<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MAY 22, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
---------------------
FORM S-1
REGISTRATION STATEMENT
Under
the Securities Act of 1933
---------------------
NATURAL NUTRITION GROUP, INC.
(Exact name of registrant as specified in its charter)
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<S> <C> <C>
DELAWARE 2000 36-4042454
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code No.) Identification No.)
</TABLE>
135 S. LASALLE STREET, SUITE 1134, CHICAGO, ILLINOIS 60603, (312) 578-1110
(Address, including zip code, and telephone number, including area code,
of registrant's principal executive offices)
WILLIAM R. VOSS
CHAIRMAN OF THE BOARD, PRESIDENT AND CHIEF EXECUTIVE OFFICER
135 S. LASALLE STREET, SUITE 1134, CHICAGO, ILLINOIS 60603, (312) 578-1110
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
COPIES TO:
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<S> <C>
KENNETH W. MILLER, ESQ. JOHN D. WATSON, JR., ESQ.
KATTEN MUCHIN & ZAVIS LATHAM & WATKINS
525 WEST MONROE STREET, SUITE 1600 1001 PENNSYLVANIA AVE., N.W., SUITE 1300
CHICAGO, ILLINOIS 60661 WASHINGTON, D.C. 20004
(312) 902-5200 (202) 637-2200
</TABLE>
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE EFFECTIVE DATE OF THIS REGISTRATION STATEMENT.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box [ ].
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering: [ ].
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ].
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [ ].
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [ ].
CALCULATION OF REGISTRATION FEE
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==============================================================================================================
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM AGGREGATE AMOUNT OF
SECURITIES TO BE REGISTERED OFFERING PRICE(1) REGISTRATION FEE
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $.001 par value................. $50,000,000 $14,750
==============================================================================================================
</TABLE>
(1) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
---------------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT SHALL
FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SECTION 8(A), MAY
DETERMINE.
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<PAGE> 2
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED MAY 22, 1998
SHARES
NATURAL
NUTRITION GROUP
[BREADSHOP LOGO] [HEALTH VALLEY LOGO]
COMMON STOCK
---------------------
All of the shares of Common Stock, par value $0.001 per share (the "Common
Stock"), of Natural Nutrition Group, Inc. ("NNG" or the "Company") offered
hereby are being sold by the Company. Prior to this offering (the "Offering")
there has been no public market for the Common Stock. It is currently estimated
that the initial public offering price will be between $ and $ per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
Application will be made to have the Common Stock approved for quotation on
the Nasdaq National Market under the symbol "NNGI."
---------------------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" BEGINNING ON PAGE 9 OF THIS PROSPECTUS.
---------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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PRICE UNDERWRITING PROCEEDS
TO DISCOUNTS AND TO
PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share......................... $ $ $
Total(3).......................... $ $ $
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2) Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) The Company has granted the Underwriters a 30-day option to purchase up to
additional shares of Common Stock on the same terms and
conditions set forth above solely to cover over-allotments, if any. If such
option is exercised in full, the total Price to Public, Underwriting
Discounts and Commissions and Proceeds to Company will be
$ , $ , and $ ,
respectively. See "Underwriting."
---------------------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject to
the right of the Underwriters to reject any order in whole or in part. It is
anticipated that delivery of the shares of Common Stock will be made through the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland on or about
, 1998.
---------------------
BT ALEX. BROWN ADAMS, HARKNESS & HILL, INC.
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE> 3
[THE INSIDE COVER AND GATEFOLD PAGES OF THE PROSPECTUS CONTAIN PHOTOGRAPHS OF
CERTAIN OF THE COMPANY'S PRODUCTS AND A PHOTOGRAPH OF THE COMPANY'S
MANUFACTURING FACILITY IN IRWINDALE, CALIFORNIA]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and will make available quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
<PAGE> 4
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by, and should be read
in conjunction with, the detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. Unless
otherwise indicated, the information in this Prospectus assumes that (i) the
for-1 stock split, to be effected prior to the consummation of the
Offering, has occurred; (ii) the Company's Series A Preferred Stock has been
redeemed with a portion of the net proceeds of the Offering; and (iii) the
Underwriters' over-allotment option is not exercised.
The operations of Natural Nutrition Group, Inc. are conducted through its
wholly-owned subsidiary, Health Valley Company ("Health Valley"). Unless the
context otherwise requires, references in this Prospectus to the "Company" or
"NNG" include Natural Nutrition Group, Inc. and Health Valley on and after April
15, 1996. All references to the "Company" prior to April 15, 1996 refer to
Health Valley and its predecessors.
THE COMPANY
The Company is a leading manufacturer and marketer of premium natural and
organic food products in the United States. The Company markets (i) breakfast
cereals and granolas, (ii) granola bars, cereal bars, cookies, crackers and
other baked goods and (iii) canned and instant soups and chilis, as well as
other food products, primarily under its Health Valley(R) and Breadshop's(R)
brands. The Company's branded products are made using only natural ingredients,
without artificial flavors, colors, additives or preservatives. Many of the
Company's products are also made with "organic" ingredients, which are grown
without dependence upon artificial pesticides, chemicals or fertilizers.
The Company currently markets over 200 products and believes it has the
largest market share among marketers of natural food brands for its core product
categories -- breakfast cereals and granolas, baked goods, and soups and chilis.
Representative products of the Company include Health Valley(R) Spicy Vegetarian
Chili, Breadshop's(R) Honey Gone Nuts(R) Cereal, Health Valley(R) Apple Cobbler
Cereal Bars, Health Valley(R) Amazing Apple!(TM) Hot Breakfast Cereal and Health
Valley(R) Soy Moo(R) Non-Dairy Beverage.
The Company's products are sold primarily through natural and specialty
food distributors and ultimately to consumers through natural food retailers,
such as Whole Foods and Wild Oats, conventional grocery retailers, such as Fred
Meyer and Kroger, and other retail channels. The Company estimates that in 1997
approximately 35% of its products were sold in the natural food retail channel,
approximately 50% of its products were sold in the conventional grocery retail
channel and approximately 15% of its products were sold in other retail
channels. In 1997, the Company began to manufacture private label products for
certain of its customers.
The Company manufactures most of its products, unlike many natural food
companies that rely on contract manufacturing. The Company's manufacturing
operations are housed in a modern 155,000 square foot facility located in
Irwindale, California. The Company believes that by manufacturing most of its
products, it is able to better control the cost and quality of its products and
provide better service to its customers. The Company estimates that it is
generally utilizing less than 30% of the Irwindale facility's manufacturing
capacity. As a result, the Company believes significant operating leverage can
be achieved through growth. In addition, the Company's manufacturing capability
has enabled it to produce private label products for retailers, which increases
revenues and may also strengthen its business relationships with certain key
customers.
The natural and organic food market is highly fragmented and includes
several hundred manufacturers and marketers. The Company believes that continued
growth in this market combined with continued consolidation among retailers and
distributors will lead to consolidation among natural and organic food
manufacturers. Accordingly, a key element of the Company's growth strategy is to
pursue strategic acquisitions of natural and organic food companies with
products or brands that strengthen or complement the Company's product lines.
The Company believes that its manufacturing capability, its sophisticated
information systems and the experience and depth of its management team will
enable the Company to identify and
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realize synergies in connection with acquisitions which may give the Company
advantages over other potential acquirors.
NATURAL FOOD MARKET
According to Natural Foods Merchandiser ("NFM"), a leading industry
publication, the market for natural products grew at a rate of 20% between 1995
and 1996 and reached approximately $11.5 billion in 1996. According to NFM, the
organic food market, a segment of the natural products market, also grew at a
rate of 20% between 1995 and 1996 and was estimated at $3.0 billion in 1996. The
Company believes that growth in the natural and organic food market is being
propelled by several factors, including (i) consumers taking charge of their
health and well being through awareness of the link between diet and health and
improved eating habits, (ii) consumer concern over the purity and safety of
foods due to the presence of pesticide residues, artificial ingredients and
other chemicals and (iii) consumer awareness of environmental issues.
In recent years, changes in attitudes and beliefs have led to changes in
dietary habits. For example, from 1980 to 1995, per capita consumption of grains
and fruits -- two food groups of which the United States Department of
Agriculture recommends increased consumption -- grew by 30% and 20%,
respectively.
Demographic trends are also favorable for natural and organic foods. The
number of adults over the age of 35 is increasing rapidly. The U.S. Census
Bureau projects that between 1990 and 2000 the number of adults between the ages
35 to 54 will grow by 29% and the number of adults over age 54 will grow by 13%.
Since these demographic groups are the most frequent purchasers of the Company's
products, the Company believes the aging population will increase the number of
ultimate consumers of the Company's products.
COMPETITIVE STRENGTHS
The Company believes that its current market position is attributable to
the following competitive strengths:
Strong Brand Name Recognition and Leading Market Shares
The Health Valley(R) and Breadshop's(R) brand names, both of which have
been marketed by the Company and its predecessors for over 25 years, are two of
the leading brand names in the natural and organic food industry. The Company
believes that the Health Valley(R) brand is one of the most recognized natural
or organic food brands in the United States.
The Company believes that it has the leading market share in the natural
food and conventional grocery retail channels in each of its three core product
categories -- (i) breakfast cereals and granolas, (ii) granola bars, cereal
bars, cookies and other baked goods and (iii) canned and instant soups and
chilis -- which accounted for over 90% of the Company's revenues in 1997.
Expertise in Natural and Organic Ingredient Sourcing and Product Development
The Company has significant expertise in the sourcing of natural and
organic food ingredients and in the formulation of innovative natural products.
The Company believes it is one of the largest purchasers of organic raw
materials and food ingredients in the United States. The Company, together with
its predecessors, has been working with natural and organic formulations,
preparations and recipes for over 25 years. The Company has also developed
proprietary techniques which increase shelf life, improve flavor and enhance the
nutritional quality of the Company's food products, without relying on
artificial ingredients or preservatives.
Substantial Infrastructure
NNG operates a modern manufacturing center in Irwindale, California which
the Company estimates is generally operating at less than 30% utilization. In
addition, the Company has sophisticated, scalable information systems capable of
absorbing future growth. The Company believes the combination of excess
manufacturing capacity and scalable information systems creates a significant
opportunity to grow existing
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brands, develop new products, build its private label and contract manufacturing
businesses and acquire complementary brands which can be manufactured by the
Company without significant capital investment or additional fixed expenses.
Experienced Management Team
The natural and organic food industry is a relatively young industry,
consisting primarily of comparatively small, privately-owned businesses. As a
result, the management of such natural food companies often lacks the training
and experience commonly found in other more mature segments of the food
industry. The Company has recruited an experienced management team to oversee
current operations and will continue to recruit seasoned management to support
future growth and acquisitions. The Company's executive officers are veteran
senior managers with extensive food industry experience. The Company believes
that its larger size relative to most natural food companies enables it to
recruit and retain more highly qualified and specialized management than many of
its competitors.
GROWTH STRATEGY
The Company's objective is to be the leading manufacturer and marketer of
premium branded natural and organic foods. The key elements of the Company's
growth strategy are as follows:
Concentrate on the Growing Natural Food Market
The natural and organic food market is growing rapidly, and the Company is
concentrating its branded marketing activities exclusively in this market
segment.
Grow the Company's Existing Brands
The Company intends to build upon its leading position in its current core
product categories through internal growth. Both the Health Valley(R) and
Breadshop's(R) brands have been marketed for more than 25 years, fostering
consumer awareness and loyalty and retail availability throughout the United
States. The Company plans to invest in trade and consumer marketing in order to
further increase the awareness and availability of its brands. Building on its
brand equities, the Company believes it can strengthen its position in current
product categories and successfully launch products in new categories.
The Company plans to continue developing new products which appeal to
consumers with respect to taste, nutrition, convenience and environmental
impact. The Company also plans to launch new products for evening meal
consumption, complementing its existing breakfast, lunch and snack products. For
example, in the third quarter of 1998, the Company plans to launch an instant
rice meal positioned to compete in the single serve home meal replacement
market. In addition, the Company plans to introduce new food products that
incorporate ingredients with specific nutritional benefits, or functional foods.
Expand Sales in Grocery Retail Channel
Complementing its ongoing efforts to increase sales in the natural food
retail channel, the Company plans to improve the scope and quality of
conventional grocery retail distribution for its brands. By informing grocery
retailers about natural and organic food markets, consumer profiles and growth
opportunities, the Company will seek to enhance conventional grocers'
understanding of the appeal of natural and organic food products and increase
their commitment to the segment. The Company believes that fostering
understanding and commitment on the part of conventional grocers will result in
improved shelf space and more effective in-store merchandising, which the
Company believes will increase its sales in the conventional grocery retail
channel.
Pursue Strategic Acquisitions
A key element of the Company's growth strategy is to pursue strategic
acquisitions of natural and organic food companies with products or brands that
strengthen or complement the Company's product lines. The Company believes such
acquisitions may create opportunities to accelerate sales growth and leverage
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purchasing, manufacturing and operating expenses. The Company believes the
fragmented nature of the natural food industry offers numerous opportunities to
acquire companies that fit well with the Company's strategy.
Increase Private Label Business
The Company believes its private label sales activities can lead to both
increased revenues and improved relationships with key customers, thereby
improving the market for its branded products. In conventional grocery
retailing, private labels frequently account for 15% to 20% of sales. However,
until recently, there have been very few private label natural food products.
Due to the growth of the natural and organic food market, natural food marketers
have begun to establish private label programs. During 1997, the Company
established a private label division, recruited an experienced private label
sales manager and began developing private label customer relationships and
sales. The Company intends to become the supplier of choice for private label
natural and organic foods in its core product categories.
---------------------
NNG was incorporated in Delaware in October 1995. NNG acquired Health
Valley in April 1996 and The Bread Shop, Inc. ("Breadshop") in October 1996.
NNG's principal executive offices are located at 135 South LaSalle Street, Suite
1134, Chicago, Illinois 60603 and its telephone number at that address is (312)
578-1110.
THE OFFERING
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Common Stock offered by the Company........... shares
Common Stock to be outstanding after the
Offering.................................... shares(1)
Use of proceeds............................... For redemption of the Company's Series A Preferred
Stock and repayment of revolving credit and term
indebtedness. See "Use of Proceeds."
Proposed Nasdaq National Market symbol........ NNGI
</TABLE>
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(1) Does not include (i) shares subject to outstanding options; and (ii)
up to additional shares reserved for issuance pursuant
to the Company's Employee Incentive Compensation Plan ("Incentive Plan") and
Employee Stock Purchase Plan ("Purchase Plan").
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SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
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<CAPTION>
PREDECESSOR COMPANY
-------------------------
JANUARY 1, APRIL 15, THREE MONTHS
YEAR ENDED 1996 TO 1996 TO YEAR ENDED ENDED MARCH 31,
DECEMBER 31, APRIL 15, DECEMBER 31, DECEMBER 31, -----------------
1995(1) 1996(1) 1996(2) 1997 1997 1998
------------ ---------- ------------ ------------ ------- -------
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STATEMENT OF OPERATIONS DATA:
Net sales............................ $73,351 $18,221 $39,942 $67,898 $16,299 $17,568
Cost of sales........................ 53,839 13,897 27,180 42,370 10,627 10,960
------- ------- ------- ------- ------- -------
Gross profit......................... 19,512 4,324 12,762 25,528 5,672 6,608
Marketing, selling and distribution
expenses........................... 16,651 5,563 7,177 17,366 3,832 4,891
General and administrative
expenses........................... 6,541 2,937 5,034 5,425 1,241 1,202
Amortization of goodwill and
trademarks......................... -- -- 114 334 83 90
------- ------- ------- ------- ------- -------
Operating income (loss).............. (3,680) (4,176) 437 2,403 516 425
Other income(3)...................... 645 169 -- -- -- --
Interest expense, net................ 1,502 476 1,052 1,911 497 458
------- ------- ------- ------- ------- -------
Income (loss) before income taxes.... (4,537) (4,483) (615) 492 19 (33)
------- ------- ------- ------- ------- -------
Provision (benefit) for income
taxes.............................. 1,137 (1,166) 13 387 17 (25)
------- ------- ------- ------- ------- -------
Net income (loss).................... $(5,674) $(3,317) (628) 105 2 (8)
======= =======
Preferred dividends.................. 1,330 2,082 514 571
------- ------- ------- -------
Net loss attributable to common
stockholders....................... $(1,958) $(1,977) $ (512) $ (579)
======= ======= ======= =======
Net income (loss) per share Weighted
average common shares
outstanding........................
PRO FORMA STATEMENT OF OPERATIONS
DATA(4):
Income before income taxes...........
Provision for income taxes...........
Net income (loss) per share..........
Pro forma weighted average common
shares outstanding.................
OPERATING AND OTHER DATA:
EBITDA(5)............................ $ 333 $(3,018) $ 2,781 $ 5,848 $ 1,419 $ 1,342
Depreciation and amortization........ 3,368 989 2,344 3,445 903 917
Net cash flows from operating
activities......................... 5,147 1,210 2,312 268 789 2,519
Capital expenditures................. 1,602 108 62 446 192 60
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MARCH 31, 1998
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ACTUAL AS ADJUSTED(6)
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BALANCE SHEET DATA:
Working capital............................................. $ 1,449
Plant and equipment......................................... 22,603
Total assets................................................ 48,317
Long-term debt.............................................. 17,234
Redeemable preferred stock and accrued dividends............ 23,550
Total stockholders' (deficit) equity........................ (3,172)
</TABLE>
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(1) The combined statement of operations data for the year ended December 31,
1995 and the period January 1, 1996 to April 15, 1996 represent the combined
results of Health Valley Foods, Inc. and Health Valley Manufacturing Company
(collectively, the "Predecessor Company") and exclude NNG's operating losses
for the periods which were not material. The summary consolidated data
include certain reclassification adjustments to conform the presentation of
1995 financial data with that of the Company.
(2) The combined statement of operations data for the period from April 15, 1996
to December 31, 1996 represent the combined results of NNG for the year
ended December 31, 1996, together with the results of operations of the
Predecessor Company subsequent to its acquisition on April 15, 1996 and
Breadshop subsequent to its acquisition on October 31, 1996. The operations
of NNG for the period from January 1, 1996 to April 15, 1996 were not
material. The results of the Company are not comparable to those of the
Predecessor Company in light of the changes in the capital structure to fund
the acquisitions, which included the issuance of preferred stock and the
incurrence of additional debt. Additionally, the purchase accounting
adjustments related to the acquisitions changed the cost basis of the
Company's fixed assets, trademarks and resulting goodwill. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General."
(3) Other income for the years ended December 31, 1995 and 1996 represents
revenues from the sale of cookbooks, which was discontinued in 1996.
(4) The pro forma statement of operations data reflects the elimination of the
preferred dividends and reduction of the net interest expense, and the
related income tax effect, resulting from the use of the net proceeds of the
Offering to redeem the Series A Preferred Stock and repay certain
indebtedness. See "Use of Proceeds."
(5) EBITDA represents income (loss) before income taxes, interest expense (net
of interest income), depreciation and amortization. EBITDA does not
represent cash flow from operations as defined by generally accepted
accounting principles and should not be considered as a substitute for net
income as an indicator of the Company's operating performance or cash flow
as a measure of liquidity. EBITDA as presented may not be comparable to
other similarly titled measures of other companies.
(6) As adjusted for the Offering and the application of the net proceeds
therefrom. See "Use of Proceeds." Additionally, adjustment has been made to
reflect $7.3 million in restructuring and other charges expected to be
recorded in the second quarter of 1998. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Subsequent
Event."
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RISK FACTORS
An investment in the shares of Common Stock offered by this Prospectus
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following factors should be considered carefully before
purchasing any of the shares of Common Stock offered hereby. This Prospectus
contains certain forward-looking statements that are based on the beliefs of, as
well as assumptions made by and information currently available to, the
Company's management. The words "believe," "anticipate," "intend," "estimate,"
"expect" and similar expressions are intended to identify such forward-looking
statements, but are not the exclusive means of identifying such statements. Such
statements reflect the current views of the Company or its management and are
subject to certain risks, uncertainties and assumptions, including, but not
limited to, those set forth in the following Risk Factors. Should one or more of
these risks or uncertainties materialize, or should underlying assumptions prove
incorrect, the Company's actual results or performance in 1998 and beyond could
differ materially from those expressed in, or implied by, such forward-looking
statements.
LIMITED OPERATING HISTORY
NNG was formed in late 1995 and, except for activities related to its
search for acquisition candidates, did not conduct operations until its
acquisition of Health Valley in April 1996. Consequently, NNG has a limited
operating history and limited combined historical financial information upon
which investors may base their evaluation of the Company. The disclosures
regarding the Company contained in this Prospectus must be considered in light
of the risks, expenses and difficulties frequently encountered by companies in
their early stages of development.
HISTORY OF NET LOSSES
The Company has generated a net loss attributable to common stockholders
for each of the past three fiscal years and the three months ended March 31,
1998 and had an accumulated deficit of $4.6 million at March 31, 1998. There can
be no assurance that the Company will achieve or sustain profitability. Future
results will depend on many factors, including demand for the Company's
products, the level of competition and the ability of management to implement
the Company's growth strategy.
RISKS ASSOCIATED WITH THE COMPANY'S ACQUISITION STRATEGY
A key element of the Company's growth strategy is to pursue strategic
acquisitions of natural and organic food companies with products or brands that
strengthen and complement the Company's product lines. There can be no assurance
that the Company will be able to identify or reach mutually agreeable terms with
acquisition candidates, or that the Company will be able to profitably manage
additional businesses or successfully integrate such additional businesses into
the Company without substantial costs, delays or other problems. NNG has
completed two substantial acquisitions and intends to acquire other natural food
companies whose businesses can be effectively integrated with that of the
Company. The contribution of any acquisition to the Company's future revenues
and profitability, and the realization of economies of scale from any such
acquisition, will depend to a large extent on the Company's ability to integrate
effectively the customer base, operations and personnel of the acquired company,
and there can be no assurance that the Company will be able to do so
successfully.
Acquisitions generally involve numerous other risks, including risks
associated with unanticipated problems, liabilities and contingencies, diversion
of management attention from other business concerns and possible adverse
effects on earnings resulting from increased goodwill amortization, increased
interest costs and the issuance of additional securities. Some or all of these
risks could have a material adverse effect on the Company's operations and
financial performance. In addition, the competition for attractive acquisition
candidates may result in fewer acquisition opportunities being available to the
Company as well as high acquisition prices. There can be no assurance that
businesses acquired in the future will achieve anticipated revenues or earnings.
In addition, the Company may require additional debt or equity financing for
future acquisitions, which may not be available on terms satisfactory to the
Company.
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EVOLVING CONSUMER PREFERENCES
The Company's business is focused on the manufacturing and marketing of
food products for the natural and organic food markets. The Company is subject
to evolving consumer preferences for these products. There can be no assurance
that demand for the Company's products will continue at current levels or
increase in the future. A significant shift in consumer demand away from the
Company's products or failure to maintain its current market position would have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
DEPENDENCE ON RAW MATERIALS; CERTAIN RISKS ASSOCIATED WITH AGRICULTURAL PRODUCTS
The primary raw materials used in the Company's operations include flours
and grains, vegetables, fruits and fruit fillings. Frequently, the Company
utilizes organically grown ingredients in its products. Although the total
acreage devoted to organically grown crops has increased significantly in recent
years, it remains a relatively small percentage of overall crop land. As a
result, some of the Company's raw materials are available from fewer suppliers
than non-organically grown ingredients. Movement in the price of these raw
materials can have a corresponding impact on finished product costs, and hence,
gross margins. The ability of the Company to pass through increases in costs of
raw materials to its customers is dependent upon competitive conditions in the
various markets in which the Company operates.
To the extent that the Company's business relies, both directly and
indirectly, on the availability of agricultural products, the Company's results
of operations will be subject to certain risks associated with such products.
The market for agricultural products is unpredictable and volatile, and is
affected by numerous factors. The most important of such factors are weather
conditions and patterns, current and projected produce stocks and prices, and
governmental agricultural policies, including those that directly or indirectly
influence the number of acres planted, the mix of crops planted and crop prices.
Any or all of such factors could adversely affect the Company's business,
financial condition, results of operations and cash flows.
COMPETITION
The markets in which the Company competes are highly competitive. Numerous
natural and organic food companies compete with the Company, including The Hain
Food Group, Inc., Barbara's Bakery, Inc. and Fantastic Foods, Inc. The Company
believes that in the natural food sector of the food industry it competes with
more than 500 companies, most of which are small independent companies and none
of which is dominant. The Company's products also compete, from time to time,
with products of larger conventional food companies, such as ConAgra, Inc.'s
Healthy Choice line or Nabisco, Inc.'s SnackWell line. The Company competes with
these companies based upon product quality, taste and appearance, nutrition,
breadth of product offerings, customer service and price. Some of the Company's
competitors have substantially greater financial, marketing and other resources
than the Company. Additional competitors with greater resources than the Company
may enter the industry and compete effectively against the Company. To the
extent that the Company is unable to compete successfully against its existing
and future competitors, its business, operating results and financial condition
would be materially adversely affected. See "Business -- Competition."
RISKS ASSOCIATED WITH GENERAL ECONOMIC CONDITIONS
Natural and organic foods are generally priced at a premium over
conventional foods and certain economic conditions may affect the level of
consumer spending on products offered by the Company. A recession in the general
economy or decline in consumer spending in the natural foods industry could have
a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
RELIANCE ON INDEPENDENT DISTRIBUTORS AND RETAILERS
The Company distributes its products nationwide to retailers primarily
through independent food distributors. The Company relies to a large extent upon
sales efforts made by or through non-affiliated food distributors and retailers.
For 1997 and the three months ended March 31, 1998, sales through each of Tree
of
10
<PAGE> 12
Life, Inc. and United Natural Foods, Inc. -- two large natural food
distributors -- accounted for more than 10% of the Company's revenues. The loss
of, or business disruption at, one or more distributors or retailers may have a
material adverse effect on the Company's business, financial condition, results
of operations and cash flows.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company owns the principal trademarks for its products, including
Health Valley(R) and Breadshop's(R), and owns a number of other trademarks used
on individual products, such as those for Honey Gone Nuts(R), Soy Moo(R) and
Fiber 7(R). The Company believes that such trademarks are important to the
marketing of the Company's products. The Company's recipes and certain
manufacturing processes also constitute proprietary information and are
important to the Company's success and competitive position. Accordingly, the
Company seeks to establish and protect its trademarks, trade secrets and other
proprietary rights. However, the actions taken by the Company may not be
sufficient to prevent imitation of its products by others or to prevent others
from claiming violations of their trademarks, trade secrets and proprietary
rights by the Company. In addition, others may assert rights in the Company's
trademarks and other proprietary rights.
GOVERNMENT REGULATION
The Company's operations are subject to extensive regulation by the United
States Food and Drug Administration ("FDA"), the United States Department of
Agriculture ("USDA") and other state and local authorities regarding the
manufacturing, packaging, storage, distribution and advertising and labeling of
the Company's products. The Company's manufacturing facilities and products are
subject to periodic inspection by federal, state and local authorities. The
Company's advertising is subject to regulation by the Federal Trade Commission
("FTC") pursuant to the Federal Trade Commission Act and regulations issued
thereunder. The Company believes that it is currently in substantial compliance
with all material governmental laws and regulations and maintains all material
permits and licenses relating to its operations. Nevertheless, there can be no
assurance that the Company is in compliance with such laws and regulations or
that it will be able to comply with any future laws and regulations. Failure by
the Company to comply with applicable laws and regulations could subject the
Company to civil remedies, including fines, injunctions, recalls or seizures, as
well as potential criminal sanctions, which could have a material adverse effect
on the Company's business, financial condition, results of operations and cash
flows.
In addition, the USDA has proposed new regulations concerning organic food
production and labeling. Although there is uncertainty as to the final form of
such regulations, there can be no assurance that the adoption of these
regulations would not limit the activities of the Company or significantly
increase the cost of regulatory compliance. See "Business -- Government
Regulation."
RISK OF PRODUCT LIABILITY
The manufacture and sale of food products for human consumption involves
the risk of injury to consumers as a result of tampering by unauthorized third
parties, product contamination or spoilage, including the presence of foreign
objects, substances, chemicals, aflatoxin and other agents, or residues
introduced during the growing, storage, handling or transportation phases. While
the Company is subject to governmental inspection and regulations and believes
its facilities comply in all material respects with all applicable laws and
regulations, there can be no assurance that consumption of the Company's
products will not cause a health-related illness in the future or that the
Company will not be subject to claims or lawsuits relating to such matters. The
Company maintains product liability insurance in an amount which the Company
believes to be adequate and requires that its co-packer maintain product
liability insurance with the Company as a co-insured. However, there can be no
assurance that the Company will not incur claims or liabilities for which it is
not insured or that exceed the amount of its insurance coverage or that the
Company will be able to maintain adequate insurance.
11
<PAGE> 13
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's revenues and results of operations fluctuate with the
seasonal demand for certain of its products. The Company's revenues are affected
during the spring and summer months due to decreased sales of its canned and
instant soups and chilis and other hot food products. There can be no assurance
that the Company will be able to adjust its expenses on a short-term basis to
minimize the effect of these fluctuations in revenues.
The Company's quarterly results of operations have fluctuated in the past
and will fluctuate in the future based on many factors in addition to
seasonality. These factors include fluctuations in the general economy,
increased competition, changes in operating expenses, failure to successfully
integrate acquired companies, expenses related to acquisitions, the potential
adverse effect of acquisitions, the size and timing of customer orders, new
product introductions, changes in customer preferences and market acceptance of
new products. Many of these factors are outside the control of the Company. Due
to these and many unforeseen factors, it is likely that in some future quarter
the Company's operating results will be below the expectations of public market
analysts and investors. In such event, the price of Common Stock would likely be
materially adversely affected.
DEPENDENCE ON CONTRACT MANUFACTURER FOR CANNED PRODUCTS
The Company currently relies and expects to continue to rely on a single
contract manufacturer, or co-packer, for the production of the Company's canned
soups and chilis, which together accounted for approximately 25% of the
Company's revenues for 1997 and the three months ended March 31, 1998. If the
Company's co-packer were unable or unwilling to produce and ship these products
in a timely manner or to produce sufficient quantities to support demand for
these products, the Company would have to identify and qualify new co-packers.
There can be no assurance that the Company would be able to identify and qualify
new co-packers in a timely manner or that such co-packers would allocate
sufficient capacity to the Company in order to meet its requirements, which
would adversely affect the Company's ability to make timely deliveries of its
products. Any significant delay in shipments of the Company's products would
have a material adverse effect on the Company's business, financial condition,
results of operations and cash flows.
NO DIVIDENDS
The Company has not paid any dividends on its Common Stock to date and does
not anticipate declaring or paying any dividends in the foreseeable future. The
Company is prohibited from paying dividends under its existing credit agreement.
DEPENDENCE UPON KEY PERSONNEL
The success of the Company is largely dependent upon the personal efforts
and abilities of its executive officers. The loss of the services of one or more
of its executive officers could have a material adverse effect on the Company's
business, results of operations and financial condition. Other than William R.
Voss, the Company's Chief Executive Officer, no other executive officer has an
employment agreement with the Company. See "Management."
CONTROL BY EXISTING STOCKHOLDERS
Upon completion of the Offering, the persons and entities listed under
"Principal Stockholders" will own, in the aggregate, approximately % of the
Company's outstanding Common Stock. Accordingly, such persons and entities, if
they acted together, would be able to elect all directors and exercise control
over the business, policies and affairs of the Company. This concentration of
ownership may have the effect of delaying, deferring or preventing a change in
control of the Company, including transactions in which stockholders might
otherwise receive a premium for their shares over then current market prices.
The interests of such persons and entities could conflict with the interests of
the other stockholders of the Company. See "Principal Stockholders."
12
<PAGE> 14
NO PRIOR MARKET
There has been no public market for the Company's Common Stock prior to
this Offering and there can be no assurance that an active public market will
develop or be sustained after this Offering. The initial public offering price
will be determined by negotiations among the Company and the representatives of
the Underwriters, and may bear no relationship to the price at which the Common
Stock will trade after the Offering. See "Underwriting" for the factors to be
considered in determining the initial public offering price. After the Offering,
the market price of the Common Stock may be subject to significant fluctuations
in response to numerous factors, including variations in the annual or quarterly
financial results of the Company or its competitors, changes by financial
research analysts in their estimates of the earnings of the Company or the
failure of the Company to meet such estimates, conditions in the economy in
general or in the markets in which the Company competes, unfavorable publicity
or changes in applicable laws and regulations (or judicial or administrative
interpretations thereof) affecting the Company or the natural and organic food
industry. From time to time, the stock market experiences significant price and
volume volatility, which may affect the market price of the Common Stock for
reasons unrelated to the Company's performance.
IMMEDIATE AND SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will experience
immediate and substantial dilution in the net tangible book value of their
shares of approximately $ per share. In the event the Company issues
additional Common Stock in the future, including shares which may be issued in
connection with future acquisitions, purchasers of Common Stock in this Offering
may experience further dilution. See "Dilution."
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could be adversely affected by the
sale of substantial amounts of Common Stock in the market following the
Offering. Upon consummation of the Offering, shares may be deemed
"restricted securities" as that term is defined under the Securities Act of
1933, as amended (the "Securities Act"). In addition, upon consummation of the
Offering, shares will be reserved for issuance under the Incentive Plan
and Purchase Plan, of which will be immediately exercisable,
subject to lock-up agreements. See "Underwriting." Following the expiration or
release of lock-up agreements, "restricted securities" held by certain
stockholders will be available for public resale in accordance with Rule 144
under the Securities Act. See "Description of Capital Stock -- Shares Eligible
for Future Sale."
ANTI-TAKEOVER EFFECT OF CERTAIN CHARTER PROVISIONS
The Board of Directors of the Company is authorized to issue preferred
stock in one or more series without stockholder action. The members of the Board
of Directors of the Company serve staggered terms. The existence of this
"blank-check" preferred stock and the staggered Board of Directors could render
more difficult or discourage an attempt to obtain control of the Company by
means of a tender offer, merger, proxy contest or otherwise. Certain provisions
of the Delaware General Corporation Law may also discourage takeover attempts
that have not been approved by the Board of Directors. See "Management -- Board
of Directors" and "Description of Capital Stock."
13
<PAGE> 15
HISTORY OF THE COMPANY
FORMATION OF NNG
NNG was formed in 1995 by William R. Voss, an experienced food industry
executive, and Frontenac Company, a Chicago-based private equity firm
specializing in the consumer, health care and technology industries, to acquire
and develop natural and organic food companies. NNG believed that the natural
and organic food industry presented attractive investment opportunities for the
following reasons: (i) the market was experiencing rapid growth; (ii) the large
number of small, undercapitalized privately owned companies presented
acquisition opportunities; and (iii) economies of scale were achievable through
combining companies and brands. During 1995 and early 1996, NNG's sole activity
was to identify and evaluate acquisition candidates. NNG completed its first
acquisition, the Health Valley acquisition, in April 1996 for a purchase price
of approximately $34 million.
HEALTH VALLEY PRIOR TO ACQUISITION BY NNG
Health Valley commenced operations in 1971. During the 1970s and 1980s,
Health Valley introduced numerous innovative products such as low sodium
products and products made with oat bran and organic ingredients. During that
period, the Health Valley(R) brand developed into one of the leading natural
food brands, especially within the then-emerging natural food retail channel of
distribution. In the late 1980s, Health Valley created a line of fat-free
products which gained mainstream acceptance. In order to accelerate growth,
Health Valley expanded its distribution into mass merchandise and club wholesale
channels in addition to the natural food and grocery retail channels where it
had traditionally sold its products.
Due in large part to the success of its fat-free line, Health Valley's
sales grew rapidly from 1990 to a peak of approximately $123 million in 1993. By
1993, over one-third of Health Valley's total sales were to mass merchandisers
and club wholesalers. In order to handle increasing sales and prepare for future
growth, Health Valley invested approximately $40 million to equip the
manufacturing facility in Irwindale, California with new equipment capable of
handling production far in excess of its requirements at that time. Much of the
cost of acquiring this equipment was financed through debt and capital leases.
Beginning in late 1993 and continuing through early 1996, sales declined as a
result of (i) increased competition in the fat-free segment, (ii) changing
customer preferences from fat-free to low-fat foods, and (iii) the reduction or
elimination of Health Valley products sold by some natural food retailers and
conventional grocery retailers due to the lack of differentiation in the
products sold through warehouse clubs. As sales declined, Health Valley became
unprofitable and experienced cash flow problems.
HEALTH VALLEY TURNAROUND
Upon acquiring Health Valley, NNG took immediate steps to eliminate Health
Valley's negative cash flow by implementing cost controls and other measures. By
the end of 1996, Health Valley began to generate positive operating cash flows.
Shortly after the acquisition, the Company commenced its search for a management
team to work with William R. Voss in completing the turnaround of Health Valley
and in implementing its plan for future growth of the business. Beginning in
June 1996, the Company hired Michael D. de Boom as Senior Vice
President-Operations, Diane J. Beardsley as Senior Vice President and Chief
Financial Officer and William J. Nictakis as Senior Vice President-Sales and
Marketing, as well as additional management personnel. As the Company's
management team was completed, the Company developed plans to grow Health
Valley's business.
During the second half of 1996, NNG redirected the Company's sales focus
away from the mass merchandise and club wholesale channels that accelerated
Health Valley's growth in the early 1990s and towards the natural food and
conventional grocery channels, which NNG believed were the keys to the long-
term development of the Company's brands. In addition, the Company initiated a
comprehensive repositioning of the Health Valley(R) brand.
14
<PAGE> 16
HEALTH VALLEY(R) BRAND REPOSITIONING
When the Company acquired Health Valley in 1996, its products were
positioned primarily as "fat-free", despite the products' numerous other
benefits such as natural and organic ingredients, moderate sodium, high fiber
and natural vitamins. Moreover, in order to make many of its products without
fat, the Company sometimes compromised on flavor. Although most of Health
Valley's product packaging clearly indicated that the products were fat-free,
there was no unifying design or color scheme to identify the brand and
communicate its positioning to consumers.
Early in 1997, the Company initiated a comprehensive review of the Health
Valley(R) brand to determine how to best position the brand in the market. As a
result of this review, the Company determined that instead of continuing to
position Health Valley(R) as "America's No. 1 Fat-Free Brand," Health Valley(R)
should be positioned as the leading brand for great tasting, premium natural and
organic foods for people interested in taking charge of their health and well
being.
In support of the new brand positioning, the Company decided to reformulate
certain products to improve taste, appearance and texture and also to redesign
its packaging in order to:
- Unify the brand under a common package design system incorporating
consistent logo placement and treatment, consistent type faces, color
schemes and artwork.
- Emphasize the broad nutritional advantages of Health Valley(R) products
compared with other brands.
- Increase awareness of product quality and taste.
Throughout 1997 and early 1998, the Company directed considerable
management attention and research and development effort to the reformulation of
its products in support of the new brand positioning. Additionally, the Company
engaged a leading design firm early in 1997 to develop the package designs for
the Health Valley(R) brand. A design system was approved by the Company in June
of 1997 and, since then, the Company has been designing and producing the new
packages. As a result of these efforts, the Company began introducing
reformulated and repackaged products in the first half of 1998.
THE BREADSHOP ACQUISITION
In October 1996, the Company acquired Breadshop for a purchase price of
approximately $9 million, which significantly enhanced the Company's market
share in the natural cereal and granola segment of the natural food industry.
Following this acquisition, the Company integrated Breadshop's operations with
those of Health Valley.
USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of
Common Stock offered hereby (at an assumed initial public offering price of
$ per share less underwriting discounts and commissions and estimated
offering expenses) are estimated to be approximately $ million
($ million if the Underwriters' over-allotment option is exercised in
full). The net proceeds will be used to (i) redeem all of the outstanding shares
of the Company's Series A Preferred Stock (approximately $ million), and
(ii) repay indebtedness under an existing revolving credit facility and two
existing term loans (Term Loan A and Term Loan B) with LaSalle National Bank
("LaSalle") (approximately $ million). Certain holders of the Series A
Preferred Stock are affiliates of the Company. See "Certain Transactions." The
borrowings under the LaSalle revolving credit facility and term loans, which
were incurred to finance the acquisitions of Health Valley and Breadshop, accrue
interest, at the Company's option, at either LaSalle's prime rate plus 0.25% per
annum, or the London InterBank Offered Rate (LIBOR) plus 2.50% per annum. The
revolving credit facility expires on June 30, 1999 and Term Loan A and Term Loan
B mature on June 30, 2003 and October 31, 2002, respectively. As of March 31,
1998, the weighted average interest rates for the revolving credit facility,
Term Loan A and Term Loan B were 8.31%, 8.16% and 8.13%, respectively.
15
<PAGE> 17
DIVIDEND POLICY
The Company intends to retain its earnings, if any, to finance the
expansion of its business and for general corporate purposes and therefore does
not anticipate paying any cash dividends on its Common Stock in the foreseeable
future. Any payment of future dividends will be at the discretion of the Board
of Directors and will depend upon, among other things, the Company's earnings,
financial condition, capital requirements, level of indebtedness, contractual
restrictions with respect to the payment of dividends and other factors that the
Company's Board of Directors deems relevant. Additionally, the Company's credit
agreement with LaSalle prohibits the Company from paying dividends and it is
likely that future credit agreements will contain a similar restriction.
DILUTION
The net tangible book value of the Company as of March 31, 1998 (after
giving effect to $7.3 million of restructuring and other charges expected to be
recorded in the second quarter of 1998) was approximately $ , or $
per share of Common Stock. After giving effect to the sale of the
shares of Common Stock offered hereby (at an assumed initial
public offering price of $ per share less the underwriting discount and
estimated offering expenses) and the application of the net proceeds therefrom,
the Company's pro forma net tangible book value at March 31, 1998 would have
been approximately $ , or $ per share. This represents an immediate
increase in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new investors
purchasing the shares in the Offering. The following table illustrates this pro
forma dilution:
<TABLE>
<S> <C>
Assumed initial public offering price per share............. $
Net tangible book value per share before the Offering.....
Increase in pro forma net tangible book value per share
attributable to new investors..........................
--------
Pro forma net tangible book value per share after the
Offering..................................................
--------
Dilution per share to new investors.........................
========
</TABLE>
The following table summarizes as of March 31, 1998, after giving effect to
the Offering, the number of shares of Common Stock purchased from the Company,
the total consideration paid therefor, and the average price per share paid by
the existing stockholders and by the new investors purchasing shares of Common
Stock in the Offering before deduction of the underwriting discounts and
commissions and estimated offering expenses payable by the Company:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
------------------ ------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
-------- ------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders................. % $ % $
New investors.........................
Total....................... 100% $100%
======== === ======= ====
</TABLE>
The above computations assume no exercise of the Underwriters'
over-allotment option and no exercise of outstanding options.
16
<PAGE> 18
CAPITALIZATION
The following table sets forth the capitalization of the Company as of
March 31, 1998 and as adjusted to give effect to the Offering and the
application of the estimated net proceeds therefrom to redeem all of the
outstanding shares of the Company's Series A Preferred Stock and to repay the
outstanding indebtedness under the LaSalle credit agreement. See "Use of
Proceeds." This table should be read in conjunction with the Consolidated
Financial Statements of the Company and the notes thereto included elsewhere in
this Prospectus. See also "Selected Consolidated Financial Data", "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
"Description of Capital Stock."
<TABLE>
<CAPTION>
MARCH 31, 1998
---------------------------
ACTUAL AS ADJUSTED(1)(2)
------- -----------------
(IN THOUSANDS)
<S> <C> <C>
Cash........................................................ $ 1 $
======= =======
Current maturities of long-term debt........................ $ 2,866 $
======= =======
Long-term debt, less current maturities..................... $17,234 $
Series A Preferred Stock, par value $.001 per share, 35,000
shares authorized; 19,566.667 shares issued and
outstanding actual; no shares authorized, issued and
outstanding, as adjusted.................................. 23,550
Stockholders' equity:
Preferred Stock, par value $.001 per share, 2,000,000
shares authorized; no shares issued and outstanding.... --
Common Stock, par value $.001 per share, 50,000,000 shares
authorized; shares issued and outstanding, actual;
shares issued and outstanding, as adjusted...... --
Additional paid-in-capital.................................. 1,433
Accumulated deficit......................................... (4,605)
------- -------
Total stockholders' equity (deficit).............. (3,172)
Total capitalization.............................. $37,612 $
======= =======
</TABLE>
(1) Adjustment has been made to reflect $7.3 million in restructuring and other
charges expected to be recorded in the second quarter of 1998.
(2) Excludes options to purchase Common Stock outstanding or options which may
be issued at the time of the Offering.
17
<PAGE> 19
SELECTED CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE DATA)
The selected financial data set forth below have been derived from the
financial statements of the Company and the related notes thereto. The statement
of operations data for the period January 1, 1996 to April 15, 1996, the period
April 15, 1996 through December 31, 1996 and the year ended December 31, 1997
and the balance sheet data at December 31, 1996 and 1997 are derived from the
Consolidated Financial Statements of the Company and the Predecessor Company,
which have been audited by Deloitte & Touche LLP, independent auditors, and
which are contained elsewhere in this Prospectus. The statement of operations
data for the year ended December 31, 1995 are derived from the combined
financial statements of the Predecessor Company, which are contained elsewhere
in this Prospectus. The statement of operations data for each of the years in
the two-year period ended December 31, 1994, and the balance sheet data at
December 31, 1993 and 1994, are derived from the financial statements of the
Company, which have not been audited. Such unaudited financial statements for
1993 and 1994, along with the financial data as of March 31, 1998 and for the
three months ended March 31, 1997 and 1998, are unaudited but, in the opinion of
management, includes all adjustments, consisting only of normal recurring
adjustments, necessary for a fair presentation of such data. The results of
operations for the three months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the entire year. See "Management's
Discussion and Analysis of Financial Condition and Results of
Operations -- Seasonality." The selected pro forma income statement data set
forth below is for informational purposes only and may not necessarily be
indicative of the results of operations of the Company in the future. The
following selected financial data should be read in conjunction with the
Company's financial statements and the related notes thereto, which are included
elsewhere in this Prospectus, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
------------------------------------------- THREE MONTHS
JANUARY 1, APRIL 15, ENDED
YEAR ENDED DECEMBER 31, 1996 TO 1996 TO YEAR ENDED MARCH 31,
------------------------------ APRIL 15, DECEMBER 31, DECEMBER 31, -----------------
1993(1) 1994(1) 1995(2) 1996(2) 1996(3) 1997 1997 1998
-------- -------- -------- ---------- ------------ ------------ ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales........................ $123,418 $105,088 $73,351 $18,221 $39,942 $67,898 $16,299 $17,568
Cost of sales.................... 81,071 69,239 53,839 13,897 27,180 42,370 10,627 10,960
-------- -------- ------- ------- ------- ------- ------- -------
Gross profit..................... 42,347 35,849 19,512 4,324 12,762 25,528 5,672 6,608
Marketing, selling and
distribution expenses.......... 23,968 20,629 16,651 5,563 7,177 17,366 3,832 4,891
General and administrative
expenses....................... 6,259 9,990 6,541 2,937 5,034 5,425 1,241 1,202
Amortization of goodwill and
trademarks..................... -- -- -- -- 114 334 83 90
-------- -------- ------- ------- ------- ------- ------- -------
Operating income (loss).......... 12,120 5,230 (3,680) (4,176) 437 2,403 516 425
Other income(4).................. 69 1,581 645 169 -- -- -- --
Interest expense, net............ 1,252 1,291 1,502 476 1,052 1,911 497 458
-------- -------- ------- ------- ------- ------- ------- -------
Income (loss) before income
taxes.......................... 10,937 5,520 (4,537) (4,483) (615) 492 19 (33)
-------- -------- ------- ------- ------- ------- ------- -------
Provision (benefit) for income
taxes.......................... 4,467 2,100 1,137 (1,166) 13 387 17 (25)
-------- -------- ------- ------- ------- ------- ------- -------
Net income (loss)................ $ 6,470 $ 3,420 $(5,674) $(3,317) (628) 105 2 (8)
======== ======== ======= =======
Preferred dividends.............. 1,330 2,082 514 571
------- ------- ------- -------
Net loss attributable to common
stockholders................... $(1,958) $(1,977) $ (512) $ (579)
======= ======= ======= =======
Net income (loss) per share......
Weighted average common shares
outstanding....................
PRO FORMA STATEMENT OF OPERATIONS
DATA(5):.......................
Income before income taxes.......
Provision for income taxes.......
Net income (loss) per share......
Pro forma weighted average common
shares outstanding.............
OPERATING AND OTHER DATA:
EBITDA(6)........................ $ 15,816 $ 10,177 $ 333 $(3,018) $ 2,781 $ 5,848 $ 1,419 $ 1,342
Depreciation and amortization.... 3,627 3,366 3,368 989 2,344 3,445 903 917
Net cash flows from operating
activities..................... 5,391 5,623 5,147 1,210 2,312 268 789 2,519
Capital expenditures............. 6,468 4,760 1,602 108 62 446 192 60
</TABLE>
18
<PAGE> 20
<TABLE>
<CAPTION>
MARCH 31, 1998
YEARS ENDED DECEMBER 31, ---------------------
----------------------------------------------- AS
1993 1994 1995 1996 1997 ACTUAL ADJUSTED(7)
------- ------- ------- ------- ------- ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital................... $ 397 $ 1,525 $(6,764) $ (443) $ 2,347 $ 1,449
Plant and equipment............... 21,948 23,858 25,240 26,374 23,358 22,603
Total assets...................... 43,197 43,421 38,578 53,330 50,212 48,317
Long-term debt.................... 5,761 5,637 5,398 19,304 18,835 17,234
Redeemable preferred stock and
accrued dividends............... 19,996 22,979 23,550
Total stockholders' equity
(deficit)....................... 16,938 20,358 13,745 (716) (2,593) (3,172)
</TABLE>
- ---------------
(1) The combined statement of operations data for the years ended December 31,
1993 and 1994 represent the combined results of the Predecessor Company. The
selected consolidated data include certain reclassification adjustments to
conform the presentation of the 1993 and 1994 financial data with that of
the Company.
(2) The combined statement of operations data for the year ended December 31,
1995 and the period January 1, 1996 to April 15, 1996 represent the combined
results of the Predecessor Company and exclude NNG's operating losses for
the periods which were not material. The selected consolidated data include
certain reclassification adjustments to conform the presentation of the 1995
financial data with that of the Company.
(3) The combined statement of operations data for the period from April 15, 1996
to December 31, 1996 represent the combined results of NNG for the year
ended December 31, 1996, together with the results of operations of the
Predecessor Company subsequent to its acquisition on April 15, 1996 and
Breadshop subsequent to its acquisition on October 31, 1996. The operations
of NNG for the period from January 1, 1996 to April 15, 1996 were not
material. The results of the Company are not comparable to those of the
Predecessor Company in light of the changes in the capital structure to fund
the acquisitions, which included the issuance of preferred stock and the
incurrence of additional debt. Additionally, the purchase accounting
adjustments related to the acquisitions changed the cost basis of the
Company's fixed assets, trademarks and resulting goodwill. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations --
General."
(4) Other income for the years ended December 31, 1993, 1994, 1995 and 1996
primarily represents revenues from the sale of cookbooks, which was
discontinued in 1996.
(5) The pro forma statement of operations data reflect the elimination of the
preferred dividends and reduction of the net interest expense, and the
related income tax effect, resulting from the use of the net proceeds of the
Offering to redeem the Series A Preferred Stock and repay certain
indebtedness. See "Use of Proceeds."
(6) EBITDA represents income (loss) before income taxes, interest expense net of
interest income, depreciation and amortization. EBITDA does not represent
cash flow from operations as defined by generally accepted accounting
principles and should not be considered as a substitute for net income as an
indicator of the Company's operating performance or cash flow as a measure
of liquidity. EBITDA as presented may not be comparable to other similarly
titled measures of other companies.
(7) As adjusted: (i) for the Offering and the application of the net proceeds
therefrom; and (ii) to reflect the $7.3 million in restructuring and other
charges expected to be recorded in the second quarter of 1998. See "Use of
Proceeds" and "Management's Discussion and Analysis of Financial Condition
and Results of Operations -- Subsequent Event."
19
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations of the Company should be read in conjunction with the consolidated
financial statements and related notes thereto of the Company included elsewhere
in this Prospectus. Periodically, the Company may make statements about trends,
future plans, and the Company's prospects. Actual results may differ from those
described in such forward looking statements based on the risks and
uncertainties facing the Company, including, but not limited to changes in
economic conditions and changes in the natural and organic food industry and the
other factors described under "Risk Factors."
GENERAL
NNG was founded in 1995 by current Chairman, Chief Executive Officer and
President William R. Voss and Frontenac Company to acquire and develop natural
and organic food companies. The Company sells natural and organic breakfast
cereals and granolas, baked goods and soups and chilis primarily under its
Health Valley(R) and Breadshop's(R) brands, to natural food and specialty food
distributors and, in certain instances, directly to retailers, including natural
food retailers, grocery chains, and warehouse clubs. The Company operates out of
a modern facility located in Irwindale, California which houses its
manufacturing and administrative functions.
NNG completed its first acquisition, the Health Valley acquisition, in
April 1996. Prior to the acquisition, Health Valley experienced significant
business and financial difficulties. NNG took immediate steps to resolve Health
Valley's difficulties by implementing cost controls and other measures.
The Health Valley acquisition provided NNG with an operating and
manufacturing platform for future acquisitions. NNG's second acquisition, the
Breadshop acquisition, was completed in October 1996. The manufacturing and
distribution operations of Breadshop were integrated into the Company's
Irwindale facility in January 1997. This consolidation produced significant
operating efficiencies in the manufacturing and distribution of Breadshop's
cereal and granola products.
Following these two acquisitions, the Company focused on cost reduction and
efficiency improvements in order to generate funds to support increased
marketing expenditures and investments in the Health Valley(R) and
Breadshop's(R) brands, as well as to service acquisition debt. Cost reduction
initiatives included: (i) more efficient purchasing; (ii) the reformulation of
certain products and reengineering of certain packaging; and (iii) workforce
reductions.
20
<PAGE> 22
The following table sets forth certain statement of operations data of the
Company for each of the periods presented and pro forma data for 1996. This
table should be read in conjunction with the financial statements and related
notes thereto appearing elsewhere in the Prospectus.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, THREE MONTHS ENDED
----------------------------- MARCH 31,
1996 -------------------
1995 PRO FORMA 1997 1997 1998
---- --------- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Net sales..................................... $73,351 $58,163 $67,898 $16,299 $17,568
Cost of sales................................. 53,839 41,037 42,370 10,627 10,960
------- ------- ------- ------- -------
Gross profit.................................. 19,512 17,126 25,528 5,672 6,608
Marketing, selling and distribution
expenses.................................... 16,651 12,720 17,366 3,832 4,891
General and administrative expenses........... 6,541 7,951 5,425 1,241 1,202
Amortization of goodwill and trademarks....... -- 151 334 83 90
------- ------- ------- ------- -------
Operating income (loss)....................... (3,680) (3,696) 2,403 516 425
Other income.................................. 645 169 -- -- --
Interest expense, net......................... 1,502 1,443 1,911 497 458
------- ------- ------- ------- -------
Income (loss) before income taxes............. (4,537) (4,970) 492 19 (33)
Provision (benefit) for income taxes.......... 1,137 (1,938) 387 17 (25)
------- ------- ------- ------- -------
Net income (loss)............................. $(5,674) $(3,032) $ 105 $ 2 $ (8)
======= ======= ======= ======= =======
</TABLE>
The results of operations data for 1996 set forth in the table above
represent the pro forma combined results of the Predecessor Company for the
period January 1, 1996 to April 15, 1996 and the Company for the period April
15, 1996 to December 31, 1996 subsequent to the acquisition. The statement
includes the pro forma adjustments to reflect changes in depreciation and
interest expense, income tax benefits at statutory rates and the amortization
expense associated with goodwill resulting from the acquisition. The results of
operations for 1995 reflect the results of the Predecessor Company for 1995.
NNG's operating results for 1995 subsequent to its formation in October 1995
were immaterial. The results of operations for 1995 are not comparable to
subsequent periods because they reflect the operation of Health Valley by prior
management before the Health Valley acquisition. In addition, the results of the
Company are not comparable to those of the Predecessor Company in light of the
changes in the capital structure to fund the acquisitions, which included the
issuance of the Series A Preferred Stock and the incurrence of additional debt.
Additionally, the purchase accounting adjustments related to the acquisitions
changed the cost basis of the Company's fixed assets, trademarks and resulting
goodwill.
Sales are reported net of cash discounts and product returns. The Company's
cost of sales consists primarily of raw materials, packaging, labor and overhead
costs. Raw material costs are the single largest component of the cost of sales.
Selling and marketing expenses are comprised of the cost of the Company's sales
force, broker commissions, and promotional and other marketing expenses. As is
customary in the industry, marketing expenses include (i) trade promotions,
which are directed at obtaining retail display support, achieving desired retail
prices and securing retail shelf space, (ii) participation in customers'
advertising and (iii) consumer promotions, which include Company mailings,
nutritional publications and "on-product" promotions. In addition, the
Predecessor Company provided rebates to retail consumers who mailed to the
Company a specified number of proof-of-purchase labels. This rebate program, the
cost of which was included in marketing expenses, was discontinued early in
1996. The Company intends to shift the emphasis of its marketing programs from
"trade push" to "consumer pull." Accordingly, an increasing percentage of
planned marketing expenditures will be directed toward advertising and consumer
promotions, and a decreasing percentage toward promotional programs.
SUBSEQUENT EVENT
In the second quarter of 1998, the Company expects to record a $7.3 million
charge to operations reflecting its decision to restructure certain operations
of the Company in light of revisions in its business strategies, and for certain
litigation in which it is involved. Approximately $5.3 million is expected to be
a restructuring charge, related principally to the write-off of certain
leasehold improvements related to the Company's decision to restructure its
warehouse operations, write-downs of certain underutilized or unused production
equipment as a result of the Company's revised business plan and write-offs of
certain raw materials, packaging and finished goods related to the introduction
of new products and packaging.
21
<PAGE> 23
RESULTS OF OPERATIONS
The following table sets forth certain statement of operations data of the
Company expressed as a percentage of net sales for each of the periods
presented. This table should be read in conjunction with the financial
statements and related notes thereto appearing elsewhere in this Prospectus.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
YEAR ENDED DECEMBER 31, MARCH 31,
------------------------ -------------
1995 1996 1997 1997 1998
------ ------ ------ ----- -----
<S> <C> <C> <C> <C> <C>
PERCENTAGES OF NET SALES:
Net sales.............................................. 100.0% 100.0% 100.0% 100.0% 100.0%
Cost of sales.......................................... 73.4 70.6 62.4 65.2 62.4
----- ----- ----- ----- -----
Gross profit........................................... 26.6 29.4 37.6 34.8 37.6
Marketing, selling and distribution expenses........... 22.7 21.9 25.6 23.5 27.9
General and administrative expenses.................... 9.0 13.7 8.0 7.6 6.8
Amortization of goodwill and trademarks................ -- 0.2 0.5 0.5 0.5
----- ----- ----- ----- -----
Operating income (loss)................................ (5.1) (6.4) 3.5 3.2 2.4
Other income........................................... 0.8 0.3 -- -- --
Interest expense, net.................................. 2.0 2.6 2.8 3.0 2.6
----- ----- ----- ----- -----
Income (loss) before income taxes...................... (6.3) (8.7) 0.7 (0.2) (0.2)
Provision (benefit) for income taxes................... 1.6 (2.0) 0.6 0.2 (0.2)
----- ----- ----- ----- -----
Net income (loss)...................................... (7.9)% (6.7)% 0.1% -- --%
===== ===== ===== ===== =====
</TABLE>
Three Months Ended March 31, 1998 Compared to Three Months Ended March 31,
1997
Net sales for the three months ended March 31, 1998 increased $1.3 million,
or 7.8%, from the comparable period in 1997. Excluding the impact of wholesale
club sales, net sales for the first quarter of 1998 increased $1.7 million, or
11.4%, from the first quarter of 1997. The increase was primarily due to
increased sales in the natural foods channel and private label, which the
Company began to actively pursue in the second half of 1997. The increase in
sales in the natural food channel was substantially attributable to cereal and
canned soup sales which increased primarily due to additional promotional
activities. The approximately $400,000 decline in the wholesale club channel was
due to the Company's decision to increase emphasis on the natural food channel.
The gross margin percentage for the three months ended March 31, 1998
increased 2.8% from 34.8% for the comparable period in 1997, principally due to
the benefits derived from the Company's efforts to reduce material and
manufacturing costs and, to a lesser extent, increased sales volumes which
leveraged fixed costs.
Marketing, selling and distribution expenses as a percentage of net sales
for the three months ended March 31, 1998 increased 4.4% from the comparable
period in 1997, as a result of increased promotional and advertising activities.
These activities increased as the Company began changing its marketing strategy
to lessen emphasis on trade promotions in favor of a multi-faceted program which
includes new packaging, product reformulations to improve taste and nutritional
value, and increased brand advertising including increased participation in
customers' advertising. Implementation of the new marketing strategy is expected
to continue throughout 1998.
General and administrative expenses as a percentage of net sales for the
three months ended March 31, 1998 decreased 1.0% from the comparable period in
1997 as a result of increased sales volumes.
Amortization of goodwill and trademarks as a percentage of net sales for
the three months ended March 31, 1998 was level with the comparable period in
1997, despite an increase in the goodwill resulting from the acquisition of
Health Valley. This increase resulted from the final allocation of the purchase
price of the Health Valley acquisition, which closed in April 1996.
22
<PAGE> 24
Operating income as a percentage of net sales for the three months ended
March 31, 1998 decreased 0.8% from the comparable period in 1997 primarily
reflecting the factors discussed above.
Interest expense for the three months ended March 31, 1998 decreased
$39,000 from the comparable period in 1997 as cash generated by operations
enabled the Company to decrease its outstanding debt.
Due to a pre-tax loss for the three months ended March 31, 1998, the tax
benefit for such period was $25,000 compared to a provision for income taxes of
$17,000 for the comparable period in 1997.
The Company incurred a net loss of $8,000 in the three months ended March
31, 1998 compared to net income of $2,000 for the comparable period in 1997,
primarily reflecting the factors discussed above.
Year Ended December 31, 1997 Compared to Year Ended December 31, 1996
Net sales for 1997 increased $9.7 million, or 16.7%, from 1996. Excluding
wholesale club channel sales, net sales for 1997 increased $12.3 million, or
23.9%, from 1996. This increase was substantially attributable to the inclusion
of a full year of sales of Breadshop's(R) products, which accounted for $10.6
million of the increase, as well as an increase of private label sales of
approximately $923,000. The approximately $2.6 million decline in the wholesale
club channel sales was due to the Company's decision to increase the Company's
emphasis on the natural food channel.
The gross margin percentage for 1997 increased 8.2% from 1996, primarily
due to the benefits derived from the Company's efforts to reduce material and
manufacturing costs and, to a lesser extent, the leveraging of fixed costs
resulting from the relocation of Breadshop's manufacturing operations to the
Company's Irwindale location.
Marketing, selling and distribution expenses as a percentage of net sales
for 1997 increased 3.7% from 1996 due to increased promotional and advertising
activities for the Health Valley(R) brand and the traditionally higher level of
spending in this area by Breadshop, which was acquired in October 1996.
General and administrative expenses as a percentage of net sales for 1997
decreased 5.7% from 1996, as lower general and administrative expenses were
spread over a larger sales base. General and administrative expenses in 1997
were lower partially as a result of the realization of a full year of benefits
associated with a smaller workforce, and the absence of certain nonrecurring
charges included in 1996 associated with Health Valley prior to its acquisition
by NNG.
Amortization of goodwill and trademarks as a percentage of net sales for
1997 increased 0.3% from 1996. The increase was due to the full year impact of
the amortization of the goodwill and trademarks resulting from the Health Valley
acquisition in April 1996 and the Breadshop acquisition in October 1996.
Operating income as a percentage of net sales for 1997 was 3.5% compared to
operating loss as a percentage of net sales of 6.4% in 1996, primarily
reflecting the factors discussed above.
Interest expense for 1997 increased $383,000 from 1996 due to the full year
impact of the debt incurred in connection with the acquisitions of Health Valley
and Breadshop.
The provision for income taxes for 1997 was $387,000 compared to a tax
benefit of $1.2 million in 1996 due to improved operating results. The
non-deductibility of the amortization of goodwill and trademarks for income tax
purposes significantly affected the Company's effective income tax rate.
Net income for 1997 was $105,000 compared to a net loss of $3.9 million in
1996, primarily reflecting the factors discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net sales for 1996 decreased $15.2 million, or 20.7%, from 1995, primarily
due to a $13.4 million decrease in sales in the wholesale club channel which was
due to overall decreased consumer demand for fat-free products and the Company's
decision to increase emphasis on the natural food channel.
23
<PAGE> 25
The gross margin percentage for 1996 increased 2.8% from 1995 primarily due
to cost reductions implemented by the Company and reduced sales to the
lower-margin wholesale club channel.
Marketing, selling and distribution expenses as a percentage of net sales
for 1996 decreased 0.8% from 1995 due to the reduction of promotional and
advertising spending subsequent to the Company's acquisition of Health Valley.
General and administrative expenses as a percentage of net sales for 1996
increased 4.7% from 1995, due to higher general and administrative expenses
being spread over a lower sales base. General and administrative expenses were
higher in 1996 partially due to certain nonrecurring charges in 1996 associated
with Health Valley prior to its acquisition by NNG.
Amortization of goodwill and trademarks was $114,000 for 1996. The
amortization is attributable to the goodwill and trademarks resulting from the
acquisitions of Health Valley and Breadshop in 1996.
Operating loss as a percentage of net sales for 1996 increased 1.3% from
1995, primarily reflecting the factors discussed above.
Interest expense for 1996 increased $26,000 from 1995. Although the overall
debt level for 1996 increased $6.9 million from 1995 primarily as a result of
the acquisition of Health Valley and Breadshop in 1996, the impact of the
interest expense was minimized due to the refinancing of debt at lower effective
interest rates.
The income tax benefit of $1.2 million in 1996 compares to a provision for
income tax of $1.1 million in the prior year, due to the lower operating results
for 1996 and the inability of the Predecessor Company to file consolidated
returns prior to the Health Valley acquisition.
Net loss for 1996 was $3.9 million, a decrease of $1.8 million from 1995,
primarily reflecting the factors discussed above.
UNAUDITED QUARTERLY RESULTS
The following table presents unaudited quarterly financial information for
the last three quarters of 1996, 1997 and the first quarter of 1998. This
information has been prepared by the Company on a basis consistent with the
Company's audited financial statements and includes all adjustments (consisting
only of normal recurring adjustments) which management considers necessary for a
fair presentation of the results for such quarters.
<TABLE>
<CAPTION>
QUARTER ENDED
---------------------------------------------------------------------------------------
1996 1997 1998
---------------------------------- --------------------------------------- --------
JUNE 30(1) SEPT. 30 DEC. 31(2) MARCH 31 JUNE 30 SEPT. 30 DEC. 31 MARCH 31
---------- -------- ---------- -------- ------- -------- ------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales................... $10,141 $13,097 $16,704 $16,299 $15,767 $17,025 $18,807 $17,568
Cost of sales............... 6,822 8,737 11,621 10,627 9,830 10,517 11,396 10,960
------- ------- ------- ------- ------- ------- ------- -------
Gross profit................ 3,319 4,360 5,083 5,672 5,937 6,508 7,411 6,608
Marketing, selling and
distribution.............. 1,876 2,228 3,073 3,832 3,812 4,356 5,366 4,891
General and
administrative............ 1,500 1,653 1,721 1,241 1,371 1,360 1,453 1,202
Amortization................ 6 21 87 83 83 83 85 90
------- ------- ------- ------- ------- ------- ------- -------
Operating income (loss)..... $ (63) $ 458 $ 202 $ 516 $ 671 $ 709 $ 507 $ 425
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
- ---------------
(1) Includes the results of operations of Health Valley subsequent to its
acquisition in April 1996.
(2) Includes the results of operations of Breadshop subsequent to its
acquisition in October 1996.
SEASONALITY
The Company's historical net sales have exhibited seasonality with the
first and fourth quarters having the highest net sales. These two quarters
reflect higher sales of the Company's instant and canned soups and chilis as
well as other hot food products, as these products are most frequently consumed
during the fall and winter
24
<PAGE> 26
seasons. The Company's quarterly results of operations have fluctuated in the
past and will fluctuate in the future based on many factors in addition to
seasonality. See "Risk Factors -- Seasonality and Quarterly Fluctuations."
LIQUIDITY AND CAPITAL RESOURCES
The Company's primary cash requirements have been to service debt, finance
working capital needs, and, to a lesser extent, fund capital expenditures.
Historically, cash generated by operating activities and borrowings under its
revolving credit facility were the Company's primary sources of liquidity. The
Company's acquisition of Health Valley and Breadshop in 1996 were financed by
borrowings under the Company's term loans and revolving credit facility and the
issuance of Series A Preferred Stock and Common Stock.
During 1997, the Company's working capital position improved by
approximately $2.7 million, from a working capital deficit of $443,000 at
December 31, 1996 to working capital of approximately $2.3 million at December
31, 1997. The improvement in the Company's working capital position resulted
from the cash generated by operating activities which enabled the Company to
fund certain accrued liabilities assumed or incurred in connection with the
acquisitions of Health Valley and Breadshop. At March 31, 1998, working capital
was approximately $1.5 million, as the Company was able to reduce inventory
levels and accounts receivable through enhanced collection efforts. Working
capital reductions, together with cash generated by operating activities, during
the three months ended March 31, 1998 enabled the Company to reduce its
outstanding debt by $1.6 million during the first quarter of 1998.
Capital expenditures have totaled approximately $600,000 since the
acquisition of Health Valley in April 1996 through March 31, 1998. Capital
expenditures have been modest due to significant underutilized manufacturing and
distribution capacity in the Company's modern 300,000 square foot facility
acquired as part of the Health Valley acquisition in 1996. The Company's capital
expenditure plan for the remainder of 1998 totals $1.2 million. From the date of
acquisition of Health Valley in April 1996 through March 31, 1998, capital
expenditures were partially funded by the sale of certain excess equipment.
As a part of its growth strategy, the Company seeks to acquire competing
and complementary natural food brands. The Company believes that its capital
structure following the Offering will enable it to expand its credit facilities
to fund the purchase price of future acquisitions or the operations of any
acquired businesses. There can be no assurance, however, that the Company will
be successful in increasing its credit facilities or that it will obtain such
facilities on terms acceptable to the Company.
The Company's credit agreement with LaSalle presently includes a $6.5
million revolving credit facility of which approximately $4.7 million was
available at March 27, 1998, based on eligible receivables and inventory. The
credit agreement also includes two term loan facilities (Term Loan A and Term
Loan B) which had outstanding borrowings of $10.3 million and $5.7 million,
respectively, as of March 31, 1998. The revolving credit facility expires on
June 30, 1999. Term Loans A and B mature on June 30, 2003 and October 31, 2002,
respectively, and each requires quarterly repayments of principal. All of these
borrowings are secured by all of the Company's assets. Interest on borrowings
under these agreements accrue, at the Company's option, at either LaSalle's
prime rate plus 0.25% per annum, or the London Interbank Offered Rate (LIBOR)
plus 2.5% per annum. As of March 31, 1998, the weighted average interest rate on
the revolving credit facility was 8.31%, and the weighted average interest rates
on Term Loan A and Term Loan B were 8.16% and 8.13%, respectively.
The Company intends to redeem all of the outstanding shares of Series A
Preferred Stock with a portion of the proceeds of the Offering. The Company also
intends to use net proceeds of the Offering to repay outstanding borrowings
under the revolving credit facility and term loans.
At December 31, 1997, the Company had a net operating loss carryforward of
approximately $5.2 million for federal income tax purposes. The net operating
loss carried forward principally from the operations of the Predecessor Company.
Subject to certain limitations, the Company expects this net operating loss
carryforward will be available to offset future taxable income.
25
<PAGE> 27
The Company believes that the cash flow from operations and borrowings
under the current credit agreement will be sufficient to meet the Company's
presently anticipated working capital needs, for at least the next 12 months.
EFFECT OF INFLATION
Historically, inflation has not had a material effect on the Company, other
than to increase its cost of borrowing. However, the Company cannot predict
accurately the effect of inflation on future operating results. If faced with
increasing raw material prices, the Company would attempt to increase its
selling prices or realize offsetting manufacturing efficiencies. The Company
anticipates, however, that the implementation of any such actions would lag
behind the price increases in the Company's raw material cost.
RECENTLY ISSUED ACCOUNTING STANDARDS
For the fiscal year ending after January 1, 1999, the Company will adopt
SFAS No. 131, Disclosures About Segments of an Enterprise and Related
Information and SFAS No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits. The Company is reviewing the impact of the adoption of
these pronouncements on its consolidated financial statements.
YEAR 2000
The Year 2000 issue is the result of potential problems with computer
systems or any equipment with computer chips that use dates that have been
stored as two digits rather than four. On January 1, 2000, any clock or date
recording mechanism, including date sensitive software, which uses only two
digits to represent the year may recognize a date using "00" as the year 1900
rather than the year 2000. This could result in system failures or
miscalculations causing disruption of operations, including, among other things,
a temporary inability to process transactions, send invoices or perform similar
tasks.
The Company has assessed the Year 2000 issue with respect to the software
used by the Company in providing its services and with respect to its
computerized information systems. NNG expects to complete all Year 2000
modifications by the fourth quarter of 1998, leaving adequate time to assess and
correct any significant issues that may materialize. The Company does not
believe that the costs to resolve the Company's Year 2000 issues will be
material to the Company. NNG is also discussing the Year 2000 issue with its
significant customers and suppliers to determine the extent to which the Company
is vulnerable to those third parties' failures to remediate their own Year 2000
issues. The Company is not yet certain as to the extent to which the computer
software and business systems of its customers and suppliers are Year 2000
compliant. If systems of third parties with which the Company does significant
business are not timely converted or if the Company fails to timely complete the
necessary modifications to its own systems, the Year 2000 issue could have a
material adverse effect on the Company's business, financial condition and
results of operations and cash flows.
26
<PAGE> 28
BUSINESS
GENERAL
The Company is a leading manufacturer and marketer of premium natural and
organic food products in the United States. The Company markets (i) breakfast
cereals and granolas, (ii) granola bars, cereal bars, cookies, crackers and
other baked goods and (iii) canned and instant soups and chilis, as well as
other food products, primarily under its Health Valley(R) and Breadshop's(R)
brands. The Company's branded products are made using only natural ingredients,
without artificial flavors, colors, additives or preservatives. Many of the
Company's products are also made with "organic" ingredients, which are grown
without dependence upon artificial pesticides, chemicals or fertilizers.
The Company currently markets over 200 products and believes it has the
largest market share among marketers of natural food brands for its core product
categories -- breakfast cereals and granolas, baked goods, and soups and chilis.
Representative products of the Company include Health Valley(R) Spicy Vegetarian
Chili, Breadshop's(R) Honey Gone Nuts(R) Cereal, Health Valley(R) Apple Cobbler
Cereal Bars, Health Valley(R) Amazing Apple!(TM) Hot Breakfast Cereal and Health
Valley(R) Soy Moo(R) Non-Dairy Beverage.
The Company's products are sold primarily through natural and specialty
food distributors and ultimately to consumers through natural food retailers,
such as Whole Foods and Wild Oats, conventional grocery retailers, such as Fred
Meyer and Kroger, and other retail channels. The Company estimates that in 1997
approximately 35% of its products were sold in the natural food retail channel,
approximately 50% of its products were sold in the conventional grocery retail
channel and approximately 15% of its products were sold in other retail
channels. In 1997, the Company began to manufacture private label products for
certain of its customers.
The Company manufactures most of its products, unlike many natural food
companies that rely on contract manufacturing. The Company's manufacturing
operations are housed in a modern 155,000 square foot facility located in
Irwindale, California. The Company believes that by manufacturing most of its
products, it is able to better control the cost and quality of its products and
provide better service to its customers. The Company estimates that it is
generally utilizing less than 30% of the Irwindale facility's manufacturing
capacity. As a result, the Company believes significant operating leverage can
be achieved through growth. In addition, the Company's manufacturing capability
has enabled it to produce private label products for retailers, which increases
revenues and may also strengthen its business relationships with certain key
customers.
The natural and organic food market is highly fragmented and includes
several hundred manufacturers and marketers. The Company believes that continued
growth in this market combined with continued consolidation among retailers and
distributors will lead to consolidation among natural and organic food
manufacturers. Accordingly, a key element of the Company's growth strategy is to
pursue strategic acquisitions of natural and organic food companies with
products or brands that strengthen or complement the Company's product lines.
The Company believes that its manufacturing capability, its sophisticated
information systems and the experience and depth of its management team will
enable the Company to identify and realize synergies in connection with
acquisitions which may give the Company advantages over other potential
acquirors.
NATURAL FOOD MARKET
According to NFM, the market for natural products grew at a rate of 20%
between 1995 and 1996 and reached approximately $11.5 billion in 1996. According
to NFM, the organic food market, a segment of the natural products market, also
grew at a rate of 20% between 1995 and 1996 and was estimated at $3.0 billion in
1996. The Company believes that growth in the natural and organic food market is
being propelled by several factors, including (i) consumers taking charge of
their health and well being through awareness of the link between diet and
health and improved eating habits, (ii) consumer concern over the purity and
safety of foods due to the presence of pesticide residues, artificial
ingredients and other chemicals and (iii) consumer awareness of environmental
issues.
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<PAGE> 29
In recent years, changes in attitudes and beliefs have led to changes in
dietary habits. For example, from 1980 to 1995, per capita consumption of grains
and fruits -- two food groups of which the United States Department of
Agriculture recommends increased consumption -- grew by 30% and 20%,
respectively.
Demographic trends are also favorable for natural and organic foods. The
number of adults over the age of 35 is increasing rapidly. The U.S. Census
Bureau projects that between 1990 and 2000 the number of adults between the ages
35 to 54 will grow by 29% and the number of adults over age 54 will grow by 13%.
Since these demographic groups are the most frequent purchasers of the Company's
products, the Company believes the aging population will increase the number of
ultimate consumers of the Company's products.
COMPETITIVE STRENGTHS
The Company believes that its current market position is attributable to
the following competitive strengths:
Strong Brand Name Recognition and Leading Market Shares
The Health Valley(R) and Breadshop's(R) brand names, both of which have
been marketed by the Company and its predecessors for over 25 years, are two of
the leading brand names in the natural and organic food industry. The Company
believes that the Health Valley(R) brand is one of the most recognized natural
or organic food brands in the United States.
The Company believes that it has the leading market share in the natural
food and conventional grocery retail channels in each of its three core product
categories -- (i) breakfast cereals and granolas, (ii) granola bars, cereal
bars, cookies and other baked goods and (iii) canned and instant soups and
chilis -- which accounted for over 90% of the Company's revenues in 1997.
Expertise in Natural and Organic Ingredient Sourcing and Product Development
The Company has significant expertise in the sourcing of natural and
organic food ingredients and in the formulation of innovative natural products.
The Company believes it is one of the largest purchasers of organic raw
materials and food ingredients in the United States. The Company, together with
its predecessors, has been working with natural and organic formulations,
preparations and recipes for over 25 years. The Company has also developed
proprietary techniques which increase shelf life, improve flavor and enhance the
nutritional quality of the Company's food products, without relying on
artificial ingredients or preservatives.
Substantial Infrastructure
NNG operates a modern manufacturing center in Irwindale, California which
the Company estimates is generally operating at less than 30% utilization. In
addition, the Company has sophisticated, scalable information systems capable of
absorbing future growth. The Company believes the combination of excess
manufacturing capacity and scalable information systems creates a significant
opportunity to grow existing brands, develop new products, build its private
label and contract manufacturing businesses and acquire complementary brands
which can be manufactured by the Company without significant capital investment
or additional fixed expenses.
Experienced Management Team
The natural and organic food industry is a relatively young industry
consisting primarily of comparatively small, privately-owned businesses. As a
result, the management of such natural food companies often lacks the training
and experience commonly found in other more mature segments of the food
industry. The Company has recruited an experienced management team to oversee
current operations and will continue to recruit seasoned management to support
future growth and acquisitions. The Company's executive officers are veteran
senior managers with extensive food industry experience. The Company believes
that its larger size
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<PAGE> 30
relative to most natural food companies enables it to recruit and retain more
highly qualified and specialized management than many of its competitors.
GROWTH STRATEGY
The Company's objective is to be the leading manufacturer and marketer of
premium branded natural and organic foods. The key elements of the Company's
growth strategy are as follows:
Concentrate on the Growing Natural Food Market
The natural and organic food market is growing rapidly, and the Company is
concentrating its branded marketing activities exclusively in this market
segment.
Grow the Company's Existing Brands
The Company intends to build upon its leading position in its current core
product categories through internal growth. Both the Health Valley(R) and
Breadshop's(R) brands have been marketed for more than 25 years, fostering
consumer awareness and loyalty and retail availability throughout the United
States. The Company plans to invest in trade and consumer marketing in order to
further increase the awareness and availability of its brands. Building on its
brand equities, the Company believes it can strengthen its position in current
product categories and successfully launch products in new categories.
The Company plans to continue developing new products which appeal to
consumers with respect to taste, nutrition, convenience and environmental
impact. The Company also plans to launch new products for evening meal
consumption, complementing its existing breakfast, lunch and snack products. For
example, in the third quarter of 1998, the Company plans to launch an instant
rice meal positioned to compete in the single serve home meal replacement
market. In addition, the Company plans to introduce new food products that
incorporate ingredients with specific nutritional benefits, or functional foods.
Expand Sales in Grocery Retail Channel
Complementing its ongoing efforts to increase sales in the natural food
retail channel, the Company plans to improve the scope and quality of
conventional grocery retail distribution for its brands. By informing grocery
retailers about natural and organic food markets, consumer profiles and growth
opportunities, the Company will seek to enhance conventional grocers'
understanding of the appeal of natural and organic food products and increase
their commitment to the segment. The Company believes that fostering
understanding and commitment on the part of conventional grocers will result in
improved shelf space and more effective in-store merchandising, which the
Company believes will increase its sales in the conventional grocery retail
channel.
Pursue Strategic Acquisitions
A key element of the Company's growth strategy is to pursue strategic
acquisitions of natural and organic food companies with products or brands that
strengthen or complement the Company's product lines. The Company believes such
acquisitions may create opportunities to accelerate sales growth and leverage
purchasing, manufacturing and operating expenses. The Company believes the
fragmented nature of the natural food industry offers numerous opportunities to
acquire companies that fit well with the Company's strategy.
Increase Private Label Business
The Company believes its private label sales activities can lead to both
increased revenues and improved relationships with key customers, thereby
improving the market for its branded products. In conventional grocery
retailing, private labels frequently account for 15% to 20% of sales. However,
until recently, there have been very few private label natural food products.
Due to the growth of the natural and organic food market, natural food marketers
have begun to establish private label programs. During 1997, the Company
established a private label division, recruited an experienced private label
sales manager and began developing private
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<PAGE> 31
label customer relationships and sales. The Company intends to become the
supplier of choice for private label natural and organic foods in its core
product categories.
PRODUCTS
The Company markets over 200 products under the Health Valley(R) and
Breadshop's(R) brand names and also manufactures products under brand names
owned by private label customers. Examples of the Company's branded products are
set forth in the table below:
<TABLE>
<CAPTION>
CATEGORY BRANDS PRODUCTS
-------- ------ --------
<S> <C> <C>
Cereals and Granola Health) Banana Gone Nuts(TM) Hot Breakfast Cereal
Valley(R Organic Oat Bran Flakes Breakfast
Cereal
Organic Fiber 7(R) Flakes Breakfast
Cereal
Golden Flax Breakfast Cereal
Raisin Cinnamon Granola
Breadshop's(R) Honey Gone Nuts(R) Breakfast Cereal
Baked Goods Health) Moist & Chewy Granola Bars
Valley(R Original Amaranth Graham Crackers
Original Oat Bran Crackers
Breadshop's(R) Animal Crackers
Soups and Chilis Health) Spicy Vegetarian Chili
Valley(R
14 Garden Vegetable Soup
Zesty Black Bean with Rice Instant
Soup
Garden Split Pea with Carrots Instant
Soup
Organic Vegetable Soup
Organic Tomato Soup
Organic Minestrone Soup
</TABLE>
One of the Company's main objectives is to market natural and organic foods
that promote good health. The Health Valley(R) and Breadshop's(R) branded
products are produced without synthetic colors, flavors, sweeteners or
preservatives and use minimally processed ingredients whenever possible. The
Company also uses organic ingredients when available and cost effective. In
general, the Company's branded products are formulated to be high in complex
carbohydrates, low in fat and, where appropriate, to contain soy or other
vegetable, rather than animal, proteins. Whenever possible, the Company uses
unbleached whole grain flours and other minimally processed grains to increase
the fiber and nutritional content of its products.
A majority of the Company's products qualify for the "healthy" designation
in accordance with FDA guidelines. In order to use "healthy" as a description
under federal guidelines, one serving of food product must fulfill the following
criteria:
- Each serving must not contain more than: 3 grams of total fat; 1 gram of
saturated fat; 60 milligrams of cholesterol; and 480 milligrams of sodium
- In addition, each serving must provide at least 10% of the daily value of
at least one of the following nutrients: Vitamin A (500 IU minimum);
Vitamin C (6 milligrams minimum); Iron (1.8 milligrams minimum); Calcium
(100 milligrams minimum); Protein (5 grams minimum); or fiber (3 grams
minimum)
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<PAGE> 32
Health Valley(R) products, in particular, compare favorably with leading
national brands of conventional foods with respect to fat, sodium and fiber,
while having similar caloric content:
<TABLE>
<CAPTION>
NUTRITIONAL LABEL DECLARATIONS(1)
----------------------------------
MAJOR CONVENTIONAL
HEALTH VALLEY FOOD BRANDS(2)
------------- ------------------
<S> <C> <C>
Sodium(mg)
canned soups................................. 220-280 800-1000
canned chili................................. 200 830-1100
instant soups................................ 270-300 450-550
broths....................................... 170 1000
Fat(g)(3)
cereal bars.................................. 0-2 2-3
granola bars................................. 0-3 2-3
Fiber(g)(4)
flaked cereals............................... 4-6 1-2
granolas..................................... 6 4
</TABLE>
- ---------------
(1) Per serving.
(2) Represents a composite of comparable conventional food brands.
(3) Compared to low fat varieties of major conventional food brands.
(4) Without milk or soy beverage.
MARKET POSITION
As the following table illustrates, among natural and organic food
products, the Company's brands hold leading market positions in its three core
product categories.
<TABLE>
<CAPTION>
MARKET RANK (MARKET SHARE)
-------------------------------
NATURAL FOOD GROCERY
DISTRIBUTORS(1) RETAILERS(2)
--------------- ------------
CATEGORY BRANDS 1997 1996
- -------- ------ --------------- ------------
<S> <C> <C> <C>
Cold breakfast cereals Health) Valley(R #1 (24.8%) #1 (32.2%)
Flakes Breadshop's(R)
Granolas
Puffed cereals
Baked goods Health) Valley(R #2 (13.1%)(3) N/A(4)
Granola bars
Cereal bars
Cookies
Canned and instant Health) Valley(R #1 (31.2%) #1 (43.4%)
soups and chilis
Instant soup cups
Instant chili cups
Canned soups
Canned broths
</TABLE>
- ---------------
(1) Based on SPINS Distributor Information from Spence Information Services,
LLC. SPINS Distributor Information is based on actual sales from certain
natural foods distributor warehouses.
(2) Based on ACNielsen ScanTrack: SPINS Natural Track, which is scanner-based
information on sales of natural products in grocery retail outlets. This
data is drawn from ACNielsen's ScanTrack database, a statistically
representative sample of supermarkets across the United States.
(3) Based on ACNielsen ScanTrack: SPINS Natural Track, for the two-month period
ended February 1998, the Company had the largest market share in this
channel for natural granola bars, cereal bars and cookies.
(4) The data regarding sales of baked goods through the grocery retail channel
was not purchased by the Company for the full year.
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<PAGE> 33
NEW PRODUCT INTRODUCTIONS
New products are important in achieving growth in the natural food
industry. Both Health Valley and Breadshop have recently introduced new products
to respond to changes in consumer tastes, increased desire for convenience,
developments in nutrition and competition. Product innovations have ranged from
introducing new flavors of existing products to launching entire lines of
organic products or entering new product categories.
Recently, the Company developed a variety of new products, a number of
which have already been launched in the marketplace or are scheduled to be
launched during 1998. The following table summarizes actual and planned product
introductions for 1997 and 1998:
<TABLE>
<CAPTION>
CALENDAR QUARTER HEALTH VALLEY(R) Breadshop's(R)
---------------- ---------------- --------------
<S> <C> <C>
Fourth Quarter 1997 Hot Breakfast Cereal Cups Flakes 'N Frostin'(TM) Cold Breakfast Cereal
- Banana Gone Nuts(TM) Hot
Breakfast Cereal
- Amazing Apple!(TM) Hot
Breakfast Cereal
- Maple Madness!(TM) Hot
Breakfast Cereal
- Terrific 10-Grain(TM) Hot
Breakfast Cereal
First Quarter 1998 Animal Cookies (bulk package)
Second Quarter 1998 Moist & Chewy Granola Bars Wild Berry Moist & Chewy Granola Bars (bulk
- Peanut Crunch package)
- Dutch Apple
- Wild Berry
Amaranth Animal Cookies
- Original Honey
- Vanilla
Rice Crunchems(TM) Breakfast
Cereal
Banana Gone Nuts(TM) Breakfast
Cereal
Super Size Cereal
- Oat Bran Flakes
- Fiber 7(R) Flakes
- Amaranth Flakes
Third Quarter 1998 Instant Rice Meal Cups Cookie Classics
- Shiitake Mushroom - Oatmeal Chocolate Chip
- Cantonese - Chocolate Chunk
- Thai
Stone Wheat Crackers
- Original
- Cracked Pepper
- Sesame
Canned Soup and Chili
- Chicken Noodle
- Chicken & Rice
- Turkey Chili
- Vegetable Broth
- Mushroom Broth
Fourth Quarter 1998 Corn Crunchems(TM) Breakfast
Cereal
Berries 'n Cream(TM) Breakfast
Cereal
</TABLE>
The Company plans to continue investing in research and development in
order to create products for current and new categories. The Company plans to
direct a growing portion of research and development
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<PAGE> 34
resources toward the development of evening, main meal products and side dish
products which the Company believes present significant growth opportunities,
particularly for the Health Valley(R) brand.
CUSTOMERS
The Company's primary customers are natural food and specialty food
distributors who purchase the Company's products for their own account for
resale to natural food and grocery retailers. For 1997 and the three months
ended March 31, 1998, sales through each of Tree of Life, Inc. and United
Natural Foods, Inc. -- two large natural food distributors -- accounted for more
than 10% of the Company's revenues. The Company also sells its products to
conventional grocery retailers and club wholesalers.
The Company also tracks the ultimate consumers of its products. The Company
possesses a unique, proprietary database which contains the names and addresses
of over 1,000,000 customers who have purchased the Company's products or have
contacted the Company in response to promotions. The Company is exploring
opportunities to utilize this list in marketing its products in the future.
SALES AND MARKETING
The Company markets its products through a combination of consumer
marketing and trade marketing activities.
Consumer Marketing
Historically, the Company relied principally on new products, informative
product packaging and trade promotion activities in order to attract new
consumers and grow its business. In addition, the Company decided in mid-1996 to
discontinue the Predecessor Company's rebate promotions. During 1997, the
Company initiated the development of new products, reformulated certain existing
products to improve taste and nutritional value and redesigned its packaging. In
addition, the Company began to develop new consumer advertising and promotional
programs. As a result of these activities, the Company plans to launch several
new products under both the Health Valley(R) and Breadshop's(R) brands in 1998,
release newly designed packaging for most of its Health Valley(R) products and
initiate new print and radio advertising campaigns.
Trade Marketing -- Branded Products
The Company believes it employs the largest direct sales force of any
natural and organic food company. This sales force markets the Company's Health
Valley(R) and Breadshop's(R) products to distributors and retailers. The
Company's sales representatives, either directly or through commissioned food
brokers, obtain distribution and shelf space for the Company's products and
negotiate trade deals, advertisements and promotions.
Trade Marketing -- Private Label
Since March 1997, the Company has employed a senior sales manager to
develop and maintain private label customer relationships. Since focusing on the
development of private label relationships in 1997, the Company has begun to
manufacture and sell its products under private labels to leading natural food
and conventional grocery retailers as well as to other food marketers. The
Company believes its private label sales activities can lead to increased
revenues and improve the Company's relationships with key customers, thereby
improving the market for its branded products.
MANUFACTURING
All of the Company's baked goods, cereals and granolas, and instant soups
and chilis are produced at its manufacturing facility in Irwindale, California.
The Company's canned chilis and soups and beverages are manufactured to the
Company's own specifications by co-packers. With respect to the Company's canned
chilis and soups, the Company provides the co-packer with all ingredients,
recipes and packaging for the
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<PAGE> 35
Company's products, and maintains quality control personnel at the co-packer's
facility during all production runs.
The Company's bakery operations include five modern baking lines employing
specially-designed ovens capable of producing more than 10,000 twelve-pack cases
per shift. The Company's cereal and meal cup operations include four cereal
production lines and one instant meal cup line capable of producing more than
10,000 twelve-pack cases per shift.
Products are generally manufactured to customer orders. As a result, the
Company is able to minimize its investments in inventories while maintaining
high levels of customer service. The Company estimates that it is generally
utilizing less than 30% of the Irwindale facility's manufacturing capacity.
Accordingly, the Company can substantially increase sales of existing and
similar products without making significant capital investments.
TECHNICAL SERVICES
Research and Development
The Company's research and development team includes nutritionists and food
technologists who develop new products and improve existing products. Research
and development focuses on improving the taste and nutritional value of the
Company's products and reducing the cost of producing such products. Recently,
additional research and development emphasis has been placed upon developing
products that incorporate ingredients with specific nutritional benefits, or
functional foods.
Quality Assurance
Consistency of quality and food safety are of paramount importance to the
Company. Accordingly, the Company purchases packaging and ingredients only from
approved suppliers and inspects raw materials as required to ensure conformance
to specifications. Under the direction of a full-time quality assurance manager,
on line product monitoring as well as post production product testing and
evaluation are also used to help ensure consistent quality and safety. The
Company utilizes both in-house and outside lab testing to support its quality
assurance programs.
INFORMATION SYSTEMS
The Company utilizes sophisticated information systems for operations
management and financial planning and control. Major applications software
includes the Marcam PRISM process manufacturing package and the JD Edwards
financial package, both of which operate on the Company's IBM AS400/B320
hardware. The Company believes that its existing information systems have the
capacity to absorb significant future growth.
COMPETITION
The markets in which the Company is active are highly competitive. Numerous
natural and organic food companies compete with the Company, including The Hain
Food Group, Inc., Barbara's Bakery, Inc. and Fantastic Foods, Inc. The Company
believes that in the natural food sector it competes with over 500 companies,
most of which are small independent companies and none of which is dominant. The
Company's products also compete, from time to time, with products of larger
conventional food companies, such as ConAgra, Inc.'s Healthy Choice line or
Nabisco, Inc.'s SnackWell line. The Company competes with these companies based
upon product quality, taste and appearance, breadth of product offerings,
customer service and price.
The Company differs from many of its natural and organic food competitors
in several respects. First, the Company is substantially larger than most
natural and organic food companies. Second, the Company generally enjoys a
leading market share in its core categories and its sales are concentrated in a
few product categories rather than distributed across many categories. Third,
the Company manufactures the majority of its products, unlike many of its
competitors who use co-packers. Finally, in those instances where the
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<PAGE> 36
Company utilizes co-packers, it generally procures the natural and organic
ingredients and the packaging while many other natural food companies rely on
co-packers to procure such materials. The Company believes these differences
constitute competitive advantages in product quality, service levels, working
capital utilization, food safety and cost. The Company generally competes with
larger conventional food companies by differentiating its products based on
ingredients and nutrition.
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company owns a number of registered trademarks including the following:
Health Valley(R), Breadshop's(R), Honey Gone Nuts(R), Fiber 7(R) and Soy Moo(R).
Registration of Banana Gone Nuts(TM), Amazing Apple!(TM) and Maple Madness!(TM)
are pending. The Company is not aware of any fact that would have a materially
adverse impact on the continuing use of these trademarks. See "Risk
Factors -- Trademarks." The Company's recipes and certain manufacturing
processes also constitute proprietary information and are important to the
Company's success and competitive position. Accordingly, the Company seeks to
establish and protect its trademarks, trade secrets and other proprietary
rights.
GOVERNMENT REGULATION
The Company's operations are subject to extensive regulation by the FDA,
the USDA and other state and local authorities regarding the processing,
packaging, storage, distribution, advertising and labeling of the Company's
products and environmental compliance. The Company's manufacturing facilities
and products are subject to periodic inspection by federal, state and local
authorities. The Company's advertising is subject to regulation by the FTC
pursuant to the Federal Trade Commission Act and regulations issued thereunder.
The Company believes that it is currently in substantial compliance with all
material governmental laws and regulations and maintains all material permits
and licenses relating to its operations.
The Company has, to its knowledge, complied with all current food labeling
and packaging requirements, including significant labeling requirements that
became effective during 1994. The Company has not experienced any significant
regulatory problems in the past and has not been subject to any material fines
or penalties.
In December 1997, the USDA published proposed regulations to standardize
organic certification requirements as part of the Organic Foods Production Act
which was enacted as part of the 1990 United States Farm Bill. This law will
provide for a minimum federal standard that all organic producers will have to
follow in order for their products to be certified "organic", and will include a
seal to provide consumers with assurance that products sold as "organic" meet
these minimum standards. The USDA comment period ended May 1, 1998 and the
Company, along with other organic food producers, has been lobbying to bring the
proposed standards in line with more rigorous existing standards. Due to the
large number of comments received by the USDA, the Company anticipates that
final regulations will not become effective until sometime after 1999.
EMPLOYEES
As of March 31, 1998, the Company employed 199 full-time employees, of
which 32 were in administration, 138 were in operations and 29 were in sales,
marketing and customer service. Additionally, the Company employed 172 temporary
employees as of March 31, 1998. The use of temporary employees gives the Company
significant flexibility to adjust staffing levels in response to seasonal
fluctuations in demand. None of the Company's employees are covered by a
collective bargaining agreement. However, Health Valley is currently negotiating
with the Bakery, Confectionery & Tobacco Workers' International Union concerning
a collective bargaining agreement covering its production, maintenance and
warehouse employees. The Company believes that its relations with its employees
are good. The Company has a stable and experienced employee pool with
historically low turnover.
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<PAGE> 37
PROPERTIES
The Company's Irwindale facility, housing manufacturing, warehouse,
distribution and office space, consists of three leased standard industrial
buildings containing a total of approximately 300,000 square feet. The leases
for the facilities expire in September 1998, with a renewal option for a
five-year period. The rent payments under the renewal option are subject to
negotiation.
In addition, the Company leases a facility located in Santa Cruz,
California consisting of 52,600 square feet of warehouse, office and
manufacturing space which it acquired with the Breadshop acquisition. The
Company currently uses 2,000 square feet of office space and subleases the
remaining space. The Company intends to vacate and sublease the office space by
July 1998. The lease for this facility expires in March 2000.
The Company also leases a small office in Chicago, Illinois that serves as
NNG's principal executive office.
LEGAL PROCEEDINGS
An action entitled Mary Jo Modica et al. v. Health Valley Foods, Inc. et
al., filed in the circuit court for Tuscaloosa County, Alabama on August 27,
1996 as a small claim, is pending against Health Valley and the Company. This
action was conditionally certified on an ex parte basis as a nationwide class
action; however, the Alabama Supreme Court has recently held that such ex parte
certifications violate applicable Alabama Rules of Civil Procedure and the
Company believes that, upon motion, the conditional class certification will be
removed. The complaint seeks monetary damages and alleges claims based on
misrepresentation in connection with the Predecessor Company's practices
regarding the packaging of certain of its canned products. None of the claims
involves the safety, quality or nutritional content of the food products
manufactured by the Company or the Predecessor Company. The Company believes
that the suit lacks merit and intends to vigorously defend this suit. No
substantive discovery has been undertaken by the parties.
In addition, the Company is from time to time involved in litigation in the
ordinary course of its business. The Company is not currently a party to any
litigation which in the opinion of management is likely to have a material
adverse effect on the Company's business, results of operations or financial
condition and cash flows.
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<PAGE> 38
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The following table sets forth certain information concerning the Company's
directors and executive officers.
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
William R. Voss...................... 44 Chairman of the Board, Chief Executive Officer and
President
Diane J. Beardsley................... 43 Senior Vice President, Chief Financial Officer and
Secretary
William J. Nictakis.................. 38 Senior Vice President
Michael D. de Boom................... 52 Senior Vice President
Roger S. McEniry(1)(2)............... 41 Director
David S. Katz(1)..................... 32 Director
Timothy J. Healy(1)(2)............... 50 Director
Lawrence A. Del Santo(2)............. 64 Director
</TABLE>
- ---------------
(1) Member of the Audit Committee.
(2) Member of the Compensation Committee.
WILLIAM R. VOSS has been the Chief Executive Officer, President and a
director of the Company since its formation in October 1995. Mr. Voss was
elected Chairman of the Board in April 1996. Prior to joining the Company, Mr.
Voss served as Chief Executive Officer of McCain Foods, a privately owned food
processing company, from July 1993 to August 1995, and prior to such time as
President and Chief Operating Officer of Pilgrim's Pride Corporation, a publicly
traded food processing company. Mr. Voss also served as a principal with Booz,
Allen & Hamilton, a management consulting firm. Mr. Voss received a Master of
Business Administration degree from Stanford University in 1980. Mr. Voss is a
director of Interphase Corporation, a publicly traded corporation.
DIANE J. BEARDSLEY has been Senior Vice President and Chief Financial
Officer of the Company since December 1996. From 1992 until joining the Company,
Ms. Beardsley served as Senior Vice President and Chief Financial Officer of
Leiner Health Products, a vitamin and supplement manufacturer, and held various
accounting and financial positions with Leiner Health Products from 1986 until
being appointed Senior Vice President -- Chief Financial Officer. Ms. Beardsley
was previously the Controller -- Corporate Accounting of Smith International,
Inc., a publicly traded oil and gas equipment manufacturing company. Ms.
Beardsley received a bachelor's degree in Business Administration from
California State University -- Fullerton in 1976 and is a certified public
accountant.
WILLIAM J. NICTAKIS has been Senior Vice President -- Sales and Marketing
of the Company since December 1996. Prior to joining the Company, Mr. Nictakis
served as Vice President -- General Manager of a joint venture between Frito-Lay
Company and Sara Lee Corporation. He served as Frito-Lay Company's Vice
President, Quantum Leap Business Systems from 1995 to 1996 and its Vice
President, UDS Channel Development from 1993 to 1995. Mr. Nictakis received a
Master of Business Administration from the University of Chicago in 1985.
MICHAEL D. DE BOOM has been Senior Vice President -- Operations of the
Company since June 1996. From 1995 until joining the Company, Mr. de Boom served
as Executive Vice President of Distribution, Manufacturing and Product
Development of Harry's Farmers Markets, a grocery retailer. He served as the
Director of Warehouse Operations for H.E.B. Grocery Co. from 1993 through 1995
and its Director of Bakery Manufacturing and Product Development from 1990
through 1993. Mr. de Boom held various food manufacturing and distribution
management positions with Alpha Beta Co., a grocery retailer, from 1971 until
1990.
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<PAGE> 39
ROGER S. MCENIRY has been a director of the Company since October 1995. Mr.
McEniry is a general partner of Frontenac Company, a private equity investment
firm headquartered in Chicago, which he joined in March 1985. Frontenac Company
is the general partner of Frontenac VI Limited Partnership ("Frontenac VI").
Frontenac VI is a stockholder of the Company.
DAVID S. KATZ has been a director of the Company since October 1995. Mr.
Katz is Vice President of Frontenac Company, which he joined in September 1994.
From 1993 to 1994 he was an executive at the Clipper Group, a New York based
private equity company.
TIMOTHY J. HEALY has been a director of the Company since 1997. Mr. Healy
has served as the Chairman, CEO and President of Select Beverages, Inc., a
privately held beverage bottler, since 1992.
LAWRENCE A. DEL SANTO has been a director of the Company since January
1998. Mr. Del Santo was the Chairman and Chief Executive Officer of The Vons
Companies, Inc. from 1994 until he retired in 1997. From 1992 to 1994, he served
as the Executive Vice President -- Food Stores for American Stores Company.
BOARD OF DIRECTORS
After consummation of the Offering, the Board of Directors of the Company
will consist of five directors divided into three classes with each class
serving for a term of three years. At each annual meeting of stockholders,
directors will be elected by the holders of the Common Stock to succeed those
directors whose terms are expiring. The director whose term will expire in 1999
is David S. Katz; directors whose terms will expire in 2000 are Timothy J. Healy
and Lawrence A. Del Santo; and directors whose terms will expire in 2001 are
William R. Voss and Roger S. McEniry. The Board of Directors has established an
Audit Committee and Compensation Committee and may establish such other
committees as the Board may determine. Directors elected by the Company's
stockholders may be removed only for cause.
DIRECTOR COMPENSATION
Directors who are also employees of the Company or one of its subsidiaries
do not receive compensation for serving as directors. Each director who is not
an employee of the Company or one of its subsidiaries ("Non-Employee Director")
receives an annual retainer of $5,000, a fee of $2,000 for attendance at each
Board of Directors' meeting and $1,000 for attendance at each committee meeting.
Directors are also reimbursed for out-of-pocket expenses incurred in attending
meetings of the Board of Directors or committees thereof or otherwise incurred
in their capacity as directors. In addition, each Non-Employee Director serving
on the Board of Directors at the closing of the Offering will receive an option
to purchase 10,000 shares of Common Stock. After the Offering, any newly elected
Non-Employee Director will receive an option to purchase 10,000 shares of the
Company's common stock upon becoming a director of the Company. In addition,
each Non-Employee Director will receive an option to purchase 5,000 shares
annually.
38
<PAGE> 40
EXECUTIVE COMPENSATION
The following table sets forth information with respect to the cash
compensation paid by the Company for services rendered during the fiscal year
ended December 31, 1997 to its chief executive officer and the other executive
officers of the Company whose total annual salary and bonus exceeded $100,000
during such period (each, a "Named Executive Officer").
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
AWARDS
------------
ANNUAL COMPENSATION SECURITIES ALL OTHER
-------------------- UNDERLYING COMPENSATION
SALARY($) BONUS($) OPTIONS ($)
--------- -------- ------------ ------------
<S> <C> <C> <C> <C>
William R. Voss............................... $300,000 $ -- -- $4,750(1)
Chairman of the Board, Chief Executive
Officer and President
Diane J. Beardsley............................ 180,000 74,246(2) -- --
Senior Vice President and Chief Financial
Officer
William J. Nictakis........................... 225,000 194,718(3) -- --
Senior Vice President -- Sales and Marketing
Michael D. de Boom............................ 150,000 36,872(4) -- 1,125(5)
Senior Vice President -- Operations
</TABLE>
- ---------------
(1) Represents the Company's matching contribution to the Company's 401(k) plan
made on behalf of Mr. Voss.
(2) Includes a signing bonus of $45,000 paid in 1997 in accordance with Ms.
Beardsley's employment offer.
(3) Includes a signing bonus of $89,000 paid in 1997 and a payment of $69,160
for relocation expenses in accordance with Mr. Nictakis' employment offer.
(4) Includes the second and final bonus payment of $12,500 in accordance with
Mr. de Boom's employment offer.
(5) Represents the Company's matching contribution to the Company's 401(k) plan
made on behalf of Mr. de Boom.
OPTION GRANTS IN LAST FISCAL YEAR
The following table sets forth individual grants of stock options made to
the Named Executive Officers during the fiscal year ended December 31, 1997:
<TABLE>
<CAPTION>
NUMBER OF PERCENT OF POTENTIAL REALIZABLE VALUE
SHARES TOTAL AT ASSUMED ANNUAL RATES
UNDERLYING OPTIONS OF STOCK PRICE APPRECIATION
OPTIONS GRANTED TO EXERCISE OR FOR OPTION TERM(2)
GRANTED EMPLOYEES IN BASE PRICE ----------------------------
NAME (#)(1) FISCAL YEAR ($/SH) EXPIRATION DATE 5%($) 10%($)
---- ---------- ------------- ----------- --------------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Diane J. Beardsley.... 19.7% March 18, 2004
William J. Nictakis... 39.3% March 18, 2004
Michael D. de Boom.... 19.7% March 18, 2004
</TABLE>
- ---------------
(1) Each of these options was granted pursuant to NNG's 1997 Stock Option Plan.
These options become exercisable in three equal annual installments
beginning on the first anniversary of the commencement of such person's
employment with the Company. These options vest in full upon a sale of the
Company.
(2) In accordance with the rules of the Commission, shown are the hypothetical
gains or "option spreads" that would exist for the respective options. These
gains are based on assumed rates of annual compounded stock price
appreciation of 5% and 10% from the date the option was granted over the
full option term of seven years. The 5% and 10% assumed rates of
appreciation are mandated by the rules of the Commission and do not
represent the Company's estimate or projection of future increases in the
price of its Common Stock.
39
<PAGE> 41
FISCAL YEAR-END OPTION VALUES
The following table sets forth for the Named Executive Officers information
concerning the value of unexercised stock options at December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SHARES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT FISCAL IN-THE-MONEY OPTIONS AT
YEAR-END(#) FISCAL YEAR-END(1)($)
------------------------- -------------------------
EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
------------------------- -------------------------
<S> <C> <C>
William R. Voss...................................
Diane J. Beardsley................................
William J. Nictakis...............................
Michael D. de Boom................................
</TABLE>
- ---------------
(1) The value of "in the money" options represents the difference between the
exercise price of such option and the fair market value of the stock as of
December 31, 1997. The fair market value of the Common Stock as of that
date, solely for purposes of this calculation, is estimated to be %
less than the initial public offering price of $ per share.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement with William R. Voss,
pursuant to which Mr. Voss became the Chief Executive Officer of the Company.
Mr. Voss' employment agreement provides for an annual base salary of $300,000.
In addition, Mr. Voss was granted options to purchase shares
of Common Stock at an exercise price of $ per share, shares of
which become exercisable on the earlier of the consummation of an initial public
offering and April 15, 1999. These options will become exercisable upon the
consummation of the Offering. Unless proper notice of termination is given, the
term of Mr. Voss' employment automatically renews for successive one-year
periods. No other executive officer has an employment agreement with the
Company.
INDEMNIFICATION AGREEMENTS
In addition to the indemnification provisions contained in the Company's
Certificate of Incorporation and By-Laws, the Company has entered into
indemnification agreements with all of its directors and executive officers
providing that the Company will indemnify those persons to the fullest extent
permitted by law against claims arising out of their actions as officers or
directors of the Company and will advance expenses of defending claims against
them. The Company believes that indemnification under these agreements covers at
least negligence and gross negligence by the directors and officers, and
requires the Company to advance litigation expenses in the case of actions,
including stockholder derivative actions, against an undertaking by the officer
or director to repay any advances if it is ultimately determined that the
officer or director is not entitled to indemnification. The Company believes
that these provisions are essential to attracting and retaining qualified
persons as directors and officers.
EMPLOYEE INCENTIVE COMPENSATION PLAN
Prior to the consummation of the Offering, the Board of Directors and the
Company's stockholders are expected to approve the Company's Employee Incentive
Compensation Plan (the "Plan"). The purpose of the Plan is to provide directors,
officers, employees, consultants and independent contractors with additional
incentives by increasing their ownership interests in the Company. Individual
awards under the Plan may take the form of one or more of: (i) either incentive
stock options ("ISOs") or non-qualified stock options ("NQSOs"); (ii) restricted
stock; and (iii) dividend equivalents. The Compensation Committee will
administer the Plan and generally select the individuals who will receive awards
and the terms and conditions of those awards.
40
<PAGE> 42
The Company intends to reserve shares of Common Stock for use in
connection with the Plan. Shares of Common Stock which are attributable to
awards which have expired, terminated or been cancelled or forfeited are
available for issuance or use in connection with future awards.
The Plan will remain in effect until terminated by the Board of Directors.
The Plan may be amended by the Board of Directors without the consent of the
stockholders of the Company, except that any amendment, although effective when
made, will be subject to stockholder approval if required by any federal or
state law or regulation or by the rules of any stock exchange or automated
quotation system on which the Common Stock may then be listed or quoted.
The Plan also provides for: (i) the automatic grant to each Non-Employee
Director serving at the closing of the Offering of an option to purchase 10,000
shares of Common Stock; and (ii) after the Offering, the automatic grant to each
Non-Employee Director of an option to purchase 10,000 shares upon such person's
initial election as a director. In addition, the Plan provides for an automatic
annual grant to each Non-Employee Director of an option to purchase 5,000 shares
at each annual meeting of stockholders following the Offering; provided,
however, that if the first annual meeting of stockholders following a person's
initial election as a Non-Employee Director is within three months of the date
of such election or appointment, such person will not be granted an option to
purchase 5,000 shares of Common Stock at such annual meeting. These options will
have an exercise price per share equal to the fair market value of a share of
Common Stock at the date of grant. Options granted under the Plan will expire at
the earlier of 10 years from the date of grant or one year after termination of
service as a director, and options will be exercisable one year after the date
of grant.
EMPLOYEE STOCK PURCHASE PLAN
Prior to consummation of the Offering, the Company will adopt the Employee
Stock Purchase Plan (the "Stock Purchase Plan"), pursuant to which a total of
shares of Common Stock will be reserved for issuance. The Stock
Purchase Plan, which is intended to qualify under Section 423 of the Code,
permits eligible employees of the Company to purchase Common Stock through
payroll deductions with all such deductions credited to an account under the
Stock Purchase Plan. Payroll deductions may not exceed $25,000 for all purchase
periods ending during any Plan Year (as hereinafter defined).
The Stock Purchase Plan operates on a calendar year basis (the "Plan
Year"). To be eligible to participate during a Plan Year, an employee must file
all requisite forms prior to a specified due date known as the "Grant Date."
Generally, the first day of each Plan Year will be the Grant Date and the last
day of each Plan Year will be an Exercise Date (the "Exercise Date"). The
determination of the Grant Date and the Exercise Dates are completely within the
discretion of the Plan Committee. On each Exercise Date, participants' payroll
deductions credited to their accounts will be automatically applied to the
purchase price of Common Stock at a price per share which is the lesser of
eighty-five percent (85%) of the fair market value of the Common Stock on the
Grant Date or on the Exercise Date. Employees may end their participation in the
Stock Purchase Plan at any time during an offering period, and their payroll
deductions to date will be refunded. Participation ends automatically upon
termination of employment with the Company.
Employees are eligible to participate in the Stock Purchase Plan if they
are customarily employed by the Company or a designated subsidiary for at least
20 hours per week and for more than five months in any calendar year. No person
will be able to purchase Common Stock under the Stock Purchase Plan if such
person, immediately after the purchase, would own stock possessing 5% or more of
the total combined voting power or value of all outstanding shares of all
classes of stock of the Company.
RETIREMENT PLAN
The Company has adopted a 401(k) retirement savings plan (the "Retirement
Plan") covering substantially all employees (including the Company's executive
officers) who are 21 and meet minimum length of service requirements. The
Retirement Plan is intended to qualify under Section 401(k) of the Internal
Revenue Code.
41
<PAGE> 43
Under the current terms of the Retirement Plan, participants may elect to
defer up to $10,000 of their annual base compensation (subject to limitations
under the Internal Revenue Code) and to have such deferred amount contributed to
the Retirement Plan on their behalf. In addition, the Company makes a 50%
matching contribution up to the first six percent of the annual base
compensation deferred by a participant.
Salary deferral is fully vested, while the Company's matching contributions
are vested over time with full vesting occurring upon completion of seven years
of service. Benefits under the Retirement Plan generally will be distributed in
the form of a lump sum or installments following the participant's retirement,
death, disability or other termination of employment. Benefits may be
distributed prior to termination of employment under certain limited
circumstances including hardship.
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of the Company's Common Stock by (i) each person known by
the Company to own beneficially more than 5% of the outstanding shares of Common
Stock; (ii) each director; (iii) each Named Executive and (iv) all executive
officers and directors as a group.
<TABLE>
<CAPTION>
PERCENTAGE OWNED
-------------------
BEFORE AFTER
NAME SHARES(1) OFFERING OFFERING
- ---- --------- -------- --------
<S> <C> <C> <C>
Frontenac VI Limited Partnership(2).........................
State of Wisconsin Investment Board(3)......................
William R. Voss(4)..........................................
Roger S. McEniry(5).........................................
George Mateljan, Jr.(6).....................................
David S. Katz...............................................
Timothy Healy...............................................
Lawrence Del Santo(7).......................................
Diane J. Beardsley(8).......................................
Michael D. de Boom(8).......................................
William J. Nictakis(8)......................................
All directors and officers as a group (8 persons)...........
</TABLE>
- ---------------
(1) Unless otherwise indicated below, the persons in the above table have sole
voting and investment power with respect to all shares owned by them.
(2) The address of Frontenac VI is c/o Frontenac Company, 38th Floor, 135 S.
LaSalle Street, Chicago, Illinois 60604.
(3) The address of the State of Wisconsin Investment Board is 121 East Wilson,
Madison, Wisconsin 53702.
(4) Includes shares which may be acquired within 60 days
pursuant to the exercise of stock options held by Mr. Voss. Mr. Voss'
address is c/o Natural Nutrition Group, Inc., 135 S. LaSalle, Suite 1134,
Chicago, Illinois 60603.
(5) Mr. McEniry is a general partner of Frontenac Company, which is the general
partner of Frontenac VI. Under the applicable rules of the Securities and
Exchange Commission, Mr. McEniry shares voting and investment power with
respect to shares of Common Stock beneficially owned by
Frontenac VI. Frontenac Company is, and Mr. McEniry may be, considered the
beneficial owner of these shares.
(6) Includes shares which may be acquired within 60 days
pursuant to the exercise of stock options held by Mr. Mateljan. Mr.
Mateljan's address is c/o John A. Calfas, 11601 Wilshire Blvd., Los Angeles,
California 90025.
(7) Includes shares which may be acquired within 60 days pursuant to
the exercise of stock options held by Mr. Del Santo.
42
<PAGE> 44
(8) Includes , and shares which may be acquired
within 60 days of the date hereof pursuant to the exercise of stock options
held by Ms. Beardsley and Messrs. de Boom and Nictakis, respectively.
CERTAIN TRANSACTIONS
NNG was formed in 1995 by William R. Voss and Frontenac Company to acquire
and develop natural and organic food companies. At that time Frontenac VI, a
private equity investment fund of which Frontenac Company is the general
partner, and Mr. Voss purchased and shares of Common Stock,
respectively, for a price of $ per share.
During February 1996, NNG formed Health Valley for the purpose of acquiring
the capital stock of the Predecessor Company from George Mateljan, Jr. On April
15, 1996, Health Valley acquired the stock of the Predecessor Company for
approximately $34 million. In connection with the Health Valley acquisition,
Frontenac VI and the State of Wisconsin Investment Board ("SWIB") purchased
and shares of Common Stock, respectively, for a price of
$ per share and and shares of Preferred Stock,
respectively, for a price of $1,000 per share, and Mr. Voss purchased
shares of Common Stock, for a price of $ per share.
In connection with the Health Valley acquisition, Health Valley paid
Frontenac Company a fee of $395,233 for advisory and other services and SWIB a
commitment fee of approximately $85,000.
In connection with the Health Valley acquisition, Health Valley entered
into an option agreement pursuant to which Health Valley agreed to sell to
George Mateljan, Jr. one hundred shares of Common Stock of Health Valley for
$22,222.22 per share (the "Health Valley Option").
In October 1996, Health Valley acquired the stock of Breadshop for
approximately $9 million. In connection with the Breadshop acquisition,
Frontenac Company was paid a fee of $100,000 for advisory services. In
connection with the Breadshop acquisition, Frontenac VI loaned the Company
$1,000,000 (the "Frontenac Loan"). On January 28, 1997 Frontenac VI, SWIB and
Timothy J. Healy, a director of the Company, purchased , and
shares of Common Stock, respectively, for a price of $ per
share and 476.25, 353.40 and 23.451 shares of Series A Preferred Stock,
respectively, for a price of $1,000 per share, and Mr. Voss purchased
shares of Common Stock for a price of $ per share. NNG also entered into an
option agreement pursuant to which NNG agreed to sell to Mr. Voss
shares of Common Stock for a purchase price of between $ and
$ per share. The proceeds from the sale of these shares were used to
repay the Frontenac Loan.
