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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON FEBRUARY 5, 1999
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------------
FORM S-4
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------------
ARCHIBALD CANDY CORPORATION
(Exact name of Registrant as specified in its charter)
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ILLINOIS AND ITS GUARANTOR SUBSIDIARIES 36-0743280
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
DELAWARE SWEET FACTORY GROUP, INC. 33-0771778
DELAWARE SWEET FACTORY, INC. 33-0470773
DELAWARE SF PROPERTIES, INC. 33-0741699
DELAWARE SF CANDY COMPANY 33-0773045
(State or other jurisdiction of (Exact name of Registrant as specified in its (I.R.S. Employer
incorporation or organization) charter) Identification No.)
</TABLE>
2064/5441
(Primary Standard Industrial Classification Code Nos.)
------------------------------
1137 WEST JACKSON BOULEVARD
CHICAGO, ILLINOIS 60607
(312) 243-2700
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive office)
------------------------------
TED A. SHEPHERD
PRESIDENT AND CHIEF OPERATING OFFICER
ARCHIBALD CANDY CORPORATION
1137 WEST JACKSON BOULEVARD
CHICAGO, ILLINOIS 60607
(312) 243-2700
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
------------------------------
Copy to:
PATRICK O. DOYLE
WINSTON & STRAWN
35 WEST WACKER DRIVE
CHICAGO, ILLINOIS 60601
(312) 558-5600
------------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO PUBLIC: As soon as
practicable after this Registration Statement becomes effective.
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance with
General Instruction G, 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 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: / /
------------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO OFFERING PRICE AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY(1) PRICE REGISTRATION FEE
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10 1/4% Series B Senior Secured Notes due
2004...................................... $30,000,000 100% $30,000,000 $8,340
Senior Secured Guarantee of each of the
Guarantor Subsidiaries.................... (2) -- -- none(3)
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(1) Estimated in accordance with Rule 457(f)(2) under the Securities Act of
1993, as amended, solely for purpose of computing the registration fee.
(2) The 10 1/4% Series B Senior Secured Notes due 2004 of Archibald Candy
Corporation being registered will be guaranteed on a senior secured basis by
each of the Guarantor Subsidiaries.
(3) Pursuant to Rule 457(n).
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 THIS REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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SUBJECT TO COMPLETION, DATED FEBRUARY 5, 1999.
THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE MAY
NOT SELL THESE NOTES UNTIL THE REGISTRATION STATEMENT FILED WITH THE SECURITIES
AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS NOT AN OFFER TO SELL
THESE NOTES AND IT IS NOT SOLICITING AN OFFER TO BUY THESE NOTES IN ANY STATE
WHERE THE OFFER OR SALE IS NOT PERMITTED.
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PROSPECTUS
[LOGO] [LOGO]
ARCHIBALD CANDY CORPORATION
EXCHANGE OFFER FOR
$30,000,000
10 1/4% SENIOR SECURED NOTES DUE 2004
GUARANTEED BY:
SWEET FACTORY GROUP, INC.
SWEET FACTORY, INC.
SF PROPERTIES, INC.
SF CANDY COMPANY
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We are offering you the opportunity to exchange in the Exchange Offer your
10 1/4% Series A Senior Secured Notes due 2004 (the "Outstanding Notes") for an
equivalent principal amount of 10 1/4% Series B Senior Secured Notes due 2004
(the "Exchange Notes") that will be registered under the Securities Act of 1933.
Your Outstanding Notes are not registered under the Securities Act of 1933.
Exchanging your Outstanding Notes for the Exchange Notes will provide you with
notes that should be easier to sell and transfer.
TERMS OF THE EXCHANGE OFFER
- - The Exchange Offer expires at 5:00 p.m., New York City time, on , 1999,
unless extended.
- - All Outstanding Notes that are validly tendered and not validly withdrawn will
be exchanged.
- - Tenders of Outstanding Notes may be withdrawn at any time prior to the
expiration of the Exchange Offer.
- - The Exchange Offer is not subject to any conditions other than that the
Exchange Offer not violate applicable law or any applicable interpretation of
the Staff of the Securities and Exchange Commission.
- The exchange of notes will not be a taxable event for U.S. federal income
tax purposes.
- The Company will not receive any proceeds from the Exchange Offer.
- The terms of the Exchange Notes and the Outstanding Notes are substantially
identical, except that the Exchange Notes do not include certain transfer
restrictions and registration rights relating to the Outstanding Notes.
- There is no existing market for the Exchange Notes, and the Company does
not intend to apply for their listing on any securities exchange.
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FOR A DISCUSSION OF CERTAIN FACTORS THAT SHOULD BE CONSIDERED BY HOLDERS
PRIOR TO TENDERING THEIR OUTSTANDING NOTES IN THE EXCHANGE OFFER, SEE "RISK
FACTORS" BEGINNING ON PAGE 14.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THE EXCHANGE NOTES OR PASSED UPON THE
ADEQUACY OR ACCURACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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THE DATE OF THIS PROSPECTUS IS , 1999.
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THE PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT CONTAINED IN
OR DELIVERED WITH THE PROSPECTUS. THESE DOCUMENTS ARE AVAILABLE WITHOUT CHARGE
UPON REQUEST FROM DONNA M. SNOPEK, SECRETARY, AT ARCHIBALD CANDY CORPORATION,
1137 WEST JACKSON BOULEVARD, CHICAGO, ILLINOIS 60607, TELEPHONE NUMBER (312)
243-2700. TO ENSURE TIMELY DELIVERY OF THE DOCUMENTS, ANY REQUEST SHOULD BE MADE
BY , 1999.
TABLE OF CONTENTS
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Prospectus Summary......................................................................................... 1
Risk Factors............................................................................................... 14
The Exchange Offer......................................................................................... 23
The Acquisition............................................................................................ 31
Use of Proceeds............................................................................................ 32
Capitalization............................................................................................. 33
Unaudited Pro Forma Condensed Consolidated Financial Statements............................................ 34
Selected Financial Data.................................................................................... 40
Management's Discussion and Analysis of Financial Condition and Results of Operations...................... 44
Business................................................................................................... 52
Management................................................................................................. 63
Capitalization of Holdings................................................................................. 70
Principal Stockholders..................................................................................... 74
Certain Transactions....................................................................................... 77
Description of the Revolving Credit Facility............................................................... 80
Description of the Exchange Notes.......................................................................... 81
Certain United States Federal Tax Consequences............................................................. 105
Plan of Distribution....................................................................................... 107
Legal Matters.............................................................................................. 108
Experts.................................................................................................... 108
Where You Can Find More Information........................................................................ 108
Information Incorporated by Reference...................................................................... 109
Index to Financial Statements.............................................................................. F-1
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FANNIE MAY-REGISTERED TRADEMARK-, FANNY FARMER-REGISTERED TRADEMARK-,
PIXIE-REGISTERED TRADEMARK- AND TRINIDAD-REGISTERED TRADEMARK- ARE REGISTERED
TRADEMARKS OF ARCHIBALD CANDY CORPORATION. SWEET FACTORY-REGISTERED TRADEMARK-
IS A REGISTERED TRADEMARK OF UNITED SWEET FACTORY LIMITED, WHICH HAS GRANTED TO
SWEET FACTORY AN EXCLUSIVE LICENSE THEREFOR FOR USE IN THE UNITED STATES AND
MEXICO.
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PROSPECTUS SUMMARY
THE FOLLOWING SUMMARY HIGHLIGHTS SELECTED INFORMATION FROM THIS PROSPECTUS
AND MAY NOT CONTAIN ALL OF THE INFORMATION THAT IS IMPORTANT TO YOU. THIS
PROSPECTUS INCLUDES THE TERMS OF THE EXCHANGE NOTES WE ARE OFFERING, AS WELL AS
INFORMATION REGARDING OUR BUSINESS AND DETAILED FINANCIAL DATA. WE ENCOURAGE YOU
TO READ THIS PROSPECTUS IN ITS ENTIRETY. THE TERM "ACQUISITION" REFERS TO THE
DECEMBER 7, 1998 ACQUISITION OF SWEET FACTORY GROUP, INC. BY ARCHIBALD CANDY
CORPORATION. UNLESS THE CONTEXT INDICATES OTHERWISE, REFERENCES IN THIS
PROSPECTUS TO "WE," "US," "OUR" OR THE "COMPANY" REFER TO THE COMBINED BUSINESS
OF ARCHIBALD CANDY CORPORATION AND SWEET FACTORY GROUP, INC. AND ITS
SUBSIDIARIES AFTER THE ACQUISITION. UNLESS THE CONTEXT INDICATES OTHERWISE, THE
TERM "ARCHIBALD CANDY" REFERS TO ARCHIBALD CANDY CORPORATION AND ITS
SUBSIDIARIES BEFORE THE ACQUISITION AND THE TERM "SWEET FACTORY" REFERS TO SWEET
FACTORY GROUP, INC. AND ITS SUBSIDIARIES BEFORE THE ACQUISITION. THE TERM "PRO
FORMA" REFERS TO WHAT OUR BUSINESS MIGHT HAVE LOOKED LIKE IF THE ACQUISITION AND
RELATED FINANCING HAD OCCURRED ON AUGUST 31, 1997. THE TERM "HOLDINGS" REFERS TO
FANNIE MAY HOLDINGS, INC., THE SOLE SHAREHOLDER OF THE COMPANY. THE TERM
"SECURITIES ACT" REFERS TO THE SECURITIES ACT OF 1933, AS AMENDED. UNLESS THE
CONTEXT INDICATES OTHERWISE, ALL REFERENCES IN THIS PROSPECTUS TO THE COMPANY'S
STORES INCLUDE KIOSKS AND CARTS AND ARE AS OF NOVEMBER 28, 1998.
COMPANY OVERVIEW
The Company is a manufacturer and marketer of quality boxed chocolates and
other confectionery items. Founded in 1921, we manufacture a variety of candies
and operate two specialty boxed chocolate confectionery retail chains as well as
a specialty bulk candy retail chain. We operate 592 retail stores in 40 states:
248 stores under the Fannie May brand, 85 stores under the Fanny Farmer brand
and 259 stores under the Sweet Factory brand. We also sell our Fannie May and
Fanny Farmer branded products in approximately 8,000 third-party retail outlets
as well as through our quantity order, mail order and fundraising programs. We
manufacture over three-quarters of the products that we sell under the Fannie
May and Fanny Farmer brands and maintain proprietary specifications for a
significant amount of the confectionery products that we purchase from other
sources for resale under our Fannie May and Fanny Farmer brand names.
Our pro forma sales for the twelve month period ending August 29, 1998 were
approximately $204.4 million. Pro forma EBITDA for the same period was
approximately $26.3 million. For further information, see "Unaudited Pro Forma
Condensed Consolidated Financial Statements."
THE EXCHANGE OFFER
On December 7, 1998, we sold $30.0 million of 10 1/4% Senior Secured Notes
due 2004 through an unregistered offering. The Outstanding Notes are, and the
Exchange Notes will be, guaranteed by all of the Company's material
subsidiaries.
Simultaneously with the unregistered offering, the guarantor subsidiaries
and the Company agreed to provide the holders of the Outstanding Notes with
certain registration rights pursuant to a Registration Rights Agreement. Under
the Registration Rights Agreement, we must deliver this Prospectus to the
holders of the Outstanding Notes and must complete the Exchange Offer on or
before , 1999. If the Exchange Offer does not take place on or before
, 1999, we must pay liquidated damages to the holders of the
Outstanding Notes until the Exchange Offer is completed. You may exchange in the
Exchange Offer your Outstanding Notes for Exchange Notes with substantially the
same terms. You should read the discussion under the heading "Summary of Terms
of the Exchange Notes" and "Description of the Exchange Notes" for further
information regarding the Exchange Notes.
We believe that holders of the Outstanding Notes may resell the Exchange
Notes without complying with the registration and prospectus delivery provisions
of the Securities Act, if certain conditions are met. You should read the
discussion under the headings "Summary of the Exchange
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Offer" and "The Exchange Offer" for further information regarding the Exchange
Offer and resales of the Exchange Notes.
THE ACQUISITION
We sold the Outstanding Notes to help finance Archibald Candy's acquisition
of Sweet Factory on December 7, 1998 for a total purchase price of approximately
$28.0 million. You should read the discussions under the headings "The
Acquisition" and "Use of Proceeds" for further information regarding the
Acquisition and the sources and uses of funds.
ACQUISITION RATIONALE
The Acquisition of Sweet Factory provides Archibald Candy with a specialty
bulk candy retail chain to complement its existing Fannie May and Fanny Farmer
boxed chocolate manufacturing and retail activities. We believe that the
Acquisition of Sweet Factory has many potential benefits for both Archibald
Candy and Sweet Factory, including:
- improving the performance of the Sweet Factory stores by implementing many
of the same retail store strategies that improved the operations of our
Fannie May and Fanny Farmer stores;
- realizing significant cost savings from the consolidation of Sweet
Factory's office, manufacturing and distribution facilities with Archibald
Candy's existing operations and the elimination of certain duplicative
administrative functions;
- broadening our geographic reach by providing us with a significant
presence in the Western United States;
- providing us with a new distribution platform for our Fannie May boxed
chocolates (we anticipate that the sale of Fannie May products in Sweet
Factory's stores will increase both revenues in Sweet Factory's stores and
our output of manufactured products); and
- strengthening our product lines by making certain of Sweet Factory's
products available through our existing Fannie May and Fanny Farmer
stores, third-party retail programs and non-retail sales channels.
BUSINESS STRATEGY
Our business strategy is to grow our core brands and acquire and build other
leading brand names in the confectionery industry and to leverage these brands
through a multi-channeled distribution network. We expect to continue to grow
our brands with a strategy that includes the following key elements:
- CONTINUE IMPROVEMENT IN COMPANY-OPERATED STORES. Our retail store strategy
consists of two main components: (1) continuing to improve same store
sales by enhancing merchandising, customer service and product selection
and (2) reducing store operating costs, primarily by selectively closing
unprofitable stores.
- INCREASE PRODUCT AVAILABILITY THROUGH COMPANY-OPERATED STORES AND
THIRD-PARTY RETAIL PROGRAMS. Our strategy of increasing product
availability nationwide is based on cross-marketing Fannie May and Sweet
Factory product offerings in Company-operated stores as well as increasing
sales of both brands through third party channels.
- GROW NON-RETAIL SALES. We have developed several non-retail sales channels
for our Fannie May and Fanny Farmer brands, including our: (1) quantity
order program, (2) mail order program and (3) fundraising program. We
believe that these non-retail sales channels provide potential
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future sales growth without the overhead generally associated with
maintaining a retail store presence.
- PURSUE STRATEGIC ACQUISITIONS. We intend to continue to pursue selective
acquisitions that complement or provide further opportunities to use our
existing brands, manufacturing resources or distribution systems.
MANAGEMENT
We believe that the depth, experience and ability of our management team has
led to the successful execution of our current business strategy. Our executive
officers and key managers, led by Ted A. Shepherd, President and Chief Operating
Officer, average over 18 years of industry experience. Mr. Shepherd, who joined
the Company in late fiscal 1994, and the rest of our current management team
have been chiefly responsible for the development of our business strategy and
improved operating results as reflected in the increase in EBITDA from $8.2
million in fiscal 1994 to $19.0 million in fiscal 1998.
The stockholders of Holdings include affiliates of (and funds advised by
affiliates of) The Jordan Company LLC, a private investment firm that has
completed over 80 transactions and currently has a portfolio of investments
representing over $3.0 billion in annual sales. Affiliates of (and funds advised
by affiliates of) The Jordan Company LLC hold a majority of the voting common
stock of Holdings and maintain majority representation on the Board of Directors
of the Company and Holdings. The other primary stockholders of Holdings are
funds affiliated with TCW Capital, an investment management firm, and the
Company's management. Affiliates of TCW Capital hold the remaining positions on
the Board of Directors of the Company and Holdings.
Archibald Candy Corporation was incorporated in Illinois on May 31, 1922.
Our headquarters are located at 1137 West Jackson Boulevard, Chicago, Illinois
60607, telephone number (312) 243-2700.
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SUMMARY OF THE EXCHANGE OFFER
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REGISTRATION RIGHTS............. We sold the Outstanding Notes on December 7, 1998 to the
initial purchaser--Jefferies & Company, Inc. The initial
purchaser then sold the Outstanding Notes to institutional
investors. Simultaneously with the initial sale of the
Outstanding Notes, the Company agreed to provide the
holders of the Outstanding Notes with certain registration
rights. The Registration Rights Agreement provides for the
Exchange Offer.
You may exchange your Outstanding Notes for Exchange
Notes, which have substantially identical terms. The
Exchange Offer satisfies your rights under the
Registration Rights Agreement. After the Exchange Offer is
over, you will not be entitled to any exchange or
registration rights with respect to your Outstanding
Notes.
THE EXCHANGE OFFER.............. We are offering to exchange $30.0 million total principal
amount of our 10 1/4% Series B Senior Secured Notes due
2004, which have been registered under the Securities Act,
for your outstanding 10 1/4% Series A Senior Secured Notes
due 2004 issued in the December 1998 unregistered
offering. To exchange your Outstanding Notes, you must
properly tender them, and we must accept them. We will
exchange all Outstanding Notes that you validly tender and
do not validly withdraw. We will issue registered Exchange
Notes at or promptly after the end of the Exchange Offer.
RESALES......................... We believe that you can offer for resale, resell or
otherwise transfer the Exchange Notes without complying
with the registration and prospectus delivery requirements
of the Securities Act if:
- you are acquiring the Exchange Notes in the ordinary
course of your business;
- you are not participating, do not intend to participate,
and have no arrangement or understanding with any person
to participate, in the distribution of the Exchange
Notes; and
- you are not an "affiliate" of the Company, as defined in
Rule 405 of the Securities Act.
If any of these conditions is not satisfied and you
transfer any Exchange Notes without delivering a proper
prospectus or without qualifying for a registration
exemption, you may incur liability under the Securities
Act. We will not assume or indemnify you against such
liability.
Each broker-dealer that receives Exchange Notes for its
own account in exchange for Outstanding Notes that such
broker-dealer acquired through market-making or other
trading activities must acknowledge that it will deliver a
proper prospectus when it transfers any Exchange Notes. A
broker-dealer may use this Prospectus for a limited period
for an offer to resell, a resale or other transfer of the
Exchange Notes.
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EXPIRATION DATE................. The Exchange Offer expires at 5:00 p.m., New York City
time, on , 1999, unless we extend the expiration
date.
CONDITIONS TO THE EXCHANGE
OFFER......................... The Exchange Offer is subject to customary conditions,
some of which we may waive. See "The Exchange
Offer--Conditions to the Exchange Offer" for more
information.
ACCRUED INTEREST ON THE EXCHANGE
NOTES AND THE OUTSTANDING
NOTES......................... The Exchange Notes will bear interest from January 1,
1999. If we accept your Outstanding Notes for exchange,
then you will waive all interest accrued but unpaid on
such Outstanding Notes.
PROCEDURES FOR TENDERING
OUTSTANDING NOTES............. The Company issued the Outstanding Notes in global and
registered form. When the Outstanding Notes were issued,
the Company deposited the global note with The Bank of New
York, as book-entry depositary. The Bank of New York
issued a certificateless depositary interest in the global
note, which represents a 100% interest in the note, to The
Depository Trust Company ("DTC"). Beneficial interests in
the Outstanding Notes, which are held by direct or
indirect participants in DTC through the certificateless
depositary interest, are shown on records maintained in
book-entry form by DTC.
You may tender your Outstanding Notes held in global form
through book-entry transfer in accordance with DTC's
Automated Tender Offer Program ("ATOP"). To tender your
Outstanding Notes by a means other than book-entry
transfer, a Letter of Transmittal must be completed and
signed according to the instructions contained in the
letter. The Letter of Transmittal and any other documents
required by the Letter of Transmittal must be delivered to
the Exchange Agent by mail, facsimile, hand delivery or
overnight carrier. In addition, you must deliver the
Outstanding Notes to the Exchange Agent or comply with the
procedures for guaranteed delivery. See "The Exchange
Offer--Procedures for Tendering Outstanding Notes" for
more information.
Do not send Letters of Transmittal and certificates
representing Outstanding Notes to the Company. Send these
documents only to the Exchange Agent. See "The Exchange
Offer--Exchange Agent" for more information.
SPECIAL PROCEDURES FOR
BENEFICIAL OWNERS............. If you are a beneficial owner whose Outstanding Notes are
registered in the name of a broker, dealer, commercial
bank, trust company or other nominee and wish to tender
your Outstanding Notes in the Exchange Offer, please
contact the registered holder as soon as possible and
instruct it to tender on your behalf and comply with our
instructions set forth elsewhere in this Prospectus.
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WITHDRAWAL RIGHTS............... You may withdraw the tender of your Outstanding Notes at
any time before 5:00 p.m., New York City time, on the
expiration date.
APPRAISAL OR DISSENTER'S
RIGHTS........................ Holders of Outstanding Notes do not have any appraisal or
dissenters' rights in the Exchange Offer. If you do not
tender your Outstanding Notes or the Company rejects your
tender, you will not be entitled to any further
registration rights under the Registration Rights
Agreement, except under limited circumstances. However,
your notes will remain outstanding and entitled to the
benefits of the indenture governing the notes. You should
read the discussion under the heading "Risk Factors--
Consequences of Failure to Exchange Outstanding Notes" for
further information.
FEDERAL TAX CONSEQUENCES........ The exchange of notes generally is not a taxable exchange
for United States federal income tax purposes. You
generally will not recognize any taxable gain or loss or
any interest income as a result of such exchange. For
additional information regarding federal tax consequences,
you should read the discussion under the heading "Certain
United States Federal Tax Consequences."
EXCHANGE AGENT.................. The Bank of New York is serving as the Exchange Agent in
the Exchange Offer. The Exchange Agent's address, and
telephone and facsimile numbers are listed in the section
of this Prospectus entitled "The Exchange Offer--Exchange
Agent" and in the Letter of Transmittal.
USE OF PROCEEDS................. We will not receive any proceeds from the Exchange Offer,
and we will pay the expenses of the Exchange Offer.
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You should consider carefully the information set forth under the caption
"Risk Factors" beginning on page 14 and all other information set forth in this
Prospectus before deciding whether to participate in the Exchange Offer.
SUMMARY OF TERMS OF THE EXCHANGE NOTES
The form and terms of the Exchange Notes are the same as the form and terms
of the Outstanding Notes, except that the Exchange Notes will be registered
under the Securities Act. As a result, the Exchange Notes will not bear legends
restricting their transfer and will not contain the registration rights and
liquidated damage provisions contained in the Outstanding Notes. The Exchange
Notes represent the same debt as the Outstanding Notes. The terms of the
Exchange Notes are identical to the terms of Archibald Candy's currently
outstanding $100.0 million 10 1/4% Senior Secured Notes due 2004 (the "Original
Exchange Notes") except for the date of issuance. The Outstanding Notes, the
Exchange Notes and the Original Exchange Notes are governed by the same
Indenture and secured ratably by the collateral granted under the Indenture.
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AGGREGATE AMOUNT................ $30.0 million principal amount of 10 1/4% Senior Secured
Notes due 2004.
MATURITY DATE................... July 1, 2004.
INTEREST PAYMENT DATES.......... January 1 and July 1, commencing July 1, 1999.
GUARANTORS...................... All of the Company's material subsidiaries will fully and
unconditionally guarantee the Exchange Notes on a senior
secured basis. You should read "Description of the
Exchange Notes--Collateral" and "Description of the
Exchange Notes--
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Guarantors" for more information regarding the guarantees
of the Exchange Notes.
SECURITY........................ The Exchange Notes will be secured by:
- security interests in certain of the Company's and the
guarantor subsidiaries' equipment, fixtures and general
intangibles, including trademarks and trademark
licenses;
- mortgages on certain of the Company's owned real
property; and
- a security interest in and a pledge of all of the
capital stock of each material subsidiary of the Company.
The Exchange Notes will be secured ratably with the
Company's outstanding $100.0 million of 10 1/4% Series B
Senior Secured Notes due 2004 (the "Original Exchange
Notes"). The Exchange Notes will not be secured by the
Company's owned store locations and certain other assets
of the Company and the guarantor subsidiaries, such as
their accounts receivable, raw materials and finished
goods inventories. See the discussion under the heading
"Description of the Exchange Notes-- Collateral" for
further information regarding the collateral that will
secure the Exchange Notes.
OPTIONAL REDEMPTION............. At our option, we may redeem all or some of the Exchange
Notes on or after July 1, 2001. In addition, at any time
on or prior to July 1, 2000, we may redeem up to one-third
of the total amount of the notes ever issued under the
Indenture with the net proceeds of one or more offerings
of our capital stock. The Company's optional redemption
prices for the Exchange Notes are contained in this
Prospectus under the heading "Description of the Exchange
Notes--Redemption."
CHANGE OF CONTROL............... Upon a change of control of the Company, we must offer to
repurchase your Exchange Notes at a price of 101% of their
principal amount plus accrued interest to the repurchase
date. For more information, see "Description of the
Exchange Notes-- Repurchase Upon Change of Control."
RANKING......................... The Exchange Notes:
- are senior secured obligations of the Company;
- rank senior in right of payment to all existing and
future subordinated indebtedness of the Company;
- rank equally in right of payment with all existing and
future senior indebtedness of the Company;
- are effectively junior to our revolving credit facility
with respect to the assets securing such obligations; and
- are jointly and severally guaranteed on a senior secured
basis by certain current and future material subsidiaries.
The revolving credit facility is secured by a first
priority security interest in the accounts receivable, raw
materials and finished goods inventories of the Company
and the guarantor subsidiaries and certain of the
Company's owned store locations. As of the
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date of this Prospectus, we had no borrowings outstanding
under the revolving credit facility, although a letter of
credit in the amount of $0.5 million was outstanding under
the revolving credit facility.
CERTAIN COVENANTS............... The Indenture contains certain covenants for your benefit
which, among other things and subject to certain
exceptions, restrict our ability to:
- incur indebtedness;
- create liens;
- make certain payments or investments;
- enter into transactions with affiliates;
- sell assets;
- consolidate, merge or transfer all or substantially all
of our assets; or
- allow our subsidiaries to issue capital stock.
FORM OF THE EXCHANGE NOTES...... The Exchange Notes will be represented by one or more
permanent global securities in bearer form deposited with
The Bank of New York, as book-entry depositary, for the
benefit of DTC. You will not receive notes in registered
form unless one of the events set forth under the heading
"Description of the Exchange Notes--Certificated Notes"
occurs. Instead, beneficial interests in the Exchange
Notes will be shown on, and transfers of these interests
will be effected only through, records maintained in
book-entry form by DTC with respect to its participants.
ABSENCE OF A PUBLIC MARKET FOR
THE EXCHANGE NOTES............ While the Outstanding Notes are presently eligible for
trading in the Private Offerings, Resales and Trading
through Automated Linkages ("PORTAL") market of the
National Association of Securities Dealers, Inc. ("NASD")
by qualified institutional buyers, there is no existing
market for the Exchange Notes. The initial purchaser of
the Outstanding Notes has advised the Company that it
currently intends to make a market in the Exchange Notes
following the Exchange Offer, but it is not obligated to
do so, and any market-making may be stopped at any time
without notice. The Company does not intend to apply for a
listing of the Exchange Notes on any securities exchange.
We do not know if an active public market for the notes
will develop or, if developed, will continue. If an active
public market does not develop or is not maintained, the
market price and liquidity of the notes may be adversely
affected. The Company cannot make any assurances regarding
the liquidity of the market for the Exchange Notes, the
ability of holders to sell their Exchange Notes or the
price at which holders may sell their Exchange Notes.
</TABLE>
For additional information regarding the Exchange Notes, see "Description of
the Exchange Notes."
8
<PAGE>
SUMMARY UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL DATA
The following table summarizes financial data from the unaudited pro forma
condensed consolidated financial statements included elsewhere in this
Prospectus. The pro forma condensed consolidated income statement and other data
for the year ended August 29, 1998, and the three-month period ended November
28, 1998 are intended to give you a picture of what our business might have
looked like if the Acquisition and related financing had occurred on August 31,
1997.
It is important that you read the summary unaudited pro forma condensed
consolidated financial data presented below along with "Unaudited Pro Forma
Condensed Consolidated Financial Statements," "Selected Financial Data,"
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements of Archibald Candy and Sweet Factory
and accompanying notes included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED
PRO FORMA CONSOLIDATED THREE-MONTH
YEAR ENDED PERIOD ENDED
AUGUST 29, 1998(1) NOVEMBER 28, 1998(2)
---------------------- ----------------------
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-Operated Retail (3).................................... $ 169,147 $ 32,821
Third-Party Retail (4)......................................... 18,230 7,980
Non-Retail (5)................................................. 17,024 5,566
-------- --------
Total net sales.............................................. $ 204,401 $ 46,367
-------- --------
-------- --------
Gross profit..................................................... $ 132,998 $ 24,624
Operating income (loss).......................................... 13,203 (1,927)
OTHER DATA:
EBITDA (6)....................................................... 26,341 1,428
Depreciation and amortization.................................... 12,964 3,318
Capital expenditures............................................. 9,583 1,648
STORE DATA:
Company-operated stores at period end (7)........................ 573 592
SELECTED RATIOS:
Ratio of EBITDA to net interest expense.......................... 2.1 0.4
Ratio of total debt to EBITDA.................................... 4.9 91.3
Ratio of earnings to fixed charges............................... 1.0 n/a
</TABLE>
- ------------------------
SEE FOOTNOTES ON THE FOLLOWING PAGE.
9
<PAGE>
(1) The pro forma financial data for the fiscal year ended August 29, 1998
includes financial data for Archibald Candy for the fiscal year ended August
29, 1998 and Sweet Factory for the twelve month period ended August 29,
1998.
(2) The pro forma financial data for the three-month period ended November 28,
1998 includes financial data for Archibald Candy for the quarterly period
ended November 28, 1998 and for Sweet Factory for the three-month period
ended November 28, 1998.
(3) Company-Operated Retail includes sale of products through Company-operated
Fannie May, Fanny Farmer and Sweet Factory stores.
(4) Third-Party Retail includes sale of Company branded products through grocery
stores, drug stores and other independent retailers that purchase Company
branded products at wholesale pricing for resale to the consumer.
(5) Non-Retail includes sale of Company branded products through the Company's
quantity order, mail order and fundraising programs.
(6) Pro forma EBITDA for any period presented above is defined as earnings
before interest, income taxes, depreciation and amortization. Includes $2.7
million of annual cost savings the Company's management expects to realize
as a result of the cost savings initiatives to be undertaken in connection
with the consolidation of Sweet Factory's operations into those of the
Company. See "The Acquisition." EBITDA is included because management
believes that certain investors may find it useful for analyzing operating
performance, leverage and liquidity. EBITDA should not be construed as a
measure that is superior to, or a substitute for, operating income or net
cash flow provided by operating activities, or as an indicator of liquidity,
which are determined in accordance with generally accepted accounting
principles. Other companies may not calculate EBITDA in a similar manner
and, for that reason, the Company's measure of EBITDA may not be comparable
to that of other companies.
(7) The term "stores" includes kiosks and carts.
10
<PAGE>
SUMMARY SELECTED FINANCIAL DATA
The summary historical financial data as of and for each year in the
three-year period set forth below have been derived from the audited financial
statements of Archibald Candy and Sweet Factory. The summary historical
financial data set forth below as of and for the three-month periods ended
November 29, 1997 and November 28, 1998 (for Archibald Candy), and as of and for
the nine-month periods ended October 4, 1997 and October 3, 1998 (for Sweet
Factory), have been derived from the respective unaudited financial statements
of Archibald Candy and Sweet Factory. The historical results of Archibald Candy
and Sweet Factory for the three-month and nine-month periods, respectively, are
not necessarily indicative of the results of operations of Archibald Candy and
Sweet Factory for the full year. The unaudited historical financial data reflect
all adjustments (consisting of normal, recurring adjustments) which are, in the
opinion of management, necessary for a fair presentation of each entity's
financial position, results of operations and cash flows as of and for the end
of the periods presented. The information set forth below should be read in
conjunction with "Unaudited Pro Forma Condensed Consolidated Financial
Statements," "Selected Financial Data," "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
Archibald Candy and Sweet Factory included elsewhere in this Prospectus.
ARCHIBALD CANDY FINANCIAL DATA
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE-MONTH PERIOD ENDED
------------------------------------- --------------------------
AUGUST 31, AUGUST 30, AUGUST 29, NOVEMBER 29, NOVEMBER 28,
1996 (1) 1997 (1) 1998 (1) 1997 1998
----------- ----------- ----------- ------------ ------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-Operated Retail (2)........................ $ 88,938 $ 89,276 $ 91,488 $ 16,172 $ 16,102
Third-Party Retail (3)............................. 14,924 17,074 18,230 6,061 7,980
Non-Retail (4)..................................... 13,486 15,583 17,024 4,940 5,566
----------- ----------- ----------- ------------ ------------
Total net sales.................................. $ 117,348 $ 121,933 $ 126,742 $ 27,173 $ 29,648
----------- ----------- ----------- ------------ ------------
----------- ----------- ----------- ------------ ------------
Gross profit......................................... $ 76,338 $ 79,649 $ 82,764 $ 16,578 $ 17,238
Operating income (loss).............................. 7,945 10,801 12,539 (612) (149)
OTHER DATA:
EBITDA (5)........................................... 14,731 16,868 18,964 1,057 1,465
Cash provided by (used in):
Operating activities............................... 4,117 3,919 4,206 (4,346) (4,400)
Investing activities............................... (1,121) (3,688) (4,709) (1,287) (880)
Financing activities............................... (3,098) 15,190 (2,217) (114) (358)
Depreciation and amortization........................ 6,807 5,932 6,233 1,611 1,577
Capital expenditures................................. 2,280 3,688 4,574 1,287 880
STORE DATA:
Company-operated stores at period end (6)............ 340 322 317 326 333
Increase (decrease) in same store sales (7).......... 2.6% 5.2% 4.2% 3.9% (0.3)
</TABLE>
<TABLE>
<CAPTION>
NOVEMBER NOVEMBER
AUGUST 31, AUGUST 30, AUGUST 29, 29, 28,
1996(1) 1997(1) 1998(1) 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents.................. $ 380 $ 15,801 $ 13,081 $ 10,054 $ 7,443
Working capital (deficiency)............... (4,349) 23,475 26,988 20,289 24,591
Total assets............................... 78,668 95,660 98,089 97,533 100,228
Total debt................................. 72,721 100,521 100,145 100,439 100,097
Shareholder's equity (deficit)............. (15,448) (16,619) (14,944) (19,722) (17,532)
</TABLE>
- ------------------------
SEE FOOTNOTES ON THE FOLLOWING PAGE.
11
<PAGE>
(1) In 1995, the Company changed its fiscal year to the last Saturday in August
from the last day in August. As a result of this change, fiscal 1996 had 53
weeks (371 days). Fiscal 1997 and fiscal 1998 each had 52 weeks (364 days).
(2) Company-Operated Retail includes sale of products through Company-operated
Fannie May and Fanny Farmer stores.
(3) Third-Party Retail includes sale of Company branded products through grocery
stores, drug stores and other independent retailers that purchase Company
branded products at wholesale pricing for resale to the consumer.
(4) Non-Retail includes sale of Company branded products through the Company's
quantity order, mail order and fundraising programs.
(5) EBITDA for any period presented above is defined as earnings before
interest, income taxes, depreciation and amortization. EBITDA is included
because management believes that certain investors may find it useful for
analyzing operating performance, leverage and liquidity. EBITDA should not
be construed as a measure that is superior to, or a substitute for,
operating income or net cash flow provided by operating activities, or as an
indicator of liquidity, which are determined in accordance with generally
accepted accounting principles. Other companies may not calculate EBITDA in
a similar manner and, for that reason, Archibald Candy's measure of EBITDA
may not be comparable to that of other companies.
(6) The term "stores" includes kiosks.
(7) Same store sales are defined as the aggregate sales from stores open for the
entire periods being compared. Increases or decreases reflect changes from
the immediately prior comparable period.
12
<PAGE>
SWEET FACTORY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
YEAR ENDED NINE-MONTH PERIOD ENDED
-------------------------------------- ----------------------------
DECEMBER 30, JANUARY 4, JANUARY 3, OCTOBER 4, OCTOBER 3,
1995 1997 1998 1997 1998
------------ ----------- ----------- ------------- -------------
<S> <C> <C> <C> <C> <C>
(UNAUDITED)
<CAPTION>
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales................................... $ 52,939 $ 65,062 $ 74,209 $ 52,289 $ 55,928
Gross profit................................ 26,630 32,202 35,065 24,838 24,691
Operating income (loss)..................... 1,241 2,125 (351) (745) (2,520)
OTHER DATA:
EBITDA (1).................................. 5,527 7,205 5,848 3,814 2,647
Cash provided by (used in):
Operating activities...................... 5,354 4,010 6,736 693 503
Investing activities...................... (5,956) (8,134) (8,594) (6,219) (1,851)
Financing activities...................... (523) 4,213 1,821 5,451 1,541
Depreciation and amortization............... 4,286 5,080 6,199 4,559 5,167
Capital expenditures........................ 5,765 8,551 8,005 6,202 2,087
STORE DATA:
Company-operated stores at
period end (2)............................ 167 207 251 235 257
Increase in same store sales (3)............ 2.1% 2.3% (4.7)% (3.0 )% (3.7 )%
</TABLE>
<TABLE>
<CAPTION>
DECEMBER
30, JANUARY 4, JANUARY 3, OCTOBER 4, OCTOBER 3,
1995 1997 1998 1997 1998
----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents........... $ 817 $ 779 $ 868 $ 704 $ 1,061
Working capital (deficiency)........ (770) (909) 492 2,089 3,320
Total assets........................ 34,942 40,048 44,297 44,081 42,656
Total debt.......................... 673 2,712 7,533 8,576 9,122
Shareholder's equity................ 27,098 28,250 27,636 27,530 25,752
</TABLE>
- ------------------------
(1) EBITDA for any period presented above is defined as earnings before
interest, income taxes, depreciation and amortization. EBITDA is included
because management believes that certain investors may find it useful for
analyzing operating performance, leverage and liquidity. EBITDA should not
be construed as a measure that is superior to, or a substitute for,
operating income or net cash flow provided by operating activities, or as an
indicator of liquidity, which are determined in accordance with generally
accepted accounting principles. Other companies may not calculate EBITDA in
a similar manner and, for that reason, Sweet Factory's measure of EBITDA
measures may not be comparable to that of other companies.
(2) The term "stores" includes carts and kiosks.
(3) Same store sales are defined as the aggregate sales from stores open for the
entire periods being compared. Increases reflect changes from the
immediately prior comparable period.
13
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE RISK FACTORS SET FORTH BELOW, AS WELL AS
THE OTHER INFORMATION SET FORTH IN THIS PROSPECTUS, BEFORE MAKING A DECISION TO
EXCHANGE YOUR NOTES IN THE EXCHANGE OFFER.
THIS PROSPECTUS CONTAINS FORWARD-LOOKING STATEMENTS. SUCH STATEMENTS CAN BE
IDENTIFIED BY THE USE OF FORWARD-LOOKING TERMS SUCH AS "MAY," "WILL," "BELIEVE,"
"EXPECT," ANTICIPATE," "ESTIMATE," "CONTINUE" OR OTHER SIMILAR WORDS. THESE
STATEMENTS DISCUSS FUTURE EXPECTATIONS, CONTAIN PROJECTIONS OF RESULTS OF
OPERATIONS OR OF FINANCIAL CONDITION OR STATE OTHER "FORWARD-LOOKING"
INFORMATION THAT CONSTITUTE "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF
THE PRIVATE SECURITIES LITIGATION REFORM ACT OF 1995. WHEN CONSIDERING SUCH
FORWARD-LOOKING STATEMENTS, YOU SHOULD KEEP IN MIND THE RISK FACTORS AND OTHER
CAUTIONARY STATEMENTS IN THIS PROSPECTUS. THE RISK FACTORS NOTED IN THIS SECTION
AND OTHER FACTORS NOTED THROUGHOUT THIS PROSPECTUS, INCLUDING CERTAIN RISKS AND
UNCERTAINTIES, COULD CAUSE OUR ACTUAL RESULTS TO DIFFER MATERIALLY FROM THOSE
CONTAINED IN ANY FORWARD-LOOKING STATEMENTS. GIVEN THESE UNCERTAINTIES, YOU
SHOULD NOT PLACE UNDUE RELIANCE ON SUCH FORWARD-LOOKING STATEMENTS.
SIGNIFICANT LEVERAGE
We have substantial indebtedness and debt service requirements. As of
November 28, 1998 on a pro forma basis after giving effect to the Acquisition,
we had outstanding long-term debt of approximately $130.4 million (consisting of
$130.0 million of the Original Exchange Notes and the Outstanding Notes and $0.4
million of capital lease obligations) and a shareholders' deficit of
approximately $17.5 million. We also had borrowing availability of $19.5 million
under our revolving credit facility, subject to certain borrowing conditions.
You should read the discussions under the headings "Capitalization" and
"Unaudited Pro Forma Condensed Consolidated Financial Statements" for further
information regarding the Company's indebtedness.
This high level of debt could have important consequences to you, including:
- a substantial portion of our cash flow from operations will be required to
make debt service payments and will not be available for other purposes;
- our ability to obtain additional financing in the future for working
capital, capital expenditures, acquisitions or general corporate purposes
may be limited; and
- our leverage could limit our flexibility to react to competitive
pressures, changes in our operating environment and general economic
conditions.
In addition, our ability to meet our debt service obligations and reduce our
total indebtedness will depend upon our future performance, which will be
subject to economic, financial, competitive and other factors, many of which are
beyond our control.
SUBORDINATION
If the Company declares bankruptcy, liquidates or reorganizes, the Company
must pay all senior debt before our assets will be available to pay on the
Original Exchange Notes and the Exchange Notes. In certain circumstances, we may
not be able to pay on some or all of the Original Exchange Notes and the
Exchange Notes. Our obligations under the revolving credit facility are secured
by the accounts receivable, raw materials and finished goods inventories of the
Company and the guarantor subsidiaries and certain of the Company's owned store
locations. As a holder of Exchange Notes, you will be effectively subordinated
to the claims of the lenders under the revolving credit facility to the extent
of the assets securing such obligations and to any of our future secured
indebtedness and other secured obligations. In the event of a default on the
Exchange Notes, or a liquidation or reorganization of the Company, such assets
would be available to satisfy obligations under the revolving credit facility
before any payment from such assets could be made on the Original Exchange Notes
or the Exchange Notes. As a result, there may not be sufficient assets remaining
to pay amounts due on any or all of the Original Exchange Notes or the Exchange
Notes then outstanding. As of November 28, 1998, there was no indebtedness
outstanding that would have been senior in right of payment to the Original
14
<PAGE>
Exchange Notes or the Exchange Notes. The Original Exchange Notes and the
Exchange Notes are secured ratably by the collateral pledged pursuant to the
Indenture.
RESTRICTIVE DEBT COVENANTS
The terms and conditions of the revolving credit facility and the Indenture
impose restrictions that affect, among other things, our ability to:
- pay dividends or make certain other restricted payments;
- incur additional indebtedness;
- encumber or sell assets;
- enter into transactions with affiliates;
- enter into certain guarantees of indebtedness;
- merge or consolidate with any other entity; or
- transfer or lease all or substantially all of our assets.
Our ability to comply with these provisions can be affected by events beyond
our control. The breach of any of these covenants could result in a default
under our indebtedness, including indebtedness under the revolving credit
facility and the Indenture. In the event of any such default, depending on the
actions taken by the lenders under the revolving credit facility or the trustee
under the Indenture, we may be unable to continue to manage the business as
currently operated or make any payments of principal or interest on the Exchange
Notes for a period of time. In addition, the lenders under the revolving credit
facility could elect to declare all amounts borrowed, together with accrued and
unpaid interest, to be due and payable. If we were unable to repay such amounts,
the lenders under the revolving credit facility could proceed against the
collateral securing such indebtedness. If the indebtedness under the revolving
credit facility were to be accelerated, our assets may not be sufficient to
repay in full such indebtedness and our other indebtedness, including the
Exchange Notes. You should read "Description of the Revolving Credit Facility"
and "Description of the Exchange Notes--Certain Covenants" for more information
about the Company's restrictive debt covenants.
TERM OF REVOLVING CREDIT FACILITY; NEED FOR SEASONAL FINANCING
The revolving credit facility, which is designed to address our seasonal
working capital needs, expires July 2, 2000. We cannot assure you that, at such
time, we will be able to extend or renew the revolving credit facility or obtain
alternative financing to meet our seasonal working capital needs. In the event
that we do not have a revolving credit facility in place, we may not be able to
satisfy our seasonal working capital needs, which would have a material adverse
effect on the Company and its results of operations.
POTENTIAL INABILITY TO FUND A CHANGE OF CONTROL OFFER
We must offer to purchase the Exchange Notes and the Original Exchange Notes
at 101% of their principal amount plus accrued interest upon a change of control
of the Company. If a change of control were to occur, we cannot assure you that
we would have sufficient money or be able to arrange financing to pay for all
tendered Exchange Notes and Original Exchange Notes. The Indenture does not
protect holders of Exchange Notes or Original Exchange Notes from a highly
leveraged transaction, reorganization, restructuring, merger or similar event
that does not result in a change of control. The revolving credit facility
prohibits the Company from voluntarily purchasing the Exchange Notes and the
Original Exchange Notes, and certain events constituting a change of control
constitute a default under the revolving credit facility. If a change of control
occurs under the revolving credit facility, the Company could ask its lenders to
consent to our purchase of Exchange Notes and Original Exchange Notes or could
attempt to refinance the debt. However, our ability to obtain the lenders'
consent or to refinance is uncertain. The Company's inability to purchase the
Exchange Notes or the Original
15
<PAGE>
Exchange Notes could become an event of default under the Indenture and other
debt. You should read "Description of the Exchange Notes--Repurchase Upon Change
of Control" and "Description of the Revolving Credit Facility" for more
information regarding the Company's potential inability to fund a change of
control offer.
FRAUDULENT CONVEYANCE
Any of the Company's creditors may file a lawsuit objecting to the Company's
obligations under the Exchange Notes or the use of the proceeds from the
Outstanding Notes. A court could void the Company's obligations under the
Exchange Notes, subordinate the Exchange Notes to the Company's other debt or
order the holders to return any amounts paid for the Outstanding Notes to the
Company or to a fund benefitting the creditors if the court finds the Company
(1) intended to defraud a creditor or (2) did not receive fair value for the
Outstanding Notes and the Company either (A) was insolvent or became insolvent
by offering the Outstanding Notes, (B) did not have enough capital to engage in
the Acquisition or (C) intended to or believed that it overextended its debt
obligations. Creditors of the guarantor subsidiaries may also object to their
guarantee of the Exchange Notes and the Original Exchange Notes. A court could
provide creditors of the guarantor subsidiaries with the relief outlined above.
In addition, the creditors of the guarantor subsidiaries could claim that since
the guarantees were made for the benefit of the Company, the guarantor
subsidiaries did not receive fair value for the guarantees.
The measure of insolvency for fraudulent transfer purposes will vary
depending upon the law of the jurisdiction that is being applied in any
proceeding. Generally, however, the Company or a guarantor subsidiary would be
considered insolvent if, at the time it incurred the debt, either (1) the sum of
its debts (including contingent liabilities) is greater than its assets, at a
fair valuation, or (2) the present fair salable value of its assets is less than
the amount required to pay the probable liability on its total existing debts
and liabilities (including contingent liabilities) as they become absolute and
matured. We cannot give any assurance as to what standards a court would use to
determine whether the Company or a guarantor subsidiary was solvent at the
relevant time, or whether, whatever standard was used, the Exchange Notes would
not be voided or further subordinated on the grounds set forth above.
We believe that at the time we incurred the debt constituting the
Outstanding Notes and the subsidiary guarantees, we (1) were (a) neither
insolvent nor to be rendered insolvent as a result, (b) in possession of
sufficient capital to run our businesses effectively, and (c) incurring debts
within our ability to pay them as they become due, and (2) had sufficient assets
to satisfy any probable money judgment against us in any pending action. In
reaching this conclusion, we have relied upon our analyses of internal cash flow
projections and estimated values of our assets and liabilities. We cannot assure
you, however, that a court passing on the same questions would reach the same
conclusions.
INTEGRATION OF OPERATIONS
We will face significant challenges in integrating the Sweet Factory brand
name, stores and operations with Archibald Candy's existing operations. The
integration will require substantial attention from our management. The
diversion of management's attention from Archibald Candy's existing business
could have an adverse impact on the Company's operating results and financial
condition. Additional risks related to the integration of operations which could
have an adverse impact on the Company's operating results and financial
condition, include:
- the failure to realize expected operating efficiencies from the
Acquisition;
- the failure to improve the performance of the Sweet Factory stores;
- the failure to integrate Sweet Factory's operations into Archibald Candy's
existing operations;
- the costs and time required for such integration exceeding our
expectations;
- the failure to effectively cross-market products or expand product
distribution; and
16
<PAGE>
- unexpected costs or liabilities in Sweet Factory's operations.
Sweet Factory experienced negative same store sales results in each of
fiscal 1997 and fiscal 1998. We cannot assure you that these results will not
continue. Although we intend to apply many of the same strategies that have been
successful in improving our Fannie May and Fanny Farmer store-level performance
since 1994, we cannot assure you that we will be successful in doing so.
RISK OF ACQUISITION STRATEGY
We intend to continue to pursue selective acquisitions that complement or
provide further opportunities to use our existing brands, manufacturing
resources or distribution systems. However, we cannot assure you that we will be
able to identify suitable acquisition candidates or that, if identified, we will
be able to finance such acquisitions or acquire such companies on suitable
terms. Moreover, other companies are competing for acquisition candidates, which
could result in an increase in the price of acquisition targets and a decrease
in the number of attractive companies available for acquisition. In addition, we
cannot assure you that the anticipated economic, operational and other benefits
of future acquisitions will be achieved or that we will be able to successfully
integrate acquired businesses in a timely manner without substantial costs,
delays or other operational or financial problems.
SUBSTANTIAL COMPETITION
The production and sale of confectionery products is highly competitive. We
compete with numerous businesses that manufacture, distribute or retail boxed
chocolates and other confectionery products, including confectionery
manufacturers, distributors and retailers who supply or seek to supply various
segments of the confectionary market that we currently target for growth and
development. Our primary competitors in the boxed chocolate segment of the
confectionery industry are Russell Stover, Whitman's and Godiva. We also compete
with manufacturers, distributors and retailers of other snack food products,
including cookies, ice cream and coffee, as well as with grocery stores, gift
distributors and retailers, such as florists and card and gift shops, that offer
products at price points comparable to those of our products or, in some cases,
at price points lower than those of our products. Many of our competitors have
greater name recognition and greater financial, marketing and other resources.
Competitive market conditions could have a material adverse effect on the
Company and its results of operations. You should read "Business--Competition"
for more information regarding the Company's competition.
DEPENDENCE ON REAL ESTATE LEASES; CONTINUING OBLIGATIONS ON LEASES
We lease locations for all of our Fanny Farmer and Sweet Factory stores and
substantially all of our Fannie May stores. Our success depends in part on our
ability to secure leases in high quality locations at rents we believe to be
reasonable. Within the next four years, approximately 58% of our store leases
are due to expire. We cannot assure you that we will be able to renew our leases
or that the terms of such renewals will be favorable to us. We believe that the
market for the type of locations historically leased by us is highly
competitive. As a result, we cannot assure you that we will succeed in renewing
or obtaining such leases in the future at rents that we believe to be reasonable
or at all. Moreover, if certain locations should prove to be unprofitable, we
may continue to be liable for lease payments if we determine to withdraw from
such locations.
SEASONALITY
Our sales and profits are highly seasonal, particularly Archibald Candy's
sales and profits. Historically, Archibald Candy has realized a majority of its
annual sales and profits during the periods preceding Christmas, Valentine's Day
and Easter. If for any reason demand for Archibald Candy's products during any
such holiday season is insufficient, our total sales and profits will be
materially reduced for such period and for the fiscal year in general. Further,
we must establish inventory levels in anticipation of projected seasonal demand.
To the extent that we underestimate such demand, we could lose sales and
profits. To the extent that we establish inventories in excess of actual demand,
we may have to sell inventory at reduced prices or write-off the excess
inventory as unsaleable. You should read
17
<PAGE>
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Quarterly Results and Seasonality" for more information regarding
the seasonality of Archibald Candy's sales and profits.
FLUCTUATIONS IN COST OF SALES AND IMPACT ON PRICING
The principal components of our Fannie May and Fanny Farmer cost of sales
are raw materials, purchased product, labor and manufacturing overhead. The
principal component of our Sweet Factory cost of sales is purchased product. The
overall supply and price of our raw materials and purchased products have been
relatively stable in recent years. However, there are many factors over which we
have no control, including market fluctuations and economic, political and
weather conditions affecting commodity supplies, that may significantly affect
the supply and price of specific raw materials and purchased products. We have
long-standing relationships with many of our principal raw material and candy
product suppliers and generally do not depend on any single supplier for key
ingredients or products. Nevertheless, a significant or prolonged increase in
the prices of chocolate, nutmeats or other key ingredients or purchased candy
products, or the unavailability of adequate supplies of such materials or
products of the quality or brand sought by us, could have a material adverse
effect on the Company and its results of operations.
Archibald Candy has entered into non-exclusive, short term (less than one
year) supply agreements with Peter's Chocolate Company and Merckens Chocolate
Company, its primary raw materials suppliers. In fiscal 1998, we purchased
approximately 3 million pounds and 2 million pounds of coatings from Peter's
Chocolate Company and Merckens Chocolate Company, respectively. The two
suppliers account for over 90% of the total coatings Archibald Candy purchases.
The loss of services from either of these suppliers could have a material
adverse effect on the Company and its results of operations. To decrease its
dependence on these suppliers, Archibald Candy entered into a supply arrangement
with Blommer Chocolate Company in early fiscal 1999. Archibald Candy
historically has not had business relationships with many of Sweet Factory's
suppliers, some of which are the sole source for nationally recognized
third-party branded products. Therefore, we cannot assure you that we will be
able to continue to source some or all of our Sweet Factory products.
In many of our sales channels, we must set our prices prior to or at the
beginning of the fiscal year. Therefore, if the cost of sales or operating
expenses rise unexpectedly during the year, we may be limited in our ability or
unable to pass along such cost increases to our customers through higher prices.
Furthermore, we generally may be unable or limited in our ability to pass along
cost increases to our customers through higher prices either because of real or
perceived competitive issues or consumer resistance. Our sensitivity to cost
increases and inability to raise prices may have a material adverse effect on
the Company and its results of operations. See "Business--Products."
REGIONAL CONCENTRATION OF OPERATIONS
A majority of our Fannie May and Fanny Farmer stores and third-party
retailers carrying Fannie May and Fanny Farmer products are located in the
Midwestern United States, particularly in the greater Chicago metropolitan area.
A significant number of our Sweet Factory stores are located in the Western
United States, primarily in California. Many of our remaining stores are located
in and around large metropolitan areas in the Northwestern, the upper Midwestern
and the Northeastern United States and Florida. As a result, we are susceptible
to adverse developments in the economy, weather conditions, competition,
consumer preferences or demographics in any of these metropolitan areas. For
example, severe weather conditions in any of our principal metropolitan markets
may have a material negative impact on customer traffic and sales, especially if
such weather occurs during one of our peak selling periods. Due to our
susceptibility to such adverse developments, we cannot assure you that the
current geographic concentration of our business will not have a material
adverse effect on the Company and our results of operations.
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OTHER FACTORS AFFECTING SALES AND PROFITABILITY
A number of factors beyond our control may adversely affect our sales and
profitability. Such factors include:
- general customer traffic in shopping centers and malls in which our stores
and third-party retailers of our products are located;
- the timing of the Christmas and Valentine's Day holidays (I.E., the days
of the week on which such holidays occur);
- changes in discretionary spending priorities; and
- changes in consumer tastes, preferences and eating habits.
The Company believes its sales are strongly influenced by the amount and
proximity of pedestrian traffic near the Company-operated stores and third-party
retailers of the Company's products. In recent years, visits to major shopping
malls have declined from 3.7 visits per month in 1989 to 3.0 visits per month in
1996. There can be no assurance that this trend will not continue. A continued
decline in mall traffic could aversely affect the Company's financial condition
and results of operations.
GOVERNMENTAL REGULATION; LITIGATION
As a manufacturer and retailer of food products, we are subject to extensive
regulation by various federal and state regulatory agencies, including the Food
and Drug Administration. In addition, all of our retail stores are subject to
licensing and regulation by the health, sanitation, safety, building and fire
agencies of the respective states and municipalities in which such stores are
located. A failure to comply with one or more regulations could result in the
imposition of sanctions. Such sanctions could include the closing of all or a
portion of our facilities for an indeterminate period of time or the recall of
products that were manufactured under improper conditions, either of which could
have a material adverse effect on the Company and its results of operations.
Under various federal, state and local laws, ordinances and regulations, an
owner or operator of real estate may be liable for the costs of removal or
remediation of certain hazardous or toxic substances on or in such property.
Such liability may be imposed without regard to whether the owner or operator
knew of, or was responsible for, the presence of such hazardous or toxic
substances. A number of properties owned or operated by Archibald Candy were
formerly operated as gasoline stations. We have engaged in a limited review of
these properties and removed underground storage tanks and associated
contamination where such underground storage tanks were identified. Although we
are not aware of any environmental conditions that require remediation under
federal, state or local law at these properties, we cannot assure you that we
have identified all of the potential environmental liabilities at these
properties or that such liabilities would not have a material impact on the
Company's financial condition.
We also are subject to laws governing our relationships with employees,
including minimum wage requirements, overtime, work and safety conditions and
citizenship requirements. Because a significant number of our employees are paid
at rates related to the federal minimum wage, an increase in the minimum wage
would increase our labor costs. An increase in the minimum wage rate or employee
benefits costs (including costs associated with mandated health insurance
coverage) could have a material adverse effect on the Company and its results of
operations.
Although we are not currently subject to any product liability litigation,
we cannot assure you that product liability litigation will not occur in the
future involving our products. Our quality control program is designed to
maintain high standards for the food and materials and food preparation
procedures used by us. Our personnel periodically inspect our products at both
the point-of-sale locations and the manufacturing facilities to ensure that they
conform to our standards. We maintain insurance relating to personal injury and
product liability in amounts that we consider adequate for the retail food
industry. While we have been able to obtain such insurance in the past, we
cannot assure
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you that we will be able to maintain these insurance policies in the future at
reasonable prices or at all. Consequently, any successful claim against us, in
an amount materially exceeding our coverage, could have a material adverse
effect on the Company's business, financial condition or results of operations.
In the ordinary course of business, we are involved in routine litigation.
Although we maintain insurance, we cannot assure you that such insurance or the
coverage thereunder will be adequate. In addition, although litigation has not
adversely affected us in the past, we cannot assure you as to the future effect
of any litigation involving us.
DEPENDENCE ON KEY PERSONNEL; LABOR RELATIONS
We believe that our success is largely dependent on the abilities and
experience of our senior management team. The loss of services of one or more of
these senior executives could adversely affect our ability to (1) effectively
manage the overall operations of the Company or (2) successfully execute current
or future business strategies, either of which could have a material adverse
effect on the Company and its results of operations. In addition, we believe
that our continued success will depend upon our ongoing ability to attract and
retain qualified management and employees. We do not have employment agreements
with any members of our senior management and do not maintain key man life
insurance on any such individuals. You should read "Management" for more
information regarding our key personnel.
Archibald Candy currently is subject to seven collective bargaining
agreements, all of which expire on or before March 31, 2003. Archibald Candy
historically has had satisfactory labor relations with its employees and their
labor unions and have not experienced an organized work stoppage in over 15
years. Future union contracts with Archibald Candy are likely to result in
higher wages and benefits paid to union members and, therefore, increased
operating costs, which could have a material adverse effect on the Company and
its results of operations. A work stoppage or strike by Archibald Candy's
employees, especially preceding or during one of its key selling periods (I.E.,
Christmas, Valentine's Day or Easter), could have a material adverse effect on
the Company and its results of operations. None of Sweet Factory's employees
currently are represented by a union. However, we cannot assure you that such
employees may not attempt to unionize in the future. The unionization of Sweet
Factory employees could result in higher wages and benefits for such employees
and, therefore, have a material adverse effect on the Company and its results of
operations.
TRADEMARKS
We believe that our trademarks have significant value and are important to
the marketing of our products. Although we have registered our trademarks in
numerous jurisdictions, we cannot assure you that our trademarks cannot be
circumvented, do not or will not violate the proprietary rights of others, or
would be upheld if challenged or that we would not be prevented from using our
trademarks. A negative ruling with regards to our use, validity or
enforceability of our trademarks, or the time consumed and the legal costs of
defending against such a claim could have an adverse effect on the Company and
its results of operation. In addition, we cannot assure you that we will have
the financial resources necessary to enforce or defend our trademarks.
We own the exclusive license to operate Sweet Factory stores in the United
States and Mexico, although appropriate actions to protect the use of the
license by Sweet Factory in Mexico may not have been taken. Because Sweet
Factory currently has no operations, or plans to operate in Mexico, the
Company's management does not believe that the failure to take such actions will
have a material adverse effect on the Company or its results of operations.
Further, we cannot assure you that the licensor or Sweet Factory will continue
to fulfill their respective obligations under the license agreement. The current
license period under the license agreement expires in the year 2000. However, we
have the option to extend the license for an additional ten year period by
paying a renewal fee of $825,000. We also have the option to extend the license
for two additional ten-year periods to the year 2030 by paying a renewal fee of
$825,000 for each such additional extension. We cannot assure you that
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we will be able to exercise or enforce our rights to extend the license for such
additional periods. The loss of such license could have a material adverse
effect on the Company and our results of operations.
CONTROL BY PRINCIPAL STOCKHOLDERS; POTENTIAL CONFLICTS OF INTEREST
We are subject to potential conflicts of interest arising out of our
relationship with affiliates of the TJC Investors (as defined). See "Principal
Stockholders." The TJC Investors own a majority of the issued and outstanding
capital stock of Holdings, which in turn owns all of the issued and outstanding
capital stock of the Company. Messrs. John W. Jordan II, Thomas H. Quinn and
Adam E. Max, each a director of Holdings, Archibald Candy and each of the
guarantor subsidiaries, are TJC Investors. In addition, Messrs. Quinn and Max
are officers of Archibald Candy and each of the guarantor subsidiaries. The
ability of the TJC Investors to control certain decisions concerning the
management of the Company may present conflicts of interest between the holders
of the Exchange Notes and the TJC Investors. Subject to the rights of the other
holders of Holdings' capital stock, the TJC Investors have the right to elect
directors that have a majority of the voting power of the Board of Directors of
Holdings and Archibald Candy. As a result, the TJC Investors generally will have
the ability to control the business affairs of Holdings and the Company and to
determine the outcome of any corporate transaction or other matter requiring
stockholder approval. Such matters requiring stockholder approval include, among
others:
- an amendment to the articles of incorporation of Holdings or Archibald
Candy;
- the authorization of additional shares of capital stock; and
- a merger, consolidation or sale of all or substantially all of the assets
or stock of Holdings or the Company.
The TJC Investors thus can prevent or cause a change of control of Holdings or
the Company, either of which may adversely affect the Company or its results of
operations. In addition, certain affiliates of TCW Capital, an investment
management firm (the "TCW Investors"), have the right to take control of the
Board of Directors of Holdings and the Company upon the occurrence of certain
events.
The holders of Holdings' senior preferred stock have various dividend and
redemption rights. Holdings' failure to satisfy such rights would result in the
holders of the senior preferred stock acquiring the right to control the Board
of Directors of Holdings and Archibald Candy. The acquisition of control of the
Board of Directors of Holdings or Archibald Candy by the holders of the senior
preferred stock would constitute a change of control under the Indenture. You
should read "Risk Factors--Potential Inability to Fund a Change of Control
Offer" for a discussion of certain consequences of a change of control.
In addition to the potential conflicts of interest mentioned above, the
Company and Holdings have entered into certain agreements with the TJC Investors
or its affiliates that present potential conflicts of interest. Pursuant to a
management consulting agreement with an affiliate of the TJC Investors, Holdings
pays such affiliate an annual fee of $364,000 for management, consulting and
similar services plus any out-of-pocket expenses and additional fees for any
investment banking services rendered. Archibald Candy pays Holdings for such
services pursuant to a tax sharing and management agreement. The Company
believes that the terms of the tax sharing and management agreement relating to
such services are comparable to the terms that it would obtain from
disinterested third parties for comparable services.
Although the Company does not have an explicit policy that addresses
potential conflicts of interest, the Indenture does prohibit certain
transactions between the Company and its affiliates. You should read the
discussion under the heading "Description of the Exchange Notes--Certain
Covenants--Limitation on Transactions with Affiliates" for further information
regarding the Indenture's restrictions on affiliate transactions.
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CAPITALIZATION OF HOLDINGS
On August 31, 2001, Holdings is required to redeem its senior preferred
stock, Class A preferred stock and Class B preferred stock. Beginning in January
2000, Holdings may be required to redeem shares of its Class A Common Stock and
Class D Common Stock held by the TCW Investors and certain of the TJC Investors.
In order for Holdings to make such redemption payments, Holdings must elect
either to pursue a sale of the Company or cause the Company, to the extent
permitted by the Indenture and the revolving credit facility, to advance the
necessary funds to Holdings by dividend or otherwise. Such advances, if made,
will reduce the funds available for the Company's operations. You should read
"Description of the Exchange Notes--Certain Covenants--Limitation on Restricted
Payments" for a discussion of limitations on the Company's ability to make
restricted payments.
IMPACT OF THE YEAR 2000 ISSUE
Many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year and, as a result, they may be unable
to process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failure causing disruptions in their operations. This
is commonly known as the year 2000 issue and can arise at any point in the
Company's supply, manufacturing, processing, distribution and financial chains.
We have surveyed substantially all of the Company's computer systems and are
in the process of contacting suppliers and consultants to address year 2000
issues for the software and hardware used by the Company. We also are in the
process of upgrading and improving the Company's internal computer systems,
which work is expected to be completed by August 1999. Following the completion
of this work and based on the representations and warranties of the Company's
suppliers and consultants, the Company's computer systems are expected to be
year 2000 compliant. We do not believe that the costs associated with making the
Company's computer systems year 2000 compliant will be material. However, if the
Company's systems or the systems of other companies on whose services the
Company depends or with whom the Company's systems interfaces are not year 2000
compliant, it could have a material adverse effect on the Company's results of
operation and financial condition.
CONSEQUENCES OF FAILURE TO EXCHANGE OUTSTANDING NOTES
The Company did not register the Outstanding Notes under the Securities Act
or any state securities laws, nor does it intend to after the Exchange Offer. As
a result, the Outstanding Notes may only be transferred in limited circumstances
under the securities laws. If the holders of the Outstanding Notes do not
exchange their notes in the Exchange Offer, they lose their right to have the
Outstanding Notes registered under the Securities Act, subject to certain
limitations. A holder of Outstanding Notes after the Exchange Offer may be
unable to sell the notes.
ABSENCE OF A PUBLIC MARKET FOR THE EXCHANGE NOTES
While the Outstanding Notes are presently eligible for trade in the PORTAL
market of the NASD by qualified institutional buyers, there is no existing
market for the Exchange Notes. The initial purchaser of the Outstanding Notes
has advised the Company that it currently intends to make a market in the
Exchange Notes following the Exchange Offer. However, the initial purchaser is
not obligated to do so, and any market-making may be stopped at any time without
notice. The Company does not intend to apply for a listing of the Exchange Notes
on any securities exchange. We do not know if an active public market for the
Exchange Notes will develop or, if developed, will continue. If an active public
market does not develop or is not maintained, the market price and liquidity of
the Exchange Notes may be adversely affected. The Company cannot make any
assurances regarding the liquidity of the market for the Exchange Notes, the
ability of holders to sell their Exchange Notes or the price at which holders
may sell their Exchange Notes.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Company issued and sold the Outstanding Notes to the initial purchaser
on December 7, 1998 pursuant to the terms and conditions of a purchase agreement
dated as of November 24, 1998. The Company agreed in the Purchase Agreement to
provide the holders of the Outstanding Notes with the same registration rights
granted to the holders of the Company's $100.0 million of 10 1/4% Series A
Senior Secured Notes due 2004 (the "Original Notes") that were issued and sold
in an unregistered offering on July 2, 1997. The Original Notes subsequently
were exchanged for a like principal amount of the Company's 10 1/4% Series B
Senior Secured Notes due 2004 which are registered under the Securities Act (the
"Original Exchange Notes"). The Original Exchange Notes remain outstanding. The
registration rights with respect to the Outstanding Notes are set forth in a
Registration Rights Agreement dated as of July 2, 1997 between Archibald Candy
and the initial purchasers of the Original Notes.
The Company is conducting the Exchange Offer to satisfy its contractual
obligations under the Registration Rights Agreement. The form and terms of the
Exchange Notes are the same as the form and terms of the Outstanding Notes,
except that the Exchange Notes will be registered under the Securities Act, and
holders of the Exchange Notes will not be entitled to liquidated damages.
EXCHANGE OFFER REGISTRATION STATEMENT
The Registration Rights Agreement requires the Company to:
- file with the Securities and Exchange Commission (the "SEC") by February
5, 1999 a registration statement with respect to an offer to exchange the
Outstanding Notes for the Exchange Notes, which would have terms
substantially identical in all material respects to the Outstanding Notes;
- use its best efforts to cause such exchange offer registration statement
to become effective under the Securities Act by April 6, 1999;
- keep the exchange offer registration statement effective until the
consummation of the Exchange Offer pursuant to its terms; and
- commence the Exchange Offer and use its best efforts to issue by
, 1999 Exchange Notes in exchange for all Outstanding Notes
tendered prior thereto in the Exchange Offer.
The Company has agreed to keep the Exchange Offer open for not less than 30
days, or longer if required by applicable law, after the date notice thereof is
mailed to the holders of Outstanding Notes.
SHELF REGISTRATION STATEMENT
The Registration Rights Agreement requires the Company to file a shelf
registration statement with respect to the resale of the Outstanding Notes if:
- applicable interpretations of the staff (the "Staff") of the SEC would not
permit the completion of the Exchange Offer;
- certain holders of the Outstanding Notes notify the Company that they are
not eligible to participate in the exchange of Outstanding Notes for
Exchange Notes or would not receive freely tradeable Exchange Notes in
exchange for tendered Outstanding Notes;
- the initial purchaser so requests under certain circumstances; or
- the Exchange Offer is not completed by May 21, 1999.
The Company has agreed to use its best efforts to keep the shelf registration
statement effective until two years after its date of effectiveness.
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LIQUIDATED DAMAGES
The Registration Rights Agreement requires the Company to pay liquidated
damages to the holders of the Outstanding Notes if:
- neither the exchange offer registration statement nor the shelf
registration statement has been filed with the SEC by February 5, 1999;
- neither the exchange offer registration statement nor the shelf
registration statement is declared effective by the SEC by April 6, 1999;
- the Company has not exchanged Exchange Notes for Outstanding Notes validly
tendered in accordance with the terms of the Exchange Offer within 45 days
after the date on which an exchange offer registration statement is
declared effective by the SEC; or
- a shelf registration statement is filed and declared effective by the SEC
but thereafter ceases to be effective without being succeeded within 30
days by a subsequent shelf registration statement filed and declared
effective.
Upon the completion of the Exchange Offer, holders of Outstanding Notes will
not be entitled to any liquidated damages on the Outstanding Notes or any
further registration rights, except under limited circumstances. See "Risk
Factors--Consequences of Failure to Exchange Outstanding Notes" and "Description
of the Exchange Notes" for further information regarding the rights of holders
of Outstanding Notes after the Exchange Offer. The Exchange Offer is not
extended to holders of Outstanding Notes in any jurisdiction where the Exchange
Offer does not comply with the securities or blue sky laws of that jurisdiction.
The term "holder" as used in this section of the Prospectus entitled "The
Exchange Offer" means (1) any person in whose name the Outstanding Notes are
registered on the books of the Company, or (2) any other person who has obtained
a properly completed bond power from the registered holder, or (3) any person
whose Outstanding Notes are held of record by DTC and who wants to deliver such
Outstanding Notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
The Company is offering to exchange up to $30.0 million total principal
amount of Exchange Notes for a like total principal amount of Outstanding Notes.
The Outstanding Notes must be tendered properly on or before the Expiration Date
and not withdrawn. In exchange for Outstanding Notes properly tendered and
accepted, the Company will issue a like total principal amount of up to $30.0
million in Exchange Notes.
The Exchange Offer is not conditioned upon holders tendering a minimum
principal amount of Outstanding Notes. As of the date of this Prospectus, $30.0
million aggregate principal amount of Outstanding Notes are outstanding.
Holders of the Outstanding Notes do not have any appraisal or dissenters'
rights in the Exchange Offer. If holders do not tender Outstanding Notes or
tender Outstanding Notes that the Company does not accept, their Outstanding
Notes will remain outstanding. Any Outstanding Notes will be entitled to the
benefits of the Indenture, but will not be entitled to any further registration,
except under limited circumstances. See "Risk Factors--Consequences of Failure
to Exchange Outstanding Notes" for further information regarding the rights of
holders of Outstanding Notes after the Exchange Offer.
After the Expiration Date, the Company will return to the holder any
tendered Outstanding Notes that the Company did not accept for exchange.
Holders exchanging Outstanding Notes will not have to pay brokerage
commissions or fees or transfer taxes if they follow the instructions in the
Letter of Transmittal. The Company will pay the charges and expenses, other than
certain taxes described below, in the Exchange Offer. See "The Exchange
Offer--Fees and Expenses" for further information regarding fees and expenses.
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NEITHER THE COMPANY NOR THE COMPANY'S BOARD OF DIRECTORS RECOMMENDS YOU TO
TENDER OR NOT TENDER OUTSTANDING NOTES IN THE EXCHANGE OFFER. IN ADDITION, THE
COMPANY HAS NOT AUTHORIZED ANYONE TO MAKE ANY RECOMMENDATION. YOU MUST DECIDE
WHETHER TO TENDER IN THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF
OUTSTANDING NOTES TO TENDER.
The Expiration Date is 5:00 p.m., New York City time, on , 1999,
unless the Company extends the Exchange Offer.
The Company has the right, in accordance with applicable law, at any time:
- to delay the acceptance of the Outstanding Notes;
- to terminate the Exchange Offer if the Company determines that any of the
conditions to the Exchange Offer have not occurred or have not been
satisfied;
- to extend the Expiration Date of the Exchange Offer and keep all
Outstanding Notes tendered other than those notes properly withdrawn; and
- to waive any condition or amend the terms of the Exchange Offer.
If the Company materially changes the Exchange Offer, or if the Company
waives a material condition of the Exchange Offer, the Company will promptly
distribute a prospectus supplement to the holders of the Outstanding Notes
disclosing the change or waiver. The Company also will extend the Exchange Offer
as required by Rule 14e-1 under the Securities Exchange Act of 1934, as amended
(the "Exchange Act").
If the Company exercises any of the rights listed above, it will promptly
give oral or written notice of the action to the Exchange Agent and will issue a
release to an appropriate news agency. In the case of an extension, an
announcement will be made no later than 9:00 a.m., New York City time, on the
next business day after the previously scheduled Expiration Date.
ACCEPTANCE FOR EXCHANGE AND ISSUANCE OF EXCHANGE NOTES
Promptly after the Expiration Date, the Company will issue Exchange Notes to
the Exchange Agent for Outstanding Notes tendered and accepted and not
withdrawn. The Exchange Agent might not deliver the Exchange Notes to all
tendering holders at the same time. The timing of delivery depends upon when the
Exchange Agent receives and processes the required documents.
The Company will be deemed to have exchanged Outstanding Notes validly
tendered and not withdrawn when the Company gives oral or written notice to the
Exchange Agent of their acceptance. The Exchange Agent is an agent for the
Company for receiving tenders of Outstanding Notes, Letters of Transmittal and
related documents. The Exchange Agent is also an agent for tendering holders for
receiving Outstanding Notes, Letters of Transmittal and related documents and
transmitting Exchange Notes to validly tendering holders. If for any reason, the
Company (1) delays the acceptance or exchange of any Outstanding Notes; (2)
extends the Exchange Offer; or (3) is unable to accept or exchange Outstanding
Notes, then the Exchange Agent may, on behalf of the Company and subject to Rule
14e-1(c) under the Exchange Act, retain tendered notes. Notes retained by the
Exchange Agent may not be withdrawn, except according to the withdrawal
procedures outlined in the section entitled "--Withdrawal Rights" below.
In tendering Outstanding Notes, you must warrant in the Letter of
Transmittal or in an Agent's Message (described below) that:
- you have full power and authority to tender, exchange, sell, assign and
transfer Outstanding Notes;
- the Company will acquire good, marketable and unencumbered title to the
tendered Outstanding Notes, free and clear of all liens, restrictions,
charges and other encumbrances, and
- the Outstanding Notes tendered for exchange are not subject to any adverse
claims or proxies.
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You also must warrant and agree that you will, upon request, execute and deliver
any additional documents requested by the Company or the Exchange Agent to
complete the exchange, sale, assignment and transfer of the Outstanding Notes.
PROCEDURES FOR TENDERING OUTSTANDING NOTES
VALID TENDER
You may tender your Outstanding Notes by book-entry transfer or by other
means. For book-entry transfer, you must deliver to the Exchange Agent either
(1) a completed and signed Letter of Transmittal or (2) an Agent's Message,
meaning a message transmitted to the Exchange Agent by DTC stating that you
agree to be bound by the terms of the Letter of Transmittal. You must deliver
your Letter of Transmittal or the Agent's Message by mail, facsimile, hand
delivery or overnight carrier to the Exchange Agent on or before the Expiration
Date. In addition, to complete a book-entry transfer, you must also either (1)
have DTC transfer the Outstanding Notes into the Exchange Agent's account at DTC
using the ATOP procedures for transfer, and obtain a confirmation of such a
transfer, or (2) follow the guaranteed delivery procedures described below under
"--Guaranteed Delivery Procedures."
If you tender fewer than all of your Outstanding Notes, you should fill in
the amount of notes tendered in the appropriate box on the Letter of
Transmittal. If you do not indicate the amount tendered in the appropriate box,
the Company will assume you are tendering all Outstanding Notes that you hold.
For tendering your Outstanding Notes other than by book-entry transfer, you
must deliver a completed and signed Letter of Transmittal to the Exchange Agent.
Again, you must deliver the Letter of Transmittal by mail, facsimile, hand
delivery or overnight carrier to the Exchange Agent on or before the Expiration
Date. In addition, to complete a valid tender you must either (1) deliver your
Outstanding Notes to the Exchange Agent on or before the Expiration Date, or (2)
follow the guaranteed delivery procedures set forth below under "--Guaranteed
Delivery Procedures."
DELIVERY OF REQUIRED DOCUMENTS BY WHATEVER METHOD YOU CHOOSE IS AT YOUR SOLE
RISK. DELIVERY IS COMPLETE WHEN THE EXCHANGE AGENT ACTUALLY RECEIVES THE ITEMS
TO BE DELIVERED. DELIVERY OF DOCUMENTS TO DTC IN ACCORDANCE WITH DTC'S
PROCEDURES DOES NOT CONSTITUTE DELIVERY TO THE EXCHANGE AGENT. IF DELIVERY IS BY
MAIL, THEN REGISTERED MAIL, RETURN RECEIPT REQUESTED, PROPERLY INSURED, OR AN
OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES, YOU SHOULD ALLOW
SUFFICIENT TIME TO ENSURE TIMELY DELIVERY.
SIGNATURE GUARANTEES
You do not need to endorse certificates for the Outstanding Notes or provide
signature guarantees on the Letter of Transmittal, unless (a) someone other than
the registered holder tenders the certificate or (b) you complete the box
entitled "Special Issuance Instructions" or "Special Delivery Instructions" in
the Letter of Transmittal. In the case of (a) or (b) above, you must sign your
Outstanding Notes or provide a properly executed bond power, with the signature
on the bond power and on the Letter of Transmittal guaranteed by a firm or other
entity identified in Rule 17Ad-15 under the Exchange Act as an "eligible
guarantor institution." Eligible Guarantor Institutions include: (1) a bank; (2)
a broker, dealer, municipal securities broker or dealer or government securities
broker or dealer; (3) a credit union; (4) a national securities exchange,
registered securities association or clearing agency; or (5) a savings
association that is a participant in a securities transfer association.
GUARANTEED DELIVERY PROCEDURES
If you want to tender your Outstanding Notes in the Exchange Offer and (1)
the certificates for the Outstanding Notes are not immediately available or all
required documents are unlikely to reach the Exchange Agent on or before the
Expiration Date, or (2) a book-entry transfer cannot be
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completed in time, you may tender your Outstanding Notes if you comply with the
following guaranteed delivery procedures:
- the tender is made by or through an Eligible Guarantor Institution;
- you deliver a properly completed and signed Notice of Guaranteed Delivery,
similar to the form provided with the Letter of Transmittal, to the
Exchange Agent on or before the Expiration Date; and
- you deliver the certificates or a confirmation of book-entry transfer and
a properly completed and signed Letter of Transmittal to the Exchange
Agent within three New York Stock Exchange trading days after the Notice
of Guaranteed Delivery is executed.
You may deliver the Notice of Guaranteed Delivery by hand, facsimile or mail
to the Exchange Agent and must include a guarantee by an Eligible Guarantor
Institution in the form described in the notice.
The Company's acceptance of properly tendered Outstanding Notes is a binding
agreement between the tendering holder and the Company upon the terms and
subject to the conditions of the Exchange Offer.
DETERMINATION OF VALIDITY
The Company will resolve all questions regarding the form of documents,
validity, eligibility (including time of receipt) and acceptance for exchange of
any tendered Outstanding Notes. The Company's resolution of these questions as
well as the Company's interpretation of the terms and conditions of the Exchange
Offer (including the Letter of Transmittal) is final and binding on all parties.
A tender of Outstanding Notes is invalid until all irregularities have been
cured or waived. Neither the Company, any affiliates or assigns of the Company,
the Exchange Agent nor any other person is under any obligation to give notice
of any irregularities in tenders nor will they be liable for failing to give any
such notice. The Company reserves the absolute right, in its sole and absolute
discretion, to reject any tenders determined to be in improper form or unlawful.
The Company also reserves the absolute right to waive any of the conditions of
the Exchange Offer or any condition or irregularity in the tender of Outstanding
Notes by any holder. The Company need not waive similar conditions or
irregularities in the case of other holders.
If any Letter of Transmittal, endorsement, bond power, power of attorney, or
any other document required by the Letter of Transmittal is signed by a trustee,
executor, administrator, guardian, attorney-in-fact, officer of a corporation or
other person acting in a fiduciary or representative capacity, that person must
indicate that capacity when signing. In addition, unless waived by the Company,
the person must submit proper evidence satisfactory to the Company, in its sole
discretion, of his or her authority to so act.
A beneficial owner of Outstanding Notes that is held by or registered in the
name of a broker, dealer, commercial bank, trust company or other nominee or
custodian should contact that entity promptly if the holder wants to participate
in the Exchange Offer.
RESALES OF EXCHANGE NOTES
The Company is exchanging the Outstanding Notes for Exchange Notes based
upon the position of the Staff set forth in interpretive letters to third
parties in other similar transactions. The Company will not seek its own
interpretive letter. As a result, the Company cannot assure you that the Staff
will take the same position on this Exchange Offer as it did in interpretive
letters to other parties. Based on the Staff's letters to other parties, the
Company believes that holders of Exchange Notes, other than broker-dealers, can
offer the notes for resale, resell and otherwise transfer the Exchange Notes
without delivering a prospectus to prospective purchasers. However, prospective
holders must acquire the
27
<PAGE>
Exchange Notes in the ordinary course of business and have no intention of
engaging in a distribution of the notes, as a "distribution" is defined by the
Securities Act.
Any holder of Outstanding Notes who is an "affiliate" of the Company or who
intends to distribute Exchange Notes, or any broker-dealer who purchased
Outstanding Notes from the Company to resell pursuant to Rule 144A or any other
available exemption under the Securities Act:
- cannot rely on the Staff's interpretations in the above-mentioned
interpretive letters;
- cannot tender Outstanding Notes in the Exchange Offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the Outstanding Notes, unless the sale is
exempt.
In addition, if any broker-dealer acquired Outstanding Notes for its own
account as a result of market-making or other trading activities and exchanges
the Outstanding Notes for Exchange Notes, the broker-dealer must deliver a
prospectus with any resales of the Exchange Notes.
If you want to exchange your Outstanding Notes for Exchange Notes, you will
be required to affirm that:
- you are not an "affiliate" of the Company;
- you are acquiring the Exchange Notes in the ordinary course of your
business;
- you have no arrangement or understanding with any person to participate in
a distribution of the Exchange Notes (within the meaning of the Securities
Act); and
- you are not a broker-dealer, not engaged in, and do not intend to engage
in, a distribution of the Exchange Notes (within the meaning of the
Securities Act).
In addition, the Company may require you to provide information regarding
the number of "beneficial owners" (within the meaning of Rule 13d-3 under the
Exchange Act) of the Outstanding Notes. Each broker-dealer that receives
Exchange Notes for its own account must acknowledge that it acquired the
Outstanding Notes for its own account as the result of market-making activities
or other trading activities and must agree that it will deliver a prospectus
meeting the requirements of the Securities Act in connection with any resale of
Exchange Notes. By making this acknowledgment and by delivering a prospectus, a
broker-dealer will not be deemed to admit that it is an "underwriter" under the
Securities Act. Based on the Staff's position in certain interpretive letters,
the Company believes that broker-dealers who acquired Outstanding Notes for
their own accounts as a result of market-making activities or other trading
activities may fulfill their prospectus delivery requirements with respect to
the Exchange Notes with a prospectus meeting the requirements of the Securities
Act. Accordingly, a broker-dealer may use this Prospectus to satisfy such
requirements. The Company has agreed that a broker-dealer may use this
Prospectus for a period ending 180 days after the Expiration Date or, if
earlier, when a broker-dealer has disposed of all Exchange Notes. See "Plan of
Distribution" for further information. A broker-dealer intending to use this
Prospectus in the resale of Exchange Notes must notify the Company, on or prior
to the Expiration Date, that it is a Participating Broker-Dealer (as defined in
"Plan of Distribution"). This notice may be given in the Letter of Transmittal
or may be delivered to the Exchange Agent. Any Participating Broker-Dealer who
is an "affiliate" of the Company may not rely on the Staff's interpretive
letters and must comply with the registration and prospectus delivery
requirements of the Securities Act when reselling Exchange Notes.
WITHDRAWAL RIGHTS
You can withdraw tenders of Outstanding Notes at any time on or before the
Expiration Date.
For a withdrawal to be effective, you must deliver a written, telegraphic,
telex or facsimile transmission of a Notice of Withdrawal to the Exchange Agent
on or before the Expiration Date. The Notice of Withdrawal must specify the name
of the person tendering the Outstanding Notes to be
28
<PAGE>
withdrawn, the total principal amount of Outstanding Notes withdrawn, and the
name of the registered holder of the Outstanding Notes if different from the
person tendering the Outstanding Notes. If you delivered Outstanding Notes to
the Exchange Agent, you must submit the serial numbers of the Outstanding Notes
to be withdrawn and the signature on the Notice of Withdrawal must be guaranteed
by an Eligible Guarantor Institution, except in the case of Outstanding Notes
tendered for the account of an Eligible Guarantor Institution. If you tendered
Outstanding Notes as a book-entry transfer, the Notice of Withdrawal must
specify the name and number of the account at DTC to be credited with the
withdrawal of Outstanding Notes and you must deliver the Notice of Withdrawal to
the Exchange Agent by written, telegraphic, telex or facsimile transmission. You
may not rescind withdrawals of tender. Outstanding Notes properly withdrawn may
again be tendered at any time on or before the Expiration Date.
The Company will determine all questions regarding the validity, form and
eligibility of withdrawal notices. The Company's determination will be final and
binding on all parties. Neither the Company, any affiliate or assign of the
Company, the Exchange Agent nor any other person is under any obligation to give
notice of any irregularities in any Notice of Withdrawal, nor will they be
liable for failing to give any such notice. Withdrawn Outstanding Notes will be
returned to the holder after withdrawal.
INTEREST ON THE EXCHANGE NOTES
The Exchange Notes will bear interest at 10 1/4% per annum, payable
semi-annually, on January 1 and July 1 of each year, commencing July 1, 1999.
Holders of Exchange Notes will receive interest on July 1, 1999 from the date of
initial issuance of the Exchange Notes, plus an amount equal to the accrued but
unpaid interest on the Outstanding Notes. If we accept your Outstanding Notes
for exchange, then you will waive all interest accrued but unpaid on such
Outstanding Notes.
CONDITIONS TO THE EXCHANGE OFFER
The Company need not exchange any Outstanding Notes, may terminate the
Exchange Offer or may waive any conditions to the Exchange Offer or amend the
Exchange Offer, if any of the following conditions have occurred:
- the Staff no longer allows the Exchange Notes to be offered for resale,
resold and otherwise transferred by certain holders without compliance
with the registration and prospectus delivery provisions of the Securities
Act;
- a governmental body passes any law, statute, rule or regulation which, in
the Company's opinion, prohibits or prevents the Exchange Offer;
- the SEC or any state securities authority issues a stop order suspending
the effectiveness of the registration statement or initiates or threatens
to initiate a proceeding to suspend the effectiveness of the registration
statement; or
- the Company is unable to obtain any governmental approval that the Company
believes is necessary to complete the Exchange Offer.
If the Company reasonably believes that any of the above conditions has
occurred, it may (1) terminate the Exchange Offer, whether or not any
Outstanding Notes have been accepted for exchange, (2) waive any condition to
the Exchange Offer or (3) amend the terms of the Exchange Offer in any respect.
If the Company's waiver or amendment materially changes the Exchange Offer, the
Company will promptly disclose the waiver or amendment through a prospectus
supplement, distributed to the registered holders of the Outstanding Notes. The
prospectus supplement also will extend the Exchange Offer as required by Rule
14e-1 of the Exchange Act.
29
<PAGE>
EXCHANGE AGENT
The Company has appointed The Bank of New York as Exchange Agent for the
Exchange Offer. Holders should direct questions and requests for assistance,
requests for additional copies of this Prospectus or of the Letter of
Transmittal and requests for Notice of Guaranteed Delivery to the Exchange Agent
addressed as follows:
<TABLE>
<S> <C>
BY REGISTERED OR CERTIFIED MAIL: BY HAND OR OVERNIGHT DELIVERY:
The Bank of New York The Bank of New York
101 Barclay Street, 7E 101 Barclay Street, 7E
New York, New York 10286 Corporate Trust Services Window
Attention: Reorganization Section Ground Level
New York, New York 10286
Attention: Reorganization Section
</TABLE>
CONFIRM BY TELEPHONE:
(212)
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212)
If you deliver Letters of Transmittal or any other required documents to an
address or facsimile number other than those listed above, your tender is
invalid.
FEES AND EXPENSES
The Company will pay the Exchange Agent reasonable and customary fees for
its services and reasonable out-of-pocket expenses. The Company also will pay
brokerage houses and other custodians, nominees and fiduciaries their reasonable
out-of-pocket expenses for sending copies of this Prospectus and related
documents to holders of Outstanding Notes, and in handling or tendering for
their customers.
The Company will pay the transfer taxes for the exchange of the Outstanding
Notes in the Exchange Offer. If, however, Exchange Notes are delivered to or
issued in the name of a person other than the registered holder, or if a
transfer tax is imposed for any reason other than for the exchange of
Outstanding Notes in the Exchange Offer, then the tendering holder will pay the
transfer taxes. If a tendering holder does not submit satisfactory evidence of
payment of taxes or exemption from taxes with the Letter of Transmittal, the
taxes will be billed directly to the tendering holder.
The Company will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the Exchange Offer.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the
Outstanding Notes. Accordingly, the Company will not recognize any gain or loss
for accounting purposes. The Company intends to amortize the expenses of the
Exchange Offer and issuance of the Outstanding Notes over the term of the
Exchange Notes.
30
<PAGE>
THE ACQUISITION
THE ACQUISITION
On December 7, 1998, Archibald Candy acquired Sweet Factory (the
"Acquisition") for total consideration of $28.0 million pursuant to an Agreement
and Plan of Reorganization dated as of November 24, 1998 (the "Merger
Agreement"). The Merger Agreement was filed as an exhibit to the Company's
Current Report on Form 8-K that was filed with the SEC on December 2, 1998 and
is incorporated by reference as an exhibit to the registration statement of
which this Prospectus is a part. The $28.0 million in consideration consisted of
Archibald Candy's (1) payment of $18.0 million in cash to the stockholders of
Sweet Factory and (2) repayment of approximately $10.0 million of indebtedness
of Sweet Factory. Archibald Candy funded the Acquisition, in part, through the
issuance and sale of the Outstanding Notes. In this Prospectus, we refer to the
Acquisition and the offering of the Outstanding Notes collectively as the
"Transactions."
ACQUISITION RATIONALE
The acquisition of Sweet Factory provides Archibald Candy with a specialty
bulk candy retail chain to complement its existing Fannie May and Fanny Farmer
boxed chocolate manufacturing and retail activities. We believe that the
acquisition of Sweet Factory has many potential benefits for both Archibald
Candy and Sweet Factory, including:
- improving the performance of the Sweet Factory stores by implementing many
of the same retail store strategies that improved the operations of our
Fannie May and Fanny Farmer stores;
- realizing significant cost savings from the consolidation of Sweet
Factory's office, manufacturing and distribution facilities with Archibald
Candy's existing operations and the elimination of certain duplicative
administrative functions;
- expanding our consumer reach by giving us access to Sweet Factory's
younger consumer base;
- providing us with a new distribution platform for our Fannie May boxed
chocolates (we anticipate that the sale of Fannie May products in Sweet
Factory's stores will increase both revenues in Sweet Factory's stores and
our output of manufactured products); and
- strengthening our product lines by making certain of Sweet Factory's
products available through our existing Fannie May and Fanny Farmer
stores, third-party retail programs and non-retail sales channels.
COST SAVINGS INITIATIVES
We expect to spend approximately $5.7 million for various cost savings
initiatives to be undertaken in connection with the consolidation of Sweet
Factory's operations into our existing operations. We expect such expenditures
to include, among other things, severance payments to certain employees of Sweet
Factory and expenditures to close Sweet Factory's facilities in San Diego,
California and expand our facilities in Chicago, Illinois to accommodate Sweet
Factory. We expect these cost savings initiatives to reduce our expenses by
approximately $2.7 million annually, although there can be no certainty that our
consolidation efforts will achieve our expected cost savings. See "Risk
Factors--Integration of Operations."
31
<PAGE>
USE OF PROCEEDS
The Exchange Offer will not generate cash proceeds for the Company. The
Company used the proceeds from the offering of the Outstanding Notes, together
with existing cash, to fund the Acquisition and for certain cost savings
initiatives related to the Acquisition.
The following table sets forth the sources and uses of funds for the
Transactions (amounts shown are in millions):
<TABLE>
<CAPTION>
SOURCES OF FUNDS
- -------------------------------------------------
<S> <C>
The Outstanding Notes (1)............. $ 30.0
Existing Cash......................... 7.7
---------
Total sources..................... $ 37.7
---------
---------
<CAPTION>
USE OF FUNDS
- -------------------------------------------------
<S> <C>
The Acquisition (2)................... $ 28.0
Cost savings initiatives (3).......... 5.7
Estimated fees and expenses (4)....... 4.0
---------
Total uses........................ $ 37.7
---------
---------
</TABLE>
- ------------------------
(1) Reflects the aggregate principal amount of the Outstanding Notes at a sale
price of 100% of the principal amount thereof.
(2) On December 7, 1998, Archibald Candy acquired Sweet Factory for total
consideration of approximately $28.0 million, consisting of Archibald
Candy's (a) payment of $18.0 million in cash to the stockholders of Sweet
Factory and (b) repayment of approximately $10.0 million of indebtedness of
Sweet Factory.
(3) Reflects expenditures related to cost savings initiatives to be undertaken
in connection with the consolidation of Sweet Factory's operations into
those of Archibald Candy. Such expenditures are expected to include, among
other things, severance payments to certain employees of Sweet Factory and
expenditures to close Sweet Factory's facilities in San Diego, California
and expand the Company's facilities in Chicago, Illinois to accommodate
Sweet Factory.
(4) Includes estimated discounts, consent fees, investment banking fees and
legal, accounting and printing fees and expenses incurred in connection with
the Transactions.
32
<PAGE>
CAPITALIZATION
The following table sets forth Archibald Candy's unaudited capitalization as
of November 28, 1998 on a historical basis and the Company's unaudited
capitalization on a pro forma basis after giving effect to the Transactions. You
should read this table together with Archibald Candy's financial statements and
the accompanying notes, and the unaudited pro forma condensed consolidated
financial statements, both of which are included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
NOVEMBER 28, 1998
------------------------
<S> <C> <C>
HISTORICAL PRO FORMA
----------- -----------
<CAPTION>
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................................................ $ 7.4(1) $ 6.8
----------- -----------
----------- -----------
Long-term debt (including current maturities):
Revolving Credit Facility (2).......................................................... $ -- $ --
10 1/4% Senior Secured Notes due 2004.................................................. 100.0 130.0
Capital lease obligations.............................................................. 0.1 0.4
----------- -----------
Total long-term debt (including current maturities).................................. $ 100.1 $ 130.4
Shareholder's equity (deficit):
Common Stock, $.01 par value, 25,000 shares authorized, 19,200 shares issued and
outstanding.......................................................................... -- --
Additional paid-in capital............................................................. 18.7 18.7
Retained earnings (accumulated deficit)................................................ (36.2) (36.2)
----------- -----------
Total shareholder's equity (deficit)................................................. (17.5) (17.5)
----------- -----------
Total capitalization................................................................. $ 82.6 $ 112.9
----------- -----------
----------- -----------
</TABLE>
- ------------------------
(1) Archibald Candy's business is highly seasonal. During fiscal 1998, Archibald
Candy's average cash and cash equivalents balance was $13.4 million higher
than on November 28, 1998.
(2) Borrowings of $20.0 million are available to the Company for working capital
and general corporate purposes, subject to the borrowing conditions
contained in the revolving credit facility. As of November 28, 1998, a
letter of credit in the amount of $0.5 million was outstanding under the
revolving credit facility.
33
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements below
are based on the financial statements of Archibald Candy and the consolidated
financial statements of Sweet Factory included elsewhere in this Prospectus. The
unaudited pro forma condensed consolidated statements of income for the year
ended August 29, 1998 and the three-month period ended November 28, 1998 are
based on the financial statements of Archibald Candy and adjusted to give effect
to the Transactions as if they had occurred on August 31, 1997. During the
periods presented, neither Archibald Candy's nor Sweet Factory's statements of
operations included any amounts related to discontinued operations. Archibald
Candy operates using a fiscal year ending the last Saturday in August. Prior to
the Acquisition, Sweet Factory operated using a fiscal year ending the Saturday
closest to December 31st. Adjustments for the Transactions are based upon
historical financial information of Archibald Candy and Sweet Factory and
certain assumptions that the Company's management believes are reasonable. The
Acquisition will be accounted for under the purchase method of accounting. Under
this method, the purchase price will be allocated to the assets and liabilities
acquired based on preliminary estimates of fair value. The actual fair value may
vary from the preliminary estimates. The pro forma financial data does not
necessarily reflect the results of operations or the financial position of
Archibald Candy that actually would have resulted had the Transactions occurred
at the date indicated, or project the results of operations or financial
position of the Company for any future date or period.
The unaudited pro forma condensed consolidated financial data below should
be read together with the financial statements of Archibald Candy and the
consolidated financial statements of Sweet Factory, and the accompanying notes,
included elsewhere in this Prospectus.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF NOVEMBER 28, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SWEET (SEE NOTE PRO FORMA
ARCHIBALD FACTORY 1) CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.................................... $ 7,443 $ 1,357 $ (2,000)(a) $ 6,800
Accounts receivable, net..................................... 6,552 568 -- 7,120
Inventories.................................................. 26,818 6,083 -- 32,901
Other current assets......................................... 896 2,881 -- 3,777
---------- --------- ----------- ------------
Total current assets........................................... 41,709 10,889 (2,000) 50,598
Property, plant, and equipment, net.......................... 20,754 28,507 (3,162)(b) 46,099
Goodwill, other intangibles, and deferred financing fees..... 34,870 1,729 4,000(c) 40,599
Other assets................................................. 2,895 3,015 -- 5,910
---------- --------- ----------- ------------
Total assets................................................... $ 100,228 $ 44,140 $ (1,162) $ 143,206
---------- --------- ----------- ------------
---------- --------- ----------- ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable............................................. $ 6,659 $ 5,185 $ -- $ 11,844
Accrued liabilities.......................................... 10,400 1,963 3,670(d) 16,033
Notes payable................................................ -- 10,437 (10,437)(e) --
Current portion of long-term debt and capital lease
obligations................................................ 59 213 -- 272
---------- --------- ----------- ------------
Total current liabilities...................................... 17,118 17,798 (6,767) 28,149
Due to affiliate............................................. 604 -- -- 604
Long-term debt, less current portion......................... 100,000 -- 30,000(f) 130,000
Capital lease obligations, less current portion.............. 38 104 -- 142
Deferred rent................................................ -- 1,843 -- 1,843
Shareholder's equity (deficit):................................ (17,532) 24,395 (24,395)(g) (17,532)
---------- --------- ----------- ------------
Total liabilities and shareholder's equity (deficit)........... $ 100,228 $ 44,140 $ (1,162) $ 143,206
---------- --------- ----------- ------------
---------- --------- ----------- ------------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 29, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SWEET (SEE NOTE PRO FORMA
ARCHIBALD FACTORY 2) CONSOLIDATED
---------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales...................................................... $ 126,742 $ 77,659 $ -- $ 204,401
Cost of sales.................................................. 43,978 27,425 -- 71,403
Selling, general, and administrative expenses.................. 63,992 45,538 (2,681)(a) 106,849
Depreciation and amortization expense.......................... 6,233 6,752 (21)(b) 12,964
---------- --------- ----------- ------------
Operating income (loss)........................................ 12,539 (2,056) 2,702 13,185
Other (income) & expense:
Interest expense............................................... 10,346 844 2,298(c) 13,488
Interest income................................................ (1,194) (31) 100(d) (1,125)
Other income & expense......................................... (192) -- -- (192)
---------- --------- ----------- ------------
Income (loss) before income taxes and extraordinary item....... 3,579 (2,869) 304 1,014
Provision (benefit) for income taxes........................... 276 (1,099) 24(e) (799)
---------- --------- ----------- ------------
Net income (loss).............................................. $ 3,303 $ (1,770) $ 280 $ 1,813
---------- --------- ----------- ------------
---------- --------- ----------- ------------
Other Data:
EBITDA......................................................... $ 18,964 $ 4,696 $ 2,681 $ 26,341
---------- --------- ----------- ------------
---------- --------- ----------- ------------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE-MONTH PERIOD ENDED NOVEMBER 28, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
ADJUSTMENTS
SWEET (SEE NOTE PRO FORMA
ARCHIBALD FACTORY 2) CONSOLIDATED
----------- --------- ----------- ------------
<S> <C> <C> <C> <C>
Net sales....................................................... $ 29,648 $ 16,719 $ -- $ 46,367
Cost of sales................................................... 12,410 9,333 -- 21,743
Selling, general, and administrative expenses................... 15,810 8,093 (670)(a) 23,233
Depreciation and amortization expense........................... 1,577 1,753 (12)(b) 3,318
----------- --------- ----------- ------------
Operating income (loss)......................................... (149) (2,460) 682 (1,927)
Other (income) and expense:
Interest expense................................................ 2,592 224 575(c) 3,391
Interest income................................................. (126) (4) 25(d) (105)
Other income and expense........................................ (37) -- -- (37)
----------- --------- ----------- ------------
Income (loss) before income taxes............................... (2,578) (2,680) 82 (5,176)
Provision (benefit) for income taxes............................ 10 (967) 7(e) (950)
----------- --------- ----------- ------------
Net income (loss)............................................... $ (2,588) $ (1,713) $ 75 $ (4,226)
----------- --------- ----------- ------------
----------- --------- ----------- ------------
Other Data:
EBITDA.......................................................... $ 1,465 $ (707) $ 670 $ 1,428
----------- --------- ----------- ------------
----------- --------- ----------- ------------
</TABLE>
See accompanying notes to pro forma condensed consolidated financial statements.
