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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 6, 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 36-0743280
(State or other jurisdiction of SUBSIDIARIES (I.R.S. Employer
incorporation or organization) SWEET FACTORY GROUP, INC. Identification No.)
DELAWARE SWEET FACTORY, INC. 33-0771778
DELAWARE SF PROPERTIES, INC. 33-0470773
DELAWARE SF CANDY COMPANY 33-0741699
DELAWARE ARCHIBALD CANDY (CANADA) 33-0773045
CANADA CORPORATION --
(State or other jurisdiction of (Exact name of Registrant as (I.R.S. Employer
incorporation or organization) specified in its charter) Identification No.)
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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 AMOUNT OF
SECURITIES TO BE REGISTERED BE REGISTERED PER SECURITY(1) OFFERING PRICE REGISTRATION FEE
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10 1/4% Series B Senior Secured Notes due
2004...................................... $40,000,000 100% $40,000,000 $11,120
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 AUGUST 6, 1999
PROSPECTUS
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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ARCHIBALD CANDY CORPORATION
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[LOGOS] [LOGOS]
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EXCHANGE OFFER FOR
$40,000,000
10 1/4% SENIOR SECURED NOTES DUE 2004
GUARANTEED BY:
SWEET FACTORY GROUP, INC.
SWEET FACTORY, INC.
SF PROPERTIES, INC.
SF CANDY COMPANY
ARCHIBALD CANDY (CANADA) CORPORATION
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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 for an equivalent principal
amount of 10 1/4% Series B Senior Secured Notes due 2004 that will be registered
under the Securities Act of 1933. Your unregistered notes are not registered
under the Securities Act. Exchanging your unregistered notes for registered
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 to allow additional tenders of
unregistered notes.
- All unregistered notes that are validly tendered and not validly withdrawn
will be exchanged.
- Tenders of unregistered 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 any 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.
- We will not receive any proceeds from the exchange offer.
- The terms of the registered notes and the unregistered notes are
substantially identical, except that the unregistered notes are subject to
transfer restrictions and registration rights.
- Your unregistered notes and the registered notes are guaranteed by our
guarantor subsidiaries.
- There is no existing market for the registered notes, and we do not intend
to apply for their listing on any securities exchange.
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FOR A DISCUSSION OF CERTAIN FACTORS THAT YOU SHOULD CONSIDER PRIOR TO
TENDERING YOUR UNREGISTERED NOTES IN THE EXCHANGE OFFER, SEE "RISK FACTORS"
BEGINNING ON PAGE 13.
NEITHER THE SECURITIES AND EXCHANGE COMMISSION NOR ANY STATE SECURITIES
COMMISSION HAS APPROVED OR DISAPPROVED OF THESE 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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THIS PROSPECTUS INCORPORATES BY REFERENCE DOCUMENTS THAT ARE NOT CONTAINED
IN OR DELIVERED WITH THIS 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.......................................................................... 13
The Exchange Offer.................................................................... 24
Use of Proceeds....................................................................... 32
The Acquisition....................................................................... 33
Capitalization........................................................................ 34
Unaudited Pro Forma Condensed Consolidated Financial Statements....................... 35
Selected Historical Financial Data.................................................... 42
Management's Discussion and Analysis of Financial Condition and Results of
Operations.......................................................................... 44
Business.............................................................................. 52
Management............................................................................ 63
Capitalization of Holdings............................................................ 69
Principal Stockholders................................................................ 73
Certain Transactions.................................................................. 76
Description of the Revolving Credit Facility.......................................... 79
Description of the Registered Notes................................................... 81
Material United States Federal Tax Consequences....................................... 109
Plan of Distribution.................................................................. 111
Legal Matters......................................................................... 112
Experts............................................................................... 112
Where You Can Find More Information................................................... 112
Information Incorporated by Reference................................................. 113
Index to Financial Statements......................................................... F-1
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FANNIE MAY-REGISTERED TRADEMARK-, FANNY FARMER-REGISTERED TRADEMARK-, LAURA
SECORD-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
OUR SUBSIDIARY SWEET FACTORY GROUP, INC. 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.
IT LIKELY DOES NOT CONTAIN ALL THE INFORMATION THAT IS IMPORTANT TO YOU. THIS
PROSPECTUS INCLUDES THE TERMS OF THE REGISTERED 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. 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 THE LAURA
SECORD RETAIL BUSINESS OF NESTLE CANADA INC. OUR SUBSIDIARY ARCHIBALD CANDY
(CANADA) CORPORATION ACQUIRED SUBSTANTIALLY ALL OF THE ASSETS OF THE LAURA
SECORD RETAIL BUSINESS OF NESTLE ON JUNE 8, 1999. THE TERM "HOLDINGS" REFERS TO
FANNIE MAY HOLDINGS, INC., THE SOLE SHAREHOLDER OF THE COMPANY.
UNLESS OTHERWISE INDICATED, ALL DOLLAR AMOUNTS IN THIS PROSPECTUS ARE IN
U.S. DOLLARS. IN ADDITION, FOR PURPOSES OF THE PRO FORMA FINANCIAL STATEMENTS
AND INFORMATION PROVIDED HEREIN, WE HAVE CONVERTED ALL LAURA SECORD BALANCE
SHEETS FROM CANADIAN DOLLARS TO U.S. DOLLARS BASED ON THE CURRENCY EXCHANGE RATE
IN EFFECT ON THE DATE OF THE RESPECTIVE BALANCE SHEET, AND WE HAVE CONVERTED ALL
LAURA SECORD STATEMENTS OF OPERATIONS FROM CANADIAN DOLLARS TO U.S. DOLLARS
BASED ON THE AVERAGE CURRENCY EXCHANGE RATE IN EFFECT DURING THE PERIOD COVERED
BY SUCH STATEMENTS OF OPERATIONS. THE TERM "PRO FORMA" REFERS TO WHAT OUR
BUSINESS MIGHT HAVE LOOKED LIKE IF OUR RECENT ACQUISITIONS OF SWEET FACTORY
GROUP, INC. AND LAURA SECORD AND THE RELATED FINANCINGS HAD OCCURRED AT THE
BEGINNING OF THE APPLICABLE PERIOD WITH REGARD TO INCOME STATEMENT ITEMS OR, ON
THE DATE INDICATED, WITH REGARD TO BALANCE SHEET ITEMS. UNLESS OTHERWISE
INDICATED, ALL REFERENCES IN THIS PROSPECTUS TO STORES INCLUDE RETAIL STORES AND
KIOSKS, BUT NOT CARTS, AND ARE AS OF MAY 29, 1999, EXCEPT WITH RESPECT TO LAURA
SECORD, IN WHICH CASE REFERENCES TO STORES INCLUDE RETAIL STORES, BUT NOT KIOSKS
OR CARTS.
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 confectionery retail chains under the Fannie May, Fanny Farmer,
Sweet Factory and Laura Secord brand names. As of May 29, 1999, we operated 735
retail stores in 40 states and Canada: 233 Fannie May stores, 74 Fanny Farmer
stores, 253 Sweet Factory stores, and 175 Laura Secord stores. We also sell our
Fannie May, Fanny Farmer and Laura Secord branded products in approximately
9,300 third-party retail outlets. In addition, we sell our Fannie May and Fanny
Farmer branded products through our quantity order, mail order and fundraising
programs. We believe that consumers widely recognize our products for their
quality, freshness and value, and that the Fannie May, Fanny Farmer, Sweet
Factory and Laura Secord brand names are among the strongest in the
confectionery industry and offer significant opportunities for growth.
Our pro forma sales for fiscal year ended August 29, 1998 were approximately
$258.2 million. Pro forma earnings before interest, income taxes, depreciation
and amortization for the same period was approximately $35.1 million. For
further information, see "Unaudited Pro Forma Condensed Consolidated Financial
Statements."
THE EXCHANGE OFFER
On June 8, 1999, we sold $40.0 million of our 10 1/4% Series A Senior
Secured Notes due 2004 through an unregistered offering. Such unregistered notes
are guaranteed by our guarantor subsidiaries. At the same time as the
unregistered offering, we and our guarantor subsidiaries agreed to provide the
holders of the unregistered notes with registration rights pursuant to a
registration rights agreement dated as of July 2, 1997 between us and the
initial purchasers identified therein. Under the registration rights agreement,
we must deliver this prospectus to the holders of the unregistered notes and
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 unregistered notes until the exchange offer is completed. In
the exchange offer, you may exchange your unregistered notes for
1
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registered notes with substantially the same terms. The registered notes will be
guaranteed by our guarantor subsidiaries in the same manner as the unregistered
notes are guaranteed. You should read the discussion under the heading "Summary
of Terms of the Registered Notes" and "Description of the Registered Notes" for
further information regarding the registered notes.
We believe that holders of the registered notes may resell the registered
notes without complying with the registration and prospectus delivery provisions
of the Securities Act, if they meet certain conditions. You should read the
discussion under the headings "Summary of the Exchange Offer" and "The Exchange
Offer" for further information regarding the exchange offer and resales of the
registered notes.
We sold the unregistered notes to help finance the acquisition by our
subsidiary Archibald Candy (Canada) Corporation of the Laura Secord retail
business of Nestle for a total purchase price of $62.0 million (Cdn.), or
approximately $42.2 million (U.S.). You should read the discussion under the
heading "The Acquisition" for further information regarding the Laura Secord
acquisition.
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 fiscal 1992 to complement our existing Fannie May brand. Our
acquisition of Sweet Factory in December 1998 provided us with a leading name in
non-chocolate, bulk candy retail and our acquisition of Laura Secord in June
1999 provided us with the leading retailer of boxed chocolates in Canada. We
expect to continue to grow our brands with a strategy that includes the
following key elements:
- CONTINUE TO IMPROVE 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 is based on cross-marketing Fannie May and Sweet Factory
product offerings in Company-operated stores as well as increasing sales
of all of our 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
future sales growth for all of our brands without the overhead generally
associated with maintaining a retail store.
- PURSUE STRATEGIC ACQUISITIONS. We intend to continue to pursue selective
acquisitions that complement or provide further opportunities to use our
brands, manufacturing resources and/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 19 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 our EBITDA from $8.2
million in fiscal 1994 to $19.0 million in fiscal 1998.
2
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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 hold a majority of the voting common stock
of Holdings and maintain majority representation on our and Holdings' Boards of
Directors. 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 our and Holdings'
Boards of Directors.
Archibald Candy Corporation was incorporated in Illinois on May 31, 1922.
Our headquarters are located at 1137 West Jackson Boulevard, Chicago, Illinois
60607, and our telephone number is (312) 243-2700.
SUMMARY OF THE EXCHANGE OFFER
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Registration Rights............... We sold the unregistered notes on June 8, 1999 to
Jefferies & Company, Inc., the initial purchaser. The
initial purchaser then sold the unregistered notes to
institutional investors. At the same time as the initial
sale of the unregistered notes, we agreed to provide the
holders of the unregistered notes with the registration
rights contained in the registration rights agreement.
The registration rights agreement provides for the
exchange offer.
You may exchange your unregistered notes for registered
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 unregistered
notes.
The Exchange Offer................ We are offering to exchange $40.0 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, which were issued in an
unregistered offering on June 8, 1999. The unregistered
notes are, and the registered notes will be, guaranteed
by our guarantor subsidiaries. To exchange your
unregistered notes, you must properly tender them, and
we must accept them. We will exchange all unregistered
notes that you validly tender and do not validly
withdraw. We will issue registered 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 registered notes without
complying with the registration and prospectus delivery
requirements of the Securities Act if:
- you are acquiring the registered 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 registered notes; and
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3
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- 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 registered 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 registered notes for
its own account in exchange for unregistered 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
registered notes. A broker-dealer may use this
prospectus for a limited period for an offer to resell,
a resale or other transfer of the registered notes.
Expiration Date................... The exchange offer expires at 5:00 p.m., New York City
time, on , 1999, unless we extend the expiration
date to allow additional tenders of unregistered notes.
Conditions to the Exchange
Offer........................... The exchange offer is subject to conditions, some of
which we may waive. Such conditions are more fully
described later in this prospectus under "The Exchange
Offer--Conditions to the Exchange Offer."
Accrued Interest on the Registered
Notes and the Unregistered
Notes........................... The registered notes will bear interest from July 1,
1999. If we accept your unregistered notes for exchange,
then you will waive all interest accrued but unpaid on
such unregistered notes.
Procedures for Tendering
Unregistered Notes.............. We issued the unregistered notes in global and
certificated form. When the unregistered notes were
issued, we deposited a 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, commonly known as
"DTC." Beneficial interests in the unregistered 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 unregistered notes held in global
form through book-entry transfer in accordance with
DTC's Automated Tender Offer Program, or "ATOP". To
tender your unregistered 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,
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facsimile, hand delivery or overnight carrier. In
addition, you must deliver the unregistered notes to the
exchange agent or comply with the procedures for
guaranteed delivery. See "The Exchange Offer--Procedures
for Tendering Unregistered Notes" for more information.
Do not send letters of transmittal and certificates
representing unregistered notes to us. 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 unregistered notes
are registered in the name of a broker, dealer,
commercial bank, trust company or other nominee and wish
to tender your unregistered 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.
Withdrawal Rights................. You may withdraw the tender of your unregistered notes
at any time before 5:00 p.m., New York City time, on the
expiration date.
Appraisal or Dissenter's Rights... Holders of unregistered notes do not have any appraisal
or dissenters' rights in the exchange offer. If you do
not tender your unregistered notes or we reject 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 unregistered
notes and the registered notes. You should read the
discussion under the heading "Risk Factors--
Consequences of Failure to Exchange Unregistered Notes"
for further information.
Federal Tax Consequences.......... We believe that the exchange of notes is not a taxable
exchange for United States federal income tax purposes
and that 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 "Material 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 13 and all other information set forth in this
prospectus before deciding whether to participate in the exchange offer.
5
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SUMMARY OF TERMS OF THE REGISTERED NOTES
The form and terms of the registered notes are the same as the form and
terms of the unregistered notes, except that the registered notes will be
registered under the Securities Act. As a result, the registered notes will not
bear legends restricting their transfer and will not contain the registration
rights and liquidated damage provisions contained in the unregistered notes. The
registered notes will represent the same debt as the unregistered notes and our
currently outstanding $130.0 million of registered notes. The unregistered
notes, the registered notes and our currently outstanding registered notes are
governed by the same indenture and secured ratably by the collateral granted
under the indenture. In addition, all such notes are guaranteed by our guarantor
subsidiaries.
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Securities Offered................ $40,000,000 aggregate principal amount of 10 1/4% Series
B Senior Secured Notes.
Maturity Date..................... July 1, 2004.
Interest Rate..................... We will pay an annual rate of interest equal to 10 1/4%.
Interest Payment Dates............ Every six months on January 1 and July 1, beginning
January 1, 2000. Interest will accrue from July 1, 1999.
Ranking........................... The registered notes will be:
- senior secured obligations;
- senior in right of payment to any of our subordinated
indebtedness;
- equal in right of payment with any of our senior
indebtedness; and
- effectively junior in right of payment to the lenders
under our revolving credit facility with respect to our
owned store locations and our and certain of our
subsidiaries' accounts receivables, raw materials and
finished goods inventories.
As of the date of this prospectus, we had borrowings
equal to approximately $5.0 million and letters of
credit in the amount of $0.5 million outstanding under
our revolving credit facility.
Security.......................... The registered notes will be secured by:
- liens on our and our subsidiaries' equipment, fixtures
and general intangibles, including trademarks and
trademark licenses;
- our ownership interest in certain of our subsidiaries;
and
- mortgages on certain of our owned real property.
The registered notes will be secured ratably with our
currently outstanding registered notes and with any
unregistered notes that are not exchanged pursuant to
the exchange offer. The registered notes will not be
secured by our owned store locations or our or our
subsidiaries' accounts receivables, raw materials or
finished goods inventories. See the discussion under the
heading "Description of the Registered Notes--
Collateral" for further information regarding the
collateral that secures the notes.
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Guarantees........................ The registered notes will be guaranteed by all of our
subsidiaries other than subsidiaries treated as
unrestricted subsidiaries. If we cannot make payments on
the notes when they are due, our subsidiary guarantors
must make them instead. Subject to exceptions, if we
create or acquire new wholly-owned subsidiaries, they
also will guarantee the notes. You should read
"Description of the Registered Notes-- Guarantors" for
more information regarding the guarantees of the notes.
Optional Redemption............... After, July 1, 2001, all or some of the notes may be
redeemable at our option at the following premiums, plus
accrued interest:
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FOR THE PERIOD BELOW PERCENTAGE
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On or after July 1, 2001................................ 105.125%
On or after July 1, 2002................................ 102.563%
July 1, 2003 and thereafter............................. 100.000%
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Prior to July 1, 2000, up to one-third of the principal
amount of the notes issued under the indenture may be
redeemed at our option with the net proceeds of certain
public equity offerings at 110.250% of the face amount,
plus accrued interest.
Mandatory Offer to Repurchase..... If we experience specific kinds of changes of control,
we must offer to repurchase the notes at 101% of their
face amount, plus accrued interest to the date of
redemption.
Certain Covenants................. The indenture contains covenants for your benefit which,
among other things and subject to exceptions, restrict
our ability to:
- incur more debt;
- create liens;
- make some payments or investments;
- enter into transactions with affiliates;
- sell assets;
- consolidate or merge;
- transfer or sell assets; and
- allow our subsidiaries to issue capital stock.
Form of the Registered Notes...... The registered 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 Registered
Notes--Certificated Notes" occurs. Instead, beneficial
interests in the registered notes will be shown on, and
transfers of these interests will be effected only
through,
</TABLE>
7
<PAGE>
<TABLE>
<S> <C>
records maintained in book-entry form by DTC with
respect to its participants.
Absence of a Public Market for the
Registered Notes................ While the unregistered notes are presently eligible for
trading by qualified institutional buyers in the Private
Offerings, Resales and Trading through Automated
Linkages market, commonly known as "PORTAL," of the
National Association of Securities Dealers, Inc., there
is no existing market for the registered notes. The
initial purchaser of the unregistered notes has advised
us that it currently intends to make a market in the
registered 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. We do not intend to
apply for a listing of the registered 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. We cannot make any
assurances regarding the liquidity of the market for the
registered notes, the ability of holders to sell their
registered notes or the price at which holders may sell
their registered notes.
</TABLE>
For additional information regarding the registered notes, see the
"Description of the Registered Notes" section of this prospectus.
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 nine-month period ended May 29, 1999
are intended to give you a picture of what our business might have looked like
if the Sweet Factory and Laura Secord acquisitions and the related financings
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 Historical Financial
Data," "Management's Discussions and Analysis of Financial Condition and Results
of Operations" and the financial statements and accompanying notes included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
PRO FORMA CONSOLIDATED
PRO FORMA CONSOLIDATED NINE-MONTH
YEAR ENDED PERIOD ENDED
AUGUST 29, 1998(1) MAY 29, 1999(2)
---------------------- ----------------------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-operated retail(3)..................................... $ 217,219 $ 172,218
Third-party retail(4).......................................... 23,976 27,403
Non-retail(5).................................................. 17,024 16,323
-------- --------
Total net sales.............................................. $ 258,219 $ 215,944
-------- --------
-------- --------
Gross profit..................................................... 164,099 137,141
Operating income (loss).......................................... 17,344 23,391
OTHER DATA:
EBITDA(6)........................................................ 35,064 36,861
Depreciation and amortization.................................... 17,402 13,177
Capital expenditures............................................. 5,430 5,185
STORE DATA:
Company-operated stores at period end(7)......................... 751 735
SELECTED RATIOS:
Ratio of EBITDA to net interest expense(8)....................... 2.1 2.8
Ratio of total debt to EBITDA(9)................................. 4.9 4.6
Ratio of earnings to fixed charges(10)........................... 1.0 1.5
</TABLE>
- ------------------------
(1) The pro forma financial data for the fiscal year ended August 29, 1998
includes financial data for Sweet Factory for the twelve-month period ended
August 29, 1998, and Laura Secord for the twelve-month period ended
November 28, 1998.
(2) The pro forma financial data for the nine-month period ended May 29, 1999
includes financial data for Sweet Factory for the period from August 30,
1998 to December 6, 1998, and Laura Secord for the nine-month period ended
May 1, 1999.
(3) Company-operated retail includes sale of products through Company-operated
Fannie May, Fanny Farmer, Sweet Factory and Laura Secord stores.
(4) Third-party retail includes sale of Fannie May, Fanny Farmer and Laura
Secord branded products through grocery stores, drug stores, department
stores and other independent retailers that purchase such products at
wholesale pricing for resale to the consumer.
9
<PAGE>
(5) Non-retail includes sale of Fannie May and Fanny Farmer branded products
through our quantity order, mail order and fundraising programs.
(6) Pro forma EBITDA for either period presented above is defined as earnings
before interest, income taxes, depreciation and amortization. While EBITDA
should not be construed as a substitute for operating income or a better
indicator of liquidity than cash flow from operating activities, which are
determined in accordance with generally accepted accounting principles, it
is included herein to provide additional information with respect to our
ability to meet our future debt service, capital expenditure and working
capital requirements. Although EBITDA is not necessarily a measure of our
ability to fund our cash needs, we believe that certain investors find
EBITDA to be a useful tool for measuring our ability to service our debt.
(7) The term "stores" includes kiosks and carts, except with respect to Laura
Secord.
(8) For the year ended August 29, 1998, based on pro forma EBITDA of $35.1
million and pro forma net interest expense, including interest on capital
leases and seasonal borrowings, of $16.8 million. For the nine-month period
ended May 29, 1999, based on pro forma EBITDA of $36.9 million and pro
forma net interest expense, including interest on capital leases and
seasonal borrowings, of $13.0 million.
(9) For the year ended August 29, 1998, based on pro forma total debt of $170.2
million and pro forma EBITDA of $35.1 million. For the nine-month period
ended May 29, 1999, based on pro forma total debt of $170.2 million and pro
forma EBITDA of $36.9 million.
(10) For the year ended August 29, 1998, based on pro forma earnings of $0.7
million and pro forma fixed charges of $29.8 million. For the nine-month
period ended May 29, 1999, based on pro forma earnings of $10.6 million
and pro forma fixed charges of $22.2 million.
10
<PAGE>
SUMMARY SELECTED HISTORICAL FINANCIAL DATA
The summary historical financial data as of and for each year in the
three-year period set forth below has been derived from our audited financial
statements. The summary historical financial data set forth below for the
nine-month periods ended May 30, 1998 and May 29, 1999 has been derived from our
unaudited consolidated financial statements. The historical results for the
nine-month periods are not necessarily indicative of the results of operations
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 our financial
position, results of operations and cash flows as of and for the periods
presented. The information set forth below should be read in conjunction with
"Unaudited Pro Forma Condensed Consolidated Financial Statements," "Selected
Historical Financial Data," "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and our financial statements included
elsewhere in this prospectus.
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
FISCAL YEAR ENDED ENDED
---------------------------------- ----------------------
AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1996(1) 1997(1) 1998(1) 1998 1999(2)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
(DOLLARS IN THOUSANDS)
STATEMENT OF OPERATIONS:
Net sales:
Company-operated retail(3)......................... $ 88,938 $ 89,276 $ 91,488 $ 79,125 $ 116,947
Third-party retail(4).............................. 14,924 17,074 18,230 16,243 22,536
Non-retail(5)...................................... 13,486 15,583 17,024 16,418 16,323
---------- ---------- ---------- ---------- ----------
Net sales........................................ $ 117,348 $ 121,933 $ 126,742 $ 111,786 $ 155,806
---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ----------
Gross profit......................................... $ 76,338 $ 79,649 $ 82,764 $ 72,724 $ 99,767
Operating income (loss).............................. 7,945 10,801 12,539 17,733 18,638
<CAPTION>
AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1996(1) 1997(1) 1998(1) 1998 1999(2)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents............................ $ 380 $ 15,801 $ 13,081 $ 29,924 $ 23,844
Working capital (deficit)............................ (4,349) 23,475 26,988 35,842 35,029
Total assets......................................... 78,668 95,660 98,089 109,053 148,768
Total debt........................................... 72,721 100,521 100,145 100,190 130,240
Shareholder's equity (deficit)....................... (15,448) (16,619) (14,944) (5,807) (4,589)
<CAPTION>
NINE-MONTH PERIOD
FISCAL YEAR ENDED ENDED
---------------------------------- ----------------------
AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1996(1) 1997(1) 1998(1) 1998 1999(2)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(6)............................................ $ 14,731 $ 16,868 $ 18,964 $ 22,761 $ 27,243
Cash provided by (used in):
Operating activities............................... 4,117 3,919 4,206 18,325 18,089
Investing activities............................... (1,121) (3,688) (4,709) (3,370) (32,956)
Financing activities............................... (3,098) 15,190 (2,217) (832) 25,630
Depreciation and amortization........................ 6,807 5,932 6,233 4,833 8,396
Capital expenditures................................. 2,280 3,688 4,574 3,370 4,954
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
FISCAL YEAR ENDED ENDED
---------------------------------- ----------------------
AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1996(1) 1997(1) 1998(1) 1998 1999(2)
---------- ---------- ---------- ---------- ----------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
STORE DATA:
Company-operated stores at period end................ 340 322 317 319 560
Increase in same store sales(7)...................... 2.6% 5.2% 4.2% 4.7% 0.5%
</TABLE>
- ------------------------
(1) In 1995, we changed our 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) Includes information for Sweet Factory for the period after December 6,
1998.
(3) Company-operated retail includes sale of products through Company-operated
Fannie May and Fanny Farmer stores and, for the period after December 6,
1998, Sweet Factory stores.
(4) Third-party retail includes sale of Fannie May and Fanny Farmer branded
products through grocery stores, drug stores and other independent
retailers that purchase such products at wholesale pricing for resale to
the consumer.
(5) Non-retail includes sale of Fannie May and Fanny Farmer products through
our quantity order, mail order and fundraising programs.
(6) EBITDA consists of earnings before interest, income taxes, depreciation and
amortization. While EBITDA should not be construed as a substitute for
operating income or a better indicator of liquidity than cash flow from
operating activities, which are determined in accordance with generally
accepted accounting principles, it is included herein to provide additional
information with respect to our ability to meet our future debt service,
capital expenditure and working capital requirements. Although EBITDA is
not necessarily a measure of our ability to fund our cash needs, we believe
that certain investors find EBITDA to be a useful tool for measuring our
ability to service our debt.
(7) 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.
12
<PAGE>
RISK FACTORS
YOU SHOULD CONSIDER CAREFULLY THE FOLLOWING RISK FACTORS BEFORE MAKING A
DECISION TO EXCHANGE YOUR NOTES IN THE EXCHANGE OFFER.
SUBSTANTIAL LEVERAGE--OUR SUBSTANTIAL INDEBTEDNESS COULD ADVERSELY AFFECT OUR
FINANCIAL HEALTH AND PREVENT US FROM FULFILLING OUR OBLIGATIONS UNDER THE
NOTES.
We have a significant amount of indebtedness. The following table shows
important credit statistics:
<TABLE>
<CAPTION>
PRO FORMA
AT MAY 29, 1999
------------------
<S> <C>
Total debt................................................................ $ 170.2 million
Shareholders' equity (deficit)............................................ $ (4.6) million
</TABLE>
<TABLE>
<CAPTION>
PRO FORMA
FISCAL YEAR
ENDED AUGUST 28, 1998
---------------------
<S> <C>
Ratio of EBITDA to net interest expense................................ 2.1x
</TABLE>
Our substantial indebtedness could have important consequences to you. For
example, it could:
- make it more difficult for us to satisfy our obligations with respect to
the notes;
- increase our vulnerability to adverse economic and industry conditions;
- limit or prevent our ability to fund future working capital, capital
expenditures and other general corporate requirements, including the
renewal of the Sweet Factory license;
- limit or prevent our ability to fund Holdings' redemption obligations;
- limit or prevent our ability to fund a change of control offer;
- limit our flexibility in planning for, or reacting to, changes in our
business and industry;
- place us at a competitive disadvantage compared to our competitors that
have less debt;
- limit our ability to borrow additional funds; and
- result in an event of default if we fail to comply with the financial and
other restrictive covenants in the indenture and our revolving credit
facility.
You should read the discussions under the headings "Unaudited Pro Forma
Condensed Consolidated Financial Statements," "Selected Historical Financial
Data," "Description of the Revolving Credit Facility" and "Description of the
Registered Notes."
ADDITIONAL BORROWINGS AVAILABLE--WE MAY BE ABLE TO INCUR SUBSTANTIALLY MORE
DEBT, WHICH COULD FURTHER INCREASE THE RISKS DESCRIBED ABOVE.
We may be able to incur substantial additional indebtedness in the future.
The indenture permits borrowings of up to $25.0 million in aggregate principal
amount under our revolving credit facility. As of the date of this prospectus,
we have approximately $5.0 million of borrowings and letters of credit in the
amount of $0.5 million outstanding under our revolving credit facility. The
indenture also permits additional borrowings of up to $10.0 million in aggregate
principal amount. If new debt is added to our current debt levels, the risks
that we now face relating to our substantial leverage will increase.
See "Capitalization," "Selected Historical Financial Data," "Description of
the Revolving Credit Facility" and "Description of the Registered Notes."
13
<PAGE>
ABILITY TO SERVICE DEBT--TO SERVICE OUR INDEBTEDNESS, WE WILL REQUIRE A
SIGNIFICANT AMOUNT OF CASH. OUR ABILITY TO GENERATE CASH DEPENDS ON MANY
FACTORS BEYOND OUR CONTROL.
Our ability to fund operations, to make payments on or refinance our
indebtedness, including the notes, and to fund planned capital expenditures will
depend on our ability to generate cash in the future. This ability, to an
extent, is subject to general economic, financial, competitive, legislative,
regulatory and other factors that are beyond our control.
Based on our current level of operations and anticipated operating
activities, we believe our cash flow from operations, available cash and
available borrowings under our revolving credit facility will be adequate to
meet our future liquidity needs for at least the next eighteen months.
We cannot assure you, however, that our business will generate sufficient
cash flow from operations to enable us to pay our indebtedness, including the
notes, or to fund our other liquidity needs. We may need to refinance all or a
portion of our indebtedness, including the notes on or before maturity. We may
not be able to refinance any of our indebtedness on acceptable terms or at all.
EFFECTIVE SUBORDINATION--YOUR RIGHT TO RECEIVE PAYMENTS ON THE NOTES IS
EFFECTIVELY SUBORDINATED TO OUR REVOLVING CREDIT FACILITY TO THE EXTENT OF THE
COLLATERAL SECURING OUR REVOLVING CREDIT FACILITY.
The notes and the subsidiary guarantees are effectively subordinated to up
to $25.0 million of potential borrowings under our revolving credit facility to
the extent of the assets securing such indebtedness. See "Description of the
Revolving Credit Facility." Our revolving credit facility is secured by a first
lien on our and our subsidiaries' accounts receivable, raw materials and
finished good inventories and our owned store locations and the proceeds
therefrom. As a result, upon any distribution to our creditors or the creditors
of the subsidiary guarantors in bankruptcy, liquidation, reorganization or
similar proceedings, the lenders under our revolving credit facility will be
entitled to be repaid in full before any payment is made to you from the
proceeds of the assets securing such other indebtedness.
LIQUIDATION OF COLLATERAL--THE PROCEEDS OF THE COLLATERAL MAY NOT BE SUFFICIENT
TO REPAY THE NOTES.
If an event of default occurs under the indenture with respect to the notes,
the liquidation of the assets securing the notes may not result in proceeds in
an amount sufficient to pay the principal of, premium, if any, and interest on
the notes. The ability of the trustee under the indenture to foreclose on any
assets will be subject to the provisions of the security documents covering
those assets. In addition, the ability of holders of notes to foreclose on the
assets securing such notes in a timely fashion, if at all, will be subject to
limitations arising under applicable bankruptcy and insolvency laws. See
"Description of the Registered Notes--Collateral."
RESTRICTIONS IMPOSED BY INDEBTEDNESS--WE MAY BE PROHIBITED FROM ENGAGING IN
CERTAIN TRANSACTIONS.
Our revolving credit facility requires us to maintain specified financial
ratios, including interest coverage and total leverage ratios. In addition, the
indenture and our revolving credit facility restrict, among other things, our
ability to incur additional indebtedness, dispose of assets, incur guarantee
obligations, repay indebtedness or amend debt instruments, pay dividends, create
liens on assets, make investments, make acquisitions, engage in mergers or
consolidations, make capital expenditures and engage in transactions with
subsidiaries or affiliates. A failure to comply with the restrictions contained
in the indenture or our revolving credit facility could lead to an event of
default under both the indenture and our revolving credit facility which could
result in an acceleration of substantially all of our indebtedness. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources," and "Description of the Revolving
Credit Facility."
14
<PAGE>
TERM OF REVOLVING CREDIT FACILITY; NEED FOR SEASONAL FINANCING--WE MAY NOT BE
ABLE TO EXTEND OR RENEW OUR REVOLVING CREDIT FACILITY TO SATISFY OUR SEASONAL
WORKING CAPITAL NEEDS.
Our revolving credit facility, which is designed to address our seasonal
working capital needs, expires April 15, 2001. We cannot assure you that, upon
the expiration of our revolving credit facility, we will be able to extend or
renew our 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 could have a material adverse effect on our results of
operations.
FRAUDULENT CONVEYANCE MATTERS--IF ANY GUARANTOR BECOMES THE DEBTOR IN A
BANKRUPTCY CASE OR HAS OTHER FINANCIAL DIFFICULTY, A COURT MAY VOID ITS
GUARANTEE.
Under the fraudulent conveyance provisions of federal bankruptcy law and
corresponding state laws, a court may void (I.E., cancel) a guarantee if (1) the
guarantor received less than fair consideration or reasonably equivalent value
for its guarantee and (2) when it entered into its guarantee or, in some
jurisdictions, when payments became due thereunder, it either (a) was or was
rendered insolvent, (b) was engaged in a business or transaction for which its
remaining unencumbered assets constituted unreasonably small capital or (c)
intended to incur or believed, or should have believed, that it would incur
debts beyond its ability to pay.
The court could also subordinate the claims of the guarantee's beneficiaries
to the claims of the guarantor's other creditors. If the court voided or
subordinated a guarantee in this manner, it could order the return of any
payments made by the guarantor to the guarantor or to a fund for the benefit of
its creditors.
The measure of insolvency for the above purposes will vary depending on the
law of the jurisdiction being applied. Generally, an entity will be considered
insolvent if (1) the sum of debts, including contingent or unliquidated debts,
is greater than the fair value of its property or (2) if the present fair
salable value of its assets is less than the amount that will be required to pay
its probable liability on its existing debts as they become absolute and
matured.
A court would likely conclude that a guarantor did not receive fair
consideration or reasonably equivalent value except to the extent that it
received direct or indirect benefits from the issuance of the notes.
On the basis of historical financial information, recent operating history
and other factors, we believe that each guarantor, after giving effect to its
guarantee, will not be insolvent, will not have unreasonably small capital for
the business in which it is engaged and will not have incurred debts beyond its
ability to pay such debts as they mature. There can be no assurance, however, as
to what standard a court would apply in making such determinations or that a
court would agree with our conclusions.
CHANGE OF CONTROL OFFER--WE MAY NOT HAVE THE ABILITY TO RAISE THE FUNDS
NECESSARY TO FINANCE THE CHANGE OF CONTROL OFFER REQUIRED BY THE INDENTURE.
Upon the occurrence of a change of control under the indenture, we may be
required to offer to repurchase all of the notes. It is possible that we will
not have sufficient funds at the time of a change of control to make the
required repurchase of the notes or that restrictions in our revolving credit
facility will not allow such repurchases. See "Description of the Registered
Notes--Repurchase Upon Change of Control."
15
<PAGE>
INTEGRATION OF OPERATIONS--ANY DELAY OR INABILITY TO INTEGRATE ACQUIRED
BUSINESSES COULD ADVERSELY EFFECT OUR FINANCIAL HEALTH.
We face significant challenges in integrating the Laura Secord and Sweet
Factory brand names, stores and operations with our existing operations. The
integration will require substantial attention from our management. The
diversion of management's attention from our existing business could have an
adverse impact on our operating results and financial condition. Additional
risks related to the integration of operations, which could have an adverse
impact on our operating results and financial condition, include:
- the failure to realize expected operating efficiencies from the
acquisitions;
- the failure to improve the performance of the Laura Secord or Sweet
Factory stores;
- the costs and time required for the integration of operations exceeding
our expectations;
- the failure to effectively cross-market products or expand product
distribution; and
- unexpected costs or liabilities in Laura Secord's or Sweet Factory's
operations.
Sweet Factory experienced negative same store sales results in each of 1997
and 1998. Laura Secord experienced negative same store sales results in the
first and second quarters of 1999. We cannot assure you that these results will
not continue. Although we intend to apply to the Sweet Factory and Laura Secord
stores many of the same strategies that have been successful in improving our
Fannie May and Fanny Farmer store-level performance, we cannot assure you that
we will be successful in doing so.
RISK OF ACQUISITION STRATEGY--WE MAY NOT BE ABLE TO CONTINUE TO IDENTIFY
SUITABLE ACQUISITION CANDIDATES.
We intend to continue to pursue selective acquisitions that complement or
provide further opportunities to use our brands, manufacturing resources and/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 businesses 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.
HALLMARK COMBO STORES--THE LIQUIDATION AND WIND-UP OF COMBO STORES COULD
ADVERSELY AFFECT OUR OPERATIONS.
In connection with the Laura Secord acquisition, we acquired Nestle's
interest in eighteen (18) combo stores, which are co-branded Laura Secord and
Hallmark retail stores that sell Laura Secord products and gifts together with
Hallmark greeting cards and gifts in a single, integrated unit. The agreement
between Laura Secord and Hallmark provides that Laura Secord receive a
management fee equal to 4% of net sales and that Laura Secord and Hallmark share
equally the profits and expenses of the combo stores. Pursuant to this
agreement, Laura Secord and Hallmark have agreed to liquidate and wind-up the
combo stores if a joint venture agreement has not been formalized by July 30,
2000. If we are unable to reach an agreement with Hallmark by July 30, 2000 to
continue the combo stores, Hallmark could liquidate and wind-up the combo
stores, which could adversely affect our results of operations.
TERMINATION OF LAURA SECORD CO-PACK ARRANGEMENT--OUR INABILITY TO MANUFACTURE
LAURA SECORD PRODUCTS UPON TERMINATION OF THE CO-PACK AGREEMENT COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
In connection with the Laura Secord acquisition, we entered into a co-pack
agreement with Nestle under which Nestle will manufacture for us until June 7,
2000 the products sold by Laura Secord that
16
<PAGE>
Nestle manufactured at the time of the Laura Secord acquisition. Any failure by
Nestle to perform its obligations under the co-pack agreement could have a
material adverse effect on our results of operations. By the expiration of the
agreement, we intend to manufacture in our Chicago, Illinois manufacturing
facility all of the Laura Secord products covered by the co-pack agreement. If
at the expiration of the agreement we are unable to manufacture all or a portion
of such products at our facility or to properly replicate the product formulas
or recipes for the Laura Secord products, our inability to do so could have a
material adverse effect on our results of operations.
DEEMED DIVIDEND BY FOREIGN SUBSIDIARY--WE WILL BE OBLIGATED TO INCLUDE IN OUR
GROSS INCOME FOR U.S. INCOME TAX PURPOSES ALL OF THE EARNINGS OF LAURA SECORD.
We acquired substantially all of the assets of the Laura Secord retail
business through our Canadian subsidiary Archibald Candy (Canada) Corporation.
Under the terms of the indenture, all of our restricted subsidiaries are
required to guarantee the notes. Under current U.S. federal income tax law, if a
controlled foreign subsidiary of a U.S. shareholder directly or indirectly
guarantees or pledges its assets to secure an obligation of a U.S. person, the
controlled foreign subsidiary is deemed to distribute all of its earnings and
profits in each year in which the guarantee or pledge supporting the
indebtedness is outstanding, up to the principal amount of the obligation
secured. Therefore, we will be required to include in our gross income for U.S.
income tax purposes all of the earnings and profits of Archibald Candy (Canada)
Corporation up to the principal amount of the notes guaranteed by such
subsidiary, for each of our taxable years during which the guarantee is in
place, regardless of whether the subsidiary actually distributes any dividends
to us.
COMPETITION--THE CONFECTIONERY INDUSTRY IS HIGHLY COMPETITIVE AND FACES
COMPETITION FROM MANUFACTURERS, DISTRIBUTORS AND RETAILERS OF OTHER SNACK FOOD
PRODUCTS.
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 confectionery 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, Godiva Chocolatier Inc.
and Purdy's. Our primary competitors in the bulk candy segment of the
confectionery industry are Mr. Bulky, Candy Express, FAO Schweetz and Sweets
From Heaven. In the scooped ice cream segment, our management believes that
Laura Secord competes primarily with Baskin Robbins, a scooped ice cream store
chain, and numerous independent retailers. 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. Some of our competitors have greater
name recognition and greater financial, marketing and other resources.
Competitive market conditions could have a material adverse effect on our
results of operations. See "Business--Competition."
DEPENDENCE ON REAL ESTATE LEASES; CONTINUING OBLIGATIONS ON LEASES--WE MAY NOT
BE ABLE TO RENEW OUR LEASES ON FAVORABLE TERMS. WE MAY CONTINUE TO BE LIABLE
FOR LEASE PAYMENTS FOR UNPROFITABLE LOCATIONS.
We lease locations for all of our Fanny Farmer, Sweet Factory and Laura
Secord 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
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reasonable or at all, or that if we are successful at renewing leases, that our
assumptions about what are reasonable rents will be accurate. 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.
LAURA SECORD STORES' LANDLORD CONSENTS--THE FAILURE TO OBTAIN REQUIRED LANDLORD
CONSENTS MAY HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
We lease all of our Laura Secord stores. A significant number of these
leases require the consent of the landlord for Nestle's transfer of the lease to
us. In the event that any required consents are not obtained, Nestle has agreed
that it will make available to us the benefits of such leases until such
consents have been obtained. We cannot assure you, however, that in such a
situation, the landlord will not terminate the lease. If a landlord terminates a
lease due to the failure to obtain its consent or seeks additional payments in
order to obtain its consent, we have limited indemnification rights against
Nestle. In the event a store lease is terminated by a landlord, our right to
indemnification may not fully compensate us for the loss of such store, which
may have a material adverse effect on our results of operations.
SEASONALITY--OUR SALES AND EARNINGS FLUCTUATE BASED ON SEASONAL FACTORS OVER
WHICH WE DO NOT HAVE CONTROL.
Our sales and earnings are highly seasonal, particularly sales and earnings
resulting from our Fannie May, Fanny Farmer and Laura Secord operations.
Historically, our Fannie May and Fanny Farmer operations have realized a
majority of their annual sales and earnings during the periods preceding
Christmas, Valentine's Day and Easter. Laura Secord's operations historically
have exhibited a similar seasonality. If for any reason demand for our Fannie
May, Fanny Farmer or Laura Secord products during any such holiday season is
insufficient, our total sales and earnings 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 earnings. 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 "Management's Discussion and Analysis of Financial Condition and
Results of Operations--Quarterly Results and Seasonality" for more information
regarding the seasonality of our sales and earnings.
FLUCTUATIONS IN COST OF SALES AND IMPACT ON PRICING--WE MAY NOT BE ABLE TO PASS
THROUGH INCREASES IN THE COST OF SALES TO OUR CUSTOMERS.
The principal components of our Fannie May, Fanny Farmer, and, following the
expiration of our co-pack agreement with Nestle, Laura Secord cost of sales are
raw materials, purchased product, labor and manufacturing overhead. The
principal component of our Sweet Factory and, prior to the expiration of our
co-pack agreement with Nestle, Laura Second 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 our results of operations.
We have entered into non-exclusive supply agreements with Blommer Chocolate
Company, Merckens Chocolate Company and Peter's Chocolate Company, which
suppliers account for over 90% of the total coatings we purchase. The loss of
services from any of these suppliers could have a material adverse effect on our
results of operations.
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In many of our sales channels, we must set our prices prior to or at the
beginning of the fiscal year. Therefore, if our cost of sales or operating
expenses rise unexpectedly during the year, we may be unable or limited in our
ability 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 our results of operations. See "Business--Products."
REGIONAL CONCENTRATION OF OPERATIONS--ADVERSE DEVELOPMENTS IN PARTICULAR
GEOGRAPHIC AREAS MAY HAVE SIGNIFICANT ADVERSE EFFECTS ON OUR BUSINESS.
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.
Many of our remaining Fannie May and Fanny Farmer stores are located in and
around large metropolitan areas in the Northwestern, the upper Midwestern and
the Northeastern United States and Florida. A significant number of our Sweet
Factory stores are located in the Western United States, primarily in
California. All of our Laura Secord's stores are located in Canada, with a
majority concentrated in the provinces of Ontario and Quebec. As a result, we
are susceptible to adverse developments in the economy, weather conditions,
competition, consumer preferences or demographics in any of these geographic
areas. For example, severe weather conditions in any of our principal geographic
markets may have a material negative impact on customer traffic and sales,
especially if such weather occurs during one of our peak selling periods. The
current geographic concentration of our business may have a material adverse
effect on our results of operations. See "Business--Marketing and Sales."
OTHER FACTORS AFFECTING SALES AND PROFITABILITY--OUR SALES AND EARNINGS
FLUCTUATE BASED ON FACTORS OVER WHICH WE DO NOT HAVE CONTROL.
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.
We believe our sales are strongly influenced by the amount and proximity of
pedestrian traffic near the stores we operate and third-party retailers of our
products. Because a significant percentage of our stores are located in shopping
malls, a decline in mall traffic could adversely affect our results of
operations.
GOVERNMENTAL REGULATION--FAILURE TO COMPLY WITH GOVERNMENTAL REGULATIONS COULD
HAVE A MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
As a manufacturer and retailer of food products, we are subject to extensive
regulation by various federal, state, provincial and other regulatory agencies,
including the Food and Drug Administration. In addition, all of the retail
stores operated by us are subject to licensing and regulation by the health,
sanitation, safety, building and fire agencies of the respective states and
municipalities or provinces 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
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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 our results of operations.
Under various federal, state, provincial 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 us 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,
provincial 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 our financial
condition.
CANADIAN OPERATIONS--CANADIAN REGULATIONS MAY ADVERSELY IMPACT OUR BUSINESS IN
CANADA.
All of our Laura Secord retail operations are conducted in Canada and are
subject to numerous additional risks, including the impact of Canadian
government regulations, currency fluctuations and differences in business
practices. In addition, following the expiration of our one year co-pack
agreement with Nestle, we intend to produce substantially all of our Laura
Secord chocolate products in our Chicago, Illinois manufacturing facility. In
such event, these products will be subject to import/ export tariffs and quotas
and other Canadian and U.S. regulations. Either the U.S. or Canadian government
may adopt regulations or take other actions that could have an adverse impact on
our business operations in Canada.
LABOR COSTS--AN INCREASE IN LABOR COSTS COULD REDUCE OUR INCOME FROM OPERATIONS.
We are dependent upon the available labor pool of unskilled and semi-skilled
employees. We also are subject to the various laws which govern such matters as
minimum wage, overtime and other working conditions. Numerous proposals have
been made on federal, state and provincial levels to increase minimum wages. A
shortage in the labor pool or other general inflationary pressures or changes in
applicable laws and regulations could increase labor costs, which could have a
material adverse effect on our results from operations.
LABOR RELATIONS--UNIONIZATION OF OUR EMPLOYEES COULD INCREASE OUR OPERATING
COSTS.
We currently are subject to seven collective bargaining agreements, all of
which expire on or before March 31, 2003. We historically have had satisfactory
labor relations with our employees and their labor unions and have not
experienced an organized work stoppage in over 15 years. Future union contracts
with us 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 our results of operations. A work stoppage or strike by our employees,
especially preceding or during one of our key selling periods (I.E., Christmas,
Valentine's Day or Easter), could have a material adverse effect on our results
of operations. None of our Sweet Factory or Laura Secord 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 or
Laura Secord employees could result in higher wages and benefits for such
employees and, therefore, have a material adverse effect on our results of
operations.
LITIGATION--LITIGATION COULD HAVE A MATERIAL ADVERSE EFFECT ON OUR 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
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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.
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 products we produce. 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 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 or not subject to coverage could have a material adverse effect on
our financial condition or results of operations.
DEPENDENCE ON KEY PERSONNEL--OUR SUCCESS IS DEPENDENT ON THE RETENTION OF OUR
EXISTING MANAGEMENT TEAM AND OUR ABILITY TO ATTRACT ADDITIONAL EXPERIENCED
MANAGEMENT.
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 our overall operations or (2) successfully execute current or future
business strategies, either of which could have a material adverse effect on our
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 also intend to hire additional management to operate our Sweet
Factory and Laura Secord businesses. However, we may not be able to hire and
retain such individuals. We do not maintain key man life insurance on any of our
employees.
TRADEMARKS--OUR INABILITY TO ENFORCE OR DEFEND OUR TRADEMARKS COULD HAVE A
MATERIAL ADVERSE EFFECT ON OUR RESULTS OF OPERATIONS.
We believe that our trademarks have significant value and are important to
the marketing of our products. Although we have registered these trademarks in
numerous jurisdictions, we cannot assure you that these trademarks cannot be
circumvented, do not or will not violate the proprietary rights of others, or
would be upheld if challenged. If our trademarks violate the rights of others or
are not upheld, we could be prevented from using them. A negative ruling with
regards to the use of our trademarks or their validity or enforceability, or the
time consumed and the legal costs of defending against such a claim, could have
an adverse effect on our results of operation. In addition, we cannot assure you
that we will have the financial resources necessary to enforce or defend our
trademarks.
Our Sweet Factory subsidiary has an exclusive license from United Sweet
Factory Limited, the owner of the "Sweet Factory" trademark, to operate stores
under the "Sweet Factory" name and design 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. United Sweet Factory Limited is not
affiliated with us. Because Sweet Factory currently has no operations, or plans
to operate, in Mexico, we do not believe that the failure to take such actions
will have a material adverse effect on our results of operations. We cannot
assure you that the licensor will continue to fulfill its 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
three additional ten year periods by paying a renewal fee of $825,000 for each
such extension. We may not be able to exercise or enforce our rights to extend
the license for any additional periods. The loss of the license could have a
material adverse effect on our results of operations.
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CONTROL BY PRINCIPAL STOCKHOLDERS--THE CONTROL OF THE COMPANY BY CERTAIN
STOCKHOLDERS MAY LEAD TO POTENTIAL CONFLICTS OF INTEREST.
We are subject to potential conflicts of interest arising out of our
relationship with affiliates of The Jordan Company. See "Principal
Stockholders." Affiliates of The Jordan Company own a majority of the issued and
outstanding capital stock of Holdings, which in turn owns all of our issued and
outstanding capital stock. Three of our directors, Messrs. John W. Jordan II,
Thomas H. Quinn and Adam E. Max, are also affiliates of The Jordan Company and
directors of Holdings and each of the guarantor subsidiaries. In addition,
Messrs. Quinn and Max are officers of us and each of the guarantor subsidiaries.
The ability of affiliates of The Jordan Company to control some decisions
concerning our management may present conflicts of interest between the holders
of the notes and affiliates of The Jordan Company. Subject to the rights of the
other holders of Holdings' capital stock, affiliates of The Jordan Company have
the right to elect directors that have a majority of the voting power of our and
Holdings' Board of Directors. As a result, affiliates of The Jordan Company
generally will have the ability to control our business affairs and Holdings'
business affairs 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 our or Holdings' articles of incorporation;
- the authorization of additional shares of our or Holdings' capital stock;
and
- a merger, consolidation or sale of all or substantially all of our or
Holdings' assets or stock.
Affiliates of The Jordan Company can prevent or cause a change of control of
Holdings or us, either of which may adversely affect our results of operations.
In addition, affiliates of TCW Capital, an investment management firm, have
limited rights to take control of our or Holdings' Board of Directors.
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 our and
Holdings' Board of Directors. The acquisition of control of our or Holdings'
Board of Directors by the holders of the senior preferred stock would constitute
a change of control under the indenture. You should read "Risk Factors--Change
of Control Offer" for a discussion of certain consequences of a change of
control.
Although we do not have an explicit policy that addresses potential
conflicts of interest, the indenture does prohibit some transactions between us
and our affiliates. You should read the discussion under the heading
"Description of the Registered Notes--Certain Covenants--Limitation on
Transactions with Affiliates" for further information regarding the indenture's
restrictions on affiliate transactions.
CAPITALIZATION OF HOLDINGS--REQUIRED REDEMPTIONS OF OUR CAPITAL STOCK WILL
REDUCE FUNDS AVAILABLE FOR OUR OPERATIONS.
Holdings is required to redeem its senior preferred stock on August 31, 2001
and its Class A preferred stock and Class B preferred stock on November 1, 2001.
Beginning in January 2000, Holdings may be required to redeem shares of its
Class A Common Stock and Class D Common Stock held by affiliates of TCW Capital
and The Jordan Company. In order for Holdings to make such redemption payments,
Holdings must elect either to sell us or cause us, to the extent permitted by
the indenture and our revolving credit facility, to advance the necessary funds
to Holdings by dividend or otherwise. Such advances, if made, will reduce the
funds available for our operations. You should read "Description of the
Registered Notes--Certain Covenants--Limitation on Restricted Payments" for a
discussion of limitations on our ability to make restricted payments.
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YEAR 2000 COMPLIANCE--YEAR 2000 FAILURES COULD HAVE A MATERIAL ADVERSE IMPACT ON
OUR OPERATIONS.
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 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 our supply, manufacturing,
processing, distribution and financial chains.
We have surveyed substantially all of our internal computer systems and are
in the process of contacting suppliers and consultants to address year 2000
issues for the software and hardware we use. We also are in the process of
upgrading and improving our internal computer systems, which work is expected to
be completed by October 1999. Following the completion of this work and based on
the representations and warranties of our suppliers and consultants, we expect
our internal computer systems and those of our key suppliers to be year 2000
compliant by the end of 1999. We do not believe that the costs associated with
making our internal computer systems year 2000 compliant will be material.
However, if our systems or the systems of other companies on whose services we
depend or with whom our systems interface are not year 2000 compliant on a
timely basis, it could have a material adverse effect on our results of
operation. Nestle has provided us with limited representations and
indemnification as to the year 2000 compliance of the Laura Secord assets that
we have acquired. However, we have not independently confirmed the year 2000
compliance of such assets.
CONSEQUENCES OF FAILURE TO EXCHANGE UNREGISTERED NOTES--THE FAILURE TO EXCHANGE
UNREGISTERED NOTES IN THE EXCHANGE OFFER MAY LEAVE YOU WITH NOTES THAT ARE
MORE DIFFICULT TO SELL AND TRANSFER.
We did not register the unregistered notes under the Securities Act or any
state securities laws, nor do we intend to after the exchange offer. As a
result, the unregistered notes may only be transferred in limited circumstances
under the securities laws. If the holders of the unregistered notes do not
exchange their notes in the exchange offer, they lose their right to have the
unregistered notes registered under the Securities Act, subject to limitations.
A holder of unregistered notes after the exchange offer may be unable to sell
the notes.
ABSENCE OF A PUBLIC MARKET FOR THE REGISTERED NOTES--THE MARKET PRICE AND
LIQUIDITY OF THE REGISTERED NOTES MAY BE ADVERSELY AFFECTED IF AN ACTIVE
PUBLIC MARKET FOR THE REGISTERED NOTES DOES NOT DEVELOP.
While the unregistered notes are presently eligible for trade in the PORTAL
market of the NASD by qualified institutional buyers, there is no existing
market for the registered notes. The initial purchaser of the unregistered notes
has advised us that it currently intends to make a market in the registered
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. We do not intend to apply for a listing of the registered notes on any
securities exchange. We do not know if an active public market for the
registered 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 registered notes may be adversely affected. We cannot make any
assurances regarding the liquidity of the market for the registered notes, the
ability of holders to sell their registered notes or the price at which holders
may sell their registered notes.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
We issued and sold the unregistered notes to the initial purchaser on June
8, 1999 pursuant to the terms and conditions of a purchase agreement dated as of
May 26, 1999. We agreed in the purchase agreement to provide the holders of the
unregistered notes with the same registration rights granted to the holders of
our $130.0 million of 10 1/4% Series A Senior Secured Notes due 2004 that were
issued and sold in unregistered offerings on July 2, 1997 and December 7, 1998
and subsequently exchanged for a like principal amount of our 10 1/4% Series B
Senior Secured Notes due 2004 that were registered under the Securities Act.
There is currently outstanding $130.0 million of registered notes. The
registration rights with respect to the unregistered notes are set forth in a
registration rights agreement dated as of July 2, 1997 between us and the
initial purchasers of the notes issued on July 2, 1997.
We are conducting the exchange offer to satisfy our contractual obligations
under the registration rights agreement. The form and terms of the registered
notes are the same as the form and terms of the unregistered notes, except that
the registered notes will be registered under the Securities Act, and holders of
the registered notes will not be entitled to liquidated damages. The registered
notes and the unregistered notes are guaranteed by our guarantor subsidiaries in
an identical manner.
EXCHANGE OFFER REGISTRATION STATEMENT
The registration rights agreement requires us to:
- file with the SEC by August 7, 1999 a registration statement with respect
to an offer to exchange the unregistered notes for registered notes, which
would have terms substantially identical in all material respects to the
unregistered notes;
- use our best efforts to cause such exchange offer registration statement
to become effective under the Securities Act by October 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 our best efforts to issue by
, 1999 registered notes in exchange for all unregistered notes
tendered prior thereto in the exchange offer.
We have 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 unregistered notes.
SHELF REGISTRATION STATEMENT
The registration rights agreement requires us to file a shelf registration
statement with respect to the resale of the unregistered notes if:
- applicable interpretations of the SEC's staff would not permit the
completion of the exchange offer;
- some holders of the unregistered notes notify us that they are not
eligible to participate in the exchange of unregistered notes for
registered notes or would not receive freely tradeable registered notes in
exchange for tendered unregistered notes;
- the initial purchaser so requests under some circumstances; or
- the exchange offer is not completed by , 1999.
We have agreed to use our 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 us to pay liquidated damages to
the holders of the unregistered notes if:
- neither the exchange offer registration statement nor the shelf
registration statement has been filed with the SEC by August 7, 1999;
- neither the exchange offer registration statement nor the shelf
registration statement is declared effective by the SEC by October 6,
1999;
- we have not exchanged registered notes for unregistered 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 unregistered notes
will not be entitled to any liquidated damages on the unregistered notes or any
further registration rights, except under limited circumstances. See "Risk
Factors--Consequences of Failure to Exchange Unregistered Notes" and
"Description of the Registered Notes" for further information regarding the
rights of holders of unregistered notes after the exchange offer. The exchange
offer is not extended to holders of unregistered 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 unregistered notes are
registered on our books, (2) any other person who has obtained a properly
completed bond power from the registered holder, or (3) any person whose
unregistered notes are held of record by DTC and who wants to deliver such
unregistered notes by book-entry transfer at DTC.
TERMS OF THE EXCHANGE OFFER
We are offering to exchange up to $40.0 million total principal amount of
registered notes for a like total principal amount of unregistered notes. The
unregistered notes must be tendered properly on or before the expiration date of
the exchange offer and not withdrawn. In exchange for unregistered notes
properly tendered and accepted, we will issue a like total principal amount of
up to $40.0 million in registered notes.
The exchange offer is not conditioned upon holders tendering a minimum
principal amount of unregistered notes. As of the date of this prospectus, $40.0
million aggregate principal amount of unregistered notes are outstanding.
Holders of the unregistered notes do not have any appraisal or dissenters'
rights in the exchange offer. If holders do not tender unregistered notes or
tender unregistered notes that we do not accept, their unregistered notes will
remain outstanding. Any unregistered 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 Unregistered Notes" for further information regarding the rights of
holders of unregistered notes after the exchange offer.
After the expiration date, we will return to the holder any tendered
unregistered notes that we do not accept for exchange.
Holders exchanging unregistered notes will not have to pay brokerage
commissions or fees or transfer taxes if they follow the instructions in the
letter of transmittal. We will pay the charges and
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expenses, other than taxes described below, in the exchange offer. See "The
Exchange Offer--Fees and Expenses" for further information regarding fees and
expenses.
NEITHER WE NOR OUR BOARD OF DIRECTORS RECOMMENDS THAT YOU TENDER OR NOT
TENDER UNREGISTERED NOTES IN THE EXCHANGE OFFER. IN ADDITION, WE HAVE NOT
AUTHORIZED ANYONE TO MAKE ANY RECOMMENDATION. YOU MUST DECIDE WHETHER TO TENDER
IN THE EXCHANGE OFFER AND, IF SO, THE AGGREGATE AMOUNT OF UNREGISTERED NOTES TO
TENDER.
As used in the prospectus, the "expiration date" of the exchange offer is
5:00 p.m., New York City time, on , 1999, unless we extend the
exchange offer.
We have the right, in accordance with applicable law, at any time:
- to delay the acceptance of the unregistered notes;
- to terminate the exchange offer if we determine 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
unregistered notes tendered other than those unregistered notes properly
withdrawn; and
- to waive any condition or amend the terms of the exchange offer.