In September 1997, in connection with the resolution of all outstanding
issues between the Company and George Mateljan, Jr., relating to the Health
Valley acquisition, $1,793,320 held in escrow was paid to the Company and
$367,878 was paid to Mr. Mateljan. In addition, Mr. Mateljan exchanged the
Health Valley Option for an option to purchase shares of Common Stock
and a number of shares of Series A Preferred Stock of the Company, based on the
number of shares of Series A Preferred Stock redeemed prior to the exercise of
the option. As a result of the redemption of the Series A Preferred Stock with
the proceeds of the Offering, no shares of Series A Preferred Stock will be
issuable upon exercise of this option. The purchase price for the Common Stock
upon exercise of the option will be $ per share.
From the Company's inception in October 1995 through April 19, 1997, the
Company paid Frontenac Company fees totalling $100,000 for the services of
Messrs. McEniry and Katz as directors of the Company during that period. Since
April 19, 1997 the Company has paid Frontenac Company a quarterly fee of $25,000
for those services.
COMPANY POLICY
In the future, any transactions with officers, directors and affiliates
will be approved by a majority of the Board, including a majority of the
disinterested members of the Board, and will be made on terms no less favorable
to the Company than could be obtained from unaffiliated third parties.
43
<PAGE> 45
DESCRIPTION OF CAPITAL STOCK
The authorized capital stock of the Company consists of 50,000,000 shares
of Common Stock, 35,000 shares of Series A Preferred Stock, par value $.001 per
share ("Series A Preferred Stock"), and 2,000,000 shares of Class II preferred
stock, $.01 par value per share ("Preferred Stock"). The 19,566.667 shares of
Series A Preferred Stock which are issued and outstanding will be redeemed with
the proceeds of the Offering.
COMMON STOCK
Of the 50,000,000 shares of Common Stock authorized, shares will
be outstanding upon consummation of the Offering. Subject to the rights of the
holders of Preferred Stock, the holders of outstanding shares of Common Stock
are entitled to share ratably in dividends declared out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time lawfully determine. Each holder of Common Stock is
entitled to one vote for each share held. Subject to the rights of holders of
any outstanding Preferred Stock, upon liquidation, dissolution or winding up of
the Company, any assets legally available for distribution to stockholders as
such are to be distributed ratably among the holders of the Common Stock then
outstanding. All shares of Common Stock currently outstanding are, and all
shares of Common Stock offered hereby when duly issued and paid for will be,
fully paid and nonassessable. Shares of Common Stock are not subject to any
redemption provisions and are not convertible into any other securities of the
Company.
The Board of Directors is classified into three classes as nearly equal in
number as possible, with the term of each class expiring on a staggered basis.
See "Management -- Board of Directors." The classification of the Board of
Directors may make it more difficult to change the composition of the Board of
Directors and thereby may discourage or make more difficult an attempt by a
person or group to obtain control of the Company. Cumulative voting for the
election of directors is not permitted, enabling holders of a majority of the
outstanding Common Stock to elect all members of the class of Directors whose
terms are then expiring.
PREFERRED STOCK
As of , 1998, the Company's issued and outstanding Preferred
Stock consisted of 19,566.667 shares of Series A Preferred Stock held by five
stockholders of record. Upon the closing of the Offering, each outstanding share
of Series A Preferred Stock will be redeemed with a portion of the proceeds of
the Offering. The Series A Preferred Stock ranks senior to the Common Stock as
to distributions upon liquidation, dissolution and winding up of the Company.
Except as required by law, the holders of shares of Series A Preferred Stock are
not entitled to vote on matters presented to the stockholders of the
Corporation. Dividends accrue on the outstanding shares of Series A Preferred
Stock at a rate of 10% per annum, compounded quarterly. All accrued and unpaid
dividends must be paid before any dividend or other payment may be made with
respect to the Common Stock. Unless the Series A Preferred Stock is redeemed
prior thereto, the Company is required to redeem 50% of the shares Series A
Preferred Stock on April 15, 2003 and the balance on April 15, 2004 for a price
of $1,000 per share plus all accrued and unpaid dividends. The Company is also
required to redeem all of the shares of Series A Preferred Stock on a sale of
the Company, a change of control or a similar transaction. At the Company's
option, the Company may redeem up to 10,000 shares of Series A Preferred Stock
prior to a public offering of the Company's equity securities and all of the
shares of Series A Preferred Stock after a public offering of the Company's
equity securities. Under certain circumstances, such as breaches of certain
covenants by the Company, the holders of a majority of the shares of Series A
Preferred Stock may require the Company to redeem all of the shares of Series A
Preferred Stock.
The Certificate of Incorporation of the Company authorizes the Board of
Directors to issue preferred stock in classes or series and to establish the
designations, preferences, qualifications, limitations or restrictions of any
class or series with respect to, among other things, the rate and nature of
dividends, the price, terms and conditions on which shares may be redeemed, the
terms and conditions for conversion or exchange into any other class or series
of the stock and voting rights. The Company will have authority, without
approval of the holders of Common Stock, to issue preferred stock that has
voting, dividend or liquidation rights superior to
44
<PAGE> 46
the Common Stock and that may adversely affect the rights of holders of Common
Stock. The issuance of preferred stock, while providing flexibility in
connection with possible acquisitions and other corporate purposes, could, among
other things, adversely affect the voting power of the holders of Common Stock
and could have the effect of delaying, deferring or preventing a change in
control of the Company. The Company currently has no plans to issue any shares
of Preferred Stock.
One of the effects of undesignated Preferred Stock may be to enable the
Board of Directors to render more difficult or to discourage an attempt to
obtain control of the Company by means of a tender offer, proxy contest, merger
or otherwise, and thereby to protect the continuity of the Company's management.
The issuance of shares of the Preferred Stock pursuant to the Board of
Directors' authority described above may adversely affect the rights of the
holders of Common Stock. For example, Preferred Stock issued by the Company may
rank prior to the Common Stock as to dividend rights, liquidation preference or
both, may have full or limited voting rights and may be convertible into shares
of Common Stock. Accordingly, the issuance of shares of Preferred Stock may
discourage bids for the Common Stock or may otherwise adversely affect the
market price of the Common Stock.
CERTAIN PROVISIONS AFFECTING STOCKHOLDERS
Delaware, like many other states, permits a corporation to adopt a number
of measures through amendment of the corporate charter or bylaws or otherwise,
which may have the effect of delaying or deterring any unsolicited takeover
attempts. In addition, Section 203 of the Delaware General Corporation Law
restricts certain "business combinations" with "interested stockholders"
(generally a holder of 15% or more of the Company's voting stock) for three
years following the date that person becomes an interested stockholder. By
delaying or deterring unsolicited takeover attempts, these provisions could
adversely affect prevailing market prices for the Common Stock.
The Company's Certificate of Incorporation contains certain provisions
permitted under the Delaware General Corporation Law relating to the liability
of directors. The provisions eliminate a director's liability to the Company and
its stockholders for monetary damages for a breach of fiduciary duty, except in
circumstances involving certain wrongful acts, such as the breach of a
director's duty of loyalty or acts or omissions which involve intentional
misconduct or a knowing violation of law. The Certificate of Incorporation also
contains provisions obligating the Company to indemnify its directors to the
fullest extent permitted by the Delaware General Corporation Law. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
SHARES ELIGIBLE FOR FUTURE SALE
After the Offering, the Company will have outstanding shares
of Common Stock. The shares being sold in the Offering are freely
tradable without restriction unless acquired by affiliates of the Company. None
of the remaining outstanding shares of Common Stock have been
registered under the Securities Act, which means that they may be resold
publicly only upon registration under the Securities Act or in compliance with
an exemption from the registration requirements of the Securities Act, including
the exemption provided by Rule 144 thereunder.
In general, under Rule 144 as currently in effect, if one year has elapsed
since the later of the date of the acquisition of restricted shares of Common
Stock from either the Company or any affiliate of the Company, the acquiror or
subsequent holder thereof may sell, within any three-month period commencing 90
days after the date of the Prospectus relating to the Offering, a number of
shares that does not exceed the greater of one percent of the then outstanding
shares of the Common Stock, or the average weekly trading volume of the Common
Stock on the Nasdaq National Market during the four calendar weeks preceding the
date on which notice of the proposed sale is sent to the Commission. Sales under
Rule 144 are also subject to certain manner of sale provisions, notice
requirements and the availability of current public information about the
Company. If two years have elapsed since the later of the date of the
acquisition of restricted shares of Common Stock from the Company or any
affiliate of the Company, a person who is not deemed to have been an affiliate
of the
45
<PAGE> 47
Company at any time for 90 days preceding a sale would be entitled to sell such
shares under Rule 144 without regard to the volume limitations, manner of sale
provisions or notice requirements.
The Company and certain of the holders of the shares of Common Stock
outstanding prior to the Offering have agreed not to offer, sell, contract to
sell or otherwise dispose of any shares of Common Stock, or any securities
convertible into or exercisable or exchangeable for Common Stock, for a period
of 180 days after the date of this Prospectus without the prior written consent
of BT Alex. Brown Incorporated except for: (i) in the case of the Company,
Common Stock issued pursuant to any employee or director plan described herein
or in connection with acquisitions and (ii) in the case of all such holders, the
exercise of stock options pursuant to benefit plans described herein and shares
of Common Stock disposed of as bona fide gifts, subject, in each case, to any
remaining portion of the 180-day period applying to any shares so issued or
transferred. In evaluating any request for a waiver of the 180-day lock-up
period, BT Alex. Brown Incorporated will consider, in accordance with its
customary practice, all relevant facts and circumstances at the time of the
request, including, without limitation, the recent trading market for the Common
Stock, the size of the request and, with respect to a request by the Company to
issue additional equity securities, the purpose of such an issuance.
Sales, or the availability for sale of, substantial amounts of the Common
Stock in the public market could adversely affect prevailing market prices and
the ability of the Company to raise equity capital in the future.
REGISTRATION RIGHTS
The holders of approximately shares of Common Stock and the
holders of options to purchase shares of Common Stock are
entitled, subject to certain conditions, to require the Company to file a
registration statement under the Securities Act of 1933, as amended, covering
the sale of such shares. The Company is obligated to effect two "long form"
registrations (registrations on SEC Form S-1 or S-2). There is no limit on the
number of "short form" registrations. In addition, if the Company proposes to
register any of its securities under the Securities Act (other than pursuant to
a registration statement on Form S-4 or Form S-8), such holders are entitled to
include their shares of Common Stock therein, except that, among other
conditions, the underwriters of an offering have the right to limit the number
of shares included in such a registration. Pursuant to the terms of its
agreement with such holders, the Company is required to pay the expenses of all
such registrations, except for underwriting discounts and commissions. All such
holders have waived their registration rights with respect to this Offering.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Company's Common Stock is
.
46
<PAGE> 48
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters, for
whom BT Alex. Brown Incorporated and Adams, Harkness & Hill, Inc. are acting as
representatives (the "Representatives"), has severally agreed to purchase from
the Company, the aggregate number of shares of Common Stock set forth opposite
its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated.................................
Adams, Harkness & Hill, Inc. ...............................
Total.............................................
=======
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of Common
Stock offered by this Prospectus (other than those subject to the over-allotment
option described below) if any such shares are purchased. In the event of a
default by the Underwriters, the Underwriting Agreement provides that, in
certain circumstances, the purchase commitments of non-defaulting Underwriters
may be increased or the Underwriting Agreement may be terminated.
The Company has granted to the Underwriters an option, exercisable by the
Representatives during the 30-day period after the date of this Prospectus, to
purchase up to an aggregate of shares of Common Stock at the
same price per share as the initial shares of Common Stock to be purchased by
the Underwriters. The Representatives may exercise such option only to cover
over-allotments in the sale of shares of Common Stock. To the extent that the
Representatives exercise such option, the Underwriters will have a firm
commitment, subject to certain conditions, to purchase the same proportion of
such additional shares of Common Stock as the number of shares of Common Stock
to be purchased and offered by such Underwriters in the above table bears to the
total number of shares in the above table.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus, and through the
Representatives to certain dealers at such price less a concession not in excess
of $ per share. The Underwriters may allow, and such dealers may reallow, a
concession not in excess of $ per share to certain other dealers. After the
Offering, the public offering price and other selling terms may be changed.
The Company and its officers, directors and present stockholders and
optionholders have agreed that they will not offer, sell, contract to sell, or
otherwise dispose of, directly or indirectly, any shares of Common Stock, or any
interests therein, or any securities convertible into, or exchangeable for,
shares of Common Stock, or rights to acquire the same, for a period of 180 days
from the date of this Prospectus without the prior written consent of BT Alex.
Brown Incorporated. Such consent may be given without any public notice.
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute to
payments that the Underwriters may be required to make in respect thereof.
Prior to the Offering, there has been no public market for the Common
Stock. Consequently, the initial public offering price of the Common Stock will
be determined after negotiation between the Company and the Representatives.
Among the factors to be considered in such negotiations are prevailing market
conditions, the results of operations of the Company in recent periods, the
market capitalization and stages of development of other companies which the
Company and the Representatives believe to be comparable to the Company,
estimates of the business potential of the Company, the present state of the
Company's development and other factors deemed relevant.
47
<PAGE> 49
In connection with the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise affect
the price of the Common Stock. Specifically, the Representatives may bid for and
purchase Common Stock in the open market to stabilize the price of the Common
Stock. The Underwriters may also over-allot the Offering, creating a syndicate
short position, and may bid for and purchase Common Stock in the open market to
cover the syndicate short position. The Representatives may also impose a
penalty bid pursuant to which the Representatives may reclaim from any
Underwriter or dealer participating in the Offering the selling concession on
shares sold by them and purchased by the Representatives in stabilizing or short
covering transactions. In addition, the Underwriters may bid for and purchase
the Common Stock in market making transactions. These activities may stabilize
or maintain the market price of the Common Stock above market levels that may
otherwise prevail. The Underwriters are not required to engage in these
activities, and may end these activities at any time.
The Underwriters have reserved for sale, at the initial public offering
price, up to % of the Common Stock offered hereby for employees and
directors of the Company and certain other individuals who have expressed an
interest in purchasing such shares of Common Stock in the Offering. The number
of shares available for sale to the general public will be reduced to the extent
such persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.
The Underwriters have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby for accounts over which they
exercise discretionary authority.
CERTAIN LEGAL MATTERS
The legality of the shares of Common Stock offered hereby will be passed
upon for the Company by Katten Muchin & Zavis, Chicago, Illinois. Certain legal
matters will be passed upon for the Underwriters by Latham & Watkins,
Washington, D.C.
EXPERTS
The consolidated financial statements of the Company as of December 31,
1996 and 1997 and for the period January 1, 1996 through April 15, 1996 (the
Predecessor Company), the period April 16, 1996 through December 31, 1996 and
the year ended December 31, 1997 included in this Prospectus have been audited
by Deloitte & Touche LLP, independent accountants, as stated in their reports
appearing herein and elsewhere in the Registration Statement, and are included
in reliance upon the reports of such firm given upon their authority as experts
in auditing and accounting.
48
<PAGE> 50
ADDITIONAL INFORMATION
The Company has filed with the Commission a Registration Statement on Form
S-1 (which term shall encompass any and all amendments thereto) under the
Securities Act with respect to the Common Stock offered hereby. This Prospectus
does not contain all of the information set forth in the Registration Statement
and the exhibits and schedules thereto. Statements contained in this Prospectus
as to the contents of any contract or any other document are not necessarily
complete and in each instance reference is made to the copy of such contract or
document filed as an exhibit to the Registration Statement, each such statement
being qualified in all respects by such reference. For further information with
respect to the Company, reference is hereby made to the Registration Statement
and such exhibits and schedules filed as a part thereof, which may be inspected
without charge, at the Public Reference Section of the Commission at Room 1024,
Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, and at the
regional offices of the Commission located at Seven World Trade Center, 13th
Floor, New York, New York 10048 and at Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, Illinois 60661. The Commission maintains a web site that
contains reports, proxy and information statements regarding registrants that
file electronically with the SEC. The address of this web site is
(http://www.sec.gov). Copies of all or any portion of the Registration Statement
may be obtained from the Public Reference Section of the Commission, upon
payment of the prescribed fees.
49
<PAGE> 51
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<S> <C>
Natural Nutrition Group, Inc. (formerly known as Intrepid
Food Holdings, Inc.) and Subsidiaries
Independent Auditors' Report.............................. F-2
Consolidated Balance Sheets as of December 31, 1996,
December 31, 1997 and March 31, 1998 (unaudited)....... F-3
Consolidated Statements of Operations for the years ended
December 31, 1996 and 1997, the period from January 1,
1996 to April 15, 1996 (Predecessor Company) and the
three months ended March 31, 1997 and 1998
(unaudited)............................................ F-4
Consolidated Statements of Stockholders' Deficit for the
years ended December 31, 1996 and 1997, and the three
months ended March 31, 1998 (unaudited)................ F-5
Consolidated Statements of Cash Flows for the years ended
December 31, 1996 and 1997, the period from January 1,
1996 to April 15, 1996 (Predecessor Company) and the
three months ended March 31, 1997 and 1998
(unaudited)............................................ F-6
Notes to Consolidated Financial Statements................ F-7
Health Valley Foods, Inc. and Health Valley Manufacturing
Company
Combined Balance Sheet as of December 31, 1995............ F-17
Combined Statement of Operations and Retained Earnings for
the Fiscal Year Ended December 31, 1995................ F-18
Combined Statement of Cash Flows for the Fiscal Year Ended
December 31, 1995...................................... F-19
Notes to Combined Financial Statements.................... F-20
</TABLE>
F-1
<PAGE> 52
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholders of
Natural Nutrition Group, Inc. (formerly known as Intrepid Food Holdings, Inc.)
and Subsidiaries:
We have audited the accompanying consolidated balance sheets of Natural
Nutrition Group, Inc. (formerly known as Intrepid Food Holdings, Inc.) and
subsidiaries (the Company) as of December 31, 1996 and 1997 (successor company
balance sheets), and the related consolidated statements of operations,
stockholders' deficit and cash flows for the years then ended (successor company
operations) and the statements of operations and cash flows for the period from
January 1, 1996 to April 15, 1996 (Predecessor Company operations). 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 audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, such successor company financial statements present fairly,
in all material respects, the consolidated financial position of Natural
Nutrition Group, Inc. (formerly known as Intrepid Food Holdings, Inc.) and
subsidiaries as of December 31, 1996 and 1997, and the results of their
operations and their cash flows for the periods then ended in conformity with
generally accepted accounting principles. Further, in our opinion, the
Predecessor Company combined financial statements referred to above present
fairly, in all material respects, the Predecessor Company's results of
operations and cash flows for the period from January 1, 1996 to April 15, 1996
in conformity with generally accepted accounting principles.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, California
February 20, 1998
(April 9, 1998 as to Note 7)
F-2
<PAGE> 53
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
ASSETS
<TABLE>
<CAPTION>
DECEMBER 31,
----------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS:
Cash........................................................ $ 313 $ 1 $ 1
Accounts receivable (net of allowance for doubtful accounts
of $1,334 (1996), $1,421 (1997) and $1,347 (1998),
respectively)............................................. 3,767 4,009 3,330
Other receivables........................................... 459 187 28
Inventories (Note 4)........................................ 4,985 5,278 4,998
Deferred income taxes (Note 3).............................. 2,741 2,188 2,188
Prepaid expenses and other current assets................... 328 376 310
------- ------- -------
Total current assets............................... 12,593 12,039 10,855
PLANT AND EQUIPMENT, net (Note 5)........................... 26,374 23,358 22,603
INTANGIBLE AND OTHER ASSETS, net (Note 6)................... 14,363 14,815 14,859
------- ------- -------
$53,330 $50,212 $48,317
======= ======= =======
LIABILITIES AND STOCKHOLDERS' DEFICIT
CURRENT LIABILITIES:
Bank overdraft.............................................. $ 639 $ 1,315 $ 717
Accounts payable............................................ 2,084 1,474 2,161
Accrued liabilities......................................... 6,358 3,878 3,617
Current portion of long-term debt (Note 7).................. 3,146 2,855 2,866
Current portion of capital lease obligations (Note 8)....... 809 170 45
------- ------- -------
Total current liabilities.......................... 13,036 9,692 9,406
LONG-TERM LIABILITIES:
Long-term debt, net of current portion (Note 7)............. 19,116 18,835 17,234
Deferred income taxes (Note 3).............................. 1,102 1,048 1,048
Other accrued expenses...................................... 607 251 251
Capital lease obligations, net of current portion (Note
8)........................................................ 188
------- ------- -------
Total long-term liabilities........................ 21,013 20,134 18,533
COMMITMENTS AND CONTINGENCIES (Note 9)
MANDATORY REDEMPTION SERIES A PREFERRED STOCK at redemption
value including cumulative dividends in arrears of $1,330,
$3,412 and $3,983 in December 31, 1996 and 1997 and March
31, 1998, respectively; 18,667, 19,567 and 19,567 shares
outstanding in December 31, 1996 and 1997 and March 31,
1998, respectively (Note 10).............................. 19,997 22,979 23,550
STOCKHOLDERS' DEFICIT:
Preferred Stock, par value $.001 per share, 2,000,000 shares
authorized, no shares issued and outstanding..............
Common stock, $.001 par value; 65,000 shares authorized at
December 31, 1996 and 1997 and 50,000,000 shares
authorized at March 31, 1998; 13,333, 14,333 and 14,333
shares issued and outstanding at December 31, 1996 and
1997 and March 31, 1998, respectively.....................
Additional paid-in capital.................................. 1,333 1,433 1,433
Accumulated deficit......................................... (2,049) (4,026) (4,605)
------- ------- -------
Total stockholders' deficit........................ (716) (2,593) (3,172)
------- ------- -------
$53,330 $50,212 $48,317
======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE> 54
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1
TO APRIL 15, YEAR ENDED THREE MONTHS ENDED
1996 DECEMBER 31, MARCH 31, 1997
(PREDECESSOR ----------------- -------------------
COMPANY) 1996 1997 1997 1998
------------ ------- ------- -------- --------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales...................................... $18,221 $39,942 $67,898 $16,299 $17,568
Cost of Sales.................................. 13,897 27,180 42,370 10,627 10,960
Gross Profit................................... 4,324 12,762 25,528 5,672 6,608
Operating Expenses:
Marketing, selling and distribution.......... 5,563 7,177 17,366 3,832 4,891
General and administrative................... 2,937 5,148 5,759 1,324 1,292
------- ------- ------- ------- -------
Total operating expenses............. 8,500 12,325 23,125 5,156 6,183
------- ------- ------- ------- -------
Operating (Loss) Income........................ (4,176) 437 2,403 516 425
Other income................................... 169
Interest expense............................... 476 1,052 1,911 497 458
------- ------- ------- ------- -------
(Loss) Income before Provision (Benefit) for
Income Taxes................................. (4,483) (615) 492 19 (33)
Provision (Benefit) for Income Taxes (Note
3)........................................... (1,166) 13 387 17 (25)
------- ------- ------- ------- -------
Net (Loss) Income.............................. (3,317) (628) 105 2 (8)
Preferred Dividends (Note 9)................... 1,330 2,082 514 571
------- ------- ------- ------- -------
Net Loss Attributable to Common Stockholders... $ -- $(1,958) $(1,977) $ (512) $ (579)
======= ======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE> 55
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' DEFICIT
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997, AND
FOR THE THREE MONTHS ENDED MARCH 31, 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
--------------- PAID-IN ACCUMULATED STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT DEFICIT
------ ------ ---------- ----------- -------------
<S> <C> <C> <C> <C> <C>
BALANCE, December 31, 1995................... 5,000 $-- $ 500 $ (91) $ 409
Issuance of common stock on April 12, 1996... 8,333 -- 833 833
Preferred dividend (Note 10)................. (1,330) (1,330)
Net loss..................................... (628) (628)
------ --- ------ ------- -------
BALANCE, December 31, 1996................... 13,333 -- 1,333 (2,049) (716)
Issuance of common stock on January 28,
1997....................................... 1,000 -- 100 100
Preferred dividend (Note 10)................. (2,082) (2,082)
Net income................................... 105 105
------ --- ------ ------- -------
BALANCE, December 31, 1997................... 14,333 -- 1,433 (4,026) (2,593)
Preferred dividend (Note 10)................. (571) (571)
Net loss..................................... (8) (8)
------ --- ------ ------- -------
BALANCE, March 31, 1998...................... 14,333 $-- $1,433 $(4,605) $(3,172)
====== === ====== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE> 56
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
JANUARY 1, THREE MONTHS
TO APRIL 15, YEARS ENDED ENDED
1996 DECEMBER 31, MARCH 31,
(PREDECESSOR ------------------ -----------------
COMPANY) 1996 1997 1997 1998
------------ -------- ------- ------- -------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income........................................... $(3,317) $ (628) $ 105 $ 2 $ (8)
Adjustments to reconcile net (loss) income to net cash (used
in) provided by operating activities:
Depreciation and amortization............................. 989 2,344 3,445 903 917
Deferred income taxes..................................... 152 (187) 499 148
Gain on sale of plant and equipment....................... (31) (24) (9)
Effect on cash of changes in operating assets and
liabilities, net of effects of acquisitions:
Accounts receivable, net................................ 1,200 634 (243) (607) 680
Inventories............................................. 1,899 (333) (292) 432 280
Prepaid expenses and other current assets............... (1,396) 972 224 (131) 225
Accounts payable........................................ (893) (1,061) (610) (55) 687
Accrued liabilities..................................... 2,576 602 (2,836) 106 (262)
------- -------- ------- ------- -------
Net cash (used in) provided by operating activities... 1,210 2,312 268 789 2,519
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of plant and equipment............................. (108) (62) (446) (192) (60)
Acquisitions, net of cash acquired.......................... (43,592)
Proceeds from sale of plant and equipment................... 31 390 350 50
(Increase) decrease in intangible and other assets.......... (7) 424 (801) (505) (196)
------- -------- ------- ------- -------
Net cash used in investing activities................. (115) (43,199) (857) (347) (206)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net proceeds from revolving line of credit/bank overdraft... $ -- $ 2,356 $ 3,250 $ (49) $(1,464)
Proceeds from long-term debt................................ 19,012
Principal payments on long-term debt........................ (559) (690) (3,448) (1,180) (849)
Issuance of common stock.................................... 833 51 51
Issuance of mandatory redemption preferred stock............ 18,667 424 424
------- -------- ------- ------- -------
Net cash (used in) provided by financing activities... (559) 40,178 277 (754) (2,313)
------- -------- ------- ------- -------
NET (DECREASE) INCREASE IN CASH............................. 536 (709) (312) (312) --
CASH, beginning of period................................... 5 1,022 313 313 1
------- -------- ------- ------- -------
CASH, end of period......................................... $ 541 $ 313 $ 1 $ 1 $ 1
======= ======== ======= ======= =======
SUPPLEMENTAL INFORMATION --
Cash paid during the year for:
Interest................................................ $ 370 $ 1,886 $ 978 $ 275 $ 314
======= ======== ======= ======= =======
Income taxes............................................ $ 206 $ 406 $ 4 $ 11 $ --
======= ======== ======= ======= =======
SUPPLEMENTAL DISCLOSURE OF NONCASH INVESTING AND FINANCING
ACTIVITIES:
Issuance of preferred and common stock in exchange for
debt...................................................... $ -- -- $ 525 $ 525 $ --
======= ======== ======= ======= =======
Mandatory accrued preferred dividends....................... $ -- $ 1,330 $ 2,082 $ 514 $ 571
======= ======== ======= ======= =======
Purchase of acquisitions, net of cash acquired:
April 15, 1996 acquisition of Health Valley Company:
Fair value of assets.................................... $ 43,462
Goodwill................................................ 4,902
Liabilities assumed..................................... (14,025)
--------
Net cash used to acquire business..................... 34,339
October 31, 1996 acquisition of The Breadshop:
Fair value of assets.................................... 2,472
Trademarks.............................................. 5,493
Goodwill................................................ 3,519
Liabilities assumed..................................... (2,231)
--------
Net cash used to acquire business..................... 9,253
--------
Net cash used to acquire businesses................... $ 43,592
========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE> 57
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1997 AND
THE THREE MONTHS ENDED MARCH 31, 1997 AND 1998 (UNAUDITED)
(DOLLARS IN THOUSANDS, EXCEPT SHARE DATA)
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Organization -- Natural Nutritional Group, Inc. (formerly known as Intrepid
Food Holdings, Inc.) (NNG or the Company) was incorporated in the State of
Delaware in October 1995 to acquire and develop natural and organic food
companies. In April 1996, NNG acquired the outstanding capital stock of Health
Valley Foods, Inc. and Health Valley Manufacturing Company (Predecessor
Company). In October 1996, the Company acquired The Breadshop, Inc. (Breadshop)
(Note 2).
The Company is a manufacturer and marketer of premium natural and organic
food products in the United States. The Company markets (i) breakfast cereals
and granolas, (ii) granola bars, cereal bars, cookies, crackers and other baked
goods and (iii) canned and instant soups and chilis, as well as other food
products, primarily under its Health Valley(R) and Breadshop's(R) brands.
Basis of Presentation -- The accompanying consolidated statements of
operations and cash flow includes the combined activities of the Predecessor
Company for the period January 1, 1996 to April 15, 1996 prior to acquisition by
the Company. The operations of NNG for the period October 2, 1995 (inception) to
December 31, 1995 were not significant and have not been included. The results
of the Company are not comparable to those of the Predecessor Company due to the
changes in capital structure to fund the acquisitions, which included the
issuance of preferred stock and the incurrence of additional debt. Additionally,
the purchase accounting adjustments related to the acquisitions changed the cost
basis of the Company's fixed assets, trademarks and resulting goodwill. Certain
amounts in the 1996 financial statements have been reclassified to conform with
the 1997 presentation.
Principles of Consolidation -- The accompanying consolidated financial
statements include the accounts and operations of NNG and its subsidiaries. All
material intercompany balances and transactions have been eliminated.
Unaudited Information -- The accompanying consolidated balance sheet as of
March 31, 1998 and the related consolidated statements of operations and cash
flows for the three months ended March 31, 1997 and March 31, 1998, have been
prepared by the Company without audit in accordance with generally accepted
accounting principles for interim financial information and, in the opinion of
management, contain all adjustments consisting only of normal recurring accruals
necessary for a fair presentation of such information.
Inventories -- Inventories are valued at the lower of first-in, first-out
cost (FIFO) or market value.
Plant and Equipment -- Plant and equipment, including capitalized lease
assets, are stated at cost. Depreciation is provided for on the straight-line
method over the lesser of the estimated useful lives of the assets or the lease
term. Amortization of leasehold improvements is based on the lesser of their
estimated useful lives or the terms of the related leases and is calculated
using the straight-line method. Useful lives are as follows:
<TABLE>
<S> <C>
Machinery and equipment..................................... 3 to 20 years
Furniture and fixtures...................................... 3 to 14 years
Leasehold improvements...................................... 5 to 10 years
</TABLE>
Repairs and maintenance are expensed as incurred, whereas significant
improvements, which materially increase values or extend useful lives, are
capitalized and depreciated over the estimated useful lives of the related
assets. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains or losses resulting from the disposal of assets are charged or
credited to operations as incurred.
F-7
<PAGE> 58
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Fair Value of Financial Instruments -- The carrying values of accounts
receivable and accounts payable approximate fair value due to the short
maturities of such instruments. The carrying values of term loans approximate
fair value due to the fact that they are based on variable interest rates.
Intangible and Other Assets -- The excess of purchase price over the fair
value of net assets acquired, as well as trademarks related to the Breadshop
acquisition, are included in intangible and other assets and are being amortized
on a straight-line basis over a 40-year period. Accumulated amortization of
intangibles amounted to $113, $447 and $528 at December 31, 1996 and 1997 and
March 31, 1998, respectively.
In 1997, the Company undertook a program to update its packaging designs.
Costs of $420, associated with development of new packaging designs, were
capitalized and will be amortized over three years, beginning with related
product shipments in 1998.
Revenue Recognition -- The Company records revenue at the time the related
products are shipped to the customer.
Customer Concentration -- The Company has significant product sales to two
distributors which together accounted for approximately 20% and 25% of revenues
for the years ended December 31, 1996 and 1997, respectively. Given the
significant amount of revenues derived from certain customers, collectibility
issues arising from financial difficulties of any of these customers or the loss
of any such customers could have a material adverse effect on the Company's
business.
Vendor Concentration -- The Company utilizes a single contract manufacturer
for the production of canned soups and chilis which accounted for approximately
25% of revenues for the years ended December 31, 1996 and 1997 and the three
months ended March 31, 1997 and 1998. The inability of the contract manufacturer
to supply the Company with sufficient product quantities in a timely manner
could have a material adverse effect until alternate sources could be identified
or developed.
Customer Rebates -- The Predecessor Company had historically provided a $5
rebate to customers who returned 20 proof-of-purchase labels. Management decided
to discontinue this program during 1996, and a reserve was established to
approximate the remaining cost of the program based on the number of products
out at the retail level that reflected this offer.
Use of Estimates -- The preparation of the financial statements in
conformity with generally accepted accounting principles requires management to
make estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
Long-Lived Assets -- In accordance with Statement of Financial Accounting
Standards (SFAS) No. 121, Accounting for the Impairment of Long-Lived Assets and
for Long-Lived Assets to Be Disposed Of, the Company periodically evaluates the
recoverability of the net carrying value of plant and equipment and intangible
assets using current and anticipated net income and undiscounted cash flows,
and, if necessary, an impairment is recorded. The Company has recorded no such
impairment in 1996 and 1997.
Comprehensive Income -- The Company adopted SFAS No. 130, Reporting
Comprehensive Income, on January 1, 1998. SFAS No. 130 requires that all items
that are required to be recognized under accounting standards as components of
comprehensive income be reported in a financial statement that is displayed with
the same prominence as other financial statements. The Company does not have any
comprehensive income components requiring separate disclosure.
New Accounting Pronouncements -- For the fiscal year beginning January 1,
1999, the Company will adopt SFAS No. 131, Disclosures About Segments of an
Enterprise and Related Information and SFAS
F-8
<PAGE> 59
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
No. 132, Employers' Disclosures about Pensions and Other Postretirement
Benefits. The Company is reviewing the impact of the adoption of these
pronouncements on its consolidated financial statements.
Stock-Based Compensation -- The Financial Accounting Standards Board's SFAS
No. 123, Accounting for Stock-Based Compensation, requires expanded disclosures
of stock-based compensation arrangements with employees. The standard defines a
fair value method of accounting for stock options and other equity instruments.
Under the fair value method, compensation cost is measured at the grant date
based on the fair value of the award and is recognized over the service period,
which is usually the vesting period. As permitted by the SFAS No. 123, the
Company has elected to continue to account for such transactions under
Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to
Employees, and discloses, in a note to the financial statements, pro forma net
income and earnings per share as if the Company had applied the fair value
method of accounting. The Company will continue to use APB Opinion No. 25 for
measurement and recognition of employee stock-based transactions.
2. ACQUISITIONS
On April 15, 1996, pursuant to a stock purchase agreement NNG acquired all
of the outstanding capital stock of the Predecessor Company for $34,339, in
cash, including $2,339 in transaction costs. Additionally, pursuant to the stock
purchase agreement the former owner was granted an option to purchase 100 shares
of common stock of Health Valley at $22,222.22 per share. During 1997, this
option was terminated and a new option was issued. The new option enables the
former owner to purchase 1,400 shares of NNG ("Common Stock") at $100 per share,
and 2,082.22 shares of Series A Preferred Stock at $1,000 per share.
The acquisition was accounted for using the purchase method. Accordingly,
the purchase price was allocated to assets acquired based on their estimated
fair values. This treatment resulted in approximately $4,903 of cost in excess
of the fair value of net assets acquired. This goodwill is being amortized on a
straight-line basis over 40 years. Health Valley results of operations have been
included in the accompanying financial statements from the date of acquisition.
On October 31, 1996, the Company completed its acquisition of all of the
outstanding capital stock of Breadshop for $9,253 in cash, including $502 in
transaction costs. The acquisition was accounted for using the purchase method.
Accordingly, the purchase price was allocated to assets acquired based on their
estimated fair values. This treatment resulted in approximately $3,519 of cost
in excess of the fair value of net assets acquired as of October 31, 1996, and a
trademark valuation of $5,493. These amounts are being amortized on a
straight-line basis over 40 years. Breadshop's results have been included in the
accompanying consolidated financial statements from the date of acquisition.
3. INCOME TAXES
In accordance with SFAS No. 109, Accounting for Income Taxes, deferred tax
assets and deferred tax liabilities reflect the tax consequences in future years
of differences between the income tax bases of assets and liabilities and the
corresponding bases used for financial reporting purposes. Measurement of the
deferred items is based on enacted tax laws. In the event the future
consequences of differences between financial reporting bases and tax bases of
the Company's assets and liabilities result in a deferred tax asset, SFAS No.
109 requires an evaluation of the probability of being able to realize the
future benefits indicated by such asset. A valuation allowance related to a
deferred tax asset is recorded when it is more likely than not that some portion
or all of the deferred tax asset will not be realized. The Company's provision
for income taxes for the three months ended March 31, 1997 and March 31, 1998
are based upon estimates of effective rates for the corresponding periods. The
Predecessor Company's income tax benefit for the period January 1, 1996 to April
15, 1996 reflects the future income tax benefit expected to be realized.
F-9
<PAGE> 60
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
Components of the income tax expense are as follows at December 31:
<TABLE>
<CAPTION>
1996 1997
---- -----
<S> <C> <C>
Current:
Federal................................................... $ 86 $ --
State..................................................... 11 3
---- -----
97 3
Deferred.................................................... (84) 499
Other....................................................... (115)
---- -----
$ 13 $ 387
==== =====
</TABLE>
Major components of the Company's deferred taxes at December 31, 1996 and
1997 are as follows:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Net operating loss carryforwards............................ $ 1,449 $ 2,172
Accruals.................................................... 1,223 197
Reserves.................................................... 325 359
Basis difference in acquired assets......................... (1,954) (1,198)
Depreciation and amortization............................... 452 (787)
AMT credit and carryforwards................................ 32 80
Capitalization of inventory costs........................... 213 63
Other, including state taxes................................ (101) 254
------- -------
$ 1,639 $ 1,140
======= =======
</TABLE>
At December 31, 1997, the Company has available net operating loss (NOL)
carryforwards of approximately $5,186 and $4,030, for federal and California
income taxes, respectively. These NOLs will begin to expire in the Years 2010
and 2000, respectively. The majority of the available NOLs were acquired from
the Predecessor Company in the transactions described in Note 2. The Internal
Revenue Code of 1986, as amended, contains provisions that may limit the
Company's utilization of its NOL carryforward because of the change in ownership
of the Company's stock. The limitation, if any, applies to NOL generated prior
to the change in ownership (prior to April 15, 1996). Management believes that
the limitations, if any, do not have a material impact on the Company's ability
to utilize such net operating losses to offset future earnings.
In connection with the acquisition of the Predecessor Company and Breadshop
by the Company, a tax liability was recorded to reflect the increase in book
basis over tax basis for such net assets acquired. Such amount is included in
noncurrent deferred liabilities.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
------------------ MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials..................................... $2,491 $2,457 $2,716
Work-in-progress.................................. 129 237 157
Finished goods.................................... 2,365 2,584 2,125
------ ------ ------
$4,985 $5,278 $4,998
====== ====== ======
</TABLE>
F-10
<PAGE> 61
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
5. PLANT AND EQUIPMENT
Plant and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Machinery and equipment.......................... $14,921 $15,135 $15,152
Leasehold improvements........................... 8,994 8,994 8,995
Furniture and fixtures........................... 1,868 2,074 2,066
Assets not in use................................ 2,786 2,437 2,437
------- ------- -------
28,569 28,640 28,650
Less accumulated depreciation.................... (2,195) (5,282) (6,047)
------- ------- -------
$26,374 $23,358 $22,603
======= ======= =======
</TABLE>
6. INTANGIBLE AND OTHER ASSETS
Intangible and other assets consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- MARCH 31,
1996 1997 1998
------- ------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Goodwill......................................... $ 8,498 $ 8,881 $ 8,881
Trademarks....................................... 5,493 5,493 5,493
Other............................................ 521 940 1,136
------- ------- --------
14,512 15,314 15,510
Less Accumulated Amortization.................... (149) (499) (651)
------- ------- --------
$14,363 $14,815 $ 14,859
======= ======= ========
</TABLE>
7. LONG-TERM DEBT
Debt consists of the following at December 31:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Revolving line of credit.................................... $ 2,158 $ 4,732
Term Loan A................................................. 12,000 10,700
Term Loan B................................................. 6,500 5,930
Other....................................................... 1,604 328
------- -------
22,262 21,690
Less current portion........................................ (3,146) (2,855)
------- -------
Total long-term debt.............................. $19,116 $18,835
======= =======
</TABLE>
The Company's bank credit agreement consists of a $6.5 million revolving
line of credit facility, and two term loan facilities. The revolving line of
credit facility expires in June 30, 1999, and Health Valley pays an annual
commitment fee of .375% on the unused portion of the revolving credit facility.
The Term Loan A requires quarterly principal payments, which began March 31,
1997 and end June 30, 2003, in increasing amounts, which began at $250 and end
at $575. The Term Loan B requires quarterly principal payments, which began
April 30, 1997 and end October 31, 2002, in increasing amounts, which began at
$160 and end at
F-11
<PAGE> 62
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
$380. All of these borrowings are collateralized by substantially all of the
assets of the Company's wholly-owned subsidiary.
Interest on the borrowings under these agreements are at varying rates
based, at the Company's option, on the bank's prime rate plus .25% per annum, or
the London Interbank Offered Rate (LIBOR) plus 2.5% per annum. The borrowings at
prime rates have daily terms, while the LIBOR borrowings have terms of one to
six months. Interest payments are made at the end of the each quarter for prime
rate borrowings, and the end of each respective period for LIBOR borrowings.
Effective December 31, 1997, the interest rate on the revolving line of credit
was 8.75%, the interest rate on term loan A was 8.5%, and the interest rate on
term loan B was 8.75%.
The revolving line of credit facility limits the Company's borrowing, based
on eligible receivable and inventory valuations. The maximum credit available
was $4,844 and $3,680 as of December 26, 1997 and December 27, 1996,
respectively.
The long-term debt agreement contains various restrictive covenants which
include a prohibition on payment of dividends, specified minimum net worth and
current ratio levels, and specific limitations on leverage ratios and capital
expenditure amounts. The agreement also contains a mandatory requirement to make
accelerated payments on the term debt in the event that a significant sale or
disposition of fixed assets occurs. At December 31, 1997, the Company was in
violation of the fixed charge coverage ratio covenant and on April 9, 1998
obtained a waiver from the lender.
Other debt includes notes payable to a financing company, with underlying
fixed assets as collateral, payable in monthly installments ranging from $2 to
$13, bearing interest rates of 8.91% to 11.81%, and maturing between March 1998
and July 2000.
The scheduled repayments of debt are as follows:
<TABLE>
<S> <C>
1998........................................................ $ 2,855
1999........................................................ 7,701
2000........................................................ 3,004
2001........................................................ 3,285
2002........................................................ 3,695
Thereafter.................................................. 1,150
-------
$21,690
=======
</TABLE>
8. CAPITAL LEASE OBLIGATIONS
Obligations under capitalized equipment leases exist for the next year and
are as follows:
<TABLE>
<S> <C>
1998........................................................ $175
Less amounts representing interest.......................... (5)
----
Present value of minimum lease payments..................... $170
====
</TABLE>
9. COMMITMENTS AND CONTINGENCIES
Operating Leases -- The Company leases its facilities under the terms of
operating leases. These leases are for terms of five years; the current
obligations extend through September 1998. These leases contain a renewal option
for a five-year period commencing October 1998. The leases also contain
escalation clauses which provide for increases in the monthly payments of up to
5% per annum based on inflationary factors determined by the lessor. Rent
expense related to these leases amounted to $1,147, $812, $287 and $287 for the
years ended December 31, 1996 and 1997 and the three months ended March 31, 1997
and 1998,
F-12
<PAGE> 63
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
respectively. Future minimum rental payments net of sublease income for the
lease obligations referred to above are $945 for the year ending December 31,
1998.
Contingencies -- The Company is a party to various legal proceedings
arising from the normal course of operations. Although the ultimate disposition
of these proceedings is not determinable, management, based on advice of legal
counsel, does not believe that adverse determinations in any or all of such
proceedings will have a material adverse effect on the Company's financial
position, results of operations and cash flows.
10. MANDATORY REDEMPTION 10% PREFERRED STOCK
The Company's Series A Preferred Stock has a mandatory redemption value of
$9,783 on each of the seventh and eighth anniversary dates from the original
issuance or April 12, 2003 and 2004, respectively, plus any accrued but unpaid
dividends. Dividends on the Series A Preferred Stock are cumulative and accrue
at a 10% annual rate based on a redemption value of $1,000 per share. In the
event of liquidation, dissolution, qualifying sale or merger of the Company,
each holder of Series A Preferred Stock has a liquidation preference equal to
$1,000 per share plus any accrued but unpaid dividends. Subject to certain
limitations, the Company, at its option, may redeem all or part of the
outstanding shares of Series A Preferred Stock at the redemption value plus all
accrued but unpaid dividends. During fiscal year 1997, the Company issued 900
shares of Series A Preferred Stock, liquidation value of $1,000 per share, as
repayment for $900 of debt. As the Series A Preferred Stock has characteristics
similar to debt instruments, the balance of preferred shares have been
classified above shareholders' equity in the financial statements.
11. RETIREMENT PLANS
The Company maintains a defined contribution retirement plan (401(k)
Savings Plan) (the Plan) that covers all eligible employees who elect to
participate. Employees may contribute between 1% and 15% of their earnings under
the Plan, subject to annual limits set by the Internal Revenue Service. The
Company matches 50% of the participant's contributions, up to 3% of each
participant's earnings. In addition, the Company is able to make additional
discretionary contributions. The Company's contributions for the periods ended
December 31, 1996 and 1997 and March 31, 1997 and 1998 were $103, $72, $28 and
$29, respectively.
12. RELATED-PARTY TRANSACTIONS
Frontenac Company, a private equity firm and the general partner of
Frontenac VI Limited Partnership, provides consulting and financial services to
the Company. Such services include, but are not limited to, addressing issues
related to strategic direction, long-term growth, acquisitions and divestitures,
executive recruitment, and new financings. Two directors of the Company are
affiliates of Frontenac Company.
Fees paid by the Company to Frontenac Company in 1996 include a $395
transaction fee related to the Health Valley acquisition and a $100 transaction
fee related to the Breadshop acquisition. The 10% Convertible Promissory Note
due to Frontenac VI Limited Partnership (Note 6) had accrued interest payable of
$17 as of December 31, 1996. This Note and the related interest was satisfied on
January 31, 1997 through a cash payment of $500 and an additional stock purchase
valued at $526. Expenses incurred by the Company from Frontenac Company for the
years ended December 31, 1996 and 1997 and the three months ended March 31, 1997
and 1998 include Board of Directors fees of $83, $88, $15 and $25, respectively.
F-13
<PAGE> 64
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
13. OTHER INFORMATION
Accrued expenses and other liabilities consist of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
--------------- MARCH 31,
1996 1997 1998
------ ------ -----------
(UNAUDITED)
<S> <C> <C> <C>
Accrued salaries, vacation and related
benefits....................................... 1,251 897 940
Accrued acquisition expenses..................... 1,732 1,760 1,715
Accrued rebates.................................. 1,970 5 --
Other accrued liabilities........................ 1,405 1,216 962
------ ------ ------
$6,358 $3,878 $3,617
====== ====== ======
</TABLE>
14. STOCK OPTIONS
In January of 1997, the Company amended the Management Option Agreement
(Option Agreement) with its Chairman and President. The Option agreement granted
of 333 options for a similar number of common shares at increasing option prices
in excess of the fair value ($100 per share) of the stock at the grant date. The
options become fully vested and exercisable on the earlier of: (1) a qualified
public offering or approved sale or (2) on the third anniversary from the date
of grant. The Option Agreement also contains certain antidilution provisions.
In March of 1997, the Company adopted the 1997 Stock Option Plan (the
Plan). The Plan provides for the granting of stock options to key employees.
Option prices may not be less than the fair market value of the stock at the
grant date, and the options vest one third on the first anniversary date of
employment subsequent to the date of grant and one third on each of the two
subsequent anniversary dates. Options granted under the Plan will become fully
vested in the event of a fundamental change or stock sale (as defined within the
Plan) of the Company. The Company granted options for 732 shares at $100 per
share to key employees with the adoption of the Plan having a weighted average
fair value of $17.89 per share.
At December 31, 1997, 204 options were vested and exercisable having a
weighted average exercise of $100 per share. No options were exercised or
canceled during fiscal year 1997.
The Company applies Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees, and related interpretations in accounting for the
Plan. No compensation cost has been recognized for the Plan. Had compensation
cost for the Company's plan been determined based on the fair value at the grant
date for awards under those plans consistent with the method of SFAS No. 123,
the Company's net income would have decreased by the pro forma amounts indicated
below at December 31, 1997:
<TABLE>
<S> <C>
Net income:
As reported............................................... $105
Pro forma................................................. $101
</TABLE>
The fair value of each option grant is estimated on the date of grant using
the Black-Scholes option-pricing model with the following assumptions used for
grants in 1997: dividend yield of 0% for all grants, risk-free rate of 6.68%;
expected life of 3 years. Volatility of 0% was used (as the Company is not a
public entity).
F-14
<PAGE> 65
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
15. SUBSEQUENT EVENT (UNAUDITED)
In the second quarter of 1998, the Company expects to record a $7.3 million
charge to operations reflecting its decision to restructure certain operations
of the Company in light of revisions in its business strategies, and for certain
litigation in which it is involved based upon recent activities surrounding the
action. Approximately $5.3 million is expected to be a restructuring charge
related principally to the write-off of certain leasehold improvements related
to the Company's decision to restructure its warehouse operations, write-downs
of certain production equipment based on the Company's reevaluation of certain
unused or underutilized production capacity and the write-off of certain raw
materials, packaging and finished goods related to the introduction of new
products and packaging.
F-15
<PAGE> 66
[REPORT OF INDEPENDENT ACCOUNTANTS TO BE FILED BY AMENDMENT]
F-16
<PAGE> 67
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
COMBINED BALANCE SHEET
AS OF DECEMBER 31, 1995
ASSETS:
<TABLE>
<S> <C>
CURRENT ASSETS:
Cash...................................................... $ 4,500
Accounts receivable, less allowance for doubtful accounts
of $25,000............................................. 5,074,027
Inventories, net of reserve............................... 5,917,652
Prepaid and other assets.................................. 573,413
Income taxes receivable................................... 1,101,845
-----------
Total current assets.............................. 12,671,437
Property, plant and equipment, net.......................... 25,239,767
Other assets................................................ 666,446
-----------
Total assets...................................... $38,577,650
===========
LIABILITIES AND SHAREHOLDER'S EQUITY:
CURRENT LIABILITIES:
Accounts payable.......................................... $ 5,976,647
Accrued liabilities....................................... 3,517,374
Current portion of long-term debt......................... 8,894,794
Current portion of capitalized leases..................... 1,046,524
-----------
Total current liabilities......................... 19,435,339
Long-term debt.............................................. 4,268,000
Capitalized leases.......................................... 1,129,687
-----------
Total liabilities................................. 24,833,026
-----------
Commitments and contingencies (Notes 9 and 10)
SHAREHOLDER'S EQUITY:
Common stock:
Health Valley Foods, Inc. -- 1,000,000 shares
authorized at no par value; 5,500 shares issued and
outstanding........................................... 5,500
Health Valley Manufacturing Company -- 1,000,000 shares
authorized at $1 par value; 30,000 shares issued and
outstanding........................................... 30,000
Retained earnings......................................... 13,709,124
-----------
Total shareholder's equity........................ 13,744,624
-----------
Total liabilities and shareholder's equity........ $38,577,650
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-17
<PAGE> 68
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
COMBINED STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
Sales....................................................... $76,506,179
Returns, allowances and freight............................. 5,646,714
-----------
Net sales......................................... 70,859,465
Costs of goods sold......................................... 53,838,620
-----------
Gross margin...................................... 17,020,845
Costs and expenses:
Sales and marketing....................................... 13,932,407
Administrative and general................................ 5,072,885
Depreciation.............................................. 1,695,839
-----------
Total costs and expenses.......................... 20,701,131
-----------
Loss from operations.............................. (3,680,286)
Other income and expenses:
Other income.............................................. 645,422
Interest expense.......................................... (1,502,869)
-----------
Total other income and expenses................... (857,447)
-----------
Loss before income tax expense.................... (4,537,733)
Income tax expense.......................................... (1,136,765)
-----------
Net loss.......................................... (5,674,498)
Retained earnings, beginning of year........................ 19,383,622
-----------
Retained earnings, end of year.............................. $13,709,124
===========
</TABLE>
The accompanying notes are an integral part of these combined financial
statements.
F-18
<PAGE> 69
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
COMBINED STATEMENT OF CASH FLOWS
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1995
<TABLE>
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss.................................................. $(5,674,498)
Adjustments to reconcile net loss to net cash provided by
(used in) operating activities:
Depreciation........................................... 3,367,745
Provision for uncollectible accounts................... (65,789)
Provision for slow-moving inventory.................... 52,345
Deferred income taxes.................................. 1,768,815
Gain on sale of equipment.............................. (25,060)
Changes in operating assets and liabilities:
Accounts receivable.................................. 2,870,075
Inventories.......................................... 2,807,289
Prepaids and other assets............................ 213,798
Income taxes receivable.............................. (1,101,845)
Other assets......................................... (63,023)
Accounts payable..................................... 565,660
Accrued liabilities.................................. 431,395
-----------
Net cash provided by operating activities......... 5,146,907
CASH FLOWS PROVIDED BY (USED IN) INVESTING ACTIVITIES:
Purchases of property and equipment....................... (1,602,250)
Proceeds from sale of property and equipment.............. 49,505
-----------
Net cash used in investing activities............. (1,552,745)
CASH FLOWS PROVIDED BY (USED IN) FINANCING ACTIVITIES:
Proceeds from revolving line of credit.................... 6,200,000
Payments on revolving line of credit...................... (7,185,069)
Proceeds from long-term debt.............................. 1,234,000
Payments on long-term debt................................ (2,879,725)
Payments on capital lease obligations..................... (1,023,129)
-----------
Net cash used in financing activities............. (3,653,923)
-----------
Net decrease in cash.............................. (59,761)
Cash at beginning of year................................... 64,261
-----------
Cash at end of year......................................... $ 4,500
===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest.......................................... $ 1,405,840
Income taxes...................................... $ 28,154
</TABLE>
Supplemental schedule of noncash investing and financing activities:
During the year, the Company entered into capital lease obligations of
$1,023,345 for equipment.
The Company also entered into a financing agreement totalling $1,053,161 for
equipment.
The accompanying notes are an integral part of these combined financial
statements.
F-19
<PAGE> 70
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS
1. ORGANIZATION AND BASIS OF PRESENTATION:
Health Valley Foods, Inc. ("HVFI") was incorporated in the State of
California on December 22, 1980. Health Valley Manufacturing Company ("HVMC")
was incorporated in the State of California on June 22, 1982. HVFI and HVMC
(collectively, the "Company") are wholly owned by the same shareholder. The
Company's business activity is the processing, manufacturing and distribution of
health food to wholesale and retail markets.
The Company has entered into an agreement to sell all issued and
outstanding stock of the Company. This transaction is scheduled to close in
mid-April 1996. The buyers plan to make a substantial equity investment in the
Company and have arranged for short-term collaterized bridge financing,
including a term loan facility and working capital facility, which the buyers
believe, when placed on a permanent long term basis, will satisfy the Company's
working capital requirements in the future (see Note 11).
The Company has suffered recurring losses from operations and continued
declines in sales and gross margins. Management believes that continuing focus
on cost-cutting measures, including those associated with re-engineering
products, salary and wage reductions and a refocusing of marketing efforts will
be sufficient to return the Company to profitability. However, there remains
substantial doubt about the Company's ability to continue as a going concern.
The financial statements do not include any adjustments that might result from
the outcome of these uncertainties.
All significant intercompany transactions and accounts have been
eliminated.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Inventories
Inventories are valued at the lower of cost or market. Cost is determined
using the first-in, first-out ("FIFO") method.
Property, Plant And Equipment
Property, plant and equipment, including capitalized lease assets, are
stated at cost, less accumulated depreciation. Depreciation is provided for on
the straight-line method over the estimated useful lives of assets:
<TABLE>
<S> <C>
Machinery and equipment..................................... 3-10 years
Furniture and fixtures...................................... 3-10 years
Leasehold improvements...................................... 15 years
Capital leases.............................................. 8 years
</TABLE>
Leasehold improvements are depreciated over the related lease term
(including option to renew lease term) or their estimated useful lives,
whichever is shorter.
Repairs and maintenance are expensed as incurred whereas significant
improvements, which materially increase values or extend useful lives, are
capitalized and depreciated over the estimated useful lives of the related
assets. The cost of assets retired or otherwise disposed of and the related
accumulated depreciation are eliminated from the accounts in the year of
disposal. Gains or losses resulting from the disposal of assets are charged or
credited to operations.
F-20
<PAGE> 71
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with Statement of
Financial Accounting Standards ("SFAS") No. 109, "Accounting for Income Taxes."
SFAS No. 109 requires recognition of deferred tax assets and liabilities for the
expected future tax consequences of events that have been included in the
financial statements or tax returns. Under this method, deferred tax assets and
liabilities are determined annually, based on the differences between the
financial statement and the tax bases of assets and liabilities using enacted
tax laws and rates in effect for the year in which the differences are expected
to affect taxable income. Valuation allowances are established when necessary to
reduce deferred tax assets to the amount expected to be realized. The provision
(benefit) for taxes on income is the tax (refundable) for the year plus the
change in deferred tax assets and liabilities during the year.
Research And Product Development
Research and product development costs are charged to operations, as
incurred. Total costs incurred for 1995 were $322,064.
Advertising
The Company engages in direct mail and cooperative advertising with certain
customers. Costs related to these agreements are expensed as incurred. Total
costs incurred for advertising during 1995 were approximately $722,000.
Customer Rebates
The Company provides a $5 rebate to customers who return 20
proof-of-purchase labels to the Company. The Company has estimated that rebates
paid against proof-of-purchases lag the sales related to such purchases by
approximately three months. At December 31, 1995, the Company has estimated its
accrual for rebates based on historical rebate percentage of sales and a
three-month carryover from 1995 sales. The actual cash issued to customers for
rebates relating to fiscal 1995 sales could differ from this estimate.
Risks And Uncertainties
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect 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 periods. Actual results could differ from those estimates.
3. INVENTORIES:
Inventories consist of the following components at December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Raw materials............................................... $3,680,564
Finished goods.............................................. 2,389,433
----------
6,069,997
Reserve for slow-moving inventories......................... (152,345)
----------
$5,917,652
==========
</TABLE>
F-21
<PAGE> 72
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment consist of the following components at
December 31, 1995:
<TABLE>
<CAPTION>
<S> <C>
Machinery and equipment..................................... $ 18,711,805
Furniture and fixtures...................................... 2,416,631
Leasehold improvements...................................... 7,498,235
Equipment under capital leases.............................. 5,715,141
Construction-in-progress.................................... 6,666,791
------------
Total............................................. 41,008,603
Less: Accumulated depreciation.............................. (15,768,836)
------------
$ 25,239,767
============
</TABLE>
Accumulated depreciation for equipment under capital leases totals
$3,383,659 as of December 31, 1995.
5. INCOME TAXES:
Deferred tax assets and liabilities consist of the following at December
31, 1995:
<TABLE>
<S> <C>
Gross deferred tax assets:
Inventory -- Uniform Capitalization....................... $ 111,185
Inventory reserve......................................... 63,801
Accrued liabilities....................................... 122,793
Accrued returns and allowances............................ 433,433
Bad debt allowance........................................ 10,825
Fixed assets.............................................. 232,827
Intangible assets......................................... 50,372
Net operating loss carryforward........................... 1,166,533
Label/box design.......................................... 599,756
AMT credit carryforward................................... 18,966
-----------
Total deferred tax assets......................... 2,810,491
Deferred income tax liability:
Other..................................................... (213,199)
-----------
Net deferred tax assets........................... 2,597,292
Valuation allowance............................... (2,597,292)
-----------
$ --
===========
</TABLE>
At December 31, 1995, Health Valley Foods reported taxable income of which
approximately $400,000 is payable for federal income tax purposes. At December
31, 1995, Health Valley Manufacturing reported a loss which was carried back to
1993 and 1994 for federal income tax purposes and generated a receivable of
approximately $995,000. The remaining net operating loss carryforward of
approximately $3,000,000 will expire in the year 2010; and for California state
purposes, approximately $1,500,000 will expire in the year 2000. A valuation
allowance has been established to offset the related net deferred tax assets due
to the uncertainty of realizing the benefit of the loss and after considering
the reversal of the temporary differences. The Internal Revenue Code of 1986, as
amended, contains provisions which might limit the Company's utilization of its
net operating loss carryforward in any year upon and after the occurrence of
certain events, including a substantial change in the ownership of the Company's
stock.
F-22
<PAGE> 73
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
For California purposes, the activities of Health Valley Foods and Health
Valley Manufacturing are considered unitary since the segments are integrated
with, depend upon, or contribute to each other and the operation of the Company
as a whole.
6. LONG-TERM DEBT:
Long-term debt consists of the following:
<TABLE>
<S> <C>
Revolving line of credit, with all assets of the Company as
collateral, bearing interest at the bank's prime rate plus
3% (11.5% at December 31, 1995), expiration in January
1996 (extended by the bank to April 22, 1996). The most
restrictive covenants of the Loan Agreement include limits
on fixed asset additions, and maintenance of certain debt
coverage ratios. As of March 16, 1996, the Company was in
violation of their debt covenants......................... $ 6,200,000
Term loan payable to bank, with all assets of the Company as
collateral, bearing interest at the bank's prime rate plus
1% (9.5% at December 31, 1995), payable in monthly
installments of $25,000 plus interest; balance due January
1997...................................................... 350,000
Term loan payable to bank, with all assets of the Company as
collateral, bearing interest at the bank's prime rate plus
1% (9.5% at December 31, 1995), payable in monthly
installments of $16,667 plus interest; balance due March
1997...................................................... 266,667
Term loan payable to bank, with all assets of the Company as
collateral, bearing interest at the bank's prime rate plus
1% (9.5% at December 31, 1995), payable in monthly
installments of $25,000 plus interest; balance due
November 1997............................................. 600,000
Term loan payable to bank, with all assets of the Company as
collateral, bearing interest at the bank's prime rate plus
1% (9.5% at December 31, 1995), payable in monthly
installments of $16,667 plus interest; balance due April
1998...................................................... 483,333
Term loan payable to bank, with all assets of the Company as
collateral, bearing interest at a fixed rate of 9.82%,
payable in monthly principal and interest installments;
balance due October 1999.................................. $ 1,314,985
Term loan payable to bank, with all assets of the Company as
collateral, bearing interest at the bank's prime rate plus
.5% (9.0% at December 31, 1995), payable in monthly
installments of $30,833 plus interest; balance due July
2000...................................................... 1,695,833
Note payable to bank, with underlying fixed asset as
collateral, bearing interest at 8.87%, payable in monthly
installments of $18,878; balance due in February 2000..... 786,675
Note payable to vendor, bearing interest at 10%; due in
March 1996................................................ 611,510
Note payable to financing company, with underlying fixed
asset as collateral, bearing interest at 8.91%, payable in
monthly installments of $12,926; balance due in March
1998...................................................... 315,198
Note payable to financing company, with underlying fixed
asset as collateral, bearing interest at 10.65%, payable
in monthly installments of $3,654; balance due in July
1999...................................................... 130,149
</TABLE>
F-23
<PAGE> 74
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
<TABLE>
<S> <C>
Note payable to financing company, with underlying fixed
asset as collateral, bearing interest at 11.81%, payable
in monthly installments of $8,305; balance due in October
1999...................................................... $ 306,104
Note payable to financing company, with underlying fixed
asset as collateral, bearing interest at 9.64%, payable in
monthly installments of $2,343; balance due in July
2000...................................................... 102,340
-----------
13,162,794
Less: Current portion....................................... 8,894,794
-----------
$ 4,268,000
===========
</TABLE>
Maturities of debt over the next five years ending subsequent to December
31, 1995 are as follows:
<TABLE>
<CAPTION>
AMOUNT
-----------
<S> <C>
1996........................................................ $ 8,894,794
1997........................................................ 1,741,133
1998........................................................ 1,133,294
1999........................................................ 1,126,719
2000........................................................ 266,854
-----------
Total............................................. $13,162,794
===========
</TABLE>
Of the current maturities of $8,894,794 due in 1996, $6,200,000 represents
borrowings from the revolving line of credit. Management intends to renew this
revolving line annually.
The line of credit and term loans are personally guaranteed by the
shareholder of the Company.
7. FAIR VALUE OF FINANCIAL INSTRUMENTS:
Based on the borrowing rates currently available to the Company for bank
loans with similar terms and average maturities, the fair value of long-term
debt and capital leases approximates carrying value at December 31, 1995.
8. CAPITAL LEASES OBLIGATIONS:
Obligations under capitalized equipment leases for the next three years are
as follows:
<TABLE>
<S> <C>
1996........................................................ $1,153,750
1997........................................................ 967,537
1998........................................................ 224,047
----------
2,345,334
Less: Amounts representing interest......................... 169,123
----------
Present value of net minimum lease payments under capital
lease.................................................. 2,176,211
Less: Current portion....................................... 1,046,524
----------
$1,129,687
==========
</TABLE>
F-24
<PAGE> 75
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
9. OBLIGATIONS UNDER OPERATING LEASES:
The Company leases automobiles, office equipment and real property under
noncancellable operating leases with initial terms ranging from 1 to 5 years.
Leases for real property have two five-year renewal options. Future minimum
lease payments on noncancellable operating leases at December 31, 1995 are as
follows:
<TABLE>
<S> <C>
1996..................................................... $1,489,831
1997..................................................... 1,470,871
1998..................................................... 989,451
----------
$3,950,153
==========
</TABLE>
Rent expense for all operating leases for 1995 amounted to $1,513,144.
10. PURCHASE COMMITMENTS:
The Company entered into various purchase commitments for crops to be
harvested during 1996. The commitments are subject to the crop meeting certain
minimum quality and yield standards. The commitments outstanding total
approximately $2,200,000 at December 31, 1995.
11. CONTINGENCIES:
The Company is a party to various legal proceedings arising from the normal
course of operations. Although the ultimate disposition of these proceedings is
not determinable, management, based on advice of legal counsel, does not believe
that adverse determinations in any or all of such proceedings will have a
material adverse effect on the Company's financial position.
At December 31, 1995, the Company has fixed assets of approximately $5
million which are substantially complete, but not yet installed. This balance is
included in construction-in-progress. While the Company intends to install these
fixed assets sometime in the future, the ultimate recovery of the cost of the
assets is dependent on the Company achieving satisfactory volume levels, which,
at December 31, 1995, are uncertain.
12. PENSION PLANS:
The Company maintains a defined contribution pension plan (401(k) Savings
Plan) which covers all eligible employees who elect to participate. Employees
may contribute between 1% and 15% of their earnings under the plan, subject to
annual limits set by the Internal Revenue Service, and the Company will make a
matching contribution up to 3% of each participant's contribution. In addition,
the Company can make an additional discretionary matching contribution. The
Company's contribution for the year ended December 31, 1995 was $196,688.
Employees vest in the employer contribution over a period of seven years.
13. CONCENTRATION OF CREDIT RISK:
During the year ended December 31, 1995, the Company sold substantial
amounts of product to discount club stores. During the year, these customers
accounted for approximately 27% of the Company's total gross sales. No one
customer represents greater than 10% of the Company's sales. Also, at year-end,
these customers accounted for approximately 26% of the outstanding accounts
receivable. The Company performs ongoing credit evaluations of customers and
generally does not require collateral. Allowances are maintained for potential
credit losses, and such losses have been within management's expectations.
F-25
<PAGE> 76
HEALTH VALLEY FOODS, INC.
AND
HEALTH VALLEY MANUFACTURING COMPANY
NOTES TO COMBINED FINANCIAL STATEMENTS -- (CONTINUED)
14. RELATED-PARTY TRANSACTIONS:
From time to time, the Company makes advances to shareholders and
directors. At December 31, 1995, the balance of advances outstanding is $80,000.
15. SUBSEQUENT EVENT:
The Company has entered into an agreement to sell all issued and
outstanding stock of the Company, which is scheduled to close sometime in April
1996.
F-26
<PAGE> 77
INDEPENDENT AUDITORS' REPORT ON SCHEDULE
To the Board of Directors and
Stockholders of Natural Nutrition Group, Inc.
(formerly known as Intrepid Food Holdings, Inc.) and Subsidiaries:
We have audited the financial statements of Natural Nutrition Group, Inc.
as of December 31, 1997 and 1996 (successor company balance sheets) and the
statements of operations and cash flows for the years then ended (successor
company operations) and the statements of operations and cash flows for the
period from January 1, 1996 to April 15, 1996 (predecessor company operations)
and have issued our report thereon dated February 20, 1998 included elsewhere in
this Registration Statement. Our audits also included the financial statement
schedule listed in Item 16 of this Registration Statement. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion based on our audits. In our opinion,
such financial statement schedule, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material respects
the information set forth therein.
/s/ DELOITTE & TOUCHE LLP
Costa Mesa, CA
February 20, 1998
(April 9, 1998 as to Note 7)
S-1
<PAGE> 78
NATURAL NUTRITION GROUP, INC.
(FORMERLY KNOWN AS INTREPID FOOD HOLDINGS, INC.) AND SUBSIDIARIES
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
BALANCE BALANCE
AT BEGINNING AT END
OF YEAR EXPENSES OTHER DEDUCTIONS OF YEAR
------------ -------- ----- ---------- -------
<S> <C> <C> <C> <C> <C>
Deducted from Assets:
Allowance for doubtful accounts:
1997..................................... $1,334 $312 $ -- $225 $1,421
1996..................................... 25 67 1,242 -- 1,334
1995..................................... 91 22 -- 88 25
Reserve for obsolete inventories:
1997..................................... $ 865 $179 $ -- $598 $ 449
1996..................................... 152 875 23 184 868
1995..................................... 100 252 -- 200 152
</TABLE>
S-2
<PAGE> 79
=========================================================
NO PERSON, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY SECURITIES
OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN OFFER TO, OR A
SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR THAT INFORMATION
CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
---------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary....................... 3
Risk Factors............................. 9
History of Company....................... 14
Use of Proceeds.......................... 15
Dividend Policy.......................... 16
Dilution................................. 16
Capitalization........................... 17
Selected Consolidated Financial Data..... 18
Management's Discussion and Analysis of
Financial Condition and Results of
Operations............................. 20
Business................................. 27
Management............................... 37
Principal Stockholders................... 42
Certain Transactions..................... 43
Description of Capital Stock............. 44
Shares Eligible for Future Sale.......... 45
Underwriting............................. 47
Certain Legal Matters.................... 48
Experts.................................. 48
Additional Information................... 49
Index to Financial Statements............ F-1
</TABLE>
---------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY,
WHETHER OR NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
=========================================================
=========================================================
SHARES
[LOGO]
NATURAL
NUTRITION GROUP
COMMON STOCK
--------------------
PROSPECTUS
--------------------
BT ALEX. BROWN
ADAMS, HARKNESS & HILL, INC.
, 1998
=========================================================
<PAGE> 80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Company in connection with the issuance and distribution of the Common Stock
pursuant to the Prospectus contained in this Registration Statement. The Company
will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee......... $14,750
NASD filing fee............................................. 5,500
Nasdaq National Market listing fee.......................... *
Accountants' fees and expenses.............................. *
Blue Sky fees and expenses.................................. *
Legal fees and expenses..................................... *
Transfer Agent and Registrar fees and expenses.............. *
Printing and engraving...................................... *
Miscellaneous expenses...................................... *
-------
Total............................................. $ *
=======
</TABLE>
- ---------------
* To be filed by amendment.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
The Company's Second Amended and Restated Certificate of Incorporation
provides that the Company shall, to the fullest extent permitted by Section 145
of the Delaware General Corporation Law, as amended from time to time, indemnify
all persons whom it may indemnify pursuant thereto.
Section 145 of the Delaware General Corporation Law permits a corporation,
under specified circumstances, to indemnify its directors, officers, employees
or agents against expenses (including attorneys' fees), judgments, fines and
amounts paid in settlements actually and reasonably incurred by them in
connection with any action, suit or proceeding brought by third parties by
reason of the fact that they were or are directors, officers, employees, or
agents of the corporation, if such directors, officers, employees or agents
acted in good faith and in a manner they reasonably believed to be in or not
opposed to the best interests of the corporation and, with respect to any
criminal action or proceeding, had no reason to believe their conduct was
unlawful. In a derivative action, i.e., one by or in the right of the
corporation, indemnification may be made only for expenses actually and
reasonably incurred by directors, officers, employees or agents in connection
with the defense or settlement of an action or suit, and only with respect to a
matter as to which they shall have acted in good faith and in a manner they
reasonably believed to be in or not opposed to the best interests of the
corporation, except that no indemnification shall be made if such person shall
have been adjudged liable to the corporation, unless and only to the extent that
the court in which the action or suit was brought shall determine upon
application that the defendant directors, officers, employees or agents are
fairly and reasonably entitled to be indemnified for such expenses despite such
adjudication of liability.
The Company's Second Amended and Restated Certificate of Incorporation
provides that the Company's directors will not be personally liable to the
Company or its stockholders for monetary damages resulting from breaches of
their fiduciary duty as directors except (a) for any breach of the duty of
loyalty to the Company or its stockholders, (b) for acts or omissions not in
good faith or which involve intentional misconduct or a knowing violation of
law, (c) under Section 174 of the Delaware General Corporation Law, which makes
directors liable for unlawful dividends or unlawful stock repurchase or
redemptions or (d) for transactions from which directors derive improper
personal benefit.
II-1
<PAGE> 81
Upon the effectiveness of this Registration Statement the Company will
enter into indemnification agreements with its directors and certain officers.
The form of such agreement is filed as an Exhibit hereto. The Company expects to
have director and officer insurance coverage concurrently with the consummation
of the Offering.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
The following information does not reflect the for-1 stock split to be
effected in connection with the consummation of the Offering.
On October 2, 1995, pursuant to a Common Stock Purchase Agreement, the
Registrant issued: (i) 500 shares of Common Stock to William R. Voss ("Voss");
and (ii) 4,500 shares of Common Stock to Frontenac VI Limited Partnership
("Frontenac VI"). The purchase price for the shares was $100 per share.
On April 15, 1996, pursuant to a Stock Purchase Agreement, the Registrant
issued: (i) 500 shares of Common Stock to Voss; (ii) 2,579.78 shares of Common
Stock and 10,715.358 shares of Series A Preferred Stock to Frontenac VI; and
(iii) 5,253.55 shares of Common Stock and 7,951.309 shares of Series A Preferred
Stock to State of Wisconsin Investment Board ("SWIB"). The purchase price for
the shares was $100 per share of Common Stock and $1,000 per share of Series A
Preferred Stock.
On January 27, 1997, pursuant to a Stock Purchase Agreement, the Registrant
issued: (i) 95.35 shares of Common Stock to Voss; (ii) 492.63 shares of Common
Stock and 476.248 shares of Series A Preferred Stock to Frontenac VI; and (iii)
365.55 shares of Common Stock and 353.399 shares of Series A Preferred Stock to
SWIB. The purchase price for the shares was $100 per share of Common Stock and
$1,000 per share of Series A Preferred Stock.
On January 27, 1997, pursuant to a Stock Purchase Agreement, the Registrant
issued 15.49 shares of Common Stock and 23.451 shares of Series A Preferred
Stock to each of Timothy J. Healy, Chance Bahadur and Mark Smith. The purchase
price for the shares was $100 per share of Common Stock and $1,000 per share of
Series A Preferred Stock.
No underwriters were involved in any of the transactions described above.
All of the securities issued in the foregoing transactions were issued by the
Registrant in reliance upon the exemption from registration available under
Section 4(2) of the Securities Act, including Regulation D promulgated
thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits.
<TABLE>
<C> <S>
1.1* -- Form of Underwriting Agreement.
2.1 -- Stock Purchase Agreement dated as of March 17, 1996 by
and between George Mateljan, Jr. and Health Valley
Company. Schedules and exhibits to this Stock Purchase
Agreement have not been included herewith, but will be
furnished supplementally to the Commission upon request.
2.2 -- Amendment to Stock Purchase Agreement dated as of April
15, 1996 by and between George Mateljan, Jr. and Health
Valley Company.
2.3 -- Stock Purchase Agreement dated October 16, 1996 by and
between the stockholders of The Bread Shop, Inc. and TBS
Acquisition Corporation. Schedules and exhibits to this
Stock Purchase Agreement have not been included herewith,
but will be furnished supplementally to the Commission
upon request.
3.1 -- Form of Second Amended and Restated Certificate of
Incorporation of the Registrant.
3.2 -- Form of Amended and Restated Bylaws of the Registrant.
4.1* -- Specimen stock certificate representing Common Stock.
5* -- Opinion of Katten Muchin & Zavis as to the legality of
the securities being registered (including consent).
</TABLE>
II-2
<PAGE> 82
<TABLE>
<C> <S>
10.1 -- Common Stock Purchase Agreement dated as of October 2, 1995 by and between the
Registrant, Frontenac VI Limited Partnership and William R. Voss.
10.2 -- Employment Agreement dated October 2, 1995 by and between the Registrant, and William
R. Voss.
10.3 -- Amendment No. 1 dated January 28, 1997 to Employment Agreement by and between the
Registrant, and William R. Voss.
10.4 -- Stock Purchase Agreement dated April 15, 1996 by and between the Registrant, Frontenac
VI Limited Partnership, State of Wisconsin Investment Board and William R. Voss.
10.5 -- Amended and Restated Credit Agreement dated October 31, 1996 by and between Health
Valley Company, TBS Acquisition Corporation, The Bread Shop and LaSalle National Bank.
10.6 -- First Amendment to Loan and Security Agreement dated June 1997 by and between Health
Valley Company and LaSalle National Bank.
10.7 -- Second Amendment to Loan and Security Agreement dated April 1998 by and between Health
Valley Company and LaSalle National Bank.
10.8 -- Stock Purchase Agreement dated as of January 28, 1997 by and between the Registrant,
William R. Voss, Frontenac VI Limited Partnership and State of Wisconsin Investment
Board.
10.9 -- Amended and Restated Management Option Agreement dated January 28, 1997 by and between
the Registrant, and William R. Voss.
10.10 -- Stock Purchase Agreement dated as of January 28, 1997 by and between the Registrant,
Timothy J. Healy, Chance Bahadur and Mark Smith.
10.11 -- Settlement Agreement dated as of September 30, 1997 by and between Health Valley
Company, the Registrant, and George Mateljan, Jr.
10.12 -- Second Amended and Restated Registration Agreement dated September 30, 1997 by and
between the Registrant, and the stockholders and option holders named therein.
10.13* -- Form of Natural Nutrition Group, Inc. Employee Incentive Compensation Plan.
10.14* -- Form of Natural Nutrition Group, Inc. 1998 Employee Stock Purchase Plan.
10.15 -- Form of Indemnification Agreement.
10.16 -- Lease Agreement dated August 5, 1988 by and between CalMat Properties, Inc. and Health
Valley Natural Foods, Inc.
10.17 -- Intrepid Food Holdings, Inc. 1997 Stock Option Plan.
10.18 -- Form of Stock Option Agreement for the Intrepid Food Holdings, Inc. 1997 Stock Option
Plan.
11* -- Statement regarding computation of per share earnings.
21 -- Subsidiaries of the Registrant.
23.1 -- Consent of Deloitte & Touche LLP.
23.2 -- Consent of Katten Muchin & Zavis (contained in its opinion to be filed as Exhibit 5
hereto).
24 -- Power of Attorney (included on the signature page hereto).
27 -- Financial Data Schedule.
</TABLE>
- ---------------
* To be filed by amendment
(b) Financial Statement Schedules.
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Report of Independent Public Accountants.................... S-1
Schedule II -- Valuation and Qualifying Accounts............ S-2
</TABLE>
II-3
<PAGE> 83
ITEM 17. UNDERTAKINGS.
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered in
such names as required by the Underwriters to permit prompt delivery to each
purchaser.
(2) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
Registration Statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Company pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this Registration
Statement as of the time it was declared effective.
(3) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Commission, such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred or
paid by a director, officer or controlling person of the Registrant in the
successful defense of any action, suite or proceeding) is asserted by such
director, officer of controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
had been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
II-4
<PAGE> 84
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of Chicago, and State of
Illinois on the 21st day of May, 1998.
Natural Nutrition Group, Inc.
By: /s/ WILLIAM R. VOSS
----------------------------------
William R. Voss
Chairman, Chief Executive Officer
and President
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
William R. Voss and Diane J. Beardsley his true and lawful attorneys-in-fact and
agents, with full power of substitution, to sign on his behalf, individually and
in each capacity stated below, all amendments and post-effective amendments to
this Registration Statement on Form S-1 (including any registration statement
filed pursuant to Rule 462(b) under the Securities Act of 1933, and all
amendments thereto) and to file the same, with all exhibits thereto and any
other documents in connection therewith, with the Commission under the
Securities Act of 1933, granting unto said attorneys-in-fact and agents full
power and authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents and
purposes as each might or could do in person, hereby ratifying and confirming
each act that said attorneys-in-fact and agents may lawfully do or cause to be
done by virtue thereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed below by the following persons in the
capacities and on the dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ WILLIAM R. VOSS Chairman of the Board, Chief May 21, 1998
- ----------------------------------------------------- Executive Officer, and President
William R. Voss (Principal Executive Officer)
/s/ DIANE J. BEARDSLEY Senior Vice President and Chief May 21, 1998
- ----------------------------------------------------- Financial Officer (Principal
Diane J. Beardsley Accounting Officer)
/s/ ROGER S. MCENIRY Director May 21, 1998
- -----------------------------------------------------
Roger S. McEniry
/s/ DAVID S. KATZ Director May 21, 1998
- -----------------------------------------------------
David S. Katz
/s/ TIMOTHY J. HEALY Director May 21, 1998
- -----------------------------------------------------
Timothy J. Healy
/s/ LAWRENCE A. DEL SANTO Director May 21, 1998
- -----------------------------------------------------
Lawrence A. Del Santo
</TABLE>
II-5
<PAGE> 1
EXHIBIT 2.1
STOCK PURCHASE AGREEMENT
INTRODUCTION
This STOCK PURCHASE AGREEMENT is dated as of March 17, 1996. The
parties are George Mateljan, Jr. (the "SHAREHOLDER"), being the sole owner of
all of the issued and outstanding shares of capital stock of Health Valley
Foods, Inc. and Health Valley Manufacturing Company (severally the "COMPANY"
and jointly the "COMPANIES"), and Health Valley Company (the "BUYER"). The
Companies are California corporations and the Buyer is a Delaware corporation.
BACKGROUND
The Shareholder owns all of the issued and outstanding shares of capital
stock of the Companies (the "STOCKS"). The Buyer desires to purchase from the
Shareholder, and the Shareholder desires to sell to the Buyer, all of the
Stocks in exchange for the consideration set forth herein in accordance with
the terms and conditions set forth in this Agreement.
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties herein contained, and intending to be legally
bound hereby, the parties hereto agree as follows:
TERMS AND CONDITIONS
1. Definitions. For convenience and brevity, in addition to terms
elsewhere defined herein, certain terms used in various parts of this Agreement
are listed in alphabetical order and defined or referred to below (such terms
to be equally applicable to both singular and plural forms of the terms
defined).
"ACQUISITION" means the acquisition of all of the Stocks by the Buyer
and all related transactions provided for in or contemplated by this
Agreement, the Ancillary Documents or any Exhibit hereto.
"AGREEMENT" means this Stock Purchase Agreement.
"ANCILLARY DOCUMENTS" means the Escrow Agreement, the Option Agreement,
the License Agreement, the State Tax Escrow Agreement, the Shareholder
Noncompetition Agreement and the Roof Repair Escrow Agreement.
"ASSETS" means all of either of the Companies' assets, properties,
business, goodwill and rights of every kind and description, real,
personal and mixed, tangible and intangible, wherever situated and
whether or not reflected on the Latest Year-End Balance Sheet including,
without limitation, rights to existing books and refunds of federal and
state
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<PAGE> 2
taxes of the Companies shown on the Latest Year-End Balance Sheet as a
negative liability - federal and state income taxes payable (the "KNOWN
REFUND").
"AUDITED FINANCIAL STATEMENTS" means the audited consolidated balance
sheet of the Companies as of December 31, 1995, and the related audited
consolidated statements of income, retained earnings and cash flow for
the year then ended, and the notes thereto, accompanied by an opinion of
Coopers & Lybrand that, in its opinion, such balance sheet and
statements of income, retained earnings and cash flow reflect the
consolidated financial condition of the Companies in accordance with
GAAP, as of such date, and the results of operations and cash flow for
the period then ended in accordance with GAAP, which opinion shall be
unqualified except possibly as to the impairment of certain assets
classified as construction-in-process on the Latest Year-End Balance
Sheet and the going concern of the Companies.
"BUSINESS" means the existing and prospective business, operations,
facilities and other Assets, financial condition, results of operations,
finances, markets, products, competitive position, raw materials and
other supplies, customers and customer relations and personnel and
personnel relations of either of the Companies.
"BUSINESS DAY" means any calendar day which is not a Saturday, Sunday or
public holiday on which banks are closed under the laws of California.
"BUYER" means Health Valley Company, a Delaware corporation.
"BUYER'S SPECIAL DAMAGES" means Buyer's Damages resulting from, relating
to or arising out of:
(a) any breach of, or inaccuracy in, the Tax Representation,
the Capitalization Representation or the Environmental
Representations;
(b) any claim with respect to any of the matters set forth in
Section 8.1(B)(1), (3), (4), (5), (6) or (7);
(c) any intentional or knowing breach or violation by the
Shareholder of any covenant or agreement contained in
Section 6 of this Agreement;
(d) any breach of Section 3.2 hereof; and
(e) any claim arising out of the fraudulent actions or
fraudulent misconduct of the Shareholder, personally, or
by the Companies, but only to the extent personally
directed by the Shareholder.
"BUYER'S REGULAR DAMAGES" means any Buyer's Damages, other than Buyer's
Special Damages.
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<PAGE> 3
"CLAIM NOTICE" is defined in Section 8.2(A).
"CLOSING" and "CLOSING DATE" are defined in Section 3.1.
"CODE" means the Internal Revenue Code of 1986, as amended.
"COMPANIES" means Health Valley Foods, Inc. and Health Valley
Manufacturing Company, each of which is a California corporation.
"CONTRACT" means any written or oral contract, agreement, lease, plan,
instrument or other document, commitment, arrangement, undertaking,
practice or authorization that is or may be binding on any person or its
property under applicable law.
"COPYRIGHTS" means registered copyrights, copyright applications and
unregistered copyrights.
"COURT ORDER" means any judgment, decree, injunction, order, ruling or
similar action of any federal, state or local court or governmental or
regulatory body or authority that is binding on any person or its
property under applicable law.
"DEFAULT" means (i) a breach of or default under any Contract, (ii) the
occurrence of an event that with the passage of time or the giving of
notice or both would constitute a breach of or default under any
Contract, or (iii) the occurrence of an event that with or without the
passage of time or the giving of notice or both would give rise to a
right of termination, renegotiation or acceleration under any Contract.
"EMPLOYEE BENEFIT PLANS" means "employee benefit plans" as defined in
section 3(3) of ERISA and any other plan, policy, program, practice or
arrangement providing compensation or other benefits to any current or
former officer or employee of either of the Companies, or any dependent
or beneficiary thereof, which are now or have been maintained by either
of the Companies, or any affiliate or under which either of the
Companies or any affiliate has any obligation or liability, whether
actual or contingent, including, without limitation, all incentive,
bonus, deferred compensation, vacation, holiday, medical disability,
share purchase or other similar plans, policies, programs, practices or
arrangements.
"ENVIRONMENTAL LAWS" means all Regulations relating to environmental
safety, or health matters, including but not limited to, those relating
to the release or threatened release of Hazardous Substances and the
generation, use, storage, transportation, or disposal of Hazardous
Substances in any manner applicable to either of the Companies or the
Assets.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
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<PAGE> 4
"ESCROW AGENT" means a bank or financial institution, mutually selected
by the Buyer and the Shareholder, to serve as the escrow agent under the
Escrow Agreement and the State Escrow Agreement.
"ESCROW AGREEMENT" means an escrow agreement among the Shareholder, the
Buyer and the Escrow Agent substantially in the form of EXHIBIT A.
"ESCROW AMOUNT" means an amount equal to 10% of the difference between
(a) $32,000,000 and (b) the sum of (i) the Funded Indebtedness as of the
Closing Date, less $664,964, and (ii) the Transaction Costs through the
Closing.
"ESCROW FUND" means the Escrow Amount in cash which is deposited with,
and held and disbursed by, the Escrow Agent in accordance with this
Agreement and the Escrow Agreement together with the investment income
thereon.
"FUNDED INDEBTEDNESS" means all liabilities and obligations of the
Companies, or either of them, outstanding as of December 31, 1995 or
arising at any time thereafter but prior to the Closing Date, under
those certain agreements relating to (i) indebtedness for borrowed
money, (ii) capitalized leases and (iii) the "Capital lease equivalents"
listed on EXHIBIT B hereto (the "FUNDED INDEBTEDNESS EXHIBIT") and all
liabilities and obligations of the Companies, or either of them, for
other indebtedness for borrowed money.
"GAAP" means generally accepted accounting principles consistently
applied.
"HAZARDOUS SUBSTANCES" means (a) any chemical, material or substance
defined as or included in the definition of "hazardous substances,"
"hazardous wastes," "hazardous materials," "extremely hazardous waste,"
"restricted hazardous waste," "medical waste," "toxic pollutants,"
"contaminants," "pollutants," "toxic substances," or words of similar
import under any applicable Environmental Law, (b) any oil, petroleum,
petroleum product or petroleum derived substance, any flammable
substances or explosives, or any radioactive materials, (c) asbestos and
asbestos-containing materials in any form which is or could become
friable, (d) radon gas, urea, formaldehyde, foam insulation, dielectric
fluid, and polychlorinated bipbenyls, and (e) any other chemical,
material or substance which is prohibited, limited, or regulated by any
governmental authority.
"INTELLECTUAL PROPERTY" means Copyrights, Patents, Trademarks,
technology rights and licenses, computer software (including, without
limitation, any source or object codes therefor or documentation
relating thereto), trade secrets, franchises, know-how, inventions and
other intellectual property rights.
"IRS" means the Internal Revenue Service.
"LATEST YEAR-END BALANCE SHEET" and "LATEST YEAR-END BALANCE SHEET DATE"
are defined in Section 4.7.
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<PAGE> 5
"LATEST YEAR-END FINANCIAL STATEMENTS" has the meaning ascribed to it in
Section 4.7 hereof.
"LIABILITY" means any direct or indirect liability, indebtedness,
obligation, expense, claim, deficiency, guaranty or endorsement of or by
any person (other than endorsements of notes, bills and checks presented
to banks for collection or deposit in the ordinary course of business)
of any type whether accrued, absolute, contingent, matured, unmatured or
other.
"LICENSES" means licenses, franchises, permits, easements, rights and
other authorizations.
"LIEN" means any mortgage, lien, security interest, pledge, encumbrance,
restriction on transferability, defect of title, charge or claim of any
nature whatsoever on any property or property interest.
"LIENHOLDER" means the bolder of or other person entitled to any
benefits arising under any Lien.
"LITIGATION" means any lawsuit, action, arbitration, administrative or
other proceeding, criminal prosecution or governmental investigation or
inquiry involving or affecting the Companies, the Business, the Assets
or any Contracts to which either of the Companies is party or by which
either of them or any of the Assets or the Business may be bound or
affected.
"NOTICE PERIOD" is defined in Section 8.2(A).
"OPTION AGREEMENT" means that certain Option Agreement between the
Buyer and the Shareholder in the form attached hereto as EXHIBIT C.
"OPTIONS" means the options to purchase common stock of the Buyer to be
granted to the Shareholder pursuant to the Option Agreement.
"OVERDRAFT DEBT AMOUNT" means the aggregate amount of the portion of the
Identified Checks which constitute or represent a payment of principal
of indebtedness for borrowed money, capitalized leases or Capital lease
equivalents. The Identified Checks shall be determined in the following
manner:
1. The Companies and the Buyer shall prepare a list of all
checks issued by either of the Companies that did not
clear the respective bank accounts on which such checks
were drawn as of December 31, 1995 (the "LISTED CHECKS").
5
<PAGE> 6
2. The Companies and the Buyer shall list the Listed Checks
in reverse order by check number, until the aggregate
amount of the Listed Checks equals $709,657 (the
"OVERDRAFT CHECKS").
3. The Companies and the Buyer shall identify the Overdraft
Checks which constitute or represent a payment of
principal of indebtedness for borrowed money, capitalized
leases or Capital lease equivalents (the "IDENTIFIED
CHECKS").
"PATENTS" means all patents and patent applications.
"PBGC" means the Pension Benefit Guaranty Corporation.
"PENSION PLANS" means "employee pension benefit plans" as defined in
section 3(2) of ERISA.
"PERMITTED LIENS" means liens for real estate taxes not yet due and
payable.
"PURCHASE PRICE" shall mean the Options and aggregate amount of Thirty-
two Million Dollars ($32,000,000).
"REGULATION" means any statute, law, ordinance, regulation, order, rule
or rule of common law and of any federal, state, local or other
governmental agency or body or of any other type of regulatory body,
including, without limitation, those covering environmental, energy,
safety, health, transportation, bribery, recordkeeping, zoning,
antidiscrimination, antitrust wage and hour, and price and wage control
matters.
"ROOF REPAIR AGREEMENT" means an escrow agreement between the Buyer, the
Shareholder and the Escrow Agent in substantially the form of the Escrow
Agreement and otherwise reasonably acceptable to the Buyer and the
Shareholder, pursuant to which an amount equal to the aggregate estimate
of the contractors or contractors hired in connection therewith of the
costs for the repair, reconstruction or replacement of the roofs on the
existing facilities of the Companies (and reasonably agreed to by and
among the Companies, the Shareholder and the lessor of such facilities)
pursuant to Section 8.1(B)(7) hereof (the "ROOF REPAIR ESCROW AMOUNT")
shall be deposited into escrow in order to secure the Shareholder's
liability to indemnify the Buyer pursuant to Section B.1(B)(7) hereof.
"SHAREHOLDER" means George Mateljan, Jr., who is the owner of all of the
Stocks.
"SHAREHOLDER NONCOMPETITION AGREEMENT" means the Noncompetition
Agreement between the Buyer and the Shareholder in the form attached
hereto as EXHIBIT D.
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<PAGE> 7
"STATE TAXES" means all Taxes, but only with respect to those states
listed on EXHIBIT E hereto, relating to periods ending on or prior to
the Closing Date.
"STATE TAX ESCROW AGREEMENT" means an escrow agreement among the Buyer,
the Shareholder and the Escrow Agent, in substantially the form of the
Escrow Agreement and otherwise reasonably acceptable to the Buyer and
the Shareholder, pursuant to which $350,000 of the Purchase Price (the
"STATE TAX ESCROW AMOUNT") shall be deposited into escrow in order to
secure the Shareholder's obligation to indemnify the Buyer for State
Taxes and the reasonable fees and expenses of a "Big-Six" certified
public accounting firm and, if such accounting firm determines
necessary, legal counsel specializing in state tax matters reasonably
acceptable to the Shareholder and the Buyer relating to the preparation
and filing of any tax returns for such State Taxes, and the prosecution
or settlement of such State Taxes.
"STOCKS" means 5,500 shares of the Common Stock of Health Valley Foods,
Inc., which constitutes all of the issued and outstanding capital stock
of Health Valley Foods, Inc., and 30,000 shares of the Common Stock of
Health Valley Manufacturing Company, which constitutes all of the issued
and outstanding capital stock of Health Valley Manufacturing Company.
"TAXES" shall mean and include, collectively, all foreign, federal state
and local taxes imposed by any taxing authority, including, without
limitation, income, gross receipts, net proceeds, alternative, add-on,
minimum, ad valorem, value added, turnover, sales, use, property,
personal property (tangible and intangible), stamp, leasing, excise,
duty, franchise, transfer, license, withholding, payroll, employment,
fuel, excess profits, environmental, occupational, interest equations
windfall profits and severance taxes, and all other like governmental
charges, together with any interest additions to tax and penalties
thereon.
"TAX REFUNDS" shall mean and include all refunds and credits received or
utilized by or on behalf of either Company for California State Taxes
paid by either Company with respect to periods ending on or prior to the
Closing Date, arising solely as a result of the payment of State Taxes
(other than State Taxes paid by the Companies prior to the Closing
Date).
"TRADEMARKS" means registered trademarks, registered service marks,
trademark and service mark applications and unregistered trademarks,
tradenames and service marks.
"TRANSACTION COSTS" means (i) all legal fees and expenses of counsel
incurred by the Shareholder or the Companies for services rendered from
and after February 1, 1996 in connection with the preparation,
negotiation and execution of that certain memorandum of agreed to
business principles, dated February 16, 1996, and this Agreement and the
consummations of the transactions contemplated hereby, (ii) the fees,
expenses and other commissions of Wasserstein Perella & Co., (iii) any
amounts owed by either of the
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<PAGE> 8
Companies to Ray L'Heureux due to a change in the control of either of
the Companies, and (iv) all legal fees and expenses of counsel incurred
by the Shareholder or the Companies for services rendered from January
1, 1996 through January 31, 1996, in connection with the preparation,
negotiation and execution of that certain memorandum of agreed to
business principles, dated February 16, 1996, and this Agreement and the
consummations of the transactions contemplated hereby, to the extent
such fees and expenses exceed $15,500.
2. Sale and Purchase of the Stocks.
2.1 Sale and Purchase of the Stocks. Subject to the terms and
conditions hereinafter set forth and on the basis of and in reliance
upon the representations, warranties, obligations and agreements set
forth herein, at the Closing the Shareholder shall sell to the Buyer and
the Buyer shall purchase from the Shareholder all of the Stocks, free
and clear of all Liens, for a purchase price equal to the Purchase
Price.
2.2 Default by the Shareholder at the Closing. The
Shareholder acknowledges that the Stocks are unique and otherwise not
available and agree that in addition to any other remedies, the Buyer
may invoke any equitable remedies to enforce delivery of the Stocks
hereunder, including, without limitation, an action or suit for specific
performance.
3. Closing.
3.1 Closing Date. The Closing (the "CLOSING") of the sale and
purchase of the Stocks shall take place at the offices of Weinstock,
Manion, Reisman, Shore & Neumann, 1988 Century Park East, Suite 800, Los
Angeles, California at 10:00 a.m. local time, on April 10, 1996, or at
such other time or place or on such other date as the Buyer and the
Shareholder may agree to in writing. The date of the Closing is
hereinafter sometimes referred to as the CLOSING DATE.
3.2 Deliveries.
(A) At the Closing, subject to the provisions of this
Agreement the Shareholder shall deliver to the Buyer, free and
clear of all Liens, the certificates for the Stocks in negotiable
form, duly endorsed in blank, or with separate notarized stock
transfer powers attached thereto and signed in blank, in exchange
for (i) the delivery by the Buyer to the Shareholder, or in the
event any Funded Indebtedness or Transaction Costs remain
outstanding as of the Closing, to the person or entity to which
either of the Companies or the Shareholder are obligated with
respect to such Funded Indebtedness or Transaction Costs to the
extent thereof (but only out of the funds referred to in the
following clause (b)),
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<PAGE> 9
of (a) an Option Agreement, duly executed by the Buyer, and (b)
the wire transfer into an account to be designated by the
Shareholder of an amount equal to the difference between (I) 90%
of the difference between (1) $32,000,000 and (2) the sum of the
Funded Indebtedness as of the Closing Date, less $664,964, and
the Transaction Costs through the Closing and (II) the sum of the
State Tax Escrow Amount and the Roof Repair Escrow Amount, and
(ii) the wire transfer or other delivery by the Buyer to the
Escrow Agent of (X) the Escrow Amount which, amount shall be held
and eventually disbursed by the Escrow Agent in accordance with
this Agreement and the Escrow Agreement, (Y) the State Tax Escrow
Amount which amount shall be held and eventually disbursed by the
Escrow Agent in accordance with the State Tax Escrow Agreement
and (Z) the Roof Repair Escrow Amount, which amount shall be held
and eventually disbursed by the Escrow Agent in accordance with
the Roof Repair Escrow Agreement.
(B) At the Closing, the Shareholder will deliver to the Buyer
the written resignations of all the directors and officers of
either of the Companies, and all plan fiduciaries of all Employee
Benefit Plans, effective as of the Closing except for such
directors, officers and plan fiduciaries as the Buyer shall
designate in writing.
(C) At the Closing, the Shareholder shall also deliver to the
Buyer, and the Buyer shall deliver to the Shareholder, the
certificates, opinions and other instruments and documents
referred to in Sections 9 and 10, respectively.
(D) At the Closing, the Shareholder shall pay or cause to be
paid, out of the amount to be paid pursuant to item (A)(i)(b)
above, all Funded Indebtedness (other than capitalized leases and
Capital lease equivalents listed on the Funded Indebtedness
Exhibit) and Transaction Costs and shall obtain from each holder
of Funded Indebtedness (other than holders of capitalized leases
and capital lease equivalents listed on the Funded Indebtedness
Exhibit) and each person or entity to which either of the
Companies or the Shareholder is obligated with respect to
Transaction Costs a release of the Companies with respect to such
Funded Indebtedness or Transaction Costs.
(E) In the event that any Funded Indebtedness (other than
interest on such Funded Indebtedness paid in the ordinary course
of business) or Transaction Costs have been paid after December
31, 1995 and on or prior to the date hereof, or are paid after
the date hereof and prior to the Closing Date, by either of the
Companies, the Shareholder shall reimburse the Companies, at the
Closing, for all such Funded Indebtedness or Transaction Costs.
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<PAGE> 10
(F) At the Closing, the Shareholder shall repay to the
Companies all loans made by either of the Companies to the
Shareholder that are outstanding on the Closing Date.
(G) Without duplicating any obligation set forth in (D) above,
at the Closing, the Shareholder shall pay to the Buyer, out of
the amount to be paid to the Shareholder pursuant to item
(A)(i)(b) above, an amount equal to the difference between (1)
the then aggregate outstanding balance or principal with respect
to all capitalized leases and "Capital lease equivalents" listed
on the Funded Indebtedness Exhibit and (2) $664,964.
(H) At the Closing, the Shareholder shall pay to the Buyer,
out of the amount to be paid to the Shareholder pursuant to item
(A)(i)(b) above, an amount equal to the aggregate amount paid by
the Companies for Roof Repairs prior to the Closing.
(I) At the Closing, the Shareholder shall pay to the Buyer,
out of the amount to be paid to the Shareholder pursuant to item
(A)(i)(b) above, an amount equal to the Overdraft Debt Amount.
3.3 Termination. In the event that the Closing shall not have taken
place on or before April 15, 1996, or such later date as shall be
mutually agreed to in writing by the Buyer and the Shareholder, all of
the rights and obligations of the parties under this Agreement shall
terminate without liability, except for liability with respect to a
party in the event the Closing does not occur and this Agreement
terminates by reason of a default or breach by such party.
4. Representations and Warranties of the Shareholder. The Shareholder
hereby represents and warrants to the Buyer that, as of the date hereof, except
as set forth on a Disclosure Schedule attached hereto, each of which exceptions
shall specifically identify the relevant subsection hereof to which it relates
and shall be deemed to be representations and warranties as if made hereunder:
4.1 Organization and Standing. The Companies are corporations duly
organized, validly existing and in good standing under the laws of
California, having full power and authority to carry on the Business as
it has been and is now being conducted and to own, lease and operate the
Assets. Each of the Companies is duly qualified to do business and in
good standing in every jurisdiction in which the Business or the
character of the Assets requires such qualification, all of which
jurisdictions are disclosed in the Disclosure Schedule. Neither of the
Companies has any subsidiaries or any stock or other equity or ownership
interest (whether controlling or not) in any corporation, association,
partnership, joint venture or other entity.
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<PAGE> 11
4.2 Capitalization and Stock Ownership. The Companies' authorized
capital stock consists of 1,000,000 shares of Common Stock as to Health
Valley Foods, Inc. and 1,000,000 shares of Common Stock as to Health
Valley Manufacturing Company. There are 5,500 shares of Common Stock
presently outstanding as to Health Valley Foods, Inc. and 30,000 shares
of Common Stock presently outstanding as to Health Valley Manufacturing
Company (previously defined as the "STOCKS"), which Stocks are owned of
record and beneficially by the Shareholder, free and clear of any Liens.
The Shareholder has good title to the Stocks, free and clear of all
Liens. All of the Stocks have been duly authorized and validly issued,
are fully paid and nonassessable, were not issued in violation of the
terms of any Contract binding upon either of the Companies, and were
issued in compliance with all applicable charter documents of the
Companies and all applicable federal and state securities or "blue sky"
laws and regulations. No equity securities of either of the Companies,
other than the Stocks, are issued or outstanding. There are, and have
been, no preemptive rights with respect to the issuance of the Stocks.
There are: (i) no existing Contracts, subscriptions, options, warrants,
calls, commitments or rights of any character to purchase or otherwise
acquire any capital stock or other securities of either of the
Companies, whether or not presently issued or outstanding, from the
Shareholder, either of the Companies or otherwise, at any time, or upon
the happening of any stated event; (ii) no outstanding securities that
are convertible into or exchangeable for capital stock or other
securities of either of the Companies; (iii) no Contracts,
subscriptions, options, warrants, calls, commitments or rights to
purchase or otherwise acquire from the Shareholder, either of the
Companies or otherwise any such convertible or exchangeable securities;
and (iv) no capital appreciation or profit participation rights, or
commitments to issue such rights, with respect to either of the
Companies.
4.3 Authority and Binding Effect. The Shareholder has the full power
and authority to execute, deliver and perform this Agreement and the
Escrow Agreement and consummate the transactions contemplated hereby and
thereby. The execution and delivery of this Agreement and the Escrow
Agreement and the consummation of the transactions herein and therein
contemplated will not contravene or violate the Articles of
Incorporation or bylaws of the Companies. Each of this Agreement and
the Escrow Agreement constitutes the legal, valid and binding obligation
of the Shareholder, enforceable against the Shareholder in accordance
with its terms.
4.4 Validity of Contemplated Transactions. Neither the execution and
delivery of this Agreement and the Escrow Agreement by the Shareholder,
nor the consummation of the transactions contemplated hereby and thereby
nor the use of the proceeds from the Acquisition by the Shareholder will
contravene or violate any Regulation or Court Order which is applicable
to any of the Companies, the Shareholder, the Business or the Assets, or
will result in a Default under, or require the consent or approval of
any party to, any Contract relating to the Business or the Assets or to
or by which any of the Companies or the Shareholder is a party or
otherwise bound or affected, or any License, or require any of the
Companies or the Shareholder to notify or obtain any License from any
11
<PAGE> 12
federal, state, local or other court or governmental agency or body or
from any other regulatory authority.
4.5 Restrictions. Neither of the Companies nor the Shareholder is a
party to any Contract, holds any License or is subject to any
restriction or any Court Order or Regulation which adversely affects the
Companies, the Assets or the Business, affects or restricts the ability
of the Companies or the Shareholder to consummate the Acquisition or
will restrict the Companies, the Business or the Assets after the
Acquisition in a manner that the Companies, the Business or the Assets
were not restricted prior to the Acquisition.
4.6 Third-Party Options. There are no existing Contracts, options,
commitments or rights with, to or in any third party to acquire the
Companies, or either of them, any of the Assets or any interest therein
or in the Business.
4.7 Financial Statements. The Companies and the Shareholder have
delivered to the Buyer (i) each of the Companies' consolidated year-end
balance sheets at December 31, 1995, (ii) their related consolidated
statements of income, retained earnings and cash flow for the fiscal
year then ended, and (iii) all related notes and schedules. All
Liabilities of either of the Companies at December 31, 1995 required to
be reflected or reserved for by GAAP are fully reflected or reserved for
in the Companies' consolidated balance sheet at December 31, 1995 (the
"LATEST YEAR-END BALANCE SHEET", and, together with the related
consolidated statements of income and retained earnings, the "LATEST
YEAR-END FINANCIAL SHEET"). December 31, 1995 is referred to as the
"LATEST YEAR-END BALANCE SHEET DATE" in other parts of this Agreement.
All of the financial statements referred to in this Section 4.7 were
prepared in accordance with GAAP and, subject to any qualifications set
forth in the applicable notes and schedules, fairly present the
financial position, results of operations and cash flow of the Companies
at the date and for the period covered and include all adjustments that
are necessary for a fair presentation of the information shown.
4.8 Books of Account; Returns and Reports; Taxes. The books of
account of each of the Companies fairly reflect, in accordance with
GAAP, (i) all transactions relating to the Companies, or either of them,
and (ii) all items of income and expense, assets and liabilities and
accruals relating to either of the Companies. Neither of the Companies
has engaged in any transaction, maintained any bank account or used any
corporate funds except for transactions, bank accounts and funds which
have been and are reflected in the normally maintained books and records
of the Companies. Each of the Companies has duly filed all foreign,
federal, state and local tax reports and returns required to be filed by
it pursuant to any Regulation, which reports and returns were correct
and complete. Each of the Companies has duly made all deposits required
by law to be made with respect to employees' withholding taxes and has
withheld all amounts required to be withheld by it. Each of the
Companies has duly paid or accrued on its books of account all taxes,
duties and charges (including penalties and interest thereon) payable
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by it, and the amounts established as provisions for taxes on the Latest
Year-End Balance Sheet are sufficient for the payment of all taxes
(including penalties and interest thereon) due as a result of activities
which occurred during the period covered by the Latest Year-End Balance
Sheet. Neither of the Companies has received any notice of assessment
or deficiency or proposed assessment from or by the IRS or any other
taxing authority in connection with its tax returns or reports, and to
the Shareholder's knowledge, there is no pending or threatened tax
examination of or tax claim asserted against the Companies, or either of
them, or any of the Assets. There is no tax lien on any of the Assets
except for liens for real estate taxes not yet due and payable. The
federal income tax returns filed by Health Valley Natural Foods, Inc.
have been audited and settled through December 31, 1992, the federal
income tax returns for Health Valley Manufacturing Company have never
been audited and, with respect to either of the Companies, no agreement
for the extension of time or waiver of the statute of limitations for
the assessment of any deficiency or adjustment for any year is in
effect. True and correct copies of all federal and state income tax
returns filed by any of the Companies since December 31, 1994, have been
delivered to Buyer. The Companies will receive at least $500,000 with
respect to the Known Refund.
4.9 Undisclosed Liabilities. Neither of the Companies has
liabilities except for:
(A) those Liabilities adequately and specifically set forth or
reserved for on the Latest Year-End Balance Sheet and not
heretofore paid or discharged;
(B) those Liabilities arising in the ordinary course of its
business consistent with past practice under any Contract
specifically disclosed on the DISCLOSURE SCHEDULE (or not
required to be disclosed because of the term or amount involved);
and
(C) those Liabilities incurred, consistent with past business
practice, in the Ordinary course of its business since the Latest
Year-End Balance Sheet Date and not heretofore paid or
discharged.
4.10 Accounts Receivable. All accounts receivable as set forth on the
Latest Year-End Balance Sheet Date or arising since the Latest Year-End
Balance Sheet (i) have arisen only in the ordinary course of business
consistent with past practice for goods sold and delivered or services
performed and (ii) are collectible in full at the recorded amounts
thereof (free of any, and subject to no defenses, setoffs or
counterclaims) in the ordinary course of business (without resort to
Litigation or assignment to a collection agency), but in no event later
than 90 days after the Closing Date, net of any allowance for doubtful
accounts reflected in the Latest Year-End Balance Sheet.
4.11 Inventory. The inventory, as set forth on the Latest Year-End
Balance Sheet or arising since the Latest Year-End Balance Sheet Date,
was acquired and has been maintained in accordance with the regular
business practices of the Companies, consists
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of new and unused items of a quality and quantity usable or salable in
the ordinary course of business of the Companies consistent with past
practice, and are valued at the lower of cost or market value on an
average cost basis. None of such inventory is obsolete, unusable,
damaged or unsalable in the ordinary course of the Companies, business
consistent with past practice.
4.12 Title to Assets. The Companies own outright and have good and
marketable title to all of the Assets, including, without limitation,
the assets and properties set forth on the Latest Year-End Balance Sheet
(except for such as may have been disposed of in the ordinary course of
business since the Latest Year-End Balance Sheet Date), free and clear
of all Liens, except Permitted Liens. The Assets constitute all of the
assets reasonably required to conduct the Business as presently
conducted by the Companies.
4.13 All Tangible Assets. The DISCLOSURE SCHEDULE sets forth accurate
lists and summary descriptions of all tangible Assets where the value of
an individual item exceeds $50,000 or where an aggregate of similar
items exceeds $75,000, and of all leases, Licenses and other Contracts
to which any of the Companies is a party or otherwise bound which relate
in whole or in part to such Assets. In the DISCLOSURE SCHEDULE, the
Assets listed have been grouped by type and assigned location. The
Assets listed in the DISCLOSURE SCHEDULE constitute substantially all of
the tangible assets used in or necessary to the conduct of the Business.
4.14 Condition of Assets. All tangible assets and properties which
are part of the Assets are in good operating condition and repair and
are usable in the ordinary course of the Business consistent with past
practice and conform in all material respects to all applicable
Regulations relating to their ownership, construction, use and
operation. There are no conditions or developments materially affecting
any such Asset which might curtail the present or future use thereof for
the purpose for which it was acquired. Except pursuant to leases
described on the DISCLOSURE SCHEDULE, no person other than the Companies
owns any vehicles, equipment or other tangible Assets situated on the
facilities used by either of the Companies in the Business (other than
immaterial items of personal property owned by the Companies, employees)
or necessary to the operation of the Business.
4.15 Real Property.
(A) Title. All real property (including, without limitation,
all interests in and rights to real property) and improvements
located thereon which are owned or leased by either of the
Companies are listed on the DISCLOSURE SCHEDULE (the "REAL
PROPERTY"), which constitutes an of the real property used in or
reasonably necessary to conduct the Business as presently
conducted by the Companies.
(B) Zoning. To the Shareholder's actual knowledge, the Real
Property is zoned M-2.
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(C) Utility Services. To the Shareholder's actual knowledge,
the water, electric, gas, sewer and other utility services and
the septic tank and storm drainage facilities currently available
to the Real Property are adequate for the present use of the Real
Property by the Companies in conducting the Business, and there
is no condition which could result in the discontinuance of such
services, or result in the impairment or termination of the
present access from the Real Property to such utility services
and other facilities.
(D) Access. Each of the Companies has obtained all Licenses
and rights-of-way, including proof-of-dedication over the Real
Property, or from private parties, necessary to ensure vehicular
and pedestrian ingress and egress to and from the Real Property
from adjoining public streets. To the Shareholder's actual
knowledge, there are no restrictions on entrance to or exit from
the Real Property to adjacent public streets and no conditions
which could result in the impairment or termination of the
present access from the Real Property to existing highways and
roads.
(E) Assessments or Hazards. To the Shareholder's actual
knowledge, neither of the Companies has received any notices,
oral or written from any governmental body, and neither of the
Companies is aware, that the assessed value of the Real Property
has been determined to be greater than that upon which county,
township or school tax was paid for the most recent tax year
applicable to each such tax or any pending general or special
assessments with respect to the Real Property, or from any
insurance carrier of the Companies of fire hazards or other
defects or inadequacies with respect to the Real Property.
(F) Eminent Domain. To the Shareholder's actual knowledge,
neither of the Companies has received any notices, oral or
written, and has any reason to believe, that any governmental
body having jurisdiction over the Real Property intends to
exercise the power of eminent domain or a similar power with
respect to all or any part of the Real Property.
(G) No Violations. The Real Property or any improvements
erected or situate thereon, or the uses conducted thereon or
therein, do not violate, and, while either of the Companies have
occupied the Real Property, have not violated, any Regulations of
any governmental body having jurisdiction over the Real Property.
(H) Improvements. The improvements located on the Real
Property are in good condition and are structurally sound, and
all mechanical and other systems located therein are in good
operating condition, subject to normal wear, and no condition
exists requiring material repairs, alterations or corrections.
None of the Real Property, nor any of the improvements located
thereon, is included in a flood hazard area, or encroaches upon
adjoining property, easements or building or set-back lines.
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(I) Environmental Matters. Hazardous Substances have not been
disposed of or otherwise come to be located upon or beneath the
Real Property by the Companies or any real property owned or
leased by either of the Companies at any time prior to the date
hereof. While either of the Companies has occupied the Real
Property, the Real Property has not been investigated by any
governmental environmental agency, Board of Health or the public
media for, and neither of the Companies has received any inquiry
from any governmental environmental agency, Board of Health or
the public media with respect to, storage, generating, treating
or disposal of any Hazardous Substances. No underground storage
tanks are or have been located on the Real Property.
4.16 Contracts.
(A) The DISCLOSURE SCHEDULE sets forth complete and accurate
lists or descriptions of:
(1) all Employee Benefit Plans; and
(2) all consents or approvals required under any
Contracts or Licenses that are necessary for the
Shareholder to complete the Acquisition or to avoid a
Default under such Contracts or Licenses.
(B) None of the Assets is leased by either of the Companies
from any third party, whether affiliated or unaffiliated with the
Companies.
(C) Neither of the Companies is a party to or bound by any:
(1) Contract with any present or former employee or
consultant;
(2) Contract for the future purchase of, or payment
for, supplies, raw materials, equipment, products or
services, including, but not limited to, all take-or-pay
Contracts;
(3) Contract to sell or supply products or to perform
services;
(4) representative or sales agency or advertising
Contract;
(5) Contract limiting or restraining it from engaging
or competing in any lines of business with any person,
firm, corporation or other entity;
(6) license, franchise, distributorship or other
agreement, including those which relate in whole or in
part to any ideas, technical assistance or other know-how
of or used by either of the Companies;
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(7) Contract for the lease of any assets, whether as
lessor or lessee, including but not limited to,
capitalized leases and Capital lease equivalents (as set
forth in the Funded Indebtedness Exhibit);
(8) loan agreement, guarantee, letter of credit,
indemnification agreement or other similar or related
agreements;
(9) mortgage, pledge, security agreement, factoring
agreement or other similar agreements;
(10) contracts for the purchase of organic supplies (the
DISCLOSURE SCHEDULE contains the outstanding obligation of
the Companies under such Contracts as of February 29,
1996);
(11) Contract involving the payment of consideration in
excess of $50,000 annually; or
(12) material Contract not otherwise disclosed herein.
(D) All of the Contracts to which either Company is a party or
by which it or any of the Assets is bound or affected are valid,
binding and enforceable in accordance with their terms. Each of
the Companies has fulfilled, or taken all action necessary to
enable it to fulfill, when due, au of its obligations under each
of such Contracts. All parties to such Contracts have complied
in all material respects with the provisions thereof; no party is
in Default thereunder and no notice of any claim of Default has
been given to or by either of the Companies. There are no
provisions of, or developments materially affecting, any such
Contract which might prevent either of the Companies from
realizing the benefits thereof whether before or after the
completion of the Acquisition. With respect to any of such
Contracts that are leases, neither of the Companies has received
any notice of cancellation or termination under any option or
right reserved to the lessor, or any notice of Default,
thereunder. Each of the Companies enjoys peaceful and
undisturbed possession of the Assets under such leases.
4.17 Employees. The DISCLOSURE SCHEDULE sets forth the names and
current annual salary rates or current hourly wages of all present
employees of either of the Companies, together with the average number
of hours worked per week, the date of the last salary increase, the date
of commencement of employment of each employee with such Company and a
summary of salary, bonuses and other compensation, if any, paid or
payable to each of such persons for or in respect of the Latest Year-End
Balance Sheet Date and any commitments to increase any such compensation
after the Latest Year-End Balance Sheet Date. The DISCLOSURE SCHEDULE
also sets forth the earnings for each of such employees as reflected on
Form W-2 for the 1995 calendar year.
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4.18 Licenses. The DISCLOSURE SCHEDULE sets forth a complete list of
all Licenses used in the operation of the Business or otherwise held by
either of the Companies, each of which is valid and in full force and
effect. The Companies own, possess or lawfully use in the operation of
their Business all Licenses which are necessary to conduct the Business
as now or previously conducted or to the ownership or use of the Assets,
free and clear of all Liens. Neither of the Companies is or has been in
Default, nor have they received any notice of any claim of Default, with
respect to any such License. All such Licenses are renewable by their
terms or in the ordinary course of business without the need to comply
with any special qualification procedures or to pay any amounts other
than routine filing fees and will not be adversely affected by the
completion of the Acquisition. No present or former Shareholder,
director, officer or employee of either of the Companies, any member of
their immediate families or other affiliates of any of them, or any
other person, firm, corporation or other entity owns or has any
proprietary, financial or other interest (direct or indirect) in any
License which either of the Companies owns, possesses or uses.