37
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS)
NOTE 1: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET ADJUSTMENTS
<TABLE>
<S> <C> <C>
(a) Adjustment to cash and cash equivalents as follows:
Proceeds from issuance of the Outstanding Notes.............................. $ 30,000
Sweet Factory purchase price................................................. (28,000)
Payment of estimated fees and expenses of the Transactions................... (4,000)
---------
$ (2,000)
---------
---------
(b) Adjustment to property, plant, and equipment for excess of net assets
acquired over purchase price................................................. $ (3,162)
---------
---------
(c) Adjustment to deferred financing fees for the financing fees incurred in
connection with the Transactions............................................. $ 4,000
---------
---------
(d) Adjustments to accrued liabilities for estimated severance, lease
termination, moving and other costs in connection with the consolidation of
Sweet Factory's operations with those of Archibald Candy's................... $ 3,670
---------
---------
(e) Adjustment to notes payable for the repayment of Sweet Factory's debt........ $ (10,437)
---------
---------
(f) Adjustment to long-term debt for issuance of the Outstanding Notes........... $ 30,000
---------
---------
(g) Adjustments to shareholder's equity (deficit) as follows:
Elimination of Sweet Factory Preferred and Common Stock...................... $ (20)
Elimination of Sweet Factory paid-in-capital................................. (27,369)
Elimination of Sweet Factory accumulated deficit............................. 2,708
Elimination of Sweet Factory notes due from officers......................... 286
---------
$ (24,395)
---------
---------
</TABLE>
38
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(CONTINUED)
NOTE 2: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
ADJUSTMENTS
<TABLE>
<CAPTION>
FISCAL YEAR THREE MONTH
ENDED PERIOD ENDED
AUGUST 29, 1998 NOVEMBER 28, 1998
--------------- -------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
(a) Adjustments to selling, general, and administrative expenses as
follows:
Reduction in salaries and payroll expenses related to the
consolidation of Sweet Factory's operations with Archibald
Candy's............................................................. $ (1,909) $ (477)
Reduction in facility leases expenses due to elimination of San Diego
facilities.......................................................... (307) (77)
Reduction in general and administrative expenses due to the
consolidation of the Sweet Factory facilities into Archibald
Candy's............................................................. (465) (116)
------- -----
$ (2,681) $ (670)
------- -----
------- -----
(b) Adjustments to depreciation and amortization expense as follows:
Amortization of deferred financing fees as a result of the
Transactions........................................................ $ 585 $ 146
Reduction of depreciation expense for purchase accounting adjustment
to property, plant and equipment.................................... (606) (158)
------- -----
$ (21) $ (12)
------- -----
------- -----
(c) Adjustments to interest expense as follows:
Interest expense incurred on the Exchange Notes....................... $ 3,075 $ 769
Elimination of Sweet Factory working capital line interest expense.... (777) (194)
------- -----
$ 2,298 $ 575
------- -----
------- -----
(d) Adjustment to interest income for cash outlay......................... $ 100 $ 25
------- -----
------- -----
(e) Adjustment to provision for income taxes as a result of all pro forma
adjustments......................................................... $ 24 $ 7
------- -----
------- -----
</TABLE>
39
<PAGE>
SELECTED FINANCIAL DATA
SELECTED HISTORICAL FINANCIAL DATA OF ARCHIBALD CANDY
The following table sets forth selected historical financial data of
Archibald Candy. The selected historical information as of and for each of the
five fiscal years in the period ended August 29, 1998, was derived from the
audited financial statements of Archibald Candy. You should read the information
in this table together with "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and the financial statements of Archibald
Candy, including the accompanying notes, appearing elsewhere in this Prospectus.
The selected historical financial data as of and for the three-month periods
ended November 29, 1997 and November 28, 1998 were derived from unaudited
interim financial statements of Archibald Candy. In the opinion of Archibald
Candy, such unaudited interim financial statements contain all adjustments
(consisting of only normal recurring items) necessary to present fairly its
financial position and results of operations as of and for the periods
presented.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE-MONTH PERIOD ENDED
--------------------------------------------------------------- ------------------------
NOVEMBER NOVEMBER
AUGUST 31, AUGUST 26, AUGUST 31, AUGUST 30, AUGUST 29, 29, 28,
1994 1995(1) 1996(1) 1997(1) 1998(1) 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-Operated Retail (2).. $ 91,408 $ 90,077 $ 88,938 $ 89,276 $ 91,488 $ 16,172 $ 16,102
Third-Party Retail (3)....... 13,027 12,954 14,924 17,074 18,230 6,061 7,980
Non-Retail (4)............... 11,297 12,524 13,486 15,583 17,024 4,940 5,566
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total net sales............ $ 115,732 $ 115,555 $ 117,348 $ 121,933 $ 126,742 $ 27,173 $ 29,648
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Gross profit................... $ 72,298 $ 75,309 $ 76,338 $ 79,649 $ 82,764 $ 16,578 $ 17,238
Operating income (loss)........ (5,850) 3,290 7,945 10,801 12,539 (612) (149)
Interest expense............... 8,913 9,237 9,455 9,235 10,346 2,629 2,592
Other income................... 207 275 444 411 1,386 225 163
Income tax (benefit)........... (358) (68) 349 250 276 87 10
Net income (loss) (5).......... (16,440) (5,604) (1,415) (1,171) 3,303 (3,103) (2,588)
OTHER DATA:
EBITDA (6)..................... $ 8,239 $ 13,527 $ 14,731 $ 16,868 $ 18,964 $ 1,057 $ 1,465
Cash provided by (used in):
Operating activities......... (1,571) 4,551 4,117 3,919 4,206 (4,346) (4,400)
Investing activities......... (3,601) (1,958) (1,121) (3,688) (4,709) (1,287) (880)
Financing activities......... 5,701 (3,470) (3,098) 15,190 (2,217) (114) (358)
Depreciation and
amortization................. 13,216 9,999 6,807 5,932 6,233 1,611 1,577
Capital expenditures........... 3,655 2,325 2,280 3,688 4,574 1,287 880
Total net sales growth......... 2.8% (0.2)% 1.6% 3.9% 3.9% 9.2% 9.1%
Gross margin................... 62.5% 65.2% 65.1% 65.3% 65.3% 61.0% 58.1%
EBITDA margin (7).............. 7.1% 11.7% 12.6% 13.8% 15.0% 3.9% 4.9%
Ratio of earnings to fixed
charges (8).................. -- -- -- -- 1.2 -- --
STORE DATA:
Number of Company-operated
stores at period end (9):
Fannie May stores............ 231 228 225 223 231 230 248
Fanny Farmer stores.......... 169 144 115 99 86 96 85
----------- ----------- ----------- ----------- ----------- ----------- -----------
Total number of stores..... 400 372 340 322 317 326 333
----------- ----------- ----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- ----------- ----------- -----------
Increase (decrease) in same
store sales: (10)
Fannie May stores............ 1.5% 4.6% 2.1% 5.4% 4.3% 3.8% 1.0%
Fanny Farmer stores.......... 11.8% 0.0% 4.5% 4.6% 3.7% 4.5% (4.0 )%
Total increase
(decrease)............... 4.5% 3.4% 2.6% 5.2% 4.2% 3.9% (0.3 )%
</TABLE>
40
<PAGE>
<TABLE>
<CAPTION>
FISCAL YEAR ENDED THREE-MONTH PERIOD ENDED
--------------------------------------------------------------- ------------------------
NOVEMBER NOVEMBER
AUGUST 31, AUGUST 26, AUGUST 31, AUGUST 30, AUGUST 29, 29, 28,
1994 1995(1) 1996(1) 1997(1) 1998(1) 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents...... $ 1,359 $ 482 $ 380 $ 15,801 $ 13,081 $ 10,054 $ 7,443
Working capital (deficiency)... (5,549) (3,641) (4,349) 23,475 26,988 20,289 24,591
Total assets................... 88,548 83,098 78,668 95,660 98,089 97,533 100,228
Total long-term debt........... 73,883 73,676 72,721 100,521 100,145 100,439 100,097
Shareholder's equity
(deficit).................... (8,429) (14,033) (15,448) (16,619) (14,944) (19,722) (17,532)
</TABLE>
- ------------------------
(1) In 1995, Archibald Candy changed its fiscal year to the last Saturday in
August from the last day in August. As a result of this change, fiscal 1995
had less than 52 weeks (360 days) and fiscal 1996 had 53 weeks (371 days).
Fiscal 1997 and fiscal 1998 each had 52 weeks (364 days).
(2) Company-Operated Retail includes sale of products through Company-operated
Fannie May and Fanny Farmer stores.
(3) Third-Party Retail includes sale of Archibald Candy's branded products
through grocery stores, drug stores and other independent retailers that
purchase Archibald Candy's branded products at wholesale pricing for resale
to the consumer.
(4) Non-Retail includes sale of Archibald Candy's branded product through its
quantity order, mail order and fundraising programs.
(5) Archibald Candy's net loss for fiscal 1994 includes an extraordinary loss
of $2.2 million for the write-off of deferred financing fees related to an
early extinguishment of debt. Archibald Candy's net loss for fiscal 1994
also includes a loss of $0.7 million relating to the discontinued Fanny
Farmer Homestead product line (the "Homestead Loss"). Archibald Candy's net
loss for fiscal 1997 includes an extraordinary loss of $2.9 million for the
write-off of deferred financing fees and a prepayment penalty related to the
early extinguishment of debt.
(6) EBITDA for any period presented above is defined as of earnings before
interest, income taxes, depreciation and amortization. EBITDA is included
because management believes that certain investors may find it useful for
analyzing operating performance, leverage and liquidity. EBITDA should not
be construed as a measure that is superior to, or a substitute for,
operating income or net cash flow provided by operating activities, or as an
indicator of liquidity, which are determined in accordance with generally
accepted accounting principles. Other companies may not calculate EBITDA in
a similar manner and, for that reason, Archibald Candy's measure of EBITDA
may not be comparable to that of other companies. EBITDA as reported herein
for fiscal 1994 excludes the Homestead Loss. In fiscal 1994, the Fanny
Farmer Homestead product line accounted for $0.9 million of Third-Party
Retail sales.
(7) EBITDA margin is EBITDA divided by total net sales.
(8) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before taxes plus fixed charges. Fixed
charges consist of interest expense on all indebtedness and capitalized
interest, amortization of deferred financing costs and that portion of
rental expense on operating leases deemed by Archibald Candy to be
attributable to interest. For fiscal 1994, 1995, 1996 and 1997 and for the
three month periods ended November 29, 1997 and November 28, 1998, earnings
were insufficient to cover fixed charges by approximately $29.0 million,
$20.2 million, $15.2 million, $14.6 million, $6.4 million and $5.9 million,
respectively.
(9) The term "stores" includes kiosks.
(10) Same store sales are defined as the aggregate sales from stores open for
the entire periods being compared. Increases or decreases reflect changes
from the immediately prior comparable period.
41
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA OF SWEET FACTORY
The following table sets forth selected historical financial data of Sweet
Factory. The selected historical information as of and for each of the five
fiscal years in the period ended January 3, 1998, was derived from the audited
consolidated financial statements of Sweet Factory. You should read the
information in this table together with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the financial statements of
Sweet Factory, including the accompanying notes, appearing elsewhere in this
Prospectus. The selected historical financial data as of and for the nine-month
periods ended October 4, 1997 and October 3, 1998 were derived from unaudited
interim consolidated financial statements of Sweet Factory. In the opinion of
Sweet Factory, such unaudited interim consolidated financial statements contain
all adjustments (consisting of only normal recurring items) necessary to present
fairly its financial position and results of operations as of and for the
periods presented.
<TABLE>
<CAPTION>
NINE-MONTH PERIOD ENDED
FISCAL YEAR ENDED (UNAUDITED)
--------------------------------------------------------------- ------------------------
DECEMBER
JANUARY 2, JANUARY 1, 30, JANUARY 4, JANUARY 3, OCTOBER 4, OCTOBER 3,
1994 1995 1995 1997 1998 1997 1998
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................... $ 26,025 $ 41,534 $ 52,939 $ 65,062 $ 74,209 $ 52,289 $ 55,928
Gross profit................. 14,189 21,408 26,630 32,202 35,065 24,838 24,691
Operating income (loss)...... 861 (874) 1,241 2,125 (351) (745) (2,520)
Interest expense (income),
net........................ (2) 44 149 306 576 403 649
Other income................. -- -- -- -- -- 27 12
Income tax (benefit)......... 408 120 459 782 (340) 415 1,283
Net income (loss)............ 566 (798) 633 1,037 (587) (706) (1,874)
OTHER DATA:
EBITDA (1)................... 3,049 2,412 5,527 7,205 5,848 3,814 2,647
Depreciation and
amortization............... 2,076 3,286 4,286 5,080 6,199 4,559 5,167
Capital expenditures......... 8,809 8,523 5,765 8,551 8,005 6,202 2,087
Total net sales growth....... n/a 59.6% 27.5% 22.9% 14.1% n/a 7.0%
Gross margin................. 54.5 51.5% 50.3% 49.5% 47.3% 47.5% 44.1%
EBITDA margin (2)............ 11.7% 8.8% 10.4% 11.1% 8.3% 7.3% 4.7%
Ratio of earnings to fixed
charges (3)................ 1.2 n/a 1.1 1.1 n/a 1.2 n/a
----------- ----------- ----------- ----------- ----------- ----------- -----------
STORE DATA:
Number of Company-operated
stores at period end: (4) 98 141 167 207 251 235 257
Increase in same store sales:
(5) n/a 1.5% 2.1% 2.3% (4.7)% (3.0)% (3.7)%
BALANCE SHEET DATA:
Cash and cash equivalents.... $ 6,702 $ 1,943 $ 817 $ 779 $ 868 $ 704 $ 1,061
Working capital
(deficiency)............... 6,774 (441) (770) (909) 492 2,089 3,320
Total assets................. 30,944 33,629 34,942 40,048 44,297 44,081 42,656
Total long-term debt......... 769 928 673 2,712 7,533 8,576 9,122
Shareholder's equity
(deficit).................. 27,240 26,450 27,098 28,250 27,636 27,530 25,752
</TABLE>
- ------------------------
(1) EBITDA for any period presented above is defined as earnings before
interest, income taxes, depreciation and amortization. EBITDA is included
because management believes that certain investors may find it useful for
analyzing operating performance, leverage and liquidity. EBITDA
42
<PAGE>
should not be construed as a measure that is superior to, or a substitute
for, operating income or net cash flow provided by operating activities, or
as an indicator of liquidity, which are determined in accordance with
generally accepted accounting principles. Other companies may not calculate
EBITDA in a similar manner and, for that reason, Sweet Factory's measure of
EBITDA may not be comparable to that of other companies.
(2) EBITDA margin is EBITDA divided by total net sales.
(3) For purposes of determining the ratio of earnings to fixed charges, earnings
are defined as earnings before taxes plus fixed charges. Fixed charges
consist of interest expense on all indebtedness and capitalized interest,
amortization of deferred financing costs and that portion of rental expense
on operating leases deemed by Archibald Candy to be attributable to
interest. For fiscal 1994 and 1997 and for the nine month periods ended
October 4, 1997 and October 3, 1998, earnings were insufficient to cover
fixed charges by approximately $6.8 million, $12.9 million, $10.0 million
and $13.7 million, respectively.
(4) The term "stores" includes carts and kiosks.
(5) Same store sales are defined as the aggregate sales from stores open for the
entire periods being compared. Increases or decreases reflect changes from
the immediately prior comparable period.
43
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
THE FOLLOWING DISCUSSION SHOULD BE READ IN CONJUNCTION WITH "SELECTED
FINANCIAL DATA" AND THE OTHER FINANCIAL INFORMATION AND DATA APPEARING ELSEWHERE
HEREIN. IN AUGUST 1995, ARCHIBALD CANDY CHANGED ITS FISCAL YEAR END FROM AUGUST
31 TO THE LAST SATURDAY IN AUGUST. Unless otherwise indicated, THE INFORMATION
SET FORTH IN THIS SECTION OF THE PROSPECTUS DOES NOT GIVE EFFECT TO THE
TRANSACTIONS. ALL REFERENCES TO ARCHIBALD CANDY'S STORES INCLUDE KIOSKS AND ARE
AS OF NOVEMBER 28, 1998.
OVERVIEW
Archibald Candy is a manufacturer and marketer of boxed chocolates and other
confectionery items. Archibald Candy sells its Fannie May and Fanny Farmer
candies primarily in the Midwestern and Eastern United States in 317
Company-operated stores ("Company-Operated Retail") and approximately 8,000
third-party grocery stores, drug stores and independent retail accounts ("Third-
Party Retail") as well as through a variety of non-retail programs, including
quantity order, mail order and fundraising programs ("Non-Retail"). In fiscal
1998, EBITDA was $19.0 million, or 15.0%, of total net sales as compared to
$14.7 million, or 12.6%, of total net sales in fiscal 1996.
Historically, Company-Operated Retail has represented the most significant
distribution channel for Archibald Candy's products and accounted for $91.5
million, or 72.2%, of total net sales in fiscal 1998. Archibald Candy's
Third-Party Retail and Non-Retail businesses collectively accounted for $35.3
million, or 27.8%, of total net sales in fiscal 1998. The Company recently has
turned its focus to growing sales and earnings by (1) building on its Fannie May
and Fanny Farmer brand names, (2) increasing points of availability for the
Company's products, (3) integrating the Sweet Factory brand name and stores with
Archibald Candy's existing operations and (4) acquiring additional confectionery
brands.
Archibald Candy's costs of sales include costs associated with Archibald
Candy's manufactured products and costs associated with product purchased from
third parties and resold by Archibald Candy. The principal elements of Archibald
Candy's cost of sales are raw materials, labor, manufacturing overhead, and
purchased product costs. Raw materials consist primarily of chocolate, nutmeats,
natural sweeteners and fresh dairy products, the overall cost of which has
remained relatively stable despite susceptibility to fluctuations for specific
items. See "Business--Operations--Suppliers and Purchasing." Labor costs consist
primarily of hourly wages, benefits and incentives based on achieving operating
efficiencies. Manufacturing overhead generally includes employee fringe
benefits, utilities, rents and manufacturing supplies. Historically, Archibald
Candy generally has been able to raise prices of its products equal to or in
excess of any increases in cost of sales; however, there can be no assurance
that Archibald Candy will be able to continue to do so in the future.
Selling, general and administrative ("SG&A") costs include, but are not
limited to: (1) Company-Operated Retail store operating costs, such as wages,
rent and utilities, (2) expenses associated with Third-Party Retail and
Non-Retail sales, which include, among other things, catalog expenses and direct
wages and (3) general overhead expenses, which consist primarily of
non-allocable wages, professional fees and administrative and management
overhead.
44
<PAGE>
RESULTS OF OPERATIONS
The following tables summarize Archibald Candy's percentage of total net
sales, pounds of product sold and average selling price, according to
distribution channel, and number of Company-operated stores, in each case, for
the periods indicated.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31, 1996 AUGUST 30, 1997 AUGUST 29, 1998
--------------- ----------------- ---------------
<S> <C> <C> <C>
PERCENTAGE OF TOTAL NET SALES:
Company-Operated Retail................. 75.8% 73.2% 72.2%
Third-Party Retail...................... 12.7 14.0 14.4
Non-Retail.............................. 11.5 12.8 13.4
------ ------ ------
Total net sales....................... 100.0% 100.0% 100.0%
------ ------ ------
------ ------ ------
POUNDS SOLD (IN MILLIONS):
Company-Operated Retail................. 8.7 8.3 8.2
Third-Party Retail...................... 1.9 2.1 2.1
Non-Retail.............................. 1.5 1.7 1.9
------ ------ ------
Total pounds sold..................... 12.1 12.1 12.2
------ ------ ------
------ ------ ------
AVERAGE SELLING PRICE:
Company-Operated Retail................. $ 10.23 $ 10.73 $ 11.12
Third-Party Retail...................... 7.92 8.35 8.61
Non-Retail.............................. 8.75 9.16 9.05
Total average selling price........... 9.68 10.10 10.36
COMPANY-OPERATED STORES
(AT PERIOD END)......................... 340 322 317
</TABLE>
As a percentage of total net sales, Company-Operated Retail sales decreased
from 75.8% in fiscal 1996 to 72.2% in fiscal 1998. This decrease was due
primarily to management's strategy of (i) closing unprofitable stores and (ii)
expanding channels of distribution other than Company-Operated Retail. From the
end of fiscal 1996 to the end of fiscal 1998, the number of Company-operated
stores decreased from 340 to 317 which contributed to a decrease in total pounds
sold in Company-Operated Retail from 8.7 million to 8.2 million over this
period.
As a percentage of total net sales, Third-Party Retail sales increased from
12.7% in fiscal 1996 to 14.4% in fiscal 1998. Archibald Candy recently launched
the sale of Fannie May products in department stores, specialty shops and card
and gift stores, and expects Third-Party Retail sales to continue to grow as a
percentage of total net sales. Pounds sold in Third-Party Retail increased from
1.9 million in fiscal 1996 to 2.1 million in fiscal 1998 as a result of
increased volume with existing customers, the launch of new Fannie May products
and the introduction of the Fanny Farmer mass market program in fiscal 1996.
As a percentage of total net sales, Non-Retail sales increased from 11.5% in
fiscal 1996 to 13.4% in fiscal 1998. These increases, which resulted primarily
from the growth in net sales through Archibald Candy's fundraising program and
improved product mix and merchandising, reflect the results of management's
strategy to expand Non-Retail sales. Pounds sold in Non-Retail increased from
1.5 million in fiscal 1996 to 1.9 million in fiscal 1998.
THREE-MONTH PERIOD ENDED NOVEMBER 28, 1998 COMPARED TO THREE-MONTH PERIOD ENDED
NOVEMBER 29, 1997
TOTAL NET SALES. Total net sales for the three months ended November 28,
1998 were $29.6 million, an increase of $2.5 million, or 9.1%, from $27.2 for
the three months ended
45
<PAGE>
November 29, 1997. Company- Operated Retail sales were $16.1 million for the
three months ended November 28, 1998, a decrease of $0.1 million, or 0.4% from
$16.2 million for the three months ended November 29, 1997. This decrease was
primarily a result of a decline in same store sales of 0.3%, partially offset by
seven additional Company-operated stores being open at November 28, 1998
compared to November 29, 1997. For the three months ended November 28, 1998,
Third-Party Retail sales were $8.0 million, an increase of $1.9 million, or
31.7%, from $6.1 million for the three months ended November 29, 1997. This
increase reflects the continued results of management's strategy to expand
Third-Party Retail sales into new markets, including the launch in October 1998
of Archibald Candy's Specialty Markets Hallmark line. For the three months ended
November 28, 1998, Non-Retail sales were $5.6 million, an increase of $0.6
million, or 12.7%, from $4.9 million for the three months ended November 29,
1997. The increase was primarily a result of growth in the fundraising boxed
chocolate business. Pounds sold for the three months ended November 28, 1998
were 3.3 million, an increase of 0.3 million, or 10.2%, from 3.0 million pounds
sold for the three months ended November 29, 1997. The growth in pounds sold was
due to an increase in pounds sold in Archibald Candy's Third-Party Retail and
Non-Retail channels.
GROSS PROFIT. Gross profit for the three months ended November 28, 1998 was
$17.2 million, an increase of $0.7 million, or 4.0%, from $16.6 million for the
three months ended November 29, 1997. Gross profit as a percentage of net sales
decreased to 58.1% for the three months ended November 28, 1998 from 61.0% for
the three months ended November 29, 1997. This decrease in gross margin was
primarily due to the continuing shift from Company-Operated Retail sales to
lower margin Third-Party Retail sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A expenses were $15.6 million for
the three months ended November 28, 1998, an increase of $0.2 million, or 1.2%,
from $15.5 million for the three months ended November 29, 1997. This increase
in SG&A expenses was primarily due to an increase in (i) Third- Party Retail
operating expenses resulting from growth of the Specialty Markets Hallmark line
and (ii) Non-Retail operating expenses resulting from growth in the fundraising
boxed chocolate business. As a percentage of total net sales, SG&A expenses
decreased to 52.8% for the three months ended November 26, 1998 from 56.9% for
the three months ended November 29, 1997 as Archibald Candy was able to leverage
its costs against higher total net sales.
EBITDA. EBITDA was $1.5 million for the three months ended November 28,
1998, an increase of $0.4 million or 38.6%, from $1.1 million for the three
months ended November 29, 1997. As a percentage of total net sales, EBITDA was
4.9% for the three months ended November 28, 1998 as compared to 3.9% for the
three months ended November 29, 1997.
OPERATING LOSS. Operating loss was $0.1 million for the three months ended
November 28, 1998, a decrease of $0.5 million, or 75.7%, from a loss of $0.6
million for the three months ended November 29, 1997. Operating loss decreased
as a result of the increase in gross profit offset by an increase in SG&A.
FISCAL YEAR ENDED AUGUST 29, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 30, 1997
TOTAL NET SALES. Total net sales in fiscal 1998 were $126.7 million, an
increase of $4.8 million, or 3.9%, from $121.9 million in fiscal 1997. Pounds
sold in fiscal 1998 were 12.2 million, an increase of 0.1 million, or 0.1% from
fiscal 1997. This increase was due to an increase in Non-Retail pounds sold from
1.7 million in fiscal 1997 to 1.9 million in fiscal 1998, partially offset by a
0.1 million decrease in Company-Operated Retail pounds sold resulting from the
operation of five fewer stores. Company-Operated Retail sales were $91.5 million
in fiscal 1998, an increase of $2.2 million, or 2.5%, from $89.3 million in
fiscal 1997. This increase reflects same store sales growth of 4.2%, partially
offset by the closing of 14 stores. In fiscal 1998, Third-Party Retail sales
were $18.2 million, an increase of $1.2 million, or 6.8%, from $17.1 million in
fiscal 1997. This increase reflects the continued results of
46
<PAGE>
management's strategy to expand Third-Party Retail sales into new markets,
including providing Fanny Farmer branded products to mass merchandisers and
developing Fannie May product line extensions. Non-Retail sales were $17.0
million in fiscal 1998, an increase of $1.4 million, or 9.2%, from $15.6 million
in fiscal 1997. Increases in the boxed chocolate fundraising business and mail
order sales were primarily responsible for the growth in Non-Retail sales.
GROSS PROFIT. Gross profit in fiscal 1998 was $82.8 million, an increase of
$3.1 million, or 3.9%, from $79.6 million in fiscal 1997. This increase in gross
profit was primarily due to the increase in total net sales partially offset by
an increase in manufactured and purchased product costs. Gross profit as a
percentage of total net sales was 65.3% in fiscal 1998, unchanged from fiscal
1997.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A costs were $63.5 million in
fiscal 1998, an increase of $1.0 million, or 1.7%, from $62.4 million in fiscal
1997. This increase resulted primarily from an increase in costs related to the
development of Third-Party Retail and Non-Retail programs, particularly costs
related to growth of the mass market and fundraising programs. As a percentage
of total net sales, SG&A decreased to 50.1% in fiscal 1998 from 51.2% in fiscal
1997 as Archibald Candy was able to leverage its costs against higher total net
sales.
EBITDA. EBITDA was $19.0 million in fiscal 1998, an increase of $2.1
million, or 12.4%, from $16.9 million in fiscal 1997. As a percentage of total
net sales, EBITDA was 15.0% in fiscal 1998 as compared to 13.8% in fiscal 1997.
The increase in EBITDA and EBITDA margin was the result of a combination of the
factors described above.
OPERATING INCOME. Operating income was $12.5 million in fiscal 1998, an
increase of $1.7 million, or 16.1%, from $10.8 million in fiscal 1997. As a
percentage of net sales, operating income was 9.9% in fiscal 1998 as compared to
8.9% in fiscal 1997. This increase in operating income and operating margin
reflects an increase in EBITDA of $2.1 million resulting primarily from growth
in the total net sales in each of Archibald Candy's distribution channels.
FISCAL YEAR ENDED AUGUST 30, 1997 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1996
TOTAL NET SALES. Total net sales in fiscal 1997 were $121.9 million, an
increase of $4.6 million, or 3.9%, from $117.3 million in fiscal 1996. Pounds
sold in fiscal 1997 were 12.1 million, unchanged from fiscal 1996.
Company-Operated Retail sales were $89.3 million in fiscal 1997, an increase of
$0.3 million, or 0.4%, from $88.9 million in fiscal 1996. This increase
reflected same store sales growth of 5.2%, partially offset by the operation of
18 fewer stores. In fiscal 1997, Third-Party Retail sales were $17.1 million, an
increase of $2.2 million, or 14.4%, from $14.9 million in fiscal 1996. This
increase reflected the continued results of management's strategy to expand
Third-Party Retail sales into new markets, including providing Fanny Farmer
branded products to mass merchandisers and developing Fannie May product line
extensions. Non-Retail sales were $15.6 million in fiscal 1997, an increase of
$2.1 million, or 15.5%, from $13.5 million in fiscal 1996.
GROSS PROFIT. Gross profit in fiscal 1997 was $79.6 million, an increase of
$3.3 million, or 4.3%, from $76.3 million in fiscal 1996. Gross profit as a
percentage of total net sales increased from 65.1% in fiscal 1996 to 65.3% in
fiscal 1997. This increase in gross profit and gross margin was primarily due to
the increase in total net sales.
SELLING, GENERAL AND ADMINISTRATIVE. SG&A costs were $62.4 million in
fiscal 1997, an increase of $1.3 million, or 2.2%, from $61.1 million in fiscal
1996. This increase resulted primarily from an increase in costs related to the
development of Third-Party Retail and Non-Retail programs, particularly costs
related to growth of the Fanny Farmer mass merchandising programs. This increase
was partially offset by lower store operating costs resulting from store
closings. As a percentage of total
47
<PAGE>
net sales, SG&A decreased to 51.2% in fiscal 1997 from 52.1% in fiscal 1996, as
Archibald Candy was able to leverage its costs against higher total net sales.
EBITDA. EBITDA was $16.9 million in fiscal 1997, an increase of $2.1
million, or 14.5%, from $14.7 million in fiscal 1996. As a percentage of total
net sales, EBITDA was 13.8% in fiscal 1997 as compared to 12.6% in fiscal 1996.
The increase in EBITDA and EBITDA margin was a result of a combination of the
factors described above.
OPERATING INCOME. Operating income was $10.8 million in fiscal 1997, an
increase of $2.9 million, or 35.9%, from $7.9 million in fiscal 1996. The
increase in operating income was primarily a result of higher EBITDA of $2.1
million and a reduction of depreciation and amortization expense of $0.9
million.
LIQUIDITY AND CAPITAL RESOURCES
Archibald Candy's liquidity requirements have arisen principally from
various capital expenditures, seasonal and general working capital requirements
and debt service obligations. Archibald Candy has satisfied these requirements
during the past three fiscal years primarily with long-term and seasonal
borrowings, the proceeds of the offering of the Original Notes and cash
generated by operating activities. During fiscal 1996, 1997 and 1998, the net
cash generated by Archibald Candy's operating activities was $4.1 million, $3.9
million and $4.2 million, respectively.
On July 2, 1997, Archibald Candy entered into a revolving credit agreement,
which provides for revolving loans to Archibald Candy in an aggregate principal
amount at any time not to exceed the lesser of (1) $20 million and (2) a
borrowing base comprised primarily of a percentage of eligible accounts
receivable, eligible inventory and certain real estate. For fiscal 1998, there
were no borrowings under the revolving credit facility, although a letter of
credit in the amount of $0.5 million was issued under the revolving credit
facility. As of August 29, 1998, Archibald Candy's cash balance was $13.1
million. Inventories historically have represented Archibald Candy's most
significant working capital requirement and inventory levels fluctuate
significantly during the year. Archibald Candy's ratio of inventories to total
net sales is typically highest during the fiscal fourth quarter when it
experiences lower seasonal demand for its products and begins to build
inventories for its key sales periods. See "--Quarterly Results and
Seasonality." The acquisition of Sweet Factory is not expected to materially
change this seasonal trend. Receivables have not been a material component of
Archibald Candy's working capital because sales through Company-operated stores
are made on a cash or credit card basis. As the Company continues to pursue a
strategy to develop its Third-Party Retail business with grocery stores, drug
stores and other independent retailers, all of which typically pay vendors on 45
to 60 day terms or longer and which often require large shipments in order to
roll-out product simultaneously in several markets, the Company expects its
working capital needs relating to inventory and receivables to increase.
Archibald Candy's capital expenditures (including capital lease obligations)
for fiscal 1996, 1997 and 1998 were $2.3 million, $3.7 million and $4.6 million,
respectively. These expenditures related primarily to retail store development
and renovation, purchases of manufacturing and distribution equipment and
improvements in Archibald Candy's management information systems. Management
expects that capital expenditures over the next twelve months (excluding capital
expenditures described in the paragraph below) will relate primarily to (1) the
remodeling of existing Fannie May, Fanny Farmer and Sweet Factory stores, (2)
the purchase of manufacturing and distribution equipment and (3) improvements in
the Company's management information systems (including the management
information systems of Sweet Factory). Management expects to spend $8.4 million
for such capital expenditures over the next twelve months (excluding
expenditures described in the paragraph below), of which approximately $4.5
million will be maintenance capital expenditures.
48
<PAGE>
In addition, the Company expects to spend approximately $5.7 million of the
net proceeds from the offering of the Outstanding Notes for various cost savings
initiatives to be undertaken in connection with the consolidation of Sweet
Factory's operations with those of Archibald Candy. Such expenditures are
expected to include, among other things, severance payments to certain employees
of Sweet Factory and expenditures to close Sweet Factory's facilities in San
Diego, California and expand the Company's facilities in Chicago, Illinois to
accommodate Sweet Factory. See "The Acquisition" and "Use of Proceeds."
Based upon the Company's current level of operations and anticipated growth,
management believes that available cash flow, together with cash on the
Company's balance sheet and available borrowings under the revolving credit
facility, will be adequate to meet the Company's anticipated future requirements
for capital expenditures, working capital and debt service obligations. The
revolving credit facility will expire on July 2, 2000, and the Company will need
to seek to extend or renew the revolving credit facility or obtain alternative
financing to meet its seasonal working capital needs and other requirements.
In addition, Holdings has certain dividend and redemption obligations for
which the Company must generate the necessary funds. Holdings has the following
three classes of preferred stock: Senior Preferred Stock, Junior Class A PIK
Preferred Stock and Junior Class B PIK Preferred Stock. The Senior Preferred
Stock was issued in 1991 in the original face amount of $10.0 million and is
subject to mandatory redemption on August 31, 2001. Assuming that Holdings
continues to exercise its option to pay 50% of the dividends in kind, the
redemption value of the Senior Preferred Stock on August 31, 2001 will be
approximately $12.7 million. The Junior Class A PIK Preferred Stock and the
Junior Class B PIK Preferred Stock were issued in 1991 in the original face
amounts of $7.0 million and $0.7 million, respectively. Both classes of Junior
PIK Preferred Stock are subject to mandatory redemption on November 1, 2001.
Assuming that Holdings continues to exercise its option to pay all dividends in
kind, the redemption value of the Junior Class A PIK Preferred Stock and the
Junior Class B PIK Preferred Stock on November 1, 2001 will be approximately
$15.1 million and $1.5 million, respectively.
In order for Holdings to make such redemption payments, Holdings must cause
the Company, to the extent permitted by the Indenture and the revolving credit
agreement, to advance the necessary funds to Holdings by dividend or otherwise.
Such advances, if paid, will reduce the funds available for the Company's
operations. To the extent that such funds are not available, whether due to the
restrictions set forth in the Indenture or the revolving credit agreement or
otherwise, the failure to make required redemption payments would trigger
various provisions of Holdings' preferred stock, including provisions providing
for a change of control of Holdings' and Archibald Candy's Boards of Directors.
Instruments governing the Company's indebtedness, including the Indenture
and the revolving credit agreement contain financial and other covenants that
restrict, among other things, the Company's ability to make investments, loans
and advances, pay dividends and make certain other restricted payments, incur
additional indebtedness, incur liens, merge or consolidate with any other
person, sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of the assets of the Company, consummate certain other asset
sales and enter into certain transactions with affiliates. The revolving credit
facility prohibits, except in certain limited circumstances, the Company from
making dividend payments or other distributions on its outstanding shares of
capital stock if either (1) certain defaults under the revolving credit facility
shall have occurred and shall be continuing at the date of declaration, payment
or making thereof or would result therefrom or (2) the Indenture or the notes
issued thereunder prohibit such distributions. The Indenture provides that,
except in certain limited circumstances, Archibald Candy will not, and will not
permit any of its subsidiaries to, make dividend payments or other distributions
on Archibald Candy's outstanding shares of capital stock unless at the time of
such distribution: (a) no default under the Indenture has occurred and is
continuing or would
49
<PAGE>
occur as a consequence thereof, (b) immediately after such distribution, the
Company would comply with certain interest coverage ratios and (c) such
distributions do not exceed an amount determined by reference to a formula
consisting primarily of prior distributions and payments, prior income and the
proceeds of the sale of securities. In addition, the revolving credit facility
requires the Company to comply with specified financial ratios, including
minimum fixed charge coverage and maximum leverage ratios. The Indenture
prohibits the incurrence of indebtedness unless, among other things, the Company
complies with certain minimum interest coverage ratios. Such limitations,
together with the highly leveraged nature of the Company, could limit corporate
and operating activities, including the Company's ability to respond to market
conditions, to provide for unanticipated capital expenditures or to take
advantage of business opportunities.
INFLATION
Inflationary factors such as increases in the costs of ingredients,
purchased product, labor and corporate overhead may adversely affect the
Company's operating profit. In addition, store operating costs, including most
of the Company's retail store leases which require the Company to pay additional
rent based on a percentage of sales as well as taxes, insurance and maintenance
expenses, are subject to inflation. Although the Company's results to date have
not been significantly affected by inflation, there can be no assurance that a
high rate of inflation in the future would not have an adverse effect on the
Company and its operating results.
QUARTERLY RESULTS AND SEASONALITY
Archibald Candy's sales and earnings are highly seasonal and are expected to
continue to be so following the Acquisition. Historically, Archibald Candy's
second and third fiscal quarters have generated the highest sales and profits
due to increased consumer demand during the Christmas, Valentine's Day and
Easter holiday seasons. Archibald Candy's sales generally have been lowest
during the fourth quarter, reflecting reduced demand for Archibald Candy's
products during the summer months and resulting in an EBITDA loss in this
period. In light of the seasonality of Archibald Candy's business, results for
any interim period are not necessarily indicative of the results that may be
realized for the full year. Archibald Candy's working capital requirements also
fluctuate throughout the year based on Archibald Candy's inventories in
anticipation of sales. Such inventory requirements generally are highest during
the first four months of each fiscal year as Archibald Candy increases its raw
material and other inventories to accommodate anticipated product sales for the
Christmas, Valentine's Day and Easter holiday seasons.
The following table summarizes the total net sales and EBITDA of Archibald
Candy by quarter for fiscal 1997 and fiscal 1998.
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER QUARTER
ENDED ENDED ENDED ENDED ENDED ENDED ENDED ENDED
NOV. 30, MAR. 1, MAY 31, AUG. 30, NOV. 29, FEB. 28, MAY 30, AUG. 29,
1996 1997(1) 1997(1) 1997 1997 1998 1998 1998
--------- --------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
Net sales............................ $ 24,892 $ 56,180 $ 25,905 $ 14,956 $ 27,173 $ 58,397 $ 26,216 $ 14,956
EBITDA............................... 1,061 17,888 1,987 (4,068) 1,057 19,588 2,116 (3,797)
</TABLE>
- ------------------------
(1) Because of the timing of the 1997 Easter holiday season, management
estimates that total net sales of $1.4 million and EBITDA of $0.6 million
attributable to 1997 Easter sales were realized during the second quarter of
fiscal 1997. If Easter had occurred later in calendar year 1997, some or all
of such total net sales and EBITDA would have been realized in the third
quarter of fiscal 1997, and therefore, would not have been included in the
second quarter of fiscal 1997. See "Selected Financial Data."
50
<PAGE>
During the twelve months ended August 29, 1998, Sweet Factory had total
revenues of $77.7 million, of which sales by quarter were approximately 21.6%,
29.3%, 23.5% and 25.6%, respectively.
IMPACT OF THE YEAR 2000 ISSUE
Many computer systems and other equipment with embedded chips or processors
use only two digits to represent the year and, as a result, they may be unable
to process accurately certain data before, during or after the year 2000. As a
result, business and governmental entities are at risk for possible
miscalculations or system failure causing disruptions in their operations. This
is commonly known as the Year 2000 issue and can arise at any point in the
Company's supply, manufacturing, processing, distribution and financial chains.
We have surveyed substantially all of the Company's computer systems and are
in the process of contacting suppliers and consultants to address year 2000
issues for the software and hardware used by the Company. We also are in the
process of upgrading and improving the Company's internal computer systems,
which work is expected to be completed by August 1999. Following the completion
of this work and based on the representations and warranties of the Company's
suppliers and consultants, the Company's computer systems are expected to be
year 2000 compliant. We do not believe that the costs associated with making the
Company's computer systems year 2000 compliant will be material. However, if the
Company's systems or the systems of other companies on whose services the
Company depends or with whom the Company's systems interfaces are not year 2000
compliant, it could have a material adverse effect on the Company's results of
operation and financial condition.
51
<PAGE>
BUSINESS
COMPANY OVERVIEW
The Company is a manufacturer and marketer of quality boxed chocolates and
other confectionery items. Founded in 1921, we manufacture a variety of candies
and operate two specialty boxed chocolate confectionery retail chains as well as
a specialty bulk candy retail chain. We operate 592 retail stores in 40 states:
248 stores under the Fannie May brand, 85 stores under the Fanny Farmer brand
and 259 stores under the Sweet Factory brand. We also sell our Fannie May and
Fanny Farmer branded products in approximately 8,000 third-party retail outlets
as well as through our quantity order, mail order and fundraising programs. We
manufacture over three-quarters of the products that we sell under the Fannie
May and Fanny Farmer brands and maintain proprietary specifications for a
significant amount of the confectionery products that we purchase from other
sources for resale under our Fannie May and Fanny Farmer brand names. We believe
that consumers widely recognize the quality, freshness and value of our
products. We also believe that our Fannie May, Fanny Farmer and Sweet Factory
brands are among the strongest in the confectionery industry and offer
significant opportunities for growth.
In late fiscal 1994, we installed our current management team with the
immediate goal of integrating the Fanny Farmer brand name and stores, which we
acquired in 1992, with our existing Fannie May operations. Since the arrival of
our current management team, Archibald Candy's EBITDA has increased from $8.2
million in fiscal 1994 to $19.0 million in fiscal 1998 and EBITDA margins have
increased from 7.1% to 15.0% over the same period. We believe that we have
successfully completed the integration of Fannie May and Fanny Farmer. We
recently have turned our focus to growing sales and earnings by:
- building on our Fannie May and Fanny Farmer brand names;
- increasing points of availability for our products;
- integrating the Sweet Factory brand name and stores with our existing
operations; and
- acquiring additional confectionery brands.
CONFECTIONERY INDUSTRY OVERVIEW
The U.S. confectionery industry had 1997 retail sales of approximately $23
billion. The domestic confectionery industry is characterized by moderate
long-term growth in consumer demand, with the per capita consumption of candy
increasing from approximately 18 pounds in 1987 to over 27 pounds in 1997. The
confectionery market is comprised of two broad sectors: non-chocolates and
chocolates, which represent 53.9% and 46.1% of the confectionery market,
respectively. Non-chocolate products include a wide range of confectionery
items, including jelly beans, gummi bears, hard candies and licorice. From 1993
to 1997, sales volume in the non-chocolate and chocolate sectors grew at the
rates of 18.9% and 6.4%, respectively. Within the chocolate sector, total sales
of boxed chocolates were approximately $1.6 billion in 1997.
BUSINESS STRATEGY
Our business strategy is to grow our core brands and acquire and build other
leading brand names in the confectionery industry and to leverage these brands
through a multi-channeled distribution network. We acquired the Fanny Farmer
brand in 1992 to complement our existing Fannie May boxed chocolate brand. The
acquisition of Sweet Factory in 1998 provides us with a leading name in
52
<PAGE>
non-chocolate bulk candy retail. We expect to continue to grow our brands with a
strategy that includes the following key elements:
CONTINUE IMPROVEMENT IN COMPANY-OPERATED STORES. Our retail store strategy
consists of two main components: (1) continuing to improve same store sales by
enhancing merchandising, customer service and product selection and (2) reducing
store operating costs, primarily by selectively closing unprofitable stores. The
Fannie May and Fanny Farmer stores had average annual sales of approximately
$289,000 in fiscal 1998 and achieved average annual same store sales growth of
4.0% during the past five years. The Sweet Factory stores had average annual
sales of approximately $308,000 for the twelve month period ended August 29,
1998. Historically, Sweet Factory has experienced an increase in same store
sales although, since 1997, same store sales have declined. We believe there are
opportunities to improve the performance of our Sweet Factory stores by
implementing many of the same retail store strategies that improved the
operations of our Fannie May and Fanny Farmer stores.
INCREASE PRODUCT AVAILABILITY THROUGH COMPANY-OPERATED STORES AND
THIRD-PARTY RETAIL PROGRAMS. Our strategy of increasing product availability
nationwide is based on cross-marketing Fannie May and Sweet Factory product
offerings in Company-operated stores as well as increasing sales of both brands
through third party channels.
- COMPANY-OPERATED STORES. We believe that the Acquisition of Sweet Factory
provides us with an effective opportunity to sell our Fannie May boxed
chocolates to a broader consumer market. Prior to the Acquisition, Sweet
Factory's stores had limited boxed chocolate offerings. Since the
Acquisition, we have begun selling Fannie May boxed chocolates in the
Sweet Factory stores. We also intend to distribute certain Sweet Factory
products through the Fannie May and Fanny Farmer stores.
- THIRD-PARTY RETAIL PROGRAMS. We continue to pursue several third-party
retail programs designed to make our Fannie May and Fanny Farmer brands
more readily available to customers in new and existing markets. We have
implemented a two-tiered distribution and pricing strategy to capitalize
on our strong Fannie May and Fanny Farmer brand names. Our strategy is to
position our third-party retail programs under the Fannie May brand at a
higher retail price point for the retail market while offering our Fanny
Farmer brand at a lower retail price point more appropriate for the mass
market. As a result of this strategy, we have increased Archibald Candy's
sales through third-party retail programs from $13.0 million in fiscal
1994 to $18.2 million in fiscal 1998. Our strategy of increasing product
availability through third-party retail programs includes the following
key elements:
- expanding our Fannie May third-party retail programs which (i) service
approximately 1,200 grocery, drug and variety stores in the greater
Chicago metropolitan area, on a year-round basis, and (ii) target
department stores, specialty shops and card and gift stores nationwide,
during the Christmas, Valentine's Day and Easter seasons;
- expanding our Fanny Farmer third-party retail program which sells to the
mass market during the peak holiday seasons through approximately 5,000
grocery stores, drug stores and mass merchandisers nationwide; and
- distributing certain Sweet Factory products through selected third-party
retailers who currently carry Fannie May or Fanny Farmer branded
products.
GROW NON-RETAIL SALES. We have developed several non-retail sales channels
for our Fannie May and Fanny Farmer brands, including our:
- quantity order program, through which we market our products to
approximately 43,000 organizations for corporate gift giving or member
purchases;
53
<PAGE>
- mail order program, through which customers can order products over the
Internet at our web site (www.fanniemaycandies.com) and through a catalog
which has a national circulation of over 2.1 million catalogs annually and
a database of over 350,000 customers; and
- fundraising program, through which we sell products to schools and
non-profit organizations nationwide for resale to their supporters.
We believe that these non-retail sales channels provide potential future
sales growth without the overhead generally associated with maintaining a retail
store presence. We have increased Archibald Candy's sales through non-retail
sales channels from $11.3 million in fiscal 1994 to $17.0 million in fiscal
1998. We also intend to complement our existing boxed chocolate product line by
making certain Sweet Factory products available through our quantity order, mail
order and fundraising programs.
PURSUE STRATEGIC ACQUISITIONS. We intend to continue to pursue selective
acquisitions that complement or provide further opportunities to use our
existing brands, manufacturing resources or distribution systems.
PRODUCTS
The Company manufactures over three-quarters of the products it sells under
the Fannie May and Fanny Farmer brands and maintains proprietary specifications
for a significant amount of the confectionery products, such as seasonal
novelties, that it purchases from other sources for resale. The Company's
manufactured products include more than 125 items, including its best selling
Pixie, Mint Meltaway and Trinidad lines. Products sourced from vendors for
resale under the Fannie May and Fanny Farmer brands include assorted nuts, hard
candy, novelties, ice cream and an extensive line of gift items. The Company
believes that the superior quality and freshness of its products differentiates
the Company from many other confectionery manufacturers. The Company relies on
proven recipes, many dating back to the 1920s, for its traditional chocolates.
Because the Company relies on freshness rather than preservatives to ensure a
high-quality product, it is the Company's policy to destroy products not sold
within specified periods.
The Company's Sweet Factory stores sell 150 to 200 different candies in a
self-serve, pick and mix bulk format. With the exception of novelty, gift, count
goods and pre-packaged items, most of Sweet Factory's products are sold for a
single price per pound. For the twelve month period ended August 29, 1998, bulk
products represented 79.3% of Sweet Factory's retail sales. The majority of bulk
products are non-chocolate items such as gourmet jelly beans, gummi bears, hard
candies and licorice. Sweet Factory also sells nationally branded count goods,
gifts and novelty items. Chocolate items comprise approximately 16% of Sweet
Factory's product mix, of which boxed chocolates represent a negligible share.
Sweet Factory purchases substantially all of the products it sells from
independent distributors and manufacturers that deliver the products directly to
Sweet Factory's stores. The Company believes that the Sweet Factory stores will
provide the Company with a new distribution platform for its Fannie May boxed
chocolates and that the sale of Fannie May products in these stores will
increase both revenues in Sweet Factory's stores and the Company's output of
manufactured products.
OPERATIONS
MANUFACTURING AND PRODUCTION. All of the Company's manufacturing operations
are located in its headquarters facility in Chicago, Illinois, other than the
manufacturing operations of its Sweet Factory subsidiaries which the Company
intends to close as part of the cost savings initiatives to be undertaken in
connection with the Acquisition. See "The Acquisition" and "--Properties." The
Company's Chicago, Illinois headquarters facility includes space for
manufacturing, cold and dry storage and office and administrative functions.
54
<PAGE>
The production process at the Company's manufacturing facility in Chicago,
Illinois is split functionally into cooking, enrobing and packaging. Each area
is managed by one department head who in turn reports to the plant manager.
Additional departmental detail is shown below.
- COOKING. There are separate cooking areas in the Company's plant for its
various products. Gas-fired copper kettles and steam-jacketed stainless
steel kettles are used to cook ingredients to achieve the appropriate
moisture level and flavor profile. The finished batches are further
processed at the enrobers or in other areas of the plant.
- ENROBING. Approximately 75% of the pounds of candy produced in the
Company's plant pass through six enrobers ranging in size from 34 to 42
inches. The enrobers form batches of cooked candy into shapes and cover
the candy with a variety of coatings, including milk chocolate, vanilla
chocolate, liquor chocolate and pastel.
- PACKAGING. Approximately 68% of the pounds produced at the Company's plant
are hand-packed into boxes for sale through Company-Operated Retail or
other distribution channels. The Company utilizes six packing lines with
an average crew size of 21 packers to place the pieces of candy into
distinctive white paper cups and then into boxes. The boxes are wrapped by
automatic wrapping machines and placed into corrugated cartons for storage
or shipment. Candy which is not packed in the factory is delivered on pans
to Company-operated stores so that customers can select their own
assortments.
The Company's plant currently operates on a seasonal basis with the busiest
seven-month period commencing after Labor Day and running through Easter. After
Easter, the Company reduces production by approximately 20% until late summer.
There is an annual two-week plant shutdown during the summer to allow for
comprehensive maintenance and cleaning activities.
WAREHOUSING AND DISTRIBUTION. In order to maintain product freshness and to
ensure prompt deliveries to Fannie May and Fanny Farmer stores, the Company
maintains warehousing and distribution facilities in both Chicago, Illinois and
Bensalem, Pennsylvania, which facilities have 112,000 and 17,000 square feet of
warehousing and distribution space, respectively. These facilities maintain
temperature and sanitation controls in order to protect the quality of the
products. Employees generally fill orders daily to allow weekly deliveries to
each of the Company-operated Fannie May and Fanny Farmer retail locations and on
an "as needed" basis to others. The Company's fleet of 24 trucks are
refrigerated in order to provide appropriate shipping conditions for pan candy,
pre-boxed chocolates and necessary shop supplies. With the exception of all
Fannie May and Fanny Farmer Florida locations, certain Fannie May and Fanny
Farmer Minnesota and North Dakota locations and all Sweet Factory locations, all
shops typically are serviced by the Company's own fleet. All other sales
channels and stores are supplied via parcel service and selected common carriers
and freight forwarding companies.
SUPPLIERS AND PURCHASING. The Company's primary raw materials include
chocolate coatings, nutmeats, natural sweeteners, such as corn syrup and sugar,
and fresh dairy products, including sweetened-condensed milk, high-butterfat
cream and butter. The Company has long-standing relationships with its suppliers
for each of these products to ensure quality, consistency and cost control.
Written specifications are provided to the suppliers and certificates of
analysis must accompany incoming shipments. Peter's Chocolate Company ("Peter's
Chocolate"), a division of Nestle Company, Inc., has been Archibald Candy's
primary chocolate coating supplier for over 50 years and accounted for
approximately one-half of Archibald Candy's chocolate purchases in fiscal 1998.
Merckens Chocolate Company ("Merckens"), a division of Archer-Daniels-Midland
Company, also has been a leading supplier of chocolate coating to Archibald
Candy for over 20 years, and accounted for approximately one-third of Archibald
Candy's chocolate purchases in fiscal 1998. Management believes that the Company
is one of the leading bulk customers, by volume, of each of Peter's Chocolate
and Merckens. Archibald Candy currently has short term (less than one year)
supply agreements with
55
<PAGE>
Peter's Chocolate and Merckens. All chocolate coatings prepared for Archibald
Candy are proprietary and are produced according to Archibald Candy's recipes.
MARKETING AND SALES
The Company sells its candy products through three channels: (i)
Company-Operated Retail, (ii) Third-Party Retail and (iii) Non-Retail.
COMPANY-OPERATED RETAIL. As of November 28, 1998 on a pro forma basis after
giving effect to the Acquisition, the Company operated 248 Fannie May stores
(including 13 temporary seasonal kiosks), 85 Fanny Farmer stores and 259 Sweet
Factory stores. In fiscal 1998, this sales channel accounted for $169.1 million,
or 82.8%, of the Company's total net sales on a pro forma basis after giving
effect to the Acquisition. While Fannie May, Fanny Farmer and Sweet Factory
stores co-exist in certain states, such stores generally do not compete in the
same local markets. Fannie May stores typically are found in strip centers and
shopping malls or as street-front units and stand-alone roadside sites. Fanny
Farmer and Sweet Factory stores typically are located in shopping malls. In
addition, Sweet Factory also has opened stores in airports, railroad stations,
specialty centers and selected street locations and developed kiosks in malls,
sports venues and other public areas.
The Company's Fannie May and Fanny Farmer stores had average annual sales of
approximately $289,000 in fiscal 1998 and achieved average annual same store
sales growth of 4.0% during the past five fiscal years. The Company's Sweet
Factory stores had average annual sales of approximately $308,000 for the twelve
month period ended August 29, 1998. Historically, Sweet Factory has experienced
an increase in same store sales although, since 1997, same store sales have
declined. The Company believes there are opportunities to improve the
performance of its Sweet Factory stores by implementing many of the same retail
store strategies that improved the operations of the Company's Fannie May and
Fanny Farmer stores. In addition, the Company believes that the acquisition of
Sweet Factory provides the Company with an opportunity to increase product
availability nationwide by cross-marketing Fannie May and Sweet Factory product
offerings in Company-operated stores. Prior to the Acquisition, the Sweet
Factory stores had limited boxed chocolate offerings. The Company anticipates
that the sale of its Fannie May products in its Sweet Factory stores will
increase both revenues in Sweet Factory's stores and the Company's output of
manufactured products. The Company also intends to distribute certain of its
non-chocolate Sweet Factory products through its Fannie May and Fanny Farmer
stores.
56
<PAGE>
As of November 28, 1998 on a pro forma basis after giving effect to the
Acquisition, the Company's stores were located in 40 states, the District of
Columbia and Puerto Rico as follows:
<TABLE>
<CAPTION>
STATE FANNIE MAY FANNY FARMER SWEET FACTORY TOTAL STORES
- --------------------------------------------------------- --------------- ----------------- ----------------- ---------------
<S> <C> <C> <C> <C>
Illinois................................................. 166 -- 7 173
California............................................... -- -- 69 69
New York................................................. -- 20 17 37
Florida.................................................. 10 3 17 30
Indiana.................................................. 26 -- 3 29
Minnesota................................................ 4 23 1 28
Michigan................................................. 8 11 5 24
Ohio..................................................... -- 4 12 16
Washington............................................... -- -- 16 16
Massachusetts............................................ -- 6 8 14
Wisconsin................................................ 6 8 -- 14
Texas.................................................... -- -- 13 13
Pennsylvania............................................. 6 -- 6 12
Georgia.................................................. 5 -- 5 10
Missouri................................................. 7 -- 2 9
New Jersey............................................... 1 -- 8 9
Arizona.................................................. -- -- 8 8
Nevada................................................... -- -- 8 8
Virginia................................................. 4 -- 4 8
Maryland................................................. 2 -- 5 7
Iowa..................................................... 2 4 -- 6
Hawaii................................................... -- -- 5 5
Oregon................................................... -- -- 5 5
Connecticut.............................................. -- -- 4 4
District of Columbia..................................... 1 -- 3 4
Louisiana................................................ -- -- 4 4
Colorado................................................. -- -- 4 4
New Hampshire............................................ -- 2 1 3
Tennessee................................................ -- -- 3 3
Kansas................................................... -- -- 2 2
Kentucky................................................. -- -- 2 2
Mississippi.............................................. -- -- 2 2
New Mexico............................................... -- -- 2 2
North Dakota............................................. -- 2 -- 2
Puerto Rico.............................................. -- -- 2 2
Rhode Island............................................. -- 2 -- 2
Alabama.................................................. -- -- 1 1
Delaware................................................. -- -- 1 1
Nebraska................................................. -- -- 1 1
North Carolina........................................... -- -- 1 1
South Carolina........................................... -- -- 1 1
Utah..................................................... -- -- 1 1
--- --- --- ---
Total................................................ 248 85 259 592
--- --- --- ---
--- --- --- ---
</TABLE>
The Company owns 33 Fannie May stores. These stores typically are located in
stand-alone roadside structures and tend to be among the Company's highest
grossing sales locations. The Company's
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<PAGE>
leased stores are in the following locations: 351 in shopping malls, 86 in strip
centers, 55 in street-front units and 67 in other locations (including stadiums
and airports). Lease terms and rates vary by location with the typical lease
providing an average seven year term with a minimum base rent plus additional
rent based on a percentage of sales and common area charges. Historically, the
Company has been able to renew its store leases upon expiration.
The size of the Company's stores (excluding kiosks), including both leased
and Company-owned stores, generally ranges from 600 square feet mall locations
to 2,900 square feet stand-alone roadside locations, with an average store size
of approximately 825 square feet. Company-operated stores typically are open
seven days per week and employ six to ten people, including a full-time manager
and several part-time employees. Employees are trained to provide customers with
customized selections and to weigh and price each purchase accordingly.
Customers are served primarily by store staff, although many of the larger
stores also have a self-service section with prepacked boxes. The Company
controls each store's design, signage and layout to maintain consistency among
all Fannie May, Fanny Farmer and Sweet Factory stores.
Since fiscal 1994, the Company has opened 41 new Fannie May and Fanny Farmer
stores and closed 157 Fannie May and Fanny Farmer stores, most of which were
unprofitable. The majority of the closed stores had been acquired by the Company
in fiscal 1992 as part of its acquisition of the Fanny Farmer brand name and
selected assets. As a result of management's efforts to improve Company-Operated
Retail store performance and to eliminate weaker store locations, same store
sales in the Company's Fannie May and Fanny Farmer stores increased 4.5%, 3.4%,
2.6%, 5.2% and 4.2% in fiscal 1994, 1995, 1996, 1997 and 1998, respectively.
Company-operated Fannie May and Fanny Farmer store openings and closings for
fiscal 1994, 1995, 1996, 1997 and 1998 are set forth below.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
AUGUST 31, 1994 AUGUST 26, 1995 AUGUST 31, 1996 AUGUST 30, 1997
------------------- ------------------- --------------------- -------------------
<S> <C> <C> <C> <C>
OPENINGS:
Fannie May................ 8 7 4 4
Fanny Farmer.............. 4 5 0 0
--- --- --- ---
Total................. 12 12 4 4
--- --- --- ---
--- --- --- ---
CLOSINGS:
Fannie May................ 23 10 7 6
Fanny Farmer.............. 22 30 29 16
--- --- --- ---
Total................. 45 40 36 22
--- --- --- ---
--- --- --- ---
<CAPTION>
AUGUST 29, 1998
-------------------
<S> <C>
OPENINGS:
Fannie May................ 9
Fanny Farmer.............. 0
---
Total................. 9
---
---
CLOSINGS:
Fannie May................ 1
Fanny Farmer.............. 13
---
Total................. 14
---
---
</TABLE>
Management plans to continue its emphasis on improving store mix rather than
store expansion for the near future, and, over the next four fiscal years,
intends to open approximately 40 new stores (including approximately 20 Sweet
Factory stores) and close approximately 50 additional unprofitable stores
(including approximately 20 Sweet Factory stores).
THIRD-PARTY RETAIL. Through its Third-Party Retail channel, the Company
markets its Fannie May and Fanny Farmer branded products to grocery stores, drug
stores, department stores and other variety stores through its frozen fresh,
specialty market, and mass market programs. These programs are designed to make
the Company's Fannie May and Fanny Farmer branded products more readily
available to consumers in new and existing markets. Within the mid-priced
segment of the boxed chocolate market, management has implemented a two-tiered
distribution and pricing strategy to differentiate the Company's brand names.
The Company utilizes the Fannie May brand for its higher price point frozen
fresh and specialty markets programs and has positioned the Fanny Farmer brand
at a lower price point for the mass market.
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<PAGE>
Under the frozen fresh program, the Company distributes frozen products to
retailers who then maintain the products in freezer display cases for sale to
their customers. The Company initiated the frozen fresh program under the Fannie
May brand name in the early 1950's as a way to market a limited number of its
best-selling assortments through independent retailers on a year-round basis.
The Company has approximately 1,200 frozen fresh accounts, the vast majority of
which are in the greater Chicago metropolitan area and include stores operated
by Jewel Foods, Osco Drug, Dominick's and Walgreen Company (which collectively
account for over 65% of the Company's frozen fresh candy sales). These accounts
generally purchase Fannie May branded products from the Company at wholesale
prices and mark-up the product to prices comparable to those for products sold
in Company-operated stores. For fiscal 1998, frozen fresh sales accounted for
$13.5 million, or 10.7%, of Archibald Candy's total net sales.
In fiscal 1996, the Company established a national mass market program under
the Fanny Farmer brand name. This wholesale program is targeted to grocery
stores, drug stores and mass merchandisers, with product availability limited to
the peak selling seasons of Christmas, Valentine's Day and Easter. The terms of
sale are similar to those terms given to frozen fresh accounts, but the products
for this program are selected and packaged to meet lower price points typical of
the mass market. Under this program, the Company has obtained approximately
5,000 outlets, operated mostly by retail chains, including Target and American
Stores. For fiscal 1998, mass market sales accounted for $3.5 million, or 2.7%,
of Archibald Candy's total net sales.
In fiscal 1997, the Company announced the roll-out of its specialty markets
program through which it markets nationally under the Fannie May brand name to
department stores, card and gift stores and direct mail catalog companies. The
product line for this program, which consists of a variety of boxed and novelty
items, is intended to meet unfulfilled consumer demand in the mid-priced segment
of the specialty market. This product line is positioned at higher price points
and sold only during the peak seasons of Christmas, Valentine's Day and Easter.
Pursuant to an agreement with Hallmark Cards, Inc., the Company recently began
selling Fannie May boxed chocolates through many of Hallmark's approximately
5,000 Gold Crown stores during the holiday seasons. For fiscal 1998, specialty
markets program sales accounted for $0.5 million, or 0.4% of Archibald Candy's
total net sales. The Company intends to strengthen its third-party retail
product line by making certain of Sweet Factory's products available through
selected third-party retailers who currently carry the Company's Fannie May or
Fanny Farmer branded products.
NON-RETAIL. The Company's Non-Retail channel consists of quantity order,
fundraising and mail order catalog programs. Under the quantity order program,
companies and organizations buy large amounts of prepackaged candy for
gift-giving purposes or consolidate individual orders from employees or members
in order to obtain discount pricing. Under this program, the Company is
responsible for all of the administrative details and timely delivery of
product. Historically, the Company has found a high level of repeat sales in
this segment, as quantity order customers tend to renew or expand on their prior
year's order. The Company's current active quantity order database includes
approximately 43,000 customers. The quantity order program is available
year-round, but peaks in activity during the Christmas, Valentine's Day and
Easter holiday seasons. A quantity order catalog is distributed at the beginning
of each fiscal year and prior to each holiday season. The Company also has
targeted fundraising organizations, including over 90,000 schools throughout the
United States, for its product offerings. For fiscal 1998, quantity order and
fundraising sales accounted for $10.6 million, or 8.4%, of Archibald Candy's
total net sales.
In addition, the Company sells its products through a mail order program
through which customers can order products over the internet at the Company's
web site (www.fanniemaycandies.com) and through a catalog which has a national
circulation of over 2.1 million catalogs annually and a database of over 350,000
customers. The Company sends Fannie May mail order catalogs to established and
prospective customers during key selling seasons. Mail order catalogs also are
made available to the
59
<PAGE>
general public through Company-operated retail stores. In fiscal 1998,
approximately 139,000 orders were placed through the mail order program, with an
average transaction value of approximately $48.00. While this program was
established in 1985, mail order sales have grown at an average annual rate of
14.2% since fiscal 1994. For fiscal 1998, mail order sales accounted for $6.4
million, or 5.0%, of Archibald Candy's total net sales. The Company believes
that this growth, which corresponds with the arrival of the current management
team, is the result of improved product selection and catalog presentation as
well as more effective database management. The Company intends to strengthen
its non-retail product line by making certain of Sweet Factory's non-chocolate
products available through the Company's quantity order, mail order and
fundraising programs.
COMPETITION
The Company competes with numerous local and national businesses that
manufacture, distribute or retail boxed chocolates and other confectionery
products. The Company's Fannie May and Fanny Farmer products generally compete
in the quality boxed chocolate market, which management believes can be divided
into premium, mid-priced and low-priced segments. The low-priced segment, which
represents the largest share of the boxed chocolate market, is generally
comprised of products retailing for less than $10.00, which management believes
usually are of lower quality than other boxed chocolates. The primary competitor
in this market is Russell Stover Candies, Inc. which sells under the Whitman's
Chocolates and Russell Stover brand names and competes primarily on price for
sales to grocery stores, drug stores and discount stores. The Company believes
that its Fannie May and Fanny Farmer products compete primarily in the
mid-priced segment though it also competes against Russell Stover Candies and
other lower-priced suppliers in certain distribution channels.
The mid-priced boxed chocolate segment is generally comprised of those
chocolates which retail for between $10.00 and $18.00. The Company's competitors
in the mid-priced segment are primarily local confectionery companies against
whom the Company competes through Company-operated stores on the basis of price
and quality. See's Candies, a subsidiary of Berkshire Hathaway Inc., is believed
by management to be the largest participant in the mid-priced segment.
The premium boxed chocolate segment generally is comprised of chocolates
retailing in excess of $18.00. The leading participant in this segment is Godiva
Chocolatier, Inc., a subsidiary of the Campbell Soup Company. Other brands in
this market include Perugina, Tobler and Lindt. Most of these chocolates are
imported from abroad and, despite their high prices, management does not believe
that such brands provide the same freshness as the Company's chocolates. The
Company competes in the premium segment on the basis of quality and packaging
primarily through Third-Party Retail sales of its Fannie May branded products in
department stores.
There are only a few national or regional confectionery retailers that
directly compete with the Company's Sweet Factory stores in the bulk candy
retail market. The largest of these competitors are Mr. Bulky, Candy Express and
Sweets From Heaven. Sweet Factory also competes with other confectionery
retailers, including grocery stores, drug stores and toy stores.
The Company also competes with manufacturers, distributors and retailers of
other snack food products, including cookies, ice cream and coffee, as well as
with gift manufacturers, distributors and retailers, such as florists and card
and gift shops, that offer products at price points comparable to those of the
Company's products.
EMPLOYEES
On a pro forma basis as of November 28, 1998, the Company employed
approximately 4,900 people, of which 2,066 worked in Fannie May stores, 436
worked in Fanny Farmer stores, 1,726 worked in Sweet Factory stores, 113 worked
in Sweet Factory's office, manufacturing and distribution facilities in San
Diego, California and the remainder worked primarily in the Company's Chicago
manufacturing,
60
<PAGE>
distribution and headquarters facilities. Of the total number of employees, 611
were salaried and the remainder, including all store personnel, were compensated
on an hourly basis. Typically, the number of employees increases by
approximately 1,000, many of whom work part-time in Company-operated retail
stores, during periods of high seasonal retail demand in the Company's second
and third fiscal quarters. As of November 28, 1998 on a pro forma basis after
giving effect to the Acquisition, over one-half of the hourly store personnel
were employed on a part-time basis. As of November 28, 1998 on a pro forma basis
after giving effect to the Acquisition approximately 800 of the Company's
employees were members of one of the various labor unions that represent
employees of the Company. The Company currently is subject to seven collective
bargaining agreements, all of which expire on or before March 31, 2003. None of
the Company's Sweet Factory employees are represented by labor unions.
Management generally considers its employee relations to be good.
INTELLECTUAL PROPERTY
The Company owns numerous trademarks in the United States. The names Fannie
May and Fanny Farmer and certain product names, including Pixie and Trinidad,
are registered trademarks of the Company. The Company's trademarks are material
to the sale of the Company's products. Trademarks generally are valid as long as
they are in use and/or their registrations are properly maintained and provided
that such trademarks have not been found to have become generic.
Sweet Factory, which is a licensee of United Sweet Factory Limited, owns the
exclusive license to operate Sweet Factory stores in the United States and
Mexico. Although the current license period under the license agreement with
United Sweet Factory Limited expires in the year 2000, Sweet Factory has the
option to extend the license for an additional ten year period by paying a
renewal fee of $825,000. Sweet Factory has the option to extend the license for
two additional ten-year periods to the year 2030 by paying a renewal fee of
$825,000 for each such additional extension.
PROPERTIES
As of November 28, 1998 on a pro forma basis after giving effect to the
Acquisition, the Company operated 248 Fannie May stores, 85 Fanny Farmer stores
and 259 Sweet Factory stores. Of the 248 Fannie May stores, 33 are owned by the
Company and 215 are leased by the Company. The Company leases all of its Fanny
Farmer and Sweet Factory stores. Within four years following August 29, 1998,
approximately 58% of the Company's retail store leases are due to expire. The
Company believes that it will be able to renew expiring leases at reasonable
rates in the future, but there can be no assurances that it will be able to do
so.
In addition to its Company-operated stores, the Company has five other
principal properties: (1) an approximately 320,000 square foot manufacturing,
storage and headquarters facility that the Company owns in Chicago, Illinois;
(2) an approximately 112,000 square foot warehouse and distribution facility
that the Company leases in Chicago, Illinois; (3) an approximately 17,000 square
foot warehouse and distribution facility that the Company owns in Bensalem,
Pennsylvania; (4) an approximately 8,000 square foot manufacturing facility that
the Company's Sweet Factory subsidiaries lease in San Diego, California; and (5)
an approximately 19,000 square foot office facility and an approximately 10,000
square foot distribution facility that the Company's Sweet Factory subsidiaries
lease in San Diego, California. At the Chicago manufacturing and headquarters
facility, approximately 162,000 square feet are used for manufacturing, 118,000
square feet for cold and dry storage and 40,000 square feet for office and
administrative functions. The Company intends to close Sweet Factory's office,
manufacturing and distribution facilities as part of the cost savings
initiatives to be undertaken in connection with the Acquisition. See "The
Acquisition." The lease of the Chicago warehouse and distribution facility
expires in June 2000. Management believes that substantially all of the
Company's property and equipment is in good condition and that it has sufficient
capacity to meet its current manufacturing and distribution requirements.
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<PAGE>
LEGAL PROCEEDINGS
From time to time, the Company is involved in routine litigation incidental
to its business. The Company is not a party to any pending or threatened legal
proceeding which management believes would have a material adverse effect on the
Company's results of operations or financial condition.
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<PAGE>
MANAGEMENT
DIRECTORS AND MANAGEMENT EMPLOYEES
The following table and summary below set forth certain information with
respect to the directors and management employees of the Company as of the date
of this Prospectus.
<TABLE>
<CAPTION>
NAME AGE POSITION WITH THE COMPANY
- --------------------------------------- --- ------------------------------------------------------------------
<S> <C> <C>
Thomas H. Quinn........................ 51 Chairman of the Board and Chief Executive Officer*
Ted A. Shepherd........................ 39 President and Chief Operating Officer*
Donna M. Snopek........................ 40 Vice President--Finance and Accounting and Secretary*
Alan W. Petrik......................... 45 Vice President--Business Systems
Ricky L. Lelli......................... 47 Vice President--Operations
Joseph Chipollini...................... 48 Vice President--Retail Operations
Nick Podoba............................ 53 Vice President--Human Resources
John W. Jordan II...................... 51 Director*
Adam E. Max............................ 40 Director, Vice President, Assistant Treasurer and Assistant
Secretary*
Jeffrey Rosen.......................... 49 Director*
Brant Binder........................... 32 Director*
</TABLE>
- ------------------------
* Reflects positions held with both Holdings and the Company.
MR. QUINN has served as Chairman of the Board and Chief Executive Officer of
the Company since its acquisition by Holdings in 1991. Since 1988, Mr. Quinn has
been President, Chief Operating Officer and a director of Jordan Industries,
Inc., a diversified industrial holding company affiliated with TJC. Mr. Quinn is
the Chairman of the Board and Chief Executive Officer of American Safety Razor
Company, a director of AmeriKing, Inc. and a director of other privately held
companies.
MR. SHEPHERD has served as President and Chief Operating Officer of the
Company since 1996. Mr. Shepherd joined the Company in December 1993 as Vice
President of the Specialty Division and was named Vice President of Sales and
Marketing in 1995. Mr. Shepherd has over 16 years of general management, sales
and marketing experience in the confectionery industry. Prior to joining the
Company, Mr. Shepherd worked for 11 years at Mars, Incorporated and affiliated
entities, where he held a variety of sales, marketing and general management
positions.
MS. SNOPEK has served as Vice President of Finance and Accounting of the
Company since 1996 and as Secretary of the Company since 1995. Ms. Snopek joined
the Company in 1993 as Controller. Ms. Snopek has over 18 years experience in
various finance and accounting positions. Prior to joining the Company, Ms.
Snopek worked for the NutraSweet Company, where she served as Planning and
Analysis Director.
MR. PETRIK has served as Vice President of Business Systems of the Company
since 1997. Mr. Petrik has been with the Company for 18 years and has held
various senior management positions with the Company, including Vice President
of Manufacturing and Vice President of Operations.
MR. LELLI has served as Vice President of Operations of the Company since
1997. Mr. Lelli joined the Company in 1994 as Director of Manufacturing. Mr.
Lelli has over 22 years of experience in the
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<PAGE>
food processing industry. Prior to joining the Company, Mr. Lelli worked for
five years at The Masterson Company, a confectionery company, where he served as
Vice President of Manufacturing.
MR. CHIPOLLINI has served as Vice President of Retail Operations of the
Company since April 1998. Mr. Chipollini joined the Company in April 1995 as
East Coast Regional Manager. Prior to joining the Company, Mr. Chipollini worked
for four years at Crystal Brands, where he served as a District Manager.
MR. PODOBA has served as Vice President of Human Resources of the Company
since he joined the Company in October 1998. Prior to joining the Company, Mr.
Podoba worked for seven years at Northwestern Memorial Faculty Foundation, where
he served as Director of Human Resources.
MR. JORDAN has served as Director of the Company since its acquisition by
Holdings in 1991. Mr. Jordan is a managing director of The Jordan Company LLC, a
private investment firm which he founded in 1982. Mr. Jordan is also a director
of Jordan Industries, Inc., American Safety Razor Company, Carmike Cinemas,
Inc., AmeriKing, Inc., Winning Ways, Inc., Motor and Gears, Inc., Rockshox, Inc.
and Apparel Ventures, Inc., all of which are affiliates of TJC, as well as other
privately-held companies.
MR. MAX has served as Director of the Company since its acquisition by
Holdings in 1991. Mr. Max is a managing director of The Jordan Company LLC,
which he joined in 1986. Mr. Max is also a director of Rockshox, Inc.
MR. ROSEN has served as a Director of the Company since 1997. Mr. Rosen is a
partner in the law firm of O'Melveny & Meyers LLP, counsel for TCW Capital.
MR. BINDER has served as a Director of the Company since September 1998. Mr.
Binder is a Vice President of TCW Capital.
SHAREHOLDERS AGREEMENT
In connection with the formation of Holdings and its acquisition of
Archibald Candy in 1991, Archibald Candy, Holdings, the TJC Investors, the TCW
Investors, Jackson National Life Insurance Company and certain individuals
listed on the signature pages thereto as members of the Jordan Group entered
into a shareholders agreement dated as of October 30, 1991(as amended by the
First Amendment thereto dated as of July 2, 1997, the "Shareholders Agreement")
which contains provisions relating to the governance of Archibald Candy and
Holdings. These provisions provide for, among other things, the election to each
of Archibald Candy's and Holdings' Boards of Directors of three directors
nominated by the TJC Investors and two directors nominated by the TCW Investors.
Messrs. Jordan, Quinn and Max are the directors nominated by the TJC Investors
and Messrs. Rosen and Binder are the directors nominated by the TCW Investors.
See "Principal Stockholders" and "Certain Transactions--Shareholders Agreement."
BOARD OF DIRECTORS--INDEMNIFICATION AND COMPENSATION
INDEMNIFICATION. Archibald Candy's By-Laws authorize Archibald Candy to
indemnify its present and former directors and officers and to pay or reimburse
expenses for such individuals in advance of the final disposition of a
proceeding upon receipt of an undertaking by or on behalf of such individuals to
repay such amounts if so required.
INDEMNIFICATION AGREEMENTS. Archibald Candy and each of its directors have
entered into indemnification agreements. The indemnification agreements provide
that Archibald Candy will indemnify the directors against certain liabilities
(including settlements) and expenses actually and reasonably incurred by them in
connection with any threatened or pending legal action, proceeding or
investigation (other than actions brought by or in the right of Archibald Candy)
to which any of them
64
<PAGE>
is, or is threatened to be, made a party by reason of their status as a
director, officer or agent of Archibald Candy, or serving at the request of
Archibald Candy in any other capacity for or on behalf of Archibald Candy;
provided that (1) such director acted in good faith and in a manner not opposed
to the best interest of Archibald Candy, (2) with respect to any criminal
proceedings, such director had no reasonable cause to believe his or her conduct
was unlawful, (3) such director is not finally adjudged to be liable for
negligence or misconduct in the performance of his or her duty to Archibald
Candy, unless the court views in light of the circumstances that the director is
nevertheless entitled to indemnification and (4) the indemnification does not
relate to any liability arising under Section 16(b) of the Exchange Act or the
rules or regulations promulgated thereunder. With respect to any action brought
by or in the right of Archibald Candy, directors also may be indemnified, to the
extent not prohibited by applicable laws or as determined by a court of
competent jurisdiction, against costs and expenses actually and reasonably
incurred by them in connection with such action if they acted in good faith and
in the best interest of Archibald Candy.
Insofar as indemnification of liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of Archibald
Candy pursuant to Archibald Candy's By-Laws, the indemnification agreements or
otherwise, such indemnification may be unenforceable as being against public
policy.
DIRECTOR COMPENSATION. Archibald Candy pays each director a quarterly fee
of $2,500. In fiscal 1998, Mr. Quinn also was paid a $52,000 consulting fee by
Archibald Candy. See "Certain Transactions--Director's Consulting Fee and TCW
Investors' Expense Reimbursement." Archibald Candy also reimburses directors for
their travel and other expenses incurred in connection with attending meetings
of the Board of Directors.
65
<PAGE>
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued by the Company during each of the three most recent fiscal years
to the Company's chief executive officer and each of the executive officers of
the Company whose total annual salary and bonus for each of such fiscal year
exceeded $100,000 (collectively, the "Named Executives").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
------------------------------------------------ -------------
OTHER ANNUAL SECURITIES
COMPENSATION UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY ($) BONUS ($) ($) SARS (#)
- --------------------------------------------------- --------- ---------- ---------- ------------- -------------
<S> <C> <C> <C> <C> <C>
Thomas H. Quinn,................................... 1998 -- -- $ 52,000(1) --
Chairman of the Board and Chief 1997 -- -- 52,000(1) --
Executive Officer 1996 -- -- 52,000(1) --
Ted A. Shepherd,................................... 1998 $ 235,000 $ 200,000 -- 9.75(3)
President and Chief Operating 1997 221,583 311,000 -- --(3)
Officer (2) 1996 200,163 101,491 -- 7.00
Donna M. Snopek,................................... 1998 121,167 67,500 -- 1.00(3)
Vice President--Finance and Accounting 1997 110,167 103,575 -- --
and Secretary (4) 1996 93,500 24,310 -- 3.00(3)
</TABLE>
- ------------------------
(1) Reflects a consulting fee Archibald Candy paid Mr. Quinn in each of fiscal
1998, 1997 and 1996 in lieu of salary. See "Certain Transactions--Director's
Consulting Fee and TCW Investors' Expense Reimbursement."
(2) Reflects positions held by Mr. Shepherd since March 1996. During fiscal
1996, Mr. Shepherd served as Vice President of Sales and Marketing.
(3) Reflects stock appreciation rights ("SARs") granted pursuant to Holdings'
SAR Plan (as defined). Holdings subsequently has converted all of Mr.
Shepherd's SARs into an equivalent number of shares of Holdings' Class A
Common Stock. See "--Holdings' 1998 Stock Bonus Plan".
(4) Reflects position held by Ms. Snopek since September 1996. During fiscal
1996, Ms. Snopek served as Secretary and Vice President--Controller of the
Company.
HOLDINGS' STOCK APPRECIATION RIGHTS PLAN
The Fannie May Holdings, Inc. Stock Appreciation Rights Plan (the "Plan")
was adopted by the Board of Directors of Holdings in October, 1991 to afford
selected employees of Holdings and its subsidiaries, including the Company, an
opportunity to participate in the potential economic appreciation of Holdings'
consolidated common stock equity value. A total of 52.75 stock appreciation
rights ("SARs") are authorized for grant under the Plan representing the
economic equivalent of 52.75 shares, or 4.9%, of Holdings Common Stock, on a
fully diluted basis. As of the date of this Prospectus, 30 SARs were outstanding
under the Plan, with 18 SARs issued to current employees of the Company and the
balance held by former employees.
The Plan is administered under the direction of the Board of Directors of
Holdings. The Board selects the employees to receive SARs and the number of SARs
subject to each such grant and determines the exercise or vesting schedule for
each SAR granted. Pursuant to the Plan, each SAR
66
<PAGE>
entitles the holder to surrender all or a portion thereof to Holdings upon the
occurrence of any Cash Out Event (as defined in the Plan) for a payment in an
amount based upon the value of one share of Holdings Common Stock, or a
percentage thereof, determined with reference to the applicable Cash Out Event.
In certain cases, all such payments may be deferred if Holdings is not permitted
to pay the same by the governing debt documents. The Plan generally defines a
Cash Out Event to include:
- certain public offerings of Holdings Common Stock;
- any merger, combination, consolidation or similar transaction involving
Holdings in which the holders of a majority of the outstanding Holdings
Common Stock immediately prior to such transaction are not the holders of
a majority of the ordinary voting securities of the entity surviving such
transaction;
- the sale of all or substantially all of the assets of Holdings; or
- the sale of a majority of Holdings Common Stock.
The Plan provides that in the event the employment of any holder of an SAR
terminates for (1) Cause (as defined in the Plan) at any time or (2) any other
reason except death or disability within a prescribed period (the "Vesting
Period") following the grant of the subject SAR, then all of such holder's
rights in such SAR shall automatically terminate. The Plan further provides that
upon any termination of any SAR holder's employment following the Vesting
Period, such holder's SARs shall be subject to repurchase by Holdings at the
option of either Holdings or the holder. The price payable by Holdings in
connection with any such repurchase is the amount allocable to such SAR by which
the value of Holdings exceeds the dollar amount of all debt and preferred stock
obligations of Holdings. The value of Holdings is to be determined by reference
to certain book values and earnings measures established by the Plan. At
Holdings' option, the repurchase amounts may be paid by a note payable over
three years.
SAR GRANTS IN FISCAL 1998
The following table sets forth certain information with respect to SARs
granted by the Company to the Named Executives during fiscal 1998.
<TABLE>
<CAPTION>
SAR GRANTS IN LAST FISCAL YEAR
------------------------------------------------------------------------
<S> <C> <C> <C> <C>
NUMBER OF % OF TOTAL SARS
SHARES GRANTED TO EXERCISE OR
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION
NAME SARS GRANTED FISCAL YEAR(1) ($/SH) DATE(2)
- --------------------------------------- ----------------- ------------------- --------------- ---------------
Ted A. Shepherd........................ 9.75 61.9% $ 0 --
Donna M. Snopek........................ 1.00 6.3% 0 --
<CAPTION>
<S> <C>
GRANT DATE
NAME PRESENT VALUE(3)
- --------------------------------------- ---------------------
Ted A. Shepherd........................ $ 0
Donna M. Snopek........................ 0
</TABLE>
- ------------------------
(1) A total of 15.75 SARs were granted to employees in fiscal 1998 pursuant to
the SAR Plan.
(2) SARs issued pursuant to the SAR Plan have no expiration date. However, all
or a part of an SAR is automatically terminated under certain circumstances
in connection with an employee's termination of employment with the Company.
(3) Based on the formulation specified in the SAR agreements of the respective
Named Executives. The actual value of an SAR is subject to and not
determinable until the occurrence of either (a) a Cash Out Event (as defined
in the SAR Plan) or (b) in certain circumstances, the call or put election
of Holdings or the holder, respectively, following the termination of the
holder's employment with the Company.
67
<PAGE>
AGGREGATED SAR EXERCISES IN FISCAL YEAR 1998 AND 1998 FISCAL YEAR-END SAR VALUES
The following table sets forth certain information with respect to SAR
exercises by the Named Executives during fiscal 1998 and the number of shares of
Holdings Common Stock underlying SARs held by each of the Named Executives and
the value of such Named Executives' exercisable and unexercisable SARs on August
29, 1998.
<TABLE>
<CAPTION>
NUMBER OF
SECURITIES
UNDERLYING
UNEXERCISED VALUE OF UNEXERCISED IN-THE-
SHARES SARS AT FISCAL MONEY SARS AT FISCAL YEAR-
ACQUIRED ON VALUE YEAR- END,
EXERCISE REALIZED END, EXERCISABLE/ EXERCISABLE/UNEXERCISABLE
NAME (#)(1) ($) UNEXERCISABLE (#) (#)(2)
- --------------------------------- ----------- ------------- ------------------- -----------------------------
<S> <C> <C> <C> <C>
Ted A. Shepherd.................. -- -- 0/19.75 $ 0/$0
Donna M. Snopek.................. -- -- 0/ 4.00 0/ 0
</TABLE>
- ------------------------
(1) No SARs were exercised during fiscal 1998, however, as of September 30,
1998, Holdings issued 19.75 shares of its Class A Common Stock to Mr.
Shepherd pursuant to the 1998 Stock Bonus Plan in consideration for the
cancellation of Mr. Shepherd's 19.75 SARs. See "--Holdings 1998 Stock Bonus
Plan."
(2) Based on the formulation specified in the SAR agreements of the respective
Named Executives. The actual value of an SAR is subject to and not
determinable until the occurrence of either (a) a Cash Out Event or (b) in
certain circumstances, the call or put election of Holdings or the holder,
respectively, following the termination of the holder's employment with the
Company.
HOLDINGS' 1998 STOCK BONUS PLAN
The Fannie May Holdings, Inc. 1998 Stock Bonus Plan (the "1998 Stock Bonus
Plan") was adopted by the Board of Directors of Holdings in August 1998 to
promote the long-term success of Holdings and its subsidiaries by strengthening
Holdings' ability to attract and retain highly competent management employees
and to provide a means to encourage stock ownership and proprietary interests in
Holdings. The 1998 Stock Bonus Plan provides for the issuance of the right to
acquire shares of Holdings' Class A Common Stock to those management employees
who can significantly enhance the long-term performance of Holdings and its
subsidiaries and is intended to provide, in combination with other forms of
compensation and benefits, a total compensation program which is competitive
with the reward programs of other similar enterprises. No more than 33 shares of
Holdings' Class A Common Stock may be issued under the 1998 Stock Bonus Plan.
The 1998 Stock Bonus Plan terminates on July 1, 2008. As of the date of this
Prospectus, Holdings has issued 19.75 shares in aggregate of Holdings' Class A
Common Stock pursuant to the 1998 Stock Bonus Plan.
The 1998 Stock Bonus Plan is administered under the direction of the Board
of Directors of Holdings. The Board determines the management employees to
receive shares of Holdings' Class A Common Stock under the 1998 Stock Bonus
Plan, the number of shares to be granted, the consideration, if any, to be paid
for such shares and the other terms and conditions of any such issuances. As of
September 30, 1998, Holdings issued 19.75 shares of Holdings' Class A Common
Stock to Mr. Shepherd, pursuant to the 1998 Stock Bonus Plan, in consideration
for the cancellation of Mr. Shepherd's 19.75 SARs.
BENEFIT PLANS
The Company sponsors two noncontributory defined benefit pension plans, one
for eligible collective bargaining employees and one for eligible non-collective
bargaining employees (collectively,
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<PAGE>
the "Pension Plans"). An employee of the Company is generally eligible to become
a participant in the applicable Pension Plan upon attaining age 21 and
completing a 12-month period of service to the Company. Participants become
vested in their accrued benefits under the applicable Pension Plan based on a
three to seven year graded vesting schedule at the rate of 20% per year after
three years of "Vesting Service" as defined in the Pension Plans. The Company
makes annual contributions to the Pension Plans in amounts determined by the
actuary for the Pension Plans.
The normal retirement age under the Pension Plans is the later of age 65 or
the fifth anniversary of participation for participants who enter the Plan on or
after September 1, 1988 and age 65 for participants who enter the Plan before
September 1, 1988. A reduced early retirement benefit is available when a
participant has attained age 55 and completed at least ten years of Vesting
Service. A participant's accrued annual benefit under the applicable Pension
Plan, starting at age 65, is the sum of (1) his accrued annual benefit, if any,
as of August 31, 1992 and (2) one-half of one percent of the compensation (as
defined in the Pension Plans) paid to the participant during each year of
"Credited Service" (as defined in the Pension Plans) after August 31, 1992.
Compensation is generally defined in the Pension Plans as the total cash
remuneration paid for the 12 months ending August 31 of each year, and is
limited by federal law to $150,000 per year (as adjusted for cost-of-living
increases).
The estimated annual benefits payable to the Named Executives under the
Pension Plans upon retirement at normal retirement age, assuming continuous
service and constant salary to normal retirement date, is approximately $36,000,
in aggregate.
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<PAGE>
CAPITALIZATION OF HOLDINGS
GENERAL
Holdings, which owns all of the issued and outstanding capital stock of
Archibald Candy, has four classes of outstanding common stock and three series
of outstanding preferred stock.
COMMON STOCK
Holdings has the following four classes of authorized common stock: Class A
Common Stock, Class B Common Stock, Class C Common Stock and Class D Common
Stock (collectively, "Holdings Common Stock").
Upon a liquidation or dissolution of Holdings, all classes of Holdings
Common Stock will rank PARI PASSU in terms of distribution preferences. In the
event of an initial public offering of common stock by Holdings, all outstanding
shares of Class B Common Stock, Class C Common Stock and Class D Common Stock
automatically will be converted into an equal number of shares of Class A Common
Stock.
With respect to voting rights, the Class B Common Stock is non-voting
(except as provided by law) while each of the other classes of common stock has
one vote per share for the election of directors and all other corporate
matters, except as follows:
- the holders of Class C Common Stock, as a class, subject to the rights of
holders of Senior Preferred Stock and Class D Common Stock described
below, may elect a director with 51% of the voting power of the Board of
Directors;
- upon the occurrence of a Triggering Event (as defined) (unless the holders
of Senior Preferred Stock have elected a director who is entitled to
exercise 51% of the voting power of the Board of Directors because of a
failure to make a dividend payment or a mandatory redemption payment
(whether or not such payment is legally permissible) due on the Senior
Preferred Stock), the holders of the Class D Common Stock, voting
separately as a class, have the right to elect an additional director and
such director shall have 51% of the voting power of the Board of
Directors; and
- certain events, such as amendments to the Certificate of Incorporation or
By-laws which adversely affect holders rights and certain merger and
consolidation transactions, require the approval of a majority of holders
of each class voting separately as a class.
The TJC Investors hold Class A Common Stock and all of the Class C Common
Stock and the TCW Investors hold Class A Common Stock and all of the Class D
Common Stock. Mr. Shepherd also holds shares of Class A Common Stock. No Class B
Common Stock is currently outstanding. See "Principal Stockholders."
The Shareholders Agreement contains certain provisions relating to the
governance of Archibald Candy and Holdings and restrictions on, and rights in
the event of, the transfer of Holdings' Common Stock. See "Certain
Transactions--Shareholders Agreement."
PREFERRED STOCK
Holdings has the following three series of preferred stock: Senior Preferred
Stock, Junior Class A PIK Preferred Stock ("Class A Preferred Stock") and Junior
Class B PIK Preferred Stock ("Class B Preferred Stock").
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<PAGE>
The Senior Preferred Stock, which was issued in 1991 in the original face
amount of $10.0 million to the former shareholders of the Company in connection
with Holdings' acquisition of Archibald Candy, has the following rights and
preferences:
- cumulative dividends at the annual rate of 5% ($500.00 per share) are
payable on the last business day of August in each year, provided that, at
the option of Holdings, 50% of any dividend may be payable in kind (with
in kind shares valued at $10,000 per share);
- upon liquidation or dissolution, the Senior Preferred Stock has preference
(valued at $10,000 per share) over all classes of Holdings Common Stock
and the Class A Preferred Stock and Class B Preferred Stock;
- shares are subject to optional redemption at any time at the Company's
option at a price of $10,000 per share plus accrued and unpaid dividends;
- shares are subject to mandatory redemption at a price of $10,000 per share
plus accrued and unpaid dividends on August 31, 2001; and
- no voting rights are provided, except that: (1) upon a default of a
dividend or redemption payment due to the holders of Senior Preferred
Stock, such holders, voting as a class, may elect a director with 51% of
the voting power of Holdings' Board of Directors; and (2) consent of each
of the holders of Senior Preferred Stock is required for the issuance of
any equity security which is PARI PASSU or senior to the Senior Preferred
Stock and for any Certificate of Incorporation or By-law amendment which
may adversely affect the interest of such holders.
As of November 28, 1998, the redemption value of the Senior Preferred Stock
was approximately $11.9 million and, assuming that Holdings continues to
exercise its option to pay 50% of the dividends in kind, the redemption value of
the Senior Preferred Stock on August 31, 2001 will be approximately $12.7
million.
In the event the holders of the Senior Preferred Stock are entitled to elect
a director with 51% of the voting power of the Boards of Directors of Holdings
and Archibald Candy, the TJC Investors or TCW Investors would fail to control
Holdings and the Company, and such event would constitute a Change in Control
under the Indenture, which could have a material adverse effect on the Company.
See "Risk Factors--Potential Inability to Fund a Change of Control Offer."
The Class A Preferred Stock and Class B Preferred Stock, which were issued
in 1991 in the original face amounts of $7.0 million and $700,000, respectively,
in connection with Holdings' acquisition of Archibald Candy, are entitled to
cumulative dividends at the annual rate of 8% and generally possess similar
rights, including the following:
- each pays a dividend of $2,000 per share, payable at Holdings' option
either in cash or in kind, wholly or in part (with in kind shares valued
at $25,000 per share), on November 1 of each year for the Class A
Preferred Stock and November 1 of each year for the Class B Preferred
Stock;
- upon liquidation or dissolution, the Class A Preferred Stock is junior to
the Senior Preferred Stock, the Class B Preferred Stock is junior to both
the Senior Preferred Stock and the Class A Preferred Stock and all classes
of Holdings Common Stock are junior to the Class A Preferred Stock and
Class B Preferred Stock;
- shares are subject to mandatory redemption on November 1, 2001 at a price
of $25,000 per share plus accrued and unpaid dividends for the Class A
Preferred Stock (provided that no shares of Senior Preferred Stock are
outstanding) and November 1, 2001 for the Class B Preferred Stock
(provided that all shares of the Senior Preferred Stock and Class A
Preferred Stock have theretofore been redeemed in full for cash); and
71
<PAGE>
- the Securities Purchase Agreement (as defined) provides for the mandatory
redemption of the Class A Preferred Stock upon the happening of certain
events, including certain equity sales, asset sales, recapitalizations,
liquidations and change of control events.
Neither the holders of Class A Preferred Stock or Class B Preferred Stock
possess any voting rights, except that consent of a majority of the holders of
Class A Preferred Stock and Class B Preferred Stock, each voting separately as a
class, is required for the issuance of any equity security that is PARI PASSU or
senior to such shares and for any amendment to the Certificate of Incorporation
or By-laws which may adversely affect the interest of such holders. As of
November 28, 1998, the redemption value of the Class A Preferred Stock and Class
B Preferred Stock was approximately $11.9 million and approximately $1.2
million, respectively, and, assuming that Holdings exercises its option to pay
all dividends in kind, the redemption value of the Class A Preferred Stock on
November 1, 2001 will be approximately $15.1 million and the redemption value of
the Class B Preferred Stock on November 1, 2001 will be approximately $1.5
million. See "--Securities Purchase Agreement" and "Principal Stockholders."
SECURITIES PURCHASE AGREEMENT
In connection with Holdings' acquisition of Archibald Candy in 1991,
Archibald Candy, Holdings, certain TCW Investors, certain TJC Investors and
Jackson National Life Insurance Company entered into a Securities Purchase
Agreement dated as of October 30, 1991 (as amended, the "Securities Purchase
Agreement") pursuant to which Holdings issued subordinated notes, the Class A
Preferred Stock and the Class A, B and D Common Stock. The TCW Investors and the
TJC Investors amended the Securities Purchase Agreement to permit the
Transactions.
The Securities Purchase Agreement provides, among other things, that
Archibald Candy and Holdings are subject to certain covenants, including the
following: (1) so long as at least 92 shares of Class A Preferred Stock are
outstanding, Archibald Candy and Holdings are restricted in their ability to pay
certain dividends or from making certain other restricted payments, incurring
additional indebtedness or liens on its assets, or making certain investments
and must comply with certain financial ratios and (2) so long as at least 92
shares of Class A Preferred Stock or 333 shares of Common Stock purchased
pursuant to the Securities Purchase Agreement are outstanding, Archibald Candy
and Holdings are restricted in entering into certain transactions with
affiliates and certain mergers or consolidations with other entities or from
transferring or leasing a substantial portion of its assets or issuing
additional capital stock except for dividends in kind.
