE>
insolvency proceedings against it or the cessation of the primary business
activity of the Company which has not been cured within ten business days.
8. ATTORNEYS' FEES.
In the event it should become necessary to employ
counsel to collect this Note, Maker agrees to pay the reasonable attorneys' fees
and costs incurred by Lender in connection with Lender's collection efforts,
irrespective of whether Lender files suit against Maker.
9. SECTION HEADINGS.
Headings and numbers have been set forth for
convenience only. Unless the contrary is compelled by the context, the language
set forth in each paragraph applies equally to the entire Note.
10. AMENDMENTS IN WRITING.
This Note may only be changed, modified or amended in
writing signed by the Parties.
11. CHOICE OF LAW.
The Note and all transactions hereunder and evidenced
hereby shall be governed by, construed under, and enforced in accordance with
the laws of the State of California.
Made and Executed at Roseville, California
By LEGACY BRANDS, INC.
a California corporation
________________________
Thomas E. Kees
Chief Executive Officer
4
6.20
WARRANT AGREEMENT BETWEEN LEGACY BRANDS, INC., AND DAYSTAR, LLC
[TO COME]
6.21
CERTAIN CORRESPONDENCE BETWEEN LEGACY BRANDS, INC., AND
VAN DEN BERGH FOODS COMPANY DATED MARCH 16, 1995,
JANUARY 15, 1996, JANUARY 22, 1996, JUNE 14, 1996
OCTOBER 9, 1996, NOVEMBER 1, 1996, DECEMBER 11, 1996,
DECEMBER 27, 1996, AND MARCH 4, 1997
[TO COME]
STOCK PLEDGE AGREEMENT BY AND BETWEEN LEGACY BRANDS, INC.,
AND THOMAS E. KEES DATED OCTOBER 30, 1996
This Stock Pledge Agreement ("Agreement") is entered into this date by and
between Thomas E. Kees ("Pledgor") and Legacy Brands, Inc., a California
corporation ("Secured Party").
WHEREAS, the Pledgor has this date deposited 4,000,000 shares of common stock of
Legacy Brands, Inc. ("Shares") beneficially owned with Rosen & Gyemant ("Pledge
Holder") and pledges such Shares to the Secured Party and in partial payment
therefor, has executed and delivered a promissory note of even date, a copy of
which is attached hereto and incorporated herein by reference, to the Secured
Party in the principal amount of $1,000,000 ("Note").
WHEREAS, Pledgor has agreed to secure the Note's payment by the pledge of the
Shares (the "Collateral") under the terms of this Agreement.
NOW THEREFORE, IT IS AGREED AS FOLLOWS:
Section 1. Grant of Security Interest. The Pledgor grants to the Secured Party a
security interest in the Shares.
Section 2. Possession. Contemporaneous hereto, the Pledgor has delivered to the
Pledge Holder certificate no. _______ evidencing the Shares ("Certificate"),
together with a stock power endorsed in blank, to hold subject to terms of this
Agreement.
Section 3. Obligations of Pledge Holder. During the term of this Agreement, and
for so long as the Pledge Holder is in possession of the Certificate, the Pledge
Holder shall take reasonable care of the Certificate.
Section 4. Covenants of Pledgor. For as long as this Agreement is force and the
Pledge Holder is in possession of the Shares, the Pledgor agrees that:
4.1 Pledgor will not grant any other lien or security interest with respect to
the Shares.
4.2 Upon the reasonable request of the Secured Party, the Pledgor will take all
action and will execute all documents and instruments necessary or desirable to
consummate and give effect to this Agreement.
Section 5. Voting Shares; Custody of Certificates.
5.1 As long as no Event of Default (as defined in Section 8 below) shall have
occurred, the Pledgor shall be entitled to vote the Shares.
PAGE 1 - PLEDGE AGREEMENT
<PAGE>
5.2 The Pledgor shall be entitled to receive any dividend or any other
distribution, whether in securities or other property, by way of liquidation,
stock split, spin-off, split-up or reclassification, combination of shares, or
the like, or in case of any reorganization, consolidation, or merger. Secured
Party may endorse, in the Secured Party's name or in the name of the Pledgor,
any and all instruments by which any payment on the Shares may be made and may
take such action as the Secured Party may deem appropriate from time to time, in
the Secured Party's name or in the name of the Pledgor, to enforce collection of
the Shares. For such purpose, the Pledgor appoints the Secured Party the
attorney-in-fact of the Pledgor, under a power coupled with an interest, with
full power of substitution.
5.3 As long as the obligations secured by this Agreement and the Note remain
outstanding, the Pledgor will not transfer, whether by sale, gift, or otherwise,
any ownership interest in the Shares without the Secured Party's prior written
approval.
Section 6. Transferability of Shares. The Pledgor may transfer, assign or convey
Shares only upon delivery of the following to the Pledge Holder: (i) a
certificate of vesting provided by the Secured Party evidencing the length of
Pledgor's employment under the Employment Agreement, calculated quarterly, (ii)
an opinion of legal counsel to the Secured Party certifying that a transfer of
Collateral will not result in a violation of state and/or federal law, or other
rulings and regulations of any other governmental body, (iii) a certificate from
the Secured Party verifying payment or satisfaction of any amounts due under the
terms of the Note, and (iv) a certificate from the Secured Party waiving its
Repurchase Rights under the Restricted Stock Purchase Agreement, if applicable.
Within ten days of receipt of the aforementioned documents, the Pledge Holder
shall deliver the designated Shares to the Pledgor. The Secured Party may waive
any of the foregoing requirements and in such event shall notify the Pledge
Holder of the same.
Section 7. Pledge Holder.
7.1 The Pledge Holder shall only be obligated to take action, including
disbursement, with respect to the Collateral pursuant to Section 6 or this
Section 7, or upon receipt of written instructions from the Chief Executive
Officer of the Secured Party. The Pledge Holder is authorized to make delivery
against payment as directed by the parties hereto.
7.2 If the Pledge Holder shall become unable (in its sole discretion) to
continue in its capacity as Pledge Holder or notify the Parties hereto of its
desire to be relieved of any further obligations hereunder, then the Collateral
shall be delivered to the successor Pledge Holder which shall be an individual
or corporation designated by the Secured Party. If the Secured party shall fail
to designate a successor within ten (10) business days after having been
requested to do so, then the Pledge Holder may designate a successor bank or
trust company.
7.3 The Pledge Holder shall not be bound in any way by any other agreement
between the parties hereto as to which the Pledge Holder is not a party whether
or not it has knowledge
PAGE 2 - PLEDGE AGREEMENT
<PAGE>
thereof, nor by any notice of a claim or demand with respect to this Agreement
or the Collateral, and shall be required only to hold and distribute the
Collateral as herein provided. The Pledge Holder shall have no duties and
responsibilities other than those expressly set forth herein. The Pledge Holder
may retain and consult with legal counsel and shall be fully protected with
respect to any action taken or omitted on the advice of counsel. Pledge Holder
shall have no liability whatsoever arising from any of its actions or omissions
hereunder. The Pledge Holder may rely on any certificate, statement, request,
consent, waiver, receipt, agreement or other instrument which it believes to be
genuine and to have been signed and presented by an appropriate person or
persons.
7.4 The retention and distribution of the Collateral in accordance with the
terms and provisions of this Agreement shall fully and completely release the
Pledge Holder from any obligation or liability assumed by it hereunder as to the
Collateral.
7.5 The Pledgor and the Secured Party agree to and do hereby indemnify and hold
the Pledge Holder harmless against any and all losses, damages, claims and
expenses, including reasonable attorneys' fees, that may be incurred by it by
reason of its compliance with the terms of this Agreement. If as a result of any
disagreement between the parties hereto and/or adverse demands and claims being
made by any and all of the parties upon the Pledge Holder, the Pledge Holder
shall become involved in litigation, including any interpleader brought by it,
which it shall be entitled to do at any time it considers appropriate, the
Pledgor and the Secured Party agree that they are and shall be jointly and
severally liable to the Pledge Holder on demand for all costs, expenses and
attorneys' fees it shall incur and/or be compelled to pay by reason of such
litigation and the Pledge Holder shall have a lien upon the Collateral in its
possession hereunder to secure the repayment of such expenses, costs and
attorneys' fees.
