<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JUNE 15, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
---------------
DIVERSIFIED FOOD GROUP, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 2099 36-4230573
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION OF INDUSTRIAL IDENTIFICATION NO.)
INCORPORATION OR CLASSIFICATION CODE NO.)
ORGANIZATION)
6901 NORTH HAMLIN AVENUE, LINCOLNWOOD, ILLINOIS 60645, (847) 763-9500
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ANDREW J. ZAHN
CHIEF EXECUTIVE OFFICER
DIVERSIFIED FOOD GROUP, INC.
6901 NORTH HAMLIN AVENUE, LINCOLNWOOD, ILLINOIS 60645, (847) 763-9500
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
DAVID J. KAUFMAN, ESQ. JOHN D. WATSON, JR., ESQ.
KATTEN MUCHIN & ZAVIS LATHAM & WATKINS
525 WEST MONROE STREET, SUITE 1600 1001 PENNSYLVANIA AVE., N.W., SUITE
CHICAGO, ILLINOIS 60661-3693 1300
(312) 902-5200 WASHINGTON, D.C. 20004
--------------- (202) 637-2200
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box: [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration for the
same offering: [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
MAXIMUM AMOUNT OF
TITLE OF SECURITIES AGGREGATE REGISTRATION
BEING REGISTERED OFFERING PRICE (1) FEE
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<S> <C> <C>
Common Stock, $.001 par value.............. $60,000,000 $17,700
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</TABLE>
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(1) Estimated solely for the purpose of calculating the registration fee in
accordance with Rule 457(o) under the Securities Act of 1933, as amended.
Includes the proposed maximum aggregate offering price for the shares
offered by the Company as well as for the shares which the Underwriters
have the option to purchase from the Selling Stockholders solely to cover
over-allotments, if any.
---------------
THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 15, 1998
Shares
LOGO
COMMON STOCK
--------
All of the shares of common stock, par value $.001 per share (the "Common
Stock"), offered hereby (the "Offering") are being offered by Diversified Food
Group, Inc. ("DFG" or the "Company"). Prior to this Offering, there has been no
public market for the Common Stock. It is currently estimated that the initial
public offering price for the Common Stock will be between $ and $ per
share. See "Underwriting" for a discussion of the factors to be considered in
determining the initial public offering price.
Application will be made to list the Common Stock on the New York Stock
Exchange under the symbol "DFX."
--------
THE COMMON STOCK OFFERED HEREBY INVOLVES A HIGH DEGREE OF RISK. SEE "RISK
FACTORS" COMMENCING ON PAGE 9.
--------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY
IS A CRIMINAL OFFENSE.
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<TABLE>
<CAPTION>
UNDERWRITING
DISCOUNTS AND PROCEEDS TO
PRICE TO PUBLIC COMMISSIONS(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share............. $ $ $
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Total(3).............. $ $ $
</TABLE>
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(1) See "Underwriting" for information relating to indemnification of the
Underwriters.
(2)Before deducting expenses of the Offering payable by the Company estimated
at $ .
(3) Certain stockholders of the Company (the "Selling Stockholders") have
granted the Underwriters a 30-day option to purchase up to additional
shares of Common Stock on the same terms and conditions set forth above
solely to cover over-allotments, if any. If such option is exercised in
full, the total Price to Public, Underwriting Discounts and Commissions and
Proceeds to Selling Stockholders will be $ , $ and
$ , respectively. The Company will not receive any of the proceeds
from the sale of shares by the Selling Stockholders. See "Underwriting."
--------
The shares of Common Stock are offered by the several Underwriters, subject
to prior sale, when, as and if delivered to and accepted by them, and subject
to the right of the Underwriters to reject any order in whole or in part. It is
expected that delivery of the shares of Common Stock will be made through the
offices of BT Alex. Brown Incorporated, Baltimore, Maryland on or about
, 1998.
--------
BT ALEXl BROWN BANCAMERICA ROBERTSON STEPHENS
THE DATE OF THIS PROSPECTUS IS , 1998.
<PAGE>
[THE INSIDE COVER AND GATEFOLD PAGES OF THE PROSPECTUS CONTAIN PHOTOGRAPHS
OF CERTAIN OF THE COMPANY'S PRODUCTS INCLUDING A BROAD ARRAY OF PREMIUM
APPETIZERS INCLUDING QUICHE, BROCHETTES, HAND-MADE CANAPES, PUFF PASTRY
PRODUCTS, EGG ROLLS, AND VARIOUS KOSHER DELICACIES. ALSO DISPLAYED ARE A
VARIETY OF GOURMET CONFECTIONERY PRODUCTS INCLUDING MRS. PRINDABLE'S
CHOCOLATE-COATED DESIGNER APPLES, ASSORTED HAND-DIPPED CHOCOLATES AND
TRUFFLES, FUDGE AND AMERICAN CARAMEL COMPANY CARAMEL TREATS. CERTAIN
PHOTOGRAPHS DISPLAY BRAND NAME PACKAGING, INCLUDING AMERICAN CARAMEL COMPANY
BITE SIZED GOURMET CARAMELS, PACKED IN NAUTICAL STYLE CONTAINERS, AND SWEET
SHOP BOXES OF HANDMADE TRUFFLES IN HOLIDAY AND THEME PACKAGING.]
The Company intends to furnish its stockholders with annual reports
containing financial statements audited by independent certified public
accountants and will make available quarterly reports containing unaudited
financial information for the first three quarters of each fiscal year.
CERTAIN PERSONS PARTICIPATING IN THIS OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN, OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK,
INCLUDING BY ENTERING STABILIZING BIDS, EFFECTING SYNDICATE COVERING
TRANSACTIONS OR IMPOSING PENALTY BIDS. FOR A DESCRIPTION OF THESE ACTIVITIES,
SEE "UNDERWRITING."
2
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this Prospectus.
This summary is not complete and does not contain all of the information that
you should consider before investing in the Common Stock. You should read the
entire Prospectus carefully.
Diversified Food Group, Inc. was incorporated in Delaware in June 1998 to
accomplish the exchange of all of the membership interests of Diversified Food
Group, LLC, a Delaware limited liability company, for common stock of
Diversified Food Group, Inc. (the "Conversion"). In this Prospectus, unless the
context otherwise indicates, "DFG" or the "Company" means Diversified Food
Group, L.L.C. and its subsidiaries prior to the Conversion and Diversified Food
Group, Inc. and its subsidiaries after the Conversion. All information in this
Prospectus, other than the historical financial information, assumes
consummation of the Conversion. The information in the Prospectus also assumes
the Underwriters' over-allotment option is not exercised. With respect to the
Company only, "Fiscal 1996" refers to the initial period from March 25, 1996
through January 3, 1997, "Fiscal 1997" refers to the fiscal year ended January
2, 1998 and "Fiscal 1998" refers to the fiscal year ending January 1, 1999.
COMPANY OVERVIEW
DFG is a leading manufacturer and marketer of a broad variety of premium
appetizers and gourmet confections in North America. The Company sells its
products under well-recognized brand names, including COHEN'S FAMOUS(TM),
CASINO CHEF(TM), RESTAURANIC(TM) and FAYE'S(TM) for appetizers and MRS.
PRINDABLE'S(R), AMERICAN CARAMEL COMPANY(R), CLASSIC KETTLE(TM) and SWEET
SHOP(R) for gourmet confections. The Company also has a significant private
label program with major food service distributors and retailers. The Company's
more than 200 premium appetizer products, which include puff pastry, hot and
Mexican hors d'oeuvres as well as canapes, quiche, filo hors d'oeuvres,
brochettes and kosher delicacies, are prepared using high quality ingredients
including lobster, shrimp and other seafood, poultry, beef and a variety of
vegetables. DFG's more than 150 premium confection products include hand
decorated caramel and chocolate apples, caramel and chocolate dipped short
breads, pretzels, biscotti, fudge, truffles and ice cream novelties.
The Company was formed in March 1996 to consolidate small to medium-sized
specialty food producers and to introduce professional management to the
consolidated entities in order to achieve strong internal growth. Since
inception, DFG has acquired four established companies and has agreements to
acquire two additional companies, which on average have been manufacturing and
marketing premium food products for over 25 years. Management believes the
integration of these companies into DFG's operations has created additional
growth opportunities for each acquired business as well as synergies for the
Company as a whole.
DFG distributes its products through all principal distribution channels
including food service, club stores, retail supermarkets, upscale department
stores, specialty stores, electronic media and military post exchange stores.
DFG's food service customers include national distributors (such as Alliant
Foodservice, J.P. Foodservice, Marriott Distribution and Sysco Corp.), regional
distributors (such as Dot and Gordon Food Service), hospitality chains and
banquet halls. The Company's retail customers include club stores (such as
B.J.'s Wholesale Club, Costco and Sam's Club), department stores (such as
Bloomingdale's, Neiman Marcus and Saks Fifth Avenue), retail supermarkets (such
as Pathmark, Publix and Shop-Rite) and over 3,500 specialty stores nationwide.
The Company has been an innovator in selling through alternative channels, such
as QVC, where the MRS. PRINDABLE'S Gourmet Apple holds the record for the
highest one day unit sales of a food product.
DFG believes that it is well positioned to capitalize on certain trends
affecting the food industry, including a trend toward outsourcing in the food
service sector, an increase in the consumption of prepared foods and a rise in
the demand for indulgence food items. Appetizers, which generated industry-
3
<PAGE>
wide sales of over $1.7 billion in 1997, are time consuming and labor intensive
for chefs and their staffs to prepare. DFG's handmade appetizers enable food
service professionals to serve gourmet appetizers that look and taste homemade
while concentrating on other aspects of meal preparation. In the retail grocery
and club store channels, the Company's appetizer products satisfy the growing
demand for "home meal replacement" prepared foods that allow busy consumers to
quickly prepare and serve high quality meals at home. In addition, the
Company's confectionery products, which generally compete in the $500 million
luxury sector of the chocolate market, enable consumers to purchase items
suitable for gift giving or personal consumption and, to a lesser extent,
enable caterers to easily provide indulgence items to their guests.
PENDING ACQUISITIONS
The Company has entered into letters of intent to acquire Wilton Foods, Inc.
("Wilton") and American Specialty Confections, Inc. ("American Specialty").
Wilton is a manufacturer of Kosher and non-Kosher appetizers and Kosher
packaged meals for airlines and other institutional customers, sold under the
WILTON'S(TM) and BARNEY'S(TM) brand names and under private labels. Under
licenses from major consumer products companies, American Specialty packages,
markets and sells confections in decorative gift tins, lunch boxes and other
containers featuring various consumer brands on both the containers and
products. American Specialty currently sources from third parties the
confection products it includes in these containers. Following the acquisition,
DFG intends to replace certain of these items with the Company's own confection
products. Each of these acquisitions is expected to be consummated concurrently
with the Offering. Consummation of the acquisitions is subject to a number of
conditions, and there can be no assurance that such conditions will be
satisfied or waived or that these acquisitions will be consummated.
COMPETITIVE STRENGTHS
Management believes that the following competitive strengths have contributed
to, and will continue to support, DFG's performance and execution of its
business strategy:
Premium Quality Products and Established Brands. The Company's products
and brands are well established in their channels of distribution, have a
reputation for high quality and premium value and enjoy strong market
positions. The Company has long-standing relationships with key customers,
particularly in the food service sector.
Multiple Distribution Channels; Diverse Customer Base. The Company's
substantial presence in each of the major food distribution channels allows
DFG to expand sales of its existing, acquired and newly-developed products
by introducing them into each of the Company's distribution channels. The
Company's presence in Canada and the United Kingdom provides the
opportunity to further penetrate international markets. DFG's sales are
distributed over a broad base of customers, with no single customer
representing more than 9% of consolidated net sales in 1997.
Flexible, Low-cost Manufacturing. DFG's flexible manufacturing
infrastructure allows it to shift production to respond to customer demand
and achieve the most efficient manufacturing configuration. The Company's
four operating locations (which, upon acquisition of Wilton and American
Specialty, will be increased to six) provide the capacity to accommodate
substantial additional business.
Experience in Acquiring and Integrating Businesses. As a result of its
acquisition experience, management believes that it has developed the
infrastructure, skills and experience necessary to identify and evaluate
appropriate targets, to structure and finance acquisitions, and to
integrate and enhance the acquired businesses.
"Single Source" Solution Capability. The Company's broad product lines
allow the Company to offer many of its customers a single source solution
to their appetizer and confection product needs. The Company's product
development staff regularly develops and introduces new items in response
to customer requests and changing consumer preferences.
4
<PAGE>
Experienced Management Team. The Company's senior management team
includes many food industry veterans who have substantial experience with
major food companies, smaller specialty companies, food service operators
and major retailers. The Company has retained substantially all of the
senior executives of acquired businesses and provided these executives with
substantial financial incentives to continue their employment with DFG.
GROWTH STRATEGY
DFG's objective is to drive sales and operating performance by capitalizing
on its competitive strengths and implementing the following elements of the
Company's growth strategy:
Expand on Cross-Selling Opportunities. The Company intends to leverage
its established brands by introducing them into previously untapped
distribution channels. For example, following DFG's acquisition of Mrs.
Prindable and Classic Kettle, the Company introduced CLASSIC KETTLE
confections, previously a specialty store brand, into the club store
channel, and obtained nationwide distribution of Classic Kettle products at
both Costco and Sam's Club.
Introduce New Products and Line Extensions. The Company plans to build
upon its collection of brands by introducing new products and line
extensions. In the past 12 months, the Company's product development team
has introduced more than 40 new products.
Capitalize on Operating Synergies. As the Company has grown by acquiring
established businesses, DFG has begun to take advantage of the operating
synergies derived from combining these businesses. Such synergies include:
. Consolidating sales and marketing across DFG brands and expanding
marketing efforts, such as trade and consumer advertising and
promotions.
. Achieving cost savings by reducing duplicative administrative
functions, realizing purchasing power efficiencies, and streamlining
production and distribution while improving quality.
. Integrating information technology to accommodate anticipated growth.
Continue Making Strategic Acquisitions. The Company has acquired four
businesses and has letters of intent to acquire two additional businesses.
Management believes that numerous acquisition opportunities remain in the
fragmented appetizer and confection businesses. The Company will continue
to pursue acquisitions that provide complementary product lines, access to
new markets or synergies in production and distribution, and to apply the
same integration and growth strategies it has employed to date with prior
acquisitions.
----------------
The Company's executive offices are located at 6901 North Hamlin Avenue,
Lincolnwood, Illinois 60645, and its telephone number is (847) 763-9500.
5
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common Stock offered by the shares
Company.........................
Common Stock to be outstanding
after the Offering.............. shares(1)
Use of proceeds.................. To repay indebtedness and to purchase Wilton,
American Specialty and a new appetizer
production facility. See "Use of Proceeds."
Proposed New York Stock Exchange DFX
symbol..........................
</TABLE>
- --------
(1) Does not include (i) up to additional shares reserved for issuance
under the Company's 1998 Employee Stock Option Plan, of which options to
purchase shares will be granted concurrently with the Offering at an
exercise price equal to the initial public offering price; (ii) options to
purchase up to shares at a weighted average exercise price of $
already granted under the 1998 Employee Stock Option Plan and other
employee option arrangements; (iii) up to shares reserved for
issuance under the Company's Non-Employee Director Stock Option Plan; (iv)
up to shares issuable upon the exercise of warrants outstanding at
the time of the Offering; and (v) up to shares issuable upon the
conversion of outstanding convertible debt. See "Management--Stock Plan"
and "Certain Relationships and Related Transactions."
6
<PAGE>
SUMMARY HISTORICAL AND PRO FORMA CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth summary historical and pro forma financial
data of the Company for the periods ended and as of the dates indicated. The
summary historical statement of operations data for the initial period from
March 25, 1996 to January 3, 1997 and the year ended January 2, 1998 are
derived from the audited consolidated financial statements of the Company
included elsewhere in this Prospectus. The summary historical statement of
operations data for the three month periods ended April 4, 1997 and April 3,
1998 and the summary historical balance sheet data as of April 3, 1998 are
derived from the unaudited consolidated financial statements of the Company
included elsewhere in this Prospectus and which, in the opinion of management,
include all adjustments necessary for a fair presentation, which consist of
normal recurring adjustments. The summary pro forma statement of operations
data reflect adjustments, where appropriate, to the historical financial data
of the Company to give effect to (i) the completed acquisitions of Sweet Shop
Candies, Inc. and Cohen's Famous Frozen Foods, Inc. and the pending
acquisitions of Wilton and American Specialty (collectively the
"Acquisitions"), (ii) borrowings under the Proposed Credit Facility, (iii) the
Offering and the application of the net proceeds as described in "Use of
Proceeds," and (iv) the Conversion as described in "Company History and
Acquisitions", as if each had occurred on January 4, 1997. This information
should be read in conjunction with the Company's historical consolidated
financial statements, and the unaudited pro forma condensed consolidated
financial statements and related notes thereto appearing elsewhere in this
Prospectus and "Management's Discussion and Analysis of Financial Condition and
Results of Operations."
<TABLE>
<CAPTION>
THREE MONTHS ENDED
---------------------------------
INITIAL PERIOD
FROM MARCH 25,
1996 TO YEAR ENDED
JANUARY 3, 1997 JANUARY 2, 1998 APRIL 4, 1997 APRIL 3, 1998
--------------- ---------------- --------------- ----------------
PRO PRO PRO
ACTUAL FORMA ACTUAL FORMA ACTUAL FORMA
------- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales............... $13,117 $36,247 $85,365 $4,091 $12,160 $ 9,782 $16,975
Cost of goods sold...... 8,111 26,177 63,887 3,329 9,621 7,159 13,172
------- ------- ------- ------ ------- ------- -------
Gross profit............ 5,006 10,070 21,478 762 2,539 2,623 3,803
Selling, general and
administrative
expenses............... 3,219 7,902 21,611 1,373 4,778 4,126 5,861
------- ------- ------- ------ ------- ------- -------
Income (loss) from
operations............. 1,787 2,168 (133) (611) (2,239) (1,503) (2,058)
Interest expense........ 250 1,488 2,115 245 469 1,170 688
Miscellaneous non-
operating expenses
(income)............... 95 117 524 42 59 4 40
Income tax provision
(benefit)(1)........... 299 327 (998) (108) (996) (200) (1,003)
Minority interests in
income (loss).......... 201 (49) -- (27) -- -- --
------- ------- ------- ------ ------- ------- -------
Net income (loss)....... $ 942 $ 285 $(1,774) $ (763) $(1,771) $(2,477) $(1,783)
======= ======= ======= ====== ======= ======= =======
PRO FORMA DATA:
Pro forma (loss) per
share..................
======= ======= =======
Pro forma weighted
average number of
shares outstanding.....
======= ======= =======
</TABLE>
- --------
(1) As a limited liability company, DFG is not subject to federal income taxes,
and its income is allocated to and reported in the tax returns of its
members. Accordingly, no liability or provision for current and deferred
income taxes attributable to these operations is included in the actual
statement of operations data. Restauranic, a subsidiary of DFG, is subject
to income tax as a C corporation and the actual income tax provision
(benefit) described above refers to Restauranic.
7
<PAGE>
<TABLE>
<CAPTION>
APRIL 3, 1998
-----------------------
ACTUAL PRO FORMA (1)
-------- -------------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital(2)................................ $(25,942) $ 9,916
Total assets...................................... 53,679 93,199
Long-term debt, net of current maturities......... 1,367 33,571
Total stockholders' equity(3)..................... 14,034 48,413
</TABLE>
- --------
(1) Pro forma gives effect to (i) the Conversion, (ii) the pending
Acquisitions, (iii) borrowings under the Proposed Credit Facility and (iv)
the sale of shares of common stock by the Company in the Offering
at an assumed initial public offering price of $ per share and the
application of the net proceeds therefrom, after deducting underwriting
discounts and commissions and estimated offering expenses payable by the
Company, as if the transactions and the Offering had occurred on April 3,
1998.
(2) The terms of the Company's existing senior credit facility and subordinated
indebtedness require the Company to maintain certain financial ratios and
to comply with certain covenants. As a result of the Company's acquisitions
of Sweet Shop in January 1998 and Cohen in October 1997, the Company
incurred an aggregate of $28.1 million of indebtedness. The Company was out
of compliance with these financial ratios as of January 2, 1998 and April
3, 1998. The Company has received waivers from the lenders for these
covenant violations through August 31, 1998 and intends to repay all
outstanding indebtedness under the existing senior credit facility and
subordinated indebtedness using a portion of the net proceeds of the
Offering. The existing senior credit facility and subordinated indebtedness
have been classified as short-term obligations in the Company's
consolidated financial statements.
(3) Pro forma reflects the write-off of deferred financing costs of $4,226
relating to the existing senior credit facility and subordinated
indebtedness and unaccreted original issue discount of $9,418 relating to
the repayment of subordinated indebtedness totalling $13,644.
8
<PAGE>
RISK FACTORS
An investment in the shares of Common Stock offered by the Prospectus
involves a high degree of risk. In addition to the other information contained
in this Prospectus, the following factors should be considered carefully
before purchasing any of the shares of Common Stock offered hereby. This
Prospectus contains certain forward-looking statements that are based on the
beliefs of, as well as assumptions made by and information currently available
to, the Company's management. The words "believe," "anticipate," "intend,"
"estimate," "expect" and similar expressions are intended to identify such
forward-looking statements, but are not the exclusive means of identifying
such statements. Such statements reflect the current views of the Company or
its management and are subject to certain risks, uncertainties and
assumptions, including, but not limited to, those set forth in the following
Risk Factors. Should one or more of these risks or uncertainties materialize,
or should underlying assumptions prove incorrect, the Company's actual results
or performance in 1998 and beyond could differ materially from those expressed
in, or implied by, such forward-looking statements.
LIMITED OPERATING HISTORY
DFG has a limited operating history. The Company began operating in March
1996. Although the businesses acquired by DFG have on average been operating
for more than 25 years, they have limited history as part of the Company.
DFG's management has limited experience in managing these acquired businesses
individually and in integrating the operations of multiple companies. There
can be no assurance that DFG will be able to successfully combine and
integrate these acquired companies.
HISTORY OF LOSSES
On a pro forma basis the Company has experienced net losses and losses from
operations in Fiscal 1997 and the three months ended April 4, 1997 and April
3, 1998. On a historical basis the Company has experienced net losses and
losses from operations with respect to the three-months ended April 4, 1997
and April 3, 1998. There can be no assurance that DFG will achieve or sustain
profitability. Future results will depend on many factors, including the
ability of the Company to integrate the acquired businesses, demand for DFG's
products and the ability of management to successfully implement its growth
strategy. See "Unaudited Pro Forma Condensed Consolidated Financial
Information," "Management's Discussion and Analysis of Financial Condition and
Results of Operations" and "Business."
EXECUTION OF GROWTH AND ACQUISITION STRATEGIES; RISKS OF INTEGRATING ACQUIRED
BUSINESSES
To capitalize on the fragmented specialty food market, DFG intends to
continue to grow both internally and through additional acquisitions. Keys to
internal growth include increasing sales and earnings through existing
distribution channels by expanding current product lines and increasing brand
recognition. The Company may not be successful in achieving these goals.
Introduction of new product lines (through acquisitions or internal product
development) may have the effect of cannibalizing existing product lines.
Although acquisitions can add new brand names, broader product lines and
additional distribution channels to complement DFG's existing business, the
Company may not be able to identify and acquire attractive acquisition
candidates, profitably manage companies it acquires or successfully integrate
the acquired companies into the Company without substantial costs or delays.
The Company has completed only four acquisitions to date and has letters of
intent signed with two additional companies. The acquisition of new businesses
may result in new and previously unencountered risks. Acquired businesses may
have information systems which differ from the Company's, and therefore, the
Company may incur substantial costs and experience significant difficulties or
delays in integrating such systems. The failure to successfully implement the
Company's internal growth strategies, acquire new businesses (including Wilton
and American Specialty) or successfully integrate acquired businesses may have
a material adverse effect on the Company's business and financial results. See
"Business--Growth Strategy."
MATERIAL ACCOUNTING WEAKNESS
The Company received a management letter from its independent certified
public accountants in connection with the Fiscal 1997 audit of the Company's
consolidated financial statements which identified
9
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a "material weakness" in the Company's internal controls. The management
letter noted that many general ledger accounts were not analyzed during the
fiscal year. As a result, the Company took significant time to reconcile and
close its books after the end of Fiscal 1997. During the reconciliation
process, numerous adjustments were made to applicable balances. Management has
taken steps that it believes will correct this material weakness including
hiring and training additional accounting staff, training existing accounting
staff and initiating the process of implementing systems and controls to
assure more frequent analysis of general ledger accounts. However, there can
be no assurance that steps taken by the Company will be sufficient to correct
the material weakness.
IMPACT OF GOVERNMENTAL REGULATION AND OTHER CERTIFICATIONS
The Company's operations are subject to extensive regulation by federal,
state and local authorities, including the United States Department of
Agriculture. Rigorous standards apply to the production, packaging, quality,
storage, labeling and distribution of food products. DFG's facilities must
comply with federal, state and local health, workplace and environmental laws
and regulations, such as the Occupational Safety and Health Act, the Fair
Labor Standards Act, the Clear Air Act and the Clean Water Act. The Company
produces a number of appetizers and confections that are "U Kosher Certified,"
and the loss of such certification may have a material adverse effect on DFG's
business and financial results. The Company must bear the cost of compliance,
as well as any fines associated with failure to comply, with current and
future laws and regulations. Such costs could adversely effect the Company's
business and financial results. See "Business--Regulation and Certifications."
PRODUCT LIABILITY
The Company may be liable if the consumption of any of the Company's
products causes illness, injury or death. Risk of illness, injury or even
death may occur as the result of tampering, product contamination or spoilage,
including the presence of substances, chemicals and other agents or residues
introduced during the growing, storage, handling or transportation of food
products. A product recall, product liability lawsuit or health-related
illness resulting from contamination, tampering or other damage to DFG's
products could affect the Company's reputation and could have a material
adverse effect on the Company's business and financial results.
SEASONALITY
A number of DFG's product lines are primarily marketed and sold during the
major holiday seasons, particularly during the Christmas and New Year's
season. Accordingly, the Company's historical net sales are substantially
higher during the fourth fiscal quarter than the balance of the year. The
Company's net sales have generally been lowest during the first quarter,
reflecting reduced demand for the Company's products. In anticipation of
greater production during the Christmas and New Year's season, working capital
needs increase as DFG hires additional temporary employees and incurs other
expenses of increased production during the third quarter. In Fiscal 1997,
approximately 54% of DFG's net sales and approximately 79% of DFG's income
from operations was generated in the fourth quarter. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--
Quarterly Results of Operations and Seasonality."
COMPETITION
DFG competes in highly fragmented and competitive markets. The Company
competes for sales of its premium appetizers and gourmet confections with both
well-established national companies and smaller regional and local specialty
operations. Success depends on a number of factors, including the ability to
(1) build brand recognition and maintain brand loyalty; (2) provide a broad
assortment of desirable products; (3) increase distribution of DFG's products
with food service operators, upscale department stores, specialty stores and
other retailers; and (4) provide quality products and superior service. The
Company's ability to compete in the gourmet confection market also depends on
continued consumer demand for "indulgence" items. Competitors may have broader
product lines, greater production capacity, greater financial resources and
longer operating histories. Competitors may also
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enjoy greater brand recognition. DFG may not be able to successfully compete
with these competitors, which could cause the Company to lose market share,
which could have a material adverse effect on the Company's business and
financial results. See "Business--Competition."
RELOCATION OF MANUFACTURING FACILITIES
The Company plans to relocate one of its appetizer operations to a new
facility in Chicago, Illinois, which is scheduled to open in August 1998. The
existing facility, which is also located in Chicago, is anticipated to be
operated simultaneously with the new facility while the new facility is
brought on line. Any significant disruptions in raw material delivery, storage
or distribution during the transition to the new facility could have a
material adverse effect on the Company's ability to manufacture and ship its
appetizer products.
The new facility is expected to increase the Company's overall appetizer
manufacturing capacity by approximately 50%. There can be no assurance that
construction of the new facility will be completed on schedule, within budget
or at all, that the new facility will result in the anticipated increase in
capacity or that the Company will receive sufficient orders to utilize such
capacity. Any significant delay or cost overrun in the construction of the new
facility could have a material adverse effect on the Company's business and
financial results.
SUSCEPTIBILITY TO GENERAL ECONOMIC CONDITIONS
The Company's net sales and results of operations are subject to
fluctuations based upon general economic conditions in the United States. The
Company's confection products (which represented 31.7% of 1997 pro forma
sales), and to a lesser extent its appetizer products, are indulgence items,
sales of which may be particularly sensitive to overall economic conditions.
If the United States experiences a general economic downturn or recession, the
demand for high-end and indulgence food products may decrease, which could
have a material adverse effect on the Company's business and financial
results. See "Business--Industry Overview."
TRADEMARKS AND OTHER PROPRIETARY RIGHTS
The Company believes that its trademarks, tradenames, brands, recipes and
other proprietary rights, particularly DFG's established brand names, are
important to its success and its competitive position. Accordingly, DFG
devotes substantial resources to the establishment and protection of its
trademarks, trade secrets and other proprietary rights. However, the actions
taken by the Company may be inadequate to prevent imitation of its products by
others or to prevent others from claiming violations of their trademarks,
trade secrets and proprietary rights by DFG, and others may assert rights in
the Company's trademarks and other proprietary rights. In addition, the laws
of certain foreign countries may not protect proprietary rights to the same
extent as do the laws of the United States. See "Business--Intellectual
Property."
UNCERTAINTIES ASSOCIATED WITH PRIVATE LABELING
Private label programs accounted for approximately 16% and 11% of DFG's pro
forma net sales in Fiscal 1997 and the three months ended April 3, 1998,
respectively. The Company has no contracts with the food service customers,
department stores or specialty retailers for whom it produces private label
products. In addition, DFG does not own the private label brand names under
which its products are sold. There can be no assurance that the customers will
not obtain their private label products from another manufacturer in the
future. The loss of private label business could have a material adverse
effect on DFG's business and financial results.
COST AND AVAILABILITY OF INGREDIENTS AND PACKAGING MATERIALS
The primary ingredients DFG uses in making its premium appetizers and
gourmet confections are seafood, poultry, beef, cheese, vegetables, cocktail
franks, chocolate, apples, sugar, vegetable oil, flour and milk. The Company
also uses plastic and paper products for packaging and shipping its specialty
foods.
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The prices of these materials have been, and are expected to continue to be,
subject to significant market volatility. Weather conditions and governmental
regulation may also affect the cost of such ingredients and materials.
Competitive market pressures may limit DFG's ability to pass these increased
costs on to customers and, therefore, may negatively affect profit margins and
financial results. See "Business--Raw Materials."
SIGNIFICANT INTANGIBLE ASSETS
As of April 3, 1998, approximately $55 million, or approximately 60%, of the
Company's pro forma assets were intangible assets, primarily goodwill. DFG
will incur non-cash charges as a result of amortization of such assets over
their estimated useful lives. If the value of any of these intangible assets
were to decrease, the Company could incur a significant non-cash charge and
the market price of the Common Stock could be adversely affected. If DFG is
sold or its assets liquidated, the value of the intangible assets may not be
recovered. DFG intends to pursue additional acquisitions and such acquisitions
will likely increase the amount of goodwill and other intangible assets on the
Company's balance sheet. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and Note 2 of Notes to
Financial Statements of the Consolidated Financial Statements of DFG.
DEPENDENCE ON KEY PERSONNEL
DFG believes its success depends in part upon the continued services of its
senior management team led by Andrew Zahn, and the continued involvement of
Charles Mok, Neil Cohen and other founders of the acquired businesses. No
assurances can be given that the Company would be able to find qualified
replacements for Messrs. Zahn, Mok, Cohen or other members of the Company's
senior management team should they become unable or unwilling to continue in
their current positions. As a result, DFG's business and financial results
could be materially adversely affected. See "Company History and
Acquisitions--Completed Acquisitions" and "Management."
YEAR 2000 COMPLIANCE
Although the Company does not anticipate any material costs or inconvenience
to DFG in connection with the year 2000 computer issue, the Company could be
adversely affected if the Company's customers, vendors or suppliers do not
appropriately address year 2000 compliance issues. For example, purchase
orders or payments could be delayed or reduced as a result of year 2000
compliance problems experienced by the Company's customers. See "Management's
Discussion and Analysis of Financial Condition and Results of Operations--Year
2000 Issue."
LACK OF PUBLIC MARKET FOR THE COMMON STOCK; DETERMINATION OF PUBLIC OFFERING
PRICE
Prior to the Offering, there has not been a public market for the Common
Stock. The Company intends to list the Common Stock for trading on the New
York Stock Exchange. Even if the Common Stock is listed on the New York Stock
Exchange, there can be no assurance that an active trading market for the
Common Stock will develop or be sustained after the Offering or that
purchasers of the Common Stock will be able to resell their shares at prices
equal to or greater than the initial public offering price. The initial public
offering price for shares of the Common Stock will be determined through
negotiations between DFG and the Underwriters. See "Underwriting."
The trading price of the Common Stock could be subject to wide fluctuations
in response to announcements of increases in the cost of raw materials, new
products introduced by the Company or its competitors, variations in the
Company's quarterly results of operations, or changes in financial estimates
by securities analysts and other events or factors. The stock market has
experienced extreme price and volume fluctuations in recent years. Stock
market volatility unrelated to the operating performance of DFG may adversely
affect the market price of the Common Stock.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
The market price of the Common Stock could drop as a result of sales of a
large number of shares of Common Stock after the Offering or the perception
that such sales could occur. These factors could also make it more difficult
for DFG to raise funds through future stock offerings.
There will be shares of Common Stock outstanding immediately after
the Offering. Of these shares, the shares sold in the Offering will be freely
transferable without any restrictions under the Securities Act, except for any
shares purchased by "affiliates" of the Company, as defined in Rule 144 under
the Securities Act. The remaining shares of common stock outstanding
will be "restricted securities" as defined in Rule 144. These shares may be
sold in the future without registration under the Securities Act to the extent
permitted by Rule 144 or an exemption under the Securities Act.
In connection with the Offering, DFG, its executive officers, directors and
certain stockholders (including the Selling Stockholders) have agreed that,
with certain exceptions, they will not sell any shares of Common Stock for 180
days after the date of this Prospectus without the consent of BT Alex. Brown
Incorporated. See "Shares Eligible for Future Sale."
CERTAIN ANTI-TAKEOVER PROVISIONS; PREFERRED STOCK
Certain provisions of DFG's Certificate of Incorporation and By-laws could
make it more difficult for a third party to obtain control of the Company,
even if such change in control would be beneficial to stockholders. These
provisions include (1) a Board of Directors divided into three classes so that
only one-third of the directors are re-elected every year, (2) removal of
directors only for cause and (3) prohibition on the stockholders taking any
action by written consent.
The Certificate of Incorporation also permits the Board of Directors to
issue preferred stock with voting and other rights superior to those of
holders of Common Stock. These preferred rights could be used to discourage,
delay or prevent a change in control of DFG. See "Description of Capital
Stock."
CONTROL OF THE COMPANY BY CURRENT STOCKHOLDERS
Following completion of this Offering, the directors, executive officers and
certain stockholders (collectively, the "Initial Stockholders") will own
approximately % (approximately % if the over-allotment option is exercised
in full) of the outstanding Common Stock. Accordingly, if acting together, the
Initial Stockholders will control the Company and have the power to elect a
majority of the directors, appoint management and approve actions requiring
majority approval. This concentration of ownership may have the effect of
delaying, deferring or preventing a change in control of the Company,
including transactions in which stockholders might otherwise receive a premium
for their shares over their current market prices. The interests of the
Initial Stockholders could conflict with the interests of the other
stockholders of DFG. See "Certain Relationships and Related Transactions" and
"Security Ownership of Certain Beneficial Owners and Management; Selling
Stockholders."
IMMEDIATE AND SUBSTANTIAL DILUTION
Purchasers of Common Stock offered hereby will incur immediate and
substantial dilution in pro forma net tangible book value per share. To the
extent options or warrants to purchase the Company's Common Stock are
exercised, there will be further dilution. See "Dilution."
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COMPANY HISTORY AND ACQUISITIONS
Diversified Food Group, LLC, the predecessor of the Company (the "Limited
Liability Company"), was formed as a Delaware limited liability company in
March 1996, for the purpose of acquiring food manufacturing and marketing
companies. The Limited Liability Company has acquired four food companies to
date and operates as a manufacturer and marketer of premium appetizers and
gourmet confections.
COMPLETED ACQUISITIONS
Restauranic, Inc. In July 1996, the Limited Liability Company acquired
majority control of Restauranic, Inc. ("Restauranic"), a manufacturer of
premium appetizers for the food service, restaurant and hospitality industries
under the RESTAURANIC(TM) and FAYE'S(TM) brand names. Restauranic was founded
in 1972 by Messrs. Wylie and Charles Mok and operates out of manufacturing and
office facilities located in Chicago, Illinois. The original founders
maintained an equity interest in Restauranic and entered into employment
agreements with the Limited Liability Company. The founders continue to play a
key role in the day-to-day functioning of the appetizer operations.
Restauranic's net sales for fiscal 1996 and fiscal 1997 were $13.5 million and
$16.0 million, respectively.
Mrs. Prindable, Inc. and Classic Kettle Company, Inc. During October 1996,
the Limited Liability Company purchased the assets of Mrs. Prindable, Inc.
("Prindable") and Classic Kettle Company, Inc. ("Kettle"), manufacturers of
gourmet chocolate and caramels and other confections under the MRS.
PRINDABLE'S, AMERICAN CARAMEL COMPANY and CLASSIC KETTLE brand names. The
Limited Liability Company purchased these businesses from the founders of
Prindable and Kettle. The founders entered into employment agreements with the
Limited Liability Company, have an equity interest in the Company and continue
to play a key role in the day-to-day functioning of the confectionery
operations. The Limited Liability Company then combined the operations of
Prindable and Kettle to form Classic Confectionery, LLC ("Classic").
