<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON APRIL 23, 1998
REGISTRATION NO. 333-
================================================================================
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
THE DELICIOUS FROOKIE COMPANY, INC.*
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
<TABLE>
<S> <C> <C>
DELAWARE 5149 06-1255882
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NUMBER)
</TABLE>
2070 MAPLE STREET
DES PLAINES, ILLINOIS 60018
(847) 699-3200
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------
MICHAEL J. KIRBY
CHIEF EXECUTIVE OFFICER
THE DELICIOUS FROOKIE COMPANY, INC.
2070 MAPLE STREET
DES PLAINES, ILLINOIS 60018
(847) 699-3200
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
------------------------
COPIES TO:
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<S> <C>
STEVEN WOLOSKY, ESQ. DAVID ALAN MILLER, ESQ.
JEFFREY S. SPINDLER, ESQ. PETER M. ZIEMBA, ESQ.
OLSHAN GRUNDMAN FROME & ROSENZWEIG LLP GRAUBARD MOLLEN & MILLER
505 PARK AVENUE 600 THIRD AVENUE
NEW YORK, NEW YORK 10022 NEW YORK, NEW YORK 10016
(212) 753-7200 (212) 818-8800
</TABLE>
------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
------------------------
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If this form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]
------------------------
CALCULATION OF REGISTRATION FEE
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PROPOSED PROPOSED MAXIMUM
TITLE OF EACH CLASS OF SECURITIES AMOUNT TO BE MAXIMUM OFFERING AGGREGATE OFFERING AMOUNT OF
TO BE REGISTERED REGISTERED PRICE PER SHARE PRICE REGISTRATION FEE
- ------------------------------------------------ ----------------- -------------------- -------------------- --------------------
<S> <C> <C> <C> <C>
Common Stock, $0.01 par value ("Common
Stock")(1).................................... 4,025,000 $6.50(2) $26,162,500.00(2) $7,717.94
- ---------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant to purchase Common
Stock......................................... 350,000 $.001 $350.00 (3)
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock underlying Representative's
Warrant(4).................................... 350,000 $7.80 $2,730,000.00 $805.35
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock(5)................................. 1,084,000 $6.50(2) $7,046,000.00(2) $2,078.57
- ---------------------------------------------------------------------------------------------------------------------------------
Common Stock(6)(7).............................. 1,000,000 $6.50(2) $6,500,000.00(2) $1,917.50
- ---------------------------------------------------------------------------------------------------------------------------------
Total........................................... $12,519.36
=================================================================================================================================
</TABLE>
(1) Includes 400,000 shares to be sold by certain selling stockholders and up to
525,000 shares of Common Stock to be sold upon exercise of the Underwriters'
over-allotment option, of which up to 400,000 shares may be sold by the
Company and up to 125,000 shares may be sold by certain selling
stockholders.
(2) Estimated solely for purposes of calculating the registration fee pursuant
to Rule 457(o) under the Securities Act of 1933, as amended.
(3) No registration fee required pursuant to Rule 457(g).
(4) Pursuant to Rule 416, there are also being registered such additional
securities as may be required for issuance pursuant to the anti-dilution
provisions of the Representative's Warrant.
(5) Shares of Common Stock registered for resale by certain selling stockholders
from time to time and not as part of the underwritten offering.
(6) Shares of Common Stock underlying options (the "Options") to purchase
currently issued and outstanding shares of Common Stock held by certain
former principal stockholders of the Company.
(7) Pursuant to Rule 416, there are also being registered such additional
securities as may be required for sale pursuant to the anti-dilution
provisions of the Options.
------------------------
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, AS AMENDED, OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(a), MAY DETERMINE.
- ---------------
* The current name of the Registrant is The Delicious Frookie Company, Inc. The
Registrant intends to change its name to DFS Brands, Inc. after the filing of
this Registration Statement and prior to the effective date hereof.
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<PAGE> 2
EXPLANATORY NOTE
This Registration Statement contains two prospectuses.
The first prospectus is to be used in connection with the underwritten
public offering of (i) 3,100,000 shares of the Registrant's Common Stock to be
sold by the Registrant and (ii) 400,000 shares of the Registrant's Common Stock
to be sold by certain Selling Stockholders, as well as 525,000 additional shares
that may be sold upon exercise of the Underwriters' over-allotment option (of
which up to 400,000 shares may be sold by the Company and up to 125,000 shares
may be sold by such Selling Stockholders).
The second prospectus is to be used in connection with the sale from time
to time by certain securityholders of the Company of 2,084,000 shares of the
Registrant's Common Stock. Such second prospectus will consist of (i) the cover
page and inside cover page immediately following the first prospectus, (ii)
pages 2 through 48 of the first prospectus (other than the legend on page 2,
"The Offering" subsection of the "Prospectus Summary" and the sections entitled
"Use of Proceeds," "Selling Stockholders," "Concurrent Offering" and
"Underwriting") and pages F-1 through F-39 of the first prospectus, and (iii)
pages A-1 through A-5 and the back cover page, which immediately follow the
inside cover page of the second prospectus.
<PAGE> 3
INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A
REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE
SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY
OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT BECOMES
EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR THE
SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE SECURITIES
IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE UNLAWFUL PRIOR
TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF ANY SUCH STATE.
SUBJECT TO COMPLETION, DATED APRIL 23, 1998
3,500,000 SHARES
THE DELICIOUS FROOKIE COMPANY, INC.
[LOGO]
COMMON STOCK
Of the 3,500,000 shares of common stock, $.01 par value per share (the
"Common Stock"), of The Delicious Frookie Company, Inc., a Delaware corporation
(the "Company"), offered hereby, 3,100,000 shares are being sold by the Company
and 400,000 shares are being sold by certain selling stockholders of the Company
(the "Selling Stockholders"). The Company will not receive any proceeds from the
sale of shares by the Selling Stockholders. See "Selling Stockholders."
Prior to this offering, there has been no public market for the Common
Stock. It is currently estimated that the initial public offering price of the
Common Stock will be between $5.50 and $6.50 per share. See "Underwriting" for a
discussion of the factors to be considered in determining the initial public
offering price of the shares. The Company has applied for quotation of the
Common Stock on the Nasdaq SmallCap Market under the symbol "DFSB" and has
applied for listing of the Common Stock on the Chicago Stock Exchange under the
symbol "DFB".
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING
ON PAGE 7 HEREOF.
------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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=========================================================================================================================
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
- -------------------------------------------------------------------------------------------------------------------------
Total(3)................. $ $ $ $
=========================================================================================================================
</TABLE>
(1) The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, including liabilities under the
Securities Act of 1933, as amended. Does not reflect additional compensation
to Gaines, Berland Inc. (the "Representative") in the form of (i) a
non-accountable expense allowance of $630,000 (at an assumed initial public
offering price of $6.00 per share) to be paid on a pro rata basis by the
Company and the Selling Stockholders ($724,500 if the over-allotment option
is exercised in full) and (ii) warrants to purchase an aggregate of 350,000
shares of Common Stock at 120% of the Price to Public for four years
beginning one year after the effective date of the Registration Statement of
which this Prospectus is a part. For additional information with respect to
the arrangements between the Company, the Selling Stockholders and the
Representative, see "Underwriting."
(2) Before deducting offering expenses payable by the Company and the Selling
Stockholders, estimated to be $ and $ , respectively.
(3) The Company and the Selling Stockholders have granted the Underwriters a
30-day option to purchase up to an additional 525,000 shares of Common Stock
(400,000 shares by the Company and 125,000 shares by the Selling
Stockholders in the aggregate on a pro rata basis) solely to cover
over-allotments, if any, on the same terms and conditions as the shares
offered hereby. If such option is exercised in full, the total Price to
Public, Underwriting Discounts and Commissions, Proceeds to Company and
Proceeds to Selling Stockholders will be $ , $ ,
$ and $ , respectively. See "Underwriting."
------------------------
The shares of Common Stock are offered by the several Underwriters named
herein, subject to receipt and acceptance by them and subject to their right to
reject any order in whole or in part. It is expected that delivery of such
shares will be made at the offices of Gaines, Berland Inc., New York, New York,
on or about , 1998.
------------------------
GAINES, BERLAND INC.
The date of this Prospectus is , 1998
<PAGE> 4
[INSIDE COVER OF PROSPECTUS]
[This page contains photos of the Company's products]
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS THAT
STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK, INCLUDING
PURCHASES OF THE COMMON STOCK TO STABILIZE ITS MARKET PRICE, PURCHASES OF THE
COMMON STOCK TO COVER SOME OR ALL OF A SHORT POSITION IN THE COMMON STOCK
MAINTAINED BY THE UNDERWRITERS AND THE IMPOSITION OF PENALTY BIDS. FOR A
DESCRIPTION OF THESE ACTIVITIES, SEE "UNDERWRITING."
This Prospectus includes trademarks of entities other than the Company,
which have reserved all rights with respect to their respective trademarks.
2
<PAGE> 5
PROSPECTUS SUMMARY
The following summary should be read in conjunction with, and is qualified
in its entirety by, the more detailed information and financial statements,
including the notes thereto, appearing elsewhere in this Prospectus. All
references in this Prospectus to the term "Company" refer to The Delicious
Frookie Company, Inc. and its predecessors. Unless otherwise indicated, all
information contained in this Prospectus gives effect to the conversion of the
Company's Class B Common Stock into Class A Common Stock and the
reclassification of the Class A Common Stock as Common Stock on December 18,
1997. Where indicated, information contained in this Prospectus gives pro forma
effect ("Pro Forma") to the acquisition of Salerno Foods, L.L.C. ("Salerno") on
April 3, 1998. Certain industry information contained in this Prospectus is
based on information reported by Information Resources Inc. ("IRI"), a service
that provides the Company with cookie and cracker industry data. This IRI data
excludes retail sales through convenience stores and club stores and vending
sales. Investors should carefully consider the information set forth under "Risk
Factors" beginning on page 7.
THE COMPANY
The Delicious Frookie Company, Inc. develops, markets and sells cookies,
crackers and related food products under the Delicious(R), Salerno(R), Mama's(R)
and Frookie(R) labels, as well as licensed names including Skippy(R), Land O'
Lakes(R), Butterfinger(TM), Chiquita(TM), Heath(R), Chuck E. Cheese(R), Eskimo
Pie(R), Raisinets(TM) and Ringling Bros. and Barnum & Bailey(TM) ("Ringling
Bros."). Pro Forma, the Company is the seventh largest cookie company in the
United States based on retail sales for the 52 weeks ended December 28, 1997
according to IRI. The Company's product lines include more than 17 different
cookie, cracker and snack categories comprising more than 260 stock keeping
units ("SKUs"). These products are sold primarily in the United States to
independent direct-store delivery distributors for resale to supermarkets and
other retail outlets and through large wholesalers to natural food stores and
also directly to supermarkets and other retail outlets. For the year ended
December 31, 1997, the Company had Pro Forma net sales of approximately $70
million.
The Company was founded in 1989 originally to market the Frookie cookie
product, one of the first all-natural, low-fat cookies produced with fruit juice
sweeteners. Through the acquisition of Delicious Cookie Company, Inc.
("Delicious") in 1994, the Company broadened its product offering into three
lines: (i) high-quality, value priced snack products ("Value-Oriented"); (ii)
licensed and co-branded snack products ("Co-Branded"); and (iii) all-natural
snack products ("All-Natural"). All of the Company's products are produced by
independent food processors ("co-packers") using the Company's proprietary
specifications and formulations.
On April 3, 1998, the Company completed the purchase of substantially all
of the assets of Salerno for $3.5 million in cash, a $1.5 million promissory
note and the assumption of substantially all of the liabilities of Salerno (the
"Salerno Acquisition"). The purchase price is subject to certain post-closing
adjustments. Salerno's cookie, cracker and other snack products are targeted to
value-oriented customers and are regionally focused with sales concentrated in
supermarkets in the mid-western United States. Salerno was the tenth largest
cookie company in the United States based on retail sales for the 52 weeks ended
December 28, 1997 according to IRI.
TURNAROUND INITIATIVES
In recent periods, the Company has experienced declining product sales and
financial results. In response to these trends, during late 1997, the Company
began to implement turnaround initiatives, including hiring a new management
team, electing a new board of directors, repositioning core product lines and
raising new capital.
In August 1997, Michael J. Kirby, a seasoned executive with over 20 years
of diversified experience in the food industry, was hired to serve as the
Company's Chief Executive Officer. Upon joining, Mr. Kirby undertook an
evaluation of the Company and determined that its competitive strengths include:
(i) strong
3
<PAGE> 6
brand name recognition; (ii) well-established distributor relationships; (iii)
co-branding and licensing agreements; and (iv) unique product niches.
Under the leadership of Mr. Kirby, the Company has developed an operational
strategy designed to utilize the Company's core strengths and increase its
appeal to its existing broad customer base. This operational strategy is
intended to increase the Company's sales volume, improve its financial
performance and enhance its market position. The Company will seek to achieve
these objectives through the following strategies:
- Improve Margins. The Company is one of the largest wholesale purchasers
of cookies and crackers from co-packers in the United States. As a
result, the Company has recently been able to negotiate more favorable
pricing with some of its co-packers and believes there are additional
opportunities for it to lower its purchasing costs. The Company intends
to streamline its supplier base from over 20 co-packers to fewer than 10
during the next 12 months. Additionally, recent industry price increases
have given the Company the opportunity to raise prices on its products.
On March 1, 1998, the Company implemented its first price increases in
over two years on a majority of its products. The Company believes these
initiatives will lead to lower product costs and improved margins without
negatively impacting product volumes.
- Leverage Frookie Brand Name. The Frookie name is associated with
all-natural, high-quality, good tasting products. The Company intends to
leverage this brand equity, as well as the growing demand for all-natural
products, to further expand distribution and product sales. The Company
also plans to introduce additional healthy products that complement the
Frookie line, such as fruit bars, individual-sized fruit pies, energy
bars and wheat-free, sugar-free and organic products.
- Pursue Acquisitions. The cookie and cracker markets as well as the
natural food market is large and highly fragmented. Many of the companies
in these markets have strong positions and retail relationships. The
Company intends to pursue acquisitions of such companies that afford
operational synergies and complement or provide further opportunities to
use its existing brands or product lines. The Salerno Acquisition was the
first step in this strategy.
- Broaden Co-Branding Arrangements. Currently, the Company has licensed
several nationally recognized trademarks including Skippy, Land O' Lakes,
Butterfinger, Chiquita, Heath, Chuck E. Cheese, Eskimo Pie, Raisinets and
Ringling Bros. The Company intends to acquire additional licenses and
further expand its product offering under current co-branding
arrangements.
- Expand Non-Supermarket Sales. Approximately 32% of 1996 retail cookie
and cracker sales were through non-supermarket channels including mass
merchandisers, club stores, convenience stores and drug stores. Until
recently, the Company had targeted its distribution and sales primarily
to the traditional supermarket channel. However, with the addition of the
new management team, the Company has begun to expand its distribution to
these non-supermarket channels, such as the club store PriceCostco
("Costco"). The Company has developed, and continues to develop,
products, packaging and distribution tailored to these non-supermarket
channels.
- Renew Emphasis on Quality Control and Customer Service. Recently, the
Company instituted stricter quality controls and systems and hired new
management to improve its product quality standards and customer service.
INDUSTRY OPPORTUNITY
The cookie and cracker market is large and highly fragmented with over 200
companies as of December 31, 1997. According to IRI, the U.S. cookie and cracker
industry had 1997 retail sales of approximately $7.3 billion, with cookie sales
of $4.0 billion and cracker sales of $3.3 billion. While consumption per person
of cookies in the United States has declined, according to IRI, since 1992,
particular product categories, such as crackers and sugar-free, have grown at
rates of over 4% or more per year. Additionally, one of the Company's product
lines, All-Natural, is part of the natural products industry, which industry
experienced over 13% annual growth during each of 1994, 1995 and 1996 according
to Natural Foods
4
<PAGE> 7
Merchandiser. Sales within this industry reached $11.5 billion during 1996. The
Company believes this growth is being propelled by several factors, including
consumer trends toward healthier eating habits, the increasing awareness of the
link between diet and health, concern regarding food purity and safety, an aging
population and greater environmental awareness. The Company believes that
companies with strong brand name recognition, high-quality products and broad
distribution are positioned to increase market share in both of these markets.
The Company was incorporated under the laws of the State of Delaware in
1989. Its principal executive offices are located at 2070 Maple Street, Des
Plaines, Illinois 60018 and its telephone number is (847) 699-3200.
THE OFFERING
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<S> <C>
Common Stock offered by the Company......... 3,100,000 shares
Common Stock offered by the Selling
Stockholders.............................. 400,000 shares
Common Stock to be outstanding after
the offering.............................. 9,665,656 shares(1)
Use of proceeds............................. To repay certain outstanding indebtedness
and trade payables and for general corporate
purposes including acquisitions and working
capital. See "Use of Proceeds."
Risk factors................................ An investment in the Common Stock offered
hereby involves certain risks and immediate
substantial dilution. See "Risk Factors" and
"Dilution."
Proposed Nasdaq SmallCap Market symbol...... "DFSB"
Proposed Chicago Stock Exchange symbol...... "DFB"
</TABLE>
- ---------------
(1) All references in this Prospectus to the number of shares of Common Stock
outstanding do not include (i) 1,000,000 shares of Common Stock reserved for
issuance upon exercise of options that may be granted under the Company's
1995 Stock Option Plan, pursuant to which options to purchase 567,500 shares
of Common Stock have been granted; (ii) 1,250,000 shares of Common Stock
reserved for issuance upon exercise of options that may be granted under the
Company's 1989 Stock Option Plan, pursuant to which options to purchase
314,570 shares of Common Stock have been granted; (iii) 150,000 shares of
Common Stock reserved for issuance upon exercise of options that may be
granted under the Company's 1994 Formula Stock Option Plan, pursuant to
which options to purchase 98,000 shares of Common Stock have been granted;
(iv) 887,499 shares of Common Stock reserved for issuance upon exercise of
other outstanding options; (v) 380,375 shares of Common Stock reserved for
issuance upon exercise of outstanding common stock purchase warrants to
purchase such shares of Common Stock; (vi) 490,000 shares of Common Stock
reserved for issuance upon conversion of the 490,000 shares of Series A
Convertible Preferred Stock, $.01 par value per share ("Series A Preferred
Stock"), issued in exchange for the Company's outstanding 9% Subordinated
Convertible Notes (the "9% Notes"), aggregate principal amount $1,960,000,
on May , 1998; (vii) 400,000 shares of Common Stock to be sold by the
Company reserved for issuance upon exercise of the Underwriters'
over-allotment option; and (viii) 350,000 shares of Common Stock issuable
upon exercise of the Representative's Warrant.
5
<PAGE> 8
SUMMARY HISTORICAL AND PRO FORMA FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The following table sets forth certain historical and pro forma financial
data for the Company. The historical statement of operations data for the years
ended December 31, 1996 and 1997 and the balance sheet data as of December 31,
1996 and 1997 are derived from, and are qualified by reference to, the Company's
financial statements audited by Altschuler, Melvoin and Glasser LLP, independent
certified public accountants, included elsewhere in this Prospectus. The
statement of operations data for the year ended December 31, 1995 are derived
from, and are qualified by reference to, the Company's financial statements
audited by Cooper, Selvin & Strassberg, LLP, independent certified public
accountants, included elsewhere in this Prospectus. The statement of operations
data for the years ended December 31, 1993 and 1994 are derived from the
Company's audited financial statements not included in this Prospectus. The
historical results are not necessarily indicative of the results of operations
to be expected in the future. The financial data below should be read in
conjunction with all the historical and pro forma financial statements,
including the notes thereto, appearing elsewhere in this Prospectus and the
information under "Selected Historical Financial Data" and "Management's
Discussion and Analysis of Financial Condition and Results of Operations." The
pro forma information is not necessarily indicative of what the Company's
results of operations or financial condition would have been for the period or
the dates indicated.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
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PRO FORMA
1993 1994(1) 1995 1996 1997 1997
--------- --------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales....................... $ 15,856 $ 50,823 $ 52,722 $ 36,848 $ 30,665 $ 69,812
Gross profit.................... 5,152 13,242 10,469 7,011 5,472 16,206
Restructuring charge(2)......... -- -- -- -- 1,548 1,548
Income (loss) from operations... 697 296 (5,857) (493) (2,947) (3,766)
Net income (loss)............... 543 (493) (6,955) (898) (3,398) (5,333)
Earnings (loss) per share....... $ 0.13 $ (0.10) $ (1.29) $ (0.16) $ (0.58) $ (0.87)
Weighted average number of
common shares outstanding..... 4,174 4,810 5,408 5,628 5,867 6,147
</TABLE>
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).............................. $(4,363) $(10,626) $ 5,614
Total assets........................................... 6,487 19,249 23,289
Long-term debt......................................... 1,960 1,960 --
Stockholders' equity (deficit)......................... (4,788) (4,091) 14,109
</TABLE>
- ---------------
(1) In March 1994, the Company acquired all of the outstanding capital stock of
Delicious in a transaction accounted for as a purchase.
(2) Represents a restructuring charge recognized by the Company for the year
ended December 31, 1997 primarily consisting of the expensing of consulting
and non-competition agreements the Company entered into with former
executive officers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
(3) As adjusted to reflect (i) the Second Closing (as defined herein) of the
October Private Placement (as defined herein) on February 6, 1998 in which
the Company sold an aggregate of 280,000 shares of Common Stock for an
aggregate price of $840,000, (ii) the consummation of the Acquisition Loan
(as defined herein) on March 30, 1998 pursuant to which the Company borrowed
$500,000, which loan bears interest at the rate of 12% per annum and (iii)
the Salerno Acquisition. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations."
(4) As adjusted to reflect (i) the exchange of the 9% Notes for 490,000 shares
of Series A Preferred Stock on May , 1998 and (ii) the receipt by the
Company of estimated net proceeds from the sale of 3,100,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$6.00 per share and the application of the estimated net proceeds therefrom.
See "Use of Proceeds" and "Capitalization."
6
<PAGE> 9
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
The discussion in this Prospectus contains forward-looking statements that
involve risks and uncertainties. The Company's actual results could differ
significantly from those discussed herein. Factors that could cause or
contribute to such differences include, but are not limited to, those discussed
in "Prospectus Summary," "Risk Factors," "Management's Discussion and Analysis
of Financial Condition and Results of Operations" and "Business," as well as
those discussed elsewhere in this Prospectus.
RISK FACTORS
An investment in the Common Stock offered hereby involves certain risks.
Prospective investors should carefully consider the risk factors set forth
below, as well as the other information set forth in this Prospectus, prior to
making any investment in the Common Stock.
STOCKHOLDERS' DEFICIT; HISTORICAL AND PROJECTED FUTURE LOSSES
At December 31, 1997, the Company had a Pro Forma stockholders' deficit of
$4.1 million, which includes $8.4 million of goodwill. Since 1994, the Company
has not operated profitably and incurred a Pro Forma net loss of $5.3 million
for the year ended December 31, 1997. The Company expects to incur additional
net losses through 1998. There can be no assurance that profitability will ever
be achieved or, if it is achieved, that it can be sustained or increased on a
quarterly or annual basis in the future. Future operating results will depend on
many factors, including the demand for the Company's products, the level of
product and price competition, the Company's success in expanding its
distribution channels, the ability of the Company to develop and market products
and to control costs and general economic conditions.
COMPETITION
The marketing and sale of cookies, crackers and related snack foods is
highly competitive. In particular, the Company competes with numerous
well-established companies such as Nabisco Biscuit Co., Keebler Foods Company,
Pepperidge Farm, Inc., President Baking Co., Archway Cookies, Inc. and Mother's
Cake & Cookies, each of which has substantially greater product development,
marketing, financial and human resources than the Company, as well as stronger
relationships with local, regional, private label and generic manufacturers.
Many of the Company's competitors have developed nationally and regionally
recognized brand names. In addition, competitors may succeed in developing new
or enhanced products that are more popular than any that may be sold or
developed by the Company, and competitors may also be more successful than the
Company in marketing and selling their respective products, obtaining premium
shelf space and entering into arrangements with independent distributors. No
assurance can be given that the Company will be able to compete successfully
against current and future competitors, maintain its current market share, or
achieve a greater market share than it currently possesses. See
"Business -- Competition."
INTEGRATION OF ACQUISITIONS
On April 3, 1998, the Company completed the Salerno Acquisition. The
Company's future success is dependent upon its ability to integrate Salerno and
its brands effectively into the Company's existing operations. There can be no
assurance as to the timing or number of marketing opportunities or amount of
cost savings that may be realized as the result of the integration process.
Further, there can be no assurance that the Company will not experience
difficulties with customers, personnel or other parties as a result of this and
future acquisitions, that these acquisitions will enhance the Company's
competitive position and business prospects or that the combination of the
Company and these acquisitions will be successful. See "Business -- Turnaround
Initiatives."
ACQUISITION STRATEGY
The Company's acquisition strategy is based on identifying and acquiring
businesses with products and/or brands that complement the Company's existing
product positioning. The Company will evaluate specific acquisition
opportunities based on prevailing market and economic conditions. There can be
no assurance that the Company will be able to successfully identify suitable
acquisition candidates, obtain necessary financing, complete acquisitions or
integrate acquired businesses into its operations. The outstanding indebtedness
under
7
<PAGE> 10
the Company's bank facility is secured by a first lien on substantially all of
the assets of the Company. Such lien may make it more difficult for the Company
to obtain additional financing. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations." Acquisitions also involve
special risks, including risks associated with unanticipated problems,
liabilities and contingencies, diversion of management attention and possible
adverse effects on earnings resulting from increased goodwill amortization,
increased interest costs, the issuance of additional securities and difficulties
related to the integration of the acquired business. The Company may encounter
increased competition for acquisitions in the future, which could result in
acquisition prices the Company does not consider acceptable. The Company is
unable to predict whether or when any prospective acquisition candidate will
become available or the likelihood that any acquisition will be completed. See
"Business -- Turnaround Initiatives."
RELIANCE ON MAJOR DISTRIBUTORS
The Company relies on more than 30 third party distributors to sell and
deliver certain of its products to supermarkets, mass merchandisers, club
stores, drug stores and convenience stores. While the Company currently enjoys
satisfactory relationships with its distributors, no assurance can be given that
such relationships will continue on terms favorable to the Company, or that if
the Company needed to change any of its distributors it would be able to do so
on a timely or effective basis. For the year ended December 31, 1997, sales to
the Company's largest distributor, Milwaukee Biscuit Company, accounted for
approximately 13% of the Company's Pro Forma net sales. The Company anticipates
that this distributor will continue to serve as a major distributor of the
Company's products in the foreseeable future. However, the loss of this
distributor could have a material adverse effect on the business, results of
operations and financial condition of the Company. See "Business -- Marketing,
Distribution and Sales."
RELIANCE ON OUTSIDE PRODUCT MANUFACTURING
The Company relies exclusively on outside manufacturers to produce and
deliver its products to its distributors. For the year ended December 31, 1997,
purchases from the Company's four largest suppliers, Mrs. Alison's Cookie
Company, Sugar Kake Cookies, Inc., Pate's Bakery LLC ("Pate's") and The Wortz
Company, accounted for approximately 13.7%, 12.3%, 10.5% and 10.4%,
respectively, of the Company's Pro Forma purchases. The Company does not have
any long-term contracts with its manufacturers. While the Company currently
enjoys satisfactory relationships with its outside manufacturers, no assurance
can be given that such relationships will continue on terms favorable to the
Company, or that if the Company needed to change manufacturers, it would be able
to do so on a timely or effective basis. Additionally, production problems
encountered by these outside manufacturers could have a material adverse effect
on the business, results of operations and financial condition of the Company.
Any such production problems could have a greater adverse effect on the Company
as it streamlines its supplier base. See "Business -- Manufacturing."
INCREASES IN PRICES OF MAIN INGREDIENTS AND OTHER MATERIALS
The main ingredients that the Company's co-packers use to manufacture the
Company's products are flour, sugar, chocolate, shortening and milk. The
Company's co-packers also use paper products, such as corrugated cardboard, as
well as films and plastics, to package its products. The prices of these
materials have been, and the Company expects them to continue to be, subject to
significant volatility, which could result in co-packers increasing the prices
that the Company pays for its products. The Company may not be able to pass
price increases on to its customers.
DEPENDENCE UPON KEY PERSONNEL
The Company is dependent on the experience, abilities and continued
services of Michael J. Kirby, who became the Company's Chief Executive Officer
and President on August 13, 1997, and Jeffry W. Weiner, the Company's Chief
Financial Officer. Mr. Kirby was not involved in the business of the Company
prior to August 13, 1997. Messrs. Kirby and Weiner are employed by the Company
under employment agreements
8
<PAGE> 11
that expire on December 31, 2001 and on December 31, 1999, respectively. The
loss of the services of Messrs. Kirby or Weiner could have a material adverse
effect on the Company. The Company has key-person life insurance policies on the
life of each of Mr. Kirby and Mr. Weiner in the amount of $1 million. See
"Management." The Company's ability to continue to develop and market its
products also depends, in large part, on its ability to attract and retain
qualified personnel. Competition for such personnel is intense and no assurance
can be given that the Company will be able to retain and attract such personnel.
COLLECTION AND CREDIT RISKS
The Company's Pro Forma net trade accounts receivable at December 31, 1997
were $4.8 million. Of the Company's Pro Forma gross accounts receivable at
December 31, 1997, approximately $2.2 million, or 36%, were due from a total of
10 customers. Delays in collection or uncollectability of accounts receivable
could have a material adverse effect on the Company's liquidity and working
capital position. For the year ended December 31, 1997, substantially all of the
Company's sales were made on standard credit terms. The Company generally offers
its customers a 1% discount if invoices are paid in full within 10 days of
delivery; otherwise, invoices are payable in full within 20 to 30 days of
delivery. In the future, the Company may offer open account terms to additional
customers, which will subject the Company to increased credit risks and could
require the Company to increase its allowance for doubtful accounts. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
ALL NET PROCEEDS ALLOCATED TO REPAY DEBT AND FOR GENERAL CORPORATE PURPOSES
Approximately 75.3% ($12.2 million) of the net proceeds to be received by
the Company in this offering have been allocated to the repayment of
indebtedness and trade payables. In addition, the balance of approximately 24.7%
($4.0 million) of the net proceeds received by the Company in this offering have
been allocated to general corporate purposes including acquisitions and working
capital. The proceeds allocated to general corporate purposes may be utilized in
the discretion of the Board of Directors of the Company. See "Use of Proceeds."
EXPIRATION OF UNION CONTRACTS
Certain of the Company's employees are represented by the Bakery, Cracker,
Pie and Yeast Wagon Driver's Union, Local 734 International Brotherhood of
Teamsters of America ("Teamsters Local 734"). The Company's collective
bargaining agreements with this union expired on January 31, 1998. The Company
has commenced formal negotiations with regard to new collective bargaining
agreements. There can be no assurance, however, that the Company will be able to
enter into new collective bargaining agreements upon terms and conditions
acceptable to the Company. A prolonged slowdown, work stoppage or strike could
have a material adverse effect on the business, results of operations and
financial condition of the Company. See "Business -- Employees."
GOVERNMENT REGULATION
The Company's products are subject to federal regulations administered by
the United States Food and Drug Administration (the "FDA"). The FDA enforces the
statutory prohibitions against misbranded and adulterated foods, establishes
ingredients and/or manufacturing procedures for certain standard foods,
establishes standards of identity for food, and determines the safety of food
substances. Although the Company believes that its recipes and the facilities
and practices used by its manufacturers and distributors are sufficient to
maintain compliance with applicable laws and regulations, there can be no
assurance that the Company, its manufacturers and distributors will continue to
be able to comply with such laws and regulations in the future or that new laws
and regulations will not be introduced that could result in possible compliance
costs, seizures, confiscation or recall, or monetary fines, any of which would
prevent or inhibit the development, distribution and sale of the Company's
products. See "Business -- Government Regulation."
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<PAGE> 12
PRODUCT LIABILITY
As a marketer of food products, the Company is subject to a risk of claims
for product liability, including personal injury claims. The Company maintains
product liability insurance and generally requires that its manufacturers and
distributors maintain product liability insurance with the Company as a
co-insured. The Company maintains a general liability insurance policy that is
subject to a $1 million per occurrence limit with a $2 million aggregate limit
and a $6 million umbrella liability policy. There is no assurance that such
coverage will be sufficient to insure against claims which may be brought
against the Company, or that the Company will be able to maintain such insurance
or obtain additional insurance covering existing or new products or that an
adequate level of coverage will be available in the future at a reasonable cost.
A partially insured or completely uninsured successful claim against the Company
could have a material adverse effect on the business, results of operations and
financial condition of the Company.
PENDING LITIGATION
An action was commenced against the Company and an unaffiliated third party
by a former distributor of the Company's products alleging a breach of contract.
The plaintiff seeks damages in the amount of $2.5 million and punitive damages
in the amount of $1 million. There can be no assurance that this litigation will
not discourage companies from distributing the Company's products. An
unfavorable decision could have a material adverse effect on the business,
results of operations and financial condition of the Company. See
"Business -- Legal Proceedings."
CHANGING CONSUMER PREFERENCES
The Company is subject to changing consumer preferences for the cookies,
crackers and related food products it markets. A significant shift in consumer
demand away from such products would have a material adverse effect on the
business, results of operations and financial condition of the Company.
INFRINGEMENT OF INTELLECTUAL PROPERTY RIGHTS
While the Company intends to enforce its trademark and licensing rights
against infringement by third parties, no assurance can be given that the
trademarks and licenses or the Company's trademark and license rights will be
enforceable or provide the Company with meaningful protection from competitors.
Even if a competitor were to infringe on trademarks or licenses held by the
Company, enforcing the Company's rights would likely be costly and would divert
funds and resources that could otherwise be used to operate the Company. No
assurance can be given that the Company would be successful in enforcing such
rights. Although the Company believes it is not infringing on intellectual
property rights of third parties, no assurance can be made that the Company's
products do not infringe on the patent or intellectual property rights of a
third party. See "Business -- Intellectual Property."
ABSENCE OF PUBLIC MARKET; DETERMINATION OF OFFERING PRICE; POSSIBLE VOLATILITY
OF STOCK PRICE
Prior to this offering, there has been no public market for the Common
Stock and there can be no assurance that an active trading market will develop
in the Common Stock or, if developed, be sustained after this offering. The
initial public offering price of the shares of Common Stock offered hereby will
be determined by negotiation between the Company, the Selling Stockholders and
the Representative and will not necessarily relate to or reflect the Company's
assets or book value, results of operations or any other established criteria of
value. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price of the shares of Common Stock
offered hereby. The market price of the Common Stock could fluctuate
substantially after this offering due to a variety of factors, including
quarterly operating results of the Company or other pre-packaged snack food
companies, changes in general conditions in the economy, the financial markets
or the pre-packaged snack food industry, changes in financial analysts'
recommendations or earnings estimates, natural disasters or other developments
affecting the Company or its competitors. In addition, in recent years the stock
market has experienced wide price and volume fluctuations. This volatility has
had a significant effect on the market prices of securities issued by
10
<PAGE> 13
many companies for reasons unrelated to the operating performance of these
companies. These market fluctuations also may adversely affect the market price
of the Common Stock.
POTENTIALLY LIMITED TRADING MARKET
While the Company will satisfy the Nasdaq SmallCap Market listing and
maintenance standards upon completion of the offering, the failure to meet the
maintenance criteria in the future may result in the Common Stock no longer
being eligible for quotation on the Nasdaq SmallCap Market and trading, if any,
of the Common Stock would thereafter be conducted in the over-the-counter
market. Under recently implemented Nasdaq rules, in order for the Company to
remain eligible for listing on the Nasdaq SmallCap Market, among other things,
(i) the Company's Common Stock must have a minimum bid price of $1.00 and (ii)
the Company must have minimum tangible net assets of $2 million or a market
capitalization of $35 million or net income of $500,000 in two of the three
prior years. As a result of such ineligibility for quotations, an investor may
find it more difficult to dispose of, or to obtain accurate quotations as to the
market value of, the Common Stock. Furthermore, the regulations of the
Securities and Exchange Commission ("Commission") promulgated under the
Securities Exchange Act of 1934, as amended ("Exchange Act"), require additional
disclosure relating to the market for penny stocks. Commission regulations
generally define a penny stock to be an equity security that has a market price
of less than $5.00 per share, subject to certain exceptions. A disclosure
schedule explaining the penny stock market and the risks associated therewith is
required to be delivered to a purchaser and various sales practice requirements
are imposed on broker-dealers who sell penny stocks to persons other than
established customers and accredited investors (generally institutions). In
addition, the broker-dealer must provide the customer with current bid and offer
quotations for the penny stock, the compensation of the broker-dealer and its
salesperson in the transaction and monthly account statements showing the market
value of each penny stock held in the customer's account. If the Company's
securities become subject to the regulations applicable to penny stocks, the
market liquidity for the Company's securities could be severely affected. In
such an event, the regulations on penny stock could limit the ability of
broker-dealers to sell the Company's securities and thus the ability of
purchasers of the Company's securities to sell their securities in the secondary
market.
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of the offering, the Company will have 9,665,656 shares
of Common Stock outstanding. All of the 3,500,000 shares of Common Stock offered
hereby will be freely tradable unless acquired by "affiliates" of the Company as
defined in Rule 144 promulgated under the Securities Act of 1933, as amended
(the "Securities Act"). The remaining 6,165,656 (6,040,656 if the Underwriters'
over-allotment option is exercised in full) shares are "restricted" securities
as defined in Rule 144 and may not be sold unless they are registered under the
Securities Act or are sold pursuant to an exemption from registration including
an exemption contained in Rule 144. Of these restricted shares, 4,071,656 shares
are currently eligible for sale under Rule 144, subject however, to any
applicable requirements of Rule 144, and 125,000 of these shares may be sold in
this offering by the Selling Stockholders if the Underwriters' over-allotment
option is exercised in full. 2,084,000 of the restricted shares not currently
available for resale under Rule 144 have been registered for resale in the
Concurrent Offering (as defined herein) under the registration statement of
which this Prospectus is a part. Each of the directors and officers of the
Company and beneficial owners of more than 5,000 shares of Common Stock, who
hold in the aggregate shares of Common Stock, has agreed not to
offer, sell or otherwise dispose of any shares of Common Stock without the prior
consent of the Representative until 12 months after the date of this Prospectus
(and various longer periods for two principal stockholders of the Company).
Sales of substantial amounts of Common Stock, or the perception that such sales
could occur, may adversely affect the market price of the Common Stock
prevailing from time to time. See "Shares Eligible for Future Sale."
IMMEDIATE SUBSTANTIAL DILUTION
The purchasers of the shares of Common Stock offered hereby will incur
immediate, substantial dilution of approximately 94% of their investment in the
Common Stock because the net tangible book value of the
11
<PAGE> 14
Common Stock after the offering will be approximately $.36 per share as compared
with the assumed initial public offering price of $6.00 per share. See
"Dilution."
NO DIVIDENDS ON COMMON STOCK ANTICIPATED; RESTRICTIONS ON PAYMENT OF DIVIDENDS
The Company does not intend to pay cash dividends on its Common Stock in
the foreseeable future. The Company instead intends to retain any earnings to
support the growth of the Company. Any future cash dividends on the Common Stock
will depend on the Company's future earnings, capital requirements, financial
condition and other factors deemed relevant by the Company's Board of Directors.
In addition, under the terms of the Company's financing agreement, as amended,
with U.S. Bancorp Republic Commercial Finance, Inc. ("Republic"), the Company
may not pay dividends without Republic's prior written consent. Lastly, the
holders of shares of Series A Preferred Stock are entitled to receive in
preference and prior to the Common Stock, semi-annual dividends of five percent
of the aggregate stated value of the Series A Preferred Stock. Any accrued but
unpaid dividends on the Series A Preferred Stock must be paid by the Company
prior to paying a dividend on the Common Stock. See "Dividend Policy" and
"Description of Capital Stock."
EFFECT OF OUTSTANDING OPTIONS, WARRANTS AND CONVERTIBLE SECURITIES
After the offering, the Company will have reserved 3,087,944 shares of
Common Stock for issuance upon the exercise of outstanding options and warrants
and conversion of outstanding convertible securities. The existence of the
outstanding options, warrants and convertible securities may hinder future
financings by the Company. In addition, the exercise of any such options or
warrants or the conversion of any such convertible securities in the future
could dilute the net tangible book value per share of the Common Stock. Further,
the holders of such options, warrants and convertible securities may exercise or
convert them at a time when the Company would otherwise be able to obtain
additional equity capital on terms more favorable to the Company. See
"Management -- Stock Option Plans" and "Description of Capital Stock."
AUTHORIZATION AND DISCRETIONARY ISSUANCE OF PREFERRED STOCK
The Company is authorized to issue up to 1,000,000 shares of preferred
stock, $.01 par value per share (the "Preferred Stock"), of which 490,000 shares
have been designated as Series A Preferred Stock and are issued and outstanding.
The Preferred Stock may be issued in one or more series, on such terms and with
such rights, preferences and designations as the Board of Directors of the
Company may determine, without action by stockholders. However, the issuance of
any Preferred Stock could adversely affect the rights of the holders of Common
Stock, and therefore reduce the value of the Common Stock. In particular,
specific rights granted to future holders of Preferred Stock could be used to
restrict the Company's ability to merge with or sell its assets to a third
party, thereby preserving control of the Company by present owners. See
"Description of Capital Stock."
CONCENTRATION OF STOCK OWNERSHIP; CONTROL BY MANAGEMENT
Edward R. Sousa, a director of the Company, as trustee (the "Voting
Trustee") of a voting trust (the "Voting Trust") containing all of the shares of
Common Stock owned by Richard and Randye Worth, former principal stockholders,
officers and directors of the Company, currently controls an aggregate of
2,022,000 shares of Common Stock (the "Trust Shares"), or 30.8% of the
outstanding Common Stock (20.9% upon consummation of the offering). See
"Principal Stockholders." Pursuant to a voting agreement with the Company (the
"Voting Agreement"), the Voting Trustee has agreed, at any meeting of the
stockholders of the Company, however called, or in any written consent of the
stockholders of the Company, to vote the Trust Shares, and any other shares of
Common Stock that may be deposited in such trust, in accordance with the
specific direction of the Board of Directors of the Company or the
recommendation of the Board of Directors to the stockholders of the Company
generally; provided, however, that the Voting Trustee shall be entitled to vote
for the removal of a director of the Company for Cause (as defined in the voting
agreement) as permitted by the Delaware General Corporation Law despite a
contrary direction or recommendation of the Board of Directors. Thus, management
of the Company will likely be able to influence significantly the election of
all the members of the Board of Directors of the Company and control the outcome
of any issues which may be
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<PAGE> 15
subject to a vote of the Company's stockholders. Such concentration of ownership
may have the effect of delaying or preventing a change in control of the
Company. See "Certain Transactions" and "Principal Stockholders."
RELATED PARTY TRANSACTIONS; POSSIBLE CONFLICTS OF INTEREST
The Company has engaged in transactions with certain of its officers,
directors and principal stockholders, and is a party to consulting agreements
with two of its principal stockholders which will continue after the
consummation of this offering. Although the Company does not believe there are
any conflicts, the terms of such transactions could create, or appear to create,
potential conflicts of interest which may not necessarily be resolved in the
Company's favor. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations" and "Certain Transactions."
LIMITED LIABILITY FOR DIRECTORS
The Company's Certificate of Incorporation provides that a director of the
Company shall not be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, with certain
exceptions prescribed by Delaware law. This may discourage stockholders from
bringing suit against a director for breach of fiduciary duty and may reduce the
likelihood of derivative litigation brought by stockholders on behalf of the
Company against a director. See "Management -- Indemnification of Officers and
Directors."
ANTI-TAKEOVER PROVISIONS
The Company, as a Delaware corporation, is subject to the General
Corporation Law of the State of Delaware, and, upon consummation of this
offering, will be subject to Section 203 thereof. In general, the law restricts
the ability of a public Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years after
the date of the transaction in which the person became an interested
stockholder, unless certain conditions are met. As a result of the application
of Section 203 and certain provisions in the Company's Certificate of
Incorporation, potential acquirors of the Company may find it more difficult or
be discouraged from attempting to effect an acquisition transaction with the
Company, thereby possibly depriving holders of the Company's securities of
certain opportunities to sell or otherwise dispose of such securities. See
"Description of Capital Stock."
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<PAGE> 16
USE OF PROCEEDS
The net proceeds to the Company from the sale of the 3,100,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $6.00 per share) are estimated to be approximately $16.2
million (approximately $18.4 million if the Underwriters' over-allotment option
is exercised in full) after deducting underwriting discounts and estimated
offering expenses. The Company will not receive any proceeds from the sale of
shares by the Selling Stockholders. See "Selling Stockholders."
The Company expects to use approximately $4.7 million of the net proceeds
to repay indebtedness incurred to pay a portion of the purchase price for the
Salerno Acquisition and related fees. Such indebtedness bears interest at a rate
of 12% per annum and matures on the earlier of (i) 120 days from the date of the
incurrence of such indebtedness (August 1, 1998) (ii) consummation of an initial
public offering of Common Stock or other recapitalization (whether through one
transaction or a series of transactions) of the Company (whether through a
private placement or otherwise) from which the Company receives gross proceeds
of at least $7.0 million or (iii) a sale or other transfer of all or
substantially all of the assets or equity interests in the Company. The Company
expects to use approximately $500,000 of the net proceeds to repay the
Acquisition Loan incurred to pay a portion of the purchase price for the Salerno
Acquisition. Such indebtedness bears interest at a rate of 12% per annum and
matures on the earlier of (i) 120 days from the date of the incurrence of such
indebtedness (July 29, 1998) or (ii) consummation of an initial public offering
of Common Stock from which the Company receives gross proceeds of at least $7.0
million. The Company expects to use approximately $4.0 million of the net
proceeds for the payment of outstanding trade payables. The Company expects to
use approximately $3.0 million to reduce the outstanding principal amount of its
revolving credit facility with Republic. Borrowings under the financing
agreement are due upon demand and bear interest at 1.50% per annum above the
reference rate of interest publicly announced from time to time by U.S. Bank
National Association (8.25% at December 31, 1997). The Company expects to use
the balance of the net proceeds, approximately $4.0 million, for general
corporate purposes including working capital. A portion of the net proceeds
allocated to general corporate purposes may also be used to acquire one or more
companies. The Company may seek to acquire, when feasible, companies whose
businesses are compatible with those of the Company. The Company does not
currently have any agreements, commitments or arrangements with respect to any
proposed acquisitions, and no assurance can be given that any acquisition
opportunity will be consummated in the future.
Any additional net proceeds realized from the exercise of the Underwriters'
over-allotment option will be allocated to the Company's general corporate
purposes.
The initial allocation of the net proceeds of this offering set forth above
represents the Company's best estimate based upon its present plans and certain
assumptions regarding general economic and industry conditions and the Company's
future revenues and expenditures. The Company reserves the right to reallocate
these proceeds within the above-mentioned categories in response to, among other
things, changes in its plans, industry or general economic conditions and the
Company's future revenues and expenditures.
Pending application of the net proceeds as described above, the Company
will invest the net proceeds in United States government securities, short-term
certificates of deposit, money market funds or other short-term,
investment-grade, interest-bearing investments.
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<PAGE> 17
DIVIDEND POLICY
The Company does not intend to pay cash dividends on its Common Stock in
the foreseeable future. The Company instead intends to retain any earnings to
support the growth of the Company. Any future cash dividends on the Common Stock
will depend on the Company's future earnings, capital requirements, financial
condition and other factors deemed relevant by the Company's Board of Directors.
In addition, under the terms of the Company's financing agreement, as amended,
with Republic, the Company may not pay dividends without Republic's prior
written consent. Lastly, the holders of shares of Series A Preferred Stock are
entitled to receive in preference and prior to the Common Stock, semi-annual
dividends of five percent of the aggregate stated value of the Series A
Preferred Stock. Any accrued but unpaid dividends on the Series A Preferred
Stock must be paid by the Company prior to paying a dividend on the Common
Stock. See "Description of Capital Stock." For a description of the financing
agreement, see "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
DILUTION
The difference between the initial public offering price per share of
Common Stock and the pro forma net tangible book value per share of Common Stock
after the offering constitutes the dilution per share of Common Stock to
investors in the offering. Net tangible book value per share is determined by
dividing the net tangible book value (total tangible assets less total
liabilities) by the number of outstanding shares of Common Stock. As of December
31, 1997, based on 6,565,656 shares of Common Stock outstanding, the Company had
a net tangible book value (deficit), as adjusted to reflect the Salerno
Acquisition and the Second Closing of the October Private Placement, of $(12.8
million), or $(1.95) per share of Common Stock. After giving effect to the sale
of the 3,100,000 shares of Common Stock offered by the Company hereby (at an
assumed initial public offering price of $6.00 per share) and after the
deduction of underwriting discounts and estimated offering expenses payable by
the Company and the application of the net proceeds therefrom, the pro forma net
tangible book value at that date would have been approximately $3.4 million, or
$0.36 per share. This represents an immediate increase in pro forma net tangible
book value of $2.27 per share to existing stockholders and an immediate dilution
in pro forma net tangible book value of $5.64 per share or approximately 94% to
investors in this offering. The following table sets forth such per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $6.00
Pro Forma net tangible book value (deficit) per share as
of December 31, 1997 before the offering............... $(1.95)
Increase in Pro Forma net tangible book value per share
attributable to new investors.......................... 2.31
------
Pro Forma net tangible book value per share as of December
31, 1997 giving effect to the offering.................... 0.36
-----
Dilution per share to new investors......................... $5.64
=====
</TABLE>
The following table summarizes, as of December 31, 1997, the number of
shares of Common Stock purchased from the Company, the total consideration paid
to the Company and the average price per share paid by the existing stockholders
and the new investors:
<TABLE>
<CAPTION>
SHARES PURCHASED TOTAL CONSIDERATION AVERAGE
-------------------- ---------------------- PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ----------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders.......... 6,565,656 68% $ 8,349,459 31% $1.27
New investors.................. 3,100,000 32 18,600,000 69 6.00
--------- --- ----------- -----
Total................ 9,665,656 100% $26,949,459 100%
========= === =========== =====
</TABLE>
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<PAGE> 18
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
December 31, 1997, (i) actual, (ii) pro forma to give effect to the Salerno
Acquisition, the Second Closing of the October Private Placement and the
Acquisition Loan and the application by the Company of the respective net
proceeds therefrom and (iii) pro forma as adjusted to give effect to the
exchange of the 9% Notes for 490,000 shares of Series A Preferred Stock and the
sale of 3,100,000 shares of Common Stock offered by the Company hereby and the
application of the estimated net proceeds to the Company therefrom, after
deducting the underwriting discounts and commissions and estimated offering
expenses (at an assumed initial public offering price of $6.00 per share of
Common Stock). The following table should be read in conjunction with all the
financial statements, including the notes thereto, and other financial
information included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
AS OF DECEMBER 31, 1997
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<S> <C> <C> <C>
Short-term debt........................................... $ 1,498 $ 9,236 $ 1,036
======== ======== ========
Long-term debt............................................ $ 1,960 $ 1,960 $ --
Stockholders' equity (deficit):
Preferred Stock $.01 par value; 510,000 shares
authorized, no shares issued and outstanding......... -- -- --
Series A Convertible Preferred Stock, $.01 par value;
490,000 shares authorized; no shares issued and
outstanding actual, pro forma; 490,000 shares issued
and outstanding pro forma as adjusted liquidation
value $1,960......................................... -- -- 5
Common Stock, $.01 par value; 25,000,000 shares
authorized; 6,285,656 shares issued and outstanding,
actual; 6,565,656 shares issued and outstanding, pro
forma; 9,665,656 shares issued and outstanding pro
forma, as adjusted................................... 63 66 97
Additional paid-in capital.............................. 6,778 7,472 25,636
Accumulated deficit..................................... (11,629) (11,629) (11,629)
-------- -------- --------
Total stockholders' equity (deficit)................. (4,788) (4,091) 14,109
-------- -------- --------
Total capitalization............................ $ (2,828) $ (2,131) $ 14,109
======== ======== ========
</TABLE>
16
<PAGE> 19
SELECTED HISTORICAL FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE INFORMATION)
The following selected financial data of the Company are qualified by
reference to and should be read in connection with the financial statements,
including the notes thereto, and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
Prospectus. The statement of operations data for the years ended December 31,
1996 and 1997 and the balance sheet data as of December 31, 1996 and 1997 are
derived from, and are qualified by reference to, the Company's financial
statements audited by Altschuler, Melvoin and Glasser LLP, independent certified
public accountants, included elsewhere in this Prospectus. The statement of
operations data for the year ended December 31, 1995 are derived from, and are
qualified by reference to, the Company's financial statements audited by Cooper,
Selvin & Strassberg, LLP, independent certified public accountants, included
elsewhere in this Prospectus. The statement of operations data for the years
ended December 31, 1993 and 1994 and the balance sheet data as of December 31,
1993, 1994 and 1995 are derived from the Company's audited financial statements
not included in this Prospectus. The historical results are not necessarily
indicative of the results of operations to be expected in the future.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
-------------------------------------------------
1993 1994(1) 1995 1996 1997
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales.................................... $15,856 $50,823 $52,722 $36,848 $30,665
Cost of sales................................ 10,704 37,581 42,253 29,837 25,193
------- ------- ------- ------- -------
Gross profit................................. 5,152 13,242 10,469 7,011 5,472
Operating expenses:
Promotion and selling...................... 3,060 10,559 12,381 3,172 3,932
General and administrative................. 1,395 2,387 3,944 4,331 2,938
Restructuring charge(2).................... -- -- -- -- 1,548
------- ------- ------- ------- -------
Income (loss) from operations................ 697 296 (5,857) (493) (2,947)
Other (income) expense:
Interest expense........................... 63 269 597 409 417
Other, net................................. (17) (151) (162) (3) 34
------- ------- ------- ------- -------
Income (loss) before provision for
income taxes............................... 651 178 (6,292) (898) (3,398)
Provision for income taxes................... 247 86 662 -- --
------- ------- ------- ------- -------
Income (loss) before cumulative effect of
change in accounting principle............. 404 92 (6,955) (898) (3,398)
Cumulative effect of change in
accounting principle....................... 139(3) (585)(4) -- -- --
------- ------- ------- ------- -------
Net income (loss)............................ $ 543 $ (493) $(6,955) $ (898) $(3,398)
======= ======= ======= ======= =======
Earnings (loss) per share.................... $ 0.13 $ (0.10) $ (1.29) $ (0.16) $ (0.58)
======= ======= ======= ======= =======
Weighted average number of common shares
outstanding................................ 4,174 4,810 5,408 5,628 5,867
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------------------
1993 1994(1) 1995 1996 1997
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)............... $ (186) $ 3,163 $ (2,870) $ (2,451) $ (4,363)
Total assets............................ 2,988 11,701 9,719 7,592 6,487
Long-term debt, excluding current
portion.............................. -- 3,428 2,151 2,110 1,960
Stockholders' equity (deficit).......... 971 4,258 (2,798) (2,349) (4,788)
</TABLE>
- ---------------
(1) In March 1994, the Company acquired all of the outstanding capital stock of
Delicious in a transaction accounted for as a purchase.
(2) Represents a restructuring charge recognized by the Company for the year
ended December 31, 1997 primarily consisting of the expensing of consulting
and non-competition agreements the Company entered into with former
executive officers. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Results of Operations."
(3) Represents a change in accounting principle for income taxes whereby the
Company adopted the provisions of FASB 109 "Accounting for Income Taxes."
(4) Represents a change in accounting principle whereby slotting, product
development and packaging design costs which were previously deferred and
amortized are now expensed as incurred.
18
<PAGE> 21
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion is intended to assist in understanding the
Company's historical financial position at December 31, 1995, 1996 and 1997, and
results of operations and cash flows for each of the years ended December 31,
1995, 1996 and 1997. The Company's historical financial statements and notes
thereto included elsewhere in this Prospectus contain detailed financial
information that should be referred to in conjunction with the following
discussion.
GENERAL
The Company is a marketer of pre-packaged cookies, crackers and snacks
which are sold primarily in the United States under the Company's own Delicious,
Salerno, Mama's and Frookie labels. The products are distributed through
independent direct-store-delivery distributors, directly to retailers and
through large wholesalers.
The Company was incorporated in 1989. In March 1994, the Company acquired
all of the stock of Delicious, an Illinois corporation. Effective December 29,
1995, Delicious was merged with and into the Company with the Company remaining
as the surviving entity.
Effective August 13, 1997, Richard Worth, the Company's former Chairman,
Chief Executive Officer and President, and Randye Worth, a former Executive Vice
President and Director of the Company, resigned and entered into agreements to
provide consulting services to the Company. These consulting agreements require
the Worths to be available to provide consulting services to the Company through
August 1998 and include a non-competition clause. The agreements cumulatively
provide for: (i) consulting fees aggregating $200,000 per year for five years;
(ii) automobile and office allowances aggregating $83,600 per year for three
years; (iii) life and health insurance coverage for five years; and (iv)
forgiveness of debts aggregating $88,030. In addition, the Company exchanged
with Richard Worth its Cool Fruits Fruit Juice Freezers product line (the "Cool
Fruits Product Line") and assigned the Company's license agreement for the
Chiquita Tropical Freezers product line (together with the Cool Fruits Product
line, the "Freezer Pop Lines") for the cancellation of options to purchase
500,000 shares of Common Stock held by him. The cost of the benefits being paid
to the former executives was charged to expense and reflected as part of the
restructuring charge in 1997 and accrued using a present value method over the
expected term of the agreements.
On April 3, 1998, the Company completed the Salerno Acquisition for $3.5
million in cash, a $1.5 million promissory note and the assumption of
substantially all of the liabilities of Salerno. The purchase price is subject
to certain post-closing adjustments. The Salerno Acquisition has been accounted
for as a purchase and the results of Salerno's activities will be included in
the Company's financial statements subsequent to the date of acquisition.
RESULTS OF OPERATIONS
Year Ended December 31, 1997 Compared with Year Ended December 31, 1996
Net Sales. Net sales decreased 16.8% to $30.7 million for the year ended
December 31, 1997 from $36.8 million for the year ended December 31, 1996. This
reduction of sales occurred ratably between Delicious and Frookie product
categories. Increased competition in all product categories coupled with an
industry-wide slow down in pre-packaged baked goods resulted in a decrease in
sales. In addition, the Company's 1997 results were also adversely impacted by a
change in the Company's marketing strategy to an outside commissioned broker
network from an internal sales force which resulted in certain operational
inefficiencies and lower sales. Also, production problems at a key supplier
resulted in missed sales.
Gross Profit. Gross profit decreased 22.0% to $5.5 million for the year
ended December 31, 1997 from $7.0 million for the year ended December 31, 1996.
This decrease was primarily a result of reduced sales. Gross profit as a
percentage of sales decreased from 19.0% in 1996 to 17.8% in 1997 due primarily
to a $300,000 charge for the write-off of discontinued packaging.
19
<PAGE> 22
Promotions and Selling. Promotions and selling expenses increased 24.0% to
$3.9 million for the year ended December 31, 1997 from $3.2 million for the year
ended December 31, 1996 primarily due to a $700,000 increase in marketing
expenditures to compensate for the elimination of the Company's internal sales
force.
General and Administrative. General and administrative expenses decreased
32.2% to $2.9 million for the year ended December 31, 1997 from $4.3 million for
the year ended December 31, 1996. This decrease was primarily due to a $379,000
reduction in personnel and travel and entertainment costs and $250,000 of lower
professional fees. In 1996, the Company incurred a charge-off of $246,000
related to goodwill associated with a discontinued business venture. Further,
1996 results included a $500,000 bad-debt provision for the potential expensing
of a customer's indebtedness.
Restructuring Charge. The Company recognized a one-time $1.5 million
restructuring charge primarily consisting of the expensing of consulting
agreements the Company entered into with former executive officers, Richard and
Randye Worth.
Net Loss. Net loss increased to $3.4 million for the year ended December
31, 1997 from a net loss of $898,134 for the year ended December 31, 1996, as a
result of the factors discussed above.
Year Ended December 31, 1996 Compared to Year Ended December 31, 1995
Net Sales. Net sales decreased 30.1% to $36.8 million for year ended
December 31, 1996 from $52.7 million for the year ended December 31, 1995
primarily due to management's decision to reduce promotional and marketing
expenditures. In 1995, the Company aggressively spent funds to gain additional
product distribution which resulted in greater sales but significantly less
profitability. In 1996, promotion and selling expenditures were reduced by
approximately $9.2 million which resulted in a significant loss of product
distribution and lower sales.
Gross Profit. Gross profit decreased 33.0% to $7.0 million for the year
ended December 31, 1996 from $10.5 million for the year ended December 31, 1995
primarily due to lower sales volumes. Gross profit as a percentage of sales
decreased to 19.0% for 1996 from 19.9% for 1995 due to the Company's inability
to pass along certain supplier price increases to its customers, as well as a
slight shift in the Company's sales mix to lower margin items.
Promotions and Selling. Promotions and selling expenses decreased 74.4% to
$3.2 million for the year ended December 31, 1996 from $12.4 million for the
year ended December 31, 1995. This decrease was due to the Company's decision to
significantly reduce promotional allowances, market development funds and
package design expenditures.
General and Administrative. General and administrative expenses increased
9.8% to $4.3 million for the year ended December 31, 1996 from $3.9 million for
the year ended December 31, 1995. While general and administrative expenses did
not vary significantly between periods, 1996 included a $500,000 bad debt
provision.
Provisions for Income Tax. In 1995, although the Company incurred a loss,
a provision for income taxes of $662,000 was recorded consisting primarily of a
reduction in deferred tax assets established in a previous year.
Net Loss. Net loss decreased to $898,134 for the year ended December 31,
1996 from a net loss of $7.0 million for the year ended December 31, 1995, as a
result of the factors discussed above.
LIQUIDITY AND CAPITAL RESOURCES
In recent periods, the Company has utilized its working capital to cover
operating deficits. At December 31, 1997, the Company had accumulated a working
capital deficit of $4.4 million. Because the Company purchases its products from
co-packers, it does not intend to invest in plant or equipment relating to the
manufacture of products for sale. Further, the Company believes that its
existing fleet of leased trucks is sufficient for the foreseeable future.
Consequently, additions to property and equipment are not expected to be
20
<PAGE> 23
material in future periods. The Company believes the amount available under its
revolving credit facility, together with the net proceeds from the offering,
will be sufficient for the foreseeable future to finance its operations, service
interest payments on its debt and fund capital expenditures.
On July 2, 1996, holders of 8% Subordinated Promissory Notes aggregating
$1.3 million converted such notes plus accrued interest of approximately $87,000
into a total of 449,055 shares of Common Stock.
On December 22, 1997, the Company consummated the first closing of a
private placement (the "First Closing") of a minimum of 175,000 shares of Common
Stock and a maximum of 700,000 shares of Common Stock (the "October Private
Placement"). At the First Closing, the Company issued an aggregate of 420,000
shares of Common Stock for an aggregate price of $1.3 million. The net proceeds
of $956,171 from the First Closing were applied by the Company to increase cash
balances and reduce outstanding trade payables balances. On February 6, 1998,
the Company consummated a second closing of the October Private Placement (the
"Second Closing") pursuant to which it issued an aggregate of 280,000 shares of
Common Stock for an aggregate price of $840,000. The net proceeds of $696,700
from the Second Closing were applied by the Company to increase cash balances
and reduce outstanding trade payables balances. The shares of Common Stock
issued and sold in the October Private Placement are being registered for resale
under the Securities Act in the registration statement of which this Prospectus
is a part; provided, however, that the holders of such shares have agreed not to
sell such shares for a period of 12 months after the date of this Prospectus
without the prior written consent of the Representative.
On March 30, 1998, the Company borrowed $500,000 (the "Acquisition Loan").
Such indebtedness bears interest at the rate of 12% per annum and matures on the
earlier of (i) 120 days from the date of the incurrence of such indebtedness
(July 28, 1998) or (ii) consummation of an initial public offering of Common
Stock from which the Company receives gross proceeds of at least $7.0 million.
Upon default of repayment of the Acquisition Loan, such loan is convertible into
such number of shares of Common Stock as is equal to the principal amount of the
Acquisition Loan, plus all interest accrued thereon, divided by $3.00. The
Company expects to repay such indebtedness with a portion of the net proceeds of
this offering. See "Use of Proceeds."
On April 3, 1998, the Company entered into an amendment to a revolving
credit facility with Republic for a revolving line of credit of up to $7.0
million. Borrowings under the revolving credit facility are due upon demand and
bear interest at 1.50% per annum above the reference rate of interest publicly
announced from time to time by U.S. Bank National Association (8.25% at December
31, 1997). Borrowings under the revolving credit facility in 1996 and 1997 were
$1.9 million and $1.5 million, respectively. Borrowings under the revolving
credit facility are collateralized by a first lien on substantially all of the
assets of the Company.
On April 3, 1998, the Company consummated the Salerno Acquisition. The
purchase price for Salerno consisted of (i) $3.5 million in cash, (ii) a $1.5
million promissory note from the Company to Salerno (the "Salerno Promissory
Note") secured by a second lien on substantially all of the Company's assets,
and (iii) the assumption of substantially all of the liabilities of Salerno. The
Company assigned its obligations under the Salerno Promissory Note to American
Pacific Financial Corporation ("APFC") and its principal stockholder, Larry
Polhill. In connection therewith, the Company entered into a loan agreement with
APFC pursuant to which the Company borrowed $4.6 million from APFC (the "APFC
Loan") consisting of $3.0 million in cash used by the Company to fund a portion
of the cash purchase price for Salerno, $1.5 million in the form of APFC
assuming primary liability under the Salerno Promissory Note and $100,000 as a
fee for the APFC Loan. In addition, the Company issued to APFC a promissory note
in the principal amount of $100,000, bearing interest at a rate of 12% per
annum, as a fee for assuming the Salerno Promissory Note (the "Fee Note"). The
Salerno Promissory Note, the APFC Loan and the Fee Note each mature on the
earlier of (i) 120 days from the date such indebtedness was incurred (August 1,
1998), or (ii) consummation of an initial public offering of Common Stock or
other recapitalization (whether through one transaction or a series of
transactions) of the Company (whether through a private placement or otherwise)
from which the Company receives (whether from such one transaction or on a
cumulative basis from such series of transactions) gross proceeds of at least
$7.0 million, or (iii) a sale or other transfer of all or substantially all of
the assets or equity interests in the Company. The APFC Loan is secured by a
third lien on substantially all of
21
<PAGE> 24
the Company's assets. The Company expects to repay the APFC Loan with a portion
of the net proceeds of this offering. See "Use of Proceeds."
On May , 1998, holders of the 9% Notes in the aggregate principal amount
$2.0 million exchanged such notes for an aggregate of 490,000 shares of Series A
Preferred Stock. Annual dividends of 10% paid semi-annually are payable on the
shares of Series A Preferred Stock.
SEASONALITY
The Company has generally experienced reduced sales of pre-packaged cookies
during the fourth quarter due primarily to the increase in holiday home baking
during this period. As a result of the Salerno Acquisition, on an ongoing basis,
the Company believes it will have limited seasonality influences.
INFLATION
The Company does not believe that inflation had a significant impact on the
Company's results of operations for the periods presented.
22
<PAGE> 25
BUSINESS
GENERAL
The Company develops, markets and sells cookies, crackers and related food
products under the Delicious, Salerno, Mama's and Frookie labels, as well as
licensed names including Skippy, Land O' Lakes, Butterfinger, Chiquita, Heath,
Chuck E. Cheese, Eskimo Pie, Raisinets and Ringling Bros. Pro Forma, the Company
is the seventh largest cookie company in the United States based on retail sales
for the 52 weeks ended December 28, 1997 according to IRI. The Company's product
lines include more than 17 different cookie, cracker and snack categories
comprising more than 260 SKUs. These products are sold primarily in the United
States to independent direct-store delivery distributors for resale to
supermarkets and other retail outlets and through large wholesalers to natural
food stores and also directly to supermarkets and other retail outlets. For the
year ended December 31, 1997, the Company had Pro Forma net sales of
approximately $70 million.
The Company was founded in 1989 originally to market the Frookie cookie
product, one of the first all-natural, low-fat cookies produced with fruit juice
sweeteners. Through the acquisition of Delicious in 1994, the Company broadened
its product offering into three lines: (i) Value-Oriented; (ii) Co-Branded; and
(iii) All-Natural. All of the Company's products are produced by co-packers
using the Company's proprietary specifications and formulations.
On April 3, 1998, the Company completed the Salerno Acquisition. Salerno's
cookie, cracker and other snack products are targeted to value-oriented
customers and are regionally focused with sales concentrated in supermarkets in
the mid-western United States. Salerno was the tenth largest cookie company in
the United States based on retail sales for the 52 weeks ended December 28, 1997
according to IRI.
INDUSTRY OPPORTUNITY
The cookie and cracker market is large and highly fragmented with over 200
companies as of December 31, 1997. According to IRI, the U.S. cookie and cracker
industry had 1997 retail sales of approximately $7.3 billion, with cookie sales
of $4.0 billion and cracker sales of $3.3 billion. While consumption per person
of cookies in the United States has declined, according to IRI, since 1992,
particular product categories, such as crackers and sugar-free, have grown at
rates of over 4% or more per year. The six largest cookie companies represented
approximately 72% of total retail dollar sales of cookies for the 52 weeks ended
December 28, 1997.
The following table provides the estimated retail sales to supermarket
chains of the top 10 cookie companies in the United States, according to IRI,
for the 52 weeks ended December 28, 1997.
<TABLE>
<CAPTION>
COMPANY RETAIL SALES
------- -------------
(IN MILLIONS)
<S> <C>
Nabisco Biscuit Co. ........................................ $1,230
Keebler Foods Company....................................... 571
Pepperidge Farm, Inc. (Campbell Foods)...................... 195
President Baking Co. ....................................... 166
Archway Cookies, Inc. ...................................... 159
Mother's Cake & Cookies (Specialty Foods)................... 144
Stella D'Oro Biscuit Co. (Nabisco).......................... 42
The Delicious Frookie Company, Inc. ........................ 37
Entenmanns (Bestfoods)...................................... 31
Salerno Foods, L.L.C. ...................................... 30
</TABLE>
23
<PAGE> 26
One of the Company's product lines, All-Natural, is part of the natural
products industry, which industry experienced over 13% annual growth during each
of 1994, 1995 and 1996 according to Natural Foods Merchandiser. Sales within
this industry reached $11.5 billion during 1996. The Company believes this
growth is being propelled by several factors, including consumer trends toward
healthier eating habits, the increasing awareness of the link between diet and
health, concern regarding food purity and safety, an aging population and
greater environmental awareness. The Company believes that companies with strong
brand name recognition, high-quality products and broad distribution are
positioned to increase market share.
TURNAROUND INITIATIVES
In recent periods, the Company has experienced declining product sales and
financial results. In response to these trends, during late 1997, the Company
began to implement turnaround initiatives, including hiring a new management
team, electing a new board of directors, repositioning core product lines and
raising new capital.
In August 1997, Michael J. Kirby, a seasoned executive with over 20 years
of diversified experience in the food industry, was hired to serve as the
Company's Chief Executive Officer. Upon joining, Mr. Kirby undertook an
evaluation of the Company and determined that its competitive strengths include:
(i) strong brand name recognition; (ii) well-established distributor
relationships; (iii) co-branding and licensing agreements; and (iv) unique
product niches.
Under the leadership of Mr. Kirby, the Company has developed an operational
strategy designed to utilize the Company's core strengths and increase its
appeal to its existing broad customer base. This operational strategy is
intended to increase the Company's sales volume, improve its financial
performance and enhance its market position. The Company will seek to achieve
these objectives through the following strategies:
- Improve Margins. The Company is one of the largest wholesale purchasers
of cookies and crackers from co-packers in the United States. As a
result, the Company has recently been able to negotiate more favorable
pricing with some of its co-packers and believes there are additional
opportunities for it to lower its purchasing costs. The Company intends
to streamline its supplier base from over 20 co-packers to less than 10
during the next 12 months. Additionally, recent industry price increases
have given the Company the opportunity to raise prices on its products.
On March 1, 1998, the Company implemented its first price increases in
over two years on a majority of its products. The Company believes these
initiatives will lead to lower product costs and improved margins
without negatively impacting product volumes.
- Leverage Frookie Brand Name. The Frookie name is associated with
all-natural, high-quality, good tasting products. The Company intends to
leverage this brand equity, as well as the growing demand for
all-natural products, to further expand distribution and product sales.
The Company also plans to introduce additional healthy products that
complement the Frookie line, such as fruit bars, individual-sized fruit
pies, energy bars and wheat-free, sugar-free and organic products.
- Pursue Acquisitions. The cookie and cracker markets as well as the
natural food market is large and highly fragmented. Many of the
companies in these markets have strong positions and retail
relationships. The Company intends to pursue acquisitions of such
companies that afford operational synergies and complement or provide
further opportunities to use its existing brands or product lines. The
Salerno Acquisition was the first step in this strategy.
- Broaden Co-Branding Arrangements. Currently, the Company has licensed
several nationally recognized trademarks, including Skippy, Land O'
Lakes, Butterfinger, Chiquita, Heath, Chuck E. Cheese, Eskimo Pie,
Raisinets and Ringling Bros. The Company intends to acquire additional
licenses and further expand its product offering under current
co-branding arrangements.
- Expand Non-Supermarket Sales. Approximately 32% of 1996 retail cookie
and cracker sales were through non-supermarket channels including mass
merchandisers, club stores, convenience stores and drug stores. Until
recently, the Company had targeted its distribution and sales primarily
to the
24
<PAGE> 27
traditional supermarket channel. However, with the addition of the new
management team, the Company has begun to expand its distribution to
these non-supermarket channels, such as the club store Costco. The
Company has developed, and continues to develop, products, packaging and
distribution tailored to these non-supermarket channels.
- Renew Emphasis on Quality Control and Customer Service. Recently, the
Company instituted stricter quality controls and systems and hired new
management to improve its product quality standards and customer
service.
PRODUCTS
The Company's product lines, Value-Oriented, Co-Branded and All-Natural,
consist of over 260 SKUs under the labels listed below.
<TABLE>
<CAPTION>
CO-BRANDED
VALUE-ORIENTED (UNDER DELICIOUS LABEL) ALL-NATURAL
-------------- ----------------------- -----------
<S> <C> <C>
Delicious Butterfinger Frookie
Mama's Chiquita
Salerno Chuck E. Cheese
Eskimo Pie
Heath
Land O' Lakes
Raisinets
Ringling Bros.
Skippy
</TABLE>
Value-Oriented
The Company's Value-Oriented products, sold under the Delicious, Mama's and
Salerno labels, are primarily high-quality, value-priced cookies, crackers and
snack products. Typically, these products retail between $0.99 and $1.99 with
package sizes ranging from four ounces to two pounds. The Company distributes
its Value-Oriented products to leading supermarkets with a variety of
value-priced, value-sized products including cookies, crackers, animal crackers,
breadsticks, pretzels and ice cream cones. The Company is also initiating a new
line of Value-Oriented products which will be sold to non-supermarket channels,
primarily discount department stores, with average retail prices below one
dollar. As of December 31, 1997, Pro Forma Value-Oriented product sales
represented over 80% of the Company's net sales.
On April 3, 1998, the Company completed the Salerno Acquisition. Salerno's
cookie, cracker and other snack products are targeted to value-oriented
customers and are regionally focused with sales concentrated in supermarkets in
the mid-western United States. As of December 28, 1997, Salerno was the tenth
largest cookie company in the United States based on retail sales for the 52
weeks ended December 28, 1997 according to IRI.
Co-Branded
The Company's Co-Branded products are premium cookie, cracker or related
snack food products which the Company packages under both a licensed label and
the Delicious label. The Company seeks to establish co-branding agreements with
companies which have nationally recognized brand names associated with high
quality. Currently, the Company has licensed several nationally recognized
trademarks including Skippy, Land O' Lakes, Butterfinger, Chiquita, Heath, Chuck
E. Cheese, Eskimo Pie, Raisinets and Ringling Bros. The license agreements are
typically three or more years in length and require the Company to pay a royalty
percentage based on sales. Additionally, many licensor agreements include
provisions that require the Company to use specific licensor-manufactured
products (for example, Land O' Lakes butter, Skippy peanut butter) in the
Company's products. Products under the Co-Branded line include cookies, animal
crackers, crackers and other related snack products.
25
<PAGE> 28
The Company seeks to establish new selected licensors and continually
evaluates new licensor arrangements. Additionally, the Company intends to
further broaden its product offering with its current licensors and plans to
introduce new products under the Chuck E. Cheese, Land O' Lakes and Skippy
labels during the first six months of 1998. The Company distributes its
Co-Branded product line primarily to leading supermarkets. The Company has
developed new sizes of its leading products to enable it to expand into
non-supermarket channels. As its first entry into these channels, the Company
recently began shipping to Costco in the northeast. The Company believes initial
results from Costco have been positive, and it has begun expanding into other
Costco regions.
All-Natural
The Company develops and markets its All-Natural products under the Frookie
label. The Frookie cookie line was the Company's first product line and one of
the first all-natural, low-fat cookie produced with fruit juice sweeteners. The
Frookie products are "good for you," all-natural, low fat, healthy alternatives
to sweet, high fat snacks. The Frookie line includes products which are made
with organic ingredients and natural sweeteners such as fruit juice, pure
crystalline fructose and unprocessed sugars, as well as fat-free/reduced fat,
cholesterol, additive and preservative free snacks. The Frookie line is targeted
to health and nutrition-conscious consumers looking for lower fat, natural or
organic snacks and special health consumers such as diabetic or sugar-sensitive
consumers. Frookie products include all-natural cookies, crackers and ice cream
cones, organic cookies and crackers, yogurt cream filled cookies, sugar-free
cookies and fat free/ reduced fat cookies and crackers. The Frookie product line
generally has higher price points than the Company's other product lines due to
the higher quality and special ingredients and manufacturing processes that are
necessary to create these products.
The Company is focusing new Frookie product introductions on line
extensions which are complementary to the all-natural emphasis of this line,
such as wheat-free products, sugar-free products, energy bars and fruit bars and
individual-sized fruit pies. The Company distributes its All-Natural product
line to leading supermarkets, as well as natural food stores and supermarkets.
MARKETING, DISTRIBUTION AND SALES
Marketing. The Company's advertising and promotional programs include
packaging, trade and consumer advertising, and sales promotion, including
couponing and temporary price reductions. Additionally, the Company emphasizes
the "good for you" aspect of its All-Natural product line as an alternative to
traditional sugary, high fat snacks. The Company's marketing strategy is to
heighten the awareness of its brands by increasing the distribution and
visibility of its products throughout all retail channels. The Company intends
to update its packaging to emphasize healthy characteristics and increase
visibility and create impulse buying through increased end-aisle displays and
advertised features. The Company also intends to increase the number of
cooperative marketing events undertaken with the Company's distributors. The
Company is actively pursuing "cross-couponing" with select co-branding partners.
In "cross-couponing," each co-branding partner places coupons for the other's
products on its respective packaging.
Distribution and Sales. The Company's products are distributed through
independent direct-store delivery distributors, directly to retailers and also
through large wholesalers. To distribute the Delicious (including Co-Branded)
products, the Company uses a network of more than 30 independent direct-store
delivery distributors that focus primarily on supermarket sales. While a
majority of the Company's Delicious products have been sold by distributors to
supermarkets, the Company is focusing on expanding its sales into
non-supermarket retail channels including drug and club stores. The Company's
All-Natural product line is sold to natural foods retailers through large
wholesalers and through independent direct-store distributors to supermarkets.
The Delicious and Frookie product lines are primarily distributed from one
warehouse location or directly from the Company's co-packers. The Company
employs four regional sales managers for the Delicious and Frookie product
lines, each of whom is responsible for a specific geographic region and for
managing relationships with all of the Company's customers within that region.
The regional sales managers' duties include supporting existing customers,
developing new business and administering any advertising or
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<PAGE> 29
promotional programs instituted by the Company. The regional sales managers also
serve as liaisons between the Company and distributors of these product lines.
The Company's Salerno and Mama's product lines are distributed directly to
retailers through Company-owned routes, by independent distributors that
distribute only Salerno and Mama's product lines and by multi-line, independent
direct-store distributors. The Company leases 30 trucks for direct-store
delivery of these product lines. The Salerno and Mama's product lines are
distributed from five strategically-located leased warehouses. The Company
maintains a direct sales staff to market the Salerno and Mama's product lines
for the Company-owned routes.
The Company's largest distributor, Milwaukee Biscuit Company, represented
approximately 13% of the Company's Pro Forma net sales for the year ended
December 31, 1997.
MANUFACTURING
All of the Company's products are manufactured by non-affiliated
co-packers. The co-packers produce, supply or package the Company's products and
must comply with strict ingredient and processing standards established by the
Company. Pursuant to its co-packing arrangements, the Company purchases
substantially all of its products as finished goods. The Company currently uses
over 20 co-packers; however, it intends to establish several key relationships
with a select number of suppliers which will allow it to streamline its supplier
base to fewer than 10 during the next 12 months. The Company has recently
negotiated more favorable pricing with some of its co-packers and believes there
are additional opportunities for it to lower purchasing costs. Packaging
production is outsourced to third-party vendors based upon the Company's designs
and is purchased from such vendors by the manufacturers of the Company's
products. Generally, the Company is required to reimburse the manufacturers for
the costs of such packaging in the event the product is discontinued. For the
year ended December 31, 1997, purchases from the Company's four largest
suppliers, Mrs. Alison's Cookie Company, Sugar Kake Cookies, Inc., Pate's and
The Wortz Company, accounted for approximately 13.7%, 12.3%, 10.5% and 10.4%,
respectively, of the Company's Pro Forma purchases.
RESEARCH AND DEVELOPMENT
The Company's four-person research and development team works to create new
products and line extensions and improve existing products. The Company's
packaging design is created by an in-house design staff. The Company intends to
focus a majority of its research and development efforts to extend and enhance
its All-Natural product line.
QUALITY ASSURANCE AND CONTROL
Recently, the Company has instituted stricter quality controls and systems
and hired new management to further improve its product quality standards. The
Company regularly inspects all co-packing facilities and warehouses to ensure
that they conform to good manufacturing practice standards. The Company uses
code dating on all products and products are retained from product runs.
Systematic procedures are in place and regulated by an experienced technical
staff based on-site at the Company and supplemented by independent laboratory
analysis.
COMPETITION
The cookie, cracker and snack food industry is highly competitive and is
based primarily on brand recognition, quality and price. In particular, the
Company competes with large domestic and international companies such as Nabisco
Biscuit Co., Keebler Foods Company, Pepperidge Farm, Inc., President Baking Co.,
Archway Cookies, Inc. and Mother's Cake and Cookies, which have substantially
greater product development, marketing, financial and human resources than the
Company, as well as stronger relationships with local, regional, private label
and generic manufacturers. Many of the Company's competitors have developed
nationally and regionally recognized brand names. The Company's competitors may
succeed in developing new or enhanced products that are more popular than any
that may be sold or developed by the Company, and such competitors may also be
more successful than the Company in marketing and selling such
27
<PAGE> 30
products. Substantial advertising and promotional expenditures are required to
maintain or improve a brand's market position or to introduce a new product.
Consequently, the Company anticipates much of its competition will come from
larger, well-capitalized businesses that have significantly greater financial
and other resources than the Company. No assurance can be given that the Company
will be able to compete successfully with any of these businesses or maintain or
increase its market share.
The Company competes in the cookie, cracker and snack food industry by (i)
capitalizing on its strengths as a major supplier to independent cookie and
cracker distributors and as a major purchaser of contract-manufactured cookies,
(ii) developing and marketing what it believes are innovative cookie and cracker
products, many of which address health concerns, (iii) filing for patent and
trademark protection in the United States for its proprietary products and
marks, (iv) procuring licenses to use well-known trademarks in co-branded
products and (v) using efficient manufacturing, sales and distribution methods
in an effort to increase productivity and lower costs.
INTELLECTUAL PROPERTY
The Company has filed for and obtained trademark protection for a number of
its products and trade names, including the names "Delicious," "Frookie,"
"Frookies," "Fruitin," "Salerno," "Mama's" and "R.W. Frookies." The Company
generally files its trademark applications in the United States and several
foreign countries, including Canada, France, Great Britain and Japan. In
connection with its Co-Branded product line, the Company has entered into
license agreements with major companies which own the trademarks that are
licensed to the Company.
While the Company intends to enforce its trademark and licensing rights
against infringement by third parties, no assurance can be given that the
trademarks and licenses or the Company's trademark and license rights will be
enforceable or provide the Company with meaningful protection from competitors.
Even if a competitor were to infringe on trademarks or licenses held by the
Company, enforcing the Company's rights would likely be costly and would divert
funds and resources that could otherwise be used to operate the Company. No
assurance can be given that the Company would be successful in enforcing such
rights, or that the Company's products do not infringe on the patent or
intellectual property rights of a third party.
GOVERNMENT REGULATION
The Company's products are subject to the rules and regulations of various
federal, state and local health agencies, including the FDA, governing the
production, sale, advertising, labeling and ingredients of food products. The
Company believes that its recipes and manufacturing techniques and the
facilities and practices used by its subcontracted manufacturers are sufficient
to maintain compliance with applicable regulations, however, there can be no
assurance that the Company and its subcontracted manufacturers will be able to
comply with such laws and regulations in the future or that new governmental
laws and regulations will not be introduced which would prevent or temporarily
inhibit the development, distribution and sale of the Company's products to
consumers. If any of the Company's subcontracted manufacturers were to violate
any such law or regulation, it could result in fines, recalls, seizure or
confiscation of products marketed by the Company. There can be no assurance that
future changes in applicable laws, regulations or the interpretation thereof
will not necessitate significant expenditures or otherwise have a material
adverse impact on the Company.
EMPLOYEES
As of March 31, 1998, Pro Forma, the Company had 123 full-time employees,
25 of which are represented by Teamsters Local 734. The Company's collective
bargaining agreements with Teamsters Local 734 expired on January 31, 1998. The
Company has commenced formal negotiations with regard to new collective
bargaining agreements. There can be no assurance, however, that the Company will
be able to enter into new collective bargaining agreements upon terms and
conditions acceptable to the Company. A prolonged slowdown, work stoppage or
strike could have a material adverse effect on the business, results of
operations and financial condition of the Company. The Company believes its
relations with its employees to be good.
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<PAGE> 31
PROPERTIES
The Company's headquarters is located in 5,700 square feet of leased office
space in Des Plaines, Illinois. The Company's annual rent is approximately
$85,000. The Company's lease expires May 31, 1998. Upon expiration of the lease,
the Company plans to consolidate its operations into Salerno's former
headquarters located in 54,000 square feet of leased office and warehouse space
in Des Plaines, Illinois. The annual rent for Salerno's headquarters is
approximately $312,000. The lease expires in September 1999.
LEGAL PROCEEDINGS
On September 22, 1994, a former distributor of the Company's products
commenced an action against the Company and an unaffiliated third party in the
Supreme Court of the State of New York, Kings County, alleging breach of
contract. The plaintiff alleges that the Company (i) improperly terminated the
distribution agreement by and between the Company and the plaintiff, (ii)
withheld its approval of plaintiff's attempted purchase of a distributorship for
a second route, (iii) failed to perform its obligations under the distribution
agreement and (iv) failed to pay plaintiff sums due to him under the
distribution agreement for product sales made in plaintiff's distribution route.
The plaintiff seeks damages in the amount of $2.5 million and punitive damages
in the amount of $1 million. The Company believes it has valid defenses to these
claims and believes these claims are without merit. An unfavorable decision
could have a material adverse effect on the business, results of operations and
financial condition of the Company.
The Company is not currently involved in any other material legal
proceedings. From time to time however, the Company may be subject to claims and
lawsuits arising in the normal course of business.
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<PAGE> 32
MANAGEMENT
The following are the members of the Company's Board of Directors and the
Company's executive officers:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Donald C. Schmitt............ 66 Chairman of the Board of Directors
Michael J. Kirby............. 48 Chief Executive Officer, President and Director
Jeffry W. Weiner............. 47 Vice President, Chief Financial Officer and Secretary
Jay G. Shoemaker............. 45 Director
Edward R. Sousa.............. 41 Director
John H. Wyant................ 51 Director
</TABLE>
Donald C. Schmitt has been a director of the Company since 1989 and
Chairman of the Board since August 1997. Since 1977, Mr. Schmitt has been the
chairman of the board, president, chief executive officer and a principal
stockholder of The Shur-Good Biscuit Co., Inc. ("Shur-Good"), distributor of
cookies, crackers and salty snack foods. Shur-Good is a distributor of the
Company. See "Certain Transactions." Mr. Schmitt is also vice chairman of the
board of Miller Buckeye Biscuit Co., a director of Core Resources Inc., both of
which are privately-owned, and the former president of the Biscuit and Crackers
Distributor Association. He won the Xavier University Executive Achievement
Award in 1993. Mr. Schmitt was also awarded a Papal appointment to the
Equestrian Order of Holy Sepulchre by the Catholic Church in 1995. Mr. Schmitt
holds a B.A. in Accounting from Xavier University.
Michael J. Kirby has been the Company's Chief Executive Officer and
President and a director since August 1997. From February 1997 to August 1997,
Mr. Kirby was a private consultant. From February 1994 until January 1997, Mr.
Kirby was president of Concorde Brands, a division of Nestle USA. From November
1992 until February 1994, Mr. Kirby was president and chief executive officer of
National Oats, Inc. From 1989 until November 1992, Mr. Kirby was president and
chief operating officer of Willow Foods. From 1984 until 1989, Mr. Kirby was
president and chief executive officer of Royal American Foods, Inc. until its
sale to Pepperidge Farm, Inc. during Mr. Kirby's tenure. Mr. Kirby has also held
senior marketing positions at the Kellogg Company, Win Schuler Foods, Inc. and
H.P. Hood. Mr. Kirby holds a B.S. in Business from The State University of New
York-Albany (formerly Regent's College of New York-Albany).
Jeffry W. Weiner has been the Company's Vice President and Chief Financial
Officer since March 1996. Mr. Weiner was a consultant in the consumer
electronics industry from 1994 until March 1996. From 1977 to 1994, Mr. Weiner
was employed in several positions, most recently as senior vice president of
finance and administration, by Cobra Electronics Corporation, a publicly held
marketer of radar detectors, cordless telephones and answering machines to
retail stores. Mr. Weiner holds a B.S. in Accounting from the University of
Illinois, and is a Certified Public Accountant.
Jay G. Shoemaker has been a director of the Company since December 1997.
Mr. Shoemaker has been the chief operating officer of Niebaum Coppola Winery and
American Zoetrope Studios since 1996. Mr. Shoemaker was the president, chief
executive officer, chief operating officer and acting chairman of the board of
Earth's Best, Inc., an organic baby food company, from 1991 until its sale to
the Heinz Co. in 1996. From 1990 until 1991, Mr. Shoemaker was president of
Whitman's Chocolates. Mr. Shoemaker holds a B.A. in Experimental Social
Psychology from Williams College and a M.B.A. from Harvard University.
Edward R. Sousa has been a director of the Company since February 1998. Mr.
Sousa has been a practicing attorney in New York for more than five years. Mr.
Sousa holds a B.A. from Brandeis University and a J.D. from the University of
Pennsylvania.
John H. Wyant has been a director of the Company since December 1997. Mr.
Wyant was a co-founder and has been the managing partner of Blue Chip Venture
Company, a venture capital firm with approximately $180 million under management
that concentrates on financing companies primarily based in the mid-western
United States, since its inception in 1990. Mr. Wyant serves as a director of
various private companies and two publicly-traded companies, Zaring National
Corporation and Ciao Cucina Corporation. Mr. Wyant was a
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<PAGE> 33
director of the Company from 1990 to 1996. Mr. Wyant holds a B.A. in Political
Science from Denison University and a J.D. from Salmon P. Chase College of Law.
BOARD COMMITTEES
The Board of Directors has created an Audit Committee, a Compensation
Committee and a Stock Option Committee. The function of the Audit Committee is
to recommend annually to the Board of Directors the appointment of the
independent accountants of the Company; review with the independent accountants
the scope of the annual audit and review their final report relating thereto;
review with the independent accountants the accounting practices and policies of
the Company; review with the internal and independent accountants the overall
accounting and financial controls of the Company; be available to independent
accountants during the year for consultation; and review related party
transactions by the Company on an ongoing basis and review potential conflicts
of interest situations where appropriate. The Compensation Committee recommends
to the Board of Directors compensation for the Company's key employees. The
Stock Option Committee administers the Company's stock option plans. The members
of the Audit Committee are Messrs. Schmitt, Shoemaker and Wyant. The members of
the Compensation Committee are Messrs. Schmitt, Shoemaker and Wyant. The members
of the Stock Option Committee are Messrs. Shoemaker and Wyant.
DIRECTORS' COMPENSATION
Each non-employee director receives an annual grant of options to purchase
3,000 shares of Common Stock pursuant to the Formula Plan at an exercise price
equal to fair market value on the date of grant and $1,500 per Board meeting
attended. See "Stock Option Plans." All directors will be reimbursed for their
reasonable out-of-pocket expenses incurred in connection with their duties to
the Company.
EXECUTIVE COMPENSATION
The following table sets forth certain information concerning compensation
for the year ended December 31, 1997 of the Company's Chief Executive Officer
and each other most highly compensated executive officers of the Company whose
aggregate cash compensation exceeded $100,000 during the year ended December 31,
1997 (collectively, the "Named Executive Officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL COMPENSATION LONG-TERM COMPENSATION
--------------------------------------- ---------------------------
AWARDS PAYOUTS
---------- --------------
SECURITIES LONG-TERM
OTHER ANNUAL UNDERLYING INCENTIVE PLAN ALL OTHER
NAME AND PRINCIPAL POSITION SALARY($) BONUS($) COMPENSATION($) OPTIONS(#) PAYOUTS($) COMPENSATION($)
- --------------------------- --------- -------- --------------- ---------- -------------- ---------------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Kirby........... 48,750(1) -- (1) 180,000 -- 8,000(2)
Chief Executive Officer
Jeffry W. Weiner........... 113,750 30,000 -- -- -- 7,500(3)
Chief Financial Officer
Richard S. Worth(4)........ 114,125 -- -- -- -- 7,050(5)
Former Chairman of the
Board and Chief Executive
Officer
</TABLE>
- ---------------
(1) Mr. Kirby began employment with the Company in August 1997 at a base salary
of $130,000 per annum. Mr. Kirby's base salary increased to $200,000 per
annum on April 3, 1998. Additionally, Mr. Kirby receives an auto allowance
of $600 per month.
(2) Consists of a relocation allowance of $5,000 and automobile expenses of
$3,000.
(3) Consists of a payout of accrued vacation time.
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<PAGE> 34
(4) Mr. Worth resigned as Chairman of the Board and Chief Executive Officer of
the Company effective August 13, 1997.
(5) Consists of automobile and insurance expenses.
OPTION GRANTS TABLE
The following table sets forth certain information regarding stock option
grants made to each of the Named Executive Officers during the year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS RATES OF ANNUAL
------------------------------------------------------------------ STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) DATE 5%($) 10%($)
---- -------------------- ---------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Kirby.......... 180,000 74 3.00- 3/11/08 -- 290,000
12.00(2)
Jeffry W. Weiner.......... -- -- -- -- -- --
Richard S. Worth.......... -- -- -- -- -- --
</TABLE>
- ---------------
(1) The potential realizable portion of the foregoing table illustrates value
that might be realized upon exercise of options immediately prior to the
expiration of their term, assuming (for illustrative purposes only) the
specified compounded rates of appreciation on the Company's Common Stock
over the term of the option. These numbers do not take into account
provisions providing for termination of the option following termination of
employment, nontransferability or difference in vesting periods.
(2) Mr. Kirby was granted options to purchase (i) 50,000 shares of Common Stock
at an exercise price of $3.00 per share, (ii) 100,000 shares of Common Stock
at an exercise price of $6.00 per share and (iii) 30,000 shares of Common
Stock at an exercise price of $12.00 per share.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES TABLE
No stock options were exercised by the Named Executive Officers during the
year ended December 31, 1997. The following table sets forth certain information
regarding unexercised options held by each of the Named Executive Officers at
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS HELD AT AT DECEMBER 31,
DECEMBER 31, 1997(#) 1997($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael J. Kirby........................... 50,000 130,000 150,000 --
Jeffry W. Weiner........................... 150,000 -- 450,000 --
Richard S. Worth........................... 515,500 -- 2,197,600 --
</TABLE>
- ---------------
(1) Represents the total gain that would be realized if all in-the-money options
held at December 31, 1997 were exercised, determined by multiplying the
number of shares underlying the options by the difference between the per
share option exercise price and the assumed initial public offering price of
$6.00 per share. An option is in-the-money if the fair market value of the
underlying shares exceeds the exercise price of the option.
EMPLOYMENT AGREEMENTS
The Company has entered into an employment agreement, as amended, with
Michael J. Kirby pursuant to which Mr. Kirby has agreed to serve as Chief
Executive Officer and President of the Company,
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<PAGE> 35
commencing as of August 11, 1997 and expiring on December 31, 2001. The
agreement provides for annual base compensation of $200,000. Mr. Kirby has been
granted options to purchase an aggregate of 180,000 shares of Common Stock. In
addition, Mr. Kirby may be paid a cash bonus the first year of his employment
based on the extent to which the Company's performance exceeds Mr. Kirby's
budget as approved by the Board. After the first year, the Board and Mr. Kirby
will mutually agree upon a reasonable performance bonus for Mr. Kirby, provided
that if Mr. Kirby has met or exceeded his budget in the first year, then the
maximum bonus to be earned during the second year of his employment shall be
greater than $30,000. Mr. Kirby shall receive a car allowance of $600 per month.
Through the term of Mr. Kirby's employment, the Company will also pay the
premiums for a term life insurance policy, for up to a $1,000,000 death benefit,
the beneficiary of which will be Mr. Kirby's estate or the beneficiary chosen by
Mr. Kirby. The employment agreement provides that Mr. Kirby will not compete or
engage in a business competitive with the current or anticipated business of the
Company during the term of the employment agreement and for a period of one year
thereafter. The agreement also provides that if Mr. Kirby is terminated without
cause (including as a result of liquidation, dissolution or a change of
control), Mr. Kirby will be entitled to receive severance equal to Mr. Kirby's
then-effective base salary for twelve months, and, in the event of a
liquidation, dissolution or a change of control, his stock options will
immediately vest.
The Company entered into an amended and restated employment agreement with
Jeffry W. Weiner on December 15, 1997 pursuant to which Mr. Weiner agreed to
continue to serve as Vice President and Chief Financial Officer of the Company
until December 31, 1999. The agreement may be terminated for any reason with or
without cause. The agreement provides for an annual base salary of $135,000,
which may be increased by the Board after the end of each fiscal year. Mr.
Weiner is eligible for an annual incentive cash bonus in an amount to be
determined by the Board of Directors. Mr. Weiner was granted options to purchase
150,000 shares of Common Stock at an exercise price of $3.00 per share, all of
which vested upon consummation of the First Closing of the October Private
Placement. The Company's agreement with Mr. Weiner provides that if Mr. Weiner
is terminated other than for cause or change of control of the Company, Mr.
Weiner will be entitled to receive severance equal to 12 months' base salary
(which cannot exceed $135,000). If Mr. Weiner is terminated upon a merger,
consolidation or reorganization by way of a cash buyout of at least 80% of the
Company's stockholders where the Company is not the surviving corporation or
upon the sale of all of the Company's assets, Mr. Weiner will be entitled to
receive a one-time severance payment of $130,000.
INDEMNIFICATION OF OFFICERS AND DIRECTORS
As permitted by the Delaware General Corporation Law, the Company's
Certificate of Incorporation limits the personal liability of a director to the
Company for monetary damages for breach of fiduciary duty of care as a director.
Liability is not eliminated for (i) any breach of the director's duty of loyalty
to the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii)
unlawful payment of dividends or stock purchases or redemptions pursuant to
Section 174 of the Delaware General Corporation Law or (iv) any transaction from
which the director derived an improper personal benefit.
The Company has obtained directors and officers liability insurance. The
Company has also entered into indemnification agreements with its directors and
executive officers. The indemnification agreements provide that the directors
and executive officers will be indemnified to the full extent permitted by
applicable law against all expenses (including attorneys' fees), judgments,
fines and amounts reasonably paid or incurred by them for settlement in any
threatened, pending or completed action, suit or proceeding, including any
derivative action, on account of their services as a director or officer of the
Company or of any subsidiary of the Company or of any other company or
enterprise in which they are serving at the request of the Company. No
indemnification will be provided under the indemnification agreements, however,
to any director or executive officer in certain limited circumstances, including
on account of knowingly fraudulent, deliberately dishonest or willful
misconduct. To the extent the provisions of the indemnification agreements
exceed the indemnification permitted by applicable law, such provisions may be
unenforceable or may be limited to the extent they are found by a court of
competent jurisdiction to be contrary to public policy.
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<PAGE> 36
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers or persons controlling the Company
pursuant to the foregoing provisions, the Company has been informed 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.
STOCK OPTION PLANS
1989 and 1995 Stock Option Plans. In 1989, the Company adopted a stock
option plan (the "1989 Plan") and in 1995 the Company adopted a second stock
option plan (the "1995 Plan," and, together with the 1989 Plan, the "Option
Plans") pursuant to which 1,250,000 shares of Common Stock and 1,000,000 shares
of Common Stock, respectively, have been reserved for issuance upon the exercise
of options designated as either (i) options intended to constitute incentive
stock options ("ISOs") under the Code, or (ii) nonqualified stock options
("NQSOs"). ISOs and NQSOs may be granted under the Option Plans to employees of
the Company. NQSOs may be granted to consultants, directors (whether or not they
are employees) and any other non-employee.
The purpose of each of the Option Plans is to encourage stock ownership by
directors, officers and employees of the Company and other persons instrumental
to the success of the Company. The Option Plans are intended to qualify under
Rule 16b-3 under the Securities Exchange Act of 1934, as amended, and will be
administered by the Stock Option Committee of the Board of Directors, which
consists of Messrs. Wyant and Shoemaker. The Committee, within the limitations
of the Option Plans, determines the persons to whom options will be granted, the
number of shares to be covered by each option, the option purchase price per
share and the manner of exercise, and the time, manner and form of payment upon
exercise of an option.
ISOs granted under the Option Plans may not be granted at a price less than
the fair market value of the Common Stock on the date of grant (or 110% of fair
market value in the case of persons holding 10% or more of the voting stock of
the Company). The aggregate fair market value of shares for which ISOs granted
to any employee are exercisable for the first time by such employee during any
calendar year (under all stock option plans of the Company and any related
corporation) may not exceed $100,000. NQSOs granted under the 1989 Plan may not
be granted at a price less than the lesser of (i) the book value of the shares
issuable upon exercise of the end of the fiscal year of the Company immediately
preceding the date of the grant or (ii) 50% of the fair market value of the
Common Stock on the date of such grant. NQSOs granted under the 1995 Plan may
not be granted at a price less than the par value of the Common Stock. The term
of options granted under the Option Plans may not exceed 10 years (five years in
the case of ISOs granted to persons holding 10% or more of the voting stock of
the Company). All options granted under the Option Plan are not transferable
during an optionee's lifetime but are transferable at death by will or by the
laws of descent and distribution. In general, upon termination of employment of
an optionee, all options granted to such persons which are not exercisable on
the date of such termination immediately terminate, and any options that are
exercisable terminate 90 days following termination of employment.
1994 Formula Stock Option Plan. Effective January 1994, the Company's
Board of Directors and stockholders adopted the 1994 Formula Stock Option Plan
(the "Formula Plan") to provide an incentive for non-employee directors.
Non-employee directors who hold more than 5% of the outstanding shares of stock
of the Company or who are in control of such a holder are ineligible to receive
stock option grants under the Formula Plan. Non-employee directors may also
irrevocably elect to be ineligible to receive stock option grants under the
Formula Plan. Options to purchase up to 150,000 shares of Common Stock may be
granted under the Formula Plan.
Under the Formula Plan, options are granted pursuant to a formula that
determines the timing, pricing and amount of the option awards using only
objective criteria, without discretion on the part of the administration of the
Formula Plan. The Formula Plan provides that its provisions may not be amended
more than once every six months, other than to comply with changes in the Code,
ERISA, or the rules thereunder. Also, any provision for forfeiture or
termination of an option award will be specific and objective, rather than
general, subjective, or discretionary.
34
<PAGE> 37
Beginning on January 1, 1994, and annually thereafter on each January 1,
options are granted under the Formula Plan, without approval or discretion on
the part of the Board, to non-employee directors as follows: Each non-employee
director, on the date such non-employee director is elected will receive options
to purchase 3,000 shares of Common Stock, which vest and become exercisable in
three equal installments, one-third on the date of grant and one-third on each
of the first and second anniversaries of such grant. Each non-employee director
who has been a director of the Company for at least one year and has met certain
other requirements will receive on each January 1 options to purchase an
additional 3,000 shares of Common Stock, which will vest and become exercisable
in two equal installments, one-half on the date of grant and one-half on the
first anniversary of such grant.
The exercise price of such options will be the fair market value of the
shares of Common Stock on the grant date, and such options will be exercisable
subject to the directors' continued service as a director of the Company on such
date.
No stock option may be transferred by an optionee other than by will or the
laws of descent and distribution, and during the lifetime of an optionee, the
option will be exercisable only by him or her. In the event that the optionee
ceases to be a director for any reason other than death, the option will be
exercisable only to the extent of the options, if any, that have vested as of
the date of such cessation; provided, that upon any such cessation of service,
the remaining options shall in any event terminate upon the expiration of the
original term of the option. Upon termination of service as a director by reason
of death, such director's options remain exercisable until the expiration of the
original term of the options. However, any such exercise is limited to the
options that have vested as of the date when such director ceased to be a
director whether by death or otherwise.
Options under the Formula Plan must be granted within ten years from the
effective date of the Formula Plan. The options granted under the Formula Plan
cannot be exercised more than ten years from the date of grant.
As of the date of this Prospectus, options to purchase 314,570, 567,500 and
98,000 shares of Common Stock are outstanding under the 1989 Plan, the 1995 Plan
and the Formula Plan, respectively. There are also options outstanding to
purchase 887,499 shares that were not issued pursuant to the Option Plans or the
Formula Plan. The Company has agreed that the exercise price of any options
issued within three years after the date of this Prospectus will not be less
than the market price per share of Common Stock on the date of grant.
35
<PAGE> 38
CERTAIN TRANSACTIONS
On August 13, 1997, the Company entered into separate consulting agreements
with each of Richard and Randye Worth, pursuant to which the Worths will provide
consulting services to the Company for one year (the "Consulting Period") and
will receive compensation from the Company for five years. Each agreement
provides that the Company may require the Worths' services for up to 10 hours
per week during the Consulting Period. The Company will pay Mr. Worth and Ms.
Worth $111,345 and $106,261 per year, respectively, for five years, with $11,345
and $6,261, respectively, credited each year toward repayment of monies owed to
the Company of $56,725 and $31,305, respectively. If the consulting agreements
are terminated early, any amounts still outstanding on the obligations will be
forgiven and deemed compensation to Richard and Randye Worth. Each agreement
also provides for insurance coverage commensurate with coverage received by the
Company's executive officers, an automobile allowance, and reimbursement of all
business expenses incurred while providing services to the Company. Mr. Worth
will also receive a non-accountable office expense allowance of $70,000 for the
three years, and Ms. Worth will receive a non-accountable telephone allowance of
$5,000 for one year. Each agreement also contains confidentiality and
non-competition provisions and early termination provisions. Simultaneously with
the First Closing of the October Private Placement, the Company exchanged with
Richard Worth the Freezer Pop Lines for the cancellation of options to purchase
500,000 shares of Common Stock held by Richard Worth.
The Company's products are distributed by Shur-Good on an exclusive basis
in parts of Ohio, Kentucky and Indiana. Donald C. Schmitt, Chairman of the Board
of Directors of the Company, is the president and principal stockholder of
Shur-Good. During the year ended December 31, 1997, the Company sold
approximately $2.7 million of products to Shur-Good.
During the year ended December 31, 1997, the Company sold approximately
$272,000 of products to an affiliate of Consolidated Biscuit Co.
("Consolidated"). The Company also made purchases totaling approximately $78,000
from Consolidated. James Appold, a director of the Company until December 1997,
is the president and sole stockholder of Consolidated. The Company is obligated
to Consolidated in the amount of approximately $1,400,000 for discontinued
packaging materials. Of such amount, $350,000 will be paid out of a portion of
the net proceeds of this offering. The remaining balance will be paid in various
monthly increments through March 2000. Total payments to be made during 1998,
1999 and 2000 will be $620,000, $580,000 and $200,000, respectively. The
agreement stipulates that if the Company defaults on any payment and does not
cure the default within 90 days, an additional $200,000 will be added to the
unpaid balance and simple interest at an annual rate of 10% will begin to
accrue.
Edward R. Sousa, a director of the Company, as the Voting Trustee of the
Voting Trust containing all of the shares of Common Stock owned by Richard and
Randye Worth, former principal stockholders and officers of the Company,
currently controls an aggregate of 2,022,000 Trust Shares, or 30.8% of the
outstanding Common Stock (20.9% upon consummation of this offering). Pursuant to
the Voting Agreement with the Company, the Voting Trustee has agreed, at any
meeting of the stockholders of the Company, however called, or in any written
consent of the stockholders of the Company, to vote the Trust Shares, and any
other shares of Common Stock that may be deposited in such trust, in accordance
with (i) the specific direction of the Board of Directors of the Company or (ii)
the recommendation of the Board of Directors to the stockholders of the Company
generally; provided, however, that the Voting Trustee shall be entitled to vote
for the removal of a director of the Company for Cause (as defined in the voting
agreement) as permitted by the Delaware General Corporation Law despite a
contrary direction or recommendation of the Board of Directors.
On May , 1998, Richard Worth, Randye Worth, Donald C. Schmitt and his
mother and adult children exchanged $50,000, $50,000, $130,000 and $196,000,
respectively, principal amount of the 9% Notes for 12,500, 12,500, 32,500 and
49,000 shares, respectively, of Series A Preferred Stock.
The Company believes all of the arrangements described above are on terms
at least as favorable as could be obtained from unaffiliated parties. The
Company's bylaws provide that all future transactions between the Company and
its officers, directors, principal stockholders or affiliates will be approved
in advance by a majority of the Board of Directors, including all of the
independent and disinterested directors, or, if required by law, a majority of
disinterested stockholders, and must be on terms no less favorable to the
Company than could be obtained in arm's length transactions from unaffiliated
third parties.
36
<PAGE> 39
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information with respect to the
beneficial ownership of Common Stock of the Company as of the date of this
Prospectus for (i) each person known by the Company to own beneficially more
than 5% of the outstanding Common Stock, (ii) each of the Named Executive
Officers of the Company, (iii) each of the Company's directors and (iv) all
directors and officers as a group.
<TABLE>
<CAPTION>
PERCENT OF CLASS(2)
SHARES ---------------------------------
NAME AND ADDRESS OF BENEFICIAL OWNER(1) BENEFICIALLY OWNED(2) BEFORE OFFERING AFTER OFFERING
- --------------------------------------- --------------------- --------------- --------------
<S> <C> <C> <C>
Michael J. Kirby(3)........................... 50,000 * *
Jeffry W. Weiner(4)........................... 150,000 2.2 1.5
Donald C. Schmitt(5).......................... 207,500 3.1 2.1
Jay G. Shoemaker(6)........................... 1,000 * *
John H. Wyant(7).............................. 51,000 * *
Edward Sousa(8)............................... 2,022,000 30.8 20.9
Richard S. Worth(8)(9)(10).................... 1,549,000 21.8 15.2
1497 Rail Head Blvd., Unit 2
Naples, Florida 74110-8444
Randye Worth(8)(9)(11)........................ 1,136,000 17.0 11.6
3757 Ascot Bend Court
Bonita Springs, Florida 34134
Robert L. Moody, Jr.(12)...................... 406,837 6.2 4.2
2302 Post office, Suite 601
Galveston, Texas 77550
Swiss Bank Corp............................... 420,000 6.4 0(13)
Paradeplatz 6
CH-8010 Zurich, Switzerland
All directors and officers as a group (6
persons)(3)(4)(5)(6)(7)(8).................. 2,511,500 35.9 24.9
</TABLE>
- ---------------
* Less than one percent (1%) of outstanding Common Stock.
(1) Except as otherwise indicated, the address for each of the named
individuals is c/o The Delicious Frookie Company, Inc., 2070 Maple Street,
Des Plaines, Illinois 60018.
(2) Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them. Pursuant to the rules and regulations of the
Commission, shares of Common Stock that an individual or group has a right
to acquire within 60 days pursuant to the exercise of warrants or options
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
(3) Consists of 50,000 shares of Common Stock issuable upon exercise of options
exercisable through August 11, 2008, at a price of $3.00 per share.
Excludes 130,000 shares of Common Stock issuable upon exercise of options
not exercisable currently or within 60 days of the date of this Prospectus,
at prices ranging from $6.00 to $12.00 per share.
(4) Consists of (i) 100,000 shares of Common Stock issuable upon exercise of
options exercisable through March 18, 2001, at a price of $3.00 per share
and (ii) 50,000 shares of Common Stock issuable upon exercise of options
exercisable through March 14, 2003, at a price of $3.00 per share.
(5) Includes (i) 500 shares of Common Stock issuable upon exercise of options
exercisable through February 21, 1999, at a price of $.80 per share; (ii)
50,000 shares of Common Stock, issuable upon exercise of options
exercisable through November 8, 2004, at a price of $3.00 per share; (iii)
73,500 shares of Common Stock issuable upon exercise of options exercisable
through August 4, 2004 with respect to 13,000 shares, through December 31,
2004 with respect to 3,000 shares, through
37
<PAGE> 40
December 31, 2005 with respect to 3,000 shares, through December 31, 2006
with respect to 3,000 shares, through December 17, 2007 with respect to
50,000 shares and through December 31, 2007 with respect to 1,500 shares,
all at a price of $3.00 per share; (iv) 26,000 shares of Common Stock
issuable upon exercise of warrants exercisable through April 27, 2001, at a
price of $2.00 per share, of which warrants to purchase 8,000 shares of
Common Stock are held by an individual retirement account ("IRA") for the
benefit of Mr. Schmitt, warrants to purchase 10,000 shares of Common Stock
are held by Mr. Schmitt together with his wife and 8,000 shares are held by
an IRA for the benefit of Mr. Schmitt's wife, of which shares Mr. Schmitt
disclaims beneficial ownership; and (v) 32,500 shares of Common Stock
issuable upon conversion of 32,500 shares of Series A Preferred Stock,
which automatically convert on May , 2001 if not earlier converted, of
which 10,000 shares of Series A Preferred Stock are held by an IRA for the
benefit of Mr. Schmitt, 12,500 shares of Series A Preferred Stock are held
by Mr. Schmitt together with his wife and 10,000 shares of Series A
Preferred Stock are held by an IRA for the benefit of Mr. Schmitt's wife,
of which shares Mr. Schmitt disclaims beneficial ownership. Excludes (i)
1,500 shares of Common Stock exercisable upon exercise of options not
exercisable currently or within 60 days of the date of this Prospectus;
(ii) 81,500 shares of Common Stock held by Donald Schmitt's adult children,
of which shares Mr. Schmitt disclaims beneficial ownership; (iii) 39,200
shares of Common Stock issuable upon exercise of warrants exercisable
through April 27, 2001, at a price of $2.00 per share, held by Mr.
Schmitt's adult children and his mother, of which shares Mr. Schmitt
disclaims beneficial ownership; and (iv) 49,000 shares of Common Stock
issuable upon conversion of 49,000 shares of Series A Preferred Stock,
which automatically convert on May , 2001 if not earlier converted, held
by Mr. Schmitt's adult children and his mother, of which shares Mr. Schmitt
disclaims beneficial ownership.
(6) Consists of 1,000 shares of Common Stock issuable upon exercise of options
exercisable through December 21, 2007, at a price of $3.00 per share.
Excludes 2,000 shares of Common Stock exercisable upon exercise of options
not exercisable currently or within 60 days of the date of this Prospectus
at a price of $3.00 per share.
(7) Consists of (i) 12,500 shares of Common Stock issuable upon exercise of
options exercisable through December 9, 2000, at a price of $1.40 per
share; (ii) 20,000 shares of Common Stock issuable upon exercise of options
exercisable through December 21, 1999, at a price of $.20 per share; and
(iii) 18,500 shares of Common Stock issuable upon exercise of options
exercisable through August 14, 2004 with respect to 13,000 shares, through
December 31, 2004 with respect to 3,000 shares, through December 31, 2005
with respect to 1,500 shares and through December 21, 2007 with respect to
1,000 shares, all at a price of $3.00 per share. Excludes 2,000 shares of
Common Stock issuable upon exercise of options not exercisable currently or
within 60 days of the date of this Prospectus at a price of $3.00 per
share.
(8) Simultaneously with the consummation of the First Closing of the October
Private Placement on December 22, 1997, (i) Richard and Randye Worth sold
an aggregate of 315,000 shares of Common Stock to private investors
(together with an aggregate of 69,000 shares of Common Stock sold by the
Worths on March 31, 1998 to private investors, the "Worth Shares") and
options to purchase an additional 1,000,000 shares of Common Stock owned by
them at a purchase price of $3.00 per share (the "Worth Options") at a
price of $3.00 per Worth Share and $.0001 per Worth Option, respectively,
and (ii) all of the remaining shares of Common Stock held by Richard and
Randye Worth, including the shares underlying the Worth Options (the "Trust
Shares") were deposited into the Voting Trust, and will be held in the
Voting Trust for a period of two years (but the terms of the Voting Trust
shall be extended to four years when the Worths have received at least
$4,000,000 of gross proceeds from the sale of their shares of Common Stock
(including the sale of the Worth Shares and Worth Options)). Pursuant to
the Voting Agreement with the Company, the Voting Trustee has agreed, at
any meeting of the stockholders of the Company, however called, or in any
written consent of the stockholders of the Company, to vote the Trust
Shares, and any other shares of Common Stock that may be deposited in such
trust, in accordance with the specific direction of the Board of Directors
of the Company or the recommendation of the Board of Directors to the
stockholders of the Company generally; provided, however, that the Voting
Trustee shall be entitled to vote for the removal of a director of the
Company
38
<PAGE> 41
for Cause (as defined in the Voting Agreement) as permitted by the Delaware
General Corporation Law despite a contrary direction or recommendation of
the Board of Directors.
(9) Richard S. Worth and Randye Worth are former husband and wife. Each of them
disclaims any beneficial ownership of the other's Common Stock.
(10) Includes (i) 10,000 shares of Common Stock issuable upon exercise of
warrants exercisable through April 27, 2001, at a price of $2.00 per share;
(ii) 50,500 shares of Common Stock issuable upon exercise of options
exercisable through February 21, 1999 with respect to 500 shares and
through September 25, 1999 with respect to 50,000 shares, all at a price of
$.80 per share; (iii) 110,000 shares of Common Stock issuable upon exercise
of options exercisable through October 31, 2000 with respect to 100,000
shares, and December 29, 2002 with respect to 10,000 shares, all at a price
of $1.40 per share; (iv) 20,000 shares of Common Stock issuable upon
exercise of options exercisable through December 2, 2002, at a price of
$1.25 per share; (v) 235,000 shares of Common Stock issuable upon exercise
of options exercisable through January 2, 2004, at a price of $1.60 per
share; (vi) 100,000 shares of Common Stock issuable upon the exercise of
options exercisable through July 5, 2005, at a price of $3.00 per share;
and (vii) 12,500 shares of Common Stock issuable upon conversion of 12,500
shares of Series A Preferred Stock, which automatically convert on May ,
2001 if not earlier converted.
(11) Includes (i) 37,500 shares of Common Stock issuable upon exercise of
options exercisable through October 31, 2000, at a price of $1.40 per
share; (ii) 5,000 shares of Common Stock issuable upon exercise of options
exercisable through December 29, 2002, at a price of $1.40 per share; (iii)
60,000 shares of Common Stock issuable upon exercise of options exercisable
through January 2, 2004, at a price of $1.60 per share; (iv) 10,000 shares
of Common Stock issuable upon exercise of warrants exercisable through
April 27, 2001, at a price of $2.00 per share; and (v) 12,500 shares of
Common Stock issuable upon conversion of 12,500 shares of Series A
Preferred Stock, which automatically convert on May , 2001 if not earlier
converted.
(12) Includes 203,407 shares of Common Stock held by Moody Insurance Group,
Inc., a corporation controlled by Robert L. Moody, Jr.
(13) Assumes the sale by Swiss Bank Corp. of 420,000 shares of Common Stock in
the Concurrent Offering. See "Concurrent Offering."
39
<PAGE> 42
SELLING STOCKHOLDERS
The following table sets forth certain information with respect to the
Selling Stockholders. None of the Selling Stockholders is currently an affiliate
of the Company and none of them has had a material relationship with the Company
during the past three years.
<TABLE>
<CAPTION>
SHARES BENEFICIALLY
OWNED
SHARES AFTER OFFERING(1)(2)
BENEFICIALLY OWNED PRIOR NUMBER OF --------------------
NAME AND ADDRESS OF BENEFICIAL OWNER TO OFFERING(1) SHARES OFFERED NUMBER PERCENT
- ------------------------------------ ------------------------ -------------- ------- -------
<S> <C> <C> <C> <C>
CEPA, S.A......................... 406,815 135,000 271,815 2.8
31 rue Aeroport
Centre Swiss Cointern
CH-1215 Geneva, Switzerland
H.T. Ardinger..................... 273,430 67,000 136,430(3) 1.4
c/o H.T. Ardinger & Sons
9040 Governors Row
Dallas, TX 75247
ABN-AMRO Bank..................... 193,237 65,000 128,237 1.3
Talstrasse 41
CH-8022 Zurich, Switzerland
Bordier & Cie..................... 122,618 41,000 81,618 *
16 rue de Hollande
CH-1211 Geneva, Switzerland
Fred Kassner...................... 81,372 27,000 54,372 *
c/o Liberty Travel
69 Spring Street
Ramsey, NJ 07446
Douglas Adkins, Esq.(4)........... 81,159 27,000 54,159 *
c/o Gardere & Wynne
3000 Thanksgiving Tower
Dallas, TX 75201
Donald A. Worth(5)................ 262,000 25,000 237,000 2.5
1390 Ocean Drive, Apt. 207
Miami Beach, FL 33139
William Heim...................... 20,343 6,500 13,843 *
8845 South Pleasant Street
Chicago, IL 60620
Christian Brunnschweiler.......... 20,343 6,500 13,843 *
Intermark Fibers Inc.
580 Sylvan Avenue
Englewood Cliffs, NJ 07632
</TABLE>
- ---------------
* Less than one percent (1%) of outstanding Common Stock.
(1) Except as otherwise indicated, the stockholders listed in the table have
sole voting and investment power with respect to all shares of Common Stock
beneficially owned by them. Pursuant to the rules and regulations of the
Commission, shares of Common Stock that an individual or group has a right
to acquire within 60 days pursuant to the exercise of warrants or options
are deemed to be outstanding for the purposes of computing the percentage
ownership of such individual or group, but are not deemed to be outstanding
for the purpose of computing the percentage ownership of any other person
shown in the table.
40
<PAGE> 43
(2) Does not include up to 125,000 shares of Common Stock issuable upon the
exercise of the over-allotment options granted to the Underwriters granted
by the Selling Stockholders.
(3) Assumes the sale by Mr. Ardinger of 70,000 shares of Common Stock in the
Concurrent Offering. See "Concurrent Offering."
(4) Includes 40,686 shares of Common Stock owned by the Gardere & Wynne Savings
Retirement Plan for Douglas Adkins, of which Mr. Adkins is a beneficiary.
(5) Includes 500 shares issuable upon exercise of options exercisable through
February 21, 1999, at a price of $.80 per share.
41
<PAGE> 44
DESCRIPTION OF CAPITAL STOCK
COMMON STOCK
The Company is authorized to issue up to 25,000,000 shares of Common Stock,
$.01 par value per share. There are currently outstanding 6,565,656 shares of
Common Stock and options, warrants and convertible securities outstanding to
purchase an additional 2,737,944 shares of Common Stock.
The holders of Common Stock are entitled to one vote for each share held of
record on each matter submitted to a vote of stockholders. There is no
cumulative voting for election of directors. Subject to the prior rights of any
series of Preferred Stock which may from time to time be outstanding, holders of
Common Stock are entitled to receive ratably such dividends as may be declared
by the Board of Directors out of funds legally available therefor, and, upon the
liquidation, dissolution or winding up of the Company, are entitled to share
ratably in all assets remaining after payment of liabilities and payment of
accrued dividends and liquidation preference on the Preferred Stock, if any.
Holders of Common Stock have no preemptive rights and have no rights to convert
their Common Stock into any other securities.
PREFERRED STOCK
The Company is authorized to issue 1,000,000 shares of Preferred Stock from
time to time in one or more series. As of the date of this Prospectus, the
Company had 490,000 shares of Series A Preferred Stock issued and outstanding.
The Board of Directors is authorized to provide for the issuance of
Preferred Stock in one or more series, to establish from time to time the number
of shares to be included in each such series, to fix the rights, preferences and
privileges of the shares of each wholly unissued series and any qualifications,
limitations or restrictions thereon, and to increase or decrease the number of
shares of any such series (but not below the number of shares of such series
then outstanding), without any further vote or action by stockholders. The Board
of Directors may authorize and issue Preferred Stock with voting or conversion
rights that could adversely affect the voting power or other rights of the
holders of Common Stock, because the terms of the Preferred Stock that might be
issued could conceivably prohibit the Company's consummation of any merger,
reorganization, sale of substantially all its assets, liquidation or other
extraordinary corporate transaction absent approval of the outstanding shares of
Preferred Stock. Thus, the issuance of Preferred Stock may have the effect of
delaying, deferring or preventing a change in control of the Company. The
Company has no current plan to issue any additional shares of Preferred Stock.
On April , 1998, the Board of Directors of the Company authorized the
issuance of up to 490,000 shares of Preferred Stock, $.01 par value per share,
designated the Series A Convertible Preferred Stock ("Series A Preferred
Stock"). Each share of Series A Preferred Stock will, (i) at the option of the
holder or (ii) automatically on the third anniversary of the date of issuance,
be converted into one share of Common Stock. Holders of shares of Series A
Preferred Stock are entitled to cumulative dividends of 10% per annum, payable
on January 31 and July 31 of each year. The Series A Preferred Stock is subject
to certain anti-dilution protections and has liquidation preference over the
Common Stock in the event of any liquidation or sale of the Company. Except a
otherwise provided by law, the holders of Series A Preferred Stock are not
entitled to vote.
CHANGE OF CONTROL PROVISIONS
Certain provisions of the Company's Certificate of Incorporation and Bylaws
may have the effect of preventing, discouraging or delaying a change in control
of the Company and may maintain the incumbency of the Board of Directors and
management. The authorization of undesignated Preferred Stock makes it possible
for the Board of Directors to issue Preferred Stock with voting or other rights
or preferences that could impede the success of any attempt to change control of
the Company.
Upon consummation of this offering, the Company will be subject to the
provisions of Section 203 regulating corporate takeovers. Section 203 prevents
an "interested stockholder" (defined in Section 203,
42
<PAGE> 45
generally, as a person owning 15% or more of a corporation's outstanding voting
stock) from engaging in a "business combination" with a publicly-held Delaware
corporation for three years following the date such person became an interested
stockholder, unless: (i) before such person became an interested stockholder,
the board of directors of the corporation approved the transaction in which the
interested stockholder became an interested stockholder or approved the business
combination; (ii) upon consummation of the transaction that resulted in the
interested stockholder's becoming an interested stockholder, the interested
stockholder owns at least 85% of the voting stock of the corporation outstanding
at the time the transaction commenced (subject to certain exceptions); or (iii)
following the transaction in which such person became an interested stockholder,
the business combination is approved by the board of directors of the
corporation and authorized at a meeting of stockholders by the affirmative vote
of the holders of 66% of the outstanding voting stock of the corporation not
owned by the interested stockholder. A "business combination" includes mergers,
stock or asset sales and other transactions resulting in a financial benefit to
the interested stockholder. A Delaware corporation may "opt out" of Section 203
with an express provision in its original certificate of incorporation or an
express provision in its certificate of incorporation or bylaws resulting from a
stockholders' amendment approved by at least a majority of the outstanding
voting shares. The Company has not "opted out" of the provisions of Section 203.
The provisions of Section 203 could have the effect of delaying, deferring
or preventing a change in control of the Company.
TRANSFER AND WARRANT AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Continental Stock
Transfer & Trust Company, New York, New York.
QUOTATION ON NASDAQ SMALLCAP MARKET; LISTING ON CHICAGO STOCK EXCHANGE
The Company has applied for, and it is anticipated that upon effectiveness
of the offering, the shares of Common Stock will be approved for, quotation on
the Nasdaq SmallCap Market under the symbol "DFSB." In addition, the Company has
applied for, and it is anticipated that upon effectiveness of the offering, the
shares of Common Stock will be approved for, listing on the Chicago Stock
Exchange under the symbol "DFB."
43
<PAGE> 46
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
9,665,656 shares of Common Stock, not including shares of Common Stock issuable
upon exercise of outstanding options and warrants and conversion of outstanding
convertible securities. Of those shares, the 3,500,000 shares of Common Stock
sold to the public in this offering (4,025,000 if the Underwriters'
over-allotment is exercised in full) may be freely traded without restriction or
further registration under the Securities Act, except for any shares that may be
held by an "affiliate" of the Company (as that term is defined in the rules and
regulations under the Securities Act) which may be sold only pursuant to a
registration under the Securities Act or pursuant to an exemption from
registration under the Securities Act, including the exemption provided by Rule
144 adopted under the Securities Act.
Of the 6,565,656 shares of Common Stock outstanding prior to this offering,
6,165,656 shares (6,040,656 if the Underwriters' over-allotment option is
exercised in full) are restricted securities as that term is defined in Rule 144
("Restricted Shares") and may not be sold unless such sale is registered under
the Securities Act or is made pursuant to an exemption from registration under
the Securities Act, including the exemption provided by Rule 144. In general,
under Rule 144, a stockholder (or stockholders whose shares are aggregated) who
has beneficially owned any restricted securities for at least one year
(including a stockholder who may be deemed to be an affiliate of the Company),
will be entitled to sell, within any three-month period, that number of shares
that does not exceed the greater of (i) 1% of the then-outstanding shares of
Common Stock or (ii) the average weekly trading volume of the Common Stock
during the four calendar weeks preceding the date on which notice of such sale
is given to the Commission, provided certain public information, manner of sale
and notice requirements are satisfied. A stockholder who is deemed to be an
affiliate of the Company, including members of the Board of Directors and
executive officers of the Company, will still need to comply with the
restrictions and requirements of Rule 144, other than the one-year holding
period requirement, in order to sell shares of Common Stock that are not
restricted securities, unless such sale is registered under the Securities Act
or another exemption from registration applies. A stockholder (or stockholders
whose shares are aggregated) who is deemed not to have been an affiliate of the
Company at any time during the 90 days preceding a sale by such stockholder, and
who has beneficially owned restricted securities for at least two years, will be
entitled to sell such restricted securities under Rule 144 without regard to the
volume limitations described above.
Of the Restricted Shares, 4,071,656 shares are currently eligible for sale
under Rule 144, subject however, to any applicable requirements of Rule 144, and
125,000 of these shares may be sold in this offering by the Selling Stockholders
if the Underwriters' over-allotment option is exercised in full. 2,084,000 of
the Restricted Shares not currently available for resale under Rule 144 have
been registered for resale in the Concurrent Offering under the registration
statement of which this Prospectus is a part. Each of the directors and officers
of the Company and beneficial owners of more than 5,000 shares of Common Stock,
other than Richard and Randye Worth, who hold in the aggregate shares
of Common Stock, has agreed not to offer, sell or otherwise dispose of any
shares of Common Stock without the prior consent of the Representative until 12
months after the date of this Prospectus. Richard and Randye Worth have agreed
not to offer, sell or otherwise dispose of any shares of Common Stock without
the prior consent of the Representative for a period of 36 months after the date
of this Prospectus, however, Richard and Randye Worth will be able to sell up to
10% of their aggregate holdings between the first and second anniversaries of
the date of this Prospectus and up to an additional 20% of their aggregate
holding between the second and third anniversaries of the date of this
Prospectus without the prior written consent of the Representative.
Prior to this offering, there has been no public trading market for the
Common Stock, and no predictions can be made as to the effect, if any, that
future sales of shares or the availability of shares for sale will have on the
market price prevailing from time to time. Nevertheless, sales of substantial
amounts of the Common Stock in the public market could adversely affect the
then-prevailing market price.
44
<PAGE> 47
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a prospectus with respect to an offering of 2,084,000 shares of Common
Stock (the "Concurrent Offering"), including 1,000,000 shares of Common Stock
underlying the Worth Options, owned by certain selling securityholders (the
"Holders"). Such shares of Common Stock may be sold in the open market, in
privately negotiated transactions or otherwise, directly by the Holders. The
Company will not receive any proceeds from the sale of such shares. Expenses of
the Concurrent Offering, other than fees and expenses of counsel to the Holders
and selling commissions, will be paid by the Company. Sales of such shares of
Common Stock by the Holders or the potential of such sales may have an adverse
effect on the market price of the securities offered hereby. See "Risk
Factors -- Shares Eligible for Future Sale."
All of the Holders have agreed not to sell or dispose of any securities
issued by the Company, including Common Stock or securities convertible into or
exchangeable for or evidencing any right to purchase or subscribe for any shares
of Common Stock for a period of 12 months from the effective date of the
registration statement of which this Prospectus forms a part, without the prior
written consent of the Representative.
45
<PAGE> 48
UNDERWRITING
The underwriters named below (the "Underwriters"), for whom Gaines, Berland
Inc. is acting as the Representative, have severally agreed to purchase from the
Company and the Selling Stockholders the respective number of shares of Common
Stock set forth opposite their names:
<TABLE>
<CAPTION>
UNDERWRITER NUMBER OF SHARES
----------- ----------------
<S> <C>
Gaines, Berland Inc.........................................
---------
Total............................................. 3,500,000
=========
</TABLE>
The Underwriting Agreement provides that the obligations of the several
Underwriters thereunder are subject to approval of certain legal matters by
counsel and to various other considerations. The nature of the Underwriters'
obligations is such that they are committed to purchase and pay for all of the
above shares of Common Stock if any are purchased.
The Underwriters, through the Representative, have advised the Company that
they propose to offer the Common Stock initially at the public offering price
set forth on the cover page of this Prospectus; that the Underwriters may allow
to selected dealers a concession of $ per share; and that such dealers
may reallow a concession of $ per share to other dealers. After the
initial public offering of the Common Stock, the offering price and other
selling terms may be changed by the Underwriters.
The Company and the Selling Stockholders have granted to the Underwriters a
30-day over-allotment option to purchase up to 400,000 additional shares of
Common Stock from the Company and 125,000 additional shares of Common Stock from
the Selling Stockholders on a pro rata basis, exercisable at the public offering
price less the underwriting discount. If the Underwriters exercise such
over-allotment option, then each of the Underwriters will have a firm
commitment, subject to certain conditions, to purchase approximately the same
percentage thereof as the number of shares of Common Stock to be purchased by it
as shown in the table above bears to the 3,500,000 shares of Common Stock
offered by the Company and the Selling Stockholders hereby. The Underwriters may
exercise such option only to cover over-allotments made in connection with the
sale of shares of Common Stock offered hereby.
Each of the directors and officers of the Company and beneficial owners of
more than 5,000 shares of Common Stock, other than Richard and Randye Worth, who
hold in the aggregate shares of Common Stock, has agreed not to offer,
sell or otherwise dispose of any shares of Common Stock without the prior
consent of the Representative until 12 months after the date of this Prospectus.
Richard and Randye Worth have agreed not to offer, sell or otherwise dispose of
any shares of Common Stock without the prior consent of the Representative for a
period of 36 months after the date of this Prospectus, however, Richard and
Randye Worth will be able to sell up to 10% of their aggregate holdings between
the first and second anniversaries of the date of this Prospectus and up to an
additional 20% of their aggregate holding between the second and third
anniversaries of the date of this Prospectus without the prior written consent
of the Representative.
In connection with the offering made hereby, the Company has agreed to sell
to the Representative, for nominal consideration, the Representative's Warrant
to purchase from the Company up to 350,000 shares of Common Stock. The
Representative's Warrant is exercisable, in whole or in part, at an exercise
price equal to 120% of the price to public at any time during the four-year
period commencing one year after the effective date of the registration
statement, of which this Prospectus is a part. The Representative's Warrant
contains provisions providing for the adjustment of the exercise price and the
type and number of securities issuable upon exercise of the Representative's
Warrant should one or more of specified events occur. The Representative's
Warrant grants to the holders thereof demand and piggyback registration rights
for the securities issuable upon the exercise of the Representative's Warrant.
The Representative's Warrant may not be sold, transferred, assigned, pledged or
hypothecated until one year after the effective date of the offering, except to
46
<PAGE> 49
officers or partners of the Representative and other members of the underwriting
or selling group and officers or partners thereof in compliance with the
applicable provisions of the Corporate Financing Rule of the NASD.
The Company and the Selling Stockholders have agreed to indemnify the
Underwriters against certain liabilities, losses and expenses, including
liabilities under the Securities Act or to contribute to payments that the
Underwriters may be required to make in respect thereof. The Company and the
Selling Stockholders have agreed to pay the Representative a non-accountable
expense allowance equal to $630,000 (at an assumed initial public offering price
of $6.00 per share) to be paid on a pro rata basis by the Company and the
Selling Stockholders ($724,500 if the Underwriters' over-allotment option is
exercised in full).
Prior to the offering, there has been no public market for the Common
Stock. The initial public offering price will be determined through negotiations
among the Company, the Selling Stockholders and the Representative. Among the
factors to be considered in determining the initial public offering price, in
addition to prevailing market conditions, will be certain financial information
of the Company, the history of, and the prospects for, the Company and the
industry in which it competes, an assessment of the Company's management, its
past and present operations, the prospects for, and timing of, future net sales
of the Company, the present state of the Company's development, and the above
factors in relation to market values and various valuation measures of other
companies engaged in activities similar to, the Company. The range of the
initial public offering price set forth on the cover page of this Prospectus is
subject to change as a result of market conditions and other factors. There can
be no assurance that an active trading market will develop for the Common Stock
or that the Common Stock will trade in the public market subsequent to the
offering at or above the initial public offering price.
In connection with the offering, certain Underwriters and selling group
members and their respective affiliates may engage in transactions that
stabilize, maintain or otherwise affect the market price of the Common Stock.
Such transactions may include stabilization transactions effected in accordance
with Rule 104 of Regulation M, pursuant to which such persons may bid for or
purchase Common Stock for the purpose of stabilizing its market price. The
Underwriters may also create a short position for the account of the
Underwriters by selling more Common Stock in connection with the offering than
they are committed to purchase from the Company and the Selling Stockholders,
and in such case may purchase Common Stock in the open market following
completion of the offering to cover all or a portion of such short position. The
Underwriters may also cover all or a portion of such short position, up to
525,000 shares of Common Stock, by exercising the Underwriters' over-allotment
option referred to above. In addition, the Representative, on behalf of the
Underwriters, may impose "penalty bids" whereby it may reclaim from an
Underwriter (or dealer participating in the offering) for the account of the
other Underwriters, the selling concession with respect to the Common Stock that
is distributed in the offering but subsequently purchased for the account of the
Underwriters in the open market. Any of the transactions described in this
paragraph may result in the maintenance of the price of the Common Stock at a
level above that which may otherwise prevail in the open market. None of the
transactions described in this paragraph is required, and, if any are
undertaken, they may be discontinued at any time.
LEGAL MATTERS
The legality of the securities offered hereby and certain other legal
matters will be passed upon for the Company by Olshan Grundman Frome &
Rosenzweig LLP, New York, New York. Certain legal matters in connection with the
sale of such securities will be passed on for the Selling Stockholders by
. Graubard Mollen & Miller, New York, New York, has served
as counsel to the Underwriters in connection with this offering.
47
<PAGE> 50
EXPERTS
The financial statements of the Company as of December 31, 1996 and 1997
and for each of the two years in the period ended December 31, 1997 and the
financial statements of Salerno as of December 31, 1997 and for the year then
ended included in this Prospectus have been so included in reliance on the
report of Altschuler, Melvoin & Glasser LLP, independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting.
The financial statements of the Company for the year ended December 31,
1995 included in this Prospectus have been so included in reliance on the report
of Cooper, Selvin & Strassberg, LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.
The financial statements of Salerno as of December 31, 1996 and for the
period January 23, 1996 (Date of Inception) through December 31, 1996 included
in this Prospectus have been so included in reliance on the report of Friedman
Eisenstein Raemer and Schwartz, LLP ("FERS"), independent certified public
accountants, given on the authority of said firm as experts in auditing and
accounting. Prior to January 23, 1996, Salerno's business was conducted as part
of a division of Sunshine Biscuits, Inc. and its financial results are not
presently available to the Company. The Company has agreed to indemnify and hold
FERS and each partner, employee, agent and controlling person of FERS harmless
against and from any and all losses, claims, damages or liabilities to which
FERS may become subject in connection with its issuance of the consent letter
relating to Salerno's 1996 financial statements under any of the federal
securities laws; provided, however, that the foregoing indemnity does not apply
in the case of negligence, dishonesty or fraudulent acts of FERS or the failure
of FERS to follow generally acceptable professional or regulatory standards.
AVAILABLE INFORMATION
The Company has filed with the Commission a registration statement on Form
S-1 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the securities offered
hereby. This Prospectus, which constitutes part of the Registration Statement,
does not contain all of the information set forth in the Registration Statement,
certain parts of which are omitted in accordance with the rules and regulations
of the Commission. For further information, reference is made to the
Registration Statement and the exhibits and schedules filed as a part thereof,
copies of which may be obtained from the Public Reference Section of the
Commission at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W., Washington,
D.C. 20549, upon payment of the fees prescribed by the Commission as well as at
the following regional offices: Northeast Regional Office, 7 World Trade Center,
New York, New York 10048, and Midwest Regional Office, Citicorp Center, 500 West
Madison Street, Suite 1400, Chicago, Illinois 60661. The Commission also
maintains a home page on the World Wide Web that contains reports, proxy and
information statements and other information. The address of such site is
http://www.sec.gov. Copies of such Registration Statement may also be requested
from the Company, attention Mr. Jeffry W. Weiner, Chief Financial Officer, 2070
Maple Street, Des Plaines, Illinois 60018.
The Company intends to furnish its stockholders with annual reports
containing financial statements which will be audited by its independent public
accounting firm, and such other periodic reports as the Company may determine to
be appropriate or as may be required by law.
48
<PAGE> 51
THE DELICIOUS FROOKIE COMPANY, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
PRO FORMA FINANCIAL STATEMENTS
Introduction to Pro Forma Financial Information............. F-2
Pro Forma Balance Sheet, December 31, 1997.................. F-3
Pro Forma Statement of Operations, Year Ended December 31,
1997...................................................... F-4
Notes to the Pro Forma Financial Statements................. F-5
THE DELICIOUS FROOKIE COMPANY, INC.
Report of Altschuler, Melvoin and Glasser LLP............... F-6
Report of Cooper, Selvin & Strassberg, LLP.................. F-7
Balance Sheets, December 31, 1996 and 1997.................. F-8
Statement of Operations, Years Ended December 31, 1995, 1996
and 1997.................................................. F-9
Statement of Stockholders' Equity (Deficit), Years Ended
December 31, 1995, 1996 and 1997.......................... F-10
Statement of Cash Flows, Years Ended December 31, 1995, 1996
and 1997.................................................. F-11
Notes to the Financial Statements........................... F-12
SALERNO FOODS, L.L.C.
Report of Altschuler, Melvoin and Glasser LLP............... F-22
Balance Sheet, December 31, 1997............................ F-23
Statement of Operations, Year Ended December 31, 1997....... F-24
Statement of Changes in Members' Equity (Deficit), Year
Ended December 31, 1997................................... F-25
Statement of Cash Flows, Year Ended December 31, 1997....... F-26
Notes to the Financial Statements........................... F-27
Report of Friedman, Eisenstein Raemer and Schwartz, LLP..... F-32
Balance Sheet, December 31, 1996............................ F-33
Statement of Operations and Members' Equity, January 23,
1996 (Date of Inception) through December 31, 1996........ F-34
Statement of Cash Flows, January 23, 1996 (Date of
Inception) through December 31, 1996...................... F-35
Notes to Financial Statements............................... F-36
</TABLE>
F-1
<PAGE> 52
THE DELICIOUS FROOKIE COMPANY, INC.
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements of The Delicious Frookie
Company, Inc. (the "Company") give effect to the acquisition of Salerno Foods,
L.L.C., the second closing of the private placement whereby the Company sold
280,000 shares of common stock and the closing of a $500,000 loan, bearing
interest at a rate of 12% per annum, incurred in connection with the
above-mentioned acquisition.
The pro forma balance sheet gives effect to the above mentioned events as
if the transactions had occurred as of the Company's most recent balance sheet
date, December 31, 1997. The pro forma statement of operations for the year
ended December 31, 1997 gives effect to the above-mentioned transactions as if
the transactions had occurred on January 1, 1997.
The pro forma adjustments are based upon preliminary estimates, available
information and certain assumptions that management deems appropriate. The
unaudited pro forma financial data presented herein does not purport to
represent what the Company's financial position or results of operations would
have been had the transactions which are the subject of pro forma adjustments
occurred on those dates, as assumed, and are not necessarily representative of
the Company's financial position or results of operations in any future period.
The pro forma financial statements should be read in conjunction with the other
financial statements and notes thereto included elsewhere in this Prospectus.
F-2
<PAGE> 53
THE DELICIOUS FROOKIE COMPANY, INC.
PRO FORMA BALANCE SHEET
DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THE DELICIOUS
FROOKIE SALERNO PRO FORMA
COMPANY, INC. FOODS, L.L.C. ADJUSTMENTS PRO FORMA
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................................ $ 808,349 $ 5,239 $ (500,000)(a) $ 1,510,588
697,000(b)
500,000(c)
Accounts receivable, net............ 1,924,390 2,847,757 4,772,147
Inventory........................... 152,399 2,167,950 2,320,349
Due from distributors............... 172,176 172,176
Prepaid expenses and other current
assets........................... 141,925 84,565 226,490
------------ ---------- ---------- ------------
3,199,239 5,105,511 697,000 9,001,750
------------ ---------- ---------- ------------
Property and Equipment, net........... 177,852 967,840 1,145,692
------------ ---------- ------------
Other Assets:
Intangible assets, net.............. 2,698,174 233,212 5,440,288(a) 8,371,674
Other............................... 411,340 118,265 200,000(a) 729,605
------------ ---------- ---------- ------------
3,109,514 351,477 5,640,288 9,101,279
------------ ---------- ---------- ------------
$ 6,486,605 $6,424,828 $6,337,288 $ 19,248,721
============ ========== ========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank loan payable................... $ 1,498,382 $2,537,269 $ 4,035,651
Notes payable....................... $4,700,000(a) 5,200,000
500,000(c)
Accounts payable and accrued
expenses......................... 4,617,552 3,807,516 360,000(a) 8,785,068
Due to distributors................. 326,012 326,012
Accrued royalties................... 160,331 160,331
Current portion of long-term
liabilities...................... 1,120,544 1,120,544
------------ ---------- ---------- ------------
7,562,490 6,505,116 5,560,000 19,627,606
------------ ---------- ---------- ------------
Long-term Liabilities:
Subordinated debt................... 1,960,000 1,960,000
Restructuring liability............. 880,573 880,573
Packaging loss liability............ 870,075 870,075
Other............................... 1,919 1,919
------------ ------------
3,712,567 3,712,567
------------ ------------
Stockholders' Deficit:
Preferred stock..................... 0 0
Common stock........................ 63,835 2,800(b) 66,635
Additional paid-in capital.......... 6,937,898 694,200(b) 7,632,098
Accumulated deficit................. (11,629,136) (11,629,136)
Members' deficit.................... (80,288) 80,288(a) 0
------------ ---------- ---------- ------------
(4,627,403) (80,288) 777,288 (3,930,403)
Less, common stock in treasury at
cost............................. (161,049) (161,049)
------------ ---------- ---------- ------------
Total stockholders'
deficit................... (4,788,452) (80,288) 777,288 (4,091,452)
------------ ---------- ---------- ------------
$ 6,486,605 $6,424,828 $6,337,288 $ 19,248,721
============ ========== ========== ============
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE> 54
THE DELICIOUS FROOKIE COMPANY, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
THE DELICIOUS
FROOKIE SALERNO PRO FORMA
COMPANY, INC. FOODS, L.L.C. ADJUSTMENTS PRO FORMA
------------- ------------- ------------ ------------
<S> <C> <C> <C> <C>
Net Sales......................... $30,664,723 $39,147,701 $ 69,812,424
Cost Of Sales..................... 25,193,264 28,412,752 53,606,016
----------- ----------- ------------
Gross Profit...................... 5,471,459 10,734,949 16,206,408
----------- ----------- ------------
Operating Expenses:
Promotion and selling........... 3,932,089 9,221,584 13,153,673
General and administrative...... 2,938,325 2,060,753 $ 272,014(a) 5,271,092
Restructuring charge............ 1,548,035 1,548,035
----------- ----------- ----------- ------------
8,418,449 11,282,337 272,014 19,972,800
----------- ----------- ----------- ------------
Loss from Operations.............. (2,946,990) (547,388) (272,014) (3,766,392)
----------- ----------- ----------- ------------
Other Income (Expense):
Interest expense................ (416,913) (321,035) (824,000)(b) (1,561,948)
Other, net...................... (34,223) 29,798 (4,425)
----------- ----------- ----------- ------------
451,136 291,237 824,000 1,566,373
----------- ----------- ----------- ------------
Net Loss.......................... $(3,398,126) $ (838,625) $(1,096,014) $ (5,332,765)
=========== =========== =========== ============
Weighted Average Shares
Outstanding..................... (c) 6,147,218
Net Loss Per Share................ $ (0.87)
============
</TABLE>
See accompanying notes to pro forma financial statements.
