SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
Form 10-K
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to _______________
Commission file number 000-24941
DELICIOUS BRANDS, INC.
.
(Exact name of the registrant as specified in its charter)
DELAWARE 06-1255882
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(State or other jurisdiction of (I.R.S. Employer Identification Number)
incorporation or organization)
2070 MAPLE STREET, DES PLAINES, ILLINOIS 60018
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(Address of principal executive offices) (Zip code)
Registrant's telephone number including area code: (847) 699-3200
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Securities Registered Pursuant to Section 12(b) of the Act:
NONE
Securities Registered Pursuant to Section 12(g) of the Act:
Common Stock, $.01 par value
Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.
YES X NO
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As of March 31, 2000, the aggregate market value of the Registrant's Common
Stock held by non-affiliates of the Registrant was $4,837,998. Solely for the
purposes of this calculation, shares held by directors and officers of the
Registrant have been excluded. Such exclusion should not be deemed a
determination or an admission by the Registrant that such individuals are in
fact, affiliates of
<PAGE>
the Registrant.
As of March 31, 2000, there were 4,697,085 shares outstanding of the
Registrant's Common Stock.
Documents Incorporated by Reference: Portions of the Registrant's definitive
proxy statement to be filed pursuant to Regulation 14A within 120 days after the
end of the Registrant's fiscal year are incorporated by reference in Part III.
<PAGE>
TABLE OF CONTENTS
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ITEM PAGE
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PART I
1. BUSINESS...............................................................4
2. PROPERTIES.............................................................6
3. LEGAL PROCEEDINGS......................................................6
4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................6
PART II
5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS....................................................7
6. SELECTED FINANCIAL DATA................................................8
7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS..............................................8
7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............13
8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................13
9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURES.............................................13
PART III
10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................13
11. EXECUTIVE COMPENSATION................................................13
12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........13
13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................13
PART IV
14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......14
15. SIGNATURES............................................................15
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Delicious Brands, Inc. (the "Company") develops, markets and sells
cookies, crackers and related food products under the Delicious(R), Salerno(R),
Mama's(R) and Frookie(R) labels. These products are sold primarily in the United
States to independent direct-store delivery distributors for resale to
supermarkets and other retail outlets, through large wholesalers to natural food
stores and also directly to supermarkets and other retail outlets.
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 (i.e., packaged under both a
licensed label and the Delicious label) ("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.
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.
RECENT HISTORY
The Company's failure to satisfy the Nasdaq SmallCap Market
maintenance requirements resulted in the Common Stock being delisted from the
Nasdaq SmallCap Market. Trading of the Company's Common Stock, if any, is
conducted in the Over-the-Counter Bulletin Board.
As a result of the delisting of the Common Stock from the Nasdaq
SmallCap Market, 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, require additional disclosure relating to the market for penny stocks.
Commission regulations generally define a penny stock to be an equity security
that has a market price of less than $5.00 per share, subject to certain
exceptions. A disclosure schedule explaining the penny stock market and the
risks associated therewith is required to be delivered to a purchaser and
various sales practice requirements are imposed on broker-dealers who sell penny
stocks to persons other than established customers and accredited investors
(generally institutions). In addition, the broker-dealer must provide the
customer with current bid and offer quotations for the penny stock, the
compensation of the broker-dealer and its salesperson in the transaction and
monthly account statements showing the market value of each penny stock held in
the customer's account. If the Company's securities become subject to the
regulations applicable to penny stocks, the market liquidity for the Company's
securities could be severely affected. In such an event, the regulations on
penny stock could limit the ability of broker-dealers to sell the Company's
securities and thus the ability of purchaser of the Company's securities to sell
their securities in the secondary market.
On April 5, 2000, the Company entered into an Asset Purchase
Agreement (the "APA") with BF USB, Inc., a Delaware corporation and indirect
subsidiary of Parmalat Canada, Ltd., who is affiliated with certain of the
Company's suppliers and customers and who has acquired businesses from and
entered into a consulting agreement with the Company's Chairman of the Board of
Directors. Under the terms of the APA, the Company will sell substantially all
of its assets for $26,680,000 less a $1,700,000 working capital adjustment, plus
(minus) actual working capital (deficit), delivered at closing, as defined, in
cash and the assumption of certain liabilities that are related to the ongoing
operations of the Company. The APA requires that $5,336,000 of the cash to be
delivered at Closing be deposited into an escrow account to satisfy
indemnification obligations (if any) of the Company which may arise under the
APA. The provisions of the escrow agreement provide for release of funds in
varying amounts on the six-, twelve- and eighteen-month anniversary of the
closing date. After payment of all outstanding debt and redemption of its
preferred stock the Company believes the
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proceeds from the sale will not represent a premium to current market
capitalization. The purchase price is subject to adjustments and
indemnifications as provided in the APA. The APA requires the Company to pay a
break-up fee of $1,500,000 in the event this agreement is terminated by the
Company, if the Company were to accept a superior proposal for the sale of the
assets or otherwise. The Company has agreed not to compete in the snack food
industry without the consent of BF USB and does not plan to operate in the snack
food industry after consummation of the asset sale. The Company's Board of
Directors is exploring its alternatives and opportunities and may seek to enter
into a new line of business after the closing of the asset sale; however, the
Board of Directors has not identified any new business at present and if the
Board of Directors does not successfully identify a new line of business, it may
seek to sell or liquidate the Company and pay out the net cash to its
shareholders.
Additionally, the sale is subject to regulatory and shareholder
approval. This transaction is subject to satisfaction of various conditions,
including, the approval of a majority of the shareholders of Delicious, Hart
Scott Rodino Act approval, and other governmental approvals and the obtaining of
all necessary consents. Delicious has received an opinion from its financial
advisor, Valuemetrics, Inc., that the amount of consideration to be received by
the Company is fair from a financial perspective.
The Company's auditors have questioned the ability of the Company to
continue as a going concern due to recurring losses from operations, a
significant net working capital deficit and the fact that the Company's existing
revolving line of credit will not be renewed beyond June, 15, 2000. Although
management believes that the Company will continue operations until the pending
asset sale described below is completed, there is no guarantee that the Company
can remain viable until the conclusion of the pending transaction.
There can be no assurance that the Company will successfully
complete the transaction contemplated in the APA or, if such transaction is
completed, the Company will have funds sufficient to meet its obligations.
Should the Company be unable to complete the transaction discussed above, the
Company will likely need to seek another buyer, raise additional debt or equity
financing and/or curtail its operations.
DESCRIPTION OF BUSINESS
Products and Distribution
The Company 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 Butterfinger(TM),
Chiquita(TM), Heath(R), and Raisinets(TM). The Company's product lines include a
variety of different cookie, cracker and snack categories comprising more than
200 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, through large wholesalers to natural food
stores and also directly to supermarkets and other retail outlets.
New Products
During 1999 the Company focused a majority of its research and
development efforts to extend and enhance its All-Natural product line and
developing its single-serve product line.
The liquidity problems experienced by the Company in 1999 inhibited
the introduction of new products. See "Management's Discussion and Analysis of
Financial Conditions and Results of Operations - Liquidity and Capital
Resources" below.
Raw Materials
The Company relies exclusively on outside manufacturers to produce
its products. The main ingredients that these manufacturers use to produce the
Company's products are flour, sugar, chocolate, shortening and milk. The
Company's manufacturers also use paper products, as well as films and plastics
to package its products. Certain of the Company's suppliers have withdrawn
credit terms and require that the Company pay cash in advance for shipments.
During the first quarter of 2000 a major supplier of the Company has experienced
financial difficulties which have at times delayed the availability of product.
There is no guarantee that the supplier will continue to produce product or that
the Company will be able to find an alternative product source. Other than these
situations, there are no current or anticipated problems with respect to the
availability of the Company's products or any of the ingredients or materials
used in the production or packaging of these products.
Patents, Trademarks and Licenses
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 Unites States and
several foreign countries, including Canada,
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<PAGE>
France, Great Britain and Japan. In connection with its Co-Branded product line,
the Company has entered into license agreements with major companies that own
the trademarks that are licensed to the Company.
Seasonality of Business
The Company believes it has limited seasonality influences.
Working Capital (Deficit)
As of December 31, 1999, the Company's current ratio (current assets
divided by current liabilities) was 1.0 to 3.7. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations - Liquidity and
Capital Resources" for discussion of liquidity and plans to meet future
liquidity needs.
Reliance on Major Distributors
The Company relies on third-party distributors to sell and deliver
certain of its products to supermarkets, mass merchandisers, club stores and
convenience stores. Effective August 2, 1999, the Company terminated business
with its largest distributor of Delicious brand products due to poor
performance. The distributor represented approximately 15% of the Company's
sales during 1998. While the Company has replaced this distributor with new
distributors, the Company continues to experience a decline in sales. In
response to the termination, the owner of this distributor ceased carrying the
Company's products in their other divisions. During 1999, industry consolidation
led to several major customers being purchased by competitors resulting in
Company products being replaced by competitor merchandise.
Competition
The marketing and sale of cookies, crackers and related snack foods
is highly competitive. 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.
Research and Development
The Company's limited research and development team works to create
new products and line extensions and improve existing products. The Company's
packaging design is jointly created by an in-house design staff and outside
design firms. The Company has focused and currently intends to continue to focus
a majority of its research and development efforts extending and enhancing its
All-Natural product line and developing its single-serve product line.
Environmental Matters
To date, compliance with federal, state and local laws and
regulations enacted to regulate the discharge of materials into the environment
has not had, and is not expected to have, a material effect upon the Company's
business, financial condition or results of operations.
Employees
As of December 31, 1999, the Company had 91 full-time employees, 24
of which are represented by Teamsters Local 734. The Company's collective
bargaining agreements with Teamsters Local 734 expire on May 12, 2001. The
Company believes its relations with its employees is good.
ITEM 2. PROPERTIES
The Company's headquarters are located in 73,600 square feet of
leased office and warehouse space in Des Plaines, Illinois. The Company's lease
expires May 31, 2003. The Company also leases two warehouses in Michigan and New
York. All leased warehouse space are primarily used for the distribution of
Salerno and Mama's product lines.
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<PAGE>
ITEM 3. LEGAL PROCEEDINGS
On October 9, 1999 one of the Company's suppliers filed suit against
the Company in the Circuit Court of Cook County, Illinois claiming breach of
contract and bad faith dealing. The Company answered the complaint and filed a
counterclaim for breach of contract due to poor quality of products. The Company
continues to do business with this supplier; however, the Company has terminated
its contract with this supplier. In the opinion of management, this suit is
without merit but unfavorable disposition could have a material effect on the
Company's financial position, results of operations or liquidity. In addition,
from time to time, the Company may be subject to claims and lawsuits arising in
the normal course of business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY
There were no matters submitted during 1999 to a vote of security
holders, through the solicitation of proxies or otherwise. Currently, the sale
of certain assets and liabilities of the Company (as previously discussed in
"Recent History") will be submitted for approval to the security holders.
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Market Information
The Company's Common Stock was traded over-the-counter on the Nasdaq
SmallCap Market System ("Nasdaq") (ticker symbol: DBSI) during the year ended
December 31, 1999. On February 2, 2000 the Company's Common Stock was delisted
from the Nasdaq Stock Market (see "Recent History" for previous discussions.)
and is currently traded on the Over the Counter Bulletin Board. The following
table sets forth, for the periods indicated, the high and low bid quotations for
the Common Stock, as reported by Nasdaq. These quotations reflect the
inter-dealer prices, without retail markup, markdown or commission and may not
necessarily represent actual transactions.
Bid Prices
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Fiscal Year 1999 High Low
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First Quarter $12 3/4 $11_
Second Quarter $12 1/8 $6 7/8
Third Quarter $9 1/8 $3 5/8
Fourth Quarter $4 7/8 $1 5/16
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Bid Prices
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Fiscal Year 1998 High Low
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Fourth Quarter (1) $12 _ $11 1/2
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(1) The Company's Common Stock commenced trading on November 12, 1998.
Holders
As of December 31, 1999, there were 181 holders of record of the
Company's Common Stock holding 2,928,142 shares of common stock with 1,769,825
shares of common stock being held in street name.
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Dividends
There have been no dividends declared on the Company's Common Stock
in 1999 or 1998. 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, C and D Preferred Stock are entitled to receive
in preference and prior to the Common Stock, semi-annual dividends of five, six
and six percent, respectively, of the aggregate stated value of the Series A, C
and D Preferred Stock. During 1999 the Company paid one semi-annual dividend to
the holders of shares of Series A Preferred Stock aggregating $73,300. Any
accrued but unpaid dividends on the Series A, C and D Preferred Stock must be
paid by the Company prior to paying a dividend on the Common Stock.
ITEM 6. SELECTED FINANCIAL DATA
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 herein.
Year ended December 31,
(in thousands, except per share information)
<TABLE>
<CAPTION>
1995 1996 1997 1998(1) 1999
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<S> <C> <C> <C> <C> <C>
Net Sales $ 52,722 $ 36,848 $ 30,665 $ 53,030 $ 41,086
Net (Loss) $ (6,955) $ (898) $ (3,398) $ (5,308) $ (7,635)
Net (Loss) Per Share $ (2.57) $ (.32) $ (1.16) $ (1.57) $ (1.70)
Total Assets $ 9,719 $ 7,592 $ 6,487 $ 17,828 $ 14,234
Long-term Debt (excluding
current portion $ 2,151 $ 2,110 $ 1,960 $ 0 $ 0
</TABLE>
(1) In April 1998, the Company acquired substantially all of the assets
and assumed certain liabilities of Salerno Foods, L.L.C.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The Company's auditors have questioned the ability of the Company to
continue as a going concern due to recurring losses from operations, a
significant net working capital deficit and the fact that the Company's existing
revolving line of credit will not be renewed beyond June, 15, 2000. Although
management believes that the Company will continue operations until the pending
asset sale is completed, there is no guarantee that the Company can remain
viable until the conclusion of the pending transaction. 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.
Set forth below is a discussion of the financial condition and
results of operations for the years ended December 31, 1999, 1998, and 1997. The
1998 results of operations include financial results relating to the acquisition
of Salerno Foods, L.L.C. ("Salerno") since April 3, 1998, the date of
acquisition. The following discussion of results of operations and liquidity and
capital resources should be read in conjunction with the information set forth
in "Selected Financial Data" and financial statements and the related notes
thereto appearing elsewhere in this Form 10-K.
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RESULTS OF OPERATIONS
MATTERS AFFECTING COMPARABILITY - ACQUISITION OF ASSETS
On April 3, 1998, the Company acquired substantially all of the
assets and assumed certain liabilities of Salerno ("Salerno"). Accordingly, the
Company's results of operations for the twelve months ended December 31, 1999
include the operating results of Salerno whereas the comparable twelve months
ended for the prior year include the results of Salerno beginning April 3, 1998.
YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998
NET SALES
Net sales decreased 23% to $41.1 million for the year ended December
31, 1999 from $53.0 million for the year ended December 31, 1998. Delicious
brand product sales decreased 45% partially as a result of changes in the buying
habits of distributors as well as increased competition from private label and
national brands. Distributors formerly visited retailers multiple times each
week and relied on unit volume to earn profits. Distributors currently rely on
less visits per week, lower volume sales and a higher gross margin. Effective
August 2, 1999 the Company terminated business with its largest distributor of
Delicious brand products due to poor performance. The distributor represented
approximately 15% of the Company's sales during 1998. While the Company has
replaced this distributor with new distributors, the Company continues to
experience a decline in sales. In response to the termination of this
distributor, the owner ceased carrying the Company's products in their other
divisions. Also during 1999, industry consolidation led to several major
customers being purchased by competitors and the loss of sales. Salerno brand
product sales as compared to 1998 declined 24% primarily as a result of reduced
sales to certain national accounts. Sales were negatively affected by the
Company's inability to obtain inventory, as discussed in "Liquidity and Capital
Resources" below.
GROSS PROFIT
Gross profit decreased 16% to $9.4 million for the year ended
December 31, 1999 from $11.2 million for the year ended December 31, 1998. Gross
profit as a percentage of sales increased 1.8% as Delicious and Frookie gross
margins increased 1.7% while Salerno's gross margins decreased 1.3%. The gross
margin percentage increased for Delicious and Frookie product lines as the
Company concentrated on increasing gross margin by reducing promotional costs
and obtaining lower supplier costs. Salerno's decrease in gross margin
percentage resulted from higher promotional allowances caused by competitive
pressures in the market sector for premium cookies.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 8% to $15.8
million for the year ended December 31, 1999 from $14.7 million for the year
ended December 31, 1998. The increase in selling, general and administrative
expense was due to the inclusion of twelve months of operating expenses for the
year ended 1999 versus nine months of expenses in 1998 due to the April 3, 1998
purchase of Salerno Foods, L.L.C. The higher expenses were offset by lower
selling expenses related to reduced sales as well as a decline in general and
administrative expenses caused by the elimination of redundant expenses
associated with the April 3, 1998 acquisition of Salerno.
OTHER INCOME (EXPENSE)
Other expenses decreased 37% to $1.2 million for the year ended
December 31, 1999 from $1.9 million for the year ended December 31, 1998.
Financing fees and interest expense declined 56% and 36% respectively due to
additional expenses related to the April 3, 1998 acquisition of Salerno.
PROVISION FOR INCOME TAX
The provision for income tax for the year ended December 31, 1999
was zero as a result of there being a net operating loss for the period for
which a valuation allowance was provided to reduce the tax benefit of the loss.
The valuation allowance increased $2.9 million primarily due to the uncertainty
of the future utilization of the net loss
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generated in 1999.
At December 31, 1999, the Company has available for tax reporting
purposes approximately $21,228,000 of net operating loss carryforwards expiring
in varying amounts through 2019. As a result of the private placement of Series
B Preferred Stock in 1999, the utilization of net operating loss carryforwards
generated prior to the transaction are limited under Section 382 of the Internal
Revenue Code.
NET LOSS
Net loss increased 44% to $7.6 million for the year ended December
31, 1999 from $5.3 million for the year ended December 31, 1998. The increased
losses were a result of the factors discussed above.
YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997
NET SALES
Net sales increased 73% to $53.0 million for the year ended December
31, 1998 from $30.7 million for the year ended December 31, 1997. The net sales
increase resulted from the inclusion of the April 3, 1998 acquisition of Salerno
which totaled $26.8 million for the period from April 3, 1998 to December 31,
1998. Sales of Frookie products declined as marketing and promotion efforts were
reduced in anticipation of the introduction of a new reformulated Frookie
product line which was partially introduced during the fourth quarter of 1998.
The sales volume related to the Company's Value Oriented products declined as
promotional and marketing expenses were reduced on this lower margin product
line.
GROSS PROFIT
Gross profit increased 104% to $11.2 million for the year ended
December 31, 1998 from $5.5 million for the year ended December 31, 1997. The
gross profit increase resulted primarily from the inclusion of the April 3, 1998
acquisition of Salerno which totaled $7.3 million. Gross profit as a percentage
of sales, excluding Salerno's gross profit, decreased 2.9%. The decline was
caused by lower sales in the higher margin Frookie product discussed above, as
well as higher promotional allowances required to sell inventory and introduce
new products.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses increased 115% to $14.7
million for the year ended December 31, 1998 from $6.8 million for the year
ended December 31, 1997. The increase resulted primarily from the inclusion of
the April 3, 1998 acquisition of Salerno which totaled $8.2 million. Operating
results in 1998 included the amortization of goodwill related to the Salerno
acquisition that exceeded 1997 charges by $291,000. Non-recurring expenses for
relocation of employees and the principal executive offices of the Company of
$250,000, startup costs of $275,000 to develop international sales and costs of
$165,000 associated with litigation settlement and additional insurance cost
offset the reduction in marketing and promotional expenses of $557,000 discussed
in the Net Sales analysis.
RESTRUCTURING CHARGE
The Company recognized a one-time $1.5 million restructuring charge
in 1997 primarily consisting of the expensing of consulting agreements the
Company entered into with former executive officers, Richard and Randye Worth.
In 1998, a $150,000 reduction of the restructuring liability occurred based on
the revision of an estimate.
OTHER INCOME (EXPENSE)
Other expense increased 293% to $1.9 million for the year ended
December 31, 1998 from $484,000 for the year ended December 31, 1997. The
increase was primarily due to increased interest expense and financing fees of
$1.2 million related to borrowings used in the acquisition of Salerno and for
working capital needed to operate the Salerno product line.
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PROVISION FOR INCOME TAX
The provision for income taxes for the year ended December 31, 1998
was zero as a result of there being a net operating loss for the period for
which a valuation allowance was provided to reduce the tax benefit of the loss.
The valuation loss increased $1.6 million primarily due to the uncertainty of
the future utilization of the net loss generated in 1998.
NET LOSS
Net loss increased 56% to $5.3 million for the year ended December
31, 1998 from $3.4 million for the year ended December 31, 1997 as a result of
the factors discussed above.
Liquidity and Capital Resources
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Currently, the Company has insufficient funds for its needs. The
Company is seeking funds from the sale of certain assets and liabilities (see
"Recent History" for previous discussion); however, this transaction is subject
to satisfaction of various conditions, including the approval of a majority of
the shareholders of the Company, Hart Scott Rodino Act approval, other
governmental approvals and obtaining all necessary consents. There is no
assurance that this transaction will be completed and that an alternate source
of additional funds can be obtained on acceptable terms, if at all. If the
Company is unable to obtain additional financing or generate positive cash flow
or sell substantially all its assets, the Company's business will be materially
adversely affected.
In recent periods, the Company has utilized its working capital and
proceeds from both private placements and the Company's initial public offering
(the "Initial Public Offering") of common stock, $.01 par value per share
("Common Stock") to cover operating deficits. 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. In addition, the Company's introduction of new products represents an
immaterial capital expenditure because co-packers are responsible for the
research, development and ingredients costs. The only costs incurred by the
Company are packaging design costs, which did not exceed $100,000 in either 1999
or 1998. Consequently, additions to property and equipment are not expected to
be material in future periods.
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 $695,610 from the Second Closing, were applied by the
Company to increase cash balances and reduce outstanding trade payables
balances.
On March 30, 1998, the Company borrowed $500,000 (the "Acquisition
Loan"). Such indebtedness bears interest at the rate of 12% per annum and
matured on the consummation of the Company's initial Public Offering on November
17, 1998. The Acquisition Loan and accrued interest thereon were repaid from the
proceeds of the Initial Public Offering.
On April 3, 1998, the Company entered into an amendment to a
revolving credit facility with U.S. Bancorp Republic Commercial Finance, Inc.
("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 (10.0% at December 31, 1999).
Borrowings under the revolving credit facility at December 31, 1999 were $1.3
million. Borrowings under the revolving credit facility are collateralized by a
first lien on substantially all of the assets of the Company. The revolving
credit facility expired on November 30, 1999. Republic has notified the Company
that it will not renew the agreement but has granted an extension of the
expiration date to June 15, 2000. No assurance can be made that the Company will
be able to enter into a new facility on acceptable terms or at all. Failure to
obtain a new facility would have a material adverse effect on the Company's
business and financial condition.
On April 3, 1998, the Company consummated the Salerno Acquisition.
The purchase price for Salerno consisted of (i) $3.3 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. In connection
therewith, the Company entered into a loan agreement with American Pacific
Financial Corporation ("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
-11-
<PAGE>
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 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 notes
and accrued interest thereon were repaid from the proceeds of the Initial Public
Offering.
As of August 1, 1998, holders of approximately $1.6 million
aggregate principal amount of 9% Subordinated Convertible Promissory Notes (the
"9% Notes") exchanged such notes for an aggregate of 195,834 shares of Series A
Preferred Stock pursuant to an offer to exchange made by the Company. Annual
dividends of 10% paid semi-annually are payable on the shares of Series A
Preferred Stock out of the assets of the Company legally available for payment
thereof. The expiration date of warrants to purchase 107,730 shares of Common
Stock collectively held by the holders of the 9% Notes exchanged for the Series
A Preferred Stock was extended to April 27, 2001 from April 27, 1999.
On November 17, 1998, the Company consummated an Initial Public
Offering of 1,000,000 shares of Common Stock, at a price of $12.00 per share. On
December 31, 1998, the Company consummated the sale of 150,000 shares of Common
Stock, at a price of $12.00 per share, pursuant to the underwriters' exercise of
the over-allotment option on December 29, 1998. After deducting underwriting
discounts and expenses, the Company received approximately $10.7 million of net
proceeds from the Initial Public Offering.
On April 12, 1999, the Company consummated a private placement of
35,000 shares of Series B Preferred Stock and a warrant to purchase 700,000
shares of Common Stock for an aggregate price of $1.75 million. The net proceeds
of $1.5 million were applied by the Company to primarily reduce outstanding
trade payables balances. Each share of Series B Preferred Stock is currently
convertible into approximately seven shares of Common Stock, subject to certain
antidilution provisions. The warrant to purchase 700,000 shares of Common Stock
has an initial exercise price of $0.01 per share, subject to certain
antidilution provisions, for a term of ten years from the date of its issuance.
The warrant was exercised on April 7. 2000.
On April 27, 1999, 9% promissory notes in the aggregate principal
amount of approximately $393,000 matured. The Company did not repay the
promissory notes and currently does not have funds to repay the promissory
notes, and expects to repay the notes as funds become available.
On August 18, 1999, the Company issued promissory notes in the
aggregate principal amount of $360,000 (the "Notes"). Interest on the Notes
accrues at a rate of 10% per annum. A Note in the principal amount of $250,000
was converted at the holder's request to an 8% Note (as defined below) on August
30, 1999. The remaining Note in the principal amount of $110,000, along with all
accrued interest on the Note, was paid on September 3, 1999.
On August 30, 1999, the Company issued an 8% non-negotiable
unsecured convertible promissory note in the principal amount of $5,250,000 (the
"8% Notes"). The 8% Notes and accrued interest thereon are due and payable one
year from issuance of the 8% Notes. The 8% Notes are convertible, at the option
of the 8% Note holder, into shares of the Company's Common Stock at the rate of
one share for each $5.00 of outstanding principal amount.
On December 23, 1999, the Company consummated an initial closing of
a private placement to which it issued an aggregate of 170,038 share of 12%
Cumulative Series C Preferred Stock for an aggregate price of $3,401,000. The
net proceeds of $2,993,000 were applied by the Company to increase cash balances
and reduce outstanding trade payable balances.
On January 7, 2000, the Company consummated a second closing of a
private placement to which it issued an aggregate of 83,625 shares of 12%
Cumulative Series C Preferred Stock for an aggregate price of $1,673,000. The
net proceeds of $1,467,000 were applied by the Company to increase cash balances
and reduce outstanding trade payable balances.
On April 6, 2000, the Company consummated the closing of a private
placement to which it issued an aggregate 100,000 shares of 12% Cumulative
Series D Preferred Stock for an aggregate price of $2,000,000. The net proceeds
of $1,725,000 were used as follows: (1) $500,000 was deposited into a special
escrow reserve account related to the pending sale of certain assets and
liabilities of the Company (see "Recent History" for previous discussion), and
(2) $1,225,000 to increase cash balances, paydown the bank loan and reduce
outstanding trade payable balances.
During July, August, November and December 1999, the Company was
unable to obtain all the inventory needed to fill customer orders, due to its
inability to meet vendor obligations. Certain vendors who refused to ship
-12-
<PAGE>
merchandise have begun to supply inventory.
YEAR 2000 PROGRAM
The Company's computer hardware and software have been modified to
be Year 2000 compliant. It appears that the Company's suppliers are also Year
2000 compliant and any Year 2000 failures have not and will not have a material
impact on the Company's results of operations, liquidity or financial condition.
FORWARD LOOKING STATEMENTS
This report contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Although the Company believes that
the assumptions underlying the forward-looking statements contained herein are
reasonable, any of the assumptions could be inaccurate, and therefore, there can
be no assurance that the forward-looking statements included in this report will
prove to be accurate. In light of the significant uncertainties inherent in the
forward-looking statements included herein, the inclusion of such information
should not be regarded as a representation by the Company or any other person
that the objectives and plans of the Company will be achieved.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
At December 31, 1999, the Company had no outstanding derivative
financial instruments. All of the Company's transactions occur in U.S. dollars.
Therefore, the Company is not subject to significant foreign currency exchange
risk.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See the Financial Statements listed in the accompanying Index to
Financial Statements on Page F-1 herein. Information required for financial
schedules under Regulation S-X is either not applicable or is included in the
financial statements or notes thereto.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by this Item 10 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required by this Item 11 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
The information required by this Item 12 will be in the Company's
definitive proxy materials to be filed with the Securities and Exchange
Commission and is incorporated in this Annual Report on Form 10-K by this
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
During the period January 1, 1999 through April 6, 2000, the Company
entered into the following transactions
-13-
<PAGE>
with Donald Schmitt, Chairman of the Board: (A) On December 8, 1999 the Company
issued Mr. Schmitt 25,000 shares of Common Stock with a market value of $39,844
for services rendered during the year. (B) On December 23, 1999 Mr. Schmitt
purchased 15,000 shares of Series C Preferred Stock for $300,000. The terms were
the same as those given other investors and the purchase represented
approximately 6% of the total shares issued to investors. (C) On April 6, 2000
Mr. Schmitt purchased 25,000 shares of Series D Preferred Stock for $500,000.
The terms were the same as those given other investors and the purchase
represented 25% of the total shares issued to investors.
Additionally, on March 15, 2000 Mr. Schmitt paid $100,000 and issued
a personal promissory note for $401,084 to settle a dispute with a former
Company supplier. The Company reimbursed Mr. Schmitt for the $100,000 and
intends to reimburse him for the $401,084 after Mr. Schmitt pays the promissory
note when due on July 31, 2000.
The Company entered into an arrangement with a company, which one of
the members of the board of directors serves as president, to pay a fee for
raising capital as follows: 5% on the first $5.0 million and 3% thereafter on
the proceeds of all future debt and equity financings. The fees paid included
$325,750 in cash, 3,413 shares of Series C Preferred Stock valued at $68,250.
Additional fees of $60,000 in cash will be paid on the Series D Preferred Stock
offering.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM
8-K
(a) Documents Filed as Part of this Form 10-K
1. Financial Statements
The Financial Statements listed in the
accompanying Index to Financial Statements which
appears on page F-1 herein are filed as part of
this Form 10-K.
2. Financial Statement Schedule
The Financial Statement Schedule listed in the
accompanying Index to Financial Statements which
appears on page F-1 herein is filed as part of
this Form 10-K.
(b) The Company did not file any 8-K filings during the last
quarter of the year ending December 31, 1999.
(c) Exhibits:
3.1 Amended Bylaws
3.2 Amended and Restated Certificate of the Designations,
Powers, Preferences and Rights of the Series B
Convertible Preferred Stock
3.3 Certificate of Designation of Series C Preferred Stock
3.4 Certificate of Designation of Series D Preferred Stock
10.1 Stock Purchase Agreement relating to Series C
10.2 Stock Purchase Agreement relating to Series D
10.3 Asset Purchase Agreement dated April 5, 2000
27.1 Financial Data Schedule
99.1 Press Release dated April 7, 2000
-14-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) of the
Securities Exchange Act of 1934, the Registrant has duly caused this report to
be signed on its behalf by the undersigned, thereunto duly authorized.
DELICIOUS BRANDS, INC.
(Registrant)
Dated: April 14, 2000 /s/ Thomas J. Guinan
----------------------------------------------
Thomas J. Guinan
President, Director and Chief Executive Officer
Dated: April 14, 2000 /s/ Jeffry W. Weiner
----------------------------------------------
Jeffry W. Weiner
Executive Vice President and Chief Financial
Officer
Known all men by these presents, that each person whose signature
appears below hereby constitutes and appoints Thomas J. Guinan and Jeffry W.
Weiner his true and lawful attorney-in-fact and agent, with full power of
substitution and resubstitution for him and in his name, place and stead, in any
and all capacities, to sign any and all amendments to this Form 10-K and to file
the same, with exhibits thereto, and other documents in connection therewith,
with the Securities and Exchange Commission, granting unto said attorney-in-fact
and agent full power and authority to do and perform each and every act and
thing requisite and necessary to be done, as fully to all intents and purposes
as he might or could do in person, hereby ratifying and confirming all that said
might or could do in person, hereby ratifying and confirming all that said
attorney-in-fact and agent or either of them, or their or his substitutes or
substitutes, may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
DATE SIGNATURE
- ---- ---------
April 14, 2000 /s/ Donald C. Schmitt
-------------------------------------------
Donald C. Schmitt
Director and Chairman
April 14, 2000 /s/ Michael P. Schall
-------------------------------------------
Michael P. Schall
Director
April 14, 2000 /s/ Edward R. Sousa
-------------------------------------------
Edward R. Sousa
Director
April 14, 2000 /s/ John H. Wyant
-------------------------------------------
John H. Wyant
Director
April 14, 2000 /s/ Thomas J. Guinan
-------------------------------------------
Thomas J. Guinan
President, Chief Executive Officer and
Director
-15-
<PAGE>
April 14, 2000 /s/ Russell D. Glass
-------------------------------------------
Director
-16-
<PAGE>
DELICIOUS BRANDS, INC.
INDEPENDENT AUDITORS' REPORT AND
FINANCIAL STATEMENTS
DECEMBER 31, 1999
<PAGE>
DELICIOUS BRANDS, INC.
INDEX TO FINANCIAL STATEMENTS
Page
INDEPENDENT AUDITORS' REPORT F-2
FINANCIAL STATEMENTS:
Balance Sheets, December 31, 1999 and 1998 F-3
Statement of Operations, Years Ended December 31,
1999, 1998 and 1997 F-4
Statement of Stockholders' Equity, Years Ended
December 31, 1999, 1998 and 1997 F-5
Statement of Cash Flows, Years Ended December 31,
1999, 1998 and 1997 F-6 - F-7
Notes to the Financial Statements F-8 - F-20
ADDITIONAL FINANCIAL DATA:
Independent Auditors' Report on Schedules S-1
Valuation and Qualifying Accounts (Schedule II) S-2
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Delicious Brands, Inc.
We have audited the accompanying balance sheets of DELICIOUS BRANDS, INC. as of
December 31, 1999 and 1998, and the related statements of operations,
stockholders' equity and cash flows for each of the three years in the period
ended December 31, 1999. 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, 1999 and 1998, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1999 in conformity
with generally accepted accounting principles.
The accompanying financial statements have been prepared assuming that the
Company will continue as a going concern. As discussed in Note 1 to the
financial statements, the Company has suffered recurring losses from operations
and has a net working capital deficit raising substantial doubt about its
ability to continue as a going concern. Management's plans in regard to these
matters are also described in Note 1. The financial statements do not include
any adjustments that might result from the outcome of this uncertainty.
As described in Note 1, on April 5, 2000, the Company entered into an agreement
to sell substantially all of its assets for cash and the assumption of certain
of its liabilities.
ALTSCHULER, MELVOIN AND GLASSER LLP
/S/ Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
February 24, 2000, except for Notes 1, 4, 6 and 10 as to
which the date is April 7, 2000
F-2
<PAGE>
DELICIOUS BRANDS, INC.
Balance Sheets
December 31, 1999 and 1998
<TABLE>
<CAPTION>
Assets 1999 1998
---- ----
Current Assets:
<S> <C> <C>
Cash $ 600,762 $ 981,646
Accounts receivable (including $213,040 and $324,070,
respectively, due from related parties), net of allowances
of $2,857,970 and $2,489,260, respectively 1,797,900 3,795,948
Inventory 1,043,400 1,879,041
Due from distributors 0 13,770
Prepaid expenses and other current assets 247,761 327,964
---------- ----------
3,689,823 6,998,369
---------- ----------
Property and Equipment, Net of Accumulated Depreciation 269,833 381,185
---------- ----------
Other Assets:
Goodwill 9,460,852 10,011,946
Other 813,919 436,261
10,274,771 10,448,207
----------- -----------
$14,234,427 $17,827,761
=========== ===========
Liabilities and Stockholders' Equity
Current Liabilities:
Bank loan payable $ 1,326,033 $ 3,665,828
Current portion of subordinated debt 5,643,332 393,332
Accounts payable (including $60,460 and $82,040,
respectively, due to related parties) 3,839,756 7,173,870
Due to distributors 308,559 532,769
Accrued expenses 1,796,091 1,556,043
Current portion of long-term liabilities 791,354 904,838
----------- -----------
13,705,125 14,226,680
----------- -----------
Long-term Liabilities:
Restructuring liability 335,454 544,679
Packaging loss liability 0 200,000
----------- ------------
335,454 744,679
----------- ------------
Commitments and Contingencies
Stockholders' Equity:
Preferred stock, $.01 par value,1,000,000 shares authorized:
Series A, 183,334 and 195,834 shares issued and
outstanding in 1999 and 1998, respectively 1,466,668 1,566,668
Series B, 35,000 shares issued and outstanding in
1999, liquidation value equals stated value 1,750,000 0
Series C, 170,038 shares issued and outstanding in
1999, liquidation value of $5,101,140 3,400,760 0
Class A common stock, voting, $.01 par value, 25,000,000
shares authorized, 4,746,010 and 4,481,767 shares issued
in 1999 and 1998, respectively 47,460 44,818
Additional paid-in capital 18,335,918 18,343,209
Accumulated deficit (24,645,909) (16,937,244)
----------- -----------
354,897 3,017,451
Less, common stock in treasury at cost (161,049) (161,049)
----------- -----------
Total stockholders' equity 193,848 2,856,402
----------- -----------
$14,234,427 $17,827,761
=========== ===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-3
<PAGE>
DELICIOUS BRANDS, INC.
Statement of Operations
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Net Sales (including approximately $1,020,000,
$5,920,000 and $5,325,000, respectively, to
related parties) $ 41,085,899 $ 53,030,115 $ 30,664,723
Cost of Sales (including approximately $19,000,
$589,000 and $395,000, respectively, from
related parties) 31,671,826 41,855,211 25,193,264
------------- -------------- -------------
Gross Profit 9,414,073 11,174,904 5,471,459
------------- -------------- -------------
Operating Expenses:
Selling, general and administrative 15,847,244 14,729,305 6,836,996
Restructuring charge 0 (150,382) 1,548,035
------------- -------------- -------------
15,847,244 14,578,923 8,385,031
------------- -------------- -------------
Loss from Operations (6,433,171) (3,404,019) (2,913,572)
------------- -------------- -------------
Other Income (Expense):
Amortization of deferred financing costs (308,056) (700,629) (33,418)
Interest expense (777,255) (1,213,168) (416,913)
Other, net (116,849 9,708 (34,223)
------------- -------------- -------------
(1,202,160) (1,904,089) (484,554)
------------- -------------- -------------
Loss before Provision for Income Taxes (7,635,331) (5,308,108) (3,398,126)
Provision for Income Taxes 0 0 0
------------- -------------- -------------
Net Loss $(7,635,331) $(5,308,108) $(3,398,126)
Earnings per Share:
Basic and diluted:
Net loss per common share $( 1.70) $( 1.57) $( 1.16)
============= ============== =============
Weighted average number of
common shares outstanding 4,537,265 3,389,993 2,933,623
============= ============== =============
</TABLE>
The accompanying notes are an part of this statement.
F-4
<PAGE>
DELICIOUS BRANDS, INC.
Statement of Stockholders' Equity
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Additional
Preferred Stock Common Stock Paid-in
Shares Amount Shares Amount Capital
------ ------ ------ ------ -------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1997 0 $ 0 2,976,767 $ 29,768 $ 6,013,494
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
----- --------- --------- --------- ------------
Balance, December 31, 1997 0 0 3,191,767 31,918 6,969,815
Proceeds from Issuance of Common
Stock, Net of $144,390 in Expenses 140,000 1,400 694,210
Conversion of 9% Subordinated
Convertible Notes to Preferred
Stock 195,834 1,566,668
Proceeds from Issuance of Common
Stock in an Initial Public
Offering, Net of $3,109,316 in
Expenses 1,150,000 11,500 10,679,184
Net Loss
------- --------- --------- --------- ------------
Balance, December 31, 1998 195,834 1,566,668 4,481,767 44,818 18,343,209
Proceeds from Issuance of
Common Stock 61,743 617 242,172
Issuance of Common Stock
for Services 190,000 1,900 397,944
Dividends Paid on Series A
Preferred Stock
Conversion of Series A Preferred
Stock to Common Stock (12,500) (100,000) 12,500 125 99,875
Proceeds from Issuance of Series B
Preferred Stock, Net of $339,536
in Expenses 35,000 1,750,000 (339,536)
Proceeds from Issuance of Series C
Preferred Stock, Net of $407,746
in Expenses (inclusive of 17,538
shares issued in exchange
for placement services) 170,038 3,400,760 (407,746)
Net Loss
------- --------- --------- --------- ------------
Balance, December 31, 1999 388,372 $6,617,428 4,746,010 $ 47,460 $ 18,335,918
======= ========== ========= ========= ============
</TABLE>
<TABLE>
<CAPTION>
Total
Stockholders'
Accumulated Treasury Stock Equity
(Deficit) Shares Amount (Deficit)
--------- ------ ------ ---------
<S> <C> <C> <C> <C>
Balance, January 1, 1997 $(8,231,010) (48,925) $(161,049) $(2,348,797)
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) (3,398,126)
----------- ------- -------- -----------
Balance, December 31, 1997 (11,629,136) (48,925) (161,049) (4,788,452)
Proceeds from Issuance of Common
Stock, Net of $144,390 in Expenses 695,610
Conversion of 9% Subordinated
Convertible Notes to Preferred
Stock 1,566,668
Proceeds from Issuance of Common
Stock in an Initial Public
Offering, Net of $3,109,316 in
Expenses 10,690,684
Net Loss ( 5,308,108) (5,308,108)
----------- ------- -------- -----------
Balance, December 31, 1998 (16,937,244) (48,925) (161,049) 2,856,402
Proceeds from Issuance of
Common Stock 242,789
Issuance of Common Stock
for Services 399,844
Dividends Paid on Series A
Preferred Stock (73,334) (73,334)
Conversion of Series A Preferred
Stock to Common Stock 0
Proceeds from Issuance of Series B
Preferred Stock, Net of $339,536
in Expense 1,410,464
Proceeds from Issuance of Series C
Preferred Stock, Net of $407,746
in Expenses (inclusive of 17,538
shares issued in exchange
for placement services) 2,993,014
Net Loss (7,635,331) (7,635,331)
------------ ------- -------- -----------
Balance, December 31, 1999 $(24,645,909) (48,925) $(161,049) $ 193,848
============ ======= ========= ===========
</TABLE>
The accompanying notes are an part of this statement.
F-5
<PAGE>
DELICIOUS BRANDS, INC.
