<PAGE> 1
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JULY 28, 1998
REGISTRATION NO. 333-50771
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
------------------------
AMENDMENT NO. 1
TO
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
------------------------
DELICIOUS BRANDS, 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
DELICIOUS BRANDS, 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:
<TABLE>
<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
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------------
TITLE OF EACH CLASS OF SECURITIES PROPOSED MAXIMUM AMOUNT OF
TO BE REGISTERED AGGREGATE OFFERING PRICE REGISTRATION FEE
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.01 par value ("Common Stock")(1)........... $31,740,000.00(2) 9,363.30
- -------------------------------------------------------------------------------------------------------------------------------
Representative's Warrant to purchase Common Stock........... 230.00 (3)
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Common Stock underlying Representative's Warrant(4)......... 3,312,000.00 977.04
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock(5)............................................. 6,504,000.00(2) 1,918.68
- -------------------------------------------------------------------------------------------------------------------------------
Common Stock(6)(7).......................................... 6,000,000.00(2) 1,770.00
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Total....................................................... 14,029.02(8)
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</TABLE>
(1) Includes shares to be sold by certain selling stockholders and shares of
Common Stock to be sold upon exercise of the Underwriters' over-allotment
option.
(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.
(8) Of which $12,519.36 was paid with the initial filing of this Registration
Statement and $1,509.66 is being paid with this Amendment No. 1 to
Registration Statement.
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 Registrant was formerly known as The Delicious Frookie Company, Inc. and
initially filed this Registration Statement under such name.
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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) 2,100,000 shares of the Registrant's Common Stock to be
sold by the Registrant and (ii) 200,000 shares of the Registrant's Common Stock
to be sold by certain Selling Stockholders, as well as 345,000 additional shares
that may be sold upon exercise of the Underwriters' over-allotment option (of
which up to 282,500 shares may be sold by the Company and up to 62,500 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 1,042,000 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 47 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-42 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 JULY 28, 1998
2,300,000 SHARES
[DELICIOUS BRANDS LOGO]
COMMON STOCK
Of the 2,300,000 shares of common stock, $.01 par value per share (the
"Common Stock"), of Delicious Brands, Inc., a Delaware corporation (the
"Company"), offered hereby, 2,100,000 shares are being sold by the Company and
200,000 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 $10.00 and $12.00 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 "DBSI" and has
applied for listing of the Common Stock on the Chicago Stock Exchange under the
symbol "DBI".
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.
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
- -------------------------------------------------------------------------------------------------------------------------
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO PROCEEDS TO SELLING
PUBLIC COMMISSIONS(1) COMPANY(2) STOCKHOLDERS(2)
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Per Share................ $ $ $ $
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Total(3)................. $ $ $ $
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</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 $759,000 (at an assumed initial public
offering price of $11.00 per share) to be paid on a pro rata basis by the
Company and the Selling Stockholders ($872,850 if the over-allotment option
is exercised in full) and (ii) warrants to purchase an aggregate of 230,000
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 345,000 shares of Common Stock
(282,500 shares by the Company and 62,500 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 Delicious Brands,
Inc. and its predecessors. Unless otherwise indicated, all information contained
in this Prospectus gives effect to (i) 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 and (ii) a 1-for-2 reverse
stock split effected on July 14, 1998 (decreasing the number of issued and
outstanding shares from 6,565,656 to 3,282,842). 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
Delicious Brands, 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 and the three months ended March 31, 1998, the Company had Pro
Forma net sales of approximately $70 million and $15.4 million, respectively.
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
3
<PAGE> 6
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 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
4
<PAGE> 7
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 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
<TABLE>
<S> <C>
Common Stock offered by the Company......... 2,100,000 shares
Common Stock offered by the Selling
Stockholders.............................. 200,000 shares
Common Stock to be outstanding after
the offering.............................. 5,382,842 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...... "DBSI"
Proposed Chicago Stock Exchange symbol...... "DBI"
</TABLE>
- ---------------
(1) All references in this Prospectus to the number of shares of Common Stock
outstanding do not include (i) 500,000 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 282,500 shares
of Common Stock have been granted; (ii) 625,000 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
157,285 shares of Common Stock have been granted; (iii) 75,000 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 49,000 shares of Common Stock have been granted;
(iv) 443,750 shares of Common Stock reserved for issuance upon exercise of
other outstanding options; (v) 190,188 shares of Common Stock reserved for
issuance upon exercise of outstanding common stock purchase warrants to
purchase such shares of Common Stock; (vi) 245,000 shares of Common Stock
reserved for issuance upon conversion of the 245,000 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 $1.96
million, on August , 1998; (vii) 282,500 shares of Common Stock to be sold
by the Company reserved for issuance upon exercise of the Underwriters'
over-allotment option; and (viii) 230,000 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 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 statement of operations data for the three months ended March
31, 1997 and 1998 and the balance sheet data as of March 31, 1998 are derived
from the Company's unaudited financial statements. The unaudited financial
statements have been prepared by the Company on a basis consistent with the
Company's audited financial statements and include, in the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for a fair presentation of the information set forth therein. 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>
THREE MONTHS ENDED
MARCH 31,
YEAR ENDED DECEMBER 31, ---------------------------
--------------------------------------------------------------------- PRO FORMA
PRO FORMA ---------
1993 1994(1) 1995 1996 1997 1997 1997 1998 1998
--------- --------- --------- --------- --------- --------- ------ ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales................... $ 15,856 $ 50,823 $ 52,722 $ 36,848 $ 30,665 $ 69,812 $7,080 $6,492 $15,401
Gross profit................ 5,152 13,242 10,469 7,011 5,472 16,206 1,421 1,211 3,966
Restructuring charge(2)..... -- -- -- -- 1,548 1,548 -- -- --
Income (loss) from
operations................ 697 296 (5,857) (492) (2,947) (3,766) (86) (306) (271)
Net income (loss)........... 543 (493) (6,955) (898) (3,398) (5,333) (176) (408) (823)
Earnings (loss) per share... $ 0.26 $ (0.20) $ (2.57) $ (0.32) $ (1.16) $ (1.74) $(0.06) $(0.13) $ (0.25)
Weighted average number of
common shares
outstanding............... 2,087 2,405 2,704 2,814 2,934 3,074 2,928 3,227 3,283
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31, 1998
-----------------------------------------
PRO FORMA
ACTUAL PRO FORMA(3) AS ADJUSTED(4)
------- ------------ --------------
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit)................................... $(4,062) $(11,030) $ 8,556
Total assets................................................ 7,430 19,412 26,898
Long-term debt.............................................. 1,960 1,960 --
Stockholders' equity (deficit).............................. (4,499) (4,499) 17,047
</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 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 245,000 shares
of Series A Preferred Stock on August , 1998 and (ii) the receipt by the
Company of estimated net proceeds from the sale of 2,100,000 shares of
Common Stock offered hereby at an assumed initial public offering price of
$11.00 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 March 31, 1998, the Company had a Pro Forma stockholders' deficit of
$4.5 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
and $0.8 million for the year ended December 31, 1997 and the three months ended
March 31, 1998, respectively. 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,
7
<PAGE> 10
complete acquisitions or integrate acquired businesses into its operations. The
outstanding indebtedness under 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 that expire on December 31, 2001 and on December 31,
1999, respectively. The loss of the services of
8
<PAGE> 11
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 March 31, 1998
were $6.3 million. Of the Company's Pro Forma gross accounts receivable at March
31, 1998, approximately $3.1 million, or 49%, 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 and the three months ended March
31, 1998, 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 62.7% ($12.6 million) of the net proceeds to be received by
the Company in this offering have been allocated to the repayment of
indebtedness and related fees and trade payables. In addition, the balance of
approximately 37.3% ($7.5 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."
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."
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.
9
<PAGE> 12
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 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
10
<PAGE> 13
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 5,382,842 shares
of Common Stock outstanding. All of the 2,300,000 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 3,082,842 (3,020,342 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, 2,035,842 shares
are currently eligible for sale under Rule 144, subject however, to any
applicable requirements of Rule 144, and 62,500 of these shares may be sold in
this offering by the Selling Stockholders if the Underwriters' over-allotment
option is exercised in full. 1,042,000 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 2,500 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 88.5% of their investment in
the Common Stock because the net tangible book value of the Common Stock after
the offering will be approximately $1.27 per share as compared with the assumed
initial public offering price of $11.00 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 1,597,723 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
11
<PAGE> 14
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 245,000 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
1,011,000 shares of Common Stock (the "Trust Shares"), or 30.8% of the
outstanding Common Stock (18.8% 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 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."
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<PAGE> 15
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 2,100,000 shares of
Common Stock offered by the Company hereby (at an assumed initial public
offering price of $11.00 per share) are estimated to be approximately $20.1
million (approximately $22.9 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 $5.05 million of the net proceeds
to repay indebtedness ($4.6 million) incurred to pay a portion of the purchase
price for the Salerno Acquisition, interest accrued thereon and related fees.
Such indebtedness bears interest at a rate of 12% per annum through August 3,
1998 and 15% per annum thereafter and matures on the earlier of (i) October 16,
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 related fees of $150,000 do not bear interest and are payable
contemporaneously with the aforementioned indebtedness. The Company expects to
use approximately $555,000 of the net proceeds to repay the Acquisition Loan
($500,000), interest accrued thereon and related fees 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) October
31, 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 related
fees of $25,000 do not bear interest and are payable contemporaneously with the
Acquisition Loan. 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 (8.5% at March 31, 1998). The Company expects to use the
balance of the net proceeds, approximately $7.5 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 March
31, 1998, based on 3,282,842 shares of Common Stock outstanding, the Company had
a net tangible book value (deficit), as adjusted to reflect the Salerno
Acquisition, of $(13.2 million), or $(4.03) per share of Common Stock. After
giving effect to the sale of the 2,100,000 shares of Common Stock offered by the
Company hereby (at an assumed initial public offering price of $11.00 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 $6.9 million, or $1.27 per share. This represents an immediate
increase in pro forma net tangible book value of $5.30 per share to existing
stockholders and an immediate dilution in pro forma net tangible book value of
$9.73 per share or approximately 88.5% 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............. $11.00
Pro Forma net tangible book value (deficit) per share as
of March 31, 1998 before the offering.................. $(4.03)
Increase in Pro Forma net tangible book value per share
attributable to new investors.......................... 5.30
------
Pro Forma net tangible book value per share as of March 31,
1998 giving effect to the offering........................ 1.27
------
Dilution per share to new investors......................... $ 9.73
======
</TABLE>
The following table summarizes, as of March 31, 1998, 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.......... 3,282,842 61% $ 8,349,459 27% $ 2.54
New investors.................. 2,100,000 39 23,100,000 73 11.00
--------- --- ----------- -----
Total................ 5,382,842 100% $31,449,459 100%
========= === =========== =====
</TABLE>
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<PAGE> 18
CAPITALIZATION
The following table sets forth the total capitalization of the Company at
March 31, 1998, (i) actual, (ii) pro forma to give effect to the Salerno
Acquisition and (iii) pro forma as adjusted to give effect to the exchange of
the 9% Notes for 245,000 shares of Series A Preferred Stock and the sale of
2,100,000 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 $11.00 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 MARCH 31, 1998
------------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
---------- ----------- -------------
(IN THOUSANDS, EXCEPT SHARE INFORMATION)
<S> <C> <C> <C>
Short-term debt........................................... $ 1,838 $ 9,841 $ 1,741
======== ======== ========
Long-term debt............................................ $ 1,960 $ 1,960 $ --
Stockholders' equity (deficit):
Preferred Stock $.01 par value; 755,000 shares
authorized, no shares issued and outstanding......... -- -- --
Series A Convertible Preferred Stock, $.01 par value;
245,000 shares authorized; no shares issued and
outstanding actual, pro forma; 245,000 shares issued
and outstanding pro forma as adjusted liquidation
value $1,960......................................... -- -- 2
Common Stock, $.01 par value; 25,000,000 shares
authorized; 3,282,842 shares issued and outstanding,
actual and pro forma; 5,382,842 shares issued and
outstanding pro forma, as adjusted................... 33 33 54
Additional paid-in capital.............................. 7,505 7,505 29,532
Accumulated deficit..................................... (12,037) (12,037) (12,541)
-------- -------- --------
Total stockholders' equity (deficit)................. (4,499) (4,499) 17,047
-------- -------- --------
Total capitalization............................ $ (2,539) $ (2,539) $ 17,047
======== ======== ========
</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 statement of operations data for the three
months ended March 31, 1997 and 1998 and the balance sheet data as of March 31,
1998 are derived from the Company's unaudited financial statements. The
unaudited financial statements have been prepared by the Company on a basis
consistent with the Company's audited financial statements and include, in the
opinion of management, all adjustments (consisting of normal recurring
adjustments) necessary for a fair presentation of the information set forth
therein. The historical results are not necessarily indicative of the results of
operations to be expected in the future.
<TABLE>
<CAPTION>
THREE MONTHS
YEAR ENDED DECEMBER 31, ENDED MARCH 31,
------------------------------------------------- ---------------
1993 1994(1) 1995 1996 1997 1997 1998
------- ------- ------- ------- ------- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Net sales..................... $15,856 $50,823 $52,722 $36,848 $30,665 $7,080 $6,492
Cost of sales................. 10,704 37,581 42,253 29,837 25,193 5,659 5,281
------- ------- ------- ------- ------- ------ ------
Gross profit.................. 5,152 13,242 10,469 7,011 5,472 1,421 1,211
Operating expenses:
Promotion and selling....... 3,060 10,559 12,381 3,172 3,932 790 698
General and
administrative........... 1,395 2,387 3,945 4,331 2,939 717 819
Restructuring charge(2)..... -- -- -- -- 1,548 -- --
------- ------- ------- ------- ------- ------ ------
Income (loss) from
operations.................. 697 296 (5,857) (492) (2,947) (86) (306)
Other (income) expense:
Interest expense............ (63) (269) (597) (409) (417) (90) (113)
Other, net.................. 17 151 161 3 (34) -- 11
------- ------- ------- ------- ------- ------ ------
Income (loss) before provision
for income taxes............ 651 178 (6,293) (898) (3,398) (176) (408)
Provision for income taxes.... 247 86 662 -- -- -- --
------- ------- ------- ------- ------- ------ ------
Income (loss) before
cumulative effect of change
in accounting principle..... 404 92 (6,955) (898) (3,398) (176) (408)
Cumulative effect of change in
accounting principle........ 139(3) (585)(4) -- -- -- -- --
------- ------- ------- ------- ------- ------ ------
Net income (loss)............. $ 543 $ (493) $(6,955) $ (898) $(3,398) $ (176) $ (408)
======= ======= ======= ======= ======= ====== ======
Earnings (loss) per share..... $ 0.26 $ (0.20) $ (2.57) $ (0.32) $ (1.16) $(0.06) $(0.13)
======= ======= ======= ======= ======= ====== ======
Weighted average number of
common shares outstanding... 2,087 2,405 2,704 2,814 2,934 2,928 3,227
</TABLE>
17
<PAGE> 20
<TABLE>
<CAPTION>
AS OF DECEMBER 31,
---------------------------------------------- AS OF
1993 1994(1) 1995 1996 1997 MARCH 31, 1998
------ ------- ------- ------- ------- --------------
<S> <C> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (deficit).......... $ (186) $ 3,163 $(2,870) $(2,451) $(4,363) $(4,062)
Total assets....................... 2,988 11,701 9,719 7,592 6,487 7,430
Long-term debt, excluding current
portion......................... -- 3,428 2,151 2,110 1,960 1,960
Stockholders' equity (deficit)..... 971 4,258 (2,798) (2,349) (4,788) (4,499)
</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
March 31, 1998, and results of operations and cash flows for each of the years
ended December 31, 1995, 1996 and 1997 and the three months ended March 31, 1997
and 1998. 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
250,000 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.
Prior to January 23, 1996, the Salerno and Mama's brands were owned by
Sunshine Biscuits, Inc. ("Sunshine"), the manufacturer and distributor of the
nationally advertised Sunshine brand cookies and crackers. Sunshine manufactured
the Salerno and Mama's brands and marketed and distributed them on a regional
basis along with its nationally advertised products using shared sales,
marketing, finance and administrative resources. On January 23, 1996, Salerno
Foods L.L.C. purchased the Salerno and Mama's brands and related formulations
from Sunshine, leased an independent facility, established relationships with
co-packers to manufacture products and recruited staff for sales, marketing,
finance and distribution and began operations in a manner substantially
different than Sunshine.
The financial statements of Salerno Foods L.L.C. for the period January 23,
1996 through December 31, 1996 and the year ended December 31, 1997 are included
in this Prospectus. There was not sufficient continuity between the operations
by Sunshine prior to the acquisition and the operations by Salerno Foods L.L.C.
and the Company thereafter. The disclosure of prior financial information would
not be meaningful to the understanding of the Company's operations, accordingly,
financial information prior to January 23, 1996 has not been presented.
19
<PAGE> 22
RESULTS OF OPERATIONS
Three Months Ended March 31, 1998 Compared with Three Months Ended March 31,
1997
Net Sales. Net sales decreased 8.3% to $6.5 million for the three months
ended March 31, 1998 from $7.1 million for the three months ended March 31,
1997. The reduction in sales is primarily related to a $400,000 decline in
Frookie sales as marketing and promotion efforts were reduced in anticipation of
the introduction of a new reformulated Frookie product line during 1998.
Gross Profit. Gross profit decreased 14.8% to $1.2 million for the three
months ended March 31, 1998 from $1.4 million for the three months ended March
31, 1997. Gross profit as a percentage of sales decreased from 20.1% in 1997 to
18.7% in 1998. The decline was caused by lower sales in higher margin Frookie
products discussed above.
Promotion and Selling. Promotion and selling expense decreased 11.7% to
$698,000 for the three months ended March 31, 1998 from $791,000 for the three
months ended March 31, 1997. The reduction in promotion and selling expense was
a result of reduced Frookie marketing and promoting efforts discussed above.
General and Administrative. General and administrative expenses increased
14.3% to $819,000 for the three months ended March 31, 1998 from $717,000 for
the three months ended March 31, 1997. The increase was primarily due to a
$115,000 increase in personnel and travel and entertainment expense.
Net Loss. Net loss increased to $408,000 for the three months ended March
31, 1998 from a net loss of $176,000 for the three months ended March 31, 1997,
as a result of the factors discussed above.
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.
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.
20
<PAGE> 23
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 March 31, 1998, the Company had accumulated a working
capital deficit of $4.1 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
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 224,528 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 87,500 shares of Common
Stock and a maximum of 350,000 shares of Common Stock (the "October Private
Placement"). At the First Closing, the Company issued an aggregate of 210,000
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 140,000 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.
21
<PAGE> 24
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) October 31, 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 $6.00. The Company expects to repay the Acquisition Loan, interest
accrued thereon and related fees 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 (8.5% at March 31,
1998). 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"), bearing interest at a rate of 12% per annum, 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, bearing interest at a rate of 12% per annum
through August 3, 1998 and 15% per annum thereafter, 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 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 matures on the earlier of (i) October 16, 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 of the Company. 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, interest accrued thereon and related fees with a portion of the net
proceeds of this offering. See "Use of Proceeds."
On August , 1998, holders of the 9% Notes in the aggregate principal
amount $2.0 million exchanged such notes for an aggregate of 245,000 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 and the three months ended March 31, 1998, the
Company had Pro Forma net sales of approximately $70 million and $15.4 million,
respectively.
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
Delicious Brands, Inc. (f/k/a The Delicious Frookie Company,
Inc.) .................................................... 37
Entenmanns (Bestfoods)...................................... 31
Salerno Foods, L.L.C. ...................................... 30
</TABLE>
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
23
<PAGE> 26
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 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.
24
<PAGE> 27
- 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.
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 1998. The Company distributes its Co-Branded product line
primarily to leading supermarkets. The Company has
25
<PAGE> 28
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 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
26
<PAGE> 29
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 three-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 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.
27
<PAGE> 30
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 June 30, 1998, the Company had 110 full-time employees, 23 of which
are represented by Teamsters Local 734. The Company's collective bargaining
agreements with Teamsters Local 734 expires on May 12, 2001. The Company
believes its relations with its employees to be good.
PROPERTIES
The Company's headquarters is located in 73,600 square feet of leased
office and warehouse space in Des Plaines, Illinois. The Company's annual rent
is approximately $438,000. The Company's lease expires May 31, 2003.
LEGAL PROCEEDINGS
The Company is not currently involved in any 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> 31
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 and its Secretary since October 1997. 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> 32
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
1,500 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) 90,000 -- 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
$3,000.
(3) Consists of a payout of accrued vacation time.
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<PAGE> 33
(4) Mr. Worth resigned as Chairman of the Board and Chief Executive Officer of
the Company effective August 13, 1997.
(5) Consists of automobile and insurance expenses.
OPTION GRANTS TABLE
The following table sets forth certain information regarding stock option
grants made to each of the Named Executive Officers during the year ended
December 31, 1997.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
POTENTIAL REALIZABLE
VALUE AT ASSUMED
INDIVIDUAL GRANTS RATES OF ANNUAL
------------------------------------------------------------------ STOCK PRICE
PERCENT OF TOTAL APPRECIATION FOR
NUMBER OF SECURITIES OPTIONS GRANTED EXERCISE OR OPTION TERM(1)
UNDERLYING OPTIONS TO EMPLOYEES IN BASE PRICE EXPIRATION ---------------------
NAME GRANTED(#) FISCAL YEAR(%) ($/SH) DATE 5%($) 10%($)
---- -------------------- ---------------- ----------- ---------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Michael J. Kirby.......... 90,000 74 6.00- 3/11/08 -- 290,000
24.00(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) 25,000 shares of Common Stock
at an exercise price of $6.00 per share, (ii) 50,000 shares of Common Stock
at an exercise price of $12.00 per share and (iii) 15,000 shares of Common
Stock at an exercise price of $24.00 per share.
AGGREGATED OPTION EXERCISES AND YEAR-END OPTION VALUES TABLE
No stock options were exercised by the Named Executive Officers during the
year ended December 31, 1997. The following table sets forth certain information
regarding unexercised options held by each of the Named Executive Officers at
December 31, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES VALUE OF UNEXERCISED
UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
OPTIONS HELD AT AT DECEMBER 31,
DECEMBER 31, 1997(#) 1997($)(1)
---------------------------- ----------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Michael J. Kirby........................... 25,000 65,000 125,000 --
Jeffry W. Weiner........................... 75,000 -- 375,000 --
Richard S. Worth........................... 257,750 -- 1,939,350 --
</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
$11.00 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, commencing as
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<PAGE> 34
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 90,000 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
75,000 shares of Common Stock at an exercise price of $6.00 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> 35
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 625,000 shares of Common Stock and 500,000 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 75,000 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.
33
<PAGE> 36
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 1,500 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 1,500 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 157,285, 282,500 and
49,000 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 443,750 shares that were not issued pursuant to the Option Plans or the
Formula Plan. The Company has agreed not to issue any additional options under
the 1989 Plan and to issue options to purchase no more than up to an additional
200,000 shares of Common Stock under the 1995 Plan. The Company has agreed that
the exercise price of any options issued within three years under the 1995 Plan
after the date of this Prospectus will not be less than the greater of (i) the
initial public offering price set forth on the cover page of this Prospectus or
(ii) the market price per share of Common Stock on the date of grant. The
Company is seeking stockholder approval to amend the 1989 Plan to reduce the
number of shares covered by the 1989 Plan to the number of shares underlying
currently outstanding options under such plan (157,285 shares) and to prohibit
the granting of options at an exercise price below the market price per share of
Common Stock on the date of grant. The Company is also seeking stockholder
approval to amend the 1995 Plan to reduce the number of shares covered by the
1995 Plan to 482,500 shares and to prohibit the granting of options at an
exercise price below the market price per share of Common Stock on the date of
grant.
34
<PAGE> 37
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
250,000 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 1,011,000 Trust Shares, or 30.8% of the
outstanding Common Stock (18.8% 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 August , 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 6,250, 6,250, 16,250 and
24,500 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.
35
<PAGE> 38
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)........................... 25,000 * *
Jeffry W. Weiner(4)........................... 75,000 2.2 1.4
Donald C. Schmitt(5).......................... 103,750 3.1 1.9
Jay G. Shoemaker(6)........................... 500 * *
John H. Wyant(7).............................. 25,500 * *
Edward Sousa(8)............................... 1,011,000 30.8 18.8
Richard S. Worth(8)(9)(10).................... 774,500 21.8 13.7
1497 Rail Head Blvd., Unit 2
Naples, Florida 74110-8444
Randye Worth(8)(9)(11)........................ 568,000 17.0 10.4
3757 Ascot Bend Court
Bonita Springs, Florida 34134
Robert L. Moody, Jr.(12)...................... 203,419 6.2 3.8
2302 Post office, Suite 601
Galveston, Texas 77550
Swiss Bank Corp............................... 210,000 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).................. 1,255,750 35.9 22.4
</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 25,000 shares of Common Stock issuable upon exercise of options
exercisable through August 11, 2008, at a price of $6.00 per share.
Excludes 65,000 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 $12.00 to $24.00 per share.
(4) Consists of (i) 50,000 shares of Common Stock issuable upon exercise of
options exercisable through March 18, 2001, at a price of $6.00 per share
and (ii) 25,000 shares of Common Stock issuable upon exercise of options
exercisable through March 14, 2003, at a price of $6.00 per share.
(5) Includes (i) 250 shares of Common Stock issuable upon exercise of options
exercisable through February 21, 1999, at a price of $1.60 per share; (ii)
25,000 shares of Common Stock, issuable upon exercise of options
exercisable through November 8, 2004, at a price of $6.00 per share; (iii)
36,750 shares of Common Stock issuable upon exercise of options exercisable
through August 4, 2004 with respect to 6,500 shares, through December 31,
2004 with respect to 1,500 shares, through December 31, 2005 with respect
to 1,500 shares, through December 31, 2006 with respect to
36
<PAGE> 39
1,500 shares, through December 17, 2007 with respect to 25,000 shares and
through December 31, 2007 with respect to 750 shares, all at a price of
$6.00 per share; (iv) 13,000 shares of Common Stock issuable upon exercise
of warrants exercisable through April 27, 2001, at a price of $4.00 per
share, of which warrants to purchase 4,000 shares of Common Stock are held
by an individual retirement account ("IRA") for the benefit of Mr. Schmitt,
warrants to purchase 5,000 shares of Common Stock are held by Mr. Schmitt
together with his wife and 4,000 shares are held by an IRA for the benefit
of Mr. Schmitt's wife, of which shares Mr. Schmitt disclaims beneficial
ownership; and (v) 16,250 shares of Common Stock issuable upon conversion
of 16,250 shares of Series A Preferred Stock, which automatically convert
on August , 2001 if not earlier converted, of which 5,000 shares of
Series A Preferred Stock are held by an IRA for the benefit of Mr. Schmitt,
6,250 shares of Series A Preferred Stock are held by Mr. Schmitt together
with his wife and 5,000 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) 750 shares of Common Stock
exercisable upon exercise of options not exercisable currently or within 60
days of the date of this Prospectus; (ii) 40,750 shares of Common Stock
held by Donald Schmitt's adult children, of which shares Mr. Schmitt
disclaims beneficial ownership; (iii) 19,600 shares of Common Stock
issuable upon exercise of warrants exercisable through April 27, 2001, at a
price of $4.00 per share, held by Mr. Schmitt's adult children and his
mother, of which shares Mr. Schmitt disclaims beneficial ownership; and
(iv) 24,500 shares of Common Stock issuable upon conversion of 24,500
shares of Series A Preferred Stock, which automatically convert on August
, 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 500 shares of Common Stock issuable upon exercise of options
exercisable through December 21, 2007, at a price of $6.00 per share.
Excludes 1,000 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 $6.00 per share.
(7) Consists of (i) 6,250 shares of Common Stock issuable upon exercise of
options exercisable through December 9, 2000, at a price of $2.80 per
share; (ii) 10,000 shares of Common Stock issuable upon exercise of options
exercisable through December 21, 1999, at a price of $.40 per share; and
(iii) 9,250 shares of Common Stock issuable upon exercise of options
exercisable through August 14, 2004 with respect to 6,500 shares, through
December 31, 2004 with respect to 1,500 shares, through December 31, 2005
with respect to 750 shares and through December 21, 2007 with respect to
500 shares, all at a price of $6.00 per share. Excludes 1,000 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 $6.00 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 157,500 shares of Common Stock to private investors
(together with an aggregate of 34,500 shares of Common Stock sold by the
Worths on March 31, 1998 to private investors, the "Worth Shares") and
options to purchase an additional 500,000 shares of Common Stock owned by
them at a purchase price of $6.00 per share (the "Worth Options") at a
price of $6.00 per Worth Share and $.0002 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
37
<PAGE> 40
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) 5,000 shares of Common Stock issuable upon exercise of
warrants exercisable through April 27, 2001, at a price of $4.00 per share;
(ii) 25,250 shares of Common Stock issuable upon exercise of options
exercisable through February 21, 1999 with respect to 250 shares and
through September 25, 1999 with respect to 25,000 shares, all at a price of
$1.60 per share; (iii) 55,000 shares of Common Stock issuable upon exercise
of options exercisable through October 31, 2000 with respect to 50,000
shares, and December 29, 2002 with respect to 5,000 shares, all at a price
of $2.80 per share; (iv) 10,000 shares of Common Stock issuable upon
exercise of options exercisable through December 2, 2002, at a price of
$2.50 per share; (v) 117,500 shares of Common Stock issuable upon exercise
of options exercisable through January 2, 2004, at a price of $3.20 per
share; (vi) 50,000 shares of Common Stock issuable upon the exercise of
options exercisable through July 5, 2005, at a price of $6.00 per share;
and (vii) 6,250 shares of Common Stock issuable upon conversion of 6,250
shares of Series A Preferred Stock, which automatically convert on August
, 2001 if not earlier converted.
(11) Includes (i) 18,750 shares of Common Stock issuable upon exercise of
options exercisable through October 31, 2000, at a price of $2.80 per
share; (ii) 2,500 shares of Common Stock issuable upon exercise of options
exercisable through December 29, 2002, at a price of $2.80 per share; (iii)
30,000 shares of Common Stock issuable upon exercise of options exercisable
through January 2, 2004, at a price of $3.20 per share; (iv) 5,000 shares
of Common Stock issuable upon exercise of warrants exercisable through
April 27, 2001, at a price of $4.00 per share; and (v) 6,250 shares of
Common Stock issuable upon conversion of 6,250 shares of Series A Preferred
Stock, which automatically convert on August , 2001 if not earlier
converted.
(12) Includes 101,704 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 210,000 shares of Common Stock in
the Concurrent Offering. See "Concurrent Offering."
38
<PAGE> 41
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......................... 203,408 67,500 135,908 2.5
31 rue Aeroport
Centre Swiss Cointern
CH-1215 Geneva, Switzerland
H.T. Ardinger..................... 136,715 33,500 68,215(3) 1.3
c/o H.T. Ardinger & Sons
9040 Governors Row
Dallas, TX 75247
ABN-AMRO Bank..................... 96,619 32,500 64,119 1.2
Talstrasse 41
CH-8022 Zurich, Switzerland
Bordier & Cie..................... 61,309 20,500 40,809 *
16 rue de Hollande
CH-1211 Geneva, Switzerland
Fred Kassner...................... 40,686 13,500 27,186 *
c/o Liberty Travel
69 Spring Street
Ramsey, NJ 07446
Douglas Adkins, Esq.(4)........... 40,580 13,500 27,080 *
c/o Gardere & Wynne
3000 Thanksgiving Tower
Dallas, TX 75201
Donald A. Worth(5)................ 89,125 12,500 76,625 1.4
1390 Ocean Drive, Apt. 207
Miami Beach, FL 33139
William Heim...................... 10,172 3,250 6,922 *
8845 South Pleasant Street
Chicago, IL 60620
Christian Brunnschweiler.......... 10,172 3,250 6,922 *
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.
39
<PAGE> 42
(2) Does not include up to 62,500 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 35,000 shares of Common Stock in the
Concurrent Offering. See "Concurrent Offering."
(4) Includes 20,343 shares of Common Stock owned by the Gardere & Wynne Savings
Retirement Plan for Douglas Adkins, of which Mr. Adkins is a beneficiary.
(5) Includes 250 shares issuable upon exercise of options exercisable through
February 21, 1999, at a price of $1.60 per share.
40
<PAGE> 43
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 3,282,842 shares of
Common Stock and options, warrants and convertible securities outstanding to
purchase an additional 1,367,723 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 245,000 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 February 11, 1998, the Board of Directors of the Company authorized the
issuance of up to 245,000 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,
41
<PAGE> 44
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 "DBSI." 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 "DBI."
42
<PAGE> 45
SHARES ELIGIBLE FOR FUTURE SALE
Upon consummation of this offering, the Company will have outstanding
5,382,842 shares of Common Stock (5,665,342 if the Underwriters' over-allotment
is exercised in full), not including shares of Common Stock issuable upon
exercise of outstanding options and warrants and conversion of outstanding
convertible securities. Of those shares, the 2,300,000 shares of Common Stock
sold to the public in this offering (2,645,000 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 3,282,842 shares of Common Stock outstanding prior to this offering,
3,082,842 shares (3,020,342 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, 2,035,842 shares are currently eligible for sale
under Rule 144, subject however, to any applicable requirements of Rule 144, and
62,500 of these shares may be sold in this offering by the Selling Stockholders
if the Underwriters' over-allotment option is exercised in full. 1,042,000 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 2,500 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.
43
<PAGE> 46
CONCURRENT OFFERING
The registration statement of which this Prospectus forms a part also
includes a prospectus with respect to an offering of 1,042,000 shares of Common
Stock (the "Concurrent Offering"), including 500,000 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.
44
<PAGE> 47
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............................................. 2,300,000
=========
</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 282,500 additional shares of
Common Stock from the Company and 62,500 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 2,300,000 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 2,500 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 230,000 shares of Common Stock. The
Representative's Warrants 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
45
<PAGE> 48
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 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 $759,000 (at an assumed initial public offering price
of $11.00 per share) to be paid on a pro rata basis by the Company and the
Selling Stockholders ($872,850 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
345,000 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.
46
<PAGE> 49
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. 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.
47
<PAGE> 50
DELICIOUS BRANDS, 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, March 31, 1998..................... F-3
Pro Forma Statement of Operations, Three Months Ended March
31, 1998.................................................. F-4
Pro Forma Statement of Operations, Year Ended December 31,
1997...................................................... F-5
Notes to the Pro Forma Financial Statements................. F-6
DELICIOUS BRANDS, INC.
Report of Altschuler, Melvoin and Glasser LLP............... F-7
Report of Cooper, Selvin & Strassberg, LLP.................. F-8
Balance Sheets, December 31, 1996 and 1997 and March 31,
1998...................................................... F-9
Statement of Operations, Years Ended December 31, 1995, 1996
and 1997 and the Three Months Ended March 31, 1997 and
1998...................................................... F-10
Statement of Stockholders' Equity (Deficit), Years Ended
December 31, 1995, 1996 and 1997 and the Three Months
Ended March 31, 1998...................................... F-11
Statement of Cash Flows, Years Ended December 31, 1995, 1996
and 1997 and the Three Months Ended March 31, 1997 and
1998...................................................... F-12
Notes to the Financial Statements........................... F-13
SALERNO FOODS, L.L.C.
Report of Altschuler, Melvoin and Glasser LLP............... F-24
Balance Sheets, December 31, 1997 and March 31, 1998........ F-25
Statement of Operations, Year Ended December 31, 1997 and
the Three Months Ended March 31, 1997 and 1998............ F-26
Statement of Changes in Members' Equity (Deficit), Year
Ended December 31, 1997 and the Three Months Ended March
31, 1998.................................................. F-27
Statement of Cash Flows, Year Ended December 31, 1997 and
the Three Months Ended March 31, 1997 and 1998............ F-28
Notes to the Financial Statements........................... F-29
Report of Friedman, Eisenstein Raemer and Schwartz, LLP..... F-35
Balance Sheet, December 31, 1996............................ F-36
Statement of Operations and Members' Equity, January 23,
1996 (Date of Inception) through December 31, 1996........ F-37
Statement of Cash Flows, January 23, 1996 (Date of
Inception) through December 31, 1996...................... F-38
Notes to Financial Statements............................... F-39
</TABLE>
F-1
<PAGE> 51
DELICIOUS BRANDS, INC.