F-4
<PAGE> 55
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
1. UNAUDITED PRO FORMA BALANCE SHEET ADJUSTMENTS
(a) Adjustments to reflect the purchase price adjustments and related debt
associated with the acquisition of Salerno Foods, L.L.C. ("Salerno"). The
portion of the consideration assigned to goodwill ($5,440,288) in the
transaction accounted for under the purchase accounting method represents the
excess of the cost over the fair market value of the net assets acquired. The
Company amortizes goodwill over a period of 20 years. The recoverability of the
unamortized goodwill will be assessed on an ongoing basis by comparing
anticipated undiscounted future cash flows from operations to net book value.
(b) Represents proceeds received, net of expenses, in connection with the
second closing of a private placement whereby the Company sold 280,000 shares of
common stock.
(c) Represents proceeds received in connection with a $500,000 loan,
bearing interest at a rate of 12% per annum, incurred in connection with the
acquisition of Salerno.
2. UNAUDITED PRO FORMA STATEMENT OF OPERATIONS ADJUSTMENTS
(a) Adjustment to reflect the increase in amortization expense relating to
goodwill, recorded in purchase accounting related to the acquisition of Salerno,
as if the acquisition had occurred on January 1, 1997.
(b) Adjustment to reflect (i) the increase in interest expense related to a
$4,600,000 12% promissory note and a $100,000 12% promissory note issued in
connection with the acquisition of Salerno and the $500,000 12% promissory note
issued in connection with the loan discussed above and (ii) the amortization of
related financing costs. Such increase was computed as if these promissory notes
were outstanding for the entire year ended December 31, 1997.
(c) The weighted average shares outstanding used to calculate pro forma
loss per share is based upon 6,147,218 shares of common stock assumed to be
outstanding for the period. This is based on the weighted average number of
shares of common stock outstanding for the year ended December 31, 1997 of
5,867,218 plus 280,000 shares of common stock issued in connection with the
second closing of a private placement.
F-5
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Delicious Frookie Company, Inc.
We have audited the accompanying balance sheets of THE DELICIOUS FROOKIE
COMPANY, INC. as of December 31, 1996 and 1997, and the related statements of
operations, stockholders' equity (deficit) and cash flows for the years then
ended. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the financial position of The Delicious Frookie Company,
Inc. as of December 31, 1996 and 1997 and the results of its operations and its
cash flows for the years then ended in conformity with generally accepted
accounting principles.
/s/ ALTSCHULER, MELVOIN AND GLASSER LLP
---------------------------------------
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
January 22, 1998, except for Notes 1, 4, 12 and 13
as to which the date is April 3, 1998
F-6
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
The Delicious Frookie Company, Inc.
We have audited the accompanying statements of operations, stockholders'
equity (deficit) and cash flows of THE DELICIOUS FROOKIE COMPANY, INC. (the
"Company") for the year ended December 31, 1995. These financial statements are
the responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the aforementioned financial statements present fairly, in
all material respects, the results of operations and cash flows of The Delicious
Frookie Company, Inc. for the year ended December 31, 1995 in conformity with
generally accepted accounting principles.
/s/ COOPER SELVIN & STRASSBERG, LLP
--------------------------------------
Cooper Selvin & Strassberg, LLP
Great Neck, New York
July 18, 1996
F-7
<PAGE> 58
THE DELICIOUS FROOKIE COMPANY, INC.
BALANCE SHEETS
DECEMBER 31, 1996 AND 1997
<TABLE>
<CAPTION>
1996 1997
----------- ------------
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 661,706 $ 808,349
Accounts receivable, net of allowances of $572,872 and
$575,000, respectively................................. 1,943,134 1,924,390
Inventory (Note 2)........................................ 768,647 152,399
Due from distributors (Note 2)............................ 187,829 172,176
Prepaid expenses and other current assets................. 382,577 141,925
----------- ------------
3,943,893 3,199,239
----------- ------------
Property and Equipment, Net of Accumulated Depreciation
(Notes 2 and 3)........................................... 339,600 177,852
----------- ------------
Other Assets:
Goodwill (Note 2)......................................... 2,860,878 2,698,174
Other..................................................... 447,883 411,340
----------- ------------
3,308,761 3,109,514
----------- ------------
$ 7,592,254 $ 6,486,605
=========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank loan payable (Note 4)................................ $ 1,929,086 $ 1,498,382
Accounts payable and accrued expenses..................... 4,179,753 4,617,552
Due to distributors (Note 2).............................. 167,552 326,012
Current portion of long-term liabilities.................. 118,533 1,120,544
----------- ------------
6,394,924 7,562,490
----------- ------------
Long-term Liabilities:
Subordinated debt (Note 5)................................ 2,110,000 1,960,000
Restructuring liability (Note 11)......................... 0 880,573
Packaging loss liability (Note 6)......................... 1,413,111 870,075
Other..................................................... 23,016 1,919
----------- ------------
3,546,127 3,712,567
----------- ------------
Commitments and Contingencies (Note 10)
Stockholders' Deficit (Notes 8 and 12):
Preferred stock, $.01 par value, 1,000,000 shares
authorized, no shares issued and outstanding........... 0 0
Class A common stock, voting, $.01 par value, 25,000,000
shares authorized, 5,891,210 and 6,383,506 shares
issued in 1996 and 1997, respectively.................. 58,912 63,835
Class B common stock, non-voting, no shares authorized at
December 31, 1997 and 62,296 shares issued at December
31, 1996............................................... 623 0
Additional paid-in capital................................ 5,983,727 6,937,898
Accumulated deficit....................................... (8,231,010) (11,629,136)
----------- ------------
(2,187,748) (4,627,403)
Less, common stock in treasury at cost.................... (161,049) (161,049)
----------- ------------
Total stockholders' deficit....................... (2,348,797) (4,788,452)
----------- ------------
$ 7,592,254 $ 6,486,605
=========== ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-8
<PAGE> 59
THE DELICIOUS FROOKIE COMPANY, INC.
STATEMENT OF OPERATIONS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Net Sales........................................... $52,721,868 $36,847,650 $30,664,723
Cost of Sales....................................... 42,252,593 29,837,075 25,193,264
----------- ----------- -----------
Gross Profit........................................ 10,469,275 7,010,575 5,471,459
----------- ----------- -----------
Operating Expenses:
Promotion and selling............................. 12,380,999 3,171,857 3,932,089
General and administrative........................ 3,944,852 4,331,375 2,938,325
Restructuring charge (Note 11).................... 0 0 1,548,035
----------- ----------- -----------
16,325,851 7,503,232 8,418,449
----------- ----------- -----------
Loss from Operations................................ (5,856,576) (492,657) (2,946,990)
----------- ----------- -----------
Other Income (Expense):
Interest expense.................................. (597,480) (408,873) (416,913)
Other, net........................................ 161,598 3,396 (34,223)
----------- ----------- -----------
(435,882) (405,477) (451,136)
----------- ----------- -----------
Loss before Provision for Income Taxes.............. (6,292,458) (898,134) (3,398,126)
Provision for Income Taxes (Note 7)................. 662,180 0 0
----------- ----------- -----------
Net Loss............................................ $(6,954,638) $ (898,134) $(3,398,126)
=========== =========== ===========
Earnings per Share (Note 2):
Basic:
Net loss per common share...................... $ (1.29) $ (0.16) $ (0.58)
=========== =========== ===========
Weighted average number of common shares
outstanding.................................. 5,408,327 5,628,131 5,867,218
Diluted:
Net loss per common share...................... $ (1.29) $ (0.16) $ (0.58)
=========== =========== ===========
Weighted average number of common shares
outstanding.................................. 5,408,327 5,628,131 5,867,218
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE> 60
THE DELICIOUS FROOKIE COMPANY, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
COMMON STOCK
--------------------------------------
CLASS A CLASS B ADDITIONAL TREASURY STOCK
------------------- ---------------- PAID-IN ACCUMULATED ----------------------
SHARES AMOUNT SHARES AMOUNT CAPITAL (DEFICIT) SHARES AMOUNT
--------- ------- ------- ------ ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1995....... 5,442,155 $54,422 62,296 $ 623 $4,641,052 $ (378,238) (34,850) $ (60,250)
Purchase of Treasury Stock..... (63,000) (100,799)
Net Loss....................... (6,954,638)
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, December 31, 1995..... 5,442,155 54,422 62,296 623 4,641,052 (7,332,876) (97,850) (161,049)
Conversion of 8% Subordinated
Debentures to Class A Common
Stock........................ 449,055 4,490 1,342,675
Net Loss....................... (898,134)
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, December 31, 1996..... 5,891,210 58,912 62,296 623 5,983,727 (8,231,010) (97,850) (161,049)
Change in Authorized Capital
Structure.................... 62,296 623 (62,296) (623)
Proceeds from Issuance of
Common Stock, Net of $303,829
in Expenses.................. 420,000 4,200 951,971
Issuance of Stock for
Services..................... 10,000 100 2,200
Net Loss....................... (3,398,126)
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, December 31, 1997..... 6,383,506 $63,835 0 $ 0 $6,937,898 $(11,629,136) (97,850) $ (161,049)
========= ======= ======= ===== ========== ============ ======== ===========
<CAPTION>
TOTAL
STOCKHOLDERS'
EQUITY
(DEFICIT)
-------------
<S> <C>
Balance, January 1, 1995....... $ 4,257,609
Purchase of Treasury Stock..... (100,799)
Net Loss....................... (6,954,638)
-----------
Balance, December 31, 1995..... (2,797,828)
Conversion of 8% Subordinated
Debentures to Class A Common
Stock........................ 1,347,165
Net Loss....................... (898,134)
-----------
Balance, December 31, 1996..... (2,348,797)
Change in Authorized Capital
Structure....................
Proceeds from Issuance of
Common Stock, Net of $303,829
in Expenses.................. 956,171
Issuance of Stock for
Services..................... 2,300
Net Loss....................... (3,398,126)
-----------
Balance, December 31, 1997..... $(4,788,452)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE> 61
THE DELICIOUS FROOKIE COMPANY, INC.
STATEMENT OF CASH FLOWS
YEARS ENDED DECEMBER 31, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.......................................... $(6,954,638) $ (898,134) $(3,398,126)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation and amortization.................. 412,434 560,106 352,320
Provision for bad debts........................ 100,001 583,337 40,487
Loss on disposal of property and equipment..... 0 0 50,899
Restructuring charge........................... 0 0 1,548,035
Issuance of common stock for services.......... 0 0 2,300
Deferred income taxes.......................... 678,800 0 0
Increase (Decrease) in cash from changes in:
Accounts receivable.......................... 1,334,473 537,559 (76,217)
Inventory.................................... (1,094,349) 798,807 616,248
Due from distributors........................ 17,341 (42,654) 15,653
Prepaid expenses and other current assets.... (315,769) 307,834 240,652
Refundable income taxes...................... 542,922 71,678 0
Other assets................................. 51,058 11,420 (90,020)
Accounts payable and accrued expenses........ 2,485,484 (1,197,562) 437,799
Due to distributors.......................... 166,802 (408,750) 158,460
Accrued restructuring liabilities............ 0 0 (399,128)
Other liabilities............................ 1,337,000 (222,778) 186,964
----------- ----------- -----------
Net cash provided by (used in) operating
activities..................................... (1,238,441) 100,863 (313,674)
----------- ----------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment................ (247,192) (88,131) (47,730)
Purchase of product line.......................... (255,678) 0 0
----------- ----------- -----------
Net cash used in investing activities............. (502,870) (88,131) (47,730)
----------- ----------- -----------
Cash Flows from Financing Activities:
Payments of long-term debt........................ (15,879) (16,953) (17,420)
Proceeds (Payments) of bank loan payable, net..... 1,099,409 617,801 (430,704)
Proceeds from issuance of common stock............ 0 0 1,260,000
Purchase of treasury stock........................ (100,799) 0 0
Payment of stock issuance costs................... 0 0 (303,829)
----------- ----------- -----------
Net cash provided by financing activities......... 982,731 600,848 508,047
----------- ----------- -----------
Increase (Decrease) in Cash......................... (758,580) 613,580 146,643
Cash, Beginning of Year............................. 806,706 48,126 661,706
----------- ----------- -----------
Cash, End of Year................................... $ 48,126 $ 661,706 $ 808,349
=========== =========== ===========
Supplemental Disclosure of Cash Flow Information:
Cash paid during the year for:
Income taxes................................... $ 86,862 $ 0 $ 0
=========== =========== ===========
Interest....................................... $ 464,738 $ 338,197 $ 420,296
=========== =========== ===========
</TABLE>
Supplemental Disclosure of Noncash Activities:
During 1997, in satisfaction for a payment of trade accounts receivable,
$150,000 of subordinated debt was redeemed and cancelled.
During 1996, in exchange for 8% Subordinated Promissory Notes of
$1,260,000 and related accrued interest of $87,165, the Company
issued 449,055 shares of Class A common stock.
The accompanying notes are an integral part of this statement.
F-11
<PAGE> 62
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS
NOTE 1 -- NATURE OF ACTIVITIES
The Delicious Frookie Company, Inc. (the "Company"), a Delaware
corporation, was incorporated in 1989. In March 1994, the Company acquired all
of the stock of The Delicious Cookie Company, Inc. ("Delicious"), an Illinois
corporation. Effective December 29, 1995, Delicious was merged with and into the
Company with the Company remaining as the surviving entity.
The Company is a marketer of pre-packaged cookies, crackers and snacks
which are sold throughout the United States under the Company's own "Delicious"
and "Frookie" labels. The products are sold through a combination of independent
direct store delivery distributors, natural food distributors, brokers and
direct to retail.
The Company grants credit to its customers in the normal course of
business. Sales to one customer approximated 17%, 20% and 21% of total Company
sales for the years ended December 31, 1995, 1996, and 1997, respectively. No
other customer accounted for more than 10% of the Company's sales. Amounts due
from such customer represented approximately 18% and 20% of the Company's net
trade accounts receivable at December 31, 1996, and 1997, respectively.
Approximately 40%, 49% and 52% of the Company's inventory purchases for the
years ended December 31, 1995, 1996, and 1997, respectively, were from two major
vendors.
The Company has several customers and vendors who are also holders of the
Company's common stock or subordinated convertible notes. During 1995, 1996 and
1997, respectively, net sales to these customers were approximately $7,310,000,
$5,656,000 and $5,325,000 while purchases from such vendors were approximately
$3,393,000, $744,000 and $395,000. Management believes all of these transactions
were on terms at least as favorable as could be obtained from unaffiliated
parties.
The Company has suffered recurring losses since 1994, and at December 31,
1997 has negative working capital and a stockholders' deficit. During 1997, the
Company initiated several actions to improve its financial condition and
operating performance including the restructuring of management (Note 11), a
private placement of the Company's common stock (Note 12) which provided working
capital and extended credit terms with its major vendors. In 1998, the Company
raised an additional $697,000 in a private placement of common stock, borrowed
$500,000 by issuing a short term 12% note and amended its revolving bank line of
credit agreement (See Notes 4 and 13). Additionally, the Company plans to (a)
complete an initial public offering of the Company's common stock, (b) exchange
the 9% Convertible Subordinated Notes (Note 5) for convertible preferred stock,
(c) increase sales prices and (d) implement cost reductions already negotiated
with the Company's vendors. Management believes that the condition of its trade
accounts receivable is satisfactory and that the Company is current with its
obligations to vendors.
There can be no assurance that the Company will be able to successfully
implement its plans for growth or, if such plans are implemented, that the
Company will achieve its goals. The Company's financial statements have been
presented on the basis that it is a going concern, which contemplates the
realization of assets and the satisfaction of liabilities in the normal course
of business. The financial statements do not include any adjustments to reflect
the possible future effects on the recoverability and classification of assets
or the amounts and classifications of liabilities that may result in the event
the Company's plans are not successful.
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
INVENTORY -- Inventory is stated at the lower of cost or market with cost
determined by the first-in, first-out (FIFO) method.
ADVERTISING AND PROMOTION -- All costs associated with advertising,
promotion, marketing and slotting are charged to operations as incurred. Such
expenses are included in promotion and selling in the statement of
F-12
<PAGE> 63
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
operations and amounted to $8,348,409, $2,184,433 and $2,227,242 for the years
ended December 31, 1995, 1996 and 1997, respectively.
AMOUNTS DUE TO/FROM DISTRIBUTORS -- The Company offers its distributors
promotional allowances which can be earned based on percentages of their
purchases from the Company. Amounts due from distributors represent overspent
allowances. These will either be earned by the distributors in the future or
paid to the Company. Amounts due to distributors represent promotional
allowances earned but unspent by the distributors.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost. For
financial reporting purposes, depreciation is provided using the straight-line
method over the estimated useful lives of the assets. For income tax reporting
purposes, depreciation is computed under accelerated methods, as permitted under
the Internal Revenue Code. When capital assets are sold, retired or otherwise
disposed of, the cost of the assets and the related accumulated depreciation are
removed from the respective accounts and any gains or losses are included in
operations. Major improvements are capitalized and repairs and maintenance are
charged to operations as incurred.
GOODWILL -- Goodwill represents the excess of cost over the fair value of
net assets of acquired businesses, and is being amortized on a straight-line
basis over a period of twenty years. Accumulated amortization amounted to
$650,270 and $555,905 at December 31, 1996 and 1997, respectively. On an
on-going basis, the Company reassesses the recorded values of long-lived assets
based on estimated undiscounted expected future cash flows. If the results of
these periodic assessments indicate that an impairment may be likely, the
Company recognizes a charge to operations at that time.
DEFERRED FINANCING COSTS -- Costs incurred in connection with obtaining
financing are amortized over the life of the related debt.
INCOME TAXES -- Deferred income taxes are provided for temporary
differences between financial and income tax reporting.
STOCK OPTION PLANS -- The Company has adopted only the disclosure
provisions of SFAS No. 123, Accounting for Stock-Based Compensation, and
continues to account for stock options in accordance with APB Opinion 25.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenue and expenses during
the reporting period. Actual results could differ from those estimates.
RECLASSIFICATIONS -- Certain amounts reported in the 1995 and 1996
financial statements have been reclassified to conform with the 1997
presentation without affecting previously reported net losses.
EARNINGS PER SHARE -- The Company adopted Financial Standards Board No.
128, "Earnings per Share" (FAS 128), which requires retroactive application to
all periods presented. Under FAS 128, "Basic Earnings per Share" is computed by
dividing net income (loss) available to common stockholders by the weighted
average number of shares of common stock outstanding during the period. "Diluted
Earnings per Share" reflects the potential dilution that could occur if warrants
and options or other contracts to issue common stock were exercised and resulted
in the issuance of additional common shares. For the years ended December 31,
1995, 1996 and 1997, diluted earnings per share and basic earnings per share are
identical because of the losses incurred during those years. All options and
warrants discussed in Notes 5 and 8 were omitted from the
F-13
<PAGE> 64
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
computation of diluted earnings (loss) per share because the options and
warrants are antidilutive when net losses are reported.
FAIR VALUE OF FINANCIAL INSTRUMENTS -- Because the interest rate of the
revolving loan with U.S. Bancorp Republic Commercial Finance, Inc. (formerly
known as Republic Acceptance Corporation) ("U.S. Bancorp") adjusts with changes
in the market rate of interest, management believes the fair value is equivalent
to the carrying value. Management believes that the fair value of the 9%
subordinated debt (Note 5) is approximately $1,895,000, which is $65,000 less
than its carrying value. Management has estimated the fair value by discounting
expected cash flows using an interest rate (12%) that management believes is
approximately equal to the interest rate available for similar debt.
RECENT ACCOUNTING PRONOUNCEMENTS -- In June 1997, the Financial Accounting
Standards Board (FASB) issued Financial Accounting Standards No. 130, "Reporting
Comprehensive Income" (FAS 130). FAS 130 establishes standards for reporting and
display of comprehensive income and its components in the financial statements.
FAS 130 is effective for fiscal years beginning after December 15, 1997.
Reclassification of financial statements for earlier periods provided for
comparative purposes is required. The adoption of this standard is expected to
have no impact on the Company's results of operations, financial position or
cash flows.
In June 1997, the FASB issued Financial Accounting Standards No. 131,
"Disclosures about Segments of and Enterprise and Related Information" (FAS
131). FAS 131 establishes standards for the way public business enterprises
report information about operating segments in annual financial statements and
requires that those enterprises report selected information about operating
segments in interim financial reports issued to shareholders. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. FAS 131 is effective for financial
statements for fiscal years beginning after December 15, 1997. Financial
statement disclosure for prior periods are required to be restated. The Company
has not determined what effect, if any, the adoption of FAS 131 will have on
financial statement disclosures.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
ESTIMATED
1996 1997 LIFE
-------- -------- -------------
<S> <C> <C> <C>
Office equipment................................ $361,537 $275,666 5 to 10 years
Molds and dies.................................. 230,666 232,074 3 years
Promotion and display equipment................. 84,153 44,444 5 years
-------- --------
676,356 552,184
Less accumulated depreciation................... 336,756 374,332
-------- --------
$339,600 $177,852
======== ========
</TABLE>
Depreciation expense amounted to $142,425, $152,378 and $158,578 for the
years ended December 31, 1995, 1996 and 1997, respectively.
NOTE 4 -- BANK LOAN PAYABLE
The Company is obligated to U.S. Bancorp under a Financing Agreement (the
"Agreement"), dated November 27, 1996 as last amended April 3, 1998, for a
revolving line of credit limited to the lesser of $7,000,000 or the sum of
eligible accounts receivable and eligible inventories as defined. Borrowings
under the Agreement are due upon demand and bear interest at 1.50% per annum
(prior to the last amendment, 3.25%) above the reference rate of interest
publicly announced by U.S. Bank National Association (8.25% at
F-14
<PAGE> 65
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- BANK LOAN PAYABLE -- (CONTINUED)
December 31, 1997). Borrowings under the Agreement, which expires on November
30, 1999, are collateralized by substantially all of the assets of the Company.
Availability under the Agreement as of December 31, 1997 approximated $418,000.
The Agreement requires a minimum interest charge of $12,500 per month and the
payment of a prepayment penalty ranging from 2 to 3% of the loan facility in the
event the Agreement is terminated prior to its expiration.
The weighted average interest rates on the aforementioned borrowings were
10.3%, 10.5% and 11.7% for the years ended December 31, 1995, 1996, and, 1997
respectively.
NOTE 5 -- SUBORDINATED DEBT
At December 31, 1996 and 1997, the Company was obligated to noteholders of
the Company's 9% Subordinated Convertible Notes aggregating $2,110,000 and
$1,960,000, respectively. The notes are due April 27, 1999 with interest payable
semiannually in January and July at 9% per annum. The notes are convertible into
the Company's common stock at the rate of $4 per share in the event of a default
by the Company. When the notes were originally issued on April 28, 1994, a total
of 290,375 common stock purchase warrants were issued. The warrants are
exercisable for five years and each warrant gives the holder the right to
purchase one share of common stock at an exercise price of $2 per share. At
December 31, 1997, 280,375 of these warrants were available to be exercised
through April 27, 1999.
On April 30, 1996, the Company defaulted on the repayment of 8%
Subordinated Promissory notes (the "Notes") aggregating $1,260,000. As a result
of such default, effective May 1, 1996, the interest rate on the Notes increased
to 16%. In July and August 1996, the holders of the Notes converted such Notes
plus accrued interest of $87,165 into a total of 449,055 shares of common stock.
NOTE 6 -- PACKAGING LOSS LIABILITY
Packaging for the Company's products is generally purchased directly by the
Company's suppliers based upon the Company's projected sales of a product. Upon
discontinuance of a product or in instances where sales do not meet
expectations, the Company may incur a liability to its suppliers for unused
packaging. At December 31, 1996 and 1997, the Company has accrued $1,514,222 and
$1,701,186, respectively, to provide for future potential liability including
certain amounts already agreed to with certain suppliers (see below). Of this
amount, management estimates that $831,111 will be paid during 1998.
During 1997, the Company entered into an agreement to settle various
disputes with one of its suppliers, whose sole shareholder is a shareholder of
the Company and was a director of the Company until December 1997, that requires
the Company to pay the supplier $1,400,000 (included in the above mentioned
accrual), of which $300,000 was provided in 1997 and charged to cost of sales.
The agreement stipulates that if the Company defaults on any payment and does
not cure the default within 90 days, an additional $200,000 will be added to the
unpaid balance and simple interest at an annual rate of 10% will begin to
accrue. Principal payments are scheduled as follows:
<TABLE>
<S> <C>
1998............................................. $ 620,000
1999............................................. 580,000
2000............................................. 200,000
----------
$1,400,000
==========
</TABLE>
F-15
<PAGE> 66
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES
The Company uses the asset and liability method for determining deferred
income taxes. The provision (benefit) for income taxes consists of the
following:
<TABLE>
<CAPTION>
1995 1996 1997
----------- --------- -----------
<S> <C> <C> <C>
Federal and state:
Current.................................... $ (16,620) $ 0 $ 0
Deferred (net)............................. (2,310,100) (618,300) (1,439,800)
Increase in valuation allowance............ 2,988,900 618,300 1,439,800
----------- --------- -----------
$ 662,180 $ 0 $ 0
=========== ========= ===========
</TABLE>
A reconciliation of the provision for income taxes on income and the amount
computed by applying the federal income tax rate to net loss before income tax
expense is as follows:
<TABLE>
<CAPTION>
1995 1996 1997
----------- --------- -----------
<S> <C> <C> <C>
Computed income tax expense (benefit) at
federal statutory rate....................... $(2,139,000) $(305,000) $(1,155,000)
State income taxes............................. (295,000) (35,000) (156,000)
Non-deductible amortization of intangible
assets....................................... 55,000 55,000 55,000
Adjustment to net operating loss
carryforward................................. 52,280 (333,300) (183,800)
Increase in valuation allowance................ 2,988,900 618,300 1,439,800
----------- --------- -----------
$ 662,180 $ 0 $ 0
=========== ========= ===========
</TABLE>
At December 31, 1996 and 1997, the Company's net deferred income tax asset
consisted of:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Gross deferred tax assets:
Net operating loss carryforwards........................ $ 3,276,900 $ 4,155,000
Allowance for doubtful accounts......................... 217,700 342,000
Amortization of goodwill................................ 85,300 79,000
Restructuring liability................................. 0 366,000
Other................................................... 52,400 136,000
----------- -----------
Total gross deferred tax assets......................... 3,632,300 5,078,000
Less valuation allowance................................ (3,607,200) (5,047,000)
----------- -----------
Net deferred tax assets................................. 25,100 31,000
----------- -----------
Gross deferred tax liabilities:
Depreciation and amortization expense................... 25,100 31,000
----------- -----------
Net deferred taxes...................................... $ 0 $ 0
=========== ===========
</TABLE>
Deferred income tax assets and liabilities result from the recognition of
temporary differences. Temporary differences are differences between the tax
basis of assets and liabilities and their reported amounts in the financial
statements that will result in differences between income for tax purposes and
income for financial statement purposes in future years.
At December 31, 1997, the Company has available for tax reporting purposes
approximately $10,394,000 of net operating loss carryforwards expiring in
varying amounts through 2012. Management believes, based on the Internal Revenue
Code, that utilization of these net operating loss carryforwards will be
restricted due to
F-16
<PAGE> 67
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
the changes in ownership that have occurred or will occur of a two year period.
A portion of the valuation allowance discussed above relates to this item.
NOTE 8 -- STOCK OPTIONS
Pursuant to the 1989 Stock Option Plan (the "1989 Plan") and the 1995 Stock
Option Plan (the "1995 Plan"), the Company is authorized to grant stock options
for a maximum of 2,250,000 shares, collectively, of the Company's common stock.
Incentive stock options and nonqualified stock options may be granted to
employees and employee directors and nonqualified stock options may be granted
to consultants, nonemployee directors and other nonemployees.
The exercise price of incentive stock options shall not be less than 100%
of the fair market value of the shares at the time of grant (110% in the cases
of persons owning 10% or more of the Company's voting stock) and the term of
incentive stock options shall not exceed ten years from the date of the grant.
Incentive stock options may be granted to an employee owning more than ten
percent of the combined voting powers of all classes of stock only if such
options are exercisable within five years from the date of grant. The exercise
price of nonqualified options under the 1989 Plan shall not be less than the
lesser of either the book value of the shares covered by the options or 50% of
the fair market value of those shares. The exercise price of nonqualified
options under the 1995 Plan shall not be less than par value.
Pursuant to the 1994 Formula Stock Option Plan (the "1994 Plan") the
Company is authorized to grant, to nonemployee directors who are not holders of
more than 5% of the outstanding shares of stock of the Company, nonqualified
stock options to purchase up to 150,000 shares of the Company's common stock.
Options granted pursuant to the plan shall be at the fair market value of the
stock and all options shall be for a term of ten years.
Pursuant to the 1994 Plan, each eligible director who becomes a director
will receive on the date of the eligible director's election options to purchase
a total of 3,000 shares that vest and become exercisable in three equal
installments, one-third on the date of grant and one-third on each of the first
and second anniversaries of such grant. Each eligible director on January 1 of
each year who has served as director for at least one full year and has met
other specified requirements will receive options to purchase a total of 3,000
shares that vest and become exercisable in two equal installments, one-half on
the date of grant and one-half on the first anniversary of such grant. The
exercise price of these options shall be the fair market value of the shares of
Common Stock on the date of grant. In addition, on August 15, 1994, eligible
directors were granted options for a total of 55,000 shares of common stock
representing options for 1994 as well as for past service. Options granted to
individuals who were directors on August 15, 1994 vested and became exercisable
in two equal installments on the date of grant and on the first anniversary of
the grant.
F-17
<PAGE> 68
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTIONS -- (CONTINUED)
Following is a table indicating the activity during 1995, 1996 and 1997 for
such plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at January 1, 1995................. 377,770 $ 1.70
======
Granted during year.................................. 797,000 3.00
Exercised during year................................ 0
Forfeited............................................ (105,700) 2.92
---------
Options outstanding at December 31, 1995............... 1,069,070 $ 2.55
======
Granted during year.................................. 171,000 3.00
Exercised during year................................ 0
Forfeited............................................ (10,500) 2.62
---------
Options outstanding at December 31, 1996............... 1,229,570 $ 2.61
======
Granted during year.................................. 300,000 4.90
Exercised during year................................ 0
Forfeited............................................ (556,333) (3.00)
---------
Options outstanding at December 31, 1997............. 973,237 $ 3.09
========= ======
</TABLE>
The following table summarizes information about outstanding and
exercisable stock options as of December 31, 1997:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE WEIGHTED
REMAINING CONTRACTUAL AVERAGE AVERAGE
RANGE OF NUMBER LIFE EXERCISE NUMBER EXERCISE
EXERCISE PRICES OUTSTANDING (MONTHS) PRICE EXERCISABLE PRICE
- --------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$.20 to $.80 114,210 19 $ .69 114,210 $ .69
$1.40 to $1.60 164,900 36 $ 1.40 164,900 $1.40
$3.00 528,667 95 $ 3.00 513,666 $3.00
$4.48 35,460 22 $ 4.48 35,460 $4.48
$6.00 100,000 127 $ 6.00 -- $ --
$12.00 30,000 127 $12.00 -- $ --
</TABLE>
In addition to the stock options issued pursuant to the above plans, the
Company has granted options which are not covered by a formal plan for the
purchase of shares of its common stock. At December 31, 1997 there was 887,499
of these options outstanding, all of which are exercisable, with a weighted
average contractual life of 48 months and a weighted average exercise price of
$1.59.
As permitted under generally accepted accounting principles, grants under
the plans are accounted for following provisions of APB Opinion 25 and its
related interpretations. Accordingly, no compensation cost has been recognized
for grants made to date. Had compensation been determined based on the fair
value method prescribed in SFAS No. 123, the reported net loss for 1996 and 1997
would have been approximately $182,000 ($.03 per share) and $133,000 ($.02 per
share), respectively, greater than that which is presented in the
F-18
<PAGE> 69
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- STOCK OPTIONS -- (CONTINUED)
statement of operations. In determining the compensation based on the fair value
method prescribed by SFAS No. 123, the following assumptions were used:
<TABLE>
<S> <C>
Risk-free interest rate...................... 5.71%
Expected option life......................... 84 months
Expected volatility.......................... Not Applicable
Expected dividends........................... None
</TABLE>
NOTE 9 -- EMPLOYEE BENEFIT PLAN
The Company maintains a 401(k) savings plan for the benefit of all eligible
employees, as defined. Participants may elect to contribute a percentage of
their salary to the plan. The Company may make matching and discretionary
contributions at its discretion, subject to limitations imposed by the plan. No
Company contributions were made in 1995, 1996 or 1997.
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases office space under an operating lease expiring in 1998.
Minimum future rental payments under noncancellable operating leases as of
December 31, 1997, are as follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31,
------------------------
<S> <C>
1998............................................... $50,586
1999............................................... 7,862
2000............................................... 5,523
2001............................................... 1,140
-------
$65,111
=======
</TABLE>
Total rent expense for the years ended December 31, 1995, 1996, and 1997 was
$96,954, $93,307 and $91,656, respectively.
The Company is obligated under the terms of a consulting agreement which
expires August 31, 1999 to pay the consultant an annual fee of $72,000 in
monthly installments of $6,000. The payments are charged to expense each month
when paid.
An action was commenced against the Company and an unaffiliated third party
by a former distributor of the Company's products alleging a breach of contract.
The plaintiff seeks damages in the amount of approximately $2,500,000 and
punitive damages in the amount of $1,000,000. There can be no assurance that
this litigation will not discourage companies from distributing the Company's
products. An unfavorable decision could have a material adverse effect on the
Company's business, its results of operations and financial position.
Additionally, the Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of business. In the opinion of
management, all such matters are adequately covered by insurance, or, if not so
covered, are without merit or are of such kind, or involve such amounts, that
unfavorable disposition would not have a material effect on the financial
position of the Company.
NOTE 11 -- RESTRUCTURING
Effective August 13, 1997, two Company executives/stockholders resigned and
entered into agreements to provide consulting services to the Company. The
agreements require the former executives to be available to provide consulting
services to the Company through August 1998 and include a clause restricting the
former executives from competing with the Company. The agreements cumulatively
provide for
F-19
<PAGE> 70
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 11 -- RESTRUCTURING -- (CONTINUED)
(a) consulting fees aggregating $200,000 per year for five years, (b) automobile
and office allowances aggregating $83,600 per year for three years, (c) life and
health insurance coverage for five years and (d) forgiveness of debts
aggregating $88,030. In addition, the Company exchanged its Cool Fruits Fruit
Juice Freezers product line and assigned the Company's license agreement for
Chiquita Tropical Freezers product line to one of the individuals for the
cancellation of options to purchase 500,000 shares of the Company's common
stock.
It is management's opinion that the Company will not utilize the services
of the former executives during the one-year consulting period and there is no
value to the non-compete clause. The cost of the benefits being paid to the
former executives was charged to expense in 1997 and accrued using a present
value method over the expected term of the agreements. For the year ended
December 31, 1997, the Company recognized $1,548,035 as a restructuring charge
and $44,908 as related interest expense principally related to the activities
described above. At December 31, 1997, the balance sheet reflected a liability
of $1,148,907 of which $268,334 was included in the current portion of long-term
liabilities.
NOTE 12 -- COMMON STOCK
During 1997, and in anticipation of the proposed initial public offering,
the Company amended its articles of incorporation to (a) combine the two classes
of common stock into one class, (b) increase the number of authorized shares of
$.01 par value common stock to 25,000,000 shares, (c) authorize 1,000,000 shares
of $.01 par value preferred stock and (d) initiated a private placement to sell
a minimum 175,000 shares of common stock and a maximum 700,000 shares of common
stock at a price of $3 per share. On December 22, 1997, an initial closing of
this private placement took place whereby the Company sold 420,000 shares of
common stock and received proceeds of approximately $956,000 net of expenses of
approximately $304,000. On February 6, 1998, a second closing of this private
placement took place whereby the Company sold 280,000 shares of common stock and
received proceeds of approximately $697,000 net of expenses of approximately
$143,000.
Simultaneously with the initial closing of the private placement, the
former executives (Note 11) agreed to sell an aggregate of 384,000 shares of
common stock and options to purchase 1,000,000 shares of common stock owned by
them to a group of outside investors and deposit into a voting trust controlled
by a director of the Company all remaining shares of common stock owned by them
for a period of two years.
NOTE 13 -- ACQUISITION OF ASSETS OF SALERNO FOODS, L.L.C.
On April 3, 1998, the Company acquired substantially all of the assets of
Salerno Foods, L.L.C. ("Salerno") The purchase price consisted of (a) $3,500,000
in cash, (b) a $1,500,000 promissory note bearing interest at 12% per annum
("Salerno Promissory Note") secured by a second lien on substantially all of the
Company's assets and (c) the assumption of substantially all of the liabilities
of Salerno. The Company assigned its obligations under the Salerno Promissory
Note to American Pacific Financial Corporation ("APFC") and its principal
stockholder, who is also a principal member of Salerno. In connection therewith,
the Company entered into a loan agreement with APFC pursuant to which the
Company borrowed $4,600,000 from APFC (the "APFC Loan") consisting of $3,000,000
in cash used by the Company to fund a portion of the cash purchase price for
Salerno, $1,500,000 in the form of APFC assuming primary liability under the
Salerno Promissory Note and $100,000 as a fee for the APFC Loan. In addition,
the Company issued APFC a 12% promissory note in the amount of $100,000 as a fee
for assuming the Salerno Promissory Note. The Salerno Promissory Note and the
APFC Loan each mature on the earlier of (a) 120 days from the date of the
incurrence of such indebtedness (August 1, 1998), or (b) consummation of an
initial public offering of common stock or other recapitalization from which the
Company receives gross proceeds of at least $7,000,000 or (c) a sale or other
transfer of all or substantially all of the Company's assets or equity
interests.
F-20
<PAGE> 71
THE DELICIOUS FROOKIE COMPANY, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 13 -- ACQUISITION OF ASSETS OF SALERNO FOODS, L.L.C. -- (CONTINUED)
The APFC Loan is secured by a third lien on substantially all of the Company's
assets. The Company expects to repay the APFC Loan with a portion of the net
proceeds of the proposed initial public offering.
In anticipation of the above-mentioned acquisition, the Company consummated
a loan whereby the Company borrowed $500,000 . Such indebtedness bears interest
at the rate of 12% per annum and matures on the earlier of (a) 120 days from the
date of the incurrence of such indebtedness or (b) consummation of an initial
public offering of the Company's common stock pursuant to which the Company
receives gross proceeds of at least $7 million. The loan is convertible into the
Company's common stock at a rate of $3 per share in the event of a default by
the Company.
F-21
<PAGE> 72
INDEPENDENT AUDITORS' REPORT
To the Members of
Salerno Foods, L.L.C.
We have audited the accompanying balance sheet of SALERNO FOODS, L.L.C. as
of December 31, 1997, and the related statements of operations, changes in
members' equity (deficit) and cash flows for the year then ended. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Salerno Foods, L.L.C. as of
December 31, 1997, and the results of its operations and its cash flows for the
year then ended, in conformity with generally accepted accounting principles.
As described in Note 1 to the financial statements, on April 3, 1998,
substantially all of the Company's assets were sold.
/s/ ALTSCHULER, MELVOIN AND GLASSER
LLP
----------------------------------------
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
March 24, 1998, except for the
third paragraph of Note 1,
as to which the date is April 3, 1998
F-22
<PAGE> 73
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 5,239
Accounts receivable, net of allowances of $330,424........ 2,847,757
Inventory (Note 2)........................................ 2,167,950
Prepaid expenses and other current assets................. 84,565
----------
5,105,511
----------
Property and Equipment, Net of Accumulated Depreciation and
Amortization (Notes 2 and 3).............................. 967,840
----------
Other Assets:
Intangible assets, net of accumulated amortization (Notes
2 and 4)............................................... 233,212
Other..................................................... 118,265
----------
351,477
----------
$6,424,828
==========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Borrowings under revolving bank line of credit (Note 5)... $2,537,269
Accounts payable.......................................... 3,225,304
Accrued expenses.......................................... 582,212
Accrued royalties (Note 4)................................ 160,331
----------
6,505,116
----------
Commitments and Contingencies (Note 8)
Members' Equity (Deficit) (Note 9).......................... (80,288)
----------
$6,424,828
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-23
<PAGE> 74
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF OPERATIONS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Net Sales................................................... $39,147,701
Cost of Sales............................................... 28,412,752
-----------
Gross Profit................................................ 10,734,949
-----------
Operating Expenses:
Selling................................................... 9,221,584
General and administrative................................ 2,060,753
-----------
11,282,337
-----------
Loss from Operations........................................ (547,388)
-----------
Other Income (Expense):
Interest expense.......................................... (321,035)
Other..................................................... 29,798
-----------
(291,237)
-----------
Net Loss.................................................... $ (838,625)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-24
<PAGE> 75
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<CAPTION>
PREFERRED A PREFERRED B COMMON
------------------- ------------------- -------------------
UNITS AMOUNT UNITS AMOUNT UNITS AMOUNT TOTAL
------- --------- ------- --------- ------- --------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1997........... 401,477 $ 275,649 371,023 $ 254,740 332,000 $ 227,948 $ 758,337
Issuance of Units in Satisfaction
of the Preferred Priority
Return........................... 29,703 27,483
Net Loss........................... (311,270) (287,682) (239,673) (838,625)
------- --------- ------- --------- ------- --------- ---------
Balance, December 31, 1997......... 431,180 $ (35,621) 398,506 $ (32,942) 332,000 $ (11,725) $ (80,288)
======= ========= ======= ========= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE> 76
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF CASH FLOWS
YEAR ENDED DECEMBER 31, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $(838,625)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Depreciation and amortization.......................... 280,966
Increase (decrease) in cash from changes in:
Accounts receivable.................................. 322,289
Inventory............................................ 381,116
Prepaid expenses and other current assets............ 282,962
Other assets......................................... (28,273)
Accounts payable..................................... (123,015)
Accrued expenses..................................... (160,446)
---------
Net cash provided by operating activities................. 116,974
---------
Cash Flows from Investing Activities:
Purchases of property and equipment....................... (198,960)
Payment of additional purchase price (Note 4)............. (165,981)
---------
Net cash used in investing activities..................... (364,941)
---------
Cash Flows from Financing Activities:
Proceeds from revolving bank line of credit, net.......... 70,077
---------
Net cash provided by financing activities................. 70,077
---------
Net Decrease in Cash........................................ (177,890)
Cash, Beginning of Year..................................... 183,129
---------
Cash, End of Year........................................... $ 5,239
=========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest.................... $ 324,370
=========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Increase in additional purchase price (see Note 4) for
accrued and unpaid royalties at December 31, 1997 of
$143,400 and customer chargebacks of $125,575, which
reduced such payments
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE> 77
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
DECEMBER 31, 1997
NOTE 1 -- NATURE OF ACTIVITIES
Salerno Foods, L.L.C. (the "Company") markets and distributes cookies and
related products, primarily using the Salerno and Mama's brand names, to
distributors and retailers located throughout the United States.
The Company began operations on January 23, 1996 (see Note 4) as a limited
liability company (L.L.C.) under the Delaware Limited Liability Company Act. The
term of the Company shall continue with perpetuity, unless the Company is
earlier dissolved.
On April 3, 1998, substantially all of the assets of the Company were sold
to The Delicious Frookie Company, Inc. in exchange for $3,500,000 in cash, a
$1,500,000 promissory note and the assumption of substantially all of the
Company's liabilities. The Delicious Frookie Company, Inc. assigned its primary
obligations under the promissory note to American Pacific Financial Corporation.
A stockholder of American Pacific Financial Corporation is also a member of the
Company. The purchase price is subject to adjustments as outlined in the
purchase agreement. Simultaneous with the sale, The Delicious Frookie Company,
Inc. paid in full the Company's borrowings under the revolving line of credit
(see Note 5). The Company is in the process of winding down its affairs and has
distributed its available cash to its members. A final distribution will be made
at such time as the managing members determine that all affairs of the Company
have been completed.
The Company grants credit to its customers in the ordinary course of
business. Sales to one customer approximated 12% of total Company sales for the
year ended December 31, 1997. No other customer accounted for more than 10% of
the Company's sales. Amounts due from such customer represented approximately
14% of the Company's net trade accounts receivable at December 31, 1997.
Approximately 74% of the Company's inventory purchases for the year ended
December 31, 1997 were from two major vendors, one of which is related to the
Company (see Note 7).
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
A summary of significant accounting policies followed by the Company is as
follows:
INVENTORY -- Inventory is valued at the lower of cost, determined on
the first-in, first-out (FIFO) method, or market.
ADVERTISING COSTS -- The Company expenses advertising costs as
incurred or when the related campaign commences. Slotting fees paid or
credited to grocery store chains for shelf space allocations are amortized
over the shorter of expected utility or one year.
PROPERTY AND EQUIPMENT -- Property and equipment is stated at cost
less accumulated depreciation and amortization. Depreciation is provided on
the straight-line method over estimated useful lives ranging from three to
ten years. Leasehold improvements are amortized over the lesser of the
useful life of the asset or the term of the lease.
When capital assets are sold, retired or otherwise disposed of, the
cost of the assets and the related accumulated depreciation are removed
from the respective accounts and gains or losses are included in
F-27
<PAGE> 78
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
operations. Major improvements are capitalized and repairs and maintenance
are charged to operations as incurred.
INTANGIBLE ASSETS -- Intangible assets resulting from the business
acquisition are amortized using the straight-line method over various lives
as described in Note 4.
INCOME TAXES -- As a limited liability company the Company is not
subject to federal income taxes, and its income or loss is allocated to and
reported in the tax returns of its members. Accordingly, no liability or
provision for federal income taxes and deferred income taxes attributable
to the Company's operations are included in the accompanying financial
statements; however, the Company's taxable income is subject to Illinois
replacement tax.
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment at December 31, 1997 consists of the following:
<TABLE>
<CAPTION>
AMOUNT LIFE
---------- ------------
<S> <C> <C>
Office equipment................................... $ 541,020 3 to 5 years
Warehouse equipment................................ 695,587 10 years
Leasehold improvements............................. 35,213 3 1/2 years
----------
1,271,820
Less accumulated depreciation and amortization..... (303,980)
----------
$ 967,840
==========
</TABLE>
Depreciation and amortization expense related to these assets amounted to
$224,881 for the year ended December 31, 1997.
NOTE 4 -- INTANGIBLE ASSETS
Intangible assets at December 31, 1997 consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION
AMOUNT PERIOD
-------- ------------
<S> <C> <C>
Acquisition costs.................................... $111,009 5 years
Organization costs................................... 50,361 5 years
Financing costs...................................... 62,815 3 years
Goodwill............................................. 113,941 15 years
--------
338,126
Less accumulated amortization........................ (104,914)
--------
$233,212
========
</TABLE>
Amortization expense for the year ended December 31, 1997 was $56,243.
On January 23, 1996, the Company purchased certain assets and assumed
certain liabilities of the Salerno Biscuit Division of Sunshine Biscuits, Inc.,
a distributor of cookies and related products, for $4,430,390. The purchase
price is increased annually based on 1.5% of "Net Product Revenues" through
January 22, 1999, as defined in the purchase agreement. The present value of
these payments, as of the acquisition date, is reflected as additional purchase
price and the difference is recorded as interest expense.
F-28
<PAGE> 79
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 4 -- INTANGIBLE ASSETS -- (CONTINUED)
The additional purchase price reflected through December 31, 1997 is $899,213,
including additional amounts recorded during 1997 of $434,956. Company
management estimates that the maximum additional purchase price for the period
January 1, 1998 through January 22, 1999 to be $550,000.
NOTE 5 -- BORROWINGS UNDER REVOLVING BANK LINE OF CREDIT -- (CONTINUED)
The Company is obligated to Bank One, Wisconsin under a Forbearance
Agreement and First Amendment to Loan and Security Agreement (the "Agreement"),
dated December 12, 1997, for a revolving line of credit limited to the lesser of
$4,500,000 or the sum of 85% of eligible accounts receivable, as defined, and
60% of eligible inventory, as defined or $2,250,000. Borrowings bear interest at
.75% above the bank's reference rate (9% at December 31, 1997). Borrowings under
the Agreement are collateralized by substantially all of the Company's assets.
The Agreement contains covenants which requires the achievement of specified net
income and limits capital expenditures and distributions to members.
During 1997, the Company was in violation of certain financial covenants.
The Agreement provided, among other things, for the lender to temporarily
forbear exercising their right to accelerate repayment of the loan until May 15,
1998, conditional upon the Company's compliance with the terms and conditions of
the Agreement and no additional events of default occurring. The Bank will
consider continuation of the financing beyond May 15, 1998 based on their
evaluation of financial information and projections to be submitted by the
Company's management.
The Company receives cash from its customers and issues checks to pay its
obligations in the ordinary course of business. Such receipts and disbursements
are cleared by Bank One, Wisconsin and charged against the revolving line of
credit. The Company has included in borrowings under revolving bank line of
credit at December 31, 1997 $127,917 of checks issued which have not cleared
Bank One, Wisconsin as of such date.
NOTE 6 -- EMPLOYEE BENEFIT PLANS
INCENTIVE SAVINGS PLAN -- The Company maintains a qualified 401(k) savings
plan for the benefit of all eligible employees, as defined. Participants may
elect to contribute a percentage of their salary to the plan. The Company may
make contributions at its discretion, subject to limitations imposed by the
plan. Company contributions were $22,962 for the year ended December 31, 1997.
PENSION AND WELFARE PLANS -- The Company's two collective bargaining
agreements require the Company to participate in two multi-employer,
union-administered, defined contribution health and welfare and pension plans
covering all union employees. Contributions to these plans by the Company were
approximately $189,000 for the year ended December 31, 1997.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company is party to a Manufacturing Agreement with Pate's Bakery LLC
("Pate's"), a company that is related by common ownership. The Manufacturing
Agreement provides for Pate's right of first refusal to manufacture certain
products for the Company at prices which are established in the Manufacturing
Agreement. The Company purchased approximately $7,228,000 of inventory in 1997
from Pate's. Accounts payable to Pate's approximated $596,000 at December 31,
1997.
The Company also paid $75,090 in consulting fees to a company some of whose
owners are also members of the Company.
F-29
<PAGE> 80
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES
The Company leases various warehouse and office facilities and vehicles
under agreements expiring in various periods through 2001. Under the terms of
some of the facility leases, the Company must provide for insurance,
maintenance, utilities and property taxes.
Future minimum rental commitments under these operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
------------------------ --------
<S> <C>
1998.............................................. $433,081
1999.............................................. 264,143
2000.............................................. 71,190
2001.............................................. 42,025
--------
$810,439
========
</TABLE>
Total rent expense charged to operations for 1997 amounted to $964,362.
As of December 31, 1997, the Company had 107 full-time employees, 26 of
which are represented by Teamster Local 734. The Company's collective bargaining
agreements with Teamster Local 734 expired on January 31, 1998. Management has
commenced formal negotiations with regard to new collective bargaining
agreements. There can be no assurance, however, that the Company will be able to
enter into new collective bargaining agreements upon terms and conditions
acceptable to the Company. A prolonged slowdown, work stoppage or strike could
have a material adverse effect on the results of operations and financial
condition of the Company. Management believes relations with the Company's
employees is good.
The Company is a party to various claims, legal actions and complaints
arising in the ordinary course of business. In the opinion of management, all
such matters are adequately covered by insurance, or, if not so covered, are
without merit or are of such kind, or involve such amounts, that unfavorable
disposition would not have a material effect on the financial position of the
Company.
NOTE 9 -- MEMBERS' EQUITY (DEFICIT)
A "Member" is any person, as defined, that holds an interest in the Company
represented by units and is admitted pursuant to the provisions of the Salerno
Foods, L.L.C. Operating Agreement (the "Operating Agreement"). The following is
a summary of the significant provisions of the Operating Agreement:
PREFERRED PRIORITY RETURN -- All Preferred Units rank senior to the Common
Units in that they are vested with the right to receive a Preferred Priority
Return ("Return"). This Return for any period, is an amount equal to 8% of the
average daily balance of the Preferred Member's Unrecovered Preferred Capital,
as defined in the Operating Agreement. The Return is in the form of a
distribution of additional Preferred Units, within 75 days after the last day of
each fiscal quarter, based on the Original Preferred Price per Unit. Preferred
Units have been issued in satisfaction of the Preferred Priority Return through
December 31, 1997.
PREFERRED UNIT REDEMPTION RIGHTS -- After the Earliest Preferred Redemption
Date, January 23, 2001, at the request of a Preferred Member, the Company shall
redeem not less than all the Member's Preferred Units at a price equal to the
Preferred Redemption Price, plus the Preferred Priority Return accrued and
unpaid thereon to the redemption date plus Common Units equal to the number of
Preferred Units being redeemed. On the Mandatory Preferred Redemption Date,
January 23, 2003, all Preferred Units then outstanding shall be automatically
redeemed at the price described above.
The Preferred Redemption Price plus the Preferred Priority Return accrued
and unpaid (the redemption amount), in the sole discretion of the Managing
Members, shall be paid in cash on the Preferred Redemption
F-30
<PAGE> 81
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 9 -- MEMBERS' EQUITY (DEFICIT) -- (CONTINUED)
date or on a payment schedule with at least one-third in cash, and the remainder
payable through a promissory note, bearing annual interest at 14%, over two
years.
Any Preferred Member may at any time prior to redemption convert all or any
number of the Preferred Units held into a number of Common Units computed by
multiplying the number of such Preferred Units to be converted by 1.892061 and
dividing the result by the Preferred Conversion Price then in effect.
After a conversion has been effected, the Company will deliver to the
converting Member payment equal to all accrued but unpaid Preferred Priority
Return for each Preferred Unit converted, unless the Company has previously
issued an optional Preferred Unit payment. No Preferred Units were converted
during the year ended December 31, 1997.
ANTI-DILUTION PROVISIONS -- In order to prevent dilution of the Preferred
Conversion Rights, the Preferred Conversion Price is subject to adjustment from
time to time. Certain events which may cause an adjustment includes the issuance
or sale of Common Units; the granting of rights or options to purchase Common
Units or securities that are convertible into Common Units; the subsequent
expiration of such rights and options; and subdivision of the outstanding Common
Units into a greater number of Units.
OTHER RIGHTS AND OBLIGATIONS OF MEMBERS -- No Preferred Member has priority
over any other Preferred Member and no Common Member has priority over any
Common Member. Any payment of a Preferred Priority Return and any return of
capital to the Preferred Member shall be solely from Company assets and the
Common Members shall not be personally liable for any such return except as
otherwise provided by law.
With certain exceptions, no Member shall have any obligation to restore any
portion of any capital account deficit or to contribute to the capital of the
Company; nor shall any Member have any personal liability for debts or other
obligations of the Company, including without limitation obligations for Federal
and State income taxes and any State replacement taxes.
Generally, no Member may sell or otherwise dispose of that Member's
interest in the Company, in whole or in part, to any person other than the
Company. In the event of death (or cessation of existence) of the Member, the
Company shall have the option and the right (but not any obligation) to
purchase, at any time within six months after the Company is notified, the
entire interest held by the Member at his or her death. The purchase price shall
be equal to the balance in the Member's capital account on the date of death,
adjusted to reflect the fair market value of the Company's assets on such date.
F-31
<PAGE> 82
INDEPENDENT AUDITORS' REPORT
MEMBERS
SALERNO FOODS, L.L.C.
DES PLAINES, ILLINOIS
We have audited the accompanying balance sheet of SALERNO FOODS, L.L.C. as
of December 31, 1996, and the related statements of operations and members'
equity and cash flows for January 23, 1996 through December 31, 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Salerno Foods, L.L.C., as of
December 31, 1996, and the results of its operations and its cash flows for
January 23, 1996 through December 31, 1996 in conformity with generally accepted
accounting principles.
As more fully described in Note 10, subsequent to the issuance of the 1996
financial statements and our report thereon dated March 5, 1997, the Company's
assets were acquired by The Delicious Frookie Company, Inc. The financial
statements have been revised to correct an overstatement of inventory and gross
profit, subsequently discovered by management, to reflect changes in common and
preferred units deemed to have been issued and to reclassify certain balance
sheet amounts, costs and expenses. Our opinion, as expressed in the third
paragraph above, remains unchanged.
/s/ FRIEDMAN EISENSTEIN RAEMER AND SCHWARTZ, LLP
FRIEDMAN EISENSTEIN RAEMER AND SCHWARTZ, LLP
March 5, 1997, except for Notes 9 and 10, as to which
the date is April 3, 1998
F-32
<PAGE> 83
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEET
DECEMBER 31, 1996
<TABLE>
<S> <C>
ASSETS
Current Assets:
Cash...................................................... $ 183,129
Receivables, net of allowance for uncollectible accounts
of $202,000............................................ 3,295,622
Inventory................................................. 2,549,066
Prepaid expenses.......................................... 367,526
----------
Total Current Assets................................... 6,395,343
----------
Property and Equipment:
Leasehold improvements.................................... 35,213
Office and data processing equipment and software......... 280,356
Warehouse equipment....................................... 459,326
----------
774,895
Less: Accumulated depreciation and amortization........... 79,617
----------
Net Property and Equipment............................. 695,278
----------
Other Assets:
Intangible assets, net of amortization.................... 152,824
Deposits.................................................. 89,992
----------
Total Other Assets..................................... 242,816
----------
$7,333,437
==========
LIABILITIES AND MEMBERS' EQUITY
Current Liabilities
Accounts payable.......................................... $3,348,319
Accrued expenses.......................................... 742,658
Accrued royalties......................................... 16,931
----------
Total Current Liabilities.............................. 4,107,908
Noncurrent Liabilities
Notes payable............................................. 2,467,192
----------
Total Liabilities...................................... 6,575,100
Members' Equity............................................. 758,337
----------
$7,333,437
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-33
<PAGE> 84
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF OPERATIONS AND MEMBERS' EQUITY
JANUARY 23, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Net Sales................................................... $36,925,865
Cost of Sales............................................... 26,149,842
-----------
Gross Profit................................................ 10,776,023
-----------
Operating Expenses
Selling................................................... 9,254,691
Administrative and general................................ 1,999,971
-----------
Total Operating Expenses.......................... 11,254,662
-----------
Operating Loss.............................................. (478,639)
-----------
Other Income (Expense)
Interest expense.......................................... (113,043)
Gain on sale of property and equipment.................... 66,943
Other..................................................... (70,706)
-----------
Total Other Income (Expense)...................... (116,806)
-----------
Net Loss.................................................... (595,445)
Members' Equity
Beginning of period.......................................
Members' contributions.................................... 1,358,782
Purchase of members' units................................ (5,000)
-----------
End of period............................................. $ 758,337
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-34
<PAGE> 85
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF CASH FLOWS
JANUARY 23, 1996 (DATE OF INCEPTION) THROUGH DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net loss.................................................. $ (595,445)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization.......................... 128,288
Gain on sale of property and equipment................. (66,943)
Net (increase) decrease in assets
Receivables.......................................... (861,580)
Inventory............................................ (821,032)
Prepaid expenses..................................... (349,575)
Net increase (decrease) in liabilities
Accounts payable..................................... 3,343,319
Accrued expenses..................................... 562,199
-----------
Net cash provided by operating activities......... 1,339,231
-----------
Cash Flows from Investing Activities:
Acquisition of assets (Note 2)............................ (4,233,000)
Purchases of property and equipment....................... (631,770)
Proceeds from sale of property and equipment.............. 93,600
Increase in intangible assets............................. (188,592)
Deposits.................................................. (22,314)
-----------
Net cash used by investing activities............. (4,982,076)
-----------
Cash Flows from Financing Activities:
Net borrowings under bank line of credit agreement........ 2,467,192
Principal payments on notes payable....................... (1,000,000)
Proceeds from issuance of debt............................ 1,000,000
Members' equity contributions............................. 1,358,782
-----------
Net cash provided by financing activities......... 3,825,974
-----------
Net Increase in Cash........................................ 183,129
Cash
Beginning of period....................................... 0
-----------
End of period............................................. $ 183,129
===========
Supplemental Disclosures of Cash Flow Information
Cash paid during the year for interest.................... $ 99,607
===========
Supplemental Schedule of Noncash Investing and Financing
Activities
The Company acquired various assets on January 23, 1996
(Note 2). In conjunction with the acquisition,
liabilities were assumed as follows:
Purchase price of assets............................... $ 4,430,390
Cash paid.............................................. 4,233,000
-----------
Liabilities assumed.................................... $ 197,390
===========
The Company also incurred a $5,000 liability upon the
purchase of units from two members.
</TABLE>
The accompanying notes are an integral part of this statement.
F-35
<PAGE> 86
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS
NOTE 1 -- OPERATIONS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
OPERATIONS AND FORMATION -- The Company markets and distributes cookies and
related products, primarily using the Salerno and Mama's brand names, to
distributors and retailers located throughout the United States. All sales are
made on credit.
The Company began operations on January 23, 1996 (see Note 2) as a limited
liability company under the Delaware Limited Liability Company Act. The term of
the Company shall continue with perpetuity, unless the Company is earlier
dissolved.
The Company places its cash accounts with two financial institutions which
are Federally insured up to prescribed limits. However, the amount of cash at
any one institution may from time to time exceed these Federally insured
prescribed limits.
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date of
the financial statements and the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.
ADVERTISING COSTS -- The Company expenses advertising costs as incurred or
when the related campaign commences. Slotting fees paid or credited to grocery
store chains for shelf space allocations are amortized over the shorter of
expected utility or one year.
INVENTORY -- The Company values its inventory at the lower of cost, on the
first-in, first-out method, or market.
PROPERTY AND EQUIPMENT -- Property and equipment are recorded at cost less
accumulated depreciation and amortization. Depreciation is provided on the
straight-line method over estimated useful lives ranging from three to ten
years.
Leasehold improvements are amortized over the lesser of the useful life of
the asset or the term of the lease.
Maintenance and repairs, which neither materially add to the value of the
property nor appreciably prolong its life, are charged to expense as incurred.
Gain or loss on dispositions of property and equipment are included in income.
INTANGIBLE ASSETS -- Intangible assets are amortized using the
straight-line method over various lives as described in Note 3.
INCOME TAXES -- The Company is a limited liability company and is,
therefore, taxed under the partnership provisions of the Internal Revenue Code.
As a result, Federal income taxes on the net earnings of the Company are payable
by the members and no provision is made for Federal income taxes in the
accompanying financial statements.
NOTE 2 -- ACQUISITION
On January 23, 1996, the Company purchased certain assets and assumed
certain liabilities of the Salerno Biscuit Division of Sunshine Biscuits, Inc.,
a distributor of cookies and related products. The fair value of the net assets
acquired exceeded the purchase price of $4,430,390 by $785,456, which reduced
the noncurrent assets acquired. The purchase price is increased annually based
on "Net Product Revenues," as defined in the purchase agreement. Through January
22, 1999, 1.5% of these revenues are paid to the selling company on a monthly
basis. The present value of these payments is reflected as additional purchase
price and is allocated to the noncurrent assets. The difference is recorded as
interest expense. The additional purchase price through December 31, 1996 is
$464,257. The maximum total additional purchase price through January 22, 1999,
including the amount through December 31, 1996, is estimated to be $1,446,000.
F-36
<PAGE> 87
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
NOTE 3 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
AMORTIZATION
ORIGINAL COST PERIOD
------------- ------------
<S> <C> <C>
Acquisition costs................................ $ 88,319 5 Years
Organization costs............................... 50,361 5 Years
Financing costs.................................. 62,815 3 Years
--------
201,495
Less: Accumulated amortization................... 48,671
--------
Total.................................. $152,824
========
</TABLE>
NOTE 4 -- NOTES PAYABLE
The Company has a $6,000,000 bank line of credit, expiring December 31,
1998, with interest at .5% over the bank's reference rate (8.25% at December 31,
1996). Substantially all assets of the Company are pledged as collateral for the
note. Borrowings are limited to 85% of eligible (as defined) accounts receivable
and 60% of eligible inventory, which is limited to $3,000,000. The financing
agreement is subject to covenants, including specific annual net income and
capital expenditure amounts and limitations on distributions to members.
NOTE 5 -- LEASES
The Company leases various plant and office facilities and vehicles under
agreements expiring through various dates in 1999. Under the terms of some of
the facility leases, the Company must provide for insurance, maintenance,
utilities and property taxes.
Future minimum rental commitments under these operating leases are as
follows:
<TABLE>
<CAPTION>
YEAR ENDING DECEMBER 31, AMOUNT
- ------------------------ --------
<S> <C>
1997........................................................ $275,700
1998........................................................ 277,100
1999........................................................ 215,600
--------
Total....................................................... $768,400
========
</TABLE>
Rent expense was approximately $291,000.
NOTE 6 -- EMPLOYEE BENEFIT PLANS
INCENTIVE SAVINGS PLAN -- The Company has a qualified 401(k) savings plan
covering full-time employees, as defined, with a specified period of service.
Company contributions are discretionary and were $20,622.
PENSION AND WELFARE PLANS -- The Company participates in two multiemployer
union-administered health and welfare and pension plans covering all union
employees. Contributions to these plans by the Company were approximately
$138,900.
NOTE 7 -- RELATED PARTY TRANSACTIONS
The Company purchased approximately $2,500,000 of inventory in 1996 from a
company related to the Company through common ownership. Accounts payable to
this company was approximately $512,000 at December 31, 1996.
F-37
<PAGE> 88
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
The Company also paid approximately $193,700 of consulting and organization
fees to a company, six stockholders of which are members of the Company. The
Company is obligated to make monthly payments of $10,000 to this company under
an informal, month-to-month agreement.
NOTE 8 -- MAJOR SUPPLIERS AND CUSTOMERS
Purchases from two suppliers aggregated approximately $17,039,000.
Approximately $1,901,000 was due to those suppliers at December 31, 1996.
Sales to one customer aggregated approximately $5,207,000. Approximately
$265,000 was due from this customer at December 31, 1996.
NOTE 9 -- MEMBERS' EQUITY AND RIGHTS
A "Member" is any person, as defined, that holds an interest in the Company
represented by units and is admitted pursuant to the provisions of the Salerno
Foods, L.L.C. Operating Agreement (the Agreement). At December 31, 1996, Common
A, Preferred A and Preferred B Units and amounts were as follows:
<TABLE>
<CAPTION>
NUMBER OF
UNITS AMOUNT
--------------- --------
<S> <C> <C>
Common A.......................................... 332,000 $227,948
Preferred A....................................... 401,477 275,649
Preferred B....................................... 371,023 254,740
--------
Total Members' Equity................... $758,337
========
</TABLE>
PREFERRED PRIORITY RETURN -- All Preferred Units rank senior to the Common
Units in that they are vested with the right to receive a Preferred Priority
Return ("Return"). This Return for any period, is an amount equal to 8% of the
average daily balance of the Preferred Member's Unrecovered Preferred Capital,
as defined in the Agreement. The Return is in the form of a distribution of
additional Preferred Units, within 75 days after the last day of each fiscal
quarter, based on the Original Preferred Price per Unit.
PREFERRED UNIT REDEMPTION RIGHTS -- After the Earliest Preferred Redemption
Date, January 23, 2001, at the request of a Preferred Member, the Company shall
redeem not less than all the Member's Preferred Units at a price equal to the
Preferred Redemption Price, plus the Preferred Priority Return accrued and
unpaid thereon to the redemption date plus Common Units equal to the number of
Preferred Units being redeemed. On the Mandatory Preferred Redemption Date,
January 23, 2003, all Preferred Units then outstanding shall be automatically
redeemed at the price described above.
The Preferred Redemption Price plus the Preferred Priority Return accrued
and unpaid (the redemption amount), in the sole discretion of the Managing
Members, shall be paid in cash on the Preferred Redemption Date or on a payment
schedule with at least one-third in cash, and the remainder payable through a
promissory note, bearing annual interest at 14%, over two years.
Any Preferred Member may at any time prior to redemption convert all or any
number of the Preferred Units held into a number of Common Units computed by
multiplying the number of such Preferred Units to be converted by $1.892061 and
dividing the result by the Preferred Conversion Price then in effect.
After a conversion has been effected, the Company will deliver to the
converting Member payment equal to all accrued but unpaid Preferred Priority
Return for each Preferred Unit converted, unless the Company has previously
issued an optional Preferred Unit payment.
ANTI-DILUTION PROVISIONS -- In order to prevent dilution of the Preferred
Conversion Rights, the Preferred Conversion Price is subject to adjustment from
time to time. Certain events which may cause an adjustment include the issuance
or sale of Common Units; the granting of rights or options to purchase
F-38
<PAGE> 89
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
Common Units or securities that are convertible into Common Units; the
subsequent expiration of such rights and options; and subdivision of the
outstanding Common Units into a greater number of Units.
OTHER RIGHTS AND OBLIGATIONS OF MEMBERS -- No Preferred Member has priority
over any other Preferred Member and no Common Member has priority over any
Common Member. Any payment of a Preferred Priority Return and any return of
capital to the Preferred Members shall be solely from Company assets and the
Common Members shall not be personally liable for any such return except as
otherwise provided by law.
With certain exceptions, no Member shall have any obligation to restore any
portion of any capital account deficit or to contribute to the capital of the
Company; nor shall any Member have any personal liability for debts or other
obligations of the Company, including without limitation obligations for Federal
and State income taxes and any State replacement taxes.
Generally, no Member may sell or otherwise dispose of that Member's
interest in the Company, in whole or in part, to any person other than the
Company. In the event of the death (or cessation of existence) of the Member,
the Company shall have the option and the right (but not any obligation) to
purchase, at any time within six months after the Company is notified, the
entire interest held by the Member at his or her death. The purchase price shall
be equal to the balance in the Member's capital account on the date of death,
adjusted to reflect the fair market value of the Company's assets on such date.
NOTE 10 -- SUBSEQUENT EVENTS
On April 3, 1998, the Company's assets were acquired by The Delicious
Frookie Company, Inc. These financial statements have been revised to reflect
certain balance sheet reclassifications and recategorization of selected costs
and expenses.
Also, subsequent to the issuance of the Company's financial statements,
management became aware of an accounting error that caused inventory and gross
profit to be overstated by $155,994 as of December 31, 1996. The removal of
these items from the financial statements increases the net loss and decreases
inventory and members' equity by $155,994 in the revised financial statements.
Information reflected in Note 9 regarding preferred and common units issued
has also been revised to reflect subsequent changes made as of December 31,
1996.
F-39
<PAGE> 90
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION IN CONNECTION WITH THIS OFFERING OTHER
THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION
OR REPRESENTATION MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY OR BY ANY OF THE UNDERWRITERS. THIS PROSPECTUS DOES NOT CONSTITUTE AN
OFFER TO SELL OR SOLICITATION OF ANY OFFER TO BUY BY ANYONE IN ANY JURISDICTION
IN WHICH SUCH OFFER TO SELL OR SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY
PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE
DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL UNDER ANY
CIRCUMSTANCES CREATE ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS
OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary.................... 3
Cautionary Statement Regarding
Forward-Looking Statements.......... 7
Risk Factors.......................... 7
Use of Proceeds....................... 14
Dividend Policy....................... 15
Dilution.............................. 15
Capitalization........................ 16
Selected Historical Financial Data.... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations....................... 19
Business.............................. 23
Management............................ 30
Certain Transactions.................. 36
Principal Stockholders................ 37
Selling Stockholders.................. 40
Description of Capital Stock.......... 42
Shares Eligible For Future Sale....... 44
Concurrent Offering................... 45
Underwriting.......................... 46
Legal Matters......................... 47
Experts............................... 48
Available Information................. 48
Index to Financial Statements......... F-1
</TABLE>
UNTIL ________, 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK OFFERED HEREBY, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS DELIVERY REQUIREMENT IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER
A PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
THE DELICIOUS FROOKIE
COMPANY, INC.
[LOGO]
3,500,000 SHARES
COMMON STOCK
------------------------
PROSPECTUS
------------------------
GAINES, BERLAND INC.
__________, 1998
======================================================
<PAGE> 91
2,084,000 SHARES OF COMMON STOCK
THE DELICIOUS FROOKIE COMPANY, INC.
This Prospectus relates to 2,084,000 shares (the "Shares") of common stock,
$.01 par value (the "Common Stock"), of The Delicious Frookie Company, Inc., a
Delaware corporation (the "Company"), including 1,000,000 outstanding shares of
Common Stock to be sold to certain Holders upon exercise of options ("Options")
to purchase shares of Common Stock held by certain former principal stockholders
of the Company. The Shares may be offered by certain holders (the "Holders")
thereof. See "Selling Securityholders."
The Shares may be offered by the Holders from time to time in transactions
in the over-the-counter market, in negotiated transactions, or a combination of
such methods of sale, at fixed prices which may be changed, at market prices
prevailing at the time of sale, at prices related to prevailing market prices or
at negotiated prices. The Holders may effect such transactions by selling the
Shares to or through broker-dealers, and such broker-dealers may receive
compensation in the form of discounts, concessions or commissions from the
Holders and/or the purchasers of the Shares for whom such broker-dealers may act
as agents or to whom they sell as principals, or both (which compensation as to
a particular broker-dealer might be in excess of the customary commissions). To
the extent required, the specific Shares to be sold, the names of the holders,
the public offering price, the names of such agent, dealer or underwriter, and
any applicable commission or discount with respect to a particular offer will be
set forth in an accompanying Prospectus Supplement.
None of the proceeds from the sale of the Shares by the Holders will be
received by the Company. The Company has agreed to bear certain expenses (other
than selling commissions and fees and expenses of counsel and other advisors to
the Holders) in connection with the registration and sale of the Shares being
offered by the Holders.
There is currently no public market for the Company's Common Stock.
Application has been made for approval for quotation on the Nasdaq SmallCap
Market of the Shares under the symbol "DFSB" and for approval for listing on the
Chicago Stock Exchange of the Shares under the symbol "DFB."
FOR A DISCUSSION OF CERTAIN MATERIAL FACTORS THAT SHOULD BE CONSIDERED IN
CONNECTION WITH AN INVESTMENT IN THE COMMON STOCK SEE "RISK FACTORS" COMMENCING
ON PAGE 7 HEREOF.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED ON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
<TABLE>
<CAPTION>
============================================================================================================
UNDERWRITING DISCOUNTS
PRICE TO PUBLIC AND COMMISSIONS PROCEEDS TO HOLDERS
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Per Share..................... $ $ $
- ------------------------------------------------------------------------------------------------------------
Total......................... $ $ $
============================================================================================================
</TABLE>
The Holders and any broker-dealers, agents or underwriters that participate
with the Holders in the distribution of the Shares may be deemed to be
"underwriters" within the meaning of Section 2(11) of the Securities Act of
1933, as amended (the "Securities Act"), and any commissions received by them
and any profit on the resale of the Shares purchased by them may be deemed to be
underwriting commissions or discounts under the Securities Act.
A-1
<PAGE> 92
THE OFFERING
<TABLE>
<S> <C>
Common stock to be outstanding after the
offering:.................................. 9,665,656(1)(2)
Nasdaq SmallCap Market symbol:............... DFSB
Chicago Stock Exchange symbol:............... DFB
Risk factors:................................ An investment in the Shares offered hereby
involves certain risks. Prospective investors
should carefully consider the risk factors
set forth below, as well as the other
information set forth in this Prospectus.
</TABLE>
- ---------------
(1) All references in this Prospectus to the number of shares of Common Stock
outstanding do not include (i) 1,000,000 shares of Common Stock reserved for
issuance upon exercise of options that may be granted under the Company's
1995 Stock Option Plan, pursuant to which options to purchase 567,500 shares
of Common Stock have been granted; (ii) 1,250,000 shares of Common Stock
reserved for issuance upon exercise of options that may be granted under the
Company's 1989 Stock Option Plan, pursuant to which options to purchase
314,570 shares of Common Stock have been granted; (iii) 150,000 shares of
Common Stock reserved for issuance upon exercise of options that may be
granted under the Company's 1994 Formula Stock Option Plan, pursuant to
which options to purchase 98,000 shares of Common Stock have been granted;
(iv) 887,499 shares of Common Stock reserved for issuance upon exercise of
other outstanding options; (v) 380,375 shares of Common Stock reserved for
issuance upon exercise of outstanding common stock purchase warrants to
purchase such shares of Common Stock; (vi) 490,000 shares of Common Stock
reserved for issuance upon conversion of the 490,000 Series A Convertible
Preferred Stock, $.01 par value per share ("Series A Preferred Stock"),
issued in exchange for the Company's outstanding 9% Subordinated Convertible
Notes (the "9% Notes"), aggregate principal amount $1,960,000, on May ,
1998; (vii) 400,000 shares of Common Stock to be sold by the Company
reserved for issuance upon exercise of the Underwriters' over-allotment
option; and (viii) 350,000 shares of Common Stock issuable upon exercise of
the Representative's Warrant.
(2) Includes 3,100,000 shares of Common Stock offered by the Company in The
Company's Offering. See "The Company's Offering."
THE COMPANY'S OFFERING
On the date of this Prospectus, a registration statement under the
Securities Act with respect to an underwritten public offering by the Company of
3,100,000 shares of Common Stock and by certain selling stockholders of 400,000
shares of Common Stock and up to an additional 525,000 shares of Common Stock
(400,000 shares by the Company and 125,000 shares by such selling stockholders
in the aggregate on a pro rata basis) to cover over-allotments, if any, was
declared effective by the Commission. Sales of Common Stock by the Company and
such selling stockholders, or even the potential of such sales, would likely
have an adverse effect on the market price of the Common Stock. See "Risk
Factors -- Shares Eligible for Future Sale."
A-2
<PAGE> 93
SELLING SECURITYHOLDERS
The following table sets forth certain information with respect to the
Holders of Shares. None of the Holders is currently an affiliate of the Company
and none of them has had a material relationship with the Company during the
past three years.
<TABLE>
<CAPTION>
AFTER THE OFFERING
-----------------------
NO. OF NO. OF NUMBER OF
NAME OF HOLDER SHARES OWNED SHARES OFFERED SHARES PERCENTAGE
-------------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C>
Swiss Bank Corp............................ 420,000 420,000 0 0
Paradeplatz 6
CH-8010 Zurich, Switzerland
H.T. Ardinger.............................. 206,430(1) 70,000 136,430(1) 1.4
c/o H.T. Ardinger & Sons
9040 Governors Row
Dallas, Texas 75247
Peter Clapp................................ 70,000 70,000 0 0
172 Thornhill Drive
Danville, Illinois 61832
John Crowl................................. 8,750 8,750 0 0
Peterkin Hill Road
South Woodstock, Vermont 05071
Sara D.K. Faulkner......................... 8,750 8,750 0 0
203 Poplar Heights
Oxford, Mississippi 38655
Eric Hassall............................... 8,750 8,750 0 0
4662 Bellevue Drive
Vancouver, British Columbia V6R1E7
Charles F. Kireker......................... 8,750 8,750 0 0
303 Cow Hill Road
Weybridge, Vermont 05753
Peter Strugatz............................. 35,000 35,000 0 0
83 Bishop's Lane
Southampton, New York 11968
Terra Trust Investments, A.G............... 280,000 280,000 0 0
Bahnhofplatz 9
CH-8023 Zurich, Switzerland
Marc-Edouard Landolt....................... 105,000 105,000 0 0
Rue du Lion-d'Or 6
CH-1003 Lausanne, Switzerland
VTZ Versicherungs Treuhand Zurich A.G...... 100,000 100,000 0 0
Bahnhofplatz 9
CH-8023 Zurich, Switzerland
Yapton Developments, Limited............... 200,000 200,000 0 0
Celtic House
Douglas, Isle of Man IM125J
Steven Gillings............................ 300,000 300,000 0 0
95 Elmwood Avenue
Staten Island, New York 10312
</TABLE>
A-3
<PAGE> 94
<TABLE>
<CAPTION>
AFTER THE OFFERING
-----------------------
NO. OF NO. OF NUMBER OF
NAME OF HOLDER SHARES OWNED SHARES OFFERED SHARES PERCENTAGE
-------------- ------------ -------------- --------- ----------
<S> <C> <C> <C> <C>
Connie Bruccelari.......................... 200,000 200,000 0 0
101 Boardwalk
Staten Island, New York 10312
Tuttle Realty Ltd.......................... 200,000 200,000 0 0
St. Andrews Court, Bahamas
P.O. Box N-4805
Terra Healthy Living....................... 33,000 33,000 0 0
Bahnhofplatz 9
CH-8023 Zurich, Switzerland
Ken Stokes................................. 36,000 36,000 0 0
Fosseway South
Bath, England, U.K. BA34AN
</TABLE>
- ---------------
(1) Assumes the sale by Mr. Ardinger of 67,000 shares of Common Stock offered in
The Company's Offering. See "The Company's Offering."
There is no assurance that the Holders will sell any or all of the Shares
offered hereby. To the extent required, the specific Shares to be sold, the
names of the Holder, other additional shares of Common Stock beneficially owned
by such Holder, the public offering price of the Shares to be sold, the names of
any agent, dealer or underwriter employed by such Holder in connection with such
sale, and any applicable commission or discount with respect to a particular
offer will be set forth in an accompanying Prospectus Supplement.
The Shares covered by this Prospectus may be sold from time to time so long
as this Prospectus remains in effect. The Holders expect to sell the Shares at
prices then attainable, less ordinary brokers, commissions and dealers'
discounts as applicable.
The Holders and any broker or dealer to or through whom any of the Shares
are sold may be deemed to be underwriters within the meaning of the Securities
Act with respect to the Common Stock offered hereby, and any profits realized by
the Holder or such brokers or dealers may be deemed to be underwriting
commissions. Brokers' commissions and dealers' discounts, taxes and other
selling expenses to be borne by the Holder are not expected to exceed normal
selling expenses for sales over-the-counter or otherwise, as the case may be.
The registration of the Shares under the Securities Act shall not be deemed an
admission by the Holders or the Company that the Holders are underwriters for
purposes of the Securities Act of any Shares offered under this Prospectus.
A-4
<PAGE> 95
PLAN OF DISTRIBUTION
This Prospectus covers 2,084,000 shares of the Company's Common Stock. All
of the Shares offered hereby are being sold by the Holders. The Company will
realize no proceeds from the sale of the Shares by the Holders.
The Holders may sell the Shares offered hereby from time to time in
transactions in the over-the-counter market, in negotiated transactions, or a
combination of such methods of sale, at fixed prices which may be changed, at
market prices prevailing at the time of sale, at prices relating to prevailing
market prices or at negotiated prices. The Holders may effect such transactions
by selling the Shares to or through broker-dealers, and such broker-dealers may
receive compensation in the form of discounts, concessions or commissions from
the Holders and/or the purchasers of the Shares for whom such broker-dealers may
act as agents or to whom they sell as principals, or both (which compensation as
to a particular broker-dealer might be in excess of the customary commissions).
The Holders and any broker-dealers that participate with the Holders in the
distribution of the Shares may be deemed to be underwriters within the meaning
of Section 2(11) of the Securities Act and any commissions received by them and
any profit on the resale of the Shares commissioned by them may be deemed to be
underwriting commissions or discounts under the Securities Act. The Holders will
pay any transaction costs associated with effecting any sales that occur.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless they have been registered or qualified for sale in
the applicable state or an exemption from the registration or qualification
requirement is available and is complied with by the Company and the Holders.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market-making activities with respect to the Company's Common Stock for a period
of two business days prior to the commencement of such distribution. In addition
and without limiting the foregoing, each Holder will be subject to applicable
provisions of the Regulation M and the rules and regulations thereunder, which
provisions may limit the timing of the purchases and sales of shares of Common
Stock by the Holders.
The Holders are not restricted as to the price or prices at which they may
sell their Shares. Sales of such Shares may have an adverse effect on the market
price of the Common Stock. Moreover, the Holders are not restricted as to the
number of Shares that may be sold at any time subject, however, to certain
contractual lock-up agreements, and it is possible that a significant number of
Shares could be sold at the same time which may also have an adverse effect on
the market price of the Company's Common Stock. See "Shares Eligible For Future
Sale."
The Company has agreed to pay all fees and expenses incident to the
registration of the Shares, except selling commissions and fees and expenses of
counsel or any other professionals or other advisors, if any, to the Holders.
A-5
<PAGE> 96
======================================================
NO DEALER, SALESPERSON OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS CONTAINED IN THIS PROSPECTUS IN
CONNECTION WITH THIS OFFERING, AND, IF GIVEN OR MADE, SUCH INFORMATION OR
REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE
COMPANY, ANY UNDERWRITER OR ANY OTHER PERSON. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY, ANY SECURITY
OTHER THAN THE REGISTERED SECURITIES TO WHICH IT RELATES, OR AN OFFER TO OR
SOLICITATION OF ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY
SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CRATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE FACTS HEREIN SET FORTH SINCE THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary................... 3
Cautionary Statement Regarding
Forward-Looking Statements......... 7
Risk Factors......................... 7
Use of Proceeds...................... 14
Dividend Policy...................... 15
Dilution............................. 15
Capitalization....................... 16
Selected Historical Financial Data... 17
Management's Discussion and Analysis
of Financial Condition and Results
of Operations...................... 19
Business............................. 23
Management........................... 30
Certain Transactions................. 36
Principal Stockholders............... 37
Selling Securityholders.............. 40
Description of Capital Stock......... 42
Shares Eligible For Future Sale...... 44
Concurrent Offering.................. 45
Underwriting......................... 46
Legal Matters........................ 47
Experts.............................. 48
Available Information................ 48
Index to Financial Statements........ F-1
</TABLE>
------------------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE COMMON STOCK WHETHER OR NOT PARTICIPATING IN THE
DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS IN ADDITION TO
THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS UNDERWRITERS
AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
======================================================
======================================================
2,084,000 SHARES
COMMON STOCK
THE DELICIOUS
FROOKIE
COMPANY, INC.
------------------------
PROSPECTUS
------------------------
, 1998
======================================================
<PAGE> 97
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses (other than
underwriting discounts and commissions) which will be paid by the Registrant in
connection with the issuance and distribution of the securities being
registered. With the exception of the SEC registration fee and the NASD filing
fee, all amounts shown are estimates.
<TABLE>
<S> <C>
SEC registration fee........................................ $ 12,519.36
NASD filing fee............................................. 4,743.89
Nasdaq SmallCap Market and Chicago Stock Exchange listing
expenses.................................................. 25,000.00
Blue Sky fees and expenses (including legal and filing
fees)..................................................... 50,000.00
Printing expenses (including printing and engraving of stock
certificates)............................................. 100,000.00
Accounting fees and expenses................................ 50,000.00
Legal fees and expenses (other than Blue Sky)............... 200,000.00
Miscellaneous expenses...................................... 57,739.75
-----------
Total............................................. $500,000.00
===========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
As permitted by the Delaware General Corporation Law (the "Delaware Law"),
the Company's Certificate of Incorporation provides that no director of the
Company will be personally liable to the Company or its stockholders for
monetary damages for breach of fiduciary duty as a director, except (i) for any
breach of the directors' duty of loyalty to the Company or its stockholders,
(ii) for acts or omissions not in good faith or involving intentional misconduct
or a knowing violation of law, (iii) unlawful payments of dividends or unlawful
stock repurchases or redemptions, or (iv) for any transaction from which the
director derives any improper personal benefit. In addition, the Company's
Bylaws provide that any director or officer who was or is a party or is
threatened to be made a party to any action or proceeding by reason of his or
her services to the Company will be indemnified to the fullest extent permitted
by the Delaware Law.
The Company believes that the indemnification of its directors and officers
will facilitate the Company's ability to continue to attract and retain
qualified individuals to serve as directors and officers of the Company.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers or persons controlling the
registrant pursuant to the foregoing provisions, the Company has been informed
that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Act and is
therefore unenforceable.
The Company intends to enter into indemnification agreements with each of
its directors and executive officers pursuant to which the Company will agree to
indemnify each of them against expenses and losses incurred for claims brought
against them by reason of their being a director or executive director of the
Company.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
During the past three years, the following securities were sold by the
Company without registration under the Securities Act of 1933, as amended (the
"Securities Act").
1. On May , 1998, the Company issued an aggregate of 490,000 shares of
Series A Convertible Preferred Stock, $.01 par value per share ("Series A
Preferred Stock"), in consideration for the surrender of 9% Subordinated
Convertible Notes ("9% Notes"), aggregate principal amount $1,960,000, by the
holders thereof at a ratio of one share of Series A Preferred Stock for every $4
of principal amount of the 9% Notes.
II-1
<PAGE> 98
Such shares were issued pursuant to an exemption from registration contained in
Section 3(a)(9) of the Securities Act.
2. On April 3, 1998, the Company issued a 12% promissory note, principal
amount $1,500,000, to Salerno Foods, L.L.C. ("Salerno"), which promissory note
consisted of a portion of the consideration given in respect of the acquisition
by the Company of substantially all of the assets of Salerno and the assumption
of substantially all of the liabilities of Salerno (the "Salerno Acquisition").
Such promissory note was issued pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act as a transaction by an issuer
not involving any public offering.
3. On April 3, 1998, the Company issued (i) a 12% promissory note,
principal amount $4,600,000 to American Pacific Financial Corporation ("APFC")
and (ii) a 12% promissory note, principal amount $100,000, to APFC, which
promissory notes were issued (i) in consideration for a $4,600,000 loan from
APFC to the Company and (ii) for APFC's fee for such loan, respectively. Such
promissory notes were issued pursuant to an exemption from registration
contained in Section 4(2) of the Securities Act as a transaction by an issuer
not involving any public offering.
4. On March 30, 1998, the Company issued a 12% promissory note, principal
amount $500,000, for an offering price of $500,000 to an "accredited investor,"
as that term is defined Section 2(5) of the Securities Act and Rule 501
thereunder. Such promissory note was issued pursuant to an exemption from
registration contained in Section 4(2) of the Securities Act and Rule 506
thereunder as a transaction by an issuer not involving any public offering.
5. On February 6, 1998, the Company consummated a second closing (the
"Second Closing") of a minimum of five Units and a maximum of 20 Units, each
Unit consisting of 35,000 shares of common stock, $.01 par value per share (the
"Common Stock") (the "Private Placement"). At the Second Closing, the Company
issued an aggregate of eight Units at a price of $105,000 per Unit, for an
aggregate offering price of $840,000 (the "Aggregate Offering Price"). Network 1
Financial Securities, Inc. acted as the exclusive placement agent (the
"Placement Agent") and received a commission of $84,000 (10% of the Aggregate
Purchase Price) and was paid a non-accountable expense allowance of 25,200 (3%
of the Aggregate Purchase Price). The Units were offered and sold only to
accredited investors. Such shares were issued pursuant to an exemption from
registration contained in Section 4(2) of the Securities Act and Rule 506
thereunder as transactions by an issuer not involving any public offering.
6. On December 30, 1997, the Company issued 10,000 shares of Common Stock
to Eric Seidman, a former employee of the Company for services previously
rendered to the Company. Such shares were issued pursuant to an exemption from
registration contained in Section 4(2) of the Securities Act as a transaction by
an issuer not involving any public offering.
7. On December 22, 1997, the Company consummated the first closing of the
Private Placement (the "First Closing"). At the First Closing the Company issued
an aggregate of 12 Units at a price of $105,000 per Unit, for an aggregate
purchase price of $1,260,000 (the "First Closing Aggregate Purchase Price"). The
Placement Agent received a commission of $126,000 (10% of the First Closing
Aggregate Purchase Price) and was paid a non-accountable expense allowance of
$37,800 (3% of the First Closing Aggregate Purchase Price). The Units were
offered and sold only to accredited investors. Such shares were issued pursuant
to an exemption from registration contained in Section 4(2) of the Securities
Act and Rule 506 thereunder as transactions by an issuer not involving any
public offering.
8. On July 2, 1996, the Company issued an aggregate of 449,055 shares of
Common Stock in consideration of the conversion of 8% Subordinated Promissory
Notes, aggregate principal amount $1,260,000, plus $87,000 of interest accrued
thereon, by the holders thereof. Such shares were issued pursuant to an
exemption from registration contained in Section 3(a)(9) of the Securities Act.
All certificates representing the securities described herein and currently
outstanding have been properly legended.
II-2
<PAGE> 99
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
1.1 -- Form of Underwriting Agreement by and between the Company
and Gaines, Berland Inc.*
3.1 -- Certificate of Incorporation, as amended, of the Company.
3.2 -- By-laws, as amended, of the Company.
4.1 -- Specimen Certificate of the Company's Common Stock.*
5.1 -- Opinion of Olshan Grundman Frome & Rosenzweig LLP.*
10.1 -- Employment Agreement dated as of August 11, 1997 by and
between the Company and Michael Kirby.
10.2 -- Stock Option Agreement, dated as of August 11, 1997, by and
between the Company and Michael Kirby.
10.3 -- Letter Agreement dated December 16, 1997 amending Michael
Kirby's Employment Agreement and Stock Option Agreement.
10.4 -- Amended and Restated Employment Agreement dated as of
December 15, 1997 by and between the Company and Jeffry
Weiner.
10.5 -- 1989 Stock Option Plan of the Company.
10.6 -- 1995 Stock Option Plan of the Company.
10.7 -- 1994 Formula Stock Option Plan of the Company.
10.8 -- Trademark Sublicense Agreement dated December 16, 1993
between Nestle Food Company and the Company.
10.9 -- Trademark License Agreement dated September 25, 1991 by and
between Land O' Lakes, Inc. and the Company.
10.10 -- Trademark License Agreement dated May 3, 1996 by and between
Showbiz Pizzatime Inc., and the Company.*
10.11 -- Trademark License Agreement dated May 1, 1996 by and between
Ringling Brothers and Barnum & Bailey Combined Shows and the
Company.*
10.12 -- License Agreement dated November 26, 1996 between Chiquita
Brands, Inc. and the Company.
10.13 -- License Agreement dated June 3, 1991 by and between CPC
International Inc., and the Company.*
10.14 -- License Agreement dated May 1, 1996 between Eskimo Pie Corp.
and the Company.
10.15 -- Amendment to License Agreement dated May 1, 1997 between
Eskimo Pie Corp. and the Company.
10.16 -- Consulting Agreement dated August 13, 1997 between the
Company and Richard Worth.
10.17 -- Consulting Agreement dated August 13, 1997 between the
Company and Randye Worth.
10.18 -- Asset Purchase Agreement dated December 22, 1997 between the
Company and Richard S. Worth.
10.19 -- Financing Agreement dated November 27, 1996 between the
Company and Republic Acceptance Corporation.
10.20 -- Security Agreement dated November 27, 1996 between the
Company and Republic Acceptance Corp.
10.21 -- Distribution Agreement effective March 28, 1997 between the
Company and the Old Colony Baking Company, Inc.
10.22 -- Asset Purchase Agreement dated as of April 3, 1998 by and
between the Company and Salerno Foods, L.L.C.
10.23 -- Escrow Agreement dated as of April 3, 1998 by and among the
Company, Salerno Foods, L.L.C. and American National Bank
and Trust Company of Chicago.
10.24 -- Assignment of Intellectual Property Rights dated April 3,
1998 by and between the Company and Salerno Foods, L.L.C.
10.25 -- Restrictive Covenant and Confidentiality Agreement dated
April 3, 1998 by and between the Company and Steve Coates.
10.26 -- Restrictive Covenant and Confidentiality Agreement dated
April 3, 1998 by and between the Company and Peter Rogers.
10.27 -- Restrictive Covenant and Confidentiality Agreement dated
April 3, 1998 by and between the Company and Ron Davies, Jr.
</TABLE>
II-3
<PAGE> 100
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
10.28 -- Manufacturing Agreement dated April 3, 1998 between the
Company and Pate's Bakery, L.L.C.
10.29 -- Promissory Note of the Company dated April 3, 1998 in favor
of Salerno Foods, L.L.C.
10.30 -- Security Agreement dated April 3, 1998 of the Company in
favor of Salerno Foods, L.L.C.
10.31 -- Trademark Security Agreement dated April 3, 1998 of the
Company in favor of Salerno Foods, L.L.C.
10.32 -- Assignment and Assumption Agreement dated April 3, 1998 by
and among the Company, Larry Polhill and American Pacific
Financial Corporation.
10.33 -- Subordination Agreement dated as of April 3, 1998 by and
between U.S. Bancorp Republic Commercial Finance, Inc.,
American Pacific Financial Corporation, Lawrence R. Polhill,
Salerno Foods, L.L.C. and the Company.
10.34 -- Loan Agreement dated as of April 3, 1998 between the Company
and American Pacific Financial Corporation.
10.35 -- Security Agreement dated as of April 3, 1998 of the Company
in favor of American Pacific Financial Corporation.
10.36 -- Promissory Note dated April 3, 1998 of the Company in favor
of American Pacific Financial Corporation in the aggregate
principal amount of $4.6 million.
10.37 -- Promissory Note dated April 3, 1998 of the Company in favor
of American Pacific Financial Corporation in the aggregate
principal amount of $100,000.
10.38 -- First Amendment dated as of April 3, 1998 to the Financing
Agreement by and between the Company and U.S. Bancorp
Republic Commercial Finance, Inc.
10.39 -- Agreement between Salerno Foods, L.L.C. and Bakery, Cracker,
Pie Yeast Wagon Drivers Union, Local 734 International
Brotherhood of Teamsters of America (Cracker Drivers).
10.40 -- Agreement between Salerno Foods, L.L.C. and Bakery, Cracker,
Pie Yeast Wagon Drivers Union, Local 734 International
Brotherhood of Teamsters of America (Insider Div.).
10.41 -- Form of Indemnification Agreement between the Company and
its officers and directors.*
10.42 -- Voting Trust Agreement dated December 22, 1997 by and among
Richard S. Worth, Randye Worth, Graubard, Mollen & Miller,
the Company and Robert Rubin.
10.43 -- Form of Voting Agreement by and between the Company and
Edward R. Sousa, as Voting Trustee.
10.44 -- Registration Rights Letter Agreement from the Company dated
October 21, 1997.
10.45 -- Sublease Amendment Agreement and Consent to Agreement dated
as of April 2, 1998 among Maple Properties Company, L.L.C.,
Salerno Foods, L.L.C. and the Company.
10.46 -- Form of Trucklease and Service Agreement by and between
Ryder Transportation Services and the Company.
23.1 -- Consent of Olshan Grundman Frome & Rosenzweig LLP (contained
in Exhibit 5.1).
23.2 -- Consent of Altschuler, Melvoin & Glasser LLP.
23.3 -- Consent of Friedman Eisenstein Raemer and Schwartz, LLP.
23.4 -- Consent of Cooper, Selvin & Strassberg, LLP.
24.1 -- Powers of Attorney (included on the signature page to this
Registration Statement).
27.1 -- Financial Data Schedule.
</TABLE>
- ---------------
*To be filed by amendment.
(b) Financial Statement Schedules
Independent Auditors' Reports
II -- Valuation and Qualifying Accounts.
All other schedules are omitted as not being required or the
information required therein is included in the financial statements or
notes thereto.
ITEM 17. UNDERTAKINGS.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise,
II-4
<PAGE> 101
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act of 1933 and is, therefore, unenforceable. In the event
that a claim for indemnification against such liabilities (other than the
payment by the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant 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 of 1933 and will be governed by the final adjudication of such
issue.
The undersigned registrant hereby undertakes:
(1) to file, during any period in which offers or sales are being
made, a post-effective amendment to this Registration Statement:
(a) to include any prospectus required by Section 10(a)(3) of the
Securities Act of 1933;
(b) to reflect in the prospectus any facts or events arising after
the effective date of the Registration Statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the Registration Statement. Notwithstanding the foregoing, any
increase or decrease in volume of securities offered (if the total
dollar value of securities offered would not exceed that which was
registered) and any deviation from the low and high end of the estimated
maximum offering range may be reflected in the form of prospectus filed
with the Commission pursuant to Rule 424(b) if, in the aggregate, the
changes in volume and price represent no more than 20 percent change in
the maximum aggregate offering price set forth in the "Calculation of
Registration Fee" table in the effective Registration Statement; and
(c) to include any material information with respect to the plan of
distribution not previously disclosed in the Registration Statement or
any material change to such information in the Registration Statement.
(2) that, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment 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.
(3) to remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
(4) that, for purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of prospectus
filed as part of this registration statement in reliance upon Rule 430A and
contained in the form of prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Act shall be deemed to be part of
this registration statement as of the time it was declared effective.
(5) that, for the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a form
of prospectus shall be deemed to be a new Registration Statement relating
to the securities offered therein, and the offering of such securities at
that time shall be deemed to be the initial bona fide offering thereof.
The undersigned Registrant hereby undertakes to provide to the underwriter
at the closing as specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriter to
permit prompt delivery to each purchaser.
II-5
<PAGE> 102
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-1 and has duly caused this Registration
Statement to be signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Des Plaines, State of Illinois, on the day of April
22, 1998.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ MICHAEL J. KIRBY
------------------------------------
Michael J. Kirby
President and Chief Executive
Officer
KNOWN ALL MEN BY THESE PRESENTS, that each person whose signature appears
below hereby constitutes and appoints Michael J. Kirby and Jeffry W. Weiner his
true and lawful attorney-in-fact and agent, with full power of substitution and
resubstitution, for him an in his name, place and stead, in any and all
capacities, to sign any and all amendments (including post-effective amendments)
to this registration statement, and any related registration statement filed
pursuant to Rule 462(b) of the Act, and to file the same, with exhibits thereto,
and other documents in connection therewith, with the Securities and Exchange
Commission, granting unto said attorney-in-fact and agent full power and
authority to do and perform each and every act and thing requisite and necessary
to be done, as fully to all intents and purposes as he might or could do in
person, hereby ratifying and confirming all that said attorney-in-fact and agent
or either of them, or their or his substitute or substitutes, may lawfully do or
cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended,
this Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
/s/ DONALD C. SCHMITT Chairman of the Board April 22, 1998
- ------------------------------------------
Donald C. Schmitt
/s/ MICHAEL J. KIRBY President, Chief Executive Officer April 22, 1998
- ------------------------------------------ and Director (principal
Michael J. Kirby executive officer)
/s/ JEFFRY W. WEINER Vice President, Chief Financial April 22, 1998
- ------------------------------------------ Officer and Secretary (principal
Jeffry W. Weiner financial and accounting
officer)
/s/ JAY G. SHOEMAKER Director April 22, 1998
- ------------------------------------------
Jay G. Shoemaker
/s/ JOHN H. WYANT Director April 22, 1998
- ------------------------------------------
John H. Wyant
/s/ EDWARD R. SOUSA Director April 22, 1998
- ------------------------------------------
Edward R. Sousa
</TABLE>
II-6
<PAGE> 103
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors of
The Delicious Frookie Company, Inc.
In connection with our audit of the financial statements of The Delicious
Frookie Company, Inc. referred to in our audit report dated January 22, 1998,
which was included in this Form S-1, we have also audited Schedule II as of and
for the years ended December 31, 1996 and 1997. In our opinion, this schedule
presents fairly, in all material respects, the information required to be set
forth therein.
/s/ ALTSCHULER, MELVOIN AND GLASSER LLP
ALTSCHULER, MELVOIN AND GLASSER LLP
Chicago, Illinois
April 22, 1998
S-1
<PAGE> 104
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors of
The Delicious Frookie Company, Inc.
In connection with our audit of the financial statements of The Delicious
Frookie Company, Inc. referred to in our audit report dated July 18, 1996, which
was included in this Form S-1, we have also audited Schedule II as of and for
the year ended December 31, 1995. In our opinion, this schedule presents fairly,
in all material respects, the information required to be set forth therein.
/s/ Cooper, Selvin & Strassberg, LLP
Cooper, Selvin & Strassberg, LLP
Great Neck, New York
July 18, 1996
S-2
<PAGE> 105
SCHEDULE II
THE DELICIOUS FROOKIE COMPANY, INC.
VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Column B Column C Column E
Balance at Charged to Balance
Column A Beginning Costs and Column D at End of
Description of Period Expense Writeoffs Period
- ----------------------------------- ---------- ---------- --------- -----------
<S> <C> <C> <C> <C>
1997:
Allowance for doubtful accounts $572,872 $40,487 $38,359 $575,000
========== ========== ========== ==========
Reserve for inventory obsolescence $56,521 $152,754 $0 $209,275
========== ========== ========== ==========
Valuation allowance for deferred
tax assets $3,607,200 $1,439,800 $0 $5,047,000
========== ========== ========== ==========
1996:
Allowance for doubtful accounts $100,000 $583,337 $110,465 $572,872
========== ========== ========== ==========
Reserve for inventory obsolescence $65,000 $0 $8,479 $56,521
========== ========== ========= ==========
Valuation allowance for deferred
tax assets $2,988,900 $618,300 $0 $3,607,200
========== ========== ========= ==========
1995:
Allowance for doubtful accounts $375,000 $100,001 $375,001 $100,000
========== ========== ========== ==========
Reserve for inventory obsolescence $176,000 $0 $111,000 $65,000
========== ========== ========= ==========
Valuation allowance for deferred
tax assets $0 $2,988,900 $0 $2,988,900
========== ========== ========= ==========
</TABLE>
S-3
<PAGE> 106
EXHIBIT INDEX
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
1.1 -- Form of Underwriting Agreement by and between the Company
and Gaines, Berland Inc.*...................................
3.1 -- Certificate of Incorporation, as amended, of the Company....
3.2 -- By-laws, as amended, of the Company. .......................
4.1 -- Specimen Certificate of the Company's Common Stock.*........
5.1 -- Opinion of Olshan Grundman Frome & Rosenzweig LLP.*.........
10.1 -- Employment Agreement dated as of August 11, 1997 by and
between the Company and Michael Kirby. .....................
10.2 -- Stock Option Agreement, dated as of August 11, 1997, by and
between the Company and Michael Kirby. .....................
10.3 -- Letter Agreement dated December 16, 1997 amending Michael
Kirby's Employment Agreement and Stock Option Agreement. ...
10.4 -- Amended and Restated Employment Agreement dated as of
December 15, 1997 by and between the Company and Jeffry
Weiner. ....................................................
10.5 -- 1989 Stock Option Plan of the Company. .....................
10.6 -- 1995 Stock Option Plan of the Company. .....................
10.7 -- 1994 Formula Stock Option Plan of the Company. .............
10.8 -- Trademark Sublicense Agreement dated December 16, 1993
between Nestle Food Company and the Company. ...............
10.9 -- Trademark License Agreement dated September 25, 1991 by and
between Land O' Lakes, Inc. and the Company. ...............
10.10 -- Trademark License Agreement dated May 3, 1996 by and between
Showbiz Pizzatime Inc., and the Company.* ..................
10.11 -- Trademark License Agreement dated May 1, 1996 by and between
Ringling Brothers and Barnum & Bailey Combined Shows and the
Company.*...................................................
10.12 -- License Agreement dated November 26, 1996 between Chiquita
Brands, Inc. and the Company. ..............................
10.13 -- License Agreement dated June 3, 1991 by and between CPC
International Inc., and the Company.*.......................
10.14 -- License Agreement dated May 1, 1996 between Eskimo Pie Corp.
and the Company. ...........................................
10.15 -- Amendment to License Agreement dated May 1, 1997 between
Eskimo Pie Corp. and the Company. ..........................
10.16 -- Consulting Agreement dated August 13, 1997 between the
Company and Richard Worth. .................................
10.17 -- Consulting Agreement dated August 13, 1997 between the
Company and Randye Worth. ..................................
10.18 -- Asset Purchase Agreement dated December 22, 1997 between the
Company and Richard S. Worth. ..............................
10.19 -- Financing Agreement dated November 27, 1996 between the
Company and Republic Acceptance Corporation. ...............
10.20 -- Security Agreement dated November 27, 1996 between the
Company and Republic Acceptance Corp. ......................
10.21 -- Distribution Agreement effective March 28, 1997 between the
Company and the Old Colony Baking Company, Inc. ............
10.22 -- Asset Purchase Agreement dated as of April 3, 1998 by and
between the Company and Salerno Foods, L.L.C. ..............
10.23 -- Escrow Agreement dated as of April 3, 1998 by and among the
Company, Salerno Foods, L.L.C. and American National Bank
and Trust Company of Chicago. ..............................
</TABLE>
<PAGE> 107
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
10.24 -- Assignment of Intellectual Property Rights dated April 3,
1998 by and between the Company and Salerno Foods,
L.L.C. .....................................................
10.25 -- Restrictive Covenant and Confidentiality Agreement dated
April 3, 1998 by and between the Company and Steve
Coates. ....................................................
10.26 -- Restrictive Covenant and Confidentiality Agreement dated
April 3, 1998 by and between the Company and Peter
Rogers. ....................................................
10.27 -- Restrictive Covenant and Confidentiality Agreement dated
April 3, 1998 by and between the Company and Ron Davies,
Jr. ........................................................
10.28 -- Manufacturing Agreement dated April 3, 1998 between the
Company and Pate's Bakery, L.L.C. ..........................
10.29 -- Promissory Note of the Company dated April 3, 1998 in favor
of Salerno Foods, L.L.C. ...................................
10.30 -- Security Agreement dated April 3, 1998 of the Company in
favor of Salerno Foods, L.L.C. .............................
10.31 -- Trademark Security Agreement dated April 3, 1998 of the
Company in favor of Salerno Foods, L.L.C. ..................
10.32 -- Assignment and Assumption Agreement dated April 3, 1998 by
and among the Company, Larry Polhill and American Pacific
Financial Corporation. .....................................
10.33 -- Subordination Agreement dated as of April 3, 1998 by and
between U.S. Bancorp Republic Commercial Finance, Inc.,
American Pacific Financial Corporation, Lawrence R. Polhill,
Salerno Foods, L.L.C. and the Company. .....................
10.34 -- Loan Agreement dated as of April 3, 1998 between the Company
and American Pacific Financial Corporation. ................
10.35 -- Security Agreement dated as of April 3, 1998 of the Company
in favor of American Pacific Financial Corporation. ........
10.36 -- Promissory Note dated April 3, 1998 of the Company in favor
of American Pacific Financial Corporation in the aggregate
principal amount of $4.6 million. ..........................
10.37 -- Promissory Note dated April 3, 1998 of the Company in favor
of American Pacific Financial Corporation in the aggregate
principal amount of $100,000. ..............................
10.38 -- First Amendment dated as of April 3, 1998 to the Financing
Agreement by and between the Company and U.S. Bancorp
Republic Commercial Finance, Inc. ..........................
10.39 -- Agreement between Salerno Foods, L.L.C. and Bakery, Cracker,
Pie Yeast Wagon Drivers Union, Local 734 International
Brotherhood of Teamsters of America (Cracker Drivers). .....
10.40 -- Agreement between Salerno Foods, L.L.C. and Bakery, Cracker,
Pie Yeast Wagon Drivers Union, Local 734 International
Brotherhood of Teamsters of America (Insider Div.). ........
10.41 -- Form of Indemnification Agreement between the Company and
its officers and directors.*................................
10.42 -- Voting Trust Agreement dated December 22, 1997 by and among
Richard S. Worth, Randye Worth, Graubard, Mollen & Miller,
the Company and Robert Rubin. ..............................
10.43 -- Form of Voting Agreement by and between the Company and
Edward R. Sousa, as Voting Trustee. ........................
10.44 -- Registration Rights Letter Agreement from the Company dated
October 21, 1997. ..........................................
10.45 -- Sublease Amendment Agreement and Consent to Agreement dated
as of April 2, 1998 among Maple Properties Company, L.L.C.,
Salerno Foods, L.L.C. and the Company. .....................
10.46 -- Form of Trucklease and Service Agreement by and between
Ryder Transportation Services and the Company. .............
23.1 -- Consent of Olshan Grundman Frome & Rosenzweig LLP (contained
in Exhibit 5.1). ...........................................
</TABLE>
<PAGE> 108
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
23.2 -- Consent of Altschuler, Melvoin & Glasser LLP. ..............
23.3 -- Consent of Friedman Eisenstein Raemer and Schwartz, LLP. ...
23.4 -- Consent of Cooper, Selvin & Strassberg, LLP. ...............
24.1 -- Powers of Attorney (included on the signature page to this
Registration Statement). ...................................
27.1 -- Financial Data Schedule. ...................................
</TABLE>
- ---------------
*To be filed by amendment.
(b) Financial Statement Schedules
Independent Auditors' Reports
II -- Valuation and Qualifying Accounts.
All other schedules are omitted as not being required or the
information required therein is included in the financial statements or
notes thereto.
<PAGE> 1
Exhibit 3.1
CERTIFICATE OF AMENDMENT
TO THE
CERTIFICATE OF INCORPORATION
OF
THE DELICIOUS FROOKIE COMPANY, INC.
------------------
THE DELICIOUS FROOKIE COMPANY, INC., a corporation organized and existing
under the laws of the State of Delaware (the "Corporation"), hereby certifies as
follows:
FIRST: That the following resolutions were duly adopted by the Board of
Directors of the Corporation, setting forth a proposed amendment to the
Certificate of Incorporation of the Corporation. The resolutions are as follows:
"RESOLVED, that it would be advisable and in the best interests of
the Corporation and its stockholders to adopt, and the Board of Directors
hereby adopts, an amendment to the Certificate of Incorporation of this
Corporation pursuant to which (A) the authorized capital stock of the
Corporation would be changed from 13,000,000 shares, of which 9,000,000
shares are Class A Common Stock, $.01 par value per share (the "Class A
Common Stock"); 3,000,000 shares are Class B Common Stock, $.01 par value
per share (the "Class B Common Stock"); 900,000 shares are Preferred
Stock, $.01 par value per share (the "Preferred Stock"); and 100,000
shares are Series A Convertible Preferred Stock, $.01 par value per share
(the "Series A Preferred Stock"); to 26,000,000 shares, consisting of (i)
1,000,000 shares of Preferred Stock, $.01 par value per share; and (ii)
25,000,000 shares of Common Stock, $.01 par value per share (the "Common
Stock"), (B) Article 6 of the Certificate of Incorporation, establishing
the number of directors and a classified Board of Directors, be deleted in
its entirety and replaced with a provision that states the number of
directors shall be determined as set forth in the Corporation's Bylaws
(the "Bylaws"), (C) the second and third paragraphs of Article 11 of the
Certificate of Incorporation, preventing stockholders from acting by
written consent in lieu of holding a meeting and authorizing the Chairman
of the Board of Directors to call special meetings of stockholders,
respectively, be deleted in their entirety and (D) Article 12 of the
Articles of Incorporation, requiring the affirmative vote of the holders
of at least 80% of the voting power of the then-outstanding shares of
stock entitled to vote generally in the election of directors, voting
together as a single class, to amend or repeal Articles 6, 11 or 12 of the
Certificate of Incorporation or Article III, Section 1, 2 or 3, of the
Bylaws, be deleted in its entirety and replaced with a provision reserving
to the Corporation the right to amend, alter, change or repeal any
provision of the Certificate of Incorporation, as prescribed by law; and
it was further
<PAGE> 2
"RESOLVED, that in order to effectuate such amendment, the first
paragraph of Article 4 of the Certificate of Incorporation of the
Corporation be, and hereby is, amended to read as follows:
4. The total number of shares of all classes of stock which
the Corporation shall have authority to issue is 26,000,000 shares,
consisting of (i) 1,000,000 shares of Preferred Stock, $.01 par
value per share (herein called the "Preferred Stock"); and (ii)
25,000,000 shares of Common Stock, $.01 par value per share (herein
called the "Common Stock"). All cross-references in each subdivision
of this Article 4 refer to other Sections in such subdivision unless
otherwise indicated;
and it was further
"RESOLVED, that in order to further effectuate such amendment, all
references to Class B Common Stock and the rights, preferences and
designations of the holders thereof in the Certificate of Incorporation be
deleted therefrom; and it was further
"RESOLVED, that in order to further effectuate such amendment,
Article 6 of the Certificate of Incorporation be, and hereby is, deleted
in its entirety and amended to read as follows:
6. The number of directors shall be fixed by the Board of
Directors in the manner established in the bylaws of the
Corporation;
and it was further
"RESOLVED, that in order to further effectuate such amendment, the
second and third paragraphs of Article 11 of the Certificate of
Incorporation be, and hereby is, deleted in their entirety; and it was
further
"RESOLVED, that in order to further effectuate such amendment,
Article 12 of the Certificate of Incorporation be, and hereby is, deleted
in its entirety and amended to read as follows:
12. The Corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of
incorporation, in the manner now or hereafter prescribed by statute,
and all rights conferred upon stockholders herein as granted subject
to this reservation."
SECOND: That the Amendment to the Certificate of Incorporation of the
Corporation effected by this Certificate was duly authorized by the Board of
Directors of the Corporation in accordance with the provisions of Section 242 of
the General Corporation Law of the State of Delaware, and by the vote of the
holders of a majority or 80% of all outstanding shares entitled
-2-
<PAGE> 3
to vote thereon at a meeting of the stockholders of the Corporation, as
applicable, and with respect to the amendment of Article 4 to eliminate the
Class B Common Stock, and the deletion of references to the Class B Common Stock
from the Certificate of Incorporation, by the vote of the holders of a majority
of all outstanding shares of Class B Common Stock, voting as a class, in
accordance with the provisions of Section 211 of the General Corporation Law of
the State of Delaware.
IN WITNESS WHEREOF, THE DELICIOUS FROOKIE COMPANY, INC. has caused this
Certificate of Amendment to be signed by Michael J. Kirby, its President, who
hereby acknowledges under penalties of perjury that the facts herein stated are
true and that this Certificate of Amendment is his act and deed, and attested by
Jeffry W. Weiner, its Secretary, this 18th day of December, 1997.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael J. Kirby
------------------------------
Michael J. Kirby, President
Attest:
By: /s/ Jeffry W. Weiner
---------------------------
Jeffry W. Weiner, Secretary
-3-
<PAGE> 4
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE DELICIOUS FROOKIE COMPANY, INC.
(Pursuant to Section 242)
------------------
THE DELICIOUS FROOKIE COMPANY, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the laws of the State of Delaware,
DOES HEREBY CERTIFY:
FIRST: That at meetings held on July 26, 1996, all of the directors and a
majority of the stockholders of THE DELICIOUS FROOKIE COMPANY, INC., adopted the
following resolutions amending the Certificate of Incorporation of the
Corporation:
RESOLVED: That Article 6 of the Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and hereby is,
inserted in place thereof:
6. The number of directors which shall constitute the whole Board of
Directors shall be not less than six but not more than eight and
shall be fixed from time to time exclusively by the Board of
Directors pursuant to a resolution adopted by a majority of the
total number of authorized directors at that time (whether or not
there exist any vacancies in the previously authorized directorships
at the time any such resolution is presented to the Board of
Directors for adoption). At the annual meeting of stockholders at
which this Article is adopted, the directors shall be divided into
three classes, designated Class I, Class II, and Class III (which at
all times shall be as nearly equal in number as possible), with the
term of office of Class I directors to expire at the 1997 Annual
meeting of Stockholders, the term of office of Class II directors to
expire at the 1998 Annual meeting of Stockholders, and the term of
office of Class III directors to expire at the 1999 Annual meeting
of Stockholders. At each meeting of stockholders following such
initial classification and election, directors elected to succeed
those directors whose terms expire shall be elected for a term of
office to expire at the third succeeding annual meeting of
stockholders after their election.
No director of the Corporation may be removed except for
cause, and the vote of the holders of 66 2/3% of the outstanding
shares of all classes of capital stock of the Corporation entitled
to vote generally in the election of directors,
<PAGE> 5
considered for this purpose as one class, shall be required to
remove a director for cause. Cause for removal shall be deemed to
exist only if the director whose removal is proposed has been
convicted in a court of competent jurisdiction of a felony or has
been adjudged by a court of competent jurisdiction to be liable for
gross negligence or misconduct in the performance of such director's
duty to the Corporation, and such conviction or adjudication has
become final and non-appealable.
Subject to the rights of the holders of any class or series of
voting stock then outstanding, newly created directorships resulting
from any increase in the authorized number of directors or any
vacancies on the Board of Directors resulting from death,
resignation, retirement, disqualification, removal from office or
other cause may be filled by a majority vote of the directors then
in office, though less than a quorum, and directors so chosen shall
hold office for a term expiring at the annual meeting of
stockholders at which the term of office of the class to which they
have been elected expires. No decrease in the number of authorized
directors constituting the entire Board of Directors shall shorten
the term of any incumbent director.
Notwithstanding the foregoing, whenever the holder of any
shares of the Preferred Stock shall have the right to elect
directors at an annual or special meeting of stockholders, the
election, term of office, filling of vacancies, and other features
of such directorships shall be governed by the terms of this
Certificate of Incorporation applicable thereto, or the resolution
or resolutions of the board of Directors relating to the issuance of
such shares of Preferred Stock, and such directors so elected shall
not be divided into classes pursuant to this Article unless
expressly provided by such terms or such resolution or resolutions.
RESOLVED: That Article 11 of the Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and hereby is,
inserted in place thereof:
11. Meetings of the stockholders may be held within or without the
State of Delaware, as the bylaws may provide. The books of the
Corporation may be kept (subject to any provision contained in the
statutes) outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors or in
the bylaws of the Corporation. Elections of directors need not be by
written ballot unless the bylaws of the Corporation shall so
provide.
Any action required or permitted to be taken at any annual or
special meeting of stockholders may be taken only upon the vote of
the stockholders at an annual or special meeting duly called and may
not be taken by written consent of stockholders.
-2-
<PAGE> 6
Special meetings of stockholders of the Corporation for any
purpose or purposes may be called at any time by a majority of the
Board of Directors or the Chairman of the Board of Directors.
Special meetings of the stockholders of the Corporation may not be
called by any other person or persons.
RESOLVED: That Article 12 of the Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and hereby is,
inserted in place thereof:
12. The Board of Directors of the Corporation shall have the power
to make, alter or repeal bylaws of the Corporation, subject to such
restrictions upon the exercise of such power as may be imposed by
the stockholders in any bylaws adopted by them from time to time.
Notwithstanding the foregoing and anything contained in this
Certificate of Incorporation to the contrary, Sections 1, 2 and 3 of
Article III of the bylaws shall not be amended or repealed and no
provision inconsistent therewith shall be adopted without the
affirmative vote of the holders of at least 80% of the voting power
of all of the then-outstanding shares of stock entitled to vote
generally in the election of directors, voting together as a single
class. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders
of at least 80% of the voting power of the then-outstanding shares
of stock entitled to vote generally in the election of directors,
voting as a single class, shall be required to alter, amend or adopt
any provision inconsistent with or repeal Article 6, Article 11 or
this Article 12.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-3-
<PAGE> 7
IN WITNESS WHEREOF, the said THE DELICIOUS FROOKIE COMPANY, INC.
has caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be signed by Richard S. Worth, its President and Paul D. Broude,
its Assistant Secretary this 27th day of August, 1996.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Richard S. Worth
-----------------------------
Richard S. Worth, President
/s/ Paul D. Broude
- ---------------------
Paul D. Broude
Assistant Secretary
-4-
<PAGE> 8
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
THE DELICIOUS/FROOKIE COMPANY, INC.
(Pursuant to Section 242)
------------------
THE DELICIOUS/FROOKIE COMPANY, INC. (the "Corporation"), a corporation
organized and existing under and by virtue of the General Corporation Law of the
State of Delaware, DOES HEREBY CERTIFY:
FIRST: That by written consent dated April 25, 1995, all of the directors
and a majority of the stockholders of THE DELICIOUS/FROOKIE COMPANY, INC.,
adopted the following resolution amending the Certificate of Incorporation of
the Corporation:
RESOLVED: That Article 1 of the Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and hereby is,
inserted in place thereof:
"1. The name of the Corporation is THE DELICIOUS FROOKIE
COMPANY, INC."
SECOND: That by written consent dated May 15, 1995, all of the directors
and a majority of the stockholders of THE DELICIOUS/FROOKIE COMPANY, INC.,
adopted the following resolution amending the Certificate of Incorporation of
the Corporation:
RESOLVED: That the Certificate of Incorporation of the corporation be amended
by changing the first paragraph of Article numbered 4 thereof so
that, as amended, said first paragraph of Article 4 shall be and
read as follows:
"4. The total number of shares of stock which the Corporation
shall have authority to issue is thirteen million (13,000,000), of
which nine million (9,000,000) shall be Class A Common Stock, of the
par value of $.01 per share, three million (3,000,000) shall be
Class B Common Stock of the par value of $.01 per share, nine
hundred thousand (900,000) shall be Preferred Stock of the par value
of $.01 per share and one hundred thousand (100,000) shall be Series
A Convertible Preferred Stock of the par value of $.01 per share,
amounting in the aggregate to One Hundred Thirty Thousand and 00/100
Dollars ($130,000.00). Additional designations and powers,
preferences and rights and qualifications, limitations or
restrictions thereof of the Common Stock and
<PAGE> 9
Preferred Stock shall be determined by the Board of Directors of the
Corporation from time to time."
IN WITNESS WHEREOF, the said THE DELICIOUS/FROOKIE COMPANY, INC. has
caused its corporate seal to be hereunto affixed and this Certificate of
Amendment to be signed by Richard S. Worth, its Chief Executive Officer and Paul
D. Broude, its Assistant Secretary this 30th day of June, 1995.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Richard S. Worth
----------------------------
Richard S. Worth
Chief Executive Officer
/s/ Paul D. Broude
- --------------------------
Paul D. Broude
Assistant Secretary
-2-
<PAGE> 10
CERTIFICATE OF OWNERSHIP AND MERGER
MERGING
R.W. FROOKIES, INC.
AND
DELICIOUS COOKIE COMPANY, INC.
INTO
THE DELICIOUS FROOKIE COMPANY, INC.
------------------
THE DELICIOUS FROOKIE COMPANY, INC., a corporation organized and existing
under the laws of the State of Delaware, DOES HEREBY CERTIFY:
FIRST: That this Corporation was incorporated on the 19th day of January,
1989, pursuant to the General Corporation Law of the State of
Delaware.
SECOND: That this Corporation owns all of the outstanding shares of the
stock of R.W. Frookies, Inc., a corporation incorporated on the 7th
day of February, 1995 pursuant to the General Corporation Law of the
State of Delaware.
THIRD: That this Corporation owns all of the outstanding shares of the
stock of Delicious Cookie Company, Inc., a corporation incorporated
on the 1st day of February, 1984 pursuant to the Business
Corporation Act of the State of Illinois.
FOURTH: That this Corporation, by the following resolutions of its Board of
Directors at a meeting held on the 14th and 15th of December, 1985,
determined and did merge into itself said R.W. Frookies, Inc. and
Delicious Cookie Company, Inc.:
RESOLVED: That The Delicious Frookie Company, Inc. merge, and it
hereby does merge into itself said R.W. Frookies, Inc.
and Delicious Cookie Company, Inc. and assumes all its
obligations.
<PAGE> 11
FURTHER
RESOLVED: That the merger shall be effective upon the date of
filing with the Secretary of State of Delaware.
FIFTH: Anything herein or elsewhere to the contrary notwithstanding, this
merger may be amended or terminated and abandoned by the Board of
Directors of THE DELICIOUS FROOKIE COMPANY, INC. at any time prior
to the date of filing the merger with the Secretary of State.
IN WITNESS WHEREOF, said The Delicious Frookie Company, Inc. has caused
this Certificate to be signed by Richard S. Worth, its President this 27th day
of December, 1995.
/s/ Richard S. Worth
------------------------------
Richard S. Worth, President
-2-
<PAGE> 12
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
R.W. FROOKIES, INC.
(Pursuant to Section 242)
------------------
R.W. FROOKIES, INC. (the "Corporation"), a corporation organized and
existing under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
FIRST: That by written consent dated November 30, 1994, all of the
directors and a majority of the stockholders of R.W. FROOKIES, INC., adopted the
following resolution amending the Certificate of Incorporation of the
Corporation:
RESOLVED: That Article 1 of the Certificate of Incorporation be, and hereby
is, deleted in its entirety and the following be, and hereby is,
inserted in place thereof:
"1. The name of the Corporation is THE DELICIOUS/
FROOKIE COMPANY, INC."
IN WITNESS WHEREOF, the said R.W. FROOKIES, INC. has caused its corporate
seal to be hereunto affixed and this Certificate of Amendment to be signed by
Richard S. Worth, its President and Paul D. Broude, its Assistant Secretary this
31st day of December, 1994.
/s/ Richard S. Worth
---------------------------
Richard S. Worth
Chief Executive Officer
/s/ Paul D. Broude
- ------------------------
Paul D. Broude
Assistant Secretary
<PAGE> 13
STATEMENT OF DESIGNATION
OF
CLASS B COMMON STOCK
OF
R.W. FROOKIES, INC.
------------------
R.W. FROOKIES, INC., a Corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That by unanimous written consent, dated April 7, 1989, the sole
director and sole stockholder of R.W. Frookies, Inc., adopted the following
resolutions setting forth the designations, powers, preferences and rights of
the Class B Common Stock of said Corporation:
RESOLVED: That the designations, powers, preferences and rights of the
Class B Common Stock be, and hereby are, as set forth below:
1. Number of Shares. The class of Common Stock designated and
known as "Class B Common Stock" shall consist of three million
(3,000,000) shares.
2. Voting. Except as otherwise provided by law, the holders of
shares of Class B Common Stock shall not vote on any actions to be
taken by the stockholders of the Corporation. Each share of Class B
Common Stock shall entitle the holder thereof to one vote per share
on each action required by law to be subject to a vote by holders of
Class B Common Stock.
3. Other Rights and Preferences. Except as stated above with
regard to the voting rights, the Class B Common Stock shall have all
of the same designations, powers, preferences, and rights as the
Class A Common Stock.
4. Amendment. No provision of these terms of the Class B
Common Stock may be amended, modified, or waived, without the
written consent or affirmative vote of the holders of at least a
majority of the then outstanding shares of Class B Common Stock.
and that the President and Secretary be, and hereby are,
authorized and directed to execute and file a Statement of
Designation with the Delaware Secretary of State.
<PAGE> 14
IN WITNESS WHEREOF, the said R.W. Frookies, Inc., has caused its corporate
seal to be hereunto affixed and this Statement of Designation to be signed by
Richard S. Worth, its President and Paul D. Broude, its Assistant Secretary this
7th day of April, 1989.
R.W. FROOKIES, INC.
By: /s/ Donald A. Worth
-------------------------
Donald A. Worth
President
[SEAL]
/s/ Paul D. Broude
- ------------------------
Paul D. Broude
Assistant Secretary
-2-
<PAGE> 15
AGREEMENT OF MERGER
THIS AGREEMENT OF MERGER ("Merger Agreement"), dated as of February 21,
1989, is between R.W. FROOKIES, INC., a New York corporation ("Frookies of New
York") and R.W. FROOKIES, INC., a Delaware corporation ("Frookies of Delaware").
Frookies of New York and Frookies of Delaware are hereafter sometimes
collectively referred to as the "Constituent Corporations".
WHEREAS, Frookies of New York is a corporation duly organized and existing
under the laws of the State of New York;
WHEREAS, Frookies of Delaware is a corporation duly organized and existing
under the laws of the State of Delaware;
WHEREAS, on the date of this Merger Agreement Frookies of New York has
authority to issue 2,000,000 shares of Common Stock, $.001 par value per share
("Frookies of New York Common Stock"), 809,050 of which shares are issued and
outstanding;
WHEREAS, on the date of this Merger Agreement, Frookies of Delaware has
authority to issue 7,000,000 shares of Class A Common Stock, $.01 par value per
share ("Frookies of Delaware Class A Common Stock"), 1 of which shares are
issued and outstanding, 3,000,000 shares of Class B Common Stock, $.01 par value
per share ("Frookies of Delaware Class B Common Stock"), no shares of which are
issued and outstanding, and 900,000 shares of Preferred Stock, $.01 par value
per share ("Frookies of Delaware Preferred Stock"), no shares of which are
issued and outstanding and 100,000 shares of Series A Convertible Preferred
Stock, $.01 par value per share ("Frookies of Delaware Series A Convertible
Preferred Stock"), no shares of which are issued and outstanding;
WHEREAS, the respective Boards of Directors of Frookies of New York and
Frookies of Delaware have determined that it is advisable and in the best
interests of each of such corporations that Frookies of New York merge with and
into Frookies of Delaware upon the terms and subject to the conditions of this
Merger Agreement for the purpose of effecting the reincorporation of Frookies of
New York in the State of Delaware; and
WHEREAS, the respective Boards of Directors of Frookies of New York and
Frookies of Delaware have, by resolutions duly adopted, approved this Merger
Agreement, and the shareholders of Frookies of New York have duly approved this
Merger Agreement at a meeting held on February 7, 1989, and all of the
shareholders of Frookies of Delaware have, by unanimous consent, approved this
Merger Agreement;
NOW, THEREFORE, in consideration of the mutual agreements and covenants
set forth herein, Frookies of New York and Frookies of Delaware hereby agree as
follows:
<PAGE> 16
1. Merger. Frookies of New York shall be merged with and into Frookies of
Delaware (the "Merger"), and Frookies of Delaware shall be the surviving
corporation (hereinafter sometimes referred to as the "Surviving Corporation").
The Merger shall become effective February 22, 1989 or upon the time and date of
filing of such documents as may be required under applicable law ("Effective
Time"), whichever occurs later.
2. Governing Documents. The Certificate of Incorporation of Frookies of
Delaware, as in effect immediately prior to the Effective Time, shall be the
Certificate of Incorporation of the Surviving Corporation without change or
amendment until thereafter amended in accordance with the provisions thereof and
applicable laws, and the Bylaws of Frookies of Delaware, as in effect
immediately prior to the Effective Time shall be the Bylaws of the Surviving
Corporation without change or amendment until thereafter amended in accordance
with the provisions thereof and applicable laws.
3. Succession. At the Effective Time, the separate corporate existence of
Frookies of New York shall cease, and Frookies of Delaware shall possess all the
rights, privileges, powers and franchises of a public and private nature and be
subject to all the restrictions, disabilities and duties of Frookies of New
York; and all and singular, the rights, privileges, powers and franchises of
Frookies of New York, and all property, real, personal and mixed, and all debts
due to Frookies of New York on whatever account, as well as for share
subscriptions and all other things in action or belonging to Frookies of New
York, shall be vested in the Surviving Corporation; and all property, rights,
privileges, powers and franchises, and all and every other interest shall be
thereafter as effectually the property of the Surviving Corporation as they were
of Frookies of New York, and the title to any real estate vested by deed or
otherwise, under the laws of the State of Delaware, in Frookies of New York,
shall not revert or be in any way impared by reason of the General Corporation
Law of the State of Delaware; but all rights of creditors and all liens upon any
property of Frookies of New York shall be preserved unimpaired; and all debts,
liabilities and duties of Frookies of New York shall thenceforth attach to the
Surviving Corporation and may be enforced against it to the same extent as if
such debts, liabilities and duties had been incurred or contracted by it. All
corporate acts, plans, policies, agreements, arrangements, approvals and
authorizations of Frookies of New York, its shareholders, Board of Directors and
committees thereof, officers and agents which were valid and effective
immediately prior to the Effective Time, shall be taken for all purposes as the
acts, plans, policies, agreements, arrangements, approvals and authorizations of
Frookies of Delaware and shall be as effective and binding thereon as the same
were with respect to Frookies of New York. The employees and agents of Frookies
of New York shall become the employees and agents of Frookies of Delaware and
continue to be entitled to the same rights and benefits which they enjoyed as
employees of Frookies of New York.
4. Further Assurances. From time to time, as and when required by Frookies
of Delaware, or by its successors and assigns, there shall be executed and
delivered on behalf of Frookies of New York such deeds and other instruments,
and there shall be taken or caused to be taken by it all such further and other
action, as shall be appropriate or necessary in order to vest, perfect or
confirm, of record or otherwise, in Frookies of Delaware the title to and
-2-
<PAGE> 17
possession of all property, interest, assets, rights, privileges, immunities,
powers, franchises and authority of Frookies of New York, and otherwise to carry
out the purposes of this Merger Agreement, and the officers and directors of
Frookies of Delaware are fully authorized in the name and on behalf of Frookies
of New York to take any and all such action and to execute and deliver any and
all deeds and other instruments.
5. Conversion of Shares. At the Effective Time, by virtue of the Merger
and without any action on the part of the holder thereof:
(a) Each share of Frookies of New York Common Stock outstanding
immediately prior to the Effective Time shall be changed and converted
into and shall be one fully-paid and non-assessable share, of Frookies of
Delaware Class A Common Stock.
(b) The 1 share of Frookies of Delaware Class A Common Stock
presently issued and outstanding shall be given to Frookies of Delaware as
a capital contribution and shall be cancelled and resume the status of
authorized and unissued shares of Frookies of Delaware Class A Common
Stock, and no shares of Frookies of Delaware Class A Common Stock or other
securities of Frookies of Delaware shall be issued in respect thereof.
6. Stock Certificates. At and after the Effective Time, all of the
outstanding certificates which immediately prior to the Effective Time
represented shares of Frookies of New York Common Stock shall be presented to
the Surviving Corporation to be exchanged for certificates representing shares
of Frookies of Delaware Common Stock as converted as herein provided. The
registered owner of any such outstanding certificate, until such certificate
shall have been surrendered for transfer or otherwise accounted for to Frookies
of Delaware or its transfer agents, shall have and be entitled to exercise any
voting and other rights with respect to and to receive any dividends and other
distributions upon the shares of Frookies of Delaware Class A Common Stock
evidenced by such outstanding certificate as above provided. All certificates
representing shares of Frookies of New York and Frookies of Delaware immediately
prior to the Effective Time shall be surrendered to Frookies of Delaware for
cancellation; at and after the Effective Time, the shares represented by such
certificates shall be deemed to be cancelled whether or not the certificates
have been surrendered or otherwise accounted for.
7. Employee Benefit Plans. As of the Effective Time, Frookies of Delaware
hereby assumes all obligations of Frookies of New York under any and all
employee benefit plans in effect as of the Effective Time or with respect to
which employee rights or accrued benefits are outstanding as of the Effective
Time.
8. Amendment. Subject to applicable law, this Merger Agreement may be
amended, modified or supplemented by written agreement of the parties hereto at
any time prior to the Effective Time with respect to any of the terms contained
herein.
-3-
<PAGE> 18
9. Abandonment. At any time prior to the Effective Time, this Merger
Agreement may be terminated and the Merger may be abandoned by the Board of
Directors of either of Frookies of New York or Frookies of Delaware, or both of
them, notwithstanding approval of this Merger Agreement by the stockholders of
any of said corporations if circumstances arise which, in the opinion of the
Board of Directors of Frookies of New York or Frookies of Delaware, make the
Merger inadvisable.
10. Counterparts. In order to facilitate the filing and recording of this
Merger Agreement, the same may be executed in two or more counterparts, each of
which shall be deemed to be an original and the same agreement.
[THIS SPACE INTENTIONALLY LEFT BLANK]
-4-
<PAGE> 19
IN WITNESS WHEREOF, Frookies of New York and Frookies of Delaware have
caused this Merger Agreement to be signed by their respective duly authorized
officers as of the date first above written.
R.W. FROOKIES, INC.
a New York Corporation
By: /s/ Richard Worth
----------------------------
Richard Worth, President
ATTEST:
/s/ Donald A. Worth
- ------------------------
Donald A. Worth
Secretary
R.W. FROOKIES, INC.
a Delaware Corporation
By: /s/ Donald A. Worth
----------------------------
Donald A. Worth, President
ATTEST:
/s/ Bradley D. Robbins
- ------------------------
Bradley D. Robbins
Assistant Secretary
-5-
<PAGE> 20
SECRETARY'S CERTIFICATE
I, Paul D. Broude, Assistant Secretary of R.W. Frookies, Inc., a
corporation organized and existing under the laws of the State of Delaware,
hereby certify, as such Secretary and under the seal of the said corporation,
that the Agreement of Merger to which this certificate is attached, after having
been first duly signed on behalf of said corporation by the President and
attested by the Assistant Secretary of said R.W. Frookies, Inc., a corporation
of the State of Delaware, was duly submitted to the sole stockholder of said
R.W. Frookies, pursuant to Title 8, Section 228 of the Delaware Corporation Law
for the purpose of considering and taking action upon said Agreement of Merger,
that one (1) share of Class A Common Stock of said corporation was, on the said
date, issued and outstanding and that the holder of said share voted in favor of
said Agreement and no holder of shares voted against same, the said affirmative
vote representing at least two-thirds of the total number of shares of the
outstanding capital stock of said corporation, and that thereby the Agreement
was duly adopted as the act of the stockholders of said R.W. Frookies, Inc., and
the duly adopted agreement of said corporation.
WITNESS my hand and seal of said R.W. FROOKIES, INC. on this 21st day of
February, 1989.
R.W. FROOKIES, INC.
[CORPORATE SEAL]
By: /s/ Paul D. Broude
-------------------------
Paul D. Broude
Assistant Secretary
<PAGE> 21
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
R.W. FROOKIES, INC.
------------------
R.W. FROOKIES, INC., a corporation organized and existing under and by
virtue of the General Corporation Law of the State of Delaware, DOES HEREBY
CERTIFY:
FIRST: That by unanimous written consent dated February 3, 1989, the sole
director and the sole stockholder of R.W. Frookies, Inc. adopted the following
resolutions amending the Certificate of Incorporation of said Corporation:
RESOLVED: That the Certificate of Incorporation of the Corporation be
amended by changing article numbered 4 thereof so that, as amended, said article
4 shall be and read as follows:
"4. The total number of shares of stock which the corporation shall have
authority to issue is eleven million (11,000,000), of which seven million
(7,000,000) shall be Class A Common Stock of the par value of $.01 per share,
three million (3,000,000) shall be Class B Common Stock of the par value of $.01
per share, nine hundred thousand (900,000) shall be Preferred Stock of the par
value of $.01 per share and one hundred thousand (100,000) shall be Series A
Convertible Preferred Stock of the par value of $.01 per share, amounting in the
aggregate to One Hundred Ten Thousand and 00/100 Dollars ($110,000.00).
Additional designations and powers, preferences and rights and qualifications,
limitations or restrictions
<PAGE> 22
thereof of the Common Stock and Preferred Stock shall be determined by the Board
of Directors of the Corporation from time to time.
The designations and powers, preferences and rights and qualifications,
limitations or restrictions thereof of the shares of Series A Convertible
Preferred Stock shall be as follows:
1. Number of Shares. The series of Preferred Stock designated and known as
"Series A Convertible Preferred Stock" shall consist of one hundred thousand
(100,000) shares.
2. Voting. Except as provided herein, or as may be otherwise provided by
law, the Series A Convertible Preferred Stock shall not vote on any actions to
be taken by the stockholders of the Corporation. Each share of Series A
Convertible Preferred Stock shall entitle the holder thereof to one vote per
share on each action required by law to be subject to a vote by holders of
Series A Convertible Preferred Stock.
3. Dividends. The holders of the Series A Convertible Preferred Stock
shall be entitled to receive dividends, out of funds legally available therefor,
when and if declared by the Board of Directors.
4. Liquidation. Upon any liquidation, dissolution or winding up of the
Corporation, whether voluntary or involuntary, the holders of the shares of
Series A Convertible Preferred Stock shall be entitled, before any distribution
or payment is made upon any stock ranking on liquidation junior to the Series A
Convertible Preferred Stock, to be paid an amount equal to Eight and XX/100
Dollars ($8.00) per share plus, in the case of each share, an amount equal to
all dividends declared but unpaid thereon, computed to the date payment thereof
is made available; such amount payable with respect to one share of Series A
Convertible Preferred Stock being sometimes referred to as the "Liquidation
Payment" and with respect to all shares of Series A Convertible Preferred Stock
being sometimes referred to as the "Liquidation Payments". If upon such
liquidation, dissolution or winding up of the Corporation, whether voluntary or
involuntary, the assets to be distributed among the holders of Series A
Convertible Preferred Stock shall be insufficient to permit payment to the
holders of Series A Convertible Preferred Stock of the amount distributable as
aforesaid, then the entire assets of the Corporation to be so distributed shall
be distributed ratably among the holders of Series A Convertible Preferred
Stock. Upon any such liquidation, dissolution or winding up of the Corporation,
after the holders of Series A Convertible Preferred Stock shall have been paid
in full the amounts to which they shall be entitled, the remaining net assets of
the Corporation may be distributed to the holders of stock ranking on
liquidation junior to the Series A Convertible Preferred Stock. Written notice
of such liquidation, dissolution or winding up, stating a payment date, the
amount of the Liquidation Payments and the place where said Liquidation Payments
shall be payable, shall be given by mail, postage prepaid, or by telex to
non-U.S. residents, not less than 20 days prior to the payment date stated
therein, to the holders of record of Series A Convertible Preferred Stock, such
notice to be addressed to each such holder at its address as shown by the
-2-
<PAGE> 23
records of the Corporation. The consolidation or merger of the Corporation into
or with any other entity or entities which results in the exchange of
outstanding shares of the Corporation for securities or other consideration
issued or paid or caused to be issued or paid by any such entity or affiliate
thereof, and the sale or transfer by the Corporation of all or substantially all
its assets, shall be deemed to be a liquidation, dissolution or winding up of
the Corporation within the meaning of the provisions of this Section 4. For
purposes hereof, the Corporation's Common Stock shall rank on liquidation junior
to the Series A Convertible Preferred Stock.
5. Restrictions. At any time when shares of Series A Convertible Preferred
Stock are outstanding, except where the vote or written consent of the holders
of a greater number of shares of the Corporation is required by law or by the
Certificate of Incorporation, without the approval of the holders of at least a
majority of the then outstanding shares of Series A Convertible Preferred Stock,
given in writing or by vote at a meeting, consenting or voting (as the case may
be) separately as a series, the Corporation will not redeem or otherwise acquire
any shares of Series A Convertible Preferred Stock except as expressly
authorized in Section 6 hereof or pursuant to a purchase offer made pro rata to
all holders of the shares of Series A Convertible Preferred Stock on the basis
of the aggregate number of outstanding shares of Series A Convertible Preferred
Stock then held by each such holder.
6. Conversions. The holders of shares of Series A Convertible Preferred
Stock shall have the following conversion rights:
(i) Right to Convert. Subject to the terms and conditions of this
Section 6 the holder of any share or shares of Series A Convertible Preferred
Stock shall have the right, at its option at any time beginning March 15, 1990,
to convert each such share of Series A Convertible Preferred Stock (except that
upon any liquidation of the Corporation the right of conversion shall terminate
at the close of business on the business day fixed for payment of the amount
distributable on the Series A Convertible Preferred Stock) into one share of
fully paid and nonassessable share of Class B Common Stock. Such rights of
conversion shall be exercised by the holder thereof by giving written notice
that the holder elects to convert a stated number of shares of Series A
Convertible Preferred Stock into Class B Common Stock and by surrender of a
certificate or certificates for the shares so to be converted to the Corporation
at its principal office (or such other office or agency of the Corporation as
the Corporation may designate by notice in writing to the holders of the Series
A Convertible Preferred Stock) at any time during its usual business hours on
the date set forth in such notice, together with a statement of the name or
names (with address) in which the certificate or certificates for shares of
Class B Common Stock shall be issued.