7.6 The Pledgor and the Secured Party may elect to terminate Pledge Holder by
submitting written notice thereof to the Pledge Holder, but may only do so
jointly. In the event of such termination, the Pledgor and the Secured Party
indemnify and hold the Pledge Holder harmless against any and all losses,
damages, claims and expenses, including reasonable attorneys' fees, that may be
incurred by it by reason of its compliance with the written notice provided to
it by the parties pursuant to this Section 7.6.
Section 8. Events of Default. Any one or more of the following events
constitutes an event of default ("Event of Default"):
8.1 Failure to pay within 15 days after the Maturity Date any amount of
principal or interest owing under the Note.
8.2 INTENTIONALLY OMITTED
8.3 A breach of or failure to perform any of the terms of this Agreement or the
Note (except failure to make payments owing under the Note) which has not been
cured within 20 days after
PAGE 3 - PLEDGE AGREEMENT
<PAGE>
notice has been given of such breach or failure, including, without limitation,
the representations and warranties contained in Section 5.
Section 9. Remedies. Upon the occurrence of any Event of Default, Secured Party
may, in the Secured Party's sole discretion and with or without further notice
to the Pledgor and in addition to all rights and remedies at law or in equity or
otherwise:
9.1 Avail itself of any of the rights or remedies provided by Section 7 of the
Promissory Note between Pledgor and Secured Party.
9.2 Repurchase, redeem, cancel or otherwise dispose of any or all of the Shares
in accordance with Section 10, below, if applicable.
Section 10. Sale upon Default. Pledgor and Secured Party acknowledge and agree
that the Shares are restricted, unregistered stock that is difficult to value
and for which no public market exists. Notwithstanding the proposed initial
public offering of common stock of the Secured Party, the parties further agree
that the Shares are not currently subject to sale in a "recognized market" as
that term is described in Article 9, Section 504 of the Uniform Commercial Code.
The Pledgor and the Secured Party wish to agree to reasonable standards for
conducting a commercially reasonable sale of the Shares. Without limiting rights
and remedies otherwise available to the Secured Party, the parties agree that
compliance with the following steps shall satisfy requirements of a commercially
reasonable sale:
10.1 The sale may be either a public or a private sale, at the Secured Party's
discretion, and it may be for all or any portion of the Shares.
10.2 The Secured Party shall set a date for public sale of the Shares, or a date
after which a private sale may occur, which date shall be not less than 30 days
after the date notice of the sale is given to the Pledgor, and shall send
written notification to the Pledgor in advance regarding the date and the time
of the public sale, or the date after which a private sale may occur.
10.3 Any public sale shall take place at Sacramento, California or any other
site within the State of California which the parties have agreed to.
10.4 Within seven days of receipt of a written request, Pledgor shall provide
the Secured Party with information requested by the Secured Party for compliance
with state or federal securities laws.
10.5 At any sale of any of the Shares, the Secured Party may restrict the
prospective bidders or purchasers to persons or entities who, by certain
representations made by them, would render registration of the sale under state
or federal securities laws unnecessary.
PAGE 4 - PLEDGE AGREEMENT
<PAGE>
The provisions of this Section 10 will not apply in the event that at the time
of sale upon default a public market exists for the Collateral whereby the
securities of the Secured Party are trading on a regional or national stock
exchange.
Section 11. Miscellaneous Provisions.
11.1 Amendment and Modification. Subject to applicable law, this Agreement may
be amended, modified, or supplemented only by a written agreement signed by the
parties.
11.2 Waiver of Compliance; Consents
11.2.1 Any failure of any party to comply with any obligation, covenant,
agreement, or condition herein may be waived by the party entitled to the
performance of such obligation, covenant, or agreement or who has the benefit of
such condition, but such waiver or failure to insist upon strict compliance with
such obligation, covenant, agreement, or condition will not operate as a waiver
of, or estoppel with respect to, any subsequent or other failure.
11.2.2 Whenever this Agreement requires or permits consent by or on behalf of
any party hereto, such consent will be given in a manner consistent with the
requirements for a waiver of compliance as set forth above.
11.3 Notices. All notices, requests, demands, and other communications required
or permitted hereunder will be in writing and will be deemed to have been duly
given when delivered by hand or two days after being mailed by certified or
registered mail, return receipt requested, with postage prepaid to the Pledgor
at:
Thomas E. Kees
to the Secured Party at:
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 100
Roseville, CA 95561
Attn: Secretary
to the Pledge Holder at:
Robert Ernest Gyemant, Esq.
Rosen & Gyemant
350 W. Colorado Blvd., Suite 210
Pasadena, CA 91105
PAGE 5 - PLEDGE AGREEMENT
<PAGE>
or to such other address as parties furnishes to each other pursuant to the
above.
11.4 Titles and Captions. All section titles or captions contained in this
Agreement are for convenience only and shall not be deemed part of the context
nor effect the interpretation of this Agreement.
11.5 Priority of Agreements. In the event of a conflict between the provisions
of this Agreement and the Employment Agreement between the Pledgor and the
Secured Party, the Employment Agreement shall control.
11.6 Entire Agreement. This Agreement contains the entire understanding between
and among the parties and supersedes any prior understandings and agreements
among them respecting the subject matter of this Agreement.
11.7 Agreement Binding. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the parties hereto.
11.8 Attorney Fees. In the event a suit or action is brought by any party under
this Agreement to enforce any of its terms, or in any appeal therefrom, it is
agreed that the prevailing party shall be entitled to reasonable attorneys fees
to be fixed by the arbitrator, trial court, and/or appellate court.
11.9 Computation of Time. In computing any period of time pursuant to this
Agreement, the day of the act, event or default from which the designated period
of time begins to run shall be included, unless it is a Saturday, Sunday, or a
legal holiday, in which event the period shall begin to run on the next day
which is not a Saturday, Sunday, or legal holiday, in which event the period
shall run until the end of the next day thereafter which is not a Saturday,
Sunday, or legal holiday.
11.10 Pronouns and Plurals. All pronouns and any variations thereof shall be
deemed to refer to the masculine, feminine, neuter, singular, or plural as the
identity of the person or persons may require.
11.11 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of California.
11.12 Presumption. This Agreement or any section thereof shall not be construed
against any party due to the fact that said Agreement or any section thereof was
drafted by said party.
11.13 Further Action. The parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement.
PAGE 6 - PLEDGE AGREEMENT
<PAGE>
11.14 Parties in Interest. Nothing herein shall be construed to be to the
benefit of any third party, nor is it intended that any provision shall be for
the benefit of any third party.
11.15 Savings Clause. If any provision of this Agreement, or the application of
such provision to any person or circumstance, shall be held invalid, the
remainder of this Agreement, or the application of such provision to persons or
circumstances other than those as to which it is held invalid, shall not be
affected thereby.
11.16 Counterparts. This Agreement may be executed in counterparts, each thereof
is hereby declared to be an original, and all shall constitute one and the same
Agreement.
Dated:
"PLEDGOR" "SECURED PARTY"
Legacy Brands, Inc.,
By:
- --------------------------------- --------------------------------
Thomas E. Kees Title:_____________________________
"PLEDGE HOLDER"
Rosen & Gyemant, a professional law corporation
Robert Ernest Gyemant hereby consents to act as Pledge Holder pursuant to this
Stock Pledge Agreement.