4.19 Intellectual Property.
(A) No employee of either of the Companies has been, is or is
now expected to be, in default under any term of any employment
contract, agreement or arrangement relating to any Intellectual
Property or noncompetition arrangement, or any other Contract or
any restrictive covenant relating to the right of any such
officer or employee to be employed by either of the Companies
because of the nature of the business conducted or to be
conducted by the Companies or relating to the use of any
Intellectual Property of others, and the continued employment of
such officers and employees does not subject either of the
Companies to any Liability resulting from such a violation. The
Intellectual Property of the Companies was developed entirely by
its employees during the time they were employees only of the
Companies and such Intellectual Property does not include any
inventions of the employees made prior to the time such employees
became employees of the Companies nor any Intellectual Property
of any previous employer of such employee. All books written by
the Shareholder prior to the date hereof are owned by the
Companies (subject to publishing agreements) and neither the
Shareholder nor any other employee of either of the Companies has
any right, title or interest therein.
(B) The Companies own or have a valid right to use the
Intellectual Property being used to conduct the business of the
Companies; and the conduct of its business as now operated and as
now proposed to be operated does not and will not conflict with,
or infringe upon, valid Intellectual Property rights of others.
No person or entity is infringing upon, or has within the last
five (5) years infringed upon, the Companies' Intellectual
Property Rights. The Companies own or have a valid right to use
all Intellectual Properties necessary to conduct the Business as
now conducted. The Companies have not violated any Intellectual
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Property rights of others, and have not received any
communication alleging that either of the Companies has violated
or, by conducting their businesses as currently being conducted
by the Companies, would violate any of the Intellectual Property
rights of any other person or entity. Neither of the Companies
has any obligation to compensate any Person for the use of any
such Intellectual Property rights nor has either of the Companies
granted to any person any licenses, option or other rights to use
in any manner any of the Intellectual Property of the Companies,
whether requiring the payment of royalties or not.
(C) All Patents, Copyrights, Trademarks and computer software
used in the Business or owned by either of the Companies is
listed in the DISCLOSURE SCHEDULE, and the DISCLOSURE SCHEDULE
indicates whether such item is used or owned by the Companies.
All registrations with respect to such Patents, Copyrights and
Trademarks are currently valid and effective.
(D) Except as listed in the DISCLOSURE SCHEDULE, the computer
software of the Companies included in the Intellectual Property
functions as intended, is in machine-readable form, contains all
current revisions of such software, and is the only software used
by either of the Companies in the conduct of their business.
4.20 Compliance with Regulations and Court Orders. Neither of the
Companies has violated within the last ten (10) years, nor is in
violation of any Court Order or Regulation, and the Business and the
Assets are not, and have not been used or operated by either of the
Companies or any other person or entity within the last ten (10) years,
in violation of any Regulation or Court Order and neither of the
Companies has received within the last ten (10) years any notice
alleging any such violations. All Court Orders to which either of the
Companies is a party or subject are listed in the DISCLOSURE SCHEDULE.
Each of the Companies has made all filings or notifications required to
be made by it within the last ten (10) years under any Regulations
applicable to such Company, the Business or the Assets. Within the last
ten (10) years, neither of the Companies, nor any officer, employee or
agent of, nor any consultant to, either of the Companies has unlawfully
offered, paid, or agreed to pay, directly or indirectly, any money or
anything of value to, or for the benefit of, any individual who is or
was a candidate for public office, or an official or employee of any
governmental or regulatory body or authority or an officer or employee
of any client, customer or supplier of either of the Companies. Without
affecting in any way the generality of the foregoing, neither of the
Companies has violated within the last ten (10) years, nor is in
violation of, the applicable provisions of the federal Food, Drug and
Cosmetics Act, as amended, the regulations and requirements adopted by
the United States Food and Drug Administration (the "FDA") pursuant to
such Act, the regulations and requirements adopted by the United States
Department of Agriculture (the "USDA"), and the requirements established
by state and local authorities responsible for regulating food products
and establishments (collectively "state food authorities"), as well as
with the terms and conditions imposed in any Licenses granted to the
Companies by the FDA, USDA or state food authorities.
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In addition, neither of the Companies is aware of any facts that would
indicate that the FDA, USDA, or any state food authorities has or will
prohibit or materially restrict the marketing, sale, license or use in
the United States of any product currently produced, marketed, or under
development, by the Companies ("Product"), or the operation or use of
any Product, and neither of the Companies is aware of any product or
process which the FDA or the USDA has prohibited from being marketed or
used in the United States which in function and composition is
substantially similar to any Product. Except as set forth in the
DISCLOSURE SCHEDULE, the Products qualify as "HEALTHY" under the FDA
guidelines.
4.21 Claims. There is no Litigation pending or threatened against the
Shareholder, either of the Companies, the Business or the Assets. No
claim has been asserted and no event has occurred that might result in
Litigation against the Shareholder, either of the Companies, the
Business or the Assets. To the best of the Companies' and the
Shareholder's knowledge, there is no reasonable basis for any such
claim. All pending or threatened Litigation is fully covered by
insurance.
4.22 Insurance. The DISCLOSURE SCHEDULE contains a true and complete
description of the insurance coverage applicable to either of the
Companies, the Business and the Assets for the past three years,
including amounts (including limits and deductibles) and lines of
coverage, loss experience history by line of coverage for the past five
years, and a description of all claims in excess of $10,000 for the past
five years. All insurance coverage applicable to either of the
Companies, the Business and the Assets is in full force and effect, is
valid, binding and enforceable in accordance with its terms against the
respective insurers, insures each of the Companies in reasonably
sufficient amounts against all risks usually insured against by persons
operating similar businesses or properties in the localities where such
businesses or properties are located and has been issued by insurers of
recognized responsibility. There is no Default under any such coverage
nor has there been any failure to give notice or present any claim under
any such coverage in a due and timely fashion. There are no premiums
past due and no notice of cancellation or renewal of any such coverage
has been received. There are no provisions in such insurance policies
for retroactive or retrospective premium adjustments. Neither of the
Companies nor the Shareholder knows or has reason to know of the
occurrence of any event which reasonably might form the basis of any
claim against either of the Companies, the Business or the Assets or
which might materially increase the insurance premiums payable for any
such coverage. All products liability and general liability insurance
policies maintained by either of the Companies since January 1, 1993,
have been occurrence policies and not claims-made policies. There are
no outstanding performance bonds covering or issued for the benefit of
either of the Companies.
4.23 Labor Matters. Neither of the Companies has any collective
bargaining or other agreements with any labor union or other
representative of employees. No strike, slowdown, picketing, work
stoppage or organizing activity by any union or other group
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of employees against either of the Companies, or the Assets wherever
located, and no secondary boycott with respect to their products,
lockout by them of any of their employees or any other labor trouble or
other occurrence, event or condition of a similar character, has
occurred or been threatened. To the best of the Companies' and the
Shareholder's knowledge, no officer or key employer of either of the
Companies or group of employees intends to terminate his or their
employment with the Companies. The Companies have delivered to the Buyer
a true and complete copy of all employee handbooks used by the Companies
as of the date hereof or at any time during the past year. Such
employee handbooks contained all material employee policies and
practices of the Companies in effect at such time.
4.24 Pension Plans; Employee Benefit Plans.
(A) Disclosure. Except as disclosed in the DISCLOSURE
SCHEDULE, there are no Employee Benefit Plans, currently or
within the past five years, maintained, sponsored or contributed
to by either of the Companies. No Employee Benefit Plan
disclosed is a Pension Plan.
(B) Disclosed Plans. With respect to any such Employee
Benefit Plans disclosed, each of the Companies has made all
contributions thereto which they have accrued on their financial
statements and other books and records as a liability or which
any of them is obligated to make prior to the date hereof, and
the Companies have delivered to the Buyer copies of (i) all
documents governing such Plans, and all amendments thereto, (ii)
all reports filed by the Companies or Plan officials with respect
to such Plans with the United States Department of Labor, the IRS
and any other federal or state regulatory agency, (iii) all
summary plan descriptions, notices and other reporting and
disclosure material furnished to participants in any of such
Plans, (iv) all actuarial, accounting and financial reports
prepared with respect to any of such Plans, and (v) all currently
effective IRS ruling or determination letters on any of such
Plans.
(C) Compliance with Law. The provisions of each Employee
Benefit Plan and the administration of each Employee Benefit Plan
are and have been in all material respects in compliance with all
applicable Regulations, and neither of the Companies nor the
Shareholder has received or is aware of any claim or notice
alleging to the contrary with respect to any Employee Benefit
Plan.
(D) Tax or Civil Liability. Neither of the Companies nor the
Shareholder has participated in any conduct, and neither of the
Companies nor the Shareholder will participate in any conduct
prior to the Closing Date or thereafter, that could result in the
imposition upon either of the Companies, the Shareholder or the
Buyer of either excise tax under section 4975 (relating to
prohibited transactions) of the Code, or civil liability under
section 502(i) of ERISA (also relating to prohibited
transactions).
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(E) Claims Liability. There is no action, claim or demand of
any kind (other than routine claims for benefits) which has been
brought or, to the knowledge of the Companies or the Shareholder,
threatened, against any Employee Benefit Plan or the assets
thereof or against any fiduciary of any such Plan.
(F) Fiduciary Appointments and Conduct. There has not
occurred any circumstances by reason of which either of the
Companies, the Shareholder or the Buyer may be liable for:
(1) Appointment by the Companies of any person or
entity as a fiduciary with respect to any Employee Benefit
Plan where such person or entity was legally disqualified
from serving in such capacity;
(2) Failure by the Companies to monitor the performance
of their appointees as fiduciaries with respect to any
Employee Benefit Plan or failure of the Companies timely
to replace any such fiduciary whose performance failed to
meet the standards imposed by ERISA with respect to
fiduciary duties;
(3) Action taken by a fiduciary With respect to any
Employee Benefit Plan upon the direction of, or with the
acquiescence of, the Companies; or
(4) Breach of any fiduciary of his or its fiduciary
duties, to any Employee Benefit Plan or its beneficiaries.
(G) Multiemployer Plans, Neither of the Companies maintains or
participates in, or has ever maintained or participated in, any
"multiemployer plans" as defined in Section 3(37) of ERISA.
(H) Controlled Groups. Neither of the Companies is presently
or potentially liable with respect to any employee benefit plan
sponsored by or previously sponsored by any entity which,
together with the Companies, is or has ever been a member of a
controlled group of corporations within the meaning of Section
414(b) of the Code, a group of trades or businesses under common
control within the meaning of Section 414(c) of the Code, or an
affiliated service group within the meaning of section 414(m) of
the Code, whether such plan is a single employer plan, a multiple
employer plan or a multiemployer plan. Liability to which
reference is made herein includes, but is not limited to,
liability for the underfunding of such plan, whether or not such
plan is terminated; liability for unamortized funding
deficiencies (whether or not waived); liability to or on account
of any multiemployer plan under any circumstances; penalties,
late payment fees or taxes with respect to any plan or the
administration of any plan; or liability with respect to
fiduciary conduct in connection with any such plan.
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(I) Reporting and Disclosure. Each of the Companies has filed
or caused to be filed on a timely basis each and every return,
report, statement, notice, declaration and other documents
required by any governmental agency with respect to each Employee
Benefit Plan.
(J) Participant and Beneficiary Notifications. Each of the
Companies has delivered or caused to be delivered to every
participant, beneficiary and other party entitled to such
material, all plan descriptions, returns, reports, schedules,
notices, statements and other materials required to be delivered.
4.25 Transactions with Affiliates. No Shareholder or director or
officer of either of the Companies, any member of his or her immediate
family or any other of its, his or her affiliates, owns or has an
ownership interest in any corporation or other entity that is or was
during the last three years a party to, or in any property which is or
was during the last three years the subject of, Contracts, business
arrangements, transactions or relationships of any kind with either of
the Companies ("AFFILIATED TRANSACTIONS"). All disclosed Affiliated
Transactions have been on an arm's-length basis and on substantially the
same terms an conditions as the Companies could have obtained from non-
affiliated parties and are properly recorded on the books and records of
the Companies.
4.26 Delivery of Documents. The Companies and the Shareholder have
delivered to the Buyer true, correct and complete copies of each of the
Companies, charter documents and bylaws and all written Contracts and
other documents and summaries of any material oral Contracts (including
all amendments, supplements, modifications or waivers currently in
effect) described in this Agreement or in the DISCLOSURE SCHEDULE.
4.27 No Material Adverse Developments. Since the Latest Year-End
Balance Sheet Date, there has been no actual or threatened change in the
Business or, to the best of the Companies' and the Shareholder's
knowledge, any event, condition or state of facts, in either case that
is or might be material and adverse to any of the Companies, the
Business or the Assets.
4.28 Material Transactions. Since the Latest Year-End Balance Sheet
Date, the Business has been operated, and the Shareholder and the
Companies have acted, in the manner that would have been required by
Section 6 had that section been effective since the Latest Year-End
Balance Sheet Date and neither of the Companies or the Shareholder has
taken any action that would have been prohibited by Section 6 had that
Section been effective since the Latest Year-End Balance Sheet Date.
4.29 Hazardous Waste. Neither of the Companies does now, nor has it
ever, generated, transported, stored, disposed of or treated solid
wastes, hazardous wastes or hazardous substances within the meaning of
any applicable Regulation. The Companies have provided to the Buyer true
and complete copies of all permits, filings and related correspondence
with, to or from any environmental or safety agency, together with true
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and complete copies of all correspondence, investigations, audits
(whether or not internally generated) and reports relating in any way to
the environment health and safety condition of the Assets or the past or
present operation of the Business with respect to environmental health
or safety matters.
4.30 Additional Information. The DISCLOSURE SCHEDULE contains
accurate lists and summary descriptions of the following:
(A) all accounts receivable of either of the Companies
reflected on the Latest Year-End Balance Sheet, specifying in
each case the account debtor, the face amount of each receivable,
and reconciling the aggregate value of all accounts receivable as
of the Latest Year-End Balance Sheet Date to the amount of such
category set forth on the Latest Year-End Balance Sheet;
(B) all accounts payable and accrued expenses of either of the
Companies reflected on the Latest Year-End Balance Sheet,
specifying in each case the payee, the face amount of each
payable, the age of each payable regardless of classification on
the balance sheet account, any defenses, setoffs or counterclaims
that may exist with respect thereto, and reconciling the
aggregate value of all accounts payable as of the Latest Year-End
Balance Sheet Date to the amount of such category set forth on
the Latest Year-End Balance Sheet;
(C) the names of all present officers and directors of each
of the Companies and all plan fiduciaries of each Employee
Benefit Plan of the Companies;
(D) the names and addresses of every bank, investment bank,
securities broker and other financial institution in which either
of the Companies maintains an account (whether checking, savings
or otherwise), lock box or safe deposit box, and the account
numbers and names of persons having signing authority or other
access thereto;
(E) the names of all persons authorized to borrow money or
incur or guarantee indebtedness on behalf of either of the
Companies;
(F) the names of all persons holding powers of attorney from
either of the Companies and a summary statement of the terms
thereof; and
(G) all names under which either of the Companies have
conducted any business or which they have otherwise used during
the last five years.
4.31 Corporate Records. The minute books of each of the Companies are
current and contain correct and complete copies of all charter documents
of each of the Companies, including all amendments thereto and
restatements thereof, and of all minutes of meetings, resolutions and
other actions and proceedings of its shareholders and board of
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directors and all committees thereof, duly signed by the Secretary or an
Assistant Secretary, and the stock record book of each of the Companies
is also current, correct and complete and reflects the issuance of all
of the Stocks to the Shareholder.
4.32 Fees and Commissions. Except for Wasserstein Perella & Co.,
neither the Shareholder nor either of the Companies has retained any
finder, broker, agent, financial advisor or other intermediary in
connection with the transactions contemplated by Agreement.
4.33 Full Disclosure. There are and will be no materially misleading
misstatements in any of the representations and warranties made by the
Shareholder in this Agreement or in any of the certificates and
instruments delivered or to be delivered by the Companies, or the
Shareholder pursuant to this Agreement, including, without limitation,
in the DISCLOSURE SCHEDULE, and the Shareholder has not omitted to state
any fact necessary to make such representations and warranties not
materially misleading.
5. Representations and Warranties of the Buyer. The Buyer hereby
represents and warrants to the Companies and the Shareholder as follows:
5.1 Organization and Standing. The Buyer is a corporation duly
organized, validly existing and in good standing under the laws of
Delaware having all requisite corporate power and authority to perform
its obligations under this Agreement.
5.2 Capitalization. The Buyer's authorized capital stock consists of
1,000 shares of common stock, par value $.01 per share (the "COMMON
STOCK"), and there is no other class of capital stock of any sort,
mature or description authorized as of the date hereof. It is the
Buyer's present intention (subject to obtaining all of its contemplated
financing for the transactions contemplated hereby) to issue shares of
its Common Stock to Intrepid Food Holdings, Inc. ("INTREPID"). The
Buyer represents that (i) it has received assurances from Intrepid that,
subject to the Buyer obtaining other financing necessary to consummate
the transactions contemplated by this Agreement and the satisfaction of
the terms and conditions specified in this Agreement, Intrepid will
invest between $20.0 and $25.0 million in the Common Stock of the Buyer
(the "INTREPID INVESTMENT") and (ii) Intrepid has received assurances
from Frontenac VI Limited Partnership ("FRONTENAC VI") that, subject to
the Buyer obtaining other financing necessary to consummate the
transactions contemplated by this Agreement and the satisfaction of the
terms and conditions specified in this Agreement, Frontenac VI is ready,
willing and able to invest between $10.0 and $15.0 million in the Common
Stock of Intrepid. As of immediately after the consummation of the
equity financing obtained by the Buyer to consummate the transactions
contemplated by this Agreement (including the Intrepid Investment), the
aggregate number of shares of Common Stock of the Buyer subject to the
exercise of the Options granted to the Shareholder under the Option
Agreement will equal ten percent
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(10%) of the then outstanding issued and outstanding Common Stock of the
Buyer, on a fully diluted basis.
5.3 Capital Stock. As of the date hereof, the Buyer has only one
class of authorized equity securities and that class is the Common Stock
referred to in Section 5.2 above. Other than as set forth in the Option
Agreement, there are no preemptive rights with respect to the issuance
of Common Stock. As of the date hereof, there are no existing
subscriptions, options, warrants, calls, commitments or rights of any
character to purchase or otherwise acquire any capital stock or other
securities of the Buyer, nor are there any outstanding securities that
are convertible into, or exchangeable for, capital stock or other
securities of the Buyer, and no subscriptions, options, warrants, calls,
commitments or rights to purchase or otherwise acquire from the Buyer
any such convertible or exchangeable securities and no capital
appreciation or profit participation rights, or commitments to issue
such rights, with respect to the Buyer.
5.4 Authority and Binding Effect. The Buyer has the corporate power
and authority to execute, deliver and perform this Agreement. The
execution, delivery and performance of this Agreement by the Buyer has
been duly authorized by all necessary corporate action. This Agreement
constitutes the legal, valid and binding obligation of the Buyer,
enforceable against it in accordance with its terms.
5.5 Compliance With Laws. All of the Common Stock issued to the
shareholders of the Buyer prior to the Closing Date will have been duly
authorized and validly issued, fully paid and nonassessable, and not
issued in violation of the terms of any Contract binding upon the Buyer,
and will have been issued in compliance with all applicable charter
documents of the Buyer and all applicable federal and state securities
or "blue sky" laws and regulations.
5.6 Validity of Contemplated Transactions. Neither the execution and
delivery of this Agreement by the Buyer nor the consummation of the
transactions contemplated hereby by the Buyer will contravene or violate
any Regulation or Court Order which is applicable to the Buyer, or the
Certificate of Incorporation or by-laws of the Buyer, or will result in
a Default under any Contract to which the Buyer is a party or by which
it is otherwise bound.
5.7 Buyer's Due Diligence, Subject to the Confidentiality Agreement
among the Shareholder, the Companies and the Buyer's representative, the
Buyer does hereby confirm that it has completed, and is satisfied with,
its review of the business, management, finances and accounts receivable
of the Companies. Subject to Article 9 hereof, the Buyer has, prior to
the execution and delivery of this Agreement, informed (and does hereby
confirm to) the Shareholder and the Companies that the Buyer's due
diligence investigation is satisfactory to the Buyer. Nothing contained
in this section is intended to be, or shall be deemed to be, a waiver of
any condition or covenant contained in this Agreement.
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6. Conduct of Business Pending Closing.
6.1 Conduct of Business. From the date hereof until the Closing
Date, except as may be approved by the Buyer in writing or as otherwise
expressly provided in this Agreement, the Shareholder shall (i) use his
best efforts to complete the Acquisition and satisfy the conditions
specified in Section 9 and not sell or otherwise transfer the Stocks or
any interest therein or subject the Stock to any lien and (ii) cause the
Companies, and each of them, to:
(A) not sell any Assets except for sales of inventory in the
ordinary course of business;
(B) operate the Business only in the ordinary course and in
substantially the same manner as it has been operated in the past
and not issue, sell, repurchase or redeem or Commit to issue,
sell, repurchase or redeem, shares of its capital stock, any
options or other rights to acquire such stock or any securities
convertible into or exchangeable for such stock;
(C) not declare or pay any dividend on, or make any other
distribution with respect to, the Stocks;
(D) not (i) incur any amount of long or short-term debt for
money borrowed other than Funded Indebtedness, (ii) guarantee or
agree to guarantee the obligations of others, (iii) indemnify or
agree to indemnify others, or (iv) incur any other Liabilities
other than those incurred in the ordinary course of business
consistent with past practice (as in existence as of December 31,
1995);
(E) keep in full force and effect insurance covering either of
the Companies, the Assets and the Business comparable in amount
and scope of coverage to that now maintained;
(F) maintain the tangible Assets in good condition and working
order, ordinary wear and tear excepted, and preserve intact each
of the Companies' business organization, intangible assets and
other rights and trade secrets;
(G) use their best efforts to retain each of the Companies,
employees and maintain the Business so that such employees will
remain available to the Companies on and after the Closing Date
and to maintain existing relationships with suppliers, customers
and others having business dealings with either of the Companies
and otherwise to preserve the goodwill of the Business so that
such relationships and goodwill will be preserved on and after
the Closing Date;
(H) not amend their Articles of Incorporation or bylaws;
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(I) not merge or consolidate with or into any other
corporation or sell, assign, transfer, pledge or encumber any
part of the Assets or agree to do any of the foregoing;
(J) not enter into any Contract that is material, nor permit
any amendment or termination of any material Contract;
(K) not waive any rights of value or rights that would
otherwise accrue to either of the Companies after the Closing
Date;
(L) not increase the salaries of, or make any bonus or similar
payments to or establish or modify any Employee Benefit Plans
for, any of the Companies' directors, officers or employees or
enter into or modify any employment, consulting or similar
Contracts with any such persons or agree to do any of the
foregoing;
(M) continue to maintain all Employee Benefit Plans in
accordance with applicable Regulations, and ensure that no
Employee Benefit Plan, nor any trust related thereto, shall be
amended or terminated prior to the Closing Date, except for any
such amendment as may be required to comply with applicable
Regulations;
(N) collect their accounts receivable in the ordinary course
of business consistent with past practice (as in existence on
December 31, 1995, other than practices changed prior to February
29, 1996 in order to finance the Companies' losses);
(O) pay their accounts payable in the ordinary course of
business consistent with past practice (as in existence on
December 31, 1995, other than practices changed prior to February
29, 1996 in order to finance the Companies' losses) and not fail
to pay or discharge when due any liabilities, except as provided
in this Section;
(P) use their best efforts to help the Shareholder complete
the Acquisition and obtain the satisfaction of the conditions
specified in Section 9;
(Q) promptly notify the Buyer of any Default, the threat or
commencement of any litigation, or any development that occurs
before the Closing that could in any way materially affect the
Companies, the Assets or the Business;
(R) use their best efforts to obtain any consents or approvals
required under any Contracts or License or otherwise that are
necessary to complete the Acquisition or to avoid a Default under
any such Contracts or License;
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(S) comply with all Regulations applicable to them and the
Assets and to the conduct of their business and comply with all
Contracts by which they are bound and all Licenses held by them;
(T) provide the Buyer with such financial and other reports of
the Business as may be reasonably requested;
(U) not make, or agree to make, any capital expenditures in
excess of $25,000 in the aggregate;
(V) not grant any person or entity a license or other right to
use the name "Health Valley Foods" or any derivation thereof;
(W) not (i) pay any Funded Indebtedness (other than scheduled
principal and interest on such Funded Indebtedness in the
ordinary course of business) or Transaction Costs or (E) pay any
amounts to obtain the consents or approvals required by item (R)
above;
(X) not pay (i) any Taxes except in the ordinary course of
business and with respect to Taxes for periods ending on or prior
to December 31, 1995 to the extent reflected as an accrual on the
Latest Year-End Balance Sheet, or (ii) any amounts described in
Section 8.1(B)(6) hereof;
(Y) (i) give to the Buyer's officers, employees, counsel
accountants, potential financing sources and other
representatives free and full access to and the right to inspect
and investigate, during normal business hours, all of the Assets,
records, Contracts and other documents relating to the Business
or either of the Companies, (ii) permit them to consult with the
officers, employees, accountants, counsel agents, customers and
suppliers of either of the Companies for the purpose of making
such investigation of either of the Companies, the Business and
the Assets as the Buyer shall desire to make, provided that such
investigation shall not unreasonably interfere with the
Companies' business operations, and (iii) furnish to the Buyer
all such documents and copies of documents and records and
information with respect to either of the Companies' affairs and
copies of any working papers relating thereto as the Buyer shall
from time to time reasonably request;
(Z) promptly disclose to the Buyer in writing any information
set forth in the DISCLOSURE SCHEDULE hereto which no longer is
correct and any information of the nature of that set forth in
the DISCLOSURE SCHEDULE which arises after the date hereof and
which would have been required to be included in the DISCLOSURE
SCHEDULE if such information had been obtained on the date
hereof;
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(AA) not increase any accrual or reserve for Taxes on the books
and records of either Company or on any financial statement of
either Company other than in the ordinary course consistent with
their past practices;
(BB) maintain their working capital in the ordinary course of
business consistent with their past practices (as in existence on
December 31, 1995, other than practices changed prior to February
29, 1996 in order to finance the Companies' losses);
(CC) maintain their inventory, including, without limitation, the
levels thereof, in the ordinary course of business and in
accordance with their past practices (as in existence as of
February 29, 1996); and
(DD) not dispose of Excess Inventory (other than the disposition
of organic supplies as a result of their use in the production of
the Companies' products).
6.2 Exclusivity. Until the earlier of the Closing Date and April 15,
1996, neither the Shareholder, the Companies nor any of their agents or
representatives shall, directly or indirectly, entertain, solicit,
initiate, encourage or consider any inquiries or proposals from, provide
confidential information to, participate in any discussion or
negotiations with or enter into any agreement or understanding, whether
written or oral with any person or entity (other than the Buyer)
concerning the sale of all or a substantial portion of the assets or
capital stock of the Companies in any manner or by any means.
7. Survival of Representations and Warranties.
7.1 Survival. All of the representations, warranties, covenants and
agreements made by each party in this Agreement the Disclosure Schedule
or in any certificate delivered by any such party pursuant hereto or in
connection with the Acquisition, shall survive the Closing and each
party hereto shall be entitled to rely upon the representations and
warranties of the other party set forth in this Agreement.
7.2 Expiration of Certain Representations and Warranties.
Notwithstanding the foregoing, however, except with respect to those
representations and warranties pertaining directly to Buyer's Special
Damages (including but not limited to, the Tax Representation, the
Capitalization Representation and the Environmental Representations),
the representations and warranties made by the Shareholder in this
Agreement, the DISCLOSURE SCHEDULE or in any certificate delivered by or
on behalf of the Shareholder to or on behalf of the Buyer pursuant
hereto or thereto in connection with the Acquisition shall terminate,
expire and be of no further force or effect upon the complete
distribution of the Escrow Amount by the Escrow Agent to or for the
benefit of the Shareholder, the Buyer or otherwise in accordance with
the terms and conditions of the Escrow Agreement.
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8. Indemnification. Subject to the limitations set forth in Sections 7.2
and 8.3(B) hereof with respect to Buyer's Regular Damages:
8.1 Indemnification Obligations.
(A)(I) The Shareholder shall indemnify and hold harmless the
Buyer from, against and in respect of any and all damages,
losses, deficiencies, liabilities, claims, costs and expenses
(collectively "BUYER'S DAMAGES") resulting from, relating to or
arising out of any (i) breach of, or inaccuracy in, the
representations and warranties of the Shareholder contained in
this Agreement or in any certificate or other document delivered
pursuant hereto or (ii) nonfulfillment or breach of any agreement
or covenant on the part of the Shareholder hereunder.
(A)(11) The Buyer shall indemnify and bold harmless the
Shareholder from, against and in respect of any and all damages,
losses, deficiencies, liabilities, claims, costs and expenses
resulting from, relating to or arising out of any (i) breach of,
or inaccuracy in, the representations and warranties of the Buyer
contained in this Agreement or in any certificate or other
document delivered pursuant hereto, (ii) nonfulfillment or breach
of any agreement or covenant on the part of the Buyer hereunder
or (iii) failure to satisfy and perform in full all of the terms
and conditions of all capitalized leases and Capital lease
equivalents listed on the Funded Indebtedness Exhibit.
(B) The Shareholder shall also indemnify and bold harmless the
Buyer and each person who controls the Buyer within the meaning
of the Securities Act of 1933, as amended, and each officer and
director of the Buyer and any such controlling person, at all
times after the date hereof from, against and in respect of any
and all damages, losses, deficiencies, liabilities, claims, costs
and expenses resulting from, relating to or arising out of:
(1) (i) the breach or inaccuracy of the representations or
warranties of the Shareholder set forth in Section 4.2
hereof (the "CAPITALIZATION REPRESENTATION") or (ii) any
claim, proceeding or action by any former shareholder, or
holder of securities or rights to acquire securities, of
either of the Companies involving the transactions
contemplated hereby or any prior transaction involving any
shares of capital stock or securities, or rights to
acquire securities, of either of the Companies, or any
predecessor corporation;
(2) without limiting the generality of anything
contained in this Section 8.1, any and all damages,
losses, deficiencies, liabilities, costs and expenses of,
or claims against, the Buyer, resulting from, relating to
or arising out of the Business, operations or Assets of
the Companies prior to the Closing Date or the actions or
omissions of the Companies'
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officers, directors, shareholders, employees or agents
prior to the Closing Date, including, without limitation,
any liability relating to, and any claim which arises out
of or is based upon, negligence, strict liability, or any
express or implied representation, warranty, agreement or
guarantee made by or on behalf of the Companies or alleged
to have been made by or on behalf of the Companies or
which is imposed or asserted to be imposed on the
Companies by operation of law, in connection with any
product designed, used, tented, sold, manufactured,
shipped or installed by or on behalf of the Companies or
for any service performed by or on behalf of the
Companies, in any case prior to the Closing Date and
irrespective of the date that any claim, suit or other
cause of action related to any of the foregoing is filed
or otherwise instituted against the Companies; provided,
however, that the foregoing shall not apply to the
Liabilities of the Companies disclosed on the DISCLOSURE
SCHEDULE or referred to in Sections 4.9(A) through (C));
(3) any liabilities or obligations of the Companies
relating to any Transaction Costs;
(4) (i) the breach or inaccuracy of the representations
and warranties of the Shareholder set forth in Section 4.8
hereof (other than as set forth in the first two (2)
sentences thereof) (the "TAX REPRESENTATION") or (ii) any
liabilities or obligations of any of the Companies, or any
affiliated group of which one or more of the Companies is
a member, for any foreign, federal state or local tax,
including, but not limited to, income taxes, personal
property taxes, franchise taxes, gross receipts taxes,
sales taxes, use taxes, occupational taxes, wage and
payroll taxes, real property taxes and ad valorem taxes,
or any interest, additions to tax or penalties thereon
accrued for, applicable to or arising from any period
ending on or prior to the Closing Date;
(5) any liabilities or obligations of the Companies
with respect to Funded Indebtedness;
(6)(i) the breach or inaccuracy of the representations and
warranties of the Shareholder contained in Sections
4.15(I) and 4.29 hereof (the "ENVIRONMENTAL
REPRESENTATIONS"), (ii) the presence, disposal, spillage,
discharge, transportation, emission, leakage, release or
threatened release ("PRESENCE OR RELEASE"), on or prior to
the Closing Date, of any Hazardous Substances which is at
in, on, under, about from or affecting any property owned
or leased by the Companies on the Closing Date or at any
time prior thereto or in which the Companies has or had an
interest, regardless of when the Presence or Release is
discovered, (iii) any personal injury (including wrongful
death) or property damage (real
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or personal) arising out of or related to any such
Presence or Release, (iv) any lawsuit brought or
threatened settlement reached, or order or directive of or
by any governmental authority relating to such Presence or
Release, or (v) any violation or alleged violation of any
Environmental Law by the Companies at any time on or prior
to the Closing Date;
(7) the repair, replacement or reconstruction of the
roofs on the Companies' existing facilities and other work
incidental thereto ("ROOF REPAIRS"), which Roof Repairs,
and the contractor or contractors hired to perform such
Roof Repairs, shall be reasonably acceptable to the
Companies, the Shareholder and the landlords of such
facilities; and
(8) any and all costs, judgments, claims, actions at
law or in equity, interest charges and reasonable
attorneys' fees with respect to any cause of action or
proceeding, by any participant or dependent or beneficiary
of any participant, arising out of or by reason of the
sponsorship by the Companies of any Employee Benefit Plan
or Pension Plan prior to the Closing Date.
(9) the owning, holding, storing, transporting or
disposing of Excess Inventory from and after the thirtieth
day after the Closing, including, but not limited to, (u)
the cost of insuring and warehousing such Excess
Inventory, (v) any losses realized on the Disposition of
Excess Inventory, (w) the cost of any such Excess
Inventory which spoils or deteriorates prior to the use or
disposition of such Excess Inventory, (x) the amounts paid
to terminate or modify any Contracts for such Excess
Inventory, and (y) the interest deemed incurred by the
Companies on the funds used by the Companies to acquire
such Excess Inventory (the Companies shall be deemed to
have incurred interest on such funds at a rate equal to
the prime rate of Sanwa Bank in effect from time to time),
offset by any gains realized on the Disposition of Excess
Inventory. For the purposes hereof, "Excess Inventory"
means the organic supplies acquired or to be acquired
pursuant to the Contracts listed on EXHIBIT F (other than
organic supplies used in production of the Companies'
products in the ordinary course of business prior to the
Closing or within thirty (30) days thereafter), unless the
Buyer notifies the Shareholder in writing that such
organic supplies acquired or to be acquired pursuant to
any such Contract are not included in Excess Inventory.
After the thirtieth day after the Closing, the Shareholder
and the Buyer agree to cooperate with each other in order
to (i) dispose of any or all of such Excess Inventory in
any reasonable manner (each such transaction, a
"DISPOSITION"), and (ii) contact any or all of the vendors
of such Excess Inventory for the purpose of attempting to
reduce the levels thereof in a manner acceptable to the
Shareholder, the Companies and the Buyer.
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(C) Each indemnifying party or parties hereto will
indemnify and hold harmless the indemnified party or
parties hereto from, against and in respect of any and all
actions, suits, proceedings, demands, assessments,
judgments, costs (including attorneys' fees) and legal and
other expenses incident to any of the foregoing or to the
enforcement of this Section 8.
(D) Notwithstanding anything herein to the contrary but
subject to the provisions of Section 8.3(B) hereof with
respect to Buyer's Regular Damages: the Buyer shall not be
entitled to indemnification from the Shareholder, whether
directly, indirectly or through the Escrow Fund, pursuant
to the provisions of Section 8.1.(A)(I)(i) of this
Agreement until the aggregate cumulative amount of Buyer's
Damages for claims pursuant to Section 8.1(A)(I)(i)
exceeds $175,000, in which event the Buyer may assert a
claim against the Shareholder only for those Buyer's
Damages in excess of $175,000.
(E) Except with respect to, and only to the extent of
matters for which the Shareholder is obligated (or would
be obligated but for any limitation on recovery contained
herein) to indemnify the Buyer pursuant to the terms of
this Agreement, the Buyer and the Companies (collectively,
the "BUYER PARTIES") jointly and severally shall indemnify
and hold harmless the Shareholder from and against any and
all damages, losses, liabilities, costs and expenses of
the Shareholder resulting from, relating to or arising out
of, claims by a third party against the Shareholder
relating to (i) the business, operations or assets of any
Buyer Party from and after the Closing Date and (ii) the
actions or omissions of any Buyer Party from and after the
Closing Date.
8.2 Method of Asserting Claims, Etc. All claims for indemnification
under this Section 8 shall be asserted and resolved as follows:
(A) In the event that any claim or demand for which the
Shareholder would be liable to the Buyer hereunder is asserted
against or sought to be collected by a third party, the Buyer
shall promptly notify the Shareholder of such claim or demand,
specifying the nature of such claim or demand and the amount or
the estimated amount thereof to the extent then feasible (which
estimate shall not be conclusive of the final amount of such
claim or demand) (the "CLAIM NOTICE"); provided, however, the
failure to give the Shareholder prompt notice of such claim or
demand shall not relieve the Shareholder of, or limit in any way,
the Shareholder's indemnification obligations under this
Agreement, unless the Shareholder is materially prejudiced by the
Buyer's failure to give prompt notice of such claim or demand.
If the Shareholder desires to participate in, but not control any
such defense or settlement it may do so at its sole cost and
expense. The Buyer shall have the right to control the defense or
settlement of any such
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claim or demand, and its reasonable costs and expenses thereof
shall be included as part of the indemnification obligations of
the Buyer hereunder.
(B) In the event that the Buyer should have a claim against
the Shareholder hereunder which does not involve a claim or
demand being asserted against or sought to be collected from it
by a third party, the Buyer shall promptly send a Claim Notice
with respect to such claim to the Shareholder; provided, however,
the failure to give the Shareholder prompt delivery of a Claim
Notice shall not relieve the Shareholder of, or limit in any way,
the Shareholder's indemnification obligations under this
Agreement, unless the Shareholder is materially prejudiced by the
Buyer's failure promptly to give such Claim Notice. If the
Shareholder does not notify the Buyer within thirty (30) days of
the giving of such Claim Notice that he disputes such claim, the
amount of such claim shall be conclusively deemed a liability of
the Shareholder hereunder.
(C) All claims for indemnification made by the Shareholder
under this Agreement shall be asserted and resolved under the
procedures set forth above in this Section 8.2 by substituting,
as appropriate, "the Buyer" for "Shareholder" and "Shareholder",
as appropriate, for "the Buyer".
(D) Nothing herein shall be deemed to prevent any indemnified
party from making a claim hereunder for potential or contingent
claims or demands provided the Claim Notice sets forth the
specific basis for any such potential or contingent claim or
demand and the estimated amount thereof to the extent then
feasible and the indemnified party has reasonable grounds to
believe that such a claim or demand will be made.
8.3 Payment.
(A) Subject to the provisions of on 8.3.(B) with respect to
Buyer's Regular Damages, in the event that any party is required
to make any payment under this Section 8, such party shall
promptly pay the indemnified party such amount. If there should
be a dispute as to the amount or manner of determination of any
indemnity obligation owed under this Section 8, the party from
which indemnification is due shall nevertheless pay when due such
portion, if any, of the obligation as shall not be subject to
dispute. The difference, if any, between the amount of the
obligation ultimately determined as properly payable under this
Section 8 and the portion, if any, theretofore paid shall bear
interest as provided in Section 8.3(C). Upon the payment in full
of any claim, either by setoff or otherwise, the party or entity
making payment shall be subrogated to the rights of the
indemnified party against any person, firm, corporation or other
entity with respect to the subject matter of such claim.
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(B) Notwithstanding the provisions of Section 11.7:
(1) Any indemnification claim for Buyer's Regular
Damages for which the Buyer is entitled to payment under
this Section 8 shall be paid to the Buyer exclusively from
the Escrow Fund held by the Escrow Agent, to the extent of
funds held under the Escrow Agreement. With respect to
any claim by the Buyer for indemnification for Buyer's
Special Damages, the Buyer may, but shall not be obligated
to, proceed against the Escrow Fund or directly against
the Shareholder.
(2) Anything in this Agreement elsewhere to the
contrary notwithstanding, if the funds held under the
Escrow Agreement are insufficient to pay any
indemnification claim for Buyer's Regular Damages in full,
such claim shall be paid from the Escrow Fund to the
extent that funds are then held by the Escrow Agent under
the Escrow Agreement and, to the extent the funds then
held by the Escrow Agent under the Escrow Agreement are
not sufficient to satisfy such claim in full, such excess
shall not be the obligation of the Shareholder and the
Shareholder shall not be obligated to make full and prompt
payment of such excess to the Buyer.
(3) Except for indemnification claims for Buyer's
Special Damages, which shall not be limited as hereinafter
provided, (a) the sole obligation of the Shareholder with
respect to (i) any claim for Buyer's Regular Damages, (ii)
any other payment to which Buyer may be entitled under
this Section 8, (iii) any other obligation of the
Shareholder to Buyer under any other provisions of this
Agreement and/or (iv) any claims of Buyer against Seller
under or pursuant to the Securities Exchange Act of 1934,
as amended, or any other statutes of similar import unless
such claim constitutes a claim for Buyer's Special
Damages, shall be discharged, if at all, solely and
exclusively from the Escrow Fund and not by the
Shareholder and (b) if the Escrow Fund is exhausted, then,
in such event, Buyer shall have no further claim against
the Shareholder.
(C) Subject to the provisions of Section 8.3.(B) with respect
to Buyer's Regular Damages, if all or part of any indemnification
obligation under this Agreement is not paid when due, then the
indemnifying party or parties shall pay the indemnified party or
parties interest on the unpaid amount of the obligation for each
clay from the date the amount was claimed to be due until payment
in full, payable on demand, at the fluctuating rate per annum
which at all times shall be the lowest rate of interest generally
charged from time to time by Sanwa Bank and publicly announced by
such bank as its so-called "prime rate."
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<PAGE> 37
(D) Notwithstanding anything contained in this Agreement to
the contrary, the Buyer's claims for indemnification for Buyer's
Special Damages shall not be (a) limited to, and the Buyer shall
not be obligated to proceed against, the Escrow Fund or in any
other manner as to the time for bringing such claim or the amount
of such claim or (b) subject to the deductible contained in
Section 8.1(D) hereof, and nothing contained herein shall be
interpreted as, or deemed to be, a waiver of the Buyer's
indemnification rights for Buyer's Special Damages.
8.4 Service of Process, Consent to Jurisdiction, Etc.
(A) The Shareholder irrevocably consents to the service of any
process, pleading, notices or other papers by the mailing of
copies thereof by registered, certified or first class mail,
postage prepaid, to the Shareholder at his address set forth
herein, or by any other method provided or permitted under
California law.
(B) The Shareholder irrevocably and unconditionally (i) agrees
that any suit, action or other legal proceeding arising out of
this Agreement may be brought in the United States District Court
for the Central District of California or, if such court does not
have jurisdiction or will not accept jurisdiction, in any court
of general jurisdiction in the county of Los Angeles, California;
(ii) consents to the jurisdiction of any such court in any such
suit, action or proceeding; and (iii) waives any objection which
the Shareholder may have to the laying of venue of any such suit,
action or proceeding in any such court.
9. Conditions Precedent to Obligations of the Buyer. Subject to waiver as
set forth in Section 11.4, the obligations of the Buyer under this Agreement
are subject to the fulfillment, to the Buyer's reasonable satisfaction (other
than with respect to Section 9.16, the fulfillment of which the Buyer shall be
satisfied in its absolute discretion), prior to or at the Closing of each of
the following conditions:
9.1 Representations True at Closing. The representations and
warranties of the Shareholder set forth in Section 4 shall be true and
correct as of the date hereof and true and correct on and as of the
Closing Date with the same effect as if made on such date.
9.2 Performance by the Shareholder. The Shareholder shall have
performed and satisfied all agreements and conditions which he is
required by this Agreement to perform or satisfy prior to or on the
Closing Date.
9.3 Certificates. The Buyer shall have received certificates from the
Shareholder dated the Closing Date certifying in such detail as the
Buyer may reasonably request that each of the conditions described in
Sections 9.1 and 9.2 has been fulfilled.
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<PAGE> 38
9.4 Form and Content of Documents. The form and content of all
documents, certificates and other instruments to be delivered by the
Shareholder shall be reasonably satisfactory to the Buyer.
9.5 Opinion of Counsel. The Buyer shall have received the written
opinion dated the Closing Date of John A. Calfas, A Professional
Corporation, counsel for the Shareholder, in form and substance
reasonably satisfactory to the Buyer.
9.6 Litigation Affecting Closing. No Court Order shall have been
issued or entered which would be violated by the completion of the
Acquisition or which would impose material conditions or restrictions on
the Companies, the Business or the Assets that did not exist prior to
the Acquisition. No person who or which is not a party to this
Agreement shall have commenced or threatened to commence any Litigation
seeking to restrain or prohibit, or to obtain substantial damages in
connection with, this Agreement or the transactions contemplated by this
Agreement, or impose material conditions or restrictions on the
Companies, the Business or the Assets after the Acquisition as a
consequence of the Acquisition and no Litigation shall be pending
against the Companies.
9.7 Material Adverse Changes. From the date hereof to the Closing
Date, neither the Companies, the Business nor the Assets shall have been
materially adversely affected or changed (except personnel layoffs and
other changes disclosed to Buyer prior to the signing of this Agreement)
in any way, including, without limitation, by fire, casualty, act of God
or otherwise. There shall be no conditions existing or threatened with
respect to the Companies, the Business or the Assets that might be
expected to have a material adverse effect on any of them.
9.8 Regulatory Compliance and Approvals. All approvals required
under any Regulations to carry out the Acquisition shad have been
obtained and that the parties shall have complied with all Regulations
applicable to the Acquisition.
9.9 Consents. The Shareholder or the Companies shall have delivered
to the Buyer a waiver of existing defaults, and all consents required to
be obtained in connection with the Acquisition in order to avoid a
Default as a result of the Acquisition, under any Contract to or by
which the Companies are a party or by which they or their assets may be
bound or under any License which they hold. Each of the foregoing must
be free from material burdensome restrictions and conditions not
applicable to the Companies prior to the date of this Agreement.
9.10 Escrow Agreement. The Buyer, the Shareholder, and the Escrow
Agent shall have entered into the Escrow Agreement.
9.11 Consents and Approvals. The Shareholder and the Companies shall
have obtained all consents and approvals necessary to complete the
Acquisition and related transactions.
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<PAGE> 39
9.12 Ancillary Documents. Each entity other than the Buyer which is a
party to any of the Ancillary Documents shall have executed and
delivered such of the Ancillary Documents as it is a party thereto.
9.13 Spousal Waiver. At the Closing, the Shareholder shall have
delivered to the Buyer a written waiver, in form and substance
reasonably acceptable to the Buyer from the Shareholder's spouse waiving
all of her rights in the Stocks.
9.14 FIRPTA Certificate. At the Closing, the Shareholder shall have
delivered to the Buyer a written certification in accordance with
Section 1445 of the Code certifying that the Shareholder is not a person
subject to withholding under Section 1445 of the Code and containing the
Shareholder's address.
9.15 Shareholder Noncompetition Agreement. As of the Closing, the
Shareholder Noncompetition Agreement shall have been duly executed and
delivered by the Shareholder and shall be in full force and effect.
9.16 Financing. At or prior to the Closing, the Buyer shall have
obtained all debt and equity financing necessary to consummate the
Acquisition, on terms and in amounts satisfactory to the Buyer.
9.17 State Securities Matters. Prior to the Closing Date, the
Companies shall have delivered to the Buyer evidence satisfactory to the
Buyer that the Stocks can be transferred to the Buyer in compliance with
all applicable state securities laws.
9.18 Proceedings and Documents. As of the Closing, all corporate and
other proceedings in connection with the transactions contemplated
hereby and all documents and instruments incident to such transactions,
shall be reasonably satisfactory in form and substance to the Buyer, and
its counsel, and the Buyer shall have received at or prior to the
Closing all such documents as it shall have reasonably requested.
9.19 License Agreement. The Buyer, the Companies and the Shareholder
shall have entered into a license agreement, in form the attached hereto
as EXHIBIT G (the "LICENSE AGREEMENT").
9.20 State Tax Escrow Agreement. The Buyer, the Shareholder and the
Escrow Agent shall have entered into the State Tax Escrow Agreement.
9.21 Roof Repair Escrow Agreement. The Buyer, the Shareholder and the
Escrow Agent shall have entered into the Roof Repair Escrow Agreement.
9.22 Audited 1995 Financial Statements. At, and simultaneously with,
the Closing, the Companies shall have delivered to the Buyer the Audited
Financial Statements, which Audited Financial Statements shall not be,
in any material respect, different than, or
39
<PAGE> 40
reflect material differences from, the Latest Year-End Financial
Statements, except for possible differences arising from the write-down
of certain assets classified as construction-in-progress on the Latest
Year-End Balance Sheet and the possible accrual of additional State
Taxes in an amount not to exceed $500,000.
10. Conditions Precedent to Obligations of the Shareholder. Subject to
waiver as set forth in Section 11.4, the obligations of the Shareholder under
this Agreement are subject to the fulfillment to the Shareholder's reasonable
satisfaction prior to or at the Closing of each of the following conditions:
10.1 Buyer Representations True at Closing. The representations and
warranties of the Buyer set forth in Section 5 shall be true and correct
on and as of the Closing Date with the same effect as if made at that
time.
10.2 Performance by the Buyer. The Buyer shall have performed and
satisfied all agreements and conditions which it is required by this
Agreement to perform or satisfy prior to or on the Closing Date.
10.3 Officer's Certificate. The Shareholder shall have received a
certificate from the Buyer dated the Closing Date certifying in such
detail as the Shareholder may reasonably request that each of the
conditions described in Sections 10.1 and 10.2 has been fulfilled.
10.4 Incumbency Certificate. The Shareholder shall have received a
certificate of the Secretary or an Assistant Secretary of the Buyer
dated the Closing Date certifying to the incumbency of the officers of
the Buyer signing for it and as to the authenticity of their signatures.
10.5 Capitalization of the Buyer as of the Closing Date. The
Shareholder shall have received a certificate executed by the President
of the Buyer dated the Closing Date setting forth the name, address and
number of shares of Common Stock owned and the price per share paid by
each of the shareholders of the Buyer as of the Closing Date and further
demonstrating that the aggregate number of shares of Common Stock of the
Buyer subject to the exercise of the Options granted to the Shareholder
under the Option Agreement equals ten percent (10%) of the then
outstanding issued and outstanding Common Stock of the Buyer, on a fully
diluted basis.
10.6 Form and Content of Documents. The form and content of all
documents, certificates and other instruments to be delivered by the
Buyer shall be reasonably satisfactory to the Shareholder.
10.7 Opinion of Counsel. The Shareholder shall have received the
written opinion dated the Closing Date of Hopkins and Sutter, counsel
for the Buyer, in form and substance reasonably satisfactory to the
Shareholder.
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<PAGE> 41
10.8 Litigation Affecting Closing. No Court Order shall have been
issued or entered which would be violated by the completion of the
Acquisition. No person who or which is not a party to this Agreement
shall have commenced or threatened to commence any Litigation seeking to
restrain or prohibit, or to obtain substantial damages in connection
with, this Agreement or the transactions contemplated by this Agreement.
10.9 Regulatory Compliance and Approval. All approvals required under
any Regulations to carry out the Acquisition shall have been obtained
and that the parties have complied with all Regulations applicable to
the Acquisition.
10.10 Ancillary Documents. The Buyer shall have executed and delivered
each of the Ancillary Documents to which it is a party.
10.11 Release of Guarantees. The Buyer shall deliver to the Shareholder
releases (which may be subject to the Closing) of all personal liability
the Shareholder may have pursuant to the guarantees relating to
indebtedness for borrowed money set forth on the Funded Indebtedness
Exhibit.
10.12 Option Agreement. At the Closing, the Buyer shall have executed
and delivered to the Shareholder the Option Agreement.
11. Miscellaneous.
11.1 Termination by Mutual Consent. This Agreement may be terminated
at any time on or prior to the Closing Date by mutual consent of the
Shareholder and the Buyer.
11.2 Termination for Breach. The Buyer may terminate its obligations
under this Agreement at any time prior to the Closing Date if the
Shareholder or the Companies shall have breached any of their
representations, warranties or other obligations under this Agreement in
any material respect. The Shareholder and the Companies may likewise
terminate their obligations under this Agreement at any time prior to
the Closing Date if the Buyer shall have breached any of its
representations, warranties or other obligations under this Agreement in
any material respect. Such termination may be effected by written
notice from either the Buyer or the Shareholder or the Companies, as
appropriate, citing the reasons for termination and shall not subject
the terminating party to any liability for any valid termination.
11.3 Assignment and Binding Effect. This Agreement may not be
assigned prior to the Closing by any party hereto without the prior
written consent of the other parties. Subject to the foregoing, all of
the terms and provisions of this Agreement shall be binding upon and
inure to the benefit of and be enforceable by the heirs, executors,
legal representatives, successors and assigns of the Shareholder and by
the successors and assigns of the Buyer.
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<PAGE> 42
11.4 Waiver. Any term or provision of this Agreement may be waived at
any time by the party entitled to the benefit thereof by a written
instrument executed by such party.
11.5 Notices. Any notice, request demand, waiver, consent, approval
or other communication which is required or permitted hereunder shall be
in writing and shall be deemed given only if delivered personally to the
address set forth below (to the attention of the person identified
below), sent by telegram or by registered or certified mail, postage
prepaid, or sent by overnight courier service as follows:
If to Buyer, to:
Health Valley Company
c/o Intrepid Food Holdings, Inc.
135 S. LaSalle Street
Suite 3800
Chicago, Illinois 60603
Attention: William Voss
If to the Shareholder, to:
George Mateljan, Jr.
c/o John A. Calfas, Esq.
Suite 1920
11601 Wilshire Boulevard
Los Angeles, California 90025
With a required copy to:
John A. Calfas, Esq.
Suite 1920
11601 Wilshire Boulevard
Los Angeles, California 90025
or to such other address as the addressee may have specified in a notice
duly given to the sender and to counsel as provided herein. Such
notice, request, demand, waiver, consent, approval or other
communication will be deemed to have been given as of the date so
delivered or telegraphed or, if mailed, three business days after the
date so mailed or if sent by overnight courier service one business day
after delivery to such overnight courier.
11.6 California Law to Govern. This Agreement and the rights and
obligations of the parties hereto shall be governed by and interpreted
and enforced in accordance with the substantive laws of California. Any
suit brought hereon, whether in contract, tort, equity or otherwise,
shall be brought in the state or federal courts sitting in Los Angeles,
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<PAGE> 43
California, if such courts have jurisdiction over the subject matter of
such suit, the parties hereto hereby waiving any claim or defense that
such forum is not convenient or proper. Each party hereby agrees that
any such court shall have in personam jurisdiction over it, consents to
service of process in any manner authorized by California law, and
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the
judgment or in any other manner specified by law.
11.7 Remedies Not Exclusive. Nothing in this Agreement shall be
deemed to limit or restrict in any manner other rights or remedies that
any party may have against any other party at law, in equity or
otherwise.
11.8 No Benefit to Others. The representations, warranties, covenants
and agreements contained in this Agreement are for the sole benefit of
the parties hereto and the Companies and their heirs, executors, legal
representatives, successors and assigns, and they shall not be construed
as conferring and are not intended to confer any rights on any other
persons.
11.9 Contents of Agreement. This Agreement, together with any
documents referred to herein, sets forth the entire agreement of the
parties hereto with respect to the transactions contemplated hereby.
This Agreement may not be amended except by an instrument in writing
signed by the parties hereto, and no claimed amendment, modification,
termination or waiver shall be binding unless in writing and signed by
the party against whom or which such claimed amendment, modification,
termination or waiver is sought to be enforced.
11.10 Section Headings and Gender. All section headings and the use of
a particular gender are for convenience only and shall in no way modify
or restrict any of the terms or provisions hereof. Any reference in
this Agreement to a Section, Exhibit or the Disclosure Schedule shall be
deemed to be a reference to a Section, Exhibit or the Disclosure
Schedule of this Agreement unless the context otherwise expressly
requires.
11.11 Disclosure Schedule and Exhibits. All attachments, Exhibits and
the Disclosure Schedule referred to herein are intended to be and hereby
are specifically made a part of this Agreement. An item disclosed in
the DISCLOSURE SCHEDULE in response to one Section of this Agreement
shall not be deemed disclosed in response to any other Section unless
otherwise specifically provided in this Agreement.
11.12 Fees and Expenses. Each party will bear all of its own expenses
in connection with the preparation, execution and negotiation of this
Agreement and the transactions contemplated hereby. Notwithstanding the
foregoing, any such expenses incurred by the Companies, including, but
not limited to, the fees, expenses and other commissions of Wasserstein
Perella & Co., shall be deemed to be expenses of the Shareholder and
shall be paid by the Shareholder.
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<PAGE> 44
11.13 Use of Proceeds. The Shareholder will use the proceeds from the
sale of the Stocks pursuant to this Agreement to satisfy any obligations
that he is obligated, by law or contract to satisfy with such proceeds,
which the parties hereto expressly acknowledge and agree do not include
those Shareholder guarantees not being released pursuant to Section
10.11 hereof.
11.14 Release of Guarantees. Subject to Section 10.11 hereof, the
Buyer shall request that the Shareholder be released from all guarantees
of obligations of either Company described in items (A), (B) and (C) of
Section 4.9 hereof and the Companies and Buyer shall jointly and
severally indemnify the Shareholder from any liability relating thereto;
provided, however, that the Buyer shall not be obligated to satisfy any
obligation, provide collateral or give its own guarantee in connection
with obtaining such releases.
11.15 Severability. Any provision of this Agreement which is invalid
or unenforceable in any jurisdiction shall be ineffective to the extent
of such invalidity or unenforceability without invalidating or rendering
unenforceable the remaining provisions hereof, and any such invalidity
or unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
11.16 Counterparts. This Agreement may be executed in two or more
counterparts, each of which is an original and all of which together
shall be deemed to be one and the same instrument. This Agreement shall
become binding when one or more counterparts taken together shall have
been executed and delivered by all of the parties. It shall not be
necessary in making proof of this Agreement or any counterpart hereof to
produce or account for any of the other counterparts.
11.17 Tax Refunds. As additional consideration for the sale by the
Shareholder to the Buyer of the Stocks pursuant to this Agreement, the
Buyer hereby agrees to cause the Companies to pay to the Shareholder all
Tax Refunds promptly upon receipt thereof, or, if any such Tax Refund
offsets or otherwise reduces in any way a Tax liability of either
Company applicable to or arising out of any period ending after the
Closing Date, promptly upon the utilization thereof.
11.18 Post-Closing Cooperation. From and after the Closing Date, each
of the parties shall execute and deliver any and all additional papers,
documents and other assurances and shall do any and all acts and things
reasonable or necessary in connection with the performances of their
respective obligations hereunder.
11.19 Access to Books and Records; Cooperation. The Buyer shall cause
the Companies to provide the Shareholder and the Shareholder's
representatives with such reasonable cooperation as the Shareholder
shall reasonably request in connection with the Shareholders defense of
any action brought by any party other than the Buyer and concerning
which the Shareholder reasonably believes (a) the Companies have any
books, records or other documents, instruments or papers or other
information, or (b) the
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<PAGE> 45
Companies or any of their officers, directors, employees or agents have
any knowledge, provided the Shareholder executes a confidentiality
agreement reasonably acceptable to the Buyer, which agreement, however,
shall permit the Shareholder to use all disclosed information to the
extent necessary for such defense. In connection with such defense, the
Buyer shall cause the Companies to provide reasonable access to all of
the Companies' books, records, Contracts and other documents,
instruments and papers (delivered by the Shareholder to the Buyer at the
Closing pursuant to Section 3.2 hereof) to the Shareholder and the
Shareholder's representatives following no less than two (2) business
days' prior written notice from the Shareholder to the Buyer.
IN WITNESS WHEREOF, the parties hereto have duly executed this Agreement
as of the date first written above.
THE SHAREHOLDER
/S/ George Mateljan, Jr.
------------------------------
George Mateljan, Jr.
HEALTH VALLEY COMPANY, a
Delaware corporation
By: /S/ William R. Voss
---------------------------
Title: President
------------------------
45
<PAGE> 1
EXHIBIT 2.2
AMENDMENT TO STOCK PURCHASE AGREEMENT
This Amendment to Stock Purchase Agreement (this "Amendment") is made
and entered into as of April 15, 1996, by and between George Mateljan, Jr. (the
"Shareholder") and Health Valley Company, a Delaware corporation (the "Buyer"),
with reference to the following facts:
A. The Shareholder and the Buyer previously entered into that
certain Stock Purchase Agreement, dated as of March 17, 1996 (the "Agreement").
B. The Shareholder and the Buyer now desire to amend the
Agreement as more particularly set forth in this Amendment.
C. Capitalized terms used herein but not otherwise defined herein
shall have the meanings ascribed thereto in the Agreement.
NOW, THEREFORE, in consideration of the respective covenants,
representations and warranties contained in the Agreement and in this
Amendment, and intending to be legally bound hereby and thereby, the parties
hereto hereby agree as follows:
1. New Definitions, Modifications to Existing Definitions.
1.1. Amendment. The following new definition is added to the
Agreement:
""AMENDMENT" means that certain Amendment to Stock Purchase
Agreement, dated as of April 15, 1996, by and between the
Shareholder and the Buyer."
1.2. Ancillary Documents. The term "AncIllary Documents" is hereby
deleted in its entirety and the following is substituted in
lieu thereof:
""ANCILLARY DOCUMENTS" means the Escrow Agreement, the Option
Agreement, the License Agreement, the State Tax Escrow
Agreement, the Shareholder Noncompetition Agreement, the Roof
Repair Escrow Agreement, the Other Repairs Escrow Agreement,
the Lake Lillian Escrow Agreement and the Assumption
Agreement."
1.3. Buyer's Special Damages.
(A) Clause (b) of the term "Buyer's Special Damages" is
hereby deleted in its entirety and the following is
substituted in lieu thereof:
"any claim with respect to any of the matters set
forth in Section 8.1(B)(1), (3), (4), (5), (6), (7),
(10) and (11) of the Agreement and Section 6.2 of the
Amendment."
(B) Clause (d) of the term "Buyer's Special Damages is
hereby deleted in its entirety and the following is
substituted in lieu thereof:
<PAGE> 2
"any breach of Section 3.2 hereof or any
representation or statement by the Shareholder set
forth therein; and"
1.4. Escrow Amount. The term "Escrow Amount" is hereby deleted in
its entirety and the following is substituted in lieu thereof:
""ESCROW AMOUNT" means One Million Seven Hundred Ninety-three
Thousand Two Hundred Thirty Dollars ($1,793,230)."
1.5. Lake Lillian Deficit. The following new definition is added
to the Agreement:
""LAKE LILLIAN DEFICIT" means the difference between (i) the
aggregate amount of all checks issued by either of the
Companies and outstanding on the Closing Date which were drawn
on the account maintained at the Lake Lillian Bank (the "LAKE
LILLIAN ACCOUNT") that are presented for payment by the
holders thereof, and (ii) One Hundred Thirty-eight Thousand
Nine Hundred Forty-nine Dollars and Thirty-four Cents
($138,949.34), as reasonably determined by Buyer, at its sole
cost and expense."
1.6. Lake Lillian Escrow Agreement. The following new definition
is added to the Agreement:
""LAKE LILLIAN ESCROW AGREEMENT" means an escrow agreement
between the Buyer, the Shareholder and the Escrow Agent, in
substantially the form of the Escrow Agreement (except that
its term shall be ninety (90) days) and otherwise reasonably
acceptable to the Buyer and the Shareholder, pursuant to which
an amount equal to the LAKE LILLIAN ESCROW AMOUNT shall be
deposited into escrow in order to secure the Shareholder's
liability to indemnify, or reimburse, the Buyer pursuant to
Section 8.1(B)(10) hereof."
1.7. Lake Lillian Escrow Amount. The following new definition is
added to the Agreement:
""LAKE LILLIAN ESCROW AMOUNT" means Two Hundred Fifty Thousand
Dollars ($250,000)."
1.8. Other Repairs Escrow Agreement. The following new definition
is added to the Agreement:
""OTHER REPAIRS ESCROW AGREEMENT" means an escrow agreement
between the Buyer, the Shareholder and the Escrow Agent, in
substantially the form of the Roof Repair Escrow Agreement and
otherwise reasonably acceptable to the Buyer and the
Shareholder, pursuant to which the OTHER REPAIRS ESCROW AMOUNT
shall be deposited into escrow in order to secure the
Shareholder's liability to indemnify the Buyer pursuant to
Section 8.1(B)(11) hereof."
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<PAGE> 3
1.9. Other Repairs Escrow Amount. The following new definition is
added to the Agreement:
""OTHER REPAIRS ESCROW AMOUNT" means Two Hundred Fifty
Thousand Dollars ($250,000)."
1.10. Purchase Price.
(A) In order to reflect the following adjustments, the
term "Purchase Price" is restated as set forth in
Section 1.10(B) hereof:
(1) Increased by $10,742 to reflect the parties'
agreement with respect to a $10,742
adjustment to the Overdraft Debt Amount.
(2) Increased by $8,909 to reflect the parties'
agreement with respect to an $8,909
adjustment to the amount of principal of
Funded Indebtedness paid by the Companies
prior to the Closing.
(3) Reduced by $7,000 to reflect the parties'
agreement with respect to the Companies'
obligations in the approximate amount of
$7,000 to CT Corporation relating to
qualifying Health Valley Foods, Inc. to do
business in twelve (12) states.
(4) Reduced by $5,000 to reflect the parties'
agreement with respect to the Companies'
obligation to provide certain group health
coverage to Raymond L'Heureux for a period of
one (1) year following the Closing.
(5) Reduced by $25,600 to reflect the parties'
agreement with respect to a discrepancy in
the Companies' "billback" accrual rate for
receivables between 6.5% and 7%.
(6) Reduced by $36,000 to reflect the parties'
agreement with respect to approximately
$36,000 of additional brokerage commissions
accrued by the Companies.
(7) Reduced by $120,000 to reflect the parties'
agreement with respect to a "change in
control" payment to Raymond L'Heureux in the
amount of $120,000.
(8) Reduced by $100,000 to reflect a bonus
payment by the Companies to Charles Snow in
the gross amount of $100,000, as contemplated
by Section 6.1 of the Amendment.
(9) Reduced by $380,000 to reflect a bonus
payment by the Companies to Raymond L'Heureux
in the gross amount of $380,000, as
contemplated by Section 6.1 of the Amendment.
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<PAGE> 4
(10) Reduced by $17,063 to reflect the parties'
agreement with respect to the Companies'
obligations for employment related taxes with
respect to items (7), (8) and (9) above.
(11) Reduced by $120,578 to reflect the parties'
agreement with respect to certain other
adjustments to the Purchase Price.
(12) Increased by $9,370.30 to reflect the
parties' agreement with respect to interest
that will have accrued after April 12, 1996,
and through and including the Closing Date,
on that component of Funded Indebtedness owed
to Sanwa Bank.
(13) Increased by $670.16 to reflect the parties'
agreement with respect to interest that will
have accrued after April 12, 1996 and through
and including the day following the Closing
Date on that component of Funded Indebtedness
owed to Werner & Pfleiderer
Lebensmitteltechnik GmbH ("Werner").
(B) The term "Purchase Price" is hereby deleted in its
entirety and the following is substituted in lieu
thereof:
""PURCHASE PRICE" shall mean the Options and
aggregate amount of Thirty-one Million Two Hundred
Eighteen Thousand Four Hundred Fifty Dollars and
Forty-six Cents ($31,218,450.46)."
1.11. Roof Repair Escrow Agreement. The term "Roof Repair Escrow
Agreement" is hereby deleted in its entirety and the following
is substituted in lieu thereof:
"ROOF REPAIR ESCROW AGREEMENT" means an escrow agreement
between the Buyer, the Shareholder and the Escrow Agent, in
substantially the form of the Escrow Agreement and otherwise
reasonably acceptable to the Buyer and the Shareholder,
pursuant to which an amount equal to the Roof Repair Escrow
Amount shall be deposited into escrow in order to secure the
Shareholder's liability to indemnify the Buyer pursuant to
Section 8.1(B)(7) hereof."
1.12. Roof Repair Escrow Amount. The following new definition is
added to the Agreement:
"ROOF REPAIR ESCROW AMOUNT" means an amount equal to One
Hundred Fifty Eight Thousand Three Hundred Twenty-five Dollars
($158,325)."
1.13. Transaction Costs. The definition of "Transaction Costs" is
hereby amended by deleting clause (iii) therefrom and
renumbering clause (iv) thereof as clause (iii) thereof.
2. Closing Date. Section 3.1 is hereby amended by changing the reference
therein to "April 10, 1996" (which was previously changed to April 12,
1996) to "April 15, 1996".
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<PAGE> 5
3. Modifications to Section 3.2 of the Agreement. Section 3.2 of the
Agreement is hereby deleted in its entirety and the following is
substituted in lieu thereof:
"(A) At the Closing, subject to the provisions of this Agreement,
the Shareholder shall deliver to the Buyer, free and clear of
all Liens, the certificates for the Stocks in negotiable form,
duly endorsed in blank, or with separate notarized stock
transfer powers attached thereto and signed in blank, in
exchange for:
(1) The delivery by the Buyer to the Shareholder of (a)
an Option Agreement, duly executed by the Buyer, and
(b) the wire transfer into an account to be
designated by the Shareholder of an amount equal to
$13,253,743, determined by subtracting from
$31,218,450.46 (the cash component of the Purchase
Price) the following amounts (the Shareholder
represents and warrants to the Buyer that the
amounts, and the statements with respect thereto, are
true and correct as of the Closing Date):
(i) $14,348,418.46, constituting all Funded
Indebtedness as of the Closing Date, less
$664,964 (which $14,348,418.46 consists of
the following two (2) components: (X)
$10,825,734.30 owed to Sanwa Bank, and (Y)
$3,522,684.16 for capitalized leases and
Capital lease equivalents (net of $664,964));
(ii) $1,793,230, constituting the Escrow Amount;
(iii) $350,000, constituting the State Tax Escrow
Amount;
(iv) $158,325, constituting the Roof Repair Escrow
Amount;
(v) $250,000, constituting the Lake Lillian Escrow
Amount;
(vi) $250,000, constituting the Other Repairs
Escrow Amount;
(vii) $80,151, constituting that amount of
Transaction Costs that have been paid after
December 31, 1995 and on or prior to the
Closing Date by the Companies;
(viii) $107,519, constituting all loans made by
either of the Companies to the Shareholder
that are outstanding on the Closing Date
(which reduction constitutes the repayment by
the Shareholder of all such loans);
(ix) $61,811, constituting the Overdraft Debt
Amount; and
(x) $565,253, constituting that amount of Funded
Indebtedness (other than interest on Funded
Indebtedness paid in the ordinary course of
business) that has been paid after December
31, 1995 and on or
5
<PAGE> 6
prior to the Closing Date by the Companies
(which the Shareholder represents and
warrants to the Buyer constitutes the
aggregate amount of all Funded Indebtedness
(other than interest on Funded Indebtedness
paid in the ordinary course of business) that
has been paid after December 31, 1995 and on
or prior to the Closing Date by the
Companies.
(2) The Shareholder hereby agrees that the amounts set
forth in items (A)(1)(i), (vii), (ix) and (x)
hereinabove constitute amounts that the Shareholder
agrees to pay to the Buyer and the Companies, and the
Shareholder hereby directs that the Buyer, and the
Buyer hereby agrees to, (X) deduct such amounts from
the cash component of the Purchase Price in the
manner set forth hereinabove and (Y) upon such
deduction, recognize the Shareholder's payment of
such amounts.
(3) The wire transfer or other delivery by the Buyer to
the Escrow Agent of(V) the Escrow Amount, which
amount shall be held and eventually disbursed by the
Escrow Agent in accordance with this Agreement and
the Escrow Agreement, (W) the State Tax Escrow
Amount, which amount shall be held and eventually
disbursed by the Escrow Agent in accordance with the
State Tax Escrow Agreement, (X) the Roof Repair
Escrow Amount, which amount shall be held and
eventually disbursed by the Escrow Agent in
accordance with the Roof Repair Escrow Agreement, (Y)
the Lake Lillian Escrow Amount, which amount shall be
held and eventually disbursed by the Escrow Agent in
accordance with the Lake Lillian Escrow Agreement,
and (Z) the Other Repairs Escrow Amount, which amount
shall be held and eventually disbursed by the Escrow
Agent in accordance with the Other Repairs Escrow
Agreement.
(B) With respect to Funded Indebtedness, at the Closing:
(1) Out of the cash component of the Purchase
Price, the Buyer shall cause to be paid the
following components of Funded Indebtedness
in the manner set forth below (which amounts
the Shareholder represents and warrants to
the Buyer are the true and correct
outstanding amounts of such components of
Funded Indebtedness as of the Closing Date):
(i) $10,825,734.30 to Sanwa Bank by wire
transfer;
(ii) $1,088,665.81 to Sumitomo Bank by
wire transfer (which amount includes
all principal, interest, prepayment
penalties and sales taxes, as set
forth in the demand letter received
by the parties hereto from Sumitomo
Bank prior to the Closing Date); and
(iii) $629,939.40 to Werner.
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<PAGE> 7
(2) The cash component of the Purchase Price
shall be reduced by $1,804,078.95,
constituting the difference between (i)
the aggregate amount of all Funded
Indebtedness as of the Closing Date, and
(ii) the amounts referred to in clause (1)
above (which $1,804,078.95 the Shareholder
represents and warrants to the Buyer
constitutes the true and correct
difference between (i) the aggregate
amount of all Funded Indebtedness as of
the Closing Date, and (ii) the amounts
referred to in clause (1) above).
(C) With respect to Transaction Costs, at the Closing:
(1) Out of the cash component of the Purchase Price to be
received by the Shareholder in accordance with
Section 3.2(A) hereof, the Shareholder shall cause to
be paid the following amounts by a check drawn on the
Shareholder's personal bank account:
(i) $1,067,243, constituting fees and costs
owing to Wasserstein Perella & Co.;
(ii) $50,298.07, constituting legal fees and
costs owing to Weinstock, Manion, Reisman,
Shore & Neumann, a Law Corporation; and
(iii) $114,357.93, constituting legal fees and
costs owing to John A. Calfas, a
Professional Corporation.
(2) The Shareholder shall obtain from each such service
provider a release of the Companies with respect to
all Transaction Costs owed to it and John A. Calfas,
a Professional Corporation, shall agree to pay, and
indemnify the Buyer with respect to, all amount owed
by the Companies and the Shareholder to Gibson, Dunn
& Crutcher LLP.
(D) At the Closing, the Shareholder shall pay to the Buyer an
amount equal to the aggregate amount, if any, paid by the
Companies for Roof Repairs prior to the Closing.
(E) At the Closing, the Shareholder shall pay to the Buyer an
amount equal to the aggregate amount, if any, paid by the
Companies for Other Repairs prior to the Closing.
(F) At the Closing, the Shareholder will deliver to the Buyer the
written resignations of all the directors and officers of
either of the Companies, and all plan fiduciaries of all
Employee Benefit Plans, effective as of the Closing except for
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<PAGE> 8
such directors, officers and plan fiduciaries as the Buyer
shall designate in writing.
(G) At the Closing, the Shareholder shall deliver to the Buyer,
and the Buyer shall deliver to the Shareholder, the
certificates, opinions and other instruments and documents
referred to in Sections 9 and 10, respectively."
4. Additional Shareholder Indemnification Obligations.
4.1. The following provisions are hereby added to Section 8.1(B) of
the Agreement:
"(10) any liabilities or obligations of the Companies arising
as a consequence of the payment of checks drawn on the Lake
Lillian Account and relating to the Lake Lillian Deficit,
whether or not the Companies are legally obligated to honor
any such checks (the Shareholder agrees to pay to the
Companies the amount of the Lake Lillian Deficit as such
deficit is determined, but the Buyer, on behalf of the
Companies, shall first proceed against the Lake Lillian Escrow
Amount then remaining subject to the Lake Lillian Escrow
Agreement, if any, before preceding directly against the
Shareholder), the Buyer hereby agreeing to provide reasonable
accounting to the Shareholder in connection therewith; and
(11) the reasonable repairs of the Companies' existing
facilities (other than the Roof Repairs) set forth on EXHIBIT
H attached hereto and other reasonable work incidental thereto
("OTHER REPAIRS"), which Other Repairs and the contractor or
contractors hired to perform such Other Repairs shall be
acceptable to the landlords of such facilities."
4.2. Exhibit H to this Amendment is hereby incorporated as Exhibit H
to the Agreement.
5. Additional Conditions Precedent to the Obligations of the Buyer. The
following provisions are hereby added to Article 9 of the Agreement:
"9.23. Lake Lillian Escrow Agreement. The Buyer, the Shareholder and
the Escrow Agent shall have entered into the Lake Lillian Escrow
Agreement.
9.24. Other Repairs Escrow Agreement. The Buyer, the Shareholder
and the Escrow Agent shall have entered into the Other Repairs Escrow
Agreement.
9.25. Assumption Agreement. The Buyer and the Shareholder shall
have entered into the Assumption Agreement.
9.26. Funded Indebtedness Releases. The Shareholder shall have
obtained from each holder of Funded Indebtedness referred to in
Section 3.2(B)(1) of the Agreement, as amended by the Amendment, a
release of the Companies with respect to such Funded Indebtedness."
8
<PAGE> 9
6. Bonus Payments to Certain Company Employees, Related Matters.
6.1. Bonus Payments. Subject to the satisfaction of the provisions
set forth in Section 6.2 of this Amendment, in addition to
amounts otherwise due, the Companies shall pay by cashier's
check issued on the Closing Date and delivered via overnight
mail on the day following the Closing Date (with evidence
thereof delivered via telecopy to the Shareholder at the
Closing) (a) a bonus in the amount of One Hundred Thousand
Dollars ($100,000) to Charles Snow, (b) a bonus in the amount
of Three Hundred Eighty Thousand Dollars ($380,000) to Raymond
L'Heureux, and (c) a "change of control" payment in the amount
of One Hundred Twenty Thousand Dollars ($120,000) to Raymond
L'Heureux, arising pursuant to that certain letter dated
August 14, 1994, from George Mateljan, Jr. of Health Valley
Foods, Inc. to Raymond L'Heureux, as amended by those parties
on the Closing Date. The payments to be made pursuant to this
Section 6.1 shall be subject to all customary withholding.
6.2. Resignation; Release. The Shareholder hereby agrees to (a)
cause Raymond L'Heureux to (i) resign from all of his
positions with either of the Companies, whether as an officer
(including, without limitation, as an assistant secretary of
Health Valley Foods, Inc.), a director, an employee, a Trustee
and/or Administrative Committee member of the Health Valley
Foods, Inc. Retirement/Savings Plan, or otherwise, and (ii)
execute a general release (the "RELEASE") in favor of the
Companies, in form reasonably acceptable to the Buyer, with
respect to any and all claims that he may have against either
of the Companies, provided that he receives (X) all salary and
other benefits due to him (for services rendered), from the
date of the last paycheck received by him or deposited
directly into his account through the Closing and (Y) all of
the other amounts referred to in the Agreement, as amended
hereby, and (b) the Shareholder shall indemnify and hold
harmless the Buyer from and against any loss, claim, damage,
cost or expense suffered by either of the Companies or the
Buyer as a consequence of Raymond L'Heureux's revocation or
termination of the Release at any time prior to the date that
is twenty-one (21) days following the Closing Date, including,
but not limited to, any loss, claim, damage, cost or expense
arising out of any claim, action or proceeding brought by or
on behalf of Raymond L'Heureux.
7. Updated Schedules of Accounts Receivable and Accounts Payable. The
parties hereto hereby acknowledge and agree that, subject to the other
terms and conditions set forth in the Agreement and in this Amendment,
the Shareholder has provided the Buyer with a schedule listing all of
the Companies' accounts receivable and accounts payable as of March
31, 1996.
8. Assignment and Assumption of Automobile. The parties hereto hereby
acknowledge and agree that, subject to the other terms and conditions
set forth in the Agreement and in this Amendment, at the Closing, (a)
the Companies shall assign to the Shareholder all of their right,
title and interest in and to that certain Intrepid automobile leased
by the Companies, or either of them, and used by the Shareholder as of
the Closing, and (b) the
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<PAGE> 10
Shareholder shall execute a written agreement whereby he shall (i)
assume all obligations in connection therewith, and (ii) indemnify and
hold harmless the Companies and the Buyer with respect thereto (the
"Assumption Agreement").
9. Joint Instructions to Escrow Agent.
9.1. Roof Repair Escrow Agreement. Following the completion of the
Roof Repairs in the manner required by Section 8.1(B)(7) of
the Agreement, the Shareholder and the Buyer hereby agree to
issue joint instructions to the Escrow Agent to pay to the
contractor or contractors that performed such Roof Repairs, or
reimburse the Companies for, the cost of such Roof Repairs,
and to release the balance of the Roof Repair Escrow Amount,
if any, to the Shareholder.
9.2. Other Repairs Escrow Agreement. Following the completion of
the Other Repairs in the manner required by Section 8.1(B)(11)
of the Agreement, the Shareholder and the Buyer hereby agree
to issue joint instructions to the Escrow Agent to pay to the
contractor or contractors that performed such Other Repairs,
or reimburse the Companies for, the cost of such Other
Repairs, and to release the balance of the Other Repairs
Escrow Amount, if any, to the Shareholder.
10. Continuation of Other Terms and Conditions. Except as specifically
modified by this Amendment, all of the other terms and conditions of
the Agreement shall remain in full force and effect.
11. Execution in Counterparts. This Amendment may be executed in two or
more counterparts, each of which shall be an original, but all of
which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have duly executed this
Amendment as of the date first written above.
THE SHAREHOLDER
/S/ George Mateljan, Jr.
----------------------------------------
George Mateljan, Jr.
HEALTH VALLEY COMPANY, a
Delaware corporation
By: /S/ William R. Voss
-----------------------------------
Title: President
---------------------------------
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<PAGE> 1
EXHIBIT 2.3
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated October 16,
1996, is by and between the stockholders of THE BREAD SHOP, a California
corporation (the "Company"), as set forth on SCHEDULE 1 hereto (collectively
referred to herein as "Sellers" and each individually as a "Seller"), and TBS
ACQUISITION CORPORATION, a Delaware corporation ("Buyer"). Capitalized terms
used but not otherwise defined herein shall have the meaning set forth in
Article VIII.
R E C I T A L S
A. Sellers collectively own all of the outstanding shares of
capital stock of the Company, consisting of 9,771 shares of Common Stock, par
value $1.00 per share, of the Company (the "Common Stock"), with each Seller
owning the number of shares set forth opposite such Seller's name on SCHEDULE 1
hereto.
B. Sellers desire to sell to Buyer, and Buyer desires to purchase
from Sellers, all of the Common Stock upon the terms and subject to the
satisfaction of the conditions set forth herein.
A G R E E M E N T
In consideration of the recitals and of the mutual covenants of the
parties hereinafter expressed, it is hereby agreed as follows:
ARTICLE I
PURCHASE AND SALE OF STOCK
1.1. TRANSFER OF STOCK. Upon the terms and subject to the
satisfaction of the conditions set forth herein, at the Closing, Sellers shall
sell, transfer and deliver to Buyer, and Buyer shall purchase from Sellers, all
of the Common Stock and good title thereto, free and clear of all Liens
whatsoever. At the Closing, Sellers shall deliver to Buyer the certificates
representing the Common Stock, duly endorsed or accompanied by stock powers
duly executed, with all necessary stock transfer stamps attached thereto and
canceled.
1.2. CONSIDERATION. Subject to adjustment as provided in Section
1.4 hereof, the purchase price to be paid by Buyer for all the Common Stock
shall be an aggregate amount of $8,650,000 (the "Purchase Price"). On the
Closing Date and subject to the terms and conditions set forth in this
Agreement and in consideration of the sale, assignment, transfer and delivery
of the Common Stock referred to in Section 1.1, Buyer will pay to Sellers (by
wire transfer of immediately available funds to the account or accounts
designated by each Seller) an aggregate
<PAGE> 2
amount (the "Net Amount") equal to (A) the Purchase Price minus (B) the sum of
(i) the Escrow Amount (as defined in Section 1.3 hereof) and (ii) the aggregate
amount of Company Transaction Costs paid by the Company at or prior to the
Closing, which Net Amount shall be paid pro rata to each Seller based upon such
Seller's proportionate ownership interest in the Common Stock as set forth on
SCHEDULE 1 hereof.
1.3. ESCROW. On the Closing Date, (a) Buyer, Sellers, and a
mutually acceptable escrow agent (the "Escrow Agent"), shall enter into an
Escrow Agreement dated as of the Closing Date substantially in the form
attached hereto as EXHIBIT A (the "Escrow Agreement") and (b) $850,000 of the
Purchase Price (together with any interest and investment earnings thereon, the
"Escrow Amount") shall be delivered to the Escrow Agent. The Escrow Amount
shall be set aside and held by the Escrow Agent and distributed to Sellers or
Buyer at the times, and upon the terms and conditions, set forth in the Escrow
Agreement.
1.4. ADJUSTMENTS TO PURCHASE PRICE. The Purchase Price shall be
subject to adjustment after the Closing as specified in this Section 1.4.
(a) Closing Balance Sheet. As promptly as practicable,
but in any event within one hundred and eighty (180) calendar days following
the Closing Date, Buyer shall deliver to Sellers' Representative a draft
balance sheet of the Company as of the Closing Date (the "Draft Closing Balance
Sheet"). The Draft Closing Balance Sheet shall be prepared in accordance with
GAAP prior to the application of purchase accounting to reflect the acquisition
of the Company pursuant to this Agreement. Buyer shall give Sellers'
Representative access to any nonproprietary notes, workpapers, drafts or other
materials used by the Company or by Buyer's accountants in connection with the
preparation of the Draft Closing Balance Sheet.
(b) Disputes. Sellers' Representative may dispute any
amounts reflected on the Draft Closing Balance Sheet by notifying Buyer in
writing of each disputed item, specifying the amount thereof in dispute and
setting forth, in reasonable detail, the basis for such dispute, within fifteen
(15) Business Days of Buyer's delivery of the Draft Closing Balance Sheet to
Sellers' Representative (the "Dispute Letter"). Items not included in the
Dispute Letter may not be disputed by Sellers' Representative. Only potential
adjustments that satisfy the materiality standards that would be used in an
audit of the Company performed in accordance with generally accepted auditing
standards may be disputed by Sellers' Representative and an adjustment will be
allowed by the Independent Auditor (as hereinafter defined) only if such
adjustment would have been made by such Independent Auditor in an audit of the
Company performed by the Independent Auditor in accordance with generally
accepted auditing standards. In the event of such a dispute, Sellers'
Representative and Buyer shall attempt to reconcile their differences in good
faith, and any resolution by them as to any such remaining disputed amounts
shall be final, binding and conclusive on the parties hereto. Sellers'
Representative shall give Buyer and its representatives access to any
nonproprietary notes, workpapers, drafts or other materials used by Sellers'
Representative or its representatives in connection with the preparation of the
Dispute Letter. If Sellers' Representative and Buyer are unable to reach a
resolution within fifteen (15) Business Days after receipt by Buyer of the
Dispute Letter, Buyer shall submit the items remaining in dispute for
resolution to KPMG Peat Marwick (other than any office of KPMG Peat Marwick
with which any of Buyer, Sellers, or any of their affiliates has a business
relationship) (the "Independent Auditor"), which shall, within thirty (30)
Business Days after
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<PAGE> 3
such submission, determine and report to Sellers' Representative and Buyer upon
such remaining disputed items, and such report shall be final, binding and
conclusive on Sellers and Buyer. The fees and disbursements of the Independent
Auditor shall be allocated to Sellers and Buyer in the same proportion that the
aggregate amount of the items submitted to the Independent Auditor and
unsuccessfully disputed by Sellers' Representative (as finally determined by
the Independent Auditor) bears to the total amount of such disputed items so
submitted and finally determined.
(c) Purchase Price Adjustment. The Draft Closing Balance
Sheet shall be adjusted to reflect the resolution of all disputes pursuant to
Section 1.4(b) (as so adjusted, the "Closing Balance Sheet"). The Closing
Balance Sheet shall be deemed final for the purpose of this Section 1.4(c) upon
the earlier of (i) the failure of Sellers' Representative to notify Buyer of a
dispute within fifteen (15) Business Days of Buyer's delivery of the Draft
Closing Balance Sheet to Sellers' Representative and (ii) the resolution of all
disputes pursuant to the provisions of Section 1.4(b). In the event that
$877,868.43 exceeds Working Capital, then the Purchase Price shall be adjusted
downward in an amount equal to such excess and Sellers shall pay within five
(5) Business Days following the Closing Balance Sheet being deemed final, such
amount to Buyer by wire transfer of immediately available funds to the account
designated by Buyer. As used herein, "Working Capital" means the aggregate net
book value as of the Closing Date of the Company's current assets as reflected
in the Closing Balance Sheet (including, but not limited to, accounts
receivable, inventory and prepaid assets, but expressly excluding, however,
positive cash balances, marketable securities and deferred tax assets), minus
the net book value as of the Closing Date of the Company's current liabilities
as reflected in the Closing Balance Sheet (including, but not limited to, trade
accounts payable, accrued expenses, accrued payroll and taxes and negative cash
balances or other current borrowings, but expressly excluding, however,
accruals or obligations for payments of bonuses or profit sharing payable to or
on behalf of employees of the Company and notes or other indebtedness payable
to shareholders of the Company).
ARTICLE II
CLOSING
2.1. CLOSING. Unless this Agreement shall have been terminated and
the transactions herein contemplated shall have been abandoned pursuant to
Section 7.1, the closing ("Closing") of the transactions provided for herein
shall take place at the offices of Hopkins & Sutter, Three First National
Plaza, Chicago, Illinois, on October 31, 1996, or at such other date and place
as the parties may mutually agree in writing. The date of the Closing is
referred to herein as the "Closing Date."
2.2. BONUS PAYMENTS BY COMPANY.
(a) (i) Buyer acknowledges that the Company is
obligated to pay bonuses to Damon, Myers and Williams, in an aggregate amount
equal to $758,436. On or before the Closing Date, the Company shall pay such
bonuses, less the aggregate amount of all advances paid in respect thereof,
prior to the Closing Date, in accordance with the amounts set forth next to
such person's name on SCHEDULE 2.2(a).
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<PAGE> 4
(ii) Sellers agree that neither Buyer nor the
Company shall have any other liability or obligation to Sellers for Bonuses.
(b) Other Bonus and Profit Sharing Plans. Buyer
acknowledges that the Company maintains (i) a bonus program for non-officer
employees of the Company and (ii) a profit sharing plan for employees of the
Company. Buyer agrees that it will pay bonuses of $159,700, in the aggregate,
under such bonus program and make a contribution of $241,362, in the aggregate,
under such profit sharing plan for the period from October 28, 1995 through the
Closing Date (the "Interim Period") in accordance with the terms of such
program and plan and the past practices of the Company. Such bonuses will be
made to the employees of the Company listed on SCHEDULE 2.2(B)(I), in the
amount set forth next to such employee's name on SCHEDULE 2.2(B)(I); provided,
however, that no employee (other than Carrie Buchanan) will be paid a bonus
unless such employee remains a full-time employee of the Company through the
Closing. Amounts will not be reallocated to other employees in the event that
any employee listed on SCHEDULE 2.2(B)(I) is not a full-time employee through
the Closing. Such profit sharing contribution shall be allocated in accordance
with the allocation formula set forth in the profit sharing plan of the
Company. At or prior to the Closing, Sellers shall deliver a certificate to
Buyer setting forth the amount of the profit sharing contribution to be
allocated to each employee of the Company. Employees of the Company will not
be entitled to any other bonuses or profit sharing contributions.
ARTICLE III
REPRESENTATIONS AND WARRANTIES
3.1. REPRESENTATIONS AND WARRANTIES OF SELLERS. Each of Sellers
hereby represents and warrants to Buyer as of the date hereof and, except for
changes expressly permitted or contemplated by this Agreement, as of the
Closing Date as follows:
3.1.1. TITLE TO STOCK. Each Seller owns, beneficially and
of record, and has good title to, the number of shares of the Common Stock
shown opposite the name of such Seller on SCHEDULE 1 hereto, free and clear of
any Liens. There are no existing contracts, options, commitments or rights to
acquire such Common Stock from such Seller. Upon the delivery of and payment
for the Common Stock at the Closing as provided for in this Agreement, Buyer
will acquire good and valid title thereto, free and clear of any Liens.
3.1.2. VALID AND BINDING AGREEMENT. Each Seller is
competent and has the authority to execute and deliver this Agreement and the
Escrow Agreement, to perform its obligations hereunder and thereunder and to
consummate the transactions contemplated hereby and thereby. The spouse, if
any, of each Seller has consented to the execution and delivery of this
Agreement and the consummation of the actions contemplated hereby by such
Seller. With respect to each Seller that is a trust, the trustee of such trust
has the authority to execute and deliver this Agreement, and to consummate the
transactions contemplated hereby, on behalf of such Seller. This Agreement
constitutes, and upon execution thereof the Escrow Agreement will constitute,
the valid and legally binding obligation of each Seller, enforceable against
each such Seller in accordance with its terms.
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<PAGE> 5
3.1.3. NO CONFLICTS. The execution and delivery of this
Agreement and the Escrow Agreement by each Seller and the consummation by each
Seller of the transactions contemplated hereby and thereby, (i) does not and
will not violate any provision of law, rule, regulation, order, judgment, or
decree applicable to any Seller or the Company; (ii) does not and will not
require any consent or approval of, or filing with or notice to, any
Governmental Authority under any provision of law, rule or regulation
applicable to any Seller or the Company; (iii) does not and will not violate
any provision of the certificate or articles of incorporation, by-laws, trust
agreement or other organizational documents of any Seller (who is not an
individual) or the Company; (iv) does not and will not require any consent,
approval, or notice under, and will not conflict with, or result in the breach
or permit the termination of, or constitute a default (or an event, which
might, with the passage of time or the giving of notice or both, constitute a
default) under, or result in the acceleration of the performance by any Seller
or the Company under, any indenture, mortgage, deed of trust, lease, license,
franchise, contract, agreement, or other instrument to which any Seller or the
Company is a party or by which any of them, or any of their assets, are bound
or encumbered; (v) does not and will not result in the creation or imposition
of any Lien upon any of the assets of any Seller or the Company; (vi) does not
and will not result in the maturation or acceleration by reason of default or
otherwise of any Indebtedness or any other liability or obligation of Company
(or give others the right to cause such maturation or acceleration); and (vii)
does not and will not result in the termination of or loss of any material
right (or give others the right to cause such a termination or loss) under any
material agreement, contract, or instrument to which the Company is a party or
by which any of its assets or properties may be bound.
3.1.4. Corporate Existence and Qualification. The Company
is a corporation duly organized, validly existing and in good standing under
the laws of the State of California, and has full corporate power to carry on
its business as now conducted and to own or lease and to operate its
properties, as and in the locations where, such business is now conducted and
such properties are now owned, leased or operated. The Company is qualified as
a foreign corporation and is in good standing in each jurisdiction listed on
SCHEDULE 3.1.4, which includes each jurisdiction in which the nature of its
business or the properties owned or leased by it makes such qualification
necessary, except for such jurisdictions where the failure to so qualify could
not reasonably be expected to have a Material Adverse Effect. Sellers have
delivered to Buyer true, complete and correct copies of the certificate or
articles of incorporation, by- laws, and other organizational documents of the
Company. The minute books of the Company, as made available to Buyer and its
representatives, contain accurate and complete records of all meetings of, and
corporate actions taken by (including action taken by written consent) the
stockholders and board of directors (or committees thereof) of the Company. At
the Closing, all of the books and records of the Company, including, but not
limited to its minute books, will be in the possession of the Company.
3.1.5. Capitalization of the Company. The authorized
capital stock of the Company is 25,000 shares. The only issued and outstanding
shares of capital stock of the Company are 9,771 shares of Common Stock, all of
which are duly authorized, validly issued, fully paid and non-assessable.
There are no outstanding preemptive rights, subscriptions, warrants, options,
contracts, commitments, understandings, restrictions or calls or other rights
of any kind with regard to any shares of the Common Stock or any other capital
security of the Company of any kind, and there are no capital appreciation
rights, phantom stock plans,
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securities with profit participation rights or features, or similar obligations
or commitments of the Company except as provided in the Stock Redemption
Agreement, which shall be terminated prior to the Closing.
3.1.6. Subsidiaries of the Company. The Company has no
Subsidiaries. Other than as set forth on SCHEDULE 3.1.6 hereto, the Company
owns no interest of any kind in any other Person and has no agreement or
commitment to purchase or otherwise acquire any such interest.
3.1.7. Financial Statements. Sellers have delivered to
Buyer the Financial Statements. The Financial Statements are derived from the
books and records of the Company, have been prepared in accordance with GAAP
and are true, complete and correct in all material respects, and, except for
changes in accounting policies made to the August 23, 1996 Financial Statements
in order to conform with GAAP, have been prepared on a consistent basis with
previous periods. The August Financial Statements were prepared in accordance
with GAAP. Except for the absence of accruals for chargebacks and buy-backs to
accounts receivable attributable to promotional activities of the Company
("Charge-Backs") with respect to the Financial Statements (other than the
August Financial Statements), the balance sheets included in the Financial
Statements for the Company present fairly the financial position of the Company
as at the indicated dates thereof, and, except for Charge-Backs with respect to
the Financial Statements (other than the August Financial Statements), the
statements of income and statements of cash flows included in the Financial
Statements for the Company present fairly the results of operations and cash
flow of the Company for the respective periods indicated. The books of account
of the Company fairly reflect all transactions relating to the Company and all
items of income, expense, assets, liabilities and accruals of the Company.
3.1.8. Absence of Undisclosed Liabilities. The Company has
no Liabilities or obligations, either direct or indirect, matured or unmatured,
absolute, contingent, or otherwise, except:
(a) those Liabilities or obligations set forth on the
Latest Balance Sheet and not paid or discharged;
(b) the Assumed Obligations;
(c) those Liabilities or obligations incurred, consistent
with past business practice and as permitted hereby, in the ordinary course of
business since the date of the Latest Balance Sheet; and
(d) the Liabilities disclosed on SCHEDULE 3.1.8.
The Company has not paid or incurred any costs or expenses in connection with
the sale of the Company, including, but not limited to, the transactions
contemplated hereby and actions taken in contemplation thereof. For purposes
of this Agreement, the term "Liabilities" includes, without limitation, any
direct or indirect indebtedness, liability, guaranty, endorsement, claim,
dispute, loss, damage, deficiency, cost, expense, obligation, or
responsibility, fixed or unfixed, known or unknown, asserted or unasserted,
liquidated or unliquidated, secured or unsecured, contingent or otherwise.
Since June 21, 1996, the Company has not made payments of principal
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with respect to the notes representing Indebtedness of the Company to any of
Sellers or any person or entity designated by such Sellers (the "Seller Notes")
in excess of the aggregate amount of $560,000 plus interest accrued thereon at
the rate of 8% per annum.
3.1.9. Absence of Material Adverse Change. Since October
28, 1995, except as permitted, required, or specifically contemplated by this
Agreement or as described on SCHEDULE 3.1.9, the business of the Company has
been conducted in the ordinary course consistent with past practice, and there
has not been any event or events that has or have resulted, or could reasonably
be expected to, individually or in the aggregate with all such events, result
in a Material Adverse Effect. Without limiting the generality of the foregoing
sentence and except as permitted, required, or specifically contemplated by
this Agreement or listed on SCHEDULE 3.1.9, since October 28, 1995, there has
not been:
(a) any damage, destruction, or loss to the assets of the
Company outside the ordinary course of business;
(b) any mailing or authorization of any individual
capital expenditure by the Company in excess of $10,000 or the mailing or
authorization of capital expenditures by the Company of more than $100,000 in
the aggregate;
(c) any sale, transfer, or other disposition of assets or
properties, real, personal, tangible or intangible, or mixed, having a value in
excess of $10,000 in the aggregate, by the Company other than inventory sold in
the ordinary course of business;
(d) any material change in or revocation of any tax
election or any agreement or settlement made by the Company with any taxing
authority;
(e) other than pursuant to existing collective bargaining
or other labor agreements or pursuant to regular salary reviews consistent with
past practices, any increase in the compensation payable or to become payable
to any employees or agents of the Company, or any bonus arrangement made with
any thereof; or
(f) any transfer, lease, license, dividend or other
distribution to Sellers or any Associate of Sellers of any assets or rights of
the Company; or
(g) agreement, whether written or oral, by the Company to
do any of the foregoing.
Except as set forth on SCHEDULE 3.1.9, since October 28, 1995, the businesses
of the Company have been operated and Sellers have acted, and have caused the
Company to act, in the manner that would have been required by Section 4.2(f)
had that Section been in effect since such date (rather than the date hereof)
and Sellers have not taken any action, or caused the Company to take any
action, that would have been prohibited by Section 4.2(f) had that Section been
in effect since such date (rather than the date hereof).
3.1.10. Tax Matters. (a) All Tax Returns required to be
filed by or on behalf of the Company have been duly filed on a timely basis and
such Tax Returns are true, accurate,
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and complete. All Taxes due and payable have been paid in full on a timely
basis. The Company has withheld and paid over all Taxes required to have been
withheld and paid over in connection with amounts paid or owing to any
employee, creditor, independent contractor, or other third Person. The
liability for unpaid Taxes of the Company for all periods ended on or prior to
the date of this Agreement does not exceed the liability accruals for Taxes
(excluding reserves for deferred Taxes) reflected for the Company in such
Financial Statements.
(b) Except as disclosed on SCHEDULE 3.1.10, no waiver or
extension of any statute of limitations is in effect with respect to any Taxes
or Tax Returns of the Company, no power of attorney has been executed or filed
by or on behalf of the Company with the IRS or any other taxing authority, no
Tax Return by or on behalf of the Company is under audit by any taxing
authority, there are no disputes with a taxing authority with respect to Taxes
payable by or on behalf of the Company, and no notice of deficiency, proposed
adjustment, or underpayment of Taxes has been received by the Company and the
Company is not subject to any proceedings for the assessment or collection of
Taxes. The Company is not and has not been a member of or included in any
other affiliated, consolidated, combined, or unitary group for purposes of
filing Tax Returns or paying Taxes at any time, the Company has no liability
for Taxes of any Person under Section 1.1502-6 of the U.S. income tax
regulations or as a transferee of such person or under any other provision of
law, and the Company is not a party to or bound by or has any obligation under
any tax sharing or similar agreement or arrangement. SCHEDULE 3.1.10 sets
forth all countries, states, provinces, cities, and other jurisdictions in
which the Company is currently subject to any Tax or in which a jurisdiction
has made a claim that the Company is subject to any Tax. Buyer will not be
required to deduct and withhold any amount pursuant to Section 1445 or other
provision of the Code upon the consummation of the transactions contemplated
hereby (and Sellers will cause the necessary documents to be provided to Buyer
at the Closing to support such non-deduction and non-withholding). None of the
assets of the Company is property which is treated as owned by any other person
under the "safe harbor lease" provisions of section 168(f)(8) of the Internal
Revenue Code of 1954, and no event has occurred that would require
indemnification by the Company of any tax lessor under any such "safe harbor
lease" agreement. The Company has not participated in or cooperated with an
international boycott within the meaning of Section 999 of the Code. The
Company has not filed a consent to have the provisions of Section 341(f) of the
Code apply. There are no foreign income Tax rulings with respect to the
Company that are material to the continuing operations of the Company.
3.1.11. Title to Real and Personal Properties; Liens and
Encumbrances. (a) The Company has good and marketable title to all of its
assets and real and personal properties (tangible, intangible, and mixed)
including those capitalized on or included in the Latest Balance Sheet (except
for properties and assets disposed of since July 26, 1996 in the ordinary
course of business consistent with past practices), free and clear of all Liens
except for (i) Permitted Encumbrances, (ii) Liens which constitute valid leases
or subleases from the Company to third parties, and (iii) Liens listed on
SCHEDULE 3.1.11.
(b) The Company does not own any real property.
(c) SCHEDULE 3.1.11(c) lists all real property leases to
which the Company is a party or by which the Company is bound. The Company has
a valid leasehold estate in each
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<PAGE> 9
such leased property, free and clear of all Liens, except Permitted
Encumbrances. Neither the Company nor, to the Knowledge of Sellers, any other
party to any such real property lease is in default under the terms thereof.
There exists no state of facts which, with the giving of notice or passage of
time or both, would constitute a default thereunder. Each such lease is valid,
binding, and enforceable in accordance with its terms against the Company and,
to the Knowledge of Sellers, each party thereto. Except as specified on
SCHEDULE 3.1.11(C), the Company is in good standing under all such leases, and
the Company has complied with, and is not in default under, and has not
received any written notice of default or any notice of noncompliance with
respect to, applicable state, federal, and local laws and regulations relating
thereto. Neither the Company nor the Leased Real Estate (as hereinafter
defined) is in, and the Company has not received any notice from any government
entity or authority alleging any, violation of any zoning, building, fire,
safety, use restriction, air, water, or other pollution control, environmental
protection, waste disposal, safety, or health codes, ordinances, laws, rules,
or regulations, with respect to the real property leased by the Company
("Leased Real Estate"), or any part thereof, which has not been fully remedied.
The Leased Real Estate is zoned in a manner that will permit the Company to
continue to use such Leased Real Estate for the same purpose and in the same
manner that such Leased Real Estate is currently being used. No proceedings or
claim of any type (including, but not limited to, condemnation or similar
proceedings and denial of access) have been instituted or threatened or, to the
Knowledge of Sellers, are contemplated against the Company or the Leased Real
Estate which would affect the leased Real Estate or the Company's use thereof
in any way. None of the real property leases has been assigned in whole or in
part by the Company and, except as set forth on SCHEDULE 3.1.11(C), no
subleases have been entered into relating to any of the real property leases.
Neither Sellers nor the Company has entered into any brokerage arrangements
with respect to the Leased Real Estate. The Company has not received any
notice from the landlord or any insurance company of any defects or
inadequacies with respect to the Leased Real Estate. There are no presently
pending or contemplated general or special assessments affecting the Leased
Real Estate, or any part thereof. No fact or condition exists which could
result in the termination or material impairment of access to the Leased Real
Estate from adjoining public streets or which could result in the
discontinuance of presently available or otherwise necessary sewer, water,
electric, gas, telephone or other utilities or services, which utilities and
services are adequate to meet the Company's current needs. To the Knowledge of
Sellers, the Leased Real Estate is subject to no private unrecorded easements.
All rent and other amounts owing under the Real Property Leases have been paid.
(d) SCHEDULE 3.1.11(d) lists all of the material fixed
assets owned by the Company and reflected on the Latest Balance Sheet.
(e) The Company does not use any real property, fixtures,
machinery, or equipment in its business which it does not own or lease. All
items of furniture, fixtures, machinery, and equipment used by the Company in
its business are in the possession or under the control of the Company and are,
with the exception of automobiles, trucks, and other highway vehicles in
transit, located at the place of business of the Company.
(f) The Company owns or leases all the assets necessary
to conduct its business as presently conducted by it. All tangible assets
owned or leased by the Company, including, but not limited to, the Lease Real
Estate and all mechanical and other systems and
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<PAGE> 10
equipment located on the Leased Real Estate, are in good operating condition
and repair and are usable in the ordinary course of business consistent with
past practice and conform in all material respects to all applicable laws,
rules, regulations, ordinances and Permits relating to their ownership,
construction, use and operation.
3.1.12. Material Contracts. Except as listed on SCHEDULE
3.1.12, the Company is not a party to or bound by any lease, contract,
agreement, instrument, or commitment of any kind, oral or written, formal or
informal ("agreements"), of the following types ("Material Contracts"):
(a) loan agreement, promissory note, indenture,
guarantee, or other agreement or instrument for or relating to the borrowing of
money or extensions of credit or reimbursement agreement with respect to
letters of credit;
(b) mortgage, pledge agreement, security agreement,
factoring agreement, subordination agreement, indemnification agreement, or
similar agreement;
(c) agreement for the future purchase of materials,
supplies, services, merchandise, or equipment in excess of $5,000 under any one
agreement or series of related agreements;
(d) agreement for the lease of personal property with
rental payments in excess of $5,000 per year under any one lease;
(e) license, royalty, franchise or distributorship
agreement;
(f) agreement limiting or restraining the Company from
engaging or competing in any lines of business with any Person;
(g) agreement or arrangement for the sale of any asset,
other than the sale of inventory in the ordinary course of business, or for the
grant of any preferential right or option to purchase any asset, property, or
right;
(h) agreement which requires the consent, approval or
authorization of, or filings with, any other Person to enter into this
Agreement and consummate the transactions contemplated hereby without causing a
conflict with, resulting in a breach or default (or an event which might, with
the passage of time, the giving of notice or both, constitute a default) under,
giving rise to the termination or a right of termination of, or the
acceleration or a right of acceleration of the Company's obligations under, or
otherwise having an adverse effect on the Company or its rights under, such
agreement;
(i) agreement or commitment for capital expenditures in
excess of $10,000 for any single project;
(j) agreement, arrangement, or understanding with any
Seller or any Associate of any Seller;
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<PAGE> 11
(k) agreement with any governmental agency or any other
Person relating to the assessment or remediation (or payment of costs incurred
for either of the foregoing) of the environmental condition of any property,
including any of the Company's Properties, including any consent orders or
decrees or cost-allocation agreements;
(l) agreement with any present or former employee or
consultant;
(m) collective bargaining agreement or other agreement
with any labor union or other employee representative of a group of employees;
(n) representative or sales agency or advertising
agreement;
(o) agreement for the lease of any asset, whether as
lessor or lessee;
(p) any joint venture, partnership or other agreement
involving a sharing of profits, losses, costs or liabilities by the Company
with any other Person;
(q) agreement involving the payment of consideration in
excess of $10,000; and
(r) agreement otherwise material to the Company or its
business not otherwise described herein.
The Company has delivered to Buyer true, correct and complete copies of all
written Material Contracts and true, correct and complete summaries of all oral
Material Contracts. All Material Contracts are in full force and effect.
Except as set forth on SCHEDULE 3.1.12, the Company and, to the Knowledge of
Sellers, the other parties to such leases, contracts, agreements, instruments,
and other commitments, have complied with the provisions thereof, are not in
default under any of the material terms thereof, and no event has occurred that
with the passage of time or the giving of notice or both would constitute such
a default.
3.1.13. Legal Proceedings. Except as described on SCHEDULE
3.1.13, there is no action, proceeding, or governmental investigation pending,
or, to the Knowledge of Sellers, threatened, against or affecting the Company
(and no reasonable basis for any such action, proceeding or investigation
exists) and there has been no action, proceeding or governmental investigation
pending or threatened against the Company at any time during the last five
years. Except as described on SCHEDULE 3.1.13, (i) the Company is not in
violation of, and has not violated, any term of any judgment, decree,
injunction, or order entered by any court or any Governmental Authority and
outstanding against the Company, and (ii) there are no presently outstanding
judgments, decrees, injunctions, writs, or orders of any court or any
Governmental Authority against or affecting the Company or any of its assets or
business.
3.1.14. Government and Industry Permits and Related
Approvals. SCHEDULE 3.1.14 is a true, correct, and complete list and
description of all Permits, used or required and held by the Company in the
conduct of its business and the use of the Leased Real Estate. SCHEDULE 3.1.14
also is a true, correct, and complete list and description of all approvals,
certifications, and similar matters held by the Company or applicable to its
business or products
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from nongovernmental entities which are reasonably required by the industry in
which the Company operates. Neither the conduct of the Company's business nor
the ownership or use of its assets requires or is dependent on any Permit,
approval or certification written or oral, which the Company does not have in
full force and effect. All such Permits, approvals or certifications are in
full force and effect and the Company has complied and is in compliance with
the terms and conditions thereof. Except as set forth on SCHEDULE 3.1.14, the
execution and delivery of this Agreement, and the consummation of the
transactions contemplated hereby, do not and will not affect any of such
Permits, approvals or certifications. The Company has not received any notice
(nor, to the Knowledge of Sellers, is there any reason to believe) that
revocation is being considered with respect to any of such Permits, approvals
or certifications or that the Company or the Lease Real Estate is in violation
of any such Permit, approval or certification.
3.1.15. Conduct of Business in Compliance with Regulatory
Requirements. The Company has complied, and is in compliance, in all material
respects with each law, rule, regulation, ordinance, and code promulgated by
any Governmental Authority applicable to the operation, conduct or ownership of
the property or business of the Company. No notice, citation, summons, or
order has been issued, no complaint has been filed, no penalty has been
assessed, and no investigation or review is pending, or to the Knowledge of
Sellers, threatened by any governmental or other entity with respect to (i) any
alleged violation by the Company of any law, rule, regulation, judgment, order,
permit, or approval, or (ii) any alleged failure by the Company to have any
license, permit, authorization, or other approval. Without limiting in any way
the generality of the foregoing, the Company has not violated, nor is it in
violation of, the applicable provisions of the Federal Food, Drug and Cosmetics
Act, as amended, the regulations and requirements adopted by the United States
Food and Drug Administration (the "FDA") pursuant to such Act, the regulations
and requirements adopted by the United States Department of Agriculture (the
"USDA"), and the requirements established by state and local authorities
responsible for regulating food products, food product packaging and labeling,
and food-related establishments and facilities (collectively "state food
authorities"), or the terms and conditions imposed in any Permits granted to
the Company by the FDA, USDA or state food authorities. In addition, the
Company is not aware of any facts that would indicate that the FDA, USDA, or
any state food authorities has or will prohibit or materially restrict the
marketing, sale, license or use in the United States of any product currently
produced, marketed, or under development, by the Company ("Product" or
"Products"), or the operation, packaging, labeling or use of any Product, and
the Company is not aware of any product or process which the FDA or the USDA
has prohibited from being marketed or used in the United States which in
function and composition is substantially similar to any Product.
3.1.16. Labor Matters. Except as disclosed on SCHEDULE
3.1.16, (i) there is no unfair labor practice charge, complaint or other
proceeding pending or, to the Knowledge of Sellers, threatened against, the
Company, (ii) there is no labor strike, slow down, or work stoppage actually in
effect or, to the Knowledge of Sellers, threatened against or involving the
Company, (iii) no labor arbitrations are pending against the Company, (iv) the
Company has not in the past five (5) years experienced any material work
stoppage or organizational activity, (v) there has not been any application for
certification of a collective bargaining agent, and (vi) there is no charge,
complaint, lawsuit, or other proceeding pending or, to the Knowledge of
Sellers, threatened against the Company, based upon any employment related law
and there has not been
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<PAGE> 13
any charge, complaint, lawsuit or other proceeding pending or, to the knowledge
of Sellers, threatened against the Company based upon any employment related
law at any time during the last five (5) years. Sellers have delivered to
Buyer a true, correct and complete copy of all employee handbooks used by the
Company at any time during the last five years. No employee of the Company has
relocated his or her residence in connection with his or her employment with
the Company. The Company has no policy with respect to the notice to be given
to an employee prior to the termination of such employee's employment.
3.1.17. Intellectual Property. SCHEDULE 3.1.17 contains a
true, correct, and complete list and description of all patents and patent
applications, trademark registrations and applications therefor, trade secrets
owned by or licensed to the Company (identifying which are owned and which are
licensed), copyright registrations and applications therefor, and all material
unregistered trademarks, tradenames, service marks, and copyrights and computer
software of the Company. The Company owns or possesses adequate and
enforceable licenses or other rights to use all patents, all registered and all
material unregistered trademarks, and all other Intellectual Property,
including all intellectual property listed on SCHEDULE 3.1.17, used in the
business of the Company. Except as set forth on SCHEDULE 3.1.1 7, there are no
existing or, to the Knowledge of Sellers, threatened claims of any third Person
based on the use by the Company, or challenging the ownership, scope, or
validity, of any of the Intellectual Property used in the business of the
Company. Except as set forth on SCHEDULE 3.1.17, the Company's use of the
Intellectual Property does not infringe on the rights of any other Person and,
to the Knowledge of Sellers, there is no use by any Person of the Intellectual
Property used in the business of the Company. No opposition, cancellation,
interference, or refusal to register is pending against the Company in
connection with any patent or patent application or any application for or
registration of any trademark, service mark, or copyright and no order,
holding, decision, or judgment has been rendered by any governmental authority,
and no agreement, consent, or stipulation exists, which would prevent the
Company from using any Intellectual Property as currently used in the
businesses of the Company.
3.1.18. Employee Benefit Plans. (a) SCHEDULE 3.1.18
identifies each "employee benefit plan" (as defined in Section 3(3) of ERISA)
maintained or contributed to by the Company covering employees or former
employees of the Company ("Plans"). Except as set forth on SCHEDULE 3.1.18,
the Company is not obligated under or a party to any qualified or non-qualified
profit-sharing, deferred compensation, bonus, stock option, stock ownership,
stock purchase, phantom stock, pension, multiemployer, severance, employment,
consulting, retirement, welfare, cafeteria or incentive plan, agreement or
practice, or any plan or agreement or practice providing for "fringe benefits"
to its employees, including, but not limited to, vacation, sick leave, salary
continuation, service awards, severance pay, welfare, medical, hospitalization,
disability, life insurance, other insurance plans, or related benefits. The
Company has filed all reports required to be filed by it with the IRS and the
PBGC with respect to the Plans under applicable provisions of ERISA and the
Code, and the Plans which are intended to be qualified under Section 401(a) of
the Code are so qualified. The Company has not participated in or been a
member of, and no Plan is or has been, a "multiemployer plan" within the
meaning of Section 3(37) of ERISA or a "multiple employer plan" within the
meaning of Section 413(c) of the Code. The Company has not ever maintained,
contributed to or been required to contribute to any plan or arrangement for
the benefit of current or former non-U.S. employees. The
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<PAGE> 14
Company is the "plan sponsor" of each of the Plans within the meaning of
Section 3(16)(B) of ERISA.
(b) Sellers have delivered or made available to Buyer
copies of the following documents, as they may have been amended to the date
hereof, embodying or relating to the Plans: (i) each of the Plans listed on
SCHEDULE 3.1.18, including all amendments thereto, and any related trust
agreements, group annuity contracts, insurance policies, or other finding
agreements or arrangements; (ii) the most recent determination letter from the
IRS with respect to each Plan intended to be qualified under Section 401(a) of
the Code; (iii) valuations, if applicable, including any actuarial reports, for
the most recent plan year for which such valuations are available; (iv) the
current summary plan descriptions and summaries of material modifications; (v)
the annual return/report on Form 5500 promulgated under ERISA, including all
schedules and attachments thereto, and summary annual reports for each of the
Plans for each of the last five (5) years; and (vi) all information dated since
the date which is two (2) years before the date hereof regarding any plan
funding waiver requests, private letter rulings, requests for technical advice,
or other outstanding issue involving any Plan with the IRS, the Department of
Labor, or the PBGC.
(c) The Company has not ever maintained, contributed to
or been required to contribute to any "pension plan" (within the meaning of
Section 3(2) of ERISA) subject to Title IV of ERISA. No liability under Title
IV of ERISA has been incurred by the Company since the effective date of ERISA
that has not been satisfied in full, and no condition exists that presents a
risk to the Company of incurring a liability under such Title.
(d) Except as set forth on SCHEDULE 3.1.18, the Company
is not in default of any obligation under any Plan and all such Plans conform
to, and their administration is in compliance with, the applicable provisions
of ERISA and the Code, and any other applicable laws, rules and regulations.
There is not, and has never been, any other trade or business (whether or not
incorporated) which together with the Company would be deemed to be part of a
"controlled group" within the meaning of Section 4001 of ERISA, or of an
"affiliated service group" within the meaning of Section 414(m) of the Code.
(e) The Company has made and/or accrued all payments due
from it to any Plan with respect to periods ending on or prior to the date
hereof.
(f) Except as set forth on SCHEDULE 3.1.18, no Plan which
is an "employee welfare benefit plan" within the meaning of Section 3(i) of
ERISA provides medical or death benefits (whether or not insured) with respect
to current or former employees beyond their date of retirement or other
termination of service (other than coverage mandated by Section 601 of ERISA,
the cost of which is paid to the extent permitted by law by the former employee
or his or her dependents).
(g) The consummation of the transactions contemplated by
this Agreement will not obligate the Company to provide any current or former
officer, director or employee of the Company with severance pay, unemployment
compensation or any similar payment, nor accelerate the time of payment or
vesting (except as contemplated by Section 2.2), or increase any compensation
due to any such employee or former employee, under any Plan.