(ii) Issuance of Certificates; Time Conversion Effected. Promptly
after the receipt of the written notice referred to in Section 6(i) and
surrender of the certificate or certificates for the share or shares of Series A
Convertible Preferred Stock to be converted, the Corporation shall issue and
deliver, or cause to be issued and delivered, to the holder, registered in such
name or names as such holder may direct, a certificate or certificates for the
number of whole shares of Class B Common Stock issuable upon the conversion of
such share or shares
-3-
<PAGE> 24
of Series A Convertible Preferred Stock. To the extent permitted by law, such
conversion shall be deemed to have been effected as of the close of business on
the date on which such written notice shall have been received by the
Corporation and the certificate or certificates for such share or shares shall
have been surrendered as aforesaid, and at such time the rights of the holder of
such share or shares of Series A Convertible Preferred Stock shall cease, and
the person or persons in whose name or names any certificate or certificates for
shares of Class B Common Stock shall be issuable upon such conversion shall be
deemed to have become the holder or holders of record of the shares represented
thereby.
(iii) Fractional Shares; Dividends; Partial Conversion. No
fractional shares shall be issued upon conversion of Series A Convertible
Preferred Stock into Class B Common Stock and no payment or adjustment shall be
made upon any conversion on account of any cash dividends on the Class B Common
Stock issued upon such conversion. At the time of each conversion, the
Corporation shall pay in cash an amount equal to all dividends, accrued and
unpaid on the shares of Series A Convertible Preferred Stock surrendered for
conversion to the date upon which such conversion is deemed to take place as
provided in Section 6(ii). In case the number of shares of Series A Convertible
Preferred Stock represented by the certificate or certificates surrendered
pursuant to Section 6(i) exceeds the number of shares converted, the Corporation
shall, upon such conversion, execute and deliver to the holder, at the expense
of the Corporation, a new certificate or certificates for the number of shares
of Series A Convertible Preferred Stock represented by the certificate or
certificates surrendered which are not to be converted. If any fractional share
of Class B Common Stock would, except for the provisions of the first sentence
of this Section 6 (iii), be delivered upon such conversion, the Corporation, in
lieu of delivering such fractional share, shall pay to the holder surrendering
the Series A Convertible Preferred Stock for conversion an amount in cash equal
to the current market price of such fractional share as determined in good faith
by the Board of Directors of the Corporation, but in no event less than par
value per share.
(iv) Reorganization or Reclassification. If any capital
reorganization or reclassification of the capital stock of the Corporation shall
be effected in such a way that holders of Class B Common Stock shall be entitled
to receive stock, securities or assets with respect to or in exchange for Class
B Common Stock, then, as a condition of such reorganization or reclassification,
lawful and adequate provisions shall be made whereby each holder of a share or
shares of Series A Convertible Preferred Stock shall thereupon have the right to
receive, upon the terms and conditions specified herein and in lieu of the
shares of Class B Common Stock immediately theretofore receivable upon the
conversion of such share or shares of Series A Convertible Preferred Stock, such
shares of stock, securities or assets as may be issued or payable with respect
to or in exchange for a number of outstanding shares of such Class B Common
Stock equal to the number of shares of such Class B Common Stock immediately
theretofore receivable upon such conversion had such reorganization or
reclassification not taken place, and in any such case appropriate provisions
shall be made with respect to the rights and interests of such holder to the end
that the provisions hereof (including without limitation provisions for
adjustments of the conversion rights) shall thereafter be applicable, as nearly
as
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<PAGE> 25
may be, in relation to any shares of stock, securities or assets thereafter
deliverable upon the exercise of such conversion rights.
(v) Notices. In case at any time:
(1) the Corporation shall declare any dividend upon its Class
B Common Stock payable in cash or stock or make any other pro rata distribution
to the holders of its Class B Common Stock;
(2) the Corporation shall offer for subscription pro rata to
the holders of its Class B Common Stock any additional shares of stock of any
class or other rights;
(3) there shall be any capital reorganization or
reclassification of the capital stock of the Corporation, or a consolidation or
merger of the Corporation with or into, or a sale of all or substantially all
its assets to, another entity or entities; or
(4) there shall be a voluntary or involuntary dissolution,
liquidation or winding up of the Corporation; then, in any one or more of said
cases, the Corporation shall give, by first class mail, postage prepaid, or by
telex to non-U.S. residents, addressed to each holder of any shares of Series A
Convertible Preferred Stock at the address of such holder as shown on the books
of the Corporation, (a) at least 20 days' prior written notice of the date on
which the books of the Corporation shall close or a record shall be taken for
such dividend, distribution or subscription rights or for determining rights to
vote in respect of any such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up and (b) in the case of any
such reorganization, reclassification, consolidation, merger, sale, dissolution,
liquidation or winding up, at least 20 days' prior written notice of the date
when the same shall take place. Such notice in accordance with the foregoing
clause (a) shall also specify, in the case of any such dividend, distribution or
subscription rights, the date on which the holders of Class B Common Stock shall
be entitled thereto and such notice in accordance with the foregoing clause (b)
shall also specify the date on which the holders of Class B Common Stock shall
be entitled to exchange their Class B Common Stock for securities or other
property deliverable upon such reorganization, reclassification, consolidation,
merger, sale, dissolution, liquidation or winding up, as the case may be.
(vi) Stock to be Reserved. The Corporation will at all times reserve
and keep available out of its authorized Class B Common Stock, solely for the
purpose of issuance upon the conversion of Series A Convertible Preferred Stock
as herein provided, such number of shares of Class B Common Stock as shall then
be issuable upon the conversion of all outstanding shares of Series A
Convertible Preferred Stock. The Corporation covenants that all shares of Class
B Common Stock which shall be so issued shall be duly and validly issued. The
Corporation will take all such action as may be so issued without violation of
any applicable law or regulation, or of any requirement of any national
securities exchange upon which the Class B Common Stock may be listed. The
Corporation will not take any action which results in any adjustment of the
conversion rights if the total number of shares of Class B Common Stock
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<PAGE> 26
issued and issuable after such action upon conversion of the Series A
Convertible Preferred Stock would exceed the total number of shares of Class B
Common Stock then authorized by the Certificate of Incorporation.
(vii) No Reissuance of Series A Convertible Preferred Stock. Shares
of Series A Convertible Preferred Stock which are converted into shares of Class
B Common Stock as provided herein shall not be reissued.
(viii) Issue Tax. The issuance of certificates for shares of Class B
Common Stock upon conversion of Series A Convertible Preferred Stock shall be
made without charge to the holder thereof for any issuance tax in respect
thereof, provided that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery of any certificate in a name other than that of the holder of the
Series A Convertible Preferred Stock which is being converted.
(ix) Closing of Books. The Corporation will at no time close its
transfer books against the transfer of any Series A Convertible Preferred Stock
or of any shares of Class B Common Stock issued or issuable upon the conversion
of any shares of Series A Convertible Preferred Stock in any manner which
interferes with the timely conversion of such Series A Convertible Preferred
Stock, except as may otherwise be required to comply with applicable securities
laws.
(x) Definition of Class A and Class B Common Stock. As used herein,
the term "Class A Common Stock and Class B Common Stock" shall mean and include
the Corporation's authorized Class A Common Stock and Class B Common Stock, par
value $.01 per share, as constituted on the date of filing of these terms of the
Series A Convertible Preferred Stock, and shall also include any capital stock
of any class of the Corporation thereafter authorized which shall neither be
limited to a fixed sum or percentage of par value in respect of the rights of
the holders thereof to participate in dividends nor entitled to a preference in
the distribution of assets upon the voluntary or involuntary liquidation,
dissolution or winding up of the Corporation; provided that the shares of Class
B Common Stock receivable upon conversion of shares of Series A Convertible
Preferred Stock shall include only shares designated as Class B Common Stock of
the Corporation on the date of filing of this instrument, or in case of any
reorganization or reclassification of the outstanding shares thereof, the stock,
securities or assets provided for in Section 6(iv).
(xi) Mandatory Conversion. If at any time the Corporation shall
effect a firm commitment underwritten public offering of shares of Class A
Common Stock, then effective upon the closing of the sale of such shares by the
Corporation pursuant to such public offering, all outstanding shares of Series A
Convertible Preferred Stock shall automatically convert to shares of Class A
Common Stock.
7. Amendments. No provision of these terms of the Series A Convertible
Preferred Stock may be amended, modified, or waived without the written consent
or affirmative vote of
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the holders of at least a majority of the then outstanding shares of Series A
Convertible Preferred Stock.
IN WITNESS WHEREOF, the said R.W. Frookies, Inc. has caused its corporate
seal to be hereunto affixed and this Certificate of Amendment to be signed by
Donald A. Worth, its President and Bradley D. Robbins, its Assistant Secretary
this 3rd day of February, 1989.
R.W. FROOKIES, INC.
By: /s/ Donald A. Worth
--------------------------
Donald A. Worth
President
[SEAL]
/s/ Bradley D. Robbins
- --------------------------
Bradley D. Robbins
Assistant Secretary
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<PAGE> 28
CERTIFICATE OF INCORPORATION
OF
R.W. FROOKIES, INC.
------------------
1. The name of the corporation is R.W. Frookies, Inc.
2. The address of its registered office in the State of Delaware is 229
South State Street, in the City of Dover, County of Kent. The name of its
registered agent at such address is The Prentice-Hall Corporation System, Inc.
3. The nature of the business or purposes to be conducted or promoted is:
To engage in any lawful act or activity for which corporations may be organized
under the General Corporation Law of Delaware.
4. The total number of shares of stock which the corporation shall have
authority to issue is eleven million (11,000,000) shares, consisting of one
million (1,000,000) shares of Preferred Stock, $.01 par value per share, seven
million (7,000,000) shares of Class A Common Stock, $.01 par value per share,
and three million (3,000,000) shares of Class B Common Stock, $.01 par value per
share, amounting in the aggregate to One Hundred Ten Thousand and 00/100 Dollars
($110,000.00).
The designations and powers, the rights and preferences and the
qualifications, limitations or restrictions with respect to each class of stock
of the corporation shall be as determined by the Board of Directors from time to
time.
5. The name and mailing address of the corporation's incorporator is
Donald A. Worth, 442 Place Lane, Woburn, Massachusetts 01801.
<PAGE> 29
6. The name of the person who is to serve as the sole director until the
first annual meeting of the stockholders or until his successor is elected and
qualified is Donald A. Worth, 442 Place Lane, Woburn, Massachusetts 01801.
7. The corporation is to have perpetual existence.
8. In furtherance and not in limitation of the powers conferred by
statute, the board of directors is expressly authorized:
To make, alter or repeal the bylaws of the corporation.
To authorize and cause to be executed mortgages and liens upon the
real and personal property of the corporation.
To set apart out of any of the funds of the corporation available
for dividends a reserve or reserves for any proper purpose and to abolish any
such reserve in the manner in which it was created.
By a majority of the whole board, to designate one or more
committees, each committee to consist of one or more of the directors of the
corporation. The board may designate one or more directors as alternate members
of any committee, who may replace any absent or disqualified member at any
meeting of the committee. The bylaws may provide that in the absence or
disqualification of a member of a committee, the member or members thereof
present at any meeting and not disqualified from voting, whether or not he or
they constitute a quorum, may unanimously appoint another member of the board of
directors to act at the meeting in the place of any such agent or disqualified
member. Any such committee, to the extent provided in the resolution of the
board of directors, or in the bylaws of the corporation, shall have and may
exercise all the powers and authority of the board of directors in the
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management of the business and affairs of the corporation, and may authorize the
seal of the corporation to be affixed to all papers which may require it; but no
such committee shall have the power or authority in reference to amending the
certificate of incorporation, adopting an agreement of merger or consolidation,
recommending to the stockholders the sale, lease, or exchange of all or
substantially all of the corporation's property and assets, recommending to the
stockholders a dissolution of the corporation or a revocation of a dissolution,
or amending the bylaws of the corporation; and, unless the resolution or bylaws
expressly so provide, no such committee shall have the power or authority to
declare a dividend or to authorize the issuance of stock.
When and as authorized by the stockholders in accordance with
statute, to sell, lease or exchange all or substantially all of the property and
assets of the corporation, including its goodwill and its corporate franchises,
upon such terms and conditions and for such consideration, which may consist in
whole or in part of money or property, including shares of stock in, and/or
other securities of, any other corporation or corporations, as its board of
directors shall deem expedient and for the best interests of the corporation.
9. To the maximum extent permitted by Section 102(b)(7) of the General
Corporation Law of Delaware, a director of this Corporation shall not be
personally liable to the Corporation or its stockholders for monetary damages
for breach of fiduciary duty as a director, except for liability (i) for any
breach of the director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law, (iii) under Section 174 of the
Delaware General Corporation Law, or (iv) for any transaction from which the
director derived an improper personal benefit.
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10. Whenever a compromise or arrangement is proposed between this
corporation and its creditors or any class of them and/or between this
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of this corporation or of any creditor or stockholder thereof, or on the
application of any receiver or receivers appointed for this corporation under
the provisions of Section 291 of Title 8 of the Delaware Code or on the
application of trustees in dissolution or of any receiver or receivers appointed
for this corporation under the provisions of Section 279 of Title 8 of the
Delaware Code, order a meeting of the creditors or class of creditors, and/or of
the stockholders or class of stockholders of this corporation, as the case may
be, to be summoned in such manner as the said court directs. If a majority in
number representing three-fourths in value of the creditors or class of
creditors, and/or of the stockholders or class of stockholders of this
corporation, as the case may be, agree to any compromise or arrangement to any
reorganization of this corporation as consequences of such compromise or
arrangement, the said compromise or arrangement and the said reorganization
shall, if sanctioned by the court to which the said application has been made,
be binding on all the creditors or class of creditors, and/or on all the
stockholders or class of stockholders of this corporation, as the case may be,
and also on this corporation.
11. Meetings of the stockholders may be held within or without the State
of Delaware, as the bylaws may provide. The books of the corporation may be kept
(subject to any provision contained in the statutes) outside the State of
Delaware at such place or places as may be designated from time to time by the
Board of Directors or in the bylaws of the corporation.
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<PAGE> 32
Elections of directors need not be by written ballot unless the bylaws of the
corporation shall so provide.
12. The corporation reserves the right to amend, alter, change, or repeal
any provision contained in this certificate of incorporation, in the manner now
or hereafter prescribed by statute, and all rights conferred upon stockholders
herein are granted subject to this reservation.
THE UNDERSIGNED, being the incorporator named hereinbefore, for the
purposes of forming a corporation pursuant to the General Corporation Law of the
State of Delaware, does make this certificate, hereby declaring and certifying
that this is his act and deed and the facts herein stated are true, and,
accordingly, has hereunto set his hand this 13th day of January, 1989.
/s/ Donald A. Worth
-----------------------
Donald A. Worth
COMMONWEALTH OF MASSACHUSETTS )
) ss.:
COUNTY OF MIDDLESEX )
BE IT REMEMBERED that on this 13th day of January, 1989, personally came
before me, a Notary Public for the Commonwealth of Massachusetts, Donald A.
Worth, the party to the foregoing certificate of incorporation, known to me
personally to be such, and acknowledged the said certificate to be his act and
deed and that the facts stated therein are true.
GIVEN under my hand and seal of office the day and year aforesaid.
/s/ Bradley D. Robbins
--------------------------
Bradley D. Robbins
Notary Public
My commission expires:
October 24, 1994
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<PAGE> 1
Exhibit 3.2
BYLAWS
OF
THE DELICIOUS FROOKIE COMPANY, INC.
(as amended through December 11, 1997)
Article I. Offices.
Section 1. Registered Office. The registered office of the Corporation
shall be at Prentice-Hall Corporate Services, 229 South State Street, City of
Dover, County of Kent, State of Delaware 19901.
Section 2. Additional Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
Article II. Meetings of Stockholders.
Section 1. Time and Place. A meeting of stockholders for any purpose may
be held at such time and place within or without the State of Delaware as shall
be stated in the notice of the meeting or in a duly executed waiver of notice
thereof.
Section 2. Annual Meeting. Annual meetings of stockholders, commencing
with the year 1990, shall be held on the fourth Tuesday in April, if not a legal
holiday, or, if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting. At
such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
Section 3. Notice of annual Meeting. Written notice of the annual meeting,
stating the place, date, and time thereof, shall be given to each stockholder
entitled to vote at such meeting not less than ten (unless a longer period is
required by law) nor more than sixty days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders may be
called for any purpose or purposes, unless otherwise prescribed by statute or by
the Certificate of Incorporation, by the Chairman of the Board, if any, or the
President, and shall be called by the President or Secretary at the request, in
writing, of a majority of the Board of Directors vote. Such request shall state
the purpose of the proposed meeting.
<PAGE> 2
Section 5. Notice of Special Meeting. Written notice of a special meeting,
stating the place, date, and time thereof and the purpose or purposes for which
the meeting is called, shall be given to each stockholder entitled to vote at
such meeting not less than ten (unless a longer period is required by law) nor
more than sixty days prior to the meeting.
Section 6. List of Stockholders. The transfer agent or the officer in
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of the
Board. If he is not present or there is none, they shall be presided over by the
President, or, if he is not present or there is none, by a Vice President, or,
if he is not present or there is none, by a person chosen by the Board of
Directors, or, if no such person is present or has been chosen, by a chairman to
be chosen by the stockholders owning a majority of the shares of capital stock
of the Corporation issued and outstanding and entitled to vote at the meeting
and who are present in person or represented by proxy. The Secretary of the
Corporation, or, if he is not present, an Assistant Secretary, or, if he is not
present, a person chosen by the Board of Directors, shall act as Secretary at
meetings of stockholders; if no such person is present or has been chosen, the
stockholders owning a majority of the shares of capital stock of the Corporation
issued and outstanding and entitled to vote at the meeting who are present in
person or represented by proxy shall choose any person present to act as
secretary of the meeting.
(b) The following order of business, unless otherwise determined at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of
the meeting and, if the meeting is a special
meeting, the call thereof.
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(3) Presentation of proxies.
(4) Announcement that a quorum is present.
(5) Reading and approval of the minutes of the
previous meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an
annual meeting or a meeting called for that
purpose.
(8) Consideration of the specific purpose or purposes, other
than the election of directors, for which the meeting has
been called, if the meeting is a special meeting.
(9) Transaction of such other business as may properly come
before the meeting.
(10) Adjournment.
Section 8. Quorum and Adjournment. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however,a quorum shall not
be present or represented at any meeting of the stockholders, the stockholders
entitled to vote thereat who are present in person or represented by proxy shall
have the power to adjourn the meeting from time to time until a quorum shall be
present or represented. If the time and place of the adjourned meeting are
announced at the meeting at which the adjournment is taken, no further notice of
the adjourned meeting need be given. Even if a quorum shall be present or
represented at any meeting of the stockholders, the stockholders entitled to
vote thereat who are present in person or represented by proxy shall have the
power to adjourn the meeting from time to time for good cause to a date that is
not more than thirty days after the date of the original meeting. Further notice
of the adjourned meeting need not be given if the time and place thereof are
announced at the meeting at which the adjournment is taken. At any adjourned
meeting at which a quorum is present in person or represented by proxy, any
business may be transacted that might have been transacted at the meeting as
originally called. If the adjournment is for more than thirty days, or if, after
the adjournment, a new record date is fixed for the adjourned meeting, a notice
of the adjourned meeting shall be given to each stockholder of record entitled
to vote thereat.
Section 9. Voting.
(a) At any meeting of the stockholders, every stockholder having the right
to vote shall be entitled to vote in person or by proxy. Except as otherwise
provided by law or the Certificate of Incorporation, each stockholder of record
shall be entitled to one
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vote for each share of capital stock registered in his name on the books of the
Corporation.
(b) All elections shall be determined by a plurality vote, and, except as
otherwise provided by law or the Certificate of Incorporation, all other matters
shall be determined by a vote of a majority of the shares present in person or
represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law or
the Certificate of Incorporation to be taken at any meeting of stockholders may
be taken without a meeting, without prior notice if a written consent, setting
forth the action so taken, shall be signed by the holders of outstanding stock
having not less than the minimum number of votes that would be necessary to
authorize or take such action at a meeting at which all shares entitled to vote
thereon were present or represented by proxy and voted. Such written consent
shall be filed with the minutes of the meetings of stockholders. Prompt notice
of the taking of the corporate action without a meeting by less than unanimous
written consent shall be given to those stockholders who have not consented in
writing thereto.
Article III. Directors.
Section 1. General Powers, Number, and Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts that are not by law, the
Certificate of Incorporation, or these Bylaws directed or required to be
exercised or performed by the stockholders. The number of directors shall be
determined by the Board of Directors; if no such determination is made, the
number of directors shall be one. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until the next annual meeting and
until his successor is elected and shall qualify. Directors need not be
stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of Directors, or
if any new directorships are created, they may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until the next annual
meeting of stockholders and until his successor is duly elected and shall
qualify. If there are no directors in office, any officer or stockholder may
call a special meeting of stockholders in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, at which meeting such vacancies
shall be filled.
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Section 3. Removal or Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, if any, or the President or
Secretary of the Corporation. Unless otherwise specified in such written notice,
a resignation shall take effect on delivery thereof to the Board of Directors or
the designated officer. It shall not be necessary for a resignation to be
accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected Board
of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board of
Directors may be held without notice of such time and place as may be determined
from time to time by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President, on at least two
days' notice to each director, if such notice is delivered personally or sent by
telecopy, or on at least three days' notice if sent by mail. Special meetings
shall be called by the Chairman of the Board or the President in like manner and
on like notice on the written request of two or more of the directors then in
office. Any such notice need not state the purpose or purposes of such meeting.
Section 8. Quorum and Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than
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announcement at the meeting at which the adjournment is taken, until a quorum
shall be present.
Section 9. Compensation. Directors shall be entitled to such compensation
for their services as directors and to such reimbursement for any reasonable
expenses incurred in attending directors' meetings as may from time to time be
fixed by the Board of Directors. The compensation of directors may be on such
basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment. The
Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
Article IV. Committees.
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as Chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director.
Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of Directors to the extent permitted by
law, and may authorize the seal of the Corporation to be affixed to all papers
that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix its
own rules of procedure and shall meet at such times and at such place or places
as may be provided by such rules or as the members of the Executive Committee
shall fix. The Executive Committee shall keep regular minutes of its meetings,
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which is shall deliver to the Board of Directors from time to time. The Chairman
of the Executive Committee or, in his absence, a member of the Executive
Committee chosen by a majority of the members present, shall preside at meetings
of the Executive Committee; and another member chosen by the Executive Committee
shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall constitute
a quorum for the transaction of business, and the affirmative vote of a majority
of the members present at any meeting at which there is a quorum shall be
required for any action of the Executive Committee; provided, however, that when
an Executive Committee of one member is authorized under the provisions of
Section 1 of this Article, that one member shall constitute a quorum.
Section 5. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and authority
as it shall prescribe. Each such committee shall consist of one or more
directors.
Section 6. Committee Changes. The Board of Directors shall have the power
at any time to fill vacancies in, to change the membership of, and to discharge
any committee.
Section 7. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any member
may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 8. Action by Consent. Any action required or permitted to be taken
at any meeting of any committee of the Board of Directors may be taken without a
meeting if a written consent to such action is signed by all members of the
committee and such written consent is filed with the minutes of its proceedings.
Section 9. Meetings by Telephone or Similar Communications Equipment. The
members of any committee designated by the Board of Directors may participate in
a meeting of such committee by conference telephone or similar communications
equipment by means of which all persons participating in such meeting can hear
each other, and participation in such a meeting shall constitute presence in
person by any such committee member at such meeting.
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Article V. Notices.
Section 1. Form and Delivery. Whenever a provision of any law, the
Certificate of Incorporation, or these Bylaws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in writing,
by mail addressed to the address of the director or stockholder as it appears on
the records of the Corporation, with postage prepaid. These notices shall be
deemed to be given when they are deposited in the United States mail. Notice to
a director may also be given personally or by telephone or by telegram sent to
his address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under the
provisions of any law, the Certificate of Incorporation, or these Bylaws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting of the lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
Article VI. Officers.
Section 1. Designations. The officers of the Corporation shall be chosen
by the Board of Directors. The Board of Directors may choose a Chairman of the
Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and
other offices and agents that it shall deem necessary or appropriate. All
officers of the Corporation shall exercise the powers and perform the duties
that shall from time to time be determined by the Board of Directors. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws provide otherwise.
Section 2. Term of, and Removal From, Office. At its first regular meeting
after each annual meeting of stockholders, the Board of Directors shall choose a
President, a Secretary, and a Treasurer. It may also choose a Chairman of the
Board, a Vice President or Vice Presidents, one or more Assistant Secretaries
and/or Assistant Treasurers, and such other officers and agents as it shall deem
necessary or appropriate. Each officer of the Corporation shall hold office
until his successor is chosen and shall qualify. Any officer elected or
appointed by the Board of Directors may be removed, with or without cause, at
any time by the
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affirmative vote of a majority of the directors then in office. Removal from
office, however, shall not prejudice the contract rights, if any, of the person
removed. Any vacancy occurring in any office of the Corporation may be filled
for the unexpired portion of the term by the Board of Directors.
Section 3. Compensation. The salaries of all officers of the Corporation
shall be fixed from time to time by the Board of Directors, and no officer shall
be prevented from receiving a salary because he is also a director of the
Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board, if any,
shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory, and management
functions and duties as may be assigned to him from time to time by the Board of
Directors. He shall, if present, preside at all meeting of stockholders and of
the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the Corporation
and, subject to the direction of the Board of Directors, shall have general
charge of the business, affairs, and property of the Corporation and general
supervision over its other officers and agents. In general, he shall perform all
duties incident to the office of President and shall see that all orders and
resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the President
shall have full power and authority to attend, act, and vote on behalf of the
Corporation at any meeting of the security holders of other corporations in
which the Corporation may hold securities. At any such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
Section 6. The Vice President. The Vice President, if any, or in the event
there by more than one, the Vice Presidents in the order designated, or in the
absence of any designation, in the order of their election, shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of the
Board of Directors and the stockholders and record all votes and the proceedings
of the meetings in a book to be kept
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for that purpose. He shall perform like duties for the Executive Committee or
other committees, if required. He shall give, or cause to be given, notice of
all meetings of stockholders and special meetings of the Board of Directors, and
shall perform such other duties as may from time to time be prescribed by the
Board of Directors, the Chairman of the Board, or the President, under whose
supervision he shall act. He shall have custody of the seal of the Corporation,
and he, or an Assistant Secretary, shall have authority to affix it to any
instrument requiring it, and, when so affixed, the seal may be attested by his
signature or by the signature of the Assistant Secretary. The Board of Directors
may give general authority to any other officer to affix the seal of the
Corporation and to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any, or in
the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He shall disburse the funds of
the Corporation in accord with the orders of the Board of Directors, taking
proper vouchers for such disbursements, and shall render to the Chairman of the
Board, if any, the President, and the Board of Directors, whenever they may
require it or at regular meetings of the Board, an account of all his
transactions as Treasurer and of the financial condition of the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any, or
in the event there shall be more than one, the Assistant Treasurers in the order
designed, or in the absence of any designation, in the order of their election,
shall, in the absence of the Treasurer or in the event of his disability,
perform such other duties and have such other powers as may from time to time be
prescribed in the Board of Directors.
Article VII. Indemnification.
Reference is made to Section 145 and any other relevant provisions of the
General Corporation Law of the State of Delaware.
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Particular reference is made to the class of persons, hereinafter called
"Indemnitees", who may be indemnified by a Delaware corporation pursuant to the
provisions of such Section 145, namely, any person, or the heirs, executors, or
administrators of such person, who was or is a party or is threatened to be made
a party to any threatened, pending or completed action, suit, or proceeding,
whether civil, criminal, administrative, or investigative, by reason of the fact
that such person is or was a director, officer, employee, or agent of such
corporation or is or was serving at the request of such corporation as a
director, officer, employee, or agent of such corporation or is or was serving
at the request of such corporation as a director, officer, employee, or agent of
another corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them, in each and every situation where the Corporation is obligated to
make such indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and every
situation where, under the aforesaid statutory provisions, the Corporation is
not obligated, but is nevertheless permitted or empowered, to make such
indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Article VIII. Affiliated Transactions.
Section 1. Affiliated Transactions. All transactions between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers have a financial
interest, or between the Corporation and any other person or entity controlling,
controlled by or under common control with, the Corporation, must be approved in
advance by a majority of the Board of Directors, including all of the
independent and disinterested members of the Board of Directors or, if required
by law, a majority of disinterested stockholders, and must be on terms no less
favorable to the Corporation than could be obtained in arm's length transactions
from unaffiliated third parties.
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Article IX. Stock Certificates.
Section 1. Form and Signatures.
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned by
him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures and
the seal may be facsimiles. A certificate may be signed, manually or by
facsimile, by a transfer agent or registrar other than the Corporation or its
employee. In case any officer who has signed, or whose facsimile signature was
placed on, a certificate shall have ceased to be such officer before the
certificate is issued, it may nevertheless be issued by the Corporation with the
same effect as if he were such officer at the date of its issue.
(b) All stock certificates representing shares of capital stock that are
subject to restrictions on transfer or to other restrictions may have imprinted
thereon any notation to that effect determined by the Board of Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation or
any transfer agent of the Corporation of a certificate for shares duly endorsed
or accompanied by proper evidence of succession, assignment, or authority to
transfer, the Corporation or its transfer agent shall issue a new certificate to
the person entitled thereto, cancel the old certificate, and record the
transaction upon the books of the Corporation.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be entitled
to recognize the exclusive right of a person who is registered on its books as
the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for calls
and assessments any person who is registered on its books as the owner of shares
of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be sent
to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar,
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if any, in writing of his desire and specify the alternate name or address to be
used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to receive notice of, or to vote at, any
meeting of stockholders or any adjournment thereof or to express consent to
corporate action in writing without a meeting, to receive payment of any
dividend or other distribution or allotment of any rights, or to exercise any
rights in respect of any change, conversion, or exchange of stock or for the
purpose of any lawful action, the Board of Directors may, in advance, fix a date
as the record date for any such determination. Such date shall not be more than
sixty nor less than ten days before the date of such meeting, nor more than
sixty days prior to the date of any other action. A determination of
stockholders of record entitled to notice of, or to vote at, a meeting of
stockholders shall apply to any adjournment of the meeting taken pursuant to
Section 8 of Article II; provided, however, that the Board of Directors may fix
a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of Directors
may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing the
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of the lost,
stolen, or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and/or to give the Corporation a bond
in such sum, or other security in such form, as it may direct as indemnity
against any claims that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen, or destroyed.
Article X. General Provisions.
Section 1. Dividends. Subject to the provisions of law and the Certificate
of Incorporation, dividends upon the outstanding capital stock of the
Corporation may be declared by the Board of Directors at any regular or special
meeting, and may be paid in cash, in property, or in shares of the Corporation's
capital stock.
Section 2. Reserves. The Board of Directors shall have full power, subject
to the provisions of law and the Certificate of Incorporation, to determine
whether any, and, if so, what part, of the funds legally available for the
payment of dividends shall be declared as dividends and paid to the stockholders
of the Corporation. The Board of Directors, in its sole discretion, may
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fix a sum that may be set aside or reserved over and above the paid-in capital
of the Corporation as a reserve for any proper purpose, and may, from time to
time, increase, diminish, or vary such amount.
Section 3. Fiscal Year. Except as from time to time otherwise provided by
the Board of Directors, the fiscal year of the Corporation shall end on December
31 in each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the name
of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
Article XI. Amendments.
The Board of Directors shall have the power to alter and repeal these
Bylaws and to adopt new Bylaws by an affirmative vote of a majority of the whole
Board, provided that notice of the proposal to alter or repeal these Bylaws or
to adopt new Bylaws must be included in the notice of the meeting of the Board
of Directors at which such action takes place.
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EXHIBIT 10.1
EMPLOYMENT AGREEMENT
AGREEMENT, made as of August 11, 1997 by and between The Delicious Frookie
Company, Inc., a Delaware corporation ("Company"), and Michael J. Kirby
("Executive").
WHEREAS, Company desires to employ Executive and to enter into an
agreement embodying the terms of Executive's employment by Company, and
Executive desires to accept such employment and to enter into such agreement.
IT IS AGREED:
1. Employment:
1.1 General. Company shall employ Executive and Executive accepts
employment as Chief Executive Officer and President of Company upon the terms
and conditions described herein. During the Employment Term (as defined in
Section 2.1 hereof), Executive shall devote all of his business time, attention
and skills to the business and affairs of Company.
1.2 Executive shall not, without the prior written consent of
Company, during the Employment Term, be engaged in any other activity whether or
not pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing Executive from making and supervising personal
investments, provided they:
(a) will not require any substantial services on his part in
the operation of the affairs of the companies in which such investments are
made;
(b) will not cause a breach of Section 4.4 hereinafter set
forth; and
(c) will not interfere with the performance of Executive's
duties hereunder.
1.3 Duties. Executive shall at all times render his services at the
direction of the Board of Directors, and the duties will be consistent with his
position as Chief Executive Officer and President and generally will include
those required for the day-to-day and long-term planning, development, operation
and advancement of the business of Company and its affiliates. Company may
assign to Executive such other executive and financial administrative duties for
<PAGE> 2
Company or any affiliate as may be determined by the Board of Directors of
Company, consistent with Executive's status as Chief Executive Officer and
President. Executive agrees to diligently use his best efforts to perform his
services and to promote and further the reputation and good name of Company.
2. Term and Termination
2.1 Term. The term of employment by Company of Executive shall
commence on August 11, 1997 and terminate on December 31, 1999 ("Employment
Term"), subject to earlier termination pursuant to the provisions of Paragraph
2.2.
2.2 Premature Termination. Notwithstanding anything to the contrary
contained in this Agreement, Executive's employment may be terminated prior to
the end of the Employment Term as follows:
2.2.1 Termination Upon Death of Executive. Executive's
employment shall terminate upon the death of Executive; provided, however, that
Company shall pay to Executive's estate or designated beneficiary the base
salary due Executive pursuant to Section 3 hereof, prorated through the date of
such termination.
2.2.2 Termination Upon Disability of Executive. Executive's
employment shall terminate if, in good faith, and with the advice of a qualified
and independent physician, the Board of Directors of Company determines that
Executive has become, by reason of accident, illness, mental or physical
disability, disabled so as to be incapable of satisfactorily performing his
duties hereunder for a period of sixty (60) consecutive days or ninety (90) days
in any annual period whether or not related to habitual use of alcohol or
illicit substances, which condition is incapable of reasonable accommodation
under applicable law, including but not limited to the Americans with
Disabilities Act of 1990, as amended; provided, however, that Executive shall
continue to receive his Base Salary until the time of such termination, less any
amount Executive receives for such period from any source of insurance,
disability compensation or government program. Any termination under this
Section 2.2.2. shall take effect immediately upon notice from the Board of
Directors of Company to Executive.
2.2.3 Termination Upon Mutual Consent. Executive's employment
may be terminated by the mutual consent of Company and Executive on such terms
as they may agree.
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2.2.4 Termination For Cause. Executive's employment shall
terminate immediately on notice to Executive upon finding of the Board of
Directors of Company that Executive has (i) failed in all material respects to
perform his duties in accordance with the provisions of this Agreement after
Company has given written notice to Executive stating the nature of any
performance deficiency and Executive has had not less than fifteen (15) days in
which to cure any such deficiency and such deficiency remains uncured. Such
performance deficiency shall include the following: if during the first eighteen
(18) months of the Employment Term Company's net sales from continuing
operations during any trailing twelve (12) month period are below $20 million
and net losses, as determined by the application of generally accepted
accounting principles consistently applied, exceed $2.0 million, (ii) committed
a breach of any provision of Section 4 hereof, (iii) misappropriated assets or
perpetrated fraud against Company, (iv) been convicted of or plead nolo
contendere to a crime which constitutes a felony or which involves an act of
moral turpitude, (v) engaged in the illegal use of habit-forming substances, or
(vi) willfully and materially refused or failed to carry out specific directions
of the Board of Directors as required by this Agreement. In the event of
termination for cause, Company shall pay Executive his base salary through the
date of termination.
2.2.5 Termination by Company Without Cause. Company may
terminate Executive's employment at any time, without cause, upon Company's
written notice to Executive. In the event of termination pursuant to this
paragraph, Company shall pay Executive a "Severance Salary" in accordance with
Company's standard payroll policies. The "Severance Salary" shall equal (i) two
(2) months base salary if the date of Termination occurs during the first six
(6) months of the Employment Term, (ii) six (6) months' base salary if the date
of termination occurs during the second six (6) months of the Employment Term,
or (iii) twelve (12) months' base salary if Executive is terminated thereafter.
Under no circumstances shall this Severance Salary exceed $130,000. In the event
that this Agreement expires without renewal, Executive shall receive no
Severance Salary. Such Severance Salary shall be subject to the continued
satisfaction after termination of Section 4 of this Agreement. If Executive,
after his termination from Company, conducts himself in a manner that adversely
affects Company, as determined by the Board of Directors of Company in its sole
discretion, then all payments under this Section 2.2.5 shall cease.
3. Compensation. During the Employment Term, Company shall pay, in full
payment for all of Executive's services rendered hereunder, including, without
limitation, any services
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rendered for, as consultant to, or as officer or director of, Company or any
affiliate, the following compensation:
3.1 Base Salary. Company shall pay Executive an annual base salary,
less income taxes and other applicable withholdings, of $130,000 in Company's
standard payroll installments. The Board of Directors of Company will review the
annual base salary amount as soon as practicable after the end of each fiscal
year of Company to consider whether it should be increased, and the Board of
Directors of Company may base its decision upon such criteria as it deems
relevant, including, but not limited to, the performance of Company and
Executive. Notwithstanding the foregoing, Executive will be given an annual base
salary increase equal to 10% of his then base salary if he meets or exceeds the
financial budgets approved by the Board for each year.
3.2 Cash Bonuses:
3.2.1 Sign On Bonus. One of the following bonuses in total
will be paid as follows: If Company's initial public offering of equity
securities ("IPO") closes on or before (i) December 31, 1997, a $20,000 cash
bonus will be paid; (ii) if the IPO closes after December 31, 1997, but before
March 30, 1998, a $10,000 cash bonus will be paid. It is agreed that the bonuses
described in clauses (i) and (ii) above are not cumulative; if one is paid, the
other will not be.
3.2.2 Incentive Cash Bonus. A cash bonus up to a maximum of
$30,000 for the first year of the Employment Term will be paid based on the
extent to which Company's performance exceeds Executive's budget as established
by the Board of Directors in good faith with Executive. After the first year,
the Board and Executive will mutually agree upon a reasonable performance bonus
for Executive, provided that, if Executive has met or exceeded his budget in the
first year, then the maximum bonus to be earned during the second year of
Employment Term shall be greater than $30,000.
3.2.3 Relocation Bonus. A maximum of $25,000 shall be paid to
Executive as a reimbursement of relocation expenses towards realtors, closing
costs, fees or points for sale of current home and purchase of new home in
Chicago/Des Plaines area and relocation or moving expenses. Such expenses will
be reimbursed only as incurred and only upon presentation to the Board of
Directors of appropriate receipts and invoices documenting such expenses;
however, Company agrees to forward $5,000 cash to Executive upon the signing of
this Agreement as an
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<PAGE> 5
advance against such relocation expenses. In no case shall such expenses exceed
$25,000 and Company will not pay any such expenses incurred after the first year
of the Employment Term.
3.2.4 Automobile Allowance. Company shall pay Executive the
sum of $600 per month in respect of his owning or leasing and operating a
vehicle for use in his employment with Company. In consideration of this
allowance, Company shall not reimburse Executive for insurance, taxes, state
toll charges or any other expense of owning, operating, maintaining or repairing
any vehicle owned or leased by Executive.
3.2.5 Buy-out Bonus. After the date of this Agreement, in the
event of a dissolution or liquidation of Company or upon any merger,
consolidation or other form of reorganization whereby at least eighty percent
(80%) of the stockholders participate in a cash buy-out of Company in which
Company is not the surviving entity, or upon the sale of all of Company's assets
for cash or liquid consideration (in either case, a "Buy-out"), upon the closing
date or effective date ("Effective Date") of any such Buy-out, Executive will be
paid a one-time severance payment of $130,000 ("Buy-out Bonus") on or after the
Effective Date and pursuant to Company's payroll policy as outlined in Section
3.1. However, Executive agrees that if within the twelve (12) months following
such Effective Date he signs a contract of employment or is employed with the
surviving entity of such Buy-out, he will forgo any such Buy-out Bonus or return
it to Company. Moreover, Executive agrees that this Buy-out Bonus and the
Severance Salary described in Section 2.2.5 are not cumulative and only one of
these payments will be paid to Executive. The vesting of Executive's Stock
Options will accelerate upon any such Buy-out as outlined in the Stock Option
Agreement between Company and Executive.
3.3 Vacation. Executive shall be entitled to three (3) weeks of
vacation in each twelve (12) month period during the Employment Term.
3.4 Executive Benefit Plans. Executive shall be entitled to
participate in all plans or programs sponsored by Company for employees and/or
executives in general, including, without limitation, any group health, medical
reimbursement, disability or life insurance plans.
3.5 Expense Reimbursement. Company shall reimburse Executive for all
reasonable and necessary expenses incurred by him from time to time in the
performance of his duties hereunder, against receipts therefore in accordance
with the then-effective policies and requirements of Company. Company agrees to
reimburse Executive for a period of up to three (3)
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<PAGE> 6
months after the date of this Agreement for reasonable temporary living expenses
and reasonable travel expenses for Executive to travel round trip to St.
Charles, Missouri, up to three (3) times per month to visit his family.
3.6 Election as a Director. As soon as is practicable after the date
hereof, the Board of Directors will appoint Executive to the Board of Directors
as a director and thereafter during the Employment Term nominate Executive as a
candidate and use all reasonable efforts to cause Executive to be elected a
member of the Board of Directors. If Executive's employment is terminated for
any reason, then Executive will be deemed to have resigned from the Board of
Directors and from any boards of directors of any affiliates of Company on which
he then sits, and any director(s) nominated by him will also be deemed to have
resigned. Company agrees to include Executive in any officer and directors'
liability insurance coverage that Company institutes for its directors, and
Company agrees to cover the costs, during the Employment Term, of legal counsel
to defend Executive against any causes of actions, suits, or legal claims filed
by stockholders against directors or officers of Company in the ordinary course
of business in the same manner as all other officers and directors, provided
that such complaints are not the result of any gross negligence, fraud or wilful
misconduct on the part of Executive.
4. Protection of Confidential Information/Non-Competition.
4.1 Acknowledgments. Executive acknowledges that:
(a) Executive has obtained and, during his employment by
Company, will obtain secret and confidential information concerning the business
of Company and its affiliates, including, without limitation, customer lists and
sources of supply, their needs and requirements, the nature and extent of
contracts with them, and related costs, price and sales information.
(b) Company and its affiliates will suffer substantial damage
that will be difficult to compute if, during the period of his employment with
Company or thereafter, Executive should enter a competitive business or should
divulge secret and confidential information relating to the business of Company
and its affiliates heretofore or hereafter acquired by him in the course of his
employment with Company.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of Company and its affiliates.
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<PAGE> 7
4.2 Confidentiality. Executive agrees that he will not at any time,
either during the Employment Term or thereafter, divulge to any person, firm or
corporation any information obtained or learned by him during the course of his
employment with Company, with regard to the operational, financial, business or
other affairs of Company and its affiliates, and their respective officers and
directors, including, without limitation, trade secrets, customer lists, sources
of supply, pricing policies, operational methods or technical processes, except
(i) in the course of performing his duties hereunder, (ii) with Company's
express written consent; (iii) to the extent that any such information is in the
public domain other than as a result of Executive's breach of any of his
obligations hereunder; or (iv) when required to be disclosed by court order,
subpoena or other government process. In the event that Executive shall be
required to make disclosure pursuant to the provisions of clause (iv) of the
preceding sentence, Executive promptly, but in no event more than 48 hours after
learning of such subpoena, court order or other government process, shall notify
Company, by personal delivery or by cablegram, confirmed by mail, and at
Company's expense, Executive shall: (a) take all reasonably necessary steps
requested by Company to defend against the enforcement of such subpoena, court
order or other government process, and (b) permit Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
4.3 Return of Property. Upon termination of his employment with
Company, or at any time Company may so request, Executive will promptly deliver
to Company all non-public memoranda, notes, records, reports, manuals, drawings,
blueprints and other documents (and all copies thereof) relating to the business
of Company and its affiliates, and all property associated therewith, which he
may then possess or have under his control.
4.4 Non-Competition. During the Employment Term and, unless
Executive is terminated without cause pursuant to Section 2.2.5, for a period of
one (1) year thereafter, Executive shall not, without the prior written
permission of Company, in the United States, its territories and possessions,
directly or indirectly, (i) enter into the employ of or render any services to
any person, firm or Company engaged in any Competitive Business (as defined
below); (ii) engage in any Competitive Business for his own account; (iii)
become associated with or interested in any Competitive Business as an
individual, partner, stockholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or capacity;
(iv) employ or retain, or have or cause any other person or entity to employ or
retain, any person who was employed or retained by Company or its affiliates
while Executive was employed
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<PAGE> 8
by Company; or (v) solicit, interfere with, or endeavor to entice away from
Company or its affiliates any of their customers or sources of supply. However,
nothing in this Agreement shall preclude Executive from investing his personal
assets in the securities of any Competitive Business if such securities are
traded on a national stock exchange or in the over-the-counter market and if
such investment does not result in his beneficially owning, at any time, more
than 4.5% of the publicly-traded equity securities of such competitor.
"Competitive Business" shall mean any business or enterprise, or affiliate or
subsidiary of any such enterprise which: (a) designs, manufactures, markets
and/or distributes cookies, healthy or health food snacks, rice cakes, cereals,
granola bars, fruit tarts (pop tarts), popcorn, baby food, candies, other
similar products, or any other products marketed by Company during the
Employment Term--whether branded, store brand, premium brand, value brand, or
private label products; or (b) engages in any other business in which Company or
its affiliates is involved at any time during the twelve-month period
immediately prior to the termination of Executive's employment.
4.5 Enforcement. If Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 4.2 or 4.4, Company shall
have the right and remedy (a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to Company and
that money damages will not provide an adequate remedy to Company, or (b) to
require Executive to account for and pay over to Company all compensation,
profits, monies, accruals, increments or other benefits (collectively
"Benefits") derived or received by Executive as the result of any transactions
con stituting a breach of any of the provisions of Sections 4.2 or 4.4, and
Executive hereby agrees to account for and pay over such Benefits to Company.
Each of the rights and remedies enumerated in this Section 4.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to Company under law or equity.
4.6 Modification. If any provision of Sections 4.2 or 4.4 is held to
be unenforceable because of the scope, duration or area of its applicability,
the tribunal making such determination shall have the power to modify such
scope, duration, or area, or all of them, and such provision or provisions shall
then be applicable in such modified form.
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5. Representations of Executive. Executive represents and warrants to
Company that Executive is not a party to or bound by any agreement,
understanding or restriction that would or may be breached by Executive's
execution and full performance of this Agreement. Executive expressly undertakes
and agrees that he will do nothing in furtherance of this Agreement or his
duties hereunder that will violate any obligations he may have to any prior
employer (or that will impose on Company any liability to any prior employer)
and that he will comply with all requirements of notice applicable to the
termination of any prior employment before he commences his employment under
this Agreement.
6. Options. On the date of this Agreement, Executive shall be granted
options ("Options") to purchase an aggregate of 180,000 shares of Common Stock
of Company. The Options shall be exercisable pursuant to the terms of the Stock
Option Agreement to be executed simultaneously herewith.
7. Construction of this Agreement::
7.1 Choice of Law. This Agreement is to be construed pursuant to the
laws of the State of Illinois, including Illinois' law regarding choice of law.
7.2 Invalid Agreement Provisions. Except as provided in Section 4.6,
should any provisions of this Agreement become legally unenforceable, no other
provision of this Agreement shall be affected, and this Agreement shall continue
as if the Agreement had been executed absent the unenforceable provision.
7.3 No Other Agreements. This Agreement and the Stock Option
Agreement represent the full agreement between Company and Executive with
respect to the subject matter hereof and Company and Executive have made no
agreements, representations or warranties relating to the subject matter of this
Agreement that are not set forth herein or in the Stock Option Agreement. On the
date this Agreement is signed by Executive, this Agreement and the Stock Option
Agreement will supersede any and all other agreements, oral or written, that may
define the employment relationship between Executive and Company. This Agreement
may be modified only by written agreement of Executive and Company and may not
be modified by any oral agreement.
7.4 Notices. All notices provided for in this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
party to receive the same,
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<PAGE> 10
when mailed first class, postage prepaid by certified mail, return receipt
requested, addressed to the party to receive the same at the applicable
addresses set forth below or such other address as the party to receive the same
shall have specified by written notice given in the manner provided for in this
Paragraph 7.4. All notices shall be deemed to have been given as of the date of
personal delivery, transmittal or mailing thereof:
If to Executive: Michael J. Kirby
338 Woodstock
Kenilworth, Illinois 60045
If to Company: The Delicious Frookie Company, Inc.
2720 River Road, Suite 216
Des Plains, Illinois 60018
With a copy to: Steve Wolosky, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
7.5 Assignment: This Agreement shall be binding upon and inure to
the benefit of Company's successors and assigns.
8. Disputes and Controversies: The parties hereto agree that if any
controversy or claim arises out of or relating to this Agreement, other than
pursuant to Sections 4 and 6 hereof, the controversy or claim shall be
determined by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in Chicago, Illinois and the determination
of the arbitrator(s) shall be conclusive and binding on the parties hereto, and
any judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction.
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<PAGE> 11
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
COMPANY: THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
--------------------------------
Jeffry Weiner, Treasurer and
Chief Financial Officer
EXECUTIVE:
/s/ Michael J. Kirby
-------------------------------------
Michael J. Kirby
11
<PAGE> 1
EXHIBIT 10.2
STOCK OPTION AGREEMENT
AGREEMENT, made as of August 11, 1997, between The Delicious Frookie
Company, Inc., a Delaware corporation ("Company"), and Michael J. Kirby
("Executive"). As used herein, the term "Company" shall refer to the Company and
any subsidiaries of the Company.
WHEREAS, on even date herewith, Executive has entered into an
employment agreement ("Employment Agreement"), pursuant to which Company has
agreed to grant to Executive, an option to purchase an aggregate of 180,000 of
the authorized but unissued or treasury shares of the Common Stock of Company,
.01 par value ("Common Stock"), on the terms and conditions set forth in this
Agreement, and
WHEREAS, Executive desires to acquire said option on the terms and
conditions set forth in this Agreement;
IT IS AGREED:
1. Company hereby grants to Executive options ("Options") to
purchase all or any portion of an aggregate of 180,000 shares of Common Stock
("Option Shares") pursuant to Company's 1995 Stock Option ("1995 Plan") and on
the terms and conditions set forth herein. All of the Options are intended to
qualify as "Incentive Stock Options" under Section 422 of the Internal Revenue
Code of 1986, as amended ("Code"), and as defined in the 1995 Plan; provided,
however, that to the extent that the fair market value of stock with respect to
which the Options become exercisable in any year, as set forth in Section 2,
exceeds $100,000, such options shall be deemed to be "Non-Qualified Options" as
defined in the 1995 Plan.
2. Exercise Price and Exercisability.
2.1 Except as provided in Sections 4.3 and 7.2, Options
("Executive Options") to purchase up to 30,000 Option Shares have a purchase
price of $3.00 per share and shall become exercisable as to 15,000 of such
Option Shares on August 11 of each year beginning August 11, 1998. After
Executive Options become exercisable, they shall remain exercisable, except as
otherwise provided herein, until the close of business on August 11, 2008.
<PAGE> 2
2.2 Except as provided in Section 7.2, Options ("Equity
Options") to purchase the remaining 150,000 Option Shares shall be exercisable
as set forth below. After Equity Options become exercisable, they shall remain
exercisable, except as otherwise provided herein, until the close of business on
August 11, 2008.
(a) Equity Options to purchase up to 50,000 Option
Shares have a purchase price of $6.00 per share and shall become exercisable as
to 20,000 of such Equity Options on August 11, 1998, as to 15,000 of such Equity
Options on August 11, 1999, and as to the remaining 15,000 on August 11, 2000.
(b) Equity Options to purchase up to 50,000 Option
Shares have a purchase price of $12.00 per share and shall become exercisable as
to 20,000 of such Equity Options on August 11, 1998, as to 15,000 of such Equity
Options on August 11, 1999, and as to the remaining 15,000 on August 11, 2000.
(c) Equity Options to purchase up to 50,000 Option
Shares have a purchase price of $18.00 per share and shall become exercisable as
to 20,000 of such Equity Options on August 11, 1998, as to 15,000 of such Equity
Options on August 11, 1999, and as to the remaining 15,000 on August 11, 2000.
3. Except as provided in Section 4 below, none of the Options may be
exercised unless, at the time of exercise, Executive is employed by Company or a
wholly-owned subsidiary. Moreover, Executive agrees that the exercise of these
Options after the termination of his employment with Company shall be subject to
Executive's not having breached Section 4 of the Employment Agreement. Executive
further agrees that any breach of Section 4 of the Employment Agreement will
give Company the right to place a stop transfer order with Company's transfer
agent on any Option Shares purchased by Executive after termination.
4. Termination:
4.1 If Executive's employment with Company is terminated for
cause pursuant to Section 2.2.4 of the Employment Agreement dated the date
hereof between Company and Executive ("Employment Agreement"), any Options not
yet exercised shall expire immediately on the date of termination of employment.
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<PAGE> 3
4.2 If Executive's employment with Company is terminated by
reason of Executive's death or disability pursuant to Section 2.2.1 or 2.2.2 of
the Employment Agreement, Executive or the legal representative of Executive's
estate, or Executive's legatee, shall have one year from the date of termination
to exercise any Options that were exercisable as of the date of termination. All
Options that were not exercisable as of the date of termination of employment
shall expire immediately upon the date of termination of employment.
4.3 If Company terminates Executive without cause pursuant to
Section 2.2.5 of the Employment Agreement, Executive shall have 60 days from the
date of termination to exercise any Options that were exercisable as of the date
of termination. If Executive is terminated without cause pursuant to Section
2.2.5 of the Employment Agreement (a) within the first year of the Employment
Term (as defined in the Employment Agreement), Executive Options for 15,000
Shares shall become exercisable immediately upon the date of termination; or (b)
after the first year of the Employment Term, any Executive Options which have
not yet become exercisable shall become exercisable immediately upon the date of
termination. Except as provided in this Section 4.3, if Company terminates
Executive without cause pursuant to Section 2.2.5 of the Employment Agreement,
all Options that were not exercisable as of the date of termination shall expire
on the date of such termination.
5. Neither this Option Agreement nor any of the Options shall be
assignable or transferable by Executive.
6. Executive shall not have any of the rights of a stockholder with
respect to the Option Shares until such shares have been issued.
7. Restructuring and Buy-out Clause.
7.1 In the event of a reorganization, recapitalization,
reclassification, stock split or exchange, stock dividend, combination of
shares, or any other similar change in the Common Stock of Company as a whole,
the Board of Directors of Company shall in good faith make such equitable,
proportionate adjustments, if any, as it deems appropriate in the number and
kind of shares covered by the Options and in the option price thereunder, in
order to preserve Executive's proportionate interest in Company and to maintain
the aggregate option price.
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<PAGE> 4
7.2 Notwithstanding Section 7.1, if, upon the dissolution or
liquidation of Company or upon any merger, consolidation or other form of
reorganization in which Company is not the surviving entity or upon the sale of
all or substantially all of Company's assets, Company will give Executive at
least 30 days' advance notice in writing ("Notice") of the closing date or
effective date (in either case, the "Effective Date") of any such dissolution,
liquidation, merger, consolidation, reorganization or sale of all the assets of
Company, and Executive will have the right for 30 days after the date of such
Notice to exercise the Options as follows: (i) if the Effective Date occurs
within the first 18 months of the Employment Term, Executive will have the right
to exercise all 30,000 Executive Options and the 50,000 Incentive Options which
are exercisable at $6.00 per share; or (ii) if the Effective Date occurs after
the first 18 months of the Employment Term, Executive will have the right
exercise all 30,000 Executive Options and all 150,000 Incentive Options. After
such 30 day period, all Options shall terminate.
8. Company hereby represents and warrants to Executive that the
Option Shares, when issued and delivered by Company to Executive in accordance
with the terms and conditions hereof, will be duly and validly issued and fully
paid and non-assessable.
9. Executive hereby represents and warrants to Company that he is
acquiring the Options and shall acquire the Option Shares for his own account
and not with a view to the distribution thereof.
10. Anything in this Agreement to the contrary notwithstanding,
Executive hereby agrees that he shall not sell, transfer by any means or
otherwise dispose of any Option Shares without registration under the Securities
Act of 1933, as amended ("Act"), and applicable state law unless (i) an
exemption from registration under the Act and applicable state law is available
and (ii) Executive has furnished Company with notice of such proposed transfer
and an opinion of Company's legal counsel that such proposed transfer is so
exempt.
11. Executive agrees to enter into and comply with any "lock-up"
agreement pertaining to the Option Shares that may be required by an underwriter
in connection with an initial public offering of Company's equity securities,
provided that such "lock-up" agreement shall not be substantially different from
"lock-up" agreements requested of Company's other directors and executive
officers.
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<PAGE> 5
12. Executive hereby acknowledges that:
12.1 If he exercises the Options, he must bear the economic
risk of the investment in the Option Shares for an indefinite period of time
because the Option Shares will not have been registered under the Act or
applicable state law and cannot be sold by him unless they are registered under
the Act or an exemption from registration under the Act and applicable state law
is available.
12.2 He has had both the opportunity to ask questions of and
receive answers from the officers and directors of Company and all persons
acting on its behalf concerning the terms and conditions of the offer made
hereunder and to obtain any additional information to the extent to Company
possesses or may possess such information or can acquire it without unreasonable
effort or expense necessary to verify the accuracy of the information obtained
pursuant to sub-paragraph (a) above.
12.3 The certificates evidencing the Option Shares shall bear
the following legend:
"The securities represented by this certificate have not been
registered under the Securities Act of 1933, as amended
("Act"), or applicable state law. The securities may not be
offered for sale, sold or otherwise transferred except
pursuant to an effective registration statement under the Act
or pursuant to an exemption from registration under the Act
and applicable state law."
13. Subject to the terms and conditions of the Agreement, the
Options may be exercised by written notice to Company at its principal place of
business. Such notice shall state the election to exercise the Options and the
number of Option Shares in respect to which it is being exercised, shall contain
a representation and agreement by the person or persons so exercising the
Options that the Option Shares are being purchased for investment and not with a
view to the distribution or resale thereof, and shall be signed by the person or
persons so exercising the Options. Such notice shall be accompanied by payment
of the full purchase price of the Option Shares. Payment of the purchase price
shall be made in cash or by check, bank draft or money order payable to the
order of Company. Company shall issue a certificate or certificates evidencing
the Option Shares as soon as practicable after the notice and payment is
received. The certificate
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<PAGE> 6
or certificates evidencing the Option Shares shall be registered in the name of
the person or persons so exercising the Options.
14. All notices, requests, deliveries, payments, demands and other
communications which are required or permitted to be given under this Agreement
shall be in writing and shall either be delivered personally or sent by
overnight courier service or certified mail, return receipt requested, postage
prepaid, to the parties at their respective addresses set forth below, or to
such other address as either shall have specified by notice in the writing to
the other, and shall be deemed duly given hereunder when so delivered or mailed,
as the case may be.
15. The waiver by any party herein of a breach of any provision of
this Agreement shall not operate or be construed as a waiver of any other or
subsequent breach.
16. This Agreement constitutes the entire agreement between the
parties with respect to the subject matter thereof.
17. This Agreement shall inure to the benefit of and be binding upon
the parties hereto and to the extent not prohibited herein, their respective
heirs, successors, assigns and representatives.
18. This Agreement shall be governed by and construed in accordance
with the laws of the State of Illinois.
19. The parties hereto agree that if any controversy or claim arises
out of or relating to this Agreement, the controversy or claim shall be
determined by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in Chicago, Illinois and the determination
of the arbitrator(s) shall be conclusive and binding on the parties hereto, and
any judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction.
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<PAGE> 7
IN WITNESS WHEREOF, the parties have executed this Agreement as if
the date first above written.
COMPANY: THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffrey Weiner
--------------------------------
Jeffrey Weiner, CEO & Treasurer
EXECUTIVE:
/s/ Michael J. Kirby
--------------------------------------
Michael J. Kirby
7
<PAGE> 1
Exhibit 10.3
December 16, 1997
Mr. Michael Kirby
The Delicious Frookie Co., Inc.
2729 River Road, Suite 126
Des Plaines, IL 60018
Dear Mike:
Per our recent discussions, we have agreed to amend your Employment Agreement,
dated August, 1997, as follows:
1. Section 2.1, Page 2:
The term of your employment is hereby automatically extended to December
31, 2002.
2. Section 2.2.1, Page 2:
Through the term of the Employment Agreement, The Delicious Frookie Co.,
Inc. ("DFC") will agree to pay the premiums for a term life insurance
policy, at a competitive rate, for up to $1.0 million death benefit with
the death benefit awarded to your estate or to the beneficiary(s) of your
choice.
3. Section 2.2.5, Page 3:
The Termination by Company Without Cause will be amended so that if any
termination occurs pursuant to Paragraph 2.2.5, then you will be paid
twelve (12) months of your base salary regardless of when any such
termination becomes effective.
4. Section 3.1, page 4:
Your annual base salary as of February 1, 1998 will be increased to
$150,000. However, if during the term of your Employment Agreement either
one of the following two events occurs, then your base salary will be
automatically increased to $200,000:
1. DFC wholly purchases Salerno Foods, Inc.
2. DFC's net sales (as defined by GAAP accounting rules), whether
through acquisitions or internally, in any twelve month period
exceed $60,000,000.
<PAGE> 2
5. Section 3.2.2, Page 4:
Your Incentive Cash Bonus will not have a minimum cap of $30,000. Instead,
you will have an opportunity to earn more than $30,000 in such incentive
bonuses if DFC's results far exceed your plan as determined in good faith
by the Board of Directors.
6. With regards to your Stock Option Agreement, dated August, 1997, we also
agreed to the following changes:
A) Page 1, Section 2.1:
Instead of 30,000 Executive Options, you are hereby granted, as of
December 30, 1997, 50,000 Executive Options at a purchase price of
$3.00 per share, which are now fully vested and immediately
exercisable.
B) The Equity Options Section 2.2 is amended as follows (the previous
section 2.2(a), (b), and (c) are hereby removed):
(i) Section 2.2(a) will now read:
2.2 (a): Equity Options to purchase up to 100,000 Option
shares have a purchase price of $6.00 per share and shall
become exercisable as to 40,000 of such Equity Options on
August 15, 1998, as to 30,000 of such Equity Options in August
15, 1999, and as to the remaining 30,000 on August 15, 2000.
(ii) Section 2.2(b) will now read:
"Equity Options to purchase 30,000 Option Shares have a
purchase price of $12.00 per share and shall become
exercisable as to 12,000 of such Equity Options on August 15,
1998, as to 9,000 of Such Equity Options on August 15, 1999,
as to the remaining 9,000 on August 15, 2000.
(iii) Section 2.2(c) is removed in its entirety.
Mike, we are pleased to extend these enhanced terms to you based on your
demonstration of good faith and diligent work ethic since you've joined the DFC
team. Moreover, we believe you are well deserving of all of the above and we
look forward with enthusiasm to your executive leadership in turning around and
aggressively growing DFC.
-2-
<PAGE> 3
If the foregoing terms and conditions are acceptable to you, please so indicate
by signing the enclosed copy of this letter.
As Agreed to By:
/s/ Donald S. Schmitt, Chairman /s/ Michael Kirby
- ---------------------------------- --------------------------------
Donald S. Schmitt, Chairman Michael Kirby, President & CEO
The Delicious Frookie Co., Inc. The Delicious Frookie Co., Inc.
-3-
<PAGE> 1
EXHIBIT 10.4
AMENDED AND RESTATED EMPLOYMENT AGREEMENT
AGREEMENT, made as of December 15, 1997, by and between The Delicious
Frookie Company, Inc., a Delaware corporation ("Company"), and Jeffry Weiner
("Executive").
WHEREAS, Company and Executive are parties to an employment agreement
dated March 20, 1997 ("Employment Agreement"); and
WHEREAS, Company desires to continue to employ Executive as its Vice
President and Chief Financial Officer, and Executive desires to continue to be
so employed by the Company; and
WHEREAS, the parties wish to modify their understandings with respect to
their continuing employment relationship and wish to amend and restate, and
hereby amend and restate, the Employment Agreement as set forth herein.
IT IS AGREED:
1. Employment:
1.1 General. Company shall employ Executive and Executive accepts
employment as Vice President and Chief Financial Officer of Company upon the
terms and conditions described herein. During the Employment Term (as defined in
Section 2.1 hereof), Executive shall devote all of his business time, attention
and skills to the business and affairs of Company.
1.2 Executive shall not, without the prior written consent of
Company, during the Employment Term, be engaged in any other activity whether or
not pursued for gain, profit or other pecuniary advantage; but this shall not be
construed as preventing Executive from making and supervising personal
investments, provided they:
(a) will not require any substantial services on his part in
the operation of the affairs of the companies in which such investments are
made;
<PAGE> 2
(b) will not cause a breach of Section 4.4 hereinafter set
forth; and
(c) will not interfere with the performance of Executive's
duties hereunder.
1.3 Duties. Executive shall at all times render his services at the
direction of the Board of Directors, and the duties will be consistent with his
position as Vice President and Chief Financial Officer. Company may assign to
Executive such other executive and financial administrative duties for Company
or any affiliate as may be determined by the Board of Directors of Company,
consistent with Executive's status as Vice President and Chief Financial
Officer. Executive agrees to diligently use his best efforts to perform his
services and to promote and further the reputation and good name of Company.
2. Term and Termination
2.1 Term. The term of employment by Company of Executive commenced
on March 20, 1997 and shall terminate on December 31, 1999 ("Employment Term"),
subject to earlier termination pursuant to the provisions of Paragraph 2.2.
2.2 Premature Termination. Notwithstanding anything to the contrary
contained in this Agreement, Executive's employment may be terminated prior to
the end of the Employment Term as follows:
2.2.1 Termination Upon Death of Executive. Executive's
employment shall terminate upon the death of Executive; provided, however, that
Company shall pay to Executive's estate or designated beneficiary the base
salary due Executive pursuant to Section 3 hereof, prorated through the date of
such termination.
2.2.2 Termination Upon Disability of Executive. Executive's
employment shall terminate if, in good faith, and with the advice of a qualified
and independent physician, the Board of Directors of Company determines that
Executive has become, by reason of accident, illness, mental or physical
disability, disabled so as to be incapable of satisfactorily performing his
duties hereunder for a period of sixty (60) consecutive days or ninety (90) days
in any annual period whether or not related to habitual use of alcohol or
illicit substances, which condition is incapable of reasonable accommodation
under applicable law, including but not limited to the Americans with
Disabilities Act of 1990, as amended; provided, however, that Executive shall
continue to receive
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<PAGE> 3
his Base Salary until the time of such termination, less any amount Executive
receives for such period from any source of insurance, disability compensation
or government program. Any termination under this Section 2.2.2 shall take
effect immediately upon notice from the Board of Directors of Company to
Executive.
2.2.3 Termination Upon Mutual Consent. Executive's employment
may be terminated by the mutual consent of Company and Executive on such terms
as they may agree.
2.2.4 Termination For Cause. Executive's employment shall
terminate immediately on notice to Executive upon finding of the Board of
Directors of Company that Executive has (i) failed in all material respects to
perform his duties in accordance with the provisions of this Agreement after
Company has given written notice to Executive stating the nature of any
performance deficiency and Executive has had not less than fifteen (15) days in
which to cure any such deficiency and such deficiency remains uncured, (ii)
committed a breach of any provision of Section 4 hereof, (iii) misappropriated
assets or perpetrated fraud against Company, (iv) been convicted of or plead
nolo contendere to a crime which constitutes a felony or which involves an act
of moral turpitude, (v) engaged in the illegal use of habit-forming substances,
or (vi) willfully and materially refused or failed to carry out specific
directions of the Board of Directors as required by this Agreement. In the event
of termination for cause, Company shall pay Executive his base salary through
the date of termination.
2.2.5 Termination by Company Without Cause. Company may
terminate Executive's employment at any time, without cause, upon Company's
written notice to Executive. In the event of termination pursuant to this
paragraph, Company shall pay Executive a "Severance Salary" in accordance with
Company's standard payroll policies. The "Severance Salary" shall equal twelve
(12) months' base salary; provided, however, that under no circumstances shall
the Severance Salary exceed $135,000. In the event that this Agreement expires
without renewal, Executive shall receive no Severance Salary. Such Severance
Salary shall be subject to the continued satisfaction after termination of
Section 4 of this Agreement. If Executive, after his termination from Company,
conducts himself in a manner that adversely affects Company, as determined by
the Board of Directors of Company in its sole discretion, then all payments
under this Section 2.2.5 shall cease.
3. Compensation. During the Employment Term, Company shall pay, in full
payment for all of Executive's services rendered hereunder, including, without
limitation, any services
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<PAGE> 4
rendered for, as consultant to, or as officer or director of, Company or any
affiliate, the following compensation:
3.1 Base Salary. Company shall pay Executive an annual base salary,
less income taxes and other applicable withholdings, of $135,000 in Company's
standard payroll installments. The Board of Directors of Company will review the
annual base salary amount as soon as practicable after the end of each fiscal
year of Company to consider whether it should be increased, and the Board of
Directors of Company may base its decision upon such criteria as it deems
relevant, including, but not limited to, the performance of Company and
Executive.
3.2 Cash Bonuses:
3.2.1 Incentive Cash Bonus. Executive shall be entitled to
receive such incentive cash bonuses as may be awarded to him from time to time
by and in the absolute discretion of the Board of Directors.
3.2.2 Buy-out Bonus. After the date of this Agreement, in the
event of a dissolution or liquidation of Company or upon any merger,
consolidation or other form of reorganization whereby at least eighty percent
(80%) of the stockholders participate in a cash buy-out of Company in which
Company is not the surviving entity, or upon the sale of all of Company's assets
for cash or liquid consideration (in either case, a "Buy-out"), upon the closing
date or effective date ("Effective Date") of any such Buy-out, Executive will be
paid a one-time severance payment of $130,000 ("Buy-out Bonus") on or after the
Effective Date and pursuant to Company's payroll policy as outlined in Section
3.1. However, Executive agrees that if within the twelve (12) months following
such Effective Date he signs a contract of employment or is employed with the
surviving entity of such Buy-out, he will forgo any such Buy-out Bonus or return
it to Company. Moreover, Executive agrees that this Buy-out Bonus and the
Severance Salary described in Section 2.2.5 are not cumulative and only one of
these payments will be paid to Executive.
3.3 Automobile Allowance. Company shall pay Executive the sum of
$500 per month in respect of his owning or leasing and operating a vehicle for
use in his employment with the Company. Company shall not reimburse Executive
for insurance, taxes, state toll charges or any other expense of owning,
operating, maintaining or repairing any vehicle owned or leased by Executive.
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<PAGE> 5
3.4 Vacation. Executive shall be entitled to three (3) weeks of
vacation in each twelve (12) month period during the Employment Term.
3.5 Executive Benefit Plans. Executive shall be entitled to
participate in all plans or programs sponsored by Company for employees and/or
executives in general, including, without limitation, any group health, medical
reimbursement, disability or life insurance plans.
3.6 Expense Reimbursement. Company shall reimburse Executive for all
reasonable and necessary expenses incurred by him from time to time in the
performance of his duties hereunder, against receipts therefore in accordance
with the then-effective policies and requirements of Company.
3.7 Liability as an Officer. Company agrees to include Executive in
any officer and directors' liability insurance coverage that Company institutes
for its officers, and Company agrees to cover the costs, during the Employment
Term, of legal counsel to defend Executive against any causes of actions, suits,
or legal claims filed by stockholders against officers of Company in the
ordinary course of business in the same manner as all other officers, provided
that such complaints are not the result of any gross negligence, fraud or wilful
misconduct on the part of Executive.
4. Protection of Confidential Information/Non-Competition.
4.1 Acknowledgments. Executive acknowledges that:
(a) During his employment by Company, Executive has obtained
and will obtain secret and confidential information concerning the business of
Company and its affiliates, including, without limitation, customer lists and
sources of supply, their needs and requirements, the nature and extent of
contracts with them, and related costs, price and sales information.
(b) Company and its affiliates will suffer substantial damage
that will be difficult to compute if, during the period of his employment with
Company or thereafter, Executive should enter a competitive business or should
divulge secret and confidential information relating to the business of Company
and its affiliates heretofore or hereafter acquired by him in the course of his
employment with Company.
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<PAGE> 6
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of Company and its affiliates.
4.2 Confidentiality. Executive agrees that he will not at any time,
either during the Employment Term or thereafter, divulge to any person, firm or
corporation any information obtained or learned by him during the course of his
employment with Company, with regard to the operational, financial, business or
other affairs of Company and its affiliates, and their respective officers and
directors, including, without limitation, trade secrets, customer lists, sources
of supply, pricing policies, operational methods or technical processes, except
(i) in the course of performing his duties hereunder, (ii) with Company's
express written consent; (iii) to the extent that any such information is in the
public domain other than as a result of Executive's breach of any of his
obligations hereunder; or (iv) when required to be disclosed by court order,
subpoena or other government process. In the event that Executive shall be
required to make disclosure pursuant to the provisions of clause (iv) of the
preceding sentence, Executive promptly, but in no event more than 48 hours after
learning of such subpoena, court order or other government process, shall notify
Company, by personal delivery or by cablegram, confirmed by mail, and at
Company's expense, Executive shall: (a) take all reasonably necessary steps
requested by Company to defend against the enforcement of such subpoena, court
order or other government process, and (b) permit Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
4.3 Return of Property. Upon termination of his employment with
Company, or at any time Company may so request, Executive will promptly deliver
to Company all non-public memoranda, notes, records, reports, manuals, drawings,
blueprints and other documents (and all copies thereof) relating to the business
of Company and its affiliates, and all property associated therewith, which he
may then possess or have under his control.
4.4 Non-Competition. During the Employment Term and, unless
Executive is terminated without cause pursuant to Section 2.2.5, for a period of
one (1) year thereafter, Executive shall not, without the prior written
permission of Company, in the United States, its territories and possessions,
directly or indirectly, (i) enter into the employ of or render any services to
any person, firm or Company engaged in any Competitive Business (as defined
below); (ii) engage in any Competitive Business for his own account; (iii)
become associated with or interested in any Competitive Business as an
individual, partner, stockholder, creditor, director, officer, principal, agent,
employee, trustee, consultant, advisor or in any other relationship or
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capacity; (iv) employ or retain, or have or cause any other person or entity to
employ or retain, any person who was employed or retained by Company or its
affiliates while Executive was employed by Company; or (v) solicit, interfere
with, or endeavor to entice away from Company or its affiliates any of their
customers or sources of supply. However, nothing in this Agreement shall
preclude Executive from investing his personal assets in the securities of any
Competitive Business if such securities are traded on a national stock exchange
or in the over-the-counter market and if such investment does not result in his
beneficially owning, at any time, more than 4.5% of the publicly-traded equity
securities of such competitor. "Competitive Business" shall mean any business or
enterprise, or affiliate or subsidiary of any such enterprise which: (a)
designs, manufactures, markets and/or distributes cookies, healthy or health
food snacks, rice cakes, cereals, granola bars, fruit tarts (pop tarts),
popcorn, baby food, candies, other similar products, or any other products
marketed by Company during the Employment Term--whether branded, store brand,
premium brand, value brand, or private label products; or (b) engages in any
other business in which Company or its affiliates is involved at any time during
the twelve-month period immediately prior to the termination of Executive's
employment.
4.5 Enforcement. If Executive commits a breach, or threatens to
commit a breach, of any of the provisions of Sections 4.2 or 4.4, Company shall
have the right and remedy (a) to have the provisions of this Agreement
specifically enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Executive that the services being rendered hereunder
to Company are of a special, unique and extraordinary character and that any
such breach or threatened breach will cause irreparable injury to Company and
that money damages will not provide an adequate remedy to Company, or (b) to
require Executive to account for and pay over to Company all compensation,
profits, monies, accruals, increments or other benefits (collectively
"Benefits") derived or received by Executive as the result of any transactions
con stituting a breach of any of the provisions of Sections 4.2 or 4.4, and
Executive hereby agrees to account for and pay over such Benefits to Company.
Each of the rights and remedies enumerated in this Section 4.5 shall
be independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to Company under law or equity.
4.6 Modification. If any provision of Sections 4.2 or 4.4 is held to
be unenforceable because of the scope, duration or area of its applicability,
the tribunal making such
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determination shall have the power to modify such scope, duration, or area, or
all of them, and such provision or provisions shall then be applicable in such
modified form.
5. Representations of Executive. Executive represents and warrants to
Company that Executive is not a party to or bound by any agreement,
understanding or restriction that would or may be breached by Executive's
execution and full performance of this Agreement. Executive expressly undertakes
and agrees that he will do nothing in furtherance of this Agreement or his
duties hereunder that will violate any obligations he may have to any prior
employer (or that will impose on Company any liability to any prior employer)
and that he will comply with all requirements of notice applicable to the
termination of any prior employment before he commences his employment under
this Agreement.
6. Options. Company acknowledges and agrees that the options to purchase
150,000 shares of Common Stock of the Company ("Options") that have been granted
to Executive under Company's 1995 Stock Option Plan prior to the date first set
forth above shall vest in full upon the closing of the transactions contemplated
by the Common Stock and Option Purchase Agreement among Richard Worth, Randye
Worth, the Investors listed on Schedule A thereto and Company.
7. Construction of this Agreement:
7.1 Choice of Law. This Agreement is to be construed pursuant to the
laws of the State of Illinois, including Illinois law regarding choice of law.
7.2 Invalid Agreement Provisions. Except as provided in Section 4.6,
should any provisions of this Agreement become legally unenforceable, no other
provision of this Agreement shall be affected, and this Agreement shall continue
as if the Agreement had been executed absent the unenforceable provision.
7.3 No Other Agreements. This Agreement and the agreements that set
forth the grant of the Options ("Option Agreements") represent the full
agreement between Company and Executive with respect to the subject matter
hereof and Company and Executive have made no agreements, representations or
warranties relating to the subject matter of this Agreement that are not set
forth herein or in the Option Agreements. On the date this Agreement is signed
by Executive, this Agreement and the Option Agreements will supersede any and
all other agreements, oral or written, that may define the employment
relationship between Executive and
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Company. This Agreement may be modified only by written agreement of Executive
and Company and may not be modified by any oral agreement.
7.4 Notices. All notices provided for in this Agreement shall be in
writing and shall be deemed to have been given when delivered personally to the
party to receive the same, when mailed first class, postage prepaid by certified
mail, return receipt requested, addressed to the party to receive the same at
the applicable addresses set forth below or such other address as the party to
receive the same shall have specified by written notice given in the manner
provided for in this Paragraph 7.4. All notices shall be deemed to have been
given as of the date of personal delivery, transmittal or mailing thereof:
If to Executive: Jeffry Weiner
2720 River Road, Suite 216
Des Plains, Illinois 60018
If to Company: The Delicious Frookie Company, Inc.
2720 River Road, Suite 216
Des Plains, Illinois 60018
With a copy to: Steve Wolosky, Esq.
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
7.5 Assignment: This Agreement shall be binding upon and inure to
the benefit of Company's successors and assigns.
8. Disputes and Controversies: The parties hereto agree that if any
controversy or claim arises out of or relating to this Agreement, other than
pursuant to Sections 4 and 6 hereof, the controversy or claim shall be
determined by arbitration in accordance with the Commercial Arbitration Rules of
the American Arbitration Association in Chicago, Illinois and the determination
of the arbitrator(s) shall be conclusive and binding on the parties hereto, and
any judgment upon the award rendered by the arbitrator(s) may be entered in any
court having jurisdiction.
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<PAGE> 10
IN WITNESS WHEREOF, the parties have executed this Agreement on the day
and year first written above.
COMPANY: THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael J. Kirby
---------------------------------
Michael J. Kirby, Chief Executive
Officer and President
EXECUTIVE:
/s/ Jeffry Weiner
--------------------------------------
Jeffry Weiner
10
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Exhibit 10.5
R.W. FROOKIES, INC.
1989 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of R.W. FROOKIES, INC. and of its affiliated
corporations upon whose judgment, initiative and efforts the Corporation depends
for the successful conduct of its business, to acquire a closer identification
of their interests with those of the Corporation by providing them with
opportunities to purchase stock in the Corporation pursuant to options granted
hereunder, thereby stimulating their efforts on behalf of the Corporation and
strengthening their desire to remain involved with the Corporation.
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
2.5 "Corporation" means R.W. FROOKIES, INC., a Delaware corporation, or
its successor.
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2.6 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after January 1,
1989.
2.7 "Option" means an Incentive Stock Option or Non-Qualified option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish.
2.8 "Plan" means this 1989 Stock Option Plan.
2.9 "Incentive Stock Option" ("ISO") means an option which qualifies as an
incentive stock option as defined in Section 422A of the Code, as amended.
2.10 "Non-Qualified Option" means any option not intended to qualify as an
Incentive Stock Option.
2.11 "Stock" means the Class B Common Stock, $.01 par value, of the
Corporation or any successor, including any adjustments in the event of changes
in capital structure of the type described in Article IX.
ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan shall be administered by the Board
of Directors of the Corporation. The Board may, from time to time, delegate any
of its functions under this plan to one or more committees. All references in
this Plan to the Board shall also include the Committee or committees, if one or
more have been appointed by the Board. From time to time the Board may increase
the size of the Committee or committees and appoint additional
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members thereto, remove members (with or without cause) and appoint new members
in substitution therefor, fill vacancies however caused, or remove all members
of the Committee or committees and thereafter directly administer the Plan. No
member of the Board or a committee shall be liable for any action or
determination made in good faith with respect to the Plan or any options granted
under it.
3.2 Powers. The Board of Directors and/or any committee appointed by the
Board shall have full and final authority to operate, manage and administer the
Plan on behalf of the Corporation. This authority includes, but is not limited
to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of the instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the incentive
features of the Plan, and otherwise to prescribe and rescind
regulations for interpretation, management and administration of the
Plan,
(e) The power to delegate responsibility for Plan operation, management
and administration on such terms, consistent with the Plan, as the
Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's purpose,
and
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(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but
not limited to, banks, insurance companies, brokerage firms and
consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of the
Corporation, the Board shall have full and final authority in its discretion:
(a) to determine the number of shares of Stock subject to each Option; (b) to
determine the time or times at which Options will be granted; (c) to determine
the option price of the shares of Stock subject to each Option, which price
shall be not less than the minimum price specified in Article V of this Plan;
(d) to determine the time or times when each Option shall become exercisable and
the duration of the exercise period (including the acceleration of any exercise
period), which shall not exceed the maximum period specified in Article V; and
(e) to determine whether each Option granted shall be an Incentive Stock Option
or a Non-Qualified Option.
In no event may the company grant an Employee any Incentive Stock Option
that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(A)(b)(7) of the Code.
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ARTICLE IV
Eligibility
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants, Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted Non-Qualified Option Awards under the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 250,000 (amended on November 1, 1989) shares.
The shares to be delivered upon exercise of Options under this Plan shall be
made available, at the discretion of the Board, either from authorized but
unissued
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shares or from previously issued and reacquired shares of Stock held by the
Corporation as treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder shall
be for such period as the Board shall determine. In the case of Incentive Stock
Options granted hereunder, the term shall not exceed ten (10) years from the
date of granting thereof. Each Option shall be subject to earlier termination as
provided in Sections 6.3 and 6.4. Notwithstanding the foregoing, options
intended to qualify as "Incentive Stock Options" may not be granted to any
employee who at the time such option is granted owns more than ten percent (10%)
of the total combined voting power of all classes of stock of the Company unless
such option is not exercisable after the expiration of five (5) years from the
date such option is granted.
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5.4 Option Price. The Option price shall be determined by the Board at the
time any Option is granted. In the case of Incentive Stock Options, the exercise
price shall not be less than 100% of the fair market value of the shares covered
thereby at the time the Incentive Stock Option is granted (but in no event less
than par value), provided that no Incentive Stock Option shall be granted
hereunder to any Employee if at the time of grant the Employee, directly or
indirectly, owns Stock possessing more than 10% of the combined voting power of
all classes of stock of the Corporation and its Affiliated Corporations unless
the Incentive Stock Option price equals not less than 110% of the fair market
value of the shares covered thereby at the time the Incentive Stock Option is
granted.
In the case of Non-qualified Options, the exercise price shall in no event
be less than the lesser of (i) the book value of the shares covered thereby as
of the end of the fiscal year of the Corporation immediately preceding the date
of such grant; or (ii) 50% of the fair market value of the shares covered
thereby on the date of such grant.
5.5 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
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traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List. However, if the
Stock is not publicly traded at the time an Option is granted under the Plan,
"fair market value" shall be deemed to be the fair value of the Stock as
determined by the Board after taking into consideration all factors which it
deems appropriate, including, without limitation, recent sale and offer prices
of the Stock in private transactions negotiated at arm's length.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
ARTICLE VI
Exercise of Option
6.1 Exercise. Each option granted under this Plan shall be exercisable on
such date or dates and during such period and for such number of shares as shall
be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration
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would violate the annual vesting limitation contained in Section 422A(b)(7) of
the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall give
written notice to the Corporation of such election and of the number of shares
he or she has elected to purchase and shall at the time of exercise tender the
full purchase price of the shares he or she has elected to purchase. The
purchase price can be paid partly or completely in shares of the Corporation's
stock valued at Fair Market Value as defined in Section 5.5 hereof. Until such
person has been issued a certificate or certificates for the shares so
purchased, he or she shall possess no rights of a record holder with respect to
any of such shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option (and,
unless otherwise determined by the Board of Directors, no Non-Qualified Option
granted to a person who is, on the date of the grant, an Employee of the
Corporation or an Affiliated Corporation) shall be affected by any change of
duties or position of the optionee (including transfer to or from an Affiliated
Corporation), so long as he or she continues to be an Employee. Employment shall
be considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence
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with the written approval of the Board shall not be considered an interruption
of employment under the Plan, provided that such written approval contractually
obligates the Corporation or any Affiliated Corporation to continue the
employment of the optionee after the approved period of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the Option; or (B) where such cessation of
employment is on account of disability, the expiration of one year from the date
of such cessation of employment and, otherwise, the expiration of three months
from such date. For purposes of the Plan, the term "disability" shall mean
"permanent and total disability" as defined in Section 22(e)(3) of the Code.
6.4 Death of Optionee. Should an optionee die while in possession of the
legal right to exercise an Option or Options under this Plan, such persons as
shall have acquired, by will or by
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the laws of descent and distribution, the right to exercise any Options
theretofore granted, may, unless otherwise provided by the Board in any
instrument evidencing any Option, exercise such Options at any time prior to one
year from the date of death; provided, that such Option or Options shall expire
in all events no later than the last day of the original term of such Option;
provided, further, that any such exercise shall be limited to the purchase
rights which have accrued as of the date when the optionee ceased to be an
Employee, whether by death or otherwise, unless the Board provides in the
instrument evidencing such Option that, in the discretion of the Board,
additional shares covered by such Option may become subject to purchase
immediately upon the death of the optionee.
ARTICLE VII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles 5 and 6 hereof and may
contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may
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from time to time confer authority and responsibility on one or more of its own
members and/or one or more officers of the Corporation to execute and deliver
such instruments. The proper officers of the Corporation are directed to take
any and all action necessary or advisable from time to time to carry out the
terms of such instruments.
ARTICLE VIII
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans of the Corporation, or an Affiliated
Corporation, except as the Board may from time to time expressly provide.
Neither the Plan, an Option or any instrument evidencing an Option confers upon
any Employee the right to continued employment with the Corporation or an
Affiliated Corporation.
ARTICLE IX
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
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(a) Except as provided in Article X relative to capital changes, the
number of shares as to which Options may be granted pursuant to Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the Plan.
Awards granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE X
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject to
adjustment in the event of changes in the outstanding Stock of the Corporation
by reason of Stock dividends, Stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of an Award to the same extent as would
affect an actual share of Stock issued and outstanding on the effective date of
such change. Such adjustment to outstanding Options shall be made without change
in the total price applicable to the unexercised portion of such options, and a
corresponding adjustment in the applicable option price per share shall be made.
In the event of any such change, the aggregate number and classes of shares for
which Options may thereafter be
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granted under Section 5.1 of this Plan may be appropriately adjusted as
determined by the Board so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article X with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 425 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
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No fractional shares shall be issued under the Plan and the optionee shall
receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XI
Effective Date and Term of the Plan
The Plan shall become effective on ___________________, 1989. The Plan
shall continue until such time as it may be terminated by action of the Board;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
ARTICLE XII
Conversion of ISOs into Non-Qualified
Options; Termination of ISOs
The Board, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's Incentive Stock
Options, that have not been exercised on the date of conversion, into
Non-Qualified Options at any time prior to the expiration of such Incentive
Stock Options, regardless of whether the optionee is an employee of the
Corporation or an Affiliated Corporation at the time of such conversion. Such
actions may include, but not be limited to, extending the exercise period or
reducing the exercise price of such Options. At the time of such conversion, the
Board (with the consent of the optionee) may impose such conditions on the
exercise of the resulting Non-Qualified Options as the Board in its discretion
may determine, provided that such conditions shall not be inconsistent with the
Plan. Nothing in
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the Plan shall be deemed to give any optionee the right to have such optionee's
Incentive Stock Options converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Board takes appropriate action. The
Board, with the consent of the optionee, may also terminate any portion of any
Incentive Stock Option that has not been exercised at the time of such
termination.
ARTICLE XIII
Application of Funds
The proceeds received by the Corporation from the sale of shares pursuant
to Options granted under the Plan shall be used for general corporate purposes.
ARTICLE XIV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition
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the exercise of an Option on the payment of such additional withholding taxes.
ARTICLE XVI
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to notify
the Corporation in writing immediately after the employee makes a Disqualifying
Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock
Option. A Disqualifying Disposition is any disposition (including any sale) of
such Stock before the later of (a) two years after the date the employee was
granted the Incentive Stock Option or (b) one year after the date the employee
acquired Stock by exercising the Incentive Stock Option. If the employee has
died before such stock is sold, these holding period requirements do not apply
and no Disqualifying Disposition can occur thereafter.
ARTICLE XVII
Governing Law; Construction
The validity and construction of the Plan and the instruments evidencing
Options shall be governed by the laws of the Commonwealth of Massachusetts. In
construing this Plan, the singular shall include the plural and the masculine
gender shall include the feminine and neuter, unless the context otherwise
requires.
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Exhibit 10.6
THE DELICIOUS FROOKIE COMPANY, INC.
1995 STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable employees,
consultants, directors and others who are in a position to make significant
contributions to the success of THE DELICIOUS FROOKIE COMPANY, INC. and of its
affiliated corporations upon whose judgment, initiative and efforts the
Corporation depends for the successful conduct of its business, to acquire a
closer identification of their interests with those of the Corporation by
providing them with opportunities to purchase stock in the Corporation pursuant
to options granted hereunder, thereby stimulating their efforts on behalf of the
Corporation and strengthening their desire to remain involved with the
Corporation. Any employee, consultant or advisor designated to participate in
the Plan is referred to as a "Participant."
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one or
more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
<PAGE> 2
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means THE DELICIOUS FROOKIE COMPANY, INC., a Delaware
corporation, or its successor.
2.7 "Employee" means any person who is a regular full-time or part-time
employee of the Corporation or an Affiliated Corporation on or after July 6,
1995.
2.8 "Incentive Stock Option" ("ISO") means an option that qualifies as an
incentive stock option as defined in Section 422 of the Code, as amended.
2.9 "Non-Qualified Option" means any option not intended to qualify as an
Incentive Stock Option.
2.10 "Option" means an Incentive Stock Option or Non-Qualified Option
granted by the Board under Article V of this Plan in the form of a right to
purchase Stock evidenced by an instrument containing such provisions as the
Board may establish. Except as otherwise expressly provided with respect to an
Option grant, no Option granted pursuant to the Plan shall be an Incentive Stock
Option.
2.11 "Participant" means a person selected by the Committee to receive an
award under the Plan.
2.12 "Plan" means this 1995 Stock Option Plan.
2.13 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
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2.14 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.15 "Stock" means, as determined by the Board or Committee administering
this Plan, the Class A Common Stock $.01 par value, or Class B (Non-Voting)
Common Stock .01 par value, of the Corporation or any successor, including any
adjustments in the event of changes in capital structure of the type described
in Article IX.
ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan shall be administered by the Board
of Directors of the Corporation. The Board may, from time to time, delegate any
of its functions under this plan to one or more Committees. All references in
this Plan to the Board shall also include the Committee or Committees, if one or
more have been appointed by the Board. From time to time the Board may increase
the size of the Committee or committees and appoint additional members thereto,
remove members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
or committees and thereafter directly administer the Plan. No member of the
Board or a committee shall be liable for any action or determination made in
good faith with respect to the Plan or any options granted under it.
If a Committee is appointed by the Board, a majority of the members of the
Committee shall constitute a quorum, and all determinations of the Committee
under the Plan may be made without notice or meeting of the Committee by a
writing signed by a majority of Committee members. On or after registration of
the Stock under the Securities Exchange Act of 1934, the
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Board shall delegate the power to select directors and officers to receive
Awards under the Plan, and the timing, pricing and amount of such Awards to a
Committee, all members of which shall be "disinterested persons" within the
meaning of Rule 16b-3 under that Act.
3.2 Powers. The Board of Directors and/or any committee appointed by the
Board shall have full and final authority to operate, manage and administer the
Plan on behalf of the Corporation. This authority includes, but is not limited
to:
(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan,
(d) The power to provide regulations for the operation of the incentive
features of the Plan, and otherwise to prescribe and rescind
regulations for interpretation, management and administration of the
Plan,
(e) The power to delegate responsibility for Plan operation, management
and administration on such terms, consistent with the Plan, as the
Board may establish,
(f) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's purpose,
and
(g) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but
not limited to, banks, insurance companies, brokerage firms and
consultants.
3.3 Additional Powers. In addition, as to each Option to buy Stock of the
Corporation, the Board shall have full and final authority in its discretion:
(a) to determine the number of
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shares of Stock subject to each Option; (b) to determine the time or times at
which Options will be granted; (c) to determine the option price of the shares
of Stock subject to each Option, which price shall be not less than the minimum
price specified in Article V of this Plan; (d) to determine the time or times
when each Option shall become exercisable and the duration of the exercise
period (including the acceleration of any exercise period), which shall not
exceed the maximum period specified in Article V; (e) to determine whether each
Option granted shall be an Incentive Stock Option or a Non-Qualified Option; and
(f) to waive compliance by a Participant with any obligation to be performed by
him under an Option, to waive any condition or provision of an Option, and to
amend or cancel any Option (and if an Option is cancelled, to grant a new Option
on such terms as the Board may specify), except that the Board may not take any
action with respect to an outstanding option that would adversely affect the
rights of the Participant under such Option without such Participant's consent.
Nothing in the preceding sentence shall be construed as limiting the power of
the Board to make adjustments required by Article XI.
In no event may the Company grant an Employee any Incentive Stock Option
that is first exercisable during any one calendar year to the extent the
aggregate fair market value of the Stock (determined at the time the options are
granted) exceeds $100,000 (under all stock option plans of the Corporation and
any Affiliated Corporation); provided, however, that this paragraph shall have
no force and effect if its inclusion in the Plan is not necessary for Incentive
Stock Options issued under the Plan to qualify as such pursuant to Section
422(d)(1) of the Code.
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ARTICLE IV
Eligibility
4.1 Eligible Employees. All Employees (including Directors who are
Employees) are eligible to be granted Incentive Stock Option and Non-Qualified
Option Awards under this Plan.
4.2 Consultants. Directors and other Non-Employees. Any Consultant,
Director (whether or not an Employee) and any other Non-Employee is eligible to
be granted NonQualified Option Awards under the Plan, provided the person has
not irrevocably elected to be ineligible to participate in the Plan.
4.3 Relevant Factors. In selecting individual Employees, Consultants,
Directors and other Non-Employees to whom Awards shall be granted, the Board
shall weigh such factors as are relevant to accomplish the purpose of the Plan
as stated in Article I. An individual who has been granted an Award may be
granted one or more additional Awards, if the Board so determines. The granting
of an Award to any individual shall neither entitle that individual to, nor
disqualify him from, participation in any other grant of Awards.
ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed 1,000,000 shares. The shares to be delivered
upon exercise of Options under this Plan shall be made available, at the
discretion of the Board, either from authorized but unissued shares
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or from previously issued and reacquired shares of Stock held by the Corporation
as treasury shares, including shares purchased in the open market.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer, repurchase rights or other
restrictions as shall be determined by the Board of Directors.
5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. The full term of each Option granted hereunder shall
be for such period as the Board shall determine. In the case of Incentive Stock
Options granted hereunder, the term shall not exceed ten (10) years from the
date of granting thereof. Each Option shall be subject to earlier termination as
provided in Sections 6.3 and 6.4. Notwithstanding the foregoing, the term of
options intended to qualify as "Incentive Stock Options" shall not exceed five
(5) years from the date of granting thereof if such option is granted to any
employee who at the time such option is granted owns more than ten percent (10%)
of the total combined voting power of all classes of stock of the Corporation.
5.4 Option Price. The Option price shall be determined by the Board at the
time any Option is granted. In the case of Incentive Stock Options, the exercise
price shall not be less than 100% of the fair market value of the shares covered
thereby at the time the Incentive Stock Option is granted (but in no event less
than par value), provided that no Incentive Stock Option
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shall be granted hereunder to any Employee if at the time of grant the Employee,
directly or indirectly, owns Stock possessing more than 10% of the combined
voting power of all classes of stock of the Corporation and its Affiliated
Corporations unless the Incentive Stock Option price equals not less than 110%
of the fair market value of the shares covered thereby at the time the Incentive
Stock Option is granted. In the case of Non-Qualified Stock Options, the
exercise price shall not be less than par value.
5.5 Fair Market Value. "Fair market value" shall be deemed to be the fair
value of the Stock as determined in good faith by the Board after taking into
consideration all factors that it deems appropriate, including without
limitation, recent sale and offer prices of the Stock in private transactions
negotiated at arm's length. If, at the time an Option is granted under the Plan,
the Corporation's Stock is publicly traded, then "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ National
Market List, if the Stock is not then traded on a national securities exchange;
or (iii) the closing bid price (or average of bid prices) last quoted (on that
date) by an established quotation service for over-the-counter securities, if
the Stock is not reported on the NASDAQ National Market List.
5.6 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
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5.7 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
Exercise of Option
6.1 Exercise. Each Option granted under this Plan shall be exercisable on
such date or dates and during such period and for such number of shares as shall
be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option, provided that, the Board shall not accelerate the exercise date of any
Incentive Stock Option granted if such acceleration would violate the annual
vesting limitation contained in Section 422(d)(1) of the Code.
6.2 Notice of Exercise. A person electing to exercise an Option shall give
written notice to the Corporation of such election and of the number of shares
he or she has elected to purchase and shall at the time of exercise tender the
full purchase price of the shares he or she has elected to purchase. The
purchase price can be paid partly or completely in shares of the Corporation's
stock valued at Fair Market Value as defined in Section 5.5 hereof, or by any
such other lawful consideration as the Board may determine. Until such person
has been issued a certificate or certificates for the shares so purchased, he or
she shall possess no rights of a record holder with respect to any of such
shares.
6.3 Option Unaffected by Change in Duties. No Incentive Stock Option (and,
unless otherwise determined by the Board of Directors, no Non-Qualified Option
granted to a person
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who is, on the date of the grant, an Employee of the Corporation or an
Affiliated Corporation) shall be affected by any change of duties or position of
the optionee (including transfer to or from an Affiliated Corporation), so long
as he or she continues to be an Employee. Employment shall be considered as
continuing uninterrupted during any bona fide leave of absence (such as those
attributable to illness, military obligations or governmental service) provided
that the period of such leave does not exceed 90 days or, if longer, any period
during which such optionee's right to reemployment is guaranteed by statute. A
bona fide leave of absence with the written approval of the Board shall not be
considered an interruption of employment under the Plan, provided that such
written approval contractually obligates the Corporation or any Affiliated
Corporation to continue the employment of the optionee after the approved period
of absence.
If the optionee shall cease to be an Employee for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that (i) the Board may provide in the instrument evidencing any Option
that the Board may in its absolute discretion, upon any such cessation of
employment, determine (but be under no obligation to determine) that such
accrued purchase rights shall be deemed to include additional shares covered by
such Option; and (ii) unless the Board shall otherwise provide in the instrument
evidencing any Option, upon any such cessation of employment, such remaining
rights to purchase shall in any event terminate upon the earlier of (A) the
expiration of the original term of the Option; or (B) where such cessation of
employment is on account of disability, the expiration of one year from the date
of such cessation of employment and, otherwise, the expiration of three months
from such date. For purposes of
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the Plan, the term "disability" shall mean "permanent and total disability" as
defined in Section 22(e)(3) of the Code.
In the case of a Participant who is not an employee, provisions relating
to the exercisability of an Option following termination of service shall be
specified in the award. If not so specified, all Options held by such
Participant shall terminate on termination of service to the Corporation.
6.4 Death of Optionee. Should an optionee die while in possession of the
legal right to exercise an Option or Options under this Plan, such persons as
shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted, may, unless otherwise
provided by the Board in any instrument evidencing any Option, exercise such
Options at any time prior to one year from the date of death; provided, that
such Option or Options shall expire in all events no later than the last day of
the original term of such Option; provided, further, that any such exercise
shall be limited to the purchase rights which have accrued as of the date when
the optionee ceased to be an Employee, whether by death or otherwise, unless the
Board provides in the instrument evidencing such Option that, in the discretion
of the Board, additional shares covered by such Option may become subject to
purchase immediately upon the death of the optionee.
ARTICLE VII
Reporting Person Limitations
To the extent required to qualify for the exemption provided by Rule 16b-3
under the Securities Exchange Act of 1934, and any successor provision, at least
six months must elapse
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from the date of acquisition of an Option by a Reporting Person to the date of
disposition of such Option (other than upon exercise) or its underlying Common
Stock.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable which are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to the
restrictions set forth herein with respect to Incentive Stock Options, or to
such other termination and cancellation provisions as the Board may determine.
The Board may from time to time confer authority and responsibility on one or
more of its own members and/or one or more officers of the Corporation to
execute and deliver such instruments. The proper officers of the Corporation are
authorized and directed to take any and all action necessary or advisable from
time to time to carry out the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are discretionary and are not a part of regular
salary. Awards may not be used in determining the amount of compensation for any
purpose under the benefit plans
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of the Corporation, or an Affiliated Corporation, except as the Board may from
time to time expressly provide. Neither the Plan, an Option or any instrument
evidencing an Option confers upon any Participant any right to continue as an
employee of, or consultant or advisor to, the Company or an Affiliated
Corporation or affect the right of the Corporation or any Affiliated Corporation
to terminate them at any time. Except as specifically provided by the Board in
any particular case, the loss of existing or potential profits granted under
this Plan shall not constitute an element of damages in the event of termination
of the relationship of a Participant even if the termination is in violation of
an obligation of the Corporation to the Participant by contract or otherwise.
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination.
The Board may also amend the Plan from time to time, except that
amendments which affect the following subjects must be approved by stockholders
of the Corporation:
(a) Except as provided in Article XI relative to capital changes, the
number of shares as to which Options may be granted pursuant to
Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the Plan.
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Awards granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject to
adjustment in the event of changes in the outstanding Stock of the Corporation
by reason of Stock dividends, Stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of an Award to the same extent as would
affect an actual share of Stock issued and outstanding on the effective date of
such change. Such adjustment to outstanding Options shall be made without change
in the total price applicable to the unexercised portion of such options, and a
corresponding adjustment in the applicable option price per share shall be made.
In the event of any such change, the aggregate number and classes of shares for
which Options may thereafter be granted under Section 5.1 of this Plan may be
appropriately adjusted as determined by the Board so as to reflect such change.
Notwithstanding the foregoing, any adjustments made pursuant to this
Article XI with respect to Incentive Stock Options shall be made only after the
Board, after consulting with counsel for the Corporation, determines whether
such adjustments would constitute a "modification" of such Incentive Stock
Options (as that term is defined in Section 424 of the Code) or would cause any
adverse tax consequences for the holders of such Incentive Stock Options. If the
Board determines that such adjustments made with respect to Incentive Stock
Options would constitute a modification of such Incentive Stock Options, it may
refrain from making such adjustments.
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In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as shall be determined by the Board.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee shall
receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on July 6, 1995. The Plan shall continue
until such time as it may be terminated by action of the Board or the Committee;
provided, however, that no Options may be granted under this Plan on or after
the tenth anniversary of the effective date hereof.
ARTICLE XIII
Conversion of ISOs into Non-Qualified
Options; Termination of ISOs
The Board, at the written request of any optionee, may in its discretion
take such actions as may be necessary to convert such optionee's Incentive Stock
Options, that have not been exercised on the date of conversion, into
Non-Qualified Options at any time prior to the
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expiration of such Incentive Stock Options, regardless of whether the optionee
is an employee of the Corporation or an Affiliated Corporation at the time of
such conversion. Such actions may include, but not be limited to, extending the
exercise period or reducing the exercise price of such Options. At the time of
such conversion, the Board or the Committee (with the consent of the optionee)
may impose such conditions on the exercise of the resulting Non-Qualified
Options as the Board or the Committee in its discretion may determine, provided
that such conditions shall not be inconsistent with the Plan. Nothing in the
Plan shall be deemed to give any optionee the right to have such optionee's
Incentive Stock Options converted into Non-Qualified Options, and no such
conversion shall occur until and unless the Board or the Committee takes
appropriate action. The Board, with the consent of the optionee, may also
terminate any portion of any Incentive Stock Option that has not been exercised
at the time of such termination.
ARTICLE XIV
Application of Funds
The proceeds received by the Corporation from the sale of shares pursuant
to Options granted under the Plan shall be used for general corporate purposes.
ARTICLE XV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
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ARTICLE XVI
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option or the making of a
Disqualifying Disposition (as defined in Article XVI) the Corporation, in
accordance with Section 3402(a) of the Code, may require the optionee to pay
additional withholding taxes in respect of the amount that is considered
compensation includible in such person's gross income. The Board in its
discretion may condition the exercise of an Option on the payment of such
additional withholding taxes.
ARTICLE XVII
Notice to Company of Disqualifying Disposition
Each employee who receives an Incentive Stock Option must agree to notify
the Corporation in writing immediately after the employee makes a Disqualifying
Disposition of any Stock acquired pursuant to the exercise of an Incentive Stock
Option. A Disqualifying Disposition is any disposition (including any sale) of
such Stock before the later of (a) two years after the date the employee was
granted the Incentive Stock Option or (b) one year after the date the employee
acquired Stock by exercising the Incentive Stock Option. If the employee has
died before such stock is sold, these holding period requirements do not apply
and no Disqualifying Disposition can occur thereafter.
ARTICLE XVIII
Governing Law; Construction
The validity and construction of the Plan and the instruments evidencing
Options shall be governed by the laws of the State of Delaware (without regard
to the conflict of law principles
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thereof). In construing this Plan, the singular shall include the plural and the
masculine gender shall include the feminine and neuter, unless the context
otherwise requires.
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Exhibit 10.7
THE DELICIOUS FROOKIE COMPANY, INC.
1994 FORMULA STOCK OPTION PLAN
ARTICLE I
Purpose of the Plan
The purpose of this Plan is to encourage and enable non-employee Directors
who are in a position to make significant contributions to the success of THE
DELICIOUS FROOKIE COMPANY, INC. and of its affiliated corporations upon whose
judgment, initiative and efforts the Corporation depends for the successful
conduct of its business, to acquire a closer identification of their interests
with those of the Corporation by providing them with opportunities to purchase
stock in the Corporation pursuant to options granted hereunder, thereby
stimulating their efforts on behalf of the Corporation and strengthening their
desire to remain involved with the Corporation. Any non-employee Director
designated to participate in the Plan is referred to as a "Participant."
ARTICLE II
Definitions
2.1 "Affiliated Corporation" means any stock corporation of which a
majority of the voting common or capital stock is owned directly or indirectly
by the Corporation.
2.2 "Award" means an Option granted under Article V.
2.3 "Board" means the Board of Directors of the Corporation or, if one or
more has been appointed, a Committee of the Board of Directors of the
Corporation.
2.4 "Code" means the Internal Revenue Code of 1986, as amended from time
to time.
<PAGE> 2
2.5 "Committee" means a Committee of not less than two members of the
Board appointed by the Board to administer the Plan.
2.6 "Corporation" means THE DELICIOUS FROOKIE COMPANY, INC. a Delaware
corporation.
2.7 "Non-Employee" means any person who is not a regular full-time or
part-time employee of the Corporation or an Affiliated Corporation on or after
August 15, 1994.
2.8 "Non-Qualified Option" means any option not intended to qualify as an
Incentive Stock Option.
2.9 "Option" means a Non-Qualified Option granted by the Board under
Article V of this Plan in the form of a right to purchase Stock evidenced by an
instrument containing such provisions as the Board may establish.
2.10 "Participant" means a person who is to receive an award under the
Plan.
2.11 "Plan" means this 1994 Formula Stock Option Plan.
2.12 "Reporting Person" means a person subject to Section 16 of the
Securities Exchange Act of 1934 or any successor provision.
2.13 "Restricted Period" means the period of time selected by the
Committee during which an award may be forfeited by the person.
2.14 "Stock" means the Class B (Non-Voting) Common Stock, $.01 par value,
of the Corporation or any successor, including any adjustments in the event of
changes in capital structure of the type described in Article IX.
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ARTICLE III
Administration of the Plan
3.1 Administration by Board. This Plan may be administered by the Board of
Directors or by a committee of the Board of Directors of the Corporation
constituted to permit the Plan to comply with Rule 16b-3 promulgated under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"). If a committee
administers this Plan, the Board may, from time to time, increase the size of
the Committee or committees and appoint additional members thereto, remove
members (with or without cause) and appoint new members in substitution
therefor, fill vacancies however caused, or remove all members of the Committee
or committees and thereafter directly administer the Plan. No member of the
Board or a committee shall be liable for any action or determination made in
good faith with respect to the Plan or any options granted hereunder. Subject to
Article X and to the extent such actions are consistent with the exemptions
provided under Rule 16b-3 promulgated under the Exchange Act, any committee
appointed by the Board hereunder also shall have the authority, both generally
and in particular instances, to waive compliance by a director with any
obligation to be performed by him or her under the Plan and to waive any
condition, restriction or provision imposed under the Plan. Such determinations
and actions of the committee, and all other determinations and actions of the
committee made or taken under authority granted by any provision of the Plan,
will be conclusive and binding on all parties.
3.2 Powers. The Board of Directors and/or any committee appointed by the
Board shall have full and final authority to operate, manage and administer the
Plan on behalf of the Corporation. This authority includes, but is not limited
to:
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(a) The power to grant Awards conditionally or unconditionally,
(b) The power to prescribe the form or forms of any instruments
evidencing Awards granted under this Plan,
(c) The power to interpret the Plan, and to adopt, amend and rescind
rules and regulations for the administration of the Plan,
(d) The power to delegate responsibility for Plan operation, management
and administration on such terms, consistent with the Plan, as the
Board may establish,
(e) The power to delegate to other persons the responsibility of
performing ministerial acts in furtherance of the Plan's purpose,
and
(f) The power to engage the services of persons, companies, or
organizations in furtherance of the Plan's purpose, including but
not limited to, banks, insurance companies, brokerage firms and
consultants.
(g) To interpret the Plan and to decide any questions and settle all
controversies and disputes that may arise in connection with the
Plan.
ARTICLE IV
Eligibility
4.1 Eligible Persons. All non-employee Directors are eligible to be
granted Non-Qualified Option Awards under this Plan provided the person has not
irrevocably elected to be ineligible to participate in the Plan and provided the
person is not a holder of more than 5% of the outstanding shares of stock of the
Company or a person who is in control of such holder.
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ARTICLE V
Stock Option Awards
5.1 Number of Shares. Subject to the provisions of Article IX of this
Plan, the aggregate number of shares of Stock for which Options may be granted
under this Plan shall not exceed One Hundred and Fifty thousand (150,000)
shares. Options shall be granted under this Plan, without approval or discretion
on the part of the Board, to non-employee Directors as follows:
1. Beginning on January 1, 1994, and annually thereafter on each
January 1, the Corporation shall grant, to each of its non-employee
Directors who has served as a Director of the Corporation for at
least one full year, options to purchase a total of 3,000 shares of
Stock. The options shall be granted to a non-employee Director only
if the Director is a Director on the date of the grant and has
attended, during the Corporation's fiscal year immediately preceding
the grant, at least 75% of meetings of the Board of Directors and
the Committees on which the Director has served. The exercise price
of options granted to non-employee Directors shall be the fair
market value of the shares of Stock on the date of the grant and
said options shall vest and be exercisable in two equal installments
on the date of the grant and on the first anniversary of the grant,
subject to the Director's continued service as a Director on such
dates.
2. Each non-employee Director who becomes a Director after August 15,
1994 will receive, on the later of (i) the date he or she becomes a
Director or (ii) the effective date of the Plan, options to purchase
a total of 3,000 shares of Stock. The
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exercise price of such options will be the fair market value of the
shares of Stock on the date of the grant and said options shall vest
and be exercisable in three equal installments, one-third on the
date of the grant and one-third on each of the first and second
anniversaries of the date of the grant, subject to the Director's
continued service as a Director on such dates.
3. Effective August 15, 1994, each non-employee Director who is then a
Director will receive options to purchase a total of 2,000 shares of
stock for each year from 1989 through 1993, inclusive, which the
Director was a Director of the Corporation. The options will be
granted to a non-employee Director only if the Director is a
Director on the date of the grant and has attended during the
Corporation's fiscal year immediately preceding the grant, at least
75% of the meetings of the Board of Directors and the Committees on
which the Director has served. The exercise price of such options
shall be $3.00 per share, and shall vest one half upon the date of
grant and one half one year from the date of the grant, subject to
the Director's continued service as a Director on that date.
The shares to be delivered upon exercise of Options under this Plan shall
be made available, at the sole discretion of the Board, either from authorized
but unissued shares or from previously issued and reacquired shares of Stock
held by the Corporation as treasury shares, including shares purchased in the
open market. No fractional shares of Stock will be delivered under the Plan.
Stock issuable upon exercise of an option granted under the Plan may be
subject to such restrictions on transfer or repurchase rights as shall be
determined by the Board of Directors.
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5.2 Effect of Expiration, Termination or Surrender. If an Option under
this Plan shall expire or terminate unexercised as to any shares covered
thereby, or shall cease for any reason to be exercisable in whole or in part, or
if the Company shall reacquire any unvested shares issued pursuant to Options
under the Plan, such shares shall thereafter be available for the granting of
other Options under this Plan.
5.3 Term of Options. Each Option granted hereunder shall be for a term of
ten (10) years from the date of granting thereof. Each Option shall be subject
to earlier termination as provided in Sections 6.3 and 6.4.
5.4 Fair Market Value. If, at the time an Option is granted under the
Plan, the Corporation's Stock is publicly traded, "fair market value" shall be
determined as of the last business day for which the prices or quotes discussed
in this sentence are available prior to the date such Option is granted and
shall mean (i) the average (on that date) of the high and low prices of the
Stock on the principal national securities exchange on which the Stock is
traded, if the Stock is then traded on a national securities exchange; or (ii)
the last reported sale price (on that date) of the Stock on the NASDAQ or NASDAQ
National Market List, if the Stock is not then traded on a national securities
exchange; or (iii) the closing bid price (or average of bid prices) last quoted
(on that date) by an established quotation service for over-the-counter
securities, if the Stock is not reported on the NASDAQ or NASDAQ National Market
List. However, if the Stock is not publicly traded at the time an Option is
granted under the Plan, "fair market value" shall be deemed to be the fair value
of the Stock as determined by the Board after taking into consideration all
factors which it deems appropriate, including, without limitation, recent sale
and offer prices of the Stock in private transactions negotiated at arm's
length.
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5.5 Non-Transferability of Options. No Option granted under this Plan
shall be transferable by the grantee otherwise than by will or the laws of
descent and distribution, and such Option may be exercised during the grantee's
lifetime only by the grantee.
5.6 Foreign Nationals. Awards may be granted to Participants who are
foreign nationals or employed outside the United States on such terms and
conditions different from those specified in the Plan as the Committee considers
necessary or advisable to achieve the purposes of the Plan or comply with
applicable laws.
ARTICLE VI
Exercise of Option
6.1 Exercise. Each Option granted under this Plan shall be exercisable on
such date or dates and during such period and for such number of shares as shall
be determined pursuant to the provisions of the instrument evidencing such
Option. The Board shall have the right to accelerate the date of exercise of any
option.
6.2 Notice of Exercise. A person electing to exercise an Option shall give
written notice to the Corporation of such election and of the number of shares
he or she has elected to purchase and shall at the time of exercise tender the
full purchase price of the shares he or she has elected to purchase. The
purchase price can be paid partly or completely in shares of the Corporation's
stock valued at Fair Market Value as defined in Section 5.4 hereof, or by any
such other lawful consideration as the Board may determine. Until such person
has been issued a certificate or certificates for the shares so purchased and
has fully paid the purchase price for such shares, he or she shall possess no
rights of a record holder with respect to any of such shares. If the Corporation
elects to receive payment for such shares by means of a promissory note, such
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note, if issued to an officer, director or holder of 5% or more of the Company's
outstanding Common Stock, shall provide for payment of interest at a rate no
less than the interest rate then payable by the Company to its principal
commercial lender, or if the Company has no loan outstanding to a commercial
lender, then the interest rate payable shall equal the prevailing prime rate of
interest then charged by commercial banks headquartered in Minnesota (as
determined by the Board of Directors in its reasonable discretion) plus two
percent. An optionholder shall not have the rights of a stockholder with regard
to awards under the Plan except as to Stock actually received by him or her
under the Plan.
6.3 Option Unaffected by Certain Changes. A Director's term shall be
considered as continuing uninterrupted during any bona fide leave of absence
(such as those attributable to illness, military obligations or governmental
service) provided that the period of such leave does not exceed 90 days or, if
longer, any period during which such optionee's right to reemployment is
guaranteed by statute. A bona fide leave of absence with the written approval of
the Board shall not be considered an interruption of service under the Plan.
If the optionee shall cease to be a Director for any reason other than
death, such Option shall thereafter be exercisable only to the extent of the
purchase rights, if any, which have accrued as of the date of such cessation;
provided that upon any such cessation of service, such remaining rights to
purchase shall in any event terminate upon the expiration of the original term
of the Option.
6.4 Death of Optionee. Should an optionee die while in possession of the
legal right to exercise an Option or Options under this Plan, such persons as
shall have acquired, by will or by the laws of descent and distribution, the
right to exercise any Options theretofore granted,
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may, unless otherwise provided by the Board in any instrument evidencing any
Option, exercise such Options until the expiration of the original term of the
Options, provided, further, that any such exercise shall be limited to the
purchase rights that have accrued as of the date when the optionee ceased to be
a Director whether by death or otherwise.
ARTICLE VII
Reporting Person Limitations
To the extent required to qualify for the exemption provided by Rule 16b-3
under the Securities Exchange Act of 1934, and any successor provision, at least
six months must elapse from the date of acquisition of an Option by a Reporting
Person to the date of disposition of such Option (other than upon exercise) or
its underlying Common Stock.
ARTICLE VIII
Terms and Conditions of Options
Options shall be evidenced by instruments (which need not be identical) in
such forms as the Board may from time to time approve. Such instruments shall
conform to the terms and conditions set forth in Articles V and VI hereof and
may contain such other provisions as the Board deems advisable that are not
inconsistent with the Plan, including restrictions applicable to shares of Stock
issuable upon exercise of Options. In granting any Non-Qualified Option, the
Board may specify that such Non-Qualified Option shall be subject to such other
termination and cancellation provisions as the Board may determine. The Board
may from time to time confer authority and responsibility on one or more of its
own members and/or one or more officers of the Corporation to execute and
deliver such instruments. The proper officers of the Corporation
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are authorized and directed to take any and all action necessary or advisable
from time to time to carry out the terms of such instruments.
ARTICLE IX
Benefit Plans
Awards under the Plan are not discretionary. Awards may not be used in
determining the amount of compensation for any purpose under the benefit plans
of the Corporation, or an Affiliated Corporation, except as the Board may from
time to time expressly provide. Neither the Plan, an Option or any instrument
evidencing an Option confers upon any Participant any right to continue as a
Director of, or consultant or advisor to, the Company or an Affiliated
Corporation. Except as specifically provided by the Board in any particular
case, the loss of existing or potential profits granted under this Plan shall
not constitute an element of damages in the event of termination of the
relationship of a Participant even if the termination is in violation of an
obligation of the Corporation to the Participant by contract or otherwise.
ARTICLE X
Amendment, Suspension or Termination of the Plan
The Board may suspend the Plan or any part thereof at any time or may
terminate the Plan in its entirety. Awards shall not be granted after Plan
termination. The Plan may not be amended more than once every six months, unless
such changes are necessary to comport with changes in the Code, the Employee
Retirement Income Security Act, or the Rules thereunder. Subject to the
foregoing, the Board may also amend the Plan from time to time, except that
amendments that affect the following subjects must be approved by stockholders
of the Corporation:
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(a) Except as provided in Article XI relative to capital changes, the
number of shares as to which Options may be granted pursuant to
Article V;
(b) The maximum term of Options granted;
(c) The minimum price at which Options may be granted;
(d) The term of the Plan; and
(e) The requirements as to eligibility for participation in the Plan.
Awards granted prior to suspension or termination of the Plan may not be
cancelled solely because of such suspension or termination, except with the
consent of the grantee of the Award.
ARTICLE XI
Changes in Capital Structure
The instruments evidencing Options granted hereunder shall be subject to
adjustment in the event of changes in the outstanding Stock of the Corporation
by reason of stock dividends, Stock splits, recapitalizations, reorganizations,
mergers, consolidations, combinations, exchanges or other relevant changes in
capitalization occurring after the date of an Award to the same extent as would
affect an actual share of Stock issued and outstanding on the effective date of
such change. Such adjustment to outstanding Options shall be made without change
in the total price applicable to the unexercised portion of such options, and a
corresponding adjustment in the applicable option price per share shall be made.
In the event of any such change, the aggregate number and classes of shares for
which Options may thereafter be granted under Section 5.1 of this Plan may be
appropriately adjusted as determined by the Board so as to reflect such change.
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In the event of the proposed dissolution or liquidation of the
Corporation, each Option will terminate immediately prior to the consummation of
such proposed action or at such other time and subject to such other conditions
as the Board shall determine.
Except as expressly provided herein, no issuance by the Corporation of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares subject to Options. No adjustments
shall be made for dividends paid in cash or in property other than securities of
the Corporation.
No fractional shares shall be issued under the Plan and the optionee shall
receive from the Corporation cash in lieu of such fractional shares.
ARTICLE XII
Effective Date and Term of the Plan
The Plan shall become effective on August 15, 1994. The Plan shall
continue until such time as it may be terminated by action of the Board or the
Committee; provided, however, that no Options may be granted under this Plan on
or after the tenth anniversary of the effective date hereof.
ARTICLE XIII
Application of Funds
The proceeds received by the Corporation from the sale of shares pursuant
to Options granted under the Plan shall be used for general corporate purposes.
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ARTICLE XIV
Governmental Regulation
The Corporation's obligation to sell and deliver shares of Stock under
this Plan is subject to the approval of any governmental authority required in
connection with the authorization, issuance or sale of such shares.
ARTICLE XV
Withholding of Additional Income Taxes
Upon the exercise of a Non-Qualified Option the Corporation, in accordance
with Section 3402(a) of the Code, may require the optionee to pay additional
withholding taxes in respect of the amount that is considered compensation
includible in such person's gross income. The Board in its discretion may
condition the exercise of an Option on the payment of such additional
withholding taxes.
ARTICLE XVI
Conditions on Delivery of Stock
The Company shall not be obligated to deliver any shares of Stock pursuant
to options granted under the Plan until, (a) in the opinion of the Company's
counsel, all applicable federal and state laws and regulations have been
complied with, and (b) all other legal matters in connection with the issuance
and delivery of such shares have been approved by the Company's counsel. If the
sale of Stock has not been registered under the Securities Act of 1933, as
amended, the Company may require, as a condition to exercise of the option, such
representations or agreements as counsel for the Company may consider
appropriate to avoid violation of such
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Act and may require that the certificates evidencing such Stock bear an
appropriate legend restricting transfer.
ARTICLE XVII
Governing Law; Construction
The validity and construction of the Plan and the instruments evidencing
Options shall be governed by the internal laws of the Sate of Delaware (without
regard to the conflict of law principles thereof). In construing this Plan, the
singular shall include the plural and the masculine gender shall include the
feminine and neuter, unless the context otherwise requires.
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Exhibit 10.8
TRADEMARK SUBLICENSE AGREEMENT
THIS AGREEMENT, made this 16th day of December, 1993, by and between Nestle Food
Company, a Delaware corporation with its principal place of business at 800
North Brand Boulevard, Glendale, California 91203 (hereinafter referred to as
"Nestle") and Delicious Cookie Company, Inc., an Illinois corporation with its
principal place of business in Des Plaines, Illinois, (hereinafter "DCC").
WHEREAS, Nestle's affiliate, Societe des Produits Nestle S.A. (hereinafter "the
Registered Trademark Owner"), is the registered owner of the Trademarks as
hereinafter defined and Nestle is the licensee thereof in the Territory as
hereinafter defined; and
WHEREAS, the Registered Trademark Owner has authorized Nestle to enter into this
sublicense agreement on the terms and conditions hereinafter set forth; and
WHEREAS, DCC desires to license the Trademarks in Section 1.1 in the Territory
identified in Section 1.2 in connection with the manufacture, marketing and sale
of certain cookie products; and
WHEREAS, Nestle is willing to grant such a sublicense to DCC subject to the
terms and conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties agree as follows:
1. Definitions
The following definitions shall apply for the purposes of this Agreement:
1.1 Trademarks - The term "Trademarks" shall mean only the trademarks NESTLE(R)
BUTTERFINGER(TM) and NESTLE(R) RAISINETS(TM).
1.2 Territory - The term "Territory" shall mean only the United States and its
territories.
1.3 Licensed Products - The term "Licensed Products" shall mean packaged,
ready-to-eat cookies produced in accordance with formulas and specifications
approved by Nestle and containing Ingredients supplied by Nestle.
1.4 Net Sales - The term "Net Sales" shall mean gross sales of Licensed Products
less cash discounts and merchandising allowances.
1.5 Ingredients - The term "Ingredients" shall mean the products sold by Nestle
to DCC under the Trademarks.
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2. Grant of License
2.1 Subject to the terms and conditions set forth herein, Nestle does hereby
grant to DCC a royalty-bearing, non-exclusive license to utilize Trademarks in
Territory only in connection with the manufacture, marketing and sale of
Licensed Products. DCC hereby accepts such license.
2.2 DCC agrees not to grant any license or sublicense of Trademarks and shall
not otherwise assign or transfer any rights granted by Nestle pursuant to this
Agreement. It is understood by the parties that the manufacture of the Licensed
product(s) may be performed by a party designated by DCC if such third party
manufacturer is acceptable to Nestle and if such third party enters into an
agreement acceptable to Nestle. Notwithstanding the foregoing, DCC shall remain
responsible for the manufacturing of the licensed product(s) hereunder.
2.3 The parties agree that nothing herein shall prohibit Nestle from utilizing
or permitting third parties to utilize Trademarks on any products inside or
outside of the Territory, and Nestle expressly reserves the right to do so.
3. Term
The term of this Agreement shall commence on the day and year first above
written and shall continue for a period of two years ("Initial Term"). If
neither party has terminated this Agreement upon the expiration of the Initial
Term, then commencing upon the conclusion of the Initial Term, this Agreement
shall be automatically renewed for successive two year terms unless earlier
termination occurs as provided for in this Agreement.
4. Termination
4.1 Either party may terminate this Agreement at any time, whether during the
Initial Term or any term thereafter, with or without cause, by providing the
other party with one hundred twenty (120) days prior written notice of its
intent to terminate. The termination shall be effective at the conclusion of the
one hundred twenty (120) day period.
4.2 In the event either party elects to so terminate, DCC shall continue to
remit to Nestle the royalty payments due Nestle as the same may become due
during the 120-day notice period, which shall be deemed to commence on the date
of either party's receipt of notice, or thereafter if such payments become due
after the 120-day notice period.
4.3 In the event either party breaches any material provision of this Agreement,
the non-defaulting party may provide the breaching party with thirty (30) days
written notice and opportunity to cure. If the breach is not cured within the
thirty (30) day period, this Agreement shall automatically terminate at the end
of such period subject to DCC's right to sell off the Licensed Products as
provided herein. If the breach is cured within the thirty (30) day period, this
Agreement shall continue in full force and effect.
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4.4 In the event either party becomes insolvent; files or has filed against it
involuntarily a petition under the United States Bankruptcy Code or under or
pursuant to any state bankruptcy act or under any similar Federal or state law;
makes a general assignment for the benefit of creditors; admits in writing its
inability to pay its debts generally as they become due; or suspends or
terminates its operations or liquidates or dissolves, then, without limitation,
this Agreement shall automatically terminate.
5. Effects of Termination
5.1 Immediately upon the expiration or termination of this Agreement, DCC shall
cease all use of Trademarks; provided however, the parties agree that DCC shall
have up to one hundred eighty (180) days to sell existing inventories and use
existing packaging and/or findings of Licensed products on DCC's normal terms
and conditions. The parties further agree that Nestle may, in its sole
discretion, purchase all or a portion of Licensed Products, or any component
thereof, at DCC's actual cost.
5.2 Within a reasonable period of time following expiration or termination, but
in no event more than seven (7) months following expiration or termination, DCC
agrees to provide to Nestle a final royalty report and royalty payment.
6. Quality Assurance
6.1 DCC agrees to provide for the opportunity and allow Nestle's and the
Registered Trademark Owner's quality assurance personnel, or their designated
representatives, to inspect and approve all facilities that supply ingredients
or packaging for Licensed Products or at which Licensed Products are going to be
manufactured or stored prior to the initial manufacture and on a semi-annual
basis thereafter, provided, however, in the event Licensed Products at any time
fail to comply with the provisions set forth in Sections 7.2 and 7.3, Nestle
shall have the right to have a representative present at its own expense for all
production runs of all Licensed Products at the facility(s) that produce the
substandard product(s) until all defects are resolved to Nestle's satisfaction.
Nestle agrees to provide DCC with reasonable prior notice of such inspections.
6.2 DCC agrees to correct any reasonable defects that affect the quality of
Licensed Products noted by Nestle's or the Registered Trademark Owner's quality
assurance personnel and provide Nestle with a written response detailing the
actions taken to correct such defects within thirty (30) days after such
observations were made by Nestle's or the Registered Trademark Owner's
representative.
6.3 Contract Packing Obligations: All Licensed Products shall be produced,
packaged and distributed in accordance with DCC's obligations set forth in this
agreement and in accordance with Good Manufacturing Practices prevailing in the
industry.
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7. Quality Control
7.1 DCC acknowledges the valuable goodwill associated with Trademarks and
desires to maintain the validity of Trademarks and the goodwill associated
therewith and DCC agrees, therefore, to maintain high standards in the
manufacturing, packaging and storing of Licensed Products.
7.2 DCC agrees that Licensed Products shall be manufactured, packaged, stored,
distributed and marketed in accordance with all applicable Federal, state and/or
local laws and regulations. DCC further agrees that all facilities utilized to
manufacture, package or store Licensed Products shall be maintained in
accordance with all applicable Federal, state and/or local laws and regulations.
7.3 DCC agrees that Licensed Products shall be manufactured and packaged in
strict accordance with the formulas, product specifications, quality
specifications and samples approved by Nestle prior to the initial manufacture.
In the event Licensed Products are not manufactured and packaged in accordance
with such formulas, specifications and samples, Nestle shall have the right to
terminate this agreement pursuant to Section 4.3. Additionally, Nestle shall
have the right to require immediate corrective action and shall have the right
to place on hold any Licensed Products not meeting such formulas, specifications
and/or samples. In the event DCC desires to make any changes to the formulas or
specifications for Licensed Products, DCC shall provide Nestle with revised
formulas, product and quality specifications and samples for Nestle's approval
prior to the manufacture of the revised Licensed Products. Nestle shall respond
to such revisions as soon as reasonably possible. DCC agrees not to manufacture
revised Licensed Products without Nestle's prior consent.
7.4 DCC agrees to provide Nestle with samples of all Licensed Products upon
request from Nestle. DCC further agrees to make any reasonable changes requested
by Nestle which Nestle deems necessary to maintain the quality of Licensed
Products.
7.5 DCC shall allow Nestle to inspect a copy of all quality control manuals and
records which relate to the manufacture, packaging or storage of Licensed
Products. DCC agrees to manufacture, package and stock Licensed Products in
strict accordance with such manuals.
7.6 DCC agrees to provide for the opportunity and allow Nestle's quality control
personnel to be present at its own expense at all production runs of Licensed
Products.
8. Ingredients supplied by Nestle
8.1 The parties agree that Ingredients utilized in Licensed Products must be
provided by Nestle.
8.2 DCC agrees to provide Nestle with a forecast of DCC's requirements of
Ingredients to be supplied by Nestle at least 45 days prior to the initial
production of Licensed Products and,
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thereafter, at regular mutually agreeable intervals. The first month of such
forecast shall constitute a firm order and Nestle agrees to provide DCC with the
Ingredients it ordered in accordance with the delivery dates in the firm order.
8.3 Nestle agrees that the price for Ingredients shall be in accordance with
Nestle's then-current published price list for such Ingredients F.O.B. Nestle's
plant. The contract manufacturer to whom the Ingredients are shipped shall pay
Nestle for all Ingredients invoiced within thirty days of the date of the
invoice, DCC guarantees the payment of all such amounts.
8.4 Nestle agrees that the Ingredients that it sells to DCC shall, as of the
date of shipment, not be adulterated or misbranded within the meaning of any
local, state or Federal law, regulation, ordinance, rule or procedures and shall
not be a product which may not be sold in interstate commerce pursuant to the
Food, Drug and Cosmetic Act, as amended.
9. Royalty
9.1 The parties agree that during all terms of this Agreement DCC shall pay to
Nestle a royalty in the amount of two (2) percent of Net Sales.
9.2 The parties agree that all royalty payments shall be made by DCC within
thirty (30) days following the end of each calendar quarter during the terms of
this Agreement.
10. Advertising/Promotional Materials
DCC shall submit to Nestle and Nestle shall have the right to approve prior to
use, samples of all materials including, without limitation, all packaging,
labeling, advertising and promotional materials, that utilize or incorporate
Trademarks in any way. Nestle shall use its best efforts to approve or
communicate any objection of such samples within ten (10) business days
following Nestle's receipt of such materials. DCC agrees to make all reasonable
changes requested by Nestle.
11. Trademarks
11.1 DCC agrees that nothing herein shall give DCC any rights, title or interest
in or to Trademarks, except the right to utilize Trademarks in accordance with
the terms of this Agreement, and that Trademarks are the sole property of Nestle
and The Registered Trademark Owner and any goodwill generated from any and all
uses of Trademarks shall inure to the benefit of Nestle and the Registered
Trademark Owner.
11.2 DCC agrees to assign to the Registered Trademark Owner, on the expiration
or termination of this Agreement and without any additional consideration, any
rights and equities related to Trademarks and any goodwill incidental to such
rights that may be vested in DCC as a result of the activities of DCC pursuant
to this Agreement.
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11.3 DCC acknowledges the valuable goodwill associated with the Trademarks and
it desires to maintain the validity of the Trademarks and the goodwill
associated with the Trademarks for the benefit of the Nestle and the Registered
Trademark Owner. DCC agrees, therefore, to utilize Trademarks in strict
accordance with proper Trademark usage and the directions of Nestle. DCC shall
not, directly or indirectly, attack or assist a third party in attacking the
validity of Trademarks.
11.4 DCC agrees not to act, directly or indirectly, in any manner which might
lead a third party to believe that Trademarks are owned by DCC.
11.5 On the packaging, labels, advertising and other materials which utilize
Trademarks, DCC agrees that:
(a) The registered trademark symbol "(R)" shall be utilized in conjunction
with NESTLE.
(b) The trademark Symbol "TM" shall be utilized in conjunction with
BUTTERFINGER and RAISINETS.
(c) The statement "NESTLE, BUTTERFINGER, and RAISINETS are trademarks of
Nestle" shall be clearly displayed.
11.6 DCC agrees not to seek any trademark registration anywhere in connection
with its use of Trademarks.
11.7 DCC agrees not to adopt or use any mark, symbol or trade dress that is
similar to Trademarks or any of Nestle's other trademarks, trade names, or trade
dress.
11.8 DCC agrees not to utilize Trademarks in any unauthorized manner.
11.9 DCC agrees upon the request of and at the expense of Nestle, to reasonably
aid and assist Nestle in the registration and maintenance of Trademarks and in
any litigation or resolution of claims with respect to Trademarks.
11.10 DCC shall have no right to expand the scope of protection afforded the
Trademarks. DCC shall use the Trademarks only in the manner and style as is
provided by Nestle or approved by it, and shall not use any marks confusingly
similar to Trademarks, including any modified version thereof, in any way.
11.11 DCC agrees to notify Nestle of any non-Nestle trademark or trade names
which are similar in sight, sound, or appearance to Trademarks. DCC expressly
agrees that it shall take no action with regards to such trademarks or trade
names other than notification of Nestle. Nestle shall have the sole right to
decide whether or not to take action against such trademarks or trade names.
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12. Delicious Trademark Protection
12.1 Nestle agrees that nothing herein shall give Nestle any rights, title or
interest in or to any of DCC's trademarks, and that such trademarks are the sole
property of DCC and any goodwill generated from any and all uses of such
trademarks shall inure to the benefit of DCC. Nestle shall not, directly or
indirectly, attack or assist a third party in attacking the validity of DCC's
trademarks.
12.2 Nestle agrees not to adopt or use any mark or symbol that is likely to
cause confusion with the trademark DELICIOUS for cookies or baked goods in the
Territory or with any trademark symbol of DCC for cookies or baked goods in the
Territory.
13. Representations and Warranties of DCC
DCC hereby makes the following representations and warranties:
13.1 The making of this Agreement does not violate any rights or obligations
existing between DCC and any third party; and
13.2 Licensed Products shall not be adulterated or misbranded within the meaning
of any local, state or Federal law, regulation, ordinance, rule or procedures
and shall not be a product which may not be sold in interstate commerce pursuant
to the Food, Drug and Cosmetic Act, as amended; and
13.3 Licensed Products shall be in compliance with all local, state and Federal
laws, regulations, ordinances, rules and procedures; and
13.4 Licensed Products shall be in strict compliance with all formulas,
specifications and samples provided or approved by Nestle.
14. Representations and Warranties of Nestle
Nestle hereby makes the following representations and warranties:
14.1 The making of this Agreement does not violate any rights or obligations
existing between Nestle and any third party or the Registered Trademark Owner
and any third party; and
14.2 Nestle has the right to grant this sublicense to Licensed Trademarks in
accordance with the terms and conditions of this Agreement.
14.3 Ingredients provided by Nestle shall be in compliance with all local, state
and Federal laws, regulations, ordinances, rules and procedures.
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15. Indemnification
15.1 DCC hereby indemnifies and holds harmless Nestle and the Registered
Trademark Owner, and will defend or cause them to be defended, from and against
any and all claims, demands, causes of action, losses, damages, costs and
expenses (including reasonable attorneys' fees) arising out of or in any way
connected with a breach by DCC of any of the representations or warranties set
forth in Section 13 above or arising from or in any way connected with the
intentional acts or omissions or negligence of DCC or arising from or in any way
connected with DCC's failure to perform or failure to perform properly any of
its contractual obligations.
15.2 DCC hereby indemnifies and holds harmless Nestle and the Registered
Trademark Owner, and will defend or cause Nestle and the Registered Trademark
Owner to be defended, from and against any and all claims, demands, causes of
action, losses, damages, costs and expenses (including reasonable attorneys'
fees) arising out of or in any way connected with Licensed Products, except
claims arising out of or in any connected with Trademarks.
15.3 Nestle hereby indemnifies and holds harmless DCC and will defend or cause
DCC to be defended, from and against, any and all claims, demands, causes of
action, losses, damages, costs and expenses (including reasonable attorneys'
fees) arising out of or in any way connected with Nestle's breach of any of its
representations or warranties set forth in Section 14 above or arising out of or
in any way connected with Nestle's intentional acts or omissions or negligence
or arising out of or in any way connected with Nestle's failure to perform or
failure to perform properly any of its contractual obligations, or arising out
of or in any way connected with Nestle's breach of the provisions set forth in
Section 8.3.
16. Insurance
16.1 At all times during the term of this Agreement and for at least one (1)
year following the expiration or termination of this Agreement, DCC shall
provide to Nestle documents evidencing the existence of Comprehensive General
Liability Insurance combined with single limits of not less that $7,000,000 per
occurrence per property damage and bodily injury. This insurance shall include
the following coverages:
(a) Contractual Liability covering the indemnity provisions contained in
this Agreement; and
(b) Products Liability, including completed operations, covering all
Licensed Products manufactured pursuant to this Agreement.
16.2 DCC agrees to make certain that there is carried at all times during the
term(s) of this Agreement workmen's compensation insurance in accordance with
the statutory limits required by the state in which Licensed Products are
manufactured.
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16.3 The insurance policies required by this Section shall provide that all such
policies may not be canceled or the coverage changed in any material way without
at least thirty (30) days written notice to Nestle.
17. Product Recovery
Nestle or DCC may determine whether or not to implement a product recall
recovery or retrieval relating to Licensed Products. DCC agrees to carry out, in
accordance with the procedures mutually agreed upon by the parties, all product
recalls, recoveries and retrievals for Licensed Products and shall bear all
costs and expenses associated therewith, unless such product recall, recovery or
retrieval is due solely to a defect traced to Nestle in which case Nestle shall
bear all costs and expenses associated therewith. Nestle's Withdrawal and Recall
Policy is attached hereto as Exhibit A.
18. Records
18.1 DCC agrees to retain and maintain all records relating to Licensed
Products, including, but not limited to, production records, quality control
records, records relating to the type and cost of advertising Licensed Products,
records relating to the sales (gross and net) and other transfers of Licensed
Products, and all other related records for a period of at least three (3) years
following the date for which those records apply.
18.2 DCC agrees that Nestle shall be given access to and shall have the right to
inspect all such records on a confidential basis at any time during DCC's normal
business hours; provided, however, Nestle agrees to provide DCC with reasonable
prior notice of such inspection.
19. Force Majeure
Either party's failure to perform the terms and conditions of this Agreement, in
whole or in part, shall not be deemed a breach or a default hereunder or give
rise to any liability of either party to the other if such failure is
attributable to any act of God, riot, public enemy, fire, explosion, flood,
drought, war, sabotage, accident, action by governmental authority or any other
conditions beyond the reasonable control of the other party.
20. Relationship of Parties
This Agreement is not intended and shall not be construed to constitute either
party the joint venture or franchising partner, agent, or legal representative
of the other, and neither party shall have any authority, expressed, implied or
apparent, to assume or create any obligations on behalf of or in the name of the
other party.
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21. Severability
The provisions of this Agreement shall be severable and the invalidity of any
provision, or portion thereof, shall not affect the enforceability of the
remaining provisions of this Agreement.
22. Waiver
Failure of any party hereto to enforce any of the provisions of this Agreement,
or any rights with respect thereto, or failure to exercise any election provided
for herein, shall in no way constitute a waiver of such provisions, rights, or
elections, or in any way affect the validity of this Agreement. Failure of any
party hereto to enforce any of said provisions, rights, or elections shall not
prejudice such party from later enforcing or exercising some or any other
provisions, rights or elections which it may have under this Agreement.
23. Notice
Any notice required or permitted under this Agreement shall be deemed to have
been received within two (2) business days after written notice shall be
deposited, first class, postage prepaid, in the United States mail addressed to
the respective parties as set forth below or to such address as each party may
hereafter designate by written notice to the other party:
To: Nestle Food Company
c/o Nestle USA, Inc. Legal Department
800 North Brand Boulevard
Glendale, California 91203
With a copy to: Societe des Produits Nestle S.A.
Attn: Trademark Service
1800 Vevey
Switzerland
IN WITNESS WHEREOF, authorized representatives of the parties hereto have
executed this Agreement effective the day and year first above written.
DELICIOUS COOKIE COMPANY, INC. NESTLE FOOD COMPANY
By: /s/ Sharon Pierce By: /s/ Robert W. Schult
-------------------------- -------------------------
Its: Chairman & CEO Its: President & Chief
Executive Officer
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EXHIBIT A
WITHDRAWAL AND RECALL POLICY
It is Nestle's policy to remove from distribution and sale any manufactured or
marketed product, should consumer safety and well-being be threatened or should
a product's quality seriously impair consumer confidence in our products and/or
Nestle's reputation. It should be stressed that in the event of a recall action,
Nestle will act responsibly and ethically with the consumer, government agencies
and our suppliers and licensed or authorized packers. The following comments
reflect Nestle policy and may be helpful to licensees and authorized packers.
A. The decision to recall, and the implementation of any recall action
involving products bearing Nestle's name or any trademarks owned by or
licensed to Nestle, is the responsibility of Nestle.
B. The FDA "enforcement policy" Recalls - Guidelines on Policy Procedures and
Industry Procedures (43 FR 26202-21, 6/17/78) is to be used as a general
guideline in implementing a recall action.
C. It should be understood that Nestle should not institute a product recall
regarding Product manufactured, distributed to sold by licensees and
authorized packers without informing licensees and authorized packers of
such product recall. Likewise, licensees and authorized packers should
immediately inform Nestle should it be necessary for them to recall any
product made for itself or other customers.
D. Nestle shall prepare and authorize any and all statements to regulatory
authorizes, media, consumers and customers concerning products bearing
Nestle's name or any trademarks owned by or licensed to Nestle.
E. In the event of a recall action, licensees and authorized packers shall
immediately make available full reports of all phone calls, conversations,
meetings, and written communications with any government agencies, media
representatives, customers or consumers.
F. Complete records of all production and shipment, by code, shall be
maintained and promptly made available to Nestle upon request.
G. Disposition of any affected product shall be determined by Nestle.
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Exhibit 10.9
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, made this 25th day of September, 1991, by and between Land
O'Lakes, Inc. a Minnesota cooperative corporation with its principal place of
business in Arden Hills, Minnesota (hereinafter "LOL") and Delicious Cookie
Company, Inc., an Illinois corporation with its principal place of business in
Des Plaines, Illinois (hereinafter "DCC").
WHEREAS, DCC desires to license the trademarks in Section 1.1 in the territory
identified in Section 1.2 in connection with the manufacture, marketing and sale
of certain cookie products; and
WHEREAS, LOL is willing to grant such license to DCC subject to the terms and
conditions set forth below.
NOW, THEREFORE, in consideration of the mutual covenants and agreements set
forth herein, the parties agree as follows:
1. Definitions.
The following definitions shall apply for the purposes of this Agreement:
1.1 Trademarks - The term "Trademarks" shall mean only the trademarks
set forth in Exhibit A attached hereto and hereby incorporated by
reference.
1.2 Territory - The term "Territory" shall mean only the United States,
its territories, all U.S. military bases. The parties agree that
additional countries, or portions thereof, may be added to the
definition of Territory upon the mutual agreement of the parties.
The parties acknowledge that mutually agreed upon minimum volumes
must be reached prior to the inclusion of additional countries to
the definition of Territory.
1.3 Licensed Products - The term "Licensed Products" shall mean
packaged, pre-baked cookies manufactured with butter in accordance
with formulas and specifications approved by LOL. The parties agree
that Licensed Products shall contain butter and/or butter/margarine
blend as an ingredient and the sole source of such butter and/or
butter margarine blend shall be LOL.
1.4 Net Sales - The term "Net Sales" shall mean gross sales of Licensed
Products less cash discounts and merchandising allowances. In no
event shall Net Sales be less than Ninety-One (91) percent of gross
sales.
2. Grant of License.
2.1 Subject to the terms and conditions set forth herein, LOL does
hereby grant to DCC a royalty-bearing, exclusive license to utilize
Trademarks in Territory in
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connection with the manufacture, marketing and sale of Licensed
Products. DCC hereby accepts such license.