By:
-----------------------------------
Robert Ernest Gyemant
PAGE 7 - PLEDGE AGREEMENT
6.23
MANUFACTURING AGREEMENT BY AND BETWEEN LEGACY BRANDS, INC., AND
KISKO PRODUCTS DATED MAY 28, 1997
[TO COME]
Exhibit 6.24
CAPITOL BAY SECURITIES
A Private Brokerage & Investment Bank
2200-B Douglass Blvd., Suite 100 Member 50 California Street, Suite 2920
Roseville, California 95661 NASD/SIPC San Francisco, California 94111
Telephone: (916) 782-5522 Telephone: (415) 677-0800
Facsimile: (916) 782-6779 Facsimile: (415) 677-0830
June 25, 1997
LEGACY BRANDS, INC.
PLACEMENT AGENT AGREEMENT
Thomas E. Kees, Chief Executive Officer
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 100
Roseville, CA 95661
Gentlemen:
LEGACY BRANDS, INC., a California corporation ("Company") desires to
retain CAPITOL BAY SECURITIES ( the "Placement Agent" sometimes referred to
herein as "us" or "we" or "our") in connection with a proposed private offering
and a limited public offering within California, on a best efforts basis, of up
to 1,600,000 shares of common stock (the "Shares"), at the per share price of
$2.50 for a total offering of up to $4,000,000 (the "Offering"), pursuant to a
Confidential Private Placement Memorandum or similar document ("Memorandum"),
which is delivered to prospective investors in the Offering. The private
offering will terminate on August 29, 1997, unless extended by the Company and
Placement Agent for a period of up to ninety (90) days at which point the
limited public offering in California may commence. If applicable, the Company
shall file an application for qualification by permit with the California
Department of Corporations in order to qualify the limited public offering of
the Shares in California. The Placement Agent and the Company understand that
the Department of Corporations may, as a condition of qualification, impose
certain restrictions on the limited public offering in California which may
require modification of the Placement Agent Agreement ("Agreement") and related
agreements. We will enter into an agreement with certain other broker-dealers
and may select a co-manager for the Offering. The Placement Agent may enter into
an agreement with such co-manager or other party to share in the fees and
compensation payable pursuant to this Agreement as partial consideration for the
co-manager entering into certain agreements. We have been selected by the
Company as Placement Agent for the Company in accordance with
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<PAGE>
the terms and conditions set forth in the Confidential Private Placement
Memorandum, and in this Agreement. The Confidential Private Placement Memorandum
and any Appendix, Amendment, or Supplement thereto will be referred to herein
collectively as the "Memorandum." The Company hereby agrees with us as follows:
1. REPRESENTATIONS, WARRANTIES AND AGREEMENTS OF THE COMPANY. The
Company represents and warrants to, and agrees with the Placement Agent that:
a. While the Company intends to file a registration statement
covering all of its issued and outstanding shares of Common Stock and
certain other shares with the Securities and Exchange Commission
("SEC") on Form 10-SB under the Securities Exchange Act of 1934
("Exchange Act") contemporaneously with or as soon as practicable after
this Offering, the Company is not currently subject to the requirements
of Section 12, Section 13 or Section 15(d) of the Exchange Act and the
Company is not currently in default (i) on any indebtedness for
borrowed money, (ii) on any lease, or (iii) under any material contract
to which the Company is a party except as described in the Memorandum.
b. Neither the offer, nor the sale of the Shares has been or
will be registered with the SEC. The Shares will be offered and sold in
reliance upon the exemptions provided in the Securities Act of 1933, as
amended ("Act") and Rules and Regulations promulgated under the Act.
The Company will provide to the Placement Agent for delivery to all
offerees and purchasers and their representatives, any information,
documents and instruments which the Placement Agent or the Company
deems necessary to comply with the rules, regulations and judicial and
administrative interpretations respecting compliance with such
exemptions, with the Act, and with the Exchange Act.
c. The Company shall, with the assistance of legal counsel
experienced in securities law, have carefully prepared the Memorandum,
and, to the best of the Company's knowledge, it shall comply with the
information and disclosure requirements under the Act and the Exchange
Act. The Company shall make all required federal and state filings. The
Company shall at its own expense prepare and furnish to us a reasonable
number of copies of that supplement or amendment for such distribution.
d. Subscriptions for Shares shall be paid for upon the terms set forth
in the Memorandum.
e. Except as to information provided by us in writing for
inclusion in the Memorandum, as to which the Company makes no
representation or warranty hereunder, the Memorandum as of its date and
at all times subsequent thereto up to and including the Offering
Termination Date (as defined below) will not include any untrue
statement of material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not
misleading.
2
<PAGE>
f. The financial information concerning the Company as
disclosed in the Memorandum is true and accurate as of the dates
indicated therein, and there has not been, as of the date of this
Agreement, and there will not be, as of the last Closing hereunder (as
defined below), and the Offering Termination Date, any material adverse
changes thereto.
g. Except as disclosed in the Memorandum, the Company does not
have any material contingent liabilities, obligations or claims against
it nor has it received threats of such claims. Subsequent to the date
of the Memorandum and prior to the last Closing hereunder and/or the
Offering Termination Date, (i) there shall not be any material adverse
change in the condition, financial or otherwise, of the Company or its
business, (ii) there shall not have been any material transactions
entered into by the Company that are not disclosed in the Memorandum or
any amendment or supplement thereto, and (iii) the Company shall not
have incurred any material obligations, contingent or otherwise, which
are not disclosed in the Memorandum.
h. The Company is not in default in the performance of any
material obligation, agreement or condition except as described in the
Memorandum. The execution and delivery of this Agreement, the
consummation of the transactions herein contemplated, and compliance
with the terms of this Agreement, will not conflict with or result in a
breach of any of the terms, conditions or provisions of, or constitute
a default under, any agreement or instrument to which the Company is a
party or by which the Company is bound, or, to the best of the
Company's knowledge, any existing law, order, rule, regulation, writ,
injunction or decree of any government, governmental instrumentality,
agency or body, arbitration tribunal or court, domestic or foreign.
Except as described in the Memorandum, the consent, approval,
authorization or order of any court or governmental instrumentality,
agency or body is not required for the consummation of the transactions
herein contemplated, except such as may be required under the blue sky
or securities laws of any state or jurisdiction.
i. The Company is on the date hereof and will be on the date
of the last Closing and Offering Termination Date duly formed, validly
existing and in good standing as a corporation under the laws of the
state of California with full power and authority to conduct its
business, present and proposed, as described in the Memorandum; the
Company has full power and authority to enter into this Agreement; and
the Company is, to the extent required by applicable law, duly
qualified and in good standing as a foreign corporation in each
jurisdiction other than California in which the Company owns or leases
real property or transacts business and in which such qualification is
required in connection with the business of the Company as described in
the Memorandum.
j. The Company has not sold any securities of the Company or any other
entity which would be integrated or aggregated with the offer and sale of the
Shares
3
<PAGE>
contemplated hereby. The Company will not offer or sell any securities
which would be integrated or aggregated with the sale of Shares in the
Offering.
k. On the date of this Agreement either no lawsuits are
pending against the Company or attached hereto as Exhibit C in summary
form is a description of litigation pending against the Company.
l. The Company does not know of any outstanding claims for
compensation in the nature of a finder's fee or origination fee with
respect to the sale of the Shares hereunder except for fees which are
disclosed in the Memorandum.
m. Except as disclosed in Schedule 1m., each material contract
to which the Company is a party has been duly and validly executed, is
in full force and effect in all material respects in accordance with
its terms, and none of such contracts has been assigned by the Company;
and the Company does not know of any present situation or condition or
fact which would prevent material compliance with the terms of such
contracts, as amended to date. Except for amendments or modifications
of such contracts in the ordinary course of business, the Company does
not have any intention of exercising any right it may have to cancel
any of its obligations under any of such contracts and it does not have
knowledge that any other party to any such contracts has any intention
not to render full performance under such contracts.