The Securities Purchase Agreement also provides that certain holders of
Class A Common Stock and Class D Common Stock of Holdings (which include both
TCW Investors and certain TJC Investors) ("Original Purchasers") have the right
to require Holdings to either initiate a sale of the Company or to redeem their
shares of Holdings Common Stock, at any time, or from time to time, after the
earlier of any of the following (each a "Purchase Event"):
- January 1, 2000;
- the consummation of certain events, such as a sale of a significant
portion of the Company's assets, certain recapitalizations of Holdings,
certain issuances of equity securities of Holdings or the liquidation,
dissolution or change of control of Holdings ("Exit Events"); or
- the first date as of which all shares of Class A Preferred Stock have been
redeemed.
If Holdings elects to redeem such Holdings Common Stock, the redemption
price depends on the event giving rise to the redemption. The redemption price
for Holdings Common Stock issued under the Securities Purchase Agreement is the
greater of (x) fair market value or (y) an amount intended to yield a "preferred
return" equal to an annual 16% internal rate of return (calculated
semi-annually) on the holder's original investment in the subordinated notes,
Class A Preferred Stock and Holdings
72
<PAGE>
Common Stock. In the case of Exit Events involving a sale of assets or issuance
of equity securities, the fair market value is based upon the proceeds received
from such transactions. If Holdings elects to sell the Company, Holdings has up
to one year to arrange such sale. If Holdings elects not to initiate a sale of
the Company or does not conclude a sale within one year, fair market value is
determined by an independent appraisal process.
The Securities Purchase Agreement further provides that (1) upon a sale of
equity securities, 50% of the net proceeds must be applied to the redemption of
the Senior Preferred Stock and then to the redemption of Class A Preferred Stock
and (2) upon the occurrence of an Exit Event (other than a sale of equity
securities), Holdings must redeem all outstanding shares of Class A Preferred
Stock (the "Exit Events Redemptions").
There can be no assurance that, if a Purchase Event occurs, Holdings will be
able to sell the Company or have sufficient funds to satisfy its obligations to
redeem the applicable shares of Holdings Common Stock or with respect to any
Exit Events Redemption, that such redemptions would be permitted under the
Indenture, the revolving credit facility or any successor financings. A failure
to satisfy such obligations could result in the occurrence of a Triggering Event
which would entitle the TCW Investors to elect a director with 51% of the voting
power of the Boards of Directors of Holdings and the Company.
"Triggering Events," as defined in the Securities Purchase Agreement,
includes:
- the failure by Holdings to either effect a sale of the Company or redeem
certain shares of Class A Common Stock and Class D Common Stock held by
both the TCW Investors and certain TJC Investors in accordance with the
terms of the Securities Purchase Agreement;
- the failure by Holdings to redeem on November 1, 2001 the Class A
Preferred Stock held by both the TCW Investors and certain TJC Investors;
and
- the failure by Holdings to redeem the Class A Preferred Stock upon certain
events, such as certain equity sales, asset sales, recapitalizations,
liquidations and change of control events.
The TCW Investors hold approximately 64.3% of the Class A Preferred Stock
and approximately 44.5% of Holdings Common Stock possessing the right to either
initiate a sale of the Company or a redemption of their Holdings Common Stock
described above, with the balance held by certain of the TJC Investors and the
Company's current management. Accordingly, the TCW Investors can assert that a
Triggering Event has occurred upon the occurrence of any one of the events
described above until such Triggering Event is resolved and thus assume control
of 51% of the voting power of the Boards of Directors of Holdings and the
Company, provided that the holders of the Senior Preferred Stock have not
exercised their right to control 51% of the voting power of the Board of
Directors of Holdings. See "--Preferred Stock" and "Principal Stockholders."
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<PAGE>
PRINCIPAL STOCKHOLDERS
Holdings owns all of Archibald Candy's issued and outstanding capital stock.
The following table sets forth certain information with respect to the
beneficial ownership of the equity securities of Holdings as of November 28,
1998 by (i) each person who is known by the Company to beneficially own more
than 5% of the outstanding shares of any class of Holdings' voting securities;
(ii) each of the directors and Named Executives of the Company and Holdings who
own shares of Holdings' equity securities; and (iii) all directors and executive
officers of the Company and Holdings, as a group, who own shares of Holdings'
equity securities.
<TABLE>
<CAPTION>
PERCENTAGE PERCENTAGE OF ALL OUTSTANDING
NAME(1) TITLE OF CLASS(2) NUMBER OF SHARES OF CLASS VOTING COMMON STOCK
- ------------------------------- -------------------- ----------------- ----------- -----------------------------
<S> <C> <C> <C> <C>
TCW Capital (3)................ Class A Common 339.741000 47.5% 33.3%
Jordan Industries, Inc. (4).... Class A Common 151.128000 21.1 14.8
JZ Equity Partners PLC (5)..... Class A Common 100.752000 14.1 9.9
WCT Investment Pte
Ltd. (6)..................... Class A Common 82.573000 11.5 8.1
Mezzanine Capital (7).......... Class A Common 21.069000 2.9 2.1
Leucadia Investors, Inc. (8)... Class C Common 65.788625 22.3 6.5
John W. Jordan II (9).......... Class A Common 151.128000 21.1 14.8
Class C Common 43.945960 14.9 4.3
Thomas H. Quinn (10)........... Class A Common 151.128000 21.1 14.8
Class C Common 31.582500 10.7 3.1
Adam E. Max (11)............... Class C Common 26.315450 8.9 2.6
Ted A. Shepherd (12)........... Class A Common 19.750000 2.8 1.9
TCW Special Placements Fund III
(7).......................... Class D Common 10.000000 100.0 1.0
All directors and executive
officers of Holdings as a
group (9) (10)............... Class A Common 170.87800 23.9 16.8
Class C Common...... 101.84391 34.6 10.0
</TABLE>
- ------------------------
(1) For purposes herein, (a) the term "TCW Investors" consists of the following:
TCW Capital, WCT Investment Pte Ltd., Mezzanine Capital and TCW Special
Placements Fund III; and (b) the term "TJC Investors" includes, among
others, the following: Jordan Industries, Inc., Leucadia Investors, Inc., JZ
Equity Partners PLC, John W. Jordan II, Thomas H. Quinn and Adam E. Max
(provided, that although an affiliate of The Jordan Company LLC provides
financial advisory services to JZ Equity Partners PLC, it is not otherwise
affiliated with The Jordan Company LLC).
(2) As of November 28, 1998, there were outstanding (a) 715.0130 shares of
Holdings' Class A Common Stock, (b) no shares of Holdings' Class B Common
Stock, (c) 294.737 of Holdings' Class C Common Stock and (d) 10 shares of
Holdings' Class D Common Stock, aggregating to 1,019.75 outstanding shares
of Holdings Common Stock. Holdings' Class B Common Stock is non-voting
(except as provided by law and in certain other limited circumstances). Each
of the other classes of Holdings' Common Stock has one vote per share for
the election of directors and all other corporate matters, except as
follows: (i) the holders of Holdings' Class C Common Stock, as a class,
subject to the rights of holders of Holdings' Senior Preferred Stock and
Class D Common Stock described below, may elect a director who is entitled
to exercise 51% of the voting power of the Board of Directors of Holdings;
(ii) upon the occurrence of certain triggering events (including a failure
by Holdings to redeem its Junior Class A PIK Preferred Stock on November 1,
2001), the holders of Holdings' Class D Common Stock, voting separately as a
class, have the right to elect an additional director and such director
shall have 51% of the voting power of the Board of
74
<PAGE>
Directors of Holdings (unless, due to a failure by Holdings to make a
dividend payment or a mandatory redemption payment with respect to its
Senior Preferred Stock (whether or not such payment is legally permissible),
the holders of Holdings' Senior Preferred Stock have elected a director who
is entitled to exercise 51% of the voting power of the Board of Directors of
Holdings); and (iii) certain events, such as amendments to Holdings'
certificate of incorporation or by-laws which adversely affect the rights of
holders and certain merger and consolidation transactions, require the
approval of a majority of holders of each class voting separately as a
class. No event has occurred which would give either the holders of
Holdings' Class D Common Stock or Holdings' Senior Preferred Stock the right
to elect a director who is entitled to exercise 51% of the voting power of
the Board of Directors of Holdings. In addition, all holders of Holdings
Common Stock are parties to the Shareholders Agreement. See "Certain
Transactions--Shareholders Agreement." As of November 28, 1998, there also
were outstanding (A) 1,183.919890 shares of Holdings' Senior Preferred
Stock, all of which is owned by former owners of the Company through the
Denton Thorne Trust A, the Denton Thorne Trust B and the Denton Thorne Trust
C, (B) 480.0652 shares of Holdings' Junior Class A PIK Preferred Stock,
approximately 36% of which is owned by TJC Investors and approximately 64%
of which is owned by TCW Investors, and (C) 48.0064 shares of Holdings'
Junior Class B PIK Preferred Stock, approximately 80% of which is owned by
TJC Investors. Holdings' certificate of incorporation provides that in the
event that Holdings fails to (i) pay on any dividend payment date the full
amount of dividends then accrued and unpaid on the Senior Preferred Stock or
(ii) redeem all shares of Holdings' Senior Preferred Stock then outstanding
on the dividend payment date occurring in 2001, the Board of Directors of
Holdings shall automatically be increased by one director and the holders of
Holdings' Senior Preferred Stock shall have the right to elect an individual
to fill such newly created directorship. The director elected by the holders
of Holdings' Senior Preferred Stock would have 51% of the total voting power
of the Board of Directors of Holdings.
(3) The Class A Common Stock indicated as owned by TCW Capital is actually held
as follows: (a) 311.408 shares are held in the name of TCW Special
Placements Fund III; (b) 23.74 shares are held in the name of TCW Capital,
as Investment Manager pursuant to an Investment Management Agreement dated
as of April 18, 1990; and (c) 4.593 shares are held in the name of TCW
Capital, as Investment Management pursuant to an Investment Management
Agreement dated as of June 19, 1989. As of November 28, 1998, TCW Investors
owned 44.5% of the outstanding voting Holdings' Common Stock. As of November
28, 1998, TCW Investors also owned approximately 64% of Holdings' Junior
Class A PIK Preferred Stock. The principal address of TCW Capital is c/o
Trust Company of the West, Representative Office, 200 Park Avenue, Suite
2200, New York, New York 10166.
(4) As of November 28, 1998, Jordan Industries, Inc. and other TJC Investors
also owned approximately 36% of Holdings' Junior Class A PIK Preferred
Stock. The principal address of Jordan Industries, Inc. is Arbor Lake
Center, 1751 Lake Cook Road, Suite 550, Deerfield, Illinois 60015. Mr.
Jordan is Chairman of the Board and Chief Executive Officer of Jordan
Industries, Inc. Mr. Quinn is President, Chief Operating Officer and a
Director of Jordan Industries, Inc.
(5) As of November 28, 1998, JZ Equity Partners PLC Limited (formerly known as
MCIT (Existing Pool) Limited) also owned 68.5807 shares of Holdings' Junior
Class A PIK Preferred Stock. The principal address of JZ Equity Partners PLC
Limited is c/o The Jordan Company LLC, 767 Fifth Avenue, New York, New York
10153.
(6) As of November 28, 1998, WCT Investment Pte Ltd. also owned 54.5124 shares
of Holdings' Junior Class A PIK Preferred Stock. In connection with its
acquisition in 1992 from certain affiliates of TCW Capital of shares of
Holdings' Class A Common Stock and Junior Class A PIK Preferred Stock, WCT
Investment Pte Ltd. granted an irrevocable proxy to TCW Special Placements
Fund III for the purpose of approving or consenting to certain actions by
Holdings. The
75
<PAGE>
principal address of WCT Investment Pte Ltd. is c/o Government of Singapore
Investment Corporation, 255 Shoreline Drive, Suite 600, Redwood City,
California 94065.
(7) Mezzanine Capital is affiliated with TCW Capital. As of November 28, 1998,
Mezzanine Capital also owned 14.438 shares of Holdings' Junior Class A PIK
Preferred Stock. The principal address for each of Mezzanine Capital and TCW
Special Placements Fund III is c/o TCW Special Placements Fund III, 865 S.
Figueroa St., Suite 1800, Los Angeles, California 90017.
(8) As of November 28, 1998, Leucadia Investors, Inc. also owned 12.0015 shares
of Holdings' Junior Class B PIK Preferred Stock. The principal address of
Leucadia Investors, Inc. is 315 Park Avenue South, New York, New York 10010.
(9) Information presented includes 151.128 shares of Holdings' Class A Common
Stock held by Jordan Industries, Inc. (Mr. Jordan is Chairman of the Board
and Chief Executive Officer of Jordan Industries, Inc.) and 43.94596 shares
of Holdings' Class C Common Stock held by The John W. Jordan II Revocable
Trust, of which Mr. Jordan is trustee. Mr. Jordan's address is c/o The
Jordan Company LLC, 767 Fifth Avenue, New York, New York 10153.
(10) Information presented includes 151.128 shares of Holdings' Class A Common
Stock held by Jordan Industries, Inc. (Mr. Quinn is the President, Chief
Operating Officer and a director of Jordan Industries, Inc.). Mr. Quinn's
address is c/o Archibald Candy Corporation, 1137 West Jackson Boulevard,
Chicago, Illinois 60607.
(11) As of November 28, 1998, Mr. Max also owned 4.8007 shares of Holdings'
Junior Class B PIK Preferred Stock. The address of Mr. Max is c/o The Jordan
Company LLC, 767 Fifth Avenue, New York, New York 10153.
(12) Mr. Shepherd and Holdings entered into an Executive Subscription Agreement
dated as of September 30, 1998 pursuant to which Holdings converted Mr.
Shepherd's 19.75 SARs into the same number of shares of Holdings' Class A
Common Stock. Mr. Shepherd's address is c/o Archibald Candy Corporation,
1137 West Jackson Boulevard, Chicago, Illinois 60607.
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<PAGE>
CERTAIN TRANSACTIONS
MANAGEMENT CONSULTING AGREEMENT
On July 2, 1997, Holdings entered into a five year Management Consulting
Agreement with TJC Management Corp. (the "Management Consulting Agreement"),
pursuant to which TJC Management Corp. or its designee will receive a fixed fee
for management, consulting and similar services in the amount of $364,000 per
annum plus any out-of-pocket expenses and additional fees for any investment
banking services rendered. The Company believes that the terms of the Management
Consulting Agreement are comparable to the terms that it would obtain from
disinterested third parties for comparable services. For its investment banking
services rendered to Holdings in connection with the Transactions, Holdings paid
to TJC Management Corp. $600,000 pursuant to the Management Consulting
Agreement.
TAX SHARING AND MANAGEMENT AGREEMENT
On July 2, 1997, Holdings and Archibald Candy entered into a Tax Sharing and
Management Consulting Agreement (the "Tax Sharing and Management Agreement"),
pursuant to which Archibald Candy agreed to pay or distribute to Holdings:
- so long as Holdings files consolidated income tax returns that include
Archibald Candy, payments for Archibald Candy's share of income taxes,
assuming Archibald Candy is a stand-alone entity and without giving effect
to any consolidated net operating loss carry forwards of Holdings
accumulated through August 30, 1997;
- an annual fee of $412,000 for management, consulting, investment banking
and similar services, plus an amount equal to the expenses incurred by
Holdings in connection with the performance of such services;
- investment banking fees incurred by Holdings on behalf of Archibald Candy
with TJC Management Corp. in connection with (1) any future
recapitalizations, acquisitions or any similar transaction, which fee
shall not exceed 2% of the transaction value, and (2) any financing
transactions, which fee shall not exceed 1% of the transaction value;
- amounts sufficient for Holdings to pay fees, expenses and indemnities to
directors of Holdings in accordance with its bylaws and indemnification
agreements; and
- payments to or on behalf of Holdings in respect of franchise or similar
taxes and governmental charges incurred by it relating to the business,
operations or finances of Archibald Candy.
The Company believes that the terms of the management services provided
under the Tax Sharing and Management Agreement are comparable to the terms that
it would obtain from disinterested third parties for comparable services. In
fiscal 1998, Archibald Candy paid Holdings (a) $1,628,000 as Archibald Candy's
share of income taxes and (b) $412,000 in management consulting fees pursuant to
the Tax Sharing and Management Agreement. Pursuant to the Tax Sharing and
Management Agreement, Archibald Candy distributed to Holdings $600,000 out of
the proceeds of the offering of the Outstanding Notes, which Holdings paid to
TJC Management Corp. pursuant to the Management Consulting Agreement as
investment banking fees for its services rendered in connection with the
Transactions.
PREFERRED STOCK
As of the November 28, 1998, the TCW Investors owned approximately 64% of
the Class A Preferred Stock and the TJC Investors owned approximately 36% of the
Class A Preferred Stock and approximately 80% of the Class B Preferred Stock,
all of which is subject to redemption.
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DIRECTOR'S CONSULTING FEE AND TCW INVESTORS' EXPENSE REIMBURSEMENT
In each of fiscal 1996, 1997 and 1998, Archibald Candy paid Mr. Quinn a
consulting fee equal to $52,000 in lieu of a salary in exchange for services
rendered to Archibald Candy. Mr. Quinn consulted with Archibald Candy with
respect to its financial and business affairs, its relationships with its
lenders and stockholders, and the operation and expansion of its business. Such
fee is expected to continue in the future and is subject to reasonable
increases. Pursuant to the Tax Sharing and Management Agreement, certain
affiliates of the TCW Investors who are members of the Board of Directors will
receive $48,000 in the aggregate per year as reimbursement of expenses incurred
in performing financial and management consulting services thereunder,
including, but not limited to, any travel expenses. See "--Tax Sharing and
Management Agreement."
SHAREHOLDERS AGREEMENT
In connection with the formation of Holdings and its acquisition of
Archibald Candy in 1991, TJC Investors and TCW Investors and the other initial
investors entered into the Shareholders Agreement, which contains certain
provisions relating to the governance of the Company and Holdings and
restrictions on, and rights in the event of, the transfer of Holdings' Common
Stock. Among other things, the Shareholders Agreement provides that, subject to
certain limited exceptions, (1) the composition of the Board of Directors of
Holdings and Archibald Candy shall be identical and (2) the number of directors
of Holdings and Archibald Candy shall be five, with the TJC Investors nominating
three directors and the TCW Investors nominating two directors. The Shareholders
Agreement also provides that upon the occurrence of certain triggering events
(unless the TCW Investors as holders of Holdings' Class D Common Stock have
already elected a director with 51% of the voting power of the Board of
Directors of Holdings), Holdings shall not, without the approval of 60% of the
outstanding Holdings' Common Stock (other than Holdings' Class B Common Stock);
- enter into any transaction of merger, consolidation or amalgamation, or
liquidate, wind up or dissolve itself;
- convey, sell, lease, transfer or otherwise dispose of in a transaction or
related series of transactions 25% or more of the property, business or
assets of Holdings and its subsidiaries;
- acquire by purchase or otherwise the business or any assets of, or stock
or other evidences of beneficial ownership of, any person with a purchase
price in excess of 20% of the then net worth of Holdings and its
subsidiaries; or
- issue certain equity securities or redeem equity shares.
The Shareholders Agreement further provides that without the approval of a
director nominated by the TCW Investors, neither Holdings nor any of its
subsidiaries shall (1) make any amendment to Holdings' certificate of
incorporation or by-laws or (2) enter into any transaction with any affiliate,
except for transactions entered into in the ordinary course of business in good
faith and on fair and reasonable terms no less favorable to Holdings than
Holdings would be able to obtain in a comparable arm's-length transaction with
an unrelated third party. In addition, the Shareholders Agreement restricts the
transfer of Holdings Common Stock by providing, in part, that any subsequent
holder of Holdings Common Stock must agree to be bound by all the provisions of
the Shareholders Agreement. In the event of a transfer of Holdings Common Stock
other than to a permitted transferee, the Shareholders Agreement provides each
other holder of Holdings Common Stock with certain tag-along rights and
preemptive rights.
In connection with its acquisition in 1992 from certain affiliates of TCW
Capital of shares of Holdings' Class A Common Stock and Junior Class A PIK
Preferred Stock, WCT Investment Pte Ltd. granted an irrevocable proxy to TCW
Special Placements Fund III for the purpose of approving or
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consenting to certain actions by Holdings, including mergers, consolidations,
acquisitions of other entities, recapitalizations, issuances of equity
securities and modifications of Holdings' business.
ISSUANCE OF HOLDINGS' CLASS A COMMON STOCK TO COMPANY MANAGEMENT
Pursuant to the 1998 Stock Bonus Plan, Holdings issued to Mr. Shepherd, as
of September 30, 1998, 19.75 shares of Holdings' Class A Common Stock in
consideration for the cancellation of Mr. Shepherd's 19.75 SARs. The terms and
conditions of Mr. Shepherd's ownership of such shares are set forth in the
Executive Subscription Agreement dated as of September 30, 1998 (the "Shepherd
Subscription Agreement"). Pursuant to the Shepherd Subscription Agreement, Mr.
Shepherd has agreed to be bound by the terms and conditions of the Shareholders
Agreement to the same extent as if named a "Shareholder" or "Holder" thereunder.
PROVISION OF SERVICES TO THE COMPANY
Jordan Industries, Inc. owns 80% of PAMCO Printed Labels ("PAMCO"), which
supplied approximately $600,000 of labels to the Company in fiscal 1998. Messr.
Quinn, the Chairman of the Board and Chief Executive Officer of the Company, is
the President, Chief Operating Officer and a director of Jordan Industries, Inc.
Messr. Jordan, a director of the Company, is Chairman of the Board and Chief
Executive Officer of Jordan Industries, Inc. The Company believes that the
pricing and services provided by PAMCO are comparable to those that it would
obtain from disinterested third parties for comparable services.
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DESCRIPTION OF THE REVOLVING CREDIT FACILITY
The following summary of the Revolving Credit Facility (as defined) does not
purport to be complete and is qualified in its entirety by reference to the
definitive Revolving Credit Facility loan documents, which are available upon
request from the Company. The capitalized terms used but not defined in this
summary are defined in the Revolving Credit Agreement (as defined).
On July 2, 1997, Archibald Candy entered into a revolving credit agreement
(the "Revolving Credit Agreement") with The First National Bank of Chicago, as
agent (the "Agent"), as amended by Amendment No. 1 thereto dated as of December
7, 1998 (the "Revolving Credit Facility"). The Revolving Credit Facility
provides for revolving loans of $20.0 million, subject to certain borrowing
conditions and limitations. Borrowings under the Revolving Credit Facility are
available for general corporate purposes, including letters of credit, subject
to the borrowing conditions contained therein. The Revolving Credit Facility is
secured by first priority liens on Archibald Candy's and the guarantor
subsidiaries' accounts receivable, raw materials and finished good inventories
and Archibald Candy's owned store locations, and the proceeds therefrom. Under
the terms of the Revolving Credit Facility, each material subsidiary of
Archibald Candy will guarantee the obligations of Archibald Candy. As of
November 28, 1998, there was no indebtedness outstanding under the Revolving
Credit Facility, although a $0.5 million letter of credit was outstanding.
The Revolving Credit Facility includes certain covenants that restrict,
among other things:
- investment, loans, advances, dividends and other restricted payments;
- prepayment of other indebtedness, including the Notes;
- the incurrence or existence of additional indebtedness;
- the granting of liens, other than liens created pursuant to the Revolving
Credit Facility, the Indenture and certain permitted liens;
- mergers, consolidations and sales of all or a substantial part of the
Company's business or property;
- the sale of assets; and
- certain transactions with affiliates.
The Revolving Credit Facility also requires the Company to comply with certain
financial ratios, including, but not limited to, minimum fixed charge coverage
and maximum leverage ratios.
The Revolving Credit Facility contains customary representations and
warranties, including, but not limited to, representations and warranties as to,
the good standing of Archibald Candy, the solvency of Archibald Candy, the
authority of Archibald Candy to enter into the Revolving Credit Facility, the
accuracy of the Company's financial statements, the Company's payment of taxes,
the disclosure of environmental matters and existing and pending litigation
involving the Company, the Company's ownership of assets and properties, and the
disclosure of contingent obligations of the Company. The Revolving Credit
Facility also contains customary events of default, including, but not limited
to, the failure to make payments when due, the breach of covenants, the breach
of representations and warranties, defaults as to other indebtedness,
involuntary bankruptcy, voluntary bankruptcy, dissolution, a material adverse
change or a change of control.
The Revolving Credit Facility expires July 2, 2000, unless extended. The
Revolving Credit Facility provides that borrowings thereunder will accrue
interest at a variable rate equal to the Alternate Base Rate plus 1.25% or a
fixed rate equal to the Eurodollar Rate plus 2.50%. The Alternate Base Rate
generally is defined as the greater of (1) the corporate base rate of interest
announced by the Agent from time to time and (2) the Federal Funds Effective
Rate plus 0.5%. Interest rates may be adjusted downward, depending upon the
Company's leverage ratio as defined therein. The Company is required to pay
certain fees in connection with the Revolving Credit Facility, including but not
limited to a commitment fee of 0.50% on the undrawn portion.
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DESCRIPTION OF THE EXCHANGE NOTES
FOR PURPOSES OF THIS SECTION ENTITLED "DESCRIPTION OF THE EXCHANGE NOTES,
THE TERM "COMPANY" MEANS ARCHIBALD CANDY CORPORATION.
GENERAL
The Outstanding Notes were, and the Exchange Notes will be, issued pursuant
to an Indenture dated as of July 2, 1997 among the Company and The Bank of New
York, as trustee (the "Trustee"), as amended by the First Supplemental Indenture
dated as of December 7, 1998 among the Company, the Trustee and the guarantor
subsidiaries (the "Indenture"). The Company's $100.0 million of Original
Exchange Notes also have been issued pursuant to the Indenture and remain
outstanding.
The terms of the Exchange Notes are the same as the terms of the Outstanding
Notes except that (1) the Company registered the Exchange Notes under the
Securities Act and their transfer is not restricted like the Outstanding Notes
and (2) holders of the Exchange Notes are not entitled to certain rights under
the Registration Rights Agreement. The terms of the Exchange Notes are identical
to the terms of the Original Exchange Notes except for the date of issuance.
BECAUSE THIS SECTION OF THE PROSPECTUS MERELY SUMMARIZES THE TERMS OF THE
EXCHANGE NOTES, YOU SHOULD READ THE INDENTURE AND THE RELEVANT PORTIONS OF THE
TRUST INDENTURE ACT OF 1939 FOR MORE COMPLETE INFORMATION REGARDING THE TERMS OF
THE EXCHANGE NOTES. COPIES OF THE INDENTURE AND THE REGISTRATION RIGHTS
AGREEMENT CAN BE OBTAINED BY FOLLOWING THE INSTRUCTIONS CONTAINED IN THIS
PROSPECTUS UNDER THE HEADINGS "WHERE YOU CAN FIND MORE INFORMATION" AND
"INFORMATION INCORPORATED BY REFERENCE." FOR PURPOSES OF THIS SECTION ENTITLED
"DESCRIPTION OF THE EXCHANGE NOTES," THE TERM THE "NOTES" REFERS TO ANY NOTES
EVER ISSUED UNDER THE INDENTURE, INCLUDING THE ORIGINAL EXCHANGE NOTES. THE
DEFINITIONS OF CERTAIN TERMS USED IN THE FOLLOWING SUMMARY ARE SET FORTH BELOW
UNDER "CERTAIN DEFINITIONS."
RANKING AND SECURITY
The Notes are senior secured obligations of the Company and rank senior in
right of payment to all subordinated Indebtedness of the Company and PARI PASSU
in right of payment with all senior Indebtedness. The Exchange Notes will be
issued in registered form, without coupons, and in denominations of $1,000 and
integral multiples thereof.
The Notes are effectively subordinated to all other senior secured
indebtedness of the Company and its Subsidiaries, including indebtedness under
the Revolving Credit Facility, to the extent of the assets securing such debt.
As of November 28, 1998, on a pro forma basis after giving effect to the
Acquisition and the related financing, the Company would not have had any
secured indebtedness outstanding, other than the Notes, $0.4 million of capital
lease obligations and a $0.5 million letter of credit issued for the account of
the Company pursuant to the Revolving Credit Agreement.
PRINCIPAL MATURITY AND INTEREST
The Exchange Notes will be limited in aggregate principal amount to $30.0
million and will mature on July 1, 2004. Interest on the Exchange Notes will be
payable semi-annually on January 1 and July 1 of each year, commencing July 1,
1999, to holders of record on the immediately preceding December 15 and June 15,
respectively. The Exchange Notes will bear interest at 10 1/4% per annum from
January 1, 1999. Interest on the Exchange Notes will accrue from the most recent
date to which interest has been paid or, if no interest has been paid, from
January 1, 1999. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. The Notes will be payable both as to
principal and interest at the office or agency of the Company maintained for
such purpose within the City of New York or, at the option of the Company,
payment of interest may be made by check
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mailed to the holders of the Notes at their respective addresses set forth in
the register of holders of Notes, PROVIDED, that all payments with respect to
Global Notes, and certificated notes the Holders of which have given wire
transfer instructions to the Company and the paying agent, will be required to
be made by wire transfer of immediately available funds to the accounts
specified by the Holders thereof. Until otherwise designated by the Company, the
Company's office or agency will be the office of the Trustee maintained for such
purpose. If a payment date is a Legal Holiday, payment may be made at that place
on the next succeeding day that is not a Legal Holiday, and no interest shall
accrue for the intervening period.
COLLATERAL
Subject to certain exceptions, the Notes and Guarantees will be secured by:
(1) security interests in certain of the equipment, fixtures and general
intangibles, including trademarks, of the Company, the Guarantors and each
future Restricted Subsidiary of the Company or any Subsidiary; (2) mortgages on
the Company's Chicago, Illinois manufacturing and headquarters facility and
Bensalem, Pennsylvania warehouse and distribution facility; and (3) all of the
Capital Stock of the Guarantors and each future Restricted Subsidiary of the
Company or any Subsidiary. All of the assets of the Company and the guarantor
subsidiaries described above are collectively referred to herein as the
"Collateral." The Notes are not secured by any other property, including any
receivables, raw materials or finished goods inventories or Company-owned retail
locations.
The Company and the Guarantors have entered into security agreements,
mortgages, deeds of trust and certain other collateral assignment agreements
(collectively, the "Collateral Agreements") that provide for the grant of a
security interest in or pledge of the Collateral to the Trustee, as collateral
agent (in such capacity, the "Collateral Agent"), for the benefit of the holders
of the Notes. Such pledges and security interests will secure the payment and
performance when due of all of the Obligations of the Company and the Guarantors
under the Indenture, the Notes, the Guarantees and the Collateral Agreements.
So long as no Event of Default has occurred and is continuing, and subject
to certain terms and conditions in the Indenture and the Collateral Agreements,
the Company will be entitled to receive all cash dividends, interest and other
payments made upon or with respect to the Capital Stock of any Subsidiary
pledged by it, and to exercise any voting, other consensual rights and other
rights pertaining to such collateral pledged by it. Upon the occurrence and
during the continuance of an Event of Default (1) all rights of the Company to
exercise such voting, other consensual rights or other rights will cease upon
notice from the Collateral Agent, and all such rights will become vested in the
Collateral Agent, which to the extent permitted by law, will have the sole right
to exercise such voting, other consensual rights or other rights and (2) all
rights of the Company to receive all cash dividends, interest and other payments
made upon or with respect to the Collateral will, upon notice from the
Collateral Agent, cease and such cash dividends, interest and other payments
will be paid to the Collateral Agent. All funds distributed under the Collateral
Agreements and received by the Collateral Agent for the benefit of the holders
of the Notes will be retained and/or distributed by the Collateral Agent in
accordance with the provisions of the Indenture.
Under the terms of the Collateral Agreements, the Collateral Agent will
determine the circumstances and manner in which the Collateral will be disposed
of, including, but not limited to, the determination of whether to foreclose on
the Collateral following an Event of Default. Holders of the Notes may not
enforce the Collateral Agreements. Subject to certain limitations, holders of a
majority in principal amount of the then outstanding Notes may direct the
Collateral Agent in its exercise of any trust or power under the Collateral
Agreements. Upon the full and final payment and performance of all Obligations
of the Company under the Indenture and the Notes, the Collateral Agreements will
terminate and the pledged Collateral will be released. In addition, in the event
that the pledged Collateral is sold and the Net Proceeds are or will be applied
in accordance with the terms of the
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covenant described under "Limitation on Asset Sales," the Collateral Agent will
release simultaneously with such sale the Liens in favor of the Collateral Agent
in the assets sold, PROVIDED, HOWEVER, that the Collateral Agent has received
all documentation required by the Trust Indenture Act therefor.
In the event of a default under the Notes, the proceeds from the sale of the
Collateral may not be sufficient to satisfy the Company's Obligations under the
Notes in full. The amount to be received upon such a sale would be dependent
upon numerous factors including the condition, age and useful life of the
Collateral at the time of such sale, the timing and the manner of the sale, and
whether the Collateral were being sold as part of an ongoing business. In
addition, the book value of the Collateral should not be relied upon as a
measure of realizable value. By its nature, the Collateral will be illiquid and
may have no readily ascertainable market value. Accordingly, there can be no
assurance that the Collateral can be sold in a short period of time. To the
extent that third parties enjoy Permitted Liens, such third parties may have
rights and remedies with respect to the property subject to such Lien that, if
exercised, could adversely affect the value of the Collateral. In addition, the
ability of the Holders to realize upon any of the Collateral may be subject to
certain bankruptcy law limitations in the event of a bankruptcy. See "Risk
Factors--Subordination" and "Risk Factors--Fraudulent Conveyance."
GUARANTORS
The repayment of the Notes will be unconditionally guaranteed, jointly and
severally, by each existing and future Restricted Subsidiary of the Company or
any Subsidiary.
The obligations of each Guarantor will be limited to the maximum amount as
will, after giving effect to all other contingent and fixed liabilities of such
Guarantor and after giving effect to any collections from or payments made by or
on behalf of any other Guarantor in respect of the obligations of such other
Guarantor under its Guarantee, result in the obligations of such Guarantor under
the Guarantee not constituting a fraudulent conveyance or fraudulent transfer
under Federal or state law. See "Risk Factors--Fraudulent Conveyance."
REDEMPTION
The Notes are not redeemable at the Company's option prior to July 1, 2001.
Thereafter, the Notes will be subject to redemption at the option of the
Company, in whole or in part, upon not less than 30 nor more than 60 days'
notice, at the redemption prices (expressed as percentages of principal amount)
set forth below plus accrued and unpaid interest, if any, thereon to the
applicable date of redemption, if redeemed during the 12-month period beginning
on July 1 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
- ---------------------------------------------------------------------------------- -----------
<S> <C>
2001.............................................................................. 105.125%
2002.............................................................................. 102.563
2003 and thereafter............................................................... 100.000
</TABLE>
Notwithstanding the foregoing, at any time or from time to time prior to
July 1, 2000, the Company may, at its option, redeem up to one-third of the
aggregate principal amount of the Notes ever issued under the Indenture, at a
redemption price of 110.250% of the principal amount thereof, plus accrued and
unpaid interest, if any, through the date of redemption, with the net cash
proceeds of one or more Public Equity Offerings; PROVIDED, that (1) such
redemption shall occur within 90 days of the date of closing of such public
offering and (2) at least two-thirds of the aggregate principal amount of Notes
ever issued under the Indenture remain outstanding immediately after giving
effect to each such redemption.
If less than all of the Notes are to be redeemed at any time, selection of
Notes for redemption will be made by the Trustee in compliance with the
requirements of the principal national securities exchange, if any, on which the
Notes are listed, or, if the Notes are not so listed, on a PRO RATA basis, by
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lot or by such method as the Trustee deems to be fair and appropriate, PROVIDED,
HOWEVER, that Notes of $1,000 or less may not be redeemed in part. Notice of
redemption will be mailed by first-class mail at least 30 but not more than 60
days before the redemption date to each holder of Notes to be redeemed at such
holder's registered address. If any Note is to be redeemed in part only, the
notice of redemption that relates to such Note will state the portion of the
principal amount thereof to be redeemed. A new Note in principal amount equal to
the unredeemed portion thereof will be issued in the name of the holder thereof
upon cancellation of the original Note. On and after the date of redemption,
interest will cease to accrue on the Notes or such portions called for
redemption.
The Notes will not be entitled to any mandatory redemption or sinking fund.
REPURCHASE UPON CHANGE OF CONTROL
Upon the occurrence of a Change of Control, the Company will be required to
offer to repurchase all the Notes then outstanding (the "Change of Control
Offer") at a purchase price equal to 101% of the aggregate principal amount
thereof plus accrued and unpaid interest, if any, to the date of purchase (the
"Change of Control Payment"). Within 10 days following any Change of Control,
the Company must mail a notice to each holder stating, among other things: (1)
that the Change of Control Offer is being made pursuant to this provision and
that all Notes tendered will be accepted for payment, (2) the purchase price and
the purchase date, which will be no earlier than 30 days nor later than 40 days
from the date such notice is mailed (the "Change of Control Payment Date"), (3)
that any Note not tendered will continue to accrue interest, (4) that, unless
the Company defaults in the payment of the Change of Control Payment, all Notes
accepted for payment pursuant to the Change of Control Offer will cease to
accrue interest after the Change of Control Payment Date, (5) that any holder
electing to have Notes purchased pursuant to a Change of Control Offer will be
required to surrender the Notes, with the form entitled "Option of Holder to
Elect Purchase" on the reverse of the Notes completed, to the paying agent with
respect to the Notes (the "Paying Agent") at the address specified in the notice
prior to the close of business on the third business day preceding the Change of
Control Payment Date, (6) that the holder will be entitled to withdraw such
election if the Paying Agent receives, not later than the close of business on
the second business day preceding the Change of Control Payment Date, a
telegram, telex, facsimile transmission or letter setting forth the name of the
holder, the principal amount of Notes delivered for purchase, and a statement
that such holder is withdrawing his election to have such Notes purchased, and
(7) that a holder whose Notes are being purchased only in part will be issued
new Notes equal in principal amount to the unpurchased portion of the Notes
surrendered, which unpurchased portion must be equal to $1,000 in principal
amount or an integral multiple thereof. The Company will comply with the
requirements of Rule 14e-1 under the Exchange Act and any other securities laws
and regulations thereunder to the extent such laws and regulations are
applicable in connection with the repurchase of the Notes in connection with a
Change of Control. To the extent that the provisions of any securities laws or
regulations conflict with the "Change of Control" provisions of the Indenture,
the Company will comply with the applicable securities laws and regulations and
shall not be deemed to have breached its obligations under the "Change of
Control" provisions of the Indenture by virtue thereof.
On the Change of Control Payment Date, the Company will, to the extent
lawful, (1) accept for payment the Notes or portions thereof tendered pursuant
to the Change of Control Offer, (2) deposit with the Paying Agent an amount
equal to the Change of Control Payment in respect of all Notes or portions
thereof so tendered, and (3) deliver or cause to be delivered to the Trustee the
Notes so accepted together with an Officer's Certificate stating that the Notes
or portions thereof tendered to the Company are accepted for payment. The Paying
Agent will promptly mail to each holder of Notes so accepted payment in an
amount equal to the purchase price for such Notes, and the Trustee will
authenticate and mail to each holder a new Note equal in principal amount to any
unpurchased portion of the Notes surrendered, if any, provided, however, that
each such new Note will be in principal
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amount of $1,000 or an integral multiple thereof. The Company will announce the
result of the Change of Control Offer on or as soon as practicable after the
Change of Control Payment Date.
Except as described above with respect to a Change of Control, the Indenture
does not contain provisions that permit the holders of the Notes to require that
the Company repurchase or redeem the Notes in the event of a takeover,
recapitalization or similar restructuring.
There can be no assurance that sufficient funds will be available at the
time of any Change of Control Offer to make required repurchases. Further, the
Revolving Credit Facility will, and successor financings may, prohibit the
repurchase of any Notes as a result of a Change of Control. The Company will
therefore, upon the occurrence of a Change of Control, either have to obtain the
consent of the lenders under the Revolving Credit Facility, or successor
financing, to such repurchase, or repay or refinance the indebtedness under the
Revolving Credit Facility or successor financing. A failure to secure the
lenders' consent or repay or refinance the indebtedness under the Revolving
Credit Facility will result in a default thereunder and an acceleration of all
obligations under the Revolving Credit Facility. See "Risk Factors--Restrictive
Debt Covenants" and "Risk Factors--Term of Revolving Credit Facility; Need for
Seasonal Financing."
"CHANGE OF CONTROL" means (1) the sale, assignment, lease, transfer or
conveyance (in one transaction or a series of transactions) of all or
substantially all of the Company's assets to any Person or group (as such term
is used in Section 13(d)(3) of the Exchange Act), (2) the liquidation or
dissolution of the Company or the adoption of a plan by the shareholders of the
Company relating to the dissolution or liquidation of the Company, (3) the
acquisition by any Person or group (as such term is used in Section 13(d)(3) of
the Exchange Act) (other than the TJC Investors, the TCW Investors or their
respective affiliates) of beneficial ownership, directly or indirectly, of
Voting Stock of the Company or Holdings having the right to elect directors
having a majority of the voting power of the Board of Directors of the Company
or Holdings, respectively, by way of purchase, merger or consolidation or
otherwise, or (4) any Person or group (as such term is used in Section 13(d)(3)
of the Exchange Act) (other than the TJC Investors, the TCW Investors or their
respective affiliates) exercises the right to elect director(s) having (or
existing directors, acquire the right to have) a majority of the voting power of
the Board of Directors of the Company or Holdings.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. The Company will not, and will not
permit any of its Restricted Subsidiaries to, directly or indirectly (1) declare
or pay any dividend or make any distribution on account of any Equity Interests
of the Company or any of its Subsidiaries (other than dividends or distributions
payable in Equity Interests (other than Disqualified Stock) of the Company or
dividends or distributions payable to the Company or any Wholly Owned
Subsidiary), (2) purchase, redeem or otherwise acquire or retire for value any
Equity Interest of the Company or any Subsidiary or other Affiliate of the
Company, (3) make any principal payment on, or purchase, redeem, defease or
otherwise acquire or retire for value any Indebtedness of the Company or any
Guarantor that is subordinated in right of payment to the Notes or such
Subsidiary's Guarantees thereof, as the case may be, prior to any scheduled
principal payment, sinking fund payment or other payment at the stated maturity
thereof, (4) make any Restricted Investment or (5) make any other payment to or
on behalf of Holdings (all such payments and other actions set forth in clauses
(1) through (5) above being collectively referred to as "Restricted Payments")
unless, at the time of such Restricted Payment:
(a) no Default or Event of Default has occurred and is continuing or would
occur as a consequence thereof, and
(b) immediately after such Restricted Payment and after giving effect
thereto on a pro forma basis, the Company could incur at least $1.00 of
additional Indebtedness under the Interest
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Coverage Ratio test set forth in the covenant described under
"--Limitation on Incurrence of Indebtedness," and
(c) such Restricted Payment (the value of any such payment, if other than
cash, being determined in good faith by the Board of Directors and
evidenced by a resolution set forth in an Officers' Certificate delivered
to the Trustee), together with the aggregate of all other Restricted
Payments made after the date of the Indenture (including Restricted
Payments permitted by clauses (i) and (ii) of the next following
paragraph and excluding Restricted Payments permitted by the other
clauses therein), is less than the sum of (w) 50% of the Adjusted
Consolidated Net Income of the Company for the period (taken as one
accounting period) from the beginning of the first quarter commencing
immediately after the Issue Date to the end of the Company's most
recently ended full fiscal quarter for which internal financial
statements are available at the time of such Restricted Payment (or, if
such Adjusted Consolidated Net Income for such period is a deficit, 100%
of such deficit), plus (x) $2 million, plus (y) 100% of the aggregate net
cash proceeds received by the Company from the issuance or sale, other
than to a Subsidiary, of Equity Interests of the Company (other than
Disqualified Stock) after the date of the Indenture and on or prior to
the time of such Restricted Payment, plus (z) 100% of the aggregate net
cash proceeds received by the Company from the issuance or sale, other
than to a Subsidiary, of any convertible or exchangeable debt security of
the Company that has been converted or exchanged into Equity Interests of
the Company (other than Disqualified Stock) pursuant to the terms thereof
after the date of the Indenture and on or prior to the time of such
Restricted Payment (including any additional net cash proceeds received
by the Company upon such conversion or exchange).
Notwithstanding the foregoing, the Indenture does not prohibit as Restricted
Payments (1) the payment of any dividend within 60 days after the date of
declaration thereof, if at said date of declaration such payment would not have
been prohibited by the provisions of the Indenture, (2) the redemption,
purchase, retirement or other acquisition of any Equity Interests of the Company
in exchange for, or out of the proceeds of, the substantially concurrent sale
(other than to a Subsidiary of the Company) of other Equity Interests of the
Company (other than Disqualified Stock), (3) the redemption, repurchase or
payoff of any Indebtedness with proceeds of any Refinancing Indebtedness
permitted to be incurred pursuant to the provision described under "--Limitation
on Incurrence of Indebtedness," (4) the payment of dividends to Holdings for
purposes of the repurchase, redemption, retirement or acquisition of Equity
Interests of Holdings from executives, management or employees of the Company or
Holdings pursuant to the Plan as in existence on the Issue Date, (5) payments by
the Company to Holdings under the Tax Sharing and Management Agreement between
Holdings and the Company (see "Certain Transactions--Tax Sharing and Management
Agreement"), (6) payments of the Preferred Stock (other than to pay dividends or
redeem shares of preferred stock owned by the TJC Investors on the Issue Date);
PROVIDED, that no such payments will be made with proceeds from the Revolving
Credit Facility, and (7) payments in connection with the application of the net
proceeds of the offering of the Outstanding Notes as described under "Use of
Proceeds," PROVIDED that with respect to clauses (1) through (6) (other than
payments with respect to taxes under the Tax Sharing and Management Agreement),
at such time there shall have been no default in payment when due of interest on
the Notes or any default of the types described in clause (ii) or (iii) of
"Events of Default and Remedies."
LIMITATION ON INCURRENCE OF INDEBTEDNESS. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, (1)
create, incur, issue, assume, guaranty or otherwise become directly or
indirectly liable, contingently or otherwise, (collectively, "incur"), with
respect to any Indebtedness (including Acquired Debt) or (2) issue any
Disqualified Stock, PROVIDED, HOWEVER, that the Company may incur Indebtedness
or issue shares of Disqualified Stock and a Restricted Subsidiary may incur
Acquired Debt if (x) no Default or Event of Default shall have occurred and be
continuing at the time of, or would occur after giving effect on a PRO FORMA
basis to such incurrence or issuance, (y) the
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Interest Coverage Ratio for the Company's most recently ended four full fiscal
quarters for which internal financial statements are available immediately
preceding the date on which such additional Indebtedness is incurred or such
Disqualified Stock is issued would have been at least equal to the ratio set
forth below opposite the period in which such incurrence or issuance occurs,
determined on a PRO FORMA basis (including a pro forma application of the net
proceeds therefrom), as if the additional Indebtedness had been incurred, or the
Disqualified Stock has been issued, as the case may be, at the beginning of such
four-quarter period:
<TABLE>
<CAPTION>
PERIOD ENDING RATIO
- -------------------------------------------------------------------------------------- ---------
<S> <C>
February 28, 1999..................................................................... 2.00x
Thereafter............................................................................ 2.25x
</TABLE>
and (z) in the case of Indebtedness, (i) the Weighted Average Life to Maturity
of such Indebtedness is greater than the remaining Weighted Average Life to
Maturity of the Notes and (ii) such Indebtedness has a final scheduled maturity
that exceeds the final stated maturity of the Notes.
The foregoing limitations will not prohibit the incurrence of
(a) Indebtedness pursuant to the Revolving Credit Facility and repayment
obligations in respect of letters of credit, PROVIDED, HOWEVER, that the
aggregate principal amount of such Indebtedness so incurred on any date
shall not exceed $25.0 million,
(b) performance bonds, surety bonds, insurance obligations or bonds and
other similar bonds or obligations incurred in the ordinary course of
business,
(c) Hedging Obligations incurred to fix the interest rate on any variable
rate Indebtedness otherwise permitted by the Indenture,
(d) Indebtedness arising out of sale and leaseback transactions, capital
lease obligations or Purchase Money Obligations in an aggregate amount
not to exceed $1.5 million at any one time,
(e) Indebtedness owed by the Company to any Wholly Owned Subsidiary or by
any Wholly Owned Subsidiary to the Company or any other Wholly Owned
Subsidiary,
(f) Indebtedness outstanding on the Issue Date, including the Notes,
(g) other Permitted Indebtedness,
(h) Indebtedness issued in exchange for, or the proceeds of which are
contemporaneously used to extend, refinance, renew, replace, or refund
(collectively, "Refinance") Indebtedness referred to in clauses (a), (d),
(f) and (i) and outstanding Indebtedness incurred pursuant to the debt
incurrence tests set forth in the immediately preceding paragraph (the
"Refinancing Indebtedness"), PROVIDED, HOWEVER, that (1) the principal
amount of such Refinancing Indebtedness does not exceed the principal
amount of Indebtedness so Refinanced, (2) the Refinancing Indebtedness
has a final scheduled maturity that exceeds the final stated maturity,
and a Weighted Average Life to Maturity that is equal to or greater than
the Weighted Average Life to Maturity, of the Indebtedness being
Refinanced and (3) the Refinancing Indebtedness ranks, in right of
payment, no more favorable to the Notes as the Indebtedness being
Refinanced,
(i) additional Indebtedness of the Company in an aggregate principal amount
up to $5.0 million and
(j) additional Indebtedness of the Company in an aggregate principal amount
up to $5.0 million; provided, that such Indebtedness is subordinated in
right of payment to the Notes and has a final scheduled maturity that
exceeds the final stated maturity, and a Weighted Average Life to
Maturity that is equal to or greater than the Weighted Average Life to
Maturity, of the Notes.
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LIMITATION ON ASSET SALES. The Company will not, and will not permit any
Restricted Subsidiary to, make any Asset Sale unless (i) the Company or such
Restricted Subsidiary receives consideration at the time of such Asset Sale at
least equal to the fair market value of the assets subject to such Asset Sale,
(ii) at least 85% of the consideration for such Asset Sale is in the form of
cash, Cash Equivalents or liabilities of the Company or any Restricted
Subsidiary (other than liabilities that are, by their terms, subordinated to the
Notes or any Guarantee thereof) that are assumed by the transferee of such
assets (PROVIDED, that following such Asset Sale there is no further recourse to
the Company and its Restricted Subsidiaries with respect to such assets) and
(iii) within 12 months of such Asset Sale, the Net Proceeds thereof are (a)
invested in assets related to the business of the Company or its Restricted
Subsidiaries as conducted on the date of the Indenture, (b) used to permanently
reduce any Indebtedness which ranks PARI PASSU with the Notes (provided in the
case of a revolver or similar arrangement that makes credit available, such
commitment is also permanently reduced) or (c) to the extent not used as
provided in clause (a) or (b), applied to make an offer to purchase Notes as
described below (an "Excess Proceeds Offer"), PROVIDED, HOWEVER, that if the
amount of Net Proceeds from any Asset Sale not invested pursuant to clause (a)
or used to repay Indebtedness pursuant to clause (b) above is less than $2
million, the Company will not be required to make an offer pursuant to clause
(c).
The amount of Net Proceeds not invested or applied as set forth in the
preceding clauses (a) or (b) constitutes "Excess Proceeds." If the Company
elects, or becomes obligated to make an Excess Proceeds Offer, the Company will
offer to purchase Notes having an aggregate principal amount equal to the Excess
Proceeds (the "Purchase Amount"), at a purchase price equal to 100% of the
aggregate principal amount thereof, plus accrued and unpaid interest, if any, to
the purchase date. The Company must commence such Excess Proceeds Offer not
later than 30 days after the expiration of the 12-month period following the
Asset Sale that produced Excess Proceeds. If the aggregate purchase price for
the Notes tendered pursuant to the Excess Proceeds Offer is less than the Excess
Proceeds, the Company and its Restricted Subsidiaries may use the portion of the
Excess Proceeds remaining after payment of such purchase price for general
corporate purposes.
The Indenture provides that the Excess Proceeds Offer will remain open for a
period of 20 business days and no longer, unless a longer period is required by
law (the "Excess Proceeds Offer Period"). Promptly after the termination of the
Excess Proceeds Offer Period (the "Excess Proceeds Payment Date"), the Company
will purchase and mail or deliver payment for the Purchase Amount for the Notes
or portions thereof tendered, pro rata or by such other method as may be
required by law, or, if less than the Purchase Amount has been tendered, all
Notes tendered pursuant to the Excess Proceeds Offer. The principal amount of
Notes to be purchased pursuant to an Excess Proceeds Offer may be reduced by the
principal amount of Notes acquired by the Company through purchase or redemption
(other than pursuant to a Change of Control Offer) subsequent to the date of the
Asset Sale and surrendered to the Trustee for cancellation. Any Excess Proceeds
Offer will be conducted in compliance with applicable regulations under the
Federal securities law, including Exchange Act Rule 14e-1. To the extent that
the provisions of any securities laws or regulations conflict with the "Asset
Sale" provisions of the Indenture, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under the "Asset Sale" provisions of the Indenture by virtue
thereof.
There can be no assurance that sufficient funds will be available at the
time of any Excess Proceeds Offer to make required repurchases.
LIMITATION ON LIENS. The Indenture provides that the Company will not, and
will not permit any Restricted Subsidiary to, directly or indirectly, create,
incur, assume or suffer to exist any Lien on any asset (including, without
limitation, all real, tangible or intangible property) of the Company or any
Restricted Subsidiary now owned or hereafter acquired, or on any income or
profits therefrom, or assign, or convey any right to receive income therefrom,
except (i) Liens on (x) accounts receivable and
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inventory and the proceeds thereof (and certain rights relating thereto) and (y)
real property of the Company not constituting Collateral under the Indenture
securing Indebtedness permitted to be incurred pursuant to clauses (a) or (i)
under "--Limitation on Incurrence of Indebtedness" or any Indebtedness used to
Refinance such Indebtedness, (ii) Purchase Money Liens securing Indebtedness
incurred pursuant to clause (d) under "--Limitation on Incurrence of
Indebtedness," and (iii) Permitted Liens.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. The Company will not,
and will not permit any Restricted Subsidiary to, directly or indirectly, create
or otherwise cause or suffer to exist or become effective any encumbrance or
restriction on the ability of any Restricted Subsidiary (a) to (i) pay dividends
or make any other distributions to the Company or any of its Restricted
Subsidiaries (A) on such Restricted Subsidiary's Capital Stock or (B) with
respect to any other interest or participation in, or measured by, such
Restricted Subsidiary's profits or (ii) pay any indebtedness owed to the Company
or any of its Subsidiaries, or (b) make loans or advances to the Company or any
of its Restricted Subsidiaries, or (c) transfer any of its assets to the Company
or any of its Restricted Subsidiaries, except for such encumbrances or
restrictions existing under or by reason of (1) the Indenture, the Notes and the
Collateral Agreements, (2) applicable law, (3) any Acquired Debt, which
encumbrance or restriction is not applicable to any Person, or the properties or
assets of any Person, other than the Person, or the property or assets of the
Person, so acquired, and (4) permitted Refinancing Indebtedness, provided,
however, that such restrictions contained in any agreement governing such
Refinancing Indebtedness are no more restrictive than those contained in any
agreements governing the Indebtedness being refinanced.
MERGER, CONSOLIDATION OR SALE OF ASSETS. The Company may not consolidate or
merge with or into (whether or not the Company is the surviving corporation), or
sell, assign, transfer, lease, convey or otherwise dispose of all or
substantially all of its properties or assets (determined on a consolidated
basis for the Company and its Restricted Subsidiaries) in one or more related
transactions to, any other Person unless (1) the Company is the surviving Person
or the person formed by or surviving any such consolidation or merger (if other
than the Company) or to which such sale, assignment, transfer, lease, conveyance
or other disposition has been made is a corporation organized and existing under
the laws of the United States, any state thereof or the District of Columbia,
(2) the Person formed by or surviving any such consolidation or merger (if other
than the Company) or the Person to which such sale, assignment, transfer, lease,
conveyance or other disposition has been made assumes all the obligations of the
Company, pursuant to a supplemental indenture and Collateral Agreements in a
form reasonably satisfactory to the Trustee and the Collateral Agent, under the
Notes, the Indenture, the Collateral Agreements and the Registration Rights
Agreement, (3) immediately before, and after giving effect on a PRO FORMA basis
to, such transaction, no Default or Event of Default exists or would occur, and
(4) the Company, or any Person formed by or surviving any such consolidation or
merger, or to which such sale, assignment, transfer, lease, conveyance or other
disposition has been made, (A) has a Consolidated Net Worth (immediately after
the transaction but prior to any purchase accounting adjustments resulting from
the transaction) equal to or greater than the Consolidated Net Worth of the
Company immediately preceding the transaction and (B) is permitted, at the time
of such transaction and after giving pro forma effect thereto as if such
transaction had occurred at the beginning of the applicable four-quarter period,
to incur at least $1.00 of additional Indebtedness pursuant to the Interest
Coverage Ratio test set forth in the covenant described under "--Limitation on
Incurrence of Indebtedness."
In the event of any transaction (other than a lease) complying with the
conditions listed in the immediately preceding paragraph in which the Company is
not the surviving Person, such surviving Person or transferee shall succeed to,
and be substituted for, and may exercise every right and power of, the Company,
and the Company shall be discharged from its Obligations under, the Indenture,
the Notes, the Collateral Agreements and the Registration Rights Agreement.
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LIMITATION ON TRANSACTIONS WITH AFFILIATES. The Company will not, and will
not permit any of its Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any of its properties or assets to, or
purchase any property or assets from, or enter into any contract, agreement,
understanding, loan, advance or guarantee with, or for the benefit of, any
Affiliate (each of the foregoing, an "Affiliate Transaction"), except for (1)
Affiliate Transactions, which together with all related Affiliate Transactions,
have an aggregate value of not more than $1 million; PROVIDED, that such
transactions are conducted in good faith and on terms that are no less favorable
to the Company or the relevant Restricted Subsidiary than those that would have
been obtained in a comparable transaction at such time on an arm's-length basis
with a Person that is not an Affiliate of the Company or such Restricted
Subsidiary, (2) Affiliate Transactions, which together with all related
Affiliate Transactions have an aggregate value of not more than $2 million;
PROVIDED, that a majority of the disinterested members of the Board of Directors
of the Company determine that such transactions are conducted in good faith and
on terms that are no less favorable to the Company or the relevant Restricted
Subsidiary than those that would have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary, and (3) Affiliate Transactions for
which the Company delivers to the Trustee an opinion as to the fairness to the
Company or such Restricted Subsidiary from a financial point of view issued by
an investment banking firm of national standing; PROVIDED, HOWEVER, that the
following will not be deemed to be Affiliate Transactions: (i) employment or
consulting agreements entered into by the Company or any Restricted Subsidiary
in the ordinary course of business with the approval of the independent members
of the Company's Board of Directors, (ii) transactions between or among the
Company and/or its Wholly Owned Subsidiaries or Guarantors, (iii) transactions
permitted by the provisions of the Indenture described above under
"--Limitations on Restricted Payments," and (iv) reasonable and customary
directors' fees for independent members of the Board of Directors of the
Company.
RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. The Company shall
not sell, and shall not permit any of its Restricted Subsidiaries to issue or
sell, any shares of Capital Stock of any Restricted Subsidiary to any Person
other than the Company or a Wholly Owned Subsidiary of the Company; PROVIDED,
that the Company and its Restricted Subsidiaries may sell all of the Capital
Stock of a Restricted Subsidiary owned by the Company and its Restricted
Subsidiaries if the Net Proceeds from such Asset Sale are used in accordance
with the terms of the covenant described under "--Limitation on Asset Sales."
LINE OF BUSINESS. The Company will not, and will not permit any Subsidiary
to, directly or indirectly engage in any business other than (a) the business
described in this Prospectus, (b) the manufacture, distribution and retailing of
confectionery items and (c) any business that in the reasonable, good faith
judgment of the Board of Directors of the Company is directly related to such
business.
GUARANTORS. The Indenture provides that so long as any Notes remain
outstanding, any Restricted Subsidiary shall (a) execute and deliver to the
Trustee a supplemental indenture in form reasonably satisfactory to the Trustee
pursuant to which such Restricted Subsidiary shall unconditionally guarantee all
of the Company's obligations under the Notes and the Indenture on the terms set
forth in the Indenture and (b) deliver to the Trustee an opinion of counsel that
such supplemental indenture has been duly authorized, executed and delivered by
such Restricted Subsidiary and constitutes a legal, valid, binding and
enforceable obligation of such Restricted Subsidiary. Thereafter, such
Restricted Subsidiary shall be a Guarantor for all purposes of the Indenture.
If all of the Capital Stock of any Guarantor is sold to a Person (other than
the Company or any of its Restricted Subsidiaries) and the Net Proceeds from
such Asset Sale are used in accordance with the terms of the covenant described
under "--Limitation on Asset Sales," then such Guarantor will be released and
discharged from all of its obligations under its Guarantee of the Notes and the
Indenture.
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REPORTS. Whether or not required by the rules and regulations of the
Commission, so long as any Notes are outstanding, the Company will furnish to
the holders of Notes (i) all quarterly and annual financial information that
would be required to be contained in a filing with the Commission on Forms 10-Q
and 10-K if the Company were required to file such Forms, including for each a
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and, with respect to the annual financial statements only, a report
thereon by the Company's independent auditors and (ii) all reports that would be
required to be filed with the Commission on Form 8-K if the Company were
required to file such reports. From and after the time the Company files a
registration statement with the Commission with respect to the Notes, the
Company will file such information with the Commission, provided the Commission
will accept such filing.
EVENTS OF DEFAULT AND REMEDIES
Each of the following will constitute an Event of Default under the
Indenture: (i) default for 30 days in the payment when due of interest on the
Notes, (ii) default in payment of principal (or premium, if any) on the Notes
when due at maturity, upon redemption, by acceleration or otherwise, (iii)
default in the performance or breach of the provisions of "--Merger,
Consolidation or Sale of Assets," and "--Repurchase Upon Change of Control,"
(iv) failure by the Company or any Guarantor for 30 days after notice to comply
with certain other covenants and agreements in the Indenture, the Notes or the
Collateral Agreements, (v) default under (after giving effect to any applicable
grace periods or any extension of any maturity date) any mortgage, indenture or
instrument under which there may be issued or by which there may be secured or
evidenced any Indebtedness for money borrowed by the Company or any Guarantor
(or the payment of which is guaranteed by the Company or any Guarantor), whether
such Indebtedness or guarantee now exists or is created after the date of the
Indenture, if (a) either (1) such default results from the failure to pay
principal of such Indebtedness or (2) as a result of such default the maturity
of such Indebtedness has been accelerated, and (b) the principal amount of such
Indebtedness, together with the principal amount of any other such Indebtedness
with respect to which such a payment default (after the expiration of any
applicable grace period or any extension of the maturity date) has occurred, or
the maturity of which has been so accelerated, exceeds $5 million in the
aggregate, (vi) failure by the Company or any Guarantor to pay final judgments
(other than any judgment as to which a reputable insurance company has accepted
full liability) aggregating in excess of $7.5 million which judgments are not
stayed within 60 days after their entry, (vii) breach by the Company or any
Guarantor of any material representation or warranty set forth in the Collateral
Agreements, which breach is not cured by the Company or such Guarantor or waived
within 30 days after notice to comply with such breach of a material
representation or warranty, (viii) repudiation by the Company or any of the
Guarantors of their obligations under the Indenture, the Notes, the Collateral
Agreements or the Guarantees or the Company or any Guarantor takes any action
that causes, or asserts, or fails to take any action that it knows, or has been
notified by the Trustee, is necessary to prevent, the unenforceability of the
Indenture, the Notes, the Collateral Agreements or the Guarantees against the
Company or any of the Guarantors or is necessary to maintain the priority and
perfection of the Liens of the Collateral Agreements, and (ix) certain events of
bankruptcy or insolvency with respect to the Company or any of the Guarantors.
If any Event of Default occurs and is continuing, the Trustee or the holders
of at least 25% in principal amount of the then outstanding Notes may declare by
written notice all the Notes to be due and payable immediately. Notwithstanding
the foregoing, in the case of an Event of Default arising from certain events of
bankruptcy or insolvency, all outstanding Notes will become due and payable
without further action or notice. Holders of the Notes may not enforce the
Indenture or the Notes except as provided in the Indenture. Subject to certain
limitations, holders of a majority in principal amount of the then outstanding
Notes may direct the Trustee in its exercise of any trust or power.
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The holders of a majority in aggregate principal amount of the Notes then
outstanding, by written notice to the Trustee, may on behalf of the holders of
all of the Notes (i) waive any existing Default or Event of Default and its
consequences under the Indenture except a continuing Default or Event of Default
in the payment of interest on, or the principal of, the Notes or a Default or an
Event of Default with respect to any covenant or provision which cannot be
modified or amended without the consent of the holder of each outstanding Note
affected, and/or (ii) rescind an acceleration and its consequences if the
rescission would not conflict with any judgment or decree if all existing Events
of Default (except nonpayment of principal or interest that has become due
solely because the acceleration) have been cured or waived.
The Company is required upon becoming aware of any Default or Event of
Default, to deliver to the Trustee a statement specifying such Default or Event
of Default and what action the Company is taking or proposes to take with
respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of the Company
or any Guarantor, as such, will have any liability for any obligations of the
Company under the Notes, the Indenture, the Collateral Agreements or the
Registration Rights Agreement or for any claim based on, in respect of, or by
reason of, such obligations of their creation. Each holder of the Notes by
accepting a Note waives and releases all such liability. The waiver and release
are part of the consideration for issuance of the Notes. Such waiver may not be
effective to waive liabilities under the Federal securities laws and it is the
view of the Commission that such a waiver is against public policy.
DEFEASANCE AND DISCHARGE OF THE INDENTURE AND THE NOTES
The Indenture provides that the Company will be discharged from any and all
obligations in respect of the Notes, other than the obligation to duly and
punctually pay the principal of, and premium, if any, and interest on, the Notes
in accordance with the terms of the Notes and the Indenture upon irrevocable
deposit with the Trustee, in trust, of money and/or U.S. government obligations
that will provide money in an amount sufficient in the opinion of a nationally
recognized accounting firm to pay the principal of and premium, if any, and each
installment of interest, if any, on the due dates thereof on the Notes. Such
trust may only be established if, among other things, (1) the Company has
delivered to the Trustee an opinion of independent counsel to the effect that
the holders of the Notes will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and defeasance and will be
subject to federal income tax on the same amount, in the same manner and at the
same times as would have been the case if such deposit and defeasance had not
occurred, (2) no Event of Default or event that with the passing of time or the
giving of notice, or both, shall constitute an Event of Default shall have
occurred or be continuing, and (3) certain customary conditions precedent are
satisfied.
The Company may satisfy and discharge its obligations and the Guarantors'
obligations under the Indenture to holders of the Notes by delivering to the
Trustee for cancellation all outstanding Notes or by depositing with the Trustee
or the Paying Agent, if applicable, after the Notes have become due and payable,
cash sufficient to pay at the stated maturity all of the Notes and paying all
other sums payable under the Indenture by the Company.
TRANSFER AND EXCHANGE
A holder may transfer or exchange Notes in accordance with the Indenture.
The Registrar and the Trustee may require a holder, among other things, to
furnish appropriate endorsements and transfer documents and the Company may
require a holder to pay any taxes and fees required by law or permitted by the
Indenture. The Company is not required to transfer or exchange any Note selected
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for redemption. In addition, the Company is not required to transfer or exchange
any Note for a period of 15 days before a selection of Notes to be redeemed.
The registered holder of a Note will be treated as the owner of it for all
purposes.
PAYMENTS FOR CONSENT
Neither the Company nor any of its Subsidiaries shall, directly or
indirectly, pay or cause to be paid any consideration, whether by way of
interest, fee or otherwise, to any holder of any Notes for or as an inducement
to any consent, waiver or amendment of any of the terms or provisions of the
Indenture or the Notes unless such consideration is offered to be paid or agreed
to be paid to all holders of the Notes that consent, waive or agree to amend in
the time frame set forth in the solicitation documents relating to such consent,
waiver or agreement, which solicitation documents must be mailed to all Holders
of the Notes a reasonable length of time prior to the expiration of the
solicitation.
AMENDMENT, SUPPLEMENT AND WAIVER
Except as provided in the two succeeding paragraphs, the Indenture and the
Notes may be amended or supplemented with the consent of the holders of at least
a majority in principal amount of the Notes then outstanding (including consents
obtained in connection with a tender offer or exchange offer for Notes) and any
existing Default or Event of Default or compliance with any provision of the
Indenture, the Notes or the Collateral Agreements may be waived with the consent
of the holders of a majority in principal amount of the then outstanding Notes
(including consents obtained in connection with a tender offer or exchange offer
for Notes).
Without the consent of each holder affected, an amendment or waiver may not
(with respect to any Notes held by a non-consenting holder of Notes) (1) reduce
the principal amount of Notes whose holders must consent to an amendment,
supplement or waiver, (2) reduce the principal of, or the premium on, or change
the fixed maturity of any Note or alter the provisions with respect to the
redemption of the Notes or alter the price at which repurchases of the Notes may
be made pursuant to an Excess Proceeds Offer or Change of Control Offer, (3)
reduce the rate of or change the time for payment of interest on any Note, (4)
waive a Default or Event of Default in the payment of principal of or premium,
if any, or interest on the Notes, (5) make any Note payable in money other than
that stated in the Notes, (6) make any change in the provisions of the Indenture
relating to waivers of past Defaults or the rights of holders of Notes to
receive payments of principal of or interest on the Notes, (7) waive a
redemption payment with respect to any Note, (8) make any change in the
provisions of any of the Guarantees that adversely affects the rights of any
holder of Notes, (9) adversely affect the contractual ranking of the Notes or
Guarantees, or (10) make any change in the foregoing amendment and waiver
provisions.
Notwithstanding the foregoing, without the consent of the holder of Notes,
the Company and the Trustee may amend or supplement the Indenture or the Notes
to cure any ambiguity, defect or inconsistency, to provide for uncertificated
Notes in addition to or in place of certificated Notes, to provide for the
assumption of the Company's obligations to holders of the Notes or a Guarantor's
obligation under a Guarantee in the case of a merger or consolidation, to make
any change that would provide any additional rights or benefits to the holders
of the Notes or that does not adversely affect the legal rights under the
Indenture of any such holder, or to comply with requirements of the Commission
in order to effect or maintain the qualification of the Indenture under the
Trust Indenture Act.
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CONCERNING THE TRUSTEE
The Indenture contains certain limitations on the rights of the Trustee,
should it become a creditor of the Company, to obtain payment of claims in
certain cases, or to realize on certain property received in respect of any such
claim as security or otherwise. The Trustee will be permitted to engage in other
transactions; provided, however, if it acquires any conflicting interest it must
eliminate such conflict within 90 days, apply to the Commission for permission
to continue or resign.
The holders of a majority in principal amount of the then outstanding Notes
will have the right to direct the time, method and place of conducting any
proceeding for exercising any remedy available to the Trustee, subject to
certain exceptions. The Indenture provides that in case an Event of Default
occurs (and is not cured), the Trustee will be required, in the exercise of its
power, to use the degree of care of a prudent man in the conduct of his own
affairs. Subject to such provisions, the Trustee will be under no obligation to
exercise any of its rights or powers under the Indenture at the request of any
holder of Notes, unless such holder shall have offered to the Trustee security
and indemnity satisfactory to it against any loss, liability or expense.
ADDITIONAL INFORMATION
Anyone who receives this Prospectus may obtain a copy of the Indenture
without charge by writing to Archibald Candy Corporation, 1137 West Jackson
Boulevard, Chicago, Illinois 60607, Attention: Secretary.
CERTAIN DEFINITIONS
Set forth below are certain defined terms used in the Indenture. Reference
is made to the Indenture for a full definition of all such terms, as well as any
other capitalized terms used in this section "Description of the Exchange Notes"
for which no definition is provided.
"ACQUIRED DEBT" means, with respect to the Company or a Restricted Subsidiary,
Indebtedness of any other Person existing at the time such other Person merged
with or into the Company or a Restricted Subsidiary or became a Restricted
Subsidiary, other than Indebtedness incurred in connection with, or in
contemplation of, such other Person merging with or into the Company or a
Restricted Subsidiary or becoming a Restricted Subsidiary.
"ADJUSTED CONSOLIDATED NET INCOME" means, with respect to any Person for any
period, the Consolidated Net Income of such Person plus amortization (including
amortization of goodwill, deferred costs and other intangibles) of such Person
for such period to the extent such amortization was deducted in computing
Consolidated Net Income.
"AFFILIATE" of any specified Person means any other Person directly or
indirectly controlling or controlled by or under direct or indirect common
control with such specified Person. For purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling," "controlled by"
and "under common control with"), as used with respect to any Person, will mean
(1) the possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person, whether through the
ownership of voting securities, by agreement or otherwise; (2) in the case of a
corporation, beneficial ownership of 10% or more of any class of Capital Stock
of such Person; and (3) in the case of an individual (A) members of such
Person's immediate family (as defined in Instruction 2 of Item 404(a) of
Regulation S-K under the Securities Act) and (B) trusts, any trustee or
beneficiaries of which are such Person or members of such Person's immediate
family. Notwithstanding the foregoing to the contrary, neither the Initial
Purchaser nor any of its Affiliates will be deemed to be Affiliates of the
Company.
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"ASSET SALE" means any direct or indirect (i) sale, assignment, transfer,
lease, conveyance, or other disposition (including, without limitation, by way
of merger or consolidation) (collectively, a "transfer"), other than in the
ordinary course of business, of any assets of the Company or its Restricted
Subsidiaries, or (ii) issuance or sale of any Capital Stock of any Subsidiary
(in each case, other than to the Company or a Wholly Owned Subsidiary).
"CAPITAL LEASE OBLIGATION" means, at the time any determination thereof is to
be made, the amount of the liability in respect of a capital lease that would at
such time be so required to be capitalized on the balance sheet in accordance
with GAAP.
"CAPITAL STOCK" means (1) with respect to any Person that is a corporation, any
and all shares, interests, participations, rights or other equivalents (however
designated) of corporate stock, and (2) with respect to any other Person, any
and all partnership interests, membership interests or other indicia of
ownership of such Person.
"CASH EQUIVALENT" means (1) securities issued or directly and fully guaranteed
or insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of America
is pledged in support thereof), (2) time deposits and certificates of deposit
and commercial paper issued by the parent corporation of any domestic commercial
bank of recognized standing having capital and surplus in excess of $500,000,000
and commercial paper issued by others rated at least A-2 or the equivalent
thereof by Standard & Poor's Corporation or at least P-2 or the equivalent
thereof by Moody's Investors Service, Inc. and in each case maturing within one
year after the date of acquisition and (3) investments in money market funds
substantially all of whose assets comprise securities of the types described in
clauses (1) and (2) above.
"CONSOLIDATED EBITDA" means, with respect to any Person (the referent Person)
for any period, consolidated income (loss) from operations of such Person for
such period, determined in accordance with GAAP, plus (to the extent such
amounts are deducted in calculating such income (loss) from operations of such
Person for such period, and without duplication) amortization, depreciation and
other non-cash charges (including, without limitation, amortization of goodwill,
deferred financing fees and other intangibles but excluding (a) non-cash charges
incurred after the date of the Indenture that require an accrual of or a reserve
for cash charges for any future period, except for accrued and unpaid management
fee charges under the Tax Sharing and Management Agreement and (b) normally
recurring accruals such as reserves against accounts receivable); PROVIDED,
HOWEVER that (1) the income from operations of any Person that is not a Wholly
Owned Subsidiary or that is accounted for by the equity method of accounting
will be included only to the extent of the amount of dividends or distributions
paid during such period to the referent Person or a Wholly Owned Subsidiary of
the referent Person, (2) the income from operations of any Person acquired in a
pooling of interests transaction for any period prior to the date of such
acquisition will be excluded, and (3) the income from operations of any
Subsidiary will not be included to the extent that declarations of dividends or
similar distributions by that Subsidiary are not at the time permitted, directly
or indirectly, by operation of the terms of its organization documents or any
agreement, instrument, judgment, decree, order, statute, rule or governmental
regulation applicable to that Subsidiary or its owners.
"CONSOLIDATED INTEREST EXPENSE" means, with respect to any Person for any
period, the consolidated interest expense of such Person for such period,
whether paid or accrued (including amortization of original issue discount,
non-cash interest payment, and the interest component of Capital Lease
Obligations), to the extent such expense was deducted in computing Consolidated
Net Income of such Person for such period.
"CONSOLIDATED NET INCOME" means, with respect to any Person (the referent
Person) for any period, the aggregate of the Net Income of such Person and its
consolidated subsidiaries for such period, determined on a consolidated basis in
accordance with GAAP; provided, however that (1) the Net
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Income of any Person that is not a Wholly Owned Subsidiary or that is accounted
for by the equity method of accounting will be included only to the extent of
the amount of dividends or distributions paid during such period to the referent
Person or a Wholly Owned Subsidiary of the referent Person, (2) the Net Income
of any Person acquired in a pooling of interests transaction for any period
prior to the date of such acquisition will be excluded, and (3) the Net Income
of any Subsidiary will not be included to the extent that declarations of
dividends or similar distributions by that Subsidiary are not at the time
permitted, directly or indirectly, by operation of the terms of its organization
documents or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Subsidiary or its owners.
"CONSOLIDATED NET WORTH" means, with respect to any Person, the total
shareholders' equity of such Person determined on a consolidated basis in
accordance with GAAP, adjusted to exclude (to the extent included in calculating
such equity), (a) the amount of any such shareholders' equity attributable to
Disqualified Stock or treasury stock of such Person and its consolidated
subsidiaries, and (b) all upward revaluations and other write-ups in the book
value of any asset of such Person or a consolidated subsidiary of such Person
subsequent to the Issue Date, and (c) all investments in subsidiaries of such
Person that are not Restricted Subsidiaries and in Persons that are not
subsidiaries of such Person.
"DEFAULT" means any event that is, or after notice or the passage of time or
both would be, an Event of Default.
"DISQUALIFIED STOCK" means any Equity Interest that, (1) either by its terms or
the terms of any security into which it is convertible or for which it is
exchangeable or otherwise, is or upon the happening of an event or the passage
of time would be, required to be redeemed or repurchased (in whole or in part)
prior to the final stated maturity of the Notes or is redeemable (in whole or in
part) at the option of the holder thereof at any time prior to such final stated
maturity or (2) is convertible into or exchangeable at the option of the issuer
thereof or any other Person for debt securities or Disqualified Stock.
"EQUITY INTERESTS" means Capital Stock or warrants, options or other rights to
acquire Capital Stock (but excluding any debt security that is convertible into,
or exchangeable for, Capital Stock).
"GAAP" means generally accepted accounting principles set forth in the opinions
and pronouncements of the Accounting Principles Board of the American Institute
of Certified Public Accountants and statements and pronouncements of the
Financial Accounting Standards Board or in such other statements by such other
entity as approved by a significant segment of the accounting profession, and in
the rules and regulations of the Commission, that are in effect on the Issue
Date.
"GUARANTEE" means a guarantee (other than by endorsement of negotiable
instruments for collection in the ordinary course of business), direct or
indirect, in any manner (including, without limitation, letters of credit and
reimbursement agreements in respect thereof), of all or any part of any
Indebtedness.
"INDEBTEDNESS" of any Person means (without duplication) (1) all liabilities
and obligations, contingent or otherwise, of such Person (a) in respect of
borrowed money (whether or not the recourse of the lender is to the whole of the
assets of such Person or only to a portion thereof), (b) evidenced by bonds,
debentures, notes or other similar instruments, (c) representing the deferred
purchase price of property or services (other than trade payables on customary
terms incurred in the ordinary course of business which are not more than 90
days past due), (d) created or arising under any conditional sale or other title
retention agreement with respect to property acquired by such Person (even
though the rights and remedies of the seller or lender under such agreement in
the event of default are limited to repossession or sale of such property), (e)
as lessee under capitalized leases, (f) under bankers' acceptance and letter of
credit facilities, (g) to purchase, redeem, retire, defease or otherwise acquire
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for value any Disqualified Stock, or (h) in respect of Hedging Obligations, (2)
all liabilities and obligations of others of the type described in clause (1)
that are Guaranteed by such Person, and (3) all liabilities and obligations of
others of the type described in clause (1) that are secured by (or for which the
holder of such Indebtedness has an existing right, contingent or otherwise, to
be secured by) any Lien on property (including, without limitation, accounts and
contract rights) owned by such Person, even though such Person has not assumed
or become liable for the payment of such Indebtedness, PROVIDED, HOWEVER, that
the amount of such Indebtedness shall (to the extent such Person has not assumed
or become liable for the payment of such Indebtedness) be the lesser of (x) the
fair market value of such property at the time of determination and (y) the
amount of such Indebtedness. The amount of Indebtedness of any Person at any
date shall be the outstanding balance at such date of all unconditional
obligations as described above and the maximum liability, upon the occurrence of
the contingency giving rise to the obligation, of any contingent obligations at
such date.
"INTEREST COVERAGE RATIO" means, for any period, the ratio of (1) Consolidated
EBITDA of the Company for such period, over (2) Consolidated Interest Expense of
the Company for such period. In calculating Interest Coverage Ratio for any
period, pro forma effect shall be given to: (a) the incurrence, assumption,
guarantee, repayment, repurchase, redemption or retirement by the Company or any
of its Subsidiaries of any Indebtedness subsequent to the commencement of the
period for which the Interest Coverage Ratio is being calculated, as if the same
had occurred at the beginning of the applicable period; and (b) the occurrence
of any Asset Sale during such period by reducing Consolidated EBITDA for such
period by an amount equal to the Consolidated EBITDA (if positive) directly
attributable to the assets sold and by reducing Consolidated Interest Expense by
an amount equal to the Consolidated Interest Expense directly attributable to
any Indebtedness secured by the assets sold and assumed by third parties or
repaid with the proceeds of such Asset Sale, in each case as if the same had
occurred at the beginning of the applicable period. For purposes of making the
computation referred to above, acquisitions that have been made by the Company
or any of its Restricted Subsidiaries, including all mergers and consolidations,
subsequent to the commencement of such period shall be calculated on a PRO FORMA
BASIS, assuming that all such acquisitions, mergers and consolidations had
occurred on the first day of such period. Without limiting the foregoing, the
financial information of the Company with respect to any portion of a period
that falls before the Issue Date shall be adjusted to give pro forma effect to
the issuance of the Notes and the application of the proceeds therefrom as if
they had occurred at the beginning of such period.
"INVESTMENTS" means, with respect to any Person, all investments by such Person
in other Persons (including Affiliates) in the forms of loans, Guarantees,
advances or capital contributions (excluding (1) commission, travel and similar
advances to officers and employees of such Person made in the ordinary course of
business and (2) bona fide accounts receivable arising from the sale of goods or
services in the ordinary course of business consistent with past practice),
purchases or other acquisitions for consideration of Indebtedness, Equity
Interests or other securities, and any other items that are or would be
classified as investments on a balance sheet prepared in accordance with GAAP.
"ISSUE DATE" means the date upon which the Original Notes were first issued.
"LIEN" means any mortgage, lien, pledge, charge, security interest or
encumbrance of any kind, whether or not filed, recorded or otherwise perfected
under applicable law (including any conditional sale or other title retention
agreement, any lease in the nature thereof, any option or other agreement to
sell or give a security interest in and any filing of or agreement to give any
financing statement under the Uniform Commercial Code (or equivalent statutes)
of any jurisdiction).
"NET INCOME" means, with respect to any Person for any period, the net income
(loss) of such Person for such period, determined in accordance with GAAP,
excluding any gain (but not loss), together with any related provision for taxes
on such gain (but not loss), realized in connection with any Asset Sales
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and dispositions pursuant to sale and leaseback transactions, and excluding any
extraordinary gain (but not loss), together with any related provision for taxes
on such gain (but not loss).
"NET PROCEEDS" means the aggregate cash proceeds received in respect of any
Asset Sale, net of (1) the reasonable and customary direct out-of-pocket costs
relating to such Asset Sale (including, without limitation, legal, accounting
and investment banking fees and sales commissions), other than any such costs
payable to an Affiliate of the Company, (2) amounts required to be applied to
the repayment of Indebtedness secured by a Lien on the asset or assets the
subject of such Asset Sale, (3) any reserve for adjustment in respect of the
sale price of such asset or assets, (4) taxes paid or payable as a result
thereof, (5) any relocation expenses and pension, severance and shutdown costs
incurred as a result thereof, and (6) any deduction or appropriate amounts to be
provided by the Company or any of its Subsidiaries as a reserve in accordance
with GAAP against any liabilities associated with the assets disposed of in such
transaction and retained by the Company or any Subsidiary after such sale or
disposition thereof including, without limitation, pension and other
post-employment benefit liabilities, liabilities related to environmental
matters or against any indemnification obligations with respect to such
transaction.
"OBLIGATIONS" means any principal, interest, penalties, fees, indemnifications,
reimbursements, damages and other obligations and liabilities of the Company or
any of the Guarantors under the Indenture, the Notes, the Guarantees of the
Notes or any of the Collateral Agreements.
"OTHER PERMITTED INDEBTEDNESS" means:
(1) Indebtedness in respect of reimbursement-type obligations regarding
workers' compensation claims;
(2) Indebtedness of the Company and its Restricted Subsidiaries in
connection with performance, surety, statutory, appeal or similar bonds
in the ordinary course of business;
(3) Indebtedness of the Company and its Restricted Subsidiaries in
connection with agreements providing for indemnification, purchase price
adjustments and similar obligations in connection with the sale or
disposition of any of their business, properties or assets; and
(4) The guarantee by the Company or any of its Restricted Subsidiaries of
Indebtedness of the Company or a Restricted Subsidiary of the Company
that was permitted to be incurred by another provision of the covenant
entitled "Limitation on Incurrence of Indebtedness."
"PERMITTED INVESTMENTS" means (a) Investments in the Company or any Wholly
Owned Subsidiary, (b) Investments in Cash Equivalents, (c) Investments in a
Person, if as a result of such Investment (1) such Person becomes a Wholly Owned
Subsidiary and the Capital Stock of such Person is pledged to secure the
Obligations, or (2) such Person is merged, consolidated or amalgamated with or
into, or transfers or conveys substantially all of its assets to, or is
liquidated into, the Company or a Wholly Owned Subsidiary, and (d) other
Investments that do not exceed in the aggregate $7.5 million at any time
outstanding.
"PERMITTED LIENS" means (1) Liens in favor of the Company and/or its Restricted
Subsidiaries other than with respect to intercompany Indebtedness, (2) Liens on
property of a Person existing at the time such Person is acquired by, merged
into or consolidated with the Company or any Restricted Subsidiary, PROVIDED,
HOWEVER, that such Liens were not created in contemplation of such acquisition
and do not extend to assets other than those subject to such Liens immediately
prior to such acquisition, (3) Liens on property existing at the time of
acquisition thereof by the Company or any Restricted Subsidiary, PROVIDED,
HOWEVER, that such Liens were not created in contemplation of such acquisition
and do not extend to assets other than those subject to such Liens immediately
prior to such acquisition, (4) Liens incurred in the ordinary course of business
in respect of Hedging Obligations, (5) Liens to secure Indebtedness for borrowed
money of a Subsidiary in favor of the Company or a Wholly Owned
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Subsidiary, (6) Liens (other than pursuant to ERISA or environmental laws) to
secure the performance of statutory obligations, surety or appeal bonds,
performance bonds or other obligations (exclusive of obligations constituting
Indebtedness) of a like nature incurred in the ordinary course of business, (7)
Liens existing or created on the Issue Date, (8) Liens for taxes, assessments or
governmental charges or claims that are not yet delinquent or that are being
contested or remedied in good faith by appropriate proceedings promptly
instituted and diligently concluded, PROVIDED, HOWEVER, that any reserve or
other appropriate provision as may be required in conformity with GAAP has been
made therefor, (9) Liens arising by reason of any judgment, decree or order of
any court with respect to which the Company or any of its Restricted
Subsidiaries is then in good faith prosecuting an appeal or other proceedings
for review, the existence of which judgment, order or decree is not an Event of
Default under the Indenture, (10) encumbrances consisting of zoning
restrictions, survey exceptions, utility easements, licenses, rights of way,
easements of ingress or egress over property of the Company or any of its
Restricted Subsidiaries, rights or restrictions of record on the use of real
property, minor defects in title, landlord's and lessor's liens under leases on
property located on the premises rented, mechanics' liens, vendors' liens, and
similar encumbrances, rights or restrictions on personal or real property, in
each case not interfering in any material respect with the ordinary conduct of
the business of the Company or any of its Restricted Subsidiaries, (11) Liens
incidental to the conduct of business or the ownership of properties incurred in
the ordinary course of business in connection with workers' compensation,
unemployment insurance and other types of social security, or to secure the
performance of tenders, bids, and government contracts and leases and subleases,
and (12) any extension, renewal, or replacement (or successive extensions,
renewals or replacements), in whole or in part, of Liens described in clauses
(1) through (11) above.
"PERSON" means any individual, corporation, partnership, joint venture,
association, joint stock company, limited liability company, trust,
unincorporated organization, government or any agency or political subdivision
thereof, or any other entity.
"PREFERRED STOCK" means amounts sufficient to pay (1) cash dividends and
mandatory redemption payments under the Senior Preferred Stock and the Class A
Preferred Stock and Class B Preferred Stock and (2) interest payments on
Indebtedness of Holdings, the net proceeds of which are in an amount no greater
than the amount necessary to redeem the Senior Preferred Stock and Class A
Preferred Stock and Class B Preferred Stock and which Indebtedness has no
installment of principal due prior to the first anniversary of the Stated
Maturity of the Notes.
"PUBLIC EQUITY OFFERING" means a bona fide underwritten public offering of
Qualified Stock of the Company, pursuant to a registration statement filed with
and declared effective by the Commission in accordance with the Securities Act.
"PURCHASE MONEY LIENS" means Liens to secure or securing Purchase Money
Obligations permitted to be incurred under the Indenture.
"PURCHASE MONEY OBLIGATIONS" means Indebtedness representing, or incurred to
finance, the cost (1) of acquiring any assets and (2) of construction or
build-out of manufacturing, distribution or administrative facilities (including
Purchase Money Obligations of any other Person at the time such other Person is
merged with or into or is otherwise acquired by the Company or any Restricted
Subsidiary), PROVIDED, HOWEVER, that (a) the principal amount of such
Indebtedness does not exceed 100% of such cost, including construction charges,
(b) any Lien securing such Indebtedness does not extend to or cover any other
asset or property other than the asset or property being so acquired and (c)
such Indebtedness is incurred, and any Liens with respect thereto are granted,
within 180 days of the acquisition of such property or asset.
"QUALIFIED STOCK" means, with respect to any Person, Capital Stock of such
Person other than Disqualified Stock.
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"RESTRICTED INVESTMENT" means an Investment other than a Permitted Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an Unrestricted
Subsidiary.
"SUBSIDIARY" means, with respect to any Person, (i) any corporation,
association or other business entity of which more than 50% of the total voting
power of shares of Voting Stock thereof is at the time owned or controlled,
directly or indirectly, by such Person or one or more of the other subsidiaries
of that Person or a combination thereof and (ii) any partnership in which such
Person or any of its subsidiaries is a general partner.
"SUBSIDIARY" means any subsidiary of the Company.
"UNRESTRICTED SUBSIDIARY" means (a) the Inactive Subsidiaries and (b) any other
Subsidiary that has been designated by the Company (by written notice to the
Trustee as provided below) as an Unrestricted Subsidiary; PROVIDED, that a
Subsidiary may not be designated as an "Unrestricted Subsidiary" unless (1) such
Subsidiary does not own any Capital Stock of, or own or hold any Lien on any
property of, the Company or any Restricted Subsidiary (other than such
Subsidiary), (2) neither immediately prior thereto nor after giving pro forma
effect to such designation, would there exist a Default or Event of Default, (3)
immediately after giving effect to such designation on a pro forma basis, the
Company could incur at least $1.00 of Indebtedness pursuant to the Interest
Coverage Ratio test set forth in the covenant described under "--Limitation on
Incurrence of Indebtedness" and (4) the creditors of such Subsidiary have no
direct or indirect recourse (including, without limitation, recourse with
respect to the payment of principal or interest on Indebtedness of such
Subsidiary) to the assets of the Company or of a Restricted Subsidiary (other
than such Subsidiary). The Board of Directors of the Company may designate any
Unrestricted Subsidiary to be a Restricted Subsidiary only if (a) no Default or
Event of Default is existing or will occur as a consequence thereof; and (b)
immediately after giving effect to such designation, on a pro forma basis, the
Company could incur at least $1.00 of Indebtedness pursuant to the Interest
Coverage Ratio test set forth in the covenant described under "--Limitation on
Incurrence of Indebtedness." Each such designation shall be evidenced by filing
with the Trustee a certified copy of the board resolution giving effect to such
designation and an Officers' Certificate certifying that such designation
complied with the foregoing conditions. The Company shall be deemed to make an
Investment in each Subsidiary designated as an "Unrestricted Subsidiary"
immediately following such designation in an amount equal to the Investment in
such Subsidiary and its subsidiaries immediately prior to such designation;
provided, that if such Subsidiary is subsequently redesignated as a Restricted
Subsidiary, the amount of such Investment shall be deemed to be reduced (but not
below zero) by the fair market value of the net consolidated assets of such
Subsidiary on the date of such redesignation.
"VOTING STOCK" means, with respect to any Person, (1) one or more classes of
the Capital Stock of such Person having general voting power to elect at least a
majority of the board of directors, managers or trustees of such Person
(irrespective of whether or not at the time Capital Stock of any other class or
classes have or might have voting power by reason of the happening of any
contingency) and (2) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (i) above.
"WEIGHTED AVERAGE LIFE TO MATURITY" means, when applied to any Indebtedness at
any date, the number of years (rounded to the nearest one-twelfth) obtained by
dividing (1) the then outstanding principal amount of such Indebtedness into (2)
the total of the product obtained by multiplying (x) the amount of each then
remaining installment, sinking fund, serial maturity or other required payments
of principal, including payment at final maturity, in respect thereof, by (y)
the number of years (calculated to the nearest one-twelfth) that will elapse
between such date and the making of such payment.
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"WHOLLY OWNED SUBSIDIARY" means a Restricted Subsidiary all the Capital Stock
of which (other than directors' qualifying shares) is owned by the Company or
one or more Wholly Owned Subsidiaries.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the Exchange Notes to be issued
as set forth herein will initially be issued in the form of one or more
registered Global Notes (the "Global Notes"), each of which will be deposited on
the date of acceptance for exchange of the Outstanding Notes and the issuance of
the Exchange Notes with, or on behalf of, the Depository and registered in the
name of Cede & Co., as nominee of the Depository (such nominee being referred to
herein as the "Global Holder"). Interests in Global Notes will be available for
purchase only by QIBs (defined below). The following are summaries of certain
rules and operating procedures of the Depository which affect the Global Notes.
Exchange Notes that are (1) originally issued to or transferred to
"institutional accredited investors" (as such term is defined under "Notice to
Investors" elsewhere herein) who are not QIBs or to any other persons who are
not QIBs (the "Non-Global Purchasers") or (2) issued as described under
"Certificated Notes," will be issued in registered form (the "Certificated
Notes"). Upon the transfer to a QIB of Certificated Notes initially issued to a
Non-Global Purchaser, such Certificated Notes will, unless the applicable Global
Note has previously been exchanged for Certificated Notes, be exchanged for an
interest in the Global Note representing the principal amount of Notes being
transferred. For a description of the restrictions on the transfer of
Certificated Notes, see "Notice to Investors."
The Depository has advised the Company that it is a limited-purpose trust
company that was created to hold securities for its participating organizations
(collectively, the "Participants" or the "Depository's Participants") and to
facilitate the clearance and settlement of transactions in such securities
between Participants through electronic book-entry changes in accounts of its
Participants. The Depository's Participants include securities brokers and
dealers (including the Initial Purchaser), banks and trust companies, clearing
corporations and certain other organizations. Access to the Depository's system
is also available to other entities such as banks, brokers, dealers and trust
companies (collectively, the "Indirect Participants" or the "Depository's
Indirect Participants") that clear through or maintain a custodial relationship
with a Participant, either directly or indirectly. Persons who are not
Participants may beneficially own securities held by or on behalf of the
Depository only through the Depository's Participants or the Depository's
Indirect Participants.
The Company expects that pursuant to procedures established by the
Depository (1) upon deposit of the Global Notes, the Depository will credit the
accounts of Participants designated by the Initial Purchaser with portions of
the Global Notes and (2) ownership of the Notes will be shown on, and the
transfer of ownership thereof will be effected only through, records maintained
by the Depository (with respect to the interests of the Depository's
Participants), the Depository's Participants and the Depository's Indirect
Participants. The laws of some states require that certain persons take physical
delivery in definitive form of securities that they own. Consequently, the
ability to transfer Notes will be limited to such extent. For certain other
restrictions on the transferability of the Notes, see "Notice to Investors."
So long as the Global Holder is the registered owner of any Notes, the
Global Holder will be considered the sole owner of such Notes outstanding under
the Indenture. Except as provided below, owners of beneficial interests in a
Global Note will not be entitled to have Notes represented by such Global Note
registered in their names, will not receive or be entitled to receive physical
delivery of Notes in certificated form ("Certificated Notes"), and will not be
considered the owners or Holders thereof under the Indenture for any purpose. As
a result, the ability of a person having a beneficial interest in Notes
represented by a Global Note to pledge such interest to persons or entities that
do not participate in the Depository's system or to otherwise take actions in
respect of such interest, may
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be affected by the lack of a physical certificate evidencing such interest.
Accordingly, each QIB owning a beneficial interest in a Global Note must rely on
the procedures of the Depository and, if such QIB is not a Participant or an
Indirect Participant, on the procedures of the Participant through which such
QIB owns its interest, to exercise any rights of a holder under such Global Note
or the Indenture.
Neither the Company, nor the Trustee will have any responsibility or
liability for any aspect of the records relating to or payments made on account
of Notes by the Depository, or for maintaining, supervising or reviewing any
records of the Depository relating to such Notes.
Payments in respect of the principal of, premium, if any, and interest on
any Notes registered in the name of a Global Holder on the applicable record
date will be payable by the Trustee to or at the direction of such Global Holder
in its capacity as the registered holder under the Indenture. Under the terms of
the Indenture, the Company and the Trustee may treat the persons in whose names
the Notes, including the Global Notes, are registered as the owners thereof for
the purpose of receiving such payments and for any and all other purposes
whatsoever. Consequently, neither the Company nor the Trustee has or will have
any responsibility or liability for the payment of such amounts to beneficial
owners of Notes (including principal, premium, if any, and interest), or to
immediately credit the accounts of the relevant Participants with such payment,
in amounts proportionate to their respective interests in the Global Notes in
principal amount of beneficial interests in the relevant security as shown on
the records of the Depository. Payments by the Depository's Participants and the
Depository's Indirect Participants to the beneficial owners of Notes will be
governed by standing instructions and customary practice and will be the
responsibility of the Depository's Participants or the Depository's Indirect
Participants.
CERTIFICATED NOTES
If (1) the Company notifies the Trustee in writing that the Depository is no
longer willing or able to act as a depository and the Company is unable to
locate a qualified successor within 90 days or (2) the Company, at its option,
notifies the Trustee in writing that it elects to cause the issuance of Notes in
definitive form under the Indenture, then, upon surrender by the relevant Global
Holder of its Global Note, Certificated Notes in such form will be issued to
each person that such Global Holder and the Depository identify as the
beneficial owner of the related Notes. In addition, subject to certain
conditions, any person having a beneficial interest in the Global Note may, upon
request to the Trustee, exchange such beneficial interest for Notes in the form
of Certificated Notes. Upon any such issuance, the Trustee is required to
register such Certificated Securities in the name of, and cause the same to be
delivered to, such person or persons (or the nominee of any thereof) in fully
registered form.
YEAR 2000
The following information has been provided by the Depository:
The Depository's management is aware that some computer applications,
systems, and the like for processing data ("Systems") that are dependent upon
calendar dates, including dates before, on, and after January 1, 2000, may
encounter "Year 2000 problems." The Depository has informed its Participants and
other members of the financial community (the "Industry") that it has developed
and is implementing a program so that its Systems, as the same relate to the
timely payment of distributions (including principal and income payments) to
securityholders, book-entry deliveries, and settlement of trades within the
Depository ("Depository Services"), continue to function appropriately. This
program includes a technical assessment and a remediation plan, each of which is
complete. Additionally, the Depository's plan includes a testing phase, which is
expected to be completed within appropriate time frames.
However, the Depository's ability to perform properly its services is also
dependent upon other parties, including but not limited to issuers and their
agents, as well as third party vendors from whom
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DTC licenses software and hardware, and third party vendors on whom the
Depository relies for information or the provision of services, including
telecommunication and electrical utility service providers, among others. The
Depository has informed the Industry that it is contacting (and will continue to
contact) third party vendors from whom the Depository acquires services to: (1)
impress upon them the importance of such services being Year 2000 compliant; and
(2) determine the extent of their efforts for Year 2000 remediation (and, as
appropriate, testing) of their services. In addition, the Depository is in the
process of developing such contingency plans as it deems appropriate.
According to the Depository, the foregoing information with respect to the
Depository has been provided to the Industry for informational purposes only and
is not intended to serve as a representation, warranty, or contract modification
of any kind.
REGISTRATION RIGHTS; LIQUIDATED DAMAGES
The Company issued and sold the Outstanding Notes to the initial purchaser
on December 7, 1998 pursuant to the terms and conditions of a purchase agreement
dated as of November 24, 1998. The Company agreed in the Purchase Agreement to
provide the holders of the Outstanding Notes with the same registration rights
granted to the holders of the Company's $100.0 million of 10 1/4% Series A
Senior Secured Notes due 2004 (the "Original Notes") that were issued and sold
in an unregistered offering on July 2, 1997. The registration rights are set
forth in a registration rights agreement (the "Registration Rights Agreement")
dated as of July 2, 1997 between the Company and Jefferies & Company, Inc. and
First Chicago Capital Markets, Inc., as initial purchasers of the Original
Notes.