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<PAGE> 15
(h) None of the Plans contains any restrictions,
limitations or similar provisions (nor has any Seller or the Company made any
oral, written or other communications to any current or former employee with
respect to such Plans) which restrict, limit or otherwise adversely affect,
directly or indirectly, the ability of Buyer or the Company to modify or
terminate any such Plan at any time on and after the Closing.
(i) There are no (A) actions, suits, arbitrations, or
claims (other routine claims for benefits), (B) legal, administrative, or other
proceedings or governmental investigations or audits, or (C) complaints to or
by any governmental entity, which are pending or threatened, against any Plan
or their assets, or against any plan sponsor, plan administrator, or plan
fiduciary with respect to the operation of such Plans. No "prohibited
transaction" (as such term is defined in Section 4975 of the Code or Title I of
ERISA) has taken place with respect to any Plan.
(j) Except as disclosed on SCHEDULE 3.1.18, the Company
has no obligation to pay any bonuses or similar compensation to any person who
is or was an employee of the Company. Except as set forth in the documents
delivered pursuant to Section 3.1.18(b) hereof, neither the Company nor any of
its directors, officers, employees or agents has made any statement, whether
written or oral, which obligates the Company to make contributions to any of
the Plans. Except as disclosed on SCHEDULE 3.1.18, the Company has no
obligation to make any employer contributions (other than elective deferrals)
to any 401(k) or other profit sharing plans at any time.
3.1.19. Insurance. SCHEDULE 3.1.19 is a true, complete, and
correct list of all currently effective policies of insurance of which the
Company is the owner or insured or covering any of its property, indicating for
each policy the carrier, risks insured, amounts of coverage, deductible, and
expiration date. Such insurance policies provide insurance coverage (a)
adequate to comply with all applicable laws, rules and regulations and all
contracts, agreements or other instruments to which the Company is a party or
by which it or its assets are bound and (b) in reasonably sufficient amounts
against all risks usually insured against by companies operating similar
businesses or properties in the localities where the Company operates its
businesses and properties and have been issued by insurers of recognized
responsibilities. All such policies are in full force and effect, all premiums
due thereon have been paid, and the Company has complied in all material
respects with the provisions of such policies. There is no default with
respect to any provision contained in any such policy, and there has not been
any failure to give any notice or present any claim under any such policy in a
timely fashion or in the manner or detail required by the policy. Except as
set forth on SCHEDULE 3.1.19 hereto, no notice of cancellation or nonrenewal
with respect to or disallowance of any claim under any such policy has been
received by the Company. All primary layers of products liability insurance
and all primary layers of general liability insurance policies maintained by or
for the benefit of the Company are "occurrence" policies and not "claims made"
policies.
3.1.20. Brokers and Finders. Except as set forth on SCHEDULE
3.1.20, neither Sellers nor the Company has employed, or is subject to any
valid claim of, any broker, finder, consultant, or other intermediary in
connection with the transactions contemplated by this Agreement who might be
entitled to a fee or commission in connection with such transactions.
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3.1.21. Transactions with Associates. Except as set forth on
SCHEDULE 3.1.21, (a) the Company has not engaged in any transaction with any of
Sellers or any Associate of any of Sellers, and (b) the Company is not a party
to any lease, purchase contract, or other agreement with any director, officer,
or employee of the Company or any of Sellers or any Associates of any of
Sellers.
3.1.22. Products Liability. Except as set forth on SCHEDULE
3.1.22, there has not been any product recall requested or mandated nor, to the
Knowledge of Sellers, is any recall threatened, by any governmental agency or
for which notice to any governmental agency was required concerning any
products manufactured, shipped, or sold by the Company. Except as set forth on
SCHEDULE 3.1.22, there has been no claim in excess of $5,000 made against the
Company during the last five years with respect to personal injuries or damages
caused by or arising out of the use of the Company's products.
3.1.23. Environmental Matters. (a) The Company has
complied, and the Company and each of the Company's Properties are in
compliance, with all federal, state and local laws, ordinances, orders, rules,
regulations, and moratoria relating to operation and occupancy of the Company's
Properties and business, including but not limited to, the Clean Air Act, as
amended, the Federal Water Pollution Control Act, as amended, the Safe Drinking
Water Act, as amended, the Resource Conversation and Recovery Act, as amended
("RCRA"), the Toxic Substances Control Act, as amended, the Emergency Planning
and Community Right-To-Know Act of 1986, the Hazardous Material Transportation
Act, as amended, and the Comprehensive Environmental Response, Compensation and
Liability Act, as amended ("CERCLA"). Except as described on SCHEDULE 3.1.23,
neither the Company, nor any of its agents, employees, representatives, or
other Persons for whose conduct the Company may be liable has at any time
received any notice alleging any non-compliance with or potential liability
pursuant to any of such laws, ordinances, orders, rules, regulations, or
moratoria.
(b) No suit, action, or other proceeding (including
enforcement actions, administrative proceedings, arbitrations, or governmental
investigations) relating to operation of the Company's Properties and business
or to the Permits listed on SCHEDULE 3.1.23 is pending or, to the Knowledge of
Sellers, is threatened or contemplated against the Company or the Company's
Properties.
(c) Except as identified on SCHEDULE 3.1.23, neither
Sellers, the Company, nor any of their respective agents, employees or
representatives, nor to the Knowledge of Sellers, any other Person, has
transported, used, generated, handled, stored, released, emitted, leached,
discharged, dumped or disposed of any Hazardous Substances onto, into or from
the Company's Properties (now or previously owned or operated by the Company),
or any part thereof, or from the Company's Properties (now or previously owned
or operated by the Company) onto or into any property adjacent thereto or any
other property in violation of any applicable Environmental Laws. Except as
set forth on SCHEDULE 3.1.23, no Hazardous Substances are currently, or to the
knowledge of Sellers, have been located at, in, on, under or about the
Company's Properties (now or previously owned or operated by the Company) in a
manner which violates any Environmental Laws or which requires response,
cleanup or corrective action of any kind under any Environmental Laws. No
portion of the Company's Properties lies within an area which constitutes a
"wetland" or protected or buffer area subject
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to the jurisdiction of the United States Army Corps of Engineers, the United
States Environmental Protection Agency, the State of California or any other
Governmental Agency under any applicable Environmental Law. No underground
storage tanks are present on the Company's Properties or are operated by the
Company at any location, and, to the Knowledge of Sellers, no such tanks were
previously abandoned or removed from the Company's Properties now or previously
owned or operated by the Company. There is no Hazardous Substance or other
condition or use of the Company's Properties, whether natural or man-made,
which poses a present or potential threat of damage to the health of persons,
to property, to natural resources, or to the environment.
(d) The Company does not have any liability,
responsibility or obligation, whether fixed, unliquidated, absolute, contingent
or otherwise, under any federal, state or local environmental laws or
regulations, including any liability, responsibility, or obligation for fines
or penalties, or for investigation, expense, removal, or remedial action to
effect compliance with or discharge any duty, obligation, or claim under any
such laws or regulations, and, to the Knowledge of Sellers, there is no reason
to believe that any such claims, actions, suits, proceedings, or investigations
under such laws or regulations exist or may be brought or threatened. There
has not been, and is not occurring, at any of the Company's Properties or
businesses now or previously owned, operated, or conducted by or for the
Company, or any location to which the Company or any of its agents, employees,
representatives, or other Persons for whose conduct the Company may be liable
ever sent any materials, any release or threatened release, as those terms are
defined in CERCLA, of any Hazardous Substance, nor do Sellers have any reason
to believe such a release or threatened release is occurring or has occurred at
any time in the past. None of the Company or any of its agents, employees,
representatives, or other Persons for whose conduct the Company may be liable
have applied or disposed, transported, or arranged for the transportation or
disposal of any Hazardous Substance in any manner which may form the basis for
any present or future claim, demand, or action investigation, expense, removal,
remedial action or expense at any facility, site, location or body of water,
surface or subsurface. None of the Company or any of its agents, employees,
representatives, or other persons for whose conduct the Company may be liable
have sent, arranged for disposal or treatment, arranged with a transporter for
transport for disposal or treatment, transported, or accepted for transport any
Hazardous Substance or solid waste to a facility, site or location, which,
pursuant to CERCLA or any similar state or local law, (i) has been placed or is
proposed to be placed, on the National Priorities List or its state equivalent,
or (ii) which is subject to a claim, administrative order, or other request to
take removal or remedial action by any Person.
(e) SCHEDULE 3.1.23 identifies all environmental audits
or assessments or occupational health studies undertaken, prior to the
execution of this Agreement, by or on behalf of the Company, or any third
Person or governmental agencies with respect to the Company's Properties and
business and employees, the results of groundwater and testing, underground
storage tank tests, soil samples, and written communications with federal,
state, or local governments on environmental and OSHA matters relating to the
Company's Properties, business, activities, or employees and Sellers have
provided Buyer with true, correct and copies of all such audits, assessments,
studies, results, tests samples and communications.
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3.1.24. Certain Payments and Relationships. Neither the
Company nor any officer, employee, or agent thereof, or any consultant thereof,
has (a) offered, paid, or agreed to pay, directly or indirectly, any money or
anything of value (other than lawful contributions or payments), to or for the
benefit (i) of any individual who is or was a candidate for domestic public
office, or an official or employee of any domestic governmental or regulatory
body or authority, or (ii) suppliers or customers of the Company or employees
or agents of such suppliers or customers, (b) violated any of the provisions of
Section 30A of the Exchange Act applied as if the Company were an "issuer"
within the meaning of such Section 30A. To the Knowledge of Sellers, none of
the directors or officers of the Company possesses, directly or indirectly, any
financial interest in, or is a director, officer, or employee of, any Person
which is a supplier, customer, lessor, lessee, or competitor or potential
competitor of any of the Company.
3.1.25. Corporate Names. The Company has not used and is not
currently using any corporate, fictitious or assumed name, other than the names
listed on SCHEDULE 3.1.25. To the Knowledge of Sellers, except as specified on
SCHEDULE 3.1.25, the Company is entitled to use its name and any other name
under which it presently conducts business without any liability or obligation
to any other Person wherever the Company conducts business.
3.1.26. Accounts Receivable. All accounts receivable set
forth on the Latest Balance Sheet or arising since the date of the Latest
Balance Sheet (i) have arisen only in the ordinary course of business
consistent with past practice for goods sold and delivered or services
performed and (ii) to the Knowledge of Sellers, are collectible in full at the
recorded amounts thereof in the ordinary course of business, net of any
allowance for accounts reflected on the Latest Balance Sheet, provided that no
representation or warranty is made in this sentence as to the status of
Charge-Backs.
3.1.27. Inventory. The inventory of the Company included on
the Latest Balance Sheet or acquired since the date of the Latest Balance Sheet
was acquired and has been maintained in accordance with the regular business
practices of the Company, consists of new and unused items of a quality and
quantity usable or salable in the ordinary course of the Company's business,
consistent with past practices, and are valued at the lower of cost or market
value determined on a "first in, first out" basis, net of the reserve for
obsolete and slow moving inventory shown on the August Financial Statements.
None of such inventory is obsolete, damaged, slow moving, or unusable or
unsalable in the ordinary course of the Company's business consistent with past
practices.
3.1.28. Bank Accounts. Attached hereto as SCHEDULE 3.1.28 is
a true, correct and complete list of the names and locations of all banks at
which the Company has an account or safe deposit box and the names of all
Persons authorized to draw thereon or to have access thereto.
3.1.29. Prepaid Expenses. All deposits and prepaid items
included in the Latest Balance Sheet are properly reflected as prepaid expenses
on the Latest Balance Sheet.
3.1.30. Business Relationships. No customer of the Company
has indicated that it shall stop, or materially decrease the rate of, buying
products or services from the Company
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<PAGE> 19
and no supplier of the Company has indicated that it shall stop, or materially
decrease the rate of, supplying materials, products or services to the Company.
There is no existing material dispute between the Company and any customer,
supplier, distributor or other contractor of the Company. Except as disclosed
on SCHEDULE 3.1.30, the Company has not granted or agreed to provide any sales,
trade or product promotion allowances, slotting allowances, rebates or similar
product promotions or incentives ("Promotional Commitments") and the Company
has no liability or obligation with respect to any of the foregoing.
3.1.31. ABSENCE OF UNTRUE STATEMENTS. Neither this Agreement
nor any schedule or exhibit hereto, nor any other document, certificate or
statement furnished or to be furnished to Buyer by or on behalf of Sellers or
the Company in connection with the transactions contemplated hereby, taken as a
whole, contains any untrue statement of a material fact or omits to state a
material fact necessary in order to make the statements contained herein and
therein not misleading. To the Knowledge of Sellers, there is no material fact
relating to the condition (financial or otherwise), properties, assets,
operations, prospects, results of operations, business or rights of the
Company, other than general economic or general business conditions or changes
caused by the acquisition by Buyer contemplated hereby, which is reasonably
expected to materially adversely affect such condition, properties, assets,
operations, prospects, results of operations, business or rights which has not
been disclosed to Buyer.
3.2. REPRESENTATIONS AND WARRANTIES OF BUYER. Buyer makes the
following representations and warranties to each of Sellers as of the date
hereof and, except for changes expressly permitted or contemplated by this
Agreement, as of the Closing Date:
3.2.1. CORPORATE EXISTENCE AND CORPORATE POWER. Buyer is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware, and has the corporate power to carry on its
business as now conducted. True, complete and correct copies of Buyer's
Certificate of Incorporation By-Laws, as amended to date, have been delivered
to Sellers' Representative.
3.2.2. APPROVAL OF AGREEMENT. The execution and delivery of
this Agreement and the Escrow Agreement has been duly authorized and approved
by the requisite vote of the Board of Directors of Buyer. Pursuant to such
authorization and approval, Buyer has full power and authority to enter into
this Agreement and the Escrow Agreement and to perform its obligations
hereunder and thereunder. This Agreement constitutes, and upon execution
thereof the Escrow Agreement will constitute, a valid and binding agreement of
Buyer, enforceable against Buyer in accordance with its terms.
3.2.3. NO BREACH OF STATUTE, DECREE, ORDER OR CONTRACT.
Buyer is not in default under or in violation of any applicable law, decree,
order, rule, or regulation of any governmental body, any provision of its
certificate of incorporation or by-laws, any promissory note, indenture, lease,
contract, agreement to which it is a party or by which it is bound; and the
execution of this Agreement and the Escrow Agreement and the consummation of
the transactions contemplated hereby and thereby will not constitute or result
in any such default, breach or violation.
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<PAGE> 20
3.3. SURVIVAL OF REPRESENTATIONS AND WARRANTIES. The
representations and warranties of the parties contained in this Agreement will
survive the Closing Date and will remain in full force and effect thereafter,
notwithstanding any investigation or access to information by or on behalf of
any party, until December 31, 1997, except that (i) the representations and
warranties made by Sellers in Sections 3.1.1, 3.1.2, 3.1.3, and 3.1.5 shall
survive without limitation as to time, (ii) the representations and warranties
contained in Section 3.1.10 shall survive until the expiration of all
applicable statutes of limitations and (iii) the representations and warranties
contained in Sections 3.1.23 shall survive until the tenth anniversary of the
Closing Date; provided, however, that all such representations and warranties
shall survive without time limitation with respect to any inaccuracy therein or
breach thereof notice of which shall have been duly given within such
applicable period to Sellers in accordance with Section 9.6 hereof.
ARTICLE IV
COVENANTS
4.1. ACCESS TO INFORMATION CONCERNING PROPERTIES AND RECORDS;
CONFIDENTIALITY. (a) During the period commencing on the date hereof and ending
on the Closing Date, Sellers shall, and shall cause the Company to, upon
reasonable request, afford to Buyer, its counsel, accountants, and other
authorized representatives (including the representatives of Buyer's financing
sources) reasonable access during normal business hours to the plants,
properties, books and records, Tax Returns, contracts, commitments, officers,
personnel, and accountants of the Company, in order that Buyer may have the
opportunity to make such reasonable investigations as it shall desire to make
of the affairs and properties of the Company, including, but not limited to,
such environmental audits or tests as Buyer or its financing sources may
desire, and to plan for the commencement of its ownership of the Company after
the Closing.
(b) Buyer agrees that it will hold in confidence all data
and information obtained from the Company in connection with this transaction
(other than information which is a matter of general public knowledge or which
has heretofore been or is hereafter published for public distribution or filed
as public information with any governmental authority other than as a result of
a breach of this covenant) except that Buyer may provide such data and
information to its advisors and to potential financing sources and their
advisors which have agreed to keep such information confidential, and will not,
and will use its best efforts to ensure that such other Persons do not (other
than with respect to financial institutions as required by law), disclose such
data and information to others without the prior written consent of Sellers'
Representative; except that Buyer may provide such data and information in
response to legal process or applicable governmental law or regulations.
4.2. CONDUCT OF THE COMPANY'S BUSINESS PRIOR TO THE CLOSING DATE.
Sellers agree that, except as specifically permitted, required, or contemplated
by this Agreement, or as otherwise consented to or approved in writing by
Buyer, during the period commencing on the date hereof and ending on the
Closing Date:
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(a) the business of the Company will be conducted only in
the ordinary course of business consistent with past practices:
(b) the Company will not amend its certificate or
articles of incorporation, by-laws, or other organizational documents;
(c) the Company will not issue or agree to issue any
additional shares of capital stock of any class or series, or any securities
convertible into or exchangeable for shares of capital stock, or issue any
options, warrants, or other rights to acquire any shares of capital stock;
(d) Sellers will use, and will cause the Company to use,
their reasonable efforts to preserve intact the business and organization of
the Company, to keep available the services of its present officers and key
employees, and to preserve the goodwill of those Persons having business
relationships with the Company;
(e) Sellers shall take all necessary action so that the
Company will (i) pay accounts payable and other obligations when they become
due and payable in the ordinary course of business, (ii) comply in all material
respects with all applicable laws, (iii) collect accounts receivable in the
ordinary course of business consistent with past practice, and (iv) maintain
levels of inventory consistent with past practice;
(f) Sellers shall take all necessary action so that the
Company will not (i) dispose of or encumber any of its properties or assets,
other than the sale of inventory in the ordinary course of business consistent
with past practice, (ii) cancel any debts or waive any claims or rights, except
in the ordinary course of business consistent with past practice; (iii) grant
any increase in the compensation (including employee benefits) of officers or
employees, except for increases (A) for non-Seller employees in the ordinary
course of business and consistent with past practice, or (B) required by any
employment or other agreement, or any pension, profit-sharing or other plan
currently in effect; (iv) make any capital expenditure or commitment, other
than pursuant to existing commitments; (v) except with respect to endorsement
of negotiable instruments in the ordinary course of its business, incur,
assume, or guarantee any Indebtedness; (vi) make, change, or revoke any
material tax election or enter into or amend any material agreement or
settlement with any taxing authority; (vii) pay, discharge, or satisfy any
liability or obligation (whether accrued, absolute, contingent, or otherwise),
other than the payment, discharge, or satisfaction in the ordinary course of
business, of liabilities or obligations (A) shown or reflected on the Latest
Balance Sheet, or (B) incurred in the ordinary course of business since the
date of the Latest Balance Sheet; (viii) make any material change in any method
of accounting or keeping of books of account or accounting practices or
principles; (ix) license, dispose of or fail to keep in effect any rights in,
to or for the use of any Intellectual Property; (x) amend or terminate any
Material Contract or enter into any contract, commitment, lease, or agreement
which would constitute a Material Contract; (xi) make any payment, loan, or
advance of any amount to or in respect of the sale, transfer, or lease of any
properties or assets (whether real, personal or mixed, tangible, or intangible)
to, or enter into any agreement, arrangement, or transaction with, any Seller
or any Associate of any Seller; (xii) make any payment, loan, or advance to or
make an investment in or capital contribution to any Person; (xiii) make any
transfer, lease, license, dividend, or distribution to any Seller or any
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<PAGE> 22
Associate of any Seller of any assets or rights; (xiv) merge or consolidate
with, or agree to merge or consolidate with, or purchase substantially all the
assets of, or otherwise acquire any business or any corporation, partnership,
entity, association, or other business organization or division; (xv)
repurchase or redeem or commit to repurchase or redeem, shares of its capital
stock, any options or other rights to acquire such stock or any securities
convertible into or exchangeable for such stock; (xvi) incur any Liability,
except in the ordinary course of business consistent with past practices;
(xvii) pay any bonus, or make any advance with respect to a bonus, to any
Seller or other employee of the Company; (xviii) grant any person or entity a
license or other right to use the name "Bread Shop" or any derivation thereof
or any other name under which the Company previously conducted or presently
conducts business; (xix) permit the Company to pay any Transaction Expenses or
amounts to obtain the consents or approvals required by this Agreement; (xx)
pay any Taxes except in the ordinary course of business; or (xxi) agree,
whether in writing or otherwise, to do any of the foregoing;
(g) Sellers shall use, and shall cause the Company to
use, their reasonable best efforts to administer each and every Plan in
accordance with the provisions of such Plan and all applicable provisions of
the Code and ERISA, and (ii) Sellers have or will file, or caused or will cause
to be filed, all Forms 5500 promulgated under ERISA required to be filed for
any Plan and correct all other deficiencies in the administration of such
Plans;
(h) within three (3) days after its availability to
Sellers, but not later than twenty (20) days after the close of each month
ending prior to the Closing Date, Sellers shall furnish to Buyer an unaudited
statement of income and expense reflecting the operations of the Company for
such month and an unaudited balance sheet reflecting the assets and liabilities
with respect to the Company as at the close of such month (such financial
statements to be delivered pursuant to this Section 4.2 shall be prepared in
accordance with the Company's current accounting policies and shall be true,
correct, and complete);
(i) Sellers shall take all necessary action so that the
Company shall maintain, repair, manage, and operate (and cause to be
maintained, repaired, managed, and operated) the assets owned or leased by the
Company in good condition, normal wear and tear and casualty excepted;
(j) Sellers shall take all necessary action so that the
Company shall comply in all material respects with all applicable statutes,
laws, ordinances, building codes, and regulations of any kind or nature of any
government or any agency, body, or subdivision thereof pertaining to the use,
occupancy, or operation of the Leased Real Estate and shall keep and maintain
the Leased Real Estate insured against such risks and in such amounts as
existed as of the date of this Agreement, and will maintain in effect their
insurance policies, provided, however, that the Company shall be permitted to
modify such insurance coverage if such coverage is not materially reduced or
restricted;
(k) Sellers shall take all necessary action so that the
Company shall have repaid the Indebtedness represented by the Seller Notes in
full and been released or discharged from all obligations thereunder on the
Closing Date;
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(l) Sellers shall use their reasonable best efforts to
satisfy the conditions specified in Sections 5.1 and 5.2 hereof and to
consummate the transactions contemplated by this Agreement; and
(m) Sellers shall have delivered to Buyer a copy of all
environmental audits or assessments or occupational health studies undertaken,
after the execution of this Agreement but prior to the Closing, by or on behalf
of the Company, or any third Person (other than Buyer) or governmental agencies
with respect to the Company's Properties and business and employees.
4.3. NO SHOPPING. Each Seller agrees that, from the date hereof
until the earlier of (a) the Closing, or (b) the termination of this Agreement
in accordance with its terms, he or she shall not, and shall not permit any of
his or her agents or representatives (including, without limitation, investment
bankers, attorneys, and accountants) directly or indirectly, to initiate,
solicit, encourage (including by way of example, furnishing any information
concerning the business, properties, capital stock, or assets of the Company or
engaging in any discussions relating thereto), or entertain any proposals for
the purpose or with the intention or reasonably foreseeable effect of leading
to, or enter into any commitment or agreement concerning, any sale, merger,
consolidation, or other business combination involving the Company or any sale
or disposition of any part of the business or assets of the Company, (other
than the sale of inventory in the ordinary course of business), or any sale,
exchange, or issuance of any stock of the Company, or any similar transaction,
or enter into any agreement or become subject to any commitment providing for
or relating to any such transaction.
4.4. TERMINATION OF AFFILIATE AGREEMENTS. Effective as of the
Closing, all agreements between the Company and any of Sellers or any of their
Associates (the "Affiliate Agreements") shall be terminated and shall
thereafter be of no further force or effect.
4.5. NOTICE OF DEVELOPMENTS. Each party hereto shall give prompt
notice to the others of any development causing an inaccuracy of any of the
representations or a breach of any of the warranties of that party contained in
Section 3.1 or 3.2 hereof or constituting a breach of such party's obligations
hereunder.
ARTICLE V
CONDITIONS PRECEDENT
5.1. CONDITIONS PRECEDENT TO OBLIGATIONS OF PARTIES. The
respective obligations of Buyer and Sellers hereunder are subject to the
satisfaction, at or prior to the Closing Date, of each of the following
conditions:
(a) No Injunction. At the Closing Date, there shall be
no action, proceeding, injunction, order, or decree of any nature of any court
or governmental agency or body of competent jurisdiction that is pending or in
effect that challenges, restrains, or prohibits the consummation of the
purchase by Buyer of the Common Stock.
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(b) Regulatory Authorizations. All consents, approvals,
authorizations, and orders of Governmental Authorities shall have been obtained
(A) which are necessary to consummate the transactions contemplated by this
Agreement, (B) which if not obtained would be reasonably likely to subject
Buyer and Sellers, the Company, or any officer, director, or agent of any such
Person to civil or criminal liability or could render the purchase by Buyer of
the Common Stock void or voidable.
5.2. CONDITIONS PRECEDENT TO OBLIGATION OF BUYER. The obligation
of Buyer to consummate the transactions contemplated by this Agreement is
subject to the satisfaction at or prior to the Closing Date of each of the
following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Sellers contained herein shall be true and
correct in all material respects.
(b) Performance of Agreement. Each Seller shall have
performed, in all material respects, all obligations and agreements, and
complied, in all material respects, with all covenants and conditions,
contained in this Agreement to be performed or complied with by it or them
prior to or at the Closing Date.
(c) Sellers' Closing Certificate. Buyer shall have
received a certificate (which shall state that it may be relied upon by the
Persons providing financing to Buyer) of Sellers, dated the Closing Date,
executed by Sellers to the effect that the conditions specified in paragraphs
(a), (b), (d), (f), (g), (h), and (j) of this Section 5.2 have been fulfilled.
(d) Purchase of all Common Stock. Simultaneously with
the Closing, Sellers shall have transferred to Buyer all the Common Stock and
good title thereto, free and clear of any Lien.
(e) Opinion of Counsel. Buyer shall have received from
Wilson, Sonsini, Goodrich & Rosati, counsel to Sellers, opinions (which shall
state that they may be relied upon by the Persons providing financing to Buyer)
dated the Closing Date in the form attached hereto as EXHIBIT B.
(f) Release of Liens. None of the assets of the Company
shall be subject to any Liens other than Permitted Encumbrances.
(g) Third Party Consents. Sellers shall have obtained
all requisite consents, approvals and authorizations of, and made all requisite
filings with, all third Persons which are necessary to be obtained or made to
consummate the transactions contemplated by this Agreement without causing a
conflict with, resulting in a breach or default (or an event which might, with
the passage of time, the giving of notice or both, constitute a default) under,
giving rise to the termination or right of termination of or acceleration or
right of acceleration of the Company's obligations under or otherwise having an
adverse effect on the Company or its rights under, any Material contract,
including, but not limited to, the leases for the Leased Real Estate. Each of
the foregoing must be free from restrictions on the Company, its business and
its assets not applicable to the Company, its business and its assets prior to
the date hereof.
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(h) Permits. Sellers shall have taken all action
necessary to insure that the Permits listed in SCHEDULE 3.1.14 shall remain in
full force and effect following the Closing on the same terms and conditions
that were applicable to such Permits prior to the Closing.
(i) Good Standing and Other Certificates and Documents.
Sellers shall have delivered to Buyer (i) copies of the charter of the Company
including all amendments thereto, in each case certified by the Secretary of
State of the State of California within ten (10) days of the Closing Date, (ii)
a certificate from the Secretary of State of the State of California to the
effect that the Company is in good standing or subsisting in such jurisdiction
and listing all documents filed by the Company, (iii) a certificate from the
Secretary of State or other appropriate official in each state in which the
Company is qualified to do business to the effect that the Company is in good
standing in such state, (iv) a copy of the by-laws of the Company, certified by
the Secretary of the Company as being true and correct and in effect on the
Closing Date, (v) releases and other documents evidencing the payment,
satisfaction, or discharge of the Indebtedness other than Assumed Obligations,
and (vi) such other closing documents as may be reasonably requested by Buyer.
(j) No Material Adverse Change. No change in the
business, operations, results of operations, condition (financial or
otherwise), properties (including intangible properties), market value, assets
(including intangible assets), prospects, rights, or liabilities of the Company
shall have occurred since the date hereof which individually or collectively
with other changes relating to the Company shall result in, or be reasonably
expected to result in, a Material Adverse Effect.
(k) Environmental Audits. Buyer and the Company shall
have received such environmental reports regarding the properties and
operations of the Company as it or its financing sources shall have required,
and the results of such reports shall be satisfactory to Buyer and its
financing sources in their sole discretion. Satisfaction of this closing
condition shall not constitute a waiver of any breach of any representation or
warranty contained herein.
(l) Escrow Agreement. Buyer, Sellers, and the Escrow
Agent shall have executed and delivered the Escrow Agreement.
(m) Spousal Waivers. Each Seller shall have delivered to
Buyer a written waiver from such Seller's spouse waiving all of his or her
rights in the Common Stock owned by such Seller (i) that is a natural person,
in the form attached hereto as EXHIBIT C-1, and (ii) that is a trust, in the
form attached hereto as EXHIBIT C-2.
(n) FIRPTA Certificates. Each Seller shall have
delivered to Buyer a written certification in accordance with Section 1445 of
the Code certifying that such Seller is not a person subject to withholding
under Section 1445 of the Code.
(o) Noncompetition Agreements. Each Seller shall have
executed and delivered a Noncompetition Agreement, in the form attached hereto
as EXHIBIT D.
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(p) Financing. Buyer shall have obtained all debt and
equity financing necessary to consummate the purchase of the Common Stock, on
terms and in amounts satisfactory to the Buyer.
(q) Resignations. Sellers shall have delivered to
Purchaser (i) the written resignations of all of the directors of the Company
and all plan fiduciaries of the Plans and (ii) the written resignation as an
officer or employee of each Seller that is an officer or employee of the
Company.
(r) Releases. Each of Sellers shall have executed and
delivered to Buyer and the Company a Release in the form attached hereto as
EXHIBIT E.
(s) Honey Dealer Release. Sellers shall have delivered
to Buyer a release from Jim Robertson (the "Honey Dealer"), in form and
substance acceptable to Buyer, releasing all claims that the Honey Dealer may
have against the Company as of the Closing Date other than the accounts payable
shown on the books of the Company as of the Closing Date.
(t) Representation Letters. Sellers shall have delivered
to Buyer such representation letters from Sellers and the Company's outside
accountants as Deloitte & Touche may reasonably request.
(u) Proceedings. All corporate and other proceedings of
Sellers that are required in connection with the transactions contemplated by
this Agreement, and all documents and instruments incident to such proceedings,
shall be reasonably satisfactory in substance and form to Buyer and its
counsel, and Buyer and its counsel shall have received all documents and
instruments, or copies thereof, certified if requested, as may be reasonably
requested.
(v) Promotional Commitments. Sellers shall have
delivered to Buyer a schedule of all written and verbal Promotional Commitments
entered into or granted by the Company between the date of this Agreement and
the Closing Date, certified by an officer of the Company.
5.3. CONDITIONS PRECEDENT TO THE OBLIGATION OF SELLERS. The
obligation of Sellers to consummate the transactions contemplated by this
Agreement is subject to the satisfaction at or prior to the Closing Date of
each of the following additional conditions:
(a) Accuracy of Representations and Warranties. The
representations and warranties of Buyer contained herein shall be true and
correct in all material respects.
(b) Performance of Agreements. Buyer shall have
performed, in all material respects, all obligations and agreements, and
complied, in all material respects, with all covenants and conditions,
contained in this Agreement to be performed or complied with by it prior to or
at the Closing Date.
(c) Buyer's Closing Certificate. Sellers shall have
received a certificate of Buyer, dated the Closing Date, executed on behalf of
Buyer by its President or any Vice
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President, to the effect that the conditions specified in paragraphs (a) and
(b) above have been fulfilled.
(d) Purchase Price. Buyer shall have paid the Purchase
Price as provided by this Agreement.
(e) Escrow Agreement. Buyer, Sellers and the Escrow
Agent shall have executed and delivered the Escrow Agreement.
(f) Good Standing and Other Certificates and Documents.
Buyer shall have delivered to Sellers Representative (i) copies of the charter
of Buyer, including all amendments thereto, certified by the Secretary of State
of the State of Delaware within ten (10) days of the Closing Date, (ii) a
certificate from the Secretary of State of the State of Delaware to the effect
that Buyer is in good standing in such jurisdiction and (iii) a copy of the
by-laws of Buyer, certified by the Secretary of Buyer as being true and correct
and in effect on the Closing Date.
(g) Opinion of Counsel. Sellers shall have received from
counsel to Buyer an opinion dated the Closing Date in the form attached hereto
as EXHIBIT F.
(h) Proceedings. All corporate and other proceedings of
Buyer that are required in connection with the transactions contemplated by
this Agreement, and all documents and instruments incident to such proceedings,
shall be reasonably satisfactory in substance and form to Sellers and their
counsel, and Sellers and their counsel shall have received all documents and
instruments, or copies thereof, certified if requested, as may be reasonably
requested.
ARTICLE VI
INDEMNIFICATION
6.1. INDEMNIFICATION. (a) Buyer hereby agrees to indemnify,
defend, and hold Sellers, its officers, directors and shareholders harmless
from and against and in respect of any and all Damages that any of them
suffers, sustains, incurs or becomes subject to arising out of or due to any
breach of any representation or warranty, or breach of covenant on the part of
Buyer contained in this Agreement.
(b) Subject to the limitations and other provisions set
forth in Section 6.2, Sellers agree to indemnify, defend and hold Buyer, its
officers, directors and shareholders harmless from all Damages that any of them
suffers, sustains, incurs or becomes subject to arising out of or due to:
(i) any inaccuracy of any representation or the
breach of any warranty, covenant, undertaking, or other agreement of
Sellers contained in this Agreement or in any certificate, agreement
or representation letter delivered or executed by Sellers in
connection herewith;
(ii) any Indebtedness of the Company, other than
Assumed Obligations;
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(iii) Taxes due from the Company, or with respect
to assets owned or used by the Company, applicable to or arising from
any period on or prior to the Closing Date, including, but not limited
to, any fiscal year of the Company that commenced prior to the Closing
Date and ends on or after the Closing Date (the "Straddle Year"), but,
with respect to the Straddle Year, only to the extent that the amount
of such Taxes for the Straddle Year exceeds the amount of Taxes
accrued or reserved for on the Latest Balance Sheet plus the amount of
taxes accrued or reserved for by the Company after the date of the
Latest Balance Sheet and through the Closing Date, consistent with the
past practices of the Company; and
(iv) (A) the presence, disposal, spillage,
discharge, transportation, emission, leakage, release or threatened
release ("Presence or Release"), on or prior to the Closing Date, of
any Hazardous Substances which is at, in, on, under, about, from or
affecting any property owned or leased by the Company on the Closing
Date or at any time prior thereto or in which the Company has or had
an interest, regardless of when the Presence or Release is discovered,
(B) the offsite treatment, storage or disposal of any such Hazardous
Substance, (C) any personal injury (including wrongful death) or
property damage (real or personal) arising out of or related to any
such Presence or Release, (D) any lawsuit brought or threatened,
settlement reached, or order or directive of or by any Governmental
Authority relating to such Presence or Release, or (E) any violation
or alleged violation of any Environmental Law by the Company at any
time on or prior to the Closing Date.
6.2. LIMITATIONS ON LIABILITY.
(a) Sellers shall be obligated to indemnify Buyer for all
Damages resulting from inaccuracies of the representations or breaches of the
warranties set forth in Section 3.1 (other than Sections 3.1.1, 3.1.2, 3.1.3,
3.1.5, and 3.1.20) to the extent that the aggregate amount of Damages therefor
exceeds $50,000, provided, that in the event that the aggregate amount of such
Damages resulting from such breaches shall exceed such amount, Sellers shall be
obligated to indemnify Buyer to the full extent of such Damages.
(b) Sellers shall be obligated to indemnify Buyer for
Damages resulting from inaccuracies of the representations and breaches of the
warranties set forth in Sections 3.1.1, 3.1.2, 3.1.3, 3.1.5, and 3.1.20 without
regard to any threshold amount. Except as limited by paragraphs (c) and (e)
below, with respect to indemnification claims under this Agreement, Buyer may,
at its election, proceed against the funds held by the Escrow Agent under the
Escrow Agreement or directly against Sellers.
(c) Notwithstanding anything to the contrary contained
herein, (i) any indemnification claims of Buyer for Damages arising out of a
breach of the representations and warranties contained in Section 3.1 or in any
certificate, agreement or representation letter delivered or executed by
Sellers in connection herewith (other than Sections 3.1.1, 3.1.2, 3.1.3, 3.1.5,
3.1.10, 3.1.20 and 3.1.23 of this Agreement or any similar provisions contained
in any such certificate, agreement or representation letter), (ii) any
indemnification claims of Buyer for Damages arising under Section 6.1(b) (iii)
or as a result of a breach of the representation in Section 3.1.10, in each
case resulting from the disallowance or proposed disallowance of any
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deductions taken by the Company, for federal income tax purposes, on the
grounds that such deductions were not ordinary and necessary business expenses
or that the amounts of such deductions were not reasonable and (iii) any
indemnification claims of Buyer arising out of a breach of the covenants of
Sellers contained in Article IV (other than Section 4.4), shall be satisfied
exclusively from the funds held by the Escrow Agent under the Escrow Agreement,
other than, in each of (i), (ii) and (iii) above, Damages for such
indemnification claims arising from a willful breach of this Agreement or
actual fraud by any Seller.
(d) Buyer's indemnification claims for expenses incurred
in defending any assessments for additional federal income Taxes against the
Company resulting from the disallowance or proposed disallowance of any
deduction taken by the Company, for federal income tax purposes, on the grounds
that such deductions were not ordinary and necessary business expenses or that
the amounts of such deductions were not reasonable (but not indemnification
claims for such assessment, or interest or penalties with respect thereto)
shall be limited to fifty percent (50%) of such expenses, up to a maximum
amount of indemnification claims with respect to such expenses of $100,000.
(e) Notice of indemnification claims of Buyer with
respect to the matters specifically identified below may not be given by Buyer
to Sellers' Representative after the following dates or times:
(i) December 31, 1997 with respect to claims for
breaches of the representations and warranties set forth in Section
3.1 (other than Sections 3.1.1, 3.1.2, 3.1.3, 3.1.5, 3. 1. 1 0 and
3.1.23) or breaches of the covenants contained in Article IV (other
than Section 4.4);
(ii) December 31, 1997 with respect to claims
under Section 6.1(b)(ii);
(iii) the expiration of all applicable statutes of
limitations with respect to (A) claims for breaches of the
representations and warranties set forth in Section 3.1.10 or (B)
claims under Section 6.1(b)(iii); and
(iv) the tenth anniversary of the Closing Date
with respect to (A) claims for breaches of the representations and
warranties set forth in Section 3.1.23 or (B) claims under Section
6.1(b)(iv);
provided, however, that notwithstanding the foregoing, Buyer may pursue an
indemnification claim referred to above if notice of such claim or potential
claim was given to Sellers' Representative prior to such applicable date or
time. Other claims for indemnification may be given by Buyer at any time.
(f) The liability of each Seller hereunder, except for
Myers, Damon and Williams, shall be limited to an amount equal to the Purchase
Price received by such Seller, except that the liability of Goodell hereunder
shall be limited to an amount equal to the Purchase Price received by the
Goodell Trust, and the aggregate liability of the Sellers hereunder shall be
limited to an amount equal to the Purchase Price.
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(g) Except for indemnification claims arising from a
willful breach of this Agreement or actual fraud by any Seller, each Seller's
liability with respect to any indemnification claim under Section 6.1 shall be
limited to his or her pro rata share of any Damages with respect to such
indemnification claim. Each Seller's pro rata share of such Damages shall be
equal to the aggregate amount of such Damages multiplied by a fraction, the
numerator of which the number of shares of Common Stock owned by such Seller
immediately prior to the Closing and the denominator, of which is the aggregate
number of shares of Common Stock owned by all Sellers immediately prior to the
Closing. For purposes of calculating the pro rata share of Myers, Damon,
Williams and Goodell pursuant to the foregoing, shares of Common Stock owned by
the Myers Trust, the Damon Trust, the Williams Trust and the Goodell Trust
shall be deemed to be owned by Myers, Damon, Williams and Goodell,
respectively. Each Seller shall be jointly and severally liable for
indemnification claims arising from any willful breach of this Agreement or
actual fraud by any Seller.
6.3 PROCEDURES FOR DEFENDING CLAIMS. (a) Upon receipt by a party
(the "Indemnified Party") of notice of any action, suit, proceeding, claim,
demand, or assessment from a third Person (an "Action") which may give rise to
a claim for indemnification from the other party (the "Indemnifying Party"),
the Indemnified Party shall give prompt, written notice thereof to the
Indemnifying Party indicating the nature of such claims and the basis therefor,
provided that the failure to give such notice shall not be a condition to the
indemnification obligations hereunder except to the extent that such failure
has substantially prejudiced the Indemnifying Party. The Indemnifying Party
shall be entitled, at its own expense, to participate in the defense of any
such action or claim. If the Indemnifying Party acknowledges in writing its
obligation to indemnify fully the Indemnified Party (without regard to any
limitations on liability provided for herein) and such Action involves claims
solely for monetary damages, the Indemnifying Party shall be entitled to assume
and control such defense at its expense with such counsel as such party may
reasonably choose. The Indemnified Party shall be entitled to participate
therein at its own expense after such assumption. Upon assuming such defense,
the Indemnifying Party shall agree to be fully responsible for (without regard
to any limitations on liability provided for herein), and to pay, the entire
amount of any monetary judgment or settlement, and shall have full rights to
enter into any compromise or settlement which is dispositive of the matters
involved. The Indemnifying Party shall not, without the prior written consent
of the Indemnified Party, enter into any compromise or settlement which commits
the Indemnified Party or the Company to take, or to forbear to take, any action
other than payment of money or compromise the ability of the Indemnified Party
or the Company to take any action in the future.
(b) With respect to claims or actions to which (i) the
Indemnifying Party does not have the right to assume the defense, or (ii) it
shall not have exercised such right within twenty-eight (28) days after notice,
the Indemnified Party shall assume and control the defense of and contest such
action with such counsel as the Indemnified Party may reasonably choose. In
such event, the Indemnified Party shall have the rights to indemnification set
forth herein. The Indemnified Party shall have full rights to dispose of such
Action and enter into any compromise or settlement, provided that such
compromise or settlement shall not be entered into in bad faith.
(c) Both the Indemnified Party and the Indemnifying Party
shall cooperate with one another in good faith in connection with the defense,
compromise, or settlement of any
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Action or other claim. Neither the Indemnified Party nor the Indemnifying
Party shall dispose, compromise, or settle any Action or other claim in bad
faith.
(d) The Indemnifying Party shall not, except with the
consent of the Indemnified Party, (i) enter into any settlement that does not
include as an unconditional term thereof the giving by the Person or Persons
asserting such claim to all Indemnified Parties and the Company which are the
subject of such claim an unconditional release from all liability with respect
to such claim, or (ii) consent to entry of any judgment.
(e) Buyer will afford, and cause the Company to afford,
to Sellers, their counsel, and their accountants, during normal business hours,
reasonable access to the books, records, and other data of the Company with
respect to periods prior to the Closing, to the extent that such access may be
reasonably required by Sellers to facilitate the investigation, litigation, and
final disposition of any claims for indemnity or otherwise which may have been
or may be made against Sellers in connection with the transactions contemplated
hereby or with the Company, and each Seller will afford, and cause its
Affiliates to afford, to Buyer, its counsel, and its accountants, during normal
business hours, reasonable access to the books, records, and other data of such
Seller and Affiliates of Sellers with respect to periods prior to the Closing,
to the extent that such access may be reasonably required by Buyer to
facilitate the investigation, litigation, and final disposition of any claims
for indemnity or otherwise which may have been or may be made against Buyer or
the Company.
ARTICLE VII
TERMINATION
7.1 TERMINATION. This Agreement may be terminated at any time
prior to the Closing Date:
(a) By the written agreement of Sellers and Buyer;
(b) by Sellers' Representative in the event the Closing
has not occurred on or prior to October 31, 1996, unless the failure of such
consummation shall be due to Sellers' material breach of a representation or
warranty contained herein or the failure of Sellers to comply in all material
respects with the agreements and covenants contained herein to be performed by
Sellers on or before October 31, 1996;
(c) by Buyer in the event the Closing has not occurred on
or prior to October 31, 1996, unless the failure of such consummation shall be
due to Buyer's material breach of a representation or warranty contained herein
or the failure of Buyer to comply in all material respects with the agreements
and covenants contained herein to be performed by such party on or before
October 31, 1996; or
(d) By either Buyer or Sellers' Representative if (i) the
representations and warranties of Sellers or Buyer, respectively, shall not
have been true and correct in all respects (in the case of any representation
or warranty containing any materiality qualification) or in all
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material respects (in the case of any representation or warranty without any
materiality qualification) as of the date when made, (ii) Sellers or Buyer,
respectively, shall have failed to perform and comply with, in all material
respects, all agreements and covenants required by this Agreement to have been
performed or complied with by such parties prior to the time of such
termination and such failure to perform or comply shall be incurable or shall
not have been cured within a reasonable period of time but not less than ten
(10) days in duration following notice of such failure, provided that the
terminating party shall have performed and complied with, in all material
respects, all agreements and covenants required by this Agreement to have been
performed or complied with by such terminating party prior to such time, or
(iii) any event shall have occurred or any fact or condition shall exist that
shall have made it impossible to satisfy a condition precedent to the
terminating party's obligations to consummate the transactions contemplated by
this Agreement, unless the occurrence of such event or existence of such fact
or condition shall be due to the failure of the party seeking to terminate this
Agreement or any of its Affiliates to perform or comply with any of the
covenants, agreements, or conditions hereof to be performed or complied with by
such party or any of its Affiliates prior to the Closing.
7.2 EFFECT OF TERMINATION. In the event of the termination of
this Agreement pursuant to the provisions of Section 7.1, this Agreement shall
become void and have no effect, without any liability on the part of any party
hereto, or any of its directors, officers, employees, agents, consultants,
representatives, advisers, stockholders, or Affiliates, except as specified in
Section 9.2. Notwithstanding this Article VII and Section 9.14, any
confidentiality and nondisclosure agreements entered into by the parties to
this Agreement prior to the Closing shall survive the termination of this
Agreement.
ARTICLE VIII
DEFINITIONS
The terms defined in this Article VIII, whenever used in this
Agreement (including the Schedules) shall have the respective meanings
indicated below for all purposes of this Agreement.
"Affiliate" of a Person means a Person that directly or
indirectly through one or more intermediaries, controls, is controlled
by, or is under common control with, the first Person, including but
not limited to, a Subsidiary of the first Person, a Person of which
the first Person is a Subsidiary, or another Subsidiary of a Person of
which the first Person is also a Subsidiary.
"Affiliate Agreements" has the meaning set forth in Section
4.4.
"Agreement" means this Stock Purchase Agreement, including the
Schedules and Exhibits.
"Associate" of a Person means (i) an Affiliate of such Person,
(ii) a relative or spouse of such Person, or a relative of such
spouse, or (iii) any trust or other estate in
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which such Person (or any relative or spouse of such Person, or a
relative of such spouse) has a substantial beneficial interest or as
to which such Person (or any relative or spouse of such Person, or a
relative of such spouse) serves as trustee or in a similar fiduciary
capacity.
"Assumed Obligations" means (i) Liabilities under that certain
Real Estate Lease dated as of April 1, 1995 between the Company and
Steve T. Walsh and Esther E. Walsh, as amended, and (ii) Liabilities
arising under the Material Contracts listed on SCHEDULE 3.1.12 and any
contracts or agreements of the Company that are not listed on SCHEDULE
3.1.12 because such contract or agreement is not described in Section
3.1.12, in each case, except to the extent such Liabilities arise
prior to the Closing Date as a result of a breach or violation of any
such agreements.
"August Financial Statements" has the meaning set forth in
"Financial Statements."
"Bonuses" has the meaning set forth in Section 2.2.
"Business Day" means any calendar day which is not a Saturday,
Sunday or public holiday on which banks are closed under the laws of
California.
"Buyer" has the meaning set forth in the lead-in to this
Agreement.
"CERCLA" has the meaning set forth in Section 3.1.23.
"Charge-Backs" has the meaning set forth in Section 3.1.7.
"Closing" has the meaning set forth in Section 2.1.
"Closing Balance Sheet" has the meaning set forth in Section
1.4
"Closing Date" has the meaning set forth in Section 2.1.
"Closing Income Statement" means the statement of income of
the Company for the Interim period prepared by Buyer in accordance
with GAAP.
"COBRA" means the Comprehensive Omnibus Budget Reconciliation
Act of 1987, as amended.
"Code" means the Internal Revenue Code of 1986, as amended,
and the rules and regulations promulgated thereunder.
"Common Stock" has the meaning set forth in the Recitals to
this Agreement.
"Company" means The Bread Shop, a California corporation.
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"Company's Properties" means all real or personal property,
including fixtures, presently or previously owned or leased or
otherwise occupied or operated by the Company, including, but not
limited to, the Leased Real Estate.
"Company Transaction Costs" has the meaning set forth in
Section 9.2.
"Control" (including the terms "controlled by" and "under
common control with") means the possession, directly or indirectly, of
the power to direct or cause the direction of the management policies
of a Person, whether through the ownership of voting securities, by
contract or credit arrangement, as trustee or executor, or otherwise.
"Damages" means any and all claims, liabilities, losses,
fines, damages, costs, deficiencies, amounts paid in settlement and
expenses (including, but not limited to, expenses of investigation,
attorney's fees, witness fees, court costs and disbursements of
counsel and other professionals, interest and penalties).
"Damon" means Jon Damon.
"Damon Trust" mean the Damon Charitable Remainder Trust.
"Defaulting Party" has the meaning set forth in Section 9.2.
"Dispute Letter" has the meaning set forth in Section 1.4.
"Draft Closing Balance Sheet" has the meaning set forth in
Section 1.4.
"Environmental Laws" means all laws, statutes, rules,
regulations and court decisions relating to environmental, safety, or
health matters, including, but not limited to, those relating to the
release or threatened release of Hazardous Substances and the
generation, use, storage, transportation, or disposal of Hazardous
Substances in any manner applicable to the Company or its assets.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended, and the rules and regulations promulgated
thereunder.
"Escrow Agent" has the meaning set forth in Section 1.3.
"Escrow Agreement" has the meaning set forth in Section 1.3.
"Escrow Amount" has the meaning set forth in Section 1.3.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended.
"FDA" has the meaning set forth in Section 3.1.15.
"Financial Statements" means the balance sheets of the Company
as of October 28, 1994 and October 27, 1995 and the related statements
of income, shareholders'
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equity and cash flow (and the footnotes thereto) of the Company for
the years ending October 28, 1994 and October 27, 1995 (collectively,
the "Year-End Financial Statements") and the balance sheet of the
Company as of August 23, 1996 and the related statements of income,
shareholders' equity and cash flow of the Company for the period from
October 28, 1995 through August 23, 1996 (the "August Financial
Statements").
"GAAP" means United States generally accepted accounting
principles, consistently applied.
"Goodell" means Deborah Goodell.
"Goodell Trust" means the Goodell Charitable Remainder Trust.
"Governmental Authorities" means all federal, state and local
governmental departments, offices, agencies and authorities.
"Hazardous Substances" means (a) any chemical, material or
substance defined as or included in the definition of "hazardous
substances," "hazardous wastes," "hazardous materials," "extremely
hazardous waste," "restricted hazardous waste," "medical waste,"
"toxic pollutants," "contaminants," "toxic substances," or words of
similar import under any applicable Environmental Law, (b) any oil,
petroleum, petroleum product or petroleum derived substance, any
flammable substances or explosives, or any radioactive materials, (c)
asbestos and asbestos-containing materials in any form which is or
could become friable, (d) radon gas, urea, formaldehyde, foam
insulation, dielectric fluid, and polychlorinated biphenyls, and (e)
any other chemical, material or substance which is prohibited,
limited, or regulated by any Governmental Authority.
"Indebtedness" means (i) all obligations of any of the Company
for borrowed money, whether current or funded, secured or unsecured,
(ii) all obligations of the Company for the deferred purchase price of
any property or services, (iii) all obligations of the Company created
or arising under any conditional sale or other title retention
agreement with respect to property acquired by the Company (even
though the rights and remedies of the seller or lender under such
agreement in the event of a default may be limited to repossession or
sale of such property), (iv) all obligations of the Company secured by
a purchase money mortgage or other lien to secure all or part of the
purchase price of property subject to such mortgage or lien, (v) all
obligations under leases which shall have been or should be, in
accordance with GAAP, recorded as capital leases in respect of which
the Company is liable as lessee, (vi) any obligation of the Company in
respect of bankers' acceptances or letters of credit, (vii) any
obligations secured by liens on property acquired by the Company,
whether or not such obligations were assumed by the Company at the
time of acquisition of such property, (viii) all obligations of a type
referred to in clause (i), (ii), (iii), (iv), (v), (vi), or (vii)
above which is directly or indirectly guaranteed by the Company or
which any of them has agreed (contingently or otherwise) to purchase
or otherwise acquire or in respect of which it has otherwise assured a
credit against loss, (ix) any accrued and unpaid interest or other
charges on any of the foregoing obligations, (x) present, future, or
contingent payment obligations under
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(A) any phantom stock or similar appreciation rights, plan, or
agreement, (B) any consulting, deferred pay-out, compensation or other
similar arrangement with any former or present employee or stockholder
(or any Associate of such employee or stockholder) of the Company, or
(C) any non-competition agreement, (xi) deferred taxes, and (xii) all
other forms of obligations except trade accounts payable and accrued
expenses incurred in the ordinary course of business of the Company.
"Indemnified Party" has the meaning set forth in Section 6.4.
"Indemnifying Party" has the meaning set forth in Section 6.4.
"Independent Auditor" has the meaning set forth in Section 1.4.
"Intellectual Property" means trademarks, service marks, trade
names, trade dress, copyrights, and similar rights, including
registrations and applications to register or renew the registration
of any of the foregoing, patents and patent applications, and
inventions, processes, designs, formulae, trade secrets, know- how,
confidential information, and all similar intellectual property
rights, and licenses of any of the foregoing.
"Interim Period" has the meaning set forth in Section 2.2.
"IRS" means the Internal Revenue Service.
"Knowledge of Sellers" means and assumes that (a) Sellers have
made due and diligent inquiry as to the matters that are the subject
of such representation and warranty, and (b) knowledge of Damon,
Goodell, Myers and Williams of the Company is imputed to all Sellers.
"Latest Balance Sheet" means the unaudited balance sheet of
the Company at August 23, 1996.
"Leased Real Estate" has the meaning set forth in Section
3.1.11.
"Lien" means any mortgage, trust deed, pledge, security
interest, encumbrance, lien, claim, charge or encumbrance of any kind.
"Liabilities" has the meaning set forth in Section 3.1.8.
"Material Adverse Effect" means any individual event,
occurrence, fact, condition, change, or effect, or group thereof, that
is or are materially adverse to the business, operations, results of
operations, condition (financial or otherwise), properties (including
intangible properties), market value, prospects, or liabilities of the
Company, taken as a whole.
"Material Contracts" has the meaning set forth in Section
3.1.12.
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<PAGE> 37
"Myers" means Paul Myers.
"Myers Trust" means the Myers Charitable Remainder Trust.
"Net Amount" has the meaning set forth in Section 1.2.
"Non-Defaulting Party" has the meaning set forth in Section
9.2.
"PBGC" means the Pension Benefit Guaranty Corporation or any
entity succeeding to any or all of its functions under ERISA.
"Permits" means all permits, licenses, orders, approvals,
exemptions, certificates, registrations, variances and other
authorizations from all Governmental Authorities.
"Permitted Encumbrances" means (a) Liens securing real estate
taxes, special assessments, or the claims or demands of materialmen,
mechanics, carriers, warehousemen and landlords, provided that the
payment thereof is not past due or delinquent; (b) Liens incurred or
deposits made in the ordinary course of business in connection with
worker's compensation, unemployment insurance, social security, and
other similar laws; and (c) building and zoning ordinances and
regulations, provided that the Company and its assets are in
substantial compliance therewith.
"Person" means any individual, business corporation, municipal
or not-for profit corporation, limited liability company or
partnership, trust, general or limited partnership, joint venture,
unincorporated association, joint stock company, or other entity or
organization of any kind, and any governmental entity, including an
agency or political subdivision thereof.
"Plan" has the meaning set forth in Section 3.1.18.
"Presence or Release" has the meaning set forth in Section 6.1.
"Products" has the meaning set forth in Section 3.1.15.
"Promotional Commitments" has the meaning set forth in Section
3.1.30.
"Purchase Price" has the meaning set forth in Section 1.2.
"RCRA" has the meaning set forth in Section 3.1.23.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Notes" has the meaning set forth in Section 3.1.8.
"Sellers" has the meaning set forth in the lead-in to this
Agreement.
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<PAGE> 38
"Sellers' Representative" means Paul Myers, acting hereunder
on behalf of all Sellers.
"Stock Redemption Agreement" means that certain Stock
Redemption Agreement dated on or about February 13, 1991 by and
between Damon, Myers, Williams, Deborah Goodell and the Company, as
amended.
"Straddle Year" has the meaning set forth in Section 6.1.
"Subsidiaries" means each corporation or other Person in which
a Person owns or controls, directly or indirectly, capital stock or
other equity interests representing more than 50% of the outstanding
voting stock or other equity interests of such corporation or other
Person.
"Tax Returns" shall mean all returns, amended returns,
declarations, reports, statements, information statements,
declarations of estimated tax, backup withholding returns or reports,
and other documents required to be filed in respect of Taxes.
"Taxes" shall mean all U.S. federal, U.S. state, U.S. local,
and foreign taxes, customs, duties, fees, levies, assessments or
charges of any kind whatever, including, without limitation, income,
alternative minimum income, franchise, profits, windfall profits,
gross receipts, excise, sales, use, license, lease, service, service
use, transaction, occupation, severance, stamp, premiums, energy,
environmental, withholding, payroll, employment, unemployment, Social
Security, worker's compensation, ad valorem, real or personal
property, and capital taxes, and any interest, penalties, additions to
tax or other additional amounts with respect thereto.
"Transaction Expenses" has the meaning set forth in Section
9.2.
"USDA" has the meaning set forth in Section 3.1.15.
"Williams" means Katie Williams.
"Williams Trust" means the Williams Charitable Remainder
Trust.
"Working Capital" has the meaning set forth in Section 1.4.
"Year-End Financial Statements" has the meaning set forth in
"Financial Statements."
ARTICLE IX
MISCELLANEOUS PROVISIONS
9.1 PARTIES IN INTEREST. Except for Indemnified Parties for
purposes of Article VI hereof, this Agreement is not made for the benefit of
any Person other than Sellers and Buyer (and their respective successors and
assigns), and no Person (other than Sellers and Buyer and
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<PAGE> 39
their respective successors and assigns) shall acquire or have any right under
or by virtue of this Agreement. Neither this Agreement nor any of the rights,
interests or obligations hereunder shall be assigned by any of the parties
hereto without the prior written consent of the other parties. The rights and
obligations of the parties hereto shall be binding upon and inure to the
benefit of their respective successors and assigns.
9.2 EXPENSES. (a) Except as set forth below in this Section 9.2,
Sellers, on the one hand, and Buyer, on the other hand, shall bear their
respective expenses, costs, and fees (including attorneys', auditors', and
financing commitment fees) in connection with the transactions contemplated
hereby, including the preparation, execution, and delivery of this Agreement,
and compliance herewith (the "Transaction Expenses"), whether or not the
transactions contemplated hereby shall be consummated, provided that in the
event of termination of this Agreement pursuant to Section 7.1 by one party
(the "Non-Defaulting Party") by reason of the breaches of the other party (the
"Defaulting Party"), the Defaulting Party shall pay the Non-Defaulting Party
all reasonable Transaction Expenses incurred by such Non-Defaulting Party and
such payment shall constitute the Non-Defaulting Party's exclusive remedy for
such breaches by the Defaulting Party. In addition, Sellers shall bear the
costs and expenses of the Company incurred prior to the Closing in connection
with the sale of the Company, including but not limited to the transactions
contemplated hereby and actions taken in contemplation thereof ("Company
Transaction Costs"); provided, however, that the Company may pay Company
Transaction Costs at or prior to the Closing if the Company delivers to Buyer a
copy of the invoices with respect to such Company Transaction costs at or prior
to the Closing and the aggregate amount to be paid to Sellers at the Closing is
reduced by the aggregate amount of such Company Transaction Costs.
(b) Sellers shall be responsible for the payment of any
federal, state or local transfer taxes which may become payable as a result of
the transactions contemplated in this Agreement even if such taxes are levied
against Buyer or the Company.
9.3 Governing Law. This Agreement shall be governed in all
respects, including as to validity, interpretation, and effect, by the internal
laws of the State of California, without giving effect to the conflict of laws
rules thereof.
9.4 WAIVER. At any time prior to the Closing Date, Sellers and
Buyer may extend the time for the performance of or waive compliance with any
of the obligations or other acts of any other party hereto contained herein or
waive any inaccuracies in the representations or warranties of any other party
hereto contained herein or in any document delivered pursuant hereto. Any such
extension or waiver shall be valid only if set forth in an instrument in
writing signed by Sellers' Representative and Buyer. Except as otherwise
expressly provided herein, the provisions of this Agreement may be amended by
the written agreement of Sellers' Representative and Buyer. Any waiver,
permit, consent, or approval of any kind or character on the part of any party
hereto with respect to any provisions or conditions of this Agreement must be
made in writing and shall be effective only to the extent specifically set
forth in such instrument.
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<PAGE> 40
9.5 HEADINGS. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of any provision of this Agreement.
9.6 NOTICES. All communications provided for hereunder or desired
to be given hereunder shall be in writing and shall be deemed to be given (a)
when delivered in person, (b) three (3) Business Days after deposit in the
United States mail, first class, registered or certified, return receipt
requested, with proper postage prepaid, (c) one business day after deposit with
a reputable overnight courier service, with proper charges prepaid, or (d) when
both telecopied to such person and deposited in the United States mail, first
class, with proper postage paid:
(a) if to Sellers, addressed to the addresses set forth
on Schedule 1 to this Agreement; and
(b) if to Buyer, addressed to:
TBS Acquisition Corporation
c/o Intrepid Food Holdings, Inc.
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
Attn: William R. Voss
or at such other place or places or to such other Person or Persons as shall be
designated in writing by any party hereto in a notice to the others given in
the manner hereinabove provided.
9.7 RELEASE. Each Seller hereby irrevocably waives and releases
any and all rights to indemnification (whether by law, contract, charter,
bylaws or otherwise) by the Company relating to actions or omissions on or
prior to the Closing Date.
9.8 FURTHER COOPERATION. At any time and from time to time, each
party shall promptly execute and deliver all such documents and instruments,
and do all such acts and things, as any other party may reasonably request in
order to further effect the purposes of this Agreement.
9.9 SELLERS' REPRESENTATIVE. Each of Sellers agrees that actions
(including, but not limited to, waivers and consents to amendments) or
omissions to act hereunder by Sellers' Representative, whether before or after
the Closing, shall be binding upon and enforceable against each of Sellers.
9.10 KNOWLEDGE. (a) Buyer's knowledge prior to the Closing of any
inaccuracy or breach of any representation, warranty or covenant made or to be
performed by Sellers set forth in this Agreement (i) shall not in any way limit
or affect any of Buyer's rights or remedies under this Agreement, (ii) shall
not in any way limit or affect Buyer's right to recover under Section 6.1
hereof and (iii) shall not be deemed a waiver of any condition contained in
Section 5.2 hereof.
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<PAGE> 41
(b) Sellers' knowledge prior to the Closing of any
inaccuracy or breach of any representation, warranty or covenant made or to be
performed by Buyer set forth in this Agreement (i) shall not in any way limit
or affect any of Sellers' rights or remedies under this Agreement, (ii) shall
not in any way limit or affect Sellers' right to recover under Section 6.1
hereof and (iii) shall not be deemed a waiver of any condition contained in
Section 5.3 hereof.
9.11 CONFIDENTIALITY OF COMPANY INFORMATION. It is understood that
Sellers may have confidential information concerning the Company which, if
known to competitors thereof, may damage the Company. Sellers agree that from
and after the Closing Date, Sellers will not divulge to any third party any
confidential information possessed or obtained by Sellers concerning the
Company.
9.12 REPRESENTATION LETTERS. Upon the request of Buyer after the
Closing, Sellers shall deliver, and shall cause the Company's outside
accountants prior to the Closing to deliver, all such representation letters,
certificates, acknowledgments, consents and other documents and information
that are customarily given to or used by independent accountants in the course
of the preparation of audited official statements, as Buyer or Buyers'
accountant may request.
9.13 ENTIRE AGREEMENT. This Agreement, the Escrow Agreement, and
the other documents and writings referred to herein or therein or delivered
pursuant to this Agreement and the Escrow Agreement contain the entire
understanding of the parties with respect to the subject matter. This
Agreement supercedes all prior agreements and understandings, both written and
oral, between the parties with respect to the subject matter hereof.
9.14 AMENDMENTS AND MODIFICATIONS. This Agreement may not be
amended, altered or modified except through a written instrument signed by all
of the parties that sets forth the terms of such amendment, alteration or
modification.
9.15 SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid
under applicable law, but if any provision of this Agreement is held to be
prohibited by or invalid under applicable law, such provision shall be
ineffective only to the extent of such prohibition or invalidity, without
invalidating the remainder of such provision or the remaining provisions of
this Agreement.
9.16 RULES OF CONSTRUCTION. The following provisions shall be
applied wherever appropriate herein:
(a) "herein," "hereby," "hereunder," "hereof," and other
equivalent words shall refer to this Agreement as an entirety and not
solely to the particular portion of this Agreement in which any such
word is used;
(b) all definitions set forth herein shall be deemed
applicable whether the words defined are used herein in the singular
or the plural;
(c) wherever used herein, any pronoun or pronouns shall
be deemed to include both the singular and plural and to cover all
genders;
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<PAGE> 42
(d) unless otherwise provided herein, any determinations
or reports hereunder which require the application of accounting
concepts or principles shall be made or prepared in accordance with
GAAP;
(e) all accounting terms not specifically defined herein,
shall be construed in accordance with GAAP;
(f) neither this Agreement nor any other agreement,
document, or instrument referred to herein or executed and delivered
in connection herewith shall be construed against any party as the
principal draftsperson hereof or thereof;
(g) all references or citations in this Agreement to
statutes or regulations or statutory or regulatory provisions shall be
considered citations to such statutes, regulations, or provisions as
in effect from time to time, including any successor statutes,
regulations, or provisions directly or indirectly superseding such
statutes, regulations, or provisions;
(h) any references herein to a particular Section,
Article, Exhibit, or Schedule means a Section or Article of, or an
Exhibit or Schedule to, this Agreement unless another agreement is
specified; and
(i) the Exhibits and Schedules attached hereto are
incorporated herein by reference and shall be considered part of this
Agreement.
9.17 COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same agreement.
9.18 TELECOPY EXECUTION AND DELIVERY. A facsimile, telecopy or
other reproduction of this Agreement may be executed by one or more parties
hereto, and an executed copy of this Agreement may be delivered by one or more
parties hereto by facsimile or similar electronic transmission device pursuant
to which the signature of or on behalf of such party can be seen, and such
execution and delivery shall be considered valid, binding and effective for all
purposes. At the request of any party hereto, all parties hereto agree to
execute an original of this Agreement as well as any facsimile, telecopy or
other reproduction hereof.
* * * * * * *
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<PAGE> 43
The parties hereto have caused this Agreement to be executed on the
day and year first above written.
TBS ACQUISITION CORPORATION
By: /S/ William R. Voss
-----------------------------------
President
-----------------------------------
/S/ Paul Myers
-------------------------------------------
PAUL MYERS
/S/ Jon Damon
-------------------------------------------
JON DAMON
/S/ Katie Williams
-------------------------------------------
KATIE WILLIAMS
/S/ Deborah Goodell
-------------------------------------------
DEBORAH GOODELL
/S/ Richard Damon
-------------------------------------------
RICHARD DAMON
/S/ Joseph Lazzaro
-------------------------------------------
JOSEPH LAZZARO AND GREGORY LAZZARO, AS
JOINT TENANTS
/S/ Gregory Lazzaro
-------------------------------------------
/S/ Peter L. Sanford
-------------------------------------------
PETER L. SANFORD, AS TRUSTEE OF THE MYERS
CHARITABLE REMAINDER TRUST
/S/ Peter L. Sanford
-------------------------------------------
PETER L. SANFORD, AS TRUSTEE OF THE DAMON
CHARITABLE REMAINDER TRUST
/S/ Peter L. Sanford
-------------------------------------------
PETER L. SANFORD, AS TRUSTEE OF THE WILLIAMS
CHARITABLE REMAINDER TRUST
/S/ Peter L. Sanford
-------------------------------------------
PETER L. SANFORD, AS TRUSTEE OF THE GOODELL
CHARITABLE REMAINDER TRUST
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<PAGE> 1
EXHIBIT 3.1
FORM OF
SECOND AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
NATURAL NUTRITION GROUP, INC.
(originally incorporated as Intrepid Food Holdings, Inc. on October 2, 1995)
Natural Nutrition Group, Inc. (f/k/a Intrepid Food Holdings, Inc.) (the
"Corporation"), a corporation organized and existing under and by virtue of the
General Corporation Law of the State of Delaware (the "Law"), does hereby
certify:
I. That the Board of Directors of the Corporation adopted a resolution
setting forth the Second Amended and Restated Certificate of Incorporation set
forth below, declaring its adoption advisable and submitting it to the
stockholders entitled to vote in respect thereof for their consideration.
II. That by written consent executed in accordance with Section 228 of
the Law, the holders of a majority of the outstanding stock entitled to vote
thereon, and the holders of a majority of the outstanding stock of each class
entitled to vote thereon as a class, have voted in favor of the adoption of the
Second Amended and Restated Certificate of Incorporation set forth below. In
accordance with Section 228 of the Law, written notice of such action has been
given to stockholders who did not execute the written consent.
III. That the Second Amended and Restated Certificate of Incorporation
of the Corporation set forth below has been duly adopted and approved in
accordance with Sections 242 and 245 of the Law:
ARTICLE I
The name of the corporation is Natural Nutrition Group, Inc. (the
"CORPORATION").
ARTICLE II
The address of the Corporation's registered office in the State of
Delaware is 1209 Orange Street, Corporation Trust Center, Wilmington, County of
New Castle, Delaware 19801. The name of the Corporation's registered agent at
such address is The Corporation Trust Corporation.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in
any lawful act or activity for which corporations may be organized under the
General Corporation Law of the State of Delaware (the "Law").
<PAGE> 2
ARTICLE IV
A. Capital Stock.
1. Authorized Stock.
Immediately prior to the filing of this Second Amended and Restated
Certificate of Incorporation, the total numbers of shares of capital stock of
all classes which the Corporation had authority to issue was 65,000 shares,
including (i) 40,000 shares of Common Stock, par value $0.001 per share ("Old
Common Stock"), and (ii) 35,000 shares of Preferred Stock, par value $0.001 per
share ("Old Preferred Stock"). 35,000 of the shares designated "Old Preferred
Stock" were of a series designated "Series A Preferred Stock." Effective upon
the filing of this Second Amended and Restated Certificate of Incorporation with
the Secretary of State of the State of Delaware, the Corporation shall have
authority to issue the following classes of stock, in the number of shares and
at the par value as indicated opposite the name of the class:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
- --------------------------- ------------------- ---------------------
<S> <C> <C>
Common Stock [50,000,000] $ 0.001
Preferred Stock [2,035,000] $ 0.001
</TABLE>
35,000 shares of the Preferred Stock shall be designated "Series A Preferred
Stock." The remaining 2,000,000 shares of Preferred Stock may be issued from
time to time in one or more series. The Board of Directors of the Corporation
(the "Board of Directors") is expressly authorized to provide for the issue of
all or any of the remaining shares of the Preferred Stock in one or more series,
and to fix the number of shares and to determine or alter for each such series,
such voting powers, full or limited, or no voting powers, and such designations,
preferences, and relative, participating, optional, or other rights and such
qualifications, limitations, or restrictions thereof, as shall be stated and
expressed in the resolution or resolutions adopted by the Board of Directors
providing for the issue of such shares (a "Preferred Stock Designation") as may
be permitted by the Law. The Board of Directors is also expressly authorized to
increase or decrease (but not below the number of shares of such series then
outstanding) the number of shares of any series (other than the Series A
Preferred Stock) subsequent to the issue of shares of that series. In case the
number of shares of any such series shall be so decreased the shares
constituting such decrease shall resume the status that they had prior to the
adoption of the resolution originally fixing the number of shares of such
series.
The designations and the powers, preferences and relative,
participating, optional or other rights of the Common Stock and the Series A
Preferred Stock and the qualifications, limitations or restrictions thereof are
as set forth in Section B below.
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<PAGE> 3
2. Conversion of Common Stock and Preferred Stock.
At the time of the filing of this Second Amended and Restated
Certificate of Incorporation with the Secretary of State of the State of
Delaware, (a) each outstanding whole share of Old Common Stock shall
automatically, without the necessity of any further action on the part of the
holder thereof, be changed and reclassified into _____________ shares of Common
Stock, and (b) each outstanding share of Old Preferred Stock shall remain
outstanding as one share of Series A Preferred Stock. Upon the occurrence of the
reclassifications effected by this Section A.2. (the "CONVERSIONS"), each
certificate for outstanding shares of Old Common Stock dated prior to the
effective date of the Conversions shall evidence, and be deemed to evidence, the
number of shares of Common Stock into which the shares previously evidenced by
such certificate shall have been reclassified in accordance with this Section
A.2., and the Conversions shall become effective in accordance with the terms
hereof, whether or not any or all of the certificates evidencing Old Common
Stock shall have been surrendered or new certificates evidencing the number of
shares of Common Stock into which such shares have been reclassified have been
issued in accordance with Section A.3. hereof.
3. Subsequent Reissuance of Certificates.
Following the occurrence of the Conversions, each holder of shares of
Old Common Stock shall either (a) surrender each certificate evidencing any such
shares at the office of the Corporation or (b) notify the Corporation that such
certificate has been lost, stolen or destroyed and execute an agreement
satisfactory to the Corporation to indemnify the Corporation from any loss
incurred by it in connection with the reissuance of such lost, stolen or
destroyed certificate. The Corporation shall thereupon issue and deliver to such
holder a certificate or certificates, in the name shown on such certificate
evidencing Old Common Stock, for the number of whole shares of Common Stock into
which the shares of Old Common Stock evidenced by the surrendered (or lost,
stolen or destroyed) certificate have been reclassified, dated as of the date on
which the Conversions become effective. The Corporation shall not be obligated
to issue any certificate evidencing shares of Common Stock in connection with
the Conversions except in accordance with this Section A.3.
4. Fractional Shares.
Notwithstanding the foregoing, no fraction of a share of Common Stock
shall be issued by virtue of the Conversions, but in lieu thereof, each holder
of shares of Old Common Stock who would otherwise be entitled to a fraction of a
share of Common Stock (after aggregating all fractional shares of Common Stock
to be received by such holder) shall receive from the Corporation an amount in
cash (rounded to the nearest whole cent) equal to the product of (i) such
fraction multiplied by (ii) the initial price per share to the public in the
Corporation's initial public offering of Common Stock.
B. Designations and Rights.
The designations and the powers, preferences and relative,
participating, optional or other rights of the capital stock and the
qualifications, limitations or restrictions thereof are as follows:
-3-
<PAGE> 4
1. Common Stock.
a. Voting Rights: Except as otherwise required by law or
expressly provided herein or in a Preferred Stock Designation, the holders of
shares of Common Stock shall be entitled to one vote per share on each matter
submitted to a vote of the stockholders of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
Preferred Stock, the holders of Common Stock shall be entitled to receive
dividends at such times and in such amounts as may be determined by the Board of
Directors of the Corporation.
c. Liquidation Rights: In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or involuntary,
after payment or provision for payment of the debts and other liabilities of the
Corporation and the preferential amounts to which the holders of any outstanding
shares of Preferred Stock shall be entitled upon dissolution, liquidation or
winding up, the assets of the Corporation available for distribution to
stockholders shall, except as may otherwise be provided in a Preferred Stock
Designation, be distributed ratably among the holders of the shares of Common
Stock.
2. Series A Preferred Stock.
a. Rank. As to distributions upon liquidation, dissolution and
winding up, the shares of Series A Preferred Stock shall rank senior to the
Common Stock.
b. Voting Rights. Except as otherwise required by law or
expressly provided herein, each share of Series A Preferred Stock shall have no
voting rights.
c. Dividends. (i) When and as declared by the Corporation's
Board of Directors and to the extent permitted under the Law, the Corporation
shall pay preferential dividends to the holders of the shares of Series A
Preferred Stock as provided in this Section B.2.c. Except as otherwise provided
herein, dividends on each share of Series A Preferred Stock shall accrue on a
daily basis at 10% per annum (the "Dividend Rate") of the sum of the Liquidation
Value (as hereinafter defined) plus all accumulated and unpaid dividends
thereon, from and including the date of issuance of such share of Series A
Preferred Stock to and including the date on which the Liquidation Value of such
share of Series A Preferred Stock (plus all accrued and unpaid dividends
thereon) is paid. Such dividends shall accrue whether or not they have been
declared and whether or not there are profits, surplus or other funds of the
Corporation legally available for the payment of dividends. Such dividends shall
be cumulative such that all accrued and unpaid dividends shall be fully paid or
declared with funds irrevocably set apart for payment before any dividend,
distribution or payment may be made with respect to any Junior Securities (as
hereinafter defined), other than repurchases of Common Stock from employees of
the Corporation or a Subsidiary (as hereinafter defined) upon termination of
such employee's employment which repurchases in the aggregate do not exceed 5%
of the outstanding shares of Common Stock in any fiscal year (or such greater
percentage or specific number of shares as the holder or holders of a majority
of the shares of Series A Preferred Stock may have approved in writing with
respect to any particular fiscal year or in connection with any particular
repurchase). The date on which the Corporation initially issues
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<PAGE> 5
any share of Series A Preferred Stock shall be deemed to be its "date of
issuance" regardless of the number of times transfer of such share is made on
the stock records maintained by or for the Corporation, regardless of the number
of certificates which may be issued to evidence such share and regardless of the
conversion of such shares into shares of Common Stock.
(ii) January 1, April 1, July 1 and October 1 of
each year shall constitute "Dividend Reference Dates" for purposes hereof. To
the extent not paid on each Dividend Reference Date, all dividends which have
accrued on each share of Series A Preferred Stock during the twelve-month period
ending upon each December 31 shall be accumulated and shall remain accumulated
and unpaid dividends with respect to such share of Series A Preferred Stock
until paid.
(iii) Except as otherwise provided herein, if at any
time the Corporation pays less than the
total amount of dividends then accrued with respect to all outstanding shares of
Series A Preferred Stock, such payment shall be distributed ratably among the
holders of such shares based upon the number of shares of such series held by
each such holder.
(iv) The "Liquidation Value" of each share of Series
A Preferred Stock is $1,000,000 (such
amount to be adjusted appropriately in the event the shares of Series A
Preferred Stock are subdivided into a greater number or combined into a lesser
number). "Junior Securities" means any equity securities of the Corporation
other than the Series A Preferred Stock.
(v) The Corporation shall not permit any entity of
which the Corporation owns, directly or
indirectly, 50% or more of the outstanding capital stock or other interest
having voting power or rights to elect a majority of the board of directors or
other governing body of such entity (a "Subsidiary") to purchase or otherwise
acquire for consideration any shares of equity securities of the Corporation
unless the Corporation could, under paragraph (i) of this Section B.2.c.,
purchase or otherwise acquire such shares at such time and in such manner.
d. Mandatory Redemption. (i) The Corporation shall redeem 50%
of the outstanding shares of Series A Preferred Stock on the seventh anniversary
of the date of issuance of the first share of Series A Preferred Stock
("Issuance Date") and all remaining outstanding shares of Series A Preferred
Stock on the eighth anniversary of the Issuance Date (each such redemption date,
a "Mandatory Redemption Date").
Each share of Series A Preferred Stock shall be redeemed at a price of $1,000.00
per share (such amount to be adjusted appropriately in the event the shares of
Series A Preferred Stock are subdivided into a greater number or combined into a
lesser number) plus all accrued but unpaid dividends thereon to the Mandatory
Redemption Date (the "Mandatory Redemption Price").
(ii) Not less than 30 days nor more than 60 days
prior to a Mandatory Redemption Date, written notice (a "Mandatory Redemption
Notice") shall be mailed, first class postage prepaid, to each holder of record
on such notice date of the Series A Preferred Stock at his post office address
last shown on the stock records of the Corporation. A Mandatory
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<PAGE> 6
Redemption Notice shall state: (A) the number of shares of the Series A
Preferred Stock being redeemed from each such shareholder on the Mandatory
Redemption Date: (B) what the Mandatory Redemption Date and the Mandatory
Redemption Price are; and (C) that the holder is to surrender to the
Corporation, in the manner and at the place designated, the certificate or
certificates representing the shares of Series A Preferred Stock to be redeemed.
(iii) On or before each Mandatory Redemption Date,
each holder of shares of Series A Preferred Stock being redeemed shall surrender
the certificate or certificates representing such shares to the Corporation, in
the manner and at the place designated in the Mandatory Redemption Notice, and
thereupon the Mandatory Redemption Price for such shares will be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be cancelled and
retired. If a certificate is surrendered and all the shares evidenced thereby
are not being redeemed, the Corporation shall cause certificates for shares of
Series A Preferred Stock not being redeemed to be issued and delivered to the
person whose name appears as the owner on the surrendered certificate.
(iv) If a Mandatory Redemption Notice shall have
been duly given, and if on the Mandatory Redemption Date no default is made in
the payment of the Mandatory Redemption Price, then notwithstanding that the
certificates evidencing any of the shares of Series A Preferred Stock shall not
have been surrendered, the dividends with respect to such shares shall cease to
accrue after such Mandatory Redemption Date and all rights with respect to such
shares shall forthwith after such Mandatory Redemption Date terminate, except
only the right of the holders to receive the Mandatory Redemption Price upon
surrender of their certificate or certificates therefor (and a certificate for
the balance of such shares evidenced by such surrendered certificates which are
not being redeemed).
(v) If the funds of the Corporation legally
available therefor shall be insufficient to discharge such redemption
requirement in full, funds to the extent legally available for such purpose
shall be set aside in the place specified in the Mandatory Redemption Notice.
The maximum number of full shares of Series A Preferred Stock that can be
redeemed with such funds shall be redeemed ratably from the holders of the
Series A Preferred Stock. The Mandatory Redemption Notice shall specify the
number of shares of Series A Preferred Stock to be redeemed from each holder.
Thereafter, the Corporation shall redeem shares of Series A Preferred Stock
ratably from the holders thereof as funds legally available therefor become
available and supplementary redemption notices containing information similar to
the Mandatory Redemption Notice shall be delivered to holders of Series A
Preferred Stock. Such supplementary redemption notices shall specify
supplementary redemption dates which shall be not less than 30 nor more than 60
days after the date of such notice. Dividends shall continue to accrue on shares
of Series A Preferred Stock at the rate specified herein until funds sufficient
to redeem such shares become available, are set aside as aforesaid and a
supplementary Mandatory Redemption Notice with respect to such shares is
delivered to the holders of such shares.
(vi) (A) If a Fundamental Change (as hereinafter
defined) is to occur, the Corporation will notify each holder of Series A
Preferred Stock in writing of such pending Fundamental Change no less than 35
days prior to the consummation thereof. Such notice will
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describe the material terms and conditions of the Fundamental Change (including,
but not limited to, the amount and nature of the total consideration to be paid
in connection therewith) and the provisions of this Section B.2.d.(vi) and the
Corporation will thereafter give each holder prompt notice of any material
changes in such terms. Each holder of Series A Preferred Stock then outstanding
may (1) waive such notice or (2) require the Corporation to redeem all or any
portion of the Series A Preferred Stock owned by such holder at a price per
share of Series A Preferred Stock equal to the Liquidation Value plus all
accrued dividends through the redemption date (the "Special Redemption Price"),
by giving written notice to the Corporation of such election within 20 days
after receipt of notice from the Corporation. Such notice to the Corporation
will include an election by such holder of the Series A Preferred Stock to
receive such holder's respective Special Redemption Price in cash or in
securities from the acquiring person, or in a combination thereof. Any
securities to be delivered to the holders of Series A Preferred Stock will be
valued at their Market Price (as hereinafter defined). Upon receipt of such
election(s), the Corporation will be obligated to redeem the number of shares
specified therein at the time of the consummation of such Fundamental Change. If
the Fundamental Change does not occur, all requests for redemption will be
rescinded. "Market Price" of any security means the average of the closing
prices of such security's sales on all securities exchanges on which such
security may at the time be listed, or, if there has been no sale on any such
exchange on any day, the average of the highest bid and lowest asked price on
all such exchanges at the end of such day, or, if on any day such security is
not so listed, the average of the closing prices quoted in The Nasdaq Market as
of 4:00 P.M., New York time, or, if on any day such security is not quoted in
The Nasdaq Market, the average of the highest bid and lowest asked prices on
such day in the domestic over-the-counter market as reported by the National
Quotation Bureau, Incorporated, or any similar successor organization, in each
such case averaged over a period of 21 days consisting of the day as of which
"Market Price" is being determined and the 20 consecutive business days prior to
such day. If at any time such security is not listed on any securities exchange
or quoted in The Nasdaq Market or the over-the-counter market, the "Market
Price" will be the fair value thereof reasonably determined in good faith by the
Board of Directors of the Corporation.
(B) If a Change in Ownership (as hereinafter defined) has
occurred or the Corporation obtains knowledge that a Change in Ownership is to
occur, the Corporation will promptly notify each holder of Series A Preferred
Stock in writing of such Change in Ownership, but in any event such notice shall
not be given later than five days after the occurrence of such Change in
Ownership. Such notice will describe the material definitive terms and the date
of consummation of such Change of Ownership and the provisions of this Section
B.2.d.(vi) and the Corporation will thereafter give each holder prompt notice of
any material changes in such terms. Each holder of Series A Preferred Stock then
outstanding may (1) waive such notice or (2) require the Corporation to redeem
all or any portion of the Series A Preferred Stock owned by such holder at a
price per share of Series A Preferred Stock equal to the Special Redemption
Price, by giving written notice to the Corporation of such election within 20
days after receipt of notice from the Corporation. Upon receipt of such
election(s), the Corporation shall be obligated to redeem for cash the aggregate
number of shares of Series A Preferred Stock specified therein on the later of
(1) the occurrence of the Change in Ownership or (2) 30 days after the
Corporation's receipt of such election(s). If in any case a proposed Change in
Ownership does not occur, all elections for redemption in connection therewith
will be rescinded.
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(C) The term "Fundamental Change" means (1) a sale or
transfer of more than 33-1/3% of the assets of the Corporation on a consolidated
basis in any transaction or series of related transactions (other than sales in
the ordinary course of business) or (2) merger, consolidation or reorganization
to which the Corporation is a party, except for a merger, consolidation or
reorganization in which the Corporation is the surviving corporation and, after
giving effect to such merger, consolidation or reorganization, the holders of
the Corporation's outstanding capital stock (on a fully-diluted basis)
immediately prior to the merger, consolidation or reorganization will own
immediately following the merger, consolidation or reorganization the
Corporation's outstanding capital stock (on a fully diluted basis) having a
majority of the ordinary voting power to elect the Corporation's board of
directors. The term "Change of Ownership" means any sale, issuance or redemption
or series of sales, issuances or redemptions (or any combination thereof) of
shares of the Corporation's capital stock by the holders thereof or the
Corporation which results in any person or group of affiliated persons (other
than the owners of the Corporation's capital stock as of immediately prior to
any such transaction) owning capital stock of the Corporation possessing the
voting power (under ordinary circumstances) to elect a majority of the members
of the Corporation's Board of Directors.
(D) If and to the extent that applicable law or any other
restriction prohibits the payment to the holders of Series A Preferred Stock of
all or any portion of the amounts required to be paid under Section
B.2.d.(vi)(A) or (B) above, such unpaid amounts will be paid to the holders of
Series A Preferred Stock by the person (other than the Corporation) who is a
party to the Fundamental Change or Change of Ownership upon the closing thereof
or on such other date determined pursuant to Section B.2.d.(vi)(B) hereof by
purchase of such shares of Series A Preferred Stock under an agreement which
will provide that such purchased shares will be cancelled effective upon such
purchase. In the event the full amount of any payment hereunder is not paid to
the holders of Series A Preferred Stock upon or immediately prior to such
closing or other date in accordance herewith, then the entire amount payable in
respect of the Fundamental Change or Change of Ownership will be distributed
ratably among the holders of Series A Preferred Stock in proportion to the
aggregate redemption price to be paid to each holder.
(E) In the event that the requirements of Sections
B.2.d.(vi)(A), (B) and (D) above are not complied with, the Corporation will
either:
(1) cause the closing of the Fundamental Change or Change of
Ownership to be postponed until such time as the requirements of
Sections B.2.d.(vi)(A), (B) and (D) above have been complied with; or
(2) cancel such Fundamental Change or Change of Ownership, in
which event the rights, preferences and privileges of the holders of
Series A Preferred Stock shall revert to and be the same as such
rights, preferences and privileges existing immediately prior to the
date of the first notice referred to in Sections B.2.d.(vi)(A) or (B)
above.
e. Optional Redemption.
(i) The Corporation may, at its option at any time, redeem all, or
any number less than all, of the outstanding shares of Series A Preferred Stock
on any date selected for such
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<PAGE> 9
redemption by the Corporation (each such date an "Optional Redemption Date").
Each share of Series A Preferred Stock shall be redeemed at a price of $1,000.00
per share (such amount to be adjusted appropriately in the event the shares of
Series A Preferred Stock are subdivided into a greater number or combined into a
lesser number) plus all accrued but unpaid dividends thereon to the Optional
Redemption Date (the "Optional Redemption Price").
(ii) Not less than 30 days nor more than 60 days prior to an Optional
Redemption Date, written notice (an "Optional Redemption Notice") shall be
mailed, first class postage prepaid, to each holder of record on such notice
date of the Series A Preferred Stock at his post office address last shown on
the stock records of the Corporation. An Optional Redemption Notice shall state:
(i) the number of shares of the Series A Preferred Stock being redeemed from
each such stockholder on such Optional Redemption Date; (ii) the Optional
Redemption Date and the Optional Redemption Price; and (iii) that the holder is
to surrender to the Corporation, in the manner and at the place designated, the
certificate or certificates representing the shares of Series A Preferred Stock
to be redeemed.
(iii) On or before each Optional Redemption Date, each holder of
shares of Series A Preferred Stock being redeemed shall surrender the
certificate or certificates representing such shares to the Corporation, in the
manner and at the place designated in the Optional Redemption Notice, and
thereupon the Optional Redemption Price for such shares will be payable to the
order of the person whose name appears on such certificate or certificates as
the owner thereof, and each surrendered certificate shall be canceled and
retired. If a certificate is surrendered and all the shares evidenced thereby
are not being redeemed, the Corporation shall cause certificates for shares not
being redeemed to be issued and delivered to the person whose name appears as
the owner on the surrendered certificate.
(iv) If an Optional Redemption Notice shall have been duly given, and
if on the Optional Redemption Date no default is made in the payment of the
Optional Redemption Price, then notwithstanding that the certificates evidencing
any of the shares of Series A Preferred Stock shall not have been surrendered,
the dividends with respect to such shares shall cease to accrue after such
Optional Redemption Date and all rights with respect to such shares shall
forthwith after such Optional Redemption Date terminate, except only the right
of the holders to receive the Optional Redemption Price upon surrender of their
certificate or certificates therefor (and a certificate for the balance of such
shares evidenced by such surrendered certificates which are not being redeemed).
(v) Until such time as the Corporation has closed a public offering
of its equity securities pursuant to a registration statement declared effective
by the Securities and Exchange Commission, the Corporation shall not redeem
under this section B.2.e, in the aggregate, more than 10,000 shares of Series A
Preferred Stock (such number to be adjusted appropriately in the event shares of
Series A Preferred Stock are subdivided into a greater number or combined into a
lesser number).
f. Liquidation Rights. Upon the dissolution, liquidation or winding
up of the Corporation, whether voluntary or involuntary, the holders of the
Series A Preferred Stock shall be entitled to receive out of the assets of the
Corporation available for distribution to stockholders, the amount of $1,000.00
per share (such amount to be adjusted proportionately in
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the event the shares of Series A Preferred Stock are subdivided into a greater
number or combined into a lesser number), plus all accrued and unpaid dividends
to which such holders shall be entitled pursuant to Section B.2.c. hereof,
before any payment or distribution shall be made on any Junior Securities. For
purposes of this Section B.2.f., the merger or consolidation of the Corporation
or the sale of all or substantially all of the Corporation's assets shall not be
deemed to be a liquidation, dissolution or winding up of the Corporation. After
the payment to the holders of the shares of the Series A Preferred Stock of the
full preferential amounts provided for in this Section B.2.f, the holders of the
Series A Preferred Stock as such shall have no right or claim to any of the
remaining assets of the Corporation. If upon any liquidation, dissolution or
winding up of the Corporation, whether voluntary or involuntary, the assets to
be distributed to the holders of Series A Preferred Stock shall be insufficient
to permit the payment to such stockholders of the full preferential amount
aforesaid, then all of the assets of the Corporation available for distribution
to the holders of Series A Preferred Stock shall be distributed ratably in
accordance with the amount payable with respect to each share.
g. Events of Noncompliance.
(i) The occurrence of any of the following events shall be an Event
of Noncompliance under this Second Amended and Restated Certificate of
Incorporation:
(1) any material default with respect to the
performance or observance of any of the material covenants or agreements of the
Corporation contained in this Second Amended and Restated Certificate of
Incorporation, the By-Laws of the Corporation or any agreements entered into in
connection with the issuance of shares of Series A Preferred Stock, and such
default shall not be cured within thirty (30) days of notice being given to the
Corporation;
(2) a receiver, conservator, custodian, liquidator or
trustee of the Corporation or any Subsidiary or of all or any of the assets of
any of them, is appointed by court order; or an order for relief is entered
under the federal bankruptcy laws with respect to the Corporation or any
Subsidiary; or any of the assets of any of them is sequestered by court order;
(3) the Corporation or any Subsidiary files a
petition in voluntary bankruptcy or seeking relief under any provision of any
bankruptcy, reorganization, arrangement, insolvency, readjustment of debt,
dissolution or liquidation law of any jurisdiction, whether now or hereafter in
effect, or consents to the filing of any petition against it under any such law;
or
(4) the Corporation or any Subsidiary makes an
assignment for the benefit of its creditors, or admits in writing its inability
to pay, or in fact does not pay, its debts generally as they become due, or
consents to the appointment of a receiver, conservator, custodian, liquidator or
trustee of the Corporation or any Subsidiary, or all or any part of the assets
of any of them.
(ii) If an Event of Noncompliance has occurred, the holder or holders
of a majority of the shares of the Series A Preferred Stock then outstanding may
demand (by written notice delivered to the Corporation) immediate redemption of
all of such shares of Series A Preferred
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<PAGE> 11
Stock at a price per share equal to $1,000.00 per share (such amount to be
adjusted proportionately in the event the shares of Series A Preferred Stock are
subdivided into a greater number or combined into a lesser number) plus all
accrued but unpaid dividends thereon through the date of redemption. The
Corporation shall give prompt written notice of such election to the other
holders of such shares of Series A Preferred Stock (but in any event within five
days after receipt of the initial demand for redemption of the Series A
Preferred Stock). The Corporation shall redeem the Series A Preferred Stock
within 30 days after receipt of the demand for redemption to the fullest extent
possible based upon the amount of funds which can then be legally applied for
such redemption, and if such obligation is not met in full within such 30 days,
such obligation shall continue to be discharged as promptly as legal funds
become available therefor until the obligation is discharged in full.
(iii) After any Event of Noncompliance specified in Section B.2.g.(i)
above has occurred, any holder of Series A Preferred Stock may proceed to
protect and enforce such holder's rights either by suit in equity or by action
of law, or both, whether for the specific performance of any covenant or
agreement contained in this Second Amended and Restated Certificate of
Incorporation, or the Corporation's By-Laws, or in aid of the exercise of any
power granted in any agreements entered into in connection with the issuance of
shares of Series A Preferred Stock, this Second Amended and Restated Certificate
of Incorporation or the Corporation's By-Laws, or to enforce exercise of any
power granted in this Second Amended and Restated Certificate of Incorporation,
or the Corporation's By-Laws, or to enforce any other legal or equitable right
or remedy of such holder.
(iv) No failure to exercise or delay in the exercise of any right,
power or remedy accruing to any holder of Series A Preferred Stock upon any
Event of Noncompliance hereunder or other breach or default of the Corporation
under this Second Amended and Restated Certificate of Incorporation, the
Corporation's By-Laws, or any agreements entered into in connection with the
issuance of Series A Preferred Stock, shall impair such right, power or remedy
of such holder or shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring.
(v) All remedies, under either this Second Amended and Restated
Certificate of Incorporation, or the Corporation's By-Laws, or by law or
otherwise afforded to any holder of Series A Preferred Stock by agreement or
otherwise shall be cumulative and not alternative.
ARTICLE V
The business and affairs of the Corporation shall be managed by or
under the direction of a board of directors consisting of not less than three
(3) nor more than nine (9) directors. The exact number shall be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
directors in office at the time of adoption of such resolution. As of the date
of filing of this Second Amended and Restated Certificate of Incorporation, the
number of directors shall be five (5) and shall consist of the following
persons: William R. Voss, Roger S. McEniry, David S. Katz, Timothy J. Healy and
Lawrence A. Del Santo.
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The directors shall be divided into three classes, Class I, Class II
and Class III with each class having either one, two or three members. As of the
date of filing of this Second Amended and Restated Certificate of Incorporation,
Class I shall consist of [DAVID S. KATZ]. As of the date of filing of this
Second Amended and Restated Certificate of Incorporation, Class II shall consist
of the following directors: [MESSRS. HEALY AND DEL SANTO]. As of the date of
filing of this Second Amended and Restated Certificate of Incorporation, Class
III shall consist of the following directors: [MESSRS. MCENIRY AND VOSS]. The
term of office of the Class I, Class II and Class III directors shall expire at
the annual meeting of stockholders in 1999, 2000 and 2001, respectively.
Beginning in 1999, at each annual meeting of stockholders, successors to the
class of directors whose term expires at that annual meeting shall be elected
for a three-year term. If the number of directors is changed, any increase or
decrease shall be apportioned among the classes by the Board of Directors so as
to maintain the number of directors in each class as nearly equal as is
reasonably possible, and any additional director of any class elected to fill a
vacancy resulting from an increase in such class shall hold office for a term
that shall coincide with the remaining term of that class. In no case will a
decrease in the number of directors, shorten the term of any incumbent director,
even though such decrease may result in an inequality of the classes until the
expiration of such term. A director shall hold office until the annual meeting
of stockholders in the year in which his or her term expires and until his or
her successor shall be elected and qualified subject, however, to prior death,
resignation, retirement or removal from office. Except as otherwise provided by
law, directors may only be removed for cause by the holders of at least
sixty-six and two-thirds percent (66 2/3%) of the shares of the Corporation
entitled to vote at an election of directors. Except as required by law or the
provisions of this Second Amended and Restated Certificate of Incorporation, all
vacancies on the Board of Directors and newly-created directorships shall be
filled by the Board of Directors. Any director elected to fill a vacancy not
resulting from an increase in the number of directors shall have the same
remaining term as that of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Second Amended and Restated Certificate of Incorporation and any
Preferred Stock Designation applicable thereto, and such directors so elected
shall not be divided into classes pursuant to this Article V.
Notwithstanding anything to the contrary contained in this Second
Amended and Restated Certificate of Incorporation, the affirmative vote of the
holders of at least eighty percent (80%) of the voting power of the shares
entitled to vote generally in the election of directors shall be required to
amend, alter or repeal, or to adopt any provision inconsistent with, this
Article V.
ARTICLE VI
A. Written Consent. Any action required or permitted to be taken by
the stockholders of the Corporation shall be effected only at a duly called
annual or special meeting of stockholders of the Corporation and shall not be
effected by consent in writing by the holders of outstanding stock pursuant to
Section 228 of the Law or any other provision of the Law.
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B. Special Meetings. Special meetings of stockholders of the
Corporation may be called only upon not less than ten (10) nor more than sixty
(60) days' written notice by the Board of Directors, pursuant to a resolution
approved by a majority of the Board of Directors.
C. Amendment. Notwithstanding anything contained in this Second
Amended and Restated Certificate of Incorporation to the contrary, the
affirmative vote of the holders of at least eighty percent (80%) of the voting
power of the shares of the Corporation entitled to vote generally in the
election of directors shall be required to amend, alter or repeal, or to adopt
any provision inconsistent with, this Article VI.
ARTICLE VII
In furtherance and not in limitation of the power conferred by statute,
the Board of Directors is expressly authorized to make, alter, amend or repeal
the By-laws of the Corporation. The By-laws of the Corporation may be altered,
amended, or repealed, or new By-laws may be adopted, by the Board of Directors
in accordance with the preceding sentence or by the vote of the holders of at
least eighty percent (80%) of the voting power of the shares of the Corporation
entitled to vote generally in the election of directors at an annual or special
meeting of stockholders, provided that, if such alteration, amendment, repeal or
adoption of new By-laws is effected at a duly called special meeting, notice of
such alteration, amendment, repeal or adoption of new By-laws is contained in
the notice of such special meeting.
ARTICLE VIII
A director of the Corporation shall not, in the absence of fraud, be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that such director, or any firm of which such
director is a member or any corporation of which such director is an officer,
director or stockholder, was interested in such transaction or contract if such
transaction or contract has been authorized, approved or ratified in a manner
provided in the Law for authorization, approval or ratification of transactions
or contracts between the Corporation and one or more of its directors or
officers or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation. Election of directors need not be by
written ballot unless the By-laws of the Corporation so provide.
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ARTICLE X
Whenever a compromise or arrangement is proposed between the
Corporation and its creditors or any class of them and/or between the
Corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the Corporation or of any creditor or stockholder thereof or on the
application of any receiver or receivers appointed for the Corporation under the
provisions of Section 291 of the Law or on the application of trustees in
dissolution or of any receiver or receivers appointed for the Corporation under
the provisions of Section 279 of the Law, order a meeting of the creditors or
class of creditors and/or the stockholders or class of stock of the Corporation,
as the case may be, to be summoned in such manner as said court directs. If a
majority in number representing three-fourths (3/4) of the value of the
creditors or class of creditors and/or the stockholders or class of stockholders
of the Corporation, as the case may be, agree to any compromise or arrangement
or to any reorganization of the Corporation as a consequence of such compromise
or arrangement, said compromise or arrangement of said reorganization shall, if
sanctioned by the Court to which said application has been made, be binding on
all the creditors or class of creditors and/or on all the stockholders or class
of stockholders, of the Corporation, as the case may be, and also on the
Corporation.
ARTICLE XI
The Board of Directors of the Corporation may adopt a resolution
proposing to amend, alter, change or repeal any provision contained in this
Second Amended and Restated Certificate of Incorporation, in the manner now or
hereafter prescribed by statute.
ARTICLE XII
A. Indemnification of Officers and Directors: The Corporation shall:
1. indemnify, to the fullest extent permitted by the Law, any
present or former director of the Corporation and any present or former officer,
employee or agent of the Corporation selected by the Board of Directors for
indemnification, such selection to be evidenced by an indemnification agreement,
who was or is a party or is threatened to be made a party to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Corporation) by reason of the fact that such person is or was a director, or is
or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation, partnership, joint venture, trust or
other enterprise, or if such person has previously been designated for
indemnification by a resolution of the Board of Directors, is or was an officer,
employee or agent of the Corporation, against expenses (including attorneys'
fees), judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding if
such person acted in good faith and in a manner such person reasonably believed
to be in or not opposed to the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to believe
such person's conduct was unlawful. The termination of any action, suit or
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proceeding by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself, create a presumption that
the person did not act in good faith and in a manner which such person
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that such person's conduct was unlawful; and
2. indemnify any present or former director of the Corporation and any
present or former officer, employee or agent of the Corporation selected by the
Board of Directors for indemnification, such selection to be evidenced by an
indemnification agreement, who was or is a party or is threatened to be made a
party to any threatened, pending or completed action or suit by or in the right
of the Corporation to procure a judgment in its favor by reason of the fact that
such person is or was a director, or is or was serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, or if such person has
previously been designated for indemnification by a resolution of the Board of
Directors, is or was an officer, employee or agent of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by him in
connection with the defense or settlement of such action or suit if such person
acted in good faith and in a manner such person reasonably believed to be in or
not opposed to the best interests of the Corporation and except that no
indemnification shall be made in respect of any claim, issue or matter as to
which such person shall have been adjudged to be liable to, the Corporation,
unless and only to the extent that the Court of Chancery or the court in which
such action or suit was brought shall determine upon application that, despite
the adjudication of liability but in view of all the circumstances of the case,
such person is fairly and reasonably entitled to indemnity for such expenses
which the Court of Chancery or such other court shall deem proper; and
3. indemnify any present or former director or officer or any present
or former employee or agent of the Corporation selected by the Board of
Directors for indemnification, such selection to be evidenced by an
indemnification agreement, against expenses (including attorneys' fees) actually
and reasonably incurred by such person in connection therewith, to the extent
that such person has been successful on the merits or otherwise in defense of
any action, suit or proceeding referred to in Article XII.A.1. and 2., or in
defense of any claim, issue or matter therein; and
4. make any indemnification under Article XII.A.1. and 2. (unless
ordered by a court) only as authorized in the specific case upon a determination
that indemnification of the present or former director, officer, employee or
agent is proper in the circumstances because such director, officer, employee or
agent has met the applicable standard of conduct set forth in Article XII.A.1.
and 2. Such determination shall be made, with respect to a person who is an
officer or director at the time of such determination, (a) by a majority vote of
the directors who are not parties to such action, suit or proceeding, even if
less than a quorum, or (b) by a committee of such directors designated by a
majority vote of such directors, even if less than a quorum, or (c) if there are
no such directors, or if such directors so direct, by independent legal counsel
in a written opinion, or (d) by the stockholders of the Corporation; and
5. pay expenses incurred by a director or officer in defending a civil
or criminal action, suit or proceeding in advance of the final disposition of
such action, suit or proceeding
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<PAGE> 16
upon receipt of an undertaking by or on behalf of such director or officer to
repay such amount if it shall ultimately be determined that such director or
officer is not entitled to be indemnified by the Corporation as authorized in
this Article XII. Notwithstanding the foregoing, the Corporation shall not be
obligated to pay expenses incurred by a director or officer with respect to any
threatened, pending, or completed claims, suits or actions, whether civil,
criminal, administrative, investigative or otherwise ("Proceedings"), initiated
or brought voluntarily by such director or officer and not by way of defense
(other than Proceedings brought to establish or enforce a right to
indemnification under the provisions of this Article XII, unless a court of
competent jurisdiction determines that each of the material assertions made by
such director or officer in such Proceedings were not made in good faith or were
frivolous). The Corporation shall not be obligated to indemnify such director or
officer for any amount paid in settlement of a Proceeding covered hereby without
the prior written consent of the Corporation to such settlement; and
6. not deem the indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Article XII as
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement or vote of
stockholders or disinterested directors, or otherwise, both as to action in such
director's or officer's official capacity and as to action in another capacity
while holding such office; and
7. have the right, authority and power to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee or
agent of the Corporation, or is or was serving at the request of the Corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise against any liability asserted against
such person and incurred by such person in any such capacity, or arising out of
such person's status as such, whether or not the Corporation would have the
power to indemnify such person against such liability under the provisions of
this Article XII; and
8. deem the provisions of this Article XII to be a contract between
the Corporation and each director, or appropriately designated officer, employee
or agent who serves in such capacity at any time while this Article XII is in
effect, and any repeal or modification of this Article XII shall not affect any
rights or obligations then existing with respect to any state of facts then or
theretofore existing or any action, suit or proceeding theretofore or thereafter
brought or threatened based in whole or in part upon such state of facts. The
provisions of this Article XII shall not be deemed to be a contract between the
Corporation and any directors, officers, employees or agents of any other
corporation (the "Second Corporation") which shall merge into or consolidate
with the Corporation when the Corporation shall be the surviving or resulting
corporation, and any such directors, officers, employees or agents of the Second
Corporation shall be indemnified to the extent required under the Law only at
the discretion of the board of Directors of the Corporation; and
9. continue the indemnification and advancement of expenses provided
by, or granted pursuant to, this Article XII, unless otherwise provided when
authorized or ratified, as to a person who has ceased to be a director, officer,
employee or agent of the Corporation, and the indemnification and advancement of
expenses provided by, or granted pursuant to, this Article XII shall inure to
the benefit of the heirs, executors and administrators of such a person.
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B. Elimination of Certain Liability of Directors: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the Law, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the Law is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation, in addition to the limitation on personal liability provided
herein, shall be limited to the fullest extent permitted by the amended Law. Any
repeal or modification of this Article XII by the stockholders of the
Corporation shall be prospective only and shall not adversely affect any
limitation on the personal liability of a director of the Corporation existing
at the time of such repeal or modification.
IN WITNESS WHEREOF, the Corporation has caused this Second Amended and
Restated Certificate of Incorporation to be signed by its President on _________
___, 1998.
NATURAL NUTRITION GROUP, INC.
(F/K/A INTREPID FOOD HOLDINGS,
INC.)
By:
-------------------------------------
William R. Voss
President and Chief Executive Officer
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EXHIBIT 3.2
FORM OF
AMENDED AND RESTATED BY-LAWS
OF
NATURAL NUTRITION GROUP, INC.
(F/K/A INTREPID FOOD HOLDINGS, INC.)
(AMENDED AND RESTATED _____________, 1998)
ARTICLE I
OFFICES
Section 1.1. Registered Office. The registered office of Natural
Nutrition Group, Inc. (the "Corporation") shall be in the City of Wilmington,
County of New Castle, State of Delaware.
Section 1.2. Other Offices. The Corporation may also have offices at
such other places both within and without the State of Delaware as the Board of
Directors may from time to time determine or the business of the Corporation
may require.
ARTICLE II
MEETINGS OF STOCKHOLDERS
Section 2.1. Place of Meeting. All meetings of the stockholders for
the election of directors shall be held at such place either within or without
the State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders
for any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Board of Directors in its notice
of the meeting or in a duly executed waiver of notice thereof.
Section 2.2. Time of Annual Meeting. Annual meetings of stockholders
shall be held on the third Thursday in May, if not a legal holiday, and if a
legal holiday, then on the next business day following, at 10:00 A.M., or at
such other date and time as shall be designated from time to time by the Board
of Directors and stated in the notice of the meeting, at which stockholders
shall elect directors to hold office for the term provided in Section 3.2 of
these By-laws and conduct such other business as shall be considered.
Section 2.3. Notice of Annual Meetings. Except as otherwise required
by law, written notice of the annual meeting stating the place, date and hour
of the meeting shall be given to
<PAGE> 2
each stockholder entitled to vote at such meeting not fewer than ten (10) nor
more than sixty (60) days before the date of the meeting.
Section 2.4. Director Nominations. Only persons who are nominated in
accordance with the following procedures shall be eligible to serve as
directors. Nominations of persons for election to the Board of Directors of
the Corporation at a meeting of stockholders may be made (i) by or at the
direction of the Board of Directors, or (ii) by any stockholder of the
Corporation entitled to vote in the election of directors at the meeting who
complies with the notice procedures set forth in this Article II, Section 2.4.
Such nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to,
or mailed and received by, the Secretary of the Corporation at the principal
executive offices of the Corporation not less than ninety (90) days prior to
the first anniversary of the date of the previous year's annual meeting of
stockholders; provided, however, that if no annual meeting of stockholders was
held in the previous year or if the date of the annual meeting is advanced by
more than thirty (30) days prior to, or delayed by more than sixty (60) days
after, such anniversary date, notice by the stockholder to be timely must be so
delivered, or mailed and received, not later than the close of business on the
later of (a) the sixtieth (60th) day prior to such annual meeting or (b) the
tenth (10th) day following the day on which the date of such meeting has been
first "publicly disclosed" (in the manner provided in the last sentence of this
Article II, Section 2.4) by the Corporation. Notwithstanding the foregoing, in
the event that the number of directors to be elected to the Board of Directors
is increased and the names of all of the nominees for director position are not
"publicly disclosed" by the Corporation at least seventy (70) days prior to the
date of the first anniversary of the prior year's annual meeting of
stockholders, a stockholder's notice pursuant to this Article II, Section 2.4
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to, or mailed and
received by, the Secretary of the Corporation at the principal executive
offices of the Corporation not later than the close of business on the tenth
(10th) day following the day on which such names have been first "publicly
disclosed" by the Corporation. Any stockholder's notice pursuant to this
Article II, Section 2.4 shall set forth (i) as to each person whom the
stockholder proposes to nominate for election or re-election as a director, all
information relating to such person that is required to be disclosed in
solicitations of proxies for election of directors, or is otherwise required,
in each case pursuant to Regulation 14A under the Securities Exchange Act of
1934, as amended (including such person's written consent to being named in the
proxy statement as a nominee and to serving as director if elected); and (ii)
as to the stockholder giving notice (A) the name and address, as they appear on
the Corporation's books, of such stockholder and (B) the class and number of
shares of the Corporation which are beneficially owned by such stockholder. At
the request of the Board of Directors, any person nominated by the Board of
Directors for election as a director shall furnish to the Secretary of the
Corporation that information required to be set forth in a stockholder's notice
of nomination which pertains to the nominee. No person shall be eligible to
serve as a director of the Corporation unless nominated in accordance with the
procedures set forth herein. The presiding officer shall, if the facts so
warrant, determine and declare to the meeting that a nomination was not made in
accordance with the procedures prescribed by the By-laws and the defective
nomination shall be disregarded. For purposes of these By-laws, "publicly
disclosed" or "public disclosure" shall mean disclosure in a press release
reported by the Dow Jones News
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<PAGE> 3
Service, Associated Press or a comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission.
Section 2.5. Annual Meeting Agenda Items. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (i) by or at the direction of the Board of Directors, or
(ii) by any stockholder of the Corporation who complies with the notice
procedures set forth in this Article II, Section 2.5, in the time herein
provided. For business to be properly brought before an annual meeting by a
stockholder, the stockholder must deliver written notice to, or mail such
written notice so that it is received by, the Secretary of the Corporation, at
the principal executive offices of the Corporation, not less than ninety (90)
days prior to the first anniversary of the date of the previous year's annual
meeting of stockholders; provided, however, that if no annual meeting of
stockholders was held in the previous year or if the date of the annual meeting
is advanced by more than thirty (30) days prior to, or delayed by more than
sixty (60) days after, such anniversary date, notice by the stockholder to be
timely must be so delivered, or mailed and received, not later than the close
of business on the later of (a) the sixtieth (60th) day prior to such annual
meeting or (b) the tenth (10th) day following the day on which the date of the
meeting has been first "publicly disclosed" (in the manner provided in Article
II, Section 2.4 above) by the Corporation. Any stockholder's notice pursuant
to this Article II, Section 2.5 shall set forth as to each matter the
stockholder proposes to bring before the annual meeting (A) a brief description
of the business desired to be brought before the annual meeting and the reasons
for conducting such business at the annual meeting, (B) the name and address,
as they appear on the Corporation's books, of the stockholder proposing such
business, (C) the class and number of shares of the Corporation which are
beneficially owned by the stockholder and (D) any material interest of the
stockholder in such business. At an annual meeting, the presiding officer
shall, if the facts warrant, determine and declare to the meeting that business
was not properly brought before the meeting in accordance with the provisions
of this Article, Section 2.5 and any such business not properly brought before
the meeting shall not be transacted. Whether or not the foregoing procedures
are followed, no matter which is not a proper matter for stockholder
consideration shall be brought before the meeting.
Section 2.6. Special Meetings of the Stockholders. Special meetings of
the stockholders of the Corporation may be called only by the Board of
Directors pursuant to a resolution approved by a majority of the Board of
Directors. The business transacted at any special meeting of the stockholders
shall be limited to the purposes stated in the notice for the meeting
transmitted to stockholders.
Section 2.7. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given by the Secretary of
the Corporation, not fewer than ten (10) nor more than sixty (60) days before
the date of the meeting, to each stockholder entitled to vote at such meeting.
Section 2.8. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock
or for the purpose of any other lawful action, the Board of Directors may fix a
record
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<PAGE> 4
date, which shall not precede the date upon which the resolution fixing the
record date is adopted and which shall be (i) not more than sixty (60) nor less
than ten (10) days before the date of a meeting, and (ii) not more than sixty
(60) days prior to any other action. A determination of stockholders of record
entitled to notice of, or to vote at, a meeting of stockholders shall apply to
any adjournment of the meeting; provided, however, that the Board of Directors
may fix a new record date for any adjourned meeting.
Section 2.9. Voting Lists. The officer who has charge of the stock
ledger of the Corporation shall prepare and make, at least ten (10) days before
every meeting of stockholders, a complete list of the stockholders entitled to
vote at the meeting, arranged in alphabetical order, and showing the address of
each stockholder and the number of shares registered in the name of each
stockholder. Such list shall be open to the examination of any stockholder,
for any purpose germane to the meeting, during ordinary business hours, for a
period of at least ten (10) days prior to the meeting, either at a place within
the city where the meeting is to be held, which place shall be specified in the
notice of the meeting, or, if not so specified, at the place where the meeting
is to be held. The list shall also be produced and kept at the time and place
of the meeting during the whole time thereof and may be inspected by any
stockholder who is present.
Section 2.10. Quorum and Adjournments. The holders of a majority of
the voting power of the stock issued and outstanding and entitled to vote
thereat, present in person or represented by proxy, shall constitute a quorum
at all meetings of the stockholders for the transaction of business, except as
otherwise provided by statute or by the Corporation's Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any such meeting of the stockholders, the stockholders entitled to vote
thereat, present in person or represented by proxy, shall have power to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented; provided that if the
adjournment is for more than thirty (30) days, or if after the adjournment a
new record date is fixed by the directors for the adjourned meeting, a new
notice shall be transmitted to the stockholders of record entitled to vote at
the adjourned meeting. At such adjourned meeting at which a quorum shall be
present or represented, any business may be transacted which might have been
transacted at the meeting as originally notified.
Section 2.11. Vote Required. When a quorum is present at any meeting
of all stockholders, the affirmative vote of the holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which, by express
provision of statute or of the Corporation's Certificate of Incorporation, a
different vote is required, in which case such express provision shall govern
and control the decision of such question; provided, however, all elections of
directors shall be determined by a plurality of the votes cast.
Section 2.12. Voting Rights. Unless otherwise provided in the
Corporation's Certificate of Incorporation, each stockholder having voting
power shall at every meeting of the stockholders be entitled to one (1) vote in
person or by proxy for each share of the capital stock having voting power held
by such stockholder, but no proxy shall be voted on after three (3) years from
its date, unless the proxy provides for a longer period. At any meeting of the
stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by
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an instrument in writing or by a transmission permitted by law filed in
accordance with the procedure established for the meeting. Any copy, facsimile
telecommunication or other reliable reproduction of the writing or transmission
created pursuant to this paragraph may be substituted or used in lieu of the
original writing or transmission for any and all purposes for which the
original writing or transmission could be used; provided that such copy,
facsimile telecommunication or other reproduction shall be a complete
reproduction of the entire original writing or transmission. All voting,
including on the election of directors, may (except where otherwise required by
law) be by a voice vote; provided, however, that upon demand therefor by a
stockholder entitled to vote or by his or her proxy, a stock vote shall be
taken. Every stock vote shall be taken by ballots, each of which shall state
the name of the stockholder or proxy voting and such other information as may
be required under the procedure established for the meeting. The Corporation
may, and to the extent required by law shall, in advance of any meeting of
stockholders, appoint one or more inspectors to act at the meeting and make a
written report thereof. The Corporation may designate one or more persons as
alternate inspectors to replace any inspector who fails to act. If no
inspector or alternate is able to act at a meeting of stockholders, the person
presiding at the meeting may, and to the extent required by law shall, appoint
one or more inspectors to act at the meeting. Each inspector, before entering
upon the discharge of his or her duties, shall take and sign an oath to
faithfully execute the duties of inspector with strict impartiality and
according to the best of his or her ability. Every vote taken by ballots shall
be counted by an inspector or inspectors appointed by the chairman of the
meeting.