n. The Company has and will have filed all tax returns which
are required to be filed as of the last Closing (as defined herein) and
will have paid all taxes shown on such returns and on all assessments
received by them to the extent such have become due.
o. The Company possesses adequate certificates or permits
issued by the appropriate federal, state and local regulatory
authorities which are necessary to conduct its business and to retain
possession of its properties being utilized in its business.
p. The execution and delivery of this Agreement by the Chief
Executive Officer of the Company, Thomas E. Kees, creates a valid,
binding and legally enforceable obligation of the Company.
q. The Company will timely comply with any and all filing,
notice and reporting requirements under federal and state securities
laws applicable to the Offering.
r. Neither the Company nor any of its officers or directors:
(1) Has filed a registration statement which is
the subject of any pending proceeding or
examination under Section 8 of the Act or is
the subject of any refusal order or stop
order thereunder, within five years prior to
the date of this Agreement;
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<PAGE>
(2) Is subject to any pending proceeding under
Rule 261 or any similar rule adopted under
Section 3(b) of the Act or to an order
entered thereunder, within five (5) years
prior to the date of this Agreement;
(3) Has been convicted within five (5) years
prior to the date of this Agreement of any
felony or misdemeanor in connection with the
purchase or sale of any security or
involving the making of any false filing
with the SEC;
(4) Is subject to any order, judgment or decree
of any court of competent jurisdiction
temporarily or preliminarily restraining or
enjoining, or is subject to any order,
judgment or decree of any court of competent
jurisdiction or any governmental or
regulatory body entered within five (5)
years prior to the date of this Agreement
permanently restraining or enjoining such
person from engaging in or continuing any
conduct or practice in connection with the
purchase or sale of any security or
involving the making of any false filing
with the SEC;
(5) Is subject to a United States Postal Service
false representation order entered under
Section 3005 of Title 39, United States
Code, within five years prior to the date of
this Agreement or is subject to a temporary
restraining order or preliminary injunction
entered under Section 3007 of Title 39,
United States Code, with respect to conduct
alleged to have violated Section 3005 of
Title 39, United States Code;
(6) Is subject to an order of the SEC entered
pursuant to Section 15(b), 15B(a) or 15B(c)
of the Exchange Act or is subject to any
order of the SEC entered pursuant to Section
203(e) of the Investment Advisors Act of
1940;
(7) Is suspended or expelled from membership in
or suspended or barred from association with
a member of an exchange registered as a
national securities exchange pursuant to
Section 6 of the Exchange Act, an
association registered as a national
securities association under Section 15A of
the Exchange Act, or a Canadian securities
exchange or association for any act or
omission to act constituting conduct
inconsistent with just and equitable
principles of trade;
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<PAGE>
(8) Is currently named in a Formal Order of
Investigation issued by the SEC; or
(9) Is a party to any proceeding which could
result in a conviction, order, judgment or
decree of the type described in Sections
1(r)(3), (4), (5), (6), or (7) hereof.
s. The Company will use the proceeds from the sale of the
Shares substantially in the manner set forth in the Memorandum.
t. The Company will secure the written agreement and consent
of beneficial owners of 25,000 or more shares of Common Stock and all
officers and directors of the Company not to effect public sales of
such shares under Rule 144 or otherwise for a period of six (6) months
following the last Closing without prior written consent of the
Placement Agent.
2. REPRESENTATIONS AND WARRANTIES OF THE PLACEMENT AGENT. We
represent and warrant to the Company that:
a. This Agreement has been duly authorized, executed
and delivered by us and is a valid and binding agreement on our part in
accordance with its terms.
b. We are a broker dealer in securities duly registered
pursuant to the provisions of the Exchange Act and are a member in good
standing of the National Association of Securities Dealers, Inc.
("NASD"), and we are duly licensed as a broker dealer in securities
under the applicable statutes and regulations of each state in which
the Shares will be sold. We agree to maintain all of the foregoing
registrations in good standing throughout the term of the Offering and
we agree to comply with all statutes and other requirements applicable
to us as a broker dealer in securities pursuant to those requirements,
and notify the Company in writing should our registration status
change.
c. Pursuant to our appointment we will:
(1) Limit the placement of the Shares to persons
whom we have reasonable grounds to believe
(a) meet the financial and other suitability
standards set forth in the Memorandum or (b)
are "accredited investors" as the term is
defined in the federal securities laws (the
"Investors").
(2) We will provide each offeree with a complete
copy of the Memorandum during the course of
the Offering and prior to sale.
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(3) Until the termination of this Agreement, if
any event affecting the Company or us shall
occur which, in the opinion of our legal
counsel, should be set forth in a supplement
or amendment to the Memorandum, we agree to
distribute such supplement received a copy
of the Memorandum from us and we further
agree to include such supplement or
amendment in all further deliveries of the
Memorandum.
d. Information relating to us in the Memorandum, or any
amendment or supplement thereto, is true and correct.
e. We will not allow the offer or sale of the Shares in any
state until such time as we are advised by our legal counsel that the
Shares may be offered by a participating dealer for sale in such
state(s).
f. We will retain in our permanent files copies of all
Subscription Documents as completed by each purchaser of Shares.
g. Until the Offering Termination Date, we will promptly
deposit all cash received from investors in this Offering
("Subscribers") for the Shares into a bank escrow account ("Escrow
Account") with the Escrow Holder ("Escrow Holder") as described herein
and in the Escrow Agreement.
3. PURCHASE, SALE AND DELIVERY OF SHARES. On the basis of the
representations and warranties herein contained, and subject to the terms and
conditions herein set forth:
a. Subject to the conditions set forth in this Agreement, the
Company hereby employs us as its exclusive Placement Agent until the
Offering Termination Date, which date may be extended as described in
the Memorandum, to solicit subscriptions for all of the Shares, and we
agree to use our best efforts to obtain such subscriptions. Such
subscriptions shall be evidenced by execution by the Subscriber and the
Company of the Subscription Agreement which is attached as an exhibit
to the Memorandum. It is understood that the Company reserves the right
to refuse to sell a Share to any person; provided, however, acceptance
of a subscription by the Company shall not be unreasonably withheld. It
shall be the obligation of the Company based upon the information
contained in the Subscription Documents to determine, prior to
acceptance of a subscription, that the prospective investor either (i)
is "an accredited investor" as such term is defined in the federal
securities laws, or (ii) has, either alone or with his purchaser
representatives(s), such knowledge and experience in financial and
business matters that he is capable of evaluating the merits and risks
of the prospective investment and meets the financial suitability
standards described in the Memorandum.
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<PAGE>
b. Commencing with the date hereof and prior to the
termination of the Escrow Agreement, as provided therein, we will
collect or cause to be collected from Subscribers who agree to purchase
Shares through participating dealers, payments for the Shares sold, and
pursuant to the terms of the Escrow Agreement the entire amount of such
payments will be deposited into the Escrow Account promptly. We will
obtain from each purchaser properly executed Subscription Documents in
the form attached to the Memorandum. A copy of the Subscription
Documents shall be supplied to the Company for review and acceptance or
rejection. At each Closing hereunder, the funds then on deposit in such
Escrow Account will be distributed to the Company and the Placement
Agent in accordance with and subject to the provisions of the Escrow
Agreement and this Agreement.
c. It is agreed that offers to acquire Shares which are
accepted by the Company may nevertheless not become effective as to the
prospective investor if (i) the proceeds from the sale of the Shares
are not deposited with the Escrow Holder prior to termination as
described in Section 2 hereof, or (ii) this Agreement is terminated by
the Placement Agent or Company as provided in Section 11 hereof. In
either such event, the Company agrees to give written notice thereof to
us and all persons who have theretofore executed Subscription
Agreements, and to cause the Escrow Holder to return to such persons
all funds paid into the Escrow Account without deduction or interest
earned thereon.
d. We shall have the right to associate with other licensed
brokers and dealers to assist in the offering of the Shares as
described herein, in our sole discretion. Each participating dealer
will be required to promptly forward to us all Subscription Documents
and checks for the full subscription amount.
e. The following provisions shall apply prior to the Offering
Termination Date:
(1) As soon as practicable after our receipt of
the Subscription Documents and check from a
Subscriber we shall (i) send a receipt to
the Subscriber acknowledging receipt of the
purchase price of the Shares, (ii) deposit
the Subscriber's check into the Escrow
Account, and (iii) send a copy of the
Subscription Agreement to the Company via
hand delivery.