PRO FORMA FINANCIAL STATEMENTS
(UNAUDITED)
The unaudited pro forma financial statements of Delicious Brands, Inc.
(formerly 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 140,000 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, March 31, 1998. The pro forma statement of operations for the year ended
December 31, 1997 and the three months ended March 31, 1998 gives effect to the
above-mentioned transactions as if the transactions had occurred at the
beginning of each of the periods presented.
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> 52
DELICIOUS BRANDS, INC.
PRO FORMA BALANCE SHEET
MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
DELICIOUS SALERNO PRO FORMA
BRANDS, INC. FOODS, L.L.C. ADJUSTMENTS PRO FORMA
------------ ------------- ----------- ------------
<S> <C> <C> <C> <C>
ASSETS
Current Assets:
Cash................................ $ 503,393 $ 12,543 $ (500,000)(a) $ 15,936
Accounts receivable, net............ 2,831,767 3,478,536 6,310,303
Inventory........................... 560,759 1,685,237 2,245,996
Due from distributors............... 162,730 162,730
Prepaid expenses and other current
assets........................... 145,833 337,484 483,317
------------ ---------- ---------- ------------
4,204,482 5,513,800 (500,000) 9,218,282
------------ ---------- ---------- ------------
Property and Equipment, net........... 186,806 904,086 1,090,892
------------ ---------- ------------
Other Assets:
Intangible assets, net.............. 2,657,498 308,499 5,432,029(a) 8,398,026
Other............................... 381,279 123,265 200,000(a) 704,544
------------ ---------- ---------- ------------
3,038,777 431,764 5,632,029 9,102,570
------------ ---------- ---------- ------------
$ 7,430,065 $6,849,650 $5,132,029 $ 19,411,744
============ ========== ========== ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank loan payable................... $ 1,338,437 $3,302,911 $ 4,641,348
Notes payable....................... 500,000 $4,700,000(a) 5,200,000
Accounts payable and accrued
expenses......................... 5,003,335 3,415,653 360,000(a) 8,778,988
Due to distributors................. 357,652 357,652
Accrued royalties................... 203,115 203,115
Current portion of long-term
liabilities...................... 1,067,505 1,067,505
------------ ---------- ---------- ------------
8,266,929 6,921,679 5,060,000 20,248,608
------------ ---------- ---------- ------------
Long-term Liabilities:
Subordinated debt................... 1,960,000 1,960,000
Restructuring liability............. 835,202 835,202
Packaging loss liability............ 867,225 867,225
------------ ------------
3,662,427 3,662,427
------------ ------------
Stockholders' Deficit:
Preferred stock..................... 0 0
Common stock........................ 33,318 33,318
Additional paid-in capital.......... 7,665,115 7,665,115
Accumulated deficit................. (12,036,675) (12,036,675)
Members' deficit.................... (72,029) 72,029(a) 0
------------ ---------- ---------- ------------
(4,338,242) (72,029) 72,029 (4,338,242)
Less, common stock in treasury at
cost............................. (161,049) (161,049)
------------ ---------- ---------- ------------
Total stockholders' deficit......... (4,499,291) (72,029) 72,029 (4,499,291)
------------ ---------- ---------- ------------
$ 7,430,065 $6,849,650 $5,132,029 $ 19,411,744
============ ========== ========== ============
</TABLE>
See accompanying notes to pro forma financial statements.
F-3
<PAGE> 53
DELICIOUS BRANDS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE THREE MONTHS MARCH 31, 1998
(UNAUDITED)
<TABLE>
<CAPTION>
DELICIOUS SALERNO PRO FORMA
BRANDS, INC. FOODS, L.L.C. ADJUSTMENTS PRO FORMA
------------ ------------- ------------ -----------
<S> <C> <C> <C> <C>
Net Sales............................. $6,492,406 $8,908,462 $15,400,868
Cost of Sales......................... 5,281,304 6,153,618 11,434,922
---------- ---------- -----------
Gross Profit.......................... 1,211,102 2,754,844 3,965,946
---------- ---------- -----------
Operating Expenses:
Promotion and selling............... 697,898 2,182,268 2,880,166
General and administrative.......... 818,772 469,632 $ 67,900(a) 1,356,304
---------- ---------- --------- -----------
1,516,670 2,651,900 67,900 4,236,470
---------- ---------- --------- -----------
Income (Loss) from Operations......... (305,568) 102,944 (67,900) (270,524)
---------- ---------- --------- -----------
Other Income (Expense):
Interest expense.................... (112,949) (79,055) (356,000)(b) (548,004)
Other, net.......................... 10,978 (15,630) (4,652)
---------- ---------- --------- -----------
(101,971) (94,685) (356,000) (552,656)
---------- ---------- --------- -----------
Net Income (Loss)..................... $ (407,539) $ 8,259 $(423,900) $ (823,180)
========== ========== ========= ===========
Pro Forma Weighted Average Shares
Outstanding......................... (c) 3,282,842
Pro Forma Net Loss per Share.......... $ (0.25)
===========
</TABLE>
See accompanying notes to pro forma combined financial statements.
F-4
<PAGE> 54
DELICIOUS BRANDS, INC.
PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED DECEMBER 31, 1997
(UNAUDITED)
<TABLE>
<CAPTION>
DELICIOUS SALERNO PRO FORMA
BRANDS, 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) 3,073,623
Net Loss Per Share................. $ (1.74)
===========
</TABLE>
See accompanying notes to pro forma financial statements.
F-5
<PAGE> 55
DELICIOUS BRANDS, 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 ($5,432,029) 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.
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 at the beginning of each of the periods
presented.
(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 incurred in connection with the acquisition
of Salerno discussed above and (ii) the amortization of related financing costs.
Such increase was computed as if these promissory notes were outstanding from
the beginning of each of the periods presented.
(c) The weighted average shares outstanding used to calculate pro forma
loss per share is based on the weighted average number of shares of common stock
outstanding for each of the periods presented plus the shares of common stock
issued in connection with the second closing of a private placement.
F-6
<PAGE> 56
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Delicious Brands, Inc.
We have audited the accompanying balance sheets of DELICIOUS BRANDS, INC.
(FORMERLY 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 Delicious Brands, 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 July 14, 1998
F-7
<PAGE> 57
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Delicious Brands, Inc.
We have audited the accompanying statements of operations, stockholders'
equity (deficit) and cash flows of DELICIOUS BRANDS, INC. (FORMERLY 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 Delicious
Brands, 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-8
<PAGE> 58
DELICIOUS BRANDS, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------- MARCH 31,
1996 1997 1998
----------- ------------ ------------
(UNAUDITED)
<S> <C> <C> <C>
ASSETS
Current Assets:
Cash..................................................... $ 661,706 $ 808,349 $ 503,393
Accounts receivable including $191,234, $276,294 and
$396,549, respectively, due from related parties, net
of allowances of $572,872, $575,000 and $582,544,
respectively.......................................... 1,943,134 1,924,390 2,831,767
Inventory (Note 2)....................................... 768,647 152,399 560,759
Due from distributors (Note 2)........................... 187,829 172,176 162,730
Prepaid expenses and other current assets................ 382,577 141,925 145,833
----------- ------------ ------------
3,943,893 3,199,239 4,204,482
----------- ------------ ------------
Property and Equipment, Net of Accumulated Depreciation
(Notes 2 and 3).......................................... 339,600 177,852 186,806
----------- ------------ ------------
Other Assets:
Goodwill (Note 2)........................................ 2,860,878 2,698,174 2,657,498
Other.................................................... 447,883 411,340 381,279
----------- ------------ ------------
3,308,761 3,109,514 3,038,777
----------- ------------ ------------
$ 7,592,254 $ 6,486,605 $ 7,430,065
=========== ============ ============
LIABILITIES AND STOCKHOLDERS' DEFICIT
Current Liabilities:
Bank loan payable (Note 4)............................... $ 1,929,086 $ 1,498,382 $ 1,338,437
Note Payable............................................. 0 0 500,000
Accounts payable and accrued expenses, including $36,018,
$62,530 and $24,813, respectively, due to related
parties............................................... 4,179,753 4,617,552 5,003,335
Due to distributors (Note 2)............................. 167,552 326,012 357,652
Current portion of long-term liabilities................. 118,533 1,120,544 1,067,505
----------- ------------ ------------
6,394,924 7,562,490 8,266,929
----------- ------------ ------------
Long-term Liabilities:
Subordinated debt (Note 5)............................... 2,110,000 1,960,000 1,960,000
Restructuring liability (Note 11)........................ 0 880,573 835,202
Packaging loss liability (Note 6)........................ 1,413,111 870,075 867,225
Other.................................................... 23,016 1,919 0
----------- ------------ ------------
3,546,127 3,712,567 3,662,427
----------- ------------ ------------
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 0
Class A common stock, voting, $.01 par value, 25,000,000
shares authorized, 2,945,618, 3,191,767 and 3,331,767
shares issued in 1996, 1997 and 1998, respectively.... 29,456 31,918 33,318
Class B common stock, non-voting, 31,149 shares issued at
December 31, 1996 no shares authorized at December 31,
1997 and March 31, 1998............................... 312 0 0
Additional paid-in capital............................... 6,013,494 6,969,815 7,665,115
Accumulated deficit...................................... (8,231,010) (11,629,136) (12,036,675)
----------- ------------ ------------
(2,187,748) (4,627,403) (4,338,242)
Less, common stock in treasury at cost................... (161,049) (161,049) (161,049)
----------- ------------ ------------
Total stockholders' deficit...................... (2,348,797) (4,788,452) (4,499,291)
----------- ------------ ------------
$ 7,592,254 $ 6,486,605 $ 7,430,065
=========== ============ ============
</TABLE>
The accompanying notes are an integral part of this statement.
F-9
<PAGE> 59
DELICIOUS BRANDS, INC.
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
----------------------------------------- ------------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- ---------- ----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Net Sales (including approximately
$7,310,000, $5,656,000,
$5,325,000, $1,277,000 and
$1,286,000, respectively, to
related parties)................. $52,721,868 $36,847,650 $30,664,723 $7,080,142 $6,492,406
Cost of Sales (including
approximately $3,393,000,
$744,000, $395,000, $61,000 and
$84,000, respectively, from
related parties)................. 42,252,593 29,837,075 25,193,264 5,659,120 5,281,304
----------- ----------- ----------- ---------- ----------
Gross Profit....................... 10,469,275 7,010,575 5,471,459 1,421,022 1,211,102
----------- ----------- ----------- ---------- ----------
Operating Expenses:
Promotion and selling............ 12,380,999 3,171,857 3,932,089 790,559 697,898
General and administrative....... 3,944,852 4,331,375 2,938,325 716,631 818,772
Restructuring charge (Note 11)... 0 0 1,548,035 0 0
----------- ----------- ----------- ---------- ----------
16,325,851 7,503,232 8,418,449 1,507,190 1,516,670
----------- ----------- ----------- ---------- ----------
Loss from Operations............... (5,856,576) (492,657) (2,946,990) (86,168) (305,568)
----------- ----------- ----------- ---------- ----------
Other Income (Expense):
Interest expense................. (597,480) (408,873) (416,913) (89,871) (112,949)
Other, net....................... 161,598 3,396 (34,223) 0 10,978
----------- ----------- ----------- ---------- ----------
(435,882) (405,477) (451,136) (89,871) (101,971)
----------- ----------- ----------- ---------- ----------
Loss before Provision for Income
Taxes............................ (6,292,458) (898,134) (3,398,126) (176,039) (407,539)
Provision for Income Taxes (Note
7)............................... 662,180 0 0 0 0
----------- ----------- ----------- ---------- ----------
Net Loss........................... $(6,954,638) $ (898,134) $(3,398,126) $ (176,039) $ (407,539)
=========== =========== =========== ========== ==========
Earnings per Share (Note 2):
Basic:
Net loss per common share..... $ (2.57) $ (.32) $ (1.16) $ (0.06) $ (0.13)
=========== =========== =========== ========== ==========
Weighted average number of
common shares outstanding... 2,704,178 2,814,079 2,933,623 2,927,842 3,226,842
Diluted:
Net loss per common share..... $ (2.57) $ (.32) $ (1.16) $ (0.06) $ (0.13)
=========== =========== =========== ========== ==========
Weighted average number of
common shares outstanding... 2,704,178 2,814,079 2,933,623 2,927,842 3,226,842
</TABLE>
The accompanying notes are an integral part of this statement.
F-10
<PAGE> 60
DELICIOUS BRANDS, INC.
STATEMENT OF STOCKHOLDERS' EQUITY (DEFICIT)
<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....... 2,721,091 $27,211 31,149 $ 312 $4,668,574 $ (378,238) (17,425) $ (60,250)
Purchase of Treasury Stock..... (31,500) (100,799)
Net Loss....................... (6,954,638)
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, December 31, 1995..... 2,721,091 27,211 31,149 312 4,668,574 (7,332,876) (48,925) (161,049)
Conversion of 8% Subordinated
Debentures to Class A Common
Stock........................ 224,527 2,245 1,344,920
Net Loss....................... (898,134)
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, December 31, 1996..... 2,945,618 29,456 31,149 312 6,013,494 (8,231,010) (48,925) (161,049)
Change in Authorized Capital
Structure.................... 31,149 312 (31,149) (312)
Proceeds from Issuance of
Common Stock, Net of $303,829
in Expenses.................. 210,000 2,100 954,071
Issuance of Stock for
Services..................... 5,000 50 2,250
Net Loss....................... (3,398,126)
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, December 31, 1997..... 3,191,767 31,918 0 0 6,969,815 (11,629,136) (48,925) (161,049)
Proceeds from Issuance of
Common Stock, Net of $143,300
in Expenses (unaudited)...... 140,000 1,400 695,300 (407,539)
Net loss (unaudited)...........
--------- ------- ------- ----- ---------- ------------ -------- -----------
Balance, March 31, 1998
(unaudited).................. 3,331,767 $33,318 0 $ 0 $7,665,115 $(12,036,675) (48,925) $ (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)
Proceeds from Issuance of
Common Stock, Net of $143,300
in Expenses (unaudited)...... 696,700
Net loss (unaudited)........... (407,539)
-----------
Balance, March 31, 1998
(unaudited).................. $(4,499,291)
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-11
<PAGE> 61
DELICIOUS BRANDS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEARS ENDED DECEMBER 31, MARCH 31,
--------------------------------------- -----------------------
1995 1996 1997 1997 1998
----------- ----------- ----------- --------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Cash Flows from Operating Activities:
Net loss.................................... $(6,954,638) $ (898,134) $(3,398,126) $(176,039) $ (407,539)
Adjustments to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 412,434 560,106 352,320 87,640 72,672
Provision for bad debts.................. 100,001 583,337 40,487 7,820 7,544
Loss on disposal of property and
equipment.............................. 0 0 50,899 0 0
Restructuring charge..................... 0 0 1,548,035 0 0
Issuance of common stock for services.... 0 0 2,300 0 0
Deferred income taxes.................... 678,800 0 0 0 0
Increase (Decrease) in cash from changes
in:
Accounts receivable.................... 1,334,473 537,559 (76,217) (140,444) (914,921)
Inventory.............................. (1,094,349) 798,807 616,248 (12,535) (408,360)
Due from distributors.................. 17,341 (42,654) 15,653 0 9,446
Prepaid expenses and other current
assets.............................. (315,769) 307,834 240,652 (51,786) (3,908)
Refundable income taxes................ 542,922 71,678 0 0 0
Other assets........................... 51,058 11,420 (90,020) 4,694 22,298
Accounts payable and accrued
expenses............................ 2,485,484 (1,197,562) 437,799 154,893 385,783
Due to distributors.................... 166,802 (408,750) 158,460 45,875 31,640
Accrued restructuring liabilities...... 0 0 (399,128) 0 (65,371)
Other liabilities...................... 1,337,000 (222,778) 186,964 (1,669) (32,850)
----------- ----------- ----------- --------- -----------
Net cash provided by (used in) operating
activities............................... (1,238,441) 100,863 (313,674) (81,551) (1,303,566)
----------- ----------- ----------- --------- -----------
Cash Flows from Investing Activities:
Purchase of property and equipment.......... (247,192) (88,131) (47,730) (24,691) (33,188)
Purchase of product line.................... (255,678) 0 0 0 0
----------- ----------- ----------- --------- -----------
Net cash used in investing activities....... (502,870) (88,131) (47,730) (24,691) (33,188)
----------- ----------- ----------- --------- -----------
Cash Flows from Financing Activities:
Payments of long-term debt.................. (15,879) (16,953) (17,420) (4,209) (4,957)
Proceeds (Payments) of bank loan payable,
net...................................... 1,099,409 617,801 (430,704) (105,907) (159,945)
Proceeds of note payable.................... 0 0 0 0 500,000
Proceeds from issuance of common stock...... 0 0 1,260,000 0 840,000
Purchase of treasury stock.................. (100,799) 0 0 0 0
Payment of stock issuance costs............. 0 0 (303,829) 0 (143,300)
----------- ----------- ----------- --------- -----------
Net cash provided by (used in) financing
activities............................... 982,731 600,848 508,047 (110,116) 1,031,798
----------- ----------- ----------- --------- -----------
Increase (Decrease) in Cash................... (758,580) 613,580 146,643 (216,358) (304,956)
Cash, Beginning of Period..................... 806,706 48,126 661,706 661,706 808,349
----------- ----------- ----------- --------- -----------
Cash, End of Period........................... $ 48,126 $ 661,706 $ 808,349 $ 445,348 $ 503,393
=========== =========== =========== ========= ===========
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
Income taxes............................. $ 86,862 $ 0 $ 0 $ 0 $ 0
=========== =========== =========== ========= ===========
Interest................................. $ 464,738 $ 338,197 $ 420,296 $ 112,949 $ 39,713
=========== =========== =========== ========= ===========
</TABLE>
Supplemental Disclosure of Noncash Activities:
During March and October of 1997, in satisfaction for payments of trade
accounts receivable, an aggregate $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 224,527 shares of Class A common stock.
The accompanying notes are an integral part of this statement.
F-12
<PAGE> 62
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 1 -- NATURE OF ACTIVITIES
Delicious Brands, Inc. (formerly 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 the years ended
December 31, 1995, 1996 and 1997 and three months ended March 31, 1998,
respectively, net sales to these customers were approximately $7,310,000,
$5,656,000, $5,325,000 and $1,286,000 while purchases from such vendors were
approximately $3,393,000, $744,000, $395,000 and $84,000. 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. In addition, on
April 3, 1998 the Company incurred $4,700,000 of debt in connection with the
acquisition of substantially all of the assets of Salerno Foods, L.L.C. (Note
13) for which such debt is to mature on October 16, 1998. 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 $696,700 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.
F-13
<PAGE> 63
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of March 31, 1998, and the unaudited
statements of operations and cash flows for the three months ended March 31,
1997 and 1998, and the unaudited statement of stockholders' equity (deficit) for
the three months ended March 31, 1998 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's financial position, results of operations and cash flows.
Operating results for the three months ended March 31, 1998 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1998. The footnotes related to such periods are also unaudited.
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 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 and $595,147 and $479,234 for the
three months ended March 31, 1997 and 1998.
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, $555,905 and $596,581 at December 31, 1996 and 1997 and March 31,
1998, 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.
F-14
<PAGE> 64
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 2 -- SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
USE OF ESTIMATES -- The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the 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.
PER SHARE INFORMATION -- On July 14, 1998, the Company effected a 1-for-2
reverse stock split and, accordingly, all share and per share amounts have been
retroactively restated.
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 and the three months ended March 31, 1997 and 1998, 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 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 an 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.
F-15
<PAGE> 65
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 3 -- PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-------------------- ESTIMATED
1996 1997 MARCH 31, 1998 LIFE
-------- -------- -------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
Office equipment................. $361,537 $275,666 $308,854 5 to 10 years
Molds and dies................... 230,666 232,074 232,074 3 years
Promotion and display
equipment...................... 84,153 44,444 44,444 5 years
-------- -------- --------
676,356 552,184 585,372
Less accumulated depreciation.... 336,756 374,332 398,566
-------- -------- --------
$339,600 $177,852 $186,806
======== ======== ========
</TABLE>
Depreciation expense amounted to $142,425, $152,378 and $158,578 for the
years ended December 31, 1995, 1996 and 1997, respectively, and $39,204 and
$24,234 for the three months ended March 31, 1997 and 1998, 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 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
The Company was obligated to noteholders of the Company's 9% Subordinated
Convertible Notes aggregating $2,110,000 at December 31, 1996 and $1,960,000 at
December 31, 1997 and March 31, 1998. 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 $8 per share in the
event of a default by the Company. When the notes were originally issued on
April 28, 1994, a total of 145,188 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 $4 per
share. At December 31, 1997 and March 31, 1998, 140,198 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 224,527 shares of common stock.
F-16
<PAGE> 66
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
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 and March 31, 1998, the Company has
accrued $1,514,222, $1,701,186 and $1,668,336, 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>
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>
FOR THE YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- ----------------------------
1995 1996 1997 1997 1998
----------- --------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Federal and state:
Current................ $ (16,620) $ 0 $ 0 $ 0 $ 0
Deferred (net)......... (2,310,100) (618,300) (1,439,800) (38,800) (20,000)
Increase in valuation
allowance........... 2,988,900 618,300 1,439,800 38,800 20,000
----------- --------- ----------- ----------- -----------
$ 662,180 $ 0 $ 0 $ 0 $ 0
=========== ========= =========== =========== ===========
</TABLE>
F-17
<PAGE> 67
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 7 -- INCOME TAXES -- (CONTINUED)
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>
FOR THE YEAR ENDED DECEMBER 31, THREE MONTHS ENDED MARCH 31,
--------------------------------------- ----------------------------
1995 1996 1997 1997 1998
----------- --------- ----------- ------------ ------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
Computed income tax
expense (benefit) at
federal statutory
rate................... $(2,139,000) $(305,000) $(1,155,000) $ (60,000) $ (139,000)
State income taxes....... (295,000) (35,000) (156,000) (8,000) (19,000)
Non-deductible
amortization of
intangible assets...... 55,000 55,000 55,000 14,000 14,000
Adjustment to net
operating loss
carryforward........... 52,280 (333,300) (183,800) 15,200 124,000
Increase in valuation
allowance.............. 2,988,900 618,300 1,439,800 38,800 20,000
----------- --------- ----------- ----------- -----------
$ 662,180 $ 0 $ 0 $ 0 $ 0
=========== ========= =========== =========== ===========
</TABLE>
The Company's net deferred income tax asset consisted of the following at:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
-------------------------- -----------
1996 1997 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Gross deferred tax assets:
Net operating loss carryforwards.................. $ 3,276,900 $ 4,155,000 $ 4,273,000
Allowance for doubtful accounts................... 217,700 342,000 345,000
Amortization of goodwill.......................... 85,300 79,000 77,000
Restructuring liability........................... 0 366,000 339,000
Other............................................. 52,400 136,000 66,000
----------- ----------- -----------
Total gross deferred tax assets................... 3,632,300 5,078,000 5,100,000
Less valuation allowance.......................... (3,607,200) (5,047,000) (5,067,000)
----------- ----------- -----------
Net deferred tax assets........................... 25,100 31,000 33,000
----------- ----------- -----------
Gross deferred tax liabilities:
Depreciation and amortization expense............. 25,100 31,000 33,000
----------- ----------- -----------
Net deferred taxes................................ $ 0 $ 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.
F-18
<PAGE> 68
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
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 1,125,000 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 75,000 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 1,500 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 1,500
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 27,500 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-19
<PAGE> 69
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 8 -- STOCK OPTIONS -- (CONTINUED)
Following is a table indicating the activity during the years 1995, 1996,
and 1997, and the three months ended March 31, 1998, for such plans:
<TABLE>
<CAPTION>
WEIGHTED
AVERAGE
EXERCISE
SHARES PRICE
--------- --------
<S> <C> <C>
Options outstanding at January 1, 1995................. 188,885 $ 3.40
======
Granted during year.................................. 398,500 6.00
Exercised during year................................ 0
Forfeited............................................ (52,850) (5.84)
---------
Options outstanding at December 31, 1995............... 534,535 $ 5.10
======
Granted during year.................................. 85,500 6.00
Exercised during year................................ 0
Forfeited............................................ (5,250) (5.24)
---------
Options outstanding at December 31, 1996............... 614,785 $ 5.22
======
Granted during year.................................. 150,000 9.80
Exercised during year................................ 0
Forfeited............................................ (278,166) (6.00)
---------
Options outstanding at December 31, 1997............... 486,619 $ 6.18
======
Granted during three months.......................... 4,500 6.00
Exercised during three months........................ 0
Forfeited............................................ (2,334) (6.00)
=========
Options outstanding at March 31, 1998 (unaudited)...... 488,785 $ 6.20
========= ======
</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>
$.40 to $1.60 57,105 19 $ 1.38 57,105 $1.38
$2.80 to $3.20 82,450 36 $ 2.80 82,450 $2.80
$6.00 264,334 95 $ 6.00 256,833 $6.00
$8.96 17,730 22 $ 8.96 17,730 $8.96
$12.00 50,000 127 $12.00 -- $ --
$24.00 15,000 127 $24.00 -- $ --
</TABLE>
F-20
<PAGE> 70
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 8 -- STOCK OPTIONS -- (CONTINUED)
MARCH 31, 1998 (UNAUDITED)
- -----------------
<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>
$.40 to $1.60 57,105 16 $ 1.38 57,105 $1.38
$2.80 to $3.20 82,450 33 $ 2.80 82,450 $2.80
$6.00 266,500 93 $ 6.00 257,499 $6.00
$8.96 17,730 19 $ 8.96 17,730 $8.96
$12.00 50,000 127 $12.00 -- --
$24.00 15,000 127 $24.00 -- --
</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 and March 31, 1998
there were 443,750 of these options outstanding, all of which are exercisable,
with a weighted average contractual life of 48 and 45 months, respectively, and
a weighted average exercise price of $3.18.
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 $182,000 ($.06 per share) and $133,000 ($.04 per
share), respectively, greater than that which is presented in the 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.
F-21
<PAGE> 71
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 10 -- COMMITMENTS AND CONTINGENCIES
The Company leases office and warehouse space under an operating lease
expiring in 2003. 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......................................... $ 280,023
1999......................................... 453,276
2000......................................... 464,300
2001......................................... 473,680
2002......................................... 486,716
Thereafter................................... 205,290
----------
$2,363,284
==========
</TABLE>
Total rent expense for the years ended December 31, 1995, 1996, and 1997 was
$96,954, $93,307 and $91,656 and $37,199 and $21,176 for the three months ended
March 31, 1997 and 1998, 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. In 1998, this action was settled
for $65,000 in full satisfaction of the claim. 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 (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 250,000 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 recognized $44,908 and $20,599 as related interest expense for the year
ended December 31, 1997 and the three months ended March 31, 1998, respectively.
At December 31,
F-22
<PAGE> 72
DELICIOUS BRANDS, INC.
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
Ended March 31, 1997 and 1998 is Unaudited)
NOTE 11 -- RESTRUCTURING -- (CONTINUED)
1997, and March 31, 1998, the balance sheet reflected a liability of $1,148,907
and $1,083,536, respectively, of which $268,334 and $248,334, respectively, 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 87,500 shares of common stock and a maximum 350,000 shares of common
stock at a price of $6 per share. On December 22, 1997, an initial closing of
this private placement took place whereby the Company sold 210,000 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 140,000 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 192,000 shares of
common stock and options to purchase 500,000 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. The APFC Loan
bears interest at 12% per annum through August 3, 1998 and 15% per annum
thereafter. 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 and agreed
to pay an additional $150,000 fee for extending the maturity date of the loan.
The Salerno Promissory Note and the APFC Loan each mature on the earlier of (a)
August 1, 1998 for the Salerno Promissory Note and October 16, 1998 (as amended)
for the APFC Loan, 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. 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) October 31, 1998
(as amended) 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
$6 per share in the event of a default by the Company.
F-23
<PAGE> 73
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-24
<PAGE> 74
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998
------------ -----------
(UNAUDITED)
<S> <C> <C>
ASSETS
Current Assets:
Cash...................................................... $ 5,239 $ 12,543
Accounts receivable, net of allowances of $330,424 and
$331,356, respectively................................. 2,847,757 3,478,536
Inventory (Note 2)........................................ 2,167,950 1,685,237
Prepaid expenses and other current assets................. 84,565 337,484
---------- ----------
5,105,511 5,513,800
---------- ----------
Property and Equipment, Net of Accumulated Depreciation and
Amortization (Notes 2 and 3).............................. 967,840 904,086
---------- ----------
Other Assets:
Intangible assets, net of accumulated amortization (Notes
2 and 4)............................................... 233,212 308,499
Other..................................................... 118,265 123,265
---------- ----------
351,477 431,764
---------- ----------
$6,424,828 $6,849,650
========== ==========
LIABILITIES AND MEMBERS' EQUITY (DEFICIT)
Current Liabilities:
Borrowings under revolving bank line of credit (Note 5)... $2,537,269 $3,302,911
Accounts payable.......................................... 3,225,304 2,921,878
Accrued expenses.......................................... 582,212 493,775
Accrued royalties (Note 4)................................ 160,331 203,115
---------- ----------
6,505,116 6,921,679
---------- ----------
Commitments and Contingencies (Note 8)
Members' Equity (Deficit) (Note 9).......................... (80,288) (72,029)
---------- ----------
$6,424,828 $6,849,650
========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-25
<PAGE> 75
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, ------------------------
1997 1997 1998
------------ ---------- ----------
(UNAUDITED)
<S> <C> <C> <C>
Net Sales............................................. $39,147,701 $9,539,602 $8,908,462
Cost of Sales......................................... 28,412,752 6,684,707 6,153,618
----------- ---------- ----------
Gross Profit.......................................... 10,734,949 2,854,895 2,754,844
----------- ---------- ----------
Operating Expenses:
Selling............................................. 9,221,584 2,522,223 2,182,268
General and administrative.......................... 2,060,753 487,050 469,632
----------- ---------- ----------
11,282,337 3,009,273 2,651,900
----------- ---------- ----------
Income (Loss) from Operations......................... (547,388) (154,378) 102,944
----------- ---------- ----------
Other Income (Expense):
Interest expense.................................... (321,035) (71,688) (79,055)
Other............................................... 29,798 12,763 (15,630)
----------- ---------- ----------
(291,237) (58,925) (94,685)
----------- ---------- ----------
Net (Loss) Income..................................... $ (838,625) $ (213,303) $ 8,259
=========== ========== ==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-26
<PAGE> 76
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF CHANGES IN MEMBERS' EQUITY (DEFICIT)
<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 $ 394,194 371,023 $ 364,143 332,000 $ 0 $ 758,337
Issuance of Units in Satisfaction
of the Preferred Priority
Return........................... 29,703 27,483
Net Loss........................... (423,994) (391,685) (22,946) (838,625)
------- --------- ------- --------- ------- --------- ---------
Balance, December 31, 1997......... 431,180 (29,800) 398,506 (27,542) 332,000 (22,946) (80,288)
Issuance of Units in Satisfaction
of the Preferred Priority
Return........................... 7,535 6,771
Net Income (unaudited)............. 3,080 2,847 2,332 8,259
------- --------- ------- --------- ------- --------- ---------
Balance, March 31, 1998
(unaudited)...................... 438,715 $ (26,720) 405,277 $ (24,695) 332,000 $ (20,614) $ (72,029)
======= ========= ======= ========= ======= ========= =========
</TABLE>
The accompanying notes are an integral part of this statement.
F-27
<PAGE> 77
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
THREE MONTH
PERIOD ENDED
YEAR ENDED MARCH 31,
DECEMBER 31, --------------------------
1997 1997 1998
------------ ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C>
Cash Flows from Operating Activities:
Net Income (Loss)..................................... $(838,625) $(213,303) $ 8,259
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization...................... 280,966 52,740 83,117
Increase (decrease) in cash from changes in:
Accounts receivable.............................. 322,289 (888,351) (630,779)
Inventory........................................ 381,116 590,849 482,713
Prepaid expenses and other current assets........ 282,962 (75,780) (252,919)
Other assets..................................... (28,273) (34,331) (5,000)
Accounts payable................................. (118,013) 303,791 (303,426)
Accrued expenses................................. (160,446) (130,357) (88,437)
--------- --------- ---------
Net cash provided by (used in) operating activities... 121,976 (394,742) (706,472)
--------- --------- ---------
Cash Flows from Investing Activities:
Purchases of property and equipment................... (198,960) (68,623) (4,986)
Payment of additional purchase price (Note 4)......... (165,981) (39,745) (46,880)
--------- --------- ---------
Net cash used in investing activities................. (364,941) (108,368) (51,866)
--------- --------- ---------
Cash Flows from Financing Activities:
Proceeds from revolving bank line of credit, net...... 70,077 413,953 765,642
Redemption of membership units........................ (5,002) (5,002) 0
--------- --------- ---------
Net cash provided by financing activities............. 70,077 408,951 765,642
--------- --------- ---------
Net Increase (Decrease) in Cash......................... (177,890) (94,159) 7,304
Cash, Beginning of Period............................... 183,129 183,129 5,239
--------- --------- ---------
Cash, End of Period..................................... $ 5,239 $ 88,970 $ 12,543
========= ========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for interest................ $ 324,370 $ 71,688 $ 79,055
========= ========= =========
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-28
<PAGE> 78
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS
(Information as of March 31, 1998 and for the Three Months
ended March 31, 1997 and 1998 is Unaudited)
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 by acquiring certain
regional brands (see Note 4), leasing a facility, establishing relationships
with co-packers to manufacturer products and recruiting staff for sales,
marketing, finance and distribution. The Company is 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.
UNAUDITED INTERIM FINANCIAL INFORMATION
The unaudited balance sheet as of March 31, 1998, and the unaudited
statements of operations and cash flows for the three months ended March 31,
1997 and 1998, and the unaudited statement of members' equity deficit for the
three months ended March 31, 1998 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's financial position, results of operations and cash flows.
The footnotes related to such periods are also unaudited.
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.
F-29
<PAGE> 79
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
ended March 31, 1997 and 1998 is Unaudited)
NOTE 2 -- SIGNIFICANT ACCOUNTING POLICIES -- (CONTINUED)
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
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 consists of the following:
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
1997 1998 LIFE
------------ ----------- ------------
(UNAUDITED)
<S> <C> <C> <C>
Office equipment...................... $ 541,020 $ 541,512 3 to 5 years
Warehouse equipment................... 695,587 700,082 10 years
Leasehold improvements................ 35,213 35,213 3 1/2 years
---------- ----------
1,271,820 1,276,807
Less accumulated depreciation and
amortization........................ (303,980) (372,721)
---------- ----------
$ 967,840 $ 904,086
========== ==========
</TABLE>
Depreciation and amortization expense related to these assets amounted to
$224,881 for the year ended December 31, 1997 and $40,864 and $68,741 for the
three months ended March 31, 1997 and 1998, respectively.
F-30
<PAGE> 80
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
ended March 31, 1997 and 1998 is Unaudited)
NOTE 4 -- INTANGIBLE ASSETS
Intangible assets consist of the following:
<TABLE>
<CAPTION>
MARCH 31,
DECEMBER 31, 1998 AMORTIZATION
1997 (UNAUDITED) PERIOD
------------ ----------- ------------
<S> <C> <C> <C>
Acquisition costs...................... $111,009 $ 111,009 5 years
Organization costs..................... 50,361 50,361 5 years
Financing costs........................ 62,815 62,815 3 years
Goodwill............................... 113,941 203,605 15 years
-------- ---------
338,126 427,790
Less accumulated amortization.......... (104,914) (119,291)
-------- ---------
$233,212 $ 308,499
======== =========
</TABLE>
Amortization expense was $56,243 for the year ended December 31, 1997 and
$13,301 and $14,377 for the three months ended March 31, 1997 and 1998,
respectively.
On January 23, 1996, the Company purchased certain assets (principally,
Salerno and Mama's brand products and related formulations) and assumed certain
liabilities of the Salerno Biscuit Division of Sunshine Biscuits, Inc., a
manufacturer and distributor of nationally advertised brand 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 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. 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
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
F-31
<PAGE> 81
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
ended March 31, 1997 and 1998 is Unaudited)
NOTE 5 -- BORROWINGS UNDER REVOLVING BANK LINE OF CREDIT -- (CONTINUED)
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.
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 expire on May 12, 2001. Management believes
relations with the Company's employees is good.