Confectionery items have been handmade under the MRS. PRINDABLE'S brand name
since 1986, and more recently under the CLASSIC KETTLE and AMERICAN CARAMEL
COMPANY brand names. Classic operates out of manufacturing and office
facilities in Lincolnwood, Illinois. Classic's net sales for fiscal 1996 and
fiscal 1997 were $5.0 million and $6.6 million, respectively.
In October 1997, the Limited Liability Company acquired all of the equity in
Restauranic and Classic which it did not already own. The former owners of
Restauranic and Classic contributed their remaining equity interests in those
companies to the Limited Liability Company in return for equity in the Limited
Liability Company.
Cohen's Famous Frozen Foods. The Limited Liability Company acquired the
assets of Cohen's Famous Frozen Foods, Inc. ("Cohen"), a manufacturer of
Kosher and non-Kosher appetizers, in October 1997. Cohen was founded in 1947
and by 1952 was the first United States Government-inspected plant to receive
Kosher certification for Kosher frozen items in the U.S. Appetizers made at
Cohen's Newark, New Jersey facility are marketed under the COHEN'S FAMOUS and
CASINO CHEF brand names. The principal shareholders and other key management
personnel of Cohen entered into employment agreements with, and acquired
options convertible into equity interests of, the Limited Liability Company.
The founders of Cohen continue to play a key role in the day-to-day
functioning of the appetizer operations. Cohen's net sales for fiscal 1996 and
fiscal 1997 were $20.5 million and $21.9 million, respectively.
Sweet Shop Candies, Inc. Effective January 23, 1998, the Limited Liability
Company acquired Sweet Shop Candies, Inc. ("Sweet Shop"), a manufacturer of
fine handmade chocolates, including truffles, nut clusters, brags and sugar
free chocolates. Sweet Shop's Fort Worth, Texas manufacturing facility has
been U Kosher certified since 1990. Sweet Shop has been producing handmade and
hand decorated chocolates and truffles under the SWEET SHOP brand name since
1972. Following the acquisition, the sole shareholder of Sweet Shop entered
into a consulting agreement with, and holds equity in, the Company. Sweet
Shop's net sales for fiscal 1996 and fiscal 1997 were $4.4 million and $5.8
million, respectively.
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See "Certain Relationships and Related Transactions" and "Security Ownership
of Certain Beneficial Owners and Management; Selling Stockholders."
PENDING ACQUISITIONS
Wilton Foods, Inc. In April 1998, the Company entered into a letter of
intent to acquire all of the stock of Wilton, a manufacturer of Kosher and
non-Kosher appetizers and Kosher packaged meals for airlines and other
institutional customers, sold under the WILTON'S and BARNEY'S brand names and
under private labels. Representative appetizer products sold by Wilton include
puff pastry, hot and Mexican hors d'oeuvres, blintzes and other kosher
delicacies.
Wilton products are distributed principally through foodservice operators
and retail grocery stores. Wilton's products are sold by an internal sales
staff of four people, as well as through a network of over 30 independent
brokers. Wilton's products are produced in its approximately 60,000 square
foot facility located in Goshen, New York. Renovated in 1997, this facility
features automated production lines. Both the production lines and the test
kitchens are U Kosher certified. Management believes that this facility is
presently operating at approximately 65% capacity. The letter of intent
provides for a total purchase price of $13.3 million (subject to reduction if
Wilton's liabilities on the closing date exceed certain levels), including
$2.5 million in equity of the Limited Liability Company, plus an earnout based
on growth in EBITDA (earnings before interest, taxes, depreciation and
amortization) of Wilton, Cohen and Restauranic, payable in cash on or about
April 1, 2003. In addition, simultaneously with the closing of such
acquisition, the Company will refinance indebtedness of Wilton in the amount
of approximately $3.5 million. The sole shareholder of Wilton, along with
other key members of management, will enter into employment agreements with
the Company. It is currently anticipated that this acquisition will be
consummated concurrently with the Offering.
American Specialty Confections, Inc. In April 1998, DFG entered into a
letter of intent to acquire all of the stock of American Specialty. Under
licenses with various major consumer brands, American Specialty packages,
markets and sells confections in decorative gift tins, lunch boxes and other
containers. Under a majority of its license agreements, which have terms
ending at various times through December 2000, American Specialty can use the
licensed brand names on both the gift containers and the confections packaged
inside the containers. Most of these license agreements are terminable upon
DFG's acquisition of American Specialty. The Company and American Specialty
have requested that each of the licensors consent to the assignment of the
licenses to the Company or, in the alternative, that the licensors enter into
new agreements with the Company. The assignment of licensing agreements
representing 85% of American Specialty's revenue is a condition to the
Company's obligation to consummate the acquisition. American Specialty
currently buys bulk confections (including chocolate candy products and snack
foods) from a variety of third-party suppliers, repackages them as individual
pieces and inserts them into the decorative containers (that are sourced from
a variety of suppliers). Following completion of this acquisition, the Company
intends to replace certain of these confections with items manufactured by the
Company. American Specialty employs 50 people at its 50,000 square foot leased
facility in Lancaster, Pennsylvania. American Specialty products are sold by
an internal sales department comprised of three individuals, principally to
upscale department stores (such as Bloomingdale's, Lord & Taylor and Macy's),
club stores (including Sam's Club) and specialty retail stores (such as Coach
House, Hallmark and SRI).
DFG's letter of intent with the owners of American Specialty provides for a
purchase price of $5.0 million and grants one of the shareholders an option to
invest a portion of the purchase price in the Common Stock of DFG at 90% of
the initial public offering price of such stock. Such investment, if any, will
not result in a material adjustment to the purchase price. In addition, DFG
will pay $550,000 to American Specialty to repay loans from certain of
American Specialty's shareholders. Simultaneously with the closing of such
acquisition, the Company will refinance indebtedness of American Specialty in
the
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amount of approximately $3.8 million. The letter of intent also provides for
the payment of a bonus of $1.5 million to the shareholder employees of
American Specialty if the effective EBITDA of the business exceeds certain
levels by December 31, 2001. The principal shareholders of American Specialty
will enter into employment agreements with the Company and will be entitled to
an annual bonus of up to 50% of their base salary if American Specialty EBITDA
exceeds certain target levels. It is currently anticipated that this
acquisition will be consummated concurrently with the Offering. See "Certain
Relationships and Related Transactions."
THE CONVERSION
Diversified Food Group, Inc. was incorporated in Delaware in June 1998 in
anticipation of the conversion of all of the membership interests of the
Limited Liability Company into Common Stock of Diversified Food Group, Inc. As
of the date of the Prospectus, the members of the Limited Liability Company
will contribute their membership interests to the newly-formed Diversified
Food Group, Inc. in exchange for a total of shares of Common Stock of
Diversified Food Group, Inc. As a result, DFG will own all of the equity of
the Limited Liability Company, which in turn will own all the operating units
through which DFG conducts its business. Immediately prior to the Conversion,
the Company intends to distribute to equity owners of the Limited Liability
Company cash sufficient to pay the tax on any previously undistributed limited
liability company taxable income as of the date of termination of the Limited
Liability Company's status as a limited liability company. Such distributions,
if any, will not be material. See "Certain Relationships and Related
Transactions."
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USE OF PROCEEDS
The net proceeds to the Company from the sale of the shares of Common Stock
offered by the Company, after deduction of the estimated underwriting
discounts and commissions and offering expenses payable by the Company, are
estimated to be approximately $45 million, assuming an initial public offering
price of $ per share. The Company will not receive any proceeds from the
sale of shares of Common Stock by the Selling Stockholders upon the exercise
of the Underwriters' over-allotment option. The following is a description of
the estimated sources and uses of proceeds, giving effect to the borrowings
under the Proposed Credit Facility described below:
<TABLE>
<CAPTION>
AMOUNT
--------------
(IN THOUSANDS)
<S> <C>
SOURCES OF FUNDS:
Net proceeds of the Offering............................ $45,000
Borrowing under the Proposed Credit Facility (1)........ 25,120
-------
Total sources of funds................................ $70,120
=======
USES OF FUNDS:
Repayment of senior credit facility (1) (2)............. $28,437
Repayment of subordinated indebtedness (3).............. 14,440
Cash portion of purchase price: Wilton acquisition...... 10,750
Repayment of existing debt: Wilton acquisition (4)...... 3,509
Cash portion of purchase price: American Specialty
acquisition............................................ 5,550
Repayment of existing debt: American Specialty
acquisition (5)........................................ 3,771
Cash portion of purchase price: new appetizer production
facility (6)........................................... 1,863
Estimated closing costs of the Proposed Credit Facility. 1,800
-------
Total uses of funds................................... $70,120
=======
</TABLE>
- --------
(1) Represents anticipated borrowings as if the closing of the Offering
occurred on April 3, 1998. See "Proposed Credit Facility." Does not
include approximately $5.0 million of additional borrowings required to
refinance incremental working capital borrowings under the existing senior
credit facility that are expected to be incurred between April 3, 1998 and
the consummation of the Offering.
(2) The senior credit facility was entered into in connection with the Cohen
acquisition and refinancing, and consists of: (a) a revolving line of
credit of $5.0 million, at an effective interest rate of 10.8%, maturing
on March 31, 2004, and (b) a term note of $23.0 million, at an effective
interest rate of 10.8%, maturing on March 31, 2004.
(3) Indebtedness originally incurred in connection with the Cohen and Sweet
Shop acquisitions at an effective interest rate of 28.1% (including the
amortization of value allocated to warrants and deferred financing costs),
maturing on October 23, 2004.
(4) Existing indebtedness at an effective interest rate of approximately 11%,
maturing at various times through the year 2002 and expected to be
refinanced upon consummation of the acquisition.
(5) Existing indebtedness at a 10% weighted average interest rate, due on
demand and expected to be refinanced upon consummation of the acquisition.
(6) Does not include $6.6 million of indebtedness in the form of an industrial
revenue bond at an effective interest rate of 3.7% maturing in May 2018.
See "Certain Relationships and Related Transactions."
The balance of the net proceeds, if any, and the remaining borrowings
available under the Proposed Credit Facility will be used for general
corporate purposes, including capital expenditures, possible future
acquisitions and working capital. See "Management's Discussion and Analysis of
Financial Condition and Results of Operations--Liquidity and Capital
Resources." Pending such uses, the net proceeds will be invested in short-
term, interest-bearing, investment-grade securities. From time to time, the
Company is involved in the evaluation of, and discussions with, possible
acquisition candidates, although the Company currently has no agreements,
commitments or understandings with respect to any acquisitions, other than the
acquisitions set forth under "Company History and Acquisitions--Pending
Acquisitions."
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PROPOSED CREDIT FACILITY
Bankers Trust Company has made a proposal to extend to the Company,
concurrently with or prior to the closing of the Wilton and American Specialty
acquisitions, a $50.0 million senior secured credit facility (the "Proposed
Credit Facility"). The following generally describes the expected terms of the
Proposed Credit Facility. The Company expects that the Proposed Credit
Facility would consist of a $25.0 million revolving credit facility and a
$25.0 million term loan facility for the Company and its subsidiaries. See
"Use of Proceeds" for use of the proceeds of the Proposed Credit Facility. The
maximum amount of availability under the proposed revolving credit facility
would be based upon a percentage of the Company's eligible inventory and
eligible receivables. As of April 3, 1998, on a pro forma basis giving effect
to the closing of the Proposed Credit Facility, the Wilton and American
Specialty acquisitions, the Offering and the application of the net proceeds
therefrom, borrowings outstanding under the Proposed Credit Facility would
have been $25.1 million.
The Company anticipates that borrowings under the Proposed Credit Facility
would bear interest at a per annum rate equal to the prevailing interbank
offered rate in the applicable offshore currency market, plus an additional
margin ranging from to % based on certain financial ratios of the
Company. At April 3, 1998, on a pro forma basis giving effect to the Wilton
and American Specialty acquisitions and purchase of new appetizer production
facility, the Offering and the application of the net proceeds therefrom, the
interest rate borne by the Proposed Credit Facility would have been %.
The Proposed Credit Facility would be secured by liens on the inventory,
accounts receivable and certain intangibles (including intellectual property)
of the Company and its subsidiaries and by a pledge of 100% of the stock or
member interests of its subsidiaries. The Company's subsidiaries would
guarantee payment of borrowings under the Proposed Credit Facility.
The Proposed Credit Facility would contain customary representations and
warranties and events of default and would require compliance with certain
covenants by the Company and its subsidiaries, including, among other things:
(1) maintenance of certain financial ratios and compliance with certain
financial tests and limitations; (2) limitations on the payment of dividends,
incurrence of additional indebtedness and granting of certain liens; and (3)
restrictions on mergers, consolidations or asset sales.
Bankers Trust Company has not committed to enter into the Proposed Credit
Facility and there can be no assurance that the Proposed Credit Facility will
be made available to the Company on the terms set forth above or at all.
DIVIDEND POLICY
The Company has never declared or paid any cash dividends or distributions
on the Common Stock. Immediately prior to the Conversion, the Company intends
to distribute to its equity owners any previously undistributed limited
liability company taxable income as of the date of termination of the Limited
Liability Company's status as a limited liability company. Such distributions,
if any, will not be material. DFG does not anticipate paying cash dividends or
other distributions on the Common Stock in the foreseeable future and intends
to retain any future earnings for reinvestment in its business. Any future
determination to pay cash dividends will be at the discretion of the Board of
Directors and will be dependent upon the Company's financial condition,
results of operations, capital requirements and such other factors as the
Board of Directors deems relevant. It is anticipated that the Proposed Credit
Facility would restrict the payment of dividends.
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CAPITALIZATION
The following table sets forth the Company's capitalization (long-term debt
plus equity) as of April 3, 1998 (i) on a historical basis and (ii) on a pro
forma basis. The summary pro forma financial data reflect adjustments, where
appropriate, to the historical financial data of the Company to give effect to
(1) the pending Acquisitions, (2) the Conversion, (3) the Offering and
application of the net proceeds therefrom and (4) the borrowings under the
Proposed Credit Facility, as if each had occurred on April 3, 1998. The
information set forth below should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements and the related notes thereto and the
"Unaudited Pro Forma Condensed Consolidated Financial Information" included
elsewhere in this Prospectus.
<TABLE>
<CAPTION>
APRIL 3, 1998
-----------------
ACTUAL PRO FORMA
------- ---------
(DOLLARS
IN THOUSANDS)
<S> <C> <C>
Current portion of long-term debt............................ $33,473 $ 35
======= ========
Proposed Credit Facility..................................... $ -- $ 25,120
Other long-term debt, net of current maturities (2).......... 1,367 8,451
Stockholders' and Members' equity:
Members' equity............................................ 14,034 --
Common Stock, $.001 par value, shares authorized;
shares issued and outstanding, actual; and
shares issued and outstanding, pro forma.................. -- 9
Additional paid-in capital................................. -- 62,048
Accumulated deficit (3).................................... -- (13,644)
------- --------
Total stockholders' and members' equity (1).............. 14,034 48,413
------- --------
Total capitalization..................................... $48,874 $ 82,019
======= ========
</TABLE>
- --------
(1) Actual total stockholders' and members' equity is comprised of the
members' equity of Diversified Food Group, LLC, which will be contributed
to the Company on the effective date of this Prospectus. See "Company
History and Acquisitions--The Conversion."
(2) Pro forma includes the $6,630 industrial revenue bond to be assumed in
connection with the purchase of the new appetizer production facility.
(3) Pro forma reflects the write-off of deferred financing costs of $4,426
relating to the existing senior credit facility and subordinated
indebtedness and unaccreted original issue discount of $9,418 relating to
the repayment of subordinated indebtedness totalling $13,644. However, it
does not include a prepayment penalty of approximately $2,500 related to
the Company's subordinated indebtedness.
19
<PAGE>
DILUTION
Net tangible book value (deficit) per share represents the amount of total
tangible assets of the Company reduced by the amount of its total liabilities
and divided by the total number of shares of Common Stock outstanding. The pro
forma net tangible book value (deficit) of the Company as of April 3, 1998,
after giving effect to the Wilton and American Specialty acquisitions and the
Conversion and the sale of the shares of Common Stock offered
hereby at an assumed initial public offering price of $ per share, and
after deducting estimated underwriting discounts and commissions and offering
expenses payable by the Company would have been approximately $ , or
$ per share of Common Stock. This represents an immediate increase
in pro forma net tangible book value of $ per share to existing
stockholders and an immediate dilution of $ per share to new
stockholders. The following table illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............... $
Net tangible book value (deficit) per share as of April 3,
1998.........................................................
------
Increase per share attributable to new stockholders...........
Pro forma net tangible book value (deficit) per share as of
April 3, 1998 after the Offering.............................
------
Dilution per share to new stockholders........................ $
======
</TABLE>
The following table summarizes, as of April 3, 1998, after giving effect to
the Offering, the difference between the existing stockholders and new
investors with respect to the number of shares of Common Stock purchased from
the Company, the total consideration paid to the Company and the average price
per share paid (before deducting estimated underwriting discounts and
commissions and offering expenses payable by the Company):
<TABLE>
<CAPTION>
TOTAL
SHARES PURCHASED CONSIDERATION AVERAGE
----------------- ------------------ PRICE PER
NUMBER PERCENT AMOUNT PERCENT SHARE
--------- ------- ---------- ------- ---------
<S> <C> <C> <C> <C> <C>
Existing stockholders............ % %
New investors.................... $
--------- ----- ---------- -----
Total (1).................... 100.0% $ 100.0%
========= ===== ========== =====
</TABLE>
- --------
(1) Following the sale of Common Stock by the Selling Stockholders in the
Offering, if the Underwriters' over-allotment option is exercised in full,
the number of shares held by all existing stockholders will be reduced by
shares to shares or % of the total shares of Common
Stock outstanding after the Offering. New investors will hold
shares, or % of the total shares of Common Stock outstanding after
the Offering, if the Underwriters' over-allotment option is exercised in
full. See "Security Ownership of Certain Beneficial Owners and Management;
Selling Stockholders."
The foregoing calculations do not give effect to, as of April 3, 1998, (1)
shares of Common Stock issuable upon the exercise of outstanding
warrants at a weighted average exercise price of $ per share, (2)
shares of Common Stock issuable upon the exercise of outstanding options at a
weighted average exercise price of $ per share and (3) shares
issuable upon the conversion of convertible debt outstanding at the time of
the Offering. To the extent any such options and warrants are exercised, there
will be further dilution to new investors. See "Capitalization," "Management--
Stock Plan," "Description of Capital Stock" and Note 10 of Notes to the
Consolidated Financial Statements of DFG.
20
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
The following table sets forth selected historical and pro forma financial
data of the Company for the periods ended and as of the dates indicated. The
selected historical statement of operations data for the initial period from
March 25, 1996 to January 3, 1997 and the year ended January 2, 1998, and the
selected historical balance sheet data as of January 3, 1997 and January 2,
1998 are derived from the audited consolidated financial statements of the
Company included elsewhere in this Prospectus. The selected historical
statement of operations data for the three month periods ended April 4, 1997
and April 3, 1998 and the selected historical balance sheet data as of April
3, 1998 are derived from the unaudited consolidated financial statements of
the Company included elsewhere in this Prospectus which, in the opinion of
management, include all adjustments necessary for a fair presentation, which
consist of normal recurring adjustments. The selected pro forma statement of
operations data reflect adjustments, where appropriate, to the historical
financial data of the Company to give effect to (1) the Acquisitions, (2) the
Conversion as described in "Company History and Acquisitions," (3) the
Offering and the application of the net proceeds as described in "Use of
Proceeds," and (4) borrowings under the Proposed Credit Facility, as if each
had occurred on January 4, 1997. This information should be read in
conjunction with the Company's historical consolidated financial statements,
and the unaudited pro forma condensed consolidated financial statements and
related notes thereto appearing elsewhere in this Prospectus and "Management's
Discussion and Analysis of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
INITIAL
PERIOD
FROM MARCH YEAR ENDED THREE MONTHS ENDED
25, 1996 ------------------ ------------------------------------
TO JANUARY 2, 1998 APRIL 4, 1997 APRIL 3, 1998
JANUARY 3, ------------------ ----------------- ------------------
1997 ACTUAL PRO FORMA ACTUAL PRO FORMA ACTUAL PRO FORMA
---------- ------- --------- ------ --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Net sales.............. $13,117 $36,247 $85,365 $4,091 $12,160 $ 9,782 $16,975
Cost of goods sold..... 8,111 26,177 63,887 3,329 9,621 7,159 13,172
------- ------- ------- ------ ------- ------- -------
Gross profit........... 5,006 10,070 21,478 762 2,539 2,623 3,803
Selling, general and
administrative
expenses.............. 3,219 7,902 21,611 1,373 4,778 4,126 5,861
------- ------- ------- ------ ------- ------- -------
Income (loss) from
operations............ 1,787 2,168 (133) (611) (2,239) (1,503) (2,058)
Interest expense....... 250 1,488 (2,115) 245 469 1,170 688
Miscellaneous non-
operating expenses.... 95 117 524 42 59 4 40
Income tax provision
(benefit)(1).......... 299 327 (998) (108) (996) (200) (1,003)
Minority interests in
income (loss)......... 201 (49) -- (27) -- -- --
------- ------- ------- ------ ------- ------- -------
Net income (loss) ..... $ 942 $ 285 $(1,774) $ (763) $(1,771) $(2,477) $(1,783)
======= ======= ======= ====== ======= ======= =======
PRO FORMA DATA:
Pro forma net income
(loss)
per share ............
======= ======= =======
Pro forma weighted
average number of
shares outstanding....
======= ======= =======
</TABLE>
- --------
(1) As a limited liability company, DFG is not subject to income taxes, and
its income is allocated to and reported in the tax returns of its members.
Accordingly, no liability or provision for current and deferred income
taxes attributable to these operations is included in the actual statement
of operations data. Restauranic, a subsidiary of DFG, is subject to income
tax as a C corporation and the actual income tax provision (benefit)
described above refers to Restauranic.
21
<PAGE>
<TABLE>
<CAPTION>
JANUARY 3, 1997 JANUARY 2, 1998 APRIL 3, 1998
--------------- --------------- -----------------------
ACTUAL PRO FORMA (1)
-------- -------------
<S> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working capital (2).... $ 3,856 $(22,912) $(25,942) $ 9,916
Total assets........... 12,067 47,891 53,679 93,199
Long-term debt, net of
current maturities.... 6,401 1,383 1,367 33,571
Total stockholders'
equity (3)............ 1,922 8,488 14,034 48,413
</TABLE>
- --------
(1) Pro forma gives effect to (i) the pending Acquisitions, (ii) the
Conversion, (iii) borrowings under the Proposed Credit Facility and (iv)
the sale of shares of Common Stock by the Company in the
Offering at an assumed initial public offering price of $ per share and
the application of the net proceeds therefrom, after deducting
underwriting discounts and commissions and estimated offering expenses
payable by the Company, as if the pending Acquisitions and the Offering
occurred on April 3, 1998.
(2) The terms of the Company's existing senior credit facility and
subordinated indebtedness require the Company to maintain certain
financial ratios and to comply with certain covenants. As a result of the
Company's acquisitions of Sweet Shop in January 1998 and Cohen in October
1997, the Company incurred an aggregate of $28.1 million of indebtedness.
The Company was out of compliance with these financial ratios as of
January 2, 1998 and April 3, 1998. The Company has received temporary
waivers from the lenders for these covenant violations through August 31,
1998 and intends to repay all outstanding indebtedness under the existing
senior credit facility and subordinated indebtedness using a portion of
the net proceeds of the Offering. The existing senior credit facility and
subordinated indebtedness have been classified as short-term obligations
in the Company's consolidated financial statements.
(3) Pro forma reflects the write-off of deferred financing costs of $4,226
relating to the existing senior credit facility and subordinated
indebtedness and unaccreted original issue discount of $9,418 relating to
the repayment of subordinated indebtedness totalling $13,644.
22
<PAGE>
UNAUDITED PRO FORMA CONDENSED CONSOLIDATED FINANCIAL INFORMATION
The Pro Forma Condensed Consolidated Financial Information gives effect to:
(i) the acquisition of Cohen in Fiscal 1997 for a purchase price of $21.0
million;
(ii) the acquisition of Sweet Shop in Fiscal 1998 for a purchase price of
$9.0 million;
(iii) the pending acquisition of Wilton for an estimated purchase price of
$13.3 million;
(iv) the pending acquisition of American Specialty for an estimated
purchase price of $5.6 million;
(v) the sale of shares of Common Stock in the Offering at an initial
public offering price of $ per share and the application of the net
proceeds therefrom as described in "Use of Proceeds;"
(vi) the Conversion; and
(vii) borrowings under the Proposed Credit Facility and the application of
borrowings thereunder as described in "Use of Proceeds."
The Pro Forma Condensed Consolidated Statements of Operations were prepared
as if the Acquisitions and the Offering occurred as of January 4, 1997. The
Pro Forma Condensed Consolidated Balance Sheet was prepared as if the above
transactions occurred on April 3, 1998. The Acquisitions have been and will be
accounted for under the purchase method of accounting. Results for Cohen and
Sweet Shop for the periods following their acquisitions are included in the
"Historical Diversified Food Group" columns; results for the periods prior to
their acquisitions are included in the "Acquisitions" column.
The Pro Forma Condensed Consolidated Financial Information is unaudited and
is not necessarily indicative of the consolidated results which actually would
have occurred if the above transactions and the Offering had been consummated
at the beginning of the periods presented; nor does it purport to present the
future financial position and results of operations for future periods. The
Pro Forma Condensed Consolidated Financial Information gives effect to the
Acquisitions, is based upon estimated allocations of the expected purchase
prices for the pending Acquisitions, and includes all adjustments described in
the notes thereto. The Pro Forma Condensed Consolidated Financial Information
should be read in conjunction with the historical consolidated financial
statements and notes thereto included elsewhere in this Prospectus.
23
<PAGE>
UNAUDITED PRO FORMA BALANCE SHEET
AS OF APRIL 3, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
DFG ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash
equivalents.......... $ -- $ 93 $ $ 93
Trade accounts
receivable, net of
allowance............ 4,965 3,511 8,476
Other receivables..... -- 105 105
Inventories........... 6,316 4,338 10,654
Due from affiliates... 100 -- 100
Deferred income taxes. 121 -- 456 (1) 577
Income tax benefit.... 222 -- 222
Prepaid expenses and
other current assets. 612 292 904
------- ------- -------- -------
Total current
assets............. 12,336 8,339 456 21,131
Property, plant and
equipment, net......... 4,851 3,820 8,493 (2) 17,164
Other assets............ 36,492 164 18,248 (3) 54,904
------- ------- -------- -------
Total assets........ $53,679 $12,323 $ 27,197 $93,199
======= ======= ======== =======
LIABILITIES AND MEMBERS' AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable,
trade................ $ 3,549 $ 3,527 $ $ 7,076
Short term borrowings. -- 5,464 (5,464)(4) --
Due to members........ 97 -- 97
Other current
liabilities and
accrued expenses..... 1,159 2,848 4,007
Current portion of
long term debt....... 33,473 1,738 (35,176)(4) 35
------- ------- -------- -------
Total current
liabilities........ 38,278 13,577 (40,640) 11,215
Long-term debt--related
party.................. 1,218 -- 1,218
Long-term debt--other... 149 554 31,650 (4)(5) 32,353
Members and
stockholders' equity:
Common stock.......... -- 86 (77)(6) 9
Preferred stock....... -- 88 (88)(7) --
Members equity........ 14,034 -- (14,034)(8) --
Paid-in capital....... -- 699 61,349 (4)(8) 62,048
Accumulated (deficit). -- (2,681) (10,963)(9) (13,644)
------- ------- -------- -------
Total members and
stockholders'
equity (deficit)... 14,034 (1,808) 36,187 48,413
------- ------- -------- -------
Total liabilities
and members' and
stockholders'
equity............. $53,679 $12,323 $ 27,197 $93,199
======= ======= ======== =======
</TABLE>
24
<PAGE>
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(DOLLARS IN THOUSANDS)
(1) To reflect, in connection with the termination of the Company's limited
liability company status, a net deferred tax asset representing the
differences in financial statement and income tax bases of assets and
liabilities.
(2) To record purchase of the new appetizer production facility. See "Certain
Relationships and Related Transactions."
(3) To record the following:
<TABLE>
<S> <C>
(i) the amount by which the purchase price exceeds the fair value of
assets acquired for the acquisitions of Wilton and American
Specialty....................................................... $20,659
(ii) a net deferred tax asset representing the difference in
financial statement and income tax bases of these assets....... 15
(iii) the write-off of deferred financing costs relating to the
existing senior credit facility and subordinated indebtedness. (4,226)
(iv) the recording of deferred financing costs related to the debt
incurred under the Proposed Credit Facility.................... 1,800
-------
$18,248
=======
</TABLE>
(4) To reflect the use of the estimated net proceeds from the issuance of
shares of Common Stock in the Offering and the borrowings under the
Proposed Credit Facility in connection with the Offering as follows. See
"Use of Proceeds."
<TABLE>
<S> <C>
Sources of Funds:
Net proceeds of the Offering...................................... $45,000
Borrowing under the Proposed Credit Facility...................... 25,120
-------
Total sources of funds.......................................... $70,120
=======
Uses of Funds:
Repayment of subordinated indebtedness............................ $14,440
Repayment of existing senior credit facility...................... 28,437
Cash portion of purchase price: Wilton acquisition................ 10,750
Cash portion of purchase price: American Specialty acquisition.... 5,550
Cash portion of purchase price: new appetizer production facility. 1,863
Repayment of existing debt: Wilton acquisition ................... 3,509
Repayment of existing debt: American Specialty acquisition ....... 3,771
Estimated closing costs of the Proposed Credit Facility........... 1,800
-------
Total uses of funds............................................. $70,120
=======
(5) To record Industrial Revenue Bond debt of $6,630 assumed in connection with
the purchase of the new appetizer production facility.
(6) To reflect:
(i)the elimination of historical equity balances of acquired
companies........................................................ $ (86)
(ii) the Conversion of membership interests of the Limited
Liability Company to Common Stock of the Company at a
conversion rate of shares of Common Stock for each
membership unit.............................................. 6
(iii)the sale of Common Stock in the Offering..................... 3
-------
$ (77)
=======
</TABLE>
(7) To reflect the elimination of historical equity balances of acquired
companies.
(8) To (i) reflect the Conversion of membership interests of the Limited
Liability Company to Common Stock of the Company at a conversion rate of
shares of common stock for each membership unit and (ii) reclassify the
remaining members' equity as additional paid-in-capital.
(9) To reflect:
<TABLE>
<S> <C>
(i)the elimination of historical equity balances of acquired
companies........................................................ $(2,681)
(ii) the write-off of deferred financing costs relating to the
existing senior credit facility and subordinated
indebtedness................................................. 4,226
(iii) the write-off of unaccreted original issue discount relating
to the repayment of company indebtedness.................... 9,418
-------
$10,963
=======
</TABLE>
25
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 3, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
DFG ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales....................... $ 9,782 $7,193 $ -- $16,975
Cost of goods sold.............. 7,159 5,937 76 (1) 13,172
------- ------ ------ -------
Gross profit.................... 2,623 1,256 (76) 3,803
Selling, general and
administrative expenses........ 4,126 1,740 (5)(2) 5,861
------- ------ ------ -------
Loss from operations............ (1,503) (484) (71) (2,058)
Interest expense (income)....... 1,170 297 (779)(3) 688
Miscellaneous non-operating
expenses....................... 4 36 -- 40
Income tax (benefit)............ (200) (30) (773)(6) (1,003)
------- ------ ------ -------
Net income (loss)............... $(2,477) $ (787) $1,481 $(1,783)
======= ====== ====== =======
</TABLE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
THREE MONTHS ENDED APRIL 4, 1997
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
DFG ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Net sales............... $4,091 $8,069 $ -- $12,160
Cost of goods sold...... 3,329 6,156 136 (1) 9,621
------ ------ ----- -------
Gross profit............ 762 1,913 (136) 2,539
Selling, general and
administrative expenses
....................... 1,373 2,692 713 (2) 4,778
------ ------ ----- -------
Loss from operations.... (611) (779) (849) (2,239)
Interest expense........ 245 110 114 (3) 469
Miscellaneous non-
operating expenses
(income)............... 42 17 -- 59
Minority interests in
(loss)................. (27) -- 27 (5) --
Income tax provision
(benefit).............. (108) 28 (916)(6) (996)
------ ------ ----- -------
Net loss................ $ (763) $ (934) $ (74) $(1,771)
====== ====== ===== =======
</TABLE>
See accompanying notes.
26
<PAGE>
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
YEAR ENDED JANUARY 2, 1998
<TABLE>
<CAPTION>
HISTORICAL PRO FORMA
DFG ACQUISITIONS ADJUSTMENTS PRO FORMA
---------- ------------ ----------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales...................... $36,247 $ 49,118 $ -- $85,365
Cost of goods sold............. 26,177 37,212 498 (1) 63,887
------- -------- ------- -------
Gross profit................... 10,070 11,906 (498) 21,478
Selling, general and
administrative expenses....... 7,902 12,191 1,518 (2) 21,611
------- -------- ------- -------
Income (loss) from operations.. 2,168 (285) (2,016) (133)
Interest expense............... 1,488 787 (160)(3) 2,115
Miscellaneous non-operating
expenses...................... 117 792 (385)(4) 524
Minority interests in (loss)... (49) -- 49 (5) --
Income tax provision (benefit). 327 (138) (1,187)(6) (998)
------- -------- ------- -------
Net income (loss).............. $ 285 $ (1,726) $ (333) $(1,774)
======= ======== ======= =======
</TABLE>
See accompanying notes.
27
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(DOLLARS IN THOUSANDS)
The Pro Forma Consolidated Statements of Operations reflect the adjustments
for the Acquisitions and related financings (including the Offering) as if such
events had occurred as of January 4, 1997.
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
----------------- YEAR ENDED
APRIL 3, APRIL 4, JANUARY 2,
1998 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
(1)To reflect:
(i) the impact of purchase accounting
adjustments (i.e. depreciation of step up in
basis for property and equipment)........... $ 76 $132 $ 489
(ii) a portion of compensation expense for
executive officers and other key employees
on the basis of current and anticipated
arrangements as if they were effective
January 4, 1997............................ -- 4 9
----- ---- ------
$ 76 $136 $ 498
===== ==== ======
(2) To reflect:
(i) a portion of compensation expense for
executive officers and other key employees
on the basis of current and anticipated
arrangements as if they were effective
January 4, 1997............................. $(175) $340 $ 563
(ii) amortization of goodwill arising from the
pending Acquisitions and from the
acquisition of Cohen and Sweet Shop, for
the period prior to the acquisition........ 170 373 --
(iii) amortization of goodwill arising from (a)
the pending acquisitions of Wilton and
American Specialty, (b) the Sweet Shop
acquisition completed after January 2,
1998, and (c) the Cohen acquisition and
the minority shareholder roll-ups of
Classic and Restauranic completed after
January 3, 1997 but before January 2,
1998, for the period prior to each
acquisition. Such amortization expense is
based on lives ranging from 15 to 40 years
and is computed as follows:
Wilton: goodwill of $14,165; 40 year life;
amortized for 12 months.
American Specialty: goodwill of $6,493; 25
year life; amortized for 12 months.
Sweet Shop: goodwill of $6,551; 25 year
life; amortized for 12 months.
Cohen: goodwill of $16,245; 40 year life;
amortized for 9.5 months.
Classic: goodwill of $2,368; 15 year life;
amortized for 9.5 months.
Restauranic: goodwill of $3,192; 40 year
life; amortized for 9.5 months............. -- -- 1,361
(iv) the elimination of nonrecurring expenses
incurred by acquired companies prior to
their acquisition including professional
fees related to the sale of Cohen ($114)
and relocation costs for Wilton ($292)..... -- -- (406)
----- ---- ------
$ (5) $713 $1,518
===== ==== ======
</TABLE>
28
<PAGE>
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS--(CONTINUED)
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
THREE MONTHS
ENDED
------------------ YEAR ENDED
APRIL 3, APRIL 4, JANUARY 2,
1998* 1997 1998
-------- -------- ----------
<S> <C> <C> <C>
(3) To reflect:
(i) interest expense on borrowings related to the
Sweet Shop acquisition for the period prior
to the acquisition........................... $ 405 -- --
(ii) interest expense on debt incurred and on
seller financed notes issued in connection
with the Cohen and Sweet Shop acquisitions.
Interest expense, including amortization of
deferred financing fees and accretion of
original issue discount, is determined as
follows:
Sweet Shop: borrowings of $8,000 at 31.5% per
annum.
Cohen: borrowings of $20,100 at 10.8% per
annum....................................... -- $ 1,298 $ 4,575
(iii) the application of net proceeds from the
Offering as described in "Use of Proceeds"
and the reduction of interest expense
(including amortization of deferred
financing costs and original issue
discount) resulting from the reduction of
borrowings................................. (1,184) (1,184) (4,415)
------- ------- -------
$ (779) $ 114 $ (160)
======= ======= =======
</TABLE>
(4) To eliminate a non-recurring expense related to a loss on property
abandoned by Wilton.
(5) To reflect the elimination of minority interests.
(6) To reflect the deferred tax benefit relating to the pro forma loss before
income tax in connection with the termination of the Company's limited
liability company status.
- --------
*The pro forma financial data for the three months ended April 3, 1998 does
not reflect an additional non-recurring interest charge of $16,000 that
will be recorded when the Offering is completed to reflect the write-off of
unaccreted original issue discount, deferred financing fees, and early
termination and prepayment fees related to the senior credit facility and
subordinated indebtedness.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following should be read in conjunction with the consolidated financial
statements and the notes thereto included elsewhere in this Prospectus.