Statement of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Cash Flows from Operating Activities:
<S> <C> <C> <C>
Net loss $(7,635,331) $(5,308,108) $(3,398,126)
Adjustments to reconcile net loss to net cash
used in operating activities:
Depreciation and amortization 1,053,172 1,326,714 352,320
Provision for bad debts 949,853 444,330 40,487
Loss on disposal of property and
equipment 0 0 50,899
Restructuring charge 0 (150,382) 1,548,035
Issuance of common stock for
services 399,844 0 2,300
Increase (Decrease) in cash (exclusive
of Salerno acquisition) from
changes in:
Accounts receivable 1,048,195 ( 83,823) (76,217)
Inventory 835,641 (334,943) 616,248
Due from distributors 13,770 158,406 15,653
Prepaid expenses and other current assets 80,203 67,366 240,652
Other assets 160,058 90,336 (90,020)
Accounts payable and accrued expenses (3,094,066) 176,235 437,799
Due to distributors ( 224,210) 206,757 158,460
Accrued restructuring liabilities ( 212,611) (224,814) (399,128)
Other liabilities ( 308,179) (827,297) 186,964
------------ ------------ -----------
Net cash used in operating activities (6,933,661) (4,459,223) (313,674)
------------ ------------ -----------
Cash Flows from Investing Activities:
Payment for purchase of assets of Salerno
Foods, L.L.C. (net of cash acquired of
$12,564) 0 (5,129,943) 0
Purchase of property and equipment (91,204) (107,400) (47,730)
------------ ------------ -----------
Net cash used in investing activities (91,204) (5,237,343) (47,730)
Cash Flows from Financing Activities:
Payments of long-term debt (1,919) ( 21,101) (17,420)
Payments of financing costs (837,241) (692,621) 0
Payments of bank loan payable, net (2,339,795) (1,135,465) 0
Proceeds from issuance of notes payable 5,250,000 5,200,000 (430,704)
Payments of notes payable 0 (5,200,000) 0
Proceeds from issuance of common and
preferred stock 5,042,792 14,640,000 1,260,000
Dividends paid (73,334) 0 0
Payment of stock issuance costs (396,522) (2,920,950) (303,829)
------------ ------------ -----------
Net cash provided by financing activities 6,643,981 9,869,863 508,047
----------- ----------- ----------
Increase (Decrease) in Cash (380,884) 173,297 146,643
Cash, Beginning of Year 981,646 808,349 661,706
------------ ------------ -----------
Cash, End of Year $ 600,762 $ 981,646 $ 808,349
============ ============ ===========
</TABLE>
F-6
<PAGE>
DELICIOUS BRANDS, INC.
Statement of Cash Flows
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
1999 1998 1997
---- ---- ----
Supplemental Disclosure of Cash Flow
Information:
Cash paid during the year for:
<S> <C> <C> <C>
Interest $ 640,262 $ 1,201,291 $ 420,296
========= =========== =========
Supplemental Disclosure of Noncash
Investing and Financing Activities:
On April 3, 1998, the Company acquired substantially all of
the assets and assumed certain liabilities of Salerno
Foods, L.L.C. (Note 12). In conjunction with the
acquisition, liabilities were assumed as follows:
Fair value of assets acquired, including goodwill and
transaction costs $13,447,134
Cash paid (net of $220,000 purchase price adjustment) (4,780,000)
Transaction costs ( 362,507)
-----------
Liabilities assumed $ 8,304,627
===========
</TABLE>
During 1999, 17,538 shares of Class C Preferred Stock were
issued for payment of $350,760 in placement fees.
During 1998, in exchange for 9% Subordinated Convertible
Notes of $1,566,668, the Company issued 195,834 shares
of Series A Preferred Stock.
As of December 31, 1998, unpaid transaction costs of
$332,756, were included in accounts payable and accrued expenses.
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.
The accompanying notes are an part of this statement.
F-7
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 1--Nature of Activities
Delicious Brands, Inc. (the "Company"), a Delaware corporation, operates in one
industry segment consisting of marketing and selling pre-packaged cookies,
crackers and related food products under the Delicious, Salerno, Mama's and
Frookie labels as well as licensed names. These products are sold primarily in
the United States to independent direct-store delivery distributors for resale
to supermarkets and other retail outlets, through large wholesalers to natural
food stores and also directly to supermarkets and other retail outlets. All of
the Company's products are baked by independent food processors using the
Company's proprietary specifications and formulations. On April 3, 1998, the
Company acquired substantially all of the assets of Salerno Foods, L.L.C. (Note
12).
The accompanying financial statements have been prepared on the basis that the
Company will continue as a going concern.
The Company has suffered recurring losses since 1994, has negative working
capital at December 31, 1999 of approximately $10,015,000 and expects to incur
additional net losses in the foreseeable future. The Company has experienced a
decline in sales (including the loss of a major customer) during 1999 of 33%, as
compared to the comparable prior period on a pro forma basis (Note 12) and
several of its suppliers have reduced or eliminated their credit terms (thereby
requiring the Company to pay for its products upon delivery). Additionally, U.S.
Bancorp has notified the Company of its intention to not renew the revolving
line of credit (Note 4). Company management is currently unable to predict the
extent of any future losses or the time required to achieve profitability. These
factors raise substantial doubt about the Company's ability to continue as a
going concern.
The Company has previously funded its operating losses as well as the Salerno
acquisition through increases in working capital deficits and proceeds received
from private placements of common stock, preferred stocks, subordinated notes
payable and an initial public offering of common stock. The following is a
summary of the private placements and public offering that the Company completed
from January 1, 1997 through April 7, 2000: (a) an initial closing of a private
placement whereby the Company sold 210,000 shares of common stock and received
proceeds of $956,171 net of expenses of $303,829 in December 1997; (b) a second
closing of the private placement whereby the Company sold 140,000 shares of
common stock and received proceeds of $695,610 net of expenses of $144,390 in
February 1998; (c) the issuance of 1,150,000 shares of its common stock, at
$12.00 per share, in an initial public offering whereby the Company received
$10,690,684, net of commissions and other related expenses totalling $3,109,316
during the fourth quarter of 1998; (d) the consummation of a private placement
whereby the Company received proceeds of $1,410,464, net of expenses of
$339,536, in exchange for 35,000 shares of Series B Preferred Stock (convertible
at any time into 175,000 shares of common stock -- to be adjusted baesd on an
antidilution provision, as defined) and a warrant to purchase 700,000 (to be
adjusted based on an antidilution provision, as defined) shares of common stock
for $0.01 per share (exercised on April 7, 2000 for 1,005,780 shares as adjusted
for the antidilution provisions) in April 1999; (e) a private placement of
$5,250,000 subordinated notes payable whereby the Company received $4,412,759
net of expenses of $837,241 in August 1999; (f) an initial closing of a private
placement to the chairman of the board and other shareholders whereby the
Company sold 170,038 shares of 12% Cumulative Series C Preferred Stock (to be
redeemed at a rate of $30 per share) and received $2,993,014 net of expenses of
$407,746 (inclusive of 17,538 shares of Series C Preferred Stock issued for
placement services) in December 1999; (g) a second closing of a private
placement whereby the Company sold to an existing shareholder 83,625 shares of
12% Cumulative Series C Preferred Stock and received approximately $1,466,718
net
F-8
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 1--Nature of Activities, Continued
of expenses of $205,782 (inclusive of 8,625 shares of Series C Preferred Stock
issued for placement services) in January 2000 and (h) a private placement to
the chairman of the board and other shareholders whereby the Company sold
100,000 shares of 12% Cumulative Series D Preferred Stock (to be redeemed at a
rate of $30 per share six months after closing of the sale of the Company's
assets -- see below) and received approximately $1,725,000 net of expenses of
approximately $275,000 on April 3, 2000.
The funds raised to date have not provided the Company with sufficient cash to
continue its business operations and accordingly, on April 3, 2000 the board of
directors approved and on April 5, 2000, the Company entered into an Asset
Purchase Agreement (the "APA") with BF USB, Inc., who is affiliated with certain
of the Company's suppliers and customers and who has acquired businesses from
and entered into a consulting agreement with the Company's chairman of the board
of directors. The APA provides for the Company to sell substantially all of its
assets for $26,680,000 less $1,700,000 for a working capital adjustment, plus
(minus) actual working capital (deficit), delivered at closing, as defined, in
cash and the assumption of certain liabilities that are related to the ongoing
operations of the Company. The APA requires $5,336,000 of cash to be deposited
into escrow to satisfy the indemnification obligations of the Company. The
provisions of the escrow agreement provide for release of funds in varying
amounts on the six-, twelve- and eighteen- month anniversary of the closing
date. The purchase price is subject to adjustments and indemnifications as
provided in the APA. The APA requires the Company to pay a break-up fee of
$1,500,000 in the event this agreement is terminated by the Company, under
certain conditions. The APA may be terminated in certain circumstances,
including, among others, (a) by either party, if the transaction contemplated by
the APA is not completed by June 15, 2000; (b) by the mutual written agreement
of the parties; (c) by the Company if prior to the closing, the Board of
Directors approves or accepts a superior proposal as allowed by the terms of the
APA; and (d) by either party, if prior to the closing there is a material breach
of any of the representations, warranties or covenants by the other party.
Additionally, the sale is subject to regulatory and shareholder approval. The
Company has agreed not to operate in the snack food industry without the consent
of BF USB, Inc. The Company, subsequent to the closing of the transaction, will
explore and review opportunities in a new line of business or seek to liquidate
the Company.
There can be no assurance that the Company will successfully complete the
transaction contemplated in the APA or, if such transaction is completed, that
the Company will have funds sufficient to meet its obligations. Should the
Company be unable to complete the transaction discussed above, the Company will
likely need to seek another buyer, raise additional debt or equity financing
and/or curtail its operations. 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.
The Company grants credit to its customers in the normal course of business.
Sales to one customer in 1999 approximated 14%, and sales to another customer
represented 15% and 21% of total Company sales for 1998, and 1997, respectively.
No other customer accounted for more than 10% of the Company's sales. Amounts
due from such customer represented approximately 16% of the Company's net trade
accounts receivable at December_31, 1999 and 1998. Approximately 51%, 41% and
52% of the Company's inventory purchases for the years ended December 31, 1999,
1998, and 1997, respectively, were from two major vendors.
F-9
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 1--Nature of Activities, Continued
The Company has several customers and vendors who are also holders of the
Company's preferred and/or common stock. During the years ended December 31,
1999, 1998 and 1997, respectively, net sales to these customers were
approximately $1,020,000, $5,920,000 and $5,325,000 while purchases from such
vendors were approximately $19,000, $589,000 and $395,000.
Note 2--Summary of Significant Accounting Policies
A summary of significant accounting policies is as follows:
Revenue Recognition--The Company recognizes revenue from product sales
upon shipment to its customers. All discounts and allowances provided
to customers are recorded as allowances in determining net sales.
Inventory--Inventory is stated at the lower of cost or market with
cost determined by the first-in, first-out (FIFO) method and consists
primarily of prepackaged products which are ready to be sold to
customers.
Advertising and Promotion--All costs associated with advertising,
promotion, marketing and slotting are charged to operations as
incurred. Such expenses are included in selling, general and
administrative expenses in the statement of operations and amounted to
$2,050,865, $3,431,505 and $2,227,242 for the years ended December 31,
1999, 1998 and 1997, respectively.
Amounts due to/from Distributors--The Company offers some of 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 $1,560,994 and $1,009,900 at December_31,
1999 and 1998, respectively. Upon the closing of the transaction
contemplated in the APA discussed in Note 1, the remaining unamortized
goodwill will be written off and charged against the proceeds to be
received.
Deferred Financing Costs--Costs incurred in connection with obtaining
financing are amortized over the life of the related debt.
F-10
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 2--Summary of Significant Accounting Policies, Continued
Impairment of Long-lived Assets--In the event that facts and
circumstances indicate that the cost of any long-lived assets may be
impaired, an evaluation of recoverability would be performed. If an
evaluation is required, the estimated future undiscounted cash flows
associated with the asset would be compared to the asset's carrying
amount to determine if a write-down to market value or discounted cash
flow value is required.
Income Taxes--Deferred income taxes are provided for temporary
differences between financial and income tax reporting (see Note 7).
Stock Option Plans--The Company has adopted only the disclosure
provisions of FAS No. 123, Accounting for Stock-Based Compensation,
and continues to account for stock options in accordance with APB
Opinion 25.
Use of Estimates--The preparation of financial statements in
conformity with generally accepted accounting principles requires
management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosures of contingent assets
and liabilities at the date of the financial statements and the
reported amounts of revenue and expenses during the reporting period.
Actual results could differ from those estimates.
Earnings Per Share--The Company computes "Basic Earnings per Share"
under Financial Accounting Standard (FAS) No. 128, "Earnings per
Share," by dividing net income (loss) available to common stockholders
by the weighted average number of shares of common stock outstanding
during the period. In arriving at net income (loss) available to
common shareholders, preferred stock dividends of $73,334 were
deducted for the year ended December 31, 1999. "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, 1999, 1998 and 1997, diluted earnings per
share and basic earnings per share are identical because of the losses
incurred during those years. All options and warrants discussed in
Notes 5 and 8 were omitted from the 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.
("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 interest rate on the subordinated
debt is approximately equal to the current rate available for similar
debt. Accordingly, the fair value of the subordinated debt
approximates its carrying value.
Reclassifications--Certain amounts reported in the 1998 and 1997
financial statements have been reclassified to conform with the 1999
presentation without affecting previously reported net losses.
Recent Accounting Pronouncements--In June 1998, the Financial
Accounting Standards Board issued FAS No. 133, "Accounting for
Derivative Instruments and Hedging Activities", which the Company is
required to adopt effective January 1, 2001. FAS No. 133 requires the
recording of all derivatives on the balance sheet at fair value. The
adoption of this standard is expected to have no impact on the
Company's results of operations, financial position or cash flows
because the Company does not participate in derivative transactions.
F-11
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 3--Property and Equipment
Property and equipment consists of the following:
<TABLE>
<CAPTION>
December 31, Estimated
1999 1998 Life
---- ---- ----
<S> <C> <C> <C>
Office and warehouse equipment $ 589,841 $ 570,439 2 to 10 years
Molds and die 384,525 312,723 3 years
Promotion and display equipment 44,444 44,444 5 years
----------- -------------
1,018,810 927,606
Less accumulated depreciation 748,977 546,421
----------- -------------
$ 269,833 $ 381,185
=========== =============
</TABLE>
Depreciation expense amounted to $202,556, $172,089 and $158,578 for
the years ended December_31, 1999, 1998 and 1997, respectively.
Note 4--Bank Loan Payable
The Company is obligated to U.S. Bancorp under a Financing Agreement
(the "Agreement"), dated November 27, 1996 as last amended March 31,
2000, for a revolving line of credit limited to the lesser of
$2,000,000 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 above the reference rate
of interest publicly announced by U.S. Bank National Association
(10.00% at December 31, 1999). Borrowings under the Agreement are
collateralized by substantially all of the assets of the Company.
Availability under the Agreement as of December 31, 1999 approximated
$830,000. U.S. Bancorp has notified the Company of its intention not
to renew the Agreement but has granted an extension of the expiration
date to June 15, 2000.
The weighted average interest rates on the aforementioned borrowings
were 9.5%, 10.0% and 11.7% for the years ended December 31, 1999,
1998, and, 1997 respectively.
Note 5--Subordinated Debt
The Company was obligated on 8% Subordinated Convertible Notes
aggregating $5,250,000 at December 31, 1999. The notes, and accrued
interest thereon at 8% per annum, are due August 30, 2000. The notes
are convertible, subject to certain conditions, into the Company's
common stock at the rate of $5 per share.
The Company was obligated on 9% Subordinated Convertible Notes
aggregating $393,332 at December 31, 1999 and 1998. The notes were due
April 27, 1999 with interest payable semiannually in January and July
at 9% per annum. The Company did not repay the Subordinated notes and
currently does not have funds to repay such amounts. The Company
believes its credit facility with U.S. Bancorp (see Note 4) prohibits
repayment of the principal portion of these subordinated notes. One of
the noteholders has filed a lawsuit against the Company seeking
repayment of these notes. The notes are convertible, at the option of
the noteholder, 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 were exercisable at any
time through April 27, 1999 and each warrant gives the holder the
right to purchase one share of common stock at an exercise price of $4
per share. Effective April 28, 1999 all of the warrants, with the
exception of warrants to purchase 107,730 shares of common stock (see
below), were unexercised and expired.
F-12
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 5--Subordinated Debt, Continued
Effective August 1, 1998, $1,566,668 of the Company's 9% Subordinated
Convertible Notes were exchanged for 195,834 shares of Series A Preferred Stock
pursuant to an offer to exchange made by the Company. Upon liquidation,
dissolution or winding up, the holders of Series A Preferred Stock are entitled
to, prior and in preference to any distribution to the holders of common stock
or any other class of Preferred Stock, the amount they would have received had
they converted all of the Series A Preferred Stock into shares of common stock
immediately prior to liquidation and any declared but unpaid dividends prior and
in preference to any distribution to the holders of common stock, any other
class of Preferred Stock or any other class of the Company's capital stock,
whether now existing or hereafter created. If, upon the occurrence of a
liquidation, the costs and funds distributed among the holders of Series A
Preferred Stock is insufficient to permit the payment to such holders of the
full preferential amounts, the entire assets and funds of the Company legally
available for distribution are to be distributed notably among the holders of
the Series A Preferred Stock in proportion to the preferential amount each such
holder is entitled to receive. Upon the exchange, the expiration date of
warrants to purchase 107,730 shares of common stock was extended to April 27,
2001 from April 27, 1999.
The holders of shares of Series A Preferred Stock are entitled to receive, when
and as declared by the Board of Directors out of the assets of the Company
legally available for payment, dividends at the rate per share of ten percent
(10%) per annum on the aggregated stated value ($8.00 per share) of the Series A
Preferred Stock. Dividends totalling $73,334 were declared and paid during 1999.
No other dividends have been declared or paid since August 1, 1999.
Each holder of Series A Preferred Stock has the right to convert each of such
holder's shares of Series A Preferred Stock into one share of common stock until
July 31, 2001. However, on August 1, 2001, each share of Series A Preferred
Stock will automatically convert into one share of common stock. During 1999,
holders of 12,500 shares of Series A Preferred Stock with a stated value of
$100,000 elected to convert such shares into 12,500 of the Company's common
stock.
Note 6--Packaging Loss Liability
Packaging for the Company's products is generally purchased directly by the
Company's suppliers based upon the Company's projected sales of a product. Upon
discontinuance of a product or in instances where sales do not meet
expectations, the Company may incur a liability to its suppliers for unused
packaging. At December 31, 1999 and 1998, the Company has accrued $565,710 and
$873,889, respectively, to provide for future potential liability including
certain amounts already agreed to with certain suppliers (see below). Of this
amount, management estimates that $565,710 will be paid during 2000.
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 required the
Company to pay the supplier $1,400,000. Subsequent to December 31, 1999, the
Company entered into an agreement with the supplier and the Company's chairman
of the board whereby the chairman of the board personally assumed the remaining
liability by paying $100,000 in cash and issuing a promissory note, due July 31,
2000, for $401,084. The Company has reimbursed the chairman of the board for the
$100,000 paid in cash and intends to reimburse the chairman of the board for
payments made on its behalf. The unpaid balance at December 31, 1999 of
approximately $501,000 is included in the above-mentioned accrual. As of
December 31, 1998, $200,000 of the outstanding balance was reflected as
noncurrent.
F-13
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 7--Income Taxes
Because of the Company's losses there is no current income tax provision
(benefit). The Company uses the asset and liability method for determining
deferred income taxes. The provision (benefit) for income taxes consists of the
following:
1999 1998 1997
---- ---- ----
Deferred (net):
Federal $(2,444,000) $(1,374,000) $(1,223,800)
State ( 431,000) ( 243,000) ( 216,000)
----------- ----------- ------------
2,875,000 1,617,000 1,439,800
----------- ------------ ------------
Increase in valuation
allowance for deferred
tax benefit 2,875,000 1,617,000 1,439,800
----------- ----------- ------------
$ 0 $ 0 $ 0
=========== =========== ===========
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:
1999 1998 1997
---- ---- ----
Computed income tax
expense (benefit)
at federal statutory
rate $(2,596,000) $(1,804,000) $(1,155,000)
State income taxes ( 350,000) ( 238,000) ( 156,000)
Nondeductible
amortization of
intangible assets 55,000 55,000 55,000
Adjustment to net
operating loss
carryforward 16,000 370,000 ( 183,800)
Increase in valuation
allowance for deferred
tax benefit 2,875,000 1,617,000 1,439,800
------------ ---------- ----------
$ 0 $ 0 $ 0
============ ========== ==========
The Company's net deferred income tax asset consisted of the following:
1999 1998
---- ----
Gross deferred tax assets:
Net operating loss carryforwards $ 8,067,000 $5,768,000
Accounts receivable allowances 1,075,000 335,000
Amortization of goodwill 11,000 97,000
Restructuring liability 213,000 294,000
Other 173,000 200,000
------------ ----------
Total gross deferred tax assets 9,539,000 6,694,000
Less valuation allowance ( 9,539,000) (6,664,000)
------------ ----------
Net deferred tax assets 0 30,000
Gross deferred tax liabilities:
Depreciation and amortization expense 0 30,000
------------ ----------
Net deferred taxes $ 0 $ 0
============ ==========
F-14
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 7--Income Taxes, Continued
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, 1999, the Company has available for tax reporting purposes
approximately $21,228,000 of net operating loss carryforwards expiring in
varying amounts through 2019. As a result of the private placement of Series B
Preferred Stock in 1999, the utilization of net operating loss carryforwards
generated prior to the transaction are limited under Section 382 of the Internal
Revenue Code.
Note 8--Stock Options and Warrants
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 the grant and on the first anniversary
of the grant.
F-15
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 8--Stock Options and Warrants, Continued
Following is a table indicating the activity during the years 1999, 1998, and
1997 for such plans:
Weighted
Average
Exercise
Shares Price
------ -----
Options outstanding at January 1, 1997 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 year 4,500 $ 6.00
Exercised during year 0
Forfeited ( 5,334) $ 6.00
---------
Options outstanding at December 31, 1998 485,785 $ 6.20
Granted during year 57,500 $ 10.43
Exercised during year ( 1,743) $ 1.60
Forfeited ( 326,846) $ 6.81
Options outstanding at December 31, 1999 214,696 $ 6.30
=========
The following table summarizes information about outstanding and exercisable
stock options as of December 31, 1999:
<TABLE>
<CAPTION>
Weighted
Average Weighted
Range of Remaining Contractual Average Average
Exercise Number Life Exercise Number Exercise
Prices Outstanding (Months) Price Exercisable Price
------ ----------- -------- ----- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
$ 2.80 to $3.20 13,700 21 $ 2.84 13,700 $ 2.84
$ 6.00 177,830 65 $ 6.00 176,582 $ 6.00
$ 10.75 to $12.38 6,500 109 $ 11.74 3,000 $ 11.74
$ 10.25 16,666 113 $ 10.25 16,666 $ 10.25
</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, 1999 there were 45,000 of these
options outstanding, all of which are exercisable, with a weighted average
contractual life of 66 months, respectively, and a weighted average exercise
price of $6.52.
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 FAS No. 123, the reported net loss for 1999 and 1998 would
have been approximately the same as that which is presented in the statement of
operations and the net loss for 1997 would have been $130,000 ($0.04 per share)
greater than what is presented in the statement of operations.
F-16
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 8--Stock Options and Warrants, Continued
In determining the compensation based on the fair value method prescribed by FAS
No. 123, the following assumptions were used:
1999 1998 1997
---- ---- ----
Risk-free interest rate 5.82% 5.71% 5.71%
Expected option life 84 months 84 months 84 months
Expected volatility 100% 100% 100%
Expected dividends None None None
Additionally, during 1998 the Company issued warrants to purchase 50,000 shares
of the Company's common stock, at $11.00 per share. Such warrants, which expire
in April 2008, were issued in conjunction with the execution of a manufacturing
agreement with one of the Company's suppliers. The supplier's principal
stockholder is also a principal stockholder of American Pacific Financial
Corporation, and a principal member of Salerno Foods, L.L.C. (Note 12).
Management believes that the warrants had no value at the date of issuance.
The underwriting agreement entered into in connection with the Company's initial
public offering granted the underwriter a warrant, expiring in November 2002, to
purchase 100,000 shares of common stock at 165% of the offering price ($19.80
per share). Subsequent to the initial public offering, the underwriter has
received a fee equal to 10% of the gross proceeds received from private debt and
equity placements.
Note 9--Employee Benefit Plan
The Company maintains 401(k) savings plans 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 plans. No
Company contributions were made in 1999 and 1997. Company contributions amounted
to $28,540 in 1998.
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 $179,420 and $141,082 for the
years ended December 31, 1999 and 1998, respectively.
F-17
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 10--Commitments and Contingencies
The Company leases office and warehouse space, vehicles and office equipment
under various operating leases expiring through 2004. Minimum future rental
payments under noncancellable operating leases as of December 31, 1999, are as
follows:
Year Ending
December 31, Amount
------------ ------
2000 $ 665,000
2001 653,000
2002 636,000
2003 278,000
2004 8,000
$2,240,000
==========
Total rent expense for the years ended December 31, 1999, 1998, and 1997 was
$860,900, $676,989 and $91,656, respectively.
On October 5, 1999, one of the Company's suppliers filed suit against the
Company claiming breach of contract and bad faith dealing. The Company answered
the complaint in February 2000 and filed a counterclaim for breach of contract
due to poor quality of products. As of December 31, 1999 the Company has
recorded a liability of $500,000 in excess of the normal trade payable
representing management's best estimate of the cost to settle this claim. 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 Company's financial position, results of
operations or liquidity.
Pursuant to the private placement of Series B Preferred Stock (Note 1) the
Company entered into an agreement that requires the Company to pay a fee to an
affiliate of the holder of the Series B Preferred Stock of 5% on the first
$5,000,000 and 3% thereafter of the proceeds of all future debt and equity
financings. A member of the Company's board of directors serves as president of
the affiliate to the holder of the Series B Preferred Stock. During 1999, the
affiliate of the holder of Series B Preferred Stock received 2,288 shares of
Series C Preferred Stock and $257,500 in cash. In January 2000, the affiliate of
Series B Preferred Stock received $45,760 in cash representing amounts due as of
December 31, 1999.
The Company is obligated under the terms of a consulting agreement, which
expires December 31, 2003, to pay a consulting corporation, who is also a
shareholder, a monthly fee of $12,000. In the event of a dissolution or
liquidation of the Company, the consulting corporation is to be paid in one lump
sum an amount equal to $12,000 multiplied by the number of months between the
date of dissolution or liquidation and December 31, 2003. During 1999, 1998 and
1997, respectively, the Company charged $917,404 (including noncash
consideration of $240,000 used to exercise previously issued options), $266,743
and $71,059 to expense related to services provided by the consulting
corporation and related out-of-pocket expenses.
On March 30, 2000, the Company entered into employment and severance agreements
with certain executives requiring payments aggregating a maximum of $210,000. In
addition, one executive's agreement provides for health insurance benefits for
one year upon termination of employment.
F-18
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
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 required 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.
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. For the year ended December 31, 1998, the
Company recognized $150,382 as a restructuring benefit relating to the reversal
of excess accruals in 1997. The Company recognized $73,663, $102,118 and $44,908
as related interest expense for the years ended December 31, 1999, 1998 and
1997, respectively. At December 31, 1999, and 1998, the balance sheet reflected
a liability of $561,098 and $773,709, respectively, of which $225,644 and
$229,031, respectively, was included in the current portion of long-term
liabilities.
Note 12--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 was $5,000,000, which was
reduced by $220,000 subsequent to closing and the assumption of substantially
all of the liabilities of Salerno. The Company paid a substantial portion of the
purchase price with a portion of the net proceeds of the initial public
offering.
The Salerno acquisition has been accounted for as a purchase. The total purchase
price and the fair value of liabilities assumed have been allocated to the
tangible and intangible assets of the Company based on their respective fair
values.
The following provides an allocation of the purchase price:
Purchase price, net of a purchase price adjustment
of $220,000 $ 4,780,000
Transaction costs 362,507
Liabilities assumed 8,304,627
-----------
Total consideration 13,447,134
Less fair value of assets acquired
(including $12,564 of cash) 5,679,367
-----------
Goodwill $ 7,767,767
===========
F-19
<PAGE>
DELICIOUS BRANDS, INC.
Notes to the Financial Statements
Note 12--Acquisition of Assets of Salerno Foods, L.L.C., Continued
Results of operations for Salerno from April 3, 1998 to December 31, 1998 have
been included in the accompanying statement of operations for the year ended
December 31, 1998. The following unaudited pro forma information has been
prepared assuming the acquisition had taken place at January 1, 1997. The
unaudited pro forma information includes adjustments for interest expense that
would have been incurred to finance the purchase, additional depreciation of the
property and equipment acquired, amortization of the goodwill arising from the
acquisition and the result of conforming Salerno's accounting policy for
slotting fees to the Company's policy. The unaudited pro forma results of
operations are not necessarily indicative of the results had the Salerno
acquisition been effected on the assumed date.
For the Years Ending
December 31, December 31,
1998 1997
---- ----
Net sales $ 61,534,856 $69,812,414
============= ===========
Loss from operations $( 4,452,138) $(3,504,723)
============== ============
Net loss $( 6,437,897) $(4,975,444)
============== ============
Net loss per share:
Basic and Diluted $( 1.90) $( 1.70)
============== ============
Weighted Average Shares
Outstanding 3,389,993 2,933,623
============= ===========
F-20
<PAGE>
ADDITIONAL FINANCIAL DATA
<PAGE>
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 report dated February 24, 2000 which is included in this
Form 10-K, we have also audited Schedule II as of and for the years ended
December 31, 1999, 1998 and 1997. In our opinion, this schedule presents fairly,
in all material respects, the information required to be set forth therein.
ALTSCHULER, MELVOIN AND GLASSER LLP
/s/ Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
February 24, 2000
S-1
<PAGE>
SCHEDULE II
DELICIOUS BRANDS, INC.
Valuation and Qualifying Accounts
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
Column B Column C Column E
Balance at Charged Charged Balance
Beginning to Costs to Other Column D at End
of Period and Expense Accounts (a) Writeoffs of Period
---------------------------------------------------------------------------
1999:
<S> <C> <C> <C> <C> <C>
Allowances on trade accounts
receivable $ 2,489,260 $ 4,491,203 $ 0 $ 4,122,493 $ 2,857,970
============ =========== ========== =========== ===========
Reserve for inventory obsolescence $ 153,160 $ 0 $ 0 $ 0 $ 153,160
============ =========== ========== =========== ===========
Valuation allowance for deferred
tax assets $ 6,664,000 $ 2,875,000 $ 0 $ 0 $ 9,539,000
============ =========== ========== =========== ===========
1998:
Allowances on trade accounts
receivable $ 575,000 $ 444,330 $1,688,280 $ 218,350 $ 2,489,260
============ =========== ========== =========== ===========
Reserve for inventory obsolescence $ 209,275 $ 0 $ 0 $ 56,115 153,160
============ =========== ========== =========== ===========
Valuation allowance for deferred
tax assets $ 5,047,000 $ 1,617,000 $ 0 $ 0 $ 6,664,000
============ =========== ========== =========== ===========
1997:
Allowances on trade accounts
receivable $ 572,872 $ 40,487 $ 0 $ 38,359 $ 575,000
============ =========== ========== =========== ===========
Reserve for inventory
obsolescence $ 56,521 $ 152,754 $ 0 $ 0 $ 209,275
============ =========== ========== =========== ===========
Valuation allowance for deferred
tax assets $ 3,607,200 $ 1,439,800 $ 0 $ 0 $ 5,047,000
============ =========== ========== =========== ===========
</TABLE>
(a) Amounts charged to other accounts in 1998 represents allowances on
trade accounts receivable that were assumed upon the acquisition of
Salerno Foods, L.L.C.
S-2
BYLAWS
OF
THE DELICIOUS BRANDS, INC.
(as amended through December 8, 1999)
Article I. Offices.
Section 1. Registered Office. The registered office of the Corporation
shall be at Prentice-Hall Corporate Services, 229 South State Street, City of
Dover, County of Kent, State of Delaware 19901.
Section 2. Additional Offices. The Corporation may also have offices at
such other places, both within and without the State of Delaware, as the Board
of Directors may from time to time determine or as the business of the
Corporation may require.
Article II. Meetings of Stockholders.
Section 1. Time and Place. A meeting of stockholders for any purpose
may be held at such time and place within or without the State of Delaware as
shall be stated in the notice of the meeting or in a duly executed waiver of
notice thereof.
Section 2. Annual Meeting. Annual meetings of stockholders, commencing
with the year 1990, shall be held on the fourth Tuesday in April, if not a legal
holiday, or, if a legal holiday, then on the next secular day following, at
10:00 a.m., or at such other date and time as shall, from time to time, be
designated by the Board of Directors and stated in the notice of the meeting. At
such annual meetings, the stockholders shall elect a Board of Directors and
transact such other business as may properly be brought before the meetings.
Section 3. Notice of annual Meeting. Written notice of the annual
meeting, stating the place, date, and time thereof, shall be given to each
stockholder entitled to vote at such meeting
<PAGE>
not less than ten (unless a longer period is required by law) nor more than
sixty days prior to the meeting.
Section 4. Special Meetings. Special meetings of the stockholders may
be called for any purpose or purposes, unless otherwise prescribed by statute or
by the Certificate of Incorporation, by the Chairman of the Board, if any, or
the President, and shall be called by the President or Secretary at the request,
in writing, of a majority of the Board of Directors vote. Such request shall
state the purpose of the proposed meeting.
Section 5. Notice of Special Meeting. Written notice of a special
meeting, stating the place, date, and time thereof and the purpose or purposes
for which the meeting is called, shall be given to each stockholder entitled to
vote at such meeting not less than ten (unless a longer period is required by
law) nor more than sixty days prior to the meeting.
Section 6. List of Stockholders. The transfer agent or the officer in
charge of the stock ledger of the Corporation shall prepare and make, at least
ten days before every meeting of stockholders, a complete list of the
stockholders entitled to vote at the meeting, arranged in alphabetical order,
and showing the address of each stockholder and the number of shares registered
in the name of each stockholder. Such list shall be open to the examination of
any stockholder, for any purpose germane to the meeting, during ordinary
business hours, for a period of at least ten days prior to the meeting, at a
place within the city where the meeting is to be held, which place, if other
than the place of the meeting, shall be specified in the notice of the meeting.
The list shall also be produced and kept at the place of the meeting during the
whole time thereof and may be inspected by any stockholder who is present in
person thereat.
Section 7. Presiding Officer and Order of Business.
(a) Meetings of stockholders shall be presided over by the Chairman of
the Board. If he is not present or there is none, they shall be presided over by
the President, or, if he is not present or there is none, by a Vice President,
or, if he is not present or there is none, by a person chosen by the Board of
Directors, or, if no such person is present or has been chosen, by a chairman to
be chosen by the stockholders owning a majority of the shares of
-2-
<PAGE>
capital stock of the Corporation issued and outstanding and entitled to vote at
the meeting and who are present in person or represented by proxy. The Secretary
of the Corporation, or, if he is not present, an Assistant Secretary, or, if he
is not present, a person chosen by the Board of Directors, shall act as
Secretary at meetings of stockholders; if no such person is present or has been
chosen, the stockholders owning a majority of the shares of capital stock of the
Corporation issued and outstanding and entitled to vote at the meeting who are
present in person or represented by proxy shall choose any person present to act
as secretary of the meeting.
(b) The following order of business, unless otherwise determined at the
meeting, shall be observed as far as practicable and consistent with the
purposes of the meeting:
(1) Call of the meeting to order.
(2) Presentation of proof of mailing of the notice of the
meeting and, if the meeting is a special meeting, the call
thereof.
(3) Presentation of proxies.
(4) Announcement that a quorum is present.
(5) Reading and approval of the minutes of the previous
meeting.
(6) Reports, if any, of officers.
(7) Election of directors, if the meeting is an annual meeting
or a meeting called for that purpose.
(8) Consideration of the specific purpose or purposes, other
than the election of directors, for which the meeting has
been called, if the meeting is a special meeting.
(9) Transaction of such other business as may properly come
before the meeting.
(10) Adjournment.
Section 8. Quorum and Adjournment. The presence in person or
representation by proxy of the holders of a majority of the shares of the
capital stock of the Corporation issued and outstanding and entitled to vote
shall be necessary to, and shall constitute a quorum for, the transaction of
business at all meetings of the stockholders, except as otherwise provided by
statute or by the Certificate of Incorporation. If, however, a
-3-
<PAGE>
quorum shall not be present or represented at any meeting of the stockholders,
the stockholders entitled to vote thereat who are present in person or
represented by proxy shall have the power to adjourn the meeting from time to
time until a quorum shall be present or represented. If the time and place of
the adjourned meeting are announced at the meeting at which the adjournment is
taken, no further notice of the adjourned meeting need be given. Even if a
quorum shall be present or represented at any meeting of the stockholders, the
stockholders entitled to vote thereat who are present in person or represented
by proxy shall have the power to adjourn the meeting from time to time for good
cause to a date that is not more than thirty days after the date of the original
meeting. Further notice of the adjourned meeting need not be given if the time
and place thereof are announced at the meeting at which the adjournment is
taken. At any adjourned meeting at which a quorum is present in person or
represented by proxy, any business may be transacted that might have been
transacted at the meeting as originally called. If the adjournment is for more
than thirty days, or if, after the adjournment, a new record date is fixed for
the adjourned meeting, a notice of the adjourned meeting shall be given to each
stockholder of record entitled to vote thereat.
Section 9. Voting.
(a) At any meeting of the stockholders, every stockholder having the
right to vote shall be entitled to vote in person or by proxy. Except as
otherwise provided by law or the Certificate of Incorporation, each stockholder
of record shall be entitled to one vote for each share of capital stock
registered in his name on the books of the Corporation.
(b) All elections shall be determined by a plurality vote, and, except
as otherwise provided by law or the Certificate of Incorporation, all other
matters shall be determined by a vote of a majority of the shares present in
person or represented by proxy and voting on such other matters.
Section 10. Action by Consent. Any action required or permitted by law
or the Certificate of Incorporation to be taken at any meeting of stockholders
may be taken without a meeting, without prior notice if a written consent,
setting forth the action so taken, shall be signed by the holders of outstanding
stock having not less than the minimum number of votes that would be necessary
-4-
<PAGE>
to authorize or take such action at a meeting at which all shares entitled to
vote thereon were present or represented by proxy and voted. Such written
consent shall be filed with the minutes of the meetings of stockholders. Prompt
notice of the taking of the corporate action without a meeting by less than
unanimous written consent shall be given to those stockholders who have not
consented in writing thereto.
Section 11. Advance Notice of Stockholder Nominees for Director.
(a) The matters to be considered and brought before any annual or
special meeting of stockholders of the Corporation shall be limited to the
nomination and election of directors, as shall be brought properly before such
meeting in compliance with the procedures set forth in this Section 11.
(b) For the nomination and election of directors to be properly brought
before any annual meeting of stockholders, the matter must be (i) specified in
the notice of annual meeting given by or at the direction of the Board of
Directors, (ii) otherwise brought before the annual meeting by or at the
direction of the Board of Directors or (iii) brought before the annual meeting
in the manner specified in this Section 11(b) (x) by a stockholder that holds of
record stock of the Corporation entitled to vote at the annual meeting on such
matter or (y) by a person (a "Nominee Holder") that holds such stock through a
nominee or "street name" holder of record of such stock and can demonstrate to
the Corporation such indirect ownership of, and such Nominee Holder's
entitlement to vote, such stock on such matter. In addition to any other
requirements under applicable law, the certificate of incorporation and these
by-laws, persons nominated by stockholders for election as directors of the
Corporation shall be properly brought before an annual meeting of stockholders
only if notice of any such matter to be presented by a stockholder at such
meeting (a "Stockholder Notice") shall be delivered to the Secretary of the
Corporation at the principal executive office of the Corporation not less than
ninety nor more than one hundred and twenty days prior to the first anniversary
date of the annual meeting for the preceding year; provided, however, that if
and only if the annual meeting is not scheduled to be held within a period that
commences thirty days before and ends thirty days after such anniversary date
(an annual meeting date outside such period being referred to
-5-
<PAGE>
herein as an "Other Meeting Date"), such Stockholder Notice shall be given in
the manner provided herein by the later of (i) the close of business on the date
ninety days prior to such Other Meeting Date or (ii) the close of business on
the tenth day following the date on which such Other Meeting Date is first
publicly announced or disclosed. Any stockholder desiring to nominate any person
or persons (as the case may be) for election as a director or directors of the
Corporation at an annual meeting of stockholders shall deliver, as part of such
Stockholder Notice, a statement in writing setting forth the name of the person
or persons to be nominated, the number and class of all shares of each class of
stock of the Corporation owned of record and beneficially by each such person,
as reported to such stockholder by such person, the information regarding each
such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation
S-K adopted by the Securities and Exchange Commission, each such person's signed
consent to serve as a director of the Corporation if elected, such stockholder's
name and address, the number and class of all shares of each class of stock of
the Corporation owned of record and beneficially by such stockholder and, in the
case of a Nominee Holder, evidence establishing such Nominee Holder's indirect
ownership of stock and entitlement to vote such stock for the election of
directors at the annual meeting. As used in these by-laws, shares "beneficially
owned" shall mean all shares which such person is deemed to beneficially own
pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (the
"Exchange Act"). If a stockholder is entitled to vote only for a specific class
or category of directors at a meeting (annual or special), such stockholder's
right to nominate one or more individuals for election as a director at the
meeting shall be limited to such class or category of directors.
Notwithstanding any provision of this Section 11 to the contrary, in
the event that the number of directors to be elected to the Board of Directors
of the Corporation at the next annual meeting of stockholders is increased by
virtue of an increase in the size of the Board of Directors and either all of
the nominees for director at the next annual meeting of stockholders or the size
of the increased Board of Directors is not publicly announced or disclosed by
the Corporation at least one hundred days prior to the first anniversary of the
preceding year's annual meeting, a Stockholder Notice shall also be considered
timely hereunder, but only with respect to nominees to stand for election at the
next
-6-
<PAGE>
annual meeting as the result of any new positions created by such increase, if
it shall be delivered to the Secretary of the Corporation at the principal
executive office of the Corporation not later than the close of business on the
tenth day following the first day on which all such nominees or the size of the
increased Board of Directors shall have been publicly announced or disclosed.
(c) Except as provided in the immediately following sentence, no matter
shall be properly brought before a special meeting of stockholders unless such
matter shall have been brought before the meeting pursuant to the Corporation's
notice of such meeting. In the event the Corporation calls a special meeting of
stockholders for the purpose of electing one or more directors to the Board of
Directors, any stockholder entitled to vote for the election of such director(s)
at such meeting may nominate a person or persons (as the case may be) for
election to such position(s) as are specified in the Corporation's notice of
such meeting, but only if the Stockholder Notice required by Section 11(b)
hereof shall be delivered to the Secretary of the Corporation at the principal
executive office of the Corporation not later than the close of business on the
tenth day following the first day on which the date of the special meeting and
either the names of all nominees proposed by the Board of Directors to be
elected at such meeting or the number of directors to be elected shall have been
publicly announced or disclosed.