If we materially change the exchange offer, or if we waive a material
condition of the exchange offer, we will promptly distribute a prospectus
supplement to the holders of the unregistered notes disclosing the change or
waiver. We also will extend the exchange offer as required by Rule 14e-1 under
the Securities Exchange Act of 1934.
If we exercise any of the rights listed above, we 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 REGISTERED NOTES
Promptly after the expiration date, we will issue registered notes to the
exchange agent for unregistered notes tendered and accepted and not withdrawn.
The exchange agent might not deliver the registered 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.
We will be deemed to have exchanged unregistered notes validly tendered and
not withdrawn when we give oral or written notice to the exchange agent of their
acceptance. The exchange agent is an agent for us for receiving tenders of
unregistered notes, letters of transmittal and related documents. The exchange
agent is also an agent for tendering holders for receiving unregistered notes,
letters of transmittal and related documents and transmitting registered notes
to validly tendering holders. If for any reason, we (1) delay the acceptance or
exchange of any unregistered notes; (2) extend the exchange offer; or (3) are
unable to accept or exchange unregistered notes, then the exchange agent may, on
behalf of us and subject to Rule 14e-1(c) under the Exchange Act, retain
tendered notes. Tendered 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 unregistered notes, you must warrant in the letter of
transmittal or in an "agent's message," as described below, that:
- you have full power and authority to tender, exchange, sell, assign and
transfer your unregistered notes;
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- we will acquire good, marketable and unencumbered title to the tendered
unregistered notes, free and clear of all liens, restrictions, charges and
other encumbrance; and
- the unregistered notes tendered for exchange are not subject to any
adverse claims or proxies.
You also must warrant and agree that you will, upon request, execute and
deliver any additional documents requested by us or the exchange agent to
complete the exchange, sale, assignment and transfer of the unregistered notes.
PROCEDURES FOR TENDERING UNREGISTERED NOTES
VALID TENDER
You may tender your unregistered 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 unregistered 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 unregistered 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,
we will assume you are tendering all unregistered notes that you hold.
For tendering your unregistered 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
unregistered 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 unregistered notes or
provide signature guarantees on the letter of transmittal, unless (1) someone
other than the registered holder tenders the certificate or (2) you complete the
box entitled "Special Issuance Instructions" or "Special Delivery Instructions"
in the letter of transmittal. In the case of (1) or (2) above, you must sign
your unregistered 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."
An eligible guarantor institution includes: (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.
27
<PAGE>
GUARANTEED DELIVERY PROCEDURES
If you want to tender your unregistered notes in the exchange offer and (1)
the certificates for the unregistered 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 completed in time, you
may tender your unregistered 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.
Our acceptance of properly tendered unregistered notes is a binding
agreement between the tendering holder and us upon the terms and subject to the
conditions of the exchange offer.
DETERMINATION OF VALIDITY
We will resolve all questions regarding the form of documents, validity,
eligibility (including time of receipt) and acceptance for exchange of any
tendered unregistered notes. Our resolution of these questions as well as our
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
unregistered notes is invalid until all irregularities have been cured or
waived. Neither us, any of our affiliates or assigns, 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. We reserve
the absolute right, in our sole and absolute discretion, to reject any tenders
determined to be in improper form or unlawful. We also reserve the absolute
right to waive any of the conditions of the exchange offer or any condition or
irregularity in the tender of unregistered notes by any holder. We 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 us, the
person must submit proper evidence satisfactory to us, in our sole discretion,
of his or her authority to so act.
A beneficial owner of unregistered 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 REGISTERED NOTES
We are exchanging unregistered notes for registered notes based upon the
position of the SEC's staff set forth in interpretive letters to third parties
in other similar transactions. We will not seek our own interpretive letter. As
a result, we cannot assure you that the SEC's staff will take the same position
on this exchange offer as it did in interpretive letters to other parties. Based
on the SEC's staff letters to other parties, we believe that holders of
registered notes, other than broker-dealers, can offer the notes for resale,
resell and otherwise transfer the registered notes without delivering a
prospectus
28
<PAGE>
to prospective purchasers. However, prospective holders must acquire the
registered 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 unregistered notes who is an "affiliate" of ours or who
intends to distribute registered notes, or any broker-dealer who purchased
unregistered notes from us to resell pursuant to Rule 144A or any other
available exemption under the Securities Act:
- cannot rely on the interpretations of the SEC's staff in the
above-mentioned interpretive letters;
- cannot tender unregistered notes in the exchange offer; and
- must comply with the registration and prospectus delivery requirements of
the Securities Act to transfer the unregistered notes, unless the sale is
exempt.
In addition, if any broker-dealer acquired unregistered notes for its own
account as a result of market-making or other trading activities and exchanges
the unregistered notes for registered notes, the broker-dealer must deliver a
prospectus with any resales of registered notes.
If you want to exchange your unregistered notes for registered notes, you
will be required to affirm that:
- you are not an "affiliate" of the ours;
- you are acquiring the registered notes in the ordinary course of your
business;
- you have no arrangement or understanding with any person to participate in
a "distribution," within the meaning of the Securites Act, of the
registered notes; and
- you are not a broker-dealer, not engaged in, and do not intend to engage
in, a "distribution," within the meaning of the Securities Act, of the
registered notes.
In addition, we 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 unregistered notes. Each broker-dealer that receives registered notes for
its own account must acknowledge that it acquired the unregistered 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 registered
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 position of the SEC's staff in certain interpretive
letters, we believe that broker-dealers who acquired unregistered 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 registered notes with a prospectus meeting the requirements of the
Securities Act. Accordingly, a broker-dealer may use this prospectus to satisfy
such requirements. We have 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 registered notes. See "Plan of Distribution"
for further information. A broker-dealer intending to use this prospectus in the
resale of registered notes must notify us, on or prior to the expiration date,
that it is a participating broker-dealer. 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 ours may not rely on the interpretive
letters of the SEC's staff and must comply with the registration and prospectus
delivery requirements of the Securities Act when reselling its registered notes.
WITHDRAWAL RIGHTS
You can withdraw tenders of unregistered notes at any time on or before the
expiration date.
29
<PAGE>
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 unregistered notes to be withdrawn, the total
principal amount of unregistered notes withdrawn, and the name of the registered
holder of the unregistered notes if different from the person tendering the
unregistered notes. If you delivered unregistered notes to the exchange agent,
you must submit the serial numbers of the unregistered 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 unregistered notes tendered for the
account of an eligible guarantor institution. If you tendered unregistered 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 unregistered
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. Unregistered notes properly withdrawn may again be
tendered at any time on or before the expiration date.
We will determine all questions regarding the validity, form and eligibility
of withdrawal notices. Our determination will be final and binding on all
parties. Neither us, any of our affiliates or assigns, 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 unregistered notes will be returned to the holder after
withdrawal.
INTEREST ON THE REGISTERED NOTES
The registered notes will bear interest at 10 1/4% per annum, payable
semi-annually, on January 1 and July 1 of each year, commencing January 1, 2000.
Holders of registered notes will receive interest on January 1, 2000 from the
date of initial issuance of the registered notes, plus an amount equal to the
accrued but unpaid interest on the unregistered notes. If we accept your
unregistered notes for exchange, then you will waive all interest accrued but
unpaid on such unregistered notes.
CONDITIONS TO THE EXCHANGE OFFER
We need not exchange any unregistered 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 SEC's staff no longer allows the registered 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
our 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
- we are unable to obtain any governmental approval that we believe is
necessary to complete the exchange offer.
If we reasonably believe that any of the above conditions has occurred, we
may (1) terminate the exchange offer, whether or not any unregistered 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 our waiver or amendment
materially changes the exchange offer, we will promptly disclose the waiver or
amendment through a prospectus supplement, distributed to the registered holders
of the unregistered
30
<PAGE>
notes. The prospectus supplement also will extend the exchange offer as required
by Rule 14e-1 of the Exchange Act.
EXCHANGE AGENT
We have 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
Reorganization Section Ground Level
Attention: New York, New York 10286
Reorganization Section
Attention:
</TABLE>
CONFIRM BY TELEPHONE:
(212) 815-4997
FACSIMILE TRANSMISSIONS:
(Eligible Guarantor Institutions Only)
(212) 815-4699
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
We will pay the exchange agent reasonable and customary fees for its
services and reasonable out-of-pocket expenses. We 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 unregistered notes, and in handling or tendering for
their customers.
We will pay the transfer taxes for the exchange of the unregistered notes in
the exchange offer. If, however, registered 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 unregistered 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.
We will not make any payment to brokers, dealers or other nominees
soliciting acceptances in the exchange offer.
ACCOUNTING TREATMENT
The registered notes will be recorded at the same carrying value as the
unregistered notes. Accordingly, we will not recognize any gain or loss for
accounting purposes. We intend to amortize the expenses of the exchange offer
and issuance of the unregistered notes over the term of the registered notes.
31
<PAGE>
USE OF PROCEEDS
We will not receive any proceeds from the exchange offer. In consideration
for issuing the registered notes, we will receive in exchange unregistered notes
of like principal amount, the terms of which are identical in all material
respects to the registered notes. The unregistered notes surrendered in exchange
for registered notes will be retired and canceled and cannot be reissued.
Accordingly, issuance of the registered notes will not result in an increase in
our indebtedness. We have agreed to bear the expenses of the exchange offer.
The net proceeds to us from the sale of the unregistered notes, after
deducting expenses, was $35.5 million. We used the proceeds from the offering of
the unregistered notes, together with existing cash, to fund the Laura Secord
acquisition.
32
<PAGE>
THE ACQUISITION
On June 8, 1999, our subsidiary Archibald Candy (Canada) Corporation
acquired substantially all of the assets of Nestle's Laura Secord retail
business for total consideration of approximately $62.0 million (Cdn.), or
approximately $42.2 million (U.S.), pursuant to an Asset Purchase Agreement
dated as of May 26, 1999 between us and Nestle. The purchase agreement was filed
as an exhibit to our Current Report on Form 8-K that was filed with the SEC on
June 23, 1999 and is incorporated by reference as an exhibit to the registration
statement of which this prospectus is a part. We funded the Laura Secord
acquisition, in part, through the issuance and sale of the unregistered notes.
Laura Secord is the leading retailer of boxed chocolates in Canada, with 175
retail stores and distribution through more than 1,300 third-party retail
outlets in Canada.
The Laura Secord acquisition broadens our geographic and consumer reach and
provides us with an opportunity to better utilize our manufacturing capacity and
leverage our merchandising expertise. Our management believes that it can
improve Laura Secord's store-level performance and plans to implement in our
Laura Secord stores many of the same retail store strategies that improved the
operations of our Fannie May and Fanny Farmer stores. Following a one year
transition period during which Nestle will produce for sale to us substantially
all of the boxed chocolates and other chocolate confectionery items we will sell
in our Laura Secord stores, we expect that our Chicago, Illinois manufacturing
facility will produce all of such items. We believe that we can capture
significant efficiencies by consolidating Laura Secord's chocolate production
with our existing operations. We also have entered into a two-year supply
agreement with an affiliate of Nestle for the supply of ice cream to our Laura
Secord stores.
33
<PAGE>
CAPITALIZATION
The following table sets forth our unaudited consolidated capitalization as
of May 29, 1999 on a historical basis and as adjusted to give effect to the
offering of unregistered notes and the Laura Secord acquisition as if they had
occurred on May 29, 1999. You should read this table together with our financial
statements and the accompanying notes, and the unaudited pro forma condensed
consolidated financial statements, both of which we have included elsewhere in
this prospectus.
<TABLE>
<CAPTION>
AS OF MAY 29, 1999
-------------------------------
ACTUAL AS ADJUSTED
------------- -------------
(DOLLARS IN MILLIONS)
<S> <C> <C>
Cash and cash equivalents................................... $ 23.8(1) $ 17.2
------ ------
------ ------
Long-term debt (including current maturities):
Revolving Credit Facility(2).............................. $ -- $ --
10 1/4% Senior Secured Notes due 2004..................... 130.0 170.0
Capital lease obligations................................. 0.2 0.2
------ ------
Total long-term debt (including current maturities)... $ 130.2 $ 170.2
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)................... (23.3) (23.3)
------ ------
Total shareholder's equity (deficit).................. (4.6) (4.6)
------ ------
Total capitalization.................................. $ 125.6 $ 165.6
------ ------
------ ------
</TABLE>
- ------------------------
(1) Our business is highly seasonal. During fiscal 1998, our average cash and
cash equivalents balance, pro forma for the Sweet Factory acquisition, was
approximately $13.3 million.
(2) As of May 29, 1999, letters of credit in the amount of $0.5 million were
outstanding under our revolving credit facility and borrowings of $19.5
million were available to us for working capital and general corporate
purposes, subject to the borrowing conditions contained in the revolving
credit agreement. As of the date of this prospectus, we had borrowings equal
to approximately $5.0 million and letters of credit in the amount of $0.5
million outstanding under our revolving credit facility.
34
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
The unaudited pro forma condensed consolidated financial statements below
are based on our financial statements and the financial statements of Laura
Secord included elsewhere in this prospectus. The unaudited pro forma condensed
consolidated statements of operations for the year ended August 29, 1998 and the
nine-month period ended May 29, 1999 are based on our financial statements as
adjusted to give effect to the offering of the unregistered notes and the Laura
Secord acquisition as if they had occurred on August 31, 1997. Because the Laura
Secord financial statements are for the twelve-month period ended November 28,
1998 and as of and for the nine-month period ended May 1, 1999, the unaudited
pro forma condensed consolidated financial statements herein do not include
Laura Secord's results of operations for any period after May 1, 1999. In
addition, the unaudited pro forma condensed consolidated statements of
operations give effect to the Sweet Factory acquisition and related financing as
if they had occurred on August 31, 1997. During the periods presented, neither
our nor Laura Secord's statements of operations included any amounts related to
discontinued operations. We operate using a fiscal year ending the last Saturday
in August. Prior to the acquisition, Laura Secord operated using a fiscal year
ending December 31. Adjustments for the offering of the unregistered notes and
the Laura Secord acquisition are based upon historical financial information of
us and Laura Secord and certain assumptions that our management believes are
reasonable. The Laura Secord acquisition has been accounted for under the
purchase method of accounting. Under this method, the purchase price has been
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 our results of
operations or financial position that actually would have resulted had the
offering of the unregistered notes and the Laura Secord acquisition occurred at
the date indicated or project our results of operations or financial position
for any future date or period.
For purposes of the unaudited pro forma condensed consolidated financial
data below, we have converted the Laura Secord balance sheet as of May 1, 1999
from Canadian dollars to U.S. dollars based on the currency exchange rate in
effect on May 1, 1999, and we have converted the Laura Secord statement of
operations for the twelve months ended November 28, 1998 and for the nine months
ended May 1, 1999 from Canadian dollars to U.S. dollars based on the average
currency exchange rate in effect during such periods.
The unaudited pro forma condensed consolidated financial data below should
be read together with our consolidated financial statements and the financial
statements of Laura Secord, and the accompanying notes, included elsewhere in
this prospectus.
35
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED BALANCE SHEET
AS OF MAY 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
LAURA ADJUSTMENTS PRO FORMA
ARCHIBALD SECORD (SEE NOTE 1) CONSOLIDATED
--------- ------ ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents..................................................... $ 23,844 $ 41 $(6,700)(a) $ 17,185
Accounts receivable, net...................................................... 1,727 -- -- 1,727
Inventories................................................................... 27,591 1,389 -- 28,980
Other current assets.......................................................... 2,691 160 -- 2,851
--------- ------ ------------ ------------
Total current assets............................................................ 55,853 1,590 (6,700) 50,743
Property, plant, and equipment, net............................................. 47,211 5,787 -- 52,998
Goodwill, other intangibles, and deferred financing fees, net................... 39,183 -- 39,075(b) 78,258
Other assets.................................................................... 2,848 -- -- 2,848
Investment in joint venture..................................................... -- 1,685 -- 1,685
Deferred income taxes........................................................... 3,673 -- -- 3,673
--------- ------ ------------ ------------
Total assets.................................................................... $ 148,768 $9,062 $32,375 $190,205
--------- ------ ------------ ------------
--------- ------ ------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable.............................................................. $ 4,624 $ -- $ -- $ 4,624
Accrued expenses.............................................................. 16,044 937 500(c) 17,481
Current portion of long-term debt and capital lease obligations............... 156 -- -- 156
--------- ------ ------------ ------------
Total current liabilities....................................................... 20,824 937 500 22,261
Due to affiliate................................................................ 604 -- -- 604
Long-term debt, less current portion............................................ 130,000 -- 40,000(d) 170,000
Capital lease obligations, less current portion................................. 84 -- -- 84
Deferred rent................................................................... 1,845 -- -- 1,845
Net assets...................................................................... -- 8,125 (8,125)(e) --
Shareholder's equity (deficit).................................................. (4,589) -- -- (4,589)
--------- ------ ------------ ------------
Total liabilities and shareholder's equity (deficit)............................ $ 148,768 $9,062 $32,375 $190,205
--------- ------ ------------ ------------
--------- ------ ------------ ------------
</TABLE>
See accompanying notes to unaudited pro forma condensed consolidated financial
statements.
36
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE FISCAL YEAR ENDED AUGUST 29, 1998
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ARCHIBALD AND PRO FORMA
SWEET ADJUSTMENTS SWEET FACTORY LAURA ADJUSTMENTS PRO FORMA
ARCHIBALD FACTORY (SEE NOTE 2) CONSOLIDATED SECORD (SEE NOTE 3) CONSOLIDATED
--------- -------- ------------ ------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $126,742 $ 77,659 $ -- $204,401 $53,818 $ -- $258,219
Cost of sales, excluding
depreciation and
amortization................. 43,978 27,425 -- 71,403 25,770 (3,053)(a) 94,120
Selling, general, and
administrative expenses,
excluding depreciation and
amortization................. 63,478 45,538 (2,681)(a) 106,335 23,726 (1,507)(b) 128,554
Depreciation and
amortization................. 6,233 6,752 295(b) 13,280 1,860 2,262(c) 17,402
Management fees and other
fees......................... 514 -- -- 514 -- -- 514
Share of loss from joint
venture...................... -- -- -- -- 285 -- 285
--------- ------- ------------ ------------- ------- ------------ ------------
Operating income (loss)........ 12,539 (2,056) 2,386 12,869 2,177 2,298 17,344
Other (income) and expense:
Interest expense............... 10,346 844 2,298(c) 13,488 586 3,514(d) 17,588
Interest income................ (1,194) ) (31 100(d) (1,125) -- 335(e) (790)
Other income and expense....... (192) -- -- (192) -- -- (192)
--------- ------- ------------ ------------- ------- ------------ ------------
Income (loss) before income
taxes........................ 3,579 (2,869) (12) 698 1,591 (1,551) 738
Provision (benefit) for income
taxes........................ 276 (1,099) 877(e) 54 725 (722) 57
--------- ------- ------------ ------------- ------- ------------ ------------
Net income (loss).............. $ 3,303 $ (1,770) $ (889) $ 644 $ 866 $ (829) $ 681
--------- ------- ------------ ------------- ------- ------------ ------------
--------- ------- ------------ ------------- ------- ------------ ------------
OTHER DATA:
Archibald and Sweet Factory EBITDA................................................................................ $ 26,341
Laura Secord EBITDA............................................................................................... 8,723
------------
EBITDA(1).................... $ 18,964 $ 4,696 $2,681 $ 26,341 $ 4,163 $ 4,560 $ 35,064
--------- ------- ------------ ------------- ------- ------------ ------------
--------- ------- ------------ ------------- ------- ------------ ------------
</TABLE>
- ------------------------------
(1) EBITDA consists of earnings before (i) interest, income taxes, depreciation
and amortization, and (ii) 50% of the interest and depreciation expense
incurred by the combo stores which is reflected in the share of loss from
joint venture, which amount is equal to $126, or approximately $186 (Cdn.).
37
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE NINE-MONTH PERIOD ENDED MAY 29, 1999
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
PRO FORMA
PRO FORMA ARCHIBALD AND PRO FORMA
ADJUSTMENTS SWEET FACTORY LAURA ADJUSTMENTS PRO FORMA
ARCHIBALD SWEET FACTORY(1) (SEE NOTE 2) CONSOLIDATED SECORD (SEE NOTE 3) CONSOLIDATED
--------- ---------------- ------------ ------------- ------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales...................... $155,806 $18,791 $ -- $174,597 $41,347 $ -- $215,944
Cost of sales, excluding
depreciation and
amortization................. 56,039 6,773 -- 62,812 18,057 (2,066)(a) 78,803
Selling, general, and
administrative expenses,
excluding depreciation and
amortization................. 72,340 12,138 (1,564)(a) 82,914 18,402 (1,268)(b) 100,048
Depreciation and
amortization................. 8,396 1,754 74(b) 10,224 1,257 1,696(c) 13,177
Management fees and other
fees......................... 393 -- -- 393 -- -- 393
Share of loss from joint
venture...................... -- -- -- -- 132 -- 132
--------- ------- ------ ------------- ------- ------------ ------------
Operating income (loss)........ 18,638 (1,874) 1,490 18,254 3,499 1,638 23,391
Other (income) and expense:
Interest expense............... 9,373 237 611(c) 10,221 285 2,790(d) 13,296
Interest income................ (605) (4) 25(d) (584) -- 251(e) (333)
Other income and expense....... (209) -- -- (209) -- -- (209)
--------- ------- ------ ------------- ------- ------------ ------------
Income (loss) before income
taxes........................ 10,079 (2,107) 854 8,826 3,214 (1,403) 10,637
Provision (benefit) for income
taxes........................ (276) (845) 1,801(e) 680 1,412 (1,273)(f) 819
--------- ------- ------ ------------- ------- ------------ ------------
Net income (loss).............. $ 10,355 $(1,262) $ (947) $ 8,146 $ 1,802 $ (130) $ 9,818
--------- ------- ------ ------------- ------- ------------ ------------
--------- ------- ------ ------------- ------- ------------ ------------
OTHER DATA:
Archibald and Sweet Factory EBITDA................................................................................ $ 28,687
Laura Secord EBITDA............................................................................................... 8,174
------------
EBITDA(2).................... $ 27,243 $ (120) $1,564 $ 28,687 $ 4,840 $ 3,334 $ 36,861
--------- ------- ------ ------------- ------- ------------ ------------
--------- ------- ------ ------------- ------- ------------ ------------
</TABLE>
- ------------------------------
(1) Reflects results for Sweet Factory from August 30, 1998 through December 6,
1998.
(2) EBITDA consists of earnings before (i) interest, income taxes, depreciation
and amortization, and (ii) 50% of the interest and depreciation expense
incurred by the combo stores which is reflected in the share of loss from
joint venture, which amount is equal to $84, or approximately $128 (Cdn.).
38
<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 unregistered notes.............................. $ 40,000
Laura Secord purchase price................................................... (42,200)
Payment of estimated fees and expenses of the offering of the unregistered
notes and the Laura Secord acquisition...................................... (4,500)
---------
$ (6,700)
---------
---------
(b) Adjustments to goodwill, other intangibles, and deferred financing fees as
follows:
Adjustment to goodwill for excess of net assets acquired over purchase
price....................................................................... $ 35,875
Adjustment to deferred financing fees for the financing fees incurred in
connection with the offering of the unregistered notes and the Laura Secord
acquisition................................................................. 3,200
---------
$ 39,075
---------
---------
(c) Adjustments to accrued liabilities for expenses associated with the purchase
of Laura Secord............................................................. $ 500
---------
---------
(d) Adjustment to long-term debt for issuance of the unregistered notes........... $ 40,000
---------
---------
(e) Adjustments to net assets for the elimination of the Laura Secord net
assets...................................................................... $ (8,125)
---------
---------
</TABLE>
39
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 2: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS ADJUSTMENTS
<TABLE>
<CAPTION>
FISCAL YEAR NINE-MONTH
ENDED PERIOD ENDED
AUGUST 29, 1998 MAY 29, 1999
--------------- -------------
<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) $ (1,114)
Reduction in facility lease expenses due to the elimination of the San Diego
facilities.................................................................. (307) (179)
Reduction in general and administrative expenses due to the consolidation of
the Sweet Factory facilities into Archibald
Candy's..................................................................... (465) (271)
------- -------------
$ (2,681) $ (1,564)
------- -------------
------- -------------
(b) Adjustments to depreciation and amortization expense as follows:
Amortization of deferred financing fees as a result of the Sweet Factory
acquisition................................................................. $ 439 $ 110
Reduction of depreciation expense for purchase accounting adjustment to
property, plant and equipment............................................... (144) (36)
------- -------------
$ 295 $ 74
------- -------------
------- -------------
(c) Adjustments to interest expense as follows:
Interest expense incurred on the additional $30 million of Archibald Candy's
senior secured notes issued on December 7, 1998............................. $ 3,075 $ 769
Elimination of Sweet Factory working capital line interest expense............ (777) (158)
------- -------------
$ 2,298 $ 611
------- -------------
------- -------------
(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................................................................. $ 877 $ 1,801
------- -------------
------- -------------
</TABLE>
40
<PAGE>
NOTES TO UNAUDITED PRO FORMA CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(DOLLARS IN THOUSANDS)
NOTE 3: UNAUDITED PRO FORMA CONDENSED CONSOLIDATED STATEMENT OF
OPERATIONS ADJUSTMENTS
<TABLE>
<CAPTION>
FISCAL YEAR NINE-MONTH
ENDED PERIOD ENDED
AUGUST 29, 1998 MAY 29, 1999
--------------- -------------
<S> <C> <C> <C>
(a) Adjustments to cost of sales as follows:
Elimination of royalty charges from Nestle.................................... $ (1,577) $ (1,151)
Elimination of intercompany charges from Nestle to reflect the co-pack
agreement with Nestle....................................................... (1,476) (915)
------- -------------
$ (3,053) $ (2,066)
------- -------------
------- -------------
(b) Adjustments to selling, general and administrative expenses for the
elimination of Nestle corporate overhead expenses........................... $ (1,507) $ (1,268)
------- -------------
------- -------------
(c) Adjustments to depreciation and amortization as follows:
Amortization of deferred financing fees as a result of the Laura Secord
acquisition................................................................. $ 468 $ 351
Amortization of goodwill that is generated as a result of the Laura Secord
acquisition................................................................. 1,794 1,345
------- -------------
$ 2,262 $ 1,696
------- -------------
------- -------------
(d) Adjustments to interest expense as follows:
Interest expense incurred on the unregistered notes........................... $ 4,100 $ 3,075
Elimination of Nestle intercompany interest expense charges................... (586) (285)
------- -------------
$ 3,514 $ 2,790
------- -------------
------- -------------
(e) Adjustment to interest income for cash outlay................................. $ 335 $ 251
------- -------------
------- -------------
(f) Adjustment to provision for income taxes as a result of all pro forma
adjustments................................................................. $ (722) $ (1,273)
------- -------------
------- -------------
</TABLE>
41
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table presents certain of our historical financial data. The
selected historical information as of and for each of the five fiscal years in
the period ended August 29, 1998, was derived from our audited financial
statements. You should read the information in this table together with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements, including the accompanying notes,
appearing elsewhere in this prospectus. The selected historical financial data
as of and for the nine-month periods ended May 30, 1998 and May 29, 1999 were
derived from our unaudited interim financial statements. In our opinion, such
unaudited interim financial statements contain all adjustments, consisting only
of normal recurring items, necessary to present fairly our financial position
and results of operations as of and for the periods presented.
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
FISCAL YEAR ENDED ENDED
--------------------------------------------------------------- --------------------
AUGUST 31, AUGUST 26, AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1994 1995(1) 1996(1) 1997(1) 1998(1) 1998 1999(2)
----------- ----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales:
Company-operated retail(3).... $ 91,408 $ 90,077 $ 88,938 $ 89,276 $ 91,488 $ 79,125 $ 116,947
Third-party retail(4)......... 13,027 12,954 14,924 17,074 18,230 16,243 22,536
Non-retail(5)................. 11,297 12,524 13,486 15,583 17,024 16,418 16,323
----------- ----------- ----------- ----------- ----------- --------- ---------
Net sales................... $ 115,732 $ 115,555 $ 117,348 $ 121,933 $ 126,742 $ 111,786 $ 155,806
----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- ---------
Gross profit.................... $ 72,298 $ 75,309 $ 76,338 $ 79,649 $ 82,764 $ 72,724 $ 99,767
Operating income (loss)......... (5,850) 3,290 7,945 10,801 12,539 17,733 18,638
Interest expense................ 8,913 9,237 9,455 9,235 10,346 7,780 9,373
Other income and expense........ 207 275 444 411 1,386 (1,068) (814)
Income tax (benefit)............ (358) (68) 349 250 276 209 (276)
Net income (loss)(6)............ (16,440) (5,604) (1,415) (1,171) 3,303 10,812 10,355
</TABLE>
<TABLE>
<CAPTION>
AUGUST 31, AUGUST 26, AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1994 1995(1) 1996(1) 1997(1) 1998(1) 1998 1999(2)
----------- ----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash and cash equivalents....... $ 1,359 $ 482 $ 380 $ 15,801 $ 13,081 $ 29,924 $ 23,844
Working capital (deficiency).... (5,549) (3,641) (4,349) 23,475 26,988 35,842 35,029
Total assets.................... 88,548 83,098 78,668 95,660 98,089 109,053 148,768
Total long-term debt............ 73,883 73,676 72,721 100,521 100,145 100,190 130,240
Shareholder's equity
(deficit)..................... (8,429) (14,033) (15,448) (16,619) (14,944) (5,807) (4,589)
</TABLE>
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
FISCAL YEAR ENDED ENDED
--------------------------------------------------------------- --------------------
AUGUST 31, AUGUST 26, AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1994 1995(1) 1996(1) 1997(1) 1998(1) 1998 1999(2)
----------- ----------- ----------- ----------- ----------- --------- ---------
(DOLLARS IN THOUSANDS) (UNAUDITED)
<S> <C> <C> <C> <C> <C> <C> <C>
OTHER DATA:
EBITDA(7)....................... 8,239 13,527 14,731 16,868 18,964 22,761 27,243
Cash provided by (used in):
Operating activities.......... (1,571) 4,551 4,117 3,919 4,206 18,325 18,089
Investing activities.......... (3,601) (1,958) (1,121) (3,688) (4,709) (3,370) (32,956)
Financing activities.......... 5,701 (3,470) (3,098) 15,190 (2,217) (832) 25,630
Depreciation and amortization... 13,216 9,999 6,807 5,932 6,233 4,833 8,396
Capital expenditures............ 3,655 2,325 2,280 3,688 4,574 3,370 4,954
Net sales growth................ 2.8% (0.2)% 1.6% 3.9% 3.9% 4.5% 39.4%
Gross margin.................... 62.5% 65.2% 65.1% 65.3% 65.3% 65.1% 64.0%
EBITDA margin(8)................ 7.1% 11.7% 12.6% 13.8% 15.0% 20.4% 17.5%
Ratio of earnings to fixed
charges(9).................... -- -- -- -- 1.2 2.0 1.7
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
NINE-MONTH PERIOD
FISCAL YEAR ENDED ENDED
--------------------------------------------------------------- --------------------
AUGUST 31, AUGUST 26, AUGUST 31, AUGUST 30, AUGUST 29, MAY 30, MAY 29,
1994 1995(1) 1996(1) 1997(1) 1998(1) 1998 1999(2)
----------- ----------- ----------- ----------- ----------- --------- ---------
(UNAUDITED)
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
STORE DATA:
Number of Company-operated
stores at period end(10):
Fannie May/Fanny Farmer
stores...................... 400 372 340 322 317 319 307
Sweet Factory stores.......... -- -- -- -- -- -- 253
----------- ----------- ----------- ----------- ----------- --------- ---------
Total number of stores...... 400 372 340 322 317 319 560
----------- ----------- ----------- ----------- ----------- --------- ---------
----------- ----------- ----------- ----------- ----------- --------- ---------
Increase in same store
sales(11)..................... 4.5% 3.4% 2.6% 5.2% 4.2% 4.7% 0.5%
</TABLE>
- ------------------------------
(1) In 1995, we changed our 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) Includes information for Sweet Factory for the period after December 6,
1998.
(3) Company-operated retail includes sale of products through our Fannie May
and Fanny Farmer stores and, for the period after December 6, 1998, our
Sweet Factory stores.
(4) Third-party retail includes sale of Fannie May and Fanny Farmer products
through grocery stores, drug stores and other independent retailers that
purchase our branded products at wholesale pricing for resale to the
consumer.
(5) Non-retail includes sale of Fannie May and Fanny Farmer products through
our quantity order, mail order and fundraising programs.
(6) Our 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. Our net loss for fiscal 1994 also includes a loss
of $0.7 million relating to the discontinued Fanny Farmer Homestead product
line. Our 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.
(7) 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, our measure of EBITDA may
not be comparable to that of other companies. EBITDA as reported herein for
fiscal 1994 excludes the loss relating to the discontinued Fanny Farmer
Homestead product line. In fiscal 1994, the Fanny Farmer Homestead product
line accounted for $0.9 million of third-party retail sales.
(8) EBITDA margin is EBITDA divided by net sales.
(9) For purposes of determining the ratio of earnings to fixed charges,
earnings are defined as earnings before income 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 us to be
attributable to interest. For fiscal 1994, 1995, 1996 and 1997, earnings
were insufficient to cover fixed charges by approximately $29.0 million,
$20.2 million, $15.2 million, $14.6 million, respectively.
(10) The term "stores" includes retail stores and kiosks, but not carts.
(11) 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
HISTORICAL FINANCIAL DATA" AND THE OTHER FINANCIAL INFORMATION AND DATA
APPEARING ELSEWHERE HEREIN. UNLESS OTHERWISE INDICATED, THE FOLLOWING DISCUSSION
RELATES TO THE COMPANY ON A HISTORICAL BASIS, WITHOUT GIVING EFFECT TO THE SWEET
FACTORY AND LAURA SECORD ACQUISITIONS AND RELATED FINANCINGS. UNLESS OTHERWISE
INDICATED, ALL REFERENCES TO STORES INCLUDE RETAIL STORES AND KIOSKS, BUT NOT
CARTS, AND ARE AS OF MAY 29, 1999.
OVERVIEW
We are a manufacturer and marketer of quality boxed chocolates and other
confectionery items. We manufacture a variety of candies and operate
confectionery retail chains under the Fannie May, Fanny Farmer, Sweet Factory
and Laura Secord brand names. We operate 735 Company-operated retail stores in
40 states and Canada: 233 Fannie May stores, 74 Fanny Farmer stores, 253 Sweet
Factory stores and 175 Laura Secord stores. In addition, we also sell our Fannie
May, Fanny Farmer and Laura Secord branded products in approximately 9,300
third-party grocery stores, drug stores, department stores and independent
retail accounts. We also sell our Fannie May and Fanny Farmer branded products
through a variety of non-retail programs, including our quantity order, mail
order and fundraising programs.
Historically, Company-operated retail has represented the most significant
distribution channel for our products, accounting for $91.5 million, or 72.2%,
of net sales in fiscal 1998. Our third-party retail and non-retail businesses
collectively accounted for $35.3 million, or 27.8%, of net sales in fiscal 1998.
We recently have turned our focus to growing sales and earnings by (1) building
on our Fannie May and Fanny Farmer brand names by increasing points of
availability for our products, (2) integrating the Sweet Factory and Laura
Secord brand names and stores with our existing operations and (3) acquiring
additional confectionery brands or complementary products and services.
Our costs of sales include costs associated with our manufactured products
and costs associated with product purchased from third parties and resold by us.
The principal elements of our manufactured product costs are raw materials,
labor and manufacturing overhead. Raw materials consist primarily of chocolate,
nutmeats, sweeteners and 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, we
generally have been able to raise prices of our Fannie May and Fanny Farmer
products equal to or in excess of any increases in cost of sales; however, there
can be no assurance that we will be able to continue to do so in the future.
Selling, general and administrative 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.
RESULTS OF OPERATIONS
The following table and discussion summarize our percentage of net sales,
pounds of product sold and average selling price, according to distribution
channel, and the number of our Company-operated
44
<PAGE>
stores, in each case, for the periods indicated, exclusive of the operation of
our Sweet Factory and Laura Secord subsidiaries.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED
-------------------------------------
AUGUST 31, AUGUST 30, AUGUST 29,
1996 1997 1998
----------- ----------- -----------
<S> <C> <C> <C>
PERCENTAGE OF 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
----------- ----------- -----------
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 PER POUND:
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 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 (1) closing unprofitable stores and (2) 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.
Pounds sold in third-party retail increased from 1.9 million in fiscal 1996
to 2.1 in fiscal 1998. As a percentage of net sales, third-party retail sales
increased from 12.7% to 14.4% over the same period. These increases reflect, in
part, 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. We recently launched the sale of Fannie May products in department stores,
specialty shops and card and gift stores, and expect third-party retail sales to
continue to grow as a percentage of net sales.
Pounds sold in non-retail increased from 1.5 million in fiscal 1996 to 1.9
million in fiscal 1998. As a percentage of net sales, non-retail sales increased
from 11.5% to 13.4% over the same period. These increases, which resulted
primarily from growth in net sales through our fundraising program and improved
product mix and merchandising, reflect the results of management's strategy to
expand non-retail sales.
NINE-MONTH PERIOD ENDED MAY 29, 1999 COMPARED TO NINE-MONTH PERIOD ENDED MAY 30,
1998
The discussion below with respect to the nine-month period ended May 29,
1999 includes information for our Sweet Factory subsidiary for the period after
December 6, 1998.
NET SALES. Consolidated net sales for the nine months ended May 29, 1999
were $155.8 million, an increase of $44.0 million, or 39.4%, from $111.8 million
for the nine months ended May 30, 1998. The growth in sales was primarily the
result of increased Company-operated retail sales resulting from
45
<PAGE>
the Sweet Factory acquisition, which accounted for $37.5 million, or 85.3%, of
the increase in net sales. Consolidated Company-operated retail net sales were
$116.9 million for the nine months ended May 29, 1999, an increase of $37.8
million, or 47.8%, from $79.1 million for the nine months ended May 30, 1998.
The Sweet Factory acquisition accounted for $37.5 million, or 99.3%, of the
increase. Net sales, without giving effect to the Sweet Factory acquisition, for
the nine months ended May 29, 1999 were $118.3 million, an increase of $6.5
million, or 5.8%, from $111.8 million for the nine months ended May 30, 1998.
Company-operated retail net sales, without giving effect to the Sweet Factory
acquisition, were $79.4 million for the nine months ended May 29, 1999, an
increase of $0.3 million, or 0.3%, from $79.1 million for the nine months ended
May 30, 1998. There were 307 Company-operated Fannie May and Fanny Farmer retail
stores at May 29, 1999 compared to 319 stores at May 30, 1998. For the nine
months ended May 29, 1999, Fannie May and Fanny Farmer third-party retail sales
were $22.5 million, an increase of $6.3 million, or 38.7%, from $16.2 million
for the nine months ended May 30, 1998. This increase reflects the continued
results of management's strategy to expand third-party retail sales into new
markets. For the nine months ended May 29, 1999 and May 30, 1998, non-retail
sales were $16.3 million and $16.4 million, respectively.
GROSS PROFIT. Consolidated gross profit for the nine months ended May 29,
1999 was $99.8 million, an increase of $27.0 million, or 37.2%, from $72.7
million for the nine months ended May 30, 1998. The Sweet Factory acquisition
accounted for $24.2 million, or 89.6%, of the increase. Consolidated gross
profit as a percentage of net sales decreased to 64.0% for the nine months ended
May 29, 1999 from 65.1% for the nine months ended May 30, 1998. Gross profit,
without giving effect to the Sweet Factory acquisition, for the nine months
ended May 29, 1999 was $75.5 million, an increase of $2.8 million, or 3.9%, from
$72.7 million for the nine months ended May 30, 1998. Gross profit as a
percentage of net sales, without giving effect to the Sweet Factory acquisition,
decreased to 63.9% for the nine months ended May 29, 1999 from 65.1% for the
nine months ended May 30, 1998 due to the shift in mix towards lower gross
margin sales.
SELLING, GENERAL AND ADMINISTRATIVE. Consolidated SG&A expenses for the
nine months ended May 29, 1999 were $72.3 million, an increase of $22.6 million,
or 45.4%, from $49.8 million for the nine months ended May 30, 1998. The Sweet
Factory acquisition accounted for $21.4 million, or 94.9%, of the increase. As a
percentage of total net sales, SG&A expenses increased to 46.4% for the nine
months ended May 29, 1999 from 44.5% for the nine months ended May 30, 1998.
SG&A expenses, without giving effect to the Sweet Factory acquisition, for the
nine months ended May 29, 1999, were $50.9 million, an increase of $1.2 million,
or 2.3%, from $49.8 million for the nine months ended May 30, 1998. This
increase in SG&A expenses was primarily due to the growth in our third-party
retail channel. SG&A expenses as a percentage of net sales, without giving
effect to the Sweet Factory acquisition, decreased to 43.1% for the nine months
ended May 29, 1999 from 44.5% for the nine months ended May 30, 1998.
EBITDA. Consolidated EBITDA was $27.2 million for the nine months ended May
29, 1999, an increase of $4.5 million, or 19.7%, from $22.8 million for the nine
months ended May 30, 1998. The Sweet Factory acquisition accounted for $2.8
million, or 63.0%, of the increase. As a percentage of total net sales,
consolidated EBITDA was 17.5% for the nine months ended May 29, 1999 as compared
to 20.4% for the nine months ended May 30, 1998. EBITDA, without giving effect
to the Sweet Factory acquisition, was $24.4 million for the nine months ended
May 29, 1999, an increase of $1.7 million, or 7.3%, from $22.8 million for the
nine months ended May 30, 1998. EBITDA as a percentage of total net sales,
without giving effect to the Sweet Factory acquisition, was 20.7% for the nine
months ended May 29, 1999 as compared to 20.4% for the nine months ended May 30,
1998.
OPERATING INCOME (LOSS). Consolidated operating income was $18.6 million
for the nine months ended May 29, 1999, an increase of $0.9 million, or 5.1%,
from operating income of $17.7 million for the nine months ended May 30, 1998.
The Sweet Factory acquisition accounted for an operating loss of
46
<PAGE>
$0.5 million. Operating income, without giving effect to the Sweet Factory
acquisition, was $19.2 million for the nine months ended May 29, 1999, an
increase of $1.4 million, or 8.1%, from income of $17.7 million for the nine
months ended May 30, 1998. The growth resulted from the increase in EBITDA
partially offset by higher depreciation and amortization expense.
FISCAL YEAR ENDED AUGUST 29, 1998 COMPARED TO FISCAL YEAR ENDED AUGUST 30, 1997
NET SALES. 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
operation of five fewer 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 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 net sales partially offset by an
increase in manufactured and purchased product costs. Gross profit as a
percentage of 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 net sales, SG&A decreased to 50.1% in fiscal 1998 from 51.2% in fiscal 1997
as we were able to leverage our costs against higher 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 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
primarily reflects an increase in EBITDA and EBITDA Margin.
FISCAL YEAR ENDED AUGUST 30, 1997 COMPARED TO FISCAL YEAR ENDED AUGUST 31, 1996
NET SALES. 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, with a decrease in
Company-operated retail pounds sold offset by an increase in pounds sold through
third-party retail and non-retail channels. 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
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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 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 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 net sales, SG&A decreased to 51.2% in fiscal 1997
from 52.1% in fiscal 1996, as we were able to leverage our costs against higher
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 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
Our liquidity requirements have arisen principally from various capital
expenditures, seasonal and general working capital requirements and debt service
obligations. We have satisfied these requirements during the past three fiscal
years primarily with (1) long-term and seasonal borrowings, (2) the proceeds of
the offerings of our senior secured notes, of which $170.0 million is currently
outstanding, and (3) cash generated by operating activities. During fiscal 1996,
1997 and 1998, the net cash generated by our operating activities was $4.1
million, $3.9 million and $4.2 million, respectively.
On July 2, 1997, we entered into a revolving credit agreement. On July 30,
1999, we amended our revolving credit agreement and caused our Canadian
subsidiary, Archibald Candy (Canada) Corporation, to enter into an additional
related revolving credit agreement with a Canadian affiliate of the agent under
our original credit agreement. The two credit agreements work together to
provide for revolving loans to us and Archibald Candy (Canada) Corporation in an
aggregate principal amount at any time not to exceed the lesser of (1) $20.0
million and (2) a borrowing base comprised primarily of a percentage of eligible
accounts receivable, eligible inventory and some of our owned real properties.
Archibald Candy (Canada) Corporation may separately borrow up to an aggregate
principal amount not to exceed the lesser of (a) $5.0 million and (b) a
borrowing base comprised primarily of a percentage of our eligible accounts
receivable, eligible inventory and some of our owned real properties, provided
that the aggregate amount of revolving loans under the two credit agreements
together may not exceed $25.0 million. For fiscal 1998, there were no borrowings
under our revolving credit facility, although letters of credit in the amount of
$0.5 million were issued under this facility. As of May 29, 1999, our cash
balance was $23.8 million. As of the date of this prospectus, we have borrowings
of approximately $5.0 million and letters of credit in the amount of $0.5
million outstanding
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under our original revolving credit agreement and Archibald Candy (Canada)
Corporation has no borrowings or letters of credit outstanding under its
revolving credit agreement.
Inventories historically have represented our most significant working
capital requirement and inventory levels fluctuate significantly during the
year. Our ratio of inventories to net sales is typically highest during the
fourth fiscal quarter when we experience lower seasonal demand for our products
and begin to build inventories for our key sales periods. See "--Quarterly
Results and Seasonality." We do not expect our recent acquisitions of Sweet
Factory and Laura Secord to materially change this seasonal trend. Receivables
have not been a material component of our working capital because sales through
our Company-operated stores are made on a cash or credit card basis. As we
continue to pursue a strategy to develop our 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,
we expect our working capital needs relating to receivables and inventory to
increase.
Our 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 our management information systems. Our management expects that
capital expenditures for fiscal 1999, 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 and (2) improvements in our
management information systems. Our management expects to spend approximately
$8.4 million for such capital expenditures in fiscal 1999, of which
approximately $4.5 million will be maintenance capital expenditures.
In addition, we intend to spend approximately $5.7 million in fiscal 1999
for various cost savings initiatives undertaken in connection with the
consolidation of Sweet Factory's operations with our existing operations. Such
expenditures 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
integrate Sweet Factory's operations with our current operations. Also, in order
to extend our license of the Sweet Factory trademark for the ten-year period
beyond the year 2000, we will have to pay an $825,000 renewal fee.
Based upon our current level of operations and anticipated growth, our
management believes that available cash flow, together with cash on our balance
sheet and available borrowings under our revolving credit facility, will be
adequate to meet our anticipated future requirements for capital expenditures,
working capital and debt service obligations. Our revolving credit facility
expires on April 15, 2001. For the period after April 15, 2001, we will need to
extend or renew our revolving credit facility or obtain alternative financing to
meet our seasonal working capital needs and other requirements.
In addition, Holdings has certain dividend and redemption obligations for
which we 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
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addition, beginning in January 2000, some holders of Holdings' Class A Common
Stock and Class D Common Stock, which include affiliates of TCW capital and The
Jordan Company, have the right to require Holdings to either initiate a sale of
us or redeem their shares of Common Stock.
In order for Holdings to make such redemption payments, Holdings must cause
us, to the extent permitted by the indenture and our revolving credit facility,
to advance the necessary funds to Holdings by dividend or otherwise. Such
advances, if paid, will reduce the funds available for our operations. To the
extent that such funds are not available, whether due to the restrictions set
forth in the indenture or our revolving credit facility 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 our Boards of Directors.
Instruments governing our indebtedness, including the indenture and our and
Archibald Candy (Canada) Corporation's revolving credit agreements contain
financial and other covenants that restrict, among other things, our 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 our assets, consummate certain
other asset sales and enter into certain transactions with affiliates. Our
revolving credit facility prohibits, except in limited circumstances, us from
making dividend payments or other distributions on our outstanding shares of
capital stock if either (1) some defaults under our revolving credit facility
have occurred and are 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
limited circumstances, we will not, and will not permit any of our subsidiaries
to, make dividend payments or other distributions on our 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 occur as a consequence
thereof, (b) immediately after such distribution, we would comply with interest
coverage ratios set forth in the indenture 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 from the sale of
securities. In addition, our revolving credit facility requires us 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, we comply with minimum interest coverage ratios set
forth in the indenture. Such limitations, together with our highly leveraged
nature, could limit corporate and operating activities, including our 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 our
operating profit. In addition, store operating costs, including most of our
retail store leases which require us to pay additional rent based on a
percentage of sales as well as taxes, insurance and maintenance expenses, are
subject to inflation. Although our recent results 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 our operating results.
QUARTERLY RESULTS AND SEASONALITY
Our sales and earnings are highly seasonal. Historically, our 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. Our sales generally have been lowest during the fourth fiscal
quarter, reflecting reduced demand for our products during the summer months and
resulting in an EBITDA loss in this period. We expect Laura Secord's sales to
exhibit a similar seasonality. In light of the seasonality of our business,
results for any interim period are not necessarily indicative of the
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results that may be realized for the full year. Our working capital requirements
also fluctuate throughout the year based on our inventories in anticipation of
sales. Such inventory requirements generally are highest during the first four
months of each fiscal year as we increases our raw material and other
inventories to accommodate anticipated product sales for the Christmas,
Valentine's Day and Easter holiday seasons.
The following table summarizes our net sales and EBITDA, exclusive of our
Sweet Factory and Laura Secord operations, by quarter for fiscal 1998 and the
first three quarters of fiscal 1999.
<TABLE>
<CAPTION>
FIRST SECOND FOURTH FIRST SECOND
QUARTER QUARTER THIRD QUARTER QUARTER QUARTER THIRD
ENDED ENDED QUARTER ENDED ENDED ENDED QUARTER
NOV. 29, FEB. 28, ENDED MAY AUG. 29, NOV. 28, FEB. 27, ENDED MAY
1997 1998 30, 1998 1998 1998 1999 29, 1999
--------- --------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Net sales............................ $ 27,173 $ 58,397 $ 26,216 $ 14,956 $ 29,648 $ 61,602 $ 27,010
EBITDA............................... 1,057 19,588 2,116 (3,797) 1,465 20,402 2,554
</TABLE>
During the fiscal year ended August 29, 1998, Sweet Factory had net sales of
$77.7 million, of which net sales by quarter were approximately 22%, 29%, 23%
and 26%, respectively. During the twelve-month period ended November 28, 1998,
Laura Secord had net sales of $56.0 million.
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 our
supply, manufacturing, processing, distribution and financial chains.
We have surveyed substantially all of our internal computer systems and are
in the process of contacting suppliers and consultants to address year 2000
issues for the software and hardware that we use. We also are in the process of
upgrading and improving our internal computer systems, which work is expected to
be completed by October 1999. Following the completion of this work and based on
the representations and warranties of our suppliers and consultants, we expect
our internal computer systems and those of our key suppliers to be year 2000
compliant by the end of 1999. We do not believe that the costs associated with
making our internal computer systems year 2000 compliant will be material.
However, if our systems or the systems of other companies on whose services we
depend or with whom our systems interface are not year 2000 compliant on a
timely basis, it could have a material adverse effect on our results of
operation and financial condition. Nestle has provided us with limited
representations and indemnification as to the year 2000 compliance of the Laura
Secord assets that we have acquired. However, we have not independently
confirmed the year 2000 compliance of such assets.
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BUSINESS
THE COMPANY
We are a manufacturer and marketer of quality boxed chocolates and other
confectionery items. Founded in 1921, we manufacture a variety of candies and
operate confectionery retail chains under the Fannie May, Fanny Farmer, Sweet
Factory and Laura Secord brand names. As of May 29, 1999, we operated 735 retail
stores in 40 states and Canada: 233 Fannie May stores, 74 Fanny Farmer stores,
253 Sweet Factory stores, and 175 Laura Secord stores. In addition, we sell our
Fannie May, Fanny Farmer and Laura Secord branded products in approximately
9,300 third-party retail outlets. We also sell our Fannie May and Fanny Farmer
branded products through our quantity order, mail order and fundraising
programs. We believe that consumers widely recognize our products for their
quality, freshness and value, and that the Fannie May, Fanny Farmer, Sweet
Factory and Laura Secord brand names are among the strongest in the
confectionery industry and offer significant opportunities for growth.
CONFECTIONERY INDUSTRY OVERVIEW
The U.S. confectionery industry had 1997 retail sales of approximately $23
billion. The U.S. 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 U.S.
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 U.S. non-chocolate and chocolate sectors grew at
the rates of 18.9% and 6.4%, respectively. Within the U.S. chocolate sector,
total sales of boxed chocolates were approximately $1.6 billion in 1997. Our
management believes that the Canadian confectionery industry had 1997 retail
sales of approximately $1.2 billion.
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 September 1992 to complement our existing Fannie May brand. Our
acquisition of Sweet Factory in December 1999 provided us with a leading name in
non-chocolate, bulk candy retail. Our acquisition of Laura Secord in June 1999
provided us with the leading retailer of boxed chocolates in Canada. We expect
to continue to grow our brands with a strategy that includes the following key
elements:
CONTINUE TO IMPROVE 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. Our
Fannie May and Fanny Farmer stores had average annual sales of approximately
$286,000 in fiscal 1998 and achieved average annual same store sales growth of
4.0% during the past five years. Our Sweet Factory stores had average annual
sales of approximately $304,000 for the twelve month period ended December 31,
1998. Historically, Sweet Factory has experienced an increase in same store
sales, although, since 1997, same store sales have declined. Our Laura Secord
stores had average annual sales of approximately $286,000 over the same period.
Laura Secord experienced negative same store sales results in the first and
second quarters of 1999. We believe there are opportunities to improve the
performance of our Sweet Factory stores and Laura Secord stores by implementing
many of the same retail store strategies that improved the operations of our
Fannie May and Fanny Farmer stores.
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INCREASE PRODUCT AVAILABILITY THROUGH COMPANY-OPERATED STORES AND
THIRD-PARTY RETAIL PROGRAMS. Our strategy of increasing product availability is
based on cross-marketing Fannie May and Sweet Factory product offerings in our
Company-operated stores as well as increasing sales of all of our brands through
third-party retail channels.
- COMPANY-OPERATED STORES. We believe that our recent 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 some of our Fannie May boxed chocolates
in our Sweet Factory stores. We also intend to distribute some Sweet
Factory products through our 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 specialty 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 sales
through our Fannie May and Fanny Farmer 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 (1) service
approximately 1,200 grocery, drug and variety stores in the greater
Chicago metropolitan area, on a year-round basis, and (2) target
department stores, specialty shops and card and gift stores nationwide,
particularly 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;
- distributing certain Sweet Factory products through selected third-party
retailers who currently carry our Fannie May or Fanny Farmer branded
products; and
- continuing to expand Laura Secord's distribution in Canada through agency
accounts and sales to the combo stores.
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;
- 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 for all of our brands without the overhead generally associated
with maintaining a retail store presence. We intend to make certain Sweet
Factory products available through our quantity order, mail order and
fundraising programs. We also intend to explore developing non-retail sales
programs to increase the sale of Laura Secord products in Canada.
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PURSUE STRATEGIC ACQUISITIONS. We intend to continue to pursue selective
acquisitions that complement or provide further opportunities to use our brands,
manufacturing resources and/or distribution systems.
PRODUCTS
We manufacture over three-quarters of the products that we sell under our
Fannie May and Fanny Farmer brands and maintain proprietary specifications for a
significant amount of the confectionery products, such as seasonal novelties,
that we purchase from other sources for resale. Our manufactured products
include more than 125 items, including our best selling Pixie, Mint Meltaway and
Trinidad lines. Products sourced from vendors for resale under our Fannie May
and Fanny Farmer brands include assorted nuts, hard candy, novelties, ice cream
and an extensive line of gift items. We believe that the superior quality and
freshness of our products differentiates us from many other confectionery
manufacturers. We rely on proven recipes, many dating back to the 1920s, for our
traditional chocolates. Because we rely on freshness rather than preservatives
to ensure a high-quality product, it is our policy to destroy products not sold
within specified periods.
Our 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. Our Sweet Factory stores also sell 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.
We purchase substantially all of the products that we sell in our Sweet Factory
stores from independent distributors and manufacturers that deliver the products
directly to Sweet Factory's stores. We believe that our Sweet Factory stores
will provide us with an effective distribution platform for our 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 our output of manufactured
products.
Our Laura Secord stores sell approximately 375 different candies, including
a variety of popular boxed chocolates and individual chocolate pieces, fudge,
ice cream, nuts, dietetic candy and novelty and other items.
- For the year ended December 31, 1998, chocolate items accounted for
approximately 72% of Laura Secord's net sales. We entered into a co-pack
agreement with Nestle on June 8, 1999 pursuant to which Nestle has agreed
to produce for sale to us for a one-year period substantially all of the
boxed chocolates and other chocolate confectionery items that we will sell
in our Laura Secord stores. During this period, we intend to transition
Laura Secord's chocolate production to our Chicago, Illinois manufacturing
facility. We believe that we can capture significant efficiencies by
consolidating Laura Secord's chocolate production with our existing
manufacturing operations.
- For the year ended December 31, 1998, premium scooped ice cream accounted
for approximately 21% of Laura Secord's net sales. Our management believes
that ice cream, due to its impulse nature and positioning at the perimeter
of Laura Secord stores, acts as an important consumer pull for Laura
Secord stores. We entered into a two year supply agreement with an
affiliate of Nestle on June 8, 1999 pursuant to which such affiliate will
supply all of the ice cream requirements of our Laura Secord stores. We
have the right under the supply agreement to extend the term for two
additional two-year periods.
- For the year ended December 31, 1998, novelty items made primarily for the
Easter, Christmas and Valentine's Day holiday seasons accounted for
approximately 7% of Laura Secord's net sales. Laura Secord sells more than
150 varieties of novelty and other items.
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OPERATIONS
MANUFACTURING AND PRODUCTION. All of our manufacturing operations are
located in our headquarters facility in Chicago, Illinois. Our headquarters
facility includes space for manufacturing, cold and dry storage and office and
administrative functions. As part of the cost savings initiatives we have
undertaken following the acquisition of Sweet Factory, we closed on March 31,
1999 Sweet Factory's office, manufacturing and distribution facilities in San
Diego, California and consolidated such operations into our Chicago, Illinois
headquarters facility.
The manufacturing process at our headquarters facility 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 plant for our 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 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 plant are
hand-packed into boxes for sale through our Company-operated retail or
other distribution channels. We utilize 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
our Company-operated stores so that customers can select their own
assortments.
Our plant currently operates on a seasonal basis with the busiest
seven-month period commencing after Labor Day and running through Easter. After
Easter, we reduce 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 our stores, we maintain 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 our products. Employees generally
fill orders daily to allow weekly deliveries to each of our Company-operated
Fannie May and Fanny Farmer retail locations and on an "as needed" basis to
others. Our fleet of 24 trucks services all of our Fannie May and Fanny Farmer
stores, with the exception of our Florida, Minnesota and North Dakota store
locations. Our trucks are refrigerated in order to provide appropriate shipping
conditions for pan candy, pre-boxed chocolates and necessary shop supplies.
Independent distributors, parcel services and selected common carriers and
freight forwarding companies supply all of our other sales channels and stores,
including all of our Sweet Factory and Laura Secord stores.
SUPPLIERS AND PURCHASING. Our primary raw materials include chocolate
coatings, nutmeats, natural sweeteners, such as corn syrup and sugar, and dairy
products, including sweetened-condensed milk, high-butterfat cream and butter.
Except as set forth below, we have long-standing relationships with our
suppliers for each of these products to ensure quality, consistency and cost
control. Written specifications are provided to our suppliers and certificates
of analysis must accompany incoming shipments. Peter's Chocolate Company, a
division of Nestle Company, Inc., has been our primary
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<PAGE>
chocolate coating supplier for over 50 years and accounted for approximately
one-half of our chocolate purchases in fiscal 1998 for our Fannie May and Fanny
Farmer branded products. Merckens Chocolate Company, a division of
Archer-Daniels-Midland Company, also has been one of our leading suppliers of
chocolate coating for over 20 years, and accounted for approximately one-third
of our chocolate purchases in fiscal 1998 for our Fannie May and Fanny Farmer
branded products. We believe that we are one of the leading bulk customers, by
volume, of each of Peter's and Merckens. We currently have short term, less than
one year, supply agreements with each of Peter's and Merckens. We recently
entered into a two year supply agreement with Blommer Chocolate Company, a
company with whom we have not had a prior business relationship. In fiscal 1999,
we expect to purchase approximately 50%, 40% and 10% of our chocolate coatings
from Blommer, Merckens and Peter's, respectively. All chocolate coatings
prepared for us are proprietary and are produced according to our recipes.
MARKETING AND SALES
We sell our candy products through three channels: (1) Company-operated
retail, (2) third-party retail and (3) non-retail.