OVERVIEW
DFG is a leading manufacturer and marketer of a broad variety of premium
appetizers and gourmet confections in North America. The Company sells its
products under well-recognized brand names and also has a significant private
label program with major food service distributors and retailers. The Company
offers more than 200 premium appetizer products and more than 150 premium
confection products. DFG's products are distributed through all of the
principal channels of distribution for food products, including food service
companies, club stores, retail supermarkets, department stores, specialty
stores, electronic media and military post exchange stores.
The Company was formed in March 1996 and since inception has acquired four
established companies and has agreements to acquire two additional companies.
Management believes the integration of these companies into DFG's operations
has created additional growth opportunities for each acquired business as well
as synergies for the Company as a whole. The Company's growth strategy
includes the integration of acquired businesses to achieve certain cost
savings. Areas of cost savings include reducing duplicative administrative
functions, streamlining production and distribution, and reducing the cost of
materials and services through purchasing power efficiencies. The Company
intends to continue to implement these strategies in the businesses it
currently owns, and to initiate these efforts at Wilton and American Specialty
following their acquisitions, if consummated. The Company cannot at this time
quantify these savings. The Company also expects to incur additional costs
associated with integrating acquired businesses, as well as costs associated
with public ownership; such costs also cannot be quantified. Accordingly,
neither the expected savings nor the expected costs have been included in the
pro forma financial information of the Company.
The Company's historical results of operations are significantly affected by
its history of acquisitions. For example, the Company's results of operations
for Fiscal 1997 include 11 weeks of operations of Cohen, and DFG's results of
operations for the three months ended April 3, 1998 include 10 weeks of
operations of Sweet Shop. Management believes that the Company's results of
operations for periods ending after each of the completed Acquisitions are not
directly comparable to its results of operations for periods ending prior to
such Acquisitions. This lack of comparability is due to the addition of the
operations from the Acquisitions and the incurrence of additional debt and
issuance of equity to fund these Acquisitions. Because of these differences,
management believes the pro forma information for the three months ended April
3, 1998 as compared to the three months ended April 4, 1997 will be helpful
for investors to understand results of operations of DFG as currently
comprised and giving effect to the pending acquisitions.
Acquisitions have been or will be accounted for by the purchase method of
accounting. As a result, all financial statements incorporating the
Acquisitions reflect net assets at their estimated fair market values. The
purchase price in excess of the fair market value of net assets is recorded as
goodwill and is being amortized between a 15 and 40-year period. See "Risk
Factors--Significant Intangible Assets."
30
<PAGE>
PRO FORMA RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-------------------------------------
APRIL 4, 1997 APRIL 3, 1998
------------------ ------------------
% OF % OF
AMOUNT NET SALES AMOUNT NET SALES
------- --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C>
Net sales................................ $12,160 100.0 % $16,975 100.0 %
Cost of goods sold....................... 9,621 79.1 13,172 77.6
------- ----- ------- -----
Gross profit............................. 2,539 20.9 3,803 22.4
Selling, general and administrative
expenses................................ 4,778 39.3 5,861 34.5
------- ----- ------- -----
Loss from operations..................... (2,239) (18.4) (2,058) (12.1)
Interest expense......................... 469 3.9 688 4.1
Miscellaneous non-operating expenses..... 59 0.5 40 0.2
Income tax benefit....................... (996) (8.1) (1,003) (5.9)
------- ----- ------- -----
Net loss................................. $(1,771) (14.7)% $(1,783) (10.5)%
======= ===== ======= =====
</TABLE>
Pro Forma Three Months Ended April 3, 1998 Compared to Pro Forma Three
Months Ended April 4, 1997.
Net sales (gross sales less discounts and returns) include both appetizers
and confectionery products. Net sales were $17.0 million for the three months
ended April 3, 1998, as compared to $12.2 million for the comparable period in
1997, an increase of $4.8 million, or 39.6%. This increase was primarily due
to a $3.8 million increase in confectionery net sales to $6.8 million
resulting from higher sales volume at Classic (due principally to the
introduction of a caramel-coated pretzel product) and Sweet Shop (due to
higher unit sales volumes). In addition, American Specialty net sales
increased as a result of its shift from acting solely as a distributor to a
full line manufacturer for one of its key accounts. The balance of the net
sales increase was due to higher appetizer unit sales volumes across many of
the Company's product lines.
Gross profit (net sales less cost of goods sold, which includes product
ingredients, packaging, labor and manufacturing overhead, including
depreciation) increased $1.3 million to $3.8 million for the three months
ended April 3, 1998, from $2.5 million for the comparable period in 1997. As a
percentage of net sales, gross profit increased to 22.4% in the 1998 period
from 20.9% in the 1997 period. This increase was attributable to a favorable
change in sales mix of appetizers offset in part by the introduction of a
lower gross margin caramel-coated pretzel product sold to club stores.
Selling, general and administrative expenses (salaries, distribution costs,
commissions, legal and professional expenses, occupancy costs and
amortization) increased $1.1 million to $5.9 million for the three months
ended April 3, 1998, from $4.8 million for the comparable period in 1997. This
increase is primarily attributable to the selling and distribution expense
associated with the higher sales volumes. As a percentage of net sales,
however, selling, general and administrative expenses declined to 34.5% for
the three months ended April 3, 1998, from 39.3% for the comparable period in
1997. This decrease in selling, general and administrative expenses as a
percentage of net sales was primarily due to higher sales volumes and the
resulting improved absorption of fixed costs.
Loss from operations decreased $0.1 million to $2.1 million for the three
months ended April 3, 1998 from $2.2 million for the comparable period in 1997
as a result of the factors described above.
Interest expense increased $0.2 to $0.7 million for the three months ended
April 3, 1998, from $0.5 million for the comparable period in 1997. This
increase was a result of higher borrowings attributable to increased working
capital requirements as a result of increased sales volumes.
31
<PAGE>
The net loss of approximately $1.8 million remained consistent for the three
months ended April 3, 1998 as compared to the three months ended April 4,
1997.
HISTORICAL RESULTS OF OPERATIONS
<TABLE>
<CAPTION>
FISCAL YEARS ENDED THREE MONTHS ENDED
------------------------------------ ------------------------------------
JANUARY 3, 1997 JANUARY 2, 1998 APRIL 4, 1997 APRIL 3, 1998
----------------- ------------------ ----------------- ------------------
% OF % OF % OF % OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
------- --------- ------- --------- ------ --------- ------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $13,117 100.0% $36,247 100.0% $4,091 100.0 % $ 9,782 100.0 %
Cost of goods sold...... 8,111 61.8 26,177 72.2 3,329 81.3 7,159 73.1
------- ----- ------- ----- ------ ----- ------- -----
Gross profit............ 5,006 38.2 10,070 27.8 762 18.7 2,623 26.9
Selling, general and
administrative
expenses............... 3,219 24.6 7,902 21.8 1,373 33.6 4,126 42.2
------- ----- ------- ----- ------ ----- ------- -----
Income (loss) from oper-
ations................. 1,787 13.6 2,168 6.0 (611) (14.9) (1,503) (15.3)
Interest expense........ 250 1.9 1,488 4.1 245 6.0 1,170 12.0
Miscellaneous non-oper-
ating
expense................ 95 0.7 117 0.3 42 1.0 4 --
Income tax provision
(benefit).............. 299 2.3 327 0.9 (108) (2.6) (200) (2.0)
Minority interest in in-
come (loss)............ 201 1.5 (49) (0.1) (27) (0.7) -- --
------- ----- ------- ----- ------ ----- ------- -----
Net income (loss)....... $ 942 7.2% $ 285 0.8% $ (763) (18.6)% $(2,477) (25.3)%
======= ===== ======= ===== ====== ===== ======= =====
</TABLE>
Three Months Ended April 3, 1998 Compared to Three Months Ended April 4, 1997
Net sales increased $5.7 million, or 139.1%, to $9.8 million for the three
months ended April 3, 1998, from $4.1 million for the comparable period in
1997. Approximately $3.2 million of this increase was attributable to the
acquisitions of Cohen in October 1997 and Sweet Shop in February 1998. Also
contributing to the increase was the introduction of a caramel-coated pretzel
product, higher sales volumes of existing products and the introduction in
March 1997 of a new ice cream product marketed under the Arctic Zone name.
Gross profit increased $1.8 million to $2.6 million for the three months
ended April 3, 1998, from $0.8 million for the comparable period in 1997. As a
percentage of net sales, gross profit increased to 26.9% in 1998 from 18.7% in
1997. This increase was attributable to the inclusion of Cohen and Sweet Shop,
each of which contributed to higher gross margins. This increase was offset in
part by lower gross margins at Classic due to a change in sales mix resulting
from the introduction of a caramel-coated pretzel product which carries a
lower gross margin than other confectionery products.
Selling, general and administrative expenses increased $2.7 million to $4.1
million for the three months ended April 3, 1998, from $1.4 million for the
comparable period in 1997. The acquisitions of Cohen and Sweet Shop accounted
for $1.7 million of this increase. Also contributing to this increase was
approximately $0.7 million related to the hiring of additional management
personnel, salespeople and corporate support staff, and associated expenses
(insurance, legal and travel). Approximately $0.3 million of the increase was
attributable to amounts classified as executive officer compensation expense
for the three months ended April 3, 1998 that had been reflected as equity
distributions for the comparable period in 1997. The management team, sales
force and related corporate support staff have been
32
<PAGE>
assembled both to facilitate the integration and expansion of the Acquisitions
and to provide support for future growth. The remainder of the increase in
selling, general and administrative expenses was primarily attributable to an
increase of approximately $0.2 million in goodwill amortization in connection
with the acquisitions of Cohen and Sweet Shop. As a percentage of net sales,
selling, general and administrative expenses increased to 42.2% for the three
months ended April 3, 1998, from 33.6% for the comparable period in 1997. This
increase is principally due to the additional infrastructure added to support
higher sales volumes and future growth.
Loss from operations increased $0.9 million to $1.5 million for the three
months ended April 3, 1998, from $0.6 million for the comparable period in
1997, primarily as a result of the factors described above.
Interest expense increased to $1.2 million for the three months ended April
3, 1998, from $0.2 million for the comparable period in 1997. The increase was
due to additional senior and subordinated debt incurred for the purchase of
Cohen in October 1997, the purchase of Sweet Shop in February 1998 and for
working capital requirements.
Net loss increased $1.7 million to $2.5 million for the three months ended
April 3, 1998, from $0.8 million for the comparable period in 1997 due to the
factors described above.
Fiscal 1997 Compared to Fiscal 1996
Net sales increased $23.1 million, or 176.3%, to $36.2 million in Fiscal
1997, from $13.1 million in Fiscal 1996. Approximately $10.1 million of this
increase was attributable to the Cohen acquisition in October 1997 with an
additional $3.6 million due to the introduction of the Arctic Zone ice cream
product in March 1997. The remaining increase was attributable to the
inclusion of a full year of net sales from Restauranic (compared to six months
in the prior year) and Classic (compared to three months in the prior year).
Gross profit increased $5.1 million to $10.1 million in Fiscal 1997, from
$5.0 million in Fiscal 1996. As a percentage of net sales, gross profit
decreased to 27.8% in 1997 from 38.2% in 1996. A portion of this decrease was
due to the inclusion of a full year of Restauranic and Classic operations in
Fiscal 1997 as compared to six months of operations for Restauranic and three
months of operations for Classic in the prior period, as historically these
operations generate higher gross margins in the latter part of the year. Also
during Fiscal 1997, Classic relocated to a new production facility, and
incurred duplicative overhead costs during the transition period. Gross profit
margins in 1997 were also adversely affected by the introduction of lower
margin appetizer products at Restauranic and the introduction of the Arctic
Zone ice cream product. Finally, Fiscal 1997 margins were adversely affected
by approximately $400,000 in purchase accounting adjustments related to the
Cohen inventory.
Selling, general and administrative expenses increased $4.7 million to $7.9
million in Fiscal 1997, from $3.2 million in Fiscal 1996. As a percentage of
net sales, selling, general and administrative expenses decreased to 21.8% in
Fiscal 1997 from 24.6% in Fiscal 1996. The majority of the dollar increase was
due to the acquisition of Cohen, the full year impact of Restauranic and
Classic and the introduction of the Arctic Zone ice cream product. This was
partially offset by a decrease in executive officer compensation expense of
approximately $0.7 million in 1996 that had been reflected as equity
distributions for 1997. The decrease in selling, general and administrative
expenses as a percentage of net sales was primarily due to higher sales
volumes and the resulting improved absorption of fixed costs.
Income from operations increased by $0.4 million to $2.2 million in Fiscal
1997, from $1.8 million in Fiscal 1996, primarily as a result of the factors
described above.
Interest expense increased $1.2 million to $1.5 million in Fiscal 1997, from
$0.3 million in Fiscal 1996. The increase was due primarily to increased
indebtedness incurred to acquire Cohen and higher
33
<PAGE>
borrowings throughout the year attributable to increased working capital
requirements as a result of increased sales volumes.
Net income decreased $0.7 million to $0.3 million in Fiscal 1997, from $0.9
million in Fiscal 1996 as a result of the factors described above.
HISTORICAL QUARTERLY RESULTS OF OPERATIONS AND SEASONALITY
The following table sets forth, on a quarterly basis, certain unaudited
statements of income data for the four quarters of Fiscal 1997 and the first
quarter of Fiscal 1998. Such data is not necessarily indicative of results for
any full year or for any subsequent period.
<TABLE>
<CAPTION>
THREE MONTHS ENDED
-----------------------------------------------------------------------------------------
APRIL 4, 1997 JULY 4, 1997 OCTOBER 3, 1997 JANUARY 2, 1998 APRIL 3, 1998
----------------- ---------------- ----------------- ----------------- ------------------
% OF % OF % OF % OF % OF
AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES AMOUNT NET SALES
------ --------- ------ --------- ------ --------- ------- --------- ------- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net sales............... $4,091 100.0% $6,199 100.0% $6,249 100.0% $19,708 100.0% $ 9,782 100.0%
Cost of sales........... 3,329 81.3 4,435 71.5 4,493 71.9 13,920 70.1 7,159 73.1
------ ----- ------ ----- ------ ----- ------- ----- ------- -----
Gross profit............ 762 18.7 1,764 28.5 1,756 28.1 5,788 29.4 2,623 26.9
Selling, general and
administrative
expenses............... 1,373 33.6 1,240 20.0 1,194 19.1 4,095 20.7 4,126 42.2
------ ----- ------ ----- ------ ----- ------- ----- ------- -----
Income (loss) from
operations............. (611) (14.9) 524 8.5 562 9.0 1,693 8.7 (1,503) (15.3)
Interest expense........ 245 6.0 189 3.1 222 3.5 832 4.2 1,170 12.0
Miscellaneous non-
operating expenses..... 42 1.0 -- -- (42) (0.7) 117 0.6 4 --
Income tax provision
(benefit).............. (108) (2.6) 133 2.1 149 2.4 153 0.7 (200) (2.0)
Minority interests in
income (loss).......... (27) (0.7) -- -- (22) (0.4) -- -- -- --
------ ----- ------ ----- ------ ----- ------- ----- ------- -----
Net (loss) income....... $ (763) (18.6)% $ 202 3.3% $ 255 4.2% $ 591 3.2% $(2,477) (25.3)%
====== ===== ====== ===== ====== ===== ======= ===== ======= =====
</TABLE>
A number of DFG's product lines are primarily marketed and sold during the
major holiday seasons, particularly during the Christmas and New Year's
season. Accordingly, the Company's historical net sales and income from
operations are substantially higher during the fourth quarter than the balance
of the year. In anticipation of higher sales levels during the Christmas and
New Year's season, working capital needs increase as DFG hires additional
temporary employees, builds inventory and incurs other expenses.
LIQUIDITY AND CAPITAL RESOURCES
Prior to October 1997 the liquidity requirements, including cash flow
shortfalls, of DFG's operating units--Restauranic and Classic--were provided
by credit facilities maintained by each operating unit. In October 1997, the
Company refinanced these facilities with the senior credit facility and
subordinated indebtedness at the DFG level.
Since the formation of DFG, cash from operations has generally not been
sufficient to meet the Company's growing capital and operating requirements.
Accordingly, the Company has supplemented cash from operations with borrowings
under the senior credit facility. The Company's business is characterized by
high unit sales volumes and significant investments in accounts receivable and
inventories. In addition, the Company experiences rapid turnover of
inventories and accounts receivable. Due to these high liquidity requirements,
the Proposed Credit Facility will be used to finance any short-term working
capital needs. Additionally, the Company has funded its acquisitions through a
combination of borrowing under the senior credit facility, the issuance of
subordinated indebtedness to third party investors, the issuance of equity
securities to the sellers of acquired businesses and the incurrence of seller
34
<PAGE>
financing. Depending on availability, if any, of borrowings under the Proposed
Credit Facility for this purpose, it is possible that the Proposed Credit
Facility will provide capacity for acquisitions that may follow the purchase
of Wilton and American Specialty.
The terms of the senior credit facility and subordinated indebtedness
require the Company to maintain certain financial ratios and to comply with
certain covenants, including financial ratios relating to EBITDA and
limitations on capital expenditures. As of January 2, 1998 and April 3, 1998,
the Company was not in compliance with these financial ratios and covenants.
The Company has received from the lenders under the senior credit facility and
the subordinated indebtedness waivers for non-compliance with these ratios and
covenants for Fiscal 1997 and for Fiscal 1998 until August 31, 1998. The
Company intends to repay all indebtedness outstanding under the senior credit
facility and subordinated indebtedness using a portion of the net proceeds of
the Offering and borrowings under the Proposed Credit Facility. This debt has
been classified as a short term obligation on the Company's financial
statements as a result of the covenant violations.
The Company anticipates raising approximately $45.0 million of net proceeds
from the Offering and entering into the Proposed Credit Facility, which is
expected to provide for borrowings of up to $50.0 million. The Company will
use all of the net proceeds of the Offering and approximately $25.1 million
from the borrowings under the Proposed Credit Facility to repay all of its
outstanding senior and subordinated indebtedness, to pay the cash portion of
the purchase price for Wilton and American Specialty, the new appetizer
production facility and to refinance the existing indebtedness of Wilton and
American Specialty. Following consummation of the Offering, it is anticipated
that approximately $24.9 million of additional borrowing capacity will be
available under the Proposed Credit Facility for working capital requirements
and potential acquisitions, subject to the terms of the Proposed Credit
Facility. See "Use of Proceeds" and "Proposed Credit Facility."
Based on the current level of operations and anticipated future growth, the
Company expects that its cash flow from operations, together with the net
proceeds of the Offering and borrowings under the Proposed Credit Facility,
will be sufficient to meet its requirements for debt service, working capital
and capital expenditures for at least the next 12 months. However, should the
Company make a significant acquisition or pursue other business opportunities,
the Company may be required to incur additional indebtedness or issue
additional equity securities to finance these transactions. The Company's
future operating performance and ability to service or refinance the Proposed
Credit Facility will be subject to future economic conditions and to
financial, business and other factors, many of which are beyond the control of
the Company.
Cash used in operating activities in Fiscal 1997 and Fiscal 1996 totaled
$0.1 million and $1.1 million, respectively. For Fiscal 1996, the use of cash
in operating activities was primarily related to an increase in accounts
receivable of $3.7 million and inventory of $0.4 million. This was offset by
net income and non-cash operating expenses of approximately $1.6 million and
an increase in accounts payable and accrued expenses of approximately $1.5
million. For Fiscal 1997, cash was used in operating activities primarily to
fund increases in accounts receivable of $4.1 million and inventory of $0.4
million. This was offset by net income and non-cash operating expenses of
approximately $2.7 million and an increase in accounts payable and accrued
expenses of approximately $1.7 million.
For the three months ended April 3, 1998 and April 4, 1997, the cash used in
and provided by operating activities totaled $1.1 million and $1.4 million,
respectively. For the three months ended April 3, 1998, the primary use of
cash in operating activities related to a net loss of $2.5 million, an
increase in inventory of approximately $1.4 million and a decrease in accounts
payable and accrued expenses of approximately $4.3 million. This was offset by
a non-cash operating expense of approximately $1.2 million and a decrease in
accounts receivable of approximately $6.1 million. For the three months ended
April 4, 1997, the primary source of cash from operating activities was a
reduction in accounts receivable of approximately $2.8 million. This was
partially offset by a net loss of approximately $0.7 million and an increase
in inventory of approximately $0.9 million.
35
<PAGE>
Cash used for investing activities in Fiscal 1997 and Fiscal 1996 totaled
$19.0 million and $0.6 million, respectively. For the three months ended April
3, 1998 and April 4, 1997, cash used for investing activities totaled $7.1
million and $0.1 million, respectively. The cash used for investing activities
was primarily related to acquisitions of subsidiaries and purchases of
property and equipment.
Cash provided by financing activities in Fiscal 1997 and Fiscal 1996 totaled
$18.7 million and $2.1 million, respectively. In Fiscal 1997, the Company
received approximately $23 million from debt financing, net of related
financing costs. This was offset by distributions and advances to members of
approximately $4.2 million. In Fiscal 1996 the Company received approximately
$1.4 million from debt financing and $1.0 million from members contributions.
For the three months ended April 4, 1997 and April 3, 1998, the Company had
cash used in financing activities of $1.7 million and cash provided by
financing activities of $8.3 million, respectively. For the three months ended
April 3, 1997, the Company paid distributions to members of approximately $1.3
million and made payments of approximately $0.5 million for outstanding debt.
The primary source of cash from investing activities for the three months
ended April 3, 1998 was approximately $8.3 million of borrowing under new debt
agreements. The cash provided by financing activities for the years ended
January 3, 1997, and January 4, 1998 and the three months ended April 3, 1998
was used to fund acquisitions and meet working capital requirements.
The Company's capital expenditures (excluding the Acquisitions) were $0.1
million, $1.5 million and $0.5 million in Fiscal 1996, Fiscal 1997 and the
three months ended April 3, 1998, respectively. The Company expects to spend
an additional $0.9 million during the remainder of 1998 and approximately $1.0
million in Fiscal 1999 on capital expenditures (excluding Acquisitions and
costs related to the Company's new appetizer production facility).
YEAR 2000 ISSUE
The Company is in the process of assessing its computer systems as well as
other electronic systems and machinery to identify any potential issues with
Year 2000 compliance. The Company's plans to upgrade certain information
systems as a means of attaining greater operational efficiencies and to
support planned growth will also provide an opportunity to resolve potential
millennium issues. The Company believes its internal Year 2000 issues will not
have any material financial or operational impact on the Company.
The Company has also begun the process of communicating with its key
suppliers and customers to determine their Year 2000 compliance plans to
insure that the Company is not impacted by third parties' failure to comply
with the millennium issue. However, there can be no assurance that the systems
of such third parties will be converted in a timely manner. A failure of the
Company or any such third party to timely address the Year 2000 issue could
have a material adverse impact on the Company. See "Risk Factors--Year 2000
Compliance."
RECENT ACCOUNTING PRONOUNCEMENTS
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income." The new standard discusses how to report and
display comprehensive income and its components. This standard is effective
for years beginning after December 15, 1997. This statement has no impact on
the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information." This
standard requires enterprises to report information about operating segments,
their products and services, geographic areas, and major customers. This
standard is effective for years beginning after December 15, 1997. When the
Company adopts this statement, it is not expected to have a material impact on
the presentation of the Company's consolidated financial statements.
36
<PAGE>
BUSINESS
OVERVIEW
DFG is a leading manufacturer and marketer of a broad variety of premium
appetizers and gourmet confections in North America. The Company sells its
products under well-recognized brand names, including COHEN'S FAMOUS(TM),
CASINO CHEF(TM), RESTAURANIC(TM) and FAYE'S(TM) for appetizers and MRS.
PRINDABLE'S(TM), AMERICAN CARAMEL COMPANY(TM), CLASSIC KETTLE(TM) and SWEET
SHOP(TM) for gourmet confections. The Company also has a significant private
label program with major food service distributors and retailers. The
Company's more than 200 premium appetizer products, which include puff pastry,
hot and Mexican hors d'oeuvres as well as canapes, quiche, filo hors
d'oeuvres, brochettes and kosher delicacies are prepared using high quality
ingredients including lobster, shrimp and other seafood, poultry, beef and a
variety of vegetables. DFG's more than 150 premium confection products include
hand decorated caramel and chocolate apples, caramel and chocolate dipped
shortbreads, pretzels, biscotti, fudge, truffles and ice cream novelties.
The Company was formed in March 1996 to consolidate small to medium-sized
specialty food producers and to introduce professional management to the
consolidated entities in order to achieve strong internal growth. Since
inception, DFG has acquired four established companies and has agreements to
acquire two additional companies, all of which, on average, have been
manufacturing and marketing premium food products for over 25 years.
Management believes the integration of these companies into DFG's operations
has created additional growth opportunities for each acquired business as well
as synergies for the Company as a whole.
DFG distributes its products through all principal distribution channels
including food service as well as club stores, retail supermarkets, upscale
department stores, specialty stores, electronic media and military post
exchange stores. DFG's food service customers include national distributors
(such as Alliant Foodservice, J.P. Foodservice, Marriott Distribution and
Sysco Corp.), regional distributors (such as Dot and Gordon Food Service),
hospitality chains and banquet halls. The Company's retail customers include
club stores (such as B.J.'s Wholesale Club, Costco and Sam's Club), department
stores (such as Bloomingdale's, Neiman Marcus and Saks Fifth Avenue), retail
supermarkets (such as Pathmark, Publix and Shop-Rite) and over 3,500 specialty
stores nationwide. The Company has been an innovator in selling through
alternative channels, such as QVC, where the MRS. PRINDABLE'S Gourmet Apple
holds the record for the highest one day unit sales of a food product.
DFG believes that it is well positioned to capitalize on certain trends
broadly affecting the food industry. These trends include outsourcing in the
food service sector, increasing consumption of prepared foods and rising
demand for indulgence food items. Appetizers, which generated industry-wide
sales of over $1.7 billion in 1997, are time consuming and labor intensive for
chefs and their staffs to prepare. DFG's handmade appetizers enable food
service professionals to serve gourmet appetizers that look and taste home
made while concentrating on other aspects of meal preparation. In the retail
grocery and club store channels, the Company's appetizer products satisfy the
growing demand for "home meal replacement" prepared foods that allow busy
consumers to quickly prepare and serve high quality meals at home. In
addition, the Company's confectionery products, which generally compete in the
$1.5 billion luxury sector of the candy/confections market, enable consumers
to purchase items suitable for gift giving or personal consumption and, to a
lesser extent, enable caterers to easily provide indulgence items to their
guests.
INDUSTRY OVERVIEW
The market for food consumed away from home approximated $336 billion in
1997, and has grown at an average rate of 4.5% per year since 1992 compared to
growth in the overall food industry of 3.7%. Management believes that as a
manufacturer of premium prepared appetizers and gourmet confections, DFG is
well-positioned to take advantage of the growth in this sector as well as
growth in the industry.
37
<PAGE>
Premium Appetizers. Management believes that the bulk of prepared appetizer
sales is concentrated in the food service and related markets. Sales of
prepared foods to the food service sector totalled approximately $5.9 billion
in 1997. Of this total, approximately $1.5 billion represented prepared
appetizer products. Within this market, 1998 sales of frozen appetizer
products and high-end hors d'oeuvres (which constitute the bulk of DFG's
appetizer products) are projected to total from $800 million to $1 billion.
Sales of prepared appetizers to the food service industry have grown at a 7%
annual rate from 1995 to 1997. This growth has been driven by greater variety
in appetizers, increased demand for ethnic, as well as spiced, seasoned and
marinated appetizers and vegetarian items. The high-end hors d'oeuvres market
has also experienced 7% annual growth from 1995 to 1997, resulting in sales of
$140 million in 1997. Such growth has been driven by new product innovations,
increased availability of higher quality products and increased popularity of
finger and ethnic foods. In the retail grocery channel (which includes grocery
stores, mass merchandisers and drug stores but excludes club stores), total
manufacturer sales of frozen appetizers and hors d'oeuvres are projected to be
$400 to $500 million in 1998.
The food service channel is comprised of several large, full-line national
distributors and many smaller regional and local distributors, as well as
larger hotel and restaurant chains that buy prepared foods both through
distributors and directly from certain producers. Management believes that
both the food service industry and the hospitality industry are consolidating,
a trend likely to continue. The top 50 food service distributors accounted for
approximately 28% of 1997 food service sales, up from approximately 26% in
1995. Concentration is also evident within the top 50 distributors as mergers
among the large companies have resulted in the top 10 broadline distributors
accounting for over 84% of the top 50 distributors' sales in 1997. Management
believes that, as a result of such consolidation, food service customers are
seeking to reduce the number of suppliers they use, and are seeking suppliers
that offer national coverage, full line capabilities (including Kosher and
non-Kosher offerings), consistent high-quality products and responsive
service.
Management also believes that food service administrators and chefs are
faced with the challenge of controlling costs while at the same time providing
premium quality food. As pressure on restaurants to produce entrees that are
appealing in taste and appearance increases, the time required to prepare
those entrees also increases. According to the National Restaurant
Association, labor costs represent approximately 30% of restaurant costs, and
management believes such costs have been increasing at a rate higher than that
of restaurant and catering revenues. Management believes that food service
professionals and chefs are looking increasingly to prepared appetizer
products that require reduced preparation time and labor costs, yet offer the
quality ingredients chefs would use in their own kitchens.
The appetizer market consists of a handful of larger manufacturers that
focus on the retail grocery/frozen food market, such as Ore-Ida, and on the
higher-volume, lower-priced foodservice market, such as Anchor and Freds, and
many small firms with limited product offerings, production capacity,
marketing and sales resources. Management believes that these smaller firms
will face an increasingly difficult business environment serving the food
service industry in light of the trends noted above. Moreover, increasingly
stringent standards imposed not only by customers but by regulatory agencies,
such as the United States Department of Agriculture, are increasing the cost
of preparing premium appetizers.
Gourmet Confections. The confection market in the United States totaled
approximately $15.5 billion in 1997, representing an increase of 2.3% from
1996 and 11.5% over the 1993 to 1997 period. Chocolate confections constituted
approximately 46% of the confection market in 1997. While approximately 59% of
the chocolate confection market is represented by chocolate bars and similar
products and is dominated by larger manufacturers such as Hershey Foods
Corporation, Mars, Inc. and Nestle, S.A., the balance of the market consists
of premium chocolate products which generally retail for more than $8 per
pound. The premium candy/confections market totaled approximately $1.65
billion in manufacturer sales in 1997, and has experienced 8% annual growth
from 1995 to 1997. The most significant growth in chocolate products has
occurred in the premium, luxury sector of the market. Sales of premium
"packaged"
38
<PAGE>
chocolate and other premium chocolate products have grown 8.2% and 23.2%,
respectively, during the 1993 to 1997 period. According to USA Monitor, these
sectors have benefited from the strength in the United States economy, strong
consumer confidence and a related increase in demand for higher-priced,
premium chocolate products such as special gift packs or handmade items.
Competing successfully in this market segment requires high product quality, a
recognized brand name and premium packaging. These products, generally
perceived as luxury or indulgence items, accounted for over $500 million in
1997 sales, an increase of 10.7% from 1993. Boxed chocolate consumption is
directly correlated with household income, as these premium items are
disproportionately purchased by households with incomes over $75,000 per year.
Although there are several larger manufacturers that are significant
competitors in the $1.65 billion premium confection segment, the market is
dominated by smaller specialty producers. According to Technomic, Inc., there
are approximately 800 manufacturers of candy and confections; in the premium
candy/confections market, the top four producers only account for
approximately 15% of this market. Management believes that premium, specialty
brands enjoy an advantage over the major chocolate bar marketers, as their
"mass market" brand identity detracts from the premium image consumers seek.
The premium market remains highly fragmented, and many of the small producers
have characteristics similar to the smaller manufacturers in the appetizer
market. Although most chocolate bars are sold through retail grocery outlets,
convenience stores, drug stores and mass merchandisers, a significant
percentage (approximately 75% in 1996) of premium packaged chocolate is sold
through specialty stores (such as confectionery stores, gourmet shops and gift
shops).
COMPETITIVE STRENGTHS
Management believes that DFG has the following competitive strengths that
have contributed to its performance and that will continue to enable the
Company to execute its business strategy:
Premium Quality Products and Established Brands. The Company's appetizer
and confection products are well established in their distribution channels
and have a reputation for high quality and premium value. The Company's
operating companies have, on average, been in business for over 25 years
and have longstanding relationships with key distributors and customers.
Management believes that the Company's strong presence in the food service
sector is of particular benefit, given the strength and growth of this
segment of the food industry. The Company's brands enjoy strong market
positions and reputations in key markets.
Multiple Distribution Channels; Diverse Customer Base. The Company enjoys
a substantial presence in each of the major food distribution channels,
from club stores to high-end, specialty retailers. This presence allows the
Company to expand sales of its existing, acquired and newly developed
products by introducing them into each of the Company's distribution
channels using its existing sales force and relationships. The Company also
has established distribution in Canada and the United Kingdom, providing
the opportunity to further penetrate international markets. Moreover, the
Company's sales are distributed over a broad base of customers. The Company
sells to over 6,000 accounts, no single customer represented more than 9%
of consolidated net sales in 1997, and the top 10 customers accounted for
49% of such sales.
Flexible, Low-cost Manufacturing. The Company's manufacturing resources
range from high-speed fully automated production lines to fully handmade
processes, and include both Kosher and non-Kosher facilities. The Company
has the ability to shift production to respond to customer demand and
achieve the most efficient manufacturing configuration. As the Company's
sales base has grown, it has realized increasing production efficiencies,
yet the Company believes DFG still has production capacity and
administrative support to accommodate substantial additional business. The
Company currently has four operating locations, and upon acquisition of
Wilton and American Specialty, will have two additional facilities.
39
<PAGE>
Experience in Acquiring and Integrating Businesses. In less than two
years, the Company has completed four acquisitions, signed letters of
intent to acquire two additional companies and has evaluated a large number
of potential acquisition candidates. Management believes that it has
developed the infrastructure, skill set and experience necessary to
identify and evaluate appropriate targets and structure and finance
acquisitions. Management has also successfully integrated acquired
businesses, retaining their fundamental strengths while expanding their
market opportunities and streamlining operations.
"Single Source" Solution Capability. The Company offers a full line of
premium appetizers and gourmet confections, representing a broad variety of
ingredients, styles and recipes. This broad product portfolio allows the
Company to offer many of its customers a single source solution to their
appetizer and confection product needs, thereby reducing the customer's
need for multiple vendors and duplicative items. The Company's product
development staff regularly develops and introduces new items in response
to customer requests and changing consumer preferences.
Experienced Management Team. The Company's senior management includes
many food industry veterans, with each of DFG's 17 senior operating
managers having an average of 17 years of experience. This experience
ranges from service with major food companies such as PepsiCo, Inc. and
Sara Lee Corporation, food service operators such as ARA and Sysco Corp.
and major retailers such as Sears, Roebuck and Co. to smaller specialty
companies and entrepreneurial ventures such as the Wolfgang Puck Food
Company. The Company has retained substantially all of the senior
executives of acquired businesses and provided these executives with
substantial financial incentives to continue building their businesses.
GROWTH STRATEGY
The Company's objective is to continue its sales and earnings growth by
capitalizing on its competitive strengths. Key elements of DFG's growth
strategy include:
Expand on Cross-Selling Opportunities. The Company has assembled a
portfolio of well-established brands with significant customer recognition.
DFG intends to leverage these brands by introducing them into previously
untapped distribution channels. For example, at the time of its
acquisition, the CLASSIC KETTLE brand of confections was distributed
primarily through department stores and electronic media. The Company has
subsequently introduced CLASSIC confections into the club store channel,
and has obtained nationwide distribution of CLASSIC products at both Costco
and Sam's Club.
Introduce New Products and Line Extensions. The Company plans to build
upon its collection of brands by developing new products and line
extensions and by introducing new brands. In the past 12 months, the
Company's product development team has introduced 47 new products under
DFG's existing brand names. Management believes these new products
generated incremental sales without significantly cannibalizing existing
product sales. In addition, DFG has introduced new brands, such as AMERICAN
CARAMEL COMPANY(R).
Capitalize on Operating Synergies. The Company has acquired four
businesses and has letters of intent to acquire two additional businesses.
Management believes substantial operating synergies can be generated by
integrating these businesses. Such synergies include:
. CONSOLIDATING SALES AND MARKETING EFFORTS. The acquired businesses
have, in general, achieved significant growth with limited marketing
efforts. The Company has instituted, and plans to expand, marketing
efforts, such as improved brochures, trade and consumer advertising
and expanded, modern promotions. The Company has consolidated and
centralized sales and marketing across brands in its two product
lines, enabling the Company's sales force to offer the complete
Company product line on a national basis to all lines of trade.
40
<PAGE>
. ACHIEVING COST SAVINGS BY LEVERAGING FIXED INFRASTRUCTURE. As DFG
acquires premium appetizer and confection businesses, the Company has
begun to achieve cost savings by reducing duplicative administrative
functions and streamlining production and distribution while
improving quality. In addition, the Company realizes significant
savings through improved purchasing power for raw materials and key
services. The Company will continue to evaluate its manufacturing
infrastructure to identify opportunities for further cost savings.
. INTEGRATING INFORMATION SYSTEMS TO SUPPORT GROWTH AND INCREASE
EFFICIENCY. Management is investing in information technology to
improve the efficiency of all of its operations and to accommodate
anticipated growth. Improvements in computer and other information
systems are expected to allow the Company to better manage its
inventory and reduce costs. The Company recently hired a Chief
Information Officer with 15 years of experience, the last four with a
major food company. See "Management."