Section 2.13. Presiding Over Meetings. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Vice Chairman, the President or a Vice
President (in that order) shall preside, and in their absence or inability to
act another person designated by one of them shall preside. The Secretary of
the Corporation shall act as Secretary of each meeting of the stockholders. In
the event of his or her absence or inability to act, the chairman of the
meeting shall appoint a person who need not be a stockholder to act as
Secretary of the meeting.
Section 2.14. Conducting Meetings. Meetings of the stockholders shall
be conducted in a fair manner but need not be governed by any prescribed rules
of order. The presiding officer of the meeting shall establish an agenda for
the meeting. The presiding officer's rulings on procedural matters shall be
final. The presiding officer is authorized to impose reasonable time limits on
the remarks of individual stockholders and may take such steps as such officer
may deem necessary or appropriate to assure that the business of the meeting is
conducted in a fair and orderly manner.
ARTICLE III
DIRECTORS
Section 3.1. General Powers. The business and affairs of the
Corporation shall be under the direction of, and managed by, a board comprised
of directors, which may exercise all such powers of the Corporation and do all
such lawful acts and things as are not required by statute, by the
Corporation's Certificate of Incorporation or by these By-laws to be done by
the
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stockholders. Directors need not be residents of the State of Delaware or
stockholders of the Corporation. The number of directors shall be determined
in the manner provided in the Corporation's Certificate of Incorporation.
Section 3.2. Election. Directors shall be elected by class for three
(3) year or other terms as specified in the Corporation's Certificate of
Incorporation, and each director elected shall hold office during the term for
which he or she is elected and until his or her successor is elected and
qualified, subject, however, to his or her prior death, resignation, retirement
or removal from office.
Section 3.3. Removal. Except as otherwise provided by law, directors
may only be removed for cause by the holders of at least sixty-six and two-
thirds percent (66- 2/3%) of the voting power of the shares entitled to vote at
an election of directors.
Section 3.4. Vacancies. Any vacancies occurring in the Board of
Directors and newly created directorships shall be filled in the manner
provided in the Corporation's Certificate of Incorporation.
Section 3.5. Place of Meetings. The Board of Directors of the
Corporation may hold meetings, both regular and special, either within or
without the State of Delaware. The first meeting of each newly elected Board
of Directors shall be held immediately following the adjournment of the annual
meeting of the stockholders at the same place as such annual meeting and no
notice of such meeting shall be necessary to the newly elected directors in
order to legally constitute the meeting, provided a quorum shall be present.
In the event such meeting is not held at such time and place, the meeting may
be held at such time and place as shall be specified in a notice given as
hereinafter provided for special meetings of the Board of Directors, or as
shall be specified in a written waiver signed by all of the directors.
Section 3.6 Participation by Conference Telephone. Unless otherwise
restricted by the Corporation's Certificate of Incorporation or these By-laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or
committee, by means of conference telephone or similar communications equipment
by means of which all persons participating in the meeting can hear each other,
and participation by such means shall constitute presence in person at such
meeting.
Section 3.7. Regular Meetings. Regular meetings of the Board of
Directors may be held, without notice, at such time and at such place as shall
from time to time be determined by the Board of Directors.
Section 3.8. Special Meetings. Special meetings of the Board of
Directors may be called by the Chairman of the Board, the Chief Executive
Officer or the President on at least one day's notice to each director, either
personally, or by courier, telephone, telefax, mail or telegram. Special
meetings shall be called by the Chairman, the Chief Executive Officer or the
President in like manner and on like notice at the written request of two or
more of the directors comprising the Board of Directors stating the purpose or
purposes for which such meeting is requested. Notice of any meeting of the
Board of Directors for which a notice is required may be waived in writing
signed by the person or persons entitled to such notice, whether before or
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after the time of such meeting, and such waiver shall be equivalent to the
giving of such notice. Attendance of a director at any such meeting shall
constitute a waiver of notice thereof, except where a director attends a
meeting for the express purpose of objecting to the transaction of any business
because such meeting is not lawfully convened. Neither the business to be
transacted at, nor the purpose of, any meeting of the Board of Directors for
which a notice is required need be specified in the notice, or waiver of
notice, of such meeting. The Chairman shall preside at all meetings of the
Board of Directors. In the absence or inability to act of the Chairman, then
the Vice Chairman (if one shall have been chosen by the Board), the Chief
Executive Officer, the President or the Chief Financial Officer (in that order)
shall preside, and in their absence or inability to act, another director
designated by one of them shall preside.
Section 3.9. Quorum; No Action on Certain Matters. At all meetings of
the Board of Directors, a majority of the then duly elected directors shall
constitute a quorum for the transaction of business, and the act of a majority
of the directors present at any meeting at which there is a quorum shall be the
act of the Board of Directors, except as may be otherwise specifically provided
by statute or by the Corporation's Certificate of Incorporation. If a quorum
shall not be present at any meeting of the Board of Directors, the directors
present thereat may adjourn the meeting from time to time, without notice other
than announcement at the meeting, until a quorum shall be present.
Section 3.10. Resignations. Any director of the Corporation may resign
at any time by giving written notice to the Board of Directors, the Chairman or
the President. Such resignation shall take effect at the time specified
therein and, unless tendered to take effect upon acceptance thereof, the
acceptance of such resignation shall not be necessary to make it effective.
Section 3.11. Informal Action. Unless otherwise restricted by the
Corporation's Certificate of Incorporation or these By-laws, any action
required or permitted to be taken at any meeting of the Board of Directors or
of any committee thereof may be taken without a meeting, if all members of the
Board of Directors or committee consent thereto in writing and the writing or
writings are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 3.12. Presumption of Assent. A director of the Corporation who
is present at a meeting of the Board of Directors at which action on any
corporate matter is taken shall be conclusively presumed to have assented to
the action taken unless his or her dissent shall be entered in the minutes of
the meeting or unless he or she shall file his or her written dissent to such
action with the person acting as the Secretary of the meeting before the
adjournment thereof or shall forward such dissent by registered mail to the
secretary of the Corporation immediately after the adjournment of the meeting.
Such right to dissent shall not apply to a director who voted in favor of such
action.
Section 3.13. Compensation of Directors. In the discretion of the Board
of Directors, the directors may be paid their expenses, if any, of attendance
at each meeting of the Board of Directors or a committee thereof, may be paid a
stated salary or a fixed sum for attendance at each meeting of the Board of
Directors or a committee thereof and may be awarded other compensation for
their service as directors. No such payment or award shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
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Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
COMMITTEES OF DIRECTORS
Section 4.1. Appointment and Powers. The Board of Directors may
designate one or more committees, each committee to consist of one or more of
the directors of the Corporation. The Board of Directors may designate one or
more directors as alternate members of any committee, who may replace any
absent or disqualified member at any meeting of the committee. In the absence
or disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not such
member or members constitute a quorum, may unanimously appoint another member
of the Board of Directors to act at the meeting in the place of any such absent
or disqualified member. Any such committee, to the extent provided in the
resolution of the Board of Directors, shall have and may exercise all the
powers and authority of the Board of Directors in the management of the
business and affairs of the Corporation, and may authorize the seal of the
Corporation to be affixed to all papers which may require it; but no such
committee shall have the power or authority in reference to the following
matters: (a) approving or adopting, or recommending to the stockholders, any
action or matter expressly required by the Delaware General Corporation Law to
be submitted to stockholders for approval or (b) adopting, amending or
repealing any of the By-laws.
Section 4.2. Committee Minutes. Each committee shall keep regular
minutes of its meetings and shall file such minutes and all written consents
executed by its members with the Secretary of the Corporation. Each committee
may determine the procedural rules for meeting and conducting its business and
shall act in accordance therewith, except as otherwise provided herein or
required by law. Adequate provision shall be made for notice to members of all
meetings; one-third of the members shall constitute a quorum unless the
committee shall consist of one or two members, in which event one member shall
constitute a quorum; and all matters shall be determined by a majority vote of
the members present. Action may be taken by any committee without a meeting if
all members thereof consent thereto in writing and the writing or writings are
filed with the minutes of the proceedings of such committee.
ARTICLE V
NOTICES
Section 5.1. Manner of Notice. Whenever, under applicable law or the
Corporation's Certificate of Incorporation or these By-laws, notice is required
to be given to any director or stockholder, unless otherwise provided in the
Corporation's Certificate of Incorporation or these By-laws, such notice may be
given in writing, by courier or mail, addressed to such director or
stockholder, at such director's or stockholder's address as it appears on the
records of the Corporation, with freight or postage thereon prepaid, and such
notice shall be deemed to be given at the time when the same shall have been
deposited with such courier or in the United States mail. Notice may be given
orally if such notice is confirmed in writing in a manner
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<PAGE> 9
provided therein. Notice to directors may also be given by telegram, mailgram,
telex or telecopier.
Section 5.2. Waiver. Whenever any notice is required to be given under
applicable law or the provisions of the Corporation's Certificate of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
OFFICERS
Section 6.1. Number and Qualifications. The officers of the
Corporation shall be chosen by the Board of Directors and shall be a Chairman
of the Board, a Chief Executive Officer, a President, a Chief Financial
Officer, one or more Vice Presidents, a Secretary and a Treasurer. The Board
of Directors may also choose a Vice Chairman for the Board (or Vice Chairman),
one or more Assistant Secretaries and Assistant Treasurers and such additional
officers as the Board of Directors may deem necessary or appropriate from time
to time. Membership on the Board of Directors shall not be a prerequisite to
the holding of any other office. Any number of offices may be held by the same
person, unless the Corporation's Certificate of Incorporation or these By-laws
otherwise provide.
Section 6.2. Election. The Board of Directors at its first meeting
after each annual meeting of stockholders shall elect a Chairman of the Board,
a Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice Presidents, a Secretary and a Treasurer, and may choose a Vice Chairman of
the Board, one or more Assistant Secretaries and Assistant Treasurers and such
other officers as the Board of Directors shall deem desirable.
Section 6.3. Other Officers and Agents'. The Board of Directors may
choose such other officers and agents as it shall deem necessary, which
officers and agents shall hold their offices for such terms and shall exercise
such powers and perform such duties as shall be determined from time to time by
the Board of Directors.
Section 6.4. Salaries. The salaries or other compensation of the
officers and agents of the Corporation shall be fixed from time to time by the
Board of Directors, and no officer shall be prevented from receiving such
salary or other compensation by reason of the fact that such officer is also a
director of the Corporation.
Section 6.5. Term of Office. The officers of the Corporation shall
hold office until their successors are chosen and qualified or until their
earlier resignation or removal. Any officer elected or appointed by the Board
of Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the directors then in office at any meeting
of the Board of Directors. If a vacancy shall exist in the office of the
Corporation, the Board of Directors may elect any person to fill such vacancy,
such person to hold office as provided in Section 6.1 of this Article VI.
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Section 6.6. The Chairman of the Board. The Chairman of the Board (or
Chairman) shall preside at all meetings of the stockholders and of the Board of
Directors and shall see that orders and resolutions of the Board of Directors
are carried into effect. The Chairman of the Board shall perform such duties
as may be assigned to him by the Board of Directors.
Section 6.7. The Chief Executive Officer. The Chief Executive Officer
shall be the principal executive officer of the Corporation and shall, in
general, supervise and control all of the business and affairs of the
Corporation, unless otherwise provided by the Board of Directors. In the
absence of the Chairman of the Board, the Chief Executive Officer shall preside
at all meetings of the stockholders and of the Board of Directors and shall see
that orders and resolutions of the Board of Directors are carried into effect.
The Chief Executive Officer may sign bonds, mortgages, certificates for shares
and all other contracts and documents, whether or not under the seal of the
Corporation, except in cases where the signing and execution thereof shall be
expressly delegated by law, by the Board of Directors or by these By-laws to
some other officer or agent of the Corporation. The Chief Executive Officer
shall have general powers of supervision and shall be the final arbiter of all
differences between officers of the Corporation, and the Chief Executive
Officer's decision as to any matter affecting the Corporation shall be final
and binding as between the officers of the Corporation, subject only to its
Board of Directors.
Section 6.8. The President. Unless another person has been designated
as Chief Operating Officer, the President shall be the Chief Operating Officer
of the Corporation responsible for the day-to-day active management of the
business of the Corporation, under the general supervision of the Chief
Executive Officer. In the absence of the Chief Executive Officer, the
President shall perform the duties of the Chief Executive Officer, and when so
acting, shall have all the powers of and be subject to all the restrictions
upon the Chief Executive Officer. The President shall have concurrent power
with the Chief Executive Officer to sign bonds, mortgages, certificates for
shares and other contracts and documents, whether or not under the seal of the
Corporation, except in cases where the signing and execution thereof shall be
expressly delegated by law, by the Board of Directors or by these By-laws to
some other officer or agent of the Corporation. In general, the President
shall perform all duties incident to the office of the President and such other
duties as the Chief Executive Officer or the Board of Directors may from time
to time prescribe.
Section 6.9. The Chief Financial Officer. The Chief Financial Officer
shall be the principal financial and accounting officer of the Corporation.
The Chief Financial Officer shall: (a) have charge of and be responsible for
the maintenance of adequate books of account for the Corporation; (b) have
charge and custody of all funds and securities of the Corporation, and be
responsible therefor and for the receipt and disbursement thereof; and (c)
perform all the duties incident to the office of the Chief Financial Officer
and such other duties as from time to time may be assigned to him by the
President or by the Board of Directors. If required by the Board of Directors,
the Chief Financial Officer shall give a bond for the faithful discharge of the
Chief Financial Officer's duties in such sum and with such surety or sureties
as the Board of Directors may determine.
Section 6.10. The Vice Presidents. In the absence of the President, or
in the event of the President's inability or refusal to act, the Vice
Presidents (in the order designated, or in the
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absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of,
and be subject to all the restrictions upon, the President. The Vice
Presidents shall perform such other duties and have such other powers as the
Chief Executive Officer or the Board of Directors may from time to time
prescribe.
Section 6.11. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, or cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors and shall perform such other duties
as may be prescribed by the Board of Directors or the Chief Executive Officer,
under whose supervision the Secretary shall be. The Secretary shall have
custody of the corporate seal of the Corporation and the Secretary or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by the Secretary's
signature or by the signature of such Assistant Secretary. The Board of
Directors may give general authority to any other officer to affix the seal of
the Corporation and to attest the affixing by such officer's signature.
Section 6.12. The Treasurer. In the absence of the Chief Financial
Officer or in the event of the Chief Financial Officer's inability or refusal
to act, the Treasurer shall perform the duties of the Chief Financial Officer,
and when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Financial Officer. The Treasurer shall perform
such other duties and have such other powers as the Chief Executive Officer or
the Board of Directors may from time to time prescribe.
Section 6.13. The Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by
the Board of Directors (or if there be no such determination, then in the order
of their election), shall, in the absence of the Secretary or in the event of
the Secretary's inability or refusal to act, perform the duties and exercise
the powers of the Secretary and shall perform such other duties and have such
other powers as the Chief Executive Officer or the Board of Directors may from
time to time prescribe.
Section 6.14. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the
event of the Treasurer's inability or refusal to act, perform the duties and
exercise the powers of the Treasurer and shall perform such other duties and
have such other powers as the Chief Executive Officer or the Board of Directors
may from time to time prescribe.
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ARTICLE VII
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
Section 7.1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate signed by, or in the name
of, the Corporation by (a) the Chairman of the Board, the Vice-Chairman of the
Board or the President of the Corporation, and (b) the Secretary, the
Treasurer, an Assistant Secretary or an Assistant Treasurer of the Corporation,
certifying the number of shares owned by such holder in the Corporation. If
the Corporation shall be authorized to issue more than one class of stock or
more than one series of any class, the powers, designations, preferences and
relative, participating, optional or other special rights of each class of
stock or series thereof and the qualifications, limitations or restrictions of
such preferences and/or rights shall be set forth in full or summarized on the
face or back of the certificate which the Corporation shall issue to represent
such class or series of stock; provided that, except as otherwise provided in
Section 202 of the General Corporation Law of Delaware, in lieu of the
foregoing requirements, there may be set forth, on the face or back of the
certificate which the Corporation shall issue to represent such class or series
of stock, a statement that the Corporation will furnish without charge to each
stockholder who so requests the powers, designations, preferences and relative,
participating, optional or other special rights of each class of stock or
series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Subject to the foregoing, certificates of stock of
the Corporation shall be in such form as the Board of Directors may from time
to time prescribe.
Section 7.2. Facsimile Signatures. Where a certificate is
countersigned (i) by a transfer agent other than the Corporation or its
employee or (ii) by a registrar other than the Corporation or its employee, any
other signatures on the certificate may be facsimile. In case any officer,
transfer agent or registrar who has signed, or whose facsimile signature has
been placed upon, a certificate shall have ceased to be such officer, transfer
agent or registrar before such certificate is issued, it may be issued by the
Corporation with the same effect as if such person were such officer, transfer
agent or registrar at the date of issue.
Section 7.3. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as the Corporation shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation or its transfer agent or registrar with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.4. Transfers of Stock. Upon surrender to the Corporation or
the transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the
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Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 7.5. Registered Stockholders. The Corporation shall be
entitled to recognize the exclusive right of a person registered on its books
as the owner of shares to receive dividends and to vote as such owner and to
hold liable for calls and assessments a person registered on its books as the
owner of shares, and shall not be bound to recognize any equitable or other
claim to or interest in such share or shares on the part of any other person,
whether or not the Corporation shall have express or other notice thereof,
except as otherwise provided by the laws of Delaware.
ARTICLE VIII
CONFLICT OF INTERESTS
Section 8.1. Contract or Relationship Not Void. No contract or
transaction between the Corporation and one or more of its directors or
officers, or between the Corporation and any other corporation, partnership,
association or other organization in which one or more of its directors or
officers are directors or officers or have a financial interest shall be void
or voidable solely for this reason, or solely because such director or officer
is present at, or participates in, the meeting of the Board of Director's or
committee thereof which authorizes the contract or transaction, or solely
because such director's or officer's vote is counted for such purpose, if:
(i) The material facts as to such director's or officer's
relationship or interest and as to the contract or transaction
are disclosed or are known to the Board of Directors or the
committee, and the board or committee in good faith authorizes
the contract or transaction by the affirmative vote of a majority
of the disinterested directors, even though the disinterested
directors be less than a quorum; or
(ii) The material facts as to such director's or officer's
relationship or interest and as to the contract or transaction
are disclosed or are known to the stockholders entitled to vote
thereon, and the contract or transaction is specifically approved
in good faith by vote of the stockholders; or
(iii) The contract or transaction is fair as to the Corporation as of
the time it is authorized, approved or ratified by the Board of
Directors, a committee thereof, or the stockholders.
Section 8.2. Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
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ARTICLE IX
GENERAL PROVISIONS
Section 9.1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property or in
shares of the capital stock or rights to acquire same, subject to the
provisions of the Corporation's Certificate of Incorporation. Before payment
of any dividend, there may be set aside out of any funds of the Corporation
available for dividends such sum or sums as the directors from time to time, in
their absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may
modify or abolish any such reserve in the manner in which it was created.
Section 9.2. Checks. All checks or demands for money and notes of the
Corporation shall be signed by such officer or officers or such other person or
persons as the Board of Directors may from time to time designate.
Section 9.3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 9.4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 9.5. Stock in Other Corporations. Shares of any other
corporation which may from time to time be held by this Corporation may be
represented and voted at any meeting of stockholders of such corporation by the
Chairman, the Chief Executive Officer, the President, the Chief Financial
Officer or a Vice President of the Corporation, or by any proxy appointed in
writing by the Chairman, the Chief Executive Officer, the President, the Chief
Financial Officer or a Vice President of the Corporation, or by any other
person or persons thereunto authorized by the Board of Directors. Shares
represented by certificates standing in the name of the Corporation may be
endorsed for sale or transfer in the name of the Corporation by the Chairman,
the Chief Executive Officer, the President, the Chief Financial Officer or any
Vice President of the Corporation or by any other officer or officers thereunto
authorized by the Board of Directors. Shares belonging to the Corporation need
not stand in the name of the Corporation, but may be held for the benefit of
the Corporation in the individual name of the Chief Financial Officer or of any
other nominee designated for the purpose of the Board of Directors.
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ARTICLE X
AMENDMENTS
These By-laws may be altered, amended or repealed or new by-laws may be
adopted only in the manner provided in the Corporation's Certificate of
Incorporation.
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EXHIBIT 10.1
COMMON STOCK PURCHASE AGREEMENT
THIS COMMON STOCK PURCHASE AGREEMENT (this "Agreement"), dated
October 2, 1995, is between INTREPID FOOD HOLDINGS, INC., a Delaware
corporation (the "Company"), Frontenac VI Limited Partnership ("Purchaser"),
and William R. Voss ("Founder").
RECITALS
A. Founder and Purchaser are organizing the Company to
identify, investigate and pursue acquisition opportunities in the food
industry, and to develop related business plans and strategies.
B. In order to provide funding for the initial
activities of the Company, Founder and Purchaser desire to purchase shares of
Common Stock of the Company pursuant to the terms and conditions hereof.
AGREEMENTS
In consideration of the promises and the respective
agreements, covenants, representations and warranties contained herein and
other good and valuable consideration, the receipt and sufficiency of which are
hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
SALE AND PURCHASE OF COMMON STOCK
1.1 SALE AND PURCHASE OF COMMON STOCK. Upon the terms and subject
to the satisfaction of the conditions set forth herein, and in reliance upon
the respective representations and warranties of the parties set forth herein,
the Company hereby agrees to sell to Purchaser and Founder, and Purchaser and
Founder hereby agree to purchase from the Company, at the Closing (as defined
herein), 4,500 and 500 shares, respectively, of Common Stock, par value $.001
per share (the "Common Stock"), of the Company, in exchange for the payment of
$100.00 per share.
1.2 CLOSING. The closing of the purchase and sale of the shares
of Common Stock hereunder (the "Closing") will take place at the offices of
Hopkins & Sutter, Three First National Plaza, Suite 3800, Chicago, Illinois on
the date hereof or at such other time, date and place as shall be mutually
agreed by the Company, the Purchaser and the Founder. At the Closing:
<PAGE> 2
(a) the Company will deliver to Purchaser and Founder a
certificate for the number of shares of Common Sock purchased by such
person duly executed and registered in the name of such person; and
(b) Purchaser and Founder will deliver to the Company by
certified, cashier's or personal check or wire transfer, a payment
equal to the purchase price of such shares.
ARTICLE II
CONDITIONS TO CLOSING
The obligation of Purchaser and Founder to purchase shares of Common
Stock at the Closing is subject to the fulfillment to its satisfaction of each
of the following conditions:
2.1 REPRESENTATIONS AND WARRANTIES CORRECT. The representations
and warranties made by the Company in Article III shall be true and correct
when made, and shall be true and correct as of the Closing as if made at the
Closing.
2.2 PERFORMANCE. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company at
or prior to the Closing shall have been performed or complied with.
2.3 SECRETARY'S CERTIFICATE. At the Closing, the Company shall
have delivered to Purchaser and Founder correct and complete copies of each of
the following, in each case certified to be in full force and effect on the
date of the Closing by the Secretary of the Company:
(i) the By-Laws of the Company; and
(ii) resolutions of the Board of Directors of the Company
authorizing the execution, delivery and performance of this Agreement and the
transactions contemplated hereby and thereby.
2.4 CERTIFICATE OF INCORPORATION. At the Closing, the Company
shall have delivered to Purchaser and Founder the Certificate of Incorporation
of the Company certified by the Secretary of State of the State of Delaware as
of a date not more than 15 days prior to the date of the Closing.
2.5 EMPLOYMENT AGREEMENT. The Founder and the Company shall have
executed and delivered an Employment Agreement in the form of Exhibit A
attached hereto (the "Employment Agreement").
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Purchaser and Founder to enter into the
transactions contemplated by this Agreement, the Company represents and
warrants to Purchaser and Founder as follows:
3.1 ORGANIZATION AND QUALIFICATION. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
3.2 CORPORATE POWER. The Company has all requisite corporate
power and authority and all licenses, permits and authorizations necessary to
own and operate its properties, to carry on its business as now conducted and
to execute, deliver and perform this Agreement and to issue shares of Common
Stock to be issued hereunder, and to execute, deliver and perform all other
instruments, documents and agreements contemplated or required by the
provisions of this Agreement to be executed, delivered or performed by the
Company.
3.3 AUTHORIZATION OF TRANSACTION. The execution, delivery and
performance by the Company of this Agreement and the transactions contemplated
hereby (i) have been duly authorized by all necessary corporate action of the
Company, its officers, directors and stockholders and (ii) will not violate,
conflict with, result in any breach of any of the terms, conditions or
provisions of, constitute (with or without the passage of time or giving of
notice or both) a default under, or result in the creation of any lien or
encumbrance upon any property of the Company under the provisions of any law,
rule, regulation, judgment, writ, injunction, order, decree, agreement,
certificate of incorporation, by-law or other instrument to which the Company
is a party or by which the Company or any property of the Company may be bound.
3.4 BINDING OBLIGATION; VALID ISSUANCE. This Agreement has been
duly executed by the Company and constitutes a valid and legally binding
obligation of the Company, enforceable in accordance with its terms except as
the enforceability may be limited by bankruptcy, insolvency or other similar
laws of general application affecting the enforcement of creditors' rights or
by general principles of equity.
3.5 CAPITALIZATION. The Company's authorized capital stock
consists of 12,000 shares of Common Stock and 14,000 shares of Series A
Preferred Stock. The only shares of Common Stock issued and outstanding.
reserved for issuance or committed to be issued are the shares of Common Stock
to be issued pursuant to this Agreement. There are no shares of Series A
Preferred Stock issued and outstanding, reserved for issuance or committed to
be issued. Except as otherwise provided herein, there are no outstanding
preemptive, conversion or other rights, options, warrants or agreements granted
or issued by or binding upon the Company for the purchase or acquisition of any
shares of its capital stock or obligations to issue or grant any of the
foregoing or any outstanding capital appreciation, profit participation or
similar rights with respect to the Company or obligations to issue or grant any
such rights. The Company owns no equity or equity-like interest (whether
stock, partnership interest or equity appreciation rights) in any other entity.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASER AND FOUNDER
Each of Purchaser and Founder hereby represents and warrants to the
other parties for this Agreement with respect to itself or himself that:
(a) such person is acquiring the shares of Common
Stock for Investment and not with a view to distributing all or any
part thereof in any transaction which would constitute a
"distribution" within the meaning of the Securities Act of 1933, as
amended (the "Securities Act");
(b) such person acknowledges that the shares of
Common Stock have not been registered under the Securities Act of
1933, as amended, or any state securities law, and the Company is
under no obligation to file a registration statement with the
Securities and Exchange Commission or any state securities commission
with respect to the shares of Common Stock;
(c) such person has such knowledge and experience
in financial and business matters that he is capable of evaluating the
merits and risks of his investment in the shares of Common Stock;
(d) such person is able to bear the complete loss
of its or his investment in the shares of Common Stock (and with
respect to Purchaser, is not an entity formed solely to make this
investment); and
(e) such person has had the opportunity to ask
questions of, and receive answers from, the Company and its management
concerning the shares of Common Stock, and to obtain additional
information.
ARTICLE V
COVENANTS
5.1 GENERAL. (a) Until the consummation by the Company of its
first acquisition of a business in the food industry, except with the prior
approval of the Board of Directors of the Company, the Company shall not engage
in any activity other than (i) identifying, investigating and pursuing
acquisition opportunities in the food industry (but not including (a) the
execution of definitive agreements relating to acquisition opportunities or (b)
the consummation of acquisition opportunities), and developing related business
plans and strategies and (ii) developing and refining the business plan for the
Company. Without limiting the generality of the foregoing, except with the
prior approval of the Board of Directors of the Company, the
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Company shall not: (A) authorize or issue, or obligate itself by agreement or
otherwise to issue, any capital stock; (B) directly or indirectly declare or
pay a dividend or make other distributions with respect to any of its capital
stock; (C) except as permitted by the Employment Agreement, directly or
indirectly redeem, purchase or otherwise acquire any of the Company's capital
stock; (D) liquidate, dissolve or effect a recapitalization or reorganization
in any form of transaction; (E) create, incur, assume or suffer to exist any
liens or indebtedness); (F) merge or consolidate with any person or entity; (G)
sell, lease, license or otherwise dispose of all or substantially all its
assets; (H) establish or acquire any subsidiary; (I) acquire any equity or
equity-like interest (whether capital stock, partnership or membership interest
or equity appreciation right); (J) incur or make, or become obligated to incur
or make, any capital expenditures greater than $5,000; (K) make any amendment
to the Company's certificate of incorporation or bylaws, or file any resolution
of the Board of Directors with the Delaware Secretary of State; or (L) acquire
any business by any means.
(b) It is anticipated that, subject in all respects to the terms
and conditions outlined in Exhibit B attached hereto, further investments may
be made in the Company by Purchaser and Founder as outlined in Exhibit B
attached hereto to provide all or a portion of the financing which may be
necessary to acquire controlling interests in acquisition targets in the food
industry identified by the Company, which targets must be acceptable to
Purchaser and Founder, and which acquisitions must be made pursuant to
definitive documents acceptable to Purchaser and Founder. Any additional
investment in the Company to be made by Purchaser and Founder would be subject
in all respects to the execution and delivery of definitive documents
acceptable to Purchaser and Founder.
(c) Purchaser agrees that, from the date hereof until the date
that is eighteen months from the date hereof, Purchaser shall not capitalize
any entity formed to provide financing support for a food industry executive to
identify, investigate and pursue acquisition opportunities in the food
industry.
(d) For a period of 18 months after the date hereof, so long as
Founder is the Chief Executive Officer of the Company, Purchaser shall
reasonably promote the interests of the Company and shall use reasonable
efforts, as determined in its business judgment, to refer appropriate
acquisition possibilities that are brought to its attention to the Company.
(e) On or after September 29, 1996, so long as Founder is Chief
Executive Officer of the Company and the Company has not consummated its first
acquisition of a business in the food industry, Founder from time to time can
deliver an Additional Financing Notice (as hereinafter defined) to Purchaser.
An "Additional Financing Notice" is a notice executed by Founder specifying (i)
that additional financing for the Company is reasonably required to continue
the process of identifying, investigating and pursuing acquisition
opportunities in the food industry, (ii) the amount of such additional
financing requested (which is subject to the limit set forth in this
Agreement), (iii) a reasonably detailed budget for the use of the proceeds of
such additional financing which is consistent with the terms of this Agreement,
including a projection of the time frame in which such proceeds are expected to
be expended (which time frame shall not extend beyond March 31, 1997) and (iv)
that Founder will purchase additional shares of Common Stock of the Company at
a purchase price of $100.00 per share in an amount equal to 10% of the
additional financing requested. The maximum aggregate amount of additional
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financing obtainable pursuant to any and all Additional Financing Notices shall
be $250,000. If an Additional Financing Notice is reasonably acceptable to
Purchaser, a closing shall be held at a mutually agreeable time and place no
later than fifteen days after delivery of such Additional Financing Notice. At
such closing the Company will issue shares of Common Stock, and deliver
certificates therefor to each of Purchaser and Founder, in exchange for the
payment of $100.00 per share (i) to Purchaser who will purchase that number of
shares of Common Stock equal to the remainder of (a) 90% of the additional
financing requested in the Additional Financing Notice divided by (b) $100 and
(ii) to Founder who will purchase that number of shares of Common Stock equal
to the remainder of (a) 10% of the additional financing requested in the
Additional Financing Notice divided by (b) $100.
5.2 USE OF PROCEEDS. The Company shall use the proceeds from the
sale of Common Stock hereunder solely to pay (i) its obligations under the
Employment Agreement, (ii) its obligations under Section 6.9 hereof, and (iii)
for working capital purposes in connection with the activities permitted by
Section 5.1 hereof pursuant to a budget approved by the Board of Directors of
the Company.
5.3 BOARD OF DIRECTORS.
(a) Each of Purchaser and Founder agrees to take all action
necessary including, but not limited to, the voting of their shares of stock of
the Company, the execution of written consents, the calling of special
meetings, the removal of directors, the filling of vacancies on the Board of
Directors of the Company and each subsidiary of the Company, the waiving of
notice and the attending of meetings, so as to cause (i) the number of members
of the Board of Directors of the Company and each subsidiary of the Company to
be three prior to the consummation by the Company of its first acquisition of a
business in the food industry (and no more than seven members thereafter) and
(ii) the Board of Directors of the Company and each subsidiary of the Company
to be at all times comprised of the following persons:
(A) Founder (so long as Founder is employed by the Company);
(B) two persons designated by the Purchaser and who continue to be
acceptable to the Purchaser; and
(C) after the consummation by the Company of its first acquisition
of a business in the food industry, up to four persons with
substantial knowledge of the food industry, none of whom is an
employee or officer of the Company or any of its subsidiaries,
designated by the Purchaser and who continue to be acceptable
to the Purchaser (each such person is referred to herein as an
"Outside Director");
(b) After the consummation by the Company of its first acquisition
of a business in the food industry, each of Purchaser and Founder agrees to
take all actions necessary including, but not limited to, the voting of their
shares of stock of the Company and each subsidiary of the Company, the
execution of written consents, the calling of special meetings, the removal of
directors, the filling of vacancies on the Board of Directors of the Company
and each subsidiary of the Company, the waiving of notice and the attending of
meetings, to cause the Board of Directors of the Company and each subsidiary of
the Company to establish a compensation
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<PAGE> 7
committee which shall include the persons designated and acceptable pursuant to
Section 5.3(a)(ii)(B) and one Outside Director to set compensation of the
management of the Company and each subsidiary of the Company.
(c) Each of Purchaser and Founder agrees to take all actions
necessary including, but not limited to, the voting of their shares of stock of
the Company and each subsidiary of the Company, the execution of written
consents, the calling of special meetings, the removal of directors, the
filling of vacancies on the Board of Directors of the Company and each
subsidiary of the Company, the waiving of notice and the attending of meetings,
so as to cause each committee of the Board of Directors of the Corporation and
each subsidiary of the Company to include at least the persons designated and
acceptable pursuant to Section 5.3(a)(ii)(B).
(d) Founder shall resign from the Board of Directors of the
Company and each subsidiary of the Company, and each committee thereof, upon
the termination of Founder's employment with the Company.
(e) The Company shall hold meetings of its Board of Directors
periodically but not less often than quarterly.
5.4 RIGHT OF FIRST REFUSAL - NEW SECURITIES.
(a) Each of Purchaser and Founder shall have the right of first
refusal to purchase its or his proportionate number, or any lesser number, of
any New Securities which the Company may, from time to time, propose to sell
and issue. For purposes of this Section 5.4, each such holder's "proportionate
number" means the product obtained by multiplying the number of New Securities
(as hereinafter defined) proposed to be sold and issued by a fraction, the
numerator of which will be the number of shares of Common Stock owned by such
holder and the denominator of which will be the total number of shares of
Common Stock owned by all holders of Common Stock.
(b) In the event the Company proposes to undertake an issuance of
New Securities, it will give each of Purchaser and Founder written notice of
its intention to do so, describing the New Securities and the price and terms
upon which the Company proposes to issue the same, and setting forth the number
of shares which such holder is entitled to purchase and the aggregate purchase
price therefor. Each such holder will have 15 days from the date of receipt of
any notice to agree to purchase up to its or his proportionate number of such
New Securities, for the price and upon the terms specified in the notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event any Purchaser or Founder fails to exercise such
right of first refusal within said 15-day period the Company will have 120 days
thereafter to sell the New Securities as to which such holder's right was not
exercised, at a price and upon such other terms no more favorable to the
purchasers thereof than those specified in the Company's notice. In the event
the Company has not sold such New Securities within said 120-day period, the
Company will not thereafter issue or sell any New Securities without first
offering such New Securities to Purchaser and Founder in the manner provided
above.
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<PAGE> 8
(d) "New Securities" means (i) any capital stock of the Company or
any other securities or other obligations of the Company, including any equity,
profit participation or capital appreciation rights, or phantom stock, whether
now authorized or not, (ii) any rights, options, or warrants to purchase any
such capital stock or rights, or to purchase any securities of any type
whatsoever that are, or may become, convertible into any such capital stock,
and (iii) any securities of any type whatsoever that are, or may become
convertible into any such capital stock; provided, however, that "New
Securities" will not include (A) securities offered to the public pursuant to a
registration statement under the Securities Act, (B) options or securities
issued to, or securities issued upon exercise of options issued to, officers,
directors or employees of the Company or a subsidiary of the Company pursuant
to a stock option or purchase plan or other employee stock incentive program or
agreement approved by the Board of Directors of the Company or a subsidiary of
the Company, and (C) securities issued in connection with the acquisition of a
business or another entity by the Company or a subsidiary of the Company by any
means, including by merger, purchase of all or substantially all of such other
entity's assets or capital stock, or by other reorganization.
5.5 LIMITATIONS ON TRANSFERS BY FOUNDER.
(a) Founder agrees that he shall not sell, assign, pledge,
transfer or otherwise dispose of (each such act being referred to herein as a
"Transfer") any of his Management Securities (as defined in the Employment
Agreement), except as follows:
(i) with respect to any or all such Management
Securities, pursuant to the provisions of Section 5.6 hereof;
(ii) with respect to any or all such Management
Securities, pursuant to the "Drag-Along" provisions of Section 5.8
hereof;
(iii) with respect to any or all such Management
Securities, pursuant to the "Tag-Along" provisions of Section 5.9
hereof; or
(iv) with respect to any or all such Management
Securities, as otherwise consented to by Company in its sole
discretion; provided that, unless otherwise consented to by Purchaser
in its sole discretion, such shares when Transferred shall remain
subject to this Section 5.5, Section 5.8 and Section 5.10 of this
Agreement and Section 6 of the Employment Agreement, and the
transferee shall be or thereupon become bound by such Sections of this
Agreement and Section 6 of the Employment Agreement as if such
Transferee were Founder.
(b) In the event that Founder proposes to Transfer any Management
Securities in any transaction or series of related transactions pursuant to
Section 5.5(a)(iv), then at least 30 days prior to the proposed Transfer,
Founder shall notify Company and Purchaser of such proposed transactions,
setting forth the information that Purchaser would be required to set forth in
a Sale Notice pursuant to Section 5.7.
(c) Notwithstanding anything to the contrary in this Section 5.5,
Company shall not register (or permit any transfer agent to register) any
Transfer of Management Securities
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<PAGE> 9
otherwise permitted hereby where an acknowledgment that the proposed transferee
is bound by certain terms of this Agreement is appropriate unless and until
such acknowledgment is delivered in a form and substance satisfactory to
Company.
5.6 PERMITTED TRANSFERS. Founder may transfer Management
Securities to Permitted Transferees (a) who consent in a writing delivered to
the Company to be bound by the terms of Section 5.5, 5.8 and 5.10 of this
Agreement and Section 6 of the Employment Agreement as if such Transferee were
Founder and (b) who grant Founder an irrevocable power of attorney or proxy to
vote, or execute written consents or waivers with respect to, any such
Management Securities in any vote of the stockholders of the Company or with
respect to any other action of such stockholders. "Permitted Transferees"
means the spouse or lineal descendants of Founder, any trust for the benefit of
Founder or the benefit of the spouse or lineal descendants of Founder, any
corporation or partnership in which Founder, the spouse and the lineal
descendants of Founder are the direct and beneficial owners of all of the
equity interests (provided Founder, the spouse and lineal descendants of
Founder agree in writing to remain the direct and beneficial owners of all such
equity interests), and the personal representative of Founder upon Founder's
death for purposes of administration of Founder's estate or upon Founder's
incompetency for purposes of the protection and management of the assets of
Founder.
5.7 SALE NOTICE. In the event that Purchaser proposes to make a
Disposition (as hereinafter defined) of any shares of Common Stock, Purchaser
shall promptly notify (the "Sale Notice") Company and Founder of such proposed
Disposition in writing, setting forth:
(a) the number of shares of Common Stock proposed to be
disposed of by Purchaser (the "Offered Common Shares"); and
(b) the price per share at which Purchaser intends to
dispose of the Offered Common Shares (the "Offered Common Price") and
the identity of the proposed purchaser or purchasers, as well as the
other material terms and conditions of the proposed Disposition (the
"Offered Terms").
"Disposition" means a sale, transfer or other disposition of shares of Common
Stock, including by means of a merger or consolidation of Company with or into
any other person, but shall not include a distribution of shares to the
partners of Purchaser.
5.8 DRAG-ALONG RIGHT.
(a) In connection with the proposed transaction set forth in a
Sale Notice, Purchaser shall have the right (the "Drag-Along Right") to require
Founder to sell to the proposed purchaser or purchasers on the Offered Terms
for the Offered Common Price, that number of shares of Common Stock (or if such
number is not an integral number, the next integral number which is greater
than such number) which shall be the product of (i) the total number of shares
of Common Stock then owned by Founder and (ii) a fraction, the numerator of
which shall be the number of Offered Common Shares, and the denominator of
which shall be the total number of shares of Common Stock then owned by
Purchaser; provided that, if Purchaser is proposing to make a Disposition of
all shares of Common Stock then owned by Purchaser, then Purchaser
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<PAGE> 10
shall have the right to require Founder to sell to such proposed purchaser or
purchasers all shares of Common Stock then owned by Founder. To exercise the
Drag-Along Right, the Purchaser shall provide Founder with a notice (the
"Drag-Along Notice"), at least 10 days prior to consummation of the proposed
transaction, of its exercise of the Drag-Along Right, accompanied by the Sale
Notice required by Section 5.7. Upon the receipt of such Drag-Along Notice,
Founder shall be obligated to sell the number of shares of Common Stock subject
to the Drag-Along Right as determined above in connection with such proposed
transaction, and Founder shall promptly take all steps described in the
Drag-Along Notice and otherwise reasonably requested by Purchaser to effectuate
the Disposition of the shares of Common Stock covered thereby, including, but
not limited to, the furnishing of information customarily provided in
connection with such a sale and the execution of such sales and other transfer
documents with such representations, warranties, agreements, covenants and
indemnities as may be required by the Offered Terms. All references to "sell"
herein shall be deemed to include transfer, dispose of or otherwise convey in
the manner in which such Disposition is proposed to be made.
(b) At the closing of the proposed transaction (which date, place
and time shall be designated by Purchaser in writing at least two business days
prior thereto), Founder shall deliver certificates evidencing all its shares of
Common Stock subject to the Drag-Along Right, duly endorsed, or accompanied by
written instruments of transfer in form satisfactory to the proposed purchaser
or purchasers, duly executed, by Founder free and clear of any liens, claims or
encumbrances.
5.9 TAG-ALONG RIGHT.
(a) In connection with a proposed transaction set forth in a Sale
Notice in which the Purchaser shall not have exercised its Drag-Along Right,
Founder shall have the right but not the obligation (the "Tag-Along Right") to
sell to the proposed purchaser or purchasers on the Offered Terms for the
Offered Common Price that number of shares of Common Stock (or if such number
is not an integral number, the next integral number which is greater than such
number) which shall be the product of (i) the total number of shares of Common
Stock owned by Founder and (ii) a fraction, the numerator of which shall be the
number of Offered Common Shares and the denominator of which shall be the total
number of shares of Common Stock then owned by Purchaser. The shares of Common
Stock to be sold hereunder shall be sold on the same terms and conditions as
those applicable to the Purchaser specified in the Sale Notice, including the
time of sale, form of consideration and per-share price. Founder's failure to
exercise rights under this Section 5.9(a) shall result in exclusion from sale
in the transaction specified in the Sale Notice. If Founder desires to
exercise its rights under this Section 5.9(a), Founder shall give written
notice thereof to Purchaser no later than five (5) days after receipt of the
Sale Notice. Founder shall promptly take all steps described in the Sale
Notice to effectuate the sale of the shares of Common Stock covered thereby,
including, but not limited to, the furnishing of information customarily
provided in connection with such a sale and the execution of such sales and
other transfer documents with such representations, warranties, agreements,
covenants and indemnities as may be required by the Offered Terms. All
references to "sell" herein shall be deemed to include transfer, dispose of or
otherwise convey in the manner in which such Disposition is proposed to be
made.
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<PAGE> 11
(b) If the sum of (i) the Offered Common Shares and (ii) shares of
Common Stock offered for sale pursuant to the exercise of the Tag-Along Right
pursuant to Section 5.9(a) exceeds the number of shares of Common Stock that
the purchaser or purchasers described in the Sale Notice is willing to buy,
Purchaser shall have the right to adjust the number of shares of Common Stock
to be sold by each of Purchaser and Founder to ensure that the ratio of the
number of Common Stock proposed to be sold by each such holder to the number of
shares of Common Stock owned by such holder shall be equal for each of
Purchaser and Founder.
(c) The Tag-Along Right provisions of Section 5.9(a) shall be
exercisable only by Founder with respect to Management Securities owned by
Founder. The Tag-Along Right provisions of Section 5.9(a) shall not apply to
(i) any Disposition of shares of Common Stock by Purchaser to the partners of
Purchaser and (ii) any sales by any person or persons (including the partners
of Purchaser) other than sales by Purchaser.
5.10 SALE OF COMPANY. The parties hereto agree that at any time
after October 2, 2003, upon the written request of either Founder (so long as
he is Chief Executive Officer of Company) or Purchaser, the parties shall use
reasonable efforts to sell (i) all of the capital stock of the Company or (ii)
all or substantially all of the assets (and promptly distribute to holders of
Common Stock the proceeds available for distribution with respect to the Common
Stock after all other appropriate distributions, including distributions to the
holders of preferred stock of Company with respect to preferred stock of
Company), in either case, to a third party or parties not affiliated with
either Founder or Purchaser at the highest price and on the most favorable
terms to Founder and Purchaser then obtainable. Any such transaction involving
a sale of Common Stock shall be at the same price per share for all holders of
Common Stock as the price per share to be obtained by Purchaser, provided,
however, that in any such sale the preferred stock of Company shall first be
paid the full preferential amounts such preferred stock would be entitled to
receive in a liquidation of the Company (but no more than such amount). The
parties hereto shall reasonably cooperate with another in connection with their
obligations under this Section 5.10 and shall take such steps and execute such
documents and instruments as are reasonable or appropriate to consummate the
sale contemplated hereby on the terms provided for herein.
5.11 LEGEND ON SHARES. (a) Founder and Purchaser agree that the
following legend (or a legend to substantially the following effect) will be
affixed to all certificates evidencing all Management Securities:
"The securities evidenced by this certificate may not be sold,
pledged, hypothecated or otherwise transferred unless such sale,
pledge, hypothecation or other transfer complies with the provisions
of the Common Stock Purchase Agreement among Intrepid Food Holdings,
Inc. (the "Company"), Frontenac VI Limited Partnership and William R.
Voss, a copy of which is on file with the Secretary of the Company."
(b) Founder and Purchaser agree that the following legend (or a
legend to substantially the following effect) will be affixed to all
certificate evidencing shares of Common Stock:
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<PAGE> 12
"These securities have not been registered under the Securities Act of
1933. They may not be sold or offered for sale in the absence of an
effective registration statement as to the securities under that Act,
or an opinion from counsel satisfactory to Intrepid Food Holdings,
Inc. that such registration is not required."
Company shall, upon the written request of any holder accompanied by an opinion
of counsel (reasonably satisfactory in form and substance to Company) to the
effect that such holder's shares may be sold without registration or
qualification under relevant federal and state securities laws, issue
certificates evidencing such shares without the legend affixed in exchange for
legended certificates.
5.12 FEES. So long as Purchaser is a stockholder of Company,
Frontenac Company shall be paid a cash fee at the closing of each acquisition
by Company equal to 1.5% of the purchase price paid by Company (or a subsidiary
of Company) in such acquisition. At the end of each fiscal year of Company,
Frontenac Company shall be paid a cash fee equal to $50,000 for each seat on
the Board of Directors of the Company which was held by a partner of Frontenac
Company for all or a portion of such fiscal year.
ARTICLE VI
MISCELLANEOUS
6.1 SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All
representations and warranties contained herein, or made pursuant hereto, will
survive the execution and delivery of this Agreement.
6.2 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law and to carry out the intent of the parties, but if any provision
of this Agreement is held to be prohibited by or invalid under applicable law,
such provision will be ineffective only to the extent of such prohibition or
invalidity, without invalidating the remainder of such provisions or the
remaining provisions of this Agreement.
6.3 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered will be deemed an
original, and such counterparts taken together will constitute one and the same
agreement.
6.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of this Agreement.
6.5 INTERPRETATION OF AGREEMENT. Neither this Agreement, nor any
other agreement, document or instrument referred to herein or executed and
delivered in connection herewith, shall be construed against any party as the
principal draftsperson hereof or thereof.
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<PAGE> 13
6.6 GOVERNING LAW. All questions concerning the construction,
validity and interpretation of, and performance of the obligations imposed by,
this Agreement shall be governed by and construed in accordance with the
internal laws of the State of Illinois applicable to contracts made and wholly
to be performed in that state.
6.7 WAIVERS AND AMENDMENTS. Except as otherwise expressly
provided herein or therein, the provisions of this Agreement may be amended
only by the written agreement of the Company, Purchaser and Founder.
6.8 SUCCESSORS AND ASSIGNS. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and assigns of the parties hereto, whether so
expressed or not.
6.9 FEES AND EXPENSES.
(a) The Company shall bear all of its own expenses in connection
with this Agreement.
(b) The Company shall pay all expenses incurred by the Purchaser
(including the legal fees and disbursements of Hopkins & Sutter) in connection
with the negotiation, preparation, execution and delivery of the documents
contemplated hereby (including, but not limited to, this Agreement and the
Employment Agreement) and the transactions contemplated hereby.
(c) The Company shall pay all expenses incurred by founder
(including the legal fees and disbursements of his counsel) in connection with
the negotiation of the documents contemplated hereby (including, but not
limited to, this Agreement and the Employment Agreement).
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<PAGE> 14
6.10 NOTICES. Any notices required, permitted or desired, to be
given hereunder shall be delivered personally, sent by overnight courier or
mailed, registered or certified mail, return receipt requested, to the
following addresses, and shall be deemed to have been received on the day of
personal delivery, one business day after deposit with an overnight courier or
three business days after deposit in the mail:
If to the Company, to:
Intrepid Food Holdings, Inc.
c/o Frontenac Company
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
If to Purchaser or Founder, to the address set forth below such
person's name on the signature page hereto.
or to such other address or such other person or entity as any party may
specify in a written notice given to the other parties hereto.
[Remainder of Page Intentionally Left Blank.
Signature page follows.]
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<PAGE> 15
The parties hereto have executed and delivered this Agreement as of
the date first set forth above.
INTREPID FOOD HOLDINGS, INC.,
a Delaware corporation
By: /S/ R.S. McEniry
---------------------------------
Its: Vice President
PURCHASER:
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company
Its: General Partner
By: /S/ R.S. McEniry
---------------------------------
a partner
Address: 135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
FOUNDER:
/S/ William R. Voss
---------------------------------
William R. Voss
Address: 564 North Elm Street
Hinsdale, Illinois 60521
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<PAGE> 1
EXHIBIT 10.2
EMPLOYMENT AGREEMENT
THIS EMPLOYMENT AGREEMENT (this "Agreement"), dated October 2, 1995,
is between Intrepid Food Holdings, Inc., a Delaware corporation ("Company"),
and William R. Voss ("Executive").
RECITALS
Company desires to employ Executive, and Executive desires to accept
such employment, all upon the terms and subject to the conditions set forth in
this Agreement.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
1. Employment.
1.1 Term. Subject to the terms and conditions hereof,
Company agrees to employ Executive as its President and Chief Executive
Officer, and Executive agrees to accept such employment, for the term of this
Agreement (the "Term"). The initial term of this Agreement shall commence upon
the date hereof and shall end April 2, 1997 (which date is eighteen months
after the date hereof) unless terminated sooner pursuant to Section 3. After
the expiration of the initial term, this Agreement shall automatically be
renewed, and the Term shall automatically be extended, on each anniversary of
April 2 (an "Anniversary Date"), for successive one-year periods (subject to
earlier termination pursuant to Section 3) unless Company or Executive gives
the other party notice of its or his intent not to renew this Agreement and
extend the Term for an additional one-year period, such notice to be given at
least 30 days prior to any Anniversary Date.
1.2 Duties. During the Term, as President and Chief
Executive Officer of Company, Executive shall be obligated to perform such
duties and functions as are customarily performed by the president and chief
executive officer of a company the size and nature of Company, including the
duties and functions from time to time assigned to him by the Board of
Directors of Company (the "Board'). In particular, prior to the consummation
by the Company of its initial acquisition of a business in the food industry,
Executive will devote his efforts hereunder to identifying, investigating and
pursuing acquisition opportunities for the Company in the food industry, and
developing related business plans and strategies. Executive shall not
<PAGE> 2
take, or cause Company to take, actions in violation or breach of the terms of
that certain Common Stock Purchase Agreement dated the date hereof between
Company, Executive and Frontenac VI Limited Partnership (the "Common Stock
Purchase Agreement").
1.3 Time to be Devoted to Employment. Except as
otherwise specified below and except for illness or injury and reasonable
vacation periods specified herein, Executive shall devote his full business
time and efforts to his duties and responsibilities hereunder. During the
Term, except as described on Schedule 1.3 attached hereto, Executive shall not
accept other employment or render or perform other services for compensation.
Executive's expenditure of reasonable amounts of time on personal matters and
charitable activities shall not be deemed a breach of this Agreement, provided
the same do not interfere with the performance by Executive of his duties and
responsibilities hereunder.
1.4 Vacations. Executive shall be entitled to four weeks
of paid vacation time per year. Executive shall also be entitled to all paid
holidays given by Company to its employees.
2. Compensation.
2.1 Base Salary. As compensation for services rendered
hereunder, Executive shall receive an annual salary of $75,000, to be paid in
accordance with Company's customary payroll practices but in no event less
frequently than monthly. Such salary shall be increased to an annual salary of
$300,000 on the earlier of (i) October 2, 1996 or (ii) the consummation of the
Company's initial acquisition of a business in the food industry.
2.2 Welfare and Pension Payments. So long as Executive
is employed by Company hereunder, Executive shall be eligible to participate in
the various benefit plans that may be maintained by Company for its employees,
including, but not limited to, group life, disability, medical, dental and
health insurance, retirement and other plans in accordance with the terms of
such plans as from time to time in effect and applicable to employees of
Company.
2.3 Withholding. All taxable compensation payable to
Executive pursuant to this Agreement shall be subject to withholding taxes and
such other employment taxes as are required under Federal law or the law of any
state or other governmental body to be collected with respect to compensation
paid by a corporation to an employee.
3. Termination.
3.1 End of Term or Earlier Death. Subject to earlier
termination as provided herein, Executive's employment under this Agreement
shall terminate at the end of the Term or, if Executive dies prior thereto, on
the date of Executive's death.
3.2 Termination by Company for Cause. Company may
terminate Executive's employment hereunder at any time for Cause. For purposes
of this Agreement, "Cause" shall mean (i) Executive's commission of fraud,
theft, embezzlement or similar malfeasance or any felony, (ii) a material
breach of Executive's obligations under this Agreement or (iii) failure of
Executive to comply in all material respects with directions of the Board that
are reasonably
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<PAGE> 3
related to the duties to be performed by Executive as President and Chief
Executive Officer of Company, as determined in good faith by the Board
consistent with the terms of this Agreement. In order to terminate Executive's
employment hereunder for Cause, Company shall notify Executive of such decision
in writing, specifying the Cause and the Date of Termination (as hereinafter
defined). With respect to item (ii) (other than willful breaches of Section
5.2, for which no grace period is applicable) and item (iii) above, Executive
shall have seven (7) days after the giving of such notice to eliminate the
basis for such Cause to the reasonable satisfaction of the Board unless Company
has been materially damaged prior to the elimination of the basis for such
Cause.
3.3 Termination by Company for Failure to Attain
Performance Standards. Company may terminate Executive's employment hereunder
upon the failure of the Company to meet Performance Standards (as hereinafter
defined). "Performance Standards" means the attainment of projected financial
results of the Company mutually agreed upon between Executive and Company in
connection with each acquisition consummated by the Company for specified
periods after each such closing. It is anticipated that Performance Standards
will include a standard based on attaining an agreed upon percentage of
earnings before interest, income taxes, depreciation and amortization for the
Company for post-closing periods.
3.4 Termination by Company Without Cause. Company may
terminate Executive's employment hereunder at any time without Cause upon
notice to Executive specifying the Date of Termination.
3.5 Termination by Executive for Good Reason. Executive
shall be entitled to terminate his employment hereunder for Good Reason within
60 days of the occurrence of the event triggering Good Reason. For purposes of
this Agreement, "Good Reason" shall mean the occurrence of any of the following
circumstances without the Executive's consent: (a) assignment of Executive to
any duties substantially inconsistent with his position or duties contemplated
by this Agreement, or a substantial reduction of his duties from those
contemplated by this Agreement; (b) the removal of any titles of Executive
specified in Section 1. 1; (c) any breach of the Company's material obligations
under this Agreement (including the provisions of Section 2) or any failure by
Company to carry out any of its material obligations hereunder, and the failure
to cure such breach or failure within seven (7) days' after written notice of
such breach or failure has been delivered to Company by Executive; or (d) a
Change of Control (as hereinafter defined).
For purposes of this Agreement, "Change in Control" shall mean any one
or more of the following events: (i) any Person (hereinafter defined), other
than Executive, Company and/or Frontenac VI Limited Partnership, any subsidiary
of the Company, any employee benefit plan of the Company and/or of a subsidiary
of the Company, and/or any trustee or other fiduciary holding securities under
an employee benefit plan of the Company and/or a subsidiary of the Company, is
or becomes the "beneficial owner" (as defined in Rule 13d-3 promulgated under
the Securities Exchange Act of 1934, as amended), directly or indirectly, of
securities of Company representing in excess of 50% of the combined voting
power of the then outstanding voting securities of Company; (ii) the
consummation of a merger or consolidation of Company with any other corporation
or partnership, other than a merger or consolidation that would result in the
voting securities of Company outstanding immediately before the consummation
thereof
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<PAGE> 4
continuing to represent (either by remaining outstanding or by being converted
into voting securities of the surviving entity or of a parent of the surviving
entity) in excess of 50% of the combined voting power of the voting securities
(on a fully diluted basis) of the surviving entity (or its parent) outstanding
immediately after such merger or consolidation; or (iii) the stockholders of
Company approve a plan of complete liquidation of Company or of all of
substantially all of Company's assets other than a liquidation, sale or
disposition of all or substantially all of Company's assets in one transaction
or a series of related transactions to a subsidiary of Company or any other
company owned directly or indirectly by the stockholders of Company in
substantially the same proportions as their ownership of stock in the Company.
For purposes of this Agreement, "Person" shall mean any individual,
corporation, business, trust, association, company, partnership, joint venture,
governmental authority or other entity.
3.6 Termination for Disability. Company may terminate
Executive's employment hereunder for Disability. For purposes of this
Agreement, "Disability" shall mean Executive's inability, due to physical or
mental illness or accident or injury, to perform his duties hereunder on a
full-time basis for 60 or more business days within four consecutive months.
If Company elects to terminate this Agreement for Disability, it shall give
written notice thereof to Executive specifying the Date of Termination.
3.7 Notice and Date of Termination. Any termination by
Company or Executive shall be communicated by written Notice of Termination to
the other party hereto in accordance with Section 7.4. As used herein, the term
"Date of Termination" shall mean the date specified in the Notice of
Termination.
4. Payments Upon or After Termination.
4.1 Accrued Compensation. Upon termination of this
Agreement for whatever reason or non-renewal of this Agreement in the
circumstances described in Section 4.8, except as otherwise provided herein,
Executive shall be entitled to receive the compensation and benefits accrued
and unpaid as of the Date of Termination (or end of the then current Term upon
non-renewal, as applicable).
4.2 Payment in Case of Death. If Executive's employment
terminates because of Executive's death, Company shall pay to Executive's
beneficiary or, if no beneficiary has been designated by Executive in a written
notice to Company prior to his death, then to Executive's estate Executive's
salary through the date of Executive's death.
4.3 Termination for Cause. If Executive's employment
shall be terminated by Company for Cause, Company shall pay Executive his
salary then in effect through the Date of Termination, and Company shall have
no further obligations to Executive under this Agreement.
4.4 Termination by Company for Failure to Attain
Performance Standards. If Executive's employment is terminated by Company for
failure by the Company to meet the Performance Standards in accordance with the
provisions of Section 3.5, Company shall pay Executive his salary then in
effect through the Date of Termination, and Company shall have
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<PAGE> 5
no further obligations to Executive under this Agreement.
4.5 Termination by Company Without Cause or Termination
by Executive with Good Reason. If Executive's employment is terminated by
Company without Cause or by Executive for Good Reason in accordance with the
provisions of Section 3.5, Company shall continue to pay to Executive his then
current salary until the end of the then current Term, payable in equal monthly
installments.
4.6 Termination for Disability. During any period that
Executive fails to perform his duties hereunder as a result of incapacity due
to physical or mental illness or accident or injury, Executive shall continue
to receive his salary until the end of the Term, notwithstanding Executive's
termination by Company pursuant to Section 3.6.
4.7 Termination by Executive. If Executive terminates
his employment hereunder for any reason prior to the end of the Term (other
than for Good Reason), Company shall pay to Executive his salary then in effect
through the Date of Termination, and Company shall have no further obligations
to Executive under this Agreement. If Executive's employment hereunder extends
after April 2, 1998, Executive shall not terminate his employment hereunder
(other than for Good Reason) at any time after April 2, 1998 without providing
at least 30 days notice to Company prior to such termination and, if requested
by Company, providing reasonable assistance to Company in its efforts to
identify and hire a successor to Executive.
4.8 Non-Renewal. If, pursuant to Section 1.1, neither
Company nor Executive renews this Agreement for an additional one year period
at the end of the Term and this Agreement has not otherwise been terminated
prior to the end of the Term, Company shall pay Executive his then current
salary through the end of the Term.
5. Restrictive Covenants.
5.1 Covenant Not to Compete. During the Restrictive
Period (as hereinafter defined), Executive shall not, directly or indirectly,
be or become engaged in, or be or become an officer, director, stockholder,
executive, employee, advisor or agent of any person, firm, corporation, limited
liability company, partnership or other entity that owns, is engaged in, or
conducts, directly or indirectly, a Company Business (as hereinafter defined).
During the Restrictive Period, Executive shall not, directly or indirectly,
acquire an equity interest (including phantom equity, stock appreciation or
similar interests or rights) in any person, firm, corporation, limited
liability company, partnership or other entity that owns, is engaged in, or
conducts, directly or indirectly, an Identified Business (as hereinafter
defined) other than a customary equity incentive granted to Executive in
connection with the employment by Executive by a person, firm, corporation,
limited liability company, partnership or other entity that owns, is engaged
in, or conducts, directly or indirectly, an Identified Business. After the
termination of Executive's employment with the Company and if such termination
is as a result of termination of Executive for Cause, during the Restrictive
Period Executive shall not serve as an officer, director, executive, employee,
advisor or agent of any person, firm, corporation, limited liability company,
partnership or other entity that owns, is engaged in, or conducts, directly or
indirectly, an Identified Business. After the termination of Executive's
employment with Company and if such termination of employment is as a result of
(i) the voluntary
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<PAGE> 6
termination of employment hereunder by Executive (other than for Good Reason)
or (ii) non-renewal of the Term by Executive, during the Limited Restrictive
Period (as hereinafter defined), Executive shall not serve as an officer,
director, executive, employee, advisor or agent of any person, firm,
corporation, limited liability company, partnership or other entity that owns,
is engaged in, or conducts, directly or indirectly, an Identified Business.
For purposes of this Section 5, the "Restrictive Period" shall mean the period
commencing on the date hereof and ending one (1) year from the date of
termination of Executive's employment hereunder. For purposes of this Section
5, the "Limited Restrictive Period" shall mean the period commencing on the
date hereof and (i) if the termination of Executive's employment hereunder is
on or before April 2, 1997, ending one (1) year after the date of termination
of Executive's employment hereunder, (ii) if the termination of Executive's
employment hereunder is after April 2, 1997 but on or before April 2, 1998,
ending six months after termination of Executive's employment hereunder and
(iii) if the termination of Executive's employment hereunder is after April 2,
1998, ending on the date of termination of Executive's employment hereunder.
Executive acknowledges that he will be in possession of information that could
enable him to compete against Company more effectively than a person who has
not been an executive of a company engaged in the same business as Company.
Nothing contained in this Section 5.1 shall prohibit Executive from owning less
than 3% of the equity securities of any publicly-held entity or owning the
securities specified in Schedule 5.1 attached hereto. For purposes of this
Section 5, an "Identified Business" means any business (regardless of the form
or structure in which it is conducted) identified by the Company (either
through Executive's efforts or otherwise) during the Term as a potential
acquisition candidate for the Company. For purposes of this Section 5,
"Company Business" means a business conducted by the Company or a subsidiary of
the Company during the Term.
5.2 Confidential Information. Executive shall not at any
time (except as may be required in connection with any judicial or
administrative proceeding or inquiry) disclose to any person, other than an
officer or director of Company or a person to whom disclosure is reasonably
necessary or appropriate in connection with the performance by Executive of his
duties as an executive officer of Company, any material confidential
information of Company with respect to its business or assets, including, but
not limited to, confidential information relating to the properties, accounts,
books, records, suppliers, trade secrets and contracts of Company; provided,
however, that confidential information shall not include (a) any information
known or available to the public (other than as a result of unauthorized
disclosure by Executive) or (b) general industry knowledge and expertise of
Executive.
5.3 Reasonableness and Remedies. Executive acknowledges
that the scope and period of the foregoing restrictions after termination of
employment are fair and reasonable and are reasonably required for the
protection of Company. The parties hereto agree that Executive's breach of any
covenant contained in this Section 5 would result in substantial damage to
Company which would be impossible to ascertain. By reason of that fact,
Executive agrees that, in the event of any such breach, Company shall have the
right to enforce this Agreement by injunctive or other relief in equity.
6. Repurchase of Securities of Founder Upon Termination of
Employment.
(a) If Executive's employment with Company is terminated on or
prior to
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<PAGE> 7
October 2, 1997 (i) for Cause, (ii) voluntarily by Executive (other than for
Good Reason pursuant to Section 3.5) or (iii) as a result of the non-renewal of
the Term by Executive, any or all of the Management Securities (as hereinafter
defined) may be purchased in accordance with the terms of this paragraph (a) at
a price of $100.00 per share (as appropriately adjusted for splits and
combinations of the Common Stock of the Company after the date hereof). The
Company shall have sixty (60) days after such termination in which to purchase
all or part of such Management Securities. If there is more than one holder of
such Management Securities and less than all of the Management Securities held
by such holders are being purchased by Company, the Management Securities being
purchased by the Company pursuant to this paragraph shall be purchased (i)
first, from Executive, (ii) second, from Permitted Transferees of Executive (as
defined in the Common Stock Purchase Agreement), pro rata among such Permitted
Transferees according to the number of Management Securities held by each such
Permitted Transferee, and (iii) , from other holders of Management Securities
(other than Founder and Founder's Permitted Transferees), pro rata among such
holders according to the number of Management Securities held by each such
holder.
(b) If Executive's employment with Company is terminated on or
prior to October 2, 1998 but after October 2, 1997 (i) for Cause, (ii)
voluntarily by Executive (other than for Good Reason pursuant to Section 3.5)
or (iii) as a result of the non-renewal of the Term by Executive, up to
two-thirds of the Management Securities may be purchased in accordance with the
terms of this paragraph (b) at a price of $ 100.00 per share (as appropriately
adjusted for splits and combinations of the Common Stock of the Company after
the date hereof). The Company shall have sixty (60) days after such
termination in which to purchase all or part of such Management Securities. If
there is more than one holder of such Management Securities and less than all
of the Management Securities held by such holders are being purchased by
Company, the Management Securities being purchased by the Company pursuant to
this paragraph shall be purchased (i) first, from Executive, (ii) second, from
Permitted Transferees of Executive (as defined in the Common Stock Purchase
Agreement), pro rata among such Permitted Transferees according to the number
of Management Securities held by each such Permitted Transferee, and (iii)
third, from other holders of Management Securities (other than Founder and
Founder's Permitted Transferees), pro rata among such holders according to the
number of Management Securities held by each such holder.
(c) If Executive's employment with Company is terminated on or
prior to October 2, 1999 but after October 2, 1998 (i) for Cause, (ii)
voluntarily by Executive (other than for Good Reason pursuant to Section 3.5)
or (iii) as a result of the non-renewal of the Term by Executive, up to
one-third of the Management Securities may be purchased in accordance with the
terms of this paragraph (c) at a price of $100.00 per share (as appropriately
adjusted for splits and combinations of the Common Stock of the Company after
the date hereof). The Company shall have sixty (60) days after such
termination in which to purchase all or part of such Management Securities. If
there is more than one holder of such Management Securities and less than all
of the Management Securities held by such holders are being purchased by
Company, the Management Securities being purchased by the Company pursuant to
this paragraph shall be purchased (i) first, from Executive, (ii) second, from
Permitted Transferees of Executive (as defined in the Common Stock Purchase
Agreement), pro rata among such Permitted Transferees according to the number
of Management Securities held by each such Permitted Transferee, and (iii),
from other holders of Management Securities (other than
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<PAGE> 8
Founder and Founder's Permitted Transferees), pro rata among such holders
according to the number of Management Securities held by each such holder.
(d) "Management Securities" means, at any time, (i) shares of
Common Stock of the Company held at any time by Executive, (ii) shares of
Common Stock of the Company that were at one time held by Executive but are
then held by a successor or assign of Executive (other than Purchaser), and
(iii) securities that were issued as a dividend or other distribution with
respect to or in replacement of other Management Securities and are then held
by (1) Executive or (2) a successor or assign of Executive (other than
Purchaser).
(e) The repurchase right of the Company pursuant to Section 6(a),
6(b) and 6(c) shall terminate upon the consummation of a public offering of
shares of Common Stock of the Company pursuant to a registration statement
declared effective under the Securities Act of 1933, as amended, but only if
all or a portion of the proceeds thereof are used to redeem in cash all shares
of preferred stock of the Company then outstanding.
(f) If Executive's employment with Company is terminated by
Company without Cause, Executive shall have the right, for a period of sixty
(60) days following such termination, to require the Company to purchase all or
part of the Management Securities at a price of $100.00 per share (as
appropriately adjusted for splits and combinations of the Common Stock after
the date hereof). The resale right of Executive pursuant to this Section 6(f)
shall terminate upon the consummation of a public offering of shares of Common
Stock of the Company pursuant to a registration statement declared effective
under the Securities Act of 1933, as amended.
(g) So long as the provisions of this Section 6 apply with respect
to Management Securities, the following legend (or a legend to substantially
the following effect) will be affixed to all certificates evidencing such
Management Securities:
"The securities evidenced by this certificate are subject to
certain repurchase rights in favor of the issuer hereof set
forth in that certain Employment Agreement between the Company
and William R. Voss, a copy of which is on file with the
Secretary of the issuer."
7. Miscellaneous.
7.1 Successors and Assigns: Binding Agreement. This
Agreement and all rights of Executive hereunder shall inure to the benefit of
and be enforceable by Executive's personal or legal representatives, executors,
administrators, successors, heirs, distributees, devisees and legatees. If
Executive shall die while any amounts remain unpaid hereunder, including any
amounts which would be payable to him hereunder if he had continued to live,
all such amounts, unless otherwise provided herein, shall be paid in accordance
with the terms of this Agreement to Executive's beneficiary or, if no
beneficiary has been designated by Executive in a written notice to Company
prior to his death, then to Executive's estate. This Agreement shall be
binding upon and shall inure to the benefit of the parties hereto and their
respective heirs, personal representatives, successors and assigns; provided,
however, that the duties of Executive hereunder are personal to Executive and
may not be delegated by him.
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<PAGE> 9
7.2 Governing Law. This Agreement shall be governed by
and construed in accordance with the internal laws of the State of Illinois
applicable to contracts made and to be performed in that state.
7.3 Waivers. The waiver by either party hereto of any
right hereunder or of any failure to perform or breach by the other party
hereto shall not be deemed a waiver of any other right hereunder or of any
other failure or breach by the other party hereto, whether of the same or a
similar nature or otherwise. No waiver shall be deemed to have occurred unless
set forth in a writing executed by or on behalf of the waiving party. No such
written waiver shall be deemed a continuing waiver unless specifically stated
therein, and each such waiver shall operate only as to the specific term or
condition waived and shall not constitute a waiver of such term or condition
for the future or as to any act other than that specifically waived.
7.4 Notices. All notices and communications that are
required, desired or permitted to be given hereunder shall be in writing and
shall be deemed to have been duly given when delivered personally or upon
mailing by registered or certified mail, postage prepaid, return receipt
requested, as follows:
If to Company, to:
Intrepid Food Holdings, Inc.
c/o Frontenac Company
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
If to Executive, to:
William R. Voss
564 North Elm Street
Hinsdale, Illinois 60521
or to such other address as may be specified in a notice given by one party to
the other party hereunder.
7.5 Severability. If for any reason any term or
provision of this Agreement is held to be invalid or unenforceable, all other
valid terms and provisions hereof shall remain in full force and effect, and
all of the terms and provisions of this Agreement shall be deemed to be
severable in nature. If for any reason any term or provision containing a
restriction set forth herein is held to cover an area or to be for a length of
time which is unreasonable, or in any other way is construed to be too broad or
to any extent invalid, such term or provision shall not be determined to be
null, void and of no effect, but to the extent the same is or would be valid or
enforceable under applicable law, any court of competent jurisdiction shall
construe and interpret or reform this Agreement to provide for a restriction
having the maximum enforceable area, time period and other provisions (not
greater than those contained herein) as shall be valid and enforceable under
applicable law.
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<PAGE> 10
7.6 Counterparts. This Agreement may be executed in two
counterparts, each of which shall be deemed to be an original and all of which
together shall constitute but one and the same instrument.
7.7 Amendment. This Agreement may be amended or canceled
by mutual agreement of the parties in writing.
7.8 Entire Agreement. This Agreement constitutes the
entire agreement between the parties, and supersedes all prior oral or written
understandings between the parties, relating to Executive's employment by
Company.
7.9 Expenses. During the Term, Executive shall receive
reimbursement for all ordinary and necessary travel and other reasonable
business expenses incurred by him in connection with his duties hereunder.
7.10 No Attachment. Except as required by law, no right
to receive payments under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
[Remainder of Page Intentionally Left Blank
Signature Page Follows]
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<PAGE> 11
The parties hereto have executed this Employment Agreement on the date
and year first above written.
INTREPID FOOD HOLDINGS, INC.
By: /S/ R.S. McEniry
-------------------------
Title: Vice President
/S/ William R. Voss
------------------------------
William R. Voss
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<PAGE> 1
EXHIBIT 10.3
AMENDMENT NO. 1
DATED AS OF JANUARY 28, 1997
TO
EMPLOYMENT AGREEMENT
DATED AS OF OCTOBER 2, 1995
This Amendment No. 1 to Employment Agreement (this "Amendment"), dated
as of January 28, 1997, is by and between INTREPID FOOD HOLDINGS, INC., a
Delaware corporation (the "Company"), and William R. Voss ("Executive").
RECITALS
A. The Company and Executive are parties to that certain Employment
Agreement dated as of October 2, 1995 (the "Employment Agreement;" the terms
defined in the Employment Agreement are being used herein as defined in the
Employment Agreement unless otherwise defined herein).
B. The Company and Executive desire to amend the Employment
Agreement on the terms stated herein to, among other things, eliminate the
Company's right to repurchase certain shares of capital stock owned by
Executive.
AGREEMENTS
In consideration of the foregoing recitals and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the parties hereto hereby agree as follows:
SECTION 1. Amendments to the Employment Agreement. The
Employment Agreement is amended as set forth below.
1.1 Section 6 of the Employment Agreement is hereby amended to
read in its entirety as follows:
"6. Repurchase of Securities of Founder Upon Termination of
Employment.
(a) If Executive's employment with Company is terminated on or prior
to April 15, 1999 (i) for Cause, (ii) voluntarily by Executive (other than for
Good Reason pursuant to Section 3.5) or (iii) as a result of the non-renewal of
the Term by Executive, any or all of the Management Securities (as hereinafter
defined) may be purchased in accordance with the terms of this paragraph (a) at
a price of $100.00 per share (as appropriately adjusted for splits and
combinations of the Common Stock of the Company after the date hereof). The
Company shall have sixty (60) days after such termination in which to purchase
all or part of such Management
1
<PAGE> 2
Securities. If there is more than one holder of such Management Securities and
less than all of the Management Securities held by such holders are being
purchased by Company, the Management Securities being purchased by the Company
pursuant to this paragraph shall be purchased (i) first, from Executive, (ii)
second, from Permitted Transferees of Executive (as defined in the Common Stock
Purchase Agreement), pro rata among such Permitted Transferees according to the
number of Management Securities held by each such Permitted Transferee, and
(iii) third, from other holders of Management Securities (other than Founder
and Founder's Permitted Transferees), pro rata among such holders according to
the number of Management Securities held by each such holder.
(b) "Management Securities" means, at any time, (i) shares of Common
Stock of the Company held at any time by Executive, (ii) shares of Common Stock
of the Company that were at one time held by Executive but are then held by a
successor or assign of Executive (other than Frontenac VI Limited Partnership,
State of Wisconsin Investment Board of any of their affiliates or assigns), and
(iii) securities that were issued as a dividend or other distribution with
respect to or in replacement of other Management Securities and are then held
by (1) Executive or (2) a successor or assign of Executive (other than
Frontenac VI Limited Partnership, State of Wisconsin Investment Board of any of
their affiliates or assigns), but for purposes of section 6(a) does not include
Excluded Management Securities (as defined below). "Excluded Management
Securities" means (i) shares of Common Stock of the Company issued to Executive
pursuant to the Common Stock Purchase Agreement or that certain Stock Purchase
Agreement, dated as of April 15, 1996, by and among the Company, Executive,
Frontenac VI Limited Partnership and the State of Wisconsin Investment Board
(the "1996 Stock Purchase Agreement") (whether held by Executive or any other
person or entity) and (ii) securities that are issued as a dividend or other
distribution with respect to or in replacement of the shares issued pursuant to
the Common Stock Purchase Agreement or the 1996 Stock Purchase Agreement.
(c) The repurchase right of the Company pursuant to Section 6(a)
shall terminate upon the consummation of a public offering of shares of Common
Stock of the Company pursuant to a registration statement declared effective
under the Securities Act of 1933, as amended, but only if all or a portion of
the proceeds thereof are used to redeem in cash all shares of preferred stock
of the Company then outstanding.
(d) If Executive's employment with Company is terminated by Company
without Cause, Executive shall have the right, for a period of sixty (60) days
following such termination, to require the Company to purchase all or part of
the Management Securities at a price of $100.00 per share (as appropriately
adjusted for splits and combinations of the Common Stock after the date
hereof). The resale right of Executive pursuant to this Section 6(d) shall
terminate upon the consummation of a public offering of shares of Common Stock
of the Company pursuant to a registration statement declared effective under
the Securities Act of 1933, as amended.
2
<PAGE> 3
(e) So long as the provisions of this Section 6 apply with respect to
Management Securities, the following legend (or a legend to substantially the
following effect) will be affixed to all certificates evidencing Management
Securities subject to repurchase by the Company:
"The securities evidenced by this certificate are subject to
certain repurchase rights in favor of the issuer hereof set forth
in that certain Employment Agreement between the Company and
William R. Voss, a copy of which is on file with the Secretary of
the issuer".
At Executive's request and upon surrender by Executive to the Company of
any certificate or certificates evidencing Excluded Management Securities, the
Company will remove the above-referenced legend from such certificate or
certificates and reissue such certificate or certificates without such legend
to Executive.
(f) If Executive is required to pay any income taxes arising directly
as a result of the compensation deemed received by Executive due to the
termination hereunder of the Company's repurchase rights with respect to the
Excluded Management Securities, the Company shall be obligated to pay to
Executive a bonus equal to the lesser of (a) the sum of (i) the income taxes
payable by Executive attributable to such termination of repurchase rights plus
(ii) the federal, state and local income taxes payable by Executive
attributable to the receipt of such bonus and (b) the amount by with the
federal, state and local income taxes payable by the Company are reduced as a
result of the tax deduction utilized by the Company (i) pursuant to section
83(h) of the Internal Revenue Code of 1986, as amended (the "Code"),
attributable to the termination of such repurchase rights and (ii) pursuant to
section 162 of the Code attributable to the payment of such bonus. A portion
of the bonus to which Executive is entitled pursuant to this Section 6(f) shall
be paid at such time or times as the Company is required to withhold income
taxes with respect to either the compensation deemed received by Executive upon
termination of the Company's repurchase rights with respect to the Excluded
Management Securities or the bonus, in an amount sufficient to fund payment of
such withholding taxes. Any remaining portion of the bonus shall be paid not
later than December 31, 1997. The taxes payable by Executive and the reduction
in taxes payable by the Company as described in this Section 6(f) shall be
reasonably determined by the parties not later than December 31, 1997.
SECTION 2. REFERENCE TO AND EFFECT ON THE EMPLOYMENT
AGREEMENT.
2.1 Each reference in the Employment Agreement to "this Agreement",
"hereunder", "hereof", "herein", or words of like import shall mean and be a
reference to the Employment Agreement as amended hereby, and each reference to
the Employment Agreement in any other document, instrument or agreement shall
mean and be a reference to the Employment Agreement as amended hereby.
2.2 Except as specifically amended above, the Employment Agreement
shall remain in full force and effect and is hereby ratified and confirmed.
3
<PAGE> 4
SECTION 3. EXECUTION IN COUNTERPARTS. This Amendment may be
executed in any number of counterparts, each of which when so executed and
delivered shall be deemed to be an original and all of which taken together
shall constitute but one and the same instrument.
SECTION 4. HEADINGS. Section headings in this Amendment
are included herein for convenience of reference only and shall not constitute
a part of this Amendment for any other purpose.
IN WITNESS WHEREOF, the parties hereto have executed this Amendment as
of the date first above written.
INTREPID FOOD HOLDINGS, INC.
By: /S/ William R. Voss
-------------------------
Its: President
-------------------------
/S/ William R. Voss
------------------------------
William R. Voss
4
<PAGE> 1
EXHIBIT 10.4
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of
April 15, 1996 is between INTREPID FOOD HOLDINGS, INC., a Delaware corporation
(the "Company"), the persons and entities listed on Schedule 1.1 hereto (the
"Purchasers"), and William R. Voss (the "Founders").
RECITALS
The Purchasers and Founder desire to purchase from the
Company, and the Company desires to issue to the Purchasers and Founder, in the
aggregate, 18,666.667 shares of Series A Preferred Stock of the Company, par
value $0.001 per share (the "Preferred Shares"), and 8,333.33 shares of Common
Stock of the Company, par value $0.001 per share (the "Common Shares;" the
Common Shares and Preferred Shares are sometimes referred to herein as the
"Shares"), for an aggregate purchase price of $19,500,000, all upon the terms
and subject to the conditions set forth herein.
AGREEMENTS
In consideration of the recitals and the respective
agreements, covenants, representations and warranties contained herein and
other good and valuable consideration, the receipt and sufficiency of which is
hereby acknowledged, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase of Shares. Upon the terms and subject to
the satisfaction of the conditions set forth herein, and in reliance upon the
respective representations and warranties of the parties set forth herein, the
Company hereby agrees to sell to each of the Purchasers and Founder, and each
Purchaser and Founder severally and not jointly agrees to purchase from the
Company, at the Closing (as defined herein), the number of Common Shares and
Preferred Shares, respectively, set forth next to such Purchaser's or Founder's
name on Schedule 1.1, in exchange for the payment of the total purchase price
set forth next to such Purchaser's or Founder's name on Schedule 1.1.
1.2 Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") will take place at the offices of Hopkins & Sutter,
Three First National Plaza, Suite
<PAGE> 2
3800, Chicago, Illinois on the date hereof or at such other time, date and
place as shall be mutually agreed by the Company, the Purchasers and the
Founder. At the Closing:
(a) the Company will deliver to each Purchaser and
Founder certificates for the Common Shares and Preferred Shares, if any,
purchased by such Purchaser or Founder, duly executed and registered in the
name of such person or entity; and
(b) each Purchaser and Founder will deliver to the
Company by wire transfer to any account designated by the Company, a payment
equal to the total purchase price for such Shares being purchased by such
Purchaser or Founder, as set forth on Schedule 1.1.
ARTICLE II
CONDITIONS TO CLOSING
The obligation of each Purchaser and Founder to purchase the Shares
being purchased by such Purchaser or Founder at the Closing is subject to the
fulfillment to its satisfaction of each of the following conditions:
2.1 Representations and Warranties Correct. The representations
and warranties made by the Company in Article III shall be true and correct
when made, and shall be true and correct as of the Closing as if made at the
Closing.
2.2 Performance. All covenants, agreements and conditions
contained in this Agreement to be performed or complied with by the Company at
or prior to the Closing shall have been performed or complied with.
2.3 Certificate of Incorporation. At the Closing, the Company
shall have delivered to the Purchasers and Founder the Amended and Restated
Certificate of Incorporation of the Company in the form of Exhibit A hereto
(the "Certificate"), certified by the Secretary of State of the State of
Delaware as of a date not more than 5 days prior to the date of the Closing.
2.4 Registration Agreement. At or prior to the Closing, the
Company, the Purchasers and Founder shall have executed and delivered a
Registration Agreement in the form of Exhibit B attached hereto (the
"Registration Agreement").
2.5 Stockholders Agreement. At or prior to the Closing, the
Company, the Purchasers and Founder shall have executed and delivered a
Stockholders Agreement in the form of Exhibit C attached hereto (the
"Stockholders Agreement").
2.6 Option Agreement. At or prior to the Closing, the Company and
Founder shall have executed and delivered an Option Agreement in the form of
Exhibit D attached hereto (the "Founder Option Agreement").
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<PAGE> 3
2.7 Legal Investment. As of the Closing, the purchase of the
Shares by each Purchaser and Founder shall be legally permitted by all laws and
regulations to which Founder, such Purchaser and the Company are subject.
2.8 Purchase by Purchasers and Founder. At the Closing, each
Purchaser and Founder shall have purchased the number of Shares set forth next
to such Purchaser's or Founder's name on Schedule 1.1.
2.9 Structure of Company. (a) As of the closing:
(i) the Company shall own 100% of the issued and
outstanding capital stock of Health Valley Company ("Health Valley"),
and no person or entity shall have any right to acquire any shares of
capital stock or other securities of Health Valley, except the shares
of Common Stock of Health Valley issuable to George Mateljan, Jr.
pursuant to that certain Option Agreement between Mateljan and Health
Valley (the "Seller Option Agreement").
(ii) Health Valley shall own 100% of the issued and
outstanding capital stock of Health Valley Foods, Inc. and Health
Valley Manufacturing Company (the "Health Valley Companies").
(iii) Health Valley, the Health Valley Companies and Harris
Trust and Savings Bank ("Harris") shall have executed that certain
Credit Agreement dated as of the date hereof (the "Credit Agreement"),
and Harris shall have indicated that the conditions to the funding of
the term loan thereunder shall have been satisfied to Harris's
satisfaction.
(b) The documents pursuant to which the transactions
contemplated by Section 2.9(a) are consummated shall be reasonably acceptable
to each Purchaser and such transactions shall have been consummated
substantially in accordance with the terms of such documents.
2.10 Other Documents and Proceedings. As of the Closing, all
corporate and other proceedings in connection with the transactions
contemplated hereby and by the Stockholders Agreement and the Registration
Agreement, and all documents and instruments incident to such transactions,
shall be satisfactory in form and substance to each Purchaser and the Founder,
and each Purchaser and the Founder shall have received at or prior to the
Closing, all such documents as he or it shall have requested.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Purchasers and Founder to enter into the
transactions contemplated by this Agreement, the Company represents and
warrants to Purchasers and Founder as follows:
3.1 Organization and Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
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<PAGE> 4
3.2 Corporate Power. The Company has all requisite
corporate power and authority, and all licenses, permits and authorizations,
necessary to own and operate its properties, to carry on its business as now
conducted and to execute, deliver and perform this Agreement and to issue the
Shares to be issued hereunder, and to execute, deliver and perform all other
instruments, documents and agreements contemplated or required by the
provisions of this Agreement to be executed, delivered or performed by the
Company.
3.3 Authorization of Transaction. The execution,
delivery and performance by the Company of this Agreement and the transactions
contemplated hereby (i) have been duly authorized by all necessary corporate
action of the Company, its officers, directors and stockholders and (ii) will
not violate, conflict with, result in any breach of any of the terms,
conditions or provisions of, constitute (with or without the passage of time or
giving of notice or both) a default under, or result in the creation of any
lien or encumbrance upon any property of the Company under the provisions of
any law, rule, regulation, judgment, writ, injunction, order, decree,
agreement, certificate of incorporation, by-law or other instrument to which
the Company is a party or by which the Company or any property of the Company
may be bound.
3.4 Binding Obligation: Valid Issuance. This Agreement
has been duly executed by the Company and constitutes a valid and legally
binding obligation of the Company, enforceable in accordance with its terms
except as the enforceability may be limited by bankruptcy, insolvency or other
similar laws of general application affecting the enforcement of creditors'
rights or by general principles of equity.
3.5 Capitalization of Company. After the filing of the
Certificate, the Company's authorized capital stock consists of 40,000 shares
of Common Stock and 25,000 shares of Series A Preferred Stock. After giving
effect to the consummation at the Closing of the transactions contemplated by
this Agreement, the only shares of capital stock issued and outstanding,
reserved for issuance or committed to be issued will be:
(a) 13,333.33 fully paid and nonassessable shares of
Common Stock, duly issued and outstanding and owned of record and beneficially
by the persons or entities listed on Schedule 3.5;
(b) 18,666.667 shares of fully paid and nonassessable
Preferred Stock, duly issued and outstanding and owned of record and
beneficially by the persons or entities listed on Schedule 3.5; and
(c) 333 shares of Common Stock reserved for issuance to
the Founder pursuant to the Founder Option Agreement.
Except as otherwise provided herein, in the Stockholders Agreement, in the
Founder Option Agreement or in that certain Employment Agreement, dated October
2, 1995, by and between the Company and Founder, there are no outstanding
preemptive, conversion or other rights, options, warrants or agreements granted
or issued by or binding upon the Company for the purchase or acquisition of any
shares of its capital stock or obligations to issue or grant any of the
foregoing or any outstanding capital appreciation, profit participation or
similar rights with respect to the Company or obligations to issue or grant any
such rights.
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<PAGE> 5
3.6 Capitalization of Health Valley. As of the Closing, Health
Valley's issued and outstanding capital stock shall consist of 900 fully paid
and nonassessable shares of Common Stock, all of which shares shall be owned
beneficially and of record by the Company. Except as provided in the Seller
Option Agreement, there are no outstanding preemptive, conversion or other
rights, options, warrants or agreements granted or issued by or binding upon
Health Valley or the Company for the purchase or acquisition of any shares of
Health Valley's capital stock or obligations to issue or grant any of the
foregoing or any outstanding capital appreciation, profit participation or
similar rights with respect to Health Valley or obligations to issue or grant
any such rights. Immediately after the Closing, Health Valley shall own,
beneficially and of record, all of the issued and outstanding shares of capital
stock of the Health Valley Companies.
3.7 Absence of Conflicts. To the best knowledge of the Company,
no member of the State of Wisconsin Investment Board ("SWIB"), or any SWIB
employee has a direct or indirect economic interest in the Company or any of
its property or contracts, nor will any member of SWIB or SWIB employee
receive, directly or indirectly, anything of substantial economic value for his
or her private benefit from the Company or any person or entity acting on its
behalf in connection with the investment made by SWIB pursuant to this
Agreement.
3.8 Transaction Documents. There are no agreements or
understandings between the Company and Frontenac VI Limited Partnership
("Frontenac VI") other than this Agreement, the Stockholders Agreement, the
Registration Agreement, that certain Common Stock Purchase Agreement, dated as
of October 2, 1995, by and between the Company, Frontenac VI and Founder (the
"Common Stock Purchase Agreement"), and that certain letter agreement dated as
of the date hereof by and among Health Valley, the Health Valley Companies and
Frontenac VI relating to Frontenac VI's guaranty of the obligations under the
Credit Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASERS AND FOUNDER
Each Purchaser and Founder hereby severally and not jointly represents
and warrants to the other parties to this Agreement with respect to itself or
himself that:
(a) such person is acquiring the Shares being acquired by
him or it for investment and not with a view to distributing all or any part
thereof in any transaction which would constitute a "distribution" within the
meaning of the Securities Act of 1933, as amended (the "Securities Act");
(b) such person acknowledges that the Shares have not
been registered under the Securities Act of 1933, as amended, or any state
securities law, and except as provided in the Registration Agreement, the
Company is under no obligation to file a registration statement with the
Securities and Exchange Commission or any state securities commission with
respect to the Shares;
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<PAGE> 6
(c) such person has such knowledge and experience in
financial and business matters that he or it is capable of evaluating the
merits and risks of his or its investment in the Shares;
(d) such person is able to bear the complete loss of its
or his investment in the Shares (and, with respect to a Purchaser, is not an
entity formed solely to make this investment);
(e) such person has had the opportunity to ask questions
of, and receive answers from, the Company and its management concerning the
Shares, and to obtain additional information: and
(f) such person or entity is an "accredited investor" (as
defined in Rule 501(a) of Regulation D promulgated under the Securities Act of
1933).
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Compliance With Laws. The Company will comply, and will cause
each subsidiary to comply, with all laws, rules, regulations, judgments, orders
and decrees of any governmental or regulatory authority applicable to it and
its respective assets, except where the failure to comply would not have a
material adverse effect on the business, assets, properties, operations, or
condition, financial or otherwise, of the Company, or the Company's ability to
carry out the transactions contemplated by, and performance of obligations
under, this Agreement, the Stockholders Agreement and the Registration
Agreement. Neither the Company nor anyone acting on its behalf will take any
action hereafter that could cause the loss of the exemption from the
registration requirements of the Securities Act of 1933 or the sale and
issuance of the Shares.
5.2 Use of Proceeds. The Company will use the proceeds from the
sale hereunder (i) to finance Health Valley's purchase of the stock of the
Health Valley Companies; (ii) for working capital requirements of the Company
and the Health Valley Companies; and (iii) for the payment of the Company's
fees and expenses incurred in connection with the transactions contemplated
hereby and the purchase of the stock of the Health Valley Companies.
5.3 Legend. Until (a) the securities represented by such
certificate are effectively registered under the Securities Act of 1933, or (b)
the holder of such securities delivers to the Company a written opinion of
counsel to such holder to the effect that such legend is no longer necessary
under the Securities Act of 1933, the Company will cause each certificate
representing its securities to be stamped or otherwise imprinted with the
following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and thus may
not be transferred unless so registered or unless an exemption from
registration is available."
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<PAGE> 7
ARTICLE VI
MISCELLANEOUS
6.1 Consent to Amendments: Waivers. The provisions of this
Agreement may be amended, and the Company may take any action herein
prohibited, or omit to perform any act herein required to be performed by it,
only if the Company has obtained the written consent of the Founder and the
holder or holders of all of the Common Shares and Preferred Shares. No other
course of dealing between the Company and the holder of any securities or any
delay in exercising any rights hereunder or under the Certificate shall operate
as a waiver of any rights of any such holders. Any waiver, permit, consent or
approval of any kind or character on the part of any party of any provisions or
conditions of this Agreement must be made in writing and shall be effective
only to the extent specifically set forth in such writing.
6.2 Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement.
6.3 Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and assigns of the parties hereto.
6.4 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of and shall not be utilized in interpreting this Agreement.
6.5 Notices. Any notices required or permitted to be sent
hereunder shall be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service to the following
addresses, or such other address as any party hereto designates by written
notice to the Company, and shall be deemed to have been given upon delivery, if
delivered personally, three days after mailing, if mailed, or one business day
after delivery to the courier, if delivered by overnight courier service:
If to the Company to:
Intrepid Food Holdings, Inc.
135 South LaSalle Street
Chicago, Illinois 60603
Attention: President
If to the Purchasers or the Founder, to the addresses specified on
Schedule 1.1 hereof.
6.6 Governing Law. The corporate law of Delaware will govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto shall be governed by the
internal law and not the law of conflicts, of the State of Illinois, and
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<PAGE> 8
the performance of the obligations imposed by this Agreement shall be governed
by the laws of the State of Illinois applicable to contracts made and wholly to
be performed in that state.
6.7 Exhibits and Schedules. All exhibits and schedules hereto are
an integral part of this Agreement.
6.8 Exchange of Certificates. Upon surrender by any holder to the
Company of any certificate or certificates evidencing Shares, the Company at
its expense will issue in exchange therefor, and deliver to such holder, a new
certificate or certificates representing such Shares, in such denomination or
denominations as may be requested by such holder. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any certificate representing any Shares, and in case of any such loss, theft or
destruction, upon delivery of an indemnity agreement satisfactory to the
Company (provided that in the case of a financial institution or other
institutional investor, its own agreement shall be deemed satisfactory to the
Company), or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense will issue and deliver to any such
holder a new certificate evidencing such Shares, in lieu of such lost, stolen,
destroyed or mutilated certificate.
6.9 Termination of Common Stock Purchase Agreement. Effective as
of the Closing, Sections 5.1(a), (b) and (e), 5.2, 5.3, 5.4, 5.5, 5.6, 5.7,
5.8, 5.9, 5.10, 5.11 and 5.12 of that certain Common Stock Purchase Agreement,
dated as of October 2, 1995, by and between the Company, Frontenac VI Limited
Partnership and Founder shall be terminated and of no further force and effect.
The other sections of such Common Stock Purchase Agreement shall remain in full
force and effect.
6.10 Transaction Fees. At the Closing, the Company shall cause
Health Valley Company to pay (a) to SWIB a commitment fee of $84,766.64, and
(b) to Frontenac Company a fee equal to (A) 1.5% of the purchase price of the
stock of the Health Valley Companies, minus (B) $84,766.64.
6.11 Final Agreement. This Agreement, together with the
Stockholders Agreement, the Registration Agreement and the Certificate,
constitutes the final agreement of the parties concerning the matters referred
to herein, and supersedes all prior agreements and understandings.
6.12 Execution in Counterparts. This Agreement may be executed in
any number of counterparts, each of which when so executed and delivered shall
be deemed an original, and such counterparts together shall constitute one
instrument.
[Remainder of Page Intentionally Left Blank.
Signature page follows.]
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<PAGE> 9
The parties hereto have executed and delivered this Agreement as of the
date first set forth above.
INTREPID FOOD HOLDINGS, INC.,
a Delaware corporation
By: /S/ William R. Voss
-------------------------------------
Its: President
------------------------------------
PURCHASERS:
FRONTENAC VI LIMITED
PARTNERSHIP
By: Frontenac Company
Its: General Partner
By: /S/ R.S. McEniry
-------------------------------------
a partner
STATE OF WISCONSIN INVESTMENT
BOARD
By: /S/ Jon Vanderploeg
-------------------------------------
Its: Portfolio Manager
------------------------------------
FOUNDER:
/S/ William R. Voss
----------------------------------------
William R. Voss
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<PAGE> 1
EXHIBIT 10.5
AMENDED AND RESTATED CREDIT AGREEMENT
DATED AS OF OCTOBER 31, 1996
AMONG
HEALTH VALLEY COMPANY,
TBS ACQUISITION CORPORATION,
THE BREAD SHOP,
AND
LASALLE NATIONAL BANK
<PAGE> 2
TABLE OF CONTENTS
Page
SECTION 1. THE CREDITS........................................................ 1
Section 1.1. Revolving Credit........................................ 1
Section 1.2. Revolving Credit Loans.................................. 1
Section 1.3. Letters of Credit....................................... 2
Section 1.4. Term Loans.............................................. 3
Section 1.5. Manner and Disbursement of Loans........................ 3
Section 1.6. Appointment of Parent as Agent for the Borrowers........ 4
SECTION 2. INTEREST, FEES, CAPITAL ADEQUACY, TERM AND
TERMINATION.......................................................... 4
Section 2.1. Interest Rate Options................................... 4
Section 2.2. Minimum Amounts......................................... 5
Section 2.3. Manner of Rate Selection................................ 6
Section 2.4. Facility Fee............................................ 6
Section 2.5. Unused Line Fee......................................... 6
Section 2.6. Letter of Credit Fees................................... 6
Section 2.7. Computation of Interest and Fees........................ 6
Section 2.8. Term and Termination.................................... 6
SECTION 3. APPLICATION OF PAYMENTS AND COLLECTIONS,
PREPAYMENTS, COMPUTATION OF OBLIGATIONS OUTSTANDING,
AND NOTATIONS........................................................ 7
Section 3.1. Place and Application of Payments and Collections....... 7
Section 3.2. Mandatory Prepayments................................... 8
Section 3.3. Computation of Obligations Outstanding.................. 9
Section 3.4. Notations.............................................. 10
SECTION 4. COLLATERAL........................................................ 10
Section 4.1. Collateral............................................. 10
Section 4.2. Lockbox Agreement...................................... 10
Section 4.3. Further Assurances..................................... 11
SECTION 5. DEFINITIONS; INTERPRETATION....................................... 12
Section 5.1. Definitions............................................ 12
Section 5.2. Other Definitions...................................... 23
Section 5.3. Interpretation......................................... 23
Section 5.4. Change in Accounting Principles........................ 23
i
<PAGE> 3
SECTION 6. REPRESENTATIONS AND WARRANTIES.................................... 24
Section 6.1. Borrowers' Organization and Qualification.............. 24
Section 6.2. Parent's Organization and Qualification................ 24
Section 6.3. Subsidiaries........................................... 24
Section 6.4. Corporate Authority and Validity of Obligations........ 24
Section 6.5. Use of Proceeds; Margin Stock.......................... 25
Section 6.6. Financial Reports...................................... 25
Section 6.7. No Material Adverse Change............................. 26
Section 6.8. Full Disclosure........................................ 26
Section 6.9. Good Title............................................. 26
Section 6.10. Litigation and Other Controversies.................... 26
Section 6.11. Taxes................................................. 26
Section 6.12. Approvals............................................. 26
Section 6.13. Affiliate Transactions................................ 26
Section 6.14. Investment Company; Public Utility Holding Company.... 27
Section 6.15. ERISA................................................. 27
Section 6.16. Compliance with Laws.................................. 27
Section 6.17. Other Agreements...................................... 27
Section 6.18. No Default............................................ 28
Section 6.19. Solvency.............................................. 28
Section 6.20. Acquisition........................................... 28
SECTION 7. CONDITIONS PRECEDENT.............................................. 28
Section 7.1. All Advances........................................... 28
Section 7.2. Initial Advance........................................ 29
SECTION 8. COVENANTS......................................................... 30
Section 8.1. Maintenance of Business................................ 31
Section 8.2. Maintenance of Properties.............................. 31
Section 8.3. Taxes and Assessments.................................. 31
Section 8.4. Insurance.............................................. 31
Section 8.5. Financial Reports...................................... 31
Section 8.6. Inspection; Appraisals................................. 33
Section 8.7. Tangible Net Worth..................................... 33
Section 8.8. Leverage Ratio......................................... 34
Section 8.9. Minimum Current Ratio.................................. 34
Section 8.10. Fixed Charge Coverage Ratio........................... 34
Section 8.11. Capital Expenditures.................................. 34
Section 8.12. [Reserved]............................................ 35
Section 8.13. Indebtedness for Borrowed Money....................... 35
Section 8.14. Liens................................................. 35
Section 8.15. Investments, Acquisitions, Loans, Advances and
Guaranties................................................. 36
Section 8.16. Operating Leases...................................... 37
Section 8.17. Mergers, Consolidations and Sales..................... 37
Section 8.18. Maintenance of Subsidiaries........................... 38
Section 8.19. Dividends and Certain Other Restricted Payments....... 38
Section 8.20. Management Fees....................................... 38
ii
<PAGE> 4
Section 8.21. ERISA................................................. 38
Section 8.22. Compliance with Laws.................................. 38
Section 8.23. Burdensome Contracts With Affiliates.................. 39
Section 8.24. No Changes in Fiscal Year............................. 39
Section 8.25. Formation of Subsidiaries............................. 39
Section 8.26. Change in the Nature of Business...................... 39
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.................................... 39
Section 9.1. Events of Default...................................... 39
Section 9.2. Non-Bankruptcy Defaults................................ 41
Section 9.3. Bankruptcy Defaults.................................... 41
Section 9.4. Collateral for Undrawn Letters of Credit............... 42
SECTION 10. FUNDING INDEMNIFY AND CHANGE IN
CIRCUMSTANCES....................................................... 42
Section 10.1. Change in Capital Adequacy Requirements............... 42
Section 10.2. Change of Law......................................... 42
Section 10.3. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR........................................ 42
Section 10.4. Taxes and Increased Costs............................. 43
Section 10.5. Funding Indemnity..................................... 44
Section 10.6. Lending Branch........................................ 44
Section 10.7. Discretion of Bank as to Manner of Funding............ 44
SECTION 11. MISCELLANEOUS.................................................... 45
Section 11.1. Non-Business Days..................................... 45
Section 11.2. No Waiver, Cumulative Remedies........................ 45
Section 11.3. Amendments, Etc. ..................................... 45
Section 11.4. Costs and Expenses.................................... 45
Section 11.5. Documentary Taxes..................................... 46
Section 11.6. Survival of Representations........................... 46
Section 11.7. Survival of Indemnities............................... 46
Section 11.8. Notices............................................... 46
Section 11.9. Participations........................................ 48
Section 11.10. Construction......................................... 48
Section 11.11. Headings............................................. 48
Section 11.12. Severability of Provisions........................... 48
Section 11.13. Counterparts......................................... 48
Section 11.14. Binding Nature, Governing Law, Etc................... 48
Section 11.15. Submission to Jurisdiction; Waiver of Jury Trial..... 49
Section 11.16. Reaffirmation, Restatement and Waivers............... 49
iii
<PAGE> 5
SCHEDULES AND EXHIBITS
Schedule 1.3(a) Letter of Credit Applications (Standby)
Schedule 1.3(b) Letter of Credit Applications (Commercial)
Schedule 5.1 Reimbursable Intrepid Costs
Schedule 6.3 Subsidiaries
Schedule 6.6 Indebtedness for Borrowed Money of each
Borrower
Schedule 6.10 Litigation
Schedule 6.11 Taxes
Schedule 6.17 "Take-or-Pay" Contracts
Schedule 8.14(g) Existing Liens
Exhibit A Form of Revolving Credit Note
Exhibit B-1 Form of Term Loan A Note
Exhibit B-2 Form of Term Loan B Note
Exhibit C Form of Borrowing Base Certificate
Exhibit D Form of Compliance Certificate
Exhibit E Form of Lockbox Agreement
Exhibit F Form of Intercompany Note
iv
<PAGE> 6
AMENDED AND RESTATED CREDIT AGREEMENT
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60603
Ladies and Gentlemen:
Each of the undersigned, Health Valley Company, a Delaware corporation
(the "Parent"), TBS Acquisition Corporation, a Delaware corporation
("Acquisition Corp."), and The Bread Shop, a California corporation ("Company")
(the Parent, Acquisition Corp. and the Company being hereinafter referred to
collectively as the "Borrowers" and individually as a "Borrower"), applies to
you (the "Bank") for your commitment, subject to the terms and conditions hereof
and on the basis of the representations and warranties hereinafter set forth,
(i) to amend and restate that certain Credit Agreement, dated as of June 28,
1996, between the Parent (both individually and as successor by merger with
certain of its former subsidiaries) and the Bank (the "Original Credit
Agreement") and (ii) to extend credit to the Borrowers under such agreement as
amended and restated hereby, all as more fully hereinafter set forth.
SECTION 1. THE CREDITS.
Section 1.1. Revolving Credit. Subject to the terms and conditions
hereof, the Bank agrees to extend a revolving credit (the "Revolving Credit") to
the Borrowers which may be availed of by each and any Borrower from time to time
during the period from and including the date hereof to but not including the
Revolving Credit Termination Date, at which time the commitment of the Bank to
extend credit under the Revolving Credit shall expire. The Revolving Credit may
be utilized by each and any Borrower in the form of Revolving Credit Loans and
Letters of Credit, all as more fully hereinafter set forth, provided that the
aggregate principal amount of Revolving Credit Loans and Letters of Credit
outstanding at any one time shall not exceed the lesser of (i) $6,500,000 (the
"Maximum Revolving Credit Commitment") and (ii) the Borrowing Base as then
determined and computed. During the period from and including the date hereof to
but not including the Revolving Credit Termination Date, each and any Borrower
may use the Revolving Credit by borrowing, repaying and reborrowing Revolving
Credit Loans in whole or in part and/or by having the Bank issue Letters of
Credit, having such Letters of Credit expire or otherwise terminate without
having been drawn upon or, if drawn upon, reimbursing the Bank for each such
drawing, and having the Bank issue new Letters of Credit, all in accordance with
the terms and conditions of this Agreement.
Section 1.2. Revolving Credit Loans. Subject to the terms and
conditions hereof, the Revolving Credit may be availed of by each and any
Borrower in the form of loans (individually a "Revolving Credit Loan" and
collectively the "Revolving Credit Loans"). Each Revolving Credit Loan shall be
made against and evidenced by a single joint and several amended and restated
promissory note of the Borrowers in the form (with appropriate insertions)
attached hereto as Exhibit A (the "Revolving Credit Note") payable to the order
of the Bank in the
<PAGE> 7
principal amount of the Maximum Revolving Credit Commitment. The Revolving
Credit Note shall be dated the date of issuance thereof, be expressed to bear
interest as set forth in Section 2 hereof, and be expressed to mature on the
Revolving Credit Termination Date. Without regard to the principal amount of the
Revolving Credit Note stated on its face, the actual principal amount at any
time outstanding and owing by the Borrowers on account of the Revolving Credit
Note shall be the sum of all Revolving Credit Loans made hereunder less all
payments of principal actually received by the Bank.
Section 1.3. Letters of Credit. (a) General Terms. Subject to the terms
and conditions hereof, the Revolving Credit may be availed of by each and any
Borrower in the form of standby and commercial letters of credit issued by the
Bank for the account of a Borrower, whether or not jointly with any other
Borrower (individually a "Letter of Credit" and collectively the "Letters of
Credit"), provided that the aggregate amount of Letters of Credit issued and
outstanding hereunder shall not at any one time exceed $2,300,000. For purposes
of this Agreement, a Letter of Credit shall be deemed to have a principal amount
outstanding as of any time in an amount equal to the maximum amount which could
be drawn thereunder under any circumstances and over any period of time plus any
unreimbursed drawings then outstanding with respect thereto. If and to the
extent any Letter of Credit expires or otherwise terminates without having been
drawn upon, the availability under the Revolving Credit shall to such extent be
reinstated.
(b) Term. Each Letter of Credit issued hereunder shall expire
not later than the earlier of (i) twelve (12) months from the date of issuance
(or be cancelable not later than twelve (12) months from the date of issuance
and each renewal) or (ii) the Revolving Credit Termination Date.
(c) General Characteristics. Each Letter of Credit issued
hereunder shall be payable in U.S. dollars, conform to the general requirements
of the Bank for the issuance of standby and commercial letters of credit, as the
case may be, as to form and substance, and be a letter of credit which the Bank
may lawfully issue.
(d) Applications. At the time a Borrower requests each Letter
of Credit to be issued (or prior to the first issuance of a Letter of Credit in
the case of a continuing application), the Borrowers shall together execute and
deliver to the Bank an application for such Letter of Credit in the form then
customarily prescribed by the Bank (individually an "Application" and
collectively the "Applications"). The current form of the Bank's Applications
are attached as Schedule 1.3(a) (Standby) and Schedule 1.3(b) (Commercial)
hereto. Subject to the other provisions of this subsection, the obligation of
the Borrowers to reimburse the Bank for drawings under a Letter of Credit shall
be absolutely and unconditionally joint and several and otherwise governed by
the Application for such Letter of Credit. In the event a drawing is paid on a
Letter of Credit and the Parent has not notified the Bank by 2:00 p.m. (Chicago
time) on the date when such drawing is paid that the Parent intends to repay
such reimbursement obligation with funds not borrowed under this Agreement, the
Parent shall be deemed to have irrevocably requested a Revolving Credit Loan on
such day in the amount of the reimbursement obligation then due, in each case
subject to Section 7.1 hereof (other than the requirement that Revolving Credit
Loans be in a certain minimum amount), which new Revolving Credit Loan shall be
applied to pay the reimbursement obligation then due. In the event the Bank is
not reimbursed
2
<PAGE> 8
by the Borrowers (whether out of the proceeds of such a Revolving Credit Loan or
otherwise) for the amount the Bank pays on any draft drawn under a Letter of
Credit issued hereunder by 3:00 p.m. (Chicago time) on the date when such
drawing is paid, the obligation of the Borrowers to reimburse the Bank for the
amount of such draft paid shall bear interest (which the Borrowers hereby
jointly and severally promise to pay on demand) from and after the date the
draft is paid until payment in full thereof at the fluctuating rate per annum
determined by adding to the Prime Rate as from time to time in effect. Anything
contained in the Applications to the contrary notwithstanding, (i) the Borrowers
shall pay fees in connection with each Letter of Credit as set forth in Section
2 hereof, (ii) except as otherwise provided in Sections 3 and 4 hereof, prior to
the occurrence of an Event of Default the Bank will not call for additional
collateral security for the obligations of the Borrowers under the Applications
other than the collateral security contemplated by this Agreement and the
Collateral Documents and collateral security consisting of rights in goods (or
documents of title evidencing the same) financed under such Applications, and
(iii) except as otherwise provided in Sections 3 and 4 hereof, prior to the
occurrence of an Event of Default the Bank will not call for the funding of a
Letter of Credit by the Borrowers prior to being presented with a draft drawn
thereunder (or, in the event the draft is a time draft, prior to its due date).
Section 1.4. Term Loans. (a) The Bank has heretofore made a loan ("Term
Loan A") to the Parent on June 28, 1996 in the amount of $12,000,000. The Term
Loan A was made against and evidenced by a single joint and several promissory
note of the Parent and certain of its former subsidiaries payable to the order
of the Bank in the principal amount of $12,000,000 which, concurrent with
execution and delivery of this Agreement, is being amended and restated in its
entirety, in the form (with appropriate insertions) attached hereto as Exhibit
B-1 (the "The Loan A Note"), for execution by each of the Borrowers. The Term
Loan A Note shall be dated the date of issuance thereof, be expressed to bear
interest as set forth in Section 2 hereof, and be expressed to mature in
quarterly principal installments as therein provided.
(b) Subject to the terms and conditions hereof, the Bank
agrees to make loans (the "Term Loan B", and, together with the Term Loan A, the
"Term Loans") to the Borrowers in the amount of $6,500,000 on or before October
31, 1996, at which time the commitment of the Bank to make the Term Loan B shall
expire. The Term Loan B shall be made against and evidenced by a single joint
and several promissory note of the Borrowers in the form (with appropriate
insertions) attached hereto as Exhibit B-2 (the "Term Loan B Note", and,
together with the Term Loan A Note, the "Term Notes") payable to the order of
the Bank in the principal amount of $6,500,000. The Term Loan B Note shall be
dated the date of issuance thereof, be expressed to bear interest as set forth
in Section 2 hereof, and be expressed to mature in quarterly principal
installments as therein provided.
Section 1.5. Manner and Disbursement of Loans. (a) The Parent (which is
acting on behalf of the Borrowers pursuant to Section 1.6 hereof) shall give
written or telephonic notice to the Bank (which notice shall be irrevocable once
given) by no later than 2:00 p.m. (Chicago time) on the date the Parent requests
the Bank to make a Loan hereunder. Each such notice shall specify the date of
the Loan requested (which must be a Business Day), the amount of such Loan and
the relevant Borrower for such Loan. All Loans shall initially be made directly
to the Parent and the proceeds thereof shall, to the extent specified in the
related notice, be loaned by the Parent to the Company and/or Acquisition Corp.,
as the case may be, in the amounts
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specified in the related notice. All such loans from the Parent to the Company
or Acquisition Corp. shall be evidenced by a revolving promissory note, jointly
and severally made by the Company and Acquisition Corp., in the form of Exhibit
F hereto (an "Intercompany Note"), which shall be pledged to the Bank as
security for the obligations of the Borrowers hereunder. The amounts of the
loans from the Parent to the Company and Acquisition Corp. shall be set forth in
the related notice of borrowing and each such notice shall constitute
authorization by the Parent, the Company and Acquisition Corp. to the Bank to
note the amount of such loan from the Parent to the Company or Acquisition Corp.
on the Intercompany Note. Each Loan to the Parent shall initially constitute
part of the applicable Prime Rate Portion except to the extent the Parent has
otherwise timely elected that such Loan constitute part of a LIBOR Portion as
provided in Section 2 hereof. The Borrowers agree that the Bank may rely upon
any written or telephonic notice given by any person the Bank in good faith
believes is an Authorized Representative without the necessity of independent
investigation.
(b) Subject to the provisions of Section 7 hereof, the proceeds of each
Loan made under Section 1.5(a) hereof shall be made available to the Parent at
the principal office of the Bank in Chicago, Illinois, in immediately available
funds, in the case of the initial Loans made hereunder, in accordance with the
terms of the written disbursement instructions of the Parent (which is acting on
behalf of the Borrowers pursuant to Section 1.6 hereof), and, in the case of
each subsequent Loan, by deposit to the Parent's general account with the Bank
known as Account Number 5590006408.
Section 1.6. Appointment of Parent as Agent for the Borrowers. Each of
the other Borrowers hereby irrevocably appoints the Parent as its agent
hereunder to make requests on its behalf under Section 1 hereof for Loans to be
made to the Parent for its benefit, to select on its behalf the interest rate to
be applicable under Section 2 hereof to Portions of Loans made to the Parent for
its benefit and to take any other action contemplated by the Loan Documents with
respect to credit extended hereunder to or for the such Borrower's benefit. The
Bank shall be entitled to conclusively presume that any action by the Parent
under the Loan Documents is taken on behalf of the Borrowers whether or not the
Parent so indicates. Nothing in this Section 1.6 shall preclude a Borrower from
acting on its own behalf.
SECTION 2. INTEREST, FEES, CAPITAL ADEQUACY, TERM AND TERMINATION.
Section 2.1. Interest Rate Options.
(a) Subject to all of the terms and conditions of this Section
2, portions of the principal indebtedness evidenced by the Notes (all of the
indebtedness evidenced by a given Note bearing interest at the same rate for the
same period of time being hereinafter referred to as a "Portion") may, at the
option of the Parent, bear interest with reference to the Prime Rate (the "Prime
Rate Portion") or with reference to an Adjusted LIBOR ("LIBOR Portions"), and
Portions may be converted from time to time from one basis to the other. All of
the indebtedness evidenced by a given Note which is not part of a LIBOR Portion
shall constitute a single Prime Rate Portion of such Note. All of the
indebtedness evidenced by a given Note which bears interest with reference to a
particular Adjusted LIBOR for a particular Interest Period shall constitute a
single LIBOR Portion of such Note. There shall not be more than five (5) LIBOR
Portions applicable to the Notes, taken together, outstanding at any one time.
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Anything contained herein to the contrary notwithstanding, the obligation of the
Bank to create, continue or effect by conversion any LIBOR Portion shall be
conditioned upon the fact that at the time no Event of Default shall have
occurred and be continuing. The Borrowers hereby jointly and severally promise
to pay interest on each Portion at the rates and times specified in this Section
2.
(b) Prime Rate Portion. The Prime Rate Portion of either Note
shall bear interest at the rate per annum determined by adding the Applicable
Margin to the Prime Rate as in effect from time to time, provided that if the
Prime Rate Portion or any part thereof is not paid when due (whether by lapse of
time, acceleration or otherwise) such Portion to the extent overdue shall bear
interest, whether before or after judgment, until payment in full thereof at the
rate per annum determined by adding 2% to the interest rate which would
otherwise be applicable thereto from time to time. Interest on the Prime Rate
Portion shall be payable quarterly in arrears on the last day of each September,
December, March and June in each year (commencing with the last day of December,
1996) and at maturity of the applicable Note and interest after maturity
(whether by lapse of time, acceleration or otherwise) shall be due and payable
upon demand. Any change in the interest rate on the Prime Rate Portion resulting
from a change in the Prime Rate shall be effective on the date of the relevant
change in the Prime Rate.