The Registration Rights Agreement requires the Company, at its own cost, to
(1) file an Exchange Offer Registration Statement with the Commission by
February 5, 1999, (2) use its best efforts to cause such Exchange Offer
Registration Statement to become effective under the Securities Act as promptly
as practicable after the filing of the Exchange Offer Registration Statement,
but in no event later than April 6, 1999, (3) keep the Exchange Offer
Registration Statement effective until the completion of the Exchange Offer
pursuant to its terms and (4) commence the Exchange Offer and use its best
efforts to issue, on or prior to 45 days after the date on which the Exchange
Offer Registration Statement is declared effective, Exchange Notes in exchange
for all Outstanding Notes tendered prior thereto in the Exchange Offer, unless
the Exchange Offer would not be permitted by a policy of the Commission. The
Company has agreed to keep the Exchange Offer open for not less than 30 days (or
longer if required by applicable law) after the date notice thereof is mailed to
the holders of Outstanding Notes.
If (1) prior to the completion of the Exchange Offer for the Outstanding
Notes, either the Company or the holders of a majority in aggregate principal
amount of the Outstanding Notes determines in its reasonable judgment that (a)
the Exchange Notes would not, upon receipt, be tradeable by the holders thereof
without restriction under the Securities Act and the Exchange Act and without
material restrictions under applicable Blue Sky or state securities laws, or (b)
the interests of the holders under the Registration Rights Agreement, taken as a
whole, would be materially adversely affected by the completion of the Exchange
Offer, (2) applicable interpretations of the Staff would not permit the
completion of the Exchange Offer, (3) subsequent to the consummation of the
Private Exchange (as defined in the Registration Rights Agreement) but prior to
December 7, 1999, the Initial Purchaser so requests, (4) the Exchange Offer is
not completed by May 21, 1999 for any reason or (5) in the case of any holder
not permitted to participate in the Exchange Offer or of any holder
participating in the Exchange Offer that receives Exchange Notes that may not be
sold without restriction under state and federal securities laws (other than due
solely to the status of such holder as an affiliate of the Company within the
meaning of the Securities Act) and, in either case contemplated by clause (5),
such holder notifies the Company within six months of completion of the Exchange
Offer, then the Company shall promptly deliver to the holders (or in the case of
any occurrence of the event described in clause (5), to any such holder) and the
Trustee notice thereof and shall as promptly as possible thereafter file the
Shelf Registration Statement.
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If (a) neither the Exchange Offer Registration Statement nor the Shelf
Registration Statement has been filed with the Commission by February 5, 1999;
(b) neither the Exchange Offer Registration Statement nor the Shelf Registration
Statement is declared effective by the Commission by April 6, 1999; (c) the
Company has not exchanged Exchange Notes for Outstanding Notes validly tendered
in accordance with the terms of the Exchange Offer within 45 days after the date
on which an Exchange Offer Registration Statement is declared effective by the
Commission; or (d) if a Shelf Registration Statement is filed and declared
effective by the Commission but thereafter ceases to be effective without being
succeeded within 30 days by a subsequent shelf registration statement filed and
declared effective (each of the foregoing a "Registration Default"), then the
Company will pay as liquidated damages ("Liquidated Damages") to each holder of
Outstanding Notes with respect to the first 90-day period immediately following
the occurrence of such Registration Default an amount equal to $.05 per week per
$1,000 principal amount of Outstanding Notes held by such holder. Upon a
Registration Default, Liquidated Damages will accrue at the rate specified above
until such Registration Default is cured and the amount of Liquidated Damages
will increase by an additional $.05 per week per $1,000 principal amount of
Outstanding Notes with respect to each subsequent week after the first 90-day
period until all Registration Defaults have been cured, up to a maximum amount
of Liquidated Damages of $.40 per week per $1,000 principal amount of
Outstanding Notes. All accrued Liquidated Damages will be paid by the Company by
depositing with the Trustee, in trust, for the benefit of the holders thereof,
by 12:00 noon, New York City time, on or before the applicable semi-annual
interest payment date for the Notes, immediately available funds in sums
sufficient to pay the liquidated damages then due. The liquidated damages amount
due shall be payable on each interest payment date to the record holder of
Outstanding Notes entitled to receive the interest payment to be made on such
date as set forth in the Indenture.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified in
its entirety by reference to, all the provisions of the Registration Rights
Agreement, a copy of which has been incorporated by reference as an exhibit to
the Registration Statement of which this Prospectus is a part.
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CERTAIN UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a general discussion of certain United States federal tax
consequences associated with the exchange of the Outstanding Notes for the
Exchange Notes pursuant to the Exchange Offer and disposition of the Exchange
Notes. This summary applies only to a beneficial owner of Exchange Notes who
acquired Outstanding Notes at the initial offering for the original offering
price thereof and who acquires the Exchange Notes pursuant to the Exchange
Offer. This discussion is based upon the United States federal tax law now in
effect, which is subject to change, possibly retroactively. This discussion does
not consider any specific facts or circumstances that may apply to a particular
holder. Prospective investors are urged to consult their tax advisors regarding
the United States federal tax consequences of acquiring, holding, and disposing
of the Exchange Notes, as well as any tax consequences that may arise under the
laws of any foreign, state, local, or other taxing jurisdiction.
For purposes of this discussion, a "U.S. Holder" means a holder of Exchange
Notes that is either a citizen or resident of the United States, a corporation,
partnership, or other entity created or organized in the United States or under
the laws of the United States or of any political subdivision thereof, an estate
whose income is includible in gross income for United States federal income tax
purposes regardless of its source, or a trust whose administration is subject to
the primary supervision of a United States court and which has one or more
United States persons who have the authority to control all substantial
decisions of the trust. A Non-U.S. Holder is a holder of Exchange Notes other
than a U.S. Holder.
EXCHANGE OFFER
The exchange of Outstanding Notes for Exchange Notes pursuant to the
Exchange Offer will not constitute a "significant modification" of the
Outstanding Notes for United States federal income tax purposes and,
accordingly, the Exchange Notes received will be treated as a continuation of
the Outstanding Notes in the hand of such holder. As a result, there will be no
United States federal income tax consequences to a United States Holder who
exchanges Outstanding Notes for Exchange Notes pursuant to the Exchange Offer,
and any such holder will have the same adjusted tax basis and holding period in
the Exchange Notes for United States federal income tax purposes as it had in
the Outstanding Notes immediately before the exchange.
STATED INTEREST
The holders of Exchange Notes will include stated interest in gross income
in accordance with their methods of accounting for tax purposes as if the
exchange had not occurred (including interest on Outstanding Notes to the date
of the issuance of the Exchange Notes).
DISPOSITION
In general, a U.S. Holder of Exchange Notes will recognize gain or loss upon
the sale, exchange, redemption or other taxable disposition of the Exchange
Notes measured by the difference between (i) the amount of cash and fair market
value of property received (not attributable to accrued, but unpaid interest)
and (ii) the holder's tax basis in the Exchange Notes. Any such gain or loss
will generally be long-term capital gain or loss, provided that the Exchange
Notes constitute a capital asset in the hands of the holder and had been held
for more than one year (including the period that such holder held the
Outstanding Notes exchanged for such Exchange Notes).
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NON-U.S. HOLDERS
Under present United States federal income and estate tax law, assuming
certain certification requirements are satisfied (which include identification
of the beneficial owner of the instrument), and subject to the discussion of
backup withholding below:
(a) payments of interest on the Exchange Notes to any Non-U.S. Holder
will not be subject to United States federal income or withholding tax,
provided that (1) the holder does not actually or constructively own 10% or
more of the total combined voting power of all classes of stock of the
Company entitled to vote, (2) the holder is not (i) a bank receiving
interest pursuant to a loan agreement entered into in the ordinary course of
its trade or business or (ii) a controlled foreign corporation that is
related to the Company through stock ownership, and (3) such interest
payments are not effectively connected with the conduct of a United States
trade or business of the holder;
(b) a holder of Exchange Notes who is a Non-U.S. Holder will not be
subject to the United States federal income tax on gain realized on the
sale, exchange, or other disposition of Exchange Notes, unless (1) such
holder is an individual who is present in the United States for 183 days or
more during the taxable year and certain other requirements are met, or (2)
the gain is effectively connected with the conduct of a United States trade
or business of the holder; and
(c) if interest on the Exchange Notes is exempt from withholding of
United States federal income tax under the rules described above (without
regard to the certification requirement), the Exchange Notes will not be
included in the estate of a deceased Non-U.S. Holder for United States
Federal estate tax purposes.
The certification referred to above may be made on an Internal Revenue
Service Form W-8 or a substantially similar substitute form.
INFORMATION REPORTING AND BACKUP WITHHOLDING
The Company will, where required, report to the holders of Exchange Notes
and the Internal Revenue Service the amount of any interest paid on the Exchange
Notes in each calendar year and the amounts of federal tax withheld, if any,
with respect to such payments. A noncorporate U.S. holder may be subject to
information reporting and to backup withholding at a rate of 31% with respect to
payments of principal and interest made on Exchange Notes, or on proceeds of the
disposition of Exchange Notes before maturity, unless such U.S. holder provides
a correct taxpayer identification number or proof of an applicable exemption,
and otherwise complies with applicable requirements of the information reporting
and backup withholding rules. Such information may be made on an Internal
Revenue Service Form W-9 or a substantially similar substitute form.
Under temporary United States Treasury regulations, United States
information reporting requirements and backup withholding tax will generally not
apply to interest paid on the Exchange Notes to a Non-U.S. Holder at an address
outside the United States. Payments by a United States office of a broker of the
proceeds of a sale of the Exchange Notes are subject to both backup withholding
at a rate of 31% and information reporting unless the holder certifies its
Non-U.S. Holder status under penalties of perjury and provides its name and
address or otherwise establishes an exemption. Information reporting
requirements (but not backup withholding) will also apply to payments of the
proceeds of sales of the Exchange Notes by foreign offices of United States
brokers, or foreign brokers with certain types of relationships to the United
States, unless the broker has documentary evidence in its records that the
holder is a Non-U.S. Holder and certain other conditions are met, or the holder
otherwise establishes an exemption.
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Backup withholding is not an additional tax. Any amount withheld under the
backup withholding rules will be refunded or credited against the holder's
United States Federal income tax liability, provided that the required
information is furnished to the Internal Revenue Service.
NEW TREASURY REGULATIONS APPLICABLE TO NON-U.S. HOLDERS
On October 6, 1997, the United States Treasury Department issued final
Treasury regulations governing certification procedures regarding both United
States federal withholding tax and backup withholding tax on certain amounts
paid to Non-U.S. Holders after December 31, 1999. The new Treasury regulations
modify and, in general, unify the way in which Non-U.S. Holders may establish
eligibility for United States federal withholding tax exemptions, including
under a tax treaty, and an exemption from backup withholding.
For example, the new Treasury regulations will require new forms, which
Non-U.S. Holders will generally have to provide earlier than you would have had
to provide replacements for expiring existing forms. The new Treasury
regulations also clarify the standards upon which withholding agents of Non-U.S.
Holders may rely, add requirements in order for Non-U.S. Holders to claim
reduced federal tax withholding under a tax treaty, and provide different
procedures in order for foreign intermediaries and flow-through entities (such
as foreign partnerships) to claim the benefit of applicable exemptions if they
receive payments on behalf of Non-U.S. Holders.
The new Treasury regulations are particularly complex. Non-U.S. Holders
should consult their tax advisors concerning the effect, if any, of such new
Treasury regulations on their investment in the Exchange Notes.
PLAN OF DISTRIBUTION
Based on interpretations by the SEC set forth in no-action letters issued to
third parties in similar transactions, the Company believes that the Exchange
Notes issued in the Exchange Offer in exchange for the Outstanding Notes may be
offered for resale, resold and otherwise transferred by holders without
compliance with the registration and prospectus delivery provisions of the
Securities Act, provided that the Exchange Notes are acquired in the ordinary
course of such holders' business and the holders are not engaged in, and do not
intend to engage in, and have no arrangement or understanding with any person to
participate in, a distribution of Exchange Notes. This position does not apply
to any holder that is (1) an "affiliate" of the Company within the meaning of
Rule 406 under the Securities Act, (2) a broker-dealer who acquired Notes
directly from the Company or (3) broker-dealers who acquired Notes as a result
of market-making or other trading activities. Any broker-dealers ("Participating
Broker-Dealers") receiving Exchange Notes in the Exchange Offer are subject to a
prospectus delivery requirement with respect to resales of the Exchange Notes.
To date, the SEC has taken the position that Participating Broker-Dealers may,
for a limited period, fulfill their prospectus delivery requirements with
respect to transactions involving an exchange of securities such as the exchange
pursuant to the Exchange Offer (other than a resale of an unsold allotment from
the sale of the Outstanding Notes to the initial purchasers) with this
Prospectus.
Each broker-dealer receiving Exchange Notes for its own account in the
Exchange Offer must acknowledge that it will deliver a Prospectus in any resale
of the Exchange Notes. Participating Broker-Dealers may use this Prospectus in
reselling Exchange Notes, if the Outstanding Notes were acquired for their own
accounts as a result of market-making activities or other trading activities.
The Company has agreed that a Participating Broker-Dealer may use this
Prospectus in reselling Exchange Notes for a period ending 180 days after the
Expiration Date or, if earlier, when a Participating Broker-Dealer has disposed
of all Exchange Notes. A Participating Broker-Dealer intending to use this
Prospectus in the resale of Exchange Notes must notify the Company on or before
the Expiration Date, that it is a Participating Broker-Dealer. This notice may
be given in the space provided for in the Letter of
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Transmittal or may be delivered to the Exchange Agent. The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus, and any amendment or supplement to this Prospectus, available to any
broker-dealer that requests these documents in the Letter of Transmittal. See
"The Exchange Offer--Resales of Exchange Notes" for more information.
The Company will not receive any cash proceeds from any sale of the Exchange
Notes by broker-dealers. Broker-dealers acquiring Exchange Notes for their own
accounts may sell the notes in one or more transactions in the over-the-counter
market, in negotiated transactions, through writing options on the Exchange
Notes or a combination of such methods. Any resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any broker-dealer and/or the
purchasers of Exchange Notes.
Any broker-dealer reselling Exchange Notes that it received in the Exchange
Offer and any broker or dealer that participates in a distribution of Exchange
Notes may be deemed to be an "underwriter" within the meaning of the Securities
Act. Any profit on any resale of Exchange Notes and any commissions or
concessions received by any persons may be deemed to be underwriting
compensation under the Securities Act. The Letter of Transmittal states that by
acknowledging that it will deliver and by delivering a Prospectus, a
broker-dealer will not admit that it is an "underwriter" within the meaning of
the Securities Act.
LEGAL MATTERS
Winston & Strawn will pass upon certain legal matters for the Company
related to the Exchange Notes.
EXPERTS
The financial statements of Archibald Candy Corporation as of August 30,
1997 and August 29, 1998 and for each of the fiscal years in the three year
period ended August 29, 1998, appearing in this Prospectus and Registration
Statement have been audited by Ernst & Young LLP, independent auditors, as set
forth in their report thereon appearing elsewhere herein, and are included in
reliance upon such report given upon the authority of such firm as experts in
accounting and auditing.
The financial statements of Sweet Factory Group, Inc. and subsidiaries as of
January 4, 1997 and January 3, 1998, and for each of the fiscal years then
ended, have been included herein and in the registration statement in reliance
upon the report of KPMG LLP, independent certified public accountants, appearing
elsewhere herein, and upon the authority of said firm as experts in accounting
and auditing.
WHERE YOU CAN FIND MORE INFORMATION
Archibald Candy Corporation has filed the Registration Statement regarding
the Exchange Notes with the SEC. This Prospectus does not contain all of the
information included in the Registration Statement. Any statement made in this
Prospectus concerning the contents of any other document is not necessarily
complete. If we have filed any other document as an exhibit to the Registration
Statement, you should read the exhibit for a more complete understanding of the
document or matter. Each statement regarding any other document does not
necessarily contain all of the information important to you.
We file annual, quarterly and special reports and other information with the
SEC. You may read and copy any documents we file at the SEC's public reference
rooms at Judiciary Plaza, 450 Fifth Street, N.W., Room 1024, Washington, D.C.
20549, and at the SEC's regional offices located at Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661, and Seven World Trade
Center, New York, New York 10048. Please call the SEC at 1-800-SEC-0300 for
further information on the
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public reference rooms. Our SEC filings also are available to the public at the
SEC's web site at HTTP://WWW.SEC.GOV. The indenture governing the Notes requires
us to file reports and other information required to be filed under the Exchange
Act with the SEC and provide such information to you, upon request, regardless
of whether the Company is subject to the reporting requirements of the Exchange
Act.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" the information we file with
them, meaning that we can disclose important information by referring you to
those documents. The information incorporated by reference is considered to be
part of this Prospectus, and information filed later with the SEC will update
and supersede the information then on file. We incorporate by reference the
documents listed below and any future filings made with the SEC under Sections
13(a), 13(c), 14, or 15(d) of the Exchange Act until the Exchange Offer is
completed.
1. Archibald Candy's Annual Report on Form 10-K for the fiscal year ended
August 29, 1998 filed with the SEC on November 27, 1998;
2. Archibald Candy's Quarterly Report on Form 10-Q for the quarterly period
ended November 28, 1998 filed with the SEC on January 12, 1999; and
3. Archibald Candy's Current Reports on Form 8-K filed with the SEC on
December 2, 1998 and December 22, 1998.
On the request of any person to whom a copy of this Prospectus is delivered,
we will provide, without charge, a copy of any or all of the documents
incorporated herein by reference (other than exhibits to such documents, unless
such exhibits are specifically incorporated by reference). Written requests for
such copies should be directed to Archibald Candy Corporation, 1137 West Jackson
Boulevard, Chicago, Illinois 60607; Attention: Secretary (telephone number (312)
243-2700).
You should rely only on the information incorporated by reference or
provided in this Prospectus or any prospectus supplement. Archibald Candy
Corporation has not authorized anyone to provide you with different or
additional information. We are not making an offer to sell any notes in any
state or country where the Exchange Offer is not permitted. You should not
assume that the information in this Prospectus or any prospectus supplement is
accurate as of any date other than the date on the front of this document.
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INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
<S> <C>
ARCHIBALD CANDY CORPORATION
Report of Independent Auditors........................................................................... F-2
Balance Sheets as of August 30, 1997 and August 29, 1998................................................. F-3
Statements of Operations for the years ended August 31, 1996, August 30, 1997, and August 29, 1998....... F-4
Statement of Changes in Shareholder's Equity (Deficit) for the years ended August 31, 1996, August 30,
1997, and August 29, 1998.............................................................................. F-5
Statements of Cash Flows for the years ended August 31, 1996, August 30, 1997, and August 29, 1998....... F-6
Notes to Financial Statements............................................................................ F-7
Balance Sheets as of November 29, 1997 and November 28, 1998 (UNAUDITED)................................. F-15
Statements of Operations and Changes in Accumulated Deficit for the three months ended November 29, 1997
and November 28, 1998 (UNAUDITED)...................................................................... F-16
Statements of Cash Flows for the three months ended November 29, 1997 and November 28, 1998
(UNAUDITED)............................................................................................ F-17
Notes to Financial Satements (UNAUDITED)................................................................. F-18
SWEET FACTORY GROUP, INC.
Independent Auditors' Report............................................................................. F-20
Consolidated Balance Sheets as of January 3, 1998 and January 4, 1997.................................... F-21
Consolidated Statements of Operations for the fiscal years ended January 3, 1998 and January 4, 1997..... F-22
Consolidated Statements of Stockholders' Equity for the fiscal years ended January 3, 1998 and January 4,
1997................................................................................................... F-23
Consolidated Statements of Cash Flows for the fiscal years ended January 3, 1998 and January 4, 1997..... F-24
Notes to Consolidated Financial Statements............................................................... F-25
Consolidated Balance Sheets as of October 4, 1997 and October 3, 1998 (UNAUDITED)........................ F-34
Consolidated Statements of Operations and Changes in Retained Earnings (Accumulated Deficit) for the
thirty-nine weeks ended October 4, 1997 and October 3, 1998 (UNAUDITED)................................ F-35
Consolidated Statements of Cash Flows for the thirty-nine weeks ended October 4, 1997 and October 3, 1998
(UNAUDITED)............................................................................................ F-36
Notes to Consolidated Financial Statements (UNAUDITED)................................................... F-37
</TABLE>
F-1
<PAGE>
REPORT OF INDEPENDENT AUDITORS
Board of Directors
Archibald Candy Corporation
We have audited the accompanying balance sheets of Archibald Candy
Corporation as of August 30, 1997 and August 29, 1998 and the related statements
of operations, shareholder's equity (deficit), and cash flows for the fiscal
years ended August 31, 1996, August 30, 1997, and August 29, 1998. 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, the 1996, 1997 and 1998 financial statements referred to
above present fairly, in all material respects, the financial position of
Archibald Candy Corporation as of August 30, 1997 and August 29, 1998, and the
results of its operations and its cash flows for the fiscal years ended August
31, 1996, August 30, 1997, and August 29, 1998, in conformity with generally
accepted accounting principles.
Ernst & Young LLP
October 16, 1998
Chicago, Illinois
F-2
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
BALANCE SHEETS
AS OF AUGUST 30, 1997 AND AUGUST 29, 1998
<TABLE>
<CAPTION>
1997 1998
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....................... $ 15,801 $ 13,081
Accounts receivable, net........................ 576 1,380
Inventories..................................... 18,965 24,602
Prepaid expenses and other current assets....... 267 306
------------ ------------
Total current assets.............................. 35,609 39,369
Due from affiliate................................ 825 --
Property, plant, and equipment.................... 20,330 20,927
Goodwill, less accumulated amortization of $6,310
($5,376 in 1997)................................ 31,960 31,161
Noncompete agreements and other intangibles, less
accumulated amortization of $108 ($90 in
1997)........................................... 127 109
Deferred financing fees, less accumulated
amortization of $789 ($108 in 1997)............. 4,166 3,698
Other assets...................................... 2,643 2,825
------------ ------------
Total assets................................ $ 95,660 $ 98,089
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................ $ 4,769 $ 4,728
Accrued liabilities............................. 4,964 4,956
Payroll and related liabilities................. 2,025 2,600
Current portion of long-term debt and capital
lease obligations............................. 376 97
------------ ------------
Total current liabilities......................... 12,134 12,381
Due to affiliate.................................. -- 604
Long-term debt, less current portion.............. 100,000 100,000
Capital lease obligations, less current portion... 145 48
Shareholder's equity (deficit):
Common stock, $0.01 par value:
Authorized--25,000 shares.....................
Issued and outstanding--19,200 shares......... -- --
Additional paid-in capital...................... 18,700 18,700
Accumulated deficit............................. (35,319) (33,644)
------------ ------------
Total shareholder's equity (deficit).............. (16,619) (14,944)
------------ ------------
Total liabilities and shareholder's equity
(deficit)....................................... $ 95,660 $ 98,089
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-3
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
YEARS ENDED AUGUST 31, 1996, AUGUST 30, 1997, AND AUGUST 29, 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
Net sales.................................................................... $ 117,348 $ 121,933 $ 126,742
Cost of sales, excluding depreciation and amortization....................... 41,010 42,284 43,978
Selling, general, and administrative expenses, excluding depreciation and
amortization............................................................... 61,120 62,442 63,478
Depreciation and amortization expense........................................ 5,135 4,319 4,600
Amortization of goodwill and other intangibles............................... 1,672 1,613 1,633
Management fees and other fees............................................... 466 474 514
---------- ---------- ----------
Operating income............................................................. 7,945 10,801 12,539
Other (income) and expense:
Interest expense........................................................... 9,455 9,235 10,346
Interest and other income and expense...................................... (444) (411) (1,386)
---------- ---------- ----------
Income (loss) before income taxes and extraordinary item..................... (1,066) 1,977 3,579
Provision for income taxes................................................... 349 250 276
---------- ---------- ----------
Income (loss) before extraordinary item...................................... (1,415) 1,727 3,303
Extraordinary item--Loss from early extinguishment of debt................... -- 2,898 --
---------- ---------- ----------
Net Income (loss)............................................................ $ (1,415) $ (1,171) $ 3,303
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
See accompanying notes.
F-4
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (DEFICIT)
<TABLE>
<CAPTION>
COMMON STOCK TOTAL
------------------------ ADDITIONAL SHAREHOLDER'S
NUMBER OF PAID-IN ACCUMULATED EQUITY
SHARES AMOUNT CAPITAL DEFICIT (DEFICIT)
----------- ----------- ----------- ------------ -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at August 26, 1995......................... 19,200 $ -- $ 18,700 $ (32,733) $ (14,033)
Net loss........................................... -- -- -- (1,415) (1,415)
----------- ----------- ----------- ------------ -------------
Balance at August 31, 1996......................... 19,200 -- 18,700 (34,148) (15,448)
Net loss........................................... -- -- -- (1,171) (1,171)
----------- ----------- ----------- ------------ -------------
Balance at August 30, 1997......................... 19,200 -- 18,700 (35,319) (16,619)
Net Income......................................... -- -- -- 3,303 3,303
Distribution under tax-sharing agreement........... -- -- -- (1,628) (1,628)
----------- ----------- ----------- ------------ -------------
Balance at August 29, 1998......................... 19,200 $ -- $ 18,700 $ (33,644) $ (14,944)
----------- ----------- ----------- ------------ -------------
----------- ----------- ----------- ------------ -------------
</TABLE>
See accompanying notes.
F-5
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
YEARS ENDED AUGUST 31, 1996, AUGUST 30, 1997, AND AUGUST 29, 1998
<TABLE>
<CAPTION>
1996 1997 1998
---------- --------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).............................................................. $ (1,415) (1,171) $ 3,303
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization................................................ 6,807 5,932 6,233
Net gain on disposal of property, plant, and equipment....................... (441) -- --
Write-off of deferred financing fees......................................... -- 1,148 --
Changes in operating assets and liabilities:
Accounts receivable, net................................................... 355 (247) (804)
Due from affiliate......................................................... (543) (282) 1,429
Inventories................................................................ (273) (327) (5,637)
Prepaid expenses and other current assets.................................. 210 361 (39)
Other assets............................................................... (468) (194) (805)
Accounts payable and accrued liabilities................................... (115) (1,301) 526
---------- --------- ----------
Net cash provided by operating activities...................................... 4,117 3,919 4,206
INVESTING ACTIVITIES
Purchase of property, plant, and equipment..................................... (2,280) (3,688) (4,574)
Acquisition.................................................................... (135)
Proceeds from sale of property, plant, and equipment........................... 1,159 -- --
---------- --------- ----------
Net cash used in investing activities.......................................... (1,121) (3,688) (4,709)
FINANCING ACTIVITIES
Proceeds from long-term debt................................................... -- 100,000 --
Net decrease in revolving line of credit....................................... (1,900) (9,100) --
Repayments of long-term debt................................................... (900) (71,086) --
Payments of capital lease obligations.......................................... (269) (350) (376)
Costs related to loan agreement................................................ (29) (4,274) (213)
Distribution under tax-sharing agreement....................................... (1,628)
---------- --------- ----------
Net cash provided by (used in) financing activities............................ (3,098) 15,190 (2,217)
---------- --------- ----------
Net increase (decrease) in cash and cash equivalents........................... (102) 15,421 (2,720)
Cash and cash equivalents at beginning of year................................. 482 380 15,801
---------- --------- ----------
Cash and cash equivalents at end of year....................................... $ 380 $ 15,801 $ 13,081
---------- --------- ----------
---------- --------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Acquisition of equipment under capital lease agreements........................ $ 214 $ -- $ --
---------- --------- ----------
---------- --------- ----------
SUPPLEMENTAL SCHEDULE OF CASH TRANSACTIONS
Interest paid.................................................................. $ 10,631 $ 9,130 $ 10,261
---------- --------- ----------
---------- --------- ----------
</TABLE>
See accompanying notes.
F-6
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 29, 1998
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
The Company is a manufacturer and a retailer of boxed chocolates and other
confectionery items. The Company sells its Fannie May and Fanny Farmer candies
in over 300 Company-operated stores and approximately 6,000 third-party retail
outlets as well as through quantity order, mail order and fundraising programs
primarily in the Midwestern and Eastern United States.
In 1995, the Company changed its fiscal year-end to the last Saturday in
August from the last day in August. The fiscal year ended August 31, 1996, had
53 weeks while the fiscal years ended August 30, 1997, and August 29, 1998 had
52 weeks.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
CASH AND CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost or market. Inventories are
valued primarily at either average or first in, first out (FIFO) cost.
PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment are recorded at cost. Depreciation and
amortization are determined over the estimated useful lives of the assets using
the straight-line method for both financial reporting and tax purposes.
Leasehold improvements at various locations are amortized over a predetermined
life, considering the term of each lease.
INTANGIBLES AND DEFERRED COSTS
Goodwill is amortized on a straight-line basis over a 40-year period.
Deferred financing costs are amortized over the terms of the loans.
The Company evaluates whether indicators of impairment of long-lived assets,
including goodwill, are present, and if such indicators are present, the Company
determines whether the sum of the estimated undiscounted future cash flows
attributable to such assets is less than their carrying amounts. If so, the
Company would recognize an impairment loss based on the excess of the carrying
amount of the assets over their fair value. The Company has determined that no
impairment loss has occurred related to long-lived assets.
INCOME TAXES
Income taxes are accounted for using the liability method. Under this
method, a current tax asset or liability is recognized for the estimated taxes
payable or refundable on tax returns for the current year, and deferred tax
assets or liabilities are recognized for the estimated future tax effects
attributable
F-7
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
to temporary differences and carryforwards using the enacted rates and laws that
will be in effect when the differences are expected to reverse.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
ADVERTISING COSTS
The Company expenses advertising costs as incurred, except for the costs
associated with the development of print advertising which are deferred and
expensed upon first showing. Advertising expense was $2,733, $2,853, and $3,051
for 1996, 1997, and 1998, respectively. At August 30, 1997 and August 29, 1998,
the Company had $240 and $459 respectively, of print advertising costs which are
included in prepaids and other current assets in the accompanying balance
sheets.
RECLASSIFICATIONS
Certain amounts in the 1996 and 1997 financial statements have been
reclassified to conform with the 1998 presentation.
3. INVENTORIES
Inventories at August 30, 1997 and August 29, 1998 are comprised of the
following:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 7,688 $ 10,110
Work in process......................................................... 218 237
Finished goods.......................................................... 11,059 14,255
--------- ---------
$ 18,965 $ 24,602
--------- ---------
--------- ---------
</TABLE>
F-8
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
4. PROPERTY, PLANT, AND EQUIPMENT
Property, plant, and equipment at August 30, 1997 and August 29, 1998 are
comprised of the following:
<TABLE>
<CAPTION>
1997 1998
---------- ----------
<S> <C> <C>
Land.................................................................. $ 3,539 $ 3,539
Machinery and equipment............................................... 15,324 17,135
Buildings and improvements............................................ 15,974 17,000
Furniture and fixtures................................................ 2,531 2,741
Leasehold improvements................................................ 11,659 13,186
---------- ----------
49,027 53,601
Less: Accumulated depreciation........................................ (28,697) (32,674)
---------- ----------
$ 20,330 $ 20,927
---------- ----------
---------- ----------
</TABLE>
5. BENEFIT PLANS
The Company maintains noncontributory pension plans for substantially all
employees. The Company intends to fund pension costs in amounts not less than
amounts required by the Employee Retirement Income Security Act of 1974.
The net periodic pension cost recognized as expense for the years ended
August 31, 1996, August 30, 1997, and August 29, 1998, consists of the
following:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Service cost...................................................... $ 350 $ 370 $ 369
Interest cost..................................................... 379 389 396
Return on plan assets............................................. (710) (1,700) 114
Other............................................................. 267 1,248 (747)
--------- --------- ---------
$ 286 $ 307 $ 132
--------- --------- ---------
--------- --------- ---------
</TABLE>
F-9
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. BENEFIT PLANS (CONTINUED)
The following table sets forth the Plans' funded status and amounts
recognized in the Company's consolidated balance sheets at August 30, 1997 and
August 29, 1998:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Actuarial present value of:
Accumulated benefit obligations:
Vested................................................................. $ 3,677 $ 4,675
Nonvested.............................................................. 739 885
--------- ---------
4,416 5,560
Present value of future compensation..................................... 555 727
--------- ---------
4,971 6,287
Assets relating to such benefits:
Market value of funded assets, primarily invested in money market and
equity securities...................................................... 6,980 6,420
--------- ---------
Overfunded projected benefit obligation................................ 2,009 133
Unrecognized (gain) loss............................................... (963) 781
--------- ---------
Pension asset recorded as a long-term asset............................ $ 1,046 $ 914
--------- ---------
--------- ---------
</TABLE>
The assumptions used in determining the present value of benefits were:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Discount rate................................................................... 8.0% 7.0%
Expected rate of return on assets............................................... 8.0 8.0
Rate of increase in compensation................................................ 4.0 4.0
</TABLE>
The Company also maintains 401(k) and profit-sharing trust plans for
substantially all employees. Effective January 1, 1994, the Company amended the
Plan to include the 401(k) deferral option for the employees. The Company allows
full-time, regular employees to elect to participate in the 401(k) portion of
the plans upon hire or upon the next entry date of March 1 or September 1 upon
the attainment of age 21. Employees can also become participants in the
profit-sharing portion of the plans on March 1 or September 1 upon the
attainment of the age of 21 and the completion of one year and at least 1,000
hours of service. Employees may contribute 1% to 15% of their compensation. The
Company contributes to the Plans a discretionary amount as approved by the Board
of Directors. In 1996, 1997, and 1998 the total Company expense related to the
Plans was $75 annually.
F-10
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
6. LEASES
The Company leases the majority of its retail stores under operating leases.
Rent expense, for the years ended August 31, 1996, August 30, 1997, and August
29, 1998, consisted of the following:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Fixed minimum.................................................... $ 8,390 $ 7,867 $ 7,746
Rent based on percentage of sales................................ 523 672 548
--------- --------- ---------
$ 8,913 $ 8,539 $ 8,294
--------- --------- ---------
--------- --------- ---------
</TABLE>
During 1996, the Company entered into capital leases for machinery and
equipment of $214.
Future minimum lease payments required under the noncancellable leases
having lease terms in excess of one year at August 29, 1998, are as follows:
<TABLE>
<CAPTION>
OPERATING CAPITAL
----------- -----------
<S> <C> <C>
1999..................................................................... $ 5,989 $ 107
2000..................................................................... 4,295 33
2001..................................................................... 2,964 21
2002..................................................................... 2,091 --
2003..................................................................... 1,294 --
Thereafter............................................................... 1,582 --
----------- -----
18,215 161
Interest................................................................. -- (16)
----------- -----
$ 18,215 $ 145
----------- -----
----------- -----
</TABLE>
7. DEBT
Debt at August 30, 1997 and August 29, 1998, is comprised of $100 million of
Senior Secured Notes.
On July 2, 1997, the Company sold $100 million in face amount of Senior
Secured notes through a private offering and retired its existing debt (except
capital leases) and related accrued interest. As a result of this refinancing,
the Company recognized an extraordinary charge of $2,898 related to deferred
financing fees and prepayment penalties for the original credit agreements.
A portion of the original credit agreements were held by affiliates of The
Jordan Company (TJC) and affiliates of TCW Capital (Note 9). The 1997 prepayment
penalty of $1,750 for the original credit agreements was paid to affiliates of
both TJC and TCW Capital.
The Senior Secured notes bear interest at 10.25% and mature on July 1, 2004.
Interest is payable semiannually beginning January 1, 1998. The notes are
secured by certain of the Company's equipment, fixtures, and general intangibles
and mortgages on certain real property. The indenture contains covenants that
limit the ability of the Company to: (i) incur additional indebtedness or create
liens, (ii) sell certain assets, (iii) merge, consolidate, or sell substantially
all of the Company's assets, (iv) make
F-11
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
restricted payments such as dividends, purchases of its capital stock, or make
payments on behalf of Holdings, and (v) conduct transactions with affiliates.
Prior to July 1, 2000, the Company may redeem up to $33.0 million of the
Senior Secured notes at a redemption price of 110.25% with proceeds from one or
more public equity offerings. The Company may redeem the Senior Secured notes,
in whole or in part, at a redemption price of 105.125% beginning July 1, 2001,
102.563% in the year beginning July 1, 2002, and 100% beginning July 1, 2003.
During the term of the indenture, in the event of a change in control, whereby
there is a sale or transfer of substantially all the Company's assets or stock,
a merger, consolidation, or change in Board of Directors, the Company is
required to repurchase all the Senior Secured notes at a purchase price of 101%.
In November 1997, the Company exchanged these notes for new senior secured
notes which have been registered under the Securities Act of 1933. These new
notes are substantially identical (including principal amount, interest rate,
maturity, security, and ranking) to the form and terms of the old notes for
which they were exchanged.
On July 2, 1997, the Company amended its credit facility. The amended
facility provides for revolving loans up to $20.0 million (including a $2.0
million letter of credit facility), based on eligible assets, as defined, and
expires July 1, 2000. Borrowings under the credit facility bear interest at
prime (8.5% at August 29, 1998) plus a margin or the Eurodollar rate (5.5% at
August 29, 1998) plus a margin; the interest rate margins fluctuate based on the
Company's leverage ratio. There were no borrowings under the credit facility at
August 29, 1998.
The credit facility provides for a quarterly commitment fee of .375% to .5%,
based on the Company's leverage ratio, per annum.
The credit facility is collateralized by the Company's accounts receivable,
certain inventories, and certain properties, as defined. The credit facility
contains covenants that restrict, among other things, dividends, loans,
prepayment of indebtedness, incurrence of additional indebtedness, granting
liens, the sale of assets, certain transactions with affiliates, mergers,
consolidations, or the sale of all or a substantial part of the Company's
property.
The carrying amount reported on the balance sheet for debt at August 30,
1997 and August 29, 1998, approximates fair value.
F-12
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
AUGUST 29, 1998
(DOLLARS IN THOUSANDS)
8. INCOME TAXES
The provision for income taxes consists of the following for the years ended
August 31, 1996, August 30, 1997, and August 29, 1998:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal............................................................. $ 133 $ 50 $ 100
State............................................................... 216 200 176
--------- --------- ---------
$ 349 $ 250 $ 276
--------- --------- ---------
--------- --------- ---------
</TABLE>
Deferred taxes consist of the following at August 30, 1997 and August 29,
1998:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Assets:
Net operating loss carryforward....................................... $ 7,536 $ 5,889
Other................................................................. 3,122 1,817
--------- ---------
Total assets............................................................ 10,658 7,706
Liabilities:
Accelerated tax depreciation.......................................... 366 171
Pension and other..................................................... 2,178 1,450
--------- ---------
Total liabilities....................................................... 2,544 1,621
--------- ---------
8,114 6,085
Valuation allowance..................................................... (8,114) (6,085)
--------- ---------
$ -- $ --
--------- ---------
--------- ---------
</TABLE>
The Company files a consolidated income tax return with Holdings. In
accordance with generally accepted accounting principles, the provision for
income taxes has been determined as if the Company had filed a separate income
tax return and includes the benefit of its net operating loss (NOL)
carryforward. In accordance with its tax-sharing agreement with Holdings,
beginning in fiscal 1998, the Company must compute an amount both with and
without the benefit of the NOL carryforward as of August 30, 1997 and remit any
excess liability to Holdings. Payments under this agreement will be recorded as
an equity distribution to Holdings. A distribution of $1,628 was made in 1998
under this agreement.
F-13
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
AUGUST 29, 1998
(DOLLARS IN THOUSANDS)
8. INCOME TAXES (CONTINUED)
The provision for income taxes differs from the amount of income tax expense
computed by applying the United States federal income tax rate to the income
(loss) before income taxes. A reconciliation of the differences for the years
ended August 31, 1996, August 30, 1997, and August 29, 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------- --------- ---------
<S> <C> <C> <C>
Computed statutory tax provision (benefit)........................ $ (362) $ (313) $ 1,217
Increase (decrease) resulting from:
Amortization of goodwill........................................ 317 289 289
Alternative minimum tax......................................... 133 50 100
Valuation allowance............................................. 54 567 (2,029)
Changes in deferred tax assets.................................. -- 208
State taxes, net of federal benefit............................. -- 116
Other items, net................................................ 207 (343) 375
--------- --------- ---------
Provision for income taxes........................................ $ 349 $ 250 $ 276
--------- --------- ---------
--------- --------- ---------
</TABLE>
At August 29, 1998, the Company had net operating loss carryforwards for
federal income tax purposes of approximately $15 million. Pursuant to the tax
sharing agreement, these carryforwards are available to reduce Holdings' future
taxable income and expire in varying amounts between 2006 and 2010.
9. RELATED PARTY TRANSACTIONS
The Board of Directors, which is comprised of parties affiliated with either
TJC or TCW Capital, was paid $50, $50 and $50 for directors' fees for 1996,
1997, and 1998 respectively. A member of the Board of Directors affiliated with
TJC was paid $52 as a consulting fee during 1996, 1997, and 1998. Principally
all of the common and preferred shareholders of Holdings are affiliated with TJC
or TCW Capital.
Management consulting fees to TJC were $364 in 1996 and $304 in 1997.
Management consulting and investment banking fees of $1,501 were accrued at
August 31, 1996 and were paid on July 2, 1997 as part of the debt offering.
On July 2, 1997, the Company entered into a new tax-sharing and management
consulting agreement with Holdings. Under this agreement, the Company will pay
$412 annually to Holdings in management consulting fees. Management consulting
fee expense was $68 in 1997 and $412 in 1998.
The accompanying financial statements reflect all of the Company's costs of
doing business. There are no costs incurred by Holdings on behalf of the
Company.
F-14
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
BALANCE SHEETS
AS OF NOVEMBER 28, 1998 AND NOVEMBER 29, 1997
<TABLE>
<CAPTION>
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
(UNAUDITED)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents.......................................................... $ 7,443 $ 10,054
Accounts receivable, net........................................................... 6,552 3,389
Inventories........................................................................ 26,818 23,259
Prepaid expenses and other current assets.......................................... 896 743
------------ ------------
Total current assets................................................................. 41,709 37,445
Due from affiliate................................................................... -- 825
Property, plant, and equipment....................................................... 20,754 20,543
Goodwill............................................................................. 30,928 31,726
Noncompete agreements and other intangibles.......................................... 104 122
Deferred financing fees.............................................................. 3,838 4,017
Other assets......................................................................... 2,895 2,855
------------ ------------
Total assets......................................................................... $ 100,228 $ 97,533
------------ ------------
------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................................................... $ 6,659 $ 6,625
Accrued liabilities................................................................ 7,721 8,590
Payroll and related liabilities.................................................... 2,679 1,601
Current portion of capital lease obligations....................................... 59 340
------------ ------------
Total current liabilities............................................................ 17,118 17,156
Due to affiliate..................................................................... 604 --
Long-term debt....................................................................... 100,000 100,000
Capital lease obligations, less current portion...................................... 38 99
Shareholder's equity (deficit):
Common stock, $0.01 par value:
Authorized--25,000 shares
Issued and outstanding--19,200 shares............................................ -- --
Additional paid-in-capital......................................................... 18,700 18,700
Accumulated deficit................................................................ (36,232) (38,422)
------------ ------------
Total shareholder's equity (deficit)................................................. (17,532) (19,722)
------------ ------------
Total liabilities and shareholder's equity (deficit)................................. $ 100,228 $ 97,533
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-15
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales............................................................................ $ 29,648 $ 27,173
Cost of sales, excluding depreciation................................................ 12,410 10,595
Selling, general, and administrative expenses, excluding depreciation and
amortization....................................................................... 15,641 15,450
Depreciation and amortization expense................................................ 1,170 1,191
Amortization of goodwill and other intangibles....................................... 407 420
Management fees and other fees....................................................... 169 129
------------ ------------
Operating (Loss)..................................................................... (149) (612)
Other (income) and expense:
Interest expense................................................................... 2,592 2,629
Interest and other income and expense.............................................. (163) (225)
------------ ------------
Loss before income taxes............................................................. (2,578) (3,016)
Provision for income taxes........................................................... 10 87
------------ ------------
Net Loss............................................................................. $ (2,588) $ (3,103)
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-16
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
--------------------------
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------ ------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss............................................................................. $ (2,588) $ (3,103)
Adjustments to reconcile net income to net cash provided by (used in)operating
activities:
Depreciation and amortization...................................................... 1,577 1,611
Changes in operating assets and liabilities:
Accounts receivable, net......................................................... (5,172) (2,813)
Inventories...................................................................... (2,216) (4,294)
Prepaid expenses and other current assets........................................ (590) (476)
Other assets..................................................................... (186) (329)
Accounts payable and accrued liabilities......................................... 4,775 5,058
------------ ------------
Net cash used in operating activities................................................ (4,400) (4,346)
INVESTING ACTIVITIES
Purchase of property, plant, and equipment........................................... (880) (1,287)
------------ ------------
Net cash used in investing activities................................................ (880) (1,287)
FINANCING ACTIVITIES
Principal payments of capital lease obligations...................................... (48) (82)
Costs related to financing........................................................... (310) --
Costs related to refinancing......................................................... -- (32)
------------ ------------
Net cash used in financing activities................................................ (358) (114)
------------ ------------
Net increase (decrease)in cash and cash equivalents.................................. (5,638) (5,747)
Cash and cash equivalents beginning of period........................................ 13,081 15,801
------------ ------------
Cash and cash equivalents end of period.............................................. $ 7,443 $ 10,054
------------ ------------
------------ ------------
SUPPLEMENTAL SCHEDULE OF CASH TRANSACTIONS
Interest paid........................................................................ $ 249 $ 255
------------ ------------
------------ ------------
</TABLE>
See accompanying notes.
F-17
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
NOVEMBER 28, 1998
(DOLLARS IN THOUSANDS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Archibald Candy Corporation (the "Company") is a manufacturer and marketer
of boxed chocolates and other confectionery items. The Company sells its Fannie
May and Fanny Farmer brand candies in over 300 Company-operated stores and in
approximately 8,000 third-party grocery stores, drug stores and independent
retail accounts as well as through a variety of non-retail programs, including
quantity order, mail order and fundraising programs. The Company is a wholly
owned subsidiary of Fannie May Holdings, Inc.
The interim financial statements included herein have been prepared pursuant
to the rules and regulations of the Securities and Exchange Commission. Certain
information and footnote disclosures normally included in annual financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to such rules and regulations, although
the Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for fair presentation for the periods presented have been reflected
and are of a normal recurring nature. These financial statements should be read
in conjunction with the financial statements and notes thereto for the year
ended August 29, 1998.
Results of operations for the period from August 29, 1998 to November 28,
1998 are not necessarily indicative of the results that may be achieved for the
entire year.
2. INVENTORIES
Inventories at November 28, 1998 and November 29, 1997 are comprised of the
following:
<TABLE>
<CAPTION>
NOVEMBER 28, NOVEMBER 29,
1998 1997
------------ ------------
<S> <C> <C>
Raw materials.................................................... $ 10,058 $ 9,732
Work in process.................................................. 252 224
Finished goods................................................... 16,508 13,303
------------ ------------
$ 26,818 $ 23,259
------------ ------------
------------ ------------
</TABLE>
3. DEBT
Debt at November 28, 1998 and November 29, 1997 is comprised of $100 million
of 10.25% senior secured notes due July 1, 2004.
4. INCOME TAXES
The provision for income taxes differs from the amount of income tax expense
computed by applying the United States federal income tax rate due to the
benefit of the net operating losses that were not recognized in prior periods.
F-18
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
(CONTINUED)
5. ACQUISITION
On December 7, 1998, the Company acquired Sweet Factory Group, Inc. ("Sweet
Factory") for $18 million in cash and the assumption of approximately $10
million of indebtedness of Sweet Factory pursuant to the merger of Sweet Factory
Acquisition Corp., a wholly owned subsidiary of the Company ("Acquisition
Corp."), with and into Sweet Factory (the "Acquisition"). The Acquisition was
effected pursuant to an Agreement and Plan of Reorganization dated as of
November 24, 1998 by and among the Company, Acquisition Corp., Sweet Factory,
Sweet Factory, Inc., SF Candy Company, SF Properties, Inc. and certain
stockholders of Sweet Factory. The Company funded the Acquisition through the
issuance of $30 million of senior secured debt. Sweet Factory is a bulk candy
retailer with 256 stores in 36 states. This transaction will be accounted for as
a purchase.
F-19
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Sweet Factory Group, Inc.:
We have audited the accompanying consolidated balance sheets of Sweet
Factory Group, Inc. and subsidiaries as of January 4, 1997 and January 3, 1998,
and the related consolidated statements of operations, stockholders' equity, and
cash flows for the fiscal years then ended. These consolidated financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of Sweet
Factory Group, Inc. and subsidiaries as of January 4, 1997 and January 3, 1998,
and the results of their operations and their cash flows for the fiscal years
then ended in conformity with generally accepted accounting principles.
February 20, 1998
San Diego, California
KPMG LLP
F-20
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
JANUARY 4, 1997 AND JANUARY 3, 1998
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
ASSETS (NOTE 6)
Cash and cash equivalents.......................................................... $ 779,461 $ 867,802
Inventories........................................................................ 4,255,240 4,485,998
Prepaid expenses and other current assets.......................................... 2,092,082 2,970,906
------------- -------------
Total current assets......................................................... 7,126,783 8,324,706
Property and equipment, net (note 4)............................................... 29,216,599 31,999,061
Other assets, net (note 5)......................................................... 2,732,196 2,328,603
Deferred income taxes (note 9)..................................................... 972,000 1,645,000
------------- -------------
$ 40,047,578 $ 44,297,370
------------- -------------
------------- -------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Bank overdraft................................................................... $ 1,454,918 $ 1,890,219
Accounts payable and accrued expenses............................................ 4,459,786 4,208,629
Accrued payroll.................................................................. 1,215,073 1,378,002
Current portion of capital lease obligations (note 8)............................ 301,405 355,411
Income taxes payable (note 9).................................................... 604,904 --
------------- -------------
Total current liabilities.................................................... 8,036,086 7,832,261
Revolving line of credit (note 6).................................................. 2,174,457 6,755,786
Capital lease obligations, excluding current portion (note 8)...................... 237,213 421,906
Deferred rent...................................................................... 1,349,592 1,651,185
------------- -------------
Total liabilities............................................................ 11,797,348 16,661,138
------------- -------------
Stockholders' equity (note 7):
Cumulative Convertible Preferred stock, $.001 par value, 19,145,000 shares
authorized:
Series A preferred stock, voting, 12,745,000 shares authorized, issued and
outstanding; liquidation value of $12,745,000................................ 12,745 12,745
Series B preferred stock, voting, 6,187,141 shares authorized, 6,179,566 shares
issued and outstanding; liquidation value of $13,904,024..................... 6,180 6,180
Series C preferred stock, nonvoting, 212,859 shares authorized, issued and
outstanding; liquidation value of $478,933................................... 213 213
Common stock, $.001 par value; 21,818,385 shares authorized; 1,261,733 shares
issued and outstanding in 1996, 1,289,900 shares issued and outstanding in
1997; less treasury stock of 6,000 shares.................................... 1,255 1,283
Additional paid-in capital, net of cost of treasury shares....................... 27,354,154 27,366,638
Retained earnings................................................................ 1,107,558 520,275
Notes receivable from officers................................................... (231,875) (271,102)
------------- -------------
Total stockholders' equity................................................... 28,250,230 27,636,232
------------- -------------
Commitments and contingencies (notes 8 and 11)..................................... $ 40,047,578 $ 44,297,370
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-21
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE FISCAL YEARS ENDED JANUARY 4, 1997 AND JANUARY 3, 1998
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
Sales.............................................................................. $ 65,061,655 $ 74,208,849
Cost of sales and occupancy costs.................................................. 32,859,846 39,143,728
------------- -------------
Gross profit..................................................................... 32,201,809 35,065,121
Selling, general and administrative expenses....................................... 24,996,800 29,217,031
Depreciation and amortization...................................................... 5,079,909 6,199,113
------------- -------------
Operating income (loss).......................................................... 2,125,100 (351,023)
Interest expense, net.............................................................. 305,757 576,260
------------- -------------
Income (loss) before income tax expense (benefit)................................ 1,819,343 (927,283)
Income tax expense (benefit) (note 9).............................................. 782,000 (340,000)
------------- -------------
Net income (loss)................................................................ $ 1,037,343 $ (587,283)
------------- -------------
------------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
F-22
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE FISCAL YEARS ENDED JANUARY 4, 1997 AND JANUARY 3, 1998
<TABLE>
<CAPTION>
CUMULATIVE
CONVERTIBLE NOTES TOTAL
PREFERRED STOCK COMMON STOCK ADDITIONAL RECEIVABLE STOCK-
-------------------- -------------------- PAID-IN RETAINED FROM HOLDERS'
SHARES PAR VALUE SHARES PAR VALUE CAPITAL EARNINGS OFFICERS EQUITY
--------- --------- --------- --------- ----------- --------- ----------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balances at December 30,
1995..................... 19,137,425 $ 19,138 937,400 $ 937 27,239,910 70,215 (231,875) 27,098,325
Issuance of common stock
for cash................. -- -- 318,333 318 114,244 -- -- 114,562
Net income................. -- -- -- -- -- 1,037,343 -- 1,037,343
--------- --------- --------- --------- ----------- --------- ----------- ---------
Balances at January 4,
1997..................... 19,137,425 19,138 1,255,733 1,255 27,354,154 1,107,558 (231,875) 28,250,230
Issuance of common stock
for cash................. -- -- 28,167 28 12,484 -- -- 12,512
Interest earned on notes
receivable from
officers................. -- -- -- -- -- -- (39,227) (39,227)
Net loss................... -- -- -- -- -- (587,283) -- (587,283)
--------- --------- --------- --------- ----------- --------- ----------- ---------
Balances at January 3,
1998..................... 19,137,425 $ 19,138 1,283,900 $ 1,283 27,366,638 520,275 (271,102) 27,636,232
--------- --------- --------- --------- ----------- --------- ----------- ---------
--------- --------- --------- --------- ----------- --------- ----------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
F-23
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE FISCAL YEARS ENDED JANUARY 4, 1997 AND JANUARY 3, 1998
<TABLE>
<CAPTION>
1996 1997
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................................................ $ 1,037,343 $ (587,283)
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Depreciation and amortization.................................................. 5,079,909 6,199,112
Loss on disposal of property and equipment..................................... 34,942 54,417
Deferred income taxes.......................................................... (167,000) (765,000)
Interest earned on notes receivable from officers.............................. -- (39,227)
Changes in assets and liabilities:
Increase in inventories...................................................... (889,691) (230,758)
Increase in prepaid expenses and other current assets........................ (444,815) (878,824)
Increase (decrease) in accounts payable and accrued expenses................. 1,238,299 (129,634)
Increase in accrued payroll.................................................. 209,809 162,929
Increase (decrease) in income taxes payable.................................. 294,478 (512,904)
Increase in deferred rent.................................................... 342,538 301,593
-------------- -------------
Net cash provided by operating activities.................................. 6,735,812 3,574,421
-------------- -------------
Cash flows from investing activities:
Capital expenditures, excluding additions for capital leases..................... (8,550,932) (8,004,578)
Proceeds from disposal of property and equipment................................. 3,900 125,000
Payments for other assets........................................................ (47,089) (254,552)
-------------- -------------
Net cash used in investing activities...................................... (8,594,121) (8,134,130)
-------------- -------------
Cash flows from financing activities:
Increase (decrease) in bank overdraft............................................ (280) 435,301
Proceeds from issuance of common stock........................................... 114,562 12,512
Borrowings on revolving line of credit........................................... 19,720,599 21,790,583
Payments on revolving line of credit............................................. (17,546,142) (17,209,254)
Payments on capital leases....................................................... (468,203) (381,092)
-------------- -------------
Net cash provided by financing activities.................................. 1,820,536 4,648,050
-------------- -------------
Net increase (decrease) in cash and cash equivalents............................... (37,773) 88,341
Cash and cash equivalents at beginning of year..................................... 817,234 779,461
-------------- -------------
Cash and cash equivalents at end of year........................................... $ 779,461 $ 867,802
-------------- -------------
-------------- -------------
Supplemental disclosure of cash flow information:
Cash paid during the year for interest........................................... $ 307,506 $ 618,278
Cash paid during the year for income taxes....................................... $ 654,919 $ 412,528
Supplemental schedule of noncash investing and financing activities:
Acquisition of property and equipment financed by capital leases................. $ 333,062 $ 619,791
Decrease in accounts payable and accrued expenses relating to the disposal of
property and equipment for store closing costs................................. $ 170,018 $ 121,523
</TABLE>
See accompanying notes to consolidated financial statements.
F-24
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JANUARY 4, 1997 AND JANUARY 3, 1998
(1) ORGANIZATION
Sweet Factory, Inc. ("SFI") was incorporated on July 12, 1991 in the state
of Delaware through the acquisition of Sweet Factory California Partners, Inc.
(the "Former Company"). SFI was organized to introduce, operate and expand the
Sweet Factory retail program throughout the United States under an exclusive
licensing agreement with Sweet Factory (U.K.) Limited, a corporation organized
under the laws of the United Kingdom. The initial term of the agreement expires
in 2000 and includes options to extend the agreement, which SFI fully intends to
exercise.
In January 1997, SFI formed SF Candy Company, Inc. ("SF Candy") as a
wholly-owned subsidiary to manufacture panned chocolate products to be sold to
third parties.
In September 1997, SFI was restructured into a holding company, Sweet
Factory Group, Inc. (the "Company"), which owns and manages its wholly-owned
subsidiaries Sweet Factory, Inc., its retail operations, SF Candy, and SF
Properties, Inc. ("Property"), its property management company. The Company
charges a management fee to its subsidiaries and charges a sublicensor royalty
fee through Property to SFI. All fees and intercompany transactions are
eliminated in the Company's consolidated financial statements.
(2) SUMMARY OF ACCOUNTING POLICIES
FISCAL YEAR
The Company reports on a 52-53 week fiscal year ending the first Saturday
after December 31. Fiscal year 1996 ended January 4, 1997, and was a 53-week
year. Fiscal year 1997 ended January 3, 1998, and was a 52-week year.
INVENTORIES
Inventories are stated at the lower of cost or market. Cost is determined
using a method which approximates the first-in, first-out method.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost. The Company leases computer
equipment under capital leases which have been capitalized for financial
statement purposes at the present value of the future minimum lease payments.
Depreciation on property and equipment is calculated using the straight-line
method over the estimated useful lives of the assets, which range from three to
seven years. Leasehold improvements are amortized over the lease term or the
estimated useful life of the improvements, whichever is shorter. Site
acquisition costs are amortized over the lease term. Improvements which add to
the useful life of an asset are capitalized. Expenditures for maintenance and
repairs are charged to operations.
INTANGIBLE ASSETS
Goodwill is amortized on a straight-line basis over twenty years.
Amortization of goodwill for both the years ended January 4, 1997 and January 3,
1998 was approximately $79,500. The Company assesses the recoverability of
goodwill by determining whether the unamortized balance can be recovered through
projected undiscounted future cash flows over its remaining life. Based on these
calculations,
F-25
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
(2) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
the Company has determined that this intangible asset was not impaired at
January 4, 1997 and January 3, 1998.
The exclusive license agreement is amortized on a straight-line basis over
its estimated useful life of approximately eight years.
INCOME TAXES
The Company accounts for its income taxes under the asset and liability
method. Deferred tax assets and liabilities are recognized for the future tax
consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases and operating loss and tax credit carryforwards. Deferred tax assets and
liabilities are computed using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be
recovered or settled. The effect on deferred tax assets and liabilities from a
change in tax rates is recognized in income in the period that includes the
enactment date.
STORE PRE-OPENING COSTS
Store pre-opening costs are capitalized and amortized to store operating
expense during the first 18 full months a store is in operation. This period
coincides with the time at which the Company deems a store to be comparable for
financial reporting purposes.
IMPAIRMENT OF LONG-LIVED ASSETS AND LONG-LIVED ASSETS TO BE DISPOSED OF
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 reviews long-lived assets and certain
identifiable intangibles for impairment whenever events or changes in
circumstances warrant measurement. Impairment losses for long-lived assets are
recorded by reducing the carrying value to the fair value of the asset.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments purchased with an
original maturity of three months or less and money market mutual funds to be
cash equivalents.
STOCK OPTION PLAN
The Company accounts for its stock option plans in accordance with the
provisions of Accounting Principles Board ("APB") Opinion No. 25, "Accounting
for Stock Issued to Employees," and the Company provides pro forma net income
disclosures for employee stock option grants made as if the Company had adopted
the fair value method under SFAS No. 123, "Accounting for Stock-Based
Compensation."
ADVERTISING COSTS
Advertising costs are expensed as incurred and are included in selling,
general and administrative expenses in the accompanying consolidated statements
of operations. Advertising expenses amounted to
F-26
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
(2) SUMMARY OF ACCOUNTING POLICIES (CONTINUED)
approximately $907,000 and $1,194,000 for the fiscal years ended January 4, 1997
and January 3, 1998, respectively.
USE OF ESTIMATES
Management of the Company has made a number of estimates and assumptions
relating to the reporting of assets and liabilities and the disclosure of
contingent assets and liabilities at the date of the consolidated financial
statements and the reported amount of revenue and expenses during the reporting
period to prepare these consolidated financial statements in conformity with
generally accepted accounting principles. Actual results could differ from those
estimates.
(3) FAIR VALUE OF FINANCIAL INSTRUMENTS
SFAS No. 107, "Disclosures About Fair Value of Financial Instruments,"
requires that fair values be disclosed for the Company's financial instruments.
The carrying amount of cash and cash equivalents, accounts payable and accrued
expenses, and accrued payroll approximate fair value due to the short-term
nature of these instruments. The carrying amounts reported for notes receivable
approximate fair value because the underlying instruments earn interest at rates
comparable to current rates offered by the Company for similar instruments. The
carrying amount reported for the revolving line of credit approximates fair
value because the underlying instrument bears interest at a rate comparable to
current rates offered to the Company for similar debt instruments.
(4) PROPERTY AND EQUIPMENT
Property and equipment as of January 4, 1997 and January 3, 1998 consist of
the following:
<TABLE>
<CAPTION>
1996 1997
-------------- -------------
<S> <C> <C>
Leasehold improvements......................................... $ 27,222,042 $ 32,641,032
Furniture and fixtures......................................... 8,530,502 10,512,194
Machinery and equipment........................................ 4,270,163 5,407,701
Construction in progress....................................... 1,758,115 1,174,144
-------------- -------------
41,780,822 49,735,071
Less accumulated depreciation and amortization................. (12,564,223) (17,736,010)
-------------- -------------
$ 29,216,599 $ 31,999,061
-------------- -------------
-------------- -------------
</TABLE>
Equipment recorded under capital leases is included with machinery and
equipment for the fiscal years ended January 4, 1997 and January 3, 1998 at a
cost of $2,031,381 and $1,782,104, respectively, with related accumulated
amortization of $970,114 and $673,415, respectively.
F-27
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
(5) OTHER ASSETS
Other assets as of January 4, 1997 and January 3, 1998 consist of the
following:
<TABLE>
<CAPTION>
1996 1997
------------- -------------
<S> <C> <C>
License......................................................... $ 3,100,000 $ 3,100,000
Goodwill........................................................ 1,587,125 1,587,125
Other........................................................... 680,517 1,220,069
------------- -------------
5,367,642 5,907,194
Less accumulated amortization................................... (2,635,446) (3,578,591)
------------- -------------
$ 2,732,196 $ 2,328,603
------------- -------------
------------- -------------
</TABLE>
Amortization of other assets was $701,868 and $658,145 for the fiscal years
ended January 4, 1997 and January 3, 1998, respectively.
(6) REVOLVING LINE OF CREDIT
In June 1997, the Company refinanced its bank revolving line of credit. The
principal amount of the line is $8,000,000, including an amount available for
letters of credit of $500,000. Interest on the line is payable at the bank's
prime rate or LIBOR plus 2%. The effective rate on the Company's revolving lines
of credit at January 3, 1998 was 8.0%. The Company may also borrow an additional
$3,500,000 from September 1st through January 15th at the bank's prime rate plus
1/4% or LIBOR plus 2.25%. Both lines are secured by substantially all of the
Company's tangible assets exclusive of its leased equipment. The lines expire on
June 30, 1999. Approximately $40,000 in letters of credit was outstanding as of
January 3, 1998.
In February 1998, the Company refinanced its debt with the bank. The new
debt structure includes the same amounts for a revolving line of credit and
letters of credit, with an interest rate at the bank's prime rate plus 3/8%, and
expires on June 30, 1999. Additionally, the Company entered into a $1,500,000
note payable, with a maturity of September 1, 1998 at an interest rate of prime
plus 3/4%. The $3,500,000 seasonal note was eliminated.
The above revolving line of credit contains restrictive covenants which,
among other things, require maintenance of certain financial ratios and
restricts the payment of dividends.
(7) STOCKHOLDERS' EQUITY
SERIES A, B AND C CUMULATIVE CONVERTIBLE PREFERRED STOCK
At January 3, 1998, the Company had 12,745,000 shares of Series A, 6,179,566
shares of Series B and 212,859 shares of Series C preferred stock, with par
values of $.001, issued and outstanding. The holders of the preferred stock are
entitled to annual cumulative dividends of $.08 per share for Series A preferred
and $.18 per share for Series B and C preferred, if and when declared by the
Board of Directors. As of January 3, 1998, the Board of Directors had not
declared any dividends on preferred stock. Each share of Series A and B
preferred stock is convertible into the Company's voting common stock, and each
share of Series C preferred stock is convertible into the Company's non-voting
common stock. All preferred stock is convertible at the option of the holder, at
any time, at the
F-28
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
(7) STOCKHOLDERS' EQUITY (CONTINUED)
established conversion price. The Series A and B preferred stock each have
voting rights equal to the number of common stock shares into which it can be
converted. The conversion price at January 3, 1998 was $1.00 per share for
Series A preferred and $2.25 per share for Series B and C preferred. The holders
of preferred stock have priority as to distribution upon liquidation and
dissolution.
STOCK APPRECIATION RIGHTS
In connection with the July 12, 1991 acquisition, the Company issued to
certain principals of the Former Company stock appreciation rights relating to
110,526 shares of common stock as partial consideration for entering into
covenants not-to-compete. The rights are not exercisable by the holders at any
time unless a liquidating event occurs. In the event of a liquidation, the
holders shall be entitled to receive the same payment, distribution or other
consideration as a holder of common stock. In the event of a public offering,
the Company has the option to purchase all of the holders' rights for a purchase
price equal to the per share price at which the common stock is offered to the
public. If such option is not exercised, the holder may exchange the rights for
the number of common stock shares equal to the rights. The rights expire ten
years from the date of issue.
STOCK OPTIONS
During the year ended January 3, 1993, the Company adopted an incentive
stock option plan for executives and key employees (the 1992 Plan). The 1992
Plan was subsequently amended to increase the number of shares authorized to
2,750,000. The Plan authorizes the granting of options to purchase shares of the
Company's $.001 par value common stock. Options vest evenly over five years from
the date of grant. Options expire ten years after the date of grant, or at the
employee's termination date, if earlier.
During 1996, the Company adopted an incentive stock option plan for
executives and key employees (the 1996 Plan). The 1996 Plan has substantially
the same attributes as the 1992 Plan, but allows for broader eligibility. The
number of shares authorized for this plan at January 3, 1998 was 800,000.
Certain officers had previously exercised stock options in exchange for
notes receivable. The notes receivable are secured by the underlying common
stock, accrue interest annually at 7% of the outstanding principal balance, and
mature on July 31, 2000.
At January 3, 1998, there were 521,771 shares available for grant under the
Plans. Using the prescribed valuation methods of SFAS No. 123, the Company
determined that the per share weighted-average fair value of stock options
granted during fiscal 1997 and 1996 was $0.71 and $0.63, respectively, on the
date of grant. The following weighted-average assumptions were included in this
method for fiscal 1997 and 1996: no expected dividend yield, risk-free interest
rate of 6%, and an expected life of 5 years.
The Company applies APB Opinion No. 25 in accounting for its Plans and,
accordingly, no compensation cost has been recognized in the financial
statements for its stock options. Had the Company determined compensation cost
for its stock options based on the fair value at the grant date under
F-29
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
(7) STOCKHOLDERS' EQUITY (CONTINUED)
SFAS No. 123, the Company's net income (loss) would have been adjusted to the
pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996 1997
------------- -----------
<S> <C> <C>
Net income (loss), as reported.................................... $ 1,037,343 $ (587,283)
Pro forma......................................................... 946,199 (680,766)
</TABLE>
Pro forma net income (loss) reflects only options granted in fiscal 1996 and
1997. Pro forma net income (loss) stated in accordance with SFAS No. 123 may not
be representative of the effects on reported net income (loss) in future years.
The following is a summary of option activity for the fiscal years ended
January 4, 1997 and January 3, 1998:
<TABLE>
<CAPTION>
NUMBER OF OPTION PRICE PER
SHARES SHARE
------------- ----------------
<S> <C> <C>
Outstanding at December 30, 1995............................. 1,463,995 $ .25 -- 1.50
Exercised.................................................... (318,333) .25 -- .75
Canceled..................................................... (123,583) .25 -- 2.00
Granted...................................................... 630,000 1.50 -- 2.50
-------------
Outstanding at January 4, 1997............................... 1,652,079 .25 -- 2.50
-------------
Exercised.................................................... (28,167) .25 -- .75
Canceled..................................................... (62,583) .56 -- 2.75
Granted...................................................... 177,000 2.75 -- 2.75
-------------
Outstanding at January 3, 1998............................... 1,738,329 $ .25 -- 2.75
-------------
-------------
Exercisable at January 3, 1998............................... 1,024,495 $ .25 -- 2.50
-------------
-------------
</TABLE>
F-30
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
The following table summarizes information about options outstanding and
exercisable as of January 3, 1998.
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
------------------------------------------- ------------------------
WEIGHTED- WEIGHTED-
WEIGHTED- AVERAGE AVERAGE AVERAGE
RANGE OF NUMBER REMAINING EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING CONTRACTUAL LIFE PRICE EXERCISABLE PRICE
- ---------------- ----------- ----------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
$ .25 - .75 965,495 5 $ .42 824,745 $ .38
1.50 - 2.75 772,834 9 1.82 199,750 1.54
</TABLE>
(8) COMMITMENTS
The Company rents its administrative and operating facilities and certain
equipment under leases expiring at various dates through 2012. These leases are
subject to certain rent escalations and include renewal provisions at the option
of the Company. Future minimum lease payments under noncancelable capital and
operating leases as of January 3, 1998 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
---------- -------------
<S> <C> <C>
1998............................................................... $ 416,737 $ 12,260,600
1999............................................................... 302,175 12,173,532
2000............................................................... 153,338 12,038,312
2001............................................................... 701 11,677,535
2002............................................................... -- 10,783,759
Thereafter......................................................... -- 22,826,031
---------- -------------
872,951 $ 81,759,769
-------------
-------------
Less interest portion of payments at an average rate of
approximately 12.7%.............................................. (95,634)
----------
Present value of future minimum lease obligations.................. 777,317
Less current portion............................................... (355,411)
----------
Capital lease obligations, excluding current portion............... $ 421,906
----------
----------
</TABLE>
Rent expense was approximately $9,289,000 and $11,740,000 for the fiscal
years ended January 4, 1997 and January 3, 1998, respectively.
F-31
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
(9) INCOME TAXES
Income taxes for the fiscal years ended January 4, 1997 and January 3, 1998
are comprised of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Current:
Federal........................................................... $ 731,000 $ 324,000
State............................................................. 218,000 101,000
----------- -----------
949,000 425,000
----------- -----------
Deferred:
Federal........................................................... (114,000) (618,000)
State............................................................. (53,000) (147,000)
----------- -----------
(167,000) (765,000)
----------- -----------
Total income tax expense (benefit)............................ $ 782,000 $ (340,000)
----------- -----------
----------- -----------
</TABLE>
A reconciliation of total income tax expense (benefit) to the amount
computed by applying the statutory federal income tax rate of 34% to income
(loss) before income tax expense (benefit) for the fiscal years ended January 4,
1997 and January 3, 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Computed at statutory rate.......................................... $ 619,000 $ (315,000)
State taxes, net of federal effect.................................. 109,000 (61,000)
Nondeductible expenses.............................................. 35,000 36,000
Change in valuation allowance....................................... (215,000) --
Adjustments to prior years' tax liabilities......................... 234,000 --
----------- -----------
Total income tax expense (benefit)............................ $ 782,000 $ (340,000)
----------- -----------
----------- -----------
</TABLE>
F-32
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JANUARY 4, 1997 AND JANUARY 3, 1998
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities as of January
4, 1997 and January 3, 1998 are as follows:
<TABLE>
<CAPTION>
1996 1997
------------ ------------
<S> <C> <C>
Deferred tax assets:
Alternative minimum tax credit carryforwards.................... $ 713,000 $ 885,000
Deferred rent................................................... 540,000 640,000
Store closing, accrued vacation and other accruals for financial
reporting purposes............................................ 479,000 438,000
Other -- 53,000
------------ ------------
Total deferred tax assets................................... 1,732,000 2,016,000
------------ ------------
Deferred tax liabilities:
Property and equipment, principally due to differences in
depreciation.................................................. 410,000 206,000
Pre-opening and other construction costs capitalized for
financial reporting purposes.................................. 237,000 165,000
Other........................................................... 113,000 --
------------ ------------
Total deferred tax liabilities.............................. 760,000 371,000
------------ ------------
Net deferred tax asset...................................... $ 972,000 $ 1,645,000
------------ ------------
------------ ------------
</TABLE>
The Company has alternative minimum tax credit carryforwards for federal and
state reporting purposes totaling approximately $885,000 which do not expire.
In assessing the realizability of deferred tax assets, management considers
whether it is more likely than not that some portion or all of the deferred tax
assets will not be realized. Based upon the level of historical taxable income
and projections for future taxable income, management believes it is more likely
than not the Company will realize the net deferred tax assets. In fiscal year
1996, the Company recognized a decrease in the valuation allowance of $215,000
related to the expected use of alternative minimum tax credit carryforwards.
There was no valuation allowance established during fiscal year 1997.
(10) EMPLOYEE BENEFIT PLAN
Effective January 1, 1996, the Company established a qualified savings plan
under Section 401(k) of the Internal Revenue Code. Employees who have completed
one year of service and are 21 years of age are eligible to participate.
Eligible employees may contribute up to 15% of annual compensation, subject to
limitations. The Company may make discretionary contributions to the plan. The
Company made no contributions to the plan during fiscal years 1996 or 1997.
(11) CONTINGENCIES
The Company is involved at times in various claims and legal actions arising
in the ordinary course of business. In the opinion of management, the ultimate
disposition of these matters will not have a material adverse effect on the
Company's financial position, results of operations or liquidity.
(12) SUBSEQUENT EVENT (UNAUDITED)
On December 7, 1998 the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Archibald Candy Corporation ("Archibald"),
pursuant to which the Company merged with and became a wholly-owned subsidiary
of Archibald. The outstanding shareholders of the Company's preferred and common
stock were paid amounts in cash as prescribed in the Agreement. Also on that
date, the Company's outstanding borrowings on the debt facility were repaid in
full.
F-33
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
AS OF OCTOBER 4, 1997 AND OCTOBER 3, 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(DOLLARS IN
THOUSAND)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................................................. $ 704 $ 1,061
Accounts receivable, net.................................................................. 247 444
Inventories............................................................................... 5,079 5,094
Prepaid expenses and other current assets................................................. 2,813 2,933
--------- ---------
Total current assets........................................................................ 8,843 9,532
Property, plant, and equipment.............................................................. 31,477 28,958
License, less accumulated amortization...................................................... 1,102 661
Goodwill, less accumulated amortization..................................................... 1,071 992
Deferred tax asset.......................................................................... 1,379 2,281
Other assets................................................................................ 209 232
--------- ---------
Total assets................................................................................ $ 44,081 $ 42,656
--------- ---------
--------- ---------
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable.......................................................................... $ 4,296 $ 4,075
Accrued liabilities....................................................................... 888 697
Payroll and related liabilities........................................................... 1,256 1,216
Current portion of long-term debt and capital lease obligations........................... 314 224
--------- ---------
Total current liabilities................................................................... 6,754 6,212
Long-term debt, less current portion........................................................ 7,905 8,786
Capital lease obligations, less current portion............................................. 357 112
Deferred rent............................................................................... 1,535 1,794
Shareholders' equity:
Cumulative convertible preferred stock, $.001 par value, 19,145,000 shares authorized:
Series A preferred stock, voting, 12,745,000 shares authorized, issued and outstanding;
liquidation value of $12,745,000........................................................ 13 13
Series B preferred stock, voting, 6,187,141 shares authorized, 6,179,566 shares issued and
outstanding; liquidation value of $13,904,024........................................... 6 6
Series C preferred stock, nonvoting, 212,859 shares authorized, issued and outstanding;
liquidation value of $478,933...........................................................
Common stock, $.001 par value; 21,818,385 shares authorized; 1,294,900 shares issued and
outstanding in 1998; 1,286,900 shares issued and outstanding in 1997; less treasury
stock of 6,000 shares................................................................... 1 1
Additional paid-in capital, net of cost of treasury shares................................ 27,366 27,369
Retained earnings (accumulated deficit)................................................... 402 (1,354)
Notes receivable from officers............................................................ (258) (283)
--------- ---------
Total shareholders' equity.................................................................. 27,530 25,752
--------- ---------
Total liabilities and shareholders' equity.................................................. $ 44,081 $ 42,656
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-34
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS AND CHANGES IN RETAINED EARNINGS
(ACCUMULATED DEFICIT)
(UNAUDITED)
THIRTY-NINE WEEKS ENDED OCTOBER 4, 1997 AND OCTOBER 3, 1998
<TABLE>
<CAPTION>
1997 1998
--------- ---------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Net sales................................................................................... $ 52,289 $ 55,928
Cost of sales, excluding depreciation and amortization...................................... 17,342 19,622
Selling, general, and administrative expenses, excluding depreciation and amortization...... 31,133 33,659
Depreciation and amortization expense....................................................... 4,126 4,734
Amortization of goodwill and other intangibles.............................................. 433 433
--------- ---------
Operating loss.............................................................................. (745) (2,520)
Other (income) and expense:
Interest expense.......................................................................... 403 649
Interest and other income and expense..................................................... (27) (12)
--------- ---------
Loss before income tax benefit.............................................................. (1,121) (3,157)
Income tax benefit.......................................................................... 415 1,283
--------- ---------
Net loss.................................................................................... (706) (1,874)
Retained earnings at beginning of period.................................................... 1,108 520
--------- ---------
Retained earnings (accumulated deficit) at the end of the period............................ $ 402 $ (1,354)
--------- ---------
--------- ---------
</TABLE>
See accompanying notes.
F-35
<PAGE>
SWEET FACTORY GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
THIRTY-NINE WEEKS ENDED OCTOBER 4, 1997 AND OCTOBER 3, 1998
<TABLE>
<CAPTION>
1997 1998
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net loss.................................................................................. $ (706) $ (1,874)
Adjustments to reconcile net loss to net cash provided by operating activities:
Depreciation and amortization........................................................... 4,559 5,167
Loss on disposal of property and equipment.............................................. 52 4
Deferred income taxes................................................................... (407) (636)
Changes in operating assets and liabilities:
Accounts receivable, net.............................................................. (137) (85)
Inventories........................................................................... (717) (517)
Prepaid expenses and other current assets............................................. (964) (425)
Accounts payable and accrued liabilities.............................................. (567) (1,273)
Income taxes payable.................................................................. (605) --
Increase in deferred rent............................................................. 185 142
---------- ----------
Net cash provided by operating activities................................................. 693 503
INVESTING ACTIVITIES
Purchase of property and equipment........................................................ (6,202) (2,087)
Proceeds from sale of property and equipment.............................................. 125 307
Payments for Other Assets................................................................. (142) (71)
---------- ----------
Net cash used in investing activities..................................................... (6,219) (1,851)
FINANCING ACTIVITIES
Net increase in revolving line of credit and term note.................................... 5,730 2,031
Principal payments of capital lease obligations........................................... (291) (493)
Proceeds from issuance of common stock.................................................... 12 3
---------- ----------
Net cash provided by financing activities................................................. 5,451 1,541
---------- ----------
Net increase (decrease) in cash and cash equivalents...................................... (75) 193
Cash and cash equivalents at beginning of period.......................................... 779 868
---------- ----------
Cash and cash equivalents at end of period................................................ $ 704 $ 1,061
---------- ----------
---------- ----------
SUPPLEMENTAL SCHEDULE OF NONCASH TRANSACTIONS
Acquisition of equipment under capital lease agreements................................... $ 424 $ 52
Decrease in accounts payable and accrued liabilities relating to the disposal of property
and equipment for store closing costs................................................... $ 122 $ 216
SUPPLEMENTAL SCHEDULE OF CASH TRANSACTIONS
Interest paid............................................................................. $ 403 $ 649
Income taxes paid......................................................................... $ 543 $ 5
</TABLE>
See accompanying notes
F-36
<PAGE>
SWEET FACTORY GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
OCTOBER 3, 1998
(DOLLARS IN THOUSANDS)
(1) BASIS OF PRESENTATION
The unaudited financial statements have been prepared pursuant to the rules
and regulations of the Securities and Exchange Commission. Certain information
and footnote disclosures normally included in annual financial statements
prepared in accordance with generally accepted accounting principles have been
condensed or omitted pursuant to such rules and regulations, although the
Company believes these disclosures are adequate to make the information
presented not misleading. In the opinion of management, all adjustments
necessary for a fair presentation for the periods presented have been reflected
and are of a normal recurring nature. These financial statements should be read
in conjunction with the financial statements and the notes thereto for the
fiscal year ended January 3, 1998.
(2) CREDIT FACILITIES
In February 1998, the Company refinanced its bank debt. The new debt
structure contained a revolving line of credit of $8,000, including an amount
available for letters of credit of $500. Interest on the line is payable at the
bank's prime rate plus 3/8% and expires on June 30, 1999. Additionally, the
Company entered into a $1,500 note payable, with a maturity of September 1, 1998
at an interest rate of prime plus 3/4%.
In July 1998, the Company refinanced its debt facility with another bank.
The facility included a $5,000 term note, with an interest rate at the bank's
prime plus 1/4%. Repayments on the note include interest only for the first
year, with monthly payments of principal and interest thereafter, as defined by
the terms of the facility, to its maturity date of July 15, 2003. The facility
also included a $7,000 revolving line of credit, including an amount available
for letters of credit of $500. Interest on the line is payable at the lesser of
prime or Libor plus 1/4%. The line matures on June 15, 2000.
The above term note and revolving line of credit contain restrictive
covenants which among things, require maintenance of certain financial ratios
and restricts the payments of dividends. As of the end of September 1998, the
Company was not in compliance with one of the covenants, but has subsequently
obtained a waiver of that default from the bank.
(3) SUBSEQUENT EVENT
On December 7, 1998 the Company entered into an Agreement and Plan of
Reorganization (the "Agreement") with Archibald Candy Corporation ("Archibald"),
pursuant to which the Company merged with and became a wholly-owned subsidiary
of Archibald. The outstanding shareholders of the Company's preferred and common
stock were paid amounts in cash as prescribed in the Agreement. Also on that
date, the Company's outstanding borrowings on the debt facility (Note 2) were
repaid in full.
F-37
<PAGE>
UNTIL , ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE
SECURITIES, WHETHER OR NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO
DELIVER A PROSPECTUS. THIS IS IN ADDITION TO THE DEALERS' OBLIGATION TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
ARCHIBALD CANDY CORPORATION
EXCHANGE OFFER FOR
$30,000,000
10 1/4% SENIOR SECURED NOTES DUE 2004
[LOGO]
--------------
PROSPECTUS
--------------
, 1999
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Certain provisions of the Illinois Business Corporation Act of 1983, as
amended, provide that Archibald Candy Corporation ("Archibald") may, and in some
circumstances must, indemnify the directors and officers of Archibald Candy and
of each subsidiary company against liabilities and expenses incurred by such
person by reason of the fact that such person was serving in such capacity,
subject to certain limitations and conditions set forth in the statute.
Each of Sweet Factory Group, Inc., Sweet Factory, Inc., SF Properties, Inc.
and SF Candy Company (collectively, the "Guarantor Subsidiaries," and, together
with Archibald Candy, the "Registrants") is a Delaware corporation. Reference is
made to Section 145 of the Delaware General Corporation Law, as amended (the
"GCL"), which provides that a corporation may indemnify any person who was or is
a party or is threatened to be made a party to any threatened, pending or
completed action or proceeding, whether civil, criminal, administrative or
investigative (other than an action by or in the right of such corporation), by
reason of the fact that such person is or was a director, officer, employee or
agent of the corporation, or is or was serving at its request in such capacity
of another corporation or business organization 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 interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe that such person's conduct was unlawful. A Delaware
corporation may indemnify officers and directors in an action by or in the right
of a corporation under the same conditions, except that no indemnification is
permitted without judicial approval if the officer or director is adjudged to be
liable to the corporation. Where an officer or director is successful on the
merits or otherwise in the defense of any action referred to above, the
corporation must indemnify him against the expenses that such officer or
director actually and reasonably incurred.
Reference is also made to Section 102(b)(7) of the GCL, which permits a
corporation to provide in its certificate of incorporation that a director of
the corporation shall not 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 GCL or (iv) for any transaction from which the director
derived an improper personal benefit.
The certificates of incorporation of the Guarantor Subsidiaries provide for
the elimination of personal liability of a director for breach of fiduciary duty
as permitted by Section 102(b)(7) of the GCL and the certificates of
incorporation and/or the by-laws of the Guarantor Subsidiaries authorize the
Guarantor Subsidiaries to indemnify their directors and officers to the fullest
extent permitted by the GCL.
The By-laws of Archibald Candy generally provide that Archibald Candy shall
indemnify its officers and directors if such person acted in good faith and in a
manner reasonably believed to be in, or not opposed to, the best interests of
Archibald Candy, and, with respect to any criminal action or proceeding, if such
person had no reasonable cause to believe his or her conduct was unlawful.
Indemnification shall be provided only upon a determination that such
indemnification is proper in the circumstances because the person has met the
applicable standard of conduct. Such determination shall be made (1) by
Archibald Candy's Board of Directors by a majority vote of a quorum consisting
of directors who were not parties to such action, suit or proceeding, or (2) if
such a quorum is not obtainable, or, even if attainable, a quorum of
disinterested directors so directs, by independent legal counsel in a written
opinion, or (3) by Archibald Candy's shareholders, or any successor provisions.
Expenses may be advanced to the indemnified party upon receipt of an undertaking
by, or on behalf of,
II-1
<PAGE>
such person to repay such amounts if it is ultimately determined that he or she
is not entitled to be indemnified by Archibald Candy.
Archibald Candy has entered into separate indemnification agreements with
each of its directors and executive officers. These indemnification agreements
provide that Archibald Candy will indemnify such directors and officers against
certain liabilities (including settlements) and expenses actually and reasonably
incurred by them in connection with any threatened or pending legal action,
proceeding or investigation (other than actions brought by or in the right of
Archibald Candy) to which any of them is, or is threatened to be, made a party
by reason of their status as a director, officer or agent of Archibald Candy, or
serving at the request of Archibald Candy in any other capacity for or on behalf
of Archibald Candy; provided that (a) such director or officer acted in good
faith and in a manner not opposed to the best interest of Archibald Candy, (b)
with respect to any criminal proceedings, such director or officer had no
reasonable cause to believe his or her conduct was unlawful, (c) such director
or officer is not finally adjudged to be liable for negligence or misconduct in
the performance of his or her duty to Archibald Candy, unless the court views in
light of the circumstances the director or officer is nevertheless entitled to
indemnification and (d) the indemnification does not relate to any liability
arising under Section 16(b) of the Securities Exchange Act of 1934 (the
"Exchange Act") or the rules or regulations promulgated thereunder. With respect
to any action brought by or in the right of Archibald Candy, directors and
officers may also be indemnified, to the extent not prohibited by applicable
laws or as determined by a court of competent jurisdiction, against costs and
expenses actually and reasonably incurred by them in connection with such action
if they acted in good faith and in the best interest of Archibald Candy.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) A list of exhibits included as part of this Registration Statement is
set forth in the Exhibit Index which immediately precedes such exhibits and is
incorporated herein by reference.
ITEM 22. UNDERTAKINGS.
(a) The undersigned Registrants hereby undertake that, for purposes of
determining any liability under the Securities Act of 1933 (the "Securities
Act"), each filing of the Registrants' annual report pursuant to Section 13(a)
or Section 15(d) of the Exchange Act (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the Exchange
Act) that is incorporated by reference in the Registration Statement 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.
(b) The undersigned Registrants hereby undertake to respond to requests for
information that is incorporated by reference into the Prospectus pursuant to
Items 4, 10(b), 11, or 13 of Form S-4, within one business day of receipt of
such request, and to send the incorporated documents by first class mail or
other equally prompt means. This includes information contained in documents
filed subsequent to the effective date of the Registration Statement through the
date of responding to the request.
(c) The undersigned Registrants hereby undertake to supply by means of a
post-effective amendment all information concerning a transaction, and the
company being acquired involved therein, that was not the subject of and
included in the Registration Statement when it became effective.
(d) Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers and controlling persons of the
Registrants pursuant to the foregoing provisions, or otherwise, the Registrants
have been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrants of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrants will, unless in the opinion of its counsel the
matter has 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-2
<PAGE>
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, State of
Illinois, on February 5, 1999.
ARCHIBALD CANDY CORPORATION
By: /s/ TED A. SHEPHERD
-----------------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of Archibald Candy Corporation do
hereby constitute and appoint Ted. A Shepherd and Donna M. Snopek, and each of
them, with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute and
file any and all instruments for us and in our names in the capacities indicated
below, which such person may deem necessary or advisable to enable Archibald
Candy Corporation to comply with the Securities Act of 1933, as amended (the
"Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, full power and authority to sign for us, or
any of us, in the capacities indicated below any and all amendments (including
post-effective amendments or any other registration statement filed pursuant to
the provisions of Rule 462(b) under the Act) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS H. QUINN Chairman of the Board and
- ------------------------------ Chief Executive Officer February 5, 1999
Thomas H. Quinn
President and Chief
/s/ TED A. SHEPHERD Operating Officer
- ------------------------------ (Principal Executive February 5, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting February 5, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II Director
- ------------------------------ February 5, 1999
John W. Jordan II
II-3
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ADAM E. MAX Director
- ------------------------------ February 5, 1999
Adam E. Max
/s/ BRANT BINDER Director
- ------------------------------ February 5, 1999
Brant Binder
/s/ JEFFREY J. ROSEN Director
- ------------------------------ February 1, 1999
Jeffrey J. Rosen
</TABLE>
II-4
<PAGE>
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, State of
Illinois, on February 5, 1999.
SWEET FACTORY GROUP, INC.
By: /s/ TED A. SHEPHERD
-----------------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of Sweet Factory Group, Inc. do
hereby constitute and appoint Ted. A Shepherd and Donna M. Snopek, and each of
them, with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute and
file any and all instruments for us and in our names in the capacities indicated
below, which such person may deem necessary or advisable to enable Sweet Factory
Group, Inc. to comply with the Securities Act of 1933, as amended (the "Act"),
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, full power and authority to sign for us, or
any of us, in the capacities indicated below any and all amendments (including
post-effective amendments or any other registration statement filed pursuant to
the provisions of Rule 462(b) under the Act) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS H. QUINN Chairman of the Board and
- ------------------------------ Chief Executive Officer February 5, 1999
Thomas H. Quinn
President and Chief
/s/ TED A. SHEPHERD Operating Officer
- ------------------------------ (Principal Executive February 5, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting February 5, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II Director
- ------------------------------ February 5, 1999
John W. Jordan II
II-5
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ ADAM E. MAX Director
- ------------------------------ February 5, 1999
Adam E. Max
/s/ BRANT BINDER Director
- ------------------------------ February 5, 1999
Brant Binder
/s/ JEFFREY J. ROSEN Director
- ------------------------------ February 1, 1999
Jeffrey J. Rosen
</TABLE>
II-6
<PAGE>
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, State of
Illinois, on February 5, 1999.
SWEET FACTORY, INC.
By: /s/ TED A. SHEPHERD
-----------------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of Sweet Factory, Inc. do hereby
constitute and appoint Ted. A Shepherd and Donna M. Snopek, and each of them,
with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute and
file any and all instruments for us and in our names in the capacities indicated
below, which such person may deem necessary or advisable to enable Sweet
Factory, Inc. to comply with the Securities Act of 1933, as amended (the "Act"),
and any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, full power and authority to sign for us, or
any of us, in the capacities indicated below any and all amendments (including
post-effective amendments or any other registration statement filed pursuant to
the provisions of Rule 462(b) under the Act) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS H. QUINN Chairman of the Board and
- ------------------------------ Chief Executive Officer February 5, 1999
Thomas H. Quinn
President and Chief
/s/ TED A. SHEPHERD Operating Officer
- ------------------------------ (Principal Executive February 5, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting February 5, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II Director
- ------------------------------ February 5, 1999
John W. Jordan II
/s/ ADAM E. MAX Director
- ------------------------------ February 5, 1999
Adam E. Max
II-7
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ BRANT BINDER Director
- ------------------------------ February 5, 1999
Brant Binder
/s/ JEFFREY J. ROSEN Director
- ------------------------------ February 1, 1999
Jeffrey J. Rosen
</TABLE>
II-8
<PAGE>
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, State of
Illinois, on February 5, 1999.
SF PROPERTIES, INC.
By: /s/ TED A. SHEPHERD
-----------------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of SF Properties, Inc. do hereby
constitute and appoint Ted. A Shepherd and Donna M. Snopek, and each of them,
with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute and
file any and all instruments for us and in our names in the capacities indicated
below, which such person may deem necessary or advisable to enable SF
Properties, Inc. to comply with the Securities Act of 1933, as amended (the
"Act"), and any rules, regulations and requirements of the Securities and
Exchange Commission, in connection with this Registration Statement, including
specifically, but not limited to, full power and authority to sign for us, or
any of us, in the capacities indicated below any and all amendments (including
post-effective amendments or any other registration statement filed pursuant to
the provisions of Rule 462(b) under the Act) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS H. QUINN Chairman of the Board and
- ------------------------------ Chief Executive Officer February 5, 1999
Thomas H. Quinn
President and Chief
/s/ TED A. SHEPHERD Operating Officer
- ------------------------------ (Principal Executive February 5, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting February 5, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II Director
- ------------------------------ February 5, 1999
John W. Jordan II
/s/ ADAM E. MAX Director
- ------------------------------ February 5, 1999
Adam E. Max
II-9
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ BRANT BINDER Director
- ------------------------------ February 5, 1999
Brant Binder
/s/ JEFFREY J. ROSEN Director
- ------------------------------ February 1, 1999
Jeffrey J. Rosen
</TABLE>
II-10
<PAGE>
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, State of
Illinois, on February 5, 1999.
SF CANDY COMPANY
By: /s/ TED A. SHEPHERD
-----------------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING OFFICER
POWER OF ATTORNEY
The undersigned directors and officers of SF Candy Company do hereby
constitute and appoint Ted. A Shepherd and Donna M. Snopek, and each of them,
with full power of substitution and resubstitution, our true and lawful
attorneys-in-fact and agents to do any and all acts and things in our name and
on our behalf in our capacities as directors and officers, and to execute and
file any and all instruments for us and in our names in the capacities indicated
below, which such person may deem necessary or advisable to enable SF Candy
Company to comply with the Securities Act of 1933, as amended (the "Act"), and
any rules, regulations and requirements of the Securities and Exchange
Commission, in connection with this Registration Statement, including
specifically, but not limited to, full power and authority to sign for us, or
any of us, in the capacities indicated below any and all amendments (including
post-effective amendments or any other registration statement filed pursuant to
the provisions of Rule 462(b) under the Act) hereto; and we do hereby ratify and
confirm all that such person or persons shall do or cause to be done by virtue
hereof.
Pursuant to the requirements of the Act, this Registration Statement has
been signed by the following persons in the capacities and on the dates
indicated.
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
/s/ THOMAS H. QUINN Chairman of the Board and
- ------------------------------ Chief Executive Officer February 5, 1999
Thomas H. Quinn
President and Chief
/s/ TED A. SHEPHERD Operating Officer
- ------------------------------ (Principal Executive February 5, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting February 5, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II Director
- ------------------------------ February 5, 1999
John W. Jordan II
/s/ ADAM E. MAX Director
- ------------------------------ February 5, 1999
Adam E. Max
II-11
<PAGE>
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ --------------------------- -------------------
<C> <S> <C>
/s/ BRANT BINDER Director
- ------------------------------ February 5, 1999
Brant Binder
/s/ JEFFREY J. ROSEN Director
- ------------------------------ February 5, 1999
Jeffrey J. Rosen
</TABLE>
II-12
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
2.1 Agreement and Plan of Reorganization dated as of November 24, 1998 by and among the Company, Sweet
Factory Acquisition Corp., Sweet Factory Group, Inc., Sweet Factory, Inc., SF Candy Company, SF
Properties, Inc. and certain stockholders of Sweet Factory Group, Inc. party thereto (incorporated by
reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the SEC on December 22,
1998)
2.2 Amendment No. 1 dated as of December 7, 1998 to Agreement and Plan of Reorganization by and among the
Company, Sweet Factory Acquisition Corp., Sweet Factory Group, Inc., Sweet Factory, Inc., SF Candy
Company, SF Properties, Inc. and Weston Presidio Offshore Capital C.V., as representative of certain
stockholders of Sweet Factory Group, Inc.
3.1 Amended and Restated Articles of Incorporation of the Company (incorporated by reference to Exhibit 3.1
to the Company's Registration Statement on Form S-1, File No. 333-33751)
3.2 Amended and Restated By-Laws of the Company (incorporated by reference to Exhibit 3.2 to the Company's
Registration Statement on Form S-1, File No. 333-33751)
3.3 Certificate of Incorporation of Sweet Factory Group, Inc.
3.4 Restated Certificate of Incorporation of Sweet Factory, Inc.
3.5 Certificate of Incorporation of SF Properties, Inc.
3.6 Certificate of Incorporation of SF Candy Company
3.7 By-Laws of Sweet Factory Group, Inc.
3.8 By-Laws of Sweet Factory, Inc.
3.9 By-Laws of SF Properties, Inc.
3.10 By-Laws of SF Candy Company
4.1 Form of the Company's 10 1/4% Series B Senior Secured Notes due 2004 (incorporated by reference to
Exhibit 4.2 to the Company's Registration Statement on Form S-1, File No. 333-33751)
4.2 Indenture dated as of July 2, 1997 between the Company and The Bank of New York, as Trustee
(incorporated by reference to Exhibit 4.4 to the Company's Registration Statement on Form S-1, File No.
333-33751)
4.3 First Supplemental Indenture dated as of December 7, 1998 among the Company, the Guarantor Subsidiaries
and The Bank of New York, as Trustee (incorporated by reference to Exhibit 4.1 to the Company's Current
Report on Form 8-K filed with filed with the SEC on December 22, 1998)
4.4 Registration Rights Agreement dated as of July 2, 1997 between the Company and Jefferies & Company, Inc.
and First Chicago Capital Markets, Inc. (incorporated by reference to Exhibit 4.5 to the Company's
Registration Statement on Form S-1, File No. 333-33751)
4.5 Amended and Restated Pledge and Security Agreement dated as of December 7, 1998 between the Company, the
Guarantor Subsidiaries and The Bank of New York, as Trustee
4.6 Amended and Restated Intellectual Property Security Agreement dated as of December 7, 1998 between the
Company, the Guarantor Subsidiaries and The Bank of New York, as Trustee
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.7 Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing Statement
dated July 2, 1997 relating to the Company's Chicago, Illinois manufacturing and headquarters facility
(incorporated by reference to Exhibit 4.8 to the Company's Registration Statement on Form S-1, File No.
333-33751)
4.8 First Amendment to Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and
Financing Statement dated as of December 7, 1998 relating to the Company's Chicago, Illinois
manufacturing and headquarters facility
4.9 Open-End Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and Financing
Statement dated July 2, 1997 relating to the Company's Bensalem, Pennsylvania warehouse and distribution
facility (incorporated by reference to Exhibit 4.9 to the Company's Registration Statement on Form S-1,
File No. 333-33751)
4.10 First Amendment to Open-End Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing
and Financing Statement dated as of December 7, 1998 relating to the Company's Bensalem, Pennsylvania
warehouse and distribution facility
4.11 Amended and Restated Credit Agreement dated as of July 2, 1997 among the Company, the lenders signatory
thereto and The First National Bank of Chicago, as Agent (incorporated by reference to Exhibit 4.10 to
the Company's Registration Statement on Form S-1, File No. 333-33751).
4.12 Amendment No. 1 to Amended and Restated Credit Agreement dated as of December 7, 1998 among the Company,
the lenders signatory thereto and The First National Bank of Chicago, as Agent
4.13 Amended and Restated Security Agreement dated as of July 2, 1997 between the Company and The First
National Bank of Chicago, as Agent (incorporated by reference to Exhibit 4.11 to the Company's
Registration Statement on Form S-1, File No. 333-33751)
4.14 Form of SAR Agreements (incorporated by reference to Exhibit 4.12 to the Company's Registration
Statement on Form S-1, File No. 333-33751)
4.15 Lease dated April 17, 1997 between Chicago Midway Joint Venture, as landlord, and the Company, as
tenant, relating to the Company's Chicago, Illinois warehouse and distribution facility (incorporated by
reference to Exhibit 4.13 to the Company's Registration Statement on Form S-1, File No. 333-33751)
5.1 Opinion of Winston & Strawn
10.1 Indemnification Agreements dated as of July 2, 1997 between the Company and each of its then current
directors and executive officers (incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, File No. 333-33751)
10.2 Indemnification Agreement dated as of November 1, 1998 between the Company and Brant Binder
10.3 Securities Purchase Agreement dated as of October 30, 1991 among Holdings, the Company and the
Purchasers (as defined therein), together with First Amendment thereto dated as of September 18, 1992,
Second Amendment thereto dated as of August 12, 1994 and Third Amendment thereto dated as of July 2,
1997 (incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-1,
File No. 333-33751)
10.4 Fourth Amendment to Securities Purchase Agreement dated as of October 31, 1998 among Holdings, the
Company and the Purchasers (as defined therein)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.5 Shareholders Agreement dated as of October 30, 1991 among the holders of the Company's common stock,
together with First Amendment thereto dated as of July 2, 1997 (incorporated by reference to Exhibit
10.3 to the Company's Registration Statement on Form S-1, File No. 333-33751)
10.6 Tax Sharing and Management Consulting Agreement dated as of July 2, 1997 between the Company and
Holdings (incorporated by reference to Exhibit 10.4 to the Company's Registration Statement on Form S-1,
File No. 333-33751)
10.7 Management Consulting Agreement between Holdings and TJC Management Corp. dated as of July 2, 1997
(incorporated by reference to Exhibit 10.5 to the Company's Registration Statement on Form S-1, File No.