Continue Making Strategic Acquisitions. The Company will continue to
pursue acquisitions that provide complementary product lines, access to new
markets or synergies in production and/or distribution. Management believes
that the appetizer and confection industries remain fragmented, providing
the Company with the opportunity to acquire small to medium-sized
businesses whose owners have limited exit alternatives. The Company intends
to pursue such acquisitions and to apply the same strategies it has
employed to date, including (1) providing marketing, operational and
financial support to expand acquired businesses, (2) reducing costs through
consolidation of overhead, manufacturing efficiencies and purchasing power
and (3) retaining and incentivizing key operating management.
PRODUCTS AND MARKETS
The Company produces a wide variety of premium appetizers and gourmet
confections. These products are distributed in the United States through all
of the principal food distribution channels and are also sold in Canada and
the United Kingdom.
41
<PAGE>
Premium Appetizers
Appetizers represented the Company's largest product category, constituting
$58.3 million, or 68.3%, of pro forma net sales for Fiscal 1997. The following
table summarizes the Company's appetizer product offerings:
<TABLE>
<CAPTION>
PRODUCT LINE BRANDS REPRESENTATIVE ITEMS
------------ ------ --------------------
<S> <C> <C>
Puff Pastry Hors d'Oeuvres CASINO CHEF Seafood puffs
Cheese calzones
Asparagus roll ups
COHEN'S FAMOUS Spinach & potato puffs
Beef & mushroom turnovers
Chicken Wellington encroute
RESTAURANIC Seafood Newburgh
Brie puffs
Chicken & sun dried tomato
FAYE'S Baked artichoke puffs
Mushroom & blue cheese puffs
Spinach croissant
Hot Hors d'Oeuvres CASINO CHEF Pizza bagels
Shrimp egg rolls
COHEN'S FAMOUS Stuffed mushroom caps
Cajun chicken kabobs
RESTAURANIC Chicago-style pizza
Chicken strips in sesame
FAYE'S Mini deep dish pizza
Mexican Hors d'Oeuvres CASINO CHEF Tacos
Fajitas
RESTAURANIC Quesadilla with cheese
Empanada with beef
Canapes RESTAURANIC Assorted fresh canapes
Assorted frozen canapes
Assorted fresh finger sandwiches
Quiche Hors d'Oeuvres CASINO CHEF Quiche lorraine
Spinach quiche
RESTAURANIC Quiche with cheese & chives
Quiche with brie cheese
FAYE'S Tomato, green pepper and
onion quiche
Filo Hors d'Oeuvres CASINO CHEF Brie with honey mustard
Brie with raspberry & almonds
COHEN'S FAMOUS Zucchini & tomato filos
Vegetable filos
Brochettes CASINO CHEF Sesame chicken
Coconut chicken
RESTAURANIC Cajun chicken kabobs
Pork sate
Chicken and waterchestnut
brochettes
FAYE'S Beef kabobs
Kosher Delicacies COHEN'S FAMOUS Potato pancakes
Knishes
Stuffed cabbage
Matzoh balls
Blintzes
</TABLE>
42
<PAGE>
For certain major food service distributors, DFG produces private label
appetizers. The Company believes these products strengthen the relationship
between DFG and its customers, while increasing volume with limited
cannibalization of existing brands.
The Company's appetizers are manufactured from high quality ingredients
including lobster, shrimp and other seafood, poultry, beef, a variety of
vegetables, various styles of pastry dough and a wide range of spices and
flavorings. Although many of the Company's recipes have been used for a number
of years, DFG regularly introduces new products and refines its products in
response to changing tastes and trends. For example, DFG has increased its
Mexican-style appetizer offerings in response to the growth in popularity of
Mexican cuisine.
Almost all appetizer products (99%) are shipped frozen to customers, where
they can be thawed and served, cooked or warmed, with minimal handling. Some
products are shipped on oven-proof and microwave trays designed to be the
ultimate serving tray. In addition, the Company believes it is the only
national manufacturer of a premium, handmade fresh appetizer line. The Company
produces a variety of fresh items which are shipped overnight to chefs or
restaurant managers each day, enabling these food service professionals to
concentrate on the preparation of other food items. In addition, DFG often
receives special requests for particular products which the Company then makes
to order. Management believes its premium fresh product line differentiates
DFG from it competitors and allows DFG to leverage its other brands and
product lines. In addition, chefs and food service managers often prefer
handmade appetizers because their item by item variation provides a homemade
appearance.
DFG prepares a full line of products ranging from premium hand-made,
sculpted appetizers to machine-made cocktail frank products and sells both
Kosher and non-Kosher products. In 1997, nearly $34 billion of food products
were produced as Kosher in the United States. Management believes the total
number of consumers seeking Kosher food products is growing, in part because
Kosher is identified with quality, health and fine preparation. The Kosher
market is concentrated in the New York area and other urban areas. Management
believes that the Company's ability to provide Kosher as well as non-Kosher
items constitutes a competitive advantage. In general, management believes
that caterers and hotels with a large Kosher clientele prefer to carry Kosher
products over equivalent quality non-Kosher products. Carrying Kosher products
enables foodservice providers to serve both their Kosher and non-Kosher guests
simultaneously without increasing their inventory on-hand or number of
distributors. The Company also provides Kosher meals for schools and other
institutions.
The Company has recently introduced, through its appetizer division, a line
of frozen, petite desserts such as mini-cheesecakes and other sweets. These
items are currently being sold through the food service and chain restaurant
channels.
43
<PAGE>
Gourmet Confections
Confections represented $27.1 million, or 31.7% of pro forma net sales for
Fiscal 1997. DFG products include premium chocolates, fudge and caramels,
hand-dipped pretzels, apples, shortbreads and biscotti, all of which are hand-
made and elaborately decorated to enhance aesthetic appeal. The following
table summarizes the Company's confectionery product offerings:
<TABLE>
<CAPTION>
PRODUCT LINE BRAND(S) REPRESENTATIVE ITEMS
------------ -------- --------------------
<S> <C> <C>
Apple Treats MRS. PRINDABLE'S Triple Chocolate
Pecan Caramel
Celebration
Designer
Basic Design
AMERICAN CARAMEL Various Flavors
CLASSIC KETTLE Various Flavors
Caramel Treats MRS. PRINDABLE'S Caramel Squares
Caramel Bavarian Pretzels
Caramel Toffee
Caramel & Cookies
AMERICAN CARAMEL Bulk Packaged
Twist Wrap
Assorted Flavors & Gourmet
Sugar Free Flavors
CLASSIC KETTLE Caramel Pretzel Rods
Fudge MRS. PRINDABLE'S Caramel & Chocolate Coated
Fudge
CLASSIC KETTLE Six Fudge Flavors
Gourmet Chocolates SWEET SHOP Truffles
Nut Clusters
Assorted Chocolates
Ice Cream Novelties ARCTIC ZONE Assorted Ice Cream Sandwiches,
Bars and Cones
</TABLE>
The Company's more than 150 confection products feature premium quality,
indulgence items suitable for gifts as well as personal consumption. The
Company markets premium, decorated caramel and chocolate apples under the MRS.
PRINDABLE'S brand name. These products feature super-premium apples (generally
in excess of 24 oz. per apple), which are dipped in caramel, coated in
chocolate (which may be dark, milk, white or a combination) and decorated with
various frostings, nuts and candies to create a uniquely indulgent appearance.
These apples are produced in a variety of styles and designs (including
designs geared to holidays and events) and are individually packaged for gift
giving as well as personal consumption.
The Company also produces a variety of other chocolate and caramel-dipped
confections. High-quality shortbreads, pretzels, biscotti, nut clusters,
toffees and fudge are coated in caramel and/or chocolate and decorated with
various nuts and other toppings. These products are both hand-dipped and
machine-made, depending upon the particular product, and are packaged for
individual sale or in quantity (generally 15 or 25 items), depending upon the
channel of distribution.
44
<PAGE>
DFG offers a variety of hand-dipped chocolates and truffles featuring
cremes, nougats, nuts, fruit centers and caramel. The Company offers over 100
different types of hand-dipped and machine-made chocolates and truffles at any
given time. These products are packaged and sold in bulk to confectionery
stores, which generally display the items for individual sale or in custom box
sets. The Company also offers these products in pre-packaged assortments in
deluxe gift boxes. DFG also markets boxed caramels in a variety of flavors and
sizes.
The Company also sells private label truffles and hand dipped chocolates to
select, upscale department and specialty store accounts. The Company is test
marketing a line of prepackaged, premium chocolates for sale through a major
club store account, under the CLASSIC brand name.
DFG employs a branding strategy to provide distinctive product lines at
different price points across many channels of distribution. MRS. PRINDABLE'S
products have a super-premium image and pricing, and are sold to specialty and
upscale department stores. The Company also features the MRS. PRINDABLE'S
brand on QVC, where the brand is showcased in a one-hour segment airing
several times a year. The CLASSIC KETTLE brand is featured on bulk-packaged
items sold to club stores and mass merchandisers. SWEET SHOP brand truffles
and dipped chocolates are targeted to department stores, specialty stores and
military post exchanges. The Company also sells AMERICAN CARAMEL COMPANY
branded caramels at generally lower price points to department stores, mass
merchants and drug stores.
Product Development
The Company actively develops and introduces new products in response to
changing consumer tastes and trends. On the appetizer side, new product
development is led by Charles Mok, a food industry veteran with over 30 years
of experience. Mr. Mok directs five other full time professional chefs at the
Company's test kitchen in Chicago. The new product development effort for
confections is led by Gail Robinson, director of product development efforts
at the Company's test kitchen in Lincolnwood, Illinois. The Company's sales
people actively solicit new product ideas from customers. In 1997, the Company
introduced more than 40 new products (evenly split between appetizer and
confection products).
SALES, MARKETING AND DISTRIBUTION
The Company's products are sold through all of the principal channels of
distribution for its product categories. Appetizers are distributed through
the food service channel, club stores and retail supermarkets. Confections are
currently distributed through electronic media, club stores, specialty stores,
department stores and catalogs. In the case of many of its products, the
concentration in particular distribution channels reflects the focus of the
Company's operating subsidiary prior to acquisition. The Company is seeking to
expand the distribution of each of its principal product lines into previously
underpenetrated distribution channels.
45
<PAGE>
The following charts list representative appetizer and confection customers
of the Company in each of the principal distribution channels and the brand
names under which the Company sells products to such customers:
<TABLE>
<CAPTION>
COHEN'S CASINO
RESTAURANIC FAMOUS CHEF
----------- ------- ------
<S> <C> <C> <C>
APPETIZERS:
Food Service & Hospitality
Alliant Foodservice............................... * * *
J.P. Foodservice.................................. * * *
Sysco Corp........................................ * * *
Club Stores
BJ's Wholesale Club............................... * *
Sam's Club........................................ *
Costco............................................ *
Retail Supermarkets
A & P............................................. *
Publix Super Markets.............................. *
Shoprite.......................................... *
</TABLE>
<TABLE>
<CAPTION>
MRS. AMERICAN CLASSIC SWEET
PRINDABLE'S CARAMEL KETTLE SHOP
----------- -------- ------- -----
<S> <C> <C> <C> <C>
CONFECTIONS:
Food Service & Hospitality
Host Marriott............................. *
Department Stores
Bloomingdale's............................ * *
Lord & Taylor............................. * *
Macy's.................................... *
Neiman-Marcus............................. * *
Nordstrom................................. *
Saks Fifth Avenue......................... * *
Club Stores
BJ's Wholesale Club....................... *
Costco.................................... *
Sam's Club................................ *
Specialty Stores
Hallmark.................................. *
Electronic Media
Home Shopping Network..................... * *
QVC....................................... * *
Catalogs
Bloomingdale's............................ *
Neiman-Marcus............................. *
</TABLE>
The Company markets its products primarily through its internal sales and
marketing staff. The Company's fifteen person sales force is organized into
appetizer sales and confection sales, each group reporting to a separate Vice
President of Sales. Sales representatives are responsible for geographic
territories and are compensated on the basis of base salary plus bonuses for
exceeding sales quotas. The Company's senior management is also directly
involved in the sales process, and works closely with the sales force to
initiate, expand and nurture key account relationships. The Company also sells
its products through approximately 70 independent food brokers throughout the
United States who work closely with DFG's sales people. In Canada and the
United Kingdom, products are distributed through independent distributors who
generally carry the Company's products exclusively. In the United Kingdom, the
46
<PAGE>
Company's products are sold through the three largest food service
distributors: Brake Brothers, The Pullman Group and Fairway Group.
As part of its acquisition strategy, the Company has consolidated the sales
and marketing organizations of each acquired business. As a result, each
Company salesperson within the appetizer division and the confection division
now is responsible for sales of the Company's full product line in that
division. In many cases, this integration has enabled the Company to penetrate
existing accounts for one product line with other Company product lines. For
example, based upon the Company's existing club store relationships for
confections, management is currently testing Sweet Shop-produced products in
club stores.
The consolidated marketing department, consisting of two individuals
operating out of Company headquarters, is responsible for the coordination of
marketing and sales support materials. Prior to acquisition by the Company,
most of the acquired businesses had extremely limited marketing efforts. The
Company has implemented new efforts including: (1) the preparation of new
product brochures featuring professional product presentation and photography;
(2) the implementation of Company-wide trade promotion strategies; and (3) the
implementation of cross-selling programs for accounts featuring multiple
product lines.
The main focus of the Company's marketing and advertising is on the
wholesale trade. The Company is an active participant in key trade shows for
the appetizer and confection markets through its sales force or
brokers/distributors. The Company also participates in cooperative advertising
and in-house product demonstrations. Management believes that one of the
Company's key strengths is its willingness to work with key customers to
develop, market and promote new products through these customers' distribution
systems. For example, in response to a request by one of the Company's United
Kingdom customers for a new dessert assortment, the Company was able to
design, develop and begin production of such an assortment within two months
of the request.
The Company distributes its products through distribution centers located
adjacent to its principal manufacturing facilities in Illinois, New Jersey and
Texas. Additionally, the Company uses public cold storage facilities
throughout the United States. Products are generally shipped to customers'
distribution centers, although in certain cases the Company will ship directly
to retail outlets. Fresh, premium appetizers are shipped daily directly to a
customer's kitchen through overnight delivery services. In the case of
electronic media and catalog customers, fulfillment of orders is handled
directly from the Company's distribution facilities.
None of the Company's customers represented more than 10% of the Company's
aggregate net sales in fiscal 1997.
MANUFACTURING
The Company operates manufacturing and distribution facilities for its
appetizer products in Chicago, Illinois and Newark, New Jersey. The
manufacturing and distribution facilities for DFG's confection products are
located in Lincolnwood, Illinois and Fort Worth, Texas. An affiliate of the
Company is currently refurbishing a 60,000 square foot facility in Chicago for
the Company's appetizer division. This facility is expected to be completed in
August 1998. The Company intends to move its entire Chicago appetizer
operation to this facility. See "Certain Relationships and Related
Transactions." As a result of these efforts, management believes that the
Company's facilities will be modern, efficient and sufficient to meet
anticipated needs. The Company currently has three Kosher certified
facilities.
As management has acquired new businesses, the Company has generally re-
allocated production to improve efficiency. As the Company acquires other
businesses, it intends to consider re-allocating production and consolidating
facilities to generate longer production runs and use capacity and skilled
workers more efficiently.
47
<PAGE>
MANAGEMENT INFORMATION SYSTEM
The Company maintains its information systems based on a local area network
architecture at each business unit as well as at its corporate headquarters.
The software portfolio includes accounting, sales and distribution and
manufacturing applications.
To accommodate the potential growth of the Company and to improve its
efficiencies, plans are being formulated to advance the Company's computing
capabilities by deploying a single software solution Company-wide. This will
benefit the Company by improving operating efficiencies through the
standardization of planning, order management, manufacturing, and accounting
functions and providing more consistent, timely, and accurate information to
management for more informed decision making. The Company also intends to
deploy an enterprise-wide, network architecture which will benefit the Company
by improving the flow of information. See "Risk Factors--Year 2000
Compliance."
INTELLECTUAL PROPERTY
The Company owns 27 trademarks or tradenames, including COHEN'S FAMOUS,
CASINO CHEF, RESTAURANIC, MRS. PRINDABLE'S, AMERICAN CARAMEL COMPANY, CLASSIC
KETTLE and SWEET SHOP. DFG believes ownership of these brands constitutes a
competitive advantage. The Company's recipes and certain manufacturing
processes also constitutes proprietary information and are important to the
Company's successful competitive position. Accordingly, the Company seeks to
establish and protect its trademarks, trade secrets and other proprietary
rights. See "Risk Factors--Trademarks and Other Proprietary Rights."
REGULATION AND CERTIFICATION
As a manufacturer and marketer of food products, the Company is subject to
various laws and regulations. The Company's facilities are inspected by
federal agencies, including the United States Department of Agriculture, the
Occupational Safety and Health Administration and other state and local
agencies. The production, packaging, labeling and marketing of food items is
subject to further regulation by federal agencies, including the United States
Department of Agriculture, the Environmental Protection Agency and the Federal
Trade Commission. These agencies set standards for quality and purity and
impose sanctions and fines for the failure to comply with such standards. The
Company also has four certified Kosher kitchens. See "Risk Factors--Impact of
Government Regulation and Other Certifications."
COMPETITION
The food products business is highly competitive. Numerous brands and
products compete for sales and market share, with competition based primarily
on brand recognition and loyalty, price, quality and convenience. The Company
competes with a significant number of companies of varying sizes, including
divisions or subsidiaries of larger companies as well as smaller regional and
local specialty operations. On the appetizer side, the Company also competes
directly with its customers who may produce their own items. See "Risk
Factors--Competition."
RAW MATERIALS
The primary raw materials used in the Company's operations include seafood,
poultry, beef, cheese, vegetables, cocktail franks, chocolate, apples, sugar
and milk, as well as plastic and paper products. All of the Company's raw
materials are widely available from numerous suppliers. See "Risk Factors--
Cost and Availability of Ingredients and Packaging Materials."
48
<PAGE>
FACILITIES
The Company operates the manufacturing facilities described in the following
table. All of the facilities are leased by the Company.
<TABLE>
<CAPTION>
LOCATION LEASE EXPIRATION SQUARE FEET
-------- ------------------- -----------
<S> <C> <C>
Chicago, Illinois......................... 2/30/99 and 4/30/00 50,000
Newark, New Jersey........................ 9/30/00 33,000
Lincolnwood, Illinois..................... 5/31/02 40,158
Fort Worth, Texas......................... 2/28/03 59,136
</TABLE>
The Company's Chicago, Illinois appetizer operations will be relocated to a
new facility in August 1998. See "Certain Relationships and Related
Transactions." The Company believes its current and planned facilities are
sufficient for the Company's current and anticipated needs.
EMPLOYEES
As of April 15, 1998, the Company employed over 485 persons, 85 of whom (at
the Company's New Jersey facility) are represented by United Food and
Commercial Workers International Union. The Company's contract with this union
expires on January 30, 1999. The Company believes its relations with its
employees are good.
LITIGATION
The Company currently is not a party to any material litigation, nor is it
aware of any material litigation threatened against it.
49
<PAGE>
MANAGEMENT
DIRECTORS AND EXECUTIVE OFFICERS
The following table details certain information with respect to the
Company's executive officers, directors and other key employees:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<C> <C> <S>
EXECUTIVE OFFICERS AND DIRECTORS:
Andrew J. Zahn................... 30 Chairman of the Board of Directors and Chief
Executive Officer
Lawrence R. Gould................ 37 Chief Administrative Officer and Director
Philip Gay....................... 40 Chief Operating Officer
Philip J. Sexauer................ 33 Chief Financial Officer
Robert R. Geisheker.............. 49 Vice President of Marketing
Michael F. Ricciardi............. 41 President, Appetizer Division
Trevor A. Toppen................. 27 General Manager, Confection Division
Mark D. Andersen................. 41 Vice President, Quality Assurance/Technical
Services
Neil Cohen....................... 41 Executive Vice President of Sales, Appetizer
Division
Chuck Oler....................... 48 Chief Information Officer
OTHER KEY EMPLOYEES:
Andrew K. Grohering.............. 32 Corporate Controller
Charles Mok...................... 57 President--Restauranic Manufacturing Division
Sidney Cohen..................... 65 President--Cohen's Manufacturing Division
Paul Anderson.................... 55 President--Sweet Shop Manufacturing Division
Gail Robinson.................... 57 President--Classic Confectionery Manufacturing
Division
Michelle Robinson................ 35 Vice President of Sales, Classic Confectionery
Dawn Iannacone................... 33 National Sales Manager, Appetizer Division
</TABLE>
Andrew J. Zahn has served as the Chairman and Chief Executive Officer of the
Company since March 1996. Prior to Mr. Zahn's affiliation with the Company, he
served as President of Mama Tish's Italian Specialties from 1989 to October
1995, as Mama Tish's Chief Executive Officer from November 1993 to January
1996 and as its Chairman from January 1996 to January 1997. From 1989 to 1991,
Mr. Zahn was a principal in the Louis Zahn Drug Company and from 1987 to 1989,
he served as President of the Louis Zahn Realty Investment Group. In 1994, Mr.
Zahn was admitted into the Chicago Entrepreneur Hall of Fame presented by
Arthur Andersen Enterprise Group, William Blair & Company, LaSalle National
Bank and the University of Illinois at Chicago. Mr. Zahn is also a member of
The Young Presidents Organization.
Lawrence R. Gould has served as the Chief Administrative Officer of the
Company since March 1996 and as a director since June 1998. Prior to Mr.
Gould's position with the Company, he served as a professional money risk
manager in the financial and stock index futures industry from 1984 to March
1996. He also served as a tax specialist with Altschuler Melvoin & Glasser
from 1983 to 1984. Mr. Gould earned his B.S. in Accountancy from the
University of Illinois.
Philip Gay has served as the Company's Chief Operating Officer since January
1998. Prior to joining the Company, he served as a consultant to the Company
from August 1997 to December 1997. From December 1996 to April 1997, Mr. Gay
served as Chief Executive Officer of Color Me Mine, a paint your own ceramics
company. From 1994 to 1996, Mr. Gay served as Vice President, Chief Financial
Officer and interim Chief Executive Officer of Wolfgang Puck Food Company.
From 1987 to 1994, Mr. Gay was Vice President and Chief Financial Officer for
California Pizza Kitchen. Mr. Gay earned his B.S. in Accounting and Finance
from the London School of Economics and is a Certified Public Accountant.
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Philip J. Sexauer joined the Company in January 1998 and has served as the
Company's Chief Financial Officer since March 1998. Prior to Mr. Sexauer's
affiliation with the Company, he served as a Finance Manager and the Financial
Projects Manager for FMC Corporation from 1993 to 1998. From 1987 to 1993, he
was a Senior Manager with KPMG Peat Marwick in Chicago. Mr. Sexauer earned his
M.B.A. at the University of Chicago and his B.S. in Accounting from Northern
Illinois University and is a Certified Public Accountant.
Robert R. Geisheker has served as the Company's Vice President of Marketing
since May 1997. Prior to Mr. Geisheker's affiliation with the Company, he was
a Principal at Carousel Candies from 1991 to May 1997. Mr. Geisheker also has
over 20 years of marketing experience with Sears, Roebuck and Co. in positions
such as National Field Merchandising Director, National Marketing and
Advertising Manager for Children's Apparel and National Operations Manager for
Children's and Men's Apparel. Mr. Geisheker earned his B.A. in Marketing at
the University of Wisconsin--Whitewater. In 1987, he was named the Sears
Marketing Manager of the Year, selected from among all of the Sears Marketing
Managers.
Michael F. Ricciardi has served as the President of the Appetizer Division
since January 1998. Prior to his affiliation with the Company, he served as a
Vice President for the Sara Lee Bakery Division from 1996 to 1997. From 1986
to 1996, he held positions with Sara Lee such as General Manager, Baker Deli
Division, Vice President of Customer Services and Logistics and Vice President
of Trade Marketing. From 1981 to 1986, Mr. Ricciardi served as a Buyer and
Merchandiser for the Jewel Food Stores. Mr. Ricciardi earned his M.B.A. at
Harvard University and his B.S.E.E. at Northwestern University in Evanston,
Illinois. Mr. Ricciardi was a member of the Sara Lee Bakery Executive
Committee and the Food Industry Efficient Consumer Response Best Practices
Committee for Logistics.
Trevor A. Toppen has served as the Company's General Manager, Confection
Division since January 1997. Prior to Mr. Toppen's affiliation with the
Company, he served as Director of Purchasing/Plant Controller for Mama Tish's
Italian Specialties from 1994 to January 1997. From 1992 to 1994, Mr. Toppen
was a Senior Auditor with BDO Seidman, LLP. Mr. Toppen earned his B.S. in
Accounting from Michigan State University in 1992 and is a Certified Public
Accountant. Mr. Toppen has been a member of the Illinois CPA Society since
1994.
Mark D. Andersen has served as the Company's Vice President, Quality
Assurance and Technical Services since February 1998. Prior to joining the
Company, Mr. Andersen served as Quality Assurance Project Manager for the
SYSCO Corporation from 1990 to February 1998. From 1989 to 1990, he held the
position of technical Sales/Service Representative for Richard's Laboratory.
From 1988 to 1989, Mr. Andersen was a Manager of Quality Assurance
Sanitation/Technical Services for Mama D'Angelo. Mr. Andersen earned his B.S.
in Food Science from California Polytechnic State University in 1982 and has
been a member of the Institute of Food Technologists since 1981. Additionally,
Mr. Andersen was a Sergeant in the U.S. Army from 1973 to 1977.
Neil Cohen has served as the Company's Executive Vice President of Sales and
Marketing since October 1997. Prior to joining the Company, Mr. Cohen served
as Sales Manager for Cohen's Famous Frozen Foods from 1982 to 1997. From 1977
to 1982, Mr. Cohen served as Head Chef of Cohen's Famous Frozen Foods. Prior
to that time, Mr. Cohen served as a Sous Chef for the Lamplighter Restaurant
in New York from 1976 to 1977, after completing his culinary training at the
Culinary Institute of America in 1976. In 1996, Mr. Cohen was named Chairman
of the National Prepared Food Association, after being a member for 15 years
and serving on the board for three years. Mr. Cohen has been a member of the
Culinary Federation since 1985. Mr. Cohen's father, Sidney Cohen, is the
President of the Company's Cohen's Manufacturing Division.
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Chuck Oler has served as the Company's Chief Information Officer since May
1998. Prior to joining the Company, Mr. Oler served as Vice President of
Information Systems for Stella Foods from 1994 to April 1998. From 1991 to
1994, he served as Vice President of Information Systems with Marks Brothers
Jewelers, Inc. From 1988 to 1991, Mr. Oler was the Systems Development Manager
with Kraft Foodservice. Mr. Oler earned his B.S. in Architecture from the
University of Maryland in 1972. Mr. Oler is a Certified Data Processor.
OTHER DIRECTORS
After consummation of the Offering, three additional directors will be
elected to the Board of Directors, at least two of whom will not be employees
or affiliates of the Company.
OTHER KEY EMPLOYEES
Andrew K. Groharing has served as the Company's Corporate Controller since
June 1998. Prior to Mr. Groharing's affiliation with the Company, he served in
various roles including Assistant Controller and Director of Planning and
Reporting for U.S. Robotics Corp. from August 1994 through its acquisition by
3Com Corporation in June 1998. From 1987 to 1994, Mr. Groharing served as a
manager for Ernst and Young LLP. Mr. Groharing earned his Masters of
Accountancy from DePaul University and his Bachelor of Science from Bradley
University and is a Certified Public Accountant.
Charles Mok has served as the Company's President--Restauranic Manufacturing
Division since 1996. Mr. Mok held the position of President and founder of
Restauranic, Inc. from 1974 until the Company acquired Restauranic in 1996.
Prior to founding Restauranic, Mr. Mok was the Corporate Executive Chef for
ARA Corporation from 1964 to 1974. Mr. Mok attended the Washburne Chef
Training School in Chicago and studied the Fundamentals of Food Preparation
and Presentation. Mr. Mok also authored the books Practical Salad and Dessert
Art and Cold Hors D'Oeuvres and Fancy Canapes.
Sidney Cohen has served as the Company's President--Cohen's Manufacturing
Division, since October 1997. Mr. Cohen was a Founder and held the position of
President of Cohen's Famous Frozen Foods from 1960 until the Company acquired
Cohen's in 1997. Prior to founding Cohen's, Mr. Cohen served as Chef for
Cohen's Knishes, a family business. Mr. Cohen served in the United States Army
from 1950 to 1952. Mr. Cohen's son, Neil Cohen, is the Company's Executive
Vice President of Sales, Appetizer Division.
Paul Anderson has served as the Company's President--Sweet Shop
Manufacturing Division, since February 1998. Prior to Mr. Anderson's
affiliation with the Company, he served as President of Sweet Shop Candies,
Inc. from 1994 to February 1998. From 1992 to 1994, Mr. Anderson served as a
Director and Consultant for Sweet Shop Candies. From 1989 to 1992, Mr.
Anderson was a Financial Planner and Negotiator for Park Penn Properties. Mr.
Anderson was an investor, consultant, and land developer from 1976 through
1989. Mr. Anderson earned his B.S. in Business Administration in 1968 from Bob
Jones University.
Gail Robinson has served as President at Classic Confectionery Manufacturing
Division, since October 1996. Prior to Ms. Robinson's affiliation with the
Company, she served as President of Mrs. Prindable Inc., which she co-founded
in 1984.
Michelle Robinson has served as Vice President of Sales at Classic
Confectionery, a subsidiary of the Company, since October 1996. Prior to Ms.
Robinson's affiliation with the Company, she served as Vice President of Sales
for Mrs. Prindable, Inc., which she co-founded in 1984.
Dawn Iannacone has served as the Company's National Sales Manager, Appetizer
Division since October 1997. Prior to Ms. Iannacone's affiliation with the
Company, she served as Regional Sales Manager at Cohen's Famous Frozen Foods
from March 1990 to October 1997. She earned a B.S. in Hotel Restaurant
Management from New York University in 1988.
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BOARD OF DIRECTORS
The Company's current Board of Directors consists of two members: Andrew J.
Zahn and Lawrence R. Gould. Prior to consummation of the Offering, three
additional directors will be elected to the Board of Directors, at least two
of whom will not be employees or affiliates of the Company.
The Company's Board of Directors will be divided into three classes with
staggered three-year terms. At each annual meeting of the stockholders,
directors will be elected by the holders of the Common Stock to succeed those
directors whose terms are expiring. Directors elected by the Company's
stockholders may be removed only for cause.
COMMITTEES OF THE BOARD OF DIRECTORS
Following the consummation of the Offering, the Company intends to form an
Audit Committee and a Compensation Committee.
The Audit Committee generally will have responsibility for recommending
independent auditors to the Board of Directors for selection, reviewing the
plan and scope of the annual audit, reviewing the Company's audit and control
functions and reporting to the full Board of Directors regarding all of the
foregoing. The Audit Committee will be composed entirely of directors who are
not officers or employees of the Company.
The Compensation Committee generally will have responsibility for
recommending to the Board guidelines and standards relating to the
determination of executive compensation, reviewing the Company's executive
compensation policies and reporting to the Board of Directors regarding the
foregoing. The Compensation Committee also will have responsibility for
administering the Company's incentive compensation plans, determining the
number of options to be granted to the Company's executive officers pursuant
to such plans and reporting to the Board of Directors regarding the foregoing.
The Compensation Committee will consist solely of nonemployee directors.
COMPENSATION OF DIRECTORS
It is anticipated that Directors who are not officers or employees of, or
consultants to, the Company will receive $10,000 annually plus $2,000 for each
Board meeting and $1,000 for each Committee meeting attended. Upon joining the
Board of Directors, each non-employee Director will be granted options to
purchase 10,000 shares of Common Stock at an exercise price equal to the then
market price of Common Stock. Thereafter, the Company's 1998 Stock Incentive
Plan will provide for annual grants of options to purchase 5,000 shares of
Common Stock to non-employee Directors. Such Directors will also be reimbursed
for their reasonable expenses for each board and committee meeting attended.
See "Management--Stock Plan."
EXECUTIVE COMPENSATION
For Fiscal 1997, neither Mr. Zahn, the Chief Executive Officer, nor Mr.
Gould, the Chief Administrative Officer, received any compensation from the
Company for his services, but received distributions of approximately $534,000
($468,000 of which was in lieu of salary) and $625,000 ($566,000 of which was
in lieu of salary), respectively, and perquisites totalling $56,800 and
$38,000, respectively (which includes the value of that person's car
allowance, personal travel and life insurance). Messrs. Zahn
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and Gould each received no option grants in Fiscal 1997 and held no options at
the end of Fiscal 1997. The Company anticipates that during Fiscal 1998 its
most highly compensated executive officers will be Messrs. Zahn, Gould and
Gay. Each of Messrs. Zahn, Gould and Gay is currently negotiating employment
agreements with the Company. The Company anticipates that the employment
agreements will provide for annual base salaries of $275,000, $250,000 and
$210,000, respectively.
EMPLOYMENT AGREEMENTS
Upon the consummation of the Offering, Messrs. Zahn, Gould and Gay are
expected to enter into employment agreements with the Company providing for
annual base salaries of $275,000 for Mr. Zahn, $250,000 for Mr. Gould and
$210,000 for Mr. Gay. Each agreement will provide that the executive is
eligible to earn an annual bonus based upon specified performance criteria.
Each employment agreement will contain a covenant not to compete with the
Company for a period of two years following termination of employment. Each
employment agreement will require the executive to devote his full time to the
Company. Each employment agreement will also provide the executive with
certain perquisites. In addition, Mr. Cohen has a five year employment
agreement which provides for an annual and base salary of $175,000 and other
customary terms and conditions.
Each of these employment agreements is expected to provide that, in the
event of a termination of employment by the Company without cause during the
term of the agreement, the Company will pay to the executive, as severance
compensation, (i) his then current salary plus the bonus paid to him the last
fiscal year for a period of two years following the date of termination and
(ii) his bonus for the current year prorated through the termination date.
Payment is due in equal installments on the Company's normal payroll payment
dates during the severance period. The employment agreements will further
provide that in the event of a change in control of the Company (as defined in
the employment agreements), the executive will have the right, following such
change in control, to terminate his employment for Good Reason (or, in the 60
days immediately following such change in control, for any reason) and be
entitled to receive severance benefits as described above. So long as the
executive does not engage in conduct giving rise to the right to terminate
employment for cause, Good Reason includes (i) the failure to elect the
executive to the office previously held, the removal of the executive from his
position or the assignment to the executive of any additional duties or
responsibilities or a reduction in executive's duties or responsibilities
which, in either case, are inconsistent with those customarily associated with
such position and (ii) a relocation by the Company of the executive's place of
employment beyond a specified area.
On various occasions during 1997 and 1998, the Company granted Messrs. Gay,
Sexauer, Ricciardi, Toppen, Andersen and Cohen options to acquire , ,
, , , and shares of Common Stock at exercise prices of ,
, , , and , respectively. In connection with the
negotiation of their final employment agreements, the Company anticipates
granting options to Messrs. Zahn and Gould.
STOCK PLAN
Effective upon consummation of the Offering, the Company's Board of
Directors will adopt the Company's 1998 Employee Stock Option Plan (the
"Employee Stock Plan") and the Non-Employee Director Stock Option Plan (the
"Director Stock Plan," together with the Employee Stock Plan, the "Stock
Plans"), which will be approved by the Company's stockholders on ,
1998. The purpose of the
Stock Plans is to motivate non-employee directors, officers, key employees and
consultants to the Company ("Participants") by allowing them to participate in
the Company's future, to recognize and reward Participants' contributions and
achievements and business performance through incentives linked to performance
objectives and to enable the Company to attract and retain these persons by
offering them an ownership interest in the Company. The Stock Plan will be
administered by the Compensation Committee. The Employee Stock Plan will
authorize the issuance of up to shares of Common Stock pursuant to the
grant or exercise of stock options, stock appreciation rights, restricted
stock,
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performance shares, annual incentive bonuses or deferred stock to officers, key
employees and consultants of the Company. The Directors' Stock Plan will
authorize the issuance of up to shares of Common Stock pursuant to the
grant or exercise of stock options, deferred stock or performance shares to
non-employee directors of the Company. Options granted to certain senior
executives, management and other employees will vest or become exercisable over
varied periods that will be determined at the time such options are granted.
Upon joining the Board of Directors, directors who are not employees of the
Company or any affiliate ("Non-Employee Directors") will be automatically
granted options to purchase 10,000 shares on such date, and Non-Employee
Directors will be granted options for 5,000 shares of Common Stock on the date
of each annual stockholder's meeting beginning in 1999. Such options will be
granted at fair market value on the date of grant.
Stock Options may be either "incentive stock options" (within the meaning of
Section 422 of the Code) or nonstatutory options (collectively, "Stock
Options"). Only nonstatutory stock options may be granted to Non-Employee
Directors. The exercise price per share purchasable under an option shall be
determined at the time of grant by the Compensation Committee. Generally,
Participants will be given ten years in which to exercise a Stock Option, or a
shorter period once a Participant terminates employment. Payment may be made in
cash or in the form of unrestricted shares the Participant already owns or by
the other means. At the Company's option, it may provide a Participant with a
loan or guarantee of a loan for the exercise price of an option. The right to
exercise an option may be conditioned upon the completion of a period of
service or other conditions.
Stock Appreciation Rights ("SARs") entitle a Participant to receive an amount
in cash, shares or both, equal in value to (i) the excess of the fair market
value of one share over the exercise price per share specified in the related
Stock Option multiplied by (ii) the number of shares to which the SAR relates.
The right to exercise a SAR may be conditioned upon the completion of a period
of service or other conditions. Generally, Participants will be given ten years
in which to exercise a SAR, or a shorter period once a Participant terminates
employment.