(c) LIBOR Portions. Each LIBOR Portion shall bear interest for
each Interest Period selected therefor at a rate per annum determined by adding
the Applicable Margin to the Adjusted LIBOR for such Interest Period, provided
that if any LIBOR Portion is not paid when due (whether by lapse of time,
acceleration or otherwise) such Portion to the extent overdue shall bear
interest, whether before or after judgment, until payment in full thereof
through the end of the Interest Period then applicable thereto at the rate per
annum determined by adding 2% to the interest rate which would otherwise be
applicable thereto, and effective at the end of such Interest Period such LIBOR
Portion shall automatically be converted into and added to the Prime Rate
Portion and shall thereafter bear interest at the interest rate applicable to
the Prime Rate Portion after default. Interest on each LIBOR Portion shall be
due and payable on the last day of each Interest Period applicable thereto and,
with respect to any Interest Period applicable to a LIBOR Portion in excess of 3
months, on the date occurring every 3 months after the date such Interest Period
began and at the end of such Interest Period, and interest after maturity
(whether by lapse of time, acceleration or otherwise) shall be due and payable
upon demand. The Parent shall notify the Bank on or before 2:00 p.m. (Chicago
time) on the third Business Day preceding the end of an Interest Period
applicable to a LIBOR Portion whether such LIBOR Portion is to continue as a
LIBOR Portion, in which event the Parent shall notify the Bank of the new
Interest Period selected therefor, and in the event the Parent shall fail to so
notify the Bank, such LIBOR Portion shall automatically be converted into and
added to the Prime Rate Portion of the applicable Note as of and on the last day
of such Interest Period.
Section 2.2. Minimum Amounts. Each LIBOR Portion shall be in an amount
equal to $1,000,000 or such greater amount which is an integral multiple of
$100,000. The aggregate principal amount of LIBOR Portions outstanding at any
one time shall in no event exceed $25,000,000 or such greater amount to which
the Parent and the Bank shall mutually agree in writing.
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Section 2.3. Manner of Rate Selection. The Parent (which is acting on
behalf of the Borrowers pursuant to Section 1.6 hereof) shall notify the Bank by
(i) 2:00 p.m. (Chicago time) at least 3 Business Days prior to the date upon
which a Borrower requests that any LIBOR Portion be created or that any part of
the Prime Rate Portion be converted to a LIBOR Portion or that any existing
LIBOR Portion be continued into a new Interest Period (each such notice to
specify in each instance the amount thereof and the Interest Period selected
therefor). If any request is made to convert a LIBOR Portion into another type
of Portion available hereunder, such conversion shall only be made so as to
become effective as of the last day of the Interest Period applicable thereto.
All requests for the creation, continuance and conversion of Portions under this
Agreement shall be irrevocable. Such requests may be written or oral and the
Bank is hereby authorized to honor telephonic requests for creations,
continuances and conversions received by it from any person the Bank in good
faith believes to be an Authorized Representative without the need of
independent investigation.
Section 2.4. Facility Fee. The Borrowers shall pay to the Bank on the
date hereof a non-refundable facility fee in the amount of $100,000.
Section 2.5. Unused Line Fee. For the period from and including the
date hereof to but not including the Revolving Credit Termination Date, the
Borrowers shall pay to the Bank a fee at the rate of 3/8 of 1% per annum on the
average daily unused portion of the Revolving Credit Commitment. Such fee shall
be payable quarterly in arrears on the last day of each September, December,
March and June in each year (commencing December 31, 1996) and on the Revolving
Credit Termination Date.
Section 2.6. Letter of Credit Fees. On the date of issuance of each
standby Letter of Credit, and as a condition thereto, the Borrowers shall pay to
the Bank a letter of credit fee computed at the rate of 1% per annum on the face
amount of each standby Letter of Credit. Commercial Letters of Credit will be
priced in accordance with the Bank's standard pricing for commercial letters of
credit in effect from time to time. In addition to the letter of credit fee
called for above, the Borrowers further agree to pay to the Bank such processing
and transaction fees and charges as the Bank from time to time customarily
imposes in connection with any amendment, cancellation, negotiation and/or
payment of letters of credit and drafts drawn thereunder.
Section 2.7. Computation of Interest and Fees. All interest on the
Loans and on the reimbursement obligations with respect to all Applications and
(to the extent calculated based on days elapsed) all fees due hereunder shall be
calculated on the basis of a year of 360 days for the actual number of days
elapsed. Any change in the interest rate applicable to the Obligations resulting
from a change in the Prime Rate shall be effective on the date of the relevant
change in the Prime Rate.
Section 2.8. Term and Termination. (a) The term of the Revolving Credit
shall be from the date hereof through June 30, 1999. In addition, the Parent
(which is acting on behalf of the Borrowers pursuant to Section 1.6 hereof) may
also terminate the Revolving Credit in whole (but not in part) at any time upon
at least three days' prior written notice to the Bank and upon (i) the payment
in full of all outstanding Obligations (including, without limitation, the
outstanding principal balance of the Revolving Credit Note and the Term Notes),
together with all accrued
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and unpaid interest thereon, (ii) the payment of any accrued and unpaid unused
line fees to the date of termination, and (iii) the expiration or termination of
all Letters of Credit and, to the extent any such Letter of Credit has not
expired in accordance with its terms or otherwise been terminated to the
satisfaction of the Bank, accompanied by cash collateral and in an amount equal
to the then outstanding principal amount of all such Letters of Credit which
shall bear interest for the account of the Borrowers at the per annum rate paid
from time to time by the Bank on money market accounts maintained with the Bank.
(b) The term of the Term Loan A shall be from June 28, 1996
through but excluding June 30, 2003.
(c) The term of the Term Loan B shall be from the date hereof
through but excluding October 31, 2002.
SECTION 3. APPLICATION OF PAYMENTS AND COLLECTIONS, PREPAYMENTS, COMPUTATION OF
OBLIGATIONS OUTSTANDING, AND NOTATIONS.
Section 3.1. Place and Application of Payments and Collections. (a) All
payments of principal, interest, fees and all other obligations payable
hereunder and under the other Loan Documents shall be made to the Bank at its
office at 135 South LaSalle Street, Chicago, Illinois (or at such other place as
the Bank may specify in writing). All such payments shall be made (by wire
transfer or otherwise) in lawful money of the United States of America, in
immediately available funds at the place of payment, without set-off or
counterclaim and without reduction for, and free from, any and all present or
future taxes, levies, imposts, duties, fees, charges, deductions, withholdings,
restrictions or conditions of any nature imposed by any government or any
political subdivision or taxing authority thereof (but excluding any taxes
imposed on or measured by the net income of the Bank). Unless the Parent
otherwise directs, principal payments on a Note shall be applied first to the
Prime Rate Portion of such Note until payment in full thereof, with any balance
applied, subject to the last sentence of this Section 3.1(a), to the LIBOR
Portions of such Note in the order in which their Interest Periods expire. All
payments on any Note (whether voluntary or required) shall be accompanied by any
amount due the Bank under Section 10.5 hereof, but no acceptance of such a
payment without requiring payment of amounts due under Section 10.5 shall
preclude a later demand by the Bank for any amount due it under Section 10.5 in
respect of such payment. Any amount paid or prepaid on the Revolving Credit Note
may, subject to all of the terms and conditions hereof, be borrowed, repaid and
borrowed again. No amount paid or prepaid on any Term Note may be reborrowed.
Unless expressly set forth otherwise herein, all prepayments on the Term Notes
shall be applied to the several installments thereof in the direct order of
maturity.
(b) All payments made by the Borrowers and all proceeds of
Collateral shall, upon receipt by the Bank, be applied by the Bank to the
Obligations then due and payable. Prior to the occurrence of an Event of
Default, except as otherwise specifically provided for herein or directed by the
Parent, all payments made by the Parent shall be applied by the Bank against the
outstanding Obligations as follows:
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(i) first, to any outstanding fees, charges and expenses then
due the Bank (provided the Bank has first notified the Borrower of such
fee, charge or expense and the Borrower has failed to pay the same as
and when required hereunder);
(ii) second, to outstanding interest charges then scheduled as
due in respect of the Obligations;
(iii) third, to the extent that such payment is being made
pursuant to Section 3.2(c) and the aggregate amount of all such
payments since the date hereof is less than $2,000,000, to the
outstanding principal balance then scheduled as due in respect of Term
Loan B, to be applied one-half in the inverse order of maturity
(subject to an aggregate of $1,000,000 so applied) and one-half in the
order of maturity;
(iv) fourth, pro rata to the outstanding principal balance
then scheduled as due in respect of the Term Loans;
(v) fifth, to the outstanding principal balance of the
Revolving Credit Loans and reimbursement obligations in respect of
drafts drawn under Letters of Credit;
(vi) finally, to the Parent for use in the ordinary course of
the Borrowers' respective business (the Borrowers each hereby agreeing
that they shall have no recourse against the Bank for any amounts so
remitted to the Parent).
Except as otherwise specifically provided for herein (i) each Borrower hereby
irrevocably waives the right to direct the application of payments and
collections at any time received by the Bank from or on behalf of any Borrower,
and (ii) each Borrower hereby irrevocably agrees that the Bank shall have the
continuing exclusive right to apply and reapply any and all such payments and
collections received at any time by the Bank against the Obligations in such
manner as the Bank may deem advisable; provided that the Bank shall only
exercise such rights from and after the occurrence of an Event of Default or a
Default arising from any of the events described in Section 9.1(1) or 9.1(m).
(c) Each Borrower hereby irrevocably authorizes the Bank to
charge any of a Borrower's deposit accounts maintained with the Bank for the
amounts from time to time necessary to pay any then due Obligations which have
remained unpaid after expiration of any grace period expressly applicable
thereto or any acceleration of the Loans in accordance with Section 9.2 or 9.3
hereof; provided that each Borrower acknowledges and agrees that the Bank shall
be under no obligation to do so and the Bank shall incur no liability to the
Borrowers or any other Person for the Bank's failure to do so; provided,
further, that the Bank shall only exercise such rights from and after the
occurrence of an Event of Default or a Default arising from any of the events
described in Section 9.1(1) or 9.1(m).
Section 3.2. Mandatory Prepayments. (a) Borrowing Base. The Borrowers
covenant and agree that if at any time the sum of the then unpaid principal
balance of the Revolving Credit Loans plus the then outstanding amount of
Letters of Credit shall be in excess of the Borrowing Base as then determined
and computed, the Borrowers shall immediately and without notice or demand pay
over the amount of the excess to the Bank as and for a mandatory
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prepayment on such Obligations, with each such prepayment first to be applied to
the Revolving Credit Loans until payment in full thereof with any remaining
balance to be held by the Bank as collateral security for the Obligations owing
under the Applications.
(b) Excess Cash Flow. No later than 120 days following the end
of each fiscal year of the Parent (commencing with the fiscal year ending
December 31, 1997), the Parent shall pay to the Bank as and for a mandatory
prepayment on the Term Notes an amount equal to 50% of Excess Cash Flow for the
then most recently completed fiscal year of the Parent (but in no event
including for such purposes Excess Cash Flow for the period prior to the closing
of the HVF Acquisition). Any such prepayment shall be applied pro rata to the
outstanding principal balance of the Term Notes in the inverse order of the
maturity of the remaining installments thereof (provided that if any such
payment would be applied to a LIBOR Portion, such payment may, at the option of
the Parent, be held in a cash collateral account with the Bank and invested at
the direction and for the benefit of the Borrowers until the end of the
applicable Interest Period and then applied as a prepayment hereunder). If at
the time a prepayment is due under this Section 3.2(b), no amount is outstanding
under either Term Note or the amount received is in excess of the amount
necessary to prepay the Term Notes in full, then such prepayment or excess (as
appropriate) shall be applied to the Revolving Credit Note (and subject to
reborrowing in accordance with the Revolving Credit).
(c) Asset Sales. The Borrowers covenant and agree that all
proceeds derived from the sale or disposition (whether voluntary or
involuntary), or on account of damage or destruction, of Collateral consisting
of real estate, furniture, fixtures, equipment or other assets of a Borrower, to
the extent not permitted by Section 8.17, shall be paid over to the Bank as and
for a mandatory prepayment on the Term Notes; provided, however, that if at the
time of receipt no amount is outstanding under any Term Note or the amount
received is in excess of the amount necessary to prepay the Term Notes in full,
then such prepayment or excess (as appropriate) shall be applied to the
Revolving Credit Note (and subject to reborrowing in accordance with the
Revolving Credit), provided further that (i) the foregoing provision shall be
inapplicable to proceeds received by the Bank under the Collateral Documents if
and so long as the Parent has, pursuant to the Collateral Documents, requested
that the same be held by the Bank and disbursed for the restoration, repair or
replacement of the property in respect of which such proceeds were received and
(ii) no prepayment shall be required with respect to up to $150,000 of net
proceeds (i.e., gross proceeds net of out-of-pocket expenses incurred in
effecting the sale or other disposition) received in any calendar year from the
sale or other disposition of personal property Collateral which is worn out,
obsolete, or, in the good faith judgment of the Parent, no longer necessary to
the efficient conduct of its business as then conducted.
Section 3.3. Computation of Obligations Outstanding. For the purpose of
calculating the aggregate principal balance of Obligations outstanding
hereunder, Obligations shall be deemed to be paid on the date payments or
collections, as the case may be, are applied by the Bank to such obligations;
provided, however, for purposes of calculating interest payable by the Borrowers
on the Loans and on any other interest-bearing Obligations under this Agreement,
any payment or collection, as the case may be, other than payments directly to
the Bank by federal wire transfer or by check drawn on an account with the Bank
(which in each case shall be deemed applied on the date received), shall be
deemed to be applied to the Loans or other
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interest-bearing Obligations two (2) Business Days after receipt of such payment
or collection by the Bank. Notwithstanding the foregoing, if any item presented
for collection by the Bank is not honored, the Bank may reverse any provisional
credit which has been given for the item and make appropriate adjustments to the
amount of interest and principal otherwise due hereunder.
Section 3.4. Notations. Each Loan made against a Note, the status of
all amounts evidenced by a Note as constituting part of the Prime Rate Portion
or a LIBOR Portion, and, in the case of any LIBOR Portion, the rates of interest
and Interest Periods applicable to such Portion shall be recorded by the Bank on
its books and records or, at its option in any instance, endorsed on a schedule
to the applicable Note and the unpaid principal balance and status, rates and
Interest Periods so recorded or endorsed by the Bank shall be prima facie
evidence in any court or other proceeding brought to enforce such Note of the
principal amount remaining unpaid thereon, the status of the Loan or Loans
evidenced thereby and the interest rates and Interest Periods applicable
thereto; provided that the failure of the Bank to record any of the foregoing
shall not limit or otherwise affect the obligation of the Borrowers to repay the
principal amount of each Note together with accrued interest thereon and fees
provided hereunder with respect thereto. Prior to any negotiation of a Note, the
Bank shall record on a schedule thereto the status of all amounts evidenced
thereby as constituting part of the Prime Rate Portion or a LIBOR Portion and,
in the case of any LIBOR Portion, the rates of interest and the Interest Periods
applicable thereto.
SECTION 4. COLLATERAL.
Section 4.1. Collateral. The payment and performance of the Obligations
shall at all times be secured by, among other things, (a) all of each Borrower's
accounts, chattel paper, documents, instruments, general intangibles, inventory,
equipment and certain other assets and property of such Borrower, in each case
whether now owned or held or hereafter acquired or arising, pursuant to that
certain Security Agreement, dated of even date herewith, from each Borrower, as
the same may be amended, modified or supplemented from time to time (the
"Security Agreement"), (b) all of the Parent's right, title and interest in the
capital stock, Voting Stock and other equity interests of the Company and
Acquisition Corp. and all of Acquisition Corp.'s right, title and interest in
the capital stock, Voting Stock and other equity interests of the Company
(collectively, the "Pledged Stock"), and all of the Parent's right, title and
interest in the Intercompany Note, in each case whether now owned or held or
hereafter acquired or arising, pursuant to the Security Agreement.
Section 4.2. Lockbox Agreement. Within 30 days of the date hereof, each
Borrower shall direct all of its Account Debtors to make all payments on the
Accounts directly to a post office box (the "Lockbox") designated by, and under
the exclusive control of, the Bank. Pursuant to that certain Lockbox Mail
Collection Service Agreement dated as of the date hereof between the Borrower
and the Bank (the "Lockbox Agreement"), in the form attached hereto as Exhibit
E, each Borrower shall establish the Lockbox and an account (Account Number
5800040189; referred to herein as the "Lockbox Account") in such Borrower's name
with the Bank into which all payments received in the Lockbox shall be
deposited, and into which such Borrower will immediately deposit all payments
made for Inventory or services and received by such Borrower in the identical
form in which such payments were made, whether by cash or
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check. If a Borrower, an officer, director, employee or agent or subsidiary,
parent or affiliate of such Borrower, or any other person acting for or in
concert with such Borrower shall receive any monies, checks, notes, drafts or
other payments relating to or as proceeds of Accounts or other Collateral, such
Borrower and each such person shall receive all such items in trust for, and as
the sole and exclusive property of, the Bank and, immediately upon receipt
thereof, shall remit the same (or cause the same to be remitted) in kind to the
Lockbox Account. Each Borrower agrees that all payments made to such Lockbox
Account or otherwise received by the Bank in respect of the Accounts or as
proceeds of other current asset Collateral, will be applied on account of the
Revolving Loans and in respect of other Collateral will (except as otherwise
provided in Sections 3.2(c)(i) and (ii) and Section 8.17 hereof) be applied to
the Term Loans, in each case in accordance with the terms of this Agreement.
Cash received on or before 2:00 p.m. on a Business Day into the Lockbox Account
shall be applied to the Revolving Loans or the Term Loans, as the case may be,
on the day of receipt. Checks and other non-cash payments received on or before
2:00 p.m. on a Business Day into the Lockbox Account shall be applied to the
Revolving Loans or the Term Loans, as the case may be, on the second Business
Day following receipt, so long as such checks have not been and other non-cash
payments have not been rejected upon presentment by the Bank. Each Borrower
jointly and severally agrees to pay all fees, costs and expenses which the Bank
incurs in connection with opening and maintaining the Lockbox Account and
depositing for collection by the Bank any check or other item of payment
received by the Bank on account for the Obligations. All of such fees, costs and
expenses shall continue as Obligations hereunder, shall be payable to the Bank
by the Borrowers upon demand, and, from the date of demand until paid, shall
bear interest at the highest rate then applicable to Revolving Loans hereunder.
All checks, drafts, instruments and other items of payment of proceeds of
Collateral shall be endorsed by the Borrowers to the Bank, and, if that
endorsement of any such item shall not be made for any reason, the Bank is
hereby irrevocably authorized, as the Borrowers' attorney and agent-in-fact, to
endorse the same on the Borrowers' behalf. For the purposes of this paragraph,
each of the Borrowers irrevocably hereby makes, constitutes and appoints the
Bank (and all persons designated by the Bank for that purpose) as such
Borrower's true and lawful attorney and agent-in-fact (i) to endorse such
Borrower's name upon said items of payment and/or proceeds of Collateral and
upon any Chattel Paper, document, instrument, invoice or similar document or
agreement relating to any Account of such Borrower or goods pertaining thereto;
(ii) to take control in any manner of any item of payment or proceeds thereof;
and (iii) at any time after the occurrence and during the continuance of an
Event of Default, to have access to any lock box or postal box into which any of
such Borrower's mail is deposited, and open and process all mail addressed to
such Borrower and deposited therein. The foregoing appointment is coupled with
an interest and is irrevocable until Obligations shall have been indefeasibly
paid in full in cash. The Borrowers maintain a joint payroll account with Sanwa
Bank (Account No. 2610-28398).
Section 4.3. Further Assurances. Each Borrower covenants and agrees
that it shall comply with all terms and conditions of each of the Collateral
Documents and that it shall, at any time and from time to time as requested by
the Bank, execute and deliver such further instruments and do such other acts as
the Bank may deem reasonably necessary to provide for or protect or perfect the
Lien of the Bank in the Collateral.
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SECTION 5. DEFINITIONS; INTERPRETATION.
Section 5.1. Definitions. The following terms when used herein shall
have the following meanings:
"Acquisition Corp." is defined in the introductory paragraph hereof.
"Acquisitions" means collectively, the HVF Acquisition and the Bread
Shop Acquisition.
"Adjusted LIBOR" means a rate per annum determined by the Bank in
accordance with the following formula:
Adjusted LIBOR = LIBOR
-----------------------
100%-Reserve Percentage
"Reserve Percentage" means, for the purpose of computing Adjusted
LIBOR, the maximum rate of all reserve requirements (including, without
limitation, any marginal, emergency, supplemental or other special reserves)
imposed by the Board of Governors of the Federal Reserve System (or any
successor) under Regulation D on Eurocurrency liabilities (as such term is
defined in Regulation D) for the applicable Interest Period as of the first day
of such Interest Period, but subject to any amendments to such reserve
requirement by such Board or its successor, and taking into account any
transitional adjustments thereto becoming effective during such Interest Period.
For purposes of this definition, LIBOR Portions shall be deemed to be
Eurocurrency liabilities as defined in Regulation D without benefit of or credit
for prorations, exemptions or offsets under Regulation D. "LIBOR" means, for
each Interest Period, (a) the LIBOR"Index Rate for such Interest Period, if such
rate is available, and (b) if the LIBOR Index Rate cannot be determined, the
arithmetic average of the rates of interest per annum (rounded upward, if
necessary, to the nearest 1/100th of 1%) at which deposits in U.S. Dollars in
immediately available funds are offered to the Bank at 11:00 a.m. (London,
England time) two (2) Business Days before the beginning of such Interest Period
by three (3) or more major banks in the interbank eurodollar market selected by
the Bank for a period equal to such Interest Period and in an amount equal or
comparable to the applicable LIBOR Portion scheduled to be outstanding from the
Bank during such Interest Period. "LIBOR Index Rate" means, for any Interest
Period, the rate per annum (rounded upwards, if necessary, to the next higher
one hundred-thousandth of a percentage point) for deposits in U.S. Dollars for a
period equal to such Interest Period, which appears on the Telerate Page 3750 as
of 11:00 a.m. (London, England time) on the day two (2) Business Days before the
commencement of such Interest Period. "Telerate Page 3750" means the display
designated as "Page 3750" on the Telerate Service (or such other page as may
replace Page 3750 on that service or such other service as may be nominated by
the British Bankers' Association as the information vendor for the purpose of
displaying British Bankers' Association Interest Settlement Rates for U.S.
Dollar deposits). Each determination of LIBOR made by the Bank shall be
conclusive and binding absent manifest error.
"Affiliate" means any Person directly or indirectly controlling or
controlled by, or under direct or indirect common control with, another Person.
A Person shall be deemed to control
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another Person for purposes of this definition if such Person possesses,
directly or indirectly, the power to direct, or cause the direction of, the
management and policies of the other Person, whether through the ownership of
voting securities, common directors, trustees or officers, by contract or
otherwise; provided that, in any event for purposes of this definition, any
Person that owns, directly or indirectly, 10% or more of the securities having
the ordinary voting power for the election of directors or governing body of a
corporation or 10% or more of the partnership or other ownership interests of
any other Person (other than as a limited partner of such other Person) will be
deemed to control such corporation or other Person.
"Agreement" means this Amended and Restated Credit Agreement, as the
same may be further amended, modified or restated from time to time in
accordance with the terms hereof.
"Applicable Margin" means (a) in the case of a Prime Rate Portion,
0.25% per annum and (b) in the case of a LIBOR Portion, 2.5% per annum.
"Application" is defined in Section 1.3 hereof.
"Authorized Representative" means those persons shown on the list of
officers provided by the Parent (which is acting on behalf of the Borrowers
pursuant to Section 1.6 hereof) pursuant to Section 7.2(a) hereof, or on any
update of any such list provided by the Parent to the Bank, or any further or
different officer of the Parent so named by any Authorized Representative in a
written notice to the Bank.
"Bank" is defined in the introductory paragraph hereof.
"Borrowers" is defined in the introductory paragraph hereof, with (i)
the term "Borrowers" to mean the Borrowers, collectively, and, also, each
individually, and (ii) all promises and covenants (including promises to pay)
and representations and warranties of and by the Borrowers made in the Loan
Documents or any instruments or documents delivered pursuant thereto to be and
constitute the joint and several promises, covenants, representations and
warranties of and by each and all of such corporations. The term "Borrower"
appearing in such singular form shall be deemed a reference to any of the
Borrowers unless the context in which such term is used shall otherwise require.
"Borrowing Base" means, as of any time it is to be determined, the sum
of:
(a) 80% of the then outstanding unpaid amount of Eligible
Accounts less allowances for any and all returns, rebates, discounts, credits,
allowances, finance charges and/or taxes of any nature at any time issued,
owing, available to or claimed by Account Debtors, granted, outstanding or
payable in connection with such Eligible Accounts at such time; plus
(b) the lesser of (i) $2,600,000 and (ii) 50% of the value
(computed at the average cost method of inventory valuation or the then current
method of inventory valuation applied by the Borrowers, in each case in
accordance with GAAP and in any event resulting in a book carrying value equal
to the lower of cost or market) of Eligible Inventory; minus
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(c) the then outstanding aggregate amount, including, without
limitation, any late payment fees or interest, of Grower Payables; minus
(d) without duplication, the aggregate reserve for unissued
credits in respect of Accounts appearing on the books of the Borrowers; minus
(e) the accrued and unpaid rentals with respect to the
Borrowers, leased real property;
provided that the Borrowing Base shall be computed only as against and on so
much of such Collateral as is included on the certificates to be furnished from
time to time by the Parent and the Borrowers pursuant to this Agreement and, if
required by the Bank pursuant to any of the terms hereof or any Collateral
Document, as verified by such other evidence required to be furnished to the
Bank pursuant hereto or pursuant to any such Collateral Document.
"Bread Shop Acquisition" means the acquisition by Acquisition Corp. of
100% of the Voting Stock of the Company pursuant to the Bread Shop Purchase
Agreement and the immediately subsequent merger of Acquisition Corp. with and
into the Company.
"Bread Shop Purchase Agreement" means the Stock Purchase Agreement
dated as of October 16, 1996 by and among Acquisition Corp. and the then current
stockholders of the Company.
"Business Day" means any day other than a Saturday or Sunday on which
the Bank is not authorized or required to close in Chicago, Illinois and, when
used with respect to LIBOR Portions, a day on which the Bank is also dealing in
United States Dollar deposits in London, England.
"Capital Lease" means any lease of Property which in accordance with
GAAP is required to be capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligation" means the amount of the liability shown
on the balance sheet of any Person in respect of a Capital Lease as determined
in accordance with GAAP.
Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute thereto.
"Collateral" means all properties, rights, interests and privileges
from time to time subject to the Liens granted to the Bank by the Collateral
Documents.
"Collateral Documents" means the Security Agreements, and all other
mortgages, deeds of trust, security agreements, assignments, financing
statements and other documents as shall from time to time secure the
Obligations.
"Company" is defined in the introductory paragraph hereof.
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<PAGE> 20
"Controlled Group" means all members of a controlled group of
corporations and all trades and businesses (whether or not incorporated) under
common control which, together with the Parent or any of its Subsidiaries, are
treated as a single employer under Section 414 of the Code.
"Current Ratio" shall mean the ratio of (i) consolidated current assets
of the Parent and its Subsidiaries to (ii) consolidated current liabilities of
the Parent and its Subsidiaries (including, for purposes of this definition, the
outstanding amount of Revolving Loans and Letters of Credit).
"Default" means any event or condition the occurrence of which would,
with the passage of time or the giving of notice, or both, constitute an Event
of Default.
"EBITDA" means, with reference to any period, Net Income for such
period plus all amounts deducted in arriving at such Net Income amount for (i)
Interest Expense for such period, plus (ii) federal, state and local income
taxes for such period, plus (iii) all amounts properly charged for depreciation
of fixed assets and amortization of intangible assets and all other non-cash
charges during such period on the books of the Parent and its Subsidiaries.
"Eligible Accounts" means, with respect to the Accounts of each
Borrower, each such Account with respect to which all representations and
warranties set forth in the Collateral Documents are true and correct in all
material respects and with respect to which each of the following criteria is
satisfied:
(a) it arises out of the sale by such Borrower of finished
goods inventory delivered to and accepted by, or out of the rendition by such
Borrower of services fully performed by or on behalf of such Borrower and
accepted by, the Account Debtor on such Account and such Account otherwise
represents a final sale;
(b) the Account Debtor on such Account is located within the
United States of America;
(c) it is the valid, binding and legally enforceable
obligation of the Account Debtor obligated thereon and such Account Debtor is
not (i) a Subsidiary or an Affiliate of the Parent, (ii) a shareholder,
director, officer or employee of the Parent or any Subsidiary, (iii) the United
States of America, or any state or political subdivision thereof, or any
department, agency or instrumentality of any of the foregoing, unless the
relevant Borrower has complied with the Assignment of Claims Act or any similar
state or local statute, as the case may be, to the satisfaction of the Bank,
(iv) a debtor under any proceeding under the United States Bankruptcy Code, as
amended, or any other comparable bankruptcy or insolvency law, or (v) an
assignor for the benefit of creditors;
(d) it is not evidenced by an instrument or chattel paper
unless the same has been endorsed and delivered to the Bank;
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(e) it is an asset of such Borrower to which it has good and
marketable title, is freely assignable, and is subject to a perfected, first
priority Lien in favor of the Bank free and clear of any other Liens;
(f) it is not unpaid more than 90 days after the original
invoice date (which must be not more than five (5) days subsequent to the
shipment date or the date services were fully performed by the relevant
Borrower);
(g) it is not owed by an Account Debtor who is obligated on
accounts receivable owed to the Borrower more than 25% of the aggregate unpaid
balance of which have been past due for longer than the relevant period
specified in subsection (f) above unless the bank has approved the continued
eligibility thereof; and
(h) it does not arise from a sale to an Account Debtor on a
bill-and-hold, sale-on-approval or consignment basis.
"Eligible Inventory" means all raw materials and finished goods
Inventory of each Borrower (other than packaging, crating and supplies inventory
and other than Inventory consisting of cookbooks) with respect to which all
representations and warranties set forth in the Collateral Documents are true
and correct in all material respects and with respect to which each of the
following criteria is satisfied:
(a) it is an asset of such Borrower to which it has good and
marketable title, is freely assignable, and is subject to a perfected, first
priority Lien in favor of the Bank free and clear of any other Liens;
(b) it is located at the Borrowers' facilities specified on
Schedule A to the Security Agreement or such other locations as are approved in
writing by the Bank;
(c) it is not so identified to a contract to sell that it
constitutes an account;
(d) it does not constitute parts or work-in-process Inventory
(other than Inventory which has not to any degree been processed but which is
awaiting processing);
(e) it is not a discontinued Inventory item that is no longer
salable;
(f) it is not Inventory which is being produced or held for
sale to (i) a Subsidiary or an Affiliate of the Parent, (ii) a shareholder,
director, officer or employee of the Parent or any Subsidiary, (iii) the United
States of America, or any state or political subdivision thereof, or any
department, agency or instrumentality of any of the foregoing, (iv) a debtor
under any proceeding under the United States Bankruptcy Code, as amended, or any
other comparable bankruptcy or insolvency law, or (v) an assignor for the
benefit of creditors;
(g) it is not obsolete or no longer salable and is of good and
merchantable quality free from any defects which might adversely affect the
market value thereof; and
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(h) it is not being held by any third party processor, unless
(i) the Bank has a perfected, first priority Lien in such Inventory which has
been acknowledged by such processor in a writing reasonably acceptable by the
Bank, (ii) such processor has waived any and all lien rights which it may now or
in the future have with respect to such Inventory, and (iii) such processor has
agreed, for the benefit of the Bank, that such Inventory shall be clearly marked
as being Inventory of the Borrowers and shall be segregated from other inventory
and materials held from time to time by such processor; provided, that the
aggregate amount of such Inventory included within the Borrowing Base because of
the satisfaction of the foregoing conditions (i), (ii) and (iii) shall at no
time exceed 20% of the Borrowing Base attributable to Eligible Inventory.
"Environmental Laws" means all federal, state or local laws, statutes,
common law duties, rules, regulations, ordinances and codes, together with all
administrative orders, directed duties, requests, licenses, authorizations and
permits of, and agreements with, any Governmental Authorities, in each case
relating to environmental, health, safety and land use matters.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended, or any successor statute thereto.
"Event of Default" means any event or condition identified as such in
Section 9.1 hereof.
"Excess Cash Flow" shall mean for any fiscal year, the positive
difference, if any, of (i) EBITDA for such fiscal year minus (ii) the sum of (A)
Interest Expense paid for such fiscal year plus (B) federal, state and local
income taxes for such fiscal year plus (C) capital expenditures for such fiscal
year to the extent not financed with independent purchase money financing from
sources other than the Bank plus (D) scheduled principal repayments of
Indebtedness for Borrowed Money or Capital Lease obligations made during such
fiscal year.
"Fixed Charge Coverage Ratio" is defined in Section 8.10 hereof.
"Fixed Charges" means, with reference to any period, the sum (without
duplication) of (i) the aggregate amount of payments required to be made by the
Parent and its Subsidiaries during such period in respect of principal on all
Indebtedness for Borrowed Money (whether at maturity, as a result of mandatory
sinking fund redemption, mandatory prepayment, acceleration or otherwise but
excluding payments made or required to be made pursuant to Section 3.3(b) and
voluntary prepayments), plus (ii) Interest Expense for such period, plus (iii)
the aggregate amount of capital expenditures (as determined in accordance with
GAAP) made or incurred by the Parent and its Subsidiaries during such period.
"Frontenac" means Frontenac Company, an Illinois general partnership,
and Frontenac VI Limited Partnership, a Delaware limited partnership.
"GAAP" means generally accepted accounting principles as in effect from
time to time, applied by the Parent and its Subsidiaries on a basis consistent
with the preparation of the Parent's most recent financial statements furnished
to the Bank pursuant to Section 6.6 hereof.
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"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, any central bank (or similar monetary or
regulatory authority) thereof, any entity exercising executive, legislative,
judicial, regulatory or administrative functions of or pertaining to government,
and any corporation or other entity owned or controlled, through stock or
capital ownership or otherwise, by any of the foregoing.
"Grower Payables" means, without duplication, all accounts payable for
agricultural products of the Borrowers owed to the original producers of
agricultural products and all account payables which are subject to the
Perishable Agricultural Commodities Act (or any successor or supplementary
statute).
"HVF Acquisition" means the acquisition by the Parent of 100% of the
Voting Stock of Health Valley Foods, Inc., a California corporation, and Health
Valley Manufacturing Company, a California corporation, pursuant to the HVF
Purchase Agreement.
"HVF Purchase Agreement" means the Stock Purchase Agreement dated as of
March 17, 1996 by and among the Parent and George Mateljan, Jr., as amended.
"Indebtedness for Borrowed Money" means for any Person (without
duplication) (i) all indebtedness created, assumed or incurred in any manner by
such Person representing money borrowed (including by the issuance of debt
securities), (ii) all indebtedness for the deferred purchase price of property
or services (other than accrued expenses and trade accounts payable arising in
the ordinary course of business which are not evidenced by a note or similar
instrument), (iii) all indebtedness secured by any Lien upon Property of such
Person, whether or not such Person has assumed or become liable for the payment
of such indebtedness, (iv) all Capitalized Lease Obligations of such Person, and
(v) all obligations of such Person on or with respect to letters of credit,
bankers' acceptances and other extensions of credit whether or not representing
obligations for borrowed money.
"Interest Expense" means, with reference to any period, the sum of all
interest charges (including imputed interest charges with respect to Capitalized
Lease Obligations and all amortization of debt discount and expense) of the
Parent and its Subsidiaries for such period (net of interest income from
investments permitted by Section 8.15) determined in accordance with GAAP.
"Interest Period" means, with respect to any LIBOR Portion, the period
commencing on, as the case may be, the creation, continuation or conversion date
with respect to such LIBOR Portion and ending 1, 2, 3 or 6 months thereafter as
selected by the Parent (which is acting on behalf of the Borrower pursuant to
Section 1.6 hereof) in its notice as provided herein; provided that all of the
foregoing provisions relating to Interest Periods are subject to the following:
(i) if any Interest Period would otherwise end on a day which
is not a Business Day, that Interest Period shall be extended to the
next succeeding Business Day, unless the result of such extension would
be to carry such Interest Period into another calendar month in which
event such Interest Period shall end on the immediately preceding
Business Day;
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(ii) no Interest Period may extend beyond the final maturity
date of the relevant Note;
(iii) the interest rate to be applicable to each Portion for
each Interest Period shall apply from and including the first day of
such Interest Period to but excluding the last day thereof; and
(iv) no Interest Period may be selected if after giving effect
thereto the Borrowers will be unable to make a principal payment
scheduled to be made during such Interest Period without paying part of
a LIBOR Portion on a date other than the last day of the Interest
Period applicable thereto.
For purposes of determining an Interest Period, a month means a period starting
on one day in a calendar month and ending on a numerically corresponding day in
the next calendar month, provided, however, if an Interest Period begins on the
last day of a month or if there is no numerically corresponding day in the month
in which an Interest Period is to end, then such Interest Period shall end on
the last Business Day of such month.
"Intrepid" means Intrepid Food Holdings, Inc., a Delaware corporation.
"Letter of Credit" is defined in Section 1.3 hereof.
"LIBOR Portions" is defined in Section 2.1(a) hereof.
"Lien" means any mortgage, lien, security interest, pledge, charge or
encumbrance of any kind in respect of any Property, including the interests of a
vendor or lessor under any conditional sale, Capital Lease or other title
retention arrangement.
"Loans" means and includes the Revolving Credit Loans and the Term
Loans.
"Loan Documents" means this Agreement, the Notes, the Applications, the
Lockbox Agreement and the Collateral Documents.
"Management Fees" shall mean all fees, charges and other amounts due
and to become due to Frontenac and/or other investors in Intrepid and its
Affiliates in consideration for, directly or indirectly, administrative,
accounting, management, financial, consulting, board representation or similar
services; provided, however, that Management Fees shall in no event mean or
include amounts paid to Intrepid ("Reimbursable Intrepid Expenses") in
reimbursement of its costs and expenses (including salaries and general
administrative and overhead costs and expenses) or costs and expenses incurred
in connection with the Acquisitions, in each case as identified on Schedule 5.1
hereto (the payment of Reimbursable Intrepid Costs not being restricted by this
Agreement).
"Material Adverse Effect" means (i) a material adverse effect on the
financial condition, material Properties, or operations of the Parent, any
Borrower or any other Subsidiary, taken as a whole, (ii) the impairment of the
ability of the Parent or any Borrower in any material respect to perform its
material obligations under any Loan Document to which it is a party, or
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(iii) the impairment in any material respect of (A) the validity or
enforceability of any Loan Document of the ability of the Bank to enforce or
collect any of the Loans or (B) the Bank's first priority lien on the
Collateral. In determining whether any individual event would result in a
Material Adverse Effect, notwithstanding that such event does not itself have
such effect, a Material Adverse Effect shall be deemed to have occurred if the
cumulative effect of such event and all other then existing events would result
in a Material Adverse Effect.
"Maximum Revolving Credit Commitment" is defined in Section 1.1 hereof.
"Net Income" means, with reference to any period, the net income (or
net loss) of the Parent and its Subsidiaries for such period as computed on a
consolidated basis in accordance with GAAP.
"Notes" means and includes the Revolving Credit Note and the Term
Notes.
"Obligations" means all obligations of the Borrowers and any and all of
them to pay principal and interest on the Loans, all reimbursement obligations
owing under the Letters of Credit or the Applications, all fees and charges
payable hereunder, and all other liabilities and obligations of any Borrower to
the Bank, howsoever created, arising or evidenced, and howsoever owned, held or
acquired, whether now or hereafter existing, whether now due or to become due,
direct or indirect, absolute or contingent, and whether several, joint or joint
and several.
"Original Credit Agreement" is defined in the introductory paragraph
hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any Person
succeeding to any or all of its functions under ERISA.
"Person" means an individual, partnership, limited liability company,
corporation, association, trust, unincorporated organization or any other entity
or organization, including a government or agency or political subdivision
thereof.
"Plan" means any employee pension benefit plan covered by Title IV of
ERISA or subject to the minimum funding standards under Section 412 of the Code
that either (i) is maintained by a member of the Controlled Group for employees
of a member of the Controlled Group or (ii) is maintained pursuant to a
collective bargaining agreement or any other arrangement under which more than
one employer makes contributions and to which a member of the Controlled Group
is then making or accruing an obligation to make contributions or has within the
preceding five plan years made contributions.
"Pledged Stock" is defined in Section 4.1 hereof.
"Portion" is defined in Section 2.1(a) hereof.
"Prime Rate" means the rate per annum in effect from time to time as
set by the Bank and called its "prime rate"; it being understood that the "prime
rate" may not necessarily be the
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lowest rate of interest which the Bank from time to time charges its customers.
The effective date of any change in the Prime Rate shall for purposes hereof be
the date the rate is changed by the Bank. The Bank shall not be obligated to
give notice of any change in the Prime Rate.
"Prime Rate Portion" is defined in Section 2.1(a) hereof.
"Property" means any interest in any kind of property or asset, whether
real, personal or mixed, or tangible or intangible.
"Revolving Credit" is defined in Section 1.1 hereof.
"Revolving Credit Loan" is defined in Section 1.2 hereof.
"Revolving Credit Note" is defined in Section 1.2 hereof.
"Revolving Credit Termination Date" means June 30, 1999, or such
earlier date on which the Revolving Credit is terminated in whole pursuant to
Section 2.8, 9.2 or 9.3 hereof.
"Security Agreement" is defined in Section 4.1 hereof.
"Solvent", as to any Person on a particular date, shall mean that on
such date (i) the fair value of the property of such Person is greater than the
total amount of liabilities, including, without limitation, contingent
liabilities, of such Person, (ii) the present fair salable value of the assets
of such Person is not less than the amount that will be required to pay the
probable liabilities of such Person on its debts as they become absolute and
matured, (iii) such Person is able to realize upon its assets and pay its debts
and other liabilities, contingent obligations and other commitments as they
mature in the normal course of business, (iv) such Person does not intend to,
and does not believe that it will, incur debts or liabilities beyond such
Person's ability to pay as such debts and liabilities mature, and (v) such
Person is not engaged in business or a transaction, and is not about to engage
in business or a transaction, for which such Person's property would constitute
unreasonably small capital after giving due consideration to the prevailing
practice in the industry in which such Person is engaged. In computing the
amount of any contingent liability at any time, it is intended that such
liability will be computed at the amount which, in light of all the facts and
circumstances existing at such time, represents the amount that can reasonably
be expected to become an actual or matured liability.
"Subordinated Indebtedness" means any Indebtedness for Borrowed Money
which is subordinated in right of payment to the prior payment of the Loans and
the other Obligations, pursuant to subordination provisions approved in writing
by the Bank and is otherwise pursuant to documentation, is an amount, and
containing interest rates, payment terms, maturities, amortization schedules,
covenants, defaults, remedies and other material terms in form and substance
reasonably satisfactory to the Bank.
"Subsidiary" means any corporation or other Person more than 50% of the
outstanding ordinary voting shares, Voting Stock or other equity interests of
which is at the time directly or
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indirectly owned by the Parent, by one or more of its Subsidiaries, or by the
Parent and one or more of its Subsidiaries.
"Tangible Net Worth" means, as of any time the same is to be
determined, the total shareholders' equity (including capital stock, additional
paid-in-capital and retained earnings after deducting treasury stock, but
excluding minority interests in Subsidiaries) plus Subordinated Indebtedness
which would appear on the balance sheet of the Parent and its Subsidiaries
determined on a consolidated basis in accordance with GAAP, subject, however, to
the following restrictions and limitations: there shall be excluded from the
determination of total assets (i) all assets which would be classified as
intangible assets under GAAP, including, without limitation, goodwill, patents,
trademarks, trade names, copyrights, franchises and deferred charges (including,
without limitation, unamortized debt discount and expense, organization costs
and deferred research and development expense) and similar assets, (ii) the
write-up of assets above cost (except as permitted under GAAP in connection with
the Acquisitions) and (iii) any amounts due from any shareholders, affiliates,
officers or employees of any Borrower.
"Term Loan A Termination Date" means June 30, 2003, or such earlier
date on which the Term Loan A is accelerated pursuant to Section 9.2 or 9.3
hereof.
"Term Loan B Termination Date" means October 31, 2002, or such earlier
date on which the Term Loan B is accelerated pursuant to Section 9.2 or 9.3
hereof.
"Term Loan A Note" is defined in Section 1.4(a) hereof.
"Term Loan B Note" is defined in Section 1.4(b) hereof.
"Term Loan A" is defined in Section 1.4(a) hereof.
"Term Loan B" is defined in Section 1.4(b) hereof.
"Term Loans" is defined in Section 1.4(b) hereof.
"Term Notes" is defined in Section 1.4(b) hereof.
"Total Liabilities" means, as of any time the same is to be determined,
the aggregate of all indebtedness, obligations, liabilities, reserves and any
other items which would be listed as a liability on a balance sheet of the
Parent and its Subsidiaries determined on a consolidated basis in accordance
with GAAP.
"UCC" means the Uniform Commercial Code in effect in Illinois from time
to time.
"Unfunded Vested Liabilities" means, for any Plan at any time, the
amount (if any) by which the present value of all vested nonforfeitable accrued
benefits under such Plan exceeds the fair market value of all Plan assets
allocable to such benefits, all determined as of the then most recent valuation
date for such Plan, but only to the extent that such excess represents a
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potential liability of a member of the Controlled Group to the PBGC or the Plan
under Title IV of ERISA.
"Voting Stock" of any Person means capital stock of any class or
classes or other equity interests (however designated) having ordinary voting
power for the election of directors or similar governing body of such Person,
other than stock or other equity interests having such power only by reason of
the happening of a contingency.
"Welfare Plan" means a "welfare plan" as defined in Section 3(l) of
ERISA.
"Wholly-Owned Subsidiary" means a Subsidiary of which all of the issued
and outstanding shares of capital stock (other than directors' qualifying shares
as required by law), Voting Stock or other equity interests are owned by the
Parent and/or one or more Wholly-Owned Subsidiaries within the meaning of this
definition.
Section 5.2. Other Definitions. Capitalized words and phrases used
herein and not otherwise defined herein shall have the respective meanings
assigned to such terms as of the date hereof in the UCC, or as the context may
otherwise require.
Section 5.3. Interpretation. The foregoing definitions are equally
applicable to both the singular and plural forms of the terms defined. The words
"hereof", "herein", and "hereunder" and words of like import when used in this
Agreement shall refer to this Agreement as a whole and not to any particular
provision of this Agreement. All references to time of day herein are references
to Chicago, Illinois time unless otherwise specifically provided. Where the
character or amount of any asset or liability or item of income or expense is
required to be determined or any consolidation or other accounting computation
is required to be made for the purposes of this Agreement, it shall be done in
accordance with GAAP except where such principles are inconsistent with the
specific provisions of this Agreement. The foregoing to the contrary
notwithstanding, the Parent may submit financial reports under Section 8.5
hereof prepared on the basis of generally accepted accounting principles as in
effect on the date thereof and for the periods covered thereby if it accompanies
each such financial report with a statement in reasonable detail reconciling the
impact of any changes in generally accepting accounting principles on such
financial reports.
Section 5.4. Change in Accounting Principles. If, after the date of
this Agreement, there shall occur any change in generally accepted accounting
principles from those used in the preparation of the financial statements
referred to in Section 6.6 hereof and such change shall result in a change in
the method of calculation of any financial covenant, standard or term found in
this Agreement, either the Parent or the Bank may by notice to the Bank and the
Parent, respectively, require that the Bank and the Borrowers negotiate in good
faith to amend such covenant, standard and term so as equitably to reflect such
change in accounting principles, with the desired result being that the criteria
for evaluating the financial condition of the Parent and its Subsidiaries shall
be the same as if such change had not been made. No delay by the Parent or the
Bank in requiring such negotiation shall limit their right to so require such a
negotiation at any time after such a change in accounting principles. Without
limiting the generality of the foregoing, the Parent shall neither be deemed to
be in compliance with any financial covenant hereunder nor out of compliance
with any financial covenant hereunder if such state of
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compliance or noncompliance, as the case may be, would not exist but for the
occurrence of a change in accounting principles after the date hereof.
SECTION 6. REPRESENTATIONS AND WARRANTIES.
Each of the Borrowers jointly and severally represents and warrants to
the Bank as follows:
Section 6.1. Borrowers' Organization and Qualification. Each Borrower
is duly organized, validly existing and in good standing as a corporation under
the laws of the State of California or Delaware, as the case may be, has full
and adequate corporate power to own its Property and conduct its business as now
conducted, and is duly licensed or qualified and in good standing in each
jurisdiction in which the nature of the business conducted by it or the nature
of the Property owned or leased by it requires such licensing or qualifying and
the failure to so qualify would have a Material Adverse Effect.
Section 6.2. Parent's Organization and Qualification. The Parent is
duly organized, validly existing and in good standing as a corporation under the
laws of the State of Delaware, has full and adequate corporate power to own its
Property and conduct its business as now conducted, and is duly licensed or
qualified and in good standing in each jurisdiction in which the nature of the
business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying and the failure to so qualify would have a
Material Adverse Effect.
Section 6.3. Subsidiaries. Each Subsidiary is duly organized, validly
existing and in good standing under the laws of the jurisdiction in which it is
incorporated or organized, as the case may be, has full and adequate power to
own its Property and conduct its business as now conducted, and is duly licensed
or qualified and in good standing in each jurisdiction in which the nature of
the business conducted by it or the nature of the Property owned or leased by it
requires such licensing or qualifying and the failure to so qualify would have a
Material Adverse Effect. Schedule 6.3 hereto identifies each Subsidiary, the
jurisdiction of its incorporation or organization, as the case may be, the
percentage of issued and outstanding shares of each class of its capital stock
or other equity interests owned by the Parent and the Subsidiaries and, if such
percentage is not 100% (excluding directors' qualifying shares as required by
law), a description of each class of its authorized capital stock and other
equity interests and the number of shares of each class issued and outstanding.
All of the outstanding shares of capital stock and other equity interests of
each Subsidiary are validly issued and outstanding and fully paid and
nonassessable and all such shares and other equity interests indicated on
Schedule 6.3 as owned by the Parent or a Subsidiary are owned, beneficially and
of record, by the Parent or such Subsidiary free and clear of all Liens. There
are no outstanding commitments or other obligations of any Subsidiary to issue,
and no options, warrants or other rights of any Person to acquire, any shares of
any class of capital stock or other equity interests of any Subsidiary.
Section 6.4. Corporate Authority and Validity of Obligations. Each of
the Borrowers has full right and authority to enter into this Agreement and the
other Loan Documents to which it is a party and to perform all of its
obligations hereunder and under the other Loan Documents. Each Borrower has full
right and authority to make the borrowings herein provided for, to issue
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its Notes in evidence thereof and to grant to the Bank the Liens described in
the Collateral Documents. The Loan Documents delivered by each of the Borrowers
have been duly authorized, executed and delivered by such member and constitute
valid and binding obligations of such member enforceable in accordance with
their terms except as enforceability may be limited by bankruptcy, insolvency,
fraudulent conveyance or similar laws affecting creditors' rights generally and
general principles of equity (regardless of whether the application of such
principles is considered in a proceeding in equity or at law); and this
Agreement and the other Loan Documents delivered by a Borrower do not, nor does
the performance or observance by such member of any of the matters and things
herein or therein provided for, contravene or constitute a default under any
provision of law or any judgment, injunction, order or decree binding upon any
Borrower or any provision of the charter, articles of incorporation or by-laws
of any Borrower or any covenant, indenture or agreement of or affecting any
Borrower or any of its Properties, or result in the creation or imposition of
any Lien on any Property of any Borrower, other than the Liens in favor of the
Bank created by the Loan Documents.
Section 6.5. Use of Proceeds; Margin Stock. Each Borrower shall use the
proceeds of the Loans and other extensions of credit made available hereunder
solely for its general working capital purposes and for such other legal and
proper purposes as are consistent with all applicable laws and the terms of this
Agreement; it being understood, up to $1,400,000 of Revolving Credit Loan
proceeds and $6,500,000 of Term Loan B proceeds are being loaned to Acquisition
Corp. to consummate the Bread Shop Acquisition. Neither the Parent nor any
subsidiary is engaged in the business of extending credit for the purpose of
purchasing or carrying margin stock (within the meaning of Regulation U of the
Board of Governors of the Federal Reserve System), and no part of the proceeds
of any Loan or any other extension of credit made hereunder will be used to
purchase or carry any such margin stock or to extend credit to others for the
purpose of purchasing or carrying any such margin stock.
Section 6.6. Financial Reports. The combined balance sheet of the
Parent (or its predecessor Subsidiaries, Health Valley Foods, Inc. and Health
Valley Manufacturing Company) as at December 31, 1995 and the related combined
statements of income, retained earnings and cash flows of the Borrowers for the
fiscal year then ended, and accompanying notes thereto, which financial
statements are accompanied by the audit report of Coopers & Lybrand, independent
public accountants, and the unaudited interim balance sheet of the Parent as at
August 31, 1996, and the unaudited interim balance sheet and income statement of
the Company as at August 31, 1996, heretofore furnished to the Bank, fairly
present the consolidated financial condition of the Parent and its Subsidiaries
as at said dates and the consolidated results of their operations and cash flows
for the periods then ended (or prior to the Banks receipt of consolidated
financial statements, the combined financial condition of the Borrowers as at
said dates and the combined results of the Borrowers' operations and cash flows
for the periods then ended) in each case in conformity with generally accepted
accounting principles applied on a consistent basis. Neither the Parent nor any
Subsidiary has contingent liabilities which are material to it other than as
indicated on such financial statements or, with respect to future periods, on
the financial statements furnished pursuant to Section 8.5 hereof. Set forth on
Schedule 6.6 is a complete list of all of the Indebtedness for Borrowed Money of
each Borrower as of the date hereof.
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Section 6.7. No Material Adverse Change. Since August 31, 1996, there
has been no material adverse change in the financial condition of the Parent or
any Subsidiary taken as a whole except those occurring in the ordinary course of
business.
Section 6.8. Full Disclosure. The statements and information furnished
to the Bank by or on behalf of any Borrower in connection with the negotiation
of this Agreement and the other Loan Documents do not contain any untrue
statements of a material fact or omit a material fact necessary to make the
material statements contained herein or therein not misleading, the Bank
acknowledging that as to any projections furnished to the Bank, the Borrowers
only represent that the same were prepared on the basis of information and
estimates the Borrowers believed to be reasonable, it being understood and
agreed by the Bank that such projections as to future events are not to be
viewed as facts and that actual results during the periods covered by such
projections may differ from the projections.
Section 6.9. Good Title. The Parent and its Subsidiaries each have good
and defensible title to their assets as reflected on the most recent
consolidated balance sheet of the Parent and its Subsidiaries (or prior to the
Bank's receipt of such a consolidated balance sheet, the most recent combined
balance sheet of the Borrowers) furnished to the Bank (except for sales of
assets by the Parent and its Subsidiaries in the ordinary course of business),
subject to no Liens other than such thereof as are permitted by Section 8.14
hereof.
Section 6.10. Litigation and Other Controversies. Except as set forth
otherwise on Schedule 6.10 hereto, there is no litigation or governmental
proceeding pending, nor to the knowledge of any Borrower threatened, against the
Parent or any Subsidiary which if adversely determined would result in any
Material Adverse Effect.
Section 6.11. Taxes. Except to the extent disclosed otherwise on
Schedule 6.11 hereto with respect to certain state tax matters, all tax returns
required to be filed by the Parent or any Subsidiary in any jurisdiction have,
in fact, been filed, and all taxes, assessments, fees and other governmental
charges upon the Parent or any Subsidiary or upon any of their respective
Properties, income or franchises, which are shown to be due and payable in such
returns, have been paid. Except to the extent disclosed otherwise on Schedule
6.11 hereto with respect to certain state tax matters, none of the Borrowers
knows of any proposed additional tax assessment against the Parent or its
Subsidiaries for which adequate provision in accordance with GAAP has not been
made on its accounts. Except to the extent disclosed otherwise on Schedule 6.11
hereto with respect to certain state tax matters, adequate provisions in
accordance with GAAP for taxes on the books of the Parent and each Subsidiary
have been made for all open years, and for its current fiscal period.
Section 6.12. Approvals. No authorization, consent, license, or
exemption from, or filing or registration with, any court or governmental
department, agency or instrumentality, nor any approval or consent of the
stockholders of the Parent or any other Person, is or will be necessary to the
valid execution, delivery or performance by Borrowers of this Agreement or any
other Loan Document (except those that have been obtained or will be obtained).
Section 6.13. Affiliate Transactions. Neither the Parent nor any
Subsidiary is a party to any contracts or agreements with any of its Affiliates
on terms and conditions which are less
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favorable to the Parent or such Subsidiary than would be usual and customary in
similar contracts or agreements between Persons not affiliated with each other;
provided, however, that this Section shall not apply to nor operate to prevent
(i) the payment to Frontenac of Management Fees permitted by Section 8.20
hereof, (ii) the payment of Reimbursable Intrepid Expenses, and (iii) the
payment of certain transaction fees and expenses made in connection with the
Acquisitions prior to the date hereof (which fees and expenses have been
disclosed to the Bank).
Section 6.14. Investment Company; Public Utility Holding Company.
Neither the Parent nor any Subsidiary is an "investment company" within the
meaning of the Investment Company Act of 1940, as amended, or a "public utility
holding company" within the meaning of the Public Utility Holding Company Act of
1935, as amended.
Section 6.15. ERISA. The Parent and each other member of its Controlled
Group has fulfilled its obligations under the minimum funding standards of and
is in compliance in all material respects with ERISA and the Code to the extent
applicable to it and has not incurred any material liability to the PBGC or a
Plan under Title IV of ERISA other than a liability to the PBGC for premiums
under Section 4007 of ERISA. Neither the Parent nor any Subsidiary has any
material contingent liabilities with respect to any post-retirement benefits
under a Welfare Plan, other than liability for continuation coverage described
in Article 6 of Title I of ERISA.
Section 6.16. Compliance with Laws. The Parent and its Subsidiaries
each are in compliance with the requirements of all federal, state and local
laws, rules and regulations applicable to or pertaining to their Properties or
business operations (including, without limitation, the Occupational Safety and
Health Act of 1970, the Americans with Disabilities Act of 1990, laws and
regulations establishing quality criteria and standards for air, water, land and
toxic or hazardous wastes and substances and other applicable Environmental Laws
and the Perishable Agricultural Commodities Act), non-compliance with which
could reasonably be expected to have or does in fact actually have a Material
Adverse Effect. Neither the Parent nor any Subsidiary has received written
notice to the effect that its operations are not in compliance with any of the
requirements of applicable federal, state or local environmental, health and
safety statutes and regulations or are the subject of any governmental
investigation evaluating whether any remedial action is needed to respond to a
release of any toxic or hazardous waste or substance into the environment, which
non-compliance or remedial action would reasonably be expected to have or does
in fact actually have a Material Adverse Effect.
Section 6.17. Other Agreements. Neither the Parent nor any Subsidiary
is in default under the terms of any covenant, indenture or agreement of or
affecting the Parent, any Subsidiary or any of their material Properties, which
default, if uncured, would have a Material Adverse Effect. Except as set forth
on Schedule 6.17, neither the Parent nor any Subsidiary is obligated under any
"take-or-pay" or similar contracts. The Borrowers have provided to the Bank
either true, correct and complete copies of all of the agreements listed on
Schedule 6.17 or a narrative description of the same reasonably acceptable to
the Bank (including, to the extent this representation is made after the date
hereof, any and all amendments, supplements or modifications made thereto on or
prior to the date of such representation.)
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Section 6.18. No Default. No Default or Event of Default has occurred
and is continuing.
Section 6.19. Solvency. Both immediately before and immediately after
giving effect to the Bread Shop Acquisition, each of the Borrowers is Solvent.
Each of the Borrowers and each of their respective Subsidiaries is, and after
consummation of this Agreement and after giving effect to all Indebtedness for
Borrowed Money incurred and Liens created by the Borrowers and their respective
Subsidiaries in connection herewith will be, Solvent.
Section 6.20. Acquisition. Each of the Acquisitions was consummated in
accordance with all applicable laws and any contractual or other restrictions
applicable to the parties thereto and all conditions to the effectiveness
thereof have either been satisfied or irrevocably waived, except, in the case of
applicable laws, where the failure to comply could not reasonably be expected to
have a Material Adverse Effect.
SECTION 7. CONDITIONS PRECEDENT.
The effectiveness of this amendment and restatement and the obligation
of the Bank to make any Loan or to issue any Letter of Credit under this
Agreement is subject to the following conditions precedent:
Section 7.1. All Advances. As of the time of such effectiveness and as
of the time of the making of each extension of credit (including the initial
extension of credit) hereunder:
(a) each of the representations and warranties set forth in
Section 6 hereof and in the other Loan Documents shall be true and correct in
all material respects as of such time, except to the extent the same expressly
relate to an earlier date and except that the representations and warranties
made in Section 6.7 hereof shall be deemed to refer to the date of the most
recent financial statements delivered to the Bank pursuant to Section 8.5
hereof;
(b) the Borrowers shall be in full compliance with all of the
terms and conditions of Sections 1 and 2 of this Agreement regarding the
procedures under which credit is available hereunder to the Borrowers, and no
Default or Event of Default shall have occurred and be continuing or would occur
as a result of making any such extension of credit;
(c) in the case of any request for an extension of credit
under the Revolving Credit, after giving effect to such extension of credit the
aggregate principal amount of all Revolving Credit Loans and Letters of Credit
outstanding under this Agreement shall not exceed the lesser of (i) the Maximum
Revolving Credit Commitment and (ii) the Borrowing Base;
(d) in the case of the issuance of any Letter of Credit, the
Bank shall have received a properly completed Application therefor together with
the fees called for hereby; and
(e) in the case of any request for an extension of credit
under the Revolving Credit, the Parent shall be in compliance with the
requirements of Section 8.5(a) hereof.
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The Parent's request for any Loan or Letter of Credit shall constitute its
warranty as to the facts set forth in subsections (a) through (e), inclusive,
above.
Section 7.2. Initial Advance. At or prior to the making of the initial
extension of credit hereunder, the following conditions precedent shall also
have been satisfied:
(a) the Bank shall have received the following (each to be
properly executed and completed) and the same shall have been approved as to
form and substance by the Bank:
(i) the Notes;
(ii) an additional Lockbox Agreement for the Company
which may be provided within five (5) days of the date hereof;
(iii) the Collateral Documents, together with any
financing statements requested by the Bank in connection
therewith and together with stock certificates and stock
powers endorsed in blank for the Company and Acquisition
Corp.;
(iv) copies (executed or certified, as may be
appropriate) of all legal documents or proceedings taken in
connection with the execution and delivery of the Bread Shop
Acquisition and in connection with this Agreement and the
other Loan Documents to the extent the Bank or its counsel may
reasonably request, including, without limitation, the
resolutions adopted by their respective boards of directors
and/or shareholders to authorize the execution, delivery and
performance of this Agreement and the other Loan Documents, in
each case certified by their respective Secretaries or other
authorized officers thereof;
(v) an incumbency certificate containing the name,
title and genuine signatures of each of the Borrower's
Authorized Representatives;
(vi) copies of the Bylaws of each of the Borrowers
certified by their respective Secretaries or other authorized
officers thereof;
(vii) a certificate from the President or chief
financial officer of the Parent (A) certifying that as of the
date of the making of the initial extension of credit
hereunder, the Parent has a consolidated Tangible Net Worth of
at least $8,750,000 and (B) attaching copies of the unaudited
interim balance sheet of the Parent as at August 31, 1996, and
the unaudited interim balance sheet and income statement of
the Company as at August 31, 1996; and
(viii) evidence of insurance required by Section 8.4
hereof together with the lender loss payable endorsements and
other items referenced therein; provided that evidence of
insurance for the Company with appropriate endorsements may be
provided within ten (10) days of the date hereof;
(b) the Bank shall have received the initial fees called for
hereby;
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(c) the Bank shall have received such valuations and
certifications as it may require in order to satisfy itself as to the value of
the Collateral, the financial condition of each of the Borrowers and the
Borrowers taken as a whole, and the lack of material contingent liabilities of
the Borrowers;
(d) legal matters incident to the Bread Shop Acquisition and
the execution and delivery of this Agreement and the other Loan Documents and to
the transactions contemplated hereby shall be satisfactory to the Bank and its
counsel; and the Bank shall have received the favorable written opinions of
Illinois and California counsel for the Borrowers and of counsel to the selling
stockholders as to such matters in form and substance satisfactory to the Bank
and its counsel;
(e) the Bank shall have received a Borrowing Base certificate
in the form attached hereto as Exhibit C showing the computation of the
Borrowing Base in reasonable detail as of the close of business not earlier than
October 25, 1996;
(f) the Bank shall have received a good standing certificate
for each of the Borrowers (dated as of a date no earlier than thirty (30) days
prior to the date hereof) from the office of the secretary of state of the state
of its incorporation and each state in which it is qualified to do business as a
foreign corporation (which may be dated a date earlier than thirty (30) days
prior to the date hereof);
(g) the Bank shall have received UCC, tax lien and judgment
searches for the state and local jurisdictions where any Borrower has its chief
executive office (and each other jurisdiction where books and records relating
to any Borrower's Accounts are located), where any Borrower is incorporated and
where any Borrower has inventory and/or equipment in excess of $100,000, in each
case (dated as of a date no earlier than thirty (30) days prior to the date
hereof);
(h) the Liens granted to the Bank under the Collateral
Documents shall have been perfected in a manner satisfactory to the Bank and its
counsel;
(i) the Bank shall have received evidence reasonably
satisfactory to it that either prior to or concurrent with the making of such
initial extension of credit hereunder, the stockholders of the Parent shall have
contributed at least $1,000,000 in additional equity for shares of Voting Stock
to the Parent which equity shall be immediately contributed to Acquisition
Corp.; and
(j) the Bank shall have received such other agreements,
instruments, documents, certificates and opinions, as the Bank may reasonably
request.
SECTION 8. COVENANTS.
Each of the Borrowers jointly and severally agree that, so long as any
credit is available to or in use by any Borrower hereunder, except to the extent
compliance in any case or cases is waived in writing by the Bank:
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Section 8.1. Maintenance of Business. Except as permitted or required
hereunder, each of the Borrowers shall, and shall cause each Subsidiary to,
preserve and maintain its existence. Each of the Borrowers shall, and shall
cause each Subsidiary to, preserve and keep in force and effect all material
licenses, permits and franchises necessary to the proper conduct of its business
to the extent the failure to preserve or maintain the same would have a Material
Adverse Effect.
Section 8.2. Maintenance of Properties. Each of the Borrowers shall
maintain, preserve and keep its material property, plant and equipment in good
repair, working order and condition (ordinary wear and tear excepted) and shall
from time to time make all needful and proper repairs, renewals, replacements,
additions and betterments thereto so that at all times the efficiency thereof
shall be fully preserved and maintained, and shall cause each Subsidiary to do
so in respect of material property, plant and equipment owned or used by it.
Section 8.3. Taxes and Assessments. Each of the Borrowers shall duly
pay and discharge, and shall cause each Subsidiary to duly pay and discharge,
all taxes, rates, assessments, fees and governmental charges upon or against it
or its Properties, in each case before the same become delinquent and before
penalties accrue thereon, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings which prevent enforcement
of the matter under contest and adequate reserves are provided therefor.
Section 8.4. Insurance. The Borrowers shall insure and keep insured,
and shall cause each Subsidiary to insure and keep insured, with good and
responsible insurance companies, all insurable Property owned by it which is of
a character usually insured by Persons similarly situated and operating like
Properties against loss or damage from such hazards and risks, and in such
amounts, as are insured by Persons similarly situated and operating like
Properties; and the Borrowers shall insure, and shall cause each Subsidiary to
insure, such other hazards and risks (including employers' and public liability
risks) with good and responsible insurance companies as and to the extent
usually insured by Persons similarly situated and conducting similar businesses.
All such policies of insurance must be reasonably satisfactory to the Bank in
relation to the amount and term of the Obligations and type and value of the
Collateral and assets of the Borrowers and their Subsidiaries, shall identify
the Bank as sole lender loss payee in the case of property and casualty policies
and in the case of liability policies as an additional insured. The Borrowers
shall in any event maintain insurance on the Collateral to the extent required
by the Collateral Documents. The Borrowers shall furnish to the Bank on or prior
to the date the initial extension of credit hereunder is made a certificate
setting forth in summary form the nature and extent of the insurance maintained
pursuant to this Section.
Section 8.5. Financial Reports. Each of the Borrowers shall, and shall
cause each Subsidiary to, maintain a standard system of accounting in accordance
with GAAP and shall furnish to the Bank such information respecting the business
and financial condition of the Parent and its Subsidiaries as the Bank may
reasonably request; and without any request, shall furnish to the Bank:
(a) as soon as available, and in any event within five (5)
Business Days after the close of business each week, a Borrowing Base
certificate in the form attached hereto as Exhibit C showing the computation of
the Borrowing Base in reasonable detail as of the close of business on the last
day of the immediately preceding week, together with such other
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information as is therein required, prepared by the Parent (on behalf of the
Borrowers pursuant to Section 1.6) and certified to on behalf of the Parent by
the President or chief financial officer of the Parent;
(b) as soon as available, and in any event within thirty (30)
days after the close of each monthly accounting period of the Parent (or
forty-five (45) days in the case of the report for May, 1996), a copy of the
consolidated balance sheet of the Parent and its Subsidiaries as of the last day
of such monthly accounting period and the consolidated statements of income,
retained earnings and cash flows of the Parent and its Subsidiaries for the
month and for the fiscal year-to-date period then ended, each in reasonable
detail showing in comparative form (to the extent available) the figures for the
corresponding date and period in the previous fiscal year as well as showing in
comparative form the year-to-date comparisons to the Parent's current business
plan, prepared by the Parent in accordance with GAAP and certified to on behalf
of the Parent by the President or chief financial officer of the Parent;
(c) as soon as available, and in any event within twenty (20)
days after the close of each monthly accounting period of the Parent, an
accounts receivable and accounts payable aging for each of the Borrowers
together with an inventory report, each in reasonable detail prepared by the
Parent and certified to on behalf of the Parent by the President or chief
financial officer of the Parent;
(d) as soon as available, and in any event within one hundred
twenty (120) days after the last day of each annual accounting period of the
Parent, a copy of the consolidated balance sheet of the Parent and its
Subsidiaries as of the close of such period and the consolidated statement of
income, retained earnings and cash flows of the Parent and its Subsidiaries for
the period then ended, and accompanying notes thereto, each in reasonable detail
showing in comparative form the figures for the previous fiscal year,
accompanied by an unqualified opinion thereon of Deloitte & Touche, L.L.P. or
another firm of independent public accountants of recognized national standing,
selected by the Borrowers and reasonably satisfactory to the Bank, to the effect
that the financial statements have been prepared in accordance with GAAP and
present fairly in accordance with GAAP the consolidated financial condition of
the Parent and its Subsidiaries as of the close of such fiscal year and the
results of their operations and cash flows for the fiscal year then ended and
that an examination of such accounts in connection with such financial
statements has been made in accordance with generally accepted auditing
standards and, accordingly, such examination included such tests of the
accounting records and such other auditing procedures as were considered
necessary in the circumstances;
(e) within the period provided in subsection (d) above, the
written statement of the accountants who certified the audit report thereby
required that in the course of their audit they have obtained no knowledge of
any Default or Event of Default, or, if such accountants have obtained knowledge
of any such Default or Event of Default, they shall disclose in such statement
the nature and period of the existence thereof;
(f) as soon as available, and in any event within thirty (30)
days prior to the end of each fiscal year of the Parent, a copy of the Parent's
consolidated business plan for the following fiscal year, such business plan to
show the Parent's projected consolidated revenues,
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expenses, and balance sheet on month-by-month basis in reasonable detail,
prepared by the Parent and in the form heretofore prepared by the Parent and
otherwise in form reasonably satisfactory to the Bank; and
(g) promptly after knowledge thereof shall have come to the
attention of any responsible officer of any Borrower, written notice of any
threatened or pending litigation or governmental proceeding or labor controversy
against the Parent or any Subsidiary which, if adversely determined, would have
a Material Adverse Effect or of the occurrence of any Default or Event of
Default hereunder.
Each of the financial statements furnished to the Bank pursuant to subsections
(b) and (d) of this Section 8.5 shall be accompanied by a written certificate in
the form attached hereto as Exhibit D signed on behalf of the Parent by its
President or chief financial officer to the effect that to the best of such
officer's knowledge and belief no Default or Event of Default has occurred
during the period covered by such statements or, if any such Default or Event of
Default has occurred during such period, setting forth a description of such
Default or Event of Default and specifying the action, if any, taken by the
Borrowers to remedy the same; it being understood that the first such
certificate which shall reflect the Bread Shop Acquisition shall be for the
period ended November 30, 1996. Such certificate shall also set forth the
calculations supporting such statements in respect of Sections 8.7, 8.8, 8.9,
8.10 and 8.11 of this Agreement.
Section 8.6. Inspection; Appraisals. Each of the Borrowers shall, and
shall cause each Subsidiary to, permit the Bank and its duly authorized
representatives and agents to visit and inspect any of the Properties, corporate
books and financial records of such Borrower and each Subsidiary, to examine and
make copies of the books of accounts and other financial records of the Parent
and each Subsidiary, and to discuss the affairs, finances and accounts of the
Parent and each Subsidiary with, and to be advised as to the same by, its
officers, employees and independent public accountants (and by this provision
each of the Borrowers authorizes such accountants to discuss with the Bank the
finances and affairs of the Parent and of each Subsidiary) at such reasonable
times and reasonable intervals as the Bank may designate, in each case with
prior notice to the Parent (except during the continuance of any Default or
Event of Default or while the Bank in good faith suspects a Default or Event of
Default is continuing in which case no prior notice shall be required). Each
Borrower shall allow the Bank, solely at the Borrowers' joint and several
expense, to conduct a field examination of the Accounts and Inventory of such
Borrower no more frequently than once per year if no Event of Default or Default
has occurred and as frequently as the Bank shall request thereafter, the results
of each of which field audit must be satisfactory to the Bank in the Bank's
reasonable discretion; provided, that amount of the costs and expenses of the
Bank in connection with such examination for which the Borrowers are jointly and
severally liable shall not exceed $5,000 for each such examination undertaken
when no Event of Default or Default has occurred. The Bank expressly reserves
the right to modify the definitions of Eligible Accounts and/or Eligible
Inventory if, in its reasonable credit judgment, the result of any field audit
makes such modification necessary because of a material adverse change in the
quality of the Collateral.
Section 8.7. Tangible Net Worth. The Borrowers shall, at all times
during each of the periods specified below, collectively maintain Tangible Net
Worth at not less than (a) from and after the date hereof through and including
December 31, 1996, $8,750,000 and (b) thereafter
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<PAGE> 39
the sum of (i) the greater of (I) $8,750,000 or (II) the difference of (A)
Tangible Net Worth as of December 31, 1996 minus (B) $500,000 plus (ii) Net
Income from and after January 1, 1997 (but not to be reduced for any net losses
incurred during such period or any portion thereof).
Section 8.8. Leverage Ratio. The Borrowers shall, at all times during
each of the periods specified below, maintain a collective ratio of Total
Liabilities to Tangible Net Worth (the "Leverage Ratio") of not more than:
<TABLE>
<CAPTION>
LEVERAGE RATIO SHALL NOT
FROM AND INCLUDING TO AND INCLUDING BE GREATER THAN:
<S> <C> <C>
the date hereof December 31, 1996 3.50:1.0
January 1, 1997 December 31, 1997 3.50:1.0
January 1, 1998 December 31, 1998 2.00:1.0
January 1, 1999 December 31, 1999 1.50:1.0
January 1, 2000 the Term Loan A 1.15:1.0
Termination Date
</TABLE>
Section 8.9. Minimum Current Ratio. The Borrowers shall, at all times
during each of the periods specified below, maintain a Current Ratio of not
less:
<TABLE>
<CAPTION>
CURRENT RATIO SHALL NOT
FROM AND INCLUDING TO AND INCLUDING BE LESS THAN:
<S> <C> <C>
the date hereof December 31, 1996 0.70:1.0
January 1, 1997 December 31, 1997 0.70:1.0
January 1, 1998 December 31, 1998 1.25:1.0
January 1, 1999 December 31, 1999 1.50:1.0
January 1, 2000 the Term Loan A 1.80:1.0
Termination Date
</TABLE>
Section 8.10. Fixed Charge Coverage Ratio. The Borrowers shall, as of
the last day of each calendar month for the then ending twelve calendar month
period, during each of the periods specified below, maintain the ratio of (a)
the difference of (i) EBITDA minus (i) the sum of (I) capital expenditures
expended plus (II) federal, state and local income taxes (determined in each
case for the twelve calendar months then ended) to (b) Fixed Charges for the
same twelve month period then ended (the "Fixed Charge Coverage Ratio") of (A)
not less than 1.25 to 1.0, for the twelve calendar month period ending December
31, 1997, (B) not less than 1.50 to 1.0, for the twelve calendar month periods
ending as of the last day of each calendar month in 1998, and (C) not less than
1.75 to 1.0, for each twelve calendar month period ending as of the last day of
each calendar month thereafter through and including the Term Loan A Termination
Date.
Section 8.11. Capital Expenditures. The Borrowers shall not, nor shall
they permit any Subsidiary to, expend capital expenditures (as determined in
accordance with GAAP) in an aggregate amount in excess of the Maximum Permitted
Amount during any fiscal year of the Parent. For purposes of this Section, the
term "Maximum Permitted Amount" shall mean (a) $1,500,000 for the fiscal year of
the Parent ending on December 31, 1996, (b) $1,500,000 for
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<PAGE> 40
the fiscal year of the Parent ending on December 31, 1997, and (c) shall mean
for each subsequent fiscal year, $3,000,000.
Section 8.12. [Reserved].
Section 8.13. Indebtedness for Borrowed Money. The Borrowers shall not,
nor shall it permit any Subsidiary to, issue, incur, assume, create or have
outstanding any Indebtedness for Borrowed Money; provided, however, that the
foregoing shall not restrict nor operate to prevent:
(a) the Obligations;
(b) purchase money indebtedness and Capitalized Lease
Obligations in each case of the Borrowers or other Subsidiaries of the Parent in
each case secured by Liens permitted by Section 8.14(e) hereof provided the
aggregate amount of such purchase money indebtedness and Capitalized Lease
Obligations does not exceed $4,000,000 at any one time outstanding;
(c) unsecured Subordinated Indebtedness aggregating not more
than $2,500,000; and
(d) unsecured indebtedness not otherwise permitted by this
Section aggregating not more than $500,000 at any one time outstanding.
Section 8.14. Liens. The Borrowers shall not, nor shall it permit any
Subsidiary to, create, incur or permit to exist any Lien of any kind on any
Property owned by the Parent or any Subsidiary; provided, however, that the
foregoing shall not apply to nor operate to prevent:
(a) Liens arising by statute in connection with worker's
compensation, unemployment insurance, old age benefits, social security
obligations, taxes, assessments, statutory obligations or other similar charges,
good faith cash deposits in connection with tenders, contracts or leases to
which the Parent or any Subsidiary is a party or other cash deposits required to
be made in the ordinary course of business, provided in each case that the
obligation is not for Indebtedness for Borrowed Money (other than as described
in clause (iii) of the definition thereof) and that the obligation secured is
not overdue or, if overdue, is being contested in good faith by appropriate
proceedings which prevent enforcement of the matter under contest and adequate
reserves have been established therefor;
(b) Mechanics', workmen's, materialmen's, landlords',
carriers', or other similar Liens arising in the ordinary course of business
with respect to obligations which are not overdue or, if overdue, is being
contested in good faith by appropriate proceedings which prevent enforcement of
the matter under contest and adequate reserves have been established therefor;
(c) The pledge of assets for the purpose of securing an
appeal, stay or discharge in the course of any legal proceeding, provided that
the aggregate amount of liabilities of the Parent and its Subsidiaries secured
by a pledge of assets permitted under this subsection,
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<PAGE> 41
including interest and penalties thereon, if any, shall not be in excess of
$250,000 at any one time outstanding;
(d) The Liens granted in favor of the Bank by the Collateral
Documents;
(e) Liens on property of the Borrowers or any other
Subsidiaries of the Parent in each case created solely for the purpose of
securing indebtedness permitted by Section 8.13(b) hereof, representing or
incurred to finance, refinance or refund the purchase price of Property,
provided that no such Lien shall extend to or cover other Property of such
Subsidiary other than the respective Property so acquired, and the principal
amount of indebtedness secured by any such Lien shall at no time exceed the
remaining unpaid balance of the original purchase price of such Property;
(f) Liens securing the indebtedness permitted by Section
8.13(c) hereof provided the same are released concurrently with the repayment of
such indebtedness; and
(g) Liens set forth on Schedule 8.14(g) hereof (excluding any
extensions, renewals or supplements thereto to the extent the same relate to any
new or additional Indebtedness for Borrower Money.)
Section 8.15. Investments, Acquisitions, Loans, Advances and
Guaranties. No Borrower shall, nor shall it permit any Subsidiary to, directly
or indirectly, make, retain or have outstanding any investments (whether through
purchase of stock or obligations or otherwise) in, or loans or advances (other
than for travel advances and other similar cash advances made to employees in
the ordinary course of business) to, any other Person, or acquire all or any
substantial part of the assets or business of any other Person or division
thereof, or be or become liable as endorser, guarantor, surety or otherwise for
any debt, obligation or undertaking of any other Person, or otherwise agree to
provide funds for payment of the obligations of another, or supply funds thereto
or invest therein or otherwise assure a creditor of another against loss, or
apply for or become liable to the issuer of a letter of credit which supports an
obligation of another, or subordinate any claim or demand it may have to the
claim or demand of any other Person; provided, however, that the foregoing shall
not apply to nor operate to prevent:
(a) investments in direct obligations of the United States of
America or of any agency or instrumentality thereof whose obligations constitute
full faith and credit obligations of the United States of America, provided that
any such obligations shall mature within one year of the date of issuance
thereof;
(b) investments in commercial paper rated at least P-1 by
Moody's Investors Services, Inc. and at least A-1 by Standard & Poor's
Corporation maturing within 270 days of the date of issuance thereof;
(c) investments in certificates of deposit issued by any
United States commercial bank having capital and surplus of not less than
$100,000,000 which have a maturity of one year or less;
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<PAGE> 42
(d) endorsement of items for deposit or collection of
commercial paper received in the ordinary course of business;
(e) investments in the London Interbank Eurodollar market; and
(f) investments, loans, advances and guarantees not otherwise
permitted by this Section aggregating not more than $250,000 at any one time
outstanding; provided that guarantees of up to $250,000 at any one time
outstanding in excess of the foregoing $250,000 threshold shall be permitted
under this clause (f).
In determining the amount of investments, acquisitions, loans, advances and
guarantees permitted under this Section 8.15, investments and acquisitions shall
always be taken at the original cost thereof (regardless of any subsequent
appreciation or depreciation therein), loans and advances shall be taken at the
principal amount thereof then remaining unpaid, and guarantees shall be taken at
the amount of obligations guaranteed thereby (whether or not then due).
Section 8.16. Operating Leases. No Borrower shall, nor shall it permit
any Subsidiary to, acquire the use or possession of any Property under a lease
or similar arrangement, whether or not any Borrower or any Subsidiary has the
express or implied right to acquire title to or purchase such Property, at any
time if, after giving effect thereto the aggregate amount of fixed rentals and
other consideration payable by the Parent and its Subsidiaries under all such
leases and similar arrangements would exceed $2,250,000 during any fiscal year
of the Parent. Capital Leases shall not be included in computing compliance with
this Section to the extent the Parent's and its Subsidiaries' liability in
respect of the same is permitted by Section 8.13(b) hereof.
Section 8.17. Mergers, Consolidations and Sales. (a) subject to clause
(b) below, no Borrower shall, nor shall it permit any Subsidiary to, be a party
to any merger or consolidation, or sell, transfer, lease or otherwise dispose of
all or any substantial part of its Property, including any disposition of
Property as part of a sale and leaseback transaction, or in any event sell or
discount (with or without recourse) any of its notes or accounts receivable;
provided, however, that any Borrower or other Subsidiary may sell its inventory
in the ordinary course of its business. A sale or disposition of five percent
(5%) or more of the total assets of an individual Borrower or of the Borrowers,
taken as a whole, or a sale or disposition of Property which accounted for 5% or
more of the Net Income of an individual Borrower or of the Borrowers, taken as a
whole, for the most recently ended four fiscal quarters of the Parent, shall be
deemed substantial for the forgoing purposes.
(b) Immediately following the execution and delivery of this
Agreement and the consummation of the Bread Shop Acquisition, Acquisition Corp.
shall merge with and into the Company, with the Company surviving such merger as
the direct, wholly-owned Subsidiary of the Parent. The Company shall, as soon as
reasonably practicable and in any event no later than 90 days after the date
hereof, merge with and into the Parent and the Parent shall be the surviving
corporation in such merger and after giving effect to such merger the Parent
shall have a Tangible Net Worth not less than its Tangible Net Worth immediately
prior to such merger. The Bank shall be entitled at the time of such mergers to
request such opinions of counsel to the parties thereto (to be rendered at the
sole cost and expense of the Borrowers) and such other documentation as it
reasonably deems necessary as to the effectiveness of such transactions and
37
<PAGE> 43
the effect of the same on the Borrowers' continuing obligations hereunder and
under the other Loan Documents. Upon consummation of the merger of the Company
with and into the Parent, the Bank shall, at the direction of the Parent, mark
as "Cancelled" each of the original Pledged Stock (and all stock powers executed
in connection therewith) and the original Intercompany Note and return the same
to the Parent.
Section 8.18. Maintenance of Subsidiaries. The Borrowers shall not
assign, sell or transfer, or permit any Subsidiary to issue, assign, sell or
transfer, any shares of capital stock of a Subsidiary; provided that the
foregoing shall not operate to prevent the issuance, sale and transfer to any
Person of any shares of capital stock of a Subsidiary solely for the purpose of
qualifying, and to the extent legally necessary to qualify, such Person as a
director of such Subsidiary.
Section 8.19. Dividends and Certain Other Restricted Payments. The
Borrowers shall not during any fiscal year (a) declare or pay any dividends on
or make any other distributions in respect of any class or series of its capital
stock (other than dividends payable solely in its capital stock) or (b) directly
or indirectly purchase, redeem or otherwise acquire or retire any of its capital
stock or (c) make any payment or other distribution on or in respect of any
Subordinated Indebtedness, whether for principal or interest or otherwise (such
non-excepted declarations, payments, distributions, purchases, redemptions,
acquisitions and retirements being hereinafter collectively called "Restricted
Payments").
Section 8.20. Management Fees. The Borrowers shall not, and shall not
permit its Subsidiaries to, pay Management Fees in any calendar year which
aggregate for the Parent and its Subsidiaries more than the Maximum Permitted
Amount for such year. For purposes of this Section, the term "Maximum Permitted
Amount" shall mean $175,000 per year.
Section 8.21. ERISA. Each Borrower shall, and shall cause each
Subsidiary to, promptly pay and discharge all obligations and liabilities
arising under ERISA of a character which if unpaid or unperformed might result
in the imposition of a Lien against any of its Properties. Each Borrower shall,
and shall cause each Subsidiary to, promptly notify the Bank of (i) the
occurrence of any reportable event (as defined in ERISA) with respect to a Plan,
(ii) receipt of any notice from the PBGC of its intention to seek termination of
any Plan or appointment of a trustee therefor, (iii) its intention to terminate
or withdraw from any Plan, and (iv) the occurrence of any event with respect to
any Plan which would result in the incurrence by the Parent or any Subsidiary of
any material liability, fine or penalty, or any material increase in the
contingent liability of the Parent or any Subsidiary with respect to any
post-retirement Welfare Plan benefit.
Section 8.22. Compliance with Laws. Each Borrower shall, and shall
cause each Subsidiary to, (a) comply in all material respects with the
requirements of all federal, state and local laws, rules, regulations,
ordinances and orders applicable to or pertaining to their Properties or
business operations, non-compliance with which could reasonably be expected to
have a Material Adverse Effect and (b) conduct its operations and keep and
maintain its property in compliance with all Environmental Laws.
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<PAGE> 44
Section 8.23. Burdensome Contracts With Affiliates. No Borrower shall,
nor shall it permit any Subsidiary to, enter into any contract, agreement or
business arrangement with any of its Affiliates on terms and conditions which
are less favorable to such Borrower or such Subsidiary than would be usual and
customary in similar contracts, agreements or business arrangements between
Persons not affiliated with each other; provided, however, that this Section
shall not apply to nor operate to prevent (i) the payment of Management Fees
permitted by Section 8.20 hereof, and (ii) the payment of Reimbursable Intrepid
Expenses.
Section 8.24. No Changes in Fiscal Year. Neither the Parent nor any
Subsidiary shall change its fiscal year from its present basis without the prior
written consent of the Bank.
Section 8.25. Formation of Subsidiaries. The Borrowers shall not, nor
shall they permit any Subsidiary to, form or acquire any Subsidiary without the
prior written consent of the Bank.
Section 8.26. Change in the Nature of Business. The Borrowers shall
not, and the Parent shall not permit any other Subsidiary to, engage in any
business or activity if as a result the general nature of the business of any
Borrower or any other Subsidiary would be changed in any material respect from
the general nature of the business engaged in by such Subsidiary on the date of
this Agreement.
SECTION 9. EVENTS OF DEFAULT AND REMEDIES.
Section 9.1. Events of Default. Any one or more of the following shall
constitute an "Event of Default" hereunder:
(a) default in the payment when due of all or any part of the
principal of any Note (whether at the stated maturity thereof or at any other
time provided for in this Agreement) or of any reimbursement obligation owing
under any Application; or
(b) default for 5 Business Days in the payment when due of all
or any part of the interest on any Note or any other Obligation payable by the
Borrowers hereunder or under any other Loan Document (whether at the stated
maturity thereof or at any other time provided for in this Agreement), or
default (after giving effect to any applicable grace period) for 5 Business Days
in the payment when due of any other Obligation (whether direct, contingent or
otherwise) of any Borrower owing to the Bank; or
(c) default in the observance or performance of any covenant
set forth in Sections 8.5(g) (to the extent it relates to Events of Default),
8.7, 8.8, 8.9, 8.10, 8.13, 8.14, 8.17, 8.19 or 8.20 hereof; or
(d) default in the observance or performance of any other
provision hereof or of any other Loan Document which is not remedied within
thirty (30) days after written notice thereof is given to the Parent by the
Bank; or
(e) any representation or warranty made by any Borrower herein
or in any other Loan Document, or in any statement or certificate furnished by
it pursuant hereto or
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<PAGE> 45
thereto, or in connection with any extension of credit made hereunder, proves
untrue in any material respect as of the date of the issuance or making thereof;
or
(f) any event occurs or condition exists (other than those
described in subsections (a) through (e) above) which is specified as an event
of default under any of the other Loan Documents (after giving effect to any
applicable grace period), or any of the Loan Documents shall for any reason not
be or shall cease to be in full force and effect, or any of the Loan Documents
is declared to be null and void, or any of the Collateral Documents shall for
any reason fail to create a valid and perfected first priority Lien in favor of
the Bank in any Collateral purported to be covered thereby except as expressly
permitted by the terms thereof, or any Borrower or Person acting on behalf of a
Borrower shall assert any of the foregoing; or
(g) default shall occur under any Indebtedness for Borrowed
Money aggregating in excess of $400,000 issued, assumed or guaranteed by the
Parent or any Subsidiary, or under any indenture, agreement or other instrument
under which the same may be issued, and such default shall continue for a period
of time sufficient to permit the acceleration of the maturity of any such
Indebtedness for Borrowed Money (whether or not such maturity is in fact
accelerated), or any such Indebtedness for Borrowed Money shall not be paid when
due (whether by lapse of time, acceleration or otherwise); or
(h) any final, non-appealable judgment or judgments in an
aggregate amount more than $400,000 in excess of the amount covered by insurance
from a sound and reputable insurer reasonably acceptable to the Bank shall be
entered or filed against the Parent or any Subsidiary or against any of their
Property and which remains unvacated, unbonded, unstayed or unsatisfied for a
period of thirty (30) days; or
(i) the Parent or any member of its Controlled Group shall
fail to pay when due an amount or amounts aggregating in excess $400,000 which
it shall have become liable to pay to the PBGC or to a Plan under Title IV of
ERISA; or notice of intent to terminate a Plan or Plans having aggregate
Unfunded Vested Liabilities in excess of $400,000 (collectively, a "Material
Plan") shall be filed under Title IV of ERISA by the Parent or any other member
of its Controlled Group, any plan administrator or any combination of the
foregoing; or the PBGC shall institute proceedings under Title IV of ERISA to
terminate or to cause a trustee to be appointed to administer any Material Plan
or a proceeding shall be instituted by a fiduciary of any Material Plan against
the Parent or any member of its Controlled Group to enforce Section 515 or
4219(c)(5) of ERISA and such proceeding shall not have been dismissed within
thirty (30) days thereafter; or a condition shall exist by reason of which the
PBGC would be entitled to obtain a decree adjudicating that any Material Plan
must be terminated; or
(j) Reserved; or
(k) (i) Frontenac and the other owners of capital stock of
Intrepid as of the date hereof, shall cease at any time and for any reason
collectively to own, legally and beneficially, at least 50% of the issued and
outstanding shares of Voting Stock of Intrepid or (ii) more than 5% of the
Voting Stock in Intrepid which Frontenac and its Affiliates, taken together, own
shall for any reason be sold or otherwise disposed of or (iii) Intrepid and its
and the Borrowers' respective officers, directors, employees and Affiliates,
shall cease at any time and
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<PAGE> 46
for any reason collectively to own, legally and beneficially, at least 90% of
the Voting Stock of the Parent or (iv) either Borrower shall cease at any time
and for any reason to be a Wholly-Owned Subsidiary of the Parent (except as a
result of the mergers required in accordance with Section 8 hereof); or
(l) the Parent or any Subsidiary shall (i) have entered
involuntarily against it an order for relief under the United States Bankruptcy
Code, as amended, (ii) not pay, or admit in writing its inability to pay, its
debts generally as they become due, (iii) make an assignment for the benefit of
creditors, (iv) apply for, seek, consent to, or acquiesce in, the appointment of
a receiver, custodian, trustee, examiner, liquidator or similar official for it
or any substantial part of its Property, (v) institute any proceeding seeking to
have entered against it an order for relief under the United States Bankruptcy
Code, as amended, to adjudicate it insolvent, or seeking dissolution, winding
up, liquidation, reorganization, arrangement, adjustment or composition of it or
its debts under any law relating to bankruptcy, insolvency or reorganization or
relief of debtors or fail to file an answer or other pleading denying the
material allegations of any such proceeding filed against it, (vi) take any
corporate action in furtherance of any matter described in parts (i) through (v)
above, or (vii) fail to contest in good faith any appointment or proceeding
described in Section 9.1(m) hereof;
(m) a custodian, receiver, trustee, examiner, liquidator or
similar official shall be appointed for the Parent or any Subsidiary or any
substantial part of any of their Property, or a proceeding described in Section
9.1(1)(v) shall be instituted against the Parent or any Subsidiary, and such
appointment continues undischarged or such proceeding continues undismissed or
unstayed for a period of forty-five (45) days.
Section 9.2. Non-Bankruptcy Defaults. When any Event of Default
described in subsection (a) through (k), both inclusive, of Section 9.1 has
occurred and is continuing, the Bank may, by written notice to the Parent, take
one or more of the following actions:
(a) terminate the obligation of the Bank to extend any further
credit hereunder on the date (which may be the date thereof) stated in such
notice;
(b) declare the principal of and the accrued interest on the
Notes to be forthwith due and payable and thereupon the Notes, including both
principal and interest and all fees, charges and other Obligations payable
hereunder and under the other Loan Documents, shall be and become immediately
due and payable without further demand, presentment, protest or notice of any
kind; and
(c) enforce any and all rights and remedies available to it
under the Loan Documents or applicable law.
Section 9.3. Bankruptcy Defaults. When any Event of Default described
in subsection (1) or (m) of Section 9.1 has occurred and is continuing, then the
Notes, including both principal and interest, and all fees, charges and other
Obligations payable hereunder and under the other Loan Documents, shall
immediately become due and payable without presentment, demand, protest or
notice of any kind, and the obligation of the Bank to extend further credit
pursuant
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<PAGE> 47
to any of the terms hereof shall immediately terminate. In addition, the Bank
may exercise any and all remedies available to it under the Loan Documents or
applicable law.
Section 9.4. Collateral for Undrawn Letters of Credit. When any Event
of Default, other than an Event of Default described in subsections (1) or (m)
of Section 9.1, has occurred and is continuing, the Borrowers shall, upon
written demand of the Bank, and when any Event of Default described in
subsection (1) or (m) of Section 9.1 has occurred the Borrowers shall, without
notice or demand from the Bank, immediately pay in cash to the Bank the full
amount of each Letter of Credit then outstanding, the Borrowers agreeing to
immediately make such payment and acknowledging and agreeing that the Bank would
not have an adequate remedy at law for failure of the Borrowers to honor any
such demand and that the Bank shall have the right to require the Borrowers to
specifically perform such undertaking whether or not any draws have been made
under any such Letters of Credit.
SECTION 10. FUNDING INDEMNIFY AND CHANGE IN CIRCUMSTANCES.
Section 10.1. Change in Capital Adequacy Requirements. If the Bank
shall determine that the adoption after the date hereof of any applicable law,
rule or regulation regarding capital adequacy, or any change in any existing
law, rule or regulation, or any change in the interpretation or administration
thereof by any governmental authority, central bank or comparable agency charged
with the interpretation or administration thereof, or compliance by the Bank (or
any of its branches) with any request or directive regarding capital adequacy
(whether or not having the force of law) of any such authority, central bank or
comparable agency, has or would have the effect of reducing the rate of return
on the Bank's capital as a consequence of its obligations hereunder or for the
credit which is the subject matter hereof to a level below that which the Bank
could have achieved but for such adoption, change or compliance (taking into
consideration the Bank's policies with respect to liquidity and capital
adequacy) by an amount deemed by the Bank to be material, then from time to
time, within fifteen (15) days after demand by the Bank, the Borrowers shall pay
to the Bank such additional amount or amounts reasonably determined by the Bank
as will compensate the Bank for such reduction.
Section 10.2. Change of Law. Notwithstanding any other provisions of
this Agreement or any Note, if at any time the Bank shall determine in good
faith that any change in applicable laws, treaties or regulations or in the
interpretation thereof makes it unlawful for the Bank to create or continue to
maintain any LIBOR Portion, it shall promptly so notify the Parent and the
obligation of the Bank to create, continue or maintain any such LIBOR Portion
under this Agreement shall terminate until it is no longer unlawful for the Bank
to create, continue or maintain such LIBOR Portion. The Borrowers, on demand,
shall, if the continued maintenance of any such LIBOR Portion is unlawful,
thereupon prepay the outstanding principal amount of the affected LIBOR Portion,
together with all interest accrued thereon and all other amounts payable to the
Bank with respect thereto under this Agreement; provided, however, that the
Parent may elect to convert the principal amount of the affected Portion into a
Prime Rate Portion, subject to the terms and conditions of this Agreement.
Section 10.3. Unavailability of Deposits or Inability to Ascertain
Adjusted LIBOR. Notwithstanding any other provision of this Agreement or the
Note, if prior to the
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<PAGE> 48
commencement of any Interest Period, the Bank shall determine in good faith that
deposits in the amount of any LIBOR Portion scheduled to be outstanding during
such Interest Period are not readily available to the Bank in the relevant
market or, by reason of circumstances affecting the relevant market, adequate
and reasonable means do not exist for ascertaining Adjusted LIBOR then the Bank
shall promptly give notice thereof to the Parent and the obligations of the Bank
to create, continue or effect by conversion any such LIBOR Portion in such
amount and for such Interest Period shall terminate until deposits in such
amount and for the Interest Period selected by the Parent shall again be readily
available in the relevant market and adequate and reasonable means exist for
ascertaining Adjusted LIBOR.
Section 10.4. Taxes and Increased Costs. With respect to any LIBOR
Portion, if the Bank shall determine in good faith that any change after the
date hereof in any applicable law, treaty, regulation or guideline (including,
without limitation, Regulation D of the Board of Governors of the Federal
Reserve System) or any new law, treaty, regulation or guideline, or any
interpretation of any of the foregoing by any governmental authority charged
with the administration thereof or any central bank or other fiscal, monetary or
other authority having jurisdiction over the Bank or its lending branch or the
LIBOR Portions contemplated by this Agreement (whether or not having the force
of law), shall:
(i) impose, increase, or deem applicable any reserve, special
deposit or similar requirement against assets held by, or deposits in
or for the account of, or loans by, or any other acquisition of funds
or disbursements by, the Bank which is not in any instance already
accounted for in computing the interest rate applicable to such LIBOR
Portion;
(ii) subject the Bank, any LIBOR Portion or any Note to the
extent it evidences such LIBOR Portion to any tax, duty, charge, stamp
tax, fee, deduction or withholding in respect of this Agreement, any
LIBOR Portion or any Note to the extent it evidences such LIBOR
Portion, except such taxes as may be measured by the overall net income
or gross receipts of the Bank or its lending branches and imposed by
the jurisdiction, or any political subdivision or taxing authority
thereof, in which the Bank's principal executive office or its lending
branch is located;
(iii) change the basis of taxation of payments of principal
and interest due from the Borrowers to the Bank hereunder or under any
Note to the extent it evidences any LIBOR Portion (other than by a
change in taxation of the overall net income or gross receipts of the
Bank); or
(iv) impose on the Bank any penalty with respect to the
foregoing or any other condition regarding this Agreement, any LIBOR
Portion, or its disbursement, or any Note to the extent it evidences
any LIBOR Portion;
and the Bank shall determine in good faith that the result of any of the
foregoing is to materially increase the cost (whether by incurring a cost or
adding to a cost) to the Bank of creating or maintaining any LIBOR Portion
hereunder or to reduce the amount of principal or interest received or
receivable by the Bank (without benefit of, or credit for, any prorations,
exemption, credits or other offsets available under any such laws, treaties,
regulations, guidelines or
43
<PAGE> 49
interpretations thereof), then the Borrowers shall pay within 15 days after
written demand to the Bank from time to time as specified by the Bank such
additional amounts as the Bank shall reasonably determine are sufficient to
compensate and indemnify it for such increased cost or reduced amount. If the
Bank makes such a claim for compensation, it shall provide to the Parent a
certificate setting forth the computation of the increased cost or reduced
amount as a result of any event mentioned herein in reasonable detail and such
certificate shall be conclusive if reasonably determined.
Section 10.5. Funding Indemnity. In the event the Bank shall incur any
loss, cost or expense (including, without limitation, any loss (including loss
of profit), cost or expense incurred by reason of the liquidation or
reemployment of deposits or other funds acquired or contracted to be acquired by
the Bank to fund or maintain any LIBOR Portion or the relending or reinvesting
of such deposits or other funds or amounts paid or prepaid to the Bank) as a
result of:
(i) any payment of a LIBOR Portion on a date other than the
last day of the then applicable Interest Period for any reason, whether
before or after default, and whether or not such payment is required by
any provisions of this Agreement (excluding any payment required under
Sections 3.2(b) or (c), 11.2 or 11.3); or
(ii) any failure by any Borrower to create, borrow, continue
or effect by conversion a LIBOR Portion on the date specified in a
notice given pursuant to this Agreement;
then within 15 days after receipt by the Parent of the certificate referred to
in the following sentence, the Borrowers shall pay to the Bank such amount as
will reimburse the Bank for such loss, cost or expense. If the Bank requests
such a reimbursement, it shall provide to the Parent a certificate setting forth
the computation of the loss, cost or expense giving rise to the request for
reimbursement in reasonable detail and such certificate shall be conclusive if
reasonably determined.
Section 10.6. Lending Branch. The Bank may, at its option, elect to
make, fund or maintain Portions of the Loans hereunder at such of its branches
or offices as the Bank may from time to time elect provided such option results
in no cost or expense to the Borrowers. To the extent reasonably possible, the
Bank shall designate an alternate branch or funding office with respect to the
LIBOR Portions to reduce any liability of the Borrowers to the Bank under
Section 10.4 hereof or to avoid the unavailability of an interest rate option
under Section 10.3 hereof, so long as such designation is not otherwise
disadvantageous to the Bank.
Section 10.7. Discretion of Bank as to Manner of Funding.
Notwithstanding any provision of this Agreement to the contrary, the Bank shall
be entitled to fund and maintain its funding of all or any part of any Note in
any manner it sees fit, it being understood, however, that for the purposes of
this Agreement all determinations hereunder (including, without limitation,
determinations under Sections 11.3, 11.4 and 11.5 hereof) shall be made as if
the Bank had actually funded and maintained each LIBOR Portion during each
Interest Period applicable thereto through the purchase of deposits in the
relevant market in the amount of such
44
<PAGE> 50
LIBOR Portion, having a maturity corresponding to such Interest Period, and
bearing an interest rate equal to the LIBOR for such Interest Period.
SECTION 11. MISCELLANEOUS.
Section 11.1. Non-Business Days. If any payment hereunder becomes due
and payable on a day which is not a Business Day, the due date of such payment
shall be extended to the next succeeding Business Day on which date such payment
shall be due and payable. In the case of any payment of principal falling due on
a day which is not a Business Day, interest on such principal amount shall
continue to accrue during such extension at the rate per annum then in effect,
which accrued amount shall be due and payable on the next scheduled date for the
payment of interest.
Section 11.2. No Waiver, Cumulative Remedies. No delay or failure on
the part of the Bank in the exercise of any power or right shall operate as a
waiver thereof or as an acquiescence in any default, nor shall any single or
partial exercise of any power or right preclude any other or further exercise
thereof or the exercise of any other power or right. The rights and remedies
hereunder of the Bank are cumulative to, and not exclusive of, any rights or
remedies which it would otherwise have.
Section 11.3. Amendments, Etc. No amendment, modification, termination
or waiver of any provision of this Agreement or of any other Loan Document, nor
consent to any departure by any Borrower therefrom, shall in any event be
effective unless the same shall be in writing and signed by the Bank and the
Parent. No notice to or demand on any Borrower in any case shall entitle the
Borrowers to any other or further notice or demand in similar or other
circumstances.
Section 11.4. Costs and Expenses. The Borrowers agree to pay on
promptly after written demand the reasonable costs and expenses of the Bank in
connection with the negotiation, preparation, execution and delivery of this
Agreement and the other Loan Documents and the other instruments and documents
to be delivered thereunder, and in connection with the recording and filing of
any of the foregoing as well as in connection with lien searches from time to
time obtained by the Bank in its administration of the credit facilities
provided for herein, and in connection with the transactions contemplated hereby
or thereby, and in connection with any consents hereunder and any waivers or
amendments hereto or thereto, with respect to all of the foregoing. The
Borrowers further agree to pay to the Bank or any other holder of the
Obligations all reasonable costs and expenses (including court costs and
reasonable attorneys' fees), if any, incurred or paid by the Bank or any other
holder of the obligations in connection with any Default or Event of Default or
in connection with the enforcement of this Agreement or any other Loan Document
or any other instrument or document delivered thereunder. The Borrowers further
agree to indemnify the Bank, and their respective directors, officers and
employees, against all losses, claims, damages, penalties, judgments,
liabilities and expenses (including, without limitation, all expenses of
litigation or preparation therefor, whether or not the indemnified person is a
party thereto) which any of them may pay or incur arising out of or relating to
any Loan Document or any of the transactions contemplated thereby or the direct
or indirect application or proposed application of the proceeds of any extension
of credit made available hereunder, other than those which arise from the gross
negligence or willful
45
<PAGE> 51
misconduct of the party claiming indemnification. The Borrowers, promptly after
written demand by the Bank at any time, shall reimburse the Bank for any legal
or other expenses incurred in connection with investigating or defending against
any of the foregoing except if the same is directly due to the gross negligence
or willful misconduct of the party to be indemnified. The obligations of the
Borrowers under this Section 11.4 shall survive the termination of this
Agreement.
Section 11.5. Documentary Taxes. The Borrowers agrees to pay promptly
after demand any documentary, stamp or similar taxes payable in respect of this
Agreement or any other Loan Document, including interest and penalties, in the
event any such taxes are assessed, irrespective of when such assessment is made
and whether or not any credit is then in use or available hereunder.
Section 11.6. Survival of Representations. All representations and
warranties made herein or in any of the other Loan Documents or in certificates
given pursuant hereto or thereto shall survive the execution and delivery of
this Agreement and the other Loan Documents, and shall continue in full force
and effect with respect to the date as of which they were made as long as any
credit is in use or available hereunder.
Section 11.7. Survival of Indemnities. All indemnities and other
provisions relative to reimbursement to the Bank of amounts sufficient to
protect the yield of the Bank with respect to the Loans, including, but not
limited to, Sections 11.4 and 11.5 hereof, shall survive the termination of this
Agreement and the payment of the Notes.
Section 11.8. Notices. Except as otherwise specified herein, all
notices hereunder shall be in writing (including cable, telecopy or telex) and
shall be given to the relevant party at its address, telecopier number or telex
number set forth below, or such other address, telecopier number or telex number
as such party may hereafter specify by notice to the other given by United
States certified or registered mail, by telecopy or by other telecommunication
device capable of creating a written record of such notice and its receipt.
Notices hereunder shall be addressed:
to any Borrower, then to the Parent at:
16100 Foothill Boulevard
Irwindale, California 91706
Attention: William R. Voss
Telephone: (818) 334-3241
Telecopy: (818) 969-7329
46
<PAGE> 52
and:
Hopkins & Sutter
Three First National Plaza
Chicago, Illinois 60602
Attention: Kenneth W. Miller
Telephone: (312) 558-6520
Telecopy: (312) 558-6538
with copies to:
Intrepid Food Holdings, Inc.
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
Attention: William R. Voss
Telephone: (312) 578-1110
Telecopy: (312) 578-1414
and:
Frontenac Company
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
Attention: David Katz
Telephone: (312) 368-0044
Telecopy: (312) 368-9520
to the Bank at:
LaSalle National Bank
135 South LaSalle Street
Chicago, Illinois 60606
Attention: Kent A. Hammerstrom
Telephone: (312) 904-8036
Telecopy: (312) 606-8423
with a copy to:
McDermott, Will & Emery
227 West Monroe
Chicago, Illinois 60606-5096
Attention: Neal J. White
Telephone: (312) 984-7579
Telecopy: (312) 984-7700
47
<PAGE> 53
Each such notice, request or other communication shall be effective (i) if given
by telecopier, when such telecopy is transmitted to the telecopier number
specified in this Section 11.8 and a confirmation of such telecopy has been
received by the sender, (ii) if given by telex, when such telex is transmitted
to the telex number specified in this Section 11.8 and the answerback is
received by sender, (iii) if given by mail, five (5) days after such
communication is deposited in the mail, certified or registered with return
receipt requested, addressed as aforesaid, or (iv) if given by any other means,
when delivered at the addresses specified in this Section 11.8; provided that
any notice given pursuant to Section 1 or Section 2 hereof shall be effective
only upon receipt.
Section 11.9. Participations. The Bank may grant participations in its
extensions of credit hereunder to any other bank or other lending institution (a
"Participant"), provided that (i) no Participant shall thereby acquire any
direct rights under this Agreement or the other Loan Documents and (ii) no sale
of such a participation in extensions of credit hereunder shall in any manner
relieve the Bank of its obligations hereunder.
Section 11.10. Construction. The provisions of this Agreement relating
to Subsidiaries shall only apply during such times as the Parent has one or more
Subsidiaries. Nothing contained herein shall be deemed or construed to permit
any act or omission which is prohibited by the terms of any of the other Loan
Documents, the covenants and agreements contained herein being in addition to
and not in substitution for the covenants and agreements contained in the other
Loan Documents.
Section 11.11. Headings. Section headings used in this Agreement are
for convenience of reference only and are not a part of this Agreement for any
other purpose.
Section 11.12. Severability of Provisions. Any provision of this
Agreement which is prohibited or unenforceable in any jurisdiction shall, as to
such jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions hereof or
affecting the validity or enforceability of such provision in any other
jurisdiction.
Section 11.13. Counterparts. This Agreement may be executed in any
number of counterparts, and by different parties hereto on separate counterpart
signature pages, and all such counterparts taken together shall be deemed to
constitute one and the same instrument.
Section 11.14. Binding Nature, Governing Law, Etc. This Agreement shall
be binding upon the Borrowers and their successors and assigns, and shall inure
to the benefit of the Bank and the benefit of its successors and assigns,
including any subsequent holder of the obligations. No Borrower may assign its
rights hereunder without the written consent of the Bank. This Agreement
constitutes the entire understanding of the parties with respect to the subject
matter hereof and any prior agreements, whether written or oral, with respect
thereto are superseded hereby. THIS AGREEMENT AND THE RIGHTS AND DUTIES OF THE
PARTIES HERETO SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE
INTERNAL LAWS OF THE STATE OF ILLINOIS WITHOUT REGARD TO PRINCIPLES OF CONFLICTS
OF LAWS.
48
<PAGE> 54
Section 11.15. Submission to Jurisdiction; Waiver of Jury Trial. EACH
OF THE BORROWERS HEREBY SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED
STATES DISTRICT COURT FOR THE NORTHERN DISTRICT OF ILLINOIS AND OF ANY ILLINOIS
STATE COURT SITTING IN THE CITY OF CHICAGO FOR PURPOSES OF ALL LEGAL PROCEEDINGS
ARISING OUT OF OR RELATING TO THIS AGREEMENT, THE OTHER LOAN DOCUMENTS OR THE
TRANSACTIONS CONTEMPLATED HEREBY OR THEREBY. EACH OF THE BORROWERS IRREVOCABLY
WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW
OR HEREAFTER HAVE TO THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN
SUCH A COURT AND ANY CLAIM THAT ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. EACH OF THE BORROWERS AND THE BANK EACH
HEREBY IRREVOCABLY WAIVE ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL
PROCEEDING ARISING OUT OF OR RELATING TO ANY LOAN DOCUMENT OR THE TRANSACTIONS
CONTEMPLATED THEREBY.
Section 11.16. Reaffirmation, Restatement and Waivers. This Agreement
constitutes an amendment and restatement of the Original Credit Agreement and
the indebtedness evidenced by the Original Credit Agreement is continuing
indebtedness, and nothing herein shall be deemed to constitute a payment,
settlement or novation of the indebtedness evidenced by the Original Credit
Agreement except to the extent provided herein, or to release or otherwise
adversely affect any lien, mortgage or security interest securing such
indebtedness or any rights of the Bank against any guarantor, surety or other
party primarily or secondarily liable for such indebtedness.
Upon your acceptance hereof in the manner hereinafter set forth, this
Agreement shall constitute a contract between us for the uses and purposes
hereinabove set forth.
Dated as of this 31st day of October, 1996.
THE BREAD SHOP
By: /S/ William R. Voss
--------------------------
Name: William R. Voss
Title: President and Secretary
TBS ACQUISITION CORPORATION
By: /S/ William R. Voss
--------------------------
Name: William R. Voss
49
<PAGE> 55
Title: President and Secretary
HEALTH VALLEY COMPANY
By: /S/ William R. Voss
-----------------------
Name: William R. Voss
Title: President
Accepted and agreed to in Chicago, Illinois as of the day and year last
above written.
LASALLE NATIONAL BANK
By: /S/ Kent A. Hammerstron
-----------------------
Name: Kent A. Hammerstron
Title: First Vice President
50
<PAGE> 1
EXHIBIT 10.6
FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS FIRST AMENDMENT TO LOAN AND SECURITY AGREEMENT dated as of June
___, 1997 (this "Amendment"), is entered into by and between HEALTH VALLEY
COMPANY, a Delaware corporation whose address is 16100 Foothill Boulevard,
Irwindale, California 91706 (variously referred to herein as the "Borrower" and
the "Parent"), and LASALLE NATIONAL BANK, a national banking association (the
"Bank"), whose address is 135 South LaSalle Street, Chicago, Illinois 60603.
WHEREAS, the Borrower and the Bank are parties to an Amended and
Restated Loan Agreement dated as of October 31, 1996 (as amended, the "Credit
Agreement"; capitalized terms used herein without definition shall have the
meanings set forth in the Credit Agreement); and
WHEREAS, the Borrower has requested (i) that the Credit Agreement and
certain of the Loan Documents be amended, inter alia, to change certain
financial covenants and to insert certain new financial covenants in lieu of
other existing covenants, (ii) to waive certain defaults existing as a result of
covenants breaches as of December 31, 1996 and (iii) certain other matters more
fully described herein and the Bank has agreed, subject to the terms and
conditions contained herein, to so amend the Credit Agreement and certain of the
Loan Documents;
NOW, THEREFORE, in consideration of the premises and the mutual
agreements herein contained, the parties hereto agree as follows:
ARTICLE I - DEFAULTS AND WAIVER.
1.1 For purposes of this Waiver and Amendment, the "Existing Defaults"
shall mean:
(i) the Event of Default existing on this date under Section
8.7 of the Credit Agreement for failure by the Borrower to have a
Tangible Net Worth on and after December 31, 1996 of at least
$8,750,000;
(ii) the Event of Default existing on this date under Section
8.5(d) of the Credit Agreement for failure by the Borrower to deliver
within 120 days of its annual accounting period a copy of the
consolidated balance sheet of the Borrower and its Subsidiaries as of
the close of such period and the consolidated statement of income,
retained earnings and cash flows of the Borrower and its Subsidiaries
for the period then ended, and accompanying notes thereto, together
with the other items required under such subsection; and
(iii) the Event of Default existing on this date under Section
8.8 of the Credit Agreement because of the failure by the Borrower to
maintain a Leverage Ratio from and after December 31, 1996 of not more
than 3.50 to 1.00.
<PAGE> 2
1.2 Subject to and upon the terms and conditions hereof (including,
without limitation, the occurrence of the Effective Date), the Bank hereby
waives the Existing Defaults; provided, in the case of the Existing Default
described in Section 1.1(ii) above, such waiver shall remain in effect only if
the items required under Section 8.5(d) of the Credit Agreement are delivered to
the Bank on or before June __, 1997.
1.3 Nothing contained herein shall be deemed a waiver of (or otherwise
affect the Bank's ability to enforce) any other Default or Event of Default,
including without limitation (i) any Default or Event of Default as may now or
hereafter exist and arise from or otherwise be related to the Existing Defaults
(including without limitation any cross-default arising under the Credit
Agreement by virtue of any matters resulting from the Existing Defaults), and
(ii) any Default or Event of Default arising at any time after the Effective
Date and which is the same as any of the Existing Defaults.
ARTICLE II - AMENDMENTS
In reliance on the Borrower's representations and warranties, as of the
date hereof the Bank hereby agrees to the following amendments to the Credit
Agreement:
2.1 The following definition of "Net Worth" shall be inserted in
alphabetical order in Section 5 of the Credit Agreement:
"'Net Worth' means, as of any time the same is to be determined, the
total shareholders' equity (including capital stock, additional paid-in-capital
and retained earnings after deducting treasury stock, but excluding minority
interests in Subsidiaries) plus Subordinated indebtedness which would appear on
the balance sheet of the Parent and its Subsidiaries determined on a
consolidated basis in accordance with GAAP, subject, however, to the following
restrictions and limitations: there shall be excluded from the determination of
total assets the write-up of assets above cost (except as permitted under GAAP
in connection with the Acquisitions)."
2.2 The definition of "Tangible Net Worth" in Section 5 of the Credit
Agreement is hereby deleted in its entirety. All references in the Credit
Agreement, the exhibits and schedules thereto, and all other Loan Documents to
"Tangible Net Worth" shall be deemed to be replaced with similar references to
"Net Worth."
2.3 Section 8.7 of the Credit Agreement is hereby deleted in its
entirety and the following is inserted in lieu thereof:
"Section 8.7. The Borrower shall, at all times during each of the
periods specified below, collectively maintain Net Worth at not less than the
sum of (a) $20,000,000 plus (b) Net Income from and after January 1, 1997
determined as of the end of each calendar quarter (but not to be reduced for any
net losses incurred during such quarterly period.)"
2.4 Section 8.8 of the Credit Agreement is hereby deleted in its
entirety and the following is inserted in lieu thereof:
2
<PAGE> 3
"Section 8.8. The Borrower shall, at all times maintain a collective
ratio of Total Liabilities to Net Worth (the 'Leverage Ratio') of not more than
1.75 to 1.00."
2.5 Exhibit D of the Credit Agreement is hereby deleted in its entirety
and the Exhibit D attached hereto as Annex A is inserted in lieu thereof.
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
3.1 Reaffirmation of Representations. Subject to the Existing Defaults,
the representations and warranties contained in Section 7 of the Credit
Agreement, as amended hereby, are true and correct in all material respects as
of the date hereof as though made on the date hereof and with the same effect as
though applied to the Credit Agreement as modified hereby.
3.2 Amendment. The Borrower is duly authorized to execute and deliver
this Amendment. The execution and delivery by the Borrower of this Amendment
does not and will not require any consents or approvals, and does not conflict
with, or result in a default under, any provision of law or of the Borrower's
charter or bylaws or of any agreement binding on the Borrower. This Amendment is
the legal, valid and binding obligation of the Borrower.