(d) For purposes of this Section 11, a matter shall be deemed to have
been "publicly announced or disclosed" if such matter is disclosed in a press
release reported by the Dow Jones News Service, the Associated Press or a
comparable national news service or in a document publicly filed by the
Corporation with the Securities and Exchange Commission.
(e) In no event shall the adjournment of an annual meeting or a special
meeting, or any announcement thereof, commence a new period for the giving of
notice as provided in this Section 11. This Section 11 shall not apply to (i)
any stockholder proposal made pursuant to Rule 14a-8 under the Exchange Act or
(ii) any nomination of a director in an election in which only the holders of
one or more series of Preferred Stock of the Corporation issued pursuant to
Article FOURTH of the certificate of incorporation are entitled to vote (unless
otherwise provided in the terms of such stock).
-7-
<PAGE>
(f) The chairman of any meeting of stockholders, in addition to making
any other determinations that may be appropriate to the conduct of the meeting,
shall have the power and duty to determine whether notice of nominees has been
duly given in the manner provided in this Section 11 and, if not so given, shall
direct and declare at the meeting that such nominees shall not be considered.
Article III. Directors.
Section 1. General Powers, Number, and Tenure. The business of the
Corporation shall be managed by its Board of Directors, which may exercise all
powers of the Corporation and perform all lawful acts that are not by law, the
Certificate of Incorporation, or these Bylaws directed or required to be
exercised or performed by the stockholders. The number of directors shall be
determined by the Board of Directors; if no such determination is made, the
number of directors shall be one. The directors shall be elected at the annual
meeting of the stockholders, except as provided in Section 2 of this Article,
and each director elected shall hold office until the next annual meeting and
until his successor is elected and shall qualify. Directors need not be
stockholders.
Section 2. Vacancies. If any vacancies occur in the Board of Directors,
or if any new directorships are created, they may be filled by a majority of the
directors then in office, although less than a quorum, or by a sole remaining
director. Each director so chosen shall hold office until the next annual
meeting of stockholders and until his successor is duly elected and shall
qualify. If there are no directors in office, any officer or stockholder may
call a special meeting of stockholders in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, at which meeting such vacancies
shall be filled.
Section 3. Removal or Resignation.
(a) Except as otherwise provided by law or the Certificate of
Incorporation, any director or the entire Board of Directors may be removed,
with or without cause, by the holders of a majority of the shares then entitled
to vote at an election of directors.
(b) Any director may resign at any time by giving written notice to the
Board of Directors, the Chairman of the Board, if
-8-
<PAGE>
any, or the President or Secretary of the Corporation. Unless otherwise
specified in such written notice, a resignation shall take effect on delivery
thereof to the Board of Directors or the designated officer. It shall not be
necessary for a resignation to be accepted before it becomes effective.
Section 4. Place of Meetings. The Board of Directors may hold meetings,
both regular and special, either within or without the State of Delaware.
Section 5. Annual Meeting. The annual meeting of each newly elected
Board of Directors shall be held immediately following the annual meeting of
stockholders, and no notice of such meeting shall be necessary to the newly
elected directors in order to constitute the meeting legally, provided a quorum
shall be present.
Section 6. Regular Meetings. Additional regular meetings of the Board
of Directors may be held without notice of such time and place as may be
determined from time to time by the Board of Directors.
Section 7. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board or the President, on at least two
days' notice to each director, if such notice is delivered personally or sent by
telecopy, or on at least three days' notice if sent by mail. Special meetings
shall be called by the Chairman of the Board or the President in like manner and
on like notice on the written request of two or more of the directors then in
office. Any such notice need not state the purpose or purposes of such meeting.
Section 8. Quorum and Adjournments. At all meetings of the Board of
Directors, a majority of the directors then in office shall constitute a quorum
for the transaction of business, and the act of a majority of the directors
present at any meeting at which there is a quorum shall be the act of the Board
of Directors, except as may be otherwise specifically provided by law or the
Certificate of Incorporation. If a quorum is not present at any meeting of the
Board of Directors, the directors present may adjourn the meeting from time to
time, without notice other than
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announcement at the meeting at which the adjournment is taken, until a quorum
shall be present.
Section 9. Compensation. Directors shall be entitled to such
compensation for their services as directors and to such reimbursement for any
reasonable expenses incurred in attending directors' meetings as may from time
to time be fixed by the Board of Directors. The compensation of directors may be
on such basis as is determined by the Board of Directors. Any director may waive
compensation for any meeting. Any director receiving compensation under these
provisions shall not be barred from serving the Corporation in any other
capacity and receiving compensation and reimbursement for reasonable expenses
for such other services.
Section 10. Action by Consent. Any action required or permitted to be
taken at any meeting of the Board of Directors may be taken without a meeting,
and without prior notice, if a written consent to such action is signed by all
members of the Board of Directors and such written consent is filed with the
minutes of its proceedings.
Section 11. Meetings by Telephone or Similar Communications Equipment.
The Board of Directors may participate in a meeting by conference telephone or
similar communications equipment by means of which all directors participating
in the meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such director at such meeting.
Article IV. Committees.
Section 1. Executive Committee. The Board of Directors, by resolution
adopted by a majority of the whole Board, may appoint an Executive Committee
consisting of one or more directors, one of whom shall be designated as Chairman
of the Executive Committee. Each member of the Executive Committee shall
continue as a member thereof until the expiration of his term as a director or
his earlier resignation, unless sooner removed as a member or as a director.
Section 2. Powers. The Executive Committee shall have and may exercise
those rights, powers, and authority of the Board of Directors as may from time
to time be granted to it by the Board of
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Directors to the extent permitted by law, and may authorize the seal of the
Corporation to be affixed to all papers that may require it.
Section 3. Procedure and Meetings. The Executive Committee shall fix
its own rules of procedure and shall meet at such times and at such place or
places as may be provided by such rules or as the members of the Executive
Committee shall fix. The Executive Committee shall keep regular minutes of its
meetings, which is shall deliver to the Board of Directors from time to time.
The Chairman of the Executive Committee or, in his absence, a member of the
Executive Committee chosen by a majority of the members present, shall preside
at meetings of the Executive Committee; and another member chosen by the
Executive Committee shall act as Secretary of the Executive Committee.
Section 4. Quorum. A majority of the Executive Committee shall
constitute a quorum for the transaction of business, and the affirmative vote of
a majority of the members present at any meeting at which there is a quorum
shall be required for any action of the Executive Committee; provided, however,
that when an Executive Committee of one member is authorized under the
provisions of Section 1 of this Article, that one member shall constitute a
quorum.
Section 5. A Nominating Committee consisting of three directors, at
least one member of which must be the Director elected by the holders of Series
B Preferred Stock voting separately as a class (the "Series B Director"), shall
select the persons who shall be the Company's nominees to stand for election to
the Board. The nominee to be selected to stand for election as the Series B
Director shall be nominated by the current Series B Director. Each person who
shall be a nominee of the Company for election as a Director shall be approved
by at least a majority of the members of the Nominating Committee, and at least
two (2) of the these nominees shall have been approved by the Series B Director
or, if there is no Series B Director, by one of the other Directors approved by
the Series B Director. If either or both of the Directors approved by the Series
B Director resigns or must otherwise be replaced on the Board of Directors, the
person or persons selected to replace such Directors must be approved by the
Series B Director.
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Section 6. Other Committees. The Board of Directors, by resolutions
adopted by a majority of the whole Board, may appoint such other committee or
committees as it shall deem advisable and with such rights, power, and authority
as it shall prescribe. Each such committee shall consist of one or more
directors.
Section 7. Committee Changes. The Board of Directors shall have the
power at any time to fill vacancies in, to change the membership of, and to
discharge any committee.
Section 8. Compensation. Members of any committee shall be entitled to
such compensation for their services as members of the committee and to such
reimbursement for any reasonable expenses incurred in attending committee
meetings as may from time to time be fixed by the Board of Directors. Any member
may waive compensation for any meeting. Any committee member receiving
compensation under these provisions shall not be barred from serving the
Corporation in any other capacity and from receiving compensation and
reimbursement of reasonable expenses for such other services.
Section 9. Action by Consent. Any action required or permitted to be
taken at any meeting of any committee of the Board of Directors may be taken
without a meeting if a written consent to such action is signed by all members
of the committee and such written consent is filed with the minutes of its
proceedings.
Section 10. Meetings by Telephone or Similar Communications Equipment.
The members of any committee designated by the Board of Directors may
participate in a meeting of such committee by conference telephone or similar
communications equipment by means of which all persons participating in such
meeting can hear each other, and participation in such a meeting shall
constitute presence in person by any such committee member at such meeting.
Article V. Notices.
Section 1. Form and Delivery. Whenever a provision of any law, the
Certificate of Incorporation, or these Bylaws requires that notice be given to
any director or stockholder, it shall not be construed to require personal
notice unless so specifically provided, but such notice may be given in writing,
by mail
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addressed to the address of the director or stockholder as it appears on the
records of the Corporation, with postage prepaid. These notices shall be deemed
to be given when they are deposited in the United States mail. Notice to a
director may also be given personally or by telephone or by telegram sent to his
address as it appears on the records of the Corporation.
Section 2. Waiver. Whenever any notice is required to be given under
the provisions of any law, the Certificate of Incorporation, or these Bylaws, a
written waiver thereof signed by the person entitled to said notice, whether
before or after the time stated therein, shall be deemed to be equivalent to
such notice. In addition, any stockholder who attends a meeting of stockholders
in person or is represented at such meeting by proxy, without protesting at the
commencement of the meeting the lack of notice thereof to him, or any director
who attends a meeting of the Board of Directors without protesting at the
commencement of the meeting of the lack of notice, shall be conclusively deemed
to have waived notice of such meeting.
Article VI. Officers.
Section 1. Designations. The officers of the Corporation shall be
chosen by the Board of Directors. The Board of Directors may choose a Chairman
of the Board, a President, a Vice President or Vice Presidents, a Secretary, a
Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and
other offices and agents that it shall deem necessary or appropriate. All
officers of the Corporation shall exercise the powers and perform the duties
that shall from time to time be determined by the Board of Directors. Any number
of offices may be held by the same person, unless the Certificate of
Incorporation or these Bylaws provide otherwise.
Section 2. Term of, and Removal From, Office. At its first regular
meeting after each annual meeting of stockholders, the Board of Directors shall
choose a President, a Secretary, and a Treasurer. It may also choose a Chairman
of the Board, a Vice President or Vice Presidents, one or more Assistant
Secretaries and/or Assistant Treasurers, and such other officers and agents as
it shall deem necessary or appropriate. Each officer of the Corporation shall
hold office until his successor is chosen and
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shall qualify. Any officer elected or appointed by the Board of Directors may be
removed, with or without cause, at any time by the affirmative vote of a
majority of the directors then in office. Removal from office, however, shall
not prejudice the contract rights, if any, of the person removed. Any vacancy
occurring in any office of the Corporation may be filled for the unexpired
portion of the term by the Board of Directors.
Section 3. Compensation. The salaries of all officers of the
Corporation shall be fixed from time to time by the Board of Directors, and no
officer shall be prevented from receiving a salary because he is also a director
of the Corporation.
Section 4. The Chairman of the Board. The Chairman of the Board, if
any, shall be an officer of the Corporation and, subject to the direction of the
Board of Directors, shall perform such executive, supervisory, and management
functions and duties as may be assigned to him from time to time by the Board of
Directors. He shall, if present, preside at all meeting of stockholders and of
the Board of Directors.
Section 5. The President.
(a) The President shall be the chief executive officer of the
Corporation and, subject to the direction of the Board of Directors, shall have
general charge of the business, affairs, and property of the Corporation and
general supervision over its other officers and agents. In general, he shall
perform all duties incident to the office of President and shall see that all
orders and resolutions of the Board of Directors are carried into effect.
(b) Unless otherwise prescribed by the Board of Directors, the
President shall have full power and authority to attend, act, and vote on behalf
of the Corporation at any meeting of the security holders of other corporations
in which the Corporation may hold securities. At any such meeting, the President
shall possess and may exercise any and all rights and powers incident to the
ownership of such securities that the Corporation might have possessed and
exercised if it had been present. The Board of Directors may from time to time
confer like powers upon any other person or persons.
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Section 6. The Vice President. The Vice President, if any, or in the
event there by more than one, the Vice Presidents in the order designated, or in
the absence of any designation, in the order of their election, shall, in the
absence of the President or in the event of his disability, perform the duties
and exercise the powers of the President and shall generally assist the
President and perform such other duties and have such other powers as may from
time to time be prescribed by the Board of Directors.
Section 7. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and the stockholders and record all votes and the
proceedings of the meetings in a book to be kept for that purpose. He shall
perform like duties for the Executive Committee or other committees, if
required. He shall give, or cause to be given, notice of all meetings of
stockholders and special meetings of the Board of Directors, and shall perform
such other duties as may from time to time be prescribed by the Board of
Directors, the Chairman of the Board, or the President, under whose supervision
he shall act. He shall have custody of the seal of the Corporation, and he, or
an Assistant Secretary, shall have authority to affix it to any instrument
requiring it, and, when so affixed, the seal may be attested by his signature or
by the signature of the Assistant Secretary. The Board of Directors may give
general authority to any other officer to affix the seal of the Corporation and
to attest the affixing thereof by his signature.
Section 8. The Assistant Secretary. The Assistant Secretary, if any, or
in the event there be more than one, the Assistant Secretaries in the order
designated, or in the absence of any designation, in the order of their
election, shall, in the absence of the Secretary or in the event of his
disability, perform the duties and exercise the powers of the Secretary and
shall perform such other duties and have such other powers as may from time to
time be prescribed by the Board of Directors.
Section 9. The Treasurer. The Treasurer shall have custody of the
corporate funds and other valuable effects, including securities, and shall keep
full and accurate accounts of receipts and disbursements in books belonging to
the Corporation and shall deposit all moneys and other valuable effects in the
name and to the credit of the Corporation in such depositories as may from time
to time be designated by the Board of Directors. He
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shall disburse the funds of the Corporation in accord with the orders of the
Board of Directors, taking proper vouchers for such disbursements, and shall
render to the Chairman of the Board, if any, the President, and the Board of
Directors, whenever they may require it or at regular meetings of the Board, an
account of all his transactions as Treasurer and of the financial condition of
the Corporation.
Section 10. The Assistant Treasurer. The Assistant Treasurer, if any,
or in the event there shall be more than one, the Assistant Treasurers in the
order designed, or in the absence of any designation, in the order of their
election, shall, in the absence of the Treasurer or in the event of his
disability, perform such other duties and have such other powers as may from
time to time be prescribed in the Board of Directors.
Article VII. Indemnification.
Reference is made to Section 145 and any other relevant provisions of
the General Corporation Law of the State of Delaware. Particular reference is
made to the class of persons, hereinafter called "Indemnitees", who may be
indemnified by a Delaware corporation pursuant to the provisions of such Section
145, namely, any person, or the heirs, executors, or administrators of such
person, who was or is a party or is threatened to be made a party to any
threatened, pending or completed action, suit, or proceeding, whether civil,
criminal, administrative, or investigative, by reason of the fact that such
person is or was a director, officer, employee, or agent of such corporation or
is or was serving at the request of such corporation as a director, officer,
employee, or agent of such corporation or is or was serving at the request of
such corporation as a director, officer, employee, or agent of another
corporation, partnership, joint venture, trust, or other enterprise. The
Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and
each of them, in each and every situation where the Corporation is obligated to
make such indemnification pursuant to the aforesaid statutory provisions. The
Corporation shall indemnify the Indemnitees, and each of them, in each and every
situation where, under the aforesaid statutory provisions, the Corporation is
not obligated, but is nevertheless permitted or empowered, to make such
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indemnification, it being understood that, before making such indemnification
with respect to any situation covered under this sentence, (i) the Corporation
shall promptly make or cause to be made, by any of the methods referred to in
Subsection (d) of such Section 145, a determination as to whether each
Indemnitee acted in good faith and in a manner he reasonably believed to be in,
or not opposed to, the best interests of the Corporation, and, in the case of
any criminal action or proceeding, had no reasonable cause to believe that his
conduct was unlawful, and (ii) that no such indemnification shall be made unless
it is determined that such Indemnitee acted in good faith and in a manner he
reasonably believed to be in, or not opposed to, the best interests of the
Corporation, and, in the case of any criminal action or proceeding, had no
reasonable cause to believe that his conduct was unlawful.
Article VIII. Affiliated Transactions.
Section 1. Affiliated Transactions. All transactions between the
Corporation and one or more of its directors or officers, or between the
Corporation and any other corporation, partnership, association or other
organization in which one or more of its directors or officers have a financial
interest, or between the Corporation and any other person or entity controlling,
controlled by or under common control with, the Corporation, must be approved in
advance by a majority of the Board of Directors, including all of the
independent and disinterested members of the Board of Directors or, if required
by law, a majority of disinterested stockholders, and must be on terms no less
favorable to the Corporation than could be obtained in arm's length transactions
from unaffiliated third parties.
Article IX. Stock Certificates.
Section 1. Form and Signatures.
(a) Every holder of stock of the Corporation shall be entitled to a
certificate stating the number and class, and series, if any, of shares owned by
him, signed by the Chairman of the Board, if any, or the President and the
Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary
of the Corporation, and bearing the seal of the Corporation. The signatures and
the seal may be facsimiles. A certificate may be
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signed, manually or by facsimile, by a transfer agent or registrar other than
the Corporation or its employee. In case any officer who has signed, or whose
facsimile signature was placed on, a certificate shall have ceased to be such
officer before the certificate is issued, it may nevertheless be issued by the
Corporation with the same effect as if he were such officer at the date of its
issue.
(b) All stock certificates representing shares of capital stock that
are subject to restrictions on transfer or to other restrictions may have
imprinted thereon any notation to that effect determined by the Board of
Directors.
Section 2. Registration of Transfer. Upon surrender to the Corporation
or any transfer agent of the Corporation of a certificate for shares duly
endorsed or accompanied by proper evidence of succession, assignment, or
authority to transfer, the Corporation or its transfer agent shall issue a new
certificate to the person entitled thereto, cancel the old certificate, and
record the transaction upon the books of the Corporation.
Section 3. Registered Stockholders.
(a) Except as otherwise provided by law, the Corporation shall be
entitled to recognize the exclusive right of a person who is registered on its
books as the owner of shares of its capital stock to receive dividends or other
distributions and to vote or consent as such owner, and to hold liable for calls
and assessments any person who is registered on its books as the owner of shares
of its capital stock. The Corporation shall not be bound to recognize any
equitable or legal claim to, or interest in, such shares on the part of any
other person.
(b) If a stockholder desires that notices and/or dividends shall be
sent to a name or address other than the name or address appearing on the stock
ledger maintained by the Corporation, or its transfer agent or registrar, if
any, the stockholder shall have the duty to notify the Corporation, or its
transfer agent or registrar, if any, in writing of his desire and specify the
alternate name or address to be used.
Section 4. Record Date. In order that the Corporation may determine the
stockholders of record who are entitled to receive
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notice of, or to vote at, any meeting of stockholders or any adjournment thereof
or to express consent to corporate action in writing without a meeting, to
receive payment of any dividend or other distribution or allotment of any
rights, or to exercise any rights in respect of any change, conversion, or
exchange of stock or for the purpose of any lawful action, the Board of
Directors may, in advance, fix a date as the record date for any such
determination. Such date shall not be more than sixty nor less than ten days
before the date of such meeting, nor more than sixty days prior to the date of
any other action. A determination of stockholders of record entitled to notice
of, or to vote at, a meeting of stockholders shall apply to any adjournment of
the meeting taken pursuant to Section 8 of Article II; provided, however, that
the Board of Directors may fix a new record date for the adjourned meeting.
Section 5. Lost, Stolen, or Destroyed Certificates. The Board of
Directors may direct that a new certificate be issued to replace any certificate
theretofore issued by the Corporation that, it is claimed, has been lost,
stolen, or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate to be lost, stolen, or destroyed. When authorizing the
issue of a new certificate, the Board of Directors may, in its discretion and as
a condition precedent to the issuance thereof, require the owner of the lost,
stolen, or destroyed certificate, or his legal representative, to advertise the
same in such manner as it shall require, and/or to give the Corporation a bond
in such sum, or other security in such form, as it may direct as indemnity
against any claims that may be made against the Corporation with respect to the
certificate claimed to have been lost, stolen, or destroyed.
Article X. General Provisions.
Section 1. Dividends. Subject to the provisions of law and the
Certificate of Incorporation, dividends upon the outstanding capital stock of
the Corporation may be declared by the Board of Directors at any regular or
special meeting, and may be paid in cash, in property, or in shares of the
Corporation's capital stock.
Section 2. Reserves. The Board of Directors shall have full power,
subject to the provisions of law and the Certificate of
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Incorporation, to determine whether any, and, if so, what part, of the funds
legally available for the payment of dividends shall be declared as dividends
and paid to the stockholders of the Corporation. The Board of Directors, in its
sole discretion, may fix a sum that may be set aside or reserved over and above
the paid-in capital of the Corporation as a reserve for any proper purpose, and
may, from time to time, increase, diminish, or vary such amount.
Section 3. Fiscal Year. Except as from time to time otherwise provided
by the Board of Directors, the fiscal year of the Corporation shall end on
December 31 in each year.
Section 4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation, the year of its incorporation, and the words "Corporate
Seal" and "Delaware".
Article XI Amendments.
The Board of Directors shall have the power to alter and repeal these
Bylaws and to adopt new Bylaws by an affirmative vote of a majority of the whole
Board, provided that notice of the proposal to alter or repeal these Bylaws or
to adopt new Bylaws must be included in the notice of the meeting of the Board
of Directors at which such action takes place.
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AMENDED
CERTIFICATE OF THE DESIGNATIONS, POWERS
PREFERENCES AND RIGHTS
OF THE
SERIES B CONVERTIBLE PREFERRED STOCK
($.01 PAR VALUE PER SHARE)
OF
DELICIOUS BRANDS, INC.
A DELAWARE CORPORATION
---------------------
PURSUANT TO SECTION 151 OF THE
GENERAL CORPORATION LAW OF THE STATE OF DELAWARE
---------------------
DELICIOUS BRANDS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Company"),
DOES HEREBY CERTIFY that, pursuant to authority conferred upon the
Board of Directors of the Company (the "Board") by the Certificate of
Incorporation of , and pursuant to the provisions of Section 151 of the Delaware
General Corporation Law, that the Board adopted a resolution providing for the
amendment to and restatement of the certificate of the designations, powers,
preferences and rights, of the Series B Convertible Preferred Stock, which
resolution is as follows:
RESOLVED, that the Amended Certificate of the Designations,
Powers, Preferences and Rights of the Series B Convertible Preferred
Stock ("Certificate of Designation") be and is hereby authorized and
approved, which Certificate of Designation shall be filed with the
Delaware Secretary of State in the form as follows:
1. Designations and Amount. Thirty Five Thousand (35,000)
shares of the Preferred Stock of the Company, $.01 par value per share, shall
constitute a class of Preferred Stock designated as "Series B Convertible
Preferred Stock" (the "Series B Convertible Stock"). After the initial issuance
of shares of Series B Convertible Stock, no additional shares of Series B
Convertible Stock may be issued by the Company except as provided in Section
4(c) hereof.
2. Rank. Except as specifically provided below, the Series B
Convertible Stock shall, with respect to dividend rights, rights on redemption
and rights on liquidation, winding up and dissolution, rank pari passu with all
classes of Common Stock, $.01 par value per share, of the Company (the "Common
Stock").
<PAGE>
3. Dividends. Holders of the Series B Convertible Stock shall not be
entitled to receive dividends except in the event the Company shall declare a
distribution, whether in cash, in kind or otherwise, with respect to the Common
Stock, and then, in each such case, the holders of the Series B Convertible
Stock shall be entitled to a proportionate share of any such distribution
(whether made in cash, securities of the Company (other than shares of Common
Stock) or other assets) as though the holders of the Series B Convertible Stock
were the holders of the number of shares of Common Stock into which their shares
of Series B Convertible Stock are convertible as of the record date fixed for
the determination of the holders of Common Stock entitled to receive such
distribution.
4. Voting Rights.
(a) Each share of Series B Convertible Stock shall entitle the
holder thereof to such number of votes as shall equal the number of whole and
fractional shares of Common Stock into which such shares of Series B Convertible
Stock is convertible pursuant to Section 5 hereof. Except as otherwise required
by law, the holders of Series B Convertible Stock shall be entitled to vote on
all matters as to which holders of Common Stock of any class shall be entitled
to vote, in the same manner and with the same effect as such holders of Common
Stock, voting together with the holders of the Common Stock (or such class
thereof) as one class.
(b) So long as the initial holder of record of the Series B
Convertible Stock or an affiliate of such holder, beneficially owns at least 11%
of the Common Stock (determined in accordance with the provisions of Rule 13d-3
under the Securities Exchange Act of 1934, as amended), then the holders of a
majority of the outstanding shares of Series B Convertible Stock shall have, in
addition to the voting rights set forth above, the exclusive right, voting
separately as a single class, to: (i) elect one (1) director of the Company, as
well as to elect a replacement for any such director in the event that any such
director resigns, dies or otherwise must be replaced (any such person being
referred to herein as the "Approved Director"); and (ii) upon the filing of a
petition under any federal or state bankruptcy laws by or with respect to the
Company, the exclusive right, voting separately as a single class, to elect up
to that number of directors that would equal one-half (1/2) of the number of
directors that then constitute the whole board of directors, plus one (1)
member, of the Board (including the directors previously appointed by such
holders pursuant to this subsection (b)) (for which purpose, immediately upon
the filing of a petition under any federal or state bankruptcy laws by or with
respect to the Company, the number of directors constituting the Board shall,
automatically and without any further action on the part of the Board or the
stockholders of the Company, be increased to such number as shall permit the
majority of the holders of the Series B Convertible Stock to so elect one-half
(1/2) of the number of directors that then constitute the whole board of
directors, plus one (1) member, of the Board). Any vacancy in the office of any
director elected or otherwise entitled to be filled by the holders of Series B
Convertible Stock pursuant to this subsection (b) (including, without
limitation, vacancies created upon the increase in the size of the Board as
provided by clause (ii) above) shall be filled only by the holders of a majority
of the outstanding shares of Series B Convertible Stock voting as a single
class. Pending any such action by the holders of Series B Convertible Stock, any
vacancy in the office of any such director shall not be filled by the vote of
the remaining directors. The one director elected by the holders of Series B
Preferred Stock pursuant to this Section 4 shall have the right (but not the
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obligation) to be appointed to each of the committees of the Board, including,
without limitation, any executive committee and nominating committee of the
Board, unless such director would cause such committee to not be in compliance
with such committee's applicable director qualification requirements.
(c) The Company shall not take any of the following actions
without the approval by the affirmative vote of the holders of a majority of the
then outstanding shares of Series B Convertible Stock, voting as a separate
class:
(i) amend, alter or repeal any provision of the
Certificate of Incorporation or the Bylaws so as to adversely affect the
relative powers, preferences, rights, privileges or limitations provided for
herein for the benefit of any shares of Series B Convertible Stock so as to
adversely affect the rights of the holders of Series B Convertible Stock;
(ii) increase the authorized number of shares of, or
issue, Series B Convertible Stock;
(iii) effect any reclassification of the Series B
Convertible Stock;
(iv) increase the number of directors to more than
nine (9), except as provided by Section 4(b)(ii) above;
(v) designate any additional class of capital stock
which grants to the holders thereof the right to elect a separate class of
directors of the Company; or
(vi) amend the by-laws of the Company with respect to
any provision relating to the establishment and powers of the nominating
committee (the "Nominating Committee") of the Board pursuant to which the Board
nominates persons to stand for election to the Board.
Subject to these limitations, additional classes of preferred stock may be
designated and issued from time to time in one or more series with such
designations, voting powers, or other preferences and relative rights or
qualifications as are determined by the Board.
(d) The director elected by the holders of Series B
Convertible Stock pursuant to this Section 4 shall have one vote on all matters
decided by the Board, provided that the Company may not, without the affirmative
vote or consent of the director elected by the holders of Series B Convertible
Stock, file a voluntary petition or consent to the filing of a petition under
any federal or state bankruptcy laws.
(e) Without limiting anything contained in Section 4(b) above,
the Approved Director shall have the right to serve on the Nominating Committee.
As a member of such Nominating Committee, the Approved Director shall have the
right to himself nominate the person to stand for election to the Board as the
director to be elected by the holders of the Series B Convertible Stock, and to
vote on the nominations of the other persons nominated by the
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Nominating Committee to stand for election to the Board (the "Other Directors").
The provisions of the Company's By-Laws establishing the Nominating Committee
shall provide that: (A) all nominations of the Other Directors to be made by the
Board and/or the Company shall be approved by at least a majority of the members
of the Nominating Committee; (B) in order for the nominations of the Other
Directors to be approved by the Nominating Committee, the nominations of at
least two (2) of the Other Directors shall have been approved by the Approved
Director or, in the event that the holders of the Series B Convertible Stock are
no longer entitled to elect an Approved Director in accordance with the
provisions of Section 4(b) hereof, by the Alternate Approved Director (as
defined below) (such two approved Other Directors being referred to herein as
the "Designated Directors"); and (C) at such time as the Designated Directors
are designated in accordance with clause (B) above, the Approved Director or the
then serving Alternate Approved Director, as the case may be, shall designate
one of the Designated Directors as the person who shall be entitled to approve
of future nominations of Designated Directors in accordance with clause (B)
above under circumstances in which the holders of the Series B Convertible Stock
are no longer entitled to elect an Approved Director in accordance with the
provisions of Section 4(b) hereof (such Designated Director being referred to
herein as the "Alternate Approved Director"), it being understood that a then
serving Alternate Approved Director shall be permitted to designate himself to
serve as the Alternate Approved Director in a succeeding period, so long as such
person continues to be one of the Designated Directors.
5. Conversion of Series B Convertible Stock.
(a) General. Each holder of Series B Convertible Stock shall
have the right, at such holder's option, at any time or from time to time from
and after the day immediately following the date the Series B Convertible Stock
is first issued, to convert each share of Series B Convertible Stock into
fully-paid and non-assessable shares of Common Stock. The number of shares of
Common Stock to which a holder of Series B Convertible Stock shall be entitled
to receive upon conversion at any particular time shall be the sum of (x) the
product obtained by multiplying the Conversion Rate (determined as provided in
Section 5(b)) by the number of shares of Series B Convertible Stock being
converted at such time, plus (y) the product obtained by multiplying the Excess
Value (determined as provided in Section 6(a)) by the number of shares of Series
B Convertible Stock being converted at such time.
(b) Conversion Rate. The conversion rate in effect at any time
for the Series B Convertible Stock shall be the quotient obtained by dividing
the number five (5) by the Conversion Value, calculated as provided in Section
5(c) (the "Conversion Rate").
(c) Conversion Value. The Conversion Value in effect from time
to time, shall initially be the number one (1) and shall be adjusted from time
to time as set forth and in accordance with Section 5(d) with respect to the
Series B Convertible Stock (the "Conversion Value").
(d) Adjustments to Conversion Value.
(i) Upon Dilutive Issuances of Common Stock or
Convertible Securities. If the Company shall issue or sell shares of its Common
Stock or Common Stock Equivalents (as
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hereafter defined) without consideration or at a price per share less than the
greater of: (x) the then current Fair Market Value (as defined in Section 5(h)
hereof) of such securities so issued or sold; or (y) $8.00, then the Conversion
Value, except as hereinafter provided, shall be reduced so as to be equal to an
amount determined by multiplying the Conversion Value by a fraction:
(A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock or Common Stock Equivalents
(calculated on a fully-diluted basis assuming the conversion of all presently
exercisable options, warrants, purchase rights or convertible securities), plus
(2) the number of shares of Common Stock or Common Stock Equivalents which the
aggregate consideration, if any, received by the Company for the total number of
such additional shares of Common Stock or Common Stock Equivalents so issued
would purchase at the greater of: (x) the then current Fair Market Value of such
securities so issued or sold; or (y) $8.00, and
(B) the denominator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock or Common Stock Equivalents
(calculated on a fully-diluted basis assuming the exercise or conversion of all
presently exercisable options, warrants, purchase rights or convertible
securities), plus (2) the number of such additional shares of Common Stock or
Common Stock Equivalents so issued.
(ii) Upon Dilutive Issuances of Warrants, Options and
Purchase Rights to Common Stock or Convertible Securities. For the purposes of
this Section 5, the issuance of any warrants, options, subscription or purchase
rights with respect to shares of Common Stock and the issuance of any securities
convertible into or exchangeable for shares of Common Stock, or the issuance of
any warrants, options, subscriptions or purchase rights with respect to such
convertible or exchangeable securities (collectively, "Common Stock
Equivalents"), shall be deemed an issuance of Common Stock with respect to
adjustments in the Conversion Value of the Series B Convertible Stock if the
Consideration Per Share (as hereinafter determined) which may be received by the
Company for such Common Stock shall be less than the greater of: (x) the then
current Fair Market Value of such securities so issued or sold; or (y) $8.00.
Any obligation, agreement or undertaking to issue Common Stock Equivalents at
any time in the future shall be deemed to be an issuance of Common Stock
Equivalents at the time such obligation, agreement or undertaking is made or
arises. No adjustment of the Conversion Value shall be made under this Section 5
upon the issuance of any shares of Common Stock which are issued pursuant to the
exercise, conversion or exchange of any Common Stock Equivalents if any
adjustment shall previously have been made upon the issuance of any such Common
Stock Equivalents as above provided.
(iii) Adjustments for Cancellation or Expiration of
Common Stock Equivalents. Should the Consideration Per Share of any such Common
Stock Equivalents be decreased from time to time, then, upon the effectiveness
of each such change, the Conversion Value will be that which would have been
obtained (A) had the adjustments made upon the issuance of such Common Stock
Equivalents been made upon the basis of the decreased Consideration Per Share of
such securities, and (B) had the adjustments made to the Conversion Value since
the date of issuance of such Common Stock Equivalents been made to such
Conversion Value as adjusted
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pursuant to clause (A) above. Any adjustment of the Conversion Value pursuant to
this paragraph which relates to any Common Stock Equivalent shall be eliminated
if, as, and when such Common Stock Equivalent expires or is canceled without
being exercised, or is repurchased by the Company at a price per share at or
less than the original purchase price, so that the Conversion Value for the
Series B Convertible Stock effective immediately upon such cancellation or
expiration shall be equal to the Conversion Value that would have been in effect
had the expired or canceled Common Stock Equivalent not been issued.
(iv) Consideration Per Share. For purposes of
Sections 5 and 6 hereof, the "Consideration Per Share" which may be received by
the Company shall be determined as follows:
(A) The "Consideration Per Share" shall mean the
amount equal to the total amount of consideration, if any, received by the
Company for the issuance of such Common Stock Equivalents, plus the minimum
amount of consideration, if any, payable to the Company upon exercise, or
conversion or exchange thereof, divided by the aggregate number of shares of
Common Stock that would be issued if all such Common Stock Equivalents were
exercised, exchanged or converted.
(B) The "Consideration Per Share" which may be
received by the Company shall be determined in each instance as of the date of
issuance of Common Stock Equivalents without giving effect to any possible
future upward price adjustments or rate adjustments which may be applicable with
respect to such Common Stock Equivalents.
(v) Consideration Other than Cash. If a part or all
of the consideration received by the Company in connection with the issuance of
shares of the Common Stock or the issuance of any of the securities described in
this Section 5 or in Section 6 hereof consists of property other than cash, such
consideration shall be deemed to have a fair market value as is reasonably
determined in good faith by the Board.
In the event of any dispute between the holders of the Series B
Convertible Stock and the Company regarding the determination of fair market
value of any securities or property, at the written request of the holders of a
majority of the outstanding shares of Series B Convertible Stock, the Company
shall engage a consulting firm or an investment banking firm, selected by the
Board and approved by such holders of a majority of the outstanding shares of
Series B Convertible Stock, to prepare an independent appraisal of the fair
market value of such securities or property. The determination of such appraiser
shall be final and binding for all purposes. The expenses of any appraisal by
such consulting or investment banking firm shall be borne by the Company.
(vi) Exceptions to Anti-dilution Adjustments;
Reserved Employee Shares. Sections 5(d)(i) through (d)(vi) and 6(d)(i) through
6(d)(iv) shall not apply under any of the circumstances which would constitute
an Extraordinary Common Stock Event (as defined below). Notwithstanding anything
herein to the contrary, such sections shall not apply with respect to (i) the
conversion of the Series A Preferred Stock and (ii) the issuance or sale of up
to 1,277,730 shares of Common Stock issued or issuable pursuant to options and
warrants outstanding as of the date hereof and at the exercise price for such as
of the date hereof. The foregoing numbers shall be subject to
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adjustment in the event of any stock dividend, stock split, reorganization,
recapitalization, or other similar event.
(vii) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event, the Conversion Value (and all
other conversion values set forth in Section 5 above) shall, simultaneously with
the happening of such Extraordinary Common Stock Event, be adjusted by
multiplying the Conversion Value by a fraction, the numerator of which shall be
the number of shares of Common Stock outstanding immediately prior to such
Extraordinary Common Stock Event and the denominator of which shall be the
number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Conversion Value and the Conversion Value as so adjusted, shall be
readjusted in the same manner upon the happening of any successive Extraordinary
Common Stock Event or Events.
An "Extraordinary Common Stock Event" shall mean (A) the issue of
additional shares of Common Stock as a dividend or other distribution on
outstanding shares of Common Stock, (B) a subdivision of outstanding shares of
Common Stock into a greater number of shares of Common Stock, or (C) a
combination or reverse stock split of outstanding shares of Common Stock into a
smaller number of shares of Common Stock, or any recapitalization or
reorganization.
(e) Capital Reorganization or Reclassification. If the Common
Stock issuable upon the conversion of the Series B Convertible Stock shall be
changed into the same or different number of shares of any class or classes of
capital stock, whether by capital reorganization, recapitalization,
reclassification or otherwise (other than a subdivision or combination of shares
or stock dividend provided for elsewhere in this Section 5, or the sale of all
or substantially all of the Company's capital stock or assets to any other
person), then and in each such event the holder of each share of Series B
Convertible Stock shall have the right thereafter to convert such share into the
kind and amount of shares of capital stock and other securities and property
receivable upon such reorganization, recapitalization, reclassification or other
change by the holders of the number of shares of Common Stock into which such
shares of Series B Convertible Stock might have been converted immediately prior
to such reorganization, recapitalization, reclassification or change, all
subject to further adjustment as provided herein.
(f) Certificate as to Adjustments; Notice by Company. In each
case of an adjustment or readjustment of the Conversion Rate and/or the Excess
Value Conversion Rate (as hereinafter defined), the Company at its expense will
furnish each record holder of Series B Convertible Stock, at such holder's
registered address as shall appear on the stock records of the Company, a
certificate prepared by the Treasurer or Chief Financial Officer of the Company,
showing such adjustment or readjustment, and stating in detail the facts upon
which such adjustment or readjustment is based.
(g) Exercise of Conversion Right. Before any holder of Series
B Convertible Stock shall be entitled to convert the same into shares of Common
Stock, such holder shall surrender the certificate or certificates therefor,
duly endorsed, at the office of the Company or of any transfer agent for the
Series B Convertible Stock, and shall give written notice to the Company at its
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principal executive office, of the election to convert the same and shall state
therein the name or names in which the certificate or certificates for shares of
Common Stock are to be issued. The Company shall, as soon as practicable (but in
no event more than five (5) Business Days) thereafter, execute and deliver or
cause to be executed and delivered at such office to such holder of Series B
Convertible Stock, or to the nominee or nominees of such holder, a certificate
or certificates for the number of shares of Common Stock to which such holder
shall be entitled as aforesaid. Such conversion shall be deemed to have been
made immediately prior to the close of business on the date of such surrender of
the shares of Series B Convertible Stock to be converted, and the person or
persons entitled to receive the shares of Common Stock issuable upon such
conversion shall be treated for all purposes as the record holder or holders of
such shares of Common Stock as of such date.
(h) Cash in Lieu of Fractional Shares. No fractional shares
shall be issued upon the conversion of any share or shares of the Series B
Convertible Stock. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Company shall make a cash payment equal to the Fair
Market Value (as hereinafter defined) of the Common Stock as of two business
days prior to payment multiplied by such fraction. "Fair Market Value" shall
mean the closing price of the Common Stock on the national securities exchange
on which the Common Stock is listed (if the Common Stock is so listed) or on the
Nasdaq National Market or Small Cap Market (if the Common Stock is regularly
quoted on the Nasdaq National Market or Small Cap Market), or, if not so listed
or regularly quoted or if there is no such closing price, the mean between the
closing bid and asked prices of the Common Stock in the over-the-counter market
or on such exchange or on Nasdaq, or if such bid and asked prices shall not be
available, as reported by any nationally recognized quotation service, or if the
price is not so reported, as determined in good faith by the Board. The
determination as to whether or not any fractional shares are issuable shall be
based upon the aggregate number of shares of Series B Convertible Stock being
converted at any one time by any holder thereof, not upon each share of Series B
Convertible Stock being converted.
(i) Partial Conversion. In the event some but not all of the
shares of Series B Convertible Stock represented by a certificate(s) surrendered
by a holder are converted, the Company shall execute and deliver to or on the
order of the holder, at the expense of the Company, a new certificate
representing the number of shares of Series B Convertible Stock which were not
converted.
(j) Reservation of Common Stock. The Company shall at all
times reserve and keep available out of its authorized but unissued shares of
Common Stock, solely for the purpose of effecting the conversion of the shares
of the Series B Convertible Stock, such number of its shares of Common Stock as
shall from time to time be sufficient to effect the conversion of all
outstanding shares of the Series B Convertible Stock; and if at any time the
number of authorized but unissued shares of Common Stock shall not be sufficient
to effect the conversion of all then outstanding shares of the Series B
Convertible Stock, in addition to such other remedies as shall be available to
the holder of such Series B Convertible Stock, the Company shall take such
corporate action as may, in the opinion of its counsel, be necessary to
increase, and shall increase, its authorized but unissued shares of Common Stock
to such number of shares as shall be sufficient for such purposes.
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(k) No Reissuance of Series B Convertible Stock. In the event
any shares of Series B Preferred Stock shall be converted pursuant to this
Section 5 or otherwise reacquired by the Company, the shares so converted or
reacquired shall be canceled. The Certificate of Incorporation of the Company
may be appropriately amended from time to time to effect the corresponding
reduction in the Company's authorized capital stock.
(l) In the event of any taking by the Company of a record of
the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend or other distribution,
any right to subscribe for, purchase or otherwise acquire any shares of stock of
any class or any other securities or property, or to receive any other right,
the Company shall mail to each holder of Series B Convertible Stock, at least 20
days prior to the date specified therein, a notice specifying the date on which
any such record is to be taken for the purpose of such dividend, distribution or
right, and the amount and character of such dividend, distribution or right.