Shares of Restricted Stock ("Restricted Stock") may also be awarded under the
Stock Plans, which require the completion of a period of service or the
attainment of specified performance goals by the Participant or the Company or
a subsidiary, division or department of the Company or such other criteria as
the Compensation Committee may determine. Upon a participant's Termination of
Employment (as defined in the Stock Plans), the Restricted Stock subject to
restriction generally will be forfeited by the Participant. The Compensation
Committee may waive these restrictions in the event of hardship or other
special circumstances.
Performance Share Awards ("Performance Shares") are grants of shares of
Common Stock or the right to receive shares in the future that are subject to
restrictions on transfer and retention based on satisfaction of certain
performance criteria of the Company, the Participant or both. If the specified
performance objectives established by the Committee are attained during the
time period specified by the Committee (which will generally be at least a two-
year period) and if the Participant continues in employment through the
performance period, the restrictions on transfer and retention will be removed.
Depending on a Participant's responsibilities, the performance criteria will
be based on any of the following, either alone or in any combination, and
either on a consolidated or business unit level, as the Committee may
determine: sales, net asset turnover, earnings per share, cashflow, cashflow
from operations, operating profits or income, operating margin, net income, net
income margin, return on net assets, return on total assets, return on common
equity, return on total capital and total shareholder return. The Committee
will specifically determine whether these criteria may include or exclude any
or all of the following items: extraordinary, unusual or nonrecurring items;
effects of accounting changes; effects of financing activities; expenses for
restructuring or productivity initiatives; non-operating items; spending for
acquisitions; effects of divestitures; and effects of litigation or
settlements. Capital gains may be included or excluded. The maximum number of
performance shares that may be awarded to any Participant under the Plan for
any year is one half of the shares of Common Stock reserved under the plan.
Performance Shares in respect of which the Company's deduction is subject to
Section 162(m) of the
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Code may only be paid if the performance objectives are achieved, except where
the Participant's employment is terminated for an extraordinary reason, in
which case the Participant may receive a proportionate award.
Deferred Stock ("Deferred Stock") is stock that can be awarded to a
Participant in the future, at a specified time and under specified conditions.
The Compensation Committee will determine the Participants to whom, and the
time or times at which, any Deferred Stock shall be awarded, the number of
shares of Deferred Stock to be awarded to any Participant, the duration, the
period during which and the conditions under which receipt of the shares will
be deferred and any other terms and conditions of the Deferred Stock.
Annual Incentive Awards ("Annual Incentives") are awards granted each fiscal
year by the Committee and based on the satisfaction of specified bonus
targets. The targets are based on Company performance measurements, as
determined by the Committee, and include the following: sales, net asset
turnover, earnings per share, cashflow, cashflow from operations, operating
profits or income, net income, operating margin, net income margin, return on
net assets, return on total assets, return on common equity, return on total
capital and total shareholder return. The Committee will specifically
determine these criteria and may include or exclude any or all of the
following items: extraordinary, unusual or nonrecurring items; effects of
accounting changes; effects of financing activities; expenses for
restructuring or productivity initiatives; non-operating items; spending for
acquisitions; effects of divestitures; and effects of litigation or
settlements. Capital gains may be included or excluded. The Committee will
determine each year whether the objectives have been satisfied and awards will
be paid only if the deduction is subject to Section 162(m) of the Code, except
of any extraordinary reason for a termination of employment.
Payment may be made in cash, or at the election of the Participant, in the
form of Common Stock, Deferred Stock, Restricted Stock, or a combination of
the foregoing. If Deferred Stock or Restricted Stock is chosen, it will be
subject to limitations on transfer and risk of forfeiture for a designated
period (generally, four years) and may have a value of as much as 130% of the
cash value of the award had it been paid in cash. The maximum compensation
that any Participant may receive in connection with an Annual Incentive,
including Restricted Stock or Deferred Stock worth 130% of the cash value, is
$1.5 million.
Amendments and Modifications. The Stock Plans, as adopted, are not limited
as to their duration. The Board of Directors of the Company may amend, alter,
or discontinue the stock Plans, subject to certain limits.
Change in Control. In the event of a Change in Control of the Company (as
defined in the Stock Plans):
(1) any SAR and Stock Options outstanding as of the date of such Change
in Control that are not then exercisable and vested will become fully
exercisable and vested to the full extent of the original grant; and
(2) the restrictions and deferred limitations applicable to any shares of
Restricted Stock and Deferred Stock will lapse and such shares of
Restricted Stock and Deferred Stock will become free of all restrictions
and become fully vested and transferable to the full extent of the original
grant. Also, the performance goals and other restrictions with respect to
any outstanding award of Performance Shares or Annual Incentives may be
deemed to be satisfied in full and fully distributable.
A Change in Control includes any transaction that would result in any person
owning, directly or indirectly, 20% or more of the outstanding Common Stock of
the Company or the voting power of the Company, certain changes in the members
of the board of directors, certain corporate transactions (such as a merger)
and the sale of substantially all of the Company's assets.
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LIMITATION OF LIABILITY AND INDEMNIFICATION
Article VIII of the Company's Certificate of Incorporation provides that the
Company shall indemnify its directors to the fullest extent permitted by the
Delaware General Corporation Law and may indemnify its officers and employees
to such extent, except that the Company shall not be obligated to indemnify
any such person (i) with respect to proceedings, claims or actions initiated
or brought voluntarily by any such person and not by way of defense, or (ii)
for any amounts paid in settlement of an action indemnified against by the
Company without the prior written consent of the Company. Article VIII of the
Company's Certificate of Incorporation further provides that the personal
liability of the directors of the Company is eliminated to the fullest extent
permitted under the Delaware General Corporation Law.
The Underwriting Agreement provides that the Underwriters are obligated,
under certain circumstances, to indemnify directors, officers and controlling
persons of the Company against certain liabilities, including liabilities
under the Securities Act.
Insofar as indemnification for liabilities arising under the Securities Act
may be permitted to directors, officers and controlling persons of the Company
pursuant to the foregoing provisions, or otherwise, the Company has been
advised that in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Cohen facility. Sidney and Edward Cohen, former owners of Cohen's and
current stockholders of the Company, own the Company's Newark, New Jersey
facility. The Company leases the facility from Messrs. Cohen pursuant to a
lease, the initial term of which expires in September 2000. Lease payments for
the last two months of 1997 totalled $36,667, and the Company continues to
make lease payments of $18,333 per month.
Current appetizer production facilities. Wylie and Charles Mok, through a
series of trusts, own the Company's current Restauranic facilities in Chicago.
Messrs. Mok are stockholders in the Company. The Company leases the facilities
pursuant to a month-to-month lease. It is the intention of the parties that
all operations currently conducted at this facility be moved to the Company's
new Chicago facility in August 1998. Pursuant to an agreement between the
parties, the Company will continue to make monthly payments for up to six
months until the current facilities are sold. Any payments made by the Company
after it vacates the facility will be recouped from the proceeds of such sale.
New appetizer production facility. The Company is currently renovating a
facility owned by GZ Properties ("GZ Properties"), an entity which is owned by
Messrs. Zahn and Gould and Lowell Kraff, a Company stockholder. The Company
intends to conduct its Chicago appetizer operations at the new 60,000 square
foot facility beginning in August 1998 when it purchases the facility from GZ
Properties at its estimated cost of $8.5 million, based upon the purchase
price of the facility plus costs of renovation pursuant to third-party
contractor quotations.
Sweet Shop facility. James H. Webb, former owner of Sweet Shop Candies Inc.
and a current stockholder in the Company, leases a 59,000 square foot facility
in Fort Worth, Texas to the Company. This lease expires February 28, 2003 and
requires lease payments of $9,375 per month.
Lincolnwood facility. DFG Realty, an entity wholly-owned by Messrs. Zahn and
Gould, holds an option to purchase the Company's Lincolnwood facility from an
unaffiliated third party. The option term is for a period beginning June 2000
through May 2002 at an exercise price ranging from $1.3 million to $1.4
million.
Vision Capital, LLC. Vision Capital, LLC, a Delaware limited liability
company ("Vision"), will receive a financial advisory fee of $275,000 in
connection with the Offering, which will be paid by DFG. In connection with
the Proposed Credit Facility, Vision will receive a financial advisory fee
from BT Alex. Brown Incorporated. Vision received a $125,000 financial
advisory fee from the Company in connection with placement of the Company's
subordinated debt. Mr. Kraff, a shareholder of the Company, serves as a
managing member of Vision. Vision will pay a fee estimated to be $150,000 to
Katten Muchin & Zavis for services provided to Vision in connection with
Vision's engagement by DFG.
Lexer Capital, Ltd. Since December 31, 1996, Lexer Capital, Ltd., a Delaware
limited liability company ("Lexer") owned by Mr. Kraff, has received
$1,100,000 in financial advisory fees from the Company for services rendered
in connection with the incurrence of the existing subordinated indebtedness,
the senior credit facility and the Acquisitions.
Tax Distribution. Immediately prior to the Conversion, the Company intends
to distribute to equity owners of the Limited Liability Company any previously
undistributed limited liability company taxable income as of the date of
termination of the Limited Liability Company's status as a limited liability
company. The distributions, if any, will not be material.
Loans to Affiliates. The Company has advanced Mr. Gay a total of $118,000,
the largest amount outstanding since the beginning of Fiscal 1997 and the
amount outstanding on the date of this Prospectus. The advance was made in
connection with Mr. Gay's relocation to Chicago, Illinois, bears interest at
the rate of prime plus 1% per annum and is payable in full in June 2003.
It is the Company's policy that any future transactions and transactions
ongoing on the date of this Prospectus with officers, directors and affiliates
will be approved by a majority of the Board, including a majority of the
disinterested members of the Board, and will be made on terms no less
favorable to the Company than could be obtained from unaffiliated third
parties.
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SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT;
SELLING STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of the Common Stock as of April 3, 1998 as adjusted to reflect the
sale of the shares of Common Stock being offered hereby by: (i) each person
(or group of affiliated persons) known by the Company to beneficially own more
than 5% of the outstanding shares of Common Stock, (ii) each director of the
Company, (iii) the chief executive officer, (iv) all of the Company's
directors and executive officers as a group, and (v) the Selling Stockholders.
Unless otherwise indicated below, the persons in the table have sole voting
and investment power with respect to all shares shown as beneficially owned by
them.
<TABLE>
<CAPTION>
SHARES OF
SHARES OF COMMON STOCK
COMMON STOCK BENEFICIALLY
BENEFICIALLY OWNED AFTER
OWNED PRIOR TO THE OFFERING
THE OFFERING (1)
-------------- --------------
NAME NUMBER PERCENT NUMBER PERCENT
- ---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Andrew J. Zahn(2)(3)............................. % %
Lawrence R. Gould(2)(4)..........................
Lowell D. Kraff(2)(5)............................
Philip Gay.......................................
Philip J. Sexauer................................
Robert R. Geisheker..............................
Michael F. Ricciardi.............................
Trevor A. Toppen.................................
Mark D. Andersen.................................
Neil Cohen.......................................
Chuck Oler.......................................
Madeleine L.L.C..................................
All directors and executive officers as a group
( persons)...................................
</TABLE>
- --------
* Less than 1%.
(1) In addition to Messrs. Zahn, Gould and Kraff, the following stockholders
will also be Selling Stockholders if the Underwriters over-allotment
option is exercised in full. See "Company History and Acquisitions--
Completed Acquisitions" and "Certain Relationships and Related
Transactions" for a description of certain relationships. Shares
beneficially owned by these Selling Stockholders before and after the
Offering are as follows:
<TABLE>
<CAPTION>
SHARES OF SHARES OF
COMMON STOCK COMMON STOCK
BENEFICIALLY BENEFICIALLY
OWNED PRIOR TO OWNED AFTER
THE OFFERING THE OFFERING
-------------- --------------
NAME NUMBER PERCENT NUMBER PERCENT
---- ------ ------- ------ -------
<S> <C> <C> <C> <C>
Charles Mok............. % %
Wylie Mok...............
Cory Rogin..............
Gail Robinson...........
Michelle Robinson.......
James H. Webb...........
Sid Cohen...............
Ed Cohen................
Neil Cohen..............
Dennis Kessler..........
Primus Capital Fund III
Limited Partnership....
Walter F. McLallen, IV..
</TABLE>
(2) Unless otherwise indicated, the address of the beneficial owner is c/o
Diversified Food Group, Inc., 6901 North Hamlin Avenue, Lincolnwood,
Illinois 60645.
(3) If the over-allotment option is exercised in full, shares of
Common Stock will be sold, and Mr. Zahn will thereupon be the beneficial
owner of shares or % of the Company's Common Stock after the
Offering.
(4) If the over-allotment option is exercised in full, shares of
Common Stock will be sold, and Mr. Gould will thereupon be the beneficial
owner of shares or % of the Company's Common Stock after the
Offering.
(5) If the over-allotment option is exercised in full, shares of
Common Stock will be sold, and Mr. Kraff will thereupon be the beneficial
owner of shares or % of the Company's Common Stock after the
Offering.
59
<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon consummation of the Offering, the authorized capital stock of the
Company will consist of 50,000,000 shares of Common Stock, $.001 par value per
share ("Common Stock") and shares of Preferred Stock.
The following summary of certain provisions relating to the Common Stock and
Preferred Stock does not purport to be complete and is subject to, and
qualified in its entirety by, provisions of applicable law, and by the
provisions of the Company's Certificate of Incorporation and By-laws that are
included as exhibits to the Registration Statement of which this Prospectus is
a part.
COMMON STOCK
As of the date of the Conversion, shares of Common Stock will be
outstanding and an additional shares of Common Stock will be
outstanding upon consummation of the Offering. Subject to the rights of
holders of preferred stock, the holders of outstanding shares of Common Stock
are entitled to share ratably in dividends declared out of assets legally
available therefor at such time and in such amounts as the Board of Directors
may from time to time lawfully determine. See "Dividend Policy." Each holder
of Common Stock is entitled to one vote for each share held. Subject to the
rights of holders of any outstanding Preferred Stock, upon liquidation,
dissolution or winding up of the Company, any assets legally available for
distribution to stockholders as such are to be distributed ratably among the
holders of the Common Stock at that time outstanding. All shares of Common
Stock currently outstanding are, and all shares of Common Stock offered by the
Company hereby when duly issued and paid for will be, fully paid and
nonassessable, not subject to redemption and assessment and without
conversion, preemptive or other rights to subscribe for or purchase any
proportionate part of any new or additional issues of any class or of
securities convertible into stock of any class.
PREFERRED STOCK
Preferred stock may be issued by the Company in series from time to time
with such designations, relative rights, priorities, preferences,
qualifications, limitations and restrictions thereof, to the extent that such
are not fixed in the Company's Certificate of Incorporation, as the Board of
Directors determines. The rights, preferences, limitations and restrictions of
different series of Preferred Stock may differ with respect to dividend rates,
amounts payable on liquidation, voting rights, conversion rights, redemption
provisions, sinking fund provisions and other matters. The Board of Directors
may authorize the issuance of Preferred Stock which ranks senior to the Common
Stock with respect to the payment of dividends and the distribution of assets
on liquidation. In addition, the Board of Directors is authorized to fix the
limitations and restrictions, if any, upon the payment of dividends on Common
Stock to be effective while any shares of Preferred Stock are outstanding. The
Board of Directors, without stockholder approval, may issue Preferred Stock
with voting and conversion rights which could adversely affect the voting
power of the holders of Common Stock. The issuance of Preferred Stock may have
the effect of delaying, deferring or preventing a change in control of the
Company. The Company has no present intention to issue shares of Preferred
Stock.
CERTAIN CORPORATE PROVISIONS
Upon the consummation of the Offering, the Company will be subject to the
provisions of Section 203 of the DGCL. In general, this statute prohibits a
publicly held Delaware corporation from engaging, under certain circumstances,
in a "business combination" with an "interested stockholder" for a period of
three years after the date of the transaction in which the person becomes an
interested stockholder, unless either (i) prior to the date at which the
stockholder became an interested stockholder the board of directors approved
either the business combination or the transaction in which the person becomes
an interested stockholder, (ii) the stockholder acquires more than 85% of the
outstanding voting stock of the
60
<PAGE>
corporation (excluding shares held by directors who are officers or held in
certain employee stock plans) upon consummation of the transaction in which
the stockholder becomes an interested stockholder or (iii) the business
combination is approved by the board of directors and by two-thirds of the
outstanding voting stock of the corporation (excluding shares held by the
interested stockholder) at a meeting of the stockholders (and not by written
consent) held on or subsequent to the date of the business combination. An
"interested stockholder" is a person who, together with affiliates and
associates, owns (or at any time within the prior three years did own) 15% or
more of the corporation's voting stock. Section 203 defines a "business
combination" to include, without limitation, mergers, consolidations, stock
sales and asset based transactions and other transactions resulting in a
financial benefit to the interested stockholder.
The Company's Certificate of Incorporation and By-laws contain a number of
provisions relating to corporate governance and to the rights of stockholders.
Certain of these provisions may be deemed to have a potential "anti-takeover"
effect in that such provisions may delay, defer or prevent a change of control
of the Company. These provisions include (i) a requirement that stockholder
action may be taken only at stockholder meetings; (ii) notice requirements in
the By-laws relating to nominations to the Board of Directors and to the
raising of business matters at stockholders meetings; and (iii) the
classification of the Board of Directors into three classes, each serving for
staggered three year terms. See "Risk Factors--Certain Anti-Takeover
Provisions; Preferred Stock" and "Management--Directors and Executive
Officers."
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for the Common Stock is Harris Trust and
Savings Bank.
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to the Offering, there has been no public market for the Common Stock.
Sales of substantial amounts of Common Stock in the public market, or the
availability of such shares for sale, could adversely affect the market price
of the Common Stock.
Upon completion of the Offering, the Company will have an aggregate of
shares of Common Stock outstanding, assuming no exercise of the
Underwriters' over-allotment option and no exercise of outstanding options or
warrants after the date of this Prospectus. Of these shares, the
shares sold in the Offering will be freely tradable without restriction or
further registration under the Securities Act, unless held by "affiliates" of
the Company, as that term is defined in Rule 144 promulgated under the
Securities Act. The remaining shares of Common Stock outstanding upon
completion of the Offering will be Restricted Shares.
All directors and officers and certain other stockholders of the Company
have agreed with the Underwriters that, for a period of 180 days from the date
of this Prospectus, they will not offer to sell or otherwise sell, dispose of
or grant rights with respect to any shares of Common Stock, now owned or
hereafter acquired directly by such holders or with respect to which they have
the power of disposition, otherwise than with the prior written consent of BT
Alex. Brown Incorporated. As a result of these contractual restrictions,
notwithstanding possible earlier eligibility for sale under the provisions of
Rules 144, 144(k) and 701 of the Securities Act, shares subject to lock-up
agreements will not be salable until the agreements expire or unless prior
written consent is received from BT Alex. Brown Incorporated. Any early waiver
of the lock-up agreements by the underwriters, which, if granted, could permit
sales of a substantial number of shares and could adversely affect the trading
price of the Company's shares, may not be accompanied by an advance public
announcement by the Company. See "Underwriting."
Taking into account the lock-up agreements, the number of shares that will
be available for sale in the public market under the provisions of Rules 144
and 144(k), will be as follows: (i) approximately Restricted Shares
will be eligible for sale immediately after the effective date of the
Registration Statement, and (ii) the remaining Restricted Shares will
become eligible for public resale following expiration of the lock-up
agreements, subject in some cases to vesting provisions and volume and manner
of sale limitations.
In general, under Rule 144 a person (or persons whose shares are aggregated)
who has beneficially owned Restricted Shares for at least one year, including
persons who may be deemed "affiliates" of the Company, would be entitled to
sell within any three-month period a number of shares that does not exceed the
greater of one percent of the number of shares of Common Stock then
outstanding or the average weekly trading volume of the Common Stock during
the four calendar weeks preceding the filing of a Form 144 with respect to
such sale. Sales under Rule 144 are also subject to certain manner of sale
provisions and notice requirements and to the availability of current public
information about the Company. In addition, a person who is not deemed to have
been an affiliate of the Company at any time during the 90 days preceding a
sale, and who has beneficially owned for at least two years the shares
proposed to be sold, would be entitled to sell such shares under Rule 144(k)
without regard to the requirements described above. The Company is unable to
estimate accurately the number of Restricted Shares that will be sold under
Rule 144 because this will depend in part on the market price for the Common
Stock, the personal circumstances of the seller and other factors.
Pursuant to Rule 144 and upon expiration of the one-year holding period, an
additional shares of Common Stock will be available for sale upon the
exercise of outstanding warrants. As of , options to purchase
shares were issued and outstanding under the Stock Plans. See "Management--
Stock Plan."
62
<PAGE>
In addition, beginning 90 days after the date of this Prospectus, certain
shares issued or issuable upon exercise of options granted by the Company
prior to the effective date of the Registration Statement will also be
eligible for sale in the public market pursuant to Rule 701 under the
Securities Act, subject to the lock-up agreements. In general, Rule 701
permits resales of shares issued pursuant to certain compensatory benefit
plans and contracts commencing 90 days after the issuer becomes subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended, in
reliance upon Rule 144 but without compliance with certain restrictions,
including the holding period requirements, contained in Rule 144.
Following the Offering, the Company intends to file under the Securities Act
one or more registration statements on Form S-8 to register all of the shares
of Common Stock subject to outstanding options and reserved for future option
grants under the Stock Plans. These registration statements are expected to
become effective upon filing and shares covered by these registration
statements will be eligible for sale, subject, in the case of affiliates only,
to the restrictions of Rule 144, other than the holding period requirement,
and subject to expiration of the lock-up agreements with the Underwriters. As
of April 15, 1998, outstanding options to acquire an aggregate of
shares of Common Stock were currently exercisable.
63
<PAGE>
UNDERWRITING
Subject to the terms and conditions set forth in the underwriting agreement
(the "Underwriting Agreement"), the Company has agreed to sell to the
underwriters named below (the "Underwriters"), and each of the Underwriters,
for whom BT Alex. Brown Incorporated and BancAmerica Robertson Stephens are
acting as representatives (the "Representatives"), has severally agreed to
purchase from the Company, the aggregate number of shares of Common Stock set
forth opposite its name below.
<TABLE>
<CAPTION>
NUMBER OF
UNDERWRITERS SHARES
------------ ---------
<S> <C>
BT Alex. Brown Incorporated.....................................
BancAmerica Robertson Stephens..................................
---------
Total.......................................................
=========
</TABLE>
In the Underwriting Agreement, the Underwriters have agreed, subject to the
terms and conditions set forth therein, to purchase all of the shares of
Common Stock offered by this Prospectus (other than those subject to the over-
allotment option described below) if any such shares are purchased. In the
event of a default by the Underwriters, the Underwriting Agreement provides
that, in certain circumstances, the purchase commitments of non-defaulting
Underwriters may be increased or the Underwriting Agreement may be terminated.
The Selling Stockholders have granted to the Underwriters an option,
exercisable by the Representatives during the 30-day period after the date of
this Prospectus, to purchase up to an aggregate of shares of Common
Stock at the same price per share as the initial shares of Common Stock to be
purchased by the Underwriters. The Representatives may exercise such option
only to cover over-allotments in the sale of shares of Common Stock. To the
extent that the Representatives exercise such option, the Underwriters will
have a firm commitment, subject to certain conditions, to purchase the same
proportion of such additional shares of Common Stock as the number of shares
of Common Stock to be purchased and offered by such Underwriters in the above
table bears to the total number of shares in the above table.
The Company has been advised by the Representatives that the Underwriters
propose initially to offer the shares of Common Stock to the public at the
offering price set forth on the cover page of this Prospectus, and through the
Representatives to certain dealers at such price less a concession not in
excess of $ per share. The Underwriters may allow, and such dealers may
reallow, a concession not in excess of $ per share to certain other
dealers. After the Offering, the public offering price and other selling terms
may be changed.
The Company and its officers, directors and certain stockholders have agreed
that they will not offer, sell, contract to sell, or otherwise dispose of,
directly or indirectly, any shares of Common Stock, or any interests therein,
or any securities convertible into, or exchangeable for, shares of Common
Stock, or rights to acquire the same, for a period of 180 days from the date
of this Prospectus without the prior written consent of BT Alex. Brown
Incorporated. Such consent may be given without any public notice. See "Shares
Eligible for Future Sale."
The Company has agreed to indemnify the Underwriters against certain
liabilities, including liabilities under the Securities Act, or to contribute
to payments that the Underwriters may be required to make in respect thereof.
64
<PAGE>
Prior to the Offering, there has been no public market for the Common Stock.
Consequently, the initial public offering price of the Common Stock will be
determined after negotiation among the Company and the Representatives. Among
the factors considered in such negotiations will be market conditions, the
results of operations of the Company in recent periods, the market
capitalization and stages of development of other companies which the Company
and the Representatives believe to be comparable to the Company, estimates of
the business potential of the Company, the present state of the Company's
development and other factors deemed relevant.
In connection with the Offering, certain persons participating in the
Offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the Common Stock. Specifically, the Representatives may
bid for and purchase Common Stock in the open market to stabilize the price of
the Common Stock. The Underwriters may also over-allot the Offering, creating
a syndicate short position, and may bid for and purchase Common Stock in the
open market to cover the syndicate short position. The Representatives may
also impose a penalty bid pursuant to which the Representatives may reclaim
from any Underwriter or dealer participating in the Offering the selling
concession on shares sold by them and purchased by the Representatives in
stabilizing or short covering transactions. In addition, the Underwriters may
bid for and purchase the Common Stock in market making transactions. These
activities may stabilize or maintain the market price of the Common Stock
above market levels that may otherwise prevail. The Underwriters are not
required to engage in these activities, and may end these activities at any
time.
The Underwriters have reserved for sale, at the initial public offering
price, up to 5% of the Common Stock offered hereby for employees and directors
of the Company and certain other individuals who have expressed an interest in
purchasing such shares of Common Stock in the Offering. The number of shares
available for sale to the general public will be reduced to the extent such
persons purchase such reserved shares. Any reserved shares not so purchased
will be offered by the Underwriters to the general public on the same basis as
other shares offered hereby.
The Underwriters have informed the Company that they do not intend to
confirm sales of Common Stock offered hereby for accounts over which they
exercise discretionary authority.
Bankers Trust Company, an affiliate of BT Alex. Brown Incorporated, has made
a proposal to extend to the Company the Proposed Credit Facility. See
"Proposed Credit Facility."
LEGAL MATTERS
The validity of the Common Stock offered hereby and certain other legal
matters will be passed upon for the Company by Katten Muchin & Zavis, Chicago,
Illinois, a partnership including professional corporations. Katten Muchin &
Zavis owns shares of the Company's Common Stock. Certain legal matters
in connection with the Offering will be passed upon for the Underwriters by
Latham & Watkins, Chicago, Illinois.
EXPERTS
The consolidated financial statements and schedule of Diversified Food
Group, LLC and subsidiaries as of January 2, 1998 and for the year then ended
included in this Prospectus and elsewhere in the Registration Statement, have
been audited by BDO Seidman, LLP, independent certified public accountants, to
the extent set forth in their reports appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such reports given
upon the authority of said firm as experts in auditing and accounting.
65
<PAGE>
The financial statements of Diversified Food Group, L.L.C. as of January 3,
1997 and for Fiscal 1996 included in this Prospectus and elsewhere in the
Registration Statement, have been audited by Altschuler, Melvoin and Glasser
LLP, independent certified public accountants, to the extent set forth in
their reports appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of
said firm as experts in auditing and accounting. The Company has agreed to
indemnify Altschuler, Melvoin and Glasser LLP for legal costs and expenses
incurred in connection with a successful defense of any legal action or
proceeding that may arise as a result of Altschuler, Melvoin and Glasser LLP's
consent to the inclusion of its audit reports in the Company's Registration
Statement.
The financial statements of Cohen's Famous Frozen Foods, Inc. for the period
from January 1, 1997 through October 15, 1997 included in this Prospectus and
elsewhere in the Registration Statement, have been audited by BDO Seidman,
LLP, independent certified public accountants, to the extent set forth in
their report appearing elsewhere herein and in the Registration Statement, and
are included in reliance upon such report given upon the authority of said
firm as experts in auditing and accounting.
The financial statements of Cohen's Famous Frozen Foods, Inc. as of December
31, 1996, and for the year ended December 31, 1996, included in this
Prospectus and elsewhere in the Registration Statement, have been audited by
Fishman Ostroff Ruchowitz Hausman, independent certified public accountants,
to the extent set forth in their report appearing elsewhere herein and in the
Registration Statement, and are included in reliance upon such report given
upon the authority of said firm as experts in auditing and accounting.
The financial statements of Restauranic, Inc. as of January 3, 1997 and for
the year then ended, included in this Prospectus and elsewhere in the
Registration Statement, have been audited by Altschuler, Melvoin and Glasser
LLP, independent certified public accountants, to the extent set forth in
their reports appearing elsewhere herein and in the Registration Statement,
and are included in reliance upon such reports given upon the authority of
said firm as experts in auditing and accounting. The Company has agreed to
indemnify Altschuler, Melvoin and Glasser LLP for legal costs and expenses
incurred in connection with a successful defense of any legal action or
proceeding that may arise as a result of Altschuler, Melvoin and Glasser LLP's
consent to the inclusion of its audit reports in the Company's Registration
Statement.
The financial statements of Sweet Shop Candies, Inc. as of June 30, 1995,
1996 and 1997 and as of January 23, 1998, and for the years ended June 30,
1995, 1996, 1997 and for the period from July 1, 1997 through January 23,
1998, included in this Prospectus and elsewhere in the Registration Statement,
have been audited by Weaver and Tidwell, L.L.P., independent certified public
accountants, to the extent set forth in their reports appearing elsewhere
herein and in the Registration Statement, and are included in reliance upon
such reports given upon the authority of said firm as experts in auditing and
accounting.
CHANGE IN INDEPENDENT ACCOUNTANTS
Altschuler, Melvoin and Glasser LLP ("AMG") has previously served as the
independent certified public accountants for the Company. After an evaluation
by management of services provided by other independent certified public
accounting firms, the Company dismissed AMG as their independent certified
public accountants in December 1997, and engaged BDO Seidman, LLP ("BDO") as
the new independent certified public accountants for the Company as of such
date. The decision to dismiss AMG was approved by the Managing Members of the
Company.
AMG's report on the financial statements of the Company for Fiscal 1996 did
not contain an adverse opinion or a disclaimer of opinion, and was not
qualified or modified as to uncertainty, audit scope or accounting principles.
During the engagement of AMG by the Company and the subsequent interim
66
<PAGE>
period preceding the dismissal, there were no disagreements with AMG on any
matter of accounting principles or practices, financial statement disclosure,
or auditing scope or procedure, which disagreements, if not resolved to the
satisfaction of AMG, would have caused AMG to make reference to the subject
matter of the disagreements in connection with its report. In addition, during
Fiscal 1996 and the subsequent interim period preceding the dismissal, there
were no events of the type requiring disclosure under Item 304(a)(l)(v) of
Regulation S-K.
During Fiscal 1996 and the subsequent interim period preceding the dismissal
of AMG, the Company did not consult with BDO regarding (i) the application of
accounting principles to a specified transaction (either completed or
proposed), (ii) the type of audit opinion that might be rendered on the
financial statements of the Company or (iii) any matter that was the subject
of a "disagreement" or a "reportable event" (as each term is defined in Item
304(a)(2)(ii) of Regulation S-K).
ADDITIONAL INFORMATION
The Company has filed with the Commission in Washington, D.C., a
Registration Statement on Form S-1 (of which this Prospectus is a part) under
the Securities Act with respect to the Common Stock offered hereby. This
Prospectus does not contain all the information set forth in the Registration
Statement and the exhibits and schedules thereto, certain portions of which
have been omitted as permitted by the rules and regulations of the Commission.
For further information with respect to the Company and the Common Stock
offered hereby, reference is made to the Registration Statement and such
exhibits and schedules. Statements contained in this Prospectus regarding the
contents of any agreement or other document referred to are not necessarily
complete, and in each instance, reference is made to a copy of such agreement
or other document filed as an exhibit to the Registration Statement. Each such
statement is qualified in all respects by such reference. The Registration
Statement and the exhibits and schedules thereto may be inspected without
charge at the public reference facilities maintained by the Commission,
including at the Commission's Public Reference Room, 450 Fifth Street, N.W.,
Judiciary Plaza, Washington, D.C. 20549 and at the Commission's Regional
Offices at 7 World Trade Center, Suite 1300, New York, New York 10048 and
Citicorp Center, 500 West Madison Street, Suite 1400, Chicago, Illinois 60661.
Copies may be obtained at prescribed rates from the Public Reference Section
of the Commission at its principal office in Washington, D.C. Such materials
also may be accessed electronically by means of the Commission's web site at
http://www.sec.gov.
67
<PAGE>
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
CONSOLIDATED FINANCIAL STATEMENTS OF DIVERSIFIED FOOD GROUP, LLC AND
SUBSIDIARIES:
Report of BDO Seidman, LLP, Independent Certified Public Accountants for
fiscal year 1997....................................................... F-3
Report of Altschuler, Melvoin and Glasser LLP, Independent Certified
Public Accountants for fiscal year 1996................................ F-4
Consolidated Balance Sheets as of January 3, 1997, January 2, 1998 and
April 3, 1998.......................................................... F-5
Consolidated Statements of Operations for the initial period from March
25, 1996 through January 3, 1997, the year ended January 2, 1998 and
the quarters ended April 4, 1997 and April 3, 1998..................... F-6
Consolidated Statements of Cash Flows for the initial period from March
25, 1996 through January 3, 1997, the year ended January 2, 1998 and
the quarters ended April 4, 1997 and April 3, 1998..................... F-7
Consolidated Statements of Changes in Members' Equity for the initial
period from March 25, 1996 through January 3, 1997, the year ended
January 2, 1998 and the quarter ended April 3, 1998.................... F-9
Notes to Consolidated Financial Statements.............................. F-10
FINANCIAL STATEMENTS OF COHEN'S FAMOUS FROZEN FOODS, INC.:
Report of BDO Seidman, LLP, Independent Certified Public Accountants for
1997................................................................... F-24
Statement of Operations and Retained Earnings for the nine and one-half
months ended October 15, 1997.......................................... F-25
Statement of Cash Flows for the nine and one-half months ended October
15, 1997............................................................... F-26
Notes to Financial Statements........................................... F-27
Report of Fishman Ostroff Ruchowitz Hausman, Independent Certified
Public Accountants for 1996............................................ F-29
Balance Sheet as of December 31, 1996................................... F-30
Statement of Income for the year ended December 31, 1996................ F-31
Statement of Cash Flows for the year ended December 31, 1996............ F-32
Statement of Retained Earnings for the year ended December 31, 1996..... F-33
Notes to Financial Statements........................................... F-34
FINANCIAL STATEMENTS OF RESTAURANIC, INC.:
Report of Altschuler, Melvoin and Glasser LLP, Independent Certified
Public Accountants .................................................... F-38
Balance Sheet as of January 3, 1997..................................... F-39
Statement of Income for the year ended January 3, 1997.................. F-40
Statement of Cash Flows for the year ended January 3, 1997.............. F-41
Statement of Changes in Stockholders' Equity for the year ended January
3, 1997................................................................ F-42
Notes to Financial Statements........................................... F-43
FINANCIAL STATEMENTS OF SWEET SHOP CANDIES, INC.:
Report of Weaver and Tidwell, LLP, Independent Certified Public
Accountants for the period ended January 23, 1998...................... F-48
Balance Sheet as of January 23, 1998.................................... F-49
Statement of Income for the period through January 23, 1998............. F-50
Statement of Cash Flows for the period through January 23, 1998......... F-51
Statements of Changes in Stockholders' Equity for the period through
January 23, 1998....................................................... F-52
Notes to Financial Statements........................................... F-53
Report of Weaver and Tidwell, LLP, Independent Certified Public
Accountants for June 30, 1997 and 1996................................. F-57
Balance Sheets as of June 30, 1997 and 1996............................. F-58
</TABLE>
F-1
<PAGE>
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Statement of Income for the years ended June 30, 1997 and 1996.......... F-59
Statement of Cash Flows for the years ended June 30, 1997 and 1996...... F-60
Statement of Changes in Stockholders' Equity for the years ended June
30, 1997 and 1996...................................................... F-61
Notes to Financial Statements........................................... F-62
Report of Weaver and Tidwell, LLP, Independent Certified Public
Accountants for June 30, 1996 and 1995................................. F-66
Balance Sheets as of June 30, 1996 and 1995............................. F-67
Statement of Income for the years ended June 30, 1996 and 1995.......... F-68
Statement of Cash Flows for the years ended June 30, 1996 and 1995...... F-69
Statement of Changes in Stockholders' Equity for the years ended June
30, 1996 and 1995...................................................... F-70
Notes to Financial Statements........................................... F-71
</TABLE>
F-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
(The following is the form of the opinion that BDO Seidman, LLP will be in a
position to issue upon completion of the reorganization described in Note 11.)
Diversified Food Group, L.L.C. and Subsidiaries
Lincolnwood, Illinois
We have audited the accompanying consolidated balance sheet of Diversified
Food Group, L.L.C. and subsidiaries as of January 2, 1998 and the related
consolidated statements of operations, changes in members' equity and cash
flows for the year then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the financial position of
Diversified Food Group, L.L.C. and subsidiaries at January 2, 1998 and the
results of their operations and their cash flows for the year then ended, in
conformity with generally accepted accounting principles.
BDO Seidman, LLP
Chicago, Illinois
April 17, 1998
F-3
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Members of
Diversified Food Group, L.L.C.
We have audited the accompanying consolidated balance sheet of Diversified
Food Group, L.L.C. and Subsidiaries as of January 3, 1997, and the related
consolidated statements of income, changes in members' equity and cash flows
for the initial period from March 25, 1996 through January 3, 1997. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statement referred to above presents fairly, in
all material respects, the consolidated financial position of Diversified Food
Group, L.L.C. and Subsidiaries, as of January 3, 1997, and the consolidated
results of their operations and cash flows for the initial period from March
25, 1996 through January 3, 1997, in conformity with generally accepted
accounting principles.