333-33751)
10.8 Supply Agreement dated February 11, 1997 between the Company and Nestle Food Company (incorporated by
reference to Exhibit 10.6 to the Company's Registration Statement on Form S-1, File No. 333-33751)
10.9 Supply Agreement dated June 24, 1997 between the Company and ADM Cocoa (incorporated by reference to
Exhibit 10.7 to the Company's Registration Statement on Form S-1, File No. 333-33751)
10.10 Supply Agreement dated January 22, 1997 between the Company and Grace Cocoa Chocolate Americas
(incorporated by reference to Exhibit 10.8 to the Company's Registration Statement on Form S-1, File No.
333-33751)
10.11 Supply Agreement dated September 5, 1996 between the Company and The Western Sugar Company (incorporated
by reference to Exhibit 10.9 to the Company's Registration Statement on Form S-1, File No. 333-33751)
10.12 Supply Agreement dated March 25, 1997 between the Company and Cerestar USA, Inc. (incorporated by
reference to Exhibit 10.10 to the Company's Registration Statement on Form S-1, File No. 333-33751)
10.13 Fannie May Holdings, Inc. 1998 Stock Bonus Plan (incorporated by reference to Exhibit 10.11 to the
Company's Form 10-K for the fiscal year ended August 29, 1998)
10.14 Executive Subscription Agreement dated as of September 30, 1998 between Holdings and Ted A. Shepherd
(incorporated by reference to Exhibit 10.12 to the Company's Form 10-K for the fiscal year ended August
29, 1998)
12.1 Statements re: Computation of Earnings to Fixed Charges
21.1 Subsidiaries of the Company
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG LLP
23.3 Consent of Winston & Strawn (contained in its opinion filed as Exhibit 5.1 hereto)
24.1 Power of Attorney (contained in the signature pages hereto)
25.1 Statement of Eligibility and Qualification on Form T-1 under the Trust Indenture Act of 1939 of The Bank
of New York, as trustee under the Indenture
99.1 Form of Letter of Transmittal
99.2 Form of Notice of Guaranteed Delivery
99.3 Form of Tender Instruction
</TABLE>
<PAGE>
AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION
This AMENDMENT NO. 1 TO AGREEMENT AND PLAN OF REORGANIZATION (this
"AMENDMENT") is made and entered into as of December 7, 1998 by and among
Archibald Candy Corporation, an Illinois corporation ("PURCHASER"), Sweet
Factory Acquisition Corp., a Delaware corporation and a wholly-owned subsidiary
of Purchaser ("MERGER SUB"), Sweet Factory Group, Inc., a Delaware corporation
("GROUP"), Sweet Factory, Inc., a Delaware corporation ("SFI"), SF Candy
Company, a Delaware corporation ("CANDY CO."), SF Properties, Inc., a Delaware
corporation ("SF PROPERTIES"; Group, SFI, Candy Co. and SF Properties being
collectively referred to herein as the "SELLERS"), and Weston Presidio Offshore
Capital C.V., a California limited partnership, as representative (the
"REPRESENTATIVE") of those stockholders of Group that are identified on SCHEDULE
B to the Agreement (as defined below) (the "INDEMNIFYING STOCKHOLDERS").
R E C I T A L S:
WHEREAS, Purchaser, Merger Sub, the Sellers and the Indemnifying
Stockholders are parties to that certain Agreement and Plan of Reorganization,
dated as of November 24, 1998 (the "AGREEMENT"), pursuant to which the parties
thereto have agreed, among other things, to merge Merger Sub with and into
Group; and
WHEREAS, Purchaser, Merger Sub, the Representative and Sellers have
mutually agreed to amend and restate Section 2.4(a) of the Agreement in its
entirety;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants hereinafter contained, Purchaser, Merger Sub, the Representative and
Sellers hereby agree as follows:
Section 1. AMENDMENT. Section 2.4(a) of the Agreement is hereby
amended and restated in its entirety to read as follows:
"At the Effective Time, the Certificate of Incorporation of Group, as
in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation, until
thereafter amended."
Section 2. NO IMPLIED AMENDMENTS. Except as specifically amended
by this Amendment, the Agreement shall remain in full force and effect in
accordance with its respective terms and is hereby ratified and confirmed.
Section 3. EFFECTIVENESS OF AMENDMENT. This Amendment shall be
deemed to be an amendment to the Agreement in accordance with Section 13.9 of
the Agreement.
<PAGE>
Section 4. BENEFIT OF THE AGREEMENT. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their respective
successors and permitted assigns.
Section 5. HEADINGS. The headings used in this Amendment are for
convenience of reference only and shall not be deemed to limit, characterize or
in any way affect the interpretation of any provision of this Amendment.
Section 6. GOVERNING LAW. THIS AMENDMENT AND THE LEGAL RELATIONS
BETWEEN THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE LAWS OF THE STATE OF DELAWARE, WITHOUT REGARD TO THE CONFLICT OF LAWS RULES
THEREOF.
Section 7. COUNTERPARTS. This Amendment may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
Section 8. REFERENCES TO AGREEMENT. On and after the date hereof,
each reference in the Agreement to "this Agreement," "hereunder," "hereof" or
words of like import referring to the Agreement shall mean the Agreement as
amended by this Amendment.
[signature pages follow]
-2-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No.
1 to Agreement and Plan of Reorganization to be duly executed as of the date
first written above.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
SWEET FACTORY ACQUISITION CORP.
By: /s/ Ted A. Shepherd
-----------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
SWEET FACTORY GROUP, INC.
By: /s/ T. Robert Bell
-----------------------------------------
Name: T. Robert Bell
Title: C.E.O.
SWEET FACTORY, INC.
By: /s/ T. Robert Bell
-----------------------------------------
Name: T. Robert Bell
Title: C.E.O.
-3-
<PAGE>
SF CANDY COMPANY
By: /s/ T. Robert Bell
-----------------------------------------
Name: T. Robert Bell
Title: C.E.O.
SF PROPERTIES, INC.
By: /s/ T. Robert Bell
-----------------------------------------
Name: T. Robert Bell
Title: C.E.O.
WESTON PRESIDIO OFFSHORE CAPITALC.V.,
as Representative of the Indemnifying Stockholders
By: WESTON PRESIDIO CAPITAL
MANAGEMENT, L.P.
By: /s/ James B. McElwee
-------------------------------------
Name: James B. McElwee
Title: General Partner
-4-
<PAGE>
CERTIFICATE OF INCORPORATION
OF
SWEET FACTORY GROUP, INC.
FIRST: The name of the corporation is Sweet Factory Group, Inc.
SECOND: The address of the initial registered office of the corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington,
New Castle County, Delaware 19801, and the name of the initial registered agent
therein and in charge thereof, upon whom process against the corporation may be
served is The Corporation Trust Company.
THIRD: The nature of the business or purposes 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 Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1000), $.001 par value per share.
FIFTH: The name and mailing address of the sole incorporator is Christopher
P. Bifone, Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600, San
Diego, California 92121-2189.
SIXTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may be
exercised or done by the corporation. Election of directors need not be by
written ballot, unless the Bylaws so provide.
SEVENTH: The Board of Directors is authorized to make, adopt, amend, alter or
repeal the Bylaws of the corporation. The stockholders shall also have power to
make, adopt, amend, alter or repeal the Bylaws of the corporation.
EIGHTH: This corporation reserves the right to amend or repeal any of the
provisions contained in this Certificate of Incorporation in any manner now or
hereafter permitted by law, and the rights of the stockholders of this
corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law, a director or officer of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer. Any repeal or modification of the foregoing
provisions of this Article NINTH by the stockholders of the corporation shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
<PAGE>
I, the undersigned, being the sole incorporator hereinbefore named, hereby sign
this certificate for the purpose of forming a corporation pursuant to the
General Corporation Law of the State of Delaware this 8th day of September 1997.
/s/ Christopher P. Bifone
---------------------------------------------
Christopher P. Bifone, Sole Incorporator
<PAGE>
CERTIFICATION OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SWEET FACTORY GROUP, INC., A DELAWARE CORPORATION
Sweet Factory Group, Inc., a corporation organized and existing under and
by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The Board of Directors of the Corporation duly adopted
Resolutions setting forth a proposed amendment to the Certificate of
Incorporation of the Corporation filed in the Office of the Secretary of State
of the State of Delaware on September 10, 1997, declaring said amendment to be
advisable and calling for a vote of the stockholders of the Corporation in
consideration thereof. The Resolution setting forth the proposed amendment is as
follows:
RESOLVED, the Certificate of Incorporation shall be amended to read in its
entirety as follows:
"ARTICLE I
The name of this Corporation is Sweet Factory Group, Inc.
ARTICLE II
The address of this registered office of the Corporation in the State of
Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle
County, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The purpose of this Corporation is to engage in any lawful act or activity
for which a corporation may be organized under the General Corporation Law of
the State of Delaware.
<PAGE>
ARTICLE IV
The aggregate number of shares which the Corporation shall have the
authority to issue is 40,963,385 shares, which shall be divided into three
classes and designated as follows:
<TABLE>
<CAPTION>
Designation of Class Number of Shares
-------------------- ----------------
<S> <C>
Common Stock,
Par Value $.001 per share
("Voting Common Stock") 21,605,526
Non-Voting Common Stock,
Par Value $.001 per share
("Voting Common Stock") 212,859
Preferred Stock, Par Value
$.001 per share ("Preferred Stock") 19,145,000
</TABLE>
The Preferred Stock may be issued from time to time in one or more series.
Except with respect to the Series A Preferred Stock, Series B Preferred Stock
and Series C Preferred Stock referenced below and subject to compliance with
applicable protective rights which have been or may be granted to the Preferred
Stock or series thereof in Certificates of Determination or the Corporation's
Certificate of Incorporation ("Protective Provisions"), the Board of Directors
is hereby authorized to determine the dividend rights, dividend rates,
conversion rights, voting rights and terms of redemption, the redemption price
or prices, and the liquidation preference of any wholly unissued series of
Preferred Stock and the number of shares constituting any such series and the
designation thereof, or any of them; and, subject to compliance with applicable
Protective Provisions, to increase or decrease the number of shares of any
series (other than the Series A Preferred, the Series B Preferred or the Series
C Preferred) subsequent to the issue of such shares of that series, but not
below the number of shares then outstanding. In case the number of shares of
any series shall be so decreased, the shares constituting such decrease shall
resume the status which they had prior to the adoption of the resolution
originally fixing the number of shares of such series.
The number of shares of Preferred Stock constituting the Series A Preferred
Stock is 12,745,000. The number of shares of Preferred Stock constituting the
Series B Preferred Stock is 6,187,141. The number of shares of Preferred Stock
constituting the Series C Preferred Stock is 212,859.
The preferences, limitations and relative rights of the Common Stock, the
Series A Preferred, the Series B Preferred and the Series C Preferred are set
forth below.
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1. GENERAL DEFINITIONS. For purposes of this Article, the following
definitions shall apply:
(a) "JUNIOR STOCK" shall mean all Voting Common Stock and Non-Voting
Common Stock and any other capital stock of this Corporation other than the
Series A Preferred, the Series B Preferred and the Series C Preferred.
(b) "SUBSIDIARY" shall mean any corporation at least 50% of whose
outstanding voting shares at the time is owned by this Corporation or by one or
more of such subsidiaries.
2. DIVIDEND RIGHTS. The holders of the Series A Preferred, the Series
B Preferred and the Series C Preferred shall be entitled to receive, out of
any funds legally available therefor, dividends on each outstanding shares of
Series A Preferred, Series B Preferred and Series C Preferred payable in
preference and priority to any payment of any dividend on Junior Stock, when
and as declared by the Board of Directors at the rate of $.08 per annum per
share of Series A Preferred and $.18 per annum per share of Series B
Preferred and Series C Preferred. The Corporation shall not be obligated to
pity any dividend until declared by the Board of Directors. If dividends are
not declared on the Series A Preferred, the Series B Preferred and the Series
C Preferred at the aforesaid rates in any year, then the right to receive
such dividend shall accumulate. Dividends, if paid, or if declared and set
apart for payment, must be paid or declared and set apart for payment on, all
outstanding shares of Series A Preferred, Series B Preferred and Series C
Preferred contemporaneously. No dividends shall be declared or paid on the
Junior Stock until dividends on the Series A Preferred, the Series B
Preferred and the Series C Preferred have been declared and paid or set aside
for payment at the rates set forth above for the current year (prorated to
the date of payment) and all accumulated dividends on Series A Preferred,
Series B Preferred and Series C Preferred have been paid. In the event the
Board of Directors shall have declared and paid or set aside dividends on the
Series A Preferred, the Series B Preferred and Series C Preferred (including
accumulated dividends, if any) in any fiscal year and shall elect to declare
additional dividends on any Junior Stock or Preferred Stock in such fiscal
year out of funds legally available therefor, such additional dividends shall
be declared first on each share of Voting Common Stock and Non-Voting Common
Stock in an amount equal to the amount payable on each share of Series A
Preferred divided by the number of shares of Voting Common Stock into which
such Series A Preferred is convertible. After such amount has been paid or
set apart for payment on each share of Voting Common Stock and Non-Voting
Common Stock, any remaining dividend shall be declared and paid on the Voting
Common Stock and Non-Voting Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred pro rata based upon the number of shares of
Voting Common Stock and Non-Voting Common Stock hold by each with each
remaining dividend declared on each share of Series A Preferred, each share
of Series B Preferred and each share of Series C Preferred to equal the
dividend payable in respect of the number of shares of Voting Common Stock
(including fractions of a share) into which such share of Series A Preferred,
Series B Preferred and Series C Preferred is convertible on the date the
dividend is declared. Notwithstanding the foregoing or any other provision
set forth herein, upon conversion of the shares of Series A Preferred, Series
B Preferred and Series C Preferred in accordance with the provisions of
Section 4 hereof, the holder of such shares shall not be entitled to receive
any accumulated but unpaid dividends which have accrued to the date of such
conversion; provided, however, in the event of a liquidation, dissolution
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or winding-up of the Corporation, as defined in Section 3(b), any holder of
Series A Preferred, Series B Preferred or Series C Preferred who tenders his
shares of Series A Preferred, Series B Preferred or Series C Preferred for
conversion in connection with such event or conditions such conversion upon
the effectiveness of such event, shall be entitled to receive upon conversion
any accumulated but unpaid dividends which have accrued to the date of such
conversion.
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of the
Corporation, either voluntary or involuntary, the holders of the Series A
Preferred, the holders of the Series B Preferred and the holder of the Series C
Preferred shall share in any distribution of any of the assets or property of
the Corporation. The holders of the Series A Preferred, Series B Preferred and
the Series C Preferred shall be entitled to receive, prior and in preference to
any distribution of any assets or property of the Corporation to the holders of
the Junior Stock by reason or their ownership thereof, (i) with respect to the
Series A Preferred, the amount of $1.00 per share for each of Series A Preferred
then held by them, with respect to the Series B Preferred, the amount of $2.25
per share of Series B Preferred then held by them and with respect to the Series
C Preferred, the amount of $2.25 per share of Series C Preferred then held by
them, plus (ii) an amount equal to the sum of all accumulated dividends
(prorated to the date of payment) and all declared but unpaid dividends on the
Series A Preferred, the Series B Preferred and the Series C Preferred (prorated
to the date of payment). If upon occurrence of such event the assets and
property thus distributed among the holders of the Series A Preferred, Series B
Preferred and Series C Preferred shall be insufficient to permit the payment to
such holders of the full preferential amount, then the entire assets and
property of the Corporation legally available for distribution shall be
distributed among the holders of the Series A Preferred, the Series B Preferred
and the Series C Preferred ratably among all holders in proportion to the full
amount of their respective liquidation preferences so that the per share
distribution with respect to each series will be the same percentage of the full
per share liquidation preference for such series, as provided above. After
payment has been made to the holders of the Series A Preferred, the Series B
Preferred or the Series C Preferred of the full amount to which they shall be
entitled as aforesaid, the holders of Junior Stock shall be entitled to receive
on a pro rata basis all remaining assets of the Corporation.
(b) For purposes of this Section 3, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, and to
include, a consolidation or merger of the Corporation with or into another
entity, the Corporation's sale of all or substantially all of its assets or the
effectuation by the Corporation of a transaction or series of transactions in
which more than 50% of the voting power of the Corporation is disposed of. Any
Holder of Series A Preferred, Series B Preferred or Series C Preferred who
tenders his shares of Series A Preferred, Series B Preferred or Series C
Preferred for conversion prior to any such event may elect to condition such
conversion upon the effectiveness of such event, in which event his Series A
Preferred, Series B Preferred or Series C Preferred shall be deemed to have been
converted immediately prior to such effectiveness or such earlier date, if any,
on which holders of record are determined for the purpose of receiving the
benefits of such event.
4. CONVERSION. The holders of Series A Preferred, Series B Preferred and
Series C
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Preferred and Non-Voting Common shall have conversion rights as follows
("Conversion Rights"):
(a) RIGHT TO CONVERT.
(i) CONVERSION OF SERIES A PREFERRED, SERIES B PREFERRED AND
SERIES C PREFERRED INTO VOTING COMMON. Each share of Series A Preferred, Series
B Preferred and Series C Preferred shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share and on or
prior to the fifth day prior to any Redemption Date (its defined in Section 7
hereof), at the office of the Corporation or any transfer agent for the Series A
Preferred, Series B Preferred and Series C Preferred, into such number of fully
paid and nonassessable shares of Voting Common Stock, as is determined by
dividing (x) with respect to the Series A Preferred, $1.00 by the Conversion
Price for the Series A Preferred determined as hereinafter provided in effect at
the time of conversion and (y) with respect to the Series B Preferred and Series
C Preferred, $2.25 by the Conversion Price for the Series B Preferred and Series
C Preferred determined as hereinafter provided in effect at the time of
conversion. The initial Conversion Price for the Series A Preferred shall be
$1.00 per share and the initial Conversion Price for the Series B Preferred and
the Series C Preferred shall be $2.25. The initial Conversion Prices shall be
subject to adjustment as hereinafter provided.
(ii) CONVERSION OF SERIES C PREFERRED INTO NON-VOTING COMMON.
Subject to laws and regulations applicable to holders of Series C Preferred,
each share of Series C Preferred shall be convertible, at the option of the
holder thereof, at any time after the date of issuance of such share and on
or prior to the fifth (5th) day prior to any Redemption Date (as defined in
Section 7 hereof, at the office of the Corporation or any transfer agent for
the Series C Preferred, into such number of fully paid and non-assessable
shares of Non-Voting Common Stock, at the election of the holder of the
Series C Preferred, as is determined by dividing $2.25 by the Conversion
Price for the Series C Preferred determined as hereinafter provided in effect
at the time of conversion. The initial Conversion Price for the Series C
Preferred shall be $2.25. The initial Conversion Price shall be subject to
adjustment as hereinafter provided.
(iii) CONVERSION OF NON-VOTING COMMON INTO VOTING COMMON.
Subject to the laws and regulations applicable to holders of Non-Voting
Common, each share of Non-Voting Common Stock shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share and on or prior to the fifth (5th) day prior to any Redemption Date (as
defined in Section 7 hereof), at the office of the Corporation or any
transfer agent for the Non-Voting Common Stock, into an equal number of fully
paid and non-assessable shares of Voting Common Stock.
(b) MECHANICS OF CONVERSION.
(i) Before any holder of Series A Preferred, Series B
Preferred, Series C Preferred or Non-Voting Common Stock shall be entitled to
convert the same into shares of Common Stock, he shall surrender the
certificate or certificates therefor (or comply with applicable lost
certificate provisions), duly endorsed, at the office of the Corporation or
of any transfer agent
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for the Series A Preferred, Series B Preferred, Series C Preferred or
Non-Voting Common Stock, and shall give written notice to the Corporation at
such office that he elects to convert the same. The Corporation shall, as
soon as practicable thereafter, issue and deliver at such office to such
holder of Series A Preferred, Series B Preferred, Series C Preferred or
Non-Voting Common Stock to which he shall be entitled as aforesaid and, if
less than all the share of the Series A Preferred, Series B Preferred, Series
C Preferred or Non-Voting Common Stock represented by such certificate are
converted, a certificate representing the shares of Series A Preferred,
Series B Preferred, Series C Preferred or Non-Voting Common Stock not
converted. In the event of any conversion at the election of a holder of
Series A Preferred, Series B Preferred, Series C Preferred or Non-Voting
Common Stock, such conversion shall be deemed to have been made immediately
prior to the close of business on the date of such surrender of the shares of
Series A Preferred, Series B Preferred, Series C Preferred or Non-Voting
Common Stock to be converted, and the person or persons entitled to receive
the shares of either Voting Common Stock or Non-Voting Common Stock issuable
upon such conversion shall be treated for all purposes as the record holder
or holders of such shares of either Voting Common Stock or Non-Voting Common
Stock on such date.
(ii) If any holder of Series A Preferred, Series B Preferred,
Series C Preferred or Non-Voting Common Stock elects to convert in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Series A Preferred, Series B Preferred, Series C Preferred or
Non-Voting Common Stock, as the case may be, for conversion, be conditioned upon
the closing with the underwriter of the sale of securities pursuant to such
offering, in which event the person(s) entitled to receive either the Voting
Common Stock of Non-Voting Common Stock issuable upon such conversion of the
Series A Preferred, Series B Preferred, Series C Preferred or Non-Voting Common
Stock until immediately prior to the closing of such sale of securities.
Alternatively, any holder of Series A Preferred, Series B Preferred, Series C
Preferred or Non-Voting Common Stock may sell to the underwriters of the
offering, if acceptable to the underwriters, shares of Series A Preferred,
Series B Preferred, Series C Preferred or Non-Voting Common Stock prior to the
closing of the sale. In such event, the Corporation will cause the Voting
Common Stock or Non-Voting Common Stock issuable upon such conversion to be
issued within such time as will permit the underwriters to make and complete the
distribution contemplated by the underwriting.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section 4(c),
the following definitions shall apply:
(1) "OPTIONS" shall mean rights, options, or warrants
to subscribe for, purchase or otherwise acquire either Voting Common Stock or
Non-Voting Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean July 12, 1991
with respect to the Series A Preferred, June 8, 1993 with respect to the Series
B Preferred and July 8, 1993 with respect to the Series C Preferred.
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(3) "CONVERTIBLE SECURITIES" shall mean any securities
convertible into or exchangeable for Voting Common Stock or Non-Voting Common
Stock, including any evidence of indebtedness, any capital stock of the
Corporation or other securities convertible into or exchangeable for Common
Stock.
(4) "ADDITIONAL SHARES OF COMMON" shall mean all
shares of either Voting Common Stock or Non-Voting Common Stock issued (or,
pursuant to Section 4(c) (ii), deemed to be issued) without consideration or for
a consideration per share less than the applicable Conversion Prices for the
Series A Preferred, Series B Preferred or Series C Preferred in effect
immediately prior to the issuance of such Additional Shares of Common by the
Corporation on or after the applicable Original Issue Date, other than shares of
Voting Common Stock or Non-Voting Common Stock issued or issuable at any time:
(A) upon conversion of shares of Series A Preferred,
Series B Preferred, Series C Preferred or Non-Voting Common Stock;
(B) to officers, directors, employees and
consultants of the Corporation pursuant to a stock option plan and/or stock
purchase plan established by the Board of Directors and approved by shareholders
of the Corporation and administered by the Board of Directors or a committee of
the Board; and
(C) upon exercise of outstanding stock appreciation
rights, issued in connection with the Corporation's purchase of substantially
all of the assets of Sweet Factory California Partners, Inc., when the total
number of shares of Common Stock so issued does not exceed 110,526 (subject to
proportionate adjustment in the case of recapitalization, stock splits, stock
dividends or combination of shares).
(ii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event
the Corporation at any time or from time to time after any applicable
Original Issue Date shall issue any options or Convertible Securities or
shall fix a record date for the determination of holders of any class of
securities entitled to receive any such Options or Convertible Securities,
then the maximum number of shares of either Voting Common Stock or Non-Voting
Common Stock issuable upon the exercise of such Options or, in the case of
Convertible Securities and Options therefor, the conversion or exchange of
such Convertible Securities, shall be deemed to have been issued as of the
time of such issue or, in case such a record date shall have been fixed, as
of the close of business on such record date, and for a consideration equal
to the consideration (determined in the manner provided for in Section
4(c)(iv), if any, received by the Corporation upon such issue plus the
minimum exercise price provided for therein; provided that if such Options or
Convertible Securities by their terms provide, with the passage of time or
otherwise, for any change in the minimum amount of consideration payable to
the Corporation, or change the maximum number of shares of either Voting
Common Stock or Non-Voting Common Stock issuable, upon the exercise,
conversion, or exchange thereof, including, but not limited to, changes which
may occur as a result of antidilution provisions thereof, the Conversion
Prices for the Series A Preferred, Series B
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Preferred and Series C Preferred shall be recomputed to reflect such change
based on the provisions of this Section when each such change is effective.
(A) no further adjustment in any Conversion Price
shall be made upon the actual issue of shares of either Voting Common Stock or
Non-Voting Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities or any payment of such consideration
upon the exercise, conversion or exchange thereof;
(B) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which shall
not have been exercised, the Conversion Prices of the Series A Preferred, Series
B Preferred and Series C Preferred computed upon the original issue thereof (or
upon the occurrence of a record date with respect thereto), and any subsequent
adjustments based thereon, shall, upon such expiration, be recomputed (provided
that recomputation shall not affect any Series A Preferred, Series B Preferred
or Series C Preferred converted or tendered for conversion prior to such
exercise or expiration) as if:
(I) in the case of Convertible Securities or Options
for Voting Common Stock or Non-Voting Common Stock, the only Additional Shares
of Common issued were shares of Voting Common Stock or Non-Voting Common Stock,
if any, actually issued upon the exercise of such Options or the conversion or
exchange of such Convertible Securities and the consideration received therefor
was the consideration actually received by the Corporation for the issue of all
such Options which were actually exercised, plus the consideration actually
received by the Corporation upon such exercise, or for the issue of all such
Convertible Securities which were actually converted or exchanged, plus the
additional consideration, if any, actually received by the Corporation upon such
conversion or exchange, and
(II) in the case of Options for Convertible
Securities, only the convertible Securities, if any, actually issued upon the
exercise thereof were issued at the time of issue of such Options, and the
consideration received by the Corporation for the Additional Shares of Common
deemed to have been then issued was the consideration actually received by the
Corporation for the issue of all such Options which were actually exercised,
plus the consideration deemed to have been received by the Corporation upon the
issue of the Convertible Securities with respect to which such Options were
actually exercised;
(C) no readjustment pursuant to Subsection (B)
above shall have the effect of increasing the applicable Conversion Prices of
the Series A Preferred, Series B Preferred or Series C Preferred to an amount
which exceeds such Conversion Prices on the original adjustment date
immediately prior to the original adjustment. If Additional Shares of Common
were issued between the original adjustment date and the readjustment date
(other than Voting Common Stock and Non-Voting Common Stock issued upon
exercise of the Options or conversion of the Convertible Securities that are
the subject of the readjustment), the applicable Conversion Prices of the
Series A Preferred, Series B Preferred or Series C Preferred on the
readjustment date shall be recomputed (but only if a lower Conversion Price
results therefrom) by treating the readjusted Conversion Prices as the
Conversion Prices in effect on the original adjustment date and adjusting
such Conversion Prices for all issuances of Additional Shares of Common
(other than Voting
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Common Stock and Non-Voting Common Stock issued upon exercise of the Options
or conversion of the Convertible Securities that are the subject of the
readjustment) occurring between the original adjustment date and the
readjustment date.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON.
(1) Except as provided in Section 4(c)(iii)(2), in
the event this Corporation shall issue any Additional Shares of Common
(including Additional Shares of Common deemed to be issued pursuant to Section
4(c)(ii)) without consideration or for a consideration per share less than the
Conversion Price for the Series A Preferred, Series B Preferred or Series C
Preferred in effect on the date of and immediately prior to such issue, then and
in each such event, each such Conversion Price in effect immediately prior to
such issue shall be reduced concurrently with such issue of shares to a price
equal to the quotient obtained by dividing the total computed under clause (x)
below by the total computed under clause (y) below as follows:
(x) an amount equal to the sum of
(1) the aggregate purchase price of the shares of
the series of Preferred Stock with respect to which the adjustment is to be
made, plus
(2) the aggregate consideration, if any, received by
the Corporation for all Additional Shares of Common issued on or since the
Original Issue Date for the series of Preferred Stock with respect in which
the adjustment is to be made.
(y) an amount equal to the sum of
(1) the aggregate purchase price of the shares of
the series of Preferred Stock to which the adjustment is to be made divided
by the Conversion Price for such shares in effect at the applicable
Original Issue Date (or such higher or lower Conversion Price for such
series as results from the application of subsection 4(c)(iii)(2) and
assuming that this Certificate was in effect as of the applicable Original
Issue Date), plus
(2) the number of shares of Additional Shares of
Common issued since the applicable Original Issue Date (increased or
decreased to the extent that the number of such shares of Additional Shares
of Common shall have been increased or decreased as the result of the
application of subsections 4(c)(iii)(2)),
(3) In the event the Corporation at any time or from
time to time after the applicable Original Issue Date shall declare or pay
any dividend on the Voting Common Stock or Non-Voting Common Stock payable
in either Voting Common Stock or Non-Voting Common Stock or other
securities or rights convertible into, or entitling the holder thereof to
receive additional shares of either Voting Common Stock or Non-Voting
Common Stock, or effect a subdivision or combination of the outstanding
shares of either Voting Common Stock or Non-Voting Common Stock (by
reclassification or
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otherwise than by payment of a dividend in either Voting Common Stock or
Non-Voting Common Stock), then and in any such event, the Conversion Prices
of the Series A Preferred, Series B Preferred and Series C Preferred shall
be proportionately decreased in the case of a stock dividend or subdivision
and proportionately increased in the case of a combination of shares,
effective in the case of such dividend, immediately after the close of
business on the record date for the determination of holders of Voting
Common Stock and Non-Voting Common Stock entitled to receive such dividend,
or in the case of a subdivision or combination, at the close of business
immediately prior to the date upon which such corporate action becomes
effective.
(iv) DETERMINATION OF CONSIDERATION. For purposes of
this Section 4(c), the consideration received by the Corporation for the issue
of any Additional Shares of Common shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be
computed at the aggregate amount of such received by the Corporation excluding
amounts paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other
than cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of this Corporation; and
(C) in the event Additional Shares of Common
are issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above, as
determined in good faith by the Board of Directors of this Corporation.
(2) OTHER OPTIONS AND CONVERTIBLE SECURITIES. For
the purpose of computing the initial adjustment of the Conversion Price pursuant
to Section 4(c)(ii)(1) (but not for the readjustment pursuant to Subsection (B)
of that Section), the consideration per share received by the Corporation for
Additional Shares of Common deemed to have been issued pursuant to Section
4(c)(iii)(1) shall be determined by dividing;
(x) the total amount, if any, received or
receivable by the Corporation as consideration for the issue of such Options or
Convertible Securities, plus the minimum aggregate amount of additional
consideration payable to the Corporation upon the exercise of such Options or
the conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities, by
(y) the maximum number of shares of Voting
Common Stock or Non-Voting Common Stock issuable upon the exercise of such
Options or the conversion or exchange of such Convertible Securities.
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(v) ADJUSTMENTS FOR OTHER DIVIDENDS AND
DISTRIBUTIONS. In the event the Corporation at any time or from time to time
makes, or fixes a record date for the determination of holders of Voting Common
Stock and Non-Voting Common Stock entitled to receive a dividend or other
distribution payable in securities of the Corporation other than shares of
Voting Common Stock and Non-Voting Common Stock, a distribution payable in
securities of other persons, or evidences of indebtedness issued by this
Corporation or other persons, then and in each such event provision shall be
made so that the holders of Series A Preferred, Series B Preferred and Series C
Preferred shall receive a proportionate share of any such distribution as though
they were holders of the number of shares of Voting Common Stock and Non-Voting
Common Stock into which their Series AP referred, Series B Preferred and Series
C Preferred were convertible on the record date of such event.
(d) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in the carrying out of
all the provisions of this Section 4 and in the taking of all such action as
may be necessary or appropriate in order to protect the Conversion Rights of
the holders of the Non-Voting Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred against impairment.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the applicable Conversion Price pursuant to this
Section 4, the Corporation at its expense shall promptly compute such adjustment
or readjustment in accordance with the terms hereof and furnish to each holder
of Series A Preferred, Series B Preferred and Series C Preferred a certificate
setting forth such adjustment or readjustment and showing in detail the facts
upon which such adjustment or readjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series A Preferred, Series
B Preferred or Series C Preferred, furnish or cause to be furnished to such
holder a like certificate setting forth (i) such adjustments and readjustments,
(ii) the applicable Conversion Price at the time in effect, and (iii) the number
of shares of Voting Common Stock and the amount, if any, of other property which
at the time would be received upon the conversion of the Series A Preferred,
Series B Preferred or Series C Preferred.
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Voting Common Stock and Non-Voting Common
Stock, solely for the purpose of effecting the conversion of the Series A
Preferred, the Series B Preferred, the Series C Preferred Stock and the
Non-Voting Common Stock, such number of its shares of Voting Common Stock as
shall from time to time be sufficient to effect a conversion of all
outstanding shares of the Series A Preferred, the Series B Preferred, the
Series C Preferred Stock or the Non-Voting Common Stock, and such number of
shares of Non-Voting Common Stock as shall from time to time be sufficient to
effect a conversion of all outstanding shares of Series C Preferred, and if
at any time the number of authorized but unissued shares of either Voting
Common Stock or Non-Voting Common Stock shall not be sufficient to effect the
conversion of all then outstanding shares of the Series A Preferred, the
Series B Preferred, the Series C Preferred or the Non-Voting Common Stock,
the Corporation shall promptly take such corporate
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action as may, in the opinion of its counsel, be necessary to increase its
authorized but unissued shares of either Voting Common Stock or Non-Voting
Common Stock to such number of shares as shall be sufficient for such purpose.
(g) PAYMENT OF TAXES. The Corporation shall pay all issue taxes and
other governmental charges (other than income or other taxes imposed upon
profits realized by the recipient) that may be imposed in respect of the issue
or delivery of shares of either Voting Common Stock or Non-Voting Common Stock
or other securities or property upon conversion of shares of Series A Preferred,
Series B Preferred and Series C Preferred, and Non-Voting Common Stock-
provided, however, that the Corporation shall not be obligated to pay any tax or
other charges imposed in connection with any transfer involved in the issue and
delivery of shares of either Voting Common Stock or Non-Voting Common Stock or
other securities in any name other than that in which the shares of Series A
Preferred, Series B Preferred and Series C Preferred and Non-Voting Common Stock
were registered.
(h) NO REISSUE. Any shares of Series A Preferred, Series B
Preferred, Series C Preferred and Non-Voting Common Stock that are converted by
the holder shall not be reissued and the certificates representing such shares
shall be appropriately cancelled on the books of the Corporation.
(i) RECLASSIFICATION; RECAPITALIZATION. In the event of any
reclassification of the Voting Common Stock or Non-Voting Common Stock or
recapitalization involving Voting Common Stock or Non-Voting Common Stock (other
than a change in par value or as a result of a stock dividend, subdivision, or
combination of shares or any event described in Section 3(b)), each holder of
the Series A Preferred, Series B Preferred, Series C Preferred and Non-Voting
Common Stock shall thereafter be entitled to receive and provisions shall be
made therefor, in an agreement relating to the reclassification or
recapitalization, upon conversion of the Series A Preferred, Series B Preferred,
Series C Preferred and Non-Voting Common Stock the kind and number of shares of
Voting Common Stock or Non-Voting Common Stock or other securities or property
(including cash) of the Corporation or otherwise, to which such holder of Series
A Preferred, Series B Preferred, Series C Preferred and Non-Voting Common Stock
would have been entitled if he had held the number of shares of Voting Common
Stock or Non-Voting Common Stock of the Corporation into which the Series A
Preferred, Series B Preferred, Series C Preferred and Non-Voting Common Stock
was convertible immediately prior to such reclassification or recapitalization;
and in any such case, appropriate adjustment shall be made in the application of
the provisions herein set forth with respect to the rights and interests
thereafter of the holders of the Series A Preferred, Series B Preferred, Series
C Preferred and Non-Voting Common Stock after the reclassification or
recapitalization, to the end that the provisions set forth herein (including the
specific changes and other adjustments to the applicable Conversion Price),
shall thereafter be applicable, as nearly as reasonably may be, in relation to
any shares, other securities, or property thereafter receivable upon conversion
of the Series A Preferred, Series B Preferred, Series C Preferred and Non-Voting
Common Stock.
(j) NOTICES OF RECORD DATE. In the event that this Corporation shall
propose at any time:
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<PAGE>
(i) to declare any dividend or distribution upon its Voting
Common Stock or Non-Voting Common Stock, whether in cash, property, stock or
other securities, whether or not a regular cash dividend and whether or not out
of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of its
Voting Common Stock or Non-Voting Common Stock outstanding involving a change in
the Voting Common Stock or Non-Voting Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property or
business, or to liquidate, dissolve or wind up;
then, in connection with each event, this Corporation shall send to the holders
of the Series A Preferred, Series B Preferred, Series C Preferred and Non-Voting
Common Stock;
(1) at least twenty (20) days' prior written notice
of the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Voting
Common Stock or Non-Voting Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (iii) and
(iv) above; and
(2) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Voting Common Stock or Non-Voting Common Stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon the
occurrence of such event or such earlier date, if any, on which a record shall
be taken of the holders of Voting Common Stock or Non-Voting Common Stock who
shall be entitled to exchange their Voting Common Stock or Non-Voting Common
Stock).
(k) MANNER OF NOTICE. Any notice required by this Section 4 shall be
deemed given if given by certified mail, postage prepaid, return receipt
requested, addressed to the holders of Series A Preferred, Series B Preferred,
Series C Preferred and Non-Voting Common Stock at the address for each such
holder as shown on the books of this Corporation.
(l) FRACTIONAL SHARES No fractional share shall be issued upon the
conversion of any share or shares of Series A Preferred, Series B Preferred,
Series C Preferred and Non-Voting Common Stock. All shares of Voting Common
Stock or Non-Voting Common Stock (including fractions thereof) issuable upon
conversion of more than one share of Series A Preferred, Series B Preferred,
Series C Preferred and Non-Voting Common Stock by a holder thereof shall be
aggregated for purposes of determining whether the conversion would result in
the issuance of any fractional share. If, after the aforementioned aggregation,
the conversion would result in the issuance of a fraction of a share of Voting
Common Stock or Non-Voting Common Stock, the Corporation shall, in lieu of
issuing any fractional share, pay the holder otherwise entitled to such
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<PAGE>
fraction a sum in cash equal to the fair market value such fraction on the
date of conversion (as determined in good faith by the Board of Directors of
the Corporation).
(m) AUTOMATIC CONVERSION. Each share of Series A Preferred, Series B
Preferred, Series C Preferred and Non-Voting Common shall automatically be
converted into shares of Voting Common Stock at the then applicable Conversion
Price in the event of the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement on Form S-1 under the
Securities Act of 1933, as amended, covering the offer and sale of Voting Common
Stock for the account of this Corporation to the public where (i) the gross
proceeds to this Corporation are not less than $15,000,000, and (ii) the price
per share to the public of the Voting Common Stock is at least $5.625 (subject
to adjustment to reflect stock splits, stock dividends, combinations of shares
and recapitalizations) (the "Public Offering"). In the event of such Public
Offering, the person(s) entitled to receive the Voting Common Stock issuable
upon such conversion of Series A Preferred, Series B Preferred, Series C
Preferred or Non-Voting Common shall not be deemed to have converted such Series
A Preferred, Series B Preferred, Series B Preferred or Series C Preferred until
immediately prior to the closing of such Public Offering, except that any such
person may specify an earlier time for conversion in accordance with Section
4(b).
5. VOTING RIGHTS. (a) Except as set forth in Section 5(b) below and
except as otherwise provided by law, the holders of Series A Preferred, Series B
Preferred and Voting Common Stock shall be entitled to notice of any
shareholders' meeting and to vote together as one class upon any matter
submitted to the holders of Common Stock for a vote on the following basis:
(i) VOTING COMMON STOCK VOTE. Each share of Voting Common
Stock issued and outstanding shall have one vote.
(ii) SERIES A PREFERRED AND SERIES B PREFERRED VOTE. Each
holder of Series A Preferred and Series B Preferred shall have the number of
votes equal to the number of shares of Voting Common Stock into which such
series of Preferred Stock held by it is then convertible, as adjusted from time
to time under the terms hereof.
(iii) QUORUM. For matters to be voted on by the Series A
Preferred, Series B Preferred and Voting Common Stock together as one class, a
quorum shall consist of a majority of the votes attributable to the Voting
Common Stock, Series A Preferred and Series B Preferred as set forth in clauses
(i) and (ii) of this Section 5.
(b) Until the closing of the Public Offering, the Board of Directors
of the Corporation shall consist of no more than ten members. So long as at
least 2,000,000 shares of Series A Preferred Stock are outstanding, the holders
of the Series A Preferred shall vote as a separate class to elect three
directors to the Board of Directors at each annual meeting. So long as at least
1,000.000 shares of Series B Preferred Stock are outstanding, the holders of the
Series B Preferred shall vote as a separate class to elect two directors to the
Corporation's Board of Directors at each annual meeting. Election of directors
need not be by written ballot unless the By-laws of the Corporation so provide.
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<PAGE>
(c) Except as otherwise required by law, the shares of Non-Voting
Common Stock and Series C Preferred Stock shall not have any voting rights.
6. PROTECTIVE PROVISIONS. (a) In addition to any other rights provided by
law or agreement, so long as any Series A Preferred shall be outstanding, this
Corporation shall not, without first obtaining the affirmative vote or written
consent of the holders of not less than a majority of the outstanding shares of
Series A Preferred:
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws if such action would
adversely change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit of, the Series A Preferred, or increase or
decrease the number of shares of Series A Preferred authorized hereby;
(ii) authorize or issue shares of any class of stock not
authorized herein having any preference or priority over, or being on parity
with, the Series A Preferred as to voting, dividends or upon liquidation, or
authorize or issue shares of stock of any class or any bonds, debentures, notes
or other obligations convertible into or exchangeable for, or having option
rights to purchase, any shares of stock of this Corporation having any
preference or priority over, or being on parity with, the Series A Preferred as
to voting, dividends or upon liquidation;
(iii) reclassify any Junior Stock into shares having any
preference or priority over, or being on parity with, the Series A Preferred as
to voting, dividends of upon liquidation;
(iv) do any act or thing which would result in taxation of the
holders of shares of the Series A Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereinafter from time to time amended);
(v) amend or repeal any provision of this Section 6.
(b) In addition to any other rights provided by law or agreement, so
long as any Series B Preferred shall be outstanding, this Corporation shall not,
without first obtaining the affirmative vote or written consent of the holders
of not less than 66-2/3% of the outstanding shares of Series B Preferred;
(i) amend or repeal any provision of, or add any provision to,
the Corporation's Certificate of Incorporation or By-laws if such action would
adversely change the preferences, rights, privileges or powers of, or the
restrictions provided for the benefit-of, the Series B Preferred, or increase or
decrease the number of shares of Series B Preferred or Series C Preferred
authorized hereby;
(ii) authorize or issue shares of any class of stock not
authorized herein having any preference or priority over, or being on parity
with, the Series B Preferred as to voting, dividends or upon liquidation, or
authorize or issue shares of stock of any class or any bonds,
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<PAGE>
debentures, notes or other obligations convertible into or exchangeable for,
or having option rights to purchase, any shares of stock of this Corporation
having any preference or priority over, or being on parity with, the Series B
Preferred as to voting, dividends or upon liquidation;
(iii) reclassify any Junior Stock into shares having any
preference or priority over, or being on parity with, the Series B Preferred as
to voting, dividends or upon liquidation;
(iv) do any act or thing which would result in taxation of the
holders of shares of the Series B Preferred Stock under Section 305 of the
Internal Revenue Code of 1986, as amended (or any comparable provision of the
Internal Revenue Code as hereafter from time to time amended;
(v) amend or repeal any provision of this Section 6.
7. REDEMPTION.
(a) At any time beginning June 15, 1997, upon election (a "Redemption
Election") by the holders of at least 90% of the then outstanding Series B
Preferred and Series C Preferred, this Corporation shall redeem all of the
Series B Preferred Stock then outstanding, in the manner and in accordance with
the provisions of Section 7(c) through 7(g) below.
(b) Commencing on the date that is one day following the first date
on which no shares of Series B Preferred Stock or Series C Preferred Stock
remain outstanding, upon receipt of a Redemption Election from holders of at
least 90% of the then outstanding Series A Preferred Stock, this Corporation
shall redeem all of the Series A Preferred Stock then outstanding, in the manner
and in accordance with the provisions of Sections 7(c) through 7(g).
(c) The Series Preferred Stock to be redeemed on a Redemption Date
(as such term is defined herein) shall be redeemed by the Corporation by
paying in cash therefor a per share sum equal to (i) for each share of Series
B Preferred Stock and Series C Preferred Stock to be redeemed $2.25 (as
adjusted to reflect a stock split, combination, reclassification or similar
event involving either the Series B Preferred or the Series C Preferred),
plus all accumulated dividends, all declared but unpaid dividends and the
dividend preference for the current fiscal year on the Series B Preferred and
the Series C Preferred being redeemed (prorated through the date on which
such shares are actually redeemed) or (ii) for each share of Series A
Preferred Stock to be redeemed $1.00 (as adjusted to reflect a stock split,
combination, reclassification or similar event involving the Series A
Preferred Stock) plus all accumulated dividends, all declared but unpaid
dividends and the divided preference for the current fiscal year on the
Series A Preferred (prorated through the date on which such share of Series A
Preferred is actually redeemed (such cash amount payable under this Section
7(c) shall hereinafter be referred to as the "Redemption Price"). The
Redemption Price shall be payable in sixteen (16) equal consecutive quarterly
payments beginning on the 180th day after the date the Corporation receives
the Redemption Election (the "Initial Redemption Date") and each subsequent
redemption installment shall occur on each quarterly anniversary of the
Initial Redemption Date unless such anniversary falls on a day which is not a
business day in San Diego,
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<PAGE>
California, in which case the applicable redemption installment shall be due
and payable on the next business day (each such date, and the Initial
Redemption Date, are sometimes referred to herein as a "Redemption Date").
On each Redemption Date, each holder of shares of Series Preferred Stock
being redeemed shall surrender the certificate or certificates representing
the shares of such Preferred Stock to be redeemed on such Redemption Date
(together with a proper assignment of such certificates(s)) to the
Corporation in exchange for payment of the applicable Redemption Price for
such shares of Series Preferred Stock. In the event that either the number
of shares of Series Preferred Stock required to be redeemed by the
Corporation on such Redemption Date is less than the number of shares of
Series Preferred Stock represented by such certificate(s), or the Corporation
fails to pay the Redemption Price for all of the shares of Series Preferred
Stock required to be redeemed on such Redemption Date, the Corporation shall
reissue and deliver to such holder on such Redemption Date a certificate
representing the number of shares of Series Preferred Stock which are not
required to be redeemed or for which the Redemption Price has not been paid
in full. Until each Redemption Date, all unredeemed shares shall be deemed
to be outstanding.
(d) At least thirty (30), but no more than sixty (60) days,
prior to each Redemption Date, written notice shall be mailed, first class
postage prepaid, to each holder of record (at the close of business on the
business day next preceding the day on which notice is given) of the Series
Preferred Stock to be redeemed, at the address last shown on the records of this
Corporation for such holder or given by the holder to this Corporation for the
purpose of notice or if no such address appears or is given at the place where
the principal executive office of this Corporation is located, notifying such
holder of the redemption to be effected, specifying the Redemption Date, the
Redemption Price, and the date on which such holder's Conversion Rights as to
such shares terminate (the "Redemption Notice"). Each holder of Series
Preferred Stock being so redeemed shall surrender to this Corporation the
certificate or certificates representing such shares, in the manner and at the
place specified in subsection (c) above, and thereupon the installment of the
Redemption Price of such shares shall be payable to the order of the person
whose name appears on such certificate or certificate as the owner thereof and
each surrendered certificate shall be canceled.
(e) From and after the Redemption Date, unless there shall
have been a default in payment of the Redemption Price, all rights of the
holders of such shares of Series Preferred Stock that have been delivered for
redemption (except the right to receive the Redemption Price) shall cease with
respect to such shares, and such shares shall not thereafter be transferred on
the books of this Corporation or be deemed to be outstanding for any purpose
whatsoever. If the funds of the Corporation legally available for redemption of
shares of Series Preferred Stock on any Redemption Date are insufficient to pay
in full the cash portion of the Redemption Price for the total number of shares
of Series Preferred Stock to be redeemed on such date, those, funds which are
legally available will be used to redeem the maximum possible number of such
shares ratably among the holders of the shares of Series Preferred Stock to be
redeemed based on the aggregate Redemption Price of such Series Preferred Stock,
provided, however, that no shares of Series A Preferred Stock shall be redeemed
until the date that is one day following the day on which no shares of Series B
Preferred Stock or Series C Preferred Stock remain outstanding. The shares of
Series Preferred Stock not redeemed shall remain outstanding and entitled to all
the rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption of
shares of Series Preferred Stock, such funds will immediately be used
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<PAGE>
to redeem the balance of the shares which the Corporation has become
obligated to redeem on any Redemption Date, but which it has not redeemed.
The aggregate cash portion of the Redemption Price for the shares of Series
Preferred Stock that arc not redeemed by the Corporation as required on a
Redemption Date shall bear interest from the date the Corporation is required
to redeem such shares of Series Preferred Stock until such cash portion of
the Redemption Price has been paid in full at the greater of a fluctuating
rate equal to the rate per annum publicly announced by Bank of America NT &
SA form time to time as its prime rate in effect at its principal office in
San Francisco, California, plus two percent (2%), or twelve and one-half
percent (12.5%) per annum (provided that any such rate is not greater than
the rate allowed by law), in each case based upon a year of 360 days and the
actual number of days elapsed.
(f) Three (3) days prior to the Redemption Date, this
Corporation shall deposit the cash Redemption Price of all outstanding shares of
Series Preferred Stock designated for redemption in the Redemption Notice, and
not yet converted, with a bank or trust company having aggregate capital and
surplus in excess of $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption. Simultaneously,
this Corporation shall deposit irrevocable instruction and authority to such
bank or trust company to pay, on and after the date fixed for redemption, the
Redemption Price of the Series Preferred Stock being redeemed to the holders
thereof upon surrender of their certificates in accordance with Subsection (c)
above.
(g) "Series Preferred Stock" shall mean all Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
8. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of
this Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
ARTICLE V
1. To the fullest extent permitted by applicable law, this
Corporation is also authorized to provide indemnification of (and advancement of
expenses to) directors, officers, employees and agents (and any other persons to
which Delaware law permits this Corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, (subject only to limits created by applicable
Delaware law (statutory or non-statutory), with respect to actions for breach of
duty to the Corporation, its stockholders, and others.
2. No director of the Corporation shall be personally liable to the
Corporation or any stockholder for monetary damages for breach of fiduciary duty
as a director, except for any matter in respect of which such director shall be
liable under Section 174 of the General Corporation Law of the State of Delaware
or any amendment thereto or shall be liable by reason that, in addition to any
and all other requirements for such liability, such director (1) shall have
breached the director's duty of loyalty to the Corporation of its stockholders,
(2) shall not have acted in good faith, (3) shall have acted in a manner
involving intentional misconduct or a knowing violation of law or, in failing to
act, shall have acted in a manner involving intentional misconduct or a knowing
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<PAGE>
violation of law, or (4) shall have derived an improper personal benefit. If
the Delaware General Corporation law is hereafter amended to authorize the
further elimination or limitation of the liability of a director, the
liability of a director of the Corporation shall be eliminated or limited to
the fullest extent permitted by the Delaware General Corporation law, as so
amended.
3. Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding"), including any appeal therefrom, by
reason of the fact that he or she, or a person of whom he or she is the legal
representative, is or was a director or officer of the Corporation or of a
direct or indirect subsidiary of the Corporation, or is or was serving at the
request of the Corporation as a director or officer of another entity or
enterprise, or was a director or officer of a foreign or domestic Corporation
which was a predecessor corporation of the Corporation or of another entity or
enterprise at the request of such predecessor corporation, shall be indemnified
and held harmless by the Corporation, and the Corporation shall advance all
expenses incurred by any such person in defense of any such proceeding prior to
its final determination, to the fullest extent authorized by the General
Corporation Law of the State of Delaware. In any proceeding against the
Corporation to enforce these rights, such person shall be presumed to be
entitled to indemnification and the Corporation shall have the burden of proving
that such person has not met the standards of conduct for permissible
indemnification set forth in the General Corporation Law of the State of
Delaware. The rights to indemnification and advancement of expenses conferred
by this Article V shall be presumed to have been relied upon by the directors
and officers of the Corporation in serving or continuing to serve the
Corporation and shall be enforceable as contract rights. Said rights shall not
be exclusive of any other rights to which those seeking indemnification may
otherwise be entitled. The Corporation may, upon written demand presented by a
director or officer of the Corporation or of a direct or indirect subsidiary of
the Corporation, or by a person serving at the request of the Corporation as a
director or officer of another entity or enterprise, enter into contracts to
provide such persons with specific rights to indemnification, which contracts
may confer rights and protections to the maximum extent permitted by the General
Corporation Law of the State of Delaware, as amended and in effect from time to
time.
(a) If a claim under this Article V is not paid in full by the
Corporation within sixty (60) days after a written claim has been received by
the Corporation, the claimant may at any time thereafter bring suit against the
Corporation to recover the unpaid amount of the claim and, if successful in
whole or in part, the claimant shall be entitled to be paid also the expenses of
prosecuting such claim. It shall be a defense to any such action (other than an
action brought to enforce the right to be advanced expenses incurred in
defending any proceeding prior to its final disposition where the required
undertaking, if any, has been tendered to the Corporation) that the claimant has
not met the standards of conduct which make it permissible under the General
corporation Law of the State of Delaware for the Corporation to indemnify the
claimant for the amount claimed, but the claimant shall be presumed to be
entitled to indemnification and the Corporation shall have the burden of proving
that the claimant has not met the standards of conduct for permissible
indemnification set forth in the General Corporation Law of the State of
Delaware.
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<PAGE>
(b) If the General Corporation Law of the State of Delaware is
hereafter amended to permit the Corporation to provide broader indemnification
rights than said Law permitted the Corporation to provide prior to such
amendment, the indemnification rights conferred by this Article V shall be
broadened to the fullest extent permitted by the General Corporation Law of the
State of Delaware, as so amended.
4. Any repeal or modification of any of the foregoing provisions of
this Article V, including without limitation, any contractual rights arising
under or authorized by it, shall not adversely affect any right or protection of
a director, officer, agent or other person existing at the time of, or increase
the liability of any director of the Corporation with respect to any acts or
omissions of such director, officer or agent occurring prior to such repeal or
modification."
SECOND: The foregoing Amendment was approved by the stockholders in
accordance with the provisions of Section 242 of the Delaware General
Corporation Law, except that written consent of the stockholders has been given
in accordance with the provisions of Section 228.
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<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Certificate of Amendment
on September 24, 1997.
SWEET FACTORY GROUP, INC., a Delaware
corporation
BY: /s/ T. Robert Bell
--------------------------------------
T. Robert Bell, President
BY: /s/ John F. Hoffner
--------------------------------------
John F. Hoffner, Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Certificate of Amendment of the Certificate of Incorporation and know
the contents thereof, and that the statements therein are true.
EXECUTED at San Diego, California, on September 24, 1997.
SWEET FACTORY GROUP, INC., a Delaware
corporation
BY: /s/ T. Robert Bell
---------------------------------
T. Robert Bell, President
BY: /s/ John F. Hoffner
---------------------------------
John F. Hoffner, Secretary
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RESTATED CERTIFICATE OF INCORPORATION
OF
SWEET FACTORY, INC.,
A DELAWARE CORPORATION
The undersigned Edgar P. Berner and John F. Hoffner, hereby certify that:
ONE: They are the duly-elected and acting Chairman of the Board and
Assistant Secretary, respectively, of Sweet Factory, Inc.
TWO: The Corporation's original Certificate of Incorporation was
filed with the Secretary of State of the State of Delaware on June 25,
1991, and such Certificate was amended on July 11, 1991. Such Certificate
was further amended and restated and a Restated Certificate of
Incorporation filed on June 7, 1993 with the Delaware Secretary of State.
A second Restated Certificate of Incorporation was filed with the Secretary
of State of the State of Delaware on July 8, 1993. The second Restated
Certificate of Incorporation was approved by the stockholders of the
Corporation by written consent given in accordance with the provisions of
Section 228 of the Delaware General Corporation Law. The second Restated
Certificate of Incorporation did not reflect that it had been adopted by
the stockholders by written consent given in accordance with Section 228
and written notice given as provided in Section 228 of the Delaware General
Corporation Law.
THREE: Therefore, the Certificate of Incorporation, as amended, of
this Corporation is hereby restated and amended to read in its entirety as
set forth in Exhibit A.
FOUR: The foregoing amendment was approved in accordance with the
provisions of Section 242 of the Delaware General Corporation Law, except
that written consent of the shareholders has been given in accordance with
the provisions of Section 228 of the Delaware General Corporation Law and
that written notice has been given as provided in Section 228 of the
Delaware General Corporation Law. Further, this Restated Certificate of
Incorporation has been duly adopted in accordance with the provisions of
Section 245 of the Delaware General Corporation Law.
<PAGE>
IN WITNESS WHEREOF, the undersigned have executed this Restated
Certificate of Incorporation on July 20, 1993.
/s/ Edgar F. Berner
-----------------------------------------
EDGAR F. BERNER, Chairman of the Board
/s/ John F. Hoffner
-----------------------------------------
JOHN F. HOFFNER, Assistant Secretary
The undersigned certify under penalty of perjury that they have read the
foregoing Restated Certificate of Incorporation and know the contents
thereof, and that the statements therein are true.
Executed at San Diego, California, on July 20, 1993.
/s/ Edgar F. Berner
-----------------------------------------
EDGAR F. BERNER, Chairman of the Board
/s/ John F. Hoffner
-----------------------------------------
JOHN F. HOFFNER, Assistant Secretary
2
<PAGE>
EXHIBIT A
ARTICLE I
The name of this corporation is Sweet Factory, Inc.
ARTICLE II
The address of the registered office of the Corporation in the
State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801. The name of its registered
agent at such address is The Corporation Trust Company.
ARTICLE III
The purpose of this Corporation is to engage in any lawful act or
activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
ARTICLE IV
The aggregate number of shares which the Corporation shall have the
authority to issue is 40,963,385 shares, which shall be divided into three
classes and designated as follows:
<TABLE>
<CAPTION>
Designation of Class Number of Shares
-------------------- ----------------
<S> <C>
Common Stock,
Par Value $.001 per share
("Voting Common Stock") 21,605,526
Non-Voting Common Stock,
Par Value $.001 per share
("Non-Voting Common Stock") 212,859
Preferred Stock, Par Value
$.001 per share ("Preferred Stock") 19,145,000
</TABLE>
The Preferred Stock may be issued from time to time in one or more
series. Except with respect to the Series A Preferred Stock, Series B
Preferred Stock and Series C Preferred Stock referenced below and subject to
compliance with applicable protective rights which have been or may be
granted to the Preferred Stock or series thereof in Certificates of
Determination or the Corporation's Certificate of Incorporation ("Protective
Provisions"), the Board of Directors is hereby authorized to determine the
dividend rights, dividend rates, conversion rights, voting rights and terms
of redemption, the redemption price or prices, and the liquidation preference
of any wholly unissued series of Preferred Stock and the number of shares
constituting any such series and the designation thereof, or any of them;
and, subject to compliance with applicable Protective Provisions, to increase
<PAGE>
or decrease the number of shares of any series (other than the Series A
Preferred, the Series B Preferred or the Series C Preferred) subsequent to
the issue of such shares of that series, but not below the number of shares
then outstanding. In case the number of shares of any series shall be so
decreased, the shares constituting such decrease shall resume the status
which they had prior to the adoption of the resolution originally fixing the
number of shares of such series.
The number of shares of Preferred Stock constituting the Series A
Preferred Stock is 12,745,000. The number of shares of Preferred Stock
constituting the Series B Preferred Stock is 6,187,141. The number of shares
of Preferred Stock constituting the Series C Preferred Stock is 212,859.
The preferences, limitations and relative rights of the Common
Stock, the Series A Preferred, the Series B Preferred and the Series C
Preferred are set forth below.
1. GENERAL DEFINITIONS. For purposes of this Article, the following
definitions shall apply:
(a) "JUNIOR STOCK" shall mean all Voting Common Stock and
Non-Voting Common Stock and any other capital stock of this Corporation other
than the Series A Preferred, the Series B Preferred and the Series C
Preferred.
(b) "SUBSIDIARY" shall mean any corporation at least 50% of whose
outstanding voting shares at the time is owned by this Corporation or by one
or more of such subsidiaries.
2. DIVIDEND RIGHTS. The holders of the Series A Preferred, the Series
B Preferred and the Series C Preferred shall be entitled to receive, out of
any funds legally available therefor, dividends on each outstanding share of
Series A Preferred, Series B Preferred and Series C Preferred payable in
preference and priority to any payment of any dividend on Junior Stock, when
and as declared by the Board of Directors at the rate of $0.08 per annum per
share of Series A Preferred and $.18 per annum per share of Series B
Preferred and Series C Preferred. The Corporation shall not be obligated to
pay any dividend until declared by the Board of Directors. If dividends are
not declared on the Series A Preferred, Series B Preferred and Series C
Preferred at the aforesaid rates in any year, then the right to receive such
dividend shall accumulate. Dividends, if paid, or if declared and set apart
for payment, must be paid or declared and set apart for payment on, all
outstanding shares of Series A Preferred, Series B Preferred and Series C
Preferred contemporaneously. No dividends shall be declared or paid on
Junior Stock until dividends on the Series A Preferred, the Series B
Preferred and the Series C Preferred have been declared and paid or set aside
for payment at the rates set forth above for the current year (prorated to
the date of payment) and all accumulated dividends on the Series A Preferred,
Series B Preferred and Series C Preferred have been paid. In the event the
Board of Directors shall have declared and paid or set aside dividends on the
Series A Preferred, Series B Preferred and Series C Preferred (including
accumulated dividends, if any) in any fiscal year and shall elect to declare
additional dividends on any Junior Stock or Preferred Stock in such fiscal
year out of funds legally available therefor, such additional dividends shall
be declared first on each share of Voting Common Stock and Non-Voting Common
Stock in an amount equal to the amount payable on each share of the Series A
Preferred
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divided by the number of share of Voting Common Stock into which such Series
A Preferred is convertible. After such amount has been paid or set apart for
payment on each share of Voting Common Stock and Non-Voting Common Stock, any
remaining dividend shall be declared and paid on the Voting Common Stock and
Non-Voting Common Stock, Series A Preferred, Series B Preferred and Series C
Preferred pro rata based upon the number of shares of Voting Common Stock and
Non-Voting Common Stock held by each with each remaining dividends declared
on each share of Series A Preferred, each share of Series B Preferred and
each share of Series C Preferred to equal the dividend payable in respect of
the number of shares of Voting Common Stock (including fractions of a share)
into which such share of Series A Preferred, Series B Preferred and Series C
Preferred is convertible on the date the dividend is declared.
Notwithstanding the foregoing or any other provisions set forth herein, upon
conversion of the shares of Series A Preferred, Series B Preferred and Series
C Preferred in accordance with the provisions of Section 4(m) hereof, the
holder of such shares shall not be entitled to receive any accumulated but
unpaid dividends which have been accrued to the date of such conversion.
3. LIQUIDATION PREFERENCE.
(a) In the event of any liquidation, dissolution or winding up of
the Corporation, either voluntary or involuntary, the holders of the Series A
Preferred, the holders of the Series B Preferred and the holders of the
Series C Preferred shall share in any distribution of any of the assets or
property of the Corporation. The holders of the Series A Preferred, Series B
Preferred and Series C Preferred shall be entitled to receive, prior and in
preference to any distribution of any assets or property of the Corporation
to the holders of the Junior Stock by reason of their ownership thereof, (i)
with respect to the Series A Preferred, the amount of $1.00 per share for
each share of Series A Preferred then held by them, with respect to the
Series B Preferred, the amount of $2.25 per share of Series B Preferred then
held by them and with respect to the Series C Preferred, the amount of $2.25
per share of Series C Preferred then held by them, plus (ii) an amount equal
to the sum of all accumulated dividends (prorated to the date of payment) and
all declared but unpaid dividends on the Series A Preferred, Series B
Preferred and Series C Preferred (prorated to the date of payment). If upon
occurrence of such event the assets and property thus distributed among the
holders of the Series A Preferred, Series B Preferred and Series C Preferred
shall be insufficient to permit the payment to such holders of the full
preferential amount, then the entire assets and property of the Corporation
legally available for distribution shall be distributed among the holders of
the Series A Preferred, Series B Preferred and Series C Preferred ratably
among all holders of proportion to the full amount of their respective
liquidation preferences to that the per share distribution with respect to
each series will be the same percentage of the full per shall liquidation
preference for such series, as provided above. After payment has been made
to the holders of the Series A Preferred, Series B Preferred or Series C
Preferred of the full amount to which they shall be entitled as aforesaid,
the holders of Junior Stock shall be entitled to receive on a pro rata basis
all remaining assets of the Corporation.
(b) For purposes of this Section 3, a liquidation, dissolution or
winding up of the Corporation shall be deemed to be occasioned by, and to
include, a consolidation or merger of the Corporation with or into another
entity, the Corporation's sale of all or substantially of its assets or the
effectuation by the Corporation of a transaction or series of transactions in
which more than 50%
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of the voting power of the Corporation is disposed of. Any holder of Series
A Preferred, Series B Preferred or Series C Preferred who tenders his shares
of Series A Preferred, Series B Preferred or Series C Preferred for
conversion prior to any such event may elect to condition such conversion
upon the effectiveness of such event, in which event his Series A Preferred,
Series B Preferred or Series C Preferred shall be deemed to have been
converted immediately prior to such effectiveness or such earlier date, if
any, on which holders of record are determined for the purpose of receiving
the benefits of such event.
4. CONVERSION. The holders of Series A Preferred, Series B Preferred
and Series C Preferred and Non-Voting Common shall have conversion rights as
follows ("Conversion Rights"):
(a) RIGHT TO CONVERT. (i) CONVERSION OF SERIES A PREFERRED,
SERIES B PREFERRED AND SERIES C PREFERRED INTO VOTING COMMON. Each share of
Series A Preferred, Series B Preferred and Series C Preferred shall be
convertible, at the option of the holder thereof, at any time after the date
of issuance of such share and on or prior to the fifth day prior to any
Redemption Date (as defined in Section 7 hereof), at the office of the
Corporation or any transfer agent for the Series A Preferred, Series B
Preferred and Series C Preferred, into such number of fully paid and
nonassessable shares of Voting Common Stock, as is determined by dividing (x)
with respect to the Series A Preferred, $1.00 by the Conversion Price of the
Series A Preferred determined as hereinafter provided in effect at the time
of conversion and (y) with respect to the Series B Preferred and Series C
Preferred, $2.25 by the Conversion Price of the Series B Preferred and Series
C Preferred determined as hereinafter provided in effect at the time of
conversion. The initial Conversion Price of the Series A Preferred shall be
$1.00 per share and the initial Conversion Price of the Series B Preferred
and the Series C Preferred shall be $2.25. The initial Conversion Price
shall be subject to adjustment as hereinafter provided.
(ii) CONVERSION OF SERIES C PREFERRED INTO NON-VOTING COMMON.
Subject to laws and regulations applicable to holders of the Series C
Preferred, each share of Series C Preferred shall be convertible, at the
option of the holder thereof, at any time after the date of issuance of such
share and on or prior to the fifth (5th) day prior to any Redemption Date (as
defined in Section 7 hereof), at the office of the Corporation or any
transfer agent for the Series C Preferred, into such number of fully paid and
non-assessable shares of Non-Voting Common Stock, at the election of the
holders of the Series C Preferred, as is determined by dividing $2.25 by the
Conversion Price for the Series C Preferred determined as hereinafter
provided in effect at the time of conversion. The initial Conversion Price
for the Series C Preferred shall be $2.25. The initial Conversion Price
shall be subject to adjustment as hereinafter provided.
(iii) CONVERSION OF NON-VOTING COMMON INTO VOTING COMMON.
Subject to laws and regulations applicable to holders of Non-Voting Common,
each share of Non-Voting Common Stock shall be convertible, at the option of
the holder thereof, at any time after the date of issuance of such share and
on or prior to the fifth (5th) day prior to any Redemption Date (as defined
in Section 7 hereof), at the office of the Corporation or any transfer agent
for the Non-Voting Common Stock, into an equal number of fully paid and
non-assessable shares of Voting Common Stock.
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(b) MECHANICS OF CONVERSION.
(i) Before any holder of Series A Preferred, Series B
Preferred, Series C Preferred or Non-Voting Common Stock shall be entitled to
convert the same into shares of Common Stock, he shall surrender the
certificate or certificates therefor (or comply with applicable lost
certificate provisions), duly endorsed, at the office of the Corporation or
of any transfer agent for the Series A Preferred, Series B Preferred, Series
C Preferred or Non-Voting Common Stock, and shall give written notice to the
Corporation at such office that he elects to convert the same. The
Corporation shall, as soon as practicable thereafter, issue and deliver at
such office to such holder of Series A Preferred, Series B Preferred, Series
C Preferred or Non-Voting Common Stock a certificate or certificates for the
number of shares of either Voting Common Stock or Non-Voting Common Stock to
which he shall be entitled as aforesaid and, if less than all the shares of
the Series A Preferred, Series B Preferred, Series C Preferred or Non-Voting
Common Stock represented by such certificate are converted, a certificate
representing the shares of Series A Preferred, Series B Preferred, Series C
Preferred or Non-Voting Common Stock not converted. In the event of any
conversion at the election of a holders of Series A Preferred, Series B
Preferred, Series C Preferred or Non-Voting Common Stock, such conversion
shall be deemed to have been and immediately prior to the close of business
on the date of such surrender of the shares of Series A Preferred, Series B
Preferred, Series C Preferred or Non-Voting Common Stock, to be converted,
and the person or persons entitled to receive the shares of either Voting
Common Stock or Non-Voting Common Stock issuable upon such conversion shall
be treated for all purposes as the record holder or holders of such shares of
either Voting Common Stock or Non-Voting Common Stock on such date.
(ii) If any holder of Series A Preferred, Series B Preferred,
Series C Preferred or Non-Voting Common Stock elects to convert in connection
with an underwritten offering of securities registered pursuant to the
Securities Act of 1933, as amended, the conversion may, at the option of any
holder tendering Series A Preferred, Series B Preferred, Series C Preferred
or Non-Voting Common Stock, as the case may be, for conversion be conditioned
upon the closing with the underwriter of the sale of securities pursuant to
such offering, in which event the person(s) entitled to receive either the
Voting Common Stock or Non-Voting Common Stock issuable upon such conversion
of the Series A Preferred, Series B Preferred, Series C Preferred or
Non-Voting Common Stock shall not be deemed to have converted such Series A
Preferred, Series B Preferred, Series C Preferred or Non-Voting Common Stock
until immediately prior to the closing of such sale of securities.
Alternatively, any holder of the Series A Preferred, Series B Preferred,
Series C Preferred or Non-Voting Common Stock may sell to the underwriters of
the offering, if acceptable to the underwriters, share of Series A Preferred,
Series B Preferred, Series C Preferred or Non-Voting Common Stock upon the
undertaking of the underwriters to convert Series A Preferred, Series B
Preferred, Series C Preferred or Non-Voting Common Stock prior to the closing
of the sale. In such event, the Corporation will cause the Voting Common
Stock or Non-Voting Common Stock issuable upon such conversion to be issued
within such time as will permit the underwriters to make and complete the
distribution contemplated by the underwriting.
(c) ADJUSTMENTS TO CONVERSION PRICE FOR DILUTING ISSUES.
(i) SPECIAL DEFINITIONS. For purposes of this Section 4(c),
the following
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definitions shall apply:
(1) "OPTIONS" shall mean rights, options, or warrants
to subscribe for, purchase or otherwise acquire either Voting Common Stock or
Non-Voting Common Stock or Convertible Securities.
(2) "ORIGINAL ISSUE DATE" shall mean July 12, 1991 with
respect to the Series A Preferred, June 8, 1993 with respect to the Series B
Preferred and July 8, 1993 with respect to the Series C Preferred.
(3) "CONVERTIBLE SECURITIES" shall mean any securities
convertible into or exchangeable for Voting Common Stock or Non-Voting Common
Stock, including any evidence of indebtedness, any capital stock of the
Corporation or other securities convertible into or exchangeable for Common
Stock.
(4) "ADDITIONAL SHARES OF COMMON" shall mean all shares
of either Voting Common Stock or Non-Voting Common Stock issued (or, pursuant
to Section 4(c)(ii) deemed to be issued) without consideration or for a
consideration per share less than the applicable Conversion Prices for the
Series A Preferred, Series B Preferred or Series C Preferred in effect
immediately prior to the issuance of such Additional Shares of Common by the
Corporation on or after the applicable Original Issue Date, other than shares
of Voting Common Stock or Non-Voting Common Stock issued or issuable at any
time:
(A) upon conversion of shares of Series A
Preferred, Series B Preferred, Series C Preferred or Non-Voting Common Stock;
(B) to officers, directors, employees and
consultants of the Corporation pursuant to a stock option plan and/or stock
purchase plan established by the Board of Directors and approved by
shareholders of the Company and administered by the Board of Directors or a
committee of the Board; and
(C) upon exercise of outstanding stock appreciation
rights, issued in connection with the Corporation's purchase of substantially
all of the assets of Sweet Factory California Partners, Inc., when the total
number of shares of Common Stock so issued does not exceed 110,526 (subject
to proportionate adjustment in the case of recapitalizations, stock splits,
stock dividends or combination of shares).
(ii) DEEMED ISSUE OF ADDITIONAL SHARES OF COMMON.
(1) OPTIONS AND CONVERTIBLE SECURITIES. In the event
the Corporation at any time or from time to time after any applicable Original
Issue Date shall issue any Options or Convertible Securities or shall fix a
record date for the determination of holders of any class of securities entitled
to receive any such Options or Convertible Securities, then the maximum number
of shares of either Voting Common Stock or Non-Voting Common Stock issuable upon
the exercise of such Options or, in the case of Convertible Securities and
Options therefor, the
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<PAGE>
conversion or exchange of such Convertible Securities, shall be deemed to
have been issued as of the time of such issue or, in the case of such record
date shall have been fixed, as of the close of business on such record date,
and for a consideration equal to the consideration (determined in the manner
provided for in Section 4(c)(iv), if any, received by the Corporation upon
such issue plus the minimum exercise price provided for therein; provided
that if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any change in the minimum amount of
consideration payable to the Corporation, or change the maximum number of
shares of either Voting Common Stock or Non-Voting Common Stock issuable,
upon the exercise, conversion, or exchange thereof, including, but not
limited to, changes which may occur as a result of antidilution provisions
thereof, the Conversion Prices for the Series A Preferred, Series B Preferred
and Series C Preferred shall be recomputed to reflect such change based on
the provisions of this Section when each such change is effective.
(A) no further adjustment in any Conversion Price
shall be made upon the actual issue of shares of either Voting Common Stock
or Non-Voting Common Stock upon the exercise of such Options or conversion or
exchange of such Convertible Securities or any payment of such consideration
upon the exercise, conversion or exchange thereof;
(B) upon the expiration of any such Options or any
rights of conversion or exchange under such Convertible Securities which
shall not have been exercised, the Conversion Prices of the Series A
Preferred, Series B Preferred and Series C Preferred computed upon the
original issue thereof (or upon the occurrence of a record date with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration, be recomputed (provided that the recomputation shall not affect
any Series A Preferred, Series B Preferred or Series C Preferred converted
or tendered for conversion prior to such exercise or expiration) as if:
(I) in the case of Convertible Securities
or Options for Voting Common Stock or Non-Voting Common Stock, the only
Additional Shares of Common issued were share of Voting Common Stock or
Non-Voting Common Stock, if any, actually issued upon the exercise of such
Options or the conversion or exchange of such Convertible Securities and the
consideration received therefor was the consideration actually received by
the Corporation for the issue of all such Options which were actually
exercised, plus the consideration actually received by the Corporation upon
such exercise, or for the issue of all such Convertible Securities which were
actually converted or exchanged, plus the additional consideration, if any,
actually received by the Corporation upon such conversion or exchange, and
(II) in the case of Options for
Convertible Securities, only the Convertible Securities, if any, actually
issued upon the exercise thereof were issued at the time of issue of such
Options, and the consideration received by the Corporation for the Additional
Shares of the Common deemed to have been then issued was the consideration
actually received by the Corporation for the issue of all such Options which
were actually exercised, plus the consideration deemed to have been received
by the Corporation upon the issue of the Convertible Securities with respect
to which such Options were actually exercised;
(C) no readjustment pursuant to Subsection (B) above
shall
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have the effect of increasing the applicable Conversion Prices of the Series
A Preferred, Series B Preferred or Series C Preferred to an amount which
exceeds such Conversion Prices on the original adjustment date immediately
prior to the original adjustment. If Additional Shares of Common were issued
between the original adjustment date and the readjustment date (other than
Voting Common Stock and Non-Voting Common Stock issued upon exercise of the
Options or conversion of the Convertible Securities that are the subject of
the readjustment), the applicable Conversion Prices of the Series A
Preferred, Series B Preferred or Series C Preferred on the readjustment date
shall be recomputed (but only if a lower Conversion Price results therefrom)
by treating the readjusted Conversion Prices as the Conversion Prices in
effect on the original adjustment date and adjusting such Conversion Prices
for all issuances of Additional Shares of Common (other than Voting Common
Stock and Non-Voting Common Stock issued upon exercise of the Options or
conversion of the Convertible Securities that are the subject of the
readjustment) occurring between the original adjustment date and the
readjustment date.
(iii) ADJUSTMENT OF CONVERSION PRICE UPON ISSUANCE OF
ADDITIONAL SHARES OF COMMON.
(1) Except as provided in Section 4(c)(iii)(2), in the
event this Corporation shall issue any Additional Shares of Common (including
Additional Shares of Common deemed to be issued pursuant to Section 4(c)(ii))
without consideration or for a consideration per share less than the
Conversion Price for the Series A Preferred, Series B Preferred or Series C
Preferred in effect on the date of and immediately prior to such issue, then
and in each such event, each such Conversion Price in effect immediately
prior to such issue shall be reduced concurrently with such issue of shares
to a price equal to the quotient obtained by dividing the total computed
under clause (x) below by the total computed under clause (y) below as
follows:
(x) an amount equal to the sum of
(1) the aggregate purchase price of the shares of the
series of Preferred Stock with respect to which the adjustment is to be made,
plus
(2) the aggregate consideration, if any, received by the
Corporation for all Additional Shares of Common issue on or since the
Original Issue Date for the series of Preferred Stock with respect to which
the adjustment is to be made.
(y) an amount equal to the sum of
(1) the aggregate purchase price of the shares of the
series of Preferred Stock to which the adjustment is to be made divided by
the Conversion Price for such shares in effect at the applicable Original
Issue Date (or such higher or lower Conversion Price for such series as
results from the application of subsection 4(c)(iii)(2) and assuming that
this Certificate was in effect as of the applicable Original Issue Date), plus
(2) the number of shares of Additional Shares of Common
issued since the applicable Original Issue Date (increased or decreased to
the extent that the number of such
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shares of Additional Shares of Common shall have been increased or decreased
as the result of the application of subsections 4(c)(iii)(2)).
(3) In the event the Corporation at any time or from
time to time after the applicable Original Issue Date shall declare or pay
any dividend on the Voting Common Stock or Non-Voting Common Stock payable in
either Voting Common Stock or non-Voting Common Stock or other securities or
rights convertible into, or entitling the holder thereof to receive
additional shares of either Voting Common Stock or Non-Voting Common Stock,
or effect a subdivision or combination of the outstanding shares of either
Voting Common Stock or Non-Voting Common Stock (by reclassification or
otherwise than by payment of a dividend in either Voting Commons Stock or
Non-Voting Common Stock), then and in any such event, the Conversion Prices
of the Series A Preferred, Series B Preferred and Series C Preferred shall be
proportionately decreased in the case of a stock dividend or subdivision and
proportionately increased in the case of a combination of shares, effective
in the case of such dividend, immediately after the close of business on the
record date for the determination of holders of Voting Common Stock and
Non-Voting Common Stock entitled to receive such dividend, or in the case of
a subdivision or combination, at the close of business immediately prior to
the date upon which such corporate action becomes effective.
(iv) DETERMINATION OF CONSIDERATION. For purposes of this
Section 4(c), the consideration received by the Corporation for the issue of
any Additional Shares of Common shall be computed as follows:
(1) CASH AND PROPERTY. Such consideration shall:
(A) insofar as it consists of cash, be computed at
the aggregate amount of such received by the Corporation excluding amounts
paid or payable for accrued interest or accrued dividends;
(B) insofar as it consists of property other than
cash, be computed at the fair value thereof at the time of such issue, as
determined in good faith by the Board of Directors of this Corporation; and
(C) in the event Additional Shares of Common are
issued together with other shares of securities or other assets of the
Corporation for consideration which covers both, be the proportion of such
consideration so received, computed as provided in clauses (A) and (B) above,
as determined in good faith by the Board of Directors of this Corporation.
(2) OTHER OPTIONS AND CONVERTIBLE SECURITIES. For the
purposes of computing the initial adjustment of the Conversion Price pursuant
to Section 4(c)(ii)(1) (but not for the readjustment pursuant to Subsection
(B) of that Section), the consideration per share received by the Corporation
for Additional Shares of Common deemed to have been issued pursuant to
Section 4(c)(iii)(1) shall be determined by dividing:
(x) the total amount, if any, received or receivable
by the
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Corporation as consideration for the issue of such Options or Convertible
Securities, plus the minimum aggregate amount of additional consideration
payable to the Corporation upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, or in the case of
Options for Convertible Securities, the exercise of such Option for
Convertible Securities and the conversion or exchange of such Convertible
Securities, by
(y) the maximum number of shares of Voting Common
Stock or Non-Voting Common Stock issuable upon the exercise of such Options
or the conversion or exchange of such Convertible Securities.
(v) ADJUSTMENTS FOR OTHER DIVIDENDS AND DISTRIBUTIONS. In
the event the Corporation at any time or from time to time makes, or fixes a
record date for the determination of holders of Voting Common Stock and
Non-Voting Common Stock entitled to receive a dividend or other distribution
payable in securities of the Corporation other than shares of Voting Common
Stock and Non-Voting Common Stock, a distribution payable in securities of
other persons, or evidences of indebtedness issued by this Corporation or
other persons, then and in each such event provision shall be made so that
the holders of Series A Preferred, Series B Preferred and Series C Preferred
shall receive a proportionate share of any such distribution as though they
were holders of the number of shares of Voting Common Stock and Non-Voting
Common Stock into which their Series A Preferred, Series B Preferred and
Series C Preferred were convertible on the record date of such event.
(d) NO IMPAIRMENT. The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or
any other voluntary action, avoid or seek to avoid the observance or
performance of any of the terms to be observed or performed hereunder by the
Corporation but will at all times in good faith assist in carrying out of all
the provisions of this Section 4 and in the taking of all such action as may
be necessary or appropriate in order to protect the Conversion Rights of the
holders of the Non-Voting Common Stock, Series A Preferred, Series B
Preferred and Series C Preferred against impairment.
(e) CERTIFICATE AS TO ADJUSTMENTS. Upon the occurrence of each
adjustment or readjustment of the applicable Conversion Price pursuant to
this Section 4, the Corporation at its expense shall promptly compute such
adjustment or readjustment in accordance with the terms hereof and furnish to
each holder of Series A Preferred, Series B Preferred and Series C Preferred
a certificate setting forth such adjustment or readjustment and showing in
detail the facts upon which such adjustment or readjustment is based. The
Corporation shall, upon the written request at any time of any holders of
Series A Preferred, Series B Preferred or Series C Preferred, furnish or
cause to be furnished to such holder a like certificate setting forth (i)
such adjustments and readjustments, (ii) the applicable Conversion Price at
the time in effect, and (iii) the number of shares of Voting Common Stock and
the amount, if any, of other property which at the time would be received
upon the conversion of the Series A Preferred, Series B Preferred or Series C
Preferred .
(f) RESERVATION OF STOCK ISSUABLE UPON CONVERSION. The
Corporation shall at all times reserve and keep available out of its
authorized but unissued shares of Voting Common Stock
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and Non-Voting Common Stock, solely for the purpose of effecting the
conversion of the Series A Preferred, the Series B Preferred, the Series C
Preferred and the Non-Voting Common Stock, such number of its shares of
Voting Common Stock as shall from time to time be sufficient to effect a
conversion of all outstanding shares of the Series A Preferred, the Series B
Preferred, the Series C Preferred and the Non-Voting Common Stock, and such
number of shares of Non-Voting Common Stock as shall from time to time be
sufficient to affect a conversion of all outstanding shares of Series C
Preferred, and if at any time the number of authorized but unissued shares of
either Voting Common Stock or Non-Voting Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series A
Preferred, the Series B Preferred, the Series C Preferred or the Non-Voting
Common Stock, the Corporation shall promptly take such corporate action as
may, in the opinion of its counsel, be necessary to increase its authorized
but unissued shares of either Voting Common Stock or Non-Voting Common Stock
to such number of shares as shall be sufficient for such purpose.
(g) PAYMENT OF TAXES. The Corporation shall pay all issue taxes
and other governmental charges (other than income or other taxes imposed upon
profits realized by the recipient) that may be imposed in respect of the
issue or delivery of shares of either Voting Common Stock or Non-Voting
Common Stock or other securities or property upon conversion of shares of
Series A Preferred, Series B Preferred and Series C Preferred, and Non-Voting
Common Stock; provided, however, that the Corporation shall not be obligated
to pay any tax or other charges imposed in connection with any transfer
involved in the issue and delivery of shares of either Voting Common Stock or
Non-Voting Common Stock or other securities in any name other than that in
which the shares of Series A Preferred, Series B Preferred and Series C
Preferred and Non-Voting Common Stock were registered.
(h) NO REISSUE. Any shares of Series A Preferred, Series B
Preferred, Series C Preferred and Non-Voting Common Stock that are converted
by the holder shall not be reissued and the certificate representing such
shares shall be appropriately canceled on the books of the Corporation.
(i) RECLASSIFICATION; RECAPITALIZATION. In the event of any
reclassification of the Voting Common Stock or Non-Voting Common Stock or
recapitalization involving Voting Common Stock or Non-Voting Common Stock (other
than a change in par value or as a result of stock dividend, subdivision, or
combination of shares or any event described in Section 3(b)), each holder of
the Series A Preferred, Series B Preferred, Series C Preferred and Non-Voting
Common Stock shall thereafter be entitled to receive and provisions shall be
made therefor, in an agreement relating to the reclassification or
recapitalization, upon conversion of the Series A Preferred, Series B Preferred,
Series C Preferred and Non-Voting Common Stock the kind and number of shares of
Voting Common Stock or Non-Voting Common Stock or other securities or property
(including cash) of the Corporation or otherwise, to which such holder of Series
A Preferred, Series B Preferred, Series C Preferred and Non-Voting Common Stock
would have been entitled if he had held the number of shares of Voting Common
Stock or Non-Voting Common Stock of the Corporation into which the Series A
Preferred, Series B Preferred, Series C Preferred and Non-Voting Common Stock
was convertible immediately prior to such reclassification or recapitalization;
and in any such case, appropriate adjustments shall be made in application of
the provisions herein
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set forth with respect to the rights and interests thereafter of the holders
of the Series A Preferred, Series B Preferred, Series C Preferred and
Non-Voting Common Stock after the reclassification or recapitalization, to
the end that the provisions set forth herein (including the specific changes
and other adjustments to the applicable Conversion Price), shall thereafter
be applicable, as nearly as reasonably may be, in relation to any shares,
other securities, or property thereafter receivable upon conversion of the
Series A Preferred, Series B Preferred, Series C Preferred and Non-Voting
Common Stock.
(j) NOTICES OF RECORD DATE. In the event that this Corporation
shall propose at any time:
(i) to declare any dividend or distribution upon its Voting
Common Stock or Non-Voting Common Stock, whether in cash, property, stock or
other securities, whether or not a regular cash dividend and whether or not
out of earnings or earned surplus;
(ii) to offer for subscription pro rata to the holders of any
class or series of its stock any additional shares of stock of any class or
series or other rights;
(iii) to effect any reclassification or recapitalization of
its Voting Common Stock or Non-Voting Common Stock outstanding involving a
change in the Voting Common Stock or Non-Voting Common Stock; or
(iv) to merge or consolidate with or into any other
corporation, or sell, lease or convey all or substantially all its property
or business, or to liquidate, dissolve or wind up;
then, in connection with each event, this Corporation shall send to the
holders of the Series A Preferred, Series B Preferred, Series C Preferred and
Non-Voting Common Stock:
(1) at least twenty (20) days' prior written notice of
the date on which a record shall be taken for such dividend, distribution or
subscription rights (and specifying the date on which the holders of Voting
Common Stock or Non-Voting Common Stock shall be entitled thereto) or for
determining rights to vote in respect of the matters referred to in (iii) and
(iv) above; and
(2) in the case of the matters referred to in (iii)
and (iv) above, at least twenty (20) days' prior written notice of the date when
the same shall take place (and specifying the date on which the holders of
Voting Common Stock or Non-Voting Common stock shall be entitled to exchange
their Common Stock for securities or other property deliverable upon the
occurrence of such event or such earlier date, if any, on which a record shall
be taken of the holders of Voting Common Stock or Non-Voting Common Stock who
shall be entitled to exchange their Voting Common Stock or Non-Voting Common
Stock).
(k) MANNER OF NOTICE. Any notice required by this Section 4 shall
be deemed given if given by certified mail, postage prepaid, return receipt
requested, addressed to the holders of Series A Preferred, Series B
Preferred, Series C Preferred and Non-Voting Common Stock at the
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address for each such holder as shown on the books of this Corporation.
(l) FRACTIONAL SHARES. No fractional share shall be issued upon
the conversion of any share or shares of Series A Preferred, Series B
Preferred, Series C Preferred and Non-Voting Common Stock. All shares of
Voting Common Stock or Non-Voting Common Stock (including fractions thereof)
issuable upon conversion of more than one share of Series A Preferred, Series
B Preferred, Series C Preferred and Non-Voting Common Stock by a holder
thereof shall be aggregated for purposes of determining whether the
conversion would result in the issuance of any fractional share. If, after
the aforementioned aggregation, the conversion would result in the issuance
of a fraction of a share of Voting Common Stock or Non-Voting Common Stock,
the Corporation shall, in lieu of issuing any fractional share, pay the
holder otherwise entitled to such fraction a sum in cash equal to the fair
market value of such fraction on the date of conversion (as determined in
good faith by the Board of Directors of the Corporation).
(m) AUTOMATIC CONVERSION. Each share of Series A Preferred,
Series B Preferred, Series C Preferred and Non-Voting Common shall
automatically be converted into shares of Voting Common Stock at the then
applicable Conversion Price in the event of the closing of a firm commitment
underwritten public offering pursuant to an effective registration statement
on Form S-1 under the Securities Act of 1933, as amended, covering the offer
and sale of Voting Common Stock for the account of this Corporation to the
public where (i) the gross proceeds to this Corporation are not less than
$15,000,000, and (ii) the price per share to the public of the Voting Common
Stock is at least $5.625 (subject to adjustment to reflect stock splits,
stock dividends, combinations of shares and recapitalizations) ( the "Public
Offering"). In the event of such Public Offering, the person(s) entitled to
receive the Voting Common Stock issuable upon such conversion of Series A
Preferred, Series B Preferred, Series C Preferred or Non-Voting Common shall
not be deemed to have converted such Series A Preferred, Series B Preferred
or Series C Preferred until immediately prior to the closing of such Public
Offering, except that any such person may specify an earlier time for
conversion in accordance with section 4(b).
5. VOTING RIGHTS. (a) Except as set forth in Section 5(b) below
and except as otherwise provided by law, the holders of Series A Preferred,
Series B Preferred and Voting Common Stock shall be entitled to notice of any
shareholders' meeting and to vote together as one class upon any matter
submitted to the holders of Common Stock for a vote on the following basis:
(i) VOTING COMMON STOCK VOTE. Each share of Voting Common
Stock issued and outstanding shall have one vote.
(ii) SERIES A PREFERRED AND SERIES B PREFERRED VOTE. Each
holder of Series A Preferred and Series B Preferred shall have the number of
votes equal to the number of shares of Voting Common Stock into which such
series of Preferred Stock held by it is then convertible, as adjusted from
time to time under the terms hereof.
(iii) QUORUM. For matters to be voted on by the Series A
Preferred, Series B Preferred and Voting Common Stock together as one class,
a quorum shall consist of a majority of the votes attributable to the Voting
Common Stock, Series A Preferred and Series B Preferred as
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set forth in clauses (i) and (ii) of this Section 5.
(b) Until the closing of the Public Offering, the Board of
Directors of the Corporation shall consist of no more than ten members. So
long as at least 2,000,000 shares of Series A Preferred Stock are
outstanding, the holders of the Series A Preferred shall vote as a separate
class to elect three directors to the Board of Directors at each annual
meeting. So long as at least 1,000,000 shares of Series B Preferred Stock
are outstanding, the holders of the Series B Preferred shall vote as a
separate class to elect two directors to the Corporation's Board of Directors
at each annual meeting. Election of directors need not be by written ballot
unless the By-laws of the Corporation so provide.
(c) Except as otherwise required by law, the shares of Non-Voting
Common Stock and Series C Preferred Stock shall not have any voting rights.
6. PROTECTIVE PROVISIONS. (a) In addition to any other rights provided
by law or agreement, so long as any Series A Preferred shall be outstanding,
this Corporation shall not, without first obtaining the affirmative vote or
written consent of the holders of not less than a majority of the outstanding
shares of Series A Preferred:
(i) amend or repeal any provisions of, or add any provision
to, the Corporation's Certificate of Incorporation or By-laws if such action
would adversely change the preferences;
(ii) reclassify any Junior Stock into shares into shares
having any preference or priority over, or being on parity with, the Series B
Preferred as to voting, dividends or upon liquidation;
(iii) do any act or thing which would result in taxation of
the holders of shares of the Series B Preferred Stock under Section 305 of
the Internal Revenue Code of 1986, as amended (or any comparable provision of
the Internal Revenue Code as hereafter from time to time amended);
(iv) amend or repeal any provision of this Section 6.
7. REDEMPTION. (a)At any time beginning June 15, 1997, upon
election (a "Redemption Election") by the holders of at least 90% of the then
outstanding Series B Preferred and Series C Preferred, this Corporation shall
redeem all of the Series B Preferred Stock, this Corporation shall redeem all
of the Series A Preferred Stock then outstanding, in the manner and in
accordance with the provisions of Section 7(c) through 7(g) below.
(b) Commencing on the date that is one day following the first
date on which no shares of Series B Preferred Stock or Series C Preferred
Stock remain outstanding, upon receipt of a Redemption Election from holders
of at least 90% of the then outstanding Series A Preferred Stock then
outstanding, in the manner and in accordance with the provisions of Sections
7(c) through 7(g).
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(c) The Series Preferred Stock to be redeemed on a Redemption Date
(as such term is defined herein) shall be redeemed by the Corporation by
paying in cash therefor a per share sum equal to (i) for each share of Series
B Preferred Stock and Series C Preferred Stock to be redeemed $2.25 (as
adjusted to reflect a stock split, combination, reclassification or similar
event involving either the Series B Preferred or the Series C Preferred),
plus all accumulated dividends, all declared but unpaid dividends and the
dividend preference for the current fiscal year on the Series B Preferred and
the Series C Preferred being redeemed (prorated through the date on which
such shares are actually redeemed) or (ii) for each share of Series A
Preferred Stock to be redeemed $1.00 (as adjusted to reflect a stock split,
combination, reclassification or similar event involving the Series A
Preferred Stock) plus all accumulated dividends, all declared but unpaid
dividends and the dividend preference for the current fiscal year on the
Series A Preferred (prorated through the date on which such share of Series A
Preferred is actually redeemed (such cash amount payable under this Section
7(c) shall hereinafter be referred to as the "Redemption Price"). The
Redemption Price shall be payable in sixteen (16) equal consecutive quarterly
payments beginning on the 180th day after the date the Corporation receives
the Redemption Election (the "Initial Redemption Date") and each subsequent
redemption installment shall occur on each quarterly anniversary of the
Initial Redemption Date unless such anniversary falls on a day which is not a
business day in San Diego, California, in which case the applicable
redemption installment shall be due and payable on the next business day
(each such date, and the Initial Redemption Date, are sometimes referred to
herein as a "Redemption Date"). On each Redemption Date, each holder of
shares of Series Preferred Stock being redeemed shall surrender the
certificate or certificates representing the shares of such Preferred Stock
to be redeemed on such Redemption Date (together with a proper assignment of
such certificate(s) to the Corporation in exchange for payment or the
applicable Redemption Price for such shares of Series Preferred Stock. In
the event that either the number of shares of Series Preferred Stock required
to be redeemed by the Corporation on such Redemption Date is less than the
number of shares of Series Preferred Stock represented by such
certificate(s), or the Corporation fails to pay the Redemption Price for all
of the shares of Series Preferred Stock required to be redeemed on such
Redemption Date, the Corporation shall reissue and deliver to such holder on
such Redemption Date a certificate representing the number of shares of
Series Preferred Stock which are not required to be redeemed or for which the
Redemption Price has not been paid in full. Until each Redemption Date, all
unredeemed shares shall be deemed to be outstanding.
(d) At least thirty (30), but no more than sixty (60) days, prior
to each Redemption Date, written notice shall be mailed, first class postage
prepaid, to each holder of record (at the close of business on the business
day next preceding the day on which notice is given) of the Series Preferred
Stock to be redeemed, at the address last shown on the records of this
Corporation for such holder or given by the holder to this Corporation for
the purpose of notice or if no such address appears or is given at the place
where the principal executive office of this Corporation is located,
notifying such holder of the redemption to be effected, specifying the
Redemption Date, the Redemption Price, and the date on which such holder's
Conversion Rights as to such shares terminate (the "Redemption Notice").
Each holder of Series Preferred Stock being so redeemed shall surrender to
this Corporation the certificate or certificates representing such shares, in
the manner and at the place specified in subsection (c) above, and thereupon
the installment of the Redemption Price of such shares shall 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.
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(e) From and after the Redemption Date, unless there shall have
been a default in payment of the Redemption Price, all rights of the holders
of such shares of Series Preferred Stock that have been delivered for
redemption (except the right to receive the Redemption Price) shall cease
with respect to such shares, and such shares shall not thereafter be
transferred on the books of this Corporation or be deemed to be outstanding
for any purpose whatsoever. If the funds of the Corporation legally
available for redemption of shares of Series Preferred Stock on any
Redemption Date are insufficient to pay in full the cash portion of the
Redemption Price for the total number of shares of Series Preferred Stock to
be redeemed on such date, those funds which are legally available will be
used to redeem the maximum possible number of such shares ratably among the
holders of the shares of Series Preferred Stock to be redeemed based on the
aggregate Redemption Price of such Series Preferred Stock, provided, however,
that no shares of Series A Preferred Stock shall be redeemed until the date
that is one day following the day on which no shares of Series B Preferred
Stock or Series C Preferred Stock remain outstanding. The shares of Series
Preferred Stock not redeemed shall remain outstanding and entitled to all the
rights and preferences provided herein. At any time thereafter when
additional funds of the Corporation are legally available for the redemption
of shares of Series Preferred Stock, such funds will immediately be used to
redeem the balance of the shares which the Corporation has become obligated
to redeem on any Redemption Date, but which it has not redeemed. The
aggregate cash portion of the Redemption Price for the shares of Series
Preferred Stock that are not redeemed by the Corporation as required on a
Redemption Date shall bear interest from the date the Corporation is required
to redeem such shares of Series Preferred Stock until such cash portion of
the Redemption Price has been paid in full at the greater of a fluctuating
rate equal to the rate per annum publicly announced by Bank of America NT &
SA from time to time as its prime rate in effect at its principal office in
San Francisco, California, plus two percent (2%), or twelve and one half
percent (12.5%) per annum (provided that any such rate is not greater than
the rate allowed by law), in each case based upon a year of 360 days and the
actual number of days elapsed.
(f) Three (3) days prior to the Redemption Date, this Corporation
shall deposit the cash Redemption Price of all outstanding shares of Series
Preferred Stock designated for redemption in the Redemption Notice, and not
yet converted, with a bank or trust company having aggregate capital and
surplus in excess of $50,000,000 as a trust fund for the benefit of the
respective holders of the shares designated for redemption. Simultaneously,
this Corporation shall deposit irrevocable instruction and authority to such
bank or trust company to pay, on and after the date fixed for redemption, the
Redemption Price of the Series Preferred Stock being redeemed to the holders
thereof upon surrender of their certificates in accordance with Subaction (c)
above.
(g) "Series Preferred Stock" shall mean all Series A Preferred
Stock, Series B Preferred Stock and Series C Preferred Stock.