COMPANY-OPERATED RETAIL. As of May 29, 1999, we operated 233 Fannie May
stores, 74 Fanny Farmer stores, 253 Sweet Factory stores, and 175 Laura Second
stores. These stores were located in 40 states, the District of Columbia, Puerto
Rico, and 9 provinces of Canada as follows:
<TABLE>
<CAPTION>
FANNIE FANNY SWEET LAURA TOTAL
STATE/PROVINCE MAY FARMER FACTORY SECORD STORES
- --------------------------------------------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Illinois..................................... 159 -- 6 -- 165
Ontario...................................... -- -- -- 88 88
California................................. -- -- 69 -- 69
Quebec....................................... -- -- -- 52 52
New York..................................... -- 18 15 -- 33
Florida...................................... 10 2 17 -- 29
Indiana...................................... 24 -- 3 -- 27
Minnesota.................................... 3 23 1 -- 27
Michigan..................................... 8 9 6 -- 23
Washington................................... -- -- 16 -- 16
Ohio......................................... -- 3 10 -- 13
Texas........................................ -- -- 13 -- 13
Alberta...................................... -- -- -- 12 12
Massachusetts................................ -- 5 7 -- 12
Pennsylvania................................. 6 -- 6 -- 12
Wisconsin.................................... 6 6 -- -- 12
Missouri..................................... 7 -- 2 -- 9
New Jersey................................... 1 -- 8 -- 9
Arizona...................................... -- -- 8 -- 8
Nevada....................................... -- -- 8 -- 8
Virginia..................................... 4 -- 4 -- 8
Maryland..................................... 2 -- 5 -- 7
Manitoba..................................... -- -- -- 6 6
British Columbia............................. -- -- -- 5 5
Colorado..................................... -- -- 5 -- 5
Georgia...................................... -- -- 5 -- 5
Hawaii....................................... -- -- 5 -- 5
Iowa......................................... 2 3 -- -- 5
Oregon....................................... -- -- 5 -- 5
</TABLE>
56
<PAGE>
<TABLE>
<CAPTION>
FANNIE FANNY SWEET LAURA TOTAL
STATE/PROVINCE MAY FARMER FACTORY SECORD STORES
- --------------------------------------------- --------- ---------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C>
Connecticut.................................. -- -- 4 -- 4
District of Columbia......................... 1 -- 3 -- 4
New Brunswick................................ -- -- -- 4 4
Nova Scotia.................................. -- -- -- 4 4
Louisiana.................................... -- -- 3 -- 3
New Hampshire................................ -- 2 1 -- 3
Saskatchewan................................. -- -- -- 3 3
Tennessee.................................... -- -- 3 -- 3
Kansas....................................... -- -- 2 -- 2
Kentucky..................................... -- -- 2 -- 2
Mississippi.................................. -- -- 2 -- 2
New Mexico................................... -- -- 2 -- 2
Rhode Island................................. -- 2 -- -- 2
Alabama...................................... -- -- 1 -- 1
Delaware..................................... -- -- 1 -- 1
Nebraska..................................... -- -- 1 -- 1
Newfoundland................................. -- -- -- 1 1
North Carolina............................... -- -- 1 -- 1
North Dakota................................. -- 1 -- -- 1
Puerto Rico.................................. -- -- 1 -- 1
South Carolina............................... -- -- 1 -- 1
Utah......................................... -- -- 1 -- 1
--
--- --- --- ---
Total...................................... 233 74 253 175 735
--
--
--- --- --- ---
--- --- --- ---
</TABLE>
In fiscal 1998, sales through our Fannie May and Fanny Farmer stores
accounted for $91.5 million, or 72.2%, of our net sales. While our 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.
Our Fannie May and Fanny Farmer stores had average annual sales of
approximately $286,000 in fiscal 1998 and achieved average annual same store
sales growth of 4.0% during the past five fiscal years. Our Sweet Factory stores
had average annual sales of approximately $304,000 for the twelve-month period
ended December 31, 1998. Historically, Sweet Factory has experienced an increase
in same store sales, although, since 1997, same store sales have declined. Our
Laura Secord stores had average annual sales of approximately $286,000 over the
same period. Laura Secord experienced negative same store sales in the first and
second quarters of 1999. We believe there are opportunities to improve the
performance of our recently acquired Sweet Factory and Laura Secord stores by
implementing many of the same retail store strategies that improved the
operations of our Fannie May and Fanny Farmer stores. In addition, we believe
that the acquisition of Sweet Factory provides us with an opportunity to
increase product availability nationwide by cross-marketing Fannie May and Sweet
Factory product offerings in Company-operated stores. We anticipate that the
sale of our Fannie May products in our Sweet Factory stores will increase both
revenues in Sweet Factory's stores and our output of manufactured products.
Prior to the acquisition, the Sweet Factory stores had limited boxed chocolate
offerings. Since the acquisition, we have begun selling some of our Fannie May
boxed chocolates in our Sweet Factory stores. We also intend to distribute
certain non-chocolate Sweet Factory products through our Fannie May and Fanny
Farmer stores.
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<PAGE>
We own 33 Fannie May stores and lease the remainder of our stores. These
owned stores typically are in stand-alone roadside structures and tend to be
among our highest grossing sales locations. Our leased stores are in the
following locations: 479 in shopping malls, 103 in strip centers, 55 in street-
front units and 65 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, we have been able to
renew our store leases upon expiration.
The size of our Fannie May, Fanny Farmer and Sweet Factory stores, including
both leased and Company-owned stores, excluding carts and kiosks, 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. Fannie May and Fanny Farmer customers
are served primarily by store staff, although many of the larger Fannie May and
Fanny Farmer stores also have a self-service section with prepacked boxes. Sweet
Factory's stores are primarily self-serve. We control each store's design,
signage and layout to maintain consistency among all Fannie May, Fanny Farmer
and Sweet Factory stores.
Our Laura Secord Company-operated retail stores consist of both classic
stores and combo stores. Classic stores are traditional Laura Secord stores that
offer Laura Secord chocolates, premium scooped ice cream and other novelty
products. A typical layout for a classic store consists of a central island
containing individual chocolates, novelties, an ice cream scooping area and cash
registers surrounded by wall displays of packaged chocolates and novelties. As
of December 31, 1998, Laura Secord operated 160 classic stores averaging
approximately 765 square feet in size. These stores had average annual sales of
approximately $286,000 in 1998.
Combo stores are co-branded Laura Secord and Hallmark retail stores that
sell Laura Secord products and gifts together with Hallmark greeting cards and
gifts in a single, integrated unit. The Laura Secord portion of the store
resembles a classic store in that it includes packaged chocolate displays as
well as an individual chocolate and ice cream scooping counter area. The
Hallmark portion of the floor space is primarily comprised of display racks of
Hallmark greeting cards. The combo stores are operated as a joint venture
between Laura Secord and an affiliate of Hallmark. Laura Secord sells its
products to the combo stores at wholesale prices and accounts for its interest
in the joint venture using equity accounting principles. Laura Secord is
responsible for the management of the stores and receives a management fee for
such services equal to 4% of net sales. Profits are split evenly between Laura
Secord and Hallmark, and each party receives a manufacturer's margin on the
products purchased by the joint venture. As of December 31, 1998, Laura Secord
operated 18 combo stores averaging approximately 3,400 square feet in size.
These stores had average annual sales of approximately $462,000 in 1998.
Since fiscal 1993, we have 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 us in
fiscal 1992 as part of our 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 our 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
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<PAGE>
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 AUGUST 29, 1998
--------------- --------------- --------------- --------------- ---------------
<S> <C> <C> <C> <C> <C>
OPENINGS:
Fannie May..................... 8 7 4 4 9
Fanny Farmer................... 4 5 0 0 0
-- -- -- -- --
Total........................ 12 12 4 4 9
-- -- -- -- --
-- -- -- -- --
CLOSINGS:
Fannie May..................... 23 10 7 6 1
Fanny Farmer................... 22 30 29 16 13
-- -- -- -- --
Total........................ 45 40 36 22 14
-- -- -- -- --
-- -- -- -- --
</TABLE>
Our 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, 10 Fannie May stores and 10 Laura Secord stores, and close
approximately 40 additional unprofitable stores, including approximately 20
Sweet Factory stores and 1 Laura Secord store.
THIRD-PARTY RETAIL. Through our third-party retail channel, we market our
Fannie May and Fanny Farmer branded products to grocery stores, drug stores,
card and gift stores, department stores and other variety stores through our
frozen fresh, specialty market and mass market programs. We also market our
Laura Secord branded products through approximately 1,300 drug and department
stores located throughout Canada. These programs are designed to make our Fannie
May, Fanny Farmer and Laura Secord branded products more readily available to
consumers in new and existing markets. Within the mid-priced segment of the
boxed chocolate market, our management has implemented a two-tiered distribution
and pricing strategy to differentiate our Fannie May and Fanny Farmer brand
names. We utilize the Fannie May brand for our higher price point frozen fresh
and specialty markets programs and have positioned the Fanny Farmer brand at a
lower price point for the mass market.
Under the frozen fresh program, we distribute Fannie May and Fanny Farmer
branded frozen products to retailers who then maintain the products in freezer
display cases for sale to their customers. We 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 our best-selling assortments through independent retailers on a
year-round basis. We have 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 our frozen fresh sales. These
accounts generally purchase Fannie May branded products from us 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 our net sales.
In fiscal 1996, we 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, we have 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 our net
sales.
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<PAGE>
In fiscal 1997, we announced the roll-out of our specialty markets program
through which we market products 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 chocolates
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.,
we 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 our
net sales.
We intend to strengthen our third-party retail product line by making
certain of Sweet Factory's products available through selected third-party
retailers who currently carry our Fannie May or Fanny Farmer branded products.
We also intend to continue to expand Laura Secord's third-party retail sales
through agency accounts and sales to the combo stores.
NON-RETAIL. Our non-retail channel consists of sales of our Fannie May and
Fanny Farmer branded products through our 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, we are responsible for all of the
administrative details and timely delivery of product. Historically, we have
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. Our 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. We also have targeted fundraising organizations, including over 90,000
schools throughout the United States, for our product offerings. For fiscal
1998, quantity order and fundraising sales accounted for $10.6 million, or 8.4%,
of our net sales.
In addition, we sell our Fannie May and Fanny Farmer branded products
through a 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. We send Fannie May mail order catalogs to established
and prospective customers during key selling seasons. Mail order catalogs also
are made available to the general public through our 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 our net sales. We believe that
this growth is the result of improved product selection and catalog presentation
as well as more effective database management. We intend to strengthen our
non-retail product line by making some of Sweet Factory's non-chocolate products
available through our quantity order, mail order and fundraising programs. We
also intend to explore developing non-retail sales programs to increase the sale
of Laura Secord products in Canada.
COMPETITION
We compete with numerous local and national businesses that manufacture,
distribute or retail boxed chocolates and other confectionery products. We also
compete 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 our products.
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<PAGE>
Our Fannie May and Fanny Farmer products generally compete in the quality
boxed chocolate market, which our management believes can be divided into
premium, mid-priced and low-priced segments. The low-priced segment in the
United States, 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.
We believe that our Fannie May and Fanny Farmer products compete primarily in
the mid-priced segment though we also compete against Russell Stover Candies and
other lower-priced suppliers in certain distribution channels.
The mid-priced boxed chocolate segment in the United States is generally
comprised of those chocolates which retail for between $10.00 and $18.00. The
competition for our Fannie May and Fanny Farmer branded products in the
mid-priced segment consists primarily of local confectionery companies against
whom we compete through Company-operated stores on the basis of price and
quality. We believe that See's Candies, a subsidiary of Berkshire Hathaway Inc.,
is the largest participant in the mid-priced segment.
The premium boxed chocolate segment in the United States generally is
comprised of chocolates retailing in excess of $18.00. The leading participant
in this segment is Godiva Chocolatier, Inc. Other brands in this market include
Perugina, Tobler and Lindt. Most of these chocolates are imported from abroad
and, despite their high prices, our management does not believe that such brands
provide the same freshness as our chocolates. We compete in the premium segment
on the basis of quality and packaging primarily through third-party retail sales
of our Fannie May branded products in department stores.
There are only a few national or regional confectionery retailers that
directly compete with our Sweet Factory stores in the bulk candy retail market.
The largest of these competitors are Mr. Bulky, Candy Express, FAO Schweetz and
Sweets From Heaven. Sweet Factory also competes with other confectionery
retailers, including grocery stores, drug stores and toy stores.
The competition for our Laura Secord branded boxed chocolates consists
primarily of (1) Purdy's, a private, family-owned Canadian chocolate retailer,
which has an estimated 50 stores located primarily in the provinces of British
Columbia and Alberta, and (2) Godiva which has an estimated six stores in
Canada. In the scooped ice cream segment, our management believes that Laura
Secord competes primarily with Baskin Robbins, a scooped ice cream store chain
with approximately 270 franchised locations throughout Canada, and numerous
independent retailers.
EMPLOYEES
As of May 29, 1999, we employed approximately 3,329 people, of which 1,287
worked in Fannie May stores, 340 worked in Fanny Farmer stores, 1,017 worked in
Sweet Factory stores, and the remainder worked primarily in our Chicago,
Illinois headquarters facility and our Bensalem, Pennsylvania warehouse and
distribution facility. Of the total number of employees, 611 were salaried.
Typically, the number of employees increases by approximately 1,000, many of
whom work part-time in our Company-operated retail stores, during periods of
high seasonal retail demand in our second and third fiscal quarters. As of May
29, 1999, over one-half of the hourly store personnel were employed on a
part-time basis. As of May 29, 1999, approximately 800 of our employees were
members of one of the various labor unions that represent our employees. We
currently are subject to seven collective bargaining agreements, all of which
expire on or before March 31, 2003. None of our Sweet Factory or Laura Secord
retail store employees are represented by labor unions. Our management generally
considers our employee relations to be good. See "Risk Factors--Dependence on
Key Personnel" and "--Labor Relations."
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<PAGE>
INTELLECTUAL PROPERTY
We own numerous trademarks. The names Fannie May, Fanny Farmer and Laura
Secord and product names, including Pixie and Trinidad, are registered
trademarks of ours. Our trademarks are material to the sale of our 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.
Our Sweet Factory subsidiary has an exclusive license from United Sweet
Factory Limited, the owner of the "Sweet Factory" trademark, to operate stores
under the "Sweet Factory" name and design 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. See "Risk Factors--Trademarks."
PROPERTIES
As of May 29, 1999, on a pro forma basis we operated 233 Fannie May stores,
74 Fanny Farmer stores, 253 Sweet Factory stores and 175 Laura Secord stores. Of
the 233 Fannie May stores, 33 are owned by us and 200 are leased by us. We lease
all of our Fanny Farmer, Sweet Factory and Laura Secord stores. Within four
years following May 29, 1999, approximately 58% of our retail store leases are
due to expire. We believe that we will be able to renew expiring leases at
reasonable rates in the future, but we cannot assure you that we will be able to
do so. See "Risk Factors--Dependence on Real Estate Leases; Continuing
Obligations on Leases."
In addition to our Company-operated stores, we have three other principal
properties: (1) an approximately 320,000 square foot manufacturing, storage and
headquarters facility that we own in Chicago, Illinois; (2) an approximately
112,000 square foot warehouse and distribution facility that we lease in
Chicago, Illinois; and (3) an approximately 17,000 square foot warehouse and
distribution facility that we own in Bensalem, Pennsylvania. At our Chicago,
Illinois 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 lease of our Chicago warehouse
and distribution facility expires in June 2000. Our management believes that
substantially all of our property and equipment is in good condition and that we
have sufficient capacity to meet our current manufacturing and distribution
requirements, as well as our anticipated Laura Secord production requirements
following the expiration of the one-year term of our co-pack agreement with
Nestle.
LEGAL PROCEEDINGS
From time to time, we are involved in routine litigation incidental to our
business. We are not a party to any pending or threatened legal proceeding which
our management believes would have a material adverse effect on our results of
operations or financial condition.
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MANAGEMENT
DIRECTORS AND MANAGEMENT EMPLOYEES
The following table and summary below set forth certain information with
respect to our directors and management employees 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.......... 40 President and Chief Operating Officer*
Donna M. Snopek.......... 40 Vice President--Finance and Accounting and Secretary*
David B. Williams........ 51 Vice President--General Manager of Boxed Chocolate Brands
Alan W. Petrik........... 46 Vice President--Business Systems
Ricky L. Lelli........... 47 Vice President--Operations
Joseph Chipollini........ 48 Vice President--Retail Operations
Nicholas 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............ 50 Director*
Brant Binder............. 33 Director*
</TABLE>
- ------------------------
* Reflects positions held with both us and Holdings.
MR. QUINN has served as our Chairman of the Board and Chief Executive
Officer since our 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 The Jordan
Company. 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 our President and Chief Operating Officer since
1996. Mr. Shepherd joined us 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 17 years of general management, sales and marketing experience
in the confectionery industry. Prior to joining us, 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 our Vice President of Finance and Accounting since
1996 and as our Secretary since 1995. Ms. Snopek joined us in 1993 as
Controller. Ms. Snopek has over 19 years experience in various finance and
accounting positions. Prior to joining us, Ms. Snopek worked for the NutraSweet
Company, where she served as Planning and Analysis Director.
MR. WILLIAMS was hired in April 1999 as our Vice President--General Manager
of Boxed Chocolate Brands. Mr. Williams has over 29 years of experience in the
food and beverage industry with The Quaker Oats Company. Mr. Williams served as
Vice President and Chief Customer Officer, Gatorade, U.S. for The Quaker Oats
Company from 1993 until joining us.
MR. PETRIK has served as our Vice President of Business Systems since 1997.
Mr. Petrik has been with us for 19 years and has held various senior management
positions with us, including Vice President of Manufacturing and Vice President
of Operations.
MR. LELLI has served as our Vice President of Operations since 1997. Mr.
Lelli joined us in 1994 as Director of Manufacturing. Mr. Lelli has over 23
years of experience in the food processing industry. Prior to joining us, Mr.
Lelli worked for five years at The Masterson Company, a confectionery company,
where he served as Vice President of Manufacturing.
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<PAGE>
MR. CHIPOLLINI has served as our Vice President of Retail Operations since
April 1998. Mr. Chipollini joined us in April 1995 as East Coast Regional
Manager. Prior to joining us, Mr. Chipollini worked for four years at Crystal
Brands, where he served as a District Manager.
MR. PODOBA has served as our Vice President of Human Resources since he
joined us in October 1998. Prior to joining us, Mr. Podoba worked for seven
years at Northwestern Memorial Faculty Foundation, where he served as Director
of Human Resources.
MR. JORDAN has served as one of our directors since our acquisition by
Holdings in 1991. Mr. Jordan is a managing director of The Jordan Company, 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 The Jordan Company, as well as other
privately-held companies.
MR. MAX has served as one of our directors since our acquisition by Holdings
in 1991. Mr. Max is a managing director of The Jordan Company, which he joined
in 1986. Mr. Max is also a director of Rockshox, Inc.
MR. ROSEN has served as one of our directors 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 one of our directors 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 us in
1991, we, Holdings, affiliates of The Jordan Company and TCW Capital, 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, which contains provisions relating to our
governance and the governance of Holdings. These provisions provide for, among
other things, the election to each of our and Holdings' Boards of Directors of
three directors nominated by affiliates of The Jordan Company and two directors
nominated by affiliates of TCW Capital. Messrs. Jordan, Quinn and Max are the
directors nominated by the affiliates of The Jordan Company and Messrs. Rosen
and Binder are the directors nominated by the affiliates of TCW Capital. See
"Principal Stockholders" and "Certain Transactions-- Shareholders Agreement."
BOARD OF DIRECTORS--INDEMNIFICATION AND COMPENSATION
INDEMNIFICATION. Our By-Laws authorize us to indemnify our 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. We have entered into indemnification agreements
with each of our directors. The indemnification agreements provide that, except
in limited circumstances, we will indemnify our directors against liabilities,
including settlements, and expenses actually and reasonably incurred by them in
connection with any threatened or pending legal action, proceeding or
investigation to which any of them is, or is threatened to be, made a party by
reason of their status as our director, officer or agent, or serving at our
request of any other capacity for or on our behalf of us; provided that:
(1) such director acted in good faith and in a manner not opposed to our
best interest;
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<PAGE>
(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 us, 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 us or in our right, 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 our best interest.
Insofar as indemnification of liabilities arising under the Securities Act
may be permitted to our directors, officers and controlling persons pursuant to
our By-Laws, the indemnification agreements or otherwise, such indemnification
may be unenforceable as being against public policy.
DIRECTOR COMPENSATION. We pay each of our directors a quarterly fee of
$2,500. In fiscal 1998, we also paid Mr. Quinn a $52,000 consulting fee. See
"Certain Transactions--Director's Consulting Fee and TCW Affiliates' Expense
Reimbursement." We also reimburse directors for their travel and other expenses
incurred in connection with attending meetings of the Board of Directors.
EXECUTIVE COMPENSATION
The following table sets forth certain information regarding compensation
paid or accrued by us during each of the three most recent fiscal years to our
chief executive officer and each of our executive officers whose total annual
salary and bonus for each of such fiscal year exceeded $100,000.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
SECURITIES
UNDERLYING SARS
(#)
ANNUAL COMPENSATION -----------------
--------------------------------- OTHER ANNUAL LONG-TERM
SALARY BONUS COMPENSATION COMPENSATION
NAME AND PRINCIPAL POSITION(1) YEAR ($) ($) ($) AWARDS
- --------------------------------------------------- --------- ---------- ---------- ------------- -----------------
<S> <C> <C> <C> <C> <C>
Thomas H. Quinn.................................... 1998 -- -- $ 52,000(2) --
Chairman of the Board and 1997 -- -- 52,000(2) --
Chief Executive Officer 1996 -- -- 52,000(2) --
Ted A. Shepherd.................................... 1998 $ 235,000 $ 200,000 -- 9.75(4)
President and Chief Operating 1997 221,583 311,000 -- --
Officer(3) 1996 200,163 101,491 -- 7.00(4)
Donna M. Snopek.................................... 1998 121,167 67,500 -- 1.00
Vice President--Finance and Accounting 1997 110,167 103,575 -- --
and Secretary(5) 1996 93,500 24,310 -- 3.00
</TABLE>
- ------------------------
(1) In April 1999, we hired Mr. David Williams to serve as our Vice President
and General Manager of Boxed Chocolate Brands. His annual salary is $207,000
and he has been granted five stock appreciation rights pursuant to Holdings'
SAR Plan.
(2) Reflects a consulting fee we paid Mr. Quinn in each of fiscal 1998, 1997 and
1996 in lieu of salary. See "Certain Transactions--Director's Consulting Fee
and TCW Affiliates' Expense Reimbursement."
65
<PAGE>
(3) Reflects positions held by Mr. Shepherd since March 1996. During fiscal
1996, Mr. Shepherd served as our Vice President of Sales and Marketing.
(4) Holdings subsequently has converted all of Mr. Shepherd's 19.75 SARs into
19.75 shares of Holdings' Class A Common Stock. See "--Holdings' 1998 Stock
Bonus Plan."
(5) Reflects position held by Ms. Snopek since September 1996. During fiscal
1996, Ms. Snopek served as our Secretary and Vice President--Controller.
HOLDINGS' STOCK APPRECIATION RIGHTS PLAN
The Fannie May Holdings, Inc. Stock Appreciation Rights Plan was adopted by
the Board of Directors of Holdings in October, 1991 to afford selected employees
of Holdings and its subsidiaries, including us, an opportunity to participate in
the potential economic appreciation of Holdings' consolidated common stock
equity value. A total of 52.75 SARs are authorized for grant under the SAR 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, 35
SARs were outstanding under the SAR Plan, with 23 SARs issued to our current
employees and the balance held by former employees.
The SAR 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 SAR Plan, each SAR 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 some cases, all such
payments may be deferred if Holdings is not permitted to pay the same by the
governing debt documents. The SAR 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 SAR Plan provides that in the event the employment of any holder of an
SAR terminates for (1) "Cause," as defined in the SAR Plan, at any time or (2)
any other reason except death or disability within a prescribed period, known as
the "vesting period," following the grant of the subject SAR, then all of such
holder's rights in such SAR shall automatically terminate. The SAR Plan further
provides that upon any termination of any SAR holder's employment following the
vesting period or upon the death or disability of a holder at any time, 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 SAR Plan. At Holdings'
option, the repurchase amounts may be paid by a note payable over three years.
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<PAGE>
SAR GRANTS IN FISCAL 1998
The following table sets forth information with respect to SARs granted
during fiscal 1998 by Holdings to our executive officers.
<TABLE>
<CAPTION>
SAR GRANTS IN LAST FISCAL YEAR
----------------------------------------------------------------------------
NUMBER OF % OF TOTAL SARS
SHARES GRANTED TO EXERCISE OR
UNDERLYING EMPLOYEES IN BASE PRICE EXPIRATION GRANT DATE
NAME SARS GRANTED FISCAL YEAR(1) ($/SH) DATE(2) PRESENT VALUE(3)
- ----------------------------------- ------------ --------------- ----------- ---------- ----------------
<S> <C> <C> <C> <C> <C>
Ted A. Shepherd.................... 9.75 61.9% $0 -- $0
Donna M. Snopek.................... 1.00 6.3% 0 -- 0
</TABLE>
- ------------------------
(1) A total of 15.75 SARs were granted to employees in fiscal 1998 pursuant to
the SAR Plan. Five SARs were granted to Mr. Williams in April, 1999.
(2) SARs issued pursuant to the SAR Plan have no expiration date. However, all
or a part of an SAR is automatically terminated under certain circumstances
in connection with an employee's termination of employment with us.
(3) Based on the formulation specified in the SAR agreements of the respective
executive officers. The actual value of an SAR is subject to and not
determinable until the occurrence of either (a) a Cash Out Event or (b) in
some circumstances, the call or put election of Holdings or the holder,
respectively, following the termination of the holder's employment with us.
AGGREGATED SAR EXERCISES IN FISCAL YEAR 1998 AND 1998 FISCAL YEAR-END SAR VALUES
The following table sets forth information with respect to SAR exercises
during fiscal 1998 by our executive officers and the number of shares of
Holdings Common Stock underlying SARs held by each of our executive officers and
the value of such executive officers' exercisable and unexercisable SARs on
August 29, 1998.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
SARS AT FISCAL IN-THE-MONEY SARS AT
SHARES ACQUIRED YEAR-END, FISCAL YEAR-END,
ON EXERCISE EXERCISABLE/UNEXERCISABLE EXERCISABLE/UNEXERCISABLE
NAME (#)(1) VALUE REALIZED ($) (#) (#)(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 Holdings' 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
executive officers. 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
some circumstances, the call or put election of Holdings or the holder,
respectively, following the termination of the holder's employment with us.
HOLDINGS' 1998 STOCK BONUS PLAN
The Fannie May Holdings, Inc. 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
67
<PAGE>
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 its 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 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.
BENEFIT PLANS
We sponsor two noncontributory defined benefit pension plans, one for
eligible collective bargaining employees and one for eligible non-collective
bargaining employees. Our employees are generally eligible to become
participants in the applicable pension plan upon attaining age 21 and completing
a 12-month period of service to us in which the employee works a minimum of one
thousand hours. 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. We make 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 pension
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 twelve 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 our executive officers under the
pension plans upon retirement at normal retirement age, assuming continuous
service and constant salary to normal retirement date, is approximately $46,334,
in aggregate.
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<PAGE>
CAPITALIZATION OF HOLDINGS
GENERAL
Holdings, which owns all of our issued and outstanding capital stock, 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.
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 some triggering events, 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
- some 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.
Affiliates of The Jordan Company hold Class A Common Stock and all of the
Class C Common Stock and affiliates of TCW Capital 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 our
governance and the governance of 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 and Junior Class B PIK 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 our former shareholders in connection with Holdings'
acquisition of us, has the following rights and preferences:
- cumulative dividends at the annual rate of 5%, or $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 our 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 May 29, 1999, the redemption value of the Senior Preferred Stock was
approximately $12.1 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 our and Holdings' Board of Directors,
affiliates of The Jordan Company and TCW Capital would fail to control Holdings
and us, and such event would constitute a change in control under the indenture,
which could have a material adverse effect on us. See "Risk Factors--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 us, 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
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<PAGE>
- the securities purchase agreement 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 May
29, 1999, the redemption value of the Class A Preferred Stock and Class B
Preferred Stock was approximately $12.6 million and approximately $1.3 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 us in 1991, we, Holdings,
affiliates of The Jordan Company and TCW Capital and Jackson National Life
Insurance Company entered into a securities purchase agreement dated as of
October 30, 1991 pursuant to which Holdings issued subordinated notes, the Class
A Preferred Stock and the Class A, B and D Common Stock.
The securities purchase agreement provides, among other things, that we 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, we and
Holdings are restricted in our ability to pay some dividends or from making some
other restricted payments, incurring additional indebtedness or liens on our
assets, or making some investments and must comply with some 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, we and Holdings are restricted from entering into some transactions
with affiliates and some mergers or consolidations with other entities or from
transferring or leasing a substantial portion of our 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
affiliates of The Jordan Company and TCW Capital, have the right to require
Holdings to either initiate a sale of us 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 some exit events, such as a sale of a significant
portion of our assets, some recapitalizations of Holdings, some issuances
of equity securities of Holdings or the liquidation, dissolution or change
of control of Holdings; 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 (1) fair market value or (2) 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 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
71
<PAGE>
us, Holdings has up to one year to arrange such sale. If Holdings elects not to
initiate a sale of us 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.
We cannot assure you that, if a purchase event occurs, Holdings will be able
to sell us or have sufficient funds to satisfy its obligations to redeem the
applicable shares of Holdings Common Stock or with respect to any redemption
upon an exit event, that such redemptions would be permitted under the
indenture, our 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 affiliates of TCW Capital to elect a director with 51% of
the voting power of our and Holdings' Board of Directors.
The definition of "triggering events" in the securities purchase agreement
includes:
- the failure by Holdings to either effect a sale of us or redeem some
shares of Class A Common Stock and Class D Common Stock held by both
affiliates of The Jordan Company and TCW Capital 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 affiliates of The Jordan Company and TCW
Capital; and
- the failure by Holdings to redeem the Class A Preferred Stock upon some
events, such as some equity sales, asset sales, recapitalizations,
liquidations and change of control events.
Affiliates of TCW Capital hold approximately 64.3% of the Class A Preferred
Stock and approximately 81.8% of Holdings Common Stock possessing the right to
either initiate a sale of us or a redemption of their Holdings Common Stock
described above, with the balance held by affiliates of The Jordan Company.
Accordingly, affiliates of TCW Capital 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 our and Holdings' Board of Directors, 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 our 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 May 29, 1999 by (1) each person who is
known by us to beneficially own more than 5% of the outstanding shares of any
class of Holdings' voting securities; (2) each of our directors and executive
officers who own shares of Holdings' equity securities; and (3) all or our
directors and executive officers, as a group, who own shares of Holdings' equity
securities.
<TABLE>
<CAPTION>
PERCENTAGE OF ALL
NUMBER OF PERCENTAGE OUTSTANDING VOTING
NAME(1) TITLE OF CLASS(2) SHARES OF CLASS 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 170.878000 23.9 16.8
Class C Common 101.843910 34.6 10.0
</TABLE>
- ------------------------
(1) For purposes herein, (a) affiliates of TCW Capital consist of the
following: TCW Capital, WCT Investment Pte Ltd., Mezzanine Capital and TCW
Special Placements Fund III; and (b) affiliates of The Jordan Company
include, 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
provides financial advisory services to JZ Equity Partners PLC, it is not
otherwise affiliated with The Jordan Company.
(2) As of May 29, 1999, 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 shares 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 some 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 some 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 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
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<PAGE>
director who is entitled to exercise 51% of the voting power of the Board
of Directors of Holdings; and (iii) some events, such as amendments to
Holdings' certificate of incorporation or by-laws which adversely affect
the rights of holders and some 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 May 29, 1999,
there also were outstanding (A) 1,206.118388 shares of Holdings' Senior
Preferred Stock, all of which is owned by our former owners through the
Denton Thorne Trust A, the Denton Thorne Trust B and the Denton Thorne
Trust C, (B) 502.4682 shares of Holdings' Junior Class A PIK Preferred
Stock, approximately 36% of which is owned by affiliates of The Jordan
Company and approximately 64% of which is owned by affiliates of TCW
Capital, and (C) 50.2467 shares of Holdings' Junior Class B PIK Preferred
Stock, approximately 80% of which is owned by affiliates of The Jordan
Company. 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 May 29, 1999, affiliates of TCW
Capital owned 44.5% of the outstanding voting Holdings' Common Stock. As of
May 29, 1999, affiliates of TCW Capital 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 May 29, 1999, Jordan Industries, Inc. and other affiliates of The
Jordan Company 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 May 29, 1999, JZ Equity Partners PLC, formerly known as MCIT
(Existing Pool) Limited, also owned 71.7811 shares of Holdings' Junior
Class A PIK Preferred Stock. The principal address of JZ Equity Partners
PLC is c/o The Jordan Company LLC, 767 Fifth Avenue, New York, New York
10153.
(6) As of May 29, 1999, WCT Investment Pte Ltd. also owned 57.0563 shares of
Holdings' Junior Class A PIK Preferred Stock. In connection with its
acquisition in 1992 from 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 some actions by Holdings. The
principal address of
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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 May 29, 1999,
Mezzanine Capital also owned 15.1118 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 May 29, 1999, Leucadia Investors, Inc. also owned 12.5616 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., of which Mr. Jordan is Chairman of
the Board and Chief Executive Officer, 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., of which Mr. Quinn is the
President, Chief Operating Officer and a director. Mr. Quinn's address is
c/o Archibald Candy Corporation, 1137 West Jackson Boulevard, Chicago,
Illinois 60607.
(11) As of May 29, 1999, Mr. Max also owned 5.0247 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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CERTAIN TRANSACTIONS
MANAGEMENT CONSULTING AGREEMENT
On July 2, 1997, Holdings entered into a five year management consulting
agreement with TJC Management Corp., 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. We believe that
the terms of the management consulting agreement are comparable to the terms
that we would obtain from disinterested third parties for comparable services.
For its investment banking services rendered to Holdings in connection with the
Laura Secord acquisition and related financing, Holdings paid TJC Management
Corp. $850,000 pursuant to the management consulting agreement.
TAX SHARING AND MANAGEMENT CONSULTING AGREEMENT
On July 2, 1997, we entered into a tax sharing and management consulting
agreement with Holdings, pursuant to which we agreed to pay or distribute to
Holdings:
- so long as Holdings files consolidated income tax returns that include us,
payments for our share of income taxes, assuming that we are 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 our behalf 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 our business,
operations or finances.
We believe that the terms of the management services provided under the tax
sharing and management consulting agreement are comparable to the terms that we
would obtain from disinterested third parties for comparable services. In fiscal
1998, we (a) accrued a $1,628,000 distribution payable to Holdings for our share
of income taxes and (b) paid $412,000 in management consulting fees, in each
case pursuant to the tax sharing and management consulting agreement.
For investment banking fees incurred by Holdings on our behalf in connection
with the Laura Secord acquisition and related financing, we paid Holdings
$850,000 pursuant to the tax sharing and management consulting agreement.
Holdings paid these fees to TJC Management Corp. under the management consulting
agreement.
PREFERRED STOCK
As of May 29, 1999, affiliates of TCW Capital owned approximately 64% of the
Class A Preferred Stock and affiliates of The Jordan Company 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 AFFILIATES' EXPENSE REIMBURSEMENT
In each of fiscal 1996, 1997 and 1998, we paid Mr. Quinn a consulting fee
equal to $52,000 in lieu of a salary in exchange for services rendered to us.
Mr. Quinn consulted with us with respect to our financial and business affairs,
our relationships with our lenders and stockholders, and the operation and
expansion of our business. Such fee is expected to continue in the future and is
subject to reasonable increases. Pursuant to the tax sharing and management
consulting agreement, affiliates of TCW Capital who are members of our 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 us in
1991, affiliates of The Jordan Company and TCW Capital and other initial
investors entered into the shareholders agreement, which contains some
provisions relating to the governance of us 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 limited exceptions,
(1) the composition of our and Holdings' Board of Directors shall be identical
and (2) the number of directors on our and Holdings' Board shall be five, with
affiliates of The Jordan Company nominating three directors and affiliates of
TCW Capital nominating two directors. The shareholders agreement also provides
that upon the occurrence of some triggering events, unless affiliates of TCW
Capital 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 affiliates of TCW Capital, 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 tag-along rights and preemptive
rights.
In connection with its acquisition in 1992 from 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
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some 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. Pursuant to
this 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, which supplied
approximately $600,000 of labels to us in fiscal 1998. For fiscal 1999, we
expect to purchase a comparable amount of labels from PAMCO. Mr. Quinn, our
Chairman of the Board and Chief Executive Officer, is the President, Chief
Operating Officer and a director of Jordan Industries, Inc. Mr. Jordan, one of
our directors, is Chairman of the Board and Chief Executive Officer of Jordan
Industries, Inc. We believe that the pricing and services provided by PAMCO are
comparable to those that we would obtain from disinterested third parties for
comparable services.
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DESCRIPTION OF THE REVOLVING CREDIT FACILITY
The following summary of our revolving credit facility 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 from us upon
request.
On July 2, 1997, we entered into a revolving credit agreement with The First
National Bank of Chicago, as agent. On July 30, 1999, we amended our revolving
credit agreement and caused our Canadian subsidiary, Archibald Candy (Canada)
Corporation, to enter into an additional related revolving credit agreement with
First Chicago NBD Bank, Canada, a Canadian affiliate of The First National Bank
of Chicago. The two credit agreements work together to provide revolving loans
to us and Archibald Candy (Canada) Corporation in an aggregate principal amount
at any time not to exceed the lesser of (1) $20.0 million and (2) a borrowing
base comprised primarily of a percentage of eligible accounts receivable,
eligible inventory and some of our owned real properties. Borrowings under our
revolving credit facility are available for general corporate purposes,
including letters of credit, subject to the borrowing conditions contained
therein. Our revolving credit facility is secured by first priority liens on our
and the guarantor subsidiaries' accounts receivable, raw materials and finished
good inventories and our owned store locations, and the proceeds therefrom.
Under the terms of our revolving credit agreements, each of our material
subsidiaries will guarantee our and Archibald Candy (Canada) Corporation's
obligations. As of the date of this prospectus, we have approximately $5.0
million in borrowings and $0.5 million of letters of credit outstanding under
our agreement with The First National Bank of Chicago and no borrowings or
letters of credit outstanding under our agreement with First Chicago NBD Bank,
Canada. Our revolving credit facility expires on April 15, 2001.
The revolving credit agreements include 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 agreement, the indenture and some permitted liens;
- mergers, consolidations and sales of all or a substantial part of our
business or property;
- the sale of assets; and
- some transactions with affiliates.
The revolving credit agreements also require us to comply with financial
ratios, including minimum fixed charge coverage and maximum leverage ratios.
The revolving credit agreements contain customary representations and
warranties, including representations and warranties as to:
- our and our subsidiaries' good standing;
- our and our subsidiaries' solvency;
- our and our subsidiaries' authority to enter into the revolving credit
facility documents;
- the accuracy of our financial statements;
- our and our subsidiaries' payment of taxes;
- our and our subsidiaries' disclosure of environmental matters and existing
and pending litigation involving us and our subsidiaries;
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- our and our subsidiaries' ownership of assets and properties; and
- the disclosure of our and our subsidiaries' contingent obligations.
The revolving credit agreements also contain customary events of default,
including:
- 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 agreement with The First National Bank of Chicago
provides that borrowings thereunder will accrue interest at a variable rate
equal to the "Alternate Base Rate," as defined in such revolving credit
agreement, plus 1.25% or a fixed rate equal to the "Eurodollar Rate," as defined
in such revolving credit agreement, 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 our
leverage ratio as defined therein. The revolving credit agreement with First
Chicago NBD Bank, Canada, provides that borrowings thereunder will be in the
form of advances which accrue interest at a variable rate equal to the "Canadian
Prime Rate," as defined in such revolving credit agreement, or in the form of
bankers acceptances which are purchased by the lender at a discount rate equal
to the lesser of (1) the rate per annum that appears on the Reuters Screen CDOR
Page on the purchase date, plus 10 basis points, or (2) the discount rate at
which the lender would purchase, on the purchase date, its own bankers
acceptance having a face amount and maturity the same as the bankers acceptance
to be purchased under such revolving credit agreement. For borrowings by
Archibald Candy (Canada) Corporation in the form of advances, we have agreed to
pay to the lenders under our revolving credit agreement a fee equal to the
amount of such borrowings multiplied by an interest rate equal to between 1.25%
and 0.50%, depending on our leverage ratio from time to time. Based on our
current leverage ratio, an interest rate equal to 1.25% would be applicable for
any such calculation. For borrowings by Archibald Candy (Canada) Corporation in
the form of bankers acceptances, we have agreed to pay to the lenders under our
revolving credit agreement a fee equal to the amount of such bankers acceptances
multiplied by an interest rate equal to between 2.5% and 1.75%, depending on our
leverage ratio. Based on our current leverage ratio, an interest rate equal to
2.5% would be applicable for any such calculation. For both types of such
borrowings, we have agreed to such fee pursuant to a participation agreement
among us, Archibald Candy (Canada) Corporation and the lenders and agents under
the two revolving credit agreements.
We are required to pay some fees in connection with our revolving credit
facility.
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DESCRIPTION OF THE REGISTERED NOTES
GENERAL
The unregistered notes were, and the registered notes will be, issued
pursuant to an indenture dated as of July 2, 1997 among us and The Bank of New
York, as trustee, as amended by the First Supplemental Indenture dated as of
December 7, 1998 among us, our guarantor subsidiaries and the trustee, and the
Second Supplemental Indenture dated as of June 8, 1999 among us, our guarantor
subsidiaries and the trustee. The terms of the notes include those stated in the
indenture and those made part of the indenture by reference to the Trust
Indenture Act of 1939. You can find the definitions of some terms used in the
following summary of the indenture under the sub-heading "Certain Definitions."
The terms of the registered notes are the same as the terms of the
unregistered notes, except that (1) we registered the registered notes under the
Securities Act, and, unlike the unregistered notes, their transfer is not
restricted and (2) holders of the registered notes are not entitled to certain
rights under the registration rights agreement.
All series of notes issued under the indenture, including without limitation
any notes that remain outstanding after the completion of the exchange offer,
together with the registered notes issued in connection with such exchange
offer, will be treated as a single class of securities under the indenture.
BECAUSE THIS SECTION OF THE PROSPECTUS MERELY SUMMARIZES THE TERMS OF THE
REGISTERED 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 REGISTERED NOTES, INCLUDING THE DEFINITION OF CERTAIN TERMS USED IN THIS
SECTION. COPIES OF THE INDENTURE AND 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."
RANKING AND SECURITY
The notes are senior secured obligations of us and rank senior in right of
payment to all subordinated Indebtedness of us and PARI PASSU in right of
payment with all senior Indebtedness. As of May 29, 1999, on a pro forma basis
after giving effect to the Laura Secord acquisition and the related financing,
we would not have had any secured indebtedness outstanding, other than the
notes, $0.3 million of capital lease obligations and $0.5 million of letters of
credit issued for our account under our revolving credit agreement. The notes
are subordinate to any other senior secured indebtedness incurred by us and our
subsidiaries to the extent of the assets securing such other senior secured
indebtedness, including indebtedness under our revolving credit facility.
The notes are guaranteed by all of our subsidiaries other than our
Unrestricted Subsidiaries. The notes are secured by liens on our and our
Restricted Subsidiaries' equipment, fixtures and general intangibles, our
ownership interest in our Restricted Subsidiaries and mortgages on some of our
owned real property, as more fully described under the sub-heading "Collateral."
PRINCIPAL, MATURITY AND INTEREST
The registered notes will be limited in aggregate principal amount to $40.0
million. The registered notes will be issued in registered form, without
coupons, in denominations of $1,000 and integral multiples thereof. The
registered notes will mature on July 1, 2004.
The registered notes will bear interest at 10 1/4% per annum from July 1,
1999. Interest on the registered notes will be payable semi-annually on January
1 and July 1 of each year, commencing January 1, 2000. We will make each
interest payment to holders of record on the immediately preceding December 15
and June 15.
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Interest on the registered notes will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from July 1,
1999. Interest will be computed on the basis of a 360-day year comprised of
twelve 30-day months.
METHODS OF RECEIVING PAYMENTS ON THE NOTES
If a holder of notes has given wire transfer instructions to us, we will
make all principal, premium and interest payments on those notes in accordance
with those instructions. All other payments on notes will be made at our office
or agency within the City and State of New York unless we elect to make interest
payments by check mailed to the holders of the notes at their addresses set
forth in the register of holders of notes. Until otherwise designated by us, our
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 will accrue for
the intervening period.
COLLATERAL
Subject to exceptions, the notes and Guarantees will be secured by:
(1) security interests in some of the equipment, fixtures and general
intangibles, including trademarks, of us, the Guarantors and each future
Restricted Subsidiary of us or any Subsidiary;
(2) mortgages on our Chicago, Illinois 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 us or any Subsidiary.
All of our and the Guarantors' assets 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.
We and the Guarantors have entered into security agreements, mortgages,
deeds of trust and 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 us and the Guarantors under the indenture, the
notes, the Guarantees and the Collateral Agreements.
Subject to the terms and conditions in the indenture and the Collateral
Agreements, we 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 us, and to exercise any voting, other consensual rights and other
rights pertaining to Capital Stock pledged by us, unless an Event of Default has
occurred and is continuing.
Upon the occurrence and during the continuance of an Event of Default:
(1) all rights of us to exercise voting, other consensual rights and other
rights with respect to pledged Capital Stock, will cease upon notice from
the Collateral Agent, and all these rights will become vested in the
Collateral Agent, which to the extent permitted by law, will have the
sole right to exercise these rights; and
(2) all rights of us 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.
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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.
The Collateral Agent will determine the circumstances and manner in which
the Collateral will be disposed of, including 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 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 us under the indenture and the notes, the Collateral Agreements will
terminate and the pledged Collateral will be released. Upon the sale of pledged
Collateral, the Collateral Agent will simultaneously release the Liens in favor
of the Collateral Agent in the assets sold if the Net Proceeds from the sale are
or will be applied in accordance with the terms of the covenant described under
the sub-heading "Limitation on Asset Sales" and the Collateral Agent has
received all documentation required by the Trust Indenture Act.
If there is a default under the notes, the proceeds from the sale of the
Collateral may not be sufficient to satisfy our Obligations under the notes. 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. 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 bankruptcy law limitations in the event of a
bankruptcy.
GUARANTORS
The repayment of the notes will be unconditionally guaranteed, jointly and
severally, by each existing and future Restricted Subsidiary of us or any
Subsidiary.
The obligations of each Guarantor will be limited to the maximum amount as
will not result in the obligations of such Guarantor under the Guarantee
constituting a fraudulent conveyance or fraudulent transfer under Federal or
state law, 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. See "Risk Factors--Fraudulent Conveyance
Matters."
REDEMPTION
AT THE OPTION OF THE COMPANY. Except as set forth below, we may not redeem
the notes prior to July 1, 2001. After July 1, 2001 we may redeem all or some of
the notes 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 thereon to the applicable redemption date, 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>
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During the period before July 1, 2000, we may on one or more occasions
redeem up to one-third of the aggregate principal amount of the notes issued
under the indenture, at a redemption price of 110.250% of the principal amount
thereof, plus accrued and unpaid interest through the redemption date, with the
net cash proceeds of one or more Public Equity Offerings; PROVIDED, that:
(1) at least two-thirds of the aggregate principal amount of notes remain
outstanding immediately after giving effect to each such redemption; and
(2) such redemption will occur within 90 days of the date of closing of the
Public Equity Offering.
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 on which the notes
are listed, or, if the notes are not so listed, on a PRO RATA basis, by lot or
by such method as the trustee deems to be fair and appropriate; PROVIDED, 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, 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 of the original note will be issued in the name of the holder
thereof upon cancellation of the original note. On and after the redemption
date, interest will cease to accrue on the notes or such portions called for
redemption.
MANDATORY. The notes will not be entitled to any mandatory redemption or
sinking fund.
REPURCHASE UPON CHANGE OF CONTROL
If a Change of Control occurs, we 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, we must mail a notice to
each holder of notes stating:
(1) that all notes tendered will be accepted for payment;
(2) the purchase price and the purchase date for the notes, which will be no
earlier than 30 days nor later than 40 days from the date the notice is
mailed (the "Change of Control Payment Date");
(3) that any note not tendered will continue to accrue interest;
(4) that, unless we default 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
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(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.
We 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, we will comply with the applicable securities laws and
regulations and will 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, we 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 us 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, PROVIDED, that each such
new note will be in principal amount of $1,000 or an integral multiple thereof.
We 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
we repurchase or redeem the notes in the event of a takeover, recapitalization
or similar restructuring.
We cannot assure you that sufficient funds to make required repurchases will
be available at the time of any Change of Control Offer. Further, our revolving
credit facility will prohibit the repurchase of any notes as a result of a
Change of Control. Therefore, upon the occurrence of a Change of Control, we
will either have to obtain the consent of the lenders under our revolving credit
facility to such repurchase or repay or refinance the indebtedness under such
facility. A failure to secure the lenders' consent or repay or refinance the
indebtedness under our revolving credit facility will result in a default
thereunder and an acceleration of all obligations under our revolving credit
facility. Any future credit agreements or other agreements relating to
financings may contain restrictions similar to those contained in our revolving
credit facility.
"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 our 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 us or the adoption of a plan by our
shareholders relating to the dissolution or liquidation of us;
(3) the acquisition by any Person or group, as such term is used in Section
13(d)(3) of the Exchange Act, other than affiliates of The Jordan Company
and TCW Capital, of beneficial ownership, directly or indirectly, of
Voting Stock of us or Holdings having the right to elect
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directors having a majority of the voting power of our or Holdings' Board
of Directors, 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 affiliates of The Jordan Company and TCW
Capital, exercising the right to elect director(s) having (or existing
directors, acquiring the right to have) a majority of the voting power of
our or Holdings' Board of Directors.
CERTAIN COVENANTS
LIMITATION ON RESTRICTED PAYMENTS. We will not, and will not permit any of
our Restricted Subsidiaries to, directly or indirectly:
(1) declare or pay any dividend or make any distribution on account of any
Equity Interests of us or any of our Subsidiaries, other than dividends
or distributions payable in Equity Interests (other than Disqualified
Stock) of us or dividends or distributions payable to us or any Wholly
Owned Subsidiary;
(2) purchase, redeem or otherwise acquire or retire for value any Equity
Interest of us or any Subsidiary or other Affiliate of us;
(3) make any principal payment on, or purchase, redeem, defease or otherwise
acquire or retire for value any Indebtedness of us 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, we could incur at least $1.00 of additional
Indebtedness under the Interest Coverage Ratio test set forth in the
covenant described under the sub-heading "--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 (1) and (2) of the next following paragraph
and excluding Restricted Payments permitted by the other clauses
therein), is less than the sum of:
(i) 50% of the Adjusted Consolidated Net Income of us 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
our 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
(ii) $2 million; plus
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(iii) 100% of the aggregate net cash proceeds received by us from the
issuance or sale, other than to a Subsidiary, of Equity Interests
of us, other than Disqualified Stock, after the date of the
indenture and on or prior to the time of such Restricted Payment;
plus
(iv) 100% of the aggregate net cash proceeds received by us from the
issuance or sale, other than to a Subsidiary, of any convertible or
exchangeable debt security of us that has been converted or
exchanged into Equity Interests of us, 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 us 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 us in exchange for, or out of the proceeds of, the
substantially concurrent sale, other than to a Subsidiary of us, of other
Equity Interests of us, 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 the sub-heading "--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 us or Holdings pursuant to
the Plan as in existence on the Issue Date;
(5) payments by us to Holdings under the tax sharing and management
consulting agreement;
(6) payments of the Preferred Stock, other than to pay dividends or redeem
shares of preferred stock owned by affiliates of The Jordan Company on
the Issue Date; PROVIDED, that no such payments will be made with
proceeds from our revolving credit facility; and
(7) payments in connection with the application of the net proceeds of the
offering of the 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 consulting agreement, at
such time there will have been no default in payment when due of interest on the
notes or any default of the types described in clause (2) or (3) under the
sub-heading "Events of Default and Remedies."
LIMITATION ON INCURRENCE OF INDEBTEDNESS. We will not, and will not permit
any of our 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, that we may incur Indebtedness
or issue shares of Disqualified Stock and a Restricted Subsidiary may
incur Acquired Debt if:
(a) no Default or Event of Default will 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;
(b) the Interest Coverage Ratio for our most recently ended four full
fiscal quarters for which internal financial statements are available
immediately preceding the date on which such
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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
(c) 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:
(1) Indebtedness pursuant to our revolving credit facility and repayment
obligations as of May 29, 1999 in respect of letters of credit, PROVIDED,
HOWEVER, that the aggregate principal amount of such Indebtedness so
incurred on any date will not exceed $20.0 million;
(2) performance bonds, surety bonds, insurance obligations or bonds and
other similar bonds or obligations incurred in the ordinary course of
business;
(3) Hedging Obligations incurred to fix the interest rate on any variable
rate Indebtedness otherwise permitted by the indenture;
(4) 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;
(5) Indebtedness owed by us to any Wholly Owned Subsidiary or by any Wholly
Owned Subsidiary to us or any other Wholly Owned Subsidiary;
(6) Indebtedness outstanding on the Issue Date, including the notes;
(7) other Permitted Indebtedness;
(8) 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 (1), (4),
(6) and (9) and outstanding Indebtedness incurred pursuant to the debt
incurrence tests set forth in the immediately preceding paragraph (the
"Refinancing Indebtedness"), PROVIDED, that:
(a) the principal amount of such Refinancing Indebtedness does not exceed
the principal amount of Indebtedness so Refinanced;
(b) 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
(c) the Refinancing Indebtedness ranks, in right of payment, no more
favorable to the notes as the Indebtedness being Refinanced;
(9) Indebtedness of us arising out of our issuance and sale of the
unregistered notes;
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(10) additional Indebtedness of us in an aggregate principal amount up to
$5.0 million; and
(11) additional Indebtedness of us 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.
LIMITATION ON ASSET SALES. We will not, and will not permit any Restricted
Subsidiary to, make any Asset Sale unless:
(1) we 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;
(2) at least 85% of the consideration for such Asset Sale is in the form of
cash, Cash Equivalents or liabilities of us 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 us and our Restricted Subsidiaries with respect to such
assets; and
(3) within 12 months of such Asset Sale, the Net Proceeds thereof are:
(a) invested in assets related to the business of us or our 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, 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, we will not be required to make an offer pursuant
to clause (c).
Any Net Proceeds not invested or applied as set forth in the preceding
clauses (a) or (b) will constitute "Excess Proceeds." If we elect, or become
obligated to make an Excess Proceeds Offer, we 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, to the purchase date. We 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, we and our 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"), we 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 us 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.
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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, we will comply with the
applicable securities laws and regulations and will not be deemed to have
breached its obligations under the "Asset Sale" provisions of the indenture by
virtue thereof.
We cannot assure you 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 we 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 us 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:
(1) Liens on (a) accounts receivable and inventory and the proceeds thereof,
and certain rights relating thereto, and (b) real property of us not
constituting Collateral under the indenture securing Indebtedness
permitted to be incurred pursuant to clauses (1) or (9) under the
sub-heading "--Limitation on Incurrence of Indebtedness" or any
Indebtedness used to Refinance such Indebtedness;
(2) Purchase Money Liens securing Indebtedness incurred pursuant to clause
(4) under the subheading "--Limitation on Incurrence of Indebtedness";
and
(3) Permitted Liens.
LIMITATION ON RESTRICTIONS ON SUBSIDIARY DIVIDENDS. We 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 to:
(1) pay dividends or make any other distributions to us or any of our
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
(2) pay any indebtedness owed to us or any of our Subsidiaries;
(3) make loans or advances to us or any of our Restricted Subsidiaries; or
(4) transfer any of its assets to us or any of our 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. We may not consolidate or merge
with or into, whether or not we are the surviving corporation, or sell, assign,
transfer, lease, convey or otherwise dispose of all
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or substantially all of its properties or assets, determined on a consolidated
basis for us and our Restricted Subsidiaries, in one or more related
transactions to, any other Person unless:
(1) we are the surviving Person or the person formed by or surviving any
such consolidation or mergers, if other than us, 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 us, or the Person to which such sale, assignment, transfer,
lease, conveyance or other disposition has been made assumes all the
obligations of us, 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) we, 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
us 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 the sub-heading
"--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 we are not the
surviving Person, the surviving Person or transferee will succeed to, and be
substituted for, and may exercise every right and power of, us, and we will be
discharged from our Obligations under the indenture, the notes, the Collateral
Agreements and the registration rights agreement.
LIMITATION ON TRANSACTIONS WITH AFFILIATES. We will not, and will not
permit any of our Restricted Subsidiaries to, directly or indirectly, sell,
lease, transfer or otherwise dispose of any properties or assets to, or purchase
any properties 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 us 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 us 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 our Board of
Directors determine that such transactions are conducted in good faith
and on terms that are no less favorable to us 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 ours or such Restricted Subsidiary; and
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(3) Affiliate Transactions for which we deliver to the trustee an opinion as
to the fairness to us or such Restricted Subsidiary from a financial
point of view issued by an investment banking firm of national standing;
PROVIDED, that the following will not be deemed to be Affiliate Transactions:
(1) employment or consulting agreements entered into by us or any Restricted
Subsidiary in the ordinary course of business with the approval of the
independent members of our Board of Directors;
(2) transactions between or among us and/or our Wholly Owned Subsidiaries or
Guarantors;
(3) transactions permitted by the provisions of the indenture described
above under "--Limitations on Restricted Payments"; and
(4) reasonable and customary directors' fees for independent members of our
Board of Directors.
RESTRICTIONS ON SALE AND ISSUANCE OF SUBSIDIARY STOCK. We will not sell,
and will not permit any of our Restricted Subsidiaries to issue or sell, any
shares of Capital Stock of any Restricted Subsidiary to any Person other than us
or a Wholly Owned Subsidiary of us; PROVIDED, that we and our Restricted
Subsidiaries may sell all of the Capital Stock of a Restricted Subsidiary owned
by us and our Restricted Subsidiaries if the Net Proceeds from such Asset Sale
are used in accordance with the terms of the covenant described under the
sub-heading "--Limitation on Asset Sales."
LINE OF BUSINESS. We will not, and will not permit any Subsidiary to,
directly or indirectly engage in any business other than:
(1) the business described in this Prospectus;
(2) the manufacture, distribution and retailing of confectionery items; and
(3) any business that in the reasonable, good faith judgment of our Board of
Directors is directly related to such business.
GUARANTORS. So long as any notes remain outstanding, any Restricted
Subsidiary will:
(1) execute and deliver to the trustee a supplemental indenture in form
reasonably satisfactory to the trustee pursuant to which such Restricted
Subsidiary will unconditionally guarantee all of our obligations under
the notes and the indenture on the terms set forth in the indenture; and
(2) 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 will 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
us or any of our Restricted Subsidiaries, and the Net Proceeds from such Asset
Sale are used in accordance with the terms of the covenant described under the
sub-heading "--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.
REPORTS. Whether or not required by the rules and regulations of the
Commission, so long as any notes are outstanding, we will furnish to the holders
of notes:
(1) 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 we
were required to file such Forms, including for each a "Management's
Discussion and Analysis of Financial Condition and
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Results of Operations" and, with respect to the annual financial
statements only, a report thereon by our independent auditors; and
(2) all reports that would be required to be filed with the Commission on
Form 8-K if we were required to file such reports. From and after the
time we file a registration statement with the Commission with respect to
the notes, we 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:
(1) default for 30 days in the payment when due of interest on the notes;
(2) default in payment of principal or premium, if any, on the notes when
due at maturity, upon redemption, by acceleration or otherwise;
(3) default in the performance or breach of the provisions under the
sub-heading "--Merger, Consolidation or Sale of Assets," and
"--Repurchase Upon Change of Control";
(4) failure by us 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;
(5) 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 us or any Guarantor, or
the payment of which is guaranteed by us or any Guarantor, whether such
Indebtedness or guarantee now exists or is created after the date of the
indenture, if:
(a) either (i) such default results from the failure to pay principal of
such Indebtedness or (ii) 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;
(6) failure by us 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;
(7) breach by us or any Guarantor of any material representation or warranty
set forth in the Collateral Agreements, which breach is not cured by us
or such Guarantor or waived within 30 days after notice to comply with
such breach of a material representation or warranty;
(8) repudiation by us or any of the Guarantors of the obligations under the
indenture, the notes, the Collateral Agreements or the Guarantees or we
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 us or any of the
Guarantors or is necessary to maintain the priority and perfection of the
Liens of the Collateral Agreements; and
(9) certain events of bankruptcy or insolvency with respect to us 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 unregistered notes may declare
by written notice all the notes to be due
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and payable immediately. In the case of an Event of Default arising from events
of bankruptcy or insolvency, all unregistered 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
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.
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:
(1) 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
(2) 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 of the acceleration, have been cured or waived.