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
May 2, 1997 (except for Note
6, as to which the date is
July 31, 1997)
F-4
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
PRO FORMA
JANUARY 3, JANUARY 2, APRIL 3, APRIL 3,
1997 1998 1998 1998
----------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
ASSETS (Note 6)
Current assets
Cash.......................... $ 413,619 $ -- $ -- $ --
Accounts receivable, trade
(net of allowance for
doubtful accounts of $67,000
in 1997, $349,000 at January
2, 1998 and $474,000 at
April 3, 1998)............... 4,618,829 10,442,683 4,964,876 4,964,876
Inventories (Note 4).......... 1,642,817 4,278,144 6,316,026 6,316,026
Due from affiliates........... 158,170 58,916 99,557 99,557
Income tax benefit (Note 7)... -- -- 222,000 222,000
Deferred income taxes (Note
7)........................... 121,000 85,000 121,000 577,000
Other current assets and
prepaid expenses............. 145,493 243,958 612,468 612,468
----------- ----------- ----------- -----------
Total current assets........ 7,099,928 15,108,701 12,335,927 12,791,927
----------- ----------- ----------- -----------
Property and equipment (net of
accumulated depreciation and
amortization) (Note 5)........ 1,082,533 4,006,584 4,851,418 4,851,418
----------- ----------- ----------- -----------
Other assets
Goodwill (net of accumulated
amortization of $46,846 in
1997, $514,318 at January 2,
1998 and $752,588 at April
3, 1998)..................... 3,652,136 25,534,151 31,976,935 31,976,935
Deferred financing fees (net
of accumulated amortization
of $19,193 in 1997, $732,320
at January 2, 1998 and
$852,342 at April 3, 1998)... 153,547 3,101,949 4,225,927 4,225,927
Deferred income taxes (Note
7)........................... 31,000 89,000 117,000 132,000
Other......................... 47,447 51,112 171,868 171,513
----------- ----------- ----------- -----------
Total other assets.......... 3,884,130 28,776,212 36,491,730 36,506,375
----------- ----------- ----------- -----------
Total assets................ $12,066,591 $47,891,497 $53,679,075 $54,149,720
=========== =========== =========== ===========
LIABILITIES AND MEMBERS' EQUITY
Current liabilities
Accounts payable, trade....... $ 1,235,171 $ 5,447,822 $ 3,548,686 $ 3,548,686
Accounts payable,
acquisition.................. -- 1,650,626 -- --
Current portion of long-term
debt (Note 6)................ 1,079,866 29,584,704 33,473,176 33,473,176
Income taxes payable (Note
7)........................... 318,500 355,804 112,786 112,786
Accrued payroll............... 277,452 235,697 371,256 371,256
Accrued interest.............. 106,496 131,169 154,346 154,346
Member distributions payable.. -- 96,540 96,540 96,540
Other current liabilities and
accrued expenses............. 226,859 518,512 521,517 521,517
----------- ----------- ----------- -----------
Total current liabilities... 3,244,344 38,020,874 38,278,307 38,278,307
----------- ----------- ----------- -----------
Long-term debt (Note 6)
Related parties' subordinated
debt......................... 1,150,000 1,218,280 1,218,280 1,218,280
Other......................... 5,250,930 164,430 148,670 148,670
----------- ----------- ----------- -----------
Total long-term debt........ 6,400,930 1,382,710 1,366,950 1,366,950
----------- ----------- ----------- -----------
Minority interest in
subsidiaries (Note 1)......... 498,932 -- -- --
----------- ----------- ----------- -----------
Members' and stockholders'
equity
Members' equity, 1,148,850
units issued and outstanding
at January 3, 1997,
1,391,090 units issued and
outstanding at January 2,
1998 and 1,429,707 units
issued and outstanding at
April 3, 1998................ 1,922,385 8,487,913 14,033,818 --
Common stock.................. -- -- -- 1,430
Additional paid-in capital.... -- -- -- 14,503,033
----------- ----------- ----------- -----------
Total members' and
stockholders' equity....... 1,922,385 8,487,913 14,033,818 14,504,463
----------- ----------- ----------- -----------
Total liabilities and
members' and stockholders'
equity..................... $12,066,591 $47,891,497 $53,679,075 $54,149,720
=========== =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-5
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
INITIAL PERIOD QUARTER QUARTER
FROM MARCH 25, YEAR ENDED ENDED ENDED
1996 THROUGH JANUARY 2, APRIL 4, APRIL 3,
JANUARY 3, 1997 1998 1997 1998
--------------- ----------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Net sales................ $13,117,359 $36,247,156 $4,091,364 $ 9,782,201
Cost of goods sold....... 8,111,004 26,177,118 3,329,688 7,159,837
----------- ----------- ---------- -----------
Gross profit......... 5,006,355 10,070,038 761,676 2,622,364
Selling, general and
administrative expenses
(Note 3)................ 3,219,659 7,902,649 1,373,321 4,125,599
----------- ----------- ---------- -----------
Income (loss) from
operations.......... 1,786,696 2,167,389 (611,645) (1,503,235)
----------- ----------- ---------- -----------
Other expense............
Interest expense....... 250,032 1,487,624 245,028 1,169,978
Other.................. 94,828 116,561 41,891 3,802
----------- ----------- ---------- -----------
344,860 1,604,185 286,919 1,173,780
----------- ----------- ---------- -----------
Income (loss) before
income taxes and
minority interest....... 1,441,836 563,204 (898,564) (2,677,015)
Income tax expense
(benefit) (Note 7)...... 298,883 327,000 (108,634) (200,000)
----------- ----------- ---------- -----------
Income (loss) before
minority interest..... 1,142,953 236,204 (789,930) (2,477,015)
Minority interest in
income (loss)........... 200,988 (49,100) (26,866) --
----------- ----------- ---------- -----------
Net income (loss).... $ 941,965 $ 285,304 $ (763,064) $(2,477,015)
=========== =========== ========== ===========
Pro forma financial
information (unaudited)
Income (loss) before
income taxes and
minority interest, as
presented............. $ 563,204 $(2,677,015)
Pro forma adjustment
for compensation...... (650,000) 137,500
Pro forma (provision)
benefit for income
taxes................. (73,000) 1,015,000
Minority interest in
loss.................. 49,100 --
----------- -----------
Pro forma net (loss)
(unaudited)............. $ (110,696) $(1,524,515)
=========== ===========
Pro forma net (loss) per
share (unaudited)....... $ (.09) $ (1.03)
=========== ===========
Pro forma net (loss) per
share--diluted
(unaudited)............. $ (.09) $ (1.03)
=========== ===========
Weighted averages shares. 1,276,395 1,483,687
Weighted average shares--
diluted................. 1,276,395 1,483,687
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
INITIAL
PERIOD FROM
MARCH 25,
1996 QUARTER QUARTER
THROUGH YEAR ENDED ENDED ENDED
JANUARY 3, JANUARY 2, APRIL 4, APRIL 3,
1997 1998 1997 1998
----------- ------------ ---------- -----------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING
ACTIVITIES
Net income (loss)....... $ 941,965 $ 285,304 $ (763,064) $(2,477,015)
Adjustments to reconcile
net income (loss) to
net cash (used in)
provided by operating
activities.............
Depreciation and
amortization of
property, plant and
equipment............ 119,163 466,370 52,254 234,534
Amortization of
goodwill............. 46,846 467,472 33,719 238,270
Amortization of
deferred financing
fees recorded as
interest expense..... 19,193 713,127 57,399 120,022
Accretion of original
issue discount....... -- 236,160 -- 487,603
Minority interest in
net income (loss) of
subsidiaries......... 200,988 (49,100) (26,866) --
Provision for losses
on accounts
receivable........... 67,000 282,000 -- 125,000
Provision for
inventory write-offs. 180,000 310,221 -- 113,255
Deferred income taxes. (74,000) (22,000) -- 22,000
Changes in operating
assets and
liabilities,
exclusive of business
acquisitions.........
Accounts receivable. (3,651,916) (4,068,513) 2,749,253 6,068,175
Inventories......... (392,219) (399,346) (872,763) (1,372,023)
Income tax benefit.. -- -- -- (222,000)
Other assets........ (75,948) (102,130) 61,694 (248,942)
Accounts payable.... 854,336 1,353,158 468,592 (3,964,329)
Income taxes
payable............ 309,000 37,304 (160,650) (243,018)
Accrued payroll..... 114,478 (41,755) (167,164) 135,559
Accrued interest.... 106,496 24,673 (26,325) 23,177
Other current
liabilities and
accrued expenses... 107,427 388,193 (14,745) (220,734)
----------- ------------ ---------- -----------
Net cash (used in)
provided by
operating
activities....... (1,127,191) (118,862) 1,391,334 (1,180,466)
----------- ------------ ---------- -----------
CASH FLOWS FROM INVESTING
ACTIVITIES
Acquisition of
subsidiaries........... (514,488) (17,498,789) -- (6,566,669)
Purchases of property
and equipment.......... (92,236) (1,536,094) (135,663) (561,243)
----------- ------------ ---------- -----------
Net cash used in
investing
activities....... (606,724) (19,034,883) (135,663) (7,127,912)
----------- ------------ ---------- -----------
</TABLE>
F-7
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS--(CONTINUED)
<TABLE>
<CAPTION>
INITIAL
PERIOD FROM
MARCH 25,
1996
THROUGH YEAR ENDED
JANUARY 3, JANUARY 2, QUARTER ENDED QUARTER ENDED
1997 1998 APRIL 4, 1997 APRIL 3, 1998
----------- ----------- ------------- -------------
(UNAUDITED)
<S> <C> <C> <C> <C>
CASH FLOWS FROM FINANCING
ACTIVITIES
Due (from) affiliates.. $ (158,170) $ 99,254 $ 158,170 $ (40,641)
Payment of financing
costs................. (292,740) (3,661,529) -- (1,244,000)
Members contributions.. 980,420 31,680 7,920 7,920
Members distributions.. -- (2,263,079) (1,269,212) --
Due from members....... -- (1,948,377) -- --
Net borrowings
(payments) on
revolving lines-of-
credit................ 1,751,357 3,835,270 (358,341) 1,600,000
Proceeds from long-term
debt.................. 400,000 29,075,682 -- 8,000,000
Repayment of long-term
debt.................. (533,333) (6,428,775) (207,827) (14,901)
----------- ----------- ----------- -----------
Net cash provided
by (used in)
financing
activities...... 2,147,534 18,740,126 (1,669,290) 8,308,378
----------- ----------- ----------- -----------
Net increase (decrease)
in cash................. 413,619 (413,619) (413,619) --
Cash, at beginning of
period.................. -- 413,619 413,619 --
----------- ----------- ----------- -----------
Cash, at end of period... $ 413,619 $ -- $ -- $ --
=========== =========== =========== ===========
Supplemental disclosure
of cash flow
information...........
Cash paid during the
year for
Interest............. $ 149,431 $ 1,068,702 $ 271,353 $ 783,991
Income taxes......... $ 13,057 $ 289,696 $ -- $ 235,000
=========== =========== =========== ===========
Supplemental Schedule of
Noncash Investing and
Financing Activities
In conjunction with
business acquisitions,
the Company used cash
and stock as follows:
Fair value of assets
acquired, excluding
cash................ $ 5,999,557 $21,367,695 $ -- $ 9,019,975
Less liabilities
assumed and created
upon acquisition.... (5,485,069) (3,868,906) -- (638,306)
Stock issued......... -- -- -- (1,815,000)
----------- ----------- ----------- -----------
Net cash paid............ $ 514,488 $17,498,789 $ -- $ 6,566,669
=========== =========== =========== ===========
</TABLE>
During the year ended January 2, 1998, the Company completed minority
shareholder roll-ups, whereby the minority shareholders of Restauranic and
Classic exchanged minority interests with a net book value of $449,832 and
notes payable of $950,000 for membership interests in DFG valued at
$6,960,000, resulting in additional goodwill of $5,560,168.
During the year ended January 2, 1998, the Company, as part of a $6,000,000
debt financing, issued warrants to purchase membership interests in the
Company at less than market value, resulting in an original issue discount
("OID") of $3,500,000 (Note 6).
During the quarter ended April 3, 1998, the Company, as part of an
$8,000,000 debt financing, issued warrants to purchase membership interests in
the Company at less than market value, resulting in OID of $6,200,000 (Note
6).
See accompanying notes to consolidated financial statements.
F-8
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN MEMBERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
UNITS MEMBERS' DUE FROM MEMBERS
OUTSTANDING EQUITY MEMBERS EQUITY
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Members' initial
contributions.............. 1,000,000 $ 775,000 $ -- $ 775,000
Members' contributions...... 148,850 205,420 -- 205,420
Net income.................. -- 941,965 -- 941,965
--------- ----------- ----------- -----------
Balance, at January 3, 1997. 1,148,850 1,922,385 -- 1,922,385
Members' distributions (Note
2)......................... -- (2,263,079) -- (2,263,079)
Members' contributions...... 17,240 31,680 -- 31,680
Original issue discount
(Note 6)................... -- 3,500,000 -- 3,500,000
Minority shareholder roll-up
(Note 1)................... 225,000 6,960,000 -- 6,960,000
Net income.................. -- 285,304 -- 285,304
Advances to members (Note
2)......................... -- -- (1,948,377) (1,948,377)
--------- ----------- ----------- -----------
Balance, at January 2, 1998. 1,391,090 10,436,290 (1,948,377) 8,487,913
Members' contributions...... -- 7,920 -- 7,920
Membership interests issued
in conjunction with the
Sweet Shop acquisition
(Note 1)................... 38,617 1,815,000 -- 1,815,000
Original issue discount
(Note 6)................... -- 6,200,000 -- 6,200,000
Net loss.................... -- (2,477,015) -- (2,477,015)
--------- ----------- ----------- -----------
Balance, at April 3, 1998
(Unaudited)................ 1,429,707 $15,982,195 $(1,948,377) $14,033,818
========= =========== =========== ===========
</TABLE>
See accompanying notes to consolidated financial statements.
F-9
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
1. ORGANIZATION
On March 25, 1996, Diversified Food Group L.L.C. (the "Company" or "DFG"),
located in Lincolnwood, Illinois, was formed as a Delaware limited liability
company to acquire majority ownership in food processing and distribution
companies. The Company shall continue until December 31, 2016 unless sooner
terminated as provided by the operating agreement.
Restauranic Acquisition
In July 1996, the Company acquired 80% of the common stock of Restauranic,
Inc. ("Restauranic") from its stockholders for $5,025,000 (consisting of the
assumption of long-term debt of $3,200,000, the assumption of $375,000 of
subordinated notes payable to the stockholders, the issuance of $500,000 of
common stock and $950,000 of additional subordinated notes payable to
stockholders). Restauranic manufactures and distributes appetizers and related
food products. Products are sold primarily to food distributors, hotels and
restaurants located throughout the United States. Operations are conducted
from leased facilities located in Chicago, Illinois. This transaction was
accounted for under the purchase method of accounting. The accompanying
financial statements include the results of this business acquisition since
July 3, 1996. The purchase price exceeded the fair value of the net assets
acquired by $3,626,055, which is being amortized over 40 years on the
straight-line method.
In October 1997, the 20% minority shareholders exchanged their ownership
interests in Restauranic and the $950,000 subordinated notes from DFG for
145,620 membership units in DFG with a fair value of $4,560,000. As a result
of the acquisition of the minority interest, goodwill of $3,191,834 was
recognized and is being amortized over 40 years on the straight-line method.
Classic Acquisition
During October 1996, DFG acquired the title and interest of Merrill Lynch
Business Financial Services, Inc. in and to the debt of Mrs. Prindable, Inc.
("Mrs. Prindable") for $225,000. Such rights, title and interest included a
security interest in the assets of Mrs. Prindable and its affiliate, Classic
Kettle Company, Inc. ("Classic Kettle").
Also during October 1996, Mrs. Prindable and Classic Kettle executed an
assignment for the benefit of creditors, whereby the assignee sold the assets
of such corporations to DFG for $35,200 in cash and two promissory notes
payable to the assignee aggregating $160,000. The excess of the fair value of
the assets acquired over the cost basis amounted to approximately $180,000.
In conjunction with these transactions, DFG contributed the assets of Mrs.
Prindable and Classic Kettle to an 85%-owned limited liability company,
Classic Confectionary, L.L.C. ("Classic") (formed on October 16, 1996), and
Classic assumed certain liabilities of Mrs. Prindable and Classic Kettle
aggregating $300,069. Classic designs, manufactures and distributes gourmet
apples, related caramel-based products and other confectionary products.
Products are sold primarily to retail establishments located throughout the
United States. Operations are conducted from leased facilities located in
Lincolnwood, Illinois. These transactions were accounted for under the
purchase method of accounting and the accompanying financial statements
include the results of this business acquisition since October 16, 1996.
F-10
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
In October 1997, the 15% minority shareholders of Classic exchanged their
ownership interests in Classic with DFG for 79,380 membership units in DFG
with a fair value of $2,400,000. As a result of the acquisition of the
minority interest, goodwill of $2,368,334 was recognized and is being
amortized over 15 years on the straight-line method.
Great American Ice Cream
In March 1997, the Great American Ice Cream Company ("GAIC"), a wholly owned
subsidiary of DFG, was formed as a Delaware limited liability company to co-
pack and distribute ice cream products. The product is sold to one customer
whose retail establishments are located throughout the United States.
Operations are conducted from leased facilities located in Lincolnwood,
Illinois.
Cohen's Acquisition
In October 1997, DFG acquired the assets of Cohen's Famous Frozen Foods,
Inc. ("Cohen") for $17,100,467 in cash, $1,218,280 of convertible subordinated
debentures (Note 6) and $2,650,626 (of which $1,000,000 was paid prior to
January 2, 1998) in amounts payable subsequent to year end. In addition, the
sellers entered into employment agreements with the Company (Note 9) and were
granted options to purchase 63,620 membership units in DFG at $47.00 per unit
as part of their employment agreements. Cohen produces and sells a full line
of frozen hors d'oeuvre products. Products are sold primarily to commercial
entities throughout the United States. Operations are conducted from leased
facilities located in Newark, New Jersey. The acquisition has been accounted
for by the purchase method of accounting. The purchase price exceeded the fair
value of the net assets acquired by $16,245,322, which is being amortized over
40 years on the straight-line method. The accompanying financial statements
include the results of Cohen since the acquisition date.
Sweet Shop Acquisition
Effective January 23, 1998, the Company acquired the stock of Sweet Shop
Candies, Inc. ("Sweet Shop") for a purchase price of $9,019,975 (excluding any
contingent earn-out) consisting of $6,566,669 in cash, 38,617 membership units
of the Company at an exercise price of $47.00 per unit and the assumption of
liabilities of $638,306. The agreement also includes an earn-out amount equal
to the amount by which EBITDA, as defined in the agreement, for Sweet Shop for
the period from July 1, 1998 through June 30, 1999 exceeds $950,000. The earn-
out amount will be paid in the form of additional membership units of the
Company and will be recorded as additional goodwill related to the purchase.
Sweet Shop manufactures and distributes fine handmade chocolates. Products are
sold primarily to retail establishments throughout the United States.
Operations are conducted from leased facilities located in Fort Worth, Texas.
In conjunction with the acquisition of Sweet Shop, the Company borrowed an
additional $8,000,000 from Madeleine, L.L.C. (Note 6). The purchase price
exceeded the fair value of the net assets acquired by $6,551,058, which is
being amortized over 25 years on the straight-line method.
F-11
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
The summarized unaudited pro forma results operations as set forth below for
the years ended January 3, 1997 and January 2, 1998 and the quarters ended
April 4, 1997 and April 3, 1998 assume the acquisitions in the years January
3, 1997 and January 2, 1998 and the quarter ended April 3, 1998 occurred as of
the beginning of the year ended January 3, 1997.
<TABLE>
<CAPTION>
YEAR ENDED QUARTER ENDED
----------------------- -----------------------
JANUARY 3, JANUARY 2, APRIL 4, APRIL 3,
1997 1998 1997 1998
----------- ----------- ---------- -----------
<S> <C> <C> <C> <C>
Net sales............... $42,444,091 $53,514,989 $7,590,771 $10,308,923
=========== =========== ========== ===========
Net income (loss)....... $ 1,378,071 $ 87,288 $ (937,895) $(2,588,524)
=========== =========== ========== ===========
Pro forma net income
(loss) per share....... $ .96 $ .06 $ (.66) $ (1.81)
=========== =========== ========== ===========
Pro forma net income
(loss) per share--
diluted................ $ .82 $ .08 $ (.66) $ (1.81)
=========== =========== ========== ===========
</TABLE>
2. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements included the accounts of DFG and its
wholly owned subsidiaries, Restauranic, Classic, GAIC and Cohen (jointly, the
Companies). All significant intercompany transactions and balances have been
eliminated.
Pro Forma Information (Unaudited)
DFG will initiate certain events (the "Reorganization") in connection with
an initial public offering of common stock (see Note 11--"Reorganization").
Concurrently with the Reorganization, DFG will terminate its limited
liability company status and will become subject to federal and state income
taxes. The accompanying consolidated statements of operations reflect a pro
forma provision for income taxes for the year ended January 2, 1998 and the
quarter ended April 3, 1998, based upon pretax loss as if the consolidated
group discussed above had been subject to federal and state income taxes. The
difference between the statutory and estimated effective tax rate is due to
state income taxes (6%) at both January 2, 1998 and April 3, 1998 and
nondeductible goodwill amortization of approximately $250,000 for the year
ended January 2, 1998. In connection with termination of its limited liability
company status, DFG will record a net deferred tax asset and accompanying tax
benefit to reflect the differences in the financial statement and income tax
bases of the assets and liabilities which principally related to inventory
reserves $(236,000), allowance for doubtful accounts $(173,000), depreciation
$(43,000), and other accruals $(19,000). If the limited liability company
status had terminated on April 3, 1998, the net deferred tax asset that would
have been recognized would have been approximately $471,000.
The accompanying consolidated statements of operations also reflect a pro
forma provision for executive compensation for the year ended January 2, 1998
and the quarter ended April 3, 1998, based on the terms of employment
agreements to be entered into in conjunction with the initial public offering.
F-12
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
Pro forma net loss per share is based on pro forma net loss and the weighted
average number of shares of common stock outstanding adjusted to include the
estimated number of shares (63,429) being sold by DFG which would be necessary
to fund the distributions and advances in excess of earnings totaling
$2,984,187.
Supplementary pro forma net income (loss) per share for the year ended
January 2, 1998 and the quarter ended April 3, 1998 of $.15 and $(.47),
respectively, is based upon the weighted average number of shares of stock
used in the calculation of pro forma income (loss) per share increased by the
sale of 74,000 and 408,000 shares, respectively, the proceeds of which would
be necessary to repay approximately $10,600,000 and $14,000,000, respectively,
of the Company's senior and subordinated debt. Net loss has been adjusted to
exclude the related financing and interest expenses of the debt.
The pro forma balance sheet as of April 3, 1998 reflects the termination of
the limited liability company status and establishment of the net deferred tax
asset.
Accounting Period
The Companies maintain an accounting year which ends on the Friday closest
to December 31.
Interim Financial Information
Interim financial information is reported using 13-week quarters with the
operating results through the Friday closest to the quarter end.
The unaudited balance sheet as of April 3, 1998, and the unaudited
statements of operations and cash flows for the quarters ended April 4, 1997
and April 3, 1998, and the unaudited statement of members' equity for the
quarter ended April 3, 1998 include, in the opinion of management, all
adjustments (consisting of normal recurring adjustments) necessary to present
fairly the Company's financial position, results of operations and cash flows.
Operating results for the quarter ended April 3, 1998 are not necessarily
indicative of the results that may be expected for the fiscal year ending
January 1, 1999. The footnotes related to such periods are also unaudited.
Inventories
Inventories are stated at the lower of cost, determined on the first-in,
first-out ("FIFO") basis, or market.
Property and Equipment
Property and equipment are stated at cost or acquisition cost. Depreciation
and amortization are computed using straight-line and accelerated methods over
the estimated useful lives of the assets between 5 to 10 years.
Deferred Charges and Goodwill
Loan commitment fees and other costs of obtaining financing are amortized by
the straight-line method over the life of the related debt.
Goodwill is amortized using the straight time method over periods of 15 to
40 years. The ongoing recoverability of goodwill is monitored based on an
analysis of appropriate operating unit performance and consideration of
significant events or changes in the overall business environment.
F-13
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
Due From Members
Under the Company's operating agreement, the Company may make distributions
to its members to enable them to pay federal and state income taxes on their
share of taxable income, as well as make discretionary distributions. Due from
members at January 2, 1998 represents distributions for estimated 1998 tax
payments.
Revenue Recognition
The Company recognizes revenue and the related costs when product is
shipped.
Income Taxes
As limited liability companies, DFG, Classic, GAIC and Cohen are not subject
to federal income taxes, and their income is allocated to and reported in the
tax returns of their members. Accordingly, no liability or provision for
federal and deferred income taxes attributable to these operations is included
in the accompanying financial statements. The taxable income of DFG, Classic
and GAIC is, however, subject to Illinois replacement tax.
Restauranic is a C corporation and, thus, accounts for income taxes in
accordance with the provisions of Statement of Financial Accounting Standards
No. 109 ("SFAS 109"), "Accounting for Income Taxes". Under SFAS 109, deferred
tax assets and liabilities are recorded based on differences between financial
reporting and tax bases of assets and liabilities, using tax rates in effect
when these differences are expected to reverse.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board issued SFAS No.
128, "Earnings Per Share", which the Company has adopted. Pursuant to SFAS
128, the Company has reported "basic" earnings per share ("EPS") and "diluted"
EPS. Basic EPS is calculated by dividing the income available to members by
the weighted average number of members' units outstanding for the period,
without consideration for potentially dilutive securities. Diluted EPS is
calculated by dividing the income available to members by the weighted average
number of members' units and members' unit equivalents (if dilutive)
outstanding during the year. Historical net income (loss) per share has been
presented only in a footnote as such amounts are not deemed meaningful.
Financial Instruments
Financial instruments which potentially subject the Company to
concentrations of risk consist principally of cash and accounts receivable.
The carrying values reflected in the balance sheets reasonably approximate the
fair values for cash, accounts receivable and accounts payable and due from
members because of the short-term maturity of these financial instruments.
Based upon current borrowing rates available to the Company, estimated fair
values of debt approximate their recorded amounts.
Reclassification
Certain prior-year amounts have been reclassified in order to conform to the
current year's financial statement presentation.
Estimates
The consolidated financial statements include estimated amounts and
disclosures based on management's assumptions about future events. Actual
results may differ from those estimates.
F-14
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
Recent Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 130,
"Reporting Comprehensive Income". The new standard discusses how to report and
display comprehensive income and its components. This standard is effective
for years beginning after December 15, 1997. This statement does not apply to
the Company's consolidated financial statements.
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
"Disclosures About Segments of an Enterprise and Related Information". This
standard requires enterprises to report information about operating segments,
their products and services, geographic areas, and major customers. This
standard is effective for years beginning after December 15, 1997. When the
Company adopts this statement, it is not expected to have a material impact on
the presentation of the Company's consolidated financial statements.
3. RELATED PARTY TRANSACTIONS
Officers' Compensation
Included in selling, general and administrative expense is compensation to
the Company's principal officers of $741,908 for the period ended January 3,
1997, $0 for the year ended January 2, 1998, $0 for the quarter ended April 4,
1997 and $300,000 for the quarter ended April 3, 1998.
Deferred Financing
During 1998, the Company paid debt financing fees to affiliates of
approximately $1,200,000 related to the refinancing of the senior credit
facility and subordinated indebtedness (Note 6).
Leases
As disclosed in Note 8, the Company had various operating leases with
related parties.
Consulting Fees
Effective January 3, 1998, the Company's Chief Operating Officer ("COO") was
granted options to buy 98,765 membership units at an exercise price per unit
of $47.00. Prior to becoming an officer of the Company, the COO was a
consultant retained by the Company to assist with the CIBC and Madeleine,
L.L.C. financings and the purchase of Cohen. Fees related to his services
totaling $125,577 have been fully amortized during the year ended January 2,
1998.
4. INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1997 1998 1998
---------- ---------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Raw materials........................ $ 822,575 $ 823,133 $1,165,797
Packaging materials.................. 348,738 738,568 1,486,850
Work-in progress..................... -- 103,753 70,118
Finished goods....................... 651,504 3,102,911 4,196,737
---------- ---------- ----------
1,822,817 4,768,365 6,919,502
Less allowance for excess and slow-
moving inventories.................. (180,000) (490,221) (603,476)
---------- ---------- ----------
$1,642,817 $4,278,144 $6,316,026
========== ========== ==========
</TABLE>
F-15
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
5. PROPERTY AND EQUIPMENT
Property and equipment, stated at cost or acquisition cost, consist of the
following:
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1997 1998 1998
----------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Furniture and fixtures............ $ 243,062 $ 499,751 $ 889,094
Vehicles.......................... 68,166 176,083 202,254
Equipment......................... 1,445,856 3,340,589 4,840,877
Leasehold improvements............ 1,454,951 2,586,033 3,177,775
----------- ----------- -----------
3,212,035 6,602,456 9,110,000
Less accumulated depreciation and
amortization..................... (2,129,502) (2,595,872) (4,258,582)
----------- ----------- -----------
$ 1,082,533 $ 4,006,584 $ 4,851,418
=========== =========== ===========
</TABLE>
6. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JANUARY 3, JANUARY 2, APRIL 3,
1997 1998 1998
---------- ----------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Borrowings from Canadian Imperial
Bank of Commerce ("CIBC") (a)
Term loan........................ $ -- $23,000,000 $23,000,000
Revolving line-of-credit......... -- 3,835,270 5,435,270
Borrowings from Madeleine, L.L.C.
("Madeleine") (b)
Term loan........................ -- 6,152,826 14,441,639
Orignial issue discount, net..... -- (3,416,666) (9,417,856)
Borrowings from Harris Trust and
Savings Bank ("Harris") (c)
Revolving credit loan............ 1,549,357 -- --
Term loan........................ 3,050,000 -- --
Borrowings from the Northern Trust
Company ("Northern") (d)
Revolving credit loan............ 1,400,000 -- --
Term loan........................ 191,667 -- --
Convertible subordinated note
payable to Cohen's (Note 1);
convertible into 38,300 membership
units in DFG at $47.00 per
membership unit, interest at 8.5%,
principal and accrued and unpaid
interest due October 9, 2002. -- 1,218,280 1,218,280
Notes payable to minority
stockholders of Restauranic,
interest at the prime rate. Debt
was paid off as part of the
minority shareholder roll-up (Note
1)................................ 950,000 -- --
Promissory note payable to related
party, bearing interest at the
prime rate. Debt was paid off in
1997 as part of the refinancing... 200,000 -- --
Other notes payable................ 139,772 177,704 162,793
---------- ----------- -----------
7,480,796 30,967,414 34,840,126
Less current portion............... 1,079,866 29,584,704 33,473,176
---------- ----------- -----------
$6,400,930 $ 1,382,710 $ 1,366,950
========== =========== ===========
</TABLE>
F-16
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
- --------
(a) The senior loan and security agreement with CIBC, executed on October 16,
1997, provides for quarterly principal reductions of the term loan in
varying amounts of $431,250 to $1,437,500 from June 1998 through March
2004, the termination date. The revolving line-of-credit provides for
maximum borrowings of $9,000,000 (limited to the sum of (i) 85% of the
eligible accounts receivable and (ii) 50% of the eligible inventories)
through the termination date. The total available under the line-of-
credit at January 2, 1998 was $5,164,730. Interest rates on the term
loans and revolving line-of-credit are, at DFG's option, either (a) the
Eurodollar Rate or (b) the greater of the prime rate or Federal Funds
Rate plus .5%. The average interest rate incurred on the term loan and
line-of-credit as of January 2, 1998 was 10.8%.
The senior loan and security agreement was issued with 48,460 detachable
warrants to purchase membership units at $32.00 per unit. The warrants are
exercisable from the date of issuance through October 2002 (Note 10).
(b) On October 23, 1997, DFG entered into a subordinated term loan agreement
with Madeleine for $6,000,000 that was issued with detachable warrants to
purchase 165,710 membership interests of the Company at $7.04 per unit
(Note 10). The warrants are exercisable from October 1997 (with the
exception of 23,670 warrants exercisable after October 2002) through the
earlier of the date that is three months after an initial public offering
or October 2004. The debt has been discounted and the original issue
discount of $3,500,000 is being amortized over the life of the debt for the
difference between the fair market value of the warrants and their stated
exercise price. All accrued principal and interest is due in October 2004.
The interest rate on the term loan is at either (a) the cash payable rate
or (b) the payment-in-kind rate as defined by the agreement. The effective
interest rate as of January 2, 1998 was 24.7%.
On February 27, 1998, the Company signed an amendment to its subordinated
term loan agreement with Madeleine and borrowed an additional $8,000,000
and issued detachable warrants to purchase 164,587 membership interests of
the Company at $7.04 per unit. The warrants are exercisable from the date
of issuance through the earlier of the date that is three months after an
initial public offering or October 2004 (Note 10). The debt has been
discounted and the original issue discount of $6,200,000 is being amortized
over the life of the debt for the difference between the fair market value
of the warrants and their stated exercise price. All accrued principal and
interest is due October 2004. Interest rates on the term loan are at either
(a) the cash payable rate or (b) the payment-in-kind rate, as defined in
the Agreement.
There are early termination fees related to the Madeleine debt of
approximately $2,500,000 payable on the date the Company consummates an
initial public offering or in certain other circumstances as defined in the
agreement. In addition, the Company must pay a prepayment fee equal to 2.5%
of the principal amount being repaid.
(c) The loan and security agreement with Harris provided for maximum aggregate
borrowings of $6,700,000. The revolving credit loan provided for maximum
borrowings of $3,500,000 with interest, at Restauranic's option, at either
(a) Harris's prime rate or (b) the LIBOR rate plus 1.5%. The loan was
repaid in 1997 in conjunction with the CIBC agreement.
(d) Outstanding borrowings under the revolving credit and term loans with
Northern were collateralized by all of Classic's assets and additionally
guaranteed in various amounts by DFG and various related and unrelated
parties with interest at 8%. The borrowings were repaid in 1997.
F-17
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
Aggregate maturities of long-term debt are as follows:
<TABLE>
<CAPTION>
JANUARY 2, APRIL 3,
1998 1998
----------- -----------
(UNAUDITED)
<S> <C> <C>
Year ending
1998.......................................... $33,001,370 $42,891,032
1999.......................................... 60,442 57,711
2000.......................................... 45,466 27,119
2001.......................................... 16,221 16,221
2002 and thereafter........................... 1,260,601 1,265,899
----------- -----------
34,384,080 44,257,982
Unaccreted original issue discount.............. (3,416,666) (9,417,856)
----------- -----------
$30,967,414 $34,840,126
=========== ===========
</TABLE>
In the quarter in which the initial public offering is completed, there will
be an additional interest charge of approximately $16,000,000 to reflect the
write-off of unamortized original issue discount, the write-off of deferred
financing costs, the early termination fees and the prepayment fee.
The senior term loan and revolving line-of-credit are collateralized by
substantially all the assets of DFG. The terms of the senior credit facility
and subordinated indebtedness require the Company to maintain certain
financial ratios and to comply with certain covenants, including financial
ratios relating to EBITDA and capital expenditures. As of January 2, 1998 and
April 3, 1998 the Company was not in compliance with these financial ratios.
The Company has received from the lenders a waiver for non-compliance with
these covenants for Fiscal 1997 and Fiscal 1998 until August 31, 1998. The
Company intends to repay all indebtedness outstanding under the senior credit
facility and subordinated indebtedness using a portion of the net proceeds of
the initial public offering and the proposed senior credit facility (Note 11--
Reorganization). The senior credit facility and the subordinated indebtedness
have been classified as short-term obligations in the Company's consolidated
financial statements as a result of these covenant violations.
7. INCOME TAXES
The composition of taxes on income (loss) is as follows:
<TABLE>
<CAPTION>
PERIOD YEAR QUARTER QUARTER
ENDED ENDED ENDED ENDED
JANUARY JANUARY APRIL 4, APRIL 3,
3, 1997 2, 1998 1997 1998
-------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Current
Federal.................... $302,035 $286,000 $ (87,993) $(180,000)
State and local............ 70,848 63,000 (20,641) (42,000)
-------- -------- --------- ---------
Total current............ 372,883 349,000 (108,634) (222,000)
-------- -------- --------- ---------
Deferred
Federal.................... (49,000) (15,000) -- 15,000
State and local............ (25,000) (7,000) -- 7,000
-------- -------- --------- ---------
Total deferred........... (74,000) (22,000) -- 22,000
-------- -------- --------- ---------
Total taxes on income
(loss).................. $298,883 $327,000 $(108,634) $(200,000)
======== ======== ========= =========
</TABLE>
F-18
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
The Company's effective tax rate was different than the statutory income tax
rate for the following reasons:
<TABLE>
<CAPTION>
PERIOD YEAR QUARTER QUARTER
ENDED ENDED ENDED ENDED
JANUARY JANUARY APRIL 4, APRIL 3,
3, 1997 2, 1998 1997 1998
--------- -------- ----------- -----------
(UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C>
Computed tax at statutory
rates on income (loss)
before taxes and minority
interests.................. $ 490,224 $191,489 $(305,511) $(910,185)
State and local taxes, net
of federal income tax
benefit.................... 106,060 30,000 (47,000) (141,000)
Nontaxable limited liability
company (earnings) loss.... (301,762) (15,111) 213,877 815,185
Permanent differences,
primarily goodwill......... 4,361 90,000 30,000 34,000
Other....................... -- -- -- 2,000
--------- -------- --------- ---------
Total................... $ 298,883 $327,000 $(108,634) $(200,000)
========= ======== ========= =========
</TABLE>
The net deferred tax assets and liabilities recorded on the consolidated
balance sheets as of January 3, 1997, January 2, 1998 and April 3, 1998 are
comprised of the following:
<TABLE>
<CAPTION>
JANUARY JANUARY APRIL 3,
3, 1997 2, 1998 1998
-------- -------- -----------
(UNAUDITED)
<S> <C> <C> <C>
Deferred tax assets
Inventory reserve......................... $ 70,000 $ 63,000 $ 63,000
Allowance for doubtful accounts........... 16,000 8,000 8,000
Accrued vacation pay...................... 19,000 3,000 3,000
Depreciation.............................. 31,000 89,000 126,000
Other..................................... 16,000 11,000 38,000
-------- -------- --------
$152,000 $174,000 $238,000
======== ======== ========
</TABLE>
8. LEASE COMMITMENTS
The Company rents facilities under leases expiring at various dates through
2003. Certain of the leases stipulate payment of real estate taxes and other
occupancy expenses and certain leases are with related parties. In conjunction
with one of the related party leases, the Company has an irrevocable letter of
credit totaling $548,000 related to the construction of a new facility. The
Company also leases vehicles under agreements expiring through 2000.