F-32
<PAGE> 82
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
ended March 31, 1997 and 1998 is Unaudited)
NOTE 8 -- COMMITMENTS AND CONTINGENCIES -- (CONTINUED)
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 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
F-33
<PAGE> 83
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO THE FINANCIAL STATEMENTS -- (CONTINUED)
(Information as of March 31, 1998 and for the Three Months
ended March 31, 1997 and 1998 is Unaudited)
NOTE 9 -- MEMBERS' EQUITY (DEFICIT) -- (CONTINUED)
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-34
<PAGE> 84
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-35
<PAGE> 85
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-36
<PAGE> 86
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-37
<PAGE> 87
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-38
<PAGE> 88
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 by acquiring certain
regional brands (see Note 2) leasing a facility, establishing relationships with
co-packers to manufacture products and recruiting staff for sales, marketing,
finance and distribution. The Company is 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 (principally, the
Salerno and Mama's brands products and related formulations, trade accounts
receivable and inventories) and assumed certain liabilities of Sunshine
Biscuits, Inc., a manufacturer and distributor of nationally advertised brand
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
F-39
<PAGE> 89
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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.
F-40
<PAGE> 90
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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.
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 $ 0
Preferred A....................................... 401,477 394,194
Preferred B....................................... 371,023 364,143
--------
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.
F-41
<PAGE> 91
SALERNO FOODS, L.L.C.
(A DELAWARE LIMITED LIABILITY COMPANY)
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
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 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-42
<PAGE> 92
- ------------------------------------------------------
- ------------------------------------------------------
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............................ 29
Certain Transactions.................. 35
Principal Stockholders................ 36
Selling Stockholders.................. 39
Description of Capital Stock.......... 41
Shares Eligible For Future Sale....... 43
Concurrent Offering................... 44
Underwriting.......................... 45
Legal Matters......................... 46
Experts............................... 47
Available Information................. 47
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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
2,300,000 SHARES
[DELICIOUS BRANDS LOGO]
COMMON STOCK
---------------------------
PROSPECTUS
---------------------------
GAINES, BERLAND INC.
__________, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 93
1,042,000 SHARES OF COMMON STOCK
DELICIOUS BRANDS, INC.
This Prospectus relates to 1,042,000 shares (the "Shares") of common stock,
$.01 par value (the "Common Stock"), of Delicious Brands, Inc., a Delaware
corporation (the "Company"), including 500,000 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 "DBSI" and for approval for listing on the
Chicago Stock Exchange of the Shares under the symbol "DBI."
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> 94
THE OFFERING
<TABLE>
<S> <C>
Common stock to be outstanding after the
offering:.................................. 5,382,842(1)(2)
Nasdaq SmallCap Market symbol:............... "DBSI"
Chicago Stock Exchange symbol:............... "DBI"
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) 500,000 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 282,500 shares
of Common Stock have been granted; (ii) 625,000 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
157,285 shares of Common Stock have been granted; (iii) 75,000 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 49,000 shares of Common Stock have been granted;
(iv) 443,750 shares of Common Stock reserved for issuance upon exercise of
other outstanding options; (v) 190,188 shares of Common Stock reserved for
issuance upon exercise of outstanding common stock purchase warrants to
purchase such shares of Common Stock; (vi) 245,000 shares of Common Stock
reserved for issuance upon conversion of the 245,000 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 $1.96 million, on August
, 1998; (vii) 282,500 shares of Common Stock to be sold by the Company
reserved for issuance upon exercise of the Underwriters' over-allotment
option; and (viii) 230,000 shares of Common Stock issuable upon exercise of
the Representative's Warrant.
(2) Includes 2,100,000 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
2,100,000 shares of Common Stock and by certain selling stockholders of 200,000
shares of Common Stock and up to an additional 345,000 shares of Common Stock
(282,500 shares by the Company and 62,500 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> 95
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............................ 210,000 210,000 0 0
Paradeplatz 6
CH-8010 Zurich, Switzerland
H.T. Ardinger.............................. 103,215(1) 35,000 68,215(1) 1.3
c/o H.T. Ardinger & Sons
9040 Governors Row
Dallas, Texas 75247
Peter Clapp................................ 35,000 35,000 0 0
172 Thornhill Drive
Danville, Illinois 61832
John Crowl................................. 4,375 4,375 0 0
Peterkin Hill Road
South Woodstock, Vermont 05071
Sara D.K. Faulkner......................... 4,375 4,375 0 0
203 Poplar Heights
Oxford, Mississippi 38655
Eric Hassall............................... 4,375 4,375 0 0
4662 Bellevue Drive
Vancouver, British Columbia V6R1E7
Charles F. Kireker......................... 4,375 4,375 0 0
303 Cow Hill Road
Weybridge, Vermont 05753
Peter Strugatz............................. 17,500 17,500 0 0
83 Bishop's Lane
Southampton, New York 11968
Terra Trust Investments, A.G............... 140,000 140,000 0 0
Bahnhofplatz 9
CH-8023 Zurich, Switzerland
Marc-Edouard Landolt....................... 52,500 52,500 0 0
Rue du Lion-d'Or 6
CH-1003 Lausanne, Switzerland
VTZ Versicherungs Treuhand Zurich A.G...... 50,000 50,000 0 0
Bahnhofplatz 9
CH-8023 Zurich, Switzerland
Yapton Developments, Limited............... 100,000 100,000 0 0
Celtic House
Douglas, Isle of Man IM125J
Steven Gillings............................ 150,000 150,000 0 0
95 Elmwood Avenue
Staten Island, New York 10312
</TABLE>
A-3
<PAGE> 96
<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.......................... 100,000 100,000 0 0
101 Boardwalk
Staten Island, New York 10312
Tuttle Realty Ltd.......................... 100,000 100,000 0 0
St. Andrews Court, Bahamas
P.O. Box N-4805
Terra Healthy Living....................... 81,000 16,500 64,500 1.2
Bahnhofplatz 9
CH-8023 Zurich, Switzerland
Ken Stokes................................. 18,000 18,000 0 0
Fosseway South
Bath, England, U.K. BA34AN
</TABLE>
- ---------------
(1) Assumes the sale by Mr. Ardinger of 33,500 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> 97
PLAN OF DISTRIBUTION
This Prospectus covers 1,042,000 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> 98
- ------------------------------------------------------
- ------------------------------------------------------
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........................... 29
Certain Transactions................. 35
Principal Stockholders............... 36
Selling Securityholders.............. 39
Description of Capital Stock......... 41
Shares Eligible For Future Sale...... 43
Concurrent Offering.................. 44
Underwriting......................... 45
Legal Matters........................ 46
Experts.............................. 47
Available Information................ 47
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.
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
- ------------------------------------------------------
1,042,000 SHARES
[DELICIOUS BRANDS LOGO]
COMMON STOCK
------------------------
PROSPECTUS
------------------------
, 1998
- ------------------------------------------------------
- ------------------------------------------------------
<PAGE> 99
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........................................ $ 14,029.02
NASD filing fee............................................. 5,255.62
Nasdaq SmallCap Market and Chicago Stock Exchange listing
expenses.................................................. 25,000.00
Blue Sky fees and expenses (including legal and filing
fees)..................................................... 75,000.00
Printing expenses (including printing and engraving of stock
certificates)............................................. 150,000.00
Accounting fees and expenses................................ 90,000.00
Legal fees and expenses (other than Blue Sky)............... 285,000.00
Miscellaneous expenses...................................... 55,715.36
-----------
Total............................................. $700,000.00
===========
</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 August , 1998, the Company issued an aggregate of 245,000 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> 100
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 17,500 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 5,000 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 224,528 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> 101
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.**
3.1.1 -- Amended and Restated Certificate of Incorporation 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.**
</TABLE>
II-3
<PAGE> 102
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
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.**
10.47 -- Memorandum of Agreement by and between the Company and
Bakery, Cracker, Pie and Yeast Wagon Drivers, Local 734,
International Brotherhood of Teamsters of America dated May
13, 1998.***
10.48 -- Commercial Lease by and between Maple Properties Company and
the Company dated as of June 1, 1998.***
10.49 -- Promissory Note dated March 30, 1998 of the Company in favor
of Yapton Developments, Limited.***
10.50 -- Letter Agreement by and between the Company and Yapton
Developments, Limited dated July 6 , 1998 extending the
maturity of the promissory note to Yapton Developments,
Ltd.***
10.51 -- Letter Agreement by and between the Company and American
Pacific Financial Corporation dated July 13, 1998, extending
the maturity of the promissory note to American Pacific
Financial Corporation.***
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.***
</TABLE>
II-4
<PAGE> 103
<TABLE>
<CAPTION>
EXHIBIT
NUMBER
- -------
<C> <C> <S>
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.
**Previously filed.
***Filed herewith.
(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, 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.
II-5
<PAGE> 104
(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-6
<PAGE> 105
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 27th of July
1998.
DELICIOUS BRANDS, INC.
By: *
------------------------------------
Michael J. Kirby
President and Chief Executive
Officer
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>
* Chairman of the Board July 27, 1998
- ------------------------------------------
Donald C. Schmitt
* President, Chief Executive Officer July 27, 1998
- ------------------------------------------ and Director (principal
Michael J. Kirby executive officer)
/s/ JEFFRY W. WEINER Vice President, Chief Financial July 27, 1998
- ------------------------------------------ Officer and Secretary (principal
Jeffry W. Weiner financial and accounting
officer)
* Director July 27, 1998
- ------------------------------------------
Jay G. Shoemaker
* Director July 27, 1998
- ------------------------------------------
John H. Wyant
* Director July 27, 1998
- ------------------------------------------
Edward R. Sousa
By: /s/ JEFFRY W. WEINER
- ------------------------------------------
Jeffry W. Weiner
Attorney-in-fact
</TABLE>
II-7
<PAGE> 106
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors of
Delicious Brands, Inc.
In connection with our audit of the financial statements of Delicious
Brands, 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
January 22, 1998
S-1
<PAGE> 107
INDEPENDENT AUDITORS' REPORT ON SCHEDULES
To the Board of Directors of
Delicious Brands, Inc.
In connection with our audit of the financial statements of Delicious
Brands, 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> 108
SCHEDULE II
DELICIOUS BRANDS, 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> 109
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.**..................................................
3.1.1 -- Amended and Restated Certificate of Incorporation 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.**.............
</TABLE>
<PAGE> 110
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <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.**.......................................................
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.**....................
</TABLE>
<PAGE> 111
<TABLE>
<CAPTION>
SEQUENTIALLY
EXHIBIT NUMBERED
NUMBER DESCRIPTION PAGE
- ------- ----------- ------------
<C> <C> <S> <C>
10.46 -- Form of Trucklease and Service Agreement by and between
Ryder Transportation Services and the Company.**............
10.47 -- Memorandum of Agreement by and between the Company and
Bakery, Cracker, Pie and Yeast Wagon Drivers, Local 734,
International Brotherhood of Teamsters of America dated May
13, 1998.***................................................
10.48 -- Commercial Lease by and between Maple Properties Company and
the Company dated as of June 1, 1998.***....................
10.49 -- Promissory Note dated March 30, 1998 of the Company in favor
of Yapton Developments, Limited.***.........................
10.50 -- Letter Agreement by and between the Company and Yapton
Developments, Limited dated July 6, 1998 extending the
maturity of the promissory note to Yapton Developments,
Ltd.***.....................................................
10.51 -- Letter Agreement by and between the Company and American
Pacific Financial Corporation dated July 13, 1998, extending
the maturity of the promissory note to American Pacific
Financial Corporation.***...................................
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.
**Previously filed.
***Filed herewith.
(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 3.1.1
AMENDED AND RESTATED
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: The name of the Corporation is The Delicious Frookie Company,
Inc. The name under which the Corporation was originally incorporated was R.W.
Frookies, Inc. and the date of the filing of its original Certificate of
Incorporation with the Secretary of State was January 19, 1989.
SECOND: The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article 1 thereof and by substituting in lieu thereof
the following:
"1. The name of the corporation is DELICIOUS BRANDS, INC. (the
"Corporation")."
THIRD: The Certificate of Incorporation of the Corporation is hereby
further amended by striking out the first paragraph of Article 4 thereof and by
substituting in lieu thereof the following:
"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 "Common
Stock"). Each two (2) shares of the Corporation's Common Stock issued
and outstanding on the effective date of this amendment shall be and
hereby are
<PAGE> 2
changed without further action into one (1) fully paid and
nonassessable share of the Corporation's Common Stock, provided that no
fractional shares shall be issued pursuant to such change. Fractional
shares will be rounded to the nearest whole number."
FOURTH: The provisions of the Certificate of Incorporation of the
Corporation as heretofore amended and/or supplemented, and as herein amended,
are hereby restated and integrated into the single instrument which is
hereinafter set forth, and which is entitled Restated Certificate of
Incorporation of Delicious Brands, Inc. without any further amendment other than
the amendment herein certified and without any discrepancy between the
provisions of the Certificate of Incorporation as heretofore amended and
supplemented and the provisions of the said single instrument hereinafter set
forth.
FIFTH: The amendment and the restatement of the Certificate of
Incorporation herein certified have been duly adopted by the Board of Directors
with approval by the Corporation's stockholders in accordance with Sections 228,
242 and 245 of the General Corporation Law of the State of Delaware. Prompt
written notice of the adoption of the amendment herein certified shall be given
to those stockholders who have not consented in writing thereto, as provided in
Section 228(d) of the General Corporation Law of the State of Delaware.
SIXTH: The text of the Corporation's Certificate of Incorporation as
hereby and heretofore amended is hereby restated to read as herein set forth in
full:
-2-
<PAGE> 3
RESTATED CERTIFICATE OF INCORPORATION
OF
DELICIOUS BRANDS, INC.
1. The name of the corporation is DELICIOUS BRANDS, INC. (the
"Corporation").
2. The address of its registered office in the State of Delaware is
1013 Centre Road, in the City of Wilmington, County of New Castle. 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 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"). Each two (2) shares of the
Corporation's Common Stock issued and outstanding on the effective date of this
amendment shall be and hereby are changed without further action into one (1)
fully paid and nonassessable share of the Corporation's Common Stock, provided
that no fractional shares shall be issued pursuant to such change. Fractional
shares will be rounded to the nearest whole number.
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 number of directors shall be fixed by the Board of Directors in
the manner established in the bylaws of the Corporation.
6. The Corporation is to have perpetual existence.
7. 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.
-3-
<PAGE> 4
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
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.
8. 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
-4-
<PAGE> 5
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.
9. 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.
10. 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.
11. 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.
-5-
<PAGE> 6
IN WITNESS WHEREOF, the undersigned has hereunto set his hand this
14th day of July, 1998.
By: /s/ Michael J. Kirby
--------------------
Name: Michael J. Kirby
Title: President
Attest:
By: /s/ Jeffry W. Weiner
--------------------
Name: Jeffry W. Weiner
Title: Secretary
-6-
<PAGE> 1
EXHIBIT 10.10
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, made this 3rd day of May 1996, by and between Showbiz Pizza
Time, Inc., a Kansas corporation with its principal place of business at 4441
West Airport Freeway, Irving, Texas 75062 (hereinafter "PIZZA TIME") and The
Delicious Frookie Company, Inc., a Delaware corporation with a place of business
at 2720 River Road, Suite 126, Des Plaines, Illinois 60018 (hereinafter "DFC").
WHEREAS, DFC seeks 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 all cookies, crackers, freeze pops and cones for ice cream with the right of
first refusal for snacks, snack mix, and popcorn; and
WHEREAS, PIZZA TIME is willing to grant such a license to DFC 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 and possessions, all U. S.
military bases, and Canada. The parties agree that
additional countries, or portions thereof may be added to
the definition of Territory upon the mutual agreement of
the parties, with mutual agreement not being unreasonably
withheld by PIZZA TIME.
1.3 Licensed Products - The term "Licensed Products" shall
mean any cookie, cracker, freeze pop type, ice cream
cones, popcorn, packaged snacks and snack mix.
1.4 Net Sales - The term "Net Sales" shall mean gross
sales of Licensed Products less cash, promotional and
term discounts, merchandising allowances, freight and
returns.
2. Grant of License
2.1 Subject to the terms and conditions set forth herein,
PIZZA TIME does hereby grant to DFC a
<PAGE> 2
royalty-bearing, exclusive license to utilize the
Trademarks in the Territory in connection with the
manufacture, marketing and sale of Licensed Products. DFC
hereby accepts such license.
2.2 DFC agrees not to grant any license or sublicense of the
Trademarks and shall not otherwise assign or transfer any
rights granted by PIZZA TIME 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 DFC and acceptable to PIZZA TIME and that
therefore in any reference in this agreement to
manufacture by DFC may apply to a third party.
Notwithstanding the foregoing, DFC shall remain
responsible for the manufacturing of the Licensed
Product(s) hereunder.
2.3 The parties agree that nothing herein shall prohibit PIZZA
TIME from utilizing or permitting third parties to utilize
Trademarks in Territory on any product not related to the
Licensed Products or outside of Territory on any product,
and PIZZA TIME 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 five years ("Initial Term"). If
neither party has terminated the Agreement upon the expiration of the Initial
term, the parties agree that, commencing upon the conclusion of the Initial
Term, the Agreement shall be automatically renewed for successive five (5) year
terms unless earlier termination as provided for in this Agreement has occurred.
4. Termination
4.1 DFC shall have the right to terminate this Agreement at
anytime upon ninety (90) days written notice to PIZZA TIME
and in the event DFC elects to so terminate, it shall
continue to remit to PIZZA TIME the royalty payments due
PIZZA TIME as the same may become due during the ninety
(90) day notice period, which shall be deemed to commence
on the date of PIZZA TIME receives receipt of notice, or
thereafter if such payments become due after the ninety
(90) day notice period has expired.
4.2 In the event DFC breaches any of the provisions of
Sections 6, 7, 9, 10, 11, 13, 16, 17 and 18, the parties
agree that PIZZA TIME may in its sole discretion, provide
DFC with ninety (90) days
-2-
<PAGE> 3
opportunity to cure. If the breach is not cured within the
ninety (90) day period after notice from PIZZA TIME, this
Agreement shall automatically terminate subject to DFC's
rights to sell off the Licensed Product as provided
therein. If the breach is cured within the ninety (90) day
period, this Agreement shall continue in full force and
effect.
4.3 In the event PIZZA TIME breaches any of the provisions of
Sections 8.1, 8.3 and 14, the parties agree that DFC may,
in its sole discretion, provide PIZZA TIME with ninety
(90) days written notice of termination and opportunity to
cure. If the breach is not cured within the ninety (90)
day period, this Agreement shall automatically terminate
subject to DFC's rights to sell off the Licensed Products
as provided herein. If the breach is cured within the
ninety (90) day period, this Agreement shall continue in
full force and effect; provided, however, in the event
PIZZA TIME breaches the same provision twice within any
one (1) year period, DFC may terminate this Agreement
following the second breach without any opportunity to
cure.
4.4 In the event for any given calendar year after the third
full year of the license, DFC does not pay to PIZZA TIME
royalties of at least $50,000, then PIZZA TIME has the
option to convent this license to a non-exclusive license,
all other terms remaining the same.
4.5 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, DFC shall cease all use of Trademarks; provided
however, the parties agree that DFC shall have up to one
hundred eighty (180) days to sell existing inventories and
use existing packaging and/or findings of Licensed
products on DFC's normal terms and conditions. The parties
further agree that
-3-
<PAGE> 4
PIZZA TIME may, in its sole discretion, purchase all or a
portion of Licensed Products, or any component thereof, at
DFC's actual cost.
5.2 Within a reasonable period of time following expiration or
termination, but in no event more than four (4) months
following expiration or termination, DFC agrees to provide
to PIZZA TIME a final royalty report and royalty payment.
6. Quality Assurance
6.1 DFC agrees to provide for the opportunity and allow, at
mutually convenient times, PIZZA TIME 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 semiannual basis
thereafter; provided, however, in the event Licensed
Products at anytime fail to comply with the provisions set
forth in Sections 7.2 and 7.3 PIZZA TIME 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 PIZZA TIME's satisfaction.
PIZZA TIME agrees to provide DFC with reasonable prior
notice of such inspections.
6.2 DFC agrees to correct any reasonable defects that affects
the quality of Licensed Products noted by PIZZA TIME's
quality assurance personnel and provide PIZZA TIME with a
written response detailing the actions taken to correct
such defects within thirty (30) days after such
observations were made by PIZZA TIME's representative.
7. Quality Control
7.1 DFC acknowledges the valuable goodwill, associated with
Trademarks and desires to maintain the validity of
Trademarks and the goodwill associated therewith and DFC
agrees, therefore, to maintain high standards in the
manufacturing, packaging and storing of Licensed Products.
7.2 DFC 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. DFC further
-4-
<PAGE> 5
agrees that all facilities utilized to manufacture and
package Licensed Products shall be maintained in
accordance with all applicable Federal, state and/or local
laws and regulations.
7.3 DFC agrees that Licensed Products shall be manufactured
and packaged in strict accordance with the formulas,
product specifications, quality specifications and samples
approved by PIZZA TIME prior to the initial manufacture.
In the event Licensed Products are not manufactured and
packaged in accordance with such formulas, specifications
and samples, PIZZA TIME shall have the right to terminate
this agreement pursuant to Section 4.2. Additionally,
PIZZA TIME shall have the right to require immediate
corrective action place on any Licensed Products not
meeting such formulas, specifications and/or samples. In
the event DFC desires to make any changes to the formulas
or specifications for Licensed Products, DFC shall provide
PIZZA TIME with revised formulas, product and quality
specifications and samples for PIZZA TIME approval prior
to the manufacture of the revised Licensed Products, PIZZA
TIME shall approve or object revisions within three (3)
business days following PIZZA TIME's receipt of materials
or approval shall be presumed. DFC agrees not to
manufacture revised Licensed Products without PIZZA TIME's
prior consent.
7.4 DFC agrees to provide PIZZA TIME with a sample of all
Licensed Products upon request from PIZZA TIME. DFC
further agrees to make, within a period of two (2) months,
any reasonable changes requested by PIZZA TIME which PIZZA
TIME deems necessary to maintain the quality of Licensed
Products.
7.5 DFC shall allow PIZZA TIME to inspect a copy of all
quality control manuals and records which relate to the
manufacture, packaging or storage of Licensed Products.
DFC agrees to manufacture, package and store Licensed
Products in strict accordance with such manuals.
8. Royalty
8.1 The parties agree that during all terms of this Agreement
DFC shall pay to PIZZA TIME a royalty on net sales in the
amount of four (4%) percent on the first three and
one-half million ($3,500,000) dollars of Net Sales: and
three (3%) percent thereafter.
-5-
<PAGE> 6
8.2 The parties agree that all royalty payments shall be
made by DFC within twenty (20) days following the end
of each month during the term of this Agreement.
9. Advertising/Promotional Materials/Promotion
9.1 DFC shall submit to PIZZA TIME and PIZZA TIME 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. PIZZA TIME shall approve or
communicate any objection of such samples within ten (10)
business days following PIZZA TIME's receipt of such
materials or approval shall be presumed. DFC agrees to
make all reasonable changes requested by PIZZA TIME.
9.2 DFC will promote PIZZA TIME wherever and whenever it can
interconnect its advertising and promotional material for
its Licensed Products including the exclusive right for
promotions with PIZZA TIME in relation to the Licensed
Products, and similarly PIZZA TIME will use its best
efforts to interconnect its promotion and advertising with
DFC's Licensed Products. Both parties, jointly, will use
their respective best efforts to promote the other's
products and services.
9.3 PIZZA TIME will market and promote DFC Licensed Products
in PIZZA TIME's outlets and use its best efforts to
promote and sell DFC Licensed Products. DFC will supply
PIZZA TIME with its products at its standard terms.
10. Trademarks
10.1 DFC agrees that nothing herein shall give DFC 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
PIZZA TIME and any goodwill generated from any and all
uses of Trademarks shall inure to the benefit of PIZZA
TIME.
10.2 DFC agrees to assign to PIZZA TIME, 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 DFC as a result of the activities of DFC
pursuant to this Agreement.
-6-
<PAGE> 7
10.3 DFC 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 PIZZA TIME. DFC agrees, therefore, to
utilize Trade-marks in strict accordance with proper
Trademark usage and the directions of PIZZA TIME. DFC
shall not, directly or indirectly, attach or assist a
third party in attacking the validity of Trademarks.
10.4 DFC agrees not to act, directly or indirectly, in any
matter which might lead a third party to believe that
Trademarks are owned by DFC.
10.5 On the packaging, labels, advertising and other
materials which utilize Trademarks, DFC agrees that;
(a) The registered trademark symbol "(R)" shall be
utilized in conjunction with the appropriately
registered Trademarks; or
(b) The trademark symbol "TM" shall be used in
conjunction with unregistered trademarks and
trademarks used outside the scope of their
current registrations.
10.6 DFC agrees not to seek any trademark registration
anywhere in connection with its use of Trademarks.
10.7 DFC agrees not to adopt or use any mark or symbol
that is similar to Trademarks or any of PIZZA TIME
trademarks or tradenames.
10.8 DFC agrees not to utilize Trademarks in any
unauthorized manner.
10.9 DFC agrees upon the request of and at the expense of PIZZA
TIME, to reasonably aid and assist PIZZA TIME in the
registration and maintenance of Trademarks and in any
litigation of resolution of claims with respect to
Trademarks.
10.10 DFC shall have no right to expand the scope of protection
afforded the Trademarks. DFC shall use the Trademarks as
set forth in Exhibit A and shall not use the Trademarks,
including any modified version thereof, in any way.
10.11 DFC agrees to notify PIZZA TIME of any non-PIZZA TIME
trademark or tradenames which are similar in sight,
sound, appearance remaining to Trademarks. DFC
-7-
<PAGE> 8
expressly agrees that it shall take no action with regards
to such trademarks or tradenames other than notification
of PIZZA TIME. PIZZA TIME shall have the sole right to
decide whether or not to take action against such
trademarks or tradenames.
11. The Delicious Frookie Company Inc. Trademark Protection
11.1 PIZZA TIME agrees that nothing herein shall give PIZZA
TIME any right, title or interest in or to any of DFC's
trademarks, except the right to utilize such trademarks in
accordance with DFC's instructions of packages of Licensed
Products, and that such trademarks are the sole property
of DFC and any goodwill generated from any and all uses of
such trademarks shall inure to the benefit of PIZZA TIME.
11.2 PIZZA TIME agrees to assign to DFC, on the expiration or
termination of this Agreement and without any additional
consideration, any rights and equities related to DFC's
trademarks and any goodwill incidental to such rights that
may be vested in PIZZA TIME as a result of the activities
of PIZZA TIME pursuant to this Agreement.
11.3 PIZZA TIME acknowledges the valuable goodwill associated
with the DFC trademarks and it desires to maintain the
validity of such trademarks and the goodwill associated
with such trademarks for the benefit of DFC. PIZZA TIME
agrees, therefore, to utilize such trademarks in strict
accordance with proper trademark usage and the directions
of DFC. PIZZA TIME shall not, directly or indirectly,
attach or assist a third party in attacking the validity
of DFC's trademarks.
11.4 PIZZA TIME agrees not to act, directly or indirectly, in
any matter which might lead a third party to believe that
DFC's trademarks are owned by PIZZA TIME.
11.5 PIZZA TIME agrees not to seek any trademark
registration anywhere in connection with its use of
DFC's trademarks.
11.6 PIZZA TIME agrees not to adopt or use any mark or
symbol that is similar to DFC's trademarks.
11.7 PIZZA TIME agrees not to utilize DFC's trademarks in
any unauthorized manner.
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11.8 PIZZA TIME agrees upon the request of and at the
expense of DFC, to reasonably aid and assist DFC in
the registration and maintenance of DFC's trademarks
and in any litigation or resolution of claims with
respect to such trademarks.
12. Representations and Warranties of DFC
DFC hereby makes the following representations and warranties:
12.1 The making of this Agreement does not violate any
rights or obligations existing between DFC and any
third party; and
12.2 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
12.3 Licensed Products shall be in compliance with all
local, state and Federal laws, regulations,
ordinances, rules and procedures; and
12.4 Licensed Products shall be in strict compliance with
all formulas, specifications and samples.
13. Representations and Warranties of PIZZA TIME
PIZZA TIME hereby makes the following representations and
warranties
13.1 The making of this Agreement does not violate any
rights or obligations existing between PIZZA TIME and
any third party; and
13.2 PIZZA TIME has the right to grant the license of
Licensed Trademarks in accordance with the terms and
conditions of this Agreement.
13.3 The Licensed Trademarks are all valid and subsisting
in the Territory and PIZZA TIME is the owner of the
Licensed Trademarks.
14. Indemnification
14.1 DFC hereby indemnifies and holds harmless PIZZA TIME, and
will defend or cause PIZZA TIME to be defended, from and
against any and all claims, demands, causes of action,
losses, damages, costs and expenses
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(including reasonable attorneys' fees) arising out of or
in any way connected with a breach by DFC of any of the
representations or warranties set forth in Section 12
above or arising from or in any way connected with the
intentional acts or omissions or negligence of DFC or
arising from or in any way connected with DFC's failure to
perform or failure to perform properly any of its
contractual obligations.
14.2 DFC hereby indemnifies and holds harmless PIZZA TIME, and
will defend or cause PIZZA TIME 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.
14.3 PIZZA TIME hereby indemnifies and holds harmless DFC and
will defend or cause DFC 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 PIZZA TIME breach of any of its representations or
warranties set forth in Section 13 above or arising out of
or in any way connected with PIZZA TIME intentional acts
or omissions or negligence or arising out of or in any way
connected with PIZZA TIME failure to perform or failure to
perform properly any of its contractual obligations.
15. Insurance
15.1 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, DFC shall provide to PIZZA
TIME documents evidencing the existence of Comprehensive
General Liability Insurance with combined single limits of
not less than $1,000,000 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.
15.2 DFC 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
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the statutory limits required by the state in which
Licensed Products are manufactured.
15.3 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 PIZZA TIME.
16. Product Recovery
PIZZA TIME and DFC may mutually determine whether or not to implement
product recall recovery or retrieval relating to Licensed Products. DFC
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 PIZZA TIME in which case PIZZA TIME shall
bear all costs and expenses associated therewith.
17. Records
17.1 DFC 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.
17.2 DFC agrees that a CPA selected by PIZZA TIME shall be
given access to and shall have the right to inspect all
such records, on a confidential basis at any time during
DFC's normal business hours; provided, however, PIZZA TIME
agrees to provide DFC with reasonable prior notice of such
inspection. PIZZA TIME and its CPA shall agree in writing
to maintain all confidential material in confidence.
18. 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 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 party.
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19. 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.
20. 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.
21. 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.
22. 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 PIZZA TIME: Showbiz Pizza Time, Inc.
4441 West Airport Freeway
Irving, Texas 75062
or
P. O. Box 15207
Irving, Texas 75062
Attention: Richard Huston
Executive Vice President,
Director of Marketing
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To DFC: The Delicious Frookie Company, Inc.
2720 River Road
Des Plaines, IL 60018
Attn: President
With a copy sent to:
Mr. Howard Miskin
Stoll, Miskin, Previto & Hoffman
350 5th Avenue
Empire State Building
Suite 6110
New York, NY 10118
23. 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.
24. Governing Law
This Agreement shall be governed by and construed in accordance with
laws of the state of Illinois.
25. Confidentiality
Simultaneous with the execution of this Agreement, the parties shall
enter into the Non-disclosure Agreement attached hereto and
incorporated herein. The parties agree that neither the term of this
Agreement nor of any activity leading up to the execution of this
Agreement shall be disclosed by either party to any third party without
the prior written consent of the other party.
26. Assignment
This Agreement shall inure to the benefit of and, shall bind each of
the parties hereto and their respective successors and assigns.
IN WITNESS WHEREOF, authorized representatives of the parties hereto have
executed this Agreement effective the day and year first above written.
THE DELICIOUS FROOKIE COMPANY, INC. SHOWBIZ PIZZA TIME, INC.
By:/s/ Richard Worth By:
Print Name:Richard Worth Print Name:
Title:Chairman of the Board Title:
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EXHIBIT A
TRADEMARKS
"CHUCK E. CHEESE"
Associated characters, including but not limited to:
Charlie Rocket
Pasqually - The Pizza Man
Munch
Helen Henny -
Cute Looking Rat
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<PAGE> 1
Exhibit 10.11
TRADEMARK LICENSE AGREEMENT
THIS AGREEMENT, made this 1st day of May 1996, by and between Ringling
Bros. and Barnum & Bailey Combined Shows, a Delaware corporation with its
principal place of business at 8607 Westwood Center Drive, Vienna, Virginia
22182 (hereinafter "RBBB") and the Delicious Frookie Company, Inc., a Delaware
corporation with a place of business in Des Plaines, Illinois (hereinafter
"DFC").
WHEREAS, DFC seeks 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 all cookies, crackers, freeze pops and cones for ice cream
with the right of first refusal for salty snacks, salty snack mix, and popcorn;
and
WHEREAS, RBBB is willing to grant such a license to DFC 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 and possessions, all U.S. military bases, and Canada.
The parties agree that additional countries or portions thereof may be added to
the definition of Territory upon the mutual written agreement of the parties,
with mutual agreement not being unreasonably withheld by RBBB.
1.3 Licensed Products - The term "licensed Products" shall mean
any cookie, cracker, freeze pop type, ice cream cone and pop corn, and the right
of first approval for packaged salty snacks and salty snack mix and the
exclusive rights in promoting and advertising all "Licensed Products" in
association with RBBB.
1.4 Net Sales - The term "Net Sales" shall mean gross sales of
Licensed Products less cash, promotional and term discounts, merchandising
allowances, freight and
<PAGE> 2
returns, except that all discounts and merchandising allowances given to any one
of Licensee's buyers shall not exceed 10% of the total amount billed to that
buyer.
2. Grant of License
2.1 Subject to the terms and conditions set forth herein, RBBB
does hereby grant to DFC a royalty-bearing, exclusive license to utilize the
trademarks in Territory in connection with the manufacture, marketing and sale
of Licensed Products. DFC hereby accepts such license.
2.2 DFC agrees not to grant any license or sublicense of the
Trademarks and shall not otherwise assign or transfer any rights granted by RBBB
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 DFC and
acceptable to RBBB and that therefore in any reference in this agreement to
manufacture by DFC may apply to a third party. Notwithstanding the foregoing,
DFC shall remain responsible for the manufacturing of the Licensed Product(s)
hereunder, and DFC shall not change its manufacturer(s) without the prior
written approval of RBBB.
2.3 The parties agree that nothing herein shall prohibit RBBB from
utilizing or permitting third parties to utilize Trademarks in Territory on any
product not related to the Licensed Products or outside of the Territory on any
product, and RBBB expressly reserves the right to do so. Furthermore, DFC
acknowledges and accepts that RBBB, through its national concession, currently
offers for sale popcorn at RBBB show sites.
3. Term
The term of this Agreement shall commence on the day and year first
above written and shall continue for a period of five (5) years ("Initial
Term"). Such Initial Term may be extended for additional three (3) year terms
thereafter, provided that the parties mutually agree to each such extension in
writing at least sixty (60) days prior to the expiration of the Initial Term or
any extension period.
4. Termination
4.1 DFC shall have the right to terminate this Agreement at
anytime upon ninety (90) days written notice to RBBB and in the event DFC elects
to so terminate, it shall continue to remit to RBBB the royalty payments due
RBBB as the same may become due during the ninety (90) day notice period, which
shall be deemed to commence on the date of RBBB receives receipt of notice, or
thereafter if such payments become due after the ninety (90) day notice period
has expired.
4.2 In the event DFC breaches any of the provisions of Sections 6,
7, 8, 9, 10, 11, 13, 16, 17 and 18, the parties agree that RBBB may, in its sole
discretion, provide DFC with
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<PAGE> 3
ninety (90) days opportunity to cure. If the breach is not cured within the
ninety (90) day period after notice from RBBB, this Agreement shall
automatically terminate subject to DFC's rights to sell off the Licensed Product
as provided therein. If the breach is cured within the ninety (90) day period,
this Agreement shall continue in full force and effect; provided, however, in
the event DFC breaches the same provision twice within any one (1) year period,
RBBB may terminate this Agreement following the second breach without any
opportunity to cure.
4.3 In the event that RBBB breaches any of the provisions of
Sections 8.1, 8.3 and 14, the parties agree that DFC may, in its sole
discretion, provide RBBB with ninety (90) days written notice of termination and
opportunity to cure. If the breach is not cured within the ninety (90) day
period, this Agreement shall automatically terminate subject to DFC's right to
sell off the Licensed Products as provided herein. If the breach is cured within
the ninety (90) day period, this Agreement shall continue in full force and
effect; provided, however, in the event RBBB breaches the same provision twice
within any one (1) year period, DFC may terminate this Agreement following the
second breach without any opportunity to cure.