3.3 Default. After giving effect to this Amendment no Default or Event
of Default shall exist.
ARTICLE IV - GENERAL
4.1 Counterparts. This Amendment may be executed in any number of
counterparts and any party hereto may execute any counterpart, each of which
when executed and delivered will be deemed to be an original and all of which
counterparts of this Amendment when taken together will be deemed to be but one
and the same Amendment.
4.2 Effectiveness. Upon satisfaction of each of the following
conditions, this Amendment shall become effective as of the date hereof and the
Bank shall so inform the Borrower thereof:
(i) receipt by the Bank of counterparts of this Amendment
executed by the Borrower;
(ii) receipt by the Bank of an officer's certificate for the
Borrower attaching copies of the corporate resolutions adopted in
connection with the transactions contemplated hereby;
(iii) payment by the Borrower to the Bank of the costs and
expenses referred to in Section 4.7;
3
<PAGE> 4
(iv) such other documents which may be reasonably requested by
the Bank.
4.3 Limited Amendments. The amendments contained herein are limited
precisely to their terms and shall not constitute an amendment generally or for
any other purpose.
4.4 Reaffirmation. As herein modified, the Credit Agreement
shall-remain in full force and effect and is hereby ratified, approved and
confirmed in all respects.
4.5 Reservation of Rights. The Borrower acknowledges and agrees that
neither the Bank's forbearance in exercising its rights and remedies in
connection with the Existing Defaults, nor the execution and delivery by the
Bank of this Amendment, shall be deemed (i) to create a course of dealing or
otherwise obligate the Bank to forbear or execute similar waivers under the same
or similar circumstances in the future, or (ii) to waive, relinquish or impair
any right of the Bank to receive any indemnity or similar payment from any
Person or entity as a result of any matter arising from or relating to the
Existing Defaults.
4.6 References. On and after the effective date hereof, each reference
in the Credit Agreement and the related documents to "Credit Agreement," "this
Agreement" or words of like import, shall unless the context otherwise requires,
be deemed to refer to the Credit Agreement as modified hereby.
4.7 Costs and Expenses. The Borrower agrees to pay all reasonable fees
and out-of-pocket costs and expenses of the Bank (including reasonable attorneys
fees and expenses of counsel to the Bank) in connection with the preparation of
this Amendment.
4.8 Binding Agreement. This Amendment shall be binding upon the
Borrower and the Bank and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HEALTH VALLEY COMPANY
By: /s/ Diane J. Beardsley
-----------------------------------------
Name: Diane J. Beardsley
Title: Sr. VP-CFO
LASALLE NATIONAL BANK
By: /s/ Kent A. Hammerstrom
-----------------------------------------
Title: Senior Vice President
4
<PAGE> 1
EXHIBIT 10.7
SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT
THIS SECOND AMENDMENT TO LOAN AND SECURITY AGREEMENT dated as
of April __, 1998 (this "Amendment"), is entered into by and between HEALTH
VALLEY COMPANY, a Delaware corporation whose address is 16100 Foothill
Boulevard, Irwindale, California 91706 (the "Borrower"), and LASALLE NATIONAL
BANK, a national banking association whose address is 135 South LaSalle Street,
Chicago, Illinois 60603 (the "Bank").
WHEREAS, the Borrower and the Bank are parties to an Amended
and Restated Loan Agreement dated as of October 31, 1996 (as amended, the
"Credit Agreement"; capitalized terms use herein without definition shall have
the meanings set forth in the Credit Agreement); and
WHEREAS, the Borrower has requested (i) that the Credit
Agreement be amended to change certain financial covenants and (ii) that the
Bank agrees to waive a default existing as a result of financial covenant
breaches as of December 31, 1997, and the Bank has agreed, subject to the terms
and conditions contained herein, to so amend the Credit Agreement and waive such
defaults.
NOW, THEREFORE, in consideration of the premises and the
mutual agreements herein contained, the parties hereto agree as follows:
ARTICLE I - DEFAULTS AND WAIVER.
1.1 For purposes of this Amendment, the "Existing Default"
shall mean the Event of Default existing on this date under Section 8.10 of the
Credit Agreement for failure by the Borrower to maintain a Fixed Charge Coverage
Ratio for the twelve month period ending as of December 31, 1997 of at least
1.25:1.00.
1.2 Subject to and upon the terms and conditions hereof
(including, without limitation, the occurrence of the Effective Date), the Bank
hereby waives the Existing Default.
1.3 Nothing contained herein shall be deemed a waiver of (or
otherwise affect the Bank's ability to enforce) any other Default or Event of
Default, including without limitation (i) any Default or Event of Default as may
now or hereafter exist and arise from or otherwise be related to the Existing
Default (including without limitation any cross-default arising under the Credit
Agreement by virtue of any matters resulting from the Existing Default), and
(ii) any Default or Event of Default arising at any time after the Effective
Date and which is the same as any of the Existing Default.
-1-
<PAGE> 2
ARTICLE II - AMENDMENTS
In reliance on the Borrower's representations and warranties,
as of the date hereof the Bank hereby agrees to the following amendments to the
Credit Agreement:
2.1 Section 8.9 of the Credit Agreement is hereby deleted in
its entirety and the following is inserted in lieu thereof:
"Section 8.9 Minimum Current Ratio. The Borrower shall, at all
times during each of the periods specified below, maintain a Current Ratio of
not less:
<TABLE>
<CAPTION>
Current Ratio Shall Not
From and Including To and Including Be Less Than:
<S> <C> <C>
January 1, 1007 December 31, 1997 0.70:1.0
January 1, 1998 December 31, 1998 0.80:1.0
January 1, 1999 December 31, 1999 1.00:1.0
January 1, 2000 the Term Loan A Termination 1.25:1.0"
Date
</TABLE>
2.2 Section 8.10 of the Credit Agreement is hereby deleted in
its entirety and the following is inserted in lieu thereof:
"Section 8.10 Fixed Charge Coverage Ratio. The Borrower shall,
as of the last day of each calendar month for the then ending twelve month
periods described below, during each of the periods specified below, maintain
the ratio of (i) the difference of (a) EBITDA minus (i) the sum of (I) capital
expenditures expended plus (II) federal, state and local income taxes
(determined in each case for the twelve calendar months then ended) to (ii)
Fixed Charges for the same twelve month period then ended (the "Fixed Charge
Coverage Ratio") of (A) not less than 1.10 to 1.0, for the twelve calendar month
periods ending as of the last day of each calendar month commencing with the
month ending January 31, 1998 through and including the month ending May 31,
1998 (i.e., the twelve month period ending January 31, 1998, the twelve month
period ending February 28, 1998, etc...), (B) not less than 0.90 to 1.0, for the
twelve calendar month periods ending as of the last day of each calendar month
commencing with the month ending June 30, 1998 through and including the month
ending November 30, 1998, and (C) not less than 1.10 to 1.0, for each twelve
calendar month period ending as of the last day of each calendar month
thereafter through and including the Term Loan A Termination Date."
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<PAGE> 3
ARTICLE III - REPRESENTATIONS AND WARRANTIES
The Borrower hereby represents and warrants to the Bank that:
3.1 Reaffirmation of Representations. Subject to the Existing
Default, the representations and warranties contained in Section 7 of the Credit
Agreement, as amended hereby, are true and correct in all material respects as
of the date hereof as though made on the date hereof and with the same effect as
though applied to the Credit Agreement as modified hereby.
3.2 Amendment. The Borrower is duly authorized to execute and
deliver this Amendment. The execution and delivery by the Borrower of this
Amendment does not and will not require any consents or approvals, and does not
conflict with, or result in a default under, any provision of law or of the
Borrower's charter or bylaws or of any agreement binding on the Borrower. This
Amendment is the legal, valid and binding obligation of the Borrower.
3.3 Default. After giving effect to this Amendment no Default
or Event of Default shall exist.
ARTICLE IV - GENERAL
4.1 Counterparts. This Amendment may be executed in any number
of counterparts and any party hereto may execute any counterpart, each of which
when executed and delivered will be deemed to be an original and all of which
counterparts of this Amendment when taken together will be deemed to be but one
and the same Amendment.
4.2 Effectiveness. Upon satisfaction of each of the following
conditions (the "Effective Date"), this Amendment shall become effective as of
the date hereof (provided, the amendment in Section 2.2 hereof shall be
retroactively effective to January 1, 1998) and the Bank shall so inform the
Borrower thereof:
(i) receipt by the Bank of counterparts of this Amendment
executed by the Borrower;
(ii) receipt by the Bank of an officer's certificate for the
Borrower attaching copies of the corporate resolutions adopted in
connection with the transactions contemplated hereby;
(iii) payment by the Borrower to the Bank of the costs and
expenses referred to in Section 4.7; and
(iv) such other documents which may be reasonably requested by
the Bank.
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<PAGE> 4
4.3 Limited Amendments and Waivers. The amendments and waivers
contained herein are limited precisely to their terms and shall not constitute
an amendment or waiver generally or for any other purpose.
4.4 Reaffirmation. As herein modified, the Credit Agreement
shall remain in full force and effect and is hereby ratified, approved and
confirmed in all respects.
4.5 Reservation of Rights. The Borrower acknowledges and
agrees that neither the Bank's forbearance in exercising its rights and remedies
in connection with the Existing Default, nor the execution and delivery by the
Bank of this Amendment, shall be deemed (i) to create a course of dealing or
otherwise obligate the Bank to forbear or execute similar amendments or waivers
under the same or similar circumstances in the future, or (ii) to waive,
relinquish or impair any right of the Bank to receive any indemnity or similar
payment from any Person or entity as a result of any matter arising from or
relating to the Existing Default or this Amendment.
4.6 References. On and after the Effective Date, each
reference in the Credit Agreement, the Loan Documents and the related documents
to "Credit Agreement," "this Agreement" or words of like import, shall unless
the context otherwise requires, be deemed to refer to the Credit Agreement as
modified hereby.
4.7 Costs and Expenses. The Borrower agrees to pay all
reasonable fees and out-of-pocket costs and expenses of the Bank (including
reasonable attorneys fees and expenses of counsel to the Bank) in connection
with the preparation, execution and delivery of this Amendment.
4.8 Binding Agreement. This Amendment shall be binding upon
the Borrower and the Bank and their respective successors and assigns.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
executed by their respective officers thereunto duly authorized as of the day
and year first above written.
HEALTH VALLEY COMPANY
By /s/ Diane J. Beardsley
----------------------------------------
Name: Diane J. Beardsley
Title: Sr. VP-CFO
LASALLE NATIONAL BANK
By /s/ Scott R. Thick
----------------------------------------
Title: Officer
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<PAGE> 1
EXHIBIT 10.8
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January
28, 1997, is between INTREPID FOOD HOLDINGS, INC., a Delaware corporation (the
"Company"), the persons and entities listed on Schedule 1.1 hereto (the
"Purchasers"), and William R. Voss (the "Founder").
RECITALS
The Purchasers and the Founder desire to purchase from the Company, and
the Company desires to issue to the Purchasers and the Founder, in the
aggregate, 829.647 shares of Series A Preferred Stock of the Company, par value
$0.0001 per share (the "Preferred Shares"), and 953.53 shares of Common Stock
of the Company, par value $0.001 per share (the "Common Shares;" the Common
Shares and Preferred Shares are sometimes referred to herein as the "Shares"),
for an aggregate purchase price of $925,000, all upon the terms and subject to
the conditions set forth herein.
AGREEMENTS
In consideration of the recitals and the respective agreements,
covenants, representations and warranties contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase of Shares. Upon the terms and subject to the
satisfaction of the conditions set forth herein, and in reliance upon the
respective representations and warranties of the parties set forth herein, the
Company hereby agrees to sell to each of the Purchasers and the Founder, and
each Purchaser and the Founder severally and not jointly agrees to purchase
from the Company, at the Closing (as defined herein), the number of Common
Shares and Preferred Shares, respectively, set forth next to such Purchaser's
or Founder's name on Schedule 1.1, in exchange for the payment of the total
purchase price set forth next to such Purchaser's or Founder's name on Schedule
1.1.
1.2 Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") will take place at the offices of Hopkins & Sutter,
Three First National Plaza, Suite 3800, Chicago, Illinois on the date hereof or
at such other time, date and place as shall be mutually agreed by the Company,
the Purchasers and the Founder. At the Closing:
<PAGE> 2
(a) the Company will deliver to each Purchaser and the Founder
certificates for the Common Shares and Preferred Shares, if any, purchased by
such Purchaser or the Founder, duly executed and registered in the name of such
person or entity; and
(b) each Purchaser and the Founder will deliver to the Company by
wire transfer to any account designated by the Company, or by cancellation of a
portion of the Bridge Note (as defined below), or by a combination thereof, a
payment equal to the total purchase price for such Shares being purchased by
such Purchaser or the Founder, as set forth on Schedule 1.1.
ARTICLE II
CONDITIONS TO CLOSING
The obligation of each Purchaser and the Founder to purchase the Shares
being purchased by such Purchaser or the Founder at the Closing is subject to
the fulfillment to its satisfaction of each of the following conditions:
2.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Article III shall be true and correct when
made, and shall be true and correct as of the Closing as if made at the
Closing.
2.2 Performance. All covenants, agreements and conditions contained
in this Agreement to be performed or complied with by the Company at or prior
to the Closing shall have been performed or complied with.
2.3 Registration Agreement. At or prior to the Closing, the Company,
the Purchasers, the Founder and the other parties thereto shall have executed
and delivered an Amended and Restated Registration Agreement in the form of
Exhibit A attached hereto (the "Registration Agreement").
2.4 Stockholders Agreement. At or prior to the Closing, the Company,
the Purchasers, the Founder and the other parties thereto shall have executed
and delivered an Amended and Restated Stockholders Agreement in the form of
Exhibit B attached hereto (the "Stockholders Agreement").
2.5 Management Stock Purchase Agreement At or prior to the Closing,
the Company and the purchasers named therein shall have executed and delivered
a Stock Purchase Agreement in the form of Exhibit C attached hereto (the
"Management Stock Purchase Agreement").
2.6 Legal Investment. As of the Closing, the purchase of the Shares
by each Purchaser and the Founder shall be legally permitted by all laws and
regulations to which the Founder, such Purchaser and the Company are subject.
2.7 Purchase by Purchasers and Founder. At the closing, each
Purchaser and the Founder shall have purchased the number of Shares set forth
next to such Purchaser's or Founder's name on Schedule 1.1.
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<PAGE> 3
2.8 Bridge Note Interest. Simultaneous with the Closing, the Company
shall pay to Frontenac VI Limited Partnership ("Frontenac VI") all interest
accrued but unpaid on the Bridge Note through and including the Closing Date.
2.9 Other Documents and Proceedings. As of the Closing, all
corporate and other proceedings in connection with the transactions
contemplated hereby, and all documents and instruments incident to such
transactions, shall be satisfactory in form and substance to each Purchaser and
the Founder, and each Purchaser and the Founder shall have received at or prior
to the Closing, all such documents as he or it shall have requested.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Purchasers and the Founder to enter into the
transactions contemplated by this Agreement, the Company represents and
warrants to Purchasers and the Founder as follows:
3.1 Organization and Qualification. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware.
3.2 Corporate Power. The Company has all requisite corporate power
and authority to execute, deliver and perform this Agreement and to issue the
Shares to be issued hereunder, and to execute, deliver and perform all other
instruments, documents and agreements contemplated or required by the
provisions of this Agreement to be executed, delivered or performed by the
Company.
3.3 Authorization of Transaction. The execution, delivery and
performance by the Company of this Agreement and the transactions contemplated
hereby (i) have been duly authorized by all necessary corporate action of the
Company, its officers, directors and stockholders and (ii) will not violate,
conflict with, result in any breach of any of the terms, conditions or
provisions of, constitute (with or without the passage of time or giving of
notice or both) a default under, or result in the creation of any lien or
encumbrance upon any property of the Company under the provisions of any law,
rule, regulation, judgment, writ, injunction, order, decree, agreement,
certificate of incorporation, by-law or other instrument to which the Company
is a party or by which the Company or any property of the Company may be bound.
3.4 Binding Obligation: Valid Issuance. This Agreement has been duly
executed by the Company and constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with its terms except as the
enforceability may be limited by bankruptcy, insolvency or other similar laws
of general application affecting the enforcement of creditors' rights or by
general principles of equity.
3.5 Capitalization of Company. The Company's authorized capital
stock consists of 40,000 shares of Common Stock and 25,000 shares of Series A
Preferred Stock. After giving effect to the consummation at the Closing of the
transactions contemplated by this Agreement
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<PAGE> 4
and the transactions contemplated by the Management Stock Purchase Agreement,
the only shares of capital stock issued and outstanding, reserved for issuance
or committed to be issued will be:
(a) 14,333.33 fully paid and nonassessable shares of Common Stock,
duly issued and outstanding and owned of record and beneficially by the persons
or entities listed on Schedule 3.5;
(b) 19,566.667 shares of fully paid and nonassessable Preferred
Stock, duly issued and outstanding and owned of record and beneficially by the
persons or entities listed on Schedule 3.5; and
(c) 333 shares of Common Stock reserved for issuance to the Founder
pursuant to that certain Amended and Restated Management Option Agreement,
dated as of January 28, 1997, by and between the Company and the Founder (the
"Founder Option Agreement").
Except as otherwise provided herein, in the Stockholders Agreement, in the
Founder Option Agreement or in that certain Employment Agreement, dated October
2, 1995, as amended, by and between the Company and the Founder (the
"Employment Agreement"), there are no outstanding preemptive, conversion or
other rights, options, warrants or agreements granted or issued by or binding
upon the Company for the purchase or acquisition of any shares of its capital
stock or obligations to issue or grant any of the foregoing or any outstanding
capital appreciation, profit participation or similar rights with respect to
the Company or obligations to issue or grant any such rights.
3.6 Absence of Conflicts. To the best knowledge of the Company, no
member of the State of Wisconsin Investment Board ("SWIB"), or any SWIB
employee has a direct or indirect economic interest in the Company or any of
its property or contracts, nor will any member of SWIB or SWIB employee
receive, directly or indirectly, anything of substantial economic value for his
or her private benefit from the Company or any person or entity acting on its
behalf in connection with the investment made by SWIB pursuant to this
Agreement.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASERS AND THE FOUNDER
Each Purchaser and the Founder hereby severally and not jointly
represents and warrants to the other parties to this Agreement with respect to
itself or himself that:
(a) such person is acquiring the Shares being acquired by him
or it for investment and not with a view to distributing all or any part
thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act");
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<PAGE> 5
(b) such person acknowledges that the Shares have not been
registered under the Securities Act of 1933, as amended, or any state
securities law, and except as provided in the Registration Agreement,
the Company is under no obligation to file a registration statement with
the Securities and Exchange Commission or any state securities
commission with respect to the Shares;
(c) such person has such knowledge and experience in financial
and business matters that he or it is capable of evaluating the merits
and risks of his or its investment in the Shares;
(d) such person is able to bear the complete loss of its or
his investment in the Shares (and, with respect to a Purchaser, is not
an entity formed solely to make this investment);
(e) such person has had the opportunity to ask questions of,
and receive answers from, the Company and its management concerning the
Shares, and to obtain additional information; and
(f) such person or entity is an "accredited investor" (as
defined in Rule 501(a) of Regulation D promulgated under the Securities
Act).
ARTICLE V
COVENANTS
5.1 Use of Proceeds. The Company will use the proceeds from the sale
hereunder (i) repay to Frontenac VI the Company's obligations under that
certain $ 1,000,000 promissory note of the Company payable to Frontenac VI (the
"Bridge Note"), to the extent not canceled in payment for Shares, and the
accrued interest on such Bridge Note; (ii) for the payment of the Company's
fees and expenses incurred in connection with the transactions contemplated
hereby; (iii) for the payment of the fee described in the second sentence of
Section 6.9 hereof; and (iv) for general corporate purposes.
5.2 Legend. Until (a) the securities represented by such certificate
are effectively registered under the Securities Act, or (b) the holder of such
securities delivers to the Company a written opinion of counsel to such holder
to the effect that such legend is no longer necessary under the Securities Act,
the Company will cause each certificate representing its securities to be
stamped or otherwise imprinted with the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and thus
may not be transferred unless so registered or unless an
exemption from registration is available."
5.3 Section 83(b) Election. The Founder acknowledges that the Shares
being purchased by him hereunder are subject to certain repurchase rights by
the Company under the
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<PAGE> 6
Employment Agreement and the Founder agrees to timely file an election under
section 83(b) of the Internal Revenue Code of 1986, as amended, with respect to
the Shares purchased by the Founder hereunder.
ARTICLE VI
MISCELLANEOUS
6.1 Consent to Amendments, Waivers. The provisions of this Agreement
may be amended, and the Company may take any action herein prohibited, or omit
to perform any act herein required to be performed by it, only if the Company
has obtained the written consent of the Founder and the holder or holders of a
majority of the Common Shares and a majority of the Preferred Shares. No other
course of dealing between the Company and the holder of any securities or any
delay in exercising any rights hereunder or under the Company's Certificate of
Incorporation shall operate as a waiver of any rights of any such holders. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any provisions or conditions of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in such
writing.
6.2 Representations and Warranties. All representations and
warranties contained herein or made in writing by any party in connection
herewith will survive the execution and delivery of this Agreement.
6.3 Successors and Assigns Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on
behalf of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto.
6.4 Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not be utilized in interpreting this Agreement.
6.5 Notices. Any notices required or permitted to be sent hereunder
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following
addresses, or such other address as any party hereto designates by written
notice to the Company, and shall be deemed to have been given upon delivery, if
delivered personally, three days after mailing, if mailed, or one business day
after delivery to the courier, if delivered by overnight courier service:
If to the Company to:
Intrepid Food Holdings, Inc.
135 South LaSalle Street, Suite 3800
Chicago, Illinois 60603
Attention: President
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<PAGE> 7
If to the Purchasers or the Founder, to the addresses specified on
Schedule 1.1 hereof.
6.6 Governing Law. The corporate law of Delaware will govern all
issues concerning the relative rights of the Company and its stockholders. All
other questions concerning the construction, validity and interpretation of
this Agreement and the exhibits and schedules hereto shall be governed by the
internal law and not the law of conflicts, of the State of Illinois, and the
performance of the obligations imposed by this Agreement shall be governed by
the laws of the State of Illinois applicable to contracts made and wholly to be
performed in that state.
6.7 Exhibits and Schedules. All exhibits and schedules hereto are an
integral part of this Agreement.
6.8 Exchange of Certificates. Upon surrender by any holder to the
Company of any certificate or certificates evidencing Shares, the Company at
its expense will issue in exchange therefor, and deliver to such holder, a new
certificate or certificates representing such Shares, in such denomination or
denominations as may be requested by such holder. Upon receipt of evidence
satisfactory to the Company of the loss, theft, destruction or mutilation of
any certificate representing any Shares, and in case of any such loss, theft or
destruction, upon delivery of an indemnity agreement satisfactory to the
Company (provided that in the case of a financial institution or other
institutional investor, its own agreement shall be deemed satisfactory to the
Company), or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense will issue and deliver to any such
holder a new certificate evidencing such Shares, in lieu of such lost, stolen,
destroyed or mutilated certificate.
6.9 Transaction Fees. The Company shall pay the legal fees and
expenses of the Founder and each of the Purchasers incurred in connection with
the negotiation and execution of this Agreement. At the Closing, the Company
shall, pursuant to Section 21(a) of the Stockholders Agreement, cause Health
Valley to pay to Frontenac Company a fee equal to $100,000 with respect to the
acquisition of The Bread Shop.
6.10 Final Agreement. This Agreement, together with the Stockholders
Agreement and the Registration Agreement, constitutes the final agreement of
the parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
6.11 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
[Remainder of Page Intentionally Left Blank.
Signature page follows.]
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<PAGE> 8
The parties hereto have executed and delivered this Agreement as of the
date first set forth above.
INTREPID FOOD HOLDINGS, INC., A
Delaware corporation
By: /S/ William R. Voss
-----------------------------
Its: President
----------------------------
PURCHASERS:
FRONTENAC VI LIMITED
PARTNERSHIP
By: Frontenac Company
Its: General Partner
By: /S/ R.S. McEniry
-----------------------------
a partner
STATE OF WISCONSIN
INVESTMENT BOARD
By: /S/ Jon Vanderploeg
-----------------------------
Its: Portfolio Manager
----------------------------
FOUNDER:
/S/ William R. Voss
--------------------------------
William R. Voss
-8-
<PAGE> 1
EXHIBIT 10.9
AMENDED AND RESTATED
MANAGEMENT OPTION AGREEMENT
This Amended and Restated Management Option Agreement (this "Agreement")
is entered into as of the 28 day of January, 1997, between Intrepid Food
Holdings, Inc., a Delaware corporation (the "Company"), and W R. Voss (the
"Executive").
RECITALS
A. The Company and the Executive are parties to that certain
Management Option Agreement, dated as of April 15, 1996 (the "Original Option
Agreement").
B. The Company and the Executive deem it desirable to amend and
restate the Original Option Agreement upon the terms and subject to the
conditions set forth herein.
AGREEMENTS
In consideration of the recitals and the mutual covenants herein
contained and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
ARTICLE I
Definitions
In addition to the terms defined elsewhere in this Agreement, as used in
this Agreement:
"Approved Sale" means the sale of the Company in an arm's-length
transaction, whether by merger, consolidation, sale of all or substantially all
of its assets or a sale of all or substantially all of the capital stock of the
Company in one transaction or a series of transactions.
"Cause" has the meaning given to it in the Employment Agreement.
"Commission" means the Securities and Exchange Commission.
"Common Stock" means the Common Stock of the Company, par value $.001
per share.
"Date of Grant" means April 15, 1996.
"Disability" has the meaning given to it in the Employment Agreement.
<PAGE> 2
"Employment Agreement" means the Employment Agreement dated October 2,
1995 between the Company and the Executive, as amended from time to time in
accordance with its terms.
"Exercise Date" means any date on which all or any portion of the
Options are exercised pursuant to Section 2.2 hereof.
"Exercise Price Per Share" means, as of any Exercise Date, the amount
set forth on Schedule 1 next to the period during which such Exercise Date
occurs, subject to adjustment pursuant to Section 2.8.
"Good Reason" has the meaning given to it in the Employment Agreement.
"Option" means the option to purchase the Option Shares, subject in all
respects to the terms and conditions of this Agreement, the grant to the
Executive of which is made by this Agreement.
"Option Shares" means 333 shares of Common Stock, subject to adjustment
as set forth in Section 2.8.
"Option Termination Date" means the earliest of (a) the eighth
anniversary of the Date of Grant, (b) the date of the closing of an Approved
Sale, and (c) the liquidation, dissolution or winding up of the Company,
whether voluntary or involuntary.
"Person" means a natural person, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or other entity or a governmental
entity or any department, agency or political subdivision thereof.
"Qualified Public Offering" means an underwritten public offering
pursuant to a registration statement declared effective by the Commission
pursuant to the Securities Act covering the offer and sale of Common Stock in
which all or a portion of the proceeds thereof are used to redeem in cash all
shares of preferred stock of the Company then outstanding.
"Securities Act" means the Securities Act of 1933, as amended.
"Stockholders Agreement" means the Stockholders Agreement dated as of
April 15, 1996 between the Company, the Executive and certain Persons, as such
agreement may be amended from time to time in accordance with its terms.
"Subsidiary" means, with respect to the Company, any Person of which
securities or other ownership interests representing more than 50% of the or
voting power are, at the time as of which any determination is being made,
owned or controlled by the Company or one or more Subsidiaries of the Company
or by the Company and one or more Subsidiaries of the Company.
-2-
<PAGE> 3
ARTICLE II
The Option Provisions
2.1 Grant of the Option. Subject to the terms herein set
forth, the Company hereby grants to the Executive the Option.
2.2 Procedures for Exercise. Subject in all respects to the
Option becoming exercisable pursuant to this Agreement, the Executive may
exercise the Option in whole or in part at any time prior to the Option
Termination Date or earlier termination pursuant to the terms of this Agreement
by delivering written notice to the Company substantially in the form attached
hereto as Exhibit A, together with cash or other immediately available funds in
an amount equal to the applicable Exercise Price Per Share multiplied by the
number of Option Shares with respect to which the Executive is exercising the
Option. As promptly as practicable after receiving the written notice and
payment, the Company will deliver to the Executive certificates for the Option
Shares with respect to which the Executive has exercised the Option, issued in
the name of the Executive. For all purposes, the Executive will be deemed to
have exercised such Option and to have purchased and become the holder of the
Option Shares as of the date the Company receives written notice and payment
from the Executive as provided in this Section 2.2.
2.3 Vesting of the Option. The Option shall only become
exercisable as follows:
(a) In Accordance with Vesting Schedule. The Option
Shares shall vest and be exercisable on April 15, 1999.
(b) Qualified Public Offering and Approved Sale.
(i) If the Company consummates a Qualified
Public Offering at any time prior to April 15, 1999, the Option will become
vested and exercisable upon the consummation of such Qualified Public Offering.
(ii) If an Approved Sale occurs at any time prior
to April 15, 1999, the Option will become vested and exercisable immediately
prior to such Approved Sale. The Company acknowledges that Executive may
exercise the Option contemporaneous with the closing of the Approved Sale.
(c) Fractional Shares. Fractional shares will not be
issued upon the exercise of the Option but in any case where the Executive
would, except for the provisions of this Section 2.3(c), be entitled under the
terms of this Agreement to receive a fractional share upon the complete
exercise of the Option, the Company will, upon the exercise of the Option for
the largest number of whole shares then called for, pay a sum in cash equal to
the excess of the value of such fractional share (determined in such reasonable
manner as may be prescribed in good faith by the Board of Directors of the
Company) over the proportional part of the Exercise Price Per Share represented
by such fractional share.
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<PAGE> 4
2.4 Employment Based Termination Events. If the Executive
ceases to be a full-time employee of the Company while the Option is
outstanding and unexercised, in whole or in part:
(a) if such termination is prior to April 15, 1999 and
is for a reason other than death, disability or termination by the Company (or
a Subsidiary) without cause, or if the Executive elects to terminate his
employment with the Company other than for Good Reason, the Option shall
terminate and cease to be exercisable upon the date of such termination; and
(b) if such termination is by reason of death,
disability or termination of Executive by the Company without cause, or if the
Executive elects to terminate his employment with the Company for Good Reason,
all of the Option Shares shall immediately vest and become exercisable on the
date of such death, disability or termination.
2.5 Non-Transferable. The Option shall not be transferable,
except by will or the laws of descent and distribution, and may be exercised
only by the Executive during his lifetime.
2.6 No Rights as a Stockholder. The Option does not confer
upon the Executive any right to vote or consent or to receive notice as a
stockholder of the Company, as such, in respect of any matters whatsoever, or
any other rights or liabilities as a stockholder, prior to the exercise of the
Option as hereinbefore provided.
2.7 No Rights to Employment or Other Relationship. Nothing
contained in this Agreement shall confer upon the Executive any right with
respect to employment by or any relationship with the Company or any Subsidiary
or interfere in any way with the right of the Company or any Subsidiary at any
time to terminate the employment of the Executive or terminate any other
relationship the Executive may have with the Company or any Subsidiary.
2.8 Antidilution Provisions. In the event of any stock
dividend, stock split, combination, or exchange of shares of Common Stock or
any recapitalization or change in capitalization affecting shares of Common
Stock, the number and kind of shares that are subject to the Option and the
Exercise Price Per Share may be proportionately and appropriately adjusted.
Any adjustments under this Section 2.8 will be made by the Board of Directors
of the Company, whose determinations as to what adjustments, if any, will be
made and the extent thereof will be final, binding and conclusive.
ARTICLE III
Representations and Warranties of the Company
3.1 Representations and Warranties. The Company hereby
represents and warrants to the Executive as follows:
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<PAGE> 5
(a) Organization and Standing. The Company is a
corporation duly organized, validly existing and in good standing under the
laws of the State of Delaware.
(b) Corporate Power. The Company has the requisite
corporate power to own all the properties owned by it and to conduct its
business as presently being and as proposed to be conducted by it. The Company
has all requisite corporate power to enter into this Agreement, to issue and
sell the Option Shares and to carry out and perform its obligations under the
terms of this Agreement.
(c) Authorization. All corporate action on the part of
the Company, its directors and stockholders necessary for the authorization,
execution, delivery and performance by the Company of this Agreement, and the
consummation of the transactions contemplated hereby, has been taken.
(d) Enforceability. This Agreement constitutes a legal,
valid and binding obligation of the Company, enforceable against it in
accordance with its terms, subject to any applicable bankruptcy,
reorganization, insolvency, moratorium, or other laws or equitable principles
affecting the enforcement of creditors' rights generally.
(e) Validity of Stock. The Option Shares, when issued,
sold and delivered in accordance with the terms of this Agreement, will be duly
authorized, validly issued, fully paid and non-assessable.
ARTICLE IV
Representations and Warranties of the Executive
4.1 Representations and Warranties of the Executive. The
Executive hereby represents and warrants to the Company as follows:
(a) Investment Intent. The Executive will acquire the
Option Shares, to the extent that the Options become exercisable pursuant to
the terms hereof and the Executive exercises the Option in whole or in part,
solely for investment for the Executive's own account and not with a view to
the resale or distribution of all or any part thereof.
(b) Other Matters. The Executive understands that (i)
the Executive may purchase the Option Shares only to the extent that the Option
becomes exercisable pursuant to Section 2.3 hereof, (ii) it is possible that
the Option will not become exercisable for any of the Option Shares, and (iii)
none of the Option Shares have been registered under the Securities Act of
1933, as amended (the "Securities Act"), and the Executive may have to hold the
Option Shares, to the extent the Option is exercised for such Option Shares
hereunder in accordance with the terms hereof, for an indefinite period.
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<PAGE> 6
ARTICLE V
Covenants of the Company
5.1 Authorized Shares. The Company covenants and agrees that
during the period within which the Option may be exercised, the Company will at
all times have authorized and in reserve a sufficient number of shares of its
Common Stock to provide for the exercise of the Option.
5.2 Closing of Transfer Books. The right to exercise the
Option will not be suspended during any period while the stock transfer books
of the Company for its Common Stock may be closed. The Company will not be
required, however, to deliver certificates of its Common Stock upon such
exercise while such books are duly closed for any purpose, but the Company may
postpone the delivery of the certificates for such Common Stock until the
opening of such books, and they will, in such case, be delivered forthwith upon
the opening thereof, or as soon as practicable thereafter.
5.3 Legends. Until (i) the securities represented by such
certificates are effectively registered under the Securities Act, or (ii) the
holder of such securities delivers to the Company a written opinion acceptable
to the Company from legal counsel to such holder to the effect that such legend
is no longer necessary under the Securities Act, the Company will cause each
certificate representing Option Shares or securities issued in exchange for or
replacement of or as a distribution with respect to Option Shares to be stamped
or imprinted with a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and thus
may not be transferred unless so registered or unless an
exemption from registration is available."
ARTICLE VI
Miscellaneous
6.1 Survival of Representations and Warranties. All
representations and warranties contained herein will survive the execution and
delivery of this Agreement and any investigation made at any time by or on
behalf of the Company or the Executive.
6.2 Successors and Assigns. Except as otherwise expressly
provided herein, all covenants and agreements contained in this Agreement by or
on behalf of any of the parties hereto will bind and inure to the benefit of
the respective successors and assigns of the parties hereto. whether so
expressed or not.
6.3 Descriptive Headings. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute
a part of this Agreement.
-6-
<PAGE> 7
6.4 Notices. Any notices desired, required or permitted to be
given hereunder will be delivered personally or mailed, certified mail, return
receipt requested, or delivered by overnight courier service, to the following
addresses, or such other address as any party hereto designates by written
notice to the Company, and will be deemed to have been given upon delivery, if
delivered personally, five business days after mailing, if mailed, or one
business day after delivery to the overnight courier service, if delivered by
overnight courier service:
If to the Executive, to:
William R. Voss
564 North Elm Street
Hinsdale, Illinois 60521
If to the Company, to:
Intrepid Food Holdings, Inc.
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60603
6.5 Governing Law. The validity, meaning and effect of this
Agreement will be determined in accordance with the internal laws of the State
of Illinois applicable to contracts made and to be performed in that state.
6.6 Exhibits and Schedules. All exhibits and schedules hereto
are an integral part of this Agreement.
6.7 Final Agreement. This Agreement, together with the
Employment Agreement, the Stockholders Agreement, constitutes the final
agreement of the parties concerning the matters referred to herein, and
supersedes all prior agreements and understandings.
6.8 Execution in Counterparts. This Agreement may be executed
in two counterparts, each of which when so executed and delivered will be
deemed an original, and such counterparts together will constitute one
instrument.
Remainder of page intentionally left blank.
Signature page follows.]
-7-
<PAGE> 8
This Amended and Restated Management Option Agreement was
executed on the date first set forth above.
INTREPID FOOD HOLDINGS, INC.
By: /S/ William R. Voss
-------------------------------
Its: President
----------------------------
/S/ William R. Voss
------------------------------------
William R. Voss
-8-
<PAGE> 9
EXHIBIT A
TO: Intrepid Food Holdings, Inc.
The undersigned, pursuant to the terms and conditions of the Amended and
Restated Management Option Agreement dated as of ______________, 19__ by and
between Intrepid Food Holdings, Inc. and William R. Voss (the "Management
Option Agreement"), hereby exercises the Option granted thereby to purchase the
following number of shares of Common Stock pursuant to such Option at the
applicable Exercise Price Per Share (as defined in the Management Option
Agreement) as of the date hereof and is hereby tendering full payment therefor
in accordance with the terms of the Management Option Agreement:
NUMBER OF SHARES TO
BE PURCHASED:
-----------------------
EXERCISE PRICE
PER SHARE:
-----------------------
TOTAL PAYMENT:
-----------------------
Dated: WILLIAM R. VOSS [OR PERMITTED TRANSFEREE]
---------------
-----------------------------------------
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<PAGE> 10
SCHEDULE 1
<TABLE>
<CAPTION>
================================================================================
EXERCISE DATE EXERCISE PRICE PER SHARE
------------- ------------------------
- --------------------------------------------------------------------------------
<S> <C>
Date of Grant $100.00
- --------------------------------------------------------------------------------
After Date of Grant, but on or prior to the first
anniversary of Date of Grant $185.00
- --------------------------------------------------------------------------------
After the first anniversary of Date of Grant, but
on or prior to the second anniversary of Date of
Grant $290.00
- --------------------------------------------------------------------------------
After the second anniversary of Date of Grant,
but on or prior to the third anniversary of Date
of Grant $418.00
- --------------------------------------------------------------------------------
After the third anniversary of Date of Grant, but
on or prior to the fourth anniversary of Date of
Grant $574.00
- --------------------------------------------------------------------------------
After the fourth anniversary of Date of Grant,
but on or prior to the fifth anniversary of Date
of Grant $762.00
- --------------------------------------------------------------------------------
After the fifth anniversary of Date of Grant, but
on or prior to the sixth anniversary of Date of
Grand $989.00
- --------------------------------------------------------------------------------
After the sixth anniversary of Date of Grant, but
on or prior to the seventh anniversary of Date of
Grant $1,262.00
- --------------------------------------------------------------------------------
After the seventh anniversary of Date of Grant,
but on or prior to the eighth anniversary of Date
of Grant $1,588.00
================================================================================
</TABLE>
-10-
<PAGE> 1
Exhibit 10.10
STOCK PURCHASE AGREEMENT
THIS STOCK PURCHASE AGREEMENT (this "Agreement"), dated as of January
28, 1997, is between INTREPID FOOD HOLDINGS, INC., a Delaware corporation (the
"Company"), and the persons and entities listed on Schedule 1.1 hereto (the
"Purchasers").
RECITALS
The Purchasers desire to purchase from the Company, and the Company
desires to issue to the Purchasers, in the aggregate, 70.353 shares of Series A
Preferred Stock of the Company, par value $0.001 per share (the "Preferred
Shares"), and 46.47 shares of Common Stock of the Company, par value $0.001 per
share (the "Common Shares;" the Common Shares and Preferred Shares are sometimes
referred to herein as the "Shares"), for an aggregate purchase price of $75,000,
all upon the terms and subject to the conditions set forth herein.
AGREEMENTS
In consideration of the recitals and the respective agreements,
covenants, representations and warranties contained herein and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the parties hereto agree as follows:
ARTICLE I
SALE AND PURCHASE OF SHARES
1.1 Sale and Purchase of Shares. Upon the terms and subject to the
satisfaction of the conditions set forth herein, and in reliance upon the
respective representations and warranties of the parties set forth herein, the
Company hereby agrees to sell to each of the Purchasers, and each Purchaser
severally and not jointly agrees to purchase from the Company, at the Closing
(as defined herein), the number of Common Shares and Preferred Shares,
respectively, set forth next to such Purchaser's name on Schedule 1.1, in
exchange for the payment of the total purchase price set forth next to such
Purchaser's name on Schedule 1.1.
1.2 Closing. The closing of the purchase and sale of the Shares
hereunder (the "Closing") will take place at the offices of Hopkins & Sutter,
Three First National Plaza, Suite 3800, Chicago, Illinois on the date hereof or
at such other time, date and place as shall be mutually agreed by the Company
and the Purchasers. At the Closing:
(a) the Company will delivery to each Purchaser certificates for the
Common Shares and Preferred Shares purchased by such Purchasers, duly executed
and registered in the name of such person or entity; and
<PAGE> 2
(b) each Purchaser will deliver to the Company by wire transfer to any
account designated by the Company, a payment equal to the total purchase price
for such Shares being purchased by such Purchaser, as set forth on Schedule 1.1.
ARTICLE II
CONDITIONS TO CLOSING
The obligation of each Purchaser to purchase the Shares being purchased
by such Purchaser at the Closing is subject to the fulfillment to its
satisfaction of each of the following conditions:
2.1 Representations and Warranties Correct. The representations and
warranties made by the Company in Article III shall be true and correct when
made, and shall be true and correct as of the Closing as if made at the Closing.
2.2 Performance. All covenants, agreements and conditions contained in
this Agreement to be performed or complied with by the Company at or prior to
the Closing shall have been performed or complied with.
2.3 Registration Agreement. At or prior to the Closing, the Company,
the Purchasers and the other parties thereto shall have executed and delivered
the Amended and Restated Registration Agreement in the form of Exhibit A
attached hereto (the "Registration Agreement").
2.4 Stockholders Agreement. At or prior to the Closing, the Company,
the Purchasers and the other parties thereto shall have executed and delivered
the Amended and Restated Stockholders Agreement in the form of Exhibit B
attached hereto (the "Stockholders Agreement").
2.5. Legal Investment. As of the Closing, the purchase of the Shares by
each Purchaser shall be legally permitted by all laws and regulations to which
such Purchaser and the Company are subject.
2.6 Purchase by Purchasers. At the Closing, each Purchaser shall have
purchased the number of Shares set forth next to such Purchaser's name on
Schedule 1.1.
2.7. Other Documents and Proceedings. As of the Closing, all corporate
and other proceedings in connection with the transactions contemplated hereby,
and all documents and instruments incident to such transactions, shall be
satisfactory in form and substance to each Purchaser, and each Purchaser shall
have received at or prior to the Closing, all such documents as he or it shall
have requested.
-2-
<PAGE> 3
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
As a material inducement to Purchasers to enter into the transactions
contemplated by this Agreement, the Company represents and warrants to
Purchasers as follows:
3.1 Organization and Qualification. The Company is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware.
3.2 Corporate Power. The Company has all requisite corporate power and
authority to execute, deliver and perform this Agreement and to issue the Shares
to be issued hereunder, and to execute, deliver and perform all other
instruments, documents and agreements contemplated or required by the provisions
of this Agreement to be executed, delivered or performed by the Company.
3.3 Authorization of Transaction. The execution, delivery and
performance by the Company of this Agreement and the transactions contemplated
hereby (i) have been duly authorized by all necessary corporate action of the
Company, its officers, directors and stockholders and (ii) will not violate,
conflict with, result in any breach of any of the terms, conditions or
provisions of, constitute (with or without the passage of time or giving of
notice or both) a default under, or result in the creation of any lien or
encumbrance upon any property of the Company under the provisions of any law,
rule, regulation, judgment, writ, injunction, order, decree, agreement,
certificate of incorporation, by-law or other instrument to which the Company is
a party or by which the Company or any property of the Company may be bound.
3.4 Binding Obligation; Valid Issuance. This Agreement has been duly
executed by the Company and constitutes a valid and legally binding obligation
of the Company, enforceable in accordance with its terms except as the
enforceability may be limited by bankruptcy, insolvency or other similar laws of
general application affecting the enforcement of creditors' rights or by general
principles of equity.
3.5 Capitalization of Company. The Company's authorized capital stock
consists of 40,000 shares of Common Stock and 25,000 shares of Series A
Preferred Stock. After giving effect to the consummation at the Closing of the
transactions contemplated by this Agreement and consummation of the transactions
contemplated by that certain Stock Purchase Agreement, dated as of January 28,
1997, by and among the Company, William R. Voss and the purchasers named
therein, the only shares of capital stock issued and outstanding, reserved for
issuance or committed to be issued will be:
(a) 14,333.33 fully paid and nonassessable shares of Common Stock, duly
issued and outstanding and owned of record and beneficially by the persons or
entities listed on Schedule 3.5;
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<PAGE> 4
(b) 19,566.667 shares of fully paid and nonassessable Preferred Stock,
duly issued and outstanding and owned of record and beneficially by the persons
or entities listed on Schedule 3.5; and
(c) 333 shares of Common Stock reserved for issuance to William R. Voss
pursuant to that certain Management Option Agreement, dated as of April 15,
1996, as amended and restated January 28, 1997, by and between William R. Voss
and the Company (the "Founder Option Agreement").
Except as otherwise provided herein, in the Stockholders Agreement, in the
Founder Option Agreement or in that certain Employment Agreement, dated October
2, 1995, as amended, by and between the Company and William R. Voss, there are
no outstanding preemptive, conversion or other rights, options, warrants or
agreements granted or issued by or binding upon the Company for the purchase or
acquisition of any shares of its capital stock or obligations to issue or grant
any of the foregoing or any outstanding capital appreciation, profit
participation or similar rights with respect to the Company or obligations to
issue or grant any such rights.
ARTICLE IV
REPRESENTATIONS AND WARRANTIES
OF PURCHASERS
Each Purchaser hereby severally and not jointly represents and warrants
to the other parties to this Agreement with respect to itself or himself that:
(a) such person is acquiring the Shares being acquired by him
or it for investment and not with a view to distributing all or any
part thereof in any transaction which would constitute a "distribution"
within the meaning of the Securities Act of 1933, as amended (the
"Securities Act");
(b) such person acknowledges that the Shares have not been
registered under the Securities Act of 1933, as amended, or any state
securities law, and except as provided in the Registration Agreement,
the Company is under no obligation to file a registration statement
with the Securities and Exchange Commission or any state securities
commission with respect to the Shares;
(c) such person has such knowledge and experience in financial
and business matters that he or it is capable of evaluating the merits
and risks of his or its investment in the Shares;
(d) such person is able to bear the complete loss of its or
his investment in the Shares (and, with respect to a Purchaser, is not
an entity formed solely to make this investment);
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<PAGE> 5
(e) such person has had the opportunity to ask questions of,
and receive answers from, the Company and its management concerning the
Shares, and to obtain additional information; and
(f) such person or entity is an "accredited investor" (as
defined in Rule 501(a) of Regulation D promulgated under the Securities
Act).
ARTICLE V
COVENANTS OF THE COMPANY
5.1 Use of Proceeds. The Company will use the proceeds from the sale
hereunder (i) repay to Frontenac VI Limited Partnership ("Frontenac VI") the
Company's obligations under that certain $1,000,000 promissory note of the
Company payable to Frontenac VI (the "Bridge Note"), and the interest thereon;
(ii) for the payment of the Company's fees and expenses incurred in connection
with the transactions contemplated hereby and (iii) for general corporate
purposes.
5.2 Legend. Until (a) the securities represented by such certificate
are effectively registered under the Securities Act, or (b) the holder of such
securities delivers to the Company a written opinion of counsel to such holder
to the effect that such legend is no longer necessary under the Securities Act,
the Company will cause each certificate representing its securities to be
stamped or otherwise imprinted with the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and thus may
not be transferred unless so registered or unless an exemption from
registration is available."
ARTICLE VI
MISCELLANEOUS
6.1 Consent to Amendments; Waivers. The provisions of this Agreement
may be amended, and the Company may take any action herein prohibited, or omit
to perform any act herein required to be performed by it, only if the Company
has obtained the written consent of the holder or holders of a majority of the
Common Shares and a majority of the Preferred Shares. No other course of dealing
between the Company and the holder of any securities or any delay in exercising
any rights hereunder or under the Certificate shall operate as a waiver of any
rights of any such holders. Any waiver, permit, consent or approval of any kind
or character on the part of any party of any provisions or conditions of this
Agreement must be made in writing and shall be effective only to the extent
specifically set forth in such writing.
-5-
<PAGE> 6
6.2 Representation and Warranties. All representations and warranties
contained herein or made in writing by any party in connection herewith will
survive the execution and delivery of this Agreement.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto will bind and inure to the benefit of the
respective successors and assigns of the parties hereto.
6.4 Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience of reference only and do not constitute a part of
and shall not be utilized in interpreting this Agreement.
6.5 Notices. Any notices required or permitted to be sent hereunder
shall be delivered personally or mailed, certified mail, return receipt
requested, or delivered by overnight courier service to the following addresses,
or such other address as any party hereto designates by written notice to the
Company, and shall be deemed to have been given upon delivery, if delivered
personally, three days after mailing, if mailed, or one business day after
delivery to the courier, if delivered by overnight courier service:
If to the Company to:
Intrepid Food Holdings, Inc.
135 South LaSalle Street, Suite 3800
Chicago, Illinois 60603
Attention: President
If to the Purchasers, to the addresses specified on Schedule 1.1
hereof.
6.6 Governing Law. The corporate law of Delaware will govern all issues
concerning the relative rights of the Company and its stockholders. All other
questions concerning the construction, validity and interpretation of this
Agreement and the exhibits and schedules hereto shall be governed by the
internal law and not the law of conflicts, of the State of Illinois, and the
performance of the obligations imposed by this Agreement shall be governed by
the laws of the State of Illinois applicable to contracts made and wholly to be
performed in that state.
6.7 Exhibits and Schedules. All exhibits and schedules hereto are an
integral part of this Agreement.
6.8 Exchange of Certificates. Upon surrender by any holder to the
Company of any certificate or certificates evidencing Shares, the Company at its
expense will issue in exchange therefor, and deliver to such holder, a new
certificate or certificates representing such Shares, in such denomination or
denominations as may be requested by such holder. Upon receipt of
-6-
<PAGE> 7
evidence satisfactory to the Company of the loss, theft, destruction or
mutilation of any certificate representing any Shares, and in case of any such
loss, theft or destruction, upon delivery of an indemnity agreement satisfactory
to the Company (provided that in the case of a financial institution or other
institutional investor, its own agreement shall be deemed satisfactory to the
Company), or in case of any such mutilation, upon surrender and cancellation of
such certificate, the Company at its expense will issue and deliver to any such
holder a new certificate evidencing such Shares, in lieu of such lost, stolen,
destroyed or mutilated certificate.
6.9 Final Agreement. This Agreement, together with the Stockholders
Agreement and the Registration Agreement, constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
6.10 Execution in Counterparts. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be
deemed an original, and such counterparts together shall constitute one
instrument.
[Remainder of Page Intentionally Left Blank.
Signature page follows.]
-7-
<PAGE> 8
The parties hereto have executed and delivered this Agreement as of the
date first set forth above.
INTREPID FOOD HOLDINGS, INC., a
Delaware corporation
By: /s/ William R. Voss
------------------------
Its: President
PURCHASERS:
/s/ Timothy J. Healy
----------------------------
Timothy J. Healy
/s/ Chance Bahadur
----------------------------
Chance Bahadur
/s/ Mark Smith
----------------------------
Mark Smith
<PAGE> 1
Exhibit 10.11
SETTLEMENT AGREEMENT
THIS SETTLEMENT AGREEMENT (this "Agreement"), dated as of September 30,
1997, is between Health Valley Company, a Delaware corporation ("Buyer"),
Intrepid Food Holdings, Inc., a Delaware corporation ("Intrepid"), and George
Mateljan, Jr. ("Shareholder").
RECITALS
A. Buyer and Shareholder entered into that certain Stock Purchase
Agreement dated March 17, 1996, as amended (the "Stock Purchase Agreement"),
pursuant to which, among other things:
(i) Shareholder sold all the issued and outstanding shares
of capital stock of Health Valley Foods, Inc. and Health
Valley Manufacturing Company (collectively, the "Companies")
to Buyer;
(ii) Shareholder agreed to indemnify Buyer for certain
matters as set forth in Section 8 of the Stock Purchase
Agreement, subject to certain limitations set forth therein;
(iii) Certain portions of the Purchase Price were deposited in
various escrow accounts, including, but not limited to,
$1,793,230 pursuant to the Escrow Agreement and $350,000
pursuant to the State Tax Escrow Agreement, for the
satisfaction of certain indemnification claims made by Buyer
against Shareholder in accordance with the terms of the Stock
Purchase Agreement;
(iv) Buyer granted Shareholder an option to purchase 100
shares of Common Stock of Buyer (the "HVC Option") pursuant to
the Option Agreement; and
(v) Buyer agreed to cause the Companies to pay to
Shareholder any Tax Refunds promptly upon receipt thereof.
B. Buyer has notified Shareholder of various claims to indemnification
against Shareholder pursuant to the terms of the Stock Purchase Agreement (the
"Buyer's Claims").
C. Buyer and Shareholder desire, among other things, to settle all
claims arising out of the Stock Purchase Agreement and the transactions
contemplated thereby, subject to the terms and satisfaction of the conditions
set forth in this Agreement.
AGREEMENTS
In full settlement of the Buyer's Claims and any other claims of Buyer
or Shareholder under the Stock Purchase Agreement (except as expressly provided
herein or in the Mutual General Releases (as hereinafter defined)), and in
consideration of the premises and the respective agreements and covenants herein
contained, Buyer, Intrepid and Shareholder hereby agree as follows:
<PAGE> 2
ARTICLE I
DEFINITIONS
SECTION 1.1 DEFINITIONS. (a) In addition to the terms elsewhere defined
herein, the following terms, when used herein, shall have the following
meanings:
"Affiliate" as applied to any Person, means any other Person directly
or indirectly controlling, controlled by, or under common control with, that
Person. The term "control" (including, with correlative meanings, the terms
"controlling", "controlled by", and "under common control with"), as applied to
any Person, means the possession, directly or indirectly, of the power to vote
more than 10% of the voting stock (or in the case of a Person which is not a
corporation, more than 10% of the equity interest) of such Person, or otherwise
able to direct or cause the direction of the management and policies of that
Person, whether through the ownership of voting stock (or equity interest), by
contract or otherwise.
"Alabama Action" means Modica and Gatewood v. Health Valley Foods, Inc.
et al., Civil Action No. CV96-939, Circuit Court for Tuscaloosa, Alabama, and
any actions relating thereto.
"Barsotti Action" means the pending action Barsotti v. Health Valley
and any actions relating thereto.
"Escrow Agent" means U.S. Trust Company of California, N.A., the escrow
agent under the Escrow Agreement, the State Tax Escrow Agreement, the Other
Repairs Escrow Agreement, the Roof Repair Escrow Agreement and the Lake Lillian
Escrow Agreement.
"General Escrow Account" shall mean the escrow account into which
$1,793,230 was deposited pursuant to the Escrow Agreement.
"Intrepid Option" means the option to be granted to Shareholder
pursuant to the Intrepid Option Agreement.
"Intrepid Option Agreement" means that certain Option Agreement between
Intrepid and Shareholder in substantially the form attached hereto as EXHIBIT A.
"Khoury Action" means Eli D. Khoury v. George Mateljan and Health
Valley Foods, Inc., Case No. BC 159162, Superior Court of the State of
California for the County of Los Angeles, and any actions relating thereto.
"Mutual General Releases" means the Mutual General Releases in the form
of EXHIBIT B attached hereto.
"Person" means a natural person, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization or a governmental entity or any
department, agency or political subdivision thereof.
-2-
<PAGE> 3
"Registration Agreement" means that certain Second Amended and Restated
Registration Agreement dated as of even date herewith between Intrepid and
certain other Persons.
"State Tax Escrow Account" means the escrow account into which $350,000
was deposited pursuant to the State Tax Escrow Agreement.
"Stockholders Agreement" means that certain Second Amended and Restated
Stockholders Agreement dated as of an even date herewith between Intrepid and
the stockholders and option holders of Intrepid.
(b) Capitalized terms used but not otherwise defined in this Agreement
shall have the meanings ascribed to such terms in the Stock Purchase Agreement.
ARTICLE II
PROVISIONS OF SETTLEMENT
SECTION 2.1 GENERAL ESCROW. Buyer and Shareholder agree that Buyer
shall receive $1,793,320 from the General Escrow Account and the Shareholder
shall receive any additional amounts in the General Escrow Account.
Simultaneously with the execution and delivery of this Agreement, Buyer and
Shareholder shall execute and cause to be delivered to the Escrow Agent a joint
letter of direction instructing the Escrow Agent to disburse the funds on
deposit in the General Escrow Account in accordance with the foregoing sentence.
SECTION 2.2 STATE TAX ESCROW. Buyer and Shareholder agree that
Shareholder shall receive all of the funds in the State Tax Escrow Account.
Simultaneously with the execution and delivery of this Agreement, Buyer and
Shareholder shall execute and cause to be delivered to the Escrow Agent a joint
letter of direction instructing the Escrow Agent to disburse the funds on
deposit in the State Tax Escrow Account in accordance with the foregoing
sentence.
SECTION 2.3 MUTUAL GENERAL RELEASES. Simultaneously with the execution
and delivery of this Agreement, Buyer and Shareholder shall execute and deliver
the Mutual General Releases.
SECTION 2.4 INTREPID OPTIONS. Simultaneously with the execution and
delivery of this Agreement, Intrepid and Shareholder shall execute and deliver
the Intrepid Option Agreement. Effective upon the execution and delivery of the
Intrepid Option Agreement by Intrepid, the HVC Option shall be automatically
cancelled, without any further action by HVC or Shareholder. Simultaneously with
the execution and delivery of this Agreement, Shareholder agrees to execute and
deliver the Registration Agreement and the Stockholders Agreement in connection
with the grant of the Intrepid Option.
SECTION 2.5 TAX REFUND. Shareholder hereby irrevocably waives all
right, title and interest to the Tax Refunds and Buyer and Shareholder agree
that the Stock Purchase Agreement is hereby amended by deleting Section 11.17 in
its entirety. Shareholder represents and warrants to Buyer and Intrepid that he
has not sold, transferred or assigned, or pledged or hypothecated, any interest
in all or any portion of the Tax Refunds to any Person.
-3-
<PAGE> 4
SECTION 2.6 INDEMNIFICATION. Buyer agrees to indemnify and hold
harmless Shareholder and his Affiliates from and against any and all damages,
losses, liabilities and reasonable costs and expenses resulting from the Alabama
Action, the Barsotti Action and the Khoury Action (other than legal fees and
expenses and court costs incurred by Shareholder in connection with his defense
of himself as an individually named defendant in the Khoury Action). Subject to
Section 2.7, the rights to indemnification pursuant to this Section 2.6 are in
addition to the rights to indemnification that the Shareholder may have as a
former officer and director of certain predecessors of the Buyer, including, but
not limited to, Health Valley Foods, Inc. and Health Valley Manufacturing
Company and their predecessors, under the articles of incorporation and bylaws
of such predecessors.
SECTION 2.7 KHOURY LEGAL FEES. Shareholder agrees to pay all legal fees
and expenses and court costs incurred by him in connection with his defense of
himself as an individually named defendant in the Khoury Action. Shareholder
waives any and all rights of indemnification or reimbursement with respect to
such legal fees and expenses and court costs, whether such fees and expenses and
court costs were incurred on or prior to the date hereof or are incurred on or
after the date hereof.
SECTION 2.8 LITIGATION. In connection with the investigation, defense
or prosecution of any action, suit, proceeding or other litigation, at law or in
equity, which is now or hereafter may be pending or threatened against Buyer,
any of its predecessors, any of its past or current officers, directors,
employees or any of its Affiliates and which relates, in any material respect,
to events, facts, circumstances or conditions existing or arising on or prior to
April 15, 1996 with respect to the Companies or any of their predecessors or the
conduct of the Business on or prior to April 15, 1996 (collectively, "Relevant
Subject Matter"), including, but not limited to, the Alabama Action, the Khoury
Action, and the Barsotti Action, Shareholder agrees that he shall, until the
close of business on September 30, 2002, do the following (a) upon reasonable
notice and at the request of Buyer make himself available at reasonable times
for interviews and to give depositions or testimony to the extent he has
personal knowledge (and as to his then current recollection) of the Relevant
Subject Matter and (b) upon reasonable notice and at the request of Buyer
furnish such documents in his possession as may relate to the Relevant Subject
Matter; provided however, that (i) all such requests of Buyer shall be
reasonable as to scope, (ii) with respect to documents in his possession, Buyer
does not have other reasonable means of obtaining such documents from others and
(iii) Buyer advances to Shareholder his reasonable costs and expenses
(including, but not limited to, air fare, meals, lodging and attorneys' fees
should Shareholder wish to consult with John A. Calfas with respect to such
interviews and/or depositions and/or testimony).
SECTION 2.9 CHARTER AMENDMENT. Within two business days of the date
hereof, Intrepid shall file with the Secretary of State of the State of Delaware
a Certificate of Amendment to the Amended and Restated Certificate of
Incorporation of Intrepid in the form attached hereto as EXHIBIT C.
SECTION 2.10 OTHER ESCROWS. Buyer and Shareholder agree that
Shareholder shall receive (a) all of the funds, if any, in the escrow account
into which the Other Repairs Escrow Amount was deposited pursuant to the Other
Repairs Escrow Agreement (the "Other Repairs Escrow Account"), (b) all of the
funds, if any, in the escrow account into which the Roof Repair
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Escrow Amount was deposited pursuant to the Roof Repair Escrow Agreement (the
"Roof Repairs Escrow Account") and (c) all of the funds, if any, in the escrow
account into which the Lake Lillian Escrow Amount was deposited pursuant to the
Lake Lillian Escrow Agreement (the "Lake Lillian Escrow Account"), in each case,
minus the Shareholder's portion of the fees and expenses of the Escrow Agent
under the Other Repairs Escrow Agreement, the Roof Repair Escrow Agreement and
the Lake Lillian Escrow Agreement, as the case may be. Simultaneously with the
execution and delivery of this Agreement, Buyer and Shareholder shall execute
and cause to be delivered to the Escrow Agent a joint letter of direction
instructing the Escrow Agent to disburse the funds on deposit in the Other
Repairs Escrow Account, the Roof Repair Escrow Account or the Lake Lillian
Escrow Account, as the case may be, in accordance with the foregoing sentence.
ARTICLE III
MISCELLANEOUS
SECTION 3.1 CONSENT TO AMENDMENTS. The provisions of this Agreement may
be amended or waived only by the written agreement of the parties hereto. Any
waiver, permit, consent or approval of any kind or character on the part of any
party of any provisions or conditions of this Agreement must be made in writing
and shall be effective only to the extent specifically set forth in such
writing.
SECTION 3.2 SUCCESSORS AND ASSIGNS This Agreement will bind and inure
to the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not.
SECTION 3.3 SEVERABILITY. Whenever possible, each provision of this
Agreement will be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision will be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
SECTION 3.4 DESCRIPTIVE HEADINGS. The descriptive headings of this
Agreement are inserted for convenience of reference only and do not constitute a
part of this Agreement.
SECTION 3.5 NOTICES. Any notices required, permitted or desired to be
given hereunder shall be delivered personally, sent by overnight courier or
mailed, registered, certified mail, return receipt requested, to the following
addresses, and shall be deemed to have been received on the day of personal
delivery, one business day after deposit with an overnight courier or three
business days after deposit in the mail:
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If to Buyer or Intrepid, to:
Intrepid Food Holdings, Inc.
135 S. LaSalle Street
Suite 3800
Chicago, IL 60603
with a copy to:
Katten Muchin & Zavis
525 W. Monroe Street
Suite 1600
Chicago, IL 60661-3693
Attention: Kenneth W. Miller, Esq.
If to Shareholder, to:
George Mateljan, Jr.
c/o John A. Calfas, Esq.
Suite 1920
11601 Wilshire Boulevard
Los Angeles, CA 90025
with a copy to:
John A. Calfas, Esq.
Suite 1920
11601 Wilshire Boulevard
Los Angeles, CA 90025
or to such other address as any party may specify in a written notice given to
the other panics hereto.
SECTION 3.6 GOVERNING LAW. All questions concerning the construction,
ability and interpretation of this Agreement and the Exhibits hereto shall be
governed in all respects by the internal law, and not the law of conflicts of,
the State of California, and the performance of the obligations imposed by this
Agreement shall be governed by the laws of the State of California applicable to
contracts made and wholly to be performed in such state. Any suit brought
hereon, whether in contract, tort, equity or otherwise, shall be brought in the
state or federal courts sitting in Los Angeles, California, if such courts have
jurisdiction over the subject matter of such suit, the parties hereto hereby
waiving any claim or defense that such forum is not convenient or proper. Each
party hereby agrees that any such court shall have in personam jurisdiction over
it, consents to service of process in any manner authorized by California law,
and agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner specified by law.
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<PAGE> 7
SECTION 3.7 EXHIBITS. Exhibits A, B and C hereto are an integral part
of this Agreement.
SECTION 3.8 FINAL AGREEMENT. This Agreement, together with those
documents expressly referred to herein, constitute the final agreement of the
parties concerning the matters referred to herein, and supersede all prior
agreements and understandings with respect thereto.
SECTION 3.9 EXECUTION IN COUNTERPARTS. This Agreement may be executed
in counterparts, each of which when so executed and delivered shall be deemed an
original and such counterparts together shall constitute one instrument.
SECTION 3.10 PARTIES IN INTEREST. This Agreement is made for the
benefit of the parties hereto (and their respective successors and assigns). No
third Person, other than an assign or successor, shall have independent rights
as a third party beneficiary of this Agreement.
SECTION 3.11 FURTHER COOPERATION. At any time and from time to time,
each party hereto shall promptly execute and deliver all such documents and
instruments, and do all such acts and things, as the other party may reasonably
request in order to further effect the purposes of this Agreement.
SECTION 3.12 FEES AND EXPENSES. Each of the parties shall bear its own
expenses in connection with this Agreement and the agreements contemplated
hereby, and the transactions contemplated hereby and thereby.
SECTION 3.13 SPECIFIC PERFORMANCE AND OTHER REMEDIES. Each of the
parties hereto agree that any breach or threatened breach by the other party of
any provision of this Agreement implicates certain and clearly ascertainable
protectible rights, that there is no adequate remedy at law for the breach or
threatened breach of these provisions and the violation of these rights, and
that, without equitable relief, the breach or threatened breach of these
provisions and the violation of these rights will result in substantial and
irreparable damage to the non-breaching parties, the amount of which may be
difficult, if not impossible, to ascertain. By reason of that fact, each of the
parties hereto agree that, in the event of any such breach or threatened breach,
each party shall have the right to enforce this Agreement by temporary
restraining order, preliminary or permanent injunctive or other relief in
equity, without the necessity of proving any actual damages or posting any bond.
The right of each party to obtain injunctive or other equitable relief to
enforce the terms hereof shall be in addition to all other rights and remedies
such party may otherwise have at law, in equity, or otherwise. Such right to
obtain injunctive or other equitable relief may be exercised at the option of a
party, concurrently with, prior to, after, or in lieu of the exercise of any
other rights or remedies which such party have as a result of any breach or
threatened breach of any of the terms hereof.
SECTION 3.14 LITIGATION COSTS AND EXPENSES. If any party hereto brings
suit at law, in equity or otherwise, to enforce any of the provisions of this
Agreement or recover damages and is successful in such suit, it shall be
entitled to recover all reasonable costs and expenses incurred by it in bringing
such suit, including, but not limited to, reasonable attorneys' fees and
disbursements. On the other hand, if a party brings any such suit and it is
determined, on a dispositive motion or after a trial on the merits, with
finality, that none of the breaches or
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<PAGE> 8
violations alleged therein has occurred, the party bringing such suit shall be
obligated to reimburse the defendants therein for all reasonable costs and
expenses incurred by the defendants in defending such suit including, but not
limited to, reasonable attorney's fees and disbursements.
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<PAGE> 9
The parties hereto have executed this Agreement as of the date first
set forth above.
HEALTH VALLEY COMPANY
By: /s/ William R. Voss
----------------------------
Its: President
----------------------------
INTREPID FOOD HOLDINGS, INC.
By: /s/ William R. Voss
----------------------------
Its: President
----------------------------
/s/ George Mateljan, Jr.
---------------------------------
GEORGE MATELJAN, JR.
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<PAGE> 1
EXHIBIT 10.12
SECOND AMENDED AND RESTATED
REGISTRATION AGREEMENT
This Second Amended and Restated Registration Agreement (this "Agreement")
dated as of September 30, 1997, is among Intrepid Food Holdings, Inc., a
Delaware corporation (the "Corporation"), the individuals and entities
identified in Schedule 1 hereto (the "First Investors"), the individuals and
entities identified in Schedule 2 hereto (the "Second Investors;" the First
Investors and the Second Investors are collectively referred to herein as the
"Investors") and George J. Mateljan, Jr. ("Mateljan").
RECITALS
A. The Corporation and the Investors are parties to that certain Registration
Agreement, dated as of January 28, 1997 (the "Original Registration
Agreement").
B. The Corporation and the Investors deem it desirable to amend and restate
the Original Registration Agreement.
AGREEMENTS
In consideration of the premises and the mutual covenants herein contained
and other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
1. DEFINITIONS. In addition to the capitalized terms defined elsewhere in
this Agreement, the following capitalized terms shall have the following
meanings when used in this Agreement:
"COMMISSION" means the Securities and Exchange Commission.
"COMMON SHARES" means shares of Common Stock.
"COMMON STOCK" means the Common Stock of the Corporation.
"HOLDERS" means the holders of Registrable Shares who are parties to this
Agreement or successors or assigns or subsequent holders contemplated by
Section 13 hereof.
"MATELJAN OPTION AGREEMENT" means that certain Option Agreement dated as of
September 30, 1997 by and between the Corporation and George J. Mateljan, Jr.
"1995 PURCHASE AGREEMENT" means that certain Common Stock Purchase
Agreement, dated as of October 2, 1995, between the Corporation, Frontenac VI
Limited Partnership and William R. Voss.
"PERSON" means a natural person, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization or other entity, or a governmental
entity or any department, agency or political subdivision thereof.
<PAGE> 2
"PREFERRED SHARES" means shares of the Series A Preferred Stock of the
Corporation.
"PURCHASE AGREEMENT" means that certain Stock Purchase Agreement, dated as
of April 15, 1996, between the Corporation and the First Investors.
"REGISTRABLE SHARES" means, at any time, (a) any shares of Common Stock
issued pursuant to (i) the 1995 Purchase Agreement, (ii) the Voss Option
Agreement, (iii) the Purchase Agreement, (iv) the Management Purchase
Agreement, (iv) the Second Purchase Agreement or (v) the Mateljan Option
Agreement, or (b) any shares of Common Stock issued as, or issued or issuable
directly or indirectly upon the conversion or exercise of other securities
issued as, a dividend or other distribution with respect to or in replacement
of such shares; provided, however, that Registrable Shares shall not include
any shares the sale of which has been registered pursuant to the Securities Act
or which have been sold to the public pursuant to Rule 144 of the Commission
under the Securities Act. For purposes of this Agreement, a Person will be
deemed to be a holder of Registrable Shares whenever such Person has the right
to acquire such Registrable Shares (by conversion, exercise or otherwise),
whether or not such acquisition has actually been effected.
"REGISTRATION" means any Long-Form Registration or Short-Form Registration.
"REGISTRATION EXPENSES" has the meaning ascribed to it in Section 6 of this
Agreement.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"SUBSIDIARY" means any Person of which securities or other ownership
interests representing more than fifty percent (50%) of the ordinary voting
power are, at the time as of which any determination is being made, owned or
controlled by the Corporation or one or more Subsidiaries of the Corporation or
by the Corporation and one or more Subsidiaries of the Corporation.
"VOSS OPTION AGREEMENT" means that certain Amended and Restated Management
Option Agreement dated January 28, 1997 by and between the Corporation and
William R. Voss.
2. DEMAND REGISTRATIONS.
(A) REQUESTS FOR REGISTRATION. The Holder or Holders of at least
two-thirds of the Registrable Shares may request at any time registration under
the Securities Act of all or part of their Registrable Shares on Form S-1 or
S-2 or any similar long-form registration ("Long-Form Registration"), provided
that, in the case of any such Long-Form Registration, the aggregate offering
value of all Registrable Shares requested to be included in such registration
pursuant to this Section 2(a) must be reasonably expected to equal at least
$5,000,000. In addition, subject to Section 2(c), any Holder may request
registration under the Securities Act of all or part of such Holder's
Registrable Shares on Form S-3 or any similar short-form registration
("Short-Form Registration"), if available, provided that, in the case of any
such Short-Form Registration, the aggregate offering value of the Registrable
Shares requested to be included in such registration pursuant to this Section
2(a) must be reasonably expected to equal at least $1,000,000. Within ten days
after receipt of any request pursuant to this Section 2(a), the Corporation
will give written notice of such request to all other holders of Registrable
Shares and will include in such registration all Registrable Shares with
respect to which the Corporation has received
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<PAGE> 3
written requests for inclusion therein within 21 days after the Corporation's
notice has been given. All registrations requested pursuant to this Section
2(a) are referred to herein as "Demand Registrations."
(B) LONG-FORM REGISTRATIONS. The Holder or Holders of at least two-thirds
of the Registrable Shares may request, subject to the minimum dollar amounts
with respect to such Registration set forth in Section 2(a), and the
Corporation will pay all Registration Expenses for, a maximum of two Long-Form
Registrations. A registration will not count as one of those two Long-Form
Registrations until it has become effective and will not count as one of those
two Long-Form Registrations unless the Holders of Registrable Shares requested
to be included in such a Long-Form Registration are able to register and sell
at least 75% of the Registrable Shares requested to be included in such
registration; provided, however, that in any event the Corporation will pay all
Registration Expenses in connection with any registration initiated as a
Long-Form Registration requested hereunder.
(C) SHORT-FORM REGISTRATIONS. In addition to the Long-Form Registrations
that may be requested pursuant to Section 2(a) and 2(b), any Holder of
Registrable Shares will be entitled to request, subject to the minimum dollar
amounts with respect to such Registration set forth in Section 2(a), an
unlimited number of Short-Form Registrations for which the Corporation will pay
all Registration Expenses, whether or not such registration becomes effective.
Once the Corporation has become subject to the reporting requirements of the
Securities Exchange Act, the Corporation will use its best efforts to make
Short-Form Registrations available for the sale of Registrable Shares. If the
Short-Form Registration is to be an underwritten public offering, and if the
underwriter for marketing or other reasons requests the inclusion in the
registration statement of information which is not required under the
Securities Act to be included in a registration statement on the applicable
form for the Short-Form Registration, the Corporation will provide such
information for inclusion by the underwriter in the Short-Form Registration.
(D) PRIORITY ON DEMAND REGISTRATIONS. If a Demand Registration is an
underwritten public offering and the managing underwriters advise the
Corporation in writing that in their opinion the inclusion of the number of
Registrable Shares and other securities requested to be included in such
offering creates a substantial risk that the price per share of Common Stock
will be reduced, the Corporation will include in such registration, prior to
the inclusion of any securities which are not Registrable Shares, the number of
Registrable Shares requested to be included which in the opinion of such
underwriters can be sold in such offering without creating such a risk, pro
rata among the respective Holders of Registrable Shares on the basis of the
number of Registrable Shares owned by such Holders, with further successive pro
rata allocations among the Holders of Registrable Shares if any such Holder of
Registrable Shares has requested the registration of less than all such
Registrable Shares it is entitled to register.
(E) RESTRICTIONS ON REGISTRATIONS. The Corporation will not be obligated
to effect any Registration within six months after the effective date of a
previous Registration. The Corporation may postpone for a reasonable period
not to exceed 120 days the filing or the effectiveness of a registration
statement for a Demand Registration if the Board of Directors of the
Corporation determines reasonably and in good faith that such filing would
require a disclosure of a material fact that would have a material adverse
effect on the Corporation or any plan by the Corporation or any of its
Subsidiaries to engage in any acquisition of assets (other than in the ordinary
course of business) or any merger, consolidation, tender offer or other
significant transaction.
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<PAGE> 4
3. PIGGYBACK REGISTRATIONS.
(A) RIGHT TO PIGGYBACK. Whenever securities of the Corporation are to be
registered under the Securities Act (other than pursuant to a Demand
Registration and other than pursuant to a registration statement on Form S-4 or
Form S-8) and the registration form to be used may be used for the registration
of Registrable Shares (a "Piggyback Registration"), the Corporation will give
prompt written notice (and in any event within five business days after its
receipt of notice of any exercise of demand registration rights by holders of
the Corporation's securities other than the Registrable Shares) to all Holders
of Registrable Shares of its intention to effect such a registration and will
include in such registration all Registrable Shares with respect to which the
Corporation has received written requests for inclusion therein within 21 days
after the Corporation's notice has been given.
(B) PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration is an
underwritten primary registration on behalf of the Corporation, and the
managing underwriters advise the Corporation in writing that in their opinion
the number of securities requested to be included in such offering in the
registration creates a substantial risk that the price per share of Common
Stock will be reduced, the Corporation will include in such registration (i)
first, the securities the Corporation proposes to sell, (ii) second, the
Registrable Shares requested to be included in such registration which in the
opinion of such underwriters can be sold in such offering without creating such
a risk, pro rata among the Holders of such Registrable Shares on the basis of
the number of Registrable Shares owned by such holders, with further successive
pro rata allocations among the Holders of Registrable Shares if any such holder
has requested the registration of less than all the Registrable Shares such
Person is entitled to register, and (iii) third, other securities requested to
be included in such registration.
(C) PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration is
an underwritten secondary registration on behalf of holders of the
Corporation's securities, and the managing underwriters advise the Corporation
in writing that in their opinion the inclusion of the number of securities
requested to be included in such offering creates a substantial risk that the
price per share of Common Stock will be reduced, the Corporation will include
in such registration the Registrable Shares requested to be included in such
registration and the securities requested to be included therein by the holders
of the Corporation's securities requesting such registration (all such
Registrable Shares and other securities requesting such registration being
collectively referred to as the "Secondary Shares") which in the opinion of
such underwriters can be sold in such offering without creating such a risk,
pro rata among the holders of such Secondary Shares on the basis of the number
of Secondary Shares owned or deemed to be owned by such holders, with further
successive pro rata allocations among the holders of Secondary Shares if any
such holder of Secondary Shares has requested the registration of less than all
such Secondary Shares such Person is entitled to register.
(D) OTHER REGISTRATIONS. If the Corporation has previously filed a
registration statement which includes Registrable Shares pursuant to Section 2
or pursuant to this Section 3, and if such previous registration has not been
withdrawn or abandoned, the Corporation will not file or cause to be effected
any other registration of any of its equity securities or securities
convertible or exchangeable into or exercisable for its equity securities under
the Securities Act (except on Form S-4 or Form S-8), whether on its own behalf
or at the request of any holder or holders of such securities, until a period
of 90 days has elapsed from the effective date of such previous registration.
(E) LIMITATIONS ON REGISTRATIONS. The Corporation shall not register any
of its securities for sale for its own account (other than securities issued to
employees of the Corporation under
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<PAGE> 5
an employee benefit plan or securities issued to effect a business combination
pursuant to Rule 145 promulgated under the Securities Act and other than a
registration on Form S-3) except as a firm commitment underwriting.
4. HOLDBACK AGREEMENTS.
(A) Each of the Holders of Registrable Shares agrees not to effect any
public sale of equity securities of the Corporation, or any securities
convertible into or exchangeable or exercisable for such securities, during the
seven days prior to and the 90-day period beginning on the effective date of
any underwritten Demand Registration or Piggyback Registration (except as part
of such underwritten registration), unless the underwriters managing the
registered public offering otherwise agree.
(B) The Corporation agrees (i) not to effect any public sale or
distribution of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, during the seven days prior to
and during the 90-day period beginning on the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration
(except as part of such underwritten registration or pursuant to a registration
on Form S-8), unless the underwriters managing the registered public offering
otherwise agree, (ii) to cause each holder of at least 1% (on a fully-diluted
basis) of its equity securities, or any securities convertible into or
exchangeable or exercisable for such securities, purchased from the Corporation
at any time after the date of this Agreement (other than in a registered public
offering) to agree not to effect any public sale of any such securities during
such period (except as part of such underwritten registration, if otherwise
permitted), unless the underwriters managing the registered public offering
otherwise agree and (iii) if requested by the underwriters managing the
registered public offering, to use its best efforts to cause each other holder
of its equity securities, or any securities convertible into or exchangeable or
exercisable for such securities, purchased from the Corporation at any time
(other than in a registered public offering) to agree not to effect any public
sale of any such securities during such period (except as part of such
underwritten registration, if otherwise permitted), unless the underwriters
managing the registered public offering otherwise agree.
(C) Nothing herein shall prevent a Holder that is a partnership from
making a distribution of Registrable Shares to its partners, a Holder that is a
trust from making a distribution of Registrable Shares to its beneficiaries or
a Holder that is a corporation from making a distribution of Registrable Shares
to its shareholders, provided that the transferees of such Registrable Shares
agree to be bound by the provisions of this Agreement to the extent the
transferor would be so bound.
5. REGISTRATION PROCEDURES. Whenever the Holders of Registrable Shares have
requested that any Registrable Shares be registered pursuant to the terms of
this Agreement, the Corporation will use its best efforts to effect the
registration and the sale of such Registrable Shares in accordance with the
intended method of disposition thereof, and pursuant thereto the Corporation
will as expeditiously as possible:
(A) prepare and file with the Commission a registration statement on the
appropriate form with respect to such Registrable Shares and use its best
efforts to cause such registration statement to become effective as soon as
practicable after such filing;
(B) prepare and file with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective and to comply
with the provisions of the Securities Act with respect to
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<PAGE> 6
the disposition of all securities covered by such registration statement until
such time as the Registrable Shares registered thereunder have been disposed of
in accordance with the intended methods of disposition by the sellers thereof
set forth in such registration statement, but in no event for a period in
excess of nine months;
(C) furnish to each seller of such Registrable Shares and the underwriters
of the securities being registered such number of copies of such registration
statement, each amendment and supplement thereto, the prospectus included in
such registration statement (including each preliminary prospectus) and such
other documents as such seller or underwriters may reasonably request in order
to facilitate the disposition of the Registrable Shares owned by such seller or
the sale of such securities by such underwriters;
(D) use its best efforts to register or qualify such Registrable Shares
under such other securities laws of such jurisdictions as any seller reasonably
requests and do any and all other acts and things which may be necessary or
desirable to enable such seller to consummate the public sale or other
disposition in such jurisdictions of the Registrable Shares owned by such
seller (provided, however, that the Corporation will not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this subparagraph or (ii) consent to
general service of process in any such jurisdiction);
(E) cause all such Registrable Shares to be listed on each securities
exchange on which similar securities issued by the Corporation are then listed,
or if no similar securities issued by the Corporation are then listed on a
securities exchange, a securities exchange (including The Nasdaq Market)
selected by the Corporation and reasonably acceptable to the Holder or Holders
of a majority of such Registrable Shares;
(F) provide a transfer agent and registrar for all such Registrable Shares
not later than the effective date of such registration statement;
(G) enter into such customary agreements (including underwriting
agreements) and take all such other actions as the Holder or Holders of a
majority of the Registrable Shares being sold or the underwriters, if any,
reasonably request in order to expedite or facilitate the disposition of such
Registrable Shares (including, but not limited to, effecting a stock split or a
combination of shares);
(H) make available for inspection by each seller of such Registrable
Shares, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent designated
by any such seller or underwriter, all financial and other records, pertinent
corporate documents and properties of the Corporation, and cause the
Corporation's officers, directors, employees and independent accountants to
supply all information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(I) notify each seller of such Registrable Shares, promptly after it shall
receive notice thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of such registration
statement has been filed;
(J) notify each seller of such Registrable Shares of any request by the
Commission for the amending or supplementing of such registration statement or
prospectus or for additional information;
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<PAGE> 7
(K) prepare and promptly file with the Commission and promptly notify each
seller of such Registrable Shares of the filing of such amendment or supplement
to such registration statement or prospectus as may be necessary to correct any
statements or omissions if, at the time when a prospectus relating to such
securities is required to be delivered under the Securities Act, any event
shall have occurred as the result of which any such prospectus or any other
prospectus as then in effect would include an untrue statement of a material
fact or omit to state any material fact necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading;
(L) advise each seller of such Registrable Shares, promptly after it shall
receive notice or obtain knowledge thereof, of the issuance of any stop order
by the Commission suspending the effectiveness of such registration statement
or the initiation or threatening of any proceeding for such purpose and
promptly use all reasonable efforts to prevent the issuance of any stop order
or to obtain its withdrawal if such stop order should be issued;
(M) at least forty-eight hours prior to the filing of any registration
statement or prospectus or any amendment or supplement to such registration
statement or prospectus, furnish a copy thereof to each seller of such
Registrable Shares; and
(N) at the request of any seller of such Registrable Shares in connection
with an underwritten offering, furnish on the date or dates provided for in the
underwriting agreement: (i) an opinion of counsel, addressed to the
underwriters and the sellers of Registrable Shares, covering such matters as
such underwriters and sellers may reasonably request; and (ii) a letter or
letters from the independent certified public accountants of the Corporation
addressed to the underwriters and the sellers of such Registrable Shares,
covering such matters as such underwriters and sellers may reasonably request.
6. REGISTRATION EXPENSES.
(A) All expenses incident to the Corporation's performance of or
compliance with this Agreement, including, but not limited to, all registration
and filing fees, fees and expenses of compliance with federal, state and
foreign securities laws, printing expenses, messenger and delivery expenses,
and fees and disbursements of counsel for the Corporation and its independent
certified public accountants, underwriters (excluding discounts and commissions
attributable to the Registrable Shares included in such registration) and other
Persons retained by the Corporation (all such expenses being herein called
"Registration Expenses"), will be borne by the Corporation. In addition, the
Corporation will pay its internal expenses (including, but not limited to, all
salaries and expenses of its officers and employees performing legal or
accounting duties), the expense of any annual audit or quarterly review, the
expense of any liability insurance obtained by the Corporation and the expenses
and fees for listing the securities to be registered on each securities
exchange.
(B) In connection with any Registration in which Registrable Shares are
included, the Corporation will reimburse the Holders of Registrable Shares
covered by such registration for the reasonable cost and expenses incurred by
such holders in connection with such registration, including, but not limited
to, reasonable fees and disbursements of one counsel chosen by the Holders of a
majority of such Registrable Shares.
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<PAGE> 8
7. INDEMNIFICATION.
(A) The Corporation agrees to indemnify, to the fullest extent permitted
by law, each seller of Registrable Shares, its officers and directors and each
Person who controls such seller (within the meaning of the Securities Act or
the Securities Exchange Act) against all losses, claims, damages, liabilities
and expenses (including, but not limited to, attorneys' fees except as limited
by Section 7(c)) caused by any untrue or alleged untrue statement of a material
fact contained in any registration statement, prospectus or preliminary
prospectus or any amendment thereof or supplement thereto or any omission or
alleged omission of a material fact required to be stated therein or necessary
to make the statements therein not misleading, except insofar as the same are
caused by or contained in any information furnished in writing to the
Corporation by such seller expressly for use therein or by such seller's
failure to deliver a copy of the prospectus or any amendments or supplements
thereto. In connection with an underwritten offering, the Corporation will
indemnify such underwriters, their officers and directors and each Person who
controls such underwriters (within the meaning of the Securities Act or the
Securities Exchange Act) to the same extent as provided above with respect to
the indemnification of the sellers of Registrable Shares. The reimbursements
required by this Section 7(a) will be made by periodic payments during the
course of the investigation or defense, as and when bills are received or
expenses incurred.
(B) In connection with any registration statement in which a seller of
Registrable Shares is participating, each such seller will furnish to the
Corporation in writing such information and affidavits as the Corporation
reasonably requests for use in connection with any such registration statement
or prospectus and, to the fullest extent permitted by law, will indemnify the
Corporation, its directors and officers and each Person who controls the
Corporation (within the meaning of the Securities Act or the Securities
Exchange Act) against any losses, claims, damages, liabilities and expenses
(including, but not limited to, attorneys' fees except as limited by Section
7(c)) resulting from any untrue statement of a material fact contained in the
registration statement, prospectus or preliminary prospectus or any amendment
thereof or supplement thereto or any omission of a material fact required to be
stated therein or necessary to make the statements therein not misleading, but
only to the extent that such untrue statement or omission is contained in any
information or affidavit so furnished in writing by such seller; provided that
the obligation to indemnify will be several, not joint and several, among such
sellers of Registrable Shares, and the liability of each such seller of
Registrable Shares will be in proportion to, and provided further that such
liability will be limited to, in any event, the net amount received by such
seller from the sale of Registrable Shares pursuant to such registration
statement.
(C) Any Person entitled to indemnification hereunder will (i) use
reasonable efforts to give prompt written notice to the indemnifying party of
any claim with respect to which it seeks indemnification and (ii) unless in
such indemnified party's reasonable judgment a conflict of interest between
such indemnified and indemnifying parties may exist with respect to such claim,
permit such indemnifying party to assume the defense of such claim with counsel
reasonably satisfactory to the indemnified party. If such defense is assumed,
the indemnifying party will not be subject to any liability for any settlement
made by the indemnified party without its consent (but such consent will not be
unreasonably withheld). An indemnifying party who is not entitled to, or
elects not to, assume the defense of a claim will not be obligated to pay the
fees and expenses of more than one counsel for all parties indemnified by such
indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to
such claim.
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<PAGE> 9
(D) The indemnification provided for under this Agreement will remain in
full force and effect regardless of any investigation made by or on behalf of
the indemnified party or any officer, director or controlling Person of such
indemnified party and will survive the transfer of securities. The Corporation
also agrees to make such provisions as are reasonably requested by any
indemnified party for contribution to such party in the event the Corporation's
indemnification is unavailable for any reason.
8. COMPLIANCE WITH RULE 144 AND RULE 144A. At any time and from time to time
after (a) the Corporation registers a class of securities under Section 12 of
the Securities Exchange Act, or (b) the expiration of 90 days following the
close of business on the earlier of such date as the Corporation commences to
file reports under Section 13 or Section 15(d) of the Securities Exchange Act,
then at the request of any Holder who proposes to sell securities in compliance
with Rule 144 promulgated by the Commission, the Corporation will (i) forthwith
furnish to such holder a written statement of compliance with the filing
requirements of the Commission as set forth in Rule 144 as such rule may be
amended from time to time and (ii) make available to the public and such
Holders such information as will enable such Holders to make sales pursuant to
Rule 144. Unless the Corporation is subject to Section 13 or Section 15(d) of
the Securities Exchange Act, the Corporation will provide to any Holder of
Registrable Shares and to any prospective purchaser of Registrable Shares under
Rule 144A promulgated by the Commission, the information described in Rule
144A(d)(4) promulgated by the Commission.
9. UNDERWRITTEN REGISTRATIONS. No Person may participate in any registration
hereunder which is underwritten unless such Person (a) agrees to sell such
Person's securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve such
arrangements and (b) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements and other documents required
under the terms of such underwriting arrangements. The Corporation will have
the right to select the managing underwriters to administer any offering of the
Corporation's securities, subject to the prior approval of the Holders of a
majority of the Registrable Shares, which approval shall not be unreasonably
withheld.
10. ADJUSTMENTS AFFECTING REGISTRABLE SHARES. The Corporation will not take
any action, or permit any change to occur, with respect to its securities which
would adversely affect the ability of the Holders of Registrable Shares to
include such Registrable Shares in a registration undertaken pursuant to this
Agreement or which would adversely affect the marketability of such Registrable
Shares in any such registration (including, but not limited to, effecting a
stock split or a combination of shares).
11. REMEDIES. Any Person having rights under any provision of this
Agreement will be entitled to enforce such rights specifically, to recover
damages caused by reason of any breach of any provision of this Agreement and
to exercise all other rights granted by law.
12. AMENDMENTS AND WAIVERS. Except as otherwise expressly provided herein,
the provisions of this Agreement may be amended or waived at any time only by
the written agreement of the Corporation and the Holders of at least two-thirds
of the Registrable Shares. Any waiver, permit, consent or approval of any kind
or character on the part of any such holders of any provision or condition of
this Agreement must be made in writing and shall be effective only to the
extent specifically set forth in writing. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Corporation. Each Holder acknowledges that by operation of
this paragraph the Holders of at least two-thirds of the Registrable
Securities, acting in conjunction with the Corporation, will have the right and
power to diminish or eliminate all rights pursuant to this Agreement.
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<PAGE> 10
13. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
all covenants and agreements contained in this Agreement by or on behalf of
any of the parties hereto will bind and inure to the benefit of the respective
successors and assigns of the parties hereto, whether so expressed or not. In
addition and whether or not any express assignment has been made, the
provisions of this Agreement which are for the benefit of purchasers or holders
of Registrable Shares are also for the benefit of, and enforceable by, any
subsequent holder of Registrable Shares who consents in writing to be bound by
this Agreement.
14. OTHER REGISTRATION RIGHTS. Except for the registration rights granted
hereunder, the Corporation will not grant to any Persons the right to request
the Corporation to register any equity securities of the Corporation, or any
securities convertible or exchangeable into or exercisable for such securities,
without the written consent of the Holders of a majority of the Registrable
Shares. The Corporation will not include in any Demand Registration any
securities which are not Registrable Shares without the written consent of the
Holder or Holders of a majority of the Registrable Shares to be included in
such registration.
15. FINAL AGREEMENT. This Agreement constitutes the final agreement of the
parties concerning the matters referred to herein, and supersedes all prior
agreements and understandings.
16. SEVERABILITY. Whenever possible, each provision of this Agreement will
be interpreted in such manner as to be effective and valid under applicable
law, but if any provision of this Agreement is held to be prohibited by or
invalid under applicable law, such provision will be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
this Agreement.
17. DESCRIPTIVE HEADINGS. The descriptive headings of this Agreement are
inserted for convenience of reference only and do not constitute a part of and
shall not be utilized in interpreting this Agreement.
18. NOTICES. Any notices required or permitted to be sent hereunder shall
be delivered personally or mailed, certified mail, return receipt requested, or
delivered by overnight courier service to the following addresses, or such
other addresses as shall be given by notice delivered hereunder, and shall be
deemed to have been given upon delivery, if delivered personally, three
business days after mailing, if mailed, or one business day after delivery to
the courier, if delivered by overnight courier service:
If to the initial Holders of the Registrable Shares, to the addresses set
forth on Schedule 1 and Schedule 2 hereto.
If to the Holders of Registrable Shares other than the initial Holders of the
Registrable Shares, to the addresses set forth on the stock record books of the
Corporation.
If to Mateljan, to the address set forth beneath his signature hereto.
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<PAGE> 11
If to the Corporation, to:
Intrepid Food Holdings, Inc.
135 South LaSalle Street
Suite 3800
Chicago, Illinois 60602
Attention: President
19. GOVERNING LAW. The validity, meaning and effect of this Agreement shall
be determined in accordance with the laws of the State of Illinois applicable
to contracts made and to be performed in that state.
20. COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one instrument. Each
party shall receive a duplicate original of the counterpart copy or copies
executed by it and the Corporation.
[Remainder of page intentionally left blank.
Signature page follows.]
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<PAGE> 12
This Second Amended and Restated Registration Agreement was executed as
of the date first set forth above.
INTREPID FOOD HOLDINGS, INC.
By: /S/ William R. Voss
-----------------------------
Its: President
----------------------------
FRONTENAC VI LIMITED PARTNERSHIP
By: Frontenac Company
Its: General Partner
By: /S/ R.S. McEniry
-----------------------------
a partner
STATE OF WISCONSIN INVESTMENT
BOARD
By: /S/ Jon Vanderploeg
-----------------------------
Its: Portfolio manager
----------------------------
/S/ Willim R. Voss
--------------------------------
William R. Voss
/S/ Timothy J. Healy
--------------------------------
Timothy J. Healy
/S/ Chance Bahadur
--------------------------------
Chance Bahadur
/S/ Mark Smith
--------------------------------
Mark Smith
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<PAGE> 13
/S/ George J. Mateljan, Jr.
--------------------------------
George J. Mateljan, Jr.
Address:
c/o John A. Calfas, Esq.
Suite 1920
11601 Wilshire Boulevard
Los Angeles, California 90025
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<PAGE> 1
EXHIBIT 10.15
FORM OF
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT (the "AGREEMENT") is entered into as of
this _____ day of _______________, 1998, by and between NATURAL NUTRITION
GROUP, INC., a Delaware corporation (the "CORPORATION"), and 1~ ("INDEMNITEE").
RECITALS
A. The Corporation is aware that because of the increased
exposure to litigation costs and risks resulting from service to corporations,
talented and experienced persons are increasingly reluctant to serve or
continue serving as directors or executive officers of corporations unless they
are protected by comprehensive liability insurance and indemnification;
B. Plaintiffs often seek damages in such large amounts, and the
costs of litigation may be so great (whether or not the case is meritorious),
that the defense and/or settlement of such litigation is usually beyond the
personal resources of directors and executive officers;
C. Based upon their experience as business managers, the Board of
Directors of the Corporation (the "BOARD") has concluded that, to retain and
attract talented and experienced individuals to serve as directors and
executive officers of the Corporation, it is appropriate for the Corporation to
contractually indemnify its directors and its executive officers, and to assume
for itself liability for expenses and damages in connection with claims against
such directors and executive officers in connection with their service to the
Corporation; and
D. The Corporation believes that it is fair and proper to protect
its directors and executive officers of the Corporation from the risk of
judgments, settlements and other expenses which may occur as a result of their
service to the Corporation.
NOW, THEREFORE, the parties, intending to be legally bound, for good
and valuable consideration, hereby agree as follows:
1. DEFINITIONS.
(a) AGENT. "AGENT" means a director or executive officer
of the Corporation or a director or executive officer of another
foreign or domestic corporation, partnership, joint venture, trust or
other enterprise serving at the request, for the convenience, or to
represent the interests of the Corporation.
(b) CORPORATION. "CORPORATION" means Natural Nutrition
Group, Inc., a Delaware corporation, its successors or assigns, or any
Subsidiary of the Corporation. "SUBSIDIARY" means, and "SUBSIDIARIES"
include, (i) any company of which more than fifty percent (50%) of the
outstanding voting securities are owned directly or indirectly by the
Corporation, or which is otherwise Controlled by the Corporation, and
(ii) any partnership, joint venture, trust, or other entity of which
more than fifty percent (50%)
<PAGE> 2
of the equity interest is owned directly or indirectly by the
Corporation, or which is otherwise Controlled by the Corporation.
(c) LIABILITIES. "LIABILITIES" means losses, claims,
damages, liabilities, obligations, penalties, judgments, fines,
settlement payments, awards, costs, expenses and disbursements (and
any and all costs, expenses or disbursements in giving testimony or
furnishing documents in response to a subpoena or otherwise),
including, without limitation, all reasonable attorneys' fees, costs,
expenses and disbursements, as and when incurred.
(d) PROCEEDING. "PROCEEDING" means any threatened,
pending, or completed action, suit or other proceeding, whether civil,
criminal, administrative, investigative or any other type whatsoever.
(e) CONTROL. "CONTROL" means, with respect to any
person or entity, the possession, directly or indirectly of the power
to direct or cause the direction of the management and policies of
such person or entity, whether through the ownership of voting
securities, by contract or otherwise.
2. MAINTENANCE OF LIABILITY INSURANCE.
The Corporation hereby covenants and agrees to and with
Indemnitee that, so long as Indemnitee shall continue to serve as an
Agent and thereafter so long as Indemnitee shall be subject to any
claim or Proceeding by reason of the fact that Indemnitee was an Agent
or in connection with Indemnitee's acts as such an Agent, the
Corporation shall obtain and maintain in full force and effect
directors' and officers' liability insurance ("D&O INSURANCE") in
reasonable amounts from established and reputable insurers. In all
policies of D&O Insurance, Indemnitee shall be named as an insured.
3. INDEMNIFICATION OF AGENT.
(a) THIRD PARTY ACTIONS. If Indemnitee is a person who
was or is a party or is threatened to be made a party to any
Proceeding (other than an action by or in the right of the
Corporation) by reason of the fact that Indemnitee is or was an Agent
of the Corporation, or by reason of anything done or not done by
Indemnitee in any such capacity or otherwise at the request of the
Corporation or of its officers, directors or shareholder, the
Corporation shall indemnify, defend and hold harmless Indemnitee
against any and all Liabilities actually and reasonably incurred by
Indemnitee in connection with the investigation, defense, settlement
or appeal of such Proceeding, so long as Indemnitee acted in good
faith and in a manner Indemnitee reasonably believed to be in, or not
opposed to, the best interests of the Corporation, and, with respect
to any criminal action or Proceeding, if Indemnitee had no reasonable
cause to believe his or her conduct was unlawful.
(b) DERIVATIVE ACTIONS. If Indemnitee is a person who
was or is a party or is threatened to be made a party, to any
Proceeding by or in the right of the Corporation to procure a judgment
in its favor by reason of the fact that Indemnitee is or was an
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<PAGE> 3
Agent of the Corporation, or by reason of anything done or not done by
Indemnitee in any such capacity or otherwise at the request of the
Corporation or of its officers, directors or shareholders, the
Corporation shall indemnify, defend and hold harmless Indemnitee
against all Liabilities actually and reasonably incurred by Indemnitee
in connection with the investigation, defense, settlement or appeal of
such Proceeding, if Indemnitee acted in good faith and in a manner he
or she reasonably believed to be in or not opposed to the best
interests of the Corporation; provided, however, that no
indemnification under this SECTION 3(B) shall be made in respect of
any claim, issue or matter for which such person is adjudged to be
liable for gross negligence or willful misconduct in the performance
of Indemnitee's duties to the Corporation, unless, and only to the
extent that, the court in which such Proceeding was brought shall
determine upon application that, despite the adjudication of
liability, but in view of all the circumstances of the case,
Indemnitee is fairly and reasonably entitled to indemnity for such
Liabilities as the court shall deem proper.
(c) ACTIONS WHERE INDEMNITEE IS DECEASED. If Indemnitee
is a person who was or is a party or is threatened to be made a party
to any Proceeding by reason of the fact that he or she is or was an
Agent of the Corporation, or by reason of anything done or not done by
Indemnitee in any such capacity, and prior to, during the pendency of,
or after completion of, such Proceeding, Indemnitee shall die, then
the Corporation shall indemnify, defend and hold harmless the estate,
heirs and legatees of Indemnitee against any and all Liabilities
incurred by such estate, heirs or legatees in connection with the
investigation, defense, settlement or appeal of such Proceeding on the
same basis as provided for Indemnitee in SECTIONS 3(A) AND 3(B) above.
(d) REDUCTION OF LIABILITIES. The Liabilities covered hereby
shall be net of any payments to or on behalf of Indemnitee by D&O
Insurance carriers or others with respect to the subject Proceeding.
4. INDEMNIFICATION AS WITNESS. Notwithstanding any other
provision of this Agreement, to the extent Indemnitee is, by reason of
the fact that Indemnitee is or was an Agent of the Corporation,
involved in any investigative Proceeding, including but not limited to
testifying as a witness or furnishing documents in response to a
subpoena or otherwise, Indemnitee shall be indemnified against any and
all Liabilities actually and reasonably incurred by or for Indemnitee
in connection therewith.
5. ADVANCEMENT OF LIABILITIES. Subject to the provisions of
SECTION 6(C), until a determination that Indemnitee is not entitled to
be indemnified by the Corporation under the terms hereof, and unless
the provisions of SECTION 9 apply, the Corporation shall reimburse
Indemnitee for Liabilities previously paid by Indemnitee and may
advance Liabilities which the Corporation reasonably determines will
be due and payable by Indemnitee within a reasonable time after a
request for advancement is made by Indemnitee. The execution and
delivery of this Agreement by the Corporation evidences the specific
approval by the Board of the reimbursement and advancement of
Liabilities as provided for in this SECTION 5. As a condition to such
reimbursement and/or advancement, Indemnitee shall, at the request of
the Corporation, undertake in a manner satisfactory to the Corporation
to repay such amounts reimbursed and/or advanced,
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<PAGE> 4
without interest, if it shall ultimately be determined pursuant to
SECTION 7 OR 9 below that Indemnitee is not entitled to be indemnified
by the Corporation under the terms of this Agreement. Subject to the
foregoing, the reimbursement and/or advances to be made hereunder
shall be paid by the Corporation to Indemnitee within twenty (20)
business days following delivery of a written request by Indemnitee to
the Corporation, which request shall be accompanied by vouchers,
invoices and similar evidence documenting the amounts incurred or to
be incurred by Indemnitee.
6. INDEMNIFICATION PROCEDURES.
(a) NOTICE BY INDEMNITEE. Promptly after receipt by
Indemnitee of notice of the commencement or threat of commencement of
any Proceeding, Indemnitee shall, if Indemnitee believes that
indemnification with respect thereto may be sought from the
Corporation under this Agreement, notify the Corporation of the
commencement or threat of commencement thereof, provided that any
failure to so notify the Corporation shall not relieve the Corporation
of its obligations hereunder, except to the extent that such failure
or delay increases the liability of the Corporation hereunder.
(b) D & O INSURANCE. If, at the time of receipt of a
notice pursuant to SECTION 6(A) above, the Corporation has D&O
Insurance in effect, the Corporation shall give prompt notice of the
Proceeding or claim to its insurers in accordance with the procedures
set forth in the applicable policies. The Corporation shall
thereafter take all necessary or desirable action to cause such
insurers to pay all amounts payable as a result of such Proceeding in
accordance with the terms of such policies, and Indemnitee shall not
take any action (by waiver, settlement or otherwise) which would
adversely affect the ability of the Corporation to obtain payment from
its insurers.
(c) ASSUMPTION OF DEFENSE. In the event the Corporation
shall be obligated under this Agreement to pay the Liabilities of
Indemnitee, the Corporation shall be entitled to assume the defense
(with counsel reasonably acceptable to Indemnitee, approval thereof
not to be unreasonably withheld) of the Proceeding to which the
Liabilities relate. The Corporation agrees to promptly notify
Indemnitee upon its election to assume such defense. Once the
Corporation (i) provides Indemnitee with notice of its election to
assume such defense and (ii) obtains approval from Indemnitee of the
counsel retained, the Corporation will not be liable to Indemnitee
under this Agreement for any attorney's fees or other Liabilities
subsequently incurred by the Indemnitee with respect to such
Proceeding, unless (x) the Liabilities incurred by the Indemnitee were
previously authorized by the Corporation or (y) counsel for the
Indemnitee shall have provided the Corporation with an opinion of
counsel stating that there is a likelihood that a conflict of interest
exists between the Corporation and the Indemnitee in the conduct of
any such defense.
7. DETERMINATION OF RIGHT TO INDEMNIFICATION.
(a) SUCCESSFUL PROCEEDING. To the extent Indemnitee has
been successful, on the merits or otherwise, in the defense of any
Proceeding referred to in SECTIONS 3(A) OR 3(B) above, the Corporation
shall indemnify Indemnitee against all Liabilities incurred
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<PAGE> 5
by him in connection therewith. If Indemnitee is not wholly
successful in such Proceeding, but is successful, on the merits or
otherwise, as to one or more but less than all claims, issues or
matters in such Proceeding, then the Corporation shall indemnify
Indemnitee against all Liabilities actually and reasonably incurred by
or for him in connection with each successfully resolved claim, issue
or matter. For purposes of this SECTION 7(A), the termination of any
Proceeding, or any claim, issue, or matter in such a Proceeding, by
dismissal, with or without prejudice, shall be deemed to be a
successful result as to such Proceeding, claim, issue or matter, so
long as there has been no finding (either adjudicated or pursuant to
SECTION 7(C) below) that Indemnitee (i) did not act in good faith,
(ii) did not act in a manner reasonably believed to be in, or not
opposed to, the best interests of the Corporation, or (iii) with
respect to any criminal proceeding, had reasonable cause to believe
his or her conduct was unlawful.
(b) OTHER PROCEEDINGS. In the event that SECTION 7(A)
above is inapplicable, the Corporation shall nevertheless indemnify
Indemnitee, unless and only to the extent that the forum listed in
SECTION 7(C) below determines that Indemnitee has not met the
applicable standard of conduct set forth in SECTIONS 3(A) OR 3(B)
above required to entitle Indemnitee to such indemnification.
(c) FORUM IN EVENT OF DISPUTE. The determination that
indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct set forth in
SECTIONS 3(A) OR 3(B) shall be made (i) by the Board, by a majority
vote of the directors who are not parties to such Proceeding, even
though less than a quorum, or (ii) by a committee of disinterested
directors designated by a majority of such disinterested directors,
even though less than a quorum, or (iii) if there are no such
disinterested directors, or if such disinterested directors shall so
direct, by independent legal counsel in a written opinion, or (iv) by
the shareholders of the Corporation. The choice of which forum shall
make the determination shall be made by the Board. The forum shall
act in the utmost good faith to assure Indemnitee a complete
opportunity to present to the forum Indemnitee's case that Indemnitee
has met the applicable standard of conduct.
(d) APPEAL TO COURT. Notwithstanding a determination by
any forum listed in SECTION 7(C) above that Indemnitee is not entitled
to indemnification with respect to a specific Proceeding, Indemnitee
shall have the right to apply to the court in which that Proceeding is
or was pending or any other court of competent jurisdiction for the
purpose of enforcing Indemnitee's right to indemnification pursuant to
this Agreement.
(e) INDEMNITY FOR LIABILITIES IN ENFORCEMENT OF
AGREEMENT. Notwithstanding any other provision in this Agreement to
the contrary, the Corporation shall indemnify Indemnitee against all
Liabilities incurred by Indemnitee in connection with any other
Proceeding between the Corporation and Indemnitee involving the
interpretation or enforcement of the rights of Indemnitee under this
Agreements unless a court of competent jurisdiction finds that the
material claims and/or defenses of Indemnitee in any such Proceeding
were frivolous or made in bad faith.
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<PAGE> 6
8. CONTRIBUTION. If and to the extent that a final adjudication
shall specify that the Corporation is not obligated to indemnify
Indemnitee under this Agreement for any reason (including but not
limited to the exclusion set forth in SECTION 9 hereof), then in
respect of any Proceeding in which the Corporation is jointly liable
with Indemnitee (or would be so liable if joined in such action, suit
or proceeding), the Corporation shall contribute to the amount of
Liabilities reasonably incurred and paid or payable by Indemnitee in
connection with such Proceeding in such proportion as is appropriate
to reflect (i) the relative benefits received by the Corporation, on
the one hand, and Indemnitee, on the other hand, from the transaction
with respect to which such Proceeding arose, and (ii) the relative
fault of the Corporation, on the one hand, and Indemnitee, on the
other hand, in connection with the circumstances which resulted in
such Liabilities, as well as any other relevant equitable
considerations. The relative fault of the Corporation, on the one
hand, and Indemnitee, on the other hand, shall be determined by
reference to, among other things, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent
the circumstances resulting in such Liabilities. The Corporation
agrees that it would not be just and equitable if contribution
pursuant to this SECTION 8 were determined by pro rata allocation or
any other method of allocation which does not take account of the
foregoing equitable considerations.
9. EXCEPTIONS.
(a) CLAIMS INITIATED BY INDEMNITEE. Notwithstanding any
other provision herein to the contrary, the Corporation shall not be
obligated pursuant to the terms of this Agreement to indemnify or
advance Liabilities to Indemnitee with respect to Proceedings or
claims initiated or brought voluntarily by Indemnitee and not by way
of defense, except with respect to Proceedings brought to establish or
enforce a right to indemnification under this Agreement, but such
indemnification or advancement of expenses may be provided by the
Corporation in specific cases if the Board finds it to be appropriate.
(b) UNAUTHORIZED SETTLEMENTS. Notwithstanding any other
provision herein to the contrary, the Corporation shall not be
obligated pursuant to the terms of this Agreement to indemnify
Indemnitee under this Agreement for any amount paid in settlement of a
Proceeding without the prior written consent of the Corporation to
such settlement.
(c) NO DUPLICATIVE PAYMENT. The Corporation shall not be
liable under this Agreement to make any payment of amounts otherwise
indemnifiable hereunder if and to the extent that Indemnitee has
otherwise actually received such payment under any insurance policy,
contract, agreement or otherwise.
10. CERTIFICATE OF INCORPORATION AND BY-LAWS. The Corporation
agrees that the Certificate of Incorporation and By-laws of the
Corporation in effect on the date hereof shall not be amended to
reduce, limit, hinder or delay (a) the rights of Indemnitee granted
hereby, or (b) the ability of the Corporation to indemnify Indemnitee
as required hereby. The Corporation further agrees that it shall
exercise the powers granted to it
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<PAGE> 7
under its Certificate of Incorporation, its By-laws and by applicable
law to indemnify any Indemnitee to the fullest extent possible as
required hereby.
11. NON-EXCLUSIVITY. The provisions for indemnification and
advancement of Liabilities set forth in this Agreement shall not be
deemed exclusive of any other rights which the Indemnitee may have
under any provision of law, the Corporation's Certificate of
Incorporation or By-laws, the vote of the Corporation's stockholders
or disinterested directors, other agreements or otherwise.
12. INTERPRETATION OF AGREEMENT. It is understood that the
parties hereto intend this Agreement to be interpreted and enforced so
as to provide indemnification to Indemnitee to the fullest extent now
or hereafter permitted by law.
13. SEVERABILITY. If any provision or provisions of this
Agreement shall be held to be invalid, illegal or unenforceable for
any reason whatsoever, (i) the validity, legality and enforceability
of the remaining provisions of the Agreement (including, without
limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or
unenforceable) shall not in any way be effected or impaired thereby,
and (ii) to the fullest extent possible, the provisions of this
Agreement (including, without limitation, all portions of any
paragraph of this Agreement containing any such provision held to be
invalid, illegal, or unenforceable, that are not themselves invalid,
illegal, or unenforceable) shall be construed so as to give effect to
the intent manifested by the provision held invalid, illegal or
unenforceable and to give effect to SECTION 12 hereof.
14. MODIFICATION AND WAIVER. No supplement, modification or
amendment to this Agreement shall be binding unless executed in
writing by both of the parties hereto. No waiver of any of the
provisions of this Agreement shall be deemed, or shall constitute, a
waiver of any other provisions hereof (whether or not similar), nor
shall such waiver constitute a continuing waiver.
15. SUBROGATION. In the event that the Corporation makes any
payment under this Agreement, the Corporation shall be subrogated to
the extent of such payment to all of the rights of recovery of
Indemnitee, who shall execute all papers and do all things that may be
necessary to secure such rights, including but not limited to the
execution of such documents as shall be necessary to enable the
Corporation effectively to bring suit to enforce such rights.
16. SURVIVAL, SUCCESSORS, AND ASSIGNS. Indemnitee's rights under
this Agreement shall continue after Indemnitee has ceased acting as an
Agent of the Corporation. The terms of this Agreement shall be
binding on and inure to the benefit of the Corporation and its
successors and assigns and shall be binding on and inure to the
benefit of Indemnitee and Indemnitee's heirs, executors and
administrators.
17. NOTICES. All notices, demands, consents, requests, approvals
and other communications between the parties pursuant to this
Agreement must be in writing and will be deemed given when delivered
in person, one (1) business day after being
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<PAGE> 8
delivered to a nationally recognized overnight courier service, three
(3) business days after being deposited in the U.S. Mail, registered
or certified mail, return receipt requested, or one (1) business after
being sent by facsimile (with receipt acknowledged), to the
Corporation at the address of its principal office in Chicago,
Illinois and to Indemnitee at Indemnitee's address as shown on the
Corporation's records. Indemnitee may change Indemnitee's address for
notice purposes by delivering notice to the Corporation in accordance
with this SECTION 17. All notices sent to the Corporation shall also
be delivered to Katten Muchin & Zavis, 525 West Monroe Street, Suite
1600, Chicago, Illinois 60661-3693, Attention: Kenneth W. Miller,
Esq., Facsimile No. (312-902-1061).
18. GOVERNING LAW. This Agreement shall be governed exclusively
by and construed according to the laws of the State of Delaware,
without regard to its principles of conflicts of laws.
19. COUNTERPARTS. This agreement may be executed in counterparts,
each of which when so executed and delivered shall be deemed an
original, and such counterparts together shall constitute one
instrument.
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<PAGE> 9
The parties hereto have entered into this Indemnification Agreement
effective as of the date first above written.
NATURAL NUTRITION GROUP, INC.
By:
--------------------------------
Name:
---------------------------
Its:
---------------------------
INDEMNITEE:
------------------------------------
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------------------------------------
(Print Address)
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<PAGE> 1
EXHIBIT 10.16
Southern California Chapter of the
Society of Industrial and Office Realtors, Inc.
Industrial Real Estate Lease
(Single-Tenant Facility)
ARTICLE ONE: BASIC TERMS
This Article One contains the Basic Terms of this Lease between the
Landlord and Tenant named below. Other Articles, Sections and Paragraphs of
the Lease referred to in this Article One explain and define the Basic Terms
and are to be read in conjunction with the Basic Terms.
Section 1.01. Date of Lease: August 5, 1988
Section 1.02. Landlord (include legal entity): CalMat Properties,
Inc., a California corporation
Address of Landlord: 3200 San Fernando Road, Los Angeles,
CA 90065
Section 1.03. Tenant (include legal entity): Health Valley Natural
Foods, Inc., a California corporation
Address of Tenant: 700 Union Street, Montebello,
California 90640
Section 1.04. Property: (include street address, approximate
square footage and description)
16100 Foothill Blvd., Irwindale, California 91702 (Los Angeles
County) consisting of an Industrial Building of approximately
155,000 Sq. Ft., on a land parcel of approximately 7.51 acres
Section 1.05. Lease Term: Five (5) years ------ months beginning
on October 1, 1988 or such other date as is specified in this Lease, and ending
on September 30, 1993
Section 1.06. Permitted Uses: (See Article Five) Offices and the
Sales Production, Packaging, Distribution and Retail Sale of Food Products
Section 1.07. Tenant's Guarantor: (If none, so state) George
Mateljan, Jr.
Section 1.08. Brokers: (See Article Fourteen) (If none, so state)
Landlord's Broker: Boone/Moffatt & Associates
Tenant's Broker: Grubb & Ellis Company
Section 1.09. Commission Payable to Landlord's Broker: (See
Article Fourteen) $ Per Agreement
Section 1.10. Initial Security Deposit: (See Section 3.03)
$47,233.00
Section 1.11. Vehicle Parking Spaces Allocated to Tenant: All
parking spaces
Section 1.12. Rent and Other Charges Payable by Tenant:
(a) BASE RENT: Forty-Seven Thousand Two Hundred
Thirty-Three ($47,233.00) per month for the first Thirty (30) months, as
provided in Section 3.01, and shall be increased on the first day of the
Thirty-First (31st) month(s) after the Commencement Date, either (i) as
provided in Section 3.02, but in no event shall such increase be greater than
five percent (5%) per annum.
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(b) OTHER PERIODIC PAYMENTS: (i) Real Property Taxes
(See Section 4.02; (ii) Utilities (See Section 4.03); (iii) Insurance Premiums
(See Section 4.04); (iv) Impounds for Insurance Premiums and Property Taxes
(See Section 4.07); (v) Maintenance, Repairs and Alterations (See Article Six).
Section 1.13. Landlord's Share of Profit on Assignment or Sublease:
(See Section 9.05)
Seventy-five percent (75%) of the Profit (the "Landlord's
Share")
Section 1.14. Riders: The following Riders are attached to and
made a part of this Lease. (If none, so state)
Additional Provisions Rider, Option to Extend Term, Guaranty
of Lease
ARTICLE TWO: LEASE TERM
Section 2.01. Lease of Property For Lease Term. Landlord leases the
Property to Tenant and Tenant leases the Property from Landlord for the Lease
Term. The Lease Term is for the period stated in Section 1.05 above and shall
begin and end on the dates specified in Section 1.05 above, unless the
beginning or end of the Lease Term is changed under any provision of this
Lease. The "Commencement Date" shall be the date specified in Section 1.05
above for the beginning of the Lease Term, unless advanced or delayed under any
provision of this Lease.