Future minimum lease payments under the aforementioned leases approximated
the following:
<TABLE>
<CAPTION>
AT JANUARY 2, 1998 AT APRIL 3, 1998
-------------------------------- --------------------------------
PERIOD ENDING RELATED UNRELATED TOTAL RELATED UNRELATED TOTAL
------------- ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
1999.................... $ 846,000 $ 254,000 $1,100,000 $ 850,000 $ 159,000 $1,009,000
2000.................... 794,000 254,000 1,048,000 899,000 254,000 1,153,000
2001.................... 657,000 236,000 893,000 666,000 227,000 893,000
2002.................... 455,000 218,000 673,000 578,000 218,000 796,000
2003.................... 418,000 73,000 491,000 316,000 145,000 461,000
---------- ---------- ---------- ---------- ---------- ----------
$3,170,000 $1,035,000 $4,205,000 $3,309,000 $1,003,000 $4,312,000
========== ========== ========== ========== ========== ==========
</TABLE>
F-19
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
Rent expense for the period ended January 3, 1997 was $322,000, for the year
ended January 2, 1998 was $515,000, and for the quarters ended April 4, 1997
and April 3, 1998 was $136,000 and $245,000, respectively, of which $78,000
was to related parties for the period ended January 3, 1997, $283,000 for the
year ended January 2, 1998, and $39,000 and $98,000 for the quarters ended
April 4, 1997 and April 3, 1998, respectively.
9. COMMITMENTS AND OTHER MATTERS
(a) The Company has employment and noncompete agreements with nine
employees, including five members, which expire at various dates through
October 2003. The aggregate commitment for future salaries, excluding bonuses,
under these agreements is approximately $3,990,000. The following amounts
apply to each year as follows: 1998--$1,065,000; 1999--$1,032,000; 2000--
$843,000; 2001--$550,000; 2002--$354,000; and 2003--$146,000. Some of the
agreements automatically renew for one- and two-year terms unless cancelled by
either party at least 30 days prior to the current term's expiration.
(b) If certain of the Company's members desire to sell any of the Company's
membership units, the Company has an initial right of first refusal to
purchase the offered membership units. If the Company does not exercise its
right to purchase all the offered membership units, the principal member has
the right to purchase the offered membership units not purchased by the
Company.
10. MEMBERS' EQUITY
Outstanding Options
In conjunction with the acquisition of Cohen, the Company has granted
options to purchase 63,620 membership units between October 1999 and October
2009 at an exercise price per unit of $47.00. These options vest over four
years beginning on the second anniversary of the grant date.
The Company has granted options to certain employees to buy 165,401
membership units at an exercise price per unit of $21.57 to $47.00. These
options vest ratably over five years and expire after 10 years.
As of April 3, 1998 options for 5,264 membership units are exercisable.
Outstanding Warrants
In conjunction with the CIBC and Madeleine debt financing, the Company
issued warrants to purchase 214,170 membership units as of January 2, 1998
(378,757 as of April 3, 1998). The terms of the warrants are as follows:
<TABLE>
<CAPTION>
UNITS DATE EXERCISE
UNDERLYING EXERCISABLE PRICE
---------- ------------- --------
<S> <C> <C>
48,460 October 1997 $32.00
142,040 October 1997 $ 7.04
23,670 October 2002 $ 7.04
164,587 February 1998 $ 7.04
</TABLE>
As of January 2, 1998 warrants for 190,500 membership units are exercisable
(355,087 as of April 3, 1998).
F-20
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
Options
The Company accounts for options under APB Opinion No. 25, under which no
compensation cost is recognized when exercise price equals or exceeds the fair
value at the date of grant. Had compensation cost been determined consistent
with FASB Statement No. 123, the Company's net loss and loss per share would
have been reduced to the following pro forma amounts:
<TABLE>
<CAPTION>
YEAR ENDED
JANUARY 2, QUARTER ENDED
1998 APRIL 3, 1998
---------- -------------
<S> <C> <C>
Pro forma net (loss)
As reported................................. $(110,696) $(1,524,515)
Pro forma................................... (146,000) (1,599,000)
Pro forma net (loss) per share, basic and
diluted
As reported................................. (.09) (1.03)
Pro forma................................... (.11) (1.08)
</TABLE>
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
---------------------
EXERCISE REMAINING
MEMBERSHIP EXERCISE PRICE CONTRACTUAL
UNITS PRICE PER SHARE LIFE--YEARS
---------- ------------- --------- -----------
<S> <C> <C> <C> <C>
Outstanding, at January 3,
1997
Granted................. 89,938 $21.57-$47.00 $39.56
Canceled................ -- -- --
Exercised............... -- -- --
------- ------
Outstanding, at January 2,
1998..................... 89,938 $39.56 11
Granted................. 139,083 $47.00 $47.00
Canceled................ -- -- --
Exercised............... -- -- --
------- ------
Outstanding, at April 3,
1998..................... 229,021 $44.08
======= ======
</TABLE>
Weighted average fair value per unit of options granted during the year
ended January 2, 1998 and the quarter ended April 3, 1998 was $29.56 and
$32.74, respectively.
The fair value of each option granted is estimated on the date of the grant
using an option pricing model. The following weighted-average assumptions were
used for the year ended January 2, 1998 and the quarter ended April 3, 1998:
risk-free interest rate of 6%; volatility of .01%; expected dividend yields of
0%; and expected option life of 5 years. At January 2, 1998, none of the
outstanding options were exercisable.
A total of 342,408 membership interests have been reserved for outstanding
stock options, warrants and conversion of debt as of January 2, 1998 (646,078
as of April 3, 1998).
F-21
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
11. SUBSEQUENT EVENTS
Reorganization
Diversified Food Group, Inc. was incorporated in Delaware in June 1998 in
anticipation of the conversion of all of the membership interests of the
Company into common stock of Diversified Food Group, Inc.
At the time of the conversion, the Company plans to complete an underwritten
offering of approximately shares of the common stock of Diversified
Food Group, Inc. In conjunction with this offering, the Company will enter
into a proposed senior credit facility of $ million and repay their
existing senior credit facility with CIBC and subordinated term loans with
Madeleine (Note 6).
On the effective date of the offering, the members of the Company, will
contribute their membership interests to Diversified Food Group, Inc. in
exchange for shares of common stock of Diversified Group, Inc. As a result,
Diversified Food Group, Inc. will own the equity of the Company, which in turn
will own all the operating units through which DFG conducts its business.
Immediately prior to the conversion, the Company intends to distribute to
equity owners of the Company any previously undistributed tax distributions as
stipulated in the operating agreement as of the date of termination of the
Company's status as a limited liability company. Such distributions, if any,
will not be material.
Unit Splits
In January 1998, the Company declared a 1000-to-1 split of the Company's
membership units. This split has been reflected retroactively in these
financial statements.
Wilton Acquisition (unaudited)
On April 9, 1998, the Company signed a letter of intent to acquire the stock
of Wilton Foods, Inc. for $10,750,000 in cash, $2,550,000 of equity ownership
of the Company and an earn-out amount equal to the amount stipulated by the
purchase agreement. The earn-out amount will be paid out in cash on or about
April 1, 2003. The acquisition will be funded from the proceeds of the initial
public offering of the Company's Common Stock and will be accounted for by the
purchase method of accounting.
American Specialty Acquisition
On April 17, 1998, the Company signed a letter of intent to acquire the
stock of American Specialty Confections, Inc. for $5,550,000 in cash. The
acquisition of American Specialty Confections, Inc. will be funded from the
proceeds of the initial public offering of the Company's Common Stock and will
be accounted for by the purchase method of accounting.
F-22
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(CONCLUDED)
(INFORMATION AS OF APRIL 3, 1998 AND FOR THE QUARTERS ENDED
APRIL 4, 1997 AND APRIL 3, 1998 IS UNAUDITED)
12. EARNINGS PER SHARE
The following table sets forth the computation of income (loss) per share
from operations for the period ended January 3, 1997, the year ended January 2,
1998 and the quarters ended April 4, 1997 and April 3, 1998:
<TABLE>
<CAPTION>
PERIOD ENDED QUARTER ENDED
------------------- -----------------------
JANUARY JANUARY APRIL 4, APRIL 3,
3, 1997 2, 1998 1997 1998
--------- --------- ---------- -----------
<S> <C> <C> <C> <C>
Numerator
Net income (loss)............... $ 941,965 $ 285,304 $ (763,064) $(2,477,015)
Interest on convertible debt.... -- 21,574 -- --
--------- --------- ---------- -----------
$ 941,965 $ 306,878 $ (763,064) $(2,477,015)
--------- --------- ---------- -----------
Denominator
Weighted average shares......... 1,002,649 1,212,966 1,166,090 1,420,258
Options......................... -- 13,203 -- --
Warrants........................ -- 33,841 -- --
Convertible debt................ -- 835 -- --
--------- --------- ---------- -----------
1,002,649 1,260,845 1,166,090 1,420,258
--------- --------- ---------- -----------
Net income (loss) per share....... $ .94 $ .24 $ (.65) $ (1.74)
Net income (loss) per share-
diluted.......................... $ .94 $ .24 $ (.65) $ (1.74)
</TABLE>
F-23
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Board of Directors
Cohen's Famous Frozen Foods, Inc.
Newark, New Jersey
We have audited the accompanying statement of operations and retained
earnings and cash flows of Cohen's Famous Frozen Foods, Inc. for the period
January 1, 1997 through October 15, 1997. These financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these financial statement based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the results of operations and cash flows of Cohen's
Famous Frozen Foods, Inc. for the period January 1, 1997 through October 15,
1997, in conformity with generally accepted accounting principles.
BDO SEIDMAN, LLP
Woodbridge, New Jersey
May 14, 1998
F-24
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
STATEMENT OF OPERATIONS AND RETAINED EARNINGS
FOR THE PERIOD FROM JANUARY 1, 1997 TO OCTOBER 15, 1997
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1997
TO
OCTOBER 15,
1997
-----------
<S> <C>
Sales.............................................................. $12,503,695
Discounts and rebates.............................................. 673,737
-----------
Net sales...................................................... 11,829,958
Cost of sales...................................................... 9,414,151
-----------
Gross profit................................................... 2,415,807
Selling, general and administrative................................ 2,432,597
-----------
(16,790)
Interest income.................................................... 25,972
Other income....................................................... 43,800
-----------
52,982
Income taxes....................................................... 2,295
-----------
Net income......................................................... $ 50,687
Retained earnings, beginning of period............................. 1,684,557
-----------
Retained earnings, end of period................................... $ 1,735,244
===========
</TABLE>
See accompanying notes to financial statements.
F-25
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
STATEMENT OF CASH FLOWS
<TABLE>
<CAPTION>
PERIOD FROM
JANUARY 1,
1997 TO
OCTOBER 15,
1997
-----------
<S> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income...................................................... $ 50,687
-----------
Adjustments to reconcile net income to net cash used in
operating activities:
Depreciation.................................................. 180,827
Gain on disposal of property and equipment.................... (43,800)
Changes in assets and liabilities:
Decrease in accounts receivable............................. 1,037,367
Increase in inventory....................................... (1,106,943)
Decrease in prepaid expenses and other current assets....... 34,907
Decrease in accounts payable................................ (18,173)
Decrease in accrued expenses and payroll taxes.............. (746,642)
-----------
Total adjustments......................................... (618,657)
-----------
Net cash used in operating activities..................... (611,770)
-----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchase of property and equipment.............................. (84,715)
Proceeds from disposal of property and equipment................ 168,400
-----------
Net cash provided by investing activities................. 83,691
-----------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayment of loans from stockholder............................. (206,512)
Repayment of notes payable--bank................................ (639,390)
-----------
Net cash used in financing activities..................... (845,902)
-----------
Net decrease in cash.............................................. (1,373,981)
Cash, beginning of period......................................... 1,399,212
-----------
Cash, end of period............................................... $ 25,231
===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the period for interest........................ $ 57,434
===========
</TABLE>
See accompanying notes to financial statements.
F-26
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JANUARY 1, 1997 TO OCTOBER 15, 1997
1. NATURE OF OPERATIONS
Cohen's Famous Frozen Foods, Inc. (the "Company") is a frozen hors d'oeuvres
manufacturer and distributor which operates from a New Jersey location and
sells throughout the United States and Canada. The majority of its customers
are commercial entities.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Accounts Receivable
The Company uses the allowance method to provide for uncollectible accounts
receivable. The allowance for uncollectible accounts has been determined to be
$25,000 at October 15, 1997.
Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value.
Depreciation and Amortization
The Company depreciates and amortizes its equipment and improvements by use
of the straight-line method over their estimated useful lives as follows:
<TABLE>
<S> <C>
Machinery and equipment..... 5-10 years
Transportation equipment.... 3-5 years
Leasehold improvements...... 31 1/2 years
</TABLE>
Depreciation expense aggregated $180,827 for the period ended October 15,
1997.
Income Taxes
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S corporation. In lieu of corporation income
taxes, the shareholders of an S corporation are taxed on their proportionate
share of the Company's taxable income. Accordingly, no provisions or liability
for Federal income taxes has been included in these financial statements. The
Company is also an S corporation for state of New Jersey Income Tax purposes.
3. TRANSACTIONS WITH RELATED PARTIES
The Company rents its premises from related companies on a month to month
basis. Rental expense for the period ended October 15, 1997 amounted to
$149,000.
For the period ended October 15, 1997, interest of $19,964 was paid on
outstanding officer loans.
During 1997, the Company sold three automobiles at fair market value
($43,800) to the officers of the Company. The automobiles had a book value of
zero at the time of the transfer.
F-27
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
PERIOD FROM JANUARY 1, 1997 TO OCTOBER 15, 1997
4. ECONOMIC DEPENDENCY--MAJOR CUSTOMER
The Company sells a substantial portion of its products to four customers.
During the period ended October 15, 1997, sales to those customers aggregated
approximately 75% of the total sales.
5. CONTINGENCIES
Approximately 65% of the Company's non-management employees are covered by a
collective bargaining agreement. The agreement is scheduled to expire in
January 1999. If the Company and the United Food and Commercial Workers
International Union-Local 174 representing such workers are unable to agree on
a new contract prior to the expiration of the current contract, a work
stoppage may occur that could adversely affect results of operations.
6. SUBSEQUENT EVENT
Effective as of October 15, 1997, Cohen's Famous Frozen Foods, Inc. sold
certain assets (including inventory and fixed assets) net of certain
liabilities to Diversified Food Group, L.L.C.
F-28
<PAGE>
INDEPENDENT AUDITORS' REPORT
March 1, 1997
Board of Directors
Cohen's Famous Frozen Foods, Inc.
Newark, New Jersey 07114
Gentlemen:
We have audited the accompanying balance sheet of Cohen's Famous Frozen
Foods, Inc. as of December 31, 1996, and the related statements of income,
retained earnings and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Cohen's Famous Frozen
Foods, Inc. as of December 31, 1996 and the results of operations and its cash
flows for the year then ended in conformity with generally accepted accounting
principles.
Fishman Ostroff Ruchowitz Hausman
F-29
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
BALANCE SHEETS
DECEMBER 31, 1996
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash and Cash Equivalents......................................... $1,399,212
Accounts Receivable--Trade (Less Allowance for Doubtful Accounts
of $25,000)...................................................... 3,124,708
Inventories....................................................... 935,185
Prepaid Expenses.................................................. 43,975
Prepaid State Income Taxes........................................ 7,888
Deferred Income Taxes............................................. 1,257
----------
Total Current Assets............................................ 5,512,225
----------
Equipment and Improvements--At Cost
Machinery and Equipment........................................... 1,989,068
Transportation Equipment.......................................... 143,913
Leasehold Improvements............................................ 127,900
----------
2,260,881
Less: Accumulated Depreciation and Amortization................... 1,499,796
----------
761,085
----------
Other Assets
Security Deposit.................................................. 15,000
----------
$6,288,310
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities
Note Payable--Bank................................................ $ 600,000
Current Maturities of Long-Term Debt.............................. 213,923
Accounts Payable.................................................. 2,013,059
Payroll Taxes Payable............................................. 1,132,722
Due to Officers................................................... 18,613
Accrued Expenses.................................................. 15,000
----------
Total Current Liabilities....................................... 3,993,317
----------
Long-Term Liabilities
Long-Term Debt, Less Current Maturities........................... 300,467
Due to Officers................................................... 350,000
Deferred Income Taxes Payable..................................... 658
----------
651,125
----------
Contingencies
Stockholders' Equity
Common Stock--No Par Value; Authorized: 1,000 Shares; Issued: 100
Shares; Outstanding: 75 Shares................................... 7,221
Retained Earnings................................................. 1,684,557
----------
1,691,778
Less: Treasury Stock, 25 Shares, At Cost.......................... 47,910
----------
1,643,868
----------
$6,288,310
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
STATEMENT OF INCOME
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Sales............................................................. $20,503,711
Less: Discounts and Rebates....................................... 1,168,161
-----------
Net Sales......................................................... 19,335,550
Cost of Goods Sold................................................ 15,549,439
-----------
Gross Profit...................................................... 3,786,111
Selling, General and Administrative Expenses...................... 3,130,770
-----------
Income from Operations............................................ 655,341
Other Income
Interest........................................................ 12,112
-----------
Income Before Provision for State Income Taxes and Income Tax
Credits.......................................................... 667,453
-----------
Provision for State Income Taxes (Credit)
Current......................................................... 20,305
Deferred........................................................ (3,280)
-----------
17,025
-----------
Income Before Income Tax Credits.................................. 650,428
Income Tax Credits
State Tax Credits Arising from Urban Enterprise Zone Credit
Carry-forwards................................................. 10,152
-----------
Net Income........................................................ $ 660,580
===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Cash Flows from Operating Activities
Net Income....................................................... $ 660,580
Adjustments to Reconcile Net Income to Net Cash Provided by
Operating Activities:
Depreciation and Amortization.................................. 305,221
(Increase) Decrease in:
Accounts Receivable.......................................... (253,044)
Inventories.................................................. 43,286
Prepaid Expenses............................................. (14,610)
Prepaid State Income Taxes................................... (7,888)
Deferred Income Taxes........................................ (773)
Increase (Decrease) in:
Accounts Payable............................................. 9,715
Payroll Taxes Payable........................................ 1,124,078
Pension Plan Payable......................................... (79,979)
State Income Tax Payable..................................... (14,095)
Accrued Expenses............................................. (106,800)
Deferred Income Taxes Payable................................ (2,507)
----------
Net Cash Provided by Operating Activities.................. 1,663,184
----------
Cash Flows from Investing Activities
Purchase of Equipment............................................ (33,507)
----------
Net Cash Used by Investing Activities...................... (33,507)
----------
Cash Flows from Financing Activities
Proceeds from Note Payable....................................... 900,000
Repayment of Note Payable........................................ (900,000)
Proceeds from Long-Term Borrowings............................... 200,000
Repayment of Long-Term Borrowings................................ (203,754)
Repayment of Loans to Officers................................... (22,350)
Dividends Paid................................................... (790,000)
----------
Net Cash Used by Financing Activities...................... (816,104)
----------
Net Increase in Cash and Cash Equivalents.......................... 813,573
Cash and Cash Equivalents--Beginning of Year....................... 585,639
----------
Cash and Cash Equivalents--End of Year............................. $1,399,212
==========
Supplemental Disclosures
Interest......................................................... $ 107,221
Income Taxes Paid................................................ $ 18,040
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
STATEMENT OF RETAINED EARNINGS
FOR THE YEAR ENDED DECEMBER 31, 1996
<TABLE>
<S> <C>
Retained Earnings--Beginning of Year................................ $1,813,977
Net Income.......................................................... 660,580
----------
2,474,557
Less: Dividend Distributions........................................ 790,000
----------
Retained Earnings--End of Year...................................... $1,684,557
==========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-33
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
NOTES TO FINANCIAL STATEMENTS
DECEMBER 31, 1996
NOTE 1--NATURE OF OPERATIONS
Cohen's Famous Frozen Foods Inc. is a frozen hors d'oeuvre manufacturer and
distributor which operates from a New Jersey location and sells throughout
North America. The majority of its customers are commercial entities.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Cash and Cash Equivalents
Cash consists of cash on hand and cash in checking and savings accounts.
Cash equivalents consists of short term, highly liquid investments that are
both readily convertible to known amounts of cash and so near their maturity
that they present insignificant risk of changes in value because of changes in
interest rates.
(b) Pervasiveness of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
(c) Concentration of Credit Risk
Financial instruments, which potentially subject the Company to
concentration of credit risk, consist principally of cash and trade
receivables. The Company maintains cash balances in well regarded financial
institutions thereby limiting the amount of credit exposure. Accounts
receivable primarily represent unsecured credit extended to customers
throughout North America.
(d) Accounts Receivable
The Company uses the allowances method to provide for uncollectible accounts
receivable. The allowance is determined based on a review of the individual
account balances at December 31. The allowance for uncollectible accounts has
been determined to be $25,000 at December 31, 1996.
(e) Inventories
Inventories are stated at the lower of cost (first-in, first-out method) or
market value.
(f) Depreciation and Amortization
The Company depreciates and amortizes its equipment and improvements by use
of the straight-line method over their estimated useful lives as follows:
<TABLE>
<CAPTION>
CLASSIFICATION YEARS
-------------- -----
<S> <C>
Machinery and Equipment............................................. 5-10
Transportation Equipment............................................ 3-5
Leasehold Improvements.............................................. 31.5
</TABLE>
Depreciation expense aggregated $305,221 for the year ended December 31,
1996.
F-34
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
(g) Income Taxes
The Company, with the consent of its shareholders, has elected under the
Internal Revenue Code to be an S Corporation. In lieu of corporation income
taxes, the shareholders of an S Corporation are taxed on their proportionate
share of the Company's taxable income. Accordingly, no provision or liability
for Federal income taxes has been included in these financial statements.
Provision for deferred state income taxes has been made as a result of the
following procedures:
With respect to machinery and equipment, the Company uses the straight-line
method of depreciation for financial reporting purposes, but has elected to
use the declining balance and accelerated cost recovery methods for income tax
purposes.
The Company has elected to use the direct write-off method for income tax
purposes with respect to allowance for doubtful accounts.
NOTE 3--LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<S> <C>
Equipment obligation payable to the Summit Bank in monthly
installments of $6,944 plus interest of 1.25% above the bank's
prime rate; final payment due September, 2000; secured by
accounts receivable, inventory equipment and improvements, and
collateral assignment of all leases; guaranteed by related
companies and the Company's officers.......................... $219,445
Equipment obligation payable to the Summit Bank in monthly
installments of $4,688 plus interest of 1.25% above the bank's
prime rate (75% participation) and to the New Jersey Economic
Development Authority in equal monthly installments of $1,769
including interest (25% participation); final payment due
December, 1997; secured by accounts receivable, inventory,
equipment and improvements, and collateral assignment of all
leases; guaranteed by related companies and the Company's
officers...................................................... 77,380
4% Equipment obligation payable to the New Jersey Economic
Development Authority in equal monthly installments of $1,822
including interest; final payment due August, 1998; secured by
a secondary lien on all equipment, accounts receivable, and
inventory; guaranteed by related companies and the Company's
officers and their wives...................................... 33,497
9.25% Equipment obligation payable in equal monthly
installments of $4,176, including interest; final payment due
September, 2001............................................... 184,068
--------
514,390
Less: Current Maturities....................................... 213,923
--------
$300,467
========
</TABLE>
NOTE 4--NOTE PAYABLE--BANK
The Company has a $1,500,000 line of credit available which expires April
30, 1997. Interest on any outstanding balance is computed monthly based on
3/4% above the bank's prime lending rate. The note is
F-35
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
DECEMBER 31, 1996
secured by all machinery and equipment, accounts receivable, inventory,
intangibles, the subordination of $350,000 of the amount due to officers and
is personally guaranteed by the Company's officers.
NOTE 5--OTHER PAYABLE
The Company pays Public Service Electric and Gas Company $250 per month to
settle a claim for unpaid utility services supplied during the period between
July 10, 1984 and August 16, 1988. These payments will continue until October
2004.
NOTE 6--INCOME TAXES
Deferred taxes result from timing differences in the recognition of expenses
for income tax and financial statement purposes. The sources of these
differences and the tax effect of each for the year ended December 31, 1996
are as follows:
<TABLE>
<S> <C>
Excess of tax over book depreciation............................. $1,257
Excess of book allowance for doubtful accounts over tax direct
write-off method for bad debts.................................. (658)
------
$ 599
======
</TABLE>
As of December 31, 1996, the Company has Urban Enterprise Zone Employee Tax
Credits of approximately $22,350. These credits can be applied against future
periods state income taxes as follows:
<TABLE>
<CAPTION>
YEAR OF EXPIRATION AMOUNT
------------------ -------
<S> <C>
December 31, 2009................................................. $ 4,050
December 31, 2010................................................. 18,300
-------
$22,350
=======
</TABLE>
For the year ended December 31, 1996, the Company applied $10,152 of the
above Urban Enterprise Zone Employee Tax Credit to reduce the current
provision for state income taxes.
NOTE 7--TRANSACTIONS WITH RELATED PARTIES
The Company rents its premises from related companies on a month to month
basis. Rental expense for the year ended December 31, 1996 amounted to
$204,000.
For the year ended December 31, 1996, interest of $25,278 was paid on
outstanding officer loans.
NOTE 8--EMPLOYEE PENSION PLAN
All non-union employees of the Company who meet the minimum age and service
requirements are covered by a defined benefit pension plan. Retirement
benefits under the defined benefit pension plan are based on years of service
and compensation. Normal retirement age is 56 with completion of at least 10
years of participation. The Company's policy is to make periodic contributions
as required by applicable regulations. Plan assets consist primarily of bank
certificates of deposit, mutual funds and equities, and cash surrender value
of life insurance.
The components of net periodic pension cost are as follows:
<TABLE>
<S> <C>
Service Cost................................................... $ 78,086
Interest Cost.................................................. 101,884
Actual Return on Assets........................................ (121,924)
Net Amortization and Deferral.................................. 56,772
---------
Net Periodic Pension Expense............................... $ 114,818
=========
</TABLE>
F-36
<PAGE>
COHEN'S FAMOUS FROZEN FOODS, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
DECEMBER 31, 1996
The funded status of the plan as of December 31 was as follows:
<TABLE>
<S> <C>
Actuarial Present Value of Benefit Obligations:
Vested Benefit Obligation................................. $(1,591,702)
===========
Accumulated Benefit Obligation............................ $(1,643,592)
===========
Projected Benefit Obligation Plan Assets at Fair Value...... $(1,761,197)
Plan Assets at Fair Value................................... 1,588,809
-----------
Projected Benefit Obligation in Excess of Plan Assets at
Fair Value................................................. (172,388)
Unrecognized Net Obligation at Initial Application.......... 278,881
Unrecognized Net Loss....................................... 11,890
-----------
Accrued Pension Cost.................................... $ 118,383
===========
</TABLE>
Assumptions used in accounting for the defined benefit plan were:
<TABLE>
<S> <C>
Discount Rate Used in Determining Present Value..................... 6.00%
Annual Increase in Future Compensation Levels....................... 5.00%
Expected Long-Term Rate of Return on Assets......................... 6.00%
</TABLE>
Effective January 1, 1996, the pension plan was frozen and no future
benefits will be accrued. Accordingly, all participants are now 100% vested in
the plan.
NOTE 9--PROFIT SHARING PLAN AND TRUST
Effective January 1, 1996 the Company adopted a Model Age-Based Profit-
Sharing Plan and Trust. The plan covers all non-union employees who meet the
minimum age and service requirements.
The Company's annual contribution is allocated to the accounts of eligible
participants in proportion to each such person's age adjusted compensation.
Hardship withdrawals and participant loans are not permitted. Vesting is based
on years of service with increases of 20% per year after completion of the
first year of service. Normal retirement age is the later of attaining age 65
or the 5th anniversary of the first day of the first plan year in which the
participant commenced participation in the plan.
NOTE 10--ECONOMIC DEPENDENCY--MAJOR CUSTOMERS
The Company sells a substantial portion of its products to four customers.
During 1996, sales to those customers aggregated approximately 44% of the
total sales. At December 31, 1996, amounts due from those customers included
in trade accounts receivable were $1,130,980.
NOTE 11--CONTINGENCIES
Approximately 65% of the Company's non-management employees are covered by a
collective bargaining agreement. The agreement is scheduled to expire in
January 1999. If the Company and the United Food and Commercial Workers
International Union--Local 174 representing such workers are unable to agree
on a new contract prior to the expiration of the current contract, a work
stoppage may occur that could adversely affect results of operations.
F-37
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors of
Restauranic, Inc.
We have audited the accompanying balance sheet of Restauranic, Inc. as of
January 3, 1997, and the related statements of income, changes in
stockholders' equity, and cash flows for the year then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Restauranic, Inc. as of
January 3, 1997, and the results of its operations and its cash flows for the
year then ended in conformity with generally accepted accounting principles.
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
March 24, 1997 (except for Note 6,
as to which the date is July 31, 1997)
F-38
<PAGE>
RESTAURANIC, INC.
BALANCE SHEET
JANUARY 3, 1997
ASSETS
<TABLE>
<S> <C>
Current Assets:
Accounts receivable, trade (net of allowance for doubtful accounts
of $40,000)...................................................... $2,300,025
Inventories (Notes 2 and 4)....................................... 1,255,411
Deferred income taxes (Notes 2 and 7)............................. 121,000
Other current assets and prepaid expenses......................... 104,384
----------
3,780,820
----------
Property and Equipment (at cost; net of accumulated depreciation and
amortization--Notes 2 and 5)....................................... 1,060,522
----------
Other Assets:
Goodwill (net of accumulated amortization of $44,493--Notes 1 and
2)............................................................... 3,514,932
Deferred financing fees (net of accumulated amortization of
$19,193--Note 2)................................................. 153,547
Deferred income taxes (Notes 2 and 7)............................. 31,000
Other............................................................. 47,447
----------
3,746,926
----------
$8,588,268
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current Liabilities:
Checks written in excess of funds on deposit...................... $ 192,383
Accounts payable, trade........................................... 971,996
Current portion of long-term debt (Note 6)........................ 580,000
Income taxes payable.............................................. 318,500
Other current liabilities and accrued expenses.................... 336,798
----------
2,399,677
----------
Long-term Debt (Note 6)............................................. 4,969,357
----------
Stockholders' Equity:
Common stock (5,000 shares of $10 par value authorized; 500 shares
issued and outstanding).......................................... 5,000
Additional paid-in capital........................................ 500,676
Retained earnings................................................. 713,558
----------
1,219,234
----------
$8,588,268
==========
</TABLE>
The accompanying notes are an integral part of this statement.
F-39
<PAGE>
RESTAURANIC, INC.
STATEMENT OF INCOME
YEAR ENDED JANUARY 3, 1997
<TABLE>
<CAPTION>
AS A PERCENT
AMOUNT OF NET SALES
----------- ------------
<S> <C> <C>
Net Sales.............................................. $13,533,627 100.00%
Cost of Goods Sold..................................... 9,734,925 71.93
----------- ------
Gross Profit........................................... 3,798,702 28.07
----------- ------
Operating Expenses:
Selling.............................................. 1,184,922 8.75
General and administrative........................... 1,285,097 9.50
----------- ------
2,470,019 18.25
----------- ------
Income from Operations................................. 1,328,683 9.82
----------- ------
Other Expense:
Management fees (Note 9)............................. 329,831 2.44
Interest expense..................................... 296,823 2.19
Amortization of goodwill............................. 44,493 .33
Other (net).......................................... 103,234 .76
----------- ------
774,381 5.72
----------- ------
Income before Income Taxes............................. 554,302 4.10
Income Tax Provision (Note 7).......................... 235,000 1.74
----------- ------
Net Income............................................. $ 319,302 2.36%
=========== ======
</TABLE>
The accompanying notes are an integral part of this statement.
F-40
<PAGE>
RESTAURANIC, INC.
STATEMENT OF CASH FLOWS
YEAR ENDED JANUARY 3, 1997
<TABLE>
<S> <C>
Cash Flows from Operating Activities:
Net income for year............................................. $ 319,302
Adjustments to reconcile net income to net cash provided by
operating activities:
Depreciation and amortization................................. 320,880
Provision for deferred income taxes........................... (74,000)
Changes in assets and liabilities:
Increase in accounts receivable, trade...................... (598,107)
Increase in inventories..................................... (410,272)
Increase in other current assets and prepaid expenses....... (45,356)
Increase in other assets.................................... (45,252)
Increase in accounts payable, trade......................... 788,941
Increase in other current liabilities and accrued expenses.. 232,888
-----------
Net cash provided by operating activities....................... 489,024
-----------
Cash Flows from Investing Activities:
Purchase of property, plant and equipment....................... (169,384)
Payment of financing and other transaction costs................ (272,740)
-----------
Net cash used in investing activities........................... (442,124)
-----------
Cash Flows from Financing Activities:
Checks written in excess of funds on deposit.................... 192,383
Net borrowings on revolving line of credit...................... 131,357
Repayment of long-term debt..................................... (150,000)
Repayment of shareholder debt outstanding prior to merger (see
below)......................................................... (375,000)
-----------
Net cash used in financing activities........................... (201,260)
-----------
Net Decrease in Cash.............................................. (154,360)
Cash, Beginning of Year........................................... 154,360
-----------
Cash, End of Year................................................. $ 0
===========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the year for:
Interest.................................................... $ 256,823
===========
Income taxes................................................ $ 13,057
===========
Supplemental Schedule of Noncash Financing Activities:
Effect of merger with Restauranic Acquisition Corp.
(RAC) on July 3, 1996 (Note 1):
Purchase price of 80% of common stock....................... $ 5,025,000
Note payable to seller...................................... (950,000)
-----------
Cash purchase price paid by RAC............................. 4,075,000
Long-term debt assumed...................................... (3,200,000)
Subordinated debt assumed................................... (375,000)
Issuance of common stock.................................... (500,000)
-----------
Net cash effect of merger in Restauranic, Inc. ............. $ 0
===========
</TABLE>
The accompanying notes are an integral part of this statement.
F-41
<PAGE>
RESTAURANIC, INC.
STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
YEAR ENDED JANUARY 3, 1997
<TABLE>
<CAPTION>
COMMON ADDITIONAL TOTAL
STOCK PAID-IN RETAINED STOCKHOLDERS'
(SEE NOTE) CAPITAL EARNINGS EQUITY
---------- ---------- ----------- -------------
<S> <C> <C> <C> <C>
Balances, December 31, 1995,
As Previously Reported....... $ 5,000 $ 23,380 $ 1,677,857 $ 1,706,237
Prior Period Adjustments (Note
3)........................... (115,730) (115,730)
------- -------- ----------- -----------
Balances, December 31, 1995,
as Restated.................. 5,000 23,380 1,562,127 1,590,507
Effect of Merger on July 3,
1996 (Note 1): 80% of equity
acquired by Diversified Food
Group, L.L.C. (DFG).......... (4,000) (18,704) (1,167,871) (1,190,575)
Capital contribution provided
by DFG...................... 4,000 496,000 500,000
Net Income for Year Ended
January 3, 1997.............. 319,302 319,302
------- -------- ----------- -----------
Balances, January 3, 1997..... $ 5,000 $500,676 $ 713,558 $ 1,219,234
======= ======== =========== ===========
</TABLE>
- --------
Note--Par value and shares authorized, issued and outstanding consisted of the
following:
<TABLE>
<S> <C>
Par value......................................................... $ 10
Shares authorized................................................. 5,000
Shares issued and outstanding..................................... 500
</TABLE>
The accompanying notes are an integral part of this statement.
F-42
<PAGE>
RESTAURANIC, INC.
NOTES TO THE FINANCIAL STATEMENTS
JANUARY 3, 1997
NOTE 1--MERGER:
On July 3, 1996, Restauranic Acquisition Corp. (RAC), an entity formed to
acquire 80% of the common stock of Restauranic, Inc. (the Company), (i)
acquired 80% of the common stock of the Company from its stockholders for
$4,075,000 in cash (including the repayment of $375,000 of subordinated notes
payable to the stockholders) and $950,000 of subordinated notes payable and
(ii) merged with and into the Company, pursuant to a Merger and Sale Agreement
(the Agreement). This transaction was accounted for under the purchase method
of accounting. The assets and liabilities recorded by the Company resulting
from the aforementioned merger consisted of the following:
<TABLE>
<S> <C>
Goodwill.................................................... $ 3,459,425
Bank installment note payable............................... (3,200,000)
Seller note payable......................................... (950,000)
-----------
Reduction in equity......................................... $ (690,575)
===========
</TABLE>
The effect of the merger with RAC is to push down the fair values of the
assets and liabilities recorded by RAC when it purchased the Company to the
Company's books and records. Concurrent with the Agreement, the Company
entered into employment and noncompetition agreements with the Sellers (see
Note 10).