4.4 In the event for any given calendar year DFC does not pay to
RBBB royalties of at least $50,000, then DFC shall be in breach of this
Agreement, and shall have an opportunity to cure as provided in Section 4.2.
4.5 In the event that 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, DFC shall cease all use of Trademarks; provided, however, the parties
agree that DFC shall have up to one hundred eighty (180) days to sell existing
inventories and use existing packaging and/or findings of Licensed Products on
DFC's normal terms and conditions. The parties further agree that RBBB may, in
its sole discretion, purchase all or a portion of Licensed Products, or any
component thereof, at DFC's actual cost.
5.2 Within a reasonable period of time following expiration or
termination, but in no event more than two (2) months following expiration or
termination, DFC agrees to provide to RBBB a final royalty report and royalty
payment.
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<PAGE> 4
6. Quality Assurance
6.1 DFC agrees to provide for the opportunity and allow, at
mutually convenient times, RBBB 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 anytime
fail to comply with the provisions set forth in Sections 7.2 and 7.3 RBBB 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 RBBB's satisfaction.
RBBB agrees to provide DFC with reasonable prior notice of such inspections.
6.2 DFC agrees to correct any reasonable defects that affects the
quality of Licensed Products noted by RBBB's quality assurance personnel and
provide RBBB with a written response detailing the actions taken to correct such
defects within thirty (30) days after such observations were made by RBBB's
representative.
7. Quality Control
7.1 DFC acknowledges the valuable goodwill, associated with
Trademarks and desires to maintain the validity of Trademarks and the goodwill
associated therewith and DFC agrees, therefore, to maintain high standards in
the manufacturing, packaging and storing of Licensed Products.
7.2 DFC 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. DFC further agrees that all
facilities utilized to manufacture and package Licensed Products shall be
maintained in accordance with all applicable Federal, state and/or local laws
and regulations.
7.3 DFC agrees that Licensed Products shall be manufactured and
packaged in strict accordance with the formulas, product specifications, quality
specifications and samples approved by RBBB prior to the initial manufacture. In
the event Licensed Products are not manufactured and packaged in accordance with
such formulas, specifications and samples, RBBB shall have the right to
terminate this agreement pursuant to the manufacture of the revised Licensed
Products, RBBB shall approve of object revisions within three (3) business days
following RBBB's receipt of materials or approval shall be presumed. DFC agrees
not to manufacture revised Licensed Products without RBBB's prior consent.
7.4 At least six (6) representative copies or samples of all
proposed material using the Property, including the proposed Licensed Products,
advertising, and all other material of any character whatsoever (the
"Material"), together with a description of the intended use of
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<PAGE> 5
the Material, shall be submitted to Licensor without cost for Licensor's written
approval prior to Licensee's use of the same, and annually thereafter if
requested by Licensor. The copies and description shall be retained by Licensor.
Any such proposed Material submitted to Licensor shall be approved or
disapproved in writing by Licensor within fifteen (15) business days of its
submission to Licensor. After approval of the Material has been obtained from
Licensor, Licensee shall not depart therefrom in any material respect without
Licensor's prior written consent, and Licensor shall not withdraw its approval
of the approved Material without good cause.
7.5 DFC shall allow RBBB to inspect a copy of all quality control
manuals and records which relate to the manufacture, package and store Licensed
Products in strict accordance with such manuals.
8. Royalty
8.1 The parties agree that during all terms of this Agreement DFC
shall pay to RBBB a royalty on Net Sales in the following amounts:
Four (4%) on the first three and one-half million ($3,500,000)
dollars of Net Sales: and three (3%) thereafter.
8.2 For each calendar year of the Initial Term of the Agreement
and for each calendar year of each Extension Term (each year herein referred to
as the "Agreement Year"), DFC shall guarantee RBBB the payment of the minimum
annual royalty of fifty thousand ($50,000) dollars ("Minimum Royalty") as
follows:
If the total amount of Royalties for each Agreement Year,
determined in accordance with Section 8.1 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 RBBB an amount equal to the
difference between the amount of the Minimum Royalty for such
Agreement Year and the amount of Royalties paid to RBBB for
such Agreement Year, determined in accordance with Section
8.1. The first year shall be deemed 16 months from signing
contract.
8.3 The parties agree that all royalty payments shall be made by
DFC within twenty (20) days following the end of each month during the term of
this Agreement.
9. Advertising/Promotional Materials
9.1 DFC shall submit to RBBB and RBBB 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. RBBB shall approve or
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<PAGE> 6
communicate any objection of such samples in writing within ten (10) business
days following RBBB's receipt of such materials. DFC agrees to make all
reasonable changes requested by RBBB.
9.2 DFC will promote Ringling Brothers-Barnum & Bailey Combined
Shows wherever and whenever it can interconnect its advertising and promotional
material for its Licensed Products including the exclusive right for promotions
with RBBB in relation to the Licensed Products, and similarly RBBB will use its
best efforts to interconnect its promotion and advertising with DFC's Licensed
Products. Both parties, wherever and whenever feasible and reasonable, will
endeavor to promote the other's Products and services.
10. Trademarks
10.1 DFC agrees that nothing herein shall give DFC 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 RBBB and any goodwill generated from any and all uses of Trademarks
shall inure to the benefit of RBBB.
10.2 DFC agrees to assign to RBBB, 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 DFC as a result of the activities of DFC pursuant to this
Agreement.
10.3 DFC acknowledged 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 RBBB. DFC agrees,
therefore, to utilize Trademarks in strict accordance with proper Trademarks
usage and the directions of RBBB. DFC shall not, directly or indirectly, attack
or assist a third party in attacking the validity of Trademarks
10.4 DFC agrees not to act, directly or indirectly, in any matter
which might lead a third party to believe that Trademarks are owned by DFC.
10.5 On the packaging, labels, advertising and other materials
which utilize Trademarks, DFC 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 Ringling
Bros. and Barnum & Bailey Combined Shows, 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 "TM" shall be used in conjunction with
unregistered trademarks and trademarks used outside the scope of
their current
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<PAGE> 7
registrations and the statement _______ is (are) a trademark(s) of
Ringling Bros. and Barnum & Bailey Combined Shows, Inc." shall be
clearly displayed.
10.6 DFC agrees not to seek any trademark registration anywhere in
connection with its use of Trademarks.
10.7 DFC agrees not to adopt or use any mark or symbol that is
similar to Trademarks of any of RBBB trademarks or trade names.
10.8 DFC agrees not to utilize trademarks in any unauthorized
manner.
10.9 DFC agrees upon the request of and at the expense of RBBB, to
reasonably aid and assist the registration and maintenance of Trademarks and in
any litigation of resolution of claims with respect to Trademarks.
10.10 DFC shall have no right to expand the scope of protection
afforded the Trademarks. DFC shall use the Trademarks as set forth in Exhibit A
and shall not use the Trademarks, including any modified version thereof in any
way.
10.11 DFC agrees to notify RBBB of any non-RBBB trademarks or trade
names which are similar in sight, sound, appearance remaining to Trademarks. DFC
expressly agrees that it shall take no action with regard to such trademarks or
trade names other than notification of RBBB. RBBB shall have the sole right to
decide whether or not to take action against such trademarks or trade names.
11. The Delicious Frookie Company, Inc.
Trademark Protection
11.1 RBBB agrees that nothing herein shall give RBBB any right,
title or interest in or to any of DFC's trademarks except the right to utilize
such trademarks in accordance with DFC's instructions of packages of Licensed
Products, and that such trademarks are the sole property of DFC and any goodwill
generated from any and all uses of such trademarks shall inure to the benefit of
RBBB.
11.2 RBBB agrees to assign to DFC, on the expiration or termination
of this Agreement and without any additional consideration, any rights and
equities related to DFC's trademarks and any goodwill incidental to such rights
that may be vested in RBBB as a result of the activities of RBBB pursuant to
this Agreement.
11.3 RBBB acknowledges the valuable goodwill associated with the
DFC trademarks and it desires to maintain the validity of such trademarks and
the goodwill associated with such trademarks for the benefit of DFC. RBBB
agrees, therefore, to utilize such trademarks
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<PAGE> 8
in strict accordance with proper trademark usage and the directions of DFC- RBBB
shall not, directly or indirectly, attack or assist a third party in attacking
the validity of DFC's trademarks.
11.4 RBBB agrees not to act, directly or indirectly, in any matter
which might lead a third party to believe that DFC's trademarks are owned by
RBBB.
11.5 RBBB agrees not to seek any trademark registration anywhere in
connection With its use of DFC's trademarks.
11.6 RBBB agrees not to adopt or use any mark or symbol that is
similar to DFC's trademarks.
11.7 RBBB agrees not to utilize DFC's trademarks in any
unauthorized manner.
11.8 RBBB agrees upon the request of and at the expense of DFC, to
reasonably aid and assist DFC in the registration and maintenance of DFC's
trademarks and in any litigation or resolution of claims with respect to such
trademarks.
12. Representations and Warranties of DFC
12.1 The making of this Agreement does not violate any rights or
obligations existing between DFC and any third party; and
12.2 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
12.3 Licensed Products shall be in compliance with all local,
state, and Federal laws, regulations, ordinances, rules and procedures; and
12.4 Licensed Products shall be in strict compliance with all
formulas, specifications and samples.
13. Representations and Warranties of RBBB
13.1 The making of this Agreement does not violate any rights or
obligations existing between RBBB and any third party; and
13.2 RBBB has the right to grant the license of Licensed Trademarks
in accordance with the terms and conditions of this Agreement.
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13.3 The Licensed Trademarks are all valid and subsisting in the
Territory and RBBB is the owner of the Licensed Trademarks.
14. Indemnification
14.1 DFC hereby indemnifies and holds harmless RBBB, and will
defend or cause RBBB 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 DFC of any of the representations or warranties set forth in Section 12 above
or rising from or in any way connected with the intentional acts or omissions or
negligence of DFC or arising from or in any way connected with DFC's failure to
perform or failure to perform properly any of its contractual obligations.
14.2 DFC hereby indemnifies and holds harmless RBBB, and will
defend or cause RBBB 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
alleged defect in, or accident or injury alleged in connection with, Licensed
Products.
14.3 RBBB hereby indemnifies and holds harmless DFC and will defend
or cause DFC 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 RBBB breach of any
of its representatives or warranties set forth in Section 13 above or arising
out of or in any way or negligence or arising out of or in any way connected
with RBBB intentional acts or omissions or negligence or arising out of or in
any way connected with RBBB failure to perform or failure to perform properly
any of its contractual obligations.
15. Insurance
Licensee will obtain and maintain a Comprehensive Liability
Insurance Policy, including Products Liability and Contractual Liability,
providing protection for Licensor, and its officers, agents and employees,
against any claims or liabilities arising out of or in any way related to the
manufacture, distribution, sale, or other disposition of the Products, with a
combined single limit in the amount of One Million Dollars ($1,000,000.00) with
a company satisfactory to Licensor, to be kept in force for twelve (12) months
after final disposal of inventory. As proof of such insurances, a fully paid
certificate of insurance, naming Licensor as an insured party and indicating
thereon that the insurance may not be changed, cancelled or allowed to lapse
through non-renewal or failure to pay the premium therefor except upon not less
than thirty (30) days' written notice to Licensor, will be submitted to Licensor
by Licensee within sixty (60) days after the date of this Agreement.
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16. Product Recovery
RBBB and DFC may mutually determine whether or not to implement
product recall recovery or retrieval relating to Licensed Products. DFC 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 RBBB in which
case RBBB shall bear all costs and expenses.
17. Records
17.1 DFC 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.
17.2 DFC agrees that a CPA selected by RBBB shall be given access
to and shall have the right to inspect and make copies of all such records, on a
confidential basis at any time during DFC's normal business hours; provided,
however, RBBB agrees to provide DFC with reasonable prior notice of such
inspection. RBBB and its CPA shall agree in writing to maintain all confidential
material in confidence.
17.3 Receipt or acceptance by Licensor of any of the reports
furnished pursuant to this Agreement or of any sums paid hereunder shall not
preclude Licensor from questioning the correctness thereof at any time, and in
the event that any inconsistencies or mistakes are discovered in such statements
or payments, they shall immediately be rectified and the appropriate payments
made by Licensee. Upon demand of Licensor, Licensee shall, at its own expense,
but not more than once in any twelve (12) month period, furnish to Licensor a
detailed statement by an independent certified public accountant showing the
number, description, gross sales price, itemized deductions from gross sales
price and net sales price of the Products distributed and/or sold by Licensee.
If such audit discloses that Licensee has under-reported its net shipments to
Licensor by more than two percent (2%), Licensee shall bear the full cost of
such audit. Otherwise, Licensor shall bear the cost of such audit.
18. Sales to Licensor
Licensee agrees to sell the Products to Licensor and to Licensor's
subsidiaries, related or affiliated companies at as low a price as Licensee
sells the same to any third party; provided, however, that such price shall not
exceed fifty percent (50%) of the retail price to be charged by Licensor or its
subsidiaries, related or affiliated companies. For example, if the lowest
wholesale price Licensee charges for one of its products bearing the Property is
$8.00 and the retail price for the same to be charged by Licensor's related
company is $14.00, Licensee agrees to sell such
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<PAGE> 11
Product to Licensor for $7.00. If, however, Licensee's lowest wholesale price
for the Product is $6.00, Licensee agrees to sell such Product to Licensor for
$6.00.
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 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 party.
20. Relationship of the Party
This Agreement is not intended and shall not, be construed to substitute
either party the joint venture of 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.
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:
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To RBBB: Ringling Bros. and Barnum & Bailey Combined Shows
8607 Westwood Center Drive
Vienna, VA 22182
Attn: Jeff Meyer, Director of Sponsorships, Strategic
Alliances & Licensing
To DFC: The Delicious Frookie Company, Inc.
2720 River Road
Des Plaines, IL 60018
Attn: President
With a copy sent to:
Mr. Howard Miskin
Stoll, Miskin, Previto & Hoffman
350 5th Avenue
Empire State Building
Suite 6110
New York, NY 10118
24. 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.
25. Governing Law
This Agreement shall be governed and construed in accordance with laws of
the Commonwealth of Virginia.
26. Confidentiality
Simultaneous with the execution of this Agreement, the parties shall enter
into the Non-disclosure Agreement attached hereto and incorporated herein. The
parties agree that neither the term of this Agreement nor any of the activity
leading up to the execution of this Agreement shall be disclosed by either party
to any third party without the prior written consent of the other party.
27. Assignment
This Agreement shall insure to the benefit of and, shall bind each of the
parties hereto and their respective successors and assigns.
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<PAGE> 13
IN WITNESS WHEREOF, authorized representatives of the parties hereto have
executed this Agreement effective the day and year first above written.
THE DELICIOUS FROOKIE RINGLING BROS. BARNUM & BAILEY
COMPANY, INC. COMBINED SHOWS, INC.
By: /s/ Richard Worth By: /s/ Jeff Meyer
Print Name: Richard Worth Print Name: Jeff Meyer
Title:________________________________ Print Name: Director of Licensing
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<PAGE> 14
EXHIBIT A
TRADEMARKS
RINGLING BROS. AND BARNUM & BAILEY
RINGLING BROS.
BARNUM & BAILEY
THE GREATEST SHOW ON EARTH
CHICAGO KIDZ
AMERICA'S LIVING NATIONAL TREASURE
RINGLING BROS. AND BARNUM & BAILEY CLOWN COLLEGE
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<PAGE> 15
CONFIDENTIALITY/NON-DISCLOSURE AGREEMENT
This Agreement is made this 1 day of May, 1996, by and between The
Delicious Frookie Company, Inc., a Delaware Corporation (DFC) and Jim RBBB
Enterprise (RBBB).
WHEREAS, DFC and RBBB each has certain confidential information
which it may disclose to the other in the course of doing business together; and
WHEREAS, it is the intention of the parties to protect each others'
confidential information;
IT IS HEREBY AGREED AS FOLLOWS:
1. This Agreement controls information disclosed directly or
indirectly by each other to any agent, employee, officer, successor or assign of
the other during the period of time commencing on the date first written above
and ending five years later on May 1, 2001.
2. Each shall protect the disclosed confidential information of
the other by using the same degree of care, but no less than a reasonable degree
of care, to prevent the unauthorized disclosure of the confidential information
as each uses to protect its own confidential information.
3. In the event that either party is required by judicial or
administrative process to disclose confidential information, each shall promptly
notify the other so as to provide the other a reasonable time to oppose such a
process.
4. Each party's duties under this Agreement shall apply to
confidential information that is (a) disclosed by the other in writing and
marked to indicate that it is confidential at the time of disclosure or (b)
disclosed by the other in any other manner and is indicated to be confidential
at the time of disclosure and thereafter is also summarized and marked to
indicate it is confidential in a written memorandum delivered to that party
within thirty days of the disclosure, or that is (c) disclosed in the form of
tangible products or materials transmitted to that party with an accompanying
written memorandum as indicated above.
5. It is understood and agreed that when any employee or
representative of RBBB visits a production or supply facility of or for DFC or
in connection with the Licensed Product, such as in the course of quality
control pursuant to the terms of the license agreement, any information or
disclosure seen or observed by such employee or representative at such facility
shall be deemed confidential under this agreement. Each such employee or
representative of or for RBBB, prior to entering DFC's premises or facilities
where Licensed Products are make or packaged or materials produced for such
Licensed Products, shall be advised of this confidential disclosure Agreement
and agree to be bound by its terms.
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<PAGE> 16
6. This agreement poses no obligation on either Party with regard
to information to either party's possession prior to execution of this Agreement
in (a) writing or (b) information which is or becomes available to the public
through no fault of the other, (c) information received in good faith by either
party from third parties and is not subject to an obligation of confidentiality
of such third parties, or (d) unframed independently developed by either party
without reference to the information received hereunder.
7. Each party agrees to return all extant confidential
information (including tangible products or materials) received from the other
upon the other's request, except that each may retain in the offices of its
legal counsel one copy of written confidential information for record purposes
only.
8. Each party warrants it has the right to make the disclosure
referenced in this Agreement.
9. Neither party acquires any license under intellectual property
rights of the other party pursuant to this Agreement.
10. Neither party has an obligation under this Agreement to do
business or continue to do business with the other.
11. Neither party has an obligation to purchase, service or offer
for sale the products of the other incorporating the disclosed confidential
information.
12. The parties do not intend that any agency or partnership
relationship be created between them by this Agreement.
13. All additions or modifications to this Agreement must be made
in writing and executed by both parties.
14. The relationship under this Agreement is confidential and is
to be treated as confidential information according to the terms of this
Agreement.
THE DELICIOUS FROOKIE RINGLING BROS. AND BARNUM
COMPANY, INC. & BAILEY COMBINED SHOWS
By: /s/ Richard Worth By: /s/ Jeff Meyer
Title:________________________________ Title: Director of Licensing
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<PAGE> 1
EXHIBIT 10.13
LICENSE AGREEMENT
AGREEMENT made as of this 3rd day of June, 1991, by and between CPC
INTERNATIONAL INC., a Delaware corporation with its principal place of business
at International Plaza, Englewood Cliffs, New Jersey 07632 (hereinafter "CPC"),
and Delicious Cookie Company, Inc., an Illinois corporation with its principal
place of business at 2720 River Road #254, Des Plaines, Illinois 60018
(hereinafter "DCC").
1. Definitions
In this Agreement these words or phrases shall be defined and construed as
follows:
(a) "Trademarks" means and includes only the trademarks listed on
Attachment "A" attached hereto, and the trademarks' respective logo
designs, and the names and logos of, and the box, package and
wrapper artwork (including trade dress) associated with, those
trademarks, all of which are owned by CPC.
(b) "Territory" shall mean and refer to the United States of America,
its territories and possessions and Canada. The parties may in the
future agree to additional countries within the Territory subject to
the terms hereof.
(c) "Product(s)" shall mean Ready To Eat Packaged Cookies containing
Skippy Peanut Butter packaged in cartons bearing the Trademarks.
(d) "Program" shall mean the manufacture, promotion, advertising, sale
and distribution of the Products in the Territory by DCC.
(e) "Net Sales" shall mean total sales by DCC to its distributors and/or
national and international accounts less quantity discounts, if any,
standard 1% cash discount and Trade Deals with no deduction for
uncollectible accounts.
(f) "Peanut Butter" shall mean Skippy Brand Peanut Butter supplied by
CPC for use as a raw material ingredient solely for the manufacture
of the Products, which Peanut Butter is described in the Product
specifications.
(g) "Product Specifications" shall mean and refer to those formula
standards, specifications and instructions set forth on Attachment
"B" hereto, as may be amended from
<PAGE> 2
time to time. All Product Specifications shall be approved in
writing by CPC prior to their use in the Program.
(h) "Trade Deals" shall mean any reduction in selling price that DCC
shall grant to its distributors or to its trade customers as an
incentive to merchandise and/or promote the product.
2. Grant of Rights
Subject to the terms and conditions hereof, CPC hereby grants to DCC the
following rights:
(a) the exclusive right to produce, introduce, advertise, promote,
market, distribute and sell the Products in the Territory,
manufactured in accordance with the Product Specifications;
(b) the exclusive right to use the Trademarks in relation to the
Products in the Territory, so long as the Products are manufactured
by DCC in accordance with the Product Specifications.
(1) It is understood and agreed to by the parties that although
the Territory is presently limited, it is their intention to
expand the Territory as appropriate. Recognizing that there
may be conditions which do not allow CPC to grant the full
rights hereunder, CPC agrees to use its best efforts to allow
a expansion of the Territory as reasonably requested by DCC,
but shall not be otherwise liable for its inability to do so.
(2) Further in the event that DCC wishes to sell Products outside
of the currently defined Territory it shall use its best
efforts to distribute in these areas first through the Best
Foods Export Unit of CPC and any CPC affiliate in the area to
which such distribution is to be made before undertaking such
distribution through its own channels.
(c) It is understood by the parties that the manufacture of the
Product(s) may be performed by a party designated by DCC and
acceptable to CPC and that therefore in any references in this
agreement to manufacture by DCC may apply to a third party.
Notwithstanding the foregoing, DCC shall remain responsible for the
manufacturing of the Product(s) hereunder.
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<PAGE> 3
3. Quality Control
(a) All Product Specifications shall be approved in writing by CPC prior
to their use in the Products.
(b) DCC shall comply with the methods of testing raw material and
finished Products in accordance with local, state and federal
standards, laws and regulations and in accordance with the Product
Specifications. DCC shall conduct those certain tests on the
Products pursuant to quality standards set forth in the Product
Specifications and which test results DCC shall forward to CPC;
provided, however, DCC shall immediately advise CPC of results which
indicate noncompliance with the Product Specifications, local, state
or federal standards, laws or regulations. CPC shall have the right,
at all reasonable times, to inspect the Products as well as the
method of manufacture of the Products, on the Premises of DCC and,
if applicable, elsewhere; provided however, that (i) CPC shall
provide DCC reasonable prior notice of such inspection; (ii) the
designee of CPC performing the inspection will be accompanied by a
designee of DCC; and (iii) such inspection will be performed at a
time mutually agreeable to the designees of CPC and DCC.
(c) CPC personnel shall attend and supervise the first production of the
Products by DCC to ensure correct manufacturing methodology and
compliance with the Product Specifications.
(d) DCC shall conduct periodic on-premises inspections, but in any event
no less than two (2) inspections every twelve (12) months, of its
own manufacturing operations to ensure that methods of manufacture
and finished Products of DCC are in compliance with the Product
Specifications. Copies of all reports prepared by DCC of each
inspection shall be sent forthwith to CPC.
(e) DCC further agrees to send, upon request, samples of the Products to
CPC for testing and analysis. CPC agrees not to request samples of
Products more often than every three (3) months unless it has a
reasonable basis for concern or it deems more samples necessary to
police the nature of quality of the Products. It is understood by
DCC that if any such sample,or DCC's methods of manufacturing do not
substantially and materially conform to the Product Specifications,
CPC shall promptly communicate the results of the testing and
analysis to DCC. If DCC is not notified of an adverse examination
within fifteen (15) days after
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<PAGE> 4
receipt of the samples by CPC, such samples shall be deemed
satisfactory under this Agreement. IF DCC is notified of an adverse
examination within such 15-day period, DCC shall promptly correct
such defects. Upon the failure of DCC to comply with such
instructions or requirements within thirty (30) days of receipt
thereof,CPC may terminate this Agreement in accordance with the
provisions of Paragraph 15 hereof.
(f) DCC shall refrain from using the Trademarks in relation to any
defective Products, unless such defects are first cured to the
satisfaction of CPC.
(g) DCC acknowledges its obligation to recall at its sole cost and
expense, if so instructed by CPC on a reasonable basis or any
applicable governmental agency or regulatory body, any Products
manufactured by it and present at any level of trade, including but
not limited to warehouse, wholesale or retail levels, should such
Products fail to comply with the Product specifications and not have
been cured with respect to such noncompliance as provided in
Paragraph 3(e) above, or be subject to recall by any applicable
governmental agency or regulatory body. If such recall shall be
solely as a result of CPC's breach of its representations,
warranties, or guarantees hereunder, particularly Paragraph 9(d),
then CPC shall compensate DCC for the cost of such recall.
4. Insurance
DCC shall obtain, at its own expense, occurrence form public liability
insurance including product liability coverage with broad form vendor's
endorsement. Such insurance shall name CPC as an additional insured and
shall be obtained from a recognized insurance company which has qualified
to do business in the State of New Jersey. Such insurance shall provide
the following coverage: (i) personal injury of up to $1,000,000 for each
person and $2,000,000 for each occurrence; (ii) property damage of up to
$2,000,000 for each occurrence; and (iii) $5,000,000 umbrella coverage
against any claims, sits, loss or damage arising out of any defects in the
Products. Within thirty (30) days after the date of this Agreement, and
prior to the distribution or sale of any Product, DCC shall submit to CPC,
as evidence of such coverage, a certificate of insurance naming CPC as a
named insured for such coverage. Any proposed change in such coverage
shall be submitted to CPC for its prior approval. DCC shall keep such
policy in force during the term of this Agreement and for at least two (2)
years thereafter. The provisions of this Paragraph 4 shall not in
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<PAGE> 5
any way limit the indemnification provided by DCC to CPC pursuant to
Paragraph 10(c) hereof.
5. CPC's Representations
CPC represents and warrants to DCC that CPC has all necessary rights,power
and authority to enter into and perform this Agreement and to grant the
rights and licenses granted to DCC herein within the present Territory.
6. Trademarks and Copyrights; Infringement
(a) DCC shall assist CPC, at CPC's sole cost and expense, in securing
the registration of any copyrights, trademarks, service marks or
names, or commercial rights CPC may hold with respect to the
Trademarks or related rights as used on or with respect to the
Products. DCC shall advise CPC promptly of any possible infringement
of, or unfair competition affecting, the Trademarks or other rights
known to DCC; however, CPC shall not be obligated to institute any
suit or take any action on account of any alleged or actual
infringement of any such Trademark nor shall DCC institute any such
suit or action without first obtaining CPC's written consent thereto
which shall not be unreasonably withheld.
(b) DCC shall not use or permit the use of any 3rd party trademarks on
the Products without the prior written consent of CPC which shall
not be unreasonably withheld, and DCC shall not use or permit the
use of the Trademarks on or in connection with any goods other than
the Products. DCC specifically agrees not to manufacture, sell or
distribute, directly or indirectly, any products whose trademark,
trade name or other designation is either identical or confusingly
similar to the Trademarks.
(c) DCC recognizes CPC's exclusive title t the rights in the Trademarks
and shall not at any time do or suffer to be done or fail to do any
act or thing which, directly or indirectly, will in any way impair
CPC's rights in and to the Trademarks. It is understood that DCC
shall not acquire any claim to title to the Trademarks by virtue of
the instant license granted to DCC, through DCC's use of Trademarks,
or otherwise, the intention of the parties being that all use of the
Trademarks by DCC shall at all times inure to the benefit of CPC.
(d) DCC agrees to cooperate with CPC in the prosecution of any trademark
application or related copyright or other
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<PAGE> 6
application that CPC may desire to file. For that purpose, DCC shall
supply CPC upon CPC's request such samples of Products or Packaging
Material, or photographs thereof, and similar material, as may from
time to time be required, in connection with any such application or
registration.
(e) CPC shall have the right at its sole and absolute discretion to
prosecute or defend, at its own expense, all suits involving the
Trademarks and related intellectual property rights and to take any
action that it deems desirable for the protection thereof. At CPC's
expense, DCC shall provide reasonable assistance to CPC in any such
action or claim. Recovery of damages resulting from any such action
shall be solely for the account of CPC. Notwithstanding the
foregoing DCC shall be free to pursue any claim it may have against
third parties and CPC shall provide reasonable assistance to DCC in
any such claim.
(f) DCC agrees that the Trademarks prepared for use on Packaging
Material, advertising and other material shall be works made for
hire, and that all rights in such Trademarks shall belong to CPC.
DCC and its affiliates agree to execute such documents as are
necessary to assure the complete protection of such rights. CPC
agrees that all rights in the Packaging Material, advertising and
other material,other than rights in the Trademarks, shall belong to
DCC, and upon DCC's request, CPC shall take all steps necessary to
assign to DCC all such rights in the Packaging Material, advertising
and other material that may otherwise inure to CPC due to
application of the legends set forth in Paragraphs 7(g) and 7(h)
below on such material, and shall execute such documents as are
necessary to assure the protection of DCC's rights in such material.
(g) As directed by CPC, DCC shall imprint or cause to be imprinted
irremovably and legibly on each advertising, promotional
display,packaging, wrapping, and any other similar material relating
to the Products, wherein the Trademarks or copyrighted work may
appear, appropriate trademark or copyright notices, consisting of:
(1) Either the "TM" designation or the encircled "R" federal
trademark registration symbol; and
(2) The word Copyright or the encircled "C" federal copyright
symbol, followed by the year of first publication of the work,
and such appropriate name of CPC shall direct.
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(h) In addition to and without detracting from the foregoing, a
marketing legend for use in association with the Products which CPC
considers appropriate in the circumstances, that is: "Manufactured
and Distributed under license from CPC International, Inc. Skippy is
a registered trademark of CPC International, Inc." DCC shall provide
to CPC a summary of any consumer inquiries on a monthly basis;
provided, however, that DCC shall immediately communicate to CPC any
inquiries of an urgent nature or involving product quality.
7. Royalties
In consideration of the rights granted to DCC by CPC under this Agreement,
DCC shall pay to CPC a royalty as follows:
(a) For sales which take place between the date of first shipment in
1991 and for one year thereafter, three percent (3%) of Net Sales;
(b) For sales which take place during the second year after the first
shipment date, four percent (4%) of Net Sales;
(c) For sales which take place after two years from the first shipment
date, five percent (5%) of Net Sales;
(d) In the event any sale of the Products is made at a special price to
any of DCC's affiliates or to any other person, firm or corporation
related in any manner to DCC or its officers, directors or
stockholders, the royalty paid on such sales shall be based upon the
price generally charged to the trade by DCC on an arm's length
basis.
8. Minimum Annual Performance Level;
Merchandising and Promotion
(a) DCC and CPC agree to review business developments such that both DCC
and CPC share equitably in the success of the product, recognizing
that the advertising, merchandising and promotion effort for the
Products shall be performed by DCC pursuant to this Agreement. DCC
and CPC agree that, when results have been obtained regarding DCC's
performance level in 1991, and each year thereafter in which this
Agreement is in effect, they shall negotiate in good faith to
determine a reasonable minimum annual performance level pursuant to
the terms of this Agreement. Such reasonable minimum annual
performance levels for 1991, 1992 and 1993 are set forth in
Attachment "C" hereto.
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<PAGE> 8
(b) Negotiations on the minimum annual performance level, will begin no
later than November 1 of each year, beginning in the year 1991, and
shall be completed within thirty (30) days after the date
negotiations begin, unless extended by mutual agreement of the
parties (such 30-day period, as it may be extended, the "Negotiating
Period").
(c) DCC shall submit to CPC, for prior and prompt approval in the manner
which CPC shall direct, all bags, wrappers, cartons or other
packaging material (the "Packaging Material"), advertising and other
material on which the Trademarks appear or are intended to be used
in relation to the Product, and in this regard, shall advise CPC
with respect to the Packaging Material's compliance with all
applicable federal, state, and local labelling laws or regulations.
DCC shall amend or cause to be amended to the satisfaction of CPC
any such Packaging Material, advertising, and other materials which
are not approved by CPC. CPC agrees to indicate required changes
within ten (10) working days of receipt of materials from DCC;
provided, however, if CPC fails to indicate required changes within
the said ten (10) days, approval shall be deemed granted.
9. Peanut Butter
(a) DCC agrees to purchase the Program's "full requirements" of Peanut
Butter for CPC f.o.b. CPC's plant, as agreed by the parties from
time to time, and to make payment therefor within 30 days after the
date of receipt of invoice by DCC from CPC. In the event DCC makes
such payment within ten (10) days of receipt of invoice, DCC shall
receive a cash discount of two percent (2%). In this regard, DCC
agrees on an annual basis, and, for the first time within 10 days of
execution of this Agreement and on each November 1 thereafter, to
provide CPC with a forecast as to the quantity of Peanut Butter to
be supplied for the subsequent twelve-month period. DCC shall
thereafter supply rolling forecasts quarterly and CPC shall provide
peanut butter based on such forecasts for the subsequent quarter.
CPC agrees, during the term of this Agreement, to supply DCC with
the Program's full requirements of Peanut Butter, and to arrange
delivery of the Peanut Butter to DCC, as agreed by the parties from
time to time, at the times specified and in accordance with the
instructions contained in DCC's written orders, and as agreed to by
CPC upon receipt of such instructions. As used herein "full
requirements" means all Peanut Butter used as a raw material
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ingredient in connection with the production of the Products. DCC
shall purchase Peanut Butter from CPC at the following prices and
from the following locations:
(1) On shipment through December 31, 1991: Not more than $1.04 per
pound of Skippy Peanut Butter, f.o.b. CPC's Little Rock
facility.
(2) After December 31, 1991, at such price as CPC may determine,
and from such location or locations as the parties may agree,
provided:
a. CPC gives DCC notice of any price increase by November
15th of the year preceding the effective date of the
increase; and
b. any such price increase shall take effect the following
January 1 and remain in effect for at least twelve (12)
months from its effective date.
(b) In the event of limited availability of Peanut Butter due to acts of
nature, including but not limited to crop failure, CPC shall use its
best efforts to continue to meet DCC's full requirement. However,
notwithstanding CPC's best efforts, the parties recognize that
allocation of Peanut Butter supplies to DCC may be necessary if it
is not economically feasible for CPC to supply Peanut Butter at the
then current price.
(c) If at the time the Peanut Butter is ready for shipment based on the
written orders placed by DCC and accepted by CPC and shipment is
delayed pursuant to DCC's instructions, and although title and risk
of loss to the Peanut Butter in question and related payment
obligations shall pass to DCC at such time, CPC agrees to store such
Peanut Butter at no cost to DCC for a period of time not to exceed
fourteen (14) days.
(d) Each shipment of the Peanut Butter is hereby guaranteed by CPC, as
of the date of delivery to a carrier for shipment, to be on such
date (i) in compliance with the requirements of the Product
Specifications, (ii) not adulterated or misbranded within the
meaning of the Federal Food, Drug and Cosmetic Act, as from time to
time amended (the "Act"), (iii) not an article which, under the
provisions of Section 404 or 505 of the Act, may not be introduced
into interstate commerce, and (iv) not in violation of the
provisions of the Food Additives Amendment of 1958. This guaranty is
in like terms extended and is applicable to any lawful state
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law or municipal ordinance in which the definitions of adulteration
or misbranding are substantially the same as those in the Act.
10. Indemnification
(a) CPC shall indemnify, defend and hold DCC and its Affiliates harmless
from all claims (including without limitation product liability
claims), liability, losses and expenses, including reasonable
attorneys' fees, and actions arising in any fashion from CPC's
breach of any warranty, guaranty, covenant or representation by CPC
contained in this Agreement.
(b) CPC's obligation to indemnify, defend and hold DCC and its
Affiliates harmless shall be conditioned on CPC's receiving
reasonably prompt notice of any such claim, liability,loss, expense
or action, and receiving sole authority to conduct the defense of
any such claim or action with the understanding, however, that, at
CPC's request, DCC shall assist CPC in such defense at CPC's
expense, and DCC may retain additional counsel at its own expense to
observe or participate in such defense.