(m) The Company shall pay all documentary, stamp or other
transactional taxes attributable to the issuance or delivery of shares of
capital stock of the Company upon conversion of any shares of Series B
Convertible Stock; provided, however, that the Company shall not be required to
pay any taxes which may be payable in respect of any transfer involved in the
issuance or delivery of any certificate for such shares in a name other than
that of the holder of the shares of Series B Convertible Stock in respect of
which such shares are being issued.
(n) All shares of Common Stock which may be issued in
connection with the conversion provisions set forth herein will, upon issuance
by the Company, be validly issued, fully paid and nonassessable and free from
all taxes (except income taxes), liens or charges with respect thereto.
6. Excess Value.
(a) Excess Value. "Excess Value" shall be an amount equal to
the Aggregate Excess Value (as defined below) divided by the number of shares of
Series B Convertible Stock outstanding as of the date on which the calculation
pursuant to Section 5(a) above is being performed.
For purposes of this Section 6, the "Aggregate Excess Value"
shall be an amount equal to the amount, if any, by which: (1) the product of (x)
the number of shares of Common Stock (the "Mandatory Exercise Shares") which the
holder of the warrant dated April 12, 1999 (the "Warrant") to purchase 700,000
shares of Common Stock, issued by the Company to Little Meadow Corp. ("Little
Meadow"), is required by the Company to exercise the Warrant into (the
"Mandatory Exercise") pursuant to the letter agreement by and between Little
Meadow and the Company dated September 7, 1999, and (y) the Excess Value
Conversion Rate (determined as provided in Section 6(b)); exceeds (2) the number
of Mandatory Exercise Shares.
(b) Excess Value Conversion Rate. The excess value conversion
rate in effect at any time shall be the quotient obtained by dividing the number
one (1) by the Excess Conversion Value, calculated as provided in Section 6(c)
(the "Excess Value Conversion Rate").
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(c) Excess Conversion Value. The Excess Conversion Value in
effect from time to time, shall initially be the number one (1) and shall be
adjusted from time to time as set forth and in accordance with Section 6(d) with
respect to the Series B Convertible Stock (the "Excess Conversion Value").
(d) Adjustments to Excess Conversion Value. For a period of
ten years commencing on the date of the Mandatory Exercise, the Excess
Conversion Value shall be subject to the following adjustments:
(i) Upon Dilutive Issuances of Common Stock or
Convertible Securities. If the Company shall issue or sell shares of its Common
Stock or Common Stock Equivalents without consideration or at a price per share
less than the greater of: (x) the then current Fair Market Value (as defined in
Section 5(h) hereof) of such securities so issued or sold; or (y) $8.00, then
the Excess Conversion Value, except as hereinafter provided, shall be reduced so
as to be equal to an amount determined by multiplying the Excess Conversion
Value by a fraction:
(A) the numerator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock or Common Stock Equivalents
(calculated on a fully-diluted basis assuming the conversion of all presently
exercisable options, warrants, purchase rights or convertible securities), plus
(2) the number of shares of Common Stock or Common Stock Equivalents which the
aggregate consideration, if any, received by the Company for the total number of
such additional shares of Common Stock or Common Stock Equivalents so issued
would purchase at the greater of: (x) the then current Fair Market Value of such
securities so issued or sold; or (y) $8.00, and
(B) the denominator of which shall be (1) the
number of shares of Common Stock outstanding immediately prior to the issuance
of such additional shares of Common Stock or Common Stock Equivalents
(calculated on a fully-diluted basis assuming the exercise or conversion of all
presently exercisable options, warrants, purchase rights or convertible
securities), plus (2) the number of such additional shares of Common Stock or
Common Stock Equivalents so issued.
(ii) Upon Dilutive Issuances of Warrants, Options and
Purchase Rights to Common Stock or Convertible Securities. For the purposes of
this Section 6, the issuance of any Common Stock Equivalents, shall be deemed an
issuance of Common Stock with respect to adjustments in the Excess Conversion
Value of the Series B Convertible Stock if the Consideration Per Share (as
determined in accordance with the provisions of Section 5 above) which may be
received by the Company for such Common Stock shall be less than the greater of:
(x) the then current Fair Market Value of such securities so issued or sold; or
(y) $8.00. Any obligation, agreement or undertaking to issue Common Stock
Equivalents at any time in the future shall be deemed to be an issuance of
Common Stock Equivalents at the time such obligation, agreement or undertaking
is made or arises. No adjustment of the Excess Conversion Value shall be made
under this Section 6 upon the issuance of any shares of Common Stock which are
issued pursuant to the exercise, conversion or exchange of any Common Stock
Equivalents if any adjustment shall
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previously have been made upon the issuance of any such Common Stock Equivalents
as above provided.
(iii) Adjustments for Cancellation or Expiration of
Common Stock Equivalents. Should the Consideration Per Share of any such Common
Stock Equivalents be decreased from time to time, then, upon the effectiveness
of each such change, the Excess Conversion Value will be that which would have
been obtained (A) had the adjustments made upon the issuance of such Common
Stock Equivalents been made upon the basis of the decreased Consideration Per
Share of such securities, and (B) had the adjustments made to the Excess
Conversion Value since the date of issuance of such Common Stock Equivalents
been made to such Excess Conversion Value as adjusted pursuant to clause (A)
above. Any adjustment of the Excess Conversion Value pursuant to this paragraph
which relates to any Common Stock Equivalent shall be eliminated if, as, and
when such Common Stock Equivalent expires or is canceled without being
exercised, or is repurchased by the Company at a price per share at or less than
the original purchase price, so that the Excess Conversion Value for the Series
B Convertible Stock effective immediately upon such cancellation or expiration
shall be equal to the Excess Conversion Value that would have been in effect had
the expired or canceled Common Stock Equivalent not been issued.
(iv) Upon Extraordinary Common Stock Event. Upon the
happening of an Extraordinary Common Stock Event, the Excess Conversion Value
(and all other conversion values set forth in Section 6 above) shall,
simultaneously with the happening of such Extraordinary Common Stock Event, be
adjusted by multiplying the Excess Conversion Value by a fraction, the numerator
of which shall be the number of shares of Common Stock outstanding immediately
prior to such Extraordinary Common Stock Event and the denominator of which
shall be the number of shares of Common Stock outstanding immediately after such
Extraordinary Common Stock Event, and the product so obtained shall thereafter
be the Excess Conversion Value and the Excess Conversion Value as so adjusted,
shall be readjusted in the same manner upon the happening of any successive
Extraordinary Common Stock Event or Events.
7. Merger, Consolidation, Etc.
(a) If at any time or from time to time there shall be (i) a
merger, or consolidation of the Company with or into another corporation, (ii)
the sale of all or substantially all of the Company's capital stock or assets to
any other person, (iii) any other form of business combination or reorganization
in which the Company shall not be the continuing or surviving entity of such
business combination or reorganization, or (iv) any transaction or series of
transactions by the Company in which in excess of 50 percent of the Company's
voting power is transferred (each, a "Reorganization"), then as a part of such
Reorganization, provision shall be made so that the holders of the Series B
Convertible Stock shall thereafter be entitled to receive upon conversion of the
Series B Convertible Stock the same kind and amount of stock or other securities
or property (including cash) of the Company, or of the successor corporation
resulting from such Reorganization, to which such holder would have been
entitled if such holder had converted its shares of Series B Convertible Stock
immediately prior to the effective time of such Reorganization. In any such
case, appropriate adjustment shall be made in the application of the provisions
of Sections 5 and 6 to the end that the
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provisions of such sections (including adjustment of the Conversion Value and/or
Excess Conversion Value then in effect and the number of shares of Common Stock
or other securities issuable upon conversion of such shares of Series B
Convertible Stock) shall be applicable after that event in as nearly equivalent
a manner as may be practicable.
(b) The provisions of this Section 7 are in addition to and
not in lieu of the provisions of Section 4 hereof.
8. No Impairment The Company will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Company, but will at all times in good faith assist in the carrying out of all
the provisions of this Certificate of Designation and in the taking of all such
action as may be necessary or appropriate in order to protect the conversion
rights of the holders of the Series B Convertible Stock against impairment.
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IN WITNESS WHEREOF, Delicious Brands, Inc. has caused this Certificate
of Designation to be executed this April 12, 1999.
DELICIOUS BRANDS, INC.
By:/s/ Tom Guinan
------------------------------------------------
Name: Tom Guinan
Title: President and Chief Executive Officer
By: /s/ Jeffry W. Weiner
-----------------------------------------------
Name: Jeffry W. Weiner
Title: Secretary
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DELICIOUS BRANDS, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
SERIES C PREFERRED STOCK
DELICIOUS BRANDS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of the Corporation, and pursuant to the provisions of Sections 151 of the
Delaware General Corporation Law, there is hereby created, out of 1,000,000
shares of Preferred Stock of the Corporation, authorized in Article FOURTH of
the Certificate of Incorporation (the Preferred Stock"), a series of the
Preferred Stock consisting of 240,000 shares, par value $.01 per share, to be
designated "Series C Convertible Preferred Stock," and to that end the Board
adopted a resolution providing for the designation, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, of the Series C Convertible Preferred Stock, which resolution is
as follows:
RESOLVED, that the Certificate of Designation, Preferences and
Other Rights and Qualifications of the Series C Preferred Stock
("Certificate of Designation") be and is hereby authorized and
approved, which Certificate of Designation shall be filed with the
Delaware Secretary of State in the form as follows:
1. Designation and Amount. Two Hundred and Forty Thousand
(240,000) shares of the Preferred Stock of the Corporation, par value $.01 per
share, shall constitute a class of Preferred Stock designated as "Series C
Convertible Preferred Stock" (the "Series C Preferred Stock").
<PAGE>
2. Dividends.
The holders of shares of Series C Preferred Stock shall be
entitled to receive dividends with respect thereto ("Preferred Dividends") if,
as and when declared by the Board of Directors of the Corporation (the "Board")
out of assets of the Corporation legally available for payment thereof at the
rate per share of twelve percent (12%) per annum of the aggregate Stated Value
(the "Aggregate Stated Value") of the Series C Preferred Stock. The "Stated
Value" of each share of Series C Preferred Stock shall be $20.00. Such Preferred
Dividends shall accrue semi-annually at the rate of Six Percent (6%) per
six-month period of the Aggregate Stated Value from the date of issuance or the
last Dividend Record Date (as hereinafter defined) and be payable to holders of
record of Series C Preferred Stock on each Dividend Record Date (each May 15 and
November 15 being hereinafter called a "Dividend Record Date" and each of the
six-month periods, or portions thereof, ending on the last day of the preceding
month, respectively, being hereinafter called a "Dividend Period") and shall be
paid in cash on each May 31 and November 30 only if, when and as declared by the
Board of Directors of the Corporation, out of funds legally available for that
purpose, unless sooner declared by the Board of Directors. Preferred Dividends
on shares of Series C Preferred Stock shall be cumulative (whether or not there
shall be net profits or net assets of the Corporation legally available for the
payment of such dividends), so that if at any time the Preferred Dividends upon
the Series C Preferred Stock to the end of the last completed Dividend Period
shall not have been paid or declared and a sum sufficient for the payment
thereof set apart, the amount of the deficiency in such Preferred Dividends
shall be fully paid (but without interest), or Preferred Dividends in such
amounts shall have been declared on the shares of the Series C Preferred Stock
and a sum sufficient for the payment thereof shall have been set apart for such
payment, before any dividend shall be declared or paid or any other distribution
ordered or made upon any class of stock ranking as to dividends or upon
liquidation junior to the Series C Preferred Stock (other than a dividend
payable in such junior stock) and before any sum or sums shall be set aside for
or applied to the purchase or redemption of any shares of any class of stock
ranking as to dividends or upon liquidation junior to the Series C Preferred
Stock (with respect to rights to dividends and on liquidation, the Series C
Preferred Stock shall rank prior to the Common Stock (as hereinafter defined)),
the Preferred Dividends must be paid. All Preferred Dividends declared upon the
Series C Preferred Stock shall be declared pro rata per share. Holders of shares
of Series C Preferred Stock shall not be entitled to any Preferred Dividends,
whether payable in cash, property or stock, in excess of the Preferred Dividends
at the rate set forth above. All payments due under this Section 2 to any holder
of shares of Series C Preferred Stock shall be made to the nearest cent.
3. Rights on Liquidation
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (a "Liquidation"), the assets of
the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, shall be distributed as follows:
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(i) The holders of Series C Preferred Stock shall be
entitled to receive, prior and in preference to any
distribution to the holders of the Corporation's common stock,
par value $.01 per share (the "Common Stock"), or any other
series or class of Preferred Stock, other than the
Corporation's Series A Convertible Preferred Stock (the
"Series A Preferred Stock"), whether now existing or hereafter
created, and after the payment in full of any liquidation
preference of the Series A Preferred Stock, an amount equal to
(A) $30.00 per share for each share of Series C Preferred
Stock then outstanding plus (B) an amount equal to the
declared and unpaid Preferred Dividends on the Series C
Preferred Stock to the date of Liquidation. If, upon the
occurrence of a Liquidation, the assets and funds available
for distribution to the holders of Series C Preferred Stock
are insufficient to permit the payment to such holders in full
the preferential amount referred to above, then the assets and
funds of the Corporation available for distribution to holders
of the Series C Preferred Stock shall be distributed ratably
among such holders in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(ii) After distribution of the amounts set forth in
Section 3(a)(i) hereof, the remaining assets of the
Corporation available for distribution, if any, to the
stockholders of the Corporation shall be distributed to the
holders of issued and outstanding shares of the Corporation's
Series B Convertible Stock (the "Series B Preferred Stock")
and the Common Stock in accordance with the provisions of the
Certificate of Designation for the Series B Preferred Stock
and the Corporation's Certificate of Incorporation.
4. Voting Rights.
(a) So long as any shares of Series C Preferred Stock remain
outstanding, the holders of shares of Series C Preferred Stock shall be entitled
to such number of votes in respect of such shares of Series C Preferred Stock as
shall equal the largest whole number of shares of Common Stock into which such
shares of Series C Preferred Stock are then convertible pursuant to Section 5
hereof. Except as otherwise required by law or as provided in Section 4(b), the
holders of Series C Preferred Stock shall be entitled to vote on all matters on
which holders of Common Stock shall be entitled to vote, voting together as one
class in the same manner and with the same effect as such holders of Common
Stock.
(b) The holders of a majority of the outstanding shares of
Series C Preferred Stock shall have the right, voting separately as a class, to
approve all matters adversely affecting the rights, value or ranking of the
Series C Preferred Stock, including any issuance by the Corporation after the
date of initial issuance of the Series C Preferred Stock (the "Series C Issuance
Date") of any capital stock that is in any respect senior to or pari passu with
the Series C Preferred Stock.
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<PAGE>
5. Conversion of Series C Preferred Stock.
(a) The holders of Series C Preferred Stock shall each have
the right, at such holder's option, at any time or from time to time, to convert
each share of Series C Preferred Stock into such whole number of shares of
Common Stock as is equal to the number of fully paid and non-assessable shares
of Common Stock which results from multiplying the number of shares of Series C
Preferred Stock to be converted by $20.00 and dividing the result by the
Conversion Price per share for the Series C Preferred Stock in effect at the
time of conversion. The initial Conversion Price per share of the Series C
Preferred Stock shall be $2.00. The holder of any shares of Series C Preferred
Stock exercising the aforesaid right to convert such shares into shares of
Common Stock shall be entitled to receive, in cash, an amount equal to all
declared and unpaid Preferred Dividends with respect to such shares of Series C
Preferred Stock up to and including the respective conversion date of the Series
C Preferred Stock. Notwithstanding anything herein to the contrary, unless the
issuance of the Series C Preferred Stock is ratified by a vote of the
shareholders of the Company, the Company is delisted from Nasdaq or Nasdaq
approval is not otherwise required, the holders of the Series C Preferred Stock
may only convert up to such number of shares of Series C Preferred Stock as
results in the issuance of an aggregate number of shares of Common Stock equal
to or less than 19% of the number of shares of Common Stock issued and
outstanding on the date the Series C Preferred Stock is first issued.
(b) Upon the affirmative vote of the holders of at least a
majority of the outstanding shares of Series C Preferred Stock directing that
the Series C Preferred Stock be converted to Common Stock, each share of Series
C Preferred Stock then outstanding shall automatically be converted into shares
of Common Stock at the Conversion Price then in effect in accordance with this
Section 5. Notwithstanding anything herein to the contrary, unless the issuance
of the Series C Preferred Stock is ratified by a vote of the shareholders of the
Company, the Company is delisted from Nasdaq or Nasdaq approval is not otherwise
required, the holders of the Series C Preferred Stock may only convert up to
such number of shares of Series C Preferred Stock as results in the issuance of
an aggregate number of shares of Common Stock equal to or less than 19% of the
number of shares of Common Stock issued and outstanding on the date the Series C
Preferred Stock is first issued.
(c) Before any holder of Series C Preferred Stock shall be
entitled to convert the same into shares of Common Stock pursuant to Section
5(a) hereof, and upon conversion of the Series C Preferred Stock pursuant to
Section 5(b) hereof, the holder or holders of such Series C Preferred Stock
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series C Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office of the election to convert the same (in case of conversion
pursuant to Section 5(a) hereof) and the name or names in which the certificate
or certificates for shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder or holders of Series C Preferred Stock, or to the nominee or
nominees thereof, a certificate or certificates for the number of shares of
Common Stock to which such holder or holders shall be entitled as
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<PAGE>
aforesaid. Conversion under this Section 5 shall be deemed to have been made (i)
with respect to conversion pursuant to Section 5(a) hereof, immediately prior to
the close of business on the date of such surrender of the shares of Series C
Preferred Stock to be converted, and (ii) with respect to conversion pursuant to
Section 5(b) hereof, on the date of consummation of the event giving rise to the
conversion, and in either case the Person or Persons entitled to receive the
shares of Common Stock issuable upon such conversion shall be treated for all
purposes as the record holder or holders of such shares of Common Stock as of
such date.
(d) The Conversion Price of the Series C Preferred Stock shall
be subject to adjustment from time to time as follows:
(i) In the event the Corporation should at any time or
from time to time after the Series C Issuance Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or Common
Stock equivalents without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of the Series C
Preferred Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable upon conversion of each share of such Series C Preferred
Stock shall be increased in proportion to such increase in the aggregate of
shares of Common Stock outstanding and issuable with respect to such Common
Stock equivalents.
(ii) If the number of shares of Common Stock
outstanding at any time after the Series C Issuance Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series C Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of each series shall be decreased in
proportion to such decrease in outstanding shares.
(e) In the event the Corporation shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in Section 5(d) hereof to the holders of Common Stock,
then, in each such case for the purpose of this Section 5(e), the holders of the
Series C Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series C Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
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<PAGE>
(f) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this Section 5),
provision shall be made so that the holders of the Series C Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series C
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been entitled on such recapitalization. In any such case,
appropriate adjustment shall be made in the application of the provisions of
this Section 5 with respect to the rights of the holders of the Series C
Preferred Stock after the recapitalization to the end that the provisions of
this Section 5 (including adjustment of the Conversion Price for the Series C
Preferred Stock then in effect and the number of shares issuable upon conversion
of the Series C Preferred Stock) shall be applicable after that event as nearly
equivalent as may be practicable.
(g) The Corporation will not, by amendment of its
Certificate of Incorporation or through any reorganization, recapitalization,
transfer of assets, consolidation, merger, dissolution, issue or sale of
securities or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms to be observed or performed hereunder by the
Corporation, but will at all times in good faith assist in the carrying out of
all the provisions of this Section 5 and in the taking of all such action as may
be necessary or appropriate in order to protect the conversion rights of the
holders of the Series C Preferred Stock against impairment.
(h) If the Corporation should effect any capital
reorganization or reclassification of its capital stock or merger or
consolidation with any other entity or sale of all or substantially all its
assets while any shares of Series C Preferred Stock are outstanding in such a
manner that holders of shares of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, merger,
consolidation or sale, lawful and adequate provision shall be made whereby each
holder of Series C Preferred Stock shall thereafter have the right to receive
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon conversion of
Series C Preferred Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore so receivable had such reorganization, reclassification,
merger, consolidation or sale not taken place, and in such case appropriate
provision shall be made with respect to the rights and interests of the holders
of Series C Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price of the
Series C Preferred Stock and of the number of shares of Common Stock issuable
upon conversion thereof) shall thereafter be applicable, as nearly as may be
possible, in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion of such shares of Series C Preferred Stock.
(i) (A) No fractional shares shall be issued upon the
conversion of any share or shares of the Series C Preferred Stock, and the
number of shares of Common Stock to be
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<PAGE>
issued shall be rounded to the nearest whole share. In lieu of any fractional
shares to which the holder would otherwise be entitled, the Corporation shall
make a cash payment equal to the Fair Market Value (as hereinafter defined) of
the Common Stock as of two business days prior to payment multiplied by such
fraction. "Fair Market Value" shall mean the value of the Common Stock as
determined in good faith by the Board.
(B) Upon the occurrence of each adjustment of the
Conversion Price of Series C Preferred Stock pursuant to this Section 5, the
Corporation, at its expense, shall promptly compute such adjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series C Preferred Stock a statement, setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series C Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustment, (ii) the Conversion Price for such Series C Preferred Stock
at the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of a share of such Series C Preferred Stock.
(j) In the event of any taking by the Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series C Preferred Stock, at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(k) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of the Series C Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series C
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series C Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Series C Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to these provisions. The
Corporation shall pay all documentary, stamp or other transactional taxes
attributable to the issuance or delivery of shares of capital stock of the
Corporation upon conversion of any shares of Series C Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Series C Preferred Stock in respect of which such shares are being
issued. All shares of Common Stock which may be issued in connection with the
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<PAGE>
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
(l) Any notice required by the provisions of this Section 5 to
be given to the holders of shares of Series C Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the stock books of the
Corporation.
(m) In the event any shares of Series C Preferred Stock shall
be converted pursuant to Section 5 hereof, the shares so converted shall be
canceled. The Certificate of Incorporation of the Corporation may be
appropriately amended from time to time to effect the corresponding reduction in
the Corporation's authorized capital stock.
6. Holders' Right of Redemption. The Corporation shall give
the holders of Series C Preferred Stock written notice (a "Disposition Notice")
of any proposed Disposition Transaction (as herein defined) at least 15 days
prior to the consummation thereof. If such Disposition Transaction is
consummated, each holder of Series C Preferred Stock shall have the right to
require the Corporation to redeem all or any part of the shares of Series C
Preferred Stock then held it, if such holder has given a written notice to the
Corporation not later than 15 days after the Disposition Notice is given to it,
specifying the number of shares of Series C Preferred Stock it wishes to have
redeemed. The price at which shares of Series C Preferred Stock shall be
redeemed pursuant to this Section (the "Redemption Price") shall equal (a)
$30.00 per share for each share of Series C Preferred Stock being redeemed plus
(b) an amount equal to the declared and unpaid Preferred Dividends on such
shares of Preferred Stock to the date of consummation of the Disposition
Transaction. If the funds of the Corporation legally available to effect a
redemption in accordance with this Section are insufficient to pay the aggregate
Redemption Price for all shares of Series C Preferred Stock to be redeemed, the
aggregate Redemption Price shall be reduced to an amount equal to the maximum
amount of funds legally available therefor and shall be payable to the holders
of the Series C Preferred Stock that exercised their redemption rights in
accordance with this Section (the "Redeeming Holders") in proportion to the
number of shares of Series C Preferred Stock to be redeemed by each Redeeming
Holder. At any time on or after the date on which the Disposition Transaction is
consummated, each Redeeming Holder shall be entitled to receive upon delivering
to the Corporation (or its successor in interest) the certificates representing
the shares to be redeemed (i) the Redemption Price with respect to such shares
and (ii) if the number of shares represented by the certificates delivered by
such holder exceeds the number of shares to be redeemed by it, a certificate or
certificates in the name of such holder representing a number of shares of
Series C Preferred Stock equal to such excess. For purposes of this
Certificate:(i) the term "Disposition Transaction" means (x) a merger or
consolidation of the Corporation with or into another entity or entities that
results in a Change of Control (as hereinafter defined) or (y) the sale by the
Corporation of at least 60% of its assets and (ii) the term "Change of Control"
after a transaction means that the effect of such transaction is that the then
existing stockholders of the Corporation hold less than 50% of the combined
voting power of the then outstanding securities of the
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<PAGE>
surviving entity in such transaction ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors. Notice to holders of Series C Preferred Stock or to the Corporation
shall be deemed given when delivered by hand or responsible courier or 7 days
after being deposited, first class postage paid, in the United States mail,
return receipt requested, properly addressed: in the case of the Corporation, at
its address as it appears on the Corporation's most recent report or other
communication to security holders or annual or quarterly report under the
Securities Exchange Act of 1934 and, in case of a holder of Series C Preferred
Stock, at such holder's address as it appears in the records of the Corporation.
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<PAGE>
Such resolution was signed by the Chairman and Secretary of
the Corporation.
Dated as of December 10, 1999 DELICIOUS BRANDS, INC.
By:/s/ Thomas J. Guinan
-------------------------------------
Thomas J. Guinan, President
By:/s/ Jeffry W. Weiner
-------------------------------------
Jeffry W. Weiner, Secretary
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DELICIOUS BRANDS, INC.
CERTIFICATE OF DESIGNATION, PREFERENCES
AND OTHER RIGHTS AND QUALIFICATIONS OF
SERIES D PREFERRED STOCK
DELICIOUS BRANDS, INC., a corporation organized and existing under the
General Corporation Law of the State of Delaware (the "Corporation"),
DOES HEREBY CERTIFY:
FIRST: That, pursuant to authority conferred upon the Board of
Directors of the Corporation (the "Board") by the Certificate of Incorporation
of the Corporation, and pursuant to the provisions of Sections 151 and 241 of
the Delaware General Corporation Law, there is hereby created, out of 1,000,000
shares of Preferred Stock of the Corporation, authorized in Article FOURTH of
the Certificate of Incorporation (the Preferred Stock"), a series of the
Preferred Stock consisting of 100,000 shares, par value $.01 per share, to be
designated "Series D Convertible Preferred Stock," and to that end the Board
adopted a resolution providing for the designation, preferences and relative,
participating, optional or other rights, and the qualifications, limitations and
restrictions, of the Series D Convertible Preferred Stock, which resolution is
as follows:
RESOLVED, that the Certificate of Designation, Preferences and
Other Rights and Qualifications of the Series D Preferred Stock
("Certificate of Designation") be and is hereby authorized and
approved, which Certificate of Designation shall be filed with the
Delaware Secretary of State in the form as follows:
1. Designation and Amount. One Hundred Thousand (100,000)
shares of the Preferred Stock of the Corporation, par value $.01 per share,
shall constitute a class of Preferred Stock designated as "Series D Convertible
Preferred Stock" (the "Series D Preferred Stock").
<PAGE>
2. Dividends.
(a) The holders of shares of Series D Preferred Stock shall be
entitled to receive dividends with respect thereto ("Preferred Dividends") if,
as and when declared by the Board of Directors of the Corporation (the "Board")
out of assets of the Corporation legally available for payment thereof at the
rate per share of twelve percent (12%) per annum of the aggregate Stated Value
(the "Aggregate Stated Value") of the Series D Preferred Stock. The "Stated
Value" of each share of Series D Preferred Stock shall be $20.00. Such Preferred
Dividends shall accrue semi-annually at the rate of Six Percent (6%) per
six-month period of the Aggregate Stated Value from the date of issuance or the
last Dividend Record Date (as hereinafter defined) and be payable to holders of
record of Series D Preferred Stock on each Dividend Record Date (each May 15 and
November 15 being hereinafter called a "Dividend Record Date" and each of the
six-month periods, or portions thereof, ending on the last day of the preceding
month, respectively, being hereinafter called a "Dividend Period") and shall be
paid in cash on each May 31 and November 30 only if, when and as declared by the
Board of Directors of the Corporation, out of funds legally available for that
purpose, unless sooner declared by the Board of Directors. Preferred Dividends
on shares of Series D Preferred Stock shall be cumulative (whether or not there
shall be net profits or net assets of the Corporation legally available for the
payment of such dividends), so that if at any time the Preferred Dividends upon
the Series D Preferred Stock to the end of the last completed Dividend Period
shall not have been paid or declared and a sum sufficient for the payment
thereof set apart, the amount of the deficiency in such Preferred Dividends
shall be fully paid (but without interest), or Preferred Dividends in such
amounts shall have been declared on the shares of the Series D Preferred Stock
and a sum sufficient for the payment thereof shall have been set apart for such
payment, before any dividend shall be declared or paid or any other distribution
ordered or made upon any class of stock ranking as to dividends or upon
liquidation junior to the Series D Preferred Stock (other than a dividend
payable in such junior stock) and before any sum or sums shall be set aside for
or applied to the purchase or redemption of any shares of any class of stock
ranking as to dividends or upon liquidation junior to the Series D Preferred
Stock (with respect to rights to dividends and on liquidation, the Series D
Preferred Stock shall rank prior to the Common Stock (as hereinafter defined)),
the Preferred Dividends must be paid. All Preferred Dividends declared upon the
Series D Preferred Stock shall be declared pro rata per share. Holders of shares
of Series D Preferred Stock shall not be entitled to any Preferred Dividends,
whether payable in cash, property or stock, in excess of the Preferred Dividends
at the rate set forth above. All payments due under this Section 2 to any holder
of shares of Series D Preferred Stock shall be made to the nearest cent.
(b) If at any time a dividend or distribution of assets is
declared and paid on the Corporation's Series C Convertible Preferred Stock, par
value $.01 per share (the "Series C Preferred Stock") the Corporation shall, at
the same time, declare and pay to each holder of Series D Preferred Stock a
dividend with respect thereto equal to the dividend set forth in subsection (a)
above.
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<PAGE>
3. Rights on Liquidation
In the event of any voluntary or involuntary liquidation,
dissolution or winding up of the Corporation (a "Liquidation"), the assets of
the Corporation available for distribution to its stockholders, whether from
capital, surplus or earnings, shall be distributed as follows:
(i) The holders of Series D Preferred Stock shall be
entitled to receive, prior and in preference to any
distribution to the holders of the Corporation's common stock,
par value $.01 per share (the "Common Stock"), or any other
series or class of Preferred Stock, other than the
Corporation's Series C Convertible Preferred Stock (the
"Series C Preferred Stock") which shall rank pari passu with
the Series D Preferred Stock or Series A Convertible Preferred
Stock (the "Series A Preferred Stock"), whether now existing
or hereafter created, and after the payment in full of any
liquidation preference of the Series A Preferred Stock, an
amount equal to (A) $30.00 per share for each share of Series
D Preferred Stock then outstanding plus (B) an amount equal to
the declared and unpaid Preferred Dividends on the Series D
Preferred Stock to the date of Liquidation. If, upon the
occurrence of a Liquidation, the assets and funds available
for distribution to the holders of Series D Preferred Stock
are insufficient to permit the payment to such holders in full
the preferential amount referred to above, then the assets and
funds of the Corporation available for distribution to holders
of the Series D Preferred Stock shall be distributed ratably
among such holders in proportion to the preferential amount
each such holder is otherwise entitled to receive.
(ii) After distribution of the amounts set forth in
Section 3(a)(i) hereof, the remaining assets of the
Corporation available for distribution, if any, to the
stockholders of the Corporation shall be distributed to the
holders of issued and outstanding shares of the Corporation's
Series B Convertible Stock (the "Series B Preferred Stock")
and the Common Stock in accordance with the provisions of the
Certificate of Designation for the Series B Preferred Stock
and the Corporation's Certificate of Incorporation.
4. Voting Rights.
(a) So long as any shares of Series D Preferred Stock remain
outstanding, the holders of shares of Series D Preferred Stock shall be entitled
to such number of votes in respect of such shares of Series D Preferred Stock as
shall equal the largest whole number of shares of Common Stock into which such
shares of Series D Preferred Stock are then convertible pursuant to Section 5
hereof. Except as otherwise required by law or as provided in Section 4(b), the
holders of Series D Preferred Stock shall be entitled to vote on all matters on
which holders of Common Stock shall be entitled to vote, voting together as one
class in the same manner and with the same effect as such holders of Common
Stock.
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<PAGE>
(b) The holders of a majority of the outstanding shares of
Series D Preferred Stock shall have the right, voting separately as a class, to
approve all matters adversely affecting the rights, value or ranking of the
Series D Preferred Stock, including any issuance by the Corporation after the
date of initial issuance of the Series D Preferred Stock (the "Series D Issuance
Date") of any capital stock that is in any respect senior to or pari passu with
the Series D Preferred Stock.
5. Conversion of Series D Preferred Stock.
(a) The holders of Series D Preferred Stock shall each have
the right, at such holder's option, at any time or from time to time, to convert
each share of Series D Preferred Stock into such whole number of shares of
Common Stock as is equal to the number of fully paid and non-assessable shares
of Common Stock which results from multiplying the number of shares of Series D
Preferred Stock to be converted by $20.00 and dividing the result by the
Conversion Price per share for the Series D Preferred Stock in effect at the
time of conversion. The initial Conversion Price per share of the Series D
Preferred Stock shall be $2.00. The holder of any shares of Series D Preferred
Stock exercising the aforesaid right to convert such shares into shares of
Common Stock shall be entitled to receive, in cash, an amount equal to all
declared and unpaid Preferred Dividends with respect to such shares of Series D
Preferred Stock up to and including the respective conversion date of the Series
D Preferred Stock.
(b) Upon the affirmative vote of the holders of at least a
majority of the outstanding shares of Series D Preferred Stock directing that
the Series D Preferred Stock be converted to Common Stock, each share of Series
D Preferred Stock then outstanding shall automatically be converted into shares
of Common Stock at the Conversion Price then in effect in accordance with this
Section 5.
(c) Before any holder of Series D Preferred Stock shall be
entitled to convert the same into shares of Common Stock pursuant to Section
5(a) hereof, and upon conversion of the Series D Preferred Stock pursuant to
Section 5(b) hereof, the holder or holders of such Series D Preferred Stock
shall surrender the certificate or certificates therefor, duly endorsed, at the
office of the Corporation or of any transfer agent for the Series D Preferred
Stock, and shall give written notice to the Corporation at its principal
corporate office of the election to convert the same (in case of conversion
pursuant to Section 5(a) hereof) and the name or names in which the certificate
or certificates for shares of Common Stock are to be issued. The Corporation
shall, as soon as practicable thereafter, issue and deliver at such office to
such holder or holders of Series D Preferred Stock, or to the nominee or
nominees thereof, a certificate or certificates for the number of shares of
Common Stock to which such holder or holders shall be entitled as aforesaid.
Conversion under this Section 5 shall be deemed to have been made (i) with
respect to conversion pursuant to Section 5(a) hereof, immediately prior to the
close of business on the date of such surrender of the shares of Series D
Preferred Stock to be converted, and (ii) with respect to conversion pursuant to
Section 5(b) hereof, on the date of consummation of the event giving rise to the
conversion, and in either case the Person or Persons entitled to receive the
shares of
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<PAGE>
Common Stock issuable upon such conversion shall be treated for all purposes as
the record holder or holders of such shares of Common Stock as of such date.
(d) The Conversion Price of the Series D Preferred Stock shall
be subject to adjustment from time to time as follows:
(i) In the event the Corporation should at any time or
from time to time after the Series D Issuance Date fix a record date for the
effectuation of a split or subdivision of the outstanding shares of Common Stock
or the determination of holders of Common Stock entitled to receive a dividend
or other distribution payable in additional shares of Common Stock or Common
Stock equivalents without payment of any consideration by such holder for the
additional shares of Common Stock or the Common Stock equivalents (including the
additional shares of Common Stock issuable upon conversion or exercise thereof),
then, as of such record date (or the date of such dividend distribution, split
or subdivision if no record date is fixed), the Conversion Price of the Series D
Preferred Stock shall be appropriately decreased so that the number of shares of
Common Stock issuable upon conversion of each share of such Series D Preferred
Stock shall be increased in proportion to such increase in the aggregate of
shares of Common Stock outstanding and issuable with respect to such Common
Stock equivalents.
(ii) If the number of shares of Common Stock
outstanding at any time after the Series D Issuance Date is decreased by a
combination of the outstanding shares of Common Stock, then, following the
record date of such combination, the Conversion Price for the Series D Preferred
Stock shall be appropriately increased so that the number of shares of Common
Stock issuable on conversion of each share of each series shall be decreased in
proportion to such decrease in outstanding shares.
(e) In the event the Corporation shall declare a distribution
payable in securities of other persons, evidences of indebtedness issued by the
Corporation or other persons, assets (excluding cash dividends) or options or
rights not referred to in Section 5(d) hereof to the holders of Common Stock,
then, in each such case for the purpose of this Section 5(e), the holders of the
Series D Preferred Stock shall be entitled to a proportionate share of any such
distribution as though they were the holders of the number of shares of Common
Stock of the Corporation into which their shares of Series D Preferred Stock are
convertible as of the record date fixed for the determination of the holders of
Common Stock of the Corporation entitled to receive such distribution.
(f) If at any time or from time to time there shall be a
recapitalization of the Common Stock (other than a subdivision, combination or
merger or sale of assets transaction provided for elsewhere in this Section 5),
provision shall be made so that the holders of the Series D Preferred Stock
shall thereafter be entitled to receive upon conversion of the Series D
Preferred Stock the number of shares of stock or other securities or property of
the Corporation or otherwise, to which a holder of Common Stock deliverable upon
conversion would have been
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<PAGE>
entitled on such recapitalization. In any such case, appropriate adjustment
shall be made in the application of the provisions of this Section 5 with
respect to the rights of the holders of the Series D Preferred Stock after the
recapitalization to the end that the provisions of this Section 5 (including
adjustment of the Conversion Price for the Series D Preferred Stock then in
effect and the number of shares issuable upon conversion of the Series D
Preferred Stock) shall be applicable after that event as nearly equivalent as
may be practicable.
(g) The Corporation will not, by amendment of its Certificate
of Incorporation or through any reorganization, recapitalization, transfer of
assets, consolidation, merger, dissolution, issue or sale of securities or any
other voluntary action, avoid or seek to avoid the observance or performance of
any of the terms to be observed or performed hereunder by the Corporation, but
will at all times in good faith assist in the carrying out of all the provisions
of this Section 5 and in the taking of all such action as may be necessary or
appropriate in order to protect the conversion rights of the holders of the
Series D Preferred Stock against impairment.
(h) If the Corporation should effect any capital
reorganization or reclassification of its capital stock or merger or
consolidation with any other entity or sale of all or substantially all its
assets while any shares of Series D Preferred Stock are outstanding in such a
manner that holders of shares of Common Stock shall be entitled to receive
stock, securities or assets with respect to or in exchange for Common Stock,
then, as a condition of such reorganization, reclassification, merger,
consolidation or sale, lawful and adequate provision shall be made whereby each
holder of Series D Preferred Stock shall thereafter have the right to receive
upon the basis and upon the terms and conditions specified herein and in lieu of
the shares of Common Stock immediately theretofore receivable upon conversion of
Series D Preferred Stock, such shares of stock, securities or assets as may be
issued or payable with respect to or in exchange for a number of outstanding
shares of such Common Stock equal to the number of shares of such Common Stock
immediately theretofore so receivable had such reorganization, reclassification,
merger, consolidation or sale not taken place, and in such case appropriate
provision shall be made with respect to the rights and interests of the holders
of Series D Preferred Stock to the end that the provisions hereof (including,
without limitation, provisions for adjustment of the Conversion Price of the
Series D Preferred Stock and of the number of shares of Common Stock issuable
upon conversion thereof) shall thereafter be applicable, as nearly as may be
possible, in relation to any shares of stock, securities or assets thereafter
deliverable upon the conversion of such shares of Series D Preferred Stock.
(i) (A) No fractional shares shall be issued upon the
conversion of any share or shares of the Series D Preferred Stock, and the
number of shares of Common Stock to be issued shall be rounded to the nearest
whole share. In lieu of any fractional shares to which the holder would
otherwise be entitled, the Corporation shall make a cash payment equal to the
Fair Market Value (as hereinafter defined) of the Common Stock as of two
business days prior to payment multiplied by such fraction. "Fair Market Value"
shall mean the value of the Common Stock as determined in good faith by the
Board.
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<PAGE>
(B) Upon the occurrence of each adjustment of the
Conversion Price of Series C Preferred Stock pursuant to this Section 5, the
Corporation, at its expense, shall promptly compute such adjustment in
accordance with the terms hereof and prepare and furnish to each holder of
Series D Preferred Stock a statement, setting forth such adjustment and showing
in detail the facts upon which such adjustment is based. The Corporation shall,
upon the written request at any time of any holder of Series D Preferred Stock,
furnish or cause to be furnished to such holder a like certificate setting forth
(i) such adjustment, (ii) the Conversion Price for such Series D Preferred Stock
at the time in effect, and (iii) the number of shares of Common Stock and the
amount, if any, of other property which at the time would be received upon the
conversion of a share of such Series D Preferred Stock.
(j) In the event of any taking by the Corporation of a record
of the holders of any class of securities for the purpose of determining the
holders thereof who are entitled to receive any dividend (other than a cash
dividend) or other distribution, any right to subscribe for, purchase or
otherwise acquire any shares of stock of any class or any other securities or
property, or to receive any other right, the Corporation shall mail to each
holder of Series D Preferred Stock, at least 10 days prior to the date specified
therein, a notice specifying the date on which any such record is to be taken
for the purpose of such dividend, distribution or right, and the amount and
character of such dividend, distribution or right.
(k) The Corporation shall at all times reserve and keep
available out of its authorized but unissued shares of Common Stock, solely for
the purpose of effecting the conversion of the shares of the Series D Preferred
Stock, such number of its shares of Common Stock as shall from time to time be
sufficient to effect the conversion of all outstanding shares of the Series D
Preferred Stock; and if at any time the number of authorized but unissued shares
of Common Stock shall not be sufficient to effect the conversion of all then
outstanding shares of the Series D Preferred Stock, in addition to such other
remedies as shall be available to the holder of such Series D Preferred Stock,
the Corporation will take such corporate action as may, in the opinion of its
counsel, be necessary to increase its authorized but unissued shares of Common
Stock to such number of shares as shall be sufficient for such purposes,
including, without limitation, engaging in best efforts to obtain the requisite
stockholder approval of any necessary amendment to these provisions. The
Corporation shall pay all documentary, stamp or other transactional taxes
attributable to the issuance or delivery of shares of capital stock of the
Corporation upon conversion of any shares of Series D Preferred Stock; provided,
however, that the Corporation shall not be required to pay any taxes which may
be payable in respect of any transfer involved in the issuance or delivery of
any certificate for such shares in a name other than that of the holder of the
shares of Series D Preferred Stock in respect of which such shares are being
issued. All shares of Common Stock which may be issued in connection with the
conversion provisions set forth herein will, upon issuance by the Corporation,
be validly issued, fully paid and nonassessable and free from all taxes, liens
or charges with respect thereto.