2.2 The parties understand and agree that the license described herein
may not be expanded to include any trademarks, territory or products
other than Trademarks, Territory and Licensed Products unless this
Agreement is amended as provided for in Section 25 to specifically
provide for such expansion.
2.3 DCC agrees not to grant any license or sublicense to utilize
Trademarks and shall not otherwise assign or transfer any rights
granted by LOL pursuant to this Agreement.
2.4 The parties agree that nothing herein shall prohibit LOL from
utilizing or permitting third parties to utilize Trademarks in
Territory and any products other that Licensed Products, or outside
of Territory on any product, and LOL expressly reserves the right to
do so. All rights not expressed or licensed hereunder are retained
by LOL.
2.5 The parties agree that the Licensed Products shall not be
manufactured, processed or packaged by any third party without the
prior written approval of LOL.
3. Term.
The term of this Agreement shall commence on the day and year first above
written and shall continue for a period of ten (10) months (hereinafter
"Development Term"). If neither party has terminated the Agreement upon
the expiration of the Development Term, the parties agree that, commencing
upon the conclusion of the Development Term, the Agreement shall be
automatically renewed for an additional three (3) year period (hereinafter
"Expansion Term"). If neither party has terminated this Agreement upon the
expiration of the Expansion Term, the parties agree that, commencing upon
the conclusion of the Expansion Term, the Agreement shall be automatically
renewed for seven (7) successive one (1) year terms unless earlier
terminated as provided for in Section 4.
4. Termination.
4.1 Either party may terminate this Agreement at any time subsequent to
the Expansion Term, with or without cause, by providing the other
party with one (1) year's prior notice of its intent to terminate.
The termination shall be effective at the conclusion of the one (1)
year period.
4.2 In the event DCC fails to commence sales of Licensed Products in
markets representing at least five (5) percent of Territory prior to
the conclusion of the Development Term, the parties agree that LOL
may, in its sole discretion, terminate this Agreement by providing
DCC written notice of termination. The parties agree that
termination shall be effective seven (7) days following DCC's
receipt of such written notice.
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4.3 In the event DCC fails to be consistently marketing Licensed
Products in markets representing at least eighty (80) percent of
Territory with at least fifty (50) percent ACV by the conclusion of
the Expansion Term or in the event DCC fails to be achieving
reasonable progress to such goals during the Expansion Term, the
parties agree that LOL may, in its sole discretion, terminate this
Agreement by providing DCC with written notice of termination. The
parties agree that termination shall be effective seven (7) days
following DCC's receipt of such written notice.
4.4 In the event DCC breaches any of the provisions of Sections 6, 7, 9,
10, 11, 13, 16, 17 and 18, the parties agree that LOL may, in its
sole discretion, provide DCC with fifteen (15) days written notice
of termination and opportunity to cure. If the breach is not cured
within the fifteen (15) day period, this Agreement shall
automatically terminate at the end of such period. If the breach is
cured within the fifteen (15) day period, this Agreement shall
continue in full force and effect; provided, however, in the event
DCC breaches the same provision twice within any one (1) year
period, LOL may terminate this Agreement following the second breach
without any opportunity to cure.
4.5 In the event LOL breaches any of the provisions of Section 8, the
parties agree that DCC may, in its sole discretion, provide LOL with
fifteen (15) days written notice of termination and opportunity to
cure. If the breach is not cured within the fifteen (15) day period,
this Agreement shall automatically terminate at the end of such
period. If the breach is cured within the fifteen (15) day period,
this Agreement shall continue in full force and effect; provided,
however, in the event LOL breaches the same provision twice within
any one (1) year period, DCC may terminate this Agreement following
the second breach without any opportunity to cure.
4.6 In the event either party breaches any material provision of this
Agreement, except as set forth in Sections 4.4 and 4.5 above, the
non-defaulting party may provide the breaching party with sixty (60)
days written notice and opportunity to cure. If the breach is not
cured within the sixty (60) day period, this Agreement shall
automatically terminate at the end of such period. If the breach is
cured within the sixty (60) day period, this Agreement shall
continue in full force and effect.
4.7 In the event either party becomes insolvent; files or has filed
against it involuntarily a petition under the United States
Bankruptcy Code or under or pursuant to any state bankruptcy act or
under any similar Federal or state law; makes a general assignment
for the benefit of creditors; admits in writing its inability to pay
its debts generally as they become due; or suspends or terminates
its operations or liquidates or dissolves, then, without limitation,
this Agreement shall automatically terminate.
5. Effects of Termination.
5.1 Immediately upon the expiration or termination of this Agreement,
DCC shall cease all use of Trademarks. DCC further agrees to provide
to LOL all materials
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including, without limitation, all packaging, labeling, advertising
and promotional materials which utilize or in any way display
Trademarks; provided, however, in the event this Agreement is
terminated pursuant to the terms of either Sections 4.2 or 4.3, the
parties agree that DCC shall have up to one hundred twenty (120)
days to sell existing inventories of Licensed Products on DCC's
normal terms and conditions. The parties further agree that LOL may,
in its sole discretion, purchase all or a portion of Licensed
Products, or any component thereof, at DCC's actual cost.
5.2 Within reasonable period of time following expiration or
termination, but in no event more than four (4) months following
expiration or termination, DCC agrees to provide to LOL a final
royalty report and royalty payment.
6. Quality Assurance.
6.1 DCC agrees to provide for the opportunity and allow LOL's quality
assurance personnel, or their designated representatives, to inspect
and approve all facilities that supply ingredients or packaging for
Licensed Products or at which Licensed Products are going to be
manufactured or stored prior to the initial manufacture and on a
semi-annual basis thereafter; provided, however, in the event
Licensed Products at any time fail to comply with the provisions set
forth in Sections 7.2 and 7.4, LOL shall have the right to have a
representative present at its own expense for all production runs of
all Licensed Products at the facility(s) that produce the
substandard product(s) until all defects are resolved to LOL's
satisfaction. LOL agrees to provide DCC with reasonable prior notice
of such inspections.
6.2 DCC agrees to correct any defects that affects the quality of
Licensed Products noted by LOL's quality assurance personnel and
provide LOL with a written response detailing the actions taken to
correct such defects within thirty (30) days after such observations
were made by LOL's representatives.
7. Quality Control.
7.1 DCC acknowledges the valuable goodwill associated with Trademarks
and desires to maintain the validity of Trademarks and the goodwill
associated therewith and DCC agrees, therefore, to maintain high
standards in the manufacturing, packaging and storaging of Licensed
Products.
7.2 DCC agrees that Licensed Products shall be manufactured, packaged,
stored, distributed and marketed in accordance with all applicable
Federal, state and/or local laws and regulations. DCC further agrees
that all facilities utilized to manufacture, package or store
Licensed Products shall be maintained in accordance with all
applicable Federal, state and/or local laws and regulations.
7.3 DCC shall immediately notify LOL of any inspection by any local,
state or Federal regulatory agency of any facility at which Licensed
Products are
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<PAGE> 5
manufactured, packaged or stored. DCC shall furnish LOL with copies
of all reports and analysis relating to such inspections for the
inspections which involve or may involve Licensed Products, their
ingredients or packaging materials or the equipment, machinery or
premises used to process or store Licensed Products. In the event
any samples of Licensed Products are collected by such regulatory
agency, DCC agrees to collect duplicate samples and immediately
forward such samples to LOL.
7.4 DCC agreed that Licensed Products shall be manufactured and packaged
in strict accordance with the formulas, product specifications,
quality specifications and samples approved by LOL prior to the
initial manufacture. In the event Licensed Products are not
manufactured and packaged in accordance with such formulas,
specifications and samples, LOL shall have the right to terminate
this agreement pursuant to Section 4.4. Additionally, LOL shall have
the right to require immediate corrective action and shall have the
right to place on hold any Licensed Products not meeting such
formulas, specifications and/or samples. In the event DCC desires to
make any changes to the formulas or specifications for Licensed
Products, DCC shall provide LOL with revised formulas, product and
quality specifications and samples for LOL's approval prior to the
manufacture of the revised of the Licensed Products. LOL shall
respond to such revisions as soon as reasonably possible. DCC agrees
not to manufacture revised Licensed Products without LOL's prior
consent.
7.5 DCC agrees to provide LOL with samples of all Licensed Products upon
request from LOL. DCC further agrees to make, within a period of two
(2) months, any reasonable changes requested by LOL which LOL deems
necessary to maintain the quality of Licensed Products.
7.6 DCC shall allow LOL to inspect a copy of all quality control manuals
and records which relate to the manufacture, packaging or storage of
Licensed Products. DCC agrees to manufacture, package and store
Licensed Products in strict accordance with such manuals.
7.7 DCC agrees to provide for the opportunity and allow LOL quality
control personnel to be present at its own expense at all production
runs of Licensed Products.
8. Ingredients Supplied by LOL.
8.1 The parties agree that any butter, butter/margarine blend or
margarine utilized in Licensed Products must be provided by LOL.
8.2 DCC agrees to provide LOL with a rolling three (3) month forecast of
DCC's requirements of ingredients to be supplied by LOL at least
fifteen (15) days prior tot he initial production of Licensed
Products and at least fifteen (15) days prior to the commencement of
each calendar month thereafter. The first month of such forecast
shall constitute a firm order and LOL agrees to provide DCC with the
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<PAGE> 6
ingredients it ordered in accordance with the delivery dates
specified in the firm order.
8.3 LOL agrees that the price for the ingredients it furnishes to DCC
shall be in accordance with LOL's then current published price list
for such ingredients.
8.4 LOL agrees that the ingredients that it sells to DCC shall, as of
the date of shipment, not be adulterated or misbranded within the
meaning of any local, state or Federal law, regulation, ordinance,
rule or procedures and shall not be a product which may not be sold
in interstate commerce pursuant to the Food, Drug and Cosmetic Act,
as amended.
9. Royalty.
9.1 Within ten (10) days following the execution of this Agreement, DCC
agrees to pay to LOL the sum of Seventy-Five Thousand ($75,000.00)
dollars. The parties agree that Twenty-Five Thousand ($25,000.00)
dollars of such fee shall constitute a non-refundable license fee.
The remaining Fifty Thousand ($50,000.00) dollars shall be an
advance to be credited against future royalties.
9.2 The parties agree that during all terms of this Agreement DCC shall
pay to LOL a royalty in the amount of Three (3) percent of Net
Sales; provided, however, the parties agree that the price for a
case of Licensed Products shall be at least $15.25 per twelve unit
case of Licensed Products. Other case sizes shall be priced in
reasonable relation to the price of the twelve (12) unit case.
9.3 The parties agree, after one (1) year of the Expansion Term, to
negotiate in good faith a minimum royalty to be paid by DCC to LOL
each calendar year during the term(s) of the Agreement. The parties
further agree that if the annual royalties paid to LOL by DCC are
ever less than One Hundred Thousand dollars ($100,000.00), LOL shall
have the right to immediately terminate the Agreement; provided,
however, DCC shall have up to one hundred twenty (120) days to sell
existing inventories of Licensed Products on DCC's normal terms and
conditions.
9.4 The parties agree that all royalty payments shall be made by DCC
within thirty (30) days following the end of each calendar month
during the terms of this Agreement.
10. Advertising/Promotional Materials.
10.1 DCC shall submit to LOL and LOL shall approve prior to use, samples
of all materials including, without limitation, all packaging,
labeling, advertising and promotional materials, that utilize or
incorporate Trademarks in any way. LOL shall approve or communicate
any objection to such samples within ten (10) business days
following LOL's receipt of such materials or LOL's approval shall be
presumed. DCC agrees to make all changes requested by LOL.
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<PAGE> 7
10.2 DCC agrees to spend at least Seven (7) percent of its gross sales
dollars from Licensed Products advertising and/or promoting Licensed
Products each year during the term(s) of this Agreement.
11. Trademark Protection.
11.1 DCC agrees that nothing herein shall give DCC any rights, title or
interest in or to Trademarks, accept the right to utilize Trademarks
in accordance with the terms of this Agreement, and that Trademarks
are the sole property of LOL and any goodwill generated from any and
all uses of Trademarks shall inure to the benefit of LOL.
11.2 DCC agrees to assign to LOL, on the expiration or termination of
this Agreement and without any additional consideration, any rights
and equities related to Trademarks and any goodwill incidental to
such rights that may be vested in DCC as a result of the activities
of DCC pursuant to this Agreement.
11.3 DCC acknowledges the valuable goodwill associated with the
Trademarks and it desires to maintain the validity of the Trademarks
and the goodwill associated with the Trademarks for the benefit of
LOL. DCC agrees, therefore, to utilize Trademarks in strict
accordance with proper Trademark usage and the directions of LOL.
DCC shall not, directly or indirectly, attack or assist a third
party in attacking the validity of Trademarks.
11.4 DCC agrees not to act, directly or indirectly, in any matter which
might lead a third party to believe that Trademarks are owned by
DCC.
11.5 On all packaging, labels, advertising and other materials which
utilize Trademarks, DCC agrees that:
(a) The registered trademark symbol "(R)" shall be utilized in
conjunction with the appropriately registered Trademarks and
the statement "_____ is (are) a registered trademark(s) of
Land O'Lakes, Inc.", with the blank to be filled in with a
name or names of the appropriate trademark(s), shall be
clearly displayed or;
(b) The trademark symbol "(TM)" shall be used in conjunction with
unregistered trademarks and trademarks used outside the scope
of their current registrations and the statement "LAND O LAKES
and the Indian Maiden design are trademarks of Land O'Lakes,
Inc." shall be clearly displayed.
11.6 DCC agrees not to seek any trademark registration anywhere in
connection with its use of Trademarks.
11.7 DCC agrees not to adopt or use any mark or symbol that is similar to
Trademarks or any of LOL's trademarks or tradenames.
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11.8 DCC agrees not to utilize Trademarks in any unauthorized manner.
11.9 DCC agrees upon the request of and at the expense of LOL, to
reasonably aid and assist LOL in the registration and maintenance of
Trademarks and in any litigation or resolution of claims with
respect to Trademarks.
11.10 DCC shall have no right to expand the scope of protection afforded
the Trademarks. DCC shall use the Trademarks as set forth in Exhibit
A and shall not use the Trademarks, including any modified version
thereof, in any way.
11.11 DCC agrees to notify LOL of any non-LOL trademarks or tradenames
which are similar in sight, sound, appearance remaining to
Trademarks. DCC expressly agrees that it shall take no action with
regards to such trademarks or tradenames other than notification of
LOL. LOL shall have the sole right to decide whether or not to take
action against such trademarks or tradenames.
12. Delicious Trademark Protection.
12.1 LOL agrees that nothing herein shall give LOL any rights, title or
interest in or to any of DCC's trademarks, accept the right to
utilize such trademarks in accordance with DCC's instructions of
packages of Licensed Products, and that such trademarks are the sole
property of DCC and any goodwill generated from any and all uses of
such trademarks shall inure to the benefit of LOL.
12.2 LOL agrees to assign to DCC, on the expiration or termination of
this Agreement and without any additional consideration, any rights
and equities related to DCC's trademarks and any goodwill incidental
to such rights that may be vested in LOL as a result of the
activities of LOL pursuant to this Agreement.
12.3 LOL acknowledges the valuable goodwill associated with the DCC's
trademarks and it desires to maintain the validity of such
trademarks and the goodwill associated with such trademarks for the
benefit of DCC. LOL agrees, therefore, to utilize such trademarks in
strict accordance with proper trademark usage and the directions of
DCC. LOL shall not, directly or indirectly, attack or assist a third
party in attacking the validity of DCC's trademarks.
12.4 LOL agrees not to act, directly or indirectly, in any matter which
might lead a third party to believe that DCC's trademarks are owned
by LOL.
12.5 LOL agrees not to seek any trademark registration anywhere in
connection with its use of DCC's trademarks.
12.6 LOL agrees not to adopt or use any mark or symbol that is similar to
DCC's trademarks.
12.7 LOL agrees not to utilize DCC's trademarks in any unauthorized
manner.
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12.8 LOL agrees upon the request of and at the expense of DCC, to
reasonably aid and assist DCC in the registration and maintenance of
DCC's trademarks and in any litigation or resolution of claims with
respect to such trademarks.
13. Representations and Warranties of DCC.
DCC hereby makes the following representations and warranties:
13.1 The making of this Agreement does not violate any rights or
obligations existing between DCC and any third party; and
13.2 Licensed Products shall not be adulterated or misbranded within the
meaning of any local, state or Federal law, regulation, ordinance,
rule or procedures and shall not be a product which may not be sold
in interstate commerce pursuant to the Food, Drug and Cosmetic Act,
as amended; and
13.3 Licensed Products shall be in compliance with all local, state and
Federal laws, regulations, ordinances, rules and procedures; and
13.4 Licensed Products shall be in strict compliance with all formulas,
specifications and samples.
14. Representations and Warranties of LOL.
LOL hereby makes the following representations and warranties:
14.1 The making of this Agreement does not violate any rights or
obligations existing between LOL and any third party; and
14.2 LOL has the right to Licensed Trademarks in accordance with the
terms and conditions of this Agreement.
15. Indemnification.
15.1 DCC hereby indemnifies and holds harmless LOL, and will defend or
cause LOL to be defended, from and against any and all claims,
demands, causes of action, losses, damages, costs and expenses
(including reasonable attorneys' fees) arising out of or in any way
connected with a breach by DCC of any of the representations or
warranties set forth in Section 13 above or arising from or in any
way connected with the intentional acts or omissions or negligence
of DCC or arising from or in any way connected with DCC's failure to
perform or failure to perform properly any of its contractual
obligations.
15.2 DCC hereby indemnifies and holds harmless LOL, and will defend or
cause LOL to be defended, from and against any and all claims,
demands, causes of action, losses, damages, costs and expenses
(including reasonable attorneys' fees) arising out of or in any way
connected with any defect in Licensed Products.
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15.3 LOL hereby indemnifies and holds harmless DCC and will defend or
cause DCC to be defended, from and against, any and all claims,
demands, causes of action, losses, damages, costs and expenses
(including reasonable attorneys' fees) arising out of or in any way
connected with LOL's breach of any of its representations or
warranties set forth in Section 14 above or arising out of or in any
way connected with LOL's intentional acts or omissions or negligence
or in any way connected with failure to perform or failure to
perform properly any of its contractual obligations, or arising out
of or in any way connected with LOL's breach of the provisions set
forth in Section 8.4.
16. Insurance.
16.1 At all times during the term(s) of this Agreement and for at least
one (1) year following the expiration or termination of this
Agreement, DCC shall provide to LOL documents evidencing the
existence of Comprehensive General Liability Insurance with combined
single limits of not less than One Million dollars ($1,000,000.00)
per occurrence per property damage and bodily injury. This insurance
shall include the following coverages:
(a) Contractual Liability covering the indemnity provisions
contained in this Agreement; and
(b) Products Liability, including completed operations, covering
all Licensed Products manufactured pursuant to this Agreement.
16.2 DCC agrees to carry at all times during the term(s) of this
Agreement workmen's compensation insurance in accordance with the
statutory limits required by the state in which Licensed Products
are manufactured.
16.3 The insurance policies required by this Section shall provide that
all such policies may not be cancelled or the coverages changed in
any material way without at least thirty (30) days written notice to
LOL.
17. Product Recovery.
LOL or DCC may determine whether or not to implement a product recall
recovery or retrieval relating to Licensed Products. DCC agrees to carry
out, in accordance with the procedures mutually agreed upon by the
parties, all product recalls, recoveries and retrievals for Licensed
Products and shall bear all costs and expenses associated therewith,
unless such product recall, recovery or retrieval is due solely to a
defect traced to LOL in which case LOL shall bear all costs and expenses
associated therewith.
18. Records.
18.1 DCC agrees to retain and maintain all records relating to Licensed
Products, including, but not limited to, production records, quality
control records, records relating to the type and cost of
advertising Licensed Products, records relating to
-10-
<PAGE> 11
the sales (gross and net) and other transfers of Licensed Products,
and all other related records for a period of at least one (1) year
following the expiration or termination of this Agreement.
18.2 DCC agrees that LOL shall be given access to and shall have the
right to inspect all such records on a confidential basis at any
time during DCC's normal business hours; provided, however, LOL
agrees to provide DCC with reasonable prior notice of such
inspection.
19. Competing Products.
DCC agrees that it shall not market or sell any product that competes,
directly or indirectly, with Licensed Products except such products as are
set forth in Exhibit B attached hereto and hereby incorporated by
reference.
20. Force Majeure.
Either party's failure to perform the terms and conditions of this
Agreement, in whole or in part, shall not be deemed a breach or a default
hereunder or give rise to any liability of either party to the other if
such failure is attributable to any act of God, riot, public enemy, fire,
explosion, flood, drought, war, sabotage, accident, action by governmental
authority or any other conditions beyond the reasonable control of the
other party.
21. Relationship of Parties.
This Agreement is not intended and shall not be construed to constitute
either party the joint venture or franchising partner, agent or legal
representative of the other, and neither party shall have any authority,
expressed, implied or apparent, to assume or create any obligations on
behalf of or in the name of the other party.
22. Severability.
The provisions of this Agreement shall be severable and the invalidity of
any provision, or portion thereof, shall not affect the enforceability of
the remaining provisions of this Agreement.
23. Waiver.
The waiver by either party of a breach of any provision of this Agreement
shall not constitute or be construed as a waiver of any future breach of
any provision(s) in this Agreement.
24. Notice.
Any notice required or permitted under this Agreement shall be deemed to
have been received within two (2) business days after written notice shall
have been deposited, first class, postage prepaid, in the United States
mail addressed to the respective parties as set
-11-
<PAGE> 12
forth below or to such address as each party may hereafter designate by
written notice to the other party:
To LOL: Land O'Lakes, Inc.
4001 Lexington Avenue North
Arden Hills, MN 55126
Attn: Law Department
To DCC: Delicious Cookie Company, Inc.
2720 River Road
Des Plaines, ILL 60618
Attn: President
With a copy sent to:
Mr. Steven Slaw
Lapin, Hoff, Slaw & Laffey
Suite 2780
115 S. LaSalle Suite
Chicago, IL 60603
25. Complete Agreement; Modification.
This instrument sets forth the entire agreement between the parties
relative to the subject matter herein. Modification or amendment of any of
the provisions of this Agreement shall not be valid unless in writing and
signed by the parties hereto.
26. Governing Law.
This Agreement shall be governed by and construed in accordance with laws
of the State of Minnesota.
IN WITNESS WHEREOF, authorized representatives of the parties hereto have
executed this Agreement effective the day and year first above written.
DELICIOUS COOKIE COMPANY, INC. LAND O'LAKES, INC.
By: /s/ Sharon Pierce By: /s/ David C. Gray
--------------------------------- -----------------------------------
Print Name: Sharon Pierce Print Name: David C. Gray
------------------------- ---------------------------
Title: CEO Title: Vice President
------------------------------ --------------------------------
-12-
<PAGE> 13
EXHIBIT A
[Land O'Lakes logo]
-13-
<PAGE> 14
EXHIBIT B
DELICIOUS brand pre-baked, thin butter cookies
DELICIOUS brand pre-baked, butter creme cookies
-14-
<PAGE> 1
Exhibit 10.12
LICENSE AGREEMENT
THIS LICENSE AGREEMENT (the "Agreement"), made as of the 26th day of
November, 1996, is between CHIQUITA BRANDS, INC., having an office and place of
business at 250 East Fifth Street, Cincinnati, Ohio 45202 (the "Licensor"), and
DELICIOUS COOKIE COMPANY, INC., an Illinois corporation, having a business
address of 2720 River Road, Des Plaines, Illinois 60018 (the "Licensee").
WITNESSETH:
WHEREAS, Licensor is the owner of rights in certain trademarks, such as
identified in Exhibit A, annexed hereto and made a part hereof by the parties,
under which numerous products have been sold and extensive use, advertisement
and marketing have been undertaken (collectively, the "Trademarks"); and
WHEREAS, Licensor has the right to grant Licensee the license, right and
permission to use said Trademarks; and
WHEREAS, Licensee is a manufacturer and marketer of cookies and other
similar products and is desirous of acquiring from Licensor the right, subject
to Licensor's control and supervision as hereinafter set forth, to manufacture,
advertise and sell (i) a rotary die cut banana cookie with a fudge coating and
containing Chiquita banana ingredients (the "Banana Cookie"), and (ii) a fat
free fruit bar consisting of a cake-type outer coating surrounding a
banana/strawberry filling in jam form and made with Chiquita banana ingredients
(the "Banana Strawberry Fruit Bar"), each as more specifically described in
Exhibit B and referred collectively herein as the "Products," as well as
individually as a "Product;" and
WHEREAS, Chiquita Processed Foods Division of Chiquita Brands, Inc., a
sister company of Licensor, is prepared to supply all of Licensee's requirements
for banana ingredients needed for the Products, including banana flakes, banana
extract, banana powder, banana puree and other banana ingredients; and
WHEREAS, the parties hereto desire to safeguard, promote and maintain the
value and recognition of, as well as the reputation for high quality and
wholesomeness now enjoyed by the Trademarks; and
WHEREAS, this Agreement hereby supersedes the terms and conditions of the
Agreement entered into between Licensor and Licensee on September 16, 1993 and,
as amended on May 27, 1994, March 9, 1995 and September 14, 1995.
NOW, THEREFORE, in consideration of the premises, and mutual covenants
hereinafter set forth, the parties hereto do agree as follows:
<PAGE> 2
-2-
1. Grant of License. Subject to the provisions of this agreement, Licensor
hereby grants to Licensee a non-exclusive, non-transferable license ("License")
to manufacture, sell and distribute in Canada and the United States and its
territories and military bases (the "Territory") the Product bearing the
Trademarks, which Product shall meet the quality, characteristics, and packaging
requirements of Licensor as set forth herein, and as specified by Licensor to
Licensee from time to time. The License granted herein is not an assignment, in
part or in whole, of the Trademarks or of any other trademark rights of Licensor
or Chiquita Brands, Inc., and Licensee shall not sublicense any of the
Trademarks, or any right in any of the Trademarks. Licensor specifically
reserves the right to grant to others licenses and/or endorsement licenses (e.g.
"Made with Chiquita(R) bananas") under the Trademarks.
2. Term. The term of this Agreement (the "Term") shall commence on the
date of his Agreement and expire on September 15, 1998, unless earlier
terminated hereunder.
3. Maintenance of Reputation and Quality. Licensee hereby acknowledges
that the maintenance of the reputation and quality associated with the
Trademarks requires the highest quality and utmost uniformity with respect to
the manufacture, packaging, presentation, advertisement, promotion and sale of
the Products. In order to maintain the reputation associated with the
Trademarks, the parties hereto agree as follows:
(a) Licensee shall manufacture, package, distribute, market, sell
and/or distribute Products hereunder of the highest quality, under strict
sanitary conditions and in accordance with the current Good Manufacturing
Practices regulations, or similar guidelines, of the United States Food and Drug
Administration or other regulatory organizations, and in accordance with the
specifications set forth on Exhibit B, or such modification thereof or
substitution thereof, as may be approved in writing by Licensor, or as supplied
by Licensor to Licensee.
(b) Licensee shall provide to Licensor for review and approval all
product formulations, lists of ingredients, finished product specifications,
packaging and labeling texts and designs, and advertisement and promotion
materials relating to the Products at least thirty (30) days in advance of
Licensee's proposed commitment dates for such Products.
(c) Licensee shall not manufacture any Products, or order packaging,
labeling, or conduct advertising and/or promotions relating to any Products,
that do not meet Licensor's approval. All Products made under this License shall
include only "all natural" banana ingredients within the definition of the
<PAGE> 3
-3-
U.S.D.A. and/or other applicable government policies, rules or regulations.
(d) Licensee shall establish and maintain procedures satisfactory to
Licensor for responding to consumer complaints and inquiries, and Licensee shall
promptly inform Licensor of all complaints or other allegations involving the
safety, sanitary conditions, quality, or labeling of any Products, including,
without limitation, any complaints or allegations of poor quality or misbranding
and any complaints or allegations which may tend to impugn the reputation of
Licensor, any Products, or the Trademarks. Licensee shall establish and maintain
procedures satisfactory to Licensor to initiate and effect a market withdrawal,
recall or other product correction in accordance with applicable laws and
regulations and Licensee shall promptly inform Licensor of all complaints,
allegations, or other circumstances giving rise to or indicating a need for a
market withdrawal, recall or other product correction in connection with any
Products as soon as possible, but in no event later than eighteen (18) hours of
Licensee's first knowledge of such complaint, allegation or circumstances.
Licensee shall, at Licensee's expense, immediately withdraw or
recall from the market and cease distribution of any Products or Products
labeling, advertisement or promotion which Licensor, in its sole discretion,
believes, in good faith, is or may present a risk of injury or gross deception
or may tend to impugn the reputation of Licensor, any Product, or the
Trademarks. In the event of a market withdrawal or recall, Licensor shall
prepare and authorize any and all statements to the media and regulatory
authorities concerning the Products, subject to Licensee approval, which shall
not be unreasonably withheld. License shall promptly and fully report to
Licensor all communications in whatever form from or by regulatory authorities,
media representatives, government agencies, brokers, retailers or consumers in
connection with such market withdrawal or recall. Complete records of all
productions and shipments by code shall be maintained and promptly made
available to Licensor upon. request. Disposition of any Products involved in a
market withdrawal or recall shall be as determined by Licensor. Within sixty
(60) days of the execution of this Agreement, Licensee shall provide to Licensor
a written copy of Licensee's consumer complaint procedures and recall
procedures. In the event that such procedures are amended during the term of
this Agreement, Licensee shall provide copies of such amendments to Licensor.
(e) Licensee shall not manufacture the Products through any
subcontractor unless (i) Licensee has notified Licensor of the name and address
of such contractor proposed to be engaged by Licensee, and (ii) Licensor has
given its prior
<PAGE> 4
-4-
written approval with respect to the use of such subcontractor within ten (10)
business days after Licensor's receipt of such notice from Licensee, which
approval shall not be reasonably withheld; provided, however, that Licensor's
approval of any such subcontractor shall not relieve Licensee of its duty to
maintain the reputation, goodwill, and quality associated with the Trademarks.
Licensee shall also insure that all subcontractors agree to be bound by the
quality and Trademark usage provisions of this Agreement.
(f) Licensee shall comply with and satisfy all currently existing
and future industry standards, decrees, governmental orders, laws and
regulations in force in all applicable areas of the Territory relating to the
manufacture, packaging, storage, use, shipping, advertising, sale and
distribution of the Products.
(g) Licensee shall give Licensor and all designated representatives
of Licensor access at all reasonable times to the facilities used in the
manufacture, storage, sale and distribution of the Products, and to the records
of Licensee for the purpose of inspection and verification of Licensee's
compliance with this Agreement.
4. Insurance. Licensee shall maintain in full force and effect during the
Term and any renewal terms thereafter, a general liability insurance policy
(including products liability coverage), protecting Licensor and Licensee and
their directors, officers, employees, representative and agents against any
loss, liability or expense arising from any claim or action on account of the
manufacture, use and/or sale of the Products in an amount of not less than
$2,000,000 combined single limit. Licensor shall be a named additional insured
under such liability policy, including coverage for products liability, and such
insurance policy shall be written by an insurance company acceptable to
Licensor. The evidence of insurance shall be in the form of a certificate of
insurance that shall be delivered to Licensor no later than thirty (30) days
after the commencement of the Term. Such insurance policy shall contain a clause
that such policy cannot be canceled or altered without at least thirty (30) days
prior written notice to Licensor and Licensee. Should Licensee fail to procure
and maintain such insurance for any reason, Licensor shall have the right and
authority to procure such coverage and charge the expenses incurred to Licensee,
and/or to terminate this Agreement.
5. Indemnification by Licensee. In all cases, Licensee shall assume entire
responsibility for compliance with all federal, state, and local laws and
regulations applicable to the Products and to any statements or representations
made with
<PAGE> 5
-5-
respect to the Products; and Licensee shall indemnify and save harmless Licensor
from any and all loss, liability, damage and expense whatsoever (including
without limitation costs of court and attorneys' fees) on account of any
liability to or claims of any third parties, including governmental authorities,
in connection with the foregoing, or otherwise with respect to the Products,
including, without limitation, claims relating to products liability or patent
infringement, or with respect to the use of the Trademarks hereunder.
6. Trademark Marking.
(a) Licensee shall place on all packaging in which the Products are
distributed, marketed and sold, and on all materials used in advertising and
merchandising the Products, appropriate statutory trademark patent and other
designations, and such other statements as Licensor may reasonably request,
including but not limited to the following:
i. Wherever the CHIQUITA word trademark is used, it shall be
followed by an asterisk referring to a legible footnote reading: "CHIQUITA
is a trademark of Chiquita Brands, Inc. "
ii. Wherever the CHIQUITA Logo trademark is used, it shall be
followed by an asterisk referring to a legible footnote reading: "The
CHIQUITA Logo is a trademark of Chiquita Brands, Inc."
iii. all containers, packaging, labeling or advertising used
in connection with any Product bearing the Banana Shape Trademark as
described on Exhibit A (the "Banana Shape Trademark") shall contain a
legible notice reading: "The CHIQUITA Banana Shape is a registered
trademark of Chiquita Brands, Inc., " and each time the Banana Shape
Trademark is used on any such container, packaging, labeling or
advertising, the mark shall appear with the designation (R).
In no event shall any trade name or trademark other than the trademarks be
attached to or displayed on the Products, OF any containers, packaging, labeling
or advertising relating to the Products, unless Licensor has given its prior
written approval with respect to the attachment or display or such other trade
name or trademark; provided, however, that Licensee may include Licensee's
corporate name on such packaging or a statement to the effect that such Products
are made by Licensee.
(b) The benefit of all use by Licensee of the Trademarks and of
Licensor's name shall inure to the benefit of
<PAGE> 6
-6-
Licensor and Chiquita Brands, Inc., and, except for the license granted herein,
Licensee shall not acquire by reason of this Agreement any rights to the
Trademarks, or any variation thereof, or any other means of identification used
by Licensor.
(c) Licensee acknowledges and admits the validity of the Trademarks,
as well as Licensor's exclusive rights and interest in and to the use thereof.
Licensee covenants that it will not, directly or indirectly, attack or assist
another in attacking the validity of the Trademarks and/or the applications for
registrations thereof. The acknowledgments admissions and covenants as contained
in this paragraph shall survive the termination or expiration of this Agreement.
(d) Licensee shall assist and cooperate fully with Licensor to
obtain and/or maintain registrations of the Trademarks as applied to the
Products and/or to protect and maintain the interests of Licensor in such
Trademarks.
7. Infringements. In the event that any claim, demand or suit for
infringement of a trademark shall be asserted or threatened against Licensee on
account of Licensee's use of the Trademarks (each a "Claim," and collectively,
the "Claims"), Licensee shall immediately give Licensor written notice thereof,
and Licensor, at its option, shall have the exclusive right to defend against
any such Claim in its name, in the name of Licensee, or both, through counsel
selected by Licensor in Licensor's sole discretion. If Licensor so exercises
said option, Licensor shall not be obligated to pay any attorneys' fees incurred
by Licensee in respect of any such Claim after Licensor's election of such
option to defend against such Claim. In the event that Licensee at any time
becomes aware of any infringement of the Trademarks by any third party, Licensee
shall immediately notify Licensor, and Licensor at its option shall have the
exclusive right (but shall not be obligated) to assert any claim or demand or
file any suit for infringement of the Trademarks, through counsel selected by
Licensor in Licensor's sole discretion. Licensee shall cooperate with Licensor
in the assertion of any such claim or demand and in the conduct of any suit for
infringement of the Trademarks.
8. Termination. This Agreement and all rights granted herein shall
terminate upon written notice from Licensor to Licensee in the event that: (a)
Licensee violates any of the laws or regulations of any governmental authority
in any or all of the Territory with respect to the manufacture or sale of the
Products, and Licensee fails to cure any such violation within thirty (30) days
after receiving written notice, or oral notice actually received by management
of Licensee, of such violation from any applicable governmental authority; (b)
Licensee fails to
<PAGE> 7
-7-
comply with any of its obligations under this Agreement; (c) if Licensee becomes
unable to pay its debts, becomes insolvent, and/or if a receiver is appointed or
applied for against Licensee, or if a petition in bankruptcy, insolvency, or
corporate reorganization act is filed by or against Licensee; (d) failure of
Licensee to pay royalties hereunder in the amounts and on the dates as required
by the terms of Section 9 hereof, (e) upon sixty (60) days' notice of
termination from Licensor, or (f) any competitor or any affiliate of any
competitor of Licensor, or any of Licensor's affiliates, directly or indirectly,
acquires "control" of Licensee, as that term is defined in the Securities Act of
1933, as amended, and the regulations promulgated thereunder, or if five percent
(5%) or more ownership interest in Licensee becomes owned directly or indirectly
by a competitor or any affiliate of any competitor of Licensor, or any of
Licensor's affiliates, or Licensee becomes otherwise affiliated, directly or
indirectly, with any competitor of Licensor or any of Licensor's affiliates,
without Licensor's written approval, which shall not be unreasonably withheld.
Licensee may terminate this Agreement upon written notice to Licensor in the
event of Licensor's failure under subsection 8(b), applicability of 8(c) to
Licensor, or 8(e) only.
Sixty (60) days after termination or expiration of this Agreement,
however caused, all rights and privileges of Licensee hereunder shall terminate,
and Licensee shall not thereafter make any use whatsoever of any of the
Trademarks, or of any word, design, marking, legend or slogan owned by or
associated with Licensor. During this sixty (60) day period, Licensee shall only
complete work in progress and sell off existing inventory. Furthermore, Licensee
shall, at its own expense, forthwith remove, efface or destroy all references to
any of the Trademarks from all places where they appear, and Licensee shall not
thereafter hold forth in any manner whatsoever that it has or ever has had any
connection with Licensor or the Trademarks. Licensee's obligation to pay to
Licensor any and all royalties accrued prior to any termination or expiration
hereunder shall survive such termination or expiration.
9. Consideration to Licensor.
(a) In further consideration of the License granted hereunder,
Licensee shall pay to Licensor a running royalty equal to three percent (3%) of
net sales of Products twenty-five (25) days after the calendar year end or
twenty-five (25) days after termination for any reason, whichever is applicable.
As used herein, "Net Sales" shall mean gross sales less cash discounts and
merchandising allowances, but in no case shall Net Sales price, for purposes of
royalty calculation, fall below Thirteen Dollars and Fifteen cents ($ 13.15) per
case of Banana Cookies,
<PAGE> 8
-8-
which for the purposes of this Agreement shall be defined as twelve (12) boxes
of 10.25 oz. (approximate weight) Banana Cookie packages ("Banana Cookie Case");
and Ten Dollars and Twenty-Five cents ($10.25) per case of Banana Strawberry
Fruit Bars, which for the purposes of this Agreement shall be defined as twelve
(12) boxes of 12 oz. (approximate weight) Banana Strawberry Fruit Bar packages
("Banana Strawberry Fruit Bar Case").
(b) Licensee shall pay to Licensor the following additional royalty
payments:
i. $40,000 on the date of execution hereof; and
ii. $20,000 on December 9, l996.
(c) Licensee shall keep complete books and records of all
manufacture and sales of the Products, and Licensor, or Licensor's designated
representatives, shall have the right at all reasonable times from the
commencement of the Term until two (2) years after the termination of the
License to audit the books, records and operations of Licensee with respect to
such manufacture and/or sales. By the twenty-fifth (25th) day from the end of
each calendar month, Licensee shall provide to Licensor a report generally
following the format shown in attached Exhibit C, setting forth at least the
number of cases of Products manufactured and sold, and corresponding gross sales
and applicable cash discounts and/or merchandising allowances for the previous
calendar month, and shall provide a summary report of all twelve months for each
year along with the yearly royalty payment required under subparagraph 9(a)
above.
(d) During the Term of this Agreement and afterwards, Licensee shall
not disclose to any person without the prior written consent of Licensor any
information relating to Licensor's business which comes to its knowledge in the
course of its dealings with Licensor.
(e) In order to ensure the quality and specific taste and other
desired characteristics associated with Products to be sold under the
Trademarks, it is agreed that Licensee shall obtain all its requirements of
banana related products for the manufacture of the Products from Licensor or an
affiliate of Licensor, and shall not use third party sources for such
ingredient(s) in the Products so long as Licensor is in a position to sell such
ingredient(s) to Licensee.
If Licensor is unable, for any reason, to supply Licensee's
requirements of such ingredients, Licensor shall have no liability to Licensee,
and Licensee may satisfy such shortfall with other sources, provided such
products and sources are
<PAGE> 9
-9-
approved in advance, in writing, by Licensor, and meet the quality control
provisions of paragraph 3 herein, and only for so long as Licensor is not
prepared to provide all of Licensee's requirements for such ingredient(s).
10. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Ohio.
11. Waivers. No waiver by either Licensor or Licensee of any violations
of, or default in, any of the provisions of this Agreement shall be deemed a
waiver of any similar or other provisions hereof at the same time or at time
subsequent thereto.
12. Assignment. The License hereby granted is restricted to use by
Licensee and shall not be assigned or sublicensed to or exercised by any other
person, firm, corporation or other entity without the prior written consent of
Licensor. Subject to the foregoing sentence, this Agreement shall inure to the
benefit of and be binding upon the parties hereto, and their respective
successors and assigns.
13. Relationship of Parties. Nothing contained herein shall be deemed to
constitute this as an employment or partnership agreement, it being fully
understood and agreed that in the course of carrying out this appointment,
Licensee will be acting as its own agent and assumes full responsibility for its
own account and for all or any of its employees which it may engage in the
furtherance of. this Agreement. Under no circumstances shall Licensee be deemed
the agent or representatives of Licensor.
14. Notices. All notices to be given hereunder shall be in writing, and
shall be deemed to have been given three (3) days after placed in the United
States mail, registered or certified, postage prepaid, return receipt requested
or upon receipt if personally delivered, addressed to the parties as follows:
Licensor: Chiquita Brands, Inc.
250 East Fifth Street
Cincinnati, Ohio 45202
Attention: Ms. Linda DeFrank
With a copy to: General Counsel, Chiquita Brands, Inc.
250 East Fifth Street
Cincinnati Ohio 45202
Licensee: Delicious Cookie Company, Inc.
2720 River Road
Des Plaines, Illinois 60018
Attention: President
<PAGE> 10
-10-
With a copy to: Howard C. Miskin, Esq.
Stoll, Miskin, Previto & Hoffman
Suite 6110, The Empire State Building
350 Fifth Avenue
New York, New York 10118
Any party may from time to time change its above address for notices upon
written notice to the other party in accordance with this paragraph.
15. Severability. Every provision of this Agreement is intended to be
severable. The validity or enforceability of any provision or provisions hereof
shall not affect the validity or enforceability of any other provision hereof.
16. Entire Agreement. This Agreement constitutes the entire agreement of
the parties with regard to the subject matter hereof and supersedes all prior
agreements and negotiations of the parties, oral or written, with regard
thereto. This Agreement may not be modified except by written agreement of the
parties.
17. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
18. Brokers. Licensee shall, at all times prior to entering into a broker
relationship with any third party, meet and negotiate in good faith with brokers
with whom Chiquita may at that time have oral or written contracts. for the sale
of Chiquita or other products ("Chiquita Brokers"). Licensee shall not
unreasonably reject the Chiquita Brokers Licensor acknowledges that at the time
of the execution of this Agreement, Licensee may have an existing contractual
relationship with a broker who is not associated with Licensor. In such case, if
that relationship subsequently terminates or if Licensee desires to establish a
new brokerage relationship, Licensee shall meet and negotiate in good faith with
Chiquita Brokers for the sale and brokerage of the Products prior to negotiating
with any third party brokers, and Licensee shall not unreasonably reject
Chiquita Brokers. Chiquita shall identify the Chiquita Brokers to Licensee on
the date of execution hereof, and from time to time during the Term hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
<PAGE> 11
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"LICENSOR"
CHIQUITA BRANDS, INC.
By: [Illegible]
-------------------------------
Its: COO - Domestic Div.
-------------------------------
"LICENSEE"
DELICIOUS COOKIE COMPANY, INC.
By: [Illegible]
-------------------------------
Its: Chairman
<PAGE> 12
-12-
EXHIBIT A
Trademarks:
CHIQUITA
CHIQUITA Logo (As shown, and in proper blue and yellow
colors)
CHIQUITA Banana Shape Trademark (three dimensional shape
one-half of a banana sliced lengthwise)
<PAGE> 13
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EXHIBIT B
[XEROX OF PACKAGING]
<PAGE> 14
-14-
EXHIBIT B
Delicious/Frookie Company, Inc.
Chiquita Banana-Strawberry Fat Free Fruit Bars
Product Specifications
March 23, 1995
Product: Chiquita Banana-Strawberry Fat Free Fruit Bars
Pack Size: 12 ounces
Manufacturing/
Formula: Product shall be manufactured in accordance with
official formula.
The fruit filling is being produced by Keith Stewart in
Chicago, Illinois.
The actual cookie fruit bar (base cake and filling) is being
produced by General Henry in DuQuoin, Illinois whose equipment
is 100% dedicated to fruit bar production
Shelf Life: Product has a guaranteed 6 month shelf life
Packaging: Product is packaged in a metallized film structure
(metallized polypropolene laminated to clear
polyester) which provides optimum barrier
properties required for fat free cookie products
Case: product is shipped in 12 count cases
<PAGE> 15
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EXHIBIT B
[XEROX OF PACKAGING]
<PAGE> 16
-16-
EXHIBIT C
MONTH OF __________________
<TABLE>
<CAPTION>
# OF
CASES GROSS NET ROYALTY
SOLD SALES SALES RATE ROYALTY
---- ----- ----- ---- -------
<S> <C> <C> <C> <C> <C>
----------- ----------- ----------- ----------- -----------
TOTAL ----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE> 1
Exhibit 10.14
LICENSE AGREEMENT
AGREEMENT made as of the 1st day of May, 1996 (the "Effective Date")
between ESKIMO PIE CORPORATION, a Delaware corporation ("Eskimo") and THE
DELICIOUS/FROOKIE COMPANY, INC., an Illinois corporation ("Licensee").
WHEREAS, Eskimo has exclusive rights to grant others licenses and
sublicenses to use the trademarks (as hereinafter defined) and is engaged, among
other things, in the business of developing new frozen dessert and other
products and licensing and sublicensing persons to manufacture ad distribute
such products under the Trademarks.
WHEREAS, Eskimo is engaged, among other things, in the business of
manufacturing and distributing certain ingredients used in the production of
products sold under the Trademarks, including the base (as hereinafter defined)
which will be used by Licensee pursuant to this Agreement in the manufacture,
distribution and sale of the Products (as hereinafter defined) under the
Trademarks; and
WHEREAS, Eskimo represents that the formulae for the manufacture of the
Base are trade secrets and its Base is an essential element of each of the
Products to be sold under the Trademarks; and
WHEREAS, Licensee desires to extend its business and obtain a license to
utilize the Trademarks in the Territory (as hereinafter defined) to manufacture,
distribute and sell the Products under the Trademarks;
NOW, THEREFORE, in consideration of the premises and mutual covenants
hereinafter set forth, the parties agree to be legally bound as follows:
1. Definitions:
The following terms shall have the meanings set forth below when
used in this Agreement:
a. "Agreement Year" means with respect to Agreement Year One the
period from the Effective Date through December 31, 1996 and subsequently
each calendar year, commencing on or after January 1, 1997, during the
initial term or any renewal term of this Agreement.
b. "Base" means the proprietary chocolate powder, produced by and
under Eskimo's manufacturing processes and formulations, that will be used
by Licensee to manufacture the Products.
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c. "Net Wholesale Sales" means the gross sales of products sold by
Licensee less allowances for prompt payment, excluding trade promotions.
In no event shall Net Wholesale Sales be less than 95% of gross sales.
d. "Associated Materials Sales" means packaging, labels, wrappers
(including film wrappers for bending machine and individual retail sales),
retail cartons, point of purchase displays, advertising and promotional
material used in connection with the sale, offer for sale, advertising and
promotion of the Products.
e. "Persons" means individuals, corporations, partnerships or other
legally recognized commercial entities operated for profit.
f. "Products" means any of the following products hereinafter
developed by Licensee made from the Base containing other ingredients
specified in the Standards and approved by Eskimo for sale under the
Trademarks; cookies, crackers, cereal-based snacks, potato chips, corn
chips, popcorn and freezer pops (liquid to freezing-to-form pops);
provided, however, that the parties expressly agree that Products shall
not include any frozen dessert products (including without limitation,
frozen novelty, ice cream, yogurt (hard-pack and soft-serve) and sorbet
products.
g. "Product Specifications" means the manufacturing processes and
formulations for the Products developed by Licensee, subject to Eskimo's
approval, and to be contained in the Standards.
h. "Standards" means the Product Specifications, other
specifications and quality control directions covering each of the
Products, which will be set forth in a separate written manual and which
Eskimo may, from time to time, reasonably establish, all of which are
incorporated herein by reference.
i. "Termination Date" means the effective date of termination of
this Agreement as defined in Section 13(c) hereof.
j. "Territory" means the United States and Canada.
k. "Trademarks" means ESKIMO PIE and the associated pictorial
representations and SUGAR FREEDOM and any designs or stylizations
associated therewith and the Trade Dress (as hereinafter defined).
l. "Trade Dress" means all packaging designs, graphics, "get up" or
other elements of trade dress used in connection with the Products,
whether created by or under the authority and direction of Eskimo or
Licensee.
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2. Term:
a. This Agreement shall commence on the Effective Date and, unless
earlier terminated as hereinafter provided, shall continue in effect for
an initial term ending December 31, 2000; it shall automatically terminate
upon the expiration of the initial term unless Eskimo, at its option and
in its sole discretion, gives Licensee written notice at least 60 days
prior to the end of initial term of its intent to renew this Agreement for
a one year renewal term. In the event of such renewal by Eskimo, Eskimo
shall establish and notify Licensee as part of the renewal notice of the
Minimum royalty (as hereinafter defined) to apply for such renewal term.
Nothing in this Section 2 shall be construed as affecting any other
termination provision of this Agreement.
b. Eskimo shall have the right to terminate this Agreement upon
written notice to Licensee given within 30 days after the end of any
Agreement year ending on or after December 31, 1997 if the amount of the
Royalties (as hereinafter defined) for such Agreement Year do not equal or
exceed the Minimum Royalty (as hereinafter defined) for such Agreement
Year. The effective date of such termination shall be the date of such
notice, subject to the provisions of Section 13(c)(i) and to Licensee's
obligation to pay the Minimum royalty for the Agreement Year ended
immediately preceding the notice of termination hereunder.
c. Licensee shall have the right to terminate this Agreement
effective at the end of any Agreement Year by giving Eskimo written notice
at least 60 days prior to the end of such Agreement Year, subject to the
provisions of Section 13(c)(i) and to Licensee's obligation to pay the
Minimum Royalty for such Agreement year and for the Agreement Year
following the notice of termination.
3. Grant of License:
a. Eskimo hereby grants to Licensee the exclusive right, license and
authority, subject to the terms and conditions hereinafter set forth, for
the Territory to use the Trademarks in connection with Licensee's
manufacture, distribution and sale of the Products under the Trademarks in
the Territory. Licensee shall not have the right to license or sublicense
other Persons to manufacture, distribute and sell the Products under the
Trademarks, or the right to enter into a copacking arrangement with other
Persons for the manufacture, distribution and sale of the Products under
the Trademarks, it being understood that the foregoing limitation is not
intended to prohibit Licensee's distribution and sale of the Products
through its customary distribution channels.
b. Except as expressly provided in this Agreement, Eskimo shall not
be prevented from granting any other licenses for the use of the
Trademarks or from
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using the Trademarks in any manner whatsoever, whether inside or outside
the Territory, Eskimo having retained and reserved all other rights not
expressly granted in Section 3(a) to Licensee. Eskimo agrees that, except
as otherwise expressly provided in this Agreement, it will grant no other
licenses for the territory effective during the term of this Agreement,
for the use of the Trademarks in connection with the Products.
c. The parties hereto acknowledge and agree that any and all
trademark rights, copyrights and other proprietary rights and interests in
the Trademarks are and shall be the property of Eskimo whether created by
or under the authority and direction of Eskimo or Licensee. As a condition
of this Agreement, Licensee shall cause appropriate copyright and
trademark notices satisfactory to Eskimo to be placed on all Associated
Materials embodying the Trademarks, Licensee shall cooperate with Eskimo
in the execution, filing and prosecution of any trademark or copyright
applications that Eskimo may, at is own expense, desire to file and for
that purpose Licensee shall supply to Eskimo from time to time such items
of packaging, labeling and similar materials as may reasonably be
requested by Eskimo. All goodwill associated with the use of the
Trademarks in connection with this Agreement shall inure to the benefit of
Eskimo.
d. In the event that subsequent to the Effective Date Eskimo
acquires rights to lawfully use the RealFruit trademark in connection with
freezer pops, Licensee shall have the right of first refusal to be granted
a license for the use of such trademark in connection with freezer pops
upon terms and conditions to be mutually agreed upon by Eskimo and
Licensee; subject, however, to the proviso that any such license may not
violate or contravene any other agreements to which Eskimo is a party.
4. Obligations of License:
a. Licensee shall, in its performance of its obligations under this
Agreement, comply with all applicable federal, state and local laws, rules
and regulations.
b. Licensee agrees that, in cooperation with and after consultation
with Eskimo, it shall develop annually such sales goals, distribution
plans, marketing plans, advertising and sales promotion plans and such
other internal plans, budgets and goals reasonably necessary or advisable
in the opinion of Licensee to assure adequate distribution and market
penetration of the Products in the Territory. Licensee shall pursue such
plans, budgets and goals in order to achieve a sustained growth in sales.
c. Licensee agrees to use its best efforts to continuously develop
Products for distribution throughout the Territory such that by the end of
Agreement Year 5
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Licensee shall have developed and introduced at least 4 different Products
(i.e., different SKUs).
d. Licensee agrees that by the end of Agreement Year 2 the Products
shall have achieved an ACV level of 50%.
e. Except as any of the same may be required with respect to the
Base, the Trademarks and the Trade Dress, if any approvals, permits,
licenses, registrations or the like are required to be obtained or
maintained or governmental fees paid relative to the performance by
Licensee of its obligations under this Agreement, Eskimo shall have no
responsibility and shall bear no expense in connection with the same and
all requirements in connection therewith shall be accomplished
appropriately by Licensee.
f. If, in connection with the performance by Licensee of its
obligations under this Agreement, any regulatory agency inquiries,
directives or challenges shall develop or formal proceedings or any other
type of involvements should arise on account of the acts or omissions of
Licensee, it shall be Licensee's responsibility to resolve, respond to,
comply with or defend same appropriately at its own expense, except to the
extent the same are attributable to the acts or omission of Eskimo with
respect to the Base or the Trademarks. Notwithstanding, Licensee shall not
enter into any compromise, settlement or resolution of any such matter
which would prejudice the rights of, or operate to the detriment of,
Eskimo without notifying and consulting with Eskimo in advance as to the
impact of the activity, and receiving advance written approval of Eskimo
thereto. At its election, Eskimo may, at its own expense, undertake to
intervene in any such matter or, to the extent the matter relates solely
to Base or the Products, to assume control of the matter. In such case,
Licensee shall render all reasonable assistance that may be required by
Eskimo.
g. Licensee shall initially respond to and cooperate in the good
faith, businesslike resolution of consumer complaints coming to its
attention in connection with the Products. Licensee shall maintain a
separate file available for review and copying by the representatives of
Eskimo containing written communications from regulatory agencies of all
levels and complaints from consumers relating to the business contemplated
by this Agreement.
5. Quality Control:
a. Inasmuch as the Trademarks stand for products of quality and
uniformity, it is essential that the Standards be maintained at all times
in order to preserve the value and reputation of the Trademarks and to
promote the success of the business contemplated by this Agreement.
Licensee shall manufacture, package, handle and distribute the Products in
conformity with the Standards. Licensee shall maintain
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a quality control program to help assure product quality under and
conformance with the Standards and compliance with the requirements of
this Agreement. Licensee shall, at all times, conduct business in a manner
that will maintain the reputation Eskimo has established in the business
community and with consumers, and avoid practices that will reflect
unfavorably upon Eskimo.
b. Throughout the continuance of this Agreement, Licensee shall: (i)
operate and maintain a modern manufacturing facility designed for and
equipped with the necessary machinery in good repair and operating
condition; and (ii) have the necessary and appropriate personnel,
materials and supplies (subject to Eskimo's provision of Base in
accordance with Section 6(c)) to adequately and efficiently manufacture,
package, handle and distribute the Products in order to supply with
reasonable promptness all the demands and requirements for the sale of the
Products and to otherwise perform hereunder. Licensee will assure that all
the Products are of uniform quality and manufactured, packaged, handled
and distributed in strict conformity with the Standards and the
requirements of this Agreement.
c. Prior to the commencement of and at any time during the
continuance of this Agreement, Eskimo shall have the right during normal
business hours upon reasonable advance notice through one or more of its
authorized representatives to inspect eh premises, facilities, procedures
and inventories to be used or in use by Licensee for the manufacture,
packaging, handling and distribution of the Products.
d. Production of the Products may not be commenced unless and until
Eskimo approves such facility in writing, which approval shall not be
unreasonably withheld. If after approval Eskimo at any time reasonably
determines that any of Licensee's facilities, processes, equipment or
inventories are unsanitary or otherwise not in accordance with the
Standards or the Inspection Criteria (as hereinafter defined), Eskimo
shall so notify Licensee and Licensee shall immediately take such action
as may be reasonably necessary to correct the deficiency and bring the
same into compliance with the Standards and the requirements of this
Agreement. Licensee's failure to bring any of the same or its performance
into conformity with the Standards within the most reasonable practicable
time shall constitute a material breach of this Agreement and a ground for
termination by Eskimo.
e. Licensee shall not release the first production run of any
Products for distribution or sale until the Products and Associated
Materials are approved in writing by Eskimo, which approval shall not be
unreasonably withheld. When Eskimo is satisfied that Licensee's first
production run complies with the Standards, approval as to subsequent runs
shall be presumed thereafter unless
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Licensee is notified to the contrary, based on Eskimo's reasonable
concerns that develop thereafter.
f. From time to time after Licensee has commenced selling and/or
distributing the Products and upon Eskimo's request, Licensee shall
furnish, without cost, to Eskimo a reasonable number of random samples of
each Eskimo Product (from a regular production run or runs) being
manufactured and sold by Licensee hereunder, together with any Associated
Materials.
g. If at any time Eskimo has good faith to believe that the quality
of the Products, the condition of ingredients to be used in connection
therewith or any Associated Materials do not comply, or might prejudice
compliance, with any applicable law, rule or regulation or there has been
a failure of compliance with a material term of this Agreement, after
verifying such condition exists Eskimo may notify Licensee in writing
(with which notice Licensee agrees to comply) to suspend the production,
distribution and sale of the Products.
h. If, in the opinion of Eskimo, on the basis of sampling or other
recognized testing procedures or reports, any Products are adulterated,
misbranded or not in material conformance with the Standards or the
provisions of this Agreement, Licensee shall be notified and upon such
notification shall immediately take steps to correct the problem and trace
the defective Products and withdraw or recall the Products found to be
defective. The nature of the defect will be used to determine the extent
of the withdrawal or recall, but such decision will be based on
reasonableness and applicable federal, state or local regulations and
guidelines, as well as good business practices. (Such withdrawal or recall
shall be at Licensee's cost and expense unless the same is not
attributable to any action or omission of Licensee.)
i. If Licensee, on the basis of sampling or other testing procedures
or otherwise, determines that any Product is adulterated or not in
conformity with the Standards, Licensee shall promptly notify Eskimo of
such deficiency. If the affected Products have not been shipped from
Licensee's plant, Licensee shall promptly take all steps necessary to
ensure that such Products are not released for shipment. If the affected
Products have been shipped, Licensee shall promptly implement any
withdrawal or recall of such Products as directed by Eskimo. (Such
withdrawal or recall shall be at Licensee's cost and expense unless the
same is not attributable to any action or omission of Licensee.)
j. Licensee shall immediately notify Eskimo by telephone of any
recall ordered by federal, state or local governmental authorities, and in
implementing such recall shall cooperate with Eskimo. Licensee shall
immediately notify Eskimo by telephone of any such prospective recall or
withdrawal of the Products
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or of the need for any recall or withdrawal of the Products, followed
thereafter by written confirmation to Eskimo of such notice.
k. Eskimo reserves the right at any time reject the Products for
sale or shipment which have not been manufactured, processed, labeled,
packaged, stored, distributed or sold in compliance with the Standards.
Any material, work-in- process or Products rejected by Eskimo and
determined by Eskimo, in its sole discretion, not to be reconditionable or
salvageable shall be disposed of by Licensee at Licensee's cost and
expense (except to the extent the same is not attributable to any action
or omission of License) by destruction or in such other reasonable manner
as is directed by Eskimo.
l. Licensee shall maintain for 2 years for inspection by Eskimo the
results of all federal, state and/or local regulatory agency inspection
reports and _____________ affecting Licensee's facilities or equipment or
on the components, ________________ Associated Materials located at
Licensee's facilities. Licensee shall __________________ immediately by
telephone of any such inspections or audits which _____________
___________ presence of any bacteriological agent or substance which is
considered ____ authorities as being indicative of either unsanitary
practices or of public __________________.
m. In addition to any other inspections provided for in this Section
5, Licensee's facility shall be inspected twice each year, at Licensee's
expense (which expenses _____ be reasonable and customary), by Eskimo
Quality Assurance personnel or designated representative. The inspections
shall be based on the Standards and criteria established by the American
Institute of Baking or other nationally recognized, comparable entity (the
"Inspection Criteria"). If Licensee's facility _______to pass any such
inspection to Eskimo's satisfaction, Licensee shall have thirty (30) days,
or such longer period as hereinafter provided, within which to correct
such deficiencies ("correction period"), after which time the facility
shall be reinspected. If the deficiencies are not susceptible of
correction with due diligence within a 30-day period, Licensee shall have
such additional time as is appropriate, in Eskimo's good faith estimation,
to correct such deficiencies, provided that Licensee has commenced
correction efforts within such 30-day period and thereafter proceeds with
due diligence to complete the correction. During the correction period,
production and sale of the Products may be suspended, if, in Eskimo's good
faith opinion, such suspension is warranted. If the facility fails to pass
the reinspection, Eskimo may consider such failure to be a material breach
of this Agreement and may terminate this Agreement without further
opportunity for Licensee to remedy such breach.
n. Licensee shall have a program in place of random environmental
sampling for control of Listeria monocytogenes and Salmonella. Such
program shall be reasonably satisfactory to Eskimo. The samples must be
taken at a minimum on
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a quarterly basis, but monthly sampling is recommended. Samples shall be
tested by a qualified laboratory and copies of test results shall be sent
to Eskimo immediately upon receipt by Licensee.
o. Notwithstanding the rights of Eskimo hereunder to provide
Standards, specifications and approvals, the implementation of the
Standards by Licensee, its methods of manufacture, packaging, handling and
distribution, use of materials, special components and supplies, the
quality of the Products and all particulars relating to items of
packaging, are entirely the responsibility of Licensee (except to the
extent Eskimo is responsible for the Base under Section 6(b) and the
Trademarks under Section 10). Licensee assumes responsibility for
necessary and proper testing and use of components and materials,
including particulars which bear on product quality, shelf life and
appearance.
6. Purchase and Sale of the Base: Associated Materials:
a. Licensee agrees that it will manufacture the Products only by use
of the Base purchased from Eskimo under this Agreement in accordance with
the Standards and further that the Base purchased from Eskimo shall be
used for no purpose other than the manufacture, distribution and sale of
the Products under the Trademarks.
b. Eskimo warrants that the Base comprising any shipment or delivery
made by Eskimo to Licensee shall, as of the date of such shipment, be in
accordance with the Standards, of good and merchantable condition and fit
for the manufacture of the Products. Eskimo further warrants that the base
has been produced and shall be held, prior to shipment, in conformity with
all applicable federal, state and local rules and regulations.
c. Eskimo shall sell the Base to and Licensee shall purchase the
Base from Eskimo as provided in this Agreement. All orders for the Base
shall be in writing, or verbally with written confirmation, and, if
received by Eskimo at least 14 days before the delivery date specified in
the order ("Delivery Date"), the ordered Base shall be shipped so as to
ensure receipt of same in full by Licensee not later than the Delivery
Date; however, Eskimo shall, consistent with the requirements of its other
business, use reasonable efforts to meet Delivery Dates on shorter notice.
d. The prices for the Base, as currently in effect, as well as the
percentage of Base price to be used in calculating the Annual Base Royalty
(as hereinafter defined), are set forth on Schedule A. Current terms of
payment are net 15 days from date of invoice. Sales of Base shall be
f.o.b. point of shipment. Title and risk of loss shall pass to Licensee
upon loading on carrier's vehicle at point of shipment. Eskimo shall give
Licensee thirty (30) days' written notice prior to the effective date of
any increase in the price of Base or change in its terms of sale.
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e. Eskimo shall not be required to sell to Licensee volumes of Base
ordered to the extent such volumes exceed estimates submitted to Eskimo
under Section 8(a) of this Agreement. Eskimo shall, however, in such
cases, use reasonable efforts, consistent with the requirements of its
other business, to accommodate Licensee's request over any estimate.
f. Subject to Eskimo's prior written approval of Associated
Materials' design, Licensee shall produce Associated Materials for the
Products at its sole cost, including the cost of artwork, films, printing
plates, printing cylinders and all other related costs or have the
Associated Materials produced by a qualified supplier approved by Eskimo.
Notwithstanding Eskimo's right to provide approvals hereunder and
elsewhere in this Agreement, it is expressly understood and agreed that
Licensee assumes full responsibility for compliance with all applicable
state and federal regulations governing the packaging, labeling and
advertising of food products, including without limitation compliance with
regulations of the Food and Drug Administration under the Nutrition
Labeling Education Act of 1991 as well as compliance with regulations and
policies of the Federal Trade Commission.
7. Royalty Payments:
a. Licensee shall pay Eskimo a nonrefundable advance royalty of
$25,000, with $10,000 thereof payable upon execution of this Agreement and
$15,000 payable 90 days after execution of the Agreement, to be credited
against the Minimum Royalty (as hereinafter defined) payable for Agreement
Year 1.
b. Subject to the provisions of Section 7(d) below, shall pay Eskimo
an Earned Royalty for the use of the Trademarks hereunder equal to 3.5% of
net Wholesales ("Earned Royalty"). The amount determined by multiplying
the aggregate annual purchase price paid by Licensee to Eskimo for Base
purchased hereunder each Agreement Year times the percentage set forth on
Schedule A shall be considered to be an annual royalty for use of the Base
("Annual Base Royalty"). The sum of the annual Earned Royalty plus the
Annual Base Royalty will be considered as a total royalty, subject,
however, to the limitation that the amount of Annual Base Royalty may in
no event constitute more than 50% of such total royalty ("Royalty").
c. The Earned Royalty payments shall be due and payable on or before
the thirtieth (30th) day following the end of each calendar quarter during
the term of this Agreement, commencing with the quarter in which Products
are first sold hereunder. Licensee shall remit Earned Royalty payments
quarterly accompanied by a Royalty Statement in the form attached hereto
as Schedule B from Licensee certifying Net Wholesale Sales.
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d. For each Agreement Year (including the calendar year following a
termination pursuant to Section 2(c)), Licensee shall guarantee Eskimo the
payment of the minimum annual royalty as set forth on Schedule C ("Minimum
Royalty") as follows. If the total amount of Royalties for any Agreement
Year, determined in accordance with Section 7(b), does not equal or exceed
the amount of the Minimum Royalty for such Agreement Year, Licensee shall,
within 30 days after the end of such Agreement Year, remit to Eskimo an
amount equal to the difference between the amount of the Minimum Royalty
for such Agreement Year and the amount of Royalties for such Agreement
Year, determined in accordance with Section 7(b).
8. Reports and Records:
a. At least thirty (30) days prior to the end of each calendar
quarter, Licensee shall provide Eskimo with a reasonable good faith
written estimate of the volumes of Base that it will order during the two
(2) calendar quarters following the date of such report.
b. Within ninety (90) days after the end of each calendar year
during the term of this Agreement, Licensee shall submit to Eskimo a
certification of Licensee's certified public accountants verifying the
accuracy of the Royalty Statements submitted by Licensee to Eskimo for the
preceding year.
c. Licensee shall provide Eskimo with such other reports relating to
the Products in such form and at such intervals as is reasonable specified
by Eskimo. Such reports may include, without limitation, inventory levels
of Base, ingredients, supplies and the Products, as well as the quantities
of the Products sold and distributed.
d. Licensee shall maintain complete and accurate records relating to
the business contemplated under this Agreement (the "Records"). Upon
reasonable advance notice by Eskimo, Licensee shall permit its Records to
be examined and verified by a certified public accountant that is
acceptable to both parties, at Eskimo's expense and during normal business
hours. Licensee shall retain the Records for at least three years
following the close of the calendar year to which they pertain. -- This
makes clearer what is already there.
9. Responses to Third Party Activity:
a. Either party shall advise the other in writing to any: (i)
federal, state or local regulatory activity with respect to the Base or
the Products, the Associated Materials or particulars relating to their
production, and (ii) any actual or threatened infringement of the
Trademarks relating to the Products, within five (5) business days of
becoming aware or being notified of any such event. In such
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case, the parties shall immediately consult respecting actions to be taken
in connection therewith and be of assistance to the other in such regard;
provided, however, that Eskimo shall, in its sole discretion, determine
what actions may be appropriate relative to the Trademarks.
10. Intangible Property Rights:
a. Eskimo represents and warrants to Licensee that Eskimo (i) has
(subject to any license agreement to which it is a party) exclusive rights
to grant licenses and sublicenses for use of the Trademarks (ii) has not
licensed any Person the right to use the Trademarks in the Territory in
connection with the Products and has no knowledge of any such use, and
(iii) upon execution of this Agreement, will use reasonable to register
the Trademarks for use in connection with the Products with the U.S.
Patent and Trademark Office.
b. Eskimo agrees, that it shall, during the term of this Agreement,
maintain, protect and defend the Trademarks, including without limitation
any appropriate registration of the Trademarks. If requested by Eskimo,
Licensee shall assist Eskimo (i) in causing appropriate copyright and
trademark notices satisfactory to Eskimo to be placed on all materials
embodying the Trademarks and (ii) in cooperating with Eskimo in the
execution, filing and prosecution of any applications to register
trademarks or copyrights that may be filed by Eskimo, including supplying
samples of Associated Materials. If Eskimo at any time fails to maintain,
protect or defend its rights to, and any registration of the Trademarks,
Licensee shall have the right, in addition to any other right available to
it, to terminate this Agreement by written notice thereof to Eskimo.
c. Licensee acknowledges (i) Eskimo's exclusive right, title and
interest in and to the Trademarks used in connection with the Products and
(ii) the validity of any registrations thereof. Licensee further
acknowledges that Licensee shall not, by reason of this Agreement, or
otherwise, acquire any right, title or other ownership interest therein
other than the license contemplated by this Agreement. The use by License
of the Trademarks and all goodwill arising therefrom shall inure solely to
the benefit of Eskimo. License agrees and undertakes not to contest,
challenge or infringe the Trademarks either during or after the
termination of this Agreement. Licensee shall use the Trademarks only in
connection with manufacture, distribution and sale of the Products
hereunder. On any Termination Date, any and all rights granted to License
in connection with the use of the Trademarks shall automatically cease and
terminate, as shall Licensee's right to purchase the Base from Eskimo.
d. Licensee shall comply with requirements issued from time to time
by Eskimo with respect to the use of the Trademarks and shall not release
or permit the initial release of any Associated Materials (expressly
including any and all
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advertising materials) using the Trademarks without the prior written
consent of Eskimo. Licensee shall not at any time either during or after
the determination of this Agreement use, or authorize others to use, any
other mark or name in conjunction with the Trademarks or any other
trademark, service mark or trade name confusingly similar to the
Trademarks.
e. In the event of any act or failure to act by the Licensee which
in the reasonable opinion of Eskimo constitutes a danger to the value or
validity of Eskimo's rights in the Trademarks, Eskimo may in lieu of or in
addition to any other remedy available to them (including termination of
this Agreement) give notice to the Licensee describing the danger and may
suspend in whole or in part (effective on the Licensee's receipt of the
notice) the rights of the Licensee to use the Trademarks. The suspension
shall continue until Eskimo has reasonable determined that the danger no
longer exists.
f. License agrees that it shall not:
(i) produce the Products with any components other than those
specified in the Standards or use the Trademarks on any product not
produced with the components specified in the Standards;
(ii) adulterate or misbrand the Products;
(iii) adulterate the Base;
(iv) produce or identify the Products under any trademark
except the Trademarks; or
(v) produce or identify any product or goods other than the
Products under the Trademarks or any mark or name confusingly
similar to the Trademarks, whether in style, appearance or
phonetics.
g. Upon expiration of this Agreement or any Termination Date Eskimo
shall retain all rights in, and remain the sole owner of, the Base and the
Trademarks, and any and all rights of Licensee hereunder to use the Base,
or the Trademarks shall automatically cease;
h. Nothing in this Agreement shall prevent Eskimo, after the
termination or expiration of this Agreement, from manufacturing,
distributing or selling, directly or through licenses, products comparable
to the Products.
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11. Eskimo's Right to Terminate:
Eskimo shall have the right, without waiving any right or remedy it
may otherwise have, to terminate this Agreement:
a. by written notice to Licensee on any breach or default by
Licensee of or in connection with any material provision hereof;
b. if a petition in bankruptcy, an arrangement for the benefit of
creditors or a petition for reorganization is filed by or against
Licensee, if Licensee shall make any assignment for the benefit of
creditors, or if a receive or trustee is appointed for Licensee or its
business;
c. If Licensee defaults in the performance or observance of or
otherwise violates any of tits other obligations or duties, Eskimo may
terminate this Agreement upon 30 days written notice to Licensee; or
d. If Licensee discontinues its business or discontinues the
business contemplated by this Agreement or there is a change in control of
the ownership of Licensee (whether by acquisition of more than 50% of the
voting power of its outstanding securities, merger, consolidation, share
exchange, or sale or transfer of 50% or more of its assets or earning
power).
The above provisions to the contrary notwithstanding, any
circumstances which would otherwise be breach or default by Licensee
(other than those specified in Section 11(b) and (d) hereof) shall not be
a breach or default with the remedy of the exercise of the right of
termination being available to Eskimo unless (i) if the breach or default
be one which can be cured by payment of money, License shall have failed
to cure same to Eskimo's satisfaction within 7 days after notice thereof
given to Licensee, or (ii) if the breach or default cannot be cured by the
payment of money but is capable of cure by affirmative act or a
discontinuance of action, Eskimo shall have given License notice of such
breach or default and Licensee shall have failed to cure the same to
Eskimo's reasonable satisfaction within 30 days thereafter, or if it be
one which cannot with due diligence be cured within 30 days, Licensee
shall have failed to commence curing such breach or default with due
diligence within such 30-day period and to proceed thereafter with due
diligence and good faith to complete the curing hereof within a time
appropriate therefor. The effective date of any termination of this
Agreement shall be the Termination Date as determined in accordance with
Section 13(c) hereof.
12. Licensee's Right to Terminate:
Licensee shall have the right, without waiving any right or remedy it may
otherwise have, to terminate this Agreement:
-14-
<PAGE> 15
a. by written notice to Eskimo on any breach or default by Eskimo of
or in connection with any material provision hereof;
b. if a petition in bankruptcy, an arrangement for the benefit of
creditors or a petition for reorganization is filed by or against Eskimo,
if Eskimo shall make an assignment for the benefit of creditors, or if a
receive or trustees is appointed for Eskimo or its business;
c. if Eskimo defaults in the performance or observance of or
otherwise violates any of its obligations or duties, License may terminate
this Agreement upon 30 days written notice to Eskimo; or
d. If Eskimo discontinues its business or discontinues the business
contemplated by this Agreement.
The above provisions to the contrary notwithstanding, any circumstances
which would otherwise be a breach or default by Eskimo (other than those
specified in Section 12(b) and (d) hereof) shall not be a breach or default with
the remedy of the exercise of the right of termination being available to
Licensee unless (i) if the breach or default be one which can be cured by
payment of money, Eskimo, or (ii) if the breach or default cannot be cured by
the payment of money but is capable of cure by affirmative act or a
discontinuance of action, Licensee shall have given Eskimo notice of such breach
or default and Eskimo shall have failed to cure the same to Licensee's
reasonable satisfaction within 30 days thereafter, or if it be one which cannot
with due diligence be cured within 30 days, Eskimo shall have failed to commence
curing such breach or default with due diligence within such 30-day period and
to proceed thereafter with due diligence and good faith to complete the curing
thereof within a time appropriate therefor. The effective date of any
termination of the Agreement shall be the Termination Date as determined in
accordance with Section 13(c) hereof.
13. Obligation on Termination:
On expiration of this Agreement or its termination for any reason:
a. Any indebtedness which may then be owing or which is to become
due and owing by one party to the other shall become due and payable
immediately;
b. Except as provided in 13(c) below, Licensee shall discontinue the
use of the Trademarks in connection with the Products;
c. (i) In the event of expiration or termination of the Agreement
for any reason other than those set forth in Section 13(e)(ii) below,
Licensee shall have a reasonable time period not to exceed 12 months to
use up, on a non-exclusive basis, Base and Associated Materials which are
in its inventory or in the process of manufacture, subject to the terms
and conditions of this Agreement provided,
-15-
<PAGE> 16
in particular, that any payments due Eskimo (including without limitation
any Earned Royalty payments) are up-to-date. At the end of such period or
when the Base and Associated Materials are entirely consumed, whichever
occurs first ("Termination Date"), any unused Base and Associated
Materials identifiable with the Products shall be destroyed at Licensee's
expense with the same witnessed by or established to the satisfaction of
Eskimo, whereupon the Agreement shall terminate.
(ii) In the event of termination (x) pursuant to section 11(b)
or (d), or (y) based on Licensee's failure to affix notice of
copyright, trademark or service mark registration, or any other
notice required on the Products or Associated Materials, or (z)
based on Licensee's failure to comply with the Standards, Licensee
shall, within five (5) days of receipt of notice of termination
("Termination Date"), destroy at License's expense all non-complying
Products, Base and Associated Materials in its inventory, and shall
resell to Eskimo, or at Eskimo's sole option destroy at Licensee's
expense, any other Associated Materials or Base in its inventory,
whereupon the Agreement shall terminate.
14. Indemnity and Insurance:
a. Licensee shall indemnify and Eskimo and its officers, directors,
employees and agents harmless from any liability, loss, expense (including
reasonable attorney's fees and disbursement) or claim paid or incurred by
Eskimo involving or arising out of (i) any act or omission by Licensee in
the performance of its obligations under this Agreement or (i) claim that
any trademarks or trade dress owned by Licensee and used in connection
with the Products infringes any valid patent, trademark, trade name,
design, copyright or application therefor or registration thereof or any
other proprietary right of any third party; provided, however, that
Licensee's obligation hereunder shall in no way require defense or
indemnification regarding any liability, loss, expense or claim to the
extent that same arises from any act or omission of Eskimo.
b. Eskimo shall indemnify and hold Licensee and its officers,
directors, employees and agents harmless from any liability, loss, expense
(including reasonable attorneys' fees and disbursements) or claim
resulting from or arising out of any act or omission by Eskimo in the
performance of its obligations under this Agreement, including without
limitation those that arise directly or indirectly from a claim that the
Trademarks as used in accordance with this Agreement on the products
infringes any valid patent, trademark, trade name, design, copyright or
application therefor or registration thereof or any other proprietary
right of any third party; provided, however, that Eskimo's obligation
hereunder shall in no way require defense or indemnification regarding any
liability, loss, expense or claim to the extent that same arises from any
act or omission of Licensee.
-16-
<PAGE> 17
c. Eskimo and Licensee each reserve the right, at its own expense,
to participate by counsel of its own choosing in any defense which is
being provided to the other under the terms of this Section. At its own
expense, each of the parties hereto shall maintain, with insurers
acceptable to the other comprehensive general liability insurance,
including, but not limited to, product liability and liability coverage of
minimum limits of note less than $10,000,000 for each accident or
occurrence with the other named as an additional insured.* The policies
for such insurance shall contain vendor's coverage and require the insurer
to give Eskimo and Licensee 30 days' prior written notice of any
cancellation or termination of such insurance. Certificates of such
insurance shall be sent by each to the other and, upon a party's request,
copies of such policies shall be delivered to the other.
15. Force Majeure:
Whenever performance by a party of any of its obligations hereunder, under
than the payment of money due, is substantially or completely interrupted or
prevented by reason of an act of God, strike, lockout, labor trouble or other
industrial disturbance, transportation dislocation, shortage of supply,
casualty, civil strife or a circumstance beyond the reasonable and good faith
control of the party required to act, such performance shall be excused for the
period during which such state of affairs continues.
16. Relationship of the Parties:
Licensee's relationship to Eskimo is that of independent contractor.
Nothing in this Agreement shall create between Eskimo and Licensee the
relationship of principal and agent, joint ventures, partners, or any other
similar or representative relationships, and neither party shall hold itself out
as an agent, representative, partner or joint venture of the other. Neither
party shall make for or on behalf of the other, or subject the other to, any
contract, agreement, warranty, guarantee, representations, assurance or other
obligation.
17. Confidential Information:
Each party acknowledges that all information relating to the business and
operations of the other which is disclosed to the other or which the other
learns during the term of this Agreement, including without limitation, data,
experience, formulas, methods, processes, techniques, business plans, product
development information and know-how whether of a technical engineering,
operational or business nature for the use, manufacture, storage and handling of
the Base and Products, is the valuable, proprietary information of the other
("Confidential Information"). Confidential Information does not include
information (i) that is or
- ----------
* minimum limits can be provided using any combination of primary
comprehensive general liability and umbrella liability limits to total $10
million per occurrence.
-17-
<PAGE> 18
becomes available in the public domain without breaching this Section 17, (ii)
that is already known to one party prior to its disclosure pursuant to this
Agreement by the other party, and (iii) information that is lawfully obtained
from any other Person. Each party acknowledges the need to preserve the secrecy
and confidentiality of the other's Confidential Information, and agrees that,
during the term of this Agreement and after termination thereof, neither party
shall use or disclose Confidential Information of the other except as is
necessary for each party to perform under the Agreement. Each party shall take
reasonable steps to ensure confidentiality and secrecy, and each party agrees to
indemnify the other against any damage which may be suffered by the other as a
result of a willful beach of this Section 17. Upon the expiration or any
Termination Date of this Agreement, each party shall upon the request of the
other deliver promptly to the other all documents containing such party's
Confidential Information that are in the possession or control of the other
party.
18. Waiver:
No failure or delay of a party to exercise any right available to it, or
to insist on strict compliance by the other as to any of its obligations, and no
custom or practice of the parties at variance with the terms of this Agreement
shall constitute a waiver of any right. Wavier by a party of any particular
default by the other shall not affect or impair the rights in respect to any
subsequent default of the same or a different nature.
19. Restrictions on Transfer:
Neither this Agreement nor any right, duty or authority granted or created
hereunder may be transferred, encumbered, assigned or delegated by either party,
whether by operation of law or otherwise, without prior written consent of the
other party; provided, however, that transfers, assignments or delegations by
Eskimo to any of its affiliates shall not require such prior written consent.
20. Notices:
Any notice given pursuant to this Agreement shall be in writing and shall
be faxed and sent by registered or certified mail, postage prepaid, to the party
intended to receive such notice at address as set forth herein and so deemed
______________________.
if to : _____________________
_____________________
_____________________
-18-
<PAGE> 19
with a copy to: _____________________
_____________________
_____________________
21. Entire Agreement:
This Agreement _______________________ _____________ ______________
parties and supersedes and cancels all prior agreements with respect to the
subject ___________________. No change or modification of any of the provisions
of this Agreement shall be effective unless in writing signed by the duly
authorized representatives of the parties and any such change or modification
shall not be effective until executed by both parties.
22. Governing Law.
This Agreement is entered into the Commonwealth of Virginia and the
validity, construction and effect of this Agreement and an other agreement or
contract between the parties with respect to the subject matter hereof (and all
performance related thereto) shall be governed, enforced and interpreted under
the laws of the Commonwealth of Virginia applicable to agreements made and to be
performed therein.
23. Headings:
The headings contained in this Agreement are not to be used for
interpretation of this Agreement, but rather have been placed herein solely for
the convenience of the parties.
24. Authority:
Each party represents and warrants to the other that it has full power and
authority to enter into this Agreement, that its signatory is authorized to
execute this Agreement, and that execution and performance of this Agreement
shall not conflict with any existing agreements with other parties.
IN WITNESS WHEREOF, the parties have caused this Agreement to be executed
by their respective authorized officers as of the date first written above.
ESKIMO PIE CORPORATION THE DELICIOUS/FROOKIE
COMPANY, INC.
By: /s/ Illegible By: /s/ Richard Worth
--------------------- ---------------------
Title:Pres. Title: Chairman
--------------------- ---------------------
-19-
<PAGE> 20
Schedules to Agreement
Schedule A Base Prices
Schedule B Form of Royalty Statement
Schedule C Minimum Royalties
-20-
<PAGE> 21
Schedule A
Base Prices
<TABLE>
<CAPTION>
Product Code Description Price/lb.*
<S> <C> <C>
17-0751-5050 Eskimo Pie Pre-Blend $0.85
Powder for Chocolate Coating
</TABLE>
- ----------
* -F.O.B. - Shipping Point
Terms - Net 15 days
Percentage of price to be used in calculating the annual base royalty =
20%
-21-
<PAGE> 22
Schedule B
FORM OF
ROYALTY STATEMENT
FOR
THE DELICIOUS/FROOKIE COMPANY, INC.
QUARTER ENDED:
---------------------
PRODUCE:
----------------------------
Earned Royalty Calculation
Total Units Sold
---------------------
X Net Wholesale Price/Unit $
---------------------
= Total Net Wholesale Sales $
---------------------
Earned Royalty Rate = 3.5%
Earned Royalty Due =
Total Net Wholesale Sales X 3.5% $
---------------------
<TABLE>
<CAPTION>
Recap of Earned Royalty Payments
<S> <C>
1st Quarter YTD
2nd Quarter YTD
3rd Quarter YTD
4th Quarter YTD
</TABLE>
-22-
<PAGE> 23
Minimum Royalties
<TABLE>
<CAPTION>
Agreement Year Minimum Royalty
-------------- ---------------
<S> <C> <C>
1 $30,000
2 $60,000
3 $60,000
4 $75,000
5 $75,000
</TABLE>
-23-
<PAGE> 1
Exhibit 10.15
ESKIMO PIE CORPORATION
May 1, 1997
Mr. Mark Robson, Controller
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Dear Ms. Robson,
I am in receipt of your check number 009650 dated April 25, 1997 in the amount
of $2076.01. The original agreement was for 3.5% royalty with Frookies buying a
chocolate powder from Eskimo Pie. After trials at utilizing our powder in your
process, it was determined that Frookies would not be required to buy the Eskimo
powder but could use its standard powder for making the chocolate coating and
that the royalty rate would increase to 4% for cookies.
We sent an amendment to the agreement to Richard Worth on February 25, 1997
which incorporated this royalty rate change into the agreement. The attached
letter from Howard Miskin to Steve Siegel indicates Mr. Worth's agreement with
the 4% royalty rate.
Please change your records to indicate that the royalty rate for Eskimo Pie
Igloos and Icicles is 4%. The payment referenced above is short by $296.57 based
on the correct royalty rate. Please include this additional amount in the next
quarterly payment or issue a check to cover this amount, whichever is more
convenient for you.
If you have any questions, please call me (804) 560-8460.
Sincerely
ESKIMO PIE CORPORATION
/s/ James L. Cheatham
James L. Cheatham
Assistant Vice President
cc: Steve Seigel
901 MOOREFIELD PARK DRIVE - RICHMOND, VIRGINIA 23236
POST OFFICE BOX 26906 - RICHMOND, VIRGINIA 23261
TELEPHONE (804) 560-8400 - FAX # (804) 330-3537
<PAGE> 1
EXHIBIT 10.16
CONSULTING, LOAN REPAYMENT AND
NONCOMPETITION AGREEMENT
Consulting, Loan Repayment and Noncompetition Agreement ("Agreement")
dated as of August 13, 1997 between Richard S. Worth ("Consultant") and The
Delicious Frookie Company, Inc., a Delaware corporation ("Company").
RECITALS
A. Consultant has been an executive officer and director of the Company
and is familiar with all of its activities.
B. Contemporaneously with the execution of this Agreement, Consultant is
resigning all offices Consultant holds with the Company.
C. The Company desires to retain Consultant as an independent contractor
to render advice to the Company in connection with its business for one year.
D. Consultant is willing to advise the Company on certain matters and
provide the services set forth in this Agreement.
E. The parties desire to provide for the repayment of certain obligations
of the Consultant to the Company.
F. The Company desires to prevent the Consultant from competing with the
Company in the business of manufacturing, marketing and/or distributing cookies
and/or crackers as described in Section 4 below.
G. Contemporaneously with the execution of this Agreement,
(a) the Consultant and/or Randye Worth is executing and depositing
into escrow, pursuant to a Master Escrow Agreement dated as of August 13, 1997
by and among the Consultant, Randye Worth, Howard C. Miskin, William H. Bowser,
the Company and Graubard Mollen & Miller, as escrow agent ("Master Escrow
Agreement"), the following agreements:
(i) Common Stock and Option Purchase Agreement ("Stock and
Option Agreement") among the Consultant, Randye Worth, each of the Investors
listed on the signature page and Schedule A thereto ("Investors") and the
Company;
(ii) Purchase Options ("Purchase Options") covering an
aggregate of 1,000,000 shares of Common Stock of the Company owned beneficially
or held of record by the Consultant and/or Randye Worth, between the Consultant
and/or Randye Worth and certain of the Investors;
(iii) Asset Purchase Agreement ("Asset Purchase Agreement")
between the Company and Consultant;
<PAGE> 2
(iv) Option Escrow Agreement ("Option Escrow Agreement") among
the Consultant, Randye Worth, the Company, the holders of the Purchase Options
and Graubard Mollen & Miller, as escrow agent;
(v) Voting Trust Agreement ("Voting Trust Agreement") among
the Worths, Graubard Mollen & Miller, the Company and the Voting Trustee named
therein; and
(b) Howard C. Miskin and William H. Bowser are depositing into
escrow pursuant to the Master Escrow Agreement their respective Director
Resignations (as defined in the Stock and Option Agreement).
IT IS AGREED:
1. Engagement, Duties and Acceptance.
1.1 The Company hereby retains Consultant as a consultant to the
Company from the date hereof until the first anniversary of the closing
contemplated by the Stock and Option Agreement ("Consulting Period") upon the
terms and conditions hereinafter set forth.
1.2 Consultant hereby agrees to provide consulting services to the
Company in connection with the Company's business during the Consulting Period,
including, but not limited to, (i) assistance in the formulation of products,
(ii) support of the Company's chief executive officer ("CEO") and board of
directors ("Board") in connection with the transition to new management, (iii)
assistance in the promotion of new brands or products through attendance at
special events or trade meetings, and (iv) such other services as may be
reasonably requested by the CEO or Board.
1.3 Consultant shall render his services only upon specific request
of the Company's CEO or Board for same, consistent with the type of services
requested from a senior consultant to the Company.
1.4 Consultant shall have no authority to commit or bind the Company
under any oral or written agreement or contract without the prior written
approval of the Company.
1.5 Other than as specifically requested by the CEO or the Board,
Consultant will not participate in the day-to-day operations of the Company, and
Consultant may not discuss the Company or its business with anyone, including
the Company's stockholders, officers or employees, and any analysts or other
investment professionals, without the supervision or approval of the CEO, unless
undertaken solely in furtherance of the performance of his specific duties under
this Agreement. Any money damages recoverable by the Company for breach or
violation by Consultant of this Section 1.5 during the Consulting Period shall
be limited to $25,000 for each such breach or violation. The Consultant and the
Company agree that it is impossible to determine with any reasonable accuracy
the amount of prospective damages to Company upon breach or violation of this
Section 1.5.
1.6 The Consultant acknowledges and agrees that the Company may
require services of Consultant hereunder of up to 10 hours per week (including
travel time away from the city in which the Consultant maintains his office in
Florida) and agrees to make himself available to provide such services. The
Company and Consultant acknowledge and agree that the
2
<PAGE> 3
services to be provided hereunder shall require performance primarily in the
city in which Consultant maintains his office in Florida, although it is
anticipated that Consultant's services may require infrequent travel, including
multiple-day stays, to other locations.
2. Compensation.
2.1 As full compensation during the term of this Agreement for all
Consultant's services to be rendered hereunder, the Company agrees to pay to
Consultant an amount equal to $111,345 per annum, $100,000 of which shall be
paid in equal monthly installments and $11,345 of which shall be credited
towards repayment of the Loan (as hereinafter defined) after each year of
service under this Agreement.
2.2 The Company shall provide Consultant with medical and
hospitalization insurance coverage during the term of this Agreement to the same
extent as it provides for its executive employees.
2.3 The Company shall provide Consultant with an automobile
allowance of up to $7,300 per year for three years from the date of this
Agreement, which allowance shall be payable on a monthly basis. Consultant
agrees that within 60 days of the date of this Agreement the present lease on
the automobile leased by the Company for Consultant's use shall be transferred
to Consultant or terminated.
2.4 The Company shall pay Consultant a non-accountable expense
allowance of $70,000 per year, for three years from the date of this Agreement,
to cover expenses incurred in maintaining an office (which shall not be an
office of the Company) in Florida; provided that the Consultant shall not incur
any expenses in the name of the Company.
2.5 The Company shall pay or reimburse Consultant for all valid
business expenses (including travel and entertainment) reasonably incurred by
Consultant in the conduct of his duties hereunder during the Consulting Period
upon presentation of appropriate receipts and expense reports detailing the
amounts and purposes of any expenditures. No expenditure or series of similar
expenditures in excess of $500 shall be incurred by Consultant without the prior
consent of the CEO or the Board, and the Consultant shall not incur any
expenditures in the name of the Company.
3. Term and Termination.
3.1 The term of this Agreement shall commence on the date hereof and
shall continue until August 13, 2002 ("Expiration Date"), unless sooner
terminated as herein provided.
3.2 This Agreement shall terminate immediately if, after the date
hereof, Consultant is reappointed or reelected to the Company's board of
directors and is reappointed or reelected an executive officer of the Company.
3.3 Provided that the insurance policy described in this Section 3.2
is in effect, if Consultant dies during the term of this Agreement the Company
shall have no further obligation to make any payments under Section 2 of this
Agreement, except that the Company shall pay to the legal representative of
Consultant's estate all monies due hereunder up to the date of his death (less
all amounts to be credited towards repayment of the Loan). For the term of this
3
<PAGE> 4
Agreement, the Company shall pay the premiums for a term life insurance policy
on the life of the Consultant, which shall provide for a benefit equal to the
remaining payments due under this Agreement at the time of Consultant's death
(except for the payments described in Sections 2.3 and 2.4 of this Agreement)
net of all amounts due to the Company in accordance with Section 7 hereof, and
which shall be payable to the beneficiaries named by Consultant on such policy.
Consultant agrees to comply with all reasonable requests of the Company and its
representatives in order to enable the Company to obtain such policy.
3.4 The Company, by notice to Consultant, may terminate this
Agreement for proper cause. As used herein, "proper cause" shall mean that
Consultant has:
(a) during the Consulting Period, continually refused or
failed to carry out specific reasonable directions of the CEO or
Board, or refused or failed to perform a material part of his duties
hereunder, which refusal or failure has not been corrected within 30
days after notice has been given to Consultant specifying such
refusal or failure;
(b) committed a material breach of any of the provisions of
this Agreement or of the Stock and Option Agreement, Purchase
Options, Asset Purchase Agreement, Option Escrow Agreement or Voting
Trust Agreement, which breach has not been corrected within 30 days
after notice has been given to Consultant specifying such breach;
(c) acted fraudulently or dishonestly in his relations with
the Company;
(d) during the Consulting Period, committed larceny,
embezzlement, conversion or any act involving the misappropriation
of funds in the course of his engagement hereunder; or
(e) been convicted of or plead nolo contendere to any crime
constituting a felony in the jurisdiction in which the act
constituting the crime occurred, constituting an alleged civil
charge of sexual harassment which has caused monetary harm to the
Company or which could tend to injure the reputation of the Company
or expose it to unfavorable publicity, or involving an act of moral
turpitude, but only if the act constituting such crime, sexual
harassment or act of moral turpitude occurred during the Consulting
Period.
3.5 During the Consulting Period the Company may, by notice to
Consultant, terminate this Agreement if Consultant shall, because of illness or
incapacity, fail to render services requested by the CEO or the Board of the
character contemplated by this Agreement for 90 successive days or for shorter
periods aggregating 180 days or more. Notwithstanding such termination, the
Company shall pay to Consultant all monies due hereunder up to the date of such
notice of termination (less all amounts to be credited towards repayment of the
Loan).
4
<PAGE> 5
4. Protection of Confidential Information; Non-Competition.
4.1 Consultant acknowledges that:
(a) As a result of his prior employment by the Company and his
engagement as a Consultant to the Company, Consultant has obtained
and will obtain secret and confidential information concerning the
business of the Company and its affiliates, including, without
limitation, the identity of customers and sources of supply, their
needs and requirements, the nature and extent of contracts with
them, and related cost, price and sales information.
(b) The Company and its affiliates will suffer substantial
damage which will be difficult to compute if, during the term of
this Agreement or thereafter, Consultant should enter a competitive
business or should divulge secret and confidential information
relating to the business of the Company heretofore or hereafter
acquired by him in the course of his engagement as a consultant to
the Company.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company and its
affiliates.
4.2 Consultant agrees that he will not at any time, either during
the term of this Agreement or thereafter, divulge to any person, firm or
corporation any information obtained or learned by him during the course of his
engagement as a consultant to the Company, or prior to the commencement thereof
in the course of his employment with the Company, with regard to the
operational, financial, business or other affairs of the Company or its
affiliates, their officers and directors, including, without limitation, trade
"know how," secrets, customer lists, sources of supply, pricing policies,
operational methods or technical processes, except (i) in the course of
performing his duties hereunder and with the express written consent of the CEO
or the Board; (ii) to the extent that any such information is in the public
domain other than as a result of Consultant's breach of any of his obligations
hereunder; or (iii) where required to be disclosed by court order, subpoena or
other government process. In the event that Consultant shall be required to make
disclosure pursuant to the provisions of clause (iii) of the preceding sentence,
Consultant promptly, but in no event more than 48 hours after learning of such
subpoena, court order, or other government process, shall notify, by personal
delivery or by cablegram, confirmed by mail, the Company and, at the Company's
expense, Consultant shall: (a) take all reasonably necessary steps requested by
the Company to defend against the enforcement of such subpoena, court order or
other government process, and (b) permit the Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
4.3 Consultant agrees that he will not at any time, either during
the term of this Agreement or thereafter, use the trademarks "Frookie" or
"Delicious" or the term "The Good For You," or any logo using such trademarks or
term, with reference to any edible product for any purpose except in the course
of performing his duties hereunder and with the express written consent of the
CEO or the Board.
4.4 Upon termination of this Agreement, or at any time the Company
may so request, Consultant will promptly deliver to the Company all memoranda,
notes, records, reports, manuals, drawings, blueprints and other documents (and
all copies thereof) relating to the
5
<PAGE> 6
business of the Company and its affiliates and all property associated
therewith, which he may then possess or have under his control.
4.5 In connection with and consideration for the transactions
contemplated by this Agreement and the Stock and Option Agreement, the Purchase
Options and the Asset Purchase Agreement, Consultant agrees that, until August
13, 2002, Consultant shall not, without the prior written permission of the
Company, in the United States, its territories and possessions, or any other
countries where the Company currently or at termination of this Agreement sells
its products, directly or indirectly, (i) enter into the employ of or render any
services to any person, firm or corporation engaged in any Competitive Business
(as defined in Section 6); (ii) engage in any Competitive Business for his own
account; (iii) become associated with or interested in any Competitive Business
as an individual, partner, shareholder, creditor, director, officer, principal,
agent, employee, trustee, consultant, advisor or in any other relationship or
capacity; (iv) solicit the employment or retention by any Competitive Business
of any person who was employed or retained by the Company or any of its
affiliates while Consultant was employed by, or serving as a consultant to, the
Company; or (v) solicit, interfere with, or endeavor to entice away from the
Company or any of its affiliates any of its or their customers or sources of
supply. However, nothing in this Agreement shall preclude Consultant from
investing his personal assets in the securities of any corporation or other
business entity which is engaged in a Competitive Business if such securities
are traded on a national stock exchange or in a public over-the-counter market
and if such investment does not result in his beneficially owning, at any time,
more than 5% of the publicly-traded equity securities of such competitor.
4.6 If Consultant commits a breach, or threatens to commit a breach,
of any of the provisions of this Section 4, the Company shall have the right and
remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Consultant that the services being
rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach will cause
irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and
(b) to require Consultant to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or
other benefits (collectively "Benefits") derived or received by
Consultant as the result of any transactions constituting a breach
of any of the provisions of Sections 4.2 or 4.5, and Consultant
hereby agrees to account for and pay over such Benefits to the
Company.
Each of the rights and remedies enumerated in this Section 4.6 shall be
independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
4.7 If Consultant shall violate any covenant contained in Section
4.5, the duration of such covenant so violated shall be extended automatically
for a period of 2 years from the date on which Consultant permanently ceases
such violation or for a period of two years from the date of the entry by a
court of competent jurisdiction of a final order or judgment enforcing such
covenant, whichever period is later.
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4.8 If any provision of this Section 4 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration, or area,
or all of them, and such provision or provisions shall then be applicable in
such modified form.
5. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement, the making, interpretation or the breach thereof,
other than a claim solely for injunctive relief for any alleged breach of the
provisions of Section 4.2 or 4.5, as to which the parties shall have the right
to apply for specific performance to any court having equity jurisdiction, shall
be submitted to arbitration in New York City before a panel of three arbitrators
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof and any party to the
arbitration may, if he or it so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. The powers
of the arbitrators shall include, but not be limited to, the awarding of
injunctive relief. The arbitrators shall include in any award in the prevailing
party's favor the amount of his or its reasonable attorneys' fees and expenses
and all other reasonable costs and expenses of the arbitration. In the event
that the arbitrators do not rule in favor of the prevailing party in respect of
all the claims alleged by such party, the arbitrators shall include in any award
in favor of the prevailing party the amount of his or its reasonable attorneys'
fees and other expenses and such other reasonable costs and expenses of the
arbitration as they deem just and equitable under the circumstances. Except as
provided above, each party shall bear his or its own attorneys' fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
6. Definitions. As used in this Agreement:
(a) "Affiliate" shall mean any entity that, directly or
indirectly, is controlled by, controlling, or under common control
with the Company.
(b) "Competitive Business" shall mean any business engaged in
the manufacture, marketing and/or distribution of cookies and/or
crackers.
7. Loan. Consultant hereby acknowledges that he is indebted to the Company
in the aggregate amount of $56,725.09 for monies advanced to Consultant by the
Company prior to the date hereof and agrees that such Loan shall be fully repaid
to the Company within five years from the date hereof as provided in Section 2.1
of this Agreement; provided, however, that upon termination of this Agreement
for any reason other than pursuant to Section 3.2, the entire remaining
principal amount of the Loan shall be forgiven and deemed to have been paid to
Consultant as compensation, and the Company shall thereupon issue to Consultant
a Form 1099 with respect to such compensation at the appropriate time.
8. Miscellaneous Provisions.
8.1 Any notice required or permitted under this Agreement shall be
given in writing and shall either be delivered personally or sent by certified
mail, return receipt requested, postage prepaid, or by Federal Express next
business day service with signed receipt required, to the parties at their
respective addresses set forth below, or to such other address as either shall
have specified by notice in writing to the other, and shall be deemed duly given
hereunder
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when so delivered. Any notice to Consultant shall be sent to him at 1497 Rail
Head Boulevard, Unit #2, Naples, Florida 74110-8444, and any notice to the
Company shall be sent to the Company at 2720 River Road, Suite 126, Des Plaines,
Illinois 60018, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties, with copies to Steven
Wolosky, Esq., Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New
York, New York 10022 and David Alan Miller, Esq., Graubard Mollen & Miller, 600
Third Avenue, New York, New York 10016-2097.
8.2 This Agreement, together with the Stock and Option Agreement,
Purchase Options, Asset Purchase Agreement, Option Escrow Agreement, Master
Escrow Agreement, Voting Trust Agreement and Director Resignations, sets forth
the entire agreement of the parties and is intended to supersede all prior
negotiations, understandings and agreements with respect to the subject matter
hereof. No provision of this Agreement may be waived or changed except by a
writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce such
provision.
8.3 This Agreement and all amendments thereof shall, in all
respects, be governed by and construed and enforced in accordance with the
internal law of the State of New York without regard to principles of conflicts
of laws.
8.4 The article headings are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of any provision of this Agreement.
8.5 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Consultant and shall inure to the benefit of and be binding upon
Consultant and his legal representatives.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CONSULTANT:
/s/ Richard S. Worth
-------------------------------------
Richard S. Worth
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
---------------------------------
Name: JEFFRY WEINER
Title: CHIEF FINANCIAL OFFICER
<PAGE> 1
EXHIBIT 10.17
CONSULTING, LOAN REPAYMENT AND
NONCOMPETITION AGREEMENT
Consulting, Loan Repayment and Noncompetition Agreement ("Agreement")
dated as of August 13, 1997 between Randye Worth ("Consultant") and The
Delicious Frookie Company, Inc., a Delaware corporation ("Company").
RECITALS
A. Consultant has been an executive officer and director of the Company
and is familiar with all of its activities.
B. Contemporaneously with the execution of this Agreement, Consultant is
resigning all offices Consultant holds with the Company.
C. The Company desires to retain Consultant as an independent contractor
to render advice to the Company in connection with its business for one year.
D. Consultant is willing to advise the Company on certain matters and
provide the services set forth in this Agreement.
E. The parties desire to provide for the repayment of certain obligations
of the Consultant to the Company.
F. The Company desires to prevent the Consultant from competing with the
Company in the business of manufacturing, marketing and/or distributing cookies
and/or crackers as described in Section 4 below.
G. Contemporaneously with the execution of this Agreement,
(a) the Consultant and/or Richard S. Worth is executing and
depositing into escrow, pursuant to a Master Escrow Agreement dated as of August
13, 1997 by and among Richard S. Worth, the Consultant, Howard C. Miskin,
William H. Bowser, the Company and Graubard Mollen & Miller, as escrow agent
("Master Escrow Agreement"), the following agreements:
(i) Common Stock and Option Purchase Agreement ("Stock and
Option Agreement") among Richard S. Worth, the Consultant, each of the Investors
listed on the signature page and Schedule A thereto ("Investors") and the
Company;
(ii) Purchase Options ("Purchase Options") covering an
aggregate of 1,000,000 shares of Common Stock of the Company owned beneficially
or held of record by the Consultant and/or Richard S. Worth, between the
Consultant and/or Richard S. Worth and certain of the Investors;
(iii) Asset Purchase Agreement ("Asset Purchase Agreement")
between the Company and Richard S. Worth;
<PAGE> 2
(iv) Option Escrow Agreement ("Option Escrow Agreement"),
among Richard S. Worth, the Consultant, the Company, the holders of the Purchase
Options and Graubard Mollen & Miller, as escrow agent; and
(v) Voting Trust Agreement ("Voting Trust Agreement") among
the Worths, Graubard Mollen & Miller, the Company and the Voting Trustee named
therein; and
(b) Howard C. Miskin and William H. Bowser are depositing into
escrow pursuant to the Master Escrow Agreement their respective Director
Resignations (as defined in the Stock and Option Agreement).
IT IS AGREED:
1. Engagement, Duties and Acceptance.
1.1 The Company hereby retains Consultant as a consultant to the
Company from the date hereof until the first anniversary of the closing
contemplated by the Stock and Option Agreement ("Consulting Period") upon the
terms and conditions hereinafter set forth.
1.2 Consultant hereby agrees to provide consulting services to the
Company in connection with the Company's business during the Consulting Period,
including, but not limited to, (i) assistance in the formulation of products,
(ii) support of the Company's chief executive officer ("CEO") and board of
directors ("Board") in connection with the transition to new management, (iii)
assistance in the promotion of new brands or products through attendance at
special events or trade meetings, and (iv) such other services as may be
reasonably requested by the CEO or Board.
1.3 Consultant shall render her services only upon specific request
of the Company's CEO or Board for same, consistent with the type of services
requested from a senior consultant to the Company.
1.4 Consultant shall have no authority to commit or bind the Company
under any oral or written agreement or contract without the prior written
approval of the Company.
1.5 Other than as specifically requested by the CEO or the Board,
Consultant will not participate in the day-to-day operations of the Company, and
Consultant may not discuss the Company or its business with anyone, including
the Company's stockholders, officers or employees, and any analysts or other
investment professionals, without the supervision or approval of the CEO, unless
undertaken solely in furtherance of the performance of her specific duties under
this Agreement. Any money damages recoverable by the Company for breach or
violation by Consultant of this Section 1.5 during the Consulting Period shall
be limited to $25,000 for each such breach or violation. The Consultant and the
Company agree that it is impossible to determine with any reasonable accuracy
the amount of prospective damages to Company upon breach or violation of this
Section 1.5.
1.6 The Consultant acknowledges and agrees that the Company may
require services of Consultant hereunder of up to 10 hours per week (including
travel time away from the city in which the Consultant maintains her office in
Florida) and agrees to make herself available to provide such services. The
Company and Consultant acknowledge and agree that the
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services to be provided hereunder shall require performance primarily in the
city in which Consultant maintains her office in Florida, although it is
anticipated that Consultant's services may require infrequent travel, including
multiple-day stays, to other locations.
2. Compensation.
2.1 As full compensation during the term of this Agreement for all
Consultant's services to be rendered hereunder, the Company agrees to pay to
Consultant an amount equal to $106,261 per annum, $100,000 of which shall be
paid in equal monthly installments and $6,261 of which shall be credited towards
repayment of the Loan (as hereinafter defined) after each year of service under
this Agreement.
2.2 The Company shall provide Consultant with medical and
hospitalization insurance coverage during the term of this Agreement to the same
extent as it provides for its executive employees.
2.3 The Company shall provide Consultant with an automobile
allowance of up to $6,300 per year for three years from the date of this
Agreement, which allowance shall be payable on a monthly basis. Consultant
agrees that within 60 days after the date of this Agreement the present lease on
the automobile leased by the Company for Consultant's use shall be transferred
to Consultant or terminated.
2.4 The Company shall pay Consultant a non-accountable expense
allowance of $5,000 during the Consulting Period, payable on a monthly basis, to
cover telephone expenses.
2.5 The Company shall pay or reimburse Consultant for all valid
business expenses (including travel and entertainment) reasonably incurred by
Consultant in the conduct of her duties hereunder during the Consulting Period
upon presentation of appropriate receipts and expense reports detailing the
amounts and purposes of any expenditures. No expenditure or series of similar
expenditures in excess of $500 shall be incurred by Consultant without the prior
consent of the CEO or the Board, and the Consultant shall not incur any
expenditures in the name of the Company.
3. Term and Termination.
3.1 The term of this Agreement shall commence on the date hereof and
shall continue until August 13, 2002 ("Expiration Date"), unless sooner
terminated as herein provided.
3.2 This Agreement shall terminate immediately if, after the date
hereof, Consultant is reappointed or reelected to the Company's board of
directors and is reappointed or reelected an executive officer of the Company.
3.3 Provided that the insurance policy described in this Section 3.2
is in effect, if Consultant dies during the term of this Agreement the Company
shall have no further obligation to make any payments under Section 2 of this
Agreement, except that the Company shall pay to the legal representative of
Consultant's estate all monies due hereunder up to the date of her death (less
all amounts to be credited towards repayment of the Loan). For the term of this
Agreement, the Company shall pay the premiums for a term life insurance policy
on the life of
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<PAGE> 4
the Consultant, which shall provide for a benefit equal to the remaining
payments due under this Agreement at the time of Consultant's death (except for
the payments described in Sections 2.3 and 2.4 of this Agreement) net of all
amounts due to the Company in accordance with Section 7 hereof, and which shall
be payable to the beneficiaries named by Consultant on such policy. Consultant
agrees to comply with all reasonable requests of the Company and its
representatives in order to enable the Company to obtain such policy.
3.4 The Company, by notice to Consultant, may terminate this
Agreement for proper cause. As used herein, "proper cause" shall mean that
Consultant has:
(a) during the Consulting Period, continually refused or
failed to carry out specific reasonable directions of the CEO or
Board, or refused or failed to perform a material part of her duties
hereunder, which refusal or failure has not been corrected within 30
days after notice has been given to Consultant specifying such
refusal or failure;
(b) committed a material breach of any of the provisions of
this Agreement or of the Stock and Option Agreement, Purchase
Options, Asset Purchase Agreement, Option Escrow Agreement or Voting
Trust Agreement, which breach has not been corrected within 30 days
after notice has been given to Consultant specifying such breach;
(c) acted fraudulently or dishonestly in her relations with
the Company;
(d) during the Consulting Period, committed larceny,
embezzlement, conversion or any act involving the misappropriation
of funds in the course of her engagement hereunder; or
(e) been convicted of or plead nolo contendere to any crime
con stituting a felony in the jurisdiction in which the act
constituting the crime occurred, constituting an alleged civil
charge of sexual harassment which has caused monetary harm to the
Company or which could tend to injure the reputation of the Company
or expose it to unfavorable publicity, or involving an act of moral
turpitude, but only if the act constituting such crime, sexual
harassment or act of moral turpitude occurred during the Consulting
Period.
3.5 During the Consulting Period the Company may, by notice to
Consultant, terminate this Agreement if Consultant shall, because of illness or
incapacity, fail to render services requested by the CEO or the Board of the
character contemplated by this Agreement for 90 successive days or for shorter
periods aggregating 180 days or more. Notwithstanding such termination, the
Company shall pay to Consultant all monies due hereunder up to the date of such
notice of termination (less all amounts to be credited towards repayment of the
Loan).
4. Protection of Confidential Information; Non-Competition.
4.1 Consultant acknowledges that:
(a) As a result of her prior employment by the Company and her
engagement as a Consultant to the Company, Consultant has obtained
and will
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obtain secret and confidential information concerning the business
of the Company and its affiliates, including, without limitation,
the identity of customers and sources of supply, their needs and
requirements, the nature and extent of contracts with them, and
related cost, price and sales information.
(b) The Company and its affiliates will suffer substantial
damage which will be difficult to compute if, during the term of
this Agreement or thereafter, Consultant should enter a competitive
business or should divulge secret and confidential information
relating to the business of the Company heretofore or hereafter
acquired by her in the course of her engagement as a consultant to
the Company.
(c) The provisions of this Agreement are reasonable and
necessary for the protection of the business of the Company and its
affiliates.
4.2 Consultant agrees that she will not at any time, either during
the term of this Agreement or thereafter, divulge to any person, firm or
corporation any information obtained or learned by her during the course of her
engagement as a consultant to the Company, or prior to the commencement thereof
in the course of her employment with the Company, with regard to the
operational, financial, business or other affairs of the Company or its
affiliates, their officers and directors, including, without limitation, trade
"know how," secrets, customer lists, sources of supply, pricing policies,
operational methods or technical processes, except (i) in the course of
performing her duties hereunder and with the express written consent of the CEO
or the Board; (ii) to the extent that any such information is in the public
domain other than as a result of Consultant's breach of any of her obligations
hereunder; or (iii) where required to be disclosed by court order, subpoena or
other government process. In the event that Consultant shall be required to make
disclosure pursuant to the provisions of clause (iii) of the preceding sentence,
Consultant promptly, but in no event more than 48 hours after learning of such
subpoena, court order, or other government process, shall notify, by personal
delivery or by cablegram, confirmed by mail, the Company and, at the Company's
expense, Consultant shall: (a) take all reasonably necessary steps requested by
the Company to defend against the enforcement of such subpoena, court order or
other government process, and (b) permit the Company to intervene and
participate with counsel of its choice in any proceeding relating to the
enforcement thereof.
4.3 Consultant agrees that she will not at any time, either during
the term of this Agreement or thereafter, use the trademarks "Frookie" or
"Delicious" or the term "The Good For You," or any logo using such trademarks or
term, with reference to any edible product for any purpose except in the course
of performing her duties hereunder and with the express written consent of the
CEO or the Board.
4.4 Upon termination of this Agreement, or at any time the Company
may so request, Consultant will promptly deliver to the Company all memoranda,
notes, records, reports, manuals, drawings, blueprints and other documents (and
all copies thereof) relating to the business of the Company and its affiliates
and all property associated therewith, which she may then possess or have under
her control.
4.5 In connection with and consideration for the transactions
contemplated by this Agreement and the Stock and Option Agreement, the Purchase
Options and the Asset Purchase Agreement, Consultant agrees that, until August
13, 2002, Consultant shall not, without
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the prior written permission of the Company, in the United States, its
territories and possessions, or any other countries where the Company currently
or at termination of this Agreement sells its products, directly or indirectly,
(i) enter into the employ of or render any services to any person, firm or
corporation engaged in any Competitive Business (as defined in Section 6); (ii)
engage in any Competitive Business for her own account; (iii) become associated
with or interested in any Competitive Business as an individual, partner,
shareholder, creditor, director, officer, principal, agent, employee, trustee,
consultant, advisor or in any other relationship or capacity; (iv) solicit the
employment or retention by any Competitive Business of any person who was
employed or retained by the Company or any of its affiliates while Consultant
was employed by, or serving as a consultant to, the Company; or (v) solicit,
interfere with, or endeavor to entice away from the Company or any of its
affiliates any of its or their customers or sources of supply. However, nothing
in this Agreement shall preclude Consultant from investing her personal assets
in the securities of any corporation or other business entity which is engaged
in a Competitive Business if such securities are traded on a national stock
exchange or in a public over-the-counter market and if such investment does not
result in her beneficially owning, at any time, more than 5% of the
publicly-traded equity securities of such competitor.
4.6 If Consultant commits a breach, or threatens to commit a breach,
of any of the provisions of this Section 4, the Company shall have the right and
remedy:
(a) to have the provisions of this Agreement specifically
enforced by any court having equity jurisdiction, it being
acknowledged and agreed by Consultant that the services being
rendered hereunder to the Company are of a special, unique and
extraordinary character and that any such breach will cause
irreparable injury to the Company and that money damages will not
provide an adequate remedy to the Company; and
(b) to require Consultant to account for and pay over to the
Company all compensation, profits, monies, accruals, increments or
other benefits (col lectively "Benefits") derived or received by
Consultant as the result of any transactions constituting a breach
of any of the provisions of Sections 4.2 or 4.5, and Consultant
hereby agrees to account for and pay over such Benefits to the
Company.
Each of the rights and remedies enumerated in this Section 4.6 shall be
independent of the other, and shall be severally enforceable, and such rights
and remedies shall be in addition to, and not in lieu of, any other rights and
remedies available to the Company under law or equity.
4.7 If Consultant shall violate any covenant contained in Section
4.5, the duration of such covenant so violated shall be extended automatically
for a period of 2 years from the date on which Consultant permanently ceases
such violation or for a period of two years from the date of the entry by a
court of competent jurisdiction of a final order or judgment enforcing such
covenant, whichever period is later.
4.8 If any provision of this Section 4 is held to be unenforceable
because of the scope, duration or area of its applicability, the tribunal making
such determination shall have the power to modify such scope, duration, or area,
or all of them, and such provision or provisions shall then be applicable in
such modified form.
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5. Arbitration. Any dispute, controversy or claim arising out of or
relating to this Agreement, the making, interpretation or the breach thereof,
other than a claim solely for injunctive relief for any alleged breach of the
provisions of Section 4.2 or 4.5, as to which the parties shall have the right
to apply for specific performance to any court having equity jurisdiction, shall
be submitted to arbitration in New York City before a panel of three arbitrators
in accordance with the Commercial Arbitration Rules of the American Arbitration
Association and judgment upon the award rendered by the arbitrators may be
entered in any court having jurisdiction thereof and any party to the
arbitration may, if she or it so elects, institute proceedings in any court
having jurisdiction for the specific performance of any such award. The powers
of the arbitrators shall include, but not be limited to, the awarding of
injunctive relief. The arbitrators shall include in any award in the prevailing
party's favor the amount of her or its reasonable attorneys' fees and expenses
and all other reasonable costs and expenses of the arbitration. In the event
that the arbitrators do not rule in favor of the prevailing party in respect of
all the claims alleged by such party, the arbitrators shall include in any award
in favor of the prevailing party the amount of her or its reasonable attorneys'
fees and other expenses and such other reasonable costs and expenses of the
arbitration as they deem just and equitable under the circumstances. Except as
provided above, each party shall bear her or its own attorneys' fees and
expenses and the parties shall bear equally all other costs and expenses of the
arbitration.
6. Definitions. As used in this Agreement:
(a) "Affiliate" shall mean any entity that, directly or
indirectly, is controlled by, controlling, or under common control
with the Company.
(b) "Competitive Business" shall mean any business engaged in
the manufacture, marketing and/or distribution of cookies and/or
crackers.
7. Loan. Consultant hereby acknowledges that she is indebted to the
Company in the aggregate amount of $31,305.05 for monies advanced to Consultant
by the Company prior to the date hereof and agrees that such Loan shall be fully
repaid to the Company within five years from the date hereof as provided in
Section 2.1 of this Agreement; provided, however, that upon termination of this
Agreement for any reason other than pursuant to Section 3.2, the entire
remaining principal amount of the Loan shall be forgiven and deemed to have been
paid to Consultant as compensation, and the Company shall thereupon issue to
Consultant a Form 1099 with respect to such compensation at the appropriate
time.
8. Miscellaneous Provisions.
8.1 Any notice required or permitted under this Agreement shall be
given in writing and shall either be delivered personally or sent by certified
mail, return receipt requested, postage prepaid, or by Federal Express next
business day service with signed receipt required, to the parties at their
respective addresses set forth below, or to such other address as either shall
have specified by notice in writing to the other, and shall be deemed duly given
hereunder when so delivered. Any notice to Consultant shall be sent to her at
3757 Ascot Bend Court, Bonita Springs, Florida 34134, and any notice to the
Company shall be sent to the Company at 2720 River Road, Suite 126, Des Plaines,
Illinois 60018, or at such other address as such party may designate by ten (10)
days' advance written notice to the other parties, with copies to Steven
Wolosky, Esq., Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New
York, New
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York 10022 and David Alan Miller, Esq., Graubard Mollen & Miller, 600 Third
Avenue, New York, New York 10016-2097.
8.2 This Agreement, together with the Stock and Option Agreement,
Purchase Options, Asset Purchase Agreement, Option Escrow Agreement, Master
Escrow Agreement, Voting Trust Agreement and Director Resignations, sets forth
the entire agreement of the parties and is intended to supersede all prior
negotiations, understandings and agreements with respect to the subject matter
hereof. No provision of this Agreement may be waived or changed except by a
writing by the party against whom such waiver or change is sought to be
enforced. The failure of any party to require performance of any provision
hereof shall in no manner affect the right at a later time to enforce such
provision.
8.3 This Agreement and all amendments thereof shall, in all
respects, be governed by and construed and enforced in accordance with the
internal law of the State of New York without regard to principles of conflicts
of laws.
8.4 The article headings are inserted only as a matter of
convenience and for reference and in no way define, limit or describe the scope
or intent of any provision of this Agreement.
8.5 This Agreement shall inure to the benefit of and be binding upon
the successors and assigns of the Company. This Agreement shall not be
assignable by Consultant and shall inure to the benefit of and be binding upon
Consultant and her legal representatives.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
CONSULTANT:
/s/ Randye Worth
-------------------------------
Randye Worth
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
---------------------------------
Name: JEFFRY WEINER
Title: CHIEF FINANCIAL OFFICER
<PAGE> 1
EXHIBIT 10.18
ASSET PURCHASE AGREEMENT
AGREEMENT, dated December 22, 1997, between The Delicious Frookie
Company, Inc., a Delaware corporation ("Seller"), and Richard S. Worth ("Worth"
or "Buyer").
IT IS AGREED:
1. Transaction.
1.1 Purchase and Sale of Assets. Subject to the terms and
conditions of this Agreement, Seller hereby sells and/or assigns to Buyer, and
Buyer hereby purchases from Seller, the following assets of Seller (hereinafter
collectively referred to as the "Purchased Assets") associated with the Seller's
Cool Fruits(TM) Fruit Juice Freezers product line ("Cool Fruits Product Line")
and Chiquita Tropical Freezers product line ("Chiquita Product Line" and,
together with the Cool Fruits Product Line, the "Product Lines"): The
formulations and recipes for the products included in such Product Lines
("Formulations"), a list of Seller's customers for the Product Lines ("Customer
List"), the inventory and product displays for the Product Lines and the product
packaging for the Chiquita Product Line described on Schedule A hereto, the
rights to any packaging design used in connection with the Product Lines
(subject to Section 4.1 hereof), and the Cool Fruits trademark, trademark
registrations and trademark applications ("Trademark"). It is understood and
agreed that Buyer can use the Cool Fruits name and Trademark for any and all
products except cookies and crackers.
1.2 Assignment and Assumption of Chiquita License. Seller does
hereby irrevocably assign to Buyer all of Seller's right, title and interest and
obligations in and to the license agreement between the Seller and Chiquita
Brands, Inc. ("Chiquita") for the Chiquita Product Line dated November 1, 1993,
as amended on November 26, 1996 ("Chiquita License"). Buyer does hereby accept
and assume all of the terms, covenants and conditions of the Chiquita License to
be performed from and after the effective date of this Agreement and shall from
and after the effective date of this Agreement assume full liability to Chiquita
under the Chiquita License with respect to such terms, covenants and conditions
to be performed from and after the effective date of this Agreement. The parties
hereto hereby agree that if Seller has not obtained the written consent of
Chiquita to the foregoing assignment by the effective date
<PAGE> 2
of this Agreement, such assignment shall be null and void and, together with all
references to the Chiquita Product Line, shall be deemed eliminated from this
Agreement without liability to any party hereto.
1.3 Indemnity. Seller assumes no liability to Buyer or to
third parties with respect to the performance characteristics of the products
manufactured or sold by Buyer under the Trademark or the Chiquita License or to
the use of the Trademark, and Buyer indemnifies and holds harmless Seller
against all losses, damages and expenses, including attorneys' fees, incurred as
a result of or related to claims of third persons involving the manufacture or
sale of the products comprising the Product Lines or the use of the Trademark or
the Chiquita License.
1.4 Purchase Price. In full payment for the Purchased Assets
and assignment of the Trademark and the Chiquita License, Worth hereby
surrenders for cancellation the options issued to him to purchase an aggregate
of 500,000 shares of Common Stock of Seller identified on Schedule B hereto
("Worth Options").
1.5 Transition of Business. Simultaneously with the delivery
of this Asset Purchase Agreement, Seller is delivering to Buyer the Customer
List and an assignment of the Trademark and is making available to Buyer the
inventory and product displays for the Product Lines and the product packaging
for the Chiquita Product Line described on Schedule A. Seller shall forward to
Buyer any future orders it receives for the Product Lines. Buyer and Seller
acknowledge that Buyer has possession of the Formulations. Buyer shall promptly
send to customers a joint announcement with Seller relating to the sale of the
Product Lines to Buyer. All future business matters relating to the Product
Lines shall be the sole responsibility of Buyer.
1.6 Sales Tax. To the extent required by law, Buyer will pay
any sales tax arising by reason of the sale of the Purchased Assets and the
assignment of the Trademark and the Chiquita License to Buyer.
2
<PAGE> 3
2. Representations and Warranties of Seller. Seller represents and
warrants to Buyer as follows and acknowledges that Buyer is relying upon such
representations and warranties in connection with the purchase by Buyer of the
Purchased Assets.
2.1 Corporate Existence and Power. Seller is a corporation
duly organized and validly existing, in good standing, under the laws of the
State of Delaware.
2.2 Authorization. The execution, delivery and performance of
this Agreement by Seller have been duly authorized by all necessary corporate
action. This Agreement has been duly executed by Seller and constitutes a valid
and legally binding obligation of Seller enforceable against Seller in
accordance with its terms, except (i) as such enforceability may be limited by
bankruptcy, insolvency, reorganization or similar laws affecting creditors'
rights generally, (ii) as enforceability of any indemnification provision may be
limited under the federal and state securities laws, and (iii) that the remedy
of specific performance and injunctive and other forms of equitable relief may
be subject to the equitable defenses and to the discretion of the court before
which any proceeding therefor may be brought.
3. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller as follows:
3.1 Authority; Execution, Delivery and Performance of
Agreement. Buyer has full power and authority to enter into this Agreement and
to carry out the transactions contemplated hereby; all proceedings required to
be taken by Buyer to authorize the execution and delivery of this Agreement by
Buyer and the performance by Buyer of this Agreement and the consummation of the
transactions contemplated hereby have been properly taken; and this Agreement
constitutes a valid and legally binding obligation of Buyer. Neither the
execution, delivery nor performance of this Agreement by Buyer will, with or
without the giving of notice or the passage of time, or both, conflict with,
result in a default, right to accelerate or loss of rights under, or result in
the creation of any encumbrance pursuant to, or require the consent of any third
party or governmental authority pursuant to (a) any provision of Buyer's
certificate of incorporation or by-laws or (b) any franchise, mortgage,
indenture or deed of trust or any material, lease, license, agreement, or any
law, rule, regulation, order, judgment or decree to which Buyer is a party or by
which Buyer may be bound or affected.
3
<PAGE> 4
3.2 Obligations Relating to Product Lines. The Buyer is not
aware of any obligations of the Seller relating to or incurred in connection
with the Product Lines.
4. Covenants of Buyer.
4.1 No Use of Terms. Buyer agrees that it will not use the
trademarks "Frookie" or "Delicious" or the term "The Good For You," or any logo
using such trademarks or term, in connection with any product marketed by Buyer,
including any product constituting part of the Product Lines.
5. Title to Purchased Assets. Buyer accepts the Purchased Assets and
the assignment of the Trademark and the Chiquita License "as is" and without any
representation or warranty made with respect thereto by the Company, it being
acknowledged by Buyer that as a result of Worth's position as an officer and
director of the Company over the years Buyer has been and is in a position of
equal knowledge with the Company with respect to such matters.
6. Notices. Any notice required or permitted under this Agreement
shall be given in writing and shall either be delivered personally or sent by
certified mail, return receipt requested, postage prepaid, or by Federal Express
next business day service with signed receipt required, to the parties at their
respective addresses set forth below, or to such other address as either shall
have specified by notice to the other given as provided herein, and shall be
deemed duly given hereunder when so delivered. Any notice to Buyer shall be sent
to Buyer at 1497 Rail Head Boulevard, Unit #2, Naples, Florida 74110-8444, and
any notice to Seller shall be sent to it at 2720 River Road, Suite 126, Des
Plaines, Illinois 60018, or at such other address as a party may designate by
notice to the other given as provided herein, with copies to Steven Wolosky,
Esq., Olshan Grundman Frome & Rosenzweig LLP, 505 Park Avenue, New York, New
York 10022 and David Alan Miller, Esq., Graubard Mollen & Miller, 600 Third
Avenue, New York, New York 10016-2097.
7. Indemnification. Buyer shall indemnify and hold harmless Seller
and its successors and assigns from and against any losses, damages, expenses or
liabilities, including, without limitation, reasonable attorneys' fees, which
may be sustained, suffered or incurred by Seller, its successors and assigns,
arising from or in connection with the breach of any of
4
<PAGE> 5
Buyer's representations, warranties, agreements, obligations or undertakings
hereunder. Seller shall indemnify and hold harmless Buyer and its heirs,
executors, legal representatives, successors and assigns from and against any
losses, damages, expenses or liabilities, including, without limitation,
reasonable attorneys' fees, which may be sustained, suffered or incurred by
Buyer or its heirs, executors, legal representatives, successors and assigns,
arising from or in connection with the breach of any of Seller's
representations, warranties, agreements, obligations or undertakings hereunder.
These indemnities shall survive the execution of this Agreement.
8. Miscellaneous.
8.1 Entire Agreement. This Agreement constitutes the entire
agreement of the parties with respect to the subject matter hereof and may not
be modified, amended or terminated except by a written agreement specifically
referring to this Agreement signed by all of the parties.
8.2 Partial Invalidity. In the event that any provision of
this Agreement would be held to be invalid, prohibited or unenforceable in any
jurisdiction for any reason, unless such provision is narrowed by judicial
construction, this Agreement shall, as to such jurisdiction, be construed as if
such invalid, prohibited or unenforceable provision had been more narrowly drawn
so as not to be invalid, prohibited or unenforceable. If, notwithstanding the
foregoing, any provision of this Agreement would be held to be invalid,
prohibited or unenforceable in any jurisdiction for any reason, such provision,
as to such jurisdiction for any reason, shall be ineffective to the extent of
such invalidity, prohibition or unenforceability, without invalidating the
remaining portion of such provision or the other provisions of this Agreement or
affecting the validity or enforceability of such provision in any other
jurisdiction.
8.3 No Waiver. No waiver of any breach or default hereunder
shall be considered valid unless in writing and signed by the party giving such
waiver, and no such waiver shall be deemed a waiver of any subsequent breach or
default of the same or similar nature.
8.4 Binding Effect; Assignment. This Agreement shall be
binding upon and inure to the benefit of each party hereto, and its successors
and permitted assigns. This
5
<PAGE> 6
Agreement shall not be assigned by either Buyer, Seller or Worth and any
attempted assignment shall be void; provided, however, that Worth may assign his
rights and, except as set forth in the next sentence, obligations hereunder to a
corporation of which Worth is the sole stockholder. In the event of any such
assignment, Worth shall remain obligated to deliver the Worth Options in
accordance with Section 1.4.
8.5 Headings. The article and section headings contained
herein are for the purpose of convenience only and are not intended to define or
limit the contents of said articles or sections.
8.6 Cooperation. Each party hereto shall cooperate, shall take
such further action and shall execute and deliver such further documents as may
be reasonably requested by any other party in order to carry out the provisions
and purposes of this Agreement.
8.7 Governing Law. This Agreement and all amendments thereof
shall, in all respects, be governed by and construed and enforced in accordance
with the internal law of the State of New York without regard to principles of
conflicts of laws.
8.8 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
6
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
---------------------------------
Name: JEFFRY WEINER
Title: CHIEF FINANCIAL OFFICER
/s/ Richard S. Worth
-------------------------------------
Richard S. Worth
<PAGE> 8
SCHEDULE A
Inventory-Finished Goods (a/c 13260)
June 30, 1997
Hall Street
Unit Unit
Description Drums Lbs/Gal.
----------- ----- --------
Polynesian Passion - lbs 45 336
Pineapple WONF - lbs 3 419
Rasberry - gal 12 55
--------
61
========
Kisko
Unit
Description Quantity
----------- --------
Packaging
- ---------
Inserts 140,000
88 ct Boxes 41,200
Risers 4,020
Base 1,905
Trays 3,600
FOL Shippers 2,420
Dividers 4,757
Ingredients
- -----------
45162 Rasberry Flavor 37.857
F10620 Pineapple Flavor 242.485
L44237 Pineapple WONF 485
Pre-Blends
- ----------
Polynesian 4 1/3
Hawaiian 4 1/4
Finished Goods 785
- --------------
Items Shipped not Billed
- ------------------------
Pails Pineapple flavor 4,190
Polynesian Passion Pre-Blend 8
A-1
<PAGE> 9
Diversified Distribution
5/30/97
Unit
Item Code # Description Quantity
- ---- ------ ----------- --------
Frookie 11911 Cool Fruit End Match Set 545
DCC Chiquita 54616A Chiquita Base 10,200
54616B Chiquita Tray 7,600
54616C Chiquita Riser 4,200
A-2
<PAGE> 10
Schedule B
Cancellation of Options
Option issued pursuant to : 1995 Stock Option Plan
Option Number : 1
Date of Grant : July 6, 1995
Number of Options Originally Issued : 600,000
Number of Options to be Canceled : 500,000
Number of Options to be Retained : 100,000
<PAGE> 1
Exhibit 10.19
FINANCING AGREEMENT
DATE: November 27, 1996
REPUBLIC ACCEPTANCE CORPORATION 2338
Central Avenue NE, Suite 200
Minneapolis, Minnesota 55418
We, THE DELICIOUS FROOKIE COMPANY, INC., propose the following arrangement
with you, REPUBLIC ACCEPTANCE CORPORATION, for borrowing from you based upon the
loan value of our "accounts", "inventory" (as those terms are defined in the
Uniform Commercial Code as adopted and in effect in the State of Illinois) and a
certain right to payment, secured by a first priority security interest in
accounts, inventory, equipment and other collateral, as granted to you by the
Security Agreement between us of even date herewith (the "Security Agreement").
SECTION 1. (LOAN AGREEMENT).
A. The Loans. At our request, you in your sole discretion may lend to us,
from time to time, amounts up to a maximum amount of Three Million Five Hundred
Thousand and No/100 Dollars ($3,500,000.00) in the aggregate consisting of
separate loans comprised of advances from time to time of amounts equal to:
(i) seventy-five percent (75%) of the net amount of accounts (other
than accounts owing by WB Distributing Company) which are listed in
current schedules provided by us and which are deemed eligible for
advances by you in your sole judgment, or any greater or lesser percentage
at your absolute discretion, provided that the percentage may be increased
to up to eighty percent (80%) at your absolute discretion if subsequent
audits and analysis by you confirm that the dilution rate of accounts has
been reduced to five percent (5%) or less (collectively, the "Accounts
Loan"), and further provided that eligible accounts shall not include (a)
accounts which are over ninety (90) days past due, (b) all accounts if
twenty-five percent (25%) or more of all accounts are ninety (90) days
past due, (c) any and all accounts owing to employees or affiliates of us,
(d) billed finance charges, (e) foreign accounts with prepaid inventory or
other prepaid or deposit arrangements and (f) any other accounts deemed
ineligible by you in your sole discretion;
(ii) a one time advance equal to the lesser of (a) $375,000 and (b)
fifty percent (50%) of the settled accounts receivable balance owing to us
by WB Distributing Company as evidenced by that certain letter agreement
dated August 27, 1996 (the "WB Letter Agreement") among us, WB
Distributing Company and Jersey Snacks, a copy of which is attached hereto
as Exhibit A, or any greater or lesser percentage at your absolute
discretion (the "WB Settlement Advance"); and
(iii) fifty percent (50%) of the net amount of accounts owing to us
by WB Distributing Company invoiced after September 1, 1996 (the "WB
Accounts") which are listed in current schedules provided by us and which
are deemed eligible for advances by you in your sole judgment, or any
greater or lesser percentage at your absolute discretion (collectively,
the "WB Accounts Loans" and, together with the WB Settlement Advance, the
"WB Loans"), provided that:
(a) any WB Account deemed eligible by you in your sole
discretion shall be deemed eligible only for a period of forty-five
(45) days after the date of the invoice relating to such WB Account,
provided, however, that no more than three (3) times during the term
of the Loans, such forty-five (45) day period shall be extended for
an additional five (5) days (each such period hereinafter referred
to as an "Eligibility Period") to allow WB Distributing Company to
remit payment to us on such WB Account;
<PAGE> 2
(b) if any WB Account remains unpaid after the expiration of
the applicable Eligibility Period, then at your sole discretion all
WB Accounts shall be deemed ineligible and the WB Loans immediately
shall be due and payable and, at your sole discretion, Individual
Guarantor (as defined herein) shall remedy, and we shall cause
Individual Guarantor to remedy, any overadvance which may result as
a consequence thereof on or before the fifth (5th) day after receipt
by Individual Guarantor of notice of such overadvance; and
(c) the outstanding aggregate amount of the WB Loans at any
one time shall not exceed Six Hundred Fifty Thousand and No/100
Dollars ($650,000). Notwithstanding anything contained in this
paragraph (iii) to the contrary,
(iv) fifty percent (50%) of the net amount of inventory (determined
on lower of cost or market basis) which constitutes raw materials or
finished goods and is listed in current schedules provided by us and
deemed eligible for advances by you (provided that we understand that no
inventory which may constitute "perishable agricultural commodities". as
defined at U.S.C. ss. 499a(b)(4) and the regulations promulgated
thereunder, and all inventory, receivables and proceeds of such
commodities shall be so eligible), or any greater or lesser percentage at
your absolute discretion, but not in excess of Five Hundred Thousand and
No/100 Dollars ($500,000.00) (collectively, the "Inventory Loan" and,
together with the Accounts Loan and the WB Loans, the "Loans"), provided
that until such time we shall have implemented a perpetual accounting
system acceptable to you in your absolute discretion, you shall determine
the eligibility of inventory for advances in your absolute discretion
based on monthly physical inventory counts performed by us and acceptable
to you, the cost of which shall be borne by us;
provided that amounts advanced under these Loans may be repaid and reborrowed
within the above limits or other limits you may set in your sole discretion so
long as you have not demanded payment of outstanding amounts. For purposes of
the Inventory Loan, advances shall be determined only on inventory (i) located
at public warehouses and other similar locations for which we have supporting
documentation necessary to insure lien rights in favor of you and (ii) which
does not constitute shipping supplies or obsolete items of inventory in your
absolute discretion. Notwithstanding the foregoing, at no time shall all
advances outstanding in the aggregate be less than One Million and No/100
Dollars ($1,000,000) on the average outstanding principal balance of the Loans
during the trailing thirty (30) day period ending on the date of determination.
B. Repayment. All borrowings pursuant hereto shall be due and payable on
demand. With respect to the WB Settlement Advance, which shall be due and
payable on demand, we shall make regularly scheduled monthly principal payments
in amounts not less than (i) $6,500 during the months of September through and
including February of each year the Loans are outstanding and (ii) $8,000 during
the months of March through and including August of each year the Loans are
outstanding (until the WB Settlement Advance has been repaid in full), or such
greater amounts as received by us from WB Distributing Company and/or Jersey
Snacks during any such months as payment or prepayment by WB Distributing
Company or Jersey Snacks of their obligations under the WB Letter Agreement.
Notwithstanding the foregoing, in the event any of the WB Accounts become
ineligible in your sole discretion, the WB Settlement Advance shall be
immediately due and payable.
C. Reserves. You may establish reserves on each February 1 and August 1
after the date hereof in an amount equal to $18,000, increasing every subsequent
month by an incremental amount equal to $18,000 until such reserves equal
$90,000 (the "Interest Reserve"), or such greater or lesser amount in your sole
discretion, to provide a fund for payment of semi-annual interest (the
"Subordinated Interest Payments") due on each January 31 and July 31 after the
date hereof to our subordinated noteholders listed on Schedule I attached hereto
(the "Subordinated Note Holders"), and each such Interest Reserve either shall
be (i) released upon our payment of the Subordinated Interest Payments to which
such Interest Reserve relates or (ii) upon our failure to pay such Subordinated
Interest Payments, at your option, used to make such Subordinated Interest
Payments, in which case such amount shall be added to the
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<PAGE> 3
outstanding principal balance of the Loans made pursuant hereto and the
execution and delivery by us of this Agreement shall constitute a continuing
authorization to make such Subordinated Interest Payments.
D. Discretionary Nature. Nothing set forth in this Agreement, the Security
Agreement or any other agreement between you and us shall in any way limit your
discretion to make or not to make loans to us hereunder or your right to demand
payment of our obligations to you under any of the Loans. Any and all terms and
conditions you set must be fully met before you will advance any funds to us
under any of the Loans and an advance of funds under one of the Loans will not
obligate you to advance funds under any other of the Loans.
E. Statement of Account. You may from time to time furnish to us a
statement of our account. Any such statement shall be conclusive on us except in
the case of manifest error, and then only if written objections thereto calling
your attention to such errors are received by you within 30 days after the
statement is mailed or delivered to us.
SECTION I. (CHARGES).
A. Interest on Loans. We agree to pay interest on the net balance owed to
you at the close of each day on all amounts outstanding under the Accounts Loan
and the Inventory Loan at a rate per annum (computed on the basis of actual
number of days elapsed and a year of 360 days) which is equal to the reference
rate of interest publicly announced from time to time by First Bank National
Association in Minneapolis, Minnesota (the "Reference Rate"), plus three and
twenty-five one hundredths of one percent (3.25%); provided that in the event
our net income for the year ended December 31, 1996 is equal to or greater than
$1,000,000 based on our audited financial statements for such year delivered to
you pursuant to Section VI hereof, said interest rate for year two and
thereafter shall be equal to the Reference Rate plus two and seventy-five one
hundredths of one percent (2.75%). All such interest on amounts outstanding
under the Accounts Loan and the Inventory Loan shall be due and payable to you
on the first business day of each month.
B. Loan Fees. We agree to pay to you upon the closing of the Loans a fee
in the amount of Thirty-Five Thousand and No/100 Dollars ($35,000.00 (the "Loan
Fee.). You are authorized to withhold such fees from the amount of the initial
advances we request from you.
C. Termination Fees. We agree that if we give notice to you of the
termination of this Agreement under Section X hereof on or before May 27, 1997,
we will pay to you at the time of such termination a prepayment charge, as
additional compensation for your costs of entering into this Agreement, in the
amount of One Hundred Seventy Five Thousand and No/100 Dollars ($175,000,00);
and if we give notice to you of the termination of this Agreement under Section
X hereof at any time after May 27,1997 but prior to the second anniversary of
the date of this Agreement, we will pay to you at the time of such termination a
prepayment charge, as additional compensation for your costs of entering into
this Agreement, in the amount of Fifty Two Thousand Five Hundred and No/100
Dollars ($52,500.00).
Notwithstanding the foregoing, if the portion of the Loans so prepaid is
refinanced by an affiliate of First Bank System following the first anniversary
of the date of this Agreement no prepayment charge shall be due and payable as a
result of such prepayment.
D. Examination Fee. We further agree to pay you fees for examinations of
our assets in an amount equal to $600.00 per day per examiner plus all of the
out-of-pocket costs and reasonable expenses incurred by you or any other entity
conducting any such examination at your direction. Such fees, costs and
reasonable expenses will be due and payable to you upon our receipt of your
invoice therefor.
E. Minimum Charge. We further agree to pay you a minimum charge ("Minimum
Charge") for the availability of the Loans. You will determine whether you have
received interest in an amount at least equal to the Minimum Charge on a monthly
basis and we will pay you within ten days of your notice to us of amounts due
under
-3-
<PAGE> 4
this provision. The Minimum Charge shall be equal to the product of (i)
$1,000,000 multiplied by (ii) the product of the interest rate applicable to
amounts outstanding under the Loans multiplied by 1/12.
F. Wire Transfer Charge. We further agree to pay you a wire transfer
charge of $15.00 per wire transfer of loan advances to our account.
SECTION II. (SECURITY)
A. Security Interests. We agree to secure repayment of the Loans by
granting to you (i) first priority perfected security interests in all of our
accounts and other rights to payment (including, without limitation, the WB
Letter Agreement, the WB Security Agreement defined below and the Brown Guaranty
defined below), inventory, equipment, fixtures and general intangibles (each as
defined under the Illinois Uniform Commercial Code) and our other assets under
one or more security agreements acceptable to you and (ii) an assignment of (A)
our first priority perfected security interests in the assets of WB Distributing
Company and Jersey Snacks granted to us pursuant to that certain Security
Agreement dated as of May 17, 1996 among WB Distributing Company, Jersey Snacks
and us (the "WB Security Agreement"), (A) our interests under the WB Letter
Agreement and (C) our interests under the personal guaranty of Mr. Warren Brown,
the President, Chief Executive Officer, Chairman of the Board of Directors and
principal stockholder of WB Distributing Company and Jersey Snacks, which
guarantees WB Distributing Company's obligations under the WB Letter Agreement
(the "Brown Guaranty"). We agree to deliver to you the originally executed WB
Letter Agreement, the WB Security Agreement and the Brown Guaranty to perfect
your security interest therein. We agree to execute any and all documents and
instruments, including without limitation UCC financing statements, to grant,
perfect or continue all such security interests and liens. We agree to obtain
the personal guaranty of the Loans in your favor by Richard S. Worth, the Chief
Executive Officer of Borrower (the "Individual Guarantor"), which guaranty shall
be limited to $1,000,000 plus all costs and expenses paid or incurred by you in
collecting on or enforcing such guaranty. Mr. Richard Worth further shall agree
to execute an agreement, in form and substance satisfactory to you, pursuant to
which Mr. Worth shall agree to repay any overadvance under the WB Accounts Loans
due to any WB Accounts becoming ineligible, in whole or in part, in your sole
discretion, which repayment shall be made within five (5) business days after
receipt by Mr. Worth of notice of any such overadvance. Further, we agree that
all Subordinated Note Holders, or such lesser amount as acceptable to you in
your sole discretion, which constitute all shareholders and investors holding
promissory notes or convertible notes, must agree to subordinate their rights to
payment under indebtedness from us to your rights to payments under the Loans
and that this agreement to subordinate must be evidenced by a document
acceptable to you. We further agree to deliver to you a bailee waiver in form
and substance satisfactory to you covering each public warehouse location at
which we maintain inventory.