Upon becoming aware of any Default or Event of Default, we are required to
deliver to the trustee a statement specifying such Default or Event of Default
and what action we are taking or propose to take with respect thereto.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
No director, officer, employee, incorporator or stockholder of us or any
Guarantor, as such, will have any liability for any obligations of us 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. The 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
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, on the due dates
thereof, the principal of, premium, if any, and each installment of interest on
the notes, we 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,
premium, if any, and interest on, the notes in accordance with the terms of the
notes and the indenture. The trust may only be established if, among other
things:
(1) we have 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, will constitute an Event of Default will have
occurred or be continuing; and
(3) customary conditions precedent are satisfied.
We may satisfy and discharge our obligations and the Guarantors' obligations
under the indenture to holders of the notes by delivering to the trustee for
cancellation all unregistered notes or by
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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 us.
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 we may require a
holder to pay any taxes and fees required by law or permitted by the indenture.
We are not required to transfer or exchange any note selected 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 we nor any of our Subsidiaries will, 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 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. 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.
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;
(3) alter the provisions with respect to the redemption of the notes;
(4) alter the price at which repurchases of the notes may be made pursuant
to an Excess Proceeds Offer or Change of Control Offer;
(5) reduce the rate of or change the time for payment of interest on any
note;
(6) waive a Default or Event of Default in the payment of principal of or
premium, if any, or interest on the notes;
(7) make any note payable in money other than that stated in the notes;
(8) 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;
(9) waive a redemption payment with respect to any note;
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(10) make any change in the provisions of any of the Guarantees that
adversely affects the rights of any holder of notes;
(11) adversely affect the contractual ranking of the notes or Guarantees; or
(12) make any change in the foregoing amendment and waiver provisions.
Notwithstanding the preceding, without the consent of any holder of notes:
(1) we and the trustee may amend or supplement the indenture or the notes to
cure any ambiguity, defect or inconsistency;
(2) to provide for uncertificated notes in addition to or in place of
certificated notes;
(3) to provide for the assumption of our obligations to holders of the notes
or a Guarantor's obligation under a Guarantee in the case of a merger or
consolidation;
(4) 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
(5) to comply with requirements of the Commission in order to effect or
maintain the qualification of the indenture under the Trust Indenture
Act.
CONCERNING THE TRUSTEE
If the trustee becomes a creditor of ours, the indenture limits its right 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; 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
exceptions. The indenture provides that in case an Event of Default occurs and
is continuing, 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 will 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 us at 1137 West Jackson Boulevard, Chicago,
Illinois 60607, Attention: Secretary.
CERTAIN DEFINITIONS
Set forth below are some of the 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 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.
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"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 preceding, neither the Initial Purchaser nor any of
its Affiliates will be deemed to be Affiliates of the Company.
"ASSET SALE" means any direct or indirect:
(1) 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
(2) 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
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(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:
(1) consolidated income (loss) from operations of such Person for such
period, determined in accordance with GAAP; plus
(2) (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 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 normally recurring accruals such as reserves against
accounts receivable);
PROVIDED, that:
(a) 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;
(b) 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
(c) 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 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.
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"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):
(1) the amount of any such shareholders' equity attributable to Disqualified
Stock or treasury stock of such Person and its consolidated subsidiaries;
(2) 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
(3) 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 of all or any part of any Indebtedness, including
letters of credit and reimbursement agreements in respect thereof.
"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;
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(f) under bankers' acceptance and letter of credit facilities;
(g) to purchase, redeem, retire, defease or otherwise acquire 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 owned by such Person, including accounts
and contract rights, even though such Person has not assumed or become
liable for the payment of such Indebtedness; PROVIDED, that the amount of
such Indebtedness will (to the extent such Person has not assumed or
become liable for the payment of such Indebtedness) be the lesser of (i)
the fair market value of such property at the time of determination and
(ii) the amount of such Indebtedness.
The amount of Indebtedness of any Person at any date will 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 will
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
will 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 will 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 commission, travel and
similar advances to officers and employees of such Person made in the ordinary
course of business and 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
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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 Company originally issued $100.0
million of its 10 1/4% Senior Secured Notes due 2004.
"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
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, other than any such costs payable to an Affiliate of the
Company, including legal, accounting and investment banking fees and
sales commissions;
(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
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(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
described under the sub-heading "Limitation on Incurrence of
Indebtedness."
"PERMITTED INVESTMENTS" means:
(1) Investments in the Company or any Wholly Owned Subsidiary;
(2) Investments in Cash Equivalents;
(3) Investments in a Person, if as a result of such Investment (a) such
Person becomes a Wholly Owned Subsidiary and the Capital Stock of such
Person is pledged to secure the Obligations, or (b) 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
(4) 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, 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, 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 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, 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
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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, 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.
"RESTRICTED INVESTMENT" means an Investment other than a Permitted
Investment.
"RESTRICTED SUBSIDIARY" means a Subsidiary other than an Unrestricted
Subsidiary.
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"SUBSIDIARY" means, with respect to any Person:
(1) 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
(2) 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:
(1) the Inactive Subsidiaries; and
(2) 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:
(a) 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);
(b) 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 the sub-heading "--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 no Default or Event of Default
is existing or will occur as a consequence thereof; and 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 the sub-heading "--Limitation on
Incurrence of Indebtedness." Each such designation will 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 will 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 will 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 (1) above.
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"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:
(a) 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
(b) the number of years (calculated to the nearest one-twelfth) that will
elapse between such date and the making of such payment.
"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.
REGISTRATION RIGHTS
We issued and sold the unregistered notes to the initial purchaser on June
8, 1999 pursuant to the terms and conditions of a purchase agreement dated as of
May 26, 1999. We agreed in the purchase agreement to provide the holders of the
unregistered notes with the same registration rights granted to the holders of
our $130.0 million of 10 1/4% Series A Senior Secured Notes due 2004 that were
issued and sold in unregistered offerings on July 2, 1997 and December 7, 1998
and subsequently exchanged for a like principal amount of our 10 1/4% Series B
Senior Secured Notes due 2004 that were registered under the Securities Act. The
registration rights with respect to the unregistered notes are set forth in a
registration rights agreement dated as of July 2, 1997 between us and the
initial purchasers of the notes issued on July 2, 1997.
The registration rights agreement requires us to file with the SEC by August
7, 1999 a registration statement with respect to an offer to exchange the
unregistered notes for registered notes, which would have terms substantially
identical in all material respects to the unregistered notes. Upon the
effectiveness of the exchange offer registration statement, we will offer to the
holders of unregistered notes who are not prohibited by any law or policy of the
SEC from participating in the exchange offer the opportunity to exchange their
unregistered notes for registered notes. If applicable interpretations of the
staff of the SEC do not permit us to effect the exchange offer or, in the case
of any holder of unregistered notes that participates in the exchange offer,
such holder does not receive freely tradable registered notes on the date of the
exchange for tendered notes, or if for some reason the exchange offer is not
consummated within 165 days after the date on which the unregistered notes are
issued, or upon the request of the initial purchaser, we will, at our cost, file
with the SEC a shelf registration statement to cover resales of unregistered
notes by the holders thereof who satisfy conditions relating to the provision of
information in connection with the shelf registration statement. We will use our
best efforts to cause the applicable registration statement to be declared
effective by the SEC as promptly as practicable after the date of filing.
Based on an interpretation of the staff of the SEC set forth in several
no-action letters to third parties, we believe that the registered notes issued
pursuant to the exchange offer may be offered for resale, resold and otherwise
transferred by holders thereof without compliance with the registration and
prospectus delivery provisions of the Securities Act. However, any purchaser of
unregistered notes who is an "affiliate" of ours or who intends to participate
in the exchange offer for the purpose of distributing the registered notes (1)
will not be able to rely on the interpretation of the staff of the SEC set forth
in the above referenced no-action letters, (2) will not be able to tender its
unregistered notes in the exchange offer and (3) must comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with any sale or transfer of the unregistered notes unless such sale
or transfer is made pursuant to an exemption from such requirements.
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Unless the exchange offer would not be permitted by a policy of the SEC, we
will commence the exchange offer and use our best efforts to issue, on or prior
to 30 business days after the date on which the exchange offer registration
statement is declared effective by the SEC, registered notes in exchange for all
unregistered notes tendered prior thereto in the exchange offer. Upon the
occurrence of some registration defaults, we will pay liquidated damages to each
holder of registrable securities, during the first 90-day period immediately
following the occurrence of such registration default, in an amount equal to
$.05 per week per $1,000 principal amount of unregistered notes held by such
holder. The amount of the liquidated damages thereafter will increase each week
an additional $.05 per $1,000 principal amount of registrable securities, up to
a maximum of $.40 per week per $1,000 principal amount of unregistered notes
until such registration default is cured. All accrued liquidated damages will be
paid in the same manner as interest payments on the unregistered notes on
semiannual damages payment dates that correspond to interest payment dates for
the unregistered notes and upon redemption dates, change of control payment
dates and excess proceed payment dates. Following the cure of a registration
default, the accrual of liquidated damages will cease.
In order to participate in the exchange offer, holders of unregistered notes
will be required to make to us the representations described in the registration
rights agreement. Holders of unregistered notes will be required to deliver
information to be used in connection with the shelf registration statement and
to provide comments on the shelf registration statement within the time periods
set forth in the registration rights agreement in order to have their
unregistered notes included in the shelf registration statement. A holder of
unregistered notes that sells such notes pursuant to the shelf registration
statement generally would be required to be named as a selling security-holder
in the related prospectus and to deliver a prospectus to purchasers, will be
subject to some of the indemnification, civil liability and other provisions of
the Securities Act in connection with such sales and will be bound by the
provisions of the registration rights agreement which are applicable to such
holder. We will provide a copy of the registration rights agreement to
prospective investors upon request.
BOOK-ENTRY, DELIVERY AND FORM
Except as set forth in the next paragraph, the notes to be issued as set
forth herein will initially be issued in the form of one or more registered
global notes, each of which will be deposited on the date of acceptance for
exchange of the notes and the issuance of the notes with, or on behalf of, the
DTC and registered in the name of Cede & Co., as nominee of the DTC, such
nominee being referred to herein as the "global holder". Interests in global
notes will be available for purchase only by "qualified institutional buyers."
The following are summaries of certain rules and operating procedures of the DTC
which affect the global notes.
Notes that are (1) originally issued to or transferred to institutional
accredited investors who are not qualified institutional buyers or to any other
persons who are not qualified institutional buyers, referred to herein as the
"non-global purchasers," or (2) issued as described under "Certificated Notes,"
will be issued in registered form, referred to in this section as the
"certificated notes." Upon the transfer to a qualified institutional buyers 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."
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DTC has advised us that it is a limited-purpose trust company that was
created to hold securities for its participating organizations and to facilitate
the clearance and settlement of transactions in such securities between
participants through electronic book-entry changes in accounts of its
participants. DTC's participants include securities brokers and dealers, banks
and trust companies, clearing corporations and some other organizations. Access
to DTC's system is also available to other entities such as banks, brokers,
dealers and trust companies 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 DTC
only through DTC's participants or indirect participants.
We expect that pursuant to procedures established by DTC (1) upon deposit of
the global notes, DTC 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 DTC (with respect to the interests of DTC's
participants), DTC's participants and indirect participants. The laws of some
states require that some 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 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, 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 DTC's
system or to otherwise take actions in respect of such interest, may be affected
by the lack of a physical certificate evidencing such interest. Accordingly,
each qualified institutional buyer owning a beneficial interest in a global note
must rely on the procedures of DTC and, if such qualified institutional buyer is
not a participant or an indirect participant, on the procedures of the
participant through which such qualified institutional buyer owns its interest,
to exercise any rights of a holder under such global note or the indenture.
Neither we 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 DTC,
or for maintaining, supervising or reviewing any records of DTC 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, we 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 we 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 DTC. Payments by DTC's participants and indirect participants to the
beneficial owners of notes will be governed by standing instructions and
customary practice and will be the responsibility of DTC's participants or
indirect participants.
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CERTIFICATED NOTES
If (1) we notify the trustee in writing that DTC is no longer willing or
able to act as a depository and we are unable to locate a qualified successor
within 90 days or (2) we, at our option, notify the trustee in writing that we
elect 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 DTC identify as the beneficial owner of the related notes. In
addition, subject to 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 DTC:
DTC's management is aware that some computer applications, systems, and the
like for processing data, referred to in this section as "systems," that are
dependent upon calendar dates, including dates before, on, and after January 1,
2000, may encounter "Year 2000 problems." DTC has informed its participants and
other members of the financial community 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 DTC,
continue to function appropriately. This program includes a technical assessment
and a remediation plan, each of which is complete. Additionally, DTC's plan
includes a testing phase, which is expected to be completed within appropriate
time frames.
However, DTC'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 DTC licenses software and hardware, and
third party vendors on whom DTC relies for information or the provision of
services, including telecommunication and electrical utility service providers,
among others. DTC has informed its participants and other members of the
financial industry that it is contacting, and will continue to contact, third
party vendors from whom DTC 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, DTC is in the process of developing such
contingency plans as it deems appropriate.
According to DTC, the foregoing information with respect to DTC has been
provided to its participants and other members of the financial community for
informational purposes only and is not intended to serve as a representation,
warranty, or contract modification of any kind.
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MATERIAL UNITED STATES FEDERAL TAX CONSEQUENCES
The following is a general discussion of the material United States federal
tax consequences associated with the exchange of the unregistered notes for the
registered notes pursuant to the exchange offer and disposition of the
registered notes. This discussion applies only to a beneficial owner of
registered notes who acquired unregistered notes at the initial offering for the
original offering price thereof and who acquires the registered notes pursuant
to the exchange offer. A beneficial owner of registered notes is the person who
is the owner of the registered notes for federal income tax purposes. 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 beneficial
owner of registered notes. Prospective investors are urged to consult their tax
advisors regarding the United States federal tax consequences of acquiring,
holding, and disposing of the registered 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 beneficial owner of
registered 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
beneficial owner of registered notes other than a U.S. holder.
EXCHANGE OFFER
The exchange of unregistered notes for registered notes pursuant to the
exchange offer will not constitute a "significant modification" of the
unregistered notes for United States federal income tax purposes and,
accordingly, the registered notes received will be treated as a continuation of
the unregistered 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 unregistered notes for registered notes pursuant to the exchange
offer, and any such holder will have the same adjusted tax basis and holding
period in the registered notes for United States federal income tax purposes as
it had in the unregistered notes immediately before the exchange.
STATED INTEREST
The holders of registered 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 accrued, unpaid interest on unregistered
notes to the date of the issuance of the registered notes.
DISPOSITION
A beneficial owner of registered notes will recognize gain or loss upon the
sale, exchange, redemption or other taxable disposition of the registered 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 that has
not yet been subject to federal income tax) and (ii) the beneficial owner's tax
basis in the registered notes. A beneficial owner's tax basis in a note will
generally equal the price paid by the beneficial owner for the note, decreased
by any payments of principal received, and increased by the amount of accrued,
unpaid interest that has been subject to federal income tax. Any such gain or
loss will be long-term capital gain or loss, provided that the registered notes
constitute a capital asset in the hands of the beneficial owner and had been
held for more than one year (including the period that such beneficial owner
held the unregistered notes exchanged for such registered 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 registered 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 our stock
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 us 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 non-U.S. holder of registered notes will not be subject to the United
States federal income tax on gain realized on the sale, exchange, or
other disposition of registered 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 such holder; and
(c) if interest on the registered notes is exempt from withholding of United
States federal income tax under the rules described above (without regard
to the certification requirement), the registered 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
We will, where required, report to the beneficial owners of registered notes
and the Internal Revenue Service the amount of any interest paid on the
registered 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 registered notes, or on proceeds
of the disposition of registered 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 registered 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 registered 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. This certification may
be made on an Internal Revenue Service Form W-8 or substantially similar
substitute form. Information reporting requirements (but not backup withholding)
will also apply to payments of the proceeds of sales of the registered 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 beneficial owner is a non-U.S. holder and
certain other conditions are met, or the beneficial owner 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 beneficial
owner'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, 2000. 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 registered notes.
PLAN OF DISTRIBUTION
Based on existing interpretations of the Securities Act by the SEC's staff
set forth in several no-action letters issued to third parties in similar
transactions, we believe that the registered notes issued in the exchange offer
in exchange for the unregistered 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
registered 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 registered notes. This position does not apply to any holder that is (1) an
"affiliate" of ours within the meaning of Rule 406 under the Securities Act, (2)
a broker-dealer who acquired notes directly from us or (3) broker-dealers who
acquired notes as a result of market-making or other trading activities,
referred to in this section as "participating broker-dealers". Any participating
broker-dealers receiving registered notes in the exchange offer is subject to a
prospectus delivery requirement with respect to resales of the registered 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 unregistered notes to the initial purchaser, with this
prospectus.
Each broker-dealer receiving registered notes for its own account in the
exchange offer must acknowledge that it will deliver a prospectus in any resale
of the registered notes. Participating broker-dealers may use this prospectus in
reselling registered notes, if the unregistered notes were acquired for their
own accounts as a result of market-making activities or other trading
activities. We have agreed that a participating broker-dealer may use this
prospectus in reselling registered notes for a period ending 180 days after the
expiration date or, if earlier, when a participating broker-dealer has disposed
of all registered notes. A participating broker-dealer intending to use this
prospectus in the resale of registered notes must notify us 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 transmittal or may be delivered
to
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the exchange agent. We have agreed that, for a period of 180 days after the
expiration date, we 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 Registered
Notes" for more information.
We will not receive any cash proceeds from any sale of the registered notes
by broker-dealers. Broker-dealers acquiring registered 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 registered
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 registered notes.
Any broker-dealer reselling registered notes that it received in the
exchange offer and any broker or dealer that participates in a distribution of
registered notes may be deemed to be an "underwriter" within the meaning of the
Securities Act. Any profit on any resale of registered 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 legal matters for us related to the
registered notes.
EXPERTS
Our financial statements 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 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 Laura Secord as of December 31, 1997 and 1998
and for the years then ended included in this prospectus have been audited by
Deloitte & Touche LLP, chartered accountants, to the extent and for the periods
indicated in their report thereon. Such financial statements have been included
in reliance upon the report of Deloitte & Touche LLP appearing elsewhere herein.
WHERE YOU CAN FIND MORE INFORMATION
We are subject to the periodic reporting and other information requirements
of the Exchange Act. As long as we are subject to such periodic reporting and
informational requirements, we will furnish all reports and other information
required thereby to the SEC and pursuant to the indenture will furnish copies of
such reports and other information to the trustee. Such reports and other
information may be inspected and copied at the public reference facilities
maintained by the SEC at Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the following regional offices of the SEC: Seven World Trade
Center, Suite 1300, New York, New York 10048 and Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661-2511. Copies of such
materials can be obtained by mail from the Public Reference Section of the SEC
at Judiciary Plaza, 450 Fifth Street, N.W., Washington, D.C. 20549, at
prescribed rates. In addition, the SEC maintains a site on the World Wide Web
that contains reports, proxies and information statements and other information
filed electronically by us with the SEC which can be accessed over the Internet
at http://www.sec.gov.
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We have agreed that, whether or not we are required to do so by the rules
and regulations of the SEC, so long as any notes are outstanding, we will
furnish to the trustee, and deliver or cause to be delivered to the holders of
the notes, (1) all quarterly and annual financial information that would be
required to be contained in a filing with the SEC on Forms 10-Q and 10-K if we
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 our
independent auditors; and (2) all reports that would be required to be filed
with the SEC on Form 8-K if we were required to file such reports. In addition,
we have agreed, for so long as any of the notes remain outstanding, to make
available, upon request, to any prospective purchaser of the notes and
beneficial owner of the notes in connection with any sale thereof the
information required by Rule 144A(d)(4) under the Securities Act. Information
may be obtained from us at 1137 West Jackson Boulevard, Chicago, Illinois 60607;
Attention: Secretary, telephone number (312) 243-2700.
INFORMATION INCORPORATED BY REFERENCE
The SEC allows us to "incorporate by reference" certain information that we
file with them, which means that we can disclose important information to you 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 Reports on Form 10-Q for the quarterly periods
ended November 28, 1998, February 27, 1999 and May 29, 1999, filed with the
SEC on January 12, 1999, April 13, 1999 and July 13, 1999, respectively; and
3. Archibald Candy's Current Reports on Form 8-K filed with the SEC on December
2, 1998, December 22, 1998 (as amended by Form 8-K/A, filed with the SEC on
February 19, 1999), June 3, 1999 and June 23, 1999.
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.
113
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<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
Consolidated Balance Sheets as of May 30, 1998 and May 29, 1999 (UNAUDITED).......... F-14
Consolidated Statements of Operations for the nine months ended May 30, 1998 and May
29, 1999 (UNAUDITED)............................................................... F-15
Consolidated Statements of Cash Flows for the nine months ended May 30, 1998 and
May 29, 1999 (UNAUDITED)........................................................... F-16
Notes to Consolidated Financial Statements (UNAUDITED)............................... F-17
THE LAURA SECORD RETAIL BUSINESS
Auditors' Report..................................................................... F-22
Balance Sheets as of December 31, 1997 and December 31, 1998......................... F-23
Statements of Operations for the years ended December 31, 1997 and December 31,
1998............................................................................... F-24
Statements of Cash Flows for the years ended December 31, 1997 and December 31,
1998............................................................................... F-25
Notes to Financial Statements........................................................ F-26
Balance Sheets as of May 2, 1998 and May 1, 1999 (UNAUDITED)......................... F-33
Statements of Operations for the four months ended May 2, 1998 and May 1, 1999
(UNAUDITED)........................................................................ F-34
Statements of Cash Flows for the four months ended May 2, 1998 and May 1, 1999
(UNAUDITED)........................................................................ F-35
Notes to Financial Statements (UNAUDITED)............................................ F-36
</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 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 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, net............... 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................................................ 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 to temporary differences and carryforwards using the enacted rates
and laws that will be in effect when the differences are expected to reverse.
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)
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>
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>
F-8
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
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>
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
F-9
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
5. BENEFIT PLANS (CONTINUED)
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.
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
F-10
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
7. DEBT (CONTINUED)
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
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-11
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS
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.
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
F-12
<PAGE>
ARCHIBALD CANDY CORPORATION
(A WHOLLY OWNED SUBSIDIARY OF FANNIE MAY HOLDINGS, INC.)
NOTES TO FINANCIAL STATEMENTS (CONTINUED)
8. INCOME TAXES (CONTINUED)
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-13
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MAY 30, 1998 AND MAY 29, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
MAY 30, MAY 29,
1998 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents............................................................... $ 29,924 $ 23,844
Accounts receivable, net................................................................ 1,122 1,727
Inventories............................................................................. 18,206 27,591
Prepaid expenses and other current assets............................................... 1,389 2,691
---------- ----------
Total current assets...................................................................... 50,641 55,853
Due from affiliate........................................................................ 825 --
Property, plant, and equipment, net....................................................... 20,478 47,211
Goodwill, net............................................................................. 31,260 30,461
Noncompete agreements and other intangibles, net.......................................... 113 1,932
Deferred financing fees, net.............................................................. 3,771 6,790
Other assets.............................................................................. 1,965 2,848
Deferred income taxes..................................................................... -- 3,673
---------- ----------
Total assets.............................................................................. $ 109,053 $ 148,768
---------- ----------
---------- ----------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current liabilities:
Accounts payable........................................................................ $ 3,820 $ 4,624
Accrued liabilities..................................................................... 8,693 12,467
Payroll and related liabilities......................................................... 2,157 3,577
Current portion of capital lease obligations............................................ 129 156
---------- ----------
Total current liabilities................................................................. 14,799 20,824
Due to affiliate.......................................................................... -- 604
Long-term debt............................................................................ 100,000 130,000
Deferred rent............................................................................. -- 1,845
Capital lease obligations, less current portion........................................... 61 84
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..................................................................... (24,507) (23,289)
---------- ----------
Total shareholder's equity (deficit)...................................................... (5,807) (4,589)
---------- ----------
Total liabilities and shareholder's equity (deficit)...................................... $ 109,053 $ 148,768
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-14
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
----------------------
MAY 30, MAY 29,
1998 1999
---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C>
Net sales................................................................................. $ 111,786 $ 155,806
Cost of sales, excluding depreciation and amortization.................................... 39,062 56,039
Selling, general, and administrative expenses, excluding depreciation and amortization.... 49,767 72,340
Depreciation and amortization............................................................. 3,573 6,584
Amortization of goodwill and other intangibles............................................ 1,260 1,812
Management fees and other fees............................................................ 391 393
---------- ----------
Operating income.......................................................................... 17,733 18,638
Other (income) and expense:
Interest expense........................................................................ 7,780 9,373
Interest income......................................................................... (873) (605)
Other income and expense................................................................ (195) (209)
---------- ----------
Income before income taxes................................................................ 11,021 10,079
Provision (benefit) for income taxes...................................................... 209 (276)
---------- ----------
Net income................................................................................ $ 10,812 $ 10,355
---------- ----------
---------- ----------
</TABLE>
See accompanying notes.
F-15
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
<TABLE>
<CAPTION>
NINE MONTHS ENDED
---------------------
MAY 30, MAY 29,
1998 1999
--------- ----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................. $ 10,812 $ 10,355
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization............................................................ 4,833 8,396
Changes in operating assets and liabilities:
Accounts receivable, net............................................................... (546) 314
Inventories............................................................................ 759 2,766
Prepaid expenses and other current assets.............................................. (599) (129)
Other assets........................................................................... 154 (374)
Accounts payable, accrued liabilities and deferred rent................................ 2,912 (3,239)
--------- ----------
Net cash provided by operating activities.................................................. 18,325 18,089
INVESTING ACTIVITIES
Acquisition of Sweet Factory net of cash acquired.......................................... -- (28,002)
Purchase of property, plant, and equipment................................................. (3,370) (4,954)
--------- ----------
Net cash used in investing activities...................................................... (3,370) (32,956)
FINANCING ACTIVITIES
Principal payments of capital lease obligations............................................ (331) (218)
Proceeds of long-term debt................................................................. -- 30,000
Costs related to refinancing............................................................... (501) (4,152)
--------- ----------
Net cash provided by (used in) financing activities........................................ (832) 25,630
--------- ----------
Net increase in cash and cash equivalents.................................................. 14,123 10,763
Cash and cash equivalents beginning of period.............................................. 15,801 13,081
--------- ----------
Cash and cash equivalents end of period.................................................... $ 29,924 $ 23,844
--------- ----------
--------- ----------
SUPPLEMENTAL SCHEDULE OF CASH TRANSACTIONS
Interest paid.............................................................................. $ 4,295 $ 4,843
--------- ----------
--------- ----------
</TABLE>
See accompanying notes.
F-16
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MAY 29, 1999
(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 manufactures a
variety of candies and operates confectionery retail chains under the Fannie
May, Fanny Farmer and Sweet Factory brand names. As of May 29, 1999, the Company
operated 233 Fannie May stores, 74 Fanny Farmer stores and 253 Sweet Factory
stores. The Company also sells its Fannie May and Fanny Farmer branded products
in approximately 8,000 third-party retail outlets as well as through its
quantity order, mail order and fundraising programs. The Company is a wholly
owned subsidiary of Fannie May Holdings, Inc. The Company conducts its Sweet
Factory operations through Sweet Factory Group, Inc., a wholly-owned subsidiary
of the Company, and its three wholly-owned subsidiaries.
The interim financial statements included herein are unaudited and 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 30, 1998 to May 29, 1999
are not necessarily indicative of the results that may be achieved for the
entire year.
2. INVENTORIES
Inventories at May 30, 1998 and May 29, 1999 are comprised of the following:
<TABLE>
<CAPTION>
MAY 30, MAY 29,
1998 1999
--------- ---------
<S> <C> <C>
Raw materials........................................................... $ 8,878 $ 9,918
Work in process......................................................... 306 469
Finished goods.......................................................... 9,022 17,204
--------- ---------
$ 18,206 $ 27,591
--------- ---------
--------- ---------
</TABLE>
3. DEBT AND CAPITAL LEASES
Long-term debt at May 30, 1998 and May 29, 1999 is comprised of $100.0
million of 10 1/4% senior secured notes due July 1, 2004 and $0.2 million of
capital lease obligations, and $130.0 million of 10 1/4% senior secured notes
due July 1, 2004 and $0.2 million of capital lease obligations, respectively.
4. INCOME TAXES
The provision (benefit) 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 net operating losses that were not recognized in prior
periods.
F-17
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1999
(DOLLARS IN THOUSANDS)
5. ACQUISITION AND RELATED FINANCING
On December 7, 1998, the Company acquired Sweet Factory Group, Inc. pursuant
to an Agreement and Plan of Reorganization dated as of November 24, 1998. The
purchase price of approximately $28.0 million consisted of Archibald Candy
Corporation's (i) payment of $18.0 million in cash to the stockholders of Sweet
Factory Group, Inc. and (ii) repayment of $10.0 million of indebtedness and
other obligations of Sweet Factory Group, Inc.
The Company funded the acquisition of Sweet Factory Group, Inc., in part,
through the issuance and sale of $30.0 million of 10 1/4% senior secured notes
due July 1, 2004 in an unregistered offering.
On June 8, 1999, the Company acquired through its subsidiary Archibald Candy
(Canada) Corporation, substantially all of the assets of the Laura Secord retail
business of Nestle Canada Inc. ("Nestle") pursuant to an Asset Purchase
Agreement dated as of May 26, 1999 between the Company and Nestle for total
consideration of approximately $42.2 million (U.S.).
The Company funded the Laura Secord acqusition, in part, through the
issuance and sale of $40.0 million of 10 1/4% senior secured notes due July 1,
2004 in an unregistered offering.
6. GUARANTOR SUBSIDIARIES
The Company's obligations under its currently outstanding $130.0 million of
10 1/4% senior secured notes due 2004 are fully and unconditionally guaranteed
on a senior secured, joint and several basis by each of the Company's
subsidiaries (other than its inactive subsidiaries) (collectively, the
"Guarantor Subsidiaries"). Each of the Guarantor Subsidiaries is directly or
indirectly wholly owned by the Company. None of the Company's subsidiaries is
subject to any restriction on its ability to pay dividends or make distributions
to the Company. The following condensed consolidating financial information
illustrates the composition of the Company and the Guarantor Subsidiaries as of
and for certain dates and periods. Separate financial statements of the
respective Guarantor Subsidiaries have not been provided because the Company's
management has determined that such additional information would not be useful
in assessing the financial composition of the Guarantor Subsidiaries.
Investments in subsidiaries are accounted for by the Company using the
equity method for purposes of the supplemental condensed consolidating
presentation. Earnings of subsidiaries are therefore reflected in the Company's
investment accounts and earnings. The principal elimination entries eliminate
the Company's investment in subsidiaries and intercompany balances and
transactions.
F-18
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1999
(DOLLARS IN THOUSANDS)
6. GUARANTOR SUBSIDIARIES (CONTINUED)
CONDENSED CONSOLIDATING BALANCE SHEET
AS OF MAY 29, 1999
<TABLE>
<CAPTION>
ARCHIBALD
CANDY GUARANTOR
CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------ ------------
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents................................ $ 17,282 $ 6,562 $ -- $ 23,844
Accounts receivable, net................................. 1,467 260 -- 1,727
Inventories.............................................. 22,675 4,916 -- 27,591
Prepaid expenses and other current assets................ 750 1,941 -- 2,691
----------- ----------- ------------ ------------
Total current assets....................................... 42,174 13,679 -- 55,853
Property, plant and equipment, net......................... 22,041 25,170 -- 47,211
Goodwill, net.............................................. 30,461 -- -- 30,461
Noncompete agreements and other intangibles, net........... 95 1,837 -- 1,932
Deferred financing fees, net............................... 6,790 -- -- 6,790
Other assets............................................... 2,848 -- -- 2,848
Intercompany............................................... 18,524 -- (18,524) --
Investment in subsidiary................................... 17,740 -- (17,740) --
Deferred income taxes...................................... -- 3,673 -- 3,673
----------- ----------- ------------ ------------
Total assets............................................... $ 140,673 $ 44,359 $ (36,264) $ 148,768
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
LIABILITIES AND SHAREHOLDER'S EQUITY (DEFICIT)
Current Liabilities:
Accounts payable......................................... $ 3,364 $ 1,260 $ -- $ 4,624
Accrued liabilities...................................... 8,633 3,834 -- 12,467
Payroll and related liabilities.......................... 2,621 956 -- 3,577
Current portion of capital lease obligations............. 15 141 -- 156
----------- ----------- ------------ ------------
Total current liabilities.................................. 14,633 6,191 -- 20,824
Due to affiliate........................................... 604 -- -- 604
Long-term debt............................................. 130,000 -- -- 130,000
Deferred rent.............................................. -- 1,845 -- 1,845
Capital lease obligations, less current portion............ 25 59 -- 84
Intercompany............................................... -- 18,524 (18,524) --
----------- ----------- ------------ ------------
Total shareholder's equity (deficit)....................... (4,589) 17,740 (17,740) (4,589)
----------- ----------- ------------ ------------
Total liabilities and shareholder's equity (deficit)....... $ 140,673 $ 44,359 $ (36,264) $ 148,768
----------- ----------- ------------ ------------
----------- ----------- ------------ ------------
</TABLE>
F-19
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1999
(DOLLARS IN THOUSANDS)
6. GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF INCOME
FOR THE NINE MONTHS ENDED MAY 29, 1999
(UNAUDITED)
<TABLE>
<CAPTION>
ARCHIBALD
CANDY GUARANTOR
CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
Net sales.................................................. $ 118,260 $ 37,546 $ -- $ 155,806
Cost of sales, excluding depreciation and amortization..... 42,727 13,312 -- 56,039
Selling, general, and administrative expenses, excluding
depreciation and amortization............................ 50,928 21,412 -- 72,340
Depreciation and amortization.............................. 3,510 3,074 -- 6,584
Amortization of goodwill and other intangibles............. 1,538 274 -- 1,812
Management fees and other fees............................. 393 -- -- 393
----------- ----------- ----- ------------
Operating income (loss).................................... 19,164 (526) -- 18,638
Other (income) expense:
Interest expense......................................... 9,299 74 -- 9,373
Interest income.......................................... (601) (4) -- (605)
Other income and expense................................. (209) -- -- (209)
Equity (earnings) of subsidiaries.......................... 260 -- (260) --
----------- ----------- ----- ------------
Income (loss) before income taxes.......................... 10,415 (596) 260 10,079
Provision (benefit) for income taxes....................... 60 (336) -- (276)
----------- ----------- ----- ------------
Net income (loss).......................................... $ 10,355 $ (260) $ 260 $ 10,355
----------- ----------- ----- ------------
----------- ----------- ----- ------------
</TABLE>
F-20
<PAGE>
ARCHIBALD CANDY CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MAY 29, 1999
(DOLLARS IN THOUSANDS)
6. GUARANTOR SUBSIDIARIES (CONTINUED)
CONSOLIDATING STATEMENT OF CASH FLOWS
FOR NINE MONTHS ENDED MAY 29, 1999
<TABLE>
<CAPTION>
ARCHIBALD
CANDY GUARANTOR
CORPORATION SUBSIDIARIES ELIMINATIONS CONSOLIDATED
----------- ----------- ------------- ------------
<S> <C> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss).......................................... $ 10,355 $ (260) $ 260 $ 10,355
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
Depreciation and amortization............................ 5,048 3,348 -- 8,396
Equity earnings in subsidiaries.......................... 260 -- (260) --
Changes in operating assets and liabilities:
Accounts receivables, net.............................. (87) 401 -- 314
Inventories............................................ 1,927 839 -- 2,766
Prepaid expenses and other current assets.............. (444) 315 -- (129)
Intercompany........................................... (18,524) 18,524 -- --
Other assets........................................... (374) -- -- (374)
Accounts payable, accrued liabilities and deferred
rent................................................. 2,570 (5,809) -- (3,239)
----------- ----------- ----- ------------
Net cash provided by operating activities.................. 731 17,358 -- 18,089
INVESTING ACTIVITIES
Acquisition of Sweet Factory net of cash acquired.......... -- (28,002) -- (28,002)
Investment in subsidiaries................................. (18,000) 18,000 -- --
Purchase of property, plant, and equipment................. (4,273) (681) -- (4,954)
----------- ----------- ----- ------------
Net cash used in investing activities...................... (22,273) (10,683) -- (32,956)
FINANCING ACTIVITIES
Principal payments of capital lease obligations............ (105) (113) -- (218)
Proceeds of long-term debt................................. 30,000 -- -- 30,000
Costs related to refinancing............................... (4,152) -- -- (4,152)
----------- ----------- ----- ------------
Net cash provided by (used in) financing activities........ 25,743 (113) -- 25,630
Net increase in cash and cash equivalents.................. 4,201 6,562 -- 10,763
Cash and cash equivalents beginning of period.............. 13,081 -- -- 13,081
----------- ----------- ----- ------------
Cash and cash equivalents end of period.................... $ 17,282 $ 6,562 $ -- $ 23,844
----------- ----------- ----- ------------
----------- ----------- ----- ------------
</TABLE>
F-21
<PAGE>
AUDITORS' REPORT
To Nestle Canada Inc.
We have audited the balance sheets of the Laura Secord Retail Business as at
December 31, 1997 and 1998 and the statements of operations and of cash flows
for the years then ended. These financial statements are the responsibility of
the management of Nestle Canada Inc. Our responsibility is to express an opinion
on these financial statements based on our audits.
We conducted our audits in accordance with Canadian generally accepted
auditing standards. Those standards require that we plan and perform an audit to
obtain reasonable assurance 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.
In our opinion, these financial statements present fairly, in all material
respects, the financial position of the Laura Secord Retail Business as at
December 31, 1997 and 1998 and the results of its operations and its cash flows
for the years then ended, in accordance with generally accepted accounting
principles in the United States.
Deloitte & Touche LLP
Chartered Accountants
Toronto, Ontario
May 14, 1999
F-22
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
BALANCE SHEETS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
ASSETS
CURRENT
Store cash floats......................................................................... $ 81 $ 76
Inventories (Note 3)...................................................................... 4,415 2,578
Prepaid expenses.......................................................................... 790 637
--------- ---------
TOTAL CURRENT ASSETS........................................................................ 5,286 3,291
ACCRUED LIABILITIES (Note 4)................................................................ 1,151 468
--------- ---------
WORKING CAPITAL............................................................................. 4,135 2,823
INVESTMENT IN JOINT VENTURE (Note 5)........................................................ 2,746 2,640
PROPERTY, PLANT AND EQUIPMENT (Note 6)...................................................... 11,289 9,206
--------- ---------
NET ASSETS.................................................................................. $ 18,170 $ 14,669
--------- ---------
--------- ---------
</TABLE>
F-23
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF OPERATIONS
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 79,759 $ 78,803
--------- ---------
COST OF SALES, excluding depreciation....................................................... 40,525 38,086
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, excluding depreciation and amortization....... 35,538 35,334
DEPRECIATION AND AMORTIZATION............................................................... 2,049 2,787
SHARE OF JOINT VENTURE LOSS (Note 5)........................................................ 707 453
--------- ---------
78,819 76,660
--------- ---------
OPERATING INCOME............................................................................ 940 2,143
INTEREST EXPENSE............................................................................ 430 864
--------- ---------
INCOME BEFORE INCOME TAXES.................................................................. 510 1,279
PROVISION FOR INCOME TAXES.................................................................. 272 607
--------- ---------
NET INCOME.................................................................................. $ 238 $ 672
--------- ---------
--------- ---------
</TABLE>
F-24
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net income................................................................................. $ 238 $ 672
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization............................................................ 2,049 2,787
Loss on disposal of property, plant and equipment........................................ 6 678
Share of joint venture loss.............................................................. 707 453
--------- ---------
3,000 4,590
Changes in operating assets and liabilities
Accounts receivable...................................................................... (221) 189
Inventories.............................................................................. (3,300) 5,361
Prepaid expenses......................................................................... (562) 154
Accounts payable and accrued liabilities................................................. 571 (1,608)
Due to related parties................................................................... 1,395 1,386
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES........................................................ 883 10,072
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment.................................................. (5,558) (1,382)
Received from (contributed to) joint venture............................................... (916) 885
--------- ---------
CASH USED IN INVESTING ACTIVITIES............................................................ (6,474) (497)
--------- ---------
FINANCING ACTIVITY
Advanced from (repaid to) Nestle Canada.................................................... (803) 7,363
--------- ---------
NET (DECREASE) INCREASE IN CASH.............................................................. $ (6,394) $ 16,938
--------- ---------
--------- ---------
</TABLE>
F-25
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nestle Canada Inc. ("Nestle Canada") is proposing to sell its Laura Secord
Retail Business (the "Business"). The Business is a retailer and distributor of
chocolates, greeting cards, ice cream and other items primarily through 178
(1997--187) business-operated stores of which 18 (1997--16) stores, the "Combo"
stores, are in a joint venture between Nestle Canada and Hallmark Cards.
The Business comprises the following operations:
- The Laura Secord stores operated by Laura Secord Inc. (a wholly-owned
subsidiary of Nestle Canada);
- A 50% interest in the "Combo" stores;
- Sales by Laura Secord Inc. to distributors and retailers; and
- Sales by Nestle Canada to the "Combo" stores.
These financial statements have been prepared on the basis that the Business
has operated as a stand-alone entity.
The balance sheets include only those assets and liabilities which are
intended to be included in the sale. Accordingly, the following assets and
liabilities of Laura Secord Inc. have not been included in these financial
statements:
- Cash and bank balances, except for store cash floats;
- Accounts receivable;
- Inter-company balances;
- Inventory at the Nestle Canada warehouse;
- Accounts payable;
- Income tax balances.
The statements of operations and cash flows are complete portrayals of the
results of the Business and are not integrated with the balance sheets, as the
balance sheets include only specified assets and liabilities.
Trademarks relating to the Business, while being transferred as part of this
transaction, are not included in these financial statements as they are not
owned by Nestle Canada or Laura Secord Inc. but by a foreign affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
While Nestle Canada maintains its accounting records and prepares its
financial statements in accordance with International Accounting Standards,
appropriate adjustments have been made in order to state the accompanying
financial statements in accordance with generally accepted accounting principles
in the United States.
F-26
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The significant accounting policies followed in the presentation of these
financial statements are as follows:
REVENUE RECOGNITION
Net sales are recognized when products are sold at Laura Secord stores or,
in the case of trade customers, when products are shipped.
INVENTORIES
Product held for sale is stated at the lower of cost (on a first-in,
first-out basis) and net realizable value. Shop supplies and sundries are stated
at the lower of average cost and replacement cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and
amortization. Depreciation and amortization is recorded on the straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Store equipment --5 to 15 years
Leasehold improvements --the term of the lease plus the first renewal term (generally
ten years)
Computer hardware --5 years
Operating software --3 years
</TABLE>
Store premises are leased under agreements which are accounted for as
operating leases.
PREPAID EXPENSES
Packaging design costs are written off over two or three years, depending on
the expected life of the packaging. The deferred costs are included in prepaid
expenses.
JOINT VENTURE
A number of shops (referred to as "Combo" Shops) are operated as a 50/50
joint venture with Hallmark Canada, with both parties contributing the financing
and sharing equally in profits and losses. This joint venture has been accounted
for on the equity basis.
INCOME TAXES
The provision for income taxes has been calculated as if the business was a
self-standing entity, following the principles of tax allocation using the
liability method.
F-27
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results may
differ from these estimates.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Product held for sale................................................... $ 3,664 $ 2,051
Shop supplies and sundries.............................................. 751 527
----------- -----------
$ 4,415 $ 2,578
----------- -----------
----------- -----------
</TABLE>
4. ACCRUED LIABILITIES
Included in accrued liabilities are the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Accrued wages........................................................... $ 496 $ --
Percentage rent......................................................... 220 249
</TABLE>
5. INVESTMENT IN JOINT VENTURE
The business has a 50% interest in a joint venture which operates 18 retail
stores (1997--16). Financial information for the joint venture as at December
31, 1997 and 1998, and for the years then ended, on the same basis as outlined
in Note 1 with respect to the Business, is as follows:
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Store cash floats....................................................... $ 8 $ 10
Inventories............................................................. 2,279 2,530
Prepaid expenses........................................................ 73 28
----------- ---------
Total current assets.................................................... 2,360 2,568
Accrued liabilities..................................................... 90 19
----------- ---------
Working capital......................................................... 2,270 2,549
Property, plant and equipment........................................... 3,118 2,628
----------- ---------
Net assets.............................................................. 5,388 5,177
----------- ---------
50% share of net assets................................................. 2,694 2,588
Additional contribution................................................. 52 52
----------- ---------
Investment in joint venture............................................. $ 2,746 $ 2,640
----------- ---------
----------- ---------
</TABLE>
F-28
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
5. INVESTMENT IN JOINT VENTURE (CONTINUED)
<TABLE>
<CAPTION>
1997 1998
----------- ---------
<S> <C> <C>
Net sales............................................................... $ 7,737 $ 11,660
----------- ---------
Cost of sales, excluding depreciation................................... 4,998 6,964
Selling, general and administrative expenses, excluding depreciation and
amortization.......................................................... 3,842 5,228
Depreciation and amortization........................................... 242 326
----------- ---------
9,082 12,518
----------- ---------
Operating loss.......................................................... 1,345 858
Interest expense........................................................ 69 48
----------- ---------
Joint venture loss...................................................... $ 1,414 $ 906
----------- ---------
----------- ---------
50% Share of loss....................................................... $ 707 $ 453
----------- ---------
----------- ---------
</TABLE>
Related party charges to the joint venture are as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Trademark royalties..................................................... $ 70 $ 0
Purchases of inventory from Nestle Canada............................... 2,032 2,740
Purchases of inventory from Hallmark Canada............................. 2,063 2,883
Interest on financing from Nestle Canada................................ 29 46
Management fee from Laura Secord Inc.................................... 464 466
</TABLE>
6. PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are comprised of the following:
<TABLE>
<CAPTION>
1997
------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ -----------
<S> <C> <C> <C>
Leasehold improvements.................................... $ 16,985 $ 10,724 $ 6,261
Store equipment........................................... 8,131 7,044 1,087
Computer equipment........................................ 4,567 626 3,941
--------- ------------ -----------
$ 29,683 $ 18,394 $ 11,289
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
F-29
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
6. PROPERTY, PLANT AND EQUIPMENT (CONTINUED)
<TABLE>
<CAPTION>
1998
------------------------------------
ACCUMULATED NET BOOK
COST DEPRECIATION VALUE
--------- ------------ -----------
<S> <C> <C> <C>
Leasehold improvements.................................... $ 16,632 $ 11,124 $ 5,508
Store equipment........................................... 7,962 7,178 784
Computer equipment........................................ 5,052 2,138 2,914
--------- ------------ -----------
$ 29,646 $ 20,440 $ 9,206
--------- ------------ -----------
--------- ------------ -----------
</TABLE>
7. INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Current
Federal............................................................... $ 157 $ 382
Provincial............................................................ 115 225
----- -----
$ 272 $ 607
----- -----
----- -----
</TABLE>
The following table reconciles the provision for income taxes to the amount
derived by applying the Canadian federal income tax rate to income before income
taxes.
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Federal tax at statutory rate........................................... $ 148 $ 372
Increase resulting from:
Provincial income taxes............................................. 111 221
Permanent differences............................................... 13 14
----- -----
$ 272 $ 607
----- -----
----- -----
</TABLE>
8. BENEFIT PLANS
The Business provides pension benefits for its head office employees and
store managers as part of the Nestle Canada contributory defined benefit pension
plan (the "Plan") for salaried employees. Benefits are based on length of
service and rates of compensation. Employees of the Business represent
approximately 3% of the assets and obligations of the Plan. The market value of
the Plan assets exceeded the actuarial present value of the accumulated benefit
obligation by approximately 17% at December 31, 1998.
F-30
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
8. BENEFIT PLANS (CONTINUED)
Pension cost (credit) of the Business, based on a 3% allocation of Plan
costs, comprises the following:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Service cost............................................................ $ 69 $ 73
Interest cost........................................................... 280 288
Return on plan assets................................................... (314) (331)
Other................................................................... (13) (51)
----- -----
$ 22 $ (21)
----- -----
----- -----
</TABLE>
The significant actuarial assumptions used in valuing the Plan obligations
were:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Rate of return on assets................................................ 8.25% 8.25%
Discount rate........................................................... 8.25% 8.25%
Rate of compensation increase........................................... 5.25% 5.25%
</TABLE>
9. LEASE COMMITMENTS
The Laura Secord retail operations are conducted from leased premises under
operating leases which are generally for a five-year term with renewal options.
Under some of the agreements additional rent is payable based on sales levels.
The remaining minimum undiscounted rental obligation under these agreements
is $32,677 and $6,695 for the "Combo" stores, falling due as follows:
<TABLE>
<CAPTION>
LAURA SECORD "COMBO" STORES
STORES 100%
--------------- ---------------
<S> <C> <C>
1999....................................................... $ 8,015 $ 1,587
2000....................................................... 6,616 1,385
2001....................................................... 5,258 1,122
2002....................................................... 4,246 649
2003....................................................... 3,228 593
Thereafter................................................. 5,314 1,359
</TABLE>
Rental expense was as follows:
<TABLE>
<CAPTION>
1997 1998
----------- -----------
<S> <C> <C>
Minimum rent............................................................ $ 6,860 $ 6,728
Rent based on percentage of sales....................................... 266 240
----------- -----------
$ 7,126 $ 6,968
----------- -----------
----------- -----------
</TABLE>
F-31
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
DECEMBER 31, 1997 AND 1998
(IN THOUSANDS OF CANADIAN DOLLARS)
10. RELATED PARTY TRANSACTIONS
Nestle Canada is a wholly-owned Canadian operating subsidiary in the
world-wide Nestle Group. Laura Secord Inc. is a wholly-owned subsidiary of
Nestle Canada.
The following charges (credits) from related parties are included in the
statements of operations:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Purchases on inventory from Nestle Canada............................... $ 29,272 $ 24,054
Trademark royalties to a group company.................................. 2,103 2,234
Rent to Nestle Canada for office space.................................. 396 398
Central office expenses to Nestle Canada, relating primarily to human
resources, data processing, quality assurance, financial services and
compensation for the president of Laura Secord Inc.................... 1,782 1,865
Interest on financing from Nestle Canada................................ 461 835
Management fee charges by Laura Secord Inc. to "Combo" stores........... (464) (466)
</TABLE>
Purchases of inventory from Nestle Canada are at cost plus a mark-up of
4.17%. Central office expenses are an allocation of the costs of the respective
functions.
11. YEAR 2000 ISSUE
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information using
year 2000 dates is processed. In addition, similar problems may arise in some
systems which use certain dates in 1999 to represent something other than a
date. The effects of the Year 2000 Issue may be experienced before, on, or after
January 1, 2000, and, if not addressed, the impact on operations and financial
reporting may range from minor errors to significant systems failure which could
affect the ability of the Business to conduct normal business operations. It is
not possible to be certain that all aspects of the Year 2000 Issue affecting the
Business, including those related to the efforts of customers, suppliers, or
other third parties, will be fully resolved.
F-32
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
BALANCE SHEETS
MAY 2, 1998 AND MAY 1, 1999
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
ASSETS
CURRENT
Store cash floats......................................................................... $ 60 $ 60
Inventories............................................................................... 2,799 2,023
Prepaid expenses.......................................................................... 46 232
--------- ---------
TOTAL CURRENT ASSETS........................................................................ 2,905 2,315
ACCRUED LIABILITIES......................................................................... 601 1,365
--------- ---------
WORKING CAPITAL............................................................................. 2,304 950
INVESTMENT IN JOINT VENTURE................................................................. 2,894 2,454
PROPERTY, PLANT AND EQUIPMENT............................................................... 10,947 8,428
--------- ---------
NET ASSETS.................................................................................. $ 16,145 $ 11,832
--------- ---------
--------- ---------
</TABLE>
F-33
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF OPERATIONS
FOUR MONTHS ENDED MAY 2, 1998 AND MAY 1, 1999
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
NET SALES................................................................................... $ 29,243 $ 26,285
--------- ---------
COST OF SALES, excluding depreciation....................................................... 15,146 11,375
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES, excluding depreciation and amortization....... 12,862 12,895
DEPRECIATION AND AMORTIZATION............................................................... 1,044 751
SHARE OF JOINT VENTURE LOSS................................................................. 239 202
--------- ---------
29,291 25,223
--------- ---------
OPERATING (LOSS) INCOME..................................................................... (48) 1,062
INTEREST EXPENSE............................................................................ 210 19
--------- ---------
(LOSS) INCOME BEFORE INCOME TAXES........................................................... (258) 1,043
INCOME TAX (RECOVERY) PROVISION............................................................. (120) 462
--------- ---------
NET (LOSS) INCOME........................................................................... $ (138) $ 581
--------- ---------
--------- ---------
</TABLE>
F-34
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
STATEMENTS OF CASH FLOWS
FOUR MONTHS ENDED MAY 2, 1998 AND MAY 1, 1999
(UNAUDITED)
(IN THOUSANDS OF CANADIAN DOLLARS)
<TABLE>
<CAPTION>
1998 1999
--------- ---------
<S> <C> <C>
OPERATING ACTIVITIES
Net (loss) income......................................................................... $ (138) $ 581
Adjustments to reconcile net income to cash provided by operating activities
Depreciation and amortization........................................................... 1,044 751
Share of joint venture loss............................................................. 239 202
Loss on disposal of property, plant and equipment....................................... -- 28
--------- ---------
1,145 1,562
Changes in operating assets and liabilities
Accounts receivable..................................................................... 161 150
Inventories............................................................................. 3,045 1,299
Prepaid expenses........................................................................ 478 213
Accounts payable and accrued liabilities................................................ (3,207) (1,291)
Due to related parties.................................................................. (1,260) (306)
--------- ---------
CASH PROVIDED BY OPERATING ACTIVITIES....................................................... 362 1,627
--------- ---------
INVESTING ACTIVITIES
Purchase of property, plant and equipment................................................. (475) --
Contributed to joint venture.............................................................. (256) (1,286)
--------- ---------
CASH USED IN INVESTING ACTIVITIES........................................................... (731) (1,286)
--------- ---------
FINANCING ACTIVITY
Advanced from (repaid to) Nestle Canada................................................... 1,430 (1,881)
--------- ---------
NET INCREASE (DECREASE) IN CASH............................................................. $ 1,061 $ (1,540)
--------- ---------
--------- ---------
</TABLE>
F-35
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS
MAY 2, 1998 AND MAY 1, 1999
(IN THOUSANDS OF CANADIAN DOLLARS)
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Nestle Canada Inc. ("Nestle Canada") is proposing to sell its Laura Secord
Retail Business (the "Business"). The Business is a retailer and distributor of
chocolates, greeting cards, ice cream and other items primarily through 174
(1998--183) business-operated stores of which 18 stores, the "Combo" stores, are
in a joint venture between Nestle Canada and Hallmark Cards.
The Business comprises the following operations:
- The Laura Secord stores operated by Laura Secord Inc. (a wholly-owned
subsidiary of Nestle Canada);
- A 50% interest in the "Combo" stores;
- Sales by Laura Secord Inc. to distributors and retailers; and
- Sales by Nestle Canada to the "Combo" stores.
These financial statements have been prepared on the basis that the Business
has operated as a stand-alone entity.
The balance sheets include only those assets and liabilities which are
intended to be included in the sale. Accordingly, the following assets and
liabilities of Laura Secord Inc. have not been included in these financial
statements:
- Cash and bank balances, except for store cash floats;
- Accounts receivable;
- Inter-company balances;
- Inventory at the Nestle Canada warehouse;
- Accounts payable;
- Income tax balances.
The statements of operations and cash flows are complete portrayals of the
results of the Business and are not integrated with the balance sheets, as the
balance sheets include only specified assets and liabilities.
Trademarks relating to the Business, while being transferred as part of this
transaction, are not included in these financial statements as they are not
owned by Nestle Canada or Laura Secord Inc. but by a foreign affiliate.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
While Nestle Canada maintains its accounting records and prepares its
financial statements in accordance with International Accounting Standards,
appropriate adjustments have been made in order to state the accompanying
financial statements in accordance with generally accepted accounting principles
in the United States.
F-36
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MAY 2, 1998 AND MAY 1, 1999
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
The significant accounting policies followed in the presentation of these
financial statements are as follows:
REVENUE RECOGNITION
Net sales are recognized when products are sold at Laura Secord stores or,
in the case of trade customers, when products are shipped.
INVENTORIES
Product held for sale is stated at the lower of cost (on a first-in,
first-out basis) and net realizable value. Shop supplies and sundries are stated
at the lower of average cost and replacement cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are stated at cost less depreciation and
amortization. Depreciation and amortization is recorded on the straight-line
basis over the estimated useful lives of the assets as follows:
<TABLE>
<S> <C>
Store equipment --5 to 15 years
Leasehold improvements --the term of the lease plus the first renewal term (generally
ten years)
Computer hardware --5 years
Operating software --3 years
</TABLE>
Store premises are leased under agreements which are accounted for as
operating leases.
PREPAID EXPENSES
Packaging design costs are written off over two or three years, depending on
the expected life of the packaging. The deferred costs are included in prepaid
expenses.
JOINT VENTURE
A number of shops (referred to as "Combo" Shops) are operated as a 50/50
joint venture with Hallmark Canada, with both parties contributing the financing
and sharing equally in profits and losses. This joint venture has been accounted
for on the equity basis.
INCOME TAXES
The provision for income taxes has been calculated as if the business was a
self-standing entity, following the principles of tax allocation using the
liability method.
F-37
<PAGE>
THE LAURA SECORD RETAIL BUSINESS
NOTES TO THE FINANCIAL STATEMENTS (CONTINUED)
MAY 2, 1998 AND MAY 1, 1999
(IN THOUSANDS OF CANADIAN DOLLARS)
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
USE OF ESTIMATES
The preparation of financial statements in accordance with generally
accounting principles requires management to make estimates and assumptions that
affect the amounts recorded in the financial statements. Actual results may
differ from these estimates.
3. INVENTORIES
Inventories are comprised of the following:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Product held for sale................................................... $ 2,265 $ 1,476
Shop supplies and sundries.............................................. 534 547
----------- -----------
$ 2,799 $ 2,023
----------- -----------
----------- -----------
</TABLE>
4. RELATED PARTY TRANSACTIONS
Nestle Canada is a wholly-owned Canadian operating subsidiary in the
world-wide Nestle Group. Laura Secord Inc. is a wholly-owned subsidiary of
Nestle Canada.
The following charges (credits) from related parties are included in the
statements of operations:
<TABLE>
<CAPTION>
1998 1999
----------- -----------
<S> <C> <C>
Purchases of inventory from Nestle Canada............................... $ 6,962 $ 5,749
Trademark royalties to a group company.................................. 581 529
Rent to Nestle Canada for office space.................................. 133 112
Central office expenses to Nestle Canada, relating primarily to human
resources, data processing, quality assurance, financial services and
compensation for the president of Laura Secord Inc.................... 732 855
Interest on financing from Nestle Canada................................ 210 19
Management fee charged by Laura Secord Inc. to "Combo" stores........... (141) (164)
</TABLE>
Purchases of inventory from Nestle Canada are at cost plus a mark-up of
4.17%. Central office expenses are an allocation of the costs of the respective
functions.
F-38
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
UNTIL , ALL DEALERS THAT EFFECT TRANSACTION 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
$40,000,000
10 1/4% SENIOR SECURED NOTES DUE 2004
---------------------
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 Candy") 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 "Sweet Factory Subsidiaries,") 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 (1) for any breach of the director's duty of loyalty to the
corporation or its stockholders, (2) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (3) under
Section 174 of the GCL or (4) for any transaction from which the director
derived an improper personal benefit.
The certificates of incorporation of the Sweet Factory 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 Sweet Factory Subsidiaries authorize the
Sweet Factory 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
II-1
<PAGE>
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, 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.
The By-Laws of Archibald Candy (Canada) Corporation ("Archibald (Canada)",
and together with Archibald Candy and the Sweet Factory Subsidiaries, the
"Registrants") provide that Archibald (Canada) shall indemnify its officers and
directors, and former officers and directors, and the heirs and legal
representatives of such persons to the extent permitted by the CANADA BUSINESS
CORPORATIONS ACT.
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.
II-2
<PAGE>
(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-3
<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 August 6, 1999.
<TABLE>
<S> <C> <C>
ARCHIBALD CANDY CORPORATION
By: /s/ TED A. SHEPHERD
-----------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING
OFFICER
</TABLE>
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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ----------------
<C> <S> <C>
/s/ THOMAS H. QUINN
- ------------------------------ Chairman of the Board and August 6, 1999
Thomas H. Quinn Chief Executive Officer
/s/ TED A. SHEPHERD President and Chief Operating
- ------------------------------ Officer (Principal Executive August 6, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting August 6, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II
- ------------------------------ Director August 6, 1999
John W. Jordan II
/s/ ADAM E. MAX
- ------------------------------ Director August 6, 1999
Adam E. Max
/s/ BRANT BINDER
- ------------------------------ Director August 6, 1999
Brant Binder
/s/ JEFFREY J. ROSEN
- ------------------------------ Director August 6, 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 August 6, 1999.