(l) Any notice required by the provisions of this Section 5 to
be given to the holders of shares of Series D Preferred Stock shall be deemed
given if deposited in the United States mail, postage prepaid, and addressed to
each holder of record at his address appearing on the stock books of the
Corporation.
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<PAGE>
(m) In the event any shares of Series D Preferred Stock shall
be converted pursuant to Section 5 hereof, the shares so converted shall be
canceled. The Certificate of Incorporation of the Corporation may be
appropriately amended from time to time to effect the corresponding reduction in
the Corporation's authorized capital stock.
6. Holders' Right of Redemption. The Corporation shall give
the holders of Series D Preferred Stock written notice (a "Disposition Notice")
of any proposed Disposition Transaction (as herein defined) at least 15 days
prior to the consummation thereof. If such Disposition Transaction is
consummated, each holder of Series D Preferred Stock shall have the right to
require the Corporation to redeem all or any part of the shares of Series D
Preferred Stock then held it, if such holder has given a written notice to the
Corporation not later than 15 days after the Disposition Notice is given to it,
specifying the number of shares of Series D Preferred Stock it wishes to have
redeemed. Such redemption shall occur on the six-month anniversary of the
consummation of the Disposition Event that gave rise to this redemption option.
The price at which shares of Series D Preferred Stock shall be redeemed pursuant
to this Section (the "Redemption Price") shall equal (a) $30.00 per share for
each share of Series D Preferred Stock being redeemed plus (b) an amount equal
to the declared and unpaid Preferred Dividends on such shares of Preferred Stock
to the date of consummation of the Disposition Transaction. If the funds of the
Corporation legally available to effect a redemption in accordance with this
Section are insufficient to pay the aggregate Redemption Price for all shares of
Series D Preferred Stock to be redeemed, the Corporation shall redeem that
pro-rata portion of Series D Preferred Stock in an amount equal to the
proportional Redemption Price for which it has funds legally available and shall
pay such proportional Redemption Price to the holders of the Series D Preferred
Stock that exercised their redemption rights in accordance with this Section
(the "Redeeming Holders") in proportion to the number of shares of Series D
Preferred Stock to be redeemed by each Redeeming Holder with the remaining
shares of the Series D Preferred Stock to remain outstanding until the
Redemption Price is paid by the Corporation for such shares of Series D
Preferred Stock. At any time on or after the six-month anniversary of the date
on which the Disposition Transaction is consummated, each Redeeming Holder shall
be entitled to receive upon delivering to the Corporation (or its successor in
interest) the certificates representing the shares to be redeemed (i) the
Redemption Price with respect to such shares and (ii) if the number of shares
represented by the certificates delivered by such holder exceeds the number of
shares to be redeemed by it, a certificate or certificates in the name of such
holder representing a number of shares of Series D Preferred Stock equal to such
excess. For purposes of this Certificate:(i) the term "Disposition Transaction"
means (x) a merger or consolidation of the Corporation with or into another
entity or entities that results in a Change of Control (as hereinafter defined)
or (y) the sale by the Corporation of at least 60% of its assets and (ii) the
term "Change of Control" after a transaction means that the effect of such
transaction is that the then existing stockholders of the Corporation hold less
than 50% of the combined voting power of the then outstanding securities of the
surviving entity in such transaction ordinarily (and apart from rights accruing
under special circumstances) having the right to vote in the election of
directors. Notice to holders of Series D Preferred Stock or to the Corporation
shall be deemed
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<PAGE>
given when delivered by hand or responsible courier or 7 days after being
deposited, first class postage paid, in the United States mail, return receipt
requested, properly addressed: in the case of the Corporation, at its address as
it appears on the Corporation's most recent report or other communication to
security holders or annual or quarterly report under the Securities Exchange Act
of 1934 and, in case of a holder of Series D Preferred Stock, at such holder's
address as it appears in the records of the Corporation.
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<PAGE>
Such resolution was signed by the Chairman and Secretary of
the Corporation.
Dated as of March , 2000 DELICIOUS BRANDS, INC.
By:/s/ Thomas J. Guinan
------------------------------------------
Thomas J. Guinan, President
By:/s/ Jeffry W. Weiner
------------------------------------------
Jeffry W. Weiner, Secretary
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FORM OF STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made and entered
as of this 7th day of January 2000, by and among DELICIOUS BRANDS, INC., a
Delaware corporation (the "Company") and the purchasers set forth on Schedule A
attached hereto (each a "Purchaser" and, collectively, the "Purchasers").
WITNESSETH:
WHEREAS, the Company desires to issue and sell, and the
Purchasers desire to purchase, all upon the terms and subject to the conditions
set forth in this Agreement, shares of the Series C Convertible Preferred Stock
of the Company, par value $.01 per share (the "Series C Preferred Stock").
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements of the parties herein contained, the parties
hereby agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series C Preferred Stock.
(a) A Certificate of Designation, as amended (the
"Certificate"), setting forth the designation, preferences and other rights and
qualifications of the Series C Preferred Stock (the "Series C Preferred Stock")
in the form attached hereto as Exhibit A has been filed with the Secretary of
State of the State of Delaware and the Company has authorized the issuance and
sale of up to 253,663 shares of the Series C Preferred Stock (the "Shares").
(b) Subject to the terms and conditions of this
Agreement, each Purchaser severally agrees to purchase at the Closing (as
defined below), and the Company agrees to sell and issue to each Purchaser at
the Closing, the number of shares of the Series C Preferred Stock set forth
opposite such Purchaser's name on the Schedule of Purchasers attached hereto as
Schedule A, at a purchase price of $20.00 per share.
1.2 Closing.
(a) The First Closing. The closing of the purchase
and the sale of the Shares of Series C Preferred Stock hereunder (the "Closing")
shall be held at the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP,
505 Park Avenue, New York, New York 10022 at 10 a.m., local time, on the date
hereof, or at such other time and place upon which the Company and the
Purchasers participating in such Closing shall agree (the "First Closing Date").
<PAGE>
(b) Subsequent Closings. One or more additional
closings of the purchase and sale of the Shares of Series C Preferred Stock may
occur solely at the discretion of the Company. Any such additional closing may
be evidenced by the execution of an additional signature page to this Agreement
by the Company and an additional Purchaser, and the inclusion of such additional
Purchaser's name (along with the number of Shares such additional Purchaser is
purchasing, together with the aggregate purchase price to be paid for such
Shares) on the Schedule of Purchasers, without any requirement on the part of
the Company to seek the consent or approval of the Purchasers.
(c) General. For purposes of this Agreement, unless
the context otherwise requires, the specific closing at which the sale and
purchase of Shares occurs shall be referred to herein as the "Closing" for such
sale and purchase. The applicable date of each such sale and purchase of Shares
is referred to herein for purposes of such sale and purchase as the "Closing
Date."
(d) Delivery. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates, registered in such
Purchaser's name as set forth on the Schedule of Purchasers, representing the
number of Shares designated on the Schedule of Purchasers to be purchased by
such Purchaser, against payment of the purchase price therefor. The purchase
price for the Shares may be paid by (i) check payable to the Company, (ii) wire
transfer pursuant to the Company's instructions or (iii) cancellation of
indebtedness.
2. Representations, Warranties and Covenants of the Company.
The Company represents warrants and covenants to the Purchasers as follows:
2.1 Corporate Organization. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as and in the
places where such properties are now owned, operated and leased or such business
is now being conducted.
2.2 Authorization. The Company has the necessary corporate
power and authority to enter into this Agreement and to assume and perform its
obligations hereunder. The execution and delivery of this Agreement and the
performance by the Company of its obligations hereunder have been duly
authorized by the Board of Directors of the Company. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company enforceable against it in accordance with its
terms, subject to (i) applicable bankruptcy, insolvency, reorganization and
moratorium laws, (ii) other laws of general application affecting the
enforcement of creditors' rights generally and general principles of equity,
(iii) the discretion of the court before which any proceeding therefor may be
brought, and (iv) as rights to indemnity may be limited by federal or state
securities laws or by public policy.
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<PAGE>
2.3 Approvals and Consents. No action, approval, consent
or authorization, including, but not limited to, any action, approval, consent
or authorization by any governmental or quasi-governmental agency, commission,
board, bureau, or instrumentality is necessary or required as to the Company in
order to constitute this Agreement as a valid, binding and enforceable
obligation of the Company in accordance with its terms, except for the consent
of U.S. Bancorp Republic Commercial Finance, Inc., which the Company has
obtained.
3. Representations and Warranties of the Purchasers. Each of
the Purchasers represents and warrants to the Company as to itself as follows:
3.1 Organization and Existence. To the extent indicated on
the signature pages hereto, such Purchaser is either (i) a limited partnership
duly organized and validly existing under the laws of its respective state of
formation, (ii) a limited liability company duly organized and validly existing
under the laws of its respective state of formation, (iii) a corporation duly
organized and validly existing under the laws of its respective state of
incorporation or (iv) an individual. Each Purchaser represents that it was not
organized for the purpose of making an investment in the Company.
3.2 Authorization. The execution, delivery and performance
of this Agreement by such Purchaser and the consummation by such Purchaser of
the transactions contemplated hereby and thereby are within the powers of such
Purchaser and have been duly authorized by all necessary individual, corporate,
partnership or limited liability company action, as appropriate, on the part of
such Purchaser. This Agreement has been duly executed and delivered by such
Purchaser and constitutes a legal, valid and binding obligation of the Purchaser
enforceable against such Purchaser in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii)
other laws of general application affecting the enforcement of creditors' rights
generally and general principles of equity, (iii) the discretion of the court
before which any proceeding therefor may be brought, and (iv) as rights to
indemnity may be limited by federal or state securities laws or by public
policy.
3.3 Approvals and Consents. No action, approval, consent
or authorization, including, but not limited to, any action, approval, consent
or authorization by any governmental or quasi-governmental agency, commission,
board, bureau, or instrumentality is necessary or required as to such Purchaser
in order to constitute this Agreement as a valid, binding and enforceable
obligation of such Purchaser in accordance with its terms.
3.4 Investment. Such Purchaser is acquiring the Shares
being purchased by it for its own account as principal, not as a nominee or
agent, for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof in whole or in part and no other
person or entity has a direct or indirect beneficial interest in such Shares.
Such Purchaser does not have any contract, undertaking, agreement or arrangement
with any person or entity to sell, transfer or grant participations to such
person or entity or to any third person or entity with respect to any of such
Shares.
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<PAGE>
3.5 Exemption From Registration. Such Purchaser
acknowledges that the offering and sale of the Shares (the "Offering") is
intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of Section 4(2) of the Securities Act
and the provisions of Regulation D promulgated thereunder ("Regulation D"). In
furtherance thereof, such Purchaser represents and warrants to the Company as
follows:
(i) Such Purchaser realizes that the basis for the
exemption may not be present if, notwithstanding any
representations and/or warranties to the contrary herein
contained, such Purchaser has in mind merely acquiring the
Shares for a fixed or determinable period in the future;
(ii) Such Purchaser has the financial ability to bear the
economic risk of his investment, has adequate means for
providing for its current needs and contingencies and has
no need for liquidity with respect to its investment in
the Company; and
(iii) Such Purchaser has such knowledge and experience in
financial, and business matters as to be capable of
evaluating the merits and risks of an investment in the
Shares.
3.6 Accredited Investor. Such Purchaser is an "accredited
investor," as that term is defined in Rule 501 of Regulation D.
3.7 Available Information. Such Purchaser:
(i) Has been furnished with any and all documents that may
have been made available by the Company upon request of
the Purchaser for a reasonable time prior to the date
hereof including, but not limited to, those documents set
forth on Annex A hereto;
(ii) Has been provided an opportunity for a reasonable
time prior to the date hereof to obtain additional
information concerning the Offering, the Company and all
other information to the extent the Company possesses such
information or can acquire it without unreasonable effort
or expense;
(iii) Has been given the opportunity for a reasonable time
prior to the date hereof to ask questions of, and receive
answers from, the Company or its representatives
concerning the terms and conditions of the Offering and
other matters pertaining to an investment in the Shares,
or that which was otherwise provided in order for them to
evaluate the merits and risks of a purchase of the Shares
to the extent the Company possesses such information or
can acquire it without unreasonable effort or expense;
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<PAGE>
(iv) Has not been furnished with any oral representation
or oral information in connection with the Offering; and
(v) Has determined that the Shares are a suitable
investment for such Purchaser and that at this time such
Purchaser could bear a complete loss of such investment.
3.8 Purchaser Representative. Such Purchaser is not
relying on any statements or representations made by the Company or its
affiliates or any purchaser representative with respect to economic
considerations involved in an investment in the Shares.
3.9 Transfer Restrictions. Such Purchaser shall not sell
or otherwise transfer any of the Shares without registration under the
Securities Act or an exemption therefrom and such Purchaser fully understands
and agrees that such Purchaser must bear the economic risk of such Purchaser's
purchase because, among other reasons, the Shares have not been registered under
the Securities Act or under the securities laws of any state and, therefore,
cannot be resold, pledged, assigned or otherwise disposed of unless they are
subsequently registered under the Securities Act and under the applicable
securities laws of such states, or unless exemptions from such registration
requirements are available. In particular, such Purchaser is aware that the
Shares are "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act. Such Purchaser also understands that the
Company is under no obligation to register the Shares on such Purchaser's behalf
or to assist such Purchaser in complying with any exemption from the
registration requirements of the Securities Act or applicable state securities
laws. Such Purchaser further understands that sales or transfers of the Shares
are further restricted by state securities laws and the provisions of this
Agreement.
3.10 Entire Agreement. No representations or warranties
have been made to such Purchaser by the Company, or any officer, director,
employee, agent, affiliate or subsidiary of the Company other than those
contained herein and in subscribing for Shares such Purchaser is not relying
upon any representations other than those contained herein.
3.11 Purchaser Information. Any information that such
Purchaser has heretofore furnished or is simultaneously herewith furnishing to
the Company with respect to such Purchaser's financial position and business
experience is correct and complete as of the date of this Agreement and, if
there should be any material change in such information, such Purchaser will
immediately furnish revised or corrected information to the Company.
3.12 Legends. The Purchaser understands and acknowledges
that the Shares and the shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), issuable upon conversion of the Shares (the "Conversion
Shares") shall bear a legend substantially as follows until (i) such securities
shall have been registered under the Securities Act and effectively been
disposed of in accordance with an effective registration statement thereunder;
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<PAGE>
or (ii) in the opinion of counsel for the Company such securities may be sold
without registration under the Securities Act as well as any applicable "Blue
Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT
WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A
SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE
SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST
HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO
DELICIOUS BRANDS, INC. (THE "CORPORATION"), OR OTHER
COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT
THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL
APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS
ANY APPLICABLE "BLUE SKY" OR OTHER STATE SECURITIES
LAW."
3.13 Purchaser Address. The address set forth on the
signature pages of this Agreement is such Purchaser's true and correct business,
residence or domicile address.
3.14 Non-Marketable Investments. Such Purchaser's overall
commitment to investments that are not readily marketable is not
disproportionate to such Purchaser's net worth, and an investment in the Shares
will not cause such overall commitment to become excessive.
3.15 Finders. Such Purchaser represents and warrants that
such Purchaser has not retained any finder, broker, agent, financial advisor or
other intermediary in connection with the transactions contemplated by this
Agreement and agrees to indemnify and hold harmless the Company, its officers,
directors, affiliates, subsidiaries, employees and agents from liability for any
compensation to any such intermediary retained by such Purchaser and the fees
and expenses of defending against such liability or alleged liability.
3.16 Survival. The foregoing representations, warranties
and agreements shall survive the execution of this Agreement.
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<PAGE>
4. Piggyback Registration.
4.1 Registration Rights. If, at any time commencing after
the date hereof, the Company proposes to register any of its securities under
the Securities Act (other than pursuant to Form S-8, S-4 or a comparable
registration statement) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to the
Purchasers of its intention to do so. If any of the Purchasers notifies the
Company within twenty (20) days after receipt of any such notice of its desire
to include any of the Conversion Shares in such proposed registration statement,
the Company shall afford such Purchaser the opportunity to have any such
Conversion Shares (referred to in this Section 4 as the "Securities") registered
under such registration statement.
Notwithstanding the provisions of this Section 4.1, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 4.1 (irrespective of whether a written request
for inclusion of any such Securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
4.2 Provisions With Respect to Registration. In connection
with any registration under Section 4.1 hereof, the following provisions shall
apply:
(a) The Company (i) shall use its best efforts to file
a registration statement within sixty (60) days of receipt of any request by a
Purchaser to have its Securities included therein, (ii) shall use its best
efforts to have such registration statement declared effective at the earliest
possible time, and (iii) shall furnish to each Purchaser whose Securities have
been included in such registration statement (each a "Participant" and,
collectively, the "Participants") such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding any
underwriting or selling commissions or other charges of any broker-dealer acting
on behalf of a Participant), fees and expenses in connection with all
registration statements filed pursuant to this Section 4, including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses.
(c) The Company will take all necessary action which
may be required in qualifying or registering the Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Participants, provided
that the Company shall not be obligated to (i) execute or file any general
consent to service of process, (ii) qualify as a foreign corporation to do
business under the laws of any such jurisdiction or (iii) subject itself to
taxation in such jurisdiction.
(d) The Company shall indemnify each Participant and
each person, if any, who controls such Participant within the meaning of Section
15 of the Securities Act
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<PAGE>
or Section 20(a) of the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), against all loss, claim, damage, expense or liability
(including all expenses reasonably incurred in investigating, preparing or
defending against any claim whatsoever) to which any of them may become subject
under the Securities Act, the Exchange Act or otherwise, arising from such
registration statement (excluding any loss, claim, damage, expense or liability
arising from information furnished in writing by or on behalf of such
Participant, or its successors or assigns, for specific inclusion in such
registration statement).
(e) Each Participant and its successors and assigns, shall
indemnify the Company, its officers and directors and each person, if any, who
controls the Company within the meaning of Section 15 of the Securities Act or
Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or
liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Securities Act, the Exchange Act or otherwise, arising solely
from the inclusion in such registration statement of information furnished in
writing by or on behalf of such Participant, or its successors or assigns,
specifically for use in such registration statement; provided that each
Participant's liability hereunder shall not exceed the net proceeds of the sale
of Securities by such Participant pursuant to such registration statement.
(f) Nothing contained in this Agreement shall be construed
as requiring a Purchaser to convert its Shares prior to the initial filing of
any registration statement or the effectiveness thereof.
(g) In the case of an underwritten offering pursuant to
Section 4.1, if the managing underwriter with respect to such offering requests
in writing that the number of the Company's securities to be offered by selling
security holders in the registration be reduced because, in the judgment of the
managing underwriter, the proposed offering would be materially and adversely
affected, then such securities shall be reduced by such amount as the managing
underwriter may determine in writing so as to not materially and adversely
affect the proposed offering, which reduced number of securities shall be
included in the offering, selected, first, from any persons or entities
participating in such offering pursuant to demand registration rights and, next,
to the extent available, among the other selling security holders participating
in such offering, as nearly as possible pro rata, on the basis of the number of
the Company's securities so requested by each holder thereof to be included
therein.
(h) Each Participant, if, as and when its Securities are
covered by a registration statement filed pursuant to this Section 4, agrees if
and to the extent requested by the managing underwriter, in the case of an
underwritten sale of its Securities (to the extent timely notified in writing by
the Company or the managing underwriter), not to effect any public sale or
distribution of its Securities included in such registration statement,
including a sale pursuant to Rule 144 (or any similar rule then in force) under
the Act, except as part of such underwritten registration, during the 30-day
period prior to, and a period of up to 180 days (as determined by the managing
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<PAGE>
underwriter) beginning on, the effective date of any underwritten sale of its
Securities made pursuant to such registration statement.
5. General Provisions.
5.1 Entire Agreement; Amendment and Waiver. This Agreement
and that certain letter agreement dated February 5, 2000 constitutes the entire
agreement between the parties hereto with respect to the subject matter
contained herein and supersedes all prior oral or written agreements, if any,
between the parties hereto with respect to such subject matter and, except as
otherwise expressly provided herein, is not intended to confer upon any other
person any rights or remedies hereunder. Any amendments hereto or modifications
hereof must be made in writing and executed by each of the parties hereto. Any
failure by the Company or the Purchasers to enforce any rights hereunder shall
not be deemed a waiver of such rights.
5.2 Notices. Unless otherwise provided, any notice
required or permitted under this Agreement shall be given in writing and shall
be deemed effectively given (i) upon personal delivery to the party to be
notified, (ii) four (4) days after deposit with the United States Post Office,
by registered or certified mail, postage prepaid, or (iii) one day after deposit
with a reputable overnight courier service and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties, with a copy (which shall not constitute
notice) for the Company to Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505
Park Avenue, New York, New York 10022-1170, Attention: Steven Wolosky, Esq.
5.3 Governing Law. This Agreement shall be governed by,
and construed in accordance with, the laws of the State of New York without
giving effect to conflict of laws principles.
5.4 Binding Effect; Assignment. This Agreement and the
various rights and obligations arising hereunder shall inure to the benefit of
and be binding upon the Company and the Purchasers and each of their respective
successors and assigns. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be transferred or assigned (by operation of law
or otherwise) by any of the parties hereto without the prior written consent of
the other parties hereto. Any transfer or assignment of any of the rights,
interests or obligations hereunder in violation of the terms hereof shall be
void and of no force or effect.
5.5 Expenses. All costs and expenses incurred in
connection with this Agreement and the transactions contemplated hereby shall be
paid by the party incurring such costs and expenses.
5.6 Headings. The headings or captions contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
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<PAGE>
5.7 Pronouns. Whenever the pronouns "it" or "its" are used
herein, they shall also be deemed to mean "he" or "his" or "she" or "hers"
whenever applicable. Words in the singular shall be read and construed as though
in the plural and words in the plural shall be read and construed as though in
the singular in all cases where they would so apply.
5.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by virtue of any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the maximum extent possible.
5.9 Information Confidential. Each Purchaser acknowledges
that the information received by it pursuant hereto may be confidential and is
for such Purchaser's use only. Such Purchaser agrees that it will not use such
information in violation of the Exchange Act, or reproduce, disclose or
disseminate such information to any other person , unless the Company has made
such information available to the public generally.
5.10 Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be deemed an original, but all of
which taken together shall constitute one and the same instrument.
[Remainder of this page intentionally left blank]
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[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COMPANY:
DELICIOUS BRANDS, INC.
By:
-----------------------------------------
Name:
Title:
Address:
PURCHASERS:
By:
-----------------------------------------
Name:
Title:
Address:
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FORM OF STOCK PURCHASE AGREEMENT
STOCK PURCHASE AGREEMENT (this "Agreement") made and entered
as of this 3rd day of March, 2000, by and among DELICIOUS BRANDS, INC., a
Delaware corporation (the "Company") and the purchasers set forth on Schedule A
attached hereto (each a "Purchaser" and, collectively, the "Purchasers").
WITNESSETH:
WHEREAS, the Company desires to issue and sell, and the
Purchasers desire to purchase, all upon the terms and subject to the conditions
set forth in this Agreement, shares of the Series D Convertible Preferred Stock
of the Company, par value $.01 per share (the "Series D Preferred Stock").
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants and agreements of the parties herein contained, the parties
hereby agree as follows:
1. Purchase and Sale of Stock.
1.1 Sale and Issuance of Series D Preferred Stock.
(a) A Certificate of Designation (the "Certificate"),
setting forth the designation, preferences and other rights and qualifications
of the Series D Preferred Stock (the "Series D Preferred Stock") in the form
attached hereto as Exhibit A has been filed with the Secretary of State of the
State of Delaware and the Company has authorized the issuance and sale of up to
100,000 shares of the Series D Preferred Stock (the "Shares").
(b) Subject to the terms and conditions of this
Agreement, each Purchaser severally agrees to purchase at the Closing (as
defined below), and the Company agrees to sell and issue to each Purchaser at
the Closing, the number of shares of the Series D Preferred Stock set forth
opposite such Purchaser's name on the Schedule of Purchasers attached hereto as
Schedule A, at a purchase price of $20.00 per share.
1.2 Closing.
(a) The First Closing. The closing of the purchase
and the sale of the Shares of Series D Preferred Stock hereunder (the "Closing")
shall be held at the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP,
505 Park Avenue, New York, New York 10022 at 10 a.m., local time, on the date
hereof, or at such other time and place upon which the Company and the
Purchasers participating in such Closing shall agree (the "First Closing Date").
<PAGE>
(b) Subsequent Closings. One or more additional
closings of the purchase and sale of the Shares of Series D Preferred Stock may
occur solely at the discretion of the Company. Any such additional closing may
be evidenced by the execution of an additional signature page to this Agreement
by the Company and an additional Purchaser, and the inclusion of such additional
Purchaser's name (along with the number of Shares such additional Purchaser is
purchasing, together with the aggregate purchase price to be paid for such
Shares) on the Schedule of Purchasers, without any requirement on the part of
the Company to seek the consent or approval of the Purchasers.
(c) General. For purposes of this Agreement, unless
the context otherwise requires, the specific closing at which the sale and
purchase of Shares occurs shall be referred to herein as the "Closing" for such
sale and purchase. The applicable date of each such sale and purchase of Shares
is referred to herein for purposes of such sale and purchase as the "Closing
Date."
(d) Delivery. At the Closing, the Company shall
deliver to each Purchaser a certificate or certificates, registered in such
Purchaser's name as set forth on the Schedule of Purchasers, representing the
number of Shares designated on the Schedule of Purchasers to be purchased by
such Purchaser, against payment of the purchase price therefor. The purchase
price for the Shares may be paid by (i) check payable to the Company, (ii) wire
transfer pursuant to the Company's instructions or (iii) any combination of the
foregoing.
2. Representations, Warranties and Covenants of the Company.
The Company represents warrants and covenants to the Purchasers as follows:
2.1 Corporate Organization. The Company is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware, and has all requisite corporate power and authority to own,
operate and lease its properties and to carry on its business as and in the
places where such properties are now owned, operated and leased or such business
is now being conducted.
2.2 Authorization. The Company has the necessary corporate
power and authority to enter into this Agreement and to assume and perform its
obligations hereunder. The execution and delivery of this Agreement and the
performance by the Company of its obligations hereunder have been duly
authorized by the Board of Directors of the Company. This Agreement has been
duly executed and delivered by the Company and constitutes a legal, valid and
binding obligation of the Company enforceable against it in accordance with its
terms, subject to (i) applicable bankruptcy, insolvency, reorganization and
moratorium laws, (ii) other laws of general application affecting the
enforcement of creditors' rights generally and general principles of equity,
(iii) the discretion of the court before which any proceeding therefor may be
brought, and (iv) as rights to indemnity may be limited by federal or state
securities laws or by public policy.
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<PAGE>
2.3 Approvals and Consents. No action, approval, consent
or authorization, including, but not limited to, any action, approval, consent
or authorization by any governmental or quasi-governmental agency, commission,
board, bureau, or instrumentality is necessary or required as to the Company in
order to constitute this Agreement as a valid, binding and enforceable
obligation of the Company in accordance with its terms, except for the consent
of U.S. Bancorp Republic Commercial Finance, Inc., which the Company has
obtained.
2.4 Commissions; Use of Proceeds. Icahn Associates Corp.
will earn a 3% fee on the gross proceeds of this transaction and Network 1
Financial Securities, Inc. ("Network 1") will earn a 10% fee on the gross
proceeds of all sales of Shares by the Company to Network 1's clients for which
Network 1 acts as placement agent on this transaction. The commissions shall be
paid in cash, except such commission may be deferred at the recipients' sole
discretion. The net proceeds received by the Company from this transaction will
be used for general corporate purposes, including capital expenditures, product
development, marketing and sales and working capital and to establish a working
capital reserve in connection with a potential sale of substantially all of the
assets of the Company at the request of a potential purchaser against
unanticipated expenses which may arise prior to the potential closing. The
proceeds allocated to general corporate purposes may be utilized in the
discretion of the Board of Directors of the Company.
3. Representations and Warranties of the Purchasers. Each of
the Purchasers represents and warrants to the Company as to itself as follows:
3.1 Organization and Existence. To the extent indicated on
the signature pages hereto, such Purchaser is either (i) a limited partnership
duly organized and validly existing under the laws of its respective state of
formation, (ii) a limited liability company duly organized and validly existing
under the laws of its respective state of formation, (iii) a corporation duly
organized and validly existing under the laws of its respective state of
incorporation or (iv) an individual. Each Purchaser represents that it was not
organized for the purpose of making an investment in the Company.
3.2 Authorization. The execution, delivery and performance
of this Agreement by such Purchaser and the consummation by such Purchaser of
the transactions contemplated hereby and thereby are within the powers of such
Purchaser and have been duly authorized by all necessary individual, corporate,
partnership or limited liability company action, as appropriate, on the part of
such Purchaser. This Agreement has been duly executed and delivered by such
Purchaser and constitutes a legal, valid and binding obligation of the Purchaser
enforceable against such Purchaser in accordance with its terms, subject to (i)
applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii)
other laws of general application affecting the enforcement of creditors' rights
generally and general principles of equity, (iii) the discretion of the court
before which any proceeding therefor may be brought, and (iv) as rights to
indemnity may be limited by federal or state securities laws or by public
policy.
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<PAGE>
3.3 Approvals and Consents. No action, approval, consent
or authorization, including, but not limited to, any action, approval, consent
or authorization by any governmental or quasi-governmental agency, commission,
board, bureau, or instrumentality is necessary or required as to such Purchaser
in order to constitute this Agreement as a valid, binding and enforceable
obligation of such Purchaser in accordance with its terms.
3.4 Investment. Such Purchaser is acquiring the Shares
being purchased by it for its own account as principal, not as a nominee or
agent, for investment purposes only, and not with a view to, or for, resale,
distribution or fractionalization thereof in whole or in part and no other
person or entity has a direct or indirect beneficial interest in such Shares.
Such Purchaser does not have any contract, undertaking, agreement or arrangement
with any person or entity to sell, transfer or grant participations to such
person or entity or to any third person or entity with respect to any of such
Shares.
3.5 Exemption From Registration. Such Purchaser
acknowledges that the offering and sale of the Shares (the "Offering") is
intended to be exempt from registration under the Securities Act of 1933, as
amended (the "Securities Act"), by virtue of Section 4(2) of the Securities Act
and the provisions of Regulation D promulgated thereunder ("Regulation D"). In
furtherance thereof, such Purchaser represents and warrants to the Company as
follows:
(i) Such Purchaser realizes that the basis for the
exemption may not be present if, notwithstanding any
representations and/or warranties to the contrary herein
contained, such Purchaser has in mind merely acquiring the
Shares for a fixed or determinable period in the future;
(ii) Such Purchaser has the financial ability to bear the
economic risk of his investment, has adequate means for
providing for its current needs and contingencies and has
no need for liquidity with respect to its investment in
the Company; and
(iii) Such Purchaser has such knowledge and experience in
financial, and business matters as to be capable of
evaluating the merits and risks of an investment in the
Shares.
3.6 Accredited Investor. Such Purchaser is an "accredited
investor," as that term is defined in Rule 501 of Regulation D.
3.7 Available Information. Such Purchaser:
(i) Has been furnished with any and all documents that may
have been made available by the Company upon request of
the Purchaser for a reasonable time prior to the date
hereof including, but not limited to, those documents set
forth on Annex A hereto;
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<PAGE>
(ii) Has been provided an opportunity for a reasonable
time prior to the date hereof to obtain additional
information concerning the Offering, the Company and all
other information to the extent the Company possesses such
information or can acquire it without unreasonable effort
or expense;
(iii) Has been given the opportunity for a reasonable time
prior to the date hereof to ask questions of, and receive
answers from, the Company or its representatives
concerning the terms and conditions of the Offering and
other matters pertaining to an investment in the Shares,
or that which was otherwise provided in order for them to
evaluate the merits and risks of a purchase of the Shares
to the extent the Company possesses such information or
can acquire it without unreasonable effort or expense;
(iv) Has not been furnished with any oral representation
or oral information in connection with the Offering; and
(v) Has determined that the Shares are a suitable
investment for such Purchaser and that at this time such
Purchaser could bear a complete loss of such investment.
3.8 Purchaser Representative. Such Purchaser is not
relying on any statements or representations made by the Company or its
affiliates or any purchaser representative with respect to economic
considerations involved in an investment in the Shares.
3.9 Transfer Restrictions. Such Purchaser shall not sell
or otherwise transfer any of the Shares without registration under the
Securities Act or an exemption therefrom and such Purchaser fully understands
and agrees that such Purchaser must bear the economic risk of such Purchaser's
purchase because, among other reasons, the Shares have not been registered under
the Securities Act or under the securities laws of any state and, therefore,
cannot be resold, pledged, assigned or otherwise disposed of unless they are
subsequently registered under the Securities Act and under the applicable
securities laws of such states, or unless exemptions from such registration
requirements are available. In particular, such Purchaser is aware that the
Shares are "restricted securities," as such term is defined in Rule 144
promulgated under the Securities Act. Such Purchaser also understands that the
Company is under no obligation to register the Shares on such Purchaser's behalf
or to assist such Purchaser in complying with any exemption from the
registration requirements of the Securities Act or applicable state securities
laws. Such Purchaser further understands that sales or transfers of the Shares
are further restricted by state securities laws and the provisions of this
Agreement.
3.10 Entire Agreement. No representations or warranties
have been made to such Purchaser by the Company, or any officer, director,
employee, agent, affiliate or subsidiary
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<PAGE>
of the Company other than those contained herein, and in subscribing for Shares
such Purchaser is not relying upon any representations other than those
contained herein.
3.11 Purchaser Information. Any information that such
Purchaser has heretofore furnished or is simultaneously herewith furnishing to
the Company with respect to such Purchaser's financial position and business
experience is correct and complete as of the date of this Agreement and, if
there should be any material change in such information, such Purchaser will
immediately furnish revised or corrected information to the Company.
3.12 Legends. The Purchaser understands and acknowledges
that the Shares and the shares of the Company's Common Stock, par value $.01 per
share ("Common Stock"), issuable upon conversion of the Shares (the "Conversion
Shares") shall bear a legend substantially as follows until (i) such securities
shall have been registered under the Securities Act and effectively been
disposed of in accordance with an effective registration statement thereunder;
or (ii) in the opinion of counsel for the Company such securities may be sold
without registration under the Securities Act as well as any applicable "Blue
Sky" or state securities laws:
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES
ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED,
HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i)
PURSUANT TO A REGISTRATION STATEMENT UNDER THE
SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS
CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii)
PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION
UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER
HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF
COUNSEL TO DELICIOUS BRANDS, INC. (THE
"CORPORATION"), OR OTHER COUNSEL REASONABLY
ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED
DISPOSITION IS CONSISTENT WITH ALL APPLICABLE
PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY
APPLICABLE "BLUE SKY" OR OTHER STATE SECURITIES
LAW."
3.13 Purchaser Address. The address set forth on the
signature pages of this Agreement is such Purchaser's true and correct business,
residence or domicile address.
3.14 Non-Marketable Investments. Such Purchaser's overall
commitment to investments that are not readily marketable is not
disproportionate to such Purchaser's net worth, and an investment in the Shares
will not cause such overall commitment to become excessive.
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3.15 Finders. Such Purchaser represents and warrants that
such Purchaser has not retained any finder, broker, agent, financial advisor or
other intermediary in connection with the transactions contemplated by this
Agreement and agrees to indemnify and hold harmless the Company, its officers,
directors, affiliates, subsidiaries, employees and agents from liability for any
compensation to any such intermediary retained by such Purchaser and the fees
and expenses of defending against such liability or alleged liability.
3.16 Survival. The foregoing representations, warranties
and agreements shall survive the execution of this Agreement.
4. Piggyback Registration.
4.1 Registration Rights. If, at any time commencing after
the date hereof, the Company proposes to register any of its securities under
the Securities Act (other than pursuant to Form S-8, S-4 or a comparable
registration statement) it will give written notice by registered mail, at least
thirty (30) days prior to the filing of each such registration statement, to the
Purchasers of its intention to do so. If any of the Purchasers notifies the
Company within twenty (20) days after receipt of any such notice of its desire
to include any of the Conversion Shares in such proposed registration statement,
the Company shall afford such Purchaser the opportunity to have any such
Conversion Shares (referred to in this Section 4 as the "Securities") registered
under such registration statement.
Notwithstanding the provisions of this Section 4.1, the
Company shall have the right at any time after it shall have given written
notice pursuant to this Section 4.1 (irrespective of whether a written request
for inclusion of any such Securities shall have been made) to elect not to file
any such proposed registration statement, or to withdraw the same after the
filing but prior to the effective date thereof.
4.2 Provisions With Respect to Registration. In connection
with any registration under Section 4.1 hereof, the following provisions shall
apply:
(a) The Company (i) shall use its best efforts to file
a registration statement within sixty (60) days of receipt of any request by a
Purchaser to have its Securities included therein, (ii) shall use its best
efforts to have such registration statement declared effective at the earliest
possible time, and (iii) shall furnish to each Purchaser whose Securities have
been included in such registration statement (each a "Participant" and,
collectively, the "Participants") such number of prospectuses as shall
reasonably be requested.
(b) The Company shall pay all costs (excluding any
underwriting or selling commissions or other charges of any broker-dealer acting
on behalf of a Participant), fees and expenses in connection with all
registration statements filed pursuant to this Section 4, including, without
limitation, the Company's legal and accounting fees, printing expenses and blue
sky fees and expenses.
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(c) The Company will take all necessary action which
may be required in qualifying or registering the Securities included in a
registration statement for offering and sale under the securities or blue sky
laws of such states as reasonably are requested by the Participants, provided
that the Company shall not be obligated to (i) execute or file any general
consent to service of process, (ii) qualify as a foreign corporation to do
business under the laws of any such jurisdiction or (iii) subject itself to
taxation in such jurisdiction.
(d) The Company shall indemnify each Participant and
each person, if any, who controls such Participant within the meaning of Section
15 of the Securities Act or Section 20(a) of the Securities Exchange Act of
1934, as amended (the "Exchange Act"), against all loss, claim, damage, expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which any of them may
become subject under the Securities Act, the Exchange Act or otherwise, arising
from such registration statement (excluding any loss, claim, damage, expense or
liability arising from information furnished in writing by or on behalf of such
Participant, or its successors or assigns, for specific inclusion in such
registration statement).
(e) Each Participant and its successors and assigns,
shall indemnify the Company, its officers and directors and each person, if any,
who controls the Company within the meaning of Section 15 of the Securities Act
or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense
or liability (including all expenses reasonably incurred in investigating,
preparing or defending against any claim whatsoever) to which they may become
subject under the Securities Act, the Exchange Act or otherwise, arising solely
from the inclusion in such registration statement of information furnished in
writing by or on behalf of such Participant, or its successors or assigns,
specifically for use in such registration statement; provided that each
Participant's liability hereunder shall not exceed the net proceeds of the sale
of Securities by such Participant pursuant to such registration statement.
(f) Nothing contained in this Agreement shall be
construed as requiring a Purchaser to convert its Shares prior to the initial
filing of any registration statement or the effectiveness thereof.
(g) In the case of an underwritten offering pursuant
to Section 4.1, if the managing underwriter with respect to such offering
requests in writing that the number of the Company's securities to be offered by
selling security holders in the registration be reduced because, in the judgment
of the managing underwriter, the proposed offering would be materially and
adversely affected, then such securities shall be reduced by such amount as the
managing underwriter may determine in writing so as to not materially and
adversely affect the proposed offering, which reduced number of securities shall
be included in the offering, selected, first, from any persons or entities
participating in such offering pursuant to demand registration rights and, next,
to the extent available, among the other selling security holders participating
in such offering, as
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nearly as possible pro rata, on the basis of the number of the Company's
securities so requested by each holder thereof to be included therein.
(h) Each Participant, if, as and when its Securities
are covered by a registration statement filed pursuant to this Section 4, agrees
if and to the extent requested by the managing underwriter, in the case of an
underwritten sale of its Securities (to the extent timely notified in writing by
the Company or the managing underwriter), not to effect any public sale or
distribution of its Securities included in such registration statement,
including a sale pursuant to Rule 144 (or any similar rule then in force) under
the Act, except as part of such underwritten registration, during the 30-day
period prior to, and a period of up to 180 days (as determined by the managing
underwriter) beginning on, the effective date of any underwritten sale of its
Securities made pursuant to such registration statement.
5. Consent. Each Purchaser hereby consents to the increase of
the authorized shares for issuance of the Series D Preferred Stock, par value
$.01 from 100,000 shares to 150,000 shares, provided that, a majority of the
Board of Directors of the Company at such later date deems such increase
necessary in the Board of Directors' business judgment and the Board of
Directors approves such increase.
6. General Provisions.
6.1 Entire Agreement; Amendment and Waiver. This Agreement
constitutes the entire agreement between the parties hereto with respect to the
subject matter contained herein and supersedes all prior oral or written
agreements, if any, between the parties hereto with respect to such subject
matter and, except as otherwise expressly provided herein, is not intended to
confer upon any other person any rights or remedies hereunder. Any amendments
hereto or modifications hereof must be made in writing and executed by each of
the parties hereto. Any failure by the Company or the Purchasers to enforce any
rights hereunder shall not be deemed a waiver of such rights.
6.2 Notices. Unless otherwise provided, any notice required
or permitted under this Agreement shall be given in writing and shall be deemed
effectively given (i) upon personal delivery to the party to be notified, (ii)
four (4) days after deposit with the United States Post Office, by registered or
certified mail, postage prepaid, or (iii) one day after deposit with a reputable
overnight courier service and addressed to the party to be notified at the
address indicated for such party on the signature page hereof, or at such other
address as such party may designate by ten (10) days' advance written notice to
the other parties, with a copy (which shall not constitute notice) for the
Company to Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New
York, New York 10022-1170, Attention: Steve Wolosky, Esq.
6.3 Governing Law. This Agreement shall be governed by, and
construed in accordance with, the laws of the State of New York without giving
effect to conflict of laws principles.
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6.4 Binding Effect; Assignment. This Agreement and the
various rights and obligations arising hereunder shall inure to the benefit of
and be binding upon the Company and the Purchasers and each of their respective
successors and assigns. Neither this Agreement nor any of the rights, interests
or obligations hereunder shall be transferred or assigned (by operation of law
or otherwise) by any of the parties hereto without the prior written consent of
the other parties hereto. Any transfer or assignment of any of the rights,
interests or obligations hereunder in violation of the terms hereof shall be
void and of no force or effect.
6.5 Expenses. All costs and expenses incurred in connection
with this Agreement and the transactions contemplated hereby shall be paid by
the party incurring such costs and expenses.
6.6 Headings. The headings or captions contained in this
Agreement are for reference purposes only and shall not affect in any way the
meaning or interpretation of this Agreement.
6.7 Pronouns. Whenever the pronouns "it" or "its" are used
herein, they shall also be deemed to mean "he" or "his" or "she" or "hers"
whenever applicable. Words in the singular shall be read and construed as though
in the plural and words in the plural shall be read and construed as though in
the singular in all cases where they would so apply.