B. Confirmation of Interests; Discretionary Nature. We understand that you
must be able to confirm all security interests, liens, guaranties and further
assurances described in the paragraph above before making any advance to us
under any of the Loans, but that in addition to these requirements, each of the
Loans is fully discretionary in any event and you may at any time and in your
sole discretion refuse to advance any funds under any of the Loans and/or demand
repayment of all outstanding amounts.
SECTION III. (LISTING ACCOUNTS AND INVENTORY)
A. Accounts Listing. Prior to or concurrently with our initial borrowing
hereunder, and monthly thereafter within ten (10) days after the end of each
month, we shall furnish to you a list of all accounts owned by us, in form
satisfactory to you, including a list of all accounts created or acquired by us
since our last previous list.
B. Inventory Listing. Prior to or concurrently with our initial borrowing
hereunder, and monthly thereafter within twenty (20) days or, upon the earlier
of (i) our implementation of a perpetual accounting system acceptable to you in
your absolute discretion and (ii) the ninetieth day after the date hereof,
within ten (10) days after the end of each month, we will furnish you with a
list of our inventory, in form satisfactory to you, setting forth the value of
such inventory at the lower of cost or market, together with written reports,
certified as correct
-4-
<PAGE> 5
by one of our officers, showing all sales of merchandise, returns and
allowances, collections, and all miscellaneous charges and credits affecting the
collateral.
C. Aging Reports. Prior to or concurrently with our initial borrowing
hereunder, and monthly thereafter within ten (10) days after the end of each
month thereafter, we shall furnish you with (i) an aging of all accounts owned
by us and (ii) an aging of all of our accounts payable, all in form satisfactory
to you.
D. Accounts Representation. We warrant that, except as may be disclosed in
the lists of accounts furnished to you: (i) each billing correctly states the
subject matter and terms of sale; (ii) the merchandise conforms thereto and is
in all respects acceptable to the customer; (iii) the date of billing is not
prior to shipment; (iv) the account is not subject to any known dispute,
defense, offset or counterclaim; (v) the account debtor is not a subsidiary or
affiliated company; and (vi) that we have no known reason to believe the account
will not be paid in the regular course of business. We will notify you promptly
of any event, circumstance or communication with respect to any account that is
inconsistent with the foregoing representations.
SECTION IV. (CUSTODY AND INSPECTION OF RECORDS; HANDLING OF COLLECTIONS)
A. Custody of Records. All ledger sheets or cards, invoices, shipping
records, correspondence and other writings relating to accounts shall be
maintained in safe keeping on our premises without cost to you.
B. Collection by You. We shall enter into a lockbox agreement with you, in
form and substance acceptable to you in your sole discretion (the "Lockbox
Agreement"). We shall direct our account debtors to make all payments on the
company's accounts receivable to the lockbox (the "Lockbox") set up pursuant to
the Lockbox Agreement, and shall fulfill all other requirements set forth in the
Lockbox Agreement and any related documents or agreements. All payments or other
amounts sent to the Lockbox shall each day be placed into an account with you in
our name for such purposes (the "Collateral Account"). We shall notify you by
8:00 a.m. each business day of the amount of funds deposited into the Collateral
Account and collected since the previous day's report, and shall transfer, or
authorize you to transfer, at such time on each such day all such collected
funds to be applied against amounts outstanding under this Financing Agreement
(provided that for purposes of calculating interest all such amounts received by
you will be credited to our account two (2) business days after receipt by you).
In the event we fail to comply with this provision, you are hereby authorized
and directed to determine the amount of collected funds so deposited in the
Collateral Account and to apply, on a daily basis, all such funds against the
amounts outstanding under this Financing Agreement. Further, if we receive any
payments on accounts receivable or chattel paper directly, we immediately shall
deliver all such payments to Bank in the form received (except for the our
endorsement where necessary) to be applied against amounts outstanding under
this Financing Agreement. Until so delivered to you, we shall hold all such
payments in trust for you and as your property, and shall not commingle the same
with any of our funds or property. You may remove from our premises copies of
all books and records, correspondence, documents and files relating to accounts;
and you may without cost or expense to you use such of our personnel, supplies,
space and equipment at our place of business as you may desire for the handling
of collections. We will pay any and all internal, office and out-of-pocket
expenses and costs of collection (including reasonable attorney fees) incurred
by you in your handling of or effort to enforce collections.
C. Inspection. We will permit you or your representatives, at all
reasonable times, to examine or inspect our assets, wherever located, and to
examine, inspect and copy our books and records pertaining to our assets and our
business and financial condition.
SECTION V. (REPORTS)
In addition to the reports we have promised to provide under Section III
of this Agreement, we will furnish you from time to time such information
concerning our business, assets, liabilities and financial condition as you may
reasonably request, including, without limitation the following:
-5-
<PAGE> 6
1. As soon as available, but in any event within ninety (90) days of
our fiscal year end, our audited financial statements including, without
limitation, a balance sheet, income statement and sources of income
certified by certified public accountants satisfactory to you to have been
prepared in accordance with GAAP consistently applied;
2. As soon as available, but in any event within twenty-five (25)
days of the end of each month, financial statements (including at a
minimum a balance sheet and profit and loss statement) dated as of the
last business day of such month, certified by our Chief Financial Officer
to have been prepared from our records on the basis of accounting
principles consistently applied by us;
3. As soon as available after December 31 of each year, but in any
event not later than ninety (90) days thereafter, the personal financial
statements of the Individual Guarantor in form and substance satisfactory
to you and certified by such person as to accuracy;
4. Within thirty (30) days of the filing thereof, a copy of the
individual tax returns (federal and state) filed by the Individual
Guarantor for the preceding year;
5. Within five (5) business days after the due date, proof of
payment or deposit, when due, of all withholding and F.I.C.A. taxes owing
by us from time to time, by a payroll service satisfactory to you and
whose services we shall at all times retain while we are indebted to you;
6. Upon issuance, a copy of all public accountants' reports rendered
to us while we are indebted to you;
7. Within two (2) days after the last day of each week, a report of
our accounts which we collected during such week; and
8. Within three (3) days after the last day of each week and on any
day we request an advance, a borrowing base certificate in form
satisfactory to you.
SECTION VI. (WARRANTIES, REPRESENTATIONS AND COVENANTS)
A. Representation and Warranties Regarding Us. We represent and warrant to
you that:
(i) We are validly organized and existing and in good standing as a
corporation under the laws of the State of Delaware and have full power
and authority to own our property and conduct our business as presently
conducted and we are qualified to do business and are in good standing as
a foreign corporation in each other jurisdiction where the nature of our
business makes such qualification necessary. We have full power and
authority to enter into and perform our obligations under this Agreement
and all related documents and to obtain the loans and advances hereunder.
(ii) Our execution, delivery and performance of this Agreement and
all related documents (collectively, the "Loan Documents") have been duly
authorized by all necessary corporate action, do not require any approval
or consent of, or any registration, qualification or filing with, any
governmental agency or authority or any approval or consent of any other
person or other entity (including, without limitation, any stockholder),
do not and will not conflict with, result in any violation of or
constitute any default under, any provision of our Articles of
Incorporation or Bylaws, any agreement binding on or applicable to us or
any of our property, or any law or governmental regulation or court decree
or order, binding upon or applicable to us or of any of our property and
will not result in the creation or imposition of any lien or other
encumbrance on any of our property pursuant to the provisions of any
agreement binding on or applicable to us or any of our property except
pursuant to the Loan Documents.
-6-
<PAGE> 7
(iii) The Loan Documents to which we are a party are our legal,
valid and binding obligations and are enforceable in accordance with their
terms.
(iv) The financial statements we have furnished to you have been and
will be prepared in accordance with generally accepted accounting
principles ("GAAP") consistently applied and those statements present
fairly our financial condition as of the dates thereof and for the periods
covered by such statements. We are not aware of any contingent liabilities
or obligations which would, upon becoming noncontingent liabilities or
obligations, have a material adverse effect on our financial condition.
Since the date of the most recent such statements, neither our condition
(financial or otherwise), business nor properties have been materially,
adversely affected in any way.
(v) There is no action, suit or proceeding at law or equity, or
before or by any governmental department, commission, board, bureau,
agency or instrumentality, domestic or foreign, pending or, to our
knowledge, threatened, against us or any of our property, which, if
determined adversely could have a material adverse effect on our financial
condition or business; and we are not in default with respect to any final
judgment, writ, injunction, decree, rule or regulation of any court or
governmental department, commission, board, bureau, agency or
instrumentality, domestic or foreign.
(vi) We have good and marketable title to all of our assets, real
and personal.
(vii) The security interests created by the Security Agreement are
attached and perfected first priority security interests in the property
covered by the Security Agreement.
(viii) Except as disclosed on our financial statements furnished to
you, we are not a party to any contract of guaranty or suretyship and none
of our assets is subject to any contract of that nature and we are not
indebted to any other party, except you.
(ix) We will not use any part of any loan or advance hereunder at
any time to purchase or carry margin stock (within the meaning of
Regulation U promulgated by the Board of Governors of the Federal Reserve
System) or to extend credit to others for the purpose of purchasing or
carrying any margin stock. We are not engaged principally, or as one of
our important activities, in the business of extending credit for the
purposes of purchasing or carrying any such margin stock. We will not use
any part of the proceeds of any loan or advance hereunder for any purpose
which violates, or which is inconsistent with, any regulations promulgated
by the Board of Governors of the Federal Reserve System.
(x) We have filed all federal, state and other income tax returns
which are required to be filed through the date of this Agreement and have
paid all taxes as shown on said returns, and all taxes due or payable
without returns and all assessments received to the extent such taxes and
assessments have become due. All our tax liabilities are adequately
provided for on our books, including interest and penalties. No income tax
liability of a material nature has been asserted by taxing authorities for
taxes in excess of those already paid. We have made all required
withholding deposits.
(xi) All factual information furnished by or on our behalf to you
for purposes of or in connection with this Agreement or any transaction
contemplated by this Agreement is, and all other such factual information
furnished by or on our behalf to you in the future will be, true and
accurate in every material respect on the date as of which such
information is dated or certified. No such information contains any
material misstatement of fact or omits any material fact or any fact
necessary to prevent such information from being misleading.
(xii) We are not a party to any agreement or instrument or subject
to any restriction that materially, adversely affects our business,
property or assets, operations or condition (financial or otherwise).
-7-
<PAGE> 8
(xiii) We are not in default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained
in any: (1) agreement to which we arc a party, which default might have a
material adverse effect on our business, properties or assets, operations,
or condition (financial or otherwise); or (2) instrument evidencing any
indebtedness or under any agreement relating to such indebtedness.
(xiv) (1) No Reportable Event has occurred and is continuing with
respect to any Plan; (2) the Pension Benefit Guaranty Corporation or any
successor entity has not instituted proceedings to terminate any Plan; and
(3) each of our Plans has been maintained and funded in all material
respects in accordance with its terms and with the Employee Retirement
Income Security Act of 1974, as amended and as may be further amended from
time to time, and the rules and regulations promulgated thereunder by any
governmental agency or authority, as from time to time in effect
("ERISA"). All undefined capitalized terms used in this Section shall have
the meanings ascribed to them in ERISA.
(xv) We arc not insolvent (as such term defined in Section 101(29)
of the United States Bankruptcy Code of 1978, as amended or Minnesota
Statutes Section 513.42, as amended) and will not be rendered insolvent
(as such term is defined in Section 101(29) of the United States
Bankruptcy Code of 1978, as amended or Minnesota Statutes Section 513.42
as amended) by the execution of this Agreement or any other Loan Document,
or-the consummation of the transactions contemplated thereby.
(xvi) Listed on Schedule II attached hereto are all public
warehouses and other locations at which any of our inventory is located.
(xvii) We do not lease any parcels of real property at which
inventory is maintained or stored.
B. Additional Warranties. Representations and Covenants. We warrant and
represent to, and covenant with, you that we shall not:
(i) permit any levy, attachment or restraint to be made affecting
any of our assets;
(ii) permit any receiver, trustee or assignee for the benefit of
creditors to be appointed to take possession of any or all of our assets;
(iii) without your prior written consent:
(1) sell, lease or otherwise dispose of or transfer any of our
assets other than (i) sales of inventory in the ordinary course of
our business and (ii) sales of assets (whether individually or in
the aggregate) having a gross book value not exceeding $40,000;
(2) merge or consolidate with any other corporation;
(3) acquire any other corporation;
(4) enter into any transaction not in the usual course of our
business;
(5) make any investment in the securities of any person,
association, firm, entity or corporation other than securities of
the United States of America;
(6) guarantee or otherwise become liable in any way with
respect to the obligations of any person, association, firm, entity
or corporation except by endorsement of instruments or items of
-8-
<PAGE> 9
payment for deposit to our general account or which are transmitted
or turned over to you on account of our obligations;
(7) other than dividends necessary to permit our shareholders
to pay their income taxes which are directly attributable to our
profits, pay or declare any dividends upon our capital stock;
(8) redeem, retire, purchase or otherwise acquire directly or
indirectly any of our capital stock;
(9) make any change in our capital structure or in any of our
business objectives, purposes and operations which might in any way
materially adversely affect our ability to repay our obligation;
(10) make any distribution of our property or assets except as
provided in subparagraph (1) above;
(11) incur any debts outside of the ordinary course of our
business except renewals or extensions of existing debts and
interest thereon;
(12) make any loan, advance, contribution or payment of money
or goods to any subsidiary, affiliate or parent corporation or to
any officer, director or stockholder (except compensation for
services rendered), except that we may make loans to Individual
Guarantor from time to time which shall not exceed $60,000
outstanding at any one time in the aggregate; or
(13) encumber, pledge, assign or permit to be created a lien
or security interest in any property owned by us.
C. Subordinated Indebtedness.
(i) We hereby represent and warrant that set forth on Schedule I is
a list of all Subordinated Note Holders and a description of all
indebtedness owing by us to each Subordinated Note Holder, containing the
outstanding principal amount due as of the date hereof under the
subordinated promissory notes (the "Subordinated Promissory Notes") made
by us to Subordinated Note Holders and all other material terms.
(ii) We hereby acknowledge and agree that all payments due under the
Subordinated Promissory Notes expressly is subordinated to the prior
payment in full in cash of the Loans.
(iii) Notwithstanding any provision of the Subordinated Promissory
Notes, we agree that no payment of principal, interest, fees or any other
amount due with respect to the Subordinated Promissory Notes shall be made
until all of the Loans are paid in full in cash and your commitment to
extend credit to us shall have expired; provided that as long as no event
of default has occurred or will be created as result thereof (in each case
determined in your sole discretion), we may make regularly scheduled
semiannual interest payments to the Subordinated Note Holders pursuant to
the terms of the Subordinated Promissory Notes.
(iv) We agree that we shall not agree to any amendment, extension,
renewal, supplement or other modification of any of the terms of the
Subordinated Promissory Notes, including, without limitation, any
amendment, extension, renewal, supplement or other modification the effect
of which is to increase the principal amount of any Subordinated
Promissory Note or rate of interest thereunder, to change the maturity
date of any Subordinated Promissory Note or otherwise alter the payment
terms of same, without your prior written consent, which consent may be
given or withheld in your sole discretion.
-9-
<PAGE> 10
(v) We represent and warrant that no event of default has occurred
or is continuing under any of the Subordinated Promissory Notes.
D.Continuing Nature. All covenants, representations and warranties set
forth in this Agreement and in any other Loan Document executed by us in
connection herewith and all terms, conditions, provisions and agreements to be
performed by us pursuant to this Agreement and such other agreements shall
survive the execution and delivery of such agreements and the making or payment
of any loans hereunder.
SECTION VII. (MISCELLANEOUS)
A. Segregation of Collateral. We agree that you, from time to time, for
your convenience, may segregate or apportion the property securing repayment of
the Loans ("Collateral") for purposes of determining the amounts and maximum
amounts of loans and advances which may be made hereunder. Nevertheless, your
security interest in all such Collateral, and any other collateral rights,
interests and properties which may now or hereafter be available to you, shall
secure and may be applied to the payment of any and all loans, advances and
other indebtedness secured by your security interest, in any order or manner of
application and without regard to the method by which you determine to make
loans hereunder.
B. Power of Attorney. We hereby irrevocably make, constitute and appoint
you, or any person whom you may designate, our proxy and true and lawful
attorney with power to receive, open and dispose of all mail addressed to us, to
endorse our name on any notes, acceptance, checks, drafts, money orders or other
means of payment that may come into your possession as payment of or upon
accounts or other collateral, to endorse our name on any invoice, freight or
express bill or bill of lading relating to any collateral, to sign our name to
drafts against account debtors, to assignments and verification of accounts and
notices thereof to account debtors, and to documents of title covering any
Collateral and to do all other things necessary or proper to carry out the
intent of this Agreement. You shall provide us with notice within a reasonable
time period of your exercising any power granted to you in this Paragraph B. We
acknowledge that the constitution and appointment of such proxy and
attorney-in-fact are coupled with an interest and are irrevocable until all of
our obligations under this Agreement and the other Loan Documents are paid and
performed in full.
C. Confirmation of Accounts. At your request, we will deliver customers'
monthly statements to you for examination and for mailing in our stamped
addressed envelope. From time to time, you may verify directly with customers
the amounts owing through the use of standard audit confirmation procedures, or
at your request, we or our independent accountants will do so and deliver the
results to you in any manner satisfactory to you.
D. Participants' Rights. We agree that any bank participating with you in
loans to us hereunder may exercise any and all rights of banker's lien or
set-off with respect to such participation as fully as if such participant had
lent directly to us the amount of such participation.
E. Costs and Expenses. We agree to reimburse you for all reasonable
attorney fees, filing fees and other out-of-pocket expenses (including, but not
limited to, travel expenses) you may incur in connection with the negotiation
and administration of this Agreement or any related agreements, preparation of
documents relating thereto, perfecting any security interest or lien granted
thereby, inspecting our books, records, premises, business and operations, or
enforcing any of our obligations to you arising under and any of your rights and
remedies under or in connection with this or any other agreement between us. If
you elect, you may treat the amount of any such expense as a Loan to us and add
the amount to the net balance owed to you hereunder.
F. Binding Agreement. This Agreement shall bind and inure to the benefit
of you and us and your and our respective successors and assigns. This
Agreement, and all assignments of collateral, shall be construed pursuant to the
laws of the State of Minnesota.
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<PAGE> 11
SECTION VIII. (DEMAND FEATURE AND REMEDIES)
A. Loans Due on Demand; Additional Circumstances. The Loans are due and
payable upon your demand whether or not we have complied with terms and
conditions of this Agreement or the other Loan Documents. In addition, the Loans
shall become immediately due and payable without demand, declaration, notice,
presentment or protest of any kind (all of which we hereby waive) if, in
addition to the occurrence of certain events described herein: (i) we or the
Individual Guarantor become insolvent or generally fail to pay or admit in
writing its inability to pay its debts as they become due; (ii) we or the
Individual Guarantor shall apply for, consent to or acquiesce in the appointment
of a trustee, receiver or other custodian for itself or any of its property, or
make a general assignment for the benefit of its creditors; (iii) a trustee,
receiver or other custodian shall otherwise be appointed for us or the
Individual Guarantor; (iv) any bankruptcy, reorganization, debt arrangement or
other case or proceeding under any bankruptcy or insolvency law, or any
dissolution or liquidation proceeding shall be commenced by or against us or the
Individual Guarantor; (v) we or the Individual Guarantor takes any action to
authorize, or in furtherance of, any of the foregoing, (vi) this Agreement is
terminated in accordance with Section X, (vii) we breach any representation,
warranty or covenant contained in paragraph C of Section VII or (viii) any
default, either payment or otherwise, occurs under the WB Letter Agreement, the
WB Security Agreement or the Brown Guaranty.
B. Remedies. If all or any portion of any of the Loans is not paid when
due, whether upon demand or otherwise, you may declare all of the Loans and all
other of our obligations to you immediately due and payable without further
notice and exercise any or all rights and remedies available to you at law or in
equity for collection of the Loans and all such other obligations, and to
realize upon all property serving as collateral for the repayment thereof.
SECTION IX. (TERMINATION)
This Agreement shall continue in effect until terminated upon at least 30
days' prior written notice delivered by certified mail by either party to the
other. Termination shall not impair or affect your rights and your obligations
existing as of the time of termination.
SECTION X. (WAIVER OF JURY TRIAL; JURISDICTION)
A. JURY WAIVER. BY OUR EXECUTION AND DELIVERY HEREOF, AND BY YOUR
ACCEPTANCE HEREOF, EACH PARTY HEREBY EXPRESSLY WAIVES ANY RIGHT OF A TRIAL BY
JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS
AGREEMENT, OR ARISING FROM ANY CREDIT RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED
BEFORE A COURT AND NOT BEFORE A JURY.
B. JURISDICTION. WE HEREBY IRREVOCABLY SUBMIT TO THE JURISDICTION OF ANY
MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR RAMSEY COUNTY,
MINNESOTA, OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT. WE HEREBY IRREVOCABLY WAIVE, TO THE FULLEST EXTENT WE MAY EFFECTIVELY
DO SO, THE DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION
OR PROCEEDING. WE AGREE THAT A JUDGMENT, FINAL BY APPEAL OR EXPIRATION OF TIME
TO APPEAL WITHOUT BEING TAKEN, IN ANY SUCH ACTION OR PROCEEDING SHALL BE
CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR
IN ANY OTHER MANNER PROVIDED BY LAW.
C. Interest Limitation. All agreements between us are hereby limited so
that in no contingency or event whatsoever, whether by reason of acceleration of
maturity of the indebtedness evidenced or secured thereby or
-11-
<PAGE> 12
otherwise, shall the rate of interest charged or agreed to be charged to you for
the use, forbearance, loaning or detention of such indebtedness (the "Stated
Rate") exceed the maximum permissible interest rate under applicable law
("Maximum Rate"). If for any reason or in any circumstance whatsoever
fulfillment of any provision of this Agreement and/or any document securing or
executed in connection with this Agreement, or any other agreement between us,
at any time shall require or permit the interest rate applied thereunder to
exceed the Maximum Rate, then the interest rate shall automatically be reduced
to the Maximum Rate, and if you should ever receive interest at a rate that
would exceed the Maximum Rate, the amount of interest received which would be in
excess of the amount receivable after applying the Maximum Rate to the balance
of the outstanding obligation shall be applied to the reduction of the principal
balance of the outstanding obligation for which the amount was paid and not to
the payment of interest thereunder; provided, however, that if at any time
thereafter the Stated Rate is less than the Maximum Rate, we shall, to the
extent permitted by law, continue to pay interest at the Maximum Rate until such
time as the total interest received by you is equal to the total interest which
you would have received had the Stated Rate been (but for the operation of this
provision) the interest rate payable. Thereafter, the interest rate payable
shall be the Stated Rate unless and until the Stated Rate again exceeds the
Maximum Rate, in which event the provisions contained in this provision against
shall apply. This provision shall control every other provision of any and all
agreements between us.
[remainder of page intentionally left blank]
-12-
<PAGE> 13
THE DELICIOUS FROOKIE COMPANY, INC., a
Delaware corporation
By: /s/ Richard Worth
--------------------------------
Name: Richard Worth
--------------------------------
Its: Chief Financial Officer
--------------------------------
ACCEPTED AND ACKNOWLEDGED THIS 27TH
DAY OF NOVEMBER, 1996 BY:
REPUBLIC ACCEPTANCE CORPORATION, a
Minnesota corporation
By: /s/ Timothy A. Bellecourt
--------------------------------
Name: Timothy A. Bellecourt
--------------------------------
Its: Regional Manager
--------------------------------
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<PAGE> 14
EXHIBIT A
WB Letter Agreement
-------------------
Please see attached.
-14-
<PAGE> 15
[DELICIOUS/FROOKIE LETTERHEAD]
Aug. 27, 1996
Mr. Warren Brown
W & B Distributors
219 Lafayette Drive
Syosset, N.Y. 11791
Dear Warren,
This will summarize the agreement between W & B Distributors and Delicious
Frookie Co. regarding repayment of W & B's settled accounts receivable balance
of $739,180.43 during the period September 1996 through August 1997. During this
period W & B Distributors agree to the following payment schedule:
A. An immediate payment of $39,533.78.
B. Individual monthly payments of $6,500 for the period September - February
due on the last Thursday of each month.
C. Individual monthly payments of $8,000.00 for the period March - August due
on the last Thursday of each month.
In addition, W & B agrees to make the best faith effort to obtain additional
financing from either banks, finance companies or other outside sources to
accelerate the payment of all past accounts receivables.
W & B also agrees that if they miss a monthly payment or allow current
receivables to become past due, they will lose their thirty day terms and revert
to COD.
Both parties agree to review this arrangement in May 1997 with the intention of
negotiating a new payment arrangement for the future.
W & B Distributors agrees to add the Brown Group to all UCC Filings currently
held by Delicious Frookie Co.
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<PAGE> 16
The aforementioned items summarize all the conditions agreed to by all parties.
Warren, we appreciate your cooperation in getting to this stage and hope that we
have a profitable future relationship.
/s/ Richard Worth Sept. 21, 1996
- ------------------------------ ------------------------
Richard Worth Dated
/s/ Warren Brown Sept. 17, 1996
- ------------------------------ ------------------------
Warren Brown Dated
cc: Jeffry Weiner
Bob Bambino
jmb:BW
-16-
<PAGE> 17
SCHEDULE I
Loans: Advances to Officers, Directors and Affiliates
Advance to Richard Worth - $54,510.00
Description of Subordinated Indebtedness, including Names of Subordinated
Note Holders, Amounts Due and Other Material Terms
Five year 9% Subordinated Convertible Promissory Notes totaling
$2,110,000.00 paying interest semi-annually on January 20 and July 20 due on
April 27, 1999
<TABLE>
<CAPTION>
Subscriber Amount Invested
---------- ---------------
<S> <C>
A-1 International Foods $100,000.00
The Beanstalk Group 50,000.00
Warren M. Brown 100,000.00
The C G Biscuit Company Inc. 50,000.00
Thomas J. Coyle 16,666.66
Patrick J. Crowe 10,000.00
Jeffery and Renee David 10,000.00
Harriet and Jerry Doff 100,000.00
Stanley and Suzanne Doff 100,000.00
Irving and Rose Fien 100,000.00
Joseph Galiazzo 16,666.67
James and Vera Gell 50,000.00
Alison Greenhouse 50,000.00
David Greenhouse 50,000.00
Kristin Greenhouse 50,000.00
Scott Greenhouse 50,000.00
Howard R. Harris 25,000.00
James and Elizabeth Judd 17,000.00
Jerome and Leigh Judd 17,000.00
Thomas and Bridget Kosikowski 10,000.00
Kurt Melander 5,000.00
Howard C. Miskin 50,000.00
Alan L. O'Leary 10,000.00
Brian R. O'Leary 10,000.00
Robert and Marilyn O'Leary 270,000.00
</TABLE>
-17-
<PAGE> 18
<TABLE>
<S> <C>
Provident Bank FBO 40,000.00
Donald C. Schmitt, IRA
Provident Bank FBO 40,000.00
Joan C. Schmitt, IRA
Lawrence A. Rabin, IRA 30,000.00
Lori N. Rabin, IRA 20,000.00
Beverly Rappaport 100,000.00
I. Paul Rappaport 100,000.00
Donald and Joan Schmitt 50,000.00
James and Diana Schmitt 22,000.00
Michael L. Schmitt 17,000.00
Michael L. Schmitt, 20,000.00
Guardian for Eric Michael Schmitt
Robert and Judy Schmitt 77,000.00
Ruth M. Schmitt 60,000.00
Michael and Myrna Shanker 50,000.00
Robert W. Anderson, President 50,000.00
Thompson Biscuit Company, Inc.
Richard and Randye Worth 100,000.00
Robert Zimmerman 16,666.67
---------
$2,110,000.00
=============
</TABLE>
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<PAGE> 19
SCHEDULE II
Inventory Locations
- -------------------
Mrs. Alison's Bakery
c/o Todd Tobiasz
1718 Burns Avenue
St. Louis, MO 63132
Mrs. Alison's
Leased Facility
11068 Fair Growe Industrial Blvd.
Maryland Heights, MO 63043
GATX, Inc.
c/o Debbie Davis
9043 Frost Avenue
St. Louis, MO 63134
Homebaked
1084 S. Rogers Circle
Boca Raton, FL 33487
Hall Street Cold Storage Warehouses Inc.
c/o Frank Valentin
12-38 Hall Street
Brooklyn, NY 11205
Taurus Packaging & Display Corp.
c/o Tom Patroni
1111 Union Avenue
Cherry Hill, NJ 08002
-19-
<PAGE> 1
Exhibit 10.20
SECURITY AGREEMENT
DATE: November 27, 1996
DEBTOR SECURED PARTY
The Delicious Frookie Company, Inc. Republic Acceptance Corporation
2720 River Road 2338 Central Avenue, NE
Des Plaines, Illinois 60018 Suite 200
Minneapolis, Minnesota 55418
1. SECURITY INTEREST AND COLLATERAL. To secure the payment and performance
of each and every debt, liability and obligation of every type and description
which Debtor may now or at any time hereafter owed to Secured Party (whether
such debt, liability or obligation now exists or is hereafter created or
incurred, and whether it is or may be direct or indirect, due or to become due,
absolute or contingent, primary or secondary, liquidated or unliquidated, or
joint, several or joint and several), including without limitation the aggregate
sum of up to Three Million Five Hundred Thousand No/100 Dollars ($3,500,000.00)
due and payable to Secured Party under the terms of a certain Financing
Agreement of even date herewith between the Debtor and Secured Party, as the
same may be amended, modified, restated or replaced from time to time (the
"Financing Agreement") pursuant to which Secured Party may extend loans and
advances to the Debtor as follows, each subject to terms, conditions and
limitations contained in the Financing Agreement: (i) advances of up to Three
Million Five Hundred Thousand and No/100 Dollars ($3,500,000.00) in the
aggregate outstanding at any one time limited to availability based upon a
percentage of the value of certain of the Debtor's accounts deemed eligible by
the Secured Party; (ii) advances of up to Five Hundred Thousand and No/100
Dollars ($500,000.00) in the aggregate outstanding at any one time against a
percentage of the value of the Debtor's inventory deemed eligible by the Secured
Party and (iii) advances of up to Six Hundred Fifty Thousand and No/100 Dollars
($650,000.00) in the aggregate outstanding at any one time based on (A) a
percentage of the value of Debtor's owing by WB Distributing Company and Jersey
Snacks deemed eligible by Secured Party and (B) a percentage of Debtor's certain
settled account receivable balance owing by WB Distributing Company and Jersey
Snacks, which advances based on such settled account shall not exceed $375,000
(hereinafter referred to collectively as the "Loans"); provided that at no time
shall all advances in the aggregate exceed the sum of $3,500,000; all such
debts, liabilities and obligations being herein collectively referred to as the
"Obligations"). Debtor hereby grants to Secured Party a security interest and
first lien (the "Security Interest") in all property of Debtor, whether now
owned or hereafter acquired, and all additions and accessions thereto and
replacements thereof, including, without limitation, the property described
below (the "Collateral"):
1.1 ACCOUNTS, CONTRACT RIGHTS AND OTHER RIGHTS TO PAYMENT. Each and
every right of Debtor to the payment of money, whether such right to
payment now exists or hereafter arises, whether such right to payment
arises out of (i) a sale, lease or other disposition of goods or other
property by Debtor, (ii) a rendering of
<PAGE> 2
services by Debtor, (iii) a loan by Debtor or (iv) the overpayment of
taxes or other liabilities of Debtor, or otherwise arises under any
contract or agreement, whether such right to payment is or is not already
earned by performance, and howsoever such right to payment may be
evidenced, together with all other rights and interests (including all
liens and security interests) which Debtor may at any time have by law or
agreement against any account debtor or other obligor obligated to make
any such payment or against any of the property of such account debtor or
other obligor; all including but not limited to all present and future
debt instruments, chattel papers, accounts and contract rights of Debtor.
1.2 INVENTORY. All of Debtor's inventory, wherever located, whether
now owned or hereafter acquired, all additions and accessions thereto and
replacements thereof and whether deemed eligible or ineligible by Secured
Party for purposes of the Loans;
1.3 MACHINERY AND EQUIPMENT. All of Debtor's machinery and
equipment, wherever located, whether now owned or hereafter acquired and
all additions and accessions thereto and replacements thereof;
1.4 GENERAL INTANGIBLES. All of Debtor's general intangibles,
whether now owned or hereafter acquired, including, but not limited to,
all contract rights, chattel paper, instruments, deposit accounts,
investment property, documents, equipment leases, office leases, supply
and distributorship agreements, non-competition agreements, employment
contracts, collective bargaining agreements, income tax refunds,
applications for patents, patents, copyrights and trademarks, good will
and going concern value;
together with all (i) proceeds (including proceeds of insurance, eminent domain
and other governmental taking and tort claims) and products of the property
described above and (ii) books and records pertaining to the property described
above.
2. REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor represents, warrants
and agrees that:
(a) Debtor is a corporation and Debtor's principal place of business
and chief executive office are located at the address of Debtor shown at
the beginning of the Agreement.
(b) The Collateral will be used primarily for business purposes.
(c) Debtor's records concerning its accounts and contract rights are
kept at Debtor's chief place of business.
3. ADDITIONAL REPRESENTATIONS, WARRANTIES AND AGREEMENTS. Debtor
represents, warrants and agrees that:
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<PAGE> 3
3.1 Debtor has (or will have at the time Debtor acquires rights in
Collateral hereafter arising) absolute title to each item of Collateral
free and clear of all security interests, liens and encumbrances (except
the Security Interest), and will defend the Collateral against all claims
or demands of all persons other than Secured Party. Debtor will not sell
or otherwise dispose of the Collateral or any interest therein without the
prior written consent of Secured Party, except that, until the occurrence
of an Event of Default (as defined herein) and the revocation by Secured
Party of Debtor's right to do so, Debtor may sell any (i) inventory
constituting Collateral to buyers in the ordinary course of business and
(ii) Collateral other than inventory having a gross book value not
exceeding $40,000 (whether individually or in the aggregate). This
Agreement has been duly and validly authorized by all necessary corporate
action.
3.2 Debtor will not permit any tangible Collateral to be located in
any state (and, if county filing is required, in any county) in which a
financing statement covering such Collateral is required to be, but has
not in fact been, filed in order to perfect the Security Interest.
3.3 Each right to payment and each instrument, document, chattel
paper and other agreement constituting or evidencing Collateral is (or
will be when arising or issued) the valid, genuine and legally enforceable
obligation, subject to no defense, set-off or counterclaim (other than
those arising in the ordinary course of business) of the account debtor or
other obligor named therein or in Debtor's records pertaining thereto as
being obligated to pay such obligation. Debtor will neither agree to any
material modification or amendment nor agree to any cancellation of any
such obligation without Secured Party's prior written consent and will not
subordinate any such right to payment to claims of another creditors of
such account debtor or other obligor.
3.4 (a) Debtor will (i) keep all tangible Collateral in good repair,
working order and condition and will, from time to time, replace any worn,
broken or defective parts thereof; (ii) promptly pay all taxes and other
governmental charges levied or assessed upon or against any Collateral or
upon or against the creation, perfection or continuance of the Security
Interest; (iii) keep all Collateral free and clear of all security
interest, liens and encumbrances except the Security Interest; (iv) at all
reasonable times, permit Secured Party or its representatives to examine
or inspect any Collateral, wherever located, and to examine, inspect and
copy Debtor's books and records pertaining to the Collateral and its
business and financial condition; (v) keep accurate and complete records
pertaining to the Collateral and pertaining to Debtor's business and
financial condition and submit to Secured Party such periodic reports
concerning the Collateral and Debtor's business and financial condition as
Secured Party may from time to time reasonably request; (vi) promptly
notify Secured Party of any loss of or material damage to any Collateral
or of any adverse change, known to Debtor, in the prospect of payment of
any sums due on or under any instrument, chattel paper, account or
contract right constituting Collateral; (vii) if Secured Party at any time
so requests (whether the request is made before or after the occurrence of
any Event of Default), promptly delivery to Secured
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<PAGE> 4
Party any instrument, document or chattel paper constituting Collateral,
duly endorsed or assigned by Debtor; (viii) at all times keep tangible
Collateral insured against risks or fire (including so-called extended
coverage), theft, collision (in case of Collateral consisting of motor
vehicles) and such other risks and in such amounts as Secured Party may
reasonably request, with any loss payable to Secured Party to the extent
of its interest; (ix) from time to time execute such financing statements
as Secured Party may require in order to perfect the Security Interest
and, if any Collateral exists of a motor vehicle, execute such documents
as may be required to have the Security Interest properly noticed on a
certificate of title, (x) pay when due or reimburse Secured Party on
demand for all costs of collection of any of the Obligations and all other
out-of-pocket expenses (including in each case all attorneys' fees)
incurred by Secured Party in connection with the creation, perfection,
satisfaction or enforcement of the Security Interest or the creation,
continuance or enforcement of this Agreement or any or all of the
Obligations; and Debtor will indemnify and save Secured Party and its
agents, representatives and employees harmless from all loss, costs,
damage, liability or expense, including attorney fees that it may sustain
or incur by reason of defending or protecting the Security Interest or the
priority thereof, or in the prosecution or defense of any action or
proceeding concerning any matter growing out of or connected with this
Agreement and/or the obligations and/or the Collateral; (xi) execute,
deliver or endorse any and all instruments, documents, assignments,
security agreements and other agreements, and writings which Secured Party
at any time may request in order to secure, protect, perfect or enforce
the Security Interest and Secured Party's rights under this Agreement;
(xii) not use or keep any Collateral, or permit it to be used or kept, for
any unlawful purpose or in violation of any federal, state or local law,
statute or ordinance; and (xiii) not permit any tangible Collateral to
become part of or to be affixed to any real property without first
assuring to the satisfaction of Secured Party that the Security Interest
will be prior and senior to any interest or lien then held or thereafter
acquired by any mortgagee of such real property or the owner or purchaser
of any interest therein.
(b) If Debtor at any time fails to perform or observe any agreement
contained in this Section 3.4, and if such failure shall continue for a
period of five (5) calendar days after Secured Party gives Debtor written
notice thereof (or, in the case of the agreements contained in clauses
(viii) and (ix) of paragraph (a) of Section 3.4, immediately upon the
occurrence of such failure, without notice or lapse of time), Secured
Party may (but need not) perform or observe such agreement on behalf and
in the name, place and stead of Debtor (or at Secured Party's option, in
Secured Party's own name) and may (but need not) take any and all other
actions which Secured Party may deem necessary to cure or correct such
failure (including, without limitation, the payment of taxes, the
satisfaction of security interest, liens, or encumbrances, the performance
of obligations under contracts or agreements with account debtors or other
obligations, the procurement and maintenance of insurance, the execution
of financing statements, the endorsement of instruments and the
procurement of repairs, transportation or insurance); and, except to the
extent that the effect of such payment would be to render any loan or
forbearance of money usurious or otherwise illegal under any applicable
law, Debtor shall thereupon pay Secured Party on
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<PAGE> 5
demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees) incurred by Secured Party in
connection with or as a result of Secured Party's performing or observing
such agreements or taking such actions, together with interest thereon
from the date expended or incurred by Secured Party at the highest rate
then applicable to any of the obligations. To facilitate the performance
or observance by Secured Party of such agreements of Debtor, Debtor hereby
irrevocably appoints (which appointment is coupled with an interest)
Secured Party, or its delegate, as the proxy and attorney-in-fact of
Debtor with the right (but not the duty) from time to time create,
prepare, complete, execute, deliver, endorse or file, in the name and on
behalf of Debtor, any and all instruments, documents, financing
statements, applications for insurance and other agreements and writings
required to be obtained, executed, delivered or endorsed by Debtor under
this Section 3 and Section 4. Debtor acknowledges that the constitution
and appointment of such proxy and attorney-in-fact are irrevocable until
all the Obligations are paid and performed in full.
3.5 Debtor shall pay promptly when due all indebtedness, liability
or obligation secured hereby with interest thereon.
4. LOCK BOX; COLLATERAL ACCOUNT. Pursuant to the terms of paragraphs B and
C of Section V of the Financing Agreement, Debtor shall direct each of its
account debtors to make payments due under the relevant account or chattel paper
directly to a special lock box to be under the sole control of Secured Party.
Debtor hereby authorizes and directs Secured Party to deposit in a special
collateral account to be established and maintained with Secured Party or other
financial institution selected by the Secured Party all checks, drafts and cash
payments received in said lock box. All deposits in said collateral account
shall constitute proceeds of Collateral and shall not constitute payment of any
Obligation. At its option, Secured Party may, at any time, apply finally
collected funds on deposit in said collateral account to the payment of the
Obligations in such order of application as Secured Party may determine, or
permit Debtor to withdraw all or any part of the balance on deposit in said
collateral account. If a collateral account is so established, Debtor agrees
that it will promptly deliver to Secured Party, for deposit in said collateral
account, all payments on accounts and chattel paper received by it. All such
payments shall be delivered to Secured Party in the form received (except for
Debtor's endorsement where necessary). Until so deposited, all payments on
accounts and chattel paper received by Debtor shall be held in trust by Debtor
for and as the property of Secured Party and shall not be commingled with any
funds or property of Debtor.
5. COLLECTION RIGHTS OF SECURED PARTY. Notwithstanding Secured Party's
rights under Section 4 with respect to any and all debt instruments, chattel
papers, accounts and other rights to payment constituting Collateral (including
proceeds of same), Secured Party at any time (both before and after the
occurrence of an Event of Default) may notify any account debtor, or any other
person obligated to pay any amount due, that such chattel paper, account or
other right to payment has been assigned or transferred to Secured Party for
security and shall be paid directly to Secured Party. If Secured Party so
requests at any time, Debtor shall so notify such account debtors and other
obligors in writing and will indicate on all invoices to
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<PAGE> 6
such account debtors or other obligors that the amount due is payable directly
to Secured Party. At any time after Secured Party or Debtor gives such notice to
an account debtor or other obligor, Secured Party may (but need not), in its own
name or in Debtor's name, demand, sue for, collect or receive any money or
property at any time payable or receivable on account of, or securing, any such
chattel paper, account, or other right to payment, or grant any extension to,
make any compromise or settlement with or otherwise agree to waive, notify,
amend or change the obligations (including collateral obligations) of any such
account debtor or other obligor.
6. ASSIGNMENT OF INSURANCE. Debtor hereby assigns to Secured Party, as
additional security for the payment of the obligations, any and all moneys
(including, but not limited to, proceeds of insurance and refunds of unearned
premiums) due or to become due under, and all other rights of Debtor under or
with respect to, any and all policies of insurance covering the Collateral, and
Debtor hereby directs the issuer of any such policy to pay any such monies
directly to Secured Party. Both before and after the occurrence of an Event of
Default, Secured Party may (but need not), in its own name or in Debtor's name,
execute and deliver proofs of claim, receive all such monies, endorse checks and
other instruments representing payment of such monies, and adjust, litigate,
compromise or release any claim against the issuer of any such policy.
7. EVENTS OF DEFAULT. Each of the following occurrences shall constitute
an event of default under this Agreement (herein called an "Event of Default"):
(i) Debtor shall fail to pay any or all of the Obligations when due or (if
payable on demand) on demand, or shall fail to observe or perform any covenant
or agreement herein binding on it; (ii) any representation or warranty by Debtor
set forth this Agreement or made to Secured Party in any financial statements or
reports submitted to Secured Party by or on behalf of Debtor shall prove
materially false or misleading; (iii) Debtor or any guarantor of any Obligation
shall (A) fail to conduct its business substantially as now conducted; (B) be or
become insolvent (however defined); (C) have entered against it any judgment;
(D) file or have filed against it, voluntarily or involuntarily, a petition in
bankruptcy or for reorganization under the United States Bankruptcy Code; (E)
initiate or have initiated against it voluntarily or involuntarily, any act,
process or proceeding under any insolvency law or other statute or law providing
for the modification or adjustment of the rights of creditors; or (F) if a
corporation, partnership or organization, be dissolved or liquidated or, if
partnership, suffer the death of a partner or, if an individual die; or (iv)
Secured Party shall in good faith believe the prospects of due and punctual
payment of any or all of the Obligations is impaired. THE FOREGOING EVENTS OF
DEFAULT, AND REMEDIES UPON THE OCCURRENCE OF AN EVENT OF DEFAULT AS SET FORTH
BELOW IN SECTION 8, ARE IN ADDITION TO AND SUPPLEMENT THE RIGHTS OF THE SECURED
PARTY UNDER THAT CERTAIN FINANCING AGREEMENT OF EVEN DATE HEREWITH BETWEEN THE
DEBTOR AND THE SECURED PARTY (THE "FINANCING AGREEMENT"), INCLUDING, WITHOUT
LIMITATION, THE RIGHT OF SECURED PARTY TO DEMAND PAYMENT OF THE OBLIGATIONS
UNDER THE FINANCING AGREEMENT IN FULL AT ANY TIME IN ITS ABSOLUTE DISCRETION.
NOTHING SET FORTH IN THIS AGREEMENT (INCLUDING THE PROVISIONS OF THIS SECTION 7
OR THE REMEDIES WITH RESPECT THERETO AS SET FORTH IN SECTION 8) SHALL IN
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<PAGE> 7
ANY WAY LIMIT THE SECURED PARTY'S DISCRETION TO MAKE OR NOT MAKE LOANS TO THE
BORROWER OR THE SECURED PARTY'S RIGHT TO DEMAND PAYMENT OF THE OBLIGATIONS.
8. REMEDIES UPON EVENT OF DEFAULT. Upon the occurrence of an Event of
Default under Section 7 and at any time thereafter, Secured Party may exercise
any one or more of the following rights and remedies: (i) declare all unmatured
Obligations to be immediately due and payable, and the same shall thereupon be
immediately due and payable, without presentment or other notice or demand; (ii)
exercise and enforce any or all rights and remedies available upon default to a
secured party under the Uniform Commercial Code as adopted and in effect in the
State of Minnesota, including but not limited to the right to take possession of
any Collateral, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which Debtor hereby expressly
waives), and the right to sell, lease or otherwise dispose of any or all of the
Collateral and, in connection therewith, Secured Party may require Debtor to
assemble the Collateral and make it available to Secured Party at a place to be
designated by Secured Party which is reasonably convenient to both parties, and
if notice to Debtor of any intended disposition of collateral or any other
intended action is required by law in a particular instance, such notice shall
be deemed commercially reasonable if given (in the manner specified in Section
10) at least ten (10) calendar days prior to the date of intended disposition or
other action; and (iii) exercise or enforce any or all other rights or remedies
available to Secured Party by law or agreement against the Collateral, against
Debtor or against any other person or property. Upon the occurrence of an Event
of Default described in Sections 7(iii)(C), 7(iii)(D) or 7(iii)(E), all
unmatured Obligations automatically shall become immediately due and payable
without any action by Secured Party.
9. OTHER PERSONAL PROPERTY. Unless at the time Secured Party takes
possession of any tangible Collateral, or within seven (7) days thereafter,
Debtor gives written notice to Secured Party of the existence of any goods,
papers or other property of Debtor not affixed to or constituting a part of such
Collateral but which are located or found upon or within such Collateral and
which describes such property, Secured Party shall not be responsible or liable
to Debtor for any action taken or omitted by or on behalf of Secured Party with
respect to such property without actual knowledge of the existence of any such
property or without actual knowledge that it was located or to be found upon or
within such Collateral.
10. MISCELLANEOUS. This Agreement does not contemplate a sale of accounts,
contract rights or chattel paper and, as provided by law, Debtor is entitled to
any surplus and shall remain liable for any deficiency. This Agreement can be
waived, modified, amended, terminated or discharged and the Security Interest
can be released only explicitly in a writing signed by Secured Party. A waiver
signed by Secured Party shall be effective only in the specific instance and for
the specific purpose given. Mere delay or failure to act shall not preclude the
exercise of enforcement of any of Secured Party's rights or remedies. All rights
and remedies of Secured Party shall be cumulative and may be exercised
singularly or concurrently, at Secured Party's option, and the exercise or
enforcement of any one such right or remedy shall neither be a condition to nor
bar the exercise of enforcement of any other. All notices to be given to Debtor
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<PAGE> 8
shall be deemed sufficiently given if delivered or mailed by registered or
certified mail, postage prepaid, to Debtor at its address set forth above or at
the most recent address shown on Secured Party's records. Secured Party's duty
of care with respect to Collateral in its possession (as imposed by law) shall
be deemed fulfilled if Secured Party exercises reasonable case in physically
safekeeping such Collateral or, in the case of Collateral in the custody or
possession of a bailee or other third person, exercises reasonable care in the
selection of the bailee or other third person, and Secured Party need not
otherwise preserve, protect, insure or care for any Collateral. Secured Party
shall not be obligated to preserve any rights Debtor may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order, or to apply any cash proceeds of Collateral in any particular order of
application. This Agreement shall be binding upon and inure to the benefit of
Debtor and Secured Party and their respective heirs, representatives, successors
and assigns and shall take effect when signed by Debtor and delivered to Secured
Party, and Debtor waives notice of Secured Party's acceptance hereof. Secured
Party may execute this Agreement if appropriate for the purpose of filing, but
the failure of Secured Party to execute this Agreement shall not affect or
impair the validity or effectiveness of this Agreement. Except to the extent
otherwise required by law, this Agreement shall be governed by the internal laws
of the state named as part of Secured Party's address above. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect, and this Agreement shall be construed
herein or prescribed hereby. All representations and warranties contained in
this Agreement shall survive the execution, delivery and performance of this
Agreement and the creation and payment of the Obligations.
11. OTHER AGREEMENT. The terms of the Financing Agreement are incorporated
herein by reference and made a part hereof, and any default under or
misrepresentation contained in the Financing Agreement shall be an Event of
Default hereunder.
[remainder of page intentionally left blank]
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<PAGE> 9
IN WITNESS WHEREOF, each of the undersigned have caused this Agreement to
be executed on the date first set forth above.
THE DELICIOUS FROOKIE COMPANY, INC., a
Delaware corporation
By: /s/ Richard Worth
----------------------------------
Name: Richard Worth
----------------------------------
Its: Chief Executive Officer
----------------------------------
REPUBLIC ACCEPTANCE CORPORATION, a
Minnesota corporation
By: /s/ Timothy D. Bellcourt
----------------------------------
Name: Timothy D. Bellcourt
----------------------------------
Its: Regional Manager
----------------------------------
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<PAGE> 1
Exhibit 10.21
The following is an agreement effective March 28, 1997 between The
Delicious Frookie Company, Inc. ("D/F"), 2720 River Road, Suite 126, Des
Plaines, Illinois 60018, and Old Colony Baking Company, Inc. ("OCB"), Box 1461
Northbrook, Illinois 60065-1461, for the exclusive rights to manufacture, have
manufactured and distribute "D/F" products in Single Serve Channel of
Distribution ("SSCD") packaging.
1. "OCB" will be designated as the exclusive agent for "D/F" in the "SSCD"
for a period of three (3) years (Initial three (3) year Agreement, ("IA"))
with two (2) additional three (3) year option periods ("OP1"), ("OP2").
These option periods, treated separately, shall be predicated on the
ability of "OCB" to meet specified performance objectives ("PO").
(a) See Schedule 1 for the "PO" that must be attained in the "IA" to
exercise "OP1". If the "PO" for the "IA" are met, "OPI" must be
offered to "OCB", unless there is an outstanding breach of the terms
of the agreement, which "OCB" has not corrected and for which notice
was given.
(b) The "PO" for "OP1" that will determine if "OP2" must be offered
to "OCB" will be mutually established by "D/F" and "OCB" in the last
year of the "IA". If
<PAGE> 2
the established "PO" are met in "OP1", then "OP2" must be offered to
"OCB".
(c) If "OCB" exercises any of the option periods, it will give
notice to "D/F" of its exercise, in writing, no less than (120) days
prior to the end of the corresponding "IA" or "OP1". If "D/F" does
not receive timely notice from "OCB" of its exercise of the option
period, then the terms after termination shall apply.
(d) Should "OCB" fail to meet its "PO" in "OP1" or "OP2" for two (2)
consecutive years, "D/F" shall have the right to terminate its
exclusive agreement with "OCB" or if "OCB" fails to meet at least
forty-five (45%) percent of the "PO" in the first year of each of
the aforementioned two year periods, "D/F" has the right to
terminate this agreement at that time.
In the event that "D/F" products, which represented a significant
portion of the "OCB" sales figures, become unavailable for sale to
"OCB", the "PO" will be revised to reflect the loss of those items.
The revised "PO" will be mutually decided upon by "OCB" and "D/F".
As used herein, "D/F" products means all past and present products
"D/F" is marketing and products that "D/F" markets in the future,
and for which "D/F" has the
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<PAGE> 3
right to grant "OCB" co-packing rights, during the life of this
agreement.
2. During the time this agreement is in effect between "OCB" and "D/F", "D/F"
will not manufacture or have manufactured any Single Serve packaging of
their past, current or future products for the "SSCD" without the
expressed written consent of "OCB". Notwithstanding the above, it is
further agreed, that in the event "OCB" is unable to ship acceptable
products and/or competitively priced to comparable products fill orders
within the normally acceptable industry time limits (which should not
exceed two (2) weeks from the receipt of the order) on a consistent basis,
that this section (#2), by mutual agreement between "OCB" and "D/F" shall
become void. "Acceptable time limits" means twenty (20) working days delay
in shipping orders from the date of receipt of the order. If "OCB" is
diligently seeking to cure the delay, "OCB" shall have twenty-five (25)
working days delay as "acceptable time limits". Should either party find
it necessary to exercise this section, such exercise will pertain only to
the product(s) in question.
3. "D/F" shall provide and own the formulations (i.e. the commercial recipe)
provided to "OCB" for the "D/F" products "OCB" chooses to make available
to the "SSCD", and "OCB shall not use those formulations to manufacture or
have
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<PAGE> 4
manufactured products for any party other than "D/F". If those
formulations are modified by either "OCB" or the co- packer chosen by
"OCB", "D/F" shall first approve such modified formulations before any
product is shipped to customers. "OCB" shall keep all said formulations
strictly confidential, except for current co-packers or prospective
co-packers who will be required to sign an "OCB" confidentiality
agreement, sample annexed as Schedule 2, which "OCB" shall also enforce
for the benefit of "D/F" for any violation of "D/F's" material, before the
formulation is disclosed to them. In the event that "OCB" and "D/F" shall
terminate this agreement at any point in the future, the aforementioned
formulations shall remain confidential, not to be disclosed or used by
"OCB" or its co-packers.
4. "OCB" in its capacity as exclusive agent for "D/F" Products in the "SSCD",
will have the sole authority in determining the following, including but
not limited to, co-packer, raw materials, packaging materials, packaging
suppliers, warehouse location (if applicable), modes of transportation,
carrier selection, brokerage force, and salespeople. This section does not
preclude the right of "D/F" to approve the product quality, approval of
"OCB" formula used by the maker of product, final packaging for trademark
use, labeling, structure, or legal language that "OCB" will use in its
products for the "SSCD". Any changes however must be within
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<PAGE> 5
the capabilities of the chosen "OCB" suppliers, provided that those
capabilities are normal and customary in the industry, not withstanding
this, "D/F" must approve the final packaging as specified above.
5. "OCB" will have the right to use all current and future products of "D/F";
however, "OCB" will be the final authority in deciding which of those
products are made available for the "SSCD". "OCB" solicits, welcomes and
respects all input from "D/F" regarding their items. By the second year,
Frookie products must also be utilized in the "SSCD".
6. "D/F" will purchase only first quality products from the "OCB" co-packer
manufactured for the "SSCD" trade and sell said products to "OCB". "D/F"
will upcharge "OCB" .0075 cents per unit (one (1) unit = any product
intended for the normal "SSCD") which will be reflected in the price
charged to "OCB". It is further agreed that "OCB" will pay to "D/F" all
royalty due the individual "licensors" for the additional "SSCD" items
being made available for sale. This royalty shall be based on the
documentation given to "OCB" of the agreement held by "D/F" with the
individual "licensees". This royalty will be based on the "D/F" selling
price to "OCB". See, Schedule 3.
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<PAGE> 6
(a) "OCB" co-packers will not allow any products other than first
quality goods to leave its manufacturing facility for any
reason.
(b) "D/F" may purchase from "OCB" selected products for the
"SSCD". "D/F's" costs will be "OCB's" costs + no more than
five (5%) percent.
7. "D/F" will pay all "OCB" co-packers within their terms of payment unless a
prior agreement has been reached with the co-packer and "OCB". "D/F" will
offer the same discount terms of sale to "OCB" that the "OCB" co-packer
offers to "D/F", these terms shall result in an equal amount to both
parties. In the event "D/F" does not adhere to the terms of the co-packer
invoice or prior payment arrangements, "OCB"shall have the right, upon
"OCB" giving notice to "D/F", to pay the invoice directly to the co-packer
with the obligated upcharge paid directly to "D/F".
(a) It is further agreed that all contact with the "OCB" co-packers
will be made through "OCB". Access by Randye Worth in her capacity
as R&D for "D/F" or her assistant or access contractually obligated
to by "D/F" are not covered by this prohibition. Access to
co-packer's facility is strictly at their discretion. All visits are
to
-6-
<PAGE> 7
be coordinated through "OCB" which will act in a prompt manner.
8. "D/F" acknowledges that in the course of doing business in the "SSCD"
market and by using brokerage firms designated by "OCB", "D/F" may have an
opportunity to sell goods in the retail trade, that is, products not
controlled by "OCB" and which are readily available by "D/F" in their
normal course of business. These goods will be sold to "OCB" at a mutually
acceptable price or on a commission basis.
(a) Only brokerage commission costs on these goods will be assumed
by "OCB".
(b) All other costs, i.e. freight, promotions, discounts,
allowances, etc. will be the responsibility of "D/F" should they
choose to accept the order.
9. This agreement shall become effective on the date first set forth above
and shall terminate, where applicable, upon any party's receipt of written
notice of termination sent by the other party, if sent by fax, will be
receipt of the fax with confirmation by mail. Termination may only occur
within the confines of this agreement. Any notice of termination shall
-7-
<PAGE> 8
be sent to the address of the respective party set forth herein:
To the attention of Jeffrey Kaufman for Old Colony Baking Company, Inc. or
Richard and Randye Worth for The Delicious Frookie Company, Inc.
Old Colony Baking Co. The Delicious Frookie Company, Inc.
Box 1461 1497 Rail Head Blvd.
Northbrook, IL. 60065-1461 Suite #2
Fax: (847) 498-5858 Naples, FL. 34110
Fax: (941) 591-4327
Copies are to be sent to Howard Miskin, attorney for "D/F" and Stephen
Cohen attorney for "OCB".
Stephen Cohen Howard Miskin
Marks, Marks and Kaplan Stroll, Miskin, Previto and Hoffman
120 No. LaSalle St. 350 5th Ave.
Suite 3200 Suite 6110
Chicago, IL. 60602 New York, NY. 10118
Fax: (312) 332-2952 Fax: (212) 268-0904
Any party may change its address or fax number at any time by written
notice to the other parties as set forth above.
10. During the term of this agreement, or for a period of two (2) years after,
either termination by "OCB" or termination by "D/F" for cause, "OCB" will
not contact or take license with any past (any previous association of
more than twelve
-8-
<PAGE> 9
(12) months old is excluded from this provision) or present "D/F"
licensor, or supply product to such licensor except through or for "D/F".
"OCB" further agrees that, if it should contact any prospective licensor
with regard to a business relationship, it will do so as an agent for
"D/F" within the same framework that exists or had existed (i.e.,"D/F"
being the license holder with "OCB" as exclusive agent for the "SSCD"). So
as not to confuse any prospective licensor, "OCB" will advise "D/F" of any
intent to contact any such licensor before initial is made. In the event
that "OCB" is responsible for adding a licensor to "D/F", the terms of
this agreement in regard to the upcharge may not necessarily apply, i.e.,
that particular licensor's upcharge may be negotiated separately by mutual
agreement between "OCB" and "D/F".
11. In the unlikely event that an interpretation of this agreement or specific
sections of this agreement that refer to "mutual decisions" are not
resolved on a mutual basis by "OCB" and "D/F", they shall be referred to
an independent arbitrator for his/her final and binding decision. This
arbitrator shall be mutually selected by the attorneys identified in
paragraph 9 above of this agreement, and shall take place in Chicago,
Illinois. Should the attorneys find themselves unable to agree on an
arbitrator, the matter
-9-
<PAGE> 10
shall be submitted to the American Arbitration Association pursuant to its
Commercial Rules.
12. "OCB" agrees that products for the "SSCD" shall be manufactured, packaged,
stored, distributed and marketed in accordance with all applicable
Federal, state and/or local laws and regulations. "OCB" further agrees
that all facilities utilized to manufacture, package or store "D/F"
products for the "SSCD" shall be maintained in accordance with all
applicable Federal, state and/or local laws and regulations.
13. "OCB" agrees that products for the "SSCD" shall be manufactured and
packaged in strict accordance with "OCB's approved formulas and product
specifications and quality specifications as per samples approved by "D/F"
prior to initial manufacture. "OCB" further agrees to provide "D/F" with
samples (in reasonable quantities) of all products for the "SSCD" upon
request from "D/F".
14. "OCB" warrants that products for the "SSCD" as of the date of shipment,
shall not be adulterated or misbranded within the meaning of any local,
state or Federal law, regulation, ordinance, rule or procedures and shall
not be a product which may not be sold in interstate commerce pursuant to
the Food, Drug and Cosmetic Act, as amended.
-10-
<PAGE> 11
15. This agreement may be terminated by either party in the event of breach by
one party of an obligation hereunder unless such breach is cured within
thirty (30) days of written notice of the alleged breach by the other
party.
16. This agreement may also be terminated by either party, forthwith, if the
other party becomes insolvent, commits an act of bankruptcy, makes an
assignment for the benefit of creditors, or if a receiver or receiver
manager is appointed for the other party or over any of its assets, or if
any proceeding in bankruptcy, receivership, winding-up or liquidation is
initiated in respect of the other party, or if the other party ceases to
carry on business.
17. This document constitutes the entire agreement between the parties,
supersedes any prior agreements both oral and written, regarding this
subject matter, and shall not be modified except by a writing executed by
the parties hereto.
18. This agreement shall inure to the benefit of and shall be binding upon the
parties hereto and their successors.
Please indicate your assent of this agreement by signing where indicated and
returning one (1) copy and retaining one (1) copy.
-11-
<PAGE> 12
The Delicious Frookie Company, Inc.
By: /s/ Richard Worth
Its: Pres.
Date: 5/7/97
Old Colony Baking Company, Inc.
By: /s/ Illegible
Its: President
Date: 5/7/97
-12-
<PAGE> 13
Schedule 1
OLD COLONY BAKING COMPANY., INC.
PERFORMANCE OBJECTIVES
(As Related to Sales for the Delicious Frookie Company)
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------
Year 1 Year 2 Year 3
- -------------------------------------------------------------------------------
<S> <C> <C> <C>
- -------------------------------------------------------------------------------
Projected D/F Sales $1,200,000 $1,300,000 $1,350,000
- -------------------------------------------------------------------------------
Minimum Minimum Minimum
Dollars D/F Dollars D/F Dollars
will will D/F will
realize realize realize
Performance Objectives $15,000 $42,000 $84,000
- -------------------------------------------------------------------------------
</TABLE>
NOTES:
1. The Delicious Frookie Co. will upcharge Old Colony .0075 cents per unit
manufactured. 1 Unit=any product intended for the normal Single Serve
Channel of Distribution
EXAMPLE
If the invoice from the co-packer to Delicious/Frookie is for 2500 cs.
(packed 48 ct.), Delicious/Frookie would upcharge the invoice to Old
Colony by $900.00 (2500x48=90,000 Units x .0075 = $900.00
<PAGE> 14
Schedule 2
OLD COLONY BAKING COMPANY, INC.
Box 1461 Illinois (847) 498-9922
Northbrook, Illinois 60065-1461 E-mail: [email protected] Fax: (847) 498-5858
================================================================================
___________ This initial of the signatory on page two indicates that they are
aware that the term "BAKER" on this page refers to the company which they
represent and are signing for.
In accordance with our previous discussions, Old Colony Baking Co., Inc. ("OCB")
is interested in working with you in connection with the development and
manufacture of specific products determined by "OCB". "OCB" shall provide and
own the formulas (i.e. the commercial recipe) of such products, including any
improvements jointly made to such formulations and "BAKER" shall not
manufacturer products with the formulations for any party other than "OCB", nor
disclose the formulations to any party other party without the expressed written
consent of "OCB".
During the course of your activities, either party may become exposed to
information, materials or data that the other party considers secret and
confidential ("Confidential Information").
The parties agree that they shall: 1) maintain the Confidential Information of
the other in strict confidence and 2) not use the Confidential Information of
the other party, howsoever obtained, for its own benefit or disclose it to third
parties. This confidentiality obligation shall remain in effect for a period two
(2) years from the date hereof if no agreement was reached between the two
parties, or a period of two (2) years from the date after the last occurrence
the two parties engaged in business. All printed formulations of any manner
shall be immediately destroyed; however, given the fact that one can not erase
one's memory, they will continue to be held in the strictest of confidence
intending for them never to be disclosed. Termination of this agreement shall
not terminate these confidentiality obligations.
This agreement shall not apply to any information, verbal or written, which was
in the possession of the party receiving the information prior to the time of
disclosure, in the public domain prior to the disclosure or becomes part of the
public domain not due to any unauthorized act or omission on the part of the
party receiving the information.
Disclosure within its own organization of Confidential Information by the party
receiving information hereunder shall be made on a need to know basis and shall
be treated in the same manner that the receiving
-14-
<PAGE> 15
Old Colony Baking Company Inc. Page Two
==========================================================================
party treats its own confidential information. In any event, formulations issued
to company personnel shall be issued a control number and its location shall
always be known to the signatory of this document.
Confidential Information shall include, but is not limited to: (a) information
that "BAKER" may acquire through observation or be furnished with regarding
"OCB" products; (b) the fact that the parties have had or are having discussions
regarding the development of "OCB" products.
This agreement shall become effective on the date first set forth above and
shall terminate upon any party's receipt of written notice of termination sent
by the other party or upon the execution by the parties of a co-pack agreement.
Any notice of termination shall be sent to the address of the respective party
set forth herein, to the attention of Jeffrey Kaufman for Old Colony Baking Co.,
Inc. or for Co. The parties further
acknowledge that neither party is under obligation to enter into further
agreement or commercial relationship. Please indicate your assent hereby
signing, dating and returning the enclosed duplicate of this agreement to me.
Sincerely,
Old Colony Baking Company, Inc.
By:
------------------------------------
Its:
------------------------------------
AGREED TO:
Company, Inc.
By:
------------------------------------
Its:
------------------------------------
Date:
------------------------------------
-15-
<PAGE> 16
Schedule 3
Delicious Frookie Licensing Program
<TABLE>
<CAPTION>
================================================================================
Licensed Trademarks Royalty
------------------- -------
- --------------------------------------------------------------------------------
<S> <C>
Butterfinger & 2% of net sales
Raisinets
- --------------------------------------------------------------------------------
Chiquita 5% of net sales, less returns refunded
- --------------------------------------------------------------------------------
Chiquita 3% of net sales
- --------------------------------------------------------------------------------
Chuck E. Cheese 4% of first $3.5M of net sales & 3%
thereafter
- --------------------------------------------------------------------------------
Eskimo Pie 3.5% of net wholesale sales
- --------------------------------------------------------------------------------
Land O'Lakes 3% of net sales
- --------------------------------------------------------------------------------
Musselman's 2%
- --------------------------------------------------------------------------------
Ringling Bros 4% of first $3.5M of net sales & 3%
thereafter
- --------------------------------------------------------------------------------
Skippy 5% net sales + 2% net sales (as amended
12/7/92)
================================================================================
</TABLE>
-16-
<PAGE> 1
EXHIBIT 10.22
ASSET PURCHASE AGREEMENT
By and Between
The Delicious Frookie Company, Inc., as Buyer,
and
Salerno Foods, L.L.C., as Seller
Dated as of April 3, 1998
<PAGE> 2
Table of Contents
ARTICLE I.
ASSETS TO BE PURCHASED AND ASSUMPTION OF OBLIGATIONS............1
Section 1.1. Description of Assets....................................1
Section 1.2. Assumption of Certain Liabilities........................4
Section 1.3. Non-Assignment of Certain Property.......................5
Section 1.4. Liabilities Not Assumed..................................6
Section 1.5. Preservation of Books and Records........................6
ARTICLE II.
PURCHASE PRICE................................7
Section 2.1. Consideration............................................7
Section 2.2. Purchase Price Adjustment................................7
Section 2.3. Receivables Adjustment...................................9
Section 2.4. Sunshine Biscuit Royalty Adjustment.....................10
Section 2.5. Purchase Price Allocation...............................10
ARTICLE III.
CLOSING...................................10
Section 3.1. Closing.................................................10
Section 3.2. Deliveries by Seller....................................11
Section 3.3. Deliveries by Buyer.....................................12
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES.......................13
Section 4.1. Representations and Warranties of Buyer.................13
Section 4.2. Representations and Warranties of Seller
.......................................................16
ARTICLE V.
COVENANTS..................................30
Section 5.1. Covenants Regarding Conduct of Seller's
Business Pending the Closing............................30
Section 5.2. Audit...................................................31
Section 5.3. No Other Negotiations...................................32
Section 5.4. Additional Covenants....................................32
Section 5.5. Announcements...........................................33
Section 5.6. Sales and Transfer Taxes................................33
Section 5.7. Transferred Employees...................................33
Section 5.8. End of Use of Trade Names and Corporate
Name....................................................35
Section 5.9. Retention of Organization...............................35
-i-
<PAGE> 3
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER ...............35
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER.................36
ARTICLE VIII.
INDEMNIFICATION...............................39
Section 8.1. Survival of Representations, Warranties
and Agreement...........................................39
Section 8.2. Indemnification by Seller...............................39
Section 8.3. Indemnification by Buyer................................40
Section 8.4. Certain Tax Matters.....................................40
Section 8.5. Third Party Claims......................................41
ARTICLE IX.
TERMINATION.................................41
Section 9.1. Termination by Any Party Hereto.........................41
Section 9.2. Termination by Buyer....................................42
ARTICLE X.
MISCELLANEOUS................................42
Section 10.1. Expenses................................................42
Section 10.2. Notices.................................................42
Section 10.3. Entire Agreement........................................43
Section 10.4. Bulk Sales..............................................43
Section 10.5. Binding Effect, Benefits, Assignments...................43
Section 10.6. Applicable Law..........................................44
Section 10.7. Jurisdiction............................................44
Section 10.8. Arbitration.............................................44
Section 10.9. Further Assurances......................................45
Section 10.10.Counterparts............................................45
Section 10.11.Headings................................................45
-ii-
<PAGE> 4
Schedules
Schedule 1.1(a)Real Property Leases
Schedule 1.1(b)Personal Property
Schedule 1.1(c)Permits
Schedule 1.1(d)Proprietary Rights
Schedule 1.1(e)Personal Property Leases
Schedule 1.1(f)Contracts
Schedule 1.1(g)Receivables
Schedule 1.1(h)Miscellaneous Assets
Schedule 1.1(i)Causes of Action
Schedule 1.1(k)Bank Accounts and Boxes
Schedule 1.2 Assumed Liabilities
Schedule 4.1(a)Consents
Schedule 4.2(b)Consents
Schedule 4.2(g)Employee Benefit Plans
Schedule 4.2(h)Liens, Claims and Encumbrances
Schedule 4.2(i)Proprietary Rights
Schedule 4.2(j)Legal Proceedings
Schedule 4.2(l)Certain Transactions
Schedule 4.2(n)Environmental Matters
Schedule 4.2(p)Licenses
Schedule 4.2(s)Labor Matters
Schedule 4.2(x)Customer Lists
Schedule 5.7 Excluded Employees
Exhibits
Exhibit A Form of Promissory Note
Exhibit B Allocation Certificate
Exhibit C Bill of Sale
Exhibit D Assumption Agreement
Exhibit E Assignment of Intellectual Property Rights
Exhibit F Opinion of Counsel to Seller
Exhibit G Form of Restrictive Covenant Agreement between
Buyer and Peter Rogers
Exhibit H Form of Restrictive Covenant Agreement between
Buyer and Steve Coates
Exhibit I Form of Restrictive Covenant Agreement between
Buyer and Ron Davies, Jr.
Exhibit J Form of Amendment to Pate's Bakery Supplier
Contract
Exhibit K Form of Escrow Agreement
Exhibit L Form of Buyer Solvency Certificate
Exhibit M Form of Security Agreement
Exhibit N Form of Trademark Security Agreement
Exhibit O Opinion of Counsel to Buyer
Exhibit P Form of Polhill Assumption Agreement
Exhibit Q Financial Statements of Buyer
Exhibit R Financial Projections of Buyer
Exhibit S Pro Forma Balance Sheet of Buyer
Exhibit T Subordination Agreement
Exhibit U Form of First Amendment to Financing Agreement
-iii-
<PAGE> 5
ASSET PURCHASE AGREEMENT
THIS AGREEMENT dated as of April 3, 1998 by and between The
Delicious Frookie Company, Inc., a Delaware corporation ("Buyer"), and Salerno
Foods, L.L.C., a Delaware limited liability company ("Seller").
W I T N E S S E T H:
WHEREAS, Seller is engaged in the development, marketing and sale of
cookies, crackers and related food products (the "Business"); and
WHEREAS, Buyer desires to purchase and Seller desires to sell
substantially all of the assets used in the Business, upon the terms and subject
to the conditions set forth in this Agreement; and
NOW, THEREFORE, in consideration of the premises and the mutual
promises herein contained, the parties hereto agree as follows:
ARTICLE I.
ASSETS TO BE PURCHASED AND ASSUMPTION OF OBLIGATIONS
Section 1.1. Description of Assets. Upon the terms and subject to
the conditions set forth in this Agreement, at the Closing (as hereinafter
defined), Seller shall sell, convey, transfer, assign and deliver to Buyer, and
Buyer shall purchase, acquire and take assignment and delivery from Seller, of
all right, title and interest of Seller at the Closing in and to all of the
assets, properties, rights (contractual or otherwise) and business of Seller
that are owned by Seller and are used in connection with the business and
operations of the Business including, without limitation, those set forth below:
(a) The leases of real property listed on Schedule 1.1(a) (the "Real
Property Leases"), along with all appurtenant rights, easements and
privileges appertaining or relating thereto and construction in progress,
if any, and leasehold improvements owned by Seller relating to the real
property subject to such leases;
(b) All inventory, raw materials, packaging materials, machinery,
equipment, tooling, parts, furniture, supplies, vehicles, office equipment
and other tangible personal property used in conducting the Business (the
"Personal
<PAGE> 6
Property"), including, without limitation, the Personal Property listed on
Schedule 1.1(b);
(c) All franchises, licenses, permits, consents, authorizations,
approvals and certificates of any regulatory, administrative or other
governmental agency or body used in conducting the Business (to the extent
the same are transferable by Seller to Buyer) (the "Permits") including,
without limitation, the Permits listed on Schedule 1.1(c);
(d) All industrial and intellectual property rights used in
conducting the Business, including without limitation, patents, patent
rights, patent applications, inventions, trade secrets, processes,
formulas, customer lists, distribution rights and shelfspace, proprietary
rights, proprietary knowledge, computer software, trademarks, names,
service marks, brand marks, brand names, trade names, source or object
code, copyrights, trade secrets relating to or arising from any
proprietary process, symbols and logos used in conducting the Business and
all applications therefor, registrations thereof and licenses, sublicenses
or agreements in respect thereof, which Seller owns or has the right to
use or to which Seller is a party and all filings, registrations or
issuances of any of the foregoing with or by any federal, state, local or
foreign regulatory, administrative or governmental office (collectively,
the "Proprietary Rights") including, without limitation, the Proprietary
Rights listed on Schedule 1.1(d);
(e) All leases of equipment or other tangible personal property used
in conducting the Business and listed on Schedule 1.1(e) (the "Personal
Property Leases");
(f) All contracts, agreements, contract rights, license agreements,
customer contracts, distribution and shelfspace agreements and other
franchise rights and agreements, purchase and sales orders, quotations and
executory commitments, instruments, asset-based lines of credit, royalty
agreements, third party guaranties, indemnifications, arrangements and
understandings, whether oral or written, to which Seller is a party
(whether or not legally bound thereby) and used in conducting the Business
(the "Contracts"), including, without limitation, the Contracts listed on
Schedule 1.1(f);
(g) All accounts receivable relating to or arising out of the
operation of the Business (the "Receivables") including, without
limitation, the Receivables listed on Schedule 1.1(g);
(h) All cash, security deposits, prepaid expenses, certificates of
deposit, commercial paper, marketable
-2-
<PAGE> 7
securities and other miscellaneous assets of the Business (the
"Miscellaneous Assets") including, without limitation, the Miscellaneous
Assets listed on Schedule 1.1(h);
(i) All causes of action, judgments, claims or demands of whatever
kind or description relating to the Business which Seller has or may have
against any other person or entity (the "Causes of Action") including,
without limitation, the Causes of Action listed on Schedule 1.1(i);
(j) all lists and records pertaining to the current customers,
suppliers, distributors, personnel and agents of the Business and all
other books, ledgers, files, documents, and correspondence of the Business
and all interest of Seller in and to telephone numbers and all listings
pertaining to the Business as it currently exists in all telephone books
and other directories;
(k) All bank accounts and safe deposit boxes used in the conduct of
the Business (the "Bank Accounts and Boxes") including, without
limitation, the Bank Accounts and Boxes listed on Schedule 1.1(k); and
(l) All goodwill relating to the Business.
All of the assets, properties, rights (contractual and otherwise)
and business to be conveyed, sold, transferred, assigned and delivered to Buyer
pursuant to this Section 1.1 are hereinafter collectively referred to as the
"Property."
Notwithstanding the foregoing, the following assets of the Business
(the "Excluded Assets") are expressly excluded from the purchase and sale
contemplated hereby, and, as such, are not included in the Property:
(i) the minute books, capital stock records, Certificate of
Formation, Operating Agreement and seal of Seller, together with annual and
other company reports filed with the State of Delaware and other states in which
Seller is qualified to do business, and all other documents and correspondence
that relate to Seller's company organization and maintenance thereof, and any
and all tax returns and records relating to state and federal income taxes;
(ii) all insurance policies, including, without limitation, all
rights to receive proceeds of insurance policies and all rights of offset,
counterclaims and insurance coverage thereunder;
(iii) any and all income tax credits and refunds;
-3-
<PAGE> 8
(iv) all rights of Seller with respect to the claims, refunds,
causes of action, rights of recovery, rights of set-off and all other rights and
assets of every kind and nature related to the Excluded Liabilities (as defined
below);
(v) all rights of Seller with respect to the claims, refunds, causes
of action rights of recovery, rights of set-off and all other rights and assets
of every kind and nature (a) under that certain Asset Purchase Agreement dated
as of January 11, 1996 between Sunshine Biscuits, Inc. and Seller (the "Sunshine
Agreement") or (b) related to its members or managers;
(vi) all monies to be received by Seller and all other rights of
Seller under (a) this Agreement, the Promissory Note, the Escrow Agreement and
the other agreements, documents, and instruments executed or delivered in
connection with this Agreement, (b) the Sunshine Agreement, and (c) the Polhill
Indemnity (as defined below); and
(vii) the right to receive mail and other communications addressed
to Seller relating to any of the assets described in the foregoing clauses (i)
through (vi) or the Excluded Liabilities.
Section 1.2. Assumption of Certain Liabilities. On the Closing Date
(as hereinafter defined), Buyer shall, subject to Section 1.4, assume and hereby
agrees to pay, perform and discharge, when due, only those debts, liabilities,
obligations and commitments of Seller which are set forth below:
(a) all liabilities of Seller reflected on the February 28, 1998
balance sheet contained in the Financial Statements (as defined below) and,
without limitation, all liabilities of Seller reflected on the balance sheet
contained in the Reviewed Financial Statements (as defined below);
(b) accounts payable, accrued expenses and other liabilities as
listed on Schedule 1.2, including, without limitation, accrued salaries, wages
and vacation pay with respect to Transferred Employees (as hereinafter defined);
(c) debts, liabilities, obligations and commitments arising under
the Real Property Leases (including, without limitation, accrued real estate
taxes not yet due and payable with respect to the Real Property Leases),
Permits, Personal Property Leases and the Contracts transferred to Buyer;
(d) the indebtedness owing and other obligations of Seller to Bank
One, Milwaukee, N.A. in an amount not to exceed $2,848,003;
-4-
<PAGE> 9
(e) all of Seller's obligations to NCH Promotional Services ("NCH")
arising from NCH's services with respect to product coupons;
(f) all of Seller's obligations listed on Schedule 1.2 under open
purchase orders with respect to co-packers;
(g) any liabilities of Seller under collective bargaining agreements
pertaining to employees of Seller; any liabilities of Seller to pay severance
benefits to employees of Seller whose employment is terminated in connection
with or following the sale of the Property pursuant to the provisions hereof
(except to the extent any such liability is expressly retained by Seller under
Sections 1.4 and 5.7); any liability in connection with Buyer's offers of
employment to former employees of Seller; or any liability under any Federal or
state civil rights or similar law, or the Workers Adjustment and Retraining
Notification Act, 29 U.S.C. Sec. 2101 et seq. (the so-called "WARN Act"),
resulting from the termination of employment of employees; and
(h) all other liabilities of Seller (whether known or unknown,
whether absolute or contingent, whether liquidated or unliquidated, and whether
due or to become due), incurred by Seller in the ordinary course of the Business
as of the Closing Date.
The liabilities of Seller being assumed by Buyer are hereinafter
collectively referred to as the "Assumed Liabilities."
Section 1.3. Non-Assignment of Certain Property. To the extent that
the assignment hereunder of the Real Property Leases, or any of the Permits,
Personal Property Leases or Contracts (a "Consent Contract") shall require the
consent of any other party (or in the event that any of the same shall be
nonassignable), neither this Agreement nor any action taken pursuant to its
provisions shall constitute an assignment or an agreement to assign if such
assignment or attempted assignment would constitute a breach thereof; provided,
however, that in each such case, Seller shall use its good faith efforts to
obtain the consents of such other party to an assignment to Buyer without being
obligated to pay any fees or to make any other payments to any party to obtain
any such consents. If such consent is not obtained, (i) such Real Property
Lease, Permit, Personal Property Lease or Contract shall not be deemed assigned
at Closing, (ii) Buyer shall act as Seller's agent to perform Seller's
obligations thereunder and shall so perform, and (iii) Seller, at Buyer's
expense, shall cooperate with Buyer in any reasonable arrangement designed to
provide for Buyer the full benefits of any such Real Property Lease, Permit,
Personal Property Lease or Contract including, without limitation, enforcement,
for the account and benefit of Buyer, of any and all rights of Seller against
any other person with respect to any such Real Property Lease, Permit,
-5-
<PAGE> 10
Personal Property Lease or Contract. When such consents to the transfer,
conveyance and assignment of a Consent Contract have been obtained, if ever,
such Consent Contract shall thereupon automatically be transferred, conveyed and
assigned to Buyer, and the obligations and liabilities of Seller under such
Consent Contract shall automatically cease to be excluded from the Assumption
Agreement (as hereinafter defined) by reason of this Section 1.3, without the
payment of any additional consideration.
Section 1.4. Liabilities Not Assumed. With the exception of the
Assumed Liabilities, Buyer shall not by execution and performance of this
Agreement or otherwise, assume or otherwise be responsible for any debt,
liability, obligation or commitment of any nature of Seller, whether relating to
any of Seller's other assets, operations, businesses or activities, or claims of
such liability or obligation, matured or unmatured, liquidated or unliquidated,
fixed or contingent, or known or unknown, whether arising out of occurrences
prior to, at or after the Closing Date (including, but not limited to, any debt,
liability, obligation or commitment arising from any environmental liability of
Seller, any pension liability of Seller occurring prior to the Closing Date or
any liabilities of Seller for past employment practices) (the "Excluded
Liabilities"). As referenced in Section 5.7(f), Seller shall retain
responsibility for severance payments with respect to those of Seller's former
employees hired by Buyer but terminated by Buyer within 30 days after the
Closing Date in an aggregate amount not to exceed $50,000 (calculated at the
rate of one week's pay for each year of service with the initial service year to
commence on the later of (i) January 1, 1996 or (ii) the year such employee
commenced service with Seller for each Transferred Employee which is terminated
by Buyer). Seller shall retain responsibility for any claims by Keebler that any
setoffs taken by Seller (inclusive of any setoffs residing in accounts payable
of Seller as of February 28, 1998) were invalid according to Keebler. Seller
shall retain responsibility for any claims made by Keebler Company that the
setoffs described on Schedule 1.4 hereto (inclusive of any such setoffs made by
Seller against accounts payable to Keebler Company which are reflected in the
Financial Statements), which setoffs represent all the setoffs taken by Seller
against Keebler Company from the inception of Seller, were invalid. Seller shall
retain all such rights of setoff and the causes of action and rights of recovery
with respect thereto. Seller shall retain responsibility for the agreements set
forth on Schedule 4.2(l).
Section 1.5. Preservation of Books and Records. Seller will preserve
and maintain all books and records of the Business in its possession and not
otherwise transferred to Buyer pursuant to this Agreement until at least
December 31, 1998. Seller shall provide Buyer and its auditors, employees and
agents with full access to the records of Seller (other than Seller's
attorney-client communications and work product and Seller's charter documents
and Operating Agreement) upon reasonable notice during
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normal business hours and shall allow Buyer and its auditors, employees and
agents, at Buyer's expense, to make copies of such documents, records and other
information pertaining to the Business as Buyer may reasonably request. If
Seller desires to dispose of any such books and records at the end of such
period or before the expiration of such period, Seller will first give written
notice thereof to Buyer and will, at Buyer's option and expense, appropriately
package and deliver such books and records to Buyer at such location as Buyer
shall designate. If upon receiving written notice of Seller's desire to dispose
of books and records, Buyer does not direct Seller to deliver such books and
records within 45 days, then Seller may dispose of such books and records
without violating the terms of this Agreement.
ARTICLE II.
PURCHASE PRICE
Section 2.1. Consideration. Upon the terms and subject to the
conditions set forth in this Agreement, in consideration for the Property and
the restrictive covenants set forth in the Restrictive Covenant Agreements (as
hereinafter defined), and in full payment therefor, at the Closing and subject
to any adjustment as provided in Sections 2.2, 2.3 and 2.4 hereof, Buyer shall:
(a) assume the Assumed Liabilities as provided in Section 1.2
hereof;
(b) pay to Seller in cash by wire transfer of immediately available
funds in accordance with Seller's written instructions to Buyer not later
than two days prior to the Closing Date, the sum of THREE MILLION TWO
HUNDRED FIFTY THOUSAND DOLLARS ($3,250,000);
(c) pay TWO HUNDRED FIFTY THOUSAND DOLLARS ($250,000) in cash by
wire transfer of immediately available funds into escrow pursuant to an
Escrow Agreement in the form attached hereto as Exhibit K (the "Escrow
Agreement") which amount shall be payable thereafter pursuant to the terms
thereof; and
(d) issue to Seller a promissory note (the "Promissory Note") in the
aggregate principal amount of ONE MILLION FIVE HUNDRED THOUSAND DOLLARS
($1,500,000), in the form attached hereto as Exhibit A.
Section 2.2. Purchase Price Adjustment. The purchase price for the
Property shall be adjusted by an amount equal to the Working Capital Adjustment
(as defined below) in accordance with the terms of this Section 2.2. Altschuler,
Melvoin and Glasser LLP ("AMG"), independent certified public accountants, shall
conduct a
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review of the Financial Statements (as hereinafter defined). Buyer shall deliver
to Seller within 60 days after the Closing Date (the "Delivery Date") the
Financial Statements with such adjustments made in accordance with AMG's review
as well as a computation of working capital (the "Reviewed Working Capital") of
Seller as of February 28, 1998 (the "Reviewed Financial Statements"). If within
30 days following the Delivery Date, Seller has not given Buyer written notice
of its objection to the Reviewed Financial Statements (the "Objection Notice"),
then the Reviewed Working Capital of Seller will be used to determine the
Working Capital Adjustment (as defined below). If Seller provides Buyer with an
Objection Notice in accordance with this Section 2.2, then Buyer and Seller
will, for a period of 15 days thereafter, attempt in good faith to resolve such
objection. If Buyer and Seller cannot agree on the Working Capital within such
15 day period, the working capital shall be determined by a nationally
recognized independent accounting firm acceptable to both Buyer and Seller (the
"Certified Working Capital"), the costs of such accounting firm to be borne
equally by Buyer and Seller. The Working Capital Adjustment shall be equal to
(i) the Reviewed Working Capital or Certified Working Capital, as the case may
be, plus (ii) $650,000.
Working Capital = total Current Assets (as defined
under U.S. GAAP (as defined below),
but including non-refundable
deposits) less total Current
Liabilities (as defined under U.S.
GAAP) and excluding the royalty
payable to Keebler Company (as
successor to Sunshine Biscuits,
Inc.).
The Working Capital = Reviewed or Certified Working
Adjustment Capital, as applicable, plus
$650,000.
In the event the Working Capital Adjustment is negative, such amount
shall be released from escrow to Buyer in accordance with the terms of the
Escrow Agreement. If such negative Working Capital Adjustment exceeds the
$250,000 held in escrow pursuant to the Escrow Agreement, the balance shall be
offset against any payment to be made by Buyer to Seller in accordance with
Section 2.4, but in no event shall a negative Working Capital Adjustment exceed
the $250,000 held in escrow plus any such payment under Section 2.4.
In the event the Working Capital Adjustment is positive, Buyer shall
pay such amount to Seller on or before the earlier of (i) seven (7) days after
the date Seller gives notice to Buyer, if any, that Seller shall not deliver an
Objection Notice (which date shall not be earlier than the Delivery Date), (ii)
120 days after the Closing Date or (iii) the consummation of an initial public
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offering of Buyer's common stock, $.01 par value, from which Buyer receives
gross proceeds of at least $7,000,000, but in no event shall such payment to
Seller exceed $650,000, and the $250,000 of escrowed funds shall be released to
Seller pursuant to the Escrow Agreement.
For example, if the Reviewed Working Capital or Certified Working
Capital, as the case may be, is negative $500,000, then the Working Capital
Adjustment would be positive $150,000 resulting in a payment by Buyer to Seller
of $150,000 and the release of the $250,000 of escrowed funds pursuant to the
Escrow Agreement to Seller.
Alternatively, if the Reviewed Working Capital or Certified Working
Capital, as the case may be, is negative $1,000,000 and the payment owing to
Seller pursuant to Section 2.4 is $50,000, then the Working Capital Adjustment
would be negative $350,000 resulting in the release from escrow to Buyer of the
$250,000 escrowed funds and an offset of $50,000 against the $50,000 owing to
Seller pursuant to Section 2.4.
Section 2.3. Receivables Adjustment. In the event that the amount of
Receivables actually collected by Buyer within 90 days after the Closing Date
(the "Receivables Adjustment Date") is less than (A) the sum of (i) all
Receivables reflected on the balance sheet of Seller as of February 28, 1998
included in the Financial Statements net of reserves reflected thereon plus (ii)
all Receivables reflected on Seller's books and records for the period beginning
on March 1, 1998 and ending on the date immediately preceding the Closing Date
net of reserves reflected thereon minus, (B) $50,000 minus, (C) the amount of
reduction of Receivables, if any, resulting from the Working Capital Adjustment
(the net amount described in clauses (A), (B) and (C) being the "Gross
Receivables"), then Buyer and Seller shall settle the difference between the
Gross Receivables and collected Receivables in accordance with this Section 2.3.
Within 10 days after the Receivables Adjustment Date, Buyer and Seller shall in
good faith mutually agree upon which outstanding Receivables are uncollectible.
If Buyer and Seller cannot mutually agree upon such uncollectible Receivables,
then the uncollectible Receivables shall be determined by a nationally
recognized independent accounting firm acceptable to both Buyer and Seller, the
costs of such accounting firm to be borne equally by Buyer and Seller. Upon the
final determination of the uncollectible Receivables (whether by mutual
agreement or by such independent accounting firm), Seller shall pay to Buyer
within 10 days thereafter the difference between the Gross Receivables and the
Receivables actually collected by Buyer as of such final determination.
Concurrently, with such payment, if any, to Buyer, Buyer shall reassign to
Seller all of such uncollected Receivables. Buyer will endorse (if necessary)
and deliver to Seller within three (3) business days after Buyer's
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receipt thereof, any cash, checks or other documents received by Buyer on
account of any such reassigned Receivables.
Buyer shall maintain a separate receivables, cash application, and
lockbox management system substantially similar to Seller's for the Receivables
for at least 120 days after the Closing Date. Buyer shall collect the
Receivables in the ordinary course of business and use all commercially
reasonable efforts to collect the Receivables purchased herein. Buyer shall not,
without the written consent of Seller (which consent will not be unreasonably
withheld and will be at no cost to Buyer) compromise or settle for less than 85%
of the full value any of the Receivables. Buyer shall advise Seller (promptly
following Buyer's becoming aware thereof) of any counterclaims or set-offs that
may arise subsequent to the Closing Date with respect to the Receivables. In the
absence of any dispute by an account debtor with respect to a Receivable
concerning a Receivable or an account debtor indicating that a payment should be
applied to a particular invoice, all monies received from a debtor will be
applied by Buyer to the oldest Receivable. Payments indicating application to a
particular invoice or invoices will be applied to that invoice. If an account
debtor with respect to a Receivable notifies Buyer of a dispute by such account
debtor concerning a Receivable, all monies received from such account debtor
will be applied to the undisputed portion, if any, of such Receivable.
Section 2.4. Sunshine Biscuit Royalty Adjustment. Within 120 days
after the Closing Date, AMG will estimate the royalties owing by Seller to
Keebler Company under the Sunshine Agreement for the period from the Closing
Date to January 23, 1999 (the "Estimated Royalties") and deliver to Seller a
notice setting forth the Estimated Royalties (the "Royalties Notice")
immediately thereafter. If within 15 days following the delivery of the
Royalties Notice, Seller has not given Buyer written notice of its objection to
the Royalties Notice (the "Royalties Objection Notice"), the Estimated Royalties
will be used in the calculation described in and be subject to the last sentence
of this paragraph. If Seller provides Buyer with a Royalties Objection Notice in
accordance with this Section 2.4, then the estimated royalties under the
Sunshine Agreement will be determined by a nationally recognized independent
accounting firm acceptable to both Buyer and Seller (the "Certified Estimated
Royalties"), the costs of such accounting firm to be borne equally by Buyer and
Seller. In the event that the Estimated Royalties or the Certified Estimated
Royalties, as the case may be, are less than $550,000, then, subject to Section
2.2, within 120 days after the Closing Date, Buyer shall pay Seller an amount
equal to $550,000 less the Estimated Royalties or the Certified Estimated
Royalties, as the case may be.
However, in the event the actual royalties paid to Keebler Company
by Buyer for such period are less than the
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Estimated Royalties or the Certified Estimated Royalties, as the case may be,
Seller agrees it is owed no further compensation whatsoever. Moreover, in the
event that the actual royalties paid to Keebler Company by Buyer for such period
exceed the Estimated Royalties or the Certified Estimated Royalties, as the case
may be, Buyer agrees it is owed no further adjustment or consideration from
Seller whatsoever.
Section 2.5. Purchase Price Allocation. Seller and Buyer hereby
agree that the aggregate purchase price for the Property shall be allocated for
purposes of this Agreement and for federal, state and local tax purposes as set
forth on the allocation certificate attached hereto as Exhibit B (the
"Allocation Certificate"). Buyer, Seller and the members of Seller shall file
all federal, state and local tax returns, including Internal Revenue Form 8594,
in accordance with the allocation set forth in such Allocation Certificate.
ARTICLE III.
CLOSING
Section 3.1. Closing. The consummation of the transactions
contemplated by this Agreement (the "Closing") shall take place as soon as
practicable after satisfaction or waiver of all conditions set forth herein at
the offices of Freeborn & Peters, 311 South Wacker Drive, Chicago, Illinois
60606, or at such other time and place as Buyer and Seller shall mutually agree
(the date on which such closing occurs being herein referred to as the "Closing
Date").
Section 3.2. Deliveries by Seller. At the Closing, Seller shall
deliver to Buyer duly and properly executed, the following:
(a) The General Conveyance, Assignment and Bill of Sale, in the form
attached hereto as Exhibit C (the "Bill of Sale") and such deeds,
assignments, certificates of title and other instruments of transfer and
conveyance, conveying, selling, transferring and assigning to Buyer title
to all of the Property (subject to Section 1.3), free and clear of all
security interests, liens, charges or encumbrances whatsoever, except for
those assumed by Buyer pursuant to this Agreement or the Assumption
Agreement, approved in writing by Buyer prior to the Closing; together
with the written consents of all parties necessary in order to duly
transfer such title to the extent obtained;
(b) The Assumption Agreement, in the form attached hereto as Exhibit
D (the "Assumption Agreement");
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(c) The Assignment of Intellectual Property Rights in the form
attached hereto as Exhibit E (the "Assignment of Intellectual Property
Rights");
(d) Resolutions of the managers authorizing the execution and
delivery of this Agreement by Seller and the performance of its
obligations hereunder, certified by a manager of Seller;
(e) A certificate of the Secretary of State of Delaware and
Illinois, dated as of a recent date, as to the existence and good standing
of Seller in such states;
(f) Certificates of a manager of Seller in accordance with Section
7.1(d) hereof;
(g) An opinion of Freeborn & Peters, counsel to Seller, dated the
Closing Date, in the form attached hereto as Exhibit F;
(h) The Restrictive Covenant Agreements to be entered into and by
and between Buyer and each of Peter Rogers, Steve Coates and Ron Davies,
Jr., each in the form attached hereto as Exhibits G, H and I, respectively
(the "Restrictive Covenant Agreements");
(i) An amendment (the "Pate Amendment") to Seller's current supplier
contract with Pate's Bakery, L.L.C. ("Pate") in the form attached hereto
as Exhibit J;
(j) The Escrow Agreement; and
(k) Such other separate instruments of sale, assignment or transfer
that Buyer may reasonably deem necessary or appropriate in order to
perfect, confirm or evidence title to all or any part of the Property.
Section 3.3. Deliveries by Buyer. At the Closing, Buyer shall
deliver to Seller the Purchase Price in accordance with Section 2.1, and shall
deliver to Seller, all duly and properly executed, the following:
(a) The Assumption Agreement;
(b) Resolutions of the board of directors of Buyer authorizing the
execution and delivery of this Agreement by Buyer and the performance of
its obligations hereunder, certified by the Secretary of Buyer;
(c) A certificate of the Secretary of State of Delaware and Illinois
dated as of a recent date as to the existence and good standing of Buyer
in such state;
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(d) Certificates of the President and/or the Secretary of Seller in
accordance with Section 6.1(d) hereof;
(e) The Pate Amendment;
(f) The Restrictive Covenant Agreements;
(g) A certificate dated the Closing Date, in substantially the form
of Exhibit L, signed by the Chief Financial Officer of Buyer, certifying
that Buyer is Solvent (as hereinafter defined) on the Closing Date after
giving effect to the transactions contemplated hereby;
(h) The Promissory Note;
(i) A Security Agreement dated the Closing Date, in substantially
the form of Exhibit M, executed by Buyer in favor of Seller as security
for the obligations under the Promissory Note, together with the financing
statements described therein (the "Security Agreement");
(j) A Trademark Security Agreement dated the Closing Date, in
substantially the form of Exhibit N, executed by Buyer in favor of Seller
as security for the obligations under the Promissory Note (the "Trademark
Security Agreement");
(k) The Escrow Agreement;
(l) An opinion of Olshan Grundman Frome & Rosenzweig LLP, counsel to
Buyer, dated the Closing Date, in the form attached hereto as Exhibit O;
and
(m) Such other separate instruments of assumption that Seller may
reasonably deem necessary or appropriate in order to confirm or evidence
Buyer's assumption of the Assumed Liabilities.
ARTICLE IV.
REPRESENTATIONS AND WARRANTIES
Section 4.1. Representations and Warranties of Buyer. Buyer hereby
represents and warrants to Seller as of the date hereof that:
(a) Corporate Organization; Requisite Authority to Conduct Business.
Buyer is a corporation duly organized, validly existing and in good
standing under the laws of the State of Delaware. Buyer has all requisite
power and authority to carry on its business as now being conducted and as
contemplated to be conducted immediately following the
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Closing. Buyer has all requisite corporate power and authority to execute,
deliver and perform its obligations under this Agreement and all other
agreements to be executed by Buyer pursuant hereto and to consummate the
transactions contemplated hereby and thereby; and this Agreement and all
other agreements to be executed by Buyer pursuant hereto have been duly
authorized and approved by Buyer's Board of Directors and no further
action on the part of Buyer, its Board of Directors, or its shareholders
will be necessary to authorize the execution and delivery by it of, and
the performance of its obligations under, this Agreement or such other
agreements. Except as set forth on Schedule 4.1(a) hereto, there are no
corporate, contractual, statutory or other restrictions of any kind upon
the power and authority of Buyer to execute and deliver this Agreement or
any other agreement to be executed by Buyer pursuant hereto and to
consummate the transactions contemplated hereunder or thereunder and no
action, waiver or consent by any federal, state, municipal or other
governmental department, commission or agency ("Governmental Authority")
is necessary to make this Agreement or any other agreement to be executed
by Buyer pursuant hereto a valid instrument binding upon Buyer in
accordance with its terms. At or prior to the Closing, Buyer will deliver
to Seller a copy of the resolutions of its Board of Directors approving
the execution and delivery of this Agreement and all other agreements to
be executed by Buyer pursuant hereto and the consummation of all of the
transactions contemplated hereby and thereby, duly certified by an
authorized officer of Buyer.
(b) Execution and Delivery. Buyer has less than $100 million of
total assets and revenues (within the meaning of ss.7(a) of the Clayton
Act, 15 U.S.C. ss.18A, and the rules, regulations, statements and
interpretations promulgated thereunder) ("HSR Assets and Revenues"), and
assuming as of its last regularly prepared balance sheet and income
statement, Seller had less than $100 million of HSR Assets and Revenues,
Buyer is not required to submit any notice, report or other filing with
any Governmental Authority in connection with the execution, delivery or
performance of this Agreement or any other agreement to be executed by
Buyer pursuant hereto. This Agreement has been duly executed and delivered
by Buyer and all other agreements to be executed by Buyer pursuant hereto
will be duly executed and delivered by Buyer as of the Closing Date
(assuming this Agreement has been duly authorized, executed and delivered
by Seller) and when so executed and delivered, will constitute legal,
valid and binding obligations of Buyer, enforceable against Buyer in
accordance with their respective terms, except (i) as such enforceability
may be limited by or subject to any bankruptcy, insolvency,
reorganization, moratorium or other similar laws
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<PAGE> 19
affecting creditors' rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity
may be limited by federal or state securities laws or by public policy.
(c) No Conflicts; Absence of Defaults. Except as set forth on
Schedule 4.1(a), the execution, delivery and performance of this
Agreement, and all other agreements to be executed by Buyer pursuant
hereto, by Buyer and the consummation of the transactions contemplated
hereby and thereby do not and will not conflict with or violate (a)
Buyer's Certificate of Incorporation or By-laws or (b) any law,
administrative regulation or rule or court order, writ judgment or decree
applicable to Buyer except for any such conflict or violation which would
not reasonably be expected to cause any material adverse change in Buyer's
business operations (as now conducted), assets, properties or rights,
prospects or condition (financial or otherwise), or combination thereof
which reasonably could be expected to result in any such material adverse
change (a "Buyer Material Adverse Effect"); except as set forth on
Schedule 4.1(a), nor will the execution and delivery of this Agreement or
the consummation of the transactions contemplated hereby or thereby
constitute a breach of, or any event of default under, any material
contract, license or agreement, permit, instrument or obligation to which
Buyer or by which any of its assets is bound, or by which Buyer or any of
its assets may be bound or affected except for any such breach or default
which would not reasonably be expected to cause a Buyer Material Adverse
Effect.
(d) Broker. Other than Condor Ventures, Inc., no broker, finder or
investment banker is entitled to any brokerage or finder's fee or other
commission from Buyer in connection with the transactions contemplated
hereby based upon the arrangements made by or on behalf of Buyer.
(e) Litigation. There is no suit, action or administrative or other
legal proceeding, nor any order, decree or judgment in progress, pending
or in effect, or to the knowledge of Buyer threatened against Buyer in
connection with or relating to the transactions contemplated by this
Agreement, or any other agreement to be executed by Buyer pursuant hereto,
and Buyer does not know or have any reason to be aware of any basis for
the same.
(f) Solvency. Buyer is Solvent (as defined below). Buyer will not
fail to be Solvent as a result of the execution and delivery of this
Agreement or any of the other agreements, documents, or instruments to
which it is a party or as a result of the transactions contemplated
hereunder.
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"Solvent" shall mean, when used with respect to any person or
entity, that at the time of determination:
(i) it is then able and expects to be able to pay its debts as
they mature; and
(ii) it has capital sufficient to carry on its business as
conducted and as proposed to be conducted.
(g) Financial Commitments. Buyer has a non-binding commitment letter
from Republic Acceptance Corporation for a loan facility having proceeds
sufficient to satisfy all of the indebtedness of Seller under its credit
facility with Banc One, Milwaukee, N.A. and (2) a non-binding letter of
intent from Gaines, Berland Inc. to sell for Buyer's own account an
aggregate of $7,000,000 of common stock of Buyer in an initial public
offering of such common stock.
(h) Financial Statements and Projections.
(1) Buyer has delivered to Seller the audited balance sheet
and related statements of income, retained earnings, statement of cash flow, and
changes in stockholders equity for Buyer as of December 31, 1997 and for the
fiscal year then ended, accompanied by the report thereon of AMG. Buyer has also
delivered to Seller the unaudited balance sheet and related statements of income
and changes in financial position for Buyer as of February 28, 1998 and for the
two months then ended. Such financial statements are attached hereto as Exhibit
Q. To the best of Buyer's knowledge, all such financial statements have been
prepared in accordance with U.S. GAAP and present accurately and fairly the
financial position of Buyer as at the dates thereof and its results of
operations for the periods then ended.
(2) The projections of Buyer, attached hereto as Exhibit R,
and the pro forma projected balance sheet of December 31, 1998 attached hereto
as Exhibit S represent Buyer's best estimate of Buyer's future financial
performance for the periods set forth therein and in the case of the pro forma
projected balance sheet, as if the transaction contemplated by this Agreement
had occurred on such date and on the Closing Date. The projections have been
prepared on the basis of the assumptions set forth therein, which Buyer believes
are fair and reasonable in light of current and reasonably foreseeable business
conditions.
(i) No Default. Buyer is not in default with respect to any
indebtedness, note, indenture, loan agreement, mortgage, lease, deed, or
other agreement to which Buyer is a party or by which it is bound and
Buyer has not received any notice or demands with respect to the same,
which default or demand
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would materially and adversely affect the Buyer's property, business,
operations, or condition (financial or otherwise).
Section 4.2. Representations and Warranties of Seller. Seller hereby
represents and warrants to Buyer as of the date hereof that:
(a) Company Existence; Subsidiaries. Seller is a limited liability
company duly organized, validly existing and in good standing under the
laws of the State of Delaware and has the power to own, operate or lease
the Property and to carry on the Business as now being conducted. Complete
and correct copies of the Certificate of Formation of Seller and all
amendments thereto, certified by the Secretary of State of the State of
Delaware, and the Operating Agreement of Seller, and all amendments
thereto, certified by a manager Seller have previously been delivered to
Buyer. Seller is duly qualified or licensed to do business and is in good
standing as a foreign corporation in each jurisdiction in which the
ownership or leasing of the Property or the transaction of the Business
requires it to be so qualified or licensed, except where the failure to be
so qualified or licensed would not in the aggregate reasonably be expected
to cause any material adverse change in Seller's business operations (as
now conducted), assets, properties or rights, prospects or condition
(financial or otherwise), or combination thereof which reasonably could be
expected to result in any such material adverse change (a "Seller Material
Adverse Effect") on Seller. Seller does not own (directly or indirectly)
any equity interest in any corporation, partnership, limited liability
company, joint venture, association or other entity.
(b) Authorization; Validity. Seller has all requisite power and
authority to enter into this Agreement and all agreements, documents and
instruments required to be executed by Seller pursuant hereto
(collectively, the "Basic Documents"), to perform its obligations
hereunder and thereunder and to consummate the transactions contemplated
hereby and thereby without the approval of any third party. All necessary
limited liability company action including, without limitation, the
approval of Seller's managers, has been taken by Seller with respect to
the execution, delivery and performance by Seller of this Agreement and
the Basic Documents and the consummation of the transactions contemplated
hereby and thereby, and no further authorization will be necessary to
authorize the execution and delivery by Seller hereof and thereof, and the
performance of its obligations hereunder or thereunder. Except as set
forth on Schedule 4.2(b), there are no corporate, contractual, statutory
or other restrictions of any kind upon the power and authority of Seller
to execute and deliver this Agreement and
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the Basic Documents and to consummate the transactions contemplated
hereunder and thereunder. As of its last regularly prepared balance sheet
and income statement, Seller had less than $100 million of HSR Assets and
Revenues, no action, waiver or consent by any Governmental Authority is
necessary to make this Agreement and the Basic Documents, as appropriate,
a valid instrument binding upon Seller in accordance with its respective
terms. This Agreement and the Basic Documents have been duly executed and
delivered by Seller and constitutes legal, valid and binding obligations
of Seller, enforceable against Seller in accordance with their respective
terms, except (i) as such enforceability may be limited by or subject to
any bankruptcy, insolvency, reorganization, moratorium or other similar
laws affecting creditors' rights generally, (ii) as such obligations are
subject to general principles of equity and (iii) as rights to indemnity
may be limited by federal or state securities laws or by public policy.
(c) No Breach of Statute or Contract. Neither the execution and
delivery of this Agreement or any of the Basic Documents nor the
consummation by Seller of the transactions contemplated hereby and
thereby, nor compliance by Seller with any of the provisions hereof and
thereof will breach or conflict with any of the terms, provisions or
conditions of the Certificate of Formation or the Operating Agreement of
Seller; violate or cause a default under any statute (domestic or
foreign), judgment, order, writ, decree, rule or regulation of any court
or governmental authority applicable to Seller or any of the Property,
which would have a Seller Material Adverse Effect; except as set forth on
Schedule 4.2(b), violate, conflict with or breach any agreement, contract,
mortgage, instrument, indenture or license to which Seller is a party or
by which Seller is or may be bound with respect to the Property or the
Business, or constitute a default (in and of itself or with the giving of
notice, passage of time or both) thereunder, or result in the creation or
imposition of any encumbrance upon, or give to any other party or parties
any claim, interest or right, including rights of termination or
cancellation in, or with respect to, the Property, which would have a
Seller Material Adverse Effect; or result in the loss of any license,
franchise, legal privilege possessed by Seller or give a right of
termination to any party to any agreement or other instrument to which
Seller is a party or by which any of its properties are bound, which would
have a Seller Material Adverse Effect. Seller is not required to submit
any notice, report or other filing with any Governmental Authority in
connection with the execution, delivery or performance of this Agreement
or the Basic Documents, the failure of which would have a Seller Material
Adverse Effect.
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(d) Financial Statements. Seller has heretofore delivered to Buyer
true and complete copies of Seller's unaudited balance sheets, income
statements and statements of cash flows for the years ended December 31,
1996 and 1997 and for the two-month period ended February 28, 1998
(together with the related notes, such financial statements are referred
to in this Agreement as the "Financial Statements"). The Financial
Statements have been prepared in accordance with United States generally
accepted accounting principles ("U.S. GAAP") applied on a consistent basis
throughout the periods involved (except as may be indicated therein or in
the notes thereto) and fairly present the financial position of Seller as
of the respective dates thereof and the results of operations of Seller
for the periods indicated. The Financial Statements accurately reflect the
accrued royalty owing by Seller to Keebler Company pursuant to the
Sunshine Agreement as of the date of the Financial Statements.
(e) Absence of Certain Changes in Events. Since February 28, 1998,
Seller has conducted its Business in the ordinary course, and there has
not been with respect to Seller:
(i) Any Seller Material Adverse Effect;
(ii) Other than in the usual and ordinary course of business,
any increase in amounts payable by Seller to or for the benefit of
or committed to be paid by Seller to or for the benefit of any
officer, consultant, agent or employee of Seller, in any capacity,
whether in the form of salary, bonus, consulting fee, directors fee
or otherwise, or in any benefits granted under any bonus, stock
option, profit sharing, pension, retirement, deferred compensation,
insurance, or other direct or indirect benefit plan with respect to
any such person;
(iii) Any transaction entered into or carried out by Seller
other than in the ordinary and usual course of its Business
resulting in the incurrence of liabilities or obligations of Seller;
(iv) Any material change made in the methods of doing business
or in the accounting principles or practices or the method of
application of such principles or practices;
(v) Any mortgage, pledge, lien, security interest,
hypothecation, charge or other encumbrance imposed or agreed to be
imposed on or with respect to the Property which will not be
discharged prior to the Closing except for Permitted Liens (as
hereinafter defined);
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<PAGE> 24
(vi) Any sale, lease or other disposition of, or any agreement
to sell, lease or otherwise dispose of any of its properties or
assets, individually in excess of $25,000, or in the aggregate in
excess of $50,000, excluding sales of inventory held for sale in the
ordinary course of business;
(vii) Any purchase of or any agreement to purchase capital
assets or any lease or any agreement to lease, as lessee, any
capital assets individually in excess of $25,000 or in the aggregate
in excess of $50,000;
(viii) Any modification, waiver, change, amendment, release,
rescission or termination of, or accord and satisfaction with
respect to, any term, condition or provision of any contract,
agreement, license or other instrument to which Seller is a party,
which would have a Seller Material Adverse Effect, other than any
satisfaction by performance in accordance with the terms thereof in
the usual and ordinary course of its Business;
(ix) Any damage, destruction or similar loss, whether or not
covered by insurance, adversely affecting the Business in excess of
$25,000 individually, or $50,000 in the aggregate;
(x) Any strike, picketing, work slowdown or labor disturbance;
or
(xi) To Seller's knowledge, any change in any law, rule or
regulation applicable to or binding upon Seller, the Business or the
Property, which would have a Seller Material Adverse Effect.
(f) Taxes and Tax Returns. (i) For purposes of this Agreement, (A)
the term "Taxes" shall mean all taxes, charges, fees, levies or other
assessments, including, without limitation, income, gross receipts,
excise, property, use, sales, license, payroll and franchise taxes,
imposed by the United States, or any state, local or foreign government or
subdivision or agency thereof whether computed on a unitary, combined or
any other basis; and such term shall include any interest and penalties or
additions to tax; and (B) the term "Tax Return" shall mean any report,
return or other information required to be filed with, supplied to or
otherwise made available to a taxing authority in connection with Taxes.
(ii) Seller has (A) filed with the appropriate taxing
authorities all Tax Returns required to be filed for any period ending on
or before the Closing Date (or are properly on extension), and all such
filed Tax Returns are
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true, correct and complete in all material respects, and (B) paid in full
all Taxes shown to be due on such Tax Returns, together with any penalties
or fines due in connection therewith. There are no liens for Taxes upon
the assets of Seller except for statutory liens for current Taxes not yet
due and payable. Seller has not received any outstanding notice of audit
or is undergoing any audit of Tax Returns or has received any notice of
deficiency or assessment from any taxing authority with respect to
liability for Taxes which has not been fully paid or finally settled.
There have been no waivers of statutes of limitations by Seller with
respect to any Tax Returns which relate to Seller. Seller has not filed a
request with the Internal Revenue Service for changes in accounting
methods within the last two years which change would effect the accounting
for tax purposes, directly or indirectly, of Seller. Seller has not filed
any election under Section 341(f) of the Internal Revenue Code of 1986, as
amended (the "Code"). Seller has complied in all material respects with
all applicable laws, rules and regulations relating to the payment and
withholding of Taxes and has withheld all amounts required by law to be
withheld from the wages or salaries of employees and independent
contractors, and is not liable for any Taxes for failure to comply with
such laws, rules and regulations.
(g) Employee Benefit Plans; Employees. (i) Schedule 4.2(g) contains
a list of all plans, agreements or arrangements relating to deferred
compensation, pension, profit sharing, money purchase or other retirement
benefits, membership interests purchase, membership interests grant,
membership interests option, membership interests appreciation rights, and
other equity-based compensation or benefits, salary, bonus, commission,
incentive, severance, parachute or change in control payments or benefits,
health and welfare benefits, life, disability or other insurance benefits,
layoff or unemployment benefits, or any other employee benefits or fringe
benefits maintained or contributed to by Seller, or under which Seller has
any liabilities or obligations including, but not limited, to any employee
benefit plan within the meaning of Section 3(3) of the Employment
Retirement Income Security Act of 1974, as amended ("ERISA") (collectively
referred to as the "Plans"). For purposes of this Section 4.2(g),
references to Seller include any entity affiliated with Seller under
Sections 414(b), (c) and (m) of the Code or Section 4001(b) of ERISA
(excluding any foreign affiliate of Seller). Seller is not required to
contribute to, and has no liability under or with respect to, any
multiemployer plan within the meaning of Section 4001(a)(3) of ERISA.
Seller has previously delivered to Buyer true and complete copies of (i)
each written Plan, including all amendments to date, (ii) the most recent
Form 5500 and
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schedules thereto for each Plan required to file the same, (iii) where
applicable, trust or other funding agreements or policies under each Plan,
(iv) where applicable, investment management or other service agreements
in respect of each Plan, (v) where applicable, the most recent actuarial
reports and financial statements relating to each Plan, (iv) where
applicable, the most recent determination letter from the Internal Revenue
Service regarding each Plan intended to be qualified under Section 401(a)
of the Code, (vii) summary plan descriptions and any other material
employee communications with respect to each Plan and (viii) all
employment or personal handbooks, policies or manuals.
(ii) All material obligations of Seller existing on or prior to the
date hereof, whether arising by operation of law, by contract or by past
custom, for payments to trusts or other funds or to any governmental
agency or to or in respect of any Plan have been paid, or adequate
accruals for such payments have been made by Seller on its books of
account.
(iii) Each Plan has been administered and operated in all material
respects in accordance with its terms and applicable law. Each Plan
intended to be "qualified" within the meaning of Section 401(a) of the
Code is so qualified and each related trust is exempt from tax under
Section 501(a) of the Code. Except for required contributions, benefit
accruals, and administrative expenses, no material liability under ERISA
or the Code or the terms of a Plan has been incurred or, based upon
existing facts, may reasonably be expected to be incurred by Seller with
respect to any Plan except for any such liabilities that have been fully
settled and discharged. None of the Plans, nor any trust created
thereunder, has engaged in any non-exempt material "prohibited
transaction" as such term is defined in Section 4975 of the Code and
Section 406 of ERISA, which involves Seller.
(iv) Each of the Plans is, and in administering each of the Plans,
Seller is, in material compliance with all applicable laws including,
without limitation, ERISA and the Code. Seller has not incurred any
liability under Title IV of ERISA, Section 412 of the Code or Section 302
of ERISA, with respect to any employee benefit plan subject to any of
those provisions, and there exist no facts, conditions or circumstances
which would make it reasonable to anticipate that Seller will incur any
such liability.
(v) The projected benefit obligation, within the meaning of
Statement of Financial Accounting Standards No. 87 of the Financial
Accounting Standards Board, under each Plan which is subject to Title IV
of ERISA, determined on the basis of actuarial assumptions ordinarily used
under such Plan as of the most recent actuarial valuation date for such
Plan and as
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of December 31, 1997, does not exceed the current value of all of the
assets of such Plan.
(vi) All reports relating to the Plans required to be filed with or
furnished to any governmental body, agency or court, Plan participants or
beneficiaries prior to the date hereof have been timely filed or furnished
in accordance with applicable law.
(vii) There are no actions, suits or claims pending (other than
routine claims for benefits), or, to Seller's knowledge, threatened
against any of the Plans or against the assets of any of such Plans.
(viii) Seller has not (i) experienced any reportable event within
the meaning of ERISA or other event or condition which presents a material
risk of the termination of any pension Plan by the Pension Benefit
Guaranty Corporation ("PBGC"); (ii) had any tax imposed on it by the
Internal Revenue Service for any violation under Section 4975 of the Code;
and (iii) engaged in any transaction which could reasonably be expected to
subject Seller or any Plan to any liability for any tax under Section 4975
of the Code.
(ix) There is no matter involving any Plan maintained or established
for employees of Seller which is pending before the Internal Revenue
Service, the Department of Labor or any other governmental agency or
court.
(x) As to any Plan subject to Title IV of ERISA, (i) there has been
no reportable event within the meaning of Section 4043 of ERISA; (ii) no
notice of intent to terminate the Plan has been given under Section 4041
of ERISA; (iii) no proceeding has been instituted under Section 4042 of
ERISA to terminate any Plan; (iv) no liability to the PBGC has been
incurred (other than PBGC insurance premiums); and (v) as to any Plan
intended to be qualified under Section 401 of the Code, there has been no
termination or partial termination of any such Plan within the meaning of
Section 411(d)(3) of the Code.
(xi) No act, omission or transaction has occurred which could
reasonably be expected to result in imposition on Seller of (i) a breach
of fiduciary duty liability under Section 409 of ERISA, or (ii) a civil
penalty assessed pursuant to subsections (c), (i) or (l) of Section 502 of
ERISA.
(xii) Each Plan which is a "welfare plan" (as defined in Section
(3)(1) of ERISA) is either (i) unfunded or (ii) funded through insurance
contracts.
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<PAGE> 28
(xiii) Seller does not provide medical or life insurance benefits to
or in respect of employees beyond the date of retirement or other
termination of employment, other than as required under the Consolidated
Omnibus Budget Reconciliation Act of 1985, as amended ("COBRA"), or other
applicable law, nor does it have any current or projected liability for
any unfunded post-retirement medical or life insurance benefits in respect
of any employee or former employee.
(xiv) No Plan (including any agreement with any employee or former
employee) provides for benefits by reason of severance or change in
control, except as may be required by COBRA. The consummation of the
transactions contemplated under this Agreement will not cause the payment,
acceleration, vesting or funding of any compensation, benefit or other
entitlement with respect to any employee of Seller under any Plan, except
as may be required by COBRA.
(xv) No employer securities, employer real property or other
employer property is included in the assets of any Plan.
(xvi) Seller is not a party to any written or oral deferred or
incentive compensation, employment, severance, consulting or other similar
contract, arrangement or policy or labor contracts or collective
bargaining agreements relating to its employees that could reasonably be
expected to result in any Seller Material Adverse Effect.
(xvii) Schedule 4.2(g) also sets forth the salary and bonus
arrangements and all accrued vacation time for each current employee of
Seller as of the date hereof. Except as set forth on Schedule 4.2(g),
there are no pending, or, to Seller's knowledge, threatened, actions,
suits or claims by former or present employees of Seller (or their
beneficiaries). Seller is not a party to any written or oral employment,
severance or consulting or similar contract or agreement with any employee
of Seller.
(h) Title to Property. Seller has and will have good and marketable
title, or valid leasehold rights (in the case of leased property), to all
real property and all personal property purported to be owned or leased by
it or used in the operation of its Business, free and clear of all liens,
claims and encumbrances of any nature, other than as disclosed on Schedule
4.2(h) (the "Permitted Liens"). On the Closing Date, Seller will convey to
Buyer good and marketable title to the Property or, in the case of assets
constituting Property which are leased or licensed by Seller pursuant to
Contracts, valid leasehold interests or licenses to such Contracts, free
and clear of all liens, claims and encumbrances of any nature other than
Permitted Liens. Except for the Excluded Assets,
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Schedules 1.1(a), 1.1(b) and 1.1(e) set forth a complete and accurate list
of (i) all real property leased by Seller in the conduct of the Business
and (ii) all personal property owned by Seller and used in connection with
the Business, including without limitation, all inventory, raw materials,
packaging materials, machinery, equipment, tooling, parts, furniture,
supplies, vehicles, office equipment and other tangible personal property
used in conducting the Business, and all leases of equipment or other
personal property used in the conduct of the Business with a value in
excess of $10,000 individually or $50,000 in the aggregate. All Property
used in the conduct of the Business are owned by Seller and are held free
and clear of all mortgages, pledges, liens, security interests, claims,
encumbrances and restrictions of any nature whatsoever other than
Permitted Liens. Except for Permitted Liens, no financing statement under
the Uniform Commercial Code or similar law naming Seller as debtor has
been filed, and not been terminated, prior to the Closing Date in any
jurisdiction in respect of the Property, and, except as disclosed on
Schedule 4.2(h), Seller is not a party to or bound under any agreement or
legal obligation authorizing any party to file any such financing
statement.
Schedules 1.1(a) and 1.1(e) set forth with respect to each lease
("Lease"), the commencement date, termination date, renewal options, if
any, and annual base rents. Except as disclosed on Schedules 1.1(a) and
1.1(e), each such Lease is valid and enforceable in accordance with its
terms in all respects and is in full force and effect. To Seller's
knowledge, no other party to any Lease is in default of its obligations
thereunder, and Seller (or any other party to any such Lease) has not at
any time delivered or received any notice of default which remains uncured
under any such Lease and no event has occurred which, with the giving of
notice or the passage of time, or both, would constitute a default under
any such Lease. Seller has delivered, prior to the Closing Date, copies of
all leases, and all amendments thereto, for real property leased or
currently used by Seller in the conduct of the Business. Seller has
furnished or made available to Buyer, copies of all engineering, geologic
and environmental reports prepared by or for Seller, if any, with respect
to the real property leased or used by Seller. Seller does not own any
real property other than the leasehold interests described in the Real
Property Leases.
(i) Trademarks, Patents and Copyrights. (i) Except as disclosed on
Schedule 4.2(i), Seller owns or has the right to use, sell or license all
Proprietary Rights and such Proprietary Rights are sufficient for the
conduct of the Business of Seller as it is currently being conducted as of
the date hereof, in each case used in the conduct of the
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Business. Schedule 1.1(d) hereto lists each patent, patent right, patent
application, tradename, trademark, trade name registration, trademark
registration, trademark application, copyright registration, copyright
registration application, service mark, brand mark and brand name, trade
secret, formula, source and object code owned or licensed by Seller and
any license for any of the foregoing in each case currently used in the
conduct of the Business;
(ii) Except as disclosed on Schedule 4.2(i), the execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby will not constitute a breach of any instrument or
agreement governing any Proprietary Rights, will not cause the forfeiture
or termination or give rise to a right of forfeiture or termination of any
Proprietary Rights or impair the right of Seller to use, sell or license
any Proprietary Rights or any portion thereof;
(iii) Except as disclosed on Schedule 4.2(i) neither the
manufacture, marketing, license, sale or intended use of any tangible
product currently sold by Seller violates any license or agreement between
Seller and any third party relating to such product or to Seller's
knowledge infringes any intellectual property right of any other party,
and there is no pending or, to Seller's knowledge, threatened claim or
litigation contesting the validity and Seller's ownership or right to use,
sell, license or dispose of any Proprietary Right nor, to Seller's
knowledge is there any basis for any such claim, nor has Seller received
any notice asserting that any Proprietary Right or the proposed use, sale,
license or disposition thereof conflicts or will conflict with the rights
of any other party, nor, to Seller's knowledge, is there any basis for any
such assertion, and Seller has neither licensed the use of trademarks
"SALERNO" or "MAMA'S" to any third party nor permitted the use by any
third party of the same in a manner which would infringe the trademark
rights of Seller; and
(iv) Except as disclosed on Schedule 4.2(i), Seller has not received
any notice, and to Seller's knowledge, no current or prior members,
officers, employees or consultants of Seller claim an ownership interest
in any Proprietary Rights as a result of having been involved in the
development of such property while employed by or consulting to Seller or
otherwise.
(j) Legal Proceedings, Claims, Investigations, etc. Except as
disclosed on Schedule 4.2(j), there is no legal, administrative,
arbitration or other action or proceeding or governmental investigation
pending, or, to Seller's knowledge,
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<PAGE> 31
threatened, against Seller or, to Seller's knowledge, pending or
threatened against any member, officer or employee thereof relating to the
Business. Except as disclosed on Schedule 4.2(j), Seller has not been
informed of any violation of or default under, any laws, ordinances,
regulations, judgments, injunctions, orders or decrees (including without
limitation, any immigration laws or regulations) of any court,
governmental department, commission, agency, instrumentality or arbitrator
applicable to Seller or the Business. Seller is not currently subject to
any judgment, order, injunction or decree of any court, arbitral
authority, administrative agency or other governmental authority.
(k) Material Contracts. Schedule 1.1(f) sets forth complete and
accurate list as of the Closing Date hereof of all contracts or agreements
("Material Contracts") to which Seller is a party involving aggregate
consideration payable to or by Seller of $50,000 in a twelve month period
or property of Seller, and Seller has provided Buyer copies of (i) all
written customer contracts, distribution and shelfspace agreements and
supplier agreements, (ii) all other contracts to which Seller is party and
(iii) all contracts entered into other than in the ordinary course of
business showing the parties and subject matter thereof and amendments and
modifications thereto.
Each such Material Contract (i) is in full force and effect and is
binding upon and enforceable against Seller, and, to Seller's knowledge,
all other parties thereto in accordance with its terms, (ii) has not been
otherwise materially amended or modified by Seller except as specified in
such Schedules and (iii) is not in default due to the action of Seller or,
to Seller's knowledge, any other party thereto.
(l) Certain Transactions. Except as set forth on Schedule 4.2(l), no
member, officer or employee of Seller, nor any member of any such person's
family is presently a party to any material transaction with Seller,
relating to the Business of Seller, including without limitation, any
contract, agreement or other arrangement (i) providing for the furnishing
of services by, (ii) providing for the rental of real or personal property
from, or (iii) otherwise requiring payments to (other than for services as
managers, officers, directors or employees of Seller), any such person or
any corporation, partnership, trust or other entity in which any such
person has a substantial interest as a stockholder, officer, director,
trustee or partner.
(m) Broker. No broker, finder or investment banker is entitled to
any brokerage or finder's fee or other commission
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from Seller other than as set forth on Schedule 4.2(l), in connection with
the transactions contemplated hereby based on the arrangements made by or
on behalf of Seller.
(n) Environmental Matters. (i) Seller is not the subject of, or to
Seller's knowledge, being threatened to be the subject of (A) any
enforcement proceeding, or (B) any investigation, brought in either case
under any federal, state or local environmental law, rule, regulation, or
ordinance at any time in effect or (C) any third party claim relating to
environmental conditions on the properties of Seller, except as disclosed
on Schedule 4.2(n). Seller has not been notified in writing that it must
obtain any permits and licenses or file documents for the operation of its
business under federal, state and local environmental laws, except as
disclosed on Schedule 4.2(n). Seller has not been notified in writing of
any conditions on the properties of Seller which will give rise to any
liabilities under any federal, state or local environmental law, rule,
regulation or ordinance, except as disclosed on Schedule 4.2(n). For the
purposes of this Section 4.2(n), an investigation shall include, but is
not limited to, any written notice received by Seller which relates to the
onsite or offsite disposal, release, discharge or spill of any waste,
waste water, pollutant or contaminants.
(ii) Except as disclosed on Schedule 4.2(n), there are no
toxic wastes or other toxic or hazardous substances or materials,
pollutants or contaminants which Seller or any previous occupant of
facilities of Seller has used, stored or otherwise held in or on any of
the facilities of Seller, which, are present at or have migrated from the
facilities, whether contained in ambient air, surface water, groundwater,
land surface or subsurface strata. Seller's properties have been
maintained by Seller in material compliance with all environmental
protection and occupational, health and safety laws, ordinances,
restrictions, licenses, and regulations. Seller has not disposed of or
arranged (by contract, agreement or otherwise) for the disposal of any
material or substance at any third-party off-site location that has been
or is listed or proposed for inclusion on any list promulgated by any
Governmental Authority for the purpose of identifying sites which pose a
danger to health and safety. Except as disclosed on Schedule 4.2(n),
Seller has not prepared, nor has had prepared on its behalf, any
environmental studies, reports and analyses relating to the Property of
Seller. Except as disclosed on Schedule 4.2(n), Seller has not installed
any underground storage tanks at any of its Properties and, to Seller's
knowledge, none of such Property contains any underground storage tanks.
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<PAGE> 33
(o) Illegal Payments. Seller, directly or indirectly, has not paid
or delivered any fee, commission or other sum of money or item of
property, however characterized, to any finder, agent, government official
or other party, in the United States or any other country, which is in any
manner related to the business or operations of Seller, which any such
person knows or has reason to believe to have been illegal under any
federal, state or local laws or the laws of any other country having
jurisdiction. Seller has not participated, directly or indirectly, in any
boycotts affecting any of its actual or potential customers.
(p) Licenses. Seller is the holder of all state, federal and local
licenses, permits and approvals, required to conduct the Business as it is
presently being conducted, except where the failure to hold the same would
not have a Seller Material Adverse Effect. All such Permits are in good
standing, valid and effective, and free and clear of any liens, conditions
or restrictions which might limit their full utilization as authorized by
any governmental authority. Schedule 1.1(c) lists each Permit held by
Seller and its date of expiration. Schedule 4.2(p) sets forth those
Permits issued by various governmental authorities and used by Seller in
the Business that are not assignable. Seller's inability to assign such
Permits to Buyer shall not constitute a breach or default of any provision
of this Agreement.
(q) Compliance with Law. Seller has complied in all material
respects with all laws, rules, regulations, arbitral determinations,
orders, writs, decrees and injunctions which are applicable to or binding
upon Seller, the Business or the Property.
(r) Inventories. All Inventories reflected in the Financial
Statements are stated at the lower of cost or market on a
first-in-first-out basis in accordance with U.S. GAAP consistently
applied, with adequate reserves for obsolete, obsolescent and slow moving
items consistently applied in conformity with past practices.
(s) Labor Matters. Except as disclosed on Schedule 4.2(s), Seller
has not received any notice from any labor union or group that it
represents or intends to represent Seller's employees. Except as disclosed
on Schedule 4.2(s), Seller has complied in all material respects with all
applicable laws affecting employment and employment practices, terms and
conditions of employment and wages and hours. Except as disclosed on
Schedule 4.2(s), Seller has not received any written notice of and there
is no complaint alleging unfair labor practices against Seller pending, or
to
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Seller's knowledge, threatened before the National Labor Relations Board
or any other charges or complaints pending, or to Seller's knowledge,
threatened before the Equal Employment Opportunity Commission, any state
or local Human Rights Commission or any other state or local agency in
respect of labor or employment matters. Except as disclosed on Schedule
4.2(s), no labor strike, material dispute, slowdown or stoppage has
occurred with respect to Seller's employees and there is no labor strike,
material dispute, slowdown or stoppage pending or to Seller's knowledge,
threatened with respect to Seller's employees. Except as disclosed on
Schedule 4.2(s), there are no pending grievances or arbitration
proceedings against Seller with respect to Seller's operation of the
Business.
(t) Books of Account; Records. The general ledgers, books of account
and other records of Seller in respect of the Business are complete and
correct in all respects and have been maintained in accordance with good
business practices and on a consistent basis from period to period
reflected therein.
(u) Complete Disclosure. No representation or warranty made by
Seller in this Agreement, and no exhibit, schedule, statement, certificate
or other writing furnished to Buyer by or on behalf of Seller, pursuant to
this Agreement or in connection with the transactions contemplated hereby,
contains or will contain, any untrue statement of a material fact or omits
or will omit to state a material fact necessary to make the statements
contained herein and therein not misleading.
(v) Condition of the Assets. EXCEPT AS OTHERWISE EXPRESSLY PROVIDED,
HEREIN, ALL OF THE PROPERTY IS CONVEYED TO BUYER AS IS, WHERE IS AND
SELLER HEREBY DISCLAIMS ALL WARRANTIES WITH RESPECT THERETO, INCLUDING,
WITHOUT LIMITATION, WARRANTIES OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE. Seller does not have any assets in excess of $10,000
individually or $100,000 in the aggregate, used in, related in any way to,
or required for the conduct of the Business which is not included in the
property described on the Schedules hereto.
(w) Accounts Payable. All accounts payable of the Business have been
incurred in the ordinary course of business consistent with past practice.
(x) Customers. Except as set forth on Schedule 4.2(x), there are no
pending or, to Seller's knowledge, threatened disputes between Seller and
any of its vendors, suppliers, customers or other parties which in any way
relate to Seller's operation of the Business.
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<PAGE> 35
(y) Banks; Safe Deposit Boxes. Schedule 1.1(k) hereto lists the
names and locations of all banks at which Seller has an account and/or
safe deposit box, the numbers of any such accounts and the names of all
persons authorized to draw thereon or to have access thereto.
(z) Snyder's Distribution Agreement. Seller has no written agreement
nor intends to enter into any written agreement with Snyder's of Hanover,
Inc.
ARTICLE V.
COVENANTS
Section 5.1. Covenants Regarding Conduct of Seller's Business
Pending the Closing. Except for acts, omissions, or events which would not cause
the representations of Seller set forth in Section 4.2 to be untrue in any
material respect or as otherwise consented to in writing by Buyer, Seller
covenants and agrees that between the date of this Agreement and the Closing
Date, Seller will carry on its businesses in the ordinary course and in a manner
consistent with past practice, and will use commercially reasonable efforts to
(a) preserve its present business organizations intact, (b) retain the services
of its present employees and (c) preserve the goodwill of its customers and
suppliers, and will not, except in the ordinary course of business, purchase or
lease any property or assets or incur any liability or enter into any other
extraordinary transaction. By way of amplification and not limitation, Seller
shall not (except as contemplated hereunder and except for matters which would
not cause the representations of Seller set forth in Section 4.2 to be untrue in
any material respect), between the date of this Agreement and the Closing Date,
directly or indirectly, do any of the following without the prior written
consent of Buyer:
(a) (i) make any acquisition (by merger, consolidation, or
acquisition of stock or assets or otherwise) of any corporation, partnership or
other business organization or division thereof; (ii) except in the ordinary
course of business and in a manner consistent with past practice, sell, pledge,
dispose of, or encumber or authorize or propose the sale, pledge, disposition or
encumbrance of any of its assets; (iii) incur any indebtedness for borrowed
money, assume, guarantee, endorse or otherwise become responsible for the
obligation of any other individual, partnership, firm or corporation, or make
any loans or advances to any individual, partnership, firm, or corporation, or
enter into any contract or agreement to do so, except in the ordinary course of
business and consistent with past practice; (iv) authorize any single capital
expenditure or series of related capital expenditures which, individually or in
the aggregate, will be in
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excess of $50,000; or (v) release or assign any indebtedness owed to it or any
claims held by it, except in the ordinary course of business and consistent with
past practice;
(b) take any action other than in the ordinary course of business
and in a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to the grant of any severance or
termination pay (otherwise than pursuant to its policies in effect on the date
hereof) or with respect to any increase of benefits payable under its severance
or termination pay policies in effect on the date hereof;
(c) make any payments (except in the ordinary course of business and
in amounts and in a manner consistent with past practice) under any Employee
Plan to any employee, independent contractor or consultant, enter into any new
Employee Plan or any new consulting agreement grant or establish any awards
under such Employee Plan or agreement, in any such case providing for more than
$5,000, or adopt or amend any of the foregoing;
(d) take any action except in the ordinary course of business and in
a manner consistent with past practice (none of which actions shall be
unreasonable or unusual) with respect to accounting policies or procedures;
(e) enter into or terminate any material contract or agreement or
make any material change in any of its material contracts or agreements, other
than (i) in the ordinary course of business and (ii) agreements, if any,
relating to the transactions contemplated hereby; or
(f) take, or agree in writing or otherwise to take, any of the
foregoing actions or any action which would make any of its representations or
warranties contained in this Agreement untrue or incorrect in any material
respect as of the date when made.
Section 5.2. Audit. Seller covenants to cause Seller's affiliates,
officers, members, employees, auditors and agents to afford the auditors,
employees and agents of Buyer complete access at all reasonable times and upon
reasonable notice to its properties, offices and other facilities and to all
books and records, and shall furnish Buyer with all financial, operating and
other data and information as Buyer through its auditors, employees or agents,
may reasonably request whether required for the review or audit by AMG of
Seller's financial statements or otherwise. Seller agrees to assist, without
being obligated to pay or incur any fees or to make any payments to any party,
Buyer, its auditors, employees and agents with any such review or audit of
Seller's financial statements, including promptly providing upon request (a) a
list of all equipment, and all invoices therefor, and the location where such
equipment is located, (b) a list of the name and address of all customers of
Seller, (c) copies of all loan and
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other material agreements, (d) copies of financial statements of Seller for the
preceding three years and for the year to date, to the extent available, and (e)
a current payroll register and organizational chart of Seller, and all other
reasonable commercial, accounting and financial information relating to the
business as may be reasonably requested in connection with the review or audit
by AMG of Seller's financial statements.
Section 5.3. No Other Negotiations. Seller agrees that, between the
date hereof and the Closing Date, Seller will not, nor will it permit any of its
affiliates (including any officers, members, employees, financial advisors,
brokers, members' representatives, agents or any other person acting on its
behalf) to, (a) directly or indirectly, encourage, solicit, participate in or
initiate discussions or negotiations with, or provide any information to, any
corporation, partnership, person or other entity or group concerning any merger,
sale of substantially all of the assets, sale of substantially all of the
capital stock or limited liability company interests or debt securities of
Seller or similar transaction involving Seller, (b) enter into any agreement
with a third party with respect to the acquisition, directly or indirectly, of
substantially all of Seller's assets or limited liability company interests or
other securities of Seller or any merger, business combination, consolidation or
reorganization or (c) provide a third party with general access to its books,
records or employees for the purpose of enabling such third party to conduct a
purchase investigation of its legal, financial or business condition.
Section 5.4. Additional Covenants. Seller and Buyer covenant and
agree:
(i) Diligent Efforts. Subject to the conditions set forth herein, to
proceed diligently and to use reasonable efforts to take or cause to be taken
all actions and to do or cause to be done all things necessary, proper and
advisable to consummate the transactions contemplated by this Agreement.
(ii) Compliance. To comply in all material respects with all
applicable rules and regulations of any Governmental Authority in connection
with the execution, delivery and performance of this Agreement and the
transactions contemplated hereby; to use all reasonable efforts to obtain in a
timely manner all necessary waivers, consents and approvals and to take, or
cause to be taken, all other actions and to do, or cause to be done, all other
things necessary, proper or advisable to consummate and make effective as
promptly as practicable the transactions contemplated by this Agreement.
(iii) Notice. To give prompt notice to the other party of (a) the
occurrence, or failure to occur, of any event whose occurrence or failure to
occur, would be likely to cause any
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representation or warranty contained in this Agreement to be untrue or incorrect
in any material respect at any time from the date hereof to the Closing Date and
(b) any material failure on its part, or on the part of any of its officers,
members, employees or agents, to comply with or satisfy any covenant, condition
or agreement to be complied with or satisfied by it hereunder; provided,
however, that the delivery of any such notice shall not limit or otherwise
affect the remedies available hereunder to the party receiving such notice.
Section 5.5. Announcements. Between the date of this Agreement and
the Closing Date, unless required by applicable law evidenced by a legal opinion
of outside counsel or regulatory authority, none of the parties hereto or any of
their affiliates (including any officers, directors, employees, representatives,
agents or any other person acting on their behalf) shall issue any report,
statement or press release to the public, the trade or the press or any third
party relating to this Agreement and the transactions contemplated hereby,
except as mutually agreed to in writing by the parties hereto. Copies of any
such reports, statements or press releases, including any announcements or
disclosures mandated by law or regulatory authorities shall be delivered to each
party hereto prior to their release. Between the date of this Agreement and the
Closing Date, neither party shall disclose the name of the other party or the
terms of this Agreement and the transactions contemplated hereby, in any
document, release or other communication, prepared, issued or transmitted by
such party, or any director, officer, employee, agent or representative of such
party, without the other party's prior written authorization, except (i) as
provided in the first sentence of this Section 5.5 and (ii) to any of Republic
Acceptance Corporation, American Pacific Financial Corporation, Yapton
Developments, Limited, Gaines, Berland, Inc. (and any other underwriter which
may join it in Buyer's initial public offering), any legal or financial advisor
of such party and the Securities and Exchange Commission ("SEC") and the Nasdaq
Stock Market ("Nasdaq"); provided such party has agreed in writing to maintain
the confidentiality of such information (other than the SEC and Nasdaq).
Section 5.6. Sales and Transfer Taxes. All sales and transfer taxes,
recording taxes, and similar taxes and charges, incurred in connection with the
sale of the Property under this Agreement will be borne one-half by Seller and
one-half by Buyer.
Section 5.7. Transferred Employees.
(a) Offer of Employment. Subject to and in accordance with the
provisions of this Section 5.7, Buyer shall, effective upon the Closing,
offer full-time employment to all of the employees who are employed by
Seller as of the Closing Date except those employees listed on Schedule
5.7 hereof (the
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"Seller's Employees") on terms and conditions substantially similar to the
terms and conditions of their employment relationship with Seller. In
furtherance of this purpose, Seller has delivered to Buyer a current
payroll register and organizational chart of Seller. Buyer shall not
contact the employees of Seller prior to the Closing for the purposes of
making offers of employment with Buyer. Buyer shall hire all of Seller's
Employees who accepts such offer. Buyer will deliver to Seller a list of
all of Seller's Employees who have accepted an offer of employment
promptly after the Closing. Each of Seller's Employees who actually
becomes a full-time employee of Buyer upon the Closing is hereinafter
referred to as a "Transferred Employee."
(b) Transition. The employment of the Transferred Employees by
Seller shall end effective as of the close of business on the day before
the Closing Date and the employment of the Transferred Employees by Buyer
shall commence at or after 12:01 a.m. on the day of the Closing Date.
(c) Retention of Employees Prior to Closing. Seller shall expend its
reasonable efforts to (i) retain the Seller's Employees as employees of
Seller until the Closing Date, and (ii) assist Buyer in securing the
employment on the Closing Date of the Seller's Employees; provided,
however, that Seller shall not be required to incur any financial
obligation beyond continuing to pay for current employee compensation and
benefits prior to the Closing in connection with the foregoing unless
otherwise required by this Agreement. Seller shall notify Buyer promptly
if, notwithstanding the foregoing, any of Seller's Employees terminates
employment with Seller after the date of this Agreement but prior to the
Closing.
(d) Compensation and Benefits of Transferred Employees. Coverage for
Transferred Employees under Buyer's benefit plans and programs shall
commence as of 12:01 a.m. on the Closing Date. Buyer shall give each
Transferred Employee credit for such Transferred Employee's years of most
recent continuous service (including time during approved leaves of
absences of less than twenty-six (26 weeks)) with Seller for purpose of
determining participation and benefit levels under all of Buyer's vacation
policies and benefit plans and programs, unless otherwise prohibited by
law or the terms of any of Buyer's benefit plans and programs, and shall
give each Transferred Employee credit for any accrued vacation time to
which each Transferred Employee would be entitled immediately prior to
Closing under Seller's current vacation policy. Seller shall retain
responsibility for any claims under its health insurance policies made by
Transferred Employees arising out of insurable losses incurred or claims
accrued on or prior to the Closing Date.
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(e) Employees Other than Transferred Employees. Seller shall retain
responsibility only for employees listed on Schedule 5.7.
(f) Severance. Buyer retains the right to terminate any Transferred
Employee. However, in accordance with Section 1.4, Seller's sole
responsibility for any severance for Transferred Employees who Buyer
terminates within 30 days after the Closing Date shall be an amount not to
exceed $50,000, based on one week's pay for each year of service with the
initial service year to commence on the later of (i) January 1, 1996 or
(ii) the year such employee commenced service with Seller for all such
Transferred Employees.
Section 5.8. End of Use of Trade Names and Corporate Name. As of and
after the Closing, Seller shall not use the "SALERNO" or "MAMA'S" names or title
similar to such trade names or any other trade name or trademark being
transferred hereunder. In addition, Seller will, on the Closing Date, change its
name from Salerno Foods, L.L.C. to Old Biscuit, L.L.C.
Section 5.9. Retention of Organization. Seller will not take any
action to dissolve Seller prior to December 31, 1998.
ARTICLE VI.