(c) DCC shall indemnify, defend and hold CPC and its Affiliates,
subsidiaries, directors and employees harmless from any and all
claims (including without limitation, product liability claims)
actions, liability, losses and expenses including attorney's fees,
arising in any fashion from DCC's breach of any warranty; guaranty,
covenant or representation by DCC in this Agreement.
11. Payments
(a) Royalty payments for the rights granted hereunder as determined by
the parties in accordance with Paragraph 7 shall be paid to CPC
within sixty (60) days after the end of the calendar quarter in
which such royalties are accrued.
(b) It is understood and agreed that DCC does not have the authority to
return, or to make any allowances or set-offs, with respect to any
royalty payment without the prior written approval of CPC.
(c) All expenses and disbursements incurred by DCC in connection with
this Agreement will be borne wholly and completely by DCC. DCC does
not have, nor will it hold itself out as having, any right, power or
authority to create any contract or obligation, either express or
implied, on behalf of, in the name of, or binding upon
-10-
<PAGE> 11
CPC, unless CPC consents thereto in writing. DCC will have the right
to appoint, and will solely be responsible for its own salesmen,
employees, agents, and representatives, who will be at DCC's own
risk, expense and supervision, who will not have any claim against
CPC for compensation or reimbursement, and who will not be
considered agents or employees of CPC.
12. Confidentiality
The terms of that Secrecy Agreement dated August 8, 1990 by the parties
are hereby incorporated by reference in this agreement and the terms
thereof are extended for five (5) years from the termination or expiration
of this Agreement.
13. Reports and Records
(a) DCC shall render to CPC written reports substantially in the form of
Attachment "D" attached hereto within sixty (60) days after the
close of each calendar quarter and for the first time by October 31,
1991, covering earned royalties due on sales made for the prior
quarter. DCC's principal financial officer shall certify such
report(s) as to their correctness, and the report(s) shall be
accompanied by royalties and other payments then due in accordance
with the terms of this Agreement.
(b) DCC will keep at its principal place of business true books of
account for a period of three (3) full calendar years, containing an
accurate record of all date necessary for the determination of the
amounts due and payable to CPC under this Agreement, and DCC shall
permit CPC, through a duly authorized representative of accountant,
at any reasonable time, upon reasonable advance notice, and not
exceeding once in any six (6) consecutive months, to verify DCC's
reports and payments and to make copies of extracts from any
reports, books, files, records and accounts in the possession or
under the control of DCC, relating to the Program, or to the
manufacture, sale or distribution or advertisement of the Product.
CPC shall bear the expense of such inspection unless total
variations or errors exceeding ten thousand dollars ($10,000) are
discovered in the course of any such inspection, whereupon DCC shall
bear such expense.
(c) the royalty reports submitted by DCC pursuant to Paragraph 13(a)
shall be deemed to be conclusively true and correct for each
calendar quarter, unless CPC shall dispute same by notice to DCC
within six (6) months after the end of said quarter with respect to
which
-11-
<PAGE> 12
such statements were submitted; provided, however, the aforesaid six
(6) month limitation shall not apply to any statements which are
false or inaccurate as a result of the deliberate act or omission of
DCC or its agents or employees.
14. Effective Term
The term of the Agreement shall be five (5) years commencing on the date
hereof, unless otherwise terminated in accordance with the terms hereof.
After such five-year period, this Agreement shall renew automatically for
successive one-year periods unless and until terminated by either party
prior to the end of the then term upon 60 days' prior written notice, or
unless otherwise terminated in accordance with the terms hereof.
15. Termination by CPC
CPC may terminate his Agreement upon the occurrence of any of the
following events:
(a) DCC's failure to pay any amount due to CPC within ten (10) business
days after written notice of default has been provided by CPC to
DCC; or
(b) DCC's default in the performance of any other term, condition, or
provision of this Agreement, if such default is not remedied within
thirty (30) days following written notice thereof by CPC.
(c) DCC's failure to reach the reasonable minimum annual performance
level as set forth in Paragraph 8(a). CPC shall take into account in
the case of such failure the circumstances of and reasons for such a
failure in considering whether it shall so terminate this Agreement.
Such termination shall be on thirty (30) days' written notice.
(d) Upon ninety (90) days' written notice delivered by CPC to DCC after
the Negotiating Period, as defined in Paragraph 8(b), has lapsed,
provided that the parties fail to agree on minimum performance
requirements for DCC. Such 90-day notice period shall be deemed to
commence on the date of DCC's receipt of the notice.
Upon such termination:
(1) the obligation of DCC to pay the royalties hereunder shall
immediately be due and payable to CPC;
-12-
<PAGE> 13
(2) all amounts owed CPC for Peanut Butter ordered by DCC shall,
at the discretion of CPC, immediately become due and payable;
and
(3) all rights granted to DCC hereunder shall forthwith revert to
CPC, and DCC shall immediately refrain from use of the
Trademarks, or any reference thereto, direct or indirect.
Such right to termination shall not be exclusive, and the exercise or
non-exercise thereof by CPC shall not preclude the exercise by CPC of any
other right or remedy at law or equity that it may have against DCC.
16. Termination Upon Bankruptcy
If either DCC or CPC:
(a) is insolvent or unable to pay its debts as they become due or is
declared insolvent or bankrupt by a court of competent jurisdiction
or goes into liquidation other than voluntary liquidation for the
purpose of reorganization;
(b) has a receiver or trustee appointed for its property; or
(c) makes an assignment for the benefit of creditors or otherwise ceases
or is compelled to cease business;
the other party may terminate this Agreement forthwith by giving the party
in default a written notice to that effect. Upon such termination, the
provisions of Paragraph 15(1), (2) and (3), if applicable, shall apply.
In the event CPC elects not to terminate this Agreement pursuant to its
rights under Paragraphs 15 and 16, this Agreement and the rights duties
and obligations of the parties hereunder shall remain in full force and
effect.
17. Termination by DCC
Notwithstanding the provisions of Paragraph 14, DCC shall have the right
to terminate this Agreement at any time upon 90 days' written notice to
CPC and in the event DCC elects to so terminate, it shall continue to
remit to CPC the royalty payments due CPC as the same may become due
during the 90-day notice period, which shall be deemed to commence on the
date of CPC's receipt of notice, or thereafter if such payments become due
after the 90-day notice period as expired. Such payments shall be paid by
DCC in accordance with the provisions of Paragraph 13.
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<PAGE> 14
18. Effect of Expiration or Termination
(a) Upon the expiration or termination of this Agreement, the rights
granted herein to DCC shall immediately terminate and DCC shall have
the right to deplete al existing inventories utilizing the
Trademarks for a period not to exceed one hundred twenty (120) days
following such expiration or termination, but in connection with all
such use of the Trademarks, DCC shall fully perform all its
obligations required under this Agreement, including without
limitation its obligations to meet Product specifications and make
royalty payments hereunder, as it had not expired or been
terminated. The period to deplete inventories may be extended upon
agreement of the parties.
(b) Termination of this Agreement for any reason shall not affect those
obligations which have therefore accrued or which, from the context
hereof, are intended to survive termination of this Agreement.
19. Force Majeure
A delay in performance of this Agreement by either party not exceeding
thirty (30) days shall be excused to the extent performance is prevented
by any contingency beyond its reasonable control including, but not
limited to acts of god, fires, floods, explosions, wars, sabotage actions,
unavailability or scarcity of raw materials or ingredients, labor
disputes, work stoppages, strikes, government laws, ordinances, rules and
regulations, whether valid or invalid, and any other similar contingency
beyond its reasonable control. The foregoing provision shall not relieve
either party from using its best efforts to avoid or diligently remove
such circumstances and the excused party shall resume performance with the
utmost dispatch as soon as the circumstances are removed.
20. Notices
Any notice of report required or permitted pursuant to any provision of
this Agreement shall be in writing and effective when sent, unless
otherwise provided, by certified mail, return receipt requested, to the
following addresses or such other addresses as shall be hereafter
notified:
If to CPC:
CPC International Inc.
International Plaza
Englewood Cliffs, NJ 07632
Attention: Vice-President, Development
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<PAGE> 15
with copies to:
Legal Department
CPC International Inc.
International Plaza
Englewood Cliffs, NJ 07632
Attention: Trademark Counsel
If to DCC:
Delicious Cookie Company, Inc.
2720 River Road, Suite #254
Des Plaines, IL 60018
Attention: President
with copies to:
Mr. Steven Shaw
Lapin, Hoff, Slaw & Laffey
115 S. LaSalle Street, Suite #2780
Chicago, IL 60603
21. Paragraph Headings
The paragraph headings are for convenience only and shall not affect in
any way the language of the provisions to which they refer.
22. Applicable Law
This Agreement is made in and shall be governed by the laws of the State
of New Jersey.
23. Waivers
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.
24. Assignment
DCC may not assign this Agreement in whole or in part, without the prior
written consent of CPC, which consent will not be unreasonably withheld.
Subject to the foregoing, this Agreement shall inure to the benefit of and
shall bind
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<PAGE> 16
each of the parties hereto and their respective successors and assigns.
25. Confidentiality
CPC and DCC agree that the terms of this Agreement shall be kept
confidential, and shall not be disclosed by either party to any third
party without the prior consent of the other party.
26. Amendment of Agreement
No amendment, modification, or addition to this Agreement shall bind any
party unless reduced to writing and duly executed by each of the parties
in the same manner as the execution of this Agreement.
27. Entire Agreement
This Agreement constitutes the entire understanding between the parties
with respect to the subject matter hereof. The parties acknowledge that
they have made no representations or promises except as are set forth
herein.
IN WITNESS WHEREOF, the parties hereon, intending to be bound hereby, have
caused this agreement to be executed by their duly authorized representative as
of the day and year herein above set forth.
CPC INTERNATIONAL INC. (CPC)
Attest:
/s/ illegible /s/ illegible
______________________________________
By:
DELICIOUS COOKIE COMPANY, INC.
(DCC)
Attest:
/s/ illegible /s/ illegible
______________________________________
By:
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<PAGE> 17
ATTACHMENT C
MINIMUM PERFORMANCE LEVELS
Delicious Skippy Peanut Butter Cookies
Licensor: CPC International, Inc.
Licensee: Delicious Cookie Co., Inc.
ANNUAL PERFORMANCE LEVELS
Initial Forecast (May 1991)
<TABLE>
<CAPTION>
In thousands 1991E 1992F 1993F
----- ----- -----
<S> <C> <C> <C>
No. of cases(1) 250 500 600
Retail sales(2) $7,770 $15,540 $18,650
Net sales(3) $3,750 $7,475 $8,970
Marketing Support $375 $750 $900
% of Net Sales 10% 10% 10%
</TABLE>
DCC and CPC shall negotiate in good faith to determine a reasonable minimum
annual performance level pursuant to the terms of this agreement.
Negotiations on the minimum annual performance level will begin no later than
November 1 of each year beginning in 1991, and shall be completed within thirty
(30) days after the date negotiations begin.
Estimates based on:
(1) No. of Cases: 12 14-oz. packages per case
(2) Retail Sales: Avg. $2.59 at retail per 14-oz. package
(@$31.15 per case)
(3) Net Sales: $15.25 per case = DCC's net sales to its
distributors -- slightly higher to its
national and/or international accounts
(Distributors' net sales to Trade is @$21.80
per case.)
-17-
<PAGE> 18
ATTACHMENT D
ROYALTIES
Delicious Skippy Peanut Butter Cookies
Licensor: CPC International, Inc.
Licensee: Delicious Cookie Co., Inc.
ROYALTIES FOR CALENDAR QUARTER
(e.g., July 1, 1991 to September 30, 1991)
Gross Sales Net of Trade Deals = ____________________________
Less: Quantity Discounts = ____________________________
Cash Discounts = ____________________________
Net Sales = ____________________________
x Royalty Rate* = ____________________________
* Royalty Rate
3% of Net Sales - For sales which take place between date of first shipment in
1991 and for one year thereafter
4% of Net Sales - For sales which take place during the second year after the
first shipment date
5% of Net Sales - For sales which take place on or after two (2) years from
the first shipment date
Royalty payments are due within sixty (60) days after the close of each calendar
quarter in which royalties are accrued.
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<PAGE> 19
December 7, 1992
Ms. Sharon Pierce
Chairman and CEO
Delicious Cookie Company, Inc.
2720 River Road, Suite 254
Des Plaines, Illinois 60018
Re: Amendment of License Agreement between
CPC International Inc. and
Delicious Cookie Company, Inc.
Dear Ms. Pierce:
Reference is made to the June 3, 1991 License Agreement between CPC
International Inc. (hereinafter "CPC") and Delicious Cookie Company, Inc.
(hereinafter "DCC"), pursuant to which DCC was authorized to use the SKIPPY
trademark in connection with the manufacture and sale of peanut butter cookies
(hereinafter the "Agreement").
The Agreement is hereby amended as follows:
(1) CPC hereby authorized DCC to use the SKIPPY trademark in connection
with the manufacture and sale of SKIPPY & WELCH'S peanut butter and jelly
sandwich cookies.
(2) In consideration of the new rights hereby granted, DCC shall pay CPC
an additional royalty of 2% of Net Sales (as defined in the Agreement) of SKIPPY
& WELCH'S peanut butter and jelly sandwich cookies.
<PAGE> 20
December 7, 1992
Page -2-
All other terms and provisions of the Agreement shall apply to DCC's use
of the SKIPPY trademark in connection with the SKIPPY & WELCH'S peanut butter
and jelly sandwich cookies, as if those terms and provisions were restated in
their entirety herein.
If this letter accurately reflects our agreement, please sign, date and
return two of the enclosed copies.
Very truly yours,
/s/ Robert S. Gluck
Robert S. Gluck
Vice President-Business Development
BEST FOODS, A Division of CPC
International Inc.
Read and Agreed to:
Delicious Cookie Company, Inc.
By: /s/ Sharon Pierce
-------------------------------
Sharon Pierce
Title: Chairman and Chief
Executive Officer
Date: 12/11/92
<PAGE> 1
Exhibit 10.47
MEMORANDUM OF AGREEMENT
This Memorandum of Agreement is entered into this 13th day of May,
1998, by and between THE DELICIOUS FROOKIE COMPANY, INC. (the "Company" or
"Employer") and BAKERY, CRACKER, PIE AND YEAST WAGON DRIVERS, LOCAL #734,
INTERNATIONAL BROTHERHOOD OF TEAMSTERS OF AMERICA (the "Union").
WHEREAS, the Company has purchased assets of Salerno Foods, L.L.C. (the
"Seller") including the operations of Seller located at 2070 Maple Street, Des
Plaines, Illinois 60018, at which certain of Seller's employees (who were hired
by the Company) were covered by two collective bargaining agreements between
Seller and the Union, known as the "Cracker Drivers" and "Inside Div."
agreements (herein the "Drivers" and "Inside" Agreements; said operations are
hereinafter referred to as the "Salerno Des Plaines operations"), which
agreements expired on January 31, 1998, prior to said asset purchase, and are no
longer in effect;
WHEREAS, on April 23, 1998, the parties entered into a Recognition
Agreement, under which the Company agreed to recognize the Union as the sole
collective bargaining agent of the two bargaining units of the Salerno Des
Plaines operations, defined in said Recognition Agreement as the "Drivers" and
"Inside" units; and
WHEREAS, in order to insure a continued harmonious working
relationship, the parties now wish to enter into collective bargaining
agreements covering the Drivers and Inside units;
NOW, THEREFORE, the Union and the Company hereby agree as follows:
1. Except as modified hereinbelow, the parties hereby adopt the Drivers
and Inside Agreements between the Seller and the Union which expired January 31,
1998 to be the collective bargaining agreements between the Company and the
Union covering the two respective units.
2. This Memorandum of Agreement is in full and final settlement of any
and all issues outstanding among the Company, the Union and the employees. The
parties acknowledge that they have bargained fully and in good faith regarding
any and all proper issues of collective bargaining, and that this Memorandum
Agreement concludes collective bargaining for the full term hereof.
3. The undersigned representatives of the Union hereby solemnly pledge
to recommend, fully and without reservation, ratification of this Memorandum of
Agreement by the employees.
1
<PAGE> 2
4. Substitution of Employer. In the preamble of both the Drivers and
the Inside Agreements, and wherever else the name of the Employer appears, the
Company's name shall be substituted for "Salerno Foods, LLC".
5. Recognition.
a. Drivers. Article I, Section 1 of the Drivers Agreement
shall be revised to read in full as follows:
"The Employer recognizes the Union as the sole collective
bargaining agent for the following unit of employees:
All regular full-time and regular part-time truck
drivers, employed at the Employer's facility located at 2070
Maple Street, Des Plaines, Illinois 60018, but excluding all
office employees, clerical employees, warehouse employees,
production employees, maintenance employees, mechanics,
administrative employees, confidential employees, professional
employees, technical employees, sales employees, guards and
supervisors as defined in the National Labor Relations Act,
and all other employees.
"Employees" as used in this Agreement shall mean the
employees for whom the Union is recognized as the sole
collective bargaining agent."
b. Inside. Article I, Section 1 of the Inside Agreement shall
be revised to read in full as follows:
"The Employer recognizes the Union as the sole collective
bargaining agent for the following unit of employees:
All regular full-time and regular part-time warehouse
employees, including group leaders, employed at the Employer's
facility located at 2070 Maple Street, Des Plaines, Illinois
60018, but excluding all office employees, clerical employees,
drivers, production employees, maintenance employees,
mechanics, administrative employees, confidential employees,
professional employees, technical employees, sales employees,
guards and supervisors as defined in the National Labor
Relations Act, and all other employees.
"Employees" as used in this Agreement shall mean the
employees for whom the Union is recognized as the sole
collective bargaining agent."
2
<PAGE> 3
6. Scope. Revise Article I, Section 2 of the Drivers Agreement to
delete the "s" in "plants".
7. Probationary Period. Add the following new provision as Article I,
Section 5 of the Drivers Agreement and Article II, Section 4 of the Inside
Agreement:
"The probationary period for new employees shall be ninety
(90) days, during which period such employees may be
disciplined or discharged in the sole and absolute discretion
of the Employer, without recourse to the grievance and
arbitration provisions of this Agreement."
8. Part-time Employees. In Article II, Section 3 of the Inside
Agreement, substitute "the first 18 months" for "the 1st 1040", and substitute
"the second 18 months" for "the 2nd 1040 hours".
9. Duplicated Provision. In Article III, Section 2 of the Inside
Agreement, delete the second sentence (because the same provision is already
contained in Section 3 of the same Article.)
10. Holiday Pay Eligibility. Replace the existing language in Article
IV, Section 5 of the Drivers Agreement and Article V, Section 5 of the Inside
Agreement with the following:
"In order to be eligible for holiday pay for any holiday, the
employee must work the complete scheduled workday immediately
preceding and the complete scheduled workday immediately
following such holiday.
11. Length of Service for Vacations. In Article VIII, Section 1 of the
Drivers Agreement and Article VI, Section 1 of the Inside Agreement, revise the
sentence following item d) to read in full as follows:
"For purposes of this section only, employees shall be
credited with years of service using the dates of hire in use
for vacation purposes by Salerno Foods, LLC ("Salerno") the
day before Salerno sold the covered operations to the
Employer."
12. Health & Welfare. Add the following sentence to Article IX, Section
7 of the Drivers Agreement and Article VII, Section 7 of the Inside Agreement:
"This provision shall be enforced only to the extent
consistent with the federal Family and Medical Leave Act."
3
<PAGE> 4
13. Discipline. Delete Article XVI, Section 3 of the Drivers Agreement
and Article X, Section 2 of the Inside Agreement.
14. Exception to No-Strike Clause. In Article XVIII of the Drivers
Agreement and Article XX of the Inside Agreement, Sections 2 and 3, delete all
references to any violations other than delinquency in paying required Health
and Welfare and Pension contributions.
15. Seniority. Substitute the following for Article XIX, Section 2 of
the Drivers Agreement and Article XIII of the Inside Agreement:
"Seniority means the length of continuous service of an
employee covered by this Agreement from the date of his or her
last hire by the Employer. For purposes of layoff and recall,
employees shall be credited with years of service using the
dates of hire in use for vacation purposes by Salerno Foods,
LLC the day before Salerno sold the covered operations to the
Employer.
Continuous service of an employee shall be broken,
seniority rights lost, and the employment relationship
terminated by:
a. quit;
b. discharge;
c. not working for the Employer for twelve (12)
months or more;
d. absence without acceptable notice to the
Employer or without good cause, for three
(3) consecutive days;
e. excessive absenteeism or tardiness;
f. failure to indicate within 72 hours an
intention to report to work within one (1)
week after notice is sent by the Employer to
return to work following a layoff
(notification in person or by telephone, or
certified mail or confirmed telegram
addressed and sent to the employee's last
address known to Employer, shall constitute
sufficient notice by Employer);
g. failure to return upon the expiration of a
4
<PAGE> 5
leave of absence or misrepresenting the
reason for a leave of absence or obtaining
other employment during a leave of absence;
and
h. retirement.
In layoffs seniority shall govern, provided that in
the Employer's judgment the training, skill, efficiency,
knowledge, work record, experience and ability to perform the
available work are equal among the employees involved. In the
event the Employer recalls employees after a layoff, the
employees will be recalled in the reverse order of that in
which they were laid off, provided the Employer determines
that the employee is able to do the work involved to the
Employer's satisfaction."
16. Severance Pay. Add the following paragraph to Section 3 of Appendix
A of both Agreements:
"For purposes of calculating severance pay, the date of hire
for those who were employees of the Employer on the date of
purchase of the covered operations by the Employer from
Salerno Foods, LLC, shall be the later of January 23, 1996 or
the employee's actual date of hire by Salerno."
17. Term. In Article XXV of both Agreements, "May 13, 1998" shall be
substituted for "February 1, 1996", "May 12, 2001" shall be substituted for
"January 31, 1998", and "May 12" shall be substituted for "January 31".
18. Numbering of Articles. The numbering of Article XXV of the Inside
Agreement shall be corrected to be consecutive.
19. Wages.
a. Increases. The hourly wage rates set forth in Section 1 of
Article II of the Drivers Agreement and Section 1 of Article III of the Inside
Agreement shall be amended to reflect the following hourly wage increases,
effective on the first Monday after each of the following effective dates:
April 3, 1998: Fifty (50(cent)) Cents
May 13, 1999: Twenty-Five (25(cent)) Cents
November 13, 1999: Twenty-Five (25(cent)) Cents
May 13, 2000: Twenty-Five (25(cent)) Cents
November 13, 2000: Twenty-Five (25(cent)) Cents
(Employees who are not yet at the maximum rate under
5
<PAGE> 6
the wage progression shall receive pro-rated increases.)
6
<PAGE> 7
b. Wage Progression. Only with respect to employees on the
payroll as of the date of execution of this Memorandum of Agreement, in the last
sentence of Section 1 of Article II of the Drivers Agreement and in the first
sentence of Section 2 of Article III of the Inside Agreement, effective Monday,
May 18, 1998, "12 months" shall be substituted for "18 months".
IN WITNESS WHEREOF, the Company and the Union, by their duly authorized
representatives, have signed this Memorandum of Agreement on the day and year
first written above.
BAKERY, CRACKER, PIE AND YEAST THE DELICIOUS FROOKIE COMPANY, INC.
WAGON DRIVERS, LOCAL #734,
INTERNATIONAL BROTHERHOOD OF
TEAMSTERS OF AMERICA
By: /s/ Brian Meidel By: /s/ Jeffry Weiner
------------------------------- -------------------------------
/s/ Gordon A. Nesbet /s/ Wayne Kumke
------------------------------- -------------------------------
/s/ Joel Schwartz /s/ Jacqueline Chambers
------------------------------- -------------------------------
/s/ Thomas Jefferson /s/ Alan M. Levin ATTY
------------------------------- -------------------------------
/s/ David P. Ellegood
-------------------------------
/s/ Illegible
-------------------------------
7
<PAGE> 1
Exhibit 10.48
COMMERCIAL LEASE
THIS LEASE is made as of this 1st day of June 1998, by and between MAPLE
PROPERTIES COMPANY, an Illinois limited liability company, having an address c/o
Tinicum Incorporated 800 Third Avenue - 40th Floor, New York, N.Y. 10022
(hereinafter sometimes referred to as "Landlord"), and DELICIOUS BRANDS, INC., a
Delaware corporation, having an address at 2070 Maple Street, Des Plaines,
Illinois 60018 (hereinafter sometimes referred to as "Tenant"), who hereby
mutually covenant and agree as follows:
I. GRANT, TERM, DEFINITIONS AND BASIC LEASE
PROVISIONS
1.0 Grant. Landlord, for and in consideration of the rents herein reserved
and of the covenants and agreements herein contained on the part of Tenant to be
performed, hereby leases to Tenant, and Tenant hereby accepts and lets from
Landlord, certain premises more fully described as: portions of the industrial
building (the "Building") commonly known as 2070 Maple Street, Des Plaines,
Illinois; which portions total approximately 73,572 square feet and consist of
(a) approximately 56,228 square feet of area in a rental unit that has an
address known as 2070 Maple Avenue, which unit is referred to herein and
designated on Exhibit A as the "2070 Maple Unit" and (b) approximately 17,344
square feet of area in a rental unit known as 1750 Birchwood Avenue, which unit
is referred to herein and designated on Exhibit A as the "High Bay Unit" (the
2070 Maple Unit and the High Bay Unit being collectively referred to herein as
the "Leased Premises"), together with (i) all improvements now located or to be
located on such premises during the term of the Lease (other than improvements
placed upon the Leased Premises by Tenant), (ii) all appurtenances belonging to
or in any way pertaining to such premises; and (iii) as to any common areas and
facilities designated in writing herein or hereafter by Landlord to service the
Building, a right to use the same in common with Landlord and other tenants; the
Leased Premises being part of certain real estate (the "Real Estate") more
particularly described on Exhibits B-1 and B-2 attached hereto and made a part
hereof. Tenant understands and agrees that this Lease and the Tenant's rights
hereunder are subject to those defects, liens, encumbrances and other matters
affecting the title to the Real Estate.
1.1 Initial Term. Subject to the further provisions or this Section 1.1,
the term of this Lease shall be for a period of five (5) years commencing on
June 1, 1998 (the "Commencement Date") and ending at 11:59 PM on May 31, 2003,
unless sooner terminated as herein set forth. All references to the term of this
Lease shall be deemed to include any extension, option or renewal periods,
except where the context otherwise requires.
1.2 Basic Lease Provisions.
(a) Purpose: Distribution, storage, sales and marketing of
cookies, crackers, snack-foods and related products.
(b) Tenant's Pro Rata Share; (See Section 3.1 etc.): 31.34%
(23.75% for the 2070 Maple unit and 7.56% for the 1750
Birchwood high bay unit).
(c) Tenant's Address (for all notices) (See Section 21.4):
DELICIOUS BRANDS, INC., having an address at 2070 Maple
Street, Des Plaines, Illinois 60018.
(d) Landlord's Address (for payments and for notices) (See
Sections 3.0, 3.1, 21.4 etc.): MAPLE PROPERTIES COMPANY,
L.L.C. c/o Tinicum Incorporated, 800 Third Avenue - 40th
floor, New York, New York 10022 (to the attention of either
(i) Accounts Payable Department in the case of payments or
(ii) Legal Notices Officer in the case of notices).
(e) Tenant's Telecopier Number (See Section 21.4): 847-699-3201.
(f) Landlord's Telecopier Number (See Section 21.4): 212-750-9264.
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II. DELIVERY OF POSSESSION AND CONDITION
OF THE LEASED PREMISES
2.0 Premises Work. Except as otherwise expressly set forth herein, the
repairs and improvements set forth on Schedule A annexed hereto and made a part
hereof (the "Premises Work") are the only work that Landlord shall be obligated
to perform with respect to the Leased Premises. The Premises Work shall be
substantially completed by Landlord in a good and workmanlike manner with
reasonable promptness, in any case on or before November 30, 1998. Landlord
shall afford Tenant the benefit of any warranties from contractors and
materialmen that it obtains in connection with the performance of the Premises
Work. Tenant shall, with reasonable promptness, bring to Landlords attention any
deficiencies in the Premises Work which come to Tenant's attention and, provided
that Tenant notifies Landlord of the same within one (1) month of the
substantial completion of any work item, Landlord shall with reasonable
promptness correct the same at Landlord's expense. Tenant understands that
Landlord shall be performing demolition and other construction activities in the
space, that Tenant shall be solely responsible for protecting, insuring and
keeping safe and undamaged any and all materials, inventory or other items of
personal property that Tenant may keep or store in the Leased Premises. Tenant
also agrees that, except to the extent caused by one or more intentional acts of
Landlord or its employees, Landlord shall have no responsibility or liability to
Tenant whatsoever in the event that such personal property is lost, stolen or
damaged or that Tenant's operations are adversely affected by or during the
completion of or correction of any deficiency in the Premises Work. Following
Landlord's satisfaction of its obligations under this Section 2.0 with respect
to any work item described on Schedule A, Tenant shall, within fifteen (15) days
of written request therefor by Landlord, deliver to Landlord a certificate,
signed by an officer of Tenant, stating that Landlord has satisfied its
obligations under this Section 2.0 with respect to such item.
2.1 Termination of Prior Lenses and Possession By Tenant. Tenant presently
occupies substantially all of the Leased Premises, occupying the 2070 Maple Unit
pursuant to a certain Sublease dated as of March 25, 1996 (as amended) and the
High Bay Unit pursuant to a certain lease dated as of August 19, 1997 (as
amended) (these two prior leases being hereinafter referred to as the "Prior
Leases"). The execution and delivery of this Lease terminates the Prior Leases
effective as of the Commencement Date. Landlord shall use commercially
reasonable efforts to cause Phillips Equipment Systems and Gard, Inc., the two
tenants that occupy portions of the 2070 Maple Unit, to vacate the Leased
Premises on or before August 15, 1998 in the case of Gard and August 31, 1998 in
the case of Phillips. Landlord shall promptly thereafter perform any Premises
Work relating to the portions of the 2070 Maple occupied by Phillips and/or
Gard. Landlord shall not be subject to any liability for the failure to give
possession of the aforesaid areas occupied by Phillips and Gard on or before
said date, nor shall the validity of this Lease or the obligations of Tenant
hereunder be in any way affected. Under such circumstances, unless the delay is
the fault of Tenant, Base Rent and other charges hereunder shall be equitably
abated until the date possession of the entire Leased Premises is given.
2.2 Condition of the Leased Premises. Tenant presently occupies
substantially all of the Leased Premises and is familiar with the condition and
repair of the Leased Premises. Tenant acknowledges that, subject to the
completion of the Premises Work, the same are in good order and repair (or shall
be deemed to be in good order and repair on account of Tenant's responsibility
therefor under the Prior Leases), and that, except as set forth herein, no
representations as to the condition and repair thereof have been made by
Landlord, or his agent prior to the execution of this Lease that are not herein
expressed. Tenant's taking possession of the Leased Premises shall constitute
Tenant's acknowledgment that Tenant hereby accepts the Leased Premises in their
"as is" physical condition as of the date hereof, subject to the completion of
the Premises Work, and that such physical condition was satisfactory at the
Commencement Date. In agreeing to lease the Leased Premises "as is", Tenant
acknowledges and represents that it has factored the "as is" condition of the
Leased Premises in the Base Rent and other charges that it has hereby agreed to
pay for the Leased Premises. Notwithstanding anything to the contrary in the
foregoing, Landlord acknowledge and refer to certain damage to the Leased
Premises identified in Paragraph 3 of that certain Agreement to Amend Sublease
and Consent to Assignment, dated as of April 2, 1998, among Landlord, Tenant and
Salerno Foods, L.L.C. and Landlord hereby agrees to release Tenant from any
liability that it may have under the Prior Leases, hereunder or otherwise for
any damage to the Leased Premises specifically described or identified in that
Agreement and Consent or in Exhibit 2 thereto.
III. RENT
3.0 Base Rent.
(a) Except as specifically abated in subdivision (c) of this Section 3.1,
Base Rent shall be payable in the amount of:
(i) Thirty-Six Thousand Four Hundred Seventy-Nine and 45/100 Dollars
($36,479.45) per month during the one-year period commencing on June
1, 1998 through and including May 31, 1999;
(ii) Thirty-Seven Thousand Five Hundred Seventy-Three and 83/100
Dollars ($37,573.33) per month during the one-year period commencing
on June 1, 1999 through and including May 31, 2000;
(iii) Thirty-Eight Thousand Seven Hundred One and 05/100 Dollars
($38,701.05) per month during the one-year period commencing on June
1, 2000 through and including May 31, 2001;
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(iv) Thirty-Nine Thousand Eight Hundred Sixty Two and 08/100 Dollars
($39,862.08) per month during the one-year period commencing on June
1, 2001 through and including May 31, 2002;
(v) Forty-One Thousand Fifty-Seven and 94/100 Dollars ($41,057.94)
per month during the one-year period commencing on June 1, 2002
through and including May 31, 2003;
(b) Tenant Amortization Options. Tenant agrees to contribute to Landlord's
cost of performing certain of the Premises Work by electing, in a written notice
delivered to Landlord on or before September 20, 1998, to either (i) increase
Base Rent by $285.48 per month or (ii) pay Landlord $12,000 on or before October
1, 1998. If Tenant timely elects to increase Base Rent as so provided, then, on
or before October 1, 1998, Tenant shall pay to Landlord the five (5)
installments of $285.48 due for the period June - October 1998. Tenant shall be
deemed to have elected to pay Landlord the aforesaid $12,000 in the event that
Tenant shall fail to timely deliver such election notice to Landlord.
Additionally, Tenant may elect to fund certain other of Landlord's Premises Work
by electing, in a written notice delivered to Landlord on or before September
20, 1998, to pay Landlord, on or before October 1, 1998, an amount equal to the
difference between (x) $200,000.00 and (y) the product of $4,757.99 and the
number of months of Base Rent theretofore paid by Tenant to Landlord. In the
event that Tenant timely makes such an election, the Base Rent payable hereunder
shall thereafter be reduced by $4,757.99 per month. Tenant's failure to timely
deliver the aforesaid notice in respect of the $200,000 payment shall be deemed
a waiver of the right to make such a payment and to obtain the aforesaid
reduction of Base Rent.
(c) Tenant shall pay Base Rent in equal monthly installments in advance on
or before the first day of each and every month during the term hereof. If the
Commencement Date is other than the first day of a month or if the term of this
Lease ends on other than on the last day of the month, the Base Rent payable
during such month shall be prorated. Except as otherwise provided herein, all
payments of Base Rent and additional rent shall be made without deduction, set
off, discount or abatement in lawful money of the United States; Tenant's
covenant to pay rent being independent of every other covenant in this Lease. If
Tenant is more than five (5) days late in its payment of Base Rent and other
monthly charges more than two (2) times in any period of twelve (12) consecutive
months, Landlord may elect to have Tenant pay Base Rent and any additional rent
payable hereunder by wire transfer in immediately available federal funds to
Landlord's account(s), and, if Landlord so elects, Tenant shall arrange to make
such payments by wire transfer to Landlord.
3.1 Operating Expense Reimbursement.
(a) In addition to the Base Rent required to be paid under Section 3.0
hereof and any other amounts required to be paid hereunder, Tenant shall pay to
Landlord an amount equal to the sum of the payments which Tenant is obligated to
make to Landlord on account of operating expenses ("Operating Expenses")
pursuant to the provisions of Sections 3.1(b), 4.0 (Impositions), 5.2
(Landlord's Insurance), and 12.0 (Utilities) (each as hereinafter defined)
hereof.