6.8 Severability. If any term or other provision of this
Agreement is invalid, illegal or incapable of being enforced by virtue of any
rule of law, or public policy, all other conditions and provisions of this
Agreement shall nevertheless remain in full force and effect so long as the
economic or legal substance of the transactions contemplated hereby is not
affected in any manner adverse to any party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that the transactions contemplated hereby are
fulfilled to the maximum extent possible.
6.9 Information Confidential. Each Purchaser acknowledges
that the information received by it pursuant hereto may be confidential and is
for such Purchaser's use only. Such Purchaser agrees that it will not use such
information in violation of the Exchange Act, or reproduce, disclose or
disseminate such information to any other person , unless the Company has made
such information available to the public generally.
6.10 Counterparts. This Agreement may be executed in one or
more counterparts, each of which shall be deemed an original, but all of which
taken together shall constitute one and the same instrument.
[Remainder of this page intentionally left blank]
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<PAGE>
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
IN WITNESS WHEREOF, the parties have executed this Agreement
as of the date first above written.
COMPANY:
DELICIOUS BRANDS, INC.
By:
------------------------------------------
Name:
Title:
Address:
PURCHASERS:
---------------------------------------------
Name:
Address:
---------------------------------------------
Name:
Address:
-11-
4
ASSET PURCHASE AGREEMENT
By and Between
Delicious Brands, Inc.,
and
BF USB Inc.
THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of April
5, 2000, is by and between BF USB Inc., a Delaware corporation ("Purchaser"),
and Delicious Brands, Inc., a Delaware corporation ("Seller"). Seller and
Purchaser may hereinafter be referred to collectively as "Parties" and
individually as a "Party".
WHEREAS, the Parties wish to provide for the terms and conditions
upon which Purchaser will acquire substantially all of the assets of Seller.
WHEREAS, the Parties wish to make certain representations,
warranties, covenants and agreements in connection with the purchase of the
assets and also to prescribe various terms and conditions to such transaction.
NOW THEREFORE, in consideration of the mutual covenants and promises
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the Parties hereby agree as
follows:
Section 1
Premises, Exhibits and Schedules
The premises, Exhibits and Schedules hereto constitute an integral
and substantive part of this Agreement.
Section 2
Definitions
2.1 Certain Defined Terms. As used in this Agreement, the term:
(a) "AAA" shall have the meaning set forth in Section 11(l).
(b) "Agreement" shall have the meaning set forth in the preamble.
(c) "Allocation Certificate" shall have the meaning set forth in
Section 3(e).
(d) "Antitrust Division" shall have the meaning set forth in
Section 6(f).
(e) "Appointing Authority" shall have the meaning set forth in
Section 11(l).
(f) "Assigned Contracts" shall have the meaning set forth in
Exhibit 3(a)(ii).
(g) "Assumed Liabilities" shall have the meaning set forth in the
Liability Undertaking.
(h) "Auditor" shall have the meaning set forth in Section 3(c).
(i) "Audited Closing Balance Sheet" shall have the meaning set
forth in Section 3(c).
(j) "Authority" and "Authorities" shall have the meanings set
forth in Section 4(e).
<PAGE>
(k) "Bank" shall have the meaning set forth in Section 6(o).
(l) "Bank Extension" shall have the meaning set forth in Section
6(o).
(m) "Basket Amount" shall have the meaning set forth in Section
10(f).
(n) "Benefit Arrangement" shall have the meaning set forth in
Section 4(r)(iv).
(o) "Benefit Plans" shall have the meaning set forth in Section
4(r)(xii).
(p) "Break-up Fee" shall have the meaning set forth in Section
6(c)(ii).
(q) "Business Day" shall mean a day, other than a Saturday or a
Sunday, on which commercial banks are not closed in New York City, U.S.A. and in
the City of Parma, Italy.
(r) "Closing" shall have the meaning set forth in Section 3(d).
(s) "Closing Date" shall have the meaning set forth in Section
3(d).
(t) "Closing Working Capital Balance Adjustment" shall have the
meaning set forth in Section 3(c).
(u) "Closing Working Capital Balance/(Deficit)" shall have the
meaning set forth in Section 3(c).
(v) "COBRA" shall have the meaning set forth in Section 4(r)(xii).
(w) "Code" shall have the meaning set forth in Section 4(r)(i).
(x) "Consent" and "Consents" shall have the meaning set forth in
Section 4(f).
(y) "Disclose" shall have the meaning set forth in Section 6(e).
(z) "Disclosure Schedule" shall have the meaning set forth in
Section 4(a).
(aa) "DOL" shall have the meaning set forth in Section 4(r)(i)(B).
(bb) "Dollars" and "$" shall mean lawful money of the United States
of America.
(cc) "ERISA" shall have the meaning set forth in Section 4(r)(i).
(dd) "Escrow Account" shall have the meaning set forth in Section 3
of the Escrow Agreement.
(ee) "Escrow Agent" shall have the meaning ascribed thereto in the
preamble of the Escrow Agreement.
(ff) "Escrow Agreement" shall mean the escrow agreement
substantially in the form of Exhibit 7(g) hereto and to be delivered by the
parties at Closing pursuant to this Agreement.
(gg) "Escrow Amount" shall have the meaning set forth in Section
3(b)(A)(ii).
(hh) "Estimated Closing Working Capital Balance/(Deficit)" shall
have the meaning set forth in Section 3 (c).
(ii) "Excluded Assets" shall have the meaning set forth in Section
3(a)(iv).
(jj) "FTC" shall have the meaning set forth in Section 6(f).
(kk) "GAAP" and "general accepted accounting principles" shall have
the meaning set forth in Section 2.2.
(ll) "Hazardous Material" shall have the meaning set forth in
Section 4(z)(i).
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<PAGE>
(mm) "HSR Act" shall have the meaning set forth in Section 3(d).
(nn) "Indemnified Party" shall have the meaning set forth in
Section 10(g).
(oo) "Indemnifying Party" shall have the meaning set forth in
Section 10(g).
(pp) "Independent Accountants" shall have the meaning set forth in
Section 3(c).
(qq) "Information" shall have the meaning set forth in Section
6(e).
(rr) "IP Assignments" shall have the meaning set forth in Section
3(a)(iii).
(ss) "Intellectual Property Rights" shall have the meaning set
forth in Section 4(n).
(tt) "Latest Balance Sheet" shall have the meaning set forth in
Section 4(g).
(uu) "Law" and "Laws" shall have the meaning set forth in Section
4(e).
(vv) "Liability Undertaking" shall have the meaning set forth in
Section 3(b)(B).
(ww) "Lien" shall mean any restriction on personal or real property
of any kind, including without limitation, any mortgage, pledge, lien,
hypothecation, security interest, encumbrance, claim of any kind, easement,
right-of-way, tenancy, covenant, encroachment, restriction or charge of any kind
or nature (whether or not of record).
(xx) "Loss Contingency" shall have the meaning set forth in Section
4(h).
(yy) "New Name" shall have the meaning set forth in Section 7(j).
(zz) "Party" or "Parties" shall have the meaning set forth in the
preamble.
(aaa) "Payoff Schedule" shall have the meaning set forth in Section
6(q).
(bbb) "PBGC" shall have the meaning set forth in Section 4(r)(i)(B).
(ccc) "Pension Plan" shall have the meaning set forth in Section
4(r)(i).
(ddd) "Permitted Liens" shall have the meaning set forth in Section
3(a).
(eee) "Properties" shall have the meaning set forth in Section
4(z)(i).
(fff) "Purchase Price" shall have the meaning set forth in Section
3(b)(A).
(ggg) "Purchaser" shall mean BF USB Inc. or any other entity that:
(A) (x) owns or controls BF USB Inc.; (y) BF USB Inc. owns or controls; or (z)
is owned and controlled by the same parent company or companies or the same
ultimate beneficial owner as BF USB Inc., and (B) to which BF USB Inc. may have
assigned this Agreement as of the Closing.
(hhh) "Reserve Escrow Agreement" shall have the meaning set forth in
Section 6(n).
(iii) "Seller" shall mean Delicious Brands, Inc.
(jjj) "Seller's Assets" shall have the meaning set forth in Section
3(a).
(kkk) "Seller Capital Stock" shall have the meaning set forth in
Section 4(c).
(lll) "Special Reserve Fund" shall have the meaning set forth in
Section 6(n).
(mmm) "Subsidiary" and "Subsidiaries" shall have the meaning set
forth in Section 4(b).
(nnn) "Tax Returns" shall have the meaning set forth in Section
4(p).
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<PAGE>
(ooo) "Third Party" shall have the meaning set forth in Section
6(c)(i)(A).
(ppp) "Termination Date" shall have the meaning set forth in Section
3(d).
(qqq) "Treasury" shall have the meaning set forth in Section
4(r)(i)(B).
(rrr) "Transferred Employees" shall have the meaning set forth in
Section 6(l)(i).
(sss) "Welfare Plan" shall have the meaning set forth in Section
4(r)(iii).
(ttt) "Worth Agreements" shall have the meaning set forth in Section
6(p)(ii).
2.2 Accounting Terms and Determinations. All references in this
Agreement to "generally accepted accounting principles" or "GAAP" shall mean
generally accepted accounting principles in effect in the United States of
America at the time of application thereof. Unless otherwise specified herein,
all accounting terms used herein shall be interpreted, all determinations with
respect to accounting matters hereunder shall be made, and all financial
statements and certificates and reports as to financial matters required to be
furnished hereunder shall be prepared, in accordance with generally accepted
accounting principles, applied on a consistent basis.
Section 3
Purchase of Assets
(a) Assets to be Purchased. Upon the terms and subject to the
conditions set forth in this Agreement (other than such conditions as shall have
been waived in accordance with the terms hereof), Seller shall sell, transfer,
convey, assign and deliver to Purchaser, and Purchaser shall purchase from
Seller, at the Closing hereunder, all of the assets, properties, goodwill and
rights of Seller, as a going concern, of every nature, kind and description,
tangible and intangible, wheresoever located and whether or not carried or
reflected on the books and records of Seller (hereinafter sometimes collectively
referred to as "Seller's Assets"), including without limitation (i) the right to
use the names and all variations thereof listed on Exhibit 3(a)(i) hereto; (ii)
the assets referred to in the form(s) of Bill (or Bills) of Sale listed on
Exhibit 3(a)(ii) hereto; (iii) the trademarks, licenses, and other Intellectual
Property Rights set forth in the assignment and transfer documents set forth in
Exhibit 3(a)(iii) (the "IP Assignments"); and (iv) the assets reflected on the
Latest Balance Sheet, with only such dispositions of such assets as shall have
occurred in the ordinary course of Seller's business between December 31, 1999
and the Closing and which are permitted by the terms hereof; and excluding only
(x) the minute books, corporate seal and stock records of Seller, and (y) the
assets specifically set forth on Exhibit 3(a)(iv) hereto (the assets referred to
in Sections 3(a)(iv)(x) and (y), hereinafter, collectively, the "Excluded
Assets"). All real property assets and fixtures included among Seller's Assets
shall be conveyed free and clear of any Lien, except for those Liens described
on Exhibit 3(a) hereto (the "Permitted Liens"). All machinery, equipment,
vehicles and other personal property, including without limitation inventories,
accounts and notes receivable, trade notes, trade accounts and Intellectual
Property Rights, shall be conveyed free and clear of any Liens except for the
Permitted Liens. Purchaser shall not assume any liabilities of Seller whether or
not associated with Seller's Assets or in any other way associated with Seller
or any of its businesses except as specifically set forth in the Liability
Undertaking set forth in Exhibit 3(b)(B).
(b) Purchase Price. Upon the terms and subject to the conditions set
forth in this Agreement, in consideration for Seller's Assets and the covenants
contained herein (including, without limitation, the restrictive covenants set
forth in the Noncompetition and Confidentiality Agreement of the Seller and the
covenant to procure the other Noncompetition and Confidentiality
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<PAGE>
Agreements set forth on Exhibit 7(h)) and in full payment thereof, at Closing,
Purchaser shall:
(A) pay to Seller a total purchase price of Twenty Six
Million Six Hundred Eighty Thousand Dollars ($26,680,000) (the
"Purchase Price") as follows:
(i) By federal wire transfer of immediately
available funds to the account(s) designated
by Seller (including pursuant to Section
6(q)(i)(z)) by written notice to be
delivered to Purchaser at least five (5)
Business Days prior to Closing, the sum of
the Purchase Price, less (1) (x) the amount
of One Million Seven Hundred Thousand
Dollars ($1,700,000) representing the agreed
upon working capital adjustment, plus or
less (as the case may be), (y) the Estimated
Closing Working Capital Balance/(Deficit)
pursuant to Section 3(c); and less (2) the
Escrow Amount to be deposited pursuant to
subparagraph (ii) below.
(ii) By federal wire transfer of immediately
available funds to the Escrow Account, the
sum of Five Million Three Hundred Thirty-Six
Thousand Dollars ($5,336,000) (the "Escrow
Amount");
and
(B) execute and deliver to Seller a Liability
Undertaking in the form of Exhibit 3(b)(B) hereto ("Liability Undertaking").
(c) Closing Working Capital Balance Adjustment. The "Closing Working
Capital Balance Adjustment" shall be the amount stated in Exhibit 3(c),
Paragraph C, Item VI(c), equaling to the difference between: (x) the "Estimated
Closing Working Capital Balance/(Deficit)", as stated on Exhibit 3(c), Paragraph
C, Item V(a), and (y) the "Closing Working Capital Balance/(Deficit)", as stated
in Exhibit 3(c), Paragraph C, Item V(b). The Estimate Closing Working Capital
Balance/(Deficit) is Seller's estimate of the Closing Working Capital
Balance/(Deficit) calculated pursuant to Exhibit 3(c) using the figures notified
by Seller to Purchaser at least five (5) Business Days prior to Closing. The
Closing Working Capital Balance/(Deficit) shall be calculated using the figures
set forth in the Seller's Audited Closing Balance Sheet and the Closing Working
Capital Balance Adjustment shall be due to (xx) Purchaser, if positive, or (yy)
Seller, if negative, pursuant to Section 10(d). Within forty-five (45) days
after the Closing Date, Seller shall deliver to Purchaser a (consolidated)
balance sheet for the Seller (and its Subsidiaries) as of 11:59 p.m. of the day
immediately prior to the Closing Date (the "Audited Closing Balance Sheet"),
prepared by Seller in accordance with GAAP and consistently with the method of
preparation of the Latest Balance Sheet; provided, however, that audit fees and
expenses with respect to the audit of the Audited Closing Balance Sheet, any
entries or adjustments by reason of any Code election, any entries or
adjustments by reason of a change in the business or operations of Seller after
the Closing and any finders or brokers or similar fees and all legal fees and
expenses payable by Seller in connection with the transactions contemplated
hereby shall not be included in such Audited Closing Date Balance Sheet. The
Audited Closing Date Balance Sheet shall be audited by auditors appointed by
Seller (the "Auditor"). All Parties shall have the right to review the Auditor's
audit work papers. Auditor shall prepare a computation of the Closing Working
Capital Balance Adjustment based on the Audited Closing Balance Sheet and in
accordance with the terms of this Agreement and shall submit such computation to
Purchaser and Seller in writing at the same time that copies of the Audited
Closing Balance Sheet are delivered. The Audited Closing Balance Sheet shall
become
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<PAGE>
final and binding upon the parties unless, within thirty (30) days following
submission of the Audited Closing Balance Sheet and the Closing Working Capital
Balance Adjustment calculation, a Party notifies the other Party in writing of
its objection thereto (the "First Notification"). The Parties shall negotiate in
good faith to resolve their differences. If the Parties are unable to resolve
their differences within twenty (20) days of receipt of the First Notification
by the non-objecting Party, the Parties shall submit the dispute to an
independent accounting firm mutually selected by the Parties (the "Independent
Accountants") for resolution. The Independent Accountants shall be limited to
determining whether the Audited Closing Balance Sheet was prepared in accordance
with GAAP and consistently with the method of preparation of the Latest Balance
Sheet, and the calculation of the Closing Working Capital Balance Adjustment was
calculated appropriately from the figures contained in the Audited Closing
Balance Sheet and pursuant to the method set forth in Exhibit 3(c). The Parties
shall instruct the Independent Accountants to use their reasonable efforts to
make their determination within thirty (30) days of submission. The
determination of the Independent Accountants shall be final and non-appealable,
and shall be binding upon the Parties. The fees and expenses of the Independent
Accountants shall be divided and paid equally by Seller and Purchaser.
(d) Closing. Unless this Agreement shall have been terminated and
the transactions contemplated herein shall have been abandoned pursuant to
Section 9 hereof, a closing (the "Closing") will be held as soon as practicable
but in no event later than May 31, 2000 (the "Closing Date"), provided, however,
that if any of the conditions provided for in Section 7 and Section 8 hereof
shall not have been satisfied or waived by such date, then the Party to this
Agreement that is unable to satisfy such condition or conditions, despite the
best efforts of such Party, shall be entitled to postpone the Closing by notice
to the other Parties until such condition or conditions shall have been
satisfied (which such notifying Party will seek to cause to happen at the
earliest practicable date) or waived, but in no event shall the Closing occur
later than the "Termination Date" which shall be the later to occur of: (i) ten
(10) days after the expiration of the waiting period (including any extension
thereof by reason of a request for further information) under the Hart-Scott
Rodino Antitrust Improvements Act of 1976, as amended, and the rules and
regulations promulgated thereunder (the "HSR Act"), and (ii) five (5) Business
Days after any necessary authority and approval of Seller's shareholders of this
Agreement and the transactions contemplated herein, but in no event later than
June 15, 2000, unless the Parties shall agree in writing to extend the date of
such Closing. The Closing shall be held at the offices of BBLP-Pavia e Ansaldo
at the address set forth in Section 11(e) or at such other location as the
Parties may agree in writing, at 10:00 a.m., local time or such other time as
the Parties may agree, at which time and place the documents and instruments
necessary or appropriate to effect the transactions contemplated herein will be
exchanged by the Parties.
(e) Allocation. Seller and Purchaser agree that the consideration
paid to Seller pursuant to this Section 3 shall be allocated for purposes of
this Agreement and for federal, state and local tax purposes as set forth on the
Allocation Certificate attached hereto as Exhibit 3(e) (the "Allocation
Certificate"). The Allocation Certificate shall be completed on or before the
Closing Date. Purchaser and Seller shall file all federal, state and local tax
returns in accordance with the allocation set forth on the Allocation
Certificate.
Section 4
Representations and Warranties of Seller
Seller hereby represents and warrants to Purchaser as of the date
hereof as follows:
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<PAGE>
(a) Disclosure Schedule. The disclosure schedule marked as Exhibit 4
hereto (the "Disclosure Schedule") is divided into "parts" which correspond to
the subsections of this Section 4. The Disclosure Schedule includes all
information concerning Seller and each of its subsidiaries which is responsive
to each section hereof to make such Disclosure Schedule accurate and complete in
all material respects for each such part.
(b) Corporate Organization. The Disclosure Schedule sets forth each
Subsidiary (as defined below) of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the state of its
incorporation, has full corporate power and authority to carry on its business
as it is now being conducted and to own, lease and operate its properties and
assets, is duly qualified or licensed to do business as a foreign corporation in
good standing in every other jurisdiction in which the character or location of
the properties and assets owned, leased or operated by it or the conduct of its
business requires such qualification or licensing, except in such jurisdictions
in which the failure to be so qualified or licensed and in good standing would
not, individually or in the aggregate, have a material adverse effect on its
condition (financial or otherwise), results of operations, assets, properties
and going concern value; and has heretofore delivered to Purchaser complete and
correct copies of its articles or certificate of incorporation and bylaws, as
presently in effect. The Disclosure Schedule contains for Seller and its
subsidiaries a list of all jurisdictions in which each is qualified or licensed
to do business. The Disclosure Schedule sets forth the name and jurisdiction of
incorporation of each corporation as to which more than fifty percent (50%) of
the outstanding equity securities having ordinary voting rights or power at the
time of determination is being made is owned or controlled, directly or
indirectly, by Seller (individually, a "Subsidiary" and collectively, the
"Subsidiaries"). Except as set forth in the Disclosure Schedule, in the case of
each Subsidiary: (i) all outstanding capital stock and other equity securities
are owned or controlled directly or indirectly by Seller; (ii) there are no
contractual or consensual limitations on Seller's ability to vote or alienate
such securities; (iii) there are no outstanding options, warrants or other
rights to purchase or acquire securities of such corporation or securities owned
or held by Seller; (iv) there are no other contractual or consensual charges or
impediments which would materially limit or impair the ownership of such equity
interests or the ability effectively to exercise the full rights of ownership or
control of such equity interests, including without limitation any voting
trusts, voting agreements, or rights of first refusal or first option; and (v)
there are no contracts, commitments, understandings, arrangements or
restrictions by which any such corporation is bound to issue, sell, transfer or
to purchase or acquire any shares of its capital stock or other equity
securities or options, warrants or rights. Except as set forth on the Disclosure
Schedule, all shares of capital stock and other equity interests of each
Subsidiary are owned or controlled directly or indirectly by Seller free and
clear of all Liens. Except as set forth in the Disclosure Schedule, all of the
outstanding capital stock of Seller and each Subsidiary is duly authorized,
validly issued, fully paid, nonassessable and was not issued in violation of
preemptive rights.
(c) Capitalization. All authorized capital stock of Seller of all
classes ("Seller Capital Stock") is set forth on the Disclosure Schedule. The
number of shares of capital stock of Seller outstanding and the number of shares
of capital stock of Seller held in treasury as of the date of this Agreement are
set forth on the Disclosure Schedule. All issued and outstanding shares of
capital stock of Seller are duly authorized, validly issued, fully paid,
nonassessable and are without, and were not issued in violation of, preemptive
rights. Except as set forth on the Disclosure Schedule: (x) there are no shares
of capital stock or other equity securities of Seller outstanding or any
securities convertible into or exchangeable for such shares, securities or
rights; (y) there are no outstanding options, warrants, conversion privileges or
other rights to purchase or acquire any capital stock or other equity securities
of Seller granted by Seller, or any securities convertible into or exchangeable
for such shares, securities or rights; and (z) there are no contracts,
commitments, understandings, arrangements or restrictions by which Seller is
bound to issue or acquire any additional shares of its capital stock or other
equity securities or any options, warrants, conversion privileges or other
rights to
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<PAGE>
purchase or acquire any capital stock or other equity securities of Seller or
any securities convertible into or exchangeable for such shares, securities or
rights.
(d) Authorization. Seller has full corporate power and authority to
enter into this Agreement and to carry out the transactions contemplated herein.
The Board of Directors of Seller has taken all action required by law, its
articles or certificate of incorporation and bylaws and otherwise to authorize
the execution, delivery and performance of this Agreement and the consummation
of the transactions contemplated herein. This Agreement has been duly and
validly executed and delivered by Seller and no other corporate action is
necessary other than approval of the Shareholders of Seller. This Agreement is
the valid and binding legal obligation of Seller, enforceable against Seller in
accordance with its terms, except that such enforceability may be subject to (i)
applicable bankruptcy, insolvency, reorganization, fraudulent transfer,
conveyance or moratorium or other similar laws affecting or relating to the
enforcement of creditor's rights generally, (ii) general principles of equity
relating to enforceability (regardless of whether considered in a proceeding at
law or equity) and (iii) as rights to indemnity may be limited by federal and
state securities laws and public policy.
(e) Non-Contravention. Except as set forth in the Disclosure
Schedule, neither the execution, delivery and performance of this Agreement nor
the consummation of the transactions contemplated herein will: (i) violate or be
in conflict with any provision of the articles or certificate of incorporation
or bylaws of Seller or the certificates of the designations, powers, preferences
and rights of any outstanding series of stock or other securities of Seller
(including, without limitation, the Series A, B, C, and D Convertible Preferred
Stock); or (ii) be in conflict with, or constitute a default, however defined
(or an event which, with the giving of due notice or lapse of time, or both,
would constitute such a default), under, or cause or permit the acceleration of
the maturity of, or give rise to any right of termination, cancellation,
imposition of fees or penalties under, any debt, note, bond, lease, mortgage,
indenture, license, obligation, contract, commitment, franchise, permit,
instrument or other agreement or obligation (including without limitation any
agreement with stockholders) to which Seller is a party or by which its
properties or assets are or may be bound (unless with respect to which defaults
or other rights, requisite waivers or consents shall have been obtained at or
prior to the Closing) or result in the creation or imposition of any third party
claim or cause of action against Seller or Purchaser (which in the aggregate
would result in a loss in excess of Ten Thousand Dollars ($10,000)), or Liens
(which in the aggregate would encumber assets of Seller in excess of Ten
Thousand Dollars ($10,000)), upon any property or asset of Seller under any
debt, obligation, contract, agreement or commitment to which Seller is a party
or by which Seller or any of its assets or properties is or may be bound; or
(iii) to the best of Seller's knowledge, violate any statute, treaty, law,
judgment, writ, injunction, decision, decree, order, regulation, ordinance or
other similar authoritative matters (sometimes hereinafter separately referred
to as a "Law" and sometimes collectively as "Laws") of any foreign, federal,
state or local governmental or quasi-governmental, administrative, regulatory or
judicial court, department, commission, agency, board, bureau, instrumentality
or other authority (hereinafter sometimes separately referred to as an
"Authority" and sometimes collectively as "Authorities").
(f) Consents and Approvals. Except as set forth in the Disclosure
Schedule, with
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respect to Seller, no consent, approval, order or authorization of or from, or
registration, notification, declaration or filing with (hereinafter sometimes
separately referred to as a "Consent" and sometimes collectively as "Consents")
any individual or entity, including without limitation any Authority, is
required in connection with the execution, delivery or performance of this
Agreement by Seller or the consummation by Seller of the transactions
contemplated herein, other than shareholder approval or consents which if not
made or obtained, will not, individually or in the aggregate, have a material
adverse effect on the business of Seller and its Subsidiaries taken as a whole.
(g) Financial Statements. Seller has furnished to Purchaser the
(consolidated) balance sheets and statements of operations (or income or loss),
changes in shareholders' equity and changes in cash flow (or financial position)
and the reports of independent public accountants described on the Disclosure
Schedule. The most recent audited (consolidated) balance sheet provided by
Seller to Purchaser shall be for the period ending December 31, 1999 and is
referred to herein as the "Latest Balance Sheet". Prior to Closing, Seller will
furnish the (consolidated) financial statements and the reports of independent
public accountants described on the Disclosure Schedule to the Purchaser. Except
as disclosed therein, the aforesaid financial statements (i) are or will be, as
the case may be, in accordance with the books and records of Seller and have
been, or will be, as the case may be, prepared in conformity with GAAP
consistently applied for all periods, and (ii) fairly present and will fairly
present, as the case may be, the (consolidated) financial position of Seller as
of the respective dates thereof, and the (consolidated) results of operations
(or income or loss), changes in shareholders' equity and changes in cash flow
(or financial position) for the periods then ended, all in accordance with
generally accepted accounting principles consistently applied for all periods.
(h) Loss Contingencies; Other Non-Accrued Liabilities; Employee
Accruals. Except for those items listed in subparagraphs (i), (ii) and (iii)
below which do not exceed individually or in the aggregate Ten Thousand Dollars
($10,000), and except as described in the Disclosure Schedule, Seller does not
have (i) any loss contingencies which are not required by GAAP to be accrued;
(ii) any loss contingencies involving an unasserted claim or assessment (known
to Seller) which are not required by GAAP to be disclosed because the potential
claimants have not manifested to Seller an awareness of a possible claim or
assessment; or (iii) any categories of liabilities or obligations which are not
required by GAAP to be accrued. For purposes of this Agreement, "Loss
Contingency" shall have the meaning accorded to it by GAAP. All accruals for
unpaid vacation pay; premiums for employment insurance; health premiums; accrued
wages, salaries and commissions; and employee benefit plan payments have been
reflected in the books and records of Seller.
(i) Absence of Certain Changes. Except as set forth in the
Disclosure Schedule, since the date of the Latest Balance Sheet, Seller has
owned and operated its assets, properties and businesses in the ordinary course
of business and consistent with past practice; without limiting the generality
of the foregoing, Seller has not, subject to the aforesaid exceptions:
(i) suffered, as of the date hereof, any adverse change in its
condition (financial or otherwise), assets or properties or experienced any
event or failed to take any action which reasonably could be expected to result
in such a change that results in a cost in excess of Five Thousand Dollars
($5,000) individually, or Ten Thousand Dollars ($10,000) in the aggregate other
than in the ordinary course of business;
(ii) other than in the ordinary course of business, suffered
any loss, damage, destruction or other casualty (whether or not covered by
insurance) or any loss of
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officers, employees, dealers, distributors, independent contractors, customers,
or suppliers which, individually or in the aggregate, could have a material
adverse effect on its business or operations,;
(iii) declared, set aside, made or paid any dividend or other
distribution in respect of its capital stock; or purchased or redeemed any
shares of its capital stock;
(iv) issued or sold any shares of its capital stock, or any
options, warrants, conversion, exchange or other rights to purchase or acquire
any such shares or any securities convertible into or exchangeable for such
shares;
(v) incurred any indebtedness for borrowed money;
(vi) mortgaged, pledged, or subjected to any Lien, or lease,
any of its properties or assets, tangible or intangible;
(vii) acquired or disposed of any assets or properties valued
in excess of Fifteen Thousand Dollars ($15,000) other than in the ordinary
course of business;
(viii) forgiven or canceled any debts or claims, or waived any
rights;
(ix) entered into any transaction in excess of Twenty-Five
Thousand Dollars ($25,000) other than in the ordinary course of business;
(x) granted to any officer or salaried employee or any other
employee any increase in compensation in any form or paid any severance or
termination pay other than in the ordinary course of business;
(xi) entered into any commitment for capital expenditures for
additions to plant, property or equipment in excess of twenty-five thousand
dollars ($25,000); or
(xii) agreed, whether in writing or otherwise, to take any
action described in this subsection.
(j) Real Properties. Except as set forth in the Disclosure Schedule,
Seller has good and marketable fee simple record title in and to, or a leasehold
interest in and to, all of their real property and real property assets and
fixtures reflected in the Latest Balance Sheet and all of their real property
assets and fixtures purchased or otherwise acquired since the date of the Latest
Balance Sheet (except for real property assets and fixtures sold in the ordinary
course of business since the date of the Latest Balance Sheet). Except as set
forth in the Disclosure Schedule, such leasehold interests are valid and in full
force and effect and, to the best of Seller's knowledge, enforceable in
accordance with their terms and there does not exist any violation, breach or
default thereof or thereunder. Except as set forth in the Disclosure Schedule,
none of the real property assets or fixtures owned by Seller is subject to any
Lien except for Permitted Liens. Except as set forth in the Disclosure Schedule,
to the best of Seller's knowledge, all real properties owned by and leased to
Seller used in the conduct of its business are free from structural defects, in
good operating condition and repair, with no maintenance, repair or replacement
having an estimated cost exceeding Twenty Five Thousand Dollars ($25,000) in the
aggregate having been deferred or neglected, suitable for the intended use and
free from other material defects. Except as set forth in the Disclosure
Schedule, to the best of Seller's knowledge, each such real property and its
present use conform in all respects to all occupational, safety or health,
zoning, planning, subdivision, platting and similar Laws. Except as set forth in
the Disclosure Schedule, all public utilities necessary for the use and
operation of any facilities on the aforesaid real properties are, to the best of
Seller's knowledge, available for
10
<PAGE>
use or access at such properties and there is no legal or physical impairment to
free ingress or egress from any of such facilities or real properties. Seller is
not a foreign person and is not controlled by a foreign person, as the term
"foreign person" is defined in Section 1445(f)(3) of the Code.
(k) Machinery, Equipment, Vehicles and Personal Property. Except as
set forth in the Disclosure Schedule, Seller has good and merchantable right,
title and interest in and to, or a leasehold interest in and to, all its
machinery, equipment, vehicles and other personal property reflected in the
Latest Balance Sheet and purchased or otherwise acquired since the date of the
Latest Balance Sheet (except for such items sold or leased in the ordinary
course of business since the date of the Latest Balance Sheet). Except as set
forth in the Disclosure Schedule, all of such leasehold interests relating to
machinery, equipment, vehicles and other personal property are valid and in full
force and effect and enforceable in accordance with their terms and there does
not exist any violation, breach or default thereof or thereunder. Except as set
forth in the Disclosure Schedule, none of such machinery, equipment, vehicles or
other personal property owned by Seller is subject to any Lien except for
Permitted Liens. Except as set forth in the Disclosure Schedule, the machinery,
equipment, vehicles and other personal property of Seller which are necessary to
the conduct of its business are in good operating condition and repair and
readily usable for the intended purposes thereof and no necessary maintenance,
replacement or repair has been deferred or neglected.
(l) Inventories. Except as set forth in the Disclosure Schedule:
(i) all inventory of Seller, whether reflected in the Latest
Balance Sheet or otherwise, consists of a quality and quantity usable and
salable on normal trading terms in the industry; and the present quantities of
all Seller's inventory are reasonable in the present circumstances of the
business as currently conducted or as proposed to be conducted.
(ii) none of Seller's inventory is being held or is otherwise
regularly held by any third party whatsoever on a consignment basis.
(iii) Seller owns free of all Liens, all packaging inventory and
related materials maintained by suppliers and other third party packers or
co-packers held for Seller as shown on the Latest Balance Sheet.
(m) Receivables and Payables. Except as set forth on the Disclosure
Schedule: (A) Seller has good right, title and interest in and to all its
accounts and notes receivable and trade notes and trade accounts reflected in
the Latest Balance Sheet and those acquired and generated since the date of the
Latest Balance Sheet (except for those paid since the date of the Latest Balance
Sheet); (B) none of such accounts and notes receivable and trade notes and trade
accounts is subject to any Lien other than Permitted Liens; (C) except to the
extent of applicable reserves shown in the Latest Balance Sheet, all of the
accounts and notes receivable, trade notes and trade accounts owing to Seller
constitute valid and enforceable claims arising from bona fide transactions in
the ordinary course of business, and, to the best of Seller's knowledge, there
are no claims, refusals to pay or other rights of set-off against any thereof;
(D) no account or note debtor whose account or note balance exceeds Twenty-Five
Thousand Dollars ($25,000) has been delinquent in payment by more than sixty
(60) days; (E) the aging schedules of (x) the accounts, trade notes and trade
accounts of Seller previously furnished to Purchaser on March 6, 2000 for the
period ended March 3, 2000 annexed to the Disclosure Schedule, and (y) the
accounts receivable of Seller furnished to Purchaser on March 6, 2000 for the
period ended February 29, 2000 annexed to the Disclosure Schedule, are complete
and accurate in all material respects; and (F) the reserves established
therefore and reflected in the Latest Balance Sheet are reasonable.
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(n) Intellectual Property Rights. Seller owns or has the right to
use (as specified in the Disclosure Schedule) the industrial and intellectual
property rights, including without limitation the patents, patent applications,
patent rights, trademarks, trademark applications, trade names, service marks,
service mark applications, copyrights, computer programs and other computer
software, inventions, know-how, trade secrets, technology, proprietary
processes, methods, systems, recipes, and formulae (collectively, "Intellectual
Property Rights") described on the Disclosure Schedule. Except as set forth on
the Disclosure Schedule, the use of all Intellectual Property Rights necessary
or required for the conduct of the businesses of Seller as presently conducted
and as proposed to be conducted does not and will not infringe or violate or
allegedly infringe or violate the intellectual property rights of any person or
entity. Except as described on the Disclosure Schedule, neither Seller nor any
Subsidiary owns or uses any Intellectual Property Rights pursuant to any license
agreement or has granted any person or entity any rights, pursuant to license
agreement or otherwise, to use the Intellectual Property Rights. Such agreements
as set forth on the Disclosure Schedule include written and oral agreements.
(o) Litigation. Except as set forth in the Disclosure Schedule,
there is no legal, administrative, arbitration, or other proceeding, suit, claim
or action of any nature or, to the best of Seller's knowledge, investigation,
review or audit of any kind, judgment, decree, decision, injunction, writ or
order pending, noticed, scheduled or, to the best of the Seller's knowledge,
threatened by or against or involving Seller, its assets, properties or
businesses or its directors, officers, agents or employees, whether at law or in
equity, before or by any person or entity or Authority, or which questions or
challenges the validity of this Agreement or any action taken or to be taken by
the Parties pursuant to this Agreement or in connection with the transactions
contemplated herein.
(p) Tax Returns. Seller has duly and timely filed all tax and
information reports, returns and related documents required to be filed by
Seller with respect to the income-type, sales/use-type and employment-related
taxes of the United States, the states, municipalities, and other foreign or
domestic jurisdictions set forth in the Disclosure Schedule (and the political
subdivisions thereof). Except as set forth in the Disclosure Schedule, Seller
has duly and timely filed all tax and information reports, returns and related
documents required to be filed by it with any Authority, including without
limitation all returns and reports of income, franchise, gross receipts, sales,
use, occupation, employment, withholding, excise, transfer, real and personal
property and other taxes, charges, assessments, and levies (collectively, the
"Tax Returns") and, except as set forth in the Disclosure Schedule, have duly
paid, or made adequate provision for the due and timely payment of all such
taxes and other charges, including without limitation interest, penalties,
assessments and deficiencies, due or claimed to be due from them by any such
Authorities, except where failure to pay would not result in a loss, cost, or
damages exceeding Ten Thousand Dollars ($10,000) in the aggregate; the reserves
for all of such taxes and other charges reflected in the Latest Balance Sheet
are adequate; and, to the best of Seller's knowledge, there are no Liens for
such taxes or other charges upon any property or assets of Seller. There is no
omission, deficiency, error, misstatement or misrepresentation, whether
innocent, intentional or fraudulent, in any Tax Return filed by Seller for any
period which could result in an actual tax liability in excess of Ten Thousand
Dollars ($10,000). The federal income tax returns (consolidated, if applicable)
of Seller have been examined by the Internal Revenue Service for all periods to
and including those expressly set forth in the Disclosure Schedule, and, except
to the extent shown therein, all deficiencies asserted as a result of such
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<PAGE>
examinations have been paid or finally settled and no issue has been raised by
the Internal Revenue Service in any such examination which, by application of
similar principles, reasonably could be expected to result in a proposed
deficiency for any other period not so examined. Except as set forth in the
Disclosure Schedule, all deficiencies and assessments levied or assessed to date
resulting from examination of the Tax Returns of Seller have been paid. Except
as set forth in the Disclosure Schedule, there are no outstanding agreements or
waivers extending the statutory period of limitation applicable to any Tax
Return for any period.
(q) Insurance. The Disclosure Schedule contains an accurate and
complete list of all policies of fire and other casualty, general liability,
theft, life, workers' compensation, health, directors and officers, business
interruption and other all other forms of insurance owned or held by Seller,
specifying the insurer, the policy number and the term of the coverage. All
present policies are in full force and effect and all premiums with respect
thereto have been paid. Seller has not been denied any form of insurance and no
policy of insurance has been revoked or rescinded during the past three (3)
years, except as described on the Disclosure Schedule.
(r) Benefit Plans. Except as set forth in the Disclosure Schedule:
(i) Seller does not sponsor, administer, maintain or contribute
to, nor has Seller at any time ever sponsored, administered, maintained,
contributed to, directly or indirectly, nor had an obligation to contribute or
been required to contribute to any "employee pension benefit plan" ("Pension
Plan", not including any union-sponsored plan) as such term is defined in
Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended
("ERISA"), or under which Seller may incur any liability, including without
limitation, solely for purposes of this subsection a plan excluded from coverage
by Section 4(b)(5) of ERISA and, including without limitation any such Pension
Plan which is a "Multiemployer Plan" within the meaning of Section 4001(a)(3) of
ERISA, without regard to whether or not any of the foregoing is funded, whether
formal or informal, whether or not subject to ERISA and whether legally binding
or not. Each such Pension Plan is in compliance with the applicable provisions
of ERISA, the applicable provisions of the Internal Revenue Code of 1986, as
amended, and the regulations promulgated thereunder (the "Code"), and all other
applicable Law. No Pension Plan is subject to Title IV of ERISA or to Section
412 of the Code. Seller has satisfied all payment and contribution obligations
for all union sponsored plans. Set forth on the Disclosure Schedule is a list of
all Union-sponsored pension plans to which Seller contributes or Seller's
employees are entitled to benefits, and
(A) Each Pension Plan which is intended to meet the
requirements of Section 401(a) and where applicable, Section 401(k)
of the Code, now meets and since its inception has met, the
requirements for qualification under Section 401(a) and, where
applicable, Section 401(k) of the Code, and its related trust is
now, and since its inception has been, exempt from taxation under
Section 501(a) of the Code and nothing has occurred which would
adversely affect the qualified status of such Pension Plan.
(B) Seller has performed all obligations required to be
performed by it under, and is not in default under or in violation
of, any and all of the Pension Plans, and is in compliance in all
material respects with, and each Pension Plan has been operated and
administered in all material respects in accordance with its
provisions and in compliance in all material respects with the laws
governing each such Pension Plan, including without limitation,
rules and regulations promulgated by the Department of the Treasury
("Treasury"), the Internal Revenue Service, Department of Labor
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<PAGE>
("DOL"), and the Pension Benefit Guaranty Corporation ("PBGC")
pursuant to the provisions of ERISA and the Code.
(C) No event has occurred and there has been no failure
to act on the part of the Seller, as fiduciary of any Pension Plan,
or a plan official that violates Section 404 of ERISA or could
subject Seller, a Pension Plan, or a plan official to the imposition
of any tax, penalty, or other liability, further by way of indemnity
or otherwise.
(D) Seller does not owe any accrued but unpaid
contributions to any of the Pension Plans.
(E) No reportable event (as defined in Section 4043(e)
of ERISA), or requirement to provide security to a Pension Plan
(pursuant to Sections 401(a) 29 or Section 412(f) of the Code), or
plan termination (as defined in Title IV of ERISA or Section 411(d)
of the Code), has occurred with respect to any of the Pension Plans.
(F) The present value of accrued benefits (as agreed to
by Seller's actuary in writing) under any of the Pension Plans that
are covered by Title IV of ERISA does not exceed the value of the
assets of such Pension Plan. As of the last day of the last plan
year of each Pension Plan and as of the Closing Date, the amount of
"unfunded benefit liabilities" as defined in Section 4001(a)(18) of
ERISA (but excluding from the definition of "current value" of
"assets" of such Pension Plan, accrued but unpaid contributions) did
not and will not exceed zero. No "accumulated funding deficiency"
for which there is an excise tax due (or would be due in the absence
of a waiver), as defined in Section 412 of the Code or as defined in
Section 302(a)(2) of ERISA, whichever may apply, has been incurred
with respect to any Pension Plan with respect to any plan year,
whether or not waived. Seller has no liability for unpaid
contributions with respect to any Pension Plan pursuant to Section
412(m) of the Code.