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
The obligations of Seller under this Agreement are subject to the
satisfaction, on or prior to the Closing Date, unless waived in writing by
Seller, of each of the following conditions:
(a) Representations and Warranties. Buyer's representations and
warranties set forth in Section 4.1 of this Agreement shall have been true
and correct in all material respects when made and shall be true and
correct in all material respects at and as of the Closing as if such
representations and warranties were made as of the Closing.
(b) Performance of Agreement. All covenants, conditions and other
obligations under this Agreement which are to be performed or complied
with by Buyer as of the Closing Date shall have been performed and
complied with in all material respects on or prior to the Closing
including, the delivery of funds and the execution of instruments and
documents in accordance with this Agreement and all agreements referred to
in Section 3.3 shall be in full force and effect.
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(c) No Adverse Proceeding. There shall be no pending or threatened
claim, action, litigation or proceeding, judicial or administrative, or
governmental investigation against Buyer or Seller for the purpose of
enjoining or preventing the consummation of this Agreement, or otherwise
claiming that this Agreement or the consummation hereof is illegal.
(d) Certificates. Buyer shall have delivered to the Seller (i) a
certificate, dated the Closing Date, executed by Buyer's Chief Executive
Officer to the effect that the conditions set forth in subsections (a) and
(b) and, to the knowledge of such officer, (c), of this Article VI have
been satisfied and (ii) a certificate dated the Closing Date, executed by
Buyer's Secretary, to the effect that (A) the Certificate of Incorporation
and By-laws of Buyer shall have not been amended since the date upon which
certified copies of each had been delivered to Seller and remain in full
force and effect and (B) the officers executing the Agreement and all
other agreements to be executed by Buyer pursuant hereto on behalf of
Buyer are duly elected and hold the offices set forth therein, with
resolutions approved by the Board of Directors of Buyer attached as an
exhibit thereto.
(e) Polhill Assumption Agreement. Larry R. Polhill, American Pacific
Financial Corporation, a California corporation ("APFC"), and Buyer shall
have executed and delivered an Assumption Agreement in the form of Exhibit
P hereto (the "Polhill Assumption Agreement").
(f) Polhill Subordination Agreement. Larry R. Polhill and APFC shall
have executed and delivered a Subordination Agreement in the form of
Exhibit T hereto (the "Polhill Subordination Agreement").
(g) Polhill Indemnification Agreement. Larry R. Polhill shall have
executed and delivered to Seller an Indemnification Agreement in favor of
Seller and its members with respect to certain liabilities of Seller in
form and substance reasonably acceptable to Seller (the "Polhill
Indemnity").
ARTICLE VII.
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
The obligations of Buyer under this Agreement are subject to the
satisfaction, on or prior to the Closing Date, unless waived in writing by
Buyer, of each of the following conditions:
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(a) Representations and Warranties. The representations and
warranties of Seller set forth in Section 4.2 of this Agreement shall have
been true and correct in all material respects when made and shall be true
and correct in all material respects at and as of the Closing as if such
representations and warranties were made as of the Closing.
(b) Performance of Agreement. All covenants, conditions and other
obligations under this Agreement which are to be performed or complied
with by Seller as of the Closing Date shall have been performed and
complied with in all material respects on or prior to the Closing
including, without limitation, the execution of instruments and documents
in accordance with this Agreement and all agreements referred to in
Section 3.2 shall be in full force and effect.
(c) No Adverse Proceeding. There shall be no pending or threatened
claim, action, litigation or proceeding, judicial or administrative, or
governmental investigation against Buyer or Seller for the purpose of
enjoining or preventing the consummation of this Agreement, or otherwise
claiming that this Agreement or the consummation hereof is illegal.
(d) Certificates. Seller shall have delivered to Buyer (a) a
certificate, dated the Closing Date, executed by a duly authorized manager
of Seller to the effect that the conditions set forth in subsections (a)
and (b) and, to the knowledge of such manager, (c), of this Article VII
have been satisfied and (ii) a certificate dated the Closing Date,
executed by a manager of Seller to the effect that (A) the Certificate of
Formation and Operating Agreement of Seller shall have not been amended
since the date upon which certified copies of each had been delivered to
Buyer and remain in full force and effect and (B) the managers executing
this Agreement and Seller's Documents on behalf of Seller are duly elected
and hold the offices set forth therein, with copies of resolutions
approved by the managers and the members attached as an exhibit thereto.
(e) No Remaining Outstanding Debt of Seller. Seller shall not have
any outstanding debt, or capital lease obligations or liens or
encumbrances of any kind remaining as of the Closing Date (other than debt
being paid by Seller concurrently with the Closing and the Assumed
Liabilities). Evidence of the payment of all indebtedness satisfactory to
Buyer shall be furnished to Buyer.
(f) Approval of Lenders. Buyer shall have received the consent of
Republic Acceptance Corporation to enter into this Agreement and for the
consummation of the transactions contemplated hereby.
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(g) Loans of Lender. Republic Acceptance Corporation shall have
entered into the First Amendment to Financing Agreement in the form
attached hereto as Exhibit U.
(h) FERS Consent. Friedman, Eisenstein, Raimer & Schwartz ("FERS")
shall have provided its written consent for the inclusion of its audit
report regarding Seller's fiscal 1996 financial statements in Buyer's Form
S-1 registration statement, and all amendments thereto, relating to an
initial public offering of Buyer's securities.
(i) Operation of the Business. Since the date hereof, no Seller
Material Adverse Effect shall have occurred as determined by Buyer in its
reasonable discretion.
(j) Consents. The consent of each Governmental Authority and each
other person whose consent is required for the consummation of the
transactions contemplated by this Agreement or for the assignment of any
of the assets or properties, including, without limitation, Material
Contracts and Permits, of Seller to Buyer shall have been obtained.
(k) Certain Contracts. Each of the Contracts listed of Schedule
1.1(f) shall be in full force and effect, except as otherwise described on
such Schedule, and, except as otherwise described on such Schedule, no
consent shall be required to transfer such contracts to Buyer at Closing.
(l) Opinion of Counsel of Seller. Buyer shall have received the
opinion of Freeborn & Peters, counsel to Seller, dated the Closing Date,
in the form attached hereto as Exhibit F.
(m) Financing. Buyer shall have consummated a financing or
financings on terms acceptable to Buyer resulting in minimum net proceeds
to Buyer of at least $4,600,000.
(n) Pate Agreement. The Pate Amendment shall have been executed by
the parties thereto.
(o) Restrictive Covenant Agreements; Escrow Agreement. The
Restrictive Covenant Agreements and the Escrow Agreement shall have been
executed by the parties thereto.
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ARTICLE VIII.
INDEMNIFICATION
Section 8.1. Survival of Representations, Warranties and Agreement.
Subject to the limitations set forth in this Article VIII and notwithstanding
any investigation conducted at any time with regard thereto by or on behalf of
Buyer or Seller, all representations, warranties, covenants and agreements of
Buyer and Seller in this Agreement (other than Section 4.2(f)) shall survive
until December 31, 1998. The representations and warranties contained in Section
4.2(f) relating to Taxes shall remain in full force and effect until the
expiration of the applicable statute of limitations and all covenants shall
remain in full force and effect pursuant to their terms.
Section 8.2. Indemnification by Seller. Subject to the limits set
forth in this Article VIII, Seller agrees to indemnify, defend and hold Buyer
and its officers, directors, employees, affiliates, agents and representatives
(collectively, the "Buyer Indemnified Parties") harmless from and against any
and all loss, liability, damage (net of any insurance recovery or other benefit,
and reduced by any Tax Benefit (as hereinafter defined)), costs and expenses
(including interest, penalties and reasonable attorneys' fees) (collectively,
"Losses") that Buyer may incur or become subject to arising out of or due to,
directly or indirectly (a) any inaccuracy of any representation or the breach of
any warranty, covenant or obligation of Seller contained in this Agreement; (b)
any liability imposed upon Buyer as transferee of the Business or the Property,
or otherwise relating to the conduct of the Business in respect of any period
ending on or prior to the Closing Date, except to the extent such liability for
such period has been expressly assumed by Buyer as an Assumed Liability; (c) any
liability imposed upon Buyer and arising out of or relating to any of Seller's
other assets, operations, businesses or activities that are not a part of the
Business; (d) any misrepresentation in or any omission from any exhibit,
certificate, schedule or other material document (collectively, the "Additional
Documents") furnished or to be furnished by or on behalf of Seller under this
Agreement; and (e) Seller's failure to comply with the bulk transfer laws of any
state or Seller's misapplication of the proceeds of the purchase price of the
Property in fraud of its creditors or obligees; provided, that in the absence of
fraud Seller shall have no liability under this Section 8.2 unless and until the
aggregate amount of all claims by Buyer Indemnified Parties arising out of one
or more breaches of the representations or warranties by Seller shall exceed, in
the aggregate, an amount equal to $75,000. For the purposes of this Agreement,
"Tax Benefit" shall mean the excess, if any, of (i) the present value of any
United States federal tax deduction, expense, loss, increase in asset basis,
credit or refund to Buyer or an affiliate thereof or successor
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thereto, computed in respect of any Loss calculated using the applicable
long-term federal rate as defined in Section 1274(d) of the Code or any
successor provision over (ii) the present value of any lost United States
federal tax deduction, expense, loss or deficiency (including a reduction in tax
basis) resulting from the payment by Seller of any indemnity payment hereunder
to, or for the benefit of, Buyer. The indemnification obligations of Seller for
breach of the representations and warranties contained herein, in the absence of
fraud, shall be limited to a maximum of $500,000 in the aggregate.
Subject to Section 8.5, Seller will reimburse Buyer and each
controlling person for any reasonable legal or any other expenses reasonably
incurred by them in connection with investigating, defending or settling any
such Loss, claim, liability, action or proceeding.
Section 8.3. Indemnification by Buyer. Subject to the limits set
forth in this Article VIII, Buyer agrees to indemnify, defend and hold Seller
and Seller's officers, employees, independent consultants, affiliates, agents
and representatives (collectively, the "Seller Indemnified Parties") harmless
from and against any and all Losses that any of Seller Indemnified Parties may
incur or become subject to arising out of or due to, directly or indirectly, (a)
any inaccuracy of any representation or the breach of any warranty, covenant or
obligation of Buyer contained in this Agreement, (b) any of the Assumed
Liabilities arising on or after the Closing Date or (c) the ownership of the
Property or the conduct of the Business on or after the Closing Date. Buyer will
reimburse Seller Indemnified Parties for any legal or other expenses reasonably
incurred by them in connection with investigating, defending or settling any
such Loss, claim, liability, action or proceeding. The indemnification
obligations of Buyer for breach of the representations or warranties contained
herein, in the absence of fraud, shall be limited to a maximum of $500,000 in
the aggregate.
Section 8.4. Certain Tax Matters. Seller agrees to indemnify, defend
and hold Buyer and each of its directors and officers harmless from and against
any and all Losses that Buyer or any of its affiliates may incur or become
subject to arising out of or due to any and all federal, state and local tax
liability (including interest, penalties and additions to taxes), if any, (i)
resulting from a breach of any representation or warranty set forth in Section
4.2(f) of this Agreement or (ii) arising out of the operation of the Business or
ownership of the Property for any period prior to or including the Closing Date.
Section 8.5. Third Party Claims. In order for a party (the
"indemnified party") to be entitled to any indemnification provided for under
this Agreement in respect of, arising out of, or involving a claim or demand or
written notice made by any third
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party against the indemnified party (a "Third Party Claim") after the Closing
Date, such indemnified party must notify the indemnifying party (the
"indemnifying party") in writing of the Third Party Claim within 30 business
days after receipt by such indemnified party of written notice of the Third
Party Claim; provided that the failure of any indemnified party to give timely
notice shall not affect his right of indemnification hereunder except to the
extent the indemnifying party has actually been prejudiced or damaged thereby.
If a Third Party Claim is made against an indemnified party, the indemnifying
party shall be entitled, if it so chooses, to assume the defense thereof with
counsel selected by the indemnifying party (which counsel shall be reasonably
satisfactory to the indemnified party) in the event such Third Party Claim
solely involves an action for monetary damages and could not affect the
indemnified party's business going forward. If the indemnifying party assumes
the defense of a Third Party Claim, the indemnified party will cooperate in all
reasonable respects with the indemnifying party in connection with such defense,
and shall have the right to participate in such defense with counsel selected by
it. The fees and disbursements of such counsel, however, shall be at the expense
of the indemnified party; provided, however, that, in the case of any Third
Party Claim of which the indemnifying party has not employed counsel to assume
the defense, the fees and disbursements of such counsel shall be at the expense
of the indemnifying party. An indemnifying party shall not be liable hereunder
to indemnify the indemnified party for any settlement effected without its
written consent, to the extent it has assumed the defense of such claim, of any
claim, action or proceeding in respect of which indemnity may be sought
hereunder.
ARTICLE IX.
TERMINATION
Section 9.1. Termination by Any Party Hereto. This Agreement may be
terminated and cancelled at any time prior to the Closing by Buyer on the one
hand, or Seller on the other hand, upon written notice to the proper party or
parties if: (i) any of the representations or warranties of the party or parties
receiving such notice contained herein shall prove to be inaccurate or untrue in
any material respect; (ii) any obligation, term or condition to be performed,
kept or observed by the party or parties receiving such notice hereunder has not
been performed, kept or observed in any material respect at or prior to the time
specified in this Agreement; or (iii) the Closing has not taken place on or
before April 13, 1998.
Section 9.2. Termination by Buyer. This Agreement may be terminated
and cancelled by Buyer without penalty, damages, payments or liabilities
whatsoever to any party hereto at any time prior to the Closing in the event of
a material adverse loss or
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damage to the Property in excess of $50,000, it being understood by the parties
that none of the risk of any such loss or damage prior to the Closing shall be
borne by Buyer.
ARTICLE X.
MISCELLANEOUS
Section 10.1. Expenses. Except as otherwise specifically provided in
this Section 10.1 or otherwise in this Agreement, all costs and expenses,
including, without limitation attorney's fees, incurred in connection with this
Agreement and the transactions contemplated hereby shall be paid by the party
incurring such costs and expenses regardless of the termination of this
Agreement or the failure to consummate the transactions contemplated hereby. All
of the fees and expenses of AMG and of FERS (but as to FERS only if the
transactions contemplated by this Agreement are consummated) for audits of the
Seller from and after February 27, 1998 and all of the reasonable fees and
expenses of Freeborn & Peters incurred in the preparation of its audit letter
for AMG shall be borne by Buyer.
Section 10.2. Notices. All notices, requests, demands and other
communications which are required or may be given under this Agreement shall be
in writing and shall be deemed to have been duly given when (i) delivered
personally or by facsimile transmission (and a copy is mailed by regular mail
within 24 hours of such transmission), in either case with receipt acknowledged,
(ii) three business days after being sent by registered or certified mail,
return receipt requested, or (iii) one business day after being sent by prepaid
overnight carrier, with a record of receipt, to the parties at the following
addresses:
(a) If to Buyer to:
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Facsimile: (847) 699-5940
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Facsimile: (212) 980-7177
Attention: Jeffrey S. Spindler, Esq.
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(b) If to Seller to:
Salerno Foods, L.L.C. (prior to the Closing)
or Old Biscuit, L.L.C. (after the Closing)
150 N. Wacker Drive
Chicago, Illinois 60606
Facsimile: (312) 201-1415
Attention: Ronald Davies, Jr.
with a copy (which shall not constitute notice) to:
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, Illinois 60606-6677
Facsimile: (312) 360-6520
Attention: Richard R. Dennerline, Esq.
or to such other address as any party shall have specified by notice in writing
to the other in compliance with this Section 10.2.
Section 10.3. Entire Agreement. This Agreement, the Schedules and
Exhibits attached hereto and the Basic Documents, constitute the entire
agreement among the parties hereto with respect to the subject matter hereof and
supersedes all prior agreements, representations and understandings among the
parties hereto including, without limitation, the Letter of Intent dated
February 27, 1998 among Buyer, Seller and the members of Seller party thereto
(the "Letter of Intent").
Section 10.4. Bulk Sales. Buyer hereby waives compliance by Seller
with the provisions of the "bulk sales," "bulk transfer" or similar laws of any
state. Seller hereby agrees to defend, indemnify and forever hold Buyer harmless
from and against any and all liability (including any claims, suits or demands
against Buyer), loss, cost (including reasonable attorney's fees), expense or
damage of any kind which Buyer may suffer as a result of any provision of any
applicable bulk sales law.
Section 10.5. Binding Effect, Benefits, Assignments. This Agreement
shall inure to the benefit of and be binding upon the parties hereto and their
respective successors and assigns; nothing in this Agreement, expressed or
implied, is intended to confer on any other person, other than the parties
hereto or their respective successors and assigns, any rights, remedies,
obligations or liabilities under or by reason of this Agreement. This Agreement
may not be assigned without the prior written consent of the other party hereto;
provided, however, that Buyer may assign its rights, but not its obligations,
under this Agreement without the consent of Seller so long as any such
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<PAGE> 49
assignee shall also assume Buyer's obligations hereunder, in addition to Buyer
not being released from such obligations.
Section 10.6. Applicable Law. This Agreement and the legal relations
between the parties hereto shall be governed by and construed in accordance with
the laws of the State of Illinois, without regard to conflicts of law rules of
such state.
Section 10.7. Jurisdiction. Each of the parties hereto hereby
irrevocably submits to the exclusive jurisdiction of any Illinois state court or
federal court sitting in the State of Illinois over any action or proceeding
arising out of or relating to this Agreement and the transactions contemplated
hereby and each of the parties hereto hereby irrevocably agrees that all claims
in respect of such action or proceeding may be heard and determined in such
Illinois state or federal court. Each of the parties hereto hereby irrevocably
waives, to the fullest extent legally possible, the defense of an inconvenient
forum to the maintenance of such action or proceeding. Each of the parties
hereto irrevocably consents to the service of any and all process in any such
action or proceeding by the mailing of copies of such process to such party at
his, her or its address set forth in this Agreement. Each of the parties hereto
agrees that a final judgment in any such action or proceeding shall be
conclusive and may be enforced in other jurisdictions by suit on the judgment or
in any other manner provided by law.
Section 10.8. Arbitration.
(a) Except as otherwise provided in this Agreement, each of the
parties hereto hereby irrevocably consents to arbitration of any dispute,
controversy or claim arising out of or relating to Sections 2.2, 2.3 or 2.4 to
this Agreement. Each of the parties hereto hereby irrevocably waives, to the
fullest extent legally possible, any objection to the use of arbitration to
resolve any such dispute, controversy or claim. If the parties in good faith
cannot resolve any controversy or claim arising out of or related to Sections
2.2, 2.3 or 2.4 to this Agreement or in connection with a breach thereof within
20 days after the claimant gives written notice of such controversy or claim to
the other party, any party may demand and commence arbitration of the
controversy or claim. In the event of a demand for arbitration, Seller shall
select one arbitrator and Buyer shall select one arbitrator, within 30 days
after such demand shall have been given (the "Demand Date"), and the two
arbitrators, within 45 days thereafter, shall select a third arbitrator. If the
third arbitrator shall not be selected within 45 days after the Demand Date,
either Seller, on the one hand, or Buyer, on the other hand, may apply to the
American Arbitration Association (or any successor thereto) for the appointment
of an arbitrator in Chicago, Illinois, and the parties shall be bound by the
appointments made by such Association. The arbitration shall be held in Chicago,
Illinois, as promptly as
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<PAGE> 50
practicable thereafter under the rules of the American Arbitration Association
in effect at the time such controversy, claim or breach is submitted to
arbitration. The award or decision made in accordance with such rules shall be
delivered in writing to the parties hereto and shall be final, binding and
conclusive upon them in the absence of fraud and judgment upon such award or
decision may be entered in any court having jurisdiction thereof. Seller, on the
one hand, and Buyer, on the other hand, shall bear equally the cost of such
arbitration.
(b) Notwithstanding the provisions of Section 10.8(a), the parties
hereto shall have the right to seek and obtain from a court of competent
jurisdiction a temporary restraining order, injunction, specific performance or
other equitable relief to enforce the provisions of this Agreement.
Section 10.9. Further Assurances. At, and from time to time after
the Closing Date, at the request and expense of Buyer but without further
consideration, Seller will execute and deliver such other instruments of
conveyance, assignment, transfer, and delivery and take such other action as
Buyer reasonably may request in order more effectively to convey, transfer,
assign and deliver to Buyer, and to place Buyer in possession and control of,
any of the rights, properties, assets and business constituting part of the
Property, or to assist in the collection or reduction to possession of any and
all of such rights, properties, and assets or to enable Buyer to exercise and
enjoy all rights and benefits of Seller with respect to the Property.
Section 10.10.Counterparts. This Agreement may be executed
simultaneously in two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Section 10.11.Headings. The headings used herein are included for
convenience of reference only and shall be ignored in the construction or
interpretation hereof.
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<PAGE> 51
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day and year hereinabove first set forth.
BUYER:
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
-------------------------------
Name: Michael Kirby
Title: President
SELLER:
SALERNO FOODS, L.L.C.
By: /s/ Robert D. Long
-------------------------------
Name:
Title: Manager
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<PAGE> 1
EXHIBIT 10.23
ESCROW AGREEMENT
ESCROW AGREEMENT, dated April 3, 1998, by and among The Delicious
Frookie Company, Inc., a Delaware corporation ("Buyer"), Salerno Foods, L.L.C.,
a Delaware limited liability company ("Seller"), and American National Bank and
Trust Company of Chicago, as escrow agent ("Escrow Agent"). Unless otherwise
defined herein, capitalized terms used herein have the meanings ascribed to them
in the Asset Purchase Agreement, dated April 3, 1998, by and between Buyer and
Seller (the "Purchase Agreement").
W I T N E S S E T H
WHEREAS, pursuant to the Purchase Agreement, Buyer has agreed to pay
into escrow on the Closing Date $250,000 of the Purchase Price, such amount (the
"Escrow Amount") to be distributed by Escrow Agent as provided herein; and
WHEREAS, Buyer and Seller desire to appoint Escrow Agent as escrow
agent for purposes of holding, investing and distributing the Escrow Amount, and
Escrow Agent is willing to serve as escrow agent, subject to all of the terms
and conditions set forth herein.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and in the Purchase Agreement, the parties hereto agree as follows:
1. Appointment of Escrow Agent. Buyer and Seller hereby appoint
Escrow Agent to receive, hold, invest and distribute the Escrow Amount, and any
interest earned thereon (collectively with the Escrow Amount, the "Escrow
Property"), and Escrow Agent accepts such appointment, all subject to the terms
and conditions of this Escrow Agreement.
2. Deposit of Escrow Amount. On the date hereof, Buyer has deposited
with Escrow Agent by bank wire transfer the Escrow Amount.
3. Investment of Escrow Property.
(a) The Escrow Agent shall act as custodian of the Escrow
Property and shall from time to time invest and reinvest the Escrow Property and
other proceeds in any one or more of the following investments as Seller may
from time to time elect by notice in writing to the Escrow Agent.
(1) Any U.S. Government or U.S. Government Agency
security:
(2) Any commercial paper rated A1/P1 or better;
<PAGE> 2
(3) Any certificate of deposit or time deposit in any
bank with a long-term debt rating of A or better
from Moody's or Standard & Poor's; or
(4) Any commercial bank Money Market Deposit Account.
The Escrow Agent shall have the power to sell or liquidate the
foregoing investments whenever the Escrow Agent shall be required to release the
Escrow Property pursuant to Section 4. The Escrow Agent shall have no
responsibility for any investment losses resulting from the investment,
reinvestment or liquidation of the Escrow Property in accordance with this
Escrow Agreement.
(b) Any interest or other income received on such investment
and reinvestment of the Escrow Property shall become part of the Escrow
Property.
4. Payment of Escrow Property. The Escrow Property shall be paid as
follows:
(a) Upon receipt by Escrow Agent of a notice (a "Notice")
signed on behalf of Buyer or Seller certifying the amount of the Working Capital
Adjustment and stating that all disputes, if any, regarding the Working Capital
Adjustment have been finally reconciled in accordance with the provisions of
Section 2.2 of the Purchase Agreement, Escrow Agent shall promptly deliver a
copy of such notice to the other party (the "Other Party"). The party that gives
a Notice to the Escrow Agent shall simultaneously send the Other Party a copy of
such Notice. Unless Escrow Agent receives a written objection (an "Objection
Notice") from the Other Party within ten (10) business days after such delivery,
the Escrow Agent shall (i), if the Working Capital Adjustment is negative, (A)
pay the amount of the Working Capital Adjustment (as certified in the Notice)
out of the Escrow Property, after giving effect to any offset for any payment
under Section 2.4 of the Purchase Agreement (as certified in the Notice), to
Buyer by bank or certified check or wire transfer of immediately available funds
in accordance with Buyer's written instructions and (B) pay the balance, if any,
of the Escrow Property to Seller by certified check or wire transfer of
immediately available funds in accordance with Seller's written instructions; or
(ii), if the Working Capital Adjustment (as certified in the Notice) is
positive, all of the Escrow Property shall be paid to Seller by bank or
certified check or wire transfer of immediately available funds in accordance
with Seller's written instructions.
(b) In the absence of receipt of a Notice, or in the event
Escrow Agent receives an Objection Notice, Escrow Agent shall not make any
payment of the Escrow Property unless (i) both Buyer and Seller instruct it in
writing to make such payment or (ii) it receives a certified copy of a final
order, not subject to appeal, from a court of competent Jurisdiction to make
such payment.
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<PAGE> 3
5. Expenses; Rights and Responsibilities of Escrow Agent
(a) The Escrow Agent shall not be under any duty to give the
Escrow Property held by it hereunder any greater degree of care than it gives
its own similar property and shall not be required to invest any funds held
hereunder except as directed in this Escrow Agreement. Uninvested funds held
hereunder shall not earn or accrue interest.
(b) This Escrow Agreement expressly sets forth all the duties
of the Escrow Agent with respect to any and all matters pertinent hereto. No
implied duties or obligations shall be read into this Escrow Agreement against
the Escrow Agent. The Escrow Agent shall not be bound by the provisions of or
deemed to be a party to any agreement among the other parties hereto, including
without limitation the Purchase Agreement, except this Escrow Agreement.
(c) The Escrow Agent shall not be liable, except for its own
gross negligence or willful misconduct and, except with respect to claims based
upon such gross negligence or willful misconduct that are successfully asserted
against the Escrow Agent, the other parties hereto shall jointly and severally
indemnify and hold harmless the Escrow Agent (and any successor Escrow Agent)
from and against any and all losses, liabilities, claims, actions, damages and
expenses, including reasonable attorneys' fees and disbursements, arising out of
and in connection with this Escrow Agreement. Without limiting the foregoing,
the Escrow Agent shall in no event be liable in connection with its investment
or reinvestment of any cash held by it hereunder in good faith, in accordance
with the terms hereof, including without limitation any liability for any delays
(not resulting from its gross negligence or willful misconduct) in the
investment or reinvestment of the Escrow Property, or any loss of interest
incident to any such delays.
(d) The Escrow Agent shall be entitled to rely upon any order,
judgment, certification, demand, notice, instrument or other writing delivered
to it hereunder without being required to determine the authenticity or the
correctness of any fact stated therein or the propriety or validity or the
service thereof. The Escrow Agent may act in reliance upon any instrument or
signature believed by it to be genuine and may assume that any person purporting
to give receipt or advice or make any statement or execute any document in
connection with the provisions hereof has been duly authorized to do so.
(e) The Escrow Agent may act pursuant to the advice of counsel
with respect to any matter relating to this Escrow Agreement and shall not be
liable for any action taken or omitted in accordance with such advice. If the
Escrow Agent becomes involved in litigation on account of this Escrow Agreement,
it shall have the right to retain counsel and shall have a lien on the property
deposited hereunder for any and all costs, reasonable attorneys' fees, charges,
disbursements, and reasonable and accountable expenses in connection with such
litigation; and upon notice to the other parties hereto together with all
supporting documents therefor, Escrow Agent shall be entitled to reimburse
itself therefor out of the property deposited hereunder, and if it shall be
unable to reimburse itself from the property deposited hereunder, the parties
hereto jointly
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<PAGE> 4
and severally agree to pay to the Escrow Agent on demand its reasonable charges,
counsel and attorneys' fees, disbursements, and expenses in connection with such
litigation.
(f) Except as described in clause (l) below, the Escrow Agent
does not have any interest in the Escrow Property deposited hereunder but is
serving as escrow holder only and having only possession thereof. Buyer and
Seller shall jointly pay or reimburse the Escrow Agent upon request for any
transfer taxes or other taxes relating to the Escrow Property incurred in
connection herewith and shall indemnify and hold harmless the Escrow Agent from
any amounts that it is obligated to pay in the way of such taxes. Any payments
of income from this Escrow Account shall be subject to withholding regulations
then in force with respect to United Sates taxes. The parties hereto will
provide the Escrow Agent with appropriate W-9 forms for tax I.D. or W-8 forms
for non-resident alien certifications. It is understood that the Escrow Agent
shall be responsible for income reporting only with respect to income earned on
investment of funds which are a part of the Escrow Property and is not
responsible for any other reporting. This paragraph and paragraph (c) shall
survive notwithstanding any termination of this Escrow Agreement or the
resignation of the Escrow Agent.
(g) The Escrow Agent makes no representation as to the
validity, value, genuineness or the collectability of any security or other
document or instrument held by or delivered to it.
(h) The Escrow Agent shall not be called upon to advise any
party as to the wisdom in selling or retaining or taking or refraining from any
action with respect to any securities or other property deposited hereunder.
(i) The Escrow Agent (and any successor Escrow Agent) may at
any time resign as such by delivering the Escrow Property to any successor
Escrow Agent jointly designated by the other parties hereto in writing, or to
any court of competent jurisdiction, where upon the Escrow Agent shall be
discharged of and from any and all further obligations arising in connection
with this Escrow Agreement. The resignation of the Escrow Agent will take effect
on the earlier of (a) the appointment of a successor (including a court of
competent jurisdiction) or (b) the day which is 30 days after the date of
delivery of its written notice of resignation to the other parties hereto. If at
that time the Escrow Agent has not received a designation of a successor Escrow
Agent, the Escrow Agent's sole responsibility after that time shall be to
safekeep the Escrow Property until receipt of a designation of successor Escrow
Agent or a joint written disposition instruction by the other parties hereto or
a final, non-appealable order of a court of competent jurisdiction.
(j) The Escrow Agent shall have no responsibility for the
contents of any writing of the arbitrators or any third party contemplated
herein as a means to resolve disputes and may rely without any liability upon
the contents thereof.
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<PAGE> 5
(k) In the event of any disagreement between the other parties
hereto resulting in adverse claims or demands being made in connection with the
Escrow Property, or in the event that the Escrow Agent in good faith is in doubt
as to what action it should take hereunder, the Escrow Agent shall be entitled
to retain the Escrow Property until the Escrow Agent shall have received (i) a
final, non-appealable order of a court of competent jurisdiction directing
delivery of the Escrow Property or (ii) a written agreement executed by the
other parties hereto directing delivery of the Escrow Property, in which event
the Escrow Agent shall disburse the Escrow Property in accordance with such
order or agreement. Any court order shall be accompanied by a legal opinion by
counsel for the presenting party satisfactory to the Escrow Agent to the effect
that said court order is final and non-appealable. The Escrow Agent shall act on
such court order and legal opinions without further question.
(l) Buyer and Seller, jointly and severally, agree to
reimburse the Escrow Agent for all reasonable expenses, disbursements and
advances incurred or made by the Escrow Agent in performance of its duties
hereunder (including reasonable fees and expenses). The Escrow Agent's fee for
this account is $2,000. Any fees or expenses of the Escrow Agent or its counsel
which are not paid as provided for herein may be taken from any Escrow Property
held by the Escrow Agent hereunder.
(m) In the event that any Escrow Property shall be attached,
garnished, or levied upon by any final, non-appealable court order, or the
delivery thereof shall be stayed or enjoined by a final, non-appealable order of
a court, or any final, non-appealable order, judgment or decree shall be made or
entered by any final, non-appealable court order affecting the property
deposited under this Escrow Agreement, or any part thereof, the Escrow Agent is
hereby expressly authorized, in its sole discretion, to obey and comply with all
writs, orders or decrees so entered or issued, which it is advised by legal
counsel of its own choosing is binding upon it, whether with or without
jurisdiction, and in the event that the Escrow Agent obeys or complies with any
such writ, order or decree it shall not be liable to any of the parties hereto
or to any other person, firm or corporation, by reason of such compliance.
6. Notices. All notices, requests, demands and other communications
which are required or may be given under this Escrow Agreement shall be in
writing and shall be deemed to have been duly given when (i) delivered
personally or by facsimile transmission (and a copy is mailed by regular mail
within 24 hours of such transmission), in either case with receipt acknowledged,
(ii) three business days after being sent by registered or certified mail,
return receipt requested, or (iii) one business day after being sent by prepaid
overnight carrier, with a record of receipt, to the parties at the following
addresses:
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<PAGE> 6
If to Buyer to:
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Facsimile: (847) 699-5940
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Facsimile: (212) 980-7177
Attention: Jeffrey S. Spindler, Esq.
If to Seller to:
Salerno Foods, L.L.C.
150 North Wacker Drive
Chicago, Illinois 60606
Facsimile: (312) 201-1415
Attention: Ron Davies, Jr.
with a copy (which shall not constitute notice) to:
Freeborn & Peters
311 South Wacker Drive
Suite 3000
Chicago, Illinois 60606-6677
Facsimile: (312) 360-6520
Attention: Richard R. Dennerline, Esq.
If to Escrow Agent to:
American National Bank and Trust Company of Chicago
33 North LaSalle Street
Chicago, Illinois 60690
Facsimile: (312) 661-6491
Attention: Corporate Trust, Brian Terwilliger
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<PAGE> 7
or to such other address as the person to whom a communication is to be given
may have furnished to the others in writing in accordance herewith.
7. Arbitration.
(a) Except as otherwise provided in this Agreement, each of
the parties hereto hereby irrevocably consents to arbitration of any dispute,
controversy or claim arising out of or relating to this Agreement. Each of the
parties hereto hereby irrevocably waives, to the fullest extent legally
possible, any objection to the use of arbitration to resolve any such dispute,
controversy or claim. If the parties in good faith cannot resolve any
controversy or claim arising out of or related to this Agreement or in
connection with a breach thereof within 20 days after the claimant gives written
notice of such controversy or claim to the other party, any party may demand and
commence arbitration of the controversy or claim. In the event of a demand for
arbitration, Seller shall select one arbitrator and Buyer shall select one
arbitrator, within 30 days after such demand shall have been given (the "Demand
Date"), and the two arbitrators, within 45 days thereafter, shall select a third
arbitrator. If the third arbitrator shall not be selected within 45 days after
the Demand Date, either Seller, on the one hand, or Buyer, on the other hand,
may apply to the American Arbitration Association (or any successor thereto) for
the appointment of an arbitrator in Chicago, Illinois, and the parties shall be
bound by the appointments made by such Association. The arbitration shall be
held in Chicago, Illinois, as promptly as practicable thereafter under the rules
of the American Arbitration Association in effect at the time such controversy,
claim or breach is submitted to arbitration. The award or decision made in
accordance with such rules shall be delivered in writing to the parties hereto
and shall be final, binding and conclusive upon them in the absence of fraud and
judgment upon such award or decision may be entered in any court having
jurisdiction thereof. Seller, on the one hand, and Buyer, on the other hand,
shall bear equally the cost of such arbitration.
(b) Notwithstanding the provisions of Section 7(a), the
parties hereto shall have the right to seek and obtain from a court of competent
jurisdiction a temporary restraining order, injunction, specific performance or
other equitable relief to enforce the provisions of this Agreement.
8. Miscellaneous.
(a) This Escrow Agreement shall be governed by and construed
in accordance with the laws of the State of Illinois, without regard to
conflicts of laws, rules of such state.
(b) This Agreement shall be binding upon and shall inure to
the benefit of the parties hereto and their respective successors and assigns.
This Escrow Agreement shall be assignable by Escrow Agent only in accordance
with Section 5(i). Buyer and Seller may assign its rights or obligations under
this Escrow Agreement only upon the prior written consent of the other parties
hereto.
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<PAGE> 8
(c) Section headings contained in this Escrow have been
inserted for reference purposes only, and shall not be construed as part of this
Escrow Agreement.
(d) No printed or other matter in any language (including
without limitation prospectuses, notices, reports and promotional material)
which mentions the Escrow Agent's name or the rights, powers, or duties of the
Escrow Agent shall be issued by the other parties hereto or on such parties'
behalf unless the Escrow Agent shall first have given its specific written
consent thereto.
(e) The Purchase Agreement and this Escrow Agreement together
contain the entire agreement of the parties with respect to the matters set
forth herein; provided, however, that Escrow Agent assumes no liabilities or
obligations except those expressed in this Escrow Agreement and that as between
Escrow Agent and the other parties hereto, this Escrow Agreement contains the
entire agreement of the parties with respect to the matters set forth herein.
(f) This Escrow Agreement shall not be modified, revoked or
terminated except upon the mutual consent of the parties hereto given in writing
and delivered to Escrow Agent.
(g) The other parties hereto authorize the Escrow Agent, for
any securities held hereunder, to use the services of any United States central
securities depository it deems appropriate, including, but not limited to, the
Depositary Trust Company and the Federal Reserve Book Entry System.
(h) This Escrow Agreement may be executed in one or more
counterparts, but all such counterparts shall constitute one and the same
agreement.
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<PAGE> 9
IN WITNESS WHEREOF, the parties hereto have caused this Escrow
Agreement to be executed and delivered on the date first above written.
Buyer:
The Delicious Frookie Company, Inc.
By: /s/ Michael Kirby
---------------------------------------
Name: MICHAEL KIRBY
Title: PRESIDENT
Seller:
Salerno Foods, L.L.C.
By: /s/ Robert D. Long
---------------------------------------
Name: ROBERT D. LONG
Title: MANAGING MEMBER
Escrow Agent:
American National Bank and Trust Company
of Chicago, as Escrow Agent
By: /s/ Brian E. Terwilliger
---------------------------------------
Name: BRIAN E. TERWILLIGER
Title: Vice President
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<PAGE> 1
Exhibit 10.24
ASSIGNMENT OF INTELLECTUAL PROPERTY RIGHTS
KNOW ALL MEN BY THESE PRESENTS, that, in accordance with the terms
and conditions of that certain Asset Purchase Agreement dated April 3, 1998 (the
"Purchase Agreement"), by and between THE DELICIOUS FROOKIE COMPANY, INC., a
Delaware corporation (the "Assignee") and SALERNO FOODS, L.L.C., a Delaware
limited liability company (the "Assignor"), for good and valuable consideration,
the receipt and sufficiency whereof is hereby acknowledged, Assignor has sold,
assigned and set over, and by these presents does sell, assign and set over unto
Assignee, all of the right, title and interest of Assignor in and to:
The Federal trademark registrations and pending applications set
forth on Schedule I attached hereto, together with the associated goodwill
(collectively, the "Marks"), together with any renewals of such Marks; for the
use of Assignee, its successors and assigns to the full extent of the term or
terms for which such Marks may have been granted or registered, as fully and
entirely as the same would have been held and enjoyed by Assignor if this sale,
assignment and transfer had not been made.
Assignor does hereby covenant and agree to execute and deliver such
further documents and instruments as may be necessary or desirable in order to
fully vest in Assignee all of
<PAGE> 2
Assignor's right, title and interest in and to the foregoing property.
IN WITNESS WHEREOF, the Assignor has caused these presents to be
executed this 3rd day of April, 1998.
SALERNO FOODS, L.L.C.
By: /s/ Robert D. Long
------------------------------------
Name: Robert D. Long
Title: Managing Member
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<PAGE> 1
EXHIBIT 10.25
RESTRICTIVE COVENANT AND CONFIDENTIALITY AGREEMENT
AGREEMENT made this 3rd day of April 1998, by and between THE
DELICIOUS FROOKIE COMPANY, INC., a Delaware corporation (the "Buyer"), and STEVE
COATES (the "Member").
W I T N E S S E T H :
WHEREAS, concurrently herewith Salerno Foods, L.L.C., a Delaware
limited liability company ("Salerno"), of which Member was a managing member
until ____________, 1998, is executing and delivering an Asset Purchase
Agreement (the "Asset Purchase Agreement") providing for the purchase by Buyer
of substantially all of the assets of Salerno; and
WHEREAS, Buyer, as an inducement for it to enter into and consummate
the transactions contemplated by the Asset Purchase Agreement, wishes to secure
Member's agreement that he will not compete, directly or indirectly, with Buyer
for acquisitions of other cookie, cracker and baked goods companies during the
term hereof; and
WHEREAS, as a condition to the execution and delivery of the Asset
Purchase Agreement, Buyer requires that Member agree to certain additional
restrictions with respect to his business activities, and Member is willing to
agree to such restrictions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, each of the parties hereto agrees as follows:
1. During the period commencing on the date first written above and
ending on the first anniversary of such date, Member will not:
(a) directly or indirectly, own, manage, operate, join,
control, participate in, invest in, provide consulting services to or otherwise
be connected in any manner, whether as a shareholder, officer, director,
consultant or otherwise, Keebler Foods Company.
(b) directly or indirectly advise, participate in,
assist in or otherwise be connected with, in any manner, whether as a
shareholder, director, consultant, partner, venturer, investor or otherwise, any
entity listed on Schedule I hereto, its respective successors or assigns by
merger, consolidation or
<PAGE> 2
otherwise in respect of an acquisition of any entity in the snack food, cookie,
cracker or other baked goods industry (the "Snack Food Industry"); or
(c) for himself or on behalf of any other person, firm,
corporation or other entity, directly or indirectly or by action together with
others, (i) call on any person, firm, corporation or other entity that is or was
a customer of Buyer or Salerno for the purpose of soliciting, diverting or
taking away any of such customers or (ii) induce, influence or seek to induce or
influence, any person who has been engaged as an employee, representative or
consultant by Buyer or Salerno to terminate any relationship with Buyer or
Salerno or employ or retain such person.
2. From and after the date hereof, Member will not use, disclose or
divulge any information, knowledge or data specifically relating to or concerned
with Buyer or Salerno, their respective operations, business, methods of doing
business, revenues, results of operations, financial condition or customers to
any person, firm, corporation or other entity, provided, however, that (a) if
Member becomes legally compelled to disclose any such information, knowledge or
data, he will promptly advise Buyer in writing so that it may seek a protective
order or other appropriate judicial remedy and/or waive compliance with the
provisions of this Section 2 and (b) nothing contained herein shall prevent the
use or disclosure of any information which is generally known to the public and
which has not become known through the breach of this Agreement by Member.
Nothing set forth herein shall be deemed to prohibit Member from investing his
funds, solely on a passive basis, in securities of a corporation, partnership or
other entity engaged in the Snack Foods Industry if the securities of such
issuer are listed for trading on a national securities exchange, are quoted by
the National Association of Securities Dealers Automated Quotation System
(NASDAQ) or are traded in the over-the-counter market and Member's holdings
therein represent less than 2% of the total number of shares or principal amount
of other securities of such issuer outstanding.
3. Member acknowledges that the provisions of Sections 1 and 2
hereof are reasonable and necessary for the protection of Buyer and that each
provision, and the period of time, geographic areas and types and scope of
restrictions on the activities specified therein are, and are intended to be,
divisible. In the event that any provision of Sections 1 or 2 hereof, including
any sentence, clause or part thereof, shall be deemed contrary to law or invalid
or unenforceable in any respect by a court of competent jurisdiction, the
remaining provisions shall not be affected, but shall, subject to the discretion
of such court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
-2-
<PAGE> 3
4. All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when (i) delivered personally or by facsimile
transmission (and a copy is mailed by regular mail within 24 hours of such
transmission), in either case with receipt acknowledged, (ii) three business
days after being sent by registered or certified mail, return receipt requested,
or (iii) one business day after being sent by prepaid overnight carrier, with a
record of receipt, to the parties at the following addresses:
(1) If to Buyer:
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Facsimile: (847) 699-5940
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Facsimile: (212) 980-7177
Attention: Jeffrey S. Spindler, Esq.
(2) If to Member:
Steve Coates
c/o Fort Dearborn Partners
150 North Wacker Drive
Suite 2850
Chicago, Illinois 60606
5. This Agreement and the various rights and obligations arising
hereunder shall inure to the benefit of and be binding upon the parties hereto
and their respective affiliates, successors and assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be transferred
or assigned (by operation of law or otherwise) by either of the parties hereto
without the prior written consent of the other party except that Buyer shall
have the right to assign its rights but not its obligations hereunder to any
affiliate thereof. Any transfer or assignment of any of the rights, interests or
obligations hereunder in violation of the terms hereof shall be void and of no
force or effect.
-3-
<PAGE> 4
6. This Agreement embodies the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, oral and written,
relative to said subject matter.
7. This Agreement may not be changed, amended, terminated,
augmented, rescinded or discharged (other than by performance), in whole or in
part, except by a writing executed by each of the parties hereto, and no waiver
of any of the provisions or conditions of this Agreement or any of the rights of
a party hereto shall be effective or binding unless such waiver shall be in
writing and signed by the party claimed to have given or consented thereto.
Except to the extent that a party hereto may have otherwise agreed to in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations hereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or any
other obligation or representation or warranty by such other party, nor shall
any forbearance by the first party to seek a remedy for any noncompliance or
breach by such other party be deemed to be a waiver by the first party of its
rights and remedies with respect to such noncompliance or breach.
8. (a) This Agreement shall in all respects be construed in
accordance with and governed by the laws of the State of Illinois, without
regard to the principles of conflicts of laws thereof.
(b) Each of the parties hereto hereby irrevocably consents to
arbitration of any dispute, controversy or claim arising out of or relating to
this Agreement. Each of the parties hereto hereby irrevocably waives, to the
fullest extent legally possible, any objection to the use of arbitration to
resolve any such dispute, controversy or claim. If the parties in good faith
cannot resolve any controversy or claim arising out of or related to this
Agreement or in connection with a breach thereof within 10 days after the
claimant gives written notice of such controversy or claim to the other party,
any party may demand and commence arbitration of the controversy or claim. In
the event of a demand for arbitration, Member shall select one arbitrator and
Buyer shall select one arbitrator, within 30 days after such demand shall have
been given (the "Demand Date") and the two arbitrators, within 45 days
thereafter shall select a third arbitrator. If the third arbitrator shall not be
selected within 45 days after the Demand Date, either Member or Buyer may apply
to the American Arbitration Association (or any successor thereto) for the
appointment of an arbitrator in Chicago, Illinois and the parties shall be bound
by the appointments made by such Association. The arbitration shall be held in
Chicago, Illinois as promptly as practicable thereafter under the rules of the
American Arbitration Association in effect at the time such controversy, claim
or breach is submitted to
-4-
<PAGE> 5
arbitration. The award or decision made in accordance with such rules shall be
delivered in writing to the parties hereto and shall be final, binding and
conclusive upon them in the absence of fraud and judgment upon such award or
decision may be entered in any court having jurisdiction thereof. Member and
Buyer shall bear equally the cost of such arbitration.
(c) Notwithstanding the provisions of Paragraph 8(b), the parties
hereto shall have the right to seek and obtain from a court of competent
jurisdiction a temporary restraining order, injunction, specific performance or
other equitable relief to enforce the provisions of this Agreement.
9. This Agreement may be executed in two counterparts, each of which
shall constitute an original instrument, but both of which when taken together
shall constitute one and the same instrument.
-5-
<PAGE> 6
Schedule I
Nabisco Corp.
Ripon
Mrs. Alison's
North American Bakery
President's
Mother's
Matt's
Consolidated Biscuit Co.
Hain Foods LLC
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
-----------------------------------
Name: Michael Kirby
Title: President
---------------------------------------
STEVE COATES
-6-
<PAGE> 1
EXHIBIT 10.26
RESTRICTIVE COVENANT AND CONFIDENTIALITY AGREEMENT
AGREEMENT made this 3rd day of April 1998, by and between THE
DELICIOUS FROOKIE COMPANY, INC., a Delaware corporation (the "Buyer"), and PETER
ROGERS (the "Member").
W I T N E S S E T H :
WHEREAS, concurrently herewith Salerno Foods, L.L.C., a Delaware
limited liability company ("Salerno"), of which Member was a managing member
until ____________, 1998, is executing and delivering an Asset Purchase
Agreement (the "Asset Purchase Agreement") providing for the purchase by Buyer
of substantially all of the assets of Salerno; and
WHEREAS, Buyer, as an inducement for it to enter into and consummate
the transactions contemplated by the Asset Purchase Agreement, wishes to secure
Member's agreement that he will not compete, directly or indirectly, with Buyer
for acquisitions of other cookie, cracker and baked goods companies during the
term hereof; and
WHEREAS, as a condition to the execution and delivery of the Asset
Purchase Agreement, Buyer requires that Member agree to certain additional
restrictions with respect to his business activities, and Member is willing to
agree to such restrictions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, each of the parties hereto agrees as follows:
1. During the period commencing on the date first written above and
ending on the first anniversary of such date, Member will not:
(a) directly or indirectly, own, manage, operate, join,
control, participate in, invest in, provide consulting services to or otherwise
be connected in any manner, whether as a shareholder, officer, director,
consultant or otherwise, Keebler Foods Company.
<PAGE> 2
(b) directly or indirectly advise, participate in,
assist in or otherwise be connected with, in any manner, whether as a
shareholder, director, consultant, partner, venturer, investor or otherwise, any
entity listed on Schedule I hereto, its respective successors or assigns by
merger, consolidation or otherwise in respect of an acquisition of any entity in
the snack food, cookie, cracker or other baked goods industry (the "Snack Food
Industry"); or
(c) for himself or on behalf of any other person, firm,
corporation or other entity, directly or indirectly or by action together with
others, (i) call on any person, firm, corporation or other entity that is or was
a customer of Buyer or Salerno for the purpose of soliciting, diverting or
taking away any of such customers or (ii) induce, influence or seek to induce or
influence, any person who has been engaged as an employee, representative or
consultant by Buyer or Salerno to terminate any relationship with Buyer or
Salerno or employ or retain such person.
2. From and after the date hereof, Member will not use, disclose or
divulge any information, knowledge or data specifically relating to or concerned
with Buyer or Salerno, their respective operations, business, methods of doing
business, revenues, results of operations, financial condition or customers to
any person, firm, corporation or other entity, provided, however, that (a) if
Member becomes legally compelled to disclose any such information, knowledge or
data, he will promptly advise Buyer in writing so that it may seek a protective
order or other appropriate judicial remedy and/or waive compliance with the
provisions of this Section 2 and (b) nothing contained herein shall prevent the
use or disclosure of any information which is generally known to the public and
which has not become known through the breach of this Agreement by Member.
Nothing set forth herein shall be deemed to prohibit Member from investing his
funds, solely on a passive basis, in securities of a corporation, partnership or
other entity engaged in the Snack Foods Industry if the securities of such
issuer are listed for trading on a national securities exchange, are quoted by
the National Association of Securities Dealers Automated Quotation System
(NASDAQ) or are traded in the over-the-counter market and Member's holdings
therein represent less than 2% of the total number of shares or principal amount
of other securities of such issuer outstanding.
3. Member acknowledges that the provisions of Sections 1 and 2
hereof are reasonable and necessary for the protection of Buyer and that each
provision, and the period of time, geographic areas and types and scope of
restrictions on the activities specified therein are, and are intended to be,
divisible. In the event that any provision of Sections 1 or 2 hereof, including
any sentence, clause or part thereof, shall be deemed contrary to law or invalid
or unenforceable in any respect by a court of competent jurisdiction, the
remaining provisions shall not be affected, but
-2-
<PAGE> 3
shall, subject to the discretion of such court, remain in full force and effect
and any invalid and unenforceable provisions shall be deemed, without further
action on the part of the parties hereto, modified, amended and limited to the
extent necessary to render the same valid and enforceable.
4. All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when (i) delivered personally or by facsimile
transmission (and a copy is mailed by regular mail within 24 hours of such
transmission), in either case with receipt acknowledged, (ii) three business
days after being sent by registered or certified mail, return receipt requested,
or (iii) one business day after being sent by prepaid overnight carrier, with a
record of receipt, to the parties at the following addresses:
(1) If to Buyer:
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Facsimile: (847) 699-5940
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Facsimile: (212) 980-7177
Attention: Jeffrey S. Spindler, Esq.
(2) If to Member:
Peter Rogers
c/o Basildon Enterprises
5. This Agreement and the various rights and obligations arising
hereunder shall inure to the benefit of and be binding upon the parties hereto
and their respective affiliates, successors and assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be transferred
or assigned (by operation of law or otherwise) by either of the parties hereto
without the prior written consent of the other party except that Buyer shall
have the right to assign its rights but not its obligations hereunder to any
affiliate thereof. Any transfer
-3-
<PAGE> 4
or assignment of any of the rights, interests or obligations hereunder in
violation of the terms hereof shall be void and of no force or effect.
6. This Agreement embodies the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, oral and written,
relative to said subject matter.
7. This Agreement may not be changed, amended, terminated,
augmented, rescinded or discharged (other than by performance), in whole or in
part, except by a writing executed by each of the parties hereto, and no waiver
of any of the provisions or conditions of this Agreement or any of the rights of
a party hereto shall be effective or binding unless such waiver shall be in
writing and signed by the party claimed to have given or consented thereto.
Except to the extent that a party hereto may have otherwise agreed to in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations hereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or any
other obligation or representation or warranty by such other party, nor shall
any forbearance by the first party to seek a remedy for any noncompliance or
breach by such other party be deemed to be a waiver by the first party of its
rights and remedies with respect to such noncompliance or breach.
8. (a) This Agreement shall in all respects be construed in
accordance with and governed by the laws of the State of Illinois, without
regard to the principles of conflicts of laws thereof.
(b) Each of the parties hereto hereby irrevocably consents to
arbitration of any dispute, controversy or claim arising out of or relating to
this Agreement. Each of the parties hereto hereby irrevocably waives, to the
fullest extent legally possible, any objection to the use of arbitration to
resolve any such dispute, controversy or claim. If the parties in good faith
cannot resolve any controversy or claim arising out of or related to this
Agreement or in connection with a breach thereof within 10 days after the
claimant gives written notice of such controversy or claim to the other party,
any party may demand and commence arbitration of the controversy or claim. In
the event of a demand for arbitration, Member shall select one arbitrator and
Buyer shall select one arbitrator, within 30 days after such demand shall have
been given (the "Demand Date") and the two arbitrators, within 45 days
thereafter shall select a third arbitrator. If the third arbitrator shall not be
selected within 45 days after the Demand Date, either Member or Buyer may apply
to the American Arbitration Association (or any successor thereto) for the
appointment of an arbitrator in Chicago, Illinois and the parties shall be bound
by
-4-
<PAGE> 5
the appointments made by such Association. The arbitration shall be held in
Chicago, Illinois as promptly as practicable thereafter under the rules of the
American Arbitration Association in effect at the time such controversy, claim
or breach is submitted to arbitration. The award or decision made in accordance
with such rules shall be delivered in writing to the parties hereto and shall be
final, binding and conclusive upon them in the absence of fraud and judgment
upon such award or decision may be entered in any court having jurisdiction
thereof. Member and Buyer shall bear equally the cost of such arbitration.
(c) Notwithstanding the provisions of Paragraph 8(b), the
parties hereto shall have the right to seek and obtain from a court of competent
jurisdiction a temporary restraining order, injunction, specific performance or
other equitable relief to enforce the provisions of this Agreement.
9. This Agreement may be executed in two counterparts, each of which
shall constitute an original instrument, but both of which when taken together
shall constitute one and the same instrument.
-5-
<PAGE> 6
Schedule I
Nabisco Corp.
Ripon
Mrs. Alison's
North American Bakery
President's
Mother's
Matt's
Consolidated Biscuit Co.
Hain Foods LLC
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
-----------------------------------
Name: Michael Kirby
Title: President
---------------------------------------
PETER ROGERS
-6-
<PAGE> 1
EXHIBIT 10.27
RESTRICTIVE COVENANT AND CONFIDENTIALITY AGREEMENT
AGREEMENT made this 3rd day of April 1998, by and between THE
DELICIOUS FROOKIE COMPANY, INC., a Delaware corporation (the "Buyer"), and RON
DAVIES, JR. (the "Member").
W I T N E S S E T H :
WHEREAS, concurrently herewith Salerno Foods, L.L.C., a Delaware
limited liability company ("Salerno"), of which Member was a managing member
until ____________, 1998, is executing and delivering an Asset Purchase
Agreement (the "Asset Purchase Agreement") providing for the purchase by Buyer
of substantially all of the assets of Salerno; and
WHEREAS, Buyer, as an inducement for it to enter into and consummate
the transactions contemplated by the Asset Purchase Agreement, wishes to secure
Member's agreement that he will not compete, directly or indirectly, with Buyer
for acquisitions of other cookie, cracker and baked goods companies during the
term hereof; and
WHEREAS, as a condition to the execution and delivery of the Asset
Purchase Agreement, Buyer requires that Member agree to certain additional
restrictions with respect to his business activities, and Member is willing to
agree to such restrictions;
NOW, THEREFORE, in consideration of the premises and the mutual
covenants contained herein, each of the parties hereto agrees as follows:
1. During the period commencing on the date first written above and
ending on the first anniversary of such date, Member will not:
(a) directly or indirectly, own, manage, operate, join,
control, participate in, invest in, provide consulting services to or otherwise
be connected in any manner, whether as a shareholder, officer, director,
consultant or otherwise, Keebler Foods Company.
(b) directly or indirectly advise, participate in,
assist in or otherwise be connected with, in any manner, whether as a
shareholder, director, consultant, partner, venturer, investor or otherwise, any
entity listed on Schedule I hereto, its respective successors or assigns by
merger, consolidation or
<PAGE> 2
otherwise in respect of an acquisition of any entity in the snack food, cookie,
cracker or other baked goods industry (the "Snack Food Industry"); or
(c) for himself or on behalf of any other person, firm,
corporation or other entity, directly or indirectly or by action together with
others, (i) call on any person, firm, corporation or other entity that is or was
a customer of Buyer or Salerno for the purpose of soliciting, diverting or
taking away any of such customers or (ii) induce, influence or seek to induce or
influence, any person who has been engaged as an employee, representative or
consultant by Buyer or Salerno to terminate any relationship with Buyer or
Salerno or employ or retain such person.
2. From and after the date hereof, Member will not use, disclose or
divulge any information, knowledge or data specifically relating to or concerned
with Buyer or Salerno, their respective operations, business, methods of doing
business, revenues, results of operations, financial condition or customers to
any person, firm, corporation or other entity, provided, however, that (a) if
Member becomes legally compelled to disclose any such information, knowledge or
data, he will promptly advise Buyer in writing so that it may seek a protective
order or other appropriate judicial remedy and/or waive compliance with the
provisions of this Section 2 and (b) nothing contained herein shall prevent the
use or disclosure of any information which is generally known to the public and
which has not become known through the breach of this Agreement by Member.
Nothing set forth herein shall be deemed to prohibit Member from investing his
funds, solely on a passive basis, in securities of a corporation, partnership or
other entity engaged in the Snack Foods Industry if the securities of such
issuer are listed for trading on a national securities exchange, are quoted by
the National Association of Securities Dealers Automated Quotation System
(NASDAQ) or are traded in the over-the-counter market and Member's holdings
therein represent less than 2% of the total number of shares or principal amount
of other securities of such issuer outstanding.
3. Member acknowledges that the provisions of Sections 1 and 2
hereof are reasonable and necessary for the protection of Buyer and that each
provision, and the period of time, geographic areas and types and scope of
restrictions on the activities specified therein are, and are intended to be,
divisible. In the event that any provision of Sections 1 or 2 hereof, including
any sentence, clause or part thereof, shall be deemed contrary to law or invalid
or unenforceable in any respect by a court of competent jurisdiction, the
remaining provisions shall not be affected, but shall, subject to the discretion
of such court, remain in full force and effect and any invalid and unenforceable
provisions shall be deemed, without further action on the part of the parties
hereto, modified, amended and limited to the extent necessary to render the same
valid and enforceable.
-2-
<PAGE> 3
4. All notices, requests, demands and other communications which are
required or may be given under this Agreement shall be in writing and shall be
deemed to have been duly given when (i) delivered personally or by facsimile
transmission (and a copy is mailed by regular mail within 24 hours of such
transmission), in either case with receipt acknowledged, (ii) three business
days after being sent by registered or certified mail, return receipt requested,
or (iii) one business day after being sent by prepaid overnight carrier, with a
record of receipt, to the parties at the following addresses:
(1) If to Buyer:
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Facsimile: (847) 699-5940
Attention: Chief Executive Officer
with a copy (which shall not constitute notice) to:
Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Facsimile: (212) 980-7177
Attention: Jeffrey S. Spindler, Esq.
(2) If to Member:
Ronald W. Davies, Jr.
c/o Fort Dearborn Partners
150 North Wacker Drive
Suite 2850
Chicago, Illinois 60606
5. This Agreement and the various rights and obligations arising
hereunder shall inure to the benefit of and be binding upon the parties hereto
and their respective affiliates, successors and assigns. Neither this Agreement
nor any of the rights, interests or obligations hereunder shall be transferred
or assigned (by operation of law or otherwise) by either of the parties hereto
without the prior written consent of the other party except that Buyer shall
have the right to assign its rights but not its obligations hereunder to any
affiliate thereof. Any transfer or assignment of any of the rights, interests or
obligations hereunder in violation of the terms hereof shall be void and of no
force or effect.
-3-
<PAGE> 4
6. This Agreement embodies the entire agreement and understanding of
the parties hereto with respect to the subject matter hereof and supersedes all
prior and contemporaneous agreements and understandings, oral and written,
relative to said subject matter.
7. This Agreement may not be changed, amended, terminated,
augmented, rescinded or discharged (other than by performance), in whole or in
part, except by a writing executed by each of the parties hereto, and no waiver
of any of the provisions or conditions of this Agreement or any of the rights of
a party hereto shall be effective or binding unless such waiver shall be in
writing and signed by the party claimed to have given or consented thereto.
Except to the extent that a party hereto may have otherwise agreed to in
writing, no waiver by that party of any condition of this Agreement or breach by
the other party of any of its obligations hereunder shall be deemed to be a
waiver of any other condition or subsequent or prior breach of the same or any
other obligation or representation or warranty by such other party, nor shall
any forbearance by the first party to seek a remedy for any noncompliance or
breach by such other party be deemed to be a waiver by the first party of its
rights and remedies with respect to such noncompliance or breach.
8. (a) This Agreement shall in all respects be construed in
accordance with and governed by the laws of the State of Illinois, without
regard to the principles of conflicts of laws thereof.
(b) Each of the parties hereto hereby irrevocably consents to
arbitration of any dispute, controversy or claim arising out of or relating to
this Agreement. Each of the parties hereto hereby irrevocably waives, to the
fullest extent legally possible, any objection to the use of arbitration to
resolve any such dispute, controversy or claim. If the parties in good faith
cannot resolve any controversy or claim arising out of or related to this
Agreement or in connection with a breach thereof within 10 days after the
claimant gives written notice of such controversy or claim to the other party,
any party may demand and commence arbitration of the controversy or claim. In
the event of a demand for arbitration, Member shall select one arbitrator and
Buyer shall select one arbitrator, within 30 days after such demand shall have
been given (the "Demand Date") and the two arbitrators, within 45 days
thereafter shall select a third arbitrator. If the third arbitrator shall not be
selected within 45 days after the Demand Date, either Member or Buyer may apply
to the American Arbitration Association (or any successor thereto) for the
appointment of an arbitrator in Chicago, Illinois and the parties shall be bound
by the appointments made by such Association. The arbitration shall be held in
Chicago, Illinois as promptly as practicable thereafter under the rules of the
American Arbitration Association in effect at the time such controversy, claim
or breach is submitted to
-4-
<PAGE> 5
arbitration. The award or decision made in accordance with such rules shall be
delivered in writing to the parties hereto and shall be final, binding and
conclusive upon them in the absence of fraud and judgment upon such award or
decision may be entered in any court having jurisdiction thereof. Member and
Buyer shall bear equally the cost of such arbitration.
(c) Notwithstanding the provisions of Paragraph 8(b), the
parties hereto shall have the right to seek and obtain from a court of competent
jurisdiction a temporary restraining order, injunction, specific performance or
other equitable relief to enforce the provisions of this Agreement.
9. This Agreement may be executed in two counterparts, each of which
shall constitute an original instrument, but both of which when taken together
shall constitute one and the same instrument.
-5-
<PAGE> 6
Schedule I
Nabisco Corp.
Ripon
Mrs. Alison's
North American Bakery
President's
Mother's
Matt's
Consolidated Biscuit Co.
Hain Foods LLC
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed on the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
-----------------------------------
Name: Michael Kirby
Title: President
/s/ Ron Davies, Jr.
---------------------------------------
RON DAVIES, JR.
-6-
<PAGE> 1
EXHIBIT 10.28
MANUFACTURING AGREEMENT
This MANUFACTURING AGREEMENT (the "Agreement") is made as of March ___,
1998 (the "Effective Date"), between The Delicious Frookie Company, Inc., a
Delaware corporation, with its principal place of business at 2720 River Road,
Suite 126, Des Plaines, Illinois 60018 ("DFC"), and Pate's Bakery LLC, a
Delaware limited liability company, with its principal place of business at 1450
Pate Plaza Road, South Beloit, Illinois 61080 ("Pate's").
W I T N E S S E T H
WHEREAS, DFC, contemporaneous with the execution and Effective Date of
this Agreement, has purchased all of the outstanding capital interests in
Salerno Foods, L.L.C. ("Salerno");
WHEREAS, in connection with such purchase, DFC has become the successor in
interest to Salerno's interests and obligations;
WHEREAS, Salerno and Pate's entered into a Manufacturing Agreement
effective as of January 22, 1996 (the "Old Manufacturing Agreement");
WHEREAS, Pate's and DFC are willing to terminate the Old Manufacturing
Agreement and to enter into this Agreement in place thereof; and
NOW, THEREFORE, in consideration of these recitals and the agreements
hereinafter set forth, and other valuable consideration, the parties hereto
agree as follows:
1. Termination of Old Manufacturing Agreement
DFC (as successor in interest to Salerno) and Pate's hereby agree to
terminate the Old Manufacturing Agreement, effective upon the Effective Date,
and they further agree that following the Effective Date the Old Manufacturing
Agreement shall be void and shall be of no continued force or effect.
2. Definitions
2.1. "FDCA" means the Federal Food, Drug, and Cosmetic Act, as amended
from time to time, together with all regulations issued by the Food and Drug
Administration and any other governmental agency pursuant thereto.
2.2. "DFC Product" means any products of DFC which are manufactured by
Pate's for DFC pursuant to the terms of this Agreement.
2.3. "FTCA" means the Federal Trade Commission Act, as amended from time
to time, together with all regulations issued by the Federal Trade Commission
and any other governmental agency pursuant thereto.
2.4. "Plant" means Pate's production facilities, wherever located.
- --------------------------------------------------------------------------------
- 1 -
<PAGE> 2
2.5. "Product" means, collectively, the Salerno Product and the DFC
Product.
2.6. "Salerno Product" means all product(s) manufactured for or on behalf
of DFC and marketed by DFC under the Salerno's or Mama's name brand, at all
times now or in the future, including, but not limited to, those products
described on Exhibit A attached hereto and incorporated herein.
2.7. "Specifications" means the specifications and quality control
requirements for the Product and for any ingredients and packaging materials
that DFC provides to Pate's from time to time.
2.8. "Technical Information" means all customer and business information
and all formulas, quality control data, test data, and all other scientific and
technical data and information relating to the Products which are now owned or
controlled by DFC or which may hereafter be developed by either party in
connection with the Product.
2.9. "Unit Cost" means the per unit price charged by Pate's to DFC for the
Salerno Products or the DFC Products, as the case may be, F.O.B. Pate's Plant
and exclusive of freight charges, as set forth on Exhibit A.
3. Raw Materials and Packaging Materials
3.1. Approved Suppliers. Raw materials and packaging materials for the
Products shall only be purchased by Pate's from suppliers that have been
approved by DFC, which approval shall not be unreasonably withheld. As of the
date hereof, the suppliers described on Exhibit B, attached hereto and
incorporated herein, have been approved by DFC. Notwithstanding the foregoing,
all raw materials and packaging materials purchased by Pate's shall comply with
the applicable Specifications. DFC, in its reasonable determination, may
withdraw approval of any suppliers that cannot comply with the applicable
Specifications.
3.2. Inventory. Pate's shall order and maintain an inventory of raw
materials and packaging materials sufficient to meet DFC's production needs, as
determined by the orders provided by DFC under Section 4. Pate's shall not be
required to maintain such inventory in excess of a rolling ninety (90) day
supply.
3.3. Promotion Materials. DFC may, from time to time, provide promotional
materials or coupons to Pate's for insertion into the Product packaging. Such
promotional materials or coupons shall meet Pate's reasonable weight and size
requirements for Pate's equipment as communicated by Pate's to DFC. DFC shall
notify Pate's of such insertions at the time the applicable order is made by
DFC, and the parties shall mutually agree upon the manner in which such
insertions will be made by Pate's for such order. There shall be no charge to
DFC in connection with such insertions unless Pate's incurs a cost increase
directly or indirectly resulting from such insertions, which increase Pate's can
substantiate. Any such substantiated cost increase may be charged by Pate's to
DFC if Pate's has notified DFC of such cost increase prior to the performance of
any insertion work by Pate's.
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4. Production, Production Forecasts, Shipping Orders, and Reports
4.1. Production. Pate's shall manufacture and package Products at the
Plant, in quantities ordered by DFC, in accordance with the terms and conditions
set forth in this Agreement. Pate's acknowledges it has reviewed and understands
fully the Specifications that DFC has provided Pate's with respect to the
Product. DFC may hereafter publish and provide to Pate's, with reasonable
advance notice, a quality assurance manual ("Quality Assurance Manual"), and
Pate's will comply with all Specifications contained therein. Pate's agrees that
DFC may supplement or otherwise modify such Specifications upon reasonable
notice to Pate's.
4.2. Production Forecasts. Beginning on the Effective Date, and at each
one (1) month interval thereafter, DFC shall provide Pate's with a first month
production/purchase order for the following month, together with forecasts of
DFC's anticipated needs for quantities of Product per month during the two (2)
month period following such first month. Such first month production/purchase
orders shall be firm and shall be filled by Pate's in accordance with this
Agreement. Such forecasts provided by DFC are for the convenience of Pate's
only, and shall not constitute purchase orders.
4.3. Forecast Updates. Approximately quarterly, DFC shall provide Pate's
with production forecast updates for the remainder of the calendar year. Such
forecasts provided by DFC are for the convenience of Pate's only, and shall not
constitute purchase orders.
4.4. Storage and Shipment. Pate's shall provide suitable storage and
warehouse space for all Product for the time and to the extent required for
Pate's to perform its obligations under this Agreement, which time shall not
exceed fourteen (14) days from the originally-scheduled shipping date set forth
in the applicable purchase order for Product. Product is to be stored in clean
space, suitable for storage of food and protection of its contents with respect
to integrity and quality, in compliance with good commercial practice and all
applicable laws, rules, and regulations, including, without limitation, FDCA
regulations. Such storage and warehousing of Product shall be solely at Pate's
expense. Pate's shall load Product onto such carriers as DFC designates. All
Product is delivered F.O.B. Pate's dock and all risk of loss of the Products
shall remain with Pate's until loaded onto such carriers designated by DFC,
unless DFC and Pate's shall otherwise mutually agree. If DFC and Pate's shall
mutually agree that certain Product shall be delivered other than F.O.B. Pate's
dock, then Product shall be shipped F.O.B. DFC's dock, and all risk of loss of
Product shall remain with Pate's until loaded onto DFC's dock; the carrier
selection, shipment, and payment procedures and bill of lading requirements
shall be subject to DFC's approval, which approval shall not be unreasonably
withheld and shall be in accordance with any reasonable instructions issued by
DFC. Product is to be shipped via clean trucks and trailers suitable for
transportation of food and protection of its contents, with respect to integrity
and quality, in compliance with good commercial practice and all applicable
laws, rules, and regulations, including, without limitation, Department of
Transportation regulations. Pate's is responsible for shipping all Product in
accordance with this Agreement.
4.5. Shipping Instructions. Pate's shall prepare the Product for shipment
to DFC in quantities and on dates designated by DFC. DFC shall send shipping
instructions via facsimile to Pate's at least three (3) weeks before the
shipment date designated by DFC. Adjustments to
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<PAGE> 4
shipping instructions made less than three (3) weeks prior to the requested
shipping date may be made upon mutual agreement of DFC and Pate's.
4.6. Substitution of Products. Subject to Pate's consent, which consent
may not be unreasonably withheld, DFC may request Pate's to substitute another
product for any Product, in each case, such substitute product being a product
that Pate's is reasonably capable of producing. Except for Product which is the
subject of a written purchase order submitted by DFC, at any time and from time
to time, DFC may cancel any order previously projected or estimated. Any
substitute products shall be deemed "Products" under and as defined in this
Agreement.
4.7. Production and Shipping Reports. Pate's shall provide DFC with daily
production reports and daily shipment of finished goods reports, in such form as
DFC reasonably requests. Reports from Pate's facilities shall be sent to DFC by
facsimile in the manner set forth in Section 20.1
4.8. Inventory Reports. Pate's shall provide DFC with a daily report of
Pate's inventories of finished Product and materials. The report shall be
delivered by facsimile in the manner set forth in Section 20.1.
5. Pate's Right of First Refusal.
5.1. DFC agrees to first order and purchase from Pate's all requirements
it may have, from time to time, for all Salerno Products which DFC chooses to
manufacture or market now or in the future, and to do so in accordance with the
provisions of this Agreement ("Pate's Right of First Refusal"). Pate's Right of
First Refusal shall be as further described in this Section 5.
5.2. DFC shall provide Pate's with at least six (6) months' prior written
notice of the termination date of any existing manufacturing, supply, or similar
agreement by and between DFC and a party other than Pate's, relating to Salerno
Products. DFC shall also provide Pate's with six (6) months' advance written
notice of DFC's intent to produce a new Salerno Product, or to materially modify
the Specifications, requirements, or pricing of an existing Salerno Product.
Pate's shall have the right of first refusal to produce pursuant to this
Agreement all Salerno Products being supplied by another manufacturer or
following the termination date under any existing manufacturing, supply, or
similar agreements, and all new or modified Salerno Product requirements.
5.3. In the event any supplier to DFC fails to deliver Salerno Products to
DFC, or materially breaches a supply or similar agreement with DFC relating to
Salerno Product, such that DFC intends to or contemplates seeking such Salerno
Products from another supplier, DFC shall provide Pate's with written notice of
DFC's requirements relating to such Salerno Products, as far in advance as
reasonably practical. Pate's shall have the right of first refusal to produce
such Salerno Products pursuant to this Agreement.
5.4. DFC's obligations pursuant to this Agreement to first order any
Salerno Product requirements from Pate's are subject to the following
conditions:
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<PAGE> 5
(a) Pate's has demonstrated to DFC's satisfaction and
approval, which approval DFC shall not unreasonably withhold, that
Pate's is capable of providing the manufacturing facilities,
available equipment, and storage capacity reasonably necessary for
such requirements;
(b) Pate's has demonstrated to DFC's satisfaction and
approval, which approval DFC shall not unreasonably withhold, that
Pate's is capable of delivering requirements for Salerno Product in
accordance with DFC's reasonable scheduling needs;
(c) any sample quality and test-run quality requirements of
DFC for the Salerno Product(s) comprising such requirements meet
DFC's published specifications, and the other conditions set forth
in this Agreement; and
(d) this Agreement has not been terminated pursuant to Section
17 herein, due to Pate's material breach of any terms hereof.
5.4.1 In connection with all Salerno Products referenced in Section
5.2, if following diligent investigation, inquiry, and conference with
Pate's, DFC in good faith does not believe Pate's satisfies anyone or more
of the conditions listed in Section 5.4(a), (b), or (c), DFC shall give
Pate's written notice of such determination no later than two (2) months
following the date the written notice referenced in Section 5.2 is
delivered to Pate's. Such notice shall state in detail the conditions(s)
Pate's does not satisfy and the reasons DFC believes Pate's does not
satisfy the stated condition(s).
5.4.2 Pate's shall have sixty (60) days following receipt of the
written notice referenced in Section 5.4.1 to cure any inability to
satisfy any condition(s) listed in a notice from DFC pursuant to Section
5.4.1. In the event such failure cannot be reasonably cured within sixty
(60) days, provided Supplier commences such cure within thirty (30) days
of receipt of a notice from DFC pursuant to Section 5.4.1, and thereafter
diligently pursues the cure to completion.
(a) In connection with all products referenced in Section 5.3,
if following diligent investigation, inquiry, and conference with
Pate's, DFC in good faith believes Pate's does not satisfy one or
more of the condition(s) listed in Section 5.4(a), (b), or (c), DFC
shall give Pate's written notice of such determination within ten
(10) days following the date the written notice referenced in
Section 5.3 is delivered to Pate's. Such notice shall state in
detail the condition(s) Pate's does not satisfy, the reasons DFC
believes Pate's does not satisfy the stated condition(s), and the
detailed state of facts that would have to exist for Pate's to
satisfy the stated condition(s).
(b) Pate's shall have twenty (20) days following receipt of
the written notice referenced to in Section 5.4.2(a), to cure any
inability to satisfy any conditions listed therein.
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<PAGE> 6
(c) As soon as reasonably practical, but in no event more than
forty five (45) days following receipt of any notice referenced in
Section 5.2 and not longer than ten (10) days following receipt of
any notice referenced in Section 5.3, Pate's shall notify DFC of the
unit price it will agree to deliver Salerno Products requested in
the notice from DFC.
5.5. Within thirty (30) days of DFC's receipt of such suggested pricing
regarding Salerno Products contained in a notice from DFC pursuant to Section
5.2, and within five (5) days of DFC's receipt of suggested pricing regarding
Salerno Products contained in a notice from DFC pursuant to Section 5.3, the
parties shall meet and agree upon a price. If the parties so agree, such Salerno
Products and pricing shall be added to Exhibit A and shall thereafter be
produced for DFC by Pate's pursuant to this Agreement.
If the parties cannot so agree, DFC may seek bona fide independent
third party manufacturers or contract packers to provide to DFC written
commitments to supply such Products pursuant to substantially identical terms as
this Agreement, other than price. Upon receipt of such commitments, DFC shall
supply Pate's with a written summary of all of the material terms and prices
contained in each commitment received, and the identity of the commitment DFC
intends to accept subject to Pate's rights herein. The summary delivered to
Pate's shall be certified as complete and accurate by the President or Chief
Financial Officer of DFC. Pate's shall have ten (10) days from receipt of a
certified summary of such bona-fide written commitments from independent
suppliers to agree to produce Products therein referenced, at the price set
forth in the summary of the commitment DFC has designated it will accept.
In the event Pate's agrees to produce Salerno Products for the same
or lesser price as that set forth in the certified summary of the commitment DFC
has designated it will accept, then such Salerno Products and pricing shall be
added to Exhibit A and such Salerno Products shall thereafter be produced for
DFC by Pate's pursuant to this Agreement.
5.6. In the event Pate's does not cure its inability to satisfy the
conditions contained in a notice received from DFC pursuant to Section 5.2 or
5.3 within the time periods set forth in Sections 5.4.2 and 5.4.2(b), or if
Pate's does not agree to produce Salerno Products for the price included in a
written commitment designated for acceptance by DFC within the time periods set
forth in Sections 5.4.2(c), then DFC may (for a period of thirty (30) days after
the earlier to occur of (i) expiration of such time periods; or (ii) receipt of
Pate's written notice it will not cure such conditions or meet the designated
commitment prices) enter into a manufacturing supply or similar agreement with
an independent third party on terms not more favorable to the independent
supplier than those in this Agreement and the notices given pursuant to this
Section 5, provided the term of any such supply or similar agreement shall not
exceed one year.
In the event DFC does not enter into a supply or similar agreement
with such independent supplier within such thirty (30) day period, and upon the
expiration of the term of any such agreement or other termination thereof, the
production of such Salerno Products shall again be subject to all the provisions
of this Agreement, including, but not limited to, Section 5 and Pate's Right of
First Refusal.
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<PAGE> 7
5.7. Release. DFC may request in writing that Pate's release DFC from
Pate's Right of First Refusal in connection with a given Salerno Product and a
given order if, in DFC's President's reasonable business judgment, Pate's Right
of First Refusal is causing a material and adverse financial detriment to DFC.
Pate's may grant or deny such requests in its sole discretion. Any such request
which is granted by Pate's must be evidenced by a written waiver from DFC of any
implication of additional concession, waiver, or modification of Pate's Right of
First Refusal and such waiver shall only apply to the specific Products and
orders contained in the written request of DFC.
6. Aggregate Minimum Production of Products
6.1. The parties hereby agree that during each calendar year commencing on
January 1, 1999, the minimum aggregate production of Products shall be one
million, three hundred thousand (1,300,000) cases (the "Minimum Aggregate
Production").
6.2. Within sixty (60) days following the end of each calendar year,
Pate's shall certify the aggregate number of cases of Products manufactured by
Pate's for DFC. To the extent that such aggregate does not meet, or exceed, the
Minimum Aggregate Production, DFC shall pay to Pate's an amount equal to the
Minimum Aggregate Production, less the number of cases so certified, times Zero
Dollars and Fifty Cents ($.50).
6.3. With respect to DFC Products manufactured hereunder, such DFC
Products shall be subject to the provisions of Sections 1, 2, 3, 4, 6, 7, 8, 9,
10, 11, 12, 13, 14, 15, 16, 17, 18, 20, and 21 of this Agreement.
7. Equipment and Capacity
7.1. Pate's shall furnish and maintain, at its own cost and expense, all
equipment necessary to manufacture and package any Product in accordance with
the Specifications and in compliance with Federal, state, and local laws, rules,
and regulations.
7.2. If DFC shall supply any equipment to Pate's, such equipment shall at
all times remain the property of DFC and shall be clearly designated as such.
Pate's shall not cause or permit any liens or encumbrances upon such equipment.
Pate's shall not use any such equipment for the production of products for any
company other than DFC, without DFC's prior written consent, which may be
withheld. Pate's shall be responsible for maintenance of such equipment, and
shall return it to DFC promptly upon termination of this Agreement in as good
condition as received, ordinary wear and tear excepted. DFC IS NOT THE
MANUFACTURER OF ANY SUCH EQUIPMENT AND THEREFORE MAKES NO EXPRESS WARRANTIES AND
DFC DISCLAIMS ANY AND ALL IMPLIED WARRANTIES INCLUDING, BUT NOT LIMITED TO,
THOSE OF MERCHANTABILITY, OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO
SUCH EQUIPMENT AND SHALL HAVE NO RESPONSIBILITY FOR ANY LOSSES, INJURIES, OR
DAMAGE THAT MAY OCCUR IN CONNECTION WITH, OR RELATED TO, SUCH EQUIPMENT.
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<PAGE> 8
8. Compensation, Payment, Materials, and Title
8.1. As full and complete compensation for all services performed and
Product purchased and sold hereunder, Pate's shall be entitled to receive
compensation on a per Product, per case, basis at the price indicated on the
Product list set forth on Exhibit A, as such may be amended from time to time.
Pricing shall be reviewed annually for all components (except for raw materials
and packaging, which shall be reviewed semi-annually) and may be adjusted only
upon the mutual agreement of Pate's and DFC, to reflect a change in costs to
Pate's and compliance with the procedures of this Section 8.
8.2. Except for raw materials and packaging as provided in Section 8.3
below, Pate's will submit its annual request (if any) for an increase in pricing
to DFC at least sixty (60) days prior to the effective date of the requested
increase in pricing, and any requested increase shall be effective only upon the
mutual agreement of Pate's and DFC.
8.3. With respect to pricing for raw materials and packaging, Pate's will
submit its semi-annual request (if any) for an increase in pricing to DFC at
least sixty (60) days prior to the effective date of the requested increase in
pricing; any such requested increase shall be effective only if the aggregate
cost to Pate's of raw and packaging materials has increased Pate's total direct
cost by five percent (5%) or more.
8.4. Notwithstanding the provisions of Sections 8.2 and 8.3, if the
Specifications change and thereby directly cause Pate's cost to produce a
Product to increase, Pate's may, within thirty (30) days after the date of such
change, request a cost increase equal to such additional cost in accordance with
Section 8.2.
8.5. Pate's agrees to use its best efforts to contain costs by obtaining
competitive prices on raw and packaging materials and by operating efficiently.
DFC shall be entitled to audit any underlying documents relating to ingredient
and packaging materials relied on by Pate's to support any price adjustment
requested hereunder. Notwithstanding the foregoing, if Pate's agrees to
participate in any research and development product trials requested by DFC,
Pate's shall be entitled only to its substantiated direct costs for labor and
materials for Product manufactured during any such trials or as otherwise agreed
upon between the parties. Pate's shall not be reimbursed for start-up production
costs for any Product or for Product trials or trial runs made by Pate's, unless
DFC requests the same.
8.6. Invoices for Product shall be sent to DFC at the time of shipment. A
cash discount of one percent (1%) will be taken if the invoice is paid within
fifteen (15) days. Payment in full shall be due within thirty (30) days after
receipt by DFC of invoice and Product. A late charge of one and one half percent
(1 1/2%) shall be paid by DFC for every thirty (30) day period any invoice
remains unpaid after such thirty (30) days. All invoices shall have the DFC
purchase order number and bill of lading number written on them and be
accompanied by a signed copy of the outbound bill of lading setting forth the
relevant DFC purchase order number, consignee, production codes, and quantities
of each Product shipped. Invoices shall be sent to DFC's Vice President and
Chief Financial Officer, or as otherwise designated by DFC in writing.
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<PAGE> 9
8.7. DFC and its agents shall have access to Pate's plants once each
calendar quarter for the purpose of performing system and inventory audits
pertaining to DFC or this Agreement. Pate's shall be notified in advance of the
names of all such visiting DFC personnel or agents and their intended dates of
arrival. DFC shall also be entitled to audit any underlying documents relied on
by Pate's to support any price increase requested hereunder.
8.8. Title to all Product shall be and remain in DFC. Such Product shall
be segregated on Pate's premises and either (i) clearly designated as the
property of "The Delicious DFC Company, Inc." or (ii) placed in DFC, Salerno, or
Mama's packaging clearly displaying a DFC, Salerno or Mama's brand name.
Immediately upon termination of this Agreement for any reason whatsoever, Pate's
shall return to DFC all inventory of materials purchased by DFC and all Product.
9. Quality Control and Testing
9.1. Pate's shall manufacture Product strictly in accordance with all
applicable laws, rules, and regulations, and any Specifications issued by DFC to
Pate's. DFC reserves the right at any time to delete, alter, or add to the
Specifications. If any such change contains requirements beyond the scope of any
quality standards contemplated by this Agreement and a cost increase results
from such change, Pate's may, within thirty (30) days after the date of such
notice, request a cost increase equal to such additional cost. Such increase
shall become effective on the effective date of the Specification change.
9.2. Pate's shall store all raw materials, packaging materials, and
finished Product in a clean, dry area, free from insects and rodents, in a
manner to prevent entry of foreign materials. Storage and handling shall be
performed strictly in accordance with the provisions of all applicable laws, the
Specifications, and any written instructions issued by DFC to Pate's. Raw
materials may not be used beyond such shelf life as may reasonably be designated
by DFC, and shall be used on a first-in, first-out basis. Pate's shall conform
to any shelf-life requirements reasonably designated by DFC.
9.3. Pate's shall have each shipment of raw materials and packaging
materials, whether supplied or purchased by DFC or purchased by Pate's, analyzed
for such matters as DFC may reasonably require, before any said materials can be
used in making and packaging the Product. Such analysis may be conducted
in-house or by an outside laboratory approved by DFC. Outside lab tests are an
exception and expenses will be negotiated on an as-needed basis. All test
results are to be documented and available for inspection or statistical
summary, at DFC's request.
9.4. Pate's shall not use any raw materials or packaging materials that do
not strictly comply with DFC's instructions or applicable laws, rules, or
regulations. If there is any question as to the acceptability of any raw
material or packaging material, Pate's shall contact DFC's Vice President and
Chief Financial Officer, or his or their designate(s). If Pate's uses any
nonconforming material without prior written approval by DFC, Pate's shall be
responsible for all losses, costs, and expenses suffered or incurred by DFC as a
result of such use. The foregoing shall apply regardless of any involvement DFC
may have had in connection with such material, including, but not limited to,
supplying or purchasing material or designating approved suppliers.
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9.5. Pate's shall perform all in-process and finished Product checks
necessary to assure Product quality and any other checks reasonably required by
DFC. These tests are to be considered routine and are to be performed at Pate's
expense. All test results are to be documented and summarized as directed in the
Specifications or the Quality Assurance Manual.
9.6. No Product shall be released for shipment, unless it strictly
complies with the Specifications and all applicable laws, rules, and
regulations. Pate's shall place any noncomplying Product on hold. Product that
does not strictly comply shall be put on hold and may be released only with the
prior written approval of DFC.
9.7. DFC may, at any time, in its absolute discretion, institute a
positive release program for Pate's. If such positive release program is
instituted, no Product shall be shipped and all Product shall remain on hold at
Pate's premises until released by DFC in writing.
9.8. Product put on hold pursuant to Sections 9.6 and 9.7 shall be
properly tagged and isolated and shall not be released without the prior written
approval of DFC. DFC shall not be required to pay for any Product rejected or
placed on hold, if the Product hold is attributable to Pate's production method
or any material used by Pate's. Pate's shall reimburse DFC for expenses relating
to the hold actually incurred including, but not limited to, any raw materials
or packaging materials purchased by DFC.
9.9. All rejected Product will be disposed of in a manner consistent with
all applicable laws, rules, and regulations and as approved by DFC, which
approval shall not be unreasonably withheld. No Product or Product in process
can be sold as salvage without the prior written approval of DFC.
9.10. Production codes for Product must be in accordance with DFC's
instructions. Pate's shall maintain detailed records on raw and packaging
materials usage, finished Product production by code date, and shipping of
Product, so that Product can be traced in case of a recall. Such records shall
also comply with the reasonable instructions issued by DFC. Pate's shall be
capable of giving a complete response to DFC within two (2) hours of
notification during the operating hours of the Plant, including the code date
and location of each case of Product. Unless necessary to prevent serious injury
or death, Pate's cannot initiate a recall or withdrawal of the Product. If a
recall or withdrawal must be initiated before notice to DFC in order to prevent
serious injury or death, notice must be provided as soon as is reasonably
feasible.
9.11. Pate's shall reimburse and indemnify DFC for all losses, costs, and
expenses of any recall of Product or withdrawal from store shelves attributable
to Pate's or any materials used by Pate's. DFC shall reimburse and indemnify
Pate's for all losses, costs, and expenses of any recall of Product or
withdrawal from store shelves attributable to DFC or any materials used by DFC.
9.12. Pate's Plant and all Products so designated by DFC shall be
authorized as manufactured under the supervision of the Kashruth Division of
Orthodox Jewish Congregations of America and all Products shall be certified
thereunder as either kosher and pareve, bearing the O.U.D. symbol of
certification.
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10. Inspection Access
10.1. Pate's plant shall meet all requirements established by Federal,
state, or local regulations or any requirements reasonably established by DFC,
including, but not limited to, Good Manufacturing Practices and Hazard Analysis
Critical Control Points programs. DFC and its agents shall have access to Pate's
plant at any time and at all times Product is in process, for the purpose of
conducting inspections and performing quality control audits; Pate's shall have
access to the results of any test performed by Pate's or at Pate's directions.
DFC's presence does not relieve Pate's of any obligations it may have under this
Agreement.
10.2. If the Food and Drug Administration or any other Federal, state, or
local governing agency gives notice of or makes an inspection at Pate's
premises, seizes any Product, or requests a recall, DFC shall be notified
immediately. Duplicates of any samples of Product taken by such agency shall be
sent to DFC promptly.
11. Quality Control Samples and Reports
11.1. At its own cost and expense, Pate's shall collect and keep retention
samples in accordance with DFC's reasonable directions. In addition, routine
samples limited to the amount reasonably necessary for DFC's quality-control
purposes shall be sent to DFC at Pate's cost and expense, including costs for
freight.
11.2. Pate's shall not change any formula or ingredients with respect to
any Product without the prior written consent of DFC.
12. Time of the Essence
12.1. The parties acknowledge time is of the essence in this Agreement.
13. Warranties; Conformity
13.1. The Product furnished to DFC under this Agreement shall be of the
best quality and pure and free from adulteration, and Pate's does hereby warrant
and guarantee to DFC that at the time of delivery the Product shall (i) comply
with all applicable Federal, state, and local laws and regulations, including,
without limitation, the FDCA and the FTCA, (ii) not be adulterated or misbranded
within the meaning of the FDCA, (iii) not be an article which, under the
provisions of Section 404 and 505 of the FDCA, may not be introduced into
interstate commerce, (iv) not be in violation of the provisions of the Food
Additives Amendment of 1958, (v) be in full compliance with California's Safe
Drinking Water and Toxic Enforcement Act of 1986, as amended from time to time,
and all regulations promulgated thereunder, and are products which do not
require any form of warning under such Act, and (vi) conform with any samples
approved by DFC and with the Specifications.
13.2. Neither payment by DFC nor quality assurance release by DFC shall be
considered acceptance of any Product, and DFC may reject any Product which does
not conform to the warranties of Pate's hereunder.
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<PAGE> 12
13.3. Pate's warrants and represents that Pate's will comply with all
applicable labor and employment laws, including, without limitation, all laws
and regulations under the Federal Occupational Safety Hazards Act (OSHA), as
amended. Pate's agrees to furnish DFC the expiration date of any union contract.
Such information shall be provided no later than ninety (90) days after the
execution of this Agreement, and shall be updated promptly after the parties
agree upon any new expiration date. In addition, Pate's shall notify DFC of any
potential strike or labor action, of which Pate's is aware, in Pate's facility
or that could affect the production or shipment of the Product.
13.4. The foregoing provisions are in addition to, and are not intended to
limit or replace, any of DFC's rights or Pate's duties and obligations arising
out of any other provision of this Agreement or any other applicable law.
14. Trademark; Proprietary Information
14.1. During the course of its performance of this Agreement, Pate's may,
employing artwork, mechanical, and packaging cylinders furnished by DFC, and in
compliance with all applicable laws, cause to be printed on the packaging
materials and shipping containers of the Product those trademarks and/or trade
names that DFC may designate in writing from time to time. Pate's will not use
in any way, and will not remove, alter, or change in any way, any trademark,
trade name, logo, or other commercial symbol of DFC, without the prior written
permission of DFC.
14.2. Nothing set forth in this Agreement shall be construed to grant to
Pate's any right to or interest in any trademark, trade name, copyright, patent,
or know-how owned or asserted to be owned by DFC or any of its affiliates.
Pate's use of such trademarks, trade names, copyrights, patents, or know-how
shall constitute an infringement thereof and/or a violation of DFC's rights.
Pate's will exercise due care to protect the trade name, trademarks, and general
goodwill of DFC and refrain from any activities detrimental thereto. All use of,
and all good will pertaining to, DFC's trade names, trademarks, and logos shall
accrue to DFC's sole benefit.
14.3. The parties acknowledge and agree the Specifications, the Quality
Assurance Manual, and Technical Information are confidential and are proprietary
to DFC, regardless of whether they were developed by DFC or by Pate's. Pate's
agrees that any Specifications and Technical Information it may develop shall be
a "work for hire" in favor of DFC and subject to DFC's obligations to reimburse
Pate's for direct costs pursuant to Section 8.5, hereinabove. Pate's hereby
assigns to DFC all of Pate's interest in any such Specifications, the Quality
Assurance Manual, and Technical Information exclusively to its production of the
Product, and limit its production of the Product to DFC's orders. Following a
valid termination of this Agreement pursuant to its terms, Pate's shall turn
over all copies of the Specifications, the Quality Assurance Manual, and
Technical Information to DFC and shall not make any use whatsoever of any
Specifications, the Quality Assurance Manual, or Technical Information without
DFC's prior consent. During the terms of this Agreement and indefinitely
thereafter, Pate's shall maintain the Specifications, the Quality Assurance
Manual, and Technical Information in strict confidence, not disclose the
Specifications, the Quality Assurance Manual, or Technical Information to any
other person. Pate's shall, to the extent reasonably practical, neither
acknowledge nor disclose directly
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<PAGE> 13
or indirectly to any third party, without DFC's written consent, that it has
entered into this Agreement, unless such third party has entered into a written
confidentiality agreement with Pate's prohibiting further disclosure and Pate's
has notified DFC of such disclosure. To help preserve confidentiality, Pate's
shall, to the extent reasonably practical, not permit any third party to view
the production of any Product.
14.4. Pate's shall require every one of its employees who views or is
advised orally of any material part of the Specifications, the Quality Assurance
Manuals, and Technical Information to sign a Confidentiality Agreement
substantially similar to that attached as Exhibit C.
15. Insurance; Indemnification
15.1. Pate's shall provide all proper safeguards and shall assume all
risks in its performance of this Agreement and shall indemnify and hold harmless
DFC from and against any and all loss, liability, damages, claims for damages,
suits, recoveries, judgments, or executions, including costs, expenses, and
reasonable attorneys' fees, that may be claimed, asserted, or recovered against
DFC by any person, firm, or corporation whatsoever or whomsoever arising out of
any obligation of Pate's under this Agreement, out of possession, use of
consumption by any person of the Product supplied by Pate's to DFC under this
Agreement, or out of any actual or alleged injury to person or property or death
occurring to any of Pate's employees, agents, or any individual on Pate's
premises. Pate's shall indemnify and hold harmless DFC in the event of any
injury in connection with materials or equipment supplied by DFC, provided such
injury is a result of the use by Pate's or its agents of the materials or
equipment.
15.2. Pate's shall carry with companies satisfactory to DFC: (i) Workers'
Compensation and Employee's Liability Insurance; (ii) Standard Form Fire and
Extended Coverage Insurance inuring to DFC's benefit for the full replacement
value of any of the Product or any premiums or packaging materials in the care,
custody, or control of Pate's; and (iii) Public Liability Insurance including
Contractual Liability and Products Liability Coverage (with Broad Form Vendor's
Endorsement naming DFC and its authorized distributors and customers as insured)
with a combined single limit of not less than Ten Million Dollars ($10,000,000).
Pate's shall submit policies and/or certificates of insurance evidencing the
above coverage (which shall include an agreement by the insurer not to cancel or
materially alter its coverage except upon thirty (30) days' prior written notice
to DFC) to DFC upon DFC's written request therefor. Product Liability Insurance
shall continue in effect for DFC's benefit for a period of one (1) year from the
date of the last delivery of Product to DFC. In case of Pate's failure to carry
said policies and/or furnish certificates of insurance or upon cancellation of
any required insurance, DFC may, at its option, immediately terminate this
Agreement unless (in the case of cancellation) Pate's obtains substitute
insurance coverage before such insurance becomes canceled and provides DFC with
satisfactory evidence thereof.
16. Relationship of the Parties
16.1. Pate's shall be deemed an independent contractor with respect to the
terms and provisions of this Agreement and it shall not in any respect act as an
agent or employee of DFC. All persons employed in connection with the
manufacture and/or supply of the Product shall be
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<PAGE> 14
employees or agents of Pate's and under no circumstances shall Pate's or any of
its employees or agents be deemed the employees or agents of DFC.
17. Term; Termination
17.1. This Agreement shall remain in effect indefinitely unless
terminated in accordance with this Section below:
17.1.1 Pate's may terminate this Agreement at any time upon giving
DFC ninety (90) days' notice.
17.1.2 Notwithstanding any other provision of this Agreement, either
party may terminate this Agreement immediately only if:
(a) the other party suspends or discontinues its business
operations; makes any assignment for the benefit of its creditors;
commences voluntary proceedings for liquidation in bankruptcy;
admits in writing its inability to pay its debts generally as they
become due or consents to the appointment of a receiver; trustee, or
liquidator of the other party or of all or any material part of its
property; or if there is an execution of a material portion of its
assets;
(b) the other party shall commence any case, proceeding, or
other action under any existing or future law of any jurisdiction,
domestic or foreign, relating to bankruptcy, insolvency,
reorganization, or relief of debtors seeking to have an order for
relief entered with respect to it, or seeking to adjudicate it a
bankrupt or insolvent, or seeking reorganization, arrangement,
adjustment, winding-up, liquidation, dissolution, composition, or
other relief with respect to its debts;
(c) there shall be commenced against the other party any case,
proceeding, or other action of a nature referred to in clause (b)
above which results in the entry of an order for relief or any such
adjudication or appointment or remains undismissed, undischarged,
unstayed, or unbonded for a period of ninety (90) days; or (ii)
there shall be commenced against the other party any case,
proceeding, or other action seeking issuance of a warrant of
attachment, execution, distraint, or similar process against all or
any substantial part of its assets, which results in the entry of an
order for any such relief which shall not have been vacated,
discharged, or stayed or bonded pending appeal within ninety (90)
days from the entry thereof; or (iii) the other party shall take any
action in furtherance of, or indicating its consent to, approval of,
or acquiescence in, any of the acts set forth in clause (i) or (ii)
above; or
(d) Pate's assigns its rights to a party who is at the time of
transfer involved as an adverse party in material and adverse
litigation against DFC.
17.1.3 Either party may terminate this Agreement after notice to the
other party only if the other party materially fails to comply with any
covenant of such other party in
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<PAGE> 15
this Agreement and such failure continues for more than thirty (30) days
after written notice thereof from such party.
17.1.4 DFC may terminate this Agreement three (3) years after any
transfer by Pate's of this Agreement, or the rights established herein,
whether by asset sale, merger, or business combination with any entity, or
by a stock sale to any entity wherein after the transfer the existing
owners of Pate's on the date of this Agreement own less than fifty percent
(50%) of the transferee.
17.2. Within ninety (90) days after the termination of this Agreement, for
any reason other than Pate's breach, DFC shall transfer out and pay for any raw
materials covered under the purchase portion of this Agreement; which are not
then being used by Pate's in a reasonable volume for another customer. DFC shall
transfer and pay out for such material in an amount up to but not to exceed a
ninety (90) day supply under this Agreement. At its option, DFC may place
additional orders with Pate's to consume existing stocks of such items.
Upon termination of this Agreement for any reason whatsoever, Pate's
shall deliver to DFC all Specifications, the Quality Assurance Manual, and
Technical Information, other confidential information, artwork, all premiums and
packaging materials purchased by DFC and all other materials, supplies, or
equipment provided by DFC. Pate's shall also deliver to DFC all Product
manufactured hereunder, and shall invoice DFC in accordance with the terms
hereof. Any Product on hold at the time of termination shall be disposed of in
accordance with the instructions of DFC.
17.3. Upon termination of this Agreement, copies of all DFC-related
records shall be disposed of in accordance with DFC's instructions. All such
records will be kept by Pate's for a minimum of three (3) years following
production, or such other time period as DFC may specify in writing.
18. Agency Fee and Warrant
18.1. In consideration for the services rendered in connection with the
termination of the Old Manufacture Agreement and the execution of this
Agreement, DFC hereby agrees to pay to American Pacific Financial Corp. an agent
fee in the aggregate amount of One Hundred Thousand Dollars ($100,000), payable
in full on the earlier of one hundred twenty (120) days following the date
hereof or ten (10) business days following the effective date of DFC's initial
public offering.
18.2. In consideration for the services rendered in connection with the
termination of the Old Manufacturing Agreement and the execution of this
Agreement, DFC hereby agrees to grant to Capital Foods L.L.C. on the Effective
Date a Warrant (the "Warrant") to purchase 100,000 shares of DFC's common stock
at an exercise price of $5.50 per share. The Warrant shall be granted on the
Effective Date, shall expire on the tenth (10th) anniversary of the Effective
Date, and shall be substantially in the form of Exhibit D attached hereto and by
this reference incorporated herein.
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<PAGE> 16
19. Applicable Law
19.1. This Agreement shall be construed in accordance with the laws of the
State of Illinois, without regard to its rules on conflicts of law. The parties
agree to sole jurisdiction and venue in any Federal or state court in Cook
County, Illinois, and each party hereby consents to the jurisdiction of such
courts over itself in any action relating to this Agreement. The parties further
agree that the prevailing party shall be entitled to recover from the
non-prevailing party reasonable expenses, including without limitation attorneys
fees and costs.
20. Notice; Designation
20.1. Unless otherwise indicated herein, all notices, requests, demands, or
other communications to the respective parties hereto shall be deemed to have
been given or made (a) when deposited in the mails, registered or certified
mail, return receipt requested, postage prepaid; or (b) if sent by means of
overnight delivery service, when delivered to such service, addressed to the
respective party at the following address:
The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, IL 60018
Attention: Michael J. Kirby
President and Chief Executive Officer
Telephone: 847-699-5900, Ext. 205
Facsimile: 847-699-5940
with a copy to:
Gordon & Glickson P.C.
444 North Michigan Ave.
Suite 3600
Chicago, Illinois 60611-3903
Attention: Philip Palmer McGuigan
Telephone: 312-321-7659
Facsimile: 312-321-9324
Pate's Bakery LLC
1450 Pate Plaza Road
South Beloit, IL 61080
Attention: General Manager
Telephone: 815-389-5068
Facsimile: 815-389-5064
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<PAGE> 17
with a copy to:
Fisher Thurber LLP
4225 Executive Square
Suite 1600
LaJolla, CA 92037
Attention: David A. Fisher
Telephone: 619-535-9400
Facsimile: 619-535-1616
20.2. If a specific contact person is designated in a provision, notice
concerning the subject matter of such provision shall be directed to such
person. The address or the name of any party or contact person may be changed by
sending notice in the manner set forth above. Unless otherwise indicated, if no
contact person is designated for a specific function as set forth in this
Agreement, the contact person for such function shall be the President and Chief
Executive Officer for DFC and the General Manager for Pate's.
21. Successors; Assignment
21.1. This Agreement shall inure to the benefit of and be binding upon the
successors and permitted assigns of the parties.
22. Modification; Nonwaiver; Severability
22.1. Neither this Agreement nor any part hereof may be changed, altered,
or amended orally. Any modification must be by written instrument signed by the
party against whom enforcement of the change, alteration, or amendment is
sought.
22.2. Failure by either party to exercise promptly any right granted
herein or to require strict performance of any obligation imposed hereunder
shall not be deemed a waiver of such rights.
22.3. If any provision of the Agreement is held ineffective for any
reason, the other provisions shall remain effective.
IN WITNESS WHEREOF, the parties hereto have caused this Manufacturing
Agreement to be duly executed by their duly authorized officers as of the day
and year first above written.
PATE'S BAKERY LLC THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Robert D. Long By: /s/ Michael Kirby
--------------------------------- ------------------------------------
Manager President
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<PAGE> 18
LIST OF EXHIBITS
EXHIBIT A PRODUCT PRICE LIST
EXHIBIT B APPROVED SUPPLIERS
EXHIBIT C FORM OF CONFIDENTIALITY AGREEMENT
EXHIBIT D FORM OF WARRANT
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<PAGE> 19
NEITHER THIS WARRANT NOR THE SHARES ISSUABLE UPON EXERCISE OF THIS WARRANT HAVE
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE LAWS
OF ANY STATE, AND THUS MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION UNDER SUCH LAWS OR AN OPINION OF COUNSEL ACCEPTABLE TO
THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS NOT REQUIRED.
WARRANT
Warrant to purchase
100,000
Warrant Shares (subject
to adjustment)
THE DELICIOUS FROOKIE COMPANY, INC.
a Delaware corporation
The Delicious Frookie Company, Inc., a Delaware Corporation (the
"Company"), for value received, hereby grants to Capital Foods LLC, a Nevada
limited liability company, or any "Person" (as hereinafter defined) to whom this
Warrant may be transferred (the "Holder"), the right, subject to the terms and
conditions set forth herein, to purchase from the Company, at any time and from
time to time, up to one hundred thousand (100,000) duly authorized, validly
issued, fully paid and non-assessable shares of the Common Stock, $______ par
value, of the Company (the "Common Stock"), at an initial purchase price on a
per share basis (the "Exercise Price"), subject to adjustment as provided in
Section 3 hereof, equal to Five Dollars and Fifty Cents ($5.50); provided,
however, that this Warrant must be exercised, if at all, in whole or in part, on
or before the tenth (10th) anniversary of the date of issuance of this Warrant.
The number and character of the securities purchasable upon exercise of such
rights of purchase, and the Exercise Price, are subject to adjustment as
provided herein. The term "Warrant" as used herein shall include this Warrant,
any Warrant issued in substitution for or replacement of this Warrant, or any
Warrant into which this Warrant may be divided or exchanged. The term "Warrant
Shares" shall mean the Common Stock issuable upon exercise of this Warrant. For
purposes hereof, the term "Person" shall include any natural person,
corporation, limited liability company, joint venture, partnership, trust or
other entity.
1. METHOD OF EXERCISE; PAYMENT OF EXERCISE PRICE
(a) Subject to the other terms and conditions of this Warrant, the purchase
rights evidenced by this Warrant may be exercised in whole or, from time to
time, in part, at the times and subject to the conditions set forth above, by
the Holder's presentation of this Warrant to the Company at its principal
offices, accompanied by a duly executed Notice of Exercise, in the form attached
hereto as Exhibit A and by this reference incorporated herein, and by payment of
the aggregate Exercise Price in the manner specified in Section 1(b) hereof, for
the number of Warrant Shares specified in the Notice of Exercise.
<PAGE> 20
(b) The aggregate Exercise Price for the number of Warrant Shares specified in
any Notice of Exercise may be paid at the Holder's election either: (i) in cash
by certified check or wire transfer of immediately available funds; or (ii) by
surrender of the Warrant as provided in this subsection (b) (a "Net Issuance").
If the Holder elects the Net Issuance method, the Company will issue Warrant
Shares in accordance with the following formula:
X = Y(A-B)/A
Where: X = the number of Warrant Shares to be issued to the Holder
Y = the number of Warrant Shares for which this Warrant is requested
to be exercised
A = the "Current Fair Market Value" of one share of Common Stock
B =the Exercise Price
As used herein, the "Current Fair Market Value" of one share of Common Stock,
shall mean:
(i) if the exercise of the Warrant is in connection with the first primary
offering of Common Stock by means of a registration statement filed by the
Company in accordance with the Securities Act of 1933, as amended (or any
successor Federal statute) which offering does not exclusively relate to
securities under an employee stock option, bonus or other compensation plan (the
"Initial Public Offering"), and if the Company registration statement relating
to the Initial Public Offering has been declared effective by the Securities and
Exchange Commission, then the initial "price to public" specified in the final
prospectus with respect to the Initial Public Offering; or
(ii) if the exercise of the Warrant is not in connection with, or is
after, the Initial Public Offering, then:
(1) If traded on a securities exchange or the Nasdaq National Market
System, the value shall be deemed to be the average of the closing prices
of the securities on such exchange over the 30-day period ending three
business days prior to the date of exercise;
(2) If actively traded over-the-counter, the value shall be deemed
to be the average of the closing bid or sale prices (whichever are
applicable) over the 30-day period ending three business days prior to the
date of exercise; and
(3) If there is no active public market, the value shall be the fair
market value thereof, as determined in good faith by the Company's Board
of Directors.
(c) In the event of any exercise of the rights represented by this
Warrant, certificates for the Warrant Shares so purchased shall be dated the
date of such exercise and delivered to the Holder hereof within a reasonable
time, not exceeding fifteen (15) days after such exercise. If this Warrant is
exercised in part only, as soon as is practicable after the presentation and
surrender of this Warrant to the Company for exercise, the Company shall execute
and deliver to the Holder a new Warrant, containing the same terms and
conditions as this Warrant, evidencing the right of the Holder to purchase the
number of Warrant Shares as to which this Warrant has not been exercised. Upon
receipt of this Warrant by the Company at its principal offices accompanied by
the items required for
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<PAGE> 21
exercise specified in subsection (a) above, the Holder shall be deemed to be the
holder of record of the Warrant Shares issuable upon such exercise and a
stockholder of the Company, notwithstanding that the stock transfer books of the
Company may then be closed or that certificates representing such Warrant Shares
may not then be actually delivered to the Holder.
2. EXCHANGE, ASSIGNMENT OR LOSS OF WARRANT
(a) Any sale, transfer, assignment or hypothecation of this Warrant,
whether in whole or in part, must be in compliance with Section 5 hereof. Any
assignment, transfer or hypothecation of this Warrant, whether in whole or in
part, shall be made by the presentation and surrender of this Warrant to the
Company at its principal offices, accompanied by a duly executed Assignment
Form, in the form attached hereto as Exhibit B and by this reference
incorporated herein. Upon the presentation and surrender of these items to the
Company, in the event the Warrant is being transferred in its entirety, the
Company, at its sole expense, shall execute and deliver to the new Holder or
Holders a new Warrant or Warrants, containing the same terms and conditions as
this Warrant, in the name of the new Holder or Holders as named in the
Assignment Form, and this Warrant shall at that time be canceled, and, in the
event the Warrant is being transferred in part, the Company, at its sole
expense, shall execute and deliver to the new Holder or Holders a new Warrant or
Warrants, containing the same terms and conditions as this Warrant, in the name
of the new Holder or Holders as named in the Assignment Form, and to the Holder
of this Warrant, a new Warrant, containing the same terms and conditions as this
Warrant, evidencing the right of the Holder to purchase the number of Warrant
Shares as to which this Warrant was not transferred.
(b) This Warrant, alone or with any other Warrant owned by the same Holder
containing substantially the same terms and conditions, is exchangeable at the
option of the Holder but at the Company's sole expense, at any time prior to its
expiration either by its terms or by its exercise in full, upon presentation and
surrender to the Company at its principal offices, for another Warrant or other
Warrants, of different denominations but containing the same terms and
conditions as this Warrant, entitling the Holder to purchase the same aggregate
number of Warrant Shares that were purchasable pursuant to the Warrant or
Warrants presented and surrendered. At the time of presentation and surrender by
the Holder to the Company, the Holder shall also deliver to the Company a
written notice, signed by the Holder, specifying the denominations in which new
Warrants are to be issued to the Holder.
(c) The Company shall execute and deliver to the Holder a new Warrant
containing the same terms and conditions as this Warrant upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Warrant, provided that: (i) in the case of
loss, theft or destruction, the Company receives from the Holder a reasonably
satisfactory indemnification; and (ii) in the case of mutilation, the Company
receives from the Holder a reasonably satisfactory form of indemnity and the
Holder presents and surrenders this Warrant to the Company for cancellation. Any
new Warrant executed and delivered shall constitute an additional contractual
obligation on the part of the Company regardless of whether the Warrant that was
lost, stolen, destroyed, or mutilated is enforceable by anyone at any time.
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<PAGE> 22
(d) The Company will, at the time of or at any time after each exercise of
this Warrant, upon the request of the Holder hereof or of any Warrant Shares
issued upon such exercise, acknowledge in writing its continuing obligation to
afford to such Holder all rights to which such Holder shall continue to be
entitled after such exercise in accordance with the terms of this Warrant,
provided, that if any such Holder shall fail to make any such request, the
failure shall not affect the continuing obligation of the Company to afford such
rights to such Holder.
3. ADJUSTMENTS OF EXERCISE PRICE
(a) Except as provided herein, upon the occurrence of any of the events
specified in this Section 3, the Exercise Price in effect at the time of such
event and the number of Warrant Shares then purchasable pursuant to this Warrant
at that time shall be proportionately adjusted as provided herein.
(b) If the Company shall issue any Common Stock or securities exercisable
for or convertible into Common Stock other than Excluded Stock, for a
consideration per share less than the applicable Exercise Price in effect
immediately prior to the issuance of such Common Stock (excluding stock
dividends, subdivisions, split-ups, combinations, dividends or recapitalizations
which are covered by Section 3(c), (d), and (e)), the Exercise Price in effect
immediately after each such issuance shall forthwith (except as provided in this
Section 3) be reduced by the full amount by which the Exercise Price for each
such Warrant Share then in effect exceeds the issue price per share of such
additional issued Common Stock. For purposes of this Section 3 the term Excluded
Stock shall include all securities issued or issuable under the Company's
existing and future stock option plans and any warrants to purchase the
Company's securities outstanding on the date hereof.
(c) If the number of shares of Common Stock outstanding at any time after
the date hereof is increased by a stock dividend payable in shares of Common
Stock or by a subdivision or split-up of shares of Common Stock, then, on the
date such payment is made or such change is effective, the Exercise Price shall
be appropriately decreased so that the number of Warrant Shares issuable on
exercise of this Warrant shall be increased in proportion to such increase of
outstanding shares.
(d) If the number of shares of Common Stock outstanding at any time after
the date hereof is decreased by a combination of the outstanding shares of
Common Stock, then, on the effective date of such combination, the Exercise
Price shall be appropriately increased so that the number of Warrant Shares
issuable on exercise of this Warrant shall be decreased in proportion to such
decrease in outstanding shares.
(e) In case of any capital reorganization, or any reclassification of the
stock of the Company (other than as a result of a stock dividend or subdivision,
split-up or combination of shares), the Warrant shall, after such capital
reorganization or reclassification, be exercisable into the kind and number of
shares of stock or other securities or property of the Company or otherwise to
which such Holder would have been entitled if immediately prior to such capital
reorganization or reclassification such Holder had exercised this Warrant. The
provisions of this clause (e) shall similarly apply to successive
reorganizations and reclassifications.
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<PAGE> 23
(f) All calculations under this Section 3 shall be made to the nearest one
hundredth (1/100) cent or to the nearest one hundredth (1/100) of a share, as
the case may be. In no event shall the Exercise Price be reduced to less than
$.01.
(g) No adjustment in the Exercise Price need be made if such adjustment
would result in a change in the Exercise Price of less than $0.01. Any
adjustment of less than $0.01 which is not made shall be carried forward and
shall be made at the time of and together with any subsequent adjustment which,
on a cumulative basis, amounts to an adjustment of $0.01 or more in the Exercise
Price.
(h) The Company will not, by amendment of its Articles of Incorporation or
otherwise, through any reorganization, recapitalization, transfer of assets,
consolidation, merger, dissolution, issue or sale of securities or any other
voluntary action, avoid or seek to avoid the observance or performance of any of
the terms to be observed or performed hereunder by the Company, but will at all
times in good faith assist in the carrying out of all the provisions of this
Section 3 and in the taking of all such action as may be necessary or
appropriate in order to protect the exercise rights of the Holder hereof against
impairment.
(i) Upon the occurrence of each adjustment or readjustment of the Exercise
Price pursuant to this Section 3, the Company at its expense shall promptly
compute such adjustment or readjustment in accordance with the terms hereof and
prepare and furnish to the Holder hereof a certificate setting forth such
adjustment or readjustment and showing in detail the facts upon which such
adjustment or readjustment is based. The Company shall, upon written request at
any time of any Holder hereof, furnish or cause to be furnished to such Holder a
like certificate setting forth (i) such adjustments and readjustments, (ii) the
Exercise Price at the time in effect, and (iii) the number of Warrant Shares and
the amount, if any, of other property which at the time would be received upon
the exercise of this Warrant.
(j) In the event of any taking by the Company of a record of the holders
of any class of securities for the purpose of determining the holders thereof
who are entitled to receive any dividend (other than a cash dividend) or other
distribution, any right to subscribe for, purchase or otherwise acquire any
shares of stock of any class or any other securities or property or to receive
any right, the Company shall mail to the Holder hereof at least ten (10) days
prior to such record date, a notice specifying the date on which any such record
is to be taken for the purpose of such dividend or distribution or right, and
the amount and character of such dividend, distribution or right.
(k) For purposes of this Section 3, equity securities owned or held at any
relevant time by or for the account of the Company in its treasury shall not be
deemed to be outstanding for purposes of the calculations and adjustments
described.
4. STOCK FULLY PAID; RESERVATION OF WARRANT STOCK
The Company covenants and agrees that all Warrant Shares that may be
issued upon the exercise of this Warrant will, upon issuance, be fully paid and
non-assessable and free from all taxes, liens and charges with respect to
issuance (excluding taxes based on the income of Holder).
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<PAGE> 24
The Company further covenants and agrees that during the period within which
this Warrant may be exercised, the Company will at all times have authorized and
reserved for the purpose of the issue upon exercise of the rights evidenced by
this Warrant a sufficient number of shares of Common Stock to provide for the
exercise of this Warrant.
5. TRANSFER TO COMPLY WITH THE SECURITIES ACT OF 1933
(a) This Warrant, the Warrant Shares, and all other equity securities
issued or issuable upon exercise of this Warrant, may not be offered, sold or
transferred, in whole or in part, in the absence of an effective registration
statement under the Securities Act of 1933, as amended (the "Act"), and all
applicable state securities statutes, or an opinion of counsel acceptable to the
Company to the effect that such registration is not required.
(b) The Company shall cause the following legend to be set forth on each
certificate representing this Warrant, the Warrant Shares, or any other equity
security issued or issuable upon exercise of this Warrant, not theretofore
distributed to the public or sold to underwriters, as defined in the Act:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933 OR UNDER THE LAWS OF ANY STATE, AND MAY NOT BE SOLD OR TRANSFERRED IN
THE ABSENCE OF AN EFFECTIVE REGISTRATION UNDER SUCH LAWS OR AN OPINION OF
COUNSEL ACCEPTABLE TO THE COMPANY TO THE EFFECT THAT SUCH REGISTRATION IS
NOT REQUIRED."
6. FRACTIONAL SHARES
No fractional shares of Warrant Stock or scrip representing fractional
shares of Warrant Stock shall be issued upon the exercise of all or any part of
this Warrant. With respect to any fraction of a unit or any security called for
upon any exercise of this Warrant, the Company shall pay to the Holder an amount
in money equal to that fraction multiplied by the "current fair market value" of
that share, reasonably determined in accordance with Section 1 hereof.
7. RIGHTS OF THE HOLDER
The Holder shall not be entitled to vote on any and all matters for which
a holder of Common Stock is entitled to vote. Except as specifically provided in
this Warrant, the Holder shall not be entitled to any other rights as a
stockholder of the Company by reason of this Warrant, either at law or equity.
8. NOTICES
Except as may be otherwise expressly provided herein, any notice, consent,
or other communication required or permitted to be given hereunder shall be in
writing and shall be deemed to have been given: (i) three days after the date
sent by United States certified mail, return receipt requested, with proper
postage thereon; (ii) one day after sent if sent by overnight courier of
national cognition; or (iii) when transmitted or delivered, if sent by facsimile
or personally delivered (as the case may be), and shall be addressed as follows:
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<PAGE> 25
(a) if to the Company, at 2720 River Road, Suite 126, Des Plaines, IL
60018, Attention: Chief Executive Officer; and
(b) if to the Holder, at _______________________________________________.
Attention: ______________________,
or, in any such case, at such other address or addresses as shall have been
furnished in writing by such party to the others.
9. APPLICABLE LAW
Illinois law shall govern the interpretation, construction, and
enforcement of this Warrant and all transactions and agreements contemplated
hereby, notwithstanding any state's choice of law rules to the contrary. Any
litigation related to this Warrant may be maintained only in the Federal
district court for the Northern District of Illinois (or any successor
jurisdiction) or in an Illinois state court in Cook County, and each party
hereby irrevocably consents and submits to the jurisdiction of that Federal or
state court and irrevocably waives any objection the party may have based upon
improper venue, forum non conveniens, or other similar doctrines or rules.
10. MISCELLANEOUS PROVISIONS
(a) Subject to the terms and conditions contained herein, this Warrant
shall be binding on the Company and its successors and shall inure to the
benefit of the original Holder, its successors and assigns and all holders of
Warrant Shares.
(b) This Warrant may not be modified or terminated, nor may any
performance or condition hereof be waived in whole or in part except by an
agreement in writing signed by the party against whom enforcement of such
modification, termination, or waiver is sought.
(c) If any provision of this Warrant is held by a court of competent
jurisdiction to be invalid, illegal or unenforceable, such provision shall be
severed, enforced to the extent possible, or modified in such a way as to make
it enforceable, and the invalidity, illegality or unenforceability thereof shall
not affect the remainder of this Warrant.
(d) Paragraph headings used in this Warrant are for convenience only and
shall not be taken or construed to define or limit any of the terms or of this
Warrant. Unless otherwise provided herein, or unless the context otherwise
requires, the use of the singular shall include the plural and the use of any
gender shall include all genders.
ISSUED and executed this _____ day of March, 1998.
THE DELICIOUS FROOKIE COMPANY, INC.
By: ____________________________________________
Its: ___________________________________________
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<PAGE> 26
EXHIBIT A
NOTICE OF EXERCISE
(To be executed by a Holder desiring to exercise the right to purchase Warrant
Shares pursuant to the Warrant.)
The undersigned Holder of the Warrant hereby:
(i) irrevocably elects to exercise the Warrant to the extent of
purchasing ______________ Warrant Shares;
(ii) (a) |_| makes payment in full of the aggregate Exercise Price for
those Warrant Shares in the amount of $__________ by certified check
or wire transfer of immediately available funds; or (b) |_| elects
to exercise a Net Issuance for those Warrant Shares;
(iii) requests that a certificate for such Warrant Shares be issued in the
name of the undersigned or, if the name and address of some other
person is specified below, in the name of such other person:
____________________________________________________________________
____________________________________________________________________
____________________________________________________________________
(Name and address of person other than the undersigned in whose name
Warrant Shares are to be registered.)
(iv) requests, if the number of Warrant Shares transferred are not all
the Warrant Shares purchasable pursuant to the unexercised portion
of the Warrant, that a new Warrant of like tenor for the remaining
Warrant Shares purchasable pursuant to the Warrant be issued and
delivered to the undersigned at the address indicated below.
Dated: ________________ Holder:_______________________________
By:__________________________________
Its:__________________________________
Address:______________________________
______________________________________
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<PAGE> 27
EXHIBIT B
ASSIGNMENT FORM
FOR VALUE RECEIVED, the undersigned, _________________________, hereby sells,
assigns and transfers unto:
Name:__________________________________________________________________________
(Please type or print)
Address:_______________________________________________________________________
the right to purchase _____ Warrant Shares pursuant to terms and conditions of
the Warrant held by the undersigned. The undersigned hereby authorizes and
directs the Company (i) to issue and deliver to the above-named assignee at the
above address a new Warrant pursuant to which the rights to purchase being
assigned may be exercised, and (ii) if there are rights to purchase Warrant
Shares remaining pursuant to the undersigned's Warrant after the assignment
contemplated herein, to issue and deliver to the undersigned at the address
stated below a new Warrant covering such remaining rights. Except for the number
of Warrant Shares purchasable, the new Warrants to be issued and delivered by
the Company are to contain the same terms and conditions as the undersigned's
Warrant. To complete the assignment contemplated by this Agreement Form, the
undersigned hereby irrevocably constitutes and appoints the Company as the
undersigned's attorney-in-fact to transfer the Warrants and the rights
thereunder on the books of the Company, with full power of substitution for
these purposes.
Dated: ________________ Holder:_______________________________
By:__________________________________
Its:__________________________________
Address:______________________________
______________________________________
<PAGE> 1
Exhibit 10.29
April 3, 1998 $1,500,000
Non-Negotiable Promissory Note
The Delicious Frookie Company, Inc., a Delaware corporation
("Borrower"), for value received hereby promises to pay to Salerno Foods,
L.L.C., a Delaware limited liability company ("Noteholder"), by wire transfer of
immediately available funds the principal sum of One Million Five Hundred
Thousand Dollars ($1,500,000) ("Note Amount"), as provided herein in such coin
or currency of the United States of America as at the time of payment shall be
legal tender for the payment of public and private debts.
This Note (the "Note") is issued to evidence the obligation to pay
the balance of the purchase price owed to Noteholder by Borrower pursuant to
that certain Asset Purchase Agreement (the "Agreement"), dated April 3, 1998, by
and between Borrower and Noteholder.
1. Terms of Note. Interest on the Note Amount shall accrue at a rate
of 12% per annum. The Note Amount, plus all interest accrued thereon, shall be
due and payable on the earlier of (i) 120 days from date first written above, or
(ii) consummation of an initial public offering of Borrower's common stock, $.01
par value per share, or other recapitalization (whether through one transaction
or a series of transactions) of the Borrower (whether through a private
placement or otherwise) from which Borrower receives (whether from such one
transaction or on a cumulative basis from such seires of transactions) gross
proceeds of at least $7,000,000, or (iii) a sale or other transfer of all or
substantially all of the assets or equity interests in the Borrower.
2. Transfer. This Note is not assignable or transferable by Borrower
or Noteholder.
3. No Waiver. No failure on the part of Noteholder to exercise, and
no delay in exercising, any right hereunder shall operate as a waiver thereof;
nor shall any single or partial exercise of any right hereunder preclude any
other or further exercise thereof or the exercise of any other right. The
remedies herein provided are cumulative and not exclusive of any remedies
provided by law.
4. Costs; Expenses. Upon the occurrence of an Event of Default or at
any time thereafter, the Borrower promises to pay all costs of collection of
this Note including, but not limited to, reasonable attorney's fees paid or
incurred by Noteholder on account of such
<PAGE> 2
collection, whether or not suit is filed with respect thereto and whether such
cost or expense is paid or incurred, or to be paid or incurred, prior to or
after the entry of judgment.
5. Amendment. No amendment or waiver of any provision of this Note,
nor consent to any departure by Borrower herefrom, shall in any event be
effective unless the same shall be in writing and signed by Noteholder and then
such waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
6. Waivers. Borrower hereby waives all rights of setoff and
counterclaims which may arise under the Agreement or otherwise and all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor and notices of acceptance of this Note,
and all other demands whatsoever, and covenants that this Note will not be
discharged except by complete payment in full in cash.
7. Events of Default. As used herein, the term "Event of Default"
shall mean and include any one or more of the following events:
(i) Borrower shall fail to pay the Note Amount, and all interest
accrued thereon, on or before the due date hereof.
(ii) Borrower shall file a petition in bankruptcy or for
reorganization or for an arrangement pursuant to any present
or future state or federal bankruptcy act or under any similar
federal or state law (hereinafter "Bankruptcy Law"), or shall
be adjudicated a bankrupt or insolvent, or shall make a
general assignment for the benefit of its creditors, or shall
be unable to pay its debts generally as they become due; or,
if an order for relief under any bankruptcy law shall be filed
in any court and such petition or answer shall not be
discharged or denied within sixty (60) days after the filing
thereof; or, if a receiver, trustee or liquidator of Borrower
or of all or substantially all of the assets of Borrower shall
be appointed in any proceeding brought against Borrower and
shall not be discharged within sixty (60) days of such
appointment or if Borrower shall consent to or acquiesce in
such appointment; or
(iii) the Borrower shall liquidate, dissolve, terminate or suspend
its business operations.
8. Acceleration. Upon the occurrence of an Event of Default, the
entire Note Amount, and all interest accrued thereon, shall at once become due
and payable at the option of Noteholder, upon written notice to Borrower.
Noteholder may exercise this option to accelerate during any Event of Default by
Borrower regardless of any prior forbearance.
9. Prepayment. Borrower may prepay the Note Amount, and all interest
accrued thereon, in full or in part without penalty at any time. Any partial
prepayment shall be
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<PAGE> 3
applied against the Note Amount outstanding and shall not postpone the due date
hereof, unless Noteholder shall otherwise agree in writing.
10. Application of Payments. All payments and prepayments shall, at
the option of Noteholder, be applied first to any costs of collection and second
to any accrued interest and principal on this Note.
11. Notices. All notices, requests, demands and other communications
which are required or may be given under this Note shall be given pursuant to
the terms and at the addresses set forth in Section 10.2 of the Agreement.
12. Governing Law; Forum. THIS NOTE AND THE LEGAL RELATIONS BETWEEN
THE PARTIES HERETO SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE
LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW RULES OF SUCH
STATE. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF ANY ILLINOIS STATE COURT OR FEDERAL COURT SITTING IN THE STATE
OF ILLINOIS OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR RELATING TO THIS
NOTE AND THE TRANSACTIONS CONTEMPLATED HEREBY AND EACH OF THE PARTIES HERETO
HEREBY IRREVOCABLY AGREES THAT ALL CLAIMS IN RESPECT OF SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH ILLINOIS STATE OR FEDERAL COURT.
EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
LEGALLY POSSIBLE, THE DEFENSE OF AN INCONVENIENT FORUM TO THE MAINTENANCE OF
SUCH ACTION OR PROCEEDING.
IN WITNESS WHEREOF, the Borrower has caused this Note to be executed
as of the date first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
------------------------------------
Name: Michael Kirby
Title: President
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<PAGE> 1
EXHIBIT 10.30
SECURITY AGREEMENT
This SECURITY AGREEMENT (this "Security Agreement") is made as of
this 3rd day of April 1998, by The Delicious Frookie Company, Inc., a Delaware
corporation ("Buyer"), in favor of Salerno Foods, L.L.C., a Delaware limited
liability company ("Seller").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement of even
date herewith by and between Buyer and Seller (as the same may from time to time
be amended, restated, modified or supplemented, the "Purchase Agreement"),
Seller has sold to Buyer substantially all of the assets of Seller in
consideration for certain cash, the assumption of certain liabilities, and a
certain Promissory Note of even date herewith in the original principal amount
of $1,500,000 made in favor of Seller (the "Purchase Note"); and
WHEREAS, Seller has required Buyer to execute and deliver this
Security Agreement as security for the Purchase Note.
NOW, THEREFORE, in consideration of the premises and of the mutual
covenants contained and for other good and valuable consideration, the receipt
and sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
1. Obligations Secured. The principal, interest, and indebtedness
evidenced by the Purchase Note plus all fees, costs and expenses (including,
without limitation, all court costs and reasonable attorneys' fees, costs and
expenses) paid or incurred by Seller in endeavoring to collect all or any part
of the obligations evidenced by the Purchase Note and taking any action with
respect to the collateral securing the Purchase Note (the "Obligations").
2. Grant of Security Interest. (i) To secure the full and prompt
payment and performance of the Obligations, Buyer hereby grants to Seller a
right of setoff against and a continuing security interest in and to the
following property and interests in property of Buyer, whether now owned and
existing or hereafter acquired or arising and wheresoever located: accounts,
goods, contract rights, chattel paper, instruments, documents, inventory,
equipment, general intangibles (including, without limitation, inventions,
designs, patents, patent applications, the trademarks and trademark applications
listed on Exhibit A hereto, trade names, trade secrets, goodwill, licenses,
franchises, tax refund claims, guaranty claims, rights and claims against
shippers and carriers, and security interests or other security held by Buyer),
tax refunds, rights to other refunds and indemnification, machinery, furniture
and fixtures, together with all accessions and additions to, products,
replacements and proceeds (including, without limitation, proceeds of insurance
policies insuring the same) of,
<PAGE> 2
and substitutions for any of the foregoing property and interests in property
and all of Buyer's books and records related to any of the foregoing property
(collectively, the "Collateral").
(ii) Buyer will execute and deliver to Seller such financing
statements and amendments thereof and supplements thereto, and such other
instruments as Seller may from time to time require (and will pay all costs of
filing the same), and will take such other actions as Seller may request, in
order to perfect, preserve, protect and maintain the security interests hereby
granted. Seller may file one or more financing statements disclosing Seller's
security interest under this Security Agreement without Buyer's signature
appearing thereon if, promptly following Seller's request, Buyer has not
executed and delivered to Seller any such financing statement. Buyer further
agrees that a carbon, photographic, photostatic or other reproduction of this
Security Agreement or of a financing statement is sufficient as a financing
statement.
(iii) If Buyer shall at any time hereafter acquire any interest in
real property, whether as owner, lessee or otherwise, Buyer shall execute and
deliver to Seller, at Seller's request, such instruments and documents as Seller
may request to grant Seller a lien on such real property interest, and shall
reimburse Seller for the cost of recording the same.
3. Obligations Unconditional. Buyer hereby agrees that its
obligations and security interests granted under this Security Agreement shall
be unconditional, irrespective of:
(i) the validity, enforceability, avoidance or subordination of any
of the Obligations;
(ii) the absence of any attempt by, or on behalf of, Seller to
collect, or to take any other action to enforce, all or any part of the
Obligations whether from or against Buyer, any guarantor of the
Obligations or any other person or entity which may become responsible for
repayment of the Obligations;
(iii) the election of any remedy by, or on behalf of, Seller with
respect to all or any part of the Obligations;
(iv) the waiver, consent, extension, forbearance or granting of any
indulgence by, or on behalf of, Seller with respect to the Obligations;
(v) the failure of Seller to take any steps to perfect and maintain
its security interest in, or to preserve its rights to, any security or
collateral for the Obligations;
(vi) the election by, or on behalf of, Seller, in any proceeding
instituted under Chapter 11 of Title 11 of the
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<PAGE> 3
United States Code (11 U.S.C. 101 et seq.) (the "Bankruptcy Code"), of the
application of Section 1111(b)(2) of the Bankruptcy Code;
(vii) the disallowance, under Section 502 of the Bankruptcy Code, of
all or any portion of the claims of Seller for repayment of all or any
part of the Obligations;
(viii) the assumption, assignment, or endorsement of the Purchase
Note; or
(ix) any other circumstance which might otherwise constitute a legal
or equitable discharge or defense of Buyer.
4. Enforcement; Application of Payments. (i) Upon the occurrence of
an "Event of Default" (as defined below), Seller may proceed directly and at
once, without notice, against Buyer to obtain performance of and to collect and
recover the full amount, or any portion, of the Obligations, without first
proceeding against any other person or entity, or against any other security or
collateral for the Obligations.
(ii) Seller shall have, in addition to all other rights and remedies
provided for herein or otherwise available to Seller under applicable law, all
the rights and remedies of a secured party under the Uniform Commercial Code
("UCC") as in effect in the State of Illinois with respect to the Collateral,
which rights and remedies shall be cumulative and not exclusive to the extent
permitted by law. Seller shall have the right to remove any and all of the
Collateral from Buyer's premises ("Premises") and/or to assemble and store the
Collateral on the Premises, and otherwise to operate, occupy and use the
Premises, in connection with public or private sales of the Collateral, all
without cost to Seller. At Seller's request, Buyer will, at Buyer's expense,
assemble the Collateral at one or more places, reasonably convenient to both
parties, where the Collateral may, at Seller's option, remain at Buyer's
expense, pending sale or other disposition thereof. In no event shall Seller be
liable to Buyer or any other person for any warranty, expense or charge at any
time incurred or arising in connection with any sale pursuant to this paragraph
of any of the Collateral and Buyer shall indemnify Seller in respect of any and
all such amounts. Buyer acknowledges that any breach by Buyer of any of the
provisions of this paragraph will cause irreparable injury to Seller and that
there is no adequate remedy at law for a breach of the provisions of this
paragraph. Seller shall have the immediate right, upon such breach, to obtain
injunctive and other equitable relief in any court of competent jurisdiction
without any requirement of notice, and that the granting of any such relief
shall not preclude Seller from pursuing any other available relief or remedies
for such breach.
(iii) An "Event of Default" shall mean (A) any payment of
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<PAGE> 4
principal or interest under the Purchase Note shall remain unpaid 30 days after
the same shall have become due and payable; (B) Buyer admits in writing in any
proceeding its inability to pay its debts generally as they become due, or makes
a general assignment for the benefit of creditors; (C) any proceeding is
instituted by Buyer seeking to adjudicate it a bankrupt or insolvent, or seeking
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency or reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, or other similar
official for it or for any substantial part of its property; (D) there shall be
commenced against Buyer any case, proceeding or other action of a nature
referred to in clause (C) which results in the entry of an order for relief or
any adjudication that it is bankrupt or insolvent or which remains undismissed,
undischarged, unstayed or unbounded for period of at least 60 days, or (E) Buyer
takes any corporate action to authorize any of the actions set forth in this
paragraph.
5. Waivers. (i) Buyer hereby waives diligence, presentment, demand
of payment, filing of claims with a court in the event of receivership or
bankruptcy of any endorser or guarantor of the Obligations, protest or notice
with respect to the Obligations, all setoffs and counterclaims and all
presentments, demands for performance, notices of nonperformance, protests,
notices of protest, notices of dishonor and notices of acceptance of this
Security Agreement, the benefits of all statutes of limitation, and all other
demands whatsoever, and covenants that this Security Agreement will not be
discharged, except by complete payment (in cash) and performance of the
Obligations and any other obligations contained herein. Buyer further waives all
notices that the principal amount, or any portion thereof, and/or any interest
on any instrument or document evidencing all or any part of the Obligations is
due, notices of any and all proceedings to collect from any endorser or any
other guarantor of all or any part of the Obligations, or from any other person
or entity, and, to the extent permitted by law, notices of exchange, sale,
surrender or other handling of any security or collateral given to Seller to
secure payment of all or any part of the Obligations.
(ii) Seller is hereby authorized, without notice or demand and
without affecting the liability of Buyer hereunder, from time to time, (a) to
renew, extend, accelerate or otherwise change the time for payment of, or other
terms relating to, all or any part of the Obligations, or to otherwise modify,
amend or change the terms of the Purchase Note; (b) to accept partial payments
on all or any part of the Obligations; (c) to take and hold security or
collateral for the payment of all or any part of the Obligations, this Security
Agreement, or any other guaranties of all or any part of the Obligations, (d) to
exchange, enforce, waive and release any such security or collateral; (e) to
apply such
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<PAGE> 5
security or collateral and direct the order or manner of sale thereof as in its
discretion it may determine; (f) to settle, release, exchange, enforce, waive,
compromise or collect or otherwise liquidate all or any part of the Obligations,
this Security Agreement, any guaranty of all or any part of the Obligations, and
any security or collateral for the Obligations or for any such guaranty. Any of
the foregoing may be done in any manner, without affecting or impairing the
obligations of Buyer hereunder.
6. Financial Information. Buyer hereby assumes responsibility for
keeping itself informed of the financial condition of any and all endorsers
and/or other guarantors of all or any part of the Obligations, and of all other
circumstances bearing upon the risk of nonpayment of the Obligations, or any
part thereof, that diligent inquiry would reveal, and Buyer hereby agrees that
Seller shall have no duty to advise Buyer of information known to it regarding
such condition or any such circumstances.
7. No Marshaling; Reinstatement. Buyer consents and agrees that
neither Seller nor any person or entity acting for or on behalf of Seller shall
be under any obligation to marshal any assets in favor of Buyer or against or in
payment of any or all of the Obligations. Buyer further agrees that, to the
extent that Buyer or any endorser or guarantor of all or any part of the
Obligations makes a payment or payments to Seller, or Seller receives any
proceeds of Collateral, which payment or payments or any part thereof are
subsequently invalidated, declared to be fraudulent or preferential, set aside
and/or required to be repaid to Buyer, such endorser, such guarantor or any
other person or entity, or their respective estates, trustees, receivers or any
other party, including, without limitation, Buyer, under any bankruptcy law,
state or federal law, common law or equitable cause, then, to the extent of such
payment or repayment, the part of the Obligations which has been paid, reduced
or satisfied by such amount shall be reinstated and continued in full force and
effect as of the time immediately preceding such initial payment, reduction or
satisfaction.
8. Subrogation. Until the Obligations have been paid in full, Buyer
(i) shall not exercise any right of subrogation, if any, with respect to such
Obligations and (ii) waives any right to enforce any remedy which Seller now has
or may hereafter have against any endorser or any guarantor of all or any part
of the Obligations or any other person or entity, and Buyer waives any benefit
of, and any right to participate in, any security or collateral given to Seller
to secure the payment or performance of all or any part of the Obligations.
9. Enforcement; Amendments; Waivers. No delay on the part of Seller
in the exercise of any right or remedy arising under
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<PAGE> 6
this Security Agreement or otherwise with respect to all or any part of the
Obligations, the Collateral or any other guaranty of or security for all or any
part of the Obligations shall operate as a waiver thereof, and no single or
partial exercise by Seller of any such right or remedy shall preclude any
further exercise thereof. No modification or waiver of any of the provisions of
this Security Agreement shall be binding upon Seller, except as expressly set
forth in a writing duly signed and delivered by Seller. Failure by Seller at any
time or times hereafter to require strict performance by Buyer, any endorser or
guarantor of all or any part of the Obligations or any other person or entity of
any of the provisions, warranties, terms and conditions contained in any
agreement now or at any time or times hereafter executed by such person or
entity and delivered to Seller shall not waive, affect or diminish any right of
Seller at any time or times hereafter to demand strict performance thereof and
such right shall not be deemed to have been waived by any act or knowledge of
Seller, or its agents, officers or employees, unless such waiver is contained in
an instrument in writing, directed and delivered to Buyer specifying such
waiver, and is signed by Seller. No waiver of any Event of Default by Seller
shall operate as a waiver of any other Event of Default or the same Event of
Default on a future occasion, and no action by Seller permitted hereunder shall
in any way affect or impair Seller's rights and remedies or the obligations of
Buyer under this Security Agreement.
10. Effectiveness; Termination. This Security Agreement shall become
effective upon its execution by Buyer and shall continue in full force and
effect and may not be terminated or otherwise revoked until the Obligations
shall have been fully paid (in cash) and discharged.
11. Successors and Assigns. This Security Agreement shall be binding
upon Buyer and upon the successors and assigns of Buyer and shall inure to the
benefit of Seller and its successors and assigns; provided, however, that Buyer
shall not assign its obligations hereunder without the written consent of
Seller.
12. Governing Law. THIS SECURITY AGREEMENT SHALL BE INTERPRETED, AND
THE RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH
THE INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) AND DECISIONS OF
THE STATE OF ILLINOIS.
13. Consent to Jurisdiction; Counterclaims; Forum Non Conveniens.
(i) EACH OF SELLER AND BUYER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY ILLINOIS STATE COURT
OR FEDERAL COURT SITTING IN CHICAGO, ILLINOIS, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF, CONNECTED WITH, RELATED TO
OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG THEM IN CONNECTION WITH THIS
SECURITY AGREEMENT, WHETHER
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<PAGE> 7
ARISING IN CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR
ENFORCEMENT OF ANY JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY AGREES THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR
PROCEEDING MAY BE HEARD AND DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT
PERMITTED BY LAW, IN SUCH FEDERAL COURT. EACH OF SELLER AND BUYER AGREES THAT A
FINAL JUDGMENT IN ANY SUCH ACTION OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE
ENFORCED IN OTHER JURISDICTIONS BY SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER
PROVIDED BY LAW. BUYER WAIVES IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO
THE LOCATION OF THE COURT CONSIDERING THE DISPUTE.
(ii) BUYER AGREES THAT SELLER SHALL HAVE THE RIGHT TO PROCEED
AGAINST BUYER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SELLER TO
REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE OBLIGATIONS, OR TO
ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SELLER. BUYER AGREES
THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING BROUGHT
BY SELLER TO REALIZE ON THE COLLATERAL OR ANY OTHER SECURITY FOR THE
OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF SELLER.
BUYER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT IN
WHICH SELLER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.
14. Notices. All notices and other communications required or
desired to be served, given or delivered hereunder shall be in writing or by a
telecommunications device capable of creating a printed record and shall be
addressed to the party to be notified in the manner set forth in the Purchase
Agreement.
15. Severability. Wherever possible, each provision of this Security
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Security Agreement shall be
prohibited by or invalid under such law, such provision shall be ineffective to
the extent of such prohibition or invalidity without invalidating the remainder
of such provision or the remaining provisions of this Security Agreement.
16. Merger. This Security Agreement represents the final agreement
of Buyer with respect to the matters contained herein and may not be
contradicted by evidence of prior, contemporaneous or subsequent agreements
between Buyer and Seller.
[Signature Page Immediately Follows]
-7-
<PAGE> 8
IN WITNESS WHEREOF, this Security Agreement has been duly executed
by Buyer as of the day and year first set forth above.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
-------------------------------
Name: Michael Kirby
Title: President
Accepted and acknowledged by:
SALERNO FOODS, L.L.C.
By: /s/ Robert D. Long
-------------------------------
Name: Robert D. Long
Manager
[Signature Page to Security Agreement]
-8-
<PAGE> 9
Exhibit A
to
Security Agreement
Trademarks and Trademark Registrations and Applications
-9-
<PAGE> 10
STATE OF ILLINOIS
UNIFORM COMMERCIAL CODE - FINANCING STATEMENT - FORM UCC-1
REORDER FORM
Registre, Inc.
514 PIERCE ST.
P.O. BOX 218
ANOKA, MN. 55303
(612) 421-1713
INSTRUCTIONS:
1. This form must be typed. Fold only along perforation for mailing.
2. Remove Secured Party and Debtor copies and send other 3 copies with
interleaved carbon paper to the filing officer. Enclose filing fee.