(2) Within three business days after receipt by
the Company of the Subscription Documents,
the Company shall either accept or reject
the subscription and send written notice of
such acceptance or rejection to us in
writing; provided, however, a subscription
shall be deemed accepted by the Company
unless we receive
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<PAGE>
notice of rejection from the Company within
such three business days.
(3) Upon the condition that the Subscriber's
check then represents good cleared funds,
by noon of the next business day after
acceptance or rejection of each
subscription by the Company, we shall (i)
if the subscription has been rejected by
the Company, so notify the Subscriber and
the Subscriber's participating dealer, if
any, and forward to the Subscriber all
funds advanced by the Subscriber, or (ii)
if the subscription has been accepted by
the Company, so notify the Subscriber and
the Subscriber's participating dealer, if
any.
(4) It is understood that the Placement Agent
shall be under no obligation to cause the
Escrow Holder to disburse funds to the
Company until the occurrence of a Closing.
A Closing shall occur when the aggregate
amount deposited in the Escrow Account
equals or exceeds $500,000 and thereafter
as soon as the funds so deposited equal or
exceed $500,000. The Placement Agent may
waive this dollar requirement in its sole
discretion. Within two (2) business days of
each Closing, the Company shall deliver to
us the securities purchased by the
Subscribers. Within two (2) business days
after our receipt of such securities, we
shall instruct the Escrow Holder to wire
the net proceeds (i.e., gross proceeds less
commissions and expense reimbursements) of
such subscription to the Company pursuant
to the instructions received from the
Company. We shall also not be obliged to
distribute funds to the Company if the
Company has not performed its obligations
hereunder or is not in compliance with its
representations, warranties, or agreements
hereunder. If we determine that the Company
has not performed or is not in compliance
with such representations, warranties, or
agreements hereunder, we shall advise the
Company in writing of such determination.
We shall thereafter request a form of
certification by counsel to the Company
that such non-compliance is corrected,
which shall be in form satisfactory to our
counsel. We may waive any non-compliance.
f. The Offering Termination Date shall be the first to occur
of the following:
(1) the date upon which all Shares offered are sold;
(2) the last Closing;
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<PAGE>
(3) the date the Escrow Agreement is terminated as
provided therein; and
(4) the date this Agreement is terminated as
provided herein.
g. The Company understands that our agreement to use our best
efforts shall require us to encourage our registered representatives to
solicit purchasers for the Shares, and the Company understands that we
cannot and will not require that our registered representatives solicit
purchasers for the Shares. During the period of this Offering we are
not precluded from participating in other offerings and we are not
otherwise limited or prevented from carrying on our customary business
as a securities broker-dealer.
4. COMPENSATION. We will receive, as compensation for acting as
Placement Agent, a fee of fifteen percent (15%) of the gross sales amount of any
and all Shares sold in the Offering, as and when received by the Company. This
fifteen percent fee is made up of a ten (10%) percent commission, a
non-accountable expense fee of three percent (3%) and a due diligence fee of two
percent (2%) of the aggregate value of Shares sold in this Offering.
The Placement Agent, in its sole discretion, may offer and sell
additional Shares for and on behalf of the Company in an amount equal to fifteen
percent (15%) of the number of Shares sold in the Offering (the "Over-Allotment
Option"). The Over-Allotment Option will terminate sixty (60) days after the
Offering Termination Date.
4a. REPRESENTATION ON THE BOARD OF DIRECTORS; OBSERVATION RIGHTS. The
Company shall cause one (1) nominees of Placement Agent to be elected to the
Company's Board of Directors not later than thirty (30) days following the last
Closing hereunder. The nominees shall be reasonably satisfactory to the Company,
and the Company shall use its best efforts to secure re-election of such
nominees to the Board of Directors for two additional one-year terms thereafter.
A representative of the Placement Agent (the "Observer") shall be afforded the
right to attend all meetings of the Board of Directors of the Company for a
period of three (3) years from the date hereof, but not committees thereof, as
an observer, without the right to participate in or vote on any matters. The
Company shall provide to the Observer notice of all such meetings at the same
time and in the same manner as shall be provided to directors. Any reports,
data, plans or information of any kind disseminated in preparation for, or at,
such Board Meetings, or in any documents or materials furnished in connection
therewith or otherwise provided to such Observer, shall be maintained as the
proprietary and confidential property of the Company and may not be disclosed,
disseminated or utilized in any manner without the written consent of the Board
of Directors of the Company. Such Observer shall also comply with all rules and
regulations, including limitations upon disclosure of information and trading of
securities as, may be imposed by the Act or Exchange Act or rules or regulations
promulgated thereunder as applicable to a person having such Observation Rights.
The Company shall bear the costs and expenses incurred by the nominee in
connection with the performance of his/her duties hereunder. The Placement Agent
will bear the costs and expenses
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<PAGE>
incurred by the Observer and/or Placement Agent in connection with observation
rights hereunder.
5. EXPENSES. The costs and expenses of the Offering shall be governed
by Section 14 of this Agreement.
6. FURTHER COVENANTS AND ARRANGEMENTS. The Company further agrees and
covenants with us that:
a. During the Offering, the Company will immediately notify us
in writing of the occurrence of any event which could have a material
adverse effect upon the Company or which would require a change in the
information contained in the Memorandum.
b. On the date of the last Closing hereunder, the Company
shall furnish the Placement Agent with an opinion from legal counsel to
the Company, which opinion shall be addressed to the Placement Agent
and acceptable to the Placement Agent (the "Opinion"), to the effect
that such counsel is of the opinion that:
(1) The Company is duly incorporated and a
validly existing corporation in good
standing under the laws of the state of
California, and in any other state or
country where it transacts business and has
full power and authority to own and operate
its properties and carry on its business as
set forth in the Memorandum.
(2) To the knowledge of counsel (as such phrase
is defined below), the issuance and sale of
the Shares and the consummation of the
transactions herein contemplated and
compliance with the terms of this Agreement
will not conflict with or result in a breach
of any of the terms, conditions, or
provisions of or constitute a default under
any agreement or instrument to which the
Company or any of its subsidiaries is a
party or by which the Company or any of its
subsidiaries or any of their property is
bound, or any existing law (provided this
paragraph shall not relate to federal or
state securities laws), order, rule,
regulation, writ, injunction, or decree
directed to the Company or any of its
subsidiaries of any government, governmental
instrumentality, agency, body, arbitration
tribunal, or court, domestic or foreign,
having jurisdiction over the Company or any
of its subsidiaries or their property.
(3) To the knowledge of counsel, neither the
Company nor any of its subsidiaries is in
default with respect to any of the contracts
or agreements to which it is a party and the
offering of the Shares
11
<PAGE>
will not cause the Company or any of its
subsidiaries to become in default in any
material respect under any of its contracts
or agreements.
(4) To the knowledge of counsel, the Memorandum
complies as to form in all material respects
with the requirements of the Act and the
Rules and Regulations thereunder, and to the
knowledge of counsel the Memorandum does not
contain any untrue statement of a material
fact or omit to state a material fact
required to be stated therein or necessary
to make the statements therein not
misleading in light of the circumstances
under which made (except that no opinion
need be expressed as to financial statements
which are contained in the Memorandum); and
such counsel is familiar with all contracts
specifically referred to in the Memorandum
and such contracts are sufficiently
summarized or disclosed therein or included
as exhibits thereto as required, and such
counsel does not know of any other matters
or contracts that are required to be
summarized or disclosed or included as
exhibits thereto, and such counsel does not
know of any legal or governmental
proceedings pending or threatened to which
the Company or any of its subsidiaries is
subject of such a character as would be
required to be disclosed in the Memorandum
which is not disclosed and properly
described therein.