8. RESIDUAL RIGHTS. All rights accruing to the outstanding shares of
this Corporation not expressly provided for to the contrary herein shall be
vested in the Common Stock.
ARTICLE V
1. To the fullest extent permitted by applicable law, this
Corporation is also
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authorized to provide indemnification of (and advancement of expenses to)
directors, officers, employees and agents (and any other persons to which
Delaware law permits this Corporation to provide indemnification) through
bylaw provisions, agreements with such agents or other persons, vote of
stockholders or disinterested directors or otherwise, in excess of the
indemnification and advancement otherwise permitted by Section 145 of the
Delaware General Corporation Law, subject only to limits created by
applicable Delaware law (statutory or non-statutory), with respect to actions
for breach of duty to the corporation, its stockholders, and others.
2. No director of the Corporation shall be personally liable to
the Corporation or any stockholder for monetary damages for breach of
fiduciary duty as a director, except for any matter in respect of which such
director shall be liable under Section 174 of the General Corporation Law of
the State of Delaware or any amendment thereto or shall be liable by reason
that, in addition to any and all other requirements for such liability, such
director (1) shall have breached the director's duty of loyalty to the
Corporation or its stockholders, (2) shall not have acted in good faith, (3)
shall have acted in a manner involving intentional misconduct or a knowing
violation of law or, in failing to act, shall have acted in a manner
involving intentional misconduct or a knowing violation of law, or (4) shall
have derived an improper personal benefit. If the Delaware General
Corporation Law is hereafter amended to authorize the further elimination or
limitation of the liability of a director, the liability of a director of the
Corporation shall be eliminated or limited to the fullest extent permitted by
the Delaware General Corporation Law, as so amended.
3. Each person who was or is made a party or is threatened to be
made a party to or is in any way involved in any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (hereinafter a "proceeding"), including any appeal
therefrom, by reason of the fact that he or she, or a person of whom he or
she is the legal representative, is or was a director or officer of the
Corporation or of a direct or indirect subsidiary of the Corporation, or is
or was serving at the request of the Corporation as a director or officer of
another entity or enterprise, or was a director or officer of a foreign or
domestic Corporation which was a predecessor corporation of the Corporation
or of another entity or enterprise at the request of such predecessor
corporation, shall be indemnified and held harmless by the Corporation, and
the Corporation shall advance all expenses incurred by any such person in
defense of any such proceeding prior to its final determination, to the
fullest extent authorized by the General Corporation Law of the State of
Delaware. In any proceeding against the Corporation to enforce these rights,
such person shall be presumed to be entitled to indemnification and the
Corporation shall have the burden of proving that such person has not met the
standards of conduct for permissible indemnification set forth in the General
Corporation Law of the State of Delaware. The rights to indemnification and
advancement of expenses conferred by this Article V shall be presumed to have
been relied upon by the directors and officers of the Corporation in serving
or continuing to serve the Corporation and shall be enforceable as contract
rights. Said rights shall not be exclusive of any other rights to which
those seeking indemnification may otherwise be entitled. The Corporation
may, upon written demand presented by a director or officer of the
Corporation or of a direct or indirect subsidiary of the Corporation, or by a
person serving at the request of the Corporation as a director or officer of
another entity or enterprise, enter into contracts or provide such persons
with specific rights to indemnification, which contracts may confer rights
and protections to the maximum extent permitted by the General Corporation
Law of the State of
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Delaware, as amended and in effect from time to time.
(a) If a claim under this Article V is not paid in full by
the Corporation within sixty (60) days after a written claim has been
received by the Corporation, the claimant may at any time thereafter bring
suit against the Corporation to recover the unpaid amount of the claim and,
if successful in whole or in part, the claimant shall be entitled to be paid
also the expenses of prosecuting such claim. It shall be a defense to any
such action (other than an action brought to enforce the right to be advanced
expenses incurred in defending any proceeding prior to its final disposition
where the required undertaking, if any, has been tendered to the Corporation)
that the claimant has not met the standards of conduct which make it
permissible under the General Corporation Law of the State of Delaware for
the Corporation to indemnify the claimant for the amount claimed, but the
claimant shall be presumed to be entitled to indemnification and the
Corporation shall have the burden of proving that the claimant has not met
the standards of conduct for permissible indemnification set forth in the
General Corporation Law of the State of Delaware.
(b) If the General Corporation Law of the State of Delaware
is hereafter amended to permit the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide
prior to such amendment, the indemnification rights conferred by this Article
V shall be broadened to the fullest extent permitted by the General
Corporation Law of the State of Delaware, as so amended.
4. Any repeal or modification of any of the foregoing provisions
of this Article V, including without limitation, any contractual rights
arising under or authorized by it, shall not adversely affect any right or
protection of a director, officer, agent or other person existing at the time
of, or increase the liability of any director of the Corporation with respect
to any acts or omissions of such director, officer or agent occurring prior
to such repeal or modification.
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CERTIFICATE OF AMENDMENT
TO
CERTIFICATE OF INCORPORATION
OF
SWEET FACTORY, INC., A DELAWARE CORPORATION
Sweet Factory, Inc., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware (the
("Corporation"), does hereby certify:
FIRST: The Board of Directors of the Corporation, at a meeting duly
called and held, duly adopted Resolutions setting forth a proposed amendment
to the Restated Certificate of Incorporation of the Corporation filed in the
Office of the Secretary of State of the State of Delaware an July 20, 1993,
declaring said amendment to be advisable and calling for a vote of the
stockholders of the Corporation in consideration thereof. The Resolution
setting forth the proposed amendment is as follows:
RESOLVED, the last sentence of Section 2 of Article IV of the Restated
Certificate of Incorporation shall be amended to read in its entirety as
follows:
"Notwithstanding the foregoing or any other provision set forth
herein, upon conversion of the shares of Series A Preferred, Series B
Preferred and Series C Preferred in accordance with the provisions of
Section 4 hereof, the holder of such Shares shall not be entitled to
receive any accumulated but unpaid dividends which have accrued to the
date of such conversion; provided, however, in the event of a
liquidation, dissolution or winding-up of the Corporation, as defined
in Section 3(b), any holder of Series A Preferred, Series B Preferred
or Series C Preferred who tenders his shares of Series A Preferred,
Series B Preferred or Series C Preferred for conversion in connection
with such event or conditions such conversion upon the effectiveness
of such event, shall be entitled to receive upon conversion any
accumulated but unpaid dividends which have accrued to the date of
such conversion."
<PAGE>
AGREEMENT AND PLAN OF MERGER
This Agreement and Plan of Merger, dated as of September __, 1997
("Merger Agreement"), between SWEET FACTORY, INC., a Delaware corporation
("Sweet Factory" or the "Surviving Corporation"), SWEET FACTORY GROUP, INC.,
a Delaware corporation ("Group") and SF NEWCO, INC., a Delaware corporation
("SF Newco"; Sweet Factory and SF Newco being hereinafter collectively
referred to as the "Constituent Corporations").
INTENDING TO BE LEGALLY BOUND, and in consideration of the premises and
material covenants and agreements contained herein, the parties hereby agree
as follows:
ARTICLE 1
THE MERGER
1.1 MERGER OF SF NEWCO WITH AND INTO SWEET FACTORY.
(a) AGREEMENT TO MERGE. Subject to the terms of this
Merger Agreement, SF Newco shall be merged with and into Sweet Factory (the
"Merger").
(b) EFFECTIVE TIME OF THE MERGER. The Merger shall become
effective upon the effective filing of this Merger Agreement with the
Delaware Secretary of State pursuant to the General Corporation Law of
Delaware. The date the Merger becomes effective is hereinafter referred to
as the "Effective Date of the Merger," the time the Merger becomes effective
is hereinafter referred to as the "Effective Time of the Merger."
(c) SURVIVING CORPORATION. At the Effective Time of the
Merger, SF Newco shall be merged with and into Sweet Factory and the separate
corporate existence of SF Newco shall thereupon cease. Sweet Factory shall
be the surviving corporation in the Merger, and the separate corporate
existence of Sweet Factory, with all its purposes, objects, rights,
privileges, powers, immunities and franchises, shall continue unaffected and
unimpaired by the Merger.
1.2 EFFECT OF THE MERGER; ADDITIONAL ACTIONS.
(a) EFFECTS. The Merger shall have the effects set forth
in Sections 251(g) and 259 of the General Corporation Law of Delaware.
(b) ADDITIONAL ACTIONS. If, at any time after the
Effective Time of the Merger, the Surviving Corporation shall consider or be
advised that any deeds, bills of sale, assignments, assurances or any other
actions or things are necessary or desirable (i) to vest, perfect of confirm
or record or otherwise in the Surviving Corporation its right, title or
interest in, to or under any of the rights, properties or assets of either
Constituent Corporation acquired or to be acquired by the Surviving
Corporation as a result of, or in connection with, the Merger or (ii) to
otherwise carry out the purposes of this Merger Agreement, the Constituent
Corporations and their respective officers and directors shall be deemed to
have granted to the Surviving Corporation an irrevocable power of
<PAGE>
attorney to execute and deliver all such deeds, bills of sale, assignments
and assurances and to take and do all such other actions and things as may be
necessary or desirable to vest, perfect or confirm any and all right, total
and interest in, to and under such rights, properties or assets in the
Surviving Corporation and otherwise to carry out the purposes of this Merger
Agreement; and the officers and directors of the Surviving Corporation are
fully authorized in the name of each Constituent Corporation or otherwise to
take any and all such actions.
ARTICLE 2
THE CONSTITUENT CORPORATIONS
2.1 INCORPORATION OF SWEET FACTORY. Sweet Factory, Inc. was
originally incorporated under the laws of the State of Delaware on June 25,
1991.
2.2 INCORPORATION OF SF NEWCO. SF Newco, Inc. was originally
incorporated under the laws of the State of Delaware on September 10,
1997.
ARTICLE 3
CERTIFICATE OF INCORPORATION AND
DIRECTORS AND OFFICERS OF THE SURVIVING CORPORATION
3.1 CERTIFICATE OF INCORPORATION OF SURVIVING CORPORATION. At the
Effective Time, the Certificate of Incorporation of Sweet Factory, as amended
and in effect immediately prior to the Effective Time, shall be amended as
set forth below and as so amended shall thereafter continue in full force and
effect as the Certificate of Incorporation of the Surviving Corporation until
further amended as provided therein and under the General Corporation Law of
Delaware.
(a) Article IV shall be amended and will read in its entirety as
follows:
"The total number of shares of stock which the Corporation shall
have authority to issue is One Thousand (1000), $.001 par value per
share."
(b) Article VI shall be added and will read as follows:
"Any act or transaction by or involving the Corporation that
requires for its adoption under the General Corporation law of
Delaware or under this Certificate of Incorporation the approval of
the Corporation's stockholders shall, pursuant to Section 251(g) of
the General Corporation Law of Delaware, require, in addition, the
approval of the stockholders of the Corporation's holding company,
Sweet Factory Group, Inc., or any successor by merger, by the same
vote as is required by the General Corporation Law of Delaware
and/or by the Certificate of Incorporation of the Corporation."
3.2 DIRECTORS AND OFFICERS OF SURVIVING CORPORATION. The directors and
officers of SF
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Newco immediately prior to the Effective Time of the Merger shall become the
directors and officers of Sweet Factory in each case until their successors
shall have been elected or qualified or until otherwise provided by law.
ARTICLE 4
EFFECT OF THE MERGER ON THE SECURITIES OF THE
CONSTITUENT CORPORATIONS
4.1 COMMON STOCK OF SWEET FACTORY. Upon the Effective Date, by
virtue of the Merger and without any action on the part of the holder
thereof, each share of Sweet Factory Common Stock outstanding immediately
prior thereto shall be changed and converted into one fully paid and
nonassessable share of Group Common Stock.
4.2 PREFERRED STOCK OF SWEET FACTORY. Upon the Effective Date, by
virtue of the Merger and without any action on the part of the holder
thereof, each share of Sweet Factory Preferred Stock outstanding immediately
prior thereto shall be changed and converted into one fully paid and
nonassessable share of Group Preferred Stock.
4.3 STOCK OF GROUP. Upon the Effective Date, all shares of Group
Common Stock issued and outstanding immediately prior thereto in the name of
Sweet Factory shall be cancelled and retired and resume the status of
authorized and unissued shares of Group Common Stock and no shares of Sweet
Factory Common Stock or other security of Sweet Factory shall be issued in
respect thereof.
4.4 COMMON STOCK OF SF NEWCO. Upon the Effective Date, the
outstanding shares. of capital stock of SF Newco shall be converted into an
equal number of shares of Common Stock of Sweet Factory. From and after the
Effective Time of the Merger, each stock certificate of SF Newco evidencing
ownership of any shares of capital stock of SF Newco shall evidence ownership
of the shares of capital stock of Sweet Factory into which the shares of
capital stock of SF Newco are converted in the Merger.
4.5 STOCK CERTIFICATES. On and after the Effective Date, all of
the outstanding certificates which prior to the Effective Date represented
shares of Sweet Factory stock shall be deemed for all purposes to evidence
ownership of and to represent the shares of Group stock into which the shares
of Sweet Factory stock represented by such certificates have been converted
as herein provided. The registered owner on the books and records of Sweet
Factory or its transfer agent of any such outstanding stock certificate
shall, until such certificate shall have been surrendered for transfer or
otherwise accounted for to Sweet Factory or its transfer agent, have and be
entitled to exercise any voting and other rights with respect to and to
receive any dividend and other distributions upon the shares of Group stock
evidenced by such outstanding certificate as above described.
4.6 EXCHANGE PROCEDURE. Each holder of a stock certificate or
certificates representing outstanding shares of a series or class of stock of
Sweet Factory immediately prior to the Effective Date, upon surrender of such
certificate or certificates to Group after the Effective Date, shall be
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entitled to receive a stock certificate or certificates representing the same
number of shares of such series or class of stock of Group. Until so
surrendered, each such stock certificate shall, by virtue of the Merger, be
deemed for all purposes to evidence ownership of the same number of shares of
such series or class of stock of Group.
4.7 OPTIONS AND WARRANTS. Upon the Effective Date, each
outstanding option, warrant or other right to purchase shares of Sweet
Factory stock, shall be converted into and become an option, warrant or right
to purchase the number of shares of Group stock into which the Sweet Factory
stock underlying those options or warrants would have converted had such
option or warrant been exercised prior to the Effective Date, upon the same
terms and subject to the same conditions as set forth in the stock option
plan and other benefit plans entered into by Sweet Factory (the "Plans")
pertaining to such options, warrants or rights. A number of shares of Group
stock shall be reserved for purposes of such options, warrants sufficient to
comply with the terms of the Plan. As of the Effective Date, Group shall
assume all obligations of Sweet Factory under the Plans, and the outstanding
options, warrants or other rights, or portions thereof, granted pursuant
thereto.
ARTICLE 5
GENERAL PROVISIONS
5.1 AMENDMENT. At any time prior to the Effective Time, the
parties hereto may, to the extent permitted by the General Corporation Law of
Delaware, by written agreement amend, modify or supplement any provision of
this Merger Agreement.
5.2 ABANDONMENT. At any time before the Effective Date, this
Merger Agreement may be terminated and the Merger may be abandoned by the
Board of Directors of Sweet Factory, SF Newco or Group.
5.3 COUNTERPARTS. This Merger Agreement may be executed in one or
more counterparts, each of which shall be deemed to be an original, but all
of which together shall constitute one agreement.
5.4 GOVERNING LAW. This Merger Agreement shall be governed in all
respects, including validity, interpretation and effect, by the laws of the
State of Delaware without giving effect to choice of law or conflicts of law
rules or provisions.
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IN WITNESS WHEREOF, the parties have duly executed this Merger
Agreement as of the date first written above.
SWEET FACTORY, INC.
By: /s/ T. Robert Bell
--------------------------------
Name: T. Robert Bell
-------------------------
Title: President
-------------------------
SF NEWCO, INC.
By: /s/ T. Robert Bell
-------------------------------
Name: T. Robert Bell
-------------------------
Title: President
-------------------------
SWEET FACTORY GROUP, INC.
By: /s/ T. Robert Bell
--------------------------------
Name: T. Robert Bell
-------------------------
Title: President
-------------------------
Certificate of Secretary
of
Sweet Factory, Inc.,
a Delaware corporation
The undersigned, being the Secretary of Sweet Factory, Inc., does
hereby certify that this Merger Agreement, to which this certificate is
attached, has been adopted pursuant to the General Corporation Law of
Delaware Section 251(g) and that the conditions specified in the first
sentence of Section 251(g) have been satisfied.
Signed on this 25th day of September, 1997.
/s/ John F. Hoffner
-------------------------
Secretary
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Certificate of Secretary
of
SF Newco, Inc.,
a Delaware corporation
The undersigned, being the Secretary of SF Newco, Inc. (the
"Company") does hereby certify that the Merger Agreement, to which this
certificate is attached, was duly approved and adopted by the sole
shareholder of the Company by unanimous written consent.
Signed on this 25th day of September, 1997.
/s/ John F. Hoffner
-------------------------
Secretary
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CERTIFICATE OF INCORPORATION
OF
SF PROPERTIES, INC.
FIRST: The name of the corporation is SF Properties, Inc.
SECOND: The address of the initial registered office of the corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, and the name of the initial
registered agent therein and in charge thereof, upon whom process against the
corporation may be served is The Corporation Trust Company.
THIRD: The nature of the business or purposes 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 Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is One Thousand (1,000), $.001 par value per share.
FIFTH: The name and mailing address of the sole incorporator is Christopher
P. Bifone, Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600,
San Diego, California 92121-2189.
SIXTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may
be exercised or done by the corporation. Election of directors need not be
by written ballot, unless the Bylaws so provide.
SEVENTH: The Board of Directors is authorized to make, adopt, amend, alter
or repeal the Bylaws of the corporation. The stockholders shall also have
power to make, adopt, amend, alter or repeal the Bylaws of the corporation.
EIGHTH: This corporation reserves the right to amend or repeal any of the
provisions contained in this Certificate of Incorporation in any manner now
or hereafter permitted by law, and the rights of the stockholders of this
corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law, a director or officer of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer. Any repeal or modification of the foregoing
provisions of this Article NINTH by the stockholders of the corporation shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
<PAGE>
I, the undersigned, being the sole incorporator hereinbefore named, hereby
sign this certificate for the purpose of forming a corporation pursuant to
the General Corporation Law of the State of Delaware this 22nd day of
September 1997.
/s/ Christopher P. Bifone
--------------------------------------------
Christopher P. Bifone, Sole Incorporator
2
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CERTIFICATE OF INCORPORATION
OF
SF CANDY COMPANY
FIRST: The name of the corporation is SF Candy Company.
SECOND: The address of the initial registered office of the corporation in
the State of Delaware is Corporation Trust Center, 1209 Orange Street,
Wilmington, New Castle County, Delaware 19801, and the name of the initial
registered agent therein and in charge thereof, upon whom process against the
corporation may be served is The Corporation Trust Company.
THIRD: The nature of the business or purposes 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 Delaware.
FOURTH: The total number of shares of stock which the corporation shall have
authority to issue is 1,000 (one thousand), $.001 par value per share.
FIFTH: The name and mailing address of the sole incorporator is Christopher
P. Bifone, Gray Cary Ware & Freidenrich, 4365 Executive Drive, Suite 1600,
San Diego, California 92121-2189.
SIXTH: The business and affairs of the corporation shall be managed by or
under the direction of the Board of Directors. In addition to the powers and
authority expressly conferred upon them by Statute or by this Certificate of
Incorporation or the Bylaws of the corporation, the directors are hereby
empowered to exercise all such powers and do all such acts and things as may
be exercised or done by the corporation. Election of directors need not be
by written ballot, unless the Bylaws so provide.
SEVENTH: The Board of Directors is authorized to make, adopt, amend, alter
or repeal the Bylaws of the corporation. The stockholders shall also have
power to make, adopt, amend, alter or repeal the Bylaws of the corporation.
<PAGE>
EIGHTH: This corporation reserves the right to amend or repeal any of the
provisions contained in this Certificate of Incorporation in any manner now
or hereafter permitted by law, and the rights of the stockholders of this
corporation are granted subject to this reservation.
NINTH: To the fullest extent permitted by the Delaware General Corporation
Law, a director or officer of this corporation shall not be liable to the
corporation or its stockholders for monetary damages for breach of fiduciary
duty as a director or officer. Any repeal or modification of the foregoing
provisions of this Article NINTH by the stockholders of the corporation shall
not adversely affect any right or protection of a director of the corporation
existing at the time of such repeal or modification.
I, the undersigned, being the sole incorporator hereinbefore named, hereby
sign this certificate for the purpose of forming a corporation pursuant to
the General Corporation Law of the State of Delaware this 24th day of January
1997.
/s/ Christopher P. Bifone
----------------------------------------------
Christopher P. Bifone, Sole Incorporator
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BY-LAWS
OF
SWEET FACTORY GROUP, INC.
A DELAWARE CORPORATION
ARTICLE I
SHAREHOLDERS
Section 1.1 ANNUAL MEETINGS. An annual meeting of shareholders
to elect directors and transact such other business as may properly be
presented to the meeting shall be held at such place as the Board of
Directors may from time to time fix on the first day of _________ of each
year, or if that day shall be a legal holiday in the jurisdiction in which
the meeting is to be held, then on the next day not a legal holiday, at 9:00
a.m.
Section 1.2 SPECIAL MEETINGS. A special meeting of shareholders
may be called at any time by the President, any two directors or the holders
of not less than 25% of all the shares entitled to vote at the meeting by
either giving appropriate notice to the shareholders or notifying the
Secretary in writing specifying the matter or matters appropriate for action
at such a meeting, proposed to be presented at the meeting. Upon receipt of
such notice, the Secretary shall cause appropriate notice of a shareholders
meeting to be given. Any such meeting shall be held at such time as shall be
determined by the body or person calling such meeting at the place where the
last annual meeting was held, unless another place (within or without the
State of Delaware) is designated by the President or the Board of Directors.
Section 1.3 NOTICE OF MEETING. For each meeting of
shareholders, written notice shall be given stating the place, date and hour
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called and, if the list of shareholders required by Section 1.9 is
not to be at such place at least 10 days prior to the meeting, the place
where such list will be. Except as otherwise provided by Delaware law, the
written notice of any meeting shall be given not less than 10 nor more than
60 days before the date of the meeting to each stockholder entitled to vote
at such meeting. If mailed, notice shall be deemed to be given when
deposited in the United States Mail postage prepaid, directed to the
shareholder at his address as it appears on the records of the Corporation.
Section 1.4 QUORUM. Except as otherwise required by Delaware
law or the Certificate of Incorporation, the holders of record of a majority
of the shares of stock entitled to be voted, present in person or represented
by proxy, at a meeting shall constitute a quorum for the transaction of
business at the meeting; but in the absence of a quorum, the holders of
record present or represented by proxy at such meeting may vote to adjourn
the meeting from time to time, without notice other than announcement at the
meeting, until a quorum is obtained. At any such adjourned session of the
meeting at which there shall be present or represented the holders of record
of the requisite number of shares, any business may be transacted that might
have been transacted at the meeting as originally called.
<PAGE>
Section 1.5 CHAIRMAN AND SECRETARY AT A MEETING. At each
meeting of shareholders, the President or, in his absence, the person
designated in writing by the President, or if no person is so designated,
then a person designated by the Board of Directors, shall preside as chairman
of the meeting; if no person is so designated, then the meeting shall choose
a chairman by plurality vote. The Secretary or, in his absence, a person
designated by the chairman of the meeting shall act as secretary of the
meeting.
Section 1.6 VOTING; PROXIES. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to any
Certificate of Designation made by the Board of Directors with respect to the
voting rights of any preferred stock of the Corporation, and further subject
to the provisions of Section 1.10:
(a) Each shareholder shall, at every meeting of the shareholders, be
entitled to one vote for each share of capital stock held by him.
(b) Each shareholder entitled to vote at a meeting of shareholders or
to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act
for him by proxy, but no such proxy shall be voted or acted upon
after three years from its date, unless the proxy provides for a
longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors, presented to any
meeting, shall be decided by majority of the votes cast on the
matter.
(e) Election of directors and the vote on any other matter presented
to a meeting shall be by written ballot only if so ordered by the
chairman of the meeting or if so requested by any shareholder
present or represented by proxy at the meeting entitled to vote
in such election or on such matter, as the case may be.
Section 1.7 ADJOURNED MEETINGS. A meeting of shareholders may
be adjourned to another time or place as provided in Section 1.4. Notice
need not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. Unless the Board
of Directors fixes a new record date, shareholders of record for an adjourned
meeting shall be as originally determined for the meeting from which the
adjournment was taken. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each shareholder of record
entitled to vote. At the adjourned meeting, any business may be transacted
that might have been transacted at the meeting as originally called.
Section 1.8 CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Any
action that may be taken at any annual or special meeting of shareholders may
be taken without a meeting, without prior notice and without a vote if a
consent in writing, setting forth the action so taken, is
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signed by the holders of outstanding stock having not less than the minimum
number of votes that would be necessary to authorize or take such action at a
meeting at which all shares entitled to vote thereon were present and voted.
Notice of the taking of such action shall be given promptly to each
shareholder that would have been entitled to vote thereon at a meeting of
shareholders and that did not consent thereto in writing.
Section 1.9 LIST OF SHAREHOLDERS ENTITLED TO VOTE. At least 10
days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order
and showing the address of each shareholder and the number of shares
registered in the name of each shareholder, shall be prepared and shall be
open to the examination of any shareholder for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 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. Such list
shall be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any shareholder who is present.
Section 1.10 FIXING OF RECORD DATE. In order that the
Corporation may determine the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, 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 in advance a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, no
more than sixty days prior to any other action. If no record date is fixed,
the record date for determining shareholders entitled to notice of or to vote
at a meeting of shareholders shall be the close of business on the day next
preceding the date on which notice is given, or, if notice is waived, at the
close of the business on the day next preceding the day on which the meeting
is held. The record date for determining shareholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed; and the record date for any other purpose
shall be at the close of the business on the day on which the Board of
Directors adopts the resolution relating thereto.
ARTICLE II
DIRECTORS
Section 2.1 NUMBER; TERM OF OFFICE; QUALIFICATIONS; VACANCIES.
The Board of Directors shall consist of nine (9) members, who need not be
shareholders nor residents of the State of Delaware. The number of directors
that shall constitute the whole Board of Directors may be increased or
decreased from time to time by amendment of this By-Law, but no decrease
shall have the effect of shortening the term of any incumbent director.
Directors shall be elected at the annual meeting of shareholders to hold
office, subject to Section 2.2 and 2.3, until the next
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annual meeting of shareholders and until their respective successors are
elected and qualified. Vacancies and newly created directorships resulting
from any increase in the authorized number of directors may be filled by a
majority of the directors then in office, although less than a quorum, or by
the sole remaining director; and the directors so chosen shall hold office,
subject to Section 2.2 and 2.3, until the next annual meeting of shareholders
and until their respective successors are elected and qualified.
Section 2.2 RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board
of Directors, to the President or to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if no
time be specified, upon receipt thereof by the Board of Directors or one of
the above-named officers; and, unless specified therein, the acceptance of
such resignation shall not be necessary to make it effective. When one or
more directors shall resign from the Board of Directors effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
By-Laws in the filling of other vacancies.
Section 2.3 REMOVAL. Any one or more directors may be removed,
with or without cause, by the vote to written consent of the holders of a
majority of the shares entitled to vote at an election of directors,
provided, however, no director may be removed (unless the entire board is
removed) when the votes cast against removal, or not consenting in writing to
the removal would be sufficient to elect the director if voted cumulatively
at election at which the same total number of votes are cast (or, if the
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of the director's
most recent election were then being elected.
Section 2.4 REGULAR AND ANNUAL MEETINGS; NOTICE. Regular
meetings of the Board of Directors shall be held at such time and at such
place, within or without the State of Delaware, as the Board of Directors may
from time to time prescribe. No notice need be given of any regular meeting,
and a notice, if given, need not specify the purposes thereof. A meeting of
the Board of Directors may be held without notice immediately after an annual
meeting of shareholders at the same place as that at which such meeting was
held.
Section 2.5 SPECIAL MEETINGS; NOTICE. A special meeting of the
Board of Directors may be called at any time by the Board of Directors, its
Chairman, any two directors, the President or any person acting in the place
of the President by either giving appropriate notice to the directors or by
notifying the Secretary in writing, specifying the matter or matters
appropriate for action at such a meeting, proposed to be presented at the
meeting. Upon receipt of such notice, the Secretary shall cause appropriate
notice to be given. Any such meeting shall be held at such time as shall be
determined by the body or person calling such meeting and at the place where
the last annual meeting was held, unless another place (within or without the
State of Delaware) is designated by the President or the Board of Directors.
Notice of such meeting stating the time and place thereof shall be given (a)
by deposit of the notice in the United States Mail, first class, postage
prepaid, at least seven days before the day fixed for the meeting,
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addressed to each director at his address as it appears on the Corporation's
records or at such other address as the director may have furnished the
Corporation for that purpose, (b) by delivery of the notice by cable, radio,
fax, telecopy, telex, overnight or other express delivery service, in each
case at least four (4) days before the time fixed for the meeting, or (c) by
personal delivery, telephone or telegraph, in each case at least forty-eight
(48) hours before the time fixed for the meeting.
Section 2.6 CHAIRMAN OF THE BOARD; PRESIDING OFFICER AND
SECRETARY AT MEETINGS. The Board of Directors may elect one of its members
to serve at its pleasure as Chairman of the Board. Each meeting of the Board
of Directors shall be presided over by the Chairman of the Board or in his
absence by the President, if a director, or if neither is present, by such
member of the Board of Directors as shall be chosen by the meeting. The
Secretary or, in his absence, an Assistant Secretary shall act as secretary
of the meeting, or if no such officer is present, a secretary of the meeting
shall be designated by the person presiding over the meeting.
Section 2.7 QUORUM. A majority of the whole Board of Directors
shall constitute a quorum for the transaction of business, but in the absence
of a quorum, a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at
the meeting, until such time as a quorum is present. Except as otherwise
required by the Certificate of Incorporation or the By-Laws, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.8 MEETING BY TELEPHONE. Members of the Board of
Directors or of any committee thereof may participate in meetings of the
Board of Directors or of such 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 such participation shall constitute
presence in person at such meeting.
Section 2.9 ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation, 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 of
such committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or of such committee.
Section 2.10 EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors may, by resolution approved by a majority of the whole Board of
Directors, designate an Executive Committee and one or more other committees,
each such committee to consist of one or more directors as the Board of
Directors may from time to time determine. Any such committee, to the extent
provided in such resolution or resolutions, 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, including the power to authorize the
seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have such power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation,
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recommending to the shareholders the sale, lease or exchange of all or
substantially all of the Corporation's property and assets, recommending to
the shareholders a dissolution of the Corporation or a revocation of a
dissolution, or amending the By-Laws; and unless the resolution shall
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock. 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 he or
they 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. Each such committee, other than the Executive
Committee, shall have such name as may be determined from time to time by the
Board of Directors.
Section 2.11 COMPENSATION. A director shall receive such
compensation, if any, for his service as a director as may from time to time
be fixed by the Board of Directors, which compensation may be based, in whole
or in part, upon his attendance at meetings of the Board of Directors or of
its committees. The Board of Directors may also authorize the reimbursement
of its members for expenses incurred in attending any meeting.
Section 2.12 POWERS. Subject to limitations of the Certificate
of Incorporation, these By-Laws, and the laws of the State of Delaware as to
action which shall be authorized or approved by the shareholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be controlled by, the Board of
Directors. Without prejudice to such general powers, but subject to the same
limitation, it is hereby expressly declared that the Board of Directors shall
have the following powers, to-wit:
(a) To select and remove (with or without cause) all the officers,
agents and employees of the Corporation, prescribe such powers
and duties for them as may not be inconsistent with law, with the
Certificate of Incorporation, or the By-Laws, and fix their
compensation.
(b) To conduct, manage and control the affairs and business of the
Corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the Certificate of Incorporation,
or the By-Laws, as it may deem best.
(c) To change the principal office for the transaction of the
business of the Corporation and to fix and locate, from time to
time, one or more subsidiary offices of the Corporation within or
without the State of Delaware.
(d) To adopt, make and use a corporate seal, and to prescribe the
form of certificates of shares, and to alter the form of such
seal and of such certificates, from time to time, provided such
seal and such certificate shall at all times comply with the
provisions of the law.
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(e) To authorize the issuance of shares of stock of the Corporation,
from time to time, upon such terms and for such lawful
consideration as it may determine.
(f) To borrow money and incur indebtedness for the purposes of the
Corporation, and to cause to be executed and delivered therefor
in the corporate name, promissory notes, bonds, debentures, deeds
of trust, mortgages, pledges, hypothecations or other evidences
of debt and securities therefor.
(g) To declare dividends pursuant to the provisions of the laws of
the State of Delaware.
ARTICLE III
OFFICERS
Section 3.1 ELECTION; QUALIFICATION. The officers of the
Corporation shall be a Chairman of the Board, President, a Secretary and a
Treasurer, each of whom shall be elected by the Board of Directors. The
Board of Directors may elect one or more Vice-Presidents, a Controller, one
or more Assistant Secretaries, one or more Assistant Treasurers, one or more
Assistant Controllers, and such other officers as it may from time to time
determine. Two or more offices may be held by the same person.
Section 3.2 TERM OF OFFICE. Each officer shall hold office from
the time of his election and qualification to the time at which his successor
is elected and qualified, unless sooner he shall die or resign or shall be
removed pursuant to Section 3.4.
Section 3.3 RESIGNATION. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board
of Directors, to the President or to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein, or if no
time be specified, upon receipt thereof by the Board of Directors or one of
the above-named officers; and, unless specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Nothing
contained herein shall prejudice or affect the Corporation's rights under any
contract with such officer that may be breached by his resignation.
Section 3.4 REMOVAL. Any officer may be removed at any time,
with or without cause, by the vote of a majority of the whole Board of
Directors.
Section 3.5 VACANCIES. Any vacancy, however caused, in any
office of the Corporation may be filled by vote of a majority of the whole
Board of Directors.
Section 3.6 COMPENSATION. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
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Section 3.7 CHAIRMAN OF THE BOARD. The Chairman of the Board
shall, if present, preside at all meetings of the Board of Directors and
shall be the Chief Executive Officer of the Corporation and shall have
general supervision and control over the business affairs of the Corporation,
subject to the control of the Board of Directors. The Chairman of the Board
may sign and execute, in the name of the Corporation, any instrument
authorized by the Board of Directors, except when the signing and execution
thereof shall have been expressly delegated by the Board of Directors or by
these By-Laws to some other officer or agent of the Corporation. The
Chairman of the Board shall have all of the general powers and duties of
management usually vested in the chief executive officer of a corporation,
and shall have such other powers and duties as may be prescribed from time to
time by the Board of Directors or these By-Laws. The Chairman of the Board
shall have discretion to prescribe the duties of the other officers and
employees of the Corporation in a manner not inconsistent with the provisions
of these By-Laws and the directions of the Board of Directors.
Section 3.8 PRESIDENT. Subject to the supervisory powers of the
Chairman of the Board, the President shall have all of the general powers and
duties of management usually vested in the chief operating officer of a
corporation, and shall have such other powers and duties as may be prescribed
from time to time by the Board of Directors, the Chairman of the Board or
these By-Laws. In the absence or disability of the Chairman of the Board, in
the event of a vacancy in the office of Chairman of the Board, or in the
event such officer refuses to act, the President shall perform all of the
duties of the Chairman of the Board and, when so acting, shall have all the
powers of, and be subject to all the restrictions on, a chief executive
officer.
Section 3.9 VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents, if any, in order of their rank as fixed
by the Board of Directors (or if not ranked, the Vice President designated by
the Board of Directors), shall perform all 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 have such other
powers and perform such other duties as, from time to time, may be prescribed
for them respectively by the Board of Directors or these By-Laws.
Section 3.10 SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of the shareholders and record all
votes and the minutes of all proceedings in a book to be kept for that
purpose, and shall perform like duties for the standing committees when
required. He shall keep, or cause to be kept, a stock register showing the
names of the shareholders, number and date of certificates issued, and the
number and date of cancellation of every certificate surrendered for
cancellation. He shall give, or cause to be given, notice of all meetings of
the shareholders and meetings of the Board of Directors as required. He
shall perform such other duties as may be prescribed by the Board of
Directors. He shall keep in safe custody the seal of the Corporation, and
when authorized by the Board of Directors, shall affix the same to any
instrument requiring it; and when so affixed the seal shall be attested by
his signature or by the signature of the Assistant Secretary, the Treasurer
or a Vice President.
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Section 3.11 TREASURER. The Treasurer shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounting records
affecting the Corporation. The books of account shall at all reasonable
times be open to inspection by any director.
The Treasurer shall deposit all monies and other valuables in the
name and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall render to the
President and directors, whenever they request it, an account of all of his
transactions as Treasurer and of the financial condition of the Corporation.
He shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these By-Laws.
If required by the Board of Directors, the Treasurer shall obtain a
bond at the Corporation's expense in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money, and other property of
whatsoever kind in his possession or under his control belonging to the
Corporation.
Section 3.12 ASSISTANTS. The assistant officers shall, in the
order of their seniority (unless otherwise designated by the Board of
Directors), and in the absence or disability of the officer to whom they are
an assistant, perform the duties of such officer; and when so acting they
shall have all the powers of, and be subject to all the restrictions upon,
such officer. They shall have such other powers and perform such other
duties as, from time to time, may be prescribed for them respectively by the
Board of Directors, the officers of the Corporation, or these By-Laws.
ARTICLE IV
CAPITAL STOCK
Section 4.1 STOCK CERTIFICATES. The interest of each holder of
stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the
Chairman of the Board or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any of or all the signatures appearing on such certificate or
certificates may be a facsimile. If 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 he were such officer, transfer agent or registrar at
the date of issue.
Section 4.2 TRANSFER OF STOCK. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and
such rules and regulations as the Board of Directors shall from time to time
prescribe, subject to any restrictions on transfer that may be noted on the
stock certificates or of which the Corporation has received written notice.
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Section 4.3 HOLDERS OF RECORD. Prior to due presentment for
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively, entitled to
vote, to receive notifications, and otherwise entitled to all the rights and
powers of a complete owner thereof, notwithstanding notice to the contrary.
Section 4.4 LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES.
The Corporation shall issue a new certificate of stock to replace a
certificate theretofore issued by it which is alleged to have been lost,
destroyed or wrongfully taken, if the owner or his legal representative (i)
requests replacement before the Corporation has notice that the stock
certificate has been acquired by a bona fide purchaser; (ii) agrees to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such stock certificate or
the issuance of any such new stock certificate, and provides such security
for such indemnity as the Corporation deems necessary or desirable; and (iii)
satisfies such other terms and conditions as the Board of Directors may from
time to time prescribe.
ARTICLE V
MISCELLANEOUS
Section 5.1 WAIVER OF NOTICE. Whenever notice is required by
the Certificate of Incorporation, the By-Laws, or any provision of the
General Corporation Law of the State of Delaware, a written waiver thereof,
signed by the person entitled to notice, whether before, or after the time
required for such notice, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special
meeting of the shareholders, directors or members of a committee of directors
need be specified in any written waiver of notice.
Section 5.2 FISCAL YEAR. The fiscal year of the Corporation
shall be the calendar year unless another fiscal year is selected by the
Board of Directors.
Section 5.3 CORPORATE SEAL. The corporate seal shall be in such
form as the Board of Directors may from time to time prescribe, and the same
may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
ARTICLE VI
AMENDMENT OF BY-LAWS
Section 6.1 AMENDMENT. The By-Laws may be adopted, amended or
repealed by the Board of Directors or by the shareholders, except that any
By-Law adopted by the shareholders may be amended or repealed only by the
shareholders if such By-Law specifically so provides.
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SECRETARY'S CERTIFICATE OF ADOPTION OF
BY-LAWS OF
OF SWEET FACTORY GROUP, INC.
I hereby certify:
That I am the duly elected Secretary of Sweet Factory Group, Inc.,
a Delaware corporation;
That the foregoing By-Laws comprising eleven (11) pages, constitute
the By-Laws of said corporation as duly adopted by the Board of Directors of
the Corporation on September 10, 1997.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 10th
day of September, 1997.
/s/ John F. Hoffner
-----------------------------------------
John F. Hoffner, Secretary
<PAGE>
BY-LAWS
OF
SWEET FACTORY, INC.
A DELAWARE CORPORATION
ARTICLE I
SHAREHOLDERS
Section 1.1 ANNUAL MEETINGS. An annual meeting of shareholders
to elect directors and transact such other business as may properly be
presented to the meeting shall be held at such place as the Board of
Directors may from time to time fix on the first day of _____________ of each
year, or if that day shall be a legal holiday in the jurisdiction in which
the meeting is to be held, then on the next day not a legal holiday, at 9
o'clock a.m.
Section 1.2 SPECIAL MEETINGS. A special meeting of shareholders
may be called at any time by the President, any two directors or the holders
of not less than 25% of all the shares entitled to vote at the meeting by
either giving appropriate notice to the shareholders or notifying the
Secretary in writing specifying the matter or matters appropriate for action
at such a meeting, proposed to be presented at the meeting. Upon receipt of
such notice, the Secretary shall cause appropriate notice of a shareholders
meeting to be given. Any such meeting shall be held at such time as shall be
determined by the body or person calling such meeting at the place where the
last annual meeting was held, unless another place (within or without the
State of Delaware) is designated by the President or the Board of Directors.
Section 1.3 NOTICE OF MEETING. For each meeting of
shareholders, written notice shall be given stating the place, date and hour
and, in the case of a special meeting, the purpose or purposes for which the
meeting is called and, if the list of shareholders required by Section 1.9 is
not to be at such place at least 10 days prior to the meeting, the place
where such list will be. Except as otherwise provided by Delaware law, the
written notice of any meeting shall be given not less than 10 nor more than
60 days before the date of the meeting to each stockholder entitled to vote
at such meeting. If mailed, notice shall be deemed to be given when
deposited in the United States Mail, postage prepaid, directed to the
shareholder at his address as it appears on the records of the Corporation.
Section 1.4 QUORUM. Except as otherwise required by Delaware
law or the Certificate of Incorporation, the holders of record of a majority
of the shares of stock entitled to be voted, present in person or represented
by proxy, at a meeting shall constitute a quorum for the trans-action of
business at the meeting; but in the absence of a quorum, the holders of
record present or represented by proxy at such meeting may vote to adjourn
the meeting from time to time, without
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notice other than announcement at the meeting, until a quorum is obtained.
At any such adjourned session of the meeting at which there shall be present
or represented the holders of record of the requisite number of shares, any
business may be transacted that might have been transacted at the meeting as
originally called.
Section 1.5 CHAIRMAN AND SECRETARY AT A MEETING. At each
meeting of shareholders, the President or, in his absence, the person
designated in writing by the President, or if no person is so designated,
then a person designated by the Board of Directors, shall preside as chairman
of the meeting; if no person is so designated, then the meeting shall choose
a chairman by plurality vote. The Secretary or, in his absence, a person
designated by the chairman of the meeting shall act as secretary of the
meeting.
Section 1.6 VOTING; PROXIES. Except as otherwise provided by
Delaware law or the Certificate of Incorporation, and subject to any
Certificate of Designation made by the Board of Directors with respect to the
voting rights of any preferred stock of the Corporation, and further subject
to the provisions of Section 1.10:
(a) Each shareholder shall, at every meeting of the
shareholders, be entitled to one vote for each share of capital stock held by
him.
(b) Each shareholder entitled to vote at a meeting of
shareholders or to express consent or dissent to corporate action in writing
without a meeting may authorize another person or persons to act for him by
proxy, but no such proxy shall be voted or acted upon after three years from
its date, unless the proxy provides for a longer period.
(c) Directors shall be elected by a plurality vote.
(d) Each matter, other than election of directors, presented
to any meeting, shall be decided by majority of the votes cast on the matter.
(e) Election of directors and the vote on any other matter
presented to a meeting shall be by written ballot only if so ordered by the
chairman of the meeting or if so requested by any shareholder present or
represented by proxy at the meeting entitled to vote in such election or on
such matter, as the case may be.
Section 1.7 ADJOURNED MEETINGS. A meeting of shareholders may
be adjourned to another time or place as provided in Section 1.4. Notice need
not be given of the adjourned meeting if the time and place thereof are
announced at the meeting at which the adjournment is taken. Unless the Board
of Directors fixes a new record date, shareholders of record for an adjourned
meeting shall be as originally determined for the meeting from which the
adjournment was taken. If the adjournment is for more than 30 days, or if
after the adjournment a new record date is fixed for the adjourned meeting, a
notice of the adjourned meeting shall be given to each
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shareholder of record entitled to vote. At the adjourned meeting, any
business may be transacted that might have been transacted at the meeting as
originally called.
Section 1.8 CONSENT OF SHAREHOLDERS IN LIEU OF MEETING. Any
action that may be taken at any annual or special meeting of shareholders may
be taken without a meeting, without prior notice and without a vote if a
consent in writing, setting forth the action so taken, is signed by the
holders of outstanding stock having not less than the minimum number of votes
that would be necessary to authorize or take such action at a meeting at
which all shares entitled to vote thereon were present and voted. Notice of
the taking of such action shall be given promptly to each shareholder that
would have been entitled to vote thereon at a meeting of shareholders and
that did not consent thereto in writing.
Section 1.9 LIST OF SHAREHOLDERS ENTITLED TO VOTE. At least 10
days before every meeting of shareholders, a complete list of the
shareholders entitled to vote at the meeting, arranged in alphabetical order
and showing the address of each shareholder and the number of shares
registered in the name of each shareholder, shall be prepared and shall be
open to the examination of any shareholder for any purpose germane to the
meeting, during ordinary business hours, for a period of at least 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. Such list
shall be produced and kept at the time and place of the meeting during the
whole time thereof and may be inspected by any shareholder who is present.
Section 1.10 FIXING OF RECORD DATE. In order that the
Corporation may determine the shareholders entitled to notice of or to vote
at any meeting of shareholders or any adjournment thereof, or to express
consent to corporate action in writing without a meeting, 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 in advance a record date, which shall
not be more than 60 nor less than 10 days before the date of such meeting, no
more than sixty days prior to any other action. If no record date is fixed,
the record date for determining shareholders entitled to notice of or to vote
at a meeting of shareholders shall be the close of business on the day next
preceding the date on which notice is given, or, if notice is waived, at the
close of the business on the day next preceding the day on which the meeting
is held. The record date for determining shareholders entitled to express
consent to corporate action in writing without a meeting, when no prior
action by the Board of Directors is necessary, shall be the day on which the
first written consent is expressed; and the record date for any other purpose
shall be at the close of the business on the day on which the Board of
Directors adopts the resolution relating thereto.
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ARTICLE II
DIRECTORS
Section 2.1 NUMBER; TERM OF OFFICE; QUALIFICATIONS; VACANCIES.
The Board of Directors shall consist of five (5) members who need not be
shareholders nor residents of the State of Delaware. The number of directors
that shall constitute the whole Board of Directors may be increased or
decreased from time to time by amendment of this By-Law, but no decrease
shall have the effect of shortening the term of any incumbent director.
Directors shall be elected at the annual meeting of shareholders to hold
office, subject to Sections 2.2 and 2.3, until the next annual meeting
successors are elected and qualified. Vacancies and newly created
directorships resulting from any increase in the authorized number of
directors may be filled by a majority of the directors then in office,
although less than a quorum, or by the sole remaining director; and the
directors so chosen shall hold office, subject to Sections 2.2 and 2.3,
until the next annual meeting of shareholders and until their respective
successors are elected and qualified.
Section 2.2 RESIGNATION. Any director of the Corporation may
resign at any time by giving written notice of such resignation to the Board
of Directors, to the President or to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein or, if no
time be specified, upon receipt thereof by the Board of Directors or one of
the above-named officers; and, unless specified therein, the acceptance of
such resignation shall not be necessary to make it effective. When one or
more directors shall resign from the Board of Directors effective at a future
date, a majority of the directors then in office, including those who have so
resigned, shall have power to fill such vacancy or vacancies, the vote
thereon to take effect when such resignation or resignations shall become
effective, and each director so chosen shall hold office as provided in these
By-Laws in the filling of other vacancies.
Section 2.3 REMOVAL. Any one or more directors may be removed,
with or without cause, by the vote to written consent of the holders of a
majority of the shares entitled to vote at an election of directors,
provided, however, no director may be removed (unless the entire board is
removed) when the votes cast against removal, or not consenting in writing to
the removal, would be sufficient to elect the director if voted cumulatively
at election at which the same total number of votes are cast (or, if the
action is taken by written consent, all shares entitled to vote were voted)
and the entire number of directors authorized at the time of the director's
most recent election were then being elected.
Section 2.4 REGULAR AND ANNUAL MEETINGS; NOTICE. Regular
meetings of the Board of Directors shall be held at such time and at such
place, within or without the State of Delaware, as the Board of Directors may
from time to time prescribe. No notice need be given of any regular meeting,
and a notice, if given, need not specify the purposes thereof. A meeting of
the Board of Directors may be held without notice immediately after an annual
meeting of shareholders at the same place as that at which such meeting was
held.
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Section 2.5 SPECIAL MEETINGS; NOTICE. A special meeting of the
Board of Directors may be called at any time by the Board of Directors, its
Chairman, any two directors, the President or any person acting in the place
of the President by either giving appropriate notice to the directors or by
notifying the Secretary in writing, specifying the matter or matters
appropriate for action at such a meeting, proposed to be presented at the
meeting. Upon receipt of such notice, the Secretary shall cause appropriate
notice to be given. Any such meeting shall be held at such time as shall be
determined by the body or person calling such meeting and at the place where
the last annual meeting was held, unless another place (within or without the
State of Delaware) is designated by the President or the Board of Directors.
Notice of such meeting stating the time and place thereof shall be given (a)
by deposit of the notice in the United States Mail, first class, postage
prepaid, at least seven days before the day fixed for the meeting, addressed
to each director at his address as it appears on the Corporation's records or
at such other address as the director may have furnished the Corporation for
that purpose, (b) by delivery of the notice by cable, radio, fax, telecopy,
telex, overnight or other express delivery service, in each case at least
four (4) days before the time fixed for the meeting, or (c) by personal
delivery, telephone or telegraph, in each case at least forty-eight (48)
hours before the time fixed for the meeting.
Section 2.6 CHAIRMAN OF THE BOARD; PRESIDING OFFICER AND
SECRETARY AT MEETINGS. The Board of Directors may elect one of its members
to serve at its pleasure as Chairman of the Board. Each meeting of the Board
of Directors shall be presided over by the Chairman of the Board or in his
absence by the President, if a director, or if neither is present, by such
member of the Board of Directors as shall be chosen by the meeting. The
Secretary or, in his absence, an Assistant Secretary shall act as secretary
of the meeting, or if no such officer is present, a secretary of the meeting
shall be designated by the person presiding over the meeting.
Section 2.7 QUORUM. A majority of the whole Board of Directors
shall constitute a quorum for the transaction of business, but in the absence
of a quorum, a majority of those present (or if only one be present, then
that one) may adjourn the meeting, without notice other than announcement at
the meeting, until such time as a quorum is present. Except as otherwise
required by the Certificate of Incorporation or the By-Laws, the vote of the
majority of the directors present at a meeting at which a quorum is present
shall be the act of the Board of Directors.
Section 2.8 MEETING BY TELEPHONE. Members of the Board of
Directors or of any committee thereof may participate in meetings of the
Board of Directors or of such 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 such participation shall constitute
presence in person at such meeting.
Section 2.9 ACTION WITHOUT MEETING. Unless otherwise restricted
by the Certificate of Incorporation, 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 of
such committee, as the case may be, consent thereto in writing and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors or of such committee.
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Section 2.10 EXECUTIVE AND OTHER COMMITTEES. The Board of
Directors may, by resolution approved by a majority of the whole Board of
Directors, designate an Executive Committee and one or more other committees,
each such committee to consist of one or more directors as the Board of
Directors may from time to time determine. Any such committee, to the extent
provided in such resolution or resolutions, 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, including the power to authorize the
seal of the Corporation to be affixed to all papers that may require it; but
no such committee shall have such power or authority in reference to amending
the Certificate of Incorporation, adopting an agreement of merger or
consolidation, recommending to the shareholders the sale, lease or exchange
of all or substantially all of the Corporation's property and assets,
recommending to the shareholders a dissolution of the Corporation or a
revocation of a dissolution, or amending the By-Laws; and unless the
resolution shall expressly so provide, no such committee shall have the power
or authority to declare a dividend or to authorize the issuance of stock. 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 he or they 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. Each such committee, other than
the Executive Committee, shall have such name as may be determined from time
to time by the Board of Directors.
Section 2.11 COMPENSATION. A director shall receive such
compensation, if any, for his service as a director as may from time to time
be fixed by the Board of Directors, which compensation may be based, in whole
or in part, upon his attendance at meetings of the Board of Directors or of
its committees. The Board of Directors may also authorize the reimbursement
of its members for expenses incurred in attending any meeting.
Section 2.12 POWERS. Subject to limitations of the Certificate
of Incorporation, these By-Laws, and the laws of the State of Delaware as to
action which shall be authorized or approved by the shareholders, all
corporate powers shall be exercised by or under the authority of, and the
business and affairs of the Corporation shall be controlled by, the Board of
Directors. Without prejudice to such general powers, but subject to the same
limitation, it is hereby expressly declared that the Board of Directors shall
have the following powers, to-wit:
(a) To select and remove (with or without cause) all the
officers, agents and employees of the Corporation, prescribe such powers and
duties for them as may not be inconsistent with law, with the Certificate of
Incorporation, or the By-Laws, and fix their compensation.
(b) To conduct, manage and control the affairs and business
of the Corporation, and to make such rules and regulations therefor not
inconsistent with law, or with the Certificate of Incorporation, or the
By-Laws, as it may deem best.
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(c) To change the principal office for the transaction of the
business of the Corporation and to fix and locate, from time to time, one or
more subsidiary offices of the Corporation within or without the State of
Delaware.
(d) To adopt, make and use a corporate seal, and to prescribe
the form of certificates of shares, and to alter the form of such seal and of
such certificates, from time to time, provided such seal and such certificate
shall at all times comply with the provisions of the law.
(e) To authorize the issuance of shares of stock of the
Corporation, from time to time, upon such terms and for such lawful
consideration as it may determine.
(f) To borrow money and incur indebtedness for the purposes
of the Corporation, and to cause to be executed and delivered therefor in the
corporate name, promissory notes, bonds, debentures, deeds of trust,
mortgages, pledges, hypothecations or other evidences of debt and securities
therefor.
(g) To declare dividends pursuant to the provisions of the
laws of the State of Delaware.
ARTICLE III
OFFICERS
Section 3.1 ELECTION; QUALIFICATION. The officers of the
Corporation shall be a President, a Secretary and a Treasurer, each of whom
shall be elected by the Board of Directors. The Board of Directors may elect
a Chairman of the Board, one or more Vice Presidents, a Controller, one or
more Assistant Secretaries, one or more Assistant Treasurers, one or more
Assistant Controllers, and such other officers as it may from time to time
determine. Two or more offices may be held by the same person.
Section 3.2 TERM OF OFFICE. Each officer shall hold office from
the time of his election and qualification to the time at which his successor
is elected and qualified, unless sooner he shall die or resign or shall be
removed pursuant to Section 3.4.
Section 3.3 RESIGNATION. Any officer of the Corporation may
resign at any time by giving written notice of such resignation to the Board
of Directors, to the President or to the Secretary of the Corporation. Any
such resignation shall take effect at the time specified therein, or if no
time be specified, upon receipt thereof by the Board of Directors or one of
the above-named officers; and, unless specified therein, the acceptance of
such resignation shall not be necessary to make it effective. Nothing
contained herein shall prejudice or affect the Corporation's rights under any
contract with such officer that may be breached by his resignation.
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Section 3.4 REMOVAL. Any officer may be removed at any time,
with or without cause, by the vote of a majority of the whole Board of
Directors.
Section 3.5 VACANCIES. Any vacancy, however caused, in any
office of the Corporation may be filled by vote of a majority of the whole
Board of Directors.
Section 3.6 COMPENSATION. The compensation of each officer
shall be such as the Board of Directors may from time to time determine.
Section 3.7 PRESIDENT. Subject to such supervisory powers, if
any, as may be given by the Board of Directors to the Chairman of the Board,
if there be such an officer, the President shall be the chief executive
officer of the Corporation and shall, subject to the control of the Board of
Directors, have general supervision, direction and control of the business
and officers of the Corporation. He shall have the general powers and duties
of management usually vested in the office of a President of a Corporation,
and shall have such other powers and duties as may be prescribed by the Board
of Directors or these By-Laws.
Section 3.8 VICE PRESIDENTS. In the absence or disability of
the President, the Vice Presidents, if any, in order of their rank as fixed
by the Board of Directors (or if not ranked, the Vice President designated by
the Board of Directors), shall perform all 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 have such other
powers and perform such other duties as, from time to time, may be prescribed
for them respectively by the Board of Directors or these By-Laws.
Section 3.9 SECRETARY. The Secretary shall attend all meetings
of the Board of Directors and all meetings of the shareholders and record all
votes and the minutes of all proceedings in a book to be kept for that
purpose, and shall perform like duties for the standing committees when
required. He shall keep, or cause to be kept, a stock register showing the
names of the shareholders, number and date of certificates issued, and the
number and date of cancellation of every certificate surrendered for
cancellation. He shall give, or cause to be given, notice of all meetings of
the shareholders and meetings of the Board of Directors as required. He
shall perform such other duties as may be prescribed by the Board of
Directors. He shall keep in safe custody the seal of the Corporation, and
when authorized by the Board of Directors, shall affix the same to any
instrument requiring it; and when so affixed the seal shall be attested by
his signature or by the signature of the Assistant Secretary, the Treasurer
or a Vice President.
Section 3.10 TREASURER. The Treasurer shall keep and maintain,
or cause to be kept and maintained, adequate and correct accounting records
affecting the Corporation. The books of account shall at all reasonable
times be open to inspection by any director.
The Treasurer shall deposit all monies and other valuables in the
name and to the credit of the Corporation with such depositories as may be
designated by the Board of Directors. He shall disburse the funds of the
Corporation as may be ordered by the Board of Directors, shall
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render to the President and directors, whenever they request it, an account
of all of his transactions as Treasurer and of the financial condition of the
Corporation. He shall have such other powers and perform such other duties
as may be prescribed by the Board of Directors or these By-Laws.
If required by the Board of Directors, the Treasurer shall obtain a
bond at the Corporation's expense in such sum and with such surety or
sureties as shall be satisfactory to the Board of Directors for the faithful
performance of the duties of his office and for the restoration to the
Corporation, in case of his death, resignation, retirement or removal from
office, of all books, papers, vouchers, money, and other property of
whatsoever kind in his possession or under his control belonging to the
Corporation.
Section 3.11 ASSISTANTS. The assistant officers shall, in the
order of their seniority (unless otherwise designated by the Board of
Directors), and in the absence or disability of the officer to whom they are
an assistant, perform the duties of such officer; and when so acting they
shall have all the powers of, and be subject to all the restrictions upon,
such officer. They shall have such other powers and perform such other
duties as, from time to time, may be prescribed for them respectively by the
Board of Directors, the officers of the Corporation, or these By-Laws.
ARTICLE IV
CAPITAL STOCK
Section 4.1 STOCK CERTIFICATES. The interest of each holder of
stock of the Corporation shall be evidenced by a certificate or certificates
in such form as the Board of Directors may from time to time prescribe. Each
certificate shall be signed by or in the name of the Corporation by the
Chairman of the Board or the President or a Vice President and by the
Treasurer or an Assistant Treasurer or the Secretary or an Assistant
Secretary. Any of or all the signatures appearing on such certificate or
certificates may be a facsimile. If 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 he were such officer, transfer agent or registrar at
the date of issue.
Section 4.2 TRANSFER OF STOCK. Shares of stock shall be
transferable on the books of the Corporation pursuant to applicable law and
such rules and regulations as the Board of Directors shall from time to time
prescribe, subject to any restrictions on transfer that may be noted on the
stock certificates or of which the Corporation has received written notice.
Section 4.3 HOLDERS OF RECORD. Prior to due presentment for
registration of transfer, the Corporation may treat the holder of record of a
share of its stock as the complete owner thereof exclusively, entitled to
vote, to receive notifications, and otherwise entitled to all the rights and
powers of a complete owner thereof, notwithstanding notice to the contrary.
9
<PAGE>
Section 4.4 LOST, STOLEN, DESTROYED OR MUTILATED CERTIFICATES.
The Corporation shall issue a new certificate of stock to replace a
certificate theretofore issued by it which is alleged to have been lost,
destroyed or wrongfully taken, if the owner or his legal representative (i)
requests replacement before the Corporation has notice that the stock
certificate has been acquired by a BONA FIDE purchaser; (ii) agrees to
indemnify the Corporation against any claim that may be made against it on
account of the alleged loss or destruction of any such stock certificate or
the issuance of any such new stock certificate, and provides such security
for such indemnity as the Corporation deems necessary or desirable; and (iii)
satisfies such other terms and conditions as the Board of Directors may from
time to time prescribe.
ARTICLE V
MISCELLANEOUS
Section 5.1 INDEMNITY. The Corporation shall indemnify its
directors, to the full extent permitted by the General Corporation Law of
Delaware and may, upon approval in each case by the Board of Directors,
indemnify its officers, employees and agents to such extent. In order to
implement such indemnification, the Corporation may purchase insurance,
establish a trust fund, grant a security interest, obtain a letter of credit,
or employ any other mechanism which is approved by the Board of Directors.
No director shall be liable to the Corporation for any loss or damage
suffered by it on account of any action taken by him as a director of the
Corporation if he acted in good faith and in a manner he reasonably believed
to be in or not opposed to the best interests of the Corporation or, with
respect to a criminal matter, had no reasonable cause to believe that his
conduct was unlawful.
Section 5.2 WAIVER OF NOTICE. Whenever notice is required by
the Certificate of Incorporation, the By-Laws, or any provision of the
General Corporation Law of the State of Delaware, a written waiver thereof,
signed by the person entitled to notice, whether before or after the time
required for such notice, shall be deemed equivalent to notice. Attendance
of a person at a meeting shall constitute a waiver of notice of such meeting,
except when the person attends a meeting for the express purpose of
objecting, at the beginning of the meeting, to the transaction of any
business because the meeting is not lawfully called or convened. Neither the
business to be transacted at nor the purpose of any regular or special
meeting of the shareholders, directors or members of a committee of directors
need be specified in any written waiver of notice.
Section 5.3 FISCAL YEAR. The fiscal year of the Corporation
shall be the calendar year unless another fiscal year is selected by the
Board of Directors.
Section 5.4 CORPORATE SEAL. The corporate seal shall be in such
form as the Board of Directors may from time to time prescribe, and the same
may be used by causing it or a facsimile thereof to be impressed or affixed
or in any other manner reproduced.
10
<PAGE>
ARTICLE VI
AMENDMENT OF BY-LAWS
Section 6.1 AMENDMENT. The By-Laws may be adopted, amended or
repealed by the Board of Directors or by the shareholders, except that any
By-Law adopted by the shareholders may be amended or repealed only by the
shareholders if such By-Law specifically so provides.
11
<PAGE>
SWEET FACTORY, INC.
AMENDMENT OF BY-LAWS
The By-Laws of Sweet Factory, Inc. were amended by the following
resolutions of the Board of Directors of Sweet Factory, Inc. adopted at a
Special Meeting of the Board of Directors held June 1, 1993:
RESOLVED, Article Three of the By-Laws of the Corporation shall
be amended as follows:
a. Section 3.1 shall be amended to read in its entirety as
follows:
"Section 3.1 ELECTION QUALIFICATION. The officers of the
Corporation shall be a Chairman of the Board, President, a
Secretary and a Treasurer, each of whom shall be elected by
the Board of Directors. The Board of Directors may elect
one or more Vice-Presidents, a Controller, one or more
Assistant Secretaries, one or more Assistant Treasurers, one
or more Assistant Controllers, and such other officers as it
may from time to time determine. Two or more offices may be
held by the same person."
b. A new Section 3.7 shall be inserted, with each subsequent Section
in Article Three to be renumbered accordingly. The new Section
3.7 shall read in its entirety as follows:
"Section 3.7 CHAIRMAN OF THE BOARD. The Chairman of the
Board shall, if present, preside at all meetings of the Board
of Directors and shall be the Chief Executive Officer of the
Corporation and shall have general supervision and control
over the business affairs of the Corporation, subject to the
control of the Board of Directors. The Chairman of the Board
may sign and execute, in the name of the Corporation, any
instrument authorized by the Board of Directors, except when
the signing and execution thereof shall have been expressly
delegated by the Board of Directors or by these By-Laws to
some other officer or agent of the Corporation. The Chairman
of the Board shall have all of the general powers and duties
of management usually vested in the chief executive officer of
a corporation, and shall have such other powers and duties as
may be prescribed from time to time by the Board of Directors
or these By-Laws. The Chairman of the Board shall have
discretion to prescribe the duties of the other officers and
employees of the Corporation in a manner not inconsistent with
the provisions of these By-Laws and the directions of the
Board of Directors."
<PAGE>
c. Section 3.7 of the existing By-Laws of the Corporation shall be
replaced in its entirety with the following:
"Section 3.8 PRESIDENT. Subject to the supervisory powers
of the Chairman of the Board, the President shall have all
of the general powers and duties of management usually
vested in the chief operating officer of a corporation, and
shall have such other powers and duties as may be prescribed
from time to time by the Board of Directors, the Chairman of
the Board or these By-Laws. In the absence or disability of
the Chairman of the Board, in the event of a vacancy in the
office of Chairman of the Board, or in the event such
officer refuses to act, the President shall perform all of
the duties of the Chairman of the Board and, when so acting,
shall have all the powers of, and be subject to all the
restrictions on, a chief executive officer."
d. Effective upon filing of the Restated Certificate of
Incorporation with the Secretary of State for the State of
Delaware, Section 5.1 of Article Five relating to this
Corporation's indemnification of its Directors, officers,
employees and agents shall be deleted in its entirety, it being
understood that the Restated Certificate of Incorporation shall
provide for such indemnification.
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<PAGE>
BYLAWS
OF
SF PROPERTIES, INC.
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.1. ANNUAL MEETING . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.2. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . 1
Section 1.3. NOTICE OF MEETINGS . . . . . . . . . . . . . . . . . . . . 1
Section 1.4. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . 1
Section 1.5. ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . 2
Section 1.6. CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . 2
Section 1.7. NOTICE OF STOCKHOLDER BUSINESS . . . . . . . . . . . . . . 2
Section 1.8. PROXIES AND VOTING . . . . . . . . . . . . . . . . . . . . 3
Section 1.9. STOCK LIST . . . . . . . . . . . . . . . . . . . . . . . . 3
Section 1.10. STOCKHOLDER ACTION BY WRITTEN CONSENT. . . . . . . . . . . 3
ARTICLE II
BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.1. NUMBER AND TERM OF OFFICE. . . . . . . . . . . . . . . . . 4
Section 2.2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. . . . . . . . . 4
Section 2.3. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2.4. REGULAR MEETINGS . . . . . . . . . . . . . . . . . . . . . 4
Section 2.5. SPECIAL MEETINGS . . . . . . . . . . . . . . . . . . . . . 4
Section 2.6. QUORUM . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE. . . . . 5
Section 2.8. CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . 5
Section 2.9. POWERS . . . . . . . . . . . . . . . . . . . . . . . . . . 5
Section 2.10. COMPENSATION OF DIRECTORS. . . . . . . . . . . . . . . . . 6
Section 2.11. NOMINATION OF DIRECTOR CANDIDATES. . . . . . . . . . . . . 6
ARTICLE III
COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Section 3.1. COMMITTEES OF THE BOARD OF DIRECTORS . . . . . . . . . . . 6
Section 3.2. CONDUCT OF BUSINESS. . . . . . . . . . . . . . . . . . . . 6
ARTICLE IV
OFFICERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.1. GENERALLY. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.2. CHAIRMAN OF THE BOARD. . . . . . . . . . . . . . . . . . . 7
Section 4.3. PRESIDENT. . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.4. VICE PRESIDENT . . . . . . . . . . . . . . . . . . . . . . 7
Section 4.5. CHIEF FINANCIAL OFFICER. . . . . . . . . . . . . . . . . . 7
Section 4.6 SECRETARY. . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 4.7 DELEGATION OF AUTHORITY. . . . . . . . . . . . . . . . . . 8
Section 4.8. REMOVAL. . . . . . . . . . . . . . . . . . . . . . . . . . 8
<PAGE>
Section 4.9. ACTION WITH RESPECT TO SECURITIES OF OTHER
CORPORATIONS . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE V
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.1. CERTIFICATES OF STOCK. . . . . . . . . . . . . . . . . . . 8
Section 5.2. TRANSFERS OF STOCK . . . . . . . . . . . . . . . . . . . . 8
Section 5.3. RECORD DATE. . . . . . . . . . . . . . . . . . . . . . . . 8
Section 5.4. LOST, STOLEN OR DESTROYED CERTIFICATES . . . . . . . . . . 9
Section 5.5. REGULATIONS. . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VI
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.1. NOTICES. . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 6.2. WAIVERS. . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 7.1. FACSIMILE SIGNATURES . . . . . . . . . . . . . . . . . . . 9
Section 7.2. CORPORATE SEAL . . . . . . . . . . . . . . . . . . . . . .10
Section 7.3. RELIANCE UPON BOOKS, REPORTS AND RECORDS . . . . . . . . .10
Section 7.4. FISCAL YEAR. . . . . . . . . . . . . . . . . . . . . . . .10
Section 7.5. TIME PERIODS . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . .10
Section 8.1. RIGHT TO INDEMNIFICATION . . . . . . . . . . . . . . . . .10
Section 8.2. RIGHT OF CLAIMANT TO BRING SUIT. . . . . . . . . . . . . .11
Section 8.3. NON-EXCLUSIVITY OF RIGHTS. . . . . . . . . . . . . . . . .11
Section 8.4. INDEMNIFICATION CONTRACTS. . . . . . . . . . . . . . . . .11
Section 8.5. INSURANCE. . . . . . . . . . . . . . . . . . . . . . . . .12
Section 8.6. EFFECT OF AMENDMENT. . . . . . . . . . . . . . . . . . . .12
ARTICLE IX
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
</TABLE>
<PAGE>
BYLAWS
OF
SF PROPERTIES, INC.
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETING. An annual meeting of the stockholders of
SF Properties, Inc. (the "Corporation"), for the election of directors and
for the transaction of such other business as may properly come before the
meeting, shall be held at such place, on such date, and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen
months subsequent to the later of the date of incorporation or the last
annual meeting of stockholders.
Section 1.2. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes prescribed in the notice of the meeting, may be
called by (1) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption), (2) the Chairman of
the Board, (3) the President or (4) the holders of shares entitled to cast
not less than twenty percent (20%) of the votes at the meeting, and shall be
held at such place, on such date, and at such time as they shall fix.
Business transacted at special meetings shall be confined to the purpose or
purposes stated in the notice.
Section 1.3. NOTICE OF MEETINGS. Written notice of the place, date,
and time of all meetings of the stockholders shall be given not less than ten
(10) nor more than sixty (60) days before the date on which the meeting is to
be held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law (meaning, here and hereinafter,
as required from time to time by the Delaware General Corporation Law or the
Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 1.4. QUORUM. At any meeting of the stockholders, the holders
of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or by the Certificate of Incorporation or Bylaws of
this Corporation.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by
law, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such
meeting.
Section 1.5. ORGANIZATION. Such person as the Board of Directors may
have designated or, in the absence of such a person, the chief executive
officer of the Corporation or, in his absence, such person as may be chosen
by the holders of a majority of the shares entitled to vote who are present,
in person or by proxy, shall call to order any meeting of the stockholders
and act as chairman of the meeting. In the absence of the Secretary of the
Corporation, the secretary of the meeting shall be such person as the
chairman appoints.
Section 1.6. CONDUCT OF BUSINESS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
Section 1.7. NOTICE OF STOCKHOLDER BUSINESS. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before
a meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) properly brought before the meeting by or at the direction of the Board
of Directors, (c) properly brought before an annual meeting by a stockholder,
or (d) properly brought before a special meeting by a stockholder, but if,
and only if, the notice of a special meeting provides for business to be
brought before the meeting by stockholders. For business to be properly
brought before a meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder proposal to be presented at an annual meeting shall be
received at the Corporation's principal executive offices not less than 120
calendar days in advance of the date that the Corporation's (or the
Corporation's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except
that if no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the
event of a special meeting, notice by the stockholder to be timely must be
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual or
special meeting (a) a brief description of the business desired to be brought
before the annual or special meeting and the reasons for conducting such
business at the annual or special 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.
2
<PAGE>
Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at an annual or special meeting except in accordance with the
procedures set forth in this Section 1.7. The chairman of an annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 1.7, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 1.8. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized
by an instrument in writing filed in accordance with the procedure
established for the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, except where otherwise required by law, may 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. Every vote taken by ballots
shall be counted by an inspector or inspectors appointed by the chairman of
the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or these Bylaws, all other matters shall
be determined by a majority of the votes cast.
Section 1.9. STOCK LIST. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the
number of shares registered in his or her name, shall be open to the
examination of any such 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 stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
Section 1.10. STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken at any annual or special meeting of stockholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the actions so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes which would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. All such consents shall be filed with
the secretary of the Corporation and
3
<PAGE>
shall be maintained in the corporate records. Prompt notice of the taking of
a corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. NUMBER AND TERM OF OFFICE. The number of directors shall
initially be three, and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption). Each director shall
hold office until his successor is elected and qualified or until his earlier
death, resignation, retirement, disqualification or removal.
Section 2.2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority
vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the next annual
meeting of stockholders. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Section 2.3. REMOVAL. Subject to the limitations stated in the
Certificate of Incorporation, any director, or the entire Board of Directors,
may be removed from office at any time, with or without cause, but only by
the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by (i) a majority of the directors then in office, though less
than a quorum, or (ii) the stockholders at a special meeting of the
stockholders properly called for that purpose, by the vote of the holders of
a majority of the shares entitled to vote at such special meeting. Directors
so chosen shall hold office until the next annual meeting of stockholders.
Section 2.4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and
at such time or times as shall have been established by the Board of
Directors and publicized among all directors. A notice of each regular
meeting shall not be required.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by one-half of the directors then in office (rounded
up to the nearest whole number), by the chairman of the board or by the chief
executive officer and shall be held at such place, on such date, and at such
time as they or he shall fix. Notice of the place, date, and time of each
such special meeting shall be given each director by whom it is not waived by
mailing written notice not less than five (5) days before the meeting (one
(1) day before the meeting if delivered
4
<PAGE>
by an overnight courier service and two (2) days before the meeting if by
overseas courier service) or by telephoning, telecopying, telegraphing or
personally delivering the same not less than twenty-four (24) hours before
the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 2.6. QUORUM. At any meeting of the Board of Directors, a
majority of the total number of authorized directors shall constitute a
quorum for all purposes. If a quorum shall fail to attend any meeting, a
majority of those present may adjourn the meeting to another place, date, or
time, without further notice or waiver thereof.
Section 2.7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee of the Board of
Directors, may participate in a meeting of such Board 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 such
participation shall constitute presence in person at such meeting.
Section 2.8. CONDUCT OF BUSINESS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the
vote of a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of Directors
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
Section 2.9. POWERS. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms is it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to pass on the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power
to appoint, remove and suspend subordinate officers, employees and agents;
(6) To adopt from time to time such stock option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the
5
<PAGE>
Corporation and its subsidiaries as it may determine;
(7) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers, employees and agents of the
Corporation and is subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and
affairs.
Section 2.10. COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and
other compensation for their services as directors, including, without
limitation, their services as members of committees of the Board of Directors.
Section 2.11. NOMINATION OF DIRECTOR CANDIDATES. Nominations for the
election of directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled
to vote in the election of directors.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and
shall, for those committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it
desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt an
agreement of merger or consolidation if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee
and any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member
of the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 3.2. CONDUCT OF BUSINESS. 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 authorized 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.
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ARTICLE IV
OFFICERS
Section 4.1. GENERALLY. The officers of the Corporation shall consist
of a President, a Secretary and a Chief Financial Officer. The Corporation
may also have, at the discretion of the Board of Directors, a Chairman of the
Board, one or more Vice Presidents, and such other officers as may from time
to time be appointed by the Board of Directors. Each officer shall hold
office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. Any number of offices may be held by the
same person.
Section 4.2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there shall be such an officer, shall if present preside at all meetings of
the Board of Directors, and exercise and perform such other powers and duties
as may be from time to time assigned to him by the Board of Directors or as
provided by these Bylaws.
Section 4.3. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the President shall be the general manager and
chief executive officer of the Corporation and shall, subject to the control
of the Board of Directors, have general supervision, direction, and control
of the business and officers of the Corporation. He shall preside at all
meetings of the stockholders. He shall be ex officio a member of all the
standing committees, including the executive committee, if any, and shall
have the general powers and duties of management usually vested in the office
of president of a Corporation, and shall have such other powers and duties as
may be prescribed by the Board of Directors or by these Bylaws.
Section 4.4. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the Board of
Director, 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 have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by
the Board of Directors or these Bylaws.
Section 4.5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain or cause to be kept and maintained, adequate and
correct books and records of account in written form or any other form
capable of being converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the Corporation with such depositaries as
may be designated by the Board of Directors. He shall disburse all funds of
the Corporation as may be ordered by the Board of Directors, shall render to
the President and directors, whenever they request it, an account of all of
his transactions as Chief Financial Officer and of the financial condition of
the Corporation, and shall have such other powers and perform such other
duties is may be prescribed by the Board of Directors or by these Bylaws.
7
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Section 4.6 SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes in written form of the proceedings of the Board of
Directors, committees of the Board, and stockholders. Such minutes shall
include all waivers of notice, consents to the holding of meetings, or
approvals of the minutes of meetings executed pursuant to these Bylaws or the
Delaware General Corporation Law. The Secretary shall keep, or cause to be
kept at the principal executive office or at the office of the Corporation's
transfer agent or registrar, a record of its stockholders, giving the names
and addresses of all stockholders and the number and class of shares held by
each.
The Secretary shall give or cause to be given notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
Section 4.7 DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof
Section 4.8. REMOVAL. Any officer of the Corporation may be removed
at any time, with or without cause, by the Board of Directors.
Section 4.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the Corporation, in person or by proxy,
at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE V
STOCK
Section 5.1. CERTIFICATES OF STOCK. Each stockholder shall be
entitled to a certificate signed by, or in the name of the Corporation by,
the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer, certifying the number of shares
owned by him or her. Any of or all the signatures on the Certificate may be
facsimile.
Section 5.2. TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the transfer books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the stock
of the Corporation. Except where a certificate is issued in accordance with
Section 5.4 of these Bylaws, an outstanding certificate for the number of
shares involved shall be surrendered for cancellation before a new
certificate is issued therefor.
Section 5.3. RECORD DATE. The Board of Directors may fix a record
date, which shall not be more than sixty (60) nor fewer than ten (10) days
before the date of any meeting of
8
<PAGE>
stockholders, nor more than sixty (60) days prior to the time for the other
action hereinafter described, as of which there shall be determined the
stockholders who are entitled: to notice of or to vote at any meeting of
stockholders or any adjournment thereof; to receive payment of any dividend
or other distribution or allotment of any rights; or to exercise any rights
with respect to any change, conversion or exchange of stock or with respect
to any other lawful action.
Section 5.4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors
may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5.5. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 6.1. NOTICES. Except as otherwise specifically provided
herein or required by law, all notices required to be given to any
stockholder, director, officer, employee or agent shall be in writing and may
in every instance be effectively given by hand delivery to the recipient
thereof, by depositing such notice in the mails, postage paid, or by sending
such notice by prepaid telegram, mailgram, telecopy or commercial courier
service. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same
appears on the books of the Corporation. The time when such notice shall be
deemed to be given shall be the time such notice is received by such
stockholder, director, officer, employee or agent, or by any person accepting
such notice on behalf of such person, if hand delivered, or the time such
notice is dispatched, if delivered through the mails or by telegram, courier
or mailgram.
Section 6.2. WAIVERS. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after
the time of the event for which notice is to be given, shall be deemed
equivalent to the notice required to be given to such stockholder, director,
officer, employee or agent. Neither the business nor the purpose of any
meeting need be specified in such a waiver. Attendance of a person at a
meeting shall constitute a waiver of notice for such meeting, except when the
person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE VII
MISCELLANEOUS
Section 7.1. FACSIMILE SIGNATURES. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer or officers of the Corporation
may be used whenever and as authorized by the Board of Directors or a
committee thereof.
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Section 7.2. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the Chief Financial Officer or by an Assistant Secretary or other officer
designated by the Board of Directors.
Section 7.3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records
of the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser.
Section 7.4. FISCAL YEAR. The fiscal year ending of the Corporation
shall be on the first Saturday in January of each year.
Section 7.5. TIME PERIODS. In applying any provision of these Bylaws
which require that an act be done or not done a specified number of days
prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be
included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1. RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he
or she is the legal representative, is or was a director, officer or employee
of the Corporation or is or was serving at the request of the Corporation as
a director, officer or employee of another corporation, or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer or employee or in any
other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide
prior to such amendment) against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts
paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this Bylaw or
any agreement with the Corporation) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to
a person who has ceased to be a director, officer or employee and shall inure
to the benefit of his or her heirs, executors and administrators; PROVIDED,
HOWEVER, that, except as provided in Section 8.2, the Corporation shall
indemnify any such person seeking indemnity in connection with an action,
suit or proceeding (or part thereof) initiated by such person only if (a)
such indemnification is expressly required to be made by law,
10
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(b) the action, suit or proceeding (or part thereof) was authorized by the
Board of Directors of the Corporation, (c) such indemnification is provided
by the Corporation, in its sole discretion, pursuant to the powers vested in
the Corporation under the Delaware General Corporation Law, or (d) the
action, suit or proceeding (or part thereof) is brought to establish or
enforce a right to indemnification under an indemnity agreement or any other
statute or law or otherwise as required under Section 145 of the Delaware
General Corporation Law. Such right shall be a contract right and shall
include the right to be paid by the Corporation expenses incurred in
defending any such proceeding in advance of its final disposition; PROVIDED,
HOWEVER, that, if the Delaware General Corporation Law then so requires, the
payment of such expenses incurred by a director or officer of the Corporation
in his or her capacity as a director or officer (and not in any other
capacity in which service was or is rendered by such person while a director
or officer, including, without limitation, service to an employee benefit
plan) in advance of the final disposition of such proceeding, shall be made
only upon delivery to the Corporation of an undertaking, by or on behalf of
such director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
Section 8.2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 8.1 is not paid in full by the Corporation within ninety (90) days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in
bad faith, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to this Corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that a
claimant has not met such applicable standard of conduct.
Section 8.3. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by Sections 8.1 and 8.2 shall not be exclusive of any other right
which such persons may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
Section 8.4. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit
11
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plans, providing for indemnification rights equivalent to or, if the Board of
Directors so determines, greater than, those provided for in this Article
VIII.
Section 8.5. INSURANCE. The Corporation may maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under Delaware General Corporation Law.
Section 8.6. EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VIII by the stockholders or the
directors of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time
of such amendment, repeal or modification.
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation, subject to the right of the stockholders to adopt,
amend, alter or repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors
shall require the approval of a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the Board). The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation.
12
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SECRETARY'S CERTIFICATE OF ADOPTION OF
BYLAWS
OF SF PROPERTIES, INC
I hereby certify:
That I am the duly elected Secretary of SF Properties, Inc., a Delaware
corporation;
That the foregoing Bylaws comprising twelve (12) pages, constitute the
Bylaws of said corporation as duly adopted by the Board of Directors of the
Corporation on September 22, 1997.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 22nd day of
September, 1997.
/s/ John Hoffner
------------------------------
John Hoffner, Secretary
13
<PAGE>
BYLAWS
OF
SF CANDY COMPANY
<PAGE>
INDEX
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I
STOCKHOLDERS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1. Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3. Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.5. Organization . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . 2
1.7. Notice of Stockholder Business . . . . . . . . . . . . . . . . . . 2
1.8. Proxies and Voting . . . . . . . . . . . . . . . . . . . . . . . . 3
1.9. Stock List . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.10. Stockholder Action by Written Consent. . . . . . . . . . . . . . . 3
ARTICLE II
BOARD OF DIRECTORS. . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1. Number and Term of Office. . . . . . . . . . . . . . . . . . . . . 4
2.2. Vacancies and Newly Created Directorships. . . . . . . . . . . . . 4
2.3. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4. Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.5. Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.6. Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.7. Participation in Meetings by Conference Telephone. . . . . . . . . 5
2.8. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . 5
2.9. Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.10. Compensation of Directors. . . . . . . . . . . . . . . . . . . . . 6
2.11. Nomination of Director Candidates. . . . . . . . . . . . . . . . . 6
ARTICLE III
COMMITTEES. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1. Committees of the Board of Directors . . . . . . . . . . . . . . . 6
3.2. Conduct of Business. . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE IV
4.6 Secretary. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.7 Delegation of Authority. . . . . . . . . . . . . . . . . . . . . . 9
4.8. Removal. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
4.9. Action With Respect to Securities of Other Corporations. . . . . . 9
<PAGE>
ARTICLE V
STOCK . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
5.1. Certificates of Stock. . . . . . . . . . . . . . . . . . . . . . . 9
5.2. Transfers of Stock . . . . . . . . . . . . . . . . . . . . . . . . 9
5.3. Record Date. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
5.4. Lost, Stolen or Destroyed Certificates . . . . . . . . . . . . . .10
5.5. Regulations. . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE VI
NOTICES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.1. Notices. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
6.2. Waivers. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .10
ARTICLE VII
MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.1. Facsimile Signatures . . . . . . . . . . . . . . . . . . . . . . .11
7.2. Corporate Seal . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.3. Reliance Upon Books, Reports and Records . . . . . . . . . . . . .11
7.4. Fiscal Year. . . . . . . . . . . . . . . . . . . . . . . . . . . .11
7.5. Time Periods . . . . . . . . . . . . . . . . . . . . . . . . . . .11
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS . . . . . . . . . . . . . . . .11
8.1. Right to Indemnification . . . . . . . . . . . . . . . . . . . . .11
8.2. Right of Claimant to Bring Suit. . . . . . . . . . . . . . . . . .12
8.3. Non-Exclusivity of Rights. . . . . . . . . . . . . . . . . . . . .13
8.4. Indemnification Contracts. . . . . . . . . . . . . . . . . . . . .13
8.5. Insurance. . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
8.6. Effect of Amendment. . . . . . . . . . . . . . . . . . . . . . . .13
ARTICLE IX
AMENDMENTS. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .13
</TABLE>
<PAGE>
BYLAWS
OF
SF CANDY COMPANY
ARTICLE I
STOCKHOLDERS
Section 1.1. ANNUAL MEETING. An annual meeting of the stockholders of
SF Candy Company (the "Corporation"), for the election of directors and for
the transaction of such other business as may properly come before the
meeting, shall be held at such place, on such date, and at such time as the
Board of Directors shall each year fix, which date shall be within thirteen
months subsequent to the later of the date of incorporation or the last
annual meeting of stockholders.
Section 1.2. SPECIAL MEETINGS. Special meetings of the stockholders,
for any purpose or purposes prescribed in the notice of the meeting, may be
called by (1) the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption), (2) the Chairman of
the Board, (3) the President or (4) the holders of shares entitled to cast
not less than twenty percent (20%) of the votes at the meeting, and shall be
held at such place, on such date, and at such time as they shall fix.
Business transacted at special meetings shall be confined to the purpose or
purposes stated in the notice.
Section 1.3. NOTICE OF MEETINGS. Written notice of the place, date,
and time of all meetings of the stockholders shall be given not less than ten
(10) nor more than sixty (60) days before the date on which the meeting is to
be held, to each stockholder entitled to vote at such meeting, except as
otherwise provided herein or required by law (meaning, here and hereinafter,
as required from time to time by the Delaware General Corporation Law or the
Certificate of Incorporation of the Corporation).
When a meeting is adjourned to another place, date or time, written
notice need not be given of the adjourned meeting if the place, date and time
thereof are announced at the meeting at which the adjournment is taken;
provided, however, that if the date of any adjourned meeting is more than
thirty (30) days after the date for which the meeting was originally noticed,
or if a new record date is fixed for the adjourned meeting, written notice of
the place, date, and time of the adjourned meeting shall be given in
conformity herewith. At any adjourned meeting, any business may be
transacted which might have been transacted at the original meeting.
Section 1.4. QUORUM. At any meeting of the stockholders, the holders
of a majority of all of the shares of the stock entitled to vote at the
meeting, present in person or by proxy, shall constitute a quorum for all
purposes, unless or except to the extent that the presence of a larger number
may be required by law or by the Certificate of Incorporation or Bylaws of
this Corporation.
<PAGE>
If a quorum shall fail to attend any meeting, the chairman of the
meeting or the holders of a majority of the shares of stock entitled to vote
who are present, in person or by proxy, may adjourn the meeting to another
place, date, or time.
If a notice of any adjourned special meeting of stockholders is sent to
all stockholders entitled to vote thereat, stating that it will be held with
those present constituting a quorum, then except as otherwise required by
law, those present at such adjourned meeting shall constitute a quorum, and
all matters shall be determined by a majority of the votes cast at such
meeting.
Section 1.5. ORGANIZATION. Such person as the Board of Directors may
have designated or, in the absence of such a person, the chief executive
officer of the Corporation or, in his absence, such person as may be chosen
by the holders of a majority of the shares entitled to vote who are present,
in person or by proxy, shall call to order any meeting of the stockholders
and act as chairman of the meeting. In the absence of the Secretary of the
Corporation, the secretary of the meeting shall be such person as the
chairman appoints.
Section 1.6. CONDUCT OF BUSINESS. The chairman of any meeting of
stockholders shall determine the order of business and the procedure at the
meeting, including such regulation of the manner of voting and the conduct of
discussion as seem to him in order.
Section 1.7. NOTICE OF STOCKHOLDER BUSINESS. At an annual or special
meeting of the stockholders, only such business shall be conducted as shall
have been properly brought before the meeting. To be properly brought before
a meeting, business must be (a) specified in the notice of meeting (or any
supplement thereto) given by or at the direction of the Board of Directors,
(b) properly brought before the meeting by or at the direction of the Board
of Directors, (c) properly brought before an annual meeting by a stockholder,
or (d) properly brought before a special meeting by a stockholder, but if,
and only if, the notice of a special meeting provides for business to be
brought before the meeting by stockholders. For business to be properly
brought before a meeting by a stockholder, the stockholder must have given
timely notice thereof in writing to the Secretary of the Corporation. To be
timely, a stockholder proposal to be presented at an annual meeting shall be
received at the Corporation's principal executive offices not less than 120
calendar days in advance of the date that the Corporation's (or the
Corporation's predecessor's) proxy statement was released to stockholders in
connection with the previous year's annual meeting of stockholders, except
that if no annual meeting was held in the previous year or the date of the
annual meeting has been changed by more than 30 calendar days from the date
contemplated at the time of the previous year's proxy statement, or in the
event of a special meeting, notice by the stockholder to be timely must be
received not later than the close of business on the tenth day following the
day on which such notice of the date of the meeting was mailed or such public
disclosure was made. A stockholder's notice to the Secretary shall set forth
as to each matter the stockholder proposes to bring before the annual or
special meeting (a) a brief description of the business desired to be brought
before the annual or special meeting and the reasons for conducting such
business at the annual or special 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.
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Notwithstanding anything in the Bylaws to the contrary, no business shall be
conducted at an annual or special meeting except in accordance with the
procedures set forth in this Section 1.7. The chairman of an annual or
special meeting shall, if the facts warrant, determine and declare to the
meeting that business was not properly brought before the meeting and in
accordance with the provisions of this Section 1.7, and if he should so
determine, he shall so declare to the meeting and any such business not
properly brought before the meeting shall not be transacted.
Section 1.8. PROXIES AND VOTING. At any meeting of the stockholders,
every stockholder entitled to vote may vote in person or by proxy authorized
by an instrument in writing filed in accordance with the procedure
established for the meeting.
Each stockholder shall have one vote for every share of stock entitled
to vote which is registered in his name on the record date for the meeting,
except as otherwise provided herein or required by law.
All voting, except where otherwise required by law, may 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. Every vote taken by ballots
shall be counted by an inspector or inspectors appointed by the chairman of
the meeting.
All elections shall be determined by a plurality of the votes cast, and
except as otherwise required by law or these Bylaws, all other matters shall
be determined by a majority of the votes cast.
Section 1.9. STOCK LIST. A complete list of stockholders entitled to
vote at any meeting of stockholders, arranged in alphabetical order for each
class of stock and showing the address of each such stockholder and the
number of shares registered in his or her name, shall be open to the
examination of any such 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 stock list shall also be kept at the place of the meeting during the
whole time thereof and shall be open to the examination of any such
stockholder who is present. This list shall presumptively determine the
identity of the stockholders entitled to vote at the meeting and the number
of shares held by each of them.
Section 1.10. STOCKHOLDER ACTION BY WRITTEN CONSENT. Any action which
may be taken at any annual or special meeting of stockholders may be taken
without a meeting and without prior notice, if a consent in writing, setting
forth the actions so taken, is signed by the holders of outstanding shares
having not less than the minimum number of votes which would be necessary to
authorize or take such action at a meeting at which all shares entitled to
vote thereon were present and voted. All such consents shall be filed with
the secretary of the Corporation and
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shall be maintained in the corporate records. Prompt notice of the taking of
a corporate action without a meeting by less than unanimous written consent
shall be given to those stockholders who have not consented in writing.
ARTICLE II
BOARD OF DIRECTORS
Section 2.1. NUMBER AND TERM OF OFFICE. The number of directors shall
initially be three, and, thereafter, shall be fixed from time to time
exclusively by the Board of Directors pursuant to a resolution adopted by a
majority of the total number of authorized directors (whether or not there
exist any vacancies in previously authorized directorships at the time any
such resolution is presented to the Board for adoption). Each director shall
hold office until his successor is elected and qualified or until his earlier
death, resignation, retirement, disqualification or removal.
Section 2.2. VACANCIES AND NEWLY CREATED DIRECTORSHIPS. Newly created
directorships resulting from any increase in the authorized number of
directors or any vacancies in the Board of Directors resulting from death,
resignation, retirement, disqualification, or other cause (other than removal
from office by a vote of the stockholders) may be filled only by a majority
vote of the directors then in office, though less than a quorum, and
directors so chosen shall hold office for a term expiring at the next annual
meeting of stockholders. No decrease in the number of directors constituting
the Board of Directors shall shorten the term of any incumbent director.
Section 2.3. REMOVAL. Subject to the limitations stated in the
Certificate of Incorporation, any director, or the entire Board of Directors,
may be removed from office at any time, with or without cause, but only by
the affirmative vote of the holders of at least a majority of the voting
power of all of the then outstanding shares of stock of the Corporation
entitled to vote generally in the election of directors, voting together as a
single class. Vacancies in the Board of Directors resulting from such removal
may be filled by (i) a majority of the directors then in office, though less
than a quorum, or (ii) the stockholders at a special meeting of the
stockholders properly called for that purpose, by the vote of the holders of
a majority of the shares entitled to vote at such special meeting. Directors
so chosen shall hold office until the next annual meeting of stockholders.
Section 2.4. REGULAR MEETINGS. Regular meetings of the Board of
Directors shall be held at such place or places, on such date or dates, and
at such time or times as shall have been established by the Board of
Directors and publicized among all directors. A notice of each regular
meeting shall not be required.
Section 2.5. SPECIAL MEETINGS. Special meetings of the Board of
Directors may be called by one-half of the directors then in office (rounded
up to the nearest whole number), by the chairman of the board or by the chief
executive officer and shall be held at such place, on such date, and at such
time as they or he shall fix. Notice of the place, date, and time of each
such special meeting shall be given each director by whom it is not waived by
mailing written notice not less than five (5) days before the meeting (one
(1) day before the meeting if delivered
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by an overnight courier service and two (2) days before the meeting if by
overseas courier service) or by telephoning, telecopying, telegraphing or
personally delivering the same not less than twenty-four (24) hours before
the meeting. Unless otherwise indicated in the notice thereof, any and all
business may be transacted at a special meeting.
Section 2.6. QUORUM. At any meeting of the Board of Directors, a
majority of the total number of authorized directors shall constitute a
quorum for all purposes. If a quorum shall fail to attend any meeting, a
majority of those present may adjourn the meeting to another place, date, or
time, without further notice or waiver thereof.
Section 2.7. PARTICIPATION IN MEETINGS BY CONFERENCE TELEPHONE.
Members of the Board of Directors, or of any committee of the Board of
Directors, may participate in a meeting of such Board 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 such
participation shall constitute presence in person at such meeting.
Section 2.8. CONDUCT OF BUSINESS. At any meeting of the Board of
Directors, business shall be transacted in such order and manner as the Board
may from time to time determine, and all matters shall be determined by the
vote of a majority of the directors present, except as otherwise provided
herein or required by law. Action may be taken by the Board of Directors
without a meeting if all members thereof consent thereto in writing, and the
writing or writings are filed with the minutes of proceedings of the Board of
Directors.
Section 2.9. POWERS. The Board of Directors may, except as otherwise
required by law, exercise all such powers and do all such acts and things as
may be exercised or done by the Corporation, including, without limiting the
generality of the foregoing, the unqualified power:
(1) To declare dividends from time to time in accordance with
law;
(2) To purchase or otherwise acquire any property, rights or
privileges on such terms as it shall determine;
(3) To authorize the creation, making and issuance, in such
form as it may determine, of written obligations of every kind, negotiable or
non-negotiable, secured or unsecured, and to do all things necessary in
connection therewith;
(4) To remove any officer of the Corporation with or without
cause, and from time to time to pass on the powers and duties of any officer
upon any other person for the time being;
(5) To confer upon any officer of the Corporation the power
to appoint, remove and suspend subordinate officers, employees and agents;
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(6) To adopt from time to time such stock option, stock
purchase, bonus or other compensation plans for directors, officers,
employees and agents of the Corporation and its subsidiaries as it may
determine;
(7) To adopt from time to time such insurance, retirement,
and other benefit plans for directors, officers, employees and agents of the
Corporation and its subsidiaries as it may determine; and
(8) To adopt from time to time regulations, not inconsistent
with these Bylaws, for the management of the Corporation's business and
affairs.
Section 2.10. COMPENSATION OF DIRECTORS. Directors, as such, may
receive, pursuant to resolution of the Board of Directors, fixed fees and
other compensation for their services as directors, including, without
limitation, their services as members of committees of the Board of Directors.
Section 2.11. NOMINATION OF DIRECTOR CANDIDATES. Nominations for the
election of directors may be made by the Board of Directors or a proxy
committee appointed by the Board of Directors or by any stockholder entitled
to vote in the election of directors.
ARTICLE III
COMMITTEES
Section 3.1. COMMITTEES OF THE BOARD OF DIRECTORS. The Board of
Directors, by a vote of a majority of the whole Board, may from time to time
designate committees of the Board, with such lawfully delegable powers and
duties as it thereby confers, to serve at the pleasure of the Board and
shall, for those committees and any others provided for herein, elect a
director or directors to serve as the member or members, designating, if it
desires, other directors as alternate members who may replace any absent or
disqualified member at any meeting of the committee. Any committee so
designated may exercise the power and authority of the Board of Directors to
declare a dividend, to authorize the issuance of stock or to adopt an
agreement of merger or consolidation if the resolution which designates the
committee or a supplemental resolution of the Board of Directors shall so
provide. In the absence or disqualification of any member of any committee
and any alternate member in his place, the member or members of the committee
present at the meeting and not disqualified from voting, whether or not he or
she or they constitute a quorum, may by unanimous vote appoint another member
of the Board of Directors to act at the meeting in the place of the absent or
disqualified member.
Section 3.2. CONDUCT OF BUSINESS. 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 authorized 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
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writing, and the writing or writings are filed with the minutes of the
proceedings of such committee.
ARTICLE IV
OFFICERS
Section 4.1. GENERALLY. The officers of the Corporation shall consist
of a President, a Secretary and a Chief Financial Officer. The Corporation
may also have, at the discretion of the Board of Directors, a Chairman of the
Board, one or more Vice Presidents, and such other officers as may from time
to time be appointed by the Board of Directors. Each officer shall hold
office until his or her successor is elected and qualified or until his or
her earlier resignation or removal. Any number of offices may be held by the
same person.
Section 4.2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if
there shall be such an officer, shall, if present, preside at all meetings of
the Board of Directors, and exercise and perform such other powers and duties
as may be from time to time assigned to him by the Board of Directors or as
provided by these Bylaws.
Section 4.3. PRESIDENT. Subject to such supervisory powers, if any,
as may be given by the Board of Directors to the Chairman of the Board, if
there be such an officer, the President shall be the general manager and
chief executive officer of the Corporation and shall, subject to the control
of the Board of Directors, have general supervision, direction, and control
of the business and officers of the Corporation. He shall preside at all
meetings of the stockholders. He shall be ex officio a member of all the
standing committees, including the executive committee, if any, and shall
have the general powers and duties of management usually vested in the office
of president of a Corporation, and shall have such other powers and duties as
may be prescribed by the Board of Directors or by these Bylaws.
Section 4.4. VICE PRESIDENT. In the absence or disability of the
President, the Vice Presidents in order of their rank as fixed by the Board
of Directors, or if not ranked, the Vice President designated by the Board of
Director, 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 have such other powers and perform such
other duties as from time to time may be prescribed for them respectively by
the Board of Directors or these Bylaws.
Section 4.5. CHIEF FINANCIAL OFFICER. The Chief Financial Officer
shall keep and maintain or cause to be kept and maintained, adequate and
correct books and records of account in written form or any other form
capable of being converted into written form.
The Chief Financial Officer shall deposit all monies and other valuables
in the name and to the credit of the Corporation with such depositaries as
may be designated by the Board of Directors. He shall disburse all funds of
the Corporation as may be ordered by the Board of Directors, shall render to
the President and directors, whenever they request it, an account of all of
his transactions as Chief Financial Officer and of the financial condition of
the Corporation,
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and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or by these Bylaws.