3. If the space provided for any item(s) on the form is inadequate the
item(s) should be continued on additional sheets, preferably 5" x 8" or 8"
x 10". Only one copy of such additional sheets need be presented to the
filing officer with a set of three copies of the financing statement. Long
schedules of collateral, indentures, etc., may be on any size paper that
is convenient for the secured party.
4. At the time of filing, the filing officer will return third copy as an
acknowledgement, please enclose a self addressed envelope for this return.
- --------------------------------------------------------------------------------
This STATEMENT is presented to a filing officer for filing pursuant to the
Uniform Commercial Code.
- --------------------------------------------------------------------------------
Debtor(s) (Last Name First) and address(es) Secured Party(ies) and address(es)
The Delicious Frookie Salerno Foods, L.L.C.
Company, Inc. 150 N. Wacker Drive, Suite 2850
2720 River Road, Suite 126 Chicago, Illinois 60606
Des Plaines, Illinois 60018
- --------------------------------------------------------------------------------
For Filing Officer
(Date, Time, Number, and Filing Office)
- --------------------------------------------------------------------------------
1. This financing statement covers the following types (or items) of property:
All of Debtor's now owned and existing and hereafter acquired or arising
accounts, goods, contract rights, chattel paper, instruments, documents,
inventory, equipment, general intangibles (including, without limitation,
trademarks and trademark applications), machinery, equipment, and fixtures,
wheresoever located, and all proceeds of the foregoing, as more particularly
described on Exhibit A attached hereto and made a part hereof.
- --------------------------------------------------------------------------------
ASSIGNEE OF SECURED PARTY
- --------------------------------------------------------------------------------
2. |X| Products of Collateral are also covered.
- --------------------------------------------------------------------------------
|I| Additional sheets presented.
|X| Filed with Office of Secretary of State of Illinois.
|_| Debtor is a transmitting utility as defined in UCC ss.9-105.
- --------------------------------------------------------------------------------
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
-----------------------------------------------
Signature of (Debtor)
(Secured Party)*
*Signature of Debtor Required in Most Cases:
Signature of Secured Party in Cases Covered By UCC ss.9-402(2)
FILING OFFICER-ALPHABETICAL This form of financing statement is approved by
the Secretary of State.
STANDARD FORM - UNIFORM COMMERCIAL CODE - FORM UCC-1 - REV. 1 - 75
<PAGE> 11
EXHIBIT A
TO
FINANCING STATEMENT
Debtor: Secured Party:
THE DELICIOUS FROOKIE COMPANY, SALERNO FOODS, L.L.C.
INC. 150 N. Wacker Drive, Suite 2850
2720 River Road, Suite 126 Chicago, Illinois 60606
Des Plaines, Illinois 60018
Description of Collateral:
All of the following property, and interests in property, of Debtor, whether now
owned or existing or hereafter acquired or arising and wheresoever located:
accounts, inventory, goods, furniture, machinery, equipment, fixtures, general
intangibles (including, without limitation, goodwill, inventions, designs,
patents, patent applications, trademarks, registered trademarks, trademark
applications, service marks, registered service marks, service mark
applications, trade names, trade secrets, licenses, franchises, tax refund
claims, guaranty claims, all rights against shippers and carriers, security
interests or other security held by Debtor), tax refunds, chattel paper,
contract rights, instruments, documents, notes, returned and repossessed goods
and all other personal property or interests in personal property; together with
all accessions to, substitutions for, and all replacements, products and
proceeds of the foregoing (including, without limitation, proceeds of insurance
policies insuring any of the foregoing), and all books and records pertaining to
any of the foregoing.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
-------------------
Title: CFO
<PAGE> 1
EXHIBIT 10.31
TRADEMARK SECURITY AGREEMENT
This TRADEMARK SECURITY AGREEMENT (this "Agreement") is made as of
April 3, 1998 by and between The Delicious Frookie Company, Inc., a Delaware
corporation ("Buyer"), and Salerno Foods, L.L.C., a Delaware limited liability
company ("Seller").
W I T N E S S E T H:
WHEREAS, pursuant to that certain Asset Purchase Agreement of even
date herewith by and between Buyer and Seller (as the same may from time to time
be amended, restated, modified or supplemented, the "Purchase Agreement"),
Seller has sold to Buyer substantially all of the assets of Seller in
consideration for, among other things, a certain Promissory Note of even date
herewith made in favor of the Seller (as the same may from time to time be
amended, restated, modified or supplemented, the "Purchase Note");
WHEREAS, Seller has required Buyer to execute and deliver a certain
Security Agreement of even date herewith (as the same may from time to time be
amended, restated, modified or supplemented, the "Security Agreement") as
security for the Purchase Note; and
WHEREAS, Seller has required Buyer to execute and deliver this
Agreement (i) in order to secure the prompt and complete payment, observance and
performance of all of the obligations under the Purchase Note and (ii) as a
condition precedent to the consummation of the transactions contemplated by the
Purchase Agreement.
NOW, THEREFORE, in consideration of the premises set forth herein
and for other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, Buyer agrees as follows:
1. Defined Terms.
(a) Unless otherwise defined herein, each capitalized term used
herein shall have the meaning ascribed to it in the Security Agreement unless
otherwise defined herein.
(b) The words "hereof," "herein" and "hereunder" and words of like
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and section references are to
this Agreement unless otherwise specified.
(c) All terms defined in this Agreement in the singular shall have
comparable meanings when used in the plural, and vice versa, unless otherwise
specified.
(d) An "Event of Default" shall mean any "Event of Default" under
and as defined in the Security Agreement, including, without limitation, (i) if
any payment of principal or interest under the Purchase Note shall remain unpaid
after the same shall have become due and payable;
<PAGE> 2
(ii) Buyer admits in writing in any proceeding its inability to pay its debts
generally as they become due, or makes a general assignment for the benefit of
creditors; (iii) any proceeding is instituted by Buyer seeking to adjudicate it
a bankrupt or insolvent, or seeking liquidation, winding up, reorganization,
arrangement, adjustment, protection, relief or composition of it or its debts
under any law relating to bankruptcy, insolvency or reorganization or relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, or other similar official for it or for any substantial part
of its property; (iv) there shall be commenced against Buyer any case,
proceeding or other action of a nature referred to in clause (iii) which results
in the entry of an order for relief or any adjudication that it is bankrupt or
insolvent or which remains undismissed, undischarged, unstayed or unbounded for
period of at least 60 days, or (v) Buyer takes any corporate action to authorize
any of the actions set forth in this paragraph.
2. Incorporation of the Security Agreement. The Security Agreement
is hereby incorporated herein in its entirety by this reference thereto.
3. Security Interest in Trademarks. To secure the complete and
timely payment, performance and satisfaction of all of the obligations under the
Purchase Note and secured under the Security Agreement, including the principal,
interest, and indebtedness evidenced by the Purchase Note plus all fees, costs
and expenses (including, without limitation, all court costs and reasonable
attorneys' fees, costs and expenses) paid or incurred by Seller in endeavoring
to collect all or any part of the obligations evidenced by the Purchase Note and
taking any action with respect to the collateral securing the Purchase Note (the
"Obligations"), Buyer hereby grants to Seller a security interest in the
following property and interests in property of Buyer, now owned or existing and
hereafter acquired or arising:
(i) trademarks, registered trademarks, trademark applications,
service marks, registered service marks and service mark applications,
including, without limitation, the trademarks, registered trademarks,
trademark applications, service marks, registered service marks and
service mark applications listed on Schedule A attached hereto and made a
part hereof, and (a) all renewals thereof, (b) all income, royalties,
damages and payments now and hereafter due and/or payable under and with
respect thereto, including, without limitation, payments under all
licenses entered into in connection therewith and damages and payments for
past or future infringements or dilutions thereof, (c) the right to sue
for past, present and future infringements and dilutions thereof, (d) the
goodwill of Buyer's business symbolized by the foregoing and connected
therewith, and (e) all of Buyer's rights corresponding thereto throughout
the world (all of the foregoing trademarks, registered trademarks and
trademark registration applications, and service marks, registered service
marks and service mark registration applications, together with the items
described in clauses (a)-(e) in this paragraph 4(i), are sometimes
hereinafter individually and/or collectively referred to as the
"Trademarks")); and
(ii) rights under or interest in any trademark license agreements or
service
- 2 -
<PAGE> 3
mark license agreements with any other party, whether Buyer is a licensee
or licensor under any such license agreement, together with any goodwill
connected with and symbolized by any such trademark license agreements or
service mark license agreements (all of the foregoing are hereinafter
referred to collectively as the "Licenses").
4. New Trademarks and Licenses. Buyer represents and warrants that
(a) the Trademarks listed on Schedule A include all of the trademarks,
registered trademarks, trademark registration applications, service marks,
registered service marks and service registration mark applications now owned by
Buyer and (b) no liens, claims or security interests in such Trademarks and
Licenses have been granted by Buyer to any person or entity other than Seller,
Republic Acceptance Corporation, and American Pacific Financial Corporation. If,
prior to the termination of this Agreement, Buyer shall (i) obtain rights to any
new trademarks, registered trademarks, trademark applications, service marks,
registered service marks or service mark applications, (ii) become entitled to
the benefit of any trademarks, registered trademarks, trademark applications,
trademark licenses, trademark license renewals, service marks, registered
service marks, service mark applications, service mark licenses or service mark
license renewals whether as licensee or licensor, or (iii) enter into any new
trademark license agreement or service mark license agreement, the provisions of
paragraph 3 above shall automatically apply thereto. Buyer hereby authorizes
Seller to modify this Agreement unilaterally (i) by amending Schedule A to
include any future trademarks, registered trademarks, trademark applications,
service marks, registered service marks and service mark applications, which are
Trademarks under paragraph 3 above or under this paragraph, and (ii) by filing,
in addition to and not in substitution for this Agreement, a duplicate original
of this Agreement containing on Schedule A thereto such future trademarks,
registered trademarks, trademark applications, service marks, registered service
marks and service mark applications.
5. Royalties. Buyer hereby agrees that the use by Seller of the
Trademarks and Licenses as authorized hereunder in connection with Seller's
exercise of its rights and remedies under paragraph 13 or pursuant to the
Security Agreement shall be coextensive with Buyer's rights thereunder and with
respect thereto and without any liability for royalties or other related charges
to Buyer from Seller.
6. Further Assignments and Security Interests. Buyer shall not sell
or assign its respective interests in, or grant any exclusive license under the
Trademarks without the prior written consent of Seller.
7. Nature and Continuation of Seller's Security Interest. This
Agreement is made for collateral security purposes only. This Agreement shall
create a continuing security interest in the Trademarks and Licenses and shall
terminate only when the obligations under the Purchase Note have been paid in
full in cash.
- 3 -
<PAGE> 4
8. No Duties. Seller shall not have any duty with respect to the
Trademarks and Licenses. Without limiting the generality of the foregoing,
Seller shall not be under any obligation to take any steps necessary to preserve
rights in the Trademarks or Licenses against any other parties, but Seller may
do so at its option from and after the occurrence of an Event of Default, and
all expenses incurred in connection therewith shall be for the sole account of
Buyer and shall be added to the obligations under the Purchase Note secured
hereby.
9. Seller's Right to Sue. From and after the occurrence of an Event
of Default, Seller shall have the right, but shall not be obligated, to bring
suit in its own name to enforce the Trademarks and the Licenses and, if Seller
shall commence any such suit, Buyer shall, at the request of Seller, do any and
all lawful acts and execute any and all proper documents required by Seller in
aid of such enforcement. Buyer shall, upon demand, promptly reimburse Seller for
all costs and expenses incurred by Seller in the exercise of its rights under
this paragraph (including, without limitation, reasonable fees and expenses of
attorneys and paralegals for Seller).
10. Waivers. Seller's failure, at any time or times hereafter, to
require strict performance by Buyer of any provision of this Agreement shall not
waive, affect or diminish any right of Seller thereafter to demand strict
compliance and performance therewith nor shall any course of dealing between
Buyer and Seller have such effect. No single or partial exercise of any right
hereunder shall preclude any other or further exercise thereof or the exercise
of any other right. None of the undertakings, agreements, warranties, covenants
and representations of Buyer contained in this Agreement shall be deemed to have
been suspended or waived by Seller unless such suspension or waiver is in
writing signed by an officer of Seller and directed to Buyer specifying such
suspension or waiver.
11. Severability. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but the provisions of this Agreement are severable, and if any
clause or provision shall be held invalid and unenforceable in whole or in part
in any jurisdiction, then such invalidity or unenforceability shall affect only
such clause or provision, or part hereof, in such jurisdiction, and shall not in
any manner affect such clause or provision in any other jurisdiction, or any
other clause or provision of this Agreement in any jurisdiction.
12. Modification. This Agreement cannot be altered, amended or
modified in any way, except as expressly provided in paragraph 4 hereof or by a
writing signed by the parties hereto.
13. Power of Attorney. Buyer hereby irrevocably designates,
constitutes and appoints Seller (and all Persons designated by Seller in its
sole and absolute discretion) as Buyer's true and lawful attorney-in-fact, and
authorizes Seller and any of Seller's designees, in Buyer's or Seller's name, to
take any action and execute any instrument which Seller may deem necessary or
advisable to accomplish the purposes of this Agreement, from and after the
occurrence of an Event of Default and the giving by Seller of notice to Buyer of
Seller's intention to enforce its rights and claims against Buyer, to (i)
endorse Buyer's name on all applications, documents, papers and
- 4 -
<PAGE> 5
instruments necessary or desirable for Seller in the use of the Trademarks or
the Licenses, (ii) assign, pledge, convey or otherwise transfer title in or
dispose of the Trademarks or the Licenses to anyone on commercially reasonable
terms, (iii) grant or issue any exclusive or nonexclusive license under the
Trademarks or, to the extent permitted, under the Licenses, to anyone on
commercially reasonable terms, and (iv) take any other actions with respect to
the Trademarks or the Licenses as Seller deems in its own best interest. Buyer
hereby ratifies all that such attorney shall lawfully do or cause to be done by
virtue hereof. This power of attorney is coupled with an interest and shall be
irrevocable until all of the obligations under the Purchase Note shall have been
paid in full in cash. Buyer acknowledges and agrees that this Agreement is not
intended to limit or restrict in any way the rights and remedies of Seller under
the Purchase Agreement, the Security Agreement, or the Purchase Note, but rather
is intended to facilitate the exercise of such rights and remedies.
Seller shall have, in addition to all other rights and remedies
given it by the terms of this Agreement, all rights and remedies allowed by law
and the rights and remedies of a secured party under the Uniform Commercial Code
as enacted in any jurisdiction in which the Trademarks or the Licenses may be
located or deemed located. Upon the occurrence of an Event of Default and the
election by Seller, during the continuance of such Event of Default, to exercise
any of its remedies under Section 9-504 or Section 9-505 of the Uniform
Commercial Code with respect to the Trademarks and Licenses, Buyer agrees to
assign, convey and otherwise transfer title in and to the Trademarks and the
Licenses to Seller or any transferee of Seller and to execute and deliver to
Seller or any such transferee all such agreements, documents and instruments as
may be necessary, in Seller's sole discretion, to effect such assignment,
conveyance and transfer. All of Seller's rights and remedies with respect to the
Trademarks and the Licenses, whether established hereby, by the Security
Agreement, by any other agreements or by law, shall be cumulative and may be
exercised separately or concurrently. Notwithstanding anything set forth herein
to the contrary, it is hereby expressly agreed that upon the occurrence of an
Event of Default, Seller may exercise any of the rights and remedies provided in
this Agreement and the Security Agreement.
14. Successors and Assigns. This Agreement shall be binding upon
Buyer and its successors and assigns, and shall inure to the benefit of Seller
and its nominees, successors and assigns; provided, however, that Buyer shall
not voluntarily assign or transfer its rights or obligations hereunder without
Seller's prior written consent.
15. Governing Law. THIS AGREEMENT SHALL BE INTERPRETED, AND THE
RIGHTS AND LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE
INTERNAL LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) AND DECISIONS OF THE
STATE OF ILLINOIS.
16. Consent to Jurisdiction; Counterclaims; Forum Non Conveniens.
(i) EACH OF SELLER AND BUYER IRREVOCABLY AND UNCONDITIONALLY SUBMITS, FOR ITSELF
AND ITS PROPERTY, TO THE NONEXCLUSIVE JURISDICTION OF ANY ILLINOIS STATE COURT
OR FEDERAL COURT SITTING IN CHICAGO, ILLINOIS, AND ANY APPELLATE COURT FROM ANY
THEREOF, IN ANY ACTION OR PROCEEDING ARISING OUT OF,
- 5 -
<PAGE> 6
CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP ESTABLISHED AMONG
THEM IN CONNECTION WITH THIS SECURITY AGREEMENT, WHETHER ARISING IN CONTRACT,
TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY JUDGMENT,
AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES THAT ALL
CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND DETERMINED
IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH FEDERAL COURT.
EACH OF SELLER AND BUYER AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION OR
PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. BUYER WAIVES IN ALL
DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT CONSIDERING
THE DISPUTE.
(ii) BUYER AGREES THAT SELLER SHALL HAVE THE RIGHT TO PROCEED
AGAINST BUYER OR ITS PROPERTY IN A COURT IN ANY LOCATION TO ENABLE SELLER TO
REALIZE ON THE COLLATERAL HEREUNDER OR ANY OTHER SECURITY FOR THE OBLIGATIONS,
OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER ENTERED IN FAVOR OF SELLER. BUYER
AGREES THAT IT WILL NOT ASSERT ANY PERMISSIVE COUNTERCLAIMS IN ANY PROCEEDING
BROUGHT BY SELLER TO REALIZE ON THE COLLATERAL HEREUNDER OR ANY OTHER SECURITY
FOR THE OBLIGATIONS, OR TO ENFORCE A JUDGMENT OR OTHER COURT ORDER IN FAVOR OF
SELLER. BUYER WAIVES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE COURT
IN WHICH SELLER MAY COMMENCE A PROCEEDING DESCRIBED IN THIS SECTION.
17. Notices. All notices or other communications hereunder shall be
given in the manner and to the addresses set forth in the Purchase Agreement.
18. Section Titles. The section titles herein are for convenience of
reference only, and shall not affect in any way the interpretation of any of the
provisions hereof.
19. Execution in Counterparts. This Agreement may be executed in any
number of counterparts and by different parties hereto in separate counterparts,
each of which when so executed shall be deemed to be an original and all of
which taken together shall constitute one and the same agreement.
20. Conflict with Security Agreement. Should any term or provision
of the Security Agreement expressly conflict with the terms or provisions of
this Agreement, such term or provision of the Security Agreement shall govern
and control.
[Signature Page Immediately Follows]
- 6 -
<PAGE> 7
IN WITNESS WHEREOF, the parties hereto have duly executed this
Trademark Security Agreement as of the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
----------------------------------
Title: President
Accepted and agreed to as of the day and year first
above written.
SALERNO FOODS, L.L.C.,
By: /s/ Robert D. Long
----------------------------------
Manager
[Signature Page to Trademark Security Agreement]
- 7 -
<PAGE> 8
Schedule A
to
Trademark Security Agreement
Dated as of April 3, 1998
The Delicious Frookie Company, Inc.
Registered Trademarks and Service Marks
None, except:
Trademark Registration Date Registration No.
- --------- ----------------- ----------------
DELICIOUS July 8, 1986 1,400,783
and Design
FROOKIES January 10, 1989 1,520,007
THE GOOD FOR YOU July 4, 1989 1,546,643
COOKIE
FROOKIE September 12, 1989 1,555,978
R.W.FROOKIE October 17, 1989 1,561,226
and Design
DELICIOUS February 13, 1990 1,582,820
FRACKERS September 4, 1990 1,612,252
FRUITINS October 23, 1990 1,618,960
REGENCY April 9, 1991 1,640,703
FRUITONS June 18, 1991 1,648,257
UPCOUNTRY COCOA October 29, 1991 1,662,643
FRONES December 22, 1992 1,742,431
FUNKY MONKEYS December 22, 1992 1,742,432
FROOKWICH February 23, 1993 1,754,579
FROOK WHEATS December 7, 1993 1,809,421
COOL FRUITS April 19, 1994 1,831,483
POLAR POPS April 19, 1994 1,832,367
COOL FRUITS FRUIT May 17, 1994 1,836,962
JUICE FREEZERS and Design
FROOKITAS September 6, 1994 1,853,242
FRISPS October 18, 1994 1,859,230
DREAM CREAMS December 20, 1994 1,868,948
RPB December 7, 1993 1,809,230
BANANARAMAS December 6, 1994 1,866,524
COOKIE LEGENDS December 13, 1994 1,867,742
OBIE'S October 10, 1995 1,925,672
OBIE'S COOKIE JAR October 10, 1995 1,925,673
- 8 -
<PAGE> 9
BRANDS YOU TRUST... October 24, 1995 1,929,849
COOKIES YOU LOVE!
FRUITABLES December 26, 1995 1,944,690
FROOKAROONS January 16, 1996 1,949,533
COOL FRUITS July 2, 1996 1,983,505
THE CHIP THAT LOVES March 18, 1997 2,046,396
TO DIP
The Delicious Frookie Company, Inc.
Trademark and Service Mark Registration Applications
None, except:
Trademark Application Date Serial No.
- --------- ---------------- ----------
FROOTER October 5, 1992 74/320296
FROOTER October 5, 1992 74/320297
LEMON SQUEEZER December 6, 1993 74/465506
FROOTLES May 9, 1994 74/521066
FROOKIEO October 31, 1994 74/592264
JAM-A-GRAM December 12, 1994 74/609470
FRUITABLES January 17, 1995 74/621780
FROOT TWIST January 27, 1995 74/626682
FRUITICOOL February 21, 1995 74/636940
SIMPLYDELICIOUS March 7, 1995 74/643270
DELICIOUSPLUS April 24, 1995 74/666142
FROOKIEPLUS April 24, 1995 74/666163
ICICLE April 7, 1997 75/271215
DOUBLE CREMES May 1, 1997 75/284486
COOL FRUITS May 8, 1997 75/288769
FRUIT-N-FLAKE June 30, 1997 75/317366
COOL FRUITS July 28, 1997 75/331482
- 9 -
<PAGE> 10
Salerno Foods, L.L.C.
Registered Trademarks and Service Marks
None, except:
Trademark Registration Date Registration No.
- --------- ----------------- ----------------
DEVILMINT (stylized) November 25, 1947 434,589
MAMA'S (stylized) June 8, 1948 439,154
SALERNO (stylized) June 14, 1955 607,363
ROYAL September 24, 1957 652,140
FUDGE TOWN May 17, 1966 808,624
BURRY'S CHEEZ*TRAWS May 31, 1966 809,349
and Design
SLAPSTIX June 28, 1966 810,508
FIDDLE FLAKES July 5, 1966 810,843
SCOOTER PIE September 5, 1967 834,843
ORANGE PUNCH October 3, 1967 836,407
LEMON PUNCH October 3, 1967 836,408
PINK PUNCH January 2, 1968 841,713
LICKITY SPLITS March 5, 1968 845,572
SCOOTER-PUFFS October 1, 1968 858,047
LICKITY SPLITS March 4, 1969 865,885
FUDGE TOWN May 21, 1971 176,246 (Canada)
CHEEZ*TRAWS July 23, 1971 177,169 (Canada)
ANGEL CAKE October 19, 1971 922,608
SIERRA ECLAIRS September 2, 1975 1,019,530
SALERNO and Design November 24, 1981 1,179,423
SALERNO and Design February 2, 1982 1,188,855
WE'RE MORE THAN BAKERS November 30, 1982 1,218,575
WE'RE BUSINESS MAKERS
ROYALES September 28, 1993 1,795,175
SUGAR RINGS August 9, 1994 1,849,716
COCO CHIP RINGS August 9, 1994 1,849,725
LEMON RINGS August 9, 1994 1,849,727
OATMEAL RAISIN RINGS August 9, 1994 1,849,728
SALERNO June 17, 1997 2,071,628
TWO POUNDER July 29, 1997 2,085,100
SALERNO July 29, 1997 080860 (Illinois)
MAMA'S October 21, 1997 2,106,597
MAMA'S CHARACTER Design January 27, 1998 2,132,678
- 10 -
<PAGE> 11
Salerno Foods, L.L.C.
Trademark and Service Mark Registration Applications
None, except:
Trademark Application Date Serial No.
- --------- ---------------- ----------
CRISPYSTIX January 9, 1997 75/223024
Miscellaneous Design September 23, 1997 75/361740
(butter cookie)
SALERNO and Banner Design February 18, 1997 75/243716
TASTE THE FUN February 18, 1997 75/243717
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<PAGE> 12
STATE OF ILLINOIS )
) SS
COUNTY OFILLINOIS )
The foregoing Trademark Security Agreement was acknowledged before
me this 3rd day of April 1998, by Michael J. Kirby, the President and Chief
Executive Officer of The Delicious Frookie Company, Inc., a Delaware
corporation, on behalf of such corporation.
/s/ Sandra McNaughton
-----------------------------
Notary Public
Cook County, Illinois
My commission expires: 8-30-99
- --------------------------------
"OFFICIAL SEAL"
SANDRA McNAUGHTON
NOTARY PUBLIC, STATE OF ILLINOIS
MY COMMISION EXPIRES 8/30/99
- --------------------------------
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<PAGE> 1
EXHIBIT 10.32
ASSIGNMENT AND ASSUMPTION AGREEMENT
This ASSIGNMENT AND ASSUMPTION AGREEMENT (this "Agreement") is made as of
this 3rd day of April 1998 by and among The Delicious Frookie Company, Inc., a
Delaware corporation ("Delicious"), and Larry Polhill, an individual and
resident of the State of California ("Polhill"), and American Pacific Financial
Corporation, a California corporation ("APFC") (Polhill and APFC are
collectively referred to herein as the "Assignees").
WHEREAS, Delicious has executed and delivered to Salerno Foods, L.L.C., a
Delaware limited liability company ("Salerno"), a certain Promissory Note in the
original principal amount of $1,500,000 (the "Purchase Note"), a copy of which
is attached hereto as Exhibit A;
WHEREAS, the Purchase Note was made by Delicious pursuant to that certain
Asset Purchase Agreement dated as of April 3, 1998 between Delicious and Salerno
(the "Purchase Agreement"); and
WHEREAS, Delicious has secured its obligations under the Purchase Note
pursuant to a certain Security Agreement dated as of April 3, 1998 made by
Delicious in favor of Salerno (the "Security Agreement") and that certain
Trademark Security Agreement dated as of April 3, 1998 made by Delicious in
favor of Salerno (the "Trademark Security Agreement").
NOW, THEREFORE, for good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties agree as follows:
1. Assignment and Assumption of Purchase Note. Delicious does hereby sell,
assign, transfer and set over to Polhill and APFC the Purchase Note and each of
Polhill and APFC hereby jointly and severally assumes and hereby agrees to pay,
defend, discharge all of the obligations of Delicious under the Purchase Note,
including, without limitation, the timely repayment of principal and interest
evidenced thereby. Notwithstanding such assignment and assumption, Delicious
does hereby unconditionally guarantee for the benefit of Salerno the full and
prompt payment when due, whether at maturity or earlier, by reason of
acceleration or otherwise, and at all times thereafter, of all of the principal,
interest, and other obligations evidenced by the Purchase Note. Delicious hereby
agrees that the foregoing guaranty is an absolute guaranty of payment and is not
a guaranty of collection. Each of Delicious, Polhill, and APFC hereby waives all
rights of setoff and counterclaims which may arise under this Agreement, the
Purchase Agreement, the Purchase Note, or otherwise and all presentments,
demands for performance, notices of nonperformance, protests, notices of
protest, notices of dishonor and notices of acceptance
<PAGE> 2
of the Purchase Note, and all other demands whatsoever, and covenants that its
respective obligations under this Agreement and the Purchase Note will not be
discharged except by complete payment of the Purchase Note in full in cash.
2. Reaffirmation of Security Agreement. Notwithstanding the execution and
delivery of this Agreement and the assignment and assumption of the Purchase
Note pursuant to the terms hereof, Delicious hereby (i) reaffirms all of its
obligations under, and grant of security interest to Salerno pursuant to the
Security Agreement and the Trademark Security Agreement, and (ii) acknowledges
and agrees that each of the Security Agreement and the Trademark Security
Agreement remains in full force and effect (including without limitation, with
respect to the obligations under the Purchase Note) and that each of the
Security Agreement and the Trademark Security Agreement is hereby ratified and
confirmed.
3. Joint and Several Obligations. The obligations of each of the Assignees
hereunder shall be joint and several.
4. Counterparts. This Agreement may be executed in one or more
counterparts.
5. Governing Law. THIS AGREEMENT SHALL BE INTERPRETED, AND THE RIGHTS AND
LIABILITIES OF THE PARTIES HERETO DETERMINED, IN ACCORDANCE WITH THE INTERNAL
LAWS (AS OPPOSED TO CONFLICT OF LAWS PROVISIONS) AND DECISIONS OF THE STATE OF
ILLINOIS.
6. Jurisdiction. EACH OF THE PARTIES HERETO IRREVOCABLY AND
UNCONDITIONALLY SUBMITS, FOR ITSELF AND ITS PROPERTY, TO THE EXCLUSIVE
JURISDICTION OF ANY ILLINOIS STATE COURT OR FEDERAL COURT SITTING IN CHICAGO,
ILLINOIS, AND ANY APPELLATE COURT FROM ANY THEREOF, IN ANY ACTION OR PROCEEDING
ARISING OUT OF, CONNECTED WITH, RELATED TO OR INCIDENTAL TO THE RELATIONSHIP
ESTABLISHED AMONG THEM IN CONNECTION WITH THIS AGREEMENT, WHETHER ARISING IN
CONTRACT, TORT, EQUITY OR OTHERWISE, OR FOR RECOGNITION OR ENFORCEMENT OF ANY
JUDGMENT, AND EACH OF THE PARTIES HERETO IRREVOCABLY AND UNCONDITIONALLY AGREES
THAT ALL CLAIMS IN RESPECT OF ANY SUCH ACTION OR PROCEEDING MAY BE HEARD AND
DETERMINED IN SUCH STATE COURT OR, TO THE EXTENT PERMITTED BY LAW, IN SUCH
FEDERAL COURT. EACH PARTY HERETO AGREES THAT A FINAL JUDGMENT IN ANY SUCH ACTION
OR PROCEEDING SHALL BE CONCLUSIVE AND MAY BE ENFORCED IN OTHER JURISDICTIONS BY
SUIT ON THE JUDGMENT OR IN ANY OTHER MANNER PROVIDED BY LAW. THE PARTIES HERETO
WAIVE IN ALL DISPUTES ANY OBJECTION THAT IT MAY HAVE TO THE LOCATION OF THE
COURT CONSIDERING THE DISPUTE.
[Signature Page Immediately Follows]
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<PAGE> 3
IN WITNESS WHEREOF, each of the parties hereto has caused this
Assignment and Assumption Agreement to be executed and delivered as of the date
first written above.
/s/ Larry Polhill
------------------------------
LARRY POLHILL
AMERICAN PACIFIC FINANCIAL CORPORATION
By: /s/ Robert D. Long
--------------------------
Robert D. Long,
President
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Michael Kirby
--------------------------
Title: President
ACKNOWLEDGMENT AND CONSENT
Notwithstanding the provisions of the Purchase Note prohibiting the
assignment and assumption thereof, the undersigned does hereby consent to
the assignment and assumption of the Purchase Note by the Assignees
pursuant to the terms hereof.
SALERNO FOODS, L.L.C.
By: /s/ Robert D. Long
--------------------------
Manager
[Signature Page to Assignment and Assumption Agreement]
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<PAGE> 4
SPECIAL POWER OF ATTORNEY
I, LARRY R. POLHILL, appoint ROBERT D. LONG, my attorney in fact to act on
my behalf as authorized signatory in connection with the acquisition by THE
DELICIOUS FROOKIE COMPANY, INC., a Delaware corporation of assets of SALERNO
FOODS, L.L.C., a Delaware limited liability company ("SALERNO"), and the secured
loan by REPUBLIC ACCEPTANCE CORPORATION, a Minnesota corporation, to AMERICAN
PACIFIC FINANCIAL CORP., a California corporation ("APFC"), to execute,
acknowledge, swear to, file and/or record any and all documents which are in
connection with the acquisition of the assets of SALERNO located at 2070 Maple
Street, Des Plaines, Illinois, or the loan executed in my name, in my personal
capacity, or in my capacity as President of APFC, pursuant to the terms and
conditions as set forth in the purchase and loan documents evidencing the
transaction. Such instruments or documents shall include by way of illustration
and without limitation any document which effects as sale, conveyance, or
hypothecation of assets of SALERNO, or any interest therein, escrow instructions
or supplements thereto, and all loan documents, deeds, leasehold deeds of trust,
bills of sale, UCC-1 financing statements, escrow closing statements or other
documents required, desirable or proper to bind SALERNO, APFC or the
undersigned. This special power of attorney will remain in full force and effect
for a period of six (6) months from the date indicated below, unless revoked by
subsequent written instrument.
Dated: March 20, 1998 /s/ LARRY R. POLHILL
----------------------------- ---------------------------
LARRY R. POLHILL
ACKNOWLEDGMENT
State of California )
) ss.
County of San Bernardino )
On this 20th day of March, in the year 1998, before me, Marilyn R. Donegan
personally appeared Larry R. Polhill, personally known to me (or provided to me
on the basis of satisfactory evidence) to be the person whose name is subscribed
to this instrument, and acknowledged that he executed it. However, any
acknowledgment taken outside this state in accordance with the laws of the place
where the acknowledgment is made, shall be insufficient in this state.
IN WITNESS WHEREOF I have hereunto set my hand and official seal.
/s/ MARILYN R. DONEGAN
-----------------------------
Notary Public
My Commission expires: April 20, 2000
[Seal]
Marilyn R. Donegan
Comm. #1093886
NOTARY PUBLIC - CALIFORNIA
SAN BERNARDINO COUNTY
Comm. Exp. April 10, 2000
<PAGE> 1
EXHIBIT 10.33
SUBORDINATION AGREEMENT
(Debt and Security)
THIS SUBORDINATION AGREEMENT, dated as of April 3, 1998, by and between
U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC. f.k.a. REPUBLIC ACCEPTANCE
CORPORATION, a Minnesota corporation (the "Senior Lender"), AMERICAN PACIFIC
FINANCIAL CORPORATION, a California corporation ("APFC"), LAWRENCE R. POLHILL
("Polhill"), SALERNO FOODS, L.L.C., a Delaware limited liability company
("Salerno", and together with APFC and Polhill hereinafter sometimes
collectively referred to as the "Subordinated Lenders"), and THE DELICIOUS
FROOKIE COMPANY, INC., a Delaware corporation (the "Company").
A. The Company and the Senior Lender have entered into a Financing
Agreement dated as of November 26, 1996 (as the same may hereafter be amended,
supplemented, extended, restated or otherwise modified from time to time, the
"Credit Agreement") pursuant to which Senior Lender has provided credit
facilities on a demand discretionary basis to the Company of up to $7,000,000.
B. The Senior Debt is secured by a Security Agreement, pursuant to which
the Company granted to the Senior Lender a security interest in and to all
personal property of the Company, including all Accounts, Inventory, Equipment,
General Intangibles, Trademarks and proceeds thereof ("Collateral").
C. Concurrently herewith the Subordinated Lenders are extending credit
(collectively, the "Subordinated Debt") to the Company pursuant to the terms of
the Promissory Notes in favor of Salerno and APFC attached hereto as EXHIBITS A
and B, respectively (the indebtedness to Salerno is in the principal amount of
$1,500,000 and is hereinafter referred to as the "Salerno Debt" and the
indebtedness to APFC is in the principal amount of $3,000,000 and is hereinafter
referred to as the "APFC Debt"). The Subordinated Debt has been incurred in the
acquisition of all assets of Salerno by the Company.
D. The Subordinated Debt is secured by various security interests in and
to certain personal property of the Company including the Collateral.
E. Concurrently herewith, APFC and Polhill, jointly and severally, are
assuming the obligations of the Company under the Salerno Note in accordance
with the provisions of that certain Assignment and Assumption Agreement of even
date herewith (the "Assignment and Assumption Agreement", a copy of which is
attached hereto as EXHIBIT C). Such assumption by APFC and Polhill does not act
to release or otherwise discharge the Company from its obligations under the
Salerno Note. Salerno consents to such assumption as set forth in such
Assignment and Assumption Agreement.
F. It is a condition precedent to the obligations of the Senior Lender to
continue to extend credit accommodations to the Company pursuant to the Credit
Agreement and to permit
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funding of the Purchase by the Company of all of the assets of Salerno that the
Subordinated Lenders and the Company execute and deliver this Subordination
Agreement.
G. The Subordinated Lenders and the Company each find it advantageous,
desirable and in their respective best interests to comply with the requirement
that each execute and deliver this Subordination Agreement to facilitate the
sale and purchase of Salerno by the Company.
NOW THEREFORE, in consideration of the premises and the mutual promises
contained herein, the Senior Lender, Subordinated Lenders and the Company agree
as follows:
1. Subordination of Debt.
(a) The Subordinated Lenders and the Company covenant and agree that
the obligations of the Company with respect to any payment of principal,
interest or other amounts payable with respect to the Subordinated Debt are and
shall be subordinate, to the extent and in the manner hereinafter set forth, for
right of payment and subject to the prior payment or provision for payment in
full of all principal, interest or other amounts payable with respect to the
Senior Debt, and all amendments, renewals, extensions and refundings of the
Senior Debt; provided however that as long as none of the events described in
Sections 1(b) or 1(c) below have occurred, the Subordinated Lenders shall be
entitled to receive and retain all regularly scheduled payments of principal of
and interest on the Subordinated Debt including payment in accordance with the
terms of their respective Notes but subject to the first priority lien security
interest of the Senior Lender (but the Subordinated Lenders shall not accept,
nor shall the Company make, any prepayment on the Subordinated Debt, nor amend
the payment schedule under the Subordinated Debt, without the prior written
consent of the Senior Lender). For purposes of the foregoing, the parties hereto
acknowledge that the Salerno Debt portion of the Subordinated Debt matures on
the earlier to occur of (i) 120 days following the date hereof, or (ii)
consummation of an initial public offering of shares of the Company's common
stock, $.01 par value per share or other recapitalization (whether through one
transaction or a series of transactions) of the Company (whether through a
private placement or otherwise) from which the Company receives (whether from
such one transaction or on a cumulative basis from such series of transactions)
gross proceeds of at least $7,000,000 (the "Recapitalization"), or (iii) a sale
or other transfer of all or substantially all of the assets or equity interests
in the Company (a "Sale").
(b) Upon the maturity of the Senior Debt by demand for payment of
the Senior Debt, termination of the Credit Agreement or otherwise (including
without limitation upon any assignment, transfer or sale of all or substantially
all of the Company's business), all principal thereof and interest due thereon
shall first be paid in full, or such payment duly provided for in cash or in a
manner satisfactory to the holder of the Senior Debt, before any payment is made
on account of the principal of or interest on the Subordinated Debt.
(c) Whether or not Senior Debt is due, upon receipt by the
Subordinated Lenders and the Company of written notice from Senior Lender that
no payment may be made by the
2
<PAGE> 3
Company to the Subordinated Lenders, the Subordinated Lenders shall not accept,
and the Company shall not make, any payment of principal or interest of
Subordinated Debt. The determination to so notify the Company and the
Subordinated Lenders shall be in Senior Lender's sole and absolute discretion.
Notwithstanding the foregoing provisions of this subparagraph (c) or any other
provisions of this Agreement to the contrary, but subject in all respects to the
proviso in the first grammatical sentence of subparagraph (a) above entitling
the Subordinated Lenders to receive and retain all regularly scheduled payments
under the Subordinated Debt as long as the events described in (b) above or this
subparagraph (c) have not occurred, on the earlier of (i) receipt by the Company
of at least $7,000,000 by reason of the Recapitalization, or (ii) a Sale, or
(iii) December 1, 1998, Salerno may receive payout on the Salerno Debt without
the need to obtain any prior consent of Senior Lender, and any notice under this
subparagraph (c) theretofore given to Salerno by Senior Lender shall be deemed
automatically rescinded, terminated and of no further force and effect.
(d) In the event that, contrary to the provisions of Sections 1(b)
or 1(c) hereof, any payment or distribution of assets of the Company of any
character, whether in cash, securities or other property, is received by the
Subordinated Lenders before the Senior Debt is paid in full, such payment or
distribution will be held in trust for the benefit of, and will be paid over or
delivered to, the holder of the Senior Debt (or its duly authorized
representative) until the Senior Debt has been paid in full, after giving effect
to the concurrent payment or distribution (or provision therefor) to the holder
of the Senior Debt. Under no circumstances, however, shall the Subordinated
Lenders be obligated to turn over any scheduled interest or principal payment on
the Subordinated Debt that is received by the Subordinated Lenders pursuant to
Section 1(a) and prior to the occurrence of the earliest event specified in
Sections 1(b) or 1(c).
(e) Subject to the payment in full of the Senior Debt and only to
the extent of payments received by the Subordinated Lenders in violation of this
Agreement, the Subordinated Lenders shall be subrogated to the rights of the
holder of the Senior Debt to receive payments or distributions of cash, property
or securities of the Company applicable to the Senior Debt until all amounts
owing on the Subordinated Debt shall be paid in full, and, as between the
Company, its creditors other than the holder of the Senior Debt, and the
Subordinated Lenders, it being understood that the provisions of this Section 1
are intended solely for the purpose of defining the relative rights of the
Subordinated Lenders, on the one hand, and the holder of the Senior Debt, on the
other hand.
(f) Subject to applicable law, no right of any present or future
holder of the Senior Debt to enforce subordination as provided in this Section 1
will at any time in any way be prejudiced or impaired by any act or failure to
act, in good faith, by any such holder, or by any noncompliance by the Company
with the terms, provisions and covenants of this Subordination Agreement,
regardless of any knowledge thereof which any such holder may have or be
otherwise charged with.
2. Subordination of Security Interest.
(a) The Company and the Subordinated Lenders hereby agree that,
regardless of
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any priority otherwise available to the Subordinated Lenders by law or by
agreement, any security interest which the Subordinated Lenders may now hold or
may now or at any time hereafter acquire in any or all of the assets of the
Company, together with all proceeds thereof, is, shall be and shall remain fully
subordinate for all purposes to the security interest of the Senior Lender in
the Collateral. With respect to the Salerno Debt and the APFC Debt, Salerno and
APFC hereby agree that, regardless of any priority otherwise available to
Salerno by law or by agreement, any security interest which Salerno may now hold
or may now or at any time hereafter acquire in any or all of the assets of the
Company, together with all proceeds thereof, is, shall be and shall remain fully
subordinate for all purposes to the security interest of APFC in the Collateral.
(b) The Subordinated Lenders will not exercise any collection rights
with respect to the Collateral, will not take possession of, sell or dispose of,
or otherwise deal with, the Collateral, and will not exercise or enforce any
right or remedy which may be available to the Subordinated Lenders with respect
to the Collateral until December 1, 1998 without the prior written consent of
the Senior Lender, it being acknowledged and agreed, however, that (i) the
foregoing shall not be construed (whether by implication or otherwise) as any
modification of the Salerno Note or any provision thereof, including, without
limitation, the maturity date of the Salerno Note, (ii) the foregoing shall not
be construed (whether by implication or otherwise) as a release or wavier of any
of the obligations, agreements and covenants of the Company, APFC or Polhill
under the Salerno Note and/or the Assignment or Assumption Agreement, (iii) the
foregoing shall not be construed (whether by implication or otherwise) as any
limitation on the rights of Salerno as against Polhill and/or APFC under the
Assignment and Assumption Agreement, or otherwise, by reason of the failure of
the Company to pay the Salerno Note on its respective maturity date, and (iv)
from and after December 1, 1998 no consent of the Senior Lender shall be
required for Salerno to exercise any of its rights or remedies under the Salerno
Note (and all documents and instruments otherwise evidencing or securing the
Salerno Debt) and the Collateral.
(c) The Senior Lender may exercise collection rights, may take
possession of, sell or dispose of, and otherwise deal with, the Collateral, and
may exercise and enforce any right or remedy available prior to or after the
occurrence of an event described in Sections 1(b) or 1(c). The Senior Lender
agrees to give notice of any such action to the Company and Subordinated Lenders
which shall be deemed given upon the sending of such notice by telegraph,
telecopy or hand delivery to the undersigned at the address indicated on the
signature page hereof. The Senior Lender may apply the proceeds of the
Collateral to any indebtedness secured by the Senior Lender's above-described
security interest, in any order of application.
(d) In the event that the Company determines to sell Collateral and
the Senior Lender consents thereto, the Subordinated Lenders shall execute and
deliver unconditional releases of its security interests in the Collateral to be
sold if requested by the Company provided that the Subordinated Lenders receive
a security interest in and to substituted collateral reasonably acceptable to
the Subordinated Lenders.
(e) Neither the Subordinated Lenders nor the Senior Lender (i) makes
any
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representation or warranty concerning the Collateral or the validity, perfection
or (except as to the relative priority among the Senior Lender and Subordinated
Lenders) priority of any security interest therein, or (ii) shall have any duty
to preserve, protect, care for, insure, take possession of, collect, dispose of
or otherwise realize upon any of the Collateral.
3. Bankruptcy Issues.
(a) In the event of any insolvency, bankruptcy or similar proceeding
relating to the Company or its property, any voluntary liquidation, dissolution
or other winding up of the Company, or any assignment for the benefit of its
creditors or any other marshalling of its assets, the Senior Debt shall first be
paid in full before any payment or distribution is made on account of the
Subordinated Debt, and to that end the holder of the Senior Debt shall be
entitled to receive for application and payment thereof any payment or
distribution of any kind or character, whether in cash or property or
securities, which may be payable or deliverable in any such proceeding in
respect of the Subordinated Debt, including any such payment or distribution
which may be payable or deliverable by virtue of the provisions of any
indebtedness which is subordinate and junior in right of payment to the
Subordinated Debt. In order to enable the Senior Lender to enforce the foregoing
rights in any bankruptcy, insolvency or similar action or proceedings, the
Senior Lender is hereby irrevocably authorized and empowered in its discretion
to make present for and on behalf of the Subordinated Debt as the Senior Lender
may deem expedient and proper, and to vote such claims in any such proceedings
and to receive and collect any and all dividends or payments or disbursements
made thereon in whatever form the same may be paid or issued and to apply the
same on account of the Senior Debt. The Subordinated Lenders agrees to and does
hereby assign all such claims to the Senior Lender, and the Subordinated Lenders
further agrees to execute such instruments as may be required by the Senior
Lender to enable the Senior Lender to enforce any and all such claims and
collect any and all dividends or other payments or disbursements which may be
made on account of the Subordinated Debt.
(b) If Company becomes the subject of proceedings under the
Bankruptcy Code and if the Senior Lender desires to permit the use of cash
collateral or to provide financing to Company under either Section 363 or
Section 364 of Title 11 of the United States Code (the "Bankruptcy Code") the
Subordinated Lenders agrees that adequate notice of such financing to the
Subordinated Lenders shall have been provided if the undersigned receives notice
two (2) Business Days prior to the entry of any order approving such cash
collateral usage or financing. Notice of a proposed financing or use of cash
collateral shall be deemed given upon the sending of such notice by telegraph,
telecopy or hand delivery to the undersigned at the address indicated on the
signature page hereof. All allocations of payments between the Senior Lender and
the Subordinated Lenders shall continue to be made after the filing of a
petition under the Bankruptcy Code on the same basis that the payments were to
be allocated prior to the date of such filing. The Subordinated Lenders agrees
not to assert any right it may have to "adequate protection" of its interest in
any security for the Subordinated Debt in any bankruptcy proceeding, or to seek
to have its claims in such bankruptcy proceeding treated as "secured claims"
under Section 506(a) of the Bankruptcy Code, without the prior written consent
of the Senior Lender. To the extent that the Senior Lender receives payments on,
or proceeds of any collateral for, the Senior Debt which are subsequently
avoided,
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invalidated, declared to be fraudulent or preferential, set aside and/or
required to be prepaid to a trustee, receiver or any other party under any
bankruptcy law, state or federal law, common law or equitable cause, then, to
the extent of such payment or proceeds received, the Senior Debt, or part
thereof, intended to be satisfied shall be revived and continue in full force
and effect as if such payments or proceeds had not been received by the Senior
Lender.
4. Instrument Legend. Any agreement or instrument evidencing the
Subordinated Debt and/or the security interest held by the Subordinated Lenders,
or any portion thereof, which has been or is hereafter executed by the Company
will, on the date hereof or the date of execution, be inscribed with a legend
conspicuously indicating that payment thereof or the security interest held by
the Subordinated Lenders, as the case may be, is subordinated to the claims or
the security interests of the Senior Lender pursuant to the terms of this
Agreement. A copy of any such agreement or instrument will be delivered to the
Senior Lender within five (5) Business Days after the date hereof or the date of
its execution, and the original thereof will be immediately delivered to the
Senior Lender upon request therefor by the Senior Lender after the occurrence of
an Event of Default.
5. Transfer of the Subordinated Debt. Each of the Subordinated Lenders
warrants and represents that it has not previously assigned any interest in the
Subordinated Debt and that no other party owns an interest in the Subordinated
Debt. The Subordinated Lenders further covenants and agrees that it will not
assign or transfer the Subordinated Debt or its security interest in the
Collateral to any other person without the prior written consent of the Senior
Lender. Such consent will be conditioned upon satisfactory proof that any
purchaser or transferee of, or successor to, the Subordinated Debt or any
security interest of the Subordinated lenders in any or all of the Collateral
has been given detailed written notice of the subordination accomplished hereby,
prior to the time of purchase, transfer or succession, and agrees to be bound by
the same on terms satisfactory to the Senior Lender. Notwithstanding the
foregoing, Senior Lender hereby consents to the assignment among and between the
members of Salerno of their respective rights to receive payment under the
Salerno Note, and no consent of the Senior Lender shall be required in
connection therewith.
6. Rights Unimpaired. Nothing contained in this Agreement is intended to
or shall impair, as between the Company, its creditors other than the holder of
the Senior Debt, and the Subordinated Lenders, the obligation of the Company,
which is absolute and unconditional, to pay to the Subordinated Lenders the
principal of and interest on the Subordinated Debt as and when the same shall
become due and payable in accordance with its terms, or affect the relative
rights of the Subordinated Lenders and creditors of the Company other than the
holder of the Senior Debt, nor shall anything herein prevent the Subordinated
Lenders from exercising all remedies otherwise permitted by applicable law upon
default under the Subordinated Debt (other than the right to foreclose on the
Collateral), subject to the rights, if any, under this Agreement of the holder
of the Senior Debt in respect of cash, property or securities of the Company
received upon the exercise of any such remedy.
7. Termination of Agreement. Upon irrevocable payment in full of the
Senior Debt, this
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Agreement shall terminate, provided that if any payment received by the Senior
Lender and applied to the Senior Debt is subsequently set aside, recovered,
rescinded or required to be returned for any reason (including, without
limitation, the bankruptcy, insolvency or reorganization of the Company or any
other obligor), the Senior Debt to which such payment was applied shall for the
purposes of this Agreement be deemed to have continued in existence,
notwithstanding such application, and this Agreement shall be enforceable as to
such Senior Debt as fully as if such application had never been made. References
in this Agreement to amounts "irrevocably paid" or to "irrevocable payment"
refer to payments that cannot be set aside, recovered, rescinded or required to
be returned for any reason.
8. Information Concerning Financial Condition of Company. The Subordinated
Lenders warrants and agrees that it is the responsibility of the Subordinated
Lenders to keep informed of the financial condition of the Company, any and all
endorsers and any and all guarantors of the Subordinated Debt and of all other
circumstances bearing upon the risk of nonpayment of the Senior Debt and/or the
Subordinated Debt that diligent inquiry would reveal. The Subordinated Lenders
hereby agrees that the Senior Lender shall have no duty to advise the
Subordinated Lenders of information known to the Senior Lender regarding such
condition or any such circumstances, it being acknowledged and agreed, however,
by the Company that the Company, concurrent with delivery of same to Senior
Lender, shall deliver or cause to be delivered to the Subordinated Lenders a
copy of all financial and operating information sent by the Company to the
Senior Lender and the Company shall deliver to Subordinated Lenders a copy of
all notices sent to or received from the Senior Lender. In the event the Senior
Lender, in its sole discretion, undertakes at any time or from time to time, to
provide any such information to the Subordinated Lenders, the Senior Lender
shall be under no obligation to (i) to provide any such information to the
undersigned on any subsequent occasion, (ii) to undertake any investigation not
a part of its regular business routine, or (iii) to disclose any information
which, pursuant to its usual practices, the Senior Lender wishes to maintain
confidential. The undersigned hereby agrees that all payments received by the
Senior Lender may be applied, reversed, and reapplied, in whole or in part, to
any of the Senior Debt, as the Senior Lender, in its sole discretion, deems
appropriate and assents to any extension or postponement of the time of payment
of the Senior Debt or to any other indulgence with respect thereto, to any
substitution, exchange or release of collateral which may at any time secure the
Senior Debt and to the addition or release of any Person primarily or
secondarily liable therefor.
9. Waiver of Jury Trial; Jurisdiction. (a) THE SUBORDINATED LENDERS BY THE
EXECUTION AND DELIVERY THEREOF, AND THE SENIOR LENDER BY ITS ACCEPTANCE HEREOF,
HEREBY EXPRESSLY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING
TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT OR DOCUMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN
CONNECTION HEREWITH OR ARISING FROM ANY CREDIT RELATIONSHIP EXISTING IN
CONNECTION WITH THIS AGREEMENT, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING
SHALL BE TRIED BEFORE A COURT NOT BEFORE A JURY.
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(b) THE SUBORDINATED LENDERS HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR
RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED LENDERS HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT THE SUBORDINATED LENDERS MAY EFFECTIVELY DO SO, THE
DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING.
10. Miscellaneous. This Agreement is made under the laws of the State of
Minnesota. It cannot be waived or changed, except in writing signed by the party
to be bound thereby. The headings of the sections of this Agreement have bee
inserted for convenience of reference only and do not constitute a part of this
Agreement. All notices and other communications required or permitted under this
Agreement shall be in writing and shall be delivered, or mailed first class
postage prepaid, registered or certified mail, to the parties at the address
appearing under their signatures, or such other address as any party may specify
by written notice to the other parties. All such notices and other
communications for all purposes of this Agreement shall be treated as being
effective or having been given if delivered upon receipt or, if sent by mail as
provided above, upon the earlier of receipt of the fifth (5th) day following the
date of deposit in the United Sates Mail.
IN WITNESS WHEREOF, the Company, the Subordinated Lenders and the Senior
Lender have caused this Agreement to be signed on the date first dated above.
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry Weiner
--------------------------------------
Its CFO
Address: Suite 128
2720 River Road
DesPlaines, Illinois 60018
AMERICAN PACIFIC FINANCIAL
CORPORATION, a California Corporation
By:_______________________________________
Its______________________________________
Address: 225 W. Hospitality Lane, Suite 201
8
<PAGE> 9
San Bernadino, California 92408
[Signatures Continued on Following Page]
9
<PAGE> 10
(b) THE SUBORDINATED LENDERS HEREBY IRREVOCABLY SUBMITS TO THE
JURISDICTION OF ANY MINNESOTA STATE OR FEDERAL COURT SITTING IN HENNEPIN OR
RAMSEY COUNTY, MINNESOTA OVER ANY ACTION OR PROCEEDING ARISING OUT OF OR
RELATING TO THIS AGREEMENT. THE SUBORDINATED LENDERS HEREBY IRREVOCABLY WAIVES,
TO THE FULLEST EXTENT THE SUBORDINATED LENDERS MAY EFFECTIVELY DO SO, THE
DEFENSE OF ANY INCONVENIENT FORUM TO THE MAINTENANCE OF SUCH ACTION OR
PROCEEDING.
10. Miscellaneous. This Agreement is made under the laws of the State of
Minnesota. It cannot be waived or changed, except in writing signed by the party
to be bound thereby. The headings of the sections of this Agreement have bee
inserted for convenience of reference only and do not constitute a part of this
Agreement. All notices and other communications required or permitted under this
Agreement shall be in writing and shall be delivered, or mailed first class
postage prepaid, registered or certified mail, to the parties at the address
appearing under their signatures, or such other address as any party may specify
by written notice to the other parties. All such notices and other
communications for all purposes of this Agreement shall be treated as being
effective or having been given if delivered upon receipt or, if sent by mail as
provided above, upon the earlier of receipt of the fifth (5th) day following the
date of deposit in the United Sates Mail.
IN WITNESS WHEREOF, the Company, the Subordinated Lenders and the Senior
Lender have caused this Agreement to be signed on the date first dated above.
THE DELICIOUS FROOKIE COMPANY, INC.
By:_______________________________________
Its______________________________________
Address: Suite 128
2720 River Road
DesPlaines, Illinois 60018
AMERICAN PACIFIC FINANCIAL
CORPORATION, a California Corporation
By: /s/ Robert D. Long
--------------------------------------
Its Vice President
Address: 225 W. Hospitality Lane, Suite 201
San Bernadino, California 92408
[Signatures Continued on Following Page]
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<PAGE> 11
LARRY POLHILL
/s/ Larry Polhill
------------------------------------------
------------------------------------------
Address: 225 W. Hospitality Lane, Suite 201
San Bernadino, California 9240
SALERNO FOODS, L.L.C.
By: /s/ Robert D. Long
--------------------------------------
Its Managing Member
Address: 150 N. Wacker Drive
Chicago, Illinois 60606
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC. f.k.a. REPUBLIC ACCEPTANCE
CORPORATION
By:_______________________________________
Its______________________________________
Address: 2238 Central Avenue N.E.
Minneapolis, Minnesota 55418
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<PAGE> 12
LARRY POLHILL
------------------------------------------
------------------------------------------
Address: 225 W. Hospitality Lane, Suite 201
San Bernadino, California 9240
SALERNO FOODS, L.L.C.
By: /s/ Robert D. Long
--------------------------------------
Its Managing Member
Address: 150 N. Wacker Drive
Chicago, Illinois 60606
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC. f.k.a. REPUBLIC ACCEPTANCE
CORPORATION
By: /s/ Barry Davis
--------------------------------------
Its Relationship Manager
Address: 2238 Central Avenue N.E.
Minneapolis, Minnesota 55418
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<PAGE> 1
Exhibit 10.34
LOAN AGREEMENT
This Loan Agreement ("Agreement") is entered into as of April 3, 1998,
between The Delicious Frookie Company, a Delaware corporation ("Borrower"), and
American Pacific Financial Corporation, a California corporation ("Lender").
With reference to the following:
WHEREAS, Borrower desires to borrow from Lender the sum of Four Million
Six Hundred Thousand Dollars ($4,600,000) (the "Loan") for the purpose of
acquiring all of the business and assets of Salerno Foods, L.L.C., a Delaware
limited liability company ("Salerno").
WHEREAS, the terms of Borrower's acquisition of the assets of Salerno
provide for a purchase price of $5,000,000, comprised of $3,000,000 in cash,
$1,500,000 in the form of a promissory note (the "Purchase Note") of Borrower
plus the assumption of certain liabilities, at the close of such acquisition
(the "Closing").
WHEREAS, as a condition to the Closing, Salerno has required Lender to
unconditionally guarantee or become the primary obligor under the Purchase Note
of Borrower.
WHEREAS, Lender is willing to become the primary obligor under the
Purchase Note, provided, Borrower agrees to reimburse Lender on the terms
contained herein.
WHEREAS, Lender is willing to lend Borrower money on the terms stated in
this Agreement.
Now, therefore, Borrower and Lender agree as follows:
1. THE LOAN
a. Agreement to Lend. On Borrower's request for the funding (the
"Funding"), Lender will lend to Borrower the sum of Four Million Six Hundred
Thousand Dollars ($4,600,000) consisting of the net proceeds to Lender of a loan
from a third party to Lender in the principal amount of $3,000,000 to be funded
substantially concurrently with the Closing, delivered in cash or clear funds,
$1,500,000 in the form of assuming primary liability under the Purchase Note
(the "Assumption Amount"), evidenced by the Assignment and Assumption Agreement
of even date herewith, attached as Exhibit A and incorporated herein by this
reference and a further $100,000 as described in subparagraph d below. The Loan
shall be evidenced by a promissory note ("Note") attached as Exhibit B, and
incorporated herein by this reference. The Note shall be executed by Borrower at
the Funding, dated concurrently therewith. Concurrently with the Funding, Lender
and Borrower shall execute the Assignment and Assumption Agreement.
<PAGE> 2
b. Interest. The term "Applicable Interest Rate" as used in this
Loan Agreement with respect to the Note shall mean an interest rate equal to
twelve percent (12%) per annum computed on the basis of a 360-day year and
actual days elapsed, payable monthly in advance.
Upon the occurrence of an Event of Default under the terms of this
Agreement, the Note or the Security Agreement, Lender shall be entitled to
receive and Borrower shall pay interest on the entire unpaid principal sum at a
rate (the "Default Rate") equal to (i) the greater of (a) the Applicable
Interest Rate plus three percent (3%) or (b) the Prime Rate (as hereinafter
defined) plus six percent (6%) or (ii) the maximum interest rate that Borrower
may by law pay, whichever is lower. The Default Rate shall be computed from the
occurrence of the Event of Default until the earlier of the date upon which the
Event of Default is cured or the date upon which the Debt is paid in full.
Interest calculated at the Default Rate shall be added to the Debt, and shall be
deemed secured by the Security Agreement. This clause, however, shall not be
construed as an agreement or privilege to extend the date of the payment of the
Debt, nor as a waiver of any other right or remedy accruing to Lender by reason
of the occurrence of any Event of Default.
The "Prime Rate" shall mean the annual rate of interest publicly
announced by The Wall Street Journal in its Western Edition, as such rate may
exist from time to time. If more than one Prime Rate is published in The Wall
Street Journal for a day, the average of the Prime Rates shall be used, and such
average shall be rounded up to the nearest one-quarter of one percent (.25%). If
The Wall Street Journal ceases to publish the "Prime Rate" the Lender shall
select an equivalent publication that publishes such "Prime Rate", and if such
prime rate is no longer generally published or is limited, regulated or
administered by a governmental or quasi-governmental body, then Lender shall
select a comparable interest rate index.
The interest provisions in this Agreement and the Note are subject
to the express condition that at no time shall Borrower be obligated or required
to pay interest on the principal balance at a rate which could subject Lender to
either civil or criminal liability as a result of being in excess of the maximum
interest rate which Borrower is permitted by applicable law to contract or agree
to pay. If by the terms of this Note, Borrower is at any time required or
obligated to pay interest on the principal balance at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due. All
sums paid or agreed to be paid to Lender for the use, forbearance or detention
of the Debt, shall, to the extent permitted by applicable law, be amortized,
prorated, allocated and spread throughout the full stated term of the Promissory
Note until payment in full so that the rate or amount of interest on account of
the Debt does not exceed the maximum lawful rate of interest from time to time
in effect and applicable to the Debt for so long as the Debt is outstanding.
c. Maturity. All principal and interest then unpaid under the Loan
is due and payable on the earlier of: (i) 120 days from date first written
above, or (ii) consummation of an initial public offering of shares of the
Borrower's common stock, $.01 par value per share, or other
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<PAGE> 3
recapitalization (whether through one transaction or a series of transactions)
of the Borrower (whether through a private placement or otherwise) from which
the Borrower receives (whether from such one transaction or on a cumulative
basis from such series of transactions) gross proceeds of at least $7,000,000,
or (iii) a sale or other transfer of all or substantially all of the assets or
equity interests in the Borrower.
d. Loan Fee. Borrower will pay to Lender a Loan Fee in the amount of
One Hundred Thousand Dollars ($100,000). Such Loan Fee shall be paid
concurrently with the Funding by deduction of such amount from the Loan proceeds
delivered to Borrower by Lender upon Funding. Such fee shall be fully earned and
non-refundable upon Funding.
e. Prepayment. Provided no Event of Default exists, the principal
balance of the Note may be prepaid, in whole but not in part, upon: (i) not less
than 15 days and not more than 30 days prior written notice (the "Prepayment
Notice") to Lender specifying the scheduled payment date on which prepayment is
to be made (the "Prepayment Date"); (ii) payment of all accrued and unpaid
interest on the outstanding principal balance of the Note to and including the
Prepayment Date together with a payment of all interest which would have accrued
on the principal balance of the Note to and including the first day of the
calendar month immediately following the Prepayment Date, if such prepayment
occurs on a date which is not the first day of a calendar month (the "Shortfall
Interest Payment"); (iii) payment of all other sums then due under the Note, and
the Security Agreement and (iv) payment of a prepayment consideration (the
"Prepayment Consideration") in an amount equal to one percent (1%) of the
principal amount of the Note being prepaid. If a Prepayment Notice is given by
Borrower to Lender, the principal balance of the Note and the other sums
required by the Note, Security Agreement or Loan Agreement shall be due and
payable on the Prepayment Date.
Lender shall not be obligated to accept any prepayment of the
principal balance of the Note unless it is accompanied by all sums due in
connection therewith. Notwithstanding anything contained herein to the contrary,
provided no Event of Default exists, no Prepayment Consideration shall be due in
connection with a complete or partial prepayment resulting from the application
of Proceeds as set forth in the Security Agreement and partial prepayments may
be made from such Proceeds.
If a Default Prepayment occurs, Borrower shall pay to Lender the
entire Debt, including, without limitation, the Prepayment Consideration. The
term "Default Prepayment" shall mean a prepayment of the principal amount of the
Note made during the continuance of any Event of Default or after an
acceleration of the Maturity Date under any circumstances, including, without
limitation, a prepayment occurring in connection with reinstatement of the
Security Agreement provided by statute or exercise of a power of sale, any
statutory right to redeem the Collateral or otherwise.
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<PAGE> 4
2. SECURITY AGREEMENT
The Loan shall be secured by a security agreement in the form attached as
Exhibit C executed by Borrower as debtor to Lender as secured party, granting
Lender a security interest in all equipment, accounts receivable, inventory,
real property, personal property, all assets acquired in its acquisition of the
business and assets of Salerno, proceeds of the foregoing, and all other assets
of Borrower, whether tangible or intangible, whether now owned or hereafter
acquired, and as set forth in the Security Agreement.
3. CONDITIONS PRECEDENT
Lender's obligation to make the Loan is subject to the condition that, on
or before the Funding (the "Closing Date"), there shall have been delivered to
Lender in form and substance satisfactory to Lender and its counsel:
a. Corporate Resolutions. A copy of a resolution or resolutions
passed by the Borrower's board of directors and certified by the Borrower's
secretary or assistant secretary as being in full force and effect on the
Closing Date, authorizing the borrowing provided for in this Agreement, and the
execution, delivery and performance of this Agreement, the Note, Security
Agreement and any other instrument or agreement required under this Agreement,
as set forth in Exhibit D attached.
b. Lack of Material Changes. Evidence satisfactory to Lender that
since the date of Borrower's last audited financial statement, there has been no
material adverse change in Borrower's financial condition or results of
operations.
c. Executed Loan Documents. Fully executed copies of the Note,
Security Agreement and Forms UCC-1 financing statements with respect to the
Collateral.
d. Certificate of Incumbency. A certificate, signed by the secretary
or an assistant secretary of Borrower and dated the Closing Date, certifying the
incumbency of the person or persons authorized to execute and deliver on behalf
of Borrower this agreement and any note or other instrument or agreement
required under this Agreement, as set forth in Exhibit E attached.
e. Officer's Certificate. An officer's certificate that the
representations and warranties contained in Section 4 hereof are true and
accurate, as set forth in Exhibit F.
f. Articles of Incorporation. A copy of Borrower's Articles of
Incorporation certified by the Secretary of Borrower.
g. Bylaws. A copy of the Borrower's Bylaws certified by the
Secretary of Borrower.
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<PAGE> 5
h. Certificate of Good Standing. A Certificate of good standing for
Borrower dated within fifteen (15) days of Funding from the State of Delaware.
i. Certificates of Authority. Certificates of authority from every
jurisdiction in which the lawful conduct of Borrower's business, either before
or anticipated after Closing requires such authority.
j. Opinion of Counsel. Lender shall have received an opinion of
Borrower's counsel in the form and substance of Exhibit G attached hereto and
incorporated herein by this reference.
4. REPRESENTATIONS AND WARRANTIES
Borrower represents and warrants to Lender that the following statements
are true, correct and complete as of the Closing Date:
a. Organization and Standing. Borrower is a corporation duly
organized and validly existing under the laws of the jurisdiction of its
incorporation with its chief executive office located at 2720 River Road, Suite
126, Des Plaines, Illinois 60018. It has the requisite power and authority to
own its property and to carry on its business as it is now being conducted.
Borrower has made all filings and is in good standing in the jurisdiction of its
incorporation and in each other jurisdiction in which the nature of the business
it transacts or the character of property it owns makes such filings necessary,
except where the failure to maintain good standing will not cause any adverse
material change in Borrower's business, operations, assets, properties or
conditions whether financial or otherwise (a "Borrower Material Adverse
Effect");
b. Affiliates. Borrower does not own or control, directly or
indirectly, any interest or investment (whether equity or debt) in any
corporation, association, partnership, business, trust or other entity, except
the business of Salerno, which will be so controlled following the Closing Date;
c. Authority. Borrower has the requisite power and authority to
borrow the sums provided for in this agreement, to execute and deliver this
Agreement and any note or other instrument or Agreement required under this
Agreement, and to perform and observe the terms and provisions of this Agreement
and of all such other notes, instruments and agreements;
d. Approval. All corporate action by Borrower, its directors or
stockholders, necessary for the authorization, execution, delivery and
performance of this Agreement and any note or other instrument or agreement
required under this Agreement, has been duly taken and no governmental approval
is required.
e. Officers. The officers of Borrower executing this Agreement and
any note or other instrument or agreement required under this Agreement are duly
and properly elected to or appointed to office and fully authorized to execute
them;
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<PAGE> 6
f. Binding Effect. This Agreement has been duly executed and
delivered by Borrower, and constitutes the legal, valid and binding obligation
of Borrower, enforceable against it in accordance with its terms and the Note,
Security Agreement and any other instrument or agreement required under this
Agreement, when executed and delivered by Borrower, will similarly constitute
the legal, valid and binding obligation of Borrower, enforceable against it in
accordance with their respective terms;
g. Contravention. There is no charter, bylaw or capital stock
provision of Borrower, and no provision of any indenture or agreement, written
or oral, to which Borrower is a party or under which Borrower is obligated, nor
is there any statute, rule or regulation, or any judgment, decree or order of
any court or agency binding on Borrower which would be contravened by the
execution and delivery of this Agreement, or the Note, Security Agreement or
other instrument or agreement required under this Agreement, or by the
performance of any provision, condition, covenant or other term of this
Agreement, the Note, Security Agreement or any other instrument or agreement;
h. Title to Property. All property owned by Borrower and all
property covered by the Security Agreement is owned by Borrower free and clear
of all liens, encumbrances and rights of others, except encumbrances existing as
of the Closing Date, the preexisting security interest of U.S. Bancorp Republic
Commercial Finance, Inc. f.k.a. Republic Acceptance Corporation and the security
interest of Salerno Foods, L.L.C., to be granted at Closing and permitted
encumbrances as set forth in Section 6(e) below;
i. Disputes. Except as set forth on Schedule 4(i), no litigation,
tax claim, proceeding or dispute is pending, or, to Borrower's knowledge,
threatened against or affecting Borrower or its property which could have a
Borrower Material Adverse Effect;
j. Default. No event has occurred and is continuing or would result
from the making of the Loan that constitutes an Event of Default as defined in
this Agreement, the Note or the Security Agreement or which, on the lapse of
time or notice or both, would become such an Event of Default;
k. Financial Information. All financial information and other data
furnished by Borrower to Lender are complete and correct. Borrower's financial
statements dated December 31, 1996 and 1997, respectively, have been prepared in
accordance with generally accepted accounting principles and practices
consistently applied, and fairly represent the financial condition and results
of operations of Borrower as of such dates. Since December 31, 1997, there has
been no material adverse change in Borrower's financial condition or results of
operations. Borrower has no contingent obligations, liabilities for taxes or
other outstanding financial obligations which (in the aggregate) are material,
except as: (i) disclosed in such statements, information and data or (ii)
incurred in the ordinary course of business;
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<PAGE> 7
l. Security Interest. Except for the due filing of any financing
statement regarding the Collateral and except for the delivery to Lender of any
of the Collateral for which a security interest may be perfected only by
possession, no further action is necessary to establish and perfect Lender's
security interest in the Collateral described in this Agreement, the Security
Agreement or the Note; and
m. Pension Liabilities. Borrower has not incurred any material
accumulated funding deficiency within the meaning of ERISA and has not incurred
any material liability to the Pension Benefit Guaranty Corporation ("PBGC") or
any successor thereto established under ERISA, in connection with any Plan or
other class of benefit that the PBGC has elected to insure. As used in this
Agreement, "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended. "Plan" means any employee benefit plan subject to the provisions of
ERISA.
5. AFFIRMATIVE COVENANTS
Borrower agrees until the full and final payment of the Loan and all other
obligations outstanding under this Agreement, it will, unless Lender waives
compliance in writing:
a. Use of Loan Proceeds. Use the proceeds of the Loan in the amount
of Four Million Five Hundred Thousand Dollars ($4,500,000) only to fund the
acquisition of all the business and assets of Salerno.
b. Information to Lender. Promptly give written notice to Lender of:
(1) all litigation affecting Borrower when the amount claimed
is One Hundred Thousand Dollars ($100,000) or more;
(2) any dispute which may exist between Borrower and any
governmental regulatory body or law enforcement authority which could have a
Borrower Material Adverse Effect;
(3) any labor controversy resulting in or threatening a strike
against Borrower;
(4) any proposal by any public authority to acquire Borrower's
assets or business or to engage in activities competitive with Borrower;
(5) any Event of Default or any event that, with the lapse of
time or notice or both, would become an Event of Default; and
(6) any other matter that has resulted or might result in a
Borrower Material Adverse Effect;
c. Reports to Lender. Deliver to Lender, in form and detail
reasonably satisfactory to Lender, and in the number of copies Lender may
reasonably request:
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<PAGE> 8
(1) as soon as available but no later than fifty (50) days
after the end of each of the first three quarters of each fiscal year of
Borrower, its balance sheet as of the end of such quarter, and its income
statement, reconciliation of capital accounts and statement of sources and uses
of funds for such quarter, and for the portion of the fiscal year ending with
such quarter, all certified by a responsible officer of Borrower as fairly
representing Borrower's financial condition and results of operations at the
times and for the periods therein stated;
(2) as soon as available but no later than one hundred twenty
(120) days after the close of each fiscal year of Borrower, a complete copy of
its financial statements, which shall include at least its balance sheet as of
the end of that year, and its income statement, reconciliation of capital
accounts and statement of sources and uses of funds for the year, certified by
an independent public accountant selected by Borrower and satisfactory to Lender
in its reasonable discretion. The certificate shall not be qualified or limited
because of restricted or limited examination by the accountant of any material
portion of Borrower's records, and shall include or be accompanied by a
statement that during the examination the accountant observed no Event of
Default or circumstance which, with the lapse of time or notice or both, would
constitute an Event of Default, or if an Event of Default or circumstance
exists, a statement specifying the nature and status thereof; and
(3) any or all other statement or statements, lists of
property and accounts, budgets, forecasts or reports regarding Borrower as
Lender may reasonably request.
d. Additional Acts. Perform such acts as may be necessary or
advisable to perfect any lien or security interest provided for in this
Agreement, the Note or Security Agreement or otherwise to carry out the intent
of such documents;
e. Operation of Business.
(1) Maintain and preserve its corporate existence and all
rights, privileges, licenses, trade names, franchises and other rights necessary
for the conduct of its business; conduct its business in an orderly manner,
without voluntary interruption; maintain its properties in good working order
and condition, ordinary wear and tear excepted; from time to time make all
needed repairs to, and renewals or replacements of, its properties so that the
efficiency of those properties shall be fully maintained and preserved, and
maintain its chief executive office in the State of Illinois where it is now
maintained.
(2) Pay and discharge, before they become delinquent and
before penalties accrue on them, all taxes, assessments and governmental charges
on or against Borrower or any of its properties, and all Borrower's other
liabilities at any time existing, except to the extent and as long as:
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<PAGE> 9
(i) The same are being contested in good faith and by
appropriate proceedings so as not to cause any materially adverse effect on
Borrower's financial condition or the loss of any right of redemption from any
sale thereunder; and
(ii) Borrower shall have set aside on its books reserves
(segregated to the extent required by generally accepted accounting principles)
adequate with respect thereto.
(3) Maintain fire (including use and occupancy), public
liability, property damage and workers' compensation insurance, which must be
reasonably satisfactory to Lender as to amount, nature and carrier.
(4) Maintain adequate books, accounts and records and prepare
all financial statements required under this Agreement according to generally
accepted accounting principles and practices consistently applied; and permit
employees or agents of Lender at any reasonable time to inspect Borrower's
properties, and, if an Event of Default has occurred and is continuing, to
examine or audit Borrower's books, accounts and records and make copies and
memoranda of them;
f. Sales of Capital Assets. Apply the proceeds of sales of its fixed
or capital assets at Lender's option to:
(1) the principal of the Loan;
(2) replacement of the assets sold;
(3) a reserve for future purchase of fixed or capital assets;
or
(4) working capital reserves.
6. NEGATIVE COVENANTS
Borrower covenants and agrees until full and final payment the Loan and
all other obligations outstanding under this Agreement it will not, without the
prior written consent of Lender:
a. Dividends. Declare or pay any dividends on any of its shares
except dividends payable in Borrower's capital stock or dividends payable only
on series of preferred stock that Borrower may issue in connection with the
exchange of Borrower's outstanding debentures;
b. Redemption. Purchase, redeem or otherwise acquire for value, any
of its shares, or create any sinking fund in relation to any of its shares;
c. Liquidation. Liquidate or dissolve, or begin any proceeding
therefor; or enter into any consolidation, merger, pool, joint venture,
syndicate or other combination where Borrower is not
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<PAGE> 10
the surviving entity; or sell, lease or dispose of its business or assets as a
whole or such part as in the opinion of Lender constitutes a substantial portion
of its business or assets;
d. Liabilities. Become liable as a surety, guarantor, accommodation
endorser or otherwise, for or on the obligation of any other person, firm or
corporation; create, incur, assume or permit to exist any liabilities resulting
from borrowings, loans, advances or the granting of credit, whether secured or
unsecured, except for: (1) the Loan provided for in this Agreement; (2)
indebtedness already in existence on the date of this Agreement; (3) the
endorsement of negotiable instruments received in the normal course of
Borrower's business; or the sale or transfer, either with or without recourse,
of any accounts or notes receivable or any monies due or to become due; (4)
trade debt incurred in the ordinary course of business whether or not for money
borrowed; (5) intercompany liabilities; (6) the Purchase Note and related
security agreements; (7) debt incurred pursuant to the First Amendment to the
Financing Agreement with U.S. Bancorp Republic Commercial Finance, Inc. f.k.a.
Republic Acceptance Corporation; and (8) any other debt incurred in the ordinary
course of business.
e. Borrowing. Create, incur, assume or permit to exist any mortgage,
deed of trust, encumbrance or other lien (including a lien of attachment,
judgment or execution), or security interest (including the interest of a
conditional seller of goods), securing a charge or obligation, of or on any of
its property, real or personal, whether now owned or hereafter acquired, except:
(1) any lien or charge for a tax, assessment or other
governmental charge that is not delinquent or remains payable without any
penalty, or the validity of which is contested in good faith by appropriate
proceedings on stay of execution of the enforcement of the lien or charge;
(2) deposits or pledges to secure (a) statutory obligations,
(b) surety or appeal bonds, (c) bonds for release of attachment, stay of
execution or injunction, or (d) performance of bids, tenders, contracts (other
than for the repayment of borrowed money) or leases, or for like purposes in the
ordinary course of Borrower's business;
(3) mechanic's, workers', materialmen's, landlords', carriers'
or other like liens arising in the ordinary and normal course of business for
obligations that are not due or that are being contested in good faith;
(4) minor encumbrances that do not, in the aggregate,
materially detract from the value of Borrower's property or assets or materially
impair their use in the operation of the business of Borrower;
(5) purchase-money security interests in personal property
acquired after the date of this Agreement when the obligation secured does not
exceed 50 percent of the cost of the property purchased and the security
interest does not extend beyond the property purchased;
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(6) liens in favor of Lender, U.S. Bancorp Republic
Commercial Finance, Inc. f.k.a. Republic Acceptance Corporation or Salerno; and
(7) liens in existence as of the Closing Date.
f. Disposition. Dispose of any of its assets individually in an
amount in excess of $100,000 except in the ordinary course of its business and
for full, fair and reasonable consideration, or enter into any sale and
leaseback agreement covering any of its fixed or capital assets, or dispose of
its assets as a whole or such part of its assets as, in the opinion of Lender,
constitutes a substantial portion of its assets; and
7. EVENTS OF DEFAULT
The occurrence of any of the following events shall constitute an Event of
Default under this Agreement:
a. Failure to Pay. Borrower shall fail to pay, within five (5) days
after the date when due, any installment of interest or principal in accordance
with the terms of this Agreement or of the Note evidencing the Loan;
b. Misrepresentation. Any representation or warranty by Borrower in
this Agreement or in any agreement, instrument or certificate executed under
this Agreement or in connection with any transaction contemplated by this
Agreement shall be false or misleading in any material respect when made;
c. Judgment. Any money judgment, writ or warrant of attachment, or
similar process shall be entered or filed against Borrower or any of its
properties or other assets against Borrower, which exceeds individually or
together with ann other such judgments entered against Borrower, $500,000 in
amount and such judgment shall continue for a period of thirty (30) days without
being stayed or dismissed through appropriate appellate proceedings;
d. Insolvency. Borrower (1) admits in writing its inability to pay
its debts when due; or (2) makes an assignment for the benefit of creditors; or
(3) applies for or consents to the appointment of any receiver, trustee,
custodian or similar officer for Borrower or for any substantial part of its
property; or (4) institutes (by petition, application or otherwise) or consents
to any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, dissolution, liquidation or similar proceedings under the laws of any
jurisdiction against Borrower; or (5) approves or adopts any resolution or
otherwise authorizes action to approve any of the foregoing;
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e. Receiver. Without Borrower's application or consent, (1) a
receiver, trustee, custodian or similar officer is appointed for Borrower or for
any substantial part of its property, or (2) any bankruptcy, insolvency,
reorganization, arrangement, readjustment of debt, dissolution, liquidation or
similar proceedings under the laws of any jurisdiction is instituted (by
petition, application or otherwise) against Borrower and the appointment or
proceedings remain unstayed or undismissed for a period of 60 days;
f. Existing Loan Default. Any default shall occur under any other
agreement pertaining to the borrowing of money or the advance of credit to which
Borrower may be a party as borrower or under any note executed by Borrower as
maker of the note, if that default gives to the holder of the obligation
concerned the right to accelerate the indebtedness and such default could have a
Borrower Material Adverse Effect;
g. Default Under Security Agreement. Borrower shall fail to observe
or perform any provision of the Security Agreement or Note or any other
agreement executed by Borrower in connection with this Agreement; and
h. ERISA. If (1) any Plan subject to Title IV of ERISA and
maintained for the employees of Borrower shall be terminated under Subtitle C of
Title IV of ERISA, or (2) a trustee shall be appointed by the appropriate United
States District Court to administer any Plan, or (3) the Pension Benefit
Guaranty Corporation (PBGC) shall institute proceedings to terminate any Plan,
or (4) any Plan fails to satisfy the minimum funding standard for the Plan for a
Plan year as established in Section 412 of the Internal Revenue Code, as
amended.
8. REMEDIES
On the occurrence and during the continuance of an Event of Default under
this Agreement, without further act, the unpaid principal amount of the Note
which is outstanding under the Loan, together with all accrued interest thereon
and any fees and other amounts owing under this Agreement, shall automatically
accelerate and become immediately due and payable, without presentment, demand,
protest or notice of any kind, all of which are hereby expressly waived,
anything herein or in the Note or other instrument or agreement to the contrary
notwithstanding.
9. NOTICES
All notices or other written communications hereunder shall be deemed to
have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged by the recipient thereof, (ii)
one (1) Business Day, as defined below, after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
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If to Borrower: The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, Illinois 60018
Attention: Michael Kirby
Facsimile No. (847) 699-5940
With a copy to: Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, NY 10022-1170
Attention: Jeffrey S. Spindler
Facsimile No. (212) 755-1467
If to Lender: American Pacific Financial Corporation
225 W. Hospitality Lane, Suite 201
San Bernardino, California 92408
Attention: Larry R. Polhill
Facsimile No. (909) 387-0810
With a copy to: Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, California 92037
Attention: David A. Fisher
Facsimile No. (619) 535-1616
or addressed as such party may from time to time designate by written notice to
the other parties. Either party by notice to the other may designate additional
or different addresses for subsequent notices or communications. "Business Day"
shall mean a day upon which commercial banks are not authorized or required by
law to close in Los Angeles, California.
10. SUCCESSORS AND ASSIGNS
The provisions of this Agreement shall bind and inure to the benefit of
the parties and their respective successors and assigns, provided that Borrower
shall not assign this Agreement or any of the rights, duties or obligations of
Borrower under this Agreement without Lender's prior written consent.
11. DELAY AND WAIVERS
No delay or omission to exercise any right, power or remedy accruing to
Lender on any breach or default of Borrower under this Agreement shall impair
any right, power or remedy of Lender, nor shall it be construed to be a waiver
of any such breach or default, or an acquiescence in breach or default, or
waiver of or acquiescence in any similar breach or default occurring later; nor
shall any waiver of any single breach or default be considered a waiver of any
other prior or
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subsequent breach or default. Any waiver, permit, consent or approval of any
kind by Lender of any breach or default under this Agreement, or any waiver by
Lender of any provision or condition of this Agreement, must be in writing and
shall be effective only to the extent specifically set forth in that writing.
All remedies, either under this Agreement or by law or otherwise afforded to
Lender, shall be cumulative and not alternative.
12. EXPENSES
Borrower shall pay, immediately upon demand therefore, all out-of-pocket
expenses of Lender, including without limitation reasonable attorney fees, the
fees and costs of any audit by Lender, and those fees and costs incurred by
Lender's employees and agents, in connection with (1) the preparation,
administration and enforcement of this Agreement or the Note in equity or at
law, whether or not suit is filed, or (2) any workout, refinancing,
restructuring or reorganization (including a bankruptcy reorganization) of
Borrower. Borrower agrees to indemnify Lender from and hold it harmless against
any transfer taxes, documentary taxes, assessments or charges made by any
governmental authority by reason of the execution, delivery and performance of
this Agreement, the Note, the Loan and any security therefor. The obligations of
Borrower under this Section shall survive payment of the Note, or the Lender's
assignment of any rights under this Agreement.
13. COUNTERPARTS
This Agreement may be executed in one or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute a single
agreement.
14. FORM: VENUE, JURISDICTION AND PROCESS
The parties agree that any suit, action or proceeding arising out of or
relating to this Agreement, or the interpretation, performance or breach of this
Agreement, shall be instituted in the United States District Court for the
Southern District of California or any court of the State of California located
in San Diego County, and each party irrevocably submits to the jurisdiction of
those courts and waives all objections to jurisdiction or venue that it may have
under the laws of the State of California or otherwise in those courts in any
suit, action or proceeding. Each party agrees to accept service of process in
any action, suit or proceeding in the manner provided for in Section 9 of this
Agreement.
15. CHOICE OF LAW
This Agreement shall be governed by, and construed in accordance with the
laws of the state of California. In any action brought under or arising out of
this Agreement, Borrower hereby consents to the jurisdiction of any federal or
state court within California and to any lawful service of process in
California. Borrower hereby agrees that no other federal or state court may
entertain any suit, action or proceeding relating to or arising out of this
Agreement.
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IN WITNESS WHEREOF, the parties to this agreement have executed this
Agreement by their duly authorized officers as of the day and year first above
written.
BORROWER:
The Delicious Frookie Company, Inc.
a Delaware corporation
/s/
By:----------------------------------
Michael Kirby, President
LENDER:
American Pacific Financial Corporation
a California corporation
/s/
By:----------------------------------
Larry R. Polhill, President
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EXHIBIT 10.35
SECURITY AGREEMENT
In consideration of the covenants and agreements contained herein and
the financial accommodations given, the undersigned The Delicious Frookie
Company, a Delaware corporation ("Borrower") hereby, pursuant to the California
Uniform Commercial Code, grants to American Pacific Financial Corporation, a
California corporation (the "Secured Party"), as collateral security for the
prompt and complete payment, or satisfaction, of the Obligation, as hereinafter
defined, a security interest in all of the assets of Borrower, including but not
limited to those certain items of tangible and intangible personal property
described on "Exhibit A" attached hereto, as well as any other assets of
Borrower of whatsoever kind and proceeds thereof. The security interest created
by this Agreement attaches immediately upon execution hereof and is made for the
purpose of securing Borrower's payment of the principal, interest and all other
sums due with respect to that certain loan (the "Loan") evidenced by the
promissory note ("Promissory Note") of even date herewith, a copy of which is
attached as "Exhibit B" to the Loan Agreement ("Loan Agreement") between
Borrower and Secured Party of even date herewith.
NOW THEREFORE, the parties agree as follows:
1. DEFINITIONS OF TERMS USED HEREIN:
a. "Accounts Receivable" shall mean and include all invoices,
contracts, contract rights, claims, instruments, leases, agreements, and
accounts, whether now existing or hereafter arising, evidencing or representing
indebtedness due or to become due to the Borrower for its own account or account
of goods sold or leased by the Borrower, or services rendered by the Borrower
and any accounts and contract rights, as defined in the Uniform Commercial Code,
from time to time owned by Borrower, however acquired.
b. "Bank Accounts" shall mean all bank accounts and safe
deposit boxes used in the conduct of the Business.
c. "Books of Account" shall mean all books of account,
customer lists, client lists, employee lists, files, papers, records and
telephone numbers used in conducting the Business.
d. "Causes of Action" shall mean all causes of action,
judgments, claims or demands of whatever kind or description relating to the
Business which Seller has or may have against any other person or entity.
e. "Collateral" shall mean (i) Contracts, (ii) Accounts
Receivable, (iii) Causes of Action, (iv) Books of Account, (v) Insurance
Policies, (vi) Bank Accounts, (vii) Goodwill, (viii) Real Property Leases, (ix)
Personal Property, (x) Permits, (xi) Proprietary Rights, (xii) Personal
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Property Leases, (xiii) Proceeds, and (xiv) any other assets of Borrower,
tangible or intangible, whether now owned or hereafter acquired.
f. "Contracts" shall mean contracts, agreements, contract
rights, license agreements, customer contracts, distribution and shelf space
agreements and other franchise rights and agreements, purchase and sales orders,
quotations and executory commitments, instruments, asset-based lines of credit,
royalty agreements, third party guaranties, indemnifications, arrangements and
understandings, whether oral or written, to which Seller is a party (whether or
not legally bound thereby) and used in conducting its Business.
g. "Event of Default" shall mean a failure by Borrower to pay
any obligations required by the Promissory Note or any inaccuracy contained in
the Warranties and Representations contained in Section 7, any event which
causes any such Warranties and Representations to become inaccurate in any
material respect, or any Event of Default, as defined in the Loan Agreement.
h. "Goodwill" shall mean all goodwill relating to the
Business.
i. "Insurance Policies" shall mean all insurance policies of
the Seller relating to the Business and all claims or demands or rights of
whatever kind or description relating to such policies.
j. "Obligation" shall mean all the unpaid principal amount of,
and accrued interest on, the Loan and all other obligations and liabilities of
Borrower to Secured Party, now existing or hereinafter incurred, under, arising
out of or in connection with the Loan or this Agreement.
k. "Permits" shall mean all franchises, licenses, permits,
consents, authorizations, approvals and certificates of any regulatory,
administrative or other governmental agency or body used in conducting the
Business.
l. "Personal Property" shall mean all inventory, raw
materials, packaging materials, machinery, equipment, tooling, parts, furniture,
supplies, vehicles, office equipment and other tangible personal property used
in conducting the Business.
m. "Personal Property Leases" shall mean all leases of
equipment or other tangible personal property used in conducting the Business.
n. "Proceeds" shall mean whatever is received, including cash,
negotiable instruments and other instruments for the payment of money, chattel
paper, security agreements or other documents, when any of the Equipment,
Accounts Receivable and/or Inventory are sold, exchanged, leased, collected or
otherwise disposed of, and any instruments, securities, contract rights, general
intangibles, credits, claims, dividends, and any other property, rights, and
interest of Borrower.
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o. "Proprietary Rights" shall mean all patents, inventions,
trade secrets, processes, formulas, customer lists, distribution rights and
shelf space, proprietary rights, proprietary knowledge, computer software,
trademarks, names, service marks, trade names, copyrights, symbols and logos
used in conducting the Business and all applications therefor, registrations
thereof and licenses, sublicenses or agreements in respect thereof, which Seller
owns or has the right to use or to which Seller is a party and all filings,
registrations or issuances of any of the foregoing with or by any federal,
state, local or foreign regulatory, administrative or governmental office.
p. "Real Property Leases" shall mean the leases of real
property, along with all appurtenant rights, easements and privileges
appertaining or relating thereto and construction in progress, if any, and
leasehold improvements owned by Borrower relating to the real property subject
to such leases.
q. "Security Interest" shall mean a lien or other interest in
the Collateral which secures payment in full of a Liability or performance of
any obligation hereunder continuing in full force and effect until the payment
in full of the Obligation, subordinate only to the previously filed security
interest in favor of U.S. Bancorp Republic Commercial Finance, Inc. f.k.a.
Republic Acceptance Corporation outstanding as of the date hereof and senior to
the security interest of Salerno Foods, L.L.C., created pursuant to the terms of
the certain Security Agreement and Trademark Security Agreement each of Borrower
in favor of Salerno Foods, L.L.C. and each dated April 3, 1998.
2. SECURITY INTERESTS:
As security for the payment and faithful performance and observance of
all Obligation of the Borrower to the Secured Party, the Borrower hereby grants
to the Secured Party a Security Interest in all the Collateral and in all ledger
sheets, files, records, and documents relating to the Collateral which shall,
until delivered or removed by the Secured Party, be kept by the Borrower in
trust for the Secured Party and without cost to the Secured Party. The Security
Interest hereinabove granted in the Inventory of the Borrower shall attach to
all Inventory of the Borrower now or hereafter owned by the Borrower and shall
continue through all stages of preparation and eventual sale to the public.
Until payment in full and faithful performance and observance of the Obligation,
the pledge and assignment of, and the Security Interest in, all Collateral shall
continue in full force and effect.
3. TAXES; FINANCING STATEMENTS:
At its option, the Secured Party may discharge taxes, liens, or
security interests or other encumbrances at any time levied or placed on the
Collateral, and may pay for the maintenance and preservation thereof, and the
Borrower agrees to reimburse the Secured Party on demand for any payment made or
any expense incurred by the Secured Party for such purposes. Borrower further
authorizes Secured Party to file a financing statement or financing statements
and any amendments thereto without the signature of the Borrower or to sign any
such statements or amendments as the attorney-in-fact of the Borrower. Such
authorization and power of attorney shall be deemed coupled
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with an interest and shall be irrevocable. Such power of attorney and
authorization is limited to the Security Interest granted by this Security
Agreement.
4. COLLECTIONS:
Upon the occurrence of an Event of Default hereunder, the Secured Party
shall have the right to receive, endorse, assign, and/or deliver in its own name
or the name of the Borrower any and all checks, drafts, and other instruments
for the payment of money relating to the Accounts Receivable and the Proceeds
and the Borrower hereby waives notices of presentment, protest, and nonpayment
of any instrument so endorsed. In furtherance of the foregoing, the Borrower
hereby irrevocably appoints the Secured Party its true and lawful agent, with
power of substitution for such Borrower's name or in the name of the Secured
Party or otherwise, for the use and benefit of the Secured Party: (a) to endorse
the name of the Borrower upon any notes, acceptances, checks, drafts, money
orders, or other evidences of payment that may come into the possession of the
Secured Party; (b) to demand, collect, receive payment of, receipt for, and give
discharges and releases of all or any of the Accounts Receivable and the
Proceeds; (c) to sign the Borrower's name on any invoice or bill of lading
relating to any of the Accounts Receivable and notices to customers; (d) to send
verifications of Accounts Receivable to any customer; (e) to commence and
prosecute any and all suits, actions, or proceedings in law or in equity in any
court of competent jurisdiction to collect or otherwise realize on all or any of
the Accounts Receivable or the Proceeds or to enforce any rights in respect
thereof or in respect of any other Collateral; (f) to settle, compromise,
compound, adjust, or defend any actions, suits, or proceedings relating to or
pertaining to all or any of the Collateral; and (g) generally to sell, assign,
transfer, pledge, make any agreement with respect to or otherwise deal with all
or any of the Collateral, and do all other acts and things necessary to carry
out this Security Agreement, as fully and completely as though the Secured Party
were the absolute owner thereof for all purposes; provided, however, that,
unless an Event of Default shall have occurred, the Borrower may make
collections and otherwise may deal with the Collateral, including the Proceeds,
in any lawful manner in the ordinary course of its business. The Secured Party
shall not be responsible nor liable for any shortage, discrepancy, damage, loss,
or destruction of any part of the Collateral wherever the same may be located
regardless of the cause thereof unless the same shall happen through the Secured
Party's gross negligence or wilful misconduct. The costs of collection,
notification, and enforcement, including reasonable counsel fees and
out-of-pocket expenses, shall be borne solely by the Borrower whether the same
are incurred by the Security Party or the Borrower.
5. SALE OF COLLATERAL:
Subject to prior the rights of U.S. Bancorp Republic Commercial
Finance, Inc. f.k.a. Republic Acceptance Corporation or Salerno Foods, L.L.C.,
upon the occurrence and continuance of an Event of Default hereunder or under
the terms of the Note or Loan Agreement, Borrower agrees to transfer possession
of all Collateral to Lender, wherever situated, and authorizes Lender to take
possession of same by whatever means deemed necessary or appropriate by Lender,
in its sole discretion. Borrower further authorizes Lender to sell such
Collateral in the manner required by law at public or private sale and deliver
to the purchaser or purchasers thereof all right, title and interest in the
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Collateral held by Lender or Borrower. After deducting all costs, fees and
expenses of such sale and reasonable attorney fees, Lender shall apply the
proceeds thereof as required under applicable law.
6. FINANCING STATEMENT AND FURTHER ASSURANCES:
(a) Concurrently with the execution of this Security Agreement, at
Borrower's sole cost and expense, (i) the Borrower shall execute any financing
statement or financing statements required to perfect the security interest
created by this Agreement and file such financing statement in the appropriate
state and local offices in the State of California and in any other state or
jurisdiction requested by Secured Party in a timely manner. Such financing
statement or financing statements shall be on a form or forms approved by
applicable state authorities and Borrower shall pay the filing fees required to
file such financing statements.
(b) At any time and from time to time, upon the written request of the
Secured Party, and at the sole expense of the Borrower, Borrower promptly and
duly shall execute and deliver any and all such further instruments and
documents and take such further action as Secured Party reasonably may deem
desirable in obtaining the full benefits of this Agreement and of the rights and
powers herein granted, including, without limitation, the filing of any
financing or continuation statements under the Uniform Commercial Code in effect
in any jurisdiction with respect to the liens and security interests granted
hereby. Secured Party also hereby authorizes Borrower to file any such financing
statement or continuation statement without the signature of the Secured Party
to the extent permitted by applicable laws.
7. WARRANTIES AND REPRESENTATIONS:
Borrower warrants and represents that:
(a) Except as to the respective security interests of U.S.
Bancorp Republic Commercial Finance, Inc. f.k.a. Republic Acceptance Corporation
and Salerno Foods, L.L.C., as described above, Borrower has, and will maintain
throughout the term of this Agreement, good and valid title to all Collateral,
and no other person, entity, agency, or government agency has or purports to
have, any right, title, lien, encumbrance, adverse claim, or interest in any
Collateral other than liens incurred in the ordinary course of business. The
Borrower has obtained all consents and approvals necessary to grant the Security
Interest granted hereby.
(b) Borrower has authority to enter into the Security
Agreement and Promissory Note and any person signing it on Borrower's behalf has
been duly authorized to execute the Agreement for Borrower.
(c) Any and all information now or hereafter supplied to
Secured Party by Borrower, or at Borrower's request or instruction, is and shall
be correct in all material respects.
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(e) No security agreement, financing statement, equivalent
security or lien instrument or continuation statement covering all or any part
of the Collateral is on file or of record in any public office, except such as
may have been filed by Borrower or Secured Party in favor of Secured Party
pursuant to this Agreement, and except the respective security interests of U.S.
Bancorp Republic Commercial Finance, Inc. f.k.a. Republic Acceptance Corporation
and Salerno Foods, L.L.C., as described above.
(f) This Agreement constitutes a valid and continuing lien on
and security interest in the Collateral in favor of Secured Party, prior to all
other liens, encumbrances, security interests and rights of others, except as
may be limited by inchoate liens arising under the laws of applicable state laws
and except as to the security interests of U.S. Bancorp Republic Commercial
Finance, Inc. f.k.a. Republic Acceptance Corporation as described hereinabove,
and is enforceable as such against creditors of and purchasers from Borrower.
(g) Borrower's principal place of business and the place where
its records concerning the Collateral are kept is at 2720 River Road, Suite 126,
Des Plaines, Illinois 60018. Borrower will not change such principal place of
business (except to Salerno's principal place of business) or remove such
records without the express prior written consent of Secured Party, which
consent will not be unreasonably withheld. Borrower will not dispense or
relocate any part of the Collateral without the express prior written consent of
Secured Party, except in the ordinary course of business.
(h) Borrower has reviewed the Promissory Note dated the date
hereof, made by Borrower and evidencing the Loan and Security Agreement dated
the date hereof, granting to Lender a lien on the Collateral and all other
documents executed by Borrower or guarantor, if any, in connection with the
Loan.
(i) The execution, delivery and performance of the obligations
imposed on Borrower under the Loan Documents will not cause Borrower to be in
default under the provisions of any agreement, judgment or order to which
Borrower is a party or by which borrower is bound. No default exists under the
Loan, and all of the following items regarding the Collateral which have become
due and payable have been paid taxes; government assessments; insurance
premiums; lease payments; and any other charges affecting the Collateral.
(j) Borrower knows of no facts that would support a claim of
usury to defeat or avoid its obligation to repay the principal of, interest on,
and other sums or amounts due and payable with respect to the Loan.
(k) Borrower is not currently (i) the subject of or a party to
any completed or pending bankruptcy, reorganization or insolvency proceeding; or
(ii) the subject of any unsatisfied judgment of record or docketed in any court
located in the United States.
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(l) Borrower has filed all federal, state, county and
municipal tax returns required to have been filed by Borrower, and has paid all
taxes which have become due pursuant to such returns or to any notice of
assessment received by Borrower, and Borrower has no knowledge of any basis for
additional assessment with respect to such taxes. To the best of Borrower's
knowledge, there are not presently pending any governmental claims or special
assessments against the Collateral or any part thereof.
(m) Each and every representation and warranty contained
herein or in the Loan Agreement will remain true and correct at all times from
the date hereof until the Loan is repaid in full in accordance with its terms.
In the event that any representation or warranty contained herein becomes
untrue, in whole or in part, after the date hereof, Borrower will so advise
Lender in writing immediately.
(n) Borrower covenants that it shall, promptly upon the
request of Lender, ratify and affirm the representations and warranties set
forth herein, in writing, as of such date or dates as Lender shall specify.
8. COVENANTS AND AGREEMENTS:
Borrower covenants and represents that:
(a) Borrower will pay any and all of Borrower's indebtedness
to Secured Party promptly when due, and Borrower will repay immediately, and
without demand, all expenses, including reasonable attorneys' fees, legal
expenses and costs, incurred by Secured Party under this Agreement with interest
at the Default Rate, as provided in the Promissory Note, from the date of
expenditure.
(b) Borrower will execute any additional agreements,
assignments or documents that may be deemed necessary or advisable to effectuate
the purpose of this Agreement.
(c) Borrower will maintain and repair the Collateral; will use
the Collateral lawfully and only with insurance coverage; other than in the
ordinary course of business, will not use the Collateral so as to cause or
result in any waste, unreasonable deterioration or depreciation; and will permit
Secured Party to enter on Borrower's property and to inspect the Collateral at
any reasonable time, with two (2) days prior written notice.
(d) Borrower will pay when due all taxes, assessments,
charges, liens, or encumbrances now or hereafter affecting the Collateral.
(e) Borrower, at its own cost and expense, will appear in and
defend any action or proceeding which may adversely affect the Secured Party's
security interest in, or Borrower's title to, any Collateral and Borrower shall
keep Secured Party informed. Secured Party shall have the option of defending
any such action or proceeding at Borrower's cost.
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(f) Borrower will keep and maintain at its own cost and
expense satisfactory and complete records of the Collateral. Borrower will mark
its books and records pertaining to the Collateral to evidence this Agreement
and the security interests granted hereby. For Secured Party's further security,
Borrower agrees that Secured Party shall have a special property interest in all
of Borrower's books and records pertaining to the Collateral and Borrower shall
deliver and turn over any such books and records to Secured Party or its
representatives upon written demand of Secured Party, following any Event of
Default. Secured Party shall review any such books and records delivered to it
hereunder promptly and shall make reasonable efforts to minimize any
interference therewith.
(g) In any suit, proceedings or action brought by Secured
Party under any contract for any sum owing thereunder, or to enforce any
provisions of such contract, Borrower will save, indemnify and keep Secured
Party harmless from and against all expense, loss or damage suffered by reason
of any defense, set off, counterclaim, recoupment or reduction of liability
whatsoever of the person against whom such suit, proceedings or action is
brought, arising out of a breach by Borrower of any obligation thereunder or
arising out of any other agreement, indebtedness or liability at any time owing
to or in favor of such obligee or its successors from Borrower, and all such
obligations of Borrower shall be and remain enforceable against and only against
Borrower and shall not be enforceable against Secured Party.
(h) Borrower will, upon its acquisition of the business of
Salerno Foods, L.L.C., a Delaware limited liability company ("Salerno") use its
best efforts to immediately collect all of the then outstanding accounts
receivable of Salerno and will use all such funds received to pay all of the
then outstanding accounts payable of Salerno until the same have been fully paid
and liquidated. So long as any account payable or receivable at the time of
acquisition remains outstanding, Borrower will provide to Secured Party reports
of the status of and any changes in such accounts receivable and payable upon
the reasonable request of Borrower.
(i) Borrower will not create, permit or suffer to exist, and
will defend the Collateral against and take such other action as is necessary to
remove, any lien, security interest, encumbrance, claim or right, in or to the
Collateral, except for existing liens set forth in this Agreement.
(j) Borrower will not sell, transfer, lease or otherwise
dispose of any of the Collateral, or attempt, offer or contract to do so, except
in the ordinary course of business as previously conducted by Borrower.
(k) Borrower will furnish to Secured Party from time to time
statements and schedules further identifying and describing the Collateral and
such other reports in connection with the Collateral as Secured Party reasonably
may request, all in reasonable detail.
(l) Borrower shall notify Secured Party immediately of any
default under this Agreement.
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<PAGE> 9
9. TERM OF AGREEMENT:
This Agreement shall remain in full force and effect until the
obligations secured hereby have been fully performed or paid. Upon payment in
full of the Obligation, this Security Agreement shall automatically terminate.
10. REMEDIES:
Borrower understands and agrees that on the occurrence of an
Event of Default, in addition to any remedies provided by law or by this
Agreement, to the extent provided by law Secured Party may, without notice and
without allowing any grace period to rectify such Event of Default:
(a) Expenses: Incur expenses, including reasonable attorneys'
fees, legal expenses and costs, to exercise any right or power under the
Agreement.
(b) Performance of Borrower's Obligations by Secured Party:
The Secured Party may, but need not, perform any obligation of Borrower, and
may, but need not, make payments, purchase, contest, or compromise any
encumbrance, charge, or lien and pay taxes and expenses.
(c) Acceleration: Declare any or all of the Obligation due and
payable, without presentment, demand, protest, or notice of any kind, all of
which are hereby expressly waived, anything contained herein or in the
Promissory Note to the contrary notwithstanding;
(d) Possession: With or without legal process and with or
without previous notice or demand for performance, enter any premises where the
Collateral is located and take possession of the same, together with anything
therein, and make disposition of, or proceed to enforce payment of, the
Collateral subject to any and all applicable provisions of law; and/or
(e) Suit, Retention or Disposition of Collateral, Application
of Proceeds: Sue the Borrower or any other person or entity liable for the
Obligation; retain the Collateral in satisfaction of the obligation; dispose of
the Collateral; and apply the proceeds of disposition, including provision for
reasonable attorneys' fees and legal expenses incurred by Secured Party, all as
provided by law.
11. WAIVER:
The Secured Party shall not be deemed to have waived any rights
hereunder by reason of any other agreement, instrument, or paper signed by the
Secured Party. No delay or omission on the part of the Secured Party in
exercising any right hereunder shall operate as a waiver thereof or of any other
right. A waiver upon any one occasion shall not be construed as a bar or a
waiver of any right or remedy on any future occasion. All of the rights and
remedies of the Secured Party, whether
9
<PAGE> 10
evidenced hereby or by any other agreement, instrument, or paper, shall be
cumulative and may be exercised singly or concurrently.
12. SEVERABILITY:
If any part of this Security Agreement is contrary to, prohibited by,
or deemed invalid under applicable laws or regulations, such provision shall be
inapplicable and deemed omitted to the extent so contrary, prohibited, or
invalid, but the remainder hereof shall not be invalidated thereby and shall be
given effect so far as possible.
13. EXECUTION BY THE SECURED PARTY:
This Security Agreement shall take effect immediately upon execution by
the Borrower, and the execution hereof by the Secured Party shall not be
required as a condition to the effectiveness of the Security Agreement.
14. HEADINGS:
Section headings have been inserted in this Security Agreement as a
matter of convenience of reference only, and it is agreed that such Section
headings are not a part of this Security Agreement and shall not be used in the
interpretation of any provision of this Security Agreement.
15. NOTICES:
All notices or other written communications hereunder shall be deemed
to have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged by the recipient thereof, (ii)
one (1) Business Day, as defined below, after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
Borrower: The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, Illinois 60018
Secured Party: American Pacific Financial Corporation
225 West Hospitality Lane, Suite 201
San Bernardino, CA 92408
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<PAGE> 11
16. CHOICE OF LAW: This Agreement shall be governed by, and construed
in accordance with the laws of the State of California. In any action brought
under or arising out of this Agreement, Borrower hereby consents to the
jurisdiction of any federal or state court within California and to any lawful
service of process in California. Borrower hereby agrees that no other federal
or state court may entertain any suit, action or proceeding relating to or
arising out of this Agreement.
17. ASSIGNMENTS, ETC.: The provisions of the Agreement are hereby made
applicable to and shall inure to the benefit of Secured Party's successors and
assigns and bind Borrower's heirs, legatees, devisees, administrators,
executors, successors, and assigns.
[Signature page immediately following]
11
<PAGE> 12
Dated: April 3, 1998
BORROWER:
THE DELICIOUS FROOKIE COMPANY, INC.,
A Delaware corporation
/s/
By:----------------------------------
Michael Kirby, President
SECURED PARTY:
AMERICAN PACIFIC FINANCIAL
CORPORATION,
a California corporation
/s/
By:----------------------------------
Larry R. Polhill, President
12
<PAGE> 13
"EXHIBIT A"
DESCRIPTION OF COLLATERAL
[to be prepared by Olshan Grundman Frome & Rosenzweig LLP]
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<PAGE> 14
"EXHIBIT B"
PROMISSORY NOTE
(SEE ATTACHED)
<PAGE> 1
Exhibit 10.36
PROMISSORY NOTE
San Bernardino, California
$4,600,000 April 3, 1998
FOR VALUE RECEIVED the Delicious Frookie Company, Inc., a Delaware
corporation, as maker, having its principal place of business at 2720 River
Road, Suite 126 Des Plaines, Illinois 60018 ("Borrower"), hereby unconditionally
promises to pay to the order of American Pacific Financial Corporation, a
California corporation, having an address at 225 W. Hospitality Lane, Suite 201,
San Bernardino, California 92408 ("Lender"), or at such other place as the
holder hereof may from time to time designate in writing, the principal sum of
Four Million Six Hundred Thousand Dollars ($4,600,000) in lawful money of the
United States of America with interest thereon to be computed from the date of
this Promissory Note at the Applicable Interest Rate (defined below), and to be
paid in installments as follows:
1. PAYMENT TERMS
An initial payment on the date hereof on account of all interest scheduled
to accrue on the principal sum from and after the date hereof through and
including the last day of the current calendar month; and
Additional monthly interest payments in the amount of $46,000 each will be
made at the Applicable Interest Rate on the first day of May, 1998 and on the
first day of each calendar month thereafter up to and including the Maturity
Date (defined below) and so long thereafter as any principal amount remains
outstanding. The balance of the principal sum and all interest thereon shall be
due and payable on the earlier of: (i) 120 days from date first written above,
or (ii) consummation of an initial public offering of shares of the Borrower's
common stock, $.01 par value per share, or other recapitalization (whether
through one transaction or a series of transactions) of the Borrower (whether
through a private placement or otherwise) from which the Borrower receives
(whether from such one transaction or on a cumulative basis from such series of
transactions) gross proceeds of at least $7,000,000, or (iii) a sale or other
transfer of all or substantially all of the assets or equity interests in the
Borrower.
Upon repayment of the Loan by Borrower, Lender undertakes to apply a
portion of the proceeds to the full payment of amounts due under the Purchase
Note. In the event, Borrower makes any payment with respect to the Purchase Note
directly to Salerno Foods, L.L.C.; upon notice to Lender of such payment and
receipt of satisfactory evidence by Lender of Salerno's receipt of such
<PAGE> 2
payment, Lender shall immediately credit the amount of such payment against
amount s owing under this Agreement
2. INTEREST
The term "Applicable Interest Rate" as used in this Promissory Note shall
mean an interest rate equal to twelve percent (12%) per annum.
3. DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Promissory Note, (b) interest,
default interest, late charges and other sums, as provided in this Promissory
Note or the Security Agreement, (c) all other monies agreed or provided to be
paid by Borrower in this Promissory Note, the Loan Agreement or the Security
Agreement, (d) all sums advanced pursuant to the Security Agreement to protect
and preserve the Collateral, as defined therein, and the lien and the security
interest created thereby, and (e) all sums advanced and costs and expenses
reasonably incurred by Lender in connection with the Debt (defined below) or any
part thereof, any renewal, extension, or change of or substitution for the Debt
or any part thereof, or the acquisition or perfection of the security therefor,
whether made or incurred at the request of Borrower or Lender (all the sums
referred to in (a) through (e) above shall collectively be referred to as the
"Debt") shall without notice become immediately due and payable at the option of
Lender if any payment required in this Promissory Note is not paid on or before
the date when due or on the Maturity Date or on the happening of any other
default under the terms of either this Promissory Note or the Security Agreement
(collectively, an "Event of Default"). Notwithstanding the foregoing, any
interest payment due prior to the Maturity Date at a time when no other Event of
Default has occurred, shall cause acceleration as provided above only if it
remains unpaid after seven (7) calendar days following the due date therefor.
4. DEFAULT INTEREST
Borrower hereby agrees that upon the occurrence of an Event of Default,
Lender shall be entitled to receive and Borrower shall pay interest on the
entire unpaid principal sum at a rate (the "Default Rate") equal to (i) the
greater of (a) the Applicable Interest Rate plus three percent (3%) or (b) the
Prime Rate (as hereinafter defined) plus six percent (6%) or (ii) the maximum
interest rate that Borrower may by law pay, whichever is lower. The Default Rate
shall be computed from the occurrence of the Event of Default until the earlier
of the date upon which the Event of Default is cured or the date upon which the
Debt is paid in full. Interest calculated at the Default Rate shall be added to
the Debt, and shall be deemed secured by the Security Agreement. This clause,
however, shall not be construed as an agreement or privilege to extend the date
of the payment of the Debt, nor as a waiver of any other right or remedy
accruing to Lender by reason of the occurrence of any Event of Default.
The "Prime Rate" shall mean the annual rate of interest publicly announced
by The Wall Street Journal in its Western Edition, as such rate shall change
from time to time. If more than one
2
<PAGE> 3
Prime Rate is published in The Wall Street Journal for a day, the average of the
Prime Rates shall be used, and such average shall be rounded up to the nearest
one-quarter of one percent (.25%). If The Wall Street Journal ceases to publish
the "Prime Rate" the Lender shall select an equivalent publication that
publishes such "Prime Rate", and if such prime rate is no longer generally
published or is limited, regulated or administered by a governmental or
quasi-governmental body, then Lender shall select a comparable interest rate
index.
5. PREPAYMENT
Provided no Event of Default exists, the principal balance of this
Promissory Note may be prepaid, in whole but not in part, upon: (i) not less
than 5 days and not more than 10 days prior written notice (the "Prepayment
Notice") to Lender specifying the scheduled payment date on which
prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued
and unpaid interest on the outstanding principal balance of this Promissory Note
to and including the Prepayment Date together with a payment of all interest
which would have accrued on the principal balance of this Promissory Note to and
including the first day of the calendar month immediately following the
Prepayment Date, if such prepayment occurs on a date which is not the first day
of a calendar month (the "Shortfall Interest Payment"); (iii) payment of all
other sums then due under this Promissory Note, and the Security Agreement; and
(iv) payment of a prepayment consideration (the "Prepayment Consideration") in
an amount equal to one percent (1%) of the principal amount of this Promissory
Note being prepaid. If a Prepayment Notice is given by Borrower to Lender
pursuant to this Article 5, the principal balance of this Promissory Note and
the other sums required under this Article shall be due and payable on the
Prepayment Date.
Lender shall not be obligated to accept any prepayment of the principal
balance of this Promissory Note unless it is accompanied by all sums due in
connection therewith. Notwithstanding anything contained herein to the contrary,
provided no Event of Default exists, no Prepayment Consideration shall be due in
connection with a complete or partial prepayment resulting from the application
of Proceeds as set forth in the Security Agreement and partial prepayments may
be made from such proceeds.
If a Default Prepayment occurs, Borrower shall pay to Lender the entire
Debt, including, without limitation, the Prepayment Consideration. For purposes
of this Promissory Note, the term "Default Prepayment" shall mean a prepayment
of the principal amount of this Promissory Note made during the continuance of
any Event of Default or after an acceleration of the Maturity Date under any
circumstances, including, without limitation, a prepayment occurring in
connection with reinstatement of the Security Agreement provided by statute or
exercise of a power of sale, any statutory right to redeem the Collateral or
otherwise.
3
<PAGE> 4
6. SECURITY
This Promissory Note is secured by the Security Agreement dated the date
hereof in the principal sum of $4,600,000 given by Borrower to, and for the
benefit of, Lender covering all of the assets of Borrower as more particularly
described therein (collectively, the "Collateral"). Whenever used, the singular
number shall include the plural, the plural number shall include the singular,
and the words "Lender" and "Borrower" shall include their respective successors,
assigns, heirs, executors and administrators.
All of the terms, covenants and conditions contained in the Security
Agreement are hereby made part of this Promissory Note to the same extent and
with the same force as if they were fully set forth herein.
7. SAVINGS CLAUSE
This Promissory Note is subject to the express condition that at no time
shall Borrower be obligated or required to pay interest on the principal balance
due hereunder at a rate which could subject Lender to either civil or criminal
liability as a result of being in excess of the maximum interest rate which
Borrower is permitted by applicable law to contract or agree to pay. If by the
terms of this Promissory Note, Borrower is at any time required or obligated to
pay interest on the principal balance due hereunder at a rate in excess of such
maximum rate, the Applicable Interest Rate or the Default Rate, as the case may
be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Promissory Note until payment in full so that the rate
or amount of interest on account of the Debt does not exceed the maximum lawful
rate of interest from time to time in effect and applicable to the Debt for so
long as the Debt is outstanding.
8. LATE CHARGE
Notwithstanding, and in addition to, any other remedies of Lender provided
in this Promissory Note or the Security Agreement, if any sum payable under this
Promissory Note is not paid on or before fifteen (15) days following the date on
which it is due, Borrower shall pay to Lender upon demand an amount equal to the
lesser of five percent (5%) of the unpaid sum or the maximum amount permitted by
applicable law to defray the expenses incurred by Lender in handling and
processing the delinquent payment and to compensate Lender for the loss of the
use of the delinquent payment and the amount shall be secured by the Security
Agreement.
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<PAGE> 5
9. NO ORAL CHANGE
This Promissory Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to act on the
part of Borrower or Lender, but only by an agreement in writing signed by the
party against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
10. WAIVERS
Borrower and all others who may become liable for the payment of all or
part of the Debt do hereby severally waive presentment and demand for payment,
notice of dishonor, protest and notice of protest and non-payment and all other
notices of any kind. No release of any security for the Debt or extension of
time for payment of this Promissory Note or any installment hereof, and no
alteration, amendment or waiver of any provision of this Promissory Note or the
Security Agreement made by agreement between Lender or any other person or party
shall release, modify, amend, waive, extend, change, discharge, terminate or
affect the liability of Borrower, and any other person or entity who may become
liable for the payment of all or any part of the Debt, under this Promissory
Note or the Security Agreement. No notice to or demand on Borrower shall be
deemed to be a waiver of the obligation of Borrower or of the right of Lender to
take further action without further notice or demand as provided for in this
Promissory Note or the Security Agreement. The agreements contained herein shall
remain in full force and application notwithstanding any changes in the
shareholders comprising, or the officers and directors relating to, the
corporation designated as the Borrower, and the term "Borrower" as used herein,
shall include any alternative or successor corporation, but any predecessor
corporation shall not be relieved of liability hereunder.
11. TRANSFER
Upon the transfer of this Promissory Note, Borrower hereby waiving notice
of any such transfer, Lender may deliver all the collateral mortgaged, granted,
pledged or assigned pursuant to the Security Agreement, or any part thereof, to
the transferee who shall thereupon become vested with all the rights herein or
under applicable law given to Lender with respect thereto, and Lender shall
thereafter forever be relieved and fully discharged from any liability or
responsibility in the matter; but Lender shall retain all rights hereby given to
it with respect to any liabilities and the collateral not so transferred.
12. WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE RIGHT
TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN CONTRACT,
TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN EVIDENCED BY THIS
PROMISSORY
5
<PAGE> 6
NOTE, THE APPLICATION OR NEGOTIATION OF THE LOAN EVIDENCED BY THIS PROMISSORY
NOTE, THIS PROMISSORY NOTE, OR THE SECURITY AGREEMENT OR ANY ACTS OR OMISSIONS
OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION THEREWITH.
13. EXCULPATION
Except as otherwise specifically provided herein, or in the Security
Agreement, Borrower shall be personally liable for all amounts becoming due
under this Promissory Note and the Security Agreement and Lender shall have the
right, but not the obligation, to enforce the liability and obligation of
Borrower to perform and observe the obligations contained in this Promissory
Note or the Security Agreement by an action or proceeding wherein a money
judgment shall be sought against Borrower, and Lender may, without limitation,
bring a foreclosure action, action for specific performance or any other
appropriate action or proceeding to enable Lender to enforce and realize upon
this Promissory Note or the Security Agreement an interest in the Collateral
given to Lender created by this Promissory Note or the Security Agreement.
14. AUTHORITY
Borrower and the undersigned representative of Borrower represents that
Borrower has full power, authority and legal right to execute and deliver this
Promissory Note and the Security Agreement and that this Promissory Note and the
Security Agreement constitute valid and binding obligations of Borrower.
15. APPLICABLE LAW
This Promissory Note shall be governed, construed, applied and enforced in
accordance with the laws of the state of California and the applicable laws of
the United States of America.
16. SERVICE OF PROCESS
Borrower will maintain a place of business or an agent for service of
process at the address stated in the first paragraph hereof and give prompt
notice to Lender of the address of such place of business and of the name and
address of any new agent appointed by it, as appropriate. Borrower further
agrees that the failure of its agent for service of process to give it notice of
any service of process will not impair or affect the validity of such service or
of any judgment based thereon. If, despite the foregoing, there is for any
reason no agent for service of process of Borrower available to be served, or if
Borrower has no place of business at the address stated in the first paragraph
hereof, then Borrower irrevocably consents to service of process by registered
or certified mail, postage prepaid, to it at its address given in or pursuant to
the first paragraph hereof.
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<PAGE> 7
17. COUNSEL FEES
Upon execution of this Promissory Note, Borrower shall pay to Lender the
amount incurred by Lender for professional fees and costs in connection with the
negotiation and documentation of the loan transaction evidenced by this
Promissory Note and the Security Agreement up to a maximum of $10,000.
In the event that it should become necessary to employ counsel to collect
the Debt or to protect or foreclose the security therefor, Borrower also agrees
to pay all reasonable fees and expenses of Lender, including, without
limitation, reasonable attorney's fees for the services of such counsel whether
or not suit be brought.
18. NOTICES
All notices or other written communications hereunder shall be deemed to
have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged by the recipient thereof, (ii)
one (1) Business Day, as defined below, after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
If to Borrower: The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, Illinois 60018
Attention: Michael Kirby
Facsimile No. (847) 699-5928
With a copy to: Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, NY 10022-1170
Attention: Jeffrey S. Spindler
Facsimile No. (212) 755-1467
If to Lender: American Pacific Financial Corporation
225 W. Hospitality Lane, Suite 201
San Bernardino, California 92408
Attention: Larry R. Polhill
Facsimile No. (909) 387-0810
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<PAGE> 8
With a copy to: Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, California 92037
Attention: David A. Fisher
Facsimile No. (619) 535-1616
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or different
addresses for subsequent notices or communications.
"Business Day" shall mean a day upon which commercial banks are not
authorized or required by law to close in Los Angeles, California.
[Signature page immediately following]
8
<PAGE> 9
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note as of
the day and year first above written.
The Delicious Frookie Company, Inc.
a Delaware corporation
By: /s/
--------------------------------
Michael Kirby, President
9
<PAGE> 10
ACKNOWLEDGMENT
(to be attached)
10
<PAGE> 1
EXHIBIT 10.37
PROMISSORY NOTE $100,000
San Bernardino, California
April 3, 1998
FOR VALUE RECEIVED in the form of undertaking certain indemnification
obligations and the assumption of certain liabilities by American Pacific
Financial Corporation in connection with the acquisition of the business and
assets of Salerno Foods, L.L.C. by The Delicious Frookie Company, Inc.
concurrently with the execution hereof, the receipt and sufficiency of which is
hereby acknowledged, The Delicious Frookie Company, Inc., a Delaware
corporation, as maker, having its principal place of business at 2720 River
Road, Suite 126 Des Plaines, Illinois 60018 ("Borrower"), hereby unconditionally
promises to pay to the order of American Pacific Financial Corporation, a
California corporation, having an address at 225 W. Hospitality Lane, Suite 201,
San Bernardino, California 92408 ("Lender"), or at such other place as the
holder hereof may from time to time designate in writing, the principal sum of
One Hundred Thousand Dollars ($100,000) in lawful money of the United States of
America with interest thereon to be computed from the date of this Promissory
Note at the Applicable Interest Rate (defined below), and to be paid in
installments as follows:
1. PAYMENT TERMS
An initial payment on the date hereof on account of all interest
scheduled to accrue on the principal sum from and after the date hereof through
and including the last day of the current calendar month; and
Additional monthly interest payments will be made at the Applicable
Interest Rate on the first day of May, 1998 and on the first day of each
calendar month thereafter up to and including the Maturity Date (defined below)
and so long as any principal amount remains outstanding and the balance of the
principal sum and all interest thereon shall be due and payable on the earlier
of: (i) 120 days from date first written above, or (ii) consummation of an
initial public offering of shares of the Borrower's common stock, $.01 par value
per share, or other recapitalization (whether through one transaction or a
series of transactions) of the Borrower (whether through a private placement or
otherwise) from which the Borrower receives (whether from such one transaction
or on a cumulative basis from such series of transactions) gross proceeds of at
least $7,000,000, or (iii) a sale or other transfer of all or substantially all
of the assets or equity interests in the Borrower.
2. INTEREST
The term "Applicable Interest Rate" as used in this Promissory Note
shall mean an interest rate equal to twelve percent (12%) per annum.
<PAGE> 2
3. DEFAULT AND ACCELERATION
(a) The whole of the principal sum of this Promissory Note, (b)
interest, default interest, late charges and other sums, as provided in this
Promissory Note, (c) all other monies agreed or provided to be paid by Borrower
in this Promissory Note, and (d) all sums advanced and costs and expenses
reasonably incurred by Lender in connection with the Debt (defined below) or any
part thereof, any renewal, extension, or change of or substitution for the Debt
or any part thereof, whether made or incurred at the request of Borrower or
Lender (all the sums referred to in (a) through (d) above shall collectively be
referred to as the "Debt") shall without notice become immediately due and
payable at the option of Lender if any payment required in this Promissory Note
is not paid on or before the date when due or on the Maturity Date or on the
happening of any other default under the terms of either this Promissory Note
(collectively, an "Event of Default"). Notwithstanding the foregoing, any
interest payment due prior to the Maturity Date at a time when no other Event of
Default has occurred, shall cause acceleration as provided above only if it
remains unpaid after seven (7) calendar days following the due date therefor.
4. DEFAULT INTEREST
Borrower hereby agrees that upon the occurrence of an Event of Default,
Lender shall be entitled to receive and Borrower shall pay interest on the
entire unpaid principal sum at a rate (the "Default Rate") equal to (i) the
greater of (a) the Applicable Interest Rate plus three percent (3%) or (b) the
Prime Rate (as hereinafter defined) plus six percent (6%) or (ii) the maximum
interest rate that Borrower may by law pay, whichever is lower. The Default Rate
shall be computed from the occurrence of the Event of Default until the earlier
of the date upon which the Event of Default is cured or the date upon which the
Debt is paid in full. Interest calculated at the Default Rate shall be added to
the Debt. This clause, however, shall not be construed as an agreement or
privilege to extend the date of the payment of the Debt, nor as a waiver of any
other right or remedy accruing to Lender by reason of the occurrence of any
Event of Default.
The "Prime Rate" shall mean the annual rate of interest publicly
announced by The Wall Street Journal in its Western Edition, as such rate shall
change from time to time. If more than one Prime Rate is published in The Wall
Street Journal for a day, the average of the Prime Rates shall be used, and such
average shall be rounded up to the nearest one-quarter of one percent (.25%). If
The Wall Street Journal ceases to publish the "Prime Rate" the Lender shall
select an equivalent publication that publishes such "Prime Rate", and if such
prime rate is no longer generally published or is limited, regulated or
administered by a governmental or quasi-governmental body, then Lender shall
select a comparable interest rate index.
5. PREPAYMENT
Provided no Event of Default exists, the principal balance of this
Promissory Note may be prepaid, in whole or in part, upon: (i) not less than 5
days and not more than 10 days prior written notice (the "Prepayment Notice") to
Lender specifying the scheduled payment date on which
2
<PAGE> 3
prepayment is to be made (the "Prepayment Date"); (ii) payment of all accrued
and unpaid interest on the outstanding principal balance of this Promissory Note
to and including the Prepayment Date together with a payment of all interest
which would have accrued on the principal balance of this Promissory Note to and
including the first day of the calendar month immediately following the
Prepayment Date, if such prepayment occurs on a date which is not the first day
of a calendar month (the "Shortfall Interest Payment"); (iii) payment of all
other sums then due under this Promissory Note; and (iv) payment of a prepayment
consideration (the "Prepayment Consideration") in an amount equal to one percent
(1%) of the principal amount of this Promissory Note being prepaid. If a
Prepayment Notice is given by Borrower to Lender pursuant to this Article 5, the
principal balance of this Promissory Note specified in such Prepayment Notice
and the other sums required under this Article shall be due and payable on the
Prepayment Date. Lender shall not be obligated to accept any prepayment of the
principal balance of this Promissory Note unless it is accompanied by all sums
due in connection therewith.
If a Default Prepayment occurs, Borrower shall pay to Lender the entire
Debt, including, without limitation, the Prepayment Consideration. For purposes
of this Promissory Note, the term "Default Prepayment" shall mean a prepayment
of the principal amount of this Promissory Note made during the continuance of
any Event of Default or after an acceleration of the Maturity Date under any
circumstances.
6. SAVINGS CLAUSE
This Promissory Note is subject to the express condition that at no
time shall Borrower be obligated or required to pay interest on the principal
balance due hereunder at a rate which could subject Lender to either civil or
criminal liability as a result of being in excess of the maximum interest rate
which Borrower is permitted by applicable law to contract or agree to pay. If by
the terms of this Promissory Note, Borrower is at any time required or obligated
to pay interest on the principal balance due hereunder at a rate in excess of
such maximum rate, the Applicable Interest Rate or the Default Rate, as the case
may be, shall be deemed to be immediately reduced to such maximum rate and all
previous payments in excess of the maximum rate shall be deemed to have been
payments in reduction of principal and not on account of the interest due
hereunder. All sums paid or agreed to be paid to Lender for the use,
forbearance, or detention of the Debt, shall, to the extent permitted by
applicable law, be amortized, prorated, allocated, and spread throughout the
full stated term of the Promissory Note until payment in full so that the rate
or amount of interest on account of the Debt does not exceed the maximum lawful
rate of interest from time to time in effect and applicable to the Debt for so
long as the Debt is outstanding.
7. LATE CHARGE
Notwithstanding, and in addition to, any other remedies of Lender
provided in this Promissory Note if any sum payable under this Promissory Note
is not paid on or before the date on which it is due, Borrower shall pay to
Lender upon demand an amount equal to the lesser of five percent (5%) of the
unpaid sum or the maximum amount permitted by applicable law to defray the
3
<PAGE> 4
expenses incurred by Lender in handling and processing the delinquent payment
and to compensate Lender for the loss of the use of the delinquent payment.
8. NO ORAL CHANGE
This Promissory Note may not be modified, amended, waived, extended,
changed, discharged or terminated orally or by any act or failure to act on the
part of Borrower or Lender, but only by an agreement in writing signed by the
party against whom enforcement of any modification, amendment, waiver,
extension, change, discharge or termination is sought.
9. WAIVERS
Borrower and all others who may become liable for the payment of all or
part of the Debt do hereby severally waive presentment and demand for payment,
notice of dishonor, protest and notice of protest and non-payment and all other
notices of any kind. No extension of time for payment of this Promissory Note or
any installment hereof, and no alteration, amendment or waiver of any provision
of this Promissory Note made by agreement between Lender or any other person or
party shall release, modify, amend, waive, extend, change, discharge, terminate
or affect the liability of Borrower, and any other person or entity who may
become liable for the payment of all or any part of the Debt, under this
Promissory Note. No notice to or demand on Borrower shall be deemed to be a
waiver of the obligation of Borrower or of the right of Lender to take further
action without further notice or demand as provided for in this Promissory Note.
The agreements contained herein shall remain in full force and application
notwithstanding any changes in the shareholders comprising, or the officers and
directors relating to, the corporation designated as the Borrower, and the term
"Borrower" as used herein, shall include any alternative or successor
corporation, but any predecessor corporation shall not be relieved of liability
hereunder.
10. WAIVER OF TRIAL BY JURY
BORROWER HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, THE
RIGHT TO TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM, WHETHER IN
CONTRACT, TORT OR OTHERWISE, RELATING DIRECTLY OR INDIRECTLY TO THE LOAN
EVIDENCED BY THIS PROMISSORY NOTE, THE APPLICATION OR NEGOTIATION OF THE LOAN
EVIDENCED BY THIS PROMISSORY NOTE, THIS PROMISSORY NOTE, OR ANY ACTS OR
OMISSIONS OF LENDER, ITS OFFICERS, EMPLOYEES, DIRECTORS OR AGENTS IN CONNECTION
THEREWITH.
11. EXCULPATION
Except as otherwise specifically provided herein, Borrower shall be
personally liable for all amounts becoming due under this Promissory Note and
Lender shall have the right, but not the obligation, to enforce the liability
and obligation of Borrower to perform and observe the obligations
4
<PAGE> 5
contained in this Promissory Note by an action or proceeding wherein a money
judgment shall be sought against Borrower, and Lender may, without limitation,
bring a foreclosure action, action for specific performance or any other
appropriate action or proceeding to enable Lender to enforce the terms of this
Promissory Note.
12. AUTHORITY
Borrower represents that it has full power, authority and legal right
to execute and deliver this Promissory Note and this Promissory Note constitutes
the valid and binding obligation of Borrower.
13. APPLICABLE LAW
This Promissory Note shall be governed, construed, applied and enforced
in accordance with the laws of the state of California and the applicable laws
of the United States of America.
14. SERVICE OF PROCESS
Borrower will maintain a place of business or an agent for service of
process at the address stated in the first paragraph hereof and give prompt
notice to Lender of the address of such place of business and of the name and
address of any new agent appointed by it, as appropriate. Borrower further
agrees that the failure of its agent for service of process to give it notice of
any service of process will not impair or affect the validity of such service or
of any judgment based thereon. If, despite the foregoing, there is for any
reason no agent for service of process of Borrower available to be served, or if
Borrower has no place of business at the address stated in the first paragraph
hereof, then Borrower irrevocably consents to service of process by registered
or certified mail, postage prepaid, to it at its address given in or pursuant to
the first paragraph hereof.
15. COUNSEL FEES
In the event that it should become necessary to employ counsel to
collect the Debt, Borrower also agrees to pay all reasonable fees and expenses
of Lender, including, without limitation, reasonable attorney's fees for the
services of such counsel whether or not suit be brought.
16. NOTICES
All notices or other written communications hereunder shall be deemed
to have been properly given (i) upon delivery, if delivered in person or by
facsimile transmission with receipt acknowledged by the recipient thereof, (ii)
one (1) Business Day, as defined below, after having been deposited for
overnight delivery with any reputable overnight courier service, or (iii) three
(3) Business Days after having been deposited in any post office or mail
depository regularly maintained by the U.S. Postal Service and sent by
registered or certified mail, postage prepaid, return receipt requested,
addressed as follows:
5
<PAGE> 6
If to Borrower: The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, Illinois 60018
Attention: Michael Kirby
Facsimile No. (847) 699-5940
With copy to: Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, NY 10022
Attention: Jeffrey S. Spindler
Facsimile No. (212) 980-7177
If to Lender: American Pacific Financial Corporation
225 W. Hospitality Lane, Suite 201
San Bernardino, California 92408
Attention: Larry R. Polhill
Facsimile No. (909) 387-0810
With a copy to: Fisher Thurber LLP
4225 Executive Square, Suite 1600
La Jolla, California 92037
Attention: David A. Fisher
Facsimile No. (619) 535-1616
or addressed as such party may from time to time designate by written notice to
the other parties.
Either party by notice to the other may designate additional or
different addresses for subsequent notices or communications.
"Business Day" shall mean a day upon which commercial banks are not
authorized or required by law to close in Los Angeles, California.
[Signature page immediately following]
6
<PAGE> 7
IN WITNESS WHEREOF, Borrower has duly executed this Promissory Note as
of the day and year first above written.
The Delicious Frookie Company, Inc.
a Delaware corporation
By: /s/
-----------------------------------
Michael Kirby, President
7
<PAGE> 8
ACKNOWLEDGMENT
(to be attached)
8
<PAGE> 1
EXHIBIT 10.38
FIRST AMENDMENT TO FINANCING AGREEMENT
THIS FIRST AMENDMENT TO FINANCING AGREEMENT (this
"Amendment"), made and entered into as of April 3, 1998, is by and between THE
DELICIOUS FROOKIE COMPANY, INC., a Delaware corporation (the "Borrower"), and
U.S. BANCORP REPUBLIC COMMERCIAL FINANCE, INC, fka REPUBLIC ACCEPTANCE
CORPORATION, a Minnesota corporation (the "Lender").
RECITALS
1. The Lender and the Borrower entered into a Financing
Agreement dated as of November 27, 1996 (the "Financing Agreement"); and
2. The Borrower desires to amend certain provisions of the
Agreement, and the Lender has agreed to make such amendments, subject to the
terms and conditions set forth in this Amendment.
AGREEMENT
NOW, THEREFORE, for good and valuable consideration, the
receipt and adequacy of which are hereby acknowledged, the parties hereto hereby
covenant and agree to be bound as follows:
Section 1. Capitalized Terms. Capitalized terms used herein
and not otherwise defined herein shall have the meanings assigned to them in the
Financing Agreement, unless the context shall otherwise require.
Section 2. Amendments. The Financing Agreement is hereby
amended as follows:
2.1. Section 1 of the Financing Agreement is amended in its
entirety as follows:
A. The Loans. At our request, you in your sole discretion may
lend to us, from time to time, amounts up to a maximum amount of Seven Million
and No/100 Dollars ($7,000,000.00) in the aggregate consisting of separate loans
("Loans") comprised of advances from time to time of amounts equal to:
(i) eighty-five percent (85%) of the net amount of
accounts ("Accounts Loan") (other than accounts owing by WB
Distributing Company) which are listed in current schedules
provided by us and which are deemed eligible for advances by
you in your sole judgement, or any greater or lesser
percentage at your absolute discretion, provided that eligible
accounts shall not include (a) accounts which are ninety (90)
days past due, (b) any account if twenty-five percent (25%) or
more of such account is ninety (90) days past due, (c) any and
all accounts owing from employees or affiliates of us, (d)
billed finance charges, (e) foreign accounts with prepaid
inventory or other prepaid or deposit arrangements and (f) any
other accounts deemed ineligible by you in your sole
discretion;
(ii) fifty percent (50%) of the net amount of
accounts owing to us by WB Distributing Company (the "WB
Accounts") which are listed in current schedules provided by
us and which are deemed eligible for advances by you in your
sole judgement, or any greater or lesser percentage at your
absolute discretion
<PAGE> 2
(collectively, the "WB Accounts Loans" and, together with the
WB Settlement Advance, the "WB Loans"), provided that:
(a) any WB Account deemed eligible by you in
your sole discretion shall be deemed eligible only
for a period of forty-five (45) days after the date
of the invoice relating to such WB Account, provided,
however, that no more than three (3) time during the
terms of the Loans, such forty-five (45) day period
shall be extended for an additional five (5) days
(each such period hereinafter referred to as an
"Eligible Period") to allow WB Distributing Company
to remit payment to us on such WB Account;
(b) if any WB Account remains unpaid after
the expiration of the applicable Eligibility Period,
then at your sole discretion all WB Accounts shall be
deemed ineligible and the other WB Loans immediately
shall be due and payable; and
(c) the outstanding aggregate amount of the
WB Loans at any one time shall not exceed Six Hundred
Fifty Thousand and No/100 Dollars ($650,000).
(iii) fifty-five percent (55%) of the net amount of
inventory (determined on lower of cost or market basis) which
constitutes raw materials or finished goods and is listed in
current schedules provided by us and deemed eligible for
advances by you and up to thirty per cent (30%) of eligible
packaging and display inventory which shall not exceed
$150,000 in the aggregate (provided that we understand that no
inventory which may constitute "perishable agricultural
commodities" as defined at U.S.C. ss. 499a(b)(4) and the
regulations promulgated thereunder, and all inventory,
receivables and proceeds of such commodities shall be so
eligible), or any greater or lesser percentage at your
absolute discretion, but not in excess of Two Million Six
Hundred Thousand and No/100 Dollars ($2,600,000.00) (the
"Inventory Loan");
provided that amounts advanced under these Loans may be repaid and
reborrowed within the above limits or other limits you may set in your
sole discretion so long as you have not demanded payment of outstanding
amounts. For purposes of the Inventory Loan, advances shall be
determined only on inventory (i) located at public warehouses and other
similar locations for which we have supporting documentation necessary
to insure lien rights in favor of you and (ii) which does not
constitute shipping supplies or obsolete items of inventory in your
absolute discretion (iii) which shall be subject to such other
documentation and agreements as you shall request.
2.3. Section 2 of the Financing Agreement is amended in its entirety as
follows:
A. Interest on Loans. We agree to pay interest on the net balance owed
to you at the close of each day on all amounts outstanding under the Accounts
Loan and the Inventory Loan at a rate per annum (computed on the basis of actual
number of days elapsed and a year of 360 days) which is equal to the reference
rate of interest publicly announced from time to time by U.S. Bank National
Association in Minneapolis, Minnesota (the"Reference Rate"), plus one and one
half percent (1.50%). All such interest
2
<PAGE> 3
on amounts outstanding under the Accounts Loan and the Inventory Loan shall be
due and payable to you on the first business day of each month.
B. Loan Fees. We agree to pay to you upon the execution of this
Amendment to the Financing Agreement a fee in the amount of $35,000.00, and a
like amount on each anniversary date of this Amendment thereafter provided
however the fee for 1999 may be prorated and payable monthly to November 30,
1999 the date when we expect that all amounts due Lender hereunder will be paid
from proceeds of an anticipated public offering.
C. We agree that if we give notice to you of the termination of this
Agreement under Section X hereof on or before August 31, 1998, we will pay to
you at the time of such termination prepayment charge, as additional
compensation for your costs of entering into this Agreement, in the amount of
three percent (3%) of the loan facility; and if we give notice to you of the
termination of this Agreement under Section X hereof at any time after August
31, 1998 we will pay to you at the time of such termination a prepayment charge,
as additional compensation for your costs of entering into this Agreement, in
the amount of two percent (2%) of the loan facility.
Notwithstanding the foregoing, if the portion of the Loans so prepaid
is refinanced by an affiliate of U.S. Bancorp no prepayment charge shall be due
and payable as a result of such payment.
D. (No change)
E. Minimum Charge. We further agree to pay you a minimum interest
charge ("Minimum Charge") of $12,500 per month for the availability of the
Loans.
F. (No change)
2.4. All references in the Financing Agreement to personal guaranties
or guaranties of the obligations of third parties to Republic of Borrowers
obligations are deleted and such guaranties are released and terminated.
Section 3. Effectiveness of Amendments. The amendments contained in
this Amendment shall become effective upon delivery by the Borrower of, and
compliance by the Borrower with, the following:
3.1. This Amendment, duly executed by the Borrower.
3.2. Subordination Agreements from Lawrence Polhill and American
Pacific Professional Park LLC, Salerno Foods, L.L.C. and all other creditors
that Republic may request in form and substance satisfactory to Republic.
3.3 Collateral Assignment of Trademarks duly executed by the Borrower.
3.4. A copy of the resolutions of the Board of Directors of the
Borrower authorizing the execution, delivery and performance of this Amendment
certified as true and accurate by its Secretary or Assistant Secretary, along
with a certification by such Secretary or Assistant Secretary (i)certifying that
there has been no amendment to the Articles of Incorporation or Bylaws of the
Borrower since true and accurate copies of the
3
<PAGE> 4
same were delivered to the Lender with a certificate of the Secretary of the
Borrower dated November 27, 1996, and (ii) identifying each officer of the
Borrower authorized to execute this Amendment and any other instrument or
agreement executed by the Borrower in connection with this Amendment, and
certifying as to specimens of such officer's signature and such officer's
incumbency in such offices as such officer holds.
3.5. Certified copies of all documents evidencing any necessary
corporate action or consent with respect to this Amendment.
3.6. A reaffirmation of Security Agreement in the form of Exhibit B
attached to this Amendment, duly executed by the Borrower.
3.7. The Borrower shall have paid all fees owed to Republic.
3.8. The Borrower shall have provided evidence to Republic and its
counsel that it has acquired certain assets of Salerno Foods, LLC.and that such
assets constitute collateral for the obligations of Borrower in accordance with
the terms of the Security Agreement.
3.9. Republic shall have received a final field audit of Salerno Foods
LLC prepared by Republics internal audit staff which shall contain information
regarding assets of Salerno in form and substance satisfactory to Republic.
3.10. The Borrower shall have satisfied such other conditions as
specified by the Lender or counsel to the Lender, including payment of all
unpaid legal fees and expenses incurred by the Lender through the date of this
Amendment in connection with the Financing Agreement including legal fees and
expenses not to exceed Ten Thousand and no/100 Dollars ($10,000.00) in
connection with the execution and preparation of this Agreement.
Section 4. Representations; Acknowledgments. The Borrower
hereby represents that on and as of the date hereof and after giving effect to
this Amendment (a)all of the representations and warranties contained in the
Financing Agreement, and in any and all other Loan Documents of the Borrower,
are true, correct and complete in all respects as of the date hereof as though
made on and as of such date, except for changes permitted by the terms of the
Financing Agreement, and (b) the Borrower is in compliance with all covenants
and agreements of the Borrower as set forth in the Financing Agreement and in
any and all other Loan Documents of the Borrower. The Borrower represents and
warrants that the Borrower has the power and legal right and authority to enter
into this Amendment and has duly authorized as appropriate the execution and
delivery of this Amendment and other agreements and documents executed and
delivered by the Borrower in connection herewith or therewith by proper
corporate action. The Borrower acknowledges and agrees that its obligations to
the Lender under the Financing Agreement and exist and are owing without offset,
defense or counterclaim assertable by the Borrower against the Lender. The
Borrower further acknowledges and agrees that its obligations to the Lender
under the Financing Agreement, as amended, constitute "Obligations" within the
meaning of the Security Agreement and are secured by the Security Agreement, as
amended.