(5) This Agreement has been properly executed by
the Company and is a valid and binding
agreement of the Company and is enforceable
according to its terms, except as may be
affected by principles of equity, bankruptcy
laws and other similar laws affecting the
rights of creditors generally.
(6) The directors of the Company, as of the date
of the opinion letter, have been duly
elected by the shareholders or have been
duly appointed pursuant to the requirements
of California law, or the law of any
jurisdiction in which such appointment is
necessary to conduct its business, and the
Company's articles of incorporation and
bylaws.
(7) Such other matters as are reasonably
requested by the Placement Agent.
The phrase "to the knowledge of counsel" as used herein refers
to matters within such counsel's actual knowledge based upon its
representation of the Company in connection with the Offering. The
Placement Agent does not expect that such counsel has made an
independent investigation of any factual matters or review of any
judgments, decrees, franchises, certificates, permits or the like or
any laws and or that
12
<PAGE>
counsel has made an independent search of the records of any judicial
authority or governmental agency needed in order to supply the opinion.
c. Our obligations hereunder shall be expressly subject to the
accuracy of and compliance with the representations, warranties and
agreements made by the Company which are contained herein as of the
date of this Agreement and for a period of three months after the last
Closing.
d. The Company shall as a condition to and prior to any
Closing hereunder have furnished to the Placement Agent a certificate
dated as of the date hereof and as of the Closing signed by the Chief
Executive Officer of the Company, to the effect that:
(1) The representations and warranties of the
Company in this Agreement are true and
correct, the Company has complied in all
material respects with all of its agreements
contained in this Agreement, and the Company
has satisfied or will satisfy all of the
conditions on its part to be performed or
satisfied under this Agreement.
(2) The respective parties executing such
certificate have each carefully examined the
Memorandum, and the Memorandum contains all
statements required to be stated therein,
and all statements contained therein are
true and correct in all material respects,
and the Memorandum does not include any
untrue statement of a material fact or omit
to state any material fact required to be
stated therein or necessary to make the
statements therein not misleading, and there
has occurred no event required to be set
forth in an amended or a supplemented
Memorandum or Appendix which has not been so
set forth.
(3) This Agreement constitutes a valid and
binding agreement of the Company enforceable
according to its terms.
(4) Except as set forth in the Memorandum, since
the respective dates as of which information
is given in the Memorandum and prior to the
date of such certificate, (A) there has not
been any adverse change, financial or
otherwise, in the affairs or financial
condition of the Company, and (B) the
Company has not incurred any substantial
liabilities, direct or contingent, or
entered into any transactions, otherwise
than in the ordinary course of business.
e. The Company shall make available to each potential
purchaser, upon the written request of such potential purchaser, at a
reasonable time prior to his purchase of Shares, the opportunity to ask
questions and receive answers concerning the terms and conditions of
the Offering and to obtain any additional information which the Company
13
<PAGE>
possesses or can acquire without unreasonable effort or expense that is
necessary to verify the accuracy of the information provided to such
potential purchaser in the Memorandum or otherwise.
f. The Company shall timely file with the SEC the required
notice(s) on Form D which contains the information required by
Regulation D under the Act and shall similarly file the required
notice(s) with the California Department of Corporations and all other
applicable state jurisdictions.
g. Subject only to the conditions of this Agreement, the
Company will issue all of the Shares subscribed for in the Offering in
the name of the persons who have subscribed for such Shares. Except as
specifically provided in this Agreement, neither the Placement Agent
nor the Company shall have the right to terminate this Agreement or the
Offering after the date of this Agreement.
7. PARTICIPATING BROKERS AND DEALERS. We shall have the right to
associate with other licensed brokers and dealers to assist us in the sale of
the Shares, each of whom shall be a member in good standing of the NASD.
However, any concession paid to such participating brokers and dealers will be
paid by us from the fees described in Section 4 hereof. Further, no such
participating broker or dealer may be engaged unless such broker or dealer has
agreed in writing to the terms and conditions set forth in Section 8 hereof and
has entered into a selected dealer agreement with us.
8. INDEMNIFICATION AND CONTRIBUTION.
a. The Company agrees to indemnify and hold us harmless and
any participating brokers and dealers and each person who controls us
or them within the meaning of Section 15 of the Act from and against
any and all losses, claims, damages or liabilities, joint or several,
to which any such person may become subject, under the Act or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) (i) arise under federal or state securities
laws or any other statute or common law whether arising out of contract
or tort or are otherwise based upon any alleged violation of any of
such laws and which arise in connection with or relating to the offer
and sale of the Shares or (ii) arise out of or are caused by the breach
by the Company of the provisions of this Agreement, and such persons
will pay or reimburse us for any legal or other expenses (including,
but not limited to, reasonable attorneys' fees) reasonably incurred by
us in connection with investigating or defending any such claim, or
action, whether or not resulting in any liability. The foregoing
indemnity shall not apply with respect to violations or alleged
violations of law caused by us or any participating broker or dealer
within the meaning of subsection 8(c) below.
b. If any action is brought against us or any participating
broker or dealer or a controlling person in respect of which indemnity
may be sought against the Company pursuant to the foregoing paragraph,
the person seeking indemnity shall notify the Company against whom
indemnification is to be sought in writing of the institution
14
<PAGE>
of such action, and the Company, within five (5) days of service of
process or written notice whichever is first, shall assume the defense
of such action, and the payment of expenses reasonably and directly
related to such defense. Indemnity hereunder is conditioned upon such
notification. The person seeking indemnity shall have the right to
employ its own legal counsel in any such case, but, unless the Company
has declined to retain legal counsel and assume defense of the action,
the fees and expenses of such counsel shall be at the expense of such
person retaining such counsel. If the Company has refused to employ
legal counsel and assume defense of the action, then the reasonable
fees and expenses of legal counsel retained by the indemnified party
shall be paid by the Company. Legal counsel employed by the Company
shall be reasonably acceptable to the indemnified party. Anything in
this paragraph to the contrary notwithstanding, the Company shall not
be liable for any settlement of, or expenses incurred with respect to,
any such claim or action effected without its written consent, which
consent shall not be unreasonably withheld.
c. We agree, and we agree to cause each participating broker
or dealer to agree, to indemnify and hold harmless the Company and any
person who controls the Company within the meaning of the federal
securities laws against any and all losses, claims, expenses, damages
and liabilities (including reasonable attorneys' fees and disbursements
and other expenses for investigating or defending any actions or
threatened actions) to which the Company may become subject, (i) which
arise under the federal or state securities laws or any other statute
or common law or are otherwise based upon any alleged violations of
such laws and are based upon any untrue statement or alleged untrue
statement of a material fact contained in the Memorandum or any
amendment or supplement thereto or the omission or alleged omission to
state therein any material facts required to be stated therein or
necessary to make the statements therein not misleading, but only to
the extent such statements or omissions resulted from the use of
written information prepared by and furnished to the Company by us
specifically for use in the Memorandum or any amendment or supplement
thereto or (ii) which are caused by a material breach by us or such
person(s) of the provision to this Agreement or the agreement referred
to in Section 7 hereof. We agree to cause each participating broker or
dealer to agree to the indemnification set forth above with respect to
its actions and inactions described above. In case any action shall be
brought against the Company in respect of which indemnity may be sought
against us or any such participating broker or dealer shall have the
same rights and duties given to the Company, and each other person so
indemnified shall have the rights and duties given to us and any such
participating broker or dealer by the provisions of Section 8(b) above.