<TABLE>
<S> <C> <C>
SWEET FACTORY GROUP, INC.
By: /s/ TED A. SHEPHERD
-----------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING
OFFICER
</TABLE>
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 an 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ----------------
<C> <S> <C>
/s/ THOMAS H. QUINN
- ------------------------------ Chairman of the Board and August 6, 1999
Thomas H. Quinn Chief Executive Officer
/s/ TED A. SHEPHERD President and Chief Operating
- ------------------------------ Officer (Principal Executive August 6, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting August 6, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II
- ------------------------------ Director August 6, 1999
John W. Jordan II
/s/ ADAM E. MAX
- ------------------------------ Director August 6, 1999
Adam E. Max
/s/ BRANT BINDER
- ------------------------------ Director August 6, 1999
Brant Binder
/s/ JEFFREY J. ROSEN
- ------------------------------ Director August 6, 1999
Jeffrey J. Rosen
</TABLE>
II-5
<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 August 6, 1999.
<TABLE>
<S> <C> <C>
SWEET FACTORY, INC.
By: /s/ TED A. SHEPHERD
-----------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING
OFFICER
</TABLE>
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 an 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ----------------
<C> <S> <C>
/s/ THOMAS H. QUINN
- ------------------------------ Chairman of the Board and August 6, 1999
Thomas H. Quinn Chief Executive Officer
/s/ TED A. SHEPHERD President and Chief Operating
- ------------------------------ Officer (Principal Executive August 6, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting August 6, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II
- ------------------------------ Director August 6, 1999
John W. Jordan II
/s/ ADAM E. MAX
- ------------------------------ Director August 6, 1999
Adam E. Max
/s/ BRANT BINDER
- ------------------------------ Director August 6, 1999
Brant Binder
/s/ JEFFREY J. ROSEN
- ------------------------------ Director August 6, 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 August 6, 1999.
<TABLE>
<S> <C> <C>
SF PROPERTIES, INC.
By: /s/ TED A. SHEPHERD
-----------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING
OFFICER
</TABLE>
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 an 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ----------------
<C> <S> <C>
/s/ THOMAS H. QUINN
- ------------------------------ Chairman of the Board and August 6, 1999
Thomas H. Quinn Chief Executive Officer
/s/ TED A. SHEPHERD President and Chief Operating
- ------------------------------ Officer (Principal Executive August 6, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting August 6, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II
- ------------------------------ Director August 6, 1999
John W. Jordan II
/s/ ADAM E. MAX
- ------------------------------ Director August 6, 1999
Adam E. Max
/s/ BRANT BINDER
- ------------------------------ Director August 6, 1999
Brant Binder
/s/ JEFFREY J. ROSEN
- ------------------------------ Director August 6, 1999
Jeffrey J. Rosen
</TABLE>
II-7
<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 August 6, 1999.
<TABLE>
<S> <C> <C>
SF CANDY COMPANY
By: /s/ TED A. SHEPHERD
-----------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING
OFFICER
</TABLE>
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 an 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ----------------
<C> <S> <C>
/s/ THOMAS H. QUINN
- ------------------------------ Chairman of the Board and August 6, 1999
Thomas H. Quinn Chief Executive Officer
/s/ TED A. SHEPHERD President and Chief Operating
- ------------------------------ Officer (Principal Executive August 6, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting August 6, 1999
Donna M. Snopek Officer)
/s/ JOHN W. JORDAN II
- ------------------------------ Director August 6, 1999
John W. Jordan II
/s/ ADAM E. MAX
- ------------------------------ Director August 6, 1999
Adam E. Max
/s/ BRANT BINDER
- ------------------------------ Director August 6, 1999
Brant Binder
/s/ JEFFREY J. ROSEN
- ------------------------------ Director August 6, 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 August 6, 1999.
<TABLE>
<S> <C> <C>
ARCHIBALD CANDY (CANADA) CORPORATION
By: /s/ TED A. SHEPHERD
-----------------------------------
Ted A. Shepherd
PRESIDENT AND CHIEF OPERATING
OFFICER
</TABLE>
POWER OF ATTORNEY
The undersigned directors and officers of Archibald Candy (Canada)
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 an in our names
in the capacities indicated below, which such person may deem necessary or
advisable to enable Archibald Candy (Canada) 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.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- ------------------------------ ------------------------------ ----------------
<C> <S> <C>
/s/ TED A. SHEPHERD President and Chief Operating
- ------------------------------ Officer (Principal Executive August 6, 1999
Ted A. Shepherd Officer)
Vice President--Finance and
/s/ DONNA M. SNOPEK Accounting (Principal
- ------------------------------ Financial and Accounting August 6, 1999
Donna M. Snopek Officer)
ARCHIBALD CANDY CORPORATION Sole shareholder
- ------------------------------
/s/ DONNA M. SNOPEK
By: Donna M. Snopek August 6, 1999
Vice President--Finance and
Accounting
</TABLE>
II-9
<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. (incorporated by reference to Exhibit 2.2 to the Company's
Registration Statement on Form S-4, File No. 333-71925)
2.3 Asset Purchase Agreement dated as of May 26, 1999 between Nestle Canada Inc. and the Company
(incorporated by reference to Exhibit 2.1 to the Company's Current Report on Form 8-K filed with the
SEC on June 23, 1999)
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. (incorporated by reference to Exhibit 3.3 to
the Company's Registration Statement on Form S-4, File No. 333-71925)
3.4 Restated Certificate of Incorporation of Sweet Factory, Inc. (incorporated by reference to Exhibit 3.4
to the Company's Registration Statement on Form S-4, File No. 333-71925)
3.5 Certificate of Incorporation of SF Properties, Inc. (incorporated by reference to Exhibit 3.5 to the
Company's Registration Statement on Form S-4, File No. 333-71925)
3.6 Certificate of Incorporation of SF Candy Company (incorporated by reference to Exhibit 3.6 to the
Company's Registration Statement on Form S-4, File No. 333-71925)
3.7 Articles of Incorporation of Archibald Candy (Canada) Corporation
3.8 By-Laws of Sweet Factory Group, Inc. (incorporated by reference to Exhibit 3.7 to the Company's
Registration Statement on Form S-4, File No. 333-71925)
3.9 By-Laws of Sweet Factory, Inc. (incorporated by reference to Exhibit 3.8 to the Company's Registration
Statement on Form S-4, File No. 333-71925)
3.10 By-Laws of SF Properties, Inc. (incorporated by reference to Exhibit 3.9 to the Company's Registration
Statement on Form S-4, File No. 333-71925)
3.11 By-Laws of SF Candy Company (incorporated by reference to Exhibit 3.10 to the Company's Registration
Statement on Form S-4, File No. 333-71925)
3.12 By-Laws of Archibald Candy (Canada) Corporation
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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
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 the SEC on December 22, 1998)
4.4 Second Supplemental Indenture dated as of June 8, 1999 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 the SEC on June 23, 1999)
4.5 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)
4.6 Second Amended and Restated Pledge and Security Agreement dated as of June 8, 1999 between the Company,
the Guarantor Subsidiaries and The Bank of New York, as Trustee
4.7 Second Amended and Restated Intellectual Property Security Agreement dated as of June 8, 1999 between
the Company, the Guarantor Subsidiaries and The Bank of New York, as Trustee
4.8 Amended and Restated Guaranty dated as of June 8, 1999 by each of the Guarantor Subsidiaries
4.9 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)
4.10 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 (incorporated by reference to Exhibit 4.8 to the Company's
Registration Statement on Form S-4, File No. 333-71925)
4.11 Second Amendment to Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture Filing and
Financing Statement dated as of June 8, 1999 relating to the Company's Chicago, Illinois manufacturing
and headquarters facility
4.12 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)
4.13 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 (incorporated by reference to Exhibit 4.10 to the Company's
Registration Statement on Form S-4, File No. 333-71925)
4.14 Second Amendment to Open-End Mortgage, Security Agreement, Assignment of Leases and Rents, Fixture
Filing and Financing Statement dated as of June 8, 1999 relating to the Company's Bensalem,
Pennsylvania warehouse and distribution facility
4.15 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)
4.16 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 (incorporated by
reference to Exhibit 4.12 to the Company's Registration Statement on Form S-4, File No. 333-71925)
4.17 Waiver and Amendment No. 2 to Amended and Restated Credit Agreement dated as of June 8, 1999 by and
among the Company, the lenders signatory thereto and The First National Bank of Chicago, as Agent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
4.18 Amendment No. 3 to Amended and Restated Credit Agreement dated as of July 30, 1999 by and among the
Company, the lenders signatory thereto and The First National Bank of Chicago, as Agent
4.19 Credit Agreement dated as of July 30, 1999 among Archibald Candy (Canada) Corporation and First Chicago
NBD Bank, Canada.
4.20 Participation Agreement dated as of July 30, 1999 by and among the Company, Archibald Candy (Canada)
Corporation, The First National Bank of Chicago, Fleet Business Credit Corporation and First Chicago
NBD Bank, Canada
4.21 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)
4.22 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
(incorporated by reference to Exhibit 10.2 to the Company's Registration Statement on Form S-4, File
No. 333-71925)
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) (incorporated by reference to Exhibit 10.4 to the
Company's Registration Statement on Form S-4, File No. 333-71925)
10.5 Fifth Amendment to Securities Purchase Agreement dated as of May 31, 1999 among Holdings, the Company
and the Purchasers (as defined therein)
10.6 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)
10.7 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)
10.8 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)
10.9 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)
10.10 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)
10.11 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)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBIT
- ----------- --------------------------------------------------------------------------------------------------------
<C> <S>
10.12 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)
10.13 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)
10.14 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)
10.15 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)
10.16 Co-Pack Agreement dated as of June 8, 1999 between Nestle Canada Inc. and the Company (incorporated by
reference to Exhibit 10.1 to the Company's Current Report on Form 8-K filed with the SEC on June 23,
1999)
10.17 Supply Agreement dated as of June 8, 1999 between Nestle Canada Inc. and the Company (incorporated by
reference to Exhibit 10.2 to the Company's Current Report on Form 8-K filed with the SEC on June 23,
1999)
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 Deloitte & Touche LLP
23.3 Consent of Winston & Strawn (contained in its opinion filed as Exhibit 5.1 hereto)
24.1 Powers 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>
Industry Canada Industrie Canada
CERTIFICATE CERTIFICAT
OF INCORPORATION DE CONSTITUTION
CANADA BUSINESS LOI CANADIENNE SUR
CORPORATIONS ACT LES SOCIETES PAR ACTIONS
<TABLE>
<S> <C>
- -------------------------------------------------------------------------------------------------------------------
ARCHIBALD CANDY (CANADA) 362385-8
CORPORATION
- -------------------------------------------------------- ------------------------------------------------------
Name of corporation-Denomination de la societe Corporation number - Numero de la societe
I hereby certify that the above-named corporation, the Je certifie que la societe susmentionnee, don't les
articles of incorporation of which are attached, was statuts constitutifs sont joints, a ete constituee en
incorporated under the CANADA BUSINESS CORPORATIONS ACT. societe en vertu de la LOI CANADIENNE SUR LES SOCIETE
PAR ACTIONS.
June 3, 1999 / le 3 juin 1999
Director - Directeur
Date of Incorporation - Date de constitution
- -------------------------------------------------------------------------------------------------------------------
</TABLE>
CANADA
<PAGE>
<TABLE>
<CAPTION>
FORM 1 FORMULE 1
CANADA LOI CANADIENNE SUR LES ARTICLES OF INCORPORATION STATUTS CONSTITUTIFS
BUSINESS SOCIETES PAR ACTIONS (SECTION 6) (ARTICLE 6)
CORPORATIONS ACT.
<S> <C>
- -------------------------------------------------------------------------------------------------------------------------
1 - Name of corporation Denomination de la societe
ARCHIBALD CANDY (CANADA) CORPORATION
- -------------------------------------------------------------------------------------------------------------------------
2 - The place in Canada where the registered office is to be Lieu au Canada ou doit etre situe le siege social
City of Tononto
Province of Ontario
- -------------------------------------------------------------------------------------------------------------------------
3 - The classes and any maximum number of shares that Categories et tout nombre maximal d'actions que la
the corporation is authorized to issue societe est autorisee a eemettre
An unlimited number of common shares.
- -------------------------------------------------------------------------------------------------------------------------
4 - Restrictions, if any, on share transfers Restrictions sur le transert des actions, s'il y a lieu
The transfer of shares of the Corporation shall be restricted in that no shareholder shall be entitled to transfer any
share or shares without either:
(a) the approval of the directors of the Corporation expressed by a resolution passed at a meeting of the board of
directors or by an instrument or instruments in writing signed by a majority of the directors; or
(b) the approval of the holders of at least a majority of the shares of the Corporation entitling the holders thereof
to vote in all circumstances (other than holders of shares who are entitled to vote separately as a class) for the
time being outstanding expressed by a resolution passed at a meeting of the holders of such shares or by an
instrument or instruments in writing signed by the holders of a majority of such shares.
- -------------------------------------------------------------------------------------------------------------------------
5. - Number (or minimum and maximum number) of directors Nombre (ou nombre minimal et maximal) d'administrateurs
Minimum of one; maximum of ten.
- -------------------------------------------------------------------------------------------------------------------------
6 - Restrictions, if any, on business the corporation may Limites imposees a l'activite commerciale de la
carry on societe, s'il y a lieu
No restrictions.
- -------------------------------------------------------------------------------------------------------------------------
7 - Other provisions, if any Autres dispositions, s'il y a lieu
The annexed Schedule A is incorporated in this form
- -------------------------------------------------------------------------------------------------------------------------
8 - Incorporators - Fondateurs
- -------------------------------------------------------------------------------------------------------------------------
Address (include postal code)
Name(s) - Nom(s) Adresse (inclure le code postal) Signature
- -------------------------------------------------------------------------------------------------------------------------
Theresa Gregoire 173 Finch Avenue West, Willowdale, ON M2R 1M2
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
FOR DEPARTMENTAL USE ONLY - A L'USAGE DU MINISTERE SEULEMENT Filed - D epos ee
Corporation No. - N' de la societe
- -------------------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
SCHEDULE A
7. Other provisions if any
(a) The number of shareholders of the Corporation, exclusive of
person who are in its employment and exclusive of person who,
having been formerly in the employment of the Corporation,
were, while in that employment, and have continued after the
termination of that employment to be, shareholders of the
Corporation, is limited to not more than fifty, two or more
person who are the joint registered owners of none or more
shares being counted as one shareholder.
(b) Any invitation to the public to subscribe for any securities
of the Corporation is hereby prohibited.
(c) The directors may appoint one or more directors, who shall
hold office for a term expiring not later than the close of
the next annual meeting of shareholders, but the total number
of directors so appointed may not exceed one third of the
number of directors elected at the previous meeting of
shareholders.
<PAGE>
BY-LAW NO. 1
of
ARCHIBALD CANDY (CANADA) CORPORATION
(the "Corporation")
1. INTERPRETATION
1.1. Expressions used in this By-law shall have the same meanings as
corresponding expressions in the CANADA BUSINESS CORPORATIONS ACT (the "Act").
2. CORPORATE SEAL
2.1. Until changed by the directors, the corporate seal of the Corporation
shall be in the form impressed in the margin hereof.
3. FINANCIAL YEAR
3.1. Until changed by the directors, the financial year of the Corporation
shall end on the last day of December in each year.
4. DIRECTORS
4.1. NUMBER. The number of directors shall be not fewer than the minimum
and not more than the maximum provided in the articles. At each election of
directors the number elected shall be the number of directors then in office
unless the directors or the shareholders otherwise determine.
4.2. QUORUM. A quorum of directors shall be one or, such greater or
lesser number as the directors or shareholders may from time to time
determine.
4.3. CALLING OF MEETINGS. Meetings of the directors shall be held at such
time and place as the Chairman of the Board, the President or any two
directors may determine.
<PAGE>
-2-
4.4. NOTICE OF MEETINGS. Notice of the time and place of each meeting of
directors shall be given to each director by telephone not less than 48 hours
before the time of the meeting or by written notice not less than four days
before the date of the meeting, provided that the first meeting immediately
following a meeting of shareholders at which directors are elected may be
held without notice if a quorum is present. Meetings may be held without
notice if the directors waive or are deemed to waive notice.
4.5. CHAIRMAN. The Chairman of the Board, or in his absence the President
if a director, or in his absence a director chosen by the directors at the
meeting, shall be chairman of any meeting of directors.
4.6. VOTING AT MEETINGS. At meetings of directors each director shall
have one vote and questions shall be decided by a majority of votes. In case
of an equality of votes the Chairman of the meeting shall have a second or
casting vote.
5. OFFICERS
5.1. GENERAL. The directors may from time to time appoint a Chairman of
the Board, a President, one or more Vice-Presidents, a Secretary, a Treasurer
and such other officers as the directors may determine.
5.2. CHAIRMAN OF THE BOARD. The Chairman of the Board, if any, shall be
appointed from among the directors and when present shall be chairman of
meetings of directors and shareholders and shall have such other powers and
duties as the directors may determine.
5.3. PRESIDENT. Unless the directors otherwise determine the President
shall be appointed from among the directors and shall be the chief executive
officer of the Corporation and shall have general supervision of its business
and affairs and in the absence of a Chairman of the Board shall be chairman
of meetings of directors and shareholders when present.
5.4. VICE-PRESIDENT. A Vice-President shall have such powers and duties
as the directors or the chief executive officer may determine.
<PAGE>
-3-
5.5. SECRETARY. The Secretary shall give required notices to
shareholders, directors, auditors and members of committees, act as secretary
of meetings of directors and shareholders when present, keep and enter
minutes of such meetings, maintain the corporate records of the Corporation,
have custody of the corporate seal and shall have such other powers and
duties as the directors or the chief executive officer may determine.
5.6. TREASURER. The Treasurer shall keep proper accounting records in
accordance with the Act, have supervision over the safekeeping of securities
and the deposit and disbursement of funds of the Corporation, report as
required on the financial position of the Corporation, and have such other
powers and duties as the directors or the chief executive officer may
determine.
5.7. ASSISTANTS. Any of the powers and duties of an officer to whom an
assistant has been appointed may be exercised and performed by such assistant
unless the directors or the chief executive officer otherwise direct.
5.8. TERM OF OFFICE. Each officer shall hold office until his successor
is elected or appointed, provided that the directors may at any time remove
any officer from office but such removal shall not affect the rights of such
officer under any contract of employment with the Corporation.
6. INDEMNIFICATION AND INSURANCE
6.1. INDEMNIFICATION OF DIRECTORS AND OFFICERS. The Corporation shall
indemnify a director or officer, a former director or officer or a person who
acts or acted at the Corporation's request as a director or officer of a body
corporate of which the Corporation is or was a shareholder or creditor, and
the heirs and legal representative of such a person to the extent permitted
by the Act.
6.2. INSURANCE. The Corporation may purchase and maintain insurance for
the benefit of any person referred to in the preceding section to the extent
permitted by the Act.
<PAGE>
-4-
7. SHAREHOLDERS
7.1. QUORUM. A quorum for the transaction of business at a meeting of
shareholders shall be two persons present and each entitled to vote at the
meeting.
7.2. CASTING VOTE. In case of an equality of votes at a meeting of
shareholders the Chairman of the meeting shall have a second or casting vote.
7.3. SCRUTINEERS. The Chairman at any meeting of shareholders may appoint
one or more persons (who need not be shareholders) to act as scrutineer or
scrutineers at the meeting.
8. DIVIDENDS AND RIGHTS
8.1. DECLARATION OF DIVIDENDS. Subject to the Act the directors may from
time to time declare dividends payable to the shareholders according to their
respective rights and interest in the Corporation.
8.2. CHEQUES. A dividend payable in money shall be paid by cheque to the
order of each registered holder of shares of the class or series in respect
of which it has been declared and mailed by prepaid ordinary mail to such
registered holder at the address of such holder in the Corporation's
securities register, unless such holder otherwise directs. In the case of
joint holders the cheque shall, unless such joint holders otherwise direct,
be made payable to the order of all of such joint holders and mailed to them
at their address in the Corporation's securities register. The mailing of
such cheque as aforesaid, unless the same is not paid on due presentation,
shall satisfy and discharge the liability for the dividend to the extent of
the sum represented thereby plus the amount of any tax which the Corporation
is required to and does withhold.
8.3. NON-RECEIPT OF CHEQUES. In the event of non-receipt of any dividend
cheque by the person to whom it is sent as aforesaid, the Corporation shall
issue to such person a replacement cheque for a like amount on such terms as
to indemnity, reimbursement of expenses and evidence of non-receipt and of
title as the directors may from time to time prescribe, whether generally or
in any particular case.
<PAGE>
-5-
8.4. UNCLAIMED DIVIDENDS. Any dividend unclaimed after a period of six
years from the date on which the same has been declared to be payable shall
be forfeited and shall revert to the Corporation.
9. EXECUTION OF INSTRUMENTS
9.1. Deeds, transfers, assignments, agreements, proxies and other
instruments may be signed on behalf of the Corporation by any two directors
or by a director and an officer or by one of the Chairman of the Board, the
President and a Vice-President together with one of the Secretary and the
Treasurer or in such other manner as the directors may determine; except that
insider trading reports may be signed on behalf of the Corporation by any one
director or officer of the Corporation.
10. NOTICE
10.1. A notice mailed to a shareholder, director, auditor or member of a
committee shall be deemed to have been given when deposited in a post office
or public letter box.
10.1.1. Accidental omission to give any notice to any shareholder,
director, auditor or member of a committee or non-receipt of any notice or
any error in a notice not affecting the substance thereof shall not
invalidate any action taken at any meeting held pursuant to such notice.
RESOLVED THAT the foregoing by-law is made a by-law of the
Corporation by the signature hereto of the sole director of the Corporation
pursuant to the CANADA BUSINESS CORPORATIONS ACT, this 3rd day of June, 1999.
/s/ Theresa Gregoire
----------------------------
Theresa Gregoire
<PAGE>
-6-
RESOLVED THAT the foregoing by-law is confirmed as a by-law of the
Corporation by the signature hereto of the sole shareholder of the
Corporation pursuant to the CANADA BUSINESS CORPORATIONS ACT, this 3rd day of
June, 1999.
/s/ Theresa Gregoire
----------------------------
Theresa Gregoire
<PAGE>
SECOND
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.
ARCHIBALD CANDY (CANADA) CORPORATION
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 Indentures,
dated as of December 7, 1998, and June 8, 1999,
and as Pledgee and Secured Party
<PAGE>
SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT
SECOND AMENDED AND RESTATED PLEDGE AND SECURITY AGREEMENT (as amended,
restated, modified or supplemented from time to time, the "SECURITY
AGREEMENT"), dated as of June 8, 1999, 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"), Archibald Candy (Canada) Corporation, a Canadian company
("ARCHIBALD CANDY (CANADA)" and, together with the Company, SF Candy Company,
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, a New
York banking corporation, as Trustee (the "TRUSTEE", or the "PLEDGEE") for
the ratable benefit of the Holders (as defined in the Indenture). Group,
Sweet Factory, SF Properties, SF Candy Company and Archibald Candy (Canada)
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 $40,000,000 in aggregate principal amount of its
10 1/4% Senior Secured Notes due 2004 (the "ADDITIONAL NOTES") of which
$130,000,000 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") pursuant to which the
Company and the Restricted Subsidiaries (as defined in the Indenture), in
order to secure their obligations under the Indenture, granted to the
Pledgee, for the ratable benefit of the Holders, a security interest in and
continuing lien upon the Collateral (as defined below), and each Pledgor,
other than Archibald Candy (Canada), entered into the Amended and Restated
Pledge and Security Agreement, dated as of December 7, 1998 (the "FIRST
AMENDED AND RESTATED SECURITY
<PAGE>
AGREEMENT"), pursuant to which the Pledgors, other than Archibald Candy
(Canada) granted to the Pledgee a security interest in and continuing lien
upon the Collateral;
WHEREAS, Archibald Candy (Canada) has been requested to enter into this
Agreement to evidence, and each of the other Pledgors have been requested to
enter into this Agreement to reaffirm, the security interest in and
continuing lien upon the Collateral; and
WHEREAS, the Company, the Pledgors named therein and the Trustee have
agreed to amend and restate the First Amended and Restated Security Agreement
in its entirety as set forth herein.
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 First Amended and
Restated Security Agreement is hereby amended and restated in its entirety as
set forth in this Second 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,
2
<PAGE>
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; and
(c) all Equipment, Fixtures and General Intangibles, and
all Insurance Policies, Contracts and Collateral Records to the extent
relating to any of the foregoing.
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, PROVIDED, however, that there is expressly
excluded from the grant of a security interest hereunder (i) all Receivables
and (ii) all Inventory, 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 any "account" as such term is defined in
Section 9-106 of the UCC and, with respect to Archibald Candy (Canada)
only, as such term is defined in Section 1 of the PPSA.
"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 and, with respect to Archibald Candy
(Canada) only, as such term is defined in Section 1 of the PPSA.
"Collateral" shall have the meaning assigned to it in Section 2
hereof.
3
<PAGE>
"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.
"Documents" shall mean any "document" as such term is defined in
Section 9-105(f) of the UCC and, with respect to Archibald Candy
(Canada) only, any "document of title" as such term is defined in
Section 1 of the PPSA.
"Equipment" shall mean "equipment" as such term is defined in
Section 9-109(2) of the UCC and, with respect to Archibald Candy
(Canada) only, as such term is defined in Section 1 of the PPSA,
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, this Agreement and the Deed of
Hypothec, dated the date hereof, between the Trustee and the Bank of New
York.
"Fixtures" shall mean "fixtures" as such term is defined in
Section 9-313 of the UCC and, with respect to Archibald Candy (Canada)
only, as such term is used in the PPSA.
"General Intangibles" shall mean "general intangibles" as such
term is defined in Section 9-106 of the UCC and, with respect to
Archibald Candy (Canada) only, any "intangible" and any "security" as
such terms are defined in Section 1 of the PPSA, including in each case,
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
4
<PAGE>
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" or "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 as of July 2,
1997, between the Company and the Trustee, as amended by the
Supplemental Indenture, dated as of December 7, 1998, among the Company,
the Pledgors named therein and the Trustee, and as further amended by
the Second Supplemental Indenture, dated as of the date hereof, among
the Company, the Pledgors and the 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 and, with respect to Archibald Candy
(Canada) only, any "instrument" as such term is defined in Section 1 of
the PPSA.
"Insurance Policies" shall mean any and all insurance policies
from time to time maintained by any of the Debtors (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 July 2,
1997, between the Company, as assignor, and the Trustee, as assignee,
for the ratable benefit of the Holders, as amended by the Amended and
Restated Intellectual Property Security Agreement, dated as of December
7, 1998, among the Pledgors named therein, as
5
<PAGE>
assignors, and the Trustee, as assignee, as further amended by the
Second Amended and Restated Intellectual Property Security Agreement,
dated as of the date hereof, among the Company and the Pledgors, as
assignors, and the Trustee, as assignee, as same may from time to time
be further amended, modified, waived or supplemented.
"Inventory" shall mean "inventory" as such term is defined in
Section 9-109(4) of the UCC and, with respect to Archibald Candy
(Canada) only, as such term is defined in Section 1 of the PPSA,
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.
"Pledged Securities" shall have the meaning specified in Section
2(a).
"Pledged Subsidiaries" shall have the meaning specified in the
second Whereas clause.
6
<PAGE>
"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 herein contained,
perfection of which may be obtained by the Pledgee's taking possession
thereof.
"PPSA" shall mean the Personal Property Security Act or similar
legislation as in effect from time to time in the Province of Ontario.
"Proceeds" shall mean "proceeds" as such term is defined in
Section 9-306(1) of the UCC and, with respect to Archibald Candy
(Canada) only, as such term is defined in Section 1 of the PPSA.
"Receivables" shall mean all rights to payment for Inventory sold,
whether or not earned by performance and all rights in respect of any
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
7
<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 financing
statements in the jurisdictions set forth in SCHEDULE B hereto, the filing of
the Intellectual Property Security Agreement with the U.S. Patent and
Trademark Office and the U.S. Copyright Office and the making of appropriate
filings with the Canadian Intellectual Property 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
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until all of the Obligations have been indefeasibly paid and performed in
full, as long as this Agreement remains in full force and effect.
(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 financing statements in the jurisdictions listed on
SCHEDULE B hereto, the filing of the Intellectual Property Security Agreement
with the U.S. Patent and Trademark Office, and the U.S. Copyright Office and
the making of appropriate filings with the Canadian Intellectual Property
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 and
perfection 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,
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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.
(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 a Responsible
Officer of 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
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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 chief executive office unless such Debtor (i)
gives 30 days' prior written notice to the Pledgee, which notice shall
specify such new name and/or address and (ii) delivers to the Pledgee all
financing statements, instruments and other documents necessary to maintain
the security interest granted to the Pledgee hereunder in connection with
such change or relocation.
(o) Each Debtor shall pledge to the Trustee, for the
ratable benefit of the Holders, all of the Capital Stock of each 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.
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,
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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, 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)
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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.
(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 and the PPSA);
(ii) retain possession of the Collateral;
(iii) sell, assign, transfer, or hire investment
advisers at the expense of the Pledgors 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), or such other notice, if any, as is required by
the PPSA, 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
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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 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; or
(iv) where permitted by law, take proceedings in any
court of competent jurisdiction for the appointment of a
receiver (which term shall include a receiver and manager)
of the Collateral or by appointment in writing appoint any
person to be a receiver of the Collateral and remove any
receiver so appointed by the Pledgee and appoint another in
his stead; and any such receiver appointed by instrument in
writing shall, to the extent permitted by applicable law or
to such lesser extent permitted, have all of the rights,
benefits and powers of the Pledgee hereunder or under the
PPSA or otherwise and without limitation have power (w) to
take possession of the Collateral, (x) to carry on all or
any part or parts of the business of the Pledgors, (y) to
borrow money required for the seizure, retaking,
repossession, holding, insuring, repairing, processing,
maintaining, protecting, preserving, preparing for
disposition, disposition of the
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Collateral or for any other enforcement of this Agreement or
for the carrying on of the business of the Pledgors on the
security of the Collateral in priority to the security
interest created under this Agreement, and (z) to sell,
lease or otherwise dispose of the whole or any part of the
Collateral at public auction, by public tender or by private
sale, lease or other disposition either for cash or upon
credit, at such time and upon such terms and conditions as
the receiver may determine; provided that if any such
disposition involves deferred payment the Pledgee will not
be accountable for and the Pledgors will not be entitled to
be credited with the proceeds of any such disposition until
the monies therefor are actually received; and further
provided that any such receiver shall be deemed the agent of
the Pledgors and the Pledgee shall not be in any way
responsible for any misconduct or negligence of any such
receiver.
(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, the PPSA 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 expense, forthwith
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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
are necessary or 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
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and delivered such instruments, endorsements, assignments, waivers,
certificates and other documents and take such further action as is necessary
or 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 OTHER JURISDICTION, 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.
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Section 12 REMEDIES CUMULATIVE; NO WAIVER. Each right, power and
remedy of the Pledgee provided for herein, in any other agreement pursuant to
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 its 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 a file stamped copy (if
available) of such additional notices, financing statements, continuation
statements, 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, preserva-
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tion, 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.
(c) The rights, privileges, protections and benefits given
to the Pledgee, including, without limitation, its rights to be indemnified,
are extended to, and shall be enforceable by, the Pledgee in each of its
capacities hereunder, and to each agent, custodian and other Persons employed
to act hereunder.
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 law of any other
jurisdiction 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
other applicable 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
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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 party, 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 or (ii) the Pledgee has an adequate
remedy at law in respect of such breach.
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.
20
<PAGE>
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 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
21
<PAGE>
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 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 ratably 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.
22
<PAGE>
Section 30. RIGHTS AND DUTIES OF PLEDGEE. The Pledgee hereunder
shall have the rights given and the duties imposed upon the Trustee under the
Indenture, and in cases of express conflict, the Indenture shall govern.
Section 31. LIMITATION ON DUTY OF PLEDGEE IN RESPECT OF
COLLATERAL; INDEMNIFICATION. (a) Beyond the exercise of reasonable care in
the custody thereof, the Pledgee shall have no duty as to any Collateral in
the possession or control of any agent or bailee or any income thereon or as
to preservation of rights against prior parties or any other rights
pertaining thereto and the Pledgee shall not be responsible for filing any
financing or continuation statements or recording any documents or
instruments in any public office at any time or times or otherwise perfecting
or maintaining the perfection of any security interest in such collateral.
The Pledgee shall be deemed to have exercised reasonable care in the custody
of the Collateral in its possession if the Collateral is accorded treatment
substantially equal to that which it accords its own property and shall not
be liable or responsible for any loss or diminution in the value of any of
the Collateral, by reason of the act or omission of any carrier, forwarding
agency or other agent or bailee selected by the Pledgee in good faith.
(b) The Pledgee shall not be responsible for the existence,
genuineness or value of any of the Collateral or for the validity,
perfection, priority or enforceability of the Liens in any of the Collateral,
whether impaired by operation of law or by reason of any action or omission
to act on its part hereunder, except to the extent such action or omission
constitutes negligence, bad faith or wilful misconduct on the part of the
Pledgee, for the validity or sufficiency of the Collateral or any agreement
or assignment contained therein, for the validity of the title of the Company
to the Collateral, for insuring the Collateral or for the payment of taxes,
charges, assessments or Liens upon the Collateral or otherwise as to the
maintenance of the Collateral. The Pledgee shall have no duty to ascertain or
inquire as to the performance or observance of any of the terms of the
Financing Documents.
Section 32. EXCEPTION FOR LAST DAY OF LEASES. The security
interest granted hereby does not and shall not extend to, and Collateral shall
not include, the last day of the term of any lease or sub-lease of real property
in Canada, oral or written, or any agreement therefor, now held or hereafter
acquired by any Pledgor, but upon the security interest granted hereby becoming
enforceable any Pledgor shall stand possessed of such last day in trust to
assign the same as the Pledgee shall direct.
[signature pages follow]
23
<PAGE>
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
SF CANDY COMPANY
<PAGE>
as Debtor and Pledgor
By: /s/ TED A. SHEPHERD
Name: Ted A Shepherd
Title: President and Chief Operating Officer
ARCHIBALD CANDY (CANADA) CORPORATION
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>
SCHEDULE A
PLEDGED SECURITIES OWNED BY ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
- ----------------------------- ----------------- ---------------------- ----------- -------------- --------------------------
Percentage
Stock Class of Stock Par Number of
Issuer Stock Certificate Value of Outstanding
Number Shares Shares
<S> <C> <C> <C> <C> <C>
Sweet Factory Group, Inc. Common C-44 $.001 100 100%
Archibald Candy (Canada) Common 2 N/A 1 100%
Corporation
<CAPTION>
PLEDGED SECURITIES OWNED BY SWEET FACTORY GROUP, INC.
- ----------------------------- ----------------- ---------------------- ----------- -------------- --------------------------
Percentage
Stock Class of Stock Par Number of
Issuer Stock Certificate Value of Outstanding
Number Shares Shares
<S> <C> <C> <C> <C> <C>
Sweet Factory, Inc. Common C-1 $.001 100 100%
SF Properties, Inc. Common C-1 $.001 100 100%
SF Candy Company Common C-002 $.001 100 100%
<CAPTION>
PLEDGED SECURITIES OWNED BY SWEET FACTORY, INC.
- ----------------------------- ----------------- ---------------------- ----------- -------------- --------------------------
Percentage
Stock Class of Stock Par Number of
Issuer Stock Certificate Value of Outstanding
Number Shares Shares
<S> <C> <C> <C> <C> <C>
<PAGE>
NONE
<CAPTION>
PLEDGED SECURITIES OWNED BY SF PROPERTIES, INC.
- ----------------------------- ----------------- ---------------------- ----------- -------------- --------------------------
Percentage
Stock Class of Stock Par Number of
Issuer Stock Certificate Value of Outstanding
Number Shares Shares
<S> <C> <C> <C> <C> <C>
NONE
<CAPTION>
PLEDGED SECURITIES OWNED BY SF CANDY COMPANY
- ----------------------------- ----------------- ---------------------- ----------- -------------- --------------------------
Percentage
Stock Class of Stock Par Number of
Issuer Stock Certificate Value of Outstanding
Number Shares Shares
<S> <C> <C> <C> <C> <C>
NONE
<CAPTION>
PLEDGED SECURITIES OWNED BY ARCHIBALD CANDY (CANADA) CORPORATION
- ----------------------------- ----------------- ---------------------- ----------- -------------- --------------------------
Percentage
Stock Class of Stock Par Number of
Issuer Stock Certificate Value of Outstanding
Number Shares Shares
<S> <C> <C> <C> <C> <C>
NONE
</TABLE>
<PAGE>
SCHEDULE B
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1123 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1129 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1128-42 West Van Buren Boulevard
Chicago, IL 60607
Archibald Candy Corporation
1694 Winchester Road
Box 324
Bensalem, PA 19020
Archibald Candy (Canada) Corporation
1137 West Jackson Boulevard
Chicago, IL 60607
Sweet Factory Group, Inc.
Sweet Factory, Inc.
SF Properties, Inc.
SF Candy Company
1137 West Jackson Boulevard
Chicago, IL 60607
Sweet Factory Group, Inc.
Sweet Factory, Inc.
SF Properties, Inc.
SF Candy Company
Chicago, IL 60607
Ontario (with respect to filing of financing documents only)
<PAGE>
SCHEDULE C
Archibald Candy Corporation
1137 West Jackson Boulevard
Chicago, IL 60607
Sweet Factory Group, Inc.
Sweet Factory, Inc.
SF Properties, Inc.
SF Candy Company
1137 West Jackson Boulevard
Chicago, IL 60607
Archibald Candy (Canada) Corporation
1137 West Jackson Boulevard
Chicago, IL 60607
<PAGE>
SECOND AMENDED AND RESTATED
INTELLECTUAL PROPERTY
SECURITY AGREEMENT
This SECOND 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 June 8, 1999 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 "SF Entities"), Archibald Candy (Canada) Corporation, a
corporation incorporated under the federal laws of Canada with offices at
1137 West Jackson Boulevard, Chicago, Illinois 60607 ("Archibald (Canada)",
together with the Company and the SF Entities, being hereafter referred to as
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 the Assignee have entered into an Indenture,
dated as of July 2, 1997, as amended by the First Supplemental Indenture,
dated as of December 7, 1998, between the Company, the SF Entities and the
Assignee and the Second Supplemental Indenture, dated as of the date hereof,
between the Company, the SF Entities, Archibald (Canada) 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 an additional $40,000,000 in
aggregate principal amount of 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, the SF Entities and the Assignee entered into that
certain Amended and Restated Intellectual Property Security Agreement dated
as of December 7, 1998 (the "Initial Intellectual Property 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 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, the 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 the Assignee
hereby agree as follows:
1. AMENDMENT AND RESTATEMENT. The Intellectual Property Security
Agreement, dated as of December 7, 1998, between the Company and the
Assignee, is hereby amended and restated in its entirety as set forth in this
Second 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 the 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 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
2
<PAGE>
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;
(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.
3
<PAGE>
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 fourth
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.
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. The Assignee shall have no obligation or liability in
connection with the Collateral by reason of this Agreement or any payment
received by the Assignee relating to the Collateral and the 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 the 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 the Assignee that: (a) EXHIBIT 1 hereto sets forth a complete
and accurate list of all of such Assignor's United States, state and foreign
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
4
<PAGE>
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 (3)
months of the date hereof and the United States Copyright Office ("Copyright
Office") within one (1) month of the date hereof, provided appropriate
filings are made with the Canadian Intellectual Property Offices, and
provided that UCC financing statements have been filed in the jurisdictions
listed on EXHIBIT 3-A hereto and appropriate Canadian financing documents are
filed in the provincial offices indicated on EXHIBIT 3-B 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 the
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.
6. COVENANTS. Each of the Assignors will maintain and renew all
items of Collateral of such Assignor, and any U.S. and Canadian applications
therefor and U.S. and Canadian 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. The 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 the 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 the Assignee. If, before the Obligations have been
satisfied in full, any of the Assignors shall obtain
5
<PAGE>
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 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 the 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, Canada
or any state or province thereof) in connection therewith. Except with the
prior written consent of the 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 the 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, the 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. The 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 the 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.
8. POWER OF ATTORNEY. Concurrently with the execution and delivery
hereof, each of the Assignors shall execute and deliver 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 the Assignee
6
<PAGE>
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
the 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 the 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 the Assignee under the Security Agreement. The
rights and remedies of the 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 the Assignee as a matter of
law or equity. The exercise by the 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 the 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 the Assignee and each of the Assignors. Each of the
Assignors hereby authorizes the 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, the 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 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 the 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 the
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,
7
<PAGE>
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 or Canada where such Assignor
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, the
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 the Assignee for all costs and expenses (including
fees and expenses of its agents and counsel) incurred by the 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, the Assignee will execute and deliver to the Assignors
all deeds, assignments and other instruments as may be necessary or proper to
release the Assignee's lien in the Collateral and reassign to the Assignors
any and all rights of the Assignee therein which were granted to the Assignee
hereunder, subject to any dispositions thereof which may have been made by
the Assignee pursuant hereto.
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 the 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]
8
<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
Archibald Candy (Canada) Corporation
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 Assignee
By: /S/ MARY LAGUMINA
Name: Mary LaGumina
Title: Assistant Vice President
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 8th day of June 1999 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 8th day of June 1999 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/ LAURA J. SMILEY
Notary Public
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 8th day of June 1999 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 8th day of June 1999 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/ LAURA J. SMILEY
Notary Public
<PAGE>
STATE OF ILLINOIS )
) ss:
COUNTY OF COOK )
On the 8th day of June 1999 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 (Canada) 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 NEW YORK )
) ss:
COUNTY OF NEW YORK )
On the 4th day of June 1999 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>
EXHIBIT 1
UNITED STATES TRADEMARK AND SERVICE MARK REGISTRATIONS
ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- ------------------------------ ------------------
<S> <C> <C>
AMERICAN HOMESTEAD 2,040,233 2/25/97
COLLECTION BY FANNIE
FARMER
AN AMERICAN TRADITION 1,668,708 12/17/91
DEBUTANTES (stylized) 649,034 7/23/57
FANNY FARMER and Design 904,804 12/22/70
(Cameo Silhouette)
Design (Hopping Easter 1,483,724 4/5/88
Bunny)
FANNY FARMER 578,907 8/18/53
(Script Style)
FANNY FARMER 126,844 10/7/19
(Script Style)
FANNIE FARMER 1,770,031 5/11/93
FANNIE MAY KITCHEN 1,407,863 9/2/86
FRESH CANDIES
FANNIE MAY 1,601,202(1) 6/12/90
FANNY FARMER 1,393,461 5/13/86
(Script Style)
FANNY FARMER 905,819 1/12/71
(Script Style)
- --------
(1) Abandoned but refiled as 75/231,420.
1-1
<PAGE>
<S> <C> <C>
FANNY FARMER 1,392,552 5/6/86
(Script Style)
and New Cameo Design
FANNY FARMER 1,375,189 12/10/85
FF (stylized) 998,022 11/12/74
I CAN'T MAKE ALL THE 1,397,036 6/10/86
CANDY IN THE WORLD, SO
I JUST MAKE THE BEST OF
IT! (stylized).
I LOVE MY HONEY BUT OH 1,468,535 12/8/87
YOU FANNIE MAY!
LAFAYETTE 211,768 4/20/26
MAVRAKOS CANDIES 1,652,532 7/30/91
(stylized)
PECAN DIXIES 1,758,566 3/16/93
PIXIES (stylized) 593,071 7/27/54
SWEET LOOK (stylized) 1,200,893 7/13/82
SWEET PERSUASION 1,816,447 1/11/94
TRINIDAD 1,607,576 7/24/90
TRINIDADS 1,400,579 7/8/86
LAURA SECORD (stylized) 163,475 1/16/23
</TABLE>
1-2
<PAGE>
SWEET FACTORY GROUP, INC.
None
SWEET FACTORY, INC.
EXTREME BEANS 2,097,391 9/16/98
SF PROPERTIES, INC.
None
SF CANDY COMPANY
None
ARCHIBALD CANDY (CANADA) CORPORATION
None
1-3
<PAGE>
CANADIAN TRADEMARK AND SERVICE MARK REGISTRATIONS
ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- ------------------------------------ -----------------
<S> <C> <C>
LAURA SECORD TMDA 18979 10/16/13
LAURA SECORD TMA 291,898 06/15/84
LAURA SECORD TMA 186,708 11/17/72
LAURA SECORD TMA 209,560 09/19/75
LAURA SECORD CHOCOLATE TMA 217,670 12/10/76
HOCKEY PUCK (and Design)
LAURA SECORD (and Design) TMA 308,270 11/15/85
CAMEO (and Design) TMA 280,819 06/23/83
DESIGN ONLY TMA 301,317 03/29/85
LAURA SECORD (and Design) TMA 207,365 05/30/75
"KIDDY POPS" UCA 39227 09/21/50
INDULGE TMA 389,009 09/13/91
CAMEO CONE TMA 415,221 08/06/93
MEDALLIONS TMA 126,360 04/27/62
"OCCASIONS BY TMA 371,465 08/03/90
LAURA SECORD"
</TABLE>
1-4
<PAGE>
OTHER REGISTERED TRADEMARKS
ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
TRADEMARK COUNTRY REGISTRATION NO.
- ------------------ -------- -----------------
<S> <C> <C>
LAURA SECORD United Kingdom 977778
LAURA SECORD United Kingdom B 1243751
LAURA SECORD Hong Kong B 27351988
LAURA SECORD Australia A 402878
LAURA SECORD France 1,675,679
LAURA SECORD Greece 77408
LAURA SECORD Ireland 110725
LAURA SECORD Korea Republic of (South) 166260 *Grace period expires July 11/99
LAURA SECORD Kuwait 15712
LAURA SECORD Macau 5812 M
LAURA SECORD Saudi Arabia 13939
LAURA SECORD Saudi Arabia 13940
LAURA SECORD Saudi Arabia 13941
LAURA SECORD Saudi Arabia 13942
LAURA SECORD Singapore 51484
LAURA SECORD South Africa 840270
LAURA SECORD Switzerland 340,977
</TABLE>
1-5
<PAGE>
UNITED STATES TRADEMARK AND SERVICE MARK APPLICATIONS
ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- --------------------------- ------------------
<S> <C> <C>
PIXIE(73/829,267) (9/29/89)
FANNIE MAY CANDIES (75-230,830) (1/24/97)
CELEBRATED COLLECTION(2)
FANNIE MAY (stylized) (75-231,420) (1/27/97)
FANNIE MAY CONFECTIONARY (75-209,950) (12/9/96)
FANNIE MAY CONFECTIONARY (75-209,975) (12/9/96)
MINIATURE CLASSICS FROM(3) (75-230,309) (1/23/97)
THE AMERICAN CHOCOLATIER
</TABLE>
SWEET FACTORY GROUP, INC.
None
SWEET FACTORY, INC.
None
SF PROPERTIES, INC.
None
SF CANDY COMPANY
None
ARCHIBALD CANDY (CANADA) CORPORATION
None
- --------
(2) Intent to use applications.
1-6
<PAGE>
CANADIAN TRADEMARK AND SERVICE MARK APPLICATIONS
None
1-7
<PAGE>
UNITED STATES STATE TRADEMARK REGISTRATIONS
ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
Registration No. Registration Date
Mark (Serial No.) (Filing Date)
- ------------------------- ------------------
<S> <C> <C>
ILLINOIS
PIXIES 29,397 8/29/52
MISSOURI
FANNIE MAY CANDIES 9,241 9/23/86
(stylized)
NEW YORK
FANNY FARMER R-134 11/15/54
FANNY FARMER (stylized) R-27,824 12/15/94
</TABLE>
SWEET FACTORY GROUP, INC.
None
SWEET FACTORY, INC.
None
SF PROPERTIES, INC.
None
SF CANDY COMPANY
None
ARCHIBALD CANDY (CANADA) CORPORATION
None
1-8
<PAGE>
UNITED STATES COPYRIGHT REGISTRATIONS
ARCHIBALD CANDY CORPORATION
<TABLE>
<CAPTION>
Registration No. Registration Date
Title (Renewal Number) (Renewal Date)
----- ---------------- ------------------
<S> <C> <C>
"The New Fannie Farmer A 58906 9/11/51
Boston Cooking School (RE 47-403) (12/28/79)
Cook Book" (1951
Edition)
"The Fannie Farmer A 310806 11/13/57
Junior Cook Book" (RE 269-246/7) (12/17/85)
(Revised Edition)
"The All New Fannie A 409841 10/6/59
Farmer Boston Cooking (RE 351-952) (10/22/87)
School Cook Book"
"The Fannie Farmer Cook A 785881 9/23/65
Book" (Eleventh Edition) (RE 47-403) (12/28/79)
"Candies" (Print or KK 232513 8/17/73
Label)
"Miss Dog's Christmas A 557906 9/9/73
Treat" (Book)
"The Fannie Farmer Cook TX 338-846 9/17/79
Book" (Twelfth Edition)
"The Fannie Farmer TX 1-547-681 2/22/85
Baking Book"
"The Fannie Farmer Cook TX 3-280-034 3/16/92
Book" (Thirteenth
Edition)
"Fannie May Chocolate VA 226 329 5/12/86
Filled Bunnies" (Poster)
1-9
<PAGE>
<S> <C> <C>
"Fannie May Candies VA 299 153 2/29/88
Easter Parade" (Poster)
(photograph and
lithograph reproduction)
"Fannie May Candies VA 258 898 3/26/87
Easter Parade"
(Catalogue 1987 edition)
"Fannie May Candies VA 295 869 2/29/88
Easter Parade"
(Catalogue 1988 edition)
Fannie May Candies VA 339 469 2/23/89
Easter Parade"
(Catalogue 1989 edition)
"Fannie May Kitchen VA 213 682 10/1/91
Fresh Candies" (Easter
1992 Gift Selection --
photographic catalogue)
"The Chocolate Idea TX 1,712,172 1/2/86
Book" - (Catalogue)
"The Chocolate Idea VA 248 077 12/5/86
Book" - (Catalogue 1986 -
1987 edition)
"Chocolate Delights"- VA 242 556 10/21/86
(Catalogue 1986-1987
edition)
"Fannie May Quantity VA 474 042 10/1/91
Order Discount Program
1991-1992" (photographic
catalogue)
"Fannie May Mail Order and VA 278 699 9/14/87
Quantity Order Catalogue
1987-1988"
"Fannie May Mail Order and VA 321 549 9/12/88
Quantity Order Catalogue
1988-1989"
1-10
<PAGE>
<S> <C> <C>
"Fannie May Kitchen VA 474 044 10/1/91
Fresh Candies 1991-1992
Mail Order Gift
Selections"
(photographic catalogue)
"Quantity Order Discount VA 474 043 10/1/91
Program Fannie May
Candies" (photographic brochure)
"Fannie May Quantity VA 474 042 10/1/91
Order Discount Program
1991-1992" (photographic
catalogue)
"The Victorian TX 1,851 807 2/18/86
Valentine" (design)
"Fannie May Kitchen VA 213 681 10/1/91
Fresh Candies
Valentine's 1992 Gift
Selection" (photographic
catalogue)
"Fannie May Valentine VA 253 083 1/22/87
Brochure - 1987 Edition"
"Fannie May Valentine VA 291 146 1/19/88
Brochure - 1988 Edition"
"Fannie May Valentine VA 337 851 2/6/89
Brochure - 1989 Edition"
"Fannie May Candies VA 284 161 11/4/87
Happy Holidays Flyer
1987" (Catalogue)
"Fannie May Candies VA 327 611 11/7/88
Happy Holidays Flyer
1988" (Catalogue)
"Fannie May Kitchen VA 213 680 10/1/91
Fresh Candies Christmas
1991 Gift Selections"
1-11
<PAGE>
<S> <C> <C>
(Photographic Catalogue)
"Chicago Skylines" VA 206 338 5/7/91
(packaging -- print
based upon original
painting)
"Water Tower/Horse and VA 228 669 11/1/91
Carriage" (print based
on original painting)
"Floral Heart" VA 815 722 10/22/96
"Christmas Personal VA 814 976 10/22/96
Consumption"
"Valentine's Day Personal VA 814 977 10/22/96
Consumption"
"Halloween Personal VA 814 978 10/22/96
Consumption"
"Easter Personal Consumption" VA 814 979 10/22/96
"'96 Halloween Pop" VA 814 980 10/22/96
"Easter Bunny Crate" VA 814 981 10/22/96
"Easter Bunny Die Cut Box" VA 814 982 10/22/96
"Marshmallow Hearts" VA 814 983 10/22/96
"Carrot-Rabbit Boxes" VA 820 242 10/22/96
"Easter Cream Egg Boxes" VA 824 758 10/22/96
"97 Whimsical 2 oz. Heart" VA 824 762 10/22/96
"12 oz. Jelly Bird Egg" VA 824 763 10/22/96
"Christmas Tree Die Cut Box" VA 824 764 10/22/96
"1 oz. Santa Pop" VA 824 765 10/22/96
"Twelve Days of Christmas" VA 824 766 10/22/96
</TABLE>
1-12
<PAGE>
SWEET FACTORY GROUP, INC.
None
SWEET FACTORY, INC.
Architectural drawings VAU 279 768 7/15/93
for candy rack displays
SF PROPERTIES, INC.
None
SF CANDY COMPANY
None
ARCHIBALD CANDY (CANADA) CORPORATION
None
1-13
<PAGE>
UNITED STATES PATENTS
None
CANADIAN PATENTS
None
1-14
<PAGE>
LICENSES
1. Trademark Agreement dated as of May 15, 1987 with Alfred Knopf for use
of the "FANNIE FARMER" trademark in conjunction with publication rights
to "The Fannie Farmer Cookbook" (13th Edition).
2. Trademark Agreement dated as of March 17, 1983 with Alfred Knopf for use
of the "FANNIE FARMER" trademark in conjunction with publication rights
to "The Fannie Farmer Baking Book."
3. Non-exclusive licenses of "Fannie May", "Fannie Farmer", and "Fanny
Farmer", trademarks pursuant to distributorship agreements and
agreements for advertising and promotion, and merchandising of non-food
products (including, without limitation, non-exclusive licenses for the
use of such trademarks for publications for third parties) entered into
in the ordinary course of business and consistent with past practice.
4. License Agreement, dated July 12, 1991, between The Sweet Factory (UK)
Limited, a company incorporated under the laws of England (the
"Original Licensor"), and Sweet Factory California Partners, Inc., a
California corporation (the "Original Licensee"); as assigned by the
Original Licensee to Sweet Factory, Inc., a Delaware corporation
("SFI") pursuant to an Assignment and Assumption Agreement, dated July
12, 1991; as assigned by SFI to Sweet Factory Group, Inc., a Delaware
corporation (the "Licensee"), pursuant to an Assignment and Assumption
of License, dated October 4, 1997; as assigned by the Original
Licensor to United Sweet Factory Limited, a company incorporated under
the laws of Cyprus (the "Licensor"), pursuant to an Assignment and
Assumption Agreement, dated March 31, 1993; and as amended by the
Amendment to License Agreement, dated April 7, 1993 between the
Licensor and Licensee.
1-15
<PAGE>
MATERIAL UNREGISTERED INTELLECTUAL PROPERTY
Trade Names
- -----------
Fannie May Candies
Fanny Farmer Candies
Laura Secord
Laura Secord French & Frosted Mint
Laura Secord Frosted Mint
Laura Secord Mint Medallion
Laura Secord Mint Stick
Laura Secord Almond Bark
Laura Secord Jellifruit
Laura Secord Miniatures
Laura Secord Dixies
Laura Secord Puppy Paws
Laura Secord Buttermallow
Laura Secord Nut Bordeaux
Laura Secord French Mint
Laura Secord Laurette
Laura Secord Secord
Laura Secord Superior
Laura Secord Goldie
Laura Secord Milton
Laura Secord York
Laura Secord French Crisp
Laura Secord Virginia Crisp
Laura Secord Butter Crunch
Laura Secord Milk Fingers
Laura Secord White Fingers
Laura Secord Southern
Laura Secord Gloria
Laura Secord Jamaican
Laura Secord Orange Fruit Dream
Laura Secord Strawberry Fruit Dream
Laura Secord Raspberry Fruit Dream
Laura Secord Essex
Laura Secord Kent
Laura Secord Swirls & Clusters
Laura Secord Almond Swirls
Laura Secord Vanilla Belmont
Laura Secord Cameo
Laura Secord Princess
1-16
<PAGE>
EXHIBIT 2
SPECIAL POWER OF ATTORNEY
STATE OF ILLINOIS )
) ss.
COUNTY OF COOK )
KNOW ALL MEN BY THESE PRESENTS, THAT _______________, a _______
corporation with offices at _______________________ (hereinafter called
"Assignor"), hereby appoints and constitutes THE BANK OF NEW YORK, a New York
banking corporation, with offices at 101 Barclay Street - 21 W., New York,
New York as trustee (the "Trustee") for the ratable benefit of the Holders
under that certain Indenture dated as of July 2, 1997 between Archibald Candy
Corporation ("Archibald") and the Trustee, as amended by the First
Supplemental Indenture dated as of December 7, 1998 between Archibald, the
Guarantors (as defined therein) and the Trustee, as further amended by the
Second Supplemental Indenture dated as of June ___, 1999 between Archibald,
the Guarantors (as defined therein) and the Trustee (hereinafter called
"Assignee"), its true and lawful attorney, with full power of substitution,
and with full power and authority to perform the following acts on behalf of
the Assignor:
1 For the purpose of assigning, selling, licensing or otherwise
disposing of all right, title and interest of the Assignor in and to any
United States, state and foreign trademarks, service marks, copyrights,
patents, trade names, trade dress, trade secrets, know-how and other
proprietary information, and all applications, registrations, recordings,
renewals, extensions, reissues, divisions, continuations,
continuations-in-part and re-examinations, and all licenses relating thereto,
and for the purpose of the recording, registering and filing of, or
accomplishing any other formality with respect to, the foregoing, to execute
and deliver any and all agreements, documents, instruments of assignment or
other papers necessary or advisable to effect such purpose; and
2 To execute any and all documents, statements, certificates or other
papers as are necessary or advisable in order to obtain the purposes
described above.
This power of attorney is made pursuant to that certain Second Amended
and Restated Intellectual Property Security Agreement dated as of June ___,
1999, between the Assignor and the Assignee and certain other parties for the
benefit of the Trustee and the ratable benefit of the Holders (the "Amended
and Restated Intellectual Property Security Agreement") and takes effect
solely for the purposes of Section 7 thereof ("Remedies Upon Default") and is
subject to the conditions thereof and may not be revoked until the payment in
full of all Obligations (as defined by reference in the Intellectual Property
Security Agreement).
Dated: June ___, 1999
2-1
<PAGE>
---------------------------------
By:
---------------------------------
Name:
Title:
2-2
<PAGE>
STATE OF ILLINOIS )
)ss:
COUNTY OF COOK )
On the ___ day of June___, 1999, before me personally came
______________, to me known, who being by me duly sworn, did depose and say
that he/she is the ____________________ of ___________________, 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.
- ------------------------------
Notary Public
2-3
<PAGE>
EXHIBIT 3-A
JURISDICTIONS FOR FILING UCC FINANCING STATEMENTS
Illinois Secretary of State
Pennsylvania Secretary of State
Bucks County, Pennsylvania
EXHIBIT 3-B
JURISDICTIONS FOR FILING CANADIAN
PROVINCIAL FINANCING DOCUMENTS
Personal Property Security Registry, Ontario
Registry of Personal and Movable Real Rights, Quebec
<PAGE>
AMENDED AND RESTATED GUARANTY
For good and valuable consideration received from Archibald Candy
Corporation, an Illinois corporation (the "Company") by the undersigned
(hereinafter referred to as the "Guarantors," which term includes any
successor or additional Guarantors), the receipt and sufficiency of which is
hereby acknowledged, subject to Section 10.8 of the Indenture, dated as of
July 2, 1997, by and between the Company and the Trustee, as amended by the
First Supplemental Indenture, dated as of December 7, 1998, and as further
amended by the Second Supplemental Indenture, dated as of June 8, 1999 among
the Company, the Guarantors and the Trustee (as amended, modified or
supplemented from time to time, the "Indenture"), the Guaranty, dated as of
December 7, 1998, is hereby amended and restated in its entirety, and each
Guarantor, jointly and severally, hereby unconditionally guarantees,
irrespective of the validity or enforceability of the Indenture, the Notes,
the Security Documents or the Obligations, (a) the due and punctual payment
of the principal and premium, if any, of and interest on the Notes
(including, without limitation, interest after the filing of a petition
initiating any proceedings referred to in Sections 6.1(9) or (10) of the
Indenture), whether at maturity or on an interest payment date, by
acceleration, call for redemption or otherwise, (b) the due and punctual
payment of interest on the overdue principal and premium, if any, of and
interest, if any, on the Notes, if lawful, (c) the due and punctual payment
and performance of all other Obligations, all in accordance with the terms
set forth in the Indenture, the Notes and the Security Documents, and (d) in
case of any extension of time of payment or renewal of any Notes or any of
such other Obligations, the due and punctual payment or performance thereof
in accordance with the terms of the extension or renewal, whether at stated
maturity, by acceleration or otherwise.