(b) Subject to the further provisions of this subdivision (b), Tenant
shall pay to Landlord Tenant's Pro Raw Share of all expenses, costs and
disbursements of every kind and nature paid or incurred by Landlord in
connection with the ownership, management, operation and repair of the Real
Estate, whether or not expressly referred to in this Article 3 or otherwise in
this Lease, but excluding certain items as specifically provided below. Such
payment by Tenant shall be additional rent hereunder and shall be paid to
Landlord in accordance with the provisions of Section 3.1 hereof. Subject to the
foregoing, Operating Expenses shall include, without limitation, the following
costs and expenses:
(i) all costs incurred in the repair, lighting, cleaning, painting,
caulking, water-proofing and other maintenance of the Real Estate (including,
but not limited to, preventive maintenance); the provision of heat to portions
of the Real Estate from the Building's central boilers, the repair and/or
replacement of sidewalks, landscaping, on site waterlines, sanitary sewer lines,
electrical lines and other equipment serving the Real Estate; wages and benefits
of all persons employed at or in connection with the Real Estate (but only to
the extent of such connection to the Real Estate); and the cost of any supplies,
tools and equipment used in connection with any of the foregoing repairs or
other activities, including but not limited to those costs and expenses detailed
in Section 9.0(a);
(ii) financial expenses incurred in connection with the operation of
the Real Estate, such as attorney's fees and disbursements (exclusive of any
such fees and disbursements incurred in connection with the leasing of space in
the Building or in connection with separately enforcing or contesting the
provisions of leases of space for portions of the Real Estate, provided Tenant
is not joined in the same matter), auditing and other professional fees and
expenses;
(iii) the cost of governmental licenses and permits, or renewals
thereof, related to the operation of the Real Estate (but not relating to any
tenant's particular use thereof); and
(iv) reasonable management fees payable to a management company that
is unrelated to Landlord or, if Landlord or a related entity manages the Real
Estate, a fee not to exceed 3.0% of the gross rental income of the Real Estate.
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Any cost or expense of the nature described above shall be included in Operating
Expenses for any Calendar Year (as defined in subdivision (h) of this Section
3.1) no more than once, notwithstanding that such cost or expense may fall under
more than one of the categories listed above.
The following costs and expenses shall be excluded from those expenses covered
by this Section 3.1(b): (1) costs and expenses covered by Sections 4.0
(Impositions), 5.2 (Landlord's Insurance), 9.0(c) (roof and walls) and 12.0
(Utilities) (each as hereinafter defined), (2) debt service or other financing
under any mortgage on the Real Estate and rent due on any ground lease, (3)
leasing, sale or mortgage brokerage commissions, (4) costs charged separately to
Tenant, (5) costs charged separately to any other occupant of the Real Estate
(or which relate exclusively to leased space at the Real Estate and which are of
the nature that Tenant would be responsible for their entire reimbursement if
they related exclusively to the Leased Premises), (6) the cost of preparing
space other than the Leased Premises for any other occupant of the Real Estate,
(7) costs and expenses that are neither typical nor appropriate for a
multi-tenant warehouse and industrial building like the Building and situated in
the greater O'Hare airport, Illinois market, (8) franchise and income taxes
imposed upon Landlord and (9) any cost indemnifiable under Section 20.7.
(c) Tenant's share of Operating Expenses under Section 3.1(b) shall equal
its Pro Rata Share except that, notwithstanding anything to the contrary
provided herein, if any particular Operating Expense relates to portions of the
Real Estate or facilities thereon which are primarily or solely used by or
service Tenant and/or one or more occupants of the Real Estate, Landlord shall
allocate such Operating Expense among Tenant and the other occupants of the Real
Estate on an equitable basis. In this regard, it is agreed and understood that
the High Bay Unit does not receive heat from the Building's central boilers and
that Tenant shall be responsible for paying the separately metered gas charges
in respect thereof. Therefor, it is agreed that all costs incurred in connection
with providing such heat to the Building shall be allocated reasonably by
Landlord among tenants of the Building on an equitable basis, and that the
allocation of boiler heat charges to Tenant shall exclude any charge for heat in
respect of its occupancy of the High Bay Unit.
(d) Tenant shall pay its share of Operating Expenses with respect to each
Calendar Year to Landlord in monthly installments in amounts estimated from time
to time by Landlord and communicated by written notice to Tenant (with the
amount of each installment sufficient to pay that portion of Tenant's share of
the Operating Expenses which have fallen due or which shall fall due and payable
by Landlord within the next thirty days). Such monthly installments shall
include, during the first year of this Lease, any amount for which Tenant is
responsible that has been prepaid by Landlord.
(e) Landlord shall cause to be kept books and records showing Operating
Expenses in accordance with such system of accounts based on sound accounting
practices that Landlord reasonably deems appropriate. As promptly as practicable
following the close of each Calendar Year. Landlord shall deliver to Tenant its
certificate specifying the amount of Operating Expenses for such Calendar Year
("Operating Statement").
(f) Tenant shall pay any deficiency to Landlord as shown by the Operating
Statement within ten (10) days after receipt thereof. The payment of any bill
for Operating Expenses by Tenant shall not preclude it from questioning the
correctness of any Operating Statement by delivering written notice to Landlord
within thirty (30) days of Tenant's receipt thereof (provided the Tenant
describes any challenge that it makes to any Operating Statement in reasonably
satisfactory detail), but failure to do so within thirty (30) days shall be
deemed a waiver. During such thirty (30) day period, Tenant may request copies
of underlying invoices from Landlord.
(g) If the total of the estimated monthly installments paid by Tenant
during any Calendar Year exceeds the actual amount of Operating Expenses due
from Tenant for such Calendar Year, then, at Landlord's option, such excess
shall be either credited against rental payments next due from Tenant hereunder
or refunded by Landlord to Tenant, provided that Tenant is not then in default
hereunder.
(h) As used herein, the term "Calendar Year" shall mean any period of
January 1 through December 31 in which any part of the term of this Lease falls.
3.2 Late Payment Charges. In the event that Tenant shall fail to pay any
installment of Base Rant or any other amount payable to Landlord hereunder
within ten (10) days after the date when any such amount is due (any such late
payment being hereinafter referred to as a "Delinquent Payment"), Tenant shall
pay to Landlord, in addition to the Delinquent Payment and in order to
compensate Landlord for expenses incurred by reason of such late payment, a fee
("Late Payment Fee") equal to the sum of (i) the amount calculated by applying
an annual interest rate of four percent (4%) per annum above the rate of
interest announced from time to time in the City of New York, New York by the
Citibank, N.A. as its prime or base rate and which rate may be in effect from
time to time during the period when such Delinquent Payment may remain
outstanding (the "Default Rate") to the Delinquent Payment for each day from and
after such due date to and including the date that such Delinquent Payment is
received by Landlord and (ii) 4% of the amount of such Delinquent Payment. The
Late Payment Fee shall be in addition to, and shall in no way limit, any and all
other rights and remedies provided for in the Lease, as well as all other
remedies provided by law. If any law which applies to the Lease is finally
interpreted so that a Late Payment Fee or any part thereof exceeds the limits
permitted by such law, then: Such Late Payment Fee shall be reduced by the
amount necessary to reduce such Late Payment Fee to the maximum permitted by law
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and any Late Payment Fee already collected which exceeds such maximum permitted
by law shall be promptly refunded by Landlord to Tenant.
IV. IMPOSITIONS
4.0 Payment by Tenant. Tenant shall be responsible for paying to Landlord
its Pro Rata Share of any Increased Imposition Amount (as hereinafter defined)
for any Calendar Year. As used in this Lease, the term "Increased Imposition
Amount" means, for any Calendar Year, any excess in the amount of Impositions
(as defined in Section 4.1) for that Calendar Year over the amount of
Impositions (as defined in Section 4.1) that are attributable to Cook County
Fiscal Year 1997 and payable in Calendar Year 1998. Payments in respect of
Tenant's Pro Rata Share of Impositions shall be made by Tenant to Landlord
within (10) days after Landlord bills Tenant therefor but not earlier than the
date that is fifteen (15) days prior to the date that Landlord is required to
pay the underlying Imposition.
4.1 Definition of Impositions. The term "Impositions" as used herein shall
mean all taxes and assessments, general and special, and all other impositions,
ordinary and extraordinary, of every kind and nature whatsoever, which may be
due and payable levied, assessed, charged or imposed during the term of the
Lease upon the Real Estate, any part thereof and/or the personal property used
in connection with the Real Estate (including, but not limited to impositions
attributable to improvements to the Real Estate and additions to such personal
property); provided, however, that Tenant's Pro Rata Share of Impositions (as
provided above) shall be prorated between Landlord and Tenant as of the
expiration date of the Lease term for the last year of the Lease term on the
basis of Landlord's reasonable estimate thereof and such pro-ration shall be
final. Impositions for any Calendar Year shall also include all reasonable fees
and costs incurred by Landlord for the purpose of contesting or protesting tax
assessments or rates applicable to the Lease term in respect of such Calendar
Year, regardless of whether any reduction or limitation is obtained. Impositions
shall not include any inheritance, estate, succession, transfer, gift,
franchise, net income or capital stock tax.
4.2 Alternative Taxes. Should the State of Illinois, or any political
subdivision thereof, or any other governmental authority having jurisdiction
over the Real Estate or any part thereof either (a) impose a tax, assessment,
charge or fee, or increase a then existing tax, assessment, charge or fee, which
Landlord shall be required to pay, either by way of substitution for such real
estate taxes and personal property taxes or in addition to such real estate
taxes and personal property taxes or (b) impose or increase an income or
franchise tax or a tax on rents in substitution for or as a supplement to a tax
levied against the Real Estate, any part thereof and/or the personal property
used in connection with the Real Estate, all such taxes, assessments, fees or
charges shall be deemed to constitute Impositions hereunder, in which case
Tenant shall pay Tenant's Pro Rata share of any Increased Imposition Amount (as
provided in Section 4.0) as if Impositions were initially defined to include
such taxes, assessments, fees or charges.
4.3 Right to Contest. Nothing contained in this Lease shall obligate
Landlord to bring any application or proceeding seeking a reduction in
Impositions. Tenant, for itself and its immediate and remote subtenants and
successors in interest hereunder, hereby waives, to the extent permitted by law,
any right Tenant may now or in the future have to protest or contest any
Imposition or to bring any application or proceeding seeking a reduction in
Imposition valuation or otherwise challenging the determination thereof by the
appropriate governing body.
V. INSURANCE
5.0 Kinds and Amounts. As additional rent for the Leased Premises, Tenant
shall procure and maintain policies of insurance, at its own cost and expense,
insuring: Landlord and any Landlord's mortgagee or Management Agent (as defined
in Article 21) (of which Tenant is given written notice), as additional named
insureds, and Tenant from all claims, demands or actions made by or on any
person, entity or corporation and arising from, related to or connected with the
Leased Premises, for bodily and/or personal injury to or death of any person or
more than one (1) person and/or for damage to property in an amount of not less
than $5,000,000 combined single limit per occurrence; with a deductible of not
more than $10,000 (except that the foregoing limitation on a deductible shall
not apply in the event that the Leased Premises are occupied by the original
tenant hereunder or by a person or entity controlled by, controlling or in
common control with it). Said insurance shall be written on an "occurrence"
basis and not on a "claims made" basis (except that, for so long as the original
tenant hereunder or a person or entity controlled by, controlling or in common
control with it occupies the Leased Premises, said insurance may at the election
of Tenant be written on a "claims made" basis). Said insurance shall also fully
cover contractual liability in respect of the Leased Premises and the conduct or
operation of business therein. The limits of any insurance obtained in
conformity with the provisions of this Section 5.0 shall not limit the liability
of Tenant hereunder. Whenever in Landlord's reasonable judgment, good business
practice or change in conditions indicate a need for additional insurance or
different kinds of coverage, Tenant shill reasonably promptly following
Landlord's written request, obtain such insurance at its own expense (except
that the provisions of this sentence shall not apply in the event that the
Leased Premises are occupied by the original tenant hereunder or by a person or
entity controlled by, controlling or in common control with it).
5.1 Form of Insurance. The aforesaid insurance shall be issued by
companies and shall be in form, substance and amount (where not stated above)
reasonably satisfactory from time to time to Landlord and any mortgagee of
Landlord
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and shall contain standard mortgage clauses satisfactory to any mortgagee of
Landlord. All such insurance shall be effected under valid and enforceable
policies, shall be issued by insurers of recognized responsibility (which are
licensed to do business in the State of Illinois, have a policyholder's rating
of not less than "A+7" in the then most current edition of Best's Insurance
Reports and are reasonably acceptable to Landlord) and shall contain clauses or
endorsements to the effect that:
(a) no act or omission of Tenant, anyone acting for Tenant, or any other
occupant, which might otherwise result in impairment, cancellation,
nullification or forfeiture of such insurance or any part thereof shall in
any way affect the validity or enforceability of such insurance insofar as
Landlord is concerned; and
(b) such policies shall not be materially changed or canceled without at
least thirty (30) days written notice from the insurance carrier to
Landlord by certified mail/return receipt requested.
The original insurance policies (or certificates thereof reasonably satisfactory
to Landlord), together with satisfactory evidence of payment of the premiums
thereon, shall be deposited with Landlord at the Commencement Date and renewals
thereof shall be delivered to Landlord not less than thirty (30) days prior to
the end of the term of each such coverage (except that the requirement that
original insurance polices be delivered and that evidence of payment of premiums
be deposited with Landlord shall not apply in the event that the Leased Premises
are occupied by the original tenant hereunder or by a person or entity
controlled by, controlling or in common control with it). Any insurance required
by the terms of this Lease to be carried by Tenant may be under a blanket policy
(or policies) covering other properties of Tenant and/or any entity related to
or affiliated with Tenant. If such insurance is maintained under a blanket
policy, Tenant shall procure and deliver to Landlord a statement from the
insurer or general agent of the insurer setting forth the coverage maintained
and the amounts thereof allocated to the risks intended to be insured hereunder;
which statement shall guarantee that the minimum coverages available for the
Leased Premises shall be equal to or greater than the respective insurance
amounts that Tenant is required to carry under this Lease.
5.2 Landlord's Insurance.
(a) Tenant shall be responsible for paying to Landlord its Pro Rata Share
of any Increased Insurance Amount (as hereinafter defined) for any Calendar
Year. As used in this Lease, the term "Increased Insurance Amount" means, for
any Calendar Year, any excess in the cost of Landlord's Insurance (as defined in
subdivision (b) below) for that Calendar Year over the cost of Landlord's
Insurance for Calendar Year 1998. Payments in respect of Tenant's Pro Rata Share
of the Increased Insurance Amount shall be made by Tenant t as provided in
Section 3.1 hereof. Landlord shall deliver to Tenant copies of bills or invoices
for Landlord's Insurance which establish the basis for any Increased Insurance
Amount.
(b) As used in this Lease, the term the cost of "Landlord's Insurance"
means the cost of premiums for casualty, rent loss, boiler and all contingent
liability insurance (with all endorsements) paid annually by Landlord in respect
of the Real Estate during the Lease term. Tenant shall be obligated to pay its
Pro Rata Share of only that portion of any Increased Insurance Amount which
relates to such insurance coverage during the term of this Lease.
5.3 Compliance With Insurance Requirements. If Tenant's use of the Leased
Premises increases the cost of Landlord's obtaining insurance for the Real
Estate and/or requires Landlord to obtain additional insurance coverage,
Landlord shall notify Tenant of such increase and/or of the cost of such
additional coverage and Tenant shall, within ten (10) days thereafter, make
payment to Landlord of the full amount of such increased premium and/or
additional coverage. In addition to any other requirement herein, Tenant shall
cause its operations at the Real Estate to conform and comply with all
applicable fire codes of any governmental or quasi-govemmental authority and
with the rules and regulations of Landlord's fire underwriters and their fire
protection engineers.
5.4 Mutual Waiver of Subrogation Rights. Whenever (a) any loss, cost,
damage or expense resulting from fire, explosion or any other occurrence is
incurred by either of the parties to this Lease or anyone claiming by, through,
or under such party in connection with the Leased Premises and (b) such party is
then covered in whole or in part by insurance with respect to such loss, cost,
damage or expense or is required under this Lease to be so insured, then the
party so insured (or so required to have been insured) hereby releases the other
party from any liability said other party may have on account of such loss,
cost, damage or expense to the extent of any amount recovered by reason of such
insurance (or which could have been recovered had such insurance been carried as
so required) and waives any right of subrogation which might otherwise exist in
or accrue to any person on account thereof, provided that, if the effect of such
release of liability and waiver of the right of subrogation is to invalidate
such insurance coverage or increase the cost thereof, the party that would
otherwise have had to incur such effect shall not be obligated to provide such a
release and waiver if it promptly notifies the other of this effect (except
that, in the case of increased cost, the other party shall have the right,
within thirty (30) days following written notice, to pay such increased cost,
thereby keeping such release and waiver in full force and effect). If the party
released from liability hereunder is Landlord and if Landlord is an Illinois
land trust, then for the purposes of this Section 5.4, the term "Landlord" shall
also include the trustee, its beneficiary or beneficiaries and their respective
agents, officers, directors and employees.
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VI. DAMAGE OR DESTRUCTION
6.0 Certain Definitions. For purposes of this Article VI, the following
terms shall have the meanings ascribed to them below:
(a) "Premises Partial Damage" shall mean damage or destruction to the
Leased Premises which either (i) does not materially interfere with Tenant's use
and enjoyment of the Leased Premises or (ii) does interfere with the same and
can either (x) in Landlord's reasonable judgment, be repaired within one hundred
eighty (180) days after the occurrence of such damage or destruction to a
condition that remedies any material interference with Tenant's normal
operations at the Leased Premises as conducted immediately prior to such damage
or destruction or (y) has a cost of repair that is less than 50% of the then
cost of rebuilding the Leased Premises, with such cost defined in the context of
a total destruction.
(b) "Premises Total Destruction" shall mean damage or destruction to the
Leased Premises other than Partial Premises Damage.
6.1 Premises Partial Damage. If at any time during the term of this Lease
there is damage which falls into the classification of Premises Partial Damage
(including damage required by any authorized public authority) and Landlord's
insurance is sufficient to repair such damage, then this Lease shall remain in
full force and effect and Landlord shall within one hundred eighty (180) days of
receiving such notice, repair the Leased Premises to a condition that remedies
any material interference with Tenant's normal operations at the Leased Premises
and promptly thereafter permanently repair such damage to a condition
substantially equivalent to its former condition to the extent permitted by law;
provided that (i) if construction is delayed because of changes, deletions, or
additions in construction requested by Tenant or because of one or more strikes,
lockouts, labor troubles, civil disorders, failures of power, riots,
insurrections, accidents, casualties, acts of God, war, adverse weather
conditions, material or labor shortages, unusual transportation delays,
governmental regulation or control, acts caused directly by Tenant or Tenant's
agents, employees and invitees, other causes beyond the control of the Landlord
or other so called "force majeure" conditions, (collectively, "Excusable
Delays"), the period for restoration, repair or rebuilding shall be extended for
the amount of time Landlord is so delayed and (ii) Landlord shall not be
required to rebuild, repair or replace any part of partitions, fixtures,
additions and other improvements which may have been placed in, on or about the
Leased Premises by Tenant. Provided that the damage or destruction is covered as
an insured peril under Landlord's rent loss policy, for any period and to the
extent that Tenant cannot conduct its operations in the Leased Premises on
account of such damage, destruction, repair or rebuilding, the Base Rent and
other charges payable by Tenant hereunder shall be abated during the period of
restoration, repair or rebuilding in an equitable manner as reasonably
determined by Landlord. In the event that Landlord is obligated or elects to
repair or restore any damage or destruction and fails to timely substantially
complete the same within the periods provided above, then Tenant, at its option
and as its exclusive remedy, may terminate and cancel this Lease upon giving
Landlord thirty (30) days written notice, provided that, within such thirty (30)
days, Landlord shall not have substantially complied with its repair and
restoration obligations in this Section 6.1; in which case all rights and
obligations hereunder shall cease and terminate. Notwithstanding the above, if
the insurance proceeds received by Landlord are not sufficient to effect such
repair, or if such casualty was caused by the negligent or willful act or
omission of Tenant, Landlord may elect but shall have no obligation to complete
such repair.
6.2 Premises Total Destruction. If at any time during the term of this
Lease there is damage that falls into the classification of Premises Total
Destruction (including, but not limited to, destruction required by any
authorized public authority), this Lease shall automatically terminate and the
rent shall be abated during the unexpired portion of the term of this Lease,
effective upon the date, following such casualty or destruction, on which Tenant
delivers up to Landlord and surrenders possession of the Leased Premises.
6.3 General Provisions.
(a) If the improvements situated upon the Leased Premises should be
damaged or destroyed by fire, tornado or other casualty, Tenant shall give
immediate written notice thereof to Landlord.
(b) Notwithstanding anything to the contrary in this Article VI, in the
event that the holder of any indebtedness secured by a mortgage or deed of trust
covering the Leased Premises requires that insurance proceeds in respect of such
damage or destruction be applied to such indebtedness, then Landlord shall have
the right to terminate this Lease by delivering written notice of termination to
Tenant within fifteen (15) days after such requirement is made by any such
holder, and all rights and obligations hereunder shall cease and terminate on
the date one hundred eighty (180) days thereafter unless there has been Premises
Total Destruction.
VII. CONDEMNATION
7.0 Taking of Whole. If (a) the whole of the Leased Premises shall be
taken or condemned for a public or quasi public use or purpose by a competent
authority or by private purchase in lieu thereof ("taken" or a "taking"), or
(b) such a portion of the Leased Premises shall be so taken that, as a result
thereof, the balance cannot be used for the purpose
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that Tenant used them for and with substantially similar utility to Tenant as
immediately prior to such taking, then, in either of such events, the Lease term
shall terminate upon delivery of possession to the condemning authority and any
award, compensation or damages (hereinafter sometimes called the "Award") shall
be paid to and shall be the sole property of Landlord whether the Award shall be
made as compensation for diminution of the value of the leasehold estate or the
fee of the Real Estate or otherwise, and should such a taking or condemnation
occur, Tenant hereby assigns to Landlord all of Tenant's right, title and
interest in and to any and all of the Award, except that Tenant may receive
therefrom any portion paid expressly on account of Tenant's moving expenses.
Tenant shall continue to pay Base Rent and other charges hereunder until the
Lease term is so terminated, provided that Operating Expenses or other charges
which are prepaid by Tenant or which accrue prior to the termination shall be
adjusted between the parties.
7.1 Partial Taking. If only a part of the Leased Premises shall be taken
or condemned for a public or quasi public use or purpose by a competent
authority but the Lease is not terminated pursuant to Section 7.0 hereof,
Landlord shall repair and substantially restore or replace the Leased Premises
and all improvements thereon, except that Landlord shall not hereby be required
to expend for repair and restoration any sum in excess of the Award. Any portion
of the Award which has not been expended by Landlord for such repairing or
restoration shall be retained by Landlord as Landlord's sole property. The Base
Rent and other charges shall be equitably abated following delivery of
possession of that part of the Leased Premises so taken by the condemning body.
If any portion of the Leased Premises shall be so taken or condemned to the
extent that, in Landlord's reasonable judgment, Tenant would be unable to
conduct its business in the Leased Premises, Landlord may terminate this Lease
by giving written notice thereof to Tenant within sixty (60) days after such
taking. In such event, the Award shall be paid to and be the sole property of
Landlord, except that Tenant may receive therefrom any portion paid expressly on
account of Tenant's moving expenses.
VIII. PURPOSE, COMPLIANCE WITH
LAWS, ORDINANCES, etc.
8.0 Purpose. The Leased Premises shall be used and occupied only for the
Purpose set forth in Section 1.2 (a) hereof, except that no such use shall (a)
violate any certificate of occupancy or law, ordinance or other governmental or
quasi-governmental regulation or rule in effect from time to time affecting the
Leased Premises or the use thereof; (b) cause injury to the improvements; (c)
cause the value or usefulness of the Real Estate or any part thereof to
diminish; (d) constitute a public or private nuisance or waste or disturb any
other occupant of the Real Estate or the occupants of neighboring property; (e)
render the insurance on the Leased Premises void or unobtainable; (f) be
unreasonably dangerous to persons or property; (g) involve the sale, storage,
use or possession of alcoholic beverages, illegal drugs or narcotics or other
similar products or materials; (h) involve either the use or storage of any
explosives or the storage of any inflammable fluids or hazardous or toxic
materials in violation of the provisions of Section 20.1 hereof; (i) deface or
injure the Leased Premises, the Building or the Real Estate; (j) overload the
driveways and parking areas of the Real Estate or the floors in the Building or
use trucks, trailers or other vehicles in a manner that unreasonably or
repeatedly blocks the ingress or egress of any other Tenant of the Real Estate;
(k) transmit dust or other debris from Tenant's operations outside of the Leased
Premises; (l) overload electrical or power lines servicing the Leased Premises;
(m) involve the installation, use, or operation of loud speakers; television,
phonograph, radio or other devices (including, but not limited to antennas) in
such a manner to be seen or heard outside of the Leased Premises; (n) involve
the use of the plumbing facilities in the Leased Premises or the Building for
any other purpose than that for which they are constructed and installed; it
being agreed that no foreign substance of any kind including but not limited to
sanitary napkins, tampons, or hand towels shall be thrown therein and that the
expense of any breakage, stoppage or damage resulting from a violation of this
provision shall be borne by the Tenant; (o) involve cooking food within the
Leased Premises except incidental cooking such as with a microwave or coffee
machine for employee snacks; (p) involve the storage in common areas of the Real
Estate of personal property, including but not limited to bicycles, motorcycles
or motor bikes, inventory, business operating equipment, packing crates and
similar items; (q) use parking facilities on the Real Estate other than as
provided herein; (r) involve the repair or storage of disabled vehicles; or (s)
involve the storage of any goods, debris, materials or personal property outside
of the Lease Premises or the Building for a period of more than twenty-four (24)
hours, even if used, treated stored or disposed of in accordance with
Environmental Laws (as hereinafter defined) except that the use and storage in
nominal quantities of standard lubricants and cleaning agents having an
ancillary use in Tenant's business shall be permitted if in compliance with
Environmental Laws. Tenant shall not use or occupy the Leased Premises contrary
to any statute, rule, order, ordinance, requirement or regulation applicable
thereto. Tenant agrees that no washing of any type (other than reasonable
restroom washing and washing of goods in process inventory) will take place on
the Leased Premises or on the Real Estate including the truck aprons and parking
areas. Tenant acknowledges that Landlord has a valuable warranty relating to the
condition of the roof and that, in order to safeguard the roof and to in no way
diminish or adversely affect that warranty, Tenant agrees that it will exercise
extreme care in any entry onto the roof of the Building by its employees, agents
and invitees, and, that as stated in Section 9.2 (c) hereof, Tenant shall in no
event make any cut or opening in the roof unless made through Landlord by
Landlord's roofing contractor, Centimark.
8.1 Compliance With Law. Tenant will procure, pay for and maintain all
permits, licenses and other authorizations needed for the conduct of Tenant's
business on any part of the Real Estate. Tenant, at its own sole cost and
expense, shall also comply with all laws, ordinances, orders, rules, regulations
and requirements of all Governmental Authorities (as hereinafter defined), and
all orders, rules and regulations of the national and local boards of fire
underwriters or any other body or bodies exercising similar functions which may
be applicable to the Leased Premises and any portion of the Real Estate used by
Tenant, including but not limited to Environmental Laws (as defined in Section
20.1). As used in
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this Lease, the term "Governmental Authorities" shall mean all federal, county,
municipal and local governments, and all departments, commissions, boards,
bureaus and offices thereof, having or claiming jurisdiction over the Real
Estate.
IX. MAINTENANCE, REPAIRS, ALTERATIONS AND COVENANT AGAINST LIENS
9.0 Landlord's Maintenance and Repairs.
(a) Subject to the provisions of subdivision (c) of this Section 9.0,
Landlord shall perform all exterior painting (at such intervals as Landlord
deems appropriate), maintain the landscaping on the Real Estate, remove snow
accumulations from the roof (if deemed necessary by Landlord) and from any
parking lot serving occupants of the Building, and, to the extent that the same
are of service or benefit to or are used by more than one of the rental units in
the Building, perform necessary maintenance, repairs, replacements, inspections
and testing on such portions of the Real Estate (including but not limited to
exterior lights, roof and storm drains, grounds maintenance, landscaping, and
driveways, parking areas and walkways, and on any portion of the mechanical,
electrical and HVAC equipment and/or systems thereon that are of such service or
benefit (including, but not limited to, the water, sewer, fire prevention and
sprinkler systems) (for example, Landlord's obligations under this Section
9.0(a) extend to portions of the Building's sprinkler mains that serve more than
one unit in Building but do not extend to portions of the sprinkler system that
are wholly within the Leased Premises and do not service any other unit in the
Building, such as a sprinkler head or perhaps a sprinkler branch pipe). Except
as expressly set forth herein, all costs, disbursements and expenses incurred by
Landlord in fulfilling its obligations under Section 9.0(a) shall be included in
Operating Expenses under Section 3.1 hereof
(b) Landlord shall have the right but not the obligation to repair any
damage to any portion of the improvements located on the Real Estate caused by
or resulting from any act or omission or negligence of Tenant, its agents,
employees, contractors, customers and/or invitees. Tenant shall reimburse
Landlord for Landlord's costs and expenses incurred for repairs or replacements
made pursuant to this Section 9.0(b) within ten (10) days after Tenant's receipt
of a written demand from Landlord in respect thereof.
(c) Landlord shall at its sole cost and expense keep and maintain the roof
and structural soundness of the exterior walls of the Leased Space in good
condition and repair, reasonable wear and tear excepted; these being the only
components of the Building or the Real Estate as to which Landlord's maintenance
shall be at its sole cost and expense. The term "walls" as used in this
subdivision (c) shall not include windows, glass or plate glass, doors, special
store fronts or office entries.
(d) Tenant shall immediately give Landlord written notice of any defect or
need for repairs, after which Landlord shall have reasonable opportunity to
repair same or cure such defect. Landlord's liability with respect to any
defects, repairs or maintenance for which Landlord is responsible under any of
the provisions of this Lease shall be limited to the cost of such repairs or
maintenance or the curing of such defect.
9.1 Tenant's Maintenance and Repairs.
(a) Except to the extent that Landlord is obligated to make repairs and
replacements pursuant to subsection 9.0(a) and subsection 9.0(c), throughout the
term of this Lease, Tenant, at its sole cost and expense, shall (i) take good
care of the Leased Premises and the fixtures therein, all appurtenances of the
Leased Premises, all alleyways, passageways, sidewalks curbs and vaults, if any,
adjoining the Leased Premises, (ii) keep the same in the same or better order
and condition as existed on the Commencement Date, excepting only ordinary wear
and tear and any casualty that this Lease requires Landlord to repair, (iii)
keep the same in clean, safe, secure, orderly and sanitary condition and free of
dust, debris, trash, rodents, vermin and other pests, ordinary wear excepted,
and (iv) make all necessary repairs thereto, interior and exterior, ordinary and
extraordinary, structural and non-structural, and foreseen and unforeseen. The
extent of Tenant's obligation in the foregoing includes but is not limited to
interior light bulbs and fixtures, HVAC units, sprinkler heads and lines, dock
doors, levelers and other equipment, carpeting, cleanliness of painted surfaces
and bathrooms, etc. The term "repairs" as used in this Article shall include,
but shall not be limited to, all necessary or appropriate replacements, and
renewals, and, subject to the provisions of Section 9.2 hereof, all necessary or
appropriate changes, alterations, additions and betterments. Tenant shall
promptly remove any debris left by Tenant, its employees, agents, contractors or
Invitees in the parking areas or other exterior areas of the Real Estate.
(b) Notwithstanding anything set forth herein to the contrary, Tenant
shall be responsible for all repairs anti replacements of damage and/or
destruction of the Leased Premises necessitated by burglary or attempted
burglary or any other illegal or forcible entry into the Leased Premises.
9.2 Alterations.
(a) As used in this Lease, the term "Alterations" shall mean any and all
repairs, additions, improvements and/or alterations on or to the Leased Premises
and on and to the appurtenances and equipment thereof which Tenant makes or is
obligated to make hereunder.
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(b) [Intentionally deleted]
(c) Tenant shall not make any Alterations, which cast in excess of $25,000
in respect of any one Alteration project, without Landlord's prior written
consent, which consent Landlord shall not unreasonably delay or withhold unless
such Alterations affect the structural integrity of the Building or Landlord's
roof warranty, in which cases Landlord may, in its discretion, withhold its
consent. As to any Alterations, Tenant shall, if requested by Landlord, furnish
Landlord with plans and specifications, names and addresses of contractors,
copies of contracts, necessary permits, indemnification, bonds, guaranties or
waivers of lien in form and amount satisfactory to Landlord against any and all
claims, costs, damages, liabilities and expenses which may arise in connection
with any such work. Tenant shall in no event make any cut or opening in the roof
unless made through Landlord by Landlord's roofing contractor, Centimark,
Landlord having a valuable warranty of the condition of the roof.
(d) Tenant shall pay the cost of all Alterations and agrees to indemnify
and hold harmless Landlord and its beneficiaries and agents from any and all
liabilities of every kind and description which may arise out of or be connected
in any way with any Alterations. Before commencing any Alterations, Tenant, if
requested by Landlord, shall furnish Landlord with certificates of insurance
from all contractors performing labor or furnishing materials insuring Landlord
against any and all liabilities which may arise out of or be connected in any
way with such Alterations.
(e) Upon completing any Alterations, Tenant shall, if requested by
Landlord, furnish Landlord with "as built" drawings contractors' affidavits and
full and final waivers of lien and receipted bills covering all labor and
material expended and used. All such work shall comply with all insurance
requirements and with all applicable rules, laws, ordinances and regulations of
any governmental or quasi-governmental authority having jurisdiction over the
Leased Premises. All such work shall be performed in a good and workmanlike
manner and only good grades of new materials shall be used.
X. ASSIGNMENT AND SUBLETTING
10.0 Consent Required. Subject to the provisions of Section 10.1 hereof,
Tenant shall not, without Landlord's prior written consent, which consent
Landlord may in its sole discretion withhold, (i) assign or convey this Lease or
any interest under it; (ii) allow any transfer thereof or any lien upon Tenant's
interest in the Leased Premises by operation of law or otherwise; (iii) sublet
the Leased Premises or any part thereof; (iv) amend a sublease previously
consented to by Landlord or (v) permit the use or occupancy of the Leased
Premises or any part thereof by anyone other than Tenant. Any assignment,
sublease or other transfer made in violation of the provisions of this Article
10 shall be deemed void and of no force or effect.
10.1 Assignment or Subleasing. Notwithstanding anything to the contrary in
the foregoing, but subject to the further provisions of this Section 10.1.
Landlord agrees not to unreasonably withhold its consent to any request by
Tenant for Landlord's consent to an assignment of this Lease or a sublease of
the Leased Premises.
(a) If Tenant proposes to assign the Lease or enter into any sublease of
the Leased Premises, Tenant shall deliver written notice thereof to Landlord at
least thirty (30) days prior to the effective date of the proposed assignment or
the commencement date of the term of the proposed sublease, together with (i) a
copy of the proposed assignment or sublease agreement and (ii) sufficient
information to permit Landlord to determine the financial responsibility and
character of the proposed subtenant or assignee, its operations and the
acceptability thereof. Such delivery and conformity shall obligate Landlord to
review and evaluate the same, but shall not per se entitle Tenant to Landlord's
approval of the proposed assignment or sublease.
(b) Any proposed assignment shall be expressly subject to the terms,
conditions and covenants of this Lease. Any proposed assignment shall contain a
written assumption by assignee of all Tenant's obligations under this Lease. Any
proposed sublease shall (i) provide that the sublessee shall procure and
maintain a policy of insurance as required of Tenant under Section 5.0 hereof,
(ii) contain a provision for the benefit of Landlord, substantially in the form
set forth in Section 5.4 hereof (i.e., waiver of subrogation provisions), (iii)
provide for a copy to Landlord of notice of default by either party thereto and
(iv) otherwise be in form reasonably acceptable to Landlord.
(c) No assignment or sublease permitted under this Section 10.1 shall be
valid unless (i) within ten (10) days of the execution of such sublease or
assignment, Tenant delivers to Landlord executed copies of the assignment or
sublease (in form and substance satisfactory for recording) and all documents or
agreements executed in connection therewith and (ii) the assignment or sublease
and all other such documents are materially in conformity with the economic and
other terms of the proposed documents and agreements previously delivered to
Landlord in connection with Tenant's request for Landlord's consent to the
assignment or sublease.