d. Notwithstanding anything to the contrary provided in this
Section 8, the indemnifying party shall not be obligated to pay legal
expenses and fees to more than one law firm in one jurisdiction in
connection with the defense of similar claims arising out of the same
alleged acts or omissions giving rise to such claims, notwithstanding
that such actions or claims are alleged or brought by one or more
parties against more than one indemnified party. Such law firm shall be
paid only to the extent of services performed by such law firm, and no
reimbursement shall be payable to such law firm
15
<PAGE>
on account of legal services performed by another law firm except where
another law firm acts as local counsel.
e. If the indemnifications provided for in this Section 8 are
unavailable or insufficient to hold harmless an indemnified party in
respect of any losses, claims, damages or liabilities (or actions in
respect thereof) referred to herein, then each indemnifying party shall
in lieu of indemnifying such indemnified party contribute to the amount
paid or payable by such indemnified party as a result of such losses,
claims, damages, or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect not only (i) the relative
benefits received by the Company and the Placement Agent and the
participating brokers or dealers from the Offering, but also (ii) the
relative fault of the Company and the Placement Agent and the
participating brokers or dealers in connection with the actions or
inaction which resulted in such losses, claims, damages, or liabilities
(or actions in respect thereof), as well as any other relevant
equitable considerations. The relative benefits received by the Company
and the Placement Agent and the participating brokers or dealers shall
be deemed to be in the same proportion as the total proceeds from the
Offering are actually received by the Company, the Placement Agent and
the participating brokers or dealers. The relative fault shall be
determined by reference to, among other things, whether the untrue or
alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by
the Company or the Placement Agent or the participating brokers or
dealers and each such party's relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Placement Agent and the participating
brokers and dealers agree that it would not be just and equitable if
contribution pursuant to this subsection were determined by pro rata
allocation or by any other method of allocation which does not take
into account the equitable considerations referred to above in this
subsection. The amount paid or payable by an indemnified party as a
result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection shall be deemed
to include any legal or other expenses to which such indemnified party
would be entitled if the indemnification subsections were applicable.
Notwithstanding the provisions of this subsection, the Placement Agent
and the participating brokers and dealers shall not be required to
contribute any amount in excess of the offering price of securities
actually distributed by it. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11 of the Act) shall
be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. For purposes of this subsection, each
person, if any, who controls the Placement Agent or any participating
broker or dealer within the meaning of the Act shall have the same
rights to contribution as the Placement Agent or any participating
broker or dealer and each person who controls, within the meaning of
the Act, the Company, shall have the same rights to contribution as the
Company. Any party entitled to contribution will promptly after receipt
of notice of commencement of any action, suit or proceeding against
such party in respect of which a claim for contribution may be made
against another party or parties under this subsection, notify such
party or parties from whom contribution may be sought, but the omission
so to notify such party or parties shall not relieve the party or
16
<PAGE>
parties from whom contribution may be sought from any obligation it or
they may have hereunder or otherwise. In the event the parties are
unable to agree upon the relative contributions required of them
pursuant to this subsection and either party institutes legal
proceedings for a determination thereof, the prevailing party shall be
entitled to recover from the other party all expenses incurred by the
prevailing party in connection with such determination including costs
of suit and reasonable attorneys' fees.
f. The indemnity and contribution agreements herein contained
are in addition to any liability which each party otherwise has to the
other.
g. The indemnity and contribution agreements herein contained
shall remain operative and in full force and effect, regardless of any
investigations made by or on behalf of any party and shall survive the
termination of this Agreement.
h. The Company and the Placement Agent agree to advise each
other immediately and confirm in writing the receipt of any threat of
or the initiation of any steps or procedures which would impair or
prevent the Offering. In the case of the happening of any such event,
neither the Company nor the Placement Agent will acquiesce in such
steps or procedures and each party agrees to actively defend any such
actions unless all parties agree to acquiesce in such actions in
writing.
9. PARTIES. This Agreement shall inure to the benefit of and be binding
upon us and the Company and their respective successors. Nothing expressed or
mentioned in this Agreement is intended or shall be construed to give any
person, firm or corporation, other than the parties hereto and their respective
successors, heirs and legal representatives and the controlling persons,
officers, and directors any legal or equitable right, remedy or claim under or
in respect of this Agreement or any provision herein or therein contained. This
Agreement and all conditions and provisions hereof and thereof are intended to
be for the sole and exclusive benefit of the parties hereto and their respective
successors, heirs and legal representatives and said controlling persons,
officers, and directors and their heirs and legal representatives, and for the
benefit of no other person, firm and corporation. No purchaser of Shares through
us shall be deemed to be a successor by reason merely of such purchase.
10. NOTICES. All notices hereunder shall be in writing and be delivered
at or mailed postage prepaid to the following addresses and shall be deemed
received on delivery if delivered in person and on the date of mailing if
mailed:
To the Company:
Legacy Brands, Inc.
2200-B Douglas Blvd., Suite 130
Roseville, CA 95661
Attn: Thomas E. Kees, Chief Executive Officer
To the Placement Agent:
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<PAGE>
Capitol Bay Securities
2200-B Douglas Blvd., Suite 130
Roseville, CA 95661
Attn: Stephen C. Kircher, President
11. TERMINATION. In addition to any termination rights described in the
Memorandum:
a. The Placement Agent shall have the right to terminate this
Agreement by giving notice as specified in Section 10 above:
(1) If the Company shall have failed, refused or
been unable to perform any of its material
obligations hereunder;
(2) If any other material condition hereunder
which is required to be fulfilled by the
Company, is not fulfilled; or
(3) If there has occurred in the sole discretion
of the Placement Agent, a material event
adversely affecting the Company or the
marketability of the Shares.
b. The Company shall have the right to terminate this
Agreement by giving notice as specified in Section 10 above; if the
Placement Agent shall have failed, refused or been unable to perform
any of its material obligations hereunder, without curing such failure,
refusal or inability for thirty (30) days.
c. If this Offering is terminated for any reason specified in
this Section, neither party shall have any liability to the other party
except with respect to the payment of expenses as provided in Section
14 hereof.
12. PLACEMENT AGENT'S WARRANTS. The Company will issue to the Placement
Agent, or its designates, Warrants to purchase shares of Common Stock of the
Company equal to ten percent (10%) (after giving effect to any exercise of the
Over-Allotment Option) of the number of Shares sold in the Offering (the
"Placement Agent's Warrants"). The Placement Agent's Warrants will be
exercisable ninety (90) days after the last Closing hereunder or the Offering
Termination Date, whichever is later, and for a period of three years thereafter
at an exercise price of $2.50. The Company will issue the Placement Agent
Warrants to us upon the last Closing or at Offering Termination Date, whichever
is later. Attached hereto as Exhibit B is a copy of a document entitled
Placement Agent Warrant Agreement which more fully describes the terms and
conditions of the Placement Agent's Warrants.
13. LEFT INTENTIONALLY BLANK
14. EXPENSES. The Company shall advance $20,000 to the Placement Agent,
$5,000 of which shall be paid to Placement Agent's Special Counsel for services
provided in connection
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with the Offering, to cover the expenses discussed in this Section 14 upon the
first Closing hereunder. In addition, all Offering expenses may be deducted from
net proceeds in the Escrow Account as incurred or as reimbursements. The Company
will pay to the Placement Agent, all fees and expenses of any legal counsel that
the Placement Agent may employ to represent it separately in connection with or
on account of the Offering. The Company will also pay all printing costs, filing
fees, "road show" expenses, mailing, telephone, travel, and clerical costs, and
all other office costs incurred or to be incurred by the Placement Agent or its
sales personnel in connection with the Offering. In addition to its obligation
to pay the fees and expenses hereunder, the Company shall pay all fees and
expenses incurred in connection with the Offering, including but not limited to
legal, printing, marketing, and accounting fees.