(G) Seller has paid all premiums (and interest charges
and penalties for late payment, if applicable) due to the PBGC with
respect to each Pension Plan for each plan year thereof for which
such premiums are required. Seller has not engaged in, nor is a
successor to an entity that has engaged in, a transaction described
in Section 4069 of ERISA. There has been no reportable event as
defined in Section 4043(b) of ERISA and the PBGC regulations under
such section) with respect to any Pension Plan. No filing has been
made by Seller with PBGC, and no proceeding has been commenced by
the PBGC, to terminate any Pension Plan. No condition exists and no
event has occurred that could constitute grounds for termination of
any Pension Plan by the PBGC.
(ii) Seller has not ceased operations at any facility or
withdrawn from any Pension Plan or otherwise acted or omitted to act in a manner
which could subject it to liability under Section 4062, Section 4063, Section
4064, Section 4068, or Section 4069 of ERISA and there are no facts of
circumstances which might give rise to any liability of Seller to the PBGC under
Title IV of ERISA or which could reasonably be anticipated to result in any
claims being made against Purchaser, or Seller to the PBGC. Seller has not
incurred any withdrawal liability (including without limitation any contingent
or secondary withdrawal liability) within the meaning of Section 4201 and
Section 4204 of ERISA to any Multiemployer Plan. Seller has not, with respect to
any Pension Plan which is a Multiemployer Plan, suffered or otherwise caused a
"complete withdrawal" or a "partial withdrawal," as such terms are defined
respectively in Sections 4201, 4203, 4204 and 4205 of ERISA. Seller has no
liability to any such Multiemployer Plan in the event of a complete or partial
withdrawal therefrom as of the close
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<PAGE>
of the most recent fiscal year of any such Multiemployer Plan ended prior to the
date hereof.
(iii) Seller does not sponsor, administer, maintain,
contribute to, or has not at any time ever sponsored, administered, maintained,
contributed to, or been required to contribute to any "employee welfare benefit
plan" ("Welfare Plan"), as such term is defined in Section 3(1) of ERISA
(including without limitation a plan excluded from coverage by Section 4(b)(5)
of ERISA), or under which Seller may incur any liability, whether insured or
otherwise, without regard to whether or not any of the foregoing is funded,
whether formal or informal, whether or not subject to ERISA and whether legally
binding or not, and any such Welfare Plan maintained by Seller is in compliance
with the provisions of ERISA and all other applicable Laws. Seller has not
established or contributed to any "voluntary employees' beneficiary association"
within the meaning of Section 501(c)(9) of the Code. Seller does not maintain
any Welfare Plan which is a "Group Health Plan" (as such the term is defined in
Section 607(1) of ERISA and Section 4980B(g)(2) of the Code) that has not been
administered and operated in all respects in compliance with the applicable
requirements of Section 601 of ERISA and Section 4980B of the Code and Seller is
not subject to any liability, including but not limited to, additional
contributions, fines or penalties, or loss of tax deductions as a result of such
administration and operation.
(iv) Seller does not maintain or contribute to any
employment, consulting, severance, or other similar contract arrangement,
procedures, or policy and each plan, arrangement (written or oral), program,
agreement or commitment providing for insurance coverage (including any
self-insured arrangements), workers' compensation, disability benefits,
supplemental unemployment benefits, vacation benefits, retirement benefits,
life, health, disability, or accident benefits (including, without limitation,
any "voluntary employees' beneficiary association" as defined in Section
501(c)(9) of the Code providing for the same or other benefits), dependent care
spending accounts or assistance, split dollar arrangements, cafeteria plans,
supplemental retirement, termination pay, dental, salary, continuation or
deferred compensation, profit-sharing bonuses, stock options, stock appreciation
rights, stock purchases or other forms of incentive compensation or
post-retirement insurance, compensation or benefits which (A) is not a Welfare
Plan, Pension Plan, or Multiemployer Plan, (B) is entered into, maintained,
contributed to, or required to be contributed to, as the case may be, by Seller,
or under which Seller may incur any liability, without regard to whether or not
any of the foregoing is funded, whether formal or informal, whether or not
subject to ERISA, and whether legally binding or not, and (C) covers any
individual who is currently, or was previously, retained or employed by Seller
("Benefit Arrangement").
(v) As of or subsequent to the Closing Date, neither
Seller, nor any Welfare Plan or Benefit Arrangement maintained by Seller, has
any present or future obligation to maintain, sponsor, provide, or make any
payment to any present or former employee of Seller pursuant to any Welfare Plan
or Benefit Arrangement. Seller does not maintain any Welfare Plan or Benefit
Arrangement, which is funded by a trust described in Section 501(c)(9) of the
Code or subject to the provisions of Section 505 of the Code. No Welfare Plan or
Benefit Arrangement of Seller provides or is required to provide health, dental,
medical, life, death, or survivor benefits to any former or retired employee or
beneficiary thereof except to the extent required under any state insurance law
providing for a conversion option under a group insurance policy under Section
601 of ERISA or Section 4980B of the Code.
(vi) Neither any of Pension Plans or Welfare Plans or
Benefit Arrangements, nor any trust created or insurance contract issued
thereunder nor any trustee or
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<PAGE>
administrator thereof nor any officer, director or employee of Seller, custodian
or any other "disqualified person" within the meaning of Section 4975(e)(2) of
the Code, or "party in interest" within the meaning of Section 3(14) of ERISA,
with respect to any such Pension Plans or Welfare Plans or Benefit Arrangements
or any such trust or insurance contract or any trustee, custodian or
administrator thereof, or any disqualified person, party in interest or person
or entity dealing with such Pension Plans or Benefit Arrangements or any such
trust, insurance contract or any trustee is subject to a tax or penalty on
prohibited transactions imposed by Section 4975 of the Code or to a civil
penalty imposed by Section 502 of ERISA. There are no facts or circumstances
which could subject Seller to any excise tax under Section 4972 or Sections 4976
through 4980, both inclusive, of the Code.
(vii) Full payment has been made of all amounts which
Seller is required, under applicable Law, with respect to any Pension Plan or
Welfare Plan or Benefit Arrangement, or any agreement relating to any Pension
Plan or Welfare Plan or Benefit Arrangement, to have paid as a contribution
thereto. No accumulated funding deficiency (as defined in Section 302 of ERISA
and Section 412 of the Code), whether or not waived, exists with respect to any
Pension Plan. Seller does not maintain or contribute to, nor has it ever
sponsored, maintained or contributed to or been required to contribute to, any
Pension Plan subject to Part 3 of Title I of ERISA or Section 412(n) of the
Code. Seller has made adequate provisions for reserves to meet contributions
which have not been made because they are not yet due under the terms of any
Pension Plan or Welfare Plan or Benefit Arrangement or related agreements. All
Pension Plans which Seller operates as plans that are qualified under the
provisions of Section 401(a) of the Code satisfy the requirements of Section
401(a) and all other sections of the Code incorporated therein, including
without limitation Sections 401(k), 401(l) and 401(m) of the Code; and the
Internal Revenue Service has issued favorable determination letters with respect
to the current statement of all Pension Plans and, to Seller's knowledge,
nothing has occurred since the issuance of any such letters that could adversely
affect such favorable determination. There will be no change on or before
Closing in the operation of any Pension Plan, Welfare Plan or Benefit
Arrangement or any documents with respect thereto which will result in an
increase in the benefit liabilities under such plans, except as may be required
by Law.
(viii) Seller has complied with all reporting and
disclosure obligations with respect to the Pension Plans, Welfare Plans and
Benefit Arrangements imposed by Title I of ERISA or other applicable Law.
(ix) There are no pending or, to Seller's knowledge,
threatened claims, suits or other proceedings against Seller, the Pension Plan,
Welfare Plan, Benefit Arrangement, or any other party, including but not limited
to any fiduciary with respect to such plans or arrangements by present or former
employees of Seller, plan participants, beneficiaries or spouses of any of the
above, including without limitation claims against the assets of any trust,
involving any Pension Plan, Welfare Plan, or Benefit Arrangement, or any rights
or benefits thereunder, other than the ordinary and usual claims for benefits by
participants or beneficiaries.
(x) The transactions contemplated herein do not result
in the acceleration or accrual, vesting, funding or payment of any contribution
or benefit under any Pension Plan, Welfare Plan or Benefit Arrangement.
(xi) No action or omission of Seller or any director,
officer, employee, or agent thereof or any condition, circumstance, or verbal
requirement exists which in any way restricts, impairs or prohibits Purchaser or
Seller or any successor from amending, merging, or
16
<PAGE>
terminating any Pension Plan, Welfare Plan or Benefit Arrangement in accordance
with the express terms of any such plan and applicable Law.
(xii) (A) Each Pension Plan, Welfare Plan, Benefit
Arrangement, related trust agreement, annuity contract, or other funding
instrument complies and has been maintained, in all material respects, in
compliance with its terms and, both as to its form, operation, and procedures
with all applicable requirements, including all record keeping, reporting, and
disclosure requirements, prescribed by any and all statutes, orders, rules, and
regulations including, but not limited to, ERISA, the Consolidated Omnibus
Budget Reconciliation Act, as amended ("COBRA"), and the Code; (B) Seller has
performed, in all material respects, all obligations required to be performed
under, and is not in default under or in violation of, any and all of the
Pension Plans, Welfare Plans, and Benefit Arrangements (collectively "Benefit
Plans") is, in all material respects, in compliance with, and each Benefit Plan
has been operated and administered in accordance with its provisions and in
compliance with, the laws governing each such plan, including without
limitation, rules and regulations promulgated by the DOL, PBGC, and the
Treasury, pursuant to the provisions of ERISA, COBRA, and the Code; (C) no event
has occurred and there has been no failure to act on the part of Seller, a
fiduciary of any Benefit Plan, or a "plan official" (as defined in Section 412
of ERISA) that violates Section 404 of ERISA or could subject the Purchaser, any
Benefit Plan, a fiduciary, or plan official to the imposition of any tax,
penalty, or other liability, whether by way of indemnity or otherwise; and (D)
no filing, application, or other matter with respect to any of the Benefit Plans
or the Seller is pending with the IRS, PBGC, DOL, or other governmental body.
(xiii) The Disclosure Schedule contains a true and
complete list of all of the Benefit Plans which the Seller is now or was
previously obligated, directly or indirectly, to contribute or maintain,
regardless of whether formal or informal and without regard to whether or not it
was funded. Seller has delivered to the Purchaser (A) true and complete copies
of all documents embodying or relating to the Benefit Plans, including without
limitation, with respect to each Benefit Plan, all amendments to the Benefit
Plans, and any trust or other funding arrangement, including certified financial
statements which fairly present the assets and liabilities of each of the
Benefit Plans as of the date thereof and there have been no material changes in
the assets and liabilities since the date of such financial statements; (B) the
most recent annual and periodic actuarial evaluations, if any, prepared for any
Benefit Plan; (C) the most recent annual reports (series Form 5500 and all
schedules thereto), if any, required under ERISA, including those prepared for
the most recent three (3) years for each Benefit Plan; (D) if the Benefit Plan
is funded, the most recent annual and periodic accounting of the Benefit Plan's
assets, including the most recent three (3) years of the plan; (E) the most
recent determination letter received from the IRS, if any, and a copy of the
most recent summary plan description together with the most recent summary of
modifications required under ERISA with respect to each Benefit Plan and all
employee communications and/or written interpretations or descriptions thereof
relating to each Benefit Plan; (F) with respect to each Benefit Plan, a
description setting forth the amount of any liability of the Seller as of the
date hereof or as of the Closing Date or which arises or accrues in connection
with the Closing Date for: (1) payments which are or will be more than thirty
(30) days past due, or (2) unfunded accrued benefits, including severance
benefits, the present value of which on an aggregate estimated basis exceeds or
will exceed Twenty-Five Thousand Dollars ($25,000); and (G) any correspondence
between any Benefit Plan and any governmental agency during the last three (3)
years.
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(xiv) There is no contract, agreement, plan, or
arrangement covering any employee or former employee of the Seller that,
individually or collectively, provides for the payment by the Seller of any
amount (A) that is not deductible under Section 162(a)(1) or 404 of the Code or
(B) that is an "excess parachute payment" pursuant to Section 280G of the Code.
(xv) Neither the Seller nor any plan fiduciary of any
Pension Plan or Welfare Plan engaged in any transaction in violation of Sections
101 or 106 of ERISA or any "prohibited transaction," as defined in Section
4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA
or Section 4975(c)(2) or (d) of the Code.
(xvi) Seller has not announced any plan or legally
binding commitment to create any additional Pension Plans, Welfare Plans, or
Benefit Arrangements or to amend or modify any existing Benefit Plan.
(xvii) No event has occurred in connection with which
Seller or any Pension Plan, Welfare Plan, or Benefit Arrangement, directly or
indirectly, could be subject to any liability (A) under any statute, regulation,
or governmental order relating to any Benefit Plans, or (B) pursuant to any
obligation of the Seller to indemnify any person against liability incurred
under any statute, regulation or order as they relate to the Benefit Plans.
(s) Bank Accounts; Powers of Attorney. The Disclosure Schedule sets
forth: (i) the names of all financial institutions, investment banking and
brokerage houses, and other similar institutions at which the Seller maintain
accounts, deposits, safe deposit boxes of any nature, and the names of all
persons authorized to draw thereon or make withdrawals there from; (ii) the
terms and conditions thereof and any limitations or restrictions as to use,
withdrawal or otherwise; and (iii) the names of all persons or entities holding
general or special powers of attorney from Seller and a summary of the terms
thereof.
(t) Contracts and Commitments; No Default.
(i) Except as set forth in the Disclosure Schedule,
Seller:
(A) does not have any written contract, commitment,
agreement or arrangement with any person or, to Seller's knowledge,
any oral contract, commitment, agreement or arrangement which (1)
requires payments individually in excess of $5,000 annually or in
excess of $10,000 over its term (including without limitation
periods covered by any option to extend or renew by either party)
and (2) is not terminable on ninety (90) days' or less notice
without cost or other liability;
(B) does not pay any person or entity cash remuneration
at the annual rate (including without limitation guaranteed bonuses)
of more than Forty Thousand Dollars ($40,000) for services rendered;
(C) is not restricted by agreement from carrying on
their businesses or any part thereof anywhere in the world or from
competing in any line of business with any person or entity;
(D) is not subject to any obligation or requirement to
provide funds to or make any investment (in the form of a loan,
capital contribution or otherwise) in any person or entity;
(E) is not party to any agreement, contract, commitment
or loan to which any of its directors, officers or shareholders or
any "affiliate" or "associate" (as defined in Rule 405 as
promulgated under the Securities Act of 1933) (or former affiliate
or associate) thereof is a party;
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(F) is not subject to any outstanding sales or purchase
contracts, commitments or proposals which will result in any loss
upon completion or performance thereof;
(G) is not a party to any purchase or sale contract or
agreement that calls for aggregate purchases or sales in excess over
the course of such contract or agreement of Ten Thousand Dollars
($10,000) or which continues for a period of more than twelve (12)
months (including without limitation periods covered by any option
to renew or extend by either party) which is not terminable on
ninety (90) days' or less notice without cost or other liability at
or any time after the Closing;
(H) is not subject to any contract, commitment,
agreement or arrangement with any "disqualified individual" (as
defined in Section 280G(c) of the Code) which contains any severance
or termination pay liabilities which would result in a disallowance
of the deduction for any "excess parachute payment" (as defined in
Section 280G(b)(1) of the Code) under Section 280G of the Code; or
(I) has any distributorship, dealer, manufacturer's
representative, franchise or similar sales contract relating to the
payment of a commission.
(ii) True and complete copies (or summaries with all
material terms and conditions, in the case of oral contracts and
commitments) of all oral contracts and commitments in excess of Ten Thousand
Dollars ($10,000) and written contracts and commitments in excess of Twenty
Thousand Dollars ($20,000) disclosed pursuant to Section 4(t)(i) have been made
available to Purchaser for review. Except as set forth in the Disclosure
Schedule, all such contracts and commitments are valid and enforceable by and
against Seller in all material respects in accordance with their respective
terms; Seller is not in breach, violation or default, however defined, in the
performance of any of its obligations thereunder, and to the best of Seller's
knowledge, no facts and circumstances exist which, whether with the giving of
due notice, lapse of time, or both, would constitute such a breach, violation or
default thereunder or thereof; and, to the best of Seller's knowledge, no other
parties thereto are in a breach, violation or default, however defined,
thereunder or thereof, and no facts or circumstances exist which, whether with
the giving of due notice, lapse of time, or both, would constitute such a
breach, violation or default thereunder or thereof which would have a material
adverse effect on the business and operations of Seller.
(u) Orders, Commitments and Returns. Except as set forth in the
Disclosure Schedule, all accepted and unfulfilled orders for the sale of
products and the performance of services entered into by Seller and all
outstanding contracts or commitments for the purchase of supplies, materials and
services were made in bona fide transactions in the ordinary course of business.
Except as set forth in the Disclosure Schedule, to the best of Seller's
knowledge, there are no claims (in excess of $5,000 individually, or $10,000 in
the aggregate) against Seller to return products by reason of alleged
over-shipments, defective products or otherwise, or of products in the hands of
customers, retailers or distributors under an understanding that such products
would be returnable.
(v) Labor Matters.
(i) The Disclosure Schedule set forth a complete and
accurate list of all employees of Seller as of the date hereof.
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(ii) Except as set forth in the Disclosure Schedule: (A)
Seller has been in material compliance with all applicable Laws respecting
employment and employment practices, terms and conditions of employment and
wages and hours, including without limitation any such Laws respecting
employment discrimination and occupational safety and health requirements; labor
and management relations; affirmative action plans; pension/employee benefits
laws; worker's compensation laws and has not and is not engaged in any unfair
labor practice and to Seller's knowledge no charge is being brought with regard
thereto nor has been threatened; (B) there is no unfair labor practice complaint
or investigation against the Seller for any violation of any employment law or
discrimination pending or, to the best of Seller's knowledge, threatened before
the National Labor Relations Board or any other comparable Authority; (C) there
is no labor strike, dispute, slowdown or stoppage actually pending or, to the
best of Seller's knowledge, threatened against or directly affecting Seller; (D)
to the best of Seller's knowledge, no labor representation question exists
respecting the employees of Seller and there is not pending or, to the best of
Seller's knowledge, threatened any activity intended or likely to result in a
labor representation vote respecting the employees of the Seller; (E) to the
best of Seller's knowledge, no grievance or any arbitration proceeding arising
out of or under collective bargaining agreements is pending and no claims
therefore exist or, to the best of Seller's knowledge, have been threatened; (F)
no collective bargaining agreement is binding and in force against Seller or
currently being negotiated by Seller; (G) Seller has not experienced any
significant work stoppage or other significant labor difficulties; (H) Seller is
not delinquent in payments to any persons for any wages, salaries, commissions,
bonuses or other direct or indirect compensation for any services performed by
them or amounts required to be reimbursed to such persons, including without
limitation any amounts due under any Pension Plan, Welfare Plan or Benefit
Arrangement; (I) upon termination of the employment of any person, neither
Seller, any Subsidiary, Purchaser or any subsidiary of Purchaser will, by reason
of anything done at or prior to or as of the Closing Date, be liable to any of
such persons for so-called "severance pay" or any other payments other than in
accordance with existing severance policies; (J) Seller has no policies,
practices, or procedures which require the Purchaser or the Seller to provide
severance benefits to any employees terminated by the Purchaser or the Seller;
(K) Seller has made no contract, agreement, handbook, practice, procedure,
policy or written, oral or other representation to its employees that are
inconsistent with their status as employees-at-will who may be terminated at any
time without cause; (L) Seller has made no written or oral representation to its
employees that Purchaser will retain them as employees or employ them for any
period of time subsequent to the Closing Date, and Seller has made no other
representation inconsistent with their employment by Purchaser on an at-will
basis; and (M) Seller has complied and will comply, to the extent required by
law, with all notices to employees and their unions required by the transactions
contemplated hereunder including without limitation those required by the
Federal "Warn Act" statute and all applicable similar state law statutes.
(w) Permits and Other Operating Rights. Except as set forth in the
Disclosure Schedule, Seller does not require the Consent of any Authority to
permit them to operate in the manner in which it presently is being operated,
and possess all permits and other authorizations from all Authorities presently
required to permit them to operate its businesses in the manner in which its
businesses are presently conducted except where failure to possess such permits
or other authorizations would result in a loss, liability or damage, in the
aggregate, in excess of Ten Thousand Dollars ($10,000).
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(x) Compliance with Law.
(i) Except as set forth in the Disclosure Schedule, and without
limiting the scope of any other representations or warranties contained in this
Agreement, the assets, properties, businesses and operations of Seller are and
have been in compliance with all Laws applicable to the ownership and conduct of
their assets, properties, Seller's businesses and operations, including without
limitation all franchising and similar licensing Laws, all applicable rules of
the Civil Rights Act of 1964, as amended, Executive Order No.11246, the
Occupational Safety and Health Act of 1970, as amended, the Clayton Act, as
amended, the Sherman Act, as amended, the Foreign Corrupt Practices Act, as
amended, the boycott and export control regulations promulgated by the U.S.
Department of Commerce, the boycott regulations promulgated by the Internal
Revenue Service, the Equal Employment Opportunity Act of 1974, as amended, the
Clean Air Act as amended, the Clean Water Act, as amended, the Resource
Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as
amended, the Comprehensive Environmental Response, Liability and Compensation
Act of 1980, as amended, and the related employee and public right-to- know
provisions. There are no outstanding and unsatisfied deficiency reports, plans
of correction, notices of noncompliance or work orders relating to any such
Authorities, and no such discussions with any such Authorities are scheduled or
pending, to the best of Seller's knowledge.
(ii) No Franchise. Except as set forth in the Disclosure
Schedule, Seller has not been, for the past three (3) years, and is not
currently a party to any contract, agreement, or arrangement which would require
Seller to comply with, and Seller has not violated, any applicable federal or
state law, rule, or regulation governing franchises and franchisor-franchisee
relationships.
(y) Assets of Business. Except as set forth in Exhibit 3(a)(iv) and
the Disclosure Schedule, the assets owned or leased by Seller constitute all of
the assets held for use or used primarily in connection with its businesses and
are adequate to carry on such businesses as presently conducted.
(z) Hazardous Substances and Hazardous Wastes. Except as set forth
in the Disclosure Schedule, to the best of Seller's knowledge:
(i) there is not now, nor has there ever been, any disposal,
release or threatened release of Hazardous Materials (as defined below) on, from
or under properties now or ever owned or leased by or to Seller or by or to any
former subsidiary (the "Properties"). There has not been generated by or on
behalf of Seller or any former subsidiary (while owned by Seller) any Hazardous
Material. No Hazardous Material has been disposed of or allowed to be disposed
of on or off any of the Properties which may give rise to a clean-up
responsibility, personal injury liability or property damage claim against
Seller, or Seller being named a potentially responsible party for any such
clean-up costs, personal injuries or property damage or create any cause of
action by any third party against Seller. For purposes of this subsection, the
terms "disposal," "release," and "threatened release" shall have the definitions
assigned to them by the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended, and the term "Hazardous Material" means any
hazardous or toxic substance, material or waste or pollutants, contaminants or
asbestos containing material which is or becomes regulated by any Authority in
any jurisdiction in which any of the Properties is located. The term "Hazardous
Material" includes without limitation any material or substance which is (A)
defined as a "hazardous waste" or a "hazardous substance" under applicable Law;
(B) designated as a "hazardous substance" pursuant to Section 311 of the Federal
Water
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Pollution Control Act; (C) defined as a "hazardous waste" pursuant to Section
1004 of the Federal Resource Conservation and Recovery Act; or (D) defined as a
"hazardous substance" pursuant to Section 101 of the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended.
(ii) None of Properties is (or, with respect to past Properties
and Properties of former subsidiaries, was at the time of disposition) in
violation of any Law (with respect to past Properties and Properties of former
subsidiaries, Laws in effect at the time of disposition) relating to industrial
hygiene or to the environmental conditions on, under or about such Properties,
including without limitation soil and ground water condition and there are (or
at the time of disposition were) no underground tanks or related piping,
conduits or related structures which would result in a loss, liability or damage
in excess of Ten Thousand Dollars ($10,000). During the period that Seller or
former subsidiaries owned or leased the Properties, neither Seller nor its
Subsidiaries nor its former subsidiaries nor, to Seller's knowledge, any third
party used, generated, manufactured or stored on, under or about such Properties
or transported to or from such Properties any Hazardous Materials and there has
been no litigation or other claim or action brought or threatened against Seller
or any settlements reached by Seller with any third party or third parties
alleging the presence, disposal, release or threatened release of any Hazardous
Materials on, from or under any of such Properties which would result in a loss,
liability or damage, in the aggregate, in excess of Ten Thousand Dollars
($10,000).
(aa) Brokers. Except as set forth in the Disclosure Schedule,
neither Seller nor its Subsidiaries, nor any of its directors, officers or
employees has employed any broker, finder or financial advisor or incurred any
liability for any brokerage fee or commission, finder's fee or financial
advisory fee, in connection with the transactions contemplated hereby, nor is
there any basis known to Seller for any such fee or commission to be claimed by
any person or entity.
(bb) SEC Reports. Seller has duly made all required filings with the
Securities and Exchange Commission under the Securities Exchange Act of 1934 and
all similar required filings with any other Authority and all of the reports,
forms and documents so filed complied in all material respects with all
applicable requirements and Laws. Seller will promptly furnish to Purchaser an
accurate and complete copy of the reports, forms and documents filed after the
date of this Agreement or such reports, forms or documents reasonably requested
by Purchaser.
(cc) Financial Capacity. As of the Closing Date, Seller shall have
the financial capacity to pay its debts as they become due and funds sufficient
to carry on its business as conducted and as proposed to be conducted.
(dd) Ralcorp. Without limiting the generality of any of Seller's
representations and warranties herein, Seller represents and warrants that,
except as set forth in the Disclosure Schedule:
(i) Seller has no written agreement with Ralcorp;
(ii) the main provisions, terms (including pricing) and
conditions of Seller's oral agreement with Ralcorp (including without
limitation, invoicing procedures between Seller and Ralcorp, on the one hand,
and among Seller, Ralcorp and customers on the other) are set forth on the
Disclosure Schedule;
(iii) Purchaser will be able, at any time after Closing, to
terminate Seller's agreement with Ralcorp without any liability except as such
liability relates to the purchase of products, inventory, and packaging, or the
exhaustion of such through manufacture upon termination as is customary in the
existing relationship between the Parties described in the Disclosure Schedule;
and
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(iv) Seller has not at any time disclosed any of its
customers lists to Ralcorp.
(ee) Y2K. Sellers' computer and information technology systems are
all Y2K compliant and Seller has not experienced any damages, costs, expenses or
interruptions in its systems or of its business as a result of Y2K resulting in
costs, losses, or damages exceeding $25,000 in the aggregate.
(ff) Accuracy of Information. No representation or warranty by
Seller in this Agreement contains or will contain any untrue statement of
material fact or omits or will omit to state any material fact necessary in
order to make the statements herein or therein, in light of the circumstances
under which they were made, not misleading as of the date of the representation
or warranty.
Section 5
Representations and Warranties of Purchaser
Purchaser represents and warrants to Seller as of the date hereof as
follows:
(a) Corporate Organization. Purchaser is a corporation duly
organized, validly existing and in good standing under the law of the State of
Delaware.
(b) Authorization. Purchaser has full corporate power and authority
to enter into this Agreement and to carry out the transactions contemplated
herein. The Board of Directors of Purchaser has taken all action required by
law, its articles or certificate of incorporation and bylaws or otherwise to
authorize the execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein. This Agreement is the
valid and binding legal obligation of Purchaser enforceable against it in
accordance with its terms.
(c) Non-Contravention. Neither the execution, delivery and
performance of this Agreement nor the consummation of the transactions
contemplated herein will:
(i) violate any provision of the articles or certificate of
incorporation or bylaws of Purchaser, which violation will materially adversely
affect Purchaser's ability to consummate the transactions contemplated herein;
or
(ii) violate, be in conflict with, or constitute a default,
however defined (or an event which, with the giving of due notice or lapse of
time, or both, would constitute such a default), under, or cause or permit the
acceleration of the maturity of, or give rise to, any right of termination,
cancellation, imposition of fees or penalties under, any debt, note, bond,
lease, mortgage, indenture, license, obligation, contract, commitment,
franchise, permit, instrument or other agreement or obligation to which
Purchaser or any subsidiary of Purchaser is a party or by which they or any of
their properties or assets is or may be bound (unless with respect to which
defaults or other rights, requisite waivers or consents shall have been obtained
at or prior to the Closing), which violation will materially adversely affect
Purchaser's ability to consummate the transactions contemplated herein, or
(iii) result in the creation or imposition of any Lien, upon
any property or assets of Purchaser or any subsidiary of Purchaser under any
debt, obligation, contract, agreement or commitment to which Purchaser or any
subsidiary of Purchaser is a party or by which Purchaser or any subsidiary of
Purchaser or any of their assets or properties is or may be bound, which Lien
will materially adversely affect Purchaser's ability to consummate the
transactions contemplated herein; or
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(iv) to the knowledge of Purchaser, violate any Law which
violation will materially adversely affect Purchaser's ability to consummate the
transactions contemplated herein.
(d) Consents and Approvals. Except for the Consents identified on
Exhibit 5(d) hereto, no Consent is required by any person or entity, including
without limitation any Authority, in connection with the execution, delivery and
performance by Purchaser of this Agreement, or the consummation of the
transactions contemplated herein, other than any Consent which, if not made or
obtained, will not, individually or in the aggregate, have a material adverse
effect on the business of Purchaser and its subsidiaries taken as a whole.
(e) Brokers. Except as disclosed on Exhibit 5(e) hereto, neither
Purchaser nor any of its directors, officers or key employees have employed any
broker or finder, or incurred any liability for any brokerage fee or commission
or finder's fee, in connection with the transactions contemplated hereby, nor is
there any basis known to Purchaser for any such fee or commission to be claimed
by any person or entity.
(f) Disclosure. No representation or warranty by Purchaser in this
Agreement contains or will contain any untrue statement of material fact or
omits or will omit to state any material fact necessary in order to make the
statements herein or therein, in light of the circumstances under which made,
not misleading as of the date of the representation or warranty.
(g) Current Business Practices. Purchaser will use its reasonable
commercial efforts to continue the Seller's customary practice relating to the
termination of services with its third-party manufacturers and suppliers by
purchasing unsold or unused product, inventory, and packaging, or allowing such
third party to continue manufacturing throughout the exhaustion of such product,
inventory, and packaging. A description of such practices is set forth on
Exhibit 5(g).
(h) Availability of Funds. Purchaser has the assets, resources and
the financial capacity necessary to consummate the transactions (including
without limitation the payment of the Purchase Price) contemplated by this
Agreement.
Section 6
Covenants
(a) Seller's Agreements as to Specified Matters. Except as
specifically set forth on the Disclosure Schedule, except in the ordinary course
of business and consistent with past practice, and except as may be otherwise
agreed in writing by Purchaser, from the date hereof until the Closing, Seller
shall not:
(i) Amend its articles or certificate of incorporation or
bylaws;
(ii) Borrow or agree to borrow any funds;
(iii) Incur, assume, suffer or become subject to, whether
directly or by way of guarantee or otherwise, any claims, obligations,
liabilities or loss contingencies which, individually or in the aggregate, is or
are in excess of Twenty-Five Thousand Dollars ($25,000) or would have an adverse
effect on the financial condition of Seller;
(iv) Pay, discharge or satisfy any claims, liabilities or
obligations;
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(v) Permit or allow any of its properties or assets to
be subjected to any Lien, except the Permitted Liens;
(vi) Write down the value of any inventory or write-off
as uncollectible any notes or accounts receivable or any trade
accounts or trade notes;
(vii) Cancel or amend any debts, waive any claims or
rights or sell, transfer or otherwise dispose of any properties or
assets;
(viii) License, sell, transfer, pledge, modify,
disclose, dispose of or permit to lapse any right to the use of any
Intellectual Property Rights;
(ix) (A) Terminate, enter into, adopt, institute or
otherwise become subject to or amend in any material respect any collective
bargaining agreement or employment or similar agreement or arrangement with any
of its directors, officers or employees; (B) terminate, enter into, adopt,
institute or otherwise become subject to or amend in any material respect any
Benefit Arrangement; (C) contribute, set aside for contribution or authorize the
contribution of any amounts for any such Benefit Arrangement except as required
(and not discretionary) by the terms of such Benefit Arrangement; or (D) grant
or become obligated to grant any general increase in the compensation of any
directors, officers or employees (including without limitation any such increase
pursuant to any Benefit Arrangement);
(x) Make or enter into any commitment for capital
expenditures for additions to property, plant or equipment individually, or in
the aggregate, in excess of Twenty-Five Thousand Dollars ($25,000) unless
consented to in writing by Purchaser which consent may not be unreasonably
withheld;
(xi) (A) Declare, pay or set aside for payment any
dividend or other distribution in respect of its capital stock or other
securities (including without limitation distributions in redemption or
liquidation) or redeem, purchase or otherwise acquire any shares of its capital
stock or other securities, except with respect to securities comprising Seller
Capital Stock outstanding as of the date hereof; (B) issue, grant or sell any
shares of its capital stock or equity securities of any class, or any options,
warrants, conversion or other rights to purchase or acquire any such shares or
equity securities or any securities convertible into or exchangeable for such
shares or equity securities, except issuance of securities pursuant to the terms
of issuance of Seller Capital Stock outstanding as of the date hereof and the
issuance of additional Seller capital stock consisting of Series C and Series D
Preferred Stock to raise the working capital funds required hereunder; (C)
become a party to any merger, exchange, reorganization, recapitalization,
liquidation, dissolution or other similar corporate transaction; or (D) organize
any new subsidiary, acquire any capital stock or other equity securities or
other ownership interest in, or assets of, any person or entity or otherwise
make any investment by purchase of stock or securities, contributions to
capital, property transfer or purchase of any properties or assets of any person
or entity;
(xii) Pay, lend or advance any amounts to, or sell,
transfer or lease any properties or assets to, or enter into any agreement or
arrangement with, any director, officer, employee or shareholder;
(xiii) Terminate, enter into or amend in any material
respect any item identified in Part 4(t) of the Disclosure Schedule, or take any
action or omit to take any action which will cause a breach, violation or
default (however defined) under any such item; or
(xiv) Agree, whether in writing or otherwise, to take
any action described in this subsection.
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(b) Conduct of Seller Business. Except as set forth in the
Disclosure Schedule, Seller shall maintain its assets and properties and carry
on its businesses and operations in the ordinary course of business in
substantially the same manner as previously operated; and Seller shall use its
best efforts to preserve intact its business organizations, existing business
relationships (including without limitation its relationships with officers,
employees, dealers, distributors, independent contractors, customers and
suppliers), good will and going concern value.
(c) No Seller Solicitation of Alternate Transaction.
(i) Seller shall not, and will use its best efforts to ensure
that its directors, officers and employees, independent contractors,
consultants, counsel, accountants, investment advisors and other representatives
and agents shall not, directly or indirectly, solicit, initiate or encourage
discussions or negotiations with, provide any confidential or nonpublic
information to, or enter into any agreement with, any third party concerning (or
concerning the business of Seller in connection with) any tender offer
(including a self tender offer), exchange offer, merger, consolidation, sale of
substantial assets or of a significant amount of assets, sale of securities,
acquisition of beneficial ownership of or the right to vote securities
representing more than five percent (5%) of the total voting power of Seller,
liquidation, dissolution or similar transactions; provided, however, that the
foregoing shall not prohibit Seller (either directly or indirectly through its
directors, officers, employees, independent advisors, consultants, counsel, and
accountants) from:
(A) furnishing information concerning the Seller and its
businesses, properties, or assets to any person, corporation,
entity, or "group" as defined in Section 13(d) of the Exchange Act,
other than Purchaser or any of its affiliates (a "Third Party") in
response to any bona fide unsolicited inquiry, proposal or offer by
such Third Party;
(B) engaging in discussions or negotiations with such
Third Party that has made such bona fide unsolicited inquiry,
proposal, or offer;
(C) following receipt of such a bona fide unsolicited
proposal for acquisition of the Seller or its Assets, taking and
disclosing to its shareholders a position contemplated by Rule
14c-2(a) under the Exchange Act or otherwise making disclosure to
its shareholders; and
(D) taking any non-appealable, final action ordered to
be taken by the Seller by any court of competent jurisdiction but in
each case referred to in the foregoing clauses (A) through (C), only
to the extent that the Board of Directors of the Seller shall have
concluded in good faith that such action is required to prevent the
Board of Directors of the Seller from breaching its fiduciary duties
to the shareholders of the Seller under applicable law.
(ii) Break-up Fee. If for the reasons set forth in this Section
6(c), this Agreement and the transactions contemplated hereby shall be
terminated by Seller pursuant to Section 9(a)(iv) without the Closing having
occurred (whether such Third Party offer results in the consummation of a
transaction or not), then Seller agrees to pay Purchaser a "Break-up Fee". The
Break-up Fee shall consist of the sum of One Million Five Hundred Thousand
Dollars ($1,500,000), payable immediately upon termination hereof. The Parties
acknowledge that the Break-up Fee represents a negotiated figure which is not a
penalty and constitutes a reasonable estimate of the damages and costs that
would be incurred by Purchaser in the event of termination giving rise thereto.
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(d) Full Access to Purchaser. Seller has and shall provide Purchaser
all information in its possession requested by Purchaser after using best
efforts to procure such information and afford to Purchaser and its directors,
officers, employees, counsel, accountants, investment advisors and other
authorized representatives and agents free and full access during normal
business hours to the facilities, properties, books and records of Seller in
order that Purchaser may have full opportunity to make such investigations as it
shall desire to make of the affairs of Seller; provided, however, that any such
investigation shall be conducted in such a manner as not to interfere
unreasonably with business operations; and Seller shall furnish such additional
financial and operating data and other information as Purchaser shall, from time
to time, reasonably request, including without limitation access to the working
papers of their independent certified public accountants (as and to the extent
permitted by such independent certified public accountants); and, provided,
further, that any such investigation shall not affect or otherwise diminish or
obviate in any respect any of the representations and warranties of Seller
herein.
(e) Confidentiality. Each of the Parties agrees that it will not
use, or permit the use of, any of the information relating to any other Party
hereto furnished to it in connection with the transactions contemplated herein
("Information") in a manner or for a purpose detrimental to such other Party or
otherwise than in connection with the transaction, and that they will not
disclose, divulge, provide or make accessible (collectively, "Disclose"), or
permit the Disclosure of, any of the Information to any person or entity, other
than their responsible directors, officers, employees, investment advisors,
accountants, counsel and other authorized representatives and agents, except as
may be required by judicial or administrative process or, in the opinion of such
Party's regular counsel, by other requirements of Law; provided, however, that
prior to any Disclosure of any Information permitted hereunder, the disclosing
Party shall first obtain the recipients' undertaking to comply with the
provisions of this subsection with respect to such information. The term
"Information" as used herein shall not include any information relating to a
Party which the Party disclosing such information can show: (i) to have been in
its possession prior to its receipt from another Party hereto; (ii) to be now or
to later became generally available to the public through no fault of the
disclosing Party; (iii) to have been available to the public at the time of its
receipt by the disclosing Party; (iv) to have been received separately by the
disclosing Party in an unrestricted manner from a person entitled to disclose
such information; or (v) to have been developed independently by the disclosing
Party without regard to any information received in connection with this
transaction. Each Party hereto also agrees to promptly return to the Party from
whom originally received all original and duplicate copies of written materials
containing Information should the transactions contemplated herein not occur. A
Party hereto shall be deemed to have satisfied its obligations to hold the
Information confidential if it exercises the same care as it takes with respect
to its own similar information. The Parties acknowledge that the transaction
described herein is of a confidential nature, and agree that the terms hereof,
including the purchase price hereunder, shall be maintained in confidence.
Sellers, with the prior approval of Purchaser, at a time and in a manner that is
acceptable to both Purchaser and Sellers, may notify employees of the fact of
the subject transaction.
(f) Filings; Consents; Removal of Objections. Subject to the terms
and conditions herein provided, the Parties shall use their best efforts to take
or cause to be taken all actions and do or cause to be done all things
necessary, proper or advisable under applicable Laws to consummate and make
effective, as soon as reasonably practicable, the transactions contemplated
hereby, including without limitation obtaining all Consents of any person or
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entity, whether private or governmental, required in connection with the
consummation of the transactions contemplated herein. In furtherance, and not in
limitation of the foregoing, it is the intent of the parties to consummate the
transactions contemplated herein at the earliest practicable time, and they
respectively agree to exert their best efforts to that end, including without
limitation, if required: (i) the filing with the Federal Trade Commission
("FTC") and the Antitrust Division of the Department of Justice (the "Antitrust
Division") all requisite documents and notifications in connection with the
transactions contemplated hereby pursuant to the HSR Act as soon as practicable
following the date hereof, and to respond as promptly as practicable to all
inquiries from the FTC or the Antitrust Division in connection therewith; (ii)
the removal or satisfaction, if possible, of any objections to the validity or
legality of the transactions contemplated herein; and (iii) the satisfaction of
the conditions to consummation of the transactions contemplated hereby.
(g) Further Assurances; Cooperation; Notification.
(i) Each Party hereto shall, before, at and after
Closing, execute and deliver such instruments and take such other actions as the
other Party or Parties may reasonably require in order to carry out the intent
of this Agreement.
(ii) Seller shall cooperate with Purchaser to promptly
develop plans for the management of the businesses after the Closing, including
without limitation plans relating to productivity, marketing, operations and
improvements, and Seller shall further cooperate with Purchaser to provide for
the implementation of such plans as soon as practicable after the Closing.
Subject to applicable Law, Seller shall confer on a regular and reasonable basis
with one or more representatives of Purchaser to report on material operational
matters and the general status of ongoing operations.
(iii) At all times from the date hereof until the
Closing, each Party shall promptly notify the other in writing of the occurrence
of any event which it reasonably believes will or may result in a failure by
such Party to satisfy the conditions specified in Section 7 and Section 8 hereof
within seven (7) days.
(h) Supplements to Disclosure Schedule. Within a reasonable time
(but in no event later than three (3) Business Days) prior to the Closing,
Seller shall supplement or amend the Disclosure Schedule with respect to any
event or development which, if existing or occurring at or prior to the date of
this Agreement, would have been required to be set forth or described in the
Disclosure Schedule or which is necessary to correct any information in the
Disclosure Schedule or in any representation and warranty of Seller which has
been rendered inaccurate by reason of such event or development. For purposes of
determining the accuracy as of the date hereof of the representations and
warranties of Seller contained in Section 4 hereof in order to determine the
fulfillment of the conditions set forth in Section 7, the Disclosure Schedule
shall be deemed to exclude any information contained in any supplement or
amendment hereto delivered after the delivery of the Disclosure Schedule.