Section 4.6 SECRETARY. The Secretary shall keep, or cause to be
kept, a book of minutes in written form of the proceedings of the Board of
Directors, committees of the Board, and stockholders. Such minutes shall
include all waivers of notice, consents to the holding of meetings, or
approvals of the minutes of meetings executed pursuant to these Bylaws or the
Delaware General Corporation Law. The Secretary shall keep, or cause to be
kept at the principal executive office or at the office of the Corporation's
transfer agent or registrar, a record of its stockholders, giving the names
and addresses of all stockholders and the number and class of shares held by
each.
The Secretary shall give or cause to be given, notice of all meetings of
the stockholders and of the Board of Directors required by these Bylaws or by
law to be given, and shall keep the seal of the Corporation in safe custody,
and shall have such other powers and perform such other duties as may be
prescribed by the Board of Directors or these Bylaws.
Section 4.7 DELEGATION OF AUTHORITY. The Board of Directors may from
time to time delegate the powers or duties of any officer to any other
officers or agents, notwithstanding any provision hereof.
Section 4.8. REMOVAL. Any officer of the Corporation may be removed
at any time, with or without cause, by the Board of Directors.
Section 4.9. ACTION WITH RESPECT TO SECURITIES OF OTHER CORPORATIONS.
Unless otherwise directed by the Board of Directors, the President or any
officer of the Corporation authorized by the President shall have power to
vote and otherwise act on behalf of the authorized Corporation, in person or
by proxy, at any meeting of stockholders of or with respect to any action of
stockholders of any other corporation in which this Corporation may hold
securities and otherwise to exercise any and all rights and powers which this
Corporation may possess by reason of its ownership of securities in such
other corporation.
ARTICLE V
STOCK
Section 5.1. CERTIFICATES OF STOCK. Each stockholder shall be
entitled to a Certificate signed by, or in the name of the Corporation by,
the President or a Vice President, and by the Secretary or an Assistant
Secretary, or the Chief Financial Officer, certifying the number of shares
owned by him or her. Any of or all the signatures on the Certificate may be
facsimile.
Section 5.2. TRANSFERS OF STOCK. Transfers of stock shall be made
only upon the transfer books of the Corporation kept at an office of the
Corporation or by transfer agents designated to transfer shares of the stock
of the Corporation. Except where a Certificate is issued in accordance with
Section 5.4 of these Bylaws, an outstanding Certificate for the number of
shares involved shall be surrendered for cancellation before a new
Certificate is issued therefor.
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Section 5.3. RECORD DATE. The Board of Directors may fix a record
date, which shall not be more than sixty (60) nor fewer than ten (10) days
before the date of any meeting of stockholders, nor more than sixty (60) days
prior to the time for the other action hereinafter described, as of which
there shall be determined the stockholders who are entitled: to notice of or
to vote at any meeting of stockholders or any adjournment thereof; to receive
payment of any dividend or other distribution or allotment of any rights; or
to exercise any rights with respect to any change, conversion or exchange of
stock or with respect to any other lawful action.
Section 5.4. LOST, STOLEN OR DESTROYED CERTIFICATES. In the event of
the loss, theft or destruction of any certificate of stock, another may be
issued in its place pursuant to such regulations as the Board of Directors
may establish concerning proof of such loss, theft or destruction and
concerning the giving of a satisfactory bond or bonds of indemnity.
Section 5.5. REGULATIONS. The issue, transfer, conversion and
registration of certificates of stock shall be governed by such other
regulations as the Board of Directors may establish.
ARTICLE VI
NOTICES
Section 6.1. NOTICES. Except as otherwise specifically provided
herein or required by law, all notices required to be given to any
stockholder, director, officer, employee or agent shall be in writing and may
in every instance be effectively given by hand delivery to the recipient
thereof, by depositing such notice in the mails, postage paid, or by sending
such notice by prepaid telegram, mailgram, telecopy or commercial courier
service. Any such notice shall be addressed to such stockholder, director,
officer, employee or agent at his or her last known address as the same
appears on the books of the Corporation. The time when such notice shall be
deemed to be given shall be the time such notice is received by such
stockholder, director, officer, employee or agent, or by any person accepting
such notice on behalf of such person, if hand delivered, or the time such
notice is dispatched, if delivered through the mails or by telegram, courier
or mailgram.
Section 6.2. WAIVERS. A written waiver of any notice, signed by a
stockholder, director, officer, employee or agent, whether before or after
the time of the event for which notice is to be given, shall be deemed
equivalent to the notice required to be given to such stockholder, director,
officer, employee or agent. Neither the business nor the purpose of any
meeting need be specified in such a waiver. Attendance of a person at a
meeting shall constitute a waiver of notice for such meeting, except when the
person attends a meeting for the express purpose of objecting, at the
beginning of the meeting, to the transaction of any business because the
meeting is not lawfully called or convened.
ARTICLE VII
MISCELLANEOUS
Section 7.1. FACSIMILE SIGNATURES. In addition to the provisions for
use of facsimile signatures elsewhere specifically authorized in these
Bylaws, facsimile signatures of any officer
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or officers of the Corporation may be used whenever and as authorized by the
Board of Directors or a committee thereof.
Section 7.2. CORPORATE SEAL. The Board of Directors may provide a
suitable seal, containing the name of the Corporation, which seal shall be in
the charge of the Secretary. If and when so directed by the Board of
Directors or a committee thereof, duplicates of the seal may be kept and used
by the Chief Financial Officer or by an Assistant Secretary or other officer
designated by the Board of Directors.
Section 7.3. RELIANCE UPON BOOKS, REPORTS AND RECORDS. Each director,
each member of any committee designated by the Board of Directors, and each
officer of the Corporation shall, in the performance of his duties, be fully
protected in relying in good faith upon the books of account or other records
of the Corporation, including reports made to the Corporation by any of its
officers, by an independent certified public accountant, or by an appraiser.
Section 7.4. FISCAL YEAR. The fiscal year ending of the Corporation
shall be on the first Saturday in January of each year.
Section 7.5. TIME PERIODS. In applying any provision of these Bylaws
which require that an act be done or not done a specified number of days
prior to an event or that an act be done during a period of a specified
number of days prior to an event, calendar days shall be used, the day of the
doing of the act shall be excluded, and the day of the event shall be
included.
ARTICLE VIII
INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 8.1. RIGHT TO INDEMNIFICATION. Each person who was or is made
a party or is threatened to be made a party to or is involved in any action,
suit or proceeding, whether civil, criminal, administrative or investigative
("proceeding"), by reason of the fact that he or she or a person of whom he
or she is the legal representative, is or was a director, officer or employee
of the Corporation or is or was serving at the request of the Corporation as
a director, officer or employee of another corporation, or of a partnership,
joint venture, trust or other enterprise, including service with respect to
employee benefit plans, whether the basis of such proceeding is alleged
action in an official capacity as a director, officer or employee or in any
other capacity while serving as a director, officer or employee, shall be
indemnified and held harmless by the Corporation to the fullest extent
authorized by the Delaware General Corporation Law, as the same exists or may
hereafter be amended (but, in the case of any such amendment, only to the
extent that such amendment permits the Corporation to provide broader
indemnification rights than said Law permitted the Corporation to provide
prior to such amendment) against all expenses, liability and loss (including
attorneys' fees, judgments, fines, ERISA excise taxes or penalties, amounts
paid or to be paid in settlement and amounts expended in seeking
indemnification granted to such person under applicable law, this Bylaw or
any agreement with the Corporation) reasonably incurred or suffered by such
person in connection therewith and such indemnification shall continue as to
a person who has ceased to be a director, officer or employee and shall inure
to the benefit of his or her heirs, executors and administrators;
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PROVIDED, HOWEVER, that, except as provided in Section 8.2, the Corporation
shall indemnify any such person seeking indemnity in connection with an
action, suit or proceeding (or part thereof initiated by such person only if
(a) such indemnification is expressly required to be made by law, (b) the
action, suit or proceeding (or part thereof) was authorized by the Board of
Directors of the Corporation, (c) such indemnification is provided by the
Corporation, in its sole discretion, pursuant to the powers vested in the
Corporation under the Delaware General Corporation Law, or (d) the action,
suit or proceeding (or part thereof) is brought to establish or enforce a
right to indemnification under an indemnity agreement or any other statute or
law or otherwise as required under Section 145 of the Delaware General
Corporation Law. Such right shall be a contract right and shall include the
right to be paid by the Corporation expenses incurred in defending any such
proceeding in advance of its final disposition; PROVIDED, HOWEVER, that, if
the Delaware General Corporation Law then so requires, the payment of such
expenses incurred by a director or officer of the Corporation in his or her
capacity as a director or officer (and not in any other capacity in which
service was or is rendered by such person while a director or officer,
including, without limitation, service to an employee benefit plan) in
advance of the final disposition of such proceeding, shall be made only upon
delivery to the Corporation of an undertaking, by or on behalf of such
director or officer, to repay all amounts so advanced if it should be
determined ultimately that such director or officer is not entitled to be
indemnified under this Section or otherwise.
Section 8.2. RIGHT OF CLAIMANT TO BRING SUIT. If a claim under
Section 8.1 is not paid in full by the Corporation within ninety (90) days
after a written claim has been received by the Corporation, the claimant may
at any time thereafter bring suit against the Corporation to recover the
unpaid amount of the claim and, if such suit is not frivolous or brought in
bad faith, the claimant shall be entitled to be paid also the expense of
prosecuting such claim. It shall be a defense to any such action (other than
an action brought to enforce a claim for expenses incurred in defending any
proceeding in advance of its final disposition where the required
undertaking, if any, has been tendered to this Corporation) that the claimant
has not met the standards of conduct which make it permissible under the
Delaware General Corporation Law for the Corporation to indemnify the
claimant for the amount claimed, but the burden of proving such defense shall
be on the Corporation. Neither the failure of the Corporation (including its
Board of Directors, independent legal counsel, or its stockholders) to have
made a determination prior to the commencement of such action that
indemnification of the claimant is proper in the circumstances because he or
she has met the applicable standard of conduct set forth in the Delaware
General Corporation Law, nor an actual determination by the Corporation
(including its Board of Directors, independent legal counsel, or its
stockholders) that the claimant has not met such applicable standard of
conduct, shall be a defense to the action or create a presumption that a
claimant has not met such applicable standard of conduct.
Section 8.3. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any
person by Sections 8.1 and 8.2 shall not be exclusive of any other right
which such persons may have or hereafter acquire under any statute, provision
of the Certificate of Incorporation, bylaw, agreement, vote of stockholders
or disinterested directors or otherwise.
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Section 8.4. INDEMNIFICATION CONTRACTS. The Board of Directors is
authorized to enter into a contract with any director, officer, employee or
agent of the Corporation, or any person serving at the request of the
Corporation as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, including employee
benefit plans, providing for indemnification rights equivalent to or, if the
Board of Directors so determines, greater than, those provided for in this
Article VIII.
Section 8.5. INSURANCE. The Corporation may maintain insurance to the
extent reasonably available, at its expense, to protect itself and any such
director, officer, employee or agent of the Corporation or another
corporation, partnership, joint venture, trust or other enterprise against
any such expense, liability or loss, whether or not the Corporation would
have the power to indemnify such person against such expense, liability or
loss under Delaware General Corporation Law.
Section 8.6. EFFECT OF AMENDMENT. Any amendment, repeal or
modification of any provision of this Article VIII by the stockholders or the
directors of the Corporation shall not adversely affect any right or
protection of a director or officer of the Corporation existing at the time
of such amendment, repeal or modification.
ARTICLE IX
AMENDMENTS
The Board of Directors is expressly empowered to adopt, amend or repeal
Bylaws of the Corporation, subject to the right of the stockholders to adopt,
amend, alter or repeal the Bylaws of the Corporation. Any adoption,
amendment or repeal of Bylaws of the Corporation by the Board of Directors
shall require the approval of a majority of the total number of authorized
directors (whether or not there exist any vacancies in previously authorized
directorships at the time any resolution providing for adoption, amendment or
repeal is presented to the Board). The stockholders shall also have power to
adopt, amend or repeal the Bylaws of the Corporation.
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SECRETARY'S CERTIFICATE OF ADOPTION OF
BYLAWS
OF SF CANDY COMPANY
I hereby certify:
That I am the duly elected Secretary of SF Candy Company, a Delaware
corporation;
That the foregoing Bylaws comprising twelve (12) pages, constitute the
Bylaws of said corporation as duly adopted by the Board of Directors of the
Corporation on January 24, 1997.
IN WITNESS WHEREOF, I have hereunder subscribed my name this 24th day of
January 1997.
/s/ John Hoffner
---------------------------------------
John Hoffner, Secretary
<PAGE>
AMENDED AND RESTATED
PLEDGE AND SECURITY AGREEMENT
between
ARCHIBALD CANDY CORPORATION
SWEET FACTORY GROUP, INC.
SWEET FACTORY, INC.
SF PROPERTIES, INC.
SF CANDY COMPANY, INC.
as Pledgors and Debtors
and
THE BANK OF NEW YORK,
as trustee for the ratable benefit of the Holders
under that certain Indenture, dated as of July 2, 1997,
as amended by the Supplemental Indenture,
dated as of December 7, 1998,
as Pledgee and Secured Party
<PAGE>
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as amended, restated,
modified or supplemented from time to time, the "SECURITY AGREEMENT"), dated as
of December 7, 1998, by and among Archibald Candy Corporation, an Illinois
corporation, (the "COMPANY"), Sweet Factory Group, Inc., a Delaware corporation
("GROUP"), Sweet Factory, Inc., a Delaware corporation ("SWEET FACTORY"), SF
Properties, Inc., a Delaware corporation, ("SF PROPERTIES"), SF Candy Company, a
Delaware corporation ("SF CANDY COMPANY" and together with Group, Sweet Factory
and SF Properties, the "Pledgors" or the "DEBTORS", and individually each a
"PLEDGOR" or a "DEBTOR") and The Bank of New York, as Trustee (the "TRUSTEE", or
the "PLEDGEE") for the ratable benefit of the Holders (as defined in the
Indenture). Group, Sweet Factory, SF Properties and SF Candy Company are herein
referred to as the "GUARANTORS".
W I T N E S S E T H:
WHEREAS, pursuant to the Indenture, the Company shall issue and sell to the
Holders, an additional $30,000,000 in aggregate principal amount of its 10 1/4%
Senior Secured Notes due 2004 (the "ADDITIONAL NOTES") of which $100,000,000 in
aggregate principal amount is outstanding (the "ORIGINAL NOTES" and together
with the Additional Notes, the "NOTES");
WHEREAS, each Pledgor is the legal and beneficial owner of the issued and
outstanding shares of capital stock of the companies (the "PLEDGED
SUBSIDIARIES"), if any, listed opposite its name on Schedule A hereto (as same
may from time to time be amended, modified, waived or supplemented, "SCHEDULE
A") and the other property interests and assets to be secured hereunder;
WHEREAS, the Company and the Trustee entered into that certain Pledge and
Security Agreement, dated as of July 2, 1997, by and between the Company and the
Trustee (the "INITIAL SECURITY AGREEMENT") which contemplates that the Company
and the Restricted Subsidiaries (as defined in the Indenture) will, in order to
secure their Obligations (as defined in the Indenture), grant to the Pledgee,
for the ratable benefit of the Holders, a security interest in and continuing
lien upon the Collateral (as defined below), and the Pledgors have been
requested to enter into this Agreement to evidence such security interest; and
WHEREAS, the Company and the Trustee have agreed to amend and restate the
Initial Security Agreement in its entirety as set forth herein;
<PAGE>
NOW, THEREFORE, in consideration of the premises and other benefits to each
Pledgor, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
Section 1. AMENDMENT AND RESTATEMENT. The Pledge and Security
Agreement, dated as of July 2, 1997, by the Company and the Trustee, is hereby
amended and restated in its entirety as set forth in this Amended and Restated
Pledge and Security Agreement.
Section 2. PLEDGE. As collateral security for the payment and
performance in full of all obligations of each Pledgor now or hereafter existing
or arising under, or in connection with, the Indenture, the Notes, the
Intellectual Property Security Agreement (as hereinafter defined), the Guaranty
(as defined in the Indenture and this Agreement, as each may be amended,
modified, waived or supplemented from time to time (collectively, the
"OBLIGATIONS"), each Pledgor hereby pledges, assigns, transfers, sets over and
delivers unto the Pledgee, for the ratable benefit of the Holders, and hereby
grants to the Pledgee, for the ratable benefit of the Holders, a continuing
security interest in all of the right, title and interest of such Pledgor in, to
and under any and all of the following described property, rights and interests,
whether now owned or hereafter acquired (collectively, the "COLLATERAL"):
(a) all of the issued and outstanding shares of capital stock of
the Pledged Subsidiaries owned by each Pledgor (the "PLEDGED SECURITIES") and
the certificate(s) representing such capital stock;
(b) all proceeds and products of the Pledged Securities and such
other additional property, including without limitation, dividends,
distributions, cash, instruments and other property or securities, now or
hereafter at any time or from time to time received or receivable or otherwise
distributed or distributable in respect of or in exchange for any or all of the
Pledged Securities and such other additional property;
(c) all Equipment, Fixtures, General Intangibles, and all
Insurance Policies, Contracts and Collateral Records to the extent relating to
any of the foregoing, in each case and from time to time located at either of
the addresses set forth on SCHEDULE B hereto.
TO HAVE AND TO HOLD the Collateral, together with all rights, titles, interests,
powers, privileges and preferences pertaining or incidental thereto, unto the
Pledgee, for the ratable benefit of the Holders, and their respective successors
and assigns,
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<PAGE>
PROVIDED, however, that there is expressly excluded from the grant of a
security interest hereunder (i) all Receivables and (ii) all Inventory,
including all Inventory located at either such address, all Receivables
arising from the sale of such Inventory, and all Contracts, Accounts, Chattel
Paper, Collateral Records, Documents, General Intangibles, Instruments,
Receivables Records, Insurance Policies and money arising from or relating to
such Inventory or Receivables, or the sale thereof.
Section 3. DEFINED TERMS. As used herein, all capitalized terms not
otherwise defined shall have the meanings set forth in the Indenture. The
following terms shall have the following meanings:
"Account Debtor" shall mean the Person who is obligated on a
Receivable.
"Accounts" shall mean "accounts" as such term is defined in Section
9-106 of the UCC.
"Agreement" has the meaning ascribed thereto in the introductory
paragraph hereof.
"Business Day" shall have the meaning set forth in the Indenture.
"Chattel Paper" shall mean "chattel paper" as such term is defined in
Section 9-105(b) of the UCC.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
"Collateral Records" shall mean books, records, computer software,
computer printouts, customer lists, blueprints, technical specifications,
manuals, and similar items which relate to any Collateral other than such
items obtained under license or franchise agreements which prohibit
assignment or disclosure of such items.
"Contracts" shall mean written contracts, agreements, leases and
arrangements in which the Debtor has an interest or to which Debtor is a
party as any of the same may from time to time be amended, supplemented or
otherwise modified.
"Default" shall have the meaning set forth in the Indenture.
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<PAGE>
"Documents" shall mean "documents" as such term is defined in Section
9-105(f) of the UCC.
"Equipment" shall mean "equipment" as such term is defined in Section
9-109(2) of the UCC, including, without limitation, machinery,
manufacturing equipment, data processing equipment, computers, office
equipment, furniture, appliances, tools, and other similar property.
"Event of Default" shall have the meaning set forth in the Indenture.
"Financing Documents" shall mean the Indenture, the Notes, the
Intellectual Property Security Agreement and this Agreement.
"Fixtures" shall mean "fixtures" as such term is defined in Section
9-313 of the UCC.
"General Intangibles" shall mean "general intangibles" as such term is
defined in Section 9-106 of the UCC, including, without limitation, rights
to the payment of money (other than Accounts and Receivables), trademarks,
copyrights, patents, and contracts, licenses and franchises (except in the
case of licenses and franchises in respect of which the Assignor is the
licensee or franchisee if the agreement in respect of such license or
franchise prohibits by its terms any assignment or grant of a security
interest) limited and general partnership interests and joint venture
interests, federal income tax refunds (subject to the terms of the Tax
Sharing Agreement (as defined in the Indenture)), trade names (to the
extent classified as a "general intangible" under any applicable law),
distributions on certificated securities (as defined in Section 8-102 of
the UCC) and uncertificated securities (as defined in Section 8-102 of the
UCC), computer programs and other computer software, inventions, designs,
trade secrets, goodwill, proprietary rights, customer lists, supplier
contracts, sale orders, correspondence, advertising materials, payments due
in connection with any requisition, confiscation, condemnation, seizure or
forfeiture of any property, reversionary interests in pension and
profit-sharing plans and reversionary, beneficial and residual interests in
trusts, credits with and other claims against any Person, together with
any collateral for any of the foregoing and the rights under any security
agreement granting a security interest in such collateral.
"Indenture" shall mean that certain Indenture, dated July 2, 1997,
between the Company and the Trustee, as amended by the Supplemental
Indenture, dated the date hereof, among the Company, the Guarantors and the
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<PAGE>
Trustee, as same may from time to time be amended, modified, waived or
supplemented.
"Instruments" shall mean "instruments" as such term is defined in
Section 9-105(1)(i) of the UCC.
"Insurance Policies" shall mean any and all insurance policies from
time to time maintained by the Debtor (other than third-party liability
policies), to the extent covering the Collateral.
"Intellectual Property Security Agreement" shall mean that certain
Intellectual Property Security Agreement, dated as of the date hereof,
between the Pledgors, as assignors, and the Trustee, as assignee, for the
ratable benefit of the Holders, as same may from time to time be amended,
modified, waived or supplemented.
"Inventory" shall mean "inventory" as such term is defined in Section
9-109(4) of the UCC, including without limitation, all goods (whether such
goods are in the possession of the Debtors or of a bailee or other Person
for sale, lease, storage, transit, processing, use or otherwise and whether
consisting of whole goods, spare parts, components, supplies, materials or
consigned or returned or repossessed goods), including without limitation,
all such goods which are held for sale or lease or are to be furnished (or
which have been furnished) under any contract of service or which are raw
materials, work in progress or finished goods.
"Lien" shall have the meaning set forth in the Indenture.
"Material Adverse Effect" shall mean a material adverse effect upon
(i) the business, operations, properties, assets, or condition (financial
or otherwise) of each Debtor (after giving effect to the transactions
contemplated by this Security Agreement and the other Financing Documents),
or (ii) the ability of each Debtor to perform (to the extent that it is
liable thereon) or of the Trustee to enforce, any of the Obligations.
"Permitted Liens" shall have the meaning given to it in the Indenture.
"Person" shall mean and include any individual, partnership, joint
venture, firm, corporation, association, trust or other enterprise or any
government or political subdivision or agency, department or
instrumentality thereof.
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<PAGE>
"Pledged Securities" shall have the meaning specified in Section 2(a).
"Pledged Subsidiaries" shall have the meaning specified in the second
Whereas clause.
"Possessory Collateral" shall mean, collectively, certificates
representing the Pledged Securities, and all such Instruments, Documents,
Chattel Paper and other tangible property of the Debtor which is subject to
the grant of the security interest therein contained perfection of which
may be obtained by the Pledgee's taking possession thereof.
"Proceeds" shall mean "proceeds" as such term is defined in Section
9-306(1) of the UCC.
"Receivables" shall mean all rights to payment for Inventory sold,
whether or not earned by performance and all rights in respect of the
Account Debtor, including without limitation, all such rights in which any
Debtor has any right, title or interest by reason of the purchase thereof
by the Account Debtor, and including, without limitation, all such rights
constituting or evidenced by any Account, Chattel Paper, Instrument,
General Intangible, note, contract, invoice, purchase order, draft,
acceptance, book debt, intercompany account, security agreement, or other
evidence of indebtedness or security, and assigned, hypothecated or held
to secure any of the foregoing and the rights under any security agreement
granting a security interest in such Inventory or Receivables, and all
goods, the sale of which gave rise to any of the foregoing, including,
without limitation, all rights in any returned or repossessed goods and
unpaid seller's rights.
"Receivables Records" shall mean (a) all original copies of all
documents, instruments or other writings evidencing the Receivables, (b)
all books, correspondence, credit or other files, records, ledger sheets or
cards, invoices, and other papers relating to Receivables, including
without limitation all tapes, cards, computer tapes, computer discs,
computer runs, record keeping systems and other papers and documents
relating to the Receivables, whether in the possession or under the control
of any Debtor or any computer bureau or agent from time to time acting for
any Debtor or otherwise, (c) all evidences of the filing of financing
statements and the registration of other instruments in connection
therewith and amendments, supplements or other modifications thereto,
notices to other creditors or secured parties, and certificates,
acknowledgments, or other writings, including without limitation lien
search reports, from filing or other registration officers, (d) all credit
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<PAGE>
information, reports and memoranda relating thereto, and (e) all other
written or non-written forms of information related in any way to the
foregoing or any Receivable.
"UCC" shall mean the Uniform Commercial Code as in effect from time to
time in the State of New York, Illinois or California, as applicable.
Section 4. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE PLEDGORS.
Each Pledgor jointly and severally, hereby represents and warrants (as of the
date of execution hereof as to the Collateral existing on such date and as of
the date of acquisition as to the Collateral acquired subsequently), covenants
and agrees that:
(a) Each Pledgor is the legal and beneficial owner of the
Collateral of such Pledgor, holds the Collateral free and clear of all Liens,
except for the Lien and security interest granted hereunder and Permitted Liens,
and has not made and will not make or permit any other pledge, assignment,
mortgage, hypothecation or transfer of the Collateral except for Permitted
Liens. The Pledged Securities are not subject to any put, call, option or other
right in favor of any other Person whatsoever.
(b) The Pledged Securities, if any, have been duly authorized
and validly issued and are fully paid and non-assessable and constitute such
percentage of all of the issued and outstanding shares of capital stock of the
Pledged Subsidiaries as set forth on SCHEDULE A hereto.
(c) Upon the execution and delivery of this Agreement, the
delivery of the Possessory Collateral to the Pledgee, the filing of the
financing statements in the jurisdictions set forth in SCHEDULE B hereto, and
the filing of the Intellectual Property Security Agreement with the U.S. Patent
and Trademark Office and the U.S. Copyright Office, to the extent required by
applicable law, the Pledgee, for the ratable benefit of the Holders, will have a
valid, perfected, first priority security interest until all of the Obligations
have been indefeasibly paid and performed in full in the Collateral, securing
the indefeasible payment and performance in full of the Obligations.
(d) Each Pledgor has the requisite corporate authority to pledge
and grant a security interest in the Collateral pursuant to this Agreement and
will defend its title thereto against the claims of all persons whomsoever, and
shall maintain and preserve the Lien and security interest granted hereunder
with respect to the Collateral until all of the Obligations have been
indefeasibly paid and performed in full, as long as this Agreement remains in
full force and effect.
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<PAGE>
(e) Neither the execution, delivery or performance of this
Agreement, nor the transactions herein contemplated will (i) violate any
provision of the charter or bylaws of any Debtor or any of the Pledged
Subsidiaries, (ii) violate or cause a breach under the terms of any agreement,
indenture, mortgage, deed of trust, equipment lease, instrument or other
document to which any Pledgor or any Pledged Subsidiary is a party, (iii)
violate any law, order, rule or regulation or (iv) result in, or require the
creation or imposition of, any Lien (other than the Lien and security interest
contemplated hereby) upon or with respect to any of the property now owned or
hereafter acquired by any Debtor or any of its Pledged Subsidiaries, which
violations or conflicts would, singly or in the aggregate, have a Material
Adverse Effect.
(f) The Pledged Securities constitute the issued and outstanding
shares of capital stock of the Pledged Subsidiaries owned by each Debtor and
there are no outstanding options, warrants or other rights to subscribe for or
purchase any property described in Section 2(a) or any notes, bonds, debentures
or other evidences of indebtedness that (i) are at any time convertible into
capital stock of any of the Pledged Subsidiaries or (ii) have, or at any time
could by their terms have, voting rights with respect to any matters affecting
any Debtor or any of the Pledged Subsidiaries.
(g) No consent or approval which has not been obtained prior to
the date hereof of any Person and no authorization, approval or other action
(other than delivery of the Possessory Collateral to the Trustee, the filing of
UCC-1 financing statements in the jurisdictions listed on SCHEDULE B hereto and
the filing of the Intellectual Property Security Agreement with the U.S. Patent
and Trademark Office, and the U.S. Copyright Office, to the extent required by
applicable law) by, and no notice to or filing with any Person was or is
necessary as a condition to the validity of the pledge and security interest
granted hereby, and such pledge and security interest is effective to vest in
the Pledgee the rights of the Pledgee in the Collateral as set forth herein.
(h) Each Pledgor shall deliver to the Pledgee concurrently with
the execution of this Agreement or, to the extent acquired subsequent to the
date of execution hereof, immediately upon such Pledgor's acquisition thereof:
all certificates and instruments representing the Pledged Securities and each
other item of Possessory Collateral. Any and all Pledged Securities delivered
to the Pledgee shall be accompanied by undated, duly executed stock powers in
blank and by such other instruments of transfer or documents as the Pledgee may
request. The Pledgee shall hold the certificates representing the Pledged
Securities delivered to it in custody.
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<PAGE>
(i) The Pledgee shall at all times have full and free access
during normal business hours to all of the books, correspondence and records of
each Pledgor relating to the Collateral and the Pledgee and its representatives
may examine the same, make abstracts therefrom and make photocopies thereof, and
each Pledgor agrees to render to the Pledgee and its representatives, at such
Pledgor's cost and expense, such clerical and other assistance as may be
reasonably requested by any of them with regard thereto.
(j) The Debtors shall not permit the Pledged Subsidiaries to
issue any securities other than the Pledged Securities.
(k) If, while this Agreement is in effect, any stock dividend,
stock split, reclassification, readjustment, reorganization, merger,
consolidation, exchange offer, tender offer or other change in the capital
structure, including the creation of any subscription or other rights relating
to the Pledged Securities, is declared or made by the Pledged Subsidiaries, all
substituted and additional securities or interests issued with respect to the
Collateral and evidenced by certificates shall be endorsed in blank by such
Pledgor promptly upon receipt thereof or otherwise appropriately transferred to
the Pledgee in negotiable form, and all certificates or instruments evidencing
such securities shall be delivered to the Pledgee to be held under the terms of
this Agreement in the same manner as, and as a part of, the Collateral. All
Pledged Securities shall be evidenced by one or more certificates. Any
securities that may be issued upon exercise of any subscription or other rights
relating to the Pledged Securities shall be endorsed in blank and delivered to
the Pledgee with any necessary stock or other powers.
(l) Each Pledgor shall pay and discharge all taxes, assessments
and governmental charges or levies against any Collateral prior to delinquency
thereof and shall keep all Collateral free of all unpaid charges whatsoever.
(m) Each Pledgor shall promptly notify the Pledgee (i) of any
material adverse changes in any fact or circumstance represented or warranted by
such Pledgor with respect to any portion of the Collateral (other than a de
minimis portion of the Collateral), (ii) of any actual or imminent material
impairment of any portion of the Collateral (other than a de minimis portion of
the Collateral) and (iii) of any claim, action or proceeding materially
adversely affecting title to all or any portion of the Collateral (other than a
de minimis portion of the Collateral).
(n) The chief executive office and principal place of business
of the Debtors is set forth on SCHEDULE C hereto. No Debtor shall change its
name or the name under which it does business or relocate its principal place of
business or
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<PAGE>
chief executive office unless such Debtor gives 30 days' prior written notice
to the Pledgee, which notice shall specify such new name and/or address.
(o) Each Debtor shall pledge to the Trustee, for the ratable
benefit of the Holders, all of the capital stock of each company that becomes a
Restricted Subsidiary (as defined in the Indenture) after the date hereof, and
in furtherance thereof, will execute and deliver an amendment to this Agreement,
or a new pledge and security agreement, in substantially the form of this
agreement, with such changes therein as the Trustee shall request, and such
other documents, instruments, agreements, certificates and financing statements
as may be necessary or desirable in the discretion of the Trustee.
Section 5. RELEASE OF COLLATERAL. The Collateral shall not be
released from the Lien and security interest created hereunder and no property
shall be substituted for any of the Collateral except in accordance with the
provisions of the Indenture or Section 18 hereof. None of the tangible
Collateral shall be moved from the respective locations set forth in SCHEDULE B
hereto where such Collateral is located on the date hereof if such move could
affect the attachment, validity or perfection of the Pledgee's security interest
therein, unless such Pledgor shall have given the Pledgee at least 30 days'
prior notice in writing, and such Pledgor shall have taken all actions required
or reasonably requested by the Pledgee to preserve or protect its security
interest therein. The Pledgee shall return the physical certificates and
related stock powers and other Possessory Collateral in its possession only when
expressly required by this Agreement or the Indenture.
Section 6. VOTING RIGHTS, DIVIDENDS, ETC.
(a) Unless and until an Event of Default shall have occurred and
be continuing:
(i) Each Pledgor shall be entitled to exercise any and
all voting or consensual rights and powers, including subscription
rights, accruing to an owner of the Collateral or any part thereof for
any purpose not inconsistent with the terms of this Agreement or any
of the other Financing Documents; and
(ii) except as otherwise provided in this Agreement,
each Pledgor shall be entitled to retain and use any and all
dividends, distributions or other payments paid on or with respect to
the Pledged Securities that are permitted by the Indenture (other than
securities,
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<PAGE>
which shall constitute additional Collateral subject to this Agreement).
(b) Upon the occurrence and during the continuance of an Event
of Default, all rights of each Pledgor to exercise the voting or consensual
rights and powers which each Pledgor would otherwise be entitled to exercise
pursuant to Section 6(a)(i) shall automatically cease, and all such rights shall
thereupon become vested in the Pledgee, and the Pledgee for the ratable benefit
of the Holders, shall then have the sole and exclusive right and authority to
exercise all such voting and consensual rights and powers.
(c) Unless and until an Event of Default shall have occurred and
be continuing, each Pledgor shall have the right and authority to receive and
retain as Collateral all dividends, distributions and other payments paid on or
with respect to the Pledged Securities. Upon the occurrence and during the
continuance of an Event of Default, the Pledgee shall have the sole and
exclusive right and authority to receive and retain as Collateral all dividends,
distributions and other payments paid on or with respect to the Pledged
Securities. Any and all money and other property paid over to or received by
the Pledgee pursuant to this Section 6(c) shall be retained by the Pledgee as
additional Collateral hereunder and shall be administered and applied in
accordance with the provisions of this Agreement. All dividends and interest
payments that are received by any Pledgor contrary to the provisions of this
Section 6(c) shall be received in trust for the benefit of the Pledgee, shall be
segregated from other funds of such Pledgor, and shall be forthwith paid over to
the Pledgee as Collateral in the same form as so received (with any necessary
endorsement).
Section 7. DEFAULT; REMEDIES.
(a) EXERCISE OF REMEDIES UNDER THE AGREEMENT. If an Event of
Default shall have occurred and be continuing, the Pledgee may, and within 3
Business Days of instructions from the Holders of a majority in principal amount
of the Notes outstanding, shall, commence the taking of such actions (or refrain
from taking actions) toward collection or enforcement of this Agreement and the
Collateral (or any portion thereof), including without limitation action toward
foreclosure upon any Collateral. If any Event of Default that was the basis for
the commencement of such action shall have been cured or waived, and, in the
case where there has been an acceleration, rescission of such acceleration shall
have occurred, any direction to the Pledgee to take any action shall be deemed
rescinded upon notification by the Holders of a majority in outstanding
principal amount of the Notes with respect to such Event of Default.
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(b) REMEDIES GENERALLY. If an Event of Default shall have
occurred and be continuing, then the Pledgee may:
(i) exercise any or all of its rights and remedies
hereunder and under any other instrument or agreement securing,
evidencing or relating to the Obligations or under applicable laws
(including all of the rights and remedies of a secured creditor under
the UCC);
(ii) retain possession of the Collateral; or
(iii) sell, assign, transfer, hire investment advisers
at the expense of all Pledgor to sell or dispose of, in whole or in
part, the Collateral at public or private sale or sales, at any
exchange, brokers board or any of Pledgee's offices or elsewhere, for
cash, credit or other property, for immediate or future delivery, and,
to the extent permitted by applicable law, for such price or prices
and on such other terms as the Pledgee may deem and which shall then
be deemed for all purposes to be commercially reasonable. Upon
consummation of any such sale, the Pledgee shall have the right to
assign, transfer, endorse and deliver to the purchaser or purchasers
thereof the Collateral so sold. Each such purchaser at any such sale
shall hold such property sold free from any claim or right on the part
of any Pledgor, and each Pledgor hereby waives (to the fullest extent
permitted by law) all rights of redemption, stay or appraisal that
such Pledgor now has or may at any time in the future have under any
rule of law or statute now existing or hereafter enacted. The Pledgee
shall give the Pledgors five (5) Business Days' written notice (which
the Pledgors agree shall be deemed to be reasonable notification
within the meaning of the applicable provisions of the UCC) of the
Pledgee's intention to make any such public or private sale. Any such
sale shall be held at such time or times and at such place or places
as the Pledgee may fix. At any such sale, the Collateral or any
portion thereof, to be sold, may be sold as an entirety or in separate
portions, as the Pledgee may, in its sole discretion, determine. The
Pledgee shall not be obligated to make any sale of the Collateral if
it shall determine not to do so, regardless of the fact that notice of
such sale may have been given. The Pledgee may, without notice or
publication, adjourn any public or private sale or cause the same to
be adjourned from time to time by announcement at the time and place
fixed for sale, and such sale may, without further notice, be made at
the time and place to which the same was so adjourned. In case the
sale of all or any part of the
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Collateral is made on credit for future delivery, the Collateral so sold
may be retained by the Pledgee until the sale price is paid by the
purchaser or purchasers thereof, but the Pledgee shall not incur any
liability in case any such purchaser or purchasers shall fail to take up
and pay for the Collateral so sold and, in case of any such failure, such
Collateral may be sold again upon like notice. As an alternative to
exercising the power of sale herein conferred upon it, the Pledgee may
proceed by suit or suits at law or in equity to exercise its remedies
regarding the Collateral and sell the Collateral or any portion thereof
pursuant to judgment or decree of a court or courts having competent
jurisdiction. If the Pledgee shall be required by law to dispose of the
Collateral within a period of time that does not permit the giving of
notice to the Pledgors as herein provided, the Pledgee need give the
Pledgors only such notice of disposition as shall be reasonably practicable
in view of such law.
(c) REMEDIES; OBTAINING THE COLLATERAL UPON DEFAULT. Each
Pledgor agrees that if any Event of Default shall have occurred and be
continuing, then, in every such case and in addition to the rights and remedies
available to a secured party under any applicable provision of the UCC or any
other applicable law, the Pledgee may:
(i) personally, or by agents or attorneys, take
possession of the Collateral or any part thereof from any Pledgor or,
to the extent permitted by applicable law, any other Person who then
has possession of any part thereof, with or without notice or process
of law, and for that purpose may, to the extent permitted by law,
enter upon such Pledgor's premises where any of the Collateral is
located and remove the same and use in connection with such removal
any and all services, supplies, aids and other facilities of such
Pledgor;
(ii) instruct the obligor or obligors on any
agreement, instrument or other obligation constituting Collateral to
make any payment or render any performance required by the terms of
such agreement, instrument or obligation directly to the Pledgee or
its designees; and
(iii) take possession of the Collateral or any part
thereof by directing such Pledgor to deliver the same to the Pledgee
at any place or places designated by such Pledgee which is reasonably
convenient to the parties, in which event such Pledgor shall, at its
own
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expense, forthwith cause the same to be so delivered, it being understood
that such Pledgor's obligation so to deliver the Collateral is of the
essence of this Agreement and that, accordingly, upon application to a
court of equity having jurisdiction, the Pledgee shall be entitled to a
decree requiring specific performance by such Pledgor of such obligation.
(d) PREVENTING IMPAIRMENT OF THE COLLATERAL. Regardless of
whether or not there shall have occurred any Default or Event of Default, the
Pledgee may institute and maintain, or cause in the name of any Pledgor or the
Pledgee to be instituted and maintained, such suits and proceedings as the
Pledgee may be advised by counsel shall be necessary or expedient to prevent any
impairment of the Lien or security interest in, or perfection of, the Collateral
in contravention of the terms of this Agreement. Each Pledgor agrees not to
knowingly take or permit to be taken any action that would impair the Collateral
or any of Pledgee's rights in the Collateral.
Section 8. PLEDGEE APPOINTED ATTORNEY-IN-FACT. Each Pledgor hereby
constitutes and appoints Pledgee its attorney-in-fact for the purpose of
carrying out the provisions of this Agreement and taking any action and
executing any instrument, including without limitation any financing statement
or continuation statement, that are necessary or advisable to maintain the
validity, perfection, priority and enforcement of the Lien and security interest
intended to be created hereunder or to accomplish the other purposes hereof,
which appointment is irrevocable and coupled with an interest; PROVIDED, that
nothing herein contained shall be construed as requiring or obligating the
Pledgee to take any such action with respect to the Collateral or any part
thereof or any property covered thereby, and no action taken or omitted shall
give rise to any defense, counterclaim or right of action against the Pledgee
unless Pledgee's actions are taken or omitted to be taken with gross negligence
or constitute willful misconduct.
Section 9. PURCHASE OF COLLATERAL BY PLEDGEE. At any public sale of
the Collateral, whether pursuant to power of sale or otherwise hereunder, the
Pledgee or any Holder may, to the extent permitted by applicable law, bid for
and purchase, free from any right of redemption, stay or appraisal (all such
rights being hereby waived and released by each Pledgor to the extent permitted
by law), the Collateral or any part thereof or an interest therein and, upon
compliance with the terms of such sale, may hold, retain, exploit, resell or
otherwise dispose of such property without further accountability to any Pledgor
for the proceeds of such sale (except in the event that there is a surplus of
such proceeds in excess of the Obligations, in which case, the Pledgee shall
account to such Pledgor for such surplus). Each Pledgor will execute and deliver
or cause to be executed and delivered such instruments, endorse-
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ments, assignments, waivers, certificates and other documents and take such
further action as the Pledgee shall request in connection with any such sale.
Section 10. DISPOSITION OF PROCEEDS. The proceeds of any sale of the
whole or any part of the Collateral, together with any other monies held by the
Pledgee under the provisions of this Agreement, shall be applied by the Pledgee
in accordance with the terms of Section 6.10 of the Indenture.
Section 11. WAIVER OF CLAIMS. Except as otherwise
provided in this Agreement, EACH PLEDGOR HEREBY WAIVES, TO THE EXTENT
PERMITTED BY APPLICABLE LAW, NOTICE OF JUDICIAL HEARING IN CONNECTION WITH
THE PLEDGEE'S TAKING POSSESSION OF, OR THE PLEDGEE'S DISPOSITION OF, ANY OF
THE COLLATERAL, INCLUDING, WITHOUT LIMITATION, ANY AND ALL PRIOR NOTICES
AND HEARINGS FOR ANY PREJUDGMENT REMEDY OR REMEDIES AND ANY SUCH RIGHT THAT
THE PLEDGORS WOULD OTHERWISE HAVE UNDER THE CONSTITUTION OR ANY STATUTE OF
THE UNITED STATES OR OF ANY STATE, and, to the full extent permitted by
applicable law, each Pledgor hereby further waives:
(a) all damages occasioned by such taking of possession or
disposition except any damages which are the direct result of the Pledgee's
gross negligence or willful misconduct as finally determined by a court of
competent jurisdiction; and
(b) all rights of redemption, appraisement, valuation, stay,
marshalling of assets, extension or moratorium, now or hereafter existing at law
or in equity, respecting the enforcement of this Agreement or the sale or other
disposition of the Collateral or any portion thereof.
Any sale of, or the exercise of any option to purchase, or any other
realization upon, any Collateral shall operate to divest all right, title,
interest, claim and demand, at law or in equity, of any Pledgor therein and
thereto, and shall be a perpetual bar both at law and in equity against any
Pledgor and against any and all persons claiming or attempting to claim the
Collateral so sold, optioned or realized upon, or any part thereof, through and
under any Pledgor. Each Pledgor shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
satisfy the Obligations in full.
Section 12. REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Pledgee provided for herein, in any other agreement pursuant to
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which a Lien is created in favor of the Pledgee or now or hereafter existing at
law or in equity shall be cumulative and concurrent and shall be in addition to
every other such right, power or remedy of the Pledgee. No failure on the part
of the Pledgee to exercise, and no delay in exercising, any such right, power or
remedy shall operate as a waiver thereof, nor shall any single or partial
exercise of any such right, power or remedy preclude any other or further
exercise thereof or the exercise of any other right, power or remedy. No notice
to or demand on the Pledgors hereunder shall, of itself, entitle any Pledgor to
any other or further notice or demand in the same, similar or other
circumstances.
Section 13. FURTHER ASSURANCES. Each Pledgor agrees that it shall,
at its own expense, (a) promptly file or record such notices, financing
statements, continuation statements or other documents and take all further
actions as are necessary to perfect, maintain and protect the perfection of the
security interests of the Pledgee hereunder or to enable the Pledgee to exercise
and enforce their respective rights and remedies hereunder with respect to the
Collateral, and (b) perform such further acts and things and execute and deliver
to the Pledgee such additional conveyances, assignments, endorsements,
agreements and instruments as are necessary in connection with the
administration and enforcement of this Agreement or relative to the Collateral
or any part thereof or in order to assure and confirm unto the Pledgee its
rights, powers and remedies hereunder.
Section 14. INDEMNIFICATION AND EXPENSES.
(a) Each Pledgor, jointly and severally, agrees to fully
indemnify the Pledgee and each Holder from and against any and all claims,
damages, expenses (including taxes other than taxes based on the income of the
Pledgee) losses and liabilities growing out of or resulting from this Agreement
including without limitation, an Event of Default (including, without
limitation, enforcement of this Agreement), except claims, losses or liabilities
resulting from Pledgee's or any such Holder's gross negligence, or willful
misconduct, as determined by a final judgment of a court of competent
jurisdiction.
(b) Each Pledgor will pay upon demand to the Pledgee the amount
of any and all out-of-pocket expenses, including the reasonable fees and charges
of its counsel and of any experts and agents, that the Pledgee may incur in
connection with (i) the negotiation, execution and enforcement of this
Agreement, (ii) the custody, preservation, use or operation of, or the sale of,
collection from or other realization upon, any of the Collateral, or (iii) the
exercise or enforcement of any of the rights of the Pledgee hereunder.
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Section 15. REGISTRATION RIGHTS, ETC.
(a) If, upon or at any time after the occurrence of an Event of
Default, the registration of any of the Pledged Securities, or other compliance
with, the Securities Act or any similar Federal or state law is required with
respect to the Pledged Securities, the Pledgors will use their best efforts to
cause such registration or compliance to be effectively made, at no expense to
the Pledgee, and to continue any such registration effective for such time as
may be reasonably necessary in the opinion of the Pledgee. The Pledgors will
reimburse the Pledgee upon demand for any expenses incurred by the Pledgee
(including reasonable attorneys' fees and expenses) incurred in connection
therewith, which obligation to pay such expenses shall be secured hereunder.
(b) If any Pledgor is unable to effect a public sale of any or
all of the Pledged Securities or if the Pledged Securities are to be sold in one
or more private sales, the Pledgee may limit such sales to a restricted group of
purchasers who will be obliged to agree, among other things, to acquire such
securities for their own account for investment and not with a view to
distribution or resale. Each Pledgor acknowledges and agrees that any such
private sale may result in prices and other terms less favorable to the seller
than if such sale were a public sale and, notwithstanding such circumstances,
agrees that any such private sale shall be deemed to have been made in a
commercially reasonable manner. The Pledgee shall be under no obligation to
delay a sale of any of the Pledged Securities for the period of time necessary
to permit the issuer of such securities to register such securities for public
sale under the Securities Act or under applicable state securities laws, even if
such issuer would agree to do so.
(c) Each Pledgor further agrees to do, or use all reasonable
efforts to cause to be done, all other acts as may be necessary to make such
sale or sales of all or any part of the Collateral valid and binding and
comply with any and all applicable laws, rules and regulations and orders and
decrees of any and all courts having jurisdiction over such sales, all at
such Pledgor's expense. Each Pledgor further agrees that a breach of any of
the covenants contained in this Agreement will cause irreparable injury to
the Pledgee, as secured parties, for which the Pledgee would have no adequate
remedy at law in respect of such breach and, as a consequence, agrees that
each and every covenant contained in this Section 15 shall be specifically
enforceable against each Pledgor and, to the fullest extent permitted by
applicable law, each Pledgor waives and agrees not to assert as a defense
against an action for specific performance of such covenants that (i) such
Pledgor's failure to perform such covenants will not cause irreparable injury
to the Pledgee (ii) the Pledgee have an adequate remedy at law in respect of
such breach.
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Section 16. PLEDGORS' OBLIGATIONS ABSOLUTE. The liability of each
Pledgor under this Agreement shall remain in full force and effect without
regard to, and, unless otherwise expressly provided in any other Financing
Document, shall not be released, suspended, discharged, terminated or
otherwise affected by: (a) any change in the time, place or manner of
payment of all or any of the Obligations, or in any other term of any of the
Financing Documents, waiver, indulgence, renewal, extension, amendment or
modification of or addition, consent or supplement to or deletion from or any
other action or inaction under or in respect of the Financing Documents or
any assignment or transfer thereof; (b) any lack of validity or
enforceability, in whole or in part, of any of the Financing Documents; (c)
any furnishing of any additional security for the Obligations or any
acceptance thereof or any release or non-perfection of any security interest
in property; (d) any limitation on any party's liability or obligations under
any of the Financing Documents; (e) any bankruptcy, insolvency,
reorganization, composition, adjustment, dissolution, liquidation or other
like proceeding relating to any Pledgor, any Pledged Subsidiary or any other
Person, or any action taken with respect to this Agreement by any trustee or
receiver, or by any court, in any such proceeding, whether or not such
Pledgor shall have notice or knowledge of any of the foregoing; or (f) any
exchange, release, amendment or waiver of, or consent to departure from any
other agreement pursuant to which a Lien is created in favor of the Pledgee.
Section 17. WAIVER. To the extent permitted by applicable law, and
except as otherwise expressly provided for herein, each Pledgor hereby waives
promptness, diligence, notice of acceptance and any other notice with respect to
the Obligations and any requirement that the Pledgee protect, secure, perfect or
insure any security interest or any property subject thereto or exhaust any
right or take any action against any Pledgor or any other Person; PROVIDED,
HOWEVER, that the Pledgee shall in any event take such reasonable care in the
handling of any Possessory Collateral in its possession as it takes with respect
to its own property of a similar nature in its possession.
Section 18. TERMINATION. Upon indefeasible payment and performance
in full and satisfaction of all of the Obligations, this Agreement shall
terminate and the Pledgee upon payment of all fees and expenses owed to it and
its agents and counsel shall assign and redeliver to the Pledgors all of the
Collateral hereunder that has not been sold, disposed of, retained or applied by
the Pledgee in accordance with the terms hereof. Such reassignment and
redelivery shall be without warranty by or recourse to the Pledgee, and shall be
at the expense of the Pledgors. At such time, this Agreement shall no longer
constitute a Lien upon or a grant of any security interest in any of the
Collateral, and the Pledgee shall, at such Pledgor's expense deliver to such
Pledgor written acknowledgment thereof and of cancellation of this
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<PAGE>
Agreement in a form reasonably requested by the Pledgor; PROVIDED, HOWEVER,
that this Agreement shall continue to be effective or be reinstated, as the
case may be, if at any time any payment of any of the Obligations is
rescinded or must otherwise be returned upon the insolvency, bankruptcy or
reorganization of any Pledgor or the Pledged Subsidiaries or any other
Person, all as though such payment had not been made.
Section 19. NOTICES. Any notices or other communications required or
permitted hereunder shall be made as provided in Section 11.2 of the Indenture.
Section 20. BINDING AGREEMENT; ASSIGNMENT. This Agreement shall be
binding upon and inure to the benefit of each Pledgee, each Pledgor and their
respective successors and permitted assigns. Neither this Agreement nor any
interest herein or in the Collateral, or any part thereof, may be assigned by
any Pledgor, without the prior written consent of the Pledgee, except as
expressly permitted herein. The Pledgee shall have the right to assign this
Agreement only in accordance with the provisions of the Indenture, and any such
permitted assignee shall have all rights and powers and obligations of the
Pledgee hereunder.
Section 21. GOVERNING LAW. This Agreement shall be construed in
accordance with, and be governed by, the laws of the State of New York.
Section 22. AMENDMENTS. This Agreement may not be amended or
modified except in writing signed by the Pledgors and Pledgee.
Section 23. SEVERABILITY. In the event that any provision contained
in this Agreement shall for any reason be held to be illegal or invalid under
the laws of any jurisdiction, such illegality or invalidity shall in no way
impair the effectiveness of any other provision hereof, or of such provision
under the laws of any other jurisdiction; PROVIDED, that in the construction and
enforcement of such provision under the laws of the jurisdiction in which such
holding of illegality or invalidity exists, and to the extent only of such
illegality or invalidity, this Agreement shall be construed and enforced as
though such illegal or invalid provision had not been contained herein.
Section 24. HEADINGS. Section headings used herein are inserted for
convenience only and shall not in any way affect the meaning or construction of
any provision of this Agreement.
Section 25. COUNTERPARTS. This Agreement may be executed in any
number of counterparts, each of which when so executed and delivered shall be an
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original, and all of which shall together constitute but one and the same
instrument. A complete set of counterparts shall be lodged with Pledgors and
Pledgee.
Section 26. COOPERATION OF PLEDGED SUBSIDIARIES. The Pledgors shall
cause the Pledged Subsidiaries to take all actions necessary to facilitate such
Pledgor's compliance with the terms hereof.
Section 27. ACTIONS BY PLEDGEE. Whenever any provision of this
Agreement requires action, or waiver by or the consent of, the Pledgee, the
Trustee shall only be required to take or refrain from taking such action or
grant or withhold any waiver or consent when 25% in outstanding principal
amount of the Notes shall have instructed the Trustee in writing. References to
actions which may be taken by the Pledgee shall likewise be required when 25% in
outstanding principal amount of the Notes shall have instructed the Trustee in
writing.
Section 28. NOTES EQUALLY AND RATABLY SECURED. Each Note will be
equally and ratable secured with each other Note hereunder, regardless of the
date of issuance of such Note.
Section 29. RELEASE OF PLEDGOR. If in accordance with the terms and
provisions of the Indenture, any Pledgor is designated by the Company to be an
Unrestricted Subsidiary, then such Pledgor will be released and discharged from
all of its obligations under its Guaranty of the Notes and the Indenture.
[signature pages follow]
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IN WITNESS WHEREOF, each of the parties hereto has caused this Pledge
and Security Agreement to be duly executed and delivered as of the date first
above written.
ARCHIBALD CANDY CORPORATION
as Debtor and Pledgor
By: /s/ Ted A. Shepherd
----------------------------------------------
Name: Ted A. Shepherd
--------------------------------------------
Title: President and Chief Operating Officer
--------------------------------------------
SWEET FACTORY GROUP, INC.
as Debtor and Pledgor
By: /s/ Ted A. Shepherd
----------------------------------------------
Name: Ted A. Shepherd
--------------------------------------------
Title: President and Chief Operating Officer
--------------------------------------------
SWEET FACTORY, INC.
as Debtor and Pledgor
By: /s/ Ted A. Shepherd
----------------------------------------------
Name: Ted A. Shepherd
--------------------------------------------
Title: President and Chief Operating Officer
--------------------------------------------
SF PROPERTIES, INC.
as Debtor and Pledgor
By: /s/ Ted A. Shepherd
----------------------------------------------
Name: Ted A. Shepherd
--------------------------------------------
Title: President and Chief Operating Officer
--------------------------------------------
<PAGE>
SF CANDY COMPANY
as Debtor and Pledgor
By: /s/ Ted A. Shepherd
----------------------------------------------
Name: Ted A. Shepherd
--------------------------------------------
Title: President and Chief Operating Officer
--------------------------------------------
THE BANK OF NEW YORK, for
the ratable benefit of the Holders,
as Secured party and Pledgee
By: /s/ Mary LaGumina
----------------------------------------------
Name: Mary LaGumina
--------------------------------------------
Title: Assistant Vice President
--------------------------------------------
<PAGE>
AMENDED AND RESTATED
INTELLECTUAL PROPERTY
SECURITY AGREEMENT
This AMENDED AND RESTATED INTELLECTUAL PROPERTY SECURITY AGREEMENT
(as amended, restated, modified or supplemental from time to time, the
"Intellectual Property Security Agreement"), dated as of December 7, 1998, by
and among Archibald Candy Corporation, an Illinois Corporation with offices
at 1137 West Jackson Boulevard, Chicago, Illinois 60607 (the "Company"),
Sweet Factory Group, Inc., a Delaware corporation with offices at 10343
Roselle Street, San Diego, California 92121, Sweet Factory, Inc., a Delaware
corporation with offices at 10343 Roselle Street, San Diego, California
92121, SF Properties, Inc., a Delaware corporation with offices at 10343
Roselle Street, San Diego, California 92121 and SF Candy Company, a Delaware
corporation with offices at 10343 Roselle Street, San Diego, California
92121 (collectively, the"Assignors"), and THE BANK OF NEW YORK, a New York
banking corporation with offices at 101 Barclay Street-21W, New York, New
York (the "Assignee"), as Trustee for the ratable benefit of the Holders as
defined under that certain Indenture (as hereinafter defined).
W I T N E S S E T H:
WHEREAS, the Company and Assignee have entered into an Indenture,
dated as of July 2, 1997 as amended by the Supplemental Indenture dated the
date hereof, between the Company, the Restricted Subsidiaries (as defined in
the Indenture) and the Assignee (together with all supplements, modifications
and amendments thereto made from time to time in accordance with its terms,
the "Indenture");
WHEREAS, the Company will issue and sell its 10 1/4% Senior Secured
Notes, due 2004 (as amended, modified or supplemented from time to time in
accordance with their terms, the "Notes") in accordance with the terms of the
Indenture;
WHEREAS, the Company and Assignee entered into that certain
Intellectual Property Security Agreement dated as of July 2, 1997 (the
"Initial Intellectual Property Security Agreement") which contemplates that
the Company and the Restricted Subsidiaries will, in order to secure their
Obligations (as defined in the Indenture), grant to Assignee, for the ratable
benefit of the Holders (as such term is defined in the Indenture), a security
interest in and continuing lien upon the Intellectual Property and certain
other assets relating to or connected therewith, as further set forth herein,
and the Assignors have been requested to enter into this Agreement to
evidence such security interest;
<PAGE>
WHEREAS, Assignors own all right, title and interest in and to,
among other things, certain United States, state and foreign trademarks,
service marks, patents, copyrights, trade names, trade dress, trade secrets,
know-how and other proprietary information, and all registrations of and
applications for any of the foregoing, including, but not limited to, those
set forth on EXHIBIT 1 hereto, which are used in the business of the
Assignors, along with the goodwill of the businesses symbolized thereby, any
inventions disclosed therein and the Licenses (as hereinafter defined) (all
of the above, collectively, the "Intellectual Property"); and
WHEREAS, the Company and the Assignee have agreed to amend and
restate the Initial Intellectual Property Security Agreement in its entirety
as set forth herein.
NOW THEREFORE, KNOW ALL MEN BY THESE PRESENTS, that for valuable
consideration received and to be received, as security for the full payment
and performance of the Obligations, each of the Assignors and Assignee hereby
agree as follows:
1. AMENDMENT AND RESTATEMENT. The Intellectual Property Security
Agreement, dated as of July 2, 1997, between the Company and the Assignee, is
hereby amended and restated in its entirety as set forth in this Amended and
Restated Intellectual Property Security Agreement.
2. GRANT OF SECURITY INTEREST. As collateral security for the
due and punctual payment and performance of the Obligations, each of the
Assignors hereby grants to Assignee a security interest in and continuing
lien on each Assignors' right, title and interest in, to and under the
following property of each of the Assignors:
(a) the Intellectual Property;
(b) all applications of and registrations for the Intellectual
Property in the United States, any state of the United States
and any foreign countries and localities;
(c) all United States, state and foreign trademarks, service marks,
patents, copyrights, trade names, trade dress, trade secrets,
know-how and other proprietary information, and all registrations
of, applications for and licenses relating to any of the
foregoing hereafter adopted or acquired and used by any of the
Assignors or any Subsidiary in its business, including, but not
limited to, those which are based upon or derived from the
Intellectual
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<PAGE>
Property or any variations thereof (the "Future Intellectual
Property");
(d) all extensions and renewals of all United States, state and
foreign trademarks, service marks, trade names and copyrights,
and any registrations thereof and applications therefor,
contained within the Intellectual Property and Future
Intellectual Property;
(e) all reissues, divisions, continuations, continuations-in-part,
extensions, renewals and re-examinations of any United States and
foreign patents, and any applications therefor, contained within
the Intellectual Property and Future Intellectual Property;
(f) all rights to sue for past, present and future infringements of
the Intellectual Property and the Future Intellectual Property,
and all rights to sue under any licenses ("Licenses") relating to
trademarks, service marks, patents, copyrights, trade names,
trade dress, trade secrets, know-how and other proprietary
information used in the business of any of the Assignors (other
than any Licenses that, by their terms, are not assignable, and
for which consents cannot be obtained under Section 6 hereof);
(g) all of the Assignors' logos and trade dress including, containing
or relating to the Intellectual Property, the Future Intellectual
Property, and the trademarks, service marks and trade names
covered by the Licenses, or a representation thereof, or any
variation thereof;
(h) all licenses and other agreements under which each of the
Assignors is licensor or licensee (including without limitation,
the Licenses (other than any licenses or other agreements that,
by their terms, are not assignable, and for which consents cannot
be obtained under Section 6 hereof)), and all fees, rents,
royalties, proceeds or monies thereunder, relating to the
Intellectual Property, the Future Intellectual Property, or any
other intellectual property or related rights;
(i) all goodwill of each of the Assignors' business connected with,
symbolized by or in any way related to any of the foregoing;
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(j) all of the Assignors' inventions disclosed in any of the
foregoing;
(k) all of the Assignors' books, records, computer software (to the
extent assignable, subject to Section 6 hereof), computer print-
outs, manuals and similar items which relate to any of the
foregoing; and
(l) all proceeds of any of the foregoing, including without
limitation, license royalties, income, payments, claims, damages,
insurance proceeds and proceeds of suit.
All of the foregoing items set forth in clauses (a) through (l) are hereinafter
referred to collectively as the "Collateral".
3. DEFINED TERMS. As used herein, capitalized terms defined in the
Indenture and not otherwise defined herein are used herein as so defined. The
following terms shall have the meanings set forth below:
BANK LENDERS shall mean the lenders under the Bank Loan Documents.
BANK LOAN DOCUMENTS shall mean the Revolving Credit Facility.
EVENT OF DEFAULT shall have the meaning set forth in the Indenture.
FINANCING DOCUMENTS shall mean the Indenture, the Notes, the Security
Agreement, this Agreement, and the other documents and agreements referred to
herein or therein, or delivered in connection herewith or therewith, as same may
from time to time be amended, modified, waived or supplemented in accordance
with their respective terms.
FUTURE INTELLECTUAL PROPERTY shall have the meaning set forth in
Section 21(c) hereof.
INTELLECTUAL PROPERTY shall have the meaning set forth in the third
Whereas clause hereof.
LICENSES shall have the meaning set forth in Section 2(f) hereof.
SUBSIDIARY shall have the meaning set forth in the Indenture.
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<PAGE>
4. ASSIGNORS' OBLIGATIONS. Each of the Assignors agrees that,
notwithstanding this Agreement, it will perform and discharge and remain
liable for all its covenants, duties, and obligations arising in connection
with the Collateral. Assignee shall have no obligation or liability in
connection with the Collateral by reason of this Agreement or any payment
received by Assignee relating to the Collateral and Assignee shall not be
required to perform any covenant, duty or obligation of any of the Assignors
arising in connection with the Collateral or any license or agreement related
thereto or to take any other action regarding the Collateral, except and only
to the extent that Assignee has acquired, for the ratable benefit of the
Holders, absolute ownership of the Collateral upon an exercise of remedies
under Section 7 hereof.
5. REPRESENTATIONS AND WARRANTIES. Each of the Assignors
represents and warrants to Assignee that: (a) EXHIBIT 1 hereto sets forth a
complete and accurate list of all of such Assignor's United States and state
registrations of and applications for those trademarks, service marks,
patents and copyrights material to the conduct of any Assignors' business,
all Licenses material to the business of any of the Assignors, and all
unregistered trademarks, service marks, trade names and copyrights used by
any of the Assignors which are material to the business of any of the
Assignors; (b) each of the Assignors is the sole, exclusive, beneficial and
record owner of all right, title and interest in and to the Collateral
material to the conduct of such Assignor's business, and no adverse claims
have been made with respect to its title to or the validity of such
Collateral; (c) the Intellectual Property and the trademarks, service marks,
patents, copyrights, trade names, trade dress, trade secrets, know-how and
other proprietary information covered by the Licenses constitute the only
intellectual property, and registrations thereof and applications therefor,
in which any of the Assignors has any right, title or interest; (d) none of
the Collateral is subject to any mortgage, pledge, lien, security interest,
lease, charge or encumbrance, other than as created hereby; (e) the
registrations of those trademarks, service marks, patents and copyrights
material to the conduct of any Assignors' business are subsisting, and, to
the best of each of the Assignor's knowledge, valid, and none of the
Collateral of such Assignor has been adjudged invalid or unenforceable, and
each of the Assignors has performed all acts and has paid all renewal,
maintenance and other fees and taxes required to maintain in full force and
effect each and every registration and application contained within the
Collateral to the extent material to the conduct of such Assignors' business;
(f) no claims have been made that the use of any of the Collateral material
to the conduct of any Assignors' business violates the asserted rights of any
third party and, to the best of each of the Assignors' knowledge, the conduct
of such Assignors' business does not infringe in any material respect upon
any intellectual property rights of any third party; (g) to the best of each
of the Assignors' knowledge, no third party is infringing in any material
respect upon any of the Collateral; (h) provided that this Agreement is filed
in and recorded by the United States Patent and Trademark Office (the "PTO")
within three
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(3) months of the date hereof and the United States Copyright Office
("Copyright Office") within one (1) month of the date hereof, and provided
that UCC financing statements have been filed in the jurisdictions listed on
EXHIBIT 3 hereto, this Agreement will create a legal, valid, perfected and
continuing lien on and security interest in the Collateral so filed and
recorded in favor of Assignee, enforceable against each of the Assignors and
all third parties, subject to no other mortgage, assignment, pledge, lien,
charge, encumbrance, or security or other interest except for a non-exclusive
license granted to Bank Lenders in connection with inventory sales after an
event of default under the Bank Loan Documents; and (i) none of Assignors'
Subsidiaries owns any intellectual property of any nature whatsoever, other
than their respective trade names, or conducts any business whatsoever.
6. COVENANTS. Each of the Assignors will maintain and renew all
items of Collateral of such Assignor, and any U.S. applications therefor and
U.S. registrations thereof, necessary or economically desirable for the conduct
of its business and will defend the Collateral against the claims of all
persons. Each of the Assignors will, promptly following the creation or
acquisition of any copyrightable work which is necessary or economically
desirable for the conduct of its business, apply to register the copyright in
the Copyright Office. Each of the Assignors will maintain, and will cause each
licensee which uses any of the Collateral to maintain, the same standards of
quality for the goods and services in connection with which the Collateral is
used as each of the Assignors maintained for such goods and services prior to
the date of this Agreement. Assignee shall have the right to enter upon any of
the Assignors' premises at all reasonable times to monitor such quality
standards. Each of the Assignors shall promptly notify Assignee if it knows or
has received written notice that any of the Collateral material to the conduct
of any Assignors' business may lapse, expire, become dedicated to the public,
terminate, be abandoned, or become subject to any adverse determination or
development (including the institution of proceedings) in any action or
proceeding before the PTO, the Copyright Office, any state registry, any foreign
counterpart of the foregoing, or any court. In the event that any material
portion of the Collateral is infringed or diluted by a third party, promptly
after any of the Assignors becomes aware of such infringement or dilution, such
Assignors shall take all reasonable actions to stop such infringement or
dilution and protect its exclusive rights in such Collateral. Without limiting
the generality of the foregoing, none of the Assignors shall permit the lapse,
expiration, dedication to the public, termination or abandonment of any
Intellectual Property, Future Intellectual Property or License material to the
conduct of its business without the prior written consent of Assignee. If,
before the Obligations have been satisfied in full, any of the Assignors shall
obtain rights to, become licensed to use, or become entitled to the benefit of
any new trademarks, service marks, patents, copyrights, trade names, trade
dress, trade secrets, know-how or other proprietary information (or any
applications therefor or registrations thereof) not identified on
6
<PAGE>
EXHIBIT 1 hereto, the provisions of this Agreement (including, without
limitation, all requirements for filings, recordings, registrations and the
like) shall automatically apply thereto, and same shall thereupon constitute
part of the Collateral. Each of the Assignors shall give Assignee prompt
notice thereof in writing, and shall take all actions necessary to create,
perfect and preserve the Assignee's security interest therein (to the extent
capable of being created, perfected or preserved under the laws of the United
States or any state thereof) in connection therewith. Except with the prior
written consent of Assignee, or as permitted by the Indenture, none of the
Assignors shall sell, assign, transfer or dispose of (other than in the
ordinary course of such Assignors' business), or create or allow to exist any
lien, claim or encumbrance upon or with respect to any of the Collateral,
except for the security interest and continuing lien created hereunder and
other Permitted Liens. If any of the Assignors forms or acquires any
Restricted Subsidiary (as defined in the Indenture), or any Subsidiary
existing as of the date hereof hereafter engages in any business, then the
Assignors covenant and agree that they shall cause each such Restricted
Subsidiary to enter into a security agreement with Assignee, in substantially
the form of this Agreement, covering all such Restricted Subsidiary's
intellectual property and related rights. Each of the Assignors will use
reasonable commercial efforts to obtain any third-party consents required in
connection with the grant of a security interest in any Collateral.
7. REMEDIES UPON DEFAULT. Whenever any Event of Default shall
occur and be continuing, Assignee shall have all the rights and remedies
granted to it in such event by the Security Agreement and the other Financing
Agreements, which rights and remedies are specifically incorporated herein by
reference and made a part hereof, with the same force and effect as if set
forth herein in their entirety. Assignee in such event may collect directly
any payments due to any of the Assignors in respect of the Collateral and,
subject to any limitations imposed under any license agreements constituting
part of the Collateral, may sell, license, lease, assign, or otherwise
dispose of the Collateral in any manner set forth in the Security Agreement.
Each of the Assignors agrees that, in the event of any disposition of the
Collateral upon any such Event of Default, it will duly execute, acknowledge,
and deliver all documents necessary or advisable to record title to the
Collateral in any transferee or transferees thereof, including, without
limitation, valid, recordable assignments of the Intellectual Property, the
Future Intellectual Property, and the Licenses. Each of the Assignors hereby
irrevocably appoints Assignee as its attorney-in-fact, with power of
substitution, to execute, deliver, and record any such documents on each
Assignors' behalf. Notwithstanding any provision hereof to the contrary,
during the continuance of an Event of Default, the Bank Lenders may have,
under the Bank Loan Documents, a non-exclusive license to sell inventory
bearing any trademarks, service marks, trade names and trade dress included
within the Intellectual Property or the Future Intellectual Property, or
covered by the Licenses.
7
<PAGE>
8. POWER OF ATTORNEY. Concurrently with the execution and
delivery hereof, each of the Assignors shall execute and delivery to the
Assignee, in the form of EXHIBIT 2 hereto, five (5) originals of a Special
Power of Attorney for the implementation of the assignment, sale, license,
lease or other disposition of the Intellectual Property, Future Intellectual
Property, and Licenses pursuant to Section 7. Each of the Assignors hereby
fully and unconditionally releases Assignee from any and all future claims,
causes of action and demands at any time arising out of or with respect to
any actions taken or omitted to be taken by Assignee in accordance with
Section 7 under the powers of attorney granted therein, other than actions
taken or omitted to be taken through the willful misconduct or gross
negligence of Assignee.
9. CUMULATIVE REMEDIES. The rights and remedies provided herein
are cumulative and not exclusive of any other rights or remedies provided by
law. The security interest granted hereby is granted in conjunction with the
security interest granted to Assignee under the Security Agreement. The
rights and remedies of Assignee with respect to the security interest granted
hereby are in addition to those set forth in the Security Agreement and those
which are now or hereafter available to Assignee as a matter of law or
equity. The exercise by Assignee of any one or more of the rights, powers or
remedies provided for in this Agreement or the Security Agreement, or now or
hereafter existing at law or in equity shall not preclude the simultaneous or
later exercise by any person, including Assignee, of any or all other rights,
powers or remedies. The rights and remedies provided herein are intended to
be in addition to and not in substitution of the rights and remedies provided
by the Security Agreement.
10. AMENDMENTS AND WAIVERS. This Agreement may not be modified,
supplemented, or amended, or any of its provisions waived without the prior
written consent of Assignee and each of the Assignors. Each of the Assignors
hereby authorizes Assignee to modify this Agreement by amending EXHIBIT 1
hereto to include any Future Intellectual Property or additional licenses in
which any of the Assignors acquires rights.
11. ACTIONS BY TRUSTEE. Whenever any provision of this Agreement
requires action or waiver, by, or the consent of, the Assignee, Assignee
shall only be required to take or refrain from taking such action or grant or
withhold any waiver or consent when 25% in outstanding principal amount of
the Notes shall have instructed the Trustee in writing.
12. WAIVER OF RIGHTS. No course of dealing between the parties to
this Agreement or any failure or delay on the part of any such party in
exercising any rights or remedies hereunder shall operate as a waiver of any
rights and remedies of such
8
<PAGE>
party or any other party, and no single or partial exercise of any rights or
remedies by one party hereunder shall operate as a waiver or preclude the
exercise of any other rights and remedies of such party or any other party.
No waiver by Assignee of any breach or default by any of the Assignors shall
be deemed a waiver of any other previous breach or default or of any breach
or default occurring thereafter.
13. ASSIGNMENT. The provisions of this Agreement shall be binding
upon and inure to the benefit of the respective successors and assigns of the
parties hereto; PROVIDED, HOWEVER, that no right, obligation, duty or interest
herein or in or to the Collateral may be assigned, transferred or disposed of by
any of the Assignors without the prior written consent of Assignee, except as
permitted by Section 6 hereof.
14. FURTHER ACTS. Each of the Assignors shall have the duty to
prosecute diligently any application for the Intellectual Property and Future
Intellectual Property material to the conduct of its or any Subsidiary's
business pending as of the date of this Agreement or thereafter, until the
Obligations shall have been paid in full, and to make applications on material
unregistered but registrable trademarks, service marks, copyrights and patents
material to the conduct of its or any Subsidiary's business in any location in
the United States where the Assignors or such Subsidiary does business using
such Intellectual Property and to preserve and maintain all rights in and to the
Collateral material to the conduct of its or any Subsidiary's business. Any
expenses incurred in connection with such applications shall be borne jointly by
the Assignors.
15. ENFORCEMENT. While an Event of Default shall be continuing,
Assignee shall have the right, if any of the Assignors has failed to do so but
shall in no way be obligated to, bring suit in its own name to enforce any
rights in and to the Collateral, in which event the Assignors shall do any and
all lawful acts and execute any and all proper documents in aid of such
enforcement including, but not limited to, joining as a plaintiff in any such
enforcement action and the Assignors shall promptly, upon demand, reimburse and
indemnify Assignee for all costs and expenses (including fees and expenses of
its agents and counsel) incurred by Assignee in the exercise of its rights under
this Section 15.
16. RELEASE AND RE-ASSIGNMENT. As provided for in the Indenture, or
at such time as all of the Obligations have been satisfied, and the Indenture
has been terminated, Assignee will execute and deliver to the Assignors all
deeds, assignments and other instruments as may be necessary or proper to
release Assignee's lien in the Collateral and reassign to the Assignors any and
all rights of Assignee therein which were granted to Assignee hereunder, subject
to any dispositions thereof which may have been made by Assignee pursuant
hereto.
9
<PAGE>
17. SEVERABILITY. If any clause or provision of this Agreement shall
be held invalid or unenforceable, in whole or in part, in any jurisdiction, such
invalidity or unenforceability shall attach only to such clause or provision, or
part thereof, in such jurisdiction, and shall not in any manner affect any other
clause or provision in any other jurisdiction.
18. NOTICES. All notices, requests and demands to or upon any of the
Assignors or Assignee under this Agreement shall be given in the manner
prescribed by the Security Agreement.
19. GOVERNING LAW. This Agreement shall be governed by and construed
in accordance with the laws of the State of New York.
20. NOTES EQUALLY AND RATABLY SECURED. Each Note will be equally
and ratably secured with each other Note hereunder, regardless of the date of
issuance of such Note.
21. RELEASE OF GUARANTOR. If in accordance with the terms and
provisions of the Indenture, any Guarantor (as defined in the Indenture) is
designated by the Company to be an Unrestricted Subsidiary (as defined in the
Indenture), then such Guarantor will be released and discharged from all of its
obligations under its Guaranty (as defined in the Indenture) of the Notes and
the Indenture.
[Signature page follows]
10
<PAGE>
IN WITNESS WHEREOF, the parties have entered into this Intellectual
Property Security Agreement as of the date first above written.
ASSIGNORS
Archibald Candy Corporation
By: /s/ Ted A. Shepherd
--------------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
Sweet Factory Group, Inc.
By: /s/ Ted A. Shepherd
--------------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
Sweet Factory, Inc.
By: /s/ Ted A. Shepherd
--------------------------------------------
Name: Ted. A. Shepherd
Title: President and Chief Operating Officer
SF Properties, Inc.
By: /s/ Ted A. Shepherd
--------------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
SF Candy Company
By: /s/ Ted A. Shepherd
--------------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
<PAGE>
THE BANK OF NEW YORK, for the ratable
benefit of the Holders, as Assignee
By: /s/ Mary LaGumina
--------------------------------------------
Name: Mary LaGumina
Title: Assistant Vice President
12
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 7th day of December 1998 before me personally came Ted A.
Shepherd, to me known, who being by me duly sworn, did depose and say that
he/she is the President of Archibald Candy Corporation, the corporation
described in and which executed the foregoing instrument; and that he/she signed
his/her name thereto by order of the Board of Directors of said corporation.
/s/ Laura J. Smiley
--------------------------------------------
Notary Public
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 7th day of December 1998 before me personally came Ted A.
Shepherd, to me known, who being by me duly sworn, did depose and say that he
/she is the President of Sweet Factory Group, Inc., the corporation described in
and which executed the foregoing instrument; and that he/she signed his/her name
thereto by order of the Board of Directors of said corporation.
/s/ Christine K. Ubersox
--------------------------------------------
Notary Public
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 7th day of December 1998 before me personally came Ted A.
Shepherd, to me known, who being by me duly sworn, did depose and say that
he/she is the President of SF Properties, Inc., the corporation described in and
which executed the foregoing instrument; and that he/she signed his/her name
thereto by order of the Board of Directors of said corporation.
/s/ Laura J. Smiley
--------------------------------------------
Notary Public
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 7th day of December 1998 before me personally came Ted A.
Shepherd, to me known, who being by me duly sworn, did depose and say that
he/she is the President of SF Candy Company, the corporation described in and
which executed the foregoing instrument; and that he/she signed his/her name
thereto by order of the Board of Directors of said corporation.
/s/ Christine K. Ubersox
--------------------------------------------
Notary Public
<PAGE>
STATE OF NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 7th day of December 1998 before me personally came Mary
LaGumina, to me known, who being by me duly sworn, did depose and say that
he/she is a Assistant Vice President of THE BANK OF NEW YORK, a New York banking
corporation described in and which executed the foregoing instrument; and that
he/she signed his/her name thereto by order of the Board of Directors of said
banking corporation.
/s/ Robert Schneck
--------------------------------------------
Notary Public
<PAGE>
Archibald Candy Corporation
as Mortgagor
TO
The Bank of New York,
as Mortgagee
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILLING AND FINANCING STATEMENT
- -------------------------------------------------------------------------------
Dated: As of December 7, 1998
Location: Chicago, Illinois
Permanent Real Estate
Index Number(s) : See Schedule A-1 Attached
------------------------------
This document prepared by and after recording should be returned to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
Attention: Matt Hartley
- -------------------------------------------------------------------------------
THIS MORTGAGE SECURES FUTURE ADVANCES AND FUTURE
OBLIGATIONS AT ANY TIME OUTSTANDING UP TO A MAXIMUM
PRINCIPAL AMOUNT OF $130,000,000
THIS FIRST AMENDMENT TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES
AND RENTS, FIXTURE FILING AND FINANCING STATEMENT (the
<PAGE>
"First Amendment"), is made as of December 7, 1998, between ARCHIBALD CANDY
CORPORATION, ("Mortgagor"), and THE BANK OF NEW YORK, as trustee for the
benefit of the holders of the Original Notes as (hereinafter defined) and the
Additional Notes (as hereinafter defined) ("Mortgagee").
RECITALS
1. WHEREAS, the Mortgagor entered into and delivered a certain
Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing
and Financing Statement (the "Mortgage") dated July 2, 1997 for the benefit
of the Mortgagee as trustee for the benefit of the holders of the Original
Notes, which Mortgage was recorded at the Cook County Recorder of Deeds on
July 3, 1997 as Document No. 97482235, encumbering that certain real property
described on Schedule A attached hereto;
2. WHEREAS, the Mortgage was given to the Mortgagee to, among
other things, secure to the Mortgagee the repayment of certain sums together
with interest thereon, pursuant to the terms of that certain Indenture dated
July 2, 1997 (the "Indenture") and the performance by the Mortgagor of
certain covenants and agreements contained in the Mortgage and other Loan
Documents (as defined in the Mortgage);
3. WHEREAS, the Mortgagor, the Mortgagee and the Guarantors (as
defined in the Indenture) have entered into a certain Supplemental Indenture
of even date herewith (the "Supplemental Indenture") pursuant to which
certain terms and provisions of the Indenture have been amended, modified or
deleted as more particularly described therein; and
4. WHEREAS, the Mortgagor and Mortgagee desire to amend the
Mortgage in certain respects.
NOW THEREFORE, in consideration of the execution and delivery of the
Supplemental Indenture, the sum of Ten and 00/100 Dollars ($10.00) in hand
paid by the Mortgagee to the Mortgagor and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Mortgagor and Mortgagee hereby agree as follows:
1. The first recital to the Mortgage is hereby deleted in its
entirety and replaced with the following:
"WHEREAS, the Mortgagor and Mortgagee have entered into
that certain Indenture dated July 2, 1997 (the "Original
Indenture") and as amended by that Supplemental Indenture
dated December 7, 1998 (the "Supplemental Indenture," and
collectively with the Original Indenture, as amended,
restated and supplemented or otherwise modified from time to
time, the "Indenture") pursuant to which, among other
things, the Mortgagor has issued
1
<PAGE>
10 1/4% Senior Secured Notes due July 1, 2004 (the
"Original Notes") and certain additional 10 1/4% Senior
Secure Notes due July 1, 2004 (the "Additional Notes,"
and collectively with the Original Notes, the "Notes.").
2. MAXIMUM PRINCIPAL AMOUNT. The Mortgage, as amended in this
First Amendment, secures future advances and future obligations at any time
outstanding up to a maximum principal amount of $130,000,000.
3. Except as amended herein, all terms, provisions and conditions
of the Mortgage, all Exhibits and Schedules thereto and all documents
executed in connection therewith shall remain unmodified and in full force
and effect and shall remain enforceable and binding in accordance with these
terms. Mortgagor hereby ratifies and confirms each and every term and
provision thereof as amended by this Amendment.
4. In the event of a conflict between the terms and conditions of
the Mortgage Agreement and the terms and conditions of this Amendment, then
the terms and conditions of this Amendment shall prevail.
5. This First Amendment may be executed in any number of
identical counterparts, each of which shall for all purposes be deemed an
original and all of which constitute, collectively, one agreement.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, Mortgagor and Mortgagee have caused this
instrument to be duly executed as of the day and year first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------------
Its: President and Chief Operating Officer
-----------------------------------------
Attest:
/s/ Donna M. Snopek
- -----------------------------------------
Its: Vice President - Finance and Accounting
----------------------------------------
BANK OF NEW YORK, as Trustee,
By: /s/ Mary LaGumina
-----------------------------------------
Its: Assistant Vice President
-----------------------------------------
Attest:
/s/ Remo Reall
- -----------------------------------------
Its: Assistant Vice President
-------------------------------------
<PAGE>
NOTARIAL ACKNOWLEDGEMENTS
STATE OF ILLINOIS )
COUNTY OF COOK )
I, Laura J. Smiley, a Notary Public in and for the said County and
State aforesaid, DO HEREBY CERTIFY, that Ted A. Shepherd and Donna M. Snopek,
the President and Vice President/Finance respectively of Archibald Candy
Corporation, an Illinois corporation, personally known to me to be the same
persons whose names are subscribed to the foregoing instrument as such
President and Vice President/Finance appeared before me this day in person
and acknowledged that they signed and delivered the said instrument as their
own free and voluntary act and as of the free and voluntary act of said
corporation, for the uses and purposes therein set forth.
Given under my hand and notarial seal this 7th day of December,
1998.
/s/ Laura J. Smiley
-------------------------------
Notary Public
THIS INSTRUMENT WAS PREPARED AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO: MATT HARTLEY, SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS), 333 WEST
WACKER DRIVE, 21ST FLOOR, CHICAGO, ILLINOIS 60606
<PAGE>
NOTARIAL ACKNOWLEDGEMENTS
STATE OF NEW YORK )
COUNTY OF NEW YORK )
I, Robert Schneck, a Notary Public in and for the said County and
State aforesaid, DO HEREBY CERTIFY, that Mary LaGumina and Remo Reall, the
Assistant Vice President and Assistant Vice President respectively of Bank of
New York, a New York banking corporation, personally known to me to be the
same persons whose names are subscribed to the foregoing instrument as such
Assistant Vice President and Assistant Vice President appeared before me this
day in person and acknowledged that they signed and delivered the said
instrument as their own free and voluntary act and as of the free and
voluntary act of said corporation, for the uses and purposes therein set
forth.
Given under my hand and notarial seal this 4th day of December, 1998.
/s/ Robert Schneck
--------------------------------
Notary Public
THIS INSTRUMENT WAS PREPARED AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO: MATT HARTLEY, SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS), 333 WEST
WACKER DRIVE, 21ST FLOOR, CHICAGO, ILLINOIS 60606
<PAGE>
Archibald Candy Corporation
as Mortgagor
TO
The Bank of New York,
as Mortgagee
- -------------------------------------------------------------------------------
FIRST AMENDMENT TO OPEN-END
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILLING AND FINANCING STATEMENT
- -------------------------------------------------------------------------------
Dated: As of December 7, 1998
This document prepared by and after recording should be returned to:
Skadden, Arps, Slate, Meagher & Flom (Illinois)
333 West Wacker Drive, Suite 2100
Chicago, Illinois 60606
Attention: Matt Hartley
- -------------------------------------------------------------------------------
THIS MORTGAGE SECURES FUTURE ADVANCES AND FUTURE
OBLIGATIONS AT ANY TIME OUTSTANDING UP TO A MAXIMUM
PRINCIPAL AMOUNT OF $130,000,000
THIS FIRST AMENDMENT TO OPEN-END MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT
OF LEASES AND RENTS, FIXTURE FILING AND FINANCING STATEMENT (the "First
Amendment"), is made as of December 7, 1998, between
<PAGE>
ARCHIBALD CANDY CORPORATION, ("Mortgagor"), and THE BANK OF NEW YORK, as
trustee for the benefit of the holders of the Original Notes(as hereinafter
defined) and the Additional Notes(as hereinafter defined) ("Mortgagee").
RECITALS
1. WHEREAS, the Mortgagor entered into and delivered a certain
Open-End Mortgage, Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement ("Mortgage") dated July 2, 1997 for
the benefit of the Mortgagee as trustee for the benefit of the holders of the
Original Notes, which Mortgage was recorded at the Bucks County Recorder of
Deeds on July 8, 1997 in Book 1419 page 1766, encumbering that certain real
property described on Schedule A attached hereto;
2. WHEREAS, the Mortgage was given to the Mortgagee to, among
other things, secure to the Mortgagee the repayment of certain sums together
with interest thereon, pursuant to the terms of that certain Indenture dated
July 2, 1997 (the "Indenture") and the performance by the Mortgagor of
certain covenants and agreements contained in the Mortgage and other Loan
Documents (as defined in the Mortgage);
3. WHEREAS, the Mortgagor, the Mortgagee and the Guarantors (as
defined in the Indenture) have entered into a certain Supplemental Indenture
of even date herewith (the "Supplemental Indenture") pursuant to which
certain terms and provisions of the Indenture have been amended, modified or
deleted as more particularly described therein; and
4. WHEREAS, the Mortgagor and Mortgagee desire to amend the
Mortgage in certain respects.
NOW THEREFORE, in consideration of the execution and delivery of the
Supplemental Indenture, the sum of Ten and 00/100 Dollars ($10.00) in hand
paid by the Mortgagee to the Mortgagor and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Mortgagor and Mortgagee hereby agree as follows:
1. The first recital to the Mortgage is hereby deleted in its
entirety and replaced with the following:
"WHEREAS, the Mortgagor and Mortgagee have entered into that certain
Indenture dated July 2, 1997 (the "Original Indenture") and amended by
that certain Supplemental Indenture dated December 7, 1998 (the
"Supplemental Indenture," and collectively with the Original
Indenture, as amended, restated and supplemented or otherwise modified
from time to time, the "Indenture") pursuant to which, among other
things, the Mortgagor has issued 10 1/4% Senior Secured Notes due
July 1, 2004 (the "Original Notes") and certain additional 10 1/4%
Senior Secure Notes due July 1, 2004 (the "Additional Notes," and
collectively with the Original Notes, the "Notes.").
1
<PAGE>
2. MAXIMUM PRINCIPAL AMOUNT. The Mortgage, as amended in this
First Amendment, secures future advances and future obligations at any time
outstanding up to a maximum principal amount of $130,000,000.
3. Except as amended herein, all terms, provisions and conditions
of the Mortgage, all Exhibits and Schedules thereto and all documents
executed in connection therewith shall remain unmodified and in full force
and effect and shall remain enforceable and binding in accordance with these
terms. Mortgagor hereby ratifies and confirms each and every term and
provision thereof as amended by this Amendment.
4. In the event of a conflict between the terms and conditions of
the Mortgage and the terms and conditions of this Amendment, then the terms
and conditions of this Amendment shall prevail.
5. This First Amendment may be executed in any number of
identical counterparts, each of which shall for all purposes be deemed an
original and all of which constitute, collectively, one agreement.
[Remainder of Page Intentionally Left Blank]
2
<PAGE>
IN WITNESS WHEREOF, Mortgagor and Mortgagee have caused this
instrument to be duly executed as of the day and year first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
---------------------------------------
Its: President and Chief Operating Officer
---------------------------------------
Attest:
/s/ Donna M. Snopek
- ---------------------------------------
Its: Vice President - Finance and Accounting
- ---------------------------------------
BANK OF NEW YORK, as Trustee,
By: /s/ Mary LaGumina
---------------------------------------
Its: Assistant Vice President
---------------------------------------
Attest:
/s/ Remo Reall
- ---------------------------------------
Its: Assistant Vice President
- ---------------------------------------
I hereby certify that the address of the Mortgagee named herein is The Bank of
New York, 101 Barclay Street, 21 West, New York, New York 10286.
- ---------------------------------------
on behalf of the Mortgagee
<PAGE>
NOTARIAL ACKNOWLEDGEMENTS
STATE OF ILLINOIS )
COUNTY OF COOK )
I, Laura J. Smiley, a Notary Public in and for the said County and
State aforesaid, DO HEREBY CERTIFY, that Ted A. Shepherd and Donna M. Snopek,
the President and Vice President/Finance respectively of Archibald Candy
Corporation, an Illinois corporation, personally known to me to be the same
persons whose names are subscribed to the foregoing instrument as such
President and Vice President/Finance appeared before me this day in person
and acknowledged that they signed and delivered the said instrument as their
own free and voluntary act and as of the free and voluntary act of said
corporation, for the uses and purposes therein set forth.
Given under my hand and notarial seal this 7th day of December,
1998.
/s/ Laura J. Smiley
--------------------------------
Notary Public
THIS INSTRUMENT WAS PREPARED AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO: MATT HARTLEY, SKADDEN, ARPS, SLATE, MEAGHER, & FLOM (ILLINOIS), 333 WEST
WACKER DRIVE, 21ST FLOOR, CHICAGO, ILLINOIS 60606
<PAGE>
NOTARIAL ACKNOWLEDGEMENTS
STATE OF NEW YORK )
COUNTY OF NEW YORK )
I, Robert Schneck, a Notary Public in and for the said County and
State aforesaid, DO HEREBY CERTIFY, that Mary LaGumina and Remo Reall, the
Assistant Vice President and Assistant Vice President respectively of Bank of
New York, a New York banking corporation, personally known to me to be the
same persons whose names are subscribed to the foregoing instrument as such
Assistant Vice President and Assistant Vice President appeared before me this
day in person and acknowledged that they signed and delivered the said
instrument as their own free and voluntary act and as of the free and
voluntary act of said corporation, for the uses and purposes therein set
forth.
Given under my hand and notarial seal this 4th day of December,
1998.
/s/ Robert Schneck
------------------------------
Notary Public
THIS INSTRUMENT WAS PREPARED AND RECORDED COUNTERPARTS SHOULD BE RETURNED
TO: MATT HARTLEY, SKADDEN, ARPS, SLATE, MEAGHER & FLOM (ILLINOIS), 333 WEST
WACKER DRIVE, 21ST FLOOR, CHICAGO, ILLINOIS 60606
<PAGE>
AMENDMENT NO. 1 TO AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. 1 (this "Amendment") is entered into as of December
7, 1998 by and among ARCHIBALD CANDY CORPORATION, an Illinois corporation (the
"Borrower"), the financial institutions from time to time party thereto
(collectively, the "Lenders") and THE FIRST NATIONAL BANK OF CHICAGO, as one of
the Lenders and in its capacity as contractual representative (the "Agent") on
behalf of itself and the other Lenders.
RECITALS:
WHEREAS, the Borrower, the Lenders and the Agent have entered into
that certain Amended and Restated Credit Agreement dated as of July 2, 1997 (the
"Credit Agreement");
WHEREAS, the Borrower has notified the Lenders and the Agent that the
Borrower wishes to acquire Sweet Factory Group, Inc., a Delaware corporation,
Sweet Factory, Inc., a Delaware corporation, SF Candy Company, a Delaware
corporation, and SF Properties, Inc., a Delaware corporation (the "Sweet Factory
Acquisition");
WHEREAS, the Borrower seeks to amend the Credit Agreement; and
WHEREAS, the Lenders and the Agent are willing to amend the Credit
Agreement on the terms and conditions herein set forth;
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise
defined herein shall have the meanings attributed to such terms in the Credit
Agreement.
2. AMENDMENTS TO CREDIT AGREEMENT. Upon the effectiveness of this
Amendment in accordance with the provisions of SECTION 3 below, the Credit
Agreement is hereby amended as follows:
(a) SECTION 1.1 of the Credit Agreement is hereby amended as
follows:
(i) The following new defined terms are hereby added
alphabetically therein:
""AMENDMENT NO. 1" shall mean Amendment No. 1 to this
Agreement, dated as of December 7, 1998, among the Borrower,
the Lenders and the Agent.";
<PAGE>
""SWEET FACTORY SUBSIDIARY" shall mean any of Sweet
Factory Group, Inc., a Delaware corporation, Sweet Factory,
Inc., a Delaware corporation, SF Candy Company, a Delaware
corporation, and SF Properties, Inc., a Delaware
corporation."; and
""SWEET FACTORY SUBSIDIARY SECURITY AGREEMENT" shall
mean any security agreement, substantially in the form
attached to Amendment No. 1 as EXHIBIT 1, executed by any
Sweet Factory Subsidiary in favor of the Agent for the
benefit of the Holders of Secured Obligations, as amended,
restated, supplemented or modified from time to time.".
(ii) The definition of "BORROWING BASE" is amended in its
entirety to read as follows:
""BORROWING BASE" means, as of any date of calculation,
an amount, as set forth on the most current Borrowing
Base Certificate delivered to the Agent, equal to (i)
85% of the Gross Amount of Eligible Receivables; PLUS
(ii) 50% of the Gross Amount of Eligible Inventory
consisting of finished goods; PLUS (iii) 60% of the
Gross Amount of Eligible Inventory consisting of raw
materials; PLUS (iv) 70% of the Approved Value of real
estate; PLUS (v) the Overadvance Amount, MINUS (vi)
such reserves as the Agent reasonably deems necessary
and are consistent with existing reserves, including
without limitation, reserves (a) in amounts equal to
any Indebtedness secured by a Lien permitted by SECTION
6.3(C)(iii) and (b) in amounts equal to up to two (2)
months rent or other applicable storage/processing fees
at any location (other than the Borrower's leased
retail store locations), including any Sweet Factory
Subsidiary's leased retail store locations, where the
Borrower or any Sweet Factory Subsidiary maintains
Inventory on leased premises or stores Inventory with
any third party, for which the Agent has not received,
as applicable, a landlord, mortgagee, bailee and/or
warehousemen's access and lien waiver agreement and
related Uniform Commercial Code financing statements,
in form and substance reasonably acceptable to the
Agent (the "RENT RESERVE"); PROVIDED, HOWEVER, that for
each Sweet Factory Subsidiary, the reserve requirement
contemplated above shall equal the lesser of (x) the
Rent Reserve or (y) the Gross Amount of Eligible
Inventory at such location. The Agent shall give the
Borrower notice prior to establishing any reserve
hereunder.".
(iii) The definition of "ELIGIBLE INVENTORY" is hereby
amended as follows:
(A) Each reference therein to "Borrower" or
"Borrower's" is deleted therefrom and the phrase
"Borrower or any Sweet Factory Subsidiary" or
"Borrower's or any Sweet Factory Subsidiary's", as
-2-
<PAGE>
applicable, is substituted therefor; PROVIDED, HOWEVER,
that the reference to "Borrower" contained in the
parenthetical in clause (iii) shall be replaced with
the phrase "Borrower or the applicable Sweet Factory
Subsidiary";
(B) Each reference therein to "Security Agreement" is
deleted therefrom and the phrase "Borrower Security
Agreement or any Sweet Factory Subsidiary Security
Agreement, as applicable," is substituted therefor;
(C) Clause (vi) therein is hereby amended to delete
therefrom the phrase "SECTION 6.3(C)(v)" and substitute
therefor the phrase "SECTION 6.3(C)(iii);
(iv) The definition of "ELIGIBLE RECEIVABLES" is hereby
amended to delete therefrom each reference to "Borrower" and
substitute therefor the phrase "Borrower or any Sweet
Factory Subsidiary, as applicable".
(v) The definition of "GROSS AMOUNT OF ELIGIBLE INVENTORY"
is hereby amended to delete therefrom each reference to
"Borrower" and substitute therefor the phrase "Borrower or
any Sweet Factory Subsidiary, as applicable";
(vi) The definition of "INVENTORY" is hereby amended to
delete therefrom each reference to "Borrower" or
"Borrower's" and to substitute therefor "Borrower or any
Sweet Factory Subsidiary" or "Borrower's or any Sweet
Factory Subsidiary's", respectively;
(vii) The definition of "RECEIVABLES" is hereby amended in
its entirety as follows:
""RECEIVABLE(S)" means and includes all of the
Borrower's and, subject to an initial audit and review
by the Agent, each Sweet Factory Subsidiary's presently
existing and hereafter arising or acquired accounts,
accounts receivable, and all present and future rights
of the Borrower and each Sweet Factory Subsidiary, as
applicable, to payment for goods sold or leased or for
services rendered (except those evidenced by
instruments or chattel paper), whether or not they have
been earned by performance, and all rights in any
merchandise or goods which any of the same may
represent, and all rights, title, security and
guaranties with respect to each of the foregoing,
including, without limitation, any right of stoppage in
transit.";
(viii) The definition of "SENIOR NOTES" is hereby amended in
its entirety as follows:
-3-
<PAGE>
""SENIOR NOTES" means those certain notes issued
pursuant to the Senior Note Indenture in the aggregate
principal amount of $130,000,000 with a maturity of
July 1, 2004."
and;
(ix) The definition of "SENIOR NOTE INDENTURE" is hereby
amended in its entirety as follows:
""SENIOR NOTE INDENTURE" means that certain Indenture,
dated on or about July 2, 1997, as amended by that
certain First Supplemental Indenture, dated as of
December 7, 1998, by and among the Borrower, the Sweet
Factory Subsidiaries, and The Bank of New York, as
Trustee, pursuant to which the Senior Notes are to be
or have been issued.".
(b) SECTION 5.8 of the Credit Agreement is hereby amended to
insert immediately at the beginning of the second sentence contained therein the
following:
"Except for a single existing Stock Option Plan under which
certain officers of the Borrower may receive, in the aggregate,
no more than thirty-four shares of stock in the Parent,"
(c) SECTION 5.9 of the Credit Agreement is hereby amended to
delete therefrom the phrases "Except as set forth on SCHEDULE 5.9 hereto" and
"Except as set forth on "SCHEDULE 5.9" and to substitute therefor the phrase
"Except as set forth on SCHEDULE 5.9 as amended and attached to Amendment
No. 1,"
(d) SECTION 6.2(J) of the Credit Agreement is hereby amended in
its entirety as follows:
"(J) RESTRICTION ON FUNDAMENTAL CHANGES. None of the Borrower
or any of its Subsidiaries shall enter into any merger or
consolidation, or liquidate, wind-up or dissolve (or suffer any
liquidation or dissolution), or convey, lease, sell, transfer or
otherwise dispose of, in one transaction or series of
transactions, all or substantially all of the Borrower's or any
such Subsidiary's business or property, whether now or hereafter
acquired; PROVIDED, HOWEVER, that (i) the Borrower may merge with
any of its Subsidiaries, so long as (x) the Borrower is the
surviving entity in any such merger, (y) the Borrower provides
written notice to the Agent of such merger not less than thirty
(30) days prior thereto, and (z) the Borrower executes any UCC
financing statements or amendments in connection with such merger
in order to maintain the Agent's first priority perfected
security interest in the Collateral and (ii) any wholly-owned
Subsidiary may merge with any other
-4-
<PAGE>
wholly-owned Subsidiary so long as (x) the surviving Subsidiary
is a guarantor of the "Guaranteed Obligations" as such term is
defined in the Guaranty dated as of December 7, 1998 executed
by the Sweet Factory Subsidiaries, (y) the Borrower provides
written notice to the Agent of such merger between Subsidiaries
not less than thirty (30) days prior thereto, and (z) the
surviving Subsidiary executes any UCC financing statements or
amendments in connection with such merger in order to maintain
the Agent's first priority perfected security interest in the
Collateral.".