No director, officer, employee, incorporator, stockholder or controlling
person of the Guarantors, as such, shall have any liability under this
Guaranty for any obligations of the Guarantors under the Notes, the Indenture
or the Registration Rights Agreement or for any claim based on, in respect
of, or by reason of, such obligations or their creation. Each Holder of the
Notes by accepting a Note waives and releases all such liability.
Dated: June 8, 1999
[Signature Page Follows]
<PAGE>
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
ARCHIBALD CANDY (CANADA)
CORPORATION
By: /s/ Ted A. Shepherd
-----------------------------------------
Name: Ted A. Shepherd
Title: President and Chief Operating Officer
<PAGE>
Archibald Candy Corporation
as Mortgagor
TO
The Bank of New York,
as Mortgagee
- -------------------------------------------------------------------------------
SECOND AMENDMENT TO
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILING AND FINANCING STATEMENT
- -------------------------------------------------------------------------------
Dated: As of June 8, 1999
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: Matthew R. Hartley, Esq.
- -------------------------------------------------------------------------------
THIS MORTGAGE SECURES FUTURE ADVANCES AND FUTURE
OBLIGATIONS AT ANY TIME OUTSTANDING UP TO A MAXIMUM
PRINCIPAL AMOUNT OF $170,000,000
<PAGE>
THIS SECOND AMENDMENT TO MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF
LEASES AND RENTS, FIXTURE FILING AND FINANCING STATEMENT (the "Second
Amendment"), is made as of June 8, 1999, 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), the Additional Notes
(as hereinafter defined) and the Second 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, dated July 2, 1997 (the "Original Mortgage"), for
the benefit of the Mortgagee as trustee for the benefit of the holders of the
Original Notes, which Original Mortgage was recorded in 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 Original Mortgage was amended by that certain First
Amendment to Mortgage, Security Agreement, Assignment of Leases and Rents,
Fixture Filing and Financing Statement, dated as of December 7, 1998 (the
"First Mortgage Amendment," and collectively with the Original Mortgage, the
"Mortgage"), which First Mortgage Amendment was recorded in the Cook County
Recorder of Deeds on December 8, 1998, as Document No. 08111895;
3. 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 as
of July 2, 1997 (the "Original Indenture"), as amended by that certain
Supplemental Indenture, dated as of December 7, 1998 (the "Supplemental
Indenture," and collectively with the Original Indenture, the "Indenture",
hereinafter referred to as 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);
4. WHEREAS, the Mortgagor, the Mortgagee and the Guarantors (as defined
in the Indenture) have entered into a certain Second Supplemental Indenture
of even date herewith (the "Second Supplemental Indenture") pursuant to which
certain terms and provisions of the Indenture have been amended, modified or
deleted as more particularly described therein; and
5. WHEREAS, the Mortgagor and Mortgagee desire to amend the Mortgage in
certain respects.
1
<PAGE>
NOW THEREFORE, in consideration of the execution and delivery of the
Second 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:
6. 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
as of July 2, 1997 (the "Original
Indenture"), as amended by that
Supplemental Indenture dated as of December
7, 1998 (the "Supplemental Indenture"), and
as further amended by that Second
Supplemental Indenture, dated as of June 8,
1999 (the "Second Supplemental Indenture,"
and collectively with the Original
Indenture and the Supplemental 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, (i)
pursuant to the Original Indenture,
$100,000,000 in aggregate principal amount
of its 10 1/4% Senior Secured Notes due
July 1, 2004 (the "Original Notes"), (ii)
pursuant to the Supplemental Indenture, an
additional $30,000,000 in aggregate
principal amount of its 10 1/4% Senior
Secured Notes due July 1, 2004 (the
"Additional Notes"), and (iii) pursuant to
the Second Supplemental Indenture, an
additional $40,000,000 in aggregate
principal amount of its 10 1/4% Senior
Secured Notes due July 1, 2004 (the "Second
Additional Notes," and collectively with
the Original Notes and the Additional
Notes, the "Notes").
7. MAXIMUM PRINCIPAL AMOUNT. The Mortgage, as amended by this Second
Amendment, secures future advances and future obligations at any time
outstanding up to a maximum principal amount of $170,000,000.
8. 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 Second Amendment.
9. In the event of a conflict between the terms and conditions of the
Mortgage and the terms and conditions of this Second Amendment, then the
terms and conditions of this Second Amendment shall prevail.
2
<PAGE>
10. This Second 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]
<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 REALE
Its: 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.
/s/ REMO REALE
on behalf of the Mortgagee
<PAGE>
NOTARIAL ACKNOWLEDGMENTS
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 Secretary 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
Secretary 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 8th day of June, 1999.
/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 ACKNOWLEDGMENTS
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 REALE, the
Assistant Vice President and 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 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 June, 1999.
/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
- -------------------------------------------------------------------------------
SECOND AMENDMENT TO OPEN-END
MORTGAGE, SECURITY AGREEMENT, ASSIGNMENT OF LEASES AND
RENTS, FIXTURE FILING AND FINANCING STATEMENT
- -------------------------------------------------------------------------------
Dated: As of June 8, 1999
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: Matthew R. Hartley, Esq.
- -------------------------------------------------------------------------------
THIS MORTGAGE SECURES FUTURE ADVANCES AND FUTURE
OBLIGATIONS AT ANY TIME OUTSTANDING UP TO A MAXIMUM
PRINCIPAL AMOUNT OF $170,000,000
<PAGE>
THIS SECOND AMENDMENT TO OPEN-END MORTGAGE, SECURITY AGREEMENT,
ASSIGNMENT OF LEASES AND RENTS, FIXTURE FILING AND FINANCING STATEMENT (the
"Second Amendment"), is made as of June 8, 1999, 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) and the Second 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 dated July 2, 1997 (the "Original
Mortgage"), for the benefit of the Mortgagee as trustee for the benefit of
the holders of the Original Notes, which Original Mortgage was recorded in
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 Original Mortgage was amended by that certain First
Amendment to Open-End Mortgage, Security Agreement, Assignment of Leases and
Rents, Fixture Filing and Financing Statement, dated as of December 7, 1998
(the "First Mortgage Amendment," and collectively with the Original Mortgage,
the "Mortgage"), which First Mortgage Amendment was recorded on December 10,
1998, in Mortgage Book 1731 Page 1175 in the Office of the Recorder of Deeds
in and for Bucks County;
3. 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 as of
July 2, 1997 (the "Original Indenture"), as amended by that certain
Supplemental Indenture, dated as of December 7, 1998 (the "Supplemental
Indenture," and collectively with the Original Indenture, the "Indenture",
hereinafter referred to as 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);
4. WHEREAS, the Mortgagor, the Mortgagee and the Guarantors (as defined
in the Indenture) have entered into a certain Second Supplemental Indenture
of even date herewith (the "Second Supplemental Indenture") pursuant to which
certain terms and provisions of the Indenture have been amended, modified or
deleted as more particularly described therein; and
5. WHEREAS, the Mortgagor and Mortgagee desire to amend the Mortgage in
certain respects.
NOW THEREFORE, in consideration of the execution and delivery of the
Second Supplemental Indenture, the sum of Ten and 00/100 Dollars ($10.00) in
hand paid by the
1
<PAGE>
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:
6. 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 as of July 2, 1997 (the "Original
Indenture"), as amended by that Supplemental Indenture dated
as of December 7, 1998 (the "Supplemental Indenture"), and as
further amended by that Second Supplemental Indenture, dated
as of June 8, 1999 (the "Second Supplemental Indenture," and
collectively with the Original Indenture and the Supplemental
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, (i)
pursuant to the Original Indenture, $100,000,000 in aggregate
principal amount of its 10 1/4% Senior Secured Notes due July
1, 2004 (the "Original Notes"), (ii) pursuant to the
Supplemental Indenture, an additional $30,000,000 in aggregate
principal amount of its 10 1/4% Senior Secured Notes due July
1, 2004 (the "Additional Notes"), and (iii) pursuant to the
Second Supplemental Indenture, an additional $40,000,000 in
aggregate principal amount of its 10 1/4% Senior Secured Notes
due July 1, 2004 (the "Second Additional Notes," and
collectively with the Original Notes and the Additional Notes,
the "Notes").
7. MAXIMUM PRINCIPAL AMOUNT. The Mortgage, as amended by this Second
Amendment, secures future advances and future obligations at any time
outstanding up to a maximum principal amount of $170,000,000.
8. 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 Second Amendment.
9. In the event of a conflict between the terms and conditions of the
Mortgage and the terms and conditions of this Second Amendment, then the
terms and conditions of this Second Amendment shall prevail.
10. This Second 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.
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: Secretary
BANK OF NEW YORK, as Trustee,
By: /S/ MARY LAGUMINA
Its: Assistant Vice President
Attest:
/S/ REMO REALE
Its: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.
/s/ REMO REALE
on behalf of the Mortgagee
<PAGE>
NOTARIAL ACKNOWLEDGMENTS
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 Secretary 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
Secretary 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 8th day of June, 1999.
/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 ACKNOWLEDGMENTS
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 RENO REALE, the
Assistant Vice President and 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 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 June, 1999.
/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>
WAIVER AND AMENDMENT NO. 2
TO
AMENDED AND RESTATED CREDIT AGREEMENT
This WAIVER AND AMENDMENT NO. 2 to AMENDED AND RESTATED CREDIT
AGREEMENT ("Waiver") is made as of June 8, 1999 by and among Archibald Candy
Corporation (the "Borrower"), the financial institutions (the "Lenders")
party to the "Credit Agreement" (defined below), and The First National Bank
of Chicago, as Agent. Defined terms used herein and not otherwise defined
herein shall have the meaning given to them in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrower, the Lenders and the Agent are parties to that
certain Amended and Restated Credit Agreement, dated as of July 2, 1997, as
amended;
WHEREAS, the Borrower proposes to issue additional Senior Notes in an
aggregate principal amount of $40,000,000 under the Senior Note Indenture
(the "Issuance"), and the Borrower has requested that the Lenders and the
Agent provide a limited waiver under the Credit Agreement to permit such
Issuance;
WHEREAS, the Lenders and the Agent are willing to provide such a limited
waiver on the terms and conditions set forth herein;
WHEREAS, the Borrower also wishes to amend the Credit Agreement in
certain respects;
WHEREAS, the Lenders and the Agent are willing to amend the Credit
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged,
the Borrower, the Agent and the Lenders have entered into this Waiver.
1. LIMITED WAIVER. Effective as of the date hereof, as expressly
limited hereby and subject to the satisfaction of the condition precedent set
forth in SECTION 3 below, the Lenders and the Agent hereby (x) consent to the
Issuance and (y) agree to waive the requirements of Section 6.2(C) of the
Credit Agreement with respect to Archibald Candy (Canada) Corporation until
the earlier of (x) June 25, 1999 and (y) the
<PAGE>
effective date of a credit agreement between First Chicago NBD Bank, Canada
and Archibald Candy (Canada) Corporation.
2. AMENDMENT. Effective as of the date first above written and subject
to the satisfaction of the condition precedent set forth in SECTION 3 below,
the Credit Agreement shall be and hereby is amended as follows:
(A) SECTION 1.1 of the Credit Agreement is hereby amended as
follows:
(i) The definition of "SENIOR NOTES" is hereby amended in
its entirety as follows:
"SENIOR NOTES" means those certain notes issued
pursuant to the Senior Note Indenture in the aggregate
principal amount of $170,000,000 with a maturity of
July 1, 2004.
(ii) 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, and by that certain Second
Supplemental Indenture, dated as of June 8, 1999, by
and among the Borrower, the Sweet Factory
Subsidiaries, Archibald Candy (Canada) Corporation and
The Bank of New York, as Trustee, pursuant to which
the Senior Notes are to be or have been issued.
(B) The second sentence of SECTION 5.8 is hereby deleted
therefrom and the following sentence is substituted therefor:
"Except as disclosed to the Lenders on or prior to the Closing
Date, and 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 share of stock in the Parent,
none of the issued and outstanding capital stock of the Parent,
the Borrower or any of their respective Subsidiaries is subject
to any vesting, redemption, or repurchase agreement (other than
the SAR Agreements), and there are no warrants or options
outstanding with respect to such capital stock."
(C) Paragraph (D) of SECTION 6.4 is hereby amended to delete
therefrom the number "$25,000,000.00" and to substitute therefor the
number "$35,000,000.00".
3. CONDITIONS OF EFFECTIVENESS. This Waiver shall become effective
and be deemed effective as of the date hereof, if, and only if, the Agent
shall have received four (4) duly executed originals of this Waiver from the
Borrower and the Lenders.
2
<PAGE>
4. REPRESENTATIONS AND WARRANTIES OF THE BORROWERS. The Borrower
hereby represents and warrant as follows:
(a) The Credit Agreement as previously executed constitutes the
legal, valid and binding obligation of the Borrower and is enforceable
against the Borrower in accordance with its terms.
(b) Upon the effectiveness of this Waiver, the Borrower hereby
(i) represents that no Default or Unmatured Default exists, (ii) reaffirms
all covenants, representations and warranties made in the Credit Agreement,
and (iii) agrees that all such covenants, representations and warranties
shall be deemed to have been remade as of the effective date of this Waiver.
5. EFFECT ON THE CREDIT AGREEMENT.
(a) Upon the effectiveness of SECTION 1 hereof, on and after the
date hereof, each reference in the Credit Agreement to "this Agreement,"
"hereunder," "hereof," "herein" or words of like import shall mean and be a
reference to the Credit Agreement, as amended previously and as amended and
waived hereby.
(b) Except as specifically amended and waived above, the Credit
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect, and
are hereby ratified and confirmed. Without limiting the foregoing, nothing in
this Waiver shall constitute a waiver or amendment of any provision of
SECTION 6.4 of the Credit Agreement.
(c) The execution, delivery and effectiveness of this Waiver
shall neither, except as expressly provided herein, operate as a waiver of
any right, power or remedy of the Lenders or the Agent, nor constitute a
waiver of any provision of the Credit Agreement or any other documents,
instruments and agreements executed and/or delivered in connection therewith.
6. COSTS AND EXPENSES. The Borrower agrees to pay all reasonable
costs, fees and out-of-pocket expenses (including attorneys' fees and
expenses charged to the Agent) incurred by the Agent and the Lenders in
connection with the preparation, arrangement, execution and enforcement of
this Waiver.
7. GOVERNING LAW. THIS WAIVER SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (WITHOUT REGARD TO THE CONFLICTS OF LAWS
PROVISIONS) OF THE STATE OF ILLINOIS.
8. HEADINGS. Section headings in this Waiver are included herein for
convenience of reference only and shall not constitute a part of this Waiver
for any other purpose.
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9. COUNTERPARTS. This Waiver may be executed by one or more of the
parties to the Waiver on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument.
10. NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Waiver. In the event an
ambiguity or question of intent or interpretation arises, this Waiver shall
be construed as if drafted jointly by the parties hereto and no presumption
or burden of proof shall arise favoring or disfavoring any party by virtue of
the authorship of any provisions of this Waiver.
The remainder of this page remains intentionally blank.
4
<PAGE>
IN WITNESS WHEREOF, this Waiver has been duly executed as of the day and
year first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Donna M. Snopek
------------------------------------
Name: Donna M. Snopek
Title: Vice President - Finance and
Accounting
THE FIRST NATIONAL BANK OF CHICAGO
By: /s/ Kevin L. Gillen
------------------------------------
Name: Kevin L. Gillen
Title: Vice President
FLEET BUSINESS CREDIT CORPORATION,
formerly known as Sanwa Business
Credit Corporation
By: /s/ Donald A. Mastro
------------------------------------
Name: Donald A. Mastro
Title: Vice President
Signature Page to Waiver to
to Amended and Restated Credit Agreement
<PAGE>
Execution Copy
AMENDMENT NO. 3 TO AMENDED AND RESTATED CREDIT AGREEMENT
This Amendment No. 3 (this "Amendment") to the "Credit Agreement"
(defined below) is entered into as of July 30, 1999 by and among ARCHIBALD
CANDY CORPORATION, an Illinois corporation (the "Borrower"), the financial
institutions party to the Credit Agreement (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, as
amended (the "Credit Agreement");
WHEREAS, the Borrower has notified the Lenders and the Agent that the
Borrower wishes to amend the Credit Agreement in certain respects, including,
without limitation, increasing each Lender's "Revolving Loan Commitment"
thereunder; 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. 3' means Amendment No. 3 to this
Agreement, dated as of July 30, 1999, among the Borrower,
the Lenders and the Agent.
<PAGE>
'AMENDMENT NO. 3 EFFECTIVE DATE' means the "Effective
Date" as defined in Amendment No. 3.
'CANADIAN ACCOUNT DEBTOR' means and includes the
account debtor or obligor with respect to any of the
Canadian Receivables and/or the prospective purchaser with
respect to any contract right, and/or any party who enters
into or proposes to enter into any contract or other
arrangement with the Canadian Subsidiary.
'CANADIAN CREDIT AGREEMENT' means the Credit
Agreement, dated as of July 30, 1999, by and between the
Canadian Subsidiary and FNBC Canada, as amended, restated,
supplemented or otherwise modified from time to time.
'CANADIAN DOLLAR' means the lawful currency of Canada.
'CANADIAN ELIGIBLE INVENTORY' means the Canadian
Inventory of the Canadian Subsidiary which is held for sale
or lease or furnished under any contract of service by the
Canadian Subsidiary, other than the Canadian Inventory
described in the next sentence. The following Canadian
Inventory is not Canadian Eligible Inventory:
(i) Canadian Inventory which is obsolete, not in good
condition, not either currently usable or currently saleable
in the ordinary course of the Canadian Subsidiary's business
or does not meet all material standards imposed by any
Governmental Authority having regulatory authority over such
item of Canadian Inventory, its use or its sale;
(ii) Canadian Inventory consisting of packaging
material (other than packaging material constituting a part
of finished goods), supplies, freezers, trade name
superstructures and work-in-process;
(iii) Canadian Inventory which (a) is consigned to a
third party for sale unless each of the Agent and FNBC
Canada shall have received from such consignee a lien waiver
agreement, or such other documentation (including UCC-1
financing statements and/or the equivalent thereof under the
laws of Canada or any province thereof naming such consignee
as consignee and the Canadian Subsidiary as consignor)
reasonably deemed necessary by each of the Agent and FNBC
Canada, so that each of the Agent and FNBC Canada has a
valid and perfected Lien, pursuant to the terms of the
Agreement and the Canadian Credit Agreement, respectively,
in such consigned Canadian Inventory, or (b) is on
consignment from a third party to the Canadian Subsidiary
for sale;
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(iv) Canadian Inventory which consists of goods in
transit (other than Canadian Inventory in transit on trucks
of the Canadian Subsidiary or the Borrower);
(v) Canadian Inventory which is subject to a Lien in
favor of any Person other than the Agent or FNBC Canada,
other than a Customary Permitted Lien or unperfected Liens
created pursuant to agreements existing on the effective
date of the Canadian Credit Agreement;
(vi) Canadian Inventory (a) with respect to which
each of the Agent and FNBC Canada does not have a valid and
perfected security interest subject only to non-consensual
landlord's and warehousemen's Liens arising by operation of
law and Liens permitted pursuant to SECTION 6.3(C)(III) and
(b) which is not subject to rights of revindication of third
parties;
(vii) Canadian Inventory which is not located either
(a) on the Canadian Subsidiary's owned premises or at its
leased retail stores in Canada located in the jurisdictions
referenced in the Canadian Subsidiary Security Agreement or
the Canadian Credit Agreement, on the Canadian Subsidiary's
or the Borrower's trucks in transit, or on the premises of
consignees of the Canadian Subsidiary and such Canadian
Inventory is not ineligible under CLAUSE (III) above or (b)
in other owned or leased premises, warehouses or with
bailees in Canada permitted to be established under the
Canadian Subsidiary Security Agreement and the Canadian
Credit Agreement, in each case in connection with which each
of the Agent and FNBC Canada shall have received landlord,
mortgagee, bailee and/or warehousemen's access and lien
waiver agreements, as applicable, in each case in form and
substance acceptable to each of the Agent and FNBC Canada,
unless the Agent and FNBC Canada shall have established
reserves for such locations in accordance with the
definition of Borrowing Base, in which case such Canadian
Inventory shall remain Canadian Eligible Inventory;
(viii) Canadian Inventory which is evidenced by a
Canadian Receivable;
(ix) Canadian Inventory held for sale or lease by, or
furnished under any contract of service to, the Hallmark
Joint Venture; PROVIDED, HOWEVER, that such Canadian
Inventory, so long as the Hallmark Joint Venture is in
existence, shall be considered Canadian Eligible Inventory
upon delivery of satisfactory evidence to each of the Agent
and FNBC Canada that each of them holds a perfected Lien
against such Canadian Inventory; and
(x) Canadian Inventory which is not in conformity
with the representations and warranties made by the Canadian
Subsidiary to each of the Agent and FNBC Canada with respect
thereto whether contained in this Agreement,
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<PAGE>
the Canadian Credit Agreement or the Canadian Subsidiary
Security Agreement.
'CANADIAN ELIGIBLE RECEIVABLES' means Canadian
Receivables created by the Canadian Subsidiary in the
ordinary course of its business arising out of the sale of
goods or rendition of services by the Canadian Subsidiary,
other than the Canadian Receivables described in the next
sentence. The following Canadian Receivables are not
Canadian Eligible Receivables:
(i) Canadian Receivables which remain unpaid ninety
(90) days after the date of the original applicable invoice;
(ii) all Canadian Receivables owing by a single
Canadian Account Debtor (including a Canadian Receivable
which remains unpaid fewer than ninety (90) days after the
date of the original applicable invoice) if ten percent
(10%) of the balance owing by such Canadian Account Debtor,
calculated without taking into account any credit balances
of such Canadian Account Debtor, remains unpaid ninety (90)
days after the date of the original applicable invoice or
has otherwise become, or has been determined by each of the
Agent and FNBC Canada to be, ineligible;
(iii) Canadian Receivables from any single Canadian
Account Debtor and its Affiliates which otherwise constitute
Canadian Eligible Receivables comprising more than
twenty-five percent (25%) of all Canadian Eligible
Receivables;
(iv) Canadian Receivables with respect to which the
Canadian Account Debtor is a director, officer, employee,
Subsidiary or Affiliate of the Canadian Subsidiary or the
Borrower;
(v) Canadian Receivables with respect to which the
Canadian Account Debtor is any Governmental Authority, or,
in each case, any department, agency or instrumentality
thereof, unless with respect to the accounts of any such
Canadian Account Debtor, the Canadian Subsidiary has
complied to each of the Agent's and FNBC Canada's
satisfaction with the provisions of the Financial
Administration Act (Canada) or other applicable statutes,
including, without limitation, executing and delivering to
Agent and/or FNBC Canada, as applicable, all statements of
assignment and/or notification which are in form and
substance acceptable to Agent and/or FNBC Canada, as
applicable, and which are deemed necessary by Agent and/or
FNBC Canada, as applicable, to effectuate the assignment to
the Agent on behalf of the Lenders or to FNBC Canada, as
applicable, of such accounts;
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<PAGE>
(vi) Canadian Receivables not denominated in Canadian
Dollars or with respect to which the Canadian Account Debtor
is not a resident of Canada unless the Canadian Account
Debtor has supplied the Canadian Subsidiary with an
irrevocable letter of credit, issued by a financial
institution, the deposits of which are (or the senior debt
securities of the holding company of such financial
institution are) rated A or better by Standard & Poor's
Ratings Services, a division of The McGraw-Hill Companies,
Inc. or A1 or better by Moody's Investors Service, Inc., in
an amount sufficient to cover such Canadian Receivable, in
form and substance reasonably satisfactory to each of the
Agent and FNBC Canada;
(vii) Canadian Receivables with respect to which the
Canadian Account Debtor has (a) asserted a counterclaim, (b)
a right of setoff or (c) a receivable owing from the
Canadian Subsidiary but only to the extent of such
counterclaim, setoff or receivable;
(viii) Canadian Receivables for which the prospect of
payment or performance by the Canadian Account Debtor is
materially impaired;
(ix) Canadian Receivables with respect to which each
of the Agent and FNBC Canada does not have a valid and
perfected Lien subject to no prior lien in favor of any
party other than the Agent or FNBC Canada; provided,
however, that such Canadian Receivables may be subject only
to non-consensual landlord's and warehousemen's Liens
arising by operation of law and Liens permitted pursuant to
SECTION 6.3(C)(III);
(x) Canadian Receivables with respect to which the
Canadian Account Debtor is the subject of a bankruptcy or
similar insolvency proceeding or has made an assignment for
the benefit of creditors or whose assets have been conveyed
to a receiver or trustee;
(xi) Canadian Receivables with respect to which the
Canadian Account Debtor's obligation to pay the Canadian
Receivable is conditional upon the Canadian Account Debtor's
approval or is otherwise subject to any repurchase
obligation or return right, as with sales made on a
bill-and-hold, guaranteed sale, sale-and-return, sale on
approval (except with respect to Canadian Receivables in
connection with which Canadian Account Debtors are entitled
to return Canadian Inventory on the basis of the quality of
such Canadian Inventory) or consignment basis, unless, in
any such case, such Canadian Receivables are created in the
ordinary course of the Canadian Subsidiary's business and in
a manner consistent with its past practices;
(xii) Canadian Receivables with respect to which the
Canadian Account Debtor is located in any jurisdiction which
adopts a statute or other
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<PAGE>
requirement with respect to which any Person that obtains
business from within such jurisdiction or is otherwise
subject to such jurisdiction's tax law requiring such Person
to adhere to provincial licensing requirements or make any
required filings in a timely manner in order to enforce its
claims in such jurisdiction's courts or arising under such
jurisdiction's laws; PROVIDED, HOWEVER, such Canadian
Receivables shall nonetheless be eligible if the Canadian
Subsidiary has satisfied such provincial licensing
requirements or is qualified to do business in such
jurisdiction and, at the time the Canadian Receivable was
created, was qualified to do business in such jurisdiction
or had already satisfied such provincial licensing
requirements;
(xiii) Canadian Receivables with respect to which the
Canadian Account Debtor's obligation does not constitute its
legal, valid and binding obligation, enforceable against it
in accordance with its terms;
(xiv) Canadian Receivables with respect to which the
Canadian Subsidiary has not yet shipped the applicable goods
or performed the applicable service;
(xv) any Canadian Receivable which is not in
conformity with the representations and warranties made by
the Canadian Subsidiary to each of the Agent and FNBC Canada
with respect thereto whether contained in this Agreement,
the Canadian Credit Agreement or the Canadian Subsidiary
Security Agreement;
(xvi) Canadian Receivables in connection with which
the Canadian Subsidiary has not complied with all material
requirements contained in the charter and by-laws or other
organizational or governing documents of the Canadian
Subsidiary, and any law, rule or regulation, or
determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or
binding upon the Canadian Subsidiary or any of its property
or to which the Canadian Subsidiary or any of its property
is subject, including, without limitation, all laws, rules,
regulations and orders of any Governmental Authority or
judicial authority relating to truth in lending, billing
practices, fair credit reporting, equal credit opportunity,
debt collection practices and consumer debtor protection,
applicable to such Canadian Receivable (or any related
contracts) or affecting the collectability of such Canadian
Receivables;
(xvii) Canadian Receivables created by the Hallmark
Joint Venture in the ordinary course of its business,
arising out of the sale of goods or rendition of services by
the Hallmark Joint Venture; PROVIDED, HOWEVER, that such
Canadian Receivables, so long as the Hallmark Joint Venture
is in existence, shall be considered Canadian Eligible
Receivables upon
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<PAGE>
delivery of satisfactory evidence to each of the Agent and
FNBC Canada that each of them holds a perfected Lien against
such Canadian Receivables.
(xviii) Canadian Receivables in connection with which
the Canadian Subsidiary or any other party to such Canadian
Receivable is in default in the performance or observance of
any of the terms thereof in any material respect.
'CANADIAN GOODS' means tangible personal property, but
excluding chattel paper, documents of title, instruments,
money, and securities (as these terms are defined in the
PERSONAL PROPERTY SECURITY ACT (Ontario) from time to time).
'CANADIAN INVENTORY' means all inventory now owned or
hereafter acquired by the Canadian Subsidiary, including (i)
finished Canadian Goods, raw materials, new and unused
production, packing and shipping supplies, (ii) work in
progress, (iii) all new and unused maintenance items, and
(iv) all other materials and supplies on hand to be used or
consumed or which might be used or consumed in the
manufacture, packing, shipping, advertising, selling, or
furnishing of Canadian Goods.
'CANADIAN REVOLVING LOAN OBLIGATIONS' means, at any
particular time, the Dollar Amount of the "Accommodations
Outstanding" under the Canadian Credit Agreement at such
time.
'CANADIAN RECEIVABLE(S)' means and includes all of the
Canadian Subsidiary's presently existing and hereafter
arising or acquired accounts, accounts receivable, and all
present and future rights of the Canadian Subsidiary to
payment for goods sold or leased or for services rendered
(except those evidenced by instruments, security 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.
'CANADIAN SUBSIDIARY' means Archibald Candy (Canada)
Corporation, a federally chartered Canadian corporation,
together with its successors and assigns.
'CANADIAN SUBSIDIARY GUARANTY' means the Guaranty,
dated as of the date of Amendment No. 3, executed by the
Canadian Subsidiary in favor of the Agent on behalf of the
Holders of Secured Obligations, as amended, restated,
supplemented, or otherwise modified from time to time.
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<PAGE>
'CANADIAN SUBSIDIARY SECURITY AGREEMENT' means that
certain Security Agreement, dated as of the date of
Amendment No. 3, executed by the Canadian Subsidiary
pursuant to the Canadian Subsidiary Guaranty in favor of the
Agent for the benefit of the Holders of Secured Obligations,
as amended, restated, supplemented, or otherwise modified
from time to time.
'DOLLAR AMOUNT' means, in relation to any Indebtedness
(i) denominated in US Dollars, the amount of such
Indebtedness, and (ii) denominated in Canadian Dollars, the
amount of US Dollars required to purchase the amount of such
Indebtedness at the Transaction Exchange Rate on the day
such Dollar Amount is determined.
'FNBC CANADA' means First Chicago NBD Bank, Canada,
together with its successors and assigns.
'GROSS AMOUNT OF CANADIAN ELIGIBLE INVENTORY' means
Canadian Eligible Inventory valued at the lower of cost
determined on an average cost basis (determined in
accordance with Agreement Accounting Principles,
consistently applied) or market value less (without
duplication) the value of reserves which have been recorded
by the Canadian Subsidiary with respect to obsolete,
slow-moving or excess Canadian Inventory.
'GROSS AMOUNT OF CANADIAN ELIGIBLE RECEIVABLES' means
the face amount outstanding under the Canadian Eligible
Receivables, determined in accordance with Agreement
Accounting Principles, consistently applied, less all
finance charges, late fees and other fees that are unearned.
'HALLMARK JOINT VENTURE' means the joint venture
between the Canadian Subsidiary and William E. Coutts
Company, Limited, pursuant to which, among other things, the
Canadian Subsidiary and William E. Coutts Company, Limited
jointly sell products and merchandise bearing the "Hallmark"
and "Laura Secord" brand names.
'PARTICIPATION AGREEMENT' means the Participation
Agreement, dated as of the date of Amendment No. 3, among
FNBC Canada, the Lenders, the Borrower and the Canadian
Subsidiary, as amended, restated, supplemented or otherwise
modified from time to time.
'SWEET FACTORY GUARANTY' means the Guaranty, in favor
of the Agent, executed by each Sweet Factory Subsidiary,
dated as of December 7, 1998, as amended, restated,
supplemented or otherwise modified from time to time.
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<PAGE>
'TRANSACTION EXCHANGE RATE' means in relation to the
purchase of Canadian Dollars with US Dollars on a given
date, FNBC Canada's spot rate of exchange, for the amount in
question, at or about 11:00 a.m. Toronto time on such date
for the purchase of Canadian Dollars with US Dollars, for
delivery two Business Days later.
'US DOLLAR' means the lawful currency of the United
States of America.
'YEAR 2000 ISSUES' means anticipated costs, problems
and uncertainties associated with the inability of certain
computer applications to effectively handle data including
dates on and after January 1, 2000, as such inability
affects the business, operations, and financial condition of
the Borrower and its Subsidiaries and of the Borrower's or
its Subsidiaries' material customers, suppliers and vendors.
(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, calculated in US Dollars, as set
forth on the most current Borrowing Base Certificate
delivered to the Agent and FNBC Canada, equal to (i) the sum
of 85% of the Gross Amount of Eligible Receivables and 85%
of the Gross Amount of Canadian Eligible Receivables; PLUS
(ii) the sum of 50% of the Gross Amount of Eligible
Inventory consisting of finished goods and 50% of the Gross
Amount of Canadian Eligible Inventory consisting of finished
goods; PLUS (iii) the sum of 60% of the Gross Amount of
Eligible Inventory consisting of raw materials and 60% of
the Gross Amount of Canadian Eligible Inventory consisting
of raw materials; PLUS (iv) 70% of the Approved Value of
real estate MINUS (v) such reserves as each of the Agent and
FNBC Canada 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 or the Canadian Subsidiary's
leased retail store locations, where the Borrower or any
Sweet Factory Subsidiary maintains Inventory or where the
Canadian Subsidiary maintains Canadian Inventory, in either
case on leased premises, or stores Inventory or Canadian
Inventory, as applicable, with any third party, for which
the Agent and/or FNBC Canada, as
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applicable, 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 or the Canadian equivalent thereof, in
form and substance reasonably acceptable to each of the
Agent and FNBC Canada (the "RENT RESERVE"); PROVIDED,
HOWEVER, that for each Sweet Factory Subsidiary and the
Canadian Subsidiary, the reserve requirement contemplated
above shall equal the lesser of (x) the Rent Reserve or (y)
the Gross Amount of Eligible Inventory or Gross Amount of
Canadian Eligible Inventory, as applicable, at such
location; PROVIDED FURTHER, that, for the period beginning
on the Amendment No. 3 Effective Date and ending one hundred
twenty days after the Amendment No. 3 Effective Date, the
Rent Reserve shall equal one (1) month's rent or other
applicable storage/processing fees at any location. The
Agent and FNBC Canada shall give the Borrower and the
Canadian Subsidiary notice prior to establishing any reserve
hereunder."
(ii) The definition of "CLOSING DATE" is hereby amended
to delete therefrom the date "July 2, 1997" and to
substitute therefor the date "July 30, 1999".
(iii) The definition of "COLLATERAL DOCUMENTS" is hereby
amended to insert the phrase "each Sweet Factory
Subsidiary Security Agreement, the Canadian
Subsidiary Security Agreement," after the phrase
"the Borrower Security Agreement".
(iv) The definition of "LOAN DOCUMENTS" is hereby
amended to insert the phrase "the Sweet Factory
Guaranty, the Canadian Subsidiary Guaranty, the
Canadian Credit Agreement, the 'Credit Documents'
(as defined in the Canadian Credit Agreement)"
after the phrase "the Guaranty,".
(v) The definition of "MATERIAL SUBSIDIARY" is hereby
amended in its entirety as follows:
"'MATERIAL SUBSIDIARY' shall mean (i) the Canadian
Subsidiary and (ii) any other Subsidiary of the
Borrower that has assets or annual sales equal to
or greater than $1,000,000.00."
(vi) The definition of "OVERADVANCE AMOUNT" is hereby
deleted.
(vii) The definition of "REVOLVING LOAN OBLIGATIONS" is
hereby amended to delete the period at the end
thereof and to insert the phrase "PLUS (iii) the
Canadian Revolving Loan Obligations at such time."
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<PAGE>
and
(viii) The definition of "TERMINATION DATE" is hereby
amended to delete therefrom the date "July 1, 2000"
and to substitute therefor the date "April 15,
2001".
(b) SECTION 2.2 is hereby amended to delete from the third
sentence contained therein the phrase "the Closing Date" and to
substitute therefor the date "July 2, 1997".
(c) SECTION 2.5(B) of the Credit Agreement is hereby amended in
its entirety as follows:
"(B) If, at any time and for any reason (including, without
limitation, a change in the Transaction Exchange Rate), the
Revolving Loan Obligations shall exceed the Maximum Revolving Loan
Amount, then the Borrower shall promptly repay such excess to the
Agent for the ratable account of the Lenders; PROVIDED, HOWEVER,
that the Borrower's obligation to repay such excess shall be
satisfied to the extent that the Canadian Subsidiary makes a
corresponding payment to FNBC Canada."
(d) SECTION 2.14(C)(1) of the Credit Agreement is hereby amended
in its entirety as follows:
"(1) The Borrower shall pay to the Agent, for the account of each
of the Lenders, in accordance with their Pro Rata Shares, a
commitment fee equal to 0.75% of each such Lender's undrawn
Revolving Loan Commitment payable quarterly in arrears beginning
August 31, 1999 and continuing on the last calendar day of each
February, May, August, and November until the Termination Date;
PROVIDED, HOWEVER, that at any time the Revolving Loan Obligations
exceed fifty percent (50%) of the Aggregate Revolving Loan
Commitment, such commitment fee shall equal the Applicable
Commitment Fee Rate TIMES each such Lender's undrawn Revolving
Loan Commitment."
(e) SECTION 2.20 is hereby amended to delete therefrom the
amount "$2,000,000" and to substitute therefor the amount "$3,000,000".
(f) ARTICLE V is hereby amended as follows:
(i) The first paragraph of ARTICLE V is hereby
amended and restated as follows:
" In order to induce the Agent and the Lenders (x) to
enter into this Agreement and to make the Loans and
the other financial accommodations to the Borrower
and to issue the Letters of Credit described herein,
and (y)
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to amend the Agreement pursuant to the terms of Amendment
No. 3, the Borrower hereby makes each representation and
warranty set forth in this ARTICLE V to each Lender and the
Agent as of the Closing Date or any other date specifically
referred to in any representation or warranty. The Borrower
shall reaffirm such representations and warranties
thereafter on each date as required by SECTION 4.2."
(ii) SECTION 5.1 is hereby amended to delete
therefrom the word "Agreement" and to substitute therefor
the phrase "Agreement and the other Loan Documents".
(iii) SECTION 5.2 is hereby amended to delete each
occurrence of the phrase "this Agreement" and to substitute
therefor the phrase "this Agreement or the Canadian Credit
Agreement".
(iv) SECTION 5.5 is hereby amended to delete
therefrom the phrase "August 31, 1996;" and to substitute
therefor the phrase "February 27, 1999,".
(v) SECTION 5.8 is hereby amended to delete
therefrom the fourth sentence contained therein and to
substitute therefor the following sentence: "As of the
Closing Date, the Borrower's only Material Subsidiaries are
the Canadian Subsidiary and Sweet Factory Group, Inc."
(vi) The following SECTION 5.23 is hereby inserted
into Article V:
5.23 YEAR 2000. Each of the Borrower and each of its
Subsidiaries (other than the Canadian Subsidiary), as of the
Amendment No. 3 Effective Date, has made a full and complete
assessment of the Year 2000 Issues and has a realistic and
achievable program for remediating the Year 2000 Issues on a
timely basis. The Canadian Subsidiary has a realistic and
achievable program for remediating its Year 2000 Issues on a
timely basis. Based on the foregoing, each of the Borrower
and each of its Subsidiaries does not reasonably anticipate
that Year 2000 Issues will have a material adverse effect on
its operations, business or financial condition.
(vii) The following SECTION 5.24 is hereby inserted
into ARTICLE V:
5.24 SENIOR NOTE INDENTURE. As of the Amendment No. 3
Effective Date, execution, delivery and performance of each
of Amendment No. 3 and the Canadian Credit Agreement do not
and will not conflict with the terms and conditions of the
Senior Note Indenture and do not and will not trigger an
"Event of Default" under the Senior Note Indenture.
(f) SECTION 6.2(J) is hereby amended in its entirety as follows:
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<PAGE>
"Each of the Parent and the Borrower shall, and shall cause
each of their respective Subsidiaries to, maintain and keep
in good condition, repair and working order all property
necessary to the conduct of its business; PROVIDED, HOWEVER,
that nothing in this Section shall prevent the Parent or the
Borrower, as applicable, from discontinuing the operation or
maintenance of any of such property if such discontinuance
is, in the judgment of the Parent or the Borrower, as
applicable, desirable in the conduct of its business or the
business of any of their respective Subsidiaries and not
disadvantageous in any material respect to the Agent or the
Lenders.
(g) SECTION 6.2 is hereby amended to insert therein the
following paragraph (O):
(O) YEAR 2000. Each of the Borrower and each of its
Subsidiaries, as of the Amendment No. 3 Effective Date, will take
all actions reasonably necessary to assure that the Year 2000
Issues will not have a material adverse effect on the business,
operations or financial condition of the Borrower or any
Subsidiary. Upon the Agent's request, the Borrower will provide
Lender a description of its and its Subsidiaries' Year 2000
programs, including updates and progress reports. Each of the
Borrower and each of its Subsidiaries will advise the Agent of any
reasonably anticipated material adverse effect as a result of Year
2000 Issues.
(h) SECTION 6.3(A)(ii) of the Credit Agreement is hereby amended
in its entirety as follows:
"(ii) Indebtedness existing as of June 8, 1999 and described on
SCHEDULE 6.3(A) as attached to Amendment No. 3 and Indebtedness
under the Canadian Credit Agreement"
(i) SECTION 6.3(C) is hereby amended to insert the following
clause (v):
"(v) Liens securing the Canadian Credit Agreement and the
Canadian Subsidiary Guaranty."
(j) SECTION 6.3(D)(vii) is hereby amended in its entirety as
follows:
"(vii) other Investments so long as the aggregate amount of such
Investments does not exceed $7,500,000; PROVIDED, HOWEVER, that
(x) 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
and (y) the Canadian Subsidiary may acquire all or substantially
all of the assets of Nestle Canada Inc.'s Laura Secord retail
business (other than its
-13-
<PAGE>
manufacturing, warehouse and distribution facilities) pursuant to
that Asset Purchase Agreement dated May 26, 1999 (and the Borrower
may acquire certain of such assets from the Canadian Subsidiary),
with both such Acquisitions excluded from the aforementioned
$7,500,000 limitation on other Investments."
(k) SECTION 6.3(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 or any applicable Governmental
Authority's equivalent thereof 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 wholly-owned Subsidiary so long as (x)
the surviving Subsidiary is a guarantor of the "Guaranteed
Obligations" as such term is defined in the Sweet Factory Guaranty
(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 or any Governmental Authority's
equivalent thereof in connection with such merger in order to
maintain the Agent's first priority perfected security interest in
the Collateral and, if applicable, second-priority perfected
security interest in the "Collateral" of the Canadian Subsidiary
(as defined in the Canadian Subsidiary Security Agreement)."
(l) SECTIONS 6.4(B), (C), and (D) are hereby amended in their
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:
<TABLE>
<CAPTION>
Minimum
Fiscal Quarter Ending in Fixed Charge Coverage Ratio
------------------------ ---------------------------
<S> <C>
August, 1999 1.05 to 1.00
November, 1999 1.05 to 1.00
-14-
<PAGE>
February, 2000 1.15 to 1.00
May, 2000 and thereafter 1.20 to 1.00
</TABLE>
(C) LEVERAGE RATIO. The Borrower shall not permit the Leverage
Ratio to be greater than 6.00 to 1.00 at the end of each Fiscal
Quarter ending after the Amendment No. 3 Effective Date.
(D) RENTALS. The Borrower will not nor will it permit any of its
Subsidiaries to incur obligations for Rentals in excess of
$35,000,000 during any four consecutive Fiscal Quarter period on a
non-cumulative basis, in the aggregate, for the Borrower and all
of its Subsidiaries."
(m) SECTION 7.1 is hereby amended to insert therein the
following clause (s):
"(s) Any 'Event of Default', as defined in the Canadian Credit
Agreement, shall occur."
(n) EXHIBITS A, B, and C to the Credit Agreement are hereby
deleted therefrom and the attached EXHIBITS A, B, and C are substituted
therefor.
(o) SCHEDULES 5.8, 5.17, 5.18, 6.3(A), and 6.3(D) to the Credit
Agreement are hereby deleted therefrom and the attached SCHEDULES 5.8,
5.17, 5.18, 6.3(A), and 6.3(D) are substituted therefor.
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 of the Canadian
Subsidiary Security Agreement and the Canadian Subsidiary Guaranty;
(c) the $10,000 amendment fee, for the benefit of the Lenders,
as described in that certain Term Sheet dated as of June 8, 1999, among
the Borrower, the Agent, First Chicago NBD Bank, Canada, and the Lenders;
(d) Copies of the Articles of Incorporation of the Borrower,
together with all amendments, and a certificate of good standing, each
certified by the Secretary of State of Illinois;
-15-
<PAGE>
(e) Copies, certified by the Secretary or Assistant Secretary of
the Borrower, of the Borrower's By-laws and resolutions of its Board of
Directors authorizing the execution of this Amendment and all documents
to be executed in connection herewith;
(f) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Borrower, which shall identify the name and
title and bear the signature of the officers of the Borrower,
respectively, authorized to sign this Amendment and all documents to be
executed in connection herewith, and, to make borrowings under the
Credit Agreement, upon which certificate the Lenders shall be entitled
to rely until informed of any change in writing by the Borrower;
(g) A certificate, signed by the chief financial officer of the
Borrower, stating that on the effective date of this Amendment, no
Default or Unmatured Default has occurred and is continuing;
(h) A written opinion of Winston & Strawn, counsel to the
Borrower, addressed to the Lenders in form and substance satisfactory to
the Agent and the Lenders;
(i) Amended and Restated Revolving Notes payable to the order of
each of the Lenders;
(j) a fully executed copy of each of the Canadian Credit
Agreement, the Participation Agreement, and each other instrument and
agreement executed in connection therewith;
(k) Copies of the charter of the Canadian Subsidiary, together
with all amendments, and the appropriate certificates of good standing,
each certified by the appropriate governmental officer in the Canadian
Subsidiary's jurisdiction of incorporation or in which it is qualified
to do business, as applicable;
(l) Copies, certified by the Secretary or Assistant Secretary of
the Canadian Subsidiary, of the Canadian Subsidiary's By-laws and
resolutions of its Board of Directors authorizing the execution of the
Canadian Subsidiary Guaranty and all documents to be executed in
connection herewith;
(m) An incumbency certificate, executed by the Secretary or
Assistant Secretary of the Canadian Subsidiary, which shall identify the
name and title and bear the signature of the officers of the Canadian
Subsidiary, respectively, authorized to sign the Canadian Subsidiary
Guaranty and all documents to be executed in connection therewith, upon
which certificate the Lenders shall be entitled to rely until informed
of any change in writing by the Canadian Subsidiary;
(n) amended EXHIBITS A, B, and C to the Credit Agreement, as
attached hereto, and amended SCHEDULES 5.8, 5.17, 5.18, 6.3(A), and
6.3(D) to the Credit Agreement, as attached hereto;
-16-
<PAGE>
(o) satisfactory evidence of the Borrower's issuance, under the
Senior Note Indenture, of additional Senior Notes in an aggregate
principal amount of $40,000,000 which accrue interest at a rate no
greater than 10.25% per annum; PROVIDED, HOWEVER, that such evidence
shall include, without limitation, an executed copy of the supplement to
the Senior Note Indenture which allowed the aforementioned issuance;
(p) Reaffirmation of Guaranty executed by Fannie May Holdings,
Inc., Sweet Factory, Inc., Sweet Factory Group, Inc., SF Candy Company
and SF Properties, Inc.; and
(q) such other documents, instruments and agreements, including,
without limitation, UCC-1 financing statements or their Canadian
equivalent, as the Agent may reasonably request.
4. REPRESENTATIONS AND WARRANTIES OF THE BORROWER.
4.1 The Borrower represents and warrants as of the date hereof
that:
(a) Its execution, delivery and performance of this Amendment are
within its corporate powers, have been duly authorized by all necessary
corporate action and do not require any consent or approval which has
not been obtained and
(b) This Amendment and the Credit Agreement as amended hereby
are its legal, valid and binding obligations, enforceable in accordance
with their respective terms, except as enforcement may be limited by
bankruptcy, insolvency, reorganization, moratorium or similar laws
affecting creditors' rights generally or by general equitable principles.
4.2 The Borrower affirms that the representations and warranties
contained in the Credit Agreement are true and correct as of the Amendment
No. 3 Effective Date.
4.3 The Borrower affirms that each of the Collateral Documents
is in full force and effect as of the date hereof and that the Collateral
Documents secure the payment in full of the Secured Obligations as such
Secured Obligations may increase as a result of this Amendment No. 3.
5. REFERENCE TO AND EFFECT ON THE CREDIT AGREEMENT.
5.1 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.
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<PAGE>
5.2 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.
5.3 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 the Agent under the Credit
Agreement or any of the Loan Documents, or (b) any Default or Unmatured
Default under the Credit Agreement.
6. 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.
7. 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.
8. 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
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<PAGE>
IN WITNESS WHEREOF, the Borrower, the Agent and the Lenders have
executed this Amendment No. 3 as of the date first above written.
ARCHIBALD CANDY CORPORATION
By: /s/ Donna M. Snopek
------------------------------------------
Name: Donna M. Snopek
Title: Vice President - Finance and Accounting
THE FIRST NATIONAL BANK OF CHICAGO,
individually and as Agent
By: /s/ Kevin L. Gillen
------------------------------------------
Name: Kevin L. Gillen
Title: Vice President
FLEET BUSINESS CREDIT CORPORATION, formerly
known as Sanwa Business Credit Corporation
By: /s/ Donald A. Mastro
------------------------------------------
Name: Donald A. Mastro
Title: Vice President
<PAGE>
ARCHIBALD CANDY (CANADA) CORPORATION
as Borrower
and
FIRST CHICAGO NBD BANK, CANADA
as Lender
- --------------------------------------------------------------------------------
CREDIT AGREEMENT
JULY 30, 1999
- --------------------------------------------------------------------------------
STIKEMAN, ELLIOTT
<PAGE>
TABLE OF CONTENTS
<TABLE>
<S> <C>
ARTICLE 1
INTERPRETATION
Section 1.1 Defined Terms.................................................1
Section 1.2 Gender and Number.............................................7
Section 1.3 Interpretation not Affected by Headings, etc..................7
Section 1.4 Currency......................................................7
Section 1.5 Certain Phrases, etc..........................................7
Section 1.6 Accounting Terms..............................................8
Section 1.7 Incorporation of Schedules....................................8
Section 1.8 Conflict......................................................8
ARTICLE 2
CREDIT FACILITY
Section 2.1 Availability..................................................8
Section 2.2 Commitments and Facility Limits...............................8
Section 2.3 Use of Proceeds...............................................8
Section 2.4 Mandatory Repayments..........................................9
Section 2.5 Optional Prepayments; Mandatory Prepayments...................9
Section 2.6 Reduction of the Commitment...................................9
Section 2.7 Payments under this Agreement.................................9
Section 2.8 Application of Payments and Prepayments......................10
Section 2.9 Computations of Interest and Fees............................10
ARTICLE 3
ADVANCES
Section 3.1 The Advances.................................................11
Section 3.2 Procedure for Borrowing......................................11
Section 3.3 Conversions and Elections Regarding Advances.................11
Section 3.4 Interest on Advances.........................................11
ARTICLE 4
BANKERS' ACCEPTANCES
Section 4.1 Acceptances and Drafts.......................................11
Section 4.2 Form of Drafts...............................................12
Section 4.3 Procedure for Drawing........................................12
Section 4.4 Presigned Power of Attorney..................................13
Section 4.5 Payment, Conversion or Renewal of BA Instruments.............13
Section 4.6 Circumstances Making Bankers' Acceptances Unavailable........13
(i)
<PAGE>
ARTICLE 5
DOCUMENTARY CREDITS
Section 5.1 Documentary Credits..........................................14
Section 5.2 Procedure for Issue..........................................14
Section 5.3 Form of Documentary Credits..................................15
Section 5.4 Use of Documentary Credits...................................15
Section 5.5 Reimbursements of Amounts Drawn; Exchange Rate Fluctuations..15
Section 5.6 Risk of Documentary Credits..................................15
Section 5.7 Fees.........................................................16
Section 5.8 Repayments...................................................16
ARTICLE 6
CONDITIONS OF LENDING
Section 6.1 Conditions Precedent to the Initial Accommodation............17
Section 6.2 Conditions Precedent to Accommodations and Conversions.......19
Section 6.3 No Waiver....................................................19
ARTICLE 7
REPRESENTATIONS AND WARRANTIES
Section 7.1 Representations and Warranties...............................20
Section 7.2 Survival of Representations and Warranties...................20
ARTICLE 8
COVENANTS OF THE BORROWER
Section 8.1 Affirmative Covenants........................................21
Section 8.2 Negative Covenants...........................................22
Section 8.3 Financial Covenants..........................................22
ARTICLE 9
EVENTS OF DEFAULT
Section 9.1 Events of Default............................................22
Section 9.2 Remedies Upon Default........................................23
ARTICLE 10
MISCELLANEOUS
Section 10.1 Amendment....................................................24
Section 10.2 Waiver.......................................................24
Section 10.3 Evidence of Debt and Accommodation Notices...................24
Section 10.4 Notices, etc.................................................25
Section 10.5 Confidentiality..............................................25
Section 10.6 Costs, Expenses and Indemnity................................26
(ii)
<PAGE>
Section 10.7 Taxes and Other Taxes........................................27
Section 10.8 Successors and Assigns.......................................29
Section 10.9 Right of Set-off.............................................30
Section 10.10 Judgment Currency............................................30
Section 10.11 Interest on Accounts.........................................31
Section 10.12 Governing Law................................................31
Section 10.13 Counterparts.................................................31
SCHEDULES
SCHEDULE 4.3(1) FORM OF DRAWING NOTICE
SCHEDULE 5.2(1) FORM OF ISSUE NOTICE
SCHEDULE 7.1(b) SUBSIDIARIES
SCHEDULE 10.8(5) ASSIGNMENT AND ASSUMPTION AGREEMENT
</TABLE>
(iii)
<PAGE>
CREDIT AGREEMENT
Credit Agreement dated July 30, 1999 among Archibald Candy (Canada)
Corporation, as borrower, and First Chicago NBD Bank, Canada, as lender.
RECITALS:
(a) First Chicago NBD Bank, Canada, as lender, and Archibald Candy
(Canada) Corporation, as borrower, among others, have entered
into a term sheet dated June 8, 1999 setting out the terms and
conditions of a U.S. $5,000,000 revolving credit and letter of
credit facility.
ARTICLE 1
INTERPRETATION
SECTION 1.1 DEFINED TERMS.
As used in this Agreement, the following terms have the following
meanings:
"ACCOMMODATION" means (i) an Advance made by the Lender on the occasion
of any Borrowing, and (ii) the creation and purchase of Bankers'
Acceptances or the purchase of completed Drafts or BA Equivalent Notes
by the Lender or by any other Person on the occasion of any Drawing, and
(iii) the issue of a Documentary Credit on the occasion of any Issue
(each of which is a "TYPE" of Accommodation).
"ACCOMMODATION NOTICE" means a Borrowing Notice or a Drawing Notice.
"ACCOMMODATIONS OUTSTANDING" means an amount equal to the sum of (i) the
aggregate principal amount of all outstanding Advances made by the
Lender, (ii) the aggregate Face Amount of all outstanding Bankers'
Acceptances, completed Drafts and BA Equivalent Notes which the Lender
has purchased or arranged to have purchased, and (iii) the aggregate
Face Amount of all Documentary Credits.
"ADVANCES" means advances made by the Lender under Article 3 and
"ADVANCE" means any one of such advances.
"AGREEMENT" means this credit agreement and all schedules and
instruments in amendment or confirmation of it; and the expressions
"ARTICLE" and "SECTION" followed by a number mean and refer to the
specified Article or Section of this Agreement.
"APPLICABLE MARGIN" means, at any time, 0.25%.
"ASSIGNEE" has the meaning specified in Section 10.8.
<PAGE>
-2-
"ASSIGNMENT OF BOOK DEBTS" means the assignment of book debts to be
executed and delivered by the Borrower as amended, restated and
otherwise modified from time to time.
"AUTHORIZED OFFICER" means any of the Chairman, President, Chief
Executive Officer, Vice President-Chief Financial Officer,
Secretary/Treasurer, or Assistant Secretary of the Borrower, acting
singly.
"BANKERS' ACCEPTANCE" has the meaning specified in Section 4.1.
"BA EQUIVALENT NOTE" has the meaning specified in Section 4.3(3).
"BA INSTRUMENTS" means, collectively, Bankers' Acceptances, Drafts and
BA Equivalent Notes, and, in the singular, any one of them.
"BENEFICIARY" means, in respect of any Documentary Credit, the
beneficiary named in the Documentary Credit.
"BORROWER" means, at any time, Archibald Candy (Canada) Coporation and
its successors and permitted assigns.
"BORROWER'S ACCOUNT" means the Borrower's Canadian Dollar account
maintained by the Lender at its principal office, the particulars of
which shall have been notified by the Lender to the Borrower.
"BORROWING" means a borrowing consisting of one or more Advances.
"BORROWING NOTICE" has the meaning specified in Section 3.2.
"BUSINESS DAY" means any day of the year, other than a Saturday, Sunday
or other day on which banks are required or authorized to close in
Toronto, Ontario or Chicago, Illinois.
"CBCA" means the CANADA BUSINESS CORPORATIONS ACT.
"CANADIAN DOLLARS", and "CDN. $" each means lawful money of Canada.
"CANADIAN PENSION PLAN" means any plan, program, arrangement or
understanding that is a pension plan for the purposes of any applicable
pension benefits or tax laws of Canada or a province or territory
thereof (whether or not required to be registered under any such laws)
which is maintained, administered or contributed to by (or to which
there is or may be an obligation to contribute by) the Borrower or any
of its Subsidiaries (except for any pension plan maintained by any
employee bargaining unit) in respect of any Person's employment in
Canada or a province or territory thereof, all related funding
agreements and all related agreements, arrangements and understandings
in respect of, or related to, any benefits to be provided thereunder.
<PAGE>
-3-
"CANADIAN PRIME RATE" means, at any time, the per annum rate of interest
quoted, published and commonly known as the "prime rate" of the Lender
which the Lender establishes at its main office in Toronto, Ontario as
the reference rate of interest in order to determine interest rates for
loans in Canadian Dollars to its Canadian borrowers, adjusted
automatically with each quoted or published change in such rate, all
without the necessity of any notice to the Borrower or any other Person.
"COLLATERAL" means all property and interests in property now owned or
hereafter acquired by the Parent, the Borrower or any of the Borrower's
Subsidiaries in or upon which a lien is granted to the Lender; provided
that any such property or interest in property with respect to which the
Lien created pursuant to any of the Credit Documents has been released
in accordance with the terms thereof shall not constitute Collateral.
"COMMITMENT" means, at any time, the Equivalent Cdn. $ Amount of U.S.
$5,000,000, as reduced pursuant to Article 2.
"COMPLIANCE CERTIFICATE" means a certificate of the Borrower,
substantially in the form of Schedule 8.1(a)(iv)(I), signed on its
behalf by an Authorized Officer.
"CREDIT DOCUMENTS" means this Agreement, the BA Instruments, the
Security Documents or the Parent Guarantee entered into with, or
delivered to or in favour of, the Lender and all other documents to be
executed and delivered to the Lender by the Borrower and the Material
Subsidiaries.
"CREDIT FACILITY" means the revolving term credit and letter of credit
facility to be made available to the Borrower under this Agreement for
the purposes specified in Section 2.3.
"DEFAULT" has the meaning specified in Section 9.1.
"DISCOUNT RATE" means, in respect of any Bankers' Acceptances or Drafts
to be purchased pursuant to Article 4 by the Lender or any Facility
Participant to which the Lender has participated or assigned all or any
part of its interest in the Credit Facility, the lesser of (i) the rate
per annum plus 10 basis points for Canadian Dollar bankers' acceptances
that appears on the Reuters Screen CDOR Page as of 10:00 a.m. (Toronto
time) on the relevant Drawing Date (and if such screen is not available,
any successor or similar service as may be selected by the Lender) for
Bankers' Acceptances or Drafts having an aggregate Face Amount equal to
and with a term to maturity the same as the Bankers' Acceptances or
Drafts to be acquired by the Lender or Facility Participant on the
Drawing Date, and (ii) the discount rate (calculated on an annual basis
and rounded to the nearest one-hundredth of 1%, with five-thousandths of
1% being rounded up) quoted by the Lender at 9:30 a.m. (Toronto time) as
the discount rate at which the Lender would purchase, on the relevant
Drawing Date, its own Bankers' Acceptances or Drafts having an aggregate
Face Amount equal to and
<PAGE>
-4-
with a term to maturity the same as the Bankers' Acceptances or Drafts
to be acquired by the Lender or Facility Participant on the Drawing Date.