(d) Provided that Tenant complies with all of the requirements of this
Section 10.1, Landlord's consent to any assignment or subletting shall not
unreasonably be withheld; in making its determination as to whether to consent
to any proposed assignment or sublease, Landlord may consider, among other
things, the credit-worthiness and business reputation of the proposed assignee
or subtenant, the intended manner of use of the Leased Premises by the proposed
assignee or subtenant and any risks to the Real Estate or conflicts with other
uses or potential uses of the Real Estate posed by such use,
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the estimated vehicular traffic on or about the Leased Premises and to the Real
Estate which would be generated by the proposed assignee or subtenant or by its
manner of use of the Leased Premises and/or any other factors which Landlord may
reasonably deem relevant. Without limiting Landlord's grounds for withholding
such consent, Landlord may withhold such consent if (i) the proposed assignee or
subtenant is a person or entity with whom Landlord is then or has been recently
negotiating to lease space in the Building or (ii) the proposed assignee or
subtenant's operations at the Leased Premises would violate any provision of
this Lease. In the event that Landlord shall unreasonably withhold its consent
to an assignment or subletting, Tenant's remedy shall be limited to injunctive
relief or declaratory judgment and in no event shall Landlord be liable for
damages resulting therefrom. There shall not be more than one (1) subtenant of
the Leased Premises. No consent by Landlord to any assignment or subletting or
to any sub-subletting shall be deemed to be a consent to any further assignment
or subletting or to any further sub-subletting. Receipt by Landlord of rental
due hereunder from any party other than Tenant shall not be deemed to be a
consent to any such assignment or subletting or relieve Tenant from its
obligation to pay rental or other charges for the full term of this Lease.
(e) In the event that Tenant proposes to assign the Lease or to enter into
a sublease of all or substantially all of the Leased Premises, Landlord shall
have the right, in lieu of consenting thereto, to terminate this Lease,
effective as of the effective date of the proposed assignment or the
commencement date of the proposed sublease, as the case may be. Landlord may
exercise said right by giving Tenant written notice thereof within five (5) days
after receipt by Landlord of Tenant's notice, given in compliance with Section
10.1(a) hereof, of the proposed assignment or sublease. In the event that
Landlord exercises such right, Tenant shall surrender the Leased Premises on the
effective date of the termination and this Lease shall thereupon terminate.
Landlord may, in the event of such termination, enter into a lease with any
proposed assignee or subtenant for the Leased Premises.
(f) No permitted assignment shall be effective and no permitted sublease
shall commence unless and until any default by Tenant hereunder shall have been
cured. No permitted assignment or subletting shall relieve Tenant from Tenant's
obligations and agreements hereunder and Tenant shall continue to be liable as a
principal and not as a guarantor or surety to the same extent as though no
assignment or subletting had been made.
(g) Tenant shall reimburse Landlord on demand for any costs that may be
incurred by Landlord in connection with any assignment or sublease, including,
without limitation, the costs of making investigations as to the acceptability
of the proposed assignee or subtenant, and legal fees and disbursements costs
incurred in connection with the granting of any requested consent; which costs
shall not exceed one thousand and 00/100 dollars ($1,000.00) in any one
instance).
10.2 Merger or Consolidation. Notwithstanding anything to the contrary set
forth herein, Tenant may, without Landlord's consent, assign this Lease to any
corporation resulting from a merger or consolidation of the Tenant, to a
corporation acquiring substantially all of the assets of Tenant or to any
corporation which controls, is controlled by or under common control with
Tenant, provided, in any such case: (a) the total assets and net worth of such
assignee after such consolidation or merger shall be equal to or greater than
that of Tenant immediately prior to such consolidation or merger; (b) Tenant is
not at such time in default hereunder; (c) such successor shall execute an
instrument in writing fully assuming all of the obligations and liabilities
imposed upon Tenant hereunder and deliver an executed copy of the same to
Landlord prior to the effective date of such assignment, (d) Tenant delivers an
executed copy of the assignment in form and substance satisfactory for recording
within ten (10) business days after the execution and delivery thereof and (e)
the assignee continues to perform operations at the Leased Premises similar to
chose conducted by Tenant prior to the assignment.
10.3 Voting Control of Tenant. The term "assignment" as used in this
Article 10 should be construed to include (i) if Tenant is corporation, a
transfer (by one or more transfers) of stock which results in a change of
control of Tenant (other than in a public offering) and (ii) if Tenant is a
partnership or joint venture, a transfer (by one or more transfers) of an
interest in the distributions of profits and losses of such partnership or joint
venture which results in a change of control of such partnership or joint
venture. For purposes of this Section 10.2, the term "control" shall mean, in
the case of a corporation, ownership, directly or indirectly, of at least fifty
(50%) percent of all the voting stock, and in case of a joint venture or
partnership or similar entity, ownership, directly or indirectly, of at least
fifty (50%) percent of all the interests therein.
10.4 Other Transfer of Lease. Tenant shall not allow or permit any
transfer of this Lease or any interest hereunder by operation of law, and shall
not convey, mortgage, pledge, hypothecate or encumber this Lease or any interest
herein. Any assignment, subletting, amendment of a sublease, conveyance,
transfer, mortgage, pledge, hypothecation or encumbrance made in violation of
the provisions of this Article shall be null and void.
XI. LIENS AND ENCUMBRANCES
11.0 Encumbering Title. Tenant shall not do any act which shall in any way
encumber the title of Landlord in and to the Leased Premises or the Real Estate,
nor shall the interest or estate of Landlord in the Leased Premises or the Real
Estate be in any way subject to any claim by way of lien or encumbrance, whether
by operation of law or by virtue of any express or implied contract by Tenant.
Any claim to, or lien upon, the Leased Premises or the Real Estate arising from
any act or omission of Tenant shall accrue only against the Leasehold estate of
Tenant and shall be subject and subordinate to the paramount title and rights of
Landlord in and to the Leased Premises and the Real Estate.
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11.1 Liens and Right to Contest. Tenant shall not permit the Leased
Premises or the Real Estate or any part thereof to become subject to any
mechanic's, laborer's or materialmen's lien on account of labor or material
furnished to Tenant or claimed to have been furnished to Tenant in connection
with Alterations or any other work performed or claimed to have been performed
on any part of the Real Estate by, or at the direction or sufferance of Tenant.
If any such lien or claim for lien is filed, Tenant shall immediately either
have such lien or claim for lien released of record or shall deliver to Landlord
a bond, in form, content, amount and issued by surety or other assurances
reasonably satisfactory to Landlord, against all costs and liabilities resulting
from such lien or claim for lien and the foreclosure or attempted foreclosure
thereof. If Tenant shall fail to have any such lien or claim for lien so
released or to deliver such bond to Landlord, Landlord, without investigating
the validity of such a lien, may pay or discharge the same and, within ten (10)
days of Landlord's written request therefore. Tenant shall reimburse Landlord
for its actual costs and expenses in respect thereof including but not limited
to Landlord's attorneys' fees and expenses.
XII. UTILITIES
12.0 Utilities. For the purposes of this Lease, the term "Utilities" shall
mean any and all electricity, telephone, gas (other than gas to the Building's
central boilers), water, sanitary and storm sewer services, and other public and
private utility services furnished to the Real Estate.
(a) Landlord may, at Landlord's election, but without any obligation to do
so, make arrangements with any utility company or companies supplying Utilities
to the Leased Premises, to bill Tenant directly for its use of the Utility
provided by such utility company or companies, and Tenant agrees to pay each
bill promptly in accordance with its terms. If Tenant is not billed directly,
Landlord shall forward to Tenant each bill with respect to the Leased Premises
and Tenant shall pay it promptly in accordance with its terms.
(b) If Tenant is not separately metered and billed with respect to one or
more Utilities, Landlord may, at Landlord's election, but without any obligation
to do so, separately submeter the Utilities furnished to the Leased Premises. In
such an event, Landlord shall render bills to Tenant to reflect the actual use
of such Utilities by Tenant as shown by such submetering.
(c) If any Utilities shall be neither directly metered nor separately
submetered, then (i) with respect to those Utilities which, in Landlord's
reasonable judgment, are used proportionately by Tenant and any other occupants
of the Real Estate, Tenant shall pay to Landlord, as Additional Rent, an amount
equal to Tenant's Pro Rata Share of the total amount paid by Landlord for usage
of such Utilities with respect to the Real Estate, and (ii) with respect to
those Utilities which in Landlord's reasonable judgment are not used
proportionately by Tenant and the other occupants of the Real Estate, subject to
any limitations set forth in Section 3.1 hereof, Landlord shall allocate the
cost of such Utilities among Tenant and the other occupants of the Real Estate
on an equitable basis based on Landlord's reasonable estimate of each occupant's
usage thereof, and Tenant shall pay to Landlord, as Additional Rent, the portion
of the cost of such Utilities so allocated to Tenant. Any amounts payable by
Tenant pursuant to (i) or (ii) above or otherwise in this Section 12.0 shall be
payable together with the monthly payment of Base Rent in such amounts as
Landlord shall from time to time advise Tenant based on the cost of Utilities
theretofore billed to Landlord.
(d) Landlord shall from time-to-time give Tenant written notice (an
"Allocation Notice") setting forth the proportionate use of any Utilities
allocated by Landlord to Tenant pursuant to Section 12.0(c) above, Tenant may,
within fifteen (15) business days after receipt from Landlord of an Allocation
Notice, give Landlord a written dispute notice stating that Tenant disputes
Landlord's allocation and setting forth the allocation which Tenant believes to
be correct; provided however that Tenant's failure to timely give such a notice
shall be deemed agreement with the allocation set forth in Landlord's Allocation
Notice. If Tenant timely gives Landlord such a dispute notice and if the parties
shall be unable to resolve such dispute within fifteen (15) days after receipt
by Landlord of Tenant's notice, Landlord shall retain a third party consultant
to make a survey of the use in the Real Estate of any disputed Utilities to
determine the average monthly consumption thereof by Tenant. The cost of each
such survey shall be borne equally by Landlord and Tenant unless the consultant
determines that the allocation as determined by one of the parties is in
substance fair or correct, in which case the other shall pay the entire cost of
such survey. The findings of the consultant shall be conclusive and binding upon
the parties until such time as Landlord gives Tenant a new Allocation Notice in
accordance with this Section 12.0(d). Any change in allocation resulting from a
survey shall be effective as of the date of receipt by Tenant of the Allocation
Notice in dispute. If the determination of the consultant shall result in a
deficiency, Tenant shall pay the amount thereof within ten (10) days after
demand therefor, and if the determination shall result in an overpayment,
Landlord shall, provided no Event of Default exists hereunder, permit Tenant to
credit the amount thereof against future payments for Utilities.
(e) The costs and expenses incurred by Landlord in providing any
additional special services used by Tenant not separately metered or billed to
Tenant hereunder, including but not limited to, the provision of heat from the
Building's central boilers after the usual times that heat is provided, shall be
billed by Landlord to Tenant and Tenant shall reimburse Landlord for such cost
and expense within ten (10) days of written demand therefor by Landlord.
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(f) Subject to the other provisions of this Section 12.0, Tenant shall pay
to Landlord, as additional rent for the Leased Premises, Tenant's Pro Rata Share
of the charges, it any, for Utilities used for areas of common use by or for the
tenants on the Real Estate. Such charges shall be paid by Tenant to Landlord in
accordance with the provisions of Section 3.1 hereof.
(g) In the event that Landlord elects to cause the gas and/or electric
services to be segregated or subdivided by Tenant, Landlord shall be
responsible, at its sole cost and expense, for the costs associated therewith.
XIII. INDEMNITY AND WAIVER
13.0 Indemnity.
(a) Tenant shall indemnify and save Landlord harmless from and against,
and shall reimburse Landlord for, all liabilities, obligations, damages, fines,
penalties, claims, demands, costs, charges, judgments and expenses including,
but not limited to, reasonable architects' and attorneys' fees, which may be
imposed upon or incurred or paid by or asserted against Landlord or Landlord's
fee or reversionary or other interest in the Real Estate by reason of or in
connection with any of the following:
(i) Any Alterations made by or on behalf of Tenant and anything done by or
on behalf of Tenant in, on or about the Leased Premises or any part thereof,
including but not limited to the use, non-use, possession, occupation,
condition, operation, maintenance or management of the Leased Premises or any
part thereof, or any street, alley, sidewalk, curb, vault, passageway or space
adjacent thereto;
(ii) Any negligent or tortious act or omission on the part of Tenant;
(iii) Any accident, injury, death or damage to any person or property
occurring in, on or about the Leased Premises or any part thereof or any street,
alley, sidewalk, curb, vault, passageway or space adjacent thereto that is
caused by Tenant; and
(iv) Any failure on the part of Tenant to perform or comply with any of
the covenants, agreements, terms, provisions, conditions or limitations
contained in this Lease on its part to be performed or complied with.
As used in clauses (i) through (iv) of Section 13.0(a), the term "Tenant" shall
include Tenant and any of its agents, contractors, servants, employees,
subtenants, licensees or invitees. As used in this Article XIII, the term
"Landlord" shall include (w) Landlord, (x) any managing agent for the Leased
Premises hired by Landlord, (y) if Landlord is an Illinois land trust, the
trustee, its beneficiary or beneficiaries, and (z) each of their respective
agents, directors, officers and employees.
(b) In case any action or proceeding is brought against Landlord by reason
of any claim set forth in this Section 13.0, Tenant, upon notice from Landlord,
shall, at Tenant's expense, resist or defend such action or proceeding in
Landlord's name, if necessary, by counsel for the insurance company, if such
claim is covered by insurance or otherwise by counsel approved by Landlord.
Landlord agrees to give Tenant prompt notice of any such claim or proceeding.
(c) The provisions of this Section 13.0 and of Section 13.1 shall not in
any way be affected by the absence in any case of any insurance relating to any
of the indemnified matters or by the failure or refusal of any insurance company
to perform any obligation on its part. The provisions of this Section 13.0 and
of Section 13.1 shall survive any expiration or earlier termination of this
Lease.
13.1 Waiver of Certain Claims. All property belonging to Tenant or any
occupant of the Leased Premises that is in or on any part of the Real Estate
shall be there at the risk of Tenant or of such other person only. Therefore,
Landlord shall not be liable for any damage thereto or for the theft or
misappropriation thereof. Tenant waives all claims it may have against Landlord
for damage or injury to Tenant or to its property sustained by Tenant or any
persons claiming through Tenant or by any occupant of the Leased Premises or by
any other person resulting from any cause whatsoever, including but not limited
to any damage or injury caused by any part of the Real Estate or any of its
improvements, equipment or appurtenances that shall be out of repair (or falls
into disrepair), caused by any accident on or about the Real Estate or caused
directly or indirectly by any act or neglect of any tenant or occupant of any
part of the Real Estate or of any other person, including Landlord. This waiver
shall include, but not by way of limitation, damage caused by water, snow,
frost, steam, excessive heat or cold, sewage, gas, odors, or noise, or caused by
bursting or leaking of pipes or plumbing fixtures (including, but not limited to
sprinkler pipes, lines, heads and any part of such system, roof leaks, leaks
from drains and the like), and shall apply without regard to whether or not such
damage results from the act or neglect of Tenant or any other person, including
Landlord. Additionally, in no event shall Landlord be liable to Tenant for any
disrepair or damage to the Leased premises or the Real Estate, and, except as
may be specifically provided in this Lease, Landlord shall have no obligation to
repair the same.
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XIV. RIGHTS RESERVED TO LANDLORD
14.0 Rights Reserved to Landlord. Without limiting any other rights
reserved or available to Landlord under this Lease, at law or in equity,
Landlord reserves the following rights to be exercised at Landlord's election:
(a) To change the street address of the Leased Premises on ninety (90)
days prior written notice to Tenant;
(b) To have access to Leased Premises or the Building, specifically
including, but without limiting the generality of the foregoing, to make
repairs, additions or alterations within and clean and maintain the Leased
Premises and any portions thereof serving other premises in the Building or
other parts of the Real Estate;
(c) On twenty-four hours written or telephonic notice to Tenant or without
such notice if Tenant has a management level employee available to accompany the
visitor(s), to show the Leased Premises to prospective purchasers, mortgagees,
or other persons having a legitimate interest in viewing the same, and, at any
time (in the event that Tenant vacates or abandons the Leased Premises) or
within one (1) year prior to either the expiration of the Lease term or date on
which any party hereto has an option to terminate the Lease, to persons wishing
to rent the Leased Premises;
(d) To place and maintain "For Rent" and/or "For Sale" signs on the Leased
Premises or the Real Estate, but, except during the twelve (12) months prior to
the expiration of the Lease, in no event on the outer walls of the Leased
Premises facing Maple Street or Birchwood Avenue;
(e) If Tenant shall theretofore have vacated the Leased Premises or during
the six (6) months prior to the expiration of the term of the Lease, to
decorate, remodel, repair, alter, patch, paint or make any repairs and the like
in or to the Leased Premises that may be necessary or convenient or otherwise
prepare the Leased Premises for new occupancy;
(f) To enter the Leased Premises at any reasonable time upon prior notice
to Tenant to inspect the Leased Premises; and
(g) To erect, use and maintain pipes, ducts and wiring and conduits and
appurtenances thereto, in and through the Leased Premises at reasonable
locations.
Provided that Landlord uses reasonable efforts to minimize interference with or
disruption of Tenant's business, Landlord may enter upon the Leased Premises for
any and all of said purposes and may exercise any and all of the foregoing
rights hereby reserved, during normal business hours (unless an emergency
exists, in which case Landlord may enter upon the Leased Premises when it deems
necessary) without being deemed guilty of any eviction, trespass or disturbance
of Tenant's use or possession of the Leased Premises, and without being liable
in any manner to Tenant. Landlord may, during the progress of any work performed
by it in accordance with this Section 14.0, keep and store in the Leased
Premises all necessary materials, tools, supplies and equipment. Provided that
Landlord uses reasonable efforts to avoid interfering with Tenant's business or
disrupting the same, Landlord shall not be liable for inconvenience, annoyance,
disturbance, loss of business of, or other damage to Tenant or any occupant of
the Leased Premises by reason of the making of such repairs or the performance
of any such work, or on account of bringing materials, tools, supplies and
equipment into or through the Leased Premises during the course thereof, and the
obligations of Tenant under this Lease shall not be affected thereby.
XV. QUIET ENJOYMENT
15.0 Quiet Enjoyment. So long as Tenant shall observe and perform all of
the covenants and agreements of this Lease binding on it hereunder, Tenant's
quiet and peaceable enjoyment of the Leased Premises shall not be disturbed or
interfered with by Landlord or by any person claiming by, through or under
Landlord, subject, nevertheless, to the provisions of this Lease.
XVI. SUBORDINATION OR SUPERIORITY
16.0 Subordination or Superiority. This Lease is and shall be subject and
subordinate to the lien of any mortgage or mortgages on or affecting the Real
Estate or any part thereof at the date hereof, and to any mortgage or mortgages
hereafter made affecting the Real Estate or any part thereof, and to all
renewals, modifications, consolidations, replacements, or extensions thereof,
irrespective of the time of recording such mortgage. The provisions of this
subordination shall be automatic and no further instrument of subordination
shall be necessary, but in confirmation of this subordination Tenant shall, at
Landlord's request, execute and deliver such further instruments as may be
reasonably desired by the holders of said mortgages. Such subordination made to
any mortgage or mortgages is expressly conditioned upon any such mortgagee
executing and delivering to Tenant an agreement, in form for recording, pursuant
to which such mortgagee shall agree that the leasehold estate granted to Tenant
hereunder and the rights of Tenant pursuant to this Lease to quiet and peaceful
possession under this Lease will not be terminated, modified, affected or
disturbed by any action which such mortgagee may take to foreclose its mortgage
or to enforce its rights or remedies, nor shall Tenant be named a defendant in
any foreclosure action, provided that (x) no default shall have occurred under
this Lease (other than defaults theretofore cured or in the process of being
cured as permitted by the provisions of Article XVIII hereof) and (y) Tenant
shall pay the
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Base Rent, additional rent, and other charges hereunder within the applicable
grace periods without offsets or defenses thereto. If any mortgagee or any other
person claiming by or through any mortgagee, or by or through any foreclosure
proceeding or sale in lieu of foreclosure, shall succeed to the rights of
Landlord under this Lease, Tenant shall, at such successor Landlord's request,
attorn to and recognize such successor as the Landlord of Tenant under this
Lease, and Tenant shall promptly execute, acknowledge and deliver at any time
any instruments requested by such person to evidence such attornment. Upon such
attornment, this Lease shall continue as a direct lease from such successor
Landlord to Tenant, upon and subject to all of the provisions of this Lease for
the remainder of the term of this Lease, except that the successor Landlord
shall not:
(a) be liable for any previous act or omission of Landlord under
this Lease,
(b) be subject to any offset, not expressly provided for in this
Lease, which shall have theretofore accrued to Tenant against Landlord and
(c) be bound by any previous modification of this Lease after the
date of such mortgage, or by any previous prepayment of more than one months'
fixed annual net rent, additional rent or other charge unless such modification
or prepayment shall have been expressly approved in writing by the holder of
such fee mortgage through or by reason of which the successor Landlord shall
have succeeded to the rights of Landlord under this Lease.
XVII. SURRENDER
17.0 Surrender. Upon the termination of this Lease, whether by forfeiture,
lapse of time or otherwise, or upon termination of Tenant's right to possession
of the Leased Premises, Tenant will at once surrender and deliver up the Leased
Premises, together with all improvements thereon, to Landlord, broom swept, in
good condition and repair, reasonable wear and tear and logs by fire or other
casualty excepted; it being expressly agreed and understood that conditions
existing because of Tenant's failure to perform maintenance, repairs or
replacements as required herein shall not be deemed "reasonable wear and tear."
Tenant shall deliver to Landlord all keys to all doors therein. As used in this
Section 17.0, the term "improvements" shall include, without limitation, all
plumbing, lighting, electrical, heating, cooling, and ventilating fixtures and
equipment and all Alterations whether or not such Alterations are consented to
by Landlord. All Alterations, temporary or permanent, made in or upon the Leased
Premises by Tenant (exclusive of Tenant's Trade Fixtures) (as hereinafter
defined) shall become Landlord's property and shall remain upon the Leased
Premises on any such termination without compensation, allowance or credit to
Tenant, provided, however, that Landlord shall have the right to require Tenant
to remove any Alterations and to restore the damage occasioned by such removal
and restoration. Said right shall be exercised by Landlord's giving written
notice thereof to Tenant on or before thirty (30) days after any such
termination. If Landlord requires removal of any Alterations and Tenant does not
make such removal either in accordance with this Section on or before the date
of such termination or within thirty (30) days after such request, whichever is
later, Landlord may, at its option, remove the same (and repair any damage
occasioned thereby) and dispose thereof or, at its election, either deliver the
same to any other place of business of Tenant or warehouse the same. Tenant
shall pay the costs of such removal, repair, delivery and warehousing to
Landlord on demand.
17.1 Removal of Tenant's Property. Upon any such termination of this Lease
by lapse of time or otherwise, Tenant shall remove Tenant's articles of personal
property incident or otherwise related to Tenant's business ("Trade Fixtures");
provided, however, that Tenant shall repair any injury or damage to the Leased
Premises which may result from such removal and shall restore the Leased
Premises to the same condition as prior to the installation thereof. If Tenant
does not remove Tenant's Trade Fixtures from the Leased Premises prior to the
expiration or any such termination, Landlord, may, at its option, remove the
same (and repair any damage occasioned thereby) and dispose thereof or, at its
election, either deliver the same to any other place of business of Tenant or
warehouse the same, in which case Tenant shall pay the cost of such removal,
repair, delivery and/or warehousing to Landlord on demand, or Landlord may treat
such Trade Fixtures as having been conveyed to Landlord with this Lease being
deemed a Bill of Sale, without further payment or credit by Landlord to Tenant.
17.2 Holding Over. Tenant shall have no right to occupy the Leased
Premises or any portion thereof after the expiration of the Lease or after any
earlier termination of the Lease or of Tenant's right to possession. In the
event that Tenant or any party claiming by, through or under Tenant holds over,
Landlord may exercise any and all remedies available to it at law or in equity
to recover possession of the Leased Premises, and for all damages sustained by
Landlord, whether direct or indirect, on account thereof. In connection with any
holding over by Tenant, Tenant acknowledges that Landlord expressly bargained
for both the right to timely surrender by Tenant of the Leased Premises and the
rights provided in this Section 17.2 and would not have executed this Lease
without either or any of them. Additionally, the parties recognize and agree
that the damage to Landlord resulting from any failure by Tenant to timely
surrender possession of the Leased Premises will be substantial in that
Landlord's marketing efforts will be hindered and/or a prospective lease or sale
may be lost and that such damages, will, for the reasons outlined above, exceed
the amount of the monthly installments of Base Rent payable hereunder, and will
be impossible to measure accurately. Therefore, Tenant agrees that, if
possession of the Leased Premises is not surrendered to Landlord upon the
expiration date or earlier termination of the Lease or of Tenant's right to
possession, then, in addition to any other rights or remedies that Landlord may
have hereunder or at law, Tenant shall pay to Landlord, as minimum damages and
not as a penalty or limitation on damages, for each and every month or partial
month that Tenant or any party claiming by, through or under Tenant remains in
occupancy of all or any portion of the Leased
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Premises after the expiration of the Lease or after any early termination of the
Lease or of Tenant's right to possession, a sum equal to the higher of (a)
double the rate of Base Rent and other charges payable by Tenant hereunder
immediately prior to the expiration or other termination of the Lease or of
Tenant's right to possession or (b) double the then current fair market value
for the Leased Premises. The acceptance by Landlord of any lesser sum shall be
construed as a payment on account and not in satisfaction of damages for such
holding over. No holding over by Tenant, whether with or without the consent of
Landlord, shall operate to extend this Lease that except as otherwise expressly
provided. The provisions of this Section shall not constitute waiver or
Landlord's right of re-entry or any other right hereunder. The provisions of
this Section shall survive the expiration or earlier termination of the Lease or
of Tenants right to possession.
XVIII. REMEDIES
18.0 Defaults. Tenant agrees that any one or more of the following events
shall be considered an event of default ("Event of Default"):
(a) Tenant shall default (i) in any payment of Base Rent required to be
made under Section 3.0 hereof or (ii) in any other payment required to be made
by Tenant hereunder when due as herein provided, including but not limited to
payments required to be made under Sections 3.1 and 3.3 hereof (all of which
other payments shall be deemed "additional rent" payable hereunder), and any
such default under the foregoing clause (i) or (ii) shall continue for five (5)
days after notice thereof in writing to Tenant; or
(b) An involuntary case in bankruptcy shall be filed against Tenant under
any federal or state bankruptcy or insolvency act and shall not have dismissed
within forty-five (45) days from the filing thereof; or
(c) Tenant shall (i) file or admit the jurisdiction of the court and the
material allegations contained in any petition in bankruptcy or any petition
pursuant to or purporting to be pursuant to the Federal bankruptcy laws as now
or hereafter amended or (ii) institute any proceeding, or shall give its consent
to the institution of any proceedings for any relief of Tenant under any
bankruptcy or insolvency laws or any laws relating to the relief of debtors,
readjustment of indebtedness, reorganization, arrangements, composition or
extension; or
(d) Tenant shall (i) make any assignment for the benefit of creditors,
(ii) apply for or consent to the appointment of a receiver for Tenant or any of
the property of Tenant or (iii) admit in writing Tenant's inability to meet
Tenant's debts as they mature; or
(e) Tenant's interest in the Leased Premises an levied on under execution
or other legal process; or
(f) A decree or order appointing a receiver of the property of Tenant
shall be made and such decree or order shall not have been vacated or set aside
within thirty (30) days from the date of entry or granting thereof; or
(g) Tenant shall abandon the Leased Premises or vacate the same during the
term hereof; or
(h) Tenant (i) shall fail to contest the validity of any lien or claimed
lien and give security to Landlord to assure payment thereof or (ii) having
commenced to contest the same and having given such security, shall fail to
prosecute such contest with diligence or shall fail to have the same released
and satisfy any judgment rendered thereon, and such default shall continue for
ten (10) days after notice thereof in writing to Tenant; or
(i) Tenant shall fail to remedy any other default in the prompt and full
performance of any other provision of this Lease within fifteen (15) days after
written demand is made by Landlord (or, in the case of an emergency, Tenant does
not immediately commence to rectify such default after notice from Landlord) and
any such default is not remedied or prompt and full performance is not
accomplished by Tenant or Tenant has not promptly instituted and is not
vigorously pursuing such remedies as are necessary to rectify such default
within fifteen (15) days after written demand is made by Landlord (or, in the
case of an emergency, Tenant does not immediately commence to rectify such
default, with or without notice from Landlord); or
(j) Tenant shall repeatedly be late in the payment of Base Rent or other
charges required to be paid hereunder or shall repeatedly default in the
keeping, observing, or performing of any other covenants or agreements herein
contained to be kept, observed or performed by Tenant (provided notice of such
payment or other defaults shall have been given to Tenant, but whether or not
Tenant shall have timely cured any such payment or other defaults of which
notice was given).
18.1 Remedies.
(a) Upon the occurrence of any one or more Events of Default, in addition
to all other rights and remedies provided at law or in equity or elsewhere
herein, Landlord may, at its election with or without notice or demand of any
kind to Tenant or to any other person, terminate either (i) this Lease or (ii)
Tenant's rights to possession only, without terminating the Lease.
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Exercise by Landlord of any one or more remedies hereunder granted or otherwise
available shall not be deemed to be an acceptance by Landlord of surrender of
the Leased Premises by Tenant, whether by agreement or by operation of law, it
being understood that such surrender can be effected only by the written
agreement of Landlord and Tenant.
(b) Upon termination of the Lease or upon any termination of Tenant's
right to possession without termination of the Lease, Tenant shall surrender
possession and vacate the Leased Premises immediately and deliver possession
thereof to Landlord. Tenant hereby grants to Landlord the full and free right,
without demand or notice of any kind to Tenant (except to the extent expressly
provided for herein), to enter into and upon the Leased Premises in such event
with process of law and to repossess the Leased Premises and to expel or remove
Tenant and any others who may be occupying or within the Leased Premises without
being deemed in any manner guilty of trespass, eviction, or forcible entry or
detainer, without incurring any liability for any damage resulting therefrom and
without relinquishing Landlord's rights to rent or any other right given to
Landlord hereunder or by operation of law.
(c) In the event of termination or repossession of the Leased Premises for
an Event of Default, Landlord may, but shall not be obligated to relet all or
any part of the Leased Premises for such Base Rent and upon such terms as shall
be satisfactory to Landlord (including, but not limited to, the right to relet
the Leased Premises for a term greater or lesser than that remaining under the
Lease term and the right to change the character or use made of the Leased
Premises).
(d) Upon termination of the Lease, Landlord shall be entitled to recover
as damages, all Base Rent and other sums due and payable by Tenant on the date
of termination, plus (i) an amount equal to the value of the Base Rent and other
sums provided herein to be paid by Tenant (with amounts to be paid in the future
discounted at the rate of eight percent (8%) per annum) for the residue of the
stated term hereof and (ii) the cost of performing any other covenants to be
performed by Tenant.
(e) If Landlord elects to terminate Tenant's right to possession only
without terminating the Lease, Landlord may, at Landlord's option, enter into
the Leased Premises, remove Tenant's signs and other evidences of tenancy and
take and hold possession thereof as herein above provided, without such entry
and possession terminating the Lease or releasing Tenant, in whole or in part,
from Tenant's obligations to pay the Base Rent and all other charges hereunder
for the full term or from any other of its obligations under this Lease. For the
purpose of such reletting, Landlord may patch, paint, alter, remodel or make any
repairs and the like in or to the Leased Premises that may be necessary or
convenient. If Landlord does not relet the Leased Premises, Tenant shall pay to
Landlord on demand damages equal to the amount of the Base Rent, and other sums
provided herein to be paid by Tenant for the remainder of the Lease term. If the
Leased Premises are relet and a sufficient sum shall not be realized from such
reletting after paying all of (i) the expenses of such patching, painting,
repairs, alterations, remodeling and the like, (ii) the expenses of such
reletting (including but not limited to advertising and brokerage expenses),
(iii) other reasonable expenses incurred to secure a new tenant for the Leased
Premises and the collection of the Base Rent accruing therefrom (including, but
not be limited to, attorneys' fees and disbursements and brokers' commissions)
and (iv) other reasonably necessary expenses to satisfy the Base Rent and other
charges herein provided to be paid for the remainder of the Lease term, Tenant
shall pay to Landlord on demand any deficiency and Tenant agrees that Landlord
may file suit to recover any sums falling due under the terms of this Section
from time to time. Landlord shall not be liable in any way for its failure or
refusal to relet the Leased Premises or any part thereof, or, if the Leased
Premises or any part thereof are relet, for its failure to collect the Base Rent
under such reletting, and no such refusal or failure to relet or failure to
collect rent shall release or affect Tenant's liability for damages or otherwise
under this Lease.
(f) In the event that Landlord may elect to regain possession of the
Leased Premises in a forcible detainer proceeding, Tenant hereby specifically
waives any statutory notice which may be required prior to any such proceeding
and agrees that Landlord's execution of this Lease is, in part, consideration
for this waiver. If Landlord commences any proceeding for nonpayment of rent or
any other sums required to be paid by Tenant under this Lease (whether or not
such action seeks recovery of the Leased Premises), Tenant agrees that it shall
not interpose any defense, set-off, counterclaim or cross-complaint of any
nature whatsoever in any such proceeding; provided, however, that the foregoing
shall not be construed as a waiver of Tenant's right to assert such claims in
any separate action or actions brought by Tenant.
(g) In the event of any default by Landlord under this Lease, Tenant's
exclusive remedy shall be as further provided below (Tenant hereby waiving the
benefit of any laws granting it a lien upon Base Rent or other sums due
Landlord), but, prior to instituting any legal action, Tenant will give Landlord
written notice specifying such default with particularity, and Landlord shall
thereupon have a reasonable period of time in which to cure any such default
(which period of time shall not, in any case, be less than thirty (30) days from
the date that Landlord receives notice from Tenant in respect of the same).
Unless and until Landlord fails to so cure any default after such notice, Tenant
shall not have any remedy or cause of action by reason thereof. Notwithstanding
any other provision hereof, Landlord shall not have any personal liability
hereunder. In the event of any breach or default by Landlord in any term or
provision of this Lease, Tenant agrees to look solely to the equity or interest
then owned by Landlord in the Leased Premises; Tenant therefor also affirming
that, in no event shall any deficiency judgment or any money judgment of any
kind be sought or obtained against Landlord.
18.2 Remedies Cumulative. No remedy herein or otherwise conferred upon or
reserved to Landlord shall be considered to exclude or suspend any other remedy,
but the same shall be cumulative and shall be in addition to every other remedy
given hereunder or now or hereafter exist at law or in equity or by statute and
every power and remedy given by
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this Lease to Landlord may be exercised from time to time and so often as
occasion may arise or as Landlord may deem expedient.
18.3 Waiver of Certain Rights. Tenant, for and on behalf of itself and all
persons claiming through or under Tenant (hereinafter "Persons") (including,
without limitation, any of Tenant's creditors), hereby expressly waives, so far
as permitted by law, any and all rights which Tenant and all Persons claiming
through or under Tenant have to (a) the service of any notice of intention to
re-enter or notice to quit provided for in any law, or of the institution of
legal proceedings to that end, (b) redeem the Leased Premises or any portion
thereof or interest therein, (c) re-enter or repossess the Leased Premises or
any portion thereof or (d) restore the operation of this Lease, after either (i)
Tenant shall have been dispossessed by a judgment or by a warrant of any court
or judge, (ii) any re-entry or repossession by Landlord or (iii) any expiration
of this Lease, whether such dispossession, re-entry by Landlord or expiration
shall be by operation of law or pursuant to the provisions of this Lease or
otherwise. The terms "enter", "re-enter", "entry" or "re-entry", as used in this
Lease, are not and shall not be deemed to be restricted to their technical legal
meanings.
18.4 Bankruptcy Assumption of Lease. (a) In the event that a petition is
filed by or against Tenant seeking either a plan or reorganization or
arrangement under Chapter 9, 11 or 13 of the Bankruptcy Code or any substitute
or successor bankruptcy code or law (the "Bankruptcy Code") or liquidation under
Chapter 7 of the Bankruptcy Code or (b) if any receiver or conservator is
appointed to manage, preserve, operate or dispose of Tenant's business or its
assets, Landlord and Tenant agree, to the extent permitted by law, that any such
trustee, receiver or conservator shall determine within sixty (60) days after
commencement of the case or appointment of the receiver or conservator whether
to assume or reject this Lease and, in the event said trustee, receiver or
conservator elects to assume this Lease, (i) all due and unpaid Base Rent and
other charges hereunder shall be immediately due and payable by such trustee,
receiver or conservator to Landlord and (ii) said trustee shall provide Landlord
with adequate assurance of the future performance of all of the terms, covenants
and conditions of this Lease including but not limited to an assumption of the
terms, covenant and conditions thereof.