(i) Public Announcements. None of the Parties shall make any public
announcement with respect to the transactions contemplated herein or the
purchase price hereunder without the prior written consent of the other Party;
provided, however, that any of the Parties may at any time make any
announcements which are required by applicable Law so long as the Party so
required to make an announcement, promptly upon learning of such requirement,
notifies the other Party of such requirement and discusses with it in good faith
the exact proposed wording of any such announcement for such other Party's
reasonable approval which shall not be unreasonably withheld. Without limiting
the generality of the foregoing,
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Seller hereby agrees to deliver to Purchaser final draft(s) of any information
statements (any such information statement, an "Information Statement") to be
distributed to its shareholders pursuant to applicable Law in connection with
this Agreement and the terms and conditions contemplated hereby and the issuance
of the securities disclosed in Part 6(a)(xi)(B) of the Disclosure Schedule, it
being understood and agreed that any such Information Statement shall be (x) in
form and substance reasonably acceptable to Purchaser and (y) provided to
Purchaser at least two (2) Business Days prior to its distribution to Seller's
securities holders or filing with any applicable Authority.
(j) Transactional Tax Undertakings.
(i) The Parties shall cooperate to make any necessary
filings with state and local taxing authorities and to furnish any required
supplemental information to any federal, state, local, and foreign tax
liabilities resulting from the consummation of the transactions contemplated
herein.
(ii) In the event that any sales or use tax, or any tax
in the nature of a sales or use tax, or any transactional tax is payable or
assessed relative to the transactions contemplated herein, Seller shall pay all
such taxes and shall not collect any part thereof from Purchaser, provided,
however, that Purchaser shall pay any excise tax required with respect to the
relicensing of any motor vehicles which are part of Seller's Assets.
(k) Bulk Transfers. Seller has requested that Purchaser waive, and
Purchaser hereby agrees to waive, the requirements of the Uniform Commercial
Code concerning bulk transfers, as in effect in the various states in which
Seller has assets, including without limitation the requirement of notice to
creditors. It is expressly agreed by the Parties that the obligation to
indemnify Purchaser under Section 10(e) includes any and all liability
(including claims, suits or demands against Purchaser), loss, cost (including
reasonable attorney's fees), expense or damage of any kind which Purchaser may
suffer in connection with such request and waiver.
(l) Employee Benefits.
(i) Employees. On the Closing Date, Purchaser: (A) will
assume the employees covered by the collective bargaining agreements listed in
Part 4(v)(ii)(F), and in Part 4(v)(i) under "union" employees, of the Disclosure
Schedule and (B) shall have the right (but not the obligation) to offer to all
or any number of the other employees then employed with respect to the
businesses relating to Seller's Assets the opportunity to maintain such
employee's current employment and shall provide within thirty (30) days after
the execution of this Agreement, but not later than ten (10) Business Days prior
to Closing, a list of those employees of Seller to whom it will offer employment
(collectively, the "Transferred Employees"); provided, that Purchaser, in its
sole discretion and considering its best interests, may terminate the employment
of any employees who accept such offer at any time after such Closing Date.
During the first twelve (12) months after the Closing Date, the compensation and
benefits provided by Purchaser shall be reasonably comparable on an overall
basis (including without limitation all compensation and benefits accrued by
such employees as of the Closing Date under all Pension Plans, Welfare Plans and
Benefit Arrangements irrespective of whether such accrued benefits are actually
received by such employees) to those provided to such employees prior to the
Closing Date with credit given for the length of actual service with Seller (or
both) prior to the Closing Date. Purchaser has not agreed to assume any
obligation or liability under any Pension Plans, Welfare Plans, Benefit
Arrangements, severance obligation or other employment benefit related
obligation but may do so in its sole discretion.
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(ii) Severance. If the employment of any employee who
accepts the offer referred to in Section 6(1)(i) above is terminated by
Purchaser other than for cause within the twelve (12) months after the Closing
Date, Purchaser shall be responsible for making payment of severance
compensation to such employee in accordance with the practice of Seller or any
of its Subsidiaries (as applicable) at the Closing Date, as described on Exhibit
6(1) hereto, with credit being given for the length of actual service with
Seller (or both) prior to the Closing Date.
(iii) 401(k) Plan. Purchaser shall take appropriate
measures with Seller's assistance as reasonably requested so that Seller's
401(k) plans shall be, upon Closing: (x) assumed by Purchaser (and amended, if
required by Purchaser), (y) merged into an existing 401(k) plan maintained by
Purchaser, and/or (z) frozen or terminated and replaced with new plans (within
Purchaser's sole discretion).
(iv) Retention of Employees. Neither Seller nor any
Subsidiary shall, for a period of three (3) years after the Closing Date, take
any action, other than with the written consent of Purchaser, to induce any
employee who accepts an offer pursuant to Section 6(1)(i) above, while still
employed by Purchaser or any subsidiary of Purchaser, to enter into the employ
of Seller or other affiliate of Seller.
(m) Use of Trade Names and Corporate Name. As of and after the
Closing, Seller shall not use any of the names listed on Exhibit 3(a)(i) or
title similar to such name or any other trade names or trademarks being
transferred hereunder.
(n) Special Reserve Fund. Seller has raised from among its current
shareholders through the issuance of new Series D Preferred Convertible Stock
the aggregate amount of One Million Five-Hundred Thousand Dollars ($1,500,000),
of which Five-Hundred Thousand Dollars ($500,000) have been set aside as a
separate cash reserve (the "Special Reserve Fund"), for the purpose of assuring
that Seller meets its payment obligations and working capital requirements from
the date hereof through the Closing Date; the amount of the Special Reserve Fund
has been set on the basis of Seller's Monthly Cash Flow Forecasts prepared by
Seller for the period from February 1 through May 31, 2000, attached hereto as
Schedule 6(n). The balance of One-Million Dollars ($1,000,000) shall be injected
into Seller for normal business and operational purposes. The Special Reserve
Fund, which is free of any Liens, may be drawn upon only on the terms and for
the purposes set forth in the "Reserve Escrow Agreement" delivered to Purchaser
on the date hereof substantially in the form of Exhibit 6(n).
(o) Bank Extension. Annexed hereto as Exhibit 6(o) is an executed
copy of the Fourth Amendment to Financing Agreement, dated as of March 31, 2000
(the "Bank Extension"), entered into by Seller and U.S. Bancorp Republic
Commercial Finance, Inc. (the "Bank"). Seller represents and warrants that: (x)
the Bank Extension is effective as of the date of execution of this Agreement,
and (y) Seller has complied with all of the conditions set forth therein..
(p) Noncompetition and Confidentiality Agreements. At the Closing,
Seller shall:
(i) provide Purchaser with copies of the Noncompetition and
Confidentiality Agreements dated as of the Closing Date, executed by Thomas J.
Guinan, Jeffrey Weiner and Adnan Durrani substantially in the forms respectively
set forth in Exhibit 7(h), and
(ii) assign to Purchaser all of Seller's rights, benefits, and
interests under each of the Worth Agreements with respect to Protection of
Confidential Information and Noncompetition so that the provisions of Sections
4, 5 and 6 of each of the Worth Agreements
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shall inure in full to the sole benefit of the Purchaser; it being understood
and agreed that (x) Purchaser shall not assume any obligations whatsoever under
the Worth Agreements and, except as expressly set forth above, Seller shall
retain all rights and obligations under the Worth Agreements, and (y) in the
event of any breach of the provisions of those rights under the Worth Agreements
assigned to Purchaser, Seller shall, at Purchaser's cost, take any and all
reasonable action requested by Purchaser to enforce those provisions. As used
herein, the "Worth Agreements" shall mean: (A) that certain Consulting, Loan
Repayment and Noncompetition Agreement dated as of August 13, 1997 between
Richard S. Worth and Seller, and (B) that certain Consulting, Loan Repayment and
Noncompetition Agreement dated as of August 13, 1997 between Randye Worth and
Seller.
(q) Payoff Schedule; Termination of Financing Agreement. (i) At
least five (5) Business Days prior to Closing, Seller shall deliver to Purchaser
a "Payoff Schedule" to be attached hereto as Exhibit 6(q), setting forth (x) a
list of every creditor of Seller (including but not limited to: stock, note,
warrant, option, and securities holders of Seller; banks and financial
institutions; trade creditors other than those assumed by Purchaser; suppliers
other than those assumed by Purchaser; and other third parties) to which Seller
owes amounts which are due or to become due within ninety (90) days after
Closing in excess of Ten Thousand Dollars ($10,000), (y) each such amount with
respect to each creditor as of a date which shall not be more than five (5)
Business Days prior to the Closing, and (z) for each creditors to be paid off at
or immediately after the Closing, the payment instructions to Purchaser with
information on the relevant bank account into which payment of the respective
payoff amounts shall be made at or immediately after the Closing.
(ii) On or before the Closing, Seller shall provide Purchaser
with fully executed originals, in form and substance acceptable to Purchaser,
of: (A) an agreement in writing between Bank and Seller providing for (x)
Seller's payment in full of all amounts due or outstanding under the Financing
Agreement (as defined in, and amended by, the Bank Extension), and (y) the
termination of such Financing Agreement and of any and all Liens granted to the
Bank on any of Seller's Assets, and (B) an instrument in writing of the Bank
releasing any and all of its Liens in any of Seller's Intellectual Property
Rights, and whereby the Bank covenants and agrees to execute and deliver to
Purchaser any further documents and instruments as may be necessary or
reasonably requested by Purchaser in order to fully release such Intellectual
Property Rights and other Seller's Assets from any Liens held in Bank's favor.
(r) Further Covenants of Seller. Without limiting the generality of
any other provision of this Agreement,
(i) On or prior to Closing, Seller shall: (A) be qualified to do
business and be in good standing in the state of Illinois or indemnify Purchaser
pursuant to Section 10(c) from and against any and all loss, liability, or
damage suffered or incurred by Purchaser in connection with Seller's failure to
so qualify or be in good standing; (B) obtain acknowledgement and consent of
Condor Ventures, Inc.; Laner, Muchin, Dombrow, Becker, Levin and Tominberg, Ltd.
(LMDBLT), and the Bank that the execution of this Agreement and consummation of
the transactions contemplated hereby do not contravene the agreements set forth
in Part 4(e)(ii) of the Disclosure Schedule or indemnify Purchaser pursuant to
Section 10(c) from and against any and all loss, liability, or damage suffered
or incurred by Purchaser in connection with Seller's failure to obtain
acknowledgement and consent; (C) in relation to the Pate's litigation disclosed
in Part 4(o) of the Disclosure Schedule, indemnify and hold Purchaser harmless
to the fullest extent set forth in Section 10 below, against all claims or
causes of action commenced, directly or indirectly, by Pate's Bakery, LLC
against Purchaser; and (D) make all
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necessary filings, cure any outstanding deficiencies and pay all fees and
penalties necessary to bring the 401(k) plans set forth in Part 4(r) of the
Disclosure Schedule in full compliance with law or, if Purchaser so chooses, at
Purchaser's sole discretion, indemnify Purchaser pursuant to Section 10(c) from
and against any and all loss, liability, or damage suffered or incurred by
Purchaser in connection with Seller's failure to make such filings, cure such
deficiencies or pay such fees and penalties;
(ii) Except as provided in Section 6(l)(i), Seller represents,
warrants and covenants that Purchaser has not, and will not, assume any
obligation whatsoever for any employment agreement(s) of Seller with any of its
employees including, but not limited to those with Mark Robson, Thomas Guinan
and Jeffrey Weiner.
Section 7
Conditions to Obligations of Purchaser
Notwithstanding any other provision of this Agreement to the
contrary, the obligation of Purchaser to effect the transactions contemplated
herein shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions:
(a) Representations and Warranties True. The representations and
warranties of Seller contained in this Agreement, including without limitation
in the Disclosure Schedule initially delivered to Purchaser as Exhibit 4 (and
not including any changes or additions delivered to Purchaser pursuant to
Section 6(h)), shall be in all material respects true, complete and accurate as
of the date when made and at and as of the Closing as though such
representations and warranties were made at and as of such time, except for
changes specifically permitted or contemplated by this Agreement.
(b) Performance. Seller shall have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Seller on or
prior to the Closing.
(c) Required Approvals and Consents.
(i) All action required by law and otherwise to be taken by the
Board of Directors of Seller and the shareholders of Seller to authorize the
execution, delivery and performance of this Agreement by the Seller and the
consummation of the transactions contemplated hereby shall have been duly and
validly taken.
(ii) All Consents of or from all Authorities required hereunder
to consummate the transactions contemplated herein including, without
limitation, those required by the HSR Act, and all Consents of from all persons
and entities other than Authorities that are identified in the Disclosure
Schedule shall have been delivered, made or obtained, and Purchaser shall have
received copies thereof.
(d) No Proceeding or Litigation. To the best of Seller's knowledge,
no suit, action, investigation, inquiry or other proceeding by any Authority or
other person or entity shall have been instituted or threatened which questions
the validity or legality of the transactions contemplated hereby or which, if
successfully asserted, would individually or in the aggregate, otherwise have an
adverse effect on the conduct of the businesses relating to Seller's Assets.
(e) Opinion of Seller Counsel. Purchaser shall have received an
opinion from Olshan, Grundman, Frome, Rosenzweig & Wolosky, LLP, counsel to
Seller, dated the Closing Date, substantially in the form and substance set
forth as Exhibit 7(e) hereto.
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(f) Certificates. Purchaser shall have received such certificates of
Seller's officers (including but not limited to an officer certificate
certifying that the Estimated Closing Working Capital Balance/(Deficit) and the
other unaudited financial statements and balance sheets provided by Seller
hereunder are in compliance with Section 4(g)) in a form and substance
reasonably satisfactory to Purchaser, dated the Closing Date, to evidence
compliance with the conditions set forth in this Section 7 and such other
matters as may be reasonably requested by Purchaser.
(g) Escrow Agreements. The parties thereto shall have executed and
delivered an Escrow Agreement in the form of Exhibit 7(g) hereto and the Reserve
Escrow Agreement in the form of Exhibit 6(n).
(h) Noncompetition and Confidentiality Agreements. On or before the
Closing Date, Seller shall have delivered to Purchaser Noncompetition and
Confidentiality Agreements dated as of the Closing Date and executed by Thomas
J. Guinan, Jeffrey Weiner and Adnan Durrani respectively, substantially in the
forms respectively set forth in Exhibit 7(h).
(i) Documentation for Conveyance of Seller's Assets. Purchaser shall
have received, in form and substance reasonably satisfactory to Purchaser, dated
the Closing Date, all of the Bill(s) of Sale, deeds, assignments including,
without limitation, assignments of trademarks and other intellectual property
rights, certificates of title, and any and all other conveyance and transfer
documentation listed on Exhibit 7(i) hereto as may be supplemented after the
date hereof but before Closing.
(j) Certificates of Amendment. On the Closing Date, Seller's shall
deliver: (i) Certificate of Amendment of its certificate of incorporation to be
filed in the State of Delaware amending its corporate name from "Delicious
Brands, Inc." to any other name which is in compliance with Section 6(m) (the
"New Name"), (ii) Certificates of Amendment (or equivalent) amending its
certificates of authority to be filed in Illinois, New York and Michigan,
respectively, amending its corporate name from "Delicious Brands, Inc." to the
New Name, (iii) any other documents for any other jurisdiction in which it is
qualified to do business or uses the "Delicious Brands, Inc." name, and (iv) any
other documents otherwise necessary or convenient to consummate the transactions
contemplated in this Agreement, including but not limited to, certificates of
good standing from the States of Delaware, Illinois, New York and Michigan dated
no earlier than two (2) Business Days prior to Closing. All such certificates
shall be in form and substance reasonably satisfactory to Purchaser.
(k) Environmental Phase I. The "Phase I" environmental report on
Seller's premises (which Purchaser in its discretion may procure prior to
Closing) does not require, in Purchaser's reasonable discretion, any material
repairs to any of Seller's premises or will not cause or require the
interruption of the use of Seller's premises, interfere with the carrying out of
the business in the regular course, or otherwise present material liabilities or
other legal risks.
(l) Employees. Purchaser shall provide a list of the Transferred
Employees pursuant to Section 6(l). Seller shall be solely responsible for any
severance and all other employment benefits to and rights of the Transferred
Employees through the Closing Date and for the remainder of Seller's employees
that are not assumed or employed by Purchaser through and after Closing.
(m) Payoff Schedule. At Closing, Purchaser shall have received the
Payoff Schedule pursuant to Section 6(q), with any amendments as necessary to
make it current as of the Closing Date; it being understood and agreed that
Seller shall provide Purchaser with a draft
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of the updated Payoff Schedule at least five (5) Business Days prior to Closing.
Section 8
Conditions to Seller's Obligations
Notwithstanding anything in this Agreement to the contrary, the
obligation of Seller to effect the transactions contemplated herein shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions:
(a) Representations and Warranties True. The representations and
warranties of Purchaser contained in this Agreement shall be in all material
respects true, complete and accurate as of the date when made and at and as of
the Closing, as though such representations and warranties were made at and as
of such time, except for changes permitted or contemplated in this Agreement.
(b) Performance. Purchaser shall have performed and complied in all
material respects with all agreements, covenants, obligations and conditions
required by this Agreement to be performed or complied with by Purchaser at or
prior to the Closing.
(c) Corporate Approvals. The shareholders of Seller shall have
approved the transactions contemplated hereby. All Consents listed on Exhibit
5(d) hereto shall have been delivered, made or obtained. All action required to
be taken by Purchaser to authorize the execution, delivery and performance of
this Agreement by Purchaser and the consummation of the transactions
contemplated hereby shall have been duly and validly taken.
(d) No Proceeding or Litigation. No suit, action, investigation,
inquiry or other proceeding by any Authority or other person or entity shall
have been instituted or threatened which questions the validity or legality of
the transactions contemplated hereby.
(e) Certificates. Purchaser shall have furnished Seller with such
certificates of Seller officers, in a form and substance reasonably acceptable
to Seller, dated the Closing Date, to evidence compliance with the conditions
set forth in this Section 6 and such other matters as may be reasonably
requested by Seller.
(f) Opinion of Purchaser Counsel. Purchaser shall have delivered to
Seller an opinion from BBLP - Pavia e Ansaldo Beiten Burkhardt Mittl & Wegener
Moquet Borde & Associes Meyer Lustenberger, Professional Corporation, counsel to
Purchaser, dated the Closing Date, in the form and substance set forth as
Exhibit 8(f) hereto.
(g) Payment of Consideration. Seller shall have received
satisfactory evidence that the wire transfers required by Sections 3(b)(A)(i)
and 3(b)(A)(ii) hereof have been completed and the Liability Undertaking
required by Section 3(b)(B) hereof has been executed and delivered.
(h) Escrow Agreements. The parties thereto shall have executed and
delivered an Escrow Agreement in the form of Exhibit 7(g) hereto and the Reserve
Escrow Agreement in the form of Exhibit 6 (n) hereto.
Section 9
Termination and Abandonment
(a) Methods of Termination. This Agreement may be terminated and the
transactions contemplated herein may be abandoned at any time notwithstanding
approval
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thereof by the shareholders of Seller, but not later than the Closing:
(i) By mutual written consent of Purchaser and Seller; or
(ii) By Purchaser on or after the Termination Date or such
later date as may be established pursuant to Section 3 hereof, if any of the
conditions provided for in Section 7 of this Agreement shall not have been
satisfied or waived in writing by Purchaser prior to such date; or
(iii) By Seller on or after the Termination Date or such later
date as may be established pursuant to Section 3 hereof, if any of the
conditions provided for in Section 8 of this Agreement shall not have been
satisfied or waived in writing by Seller prior to such date; or
(iv) By Seller if, prior to Closing, in good faith, based upon
written advice from outside counsel, and in order to prevent the Board of
Directors from breaching its fiduciary duty, the Board of Directors of Seller
shall have withdrawn or modified, in a manner adverse to Purchaser, its approval
or recommendation of this Agreement or its recommendation that shareholders of
the Seller adopt and approve this Agreement in order to permit Seller to execute
a definitive agreement providing for the acquisition of the assets of the Seller
or in order to approve a tender or exchange offer for any or all of the Seller's
Common Stock, in either case, that is determined, by the Board of Directors of
the Company to be a superior proposal. In the foregoing event, Seller shall pay
Purchaser the Break-up Fee as set forth above in Section 6(c)(ii).
(v) By any Party if the Closing shall not have occurred on or
before June 15, 2000.
(b) Procedure Upon Termination. In the event of termination and
abandonment pursuant to subsection (a), written notice thereof shall forthwith
be given to the other Party or Parties, and the provisions of this Agreement
(except to the extent provided in Section 11(a)) shall terminate, and the
transactions contemplated herein shall be abandoned, without further action by
any Party hereto. If this Agreement is terminated as provided herein: (i) each
Party will, upon request, redeliver all documents, work papers and other
material of any other Party (and all copies thereof) relating to the
transactions contemplated herein, whether so obtained before or after the
execution hereof, to the Party furnishing the same; (ii) the confidentiality
obligations of Section 6 (e) shall continue to be applicable; and (iii) except
as provided in this subsection, no Party shall have any liability for a breach
of any representation, warranty, agreement, covenant or other provision of this
Agreement, unless such breach was due to a willful or bad faith action or
omission of such Party or any representative, agent, employee or independent
contractor thereof.
Section 10
Survival and Indemnification
(a) Survival. The representations and warranties of each of the
Parties shall survive the Closing for a period of two (2) years from the Closing
Date.
(b) Indemnification by Purchaser. Purchaser agrees to indemnify
Seller from and against any and all loss, liability or damage suffered or
incurred by it by reason of (i) any untrue representation of, or breach of
warranty or covenant by, Purchaser in any part of this Agreement, provided,
however, that no claim for indemnity may be made pursuant to this subsection
after the second anniversary of the Closing Date; (ii) any nonfulfillment of any
covenant, agreement or undertaking of Purchaser in any part of this Agreement
which by its
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terms is to remain in effect after the Closing and has not been specifically
waived in writing at the Closing by the Party or Parties hereof entitled to the
benefits thereof; and (iii) any obligations of Seller assumed by Purchaser in
the Liability Undertaking.
(c) Indemnification by Seller; Untrue Representation or Breach of
Warranty or Covenant. Seller agrees to indemnify Purchaser from and against any
and all loss, liability or damage suffered or incurred by it by reason of any
untrue representation of, or breach of warranty or covenant by Seller in this
Agreement, provided, however, that Purchaser shall make any claim(s) pursuant to
this subsection (c): (A) exclusively against the Escrow Fund (and then to the
Seller only in the event that the Escrow Fund is no longer available or lacks
sufficient funds) until the aggregate amount of all such claims exceeds
Five-Hundred Thousand Dollars ($500,000), and (B) either against the Escrow Fund
or directly against Seller, in Purchaser's sole discretion, once the amount of
all such claims exceeds Five-Hundred Thousand Dollars ($500,000), and provided,
further, that no claims for indemnity may be made pursuant to this subsection
after the second anniversary of the Closing Date.
(d) Indemnification by Parties; Closing Working Capital Balance
Adjustment. Seller and Purchaser agree to indemnify each other for the amount of
the Closing Working Capital Balance Adjustment determined pursuant to Section
3(c) and resulting in any shortfall or excess, as the case may be. Any shortfall
shall result in a dollar-for-dollar reduction in the Purchase Price in the full
amount of such shortfall. Purchaser shall, in its sole discretion, either make a
claim for such amount under the Escrow Agreement or directly in writing against
Seller, which shall be payable within ten (10) Business Days of receipt by
Seller. Any excess shall result in a dollar-for-dollar increase in the Purchase
Price in the full amount of such excess. Seller shall make a written demand to
Purchaser and such excess amount shall be payable within ten (10) Business Days
of receipt thereof by Purchaser.
(e) Indemnification by Seller; Other. Seller agrees to indemnify
Purchaser from and against: (i) any and all loss, liability or damage suffered
or incurred by it by reason of any nonfulfillment of any covenant, agreement or
undertaking of Seller in this Agreement which by its terms is to remain in
effect after the Closing and has not been specifically waived in writing at the
Closing by the Party or Parties entitled to the benefits thereof; (ii) any
obligations of Seller not specifically assumed by Purchaser in the Liability
Undertaking; and (iii) any and all costs and expenses, including, without
limitation, legal fees and expenses, in connection with enforcing the
indemnification rights of Purchaser pursuant to Sections 10(c), 10(d) and 10(e).
(f) Basket Amount. Notwithstanding anything in Sections 10(b), (c)
and 10(e) to the contrary, neither Party shall be entitled to any
indemnification under such subsections against the other Party if the aggregate
amount of all claims of the Indemnified Party (as defined below) thereunder is
less than One-Hundred Twenty-Five Thousand Dollars ($125,000) (the "Basket
Amount"), but if the aggregate amount of all such Indemnified Party's claims
exceeds the Basket Amount, then the Indemnified Party shall be entitled to full
indemnification of all claims and there shall be no Basket Amount.
Notwithstanding anything in this Agreement to the contrary, for the purposes of
calculating the Basket Amount, Purchaser and Seller agree that each dollar from
the very first dollar on the very first claim incurred by the Indemnified Party
shall be included in calculating the Basket Amount regardless of any threshold
set forth in any provision of this Agreement. The Parties do not intend that the
Basket Amount be deemed to be a definition of what is "material" for any purpose
in this Agreement. Neither Party shall be entitled to any indemnification under
the subsection hereof in excess of the Purchase Price. The foregoing
notwithstanding, there shall be no Basket Amount applicable to claims under
Section 10(d).
36
<PAGE>
(g) Claims for Indemnification. Whenever any claim shall arise for
indemnification hereunder, the Party seeking indemnification (the "Indemnified
Party") shall promptly notify the Party from whom indemnification is sought (the
"Indemnifying Party") of the claim and, when known, the facts constituting the
basis for such claim. In the case of any such claim for indemnification,
hereunder resulting from or in connection with any claim or legal proceedings of
a third party, the notice to the Indemnifying Party shall specify, if known, the
amount or an estimate of the amount of the liability arising there from. The
Indemnified Party shall not settle or compromise any claim by a third party for
which it is entitled to indemnification hereunder without the prior written
consent of the Indemnifying Party, which shall not be unreasonably withheld. If
the Indemnifying Party is of the opinion that the Indemnified Party is not
entitled to indemnification, or is not entitled to indemnification in the amount
claimed in such notice, it shall deliver, within thirty (30) days after the
receipt of such notice, a written objection to such claim and written
specifications in reasonable detail of the aspects or details objected to, and
the grounds for such objection. If the Indemnifying Party shall file timely
written notice of objection to any claim for indemnification, the validity and
amount of such claim shall be determined by arbitration pursuant to Section
11(l) hereof. If timely notice of objection is not delivered or if a claim by an
Indemnified Party is admitted in writing by an Indemnifying Party or if an
arbitration award is made in favor of an Indemnified Party pursuant to Section
11(1), the Indemnified Party, as a non-exclusive remedy, shall have the right to
(i) receive from the Escrow Agent, upon five (5) days prior written notice to
the other party by the Escrow Agent of such release of funds, the amount of such
claim or award on a dollar-for-dollar basis in order to satisfy such claim or
award; (ii) set off the amount of such claim or award against any amount yet
owed, whether due or to become due, by the Indemnified Party or any subsidiary
thereof to any Indemnifying Party by reason of this Agreement or any agreement
or arrangement or contract to be entered into at the Closing; or (iii) recover
the amount of such claim or award by using a combination of subparagraphs (i)
and (ii).
(h) The Parties here agree and acknowledge that certain
representations, warranties, covenants and indemnification rights may survive
the term of the Escrow Agreement and, therefore, the availability of any Escrow
Funds (as defined therein). In the event that after termination of the Escrow
Agreement, a Party intends to make a claim to an Indemnifying Party pursuant to
a right hereunder, the Indemnified Party shall do so directly setting forth in a
written notice the basis for the claim and the amount sought. If the Parties
cannot mutually agree to resolve such claim within thirty (30) days after
receipt by the Indemnifying Party of such notice, the Indemnified Party may
pursue its remedies, under Section 11(l) of this Agreement.
Section 11
Miscellaneous Provisions
(a) Expense. Each of the Parties shall bear its own costs, fees and
expenses in connection with the negotiation, preparation, execution, delivery
and performance of this Agreement and the consummation of the transactions
contemplated hereby, including without limitation fees, commissions and expenses
payable to brokers, finders, investment bankers, consultants, exchange or
transfer agents, attorneys, accountants and other professionals, whether or not
the transactions contemplated herein are consummated; provided, however, that
each Party shall bear fifty percent (50%) of the fees and expenses of the
Independent Accountant and each Party shall bear fifty percent (50%) of the fees
of the Escrow Agent.
(b) Amendment and Modification. Subject to applicable Law, this
Agreement may be amended or modified by the Parties at any time prior to the
Closing with respect to any of the
37
<PAGE>
terms contained herein; provided, however, that all such amendments and
modifications must be in writing duly executed by all of the Parties.
(c) Waiver of Compliance; Consents. Any failure of a Party to comply
with any obligation, covenant, agreement or condition herein may be expressly
waived in writing by the Party entitled hereby to such compliance, but such
waiver or failure to insist upon strict compliance with such obligation,
covenant, agreement or condition shall not operate as a waiver of, or estoppel
with respect to, any subsequent or other failure. No single or partial exercise
of a right or remedy shall preclude any other or further exercise thereof or of
any other right or remedy hereunder. Whenever this Agreement requires or permits
the consent by or on behalf of a Party, such consent shall be given in writing
in the same manner as for waivers of compliance.
(d) No Third Party Beneficiaries. Nothing in this Agreement shall
entitle any person or entity (other than an assignee of Purchaser or a Party
hereto and his, her or its respective successors and assigns permitted hereby)
to any claim, cause of action, remedy or right of any kind.
(e) Notices. All notices, requests, demands and other communications
to either party hereunder shall be in writing delivered by certified or
registered mail, return receipt requested; reputable overnight courier, by hand
and a copy by facsimile transmission and shall be given to:
if to Purchaser, to:
Parmalat Bakery Division
135 Otonabee Drive
Kitchener, Ontario
N2C 1L7 Canada
Attn.: Mr. Ray Kingdon, President
Facsimile No.: 519-893-9223
Telephone No.: 519-893-6400 x 227
and
Parmalat Canada
405 The West Mall
Suite 1000, 10th Floor
Etobicoke, Ontario
M9C 5J1 Canada
Attn.: Mr. Peter Quintiliani, Chief Financial Officer
Mr. Peter Ferraro, VP and General Counsel
Facsimile No.: 416-620-3626
Telephone No.: 416-620-3623
with a copy to:
Parmalat S.p.A.
Via O. Grassi 22/26
43044 Collecchio
Parma, Italy
Attn.: Mr. Fausto Tonna, Chief Financial Officer
Facsimile No.: (+39) 0521 808 327
Telephone No.: (+39) 0521 8081
38
<PAGE>
BBLP - Pavia e Ansaldo
Beiten Burkhardt Mittl & Wegener
Moquet Borde & Associes
Meyer Lustenberger, Professional Corporation
460 Park Avenue, 21st Floor
New York, NY 10022
Attn.: Gian Paolo Zini
Richard P. Altieri
Facsimile No.: (212) 980 1453
Telephone No.: (212) 980 1633
or to such other person or address as Purchaser shall furnish to the
other Parties in writing in accordance with this subsection.
if to Seller, to:
Delicious Brands, Inc.
2070 Maple Street
Des Plaines, Illinois 60018
Attn.: Mr. Thomas J. Guinan, Chief Executive Officer
with a copy to:
Olshan, Grundman, Frome,
Rosenzweig & Wolosky, LLP
505 Park Avenue
New York, New York 10022
Attn.: Steven Wolosky, Esq.
Facsimile No.: (212) 980-7177
Telephone No.: (212) 753-7200
or to such other person or address as Seller shall furnish to the
other Parties in writing in accordance with this subsection.
All such notices, requests and other communications shall be deemed
received on the date of receipt by the recipient thereof if received prior to 5
p.m. in the place of receipt and such day is a Business Day in the place of
receipt. Otherwise, any such notice, request or communication shall be deemed
not to have been received until the next succeeding Business Day in the place of
receipt. For notice to be effective against the respective Parties, all copies
must be delivered as set forth above.
(f) Assignment. This Agreement and all of the provisions hereof
shall be binding upon and inure to the benefit of the Parties and their
respective successors and permitted assigns, but neither this Agreement nor any
of the rights, interests or obligations hereunder shall be assigned (whether
voluntarily, involuntarily, by operation of law or otherwise) by any of the
Parties without the prior written consent of the other parties; provided,
however, that Purchaser may assign this Agreement, in whole or in any part, and
from time to time as set forth in this Agreement.
(g) Governing Law. The validity, interpretation, enforceability, and
performance of this Agreement shall be governed by and construed in accordance
with the laws of the State of New York, without regard to the principles of
conflicts of law thereof.
(h) Counterparts. This Agreement may be executed simultaneously in
one or more
39
<PAGE>
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
(i) Headings. The table of contents and the headings of the sections
and subsections of this Agreement are inserted for convenience only and shall
not constitute a part hereof.
(j) Entire Agreement. The Disclosure Schedule and the exhibits and
other writings referred to in this Agreement or in the Disclosure Schedule or
any such exhibit or other writing are part of this Agreement: together they
embody the entire agreement and understanding of the Parties in respect of the
transactions contemplated by this Agreement and together they are referred to as
"this Agreement" or the "Agreement". There are no restrictions, promises,
warranties, agreements, covenants or undertakings, other than those expressly
set forth or referred to in this Agreement. This Agreement supersedes all prior
agreements and understandings between the parties with respect to the
transaction or transactions contemplated by this Agreement and the subject
matter hereof (including without limitation (i) the letter of intent dated
October 7, 1999, from [Parmalat] to Seller, (ii) the memorandum dated October
27, 1999, from Seller to [Parmalat], (iii) the letter dated November 4, 1999,
from Pricewaterhouse Coopers to Seller, (iv) the Exclusivity Letter dated
October 27, 1999, between [Parmalat] and Seller and (v) the Confidentiality and
Non-Disclosure Agreement dated June 24, 1999, between [Parmalat] and Seller, and
all amendments and extensions thereof).
(k) Injunctive Relief. It is expressly agreed among the Parties that
monetary damages would be inadequate to compensate a party hereto for any breach
by any other Party of its covenants and agreements in Sections 6(c) and 6(e)
hereof. Accordingly, the Parties agree and acknowledge that any such violation
or threatened violation will cause irreparable injury to the non-breaching Party
and that, in addition to any other remedies which may be available, the
non-breaching Party shall be entitled to injunctive relief against the
threatened breach of Sections 6(c) and 6(e) hereof or the continuation of any
such breach without the necessity or proving actual damages and may seek to
specifically enforce the terms thereof.
(1) Arbitration. With the sole exception of the injunctive relief
contemplated by Section 11(k), any dispute, controversy or claim arising out of,
or relating to, this Agreement including, without limitation, the interpretation
or the breach, termination or invalidity thereof, shall be exclusively and
finally resolved by arbitration in accordance with the Commercial Rules of the
American Arbitration Association ("AAA") then obtaining. The arbitration panel
shall consist of three (3) arbitrators. The claimant shall propose one
arbitrator; the respondent shall propose the second arbitrator; and the third
arbitrator, who shall serve as chairman, shall be appointed by the AAA. If any
of the Parties shall fail to propose an arbitrator, such arbitrator shall be
appointed by the AAA (the "Appointing Authority"). The place of arbitration
shall be New York City, USA and the English language shall be used throughout
the arbitral proceedings. By agreeing to arbitrate, the Parties waive their
right to any form of appeal or recourse to a court of law or other judicial
authority, to the fullest extent permitted by law. Notwithstanding the
foregoing, this agreement to arbitrate shall not bar either party from seeking
temporary or provisional remedies in any Court of competent jurisdiction.
Judgment upon any arbitration award may be entered in any court having
jurisdiction thereon. The Parties hereby consent to the exclusive jurisdiction
of the state and federal courts located in New York county, New York State.
(m) Severability. If any provision of this Agreement, or the
application thereof to any person, place, or circumstance, shall be held by a
court of competent jurisdiction to be
40
<PAGE>
invalid, unenforceable, or void, the remainder of this Agreement and such
provisions as applied to other persons, places, and circumstances shall remain
in full force and effect.
[Signatures on following page]
41
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of
this 5th, day of April, 2000.
PURCHASER:
BF USB Inc.
By: /s/ Brian M. Paluch By: /s/ Peter Quintilian
------------------- --------------------
Name: Brian M. Paluch Name: Peter Quintilian
Title: President Title: Treasurer
ATTEST:
By: ____________________
Name:
Title:
STATE OF Missouri )
) ss.:
COUNTY OF St. Louis )
On this 5th day of April, 2000, before me personally came Brian
Paluch, _______________ of BF USB Inc., a Delaware corporation, to me known, and
known to me to be the person who executed the foregoing instrument, who, being
by me duly sworn, did depose and say that he is the President of BF USB Inc., a
Delaware corporation; and that he executed the foregoing instrument on behalf of
such corporation and affixed the corporate seal to the foregoing instrument by
order of the Board of Directors of said corporation and signed his name thereto
by like order.
/s/ Barbara Ann Brown
--------------------
Notary Public 3/10/2002
[seal]
42
<PAGE>
SELLER:
DELICIOUS BRANDS, INC.
By: /s/ Tom Guinan
--------------------
Name: Tom Guinan
Title: President
ATTEST:
By: /s/ Jeffry Weiner
----------------------
Name: Jeffry Weiner
Title: CFO
STATE OF IL )
) ss.:
COUNTY OF DuPage )
On this 5th day of April, 2000, before me personally came Tom
Guinan, President of DELICIOUS BRANDS, INC., a Delaware corporation, to me
known, and known to me to be the person who executed the foregoing instrument,
who, being by me duly sworn, did depose and say that he is the President of
DELICIOUS BRANDS, INC., a Delaware corporation; and that he executed the
foregoing instrument on behalf of such corporation and affixed the corporate
seal to the foregoing instrument by order of the Board of Directors of said
corporation and signed his name thereto by like order.
/s/ Doreen Lindsey
--------------------
Notary Public
[seal]
43
FOR IMMEDIATE RELEASE
CONTACT:
Tom Guinan, CEO or
Jeff Weiner, CFO
Delicious Brands, Inc.
2070 Maple Street
Des Plaines, IL 60018
DATE:
April 7, 2000
Delicious Brands Enters Into Agreement To Sell
Assets To Parmalat
Delicious Brands, Inc. (OTCBB: DBSI) announced today that it had
entered into an definitive agreement to sell substantially all of its assets to
BF USB, Inc., a subsidiary of Parmalat Canada Ltd. The purchase price
anticipated to be paid at closing in the proposed agreement is $26,680,000, less
a working capital adjustment. However, after payment of all outstanding debt by
Delicious, redemption of its Series C Preferred Stock and Series D Preferred
Stock, continuing losses from operations and expenses associated with this
transaction, the Company's management cautioned that the net proceeds to
Delicious will not likely represent a premium to its current market
capitalization. This transaction is subject to satisfaction of various
conditions, including, the approval of a majority of the shareholders of
Delicious, Hart Scott Rodino Act approval, and other governmental approvals and
the obtaining of all necessary consents. Delicious has received an opinion from
its financial advisor, Valuemetrics, Inc., that the terms of the transaction are
in best interests of the Delicious and its shareholders.
Thomas J. Guinan, CEO of Delicious Brands, Inc., commented by
stating: "Given Delicious Brands' losses and declining sales, the Board of
Directors, after much deliberation and after receiving a fairness opinion from
their investment banker, decided it was in the best interests of the
shareholders to sell the assets of the Company. Unfortunately, Delicious Brands
does not have the critical mass to successfully compete in the cookie and
cracker segment, whereas an international organization like Parmalat, especially
through its bakery division including Mrs. Alison's cookies subsidiary, could
successfully roll-up the assets of Delicious Brands, Inc into their currently
impressive portfolio of cookie and snack companies. Upon shareholder approval of
this transaction, the Board of Delicious will evaluate all alternatives and
determine the best course to maximize shareholder value."
<PAGE>
Delicious has consummated a private placement raising an additional
$2,000,000 through the issuance of 100,000 shares of Series D Preferred Stock,
par value $0.01 per share, at a purchase price of $20.00 per share as of April
3, 2000. The proceeds will be used by Delicious for working capital purposes and
for the purpose of establishing a special reserve escrow fund under the terms of
the definitive agreement for the sale of substantially all of Delicious' assets.
Delicious Brands, Inc. currently markets branded cookie and cracker
products. Its list of established proprietary brand names includes Salerno(R),
Delicious(R), and Mama's(R), and Frookies(R). The Company's stock trades on the
NASDAQ OTC Bulletin Board.
Parmalat's bakery division brands include Colonial, Mrs. Alison's
and General Henry. BF USB Inc. is an indirectly held subsidiary of Parmalat
Canada Ltd. The Group holding company, Parmalat Finanziaria S.p.A. is listed on
the Milan Stock Exchange (PRFI.MI), and is one of the world's leading food group
companies with headquarters in Parma, Italy. Parmalat generates over $6 Billion
in total sales and has operations in 27 countries employing over 40,000 people.
# # # # # # # # #
This press release contains certain forward-looking statements within the
meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which are intended to be
covered by the safe harbors created thereby. Investors are cautioned that all
forward-looking statements involve risks and uncertainty including, without
limitations, the ability of the Company to consummate the transaction, the
ability to fund continuing losses and market and develop its products. Although
the Company believes that the assumptions underlying the forward-looking
statements contained herein are reasonable, any of the assumptions could be
inaccurate, and therefore, there can be no assurance that the forward-looking
statements included in this press release will prove to be accurate. In light of
the significant uncertainties inherent in the forward-looking statements
included herein, the inclusion of such information should not be regarded as
representation by the Company or any other person that the objectives and plans
of the Company will be achieved.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS A SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM
DELICIOUS BRANDS, INC. FINANCIAL STATEMENT AS OF DECEMBER 31, 1999 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 600,762
<SECURITIES> 0
<RECEIVABLES> 4,655,870
<ALLOWANCES> 2,857,970
<INVENTORY> 1,043,400
<CURRENT-ASSETS> 3,689,823
<PP&E> 1,018,810
<DEPRECIATION> 748,977
<TOTAL-ASSETS> 14,234,427
<CURRENT-LIABILITIES> 13,705,125
<BONDS> 335,454
0
6,617,428
<COMMON> 47,460
<OTHER-SE> (6,471,040)
<TOTAL-LIABILITY-AND-EQUITY> 14,234,427
<SALES> 41,085,899
<TOTAL-REVENUES> 41,085,899
<CGS> 31,671,826
<TOTAL-COSTS> 31,671,826
<OTHER-EXPENSES> 14,844,697
<LOSS-PROVISION> 1,002,547
<INTEREST-EXPENSE> 777,255
<INCOME-PRETAX> (7,635,331)
<INCOME-TAX> 0
<INCOME-CONTINUING> (7,635,331)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (7,635,331)
<EPS-BASIC> (1.70)
<EPS-DILUTED> (1.70)
</TABLE>