"DOCUMENTARY CREDIT" means a commercial letter of credit or a standby
letter of credit (each of which is a "TYPE" of Documentary Credit)
issued or to be issued by the Lender for the account of the Borrower
pursuant to Article 5.
"DRAFT" means, at any time, a bill of exchange, within the meaning of
the BILLS OF EXCHANGE ACT (Canada), drawn by the Borrower on the Lender
or any other Person and bearing such distinguishing letters and numbers
as the Lender or the Person may determine, but which at such time has
not been accepted by the Lender or such other Person.
"DRAWING" means (i) the creation and purchase of Bankers' Acceptances by
the Lender or by any other Person pursuant to Article 4, or (ii) the
purchase of completed Drafts by the Lender or by any other Person
pursuant to Article 4.
"DRAWING DATE" means any Business Day fixed for a Drawing pursuant to
Section 4.3.
"DRAWING FEE" means, with respect to each Draft drawn by the Borrower
and purchased by any Person on any Drawing Date, an amount equal to the
result obtained when (i) the product of (w) the Applicable Margin and
(x) the aggregate Face Amount of the Draft is multiplied by (ii) a
fraction (y) the numerator of which is the number of days in the term to
maturity of the Draft and (z) the denominator of which is the actual
number of days in such year, being either 365 or 366.
"DRAWING NOTICE" has the meaning specified in Section 4.3(1).
"DRAWING PRICE" means, in respect of Bankers' Acceptances or Drafts to
be purchased by the Lender or any other Person, the difference between
(i) the result (rounded to the nearest whole cent, with one-half of one
cent being rounded up) obtained by dividing the aggregate Face Amount of
the Bankers' Acceptances or Drafts by the sum of one plus the product of
(x) the Discount Rate multiplied by (y) a fraction the numerator of
which is the number of days in the term of maturity of the Bankers'
Acceptances or Drafts, as the case may be, and the denominator of which
is the actual number of days in such year, being either 365 or 366, and
(ii) the applicable aggregate Drawing Fee.
"ENVIRONMENTAL, HEALTH OR SAFETY REQUIREMENTS OF LAW" has the meaning
ascribed to such term in the U.S. Credit Agreement and includes similar
Requirements of Law of Canada and any province or territory thereof.
"EQUIVALENT CDN. $ AMOUNT" means, on any day with respect to any amount
of U.S. Dollars, the equivalent amount of Canadian Dollars determined by
using the quoted Bank of Canada noon rate at which the Lender's
principal office in Toronto, Ontario
<PAGE>
-5-
offers to provide Canadian Dollars in exchange for U.S. Dollars in
Toronto at noon (Toronto time) on the day.
"EQUIVALENT U.S. $ AMOUNT" means, on any day with respect to any amount
of Canadian Dollars, the equivalent amount of U.S. Dollars determined by
using the quoted Bank of Canada noon rate at which the Lender's
principal office in Toronto, Ontario offers to provide U.S. Dollars in
exchange for Canadian Dollars in Toronto at noon (Toronto time) on the
day.
"EXCHANGE RATE NOTICE" has the meaning specified in Section 5.5(2).
"FACE AMOUNT" means (i) in respect of a BA Instrument, the amount
payable to the holder on its maturity, and (ii) in respect of a
Documentary Credit, the maximum amount which the issuing Person is
contingently liable to pay to the Beneficiary.
"FACILITY PARTICIPANT" means a Participant or Assignee which has not
executed and delivered the assignment and assumption documents referred
to in Section 10.8(5).
"FEES" means the fees payable by the Borrower under this Agreement.
"FISCAL QUARTER" or "fiscal quarter" shall mean the fiscal quarter of
Borrower which shall be each 13 (or 14) week period ending in August,
November, February and May or such other period as Borrower or Parent
may designate and the Lender shall approve.
"FISCAL YEAR" or "fiscal year" shall mean the fiscal year of Borrower
which shall be each 52 (or 53) week period ending on the last Saturday
of August of each calendar year or such other period as Borrower or
Parent shall designate and the Lender may approve in writing.
"INDEMNIFIED MATTERS" has the meaning specified in Section 10.6.
"INDEMNITEES" has the meaning specified in Section 10.6.
"ISSUE" means an issue of a Documentary Credit by the Lender pursuant to
Article 5.
"ISSUE DATE" has the meaning specified in Section 5.2(1).
"ISSUE NOTICE" has the meaning specified in Section 5.2(1).
"LENDER" means First Chicago NBD Bank, Canada, any Person who may become
a Lender pursuant to Section 10.8 and their respective successors and
assigns, and, in the singular, any one of them.
"MATERIAL SUBSIDIARY" means any Subsidiary of Borrower that has assets
or annual sales equal to or greater than U.S.$ 1,000,000.
"MATURITY DATE" means April 15, 2001.
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"MAXIMUM REVOLVING LOAN AMOUNT" means, at any particular time, the
lesser of (i) the Commitment at such time, and (ii) the amount by which
the lesser of U.S. $25,000,000 and the Borrowing Base exceeds the
Obligations.
"MAXIMUM DOCUMENTARY CREDITS AMOUNT" means, at any particular time, the
Equivalent Cdn. $ Amount of U.S. $1,000,000.
"ORIGINAL CURRENCY" has the meaning specified in Section 10.10(1).
"OTHER CURRENCY" has the meaning specified in Section 10.10(1).
"OTHER TAXES" has the meaning specified in Section 10.7(2).
"PARENT" means Archibald Candy Corporation, an Illinois corporation, and
its successors and assigns, including a debtor-in-possession on behalf
of the Parent.
"PARENT GUARANTEE" means the guarantee dated as of the date hereof by
the Parent in favour of the Lender guaranteeing the obligations of the
Borrower hereunder as amended, restated or otherwise modified from time
to time.
"PARTICIPANT" has the meaning specified in Section 10.8(3).
"PARTICIPATION AGREEMENT" means the letter agreement dated the date
hereof among the Lender, The First National Bank of Chicago and Fleet
Business Credit Corporation.
"PAYMENT DATE" means the last Business Day of each fiscal quarter.
"SECTION 427 SECURITY" means the Security granted by the Borrower to the
Lender pursuant to Section 427 of the BANK ACT (Canada) as amended,
restated or otherwise modified from time to time.
"SECURITY" means, at any time, the Liens in favour of the Lender in the
assets and properties of the Parent, the Borrower or the Material
Subsidiaries securing their obligations under the Credit Documents.
"SECURITY AGREEMENTS" means the security agreements to be executed and
delivered by the Parent, the Material Subsidiaries and the Borrower as
amended, restated or otherwise modified from time to time.
"SECURITY DOCUMENTS" means (i) the Security Agreements, (ii) the
Assignment of Book Debts, and (iii) the Section 427 Security.
"SUBSIDIARY" has the meaning specified in the CBCA on the date of this
Agreement.
"SUBSIDIARIES" means the subsidiaries of the Parent or the Borrower, as
the case may be, including, without limitation, those identified as such
in Schedule 7.1(b).
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"SUBSIDIARY GUARANTEE" means a guarantee of the obligations of the
Borrower to be made in favour of the Lender by the Material Subsidiaries
in a form satisfactory to the Lender and as amended, restated or
otherwise modified from time to time.
"TAXES" has the meaning specified in Section 10.7.
"TOTAL FACE AMOUNT" means, at any particular time, the aggregate Face
Amount of all Documentary Credits which have been issued and are
outstanding.
"UNMATURED DEFAULT" means an event which, with the giving of notice or
passage of time, or both, would constitute a Default.
"U.S. DOLLARS" and "U.S. $" means lawful money of the United States of
America.
"U.S. AGENT" means The First National Bank of Chicago as agent for the
U. S. Lenders.
"U.S. LENDERS" means the financial institutions from time to time which
are lenders under the U.S. Credit Agreement.
"U.S. CREDIT AGREEMENT" means the amended and restated credit agreement
dated as of July 2, 1997 among the Parent, the financial institutions
from time to time which are lenders thereunder and The First National
Bank of Chicago, as agent, as such document has been and may be amended
from time to time.
Unless otherwise defined herein, each capitalized term used herein shall
have the meanings ascribed to such terms in the U.S. Credit Agreement
and include such other definitions in the U.S. Credit Agreement
necessary to give meaning to such terms.
SECTION 1.2 GENDER AND NUMBER.
Any reference in the Credit Documents to gender includes all genders,
and words importing the singular number also include the plural and vice
versa.
SECTION 1.3 INTERPRETATION NOT AFFECTED BY HEADINGS, ETC.
The provisions of a Table of Contents, the division of this Agreement
into Articles and Sections and the insertion of headings are for convenience
of reference only and shall not affect the interpretation of this Agreement.
SECTION 1.4 CURRENCY.
All references in the Credit Documents to dollars, unless otherwise
specifically indicated, are expressed in Canadian currency.
SECTION 1.5 CERTAIN PHRASES, ETC.
In any Credit Document (i) (y) the words "INCLUDING" and "INCLUDES" mean
"INCLUDING (OR INCLUDES) WITHOUT LIMITATION" and (z) the phrase "THE
AGGREGATE OF", "THE TOTAL OF", "THE SUM OF", or a phrase of similar meaning
means "THE AGGREGATE (OR TOTAL OR
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SUM), WITHOUT DUPLICATION, OF", (ii) except where specifically stated
otherwise, whether any act, occurrence, conduct, event or state of affairs is
"MATERIAL", "ADVERSE" or "MATERIALLY ADVERSE" or any grammatical variation of
such words, shall be determined by the Lender acting reasonably, and (iii) in
the computation of periods of time from a specified date to a later specified
date, unless otherwise expressly stated, the word "FROM" means "FROM AND
INCLUDING" and the words "TO" and "UNTIL" each mean "TO BUT EXCLUDING".
SECTION 1.6 ACCOUNTING TERMS.
All accounting terms not specifically defined in this Agreement shall be
interpreted in accordance with Agreement Accounting Principles.
SECTION 1.7 INCORPORATION OF SCHEDULES.
The schedules attached to this Agreement shall, for all purposes of this
Agreement, form an integral part of it.
SECTION 1.8 CONFLICT.
The provisions of this Agreement prevail in the event of any conflict or
inconsistency between its provisions and the provisions of any of the other
Credit Documents.
ARTICLE 2
CREDIT FACILITY
SECTION 2.1 AVAILABILITY.
The Lender agrees, on the terms and conditions of this Agreement, to
make Accommodations to the Borrower in accordance with the Commitment.
Accommodations under the Credit Facility shall be made available as (i)
Advances, pursuant to Article 3, (ii) Bankers' Acceptances, pursuant to
Article 4, and (iii) Documentary Credits to a maximum Face Amount specified
in Section 5.1(2), pursuant to Article 5.
SECTION 2.2 COMMITMENTS AND FACILITY LIMITS.
(1) The Accommodations Outstanding to the Lender under the Credit Facility
shall not at any time exceed the Maximum Revolving Loan Amount.
(2) The Credit Facility shall revolve and no payment under the Credit
Facility shall reduce the Commitment.
(3) A conversion from one Type of Accommodation to another Type of
Accommodation shall not constitute a repayment or prepayment.
SECTION 2.3 USE OF PROCEEDS.
The Borrower shall use the proceeds of Accommodations under the Credit
Facility for its working capital and other general corporate purposes and the
issuances of Documentary Credits.
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SECTION 2.4 MANDATORY REPAYMENTS.
(1) The Borrower shall repay, subject to Section 9.1, the Accomodations
Outstanding under the Credit Facility on the Maturity Date.
(2) On the Maturity Date, the Borrower shall provide collateral in the form
of cash or Cash Equivalents to the Lender in an amount equal to the
aggregate issued and outstanding Face Amount of all Documentary Credits.
SECTION 2.5 OPTIONAL PREPAYMENTS; MANDATORY PREPAYMENTS.
(1) On prior notice to the Lender, the Borrower may from time to time repay,
without penalty or premium, (i) all or any part of the outstanding
Advances, and (ii) the amount of any Drawing or Issue only on the
maturity date for the relevant BA Instrument or Documentary Credit;
PROVIDED that any such repayment in part shall equal Cdn. $250,000 or an
integral multiple of Cdn. $100,000 in excess thereof.
(2) If, at any time and for any reason, the Accommodations Outstanding under
the Credit Facility exceed the Maximum Revolving Loan Amount (based on
the most recently delivered Borrowing Base Certificate and the
Equivalent U.S. $ Amount of the Accommodations Outstanding on that day)
and the Parent has not repaid amounts under the U.S. Credit Agreement to
eliminate such excess, the Borrower shall on that day (i) prepay
Borrowings, or (ii) pay such amount to the Lender and irrevocably
authorize and direct the Lender to apply such payment as a repayment of
the Borrower's reimbursement obligation in respect of any Drawings or
Issues on the next maturity date; such that the Accommodations
Outstanding under the Credit Facility, after giving effect to the
payment, do not exceed the Maximum Revolving Loan Amount.
SECTION 2.6 REDUCTION OF THE COMMITMENT.
The Borrower may permanently reduce the Commitment in whole or in part,
upon two Business Days' notice to the Lender by a notice stating the proposed
date and aggregate amount of the reduction; PROVIDED, HOWEVER, that the
Commitment may not be reduced below the Accomodations Outstanding. All
accrued commitment fees relating to the terminated portion of the Commitment
shall be payable on the effective date of such termination. Each partial
reduction shall be in an aggregate principal amount of U.S. $1,000,000 or
integral multiples of U.S. $500,000.
SECTION 2.7 PAYMENTS UNDER THIS AGREEMENT.
(1) Unless otherwise expressly provided in this Agreement, the Borrower
shall (i) make any payment required to be made by it to the Lender by
depositing the amount of the payment to the Borrower's Account not later
than noon (Toronto time) on the date the payment is due, and (ii)
provide to the Lender one Business Days' notice of such repayment which
shall be irrevocable and binding on the Borrower and shall specify (x)
the date of repayment, and (y) the Type and amount of Accommodation to
be repaid.
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(2) Unless otherwise expressly provided in this Agreement, the Lender shall
make Accommodations and other payments to the Borrower under this
Agreement by crediting the Borrower's Account (or causing the Borrower's
Account to be credited) with the amount of the payment not later than
1:00 p.m. (Toronto time) on the date the payment is to be made.
(3) The Borrower hereby authorizes the Lender, if and to the extent payment
owed to the Lender by the Borrower is not made when due, to charge from
time to time any due amount against any or all of the Borrower's
accounts with the Lender.
SECTION 2.8 APPLICATION OF PAYMENTS AND PREPAYMENTS.
All amounts received by the Lender from or on behalf of the Borrower and
not previously applied pursuant to this Agreement shall be applied by the
Lender as follows (i) first, in reduction of the Borrower's obligation to pay
any unpaid interest and any Fees which are due and owing, (ii) second, in
reduction of the Borrower's obligation to pay any claims or losses referred
to in Section 10.6, (iii) third, in reduction of the Borrower's obligation to
pay any amounts due and owing on account of any unpaid principal amount of
Advances which is due and owing, (iv) fourth, in reduction of the Borrower's
obligation to pay any other unpaid Accommodations Outstanding which are due
and owing, (v) fifth, in reduction of any other obligation of the Borrower
under this Agreement, and (vi) sixth, to the Borrower or such other Persons
as may lawfully be entitled to or directed to receive the remainder.
SECTION 2.9 COMPUTATIONS OF INTEREST AND FEES.
(1) Subject to Section 2.9(2), all computations of interest shall be made by
the Lender taking into account the actual number of days occurring in
the period for which such interest is payable and on the basis of a year
of 365 or 366 days, as the case may be.
(2) All computations of Fees and interest thereon shall be made by the
Lender on the basis of a year of 360 days.
(3) For purposes of the INTEREST ACT (Canada), (i) whenever any interest or
Fee under this Agreement is calculated using a rate based on a year of
360 days or 365 days, such rate determined pursuant to such calculation,
when expressed as an annual rate, is equivalent to (x) the applicable
rate based on a year of 360 days or 365 days, as the case may be, (y)
multiplied by the actual number of days in the calendar year in which
the period for which such interest or fee is payable (or compounded)
ends, and (z) divided by 360 or 365 as the case may be, (ii) the
principle of deemed reinvestment of interest does not apply to any
interest calculation under this Agreement, and (iii) the rates of
interest stipulated in this Agreement are intended to be nominal rates
and not effective rates or yields.
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ARTICLE 3
ADVANCES
SECTION 3.1 THE ADVANCES.
The Lender agrees, on the terms and conditions of this Agreement, to
make Advances under the Credit Facility to the Borrower from time to time on
any Business Day prior to the Maturity Date.
SECTION 3.2 PROCEDURE FOR BORROWING.
(1) Borrowings may be made without notice from the Borrower by overdraft in
the Borrower's Account and shall be made available by the Lender by
crediting the Borrower's Account the integral multiple of Cdn. $10,000
nearest the amount of such overdraft.
(2) If from time to time the position of the Borrower's Account is a credit
in favour of the Borrower, the Lender will apply the amount of such
credit or any part thereof, rounded to the nearest Cdn.$10,000, as a
repayment of the Credit Facility, and the Lender will debit the
Borrower's Account with the amount of such repayment.
SECTION 3.3 CONVERSIONS AND ELECTIONS REGARDING ADVANCES.
(1) Each Advance shall bear interest at the Canadian Prime Rate until (i)
the date on which the Advance is repaid in full, or (ii) it is converted
to another Type of Accommodation pursuant to Section 3.3(2).
(2) The Borrower may elect to convert an Advance to another Type of
Accommodation upon two Business Days notice, as of any Business Day and
in the principal amount of such Advance.
SECTION 3.4 INTEREST ON ADVANCES.
The Borrower shall pay interest on the unpaid principal amount of each
Advance from the date of the Advance until the principal amount of the
Advance is repaid in full, at the Canadian Prime Rate in effect from time to
time calculated daily and payable in arrears (i) on the Payment Date, and
(ii) when such Advance becomes due and payable in full.
ARTICLE 4
BANKERS' ACCEPTANCES
SECTION 4.1 ACCEPTANCES AND DRAFTS.
(1) The Lender agrees, on the terms and conditions of this Agreement and
from time to time on any Business Day prior to the Maturity Date to
create acceptances ("BANKERS' ACCEPTANCES") by accepting Drafts and to
purchase such Bankers' Acceptances in accordance with Section 4.3(2). If
the Lender has participated or assigned all or any part of its interest
in the Credit Facility to a Facility Participant which is willing and
able to accept Drafts, the Lender shall arrange for the creation of
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Bankers' Acceptances by such Facility Participant and for their purchase
by such Facility Participant, to the extent of the participation or
assignment, in accordance with Section 4.3(2). If the Lender has
participated or assigned all or any part of its interest in the Credit
Facility to a Facility Participant which is unwilling or unable to
accept Drafts, the Lender shall arrange for the purchase by the Facility
Participant of completed Drafts (which have not and will not be accepted
by the Lender), to the extent of the participation or assignment, in
accordance with Section 4.3(2).
(2) Each Drawing shall be in a minimum Face Amount of Cdn.$1,000,000 and in
integral multiples of Cdn.$100,000, and shall consist of the creation
and purchase of Bankers' Acceptances or the purchase of Drafts on the
same day, in each case for the Drawing Price, effected or arranged by
the Lender in accordance with Section 4.3 and the Commitment.
SECTION 4.2 FORM OF DRAFTS.
(1) Each Draft presented by the Borrower shall (i) be in a minimum amount of
Cdn. $100,000 and in an integral multiple of Cdn. $100,000, (ii) be
dated the date of the Drawing, and (iii) subject to Section 4.2(2),
mature and be payable by the Borrower (in common with all other Drafts
presented in connection with such Drawing) on a Business Day which
occurs approximately 30, 60, 90 or 180 days at the election of the
Borrower after the Drawing Date and on or prior to the Maturity Date and
which would not, in the opinion of the Lender, conflict with the
repayment schedule set out in Section 2.4.
(2) Each Draft with a maturity date which is approximately 180 days after
the Drawing Date shall be re-paid, re-advanced and repurchased for the
Drawing Price (but without an additional Drawing Fee) on the Business
Day which is approximately 91 days from the Drawing Date.
SECTION 4.3 PROCEDURE FOR DRAWING.
(1) Each Drawing shall be made on notice (a "DRAWING NOTICE") given by the
Borrower to the Lender not later than 10:00 a.m. (Toronto time) on two
Business Days notice. Each Drawing Notice shall be in substantially the
form of Schedule 4.3(1), shall be irrevocable and binding on the
Borrower and shall specify (i) the Drawing Date, (ii) the aggregate Face
Amount of Drafts to be accepted and purchased (or purchased, as the case
may be), and (iii) the contract maturity date for the Drafts.
(2) Not later than 2:00 p.m. (Toronto time) on an applicable Drawing Date,
the Lender shall, subject to Section 4.2(2) (i) complete one or more
Drafts in accordance with the Drawing Notice, accept the Drafts and
purchase the Bankers' Acceptances so created for the Drawing Price, (ii)
complete one or more Drafts in accordance with the Drawing Notice and
purchase them for the Drawing Price, (iii) arrange for a Facility
Participant to complete one or more Drafts in accordance with the
Drawing Notice, to accept the Drafts and to purchase the Bankers'
Acceptances so created for the Drawing Price, or (iv) arrange for a
Facility Participant to complete one or more Drafts in accordance with
the Drawing Notice and arrange for the Facility Participant
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to purchase them for the Drawing Price. In each case, upon receipt of
the Drawing Price and upon fulfilment of the applicable conditions set
forth in Article 6, the Lender shall make funds available to the
Borrower in accordance with Article 2.
(3) The Borrower shall, at the request of the Lender or any Facility
Participant, issue one or more non-interest bearing promissory notes
(each a "BA EQUIVALENT NOTE") payable on the date of maturity of the
unaccepted Draft referred to below, in such form as the Lender or such
Facility Participant reasonably may specify and in a principal amount
equal to the Face Amount of, and in exchange for, any unaccepted Drafts
which the Lender or such Facility Participant has purchased or has
arranged to have purchased in accordance with Section 4.3(2).
(4) Bankers' Acceptances purchased by the Lender or Facility Participant may
be held by it for its own account until the contract maturity date or
sold by it at any time prior to that date in any relevant Canadian
market in such Person's sole discretion.
SECTION 4.4 PRESIGNED POWER OF ATTORNEY.
To enable the Lender and Facility Participants to create Bankers'
Acceptances or complete Drafts in the manner specified in this Article 4, the
Borrower shall provide the Lender with a power of attorney authorizing the
Lender to create Bankers' Acceptances or complete drafts in the name of the
Borrower.
SECTION 4.5 PAYMENT, CONVERSION OR RENEWAL OF BA INSTRUMENTS.
(1) Upon the maturity of a BA Instrument, the Borrower may (i) elect to
issue a replacement BA Instrument by giving a Drawing Notice in
accordance with Section 4.3(1), (ii) elect to have all or a portion of
the Face Amount of the BA Instrument converted to an Advance by giving a
Borrowing Notice in accordance with Section 3.2, or (iii) pay, on or
before 10:00 a.m. (Toronto time) on the maturity date for the BA
Instrument, an amount in Canadian Dollars equal to the Face Amount of
the BA Instrument (notwithstanding that the Lender may be the holder of
it at maturity). Any such payment shall satisfy the Borrower's
obligations under the BA Instrument to which it relates and the Lender
or Facility Participant shall then be solely responsible for the payment
of the BA Instrument.
(2) If the Borrower fails to pay any BA Instrument when due or issue a
replacement in the Face Amount of such BA Instrument pursuant to Section
4.5(1), the unpaid amount due and payable shall be converted to an
Advance made by the Lender under the Credit Facility and shall bear
interest calculated and payable as provided in Article 3. This
conversion shall occur as of the due date and without any necessity for
the Borrower to give a Borrowing Notice.
SECTION 4.6 CIRCUMSTANCES MAKING BANKERS' ACCEPTANCES UNAVAILABLE.
(1) If the Lender determines in good faith and notifies the Borrower that,
by reason of circumstances affecting the money market, there is no
market for Bankers' Acceptances then:
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(a) The right of the Borrower to request a Drawing shall be suspended
until the Lender determines that the circumstances causing a
suspension no longer exist and so notifies the Borrower; and
(b) Any Drawing Notice which is outstanding shall be deemed to be a
Borrowing Notice requesting a Borrowing comprised of Advances.
(2) The Lender shall promptly notify the Borrower of the suspension of the
Borrower's right to request a Drawing and of the termination of any
suspension.
ARTICLE 5
DOCUMENTARY CREDITS
SECTION 5.1 DOCUMENTARY CREDITS.
(1) The Lender agrees, on the terms and conditions of this Agreement, to
issue Documentary Credits, under the Credit Facility, from time to time
on any Business Day prior to the Maturity Date.
(2) The maximum Total Face Amount shall be the Maximum Documentary Credits
Amount.
SECTION 5.2 PROCEDURE FOR ISSUE.
(1) Each Issue under the Credit Facility shall be made on notice (an "ISSUE
NOTICE") given by the Borrower to the Lender not later than 11:00 a.m.
(Toronto time) on three Business Days notice. The Issue Notice shall be
in substantially the form of Schedule 5.2(1), shall be irrevocable and
binding on the Borrower and shall specify (i) the requested date of
Issue (the "ISSUE DATE"), (ii) the Type of Documentary Credit, (iii) the
Face Amount of each Documentary Credit, (iv) the expiration date, and
(v) the name and address of the Beneficiary. The Borrower shall not
request a maturity date for a Documentary Credit which would be after
the Maturity Date.
(2) Not later than 11:00 a.m. (Toronto time) on the Issue Date, the Lender
shall issue a Documentary Credit completed in accordance with the Issue
Notice in the appropriate form. Upon fulfilment of the conditions set
forth in Article 6, the Lender shall deliver the Documentary Credits to
or to the order of the Borrower.
(3) No Documentary Credit shall require that payment against a conforming
draft be made on the same Business Day upon which the draft was
presented, unless such presentation is made before 11:00 a.m. (Toronto
time) on such Business Day.
(4) Prior to the Issue Date, the Borrower shall provide a precise
description of the documents and the verbatim text of any certificates
to be presented by the Beneficiary which, if presented by the
Beneficiary, would require the Lender to make payment under the
Documentary Credit. The Lender may require changes in any such document
or certificate.
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SECTION 5.3 FORM OF DOCUMENTARY CREDITS.
Each Documentary Credit (i) shall be dated the Issue Date, (ii) shall
have an expiration date on a Business Day which occurs no more than 365 days
after the Issue Date, and (iii) shall comply with the definition of
Documentary Credit and be a Type of Documentary Credit issued by the Lender
for the proposed purpose of the issue
SECTION 5.4 USE OF DOCUMENTARY CREDITS.
The Borrower shall use Documentary Credits for the sole purpose of
supporting or effecting performance, payment, deposit or surety obligations
of the Borrower.
SECTION 5.5 REIMBURSEMENTS OF AMOUNTS DRAWN; EXCHANGE RATE FLUCTUATIONS.
(1) At or before 10:00 a.m. (Toronto time) on the date specified by a
Beneficiary as a drawing date under a Documentary Credit, the Borrower
shall pay to the Lender an amount in same day funds equal to the amount
to be drawn by the Beneficiary in the currency in which the Documentary
Credit is payable. The Lender shall provide notice to the Borrower of
the payment by the Lender under any Documentary Credit.
(2) If, at any time and for any reason, the Total Face Amount exceeds the
Maximum Documentary Credits Amount (based on the Equivalent U.S. $
Amount of the Total Face Amount), the Lender shall provide notice (the
"EXCHANGE RATE NOTICE") to the Borrower specifying the amount of such
excess. At or before 10:00 a.m. (Toronto time) on the date which is two
Business Days after the receipt of the Exchange Rate Notice, the
Borrower shall provide collateral in the form of cash or Cash
Equivalents to the Lender in an amount equal to the amount of the excess
specified in the Exchange Rate Notice.
(3) If the Borrower fails to pay to the Lender the amount required pursuant
to Section 5.5(1) or fails to provide the collateral required pursuant
to Section 5.5(2), such amount shall be converted automatically as of
such date, and without the necessity for the Borrower to give any
Borrowing Notice pursuant to Section 3.2, to an Advance made by the
Lender under the Credit Facility and shall bear interest calculated and
payable as provided in Article 3.
SECTION 5.6 RISK OF DOCUMENTARY CREDITS.
(1) In determining whether to pay under a Documentary Credit, the Lender
shall be responsible only to determine that the documents and
certificates required to be delivered under such Documentary Credit have
been delivered and that they comply on their face with the requirements
of such Documentary Credit.
(2) The reimbursement obligation of the Borrower under any Documentary
Credit shall be unconditional and irrevocable and shall be paid strictly
in accordance with the terms of this Agreement under all circumstances,
including (i) any lack of validity or enforceability of a Documentary
Credit, (ii) the existence of any claim, set-off, defence or other right
which the Borrower may have at any time against a Beneficiary or any
transferee of a Documentary Credit, the Lender or any other Person,
whether in
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connection with the Credit Documents, the transactions contemplated
therein or any other transaction (including any underlying transaction
between the Borrower and the Beneficiary), (iii) any draft, demand,
certificate or any other document presented with a Documentary Credit
proving to be forged, fraudulent or invalid or any statement in it being
untrue or inaccurate, (iv) the existence of any act or omission or any
misuse of, a Documentary Credit or misapplication of proceeds by the
Beneficiary, including any fraud in any draft, demand, certificate or
any other document presented with a Documentary Credit, or (v) the
existence of an Unmatured Default or Default.
(3) The Lender shall not be responsible (in absence of bad faith, Gross
Negligence or willful misconduct in connection therewith, as determined
by the final judgment of a court of competent jurisdiction) for (i) the
validity or sufficiency of any instrument transferring or assigning or
purporting to transfer or assign a Documentary Credit or the rights or
benefits under it or proceeds of it, in whole or in part, which may
prove to be invalid or ineffective for any reason, (ii) errors,
omissions, interruptions or delays in transmission or delivery of any
messages by mail, telecopy or otherwise, (iii) errors in interpretation
of technical terms, (iv) any loss or delay in the transmission of any
document required in order to make a drawing, and (v) any consequences
arising from causes beyond the control of the Lender, including the acts
or omissions, whether rightful or wrongful, of any Governmental
Authority. None of the above shall affect, impair, or prevent the
vesting of any of the Lender's rights or powers under this Agreement.
Any action taken or omitted by the Lender under or in connection with
any Documentary Credit or the related certificates, if taken or omitted
in good faith, shall not put the Lender under any resulting liability to
the Borrower provided that the Lender acts in accordance with the
standards of reasonable care specified in the Uniform Customs and
Practice for Documentary Credits (1993 Revision), ICC Publication 500
(or any replacement publication).
SECTION 5.7 FEES.
(1) The Borrower shall pay to the Lender, a Fee in respect of each
Documentary Credit issued thereby equal to the Applicable Margin per
annum of the Face Amount of such Documentary Credit, for the period
during which the Documentary Credit is outstanding. Such Fee shall be
payable quarterly in arrears on each Payment Date.
(2) The Borrower shall pay to the Lender upon the issuance, amendment or
transfer of each Documentary Credit issued by the Lender and each
drawing made thereunder, the Lender's standard and prevailing
documentary and administrative charges for issuing, amending,
transferring or drawing under, as the case may be, Documentary Credits
of similar amount, term and risk.
SECTION 5.8 REPAYMENTS.
(1) If the Borrower shall be required to repay the Accommodations pursuant
to Article 2 or Article 9, then the Borrower shall pay to the Lender, to
the extent required in those Articles, an amount equal to the Lender's
contingent liability in respect of (i) any outstanding Documentary
Credit, and (ii) any Documentary Credit which is the subject matter of
any order, judgment, injunction or other such determination (a "JUDICIAL
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ORDER") restricting payment under and in accordance with such
Documentary Credit or extending the Lender's liability under such
Documentary Credit beyond its stated expiration date.
(2) The Lender shall, with respect to any Documentary Credit, upon the later
of:
(a) The date on which any final and non-appealable order, judgment or
other such determination has been rendered or issued either
terminating the applicable Judicial Order or permanently enjoining
the Lender from paying under such Documentary Credit; and
(b) The earlier of (i) the date on which either (x) the original
counterpart of the Documentary Credit is returned to the Lender
for cancellation, or (y) the Lender is released by the Beneficiary
from any further obligations, and (ii) the expiry (to the extent
permitted by any applicable law) of the Documentary Credit,
pay to the Borrower an amount equal to the difference between the amount
paid to or for the benefit of the Lender pursuant to Section 5.8(1) and
the amounts paid by the Lender under the Documentary Credit.
ARTICLE 6
CONDITIONS OF LENDING
SECTION 6.1 CONDITIONS PRECEDENT TO THE INITIAL ACCOMMODATION.
The obligation of the Lender to make its initial Accommodation under
the Credit Facility is subject to fulfilment of the following conditions
precedent at the time the initial Accommodation is made available:
(a) No Unmatured Default has occurred or is continuing or would arise
immediately after giving effect to or as a result of the
Accommodation;
(b) The representations and warranties of the Borrower contained in
Section 7.1 are true and correct in all material respects on the
date of the Accommodation as if such representations and
warranties were made on that date;
(c) The Lender shall have received, in form, substance and dated as of
a date satisfactory to the Lender:
(i) A certified copy of (i) the charter documents and
by-laws of the Borrower, (ii) the resolutions of the
sole shareholder of the Borrower approving the
borrowing and other matters contemplated by this
Agreement and approving the entering into of all
other Credit Documents to which it is a party and the
completion of all transactions contemplated in the
Credit Documents; and (iii) all other instruments
evidencing necessary corporate action of the Borrower
with respect to
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such matters including as required by any unanimous
shareholder agreement;
(ii) A certified copy of (i) the charter documents and
by-laws of the Parent, (ii) the resolutions of the
board of directors (or any duly authorized committee)
of the Parent approving the guarantee of the
Borrower's obligations contemplated by this Agreement
and approving the entering into of all other Credit
Documents to which it is a party and the completion of
all transactions contemplated in the Credit Documents;
and (iii) all other instruments evidencing necessary
corporate action of the Parent with respect to such
matters;
(iii) A certificate of the Secretary of the Borrower
certifying the names and true signatures of its
officers authorized to sign this Agreement and the
other Credit Documents;
(iv) A certificate of compliance with respect to the
Borrower issued pursuant to the CBCA;
(v) The Parent Guarantee and a Security Agreement from the
Parent;
(vi) An Assignment of Book Debts, a Security Agreement and
the Section 427 Security of the Borrower;
(vii) Evidence of registration of the Liens created by the
Security Documents in the Provinces of Newfoundland,
Nova Scotia, New Brunswick, Quebec, Ontario, Manitoba,
Saskatchewan, Alberta and British Columbia and such
other jurisdictions as the Lender deems necessary or
advisable;
(viii) An opinion of counsel to the Borrower and the Parent
in form and substance satisfactory to the Lender
including that the transactions contemplated hereby do
not violate the terms of the Senior Note Indenture;
(ix) An executed copy of Amendment No. 3;
(x) A pro forma consolidated balance sheet of the Parent;
(xi) The necessary documentation for the Borrower to open a
Canadian Dollar account with the Lender;
(xii) The power of attorney contemplated by Section 4.4;
(xiii) An executed copy of the Participation Agreement; and
(xiv) Such other certificates and documentation as the
Lender may reasonably request;
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(d) The Accommodation will not violate any applicable law, rule,
regulation, judgment, order or decree; and
(e) Nothing shall have occurred (nor shall the Lender have become
aware of any facts not previously known), including any change or
any condition, event or development including a prospective change
which the Lender shall determine is reasonably likely to have a
Material Adverse Effect.
SECTION 6.2 CONDITIONS PRECEDENT TO ACCOMMODATIONS AND CONVERSIONS.
(1) The obligation of the Lender to make Accommodations or otherwise give
effect to any Accommodation Notice is subject to fulfilment of the
following conditions at the time of any Accommodation Notice or
Accommodation, as the case may be:
(a) No Unmatured Default or Default has occurred or is continuing or
would arise immediately after giving effect to or as a result of
the Accommodation or Accommodation Notice;
(b) The Accommodation will not violate any applicable (other than
those applicable solely as a result of the identity of the Lender)
law, rule, regulation, judgment, order or decree; and
(c) The representations and warranties of the Borrower contained in
Section 7.1 are true and correct in all material respects on the
date of the Accommodation or Accommodation Notice as if they were
made on that date.
(2) Each of the giving of any Accommodation Notice by the Borrower and the
acceptance by the Borrower of any Accommodation shall be deemed to
constitute a representation and warranty by the Borrower that, on the
date of such Accommodation Notice or Accommodation, as the case may be,
and after giving effect thereto and to the application of any proceeds
therefrom, the statements set forth in Section 6.2(1) are true and
correct.
SECTION 6.3 NO WAIVER.
The making of an Accommodation or otherwise giving effect to any
Accommodation Notice, without the fulfilment of one or more conditions set
forth in Section 6.1 or Section 6.2, shall not constitute a waiver of any
condition and the Lender reserves the right to require fulfilment of such
condition in connection with any subsequent Accommodation Notice or
Accommodation.
<PAGE>
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ARTICLE 7
REPRESENTATIONS AND WARRANTIES
SECTION 7.1 REPRESENTATIONS AND WARRANTIES.
The Borrower represents and warrants to the Lender, acknowledging and
confirming that the Lender is relying on such representations and warranties
without independent inquiry in entering into this Agreement and providing
Accommodations that:
(a) CANADIAN PENSION PLANS. The only Canadian Pension Plans of the
Borrower are one or more defined contribution pension plans. (i)
Each Canadian Pension Plan is in compliance in all material
respects with all applicable pension benefits and tax laws, (ii)
all contributions (including employee contributions made by
authorized payroll deductions) required to be made to the
appropriate funding agency in accordance with all applicable laws
and the terms of each Canadian Pension Plan has and will be made
in accordance with applicable laws and the terms of each Canadian
Pension Plan, and (iii) no event has occurred or will occur and no
condition exists or will exist with respect to any Canadian
Pension Plan that has resulted or could reasonably be expected to
result in any Canadian Pension Plan having its registration
revoked or refused for the purposes of any applicable pension
benefits or tax laws or being placed under the administration of
any relevant pension benefits regulatory authority or being
required to pay any taxes or penalties under any applicable
pension benefits or tax laws. With respect to any retirement or
other deferred compensation plan maintained, administered or
contributed to by or to which there may be an obligation to
contribute by the Borrower or any of its Subsidiaries in respect
of employees in Canada which is not a Canadian Pension Plan, all
required contributions have been made and there are no unfunded
liabilities in respect of such plans (either on a "GOING CONCERN"
or on a "WINDING UP" basis and determined in accordance with all
applicable laws and using assumptions and methods that are
appropriate in the circumstances and in accordance with generally
accepted actuarial principles and practices in Canada);
(b) SUBSIDIARIES. The Borrower has no Subsidiaries other than as
specified on Schedule 7.1(b);
(c) USE OF CREDIT FACILITY. The proceeds of the Credit Facility shall
be used by the Borrower solely for the purposes permitted in
Section 2.3; and
(d) U.S. CREDIT AGREEMENT. The representations and warranties
contained in Article V of the U.S. Credit Agreement made by the
Parent in respect of the Borrower and its Subsidiaries are true
and correct.
SECTION 7.2 SURVIVAL OF REPRESENTATIONS AND WARRANTIES.
The representations and warranties in this Agreement and in any
certificates or documents delivered to the Lender shall not merge in or be
prejudiced by and shall survive any
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Accommodation and shall continue in full force and effect so long as any
amounts are owing by the Borrower to the Lender under this Agreement.
ARTICLE 8
COVENANTS OF THE BORROWER
SECTION 8.1 AFFIRMATIVE COVENANTS.
So long as any amount owing under this Agreement remains unpaid or the
Lender has any obligation under this Agreement, and unless consent is given
in accordance with Section 10.1, the Borrower shall and (except in the case
of the delivery of financial information, reports and notices) shall cause
each of its Subsidiaries to:
(a) U.S. CREDIT AGREEMENT REPORTING. Provide such information to the
Lender as is provided by the Parent to the U.S. Agent and/or the
U.S. Lenders pursuant to Section 6.1 of the U.S. Credit Agreement;
(b) U.S. CREDIT AGREEMENT COVENANTS. Comply with the covenants
contained in Section 6.2 of the U.S. Credit Agreement that the
Parent is required thereunder to cause the Borrower and/or each of
its Subsidiaries to comply with;
(c) ADDITIONAL SECURITY INTERESTS. If at any time the Lender so
requests, execute and deliver all such security agreements and
other documents and instruments as the Lender may reasonably
request to create in favour of, or for the benefit of, the Lender
secured guarantees by the Borrower's Subsidiaries of the
Borrower's obligations hereunder (provided that security interests
shall be granted only in the type of collateral in which security
interests are granted by the Borrower on the date hereof), and
further deliver such favourable opinions of counsel, and do such
other acts and things as the Lender may reasonably request in
connection with such guarantees and the creation and perfection of
such Liens;
(d) SUBSIDIARY SECURITY INTERESTS. If at any time a Subsidiary of the
Borrower is a Material Subsidiary, execute and deliver to the
Lender a Subsidiary Guarantee and such Security Agreement in
respect of such Subsidiary as the Lender may reasonably request
within 10 Business Days of the end of the month in which such
Subsidiary became a Material Subsidiary together with any
opinions, certificates and other documents as the Lender may
reasonably request (provided that security interests shall be
granted only in the type of collateral in which security interests
are granted by the Borrower on the date hereof); and
(e) NOTICES. Promptly give notice to the Lender of:
(i) The occurrence of any Unmatured Default or Default;
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(ii) Any (i) default or event of default under any
Contractual Obligation of the Borrower or any of its
Subsidiaries, or (ii) litigation, investigation or
proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any
Governmental Authority, which in either case, if not
cured or if adversely determined, as the case may be,
could reasonably be expected to have a Material
Adverse Effect;
(iii) Any litigation or proceeding affecting the Borrower or
any of its Subsidiaries in which the amount involved
is Cdn. $1,000,000 or the Equivalent U.S. $ Amount
thereof or more and not covered by insurance or in
which injunctive or similar relief is sought;
(iv) Any development or event which has had or could
reasonably be expected to have a Material Adverse
Effect, and
each notice pursuant to this Section 8.1(e)(i) shall be
accompanied by a statement of an Authorized Officer on behalf of
the Borrower setting forth details of the occurrence referred to
therein and stating what action the Borrower proposes to take with
respect thereto;
SECTION 8.2 NEGATIVE COVENANTS.
So long as any amount owing under this Agreement remains unpaid or the
Lender has any obligation under this Agreement, and unless consent is given
in accordance with Section 10.1, the Borrower shall not, and shall not permit
any of its Subsidiaries to, directly or indirectly, breach any of the
covenants contained in Section 6.3 of the U.S. Credit Agreement that the
Parent is required thereunder not to permit the Borrower and/or each of its
Subsidiaries to breach.
SECTION 8.3 FINANCIAL COVENANTS.
So long as any amount owing under this Agreement remains unpaid or the
Lender has any obligations under this Agreement, and unless consent is given
in accordance with Section 10.1, the Borrower shall (and shall cause the
Parent and their respective Subsidiaries to) comply with the covenants
contained in Section 6.4 of the U.S. Credit Agreement.
ARTICLE 9
EVENTS OF DEFAULT
SECTION 9.1 EVENTS OF DEFAULT.
If any of the following events (each, a "DEFAULT") shall occur and be
continuing:
(a) (i) The Borrower shall fail to pay any amount of the
Accommodations Outstanding, interest or Fees when due in
accordance with the terms hereof; or (ii) the Borrower or any of
the Borrower's Subsidiaries shall fail to pay any other amount
payable hereunder or under any of the Credit Documents, within 15
Business Days of the date of its receipt of request for payment;
<PAGE>
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(b) Any representation or warranty made or deemed made by the Borrower
or any of its Subsidiaries herein or in any other Credit Document
or which is contained in any certificate, document or financial or
other statement furnished by it or any officer thereof at any time
under or pursuant to this Agreement or any such other Credit
Document shall be false or misleading in any material respect on
the date as of which made or deemed made;
(c) The Borrower shall default in the performance of or compliance
with any term contained in this Agreement (other than as covered
by Section 9.1(a) or Section 9.1(b)) or the Parent, the Borrower
or any of its Subsidiaries shall default in the performance of or
compliance with any term contained in any or the other Credit
Documents, and such default shall continue until the earlier of
(i) 15 days after the Lender notifies the Borrower that such a
default exists or (ii) 20 Business Days after the date on which
the Borrower knew, or should have known, that such a default
existed;
(d) At any time for any reason, other than the sole action or inaction
of the Lender, (i) any Credit Document as a whole that materially
affects the ability of the Lender to enforce the obligations of
the Borrower hereunder or enforce its rights against the
Collateral ceases to be in full force and effect, or the Borrower
or any of its Subsidiaries party thereto seeks to repudiate its
obligations thereunder, or the Borrower or any such Subsidiary
seeks to render such Liens, invalid and unperfected, or (ii) Liens
on Collateral with a fair market value in excess of U.S.$1,000,000
in favour of the Lender contemplated by the Credit Documents
shall, at any time, for any reason other than the sole action or
inaction of the Lender be invalidated or otherwise cease to be in
full force and effect, or such Liens shall not have the priority
contemplated by this Agreement or the Credit Documents;
(e) Any guarantor of the Borrower's obligations hereunder shall
terminate or revoke any of its obligations under the applicable
guarantee agreement; or
(f) A "Default" (as such term are defined in the U.S. Credit
Agreement) shall occur under the U.S. Credit Agreement;
then the obligation of the Lender to make further Accommodations shall
immediately terminate and the Lender may declare the Accommodations
Outstanding, all accrued interest and Fees and all other amounts
payable under this Agreement and the other Credit Documents to be
immediately due and payable, without presentment, demand, protest or
further notice of any kind, all of which are expressly waived by the
Borrower.
SECTION 9.2 REMEDIES UPON DEFAULT.
(1) Upon a declaration that the Accommodations Outstanding are immediately
due and payable pursuant to Section 9.1, the Lender may commence such
legal action or proceedings as the Lender, in its sole discretion, deems
expedient, including, the
<PAGE>
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commencement of enforcement proceedings under the Credit Documents all
without any additional notice, presentation, demand, protest, notice of
dishonour, entering into of possession of any property or assets, or any
other action or notice, all of which are expressly waived by the
Borrower.
(2) The rights and remedies of the Lender under the Credit Documents are
cumulative and are in addition to and not in substitution for any other
rights or remedies. Nothing contained in the Credit Documents with
respect to the indebtedness or liability of the Borrower to the Lender,
nor any act or omission of the Lender with respect to the Credit
Documents or the Security shall in any way prejudice or affect the
rights, remedies and powers of the Lender under the Credit Documents or
the Security.
ARTICLE 10
MISCELLANEOUS
SECTION 10.1 AMENDMENT.
No amendment or waiver of any provision of this Agreement or any of the
other Credit Documents, nor consent to any departure by the Borrower or any
other Person from such provisions, is effective unless in writing and
approved by the Lender and, with respect to amendments, the Borrower. Any
amendment, waiver or consent shall be effective only in the specific instance
and for the specific purpose for which given.
SECTION 10.2 WAIVER.
(1) No failure on the part of the Lender to exercise, and no delay in
exercising, any right under any of the Credit Documents shall operate as
a waiver of such right; nor shall any single or partial exercise of any
right under any of the Credit Documents preclude any other or further
exercise of such right or the exercise of any other right.
(2) Except as otherwise expressly provided in this Agreement, the covenants,
representations and warranties of the parties contained in this
Agreement shall not merge on and shall survive the initial Accommodation
and, notwithstanding such initial Accommodation or any investigation
made by or on behalf of any party, shall continue in full force and
effect. The closing of this transaction shall not prejudice any right of
one party against any other party in respect of anything done or omitted
under this Agreement or in respect of any right to damages or other
remedies.
SECTION 10.3 EVIDENCE OF DEBT AND ACCOMMODATION NOTICES.
(1) The indebtedness of the Borrower resulting from Accommodations under the
Credit Facility shall be evidenced by the records of the Lender which
shall constitute prima facie evidence of such indebtedness.
(2) Prior to the receipt of any Accommodation Notice, the Lender may act
upon the basis of a notice by telephone (containing the same information
as required to be contained in the Accommodation Notice) believed by it
in good faith to be from an authorized person representing the Borrower.
In the event of a conflict between the Lender's
<PAGE>
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record of any Accommodation and the Accommodation Notice, the Lender's
record shall prevail, absent manifest error.
SECTION 10.4 NOTICES, ETC.
Any notice, direction or other communication required or permitted to be
given under this Agreement shall, except as otherwise permitted, be in
writing and given by delivering it or sending it by telecopy or other similar
form of recorded communication addressed as follows:
(a) to the Borrower at:
Archibald Candy (Canada) Corporation
c/o Archibald Candy Corporation
1137 West Jackson Blvd.
Chicago Illinois 60607
Attention: Vice President of Finance and Accounting
Telephone: (312) 243-2700
Facsimile: (312) 243-5053
(b) to the Lender at:
First Chicago NBD Bank, Canada
161 Bay Street
Suite 4240
Toronto, Ontario
M5J 2S1
Attention: Commercial Loans
Telephone: (416) 365-8286
Facsimile: (416) 363-7574
Any communication shall be deemed to have been validly and effectively given
(i) if personally delivered, on the date of such delivery if such date is a
Business Day and such delivery was made prior to 4:00 p.m. (Toronto time) or
(ii) if transmitted by facsimile or similar means of recorded communication
on the Business Day following the date of transmission. Any party may change
its address for service from time to time by notice given in accordance with
the foregoing and any subsequent notice shall be sent to the party at its
changed address.
SECTION 10.5 CONFIDENTIALITY.
The Lender agrees to hold any confidential nonpublic information which
it may receive from the Parent, the Borrower or any of their respective
Subsidiaries pursuant to this Agreement or any other Credit Document in
confidence, except for disclosure (i) to its Affiliates, (ii) to their
respective legal counsel and accountants, (iii) to other professional
advisors of the Lender who shall be instructed that the information is to be
treated as
<PAGE>
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confidential, (iv) as requested pursuant to or as required by law, regulation
or legal process, (v) in connection with any legal proceeding to which the
Lender is a party, or (vi) in connection with any proposed participation or
assignment pursuant to Section 10.8; PROVIDED that the Lender shall require
that each offeree, Participant, Assignee or Affiliate agree to comply (and
require any of its offerees, Participants, Assignees or Affiliates to agree
to comply) with the provisions of this Section 10.5.
SECTION 10.6 COSTS, EXPENSES AND INDEMNITY.
(1) The Borrower agrees to reimburse the Lender for any reasonable costs,
internal charges and out-of-pocket expenses (including attorneys' and
paralegals' fees and time charges of attorneys and paralegals for the
Lender, which attorneys and paralegals may be employees of the Lender)
paid or incurred by the Lender in connection with the preparation,
negotiation, execution, delivery, review, amendment, modification, and
administration of the Credit Documents. The Borrower also agrees to
reimburse the Lender for any costs, internal charges and out-of-pocket
expenses (including attorneys' and paralegals' fees and time charges of
attorneys and paralegals for the Lender, which attorneys and paralegals
may be employees of the Lender) paid or incurred by the Lender in
connection with any restructuring or "workout" relating to this
Agreement and the Credit Facility, the collection of the any amounts
outstanding and the enforcement of the Credit Documents. In addition to
expenses set forth above, the Borrower agrees to reimburse the Lender,
promptly after the Lender's request therefor, for each audit, collateral
analysis or other business analysis performed by or for the benefit of
the Lender in connection with this Agreement or the other Credit
Documents in an amount equal to the Lender's then customary charges for
each person employed to perform such audit or analysis, plus all costs
and expenses (including without limitation, travel expenses) incurred by
the Lender in the performance of such audit or analysis; PROVIDED that,
unless a Default shall have occurred during the relevant Fiscal Year, in
no event shall the Borrower be obligated to reimburse the Lender for
such charges, costs and expenses, which together with the similar
charges, costs and expenses charged to Parent pursuant to Section 9.7(A)
of the U.S. Credit Agreement, are in excess of U.S.$25,000 in the
aggregate per Fiscal Year. The Lender shall provide the Borrower with a
detailed statement of all reimbursements requested under this Section
10.6(1).
(2) The Borrower further agrees to defend, protect, indemnify, and hold
harmless the Lender and its Affiliates, and each of the Lender's, or
Affiliate's respective officers, directors, employees, attorneys and
agents (including, without limitation, those retained in connection with
the satisfaction or attempted satisfaction of any of the conditions set
forth in Article 6) (collectively, the "INDEMNITEES") from and against
any and all liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, claims, costs, expenses of any kind or nature
whatsoever (including, without limitation, the fees and disbursements of
counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding, whether or not such Indemnitees
shall be designated a party thereto), imposed on, incurred by, or
asserted against such Indemnitees in any manner relating to or arising
out of:
<PAGE>
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(a) this Agreement, the other Credit Documents or any act, event or
transaction related or attendant thereto or to the making of the
Advances, the purchasing of Bankers' Acceptances and the issuance
of and participation in Documentary Credits hereunder, the
management of such Advances, Bankers' Acceptances, Drafts or
Documentary Credits, the use or intended use of the proceeds of
the Credit Facility, or any of the other transactions contemplated
by the Credit Documents; or
(b) any liabilities, obligations, responsibilities, losses, damages,
personal injury, death, punitive damages, economic damages,
consequential damages, treble damages, intentional, willful or
wanton injury, damage or threat to the environment, natural
resources or public health or welfare, costs and expenses
(including, without limitation, attorney, expert and consulting
fees and costs of investigation, feasibility or remedial action
studies), fines, penalties and monetary sanctions, interest,
direct or indirect, known or unknown, absolute or contingent,
past, present or future relating to violation of any
Environmental, Health or Safety Requirements of Law arising from
or in connection with the past, present or future operations of
the Borrower, its Subsidiaries or any of their respective
predecessors in interest, or, the past, present or future
environmental, health or safety condition of any respective
property of the Borrower or its Subsidiaries, the presence of
asbestos-containing materials at any respective property of the
Borrower or its Subsidiaries or the release or threatened release
of any contaminant into the environment (collectively, the
"INDEMNIFIED MATTERS");
PROVIDED, HOWEVER, the Borrower shall have no obligation to an
Indemnitee hereunder with respect to Indemnified Matters to the extent
caused by or resulting from the bad faith, Gross Negligence or willful
misconduct of such Indemnitee or breach of contract by such Indemnitee
with respect to the Credit Documents, in each case, as determined by the
final non-appealed judgment of a court of competent jurisdiction. To the
extent that the undertaking to indemnify, pay and hold harmless set
forth in the preceding sentence may be unenforceable because it violates
any law or public policy, the Borrower shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law,
to the payment and satisfaction of all Indemnified Matters incurred by
the Indemnitees.
(3) The Borrower further agrees to assert no claim against any of the
Indemnitees on any theory of liability for consequential, punitive or
exemplary damages.
(4) The obligations and agreements of the Borrower under this Section 10.6
shall survive the termination of this Agreement.
SECTION 10.7 TAXES AND OTHER TAXES.
(1) All payments to the Lender by the Borrower under any of the Credit
Documents shall be made free and clear of and without deduction or
withholding for any and all taxes, levies, imposts, deductions, charges
or withholdings and all related liabilities (all such
<PAGE>
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taxes, levies, imposts, deductions, charges, withholdings and
liabilities being referred to as "TAXES") imposed by Canada (or any
political subdivision or taxing authority of it), unless such Taxes are
required by applicable law to be deducted or withheld. If the Borrower
shall be required by applicable law to deduct or withhold any such Taxes
from or in respect of any amount payable under any of the Credit
Documents (i) the amount payable shall be increased (and for greater
certainty, in the case of interest, the amount of interest shall be
increased) as may be necessary so that after making all required
deductions or withholdings (including deductions or withholdings
applicable to any additional amounts paid under this Section 10.7(1)),
the Lender receives an amount equal to the amount they would have
received if no such deduction or withholding had been made, (ii) the
Borrower shall make such deductions or withholdings, and (iii) the
Borrower shall immediately pay the full amount deducted or withheld to
the relevant Governmental Authority in accordance with applicable law.
(2) The Borrower agrees to immediately pay any present or future stamp or
documentary taxes or any other excise or property taxes, charges,
financial institutions duties, debits taxes or similar levies (all such
taxes, charges, duties and levies being referred to as "OTHER TAXES")
which arise from any payment made by the Borrower under any of the
Credit Documents or from the execution, delivery or registration of, or
otherwise with respect to, any of the Credit Documents.
(3) The Borrower shall indemnify the Lender for the full amount of Taxes or
Other Taxes (including, without limitation, any Taxes or Other Taxes
imposed by any jurisdiction on amounts payable by the Borrower under
this Section 10.6(1)) paid by the Lender and any liability (including
penalties, interest and expenses) arising from or with respect to such
Taxes or Other Taxes, whether or not they were correctly or legally
asserted, excluding taxes imposed on the Lender's net income, capital
taxes or receipts and franchise taxes. The Borrower will not be required
to indemnify the Lender for any Taxes or Other Taxes imposed by reason
of the Lender being connected with Canada otherwise than merely by
lending money to the Borrower pursuant to this Agreement. Payment under
this indemnification shall be made within 30 days from the date the
Lender make written demand for it. A certificate as to the amount of
such Taxes or Other Taxes submitted to the Borrower by the Lender shall
be conclusive evidence, absent manifest error, of the amount due from
the Borrower to Lender.
(4) The Borrower shall furnish to the Lender the original or a certified
copy of a receipt evidencing payment of Taxes or Other Taxes made by the
Borrower within 30 days after the date of any payment of Taxes or Other
Taxes.
(5) If the Lender is, in its sole opinion, entitled to claim a refund or
able to apply for or otherwise take advantage of any tax credit, tax
deduction or similar benefit by reason of any withholding or deduction
made by the Borrower in respect of a payment made by it under this
Agreement, which payment shall have been increased pursuant to Section
10.7(1), then the Lender will use reasonable effort to obtain the
refund, credit, deduction or benefit and upon credit or receipt of it
will pay to the Borrower, the amount (if any) not exceeding the
increased amount paid by the Borrower, as equals
<PAGE>
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the net after-tax value to the Lender of that part of the refund,
credit, deduction or benefit as it considers is allocatable to such
withholding or deduction having regard to all of its dealings giving
rise to similar credits, deductions or benefits in relation to the same
tax period and to the cost of obtaining the same. Nothing contained in
this Section 10.7(5) shall interfere with the right of the Lender to
arrange its tax affairs in whatever manner it deems fit and in
particular, the Lender shall be under no obligation to claim relief from
its corporate profits or similar tax liability in respect of any
deduction or withholding in priority to any other relief, claims,
credits or deductions available to it and the Lender shall not be
obligated to disclose to the Borrower any information regarding its tax
affairs, tax computations or otherwise.
(6) The provisions of this Section 10.7 shall survive the termination of the
Agreement and the repayment of all Accommodations Outstanding.
SECTION 10.8 SUCCESSORS AND ASSIGNS.
(1) This Agreement shall become effective when executed by the Borrower and
the Lender and after that time shall be binding upon and enure to the
benefit of the Borrower and the Lender and their respective successors
and permitted assigns.
(2) The Borrower shall not have the right to assign its rights or
obligations under this Agreement or any interest in this Agreement
without the prior consent of the Lender, which consent may be
arbitrarily withheld.
(3) The Lender may (i) grant participations in all or any part of its
interest in the Credit Facility to one or more Persons (each a
"PARTICIPANT"), or (ii) with the prior written consent of the Borrower
(unless an Unmatured Default or a Default shall have occurred and is
continuing and, in any event, not to be unreasonably withheld or
delayed), assign all or any part of its interest in the Credit Facility
to one or more Persons (each an "ASSIGNEE"). The Lender upon granting a
participation shall, unless otherwise expressly provided in this
Agreement, act on behalf of all of its Participants in all dealings with
the Borrower in respect of the Credit Facility and no Participant shall
have any voting or consent rights with respect to any matter requiring
the Lender's consent. In the case of an assignment, the Assignee shall
have the same rights and benefits and be subject to the same obligations
and limitations under the Credit Documents as it would have if it was
the Lender, provided that no Assignee shall be entitled to receive any
greater payment, on a cumulative basis, pursuant to this Agreement than
the Lender which granted would have been entitled to receive. No
participation shall relieve the Lender from its obligations hereunder.
(4) The Borrower shall provide such certificates, acknowledgments and
further assurances in respect of this Agreement and the Credit Facility
as the Lender may reasonably require in connection with any
participation or assignment pursuant to this Section 10.8.
(5) The Lender may deliver to the Borrower an assignment and assumption
agreement substantially in the form of Schedule 10.8(5). by which an
Assignee of the Lender
<PAGE>
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assumes the obligations and agrees to be bound by all the terms and
conditions of this Agreement, all as if the Assignee had been an
original party. Upon the execution by the Lender, the Borrower and the
Assignee of the assignment and assumption agreement, the Lender and the
Borrower shall be released from their respective obligations under this
Agreement (to the extent of such assignment and assumption) and shall
have no liability or obligations to each other to such extent, except in
respect of matters arising prior to the assignment.