(e) SECTION 6.3(A)(ii) of the Credit Agreement is hereby amended
in its entirety as follows:
"(ii) Indebtedness existing as of December 7, 1998 and described
on Schedule 6.3(A) as attached to Amendment No. 1.".
(f) SECTION 6.3(C) of the Credit Agreement is hereby amended to
insert immediately at the end of clause (i) the phrase "or Liens upon the
Collateral in favor of the Agent".
(g) SECTION 6.3(D) of the Credit Agreement is hereby amended to
delete the period at the end of clause (vii) contained therein and insert the
following: "; PROVIDED FURTHER, HOWEVER, that the Borrower may acquire each
Sweet Factory Subsidiary pursuant to the Agreement and Plan of Reorganization,
dated as of November 24, 1998, among the Borrower, Sweet Factory Acquisition
Corp., a Delaware corporation, and each Sweet Factory Subsidiary, with such
Acquisition excluded from the aforementioned $7,500,000 limit on other
Investments."
(h) SECTION 6.3(E) of the Credit Agreement is hereby amended to
insert, at the beginning of clause (ii) therein, the following: "except for the
Acquisition of the Sweet Factory Subsidiaries,".
(i) Section 6.4 of the Credit Agreement is hereby amended as
follows:
(i) Paragraph (B) is hereby amended in its entirety as
follows:
"(B) FIXED CHARGE COVERAGE RATIO. The Borrower shall
maintain a Fixed Charge Coverage Ratio of not less than the
following for each four Fiscal Quarter period ending on the
last day of each Fiscal Quarter during the following
periods:
-5-
<PAGE>
<TABLE>
<CAPTION>
Minimum
Fiscal Quarter Ending in Fixed Charge Coverage Ratio
------------------------ ---------------------------
<S> <C>
August, 1997 through
November, 1997 1.15 to 1.00
February, 1998 through
August, 1998 1.20 to 1.00
November, 1998 through 1.10 to 1.00
August, 1999
November, 1999 1.05 to 1.00
February, 2000 1.20 to 1.00
May, 2000 and thereafter 1.30 to 1.00"
</TABLE>
(ii) Paragraph (C) is hereby amended in its entirety as
follows:
"(C) LEVERAGE RATIO. The Borrower shall not permit its
Leverage Ratio to be greater than the ratio set forth below
at the end of the Fiscal Quarter ending during the following
periods:
<TABLE>
<CAPTION>
Fiscal Quarter Ending In Maximum Leverage Ratio
------------------------ ----------------------
<S> <C>
August, 1997 through
November, 1998 6.00 to 1.00
February, 1999 through
May, 1999 5.50 to 1.00
August, 1999 through
November, 1999 6.00 to 1.00
February, 2000 and
thereafter 5.50 to 1.00"
</TABLE>
(iii) Paragraph (D) is hereby amended to delete therefrom
the number "$12,500,000.00" and to substitute therefor the
number "$25,000,000.00".
(j) The Exhibits to the Credit Agreement are hereby amended to
delete therefrom EXHIBIT C and substitute therefor Exhibit C as attached to
Amendment No. 1.
-6-
<PAGE>
3. CONDITIONS OF EFFECTIVENESS. This Amendment shall become
effective and be deemed effective as of the date hereof (the "Effective Date")
if, and only if, the Agent shall have received each of the following:
(a) four (4) duly executed originals of this Amendment from the
Borrower, the Agent and the Lenders;
(b) four (4) duly executed originals of each Sweet Factory
Subsidiary Security Agreement and a guaranty, in favor of the Agent,
executed by each Sweet Factory Subsidiary;
(c) an amendment fee as described in that certain Mandate Letter
dated as of November 24, 1998 between the Borrower and the Agent;
(d) payout letters in form and substance satisfactory to the
Agent from any holders of Sweet Factory indebtedness together with,
upon receipt thereof, evidence that any liens against or security
interests in any Accounts or Inventory of any Sweet Factory Subsidiary
have been or will be terminated, unless such liens are permitted under
the Credit Agreement; PROVIDED, HOWEVER, that any lien held by
Imperial Bank - Lending Services or Wells Fargo Bank, N.A. shall not
be considered a permitted lien for purposes of this paragraph;
(e) a form of Sweet Factory Subsidiary Security Agreement
attached hereto as EXHIBIT 1, an amended SCHEDULE 6.3(A) to the Credit
Agreement attached hereto, and an amended SCHEDULE 5.9 to the Credit
Agreement attached hereto; and
(f) such other documents, instruments and agreements, including,
without limitation, UCC-1 financing statements, as the Agent may
reasonably request.
4. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
4.1 Upon the effectiveness of this Amendment pursuant to SECTION 3
hereof, on and after the Effective Date each reference in the Credit Agreement
to "this Agreement," "hereunder," "hereof," "herein" or words of like import and
each reference to the Credit Agreement in each Loan Document shall mean and be a
reference to the Credit Agreement as modified hereby.
4.2 Except as specifically waived or amended herein, all of the
terms, conditions and covenants of the Credit Agreement and the other Loan
Documents shall remain in full force and effect and are hereby ratified and
confirmed.
4.3 The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of (a) any right,
power or remedy of any Lender or
-7-
<PAGE>
the Agent under the Credit Agreement or any of the Loan Documents, or (b) any
Default or Unmatured Default under the Credit Agreement.
5. CHOICE OF LAW. THIS AMENDMENT SHALL BE CONSTRUED IN ACCORDANCE
WITH THE INTERNAL LAWS (INCLUDING 735 ILCS 105/5-1 ET SEQ. BUT OTHERWISE WITHOUT
REGARD TO THE CONFLICT OF LAWS PROVISIONS) OF THE STATE OF ILLINOIS, BUT GIVING
EFFECT TO FEDERAL LAWS APPLICABLE TO NATIONAL BANKS.
6. COUNTERPARTS. This Amendment may be executed in any number of
counterparts, each of which when so executed shall be deemed an original and all
of which taken together shall constitute one and the same agreement.
7. 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.
THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK
-8-
<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment No. 1 as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
THE FIRST NATIONAL BANK OF CHICAGO,
Individually and as Agent
By: /s/ Kevin L. Gillen
-------------------------------------
Name: Kevin L. Gillen
Title: Vice President
-9-
<PAGE>
SANWA BUSINESS CREDIT CORPORATION
By: /s/ Michael J. Cox
-------------------------------------
Name: Michael J. Cox
Title: 1st Vice President
-10-
<PAGE>
February 5, 1999
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Re: Registration Statement on Form S-4
of Archibald Candy Corporation and the
Guarantors (as defined below)
Ladies and Gentlemen:
We have acted as special counsel to Archibald Candy Corporation, an
Illinois corporation (the "COMPANY"), and certain of its subsidiaries (the
"GUARANTORS") in connection with the preparation of the Registration
Statement on Form S-4 (the "REGISTRATION STATEMENT") filed on behalf of the
Company and the Guarantors with the Securities and Exchange Commission (the
"COMMISSION") relating to the registration of $30,000,000 aggregate principal
amount of the Company's 10-1/4% Series B Senior Secured Notes due 2004 (the
"EXCHANGE NOTES") and the Guarantees thereof by the Guarantors, which are to
be offered in exchange for an equivalent principal amount of the Company's
currently outstanding 10-1/4% Series A Senior Secured Notes due 2004 (the
"OUTSTANDING NOTES"), all as more fully described in the Registration
Statement. The Exchange Notes will be issued under the Company's Indenture
dated as of July 2, 1997 between the Company and The Bank of New York, as
trustee (the "TRUSTEE"), as amended by the First Supplemental Indenture dated
as of December 7, 1998 among the Company, the Guarantors and the Trustee (the
"INDENTURE"). Capitalized terms used herein and not otherwise defined shall
have the meanings assigned to such terms in the prospectus (the "PROSPECTUS")
contained in the Registration Statement.
This opinion letter is delivered in accordance with the requirements of
Item 601 (b) (5) of Regulation S-K under the Securities Act of 1933, as
amended (the "SECURITIES ACT").
In connection with this opinion letter, we have examined and are
familiar with originals or copies, certified or otherwise identified to our
satisfaction, of (i) the Registration Statement, in the form filed with the
Commission and as amended through the date hereof; (ii) the Articles of
Incorporation of the Company, as currently in effect; (iii) the Certificate
of Incorporation of each of the Guarantors, as currently in effect; (iv) the
By-laws of the Company and each of the Guarantors, as currently in effect;
(v) the Indenture; (vi) the form of the Exchange Notes; and (vii) resolutions
<PAGE>
February 5, 1999
Page 2
of the Boards of Directors of the Company and each of the Guarantors relating
to, among other things, the issuance and exchange of the Exchange Notes for
the Outstanding Notes, the issuance of the Guarantees and the filing of the
Registration Statement. We also have examined such other documents as we
have deemed necessary or appropriate as a basis for the opinions set forth
below.
In our examination, we have assumed the legal capacity of all natural
persons, the genuineness of all signatures, the authenticity of all documents
submitted to us as originals, the conformity to original documents of all
documents submitted to us as certified or photostatic copies, and the
authenticity of the originals of such latter documents. As to certain facts
material to this opinion, we have relied without independent verification
upon oral or written statements and representations of officers and other
representatives of the Company, the Guarantors and others.
Based upon and subject to the foregoing, we are of the opinion that:
1. The issuance and exchange of the Exchange Notes for the Outstanding
Notes and the issuance of the Guarantees have been duly authorized by
requisite corporate action on the part of the Company and the Guarantors,
respectively.
2. When (i) the Registration Statement, as finally amended (including
all necessary post-effective amendments), shall have become effective under
the Securities Act, (ii) the Exchange Notes are duly executed and
authenticated in accordance with the provisions of the Indenture, and (iii)
the Exchange Notes shall have been issued and delivered in exchange for the
Outstanding Notes pursuant to the terms set forth in the Prospectus, the
Exchange Notes and the Guarantees will be valid and binding obligations of
the Company and the Guarantors, respectively, entitled to the benefits of the
Indenture and enforceable against the Company and the Guarantors,
respectively, in accordance with their terms, except to the extent that the
enforceability thereof may be limited by (x) bankruptcy, insolvency,
fraudulent conveyance, reorganization, moratorium or other similar laws now
or hereafter in effect relating to creditors' rights generally and (y)
general principles of equity (regardless of whether enforceability is
considered in a proceeding at law or in equity).
The foregoing opinions are limited to the laws of the United States, the
States of Illinois and New York and the General Corporation Law of the State
of Delaware. We express no opinion as to the application of the securities
or blue sky laws of the various states to the issuance or exchange of the
Exchange Notes.
We hereby consent to the reference to our firm under the headings "Legal
Matters" and "Certain United States Federal Income Tax Considerations" in the
Prospectus and to the filing of this opinion letter with the Commission as an
exhibit to the Registration Statement. In giving such consent, we do not
concede that we are experts within the meaning of the Securities Act or the
rules and regulations thereunder or that this consent is required by Section
7 of the Securities Act.
Very truly yours,
/s/ Winston & Strawn
<PAGE>
INDEMNIFICATION AGREEMENT
THIS INDEMNIFICATION AGREEMENT, dated as of November 1, 1998 (this
"Agreement"), is by and between Archibald Candy Corporation, an Illinois
corporation (the "Company"), and Brant Binder ("Indemnitee").
WITNESSETH
WHEREAS, highly competent persons are becoming more reluctant to serve
as directors, executive officers or in other capacities of corporations that
have publicly-held equity or debt unless they are provided with adequate
protection through insurance and indemnification against inordinate risks of
claims and actions against them arising out of their service to and activities
on behalf of the corporation; and
WHEREAS, the current difficulties or virtual impossibility of
obtaining adequate insurance and uncertainties relating to indemnification have
increased the difficulty of attracting and retaining such persons; and
WHEREAS, the Board of Directors of the Company has determined that the
inability to attract and retain such persons is detrimental to the best
interests of the Company's shareholders and that the Company should act to
assure such persons that there will be increased certainty of such protection in
the future; and
WHEREAS, it is reasonable, prudent and necessary for the Company
contractually to obligate itself to indemnify such persons to the fullest extent
permitted by applicable law so that they will serve or continue to serve the
Company free from undue concern that they will not be so indemnified; and
WHEREAS, the shareholders of the Company have adopted the Amended and
Restated By-laws of the Company (as amended, the "By-laws") providing for the
indemnification of the directors, officers, agents and employees of the Company
to the fullest extent permitted by the Illinois Business Corporation Act (as
amended, the "Act"). The By-laws and the Act specifically provide that they are
not exclusive, and thereby contemplate that contracts may be entered into
between the Company and the members of its Board of Directors and its executive
officers with respect to indemnification of such directors and executive
officers; and
WHEREAS, this Agreement is being entered into as part of Indemnitee's
total compensation for serving as a director and/or an executive officer of the
Company, as the case may be; and
NOW THEREFORE, in consideration of the premises and the covenants
contained herein, the Company and Indemnitee do hereby covenant and agree as
follows:
<PAGE>
SECTION 1. Service by Indemnitee.
Indemnitee agrees to serve as director of the Company and/or executive
officer of the Company if so designated by the Company and appointed by the
Board of Directors, and agrees to the indemnification provisions provided for
herein. Indemnitee may at any time and for any reason resign from such position
(subject to any other contractual obligation or other obligation imposed by
operation of law), in which event the Company shall have no obligation under
this Agreement to continue Indemnitee in any such position.
SECTION 2. Indemnification.
The Company shall indemnify Indemnitee to the fullest extent permitted
by applicable law in effect on the date hereof, notwithstanding that such
indemnification is not specifically authorized by this Agreement, the Amended
and Restated Articles of Incorporation of the Company (as amended, the
"Charter"), the Bylaws, the Act or otherwise. In the event of any change, after
the date of this Agreement, in any applicable law, statute or rule regarding the
right of an Illinois corporation to indemnify a member of its board of directors
or an officer, such changes, to the extent that they would expand Indemnitee's
rights hereunder, shall be within the scope of Indemnitee's rights and the
Company's obligations hereunder, and, to the extent that they would narrow
Indemnitee's rights hereunder, shall be excluded from this Agreement; provided,
however, that any change that is required by applicable laws, statutes or rules
to be applied to this Agreement shall be so applied regardless of whether the
effect of such change is to narrow Indemnitee's rights hereunder. Without
diminishing the scope of the indemnification provided by this Section 2, the
rights of indemnification of Indemnitee provided hereunder shall include
indemnification in respect of any public offering of securities by the Company
or Fannie May Holdings, Inc., a Delaware corporation and sole stockholder of the
Company, and shall not be limited to those rights set forth hereinafter, except
to the extent expressly prohibited by applicable law.
SECTION 3. Action or Proceeding Other Than an Action by or in the
Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided
in this Section 3 if he is or was 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 in nature, other than an
action by or in the right of the Company, by reason of the fact that he is or
was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any other entity (a "Related
Company") or by reason of anything done or not done by him in any such
capacity. Pursuant to this Section 3, Indemnitee shall be indemnified
against reasonable costs and expenses (including, but not limited to, counsel
fees, costs, judgments, penalties, fines, ERISA excise taxes, and amounts
paid in settlement) (collectively, "Damages") actually and reasonably
incurred by him in connection with such action, suit or proceeding
(including, but not limited to, the investigation, defense, settlement or
appeal thereof), if, in the case of conduct in his official capacity with the
corporation, he acted in good faith and in the Company's best interests, and
in all other cases, he acted in good faith and was at least not opposed to
the Company's best interests, and with respect to any criminal action or
proceeding had no reasonable cause to believe his conduct was unlawful,
2
<PAGE>
except that no indemnification shall be made in respect of any claim, issue
or matter as to which Indemnitee shall have been finally adjudged to be
liable for (a) negligence or misconduct in the performance of his duty to the
Company unless and only to the extent that the court in which such action,
suit or proceeding was brought, or any other court of competent jurisdiction,
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 Damages as such court shall deem
proper or (b) a violation of Section 16(b) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), or any of the rules or regulations
promulgated thereunder. Notwithstanding the foregoing, the Company shall be
required to indemnify an officer or director in connection with an action,
suit or proceeding initiated by such person only if such action, suit or
proceeding was authorized or contemplated by the Board or a committee
thereof. No indemnity pursuant to this Agreement shall be provided by the
Company for Damages that have been paid directly to Indemnitee by an
insurance carrier under a policy of directors' and officers' liability
insurance maintained by the Company.
SECTION 4. Actions by or in the Right of the Company.
Indemnitee shall be entitled to the indemnification rights provided in
this Section 4 if he is or was made 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 brought by or in the right of
the Company to procure a judgment in its favor by reason of the fact that he is
or was a director, officer, employee, agent or fiduciary of the Company or is or
was serving at the request of the Company as a director, officer, employee,
agent, partner, trustee or fiduciary of any Related Company by reason of
anything done or not done by him in any such capacity. Pursuant to this Section
4, Indemnitee shall be indemnified against Damages actually and reasonably
incurred by him in connection with such action or suit (including, but not
limited to, the investigation, defense, settlement or appeal thereof) if, in the
case of conduct in his official capacity with the corporation, he acted in good
faith and in the Company's best interests, and in all other cases, he acted in
good faith and was at least not opposed to the Company's best interests, except
that no indemnification shall be made in respect of any claim, issue or matter
as to which Indemnitee shall have been finally adjudged to be liable for (a)
negligence or misconduct in the performance of his duty to the Company unless
and only to the extent that the court in which such action, suit or proceeding
was brought, or any other court of competent jurisdiction, 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 Damages as such court shall deem proper or (b) a violation of
Section 16(b) of the Exchange Act or any of the rules or regulations promulgated
thereunder. Notwithstanding the foregoing, the Company shall be required to
indemnify an officer or director in connection with an action, suit or
proceeding initiated by such person only if such action, suit or proceeding was
authorized by the Board or a committee thereof. No indemnity pursuant to this
Agreement shall be provided by the Company for Damages that have been paid
directly to Indemnitee by an insurance carrier under a policy of directors' and
officers' liability insurance maintained by the Company.
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SECTION 5. Indemnification for Costs, Charges and Expenses of
Successful Party.
Notwithstanding the other provisions of this Agreement, to the extent
that Indemnitee has served as a witness on behalf of the Company or has been
successful, on the merits or otherwise, including, without limitation, the
dismissal of an action without prejudice, in defense of any action, suit or
proceeding referred to in Section 3 or 4, or in defense of any claim, issue or
matter therein, Indemnitee shall be indemnified against all reasonable costs,
charges, and expenses (including counsel fees) actually and reasonably incurred
by him or on his behalf in connection therewith.
SECTION 6. Partial Indemnification.
If Indemnitee is only partially successful in the defense,
investigation, settlement or appeal of any action, suit, investigation or
proceeding described in Section 3 or Section 4, and as a result is not entitled
under Section 5 to indemnification by the Company for the total amount of
reasonable Damages actually and reasonably incurred by him, the Company shall
nevertheless indemnify Indemnitee, as a matter of right pursuant to Section 5,
to the extent Indemnitee has been partially successful.
SECTION 7. Determination of Entitlement to Indemnification.
Upon written request by Indemnitee for indemnification pursuant to
Section 3 or Section 4 , the entitlement of Indemnitee to indemnification
pursuant to the terms of this Agreement shall be determined by the following
person or persons who shall be empowered to make such determination: (a) the
Board of Directors of the Company by a majority vote of a quorum consisting of
Disinterested Directors (as hereinafter defined); or (b) if such a quorum is not
obtainable or, even if obtainable, if the Board of Directors by the majority
vote of Disinterested Directors so directs, by Independent Counsel (as
hereinafter defined) in a written opinion to the Board of Directors, a copy of
which shall be delivered to Indemnitee; or (c) by the shareholders, but shares
owned by or voted under the control of directors, including the Indemnitee, who
are at the time parties to the proceeding may not be voted on the determination.
Such Independent Counsel shall be selected by the Board of Directors and
approved by Indemnitee. Upon failure of the Board of Directors to so select
such Independent Counsel or upon failure of Indemnitee to so approve, such
Independent Counsel shall be selected by an Illinois state court judge of the
Circuit Court of Cook County, Chancery Division, or such other person as such
judge shall designate to make such selection. Such determination of entitlement
to indemnification shall be made no later than sixty (60) days after receipt by
the Company of a written request for indemnification. Such request shall
include documentation or information which is necessary for such determination
and which is reasonably available to Indemnitee. Any Damages incurred by
Indemnitee in connection with his request for indemnification hereunder shall be
borne by the Company. The Company hereby indemnifies and agrees to hold
Indemnitee harmless therefrom irrespective of the outcome of the determination
of Indemnitee's entitlement to indemnification. If the person making such
determination shall determine that Indemnitee is entitled to indemnification as
to part (but not all) of the application for indemnification, such person shall
reasonably prorate such partial indemnification among such claims, issues or
matters.
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SECTION 8. Presumptions and Effect of Certain Proceedings.
The Secretary of the Company shall, promptly upon receipt of
Indemnitee's request for indemnification, advise in writing the Board of
Directors or such other person or persons empowered to make the determination as
provided in Section 7 that Indemnitee has made such request for indemnification.
Indemnitee shall be presumed to be entitled to indemnification hereunder and the
Company shall have the burden of proof in the making of any determination
contrary to such presumption. If the person or persons so empowered to make
such determination shall have failed to make the requested indemnification
within 60 days after receipt by the Company of such request, the requisite
determination of entitlement to indemnification shall be deemed to have been
made and Indemnitee shall be absolutely entitled to such indemnification, absent
actual and material fraud in the request for indemnification. The termination
of any action, suit, investigation or proceeding described in Section 3 or
Section 4 by judgment, order, settlement or conviction, or upon a plea of nolo
contendere or its equivalent, shall not, of itself (a) create a presumption that
Indemnitee did not act in good faith and in a manner which he reasonably
believed to be in or not opposed to the best interests of the Company, and, with
respect to any criminal action or proceeding, that Indemnitee had reasonable
cause to believe that his conduct was unlawful or (b) otherwise adversely affect
the rights of Indemnitee to indemnification except as may be provided herein.
SECTION 9. Advancement of Expenses and Costs.
All reasonable expenses and costs incurred by Indemnitee who is
party to a proceeding or investigation (including counsel fees, retainers and
advances of disbursements required of Indemnitee) (collectively, the "Expense
Advance") shall be paid by the Company in advance of the final disposition of
such action, suit, proceeding or investigation at the request of Indemnitee
within twenty (20) days after the receipt by the Company of a statement or
statements from Indemnitee requesting such advance or advances from time to
time. Such statement or statements shall reasonably evidence the expenses
and costs incurred by him in connection therewith. The Company's obligation
to provide an Expense Advance is subject to the following conditions: (a) if
the proceeding arose in connection with Indemnitee's service as a director
and/or executive officer of, or in any other capacity on behalf of, the
Company or any Related Company, then the Indemnitee or his representative
shall have executed and delivered to the Company an undertaking, which need
not be secured and shall be accepted without reference to Indemnitee's
financial ability to make repayment, by or on behalf of Indemnitee to repay
all Expense Advance if and to the extent that it shall ultimately be
determined by a final, unappealable decision rendered by a court having
jurisdiction over the parties and the question that Indemnitee is not
entitled to be indemnified for such Expense Advance under this Agreement or
otherwise; (b) Indemnitee shall give the Company such information and
cooperation as it may reasonably request and as shall be within Indemnitee's
power; and (c) Indemnitee shall furnish, upon request by the Company and if
required under applicable law, a written affirmation of Indemnitee's good
faith belief that any applicable standards of conduct have been met by
Indemnitee. Indemnitee's entitlement to such Expense Advance shall include
those incurred in connection with any proceeding by Indemnitee seeking an
adjudication pursuant to this Agreement. In the event that a claim for an
Expense Advance is made hereunder and is not paid in full within twenty (20)
days after written notice of such claim is
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delivered to the Company, Indemnitee may, but need not, at any time
thereafter bring suit against the Company to recover the unpaid amount of the
claim.
SECTION 10. Remedies of Indemnitee in Cases of Determination not to
Indemnify or to Advance Expenses.
In the event that a determination is made that Indemnitee is not
entitled to indemnification hereunder or if payment has not been timely made
following a determination of entitlement to indemnification pursuant to Section
7 or 8, or if expenses are not advanced pursuant to Section 9, Indemnitee shall
be entitled to a final adjudication in an appropriate court of the State of
Illinois or any other court of competent jurisdiction of his entitlement to such
indemnification or advance. The Company shall not oppose Indemnitee's right to
seek any such adjudication or any other claim. Such judicial proceeding shall
be made de novo and Indemnitee shall not be prejudiced by reason of a
determination (if so made) that he is not entitled to indemnification. If a
determination is made or deemed to have been made pursuant to the terms of
Section 7 or 8 that Indemnitee is entitled to indemnification, the Company shall
be bound by such determination and is precluded from asserting that such
determination has not been made or that the procedure by which such
determination was made is not valid, binding and enforceable. The Company
further agrees to stipulate in any such court that the Company is bound by all
the provisions of this Agreement and is precluded from making any assertion to
the contrary. If the court shall determine that Indemnitee is entitled to any
indemnification hereunder, the Company shall pay all reasonable Damages actually
incurred by Indemnitee in connection with such adjudication (including, but not
limited to, any appellate proceedings).
SECTION 11. Other Rights to Indemnification.
The indemnification and advancement of expenses (including counsel
fees) and costs provided by this Agreement shall not be deemed exclusive of any
other rights to which Indemnitee may now or in the future be entitled under any
provision of the By-laws or the Charter, any vote of shareholders or
Disinterested Directors, any provision of law or otherwise.
SECTION 12. Counsel Fees and Other Expenses to Enforce Agreement.
In the event that Indemnitee is subject to or intervenes in any
proceeding in which the validity or enforceability of this Agreement is at issue
or seeks an adjudication or award in arbitration to enforce his rights under, or
to recover damages for breach of, this Agreement, Indemnitee, if he prevails in
whole or in part in such action, shall be entitled to recover from the Company,
and shall be indemnified by the Company against, any reasonable expenses for
counsel fees and disbursements actually and reasonably incurred by him.
Indemnitee shall be entitled to select his own counsel; provided, however, that
the Company may elect to hire a counsel to represent Indemnitee together with
other similarly situated individuals, but only if such joint representation does
not, in the reasonable discretion of Indemnitee, create any conflict of
interest.
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SECTION 13. Duration of Agreement.
This Agreement shall continue until and terminate upon the later of
(a) 10 years after Indemnitee has ceased to occupy any of the positions or have
any of the relationships described in Sections 1, 3 or 4 or (b) the final
termination of all pending or threatened actions, suits, proceedings or
investigations with respect to Indemnitee. This Agreement shall be binding upon
the Company and its successors and assigns and shall inure to the benefit of
Indemnitee and his spouse, assigns, heirs, devisees, executors, administrators
or other legal representatives.
SECTION 14. Severability.
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever (a) the validity,
legality and enforceability of the remaining provisions of this Agreement
(including without limitation, all portions of any paragraphs of this Agreement
containing any such provision held to be invalid, illegal or unenforceable, that
are not themselves invalid, illegal or unenforceable) shall not in any way be
affected or impaired thereby and (b) 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.
SECTION 15. Identical Counterparts.
This Agreement may be executed in one or more counterparts, each of
which shall for all purposes be deemed to be an original, but all of which
together shall constitute one and the same Agreement. Only one such counterpart
signed by the party against whom enforceability is sought needs to be produced
to evidence the existence of this Agreement.
SECTION 16. Headings; Section References.
The headings of the paragraphs of this Agreement are inserted for
convenience only and shall not be deemed to constitute part of this Agreement or
to affect the construction thereof. Unless otherwise specified herein, each
reference herein to a Section shall be deemed a reference to a Section of this
Agreement.
SECTION 17. Definitions.
For purposes of this Agreement:
(a) "Disinterested Director" shall mean a director of the Company who
is not or was not a party to the action, suit, investigation or proceeding in
respect of which indemnification is being sought by Indemnitee.
(b) "Independent Counsel" shall mean a law firm or a member of a law
firm that neither is presently nor in the past five years has been retained to
represent (i) the Company or Indemnitee in any matter material to either such
party or (ii) any other party to the action, suit,
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investigation or proceeding giving rise to a claim for indemnification
hereunder. Notwithstanding the foregoing, the term "Independent Counsel"
shall not include any person who, under the applicable standards of
professional conduct then prevailing, would have a conflict of interest in
representing either the Company or Indemnitee in an action to determine
Indemnitee's right to indemnification under this Agreement.
SECTION 18. Modification and Waiver.
No supplement, modification or amendment of 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.
SECTION 19. Mutual Acknowledgment.
The Company and Indemnitee acknowledge that, in certain instances,
federal law or public policy may override applicable state law and prohibit the
Company from indemnifying Indemnitee under this Agreement or otherwise. For
example, the Company and Indemnitee acknowledge that the Securities and Exchange
Commission ("SEC") has taken the position that indemnification is not
permissible for liabilities arising under certain federal securities laws, and
federal legislation prohibits indemnification for certain ERISA violations.
Furthermore, Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the SEC to submit
the question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
SECTION 20. Notice by Indemnitee.
Indemnitee agrees promptly to notify the Company in writing upon being
served with any summons, citation, subpoena, complaint, indictment, information
or other document relating to any matter which may be subject to indemnification
covered hereunder, either civil, criminal or investigative.
SECTION 21. Notices.
All notices, requests, demands and other communications hereunder
shall be in writing and shall be deemed to have been duly given if (a) delivered
by hand and receipted for by the party to whom said notice or other
communication shall have been directed or (b) mailed by certified or registered
mail with postage prepaid on the third business day after the date on which it
is so mailed, to the following addresses:
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(a) to Indemnitee:
Brant Binder
TCW Capital
200 Park Avenue
Suite 2200
New York, New York 10166-0228
(b) to the Company:
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, Illinois 60607
Attention: Secretary
or to such other address as may have been furnished to Indemnitee by the Company
or to the Company by Indemnitee, as the case may be.
SECTION 22. Other Agreements.
This Agreement restates and supersedes, but does not limit or negate,
any indemnification, rights or interests of Indemnitee under any prior
agreements between the Company and Indemnitee.
SECTION 23. Governing Law.
The parties agree that this Agreement shall be governed by, and
construed and enforced in accordance with, the laws of the State of Illinois.
[signature page follows]
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IN WITNESS WHEREOF, the parties hereto have executed this
Indemnification Agreement as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------------
Name: Ted A. Shepherd
---------------------------------------
Title: President and Chief Operating Officer
--------------------------------------
INDEMNITEE:
By: /s/ Brant Binder
-----------------------------------------
Name: Brant Binder
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FOURTH AMENDMENT
This Fourth Amendment (this "Amendment") is entered into as of
October 31, 1998 by and among Fannie May Holdings, Inc., a Delaware
corporation ("Holdings"), Archibald Candy Corporation, an Illinois
corporation, as successor by merger to FMCAN Acquisition Corp. (the
"Company"), and the persons named on the signature pages hereof (the
"Purchasers"), and amends the Securities Purchase Agreement entered into as
of October 30, 1991 among Holdings, the Company and the Purchasers (as
amended by the First Amendment thereto dated as of September 18, 1992, the
Second Amendment thereto dated as of August 12, 1994, and the Third Amendment
thereto dated as of July 2, 1997, and as otherwise amended, modified and
supplemented prior to the date hereof, the "Securities Purchase Agreement").
All capitalized terms used herein and not otherwise defined shall have the
respective meanings provided such terms in the Securities Purchase Agreement.
RECITALS
A. The Company intends to enter into a Stock Purchase Agreement
(the "SFG Stock Purchase Agreement") with Sweet Factory Group, Inc.
("Group"), Sweet Factory, Inc. ("SFI"), SF Candy Company ("SFC"), SF
Properties, Inc. ("SFP"; each of SFI, SFC and SFP are directly, wholly-owned
subsidiaries of Group) (Group, SFC, SFP and SFI are referred to herein,
collectively, as the "SFG Entities"), and the selling stockholders of Group
named therein, pursuant to which the Company, or a wholly-owned subsidiary
thereof, will acquire all of Group's outstanding capital stock for
approximately $30,000,000 (the "SFG Acquisition").
B. Concurrently with the SFG Acquisition, the Company intends to
issue an additional $30,000,000 in principal amount of 101/4% Senior Secured
Notes due 2004 ("Additional Notes") initially in transactions that comply
with Rule 144A and other available exemptions under the Securities Act (the
"Additional Offering"); the Company intends to subsequently exchange (the
"Additional Exchange") the Additional Notes for substantially identical
Company 101/4% Senior Secured Notes due 2004 that the Company will have
registered with the Securities and Exchange Commission (the "Additional
Exchange Notes"); and the Additional Exchange Notes will be identical to the
Original Exchange Notes (as defined below).
C. The net proceeds of the Additional Offering will be used,
together with other cash available to the Company, (i) to fund the SFG
Acquisition, (ii) for certain cost savings initiatives related to the SFG
Acquisition and (iii) for fees, costs and expenses incurred in connection
with the SFG Acquisition and the Additional Offering.
D. On July 2, 1997, the Company issued $100,000,000 in principal
amount of its 101/4% Senior Secured Notes due 2004 (the "Original Notes")
pursuant to the Indenture.
<PAGE>
E. On November 13, 1997, the holders of the Original Notes
exchanged the Original Notes for substantially identical Company 101/4%
Senior Secured Notes due 2004 that the Company registered with the Securities
and Exchange Commission (the "Original Exchange Notes").
F. The Original Notes were secured by, and the Original Exchange
Notes currently are secured by, (i) security interests in certain of the
Company's equipment, fixtures and general intangibles, including trademarks,
and mortgages on certain of the Company's owned real property, and the
proceeds of the foregoing, and (ii) a security interest in and a pledge of
all of the capital stock of the Company's future subsidiaries (collectively,
the "Original Indenture Collateral").
G. The Additional Notes (and, upon the completion of the
Additional Exchange, the Additional Exchange Notes) also will be secured by
the Original Indenture Collateral.
H. In addition, upon the consummation of the SFG Acquisition, the
Original Exchange Notes and the Additional Notes (and, upon the completion of
the Additional Exchange, the Additional Exchange Notes) also will be secured
by (i) security interests in certain of the SFG Entities' equipment, fixtures
and general intangibles, including trademarks, and the proceeds of the
foregoing, and (ii) a security interest in and a pledge of all of the capital
stock of each of the SFG Entities and all of the capital stock of any of the
SFG Entities' future subsidiaries.
I. Concurrently with the Additional Offering, the Company is
soliciting the consent of the holders of the Original Exchange Notes to
certain amendments to the Indenture in order to permit, among other things,
the sale of the Additional Notes and the consummation of the SFG Acquisition;
and the Company intends to pay a reasonable consent fee to all holders that
grant their consent to such amendment of the Indenture.
J. Concurrently with the SFG Acquisition and the Additional
Offering, the Company may amend its Credit Facility to increase the aggregate
amount which the Company may borrow from time to time thereunder from
$20,000,000 to $25,000,000 (the "First Amendment to Credit Facility").
K. Whether or not the Company amends the Credit Facility to
increase the maximum amount available thereunder, the Company will, upon the
consummation of the SFG Acquisition, grant, as additional security under the
Credit Facility, a security interest in the SFG Entities' accounts, raw
materials and finished goods inventory.
NOW, THEREFORE, in consideration of the premises and the agreements
contained herein, the undersigned hereby agree as follows:
1. Section 1 of the Securities Purchase Agreement is hereby
amended by adding the following definitions:
"Additional Exchange" has the meaning ascribed to such term in Recital
B of the Fourth Amendment.
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"Additional Exchange Notes" has the meaning ascribed to such term in
Recital B of the Fourth Amendment.
"Additional Notes" has the meaning ascribed to such term in Recital B
of the Fourth Amendment.
"Additional Offering" has the meaning ascribed to such term in Recital
B of the Fourth Amendment.
"Fourth Amendment" means the Fourth Amendment to this Agreement, dated
as of October 31, 1998.
"Original Exchange Notes" has the meaning ascribed to such term in
Recital E of the Fourth Amendment.
"Original Notes" has the meaning ascribed to such term in Recital D of
the Fourth Amendment.
"SFG Acquisition" has the meaning ascribed to such term in Recital A
of the Fourth Amendment.
"SFG Entities" has the meaning ascribed to such term in Recital A of
the Fourth Amendment.
"SFG Stock Purchase Agreement" has the meaning ascribed to such term
in Recital A of the Fourth Amendment.
2. Section 1 of the Securities Purchase Agreement is hereby
further amended by deleting the definitions of "Bank Collateral" and
"Indenture Collateral" in their entirety.
3. Section 1 of the Securities Purchase Agreement is hereby
further amended by amending and restating the definition of "EBITDA" set
forth therein in its entirety as follows:
"EBITDA" means, for any period, Consolidated Net Income for such
period (a) PLUS all amounts deducted in determining such Consolidated
Net Income on account of (i) Consolidated Interest Expense, (ii) taxes
based on or measured by income, (iii) depreciation expense, (iv)
amortization expense (including, without limitation, amortization
expense related to the write-up in the Book Value of any assets due to
goodwill or unallocated purchase price and other amortization or
depreciation arising out of the transactions related to Holdings'
acquisition of the Company, to the extent such adjustments are made
pursuant to APB Nos. 16 and 17 and are deducted in determining
Consolidated Net Income for such period), (v) all Management Fees
accrued during such period, (vi) the non-cash portion of expenses
under the SAR Agreements and any Permitted Stock Option Plan and (vii)
non-capital expenditures made in connection with the SFG Acquisition
and the consolidation of the SFG Entities' operations into the
Company's operations (provided that such non-capital
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expenditures are not in excess of the amounts therefor described in
that certain Memorandum dated September 11, 1998 (the "SFG Acquisition
Memorandum") from Adam E. Max and Ted A. Shepherd to John W. Jordan
II, Thomas H. Quinn, Raymond F. Henze III and Jeffrey J. Rosen), (b)
MINUS all Management Fees paid or (to the extent all covenants
restricting the payment of Management Fees will be satisfied) to be
paid with respect to such period, all as determined for Holdings and
its Subsidiaries on a consolidated basis in accordance with GAAP.
4. Section 1 of the Securities Purchase Agreement is hereby further
amended by amending and restating the definition of "Fixed Charges" set forth
therein in its entirety as follows:
"Fixed Charges" shall mean, for any period, without duplication,
Consolidated Interest Expense for such period, (a) PLUS (i) scheduled
payments of principal of all Indebtedness for borrowed money of
Holdings and its Subsidiaries during such period, (ii) capital
expenditures made during such period (reduced by the aggregate amount
of Net Cash Proceeds received by the Company and its Subsidiaries
during such period in respect of sales of capital assets), and (iii)
payments actually paid in cash with respect to such period with
respect to the SAR Agreements, or notes issued pursuant thereto, and
preferred stock, (b) MINUS all capital expenditures made in connection
with the SFG Acquisition and the consolidation of the SFG Entities'
operations into the Company's operations (provided that such capital
expenditures are not in excess of the amounts therefor described in
the SFG Acquisition Memorandum) all as determined for Holdings and its
Subsidiaries on a consolidated basis in accordance with GAAP.
5. Section 1 of the Securities Purchase Agreement is hereby further
amended by amending and restating the definition of "Senior Notes" in its
entirety as follows:
"Senior Notes" means, collectively, (i) the Original Exchange Notes,
(ii) the Additional Notes, if any, that are not exchanged for
Additional Exchange Notes pursuant to the Additional Exchange, and
(iii) upon the consummation of the Additional Exchange, the Additional
Exchange Notes.
6. The second paragraph of Section 6.11 of the Securities Purchase
Agreement is hereby amended by replacing the word "direct" where it appears
therein with "directly or indirectly, wholly-owned".
7. Clause (f) of Section 7.4 of the Securities Purchase Agreement is
hereby amended by deleting the reference therein to "permitted by Section 7.7".
8. Section 7.6 of the Securities Purchase Agreement is hereby
amended by adding the following to the end thereof:
"Notwithstanding the foregoing, there shall be excluded from the
prohibition on Investments under this Section 7.6 the consummation of
the SFG Acquisition and the transactions contemplated by the SFG Stock
Purchase Agreement."
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9. Effective as of the Effective Date (as hereinafter defined), in
consideration of the representations, warranties, covenants and agreements of
Holdings and the Company set forth in this Amendment, the Purchasers hereby (a)
consent to each of the following:
(i) the consummation of the SFG Acquisition and the execution,
delivery and performance by the Company of the SFG Stock
Purchase Agreement;
(ii) the consummation of the Additional Offering of the
Additional Notes, the amendment of the Indenture required
in connection therewith and the granting of the additional
security interests contemplated by the Additional Offering
(including the incurrence of indebtedness, the granting of
security interests, the creation of Liens and the payment
of fees and expenses related thereto (including the
consent fees paid in connection with the solicitation of
the holders of the Original Exchange Notes)) and the
subsequently contemplated Additional Exchange Offer; and
(iii) the execution, delivery and performance of, and the
consummation of the transactions contemplated by, the
First Amendment to Credit Facility (including the
incurrence of indebtedness, the granting of security
interests, the creation of Liens and the payment of fees
and expenses related thereto); and
(b) waive any Event of Default under the provisions of the
Securities Purchase Agreement that would be deemed to result
exclusively from such execution, delivery, performance and
consummation of the transactions described in clause (a) of this
paragraph 9.
10. To induce the Purchasers to enter into this Amendment, Holdings
and the Company, jointly and severally, represent and warrant to each Purchaser
that the following statements are true, correct and complete as of the date
hereof:
(a) Each of Holdings and the Company has all requisite
corporate power and authority to enter into this Amendment and to
perform its obligations under the Securities Purchase Agreement as
amended by this Amendment (the "Amended Agreement").
(b) The execution and delivery of this Amendment has been duly
authorized by all necessary corporate action by Holdings and the
Company.
(c) The execution and delivery by each of Holdings and the
Company of this Amendment and the performance by Holdings and the
Company of their
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respective obligations under the Amended Agreement do not and will
not (i) violate any provision of any law, rule or regulation
applicable to Holdings, the Company or any of their respective
Subsidiaries, the organizational documents of Holdings, the Company
or any of their respective Subsidiaries or any order, judgment or
decree of any court or any agency or government binding on
Holdings, the Company or any of their respective Subsidiaries, (ii)
conflict with, result in a breach of, or constitute a default
under, any contractual obligation of Holdings, the Company or any
of their respective Subsidiaries, (iii) result in or require the
creation or imposition of any Lien upon any of their properties or
assets (other than Liens created pursuant to the Senior Financing
Documents or the Indenture), or (iv) require any approval of
stockholders or any approval or consent of any Person under any
contractual obligation of Holdings, the Company or any of their
respective Subsidiaries, except approvals and consents which have
been obtained on or before the Effective Date.
(d) This Amendment and the Amended Agreement are the legally
valid and binding obligations of each of Holdings and the Company
enforceable against such entity in accordance with their respective
terms.
(e) No event has occurred and is continuing which would
constitute an Event of Default.
11. This Amendment will become effective upon the consummation of
the SFG Acquisition and the Additional Offering (the "Effective Date").
12. Except as specifically amended by this Amendment, the
Securities Purchase Agreement shall remain in full force and effect and is
hereby ratified and confirmed. The execution, delivery and performance of
this Amendment shall not, except as expressly provided herein, constitute a
waiver of any provisions of, or operate as a waiver of any right, power or
remedy of the Purchasers under, the Securities Purchase Agreement.
13. This Amendment may be executed in any number of counterparts
and by the different parties hereto in separate counterparts, each of which
counterparts when executed and delivered shall be an original, but all of
which together shall constitute one and the same instrument.
14. THIS AMENDMENT AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES
HEREUNDER SHALL BE CONSTRUED IN ACCORDANCE WITH AND GOVERNED BY THE LAWS OF
THE STATE OF NEW YORK.
[signature pages follow]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fourth
Amendment to the Securities Purchase Agreement as of the date first above
written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Ted A. Shepherd
-------------------------------------------
Its: President and Chief Operating Officer
-------------------------------------------
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
-------------------------------------------
Its: President and Chief Operating Officer
-------------------------------------------
TCW SPECIAL PLACEMENTS FUND III
By: TCW Capital
Its: Managing General Partner
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
----------------------------------
Its: Managing Director
----------------------------------
TCW CAPITAL, as Investment Manager
pursuant to an Investment Management
Agreement dated as of June 19, 1989
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
---------------------------------
Its: Managing Director
---------------------------------
7
<PAGE>
TCW CAPITAL, as Investment Manager
pursuant to an Investment Management
Agreement dated as of April 18, 1990
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
--------------------------------
Its: Managing Director
--------------------------------
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Raymond F. Henze
--------------------------------
Its: Managing Director
--------------------------------
JZ EQUITY PARTNERS PLC
(f/k/a MCIT (EXISTING POOL) LIMITED)
By: /s/ James Jordan
--------------------------------
Its: Director
--------------------------------
WCT INVESTMENT PTE. LTD
By: /s/Lam Chih Tsung
-------------------------------------------
Its: Director
-------------------------------------------
JORDAN INDUSTRIES, INC.
By: /s/ Thomas H. Quinn
-------------------------------------------
Its: Director
-------------------------------------------
8
<PAGE>
Computation of Ratios of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Fiscal Year Ended Three Months Ended
--------------------------------------------------------------- -----------------------
August 31, August 26, August 31, August 30, August 29, November 28, November 29,
1994 1995 1996 1997 1998 1998 1997
---------- ---------- ---------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $ 8,913 $ 9,237 $ 9,455 $ 9,235 $ 10,346 $ 2,340 $ 2,295
Amortization of debt expense 933 957 720 661 681 169 183
Rental expense included in fixed
charges 4,548 4,342 3,949 3,802 3,721 828 876
-------- -------- -------- -------- -------- -------- --------
Total fixed charges $ 14,394 $ 14,536 $ 14,124 $ 13,698 $ 14,748 $ 3,337 $ 3,354
-------- -------- -------- -------- -------- -------- --------
Earnings:
Pre-tax (loss) income $(14,556) $ (5,672) $ (1,066) $ (921) $ 3,579 $ (2,578) $ (3,016)
Plus: fixed charges 14,394 14,536 14,124 13,698 14,748 3,337 3,354
-------- -------- -------- -------- -------- -------- --------
Total earnings $ (162) $ 8,864 $ 13,058 $ 12,777 $ 18,327 $ 759 $ 338
-------- -------- -------- -------- -------- -------- --------
Ratio of earnings to fixed charges n/a n/a n/a n/a 1.2 n/a n/a
-------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- --------
</TABLE>
<PAGE>
SUBSIDIARIES OF THE COMPANY
<TABLE>
<CAPTION>
JURISDICTION OF
SUBSIDIARIES INCORPORATION DOING BUSINESS AS
<S> <C> <C>
1. Sweet Factory Group, Inc. Delaware Sweet Factory Group, Inc.
2. Sweet Factory, Inc. Delaware Sweet Factory, Inc.
3. SF Properties, Inc. Delaware SF Properties, Inc.
4. SF Candy Company Delaware SF Candy Company
5. Mrs. Snyders Home Made Candies, Illinois Mrs. Snyders Home Made Candies,
Inc. Inc.
6. Fannie May Candy Company, Inc. Delaware Fannie May Candy Company, Inc.
7. Grandmother's Candy Shops, Inc. Illinois Grandmother's Candy Shops, Inc.
8. Archibald Home Made Candies, Inc. Illinois Archibald Home Made Candies,
Inc.
9. Archibald Box Corporation Illinois Archibald Box Corporation
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated October 16, 1998 in the Registration Statement
(Form S-4) and related Prospectus of Archibald Candy Corporation dated
February 5, 1999.
/s/ ERNST & YOUNG LLP
Chicago, Illinois
February 5, 1999
<PAGE>
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
Sweet Factory Group, Inc.:
We consent to the use of our report included herein and to the reference to
our firm under the heading "Experts" in the prospectus.
/s/ KPMG LLP
San Diego, California
February 5, 1999
<PAGE>
FORM T-1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
STATEMENT OF ELIGIBILITY
UNDER THE TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
CHECK IF AN APPLICATION TO DETERMINE
ELIGIBILITY OF A TRUSTEE PURSUANT TO
SECTION 305(b)(2) |__|
-----------
THE BANK OF NEW YORK
(Exact name of trustee as specified in its charter)
New York 13-5160382
(State of incorporation (I.R.S. employer
if not a U.S. national bank) identification no.)
One Wall Street, New York, N.Y. 10286
(Address of principal executive offices) (Zip code)
-----------
ARCHIBALD CANDY CORPORATION
(Exact name of obligor as specified in its charter)
Illinois 36-0743280
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Sweet Factory Group, Inc.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Sweet Factory, Inc.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
<PAGE>
SF Properties, Inc.
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
SF Candy Company
(Exact name of obligor as specified in its charter)
Delaware
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
1137 West Jackson Boulevard
Chicago, Illinois 60607
(Address of principal executive offices) (Zip code)
_____________
10-1/4% Senior Secured Notes due 2004
(Title of the indenture securities)
==============================================================================
<PAGE>
1. GENERAL INFORMATION. FURNISH THE FOLLOWING INFORMATION AS TO THE TRUSTEE:
(a) NAME AND ADDRESS OF EACH EXAMINING OR SUPERVISING AUTHORITY TO
WHICH IT IS SUBJECT.
<TABLE>
<CAPTION>
- --------------------------------------------------------------------------------
Name Address
- --------------------------------------------------------------------------------
<S> <C>
Superintendent of Banks of the State of 2 Rector Street, New York,
New York N.Y. 10006, and Albany, N.Y. 12203
Federal Reserve Bank of New York 33 Liberty Plaza, New York,
N.Y. 10045
Federal Deposit Insurance Corporation Washington, D.C. 20429
New York Clearing House Association New York, New York 10005
</TABLE>
(b) WHETHER IT IS AUTHORIZED TO EXERCISE CORPORATE TRUST POWERS.
Yes.
2. AFFILIATIONS WITH OBLIGOR.
IF THE OBLIGOR IS AN AFFILIATE OF THE TRUSTEE, DESCRIBE EACH SUCH
AFFILIATION.
None.
16. LIST OF EXHIBITS.
EXHIBITS IDENTIFIED IN PARENTHESES BELOW, ON FILE WITH THE COMMISSION,
ARE INCORPORATED HEREIN BY REFERENCE AS AN EXHIBIT HERETO, PURSUANT TO
RULE 7A-29 UNDER THE TRUST INDENTURE ACT OF 1939 (THE "ACT") AND
17 C.F.R. 229.10(d).
1. A copy of the Organization Certificate of The Bank of New York
(formerly Irving Trust Company) as now in effect, which contains the
authority to commence business and a grant of powers to exercise
corporate trust powers. (Exhibit 1 to Amendment No. 1 to Form T-1
filed with Registration Statement No. 33-6215, Exhibits 1a and 1b
to Form T-1 filed with Registration Statement No. 33-21672 and
Exhibit 1 to Form T-1 filed with Registration Statement No. 33-29637.)
4. A copy of the existing By-laws of the Trustee. (Exhibit 4 to
Form T-1 filed with Registration Statement No. 33-31019.)
6. The consent of the Trustee required by Section 321(b) of the Act.
(Exhibit 6 to Form T-1 filed with Registration Statement
No. 33-44051.)
7. A copy of the latest report of condition of the Trustee published
pursuant to law or to the requirements of its supervising or examining
authority.
<PAGE>
SIGNATURE
Pursuant to the requirements of the Act, the Trustee, The Bank of New
York, a corporation organized and existing under the laws of the State of New
York, has duly caused this statement of eligibility to be signed on its
behalf by the undersigned, thereunto duly authorized, all in The City of New
York, and State of New York, on the 27th day of January, 1999.
THE BANK OF NEW YORK
By: /s/ VAN K. BROWN
----------------------------------------
Name: VAN K. BROWN
Title: ASSISTANT VICE PRESIDENT
<PAGE>
Consolidated Report of Condition of
THE BANK OF NEW YORK
of 48 Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business June 30, 1998,
published in accordance with a call made by the Federal Reserve Bank of this
District pursuant to the provisions of the Federal Reserve Act.
<TABLE>
<CAPTION>
<S> <C>
Dollar Amounts
ASSETS in Thousands
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin $7,301,241
Interest-bearing balances 1,385,944
Securities:
Held-to-maturity securities 1,000,737
Available-for-sale securities 4,240,655
Federal funds sold and Securities purchased under
agreements to resell 971,453
Loans and lease financing receivables:
Loans and leases, net of unearned income 38,788,269
LESS: Allowance for loan and lease losses 632,875
LESS: Allocated transfer risk reserve 0
Loans and leases, net of unearned income, allowance, and reserve 38,155,394
Assets held in trading accounts 1,307,562
Premises and fixed assets (including capitalized leases) 670,445
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
Other real estate owned 13,598
Investments in unconsolidated subsidiaries and associated companies 215,024
Customers' liability to this bank on acceptances outstanding 974,237
Intangible assets 1,102,625
Other assets 1,944,777
-----------
Total assets
$59,283,692
===========
LIABILITIES
Deposits:
In domestic offices $26,930,258
Noninterest-bearing 11,579,390
Interest-bearing 15,350,868
In foreign offices, Edge and Agreement subsidiaries, and IBFs 16,117,854
Noninterest-bearing 187,464
Interest-bearing 15,930,390
Federal funds purchased and Securities sold under agreements to repurchase 2,170,238
Demand notes issued to the U.S.Treasury 300,000
Trading liabilities 1,310,867
Other borrowed money:
With remaining maturity of one year or less 2,549,479
With remaining maturity of more than one year through three years 0
</TABLE>
-6-
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
With remaining maturity of more than three years 46,654
Bank's liability on acceptances executed and outstanding 983,398
Subordinated notes and debentures 1,314,000
Other liabilities 2,295,520
-----------
Total liabilities $54,018,268
===========
EQUITY CAPITAL
Common stock 1,135,284
Surplus 731,319
Undivided profits and capital reserves 3,385,227
Net unrealized holding gains (losses) on available-for-sale securities 51,233
Cumulative foreign currency translation adjustments (37,639)
-----------
Total equity capital 5,265,424
-----------
Total liabilities and equity capital $59,283,692
===========
</TABLE>
I, Robert E. Keilman, Senior Vice President and Comptroller of the
above-named bank do hereby declare that this Report of Condition has been
prepared in conformance with the instructions issued by the Board of
Governors of the Federal Reserve System and is true to the best of my
knowledge and belief.
Robert E. Keilman
We, the undersigned directors, attest to the correctness of this Report
of Condition and declare that it has been examined by us and to the best of
our knowledge and belief has been prepared in conformance with the
instructions issued by the Board of Governors of the Federal Reserve System
and is true and correct.
-7-
<PAGE>
J. Carter Bacot Directors
Thomas A. Renyi
Alan R. Griffith
-8-
<PAGE>
LETTER OF TRANSMITTAL
ARCHIBALD CANDY CORPORATION
OFFER TO EXCHANGE ITS
10 1/4% SERIES B SENIOR SECURED NOTES DUE 2004
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/4% SERIES A SENIOR SECURED NOTES DUE 2004
PURSUANT TO THE PROSPECTUS DATED , 1999
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
- --------------------------------------------------------------------------------
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSIONS
(Eligible Institutions Only)
The Bank of New York
101 Barclay Street, 7E (212) ________
New York, New York 10286
Attention: Reorganization Section
BY HAND OR OVERNIGHT DELIVERY TO CONFIRM BY TELEPHONE
OR FOR INFORMATION CALL:
The Bank of New York
101 Barclay Street (212) ________
Corporate Trust Services Window
Ground Level
Attention: Reorganization Section
-----------------------------
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE OR TRANSMISSION OF THIS LETTER OF TRANSMITTAL VIA FACSIMILE TO A
NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID DELIVERY.
THE INSTRUCTIONS CONTAINED HEREIN SHOULD BE READ CAREFULLY BEFORE THIS
LETTER OF TRANSMITTAL IS COMPLETED.
Capitalized terms used but not defined herein shall have the same meanings
given them in the Prospectus (as defined below).
This Letter of Transmittal is to be completed either if (a) certificates
are to be forwarded herewith or (b) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth under "The Exchange
Offer--Procedures for Tendering Outstanding Notes" in the Prospectus and an
Agent's Message (as defined below) is not delivered. Certificates, or
book-entry confirmation of a book-entry transfer of such Outstanding Notes
into the Exchange Agent's account at The Depository Trust Company ("DTC"), as
well as this Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees, and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to the Expiration
Date. Tenders by book-entry transfer may also be made by delivering an
Agent's Message in lieu of this Letter of Transmittal. The term "book-entry
confirmation" means a confirmation of a book-entry transfer of Outstanding
Notes into the Exchange Agent's account at DTC. The term "Agent's Message"
means a message, transmitted by DTC to and received by the Exchange Agent and
forming a part of a book-entry confirmation, which states that DTC has
received an express acknowledgment from the tendering participant, which
acknowledgment states that such participant has received and agrees to be
bound by this Letter of Transmittal and that Archibald Candy Corporation, an
Illinois corporation (the "Company"), may enforce this Letter of Transmittal
against such participant.
Holders (as defined below) of Outstanding Notes whose certificates (the
"Certificates") for such Outstanding Notes are not immediately available or
who cannot deliver their Certificates and all other required documents to the
Exchange Agent on or prior to the Expiration Date (as defined in the
Prospectus) or who cannot complete the procedures for book-entry transfer on
a timely basis, must tender their Outstanding Notes according to the
guaranteed delivery procedures set forth in "The Exchange Offer--Procedures
for Tendering Outstanding Notes" in the Prospectus.
DELIVERY OF DOCUMENTS TO THE BOOK-ENTRY TRANSFER FACILITY DOES NOT
CONSTITUTE DELIVERY TO THE EXCHANGE AGENT.
<PAGE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY
ALL TENDERING HOLDERS COMPLETE THIS BOX:
<TABLE>
<CAPTION>
- ------------------------------------------------------------------------------------------------------------
DESCRIPTION OF OUTSTANDING NOTES
- ------------------------------------------------------------------------------------------------------------
IF BLANK, PLEASE PRINT NAME AND ADDRESS OUTSTANDING NOTES
OF REGISTERED HOLDER(S) (ATTACH ADDITIONAL LIST IF NECESSARY)
- ------------------------------------------------------------------------------------------------------------
AGGREGATE PRINCIPAL AMOUNT
PRINCIPAL AMOUNT OF OUTSTANDING
CERTIFICATE OF OUTSTANDING NOTES TENDERED (IF
NUMBER(S)* NOTES LESS THAN ALL)**
-------------------------------------------------------------
<S> <C> <C> <C>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
TOTAL:
- ------------------------------------------------------------------------------------------------------------
* Need not be completed by book-entry Holders.
** Outstanding Notes may be tendered in whole or in part in multiples of
$1,000. All Outstanding Notes held shall be deemed tendered unless a
lesser number is specified in this column. See Instruction 4.
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED OUTSTANDING NOTES ARE BEING DELIVERED BY BOOK-ENTRY
TRANSFER MADE TO THE ACCOUNT MAINTAINED BY THE EXCHANGE AGENT WITH DTC AND
COMPLETE THE FOLLOWING:
Name of Tendering Institution _____________________________________________
DTC Account Number _________________________ Transaction Code Number ______
/ / CHECK HERE AND ENCLOSE A PHOTOCOPY OF THE NOTICE OF GUARANTEED DELIVERY IF
TENDERED OUTSTANDING NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE OF
GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE AGENT AND COMPLETE THE
FOLLOWING (SEE INSTRUCTION 1):
Name(s) of Registered Holder(s) ___________________________________________
Window Ticket Number (if any) _____________________________________________
Date of Execution of Notice of Guaranteed Delivery ________________________
Name of Institution which Guaranteed Delivery _____________________________
If Guaranteed Delivery is to be made by Book-Entry Transfer:
Name of Tendering Institution _____________________________________________
DTC Account Number ________________________ Transaction Code Number _______
/ / CHECK HERE IF TENDERED BY BOOK-ENTRY TRANSFER AND NON-EXCHANGED OUTSTANDING
NOTES ARE TO BE RETURNED BY CREDITING THE DTC ACCOUNT NUMBER SET FORTH
ABOVE.
/ / CHECK HERE IF YOU ARE A BROKER-DEALER WHO ACQUIRED THE OUTSTANDING NOTES
FOR ITS OWN ACCOUNT AS A RESULT OF MARKET MAKING OR OTHER TRADING
ACTIVITIES (A "PARTICIPATING BROKER-DEALER") AND WISH TO RECEIVE 10
ADDITIONAL COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR
SUPPLEMENTS THERETO.
Name: _______________________________________________________________________
Address: ____________________________________________________________________
2
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Archibald Candy Corporation, an Illinois
corporation (the "Company"), the above described principal amount of the
Company's 10 1/4% Series A Senior Secured Notes due 2004 (the "Outstanding
Notes") in exchange for an equivalent amount of the Company's 10 1/4% Series B
Senior Secured Notes due 2004 (the "Exchange Notes") which have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), upon the
terms and subject to the conditions set forth in the Prospectus dated
_____________, 1999 (as the same may be amended or supplemented from time to
time, the "Prospectus"), receipt of which is hereby acknowledged, and in this
Letter of Transmittal (which, together with the Prospectus, constitute the
"Exchange Offer").
Subject to and effective upon the acceptance for exchange of all or any
portion of the Outstanding Notes tendered herewith in accordance with the terms
and conditions of the Exchange Offer (including, if the Exchange Offer is
extended or amended, the terms and conditions of any such extension or
amendment), the undersigned hereby sells, assigns and transfers to or upon the
order of the Company all right, title and interest in and to such Outstanding
Notes as are being tendered herewith. The undersigned hereby irrevocably
constitutes and appoints the Exchange Agent as its agent and attorney-in-fact
(with full knowledge that the Exchange Agent is also acting as agent of the
Company in connection with the Exchange Offer) with respect to the tendered
Outstanding Notes, with full power of substitution (such power of attorney being
deemed to be an irrevocable power coupled with an interest) subject only to the
right of withdrawal described in the Prospectus, to (i) deliver Certificates for
Outstanding Notes to the Company together with all accompanying evidences of
transfer and authenticity to, or upon the order of, the Company, upon receipt by
the Exchange Agent, as the undersigned's agent, of the Exchange Notes to be
issued in exchange for such Outstanding Notes, (ii) present Certificates for
such Outstanding Notes for transfer, and to transfer the Outstanding Notes on
the books of the Company, and (iii) receive for the account of the Company all
benefits and otherwise exercise all rights of beneficial ownership of such
Outstanding Notes, all in accordance with the terms and conditions of the
Exchange Offer.
The undersigned hereby represents and warrants that the undersigned has
full power and authority to tender, exchange, sell, assign and transfer the
Outstanding Notes tendered hereby and that, when the same are accepted for
exchange, the Company will acquire good, marketable and unencumbered title
thereto, free and clear of all liens, restrictions, charges and encumbrances,
and that the Outstanding Notes tendered hereby are not subject to any adverse
claims or proxies. The undersigned will, upon request, execute and deliver any
additional documents deemed by the Company or the Exchange Agent to be necessary
or desirable to complete the exchange, assignment and transfer of the
Outstanding Notes tendered hereby, and the undersigned will comply with its
obligations under the Registration Rights Agreement. The undersigned has read
and agrees to all of the terms of the Exchange Offer.
The name(s) and address(es) of the registered Holder(s) of the Outstanding
Notes tendered hereby should be printed above, if they are not already set forth
above, as they appear on the Certificates representing such Outstanding Notes.
The Certificate number(s) and the Outstanding Notes that the undersigned wishes
to tender should be indicated in the appropriate boxes above.
If any tendered Outstanding Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if Certificates are submitted for more
Outstanding Notes than are tendered or accepted for exchange, Certificates for
such nonexchanged or nontendered Outstanding Notes will be returned (or, in the
case of Outstanding Notes tendered by book-entry transfer, such Outstanding
Notes will be credited to an account maintained at DTC), without expense to the
tendering Holder, promptly following the expiration or termination of the
Exchange Offer.
The undersigned understands that tenders of Outstanding Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus and in the instructions attached
hereto will, upon the Company's acceptance for exchange of such tendered
Outstanding Notes, constitute a binding agreement between the undersigned and
the Company upon the terms and subject to the conditions of the Exchange Offer.
The undersigned recognizes that, under certain circumstances set forth in the
Prospectus, the Company may not be required to accept for exchange any of the
Outstanding Notes tendered hereby.
3
<PAGE>
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Exchange Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, that such Exchange Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
Certificates representing Outstanding Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Outstanding Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special
Delivery Instructions," please deliver Exchange Notes to the undersigned at the
address shown below the undersigned's signature.
By tendering Outstanding Notes and executing this Letter of Transmittal or
effecting delivery of an Agent's Message in lieu thereof, the undersigned hereby
represents and agrees that (i) the undersigned is not an "affiliate" of the
Company, (ii) any Exchange Notes to be received by the undersigned are being
acquired in the ordinary course of its business, (iii) the undersigned has no
arrangement or understanding with any person to participate in a distribution
(within the meaning of the Securities Act) of Exchange Notes to be received in
the Exchange Offer, and (iv) if the undersigned is not a broker-dealer, the
undersigned is not engaged in, and does not intend to engage in, a distribution
(within the meaning of the Securities Act) of such Exchange Notes. The Company
may require the undersigned, as a condition to the undersigned's eligibility to
participate in the Exchange Offer, to furnish to the Company (or an agent
thereof) in writing information as to the number of "beneficial owners" within
the meaning of Rule 13d-3 under the Exchange Act on behalf of whom the
undersigned holds the Outstanding Notes to be exchanged in the Exchange Offer.
By tendering Outstanding Notes pursuant to the Exchange Offer and executing this
Letter of Transmittal or effecting delivery of an Agent's Message in lieu
thereof, a Holder of Outstanding Notes which is a broker-dealer represents and
agrees, consistent with certain interpretive letters issued by the staff of the
division of corporation finance of the Securities and Exchange Commission to
third parties, that such Outstanding Notes were acquired by such broker-dealer
for its own account as a result of market-making activities or other trading
activities, and it will deliver a Prospectus (as amended or supplemented from
time to time) meeting the requirements of the Securities Act in connection with
any resale of such Exchange Notes (provided that, by so acknowledging and by
delivering a Prospectus, such broker-dealer will not be deemed to admit that it
is an "underwriter" within the meaning of the Securities Act).
The Company has agreed that, subject to the provisions of the
Registration Rights Agreement, the Prospectus, as it may be amended or
supplemented from time to time, may be used by a Participating Broker-Dealer
(as defined below) in connection with resales of Exchange Notes received in
exchange for Outstanding Notes, where such Outstanding Notes were acquired by
such Participating Broker-Dealer for its own account as a result of
market-making activities or other trading activities, for a period ending 180
days after the Expiration Date (subject to extension under certain limited
circumstances described in the Prospectus) or, if earlier, when all such
Exchange Notes have been disposed of by such Participating Broker-Dealer. In
that regard, each broker-dealer who acquired Outstanding Notes for its own
account as a result of market-making or other trading activities (a
"Participating Broker-Dealer"), by tendering such Outstanding Notes and
executing this Letter of Transmittal or effecting delivery of an Agent's
Message in lieu thereof, agrees that, upon receipt of notice from the Company
of the occurrence of any event or the discovery of any fact which makes any
statement contained or incorporated by reference in the Prospectus untrue in
any material respect or which causes the Prospectus to omit to state a
material fact necessary in order to make the statements contained or
incorporated by reference therein, in light of the circumstances under which
they were made, not misleading or of the occurrence of certain other events
specified in the Registration Rights Agreement, such Participating
Broker-Dealer will suspend the sale of Exchange Notes pursuant to the
Prospectus until the Company has amended or supplemented the Prospectus to
correct such misstatement or omission and has furnished copies of the amended
or supplemented Prospectus to the Participating Broker-Dealer or the Company
has given notice that the sale of the Exchange Notes may be resumed, as the
case may be. If the Company gives such notice to suspend the sale of the
Exchange Notes, it shall extend the 180-day period referred to above during
which Participating Broker-Dealers are entitled to use the Prospectus in
connection with the resale of Exchange Notes by the number of days during the
period from and including the date of the giving of such notice to and
including the date when Participating Broker-Dealers shall have received
copies of the supplemented or amended Prospectus necessary to permit resales
of the Exchange Notes or to and including the date on which the Company has
given notice that the sale of Exchange Notes may be resumed, as the case may
be.
4
<PAGE>
As a result, a Participating Broker-Dealer who intends to use the
Prospectus in connection with resales of Exchange Notes received in exchange
for Outstanding Notes pursuant to the Exchange Offer must notify the Company,
or cause the Company to be notified, on or prior to the Expiration Date, that
it is a Participating Broker-Dealer. Such notice may be given in the space
provided above or may be delivered to the Exchange Agent at the address set
forth in the Prospectus under "The Exchange Offer--Exchange Agent."
The undersigned will, upon request, execute and deliver any additional
documents deemed by the Company to be necessary or desirable to complete the
sale, assignment and transfer of the Outstanding Notes tendered hereby. All
authority herein conferred or agreed to be conferred in this Letter of
Transmittal shall survive the death or incapacity of the undersigned and any
obligation of the undersigned hereunder shall be binding upon the heirs,
executors, administrators, personal representatives, trustees in bankruptcy,
legal representatives, successors and assigns of the undersigned. Except as
stated in the Prospectus, this tender is irrevocable.
The undersigned, by completing the box entitled "Description of
Outstanding Notes" above and signing this letter, will be deemed to have
tendered the Outstanding Notes as set forth in such box.
5
<PAGE>
- -------------------------------------------------------------------------------
IMPORTANT
HOLDERS: SIGN HERE
(PLEASE COMPLETE SUBSTITUTE FORM W-9 HEREIN)
_____________________________________________________________________________
_____________________________________________________________________________
SIGNATURE(S) OF HOLDERS(S)
Date: __________________________________________
(Must be signed by the registered holder(s) exactly as name(s)
appear(s) on Certificate(s) for the Outstanding Notes hereby tendered or on a
security position listing or by person(s) authorized to become registered
holder(s) by certificates and documents transmitted herewith. If signature is
by a trustee, executor, administrator, guardian, attorney-in-fact, officer of a
corporation or other person acting in a fiduciary or representative capacity,
please provide the following information and see Instruction 2 below.)
Name(s):___________________________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
(PLEASE PRINT)
Capacity (full title):_____________________________________________________
_____________________________________________________________________________
_____________________________________________________________________________
Address:___________________________________________________________________
_____________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.:______________________________________________
Taxpayer Identification or Social Security No.:___________________________
(SEE SUBSTITUTE FORM W-9 HEREIN)
GUARANTEE OF SIGNATURE(S)
(SEE INSTRUCTION 2 BELOW)
Authorized Signature:______________________________________________________
Name:_____________________________________________________________________
(PLEASE TYPE OR PRINT)
Title:______________________________________________________________
Name of Firm:____________________________________________________________
Address:_________________________________________________________________
__________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone No.:________________________________________
Date: __________________________________
- -------------------------------------------------------------------------------
6
<PAGE>
SPECIAL ISSUANCE INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--SEE INSTRUCTION 2)
TO BE COMPLETED ONLY if Exchange Notes or Outstanding Notes not tendered are to
be issued in the name of someone other than the registered Holder of the
Outstanding Notes whose name(s) appear(s) above.
/ / Outstanding Notes not tendered to:
/ / Exchange Notes to:
Name_____________________________________
(PLEASE PRINT)
Address__________________________________
_________________________________________
_________________________________________
(INCLUDE ZIP CODE)
_________________________________________
(TAX IDENTIFICATION OR SOCIAL
SECURITY NUMBER)
SPECIAL DELIVERY INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--SEE INSTRUCTION 2)
TO BE COMPLETED ONLY if Exchange Notes or Outstanding Notes not tendered are to
be sent to someone other than the registered Holder of the Outstanding Notes
whose name(s) appear(s) above, or such registered Holder at an address other
than that shown above.
/ / Outstanding Notes not tendered to:
/ / Exchange Notes to:
Name _______________________________________________
(PLEASE PRINT)
Address _____________________________________________
_____________________________________________________
_____________________________________________________
(INCLUDE ZIP CODE)
7
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS OF THE EXCHANGE OFFER
1. DELIVERY OF LETTER OF TRANSMITTAL AND CERTIFICATES; GUARANTEED DELIVERY
PROCEDURES. This Letter of Transmittal is to be completed either if (a)
Certificates are to be forwarded herewith or (b) tenders are to be made pursuant
to the procedures for tender by book-entry transfer set forth in "The Exchange
Offer--Procedures for Tendering Outstanding Notes" in the Prospectus and an
Agent's Message is not delivered. Certificates, or timely confirmation of a
book-entry transfer of such Outstanding Notes into the Exchange Agent's account
at DTC, as well as this Letter of Transmittal (or facsimile thereof), properly
completed and duly executed, with any required signature guarantees, and any
other documents required by this Letter of Transmittal, must be received by the
Exchange Agent at its address set forth herein on or prior to the Expiration
Date. Tenders by book-entry transfer may also be made by delivering an Agent's
Message in lieu thereof. Outstanding Notes may be tendered in whole or in part
in integral multiples of $1,000.
Holders who wish to tender their Outstanding Notes and (i) whose
Outstanding Notes are not immediately available or (ii) who cannot deliver their
Outstanding Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent on or prior to the Expiration Date or (iii) who cannot
complete the procedures for delivery by book-entry transfer on a timely basis,
may tender their Outstanding Notes by properly completing and duly executing a
Notice of Guaranteed Delivery pursuant to the guaranteed delivery procedures set
forth in "The Exchange Offer--Procedures for Tendering Outstanding Notes" in the
Prospectus. Pursuant to such procedures: (i) such tender must be made by or
through an Eligible Institution (as defined below); (ii) a properly completed
and duly executed Notice of Guaranteed Delivery, substantially in the form made
available by the Company, must be received by the Exchange Agent on or prior to
the Expiration Date; and (iii) the Certificates (or a book-entry confirmation)
representing all tendered Outstanding Notes, in proper form for transfer,
together with a Letter of Transmittal (or facsimile thereof), properly completed
and duly executed, with any required signature guarantees and any other
documents required by this Letter of Transmittal, must be received by the
Exchange Agent within three New York Stock Exchange trading days after the date
of execution of such Notice of Guaranteed Delivery, all as provided in "The
Exchange Offer--Procedures for Tendering Outstanding Notes" in the Prospectus.
The Notice of Guaranteed Delivery may be delivered by hand or transmitted
by facsimile or mail to the Exchange Agent, and must include a guarantee by an
Eligible Institution in the form set forth in such Notice of Guaranteed
Delivery. For Outstanding Notes to be properly tendered pursuant to the
guaranteed delivery procedure, the Exchange Agent must receive a Notice of
Guaranteed Delivery on or prior to the Expiration Date. As used herein and in
the Prospectus, "Eligible Institution" means a firm or other entity identified
in Rule 17Ad-15 under the Exchange Act as "an eligible guarantor institution,"
including (as such terms are defined therein) (i) a bank; (ii) a broker, dealer,
municipal securities broker or dealer or government securities broker or dealer;
(iii) a credit union; (iv) a national securities exchange, registered securities
association or clearing agency; or (v) a savings association that is a
participant in a Securities Transfer Association.
THE METHOD OF DELIVERY OF CERTIFICATES, THIS LETTER OF TRANSMITTAL AND
OTHER REQUIRED DOCUMENTS IS AT THE OPTION AND SOLE RISK OF THE TENDERING HOLDER,
AND THE DELIVERY WILL BE DEEMED MADE ONLY WHEN ACTUALLY RECEIVED BY THE EXCHANGE
AGENT. IF DELIVERY IS BY MAIL, REGISTERED MAIL WITH RETURN RECEIPT REQUESTED,
PROPERLY INSURED, OR OVERNIGHT DELIVERY SERVICE IS RECOMMENDED. IN ALL CASES,
SUFFICIENT TIME SHOULD BE ALLOWED TO ENSURE TIMELY DELIVERY.
The Company will not accept any alternative, conditional or contingent
tenders. Each tendering Holder, by execution of a Letter of Transmittal (or
facsimile thereof), waives any right to receive any notice of the acceptance of
such tender.
2. GUARANTEE OF SIGNATURES. No signature guarantee on this Letter of
Transmittal is required if:
i. this Letter of Transmittal is signed by the registered Holder
(which term, for purposes of this document, shall include any participant
in DTC whose name appears on a security position listing as the owner
8
<PAGE>
of the Outstanding Notes (the "Holder")) of Outstanding Notes tendered
herewith, unless such Holder(s) has completed either the box entitled
"Special Issuance Instructions" or the box entitled "Special Delivery
Instructions" above, or
ii. such Outstanding Notes are tendered for the account of a firm that
is an Eligible Institution.
In all other cases, an Eligible Institution must guarantee the signature(s)
on this Letter of Transmittal. See Instruction 5.
3. INADEQUATE SPACE. If the space provided in the box captioned
"Description of Outstanding Notes" is inadequate, the Certificate number(s)
and/or the principal amount of Outstanding Notes and any other required
information should be listed on a separate signed schedule which is attached to
this Letter of Transmittal.
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Outstanding Notes
will be accepted only in integral multiples of $1,000. If less than all the
Outstanding Notes evidenced by any Certificate submitted are to be tendered,
fill in the principal amount of Outstanding Notes which are to be tendered in
the box entitled "Principal Amount of Outstanding Notes Tendered." In such case,
new Certificate(s) for the remainder of the Outstanding Notes that were
evidenced by your old Certificate(s) will only be sent to the Holder of the
Outstanding Notes, promptly after the Expiration Date. All Outstanding Notes
represented by Certificates delivered to the Exchange Agent will be deemed to
have been tendered unless otherwise indicated.
Except as otherwise provided herein, tenders of Outstanding Notes may be
withdrawn at any time on or prior to the Expiration Date. In order for a
withdrawal to be effective on or prior to that time, a written, telegraphic,
telex or facsimile transmission of such notice of withdrawal must be timely
received by the Exchange Agent at one of its addresses set forth above or in the
Prospectus on or prior to the Expiration Date. Any such notice of withdrawal
must specify the name of the person who tendered the Outstanding Notes to be
withdrawn, the aggregate principal amount of Outstanding Notes to be withdrawn,
and (if Certificates for Outstanding Notes have been tendered) the name of the
registered Holder of the Outstanding Notes as set forth on the Certificate for
the Outstanding Notes, if different from that of the person who tendered such
Outstanding Notes. If Certificates for the Outstanding Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such Certificates for the Outstanding Notes, the tendering
Holder must submit the serial numbers shown on the particular Certificates for
the Outstanding Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Outstanding Notes tendered for the account of an Eligible Institution. If
Outstanding Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering Outstanding Notes," the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Outstanding
Notes, in which case a notice of withdrawal will be effective if delivered to
the Exchange Agent by written, telegraphic, telex or facsimile transmission.
Withdrawals of tenders of Outstanding Notes may not be rescinded. Outstanding
Notes properly withdrawn will not be deemed validly tendered for purposes of the
Exchange Offer, but may be retendered at any subsequent time on or prior to the
Expiration Date by following any of the procedures described in the Prospectus
under "The Exchange Offer--Procedures for Tendering Outstanding Notes."
All questions as to the validity, form and eligibility (including time of
receipt) of such withdrawal notices will be determined by the Company, in its
sole discretion, whose determination shall be final and binding on all parties.
The Company, any affiliates or assigns of the Company, the Exchange Agent or any
other person shall not be under any duty to give any notification of any
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification. Any Outstanding Notes which have been tendered but
which are withdrawn will be returned to the Holder thereof without cost to such
Holder promptly after withdrawal.
5. SIGNATURES ON LETTER OF TRANSMITTAL, ASSIGNMENTS AND ENDORSEMENTS. If
this Letter of Transmittal is signed by the registered Holder(s) of the
Outstanding Notes tendered hereby, the signature(s) must correspond exactly with
the name(s) as written on the face of the Certificate(s) without alteration,
enlargement or any change whatsoever.
9
<PAGE>
If any of Outstanding Notes tendered hereby are owned of record by two or
more joint owners, all such owners must sign this Letter of Transmittal.
If any tendered Outstanding Notes are registered in different name(s) on
several Certificates, it will be necessary to complete, sign and submit as many
separate Letters of Transmittal (or facsimiles thereof) as there are different
registrations of Certificates.
If this Letter of Transmittal or any Certificates or bond powers are signed
by trustees, executors, administrators, guardians, attorneys-in-fact, officers
of corporations or others acting in a fiduciary or representative capacity, such
persons should so indicate when signing and, unless waived by the Company, must
submit proper evidence satisfactory to the Company, in its sole discretion, of
each such person's authority to so act.
When this Letter of Transmittal is signed by the registered owner(s) of the
Outstanding Notes listed and transmitted hereby, no endorsement(s) of
Certificate(s) or separate bond power(s) are required unless Exchange Notes are
to be issued in the name of a person other than the registered Holder(s).
Signature(s) on such Certificate(s) or bond power(s) must be guaranteed by an
Eligible Institution.
If this Letter of Transmittal is signed by a person other than the
registered owner(s) of the Outstanding Notes listed, the Certificates must be
endorsed or accompanied by appropriate bond powers, signed exactly as the name
or names of the registered owner(s) appear(s) on the Certificates, and also must
be accompanied by such opinions of counsel, certifications and other information
as the Company or the Trustee for the Outstanding Notes may require in
accordance with the restrictions on transfer applicable to the Outstanding
Notes. Signatures on such Certificates or bond powers must be guaranteed by an
Eligible Institution.
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Exchange Notes are to
be issued in the name of a person other than the signer of this Letter of
Transmittal, or if Exchange Notes are to be sent to someone other than the
signer of this Letter of Transmittal or to an address other than that shown
above, the appropriate boxes on this Letter of Transmittal should be completed.
Certificates for Outstanding Notes not exchanged will be returned by mail or, if
tendered by book-entry transfer, by crediting the account indicated above
maintained at DTC. See Instruction 4.
7. IRREGULARITIES. The Company will determine, in its sole discretion,
all questions as to the form of documents, validity, eligibility (including time
of receipt) and acceptance for exchange of any tender of Outstanding Notes,
which determination shall be final and binding on all parties. The Company
reserves the absolute right to reject any and all tenders determined by it not
to be in proper form or the acceptance of which, or exchange for which, may, in
the view of counsel to the Company be unlawful. The Company also reserves the
absolute right, subject to applicable law, to waive any of the conditions of the
Exchange Offer set forth in the Prospectus under "The Exchange Offer--Conditions
to the Exchange Offer" or any conditions or irregularity in any tender of
Outstanding Notes of any particular Holder whether or not similar conditions or
irregularities are waived in the case of other Holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including this
Letter of Transmittal and the instructions hereto) will be final and binding.
No tender of Outstanding Notes will be deemed to have been validly made until
all irregularities with respect to such tender have been cured or waived. The
Company, any affiliates or assigns of the Company, the Exchange Agent, or any
other person shall not be under any duty to give notification of any
irregularities in tenders or incur any liability for failure to give such
notification.
8. QUESTIONS, REQUESTS FOR ASSISTANCE AND ADDITIONAL COPIES. Questions
and requests for assistance may be directed to the Exchange Agent at its address
and telephone number set forth on the front of this Letter of Transmittal.
Additional copies of the Prospectus, the Notice of Guaranteed Delivery and the
Letter of Transmittal may be obtained from the Exchange Agent or from your
broker, dealer, commercial bank, trust company or other nominee.
9. 31% BACKUP WITHHOLDING; SUBSTITUTE FORM W-9. Under the U.S. Federal
income tax law, a Holder whose tendered Outstanding Notes are accepted for
exchange is required to provide the Exchange Agent with such Holder's correct
taxpayer identification number ("TIN") on Substitute Form W-9 below. If the
Exchange Agent is not provided with the correct TIN, the Internal Revenue
Service (the "IRS") may subject the Holder or other payee
10
<PAGE>
to a $50 penalty. In addition, payments to such Holders or other payees with
respect to Outstanding Notes exchanged pursuant to the Exchange Offer may be
subject to 31% backup withholding.
The box in Part 2 of the Substitute Form W-9 may be checked if the
tendering Holder has not been issued a TIN and has applied for a TIN or intends
to apply for a TIN in the near future. If the box in Part 2 is checked, the
Holder or other payee must also complete the Certificate of Awaiting Taxpayer
Identification Number below in order to avoid backup withholding.
Notwithstanding that the box in Part 2 is checked and the Certificate of
Awaiting Taxpayer Identification Number is completed, the Exchange Agent will
withhold 31% of all payments made prior to the time a properly certified TIN is
provided to the Exchange Agent. The Exchange Agent will retain such amounts
withheld during the 60-day period following the date of the Substitute Form W-9.
If the Holder furnishes the Exchange Agent with its TIN within 60 days after the
date of the Substitute Form W-9, the amounts retained during the 60-day period
will be remitted to the Holder and no further amounts shall be retained or
withheld from payments made to the Holder thereafter. If, however, the Holder
has not provided the Exchange Agent with its TIN within such 60-day period,
amounts withheld will be remitted to the IRS as backup withholding. In
addition, 31% of all payments made thereafter will be withheld and remitted to
the IRS until a correct TIN is provided.
The Holder is required to give the Exchange Agent the TIN (e.g., social
security number or employer identification number) of the registered owner of
the Outstanding Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Outstanding Notes. If the Outstanding Notes
are registered in more than one name or are not in the name of the actual owner,
consult the enclosed "Guidelines for Certification of Taxpayer Identification
Number on Substitute Form W-9" for additional guidance on which number to
report.
Certain Holders (including, among others, corporations, financial
institutions and certain foreign persons) may not be subject to the backup
withholding and reporting requirements. Such Holders should nevertheless
complete the attached Substitute Form W-9 below, and write "exempt" on the face
thereof, to avoid possible erroneous backup withholding. A foreign person may
qualify as an exempt recipient by submitting a properly completed IRS Form W-8,
signed under penalties of perjury, attesting to that Holder's exempt status.
Please consult the enclosed "Guidelines for Certification of Taxpayer
Identification Number on Substitute Form W-9" for additional guidance on which
Holders are exempt from backup withholding.
Backup withholding is not an additional U.S. Federal income tax. Rather,
the U.S. Federal income tax liability of a person subject to backup withholding
will be reduced by the amount of tax withheld. If withholding results in an
overpayment of taxes, a refund may be obtained.
10. WAIVER OF CONDITIONS. The Company reserves the absolute right to
waive satisfaction of any or all conditions enumerated in the Prospectus.
11. NO CONDITIONAL TENDERS. No alternative, conditional or contingent
tenders will be accepted. All tendering Holders of Outstanding Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of Outstanding Notes for exchange.
Neither the Company, the Exchange Agent nor any other person is obligated
to give notice of any defect or irregularity with respect to any tender of
Outstanding Notes nor shall any of them incur any liability for failure to give
any such notice.
12. LOST, DESTROYED OR STOLEN CERTIFICATES. If any Certificate(s)
representing Outstanding Notes have been lost, destroyed or stolen, the Holder
should promptly notify the Exchange Agent. The Holder will then be instructed
as to the steps that must be taken in order to replace the Certificate(s). This
Letter of Transmittal and related documents cannot be processed until the
procedures for replacing lost, destroyed or stolen Certificate(s) have been
followed.
13. SECURITY TRANSFER TAXES. Holders who tender their Outstanding
Notes for exchange will not be obligated to pay any transfer taxes in
connection therewith. If, however, Exchange Notes are to be delivered to, or
are to be issued in the name of, any person other than the registered Holder
of the Outstanding Notes tendered, or if a transfer
11
<PAGE>
tax is imposed for any reason other than the exchange of Outstanding Notes in
connection with the Exchange Offer, then the amount of any such transfer tax
(whether imposed on the registered Holder or any other persons) will be
payable by the tendering Holder. If satisfactory evidence of payment of such
taxes or exemption therefrom is not submitted with the Letter of Transmittal,
the amount of such transfer taxes will be billed directly to such tendering
Holder.
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: THE BANK OF NEW YORK
- --------------------------------------------------------------------------------
PART 1--PLEASE PROVIDE
SUBSTITUTE YOUR TIN IN THE BOX AT TIN:___________________
FORM W-9 RIGHT AND CERTIFY BY SOCIAL SECURITY NUMBER
DEPARTMENT OF THE SIGNING AND DATING OR EMPLOYER
TREASURY INTERNAL BELOW. IDENTIFICATION NUMBER
REVENUE SERVICE
-------------------------------------------------------
PART 2--TIN APPLIED FOR / /
PAYER'S REQUEST FOR
TAXPAYER
IDENTIFICATION NUMBER
("TIN") AND
CERTIFICATION
- --------------------------------------------------------------------------------
CERTIFICATION: UNDER THE PENALTIES OF PERJURY, I CERTIFY THAT:
(1) the number shown on this form is my correct Taxpayer Identification
Number (or I am waiting for a number to be issued to me).
(2) I am not subject to backup withholding either because: (a) I am exempt
from backup withholding, or (b) I have not been notified by the Internal
Revenue Service (the "IRS") that I am subject to backup withholding as a
result of a failure to report all interest or dividends, or (c) the IRS
has notified me that I am no longer subject to backup withholding, and
(3) any other information provided on this form is true and correct.
- --------------------------------------------------------------------------------
SIGNATURE _______________________ DATE ________________
You must cross out item (2) of the above certification if you have been
notified by the IRS that you are subject to backup withholding because of
underreporting of interest or dividends on your tax return and you have not
been notified by the IRS that you are no longer subject to backup withholding.
- --------------------------------------------------------------------------------
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN BACKUP WITHHOLDING
OF 31% OF ANY PAYMENTS MADE TO YOU IN CONNECTION WITH THE EXCHANGE OFFER.
PLEASE REVIEW THE ENCLOSED GUIDELINES FORM CERTIFICATION OF TAXPAYER
IDENTIFICATION NUMBER ON SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 2 OF SUBSTITUTE FORM W-9
- --------------------------------------------------------------------------------
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (a) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (b) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of the exchange, thirty-one
(31%) percent of all reportable payments made to me thereafter will be withheld
until I provide a number.
Signature ____________________________________ Date___________________
- --------------------------------------------------------------------------------
12
<PAGE>
NOTICE OF GUARANTEED DELIVERY
ARCHIBALD CANDY CORPORATION
OFFER TO EXCHANGE ITS
10 1/4% SERIES B SENIOR SECURED NOTES DUE 2004
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/4% SERIES A SENIOR SECURED NOTES DUE 2004
PURSUANT TO THE PROSPECTUS DATED , 1999
This Notice of Guaranteed Delivery, or one substantially equivalent to this
form, must be used to accept the Exchange Offer (as defined below) if (i)
certificates for the Company's Series A 101/4% Senior Secured Notes due 2004
(the "Outstanding Notes") are not immediately available, (ii) Outstanding Notes,
the Letter of Transmittal and all other required documents cannot be delivered
to The Bank of New York (the "Exchange Agent") on or prior to the Expiration
Date or (iii) the procedures for delivery by book-entry transfer cannot be
completed on a timely basis. This Notice of Guaranteed Delivery may be
delivered by hand, overnight courier or mail, or transmitted by facsimile
transmission, to the Exchange Agent. See "The Exchange Offer--Procedures for
Tendering Outstanding Notes" in the Prospectus. In addition, in order to
utilize the guaranteed delivery procedure to tender Outstanding Notes pursuant
to the Exchange Offer, a completed, signed and dated Letter of Transmittal
relating to the Outstanding Notes (or facsimile thereof) must also be received
by the Exchange Agent on or prior to the Expiration Date. Capitalized terms not
defined herein have the meanings assigned to them in the Prospectus.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSIONS:
(Eligible Institutions Only)
The Bank of New York
101 Barclay Street, 7E (212) _________
New York, New York 10286
Attention: Reorganization Section
BY HAND OR OVERNIGHT DELIVERY: TO CONFIRM BY TELEPHONE
OR FOR INFORMATION CALL:
The Bank of New York
101 Barclay Street (212) _________
Corporate Trust Services Window
Ground Level
Attention: Reorganization Section
----------------------------------
DELIVERY OF THIS NOTICE OF GUARANTEED DELIVERY TO AN ADDRESS OTHER THAN AS
SET FORTH ABOVE OR TRANSMISSION OF THIS NOTICE OF GUARANTEED DELIVERY VIA
FACSIMILE TO A NUMBER OTHER THAN AS SET FORTH ABOVE WILL NOT CONSTITUTE A VALID
DELIVERY.
THIS NOTICE OF GUARANTEED DELIVERY IS NOT TO BE USED TO GUARANTEE
SIGNATURES. IF A SIGNATURE ON A LETTER OF TRANSMITTAL IS REQUIRED TO BE
GUARANTEED BY AN "ELIGIBLE INSTITUTION" UNDER THE INSTRUCTIONS THERETO, SUCH
SIGNATURE GUARANTEE MUST APPEAR IN THE APPLICABLE SPACE PROVIDED IN THE
SIGNATURE BOX ON THE LETTER OF TRANSMITTAL.
<PAGE>
Ladies and Gentlemen:
The undersigned hereby tenders to Archibald Candy Corporation, an Illinois
corporation (the "Company"), upon the terms and subject to the conditions set
forth in the Prospectus dated , 1999 (as the same may be amended or
supplemented from time to time, the "Prospectus"), and the related Letter of
Transmittal (which together constitute the "Exchange Offer"), receipt of which
is hereby acknowledged, the aggregate principal amount of Outstanding Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer--Procedures for Tendering
Outstanding Notes."
Aggregate Principal Amount Name(s) of Registered Holder(s):________________
Amount Tendered: $_______________* _____________________________________
Certificate No(s) (if available): _____________________________________________
_______________________________________________________________________________
$_____________________________________________________________________________
(Total Principal Amount Represented by Outstanding Notes Certificate(s))
If Outstanding Notes will be tendered by book-entry transfer, provide the
following information:
DTC Account Number: ___________________________________________________________
Date:__________________________________________________________________________
_______________________
* Must be in integral multiples of $1,000.
______________________________________________________________________________
All authority herein conferred or agreed to be conferred shall survive the
death or incapacity of the undersigned and every obligation of the undersigned
hereunder shall be binding upon the heirs, personal representatives, successors
and assigns of the undersigned.
______________________________________________________________________________
PLEASE SIGN HERE
X_________________________________________________ ________________________
X_________________________________________________ ________________________
Signature(s) of Owner(s) or Authorized Signatory Date
Area Code and Telephone Number:_______________________________________________
Must be signed by the holder(s) of the Outstanding Notes as their
name(s) appear(s) on certificates for Outstanding Notes or on a security
position listing, or by person(s) authorized to become registered holder(s)
by endorsement and documents transmitted with this Notice of Guaranteed
Delivery. If signature is by a trustee, executor, administrator, guardian,
attorney-in-fact, officer or other person acting in a fiduciary or
representative capacity, such person must set forth his or her full title
below and, unless waived by the Company, provide proper evidence satisfactory
to the Company of such person's authority to so act.
<PAGE>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
Name(s): _________________________________________________________________
_________________________________________________________________
_________________________________________________________________
_________________________________________________________________
Capacity: _________________________________________________________________
Address(es): _________________________________________________________________
_________________________________________________________________
GUARANTEE OF DELIVERY
(NOT TO BE USED FOR SIGNATURE GUARANTEE)
The undersigned, a firm or other entity identified in Rule 17Ad-15 under
the Securities Exchange Act of 1934, as amended, as an "eligible guarantor
institution," including (as such terms are defined therein): (i) a bank; (ii) a
broker, dealer, municipal securities broker, government securities broker or
government securities dealer; (iii) a credit union; (iv) a national securities
exchange, registered securities association or clearing agency; or (v) a savings
association that is a participant in a Securities Transfer Association (each of
the foregoing being referred to as an "Eligible Institution"), hereby guarantees
to deliver to the Exchange Agent, at one of its addresses set forth above,
either the Outstanding Notes tendered hereby in proper form for transfer, or
confirmation of the book-entry transfer of such Outstanding Notes to the
Exchange Agent's account at The Depository Trust Company ("DTC"), pursuant to
the procedures for book-entry transfer set forth in the Prospectus, in either
case together with one or more properly completed and duly executed Letter(s) of
Transmittal (or facsimile thereof) and any other required documents within three
New York Stock Exchange trading days after the date of execution of this Notice
of Guaranteed Delivery.
The undersigned acknowledges that it must deliver the Letter(s) of
Transmittal (or facsimile thereof) and the Outstanding Notes tendered hereby to
the Exchange Agent within the time period set forth above and that failure to do
so could result in a financial loss to the undersigned.
__________________________________________ ________________________________
Name of Firm (Please Type or Print) Authorized Signature
__________________________________________ ________________________________
Address Title
__________________________________________ ________________________________
Zip Code Area Code and Telephone Number
Date:_________________________________________
NOTE: DO NOT SEND CERTIFICATES FOR OUTSTANDING NOTES WITH THIS FORM.
CERTIFICATES FOR OUTSTANDING NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
<PAGE>
ARCHIBALD CANDY CORPORATION
INSTRUCTION TO REGISTERED HOLDER AND/OR DEPOSITORY
TRUST COMPANY PARTICIPANT FROM BENEFICIAL OWNER
FOR
OFFER TO EXCHANGE ITS
10 1/4% SERIES B SENIOR SECURED NOTES DUE 2004
FOR ANY AND ALL OF ITS OUTSTANDING
10 1/4% SERIES A SENIOR SECURED NOTES DUE 2004
THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON ______________, 1999, UNLESS THE OFFER IS EXTENDED. TENDERS MAY BE
WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION DATE.
To Registered Holder and/or Depository Trust Company Participant:
The undersigned hereby acknowledges receipt of the Prospectus
dated , 1999 (the "Prospectus") of Archibald Candy Corporation, an
Illinois corporation (the "Company"), and the accompanying Letter of
Transmittal (the "Letter of Transmittal"), that together constitute the
Company's offer (the "Exchange Offer") to exchange its 10 1/4% Series B
Senior Secured Notes due 2004, (the "Exchange Notes") for all of its
outstanding 10 1/4% Series A Senior Secured Notes due 2004 (the "Outstanding
Notes"). Capitalized terms used but not defined herein have the meanings
ascribed to them in the Prospectus.
This will instruct you, the registered holder and/or Depository Trust
Company Participant, as to the action to be taken by you relating to the
Exchange Offer with respect to the Outstanding Notes held by you for the account
of the undersigned.
The aggregate face amount of the Outstanding Notes held by you for the
account of the undersigned is (FILL IN AMOUNT):
$___________________ of the 10 1/4% Senior Secured Notes due 2004.
With respect to the Exchange Offer, the undersigned hereby instructs you
(CHECK APPROPRIATE BOX):
/ / To TENDER the following Outstanding Notes held by you for the account
of the undersigned (INSERT PRINCIPAL AMOUNT OF OUTSTANDING NOTES TO BE
TENDERED (IF LESS THAN ALL)): $________________
/ / NOT to TENDER any Outstanding Notes held by you for the account of the
undersigned.
If the undersigned instructs you to tender the Outstanding Notes held by
you for the account of the undersigned, it is understood that you are authorized
to make, on behalf of the undersigned (and the undersigned, by its signature
below, hereby makes to you), the representations and warranties contained in the
Letter of Transmittal that are to be made with respect to the undersigned as a
beneficial owner, including but not limited to the representations, that (i) the
undersigned is not an "affiliate" of the Company, (ii) any
1
<PAGE>
Exchange Notes to be received by the undersigned are being acquired in the
ordinary course of its business, (iii) the undersigned has no arrangement or
understanding with any person to participate in a distribution (within the
meaning of the Securities Act of 1933, as amended (the "Securities Act") of
Exchange Notes to be received in the Exchange Offer, and (iv) if the
undersigned is not a broker-dealer, the undersigned is not engaged in, and
does not intend to engage in, a distribution (within the meaning of the
Securities Act) of such Exchange Notes. The Company may require the
undersigned, as a condition to the undersigned's eligibility to participate
in the Exchange Offer, to furnish to the Company (or an agent thereof) in
writing information as to the number of "beneficial owners" within the
meaning of Rule 13d-3 under the Securities Exchange Act of 1934 on behalf of
whom the undersigned holds the Outstanding Notes to be exchanged in the
Exchange Offer. By tendering Outstanding Notes pursuant to the Exchange
Offer, a holder of Outstanding Notes which is a broker-dealer represents and
agrees, consistent with certain interpretive letters issued by the staff of
the Division of Corporation Finance of the Securities and Exchange Commission
to third parties, that such Outstanding Notes were acquired by such
broker-dealer for its own account as a result of market-making activities or
other trading activities, and it will deliver a Prospectus (as amended or
supplemented from time to time) meeting the requirements of the Securities
Act in connection with any resale of such Exchange Notes (provided that, by
so acknowledging and by delivering a Prospectus, such broker-dealer will not
be deemed to admit that it is an "underwriter" within the meaning of the
Securities Act).
SIGN HERE
_____________________________________________________________________________
NAME OF BENEFICIAL OWNER(S)
____________________________________________________________________________
____________________________________________________________________________
SIGNATURE
____________________________________________________________________________
____________________________________________________________________________
NAME(S) (PLEASE PRINT)
____________________________________________________________________________
____________________________________________________________________________
(ADDRESS)
____________________________________________________________________________
(TELEPHONE NUMBER)
____________________________________________________________________________
(TAXPAYER IDENTIFICATION OR SOCIAL SECURITY NUMBER)
____________________________________________________________________________
DATE
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