Section 5. Affirmation, Further References. Except as
expressly modified under this Amendment, all of the terms, conditions,
provisions, agreements, requirements, promises, obligations, duties, covenants
and representations of the Borrower under the Financing Agreement, the Security
Agreement, and any and all other Loan Documents entered
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<PAGE> 5
into with respect to the obligations under the Financing Agreement are
incorporated herein by reference and are hereby ratified and affirmed in all
respects by the Borrower. All references in the Financing Agreement to "this
Agreement," "herein," "hereof," and similar references, and all references in
the other Loan Documents to the "Agreement," shall be deemed to refer to the
Agreement, as amended by this Amendment.
Section 6. Merger and Integration, Superseding Effect. This
Amendment, from and after the date hereof, embodies the entire agreement and
understanding between the parties hereto and supersedes and has merged into it
all prior oral and written agreements on the same subjects by and between the
parties hereto with the effect that this Amendment, shall control with respect
to the specific subjects hereof and thereof.
Section 7. Severability. Whenever possible, each provision of
this Amendment and any other statement, instrument or transaction contemplated
hereby or thereby or relating hereto or thereto shall be interpreted in such
manner as to be effective, valid and enforceable under the applicable law of any
jurisdiction, but, if any provision of this Amendment or any other statement,
instrument or transaction contemplated hereby or thereby or relating hereto or
thereto shall be held to be prohibited, invalid or unenforceable under the
applicable law, such provision shall be ineffective in such jurisdiction only to
the extent of such prohibition, invalidity or unenforceability, without
invalidating or rendering unenforceable the remainder of such provision or the
remaining provisions of this Amendment or any other statement, instrument or
transaction contemplated hereby or thereby or relating hereto or thereto in such
jurisdiction, or affecting the effectiveness, validity or enforceability of such
provision in any other jurisdiction.
Section 8. Successors. This Amendment shall be binding upon
the Borrower and the Lender and their respective successors and assigns, and
shall inure to the benefit of the Borrower and the Lender and the successors and
assigns of the Lender.
Section 9. Legal Expenses. The Borrower agrees to reimburse
the Lender, upon execution of this Amendment, for all reasonable out-of-pocket
expenses (including attorneys' fees and legal expenses of Dorsey & Whitney,
counsel for the Lender) incurred in connection with the Financing Agreement,
including in connection with the negotiation, preparation and execution of this
Amendment and all other documents negotiated, prepared and executed in
connection with this Amendment (limited to $10,000.00 for only this Amendment),
and in enforcing the obligations of the Borrower under the Financing Agreement,
as amended by this Amendment, which obligations of the Borrower shall survive
any termination of the Financing Agreement.
Section 10. Headings. The headings of various sections of this
Amendment have been inserted for reference only and shall not be deemed to be a
part of this Amendment.
Section 11. Counterparts. This Amendment may be executed in
several counterparts as deemed necessary or convenient, each of which, when so
executed, shall be deemed an original, provided that all such counterparts shall
be regarded as one and the same document, and either party to this Amendment may
execute any such agreement by executing a counterpart of such agreement.
Section 12. Governing Law. The Amendment Documents shall be
governed by the internal laws of the State of Minnesota, without giving effect
to conflict of law principles thereof.
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<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be executed as of the date and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.,
a Delaware Corporation
By: /s/ MICHEAL KIRBY
-------------------------------------
Title: PRESIDENT
-----------------------------------
U.S. BANCORP REPUBLIC COMMERCIAL
FINANCE, INC., fka REPUBLIC ACCEPTANCE
CORPORATION, a Minnesota corporation
By: /s/ BARRY DAVIS
-------------------------------------
Title: RELATIONS MANAGER
-----------------------------------
6
<PAGE> 7
EXHIBIT B
REAFFIRMATION OF SECURITY AGREEMENT
The undersigned, The Delicious Frookie Company, Inc., (the "Borrower") hereby
reaffirms that (i) the Security Agreement made and given by the Borrower to
Republic Acceptance Corporation (the "Lender"), dated as of November 27, 1996,
(the "Security Agreement"), remains in full force and effect, and (ii) the
security interests granted pursuant to the Security Agreement secure, among
other things, the Borrower's obligations and duties under that certain Financing
Agreement, as amended by the Amendment to Financing Agreement by and between the
Borrower and the Lender dated as of even date hereof.
Dated as of: April 1, 1998
The Delicious Frookie Company, Inc
By:
-------------------------------------
Its:
-----------------------------------
7
<PAGE> 1
EXHIBIT 10.39
(CRACKER DRIVERS)
AGREEMENT
BETWEEN:
SALERNO FOODS, L.L.C.
and
BAKERY, CRACKER, PIE AND YEAST WAGON DRIVERS UNION,
LOCAL 734 INTERNATIONAL BROTHER HOOD OF TEAMSTERS OF AMERICA
(DIAMOND)(DIAMOND)(DIAMOND)
FEBRUARY 1, 1996 - JANUARY 31, 1998
INDEX
<TABLE>
<CAPTION>
DESCRIPTION ARTICLE NO. PAGE NO.
- ----------- ----------- --------
<S> <C> <C>
Chauffeur's License XV 12
Checkoff XXIII 17
Delinquent Health and Welfare or
Pension contributions XI 10
Delivery VI 5
Discharge and Resignation XVI 13
Equipment and Reduction of Work Force XIX 15
Exclusive Agreement VI 5
Funeral Leave XII 10
Grievance Procedure XVII 13
Health and Welfare IX 7
Holidays IV 4
Jury Pay XIII 11
NonDiscrimination XXII 16
Pension Fund X 9
Protection of Rights XIV 12
Recognition I 2
Securities, Etc. III 4
Separability and Savings Clause XXI 16
Severance XIV 17
Termination XXV 18
Uniforms XX 16
Union Cooperation V 5
Union Inspection XVIII 15
Vacations VIII 5
Weekly Rates and Working Conditions II 3
Appendix A 19
</TABLE>
<PAGE> 2
LOCAL 734 AGREEMENT
AGREEMENT made and entered into by and between SALERNO FOODS, L.L.C., located at
2070 Maple Street, Des Plaines, Illinois (hereinafter referred to as the
"Employer") and BAKERY, CRACKER, PIE AND YEAST WAGON DRIVERS UNION, LOCAL #734
INTERNATIONAL BROTHERHOOD OF TEAMSTERS OF AMERICA, (hereinafter referred to as
the "Union").
WITNESSETH:
ARTICLE I - RECOGNITION
SECTION 1.
The Employer recognizes the Union as the sole collective bargaining
agent for all employees covered by the provisions of Article II of this
Agreement.
SECTION 2.
This Agreement shall apply to wages, hours, health and welfare,
pensions and other terms and conditions of employment in the plants
operated by the Employer entering into this Agreement, and all other
matters included herein.
SECTION 3.
All present employees who are members of the Union on the effective
date of this section or on the date of the execution of this Agreement,
whichever is the later, shall remain members of the Union in good
standing as a condition of employment. All present employees who are
not members of the Union and all employees who are hired hereafter
shall become and remain members in good standing of the Union as a
condition of employment on and after the thirty-first (31st) day
following the beginning of their employment, or on and after the
thirty-first (31st) day following the effective date of this section,
or the date of this Agreement, whichever is the later. This provision
shall be made and become effective under the provisions of the National
Labor Relations Act, but not retroactively.
SECTION 4.
The Employer may hire new employees from any available source. This
article, with respect to membership in the Union, shall be subject to
change to conform with any change in the National Labor Relations Act
or any final judicial or administrative interpretation thereof.
-2-
<PAGE> 3
ARTICLE II - WEEKLY RATES AND WORKING CONDITIONS
SECTION 1.
The rate below will be placed in effect on the first Monday following
effective date listed:
<TABLE>
<CAPTION>
<S> <C> <C>
2/1/96 2/1/97
------ ------
$14.50 $14.80
</TABLE>
The starting rate for new drivers hired after February 1, 1996 will be
80% of the classification rate of pay for the first 18 months actually
worked and 90% of the classification rate of pay for the second 18
months actually worked.
SECTION 2.
Any time worked in excess of eight (8) hours per day shall be
compensated for at time and one-half (1 1/2) the straight-time hourly
rate.
SECTION 3.
Starting time shall be no earlier than 5:00 AM. Any driver requested to
start before 5:00 AM shall receive one and one half (1 1/2) his/her
hourly rate.
SECTION 4.
Any drivers reporting for work ten (10) minutes after his or her
designated time loses his or her right for work and pay that day.
Warehouse employees may be used to perform duties of regular drivers
who are absent and who have routes set up for them.
SECTION 5.
Drivers are to take one-half (1/2) hour for lunch, which time shall not
be paid for.
SECTION 6.
For all employees hired before February 1, 1996, all Saturday work is
to be paid at the rate of time and one-half (1 1/2) the straight-time
hourly rate. If called to work on Saturday, the delivery driver shall
be guaranteed a minimum of (4) hours work except as outlined in Section
1 of Article II.
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SECTION 7.
Effective February 1, 1996, all new employees hired on or after this
date may be scheduled on a Tuesday to Saturday schedule at
straight-time rate of pay. Any employee scheduled Tuesday to Saturday
will be paid one and one-half (1 1/2) time for work performed on
Monday.
ARTICLE III - SECURITIES, ETC.
SECTION 1.
In case a cash deposit is required from a driver, the Employer shall
pay, six percent (6%) interest annually on same.
SECTION 2.
The Employer will pay the fines for all non-moving traffic violations.
ARTICLE IV - HOLIDAYS
SECTION 1.
Delivery drivers shall be paid eight (8) hours straight-time pay for
the following unworked holidays:
<TABLE>
<S> <C>
New Years Day Personal Day
Decoration Day Fourth of July
Labor Day Thanksgiving Day
Day after Thanksgiving Day before Christmas
Christmas Day Day before New Years Day
</TABLE>
SECTION 2.
If possible, the employee will provide the Employer with reasonable
prior notice of the personal day to be taken. In any event, the
scheduling of the personal day must not interfere with the efficient
operations of the Employer.
SECTION 3.
Should a delivery driver work on any of the above mentioned holidays,
except the "Day before Christmas", he/she shall receive, in addition to
the eight (8) straight-time hours paid for an unworked holiday, time
and one-half (1 1/2) for all hours worked on said holiday. Should a
delivery driver work on the "Day before Christmas" holiday, he/she
shall receive, in addition to the eight (8) straight-time hours paid
for the
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<PAGE> 5
unworked holiday, straight-time for all hours worked on said
holiday.
SECTION 4.
Should any one of the above holidays occur during an employee's
vacation, the employee shall be entitled, by the Employer's option, to
additional day off or additional days pay in lieu thereof. Should the
Employer grant an additional day off under these circumstances, this
additional day off shall immediately precede or follow the employee's
vacation.
SECTION 5.
The particular driver must have worked at least one (1) day in the
holiday workweek to qualify for holiday pay. There shall be no
exceptions to this provision.
SECTION 6.
No delivery driver shall be required to work an Sunday and then only
after agreement as to wages, hours, and other terms and conditions.
ARTICLE V -- UNION COOPERATION
The Union agrees to further the interest of said firms whenever in its
power to do so in respect to improving labor management relations.
ARTICLE VI - DELIVERY
All DSD orders in Chicagoland are to be delivered by employees in the
bargaining unit.
ARTICLE VII - EXCLUSIVE AGREEMENT
Employees will not be asked to make any written or verbal contracts
whatsoever.
ARTICLE VIII - VACATIONS
SECTION 1.
a) Any employee shall at the end of fifty-two (52) weeks of
continuous service with the Employer be entitled to one
(1) weeks vacation with pay.
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b) Any employee shall at the end of three (3) years of
continuous service with the Employer be entitled to two
(2) weeks vacation with pay.
c) Any employee who has been in the service of the EmpIoyer for
seven (7) continuous years, shall be entitled to three (3)
weeks vacation with pay.
d) Any employee who has been in the service of the Employer for
fifteen (15) continuous years or more shall be entitled to
four (4) weeks vacation with pay.
For the purposes of this section only, previous years of service with a
Salerno entity for employees hired on or before 2/1/96 will be honored.
SECTION 2.
The vacation period shall be January 1 through December 31 of each
calendar year. Vacations shall start on Monday and end on Saturday.
SECTION 3.
All employees who have been employed by the Employer for five (5)
continuous years or more shall have earned and be entitled to their
vacations after April 1 of each year, irrespective of their dates of
employment.
SECTION 4.
Drivers shall choose the time of their vacation by seniority.
SECTION 5.
Each full week of vacation earned shall be paid for at the rate of
forty-five (45) times the then straight-time hourly rate.
SECTION 6.
(a) In order to qualify for full vacation pay as set forth above,
an employee must work at least seventy-five percent (75%) of
the total working days during the previous calendar year. Time
spent on vacation, holidays, and workmens compensation
accidents shall be considered time worked for this purpose.
(b) Any employee working less than the seventy-five percent (75%)
specified above, shall receive as his/her vacation pay that
percentage of the time actually worked as it bears to one
hundred percent (100%) being considered full
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<PAGE> 7
vacation. For example: If an employee works fifty percent
(50%) of the total working days, he/she would receive as
vacation pay one-half (1/2) of the applicable vacation hours
pay for each week of earned vacation.
(c) The above computation shall likewise be used in arriving at
pro-rata vacations earned in the case of resignations or
discharges.
ARTICLE IX - HEALTH AND WELFARE
SECTION 1.
Parties to this Agreement agree to continue participation in the Local
734 Health and Welfare Plan for the benefit of the employees subject to
this Agreement and for the dependents of such employees.
SECTION 2.
The Employer shall pay to the Health and Welfare Fund the agreed upon
maximum weekly contribution per employee of $100.00 per week effective
2/1/96. The contribution rate per employee will increase to $110.00 on
2/1/97.
SECTION 3.
(a) The Employer shall not be required to make any
contribution for any new employee until the week in which
shall occur the thirtieth (30th) day from the date of
employment; except that, for this purpose, a "new
employee" is one who has not been in the employ of the
Employer covered by this Agreement. If an employee shall
leave the employ of the Employer and enter the employ of
another Employer, such employee must pay the entire
contribution due for the period between employers if
he/she desires coverage in the Fund for such period.
(b) The contribution made by the Employer pursuant to the
requirement of this section shall be the sole contribution to
any Health and Welfare Fund required of such Employer for
employees subject to this Agreement.
SECTION 4.
Contributions to the Health and Welfare Fund must be made for each week
the employee performs work for the Employer (including earned vacation
periods) on each regular employee employed by the Employer.
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<PAGE> 8
SECTION 5.
If an employee who is absent because of illness or off-the-job injury
notifies the Employer of such absence and reason therefore, the
Employer shall continue to pay the required contributions for four (4)
weeks from the date of the beginning of such absence. Thereafter, the
employee, if he/she desires coverage in the Fund, shall make the
required total contribution.
SECTION 6.
If an employee is injured on the job, the Employer shall continue to
pay the required contribution until such employee shall return to
his/her job or is no longer an employee of the Employer.
SECTION 7.
If an employee shall request a leave of absence and does not become
employed in an occupation not covered by this Agreement, the Employer
shall collect from the employee, prior to the leave being effective,
sufficient monies to pay the required total contribution into the
Health and Welfare Fund during the period of such leave of absence.
SECTION 8.
The parties hereto shall execute an Agreement and Declaration of Trust
for the purpose hereinafter set forth and, unless mutually terminated
by the parties hereto, such Trust established shall continue for not
less than the period of this Agreement.
SECTION 9.
(a) The Board of Trustees established by such Agreement and
Declaration of Trust shall jointly administer the Health and
Welfare Fund; such Board of Trustees to consist of equal
representatives of the Union as one party and of the Employer
as another party with equal representation for each.
(b) Any disagreement respecting eligibility, time and method of
payment, methods of enforcement of payment and related matters
shall be determined by such Trustees. The Fund shall, in all
respects, be administered in accordance with the Trust
Agreement.
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<PAGE> 9
(c) With respect to the Employer Trustees, the Chicago Bakery
Employers Labor Council shall at all times appoint its
Trustees who shall be the Employer representatives.
SECTION 10.
All monies paid into the Fund will be used by the Trustees for the
purpose of purchase of group insurance benefits for the employees and
their dependents who may qualify under the Health and Welfare Plan
including, but not limited to, life insurance, accidental death and
dismemberment benefits, disability benefits, hospitalization, surgical
and medical expenses, in such manner and amounts as the said Trustees
in their sole discretion may determine. Reasonable expenses incurred in
administering the Trust and Plan shall be deemed a proper charge
against the Fund.
SECTION 11.
The foregoing provisions with respect to the Health and Welfare Trust
Plan and Fund are subject in all respects to the provisions of the
Labor Management Relations Act of 1947 and any amendments thereto.
ARTICLE X - PENSION FUND
SECTION 1.
The Union and the Employer, parties hereto, agree to continue
participation in the Local 734 Pension Fund for the benefit of the
employees of the Employer represented by the Union covered by the terms
of this Agreement.
SECTION 2.
The Employer party hereto agrees to make contributions to the aforesaid
Pension Fund in the amount of forty-three dollars and thirty-five cents
($43.35), for the duration of contract.
SECTION 3.
The method of paying and calculating such contributions shall be in
accordance with the provisions set forth in this Agreement with respect
to Health and Welfare payment, except of course, with respect to those
provisions of Article IX in the last paragraph of Section 3 (formerly
Section 2) which obligates the employee to make contributions. No
employee contributions are to be made to the Pension Fund.
-9-
<PAGE> 10
SECTION 4.
The Pension Fund will be jointly administered by a Board of Trustees in
accordance with the Trust Agreement and arrangements to be drafted by
the parties hereto on which Board of Trustees to the Union, as one
party, and the Council, as another party, will have an equal number of
Trustee appointees.
SECTION 5.
All monies paid into the Pension Fund will be used by the Trustees for
the purpose of providing a Pension Plan for the employees.
SECTION 6.
The Pension Plan shall qualify under the appropriate provisions of the
Internal Revenue Code of 1954 so as to insure that the Employer
contributions thereto will be deductible as ordinary business expenses.
SECTION 7.
The parties hereto have executed an Agreement and Declaration of Trust
for the purposes hereinabove set forth.
SECTION 8.
As the material part of the consideration for the forgoing, the Union,
on behalf of its members, does now hereby release the Employer
signatory hereto from any and all obligations to continue or maintain
an Employer or Employer-Employee funded retirement plan which the
Employer may have in existence on the effective date hereof; it being
understood that, as of said effective date, all Union members subject
hereto shall be deemed to have withdrawn from any such company plan in
accordance with and subject to the terms thereof, and to have waived
any and all rights to rejoin such company plan so long as the Employer
is making payments on his/her behalf into the Union Pension Trust Fund.
The provisions of the foregoing shall not be deemed to constitute a
waiver by the Union or any employee of any rights, privileges or
benefits which may have accrued to any employee under the terms of any
company plan prior to February 1, 1958.
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<PAGE> 11
ARTICLE XI - DELINQUENT HEALTH AND WELFARE OR PENSION
CONTRIBUTIONS
SECTION 1.
The Employer recognizes the necessity of making prompt Health and
Welfare and Pension contributions, the possibility that employee's
benefit standing will be placed in jeopardy if contributions are not
timely made, and the concern of the Union that all eligible employees
are covered by such contributions.
SECTION 2.
Whenever the Employer is delinquent in making payments to either the
Health and Welfare or Pension Funds, the Union may strike the Employer
to force payments. This provision shall not be subject to and is
specifically excluded from the grievance procedure. Additionally, in
the event the Employer has been found to be delinquent, the Employer
shall be required to pay in an addition to the actual delinquency, ten
percent (10%) of the delinquent amount as liquidated damages, and
accountant and attorney fees and court costs.
ARTICLE XII - FUNERAL LEAVE
SECTION 1.
In the event that a death in the immediate family of any employee
requires his/her absence from work, he/she will be afforded up to three
(3) days off without loss of pay for the regular workdays on which
he/she would have worked but for his/her absence to attend the funeral.
The amount of time taken off should be reasonably necessary under all
circumstances.
SECTION 2.
"Immediate family" shall mean spouse, son or daughter, mother or
father, sister or brother, or mother or father of employee's spouse.
SECTION 3.
In the event of death of the employee's grandfather or grandmother, the
employee shall be entitled to be absent from work not more than one (1)
regular working day to attend the funeral service.
SECTION 4.
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<PAGE> 12
In the event of death of the employee's spouse's grandfather or
grandmother, the employee shall be entitled to be absent from work not
more than one (1) regular working day to attend the funeral service.
ARTICLE XIII - JURY PAY
SECTION 1.
The Employer agrees to reimburse any truck driver who is required to
serve on a jury (municipal, county, state or federal) for the
difference between the amount of jury pay received and the amount such
employee would have earned during the time he/she is serving on a jury
on the basis of eight (8) hours straight-time pay per day, Monday
through Friday, at his/her regular rate of pay.
SECTION 2.
The employee, before receiving such pay, must give to the Employer
evidence of the fact that he/she has served on a jury by exhibiting to
the Employer the check or voucher which he/she received from the proper
authorities for serving on the jury, together with a statement of the
number of days such employee so served.
SECTION 3.
The Employer's obligation under this article shall be limited to
payment of ten (10) working days for each separate jury call, except
there shall be no limit for the number of working days when an employee
is called for Federal Jury service.
ARTICLE XIV - PROTECTION OF RIGHTS
SECTION 1.
It shall not be a violation of this Agreement, and it shall not be
cause for discharge or disciplinary action in the event an employee
refuses to enter upon any property involved in a primary labor dispute,
or refuses to go through or work behind any primary picket line,
including the primary picket line of Unions party to this Agreement,
and including primary picket lines at the Employer's places of
business. In the application of this Article it is immaterial if the
labor dispute or picketing is illegal if the labor dispute or picketing
is primary.
SECTION 2.
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<PAGE> 13
It shall not be a violation of this Agreement, and it shall not be
cause for discharge or disciplinary action if any employee refuses to
perform any service which his/her Employer undertakes to perform as an
ally of an Employer or person whose employees are on strike, and which
service, but for such strikes, would be performed by the employees of
the Employer or person on strike.
SECTION 3.
The Employer agrees that it will not cease or refrain from handling,
using, transporting, or other wise dealing in any of the products of
any other Employer or cease doing business with any other person, or
fail in any obligation imposed by the Motor Carriers Act or other
applicable law, as a result of individual employees exercising their
rights under this Agreement of under law, but the Employer shall,
notwithstanding any other provision in this Agreement, when necessary,
continue doing such business by other employees.
SECTION 4.
No driver shall be required to operate into any city where a local IBT
Union is on strike at destination or enroute terminal, and shall not be
disciplined for refusal to do so. Drivers who cannot deliver or pick up
loads at terminals where a strike is in progress shall be provided
first class transportation to their home terminal.
SECTION 5.
This Article in its entirety is excluded from the application of the
grievance procedure of this Agreement.
ARTICLE XV - CHAUFFEUR'S LICENSE
Where employees operate motor vehicles, the licenses for operation of
same shall be paid for by the Employer.
ARTICLE XVI - DISCHARGE AND RESIGNATION
SECTION 1.
Any driver wishing to quit his/her position must give the Employer one
(1) weeks notice.
SECTION 2.
Said driver shall be entitled to work out full week on his/her route or
receive one (1) weeks pay.
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<PAGE> 14
SECTION 3.
If the Employer wishes to discharge a driver, it shall give such driver
one (l) weeks pay in lieu of notice, except in cases of dishonesty or
intoxication, or if a new employee cannot furnish a fidelity bond or
cannot be bonded by the fidelity insurance company of the Employer
within fifteen (15) days after commencing employment with the Employer.
ARTICLE XVII - GRIEVANCE PROCEDURE
SECTION 1.
Should differences arise between the Employer and the Union or any
employee of the Company as to the meaning or application of the
provisions of this Agreement, there shall be no suspension of work but
an earnest effort will be made to settle such differences in the
following manner:
(a) The aggrieved employee or employees shall first take the
matter up with the Shop Steward or Business
Representative who, in turn, will take the grievance up
with the Supervisor in charge of the department. This
shall be done within five (5) days of the knowledge of
the occurrence of the incident or all rights under this
Article shall be forfeited. Employees shall have the Shop
Steward or Business Representative present on any
grievance. If a satisfactory settlement (to the employee
and Steward or Business Representative involved) is not
effected with the Supervisor within one (l) working day
the employee or employees involved shall submit such
grievance to the Shop Steward or Business Representative
in writing.
(b) The Shop Steward or Business Representative shall submit
the written grievance to the General Manager of the
Employer or other designated representative of the
Employer with authority to act within five (5) working
days after the conclusion of Step l and such Company
representative shall offer a decision within five (5)
working days after receipt of same, and if this time
limit is not complied with, the grievance shall be
forfeited.
(c) The Shop Steward, along with the Union Representative, shall
submit the written grievance to the General Manager of the
Employer or his designated representative with authority to
act within five (5) workings days within the conclusion of
Step 2 and such Company representative shall offer a decision
within five (5) working days after receipt of such written
grievance.
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<PAGE> 15
(d) No employee shall have the right to require arbitration, that
right being reserved to the Union or Employer exclusively.
(e) Within five (5) days after the determination is made that
a grievance cannot be resolved, the Union and the
Employer shall submit to each other the names of
individuals who would be agreeable to each other to serve
as arbitrator. If the parties cannot agree upon a
mutually agreeable arbitrator the parties shall within
five (5) days thereafter make a joint written request to
the Federal Mediation and Conciliation Service for a
panel of five (5) arbitrators, one of whom shall decide
the matter. The panel of arbitrators shall be sent by
said service to both parties. The Union shall within
seventy-two (72) hours after receipt of such panel strike
one (1) name from the list of nominees so submitted and
forthwith notify the other party of the name so stricken.
The parties will alternately strike such submitted names
until only one (1) nominee name remains. Such sole
remaining nominee whose name has not been stricken shall
then automatically become the chosen arbitrator for the
single specific grievance. Notice of the selection of the
arbitrator shall be given forthwith the Federal Mediation
and Conciliation Service.
The arbitrator so selected shall proceed to decide the
designated grievance and shall not be empowered to modify, add
to, subtract from or otherwise alter the provisions of this
Agreement. The arbitrator's decision shall be final and
binding upon the employees, the Union and the Company
involved.
Only one (1) grievance may be heard before a designated
arbitrator, except where the partied mutually agree otherwise.
The fees and expenses of the arbitrator in conducting the
arbitration proceeding and in making a decision shall be borne
equally by the parties to this Agreement.
(f) When the grievance settlements contain a monetary settlement
such settlement must be paid within fifteen (15) days after
such settlement or the grievant will receive six percent (6%)
on the unpaid settlement.
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<PAGE> 16
ARTICLE XVIII - UNION INSPECTION
SECTION 1.
Authorized representatives of the Union shall have access to the
Employer's establishment at all reasonable times for the purpose of
adjusting disputed, investigating working conditions, collecting dues,
and ascertaining compliance with this Agreement (which shall include
the right to inspect and audit payroll records, time cards and work
sheets). After written notice by a duly authorized officer of the
Union, such records shall be produced at a place mutually agreed upon.
SECTION 2.
If the Union, or at its option, a Certified Public Accountant,
designated by the Union, certify in writing specifically that the
Employer is violating the wage scale, hours of work, vacations,
applicable Health and Welfare provisions of Pension provisions or
working conditions or other terms or conditions of employment, based
upon the records for an audit as provided in this Agreement, then the
grievance procedure shall have no application to such facts and
circumstances and the Union shall be permitted all legal and economic
recourse including the right to strike, notwithstanding anything to the
contrary contained in this Agreement.
SECTION 3.
In the event that the Certified Public Accountant determines that the
Employer is violating the Agreement, the cost of the CPA's services
shall be borne solely by the Employer. In the event the report
indicates that the Employer has not violated the Agreement, the cost
shall be borne solely by the Union. In the event the report indicates
that the Employer has violated the Agreement, then the Union may
strike, or take any other economic or legal action against the Employer
for force payments of the CPA fees, attorney fees and court costs and
back wages due the employee, to remedy the violation. It is understood
and agreed between the Employer and the Union that this provision shall
not be subject to and is specifically excluded from the grievance
procedure.
ARTICLE XIX - EQUIPMENT AND REDUCTION OF WORK FORCE
SECTION 1.
Drivers shall not be required to grease or make any repairs on their
trucks.
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SECTION 2.
In the event it becomes necessary to reduce the number of employees,
the last employee hired shall by the first laid off. Employees so laid
off shall be returned to work on the same seniority basis. These
employees shall reinstated without loss of seniority if reemployed
within twelve (12) months from the last date worked. Reemployment
rights shall be based on the employee notifying the Employer of his or
her intention to return to work within seventy-two (72) hours after
receiving notice by certified mail to the last known address of the
employee. The employee must report within one (1) week after receipt of
recall notice. Failure of the employee to notify the Employer of his or
her current mailing address shall void his or her seniority and recall
rights.
ARTICLE XX - UNIFORMS
Employers who require their employees to wear uniforms, shall furnish
same without cost to the employees. The Employer shall further launder
and take care of all such uniforms at no cost to the employee.
ARTICLE XXI - SEPARABILITY AND SAVINGS CLAUSE
SECTION 1.
If any article or section of this contract or of any rider thereto
shall be held invalid by operation of law or by any tribunal of
competent jurisdiction, or if compliance with or enforcement of any
article or section should be restrained by such tribunal pending a
final determination as to its validity, the remainder of this contract
and of any rider thereto, or the application of such article or section
to persons or circumstance other than those as to which it has been
held invalid or as to which compliance with or enforcement of has been
restrained, shall not be affected thereby.
SECTION 2.
In the event that any article or section is held invalid or enforcement
of or compliance with which has been restrained, as above set forth,
the parties affected thereby shall enter into immediate collective
bargaining negotiations for the purpose of arriving at a mutually
satisfactory replacement for such article or section.
ARTICLE XXII - NON-DISCRIMINATION
The Employer and the Union agree not to discriminate against any
qualified individual with respect to their hiring,
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<PAGE> 18
compensation, terms or conditions of employment because of such
individual's race, color, creed, sex, age, religion, against qualified
employees who are handicapped, disabled veterans, or veterans of the
Viet Nam Era, nor will they limit, segregate or classify employees in
any way to deprive any qualified individual employee of employment
opportunities because of his/her race, color, creed, sex, age,
religion, against qualified employees who are handicapped, disabled
veterans, or veterans of the Viet Nam Era.
ARTICLE XXIII - CHECKOFF
SECTION 1.
The Employer agrees to deduct the Union's periodic dues and initiation
fees from the pay of each employee who individually authorizes said
deductions in writing and to remit the amounts so deducted to the
Union. Said deduction authorization shall be in such form as to conform
with Section 302 (c) of the Labor Management Relations Act of 1947.
SECTION 2.
The Union agrees to save the Employer harmless from any action or
actions growing out of these deductions and commenced by any employee
who has executed such assignment and authorization against the
Employer, and assumes full responsibility for the disposition of the
funds so deducted once such funds have been turned over to the Union as
above provided.
ARTICLE XXIV - SEVERANCE
Severance pay will be granted as provided in Appendix "A".
ARTICLE XXV - TERMINATION
This Agreement shall became effective as of February 1, 1996 and shall
continue in effect until January 31, 1998, inclusive and shall continue
in full force and effect from year to year thereafter unless either
party serves upon the other sixty (60) days written notice prior to
January 31, 1998 or January 31 of any subsequent year of a desire to
change, modify, or cancel this Agreement.
IN WITNESS, WHEREOF, we hereunto set our hands and seals this 30th day of May,
1996.
SALERNO FOODS, L.L.C
DES PLAINES, ILLINOIS
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<PAGE> 19
BY: [ILLEGIBLE]
DATE SIGNED: 5/21/96
BAKERY, CRACKER, PIE AND YEAST
WAGON DRIVERS,
UNION LOCAL 734
BY: [ILLEGIBLE]
DATE SIGNED: 5/30/96
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<PAGE> 20
APPENDIX "A"
SEVERANCE PAY
SECTION 1.
Severance pay will be granted, as outlined below, to eligible full-time
employees who are displaced from employment due to a permanent closing
of the entire plant, a department thereof, or due to the introduction
of labor saving equipment
SECTION 2.
All affected permanent full-time employees who are terminated due to
the reasons Stated in Section l, will receive either pension or
severance, depending on age and length of service, as specified below.
Employees off from work due to illness, injury, or leave of absence who
would normally have returned to work would receive the same
consideration as those actively employed. Persons off from work who
were not expected to return, would not receive severance pay.
SECTION 3.
The severance allowance would be based on length of service with the
Employer as a member of Local 734 and is as follows:
Each full-time employee, actively employed by the Employer for
a period of at least two (2) years, will receive for his/her
displacement, a weeks pay for each full year of active
employment, commencing with the third (3rd) year. Payment
under this formula shall be limited to maximum of twelve
hundred (1200) hours of severance pay.
SECTION 4.
A weeks pay consists of the regular and stated contract workweek at the
employee's straight-time hourly classification base rate.
SECTION 5.
The above described severance pay will not be paid to:
(a) Any eligible employee who voluntarily quits before
operations are suspended.
(b) Any eligible employee who is offered other reasonable
employment with the Employer and either accepts or
refuses.
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<PAGE> 21
(c) Any eligible employee who at separation is eligible for
a normal pension under the provisions of the Local No.
734 Pension Fund.
(d) If an eligible employee subject to severance pay is
eligible to receive an early retirement or disability
pension benefit under the Local No. 734 Pension Fund,
whether or not he/she elects to accept such early
retirement or disability benefit, he/she shall receive as
severance pay that percentage of severance pay as set
forth above which the excess of normal pension benefit
under such plan over the amount to early retirement or
disability benefit, to which he/she is then entitled,
bears to the normal pension. For example, if the normal
pension benefit is $100 and an employee is entitled to an
early retirement of disability benefit of $58, then
his/her severance pay be reduced by 58 percent.
(e) In the event an eligible employee receives any monetary value
from a vested interest in the Local No. 734 Pension Fund on
the date of termination of employment with the Employer, said
amount shall be deducted from any severance payment due the
employee.
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Exhibit 10.40
(INSIDE DIV.)
AGREEMENT BETWEEN:
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SALERNO FOODS, L.L.C.
and
BAKERY, CRACKER, PIE, AND YEAST WAGON DRIVERS UNION,
LOCAL #734, INTERNATIONAL BROTHERHOOD OF TEAMSTERS OF AMERICA
FEBRUARY 1, 1996 - JANUARY 31, 1998
INDEX
DESCRIPTION ARTICLE # PAGE #
- ----------- --------- ------
Check Off XXII 18
Delinquent Health and Welfare or
Pension Contributions XI 11
Employer's Responsibility XII 12
Funeral Leave XVII 15
Grievance Procedure XIV 12
Health and Welfare VII 7
Holidays V 5
Hours of Work IV 4
Jury Duty XVI 14
Membership and Hiring II 2
Nondiscrimination XXI 18
Protection of Rights XVIII 15
Pension VIII 9
Recognition I 2
Reduction of Working Force XIII 12
Separability and Savings XIX 16
Severance XXIII 18
Termination XXIV 19
Termination of Employment X 11
Union Inspections XX 17
Union's Responsibility XI 12
Uniforms XV 14
Vacations VI 6
Wage Rates III 3
Appendix A 20
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LOCAL 734 INSIDE DIVISION AGREEMENT
1996 - 1998
AGREEMENT made and entered by and between SALERNO FOODS, L.L.C. located at 2070
Maple Street, Des Plaines, Illinois 60018 (hereinafter referred to as the
"Employer") and BAKERY, CRACKER, PIE AND YEAST WAGON DRIVERS, LOCAL #734
INTERNATIONAL BROTHERHOOD OF TEAMSTERS OF AMERICA, hereinafter referred to as
the "Union".
WITNESSETH:
ARTICLE I - RECOGNITION
Section 1.
This Employer recognizes the Union as the sole collective
bargaining agent for all employees in the occupational
classifications set forth in Article III of this Agreement.
Section 2.
This Agreement shall apply to wages, hours, and working conditions
and all other matters included herein.
ARTICLE II - MEMBERSHIP AND HIRING
Section 1.
All present employees who are members of the Union on the effective
date of this subsection or on the date of the execution of this
Agreement, whichever is the later, shall remain members of the Union
in good standing as a condition of employment. All present employees
who are not members of the Union and all employees who are hired
hereafter shall become and remain members in good standing of the
Union as a condition of employment on and after the thirty-first
(31st) day following the beginning of their employment, or on and
after the thirty-first (31st) day following the effective date of
this subsection, or the date of this Agreement, whichever is the
later. This provision shall be made and become effective under the
provisions of the National Labor Relations Act, but not retroactive.
Section 2.
The Employer may hire new employees from any available source. This
article with respect to membership in the Union shall be subject to
change or conform with any change in the National Labor Relations
Act, or any final judicial or administrative interpretation thereof.
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SECTION 3.
The Company may hire and work part-time employees. The rate of pay for
part-time employees shall be:
80% the classified rate of pay for the 1st 1040 actually worked.
90% the classified rate of pay for the 2nd 1040 hours actually
worked.
100% the classified rate thereafter.
Part-time employees when scheduled to work shall be scheduled for a
minimum of sixteen (16) hours in a week.
Part-time employees shall receive all benefits of the Labor Contract
pro-rated on the hours actually worked.
The intent is not to eliminate full time positions.
ARTICLE III - HOURLY WAGE RATE
SECTION 1.
The wage rates outlined below will be placed in effect on the first
Monday following the effective dates listed.
Classifications 2/1/96 2/1/97
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Warehouse $13.00 $13.30
Group Leader $13.50 $13.80
SECTION 2.
The starting rate for new workers hired after February 1, 1996 will be 80%
of the classification rate of pay for the first 18 months actually worked
and 90% of the classification rate of pay for the second 18 months
actually worked. Employees shall be paid a night premium of twenty cents
($.20) per hour for all hours worked between 6PM and 6AM in addition to
the regularly established hourly rate.
Effective (2/1/96) all new employees hired on or after that date may be
scheduled on a Tuesday to Saturday work schedule at a straight-time rate
of pay.
Any employee scheduled Tuesday to Saturday will be paid one and one half
(1-1/2) for work performed on Monday provided all
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scheduled hours are worked during regular scheduled work week.
SECTION 3.
Employees shall be paid a night premium of twenty cents ($.20) per hour
for all hours worked between 6 P.M. and 6 A.M. and this premium shall be
in addition to the regularly established hourly rates.
ARTICLE IV - HOURS OF WORK
SECTION 1.
All regular employees who are called or assigned to work in a particular
week shall be guaranteed forty (40) hours of work except in cases of
illness, injury, or not reporting to work. Five (5) days shall constitute
a workweek, Monday through Friday. Except that the junior employee working
within a classification in a work week shall not be provided the forty
(40) hour work week guarantee.
SECTION 2.
All employees shall be paid at the rate of time and one-half (1-1/2) for
all time worked over eight (8) hours in any one day, or after forty (40)
hours per week, not already computed on the eight (8) hour daily basis.
SECTION 3.
All Saturday work is to be paid at the rate of time and one-half (1-1/2)
said straight-time hourly rate. If called to work on a Saturday,
employees shall be guaranteed a minimum of four (4) hours work.
SECTION 4.
All Sunday work is to be paid at the rate of two (2) times said
straight-time hourly rate.
SECTION 5.
All employees shall be allowed one-half (1/2) hour for lunch which shall
be within one-half (1/2) hour of the middle of their workday. All
employees shall be allowed fifteen (15) minutes of relief time for each
four (4) hours worked, which shall be taken during the next work period.
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ARTICLE V - HOLIDAYS
Section 1.
All employees shall be paid eight (8) hours straight-time pay for the
following unworked holidays:
New Years Day Personal Day
Decoration Day Fourth of July
Labor Day Thanksgiving Day
Day after Thanksgiving Day before Christmas
Christmas Day Day before New Years Day
Section 2.
If possible, employees will provide the Employer with reasonable prior
notice of the Personal Day to be taken. In any event, the scheduling of
the Personal Day must not interfere with the efficient operations of the
Employer.
Section 3.
Should any employee work on any of the above-mentioned holidays, except the
"Day before Christmas", he/she shall receive in addition to the eight (8)
straight-time hours paid for an unworked holiday, time and one-half (1 1/2)
for all hours worked on said holiday. Should an employee work on the "Day
before Christmas", he/she shall receive in addition to the eight (8)
straight-time hours paid for the unworked holiday, straight-time for all
hours worked on said holiday.
Section 4.
Should any one of the above holidays occur during an employee's vacation,
the employee shall be entitled, at the Employer's option, an additional day
off or an additional days pay in lieu thereof. Should the Employer grant an
additional day off under these circumstances, this additional day off
shall immediately precede or follow the employee's vacation.
Section 5.
The particular "regular" employee must have worked at least one (1) day
in the holiday workweek. There shall be no exceptions to this provision.
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ARTICLE VI- VACATIONS
SECTION 1.
a) Any employee shall at the end of fifty-two (52) weeks of continuous
service with the Employer be entitled to one (1) weeks vacation with
pay.
b) Any employee shall at the end of three (3) years of continuous service
with the Employer be entitled to two (2) weeks vacation with pay.
c) Any employee who has been in the service of the Employer for seven (7)
continuous years shall be entitled to three (3) weeks vacation with
pay.
d) Any employee who has been in the service of the Employer for fifteen
(15) continuous years or more shall be entitled to four (4) weeks
vacation with pay.
For the purposes of this section only, previous years of service with a
Salerno entity for employees hired on or before 2/1/96 will be honored.
SECTION 2.
Vacation pay shall be computed at the rate the employee is receiving on
the date vacation begins, including night premium.
SECTION 3.
Employees are to choose their vacation periods by order of seniority.
SECTION 4.
Vacations may be taken from January 1 through December 31 of each
calendar year.
SECTION 5.
Each full week of vacation earned shall be paid for at the rate of
forty-five (45) times the then straight-time hourly rate.
SECTION 6.
(a) In order to qualify for full vacation pay as set-forth above, an
employee must work at least seventy-five percent (75%) of the total
working days during the previous calendar year. Time spent on
vacations, holiday, and worker's compensation shall be considered time
worked for this purpose.
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(b) Any employee working less than the seventy-five percent (75%)
specified above, shall receive as his/her vacation pay that percentage
of the time actually worked as it bears to one hundred percent (100%)
being considered full vacation. For example: If an employee works
fifty percents (50%) of the total working days, he/she would receive
as vacation pay one-half (1/2) of the applicable vacation hours pay
for each week of earned vacation.
(c) The above computation shall likewise be used in arriving at pro rata
vacations earned in the case of resignations or discharges.
ARTICLE VII - HEALTH AND WELFARE
SECTION 1.
The parties to this Agreement agree to continue to participate in Local
734 Health and Welfare Fund and Plan for the benefit of employees covered
by this agreement and for dependents of such employees.
SECTION 2.
The Employer shall pay to the Health and Welfare Fund the agreed upon
maximum weekly contribution per employee per week based on the schedule
below to maintain the same level of benefits for each employee who has
been employed thirty (30) days or more except that the Employer shall
contribute from the first day of employment for any employee whose
previous employment was with any Employer covered by this Agreement. Hours
for which pay is received shall be considered hours worked for this
purpose in connection with amounts due while an employee is on vacation or
holidays in accordance with this Agreement.
Payment Schedule:
The Employer shall pay to the Health and Welfare Fund the agreed upon
maximum weekly contribution per employee of $100.00 per week effective
2/1/96. The contribution rate per employee will increase to $110.00 on
2/1/97.
SECTION 3.
It is the purpose and intent of this Agreement that the contributions
shall total an agreed upon total weekly contribution for each employee.
Employees who do not work forty (40) hours per week in accordance with the
provisions of this Agreement shall be obliged to contribute to the Health
and Welfare Fund the difference between the amount the Employer has
contributed for hours worked and the agreed upon weekly sum due to the
Health and Welfare Fund for such week.
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Section 4.
If an employee who is absent because of illness or off-the-job injury
notifies his/her Employer of such absence and the reason therefore, the
Employer shall continue to pay the required contribution for four (4)
weeks from the date of the beginning of such absence. Thereafter, the
employee, if he/she desires coverage in the Fund, shall make the
required contribution.
Section 5.
If an employee is injured on the job, the Employer shall continue to
pay the required contribution until such employee shall return to
his/her job, or is no longer in the employ of the Employer.
Section 6.
If an employee shall leave the employ of the Employer and enter the
employ of another Employer, such employee must pay the entire
contribution for the period between such employment if he/she desires
coverage in the Fund for such period.
Section 7.
If an employee shall request a leave of absence and does not become
employed in an occupation not covered by this Agreement, the Employer
shall collect from the employee, as a condition of the granting of
such leave of absence prior to such leave being effective, sufficient
monies to pay the required total contribution into the Health and
Welfare Fund during the period of such leave of absence.
Section 8.
Contribution will not be accepted from any employee who in any case
works in an occupation not covered by this agreement.
Section 9.
The parties hereto have executed an Agreement and Declaration of Trust
for the purpose hereinafter set forth, and unless mutually terminated
by the parties hereto, such Trust established shall continue for not
less than the period of this Agreement.
Section 10.
The Board of Trustees established by such Agreement and Declaration of
Trust shall jointly administer the Health and Welfare Fund; such Board
of Trustees to consist of equal representatives of the Union and of
the Employer.
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Any disagreement respecting eligibility, time and method of payment, methods of
enforcement of payment and related matters shall be determined by such Trustees.
The Fund shall, in all respects, be administered in accordance with the Trust
Agreement. With respect to the Employer Trustees, the Chicago Bakery Employers
Labor Council shall at all times appoint its Trustees who shall be the Employer
representatives.
SECTION 11.
All monies paid into the Fund will be used by the Trustees for the purpose
of purchase of group insurance benefits for the employees and their dependents
who may qualify under the Health and Welfare Plan including, but not limited to,
life insurance, accidental death and dismemberment benefits, disability
benefits, hospitalization, surgical and medical expenses, in such manner and
amounts as the said Trustees in their sole discretion may determine. Reasonable
expenses incurred in administering the Trust and Plan shall be deemed a proper
charge against the Fund.
SECTION 12.
The foregoing provisions with respect to the Health and Welfare Trust Plan
and Fund are subject in all respects to the provisions of the Labor Management
Relations Act of 1947 and any amendments thereto.
ARTICLE VIII -- PENSION
SECTION 1.
The parties agree to continue participation in the Local 734 Pension Fund
for the benefit of the employees of the Employer represented by the Union
covered by the terms of this Agreement.
SECTION 2.
The Employer shall pay to the aforesaid Pension Fund the sums listed below
for each hour worked, not to exceed forty (40) hours per week, for each employee
who has been employed for thirty (30) days or more, except that the Employer
shall contribute from the first day of employment for any new employees whose
previous employment was with any Employer covered by this Agreement. Hours for
which pay is received shall be considered hours worked for this purpose in
connection with amounts due while an employee is on vacation or holiday in
accordance with this agreement.
Payment Schedule:
Forty-Three dollars and thirty five cents ($43.35) for the duration of the
contract.
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Section 3.
The payments so made shall be used by the Pension Fund to provide
retirement benefits for eligible employees in accordance with a plan
as determined by the Trustees of said Pension Fund in their sole
discretion.
Section 4.
Parties hereto shall execute an Agreement and Declaration of Trust
for the purpose hereinabove set forth and the Employer party to this
Agreement and Declaration of Trust when established and agrees to be
bound by all terms and provisions of said Agreement, a copy of which
will be annexed to this collective bargaining agreement and made a
part hereof.
Section 5.
The Board of Trustees established by such Agreement and Declaration
of Trust shall jointly administer the Pension Fund, such Board of
Trustees to consist of equal representatives of the Union and the
Council. With respect to such Trustees, the Chicago Bakery Employers
Labor Council shall at all times appoint the Employer Trustees who
shall be the Employer representatives.
Section 6.
The Pension Plan referred to herein shall be such as will qualify
for approval by the Internal Revenue Service of the United States
Treasury Department so as to allow the Employer an income tax
deduction for the contributions paid hereunder.
Section 7.
The foregoing provisions with respect to the Pension Plan and Fund are
subject in all respects to applicable provisions of the Labor Management
Relations Act of 1947 and/or other pertinent legal requirements.
Section 8.
As the material part of the consideration for the forgoing, the Union,
on behalf of its members, does now hereby release the Employer
signatory hereto from any and all obligations to continue or maintain
an Employer or Employer-Employee funded retirement plan which the
Employer may have in existence on the effective date hereof; it being
understood that, as of said effective date all employees subject
hereto shall be deemed to have withdrawn from any such company plan in
accordance with and subject to the terms thereof, and to have waived
any and all rights to rejoin such company plan so long
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as the Employer is making payments on his/her behalf into the Pension
Trust Fund.
The provisions of the foregoing shall not be deemed to constitute a waiver
by the Union or any employee of any rights, privileges or benefits which
may have accrued to any employee under the terms of any employer plan
prior to February 1, 1958.
ARTICLE IX - DELINQUENT HEALTH AND WELFARE OR PENSION CONTRIBUTIONS
SECTION 1.
The Employer recognizes the necessity of making prompt Health and Welfare
and Pension contributions, the possibility that employee's benefit
standing will be placed in jeopardy if contributions are not timely made,
and the concern of the Union that all eligible employees are covered by
such contributions.
SECTION 2.
Whenever the Employer is delinquent in making payments to either the
Health and Welfare or Pension Funds, the Union may strike the Employer to
force payments. This provision shall not be subject to and is specifically
excluded from the grievance procedure. Additionally, in the event the
Employer has been found to be delinquent, the Employer shall be required
to pay in addition to the actual delinquency, ten percent (10%) of the
delinquent amount as liquidated damages, and accountant and attorney fees
and court costs.
ARTICLE X - TERMINATION OF EMPLOYMENT
SECTION 1.
Any employee employed thirty (30) days or more who wishes to quit his/her
position shall give the Employer one (1) weeks notice of such intention.
SECTION 2.
If the employer wishes to discharge any employee who has been employed
thirty (30) days or more, he/she shall give such employee one (1) weeks
notice or pay in lieu thereof, except in cases of intoxication or
dishonesty.
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ARTICLE XI - UNION RESPONSIBILITY
Section 1.
The Union agrees to further the interests of said firm whenever it is
in it's power to do so in respect to improving the labor-management
relations.
Section 2.
The Union will not permit employees to work on any basis of compensation
less than that stipulated herein.
ARTICLE XII - EMPLOYER'S RESPONSIBILITY
Employees will not be asked to make any written or verbal agreements of
contracts whatsoever.
ARTICLE XIII - REDUCTION OF WORKING FORCE
Section 1.
In the event it becomes necessary to reduce the number of employees,
layoffs shall be in the order of seniority and the last one employed
shall be the first one laid off and the last one recalled, provided
the employee with seniority is able and capable of filling the position.
Section 2.
Employees so laid off shall be returned to work on the same seniority
basis. These employees shall be reinstated without loss of seniority
if re-employed within twelve (12) months from the last date worked. Re-
employment rights shall be based on the employee notifying the Employer
of his or her intention to return work within seventy-two (72) hours
after receiving notice by certified mail to the last known address
of the employee. The employee must report within one (1) week after
receipt of recall notice. Failure of the employee to notify the
Employer of his or her current mailing address shall void his or
her seniority and recall rights.
ARTICLE XIV - GRIEVANCE PROCEDURE
Section 1.
Should differences arise between the Employer and the Union or any
employee of the Company as to the meaning or application of the
provisions of this Agreement, there shall be no suspension of work
but an earnest effort will be made to settle such differences in
the following manner:
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(a) The aggrieved employee or employees shall first take the matter up
with the Shop Steward or Business Representative who, in turn, will
take the grievance up with the Supervisor in charge of the department.
This shall be done within five (5) days of the knowledge of the
occurrence of the incident or all rights under this Article, shall be
forfeited. Employees shall have the Shop Steward or Business
Representative present on any grievance. If a satisfactory settlement
(to the employee and Steward or Business Representative involved) is
no effected with the Supervisor within one (1) working day the
employee or employees involved shall submit such grievance to the Shop
Steward or Business Representative in writing.
(b) The Shop Steward or Business Representative shall submit the written
grievance to the General Manager of the Employee or other designated
representative of the Employer with authority to act within five (5)
working days after the conclusion of Step (a) and such Company
representative shall offer a decision within five (5) working days
after receipt of same, and if this time limit is not complied with,
the grievance shall be forfeited.
(c) The Shop Steward along with the Union Representative, shall submit the
written grievance to the General Manager of the Employer of his
designated representative with authority to act within five (5)
working days after the conclusion of Step (b) and such Company
representative shall offer a decision within five (5) working days
after receipt of such written grievance.
(d) No employee shall have the right to require arbitration, that right
being reserved to the Union or Employer exclusively.
(e) Within five (5) days after the determination is made that a grievance
cannot be resolved, the Union and the Employer shall submit to each
other the names of individuals who would be agreeable to each other to
serve as arbitrator. If the parties cannot agree upon a mutually
agreeable arbitrator the parties shall within five (5) days thereafter
make a joint written request to the Federal Mediation and Conciliation
Service for a panel of five (5) arbitrators, one of whom shall decide
the matter. The panel of arbitrators shall be sent by said service to
both parties. The Union shall within seventy-two (72) hours after
receipt of such panel strike one (1) of the names so submitted and
forthwith notify the other party of the name so stricken, and the
party shall within seventy-two hours strike one (1) name from the list
of nominees so submitted and forthwith notify
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the other party of the names so stricken. The parties will alternatively
strike such submitted names until only one (1) nominee name remains. Such
sole remaining nominee whose name has not been stricken shall then
automatically become the chosen arbitrator for the single specific
grievance. Notice of the selection of the arbitrator shall be given
forthwith the Federal Mediation and Conciliation Service.
The arbitrator so selected shall proceed to decide the designated grievance
and shall not be empowered to modify, add to, subtract from or otherwise
alter the provisions of this Agreement. The arbitrator's decision shall be
final and binding upon the employees, the Union and the Company involved.
Only one (1) grievance may be heard before a designated arbitrator, except
where the parties mutually agree otherwise.
The fees and expenses of the arbitrator in conducting the arbitration
proceeding and in making a decision shall be borne equally by the parties
to this Agreement.
When the grievance settlements contain a monetary settlement such
settlement must be paid within fifteen (15) days after such settlement or
the grievant will receive six percent (6%) on the unpaid settlement.
ARTICLE XV - UNIFORMS
The Employer wishing employees to wear uniforms, shall furnish same and keep
them laundered and in repair free of charge without cost to the employees.
ARTICLE XVI - JURY PAY
Section 1.
The Employer shall reimburse any employee who is required to serve on a jury
(municipal, county, state or federal) for the difference between the amount of
jury pay received and the amount such employee would have earned during the
time he/she is serving on a jury on the basis of eight (8) hours straight-time
pay per day, Monday through Friday, at his/her regular rate of pay.
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Section 2.
The employee, before receiving such pay, must give to the Employer evidence
of the fact that he/she has served on a jury by exhibiting to the Employer
the check or voucher that he/she received from the proper authorities for
serving on the jury together with a statement of the number of days such
employee is so served.
Section 3.
The Employer's obligation under this article shall be limited to payment of
ten (10) working days for each separate jury call, except there shall be no
limit for the number of working days when an employee is called for Federal
Jury service.
ARTICLE XVII - FUNERAL LEAVE
Section 1.
In the event of a death in the immediate family of an employee which
requires his/her absence from work, he/she will be given up to three (3)
days off without loss of pay for the regular workdays on which he/she would
have worked. The amount of time taken off should be reasonably necessary
under all circumstances. "Immediate family" shall mean spouse, son or
daughter, mother or father, sister or brother, or mother or father of
employee's spouse.
Section 2.
In the event of death of the employee's grandfather or grandmother, the
employee shall be entitled to be absent from work not more than one (1)
regular working day to attend the funeral service.
Section 3.
In the event of death of the employee's spouse's grandfather or
grandmother, the employee shall be entitled to be absent from work not
more than one (1) regular working day to attend the funeral service.
ARTICLE XVIII - PROTECTION OF RIGHTS
Section 1.
It shall not be a violation of this Agreement, and it shall not be cause
for discharge or disciplinary action in the event an employee refuses to
enter upon any property involved in a primary labor dispute, or refuses to
go through or work behind
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any primary picket line, including the primary picket line of Unions party
to this Agreement, and including primary picket lines at the Employer's
places of business. In the application of this Article it is immaterial if
the labor dispute or picketing is illegal if the labor dispute or
picketing is primary.
SECTION 2.
It shall not be a violation of this Agreement, and it shall not be cause
for discharge or disciplinary action if any employee refuses to perform
any service which his/her Employer undertakes to perform as an ally of an
Employer or person whose employees are on strike, and which service, but
for such strikes, would be performed by the employees of the Employer or
person on strike.
SECTION 3.
The Employer agrees that it will not cease or refrain from hiring, using,
transporting, or otherwise dealing in any of the products of any other
employer or cease doing business with any other person, or fail in any
obligation imposed by the Motor Carriers Act or other applicable law, as a
result of individual employees exercising their rights under this
Agreement or under law, but the Employer shall, notwithstanding any other
provision in this Agreement, when necessary, continue doing such business
by other employees.
SECTION 4.
No driver shall be required to operate into any city where a local IBT
Union is on strike at destination or enroute terminal, and shall not be
disciplined for refusal to do so. Drivers who cannot deliver or pick up
loads at terminals where a strike is in progress shall be provided first
class transportation to their home terminal.
SECTION 5.
This Article in its entirety is excluded from the application of the
grievance procedure of this Agreement.
ARTICLE XIX - SEPARABILITY AND SAVINGS CLAUSE
SECTION 1.
If any Article or Section of this contract or of any Riders thereto
should be held invalid by operation of law or by any tribunal of competent
jurisdiction, or if compliance with or enforcement of any Article or Section
should be restrained by
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such tribunal pending a final determination as to its validity, the
remainder of this contract and of any Rider thereto, or the application
of such Article or Section to persons or circumstance other than those as
to which it has been held invalid or as to which compliance with or
enforcement of has been restrained, shall not be affected thereby.
Section 2.
In the event that any Article or Section is held invalid or enforcement of
or compliance with which has been restrained, as above set forth, the
parties affected thereby shall enter into immediate collective bargaining
negotiations for the purpose of arriving at a mutually satisfactory
replacement for such Article or Section.
ARTICLE XX - UNION INSPECTION
Section 1.
Authorized representatives of the Union shall have access to the
Employer's establishment at all reasonable times for the purpose of
adjusting disputes, investigating working conditions, collecting dues, and
ascertaining compliance with this Agreement (which shall include the right
to inspect and audit payroll records, time cards and work sheets). After
written notice by a duly authorized officer of the Union, such records
shall be produced at a place mutually agreed upon.
Section 2.
If the Union or, at its option, a Certified Public Accountant, designated
by the Union, certify in writing specifically that the Employer is
violating the wage scale, hours of work, vacations, applicable Health and
Welfare provisions or Pension provisions or working conditions or other
terms or conditions of employment, based upon the records for an audit as
provided in this Agreement, then the grievance procedure shall have no
application to such facts and circumstances and the Union shall be
permitted all legal and economic recourse including the right to strike,
notwithstanding anything to the contrary contained in this Agreement.
Section 3.
In the event that the Certified Public Accountant determines that the
Employer is violating the Agreement, the cost of the CPA's services shall
be borne solely by the Employer. In the event the report indicates that
the Employer has violated the Agreement, the Union may strike, or take any
other economic or legal action against the Employer for force payments of
the CPA fees, attorney fees and court costs and back wages due the
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employee, to remedy the violation. In the event the report indicates that
the Employer has not violated the Agreement, the cost of the CPA's services
shall be borne solely by the Union. It is understood and agreed between the
Employer and the Union that this provision shall not be subject to and is
specifically excluded from the grievance procedure.
ARTICLE XXI - NONDISCRIMINATION
The Employer and the Union agree not to discriminate against any qualified
individual with respect to their hiring, compensation, terms or conditions
of employment because of such individual's race, color, creed, sex, age,
religion, against qualified employees who are handicapped, disabled
veterans, or veterans of the Viet Nam era, nor will they limit, segregate
or classify employees in any way to deprive any qualified individual
employee of employment opportunities because of his/her race, color, creed,
sex, age, religion, against qualified employees who are handicapped,
disabled veterans, or veterans of the Viet Nam era.
ARTICLE XXII - CHECKOFF
Section 1.
The Employer agrees to deduct the Union's periodic dues and initiation fees
from the pay of each employee who individually authorizes said deductions
in writing and to remit the amounts so deducted to the Union. Said
deduction authorization shall be in such form as to conform with Section
302 (c) of the Labor Management Relations Act of 1947.
Section 2.
The Union agrees to save the Employer harmless from any action or actions
growing out of these deductions and commenced by any employee who has
executed such assignment and authorization against the Employer, and
assumes full responsibility for the disposition of the funds so deducted
once such funds have been turned over to the Union as above provided.
ARTICLE XXIII - SEVERANCE
Severance pay will be granted as provided in Appendix "A".
18
<PAGE> 19
ARTICLE XXV - TERMINATION
This Agreement shall become effective as of February 1, 1996 and shall continue
in effect until January 31, 1998, inclusive and shall continue in full force
and effect from year to year thereafter unless either party serves upon the
other sixty (60) days written notice prior to January 31, 1998 or January 31 of
any subsequent year of a desire to change, modify, or cancel this Agreement.
IN WITNESS, WHEREOF, we hereunto set our hands and seals this 30th day of
May, 1996.
SALERNO FOODS, L.L.C.
DES PLAINES, ILLINOIS
BY: [ILLEGIBLE]
_______________________________
DATE SIGNED: 5/21/96
_____________________
BAKERY, CRACKER, PIE AND YEAST WAGON
DRIVERS UNION, LOCAL 734
BY: [ILLEGIBLE]
_______________________________
DATE SIGNED: 5/30/96
_____________________
19
<PAGE> 20
APPENDIX "A"
SEVERANCE PAY
Section 1.
Severance pay will be granted, as outlined below, to eligible full-time
employees who are displaced from employment due to a permanent closing of
the entire plant, a department thereof, or due to the introduction of labor
saving equipment.
Section 2.
All affected permanent full-time employees who are terminated due to the
reasons stated in Section 1, will receive either pension or severance,
depending on age and length of service, as specified below. Employees off
from work due to illness, injury, or leave of absence who would normally
have returned to work would receive the same consideration as those
actively employed. Persons off from work who were not expected to return,
would not receive severance pay.
Section 3.
The severance allowance would be based on length of service with the
Employer as a member of Local 734 and is as follows:
Each full-time employee, actively employed by the Employer for a
period of at least two (2) years, will receive for his/her
displacement, a weeks pay for each full year of active employment,
commencing with the third (3rd) year. Payment under this formula shall
be limited to maximum of twelve hundred (1200) hours of severance pay.
Section 4.
A weeks pay consists of the regular and stated contract workweek at the
employee's straight-time hourly classification base rate.
Section 5.
The above described severance pay will not be paid to:
(a) Any eligible employee who voluntarily quits before operations are
suspended.
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<PAGE> 1
EXHIBIT 10.42
VOTING TRUST AGREEMENT
AGREEMENT made as of the 22nd day of December, 1997, by and
among RICHARD S. WORTH, residing at 1497 Rail Head Boulevard, Unit #2, Naples,
Florida 74110-8444, and RANDYE WORTH, residing at 3757 Ascot Bend Court, Bonita
Springs, Florida 34134 (together, the "Worths" or "Stockholders"); GRAUBARD
MOLLEN & MILLER ("GM&M"); THE DELICIOUS FROOKIE COMPANY, INC., a Delaware
corporation ("Company"); and ROBERT RUBIN ("Voting Trustee").
WHEREAS, pursuant to a Common Stock and Option Purchase
Agreement ("Stock and Option Agreement") dated as of December 22, 1997 by and
among the Worths, the Investors listed on Schedule A thereto and The Delicious
Frookie Company, Inc. ("Company"), the Worths are selling, among other things,
Options ("Purchase Options") to purchase an aggregate of 1,000,000 shares of
Common Stock ("Option Shares") owned by them to the Investors; and
WHEREAS, pursuant to an Option Escrow Agreement dated as of
December 22, 1997 among the Worths, the Company, the holders of the Purchase
Options and GM&M, as Escrow Agent, the Worths have deposited the Option Shares
into escrow with GM&M; and
WHEREAS, the parties hereto deem it necessary and advisable
and for their best interests, in order to secure continuity and stability of
policy and management of the Company, to deposit with the Voting Trustee shares
of the capital stock of the Company owned by the Stockholders, including the
Option Shares; and
WHEREAS, the Stockholders have agreed to vest their voting
rights in the Voting Trustee as hereinafter provided; and
WHEREAS, the Voting Trustee has consented to act under this
Agreement for the purposes herein provided.
NOW, THEREFORE, it is mutually agreed as follows:
1. The Stockholders hereby appoint Robert Rubin, and Robert
Rubin hereby accepts such appointment, as the Voting Trustee under the terms and
conditions herein set forth.
2. Simultaneously with the execution of this Agreement the
Stockholders and GM&M have deposited with the Voting Trustee the certificates
for capital stock of the Company set forth opposite their respective names on
Exhibit A attached hereto and made a part hereof. All
<PAGE> 2
stock certificates so deposited with the Voting Trustee hereunder shall be duly
endorsed for the transfer thereof to the Voting Trustee. Upon receipt by the
Voting Trustee of the certificates for such shares of capital stock, and the
transfer of same into the name of the Voting Trustee, the Voting Trustee shall
hold same, subject to the terms and conditions hereof, and shall thereupon issue
and deliver voting trust certificates to the Stockholders and to GM&M, in the
form annexed hereto as Exhibit B, for the capital stock of the Company deposited
by said Stockholders and GM&M. Voting trust certificates issued in respect of
stock certificates representing the Option Shares shall be issued to GM&M and
voting trust certificates issued in respect of all other stock certificates
shall be issued to the Stockholder that deposited the certificates. All
certificates for capital stock of the Company transferred and delivered to the
Voting Trustee hereunder shall be surrendered to the Company by the Voting
Trustee, and cancelled, and new certificates therefor shall be issued to and
held by the Voting Trustee in the name of "Robert Rubin, as Voting Trustee under
a Voting Trust Agreement dated December 22, 1997."
3. The voting trust certificates shall be transferable at the
office of the Voting Trustee, 25 Highland Boulevard, Dix Hills, New York 11746,
or at such other address as the Voting Trustee may from time to time designate
by written notice thereof to the Stockholders and GM&M on the books of the
Voting Trustee. If a voting trust certificate is lost, stolen, mutilated or
destroyed, the Voting Trustee, in his discretion, may issue a duplicate of such
certificate upon receipt of (a) evidence of such fact, satisfactory to him, and
(b) indemnity satisfactory to him.
4. (a) Except as set forth in subparagraph (b) below, the
Voting Trustee shall promptly pay to each Stockholder or GM&M all cash dividends
and/or distributions, if any, received by the Voting Trustee on account of the
underlying shares of capital stock of the Company deposited by said Stockholder
or GM&M hereunder.
(b) If any dividend in respect of the stock deposited
with the Voting Trustee is paid in whole or in part in stock of the Company
having voting power, the Voting Trustee shall likewise hold the certificates for
stock which are received by him on account of such dividend, subject to the
terms of this Agreement, and the holder of each voting trust certificate
representing stock on which said stock dividend has been paid shall be entitled
to receive a voting trust certificate for the number of shares of stock received
as such dividend.
(c) The holders entitled to receive the dividends
provided above shall be those registered as such on the transfer books of the
Voting Trustee at the close of business on
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<PAGE> 3
the day fixed by the Company for the taking of a record to determine those
holders of its stock entitled to receive such dividends.
(d) In lieu of receiving dividends and/or
distributions upon the capital stock of the Company and paying the same to the
holders of the voting trust certificates pursuant to the provisions of
subparagraph (a) above, the Voting Trustee may instruct the Company in writing
to pay same directly to the holders of such voting trust certificates. Upon
receipt of such written instructions, the Company shall pay same directly to the
holders of the voting trust certificates.
5. In the event of the dissolution or total or partial
liquidation of the Company, whether voluntary or involuntary, the Voting Trustee
shall receive the monies, securities, rights or property to which the holders of
the capital stock of the Company deposited hereunder are entitled and shall
distribute the same among the holders of voting trust certificates in proportion
to their interest as shown on the books of the Voting Trustee.
6. In the event that the Company is merged into or
consolidated with another corporation, or if all or substantially all of the
assets of the Company are transferred to another corporation, then, in
connection with such transfer, the term "Company" for all purposes of this
Agreement shall be deemed to include such successor corporation and the Voting
Trustee shall receive and hold under this Agreement any voting stock of such
successor corporation which has been received on account of the capital stock of
the Company held by the Voting Trustee hereunder.
7. The Voting Trustee shall have the exclusive right to vote
all of the shares of capital stock delivered to him hereunder, to give waivers
of notice, or to give written consents in lieu of voting, in person or by proxy,
at any meeting of the stockholders of the Company, for whatever purpose called
in any manner he deems appropriate and in any proceedings, whether at a meeting
of stockholders or otherwise, where the vote or written consent of the
stockholders may be required or authorized by law. The Voting Trustee shall not
be liable for an error in judgment or mistake of law or other mistake, nor for
anything save his own willful misconduct or gross negligence and shall not be
required to give a bond or other security for the faithful performance of his
duties.
8. The Voting Trustee may resign his position as Voting
Trustee by mailing to the registered holders of voting trust certificates a
written resignation, effective 10 days after the mailing thereof. The Voting
Trustee shall have the right at the time of his resignation to designate his
successor as Voting Trustee under this Agreement. Such designation shall be made
by filing
3
<PAGE> 4
an instrument of appointment of such successor trustee in the principal office
of the Company, duly executed by the Voting Trustee. In the event that the
Voting Trustee shall die prior to the designation of such successor trustee,
then Edward Sousa, Esq. shall serve as successor Voting Trustee. The rights,
powers and privileges of the Voting Trustee hereunder shall be possessed by the
successor Voting Trustee with the same effect as though such successor had
originally been a party to this Agreement.
9. This Agreement shall commence as of the date hereof and
shall continue in effect until the 22nd day of December, 1999, provided,
however, that in the event that before 5:00 p.m. on December 22, 1999 the Worths
receive an aggregate of $4,000,000 in gross proceeds from sales of securities of
the Company owned by them, including the sales of securities contemplated by the
Stock and Option Agreement and the exercise of the Purchase Options, this
Agreement shall continue until December 22, 2001. Notwithstanding the foregoing,
this Voting Trust Agreement shall terminate with respect to any shares subject
to this Agreement sold solely in public sales pursuant to an effective
registration statement under the Securities Act of 1933 or pursuant to Rule 144
thereunder.
10. Notwithstanding Section 9 above, at any time that any of
the Purchase Options are exercised, GM&M shall be entitled to surrender the
voting trust certificate(s) pertaining to the Option Shares underlying the
Purchase Options so exercised, and upon such surrender the Voting Trustee shall
deliver to GM&M or, at GM&M's direction, to the holder of the Purchase Option so
exercised, a stock certificate or certificates representing the Option Shares
issued upon such exercise, and, in the case of a partial exercise of a Purchase
Option, shall deliver to GM&M a voting trust certificate or certificates
representing the Option Shares underlying the unexercised portion of the
Purchase Option.
11. The Voting Trustee shall serve without any compensation.
12. Any notice or request required or provided hereunder shall
be deemed sufficiently given or made if mailed by certified mail, return receipt
requested, to the party entitled thereto at his or her respective address set
forth above. Said notice shall be deemed given when mailed.
13. This Agreement expresses the entire agreement between the
parties with respect to the subject matter hereof. This Agreement may not be
changed or modified except in a writing executed by all of the parties hereto.
Copies of this Agreement, and of any modification
4
<PAGE> 5
or amendment hereunder, shall be filed in the principal office of the Company
and, during reasonable business hours, shall be open to the inspection of any
stockholder of the Company or any beneficiary of the trusts under this
Agreement. All voting trust certificates issued hereunder shall be issued,
received and held subject to all of the terms and conditions hereof. Every
person, firm or corporation entitled to receive voting trust certificates
representing shares of capital stock of the Company, and their transferees and
assigns, upon accepting the voting trust certificates issued hereunder, shall
automatically become a party to and be bound by the provisions of this
Agreement, with the same effect as if he or it had executed the Agreement.
14. This Agreement may be executed in counterparts, each of
which shall be an original and all of which together shall be deemed to be one
and the same instrument.
15. This Agreement and all amendments thereof shall, in all
respects, be governed by and construed and enforced in accordance with the
internal law of the State of Delaware without regard to principles of conflicts
of laws.
16. Should any provisions of this Agreement become legally
unenforceable, no other provision of this Agreement shall be affected, and this
Agreement shall continue as if the Agreement had been executed absent the
unenforceable provision.
5
<PAGE> 6
IN WITNESS WHEREOF, the parties hereto have executed this
Agreement as of the day and year first above written.
/s/ Richard S. Worth
Richard S. Worth
/s/ Randye Worth
Randye Worth
GRAUBARD MOLLEN & MILLER
By: /s/ Peter M. Ziemba
Name: Peter M. Ziemba, Partner
THE DELICIOUS FROOKIE COMPANY, INC.
By: Jeffry Weiner
Name:
Title:
/s/ Robert Rubin
Robert Rubin, as Voting Trustee
6
<PAGE> 7
EXHIBIT B
THE DELICIOUS FROOKIE COMPANY, INC.
(ORGANIZED UNDER THE LAWS OF THE STATE OF DELAWARE)
No. Shares
This certifies that the undersigned has deposited
________________ shares of the capital stock of THE DELICIOUS FROOKIE COMPANY,
INC., $.____ par value ("Company"), with the Voting Trustee hereinafter named,
under an agreement dated ______________, 1997 with Robert Rubin, Voting Trustee,
the Company, the stockholders thereof and Graubard Mollen & Miller ("GM&M"), as
Escrow Agent under a certain Option Escrow Agreement, dated ___________, 1997,
among Richard S. Worth, Randye Worth, The Delicious Frookie Company, Inc., the
holders of certain Purchase Options and GM&M. This certificate and the interest
represented thereby is transferable only on the books of said Voting Trustee
upon the presentation and surrender hereof. The holder of this certificate takes
the same subject to all the terms and conditions of the aforesaid agreement
between the Voting Trustee, the Company, the stockholders thereof and GM&M, and
becomes a party to said agreement, and is entitled to the benefits thereof.
IN WITNESS WHEREOF, the Voting Trustee has caused this
certificate to be signed this ____ day of ________________, 1997.
_____________________________ ______________________________
Stockholder Voting Trustee
7
<PAGE> 1
EXHIBIT 10.43
VOTING AGREEMENT
AGREEMENT, dated as of April __, 1998, by and between The
Delicious Frookie Company, Inc. ("Company") and Edward R. Sousa, as Voting
Trustee ("Voting Trustee") under a Voting Trust Agreement dated as of December
22, 1997 by and among Richard S. Worth, Randye Worth, Graubard Mollen & Miller,
the Company and the Voting Trustee ("Voting Trust Agreement").
WHEREAS, pursuant to the Voting Trust Agreement, the Voting
Trustee presently holds in trust ("Voting Trust") an aggregate of 2,022,000
shares of common stock, par value $.01 per share ("Common Stock"), of the
Company ("Trust Shares"), and has the power to vote such Trust Shares; and
WHEREAS, the Company and Gaines, Berland Inc. ("GBI") have
entered into a letter of intent dated February 18, 1998, as supplemented
February 24, 1998, pursuant to which GBI has agreed to act as lead managing
underwriter for a proposed initial public offering ("IPO") of Common Stock; and
WHEREAS, in consideration for GBI's willingness to act as lead
managing underwriter for the IPO, the Company and the Voting Trustee have agreed
to enter into this Agreement.
NOW THEREFORE, in consideration of the premises and the
representations, warranties, covenants and agreements herein contained, the
parties hereby agree as follows:
1 Agreement to Vote.
1.1 Voting. The Voting Trustee hereby agrees that, during the time that
this Agreement is in effect, at any meeting of the stockholders of the Company,
however called (including any adjournments or postponements thereof), or in any
written consent of the stockholders of the Company, the Voting Trustee shall
vote or consent, as the case may be, the Trust Shares, and any other shares of
Common Stock that may be deposited in the Voting Trust after the date hereof in
addition to or in substitution for the Trust Shares, in accordance with (i) the
specific direction of the Board of Directors of the Company or (ii) the
recommendation of the Board of Directors to the stockholders of the Company
generally, including, but not limited to, the election of persons nominated by
the Board of Directors as directors of the Company, whether such direction or
recommendation is contained in a resolution of the Board of Directors or in a
proxy statement or notice of meeting approved by resolution of the Board of
Directors; provided, however, that the Voting Trustee shall be entitled to vote
or consent, as the case may be, (x) for the removal of a director of the Company
for Cause (and only for Cause) as permitted by the Delaware General Corporation
Law notwithstanding a direction or recommendation against removal, or (y) in
any manner he deems appropriate in the absence of any such direction or
recommendation of the Board of Directors. Notwithstanding the foregoing, the
Voting Trustee shall not vote by written consent of the stockholders in the
absence of any such direction or recommendation except with respect to any vote
by written consent of the stockholders relating to the removal of a director of
the Company for Cause (and only for Cause) as permitted by the Delaware General
Corporation Law.
1.2 Cause. For purposes of Paragraph 1.1 of this Agreement, "Cause"
shall include: (i) misappropriation of assets or perpetration of fraud against
the Company, (ii) conviction of or a plea of nolo contendere to a crime that
constitutes a felony or that involves an act of moral turpitude, (iii) engaging
in the illegal use of habit-forming substances, (iv) commission of an act of
<PAGE> 2
disorderly conduct, including, but not limited to, sexual harassment of any
employee or employees of the Company or of any affiliate(s) of the Company or
acting in a disruptive or disorderly manner due to alcoholism, inebriation or
while under the influence of alcohol while conducting business on behalf of the
Company, (v) being found by a court of competent jurisdiction to have caused
harassment, malfeasance, or obstruction of the corporate business, (vi) mental
incompetency, (vii) gross inefficiency, with gross inefficiency including, for
an employee Director, allowing the Company, during such employee's tenure as a
senior operating executive of the Company, to generate in any calendar year,
starting with the 1999 calendar year, over one million dollars in annual
operating losses not reserved for under the budgeted plans approved annually by
the Company's Board of Directors, (viii) willful and material refusal or failure
to carry out specific directions of the Board of Directors, or (ix) any
violation or breach that is deemed to be cause as defined under any other
written agreements that a Director has executed with the Company.
1.3 No Divestiture. The Voting Trustee shall not, directly or
indirectly, take any action that would divest the Voting Trustee of voting power
with respect to the Trust Shares or any other shares of Common Stock deposited
in the Voting Trust after the date hereof in addition to or in substitution for
the Trust Shares, except as contemplated herein or by the Voting Trust
Agreement.
2 Expiration. The Voting Trustee's obligation to vote the Trust Shares
governed hereby shall terminate (i) with respect to any particular Trust Shares
or other shares of Common Stock deposited in the Voting Trust, upon the release
of such Trust Shares or such other shares of Common Stock from the Voting Trust
pursuant to the terms of the Voting Trust Agreement, and (ii) upon written
notice of termination of this Agreement by the Company to the Voting Trustee;
provided that this Agreement may not be terminated without the prior written
consent of GBI to such termination.
3 Representations of Voting Trustee.
3.1 Power, Binding Agreement. The Voting Trustee has the legal
capacity, power and authority to enter into and perform all of his obligations
under this Agreement. The execution, delivery and performance of this Agreement
by the Voting Trustee will not violate any other agreement to which the Voting
Trustee is a party, including, without limitation, any voting agreement,
stockholders' agreement, partnership agreement or voting trust. This Agreement
has been duly and validly executed and delivered by the Voting Trustee and
constitutes a valid and biding obligation of the Voting Trustee enforceable
against the Voting Trustee in accordance with its terms, subject to applicable
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
similar laws affecting creditors' rights and remedies generally and subject, as
to enforceability, to general principles of equity (regardless of whether
enforcement is sought in a proceeding at law or in equity).
3.2 No Conflicts. The execution and delivery of this Agreement do not,
and the consummation of the transactions contemplated hereby will not, conflict
with or result in any violation of, or default (with or without notice or lapse
of time, or both) under, or give rise to a right of termination, cancellation or
acceleration of any obligation or to loss of a material benefit under, any
provision of any loan or credit agreement, note, bond, mortgage, indenture,
lease, or other agreement, instrument, permit, concession, franchise, license,
judgment, order, decree, statute, law, ordinance, rule or regulation applicable
to the Voting Trustee or any of his properties or assets, other than such
conflicts, violations, or defaults or terminations, cancellations or
accelerations that individually or in the aggregate do not materially impair the
ability of the Voting Trustee to perform his obligations hereunder. No consent,
approval, order or authorization of, or registration, declaration, or filing
with, any governmental entity is required by or with respect to the execution
and delivery of this Agreement by the Voting Trustee and the fulfillment by the
Voting Trustee of his obligations hereunder.
2
<PAGE> 3
4 Further Assurances. From time to time, at the other party's request and
without further consideration, each party hereto shall execute and deliver such
additional documents and take all such further action as may be necessary to
further evidence or confirm the transactions contemplated herein or any
understanding or representation made by such party herein.
5 Miscellaneous.
5.1 Entire Agreement; Assignment. This Agreement (i) constitutes the
entire agreement (other than the Voting Trust Agreement) among the parties with
respect to the subject matter hereof and supersedes all other prior agreements
and understandings, both written and oral, between the parties with respect to
the subject matter hereof and (ii) shall not be assigned by operation of law or
otherwise, but (iii) shall be binding upon any successor Voting Trustee under
the Voting Trust Agreement.
5.2 Amendments; Waiver. This Agreement may not be modified, amended,
altered or supplemented, except upon the execution and delivery of a written
agreement executed by the parties hereto; provided that no such modification,
amendment, alteration, supplement or waiver may be effected without the prior
written consent of GBI to such action.
5.3 Notices. All notices, requests, claims, demands and other
communications hereunder shall be in writing and shall be given (and shall be
deemed to have been duly received if so given) by hand delivery, telegram, telex
or telecopy, or by mail (registered or certified mail, postage prepaid, return
receipt requested) or by any courier service, such as Federal Express, providing
proof of delivery. All communications hereunder shall be delivered to the
respective parties at the following addresses:
If to the Company: The Delicious Frookie Company, Inc.
2720 River Road, Suite 126
Des Plaines, Illinois 60018
Attention: Jeffry Weiner, Chief Financial Officer
Telecopier No.: (847) 699-5928
with a copy to: Olshan Grundman Frome & Rosenzweig LLP
505 Park Avenue
New York, New York 10022
Attention: Steven Wolosky, Esq.
Telecopier No.: (212) 980-7177
If to the Voting
Trustee: Edward R. Sousa
Rockefeller Center No. 5095
New York, New York 10185
Telecopier No.: (212) 541-4729
3
<PAGE> 4
If to GBI: Gaines, Berland Inc.
712 Fifth Avenue, 21st Floor
New York, New York 10018
Attention: Steven Blumberg, Senior Director
Telecopier No.: (212) 632-0549
with a copy to: Graubard Mollen & Miller
600 Third Avenue
New York, New York 10016
Attention: David Alan Miller, Esq.
Telecopier No.: (212) 818-8881
or to such other address as the person to whom notice is give may have
previously furnished to the others in writing in the manner set forth above.
Copies of any notice to the Company or to the Voting Trustee shall also be
delivered to GBI and to Graubard Mollen & Miller.
5.4 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of New York, without regard to principles
of conflicts of laws.
5.5 Specific Performance. Each of the parties hereto recognizes and
acknowledges that a breach by it of any covenants or agreements contained in
this Agreement will cause the other party to sustain damages for which it would
not have an adequate remedy at law for money damages and, therefore, each of the
parties hereto agrees that in the event of any such breach the aggrieved party
shall be entitled to the remedy of specific performance of such covenants and
agreements and injunctive and other equitable relief in addition to any other
remedy to which it may be entitled, at law or in equity.
5.6 Counterparts. This Agreement may be executed in one or more
counterparts, each of which shall be deemed to be an original, but all of which
together shall constitute one and the same Agreement.
5.7 Descriptive Headings. The descriptive headings used herein are
inserted for convenience of reference only and are not intended to be part of or
to affect the meaning or interpretation of this Agreement.
5.8 Severability. Whenever possible, each provision or portion of any
provision of this Agreement will be interpreted in such manner as to be
effective and valid under applicable law, but if any provision or portion of any
provision of this Agreement is held to be invalid, illegal or unenforceable in
any respect under any applicable law or rule in any jurisdiction, such
invalidity, illegality or unenforceability will not affect any other provision
or portion of any provision in such jurisdiction, and this Agreement will be
reformed, construed and enforced in such jurisdiction as if such invalid,
illegal or unenforceable provision or portion of any provision had never been
contained herein.
5.9 Third Party Beneficiary. GBI shall be deemed to be a third-party
beneficiary of this Agreement and, as such, all representations and agreements
of either party set forth in this
4
<PAGE> 5
Agreement shall be deemed to have been made also to GBI and GBI shall be
entitled to enforce the terms of this Agreement as if it were a party hereto.
IN WITNESS WHEREOF, the Company and the Voting Trustee have caused this
Agreement to be duly executed as of the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC.
By:__________________________________
Name:
Title:
VOTING TRUSTEE:
______________________________
Edward R. Sousa
5
<PAGE> 1
EXHIBIT 10.44
THE DELICIOUS FROOKIE COMPANY, INC.
2720 River Road, Suite 126
Des Plaines, Illinois 60018
October 21, 1997
Investors to be listed on Schedule A to
the Common Stock and Option Purchase Agreement
Re: Registration Rights
-------------------
Dear Investors:
The Delicious Frookie Company, Inc. ("Company") hereby agrees to
provide to each Investor who becomes a party to the Common Stock and Option
Purchase Agreement among Richard S. Worth, Randye Worth, each of the Investors
listed on Schedule A thereto and the Company ("Stock and Option Agreement"), the
following registration rights with respect to any Shares and Option Shares
underlying Options (as defined in the Stock and Option Agreement) purchased by
such Investors pursuant to the Stock and Option Agreement. By executing a
Counterpart Signature Page to the Stock and Option Agreement, each Investor
signifies its acceptance of such registration rights and all other rights and
obligations of Investors described in this letter.
A. REGISTRATION IN IPO.
(1) GRANT OF RIGHT. The Shares and the Option Shares (together, the
"Registrable Securities") shall be registered for resale in the registration
statement under the Securities Act ("Registration Statement") filed with the
Securities and Exchange Commission ("Commission") in connection with the
Company's initial public offering of securities ("Specified IPO") to be managed
by Network 1 Financial Securities, Inc. ("Network 1"), as described in the
letter of intent dated May 21, 1997, as amended October 20, 1997 ("Letter of
Intent") between and the Company.
(2) TERMS. The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the Investors shall pay any and all
underwriting commissions and the fees and expenses of any legal counsel selected
by the Investors to represent them in connection with the sale of the
Registrable Securities. The Company agrees to use its best efforts to qualify or
register the Registrable Securities in such States as are reasonably requested
by Network 1; provided, however, that in no event shall the Company be required
to register the Registrable Securities in a State in which such registration
would cause (i) the Company to be obligated to register or license to do
business in such State, or (ii) the principal stockholders of the Company to be
obligated to escrow their shares of capital stock of the Company. The Company
shall cause any registration statement filed pursuant to the rights granted
under Paragraph A(1) to remain effective, and any State qualifications or
registrations obtained or filed pursuant to this Paragraph A(2) to continue in
effect, until all of the Registrable Securities covered by such Registration
Statement have been sold.
<PAGE> 2
Investors to be listed on Schedule A to
the Common Stock and Option Purchase Agreement
October 21, 1997
Page 2
B. "PIGGY-BACK" REGISTRATION.
(1) GRANT OF RIGHT. In addition to the right of registration set
forth in Paragraph A, the Investors shall have the right until the date which is
seven years after the Closing Date (as defined in the Stock and Option
Agreement) to include any of the Registrable Securities as part of any other
registration of securities filed by the Company (other than in connection with a
transaction contemplated by Rule 145(a) promulgated under the Securities Act or
pursuant to Form S-8 or any equivalent form), provided, however, that if, in the
written opinion of the Company's managing underwriter or underwriters, if any,
for such offering, the inclusion of the Registrable Securities, when added to
the securities being registered by the Company or the selling stockholder(s),
will exceed the maximum amount of the Company's securities which can be marketed
(i) at a price reasonably related to their then current market value, or (ii)
without materially and adversely affecting the entire offering, the Company
shall nevertheless register all or any portion of the Registrable Securities
required to be so registered but such Registrable Securities shall not be sold
by the Investors until 180 days after the registration statement for such
offering has become effective and provided further that, if any securities are
registered for sale on behalf of other stockholders in such offering and such
stockholders have not agreed to defer such sale until the expiration of such 180
day period, the number of securities to be sold by all stockholders in such
public offering during such 180 day period shall be apportioned pro rata among
all such selling stockholders, including all holders of the Registrable
Securities, according to the total amount of securities of the Company owned by
said selling stockholders, including all holders of the Registrable Securities.
(2) TERMS. The Company shall bear all fees and expenses attendant to
registering the Registrable Securities, but the Investors shall pay any and all
underwriting commissions and the expenses of any legal counsel selected by the
Investors to represent them in connection with the sale of the Registrable
Securities. In the event of such a proposed registration, the Company shall
furnish the then holders of outstanding Options and Registrable Securities with
not less than thirty days' written notice prior to the proposed date of filing
of such registration statement. Such notice shall continue to be given for each
registration statement filed by the Company until the earlier of (i) such time
as all of the Registrable Securities have been sold by the holders thereof or
(ii) the expiration of the "piggy-back" rights provided for herein. The holders
of the Options and Registrable Securities shall exercise the "piggy-back" rights
provided for herein by giving written notice, within twenty days of the receipt
of the Company's notice of its intention to file a registration statement. The
Company shall cause any registration statement filed pursuant to the above
"piggy-back" rights to remain effective until all of the Registrable Securities
covered by such registration statement have been sold. Notwithstanding the
provisions of this Paragraph B, the Company shall have the right at any time
after it shall have given written notice of its intention to file a registration
statement (irrespective of whether a written request for inclusion of any
Registrable Securities shall have been made) to elect not to file any such
proposed registration statement, or to withdraw the same after the filing but
prior to the effective date thereof.
C. GENERAL TERMS.
(1) INDEMNIFICATION. The Company shall indemnify the holder(s) of
the Registrable Securities to be sold pursuant to any registration statement
hereunder ("Holder(s)") and each person, if any, who controls such Holders
within the meaning of Section 15 of the Securities Act or Section 20(a) of the
Securities Exchange Act of 1934, as amended ("Exchange Act"), against
<PAGE> 3
Investors to be listed on Schedule A to
the Common Stock and Option Purchase Agreement
October 21, 1997
Page 3
all loss, claim, damage, expense or liability (including all reasonable
attorney's fees and other expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, arising
out of or based upon any untrue statement or alleged untrue statement of a
material fact contained in (i) such registration statement; or (ii) any
application or other document or written communication (in this Paragraph C
collectively called "application") executed by the Company or based upon written
information furnished by the Company in any jurisdiction in order to qualify the
Registrable Securities under the securities laws thereof or filed with the
Commission, any state securities commission or agency. Nasdaq or any securities
exchange; or the omission, or alleged omission therefrom of a material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading,
unless such statement or omission was made in reliance upon, and in strict
conformity with, written information furnished to the Company with respect to
the Holder(s) by or on behalf of the Holder(s) expressly for use in such
registration statement or in any application, as the case may be. The Company
agrees promptly to notify the Holder(s) of the commencement of any litigation or
proceedings against the Company or any of its officers, directors or controlling
persons in connection with the issue and sale of the Registrable Securities or
in connection with the registration statement or any application. The Holder(s)
and their successors and assigns shall severally, and not jointly, indemnify the
Company, against all loss, claim, damage, expense or liability (including all
reasonable attorney's fees and other expenses reasonably incurred in
investigating, preparing or defending against any claim whatsoever) to which
they may become subject under the Securities Act, the Exchange Act or otherwise,
arising from information furnished by or on behalf of such Holders, with respect
to such Holders, in writing, for specific inclusion in such registration
statement or any application.
(2) ELIMINATION OF REGISTRATION RIGHTS. Notwithstanding anything
to the contrary in Paragraph B hereof, no holders of Registrable Securities
shall be entitled to have such securities registered under the Securities Act
if, in the opinion of counsel to the Company, they may be sold without
restriction pursuant to Rule 144(k) promulgated under the Securities Act and
any restrictive legends under the Securities Act are removed from the
certificates representing such securities and any stop transfer order for such
certificates is removed.
(3) SUCCESSORS AND ASSIGNS. The registration rights granted to the
Investors hereunder inure to the benefit of all the Investors' successors,
heirs, pledges, assignees, transferees and purchasers of the Shares, Options and
Option Shares.
Very truly yours,
THE DELICIOUS FROOKIE COMPANY,INC.
By: /s/
-----------------------------------------
Michael J. Kirby, Chief Executive Officer
<PAGE> 1
Exhibit 10.45
AGREEMENT TO AMEND SUBLEASE AND
CONSENT TO ASSIGNMENT
THIS SUBLEASE AMENDMENT AGREEMENT AND CONSENT TO ASSIGNMENT (the
"Agreement"), dated as of April 2, 1998, is entered into among MAPLE PROPERTIES
COMPANY, L.L.C., an Illinois limited liability company having an address c/o
Tinicum Incorporated, 800 Third Avenue -- 40th Floor, New York, NY 10022
("MPC"), SALERNO FOODS, L.L.C., a Delaware limited liability company, having an
address at 2070 Maple Street, Des Plaines, Illinois ("Salerno") and Delicious
Frookie Company, Inc., a Delaware corporation ("DEC").
RECITALS
WHEREAS, reference is made to a certain lease (the "ElectroCom Lease"),
dated as of June 9, 1994, between MPC, successor-in-interest to Am Properties
Corporation ("AMP") as owner of certain real estate known as 2070 Maple Street,
Des Plaines, Illinois (the "Property"), as landlord, and ELECTROCOM AUTOMATION,
INC.("ElectroCom"), as tenant, pursuant to which ElectroCom leased from MPC
certain premises at the Property comprising approximately 54,500 square feet
(the "Premises").
WHEREAS, reference is made to a certain sublease (the "Sublease") dated
March 25, 1995 between ElectroCom, as sublessor,and Salerno, as sublessee,
pursuant to which ElectroCom subleased to Salerno approximately 44,500 square
feet of the Premises (the "Subleased Premises").
WHEREAS, reference is made to an oral license (the "Furniture License")
pursuant to which ElectroCom agreed to permit Salerno to use a portion of the
"ElectroCom Furniture" (as defined below).
WHEREAS, pursuant to an Assignment and Assumption Agreement (the "E-Com
Assignment") dated as of May 19, 1997, ElectroCom assigned to MPC certain rights
and interests, including its interest in the Lease and Sublease, and sold to MPC
all of its right, title, and interest in and to office furniture and furnishings
located at the Premises that were previously owned or had been used by
ElectroCom (the "ElectroCom Furniture");
1
<PAGE> 2
WHEREAS, reference is made to a certain lease (the "HIGH BAY LEASE") dated
August 17, 1997, and amended by a letter dated September 9, 1997 and by Memos
of October 15 and 17, 1997, between MPC, as landlord, and Salerno, tenant,
pursuant to which MPC subleased to Salerno a portion of the unit known as 1750
Birchwood Avenue, Des Plaines (the "HIGH BAY PREMISES"); the foregoing letter
of September 9, 1997 amending the Sublease as well;
WHEREAS, Salerno has entered into an agreement to sell, transfer and
convey substantially all of its business and operating assets to the DFC;
WHEREAS, at a March 19, 1998 meeting at the Sublease Premises, Ron Davies
of Salerno requested that MPC consent to Salerno's assignment of the Sublease,
the High Bay Lease and the Furniture License to DFC (the Sublease and the High
Bay Lease being referred to collectively as the "SUBJECT AGREEMENTS");
WHEREAS, MPC and DFC have discussed the possibility of terminating the
Sublease with DFC's taking a lease of the entire Premises (54,500 SF) for a
term of 5 to 6 years at rents as described below, but no agreement has been
reached concerning this arrangement;
WHEREAS, MPC agrees to consent to Salerno's assignment of its rights
under the Subject Agreements to DFC, it being understood that such consent is
subject to all of the limitations set forth below, including but not limited to
execution and delivery of this Agreement by MPC, Salerno and DFC.
NOW THEREFORE, MPC, Salerno and DFC agree as follows:
1. POSSIBLE NEW LEASE TO DFC. MPC and DFC have discussed the possibility of
terminating the Sublease with DFC's taking a lease of the entire Premises
(54,500 SF) plus a license to use the ElectroCom Furniture on terms and
conditions substantially as set forth in the Lease, but with an unexpired lease
5 to 6 years. MPC is interested in making such a lease at rents as provided in
the Lease with a starting monthly Base Rent (as defined in the Lease) of
$26,000.00 ($5.72 PSF) with escalations of 3% per annum, provided that DFC
completes a recapitalization that renders DFC's equity capital satisfactory to
MPC. It is MPC's understanding that the Premises can be delivered to DFC vacant
or with Phillips and Gard to remain as
2
<PAGE> 3
subtenants of DFC (MPC believes that the space can also be delivered with
Phillips and Gard to remain but with the Gard offices at the south (front) end
vacated). Gard and Phillips presently pay combined rents of $2,250.00 per month
under month-to-month leases. MPC and DFC acknowledge and agree that no
agreement has been reached regarding such a lease or the subject matter of
this Paragraph and that neither party has any obligation to the other regarding
the same.
2. AMENDMENT OF SUBLEASE. The Sublease is hereby amended to give MPC
the right to terminate the same on not less than ninety (90) days' prior
written notice, provided that the effective date of any termination by MPC
resulting from MPC's exercise of such rights shall not be prior to July 1,
1998. If MPC gives such a notice to the sublessee thereunder, the Sublease
shall terminate and expire on the date specified in that notice.
3. CERTAIN DAMAGE BY SALERNO. Salerno acknowledges that it is
responsible for certain damage to the Sublease Premises and the High Bay
Premises, including but not limited to the damage to the Sublease Premises and
the High Bay Premises described on Exhibits 1 and 2 attached hereto and made a
part hereof. On account of the same and as further consideration for MPC's
consent to the assignment of the Subject Agreements to DFC, within ten days of
the date hereof, DFC agrees to
(i) pay $5,000 to MPC in exchange for MPC's taking full
responsibility and releasing Salerno and (DFC as assignee) under the
Sublease for (x) any repair or replacement of conditions described on
Exhibit 2 as damaged in the High Bay Premises and (y) replacement of two
of the columns shown as damaged on Exhibit 1; and
(ii) pay a further $5,000 to MPC to increase the Security Deposit
held by MPC under the Sublease to $20,500.
In exchange for the foregoing and the other consideration that it receives
under this Agreement, MPC agrees to release Salerno from liability that Salerno
has under the Subject Agreements for damages to the Sublease Premises or the
High Bay Premises. Notwithstanding the foregoing, it is understood and agreed
that nothing
3
<PAGE> 4
in this Section 3 shall affect the obligations of DFC as assignee of the
Subject Agreements, except for the release set forth in the foregoing
clause(i).
4. SALERNO CERTIFICATIONS. Salerno certifies and/or covenants to and for
the benefit of MPC as follows:
(a) (i) The High Bay Lease is "month-to-month" and is terminable
on at least twenty-one (21) days prior written notice, and (ii) in the event of
an MPC termination of the same, Salerno understands that (x) time shall be of
the essence as to Salerno's (the tenant's) obligation to surrender the same in
accordance with the terms of that Lease and (y) MPC may be materially harmed by
any failure of Salerno (the tenant thereunder) to comply with the same; and
(b) (i) Salerno has no right, title or interest in and to any of
the ElectroCom Furniture other than a license to use the same so long as the
Sublease is in effect and (ii) that license is subject to the condition that
Salerno return the same to MPC in good condition, reasonable wear and tear
excepted.
5. ASSIGNMENT. Salerno does hereby assign unto DFC all of Salerno's
right, title and interest in and to the Subject Agreements and this Agreement,
and DFC hereby accepts the foregoing assignment.
6. ASSUMPTION. DFC hereby expressly assumes and agrees to perform and
discharge all of the terms, covenants, undertakings, conditions and obligations
of, or binding, upon Salerno under and pursuant to the Subject Agreements and
this Agreement, and all liabilities and obligations resulting therefrom.
7. DFC PAYMENTS. DFC acknowledges that the rents set forth in the
Sublease are below the market value of Salerno's rights under the Sublease,
leaving aside the substantial value to DFC of Salerno's assignment to DFC of
Salerno's license to use the ElectroCom Furniture. Therefore, in consideration
of and as a condition of MPC's grant of consent to the assignment to DFC of the
Subject Agreements, in addition to any other charges payable by DFC as assignee
under the Sublease and High Bay Lease, DFC agrees to pay to MPC $6,500.00 per
month (pro-rated for any partial month) for the period commencing on the date
hereof through and including the termination or other expiration of the
Sublease. It is expressly understood and agreed by the
4
<PAGE> 5
parties hereto that Salerno shall in no event be responsible for the
obligations of DFC set forth in this Paragraph.
8. MPC CONSENT. Based on the foregoing and the further provisions
of this Agreement, MPC hereby consents to Salerno's assignment of the Subject
Agreements to DFC, provided that such consent shall not release Salerno from its
obligations under the Subject Agreements except to the extent expressly
provided in Section 3 hereof.
9. INDEMNITY. MPC, Salerno and DFC each agree to indemnify, defend
and hold harmless the other two parties hereto from and against any and all
claims, costs, expenses or liability, including but not limited to reasonable
attorneys' fees and expenses, to the extent caused by a breach by the
indemnifyng party of any covenant, agreement, warranty, representation or other
obligation under this Agreement.
10. CONTINUED EFFECTIVENESS OF THE SUBJECT AGREEMENTS. Except as
expressly amended herein, all of the other terms and conditions of the Subject
Agreements shall remain in full force and effect.
11. COUNTERPART EXECUTION. This Agreement may be executed in
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same instrument, it being understood that delivery of
executed signature pages by telecopier shall be deemed permissible.
12. EXECUTION OF THIS AGREEMENT BY MPC. The submission by MPC of
this Agreement for examination and negotiation does not constitute an offer by
MPC to consent to the foregoing assignment or an option to do so.
5
<PAGE> 6
This Agreement shall become effective and binding only upon the execution and
delivery hereof by all of MPC, Salerno and DFC.
IN WITNESS WHEREOF, MPC, Salerno and DFC evidence their agreement to the
foregoing by executing this Agreement in the spaces indicated below.
MPC: MAPLE PROPERTIES COMPANY, LLC
an Illinois limited liability company
* consent and agreement by MPC as aforesaid
provided the following are delivered to MPC
on or before Wednesday, April 8, 1998:
(i) good check(s) and/or wire transfers
totalling $39,466.67 for the items set
forth on attached Exhibit 3 and (ii)
pro-forma balance sheet for [DFC] showing
financial position for the combined
Salerno/DFC entities as of the consummation
of their combination. If not timely
received, consent null and void. Time is of
the essence as to receipt.
JS for MPC
4-3-98
BY: AMERICAN PROPERTIES CORPORATION, its
manager
BY: /s/ Jamil Simon
--------------------------------
JAMIL SIMON
PRESIDENT
SALERNO: SALERNO FOODS, L.L.C.
a Delaware limited liability company
BY: /s/ Ron Davies, Jr.
--------------------------------------
RON DAVIES, JR.,
PRESIDENT
DFC DELICIOUS FROOKIE COMPANY, INC.
a Delaware corporation
BY: /s/ Michael J. Kirby
--------------------------------------
MICHAEL J. KIRBY
PRESIDENT
<PAGE> 7
Exhibit 3
WIRE INSTRUCTIONS
To wire payment to Maple Properties, you will need the following information:
<TABLE>
<S> <C>
Bank Name: Citibank, N.A.
Citicorp Center
153 East 53rd Street
New York, NY 10043
ABA Number: 021-000-089
Account name: Maple Properties Company, L.L.C.
Account Number: 4336-2351
Account Type: IMMA
$39,466.67
==========
</TABLE>
<TABLE>
<S> <C> <C>
SALERNO FOODS, L.L.C. - Base Rent/monthly $15,500.00
2070 Maple Street - Additional Rent/monthly $ 1,800.00
- High bay rent/monthly $ 5,666.67
- Repairs (Sec 3 of Consent) $ 5,000.00
- Increase in Security Deposit $ 5,000.00
- DFC Payment/monthly $ 6,500.00
----------
$39,466.67
</TABLE>
<PAGE> 1
[RYDER LOGO]
TRUCK LEASE AND SERVICE AGREEMENT
Ex. 10.46
This Agreement is dated as of ___________________, _____ and is by and between
RYDER TRUCK RENTAL, INC. d/b/a
RYDER TRANSPORTATION SERVICES, whose address is _______________________________
(Ryder) and ____________________________________________, whose address is ____
____________________________________________________________(You/Yours)
- -------------------------------------------------------------------------------
1. EQUIPMENT COVERED AND TERM
A. AGREEMENT. Ryder agrees to lease the Vehicles to you, and you agree to
lease the Vehicles from Ryder. Selected terms are defined in the Defined Terms
Section that appears at the end of this Agreement.
B. SCHEDULE A(s). The Schedule A(s) contain information regarding the
Vehicles selected by you pursuant to this Agreement. When you sign a Schedule A,
you authorize Ryder to obtain the Vehicles listed on that Schedule A and agree
to take delivery of them.
C. LEASE TERM. The lease term for a Vehicle will begin when Ryder tenders
the Vehicle to you and will last for the period specified on its Schedule unless
the lease term is terminated earlier as permitted by this Agreement. At the end
of the lease term, you agree to return the Vehicles to the Maintenance Facility.
If you operate any Vehicle after its lease term has ended, the terms of this
Agreement will apply to the hold-over lease, but Ryder will have the ??? to
terminate the hold-over lease 7 days after Ryder sends you notice. Ryder shall
not be required to send you this termination notice if you have failed to ??? an
outstanding default under this Agreement or if Ryder has previously sent you a
termination notice covering that Vehicle.
D. VEHICLE SPECIFICATIONS, ALTERATIONS, AND EQUIPMENT. Once you accept a
Vehicle in service, you agree that it conforms to the Vehicle specifications
and is in good working order. You agree not to alter the structure of the
Vehicle unless you first obtain Ryder's consent, and you agree to pay for all
structural alterations, special equipment, and all changes in painting,
lettering, and art work that you make or request Ryder to make after you sign
the Schedule A. If a law or regulation changes after you sign a Schedule A so
that additional or new equipment must be installed on a Vehicle, Ryder will
perform the installation and you agree to pay Ryder for all costs and
installation expenses.
- ------------------------------------------------------------------------------
2. SERVICES THAT RYDER PROVIDES TO THE VEHICLES
A. MAINTENANCE AND REPAIRS TO VEHICLES. Ryder agrees to provide
lubricants, tires, tubes, and all other operating supplies for the Vehicles.
Ryder agrees to perform all maintenance and repairs to the Vehicles and agrees
to supply all labor and parts required to keep the Vehicles in services and
ready for your use.
(1) Maintenance and Repair Schedule. You agree to return each Vehicle to
Ryder at the Maintenance Facility for at least 8 hours per month for
preventative maintenance at the scheduled times agreed to by both of us. You
agree to notify Ryder immediately when any repairs are necessary. If additional
maintenance is required, you agree to bring the Vehicle to Ryder at mutually
agreeable times.
(2) Repairs Performed by Third Parties. Ryder and the parties that Ryder
expressly authorizes are the only ones who may repair, maintain, or adjust the
Vehicle. Before you have a third party repair or make adjustments to a Vehicle,
you agree to obtain Ryder's consent. Ryder will not pay for unauthorized
repairs. You agree to provide Ryder with proper documents, such as receipts, to
obtain reimbursement from Ryder for all repairs that Ryder authorizes.
B. VEHICLE WASHING. Where Ryder is designated on the Schedule A, Ryder
will wash the exterior of the Vehicles listed on that Schedule A as frequently
as stated on that Schedule A.
C. SPECIFICATION ASSISTANCE. Ryder agrees to attempt to assist you in
selecting specifications for the Vehicles chosen by you by helping you to
identify the types and physical characteristics of vehicles and equipment suited
to your business needs given economic, safety, and performance considerations.
Nevertheless, you agree that you retain sole and ultimate responsibility for
selecting specifications for the Vehicles.
D. SUBSTITUTE VEHICLES. If a mechanical failure renders a Vehicle
temporarily inoperable, Ryder agrees to supply you with a Substitute Vehicle at
no extra charge, except for mileage charges, fuel charges, and other variable
charges. All Substitute Vehicles will be governed by this Agreement.
(1) When Ryder Will Not Provide a Substitute Vehicle. Ryder will not
furnish a Substitute Vehicle for any Vehicle that is out of service for any
preventative maintenance; if a Vehicle is out of service for repair of any
physical damage resulting from any cause, including fire, collision, upset,
vandalism, or an Act of God; if you violate this Agreement and a Vehicle becomes
inoperable as a result; if a Vehicle is lost or stolen; if a Vehicle is
specialized; or if a Vehicle is out of service for repair or maintenance of
special equipment and Ryder is not responsible for maintaining that equipment.
(2) Size of Substitute Vehicle; Delivery and Drop-off. The Substitute
Vehicle will be as nearly as practicable the same size as the Vehicle. Ryder is
to provide the Substitute Vehicle where the Vehicle was disabled and you agree
to return it to the facility that provided it.
(3) Failure to Provide a Substitute Vehicle. If Ryder is obligated to
provide a Substitute Vehicle and fails to do so within a reasonable period of
time then the charges for the inoperable Vehicle will abate until Ryder either
returns the Vehicle to you or provides a Substitute Vehicle. This abatement
shall be Ryder's only liability to you if Ryder fails to provide a Substitute
Vehicle.
E. REPLACEMENT RENTAL VEHICLES FOR PHYSICAL DAMAGE. While physical damage
to a Vehicle is being repaired, Ryder agrees to rent you a Replacement Rental
Vehicle if one is available in Ryder's rental fleet. The rental rate for the
Replacement Rental Vehicle will be equal to (and billed in addition to) the
lease charges on the inoperable Vehicle. Before you take possession of the
Replacement Rental Vehicle, you agree to sign Ryder's standard rental agreement.
In all instances, and regardless of whether you rent a Replacement Rental
Vehicle, the charges on the damaged Vehicle will continue to accrue during the
period of time that the damage is being repaired.
F. EXTRA RENTAL VEHICLES. Subject to availability in Ryder's rental fleet,
Ryder will rent Extra Rental Vehicles to you for short-term use. Ryder agrees
to rent you an Extra Rental Vehicle at Ryder's standard rental rate at the time
of the rental less 15%. All rental rates for Extra Rental Vehicles shall be
computed based on a 5-day week. Before you take possession of the Extra Rental
Vehicle, you agree to sign Ryder's standard rental agreement.
G. EMERGENCY ROAD SERVICE. Ryder agrees to provide road service for
mechanical or tire failure. However, you agree to be responsible for all
expenses of towing any Vehicle which becomes mired when not in Ryder's
possession or on Ryder's premises, and for any Vehicle which becomes mired as a
result of driver abuse or a violation of this Agreement.
H. PAINTING AND LETTERING. Ryder agrees to pay for painting and lettering
the Vehicles prior to delivery. There is an allowance for this initial painting
and lettering on each Schedule A, but if the cost of the painting and lettering
exceeds that allowance, the lease charges will be adjusted as described on
Schedule A to reflect the excess.
I. LICENSING AND TAXES. Ryder agrees to pay for the following items for
each Vehicle, but only up to the annual allowance for each item listed on
Schedule A: the state motor vehicle license for the licensed weight shown on
Schedule A, registration fees, and vehicle inspection fees in the state of
<PAGE> 2
domicile, personal property taxes in the state of domicile, and Federal Heavy
Vehicle Use Taxes. If the cost of any of these items exceeds the annual
allowance listed on Schedule A in any year, then you agree to pay Ryder the
excess. You also agree to pay for any increase or change in method of assessment
of any of these items that becomes effective after the date that a Schedule A is
signed. Any blank allowance line on a Schedule A shall be deemed to be a $0
annual allowance. You agree to provide Ryder with all documentation required for
vehicle licensing (including trip records) on a weekly basis. If you provide
Ryder with inaccurate information or provide information late, you agree to
reimburse Ryder for any charges, penalties, or expenses. In addition, Ryder
shall have the right by providing you with 30 days prior notice, to no longer
apply for vehicle licenses on the Vehicles.
J. SAFETY PROGRAM. At your request, Ryder will provide you with its then-
current standard safety program.
- -------------------------------------------------------------------------------
3. PROVIDING FUEL
A. PROVISION OF FUEL BY RYDER. When Ryder is designated on the Schedule
A, Ryder will provide fuel for the Vehicles listed on that Schedule A for
Ryder's or designated facilities. The charge for fuel will vary over time. Ryder
will bill you for fuel in addition to the lease rates listed on each Schedule A.
If your account is past-due, Ryder may elect to stop providing fuel to you 3
days from the date that Ryder sends notice to you. You will be responsible for
cost of all fuel obtained from sources other than Ryder or Ryder's designated
facilities.
B. FUEL TAX PERMITS AND REPORTING. Where Ryder is designated on
Schedule A to provide fuel, Ryder agrees to apply and pay for fuel tax permits
for the Vehicles listed on that Schedule A, where it is legal to do so, up to
the annual allowance on that Schedule A. If the cost of the fuel tax permits
exceeds the annual allowance in any year, then you agree to pay Ryder the
excess. Where Ryder is designated on the Schedule A to provide fuel, Ryder also
agrees to prepare and file fuel tax returns and pay fuel taxes imposed on the
consumption of fuel by the Vehicles listed on that Schedule A where it is legal
to do so.
(1) REQUIRED DOCUMENTATION. If Ryder prepares the returns and pays the
taxes, you agree to provide Ryder with all necessary documentation (including
trip records and fuel tickets) on a weekly basis. If you provide Ryder with
inaccurate information or documentation, or provide information or
documentation late, you agree to (i): reimburse Ryder for any charges,
penalties, expenses, or disallowed credits; and (ii) pay Ryder an amount equal
to the estimated taxes computed on a per mile basis. In addition, Ryder shall
have the right, by providing you with 30 days notice to stop doing either or
both of the following: (i) applying and paying for fuel tax permits for the
Vehicles listed on Schedule A; and (ii) filing fuel tax returns and paying fuel
taxes imposed on your consumption of fuel for the Vehicles listed on Schedule
A. You shall then defend, release, indemnify, and hold Ryder harmless for all
Damages and Defense Costs resulting from your failure to pay fuel taxes.
(2) REIMBURSEMENT OF FUEL TAXES. You will reimburse Ryder for all fuel
taxes paid by Ryder on your behalf, including, but not limited to, all
additional fuel taxes resulting from your consumption of fuel in a state other
than the state in which the fuel was purchased and all taxes that may become
due based on the documents you provide.
C. IF YOU PROVIDE FUEL. You may choose to provide your own fuel. If you
fail to pay taxes, you agree to defend, release, indemnify, an hold Ryder
harmless for all Damages and Defense Costs.
- --------------------------------------------------------------------------------
4. OPERATION OF VEHICLES
A. OPERATION FOR BUSINESS PURPOSES AND IN COMPLIANCE WITH THE LAW. You
agree to operate the Vehicles in the normal and ordinary course of your
business and in compliance with all federal, state, and local laws and
regulations (including weight and size limits). You agree not to use the
Vehicles to carry passengers.
B. OPERATION WITHIN THE UNITED STATES AND CANADA. You agree to operate
Vehicles only within the United States and occasionally in Canada. If you
desire to operate the Vehicles in any other foreign country, you agree to first
obtain Ryder's prior permission. If you operate a Vehicle in a foreign country
and it is held there for any reason, you agree to remain liable for the Vehicle
and all charges that accrue while it is detained.
C. OPERATION WITH VEHICLES OWNED BY YOU. If you use a Vehicle and while
it is connected to a trailer or other equipment that Ryder does not lease to or
maintain for you, you agree to keep that trailer and equipment in good
operating condition.
D. PROHIBITED OPERATION. You agree not to use or operate Vehicles,
Substitute Vehicles, or rental vehicles in a reckless or abusive manner, in
violation of the manufacturer's recommendations, off an improved road, on a
flat, improperly loaded, or loaded beyond the manufacturer's recommended
maximum gross weight. You agree not to use any Vehicle, Substitute Vehicle, or
rental to transport Hazardous Material. Regardless of any other provision of
this Agreement, and even if Ryder is designated on Schedule A as responsible
for Physical Damage, you will pay Ryder for all physical damages, repairs,
maintenance, and related expenses resulting from any violation of this
paragraph.
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5. DRIVERS
A. DRIVER QUALIFICATIONS. Only properly licensed drivers who are at least
18 years old may drive a Vehicle or Substitute Vehicle. All drivers must be your
employees or agents who are subject to your exclusive direction and control.
Drivers are not allowed to operate a Vehicle or Substitute Vehicle if they
either possess or are under the influence of any alcohol or drug. If a driver
operates a Vehicle or Substitute Vehicle in violation of this paragraph, you
agree to defend, release, indemnify, and hold Ryder harmless for all resulting
Damages and Defense Costs. Every year and on Ryder's reasonable request, you
agree to provide Ryder with a current driver roster in a form reasonably
satisfactory to Ryder.
B. DRIVER REMOVAL. If a driver operates a Vehicle or Substitute Vehicle
in a reckless, abusive, illegal, or incompotent manner, Ryder may send you a
notice requesting you to remove that driver as an operator of the Vehicles
and Substitute Vehicles. Upon receipt of the notice, you will immediately remove
the driver as an operator of the Vehicles and Substitute Vehicles.
(1) FAILURE TO REMOVE DRIVER. If you do not remove that individual as a
driver or are prevented from doing so by any agreement with any one on the
drivers behalf, then you agree to reimburse Ryder for any damage to any Vehicle,
Substitute Vehicle, or rental vehicle that occurs while being driven by an
individual even if Ryder otherwise has responsibility for payment of Physical
Damage on or to that Vehicle, Substitute Vehicle, or rental vehicle. Also, even
if Ryder extends Liability Insurance or another provision in this Agreement
would otherwise apply, you agree to defend, release, indemnify, and hold Ryder
harmless for all Damages and Defense Costs that result while that driver
operates any Vehicle, Substitute Vehicle or rental vehicle.
(2) CANCELLATION OF LIABILITY INSURANCE THAT RYDER EXTENDS. If you deny
Ryder's request to remove a driver, Ryder may cancel liability Insurance that
Ryder Extends on any Vehicle or Substitute Vehicle by providing you with 30
days notice.
(3) CHANGE OF PHYSICAL DAMAGE RESPONSIBILITY. If you deny Ryder's
request to remove a driver, Ryder may also designate you as the party
responsible for all Physical Damage to the Vehicles by providing you with 30
days notice. Your Physical Damage responsibility for each Vehicle will then be
equal to Schedule A Value, and you agree to provide Ryder with proof of
physical damage insurance coverage described in Paragraph 11B(2).
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6. VEHICLE EXPENSES THAT YOU ARE RESPONSIBLE FOR
A. TAXES. You agree to pay for all taxes, fees, and tolls resulting
from the use or operation of the Vehicles or accruing on the lease, rental, or
other charges under this Agreement, other than those that Ryder agrees to pay
for in Paragraph 21. The taxes that you are responsible for include any sales,
use,
<PAGE> 3
excise, gross receipts or any similar tax, any special license or taxes
resulting from the operation and tax of the Vehicles by you, including mileage
tax, mileage taxes, highway or bridge tolls, and any new or additional taxes or
fees adopted after you sign the Schedule A.
B. EXCESS OVER SCHEDULE A ANNUAL ALLOWANCE AMOUNTS. You agree to be
responsible for any excess over the annual allowances listed on the Schedule A
during each year for each of the following items for each Vehicle: state motor
vehicle license, registration fees, and vehicle inspection fees, personal
property taxes, Federal Heavy Vehicle Use Taxes, and fuel tax permits. You also
agree to pay for any increase or change in method of assessment of any of these
items that becomes effective after the date that a Schedule A is signed.
C. FAILURE TO PAY TAXES. If you fail to pay any taxes, fees, or tolls, and
your failure results in a claim or lien involving any Vehicle, then Ryder may
settle the claim or lien, and you agree to immediately reimburse Ryder for
doing so.
D. ADDITIONAL REPAIRS. Regardless of any other provision of this
Agreement, you agree to pay for all damage, repairs, maintenance, and related
expenses resulting from your operation of a Vehicle or Substitute Vehicle in
violation of this Agreement at Ryder's retail sales and service rates then in
effect at the facility performing the repairs or maintenance.
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7. COMPUTATION OF CHARGES AND PAYMENT.
A. PAYMENT TERMS. You agree to pay the full amount of any invoice billed by
Ryder within 10 days of the date of Ryder's invoice. Deductions or offsets from
the invoice amount are not permitted.
B. INCORRECT INVOICES. If an invoice is incorrect, then you agree to notify
Ryder within 90 days of its date, or it will be conclusively presumed to be
correct.
C. DETERMINATION OF MILEAGE AND REFRIGERATION CHARGES. Ryder will determine
mileage for powered Vehicles from odometer readings, mileage, trailers from
hubodometer readings, and hours of operation of all refrigerated units from the
hour meter(s). If the odometer, hubodometer, or hour meter(s) fails to function,
you agree to immediately report that failure to Ryder. Ryder will then determine
mileage or the hours of operation for the period in which the failure existed at
Ryder's option from (1) your trip records or (2) the average amount of fuel
consumed and the miles per gallon shown in Ryder's record for the previous 30
days.
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8. FINANCIAL STATEMENTS AND CONFIDENTIALITY
A. FINANCIAL STATEMENTS. You agree to provide Ryder with fully disclosed,
year-end financial statements and other financial information on an annual
basis.
B. CONFIDENTIALITY. You agree to maintain the confidentiality of the terms
and rates contained in this Agreement, and agree not to disclose rates and
terms unless required by law.
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9. ADJUSTMENT OF CHARGES
The charges in this Agreement are based on Ryder's current costs for
labor, parts, supplies, and overhead items, which may change after a Schedule A
is signed. Each year, on the dates listed on a Schedule A, Ryder will adjust
your charges on each Vehicle upward or downward to reflect changes in Ryder's
costs. These adjustments will be computed based on the percentage change in the
Revised Consumer Price Index for Urban Wage Earners and Clerical Workers (1967
base period) published by the U.S. Bureau of Labor Statistics (or any successor
index designated by Ryder) over or under the Base Index listed on the Schedule
A. Ryder will round this percentage change in CPI to the nearest tenth of
one-percent and will then increase or decrease your charge by an amount equal
to this rounded percentage change in CPI (positive or negative) multiplied by
the portion of the charges listed below:
*50% of the Fixed Charge Per Month (or Week) and 100% of the Mileage Rate
Per Mile
*60% of the Mileage Rate Per Mile (including Mileage Guaranty) for
"Mileage Only" Rate Vehicles
*100% of the Refrigerated Maintenance Rate Per Hour (for refrigeration
equipment)
Adjustments will be computed based on the original charges and the latest
CPI index published prior to the effective date of implementation.
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10. LIABILITY INSURANCE AND INDEMNITY
A. LIABILITY INSURANCE. The party designated on Schedule A agrees to
furnish and maintain a policy of automobile liability insurance at its sole
cost with terms acceptable to Ryder and with limits per occurrence specified on
each Schedule A for bodily injury and property damage liability, covering you
at Ryder as insureds for the ownership, maintenance, use, and operation of the
Vehicles and the Substitute Vehicles. If Ryder extends the Liability Insurance
then this Agreement shall incorporate all of the terms and conditions of the
policy of Liability Insurance.
(1) ADDITIONAL INSURED STATUS. If Ryder extends the Liability Insurance,
then Ryder agrees to name you as an additional insured on the Liability
Insurance for the ownership, maintenance, use, and operation of the Vehicles
and the Substitute Vehicles. If you provide the Liability Insurance, then you
agree to name Ryder as an additional insured on the Liability Insurance for the
ownership, maintenance, use, and operation of the Vehicles and the Substitute
Vehicles. If Ryder is obligated to furnish and maintain Liability Insurance
covering you as an insured, the Liability Insurance will exclude uninsured or
underinsured motorist coverage, personal injury protection coverage, medical
payment coverage, and/or supplementary no fault coverage. If any of these
coverages cannot be rejected, waived, or excluded under the law of any
applicable state, or if rejection, waiver, or exclusion is otherwise
unenforceable, the coverage will only be provided to the extent and with the
minimum limits required by the laws of that state.
(2)PRIMARY COVERAGE AND NOTICE OF CANCELLATION. The Liability Insurance
must provide that its coverage is primary and not additional or excess coverage
over insurance otherwise available to either of us. In addition, the Liability
Insurance must be written by a company satisfactory to Ryder and provide that
it cannot be canceled or materially altered without 30 days prior notice to
both of us.
B. INSURANCE CERTIFICATES. The party designated on the Schedule A agrees
to furnish the other party with insurance certificates to prove compliance with
Paragraph 10A.
C. TERMINATION OF LIABILITY INSURANCE EXTENDED BY RYDER. If Ryder extends
its Liability Insurance, Ryder may periodically review and adjust its rates
therefor during the term of this agreement, and also may withdraw such
coverage, by providing you in either event with not less than 30 days prior
notice. You agree to then obtain and maintain Liability Insurance in the limits
listed on the Schedule A as of the effective date of termination, and your lease
charges will be adjusted accordingly.
D. INDEMNIFICATION FOR FAILURE TO PROCURE OR MAINTAIN LIABILITY INSURANCE.
If you are obligated to procure and maintain the Liability Insurance and fail
to do so (or if you fail to provide Ryder with the required evidence of
Liability Insurance), you agree to defend, release, indemnify, and hold Ryder
harmless for all Damages and Defense Costs arising out of or related to the
ownership, maintenance, use, or operation of any Vehicle or Substitute Vehicle.
In addition, Ryder may, at Ryder's option, obtain Liability Insurance which may
protect Ryder's interests only. If Ryder chooses to procure the Liability
Insurance, you agree to pay to Ryder any costs or expenses incurred by Ryder in
procuring the Liability Insurance. Ryder will bill these costs to you as
additional rental charges.
<PAGE> 4
E. INDEMNIFICATION FOR DAMAGES IN EXCESS OF LIABILITY INSURANCE, INJURIES
TO EMPLOYEES AND AGENTS, AND FOR A VIOLATION OF THIS AGREEMENT. You agree to
defend, release, indemnify, and hold Ryder harmless for all Damages and Defense
Costs: (1) in excess of or not covered by Liability Insurance (whether provided
by you or Ryder) arising out of or related to the ownership, maintenance, use,
or operation of any Vehicle or Substitute Vehicle; (2) arising out of or related
to death or injury to you, your drivers, employees, and agents caused by or
related to the ownership, maintenance, use, or operation of a Vehicle or
Substitute Vehicle; or (3) arising out of or related to your violation of this
Agreement.
F. INDEMNIFICATION FOR STATUTORY INSURANCE REQUIREMENTS OR INSURER
INSOLVENCY. You agree to defend, release, indemnify, and hold Ryder harmless for
all Damages and Defense Costs which Ryder may be required to pay as a result of
any statutory requirements of insurance or as a result of the insolvency of your
insurance company and which Ryder would not otherwise be required to pay under
this Agreement.
G. INDEMNIFICATION FOR TRANSPORTATION OF HAZARDOUS MATERIAL. Even if Ryder
is designated as responsible for providing Liability Insurance on Schedule A, if
you use any Vehicle, Substitute Vehicle, or rental vehicle to transport any
Hazardous Material, then you agree to defend, release, indemnify and hold Ryder
harmless for all Damages and Defense Costs arising out of or related to any
cause, including, but not limited to, your negligence, Ryder's negligence, any
other failure on your part, or any other failure on Ryder's part. Nothing in
this paragraph will authorize you to transport Hazardous Material in any
Vehicle, Substitute Vehicle, or rental vehicle, which shall still be a breach of
this Agreement.
H. FILING EVIDENCE OF LIABILITY INSURANCE. When Ryder is designated as
responsible for Liability Insurance, Ryder will, at your request and where
required and legal, file required evidence of automobile liability insurance.
Ryder agrees to file the certificates of automobile insurance that are required
you in the normal operation of your business in a form acceptable to Ryder.
You agree to defend, release, indemnify, and hold Ryder harmless for all Damages
and Defense Costs arising out of or related to payment of losses by Ryder or
Ryder's insurer based on the fact that the documents or certificates have been
filed or issued, where the loss would not have otherwise been paid except for
the existence of such filing or certificate.
I. REIMBURSEMENT FOR CLEAN-UP COSTS ASSOCIATED WITH FUEL SPILLS. If you
provide the Liability Insurance and Ryder responds to a traffic accident which
has resulted in an environmental spill or release from a Vehicle's or Substitute
Vehicle's fuel tank(s) or engine, you agree to pay for and/or reimburse Ryder
for all out-of-pocket costs and expenses arising out of or related to the spill
or release, including, but not limited to, the cost of emergency response
contractors, environmental clean up and disposal costs, fines, and penalties.
11. PHYSICAL DAMAGE TO LEASED AND SUBSTITUTE VEHICLES
The party shown on the Schedule A will pay for all Physical Damage
(including theft and loss) to the Vehicles listed on that Schedule A and to any
Substitute Vehicle provided for those Vehicles.
A. WHEN RYDER IS DESIGNATED ON THE SCHEDULE A:
(1) Payment of Physical Damage. Ryder agrees to assume and pay for Physical
Damage to each Vehicle or Substitute Vehicle in excess of the deductible amount
per occurrence specified on the Schedule A. You agree to pay up to the
deductible amount specified on the Schedule A for each occurrence.
(2) Exclusions. Even if Ryder is designated on the Schedule A, Ryder will
not pay for any loss or damage to a Vehicle or Substitute Vehicle that results
from a violation of Paragraph 4 or for any willful damage to a Vehicle or
Substitute Vehicle, specifically including, but not limited to, damage arising
out or in connection with any labor dispute that you are involved in. Further,
Ryder will not pay for the theft of any Vehicle or Substitute Vehicle by one of
your agents or employees, nor will Ryder pay for the loss of tools, tarpaulins,
accessories, spare tires, or other similar items. If a Vehicle is lost, damaged
beyond economic repair, or stolen as a result of one of the exceptions in this
paragraph, you agree to pay Ryder an amount equal to its Schedule A Value.
(3) Retention of Salvage. Ryder will be entitled, at its option, to retain
the salvage of any Vehicle or Substitute Vehicle, in which case Ryder will
deduct the salvage value from the amount that you agree to pay to Ryder under
Paragraph 11A(2) of this Agreement.
(4) Termination of Physical Damage Responsibility. If Ryder is responsible
for paying for Physical Damage, then Ryder can terminate that responsibility by
providing you with at least 30 days prior notice. After that 30 day notice
period, you agree to be responsible for all Physical Damage to Vehicles and
Substitute Vehicles as described in Paragraph 11B. After Ryder provides you with
notice of termination, you agree to obtain and maintain Physical Damage
insurance on the Vehicles and Substitute Vehicles. This Physical Damage
insurance must be in a form and amount that is reasonably acceptable to Ryder.
Ryder will then decrease your lease charges to reflect the change in Physical
Damage responsibility. If you fail to obtain and maintain Physical Damage
insurance, or if you fail to provide Ryder with certificates evidencing that
insurance, then you agree to pay Ryder for all Physical Damage to any Vehicle or
Substitute Vehicle as described in Paragraph 11B. In the event that a Vehicle is
damaged beyond economic repair or is lost or stolen, the amount that you agree
to pay Ryder will be determined by Paragraph 16A. If Ryder is responsible for
paying for Physical Damage, Ryder may periodically review and adjust its rates
therefor during the term of this agreement by providing you with not less than
30 days prior notice.
B. WHEN YOU ARE DESIGNATED ON THE SCHEDULE A:
(1) Payment of Physical Damage. You agree to pay for all Physical Damage
(including theft and loss) to any Vehicle or Substitute Vehicle, including
related expenses, even if the Physical Damage results from Ryder's negligence or
occurs on Ryder's premises. If a Vehicle is lost, stolen, or damaged beyond
economic repair, then you agree to pay Ryder its purchase price at the time of
the loss or damage as determined by Paragraph 16A, plus the other amount
mentioned in that paragraph. Ryder may inspect and approve all physical damage
repairs performed by any repair shop which has not been approved by Ryder once
they are completed. If a physical damage repair performed by any such unapproved
repair shop does not meet the vehicle manufacturer's specifications or is
otherwise faulty, then Ryder may rework the repair so that it satisfies those
specifications and is properly performed at your expense in addition to all
other charges under this Agreement.
(2) Insurance Certificates. You agree to furnish Ryder with evidence of
Physical Damage insurance coverage reasonably acceptable to Ryder listing Ryder
as a named insured or endorsed as a loss payee.
(3) Retention of Salvage. Ryder will be entitled, at its option, to retain
the salvage of any Vehicle or Substitute Vehicle, in which case Ryder will
determine the salvage value from the amount that you agree to pay to Ryder under
this Agreement.
C. Vehicle Theft or Destruction. If a Vehicle is lost or stolen, you agree
to immediately notify Ryder. If it is still missing 30 days after you have
notified Ryder, then the lease on that Vehicle will terminate. However, before
the lease terminates, you must pay Ryder any amounts owed for the Vehicle of
termination and any amounts owed to Ryder under Paragraph 11. Ryder will not be
obligated to provide a Substitute Vehicle during this 30 day period.
If a Vehicle is involved in a collision or accident, you agree to
immediately notify Ryder, and within 30 days, Ryder will decide whether that
Vehicle damaged beyond economic repair. If the Vehicle is damaged beyond
economic repair, the lease on that Vehicle will terminate once you pay Ryder
all of the charged owed for the Vehicle and all amounts owed under Paragraph 11.
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12. NOTICE OF ACCIDENT
If an accident, collision, theft, loss, or damage occurs involving any
Vehicle or Substitute Vehicle, you agree to immediately notify Ryder, cause
your driver to make a report in person at Ryder's office as soon as
practicable, and agree to return the Vehicle or Substitute Vehicle to the
Maintenance Facility upon Ryder's request. You agree to also provide Ryder with
copies of any reports that you have provided to your insurer or any
governmental agency and assist Ryder and the insurer in the investigation,
defense, or prosecution of any claims or suits.
<PAGE> 5
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13. CARGO LOSS RESPONSIBILITY
Ryder will not be liable for loss of or damage to Cargo, even if the loss
or damage occurs on Ryder's premises or is caused by Ryder's negligence or other
failure on Ryder's part. You agree to defend, release, indemnify, and hold Ryder
harmless for all Damages and Defense Costs arising out of or related to loss or
damage to Cargo. You also agree to reimburse Ryder for loss of any tools,
tarpaulins, spare tires, or other similar equipment furnished by Ryder.
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14. TERMINATION
A. ANNUAL TERMINATION RIGHTS. Either party may terminate the lease on any
Vehicle on any annual anniversary date of its Date of Delivery listed in its
Schedule A before its full lease term expires by giving the other party at least
60 days prior notice. If Ryder terminates the lease on any Vehicles and are not
then in default, you will have the right, but not the obligation, to purchase
all of those terminated Vehicles on the effective date of their termination in
accordance with Paragraph 16A, by giving Ryder at least 30 days prior notice. If
you terminate the lease on any Vehicles, you will, at Ryder's option, purchase
all of those Vehicles on their effective date of termination in accordance with
Paragraph 16A.
B. INSOLVENCY AND BANKRUPTCY. If you become insolvent, file a voluntary
petition in bankruptcy, make an assignment for the benefit of creditors, ???
adjudicated bankrupt, permit a receiver to be appointed for your business, or
permit or suffer a material disposition of your assets, the lease of Vehicles
???? terminate at Ryder's option. Upon termination, Ryder may, at its option,
demand that you purchase the Vehicles within 10 days as described in Paragraph
16A.
C. VEHICLE CONDITION AT EXPIRATION OF LEASE. Upon termination or expiration
of the lease term, you agree to return each Vehicle to Ryder with no broken
glass and with no sheet metal, component, or structural damage. If you have made
any structural alteration to the Vehicle, you agree, at Ryder's option, to
restore it to its original condition before you return it to Ryder.
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15. BREACH OR DEFAULT
A. DEFAULT PROCEDURE. If you breach this Agreement, then Ryder may send
you a notice of default. You will have 7 days from the date that Ryder sends
you the default notice to cure the default.
B. REPOSSESSION. If you fail to cure a default as required by Paragraph
15A, then Ryder may immediately take possession of any or all of the Vehicles
and Substitute Vehicles wherever they may be located, without prejudice to
Ryder's other remedies under this Agreement, at law, or in equity. Ryder will
not send you any further demand or notice before Ryder repossesses the Vehicles
and Substitute Vehicles and will be entitled to enter any premises to remove
them.
(1) Liability for Charges. Repossession of the Vehicles will not
automatically terminate the Agreement. You agree to continue to be liable for
all charges that accrue during the period that Ryder retains the Vehicles.
(2) Property in a Vehicle at the Time of Repossession. If at the time that
Ryder repossesses a Vehicle there is property in that Vehicle, then Ryder will
either hold that property until you claim it or will place it in public storage
at your sole risk and expense. If you do not claim the property within 60 days
of the repossession, we may elect to donate it to a charity, sell it or destroy
it, in our sole judgment.
C. TERMINATION OF THE AGREEMENT AND PURCHASE OF THE VEHICLES. If you fail
to cure a default as required by Paragraph 15A, Ryder may terminate ???
Agreement as to any or all of the Vehicles. Once Ryder terminates this
Agreement, Ryder may require you to purchase any or all of the terminated
Vehicles by sending you a demand, without prejudice to Ryder's other remedies
under this Agreement, at law, or in equity. You agree to purchase all of those
terminated Vehicles designated by Ryder within 10 days of the date of Ryder's
demand at a purchase price established by Paragraph 16A.
D. ATTORNEYS FEES. If Ryder takes any action to enforce any of Ryder's
rights under this Agreement or to collect amounts owed to Ryder by you, you
agree to pay all of Ryder's costs and expenses in doing so. These costs will
include, but not be limited to, Ryder's reasonable attorneys' fees at both the
????? and appellate level, and fees and costs paid to any collection agency.
F. DEFAULT UNDER A RENTAL AGREEMENT. If you are in default under any rental
agreement with Ryder, you will also be in default under this Agreement. If you
are in default under this Agreement, you will also be in default under any
rental agreement with Ryder.
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16. VEHICLE PURCHASES
A. VEHICLE PURCHASE PRICE AND PROCEDURES. If you are required or elect to
purchase a Vehicle under this Agreement, the purchase price will be equal to its
Schedule A Value plus any sales or use tax resulting from the sale. You agree to
also pay Ryder on the purchase date any outstanding charges you ???. You agree
to pay Ryder in cash or by certified cashier's check on the date provided in
this Agreement. Each Vehicle will be purchased "as is, where is" without any
warranties or representations on Ryder's part.
B. FAILURE TO PURCHASE A VEHICLE. If you fail to purchase a Vehicle when
required to do so, Ryder may, at Ryder's option, obtain 3 wholesale bids ???
willing and able buyers for cash for each Vehicle and will compare the highest
bid for that Vehicle to its Schedule A Value. If the highest bid for a Vehicle
is less than its Schedule A Value, then you agree to pay Ryder the difference
between the highest bid and the Vehicle's Schedule A Value in cash within ???
days of the date of Ryder's demand, in lieu of your obligation to purchase that
Vehicle, but otherwise without prejudice to Ryder's other remedies under ???
Agreement, at law, or in equity. Ryder will have no obligation to actually sell
the Vehicle to the highest bidder.
C. EXPIRATION OF THE LEASE TERM. You will have no right or obligation to
purchase a Vehicle when its full lease term expires.
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17. MISCELLANEOUS PROVISIONS
A. ASSIGNMENT OF LEASE. This Agreement will be binding on both of us, and
both our successors, legal representatives, and permitted assigns. YOU DO NOT
HAVE THE RIGHT TO SUBLEASE ANY OF THE VEHICLES, NOR THE RIGHT TO ASSIGN THIS
AGREEMENT OR ANY INTEREST UNDER THIS AGREEMENT WITHOUT RYDER'S PRIOR WRITTEN
CONSENT. ANY ATTEMPT TO DO SO WILL BE VOID. Unless Ryder expressly releases you
from your obligations in Ryder's consent to the assignment or sublease, you
agree to remain liable for all your and the assignee's or sublessee's
obligations under this Agreement.
B. CHANGES IN OWNERSHIP OR SALES OF ASSETS. Before you change ownership or
dispose of a substantial amount of your assets, you agree to promptly notify
Ryder in writing.
C. FORCE MAJEURE AND CHARGES. Ryder will not be liable to you if Ryder is
prevented from performing under this Agreement by any present or future cause
beyond Ryder's control. These causes include, but are not limited to, Acts of
God, national emergencies, wars, riots, fires, labor disputes, federal, state,
or local laws, rules or regulations, shortages (local or national), or fuel
allocation programs. Even if Ryder is unable to perform, your obligations under
this Agreement will continue. Except for the lease charges listed on Schedule A,
all charges for goods or services under this Agreement, including any services
subcontracted by Ryder, will be billed per Ryder's retail sales and service
procedures and charges then in effect.
D. WAIVER OF CONSEQUENTIAL DAMAGES/LOST PROFITS. YOU WAIVE AND RELEASE
RYDER FROM ANY AND ALL CLAIMS OR LIABILITY FOR ANY AND ALL INDIRECT, INCIDENTAL,
SPECIAL OR CONSEQUENTIAL DAMAGES, INCLUDING, BUT NOT LIMITED TO, LOST PROFITS.
<PAGE> 6
SECURITY DEPOSIT AGREEMENT (New TLSA Form)
_________________________________________
THIS SECURITY DEPOSIT AGREEMENT (the "Security Deposit Agreement") is made as of
the ____ day of ___________________ 1998, by and between RYDER TRUCK RENTAL,
INC. ("Ryder") and THE DELICIOUS FROOKIE COMPANY, INC. whose address is 2720
River Road, Suite 126, Des Plaines, IL 60018 ("Customer").
W I T N E S S E T H:
WHEREAS, Customer desires to: (1) lease vehicles from Ryder pursuant to a
Truck Lease and Service Agreement (a "TLSA"), and/or (ii) have Ryder maintain
Customer's vehicles pursuant to a Programmed Maintenance Agreement (an "RPM"),
and/or (iii) have Ryder perform maintenance services on any of Customer's
vehicles on an as needed basis (a "Sales and Service Arrangement"), and/or (iv)
rent vehicles from Ryder (from time to time) pursuant to any form of rental
agreement (a "Rental Agreement"), and/or (v) have Ryder sell vehicles to
Customer (from time to time) (a "Vehicle Sales Arrangement"); and
WHEREAS, Ryder desires to lease, maintain, rent and/or sell vehicles to
Customer pursuant to a TLSA, an RPM, a Sales and Service Arrangement, a Rental
Agreement, and/or a Vehicle Sales Arrangement (collectively, the "Agreements");
and
WHEREAS, Ryder requires a security deposit to ensure the full and faithful
performance of Customer's obligations under the Agreements.
NOW, THEREFORE, for and in consideration of the premises and the
undertakings hereinafter set forth, and other good and valuable consideration,
the receipt and sufficiency of which is hereby acknowledged, and in order to
induce Ryder to enter into an Agreement, the parties agree as follows:
1. Customer agrees to deposit $30,000.00 with Ryder to be held by
Ryder as security for the full and faithful performance of all of Customer's
obligations under the Agreements (the "Security Deposit"). Customer hereby
grants to Ryder a security interest in, a general lien on, and a right of
recoupment against, the Security Deposit. In the event of any default under any
of the Agreements, Ryder shall have the right, without further notice or demand,
to immediately recoup the Security Deposit against any amounts then due Ryder.
In the event of any such recoupment, Customer agrees to immediately restore the
Security Deposit to the original amount stated above. If you fail to do so, your
failure shall be a breach of the Agreement, in which case, Paragraphs 15 and 16
of the Agreement shall immediately become applicable.
2. Customer acknowledges and agrees that the Security Deposit is
made in the ordinary course of Customer's business, and that the Security
Deposit is not a transfer made on account of any antecedent debt.
3. Ryder agrees to pay Customer interest on the Security Deposit at
an annual interest rate equal to the one (1) year Certificate of Deposit rate as
is published by The Wall Street Journal (the "Rate") on January 1 (or the first
business day thereafter) if this Security Deposit Agreement is executed between
January 1 and June 30 of a given year, and on July 1 (or the first business day
thereafter) if this Security Deposit Agreement is executed between July 1 and
December 31 of a given year. The Rate shall be reset on each subsequent
anniversary date of the date of this Security Deposit Agreement based upon the
Rate published on the preceding January 1 (or the first business day thereafter)
if this Security Deposit Agreement was executed between January 1 and June 30 of
a given year, and on the preceding July 1 (or the first business day thereafter)
if this Security Deposit Agreement was executed between July 1 and December 31
of a given year. Notwithstanding anything to the contrary contained herein,
Customer shall not be entitled to receive any such interest if Customer has, at
any time, been in default of any of its obligations pursuant to any Agreement,
including, but not limited to, Customer's non-compliance with the payment terms
of any of the Agreements.
4. If the number of vehicles leased, maintained, rented or sold
under any Agreement are increased after the date of this Security Deposit
Agreement, then Customer acknowledges that an additional Security Deposit may be
required, and Customer agrees, upon Ryder's request, to deposit the additional
requested amount with Ryder.
5. The parties agree that the Security Deposit is for the sole
purpose of ensuring Customer's full and faithful performance under the
Agreements.
6. The parties further agree that Ryder may, at its sole option, on
an anniversary date of any of the Agreements, refund in full or in part, the
Security Deposit if (i) Customer provides Ryder with financial information,
which, in Ryder's sole judgement, is satisfactory to eliminate the need for all
or a portion of the Security Deposit, and (ii) Customer has at all times
remained in full compliance with the term of all of the Agreements.
IN WITNESS WHEREOF, the parties have executed this Security Deposit
Agreement as of the day and year first above written.
RYDER TRUCK RENTAL, INC. THE DELICIOUS FROOKIE COMPANY, INC.
("Ryder") ("Customer")
___________________________________ ___________________________________
Name: Name:
Title: Title:
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Prospectus constituting part of this
Registration Statement on Form S-1 of our report dated January 22, 1998,
relating to the financial statements of The Delicious Frookie Company, Inc. and
our report dated March 24, 1998, relating to the financial statements of Salerno
Foods, L.L.C., which appears in such Prospectus. We also consent to the
references to us under the heading "Experts".
/s/ Altschuler, Melvoin and Glasser LLP
---------------------------------------
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
April 22, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Form S-1 Registration Statement of our
report dated March 5, 1997 on our audit of the financial statements of Salerno
Foods, L.L.C. as of December 31, 1996 and for the period January 23, 1996 (Date
of Inception) through December 31, 1996. We also consent to the references to
our firm under the heading "Experts" in this S-1 Registration Statement.
/s/ FRIEDMAN EISENSTEIN RAEMER AND SCHWARTZ, LLP
FRIEDMAN EISENSTEIN RAEMER AND SCHWARTZ, LLP
Chicago, Illinois
Dated: April 22, 1998
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Prospectus constituting part of
this Registration Statement on Form S-1 of our report dated July 18, 1996,
relating to the financial statements of The Delicious Frookie Company, Inc.,
which appears in such Prospectus. We also consent to the references to us under
the heading "Experts".
/s/ Cooper, Selvin & Strassberg, LLP
Cooper, Selvin & Strassberg, LLP
Great Neck, New York
April 22, 1998
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