18.5 No Waiver. No delay or omission of Landlord to exercise any right or
power arising from any default shall impair any such right or power or be
construed to be either a waiver of any such default or any acquiescence therein.
No waiver of any breach of any of the covenants of this Lease shall be construed
as or taken or held to be either a waiver of such a breach or as a waiver,
acquiescence in or consent to any further or succeeding breach of the same
covenant. The acceptance by Landlord of any payment of Base Rent or other
charges hereunder after the termination by Landlord of this Lease or of Tenant's
right to possession hereunder shall not, in the absence of agreement in writing
to the contrary by Landlord, be deemed to restore this Lease or Tenant's right
to possession hereunder, as the case may be, but shall be construed as a payment
on account and not in satisfaction of damages due from Tenant to Landlord.
XIX. SECURITY DEPOSIT
19.0 Security Deposit. Tenant has deposited with Landlord a security
deposit in the amount of four (4) months' Base Rent (the "Security Deposit") for
the faithful performance and observance by Tenant of the terms, provisions and
conditions of the Lease and, as additional security for the performance of its
obligations thereunder; except that the Security Deposit shall be reduced to two
(2) months' rent and Landlord shall promptly refund any excess to Tenant upon
Tenant's delivery to Landlord of a written notice stating that either (x) Tenant
has had an offering of equity stock that is listed on a major national exchange
and that the market capitalization for the Company is $15.0 million or more on a
date on or after the thirtieth (30th) day following such offering or (y) Tenant
has obtained fresh equity in amounts equal to or greater than $7.0 million on or
after the date hereof; which notice shall be accompanied by back-up reasonably
sufficient to allow Landlord to verify the occurrence of such a market cap or
financing. Tenant shall, within ten (10) days of any written request therefor by
Landlord, deposit with Landlord such additional amounts as are necessary to
raise the total Security Deposit held by Landlord to an amount equal to the
required number of months of Base Rent set forth above. The parties agree that
the Security Deposit is not an advance rental deposit or a measure of Tenant's
damages in the event of Tenant's default and that, upon the occurrence of an
Event of Default in respect of any of the terms, provisions and conditions of
the Lease, including but not limited to, the payment of Base Rent and other
amounts payable under the Lease, Landlord may, in addition to all other remedies
herein reserved to Landlord, use, apply or retain the whole or any part of the
Security Deposit together with any interest or earnings thereon, to the extent
required for the payment of any Base Rent or other payments or any other sum as
to which Tenant is or thereafter may be in default or for any sum which Landlord
may expend or may be required to expend by reason of Tenant's default in respect
of any of the terms, conditions, and provisions of the Lease, including but not
limited to, any damages or deficiency accrued before or after summary
proceedings or other re-entry by Landlord. Landlord shall not be obligated to
hold the Security Deposit as a separate fund, but, on the contrary, may
commingle the same with its other funds. In the event that Tenant shall fully
and faithfully perform all of the terms, provisions, covenants and conditions of
the Lease, the Security Deposit shall be returned to Tenant within thirty (30)
days after the later to occur of (i) the expiration of the term of the Lease and
(ii) the satisfaction by Tenant of its obligations under the Lease. Tenant shall
have no right to apply the Security Deposit against the last month's Base Rent
or any other payment due hereunder. In the event of an assignment by Landlord of
all its rights under the Lease, Landlord shall transfer the Security Deposit to
the assignee and, provided that the assignee signs a written statement
acknowledging such assignment and delivers a copy thereof to Tenant, Landlord
shall thereupon be released by Tenant from all liability or the return of the
Security Deposit and Tenant agrees to look to such assignee solely for the
return of such security; and it is agreed that the provisions hereof shall apply
to every transfer or assignment made of the Security Deposit to a new assignee
of Landlord's
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interest in the Lease. Tenant further covenants that it will not assign,
encumber or attempt to assign or encumber the Security Deposit and that neither
Landlord nor its successors or assigns shall be bound by any such assignment,
encumbrance, attempted assignment or attempted encumbrance. In the event any
bankruptcy, insolvency, reorganization or other creditor or debtor proceedings
shall be instituted by or against Tenant, or its successors or assigns, the
Security Deposit shall be deemed to be applied first to the payment of any Base
Rent and/or other charges due Landlord for all periods prior to the institution
of such proceedings and any balance, if any of the Security Deposit may be
retained or paid to Landlord in partial liquidation of Landlord's damages.
XX. ENVIRONMENTAL
20.1 Definitions. In addition to those words and terms defined elsewhere
herein or in the Lease, the following words and terms shall have the meanings
set forth herein:
(a) Environmental Laws: "Environmental Laws" shall mean and refer to all
federal, state, State of Illinois and local laws, rules and regulations relating
to emissions, discharges, releases or threatened releases of pollutants,
contaminants, or chemical, industrial, toxic or hazardous substances or wastes
into the environment (including, without limitation, air, surface water,
groundwater or soil) or otherwise now or hereafter relating to the manufacture,
processing, distribution, use, treatment, storage, disposal, transport or
handling of pollutants, contaminants or chemical, industrial, toxic or hazardous
substances or wastes. Without limiting the generality of the foregoing,
"Environmental Laws" shall include the Comprehensive Environmental Response,
Cleanup and Liability Act ("CERCLA"), the Superfund Amendments and
Reauthorization Act ("SARA"), the Resource Conservation and Recovery Act
("RCRA") and the Toxic Substance Control Act.
(b) Permits. "Permits" shall mean and refer to all permits, licenses,
certificates, registrations and authorizations which are required to be obtained
by Tenant under all applicable Environmental Laws.
(c) Environmental Condition. "Environmental Condition" shall mean: (i) any
adverse condition relating to surface water, ground water, drinking water
supply, land, surface or subsurface strata or the ambient air, including,
without limitation, air, land and water pollutants, noise, vibration, light and
odors and (ii) any condition which may result in a claim of liability under an
Environmental Law.
20.2 Tenant's Covenants. Except for the use and storage in nominal
quantities and in compliance with Environmental Laws of standard lubricants and
cleaning agents having an ancillary use in Tenant's business, Tenant shall not
use, handle, process, store, treat, discharge or dispose of any "hazardous
waste" or "hazardous substance" (as defined by any Environmental Law) at the
Leased Premises, nor permit any of Tenant's agents, servants, employees,
licensees, invitees, contractors and permitted assignees or permitted subtenants
to do so. At no expense to Landlord, Tenant shall supply all information
required by any governmental authority or reasonably requested by any
prospective Mortgagee or purchaser of the Property with respect to Tenant's
compliance with Environmental Laws, Tenant's operations at the Leased Premises,
Tenant's use, storage or discharge of hazardous substances or hazardous wastes
at or about the Leased Premises, if any, Tenant's compliance with its
environmental obligations under this Lease and any related matters. If Tenant
becomes aware or receives notice of any condition or event involving the use,
spill, leakage, discharge or cleanup of any hazardous substance or hazardous
waste on or about the Property, or of any complaint, order, citation or notice
charging the violation of any Environmental Law, then Tenant shall give
immediate written notice of the event, condition or complaint to Landlord,
detailing all relevant facts and circumstances. Tenant agrees that Landlord and
any Mortgagee may enter the Leased Premises at such time or times as they deem
appropriate in order to conduct a visual inspection in order to determine
compliance with Environmental Laws; provided, however, that, unless an emergency
exists, such access shall be during normal business hours on reasonable notice
to Tenant, and shall not unduly interfere with Tenant's permitted use of the
Leased Premises. If this inspection or other information discloses reasonable
cause to suspect that a violation of any Environmental Laws may be occurring or
may have occurred for which Tenant is responsible under this Lease, Landlord or
the Mortgagee may cause an appropriate environmental engineering inspection to
be made at Tenant's reasonable cost and expense, and Tenant shall cooperate with
the inspection by making the Leased Premises available for that purpose. If the
inspection discloses that no such violation exists, then Landlord shall pay for
the inspection or, if Tenant has already paid, shall reimburse Tenant for the
cost.
20.3 Cooperation. On written request from the other, each of the parties
agrees to reasonably cooperate with the other in connection with any
governmental filings, hearings, proceedings or similar actions or matters
relating to the use, treatment, generation, storage or disposal of hazardous
substances or hazardous wastes on the Leased Premises. Except as for any costs
indemnified by such party under Section 20.5 or 20.6 hereof, the party
requesting such cooperation shall pay the other's reasonable out-of-pocket costs
in connection therewith.
20.4 Tenant's Indemnity. Tenant agrees to indemnify, defend (with counsel
reasonably satisfactory to Landlord) and hold Landlord harmless in full against
all claims, losses, liabilities, damages, costs and expenses (including but not
limited to cleanup costs, environmental consultants' fees and reasonable
attorneys' fees, including fees to enforce Tenant's indemnification obligation
under this Section 20.4), whether foreseen or unforeseen, arising out of any
failure by Tenant to comply in any respect
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with its obligations under this Article 20. The foregoing indemnity to be in
addition to any other indemnities set forth in the Lease and to any other legal
rights or remedies of the parties.
20.5 Landlord's Indemnity. Landlord agrees to indemnify, defend and hold
Tenant harmless in full against all claims, losses, liabilities, damages, costs
and expenses (including but not limited to cleanup costs, environmental
consultants' fees and reasonable attorneys' fees, including fees to enforce
Landlord's indemnification obligation under this Section 20.5), whether foreseen
or unforeseen to the extent the same are not the subject of Tenant's indemnity
under the foregoing Section 20.4.
20.6 Survival. Except as expressly provided, the provisions of this
Article 20 shall survive any expiration or earlier termination of this Lease.
XXI. MISCELLANEOUS
21.0 Payments to Landlord. Rent and all payments due hereunder to Landlord
shall be paid to or upon the order of Landlord at Landlord's Address as set
forth in Section 1.2 hereof, as the same may be amended by Landlord.
21.1 Estoppel Certificate. Tenant shall, at any time and from time to time
upon not less than ten (10) days' prior written request from Landlord, execute,
acknowledge and deliver to Landlord, in form reasonably satisfactory to Landlord
and/or Landlord's mortgagee, a written statement, duly acknowledged, certifying
(if true) to the following:
(i) that Tenant has accepted the Leased Premises and the Lease has
commenced;
(ii) that this Lease is unmodified and in full force and effect (or, if
there have been modifications, that the Lease is in full force and
effect as modified and identifying the modifications);
(iii) that Landlord is not in default hereunder (or, if Landlord is in
default hereunder, stating such defaults in reasonably satisfactory
detail);
(iv) the amount of the Base Rent and the date to which the Base Rent and
other charges have been paid;
(v) the Commencement Date and the expiration date of the Lease;
(vi) whether any and all work to be performed by Landlord hereunder has
been completed;
(vii) whether any renewal term options hereunder have been exercised;
(viii) whether there exist any claims or deductions from, or defenses to,
the payment of Base Rent; and
(ix) such other accurate certifications as may reasonably be required by
Landlord or Landlord's mortgagee.
It is intended that any such statement delivered pursuant to this Section 21.1
may be relied upon by any prospective purchaser or tenant of the Leased Premises
or the Real Estate, any mortgagee or prospective mortgagee thereof, any
prospective assignee of any mortgage thereof and/or their respective successors
and assigns.
21.2 Landlord's Right to Cure. In addition to, and not in lieu of, any of
Landlord's rights on remedies under this Lease, on ten (10) days' prior written
notice to Tenant (except in cases of emergency in which event Landlord shall
give prompt telephonic or written notice to Tenant), Landlord may, but shall not
be obligated to, cure any default by Tenant (specifically including, but not by
way of limitation, Tenant's failure to obtain insurance, make repairs and
replacements, or satisfy lien claims); and, whenever Landlord so elects, all
costs and expenses paid by Landlord in curing such default, including without
limitation reasonable attorneys' fees and expenses, shall be so much additional
rent due within ten (10) days following Landlord's written request therefor,
together with interest at the Default Rate (as defined in Section 3.2) from the
date of the advance to the date of repayment by Tenant to Landlord.
21.3 Amendments Must Be In Writing. None of the covenants, terms or
conditions of this Lease, to be kept and performed by either party, shall in any
manner be altered, waived, modified, changed or abandoned, except by written
instrument duly signed and delivered by the other party.
21.4 Notices. All notices, requests, demands, consents, approvals and
other communications which may be or are required to be served hereunder
(collectively, "Notices") shall be in writing and shall be sent by (a)
registered or certified mail, return receipt requested addressed to the party to
receive such Notice at the party's address set forth in Section 1.2 above, (b)
reputable delivery service, postage or freight paid, addressed to the party to
receive such Notice at the party's address set forth in Section 1.2 above or (c)
telecopier facsimile to the party to receive such notice to the party's
telecopier number first set forth in Section 1.2 above (with an executed
original thereof mailed on the date of the telecopier transmission as provided
in clause (a) of this Section 21.4). Either party may, by Notice given as
aforesaid, change his address and/or telecopier number for all subsequent
Notices and/or add up to two (2) additional parties who are to receive all
subsequent Notices (Landlord may also change its address for receipt of
payments). Except where otherwise expressly provided to the contrary herein,
Notices shall be deemed given two business days after the mailing thereof (in
the case of Notices mailed by Registered or Certified Mail), upon confirmation
of transmission (in the case of transmitted by telecopier facsimile) or upon
delivery thereof (in all other cases), with failure to accept delivery
constituting delivery for this purpose.
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21.5 Survival. All obligations of Tenant hereunder not fully performed as
of the expiration or earlier termination of the term of this Lease shall survive
the expiration or earlier termination of the term hereof, including without
limitation all payment obligations with respect to impositions, insurance and
other matters and all obligations concerning the condition of the Leased
Premises.
21.6 Time of Essence. Time is of the essence of this Lease and all
provisions herein relating thereto shall be strictly construed.
21.7 Relationship of Parties. Nothing contained herein shall be deemed or
construed by the parties hereto, nor by any third party, as creating the
relationship of principal and agent, partnership or joint venture by the parties
hereto, it being understood and agreed that no provision contained in this Lease
or any acts of the parties hereto shall be deemed to create any relationship
other than the relationship of landlord and tenant.
21.8 Captions. The captions of this Lease are for convenience only and are
not to be construed as part of this Lease and shall be construed as defining or
limiting in any way the scope or intent of the provisions hereof.
21.9 Severability. If any term or provision of this Lease shall to any
extent be held illegal, invalid or unenforceable under present or future laws
effective during the term of this Lease, the remaining terms and provisions of
this Lease shall not be affected thereby, but each term and provision of this
Lease shall be valid and be enforced to the fullest extent permitted by law.
Furthermore, in that event, it is the intention of the parties hereto that (in
lieu of each clause or provision of this Lease that is illegal, invalid or
unenforceable), there be added as a part of the Lease contract a clause or
provision as similar in terms to such illegal, invalid or unenforceable clause
or provision as may be possible and be legal, valid and enforceable.
21.10 Law Applicable. This Lease shall be construed and enforced in
accordance with the laws of the State of Illinois.
21.11 Covenants Binding on Successors. Except as specifically set forth
herein, (a) all of the covenants, agreements, conditions and undertakings
contained in this Lease shall extend and inure to and be binding upon the heirs,
executors, administrators, successors and assigns of the respective parties
hereto, the same as if they were in every case specifically named and (b)
wherever in this Lease reference is made to either of the parties hereto, it
shall be held to include and apply to, wherever applicable, the heirs,
executors, administrators, successors and assigns of such party. Except as
specifically set forth herein, nothing herein contained shall be construed to
grant or confer upon any person or entity (public or private), other than the
parties hereto, their heirs, executors, administrators, successors and assigns,
any right, claim or privilege by virtue of any covenant, agreement, condition or
undertaking in this Lease contained. Additionally, it is expressly agreed and
acknowledged that nothing in this Section shall permit any assignment by Tenant
contrary to the provisions of Article 10 hereof.
21.12 Brokerage.
(a) Landlord and Tenant each warrant that they respectively have had no
dealings with any broker, sales person, finder or agent in connection with this
Lease.
(b) Landlord agrees to indemnify, defend (with counsel reasonably
acceptable to Tenant) and hold Tenant harmless, and Tenant agrees to indemnify,
defend (with counsel reasonably acceptable to Landlord) and hold Landlord
harmless, against liability, damages, costs and expenses (including reasonable
attorneys' fees) from claims for commissions, finder's fees or similar
compensation by anyone else alleging involvement with Landlord or with Tenant,
respectively, as a broker, finder or other intermediary in connection with this
Lease.
(c) Landlord's and Tenant's obligations under this Section 21.12 shall
survive any termination of this Agreement.
21.13 Landlord Means Landlord. The term "Landlord" as used in this Lease,
so far as covenants or obligations on the part of Landlord are concerned, shall
be limited to mean and include only the Landlord or Landlords at the time in
question of the fee of the Real Estate.
21.14 Lender's Requirements. Except for any right of Tenant to terminate
this Lease that may be specifically provided for herein or in accordance with
applicable law, this Lease may not be canceled, modified or amended so as to
reduce the rent, shorten the term, or otherwise adversely affect the rights of
the Landlord hereunder, without, in each instance, the prior written consent of
all mortgagees of which Tenant has notice. No mortgagee shall be bound by any
payment of rent for more than one month in advance. Except as may be
specifically provided for herein, in the event of any act or omission by
Landlord which would give Tenant the right to terminate this Lease or claim a
partial or total eviction, or, subject to the limitations set forth herein, make
any claim against Landlord for the payment of money, Tenant will not exercise
such right until (x) it has given written notice of such act or omission to
Landlord and to all mortgagees of which Landlord has previously advised Tenant
and (y) a reasonable period of time in which to remedy such act or omission
shall have elapsed following the giving of such notices which shall not, in any
case, be less than thirty (30) days from the date that the mortgagees receive
notice from Tenant in respect
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of the same), during which period of time Landlord or the mortgagees or any of
them, with reasonable diligence following the giving of such notice, has not
commenced and continued to remedy such act or omission until completion. Nothing
herein contained shall be deemed to create any rights in Tenant not specifically
granted in this Lease or under any applicable provision of law, nor any
obligation on the part of the mortgagees to remedy any act or omission of
Landlord. If any mortgagee or committed financier of Landlord should require, as
a condition precedent to the closing of any loan or the dispersal of any money
under any loan, that this Lease be reasonably amended or supplemented in any
other manner (other than in the description of the Leased Premises, the term,
the purpose or the Base Rent or other charges hereunder or in any other regard
as will substantially or materially adversely affect the rights and obligations
of Tenant under this Lease), Landlord shall give written notice thereof to
Tenant, which notice shall be accompanied by an amendment thereto setting forth
such amendments and supplements. Tenant shall, within ten (10) days after the
effective date of Landlord's notice, either consent to such amendments and
supplements (which consent shall not be unreasonably withheld) and execute the
tendered amendment thereto or deliver to Landlord a written notice stating in
reasonable specificity its reason or reasons for refusing to so consent and
execute. Failure of Tenant to respond within said ten (10) day period shall be
deemed approval of such amendment. In the event that Tenant timely contests an
amendment, if Landlord and Tenant are then unable to agree on provisions
relating thereto that are satisfactory to each of them and to the lender within
thirty (30) days after delivery of Tenant's written statement, Landlord shall
have the right to submit the dispute in respect thereof to binding arbitration,
such arbitration to be conducted by a board of three (3) arbitrators under the
Rules then obtaining of the American Arbitration Association in the Cook County,
Illinois and, following the announcement of the decision thereof, either party
shall execute an agreement in conformity with the arbitrators' ruling upon five
(5) days written notice from the other.
21.15 Signs. Tenant shall install no exterior sign without Landlord's
prior written approval of detailed plans and specifications therefor. If
Landlord has or develops a standard form of identity sign for tenants on the
Real Estate and if Tenant desires to have or to continue to have an identity
sign on the exterior of the Leased Premises, Tenant shall advise Landlord of the
name it desires to have on its sign and Landlord shall install its standard sign
showing such name; in which case, Landlord shall at its sole cost and expense
produce and erect said sign.
21.16 Covenants and Conditions. All of the covenants of Landlord and
Tenant hereunder shall be deemed and construed to be "conditions", as well as
"covenants" as though the word specifically expressing or importing covenants
and conditions were used in each separate instance.
21.17 Tenant's Statement. Tenant shall furnish to Landlord, within ten
(10) days after written request therefor from Landlord, a copy of Tenant's then
most recent certified financial statement, certified by Tenant's chief financial
officer, along with a copy of Tenants most recent audited and certified
financial statement, if such a statement is available. It is mutually agreed
that Landlord may deliver a copy of such statements to any mortgagee or
prospective mortgagee of Landlord or any prospective purchaser of the Real
Estate, but that, otherwise, Landlord shall treat any non-public statements and
information contained therein as confidential.
21.18 Landlord's Expenses and Tenant's Attorneys' Fees. Tenant agrees to
pay on demand Landlord's expenses, including, but not limited to reasonable
attorneys' fees, expenses and administrative hearing and court costs incurred
either directly or indirectly in enforcing any obligation of Tenant under this
Lease, in curing any default by Tenant as provided in Section 21.2, in
connection with appearing, defending or otherwise participating in any action or
proceeding arising from the filing, imposition, contesting, discharging or
satisfaction of any lien or claim for lien, in defending or otherwise
participating in any legal proceedings initiated by or on behalf of Tenant
wherein Landlord is not adjudicated to be in default of any of its material
obligations under this Lease or in connection with any investigation or review
of any conditions or documents in the event Tenant requests Landlord's approval
or consent to any action of Tenant which may be desired by Tenant or required of
Tenant hereunder (provided, as further specified above, that Landlord shall not
be deemed to be so in default unless Tenant gives Landlord a written notice
specifying the default and Landlord fails to cure the same, subject to Excusable
Delays, within a reasonable period of time which shall not, in any case, be less
than thirty (30) days from the date that Landlord receives notice from Tenant in
respect of the same).
21.19 Execution of Lease by Landlord. The submission of this document for
examination and negotiation does not constitute an offer to lease or a
reservation of or option for the Leased Premises. This document shall become
effective and binding only upon the execution and delivery hereof by Landlord
and by Tenant. All negotiations, considerations, representations and
understandings between Landlord and Tenant are incorporated herein.
21.20 Tenant's Authorization. If Tenant is a corporation, partnership,
association or any other entity, Tenant shall furnish to Landlord, within ten
(10) days after written request therefor from Landlord, certified resolutions of
Tenant's directors or other governing person or body authorizing execution and
delivery of this Lease and performance by Tenant of its obligations hereunder
and evidencing that the person who physically executed the Lease on behalf of
Tenant was duly authorized to do so.
21.21 Jury Trial Waiver. To the fullest extent permitted by law, Landlord
and Tenant waive their respective rights to trial by jury in any action or
proceeding arising out of or pursuant to this Lease, the breach of any provision
hereof or the relationship of landlord and tenant.
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21.22 Sale or Assignment by Landlord. Landlord may sell the Real Estate or
assign its interest in this Lease, or any part thereof, in the exercise of its
sole discretion. Upon the written request of Landlord, Tenant shall deliver to
Landlord written acknowledgment of the same and confirm that it agrees to be
fully bound under the Lease to any such buyer or assignee. In the event of any
such sale or assignment, Landlord shall be entirely freed and relieved of all
agreements and obligations of Landlord hereunder accruing or to be performed
after the date of such sale or assignment, including, without limitation, any
obligation to return the Security Deposit or to make any accounting therefor, so
long as the assignee or purchaser acknowledges its liability therefor in
accordance with the terms of this Lease. Additionally, supplementing the
provisions of Section 21.1 hereof, within ten (10) days after the written
request of Landlord, Tenant shall provide any information or certification of
the status of this Lease reasonably requested by Landlord and Tenant shall
execute any memoranda, certificate attornment or other document in recordable
form or otherwise as required by Landlord or shall undertake any action
reasonably requested by Landlord to evidence the existence of this Lease or to
effectuate any such sale or assignment.
21.23 Landlord's Title. Landlord's title and interest in the Real Estate
is and always shall be paramount to the title of Tenant. Nothing herein
contained shall empower Tenant to do any act which can, shall or may encumber
title of Landlord.
21.24 Building Code and Zoning. Tenant shall immediately, upon receipt
thereof, forward to Landlord copies of all notices or summonses of building code
or zoning violations. Tenant shall not, without the prior written consent of
Landlord, initiate, consent to or acquiesce in any zoning or land use
classification amendment or change affecting the Leased Premises or any part
thereof or any annexation petition or proceeding affecting the Leased Premises
or any part thereof.
21.25 No Publication of Lease. Tenant shall not publish, advertise, print
or otherwise publicize this Lease, any memorandum of this Lease or disseminate
to the public, to any tenant of the Real Estate or to any prospective tenant of
all or part of the Real Estate any information about or in connection with this
Lease.
21.26 Understandings Re Payments and Receipts. No payment by Tenant or
receipt by Landlord of a lesser amount than any installment or payment of Base
Rent or other charges due shall be deemed to be other than on account of the
amount due. No endorsement or statement on any check or any letter accompanying
any check or payment of Base Rent or other charges shall be deemed an accord and
satisfaction and Landlord may accept such check or payment without prejudice to
Landlord's right to recover the balance of such installment or payment or pursue
any other remedies available to Landlord. No receipt of money by Landlord from
Tenant after the termination of this Lease or of Tenant's right of possession of
the Leased Premises shall reinstate, continue or extend the term of this Lease.
21.27 Parking Areas and Common Areas. It is understood by and between the
parties hereto that Tenant shall have a minimum of 80 spaces for car parking
available to it. This shall include an exclusive right to park cars in the lot
on the east or Maple Street side of the Building, and such additional spaces in
amount sufficient to meet the aforesaid 80 minimum, with such additional spaces
to be located on the Real Estate or on such parking areas adjacent thereto which
Landlord makes available to Tenant. It is also agreed and understood that Tenant
and its employees, agents and invitees may not use the other parking areas of
the Real Estate and that, in connection with any expiration or other termination
of Landlord's sublease of part of the parking lot in front of 1795 Birchwood
Avenue, Landlord expressly retains the right to pave over the grass areas in
front of the Leased Premises along the corner of Maple Street and Birchwood
Avenue to add paved parking areas to serve others. Tenant shall also have the
right to a further five (5) spaces on the west side of the Building to service
the 1750 Birchwood High Bay Unit, with such additional spaces to be designated
from time-to-time by Landlord.
2l.28 Independence of Covenants. All of Landlord's obligations hereunder
are and shall be independent of and separate from Tenant's covenants hereunder,
including but not limited to Tenant's obligation to pay Base Rent and other
charges, which obligation shall remain in full force and effect notwithstanding
any breach by Landlord of its covenants hereunder.
21.29 Common Areas. Landlord shall operate and maintain the common areas
of the Real Estate in a manner deemed by it to be reasonable, appropriate and in
the best interests of the Building and the Real Estate, and shall establish from
time-to-time such rules and regulations pertaining thereto as it deems
appropriate, which rules and regulations shall be binding on Tenant.
21.30 Management Agent. Landlord shall have the right to employ a
management agent for the Real Estate (the "Management Agent"). In the event that
Management Agent is appointed, Landlord shall have the right to delegate the
exercise of its rights and the performance of its duties and obligations under
this Lease to the Management Agent and Tenant agrees to recognize such
delegation after notice from Landlord.
21.31 License to Use Furniture. Landlord hereby agrees to grant Tenant a
license to use the so called "former Electro-Com furnishings" located in the
2070 Maple Unit and described more particularly on Schedule __ annexed hereto
and made a part hereof. The aforesaid license shall be co-terminous with the
term of this Lease as the same may be extended or terminated prior to the
scheduled expiration hereof. Tenant acknowledges that it has been using the same
since
23
<PAGE> 24
the l996 Sublease (see Section 2.1 for reference) and that the same are in good
condition and repair. Tenant agrees that it shall at the expiration or early
termination of the Lease, surrender and deliver the same up to Landlord in good
condition and repair, reasonable wear and tear excepted.
21.32 Entire Agreement. This Lease and the Exhibits attached hereto
contain the entire agreement between Landlord and Tenant concerning the Leased
Premises and there are no other agreements, either oral or written.
Additionally, Tenant warrants and represents that it has not relied on any
representation of any person or entity claiming to be a representative or agent
of Landlord with respect to the condition of either the Leased Premises or the
Real Estate that is either not set forth in this Lease or contrary to anything
set forth in this Lease.
IN WITNESS WHEREOF, Landlord and Tenant have executed this Lease the day
and year first above written.
LESSOR:
MAPLE PROPERTIES COMPANY, L.L.C.
an Illinois limited liability company
By: American Properties Corporation, its manager
By: /s/ Jamil Simon
----------------------------------
Jamil Simon, President
LESSEE:
DELICIOUS BRANDS, INC.
an Delaware corporation
By: /s/ Michael J. Kirby
----------------------------------
Name: Michael J. Kirby
Title: President
24
<PAGE> 1
Exhibit 10.49
March 30, 1998 $500,000
NON-NEGOTIABLE PROMISSORY NOTE
The Delicious Frookie Company, Inc., a Delaware corporation
("Borrower"), for value received hereby promises to pay to Yapton Developments,
Limited ("Noteholder"), by wire transfer of immediately available funds the
principal sum of Five Hundred Thousand Dollars ($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 pursuant to the terms of that
certain Confidential Private Placement Memorandum (the "Memorandum") dated March
20, 1998.
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) the consummation of an initial public offering of Borrower's common stock,
$.01 par value per share (the "Common Stock"), from which Borrower receives
gross proceeds of at least $7,000,000.
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 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.
<PAGE> 2
6. Waivers. Borrower hereby waives any requirements of demand,
presentment for payment, notice of dishonor, notice of protest and protest.
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;
(iii) any representation or warranty made by Borrower in this Note
shall prove to be untrue or misleading in any material
respect, which untrue or misleading statement shall cause a
material adverse effect on the operations of Borrower, and
such breach shall not be cured by Borrower within thirty (30)
days following Borrower's receipt of written notice from
Noteholder; or
(iv) 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. Conversion. If this Note is not paid within 120 days from the
date first written above, Noteholder may, upon written notice to Borrower,
convert the Note Amount and all interest accrued thereon into such number of
shares of Common Stock that is equal to the sum of the Note Amount plus all
interest accrued and unpaid thereon divided by $3.00.
-2-
<PAGE> 3
10. 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 applied against the Note Amount outstanding and
shall not postpone the due date hereof, unless Noteholder shall otherwise agree
in writing.
11. 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.
12. 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 Noteholder's Subscription Agreement.
13. 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 NEW YORK, WITHOUT REGARD TO CONFLICTS OF LAW RULES OF SUCH
STATE. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY SUBMITS TO THE EXCLUSIVE
JURISDICTION OF ANY NEW YORK STATE COURT OR FEDERAL COURT SITTING IN THE STATE
OF NEW YORK 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 NEW YORK 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/ Jeffry Weiner
-------------------------------
Name: Jeffry Weiner
Title: Chief Financial Officer
-3-
<PAGE> 1
Exhibit 10.50
July 6, 1998
Yapton Developments, Limited
Celtic House
Douglas, Isle of Man IM125J
Reference is made to the non-negotiable promissory note dated March 30,
1998 (the "Note") of The Delicious Frookie Company, Inc. ("Borrower") in the
principal amount of $500,000 in favor of Yapton Developments, Limited
("Noteholder").
In consideration of the payment of $25,000 by Borrower to Noteholder (the
"Extension Fee") and such other good and valid consideration, the sufficiency
of which is hereby confirmed, the Noteholder hereby agrees that the Note is
hereby amended by deleting the words "120 days from date first written above"
in the second sentence of Paragraph 1 of the Note and replacing such words with
the following "October 31, 1998."
The Extension Fee shall be due and payable on the earlier of (i) October
31st, 1998 or (ii) the consummation of an initial public offering of Borrower's
common stock, $.01 par value per share, from which Borrower receives gross
proceeds of at least $7,000,000.
THE DELICIOUS FROOKIE COMPANY, INC.
/s/ Jeffry Weiner CFO
-----------------------------------
By: Jeffry Weiner, CFO
Agreed and accepted as of the
date first written above:
THE YAPTON DEVELOPMENTS, LIMITED
/s/ R.F. Pacheco
--------------------------------
By: R.F. Pacheco
President
<PAGE> 1
Exhibit 10.51
[DELICIOUS BRANDS, INC. LETTERHEAD]
[DELICIOUS FROOKIE COMPANY, INC. LOGO] JULY 13, 1998
American Pacific Financial Corporation
225 W. Hospitality Lane, Suite 201
San Bernadino, California 92408
Reference is made to the promissory note dated April 3, 1998 (the "Note")
of the Delicious Frookie Company, Inc. ("Borrower") in the principal amount of
$4,600,000 in favor of American Pacific Financial Corporation.
Noteholder hereby agrees that the Note is hereby amended by deleting the
words "120 days from date first written above" in the second sentence of the
second paragraph of Section 1 of the Note and replacing such words with the
following: "October 16, 1998".
THE DELICIOUS FROOKIE COMPANY, INC.
By: /s/ Jeffry W. Weiner
------------------------------------
Name: Jeffry W. Weiner
Title: Chief Financial Officer
Agreed and accepted as of the
dated first written above:
AMERICAN PACIFIC FINANCIAL CORPORATION
By: /s/ Larry R. Polhill
-----------------------------------
Name: Larry R. Polhill
Title: President
<PAGE> 2
[DELICIOUS BRANDS, INC. LETTERHEAD]
TERM SHEET
Lender: American Pacific Financial Corporation (APFC)
Borrower: Delicious Brands, Inc. (DBI)
In response to the $4,600,000 loan, plus all accrued interest due and payable
to APFC as of August 3, 1998, it is agreed that the maturity date shall be
extended to October 16, 1998, or two (2) business days after the inception of
DBI's IPO, whichever is earlier.
Terms of this should change as follows:
1. A financing fee of $150,000 for granting this extension is due upon two (2)
days from completion of the IPO, or October 16, 1998, whichever is earlier.
2. Interest will start accruing at a rate of 15% per annum after August 3, 1998.
3. Financing charges of $5,000 per week will accrue per week starting August 3,
1998 until loan is repaid by October 16, 1998 or completion of the IPO,
whichever is earlier.
Thank you for your consideration and handling of this matter.
Sincerely,
/s/ Larry R. Polhill Dated 7-12-98 /s/ Michael J. Kirby Dated 7-13-98
- -------------------------- ------- ---------------------- -------
Larry R. Polhill Michael J. Kirby
President, President,
American Pacific Financial Corporation Delicious Brands, Inc.
<PAGE> 1
Exhibit 23.2
INDEPENDENT AUDITORS' CONSENT
We hereby consent to the use in this Prospectus constituting part of this
Amendment No. 1 Registration Statement on Form S-1 of our report dated January
22, 1998, relating to the financial statements of Delicious Brands, Inc.
(formerly 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
July 22, 1998
<PAGE> 1
EXHIBIT 23.3
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the inclusion in this Amendment No. 1 to 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: July 22, 1998
<PAGE> 1
Exhibit 23.4
INDEPENDENT AUDITORS' CONSENT
We consent to the use in this Amendment No.1 to Registration No. 333-50771
of Delicious Brands, Inc. (formerly The Delicious Frookie Company, Inc.) of our
report dated July 18, 1996, appearing in the Prospectus, which is part of such
Registration Statement, and to the reference to us under the heading "Experts".
/s/ Cooper, Selvin & Strassberg, LLP
------------------------------------
Cooper, Selvin & Strassberg, LLP
Great Neck, New York
July 23, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 503,393
<SECURITIES> 0
<RECEIVABLES> 3,414,311
<ALLOWANCES> 582,544
<INVENTORY> 560,759
<CURRENT-ASSETS> 4,204,482
<PP&E> 585,372
<DEPRECIATION> 398,566
<TOTAL-ASSETS> 7,430,065
<CURRENT-LIABILITIES> 8,266,929
<BONDS> 3,662,427
0
0
<COMMON> 33,318
<OTHER-SE> (4,371,560)
<TOTAL-LIABILITY-AND-EQUITY> 7,430,065
<SALES> 6,492,406
<TOTAL-REVENUES> 6,492,406
<CGS> 5,281,304
<TOTAL-COSTS> 5,281,304
<OTHER-EXPENSES> 1,509,126
<LOSS-PROVISION> 7,544
<INTEREST-EXPENSE> 112,949
<INCOME-PRETAX> (407,539)
<INCOME-TAX> 0
<INCOME-CONTINUING> (407,539)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (407,539)
<EPS-PRIMARY> (0.13)
<EPS-DILUTED> (0.13)
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