Section 2.02. Delay in Commencement. Landlord shall not be liable
to Tenant if Landlord does not deliver possession of the Property to Tenant on
the Commencement Date. Landlord's non-delivery of the Property to Tenant on
that date shall not affect this Lease or the obligations of Tenant under this
Lease except that the Commencement Date shall be delayed until Landlord
delivers possession of the Property to Tenant and the Lease Term shall be
extended for a period equal to the delay in delivery of possession of the
Property to Tenant, plus the number of days necessary to end the Lease Term on
the last day of a month. If Landlord does not deliver possession of the
Property to Tenant within sixty (60) days after the Commencement Date, Tenant
may elect to cancel this Lease by giving written notice to Landlord within ten
(10) days after the sixty (60) day period ends. If Tenant gives such notice,
the Lease shall be cancelled and neither Landlord nor Tenant shall have any
further obligations to the other. If Tenant does not give such notice,
Tenant's right to cancel the Lease shall expire and the Lease Term shall
commence upon the delivery of possession of the Property to Tenant. If
delivery of possession of the Property to Tenant is delayed, Landlord and
Tenant shall, upon such delivery, execute an amendment to this Lease setting
forth the actual Commencement Date and expiration date of the Lease. Failure
to execute such amendment shall not affect the actual Commencement Date and
expiration date of the Lease.
Section 2.03. Early Occupancy. If Tenant occupies the Property
prior to the Commencement Date, Tenant's occupancy of the Property shall be
subject to all of the provisions of this Lease. Early occupancy of the
Property shall not advance the expiration date of this Lease. Tenant shall pay
Base Rent and all other charges specified in this Lease for the early occupancy
period.
Section 2.04. Holding Over. Tenant shall vacate the Property upon
the expiration or earlier termination of this Lease. Tenant shall reimburse
Landlord for and indemnify Landlord against all damages which Landlord incurs
from Tenant's delay in vacating the Property. If Tenant does not vacate the
Property upon the expiration or earlier termination of the Lease and Landlord
thereafter accepts rent from Tenant, Tenant's occupancy of the Property shall
be a "month-to-month" tenancy, subject to all of the terms of this Lease
applicable to a month-to-month tenancy, except that the Base Rent then in
effect shall be increased by twenty-five percent (25%).
ARTICLE THREE: BASE RENT
Section 3.01. Time and Manner of Payment. Upon execution of this
Lease, Tenant shall pay Landlord the Base Rent in the amount stated in
Paragraph 1.12(a) above for the first month of the Lease Term. On the first
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day of the second month of the Lease Term and each month thereafter, Tenant
shall pay Landlord the Base Rent, in advance, without offset, deduction or
prior demand. The Base Rent shall be payable at Landlord's address or at such
other place as Landlord may designate in writing.
Section 3.02. Cost of Living Increases. The Base Rent shall be
increased on each date (the "Rental Adjustment Date") stated in Paragraph
1.12(a) above in accordance with the increase in the United States Department
of Labor, Bureau of Labor Statistics, Consumer Price Index for All Urban
Consumers (all items for the geographical Statistical Area in which the
Property is located on the basis of 1982-1984 = 100) (the "Index") as follows:
(a) The Base Rent (the "Comparison Base Rent") in effect
immediately before each Rental Adjustment Date shall be increased by the
percentage that the Index has increased from the date (the "Comparison Date")
on which payment of the Comparison Base Rent began through the month in which
the applicable Rental Adjustment Date occurs. The Base Rent shall not be
reduced by reason of such computation. Landlord shall notify Tenant of each
increase by a written statement which shall include the Index for the
applicable Comparison Date, the Index for the applicable Rental Adjustment
Date, the percentage increase between those two indices, and the new Base Rent.
Any increase in the Base Rent provided for in this Section 3.02 shall be
subject to any minimum or maximum increase, if provided for in Paragraph
1.12(a).
(b) Tenant shall pay the new Base Rent from the applicable Rental
Adjustment Date until the next Rental Adjustment Date. Landlord's notice may
be given after the applicable Rental Adjustment Date of the increase, and
Tenant shall pay Landlord's accrued rental adjustment for the months elapsed
between the effective date of the increase and Landlord's notice of such
increase within ten (10) days after Landlord's notice. If the format or
components of the Index are materially changed after the Commencement Date,
Landlord shall substitute an index which is published by the Bureau of Labor
Statistics or similar agency and which is most nearly equivalent to the Index
in effect on the Commencement Date. The substitute index shall be used to
calculate the increase in the Base Rent unless Tenant objects to such index in
writing within fifteen (15) days after receipt of Landlord's notice. If Tenant
objects, Landlord and Tenant shall submit the selection of the substitute index
for binding arbitration in accordance with the rules and regulations of the
American Arbitration Association at its office closest to the Property. The
costs of arbitration shall be borne equally by Landlord and Tenant.
Section 3.03. Security Deposit; Increases.
(a) Upon the execution of this Lease, Tenant shall deposit with
the Landlord a cash Security Deposit in the amount set forth in Section 1.10
above. Landlord may apply all or part of the Security Deposit to any unpaid
rent or other charges due from Tenant or to cure any other defaults of Tenant.
If Landlord uses any part of the Security Deposit, Tenant shall restore the
Security Deposit to its full amount within ten (10) days after Landlord's
written request. Tenant's failure to do so shall be a material default under
this Lease. No interest shall be paid on the Security Deposit. Landlord shall
not be required to keep the Security Deposit separate from its other accounts
and no trust relationship is created with respect to the Security Deposit.
(b) Each time the Base Rent is increased, Tenant shall deposit
additional funds with Landlord sufficient to increase the Security Deposit to
an amount which bears the same relationship to the adjusted Base Rent as the
initial Security Deposit bore to the initial Base Rent.
Section 3.04. Termination Advance Payments. Upon the termination of
this Lease under Article Seven (Damage or Destruction), Article Eight
(Condemnation) or any other termination not resulting from Tenant's default,
and after Tenant has vacated the Property in the manner required by this Lease,
Landlord shall refund or credit to Tenant (or Tenant's successor) the unused
portion of the Security Deposit, any advance rent or other advance payments
made by Tenant to Landlord, and any amounts paid for real property taxes and
other reserves which apply to any time periods after termination of the Lease.
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ARTICLE FOUR: OTHER CHARGES PAYABLE BY TENANT
Section 4.01. Additional Rent. All charges payable by Tenant other
than Base Rent are called "Additional Rent." Unless this Lease provides
otherwise, Tenant shall pay all Additional Rent then due with the next monthly
installment of Base Rent. The term "rent" shall mean Base Rent and Additional
Rent.
Section 4.02. Property Taxes.
(a) Real Property Taxes. Tenant shall pay all real property taxes
on the Property (including any fees, taxes or assessments against, or as a
result of, any tenant improvements installed on the Property by or for the
benefit of Tenant) during the Lease Term. Subject to Paragraph 4.02(c) and
Section 4.07 below, such payment shall be made at least ten (10) days prior to
the delinquency date of the taxes. Within such ten (10) day period, Tenant
shall furnish Landlord with satisfactory evidence that the real property taxes
have been paid. Landlord shall reimburse Tenant for any real property taxes
paid by Tenant covering any period of time prior to or after the Lease Term.
If Tenant fails to pay the real property taxes when due, Landlord may pay the
taxes and Tenant shall reimburse Landlord for the amount of such tax payments
as Additional Rent.
(b) Definition of "Real Property Tax." "Real property tax" means:
(i) any fee, license fee, license tax, business license fee, commercial rental
tax, levy, charge, assessment, penalty or tax imposed by any taxing authority
against the Property; (ii) any tax on the Landlord's right to receive, or the
receipt of, rent or income from the Property or against Landlord's business of
leasing the Property; (iii) any tax or charge for fire protection, streets,
sidewalks, road maintenance, refuse or other services provided to the Property
by any governmental agency; (iv) any tax imposed upon this transaction or based
upon a reassessment of the Property due to a change of ownership, as defined by
applicable law, or other transfer of all or part of the Landlord's interest in
the Property; and (v) any charge or fee replacing any tax previously included
within the definition of real property tax. "Real property tax" does not,
however, include Landlord's federal or state income, franchise, inheritance or
estate taxes.
(c) Joint Assessment. If the Property is not separately assessed,
Landlord shall reasonably determine Tenant's share of the real property tax
payable by Tenant under Paragraph 4.02(a) from the assessor's worksheets or
other reasonably available information. Tenant shall pay such share to
Landlord within fifteen (15) days after receipt of Landlord's written
statement.
(d) Personal Property Taxes.
(i) Tenant shall pay all taxes charged against trade
fixtures, furnishings, equipment or any other personal property
belonging to Tenant. Tenant shall try to have personal property taxed
separately from the Property.
(ii) If any of Tenant's personal property is taxed with
the Property, Tenant shall pay Landlord the taxes for the personal
property within fifteen (15) days after Tenant receives a written
statement from Landlord for such personal property taxes.
(e) Tenant's Right to Contest Taxes. Tenant may attempt to have
the assessed valuation of the Property reduced or may initiate proceedings to
contest the real property taxes. If required by law, Landlord shall join in
the proceedings brought by Tenant. However, Tenant shall pay all costs of the
proceedings, including any costs or fees incurred by Landlord. Upon the final
determination of any proceeding or contest, Tenant shall immediately pay the
real property taxes due, together with all costs, charges, interest and
penalties incidental to the proceedings. If Tenant does not pay the real
property taxes when due and contests such taxes, Tenant shall not be in default
under this Lease for nonpayment of such taxes if Tenant deposits funds with
Landlord or opens an interest-bearing account reasonably acceptable to Landlord
in the joint names of Landlord and Tenant. The amount of such deposit shall be
sufficient to pay the real property taxes plus a reasonable estimate of the
interest, costs, charges and penalties which may accrue if Tenant's action is
unsuccessful, less any applicable tax impounds previously paid by Tenant to
Landlord. The deposit shall be applied to the real property taxes due, as
determined
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<PAGE> 5
at such proceedings. The real property taxes shall be paid under protest from
such deposit if such payment under protest is necessary to prevent the Property
from being sold under a "tax sale" or similar enforcement proceeding.
Section 4.03. Utilities. Tenant shall pay, directly to the
appropriate supplier, the cost of all natural gas, heat, light, power, sewer
service, telephone, water, refuse disposal and other utilities and services
supplied to the Property. However, if any services or utilities are jointly
metered with other property, Landlord shall make a reasonable determination of
Tenant's proportionate share of the cost of such utilities and services and
Tenant shall pay such share to Landlord within fifteen (15) days after receipt
of Landlord's written statement.
Section 4.04. Insurance Policies.
(a) Liability Insurance. During the Lease Term, Tenant shall
maintain a policy of commercial general liability insurance (sometimes known as
broad form comprehensive general liability insurance) insuring Tenant against
liability for bodily injury, property damage (including loss of use of
property) and personal injury arising out of the operation, use or occupancy of
the Property. Tenant shall name Landlord as an additional insured under such
policy. The initial amount of such insurance shall be One Million Dollars
($1,000,000.00) per occurrence and shall be subject to periodic increase based
upon inflation, increased liability awards, recommendation of Landlord's
professional insurance advisers and other relevant factors. The liability
insurance obtained by Tenant under this Paragraph 4.04(a) shall (i) be primary
and non-contributing; (ii) contain cross-liability endorsements; and (iii)
insure Landlord against Tenant's performance under Section 5.05, if the matters
giving rise to the indemnity under Section 5.05 result from the negligence of
Tenant. The amount and coverage of such insurance shall not limit Tenant's
liability nor relieve Tenant of any other obligation under this Lease.
Landlord may also obtain comprehensive public liability insurance in an amount
and with coverage determined by Landlord insuring Landlord against liability
arising out of ownership, operation, use or occupancy of the Property. The
policy obtained by Landlord shall not be contributory and shall not provide
primary insurance.
(b) Property and Rental Income Insurance. During the Lease Term,
Landlord shall maintain policies of insurance covering loss of or damage to the
Property in the full amount of its replacement value. Such policy shall
contain an inflation Guard Endorsement and shall provide protection against all
perils included within the classification of fire, extended coverage,
vandalism, malicious mischief, special extended perils (all risk), sprinkler
leakage and any other perils which Landlord deems reasonably necessary.
Landlord shall have the right to obtain flood and earthquake insurance if
required by any lender holding a security interest in the Property. Landlord
shall not obtain insurance for Tenant's fixtures or equipment or building
improvements installed by Tenant on the Property. During the Lease Term,
Landlord shall also maintain a rental income insurance policy, with loss
payable to Landlord, in an amount equal to one year's Base Rent, plus estimated
real property taxes and insurance premiums. Tenant shall be liable for the
payment of any deductible amount under Landlord's or Tenant's insurance
policies maintained pursuant to this Section 4.04, in an amount not to exceed
Ten Thousand Dollars ($10,000). Tenant shall not do or permit anything to be
done which invalidates any such insurance policies.
(c) Payment of Premiums. Subject to Section 4.07, Tenant shall
pay all premiums for the insurance policies described in Paragraphs 4.04(a) and
(b) (whether obtained by Landlord or Tenant) within fifteen (15) days after
Tenant's receipt of a copy of the premium statement or other evidence of the
amount due, except Landlord shall pay all premiums for non-primary
comprehensive public liability insurance which Landlord elects to obtain as
provided in Paragraph 4.04(a). If insurance policies maintained by Landlord
cover improvements on real property other than the Property, Landlord shall
deliver to Tenant a statement of the premium applicable to the Property showing
in reasonable detail how Tenant's share of the premium was computed. If the
Lease Term expires before the expiration of an insurance policy maintained by
Landlord, Tenant shall be liable for Tenant's prorated share of the insurance
premiums. Before the Commencement Date, Tenant shall deliver to Landlord a
copy of any policy of insurance which Tenant is required to maintain under this
Section 4.04. At least thirty (30) days prior to the expiration of any such
policy, Tenant shall deliver to Landlord a renewal of such policy. As an
alternative to providing a policy of insurance, Tenant shall have the right to
provide Landlord a certificate of insurance, executed by an authorized officer
of the insurance company, showing that the insurance which Tenant is required
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to maintain under this Section 4.04 is in full force and effect and containing
such other information which Landlord reasonably requires.
(d) General Insurance Provisions.
(i) Any insurance which Tenant is required to maintain
under this Lease shall include a provision which requires the
insurance carrier to give Landlord not less than thirty (30) days'
written notice prior to any cancellation or modification of such
coverage.
(ii) If Tenant fails to deliver any policy, certificate or
renewal to Landlord required under this Lease within the prescribed
time period or if any such policy is cancelled or modified during the
Lease Term without Landlord's consent, Landlord may obtain such
insurance, in which case Tenant shall reimburse Landlord for the cost
of such insurance within fifteen (15) days after receipt of a
statement that indicates the cost of such insurance.
(iii) Tenant shall maintain all insurance required under
this Lease with companies holding a "General Policy Rating" of A-12 or
better, as set forth in the most current issue of "Best Key Rating
Guide". Landlord and Tenant acknowledge the insurance markets are
rapidly changing and that insurance in the form and amounts described
in this Section 4.04 may not be available in the future. Tenant
acknowledges that the insurance described in this Section 4.04 is for
the primary benefit of Landlord. If at any time during the Lease
Term, Tenant is unable to maintain the insurance required under the
Lease, Tenant shall nevertheless maintain insurance coverage which is
customary and commercially reasonable in the insurance industry for
Tenant's type of business, as that coverage may change from time to
time. Landlord makes no representation as to the adequacy of such
insurance to protect Landlord's or Tenant's interests. Therefore,
Tenant shall obtain any such additional property or liability
insurance which Tenant deems necessary to protect Landlord and Tenant.
(iv) Unless prohibited under any applicable insurance
policies maintained, Landlord and Tenant each hereby waive any and all
rights of recovery against the other, or against the officers,
employees, agents or representatives of the other, for loss or damage
to its property or the property of others under its control, if such
loss or damage is covered by any insurance policy in force (whether or
not described in this Lease) at the time of such loss or damage. Upon
obtaining the required policies of insurance, Landlord and Tenant
shall give notice to the insurance carriers of this mutual waiver of
subrogation.
Section 4.05 Late Charges. Tenant's failure to pay rent promptly
may cause Landlord to incur unanticipated costs. The exact amount of such
costs are impractical or extremely difficult to ascertain. Such costs may
include, but are not limited to, processing and accounting charges and late
charges which may be imposed on Landlord by any ground lease, mortgage or trust
deed encumbering the Property. Therefore, if Landlord does not receive any
rent payment within ten (10) days after it becomes due, Tenant shall pay
Landlord a late charge equal to ten percent (10%) of the overdue amount. The
parties agree that such late charge represents a fair and reasonable estimate
of the costs Landlord will incur by reason of such late payment.
Section 4.06 Interest on Past Due Obligations. Any amount owed by
Tenant to Landlord which is not paid when due shall bear interest at the rate
of fifteen percent (15%) per annum from the due date of such amount. However,
interest shall not be payable on late charges to be paid by Tenant under this
Lease. The payment of interest on such amounts shall not excuse or cure any
default by Tenant under this Lease. If the interest rate specified in this
Lease is higher than the rate permitted by law, the interest rate is hereby
decreased to the maximum legal interest rate permitted by law.
Section 4.07. Impounds for Insurance Premiums and Real Property
Taxes. If requested by any ground lessor or lender to whom Landlord has
granted a security interest in the Property, or if Tenant is more than ten (10)
days late in the payment of rent more than once in any consecutive twelve (12)
month period, Tenant shall pay
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Landlord a sum equal to one-twelfth (1/12) of the annual real property taxes
and insurance premiums payable by Tenant under this Lease, together with each
payment of Base Rent. Landlord shall hold such payments in a non-interest
bearing impound account. If unknown, Landlord shall reasonably estimate the
amount of real property taxes and insurance premiums when due. Tenant shall
pay any deficiency of funds in the impound account to Landlord upon written
request. If Tenant defaults under this Lease, Landlord may apply any funds in
the impound account to any obligation then due under this Lease.
ARTICLE FIVE: USE OF PROPERTY
Section 5.01. Permitted Uses. Tenant may use the Property only for
the Permitted Uses set forth in Section 1.06 above.
Section 5.02. Manner of Use. Tenant shall not cause or permit the
Property to be used in any way which constitutes a violation of any law,
ordinance or governmental regulation or order, which annoys or interferes with
the rights of other tenants of Landlord, or which constitutes a nuisance or
waste. Tenant shall obtain and pay for all permits, including a Certificate of
Occupancy, required for Tenant's occupancy of the Property and shall promptly
take all actions necessary to comply with all applicable statutes, ordinances,
rules, regulations, orders and requirements regulating the use by Tenant of the
Property, including the Occupational Safety and Health Act.
Section 5.03. Hazardous Materials. As used in this Lease, the term
"Hazardous Material" means any flammable items, explosives, radioactive
materials, hazardous or toxic substances, material or waste or related
materials, including any substances defined as or included in the definition of
"hazardous substances," "hazardous wastes," "hazardous materials" or "toxic
substances" now or subsequently regulated under any applicable federal, state
or local laws or regulations, including, without limitation, petroleum-based
products, paints, solvents, lead, cyanide, DDT, printing, inks, acids,
pesticides, ammonia compounds and other chemical products, asbestos, PCBs and
similar compounds, and including any different products and materials which are
subsequently found to have adverse effects on the environment or the health and
safety of persons. Tenant shall not cause or permit any Hazardous Material to
be generated, produced, brought upon, used, stored, treated or disposed of in
or about the Property by Tenant, its agents, employees, contractors, sublessees
or invitees without the prior written consent of Landlord. Landlord shall be
entitled to take into account such other factors or facts as Landlord may
reasonably determine to be relevant in determining whether to grant or withhold
consent to Tenant's proposed activity with respect to Hazardous Materials. In
no event, however, shall Landlord be required to consent to the installation or
use of any storage tanks on the Property.
Section 5.04. Signs and Auctions. Tenant shall not place any signs
on the Property without Landlord's prior written consent. Tenant shall not
conduct or permit any auction or sheriff's sales at the Property.
Section 5.05. ILLEGIBLE shall indemnity Landlord against and hold
Landlord harmless from any and ILLEGIBLE (a) Tenant's use of the Property; (b)
the conduct of Tenant's business or ILLEGIBLE to be done in or about the
Property, including any contamination of the Property or any other property
resulting from the presence or use of Hazardous Material caused or permitted by
Tenant; (c) any breach or default in the performance of Tenant's obligations
under this Lease; (d) any misrepresentation or breach of warranty by Tenant
under this Lease; or (e) other acts or omissions of Tenant. Tenant shall
defend Landlord against any such cost, claim or liability at Tenant's expense
with counsel reasonably acceptable to Landlord or, at Landlord's election,
Tenant shall reimburse Landlord for any legal fees or costs incurred by
Landlord in connection with any such claim. As a material part of the
consideration to Landlord, Tenant assumes all risk of damage to property or
injury to persons in or about the Property arising from any cause, and Tenant
hereby waives all claims in respect thereof against Landlord, except for any
claim arising out of Landlord's gross negligence or willful misconduct. As
used in this Section, the term "Tenant" shall include Tenant's employees,
agents, contractors and invitees, if applicable.
Section 5.06 Landlord's Access. Landlord or its agents may
enter the Property at all reasonable times to show the Property to potential
buyers, investors or tenants or other parties; to do any other act or to
inspect
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and conduct tests in order to monitor Tenant's compliance with all applicable
environmental laws and all laws governing the presence and use of Hazardous
Material; or for any other purpose Landlord deems necessary. Landlord shall
give Tenant prior notice of such entry, except in the case of an emergency.
Landlord may place customary "For Sale" or "For Lease" signs on the Property.
Section 5.07. Quiet Possession. If Tenant pays the rent and
complies with all other terms of this Lease, Tenant may occupy and enjoy the
Property for the full Lease Term, subject to the provisions of this Lease.
ARTICLE SIX: CONDITION OF PROPERTY; MAINTENANCE, REPAIRS AND ALTERATIONS
Section 6.01. Existing Conditions. Tenant accepts the Property in
its condition as of the execution of the Lease, subject to all recorded
matters, laws, ordinances, and governmental regulations and orders. Except as
provided herein, Tenant acknowledges that neither Landlord nor any agent of
Landlord has made any representation as to the condition of the Property or the
suitability of the Property for Tenant's intended use. Tenant represents and
warrants that Tenant has made its own inspection of and inquiry regarding the
condition of the Property and is not relying on any representations of Landlord
or any Broker with respect thereto. If Landlord or Landlord's Broker has
provided a Property Information Sheet or other Disclosure Statement regarding
the Property, a copy is attached as an exhibit to the Lease.
Section 6.02. Exemption of Landlord from Liability. Landlord shall
not be liable for any damage or injury to the person, business (or any loss of
income therefrom), goods, wares, merchandise or other property of Tenant,
Tenant's employees, invitees, customers or any other person in or about the
Property, whether such damage or injury is caused by or results from: (a)
fire, steam, electricity, water, gas or rain; (b) the breakage, leakage,
obstruction or other defects of pipes, sprinklers, wires, appliances, plumbing,
air conditioning or lighting fixtures or any other cause; (c) conditions
arising in or about the Property or from other sources or places; or (d) any
act or omission of any other tenant of Landlord. Landlord shall not be liable
for any such damage or injury even though the cause of or the means of
repairing such damage or injury are not accessible to Tenant. The provisions
of this Section 6.02 shall not, however, exempt Landlord from liability for
Landlord's gross negligence or willful misconduct.
Section 6.03. Landlord's Obligations. Subject to the provisions of
Article Seven (Damage or Destruction) and Article Eight (Condemnation),
Landlord shall have absolutely no responsibility to repair, maintain or replace
any portion of the Property at any time. Tenant waives the benefit of any
present or future law which might give Tenant the right to repair the Property
at Landlord's expense or to terminate the Lease due to the condition of the
Property.
Section 6.04. Tenant's Obligations.
(a) Except as provided in Article Seven (Damage or Destruction)
and Article Eight (Condemnation), Tenant shall keep all portions of the
Property (including structural, nonstructural, interior, exterior, and
landscaped areas, portions, systems and equipment) in good order, condition and
repair (including interior repainting and refinishing, as needed). If any
portion of the Property or any system or equipment in the Property which Tenant
is obligated to repair cannot be fully repaired or restored, Tenant shall
promptly replace such portion of the Property or system or equipment in the
Property, regardless of whether the benefit of such replacement extends beyond
the Lease Term; but if the benefit or useful life of such replacement extends
beyond the Lease Term (as such term may be extended by exercise of any
options), the useful life of such replacement shall be prorated over the
remaining portion of the Lease Term (as extended), and Tenant shall be liable
only for that portion of the cost which is applicable to the Lease Term (as
extended). Tenant shall maintain a preventive maintenance contract providing
for the regular inspection and maintenance of the heating and air conditioning
system by a licensed heating and air conditioning contractor. If any part of
the Property is damaged by any act or omission of Tenant, Tenant shall pay
Landlord the cost of repairing or replaced such damaged property, whether or
not Landlord would otherwise be obligated to pay the cost of maintaining or
repairing such property. It is the intention of Landlord and Tenant that
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at all times Tenant shall maintain the portions of the Property which Tenant is
obligated to maintain in an attractive, first-class and fully operative
condition.
(b) Tenant shall fulfill all of Tenant's obligations under this
Section 6.04 at Tenant's sole expense. If Tenant fails to maintain, repair or
replace the Property as required by this Section 6.04, Landlord may, upon ten
(10) days' prior notice to Tenant (except that no notice shall be required in
the case of an emergency), enter the Property and perform such maintenance or
repair (including replacement, as needed) on behalf of Tenant. In such case,
Tenant shall reimburse Landlord for all costs incurred in performing such
maintenance or repair immediately upon demand.
Section 6.05. Alterations, Additions, and Improvements.
(a) Tenant shall not make any alterations, additions, or
improvements to the Property without Landlord's prior written consent, except
for non-structural alterations which do not exceed Ten Thousand Dollars
($10,000) in cost cumulatively over the Lease Term and which are not visible
from the outside of any building of which the Property is part, Landlord may
require Tenant to provide demolition and/or lien and completion bonds in form
and amount satisfactory to Landlord. Tenant shall promptly remove any
alterations, additions, or improvements constructed in violation of this
Paragraph 6.05(a) upon Landlord's written request. All alteration, additions,
and improvements shall be done in a good and workmanlike manner, in conformity
with all applicable laws and regulations, and by a contractor approved by
Landlord. Upon completion of any such work, Tenant shall provide Landlord with
"as built" plans, copies of all construction contracts, and proof of payment
for all labor and materials.
(b) Tenant shall pay when due all claims for labor and material
furnished to the Property. Tenant shall give Landlord at least twenty (20)
days' prior written notice of the commencement of any work on the Property,
regardless of whether Landlord's consent to such work is required. Landlord
may elect to record and post notices of non-responsibility on the Property.
Section 6.06. Condition upon Termination. Upon the termination of
the Lease, Tenant shall surrender the Property to Landlord, broom clean and in
the same condition as received except for ordinary wear and tear which Tenant
was not otherwise obligated to remedy under any provision of this Lease.
However, Tenant shall not be obligated to repair any damage which Landlord is
required to repair under Article Seven (Damage or Destruction). In addition,
Landlord may require Tenant to remove any alterations, additions or
improvements (whether or not made with Landlord's consent) prior to the
expiration of the Lease and to restore the Property to its prior condition, all
at Tenant's expense. All alterations, additions and improvements which
Landlord has not required Tenant to remove shall become Landlord's property and
shall be surrendered to Landlord upon the expiration or earlier termination of
the Lease, except that Tenant may remove any of Tenant's machinery or equipment
which can be removed without material damage to the Property. Tenant shall
repair, at Tenant's expense, any damage to the Property caused by the removal
of any such machinery or equipment. In no event, however, shall Tenant remove
any of the following materials or equipment (which shall be deemed Landlord's
property) without Landlord's prior written consent: any power wiring or power
panels; lighting or lighting fixtures; wall coverings; drapes, blinds or other
window coverings; carpets or other floor coverings; heaters, air conditioners
or any other heating or air conditioning equipment; fencing or security gates;
or other similar building operating equipment and decorations.
ARTICLE SEVEN: DAMAGE OR DESTRUCTION
Section 7.01. Partial Damage to Property.
(a) Tenant shall notify Landlord in writing immediately upon the
occurrence of any damage to the Property. If the Property is only partially
damaged (i.e., less than fifty percent (50%) of the Property is untenantable as
a result of such damage or less than fifty percent (50%) of Tenant's operations
are materially impaired) and if the proceeds received by Landlord from the
insurance policies described in Paragraph 4.04(b) are
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sufficient to pay for the necessary repairs, this Lease shall remain in effect
and Landlord shall repair the damage as soon as reasonably possible. Landlord
may elect (but is not required) to repair any damage to Tenant's fixtures,
equipment, or improvements.
(b) If the insurance proceeds received by Landlord are not
sufficient to pay the entire cost of repair, or if the cause of the damage is
not covered by the insurance policies which Landlord maintains under Paragraph
4.04(b), Landlord may elect either to (i) repair the damage as soon as
reasonably possible, in which case this Lease shall remain in full force and
effect, or (ii) terminate this Lease as of the date the damage occurred.
Landlord shall notify Tenant within thirty (30) days after receipt of notice of
the occurrence of the damage whether Landlord elects to repair the damage or
terminate the Lease. If Landlord elects to repair the damage, Tenant shall pay
Landlord the "deductible amount" (if any) under Landlord's insurance policies
and, if the damage was due to an act or omission of Tenant, or Tenant's
employees, agents, contractors or invitees, the difference between the actual
cost of repair and any insurance proceeds received by Landlord. If Landlord
elects to terminate this Lease, Tenant may elect to continue this Lease in full
force and effect, in which case Tenant shall repair any damage to the Property
and any building in which the Property is located. Tenant shall pay the cost
of such repairs, except that upon satisfactory completion of such repairs,
Landlord shall deliver to Tenant any insurance proceeds received by Landlord
for the damage repaired by Tenant. Tenant shall give Landlord written notice
of such election within ten (10) days after receiving Landlord's termination
notice.
(c) If the damage to the Property occurs during the last six (6)
months of the Lease Term and such damage will require more than thirty (30)
days to repair, either Landlord or Tenant may elect to terminate this Lease as
of the date the damage occurred, regardless of the sufficiency of any insurance
proceeds. The party electing to terminate this Lease shall give written
notification to the other party of such election within thirty (30) days after
Tenant's notice to Landlord of the occurrence of the damage.
Section 7.02. Substantial or Total Destruction. If the Property is
substantially or totally destroyed by any cause whatsoever (i.e., the damage to
the Property is greater than partial damage as described in Section 7.01), and
regardless of whether Landlord receives any insurance proceeds, this Lease
shall terminate as of the date the destruction occurred. Notwithstanding the
preceding sentence, if the Property can be rebuilt within six (6) months after
the date of the destruction, Landlord may elect to rebuild the Property at
Landlord's own expense, in which case this Lease shall remain in full force and
effect. Landlord shall notify Tenant of such election within thirty (30) days
after Tenant's notice of the occurrence of total or substantial destruction.
If Landlord so elects, Landlord shall rebuild the Property at Landlord's sole
expense, except that if the destruction was caused by an act or omission of
Tenant, Tenant shall pay Landlord the difference between the actual cost of
rebuilding and any insurance proceeds received by Landlord.
Section 7.03. Temporary Reduction of Rent. If the Property is
destroyed or damaged and Landlord or Tenant repairs or restores the Property
pursuant to the provisions of this Article Seven, any rent payable during the
period of such damage, repair and/or restoration shall be reduced according to
the degree, if any, to which Tenant's use of the Property is impaired.
However, the reduction shall not exceed the sum of one year's payment of Base
Rent, insurance premiums and real property taxes. Except for such possible
reduction in Base Rent, insurance premiums and real property taxes, Tenant
shall not be entitled to any compensation, reduction, or reimbursement from
Landlord as a result of any damage, destruction, repair, or restoration of or
to the Property.
Section 7.04. Waiver. Tenant waives the protection of any statute,
code or judicial decision which grants a tenant the right to terminate a lease
in the event of the substantial or total destruction of the leased property.
Tenant agrees that the provisions of Section 7.02 above shall govern the rights
and obligations of Landlord and Tenant in the event of any substantial or total
destruction to the Property.
ARTICLE EIGHT: CONDEMNATION
If all or any portion of the Property is taken under the power of
eminent domain or sold under the threat of that power (all of which are called
"Condemnation"), this Lease shall terminate as to the part taken or sold on
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the date the condemning authority takes title or possession, whichever occurs
first. If more than twenty percent (20%) of the floor area of the building in
which the Property is located, or which is located on the Property, is taken,
either Landlord or Tenant may terminate this Lease as of the date the
condemning authority takes title or possession, by delivering written notice to
the other within ten (10) days after receipt of written notice of such taking
(or in the absence of such notice, within ten (10) days after the condemning
authority takes title or possession). If neither Landlord nor Tenant
terminates this Lease, this Lease shall remain in effect as to the portion of
the Property not taken, except that the Base Rent and Additional Rent shall be
reduced in proportion to the reduction in the floor area of the Property. Any
Condemnation award or payment shall be distributed in the following order: (a)
first, to any ground lessor, mortgagee or beneficiary under a deed of trust
encumbering the Property, the amount of its interest in the Property; (b)
second, to the Tenant, only the amount of any award specifically designated for
loss of or damage to Tenant's trade fixtures or removable personal property;
and (c) third, to Landlord, the remainder of such award, whether as
compensation for reduction in the value of the leasehold, the taking of thee
fee, or otherwise. If this Lease is not terminated, Landlord shall repair any
damage to the Property caused by the Condemnation, except that Landlord shall
not be obligated to repair any damage for which Tenant has been reimbursed by
the condemning authority. If the severance damages received by Landlord are
not sufficient to pay for such repair, Landlord shall have the right to either
terminate this Lease or make such repair at Landlord's expense.
ARTICLE NINE: ASSIGNMENT AND SUBLETTING
Section 9.01. Landlord's Consent Required. No portion of the
Property or of Tenant's interest in this Lease may be acquired by any other
person or entity, whether by sale, assignment, mortgage, sublease, transfer,
operation of law, or act of Tenant, without Landlord's prior written consent,
except as provided in Section 9.02 below. Landlord has the right to grant or
withhold its consent as provided in Section 9.05 below. Any attempted transfer
without consent shall be void and shall constitute a non-curable breach of this
Lease. If Tenant is a partnership, any cumulative transfer of more than twenty
percent (20%) of the partnership interests shall require Landlord's consent.
If Tenant is a corporation, any change in the ownership of a controlling
interest of the voting stock of the corporation shall require Landlord's
consent.
Section 9.02. Tenant Affiliate. Tenant may assign this Lease or
sublease the Property, without Landlord's consent, to any corporation which
controls, is controlled by or is under common control with Tenant, or to any
corporation resulting from the merger of or consolidation with Tenant
("Tenant's Affiliate"). In such case, any Tenant's Affiliate shall assume in
writing all of Tenant's obligations under this Lease.
Section 9.03. No Release of Tenant. No transfer permitted by this
Article Nine, whether with or without Landlord's consent, shall release Tenant
or change Tenant's primary liability to pay the rent and to perform all other
obligations of Tenant under this Lease. Landlord's acceptance of rent from any
other person is not a waiver of any provision of this Article Nine. Consent to
one transfer is not a consent to any subsequent transfer. If Tenant's
transferee defaults under this Lease, Landlord may proceed directly against
Tenant without pursuing remedies against the transferee. Landlord may consent
to subsequent assignments or modifications of this Lease by Tenant's
transferee, without notifying Tenant or obtaining its consent. Such action
shall not relieve Tenant's liability under this Lease.
Section 9.04. Offer to Terminate. If Tenant desires to assign the
Lease or sublease the Property, Tenant shall have the right to offer, in
writing, to terminate the Lease as of a date specified in the offer. If
Landlord elects in writing to accept the offer to terminate within twenty (20)
days after notice of the offer, the Lease shall terminate as of the date
specified and all the terms and provisions of the Lease governing termination
shall apply. If Landlord does not so elect, the Lease shall continue in effect
until otherwise terminated and the provisions of Section 9.05 with respect to
any proposed transfer shall continue to apply.
Section 9.05. Landlord's Consent.
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(a) Tenant's request for consent to any transfer described in
Section 9.01 shall set forth in writing the details of the proposed transfer,
including the name, business and financial condition of the prospective
transferee, financial details of the proposed transfer (e.g., the term of and
the rent and security deposit payable under any proposed assignment or
sublease), and any other information Landlord deems relevant. Landlord shall
have the right to withhold consent, if reasonable, or to grant consent, based
on the following factors: (i) the business of the proposed assignee or
subtenant and the proposed use of the Property; (ii) the net worth and
financial reputation of the proposed assignee or subtenant; (iii) Tenant's
compliance with all of its obligations under the Lease; and (iv) such other
factors as Landlord may reasonably deem relevant. If Landlord objects to a
proposed assignment solely because of the net worth and/or financial reputation
of the proposed assignee, Tenant may nonetheless sublease (but not assign), all
or a portion of the Property to the proposed transferee, but only on the other
terms of the proposed transfer.
(b) If Tenant assigns or subleases, the following shall apply:
(i) Tenant shall pay to Landlord as Additional Rent under
the Lease the Landlord's Share (stated in Section 1.13) of the Profit
(defined below) on such transaction as and when received by Tenant,
unless Landlord gives written notice to Tenant and the assignee or
subtenant that Landlord's Share shall be paid by the assignee or
subtenant to Landlord directly. The "Profit" means (A) all amounts
paid to Tenant for such assignment or sublease, including "key" money,
monthly rent in excess of the monthly rent payable under the Lease,
and all fees and other consideration paid for the assignment or
sublease, including fees under any collateral agreements, less (B)
costs and expenses directly incurred by Tenant in connection with the
execution and performance of such assignment or sublease for real
estate broker's commissions and costs of renovation or construction of
tenant improvements required under such assignment or sublease.
Tenant is entitled to recover such costs and expenses before Tenant is
obligated to pay the Landlord's Share to Landlord. The Profit in the
case of a sublease of less than all the Property is the rent allocable
to the subleased space as a percentage on a square footage basis.
(ii) Tenant shall provide Landlord a written statement
certifying all amounts to be paid from any assignment or sublease of
the Property within thirty (30) days after the transaction
documentation is signed, and Landlord may inspect Tenant's books and
records to verify the accuracy of such statement. On written request,
Tenant shall promptly furnish to Landlord copies of all the
transaction documentation, all of which shall be certified by Tenant
to be complete, true and correct. Landlord's receipt of Landlord's
Share shall not be a consent to any further assignment or subletting.
The breach of Tenant's obligations under this Paragraph 9.05(b) shall
be a material default of the Lease.
Section 9.06. No Merger. No merger shall result from Tenant's
sublease of the Property under this Article Nine, Tenant's surrender of this
Lease or the termination of this Lease in any other manner. In any such event,
Landlord may terminate any or all subtenancies or succeed to the interest of
Tenant as sublandlord under any or all subtenances.
ARTICLE TEN: DEFAULTS; REMEDIES
Section 10.01. Covenants and Conditions. Tenant's performance of
each of Tenant's obligations under this Lease is a condition as well as a
covenant. Tenant's right to continue in possession of the Property is
conditioned upon such performance. Time is of the essence in the performance
of all covenants and conditions.
Section 10.02. Defaults. Tenant shall be in material default under
this Lease:
(a) If Tenant abandons the Property or if Tenant's vacation of the
Property results in the cancellation of any insurance described in Section
4.04;
(b) If Tenant fails to pay rent or any other charge when due;
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(c) If Tenant fails to perform any of Tenant's non-monetary
obligations under this Lease for a period of thirty (30) days after written
notice from Landlord; provided that if more than thirty (30) days are required
to complete such performance, Tenant shall not be in default if Tenant
commences such performance within the thirty (30)- day period and thereafter
diligently pursues its completion. However, Landlord shall not be required to
give such notice if Tenant's failure to perform constitutes a non-curable
breach of this Lease. The notice required by this Paragraph is intended to
satisfy any and all notice requirements imposed by law on Landlord and is not
in addition to any such requirement.
(d)(i) If Tenant makes a general assignment or general arrangement
for the benefit of creditors; (ii) if a petition for adjudication of bankruptcy
or for reorganization or rearrangement is filed by or against Tenant and is not
dismissed within thirty (30) days; (iii) if a trustee or receiver is appointed
to take possession of substantially all of Tenant's assets located at the
Property or of Tenant's interest in this Lease and possession is not restored
to Tenant within thirty (30) days; or (iv) if substantially all of Tenant's
assets located at the Property or of Tenant's interest in this Lease is
subjected to attachment, execution or other judicial seizure which is not
discharged within thirty (30) days. If a court of competent jurisdiction
determines that any of the acts described in this subparagraph (d) is not a
default under this Lease, and a trustee is appointed to take possession (or if
Tenant remains a debtor in possession) and such trustee or Tenant transfers
Tenant's interest hereunder, then Landlord shall receive, as Additional Rent,
the excess, if any, of the rent (or any other consideration) paid in connection
with such assignment or sublease over the rent payable by Tenant under this
Lease.
(e) If any guarantor of the Lease revokes or otherwise terminates,
or purports to revoke or otherwise terminate, any guaranty of all or any
portion of Tenant's obligations under the Lease. Unless otherwise expressly
provided, no guaranty of the Lease is revocable.
Section 10.03. Remedies on the occurrence of any material default by
Tenant, Landlord may, at any time thereafter, with or without notice or demand
and without limiting Landlord in the exercise of any right or remedy which
Landlord may have:
(a) Terminate Tenant's right to possession of the Property by any
lawful means, in which case this Lease shall terminate and Tenant shall
immediately surrender possession of the Property to Landlord. In such event,
Landlord shall be entitled to recover from Tenant all damages incurred by
Landlord by reason of Tenant's default, including (i) the worth at the time of
the award of the unpaid Base Rent, Additional Rent and other charges which
Landlord had earned at the time of the termination; (ii) the worth at the time
of the award of the amount by which the unpaid Base Rent, Additional Rent and
other charges which Landlord would have earned after termination until the time
of the award exceeds the amount of such rental loss that Tenant proves Landlord
could have reasonably avoided; (iii) the worth at the time of the award of the
amount by which the unpaid Base Rent, Additional Rent and other charges which
Tenant would have paid for the balance of the Lease term after the time of
award exceeds the amount of such rental loss that Tenant proves Landlord could
have reasonably avoided; and (iv) any other amount necessary to compensate
Landlord for all the detriment proximately caused by Tenant's failure to
perform its obligations under the Lease or which in the ordinary course of
things would be likely to result therefrom, including, but not limited to, any
costs or expenses Landlord incurs in maintaining or preserving the Property
after such default, the cost of recovering possession of the Property, expenses
of reletting, including necessary renovation or alteration of the Property,
Landlord's reasonable attorney's fees incurred in connection therewith, and any
real estate commission paid or payable. As used in subparts (i) and (ii)
above, the "worth at the time of the award" is computed by allowing interest on
unpaid amounts at the rate of fifteen percent (15%) per annum, or such lesser
amount as may then be the maximum lawful rate. As used in subpart (iii) above,
the "worth at the time of the award" is computed by discounting such amount at
the discount rate of the Federal Reserve Bank of San Francisco at the time of
the award, plus one percent (1%). If Tenant has abandoned the Property,
Landlord shall have the option of (i) retaking possession of the Property and
recovering from Tenant the amount specified in this Paragraph 10.03(a), or (ii)
proceeding under Paragraph 10.03(b);
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(b) Maintain Tenant's right to possession, in which case this
Lease shall continue in effect whether or not Tenant has abandoned the
Property. In such event, Landlord shall be entitled to enforce all of
Landlord's rights and remedies under this Lease, including the right to recover
the rent as it becomes due:
(c) Pursue any other remedy now or hereafter available to Landlord
under the laws or judicial decisions of the state in which the Property is
located.
Section 10.04. Repayment of "Free" Rent. If this Lease provides for
a postponement of any monthly rental payments, a period of "free" rent or other
rent concession, such postponed rent or "free" rent is called the "Abated
Rent". Tenant shall be credited with having paid all of the Abated Rent on the
expiration of the Lease Term only if Tenant has fully, faithfully, and
punctually performed all of Tenant's obligations hereunder, including the
payment of all rent (other than the Abated Rent) and all other monetary
obligations and the surrender of the Property in the physical condition
required by this Lease. Tenant acknowledges that its right to receive credit
for the Abated Rent is absolutely conditioned upon Tenant's full, faithful and
punctual performance of its obligations under this Lease. If Tenant defaults
and does not cure within any applicable grace period, the Abated Rent shall
immediately become due and payable in full and this Lease shall be enforced as
if there were no such rent abatement or other rent concession. In such case
Abated Rent shall be calculated based on the full initial rent payable under
this Lease.
Section 10.05. Automatic Termination. Notwithstanding any other
term or provision hereof to the contrary, the Lease shall terminate on the
occurrence of any act which affirms the Landlord's intention to terminate the
Lease as provided in Section 10.03 hereof, including the filing of an unlawful
detainer action against Tenant. On such termination, Landlord's damages for
default shall include all costs and fees, including reasonable attorneys' fees
that Landlord incurs in connection with the filing, commencement, pursuing
and/or defending of any action in any bankruptcy court or other court with
respect to the Lease; the obtaining of relief from any stay in bankruptcy
restraining any action to evict Tenant; or the pursuing of any action with
respect to Landlord's right to possession of the Property. All such damages
suffered (apart from Base Rent and other rent payable hereunder) shall
constitute pecuniary damages which must be reimbursed to Landlord prior to
assumption of the Lease by Tenant or any successor to Tenant in any bankruptcy
or other proceeding.
Section 10.06. Cumulative Remedies. Landlord's exercise of any
right or remedy shall not prevent it from exercising any other right or remedy.
ARTICLE ELEVEN: PROTECTION OF LENDERS
Section 11.01. Subordination. Landlord shall have the right to
subordinate this Lease to any ground lease, deed of trust or mortgage
encumbering the Property, any advances made on the security thereof and any
renewals, modifications, consolidations, replacements or extensions thereof,
whenever made or recorded. Tenant shall cooperate with Landlord and any lender
which is acquiring a security interest in the Property or the Lease. Tenant
shall execute such further documents and assurances as such lender may require,
provided that Tenant's obligations under this Lease shall not be increased in
any material way (the performance of ministerial acts shall not be deemed
material), and Tenant shall not be deprived of its rights under this Lease.
Tenant's right to quiet possession of the Property during the Lease Term shall
not be disturbed if Tenant pays the rent and performs all of Tenant's
obligations under this Lease and is not otherwise in default. If any ground
lessor, beneficiary or mortgagee elects to have this Lease prior to the lien of
its ground lease, deed of trust or mortgage and gives written notice thereof to
Tenant, this Lease shall be deemed prior to such ground lease, deed of trust or
mortgage whether this Lease is dated prior to or subsequent to the date of said
ground lease, deed of trust or mortgage or the date of recording thereof.
Section 11.02. Attornment. If Landlord's interest in the Property
is acquired by any ground lessor, beneficiary under a deed of trust, mortgagee,
or purchaser at a foreclosure sale. Tenant shall attorn to the transferee of
or successor to Landlord's interest in the Property and recognize such
transferee or successor as Landlord under this Lease. Tenant waives the
protection of any statute or rule of law which gives or purports to
14
(Single-Tenant Net Form)
<PAGE> 15
give Tenant any right to terminate this Lease or surrender possession of the
Property upon the transfer of Landlord's interest.
Section 11.03. Signing of Documents. Tenant shall sign and deliver
any instrument or documents necessary or appropriate to evidence any such
attornment or subordination or agreement to do so. If Tenant fails to do so
within ten (10) days after written request, Tenant hereby makes, constitutes
and irrevocably appoints Landlord, or any transferee or successor of Landlord,
the attorney-in-fact of Tenant to execute and deliver any such instrument or
document.
Section 11.04. Estoppel Certificates.
(a) Upon Landlord's written request, Tenant shall execute,
acknowledge and deliver to Landlord a written statement certifying: (i) that
none of the terms or provisions of this Lease have been changed (or if they
have been changed, stating how they have been changed); (ii) that this Lease
has not been cancelled or terminated; (iii) the last date of payment of the
Base Rent and other charges and the time period covered by such payment; (iv)
that Landlord is not in default under this Lease (or, if Landlord is claimed to
be in default, stating why); and (v) such other representations or information
with respect to Tenant or the Lease as Landlord may reasonably request or which
any prospective purchaser or encumbrancer of the Property may require. Tenant
shall deliver such statement to Landlord within ten (10) days after Landlord's
request. Landlord may give any such statement by Tenant to any prospective
purchaser or encumbrancer of the Property. Such purchaser or encumbrancer may
rely conclusively upon such statement as true and correct.
(b) If Tenant does not deliver such statement to Landlord within
such ten (10)-day period, Landlord, and any prospective purchaser or
encumbrancer, may conclusively presume and rely upon the following facts: (i)
that the terms and provisions of this Lease have not been changed except as
otherwise represented by Landlord; (ii) that this Lease has not been cancelled
or terminated except as otherwise represented by Landlord; (iii) that not more
than one month's Base Rent or other charges have been paid in advance; and (iv)
that Landlord is not in default under the Lease. In such event, Tenant shall
be estopped from denying the truth of such facts.
Section 11.05. Tenant's Financial Condition. Within ten (10) days
after written request from Landlord, Tenant shall deliver to Landlord such
financial statements as Landlord reasonably requires to verify the net worth of
Tenant or any assignee, subtenant, or guarantor of Tenant. In addition, Tenant
shall deliver to any lender designated by Landlord any financial statements
required by such lender to facilitate the financing or refinancing of the
Property. Tenant represents and warrants to Landlord that each such financial
statement is a true and accurate statement as of the date of such statement.
All financial statements shall be confidential and shall be used only for the
purposes set forth in this Lease.
ARTICLE TWELVE: LEGAL COSTS
Section 12.01. Legal Proceedings. If Tenant or Landlord shall be in
breach or default under this Lease, such party (the "Defaulting Party") shall
reimburse the other party (the "Nondefaulting Party") upon demand for any costs
or expenses that the Nondefaulting Party incurs in connection with any breach
or default of the Defaulting Party under this Lease, whether or not suit is
commenced or judgment entered. Such costs shall include legal fees and costs
incurred for the negotiation of a settlement, enforcement of rights or
otherwise. Furthermore, if any action for breach of or to enforce the
provisions of this Lease is commenced, the court in such action shall award to
the party in whose favor a judgment is entered, a reasonable sum as attorneys'
fees and costs. The losing party in such action shall pay such attorneys' fees
and costs. Tenant shall also indemnify Landlord against and hold Landlord
harmless from all costs, expenses, demands and liability Landlord may incur if
Landlord becomes or is made a party to any claim or action (a) instituted by
Tenant against any third party, or by any third party against Tenant, or by or
against any person holding any interest under or using the Property by license
of or agreement with Tenant; (b) for foreclosure of any lien for labor or
material furnished to or for Tenant or such other person; (c) otherwise arising
out of or resulting from any act or transaction of Tenant or such other person;
or (d) necessary to protect Landlord's interest under this Lease in a
bankruptcy proceeding, or other proceeding under Title 11 of
15
(Single-Tenant Net Form)
<PAGE> 16
the United States Code, as amended. Tenant shall defend Landlord against any
such claim or action at Tenant's expense with counsel reasonably acceptable to
Landlord or, at Landlord's election, Tenant shall reimburse Landlord for any
legal fees or costs Landlord incurs in any such claim or action.
Section 12.02. Landlord's Consent. Tenant shall pay Landlord's
reasonable attorneys' fees incurred in connection with Tenant's request for
Landlord's consent under Article Nine (Assignment and Subletting), or in
connection with any other act which Tenant proposes to do and which requires
Landlord's consent.
ARTICLE THIRTEEN: MISCELLANEOUS PROVISIONS
Section 13.01. Non-Discrimination. Tenant promises, and it is a
condition to the continuance of this Lease, that there will be no
discrimination against, or segregation of, any person or group of persons on
the basis of race, color, sex, creed, national origin or ancestry in the
leasing, subleasing, transferring, occupancy, tenure or use of the Property or
any portion thereof.
Section 13.02. Landlord's Liability; Certain Duties.
(a) As used in this Lease, the term "Landlord" means only the
current owner or owners of the fee title to the Property or the leasehold
estate under a ground lease of the Property at the time in question. Each
Landlord is obligated to perform the obligations of Landlord under this Lease
only during the time such Landlord owns such interest or title. Any Landlord
who transfers its title or interest is relieved of all liability with respect
to the obligations of Landlord under this Lease to be performed on or after the
date of transfer. However, each Landlord shall deliver to its transferee all
funds that Tenant previously paid if such funds have not yet been applied under
the terms of this Lease.
(b) Tenant shall give written notice of any failure by Landlord to
perform any of its obligations under this Lease to Landlord and to any ground
lessor, mortgagee or beneficiary under any deed of trust encumbering the
Property whose name and address have been furnished to Tenant in writing.
Landlord shall not be in default under this Lease unless Landlord (or such
ground lessor, mortgagee or beneficiary) fails to cure such non-performance
within thirty (30) days after receipt of Tenant's notice. However, if such
non-performance reasonably requires more than thirty (30) days to cure.
Landlord shall not be in default if such cure is commenced within such thirty
(30)-day period and thereafter diligently pursued to completion.
(c) Notwithstanding any term or provision herein to the contrary,
the liability of Landlord for the performance of its duties and obligations
under this Lease is limited to Landlord's interest in the Property, and neither
the Landlord nor its partners, shareholders, officers or other principals shall
have any personal liability under this Lease.
Section 13.03. Severability. A determination by a court of
competent jurisdiction that any provision of this Lease or any part thereof is
illegal or unenforceable shall not cancel or invalidate the remainder of such
provision or this Lease, which shall remain in full force and effect.
Section 13.04. Interpretation. The captions of the Articles or
Sections of this Lease are to assist the parties in reading this Lease and are
not a part of the terms or provisions of this Lease. Whenever required by the
context of this Lease, the singular shall include the plural and the plural
shall include the singular. The masculine, feminine and neuter genders shall
each include the other. In any provision relating to the conduct, acts or
omissions of Tenant, the term "Tenant" shall include Tenant's agents,
employees, contractors, invitees, successors or others using the Property with
Tenant's expressed or implied permission.
Section 13.05. Incorporation of Prior Agreements; Modifications.
This Lease is the only agreement between the parties pertaining to the lease of
the Property and no other agreements are effective. All amendments to this
Lease shall be in writing and signed by all parties. Any other attempted
amendment shall be void.
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(Single-Tenant Net Form)
<PAGE> 17
Section 13.06. Notices. All notices required or permitted under
this Lease shall be in writing and shall be personally delivered or sent by
certified mail, return receipt requested, postage prepaid. Notices to Tenant
shall be delivered to the address specified in Section 1.03 above, except that
upon Tenant's taking possession of the Property, the Property shall be Tenant's
address for notice purposes. Notices to Landlord shall be delivered to the
address specified in Section 1.02 above. All notices shall be effective upon
delivery. Either party may change its notice address upon written notice to
the other party.
Section 13.07. Waivers. All waivers must be in writing and signed
by the waiving party. Landlord's failure to enforce any provision of this
Lease or its acceptance of rent shall not be a waiver and shall not prevent
Landlord from enforcing that provision or any other provision of this Lease in
the future. No statement on a payment check from Tenant or in a letter
accompanying a payment check shall be binding on Landlord, Landlord may, with
or without notice to Tenant, negotiate such check without being bound to the
conditions of such statement.
Section 13.08. No Recordation. Tenant shall not record this Lease
without prior written consent from Landlord. However, either Landlord or
Tenant may require that a "Short Form" memorandum of this Lease executed by
both parties be recorded. The party requiring such recording shall pay all
transfer taxes and recording fees.
Section 13.09. Binding Effect; Choice of Law. This Lease binds any
party who legally acquires any rights or interest in this Lease from Landlord
or Tenant. However, Landlord shall have no obligation to Tenant's successor
unless the rights or interests of Tenant's successor are acquired in accordance
with the terms of this Lease. The laws of the state in which the Property is
located shall govern this Lease.
Section 13.10. Corporate Authority; Partnership Authority. If
Tenant is a corporation, each person signing this Lease on behalf of Tenant
represents and warrants that he has full authority to do so and that this Lease
binds the corporation. Within thirty (30) days after this Lease is signed,
Tenant shall deliver to Landlord a certified copy of a resolution of Tenant's
Board of Directors authorizing the execution of this Lease or other evidence of
such authority reasonably acceptable to Landlord. If Tenant is a partnership,
each person or entity signing this Lease for Tenant represents and warrants
that he or it is a general partner of the partnership, that he or it has full
authority to sign for the partnership and that this Lease binds the partnership
and all general partners of the partnership. Tenant shall give written notice
to Landlord of any general partner's withdrawal or addition. Within thirty
(30) days after this Lease is signed, Tenant shall deliver to Landlord a copy
of Tenant's recorded statement of partnership or certificate of limited
partnership.
Section 13.11. Joint and Several Liability. All parties signing
this Lease as Tenant shall be jointly and severally liable for all obligations
of Tenant.
Section 13.12. Force Majeure. If Landlord cannot perform any of its
obligations due to events beyond Landlord's control, the time provided for
performing such obligations shall be extended by a period of time equal to the
duration of such events. Events beyond Landlord's control include, but are not
limited to, acts of God, war, civil commotion, labor disputes, strikes, fire,
flood or other casualty, shortages of labor or material, government regulation
or restriction and weather conditions.
Section 13.13. Execution of Lease. This Lease may be executed in
counterparts and, when all counterpart documents are executed, the counterparts
shall constitute a single binding instrument. Landlord's delivery of this
Lease to Tenant shall not be deemed to be an offer to lease and shall not be
binding upon either party until executed and delivered by both parties.
Section 13.14. Survival. All representations and warranties of
Landlord and Tenant shall survive the termination of this Lease.
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(Single-Tenant Net Form)
<PAGE> 18
ARTICLE FOURTEEN: BROKERS
Section 14.01. Broker's Fee. When this Lease is signed by and
delivered to both Landlord and Tenant, Landlord shall pay a real estate
commission to Landlord's Broker amend in Section 1.08 above, if any, as
provided in the written agreement between Landlord and Landlord's Broker, or
the sum stated in Section 1.09 above for services rendered to Landlord by
Landlord's Broker in this transaction. Landlord shall pay Landlord's Broker a
commission if Tenant exercises any option to extend the Lease Term or to buy
the Property, or any similar option or right which Landlord may grant to
Tenant, or if Landlord's Broker is the procuring cause of any other lease or
sale entered into between Landlord and Tenant covering the Property. Such
commission shall be the amount set forth in Landlord's Broker's commission
schedule in effect as of the execution of this Lease. If a Tenant's Broker is
named in Section 1.08 above, Landlord's Broker shall pay an appropriate portion
of its commission to Tenant's Broker if so provided in any agreement between
Landlord's Broker and Tenant's Broker. Nothing contained in this Lease shall
impose any obligation on Landlord to pay a commission or fee to any party other
than Landlord's Broker.
Section 14.02. Protection of Brokers. If Landlord sells the
Property, or assigns Landlord's interest in this Lease, the buyer or assignee
shall, by accepting such conveyance of the Property or assignment of the Lease,
be conclusively deemed to have agreed to make all payments to Landlord's Broker
thereafter required of Landlord under this Article Fourteen. Landlord's Broker
shall have the right to bring a legal action to enforce or declare rights under
this provision. The prevailing party in such action shall be entitled to
reasonable attorneys' fees to be paid by the losing party. Such attorneys'
fees shall be fixed by the court in such action. This Paragraph is included in
this Lease for the benefit of Landlord's Broker.
Section 14.03. Broker's Disclosure of Agency. Landlord's Broker
hereby discloses to Landlord and Tenant and Landlord and Tenant hereby consent
to Landlord's Broker acting in this transaction as the agent of (check one):
[x] Landlord exclusively; or
[ ] both Landlord and Tenant.
Section 14.04. No Other Brokers. Tenant represents and warrants to
Landlord that the brokers named in Section 1.08 above are the only agents,
brokers, finders or other parties with whom Tenant has dealt who are or may be
entitled to any commission or fee with respect to this Lease or the Property.
ADDITIONAL PROVISIONS MAY BE SET FORTH IN A RIDER OR RIDERS ATTACHED
HERETO OR IN THE BLANK SPACE BELOW. IF NO ADDITIONAL PROVISIONS ARE INSERTED,
PLEASE DRAW A LINE THROUGH THE SPACE BELOW.
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<PAGE> 19
Landlord and Tenant have signed this Lease at the place and on the
dates specified adjacent to their signatures below and have initialed all
Riders which are attached to or incorporated by reference in this Lease.
"LANDLORD"
Signed on 9/9/88, 19__ CalMat Properties Company, a California
at Irwindale, CA Corporation
----------------------------------------
By: /S/ G. H. WEBER
------------------------------------
G. H. Weber
Its: Vice President
-----------------------------------
By:
-----------------------------------
Its:
----------------------------------
"TENANT"
Signed on Sept. 9, 1988 Health Valley Natural Foods, Inc., a
at Irwindale, Calif. California Corporation
----------------------------------------
By: /S/ GEORGE MATELJAN, JR.
-----------------------------------
Its: President
----------------------------------
By:
-----------------------------------
Its:
----------------------------------
IN ANY REAL ESTATE TRANSACTION, IT IS RECOMMENDED THAT YOU CONSULT
WITH A PROFESSIONAL, SUCH AS A CIVIL ENGINEER, INDUSTRIAL HYGIENIST OR OTHER
PERSON WITH EXPERIENCE IN EVALUATING THE CONDITION OF THE PROPERTY, INCLUDING
THE POSSIBLE PRESENCE OF ASBESTOS, HAZARDOUS MATERIALS AND UNDERGROUND STORAGE
TANKS.
THIS PRINTED FORM LEASE HAS BEEN DRAFTED BY LEGAL COUNSEL AT THE
DIRECTION OF THE SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND
OFFICE REALTORS, INC. NO REPRESENTATION OR RECOMMENDATION IS MADE BY THE
SOUTHERN CALIFORNIA CHAPTER OF THE SOCIETY OF INDUSTRIAL AND OFFICE REALTORS,
INC., ITS LEGAL COUNSEL, THE REAL ESTATE BROKERS NAMED HEREIN, OR THEIR
EMPLOYEES OR AGENTS, AS TO THE LEGAL SUFFICIENCY, LEGAL EFFECT OR TAX
CONSEQUENCES OF THIS LEASE OR OF THIS TRANSACTION. LANDLORD AND TENANT SHOULD
RETAIN LEGAL COUNSEL TO ADVISE THEM ON SUCH MATTERS AND SHOULD RELY UPON THE
ADVICE OF SUCH LEGAL COUNSEL.
19
(Single-Tenant Net Form)
<PAGE> 20
OPTION TO EXTEND TERM
LEASE RIDER
This Rider is attached to and made part of that certain Lease (the
"Lease") dated August 5, 1988 between CalMat Properties Co., as Landlord, and
Health Valley Natural Foods, Inc., as Tenant, covering the Property commonly
known as 16100 Foothill Blvd., Irwindale, California (the "Property"). The
terms used herein shall have the same definitions as set forth in the Lease.
The provisions of this Rider shall supersede any inconsistent or conflicting
provisions of the Lease.
A. Option(s) to Extend Term.
1. Grant of Option.
Landlord hereby grants to Tenant Two (2) option(s) (the "Option(s)")
to extend the Lease Term for additional term(s) of Five (5) years each (the
"Extension(s)"), on the same terms and conditions as set forth in the Lease,
but at an increased rent as set forth below. Each Option shall be exercised
only by written notice delivered to Landlord at least one hundred twenty (120)
days before the expiration of the Lease Term or the preceding Extension of the
Lease Term, respectively. If Tenant fails to deliver Landlord written notice
of the exercise of an Option within the prescribed time period, such Option and
any succeeding Options shall lapse, and there shall be no further right to
extend the Lease Term. Each Option shall be exercisable by Tenant on the
express conditions that (a) at the time of the exercise, and at all times prior
to the commencement of such Extension, Tenant shall not be in default under any
of the provisions of the Lease and (b) Tenant has not been ten (10) or more
days late in the payment of rent more than a total of three (3) times during
the Lease Term and all preceding Extensions.
2. Personal Options.
The Option(s) are personal to the Tenant named in Section 1.03 of the
Lease or any Tenant's Affiliate described in Section 9.02 of the Lease. If
Tenant subleases any portion of the Property or assigns or otherwise transfers
any interest under the Lease to an entity other than a Tenant Affiliate prior
to the exercise of an Option (whether with or without Landlord's consent), such
Option and any succeeding Options shall lapse. If Tenant subleases any portion
of the Property or assigns or otherwise transfers any interest of Tenant under
the Lease to an entity other than a Tenant Affiliate after the exercise of the
Option but prior to the commencement of the respective Extension (whether with
or without Landlord's consent), such Option and any succeeding Options shall
lapse and the Lease Term shall expire as if such Option were not exercised. If
Tenant subleases any portion of the Property or assigns or otherwise transfers
any interest of Tenant under the Lease in accordance with Article 9 of the
Lease after the exercise of an Option and after the commencement of the
Extension related to such Option, then the term of the Lease shall expire upon
the expiration of the Extension during which such sublease or transfer occurred
and only the succeeding Options shall lapse.
B. Calculation of Rent.
The Base Rent during the Extension(s) shall be determined by one or a
combination of the following methods (INDICATE METHOD UPON EXECUTION OF THE
LEASE):
[x] 1. Cost of Living Adjustment (Section B.1 below)
Rental Adjustment Date(s): The first day of the first
month(s) of the first Extension(s) of the Lease Term.
(Single-Tenant Net Form)
<PAGE> 21
[x] 2. Fair Rental Value Adjustment (Section B.2, below) as
determined by appraiser [x] or broker [ ]. Rental Adjustment
Date(s): The first day of the first month(s) of the second
Extension(s) of the Lease Term.
[ ] 3. Fixed Adjustment
The Base Rent shall be increased to the following amounts (the
"Adjusted Base Rent(s)") on the dates (the "Rental Adjustment
Date(s)") set forth below:
<TABLE>
<CAPTION>
Rental Adjustment Date(s) Adjusted Base Rent(s)
------------------------- ---------------------
<S> <C>
$
------------------------------------------- ----------------------------------------------------
$
------------------------------------------- ----------------------------------------------------
$
------------------------------------------- ----------------------------------------------------
$
------------------------------------------- ----------------------------------------------------
</TABLE>
1. Cost of Living Adjustment.
The Base Rent shall be increased on the dates specified in Section
B.1. above (the "Rental Adjustment Date(s)") by reference to the Index defined
in Section 3.02 of the Lease or the substitute index described in Paragraph
3.02(b) of the Lease, as follows: The Base Rent in effect immediately prior to
the applicable Rental Adjustment Date (the "Comparison Base Rent") shall be
increased by the percentage that the index has increased from the month in
which the payment of the Comparison Base Rent commenced through the month in
which the applicable Rental Adjustment Date occurs. In no event shall the Base
Rent be reduced by reason of such computation.
2. Fair Rental value Adjustment.
The Base Rent shall be increased on the date(s) specified in section
B.2. above (the "Rental Adjustment Date(s)") to the "fair rental value" of the
Property, determined in the following manner:
(a) Not later than one hundred (100) days prior to any applicable
Rental Adjustment Date, Landlord and Tenant shall meet in an effort to
negotiate, in good faith, the fair rental value of the Property as of such
Rental Adjustment Date. If Landlord and Tenant have not agreed upon the fair
rental value of the Property at least ninety (90) days prior to the applicable
Rental Adjustment Date, the fair rental value shall be determined by appraisal,
by one or more appraisers or brokers (herein called "Appraiser(s)"), as
provided in Section B.2(b), below. If appraiser(s) are used, such appraiser(s)
shall have at least five (5) years' experience in the appraisal of
commercial/industrial real property in the area in which the Property is
located and shall be members of professional organizations such as MAI or
equivalent. If broker(s) are used, such broker(s) shall have at least five (5)
years' experience in the sales and leasing of commercial/industrial real
property in the area in which the Property is located and shall be members of
professional organizations such as the Society of Industrial and Office
Realtors or equivalent.
(b) If Landlord and Tenant are not able to agree upon the fair
rental value of the Property within the prescribed time period, then Landlord
and Tenant shall attempt to agree in good faith upon a single Appraiser not
later than seventy-five (75) days prior to the applicable Rental Adjustment
Date. If Landlord and Tenant are unable to agree upon a single Appraiser
within such time period, then Landlord and Tenant shall each appoint one
Appraiser not later than sixty-five (65) days prior to the applicable Rental
Adjustment Date. Within ten (10) days thereafter, the two (2) appointed
Appraisers shall appoint a third (3rd) Appraiser. If either Landlord or Tenant
fails to appoint its Appraisers within the prescribed time period, the single
Appraiser appointed shall determine the fair
2
(Single-Tenant Net Form)
<PAGE> 22
rental value of the Property. If both parties fail to appoint Appraisers
within the prescribed time periods, then the first Appraiser thereafter
selected by a party shall determine the fair rental value of the Property.
Each party shall bear the cost of its own Appraiser and the parties shall share
equally the cost of the single or third Appraiser, if applicable.
(c) For the purposes of such appraisal, the term "fair market
value" shall mean the price that a ready and willing tenant would pay, as of
the applicable Rental Adjustment date, as monthly rent to a ready and willing
landlord of property comparable to the Property if such property were exposed
for lease on the open market for a reasonable period of time and taking into
account all of the purposes for which such property may be used. If a single
Appraiser is chosen, then such Appraiser shall determine the fair rental value
of the Property. Otherwise, the fair rental value of the Property shall be the
arithmetic average of the two (2) of the three (3) appraisals which are
closest in amount, and the third appraisal shall be disregarded. In no event,
however, shall the Base Rent be reduced by reason of such computation.
Landlord and Tenant shall instruct the Appraiser(s) to complete the
determination of the fair rental value not later than thirty (30) days prior to
the applicable Rental Adjustment Date. If the fair rental value is not
determined prior to the applicable rental Adjustment Date, then Tenant shall
continue to pay to Landlord the Base Rent applicable to the Property
immediately prior to such Extension, until the fair rental value is determined.
When the fair rental value of the Property is determined Landlord shall deliver
notice thereof to Tenant, and Tenant shall pay to Landlord, within ten (10)
days after receipt of such notice, the difference between the Base Rent
actually paid by Tenant to Landlord and the new Base Rent determined hereunder.
3
(Single-Tenant Net Form)
<PAGE> 23
ADDITIONAL PROVISIONS
LEASE RIDER
This Rider is attached to and made a part of that certain Lease dated August 5,
1988 between CalMat Properties Company, as Landlord, and Health Valley Natural
Foods, Inc., as Tenant, covering the Property commonly known as 16100 Foothill
Boulevard, Irwindale, California (the "Lease"). The terms used in this Rider
shall have the same definitions as set forth in the Lease. The provisions of
this Rider shall prevail over any inconsistent or conflicting provisions of the
Lease.
A. ARTICLE SIX. Sections 6.03 and 6.04 are hereby partially modified to
state that subject to the provisions of Article Seven (Damage or
Destruction) and Article Eight (Condemnation), and except for damage
caused by any act or omission of Tenant, or Tenant's employees,
agents, contractors or invitees, Landlord shall keep the foundation,
roof and structural portions of exterior walls of the improvements on
the Property in good order, condition and repair. However, Landlord
shall not be obligated to maintain or repair windows, doors, plate
glass or the surfaces of walls. Landlord shall not be obligated to
make any repairs under this provision until a reasonable time after
receipt of a written notice from Tenant of the need for such repairs.
Tenant waives the benefit of any present or future law which might
give Tenant the right to repair the Property at Landlord's expense or
to terminate the Lease because of the condition of the Property. It
is understood that the full provisions of Section 6.02 of Article Six
apply to this partial modification.
B. Certification of Roof: Landlord shall have provided Tenant, prior to
Lease execution a certification of the exterior roof, including roof
membrane, showing such roof areas to be in a good state of repair.
C. Landlords Preparation of Property: Landlord shall, at Landlord's
expense, do the following construction and repair items ("the work")
on or about the Property. Landlord shall commence the work
immediately upon execution of the Lease agreement and complete the
work as soon as possible thereafter. Landlord's commencement of the
work shall be conditioned upon Tenant providing Landlord with all
information as stated below:
(1) Painting: Paint all walls in the office areas.
(2) Carpeting: Remove and replace carpet in the office areas
where presently carpeted. Landlord's expense for new carpet
and installation thereof shall be no more than $12 per square
yard.
(3) Floor Sealant: Apply floor sealant to approximately 70,000
sq. ft. of the Warehouse area (area to be sealed as designated
by Tenant). Expense to Landlord shall not exceed $26,000,00
with any excess to be paid by Tenant prior to such
application. Sealant specification to be as defined in
Exhibit B attached hereto and thereby made a part hereof.
Landlord's obligation hereunder is conditioned upon Tenant
providing Landlord with a floor plan showing the floor area to
be sealed.
(4) Fire Protection Items: Landlord's obligation to install the
following work is conditioned upon Tenant providing Landlord
plans and/or specifications of the work as approved by the Los
Angeles County fire Department and/or any other governmental
authority having jurisdiction thereof.
(a) Hose Racks: Landlord to install and connect to water
system piping to positions in the building (as
designated by Tenant) where Tenant shall install hose
and hose racks at Tenant's expense. Such expense to
Landlord shall exceed $10,000,000.00 with any excess
to be paid by Tenant.
(b) Draft Curtains: Landlord to install Draft Curtains
within the building where designated by Tenant. Such
expense to Landlord shall not exceed $20,500.00 with
any excess to be paid by Tenant.
D. Improvements By Tenant: It is understood that Tenant, at its expense,
intends to make certain improvements on or about the Property in
accordance with certain plans and specifications ("the work")
<PAGE> 24
attached hereto as Exhibit "C" and incorporated herein by this
reference. Landlord hereby approves the plans and specifications
attached hereto as Exhibit "C" with such approval subject to the
provisions (other than Landlord's approval) of Section 6.05 and 6.06
of this Lease agreement, excepting Tenant shall not be obligated to
remove floor drains.
E. Improvements by Tenant - Landlords Financial Participation: Landlord
hereby agrees to contribute up to $300,000.00 toward the improvements
stated in D, above under the following terms and conditions:
(1) Any contribution by Landlord shall be amortized over the
initial five (5) year Lease term at an interest rate of 12%
with such sum to be paid monthly as additional rent.
(2) Landlord agrees to pay Tenant Landlord's contribution upon all
the following occurrences:
(a) The completion of the work.
(b) Tenant provides Landlord with copies of all lien
releases related to the work.
(c) Tenant provides Landlord with all invoices related to
the work.
(3) The full amount of Landlord contribution to be determined
prior to commencement date of Lease.
F. Right of First Refusal to Purchase:
(1) Landlord shall not, at any time prior to the expiration of the
term of this Lease, sell the Property without first giving
written notice thereof to Tenant, which notice is hereinafter
referred to as "Notice of Sale".
(2) The Notice of Sale shall include the exact and complete terms
of the proposed sale and shall have attached thereto a
photocopy of a bona fide offer and counteroffer, any, duly
executed by both Landlord and the prospective purchaser.
(3) For a period of Seven (7) days after receipt by Tenant of the
Notice of Sale, Tenant shall have the right to give written
notice to Landlord of Tenant's exercise of Tenant's right to
purchase the Property on the same terms, price and conditions
as set forth in the Notice of Sale. In the event that
Landlord does not receive written notice of Tenant's exercise
of the right herein granted within said seven (7) day period,
there shall be a conclusive presumption that Tenant has
elected not to exercise Tenant's right hereunder, and Landlord
may sell the Property on the same terms set forth in the
Notice of Sale.
(4) In the event that Tenant declines to exercise its right of
first refusal after receipt of the Notice of Sale, and,
thereafter the sale is not consummated then Tenant's right of
first refusal shall be reinstated. Should such sale be
consummated, Tenant's rights hereunder shall be void and of no
further force or effect.
(5) Tenant's rights hereunder shall not apply, and shall be
subordinate, to any sale of the Property by Landlord that
includes any other of its real Properties in a group sale, or
a sale of the Landlord Corporate entity.
<PAGE> 25
G. Tax Increase Protection: During the initial five (5) year Lease Term,
Tenant's payments to Landlord associated with all real property taxes
concerning the Property shall not be increased due to any sale by
Landlord to a third party, causing a reassessment of said Property's
assessed valuation. Such protection for Tenant shall not apply to any
Lease Extension Options which Tenant may exercise.
/s/ [Illegible] /s/ [Illegible]
- ----------------------------------- -----------------------------------
Initials Initials
<PAGE> 1
EXHIBIT 10.17
INTREPID FOOD HOLDINGS, INC.
1997 STOCK OPTION PLAN
1. Purpose.
The purpose of this 1997 Stock Option Plan (this "Plan") of Intrepid
Food Holdings, Inc., a Delaware corporation (the "Company"), is to provide a
means whereby selected employees, officers and directors of, and consultants to,
the Company and its subsidiaries may be granted options to purchase shares of
Common Stock of the Company, par value $0.001 per share (the "Common Stock"), to
attract or retain the services of such employees, officers, directors and
consultants and to provide added incentive to them by encouraging stock
ownership in the Company. Except where the context otherwise requires, the term
"Company" shall include the parent, if any, and all present and future
subsidiaries of the Company as defined in Sections 424(e) and 424(f) of the
Internal Revenue Code of 1986, as amended or replaced from time to time (the
"Code").
2. Type of Options and Administration.
(a) Types of Options. Options granted pursuant to this Plan shall be
authorized by action of the Board of Directors of the Company (the "Board") (or
a committee designated by the Board as hereinafter provided) and may be either
incentive stock options meeting the requirements of Section 422 of the Code
("Incentive Stock Options") or non-statutory options which are not intended to
meet the requirements of Section 422 of the Code. Those provisions of this Plan
which make express reference to Section 422 of the Code shall apply only to
Incentive Stock Options.
(b) Administration. This Plan will be administered by the Board, whose
construction and interpretation of the terms and provisions of this Plan shall
be final and conclusive. Subject to the terms and conditions expressly set forth
in this Plan, the Board will have the authority, in its sole discretion, to
determine all matters relating to the options to be granted under this Plan,
including, but not limited to, the selection of the individuals to be granted
options, the number of shares of Common Stock to be subject to each option, the
exercise price, the conditions with respect to the vesting or exercisability of
such option and all other terms and conditions of the options, to adopt and
approve the stock option agreements evidencing such options consistent with the
terms of the grant of such options and this Plan, which stock option agreements
need not be identical (even when made simultaneously) and to issue shares of
Common Stock upon exercise of such options as provided in this Plan and the
stock option agreements. In addition, the Board shall have authority, subject to
the express provisions of this Plan, to construe the respective stock option
agreements and this Plan, to prescribe, amend and rescind rules and regulations
relating to this Plan and to make all other determinations in the judgment of
the Board necessary or desirable for the administration of this Plan. The Board
may correct any defect or supply any omission or reconcile any inconsistency in
this Plan or in any stock option agreement in the manner and to the extent it
shall deem expedient to carry this Plan into effect and it shall be the sole and
final judge of such expediency. The Board may, to the full extent permitted by
or consistent with applicable laws or regulations, delegate any or all of its
powers under this Plan to a committee (the "Committee") appointed
<PAGE> 2
by the Board, and, if the Committee is so appointed, all references to the Board
in this Plan shall mean and relate to such Committee.
From and after the registration of the Common Stock under Section 12 of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), this Plan
will be administered either (i) by the Board, of which all members shall be
"disinterested persons" (as hereinafter defined), or (ii) by a Committee
consisting of two or more directors having full authority to act in the matter,
each of whom shall be a "disinterested person." For the purposes of this Plan, a
director shall be deemed to be a "disinterested person" only if such person
qualifies as a "disinterested person" within the meaning of Rule 16b-3
promulgated under the Exchange Act, or any successor rule ("Rule 16b-3"), as
such term is interpreted from time to time.
(c) Applicability of Rule 16b-3. Those provisions of this Plan which
make express reference to Rule 16b-3 shall apply only to persons that are
required to file reports under Section 16(a) of the Exchange Act (a "Reporting
Person"). Furthermore, until and after such time as the Common Stock is
registered under Section 12 of the Exchange Act, references herein to Rule 16b-3
shall be of no force or effect.
3. Eligibility.
Options may be granted to persons specified by the Board, in its sole
discretion, who are, at the time of grant, employees, officers or directors of,
or consultants to, the Company; provided, however, that Incentive Stock Options
may be granted only to employees of the Company. A person who has been granted
an option may, if he or she is otherwise eligible, be granted additional options
if the Board shall so determine.
4. Stock Subject to Plan.
The stock subject to this Plan shall be the Common Stock presently
authorized but unissued or subsequently acquired by the Company. Subject to
adjustment as provided in Section 15, the maximum number of shares of Common
Stock which may be issued and sold under this Plan is 732 shares. If an option
granted under this Plan shall expire or terminate for any reason without having
been exercised in full, the unpurchased shares subject to such option shall
again be available for subsequent option grants under this Plan.
5. Forms of Stock Option Agreements.
Options granted under this Plan shall be evidenced by written stock
option agreements in such form or forms not inconsistent with this Plan as may
be approved by the Board from time to time, which stock option agreements shall
contain such terms, conditions, limitations and restrictions as the Board shall
deem advisable and which are not inconsistent with this Plan. Such stock option
agreements may differ among recipients even when made simultaneously. The
provisions of Sections 13, 14, 15, 16, 17, 18, 19 and 20 of this Plan shall be
included in such stock option agreements or incorporated therein by reference.
The grant of an option pursuant to this Plan shall be conditional on the
execution of the applicable stock option agreement by the recipient of such
grant.
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<PAGE> 3
6. Purchase Price.
(a) General. The purchase price per share of Common Stock deliverable
upon the exercise of an option shall be determined by the Board and set forth in
the applicable stock option agreement; provided, however, that the purchase
price per share of Common Stock shall not be less than (i) in the case of an
Incentive Stock Option (other than Incentive Stock Options described in Section
11(b)), 100% of the fair market value of a share of Common Stock, as determined
by the Board, at the time of grant of such option (without regard to any
restriction other than a restriction which, by its terms, will never lapse), and
(ii) in the case of Incentive Stock Options described in Section 11(b), 110% of
such fair market value, as so determined.
(b) Payment of Purchase Price. Options granted under this Plan may
provide for the payment of the exercise price by delivery of cash or a certified
check to the order of the Company in an amount equal to the aggregate exercise
price of such options, or, to the extent provided in the applicable stock option
agreement, (i) by delivery to the Company of shares of Common Stock already
owned by the optionee, which are not subject to any repurchase, forfeiture,
unfulfilled vesting or similar requirements, having a fair market value equal in
amount to the aggregate exercise price of the options being exercised, (ii) by
any other means (including, but not limited to, (A) by delivery of a promissory
note of the optionee payable on such terms as are specified by the Board or (B)
by cancellation of outstanding options of the optionee or withholding shares of
Common Stock issuable to the optionee upon the exercise of such option upon
terms set by the Board, which the Board determines are consistent with the
purpose of this Plan and with applicable laws and regulations (including, but
not limited to, the provisions of Rule 16b-3) or (iii) by any combination of
such methods of payment. The fair market value of any shares of Common Stock or
other non-cash consideration which may be delivered upon exercise of an option
shall be determined by the Board.
7. Option Period.
Each option and all rights with respect thereto shall expire on such
date as shall be set forth in the applicable stock option agreement, except that
(a) in the case of an Incentive Stock Option (other than an Incentive Stock
Option described in Section 11(b)), such date shall not be later than ten years
after the date on which such option is granted, (b) in the case of an Incentive
Stock Option described in Section 11(b), such date shall not be later than five
years after the date on which such option is granted, and (c) in all cases,
options may be subject to earlier termination as provided in this Plan or in the
applicable stock option agreement.
8. Exercise of Options.
Each option granted under this Plan shall become exercisable either in
full or in installments at such time or times and during such period as shall be
set forth in the stock option agreement evidencing such option, subject to the
provisions of this Plan.
9. Nontransferability of Options.
Options granted under this Plan and the rights and privileges conferred
thereby may not be transferred, assigned, pledged or hypothecated in any manner
(whether by operation of law or otherwise), other than (a) by will, or (b) by
the applicable laws of descent and distribution, and shall not be subject to
execution, attachment or similar process. Any attempt to transfer, assign,
pledge, hypothecate or
3
<PAGE> 4
otherwise dispose of any such option or of any right or privilege conferred
thereby, contrary to this Plan, or the sale or levy or similar process upon the
rights and privileges conferred thereby, shall be void.
10. Effect of Termination of Employment or Other Relationship.
Except as provided in Section 11 with respect to Incentive Stock
Options, and subject to the provisions of this Plan, the Board shall determine
the period of time, if any, during which an optionee may exercise an option
following (i) the termination of the optionee's employment or other relationship
with the Company or (ii) the death or disability of the optionee. Such periods
shall be set forth in the stock option agreement evidencing such option.
11. Incentive Stock Options.
Options granted under this Plan which are intended to be Incentive
Stock Options shall be subject to the following additional terms and conditions:
(a) Express Designation. All Incentive Stock Options granted under this
Plan shall, at the time of grant, be specifically designated as such in the
stock option agreement covering such Incentive Stock Options.
(b) 10% Stockholder. If any employee to whom an Incentive Stock Option
is to be granted under this Plan is, at the time of the grant of such option,
the owner of stock possessing more than 10% of the total combined voting power
of all classes of stock of the Company (after taking into account the
attribution of stock ownership rules of Section 424(d) of the Code), then the
following special provisions shall be applicable to the Incentive Stock Option
granted to such individual:
(i) The purchase price per share of the Common Stock
subject to such Incentive Stock Option shall not be less than 110% of
the fair market value of a share of Common Stock at the time of grant;
and
(ii) the exercise period of such option shall not
exceed five years from the date of grant.
(c) Dollar Limitation. For so long as the Code shall so provide,
options granted to any employee under this Plan (and any other incentive stock
option plans of the Company) which are otherwise designated as Incentive Stock
Options shall not constitute Incentive Stock Options to the extent that such
options, in the aggregate, become exercisable for the first time in any calendar
year for shares of Common Stock with an aggregate fair market value (determined
as of the respective date or dates of grant) in excess of $100,000.
(d) Termination of Employment or Death or Disability. No Incentive
Stock Option may be exercised unless, at the time of such exercise, the optionee
is, and has been continuously since the date of grant of his or her option, in
the employment of the Company, except that:
(i) an Incentive Stock Option may be exercised within
the period of three months after the date the optionee ceases to be an
employee of the Company (or within such lesser period as may be
specified in the applicable option agreement), provided, however, that
the stock option agreement with respect to such option may designate a
longer exercise period
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<PAGE> 5
and if such option is exercised after such three-month period the
exercise of such option shall be treated as the exercise of a
non-statutory option under this Plan;
(ii) if the optionee dies while in the employ of the
Company, or within three months after the optionee ceases to be such an
employee, the Incentive Stock Option may be exercised by the person to
whom it is transferred by will or the laws of descent and distribution
within the period of one year after the date of death (or within such
lesser period as may be specified in the applicable stock option
agreement); and
(iii) if the optionee becomes disabled (within the
meaning of Section 22(e)(3) of the Code or any successor provision
thereto) while in the employ of the Company, the Incentive Stock Option
may be exercised within the period of one year after the date the
optionee ceases to be such an employee because of such disability (or
within such lesser period as may be specified in the applicable stock
option agreement).
For purposes of this Plan and any option granted hereunder, "employment" shall
be defined in accordance with the provisions of Section 1.421-7(h) of the Income
Tax Regulations (or any successor regulations). Notwithstanding the foregoing
provisions, no Incentive Stock Option may be exercised after its expiration
date.
12. Additional Provisions.
(a) Additional Option Provisions. The Board may, in its sole
discretion, include additional provisions in stock option agreements covering
options granted under this Plan and shares of Common Stock issued upon exercise
of such options, including, but not limited to, (i) restrictions on transfer and
disposition, (ii) the grant of registration rights, (iii) repurchase rights,
(iv) commitments to pay cash bonuses, to make, arrange for or guaranty loans or
to transfer other property to optionees upon exercise of options, (v)
restrictions on voting, and (vi) any additional conditions to the issuance of
shares of Common Stock upon the exercise of options, including, without
limitation, the execution of one or more shareholders agreements; provided,
however, that such additional provisions shall not be inconsistent with any
other term or condition of this Plan and such additional provisions shall not
cause any Incentive Stock Option granted under this Plan to fail to qualify as
an Incentive Stock Option within the meaning of Section 422 of the Code.
(b) Acceleration, Extension and Other Matters. The Board of Directors
may, in its sole discretion, (i) accelerate the date or dates on which all or
any particular option or options granted under the Plan may be exercised or (ii)
extend the dates during which all or any particular option or options granted
under the Plan may be exercised; provided, however, that no such extension shall
be permitted if it would cause the Plan to fail to comply with (A) Section 422
of the Code and (B) Rule 16b-3.
13. General Restrictions.
(a) Investment Representations. The Board may require any person to
whom an option is granted, as a condition of exercising such option, to give
written assurances in form and substance satisfactory to the Board in its sole
discretion to the effect that such person is acquiring the Common Stock subject
to the option for his or her own account for investment and not with any present
intention of selling or otherwise distributing the same, and to such other
effects as the Board deems necessary or appropriate in its sole discretion in
order to comply with federal and applicable state securities laws, or
5
<PAGE> 6
with covenants or representations made by the Company in connection with any
public offering of its Common Stock.
(b) Compliance With Securities Laws. Each option shall be subject to
the requirement that if, at any time, counsel to the Company shall determine
that (i) the listing, registration or qualification of the shares subject to
such option upon any securities exchange or under any federal, state or foreign
law, (ii) the consent or approval of any governmental or regulatory body, or
(iii) the disclosure of non-public information or the satisfaction of any other
condition is necessary as a condition of, or in connection with, the issuance or
purchase of shares thereunder, such option may not be exercised, in whole or in
part, unless such listing, registration, qualification, consent or approval,
disclosure or satisfaction of such condition, shall have been effected or
obtained on conditions acceptable to the Board in its sole discretion. Nothing
contained herein shall be deemed to require the Company to apply for or to
obtain such listing, registration, qualification, or approval, to make such
disclosure or to satisfy such condition.
14. Rights as a Stockholder.
The holder of an option shall have no rights as a stockholder with
respect to any shares covered by the option (including, but not limited to, any
rights to receive dividends or distributions with respect to such shares) until
the date of issue of a stock certificate to him or her for such shares. Except
for adjustments pursuant to Section 15, no adjustment or payment shall be made
for dividends, distributions or other rights for which the record date is prior
to the date such stock certificate is issued.
15. Adjustment Provisions for Recapitalizations and Related Transactions.
(a) General. If, as a result of any merger, consolidation,
reorganization, recapitalization, reclassification, stock dividend, stock split,
reverse stock split or other similar transaction, (i) the outstanding shares of
Common Stock are increased, decreased or exchanged for a different number or
kind of shares or other securities of the Company, or (ii) additional shares or
new or different shares or other securities of the Company or other non-cash
assets are distributed with respect to such shares of Common Stock or other
securities, an appropriate and proportionate adjustment may be made in (x) the
maximum number and kind of shares reserved for issuance under this Plan, (y) the
number and kind of shares or other securities subject to any then outstanding
option under this Plan, and (z) the purchase price for each share subject to any
then outstanding option under this Plan, without changing the aggregate purchase
price as to which such option remains exercisable. Notwithstanding the
foregoing, no adjustment shall be made pursuant to this Section 15 if such
adjustment would cause this Plan to fail to comply with (A) Section 422 of the
Code and (B) Rule 16b-3.
(b) Board Authority to Make Adjustments. Any adjustments under this
Section 15 will be made by the Board, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive.
16. Certain Mergers, Consolidations and Other Reorganizations.
(a) General. In the event of a consolidation or merger in which
outstanding shares of Common Stock are exchanged for securities, cash or other
property of any other corporation or entity or in the event of the sale of all
or substantially all of the assets of the Company or in the event of a
liquidation of the Company or in the event of any sale or series of sales of
shares of the Company's
6
<PAGE> 7
capital stock by the holders thereof which results in any person or entity or
group of affiliated persons or entities (other than the owners of the Company's
capital stock prior to such sale or sales) owning capital stock of the Company
possessing the voting power (under ordinary circumstances) to elect a majority
of the Board, the Board, or the board of directors of any corporation assuming
the obligations of the Company, may, in its sole discretion, take any one or
more of the following actions, as to outstanding options: (i) provide that such
options shall be assumed, or equivalent options shall be substituted, by the
acquiring or succeeding corporation or entity (or an affiliate thereof),
provided, however, that any such options substituted for Incentive Stock Options
shall meet the requirements of Section 424(a) of the Code, (ii) upon written
notice to the optionees, provide that (A) all exercisable but unexercised
options will terminate immediately prior to the consummation of such transaction
unless exercised by the optionee within a specified period following the date of
such notice and prior to the consummation of such event or transaction and (B)
all unexercisable options will terminate upon consummation of such event or
transaction, (iii) in the event of a merger or consolidation under the terms of
which holders of the Common Stock of the Company will receive upon consummation
thereof a payment for each share surrendered in the merger or consolidation (the
"Merger Price"), make or provide for a payment to the optionees equal to the
difference between (A) the Merger Price times the number of shares of Common
Stock subject to such outstanding options (to the extent then exercisable at
prices not in excess of the Merger Price) and (B) the aggregate exercise price
of all such outstanding options, in exchange for the termination of such
options, (iv) provide that all or any outstanding options shall become
exercisable in full immediately prior to such event or transaction and shall
cease to be exercisable at any time after such event or transaction, or (v) take
any other action with respect to outstanding options that is not prohibited by
(A) any other term or condition of this Plan, (B) such terms and provisions of
the Exchange Act (and the rules promulgated thereunder) that bear upon this Plan
or the options authorized or granted under it and (C) in the case of Incentive
Stock Options, such terms and provisions of the Code (and the rules promulgated
thereunder) that apply to such Incentive Stock Options.
(b) Substitute Options. The Company may grant options under this Plan
in substitution for options held by employees of another corporation who become
employees of the Company as the result of a merger or consolidation of the
employing corporation with the Company or as a result of the acquisition by the
Company of property or stock of the employing corporation. The Company may
direct that substitute options be granted on such terms and conditions as the
Board considers appropriate in its sole discretion in the circumstances
consistent with the provisions of this Plan.
17. No Special Employment or Relationship Rights.
Nothing contained in this Plan or in any option shall confer upon any
optionee any right with respect to the continuation of his or her employment by
or relationship with the Company or interfere in any way with the right of the
Company at any time to terminate such employment or relationship or to increase
or decrease the compensation of the optionee.
18. Other Employee Benefits.
Except as to plans which by their express terms include such amounts as
compensation, the amount of any compensation deemed to be received by an
employee as a result of the exercise of an option or the sale of shares received
upon such exercise will not constitute compensation with respect to which any
other employee benefits of such employee are determined, including, but not
limited to, benefits under any bonus, pension, profit-sharing, life insurance or
salary continuation plan, except as otherwise specifically determined by the
Board.
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<PAGE> 8
19. Amendment of this Plan.
(a) The Board may at any time, and from time to time, modify or amend
this Plan in any respect, except that, if at any time the approval of the
stockholders of the Company is required under Section 422 of the Code or any
successor provision with respect to Incentive Stock Options, or Rule 16b-3,
such modification or amendment shall not become effective until such approval is
obtained.
(b) Except as provided in the last sentence of this Section 19(b) and
Sections 15 and 16, the termination or any modification or amendment of this
Plan shall not, without the consent of an optionee, affect his or her rights
under an option previously granted to him or her. With the consent of the
optionee, however, the Board may amend outstanding stock option agreements
between the Company and such optionee in a manner not inconsistent with this
Plan. In addition, the Board shall in any event have the right to amend or
modify (i) the terms and provisions of this Plan and of any outstanding
Incentive Stock Options granted under this Plan to the extent necessary to
qualify any or all such options for such favorable federal income tax treatment
(including deferral of taxation upon exercise) as may be afforded Incentive
Stock Options under Section 422 of the Code and (ii) the terms and provisions of
this Plan and of any outstanding option to the extent necessary to ensure the
qualification of this Plan under Rule 16b-3.
20. Withholding.
(a) The Company shall have the right to deduct from payments of any
kind otherwise due to the optionee any federal, state, local or foreign taxes of
any kind required by law to be withheld with respect to any shares issued upon
exercise of options under this Plan or the subsequent sale of such shares.
Subject to the prior approval of the Board, which may be withheld by the Board
in its sole discretion, the optionee may elect to satisfy such obligations, in
whole or in part, (i) by causing the Company to withhold shares of Common Stock
otherwise issuable pursuant to the exercise of an option or (ii) by delivering
to the Company shares of Common Stock already owned by the optionee. The shares
so delivered or withheld shall have a fair market value equal to such
withholding obligation. The fair market value of the shares used to satisfy such
withholding obligation shall be determined by the Board as of the date that the
amount of tax to be withheld is to be determined. An optionee who has made an
election described above under his or her stock option agreement with the
Company, consistent with the terms of this Section 20(a), may only satisfy his
or her withholding obligation with shares of Common Stock which are not subject
to any repurchase, forfeiture, unfulfilled vesting or other similar
requirements.
(b) Notwithstanding the foregoing, in the case of a Reporting Person,
no election to use shares for the payment of withholding taxes shall be
effective unless made in compliance with any applicable requirements of Rule
16b-3.
21. Cancellation and New Grant of Options.
In addition to, and not in limitation of, the provisions contained in
Section 16 hereof, the Board shall have the authority to effect, at any time and
from time to time, with the consent of the affected optionees and consistent
with the Plan, (a) the cancellation of any or all outstanding options under this
Plan and the grant in substitution therefor of new options under this Plan
covering the same or different numbers of shares of Common Stock and having an
exercise price per share which may be lower or higher than the exercise price
per share of the canceled options or (b) the amendment of the terms of any
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<PAGE> 9
and all outstanding options under this Plan to provide an exercise price per
share which is higher or lower than the then-current exercise price per share of
such outstanding options.
22. Effective Date and Termination of this Plan.
(a) Effective Date. This Plan shall become effective upon adoption by
the Board. Options may be granted under this Plan at any time after the
effective date and before the date fixed for termination of this Plan.
(b) Termination. Unless sooner terminated in accordance with Section
16, this Plan shall terminate upon the tenth anniversary of the date of its
adoption by the Board. Options outstanding on such date shall continue to have
force and effect in accordance with the provisions of the stock option agreement
applicable to such options.
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<PAGE> 1
EXHIBIT 10.18
FORM OF STOCK OPTION AGREEMENT
THIS STOCK OPTION AGREEMENT (this "Agreement"), dated as of March __,
1997, by and between Intrepid Food Holdings, Inc., a Delaware corporation (the
"Company"), and the individual named as the Holder on the signature page hereof
(the "Holder").
1. Background. On March ____, 1997, the Company reserved certain shares
of Common Stock of the Company, par value $0.001 per share (the "Common Stock"),
for issuance to employees, officers and directors of, and consultants to, the
Company pursuant to the 1997 Stock Option Plan of Intrepid Food Holdings, Inc.
(the "Plan"), which has been adopted and approved by the Board of Directors of
the Company (the "Board"). This Agreement (a) is being entered into as of the
date hereof (the "Date of Grant") and (b) documents the relative rights,
privileges, powers, duties, responsibilities and obligations of the parties
hereto with respect to the stock option which the Company granted to the Holder
pursuant to the Plan as of the Date of Grant (the "Option"). The Option is
issued, and this Agreement is entered into, in accordance with the terms of the
Plan and the provisions of the Plan, including, but not limited to, Sections 13,
14, 15, 16, 17, 18, 19 and 20, are hereby incorporated in this Agreement by
reference.
2. Definitions. In addition to other terms defined herein, when used
herein, the following capitalized terms shall have the following meanings:
"Approved Sale" means the sale of the Company to a third party
in an arm's-length transaction, whether by merger, consolidation, sale of all or
substantially all of its assets or sale of all or substantially all of the
capital stock of the Company.
"Cause" means (a) the Holder's commission of fraud, theft,
embezzlement or similar malfeasance or any felony, (b) the Holder's breach of
Section 6 of this Agreement, and (c) termination of the Holder's employment by
the Board for failure to perform the Holder's duties in a satisfactory manner.
"Common Stock" has the meaning set forth in Section 1 hereof.
"Date of Grant" has the meaning set forth in Section 1 hereof.
"Employment Date" means the date on which the Holder commenced
employment with the Company.
"Exercise Price" has the meaning set forth in Section 3.1
hereof.
"Fundamental Change" means (a) a sale or transfer of all or
substantially all the assets of the Company on a consolidated basis in any
transaction or series of related transactions (other than sales in the ordinary
course of business), or (b) any merger, consolidation or reorganization to which
the Company is a party, except for a merger, consolidation or reorganization in
which, after giving effect to such merger, consolidation or reorganization, the
holders of the Company's outstanding capital stock (on a fully-diluted basis)
immediately prior to the merger, consolidation or reorganization will own
<PAGE> 2
immediately following the merger, consolidation or reorganization the
outstanding capital stock (on a fully diluted basis) having a majority of the
ordinary voting power (under ordinary circumstances) to elect the board of
directors of the surviving or resulting corporation.
"Option" has the meaning set forth in Section 1 hereof.
"Option Shares" means ________________ shares of Common Stock,
subject to adjustment as set forth in Section 3.7 hereof.
"Parent" means any corporation directly or indirectly owning
shares of capital stock entitling such corporation to elect a majority of the
members of the board of directors of the Company.
"Private Placement" means the closing of the sale of debt or
equity securities of the Company to one or more investors other than pursuant to
a registration statement declared effective under the Securities Act.
"Public Offering" means a registered public offering of the
Company's capital stock pursuant to a registration statement declared effective
by the Securities and Exchange Commission pursuant to the Securities Act.
"Purchased Option Shares" has the meaning set forth in Section
3.2 hereof.
"Representative" means the executor(s) or administrator(s) of
the Holder's estate or, if the Holder is incompetent, the Holder's guardian(s).
"Securities Act" means the Securities Act of 1933, as amended,
or any similar federal law then in force.
"Stock Sale" means any sale of outstanding shares of the
capital stock of the Company by the holders thereof if after giving effect to
such sale the Company's stockholders (on a fully diluted basis) prior to such
sale do not own immediately following such sale outstanding capital stock of the
Company (on a fully diluted basis) having the voting power (under ordinary
circumstances) to elect a majority of the Board.
"Subsidiary" means any corporation of which the Company or its
Parent, if any, or another Subsidiary owns stock entitling it (or any
combination of them) to elect a majority of the members of the board of
directors of such corporation.
"Unpurchased Option Shares" means all Option Shares (whether
or not available for purchase by the Holder pursuant to Section 3.3) which have
not yet been purchased pursuant to this Agreement.
3. Terms of Option.
3.1 Grant of the Option. Upon the terms and conditions
hereinafter set forth, the Company hereby grants to the Holder an option to
purchase the Option Shares at a price of per share, subject to
adjustment as set forth in Section 3.7 hereof (the "Exercise Price").
- 2 -
<PAGE> 3
3.2 Procedures for Exercise. Subject to the Option becoming
vested and exercisable pursuant to Section 3.3, the Holder may exercise the
Option in whole or in part at any time prior to the earlier of (a) 5:00 p.m.
(Chicago time) on ___________, 2004 (the "Expiration Date") and (b) the Option's
earlier termination upon the terms set forth herein. In order to exercise the
Option, the Holder shall give to the Company a written notice specifying the
number of Option Shares to be purchased, accompanied by payment in full of the
entire Exercise Price for such Option Shares in cash or certified check payable
to the order of the Company; provided, however, that the Company may, in its
sole discretion, permit the Holder to pay all or part of the Exercise Price (i)
in one or more future installments pursuant to an interest-bearing promissory
note of the Holder containing such terms as the Board, or an authorized
committee thereof, may approve, (ii) by delivering to the Company for
cancellation shares of Common Stock owned by the Holder at the time of such
exercise having a fair market value, determined by the Board, equal to the
aggregate exercise price of the Options being exercised, and/or (iii) by
cancellation of outstanding options of the Holder exercisable at the time of
such exercise or withholding shares of Common Stock issuable to the Holder upon
exercise of Options exercisable at the time of such exercise, which options or
shares have a fair market value, net of the applicable exercise price,
determined by the Board. Upon exercise of the Option and payment of the entire
Exercise Price for the shares of Common Stock being purchased as provided in the
preceding sentence, the Company will prepare, execute and deliver to the Holder
a stock certificate ("Stock Certificate") issued in the name of the Holder
representing the number of Option Shares purchased hereunder (the "Purchased
Option Shares").
3.3 Vesting Schedule. The Option shall become vested and
exercisable for one-third of the Option Shares on the first anniversary of the
Employment Date. Thereafter, the Option shall become vested and exercisable for
an additional one-third of the Option Shares on each of the next two
anniversaries of the Employment Date (and to the extent the Option has not
become vested and exercisable as to any Option Shares on the third anniversary
of the Employment Date, the Option shall become vested and exercisable as to
such Option Shares on such anniversary). Notwithstanding the foregoing, if a
Fundamental Change or Stock Sale occurs prior to the Option becoming vested and
exercisable for all of the Option Shares, the Option shall become vested and
exercisable for all remaining Option Shares immediately prior to the
consummation of such Fundamental Change or Stock Sale, as the case may be.
3.4 Fractional Shares. Fractional shares will not be issued
upon the exercise of the Option but in any case where the Holder would, except
for the provisions of this Section 3.4, be entitled under the terms of this
Agreement to receive a fractional share upon the complete exercise of the
Option, the Company will, upon the exercise of the Option for the largest number
of whole shares then called for, pay a sum in cash equal to the excess of the
value of such fractional share (determined in such reasonable manner and in good
faith by the Board or an authorized committee thereof) over the proportional
part of the Exercise Price represented by such fractional share.
3.5 Termination Events. (a) If the Holder's employment with
the Company terminates while the Option is outstanding and unexercised, in whole
or in part:
(i) if such termination occurs for any reason on or prior to
the first anniversary of the Employment Date, or if such termination occurs at
any time as a result of the termination by the Company for Cause, the Option
shall terminate and cease to be exercisable upon the date of such termination;
and
- 3 -
<PAGE> 4
(ii) if such termination occurs after the first anniversary of
the Employment Date other than as a result of termination by the Company for
Cause, the Option shall immediately terminate with respect to any Option Shares
which have not yet become vested and exercisable pursuant to Section 3.3. With
respect to Option Shares which have become vested and exercisable pursuant to
Section 3.3 and which do not otherwise terminate and cease to be exercisable
pursuant to this Section 3.5, the Option shall terminate and cease to be
exercisable for all such Option Shares (A) on the earlier of (1) six months
after the date of such termination of employment and (2) the Expiration Date, if
such termination of employment occurs other than as a result of the voluntary
termination of employment by the Holder, and (B) on the earlier of (1) thirty
(30) days after the date of such termination of employment and (2) the
Expiration Date, if such termination of employment occurs as a result of the
voluntary termination of employment by the Holder.
(b) The Company shall use its reasonable best efforts to give
notice to the Holder not less than fifteen (15) days prior to the consummation
of a Fundamental Change or a Stock Sale. Upon the consummation of a Fundamental
Change or Stock Sale, the Option shall terminate for all Unpurchased Option
Shares.
(c) In the event of the dissolution, liquidation or winding-up
of the Company, whether voluntary or involuntary, the Option shall terminate for
all Unpurchased Option Shares immediately prior to such dissolution, liquidation
or winding-up.
(d) Notwithstanding subparagraphs (a), (b), or (c) above, if
the Holder violates Section 6, the Option shall terminate and cease to be
exercisable as of and after the time of such violation.
3.6 Certain Rules Concerning Employment. For purposes of this
Agreement, (a) employment of the Holder by any Parent or Subsidiary thereof
shall be deemed employment by the Company, (b) a transfer of the Holder's
employment, without any intervening period, from the Company to a Parent or a
Subsidiary thereof or vice versa, from one such Subsidiary to another, or from
such Parent to such a Subsidiary or vice versa, shall not be deemed a
termination of the Holder's employment, and (c) if the Holder is granted a leave
of absence by the Board or an authorized committee thereof, the Holder shall be
deemed to have remained in the employ of the Company during such leave of
absence. Nothing contained in the Plan or this Agreement shall confer upon the
Holder any right with respect to the continuation of the Holder's employment by
or relationship with the Company, a Parent or any Subsidiary or interfere in any
way with the right of the Company, a Parent or any Subsidiary at any time to
terminate such employment or relationship or to increase or decrease
compensation of the Holder.
3.7 Antidilution Provisions. In the event of any stock
dividend, stock split or combination of the Common Stock, the number of shares
that are subject to the Option and the Exercise Price may be proportionately and
appropriately adjusted, without any change in the aggregate Exercise Price to be
paid for all Option Shares upon full exercise of the Option. Any adjustments
under this Section 3.7 will be made by the Board, whose determination as to what
adjustments, if any, will be made and the extent thereof will be final, binding
and conclusive.
4. Representations of the Holder. The Holder represents and warrants to
the Company as follows:
- 4 -
<PAGE> 5
(a) the Holder will acquire the Option Shares, to the extent
that the Option becomes vested and exercisable pursuant to the terms hereof and
the Holder exercises the Option in whole or in part, solely for investment for
the Holder's own account and not with a view to the resale or distribution of
all or any part thereof;
(b) the Holder understands that (i) the Holder may purchase
the Option Shares only to the extent that the Option becomes vested and
exercisable pursuant to Section 3.3 hereof, (ii) it is possible that the Option
will not become exercisable for any of the Option Shares, (iii) none of the
Company, the Parent or any Subsidiary is obligated to continue the Holder's
employment, and (iv) none of the Option Shares have been registered under the
Securities Act of 1933, as amended (the "Securities Act"), and the Holder may
have to hold the Option Shares, to the extent they become Purchased Option
Shares hereunder, for an indefinite period unless the offer and sale thereof is
subsequently registered under the Securities Act (and the Company is under no
obligation to so register any Purchased Option Shares) or an exemption is
available therefrom;
(c) the Holder's permanent residence is at the address
specified on the signature page hereof; and
(d) the issuance of the Option satisfies any obligation that
the Company's Subsidiary, Health Valley Company, may have to issue options or
other rights to the Holder.
5. Representations of the Company. The Company represents and warrants
to the Holder that (a) this Agreement has been duly authorized, executed, and
delivered by the Company, (b) the Company has the requisite power and authority
to issue the Option Shares and to perform its obligations under this Agreement,
and (c) the execution, delivery, and performance of this Agreement by the
Company do not and will not violate or result in a default under the Company's
certificate of incorporation or by-laws or any agreement or instrument to which
the Company is a party or by which it or any of its property is bound.
6. Confidential Information. The Holder shall not, without the prior
written consent of the Company (or the Parent or any Subsidiary thereof), except
as may be required in connection with any judicial or administrative proceeding
or inquiry, disclose to any person or entity, other than an officer or director
of the Company (or the Parent or any Subsidiary thereof) or a person or entity
to whom disclosure is reasonably necessary or appropriate in connection with the
performance by the Holder of the Holder's duties as an employee of the Company
(or the Parent or any Subsidiary thereof), any confidential information obtained
by the Holder while in the employ of, or providing services for, the Company (or
the Parent or any Subsidiary thereof) (or any predecessor of any such entity)
with respect to its business or assets, including, but not limited to,
confidential information relating to the properties, accounts, books, records,
suppliers, trade secrets, and contracts of the Company (or the Parent or any
Subsidiary thereof) (or any predecessor of any such entity); provided, however,
that confidential information shall not include any information known or
available to the public (other than as a result of unauthorized disclosure by
the Holder).
7. Sale of the Company. If the Board of Directors of the Company and a
majority of the shares of Common Stock then outstanding approve an Approved
Sale, the Holder will consent to and raise no objections to the Approved Sale,
and (a) if the Approved Sale is structured as a sale of stock, the Holder will
agree to sell all of his or her Purchased Option Shares on the terms and
conditions approved by the holders of a majority of the shares of Common Stock
then outstanding, (b) if the Approved Sale
- 5 -
<PAGE> 6
is structured as a merger or consolidation, the Holder will vote in favor
thereof and will not exercise any dissenters' rights of appraisal he or she may
have under applicable law, and (c) if the Approved Sale is structured as a sale
of all or substantially all of the assets of the Company and a subsequent
dissolution and liquidation of the Company, the Holder will vote in favor
thereof and will vote in favor of the subsequent dissolution and liquidation of
the Company. The Holder will take all necessary actions in connection with the
consummation of the Approved Sale as are reasonably requested by the Company.
The provisions of this Section 7 are applicable to the Holder only so long as
the consideration to be paid with respect to each Purchased Option Share in the
Approved Sale is the same for each share of Common Stock of the Company.
8. Stockholders Agreements. Upon exercise of the Option, the Holder
will agree in writing to be bound by that certain Amended and Restated
Stockholders Agreement, dated as of January 28, 1997 (as such agreement may be
amended or amended and restated from time to time hereafter) as a Management
Stockholder and a Holder of Management Securities (as such terms are defined
therein). In connection with any subsequent Private Placements, if one or more
investors in such Private Placement request the stockholders of the Company to
execute a stockholders' agreement as a condition to closing such Private
Placement, the Holder will agree (i) to be bound by the same restrictions
(including restrictions applying after the closing of such Private Placement)
with respect to the Holder's Purchased Option Shares as the other holders of
Management Securities may agree to be bound with respect to shares of Common
Stock owned by such holders and (ii) to execute an agreement containing such
restrictions.
9. Termination of Certain Provisions. The provisions set forth in
Sections 7 and 8 of this Agreement shall terminate upon the earlier of the
consummation of an Approved Sale and the consummation of a Public Offering.
10. Miscellaneous.
10.1 Successors and Assigns; Binding Agreement. Subject to the
provisions of the Plan and Section 10.2 hereof, this Agreement shall inure to
the benefit of, be enforceable by and binding upon, the respective successors
and assigns of the Company and the Holder and his or her personal or legal
representatives, executors, administrators, heirs, distributees, devisees and
legatees ("Representatives") and, with respect to Sections 7 and 8 of this
Agreement, each transferee of all or any of the Purchased Option Shares, whether
so expressed or not.
10.2 Limitation on Alienation. Notwithstanding the terms of
Section 10.1 hereof, the Holder shall not transfer, sell, convey, exchange or
otherwise dispose of (herein referred to as "disposition" or "to dispose of")
the Option and the rights and privileges of the Holder under this Agreement,
except (i) by will or by the applicable laws of descent and distribution to a
person (or persons) who consents in writing to be bound by the terms of this
Agreement to the same extent as the Holder or (ii) by exercise pursuant to the
terms of this Agreement. During the Holder's lifetime, the Option shall be
exercisable only by the Holder. After the Holder's lifetime, references in
Section 3.2 to the "Holder" shall mean such Holder's Representative.
10.3 Governing Law. This Agreement shall be governed by and
construed in accordance with the internal law of, and not the law of conflicts
of, the State of Illinois applicable to contracts entered into and to be wholly
performed in Illinois.
- 6 -
<PAGE> 7
10.4 Waivers. The waiver by either party of any right
hereunder or of any failure to perform or breach by the other party shall not be
deemed a waiver of any other right hereunder or of any other failure or breach
by the other party, whether of the same or a similar nature or otherwise. No
waiver shall be deemed to have occurred unless set forth in a writing executed
by or on behalf of the waiving party. No such written waiver shall be deemed a
continuing waiver unless specifically stated therein, and each such waiver shall
operate only as to the specific term or condition waived and shall not
constitute a waiver of such term or condition for the future or as to any act
other than that specifically waived.
10.5 Notices. All notices and communications that are required
or permitted to be given hereunder shall be in writing and shall be deemed to
have been duly given when delivered personally or upon mailing by registered or
certified mail, postage prepaid, return receipt requested, as follows:
If to the Company, to:
Intrepid Food Holdings, Inc.
135 S. LaSalle Street
Suite 3800
Chicago, Illinois 60603
Attention: President
If to the Holder, to the address set forth on the signature page hereto;
or to such other address as may be specified in a notice given by one party to
the other hereunder.
10.6 Severability. If for any reason any term or provision of
this Agreement is held to be invalid or unenforceable, all other valid terms and
provisions hereof shall remain in full force and effect, and all of the terms
and provisions of this Agreement shall be deemed to be severable in nature.
10.7 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be deemed to be an original but all of which
together shall constitute one and the same instrument.
10.8 Amendment. This Agreement may be amended or canceled by
mutual agreement of the parties in writing without the consent of any other
person or entity, and in the manner set forth in the Plan, and, so long as the
Holder lives, no person or entity, other than the parties, shall have any rights
under or interest in this Agreement or the subject matter hereof.
10.9 Entire Agreement. This Agreement and the Plan constitute
the entire agreement between the parties, and supersedes all prior oral or
written understandings between the parties, relating to the Option Shares. The
Holder acknowledges that he or she has received a copy of the Plan and in the
event that any provision of this Agreement is inconsistent with any provision of
the Plan, the provisions of the Plan shall be controlling.
10.10 No Attachment. Except as required by law, no right to
receive Option Shares under this Agreement shall be subject to anticipation,
commutation, alienation, sale, assignment, encumbrance, charge, pledge, or
hypothecation or to execution, attachment, levy, or similar process or
- 7 -
<PAGE> 8
assignment by operation of law, and any attempt, voluntary or involuntary, to
effect any such action shall be null, void and of no effect.
10.11 No Rights as Stockholder. The Holder will not have any
of the rights of a stockholder with respect to the Option Shares except to the
extent that such Option Shares are actually issued pursuant to exercise of the
Option. The existence of the Option shall not affect in any way the right or
power of the Company or its stockholders to make or authorize any or all
adjustments, recapitalizations, reorganizations, or other changes to the
Company's capital structure or its business, or to effect any sale, merger or
consolidation of the Company, nor create any pre-emptive right on behalf of the
holder of the Option to acquire any Common Stock or securities or indebtedness
convertible into or exchangeable for Common Stock.
10.12 Securities Act Legend. Until (a) the Purchased Option
Shares represented by such certificate are effectively registered under the
Securities Act (and the Company is under no obligation at any time to so
register any of such Purchased Option Shares), or (b) the holder of such
securities delivers to the Company a written opinion of counsel, which counsel
and opinion are reasonably acceptable to the Company, to the effect that such
legend is no longer necessary, the Company shall be entitled to cause each
certificate representing Purchased Option Shares to be stamped or otherwise
imprinted with a legend in substantially the following form:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended, and
thus may not be transferred unless so registered or unless an
exemption from registration is available."
- 8 -
<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have duly executed this Option
Agreement as of the date first above written.
INTREPID FOOD HOLDINGS, INC.
By:
---------------------------------
Title:
------------------------------
HOLDER:
------------------------------------
Name:
-------------------------------
Please Print
Address:
------------------------------------
------------------------------------
------------------------------------
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES OF THE REGISTRANT
The following are wholly owned subsidiaries of the Registrant:
Subsidiary Jurisdiction
---------- ------------
Health Valley Company Delaware (State of Incorporation)
California
Florida
Georgia
Illinois
Minnesota
New York
Oregon
Pennsylvania
Health Valley Foods, Inc. California (State of Incorporation)
<PAGE> 1
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Registration Statement of Natural Nutrition
Group, Inc. (formerly known as Intrepid Food Holdings, Inc.) and Subsidiaries
on Form S-1 of our report dated February 20, 1998 (April 9, 1998, as to Note 7)
appearing in the Prospectus, which is part of this Registration Statement and
our report dated February 20, 1998 (April 9, 1998, as to Note 7) relating to
the financial statement schedule appearing elsewhere in this Registration
Statement.
We also consent to the reference to us under the headings "Selected Financial
Data" and "Experts" in such
Prospectus.
DELOITTE & TOUCHE LLP
Costa Mesa, California
May 21, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 1,000
<SECURITIES> 0
<RECEIVABLES> 5,430
<ALLOWANCES> 1,421
<INVENTORY> 5,278
<CURRENT-ASSETS> 12,039
<PP&E> 28,640
<DEPRECIATION> 5,282
<TOTAL-ASSETS> 50,212
<CURRENT-LIABILITIES> 9,692
<BONDS> 21,860
22,979
0
<COMMON> 0
<OTHER-SE> (2,593)
<TOTAL-LIABILITY-AND-EQUITY> 50,212
<SALES> 67,898
<TOTAL-REVENUES> 67,898
<CGS> 42,370
<TOTAL-COSTS> 23,125
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 312
<INTEREST-EXPENSE> 1,911
<INCOME-PRETAX> 492
<INCOME-TAX> 387
<INCOME-CONTINUING> 105
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 0
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