(6) Any assignment or grant of participation pursuant to this Section 10.8
will not constitute a repayment by the Borrower to the Lender of any
Accommodation, nor a new advance of any such Accommodation to the
Borrower by the Lender or by the Assignee or Participant, as the case
may be, and the parties acknowledge that the Borrower's obligations with
respect to any such Accommodations will continue and will not constitute
new obligations.
SECTION 10.9 RIGHT OF SET-OFF.
In addition to, and without limitation of, any rights of the Lender
under applicable law, if any Default occurs and is continuing, any
indebtedness from the Lender to the Borrower (including all account balances,
whether provisional or final and whether or not collected or available) may
be offset and applied toward the payment of the any and all of the
obligations of the Borrower owing to the Lender under any of the Credit
Documents, whether or not such obligations, or any part thereof, shall then
be due.
SECTION 10.10 JUDGMENT CURRENCY.
(1) If, for the purposes of obtaining judgment in any court, it is necessary
to convert a sum due to the Lender in any currency (the "ORIGINAL
CURRENCY") into another currency (the "OTHER CURRENCY"), the parties
agree, to the fullest extent that they may effectively do so, that the
rate of exchange used shall be that at which, in accordance with normal
banking procedures, the Lender could purchase the Original Currency with
the Other Currency on the Business Day preceding the day on which final
judgment is given or, if permitted by applicable law, on the day on
which the judgment is paid or satisfied.
(2) The obligations of the Borrower in respect of any sum due in the
Original Currency from it to the Lender under any of the Credit
Documents shall, notwithstanding any judgment in any Other Currency, be
discharged only to the extent that on the Business Day following receipt
by the Lender of any sum adjudged to be so due in the Other Currency,
the Lender may, in accordance with normal banking procedures, purchase
the Original Currency with such Other Currency. If the amount of the
Original Currency so purchased is less than the sum originally due to
the Lender in the Original Currency, the Borrower agrees, as a separate
obligation and notwithstanding the judgment, to indemnify the Lender,
against any loss, and, if the amount of the Original Currency so
purchased exceeds the sum originally due to the Lender in the Original
Currency, the Lender shall remit such excess to the Borrower.
<PAGE>
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SECTION 10.11 INTEREST ON ACCOUNTS.
Except as may be expressly provided otherwise in this Agreement, all
amounts owed by the Borrower to the Lender, which are not paid when due
(whether at stated maturity, on demand, by acceleration or otherwise) shall
bear interest (both before and after default and judgment), from the date on
which such amount is due until such amount is paid in full, payable on
demand, at a rate per annum equal at all times to the sum of the Canadian
Prime Rate in effect from time to time, the Applicable Margin and 2%.
SECTION 10.12 GOVERNING LAW.
This Agreement shall be governed by and interpreted and enforced in
accordance with the laws of the Province of Ontario and the laws of Canada
applicable therein.
SECTION 10.13 COUNTERPARTS.
This Agreement may be executed in any number of counterparts and all of
such counterparts taken together shall be deemed to constitute one and the
same instrument.
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed by their respective authorized officers as of the date first above
written.
ARCHIBALD CANDY (CANADA) CORPORATION
Per: /s/ Donna M. Snopek
---------------------------------------
Authorized Signing Officer
FIRST CHICAGO NBD BANK, CANADA
Per: /s/ Janet Beadle
---------------------------------------
Authorized Signing Officer
<PAGE>
EXECUTION COPY
PARTICIPATION AGREEMENT
RE:
ARCHIBALD CANDY (CANADA) CORPORATION
CREDIT AGREEMENT
To each of the banks named on the
signature pages hereof and added
by assignments permitted hereby
Ladies and Gentlemen:
This letter will serve to confirm the agreements between you and us with
respect to the acquisition by each of you of a participation in a revolving
loan and letter of credit facility in an aggregate principal amount not to
exceed the "Equivalent Cdn. $ Amount" (as defined in the Canadian Credit
Agreement referenced below) of U.S. $5,000,000 at any one time outstanding to
be made by First Chicago NBD Bank, Canada (the "BANK") to Archibald Candy
(Canada) Corporation, a Canadian federally chartered corporation (the
"COMPANY"), on the terms and conditions set forth in that certain Credit
Agreement (as amended, restated, supplemented or otherwise modified from time
to time, the "CANADIAN CREDIT AGREEMENT") dated as of the date hereof between
the Bank and the Company. Each of you is hereinafter referred to as a
"PURCHASER", all of you are hereinafter referred to as the "PURCHASERS". All
capitalized terms used herein without definition shall have the same meanings
herein as they have in the Canadian Credit Agreement. The credit facilities
provided by the Canadian Credit Agreement are intended to supplement the
credit facilities created and provided for by that certain Amended and
Restated Credit Agreement, dated as of July 2, 1997, as amended from time to
time, by and among Archibald Candy Corporation (the "PARENT"), The First
National Bank of Chicago, as Agent (such Purchaser in such capacity as Agent,
and each successor thereto, being hereinafter referred to as the "AGENT"),
and the Purchasers (the "DOMESTIC CREDIT AGREEMENT").
The amount of the participation of each Purchaser in the Canadian Credit
Agreement and the Accommodations made thereunder and the terms and conditions
applicable thereto shall be as follows:
1. PARTICIPATION. Each Purchaser shall be entitled to, and by its
acceptance hereof agrees to take and purchase, a fractional undivided
participation interest in each Accommodation to be made by the Bank under the
Canadian Credit Agreement in the percentage set forth opposite its name on
the signature page hereof (the "PARTICIPATION PERCENTAGE"), which shall
entitle such Purchaser to receive after, but not before, such Purchaser has
paid for such participation in accordance with Paragraph 2 hereof: (a) its
Participation Percentage of any and all Collections (as hereinafter defined)
related to the principal or face amount, as applicable, of such Accommodation
in which it has so purchased
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its Participation Percentage to the extent such Collection is made on or at
any time after the date such Purchaser pays for its purchase of such
participation in accordance with Paragraph 2 hereof; (b) a share of all
Collections related to interest or fees owing on the Accommodation in which
it has purchased its Participation Percentage at a rate equal to the rate
provided in the Canadian Credit Agreement for such Accommodation accruing on
such Purchaser's Participation Percentage of such Accommodation from the date
such Purchaser pays for its purchase of such participation in accordance with
Paragraph 2 hereof, PROVIDED, HOWEVER, that, in the case of any partial
payment of interest or fees by the Company on any Accommodation, such
Purchaser shall be entitled to receive a percentage of the partial payment
received by the Bank that is equal to such Purchaser's Participation
Percentage; and (c) any compensation under the increased cost, funding
indemnity or Tax protections provided in Article 10 of the Canadian Credit
Agreement received by the Bank that is attributable to the Purchaser's
Participation Percentage in an Accommodation made by the Bank in which
Purchaser has paid for its purchase of a participation in accordance with
Paragraph 2 hereof. The Bank will require the Company to pay any such
increased costs or funding indemnity attributable to the portion of any
Accommodation made by the Bank in which a Purchaser has paid for its
participation in accordance with Paragraph 2 hereof upon the demand of such
Participant and in such event, such Purchaser's only interest in any
increased cost protection or funding indemnity will be in receiving any such
payments actually received by the Bank that are attributable to such
Purchaser's Participation Percentage in such an Accommodation. No Purchaser
shall have any rights in and shall not be entitled to receive any part of any
other payment or fee related to the Accommodations or otherwise related to
the Canadian Credit Agreement not described in sub-parts (a)-(c) above
heretofore or hereafter received by the Bank, all such amounts to be retained
by the Bank for its own account as consideration for its extension of credit
under the Canadian Credit Agreement.
Notwithstanding anything to the contrary contained herein (other than
Section 10(b)) or in the Canadian Credit Agreement, the purchase by the
Purchasers of a fractional undivided participation interest in each
outstanding Accommodation made under the Canadian Credit Agreement and the
acquisition of an undivided interest in any Collections by the Purchasers
from the Bank or the Agent shall not constitute an acquisition by the
Purchasers of any beneficial interest in the Canadian Credit Agreement or any
amount owing thereunder, but shall constitute risk sharing payments among the
Bank and the Purchasers and the beneficial interest in the Canadian Credit
Agreement and all amounts owing thereunder shall at all times remain with the
Bank.
The term "COLLECTIONS" as used herein shall mean and include all
payments received by the Bank from the Company or any guarantor on account of
the Accommodations in which the Purchasers have purchased a participation and
the proceeds of any collateral applied by the Bank to such Accommodations,
including the set-off of any deposit balances. The Bank shall promptly remit
to each Purchaser, in like funds as received, all amounts described in
sub-parts (a)-(c) above after receipt thereof from the Company or following
application of any collateral therefor, as applicable, net of any withholding
or deduction which applicable law requires the Bank to make for taxes or
similar charges, to the account specified below such Purchaser's signature
hereto.
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<PAGE>
The Parent shall pay to each Purchaser a fee (the "Participation Fee")
equal to the sum of (X) the product of (i) such Purchaser's Participation
Percentage TIMES (ii) the "Applicable Eurodollar Margin" (as defined in the
Domestic Credit Agreement) TIMES (iii) the average daily amount of the
aggregate Face Amount of all outstanding Bankers' Acceptances, completed
Drafts and BA Equivalent Notes which the Bank has purchased or arranged to
have purchased during the relevant quarter of calculation PLUS (Y) the
product of (i) such Purchaser's Participation Percentage TIMES (ii) the
Applicable Eurodollar Margin TIMES (iii) the aggregate Face Amount of all
Documentary Credits issued and outstanding during the relevant quarter of
calculation PLUS (Z) the product of (i) such Purchaser's Participation
Percentage TIMES (ii) the "Applicable Floating Rate Margin" (as defined in
the Domestic Credit Agreement) TIMES (iii) the average daily principal amount
of all outstanding Advances during the relevant quarter of calculation. The
Participation Fee shall be payable quarterly in arrears beginning on August
31, 1999 and shall continue to be paid on the last day of each February, May,
August, and November through and including the Maturity Date or such later
date as all principal, interest, fees and other amounts due and payable under
the Canadian Credit Agreement have been paid in full. The Participation Fee
shall be paid to the Purchasers regardless of whether or not the Purchasers
have taken and purchased a fractional undivided participation interest in
each Accommodation to be made by the Bank under the Canadian Credit Agreement.
2. PAYMENTS BY PURCHASERS. Each Purchaser agrees that it will pay the
Bank in the amount set out below for such Purchaser's Participation
Percentage in the outstanding Accommodations made by the Bank under the
Canadian Credit Agreement, such payment to be made upon the Bank's demand in
either or both of the following events.
(a) AT BANK'S OPTION. The Bank has the right to make such demand of
all of the Purchasers in its sole discretion at any time on or after (i)
bankruptcy or similar insolvency proceedings have been instituted by or
against the Parent or the Company or any Unmatured Default or Default set
forth in Article 9 of the Canadian Credit Agreement occurs or (ii) the
Purchasers have accelerated repayment of the credit outstanding under the
Domestic Credit Agreement or (iii) the credit outstanding under the
Domestic Credit Agreement is not paid in full at its final maturity; or
(b) AT PURCHASER'S OPTION. The Bank agrees to make such demand on
all of the Purchasers upon the request of any one or more Purchasers
constituting the "Required Lenders" identified and defined in the Domestic
Credit Agreement, made at any time on or after the occurrence of any event
or the existence of any condition in each case which is specified as a
"DEFAULT" or "UNMATURED DEFAULT" under the Domestic Credit Agreement.
Upon such demand, each Purchaser shall pay to the Bank its Participation
Percentage of an amount equal to the sum of all principal of and accrued and
unpaid interest on the outstanding Accommodations, plus any other amounts as
may be due under the Canadian Credit Agreement, in immediately available and
freely transferable Canadian Dollars not later than
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<PAGE>
3:00 p.m. (Toronto time) on any Business Day if such demand is made prior to
10:00 a.m. (Toronto time) on the same day. If such demand is made after
10:00 a.m. on any Business day, such amount shall be payable by the
Purchasers on the next Business Day. For purposes hereof, the term "BUSINESS
DAY" shall mean any day other than a Saturday, Sunday or other day on which
banks in Chicago, Illinois or Toronto, Ontario, Canada are authorized or
required to close.
3. PAYMENTS ON ACCOUNT; RETURNS; FAILURE TO PAY. The Bank may, but
shall not be obligated to, transfer funds to the Purchasers which may be due
from the Company on the date so due prior to receipt from the Company. If
any portion of such funds are not then received from the Company, each
Purchaser shall, on demand by the Bank, repay to the Bank its share of the
amount not received by the Bank with interest thereon at the "Canadian
Overnight Rate" (as defined below). Each Purchaser shall also repay to the
Bank any sums paid to the Bank by the Company and distributed by the Bank to
the Purchasers which the Bank shall be required to return to the Company or
to any receiver, trustee, or custodian for the Company, along with interest
thereon at the rate, if any, the Bank is required to pay in returning such
sums. The obligations of the Purchasers to purchase such participations
shall be several and not joint and the failure of any one or more Purchasers
to honor their obligations to purchase shall not impair the obligations of
the remaining Purchasers to so purchase. If a Purchaser fails or refuses to
make any such payment or fails or refuses to pay its Participation Percentage
of any Accommodation to the Bank directly or through offset by the Bank
against funds of such Purchaser on deposit in such Purchaser's account or
accounts at the Bank (against which the Bank is hereby specifically
authorized to offset for such purposes), then, in addition to any rights or
remedies otherwise available to the Bank, the Bank shall be entitled to fund
such Purchaser's portion of such payment and offset all such amounts against
all payments owed by the Bank to such Purchaser under Paragraph 1 hereof.
Any such amount paid by the Bank on behalf of a Purchaser shall be payable to
the Bank on demand and shall bear interest for each day from the date of such
payment until it is repaid by such Purchaser at the Canadian Overnight Rate.
The foregoing remedies are in addition to and not exclusive of any other
rights or remedies which may be available to the Bank. The Bank's election
to so fund the participation of a Purchaser shall not constitute a waiver of
any of such rights or remedies, and such Purchaser shall nonetheless remain
liable for, and hereby agrees to pay to the Bank, any losses, costs or
expenses incurred by the Bank in respect of the funding, ownership or
carrying of such participation. "CANADIAN OVERNIGHT RATE" means, as of any
time, the most recent "BANK RATE" as then determined by the Bank of Canada.
4. SHARING OF LIABILITIES AND EXPENSES. Each Purchaser shall pay to the
Bank from time to time and upon the Bank's demand therefor its Participation
Percentage of all liabilities, losses (including losses due to events of the
type which are the subject of the increased cost, funding indemnity and Tax
protections provided in Article 10 of the Canadian Credit Agreement), out of
pocket costs and reasonable expenses (including reasonable outside attorneys'
fees and reasonably allocated fees of in-house counsel) suffered or incurred by
the Bank in administering and collecting the Accommodations or which otherwise
arise in connection therewith or in connection with preserving any collateral
security therefor, except for such thereof as may be caused by the gross
negligence or willful misconduct of the Bank
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<PAGE>
and except to the extent that the Bank has theretofore been reimbursed for
same by or on behalf of the Company. Each Purchaser shall be entitled to its
Participation Percentage of any such amounts recovered by the Bank from the
Company after it has paid its Participation Percentage thereof. Each
Purchaser's obligations under this Paragraph shall be independent of whether
or not such Purchaser was required to pay for its participation in accordance
with Paragraph 2 hereof.
5. INFORMATION; NO RECOURSE OR WARRANTY; RESPONSIBILITIES. Each
Purchaser acknowledges receipt of copies of each of the documents listed on
Exhibit A hereto (the "LOAN DOCUMENTS"), which constitute all documents that
any Purchaser has requested and that each Purchaser considers necessary in
deciding to enter into this Agreement and participate in the Accommodations
as provided herein. The Bank represents that it has provided the Purchasers
with true, correct and complete copies of such Loan Documents as received by
the Bank from the Borrower under the Canadian Credit Agreement. It is
understood and agreed that neither the Bank nor the Agent makes any express
or implied representations or warranties of any kind or character with
respect to the genuineness, validity, effectiveness, enforceability, value,
priority, perfection or collectibility of the Accommodations, any collateral
security therefor or for the Loan Documents, nor with respect to the
solvency, financial condition or financial statements of the Company, or with
respect to any other matter that may affect (or affect a Purchaser's
assessment of) the Company's creditworthiness or the value of any collateral
security for any Accommodations, and by its acceptance hereof each Purchaser
agrees that the Bank and the Agent each shall be free of liability on account
of any Purchaser's participation described herein with respect to anything
the Bank may do or refrain from doing in good faith and in the exercise of
its judgment; PROVIDED, HOWEVER, that the Bank agrees to account to
Purchasers as herein set forth for the share from time to time applicable to
Purchasers' participation hereunder in Collections described in Paragraph 1
hereof. In administering the Accommodations and the Loan Documents, the Bank
shall not be bound to ascertain or inquire as to the performance of any of
the terms, provisions or conditions of any thereof on the part of the Company
or any other person, shall be entitled to rely upon any statement or notice,
however sent, believed by it to be genuine and correct and believed by it to
be sent by the proper person, may consult with counsel and shall be fully
protected in any action taken or omitted to be taken by it in accordance with
the advice or opinion of such counsel, may employ agents or attorneys-in-fact
and shall not be liable for the default or misconduct of any such person
selected by it with reasonable care, and shall not be responsible for the
performance of the payment or other obligations of the Company or the value
of any collateral securing the same. Except as expressly provided herein,
the Bank does not assume any duties or responsibilities.
6. COMPANY INFORMATION; INDEPENDENT CREDIT ANALYSIS. The Bank shall
provide the Agent with (and the Agent shall promptly distribute to the
Purchasers) copies of any information in the Bank's possession which was
received pursuant to the terms of the Canadian Credit Agreement and, to the
extent not otherwise available to the Purchasers, the Bank shall use its best
efforts to provide the Agent (and the Agent shall promptly distribute to the
Purchasers), following any Purchaser's written request therefor, such factual
information that a Purchaser specifically requests then in the Bank's possession
and bearing on the status of the
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<PAGE>
Accommodations or the Company's financial condition; PROVIDED, HOWEVER, that
the Bank shall not be required to provide any Purchaser with any information
in violation of any law or any contractual restriction on the disclosure
thereof. Each Purchaser acknowledges, agrees and represents that it has
conducted and shall continue to conduct its own independent credit analysis
of the Company to satisfy itself that its participation hereunder is an
extension of credit which it would make directly to the Company and that its
participation is not and will not be based upon any analysis issued by the
Bank but rather is and will continue to be based upon its independent
investigation. Each Purchaser represents and warrants to the Bank that
Purchaser is purchasing the participation hereunder for its own account in
the ordinary course of its business and not with a view to or in connection
with any subdivision, resale or distribution thereof, and that it is engaged
in the business of entering into transactions of the nature contemplated
herein and in the Domestic Credit Agreement and the Canadian Credit Agreement.
7. OTHER FINANCINGS. No Purchaser shall have any interest, by virtue
of this Agreement and Purchaser's rights hereunder or otherwise, in any
present or future loans from, or other extensions of credit or financing
transactions by, the Bank to, on behalf of, or with the Company or any
guarantees or collateral therefor, or any property now or hereafter in the
possession or control of the Bank which may be or become security for the
obligations of the Company arising under any Loan Document by reason of the
general description of indebtedness secured or otherwise; PROVIDED, HOWEVER,
that if payments in respect of any guarantees or the proceeds of any such
collateral shall be applied to any of the obligations of the Company
described in subparts (a) - (c) of Paragraph 1 hereof, then Purchaser shall
be entitled to share in such application as set forth in Paragraph 1 hereof;
AND FURTHER PROVIDED, HOWEVER, that payments in respect of the guaranty taken
from the Parent as contemplated by the Canadian Credit Agreement shall be
applied first to obligations of the Company under the Canadian Credit
Agreement before application to any other obligations owed to the Bank.
8. AMENDMENTS, WAIVERS, ETC. The Bank shall not, without the consent
of Purchasers holding at least 66-2/3% of the aggregate Participation
Percentages (the "REQUIRED LENDERS"), execute or deliver any amendments,
modifications or waivers of any of the provisions of the Loan Documents;
PROVIDED, HOWEVER, that the Bank will not without the prior written consent
of all Purchasers (a) increase the Commitment of the Bank under the Canadian
Credit Agreement, (b) forgive or reduce the amount of, or postpone any fixed
date for payment of, any principal of or interest on any Accommodation or any
fee payable under the Canadian Credit Agreement, (c) reduce the stated rate
at which interest or any fee under the Canadian Credit Agreement is
calculated, or (d) amend any section of this Participation Agreement.
Subject to the foregoing restrictions and the provisions hereinafter set
forth, the administration of the Canadian Credit Agreement and the
Accommodations thereunder shall be within the discretion of the Bank.
9. DEFAULTS. The Bank will give the Agent written notice of all
defaults under the Canadian Credit Agreement actually known to an officer of
the Bank active in the administration of the Canadian Credit Agreement. The
Bank shall consult with the Purchasers regarding what actions (if any) should
be pursued with respect to such default and keep the
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Purchasers advised of major actions to be taken. The Bank shall take, and
refrain from taking, such action with respect to the default (such as, for
example, exercising the Bank's rights to cease extending Accommodations and
accelerating repayment of Accommodations) as the Required Lenders shall
direct; PROVIDED, HOWEVER, that:
(i) unless and until the Required Lenders have directed the Bank to
take action or to refrain from taking action, the Bank shall be free to
take or refrain from taking such action as it deems prudent and advisable
and in the best interests of all Purchasers; and
(ii) nothing herein contained shall require the Bank to take any
action which it reasonably believes may subject it to any liability unless
it is indemnified to its reasonable satisfaction by the Purchasers.
10. ASSIGNMENT. (a) Concurrent with the assignment of its interests
in the Domestic Credit Agreement, each Purchaser may, from time to time upon
at least five Business Days' notice to the Bank, assign to other commercial
lenders part of its rights and obligations under this Agreement (including
without limitation the participation then owned by such assigning Purchaser
in the Accommodations made and to be made under the Canadian Credit
Agreement) pursuant to a written agreement in the form of Exhibit B hereto
(each, an "ASSIGNMENT AGREEMENT") executed by such assigning Purchaser, such
assignee participant or participants and the Bank, which agreements shall
specify in each instance the Participation Percentage of such assigning
Purchaser's participation which is to be assigned to and assumed by each such
assignee participant; PROVIDED, HOWEVER, that (i) each such assignment shall
be of a constant, and not a varying, Participation Percentage of the
assigning Purchaser's rights and obligations under this Agreement; (ii) the
Bank and the Agent must each consent, which consent shall not be unreasonably
withheld, to each such assignment to a party which was not an original
signatory of this Agreement; and (iii) the assigning Purchaser must pay to
the Bank a processing fee of U.S. $3,000 and any reasonable attorney's fees
(including reasonably allocated costs of in-house counsel) incurred by the
Bank in connection with such Assignment Agreement. Upon the execution of each
Assignment Agreement by the assigning Purchaser thereunder, the assignee
participant thereunder and the Bank and payment to such assigning Purchaser
by such assignee participant of the purchase price for the portion of the
participation being acquired by it, (i) such assignee participant shall
thereupon become a "PURCHASER" for all purposes of this Agreement with a
Participation Percentage in the amount set forth in such Assignment Agreement
and with all the rights, powers and obligations afforded a Purchaser
hereunder, (ii) such assigning Purchaser shall have no further liability for
funding the portion of its participation assumed by such assignee Purchaser
and (iii) the address for notices to such assignee Purchaser shall be as
specified in the Assignment Agreement executed by it.
(b) Upon the Bank's receipt of payment from the Purchasers, whether as
payment for their participations hereunder or otherwise, in an amount
sufficient to repay all Accommodations and other obligations owing to the
Bank under the Canadian Credit Agreement and the Purchasers' assumption of
the Bank's obligation to extend credit under the Canadian Credit Agreement,
the Bank shall, if the Agent so directs, assign the
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Accommodations and the Bank's rights under the Canadian Credit Agreement to
the Purchasers or the Agent, as the Agent shall direct, in each case without
representation, recourse or warranty (except as to the Bank's ownership of
such rights, its rights to assign them and the amount of credit outstanding
under the Canadian Credit Agreement).
(c) The Bank shall not grant participations in, or otherwise assign,
any of its rights and obligations under the Canadian Credit Agreement without
the prior written consent of the Agent.
11. WAIVERS. No delay or omission by any party to exercise any right
under this Agreement shall impair any such right, nor shall it be construed
to be a waiver thereof. No waiver of any single breach or default under this
Agreement shall be deemed a waiver of any other breach or default.
12. NOTICES. Whenever this Agreement requires or permits any consent,
approval, notice, request, or demand from one party to another, the consent,
approval, notice, request, or demand must be in writing and shall be deemed
effective when delivered, if sent by courier or by registered or certified
mail, or when receipt is confirmed, if sent by telecopy, in each case at the
address or telecopy number set forth below the relevant party's signature
hereto or at such other address or telecopy number as may be notified by such
party to the other party.
13. ILLEGALITY; CONSTRUCTION; GOVERNING LAW. The illegality or
unenforceability of any provision of this Agreement shall not in any way
affect or impair the legality or enforceability of the remaining provisions
of this Agreement. Paragraph headings used in this Agreement are for
convenience of reference only and shall not affect the construction of this
Agreement. The laws of the Province of Ontario in Canada shall govern the
rights and duties of the parties hereto and the interpretation hereof.
14. MISCELLANEOUS. This Agreement (a) may be amended, and any
provision hereof may be waived, only by an instrument in writing executed by
each of the Bank and each Purchaser; PROVIDED, HOWEVER, that any instrument
amending or waiving the Participation Fee shall also require the signatures
of the Parent and the Company, and (b) may be executed in a number of
identical counterparts, each of which shall be deemed an original for all
purposes and all of which shall constitute, collectively, one Agreement.
15. CONFLICT. This Agreement embodies the entire agreement between the
parties, supersedes all prior agreements and understandings between the
parties, if any, relating to the subject matter hereof, and notwithstanding
any conflict or inconsistency with the Domestic Credit Agreement or any other
instrument or document related hereto in each case to which the Bank is not a
party, shall govern the rights and obligations of the parties hereto.
The remainder of this page remains intentionally blank.
8
<PAGE>
If the foregoing correctly reflects your understanding with the Bank,
please so signify by executing this Agreement in the space provided below.
Dated as of July 30, 1999
FIRST CHICAGO NBD BANK, CANADA
By /s/ Michael Bauer
-------------------------------
Name: Michael Bauer
Title:
Address: 161 Bay Street
Suite 4240
Toronto, Ontario
M5J 2S1
Canada
Telephone: (416) 365-8286
Telecopy: (416) 363-7574
Attention: Michael Bauer
9
<PAGE>
AGREED TO AND ACCEPTED THIS 30th
DAY OF JULY, 1999:
Participation
Percentage: 50% THE FIRST NATIONAL BANK OF CHICAGO
By /s/ Janet Beadle
-------------------------------
Name: Janet Beadle
Title: Vice President
Address: One First National Plaza
Chicago, IL 60670
Telephone: (312) 732-5927
Telecopy: (312) 732-1117
Attention: Julia Bristow
Account Number for payments: DCS
Clearing Account 247-165
A.B.A. Transit Number: 071000013
10
<PAGE>
AGREED TO AND ACCEPTED THIS 30th
DAY OF JULY, 1999:
Participation
Percentage: 50% FLEET BUSINESS CREDIT CORPORATION
By /s/ Donald A. Mastro
--------------------------------
Name: Donald A. Mastro
Title: Vice President
Address: One South Wacker Drive
28th floor
Chicago, IL 60606
Telephone: (312) 853-8816
Telecopy: (312) 782-6035
Attention: Don Mastro
Account Number for payments:
9370015059
Ref: Fleet Business Credit
Corporation
A.B.A. Transit Number: 011900571
11
<PAGE>
AGREED TO AND ACCEPTED THIS 30th
DAY OF JULY, 1999:
ARCHIBALD CANDY CORPORATION
By /s/ Donna Snopek
-------------------------------
Name: Donna Snopek
Title: Vice President Finance
Address: 1137 W. Jackson Blvd.
Chicago, IL 60607
Telephone: (312) 432-3332
Telecopy: (312) 243-5053
Attention: Donna Snopek
ACKNOWLEDGED AND CONSENTED TO THIS
30th DAY OF JULY, 1999:
ARCHIBALD CANDY (CANADA) CORPORATION
By /s/ Donna Snopek
--------------------------------
Name: Donna Snopek
Title: Vice President Finance
Address: 1137 W. Jackson Blvd.
Chicago, IL 60607
Telephone: (312) 432-3332
Telecopy: (312) 243-5053
Attention: Donna Snopek
12
<PAGE>
August 6, 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 $40,000,000 aggregate principal
amount of the Company's 10-1/4% Series B Senior Secured Notes due 2004 (the
"REGISTERED NOTES") and the guarantees (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 "UNREGISTERED NOTES") and the Guarantees thereof by the
Guarantors, all as more fully described in the Registration Statement. The
Registered 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 and the
Second Supplemental Indenture dated as of June 8, 1999 among the Company, the
Guarantors and the Trustee (the "INDENTURE").
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 Registered Notes; and (vii) resolutions
<PAGE>
August 6, 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 Registered Notes for
the Unregistered 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 Registered Notes for the
Unregistered 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 Registered Notes are duly executed and
authenticated in accordance with the provisions of the Indenture, and (iii)
the Registered Notes shall have been issued and delivered in exchange for the
Unregistered Notes pursuant to the terms set forth in the Prospectus, the
Registered 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
Registered Notes.
We hereby consent to the reference to our firm under the headings "Legal
Matters" and "Material 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>
FIFTH AMENDMENT
This Fifth Amendment (this "Amendment") is entered into as of May 31,
1999 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, the Third Amendment thereto dated as of July 2, 1997, and
the Fourth Amendment thereto dated as of October 31, 1998 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 an Asset Purchase Agreement (as
may be amended, modified or supplemented from time to time, the "Laura Secord
Asset Purchase Agreement") with Nestle Canada Inc. ("Nestle") pursuant to
which the Company, or one or more of its subsidiaries (together "Acquisition
Co."), will acquire substantially all of the assets used in Nestle's Laura
Secord retail business for approximately $62.0 million (Cdn.) (the "Laura
Secord Acquisition").
B. Concurrently with the Laura Secord Acquisition, the Company
intends to issue up to an additional $40,000,000 in principal amount of its
10 1/4% Series A 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 10 1/4% Series B 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 Laura Secord
Acquisition and (ii) for fees, costs and expenses incurred in connection with
the Laura Secord Acquisition and the Additional Offering.
D. On July 2, 1997, the Company issued $100,000,000 in principal
amount of its 10 1/4% Series A Senior Secured Notes due 2004 (the "1997
Notes") pursuant to the Indenture.
E. On November 13, 1997, the holders of the 1997 Notes exchanged the
1997 Notes for substantially identical Company 10 1/4% Series B Senior
Secured Notes due 2004 that
<PAGE>
the Company registered with the Securities and Exchange Commission (the "1997
Exchange Notes").
F. On December 7, 1998, the Company issued an additional $30,000,000
in principal amount of its 10 1/4% Series A Senior Secured Notes due 2004
(the "1998 Notes", and together with the 1997 Notes, the "Original Notes")
pursuant to the Indenture.
G. On April 20, 1999, the holders of the 1998 Notes exchanged the
1998 Notes for substantially identical Company 10 1/4% Series B Senior
Secured Notes due 2004 that the Company registered with the Securities and
Exchange Commission (the "1998 Exchange Notes", and together with the 1997
Exchange Notes, the "Original Exchange Notes").
H. The Original Notes were secured by, and the Original Exchange
Notes currently are secured by, (i) security interests in certain of the
Company's and its subsidiaries' 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 current and future
subsidiaries (collectively, the "Original Indenture Collateral").
I. The Additional Notes (and, upon the completion of the Additional
Exchange, the Additional Exchange Notes) also will be secured by the Original
Indenture Collateral.
J. In addition, upon the consummation of the Laura Secord
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 Laura Secord's
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 Acquisition Co.
K. 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 Company intends to pay a reasonable
consent fee to all holders that grant their consent to such amendment of the
Indenture.
L. Concurrently with the Laura Secord 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 "Second Amendment to Credit Facility").
M. Whether or not the Company amends the Credit Facility to increase
the maximum amount available thereunder, the Company will cause Acquisition
Co., upon the consummation of the Laura Secord Acquisition, to grant, as
additional security under the Credit Facility, a security interest in Laura
Secord's accounts, raw materials and finished goods inventory.
-2-
<PAGE>
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 amending and restating the definitions of "Additional Exchange,"
"Additional Exchange Notes," "Additional Notes," "Additional Offering,"
"Original Exchange Notes" and "Original Notes," in their entirety as follows:
"Additional Exchange" has the meaning ascribed to such term in Recital B
of the Fifth Amendment.
"Additional Exchange Notes" has the meaning ascribed to such term in
Recital B of the Fifth Amendment.
"Additional Notes" has the meaning ascribed to such term in Recital B of
the Fifth Amendment.
"Additional Offering" has the meaning ascribed to such term in Recital B
of the Fifth Amendment.
"Original Exchange Notes" has the meaning ascribed to such term in
Recital G of the Fifth Amendment.
"Original Notes" has the meaning ascribed to such term in Recital F of
the Fifth Amendment.
2. Section 1 of the Securities Purchase Agreement is hereby further
amended by adding the following definitions:
"Fifth Amendment" means the Fifth Amendment to this Agreement, dated as
of May 31, 1999.
"Laura Secord Acquisition" has the meaning ascribed to such term in
Recital A of the Fifth Amendment .
"Laura Secord Asset Purchase Agreement" has the meaning ascribed to such
term in Recital A of the Fifth Amendment.
"1997 Exchange Notes" has the meaning ascribed to such term in Recital E
of the Fifth Amendment.
"1998 Exchange Notes" has the meaning ascribed to such term in Recital G
of the Fifth Amendment.
"1997 Notes" has the meaning ascribed to such term in Recital D of the
Fifth Amendment.
-3-
<PAGE>
"1998 Notes" has the meaning ascribed to such term in Recital F of the
Fifth Amendment.
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, (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
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) and (viii)
non-capital expenditures made in connection with the Laura Secord
Acquisition and the consolidation of the Laura Secord business into the
Company's operations (provided that such non-capital expenditures are
not in excess of the amounts therefor described in that certain
Memorandum dated May 7, 1999 (the "LS Acquisition Memorandum") from Adam
E. Max and Ted A. Shepherd to John W. Jordan II, Thomas H. Quinn,
Raymond F. Henze III, Jeffrey Rosen and Brant Binder), (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
-4-
<PAGE>
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), (c)
MINUS all capital expenditures made in connection with the Laura Secord
Acquisition and the consolidation of the Laura Secord business into the
Company's operations (provided that such capital expenditures are not in
excess of the amounts therefor described in the LS Acquisition
Memorandum), all as determined for Holdings and its Subsidiaries on a
consolidated basis in accordance with GAAP.
5. Section 7.1 of the Securities Purchase Agreement is hereby amended
by amending and restating clause (i) thereof as follows:
"(i) any wholly-owned Subsidiary of FMCAN may make distributions to
FMCAN or to any other wholly-owned subsidiary of FMCAN and FMCAN may
make distributions to Holdings;"
6. Section 7.6 of the Securities Purchase Agreement is hereby amended
by amending and restating the last sentence thereto as follows:
"Notwithstanding the foregoing, there shall be excluded from the
prohibition on Investments under this Section 7.6 the consummation of
(i) the SFG Acquisition and the transactions contemplated by the SFG
Stock Purchase Agreement and (ii) the Laura Secord Acquisition and the
transactions contemplated by the Laura Secord Asset Purchase Agreement."
7. 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 Laura Secord Acquisition and the
execution, delivery and performance by the Company of the
Laura Secord Asset 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 Second
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
-5-
<PAGE>
(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 7.
8. 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 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.
9. This Amendment will become effective upon the consummation of the
Laura Secord Acquisition and the Additional Offering (the "Effective Date").
10. 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
-6-
<PAGE>
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.
11. 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.
12. 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]
-7-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Fifth
Amendment to the Securities Purchase Agreement as of the date first above
written.
FANNIE MAY HOLDINGS, INC.
By: /s/ Ted A. Shepherd
Its: President, Chief Operating
Officer
ARCHIBALD CANDY CORPORATION
By: /s/ Ted A. Shepherd
Its: President, 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/ Brant Binder
Its: Vice President
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/ Brant Binder
Its: Vice President
-8-
<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/ Brant Binder
Its: Vice President
MEZZANINE CAPITAL
By: TCW Asset Management Company
Its: Managing General Partner
By: /s/ Brant Binder
Its: Vice President
JZ EQUITY PARTNERS PLC
(f/k/a MCIT (EXISTING POOL) LIMITED)
By: /s/ James E. Jordan
Its: Director
WCT INVESTMENT PTE. LTD
By: /s/ Brett K. Fisher
Its: Director
JORDAN INDUSTRIES, INC.
By: /s/ Thomas H. Quinn
Its: President, Chief Operating Officer
-9-
<PAGE>
EXHIBIT 12.1
Computation of Ratios of Earnings to Fixed Charges
(Dollars in thousands)
<TABLE>
<CAPTION>
Nine Months
Fiscal Year Ended Ended
----------------------------------------------------------------------- ----------------------
August 31 August 26 August 31 August 30 August 29 May 30 May 29
1994 1995 1996 1997 1998 1998 1999
--------------------------------------------------------------------- ------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Fixed charges:
Interest expense $ 8,913 $ 9,237 $ 9,455 $ 9,235 $ 10,346 $ 7,780 $ 9,373
Amortization of debt expense 933 957 720 661 681 1,098 1,295
Rental expense included in
fixed charges 4,548 4,342 3,949 3,802 3,721 5,454 9,242
----------------------------------------------------------------------- ----------------------
Total fixed charges $ 14,394 $ 14,536 $ 14,124 $ 13,698 $ 14,748 $ 14,332 $ 19,910
----------------------------------------------------------------------- ----------------------
----------------------------------------------------------------------- ----------------------
Earnings:
Pre-tax income (loss) $ (14,556) $ (5,672) $ (1,066) $ (921) $ 3,579 $ 11,021 $ 10,079
Plus: fixed charges 14,394 14,536 14,124 13,698 14,748 14,332 19,910
----------------------------------------------------------------------- ----------------------
Total earnings $ (162) $ 8,864 $ 13,058 $ 12,777 $ 18,327 $ 25,353 $ 29,989
----------------------------------------------------------------------- ----------------------
----------------------------------------------------------------------- ----------------------
Ratio of earnings to fixed charges n/a n/a n/a n/a 1.2 1.8 1.5
----------------------------------------------------------------------- ----------------------
----------------------------------------------------------------------- ----------------------
</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. Archibald Candy (Canada) Canada Archibald Candy (Canada)
Corporation Corporation
6. Mrs. Snyders Home Made Candies, Illinois Mrs. Snyders Home Made Candies,
Inc. Inc.
7. Fannie May Candy Company, Inc. Delaware Fannie May Candy Company, Inc.
8. Grandmother's Candy Shops, Inc. Illinois Grandmother's Candy Shops, Inc.
9. Archibald Home Made Candies, Inc. Illinois Archibald Home Made Candies,
Inc.
10. Archibald Box Corporation Illinois Archibald Box Corporation
</TABLE>
<PAGE>
Exhibit 23.1
CONSENT OF INDEPENDENT AUDITIORS
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 August
6, 1999.
/s/ Ernst & Young LLP
Chicago, Illinois
August 6, 1999
<PAGE>
Exhibit 23.2
CONSENT OF INDEPENDENT AUDITORS
We consent to the reference to our firm under the caption "Experts" and to the
use of our report dated May 14, 1999, in the Registration Statement (Form
S-4) and related Prospectus of Archibald Candy Corporation dated August 6,
1999.
Deloitte & Touche LLP
Toronto, Ontario
August 6, 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) |__|
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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)
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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 33-0771778
(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 33-0470773
(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 33-0741699
(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 33-0773045
(State or other jurisdiction of (I.R.S. employer
incorporation or organization) identification no.)
Archibald Candy (Canada) Corporation
(Exact name of obligor as specified in its charter)
1137 West Jackson Boulevard
Chicago, Illinois 60607
(Address of principal executive offices) (Zip code)
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10-1/4% Series B Senior Secured Notes due 2004
(Title of the indenture securities)
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-2-
<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>
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Name Address
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<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 30th day of July, 1999.
THE BANK OF NEW YORK
By: /s/ Walter N. Gitlin
-----------------------------------
Name: Walter N. Gitlin
Title: Vice President
<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 30th day of July, 1999.
THE BANK OF NEW YORK
By: /s/ WALTER N. GITLIN
-----------------------------------
Name: WALTER N. GITLIN
Title: VICE PRESIDENT
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EXHIBIT 7
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Consolidated Report of Condition of
THE BANK OF NEW YORK
of One Wall Street, New York, N.Y. 10286
And Foreign and Domestic Subsidiaries,
a member of the Federal Reserve System, at the close of business March 31,
1999, 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>
Dollar Amounts
ASSETS in Thousands
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin........... $ 4,508,742
Interest-bearing balances.................................... 4,425,071
Securities:
Held-to-maturity securities.................................. 836,304
Available-for-sale securities................................ 4,047,851
Federal funds sold and Securities purchased under agreements
to resell.................................................... 1,743,269
Loans and lease financing receivables:
Loans and leases, net of unearned income...........39,349,679
LESS. Allowance for loan and lease losses.............603,025
LESS. Allocated transfer risk reserve..................15,906
Loans and leases, net of unearned income, allowance, and
reserve...................................................... 38,730,748
Trading Assets................................................. 1,571,372
Premises and fixed assets (including capitalized leases)....... 685,674
Other real estate owned........................................ 10,331
Investments in unconsolidated subsidiaries and associated
companies.................................................... 182,449
Customers' liability to this bank on acceptances outstanding... 1,184,822
Intangible assets.............................................. 1,129,636
Other assets................................................... 2,632,309
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Total assets................................................... $ 61,688,578
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LIABILITIES
Deposits:
In domestic offices.......................................... $ 25,731,036
Noninterest-bearing................................10,252,589
Interest-bearing...................................15,478,447
In foreign offices, Edge and Agreement subsidiaries, and
IBFs........................................................ 18,756,302
Noninterest-bearing...................................111,386
Interest-bearing...................................18,644,916
Federal funds purchased and Securities sold under agreements to
repurchase................................................... 3,276,362
Demand notes issued to the U.S. Treasury....................... 230,671
Trading liabilities............................................ 1,554,493
Other borrowed money:
With remaining maturity of one year or less.................. 1,154,502
With remaining maturity of more than one year through three
years....................................................... 465
With remaining maturity of more than three years............. 31,080
Bank's liability on acceptances executed and outstanding....... 1,185,364
Subordinated notes and debentures.............................. 1,308,000
Other liabilities.............................................. 2,743,590
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Total liabilities.............................................. 55,971,865
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EQUITY CAPITAL
Common stock................................................... 1,135,284
Surplus........................................................ 764,443
Undivided profits and capital reserves......................... 3,807,697
Net unrealized holding gains (losses) on available-for-sale
securities................................................... 44,106
Cumulative foreign currency translation adjustments............ (34,817)
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Total equity capital........................................... 5,716,713
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Total liabilities and equity capital........................... $ 61,688,578
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</TABLE>
I, Thomas J. Mastro, 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.
Thomas J. Mastro
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.
Thomas A. Renyi )
Alan R. Griffith ) Directors
Gerald L. Hassell )
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<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
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THE EXCHANGE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON , 1999, OR SUCH LATER DATE AS THE COMPANY (AS DEFINED
HEREIN) MAY EXTEND THE EXCHANGE OFFER (THE "EXPIRATION DATE"). TENDERS MAY
BE WITHDRAWN PRIOR TO 5:00 P.M., NEW YORK CITY TIME, ON THE EXPIRATION
DATE.
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THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
The Bank of New York
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<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
Reorganization Section Ground Level
Attention: Reorganization Section
Attention:
</TABLE>
TO CONFIRM BY TELEPHONE
OR FOR INFORMATION CALL:
(212) 815-4997
FACSIMILE TRANSMISSIONS:
(ELIGIBLE INSTITUTIONS ONLY)
(212) 815-4699
------------------------
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.
This Letter of Transmittal is to be completed either if (1) certificates are
to be forwarded herewith or (2) tenders are to be made pursuant to the
procedures for tender by book-entry transfer set forth under "The Exchange
Offer-- Procedures for Tendering Unregistered Notes" in the Prospectus (as
defined herein) and an Agent's Message (as defined herein) is not delivered.
Certificates, or book-entry confirmation of a book-entry transfer of such
Unregistered Notes (as defined herein) into the account of The Bank of New York
(the "Exchange Agent") 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 Unregistered 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 of Unregistered Notes whose certificates for such Unregistered 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 or who cannot complete the procedures for book-entry transfer on a timely
basis, must tender their Unregistered Notes according to the guaranteed delivery
procedures set forth in "The Exchange Offer--Procedures for Tendering
Unregistered 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>
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DESCRIPTION OF UNREGISTERED NOTES
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PLEASE PRINT NAME AND ADDRESS UNREGISTERED NOTES
OF REGISTERED HOLDER(S) (ATTACH ADDITIONAL LIST IF NECESSARY)
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PRINCIPAL AMOUNT
AGGREGATE OF UNREGISTERED
PRINCIPAL AMOUNT NOTES TENDERED
CERTIFICATE OF UNREGISTERED (IF LESS THAN
NUMBER(S)* NOTES ALL)**
<S> <C> <C> <C>
----------------------------------------------------
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TOTAL:
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* Need not be completed by book-entry holders.
** Unregistered Notes may be tendered in whole or in part in multiples of $1,000. All Unregistered
Notes held shall be deemed tendered unless a lesser number is specified in this column. See
Instruction 4.
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</TABLE>
(BOXES BELOW TO BE CHECKED BY ELIGIBLE INSTITUTIONS ONLY)
/ / CHECK HERE IF TENDERED UNREGISTERED 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 UNREGISTERED 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
UNREGISTERED 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 UNREGISTERED 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 "Unregistered
Notes") in exchange for an equivalent amount of the Company's 10 1/4% Series B
Senior Secured Notes due 2004 (the "Registered 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 Unregistered 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 Unregistered
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
Unregistered 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 (1) deliver
certificates for Unregistered 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 Registered Notes to be issued in exchange for such Unregistered Notes, (2)
present certificates for such Unregistered Notes for transfer, and to transfer
the Unregistered Notes on the books of the Company, and (3) receive for the
account of the Company all benefits and otherwise exercise all rights of
beneficial ownership of such Unregistered 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
Unregistered 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 Unregistered 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
Unregistered Notes tendered hereby, and the undersigned will comply with its
obligations under the registration rights agreement dated as of July 2, 1997
between the Company and the initial purchasers identified therein (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 Unregistered
Notes tendered hereby should be printed above as they appear on the certificates
representing such Unregistered Notes. The certificate number(s) and the
Unregistered Notes that the undersigned wishes to tender should be indicated in
the appropriate boxes above.
If any tendered Unregistered Notes are not exchanged pursuant to the
Exchange Offer for any reason, or if certificates are submitted for more
Unregistered Notes than are tendered or accepted for exchange, certificates for
such nonexchanged or nontendered Unregistered Notes will be returned (or, in the
case of Unregistered Notes tendered by book-entry transfer, such Unregistered
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 Unregistered Notes pursuant to
any one of the procedures described in "The Exchange Offer--Procedures for
Tendering Unregistered Notes" in the Prospectus and in the instructions attached
hereto will, upon the Company's acceptance for exchange of such tendered
Unregistered 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
Unregistered Notes tendered hereby.
Unless otherwise indicated herein in the box entitled "Special Issuance
Instructions" below, the undersigned hereby directs that the Registered Notes be
issued in the name(s) of the undersigned or, in the case of a book-entry
transfer of Unregistered Notes, that such Registered Notes be credited to the
account indicated above maintained at DTC. If applicable, substitute
certificates representing Unregistered Notes not exchanged or not accepted for
exchange will be issued to the undersigned or, in the case of a book-entry
transfer of Unregistered Notes, will be credited to the account indicated above
maintained at DTC. Similarly, unless otherwise indicated under "Special Delivery
Instructions," please deliver Registered Notes to the undersigned at the address
shown below the undersigned's signature.
By tendering Unregistered 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 (1) the undersigned is not an "affiliate" of the
Company, (2) any Registered Notes to be received by the undersigned are being
acquired in the ordinary course of
3
<PAGE>
its business, (3) the undersigned has no arrangement or understanding with any
person to participate in a distribution (within the meaning of the Securities
Act) of Registered Notes to be received in the Exchange Offer, and (4) 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 Registered 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 Unregistered Notes to
be exchanged in the Exchange Offer. By tendering Unregistered 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 Unregistered 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
Unregistered 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
Registered 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 Registered Notes received in exchange for
Unregistered Notes, where such Unregistered 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 Registered Notes have
been disposed of by such Participating Broker-Dealer. In that regard, each
broker-dealer who acquired Unregistered Notes for its own account as a result of
market-making or other trading activities (a "Participating Broker-Dealer"), by
tendering such Unregistered 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 Registered 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 Registered Notes may be resumed, as the case
may be. If the Company gives such notice to suspend the sale of the Registered
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 Registered 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 Registered Notes or to
and including the date on which the Company has given notice that the sale of
Registered Notes may be resumed, as the case may be.
As a result, a Participating Broker-Dealer who intends to use the Prospectus
in connection with resales of Registered Notes received in exchange for
Unregistered 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 Unregistered 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 Unregistered
Notes" above and signing this letter, will be deemed to have tendered the
Unregistered Notes as set forth in such box.
4
<PAGE>
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IMPORTANT
HOLDERS: SIGN HERE
(PLEASE COMPLETE ACCOMPANYING 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 Unregistered 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: ____________________
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5
<PAGE>
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SPECIAL ISSUANCE INSTRUCTIONS
(SIGNATURE GUARANTEE REQUIRED--SEE INSTRUCTION 2)
TO BE COMPLETED ONLY if Registered Notes or Unregistered Notes not
tendered are to be issued in the name of someone other than the registered
holder of the Unregistered Notes whose name(s) appear(s) above.
/ / Unregistered Notes not tendered to:
/ / Registered 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 Registered Notes or Unregistered Notes not
tendered are to be sent to someone other than the registered holder of the
Unregistered Notes whose name(s) appear(s) above, or such registered holder
at an address other than that shown above.
/ / Unregistered Notes not tendered to:
/ / Registered Notes to:
Name _______________________________________________________________________
(PLEASE PRINT)
Address ____________________________________________________________________
____________________________________________________________________________
____________________________________________________________________________
(INCLUDE ZIP CODE)
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6
<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 Unregistered Notes" in the Prospectus and an
Agent's Message is not delivered. Certificates, or timely confirmation of a
book-entry transfer of such Unregistered 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. Unregistered Notes may be tendered in whole or in part
in integral multiples of $1,000.
Holders who wish to tender their Unregistered Notes and (1) whose
Unregistered Notes are not immediately available or (2) who cannot deliver their
Unregistered Notes, this Letter of Transmittal and all other required documents
to the Exchange Agent on or prior to the Expiration Date or (3) who cannot
complete the procedures for delivery by book-entry transfer on a timely basis,
may tender their Unregistered 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 Unregistered 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 Unregistered 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 Unregistered 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 Unregistered 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) (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.
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 of the
Unregistered Notes (the "Holder")) of Unregistered 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 Unregistered 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 Unregistered Notes" is inadequate, the certificate number(s) and/or the
principal amount of Unregistered Notes and any other required information should
be listed on a separate signed schedule which is attached to this Letter of
Transmittal.
7
<PAGE>
4. PARTIAL TENDERS AND WITHDRAWAL RIGHTS. Tenders of Unregistered Notes will
be accepted only in integral multiples of $1,000. If less than all the
Unregistered Notes evidenced by any certificate submitted are to be tendered,
fill in the principal amount of Unregistered Notes which are to be tendered in
the box entitled "Principal Amount of Unregistered Notes Tendered." In such
case, new certificate(s) for the remainder of the Unregistered Notes that were
evidenced by your old certificate(s) will only be sent to the holder of the
Unregistered Notes, promptly after the Expiration Date. All Unregistered 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 Unregistered 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 Unregistered Notes to be
withdrawn, the aggregate principal amount of Unregistered Notes to be withdrawn,
and (if certificates for Unregistered Notes have been tendered) the name of the
registered holder of the Unregistered Notes as set forth on the certificate for
the Unregistered Notes, if different from that of the person who tendered such
Unregistered Notes. If certificates for the Unregistered Notes have been
delivered or otherwise identified to the Exchange Agent, then prior to the
physical release of such certificates for the Unregistered Notes, the tendering
holder must submit the serial numbers shown on the particular certificates for
the Unregistered Notes to be withdrawn and the signature on the notice of
withdrawal must be guaranteed by an Eligible Institution, except in the case of
Unregistered Notes tendered for the account of an Eligible Institution. If
Unregistered Notes have been tendered pursuant to the procedures for book-entry
transfer set forth in the Prospectus under "The Exchange Offer--Procedures for
Tendering Unregistered Notes," the notice of withdrawal must specify the name
and number of the account at DTC to be credited with the withdrawal of
Unregistered 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 Unregistered Notes may not be rescinded.
Unregistered 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 Unregistered
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 Unregistered 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
Unregistered 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.
If any Unregistered 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 Unregistered 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
Unregistered Notes listed and transmitted hereby, no endorsement(s) of
certificate(s) or separate bond power(s) are required unless Registered 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 Unregistered 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 Unregistered Notes may require in
accordance with the restrictions on transfer applicable to the Unregistered
Notes. Signatures on such certificates or bond powers must be guaranteed by an
Eligible Institution.
8
<PAGE>
6. SPECIAL ISSUANCE AND DELIVERY INSTRUCTIONS. If Registered Notes are to be
issued in the name of a person other than the signer of this Letter of
Transmittal, or if Registered 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 Unregistered 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 Unregistered 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 Unregistered
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 Unregistered 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 Unregistered 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 to a $50 penalty. In
addition, payments to such holders or other payees with respect to Unregistered
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 identi-fication number) of the registered owner of
the Unregistered Notes or of the last transferee appearing on the transfers
attached to, or endorsed on, the Unregistered Notes. If the Unregistered 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.
9
<PAGE>
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 Unregistered Notes, by
execution of this Letter of Transmittal, shall waive any right to receive notice
of the acceptance of Unregistered 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
Unregistered 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 Unregistered 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 Unregistered Notes for
exchange will not be obligated to pay any transfer taxes in connection
therewith. If, however, Registered Notes are to be delivered to, or are to be
issued in the name of, any person other than the registered holder of the
Unregistered Notes tendered, or if a transfer tax is imposed for any reason
other than the exchange of Unregistered 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.
10
<PAGE>
TO BE COMPLETED BY ALL TENDERING HOLDERS
(SEE INSTRUCTION 9)
PAYER'S NAME: THE BANK OF NEW YORK
<TABLE>
<C> <S> <C>
- ---------------------------------------------------------------------------------------------------
SUBSTITUTE Part 1--PLEASE PROVIDE YOUR TIN TIN:
FORM W-9 IN THE BOX AT RIGHT AND CERTIFY Social Security Number or
Department of the Treasury BY SIGNING AND DATING BELOW. Employer Identification Number
Internal Revenue Service
-----------------------------------------------------------------
Payer's Request for Taxpayer Part 2--TIN Applied For / /
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.
--------------------------------------------------------------------------------------------------
</TABLE>
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 _____________________________
----------------------------------------------------------------------------
11
<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 (1)
certificates for the 10 1/4% Series A Senior Secured Notes due 2004 (the
"Unregistered Notes") of the Company (as defined below) are not immediately
available, (2) Unregistered 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 , 1999, or such later date as the Company may
extend the Exchange Offer (the "Expiration Date") or (3) 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 Unregistered Notes" in the Prospectus
(as defined below). In addition, in order to utilize the guaranteed delivery
procedure to tender Unregistered Notes pursuant to the Exchange Offer, a
completed, signed and dated letter of transmittal relating to the Unregistered
Notes (or facsimile thereof) must also be received by the Exchange Agent on or
prior to the Expiration Date.
THE EXCHANGE AGENT FOR THE EXCHANGE OFFER IS:
THE BANK OF NEW YORK
<TABLE>
<CAPTION>
BY REGISTERED OR CERTIFIED MAIL: FACSIMILE TRANSMISSIONS:
<S> <C>
(Eligible Institutions Only)
The Bank of New York
101 Barclay Street, 7E (212) 815-4699
New York, New York 10286
Reorganization Section
Attention:
BY HAND OR OVERNIGHT DELIVERY: TO CONFIRM BY TELEPHONE
OR FOR INFORMATION CALL:
The Bank of New York
101 Barclay Street (212) 815-4997
Corporate Trust Services Window
Ground Level
Reorganization Section
Attention:
</TABLE>
------------------------
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 Unregistered Notes set
forth below pursuant to the guaranteed delivery procedures set forth in the
Prospectus under the caption "The Exchange Offer-- Procedures for Tendering
Unregistered Notes."
<TABLE>
<S> <C>
Name(s) of Registered
Aggregate Principal Amount Tendered: Holder(s): ----------------------------------
$______________________*
---------------------------------------------
</TABLE>
Certificate No(s) (if available):
- --------------------------------------------------------------
- --------------------------------------------------------------------------------
$
- --------------------------------------------------------------------------------
Total Principal Amount Represented by Unregistered Notes Certificate(s))
If Unregistered 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
<TABLE>
<S> <C>
X -------------------------------------------
---------------------------------------------
X -------------------------------------------
---------------------------------------------
Signature(s) of Owner(s) or Authorized
Signatory Date
Area Code and Telephone
Number: ------------------------------------------------------------------------------------
</TABLE>
Must be signed by the holder(s) of the Unregistered Notes as their name(s)
appear(s) on certificates for the Unregistered 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.
2
<PAGE>
PLEASE PRINT NAME(S) AND ADDRESS(ES)
<TABLE>
<S> <C>
Name(s):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
Capacity:
-----------------------------------------------------------------------------
Address(es):
-----------------------------------------------------------------------------
-----------------------------------------------------------------------------
</TABLE>
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): (1) a bank; (2) a
broker, dealer, municipal securities broker, government securities broker or
government securities 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 (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 Unregistered Notes tendered hereby in proper form for transfer, or
confirmation of the book-entry transfer of such Unregistered 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 Unregistered 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.
<TABLE>
<S> <C>
- --------------------------------------------- ---------------------------------------------
Name of Firm (Please Type or Print) Authorized Signature
- --------------------------------------------- ---------------------------------------------
Address Title
- --------------------------------------------- ---------------------------------------------
Zip Code Area Code and Telephone Number
Date: ---------------------------------------
</TABLE>
NOTE: DO NOT SEND CERTIFICATES FOR UNREGISTERED NOTES WITH THIS FORM.
CERTIFICATES FOR UNREGISTERED NOTES SHOULD ONLY BE SENT WITH YOUR LETTER OF
TRANSMITTAL.
3
<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, OR SUCH LATER DATE AS THE COMPANY (AS
DEFINED HEREIN) MAY EXTEND THE EXCHANGE OFFER (THE "EXPIRATION DATE").
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 "Registered Notes") for all of its outstanding 10 1/4% Series A
Senior Secured Notes due 2004 (the "Unregistered Notes").
This will instruct you, the registered holder and/or participant in the
Depository Trust Company's clearance and settlement program, as to the action to
be taken by you relating to the Exchange Offer with respect to the Unregistered
Notes held by you for the account of the undersigned.
The aggregate face amount of Unregistered 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):
<TABLE>
<S> <C>
/ / To TENDER the Unregistered Notes held by you for the account of the
undersigned (INSERT PRINCIPAL AMOUNT OF UNREGISTERED NOTES TO BE TENDERED IF
LESS THAN ALL): $
/ / NOT to TENDER any Unregistered Notes held by you for the account of the
undersigned.
</TABLE>
If the undersigned instructs you to tender the Unregistered 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 (1) the
undersigned is not an "affiliate" of the Company, (2) any Registered Notes to be
received by the undersigned are being acquired in the ordinary course of its
business, (3) 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 Registered Notes to be
received in the Exchange Offer, and (4) if the undersigned is not a
broker-dealer, the undersigned is not engaged in, and does not intend to engage
in, a distribution (within
<PAGE>
the meaning of the Securities Act) of such Registered 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 Unregistered Notes to be exchanged in the
Exchange Offer. By tendering Unregistered Notes pursuant to the Exchange Offer,
a holder of Unregistered 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 Unregistered 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 Registered 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
- --------------------------------------------------------------------------------
2