15. REGISTRATION RIGHTS. The Company shall use its best efforts to file
a registration statement under the Act with the SEC within ninety (90) days
after the last Closing covering the Placement Agent's Warrants, and any shares
of Common Stock underlying the Placement Agent's Warrants (collectively
"Registrable Securities"). Such registration statement shall be maintained
current as to financial and other information. In addition, the Company shall
take all other action necessary under federal or state law to allow resale by
the Placement Agent thereunder for a period of 6 months after the registration
statement is declared effective by the SEC.
All expenses incurred in connection with any registration under this
Section 15, including without limitation, all registration and filing fees,
printing expenses, fees and disbursements to counsel, blue sky fees and expenses
and expenses of any special audits incident to or required by such registration
are referred to herein as "Registration Expenses." All underwriting discounts
and selling commissions, if any, relating to any registration statement referred
to herein, are referred to as "Selling Expenses." The Company will pay all
Registration Expenses in connection with any registration pursuant to this
Agreement. Any Selling Expenses in connection with any registration pursuant to
this Section 15 shall be borne by the Company, the holders of the Individual
Warrants and any other persons whose shares are to be included in the
registration statement, pro rata in proportion to the securities registered
thereby being sold or registered by each of them. The Company agrees to
cooperate and shall direct its counsel and auditors to cooperate with the
Placement Agent and its counsel in the preparation of any registration statement
pursuant to this Agreement.
16. RIGHT OF FIRST REFUSAL. The Company agrees that for a period of
twenty-four (24) months from the last Closing hereunder, the Placement Agent
shall have a preferential right to purchase for its account or to sell for the
account of the Company any securities with respect to which the Company may seek
a public or private offering for cash. The Company will consult the Placement
Agent with regard to any such covered offering for cash and will offer us the
opportunity to purchase or sell any such securities on terms not less favorable
to the Company than it or they can secure elsewhere. The Placement Agent will
have thirty (30) days in which to accept such offer. If the Placement Agent
rejects such offer, the Company may sell such securities on terms not less
favorable than those offered to the Placement Agent. If such securities are not
sold within a period of one hundred eighty (180) days, we will once again have
the rights specified herein with respect to the sale or purchase of such
securities. The rights contained in this Section 16 are in addition to those
rights previously granted to us as the
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Company's investment banker or stemming from any current understandings between
us and the Company.
17. RETENTION AS INVESTMENT BANKER. The Placement Agent has been acting
as the Company's investment banker. The Company hereby affirms this
understanding and retains the Placement Agent for a period of two (2) years from
the date hereof as its exclusive Investment Banker to assist the Company in any
subsequent financings. The services provided by the Placement Agent will
include, but may not be limited to the following: Advising the Company as to the
manner in which future offerings may be structured; contacting and negotiating
with potential investors with a purpose of soliciting their interest in
investing in future offerings; and assisting the Company in the documentation
and closure of future offerings. The Placement Agent shall use its best efforts
in performing these services, but the parties understand that the Placement
Agent cannot guarantee a successful completion of future offerings. For this
service, the Company will pay the Placement Agent a fee of $2,500 per month for
the period of two (2) years from ninety days after the Offering Termination
Date.
18. ENTIRE AGREEMENT. This Agreement, the Escrow Agreement, and the
Placement Agent Warrant Agreement, all exhibits and attachments hereto, contain
the entire understanding between and among the Parties and supersedes any prior
understandings and agreements among them respecting the subject matter of this
Agreement.
19. AGREEMENT BINDING. This Agreement shall be binding upon the heirs,
executors, administrators, successors and assigns of the Parties hereto.
20. AMENDMENT AND MODIFICATION. Subject to applicable law, this
Agreement may be amended, modified, or supplemented only by a written agreement
signed by the Parties.
21. ATTORNEY FEES. In the event arbitration, suit or action is brought
by any party under this Agreement to enforce any of its terms, and in any appeal
therefrom, it is agreed that the prevailing party shall be entitled to
reasonable attorneys' fees to be fixed by the arbitrator, trial court, or
appellate court.
22. ARBITRATION. Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to this Agreement
or any agreements or instruments relating hereto or delivered in connection
herewith and based on or arising in contract or tort, shall, at the request of
any party be determined by arbitration. The arbitration shall be conducted in
Sacramento, California, United States of America, in accordance with the United
States Arbitration Act (Title 9, U.S. Code), notwithstanding any choice of law
provision in this Agreement, and under the Commercial Rules of the American
Arbitration Association ("AAA"). Any controversy concerning whether an issue is
arbitrable shall be determined by the arbitrator. Judgement upon the arbitration
award may be entered in any court having jurisdiction. The arbitrator shall not
have the authority to award punitive damages. The institution and maintenance of
an action for judicial relief or pursuit of provisional or ancillary remedy
shall not constitute a waiver of the right of any party, including the
plaintiff, to submit the controversy or claim to arbitration if any other party
contests such action for judicial relief.
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23. SAVINGS CLAUSE. If any provision of this Agreement, or the
application of such provision to any person or circumstance, shall be held
invalid, the remainder of this Agreement, or the application of such provision
to persons or circumstances other than those as to which it is held invalid,
shall not be affected thereby.
24. TITLES AND CAPTIONS. All section titles or captions contained in
this Agreement are for convenience only and shall not be deemed part of the
context nor effect the interpretation of this Agreement.
25. FURTHER ACTION. The Parties hereto shall execute and deliver all
documents, provide all information and take or forbear from all such action as
may be necessary or appropriate to achieve the purposes of the Agreement,
including, but not limited to, executing such documentation, as may be necessary
and appropriate to either party's interest.
26. COUNTERPARTS. The terms of the Agreement are contractual and not
merely recital. The Agreement may be signed in one or more counterparts, each of
which shall be deemed an original. Furthermore, facsimile copies shall be deemed
the same as originals. The Agreement shall be deemed fully executed and
effective when all Parties have executed at least one of the counterparts, even
though no single counterpart bears all such signatures.
27. GOVERNING LAW. This Agreement shall be construed in accordance with
the laws of the State of California.
28. WAIVER. Any term or condition hereunder, which inures in favor of
the Placement Agent may be waived by written consent of the Placement Agent,
provided, that any such waiver will not operate as a waiver of any other term or
condition not specifically set forth in such written consent.
29. LIQUIDATED DAMAGES. If within ninety (90) days from the execution
hereof, notwithstanding the willingness and ability of the Placement Agent to
complete the Offering, the Company cancels the Offering contemplated by this
Agreement for the purpose of consummating or agreeing to consummate another
private placement of the Company's securities, or other offering the Company
shall promptly pay the Placement Agent, as a fee, five percent (5%) of the
estimated gross proceeds of the Offering contemplated by this Agreement.
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If the foregoing correctly sets forth the understanding between us and
the Company, please indicate your acceptance thereof in the space provided
below, whereupon this letter and your acceptance shall constitute, as of the
date set forth above, a binding agreement between you and the Company in
accordance with the terms of such letter and such acceptance.
CAPITOL BAY SECURITIES
By:
Stephen C. Kircher
President
The terms and conditions set forth in the foregoing letter hereby are accepted
as of the date first above written:
Legacy Brands, Inc.
By:
Thomas E. Kees
Chief Executive Officer
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EXHIBIT A
ESCROW AGREEMENT
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EXHIBIT B
PLACEMENT AGENT WARRANT AGREEMENT
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EXHIBIT C
LITIGATION SUMMARY
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EXHIBIT D
AGREEMENT FOR TERMINATION, RELEASE AND WAIVER OF RIGHTS
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SCHEDULE 1.m.
The manufacturing agreement with Van den Bergh Foods has not been reduced to a
single written instrument.
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6.25
PLACEMENT AGENT WARRANT AGREEMENT BETWEEN LEGACY BRANDS, INC.
AND CAPITOL BAY SECURITIES
[TO COME]
11
FINANCIAL STATEMENTS CONTAINED IN PART F/S