In addition, the Company reimbursed a related party for $125,000 of direct
acquisition and transaction costs (principally legal and financing costs) of
which $100,000 was recorded as additional goodwill and $25,000 as additional
financing fees.
NOTE 2--NATURE OF ACTIVITIES AND SIGNIFICANT ACCOUNTING POLICIES:
The Company manufacturers and distributes appetizers and related food
products. Products are sold primarily to food distributors, hotels and
restaurants located throughout the United States. Operations are conducted
from leased facilities located in Chicago, Illinois (Note 8).
The Company grants credit terms to its customers in the normal course of
business. No single customer accounted for more than 10% of the Company's net
sales in 1996.
In preparing financial statements in conformity with generally accepted
accounting principles, management makes 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, as well as the
reported amounts of revenue and expenses during the reported period. Actual
results could differ from those estimates.
A summary of significant accounting policies followed by the Company is as
follows:
Accounting Period--During 1996, the Company changed its accounting year
from December 31 to an accounting year which ends on the Friday closest to
December 31. The current year consisted of 368 days. Future years will
consist of either 52 or 53 weeks.
Inventories--Inventories are stated at the lower of cost, determined on
the first-in, first-out (FIFO) basis, or market.
Depreciation and Amortization--For financial reporting purposes,
depreciation of property and equipment is computed under the straight-line
method, over the estimated useful lives of the assets.
F-43
<PAGE>
RESTAURANIC, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
For income tax reporting purposes, depreciation is computed principally
under acceleration methods, as permitted by the Internal Revenue Code.
Goodwill (Note 1) is being amortized under the straight-line method over
a period of 40 years.
Costs incurred in connection with obtaining long-term financing are
amortized, on a straight-line basis, over the term of the financing
commitment.
Income Taxes--The Company accounts for income taxes in accordance with
the provisions of Financial Accounting Standards No. 109 (SFAS 109),
Accounting for Income Taxes. Under this standard, deferred tax assets and
liabilities are recorded based on differences between financial reporting
and tax bases of assets and liabilities, using tax rates in effect when
these differences are expected to reverse. Income tax expense is the tax
payable for the period together with the variation in deferred tax assets
and liabilities (see Note 7).
NOTE 3--PRIOR PERIOD ADJUSTMENTS:
During 1996, management identified the following adjustments relating to
1995 and prior years which have been recorded as corrections of errors as of
December 31, 1995, as follows:
<TABLE>
<CAPTION>
PRIOR PERIOD
ADJUSTMENT
INCOME/(EXPENSE)
----------------
<S> <C>
Trade Accounts Receivable:
Adjustments for consignment shipments erroneously
recorded as sales and billing adjustments............. $ (246,979)
Inventory:
Adjustments to record inventory obsolescence reserve,
write-down over value inventory and reflect inventory
value for consignment shipments erroneously recorded
as sales.............................................. (62,751)
Property, Plant and Equipment:
Adjustment to record leasehold improvements improperly
expensed, net of related depreciation................. 220,500
Accrued Expenses:
Adjustments to accrue for future employee absences and
customer rebates...................................... (101,000)
----------
(190,230)
Income tax effect of the aforementioned adjustments...... 74,500
----------
(115,730)
Retained Earnings, as Previously Reported................ 1,677,857
----------
Retained Earnings, as Restated........................... $1,562,127
==========
</TABLE>
F-44
<PAGE>
RESTAURANIC, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
NOTE 4--INVENTORIES:
Inventories, at January 3, 1997, consists of the following:
<TABLE>
<S> <C>
Raw materials................................................. $ 683,015
Packaging materials........................................... 100,892
Finished goods................................................ 651,504
----------
1,435,411
Less allowance for excess and slow moving inventories......... (180,000)
----------
$1,255,411
==========
</TABLE>
NOTE 5--PROPERTY AND EQUIPMENT:
Property and equipment, at January 3, 1997, stated at acquisition cost,
consists of the following:
<TABLE>
<S> <C>
Furniture and fixtures....................................... $ 243,062
Vehicles..................................................... 68,166
Equipment.................................................... 1,423,014
Leasehold improvements....................................... 1,454,951
-----------
3,189,193
Less accumulated depreciation and amortization............... (2,128,671)
-----------
$ 1,060,522
===========
</TABLE>
The provision for depreciation and amortization in 1996 amounted to
$257,194.
NOTE 6--LONG-TERM DEBT:
Long-term debt, at January 3, 1997, consists of the following:
<TABLE>
<S> <C>
Borrowings from Harris Trust and Savings Bank (Harris) (see
below):
Revolving credit loan....................................... $1,549,357
Term loan................................................... 3,050,000
Notes payable to minority stockholders arising from the July
3, 1996 acquisition of 80% of the Company's stock--Note 1;
collateralized by second position in all of the Company's
assets and subordinate to bank debt; interest at the prime
rate payable monthly; annual principal payments, from 1997
through 2001, based upon 15% to 25% of prior years' cash flow
(as defined); final payment due February 28, 2001)........... 950,000
----------
5,549,357
Less current portion.......................................... 580,000
----------
Long-term portion............................................. $4,969,357
==========
</TABLE>
The Loan and Security Agreement with Harris, executed on July 3, 1996 and
amended and modified on July 31, 1997 (the "Bank Agreement"), provides for
maximum aggregate borrowing of $6,700,000. The revolving credit loan, due June
30, 1998, provides for maximum borrowings of $3,500,000 (limited to the sum of
(i) 85% of eligible accounts receivable and (ii) the lesser of 50% of eligible
inventories or $1,000,000), and bears interest, at the Company's option, at
either (a) Harris's prime rate or (b) the LIBOR rate plus 1.5%.
F-45
<PAGE>
RESTAURANIC, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
Term loan borrowings are to be repaid in scheduled monthly principal
installments, from August 1996 through November 2000, of $30,000 to $75,000,
with a final payment of $133,334 due in December 2000. In addition, the
Company is to prepay such term loan borrowings annually in an amount equal to
50% of cash flow (as defined). Interest charges are, at the Company's option,
either (a) Harris's prime rate plus 1/4% or (b) the LIBOR rate plus 1 3/4%.
The weighted-average interest rate, under the interest option selected by
the Company, approximated 7.7% at January 3, 1997.
The Bank Agreement contains covenants restricting certain corporate acts and
requiring the maintenance of certain financial ratios. Borrowings under the
Bank Agreement are collateralized by all of the Company's assets. In addition,
the Company's majority stockholder, Diversified Food Group, L.L.C. (DFG), has
pledged their 80% stock ownership in the Company as additional collateral for
the obligation.
Aggregate maturities of the long-term liabilities, at January 3, 1997, are
as follows:
<TABLE>
<S> <C>
1997........................................................... $ 580,000
1998........................................................... 2,493,357
1999........................................................... 1,316,000
2000........................................................... 1,160,000
----------
$5,549,357
==========
</TABLE>
The maturities of the mandatory prepayment portion of the installment notes
payable to minority shareholders were estimated by management based upon
projected future cash flow.
At December 31, 1995, the Company was obligated to a bank under a revolving
credit agreement, which provided for maximum borrowings of $1,500,000, with
interest being charged at prime plus 1/2%. Concurrent with the execution of
the Bank Agreement and the sale of 80% of the stock of the Company, on July 3,
1996, such borrowings were repaid in full.
NOTE 7--INCOME TAXES:
Gross deferred income tax assets consist primarily of (a) inventory
valuation and accounts receivable allowances, (b) uniform capitalization rules
(for additional inventory costs) reflected for tax reporting purposes only,
(c) accrued vacation pay and (d) differences in book and tax depreciation
methods.
The provision for income taxes for the year ended January 3, 1997 consists
of the following:
<TABLE>
<S> <C>
Current......................................................... $309,000
Deferred........................................................ (74,000)
--------
$235,000
========
</TABLE>
The primary difference between the statutory and effective tax rates for
1996 relates to amortization of goodwill, which is not deductible for tax
reporting purposes.
F-46
<PAGE>
RESTAURANIC, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
NOTE 8--LEASE COMMITMENTS:
The Company conducts its operations from three leased facilities, two of
which are leased from entities controlled by its minority shareholders. The
leases provide for aggregate monthly rental payments of approximately $17,000,
plus real estate taxes, as well as the costs of operating and maintaining the
premises.
The Company is also obligated under two operating leases for automobiles
that expire in 2000. Such leases require payments aggregating approximately
$3,000 per month.
Future minimum rental payments under the aforementioned operating leases
approximated the following:
<TABLE>
<S> <C>
1997............................................................. $226,000
1998............................................................. 205,000
1999............................................................. 152,000
2000............................................................. 52,000
--------
$635,000
========
</TABLE>
Rent expense for the year ended January 3, 1997 was $245,138, of which
$155,054 was to related parties.
NOTE 9--MANAGEMENT FEES:
The Company's majority shareholder, DFG, provides management services to the
Company under an informal arrangement. Management fees for the year ended
January 3, 1997 totalled $329,831, and is included as a component of other
expense on the accompanying statement of income.
NOTE 10--COMMITMENTS:
Each of the Company's two minority shareholders, whose aggregate holdings
represent 20 percent of the Company's outstanding common stock, may sell their
stock to the Company at market value, as defined, after July 3, 2001. In
addition, the Company may acquire such minority stockholders' stock at market
value, as defined, after July 3, 2001.
Concurrent with the Agreement (Note 1), the Company entered into five-year
employment and noncompete agreements with its two minority shareholders
requiring among other things, annual compensation of $160,000 each and
noncompetition with the Company for two years after their termination of
employment.
F-47
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sweet Shop Candies, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheet of Sweet Shop Candies, Inc.
as of January 23, 1998, and the related statements of operations, changes in
shareholder's equity and cash flows for the period from July 1, 1997 to
January 23, 1998. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audit provides a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sweet Shop Candies, Inc.
as of January 23, 1998, and the results of its operations and its cash flows
for the period from July 1, 1997 to January 23, 1998, in conformity with
generally accepted accounting principles.
Weaver and Tidwell, L.L.P.
Fort Worth, Texas
April 27, 1998
F-48
<PAGE>
SWEET SHOP CANDIES, INC.
BALANCE SHEET
JANUARY 23, 1998
ASSETS
<TABLE>
<S> <C>
Current Assets
Cash and cash equivalents......................................... $ 150
Trade accounts receivable, less allowance for doubtful accounts of
$47,945.......................................................... 832,151
Notes receivable--trade........................................... 2,303
Receivables--related parties...................................... 73,140
Income taxes receivable........................................... 25,509
Inventories....................................................... 744,115
Prepaid expenses.................................................. 105,804
Deferred tax assets............................................... 36,016
----------
Total current assets............................................ 1,819,188
Property and equipment, at cost
Equipment......................................................... 888,286
Property held under capital lease................................. 22,016
Leasehold improvements............................................ 434,072
Transportation vehicles........................................... 38,949
Furniture and fixtures............................................ 307,447
----------
1,690,770
Less accumulated depreciation..................................... 1,433,421
----------
257,349
Other assets
Notes receivable--trade........................................... 7,510
Deposits.......................................................... 1,522
Deferred tax assets............................................... 89,411
----------
98,443
----------
Total assets.................................................... $2,174,980
==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Current Liabilities
Outstanding checks in excess of bank balances..................... $ 52,171
Current portion of long-term debt................................. 329,141
Trade accounts payable............................................ 429,893
Accrued expenses.................................................. 778,686
----------
Total current liabilities....................................... 1,589,891
Shareholder's Equity
Common stock, no par value, 100,000 shares authorized, 82,296
shares issued.................................................... 54,494
Additional paid-in capital........................................ 83,673
Retained earnings................................................. 1,006,922
----------
1,145,089
Less common stock held in treasury, at cost 12,606 shares at
January 23, 1998................................................. 560,000
----------
585,089
----------
Total liabilities and shareholder's equity...................... $2,174,980
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-49
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENT OF OPERATIONS
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
<TABLE>
<S> <C>
Net sales.......................................................... $3,918,243
Cost of sales...................................................... 2,373,320
----------
Gross profit................................................... 1,544,923
Operating costs
Selling.......................................................... 869,623
General and administrative....................................... 686,378
Provision for doubtful accounts.................................. 9,843
----------
Total operating costs.......................................... 1,565,844
----------
Loss from operations........................................... (20,921)
Other income (expense)
Interest income.................................................. 3,054
Interest expense................................................. (41,831)
----------
Loss before income taxes....................................... (59,698)
Benefit for income taxes......................................... (14,549)
----------
Net loss........................................................... $ (45,149)
==========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-50
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENT OF CASH FLOWS
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
<TABLE>
<S> <C>
Cash flows from operating activities
Net loss.......................................................... $ (45,149)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation.................................................... 50,106
Deferred income taxes........................................... (2,988)
Change in assets and liabilities
Receivables................................................... (469,580)
Income tax receivable......................................... (25,509)
Inventories................................................... (27,713)
Prepaid expenses.............................................. (1,114)
Outstanding checks in excess of bank balances................. 52,171
Accounts payable.............................................. 202,255
Accrued liabilities........................................... 506,847
Income tax payable............................................ (11,483)
---------
Net cash provided by operating activities................... 227,843
Cash flows from investing activities
Purchase of property and equipment................................ (81,254)
---------
Net cash used in investing activities....................... (81,254)
Cash flows from financing activities
Net payments on line of credit.................................... --
Proceeds from borrowings.......................................... --
Repayment of borrowings........................................... (323,999)
---------
Net cash used in financing activities....................... (323,999)
---------
Net decrease in cash........................................ (177,410)
Cash at beginning of period......................................... 177,560
---------
Cash at end of period............................................... $ 150
=========
Supplemental disclosures
Interest paid..................................................... $ 41,735
=========
Income taxes paid................................................. $ 25,431
=========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-51
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
BALANCE
July 1, 1997................. $54,494 $83,673 $1,052,071 $(560,000) $630,238
Net loss..................... -- -- (45,149) -- (45,149)
------- ------- ---------- --------- --------
BALANCE
January 23, 1998............. $54,494 $83,673 $1,006,922 $(560,000) $585,089
======= ======= ========== ========= ========
</TABLE>
The Notes to Financial Statements are an integral part of this statement.
F-52
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sweet Shop Candies, Inc. (the "Company") is a Texas corporation. The
accounting policy relative to the carrying value of property and equipment is
indicated in the caption of the balance sheets. Nature of operations and other
significant accounting policies are as follows:
Nature of Operations
The Company produces and markets handmade chocolate and other types of
candies. Customers consist of retail chains and distributors who operate
within this industry throughout the United States. The Company performs
ongoing credit evaluation of its customers and generally requires no
collateral from them.
Property and Equipment
Depreciation is computed using the straight-line method over the estimated
useful lives of the assets, ranging from three to 10 years.
Maintenance, repairs and minor replacements are charged to income as
incurred; major replacements and betterments are capitalized. The cost of
assets sold or retired and the related accumulated depreciation are removed
from the accounts at the time of disposition, and any resulting gain or loss
is reflected in the statement of operations.
Inventories
Inventories are stated at the lower of cost, first-in, first-out, or market.
Prepaid Expenses
The Company capitalizes certain costs associated with the development and
design of packaging materials for products. These costs are amortized over the
periods benefited of twenty-four to forty-eight months. As of January 23,
1998, the net amount of these design and development costs capitalized was
$50,118.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of less than three months
to be cash equivalents.
NOTE 2. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
trade receivables and notes receivable. Cash and cash equivalents consist of
one more of the following: cash on hand; demand deposits; and short-term
repurchase agreements in government securities held at a financial
institution. Total cash and cash equivalents held with the bank, at times, may
exceed federally insured limits. The Company has not experienced any losses
F-53
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
NOTE 2. CONCENTRATIONS OF CREDIT RISK--CONTINUED
in such accounts and believes it is not exposed to any significant credit risk
with respect to cash and cash equivalents.
Concentrations of credit risk with respect to trade receivables is limited
due to the Company's credit granting policies and due to the large number of
customers comprising the Company's customer base.
Credit risk with respect to notes receivable, trade consist of a guaranteed
note with a current customer. The note bears interest at 10% and is due
September 1999.
NOTE 3. INVENTORIES
Inventories consist of:
<TABLE>
<S> <C>
Finished goods................................................. $161,205
Work-in-process................................................ 44,061
Raw materials.................................................. 79,228
Packaging material............................................. 459,621
--------
Total........................................................ $744,115
========
</TABLE>
NOTE 4. LINE OF CREDIT
The Company has a line of credit for $500,000 under the terms of a revolving
loan agreement with a bank which provides for interest at the bank's prime
rate plus one percent (9.5% at January 23, 1998) and is due October 1, 1998.
At January 23, 1998, there were no borrowings outstanding under this
agreement. All receivables, inventories and equipment are pledged as
collateral under the agreement.
At January 23, 1998, the Company has $500,000 in additional borrowings
available under the line of credit agreement.
NOTE 5. LONG-TERM DEBT
Long-term debt at January 23, 1998 consists of:
<TABLE>
<S> <C>
Note payable to shareholder for purchase of treasury stock,
interest at Overton Bank and Trust's base rate (9% at January
23, 1998), currently payable, collateralized by common stock
held by a former shareholder and treasury stock held by the
Company........................................................ $329,141
Less current portion............................................ 329,141
--------
$ --
========
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998............................................................. $329,141
1999............................................................. --
2000............................................................. --
2001............................................................. --
2002............................................................. --
Thereafter....................................................... --
--------
$329,141
========
</TABLE>
F-54
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
NOTE 6. ADVERTISING COSTS
The Company produces brochures which are used by customers to place orders.
The costs to produce these brochures are capitalized and expensed over the
estimated response period of twelve months. Other advertising costs are
expensed as incurred. Included in prepaid expenses at January 23, 1998 is
$21,636 of unamortized brochure costs. Total advertising costs included in
selling expenses for the period ended January 23, 1998 were approximately
$34,000.
NOTE 7. RELATED PARTY TRANSACTIONS
The Company has a contract with a company related through common ownership
to pay annual licensing and royalty fees based on sales volume for the use of
the formulas and trademarks. Licensing fees of $28,000 for the period ended
January 23, 1998 are included in cost of sales. Royalty fees of $147,250 for
the period ended January 23, 1998 are included in selling expenses. Included
in accrued expenses at January 23, 1998 are $349,804 for unpaid licensing and
royalty fees.
Included in interest expense for the period ended January 23, 1998 is
$31,605 on notes payable to shareholder.
Receivables from related parties at January 23, 1998 consist of two
noninterest bearing notes receivable from key employees totaling $19,250 and
are payable June 1998. Remaining balances represent advances to various
employees and are unsecured, noninterest bearing and do not contain scheduled
payout provisions.
Included in trade accounts payable at January 23, 1998 is $1,457 due to
other companies owned by the stockholder. Also, included in trade accounts
payable at January 23, 1998 is $445 due to various employees.
NOTE 8. OPERATING LEASES
The Company leases its office and warehouse facilities and certain equipment
under operating leases. Effective September 1, 1996, the Company's shareholder
purchased the office and warehouse facilities and entered into a new lease
agreement with the Company. Rent paid to the shareholder for the period ended
January 23, 1998 under the new lease was $65,625. Total rental expense for the
period ended January 23, 1998 was $70,804.
Annual minimum lease payments for the years ended June 30 are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 46,875
1999............................................................. 112,500
2000............................................................. 9,375
--------
$168,750
========
</TABLE>
NOTE 9. EMPLOYEE PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan under
Internal Revenue Service Code Section 401(k). The plan covers substantially
all employees with one year's service. Employer contributions are made at the
discretion of the Board of Directors. No contributions were made for the
period ended January 23, 1998.
Administrative costs paid on behalf of the plan for the period ended January
23, 1998 were $3,608.
F-55
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
PERIOD FROM JULY 1, 1997 TO JANUARY 23, 1998
NOTE 10. INCOME TAXES
Components of the Company's provision (benefit) for income tax are as
follows:
<TABLE>
<S> <C>
Current taxes--federal......................................... $ (11,561)
Deferred taxes--federal........................................ (2,988)
---------
$ (14,549)
=========
</TABLE>
The Company's deferred tax assets and liabilities consisted of the
following:
<TABLE>
<S> <C>
Deferred tax assets.............................................. $125,427
Deferred tax liabilities......................................... --
--------
$125,427
========
</TABLE>
Deferred income taxes are provided for temporary differences in the basis of
assets and liabilities for financial reporting and income tax purposes.
Basis differences result from different financial accounting and tax methods
used for depreciation, amortization, recognition of bad debts, and inventory
valuation.
NOTE 11. SUBSEQUENT EVENT
On February 23, 1998, the Company's sole shareholder sold all of the
outstanding common stock of the Company to Diversified Food Group, L.L.C.
(DFG). In the future, the Company will be a division of DFG.
F-56
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sweet Shop Candies, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheets of Sweet Shop Candies, Inc.
as of June 30, 1997 and 1996, and the related statements of income, changes in
shareholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sweet Shop Candies, Inc.
as of June 30, 1997 and 1996, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Weaver and Tidwell, L.L.P.
Fort Worth, Texas
September 2, 1997
F-57
<PAGE>
SWEET SHOP CANDIES, INC.
BALANCE SHEETS
JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
ASSETS ---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents.............................. $ 177,560 $ 162,810
Trade accounts receivable, less allowance for doubtful
accounts of $51,974--1997; $31,974--1996.............. 383,687 317,660
Note receivable, trade................................. 12,778 4,476
Receivables, related parties........................... 49,059 59,789
Income taxes receivable................................ -- 10,185
Inventories............................................ 716,402 642,351
Prepaid expenses....................................... 104,690 82,784
Deferred tax assets.................................... 36,084 29,661
---------- ----------
Total current assets................................. 1,480,260 1,309,716
Property and equipment, at cost
Equipment.............................................. 863,394 811,638
Property held under capital lease...................... 22,016 22,016
Leasehold improvements................................. 391,521 382,246
Transportation vehicles................................ 38,949 33,413
Furniture and fixtures................................. 293,636 273,626
---------- ----------
1,609,516 1,522,939
Less accumulated depreciation.......................... 1,383,315 1,311,443
---------- ----------
226,201 211,496
Other assets
Notes receivable, trade................................ -- 12,778
Deposits............................................... 1,522 1,522
Deferred tax assets.................................... 86,355 89,553
---------- ----------
87,877 103,853
---------- ----------
Total assets......................................... $1,794,338 $1,625,065
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities
Current portion of long-term debt...................... $ 41,142 $ 41,142
Line of credit......................................... -- 50,000
Trade accounts payable................................. 227,638 197,160
Accrued expenses....................................... 271,839 226,179
Notes payable.......................................... 300,000 177,106
Federal income tax payable............................. 11,483 --
---------- ----------
Total current liabilities............................ 852,102 691,587
Long-term debt........................................... 311,998 353,141
---------- ----------
Total liabilities.................................... 1,164,100 1,044,728
Shareholder's Equity
Common stock, no par value, 100,000 shares authorized,
82,296 shares issued.................................. 54,494 54,494
Additional paid-in capital............................. 83,673 83,673
Retained earnings...................................... 1,052,071 1,002,170
---------- ----------
1,190,238 1,140,337
Less common stock held in treasury, at cost 12,606
shares for 1997 and 1996.............................. 560,000 560,000
---------- ----------
630,238 580,337
---------- ----------
Total liabilities and shareholder's equity........... $1,794,338 $1,625,065
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-58
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
---------- ----------
<S> <C> <C>
Net sales............................................... $5,862,441 $4,487,436
Cost of sales........................................... 3,551,114 2,627,428
---------- ----------
Gross profit........................................ 2,311,327 1,860,008
Operating costs
Selling............................................... 1,301,527 1,059,728
General and administrative............................ 840,680 621,075
Provision for doubtful accounts....................... 37,039 49,060
---------- ----------
Total operating costs............................... 2,179,246 1,729,863
---------- ----------
Income from operations.............................. 132,081 130,145
Other income (expense)
Interest income....................................... 2,378 9,219
Interest expense...................................... (59,889) (62,903)
---------- ----------
Income before income taxes.......................... 74,570 76,461
Provision from income taxes............................. 24,669 19,365
---------- ----------
Net income.......................................... $ 49,901 $ 57,096
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-59
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
1997 1996
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 49,901 $ 57,096
Adjustments to reconcile net income to net cash
provided by operating activities
Depreciation......................................... 71,872 75,884
Deferred income taxes................................ (3,225) (638)
Change in assets and liabilities:
Receivables........................................ (50,822) 7,553
Income tax receivable.............................. 21,669 42,036
Inventories........................................ (74,051) (173,399)
Prepaid expenses................................... (21,906) (19,470)
Deposits........................................... -- 1,057
Accounts payable................................... 30,478 (25,384)
Accrued liabilities................................ 45,660 173,837
--------- ---------
Net cash provided by operating activities........ 69,576 138,572
Cash flows from investing activities:
Purchase of property and equipment..................... (86,577) (73,853)
--------- ---------
Net cash used in investing activities............ (86,577) (73,853)
--------- ---------
Cash flows from financing activities:
Proceeds from borrowings............................... $ 860,000 $ 523,000
Repayment of borrowings................................ (828,249) (673,036)
--------- ---------
Net cash provided by (used in) financing
activities...................................... 31,751 (150,036)
--------- ---------
Net increase (decrease) in cash.................. 14,750 (85,317)
Cash and cash equivalents, beginning of year............. 162,810 248,127
--------- ---------
Cash and cash equivalents, end of year................... $ 177,560 $ 162,810
========= =========
Supplemental disclosures:
Interest paid.......................................... $ 45,258 $ 49,059
========= =========
Income taxes paid...................................... $ 6,226 $ 13,302
========= =========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-60
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1997 AND 1996
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1995......... $54,494 $83,673 $ 945,074 $(560,000) $523,241
Net income................... -- -- 57,096 -- 57,096
------- ------- ---------- --------- --------
Balance, June 30, 1996......... 54,494 83,673 1,002,170 (560,000) 580,337
Net income................... -- -- 49,901 -- 49,901
------- ------- ---------- --------- --------
Balance, June 30, 1997......... $54,494 $83,673 $1,052,071 $(560,000) $630,238
======= ======= ========== ========= ========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-61
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sweet Shop Candies, Inc. (the "Company") is incorporated as a Texas
Corporation. The accounting policy relative to the carrying value of property
and equipment is indicated in the caption of the balance sheets. Nature of
operations and other significant accounting policies are as follows:
Nature of Operations
The Company produces and markets handmade chocolate and other types of
candies. Customers consist of retail chains and distributors who operate
within this industry throughout the United States. The Company performs
ongoing credit evaluation of its customers and generally requires no
collateral from them.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, ranging
from three to 10 years.
Maintenance, repairs and minor replacements are charged to income as
incurred; major replacements and betterments are capitalized. The cost of
assets sold or retired and the related accumulated depreciation are removed
from the accounts at the time of disposition, and any resulting gain or loss
is reflected in the statement of income.
Inventories
Inventories are stated at the lower of cost, first-in, first-out, or market.
Prepaid Expenses
The Company capitalizes certain costs associated with the development and
design of packaging materials for products. These costs are amortized over a
period of twenty-four to forty-eight months. As of June 30, 1997 and 1996, the
net amount of these marketing and development costs capitalized was $50,118
and $33,580, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of less than three months
to be cash equivalents.
F-62
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 2. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
trade receivables and notes receivable. At June 30, 1997, cash and cash
equivalents consist of demand deposits and short-term repurchase agreements in
government securities held at a financial institution. Total cash and cash
equivalents held with the bank, at times, may exceed federally insured limits.
The Company has not experienced any losses in such accounts and believes it is
not exposed to any significant credit risk with respect to cash and cash
equivalents.
Concentrations of credit risk with respect to trade receivables is limited
due to the Company's credit granting policies and due to the large number of
customers comprising the Company's customer base.
Credit risk with respect to notes receivable, trade consist of a guaranteed
note with a current customer. The note bears interest at 10% and is due
October 1997.
NOTE 3. INVENTORIES
Inventories at June 30 consist of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Finished goods........................................ $ 84,310 $ 85,299
Work-in-process....................................... 24,200 12,675
Raw materials......................................... 90,826 68,358
Packaging material.................................... 517,066 476,019
-------- --------
Total............................................. $716,402 $642,351
======== ========
NOTE 4. LINE OF CREDIT
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Borrowings under a $500,000 line of credit agreement
bearing interest at the bank's base rate plus 1.0%
(10% at June 30, 1997), due October 1997, secured by
equipment, receivables, and inventory................ $ -- $ 50,000
======== ========
NOTE 5. NOTES PAYABLE
Notes payable at June 30 consist of:
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note payable to shareholder, interest at the greater
of 8.75% or Overton Bank and Trust's prime rate,
retired December 1996................................ $ -- $168,000
Note payable to shareholder, interest payable monthly
at 9%, due December 1997............................. 300,000 --
Note payable to Overton Bank and Trust, payable in
monthly installments of $1,054 including interest at
1.0% above the bank's base rate (10% at June 30,
1997), due April 1997, collateralized by
transportation equipment, retired.................... -- 9,106
-------- --------
$300,000 $177,106
======== ========
</TABLE>
F-63
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 6. LONG-TERM DEBT
Long-term debt at June 30 consists of:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Note payable to shareholder for purchase of treasury
stock, interest at Overton Bank and Trust's base
rate (9% at June 30, 1997), principal payable in
monthly installments of $3,429 through January 1,
2006, collateralized by common stock held by a for-
mer shareholder and treasury stock held by the Com-
pany................................................ $353,140 $394,283
Less current portion................................. 41,142 41,142
-------- --------
$311,998 $353,141
======== ========
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 41,142
1999............................................................. 41,142
2000............................................................. 41,142
2001............................................................. 41,142
2002............................................................. 41,142
Thereafter....................................................... 147,430
--------
$353,140
========
</TABLE>
NOTE 7. ADVERTISING COSTS
The Company produces brochures which are used by customers to place orders.
The costs to produce these brochures are capitalized and expensed over the
estimated response period of twelve months. Other advertising costs are
expensed as incurred. Included in prepaid expenses at June 30, 1997 and 1996
is $34,336 and $33,062, respectively, of unamortized brochure costs. Total
advertising costs included in selling expenses for the years ended June 30,
1997 and 1996 were approximately $48,000 and $37,000, respectively.
NOTE 8. RELATED PARTY TRANSACTIONS
The Company has a contract with a company related through common ownership
to pay annual licensing and royalty fees based on sales volume for the use of
the formulas and trademarks. Licensing fees of $48,000 for each year are
included in cost of sales. Royalty fees of $178,554 and $159,646 are included
in selling expenses for the years ended June 30, 1997 and 1996, respectively.
Included in accrued expenses at June 30, 1997 is $178,554 for unpaid licensing
and royalty fees. Included in interest expense for the years ended June 30,
1997 and 1996 is $46,640 and $54,702, respectively, on notes payable to
shareholder.
Receivables, related parties at June 30, 1997 consist of two noninterest
bearing notes receivable from key employees totaling $21,250 and are payable
June 1998. Remaining balances represent advances to various employees and are
unsecured, noninterest bearing and do not contain scheduled payout provisions.
Included in trade accounts payable at June 30, 1997 and 1996 is $735 and
$16,770, respectively, due to other companies owned by the stockholder. Also
included in trade accounts payable at June 30, 1997 and 1996 is $704 and
$2,931, respectively, due to various employees.
F-64
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
YEARS ENDED JUNE 30, 1997 AND 1996
NOTE 9. OPERATING LEASES
The Company leases its office and warehouse facilities and certain equipment
under operating leases. Effective September 1, 1996, the Company's shareholder
purchased the office and warehouse facilities and entered into a new lease
agreement with the Company. Rent paid to the shareholder during 1997 under the
new lease was $93,750. Total rental expense for the years ended June 30, 1997
and 1996 was $117,893 and $120,037, respectively.
Annual minimum lease payments for the years ended June 30 are as follows:
<TABLE>
<S> <C>
1998............................................................. $112,500
1999............................................................. 112,500
2000............................................................. 9,375
--------
$234,375
========
</TABLE>
NOTE 10. EMPLOYEE PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan under
Internal Revenue Service code Section 401(k). The plan covers substantially
all employees with one year's service. Employer contributions are made at the
discretion of the Board of Directors. Contributions for the years ended June
30, 1997 and 1996 were $14,456 and $12,929, respectively
Administrative costs paid on behalf of the plan for the years ended June 30,
1997 and 1996 were $300 and $2,906, respectively.
NOTE 11. INCOME TAXES
Components of the Company's provision for income tax are as follows:
<TABLE>
<CAPTION>
1997 1996
------- -------
<S> <C> <C>
Current taxes--federal.................................. $27,894 $20,003
Deferred taxes--federal................................. (3,225) (638)
------- -------
$24,669 $19,365
======= =======
</TABLE>
The Company's deferred tax assets and liabilities consisted of the following
at June 30:
<TABLE>
<CAPTION>
1997 1996
-------- --------
<S> <C> <C>
Deferred tax assets..................................... $122,439 $119,214
Deferred tax liabilities................................ -- --
-------- --------
$122,439 $119,214
======== ========
</TABLE>
Deferred income taxes are provided for temporary differences in the basis of
assets and liabilities for financial reporting and income tax purposes.
Basis differences result from different financial accounting and tax methods
used for depreciation, amortization, recognition of bad debts, and inventory
valuation.
F-65
<PAGE>
INDEPENDENT AUDITOR'S REPORT
To the Board of Directors
Sweet Shop Candies, Inc.
Fort Worth, Texas
We have audited the accompanying balance sheets of Sweet Shop Candies, Inc.
as of June 30, 1996 and 1995, and the related statements of income, changes in
shareholder's equity and cash flows for the years then ended. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Sweet Shop Candies, Inc.
as of June 30, 1996 and 1995, and the results of its operations and its cash
flows for the years then ended in conformity with generally accepted
accounting principles.
Weaver and Tidwell, L.L.P.
Fort Worth, Texas
September 5, 1996
F-66
<PAGE>
SWEET SHOP CANDIES, INC.
BALANCE SHEETS
JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
ASSETS ---------- ----------
<S> <C> <C>
Current Assets
Cash and cash equivalents (Note 2)...................... $ 162,810 $248,127
Trade accounts receivable, less allowance for doubtful
accounts of $31,974 and $20,000 in 1996 and 1995,
respectively (Notes 2, 4 and 8)........................ 317,660 340,462
Note receivable, trade (Note 2)......................... 4,476 --
Receivables, related parties (Note 8)................... 59,789 38,750
Income taxes receivable................................. 10,185 52,221
Inventories (Notes 3 and 4)............................. 642,351 468,952
Prepaid expenses (Note 7)............................... 82,784 63,314
Deferred income taxes (Note 11)......................... 29,661 26,501
---------- ----------
Total current assets.................................. 1,309,716 1,238,327
Property and Equipment, at cost (Notes 4 and 5)
Equipment............................................... 811,638 795,565
Property held under capital lease....................... 22,016 22,016
Leasehold improvements.................................. 382,246 363,710
Transportation vehicles................................. 33,413 20,635
Furniture and fixtures.................................. 273,626 247,160
---------- ----------
1,522,939 1,449,086
Less accumulated depreciation........................... 1,311,443 1,235,559
---------- ----------
211,496 213,527
Other Assets
Notes receivable, trade (Note 2)........................ 12,778 23,044
Deposits................................................ 1,522 2,579
Deferred income taxes (Note 11)......................... 89,553 92,075
---------- ----------
103,853 117,698
---------- ----------
Total Assets.......................................... $1,625,065 $1,569,552
========== ==========
<CAPTION>
LIABILITIES AND SHAREHOLDER'S EQUITY
<S> <C> <C>
Current Liabilities
Current portion of long-term debt (Note 6).............. $ 41,142 $ 41,142
Line of credit (Note 4)................................. 50,000 --
Trade accounts payable (Note 8)......................... 197,160 222,544
Accrued expenses (Note 8)............................... 226,179 52,342
Notes payable (Notes 5 and 8)........................... 177,106 336,000
---------- ----------
Total current liabilities............................. 691,587 652,028
Long-Term Debt (Note 6).................................. 353,141 394,283
---------- ----------
Total liabilities..................................... 1,044,728 1,046,311
Shareholder's Equity (Note 6)
Common stock, no par value, 100,000 shares authorized,
82,296 shares issued................................... 54,494 54,494
Additional paid-in capital.............................. 83,673 83,673
Retained earnings....................................... 1,002,170 945,074
---------- ----------
1,140,337 1,083,241
Less common stock held in treasury, at cost 12,606
shares for 1996 and 1995............................... 560,000 560,000
---------- ----------
580,337 523,241
---------- ----------
Total liabilities and shareholder's equity............ $1,625,065 $1,569,552
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-67
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENTS OF INCOME
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
---------- ----------
<S> <C> <C>
Net sales............................................... $4,487,436 $4,836,940
Cost of sales........................................... 2,627,428 2,779,806
---------- ----------
Gross profit........................................ 1,860,008 2,057,134
Operating costs
Selling............................................... 1,059,728 1,074,633
General and administrative............................ 621,075 791,320
Provision for doubtful accounts....................... 49,060 44,802
---------- ----------
Total operating costs............................... 1,729,863 1,910,755
---------- ----------
Income from operations.............................. 130,145 146,379
Other income (expense)
Interest income....................................... 9,219 9,066
Interest expense (Note 8)............................. (62,903) (60,444)
---------- ----------
Income before income taxes.......................... 76,461 95,001
Provision for income taxes (Note 11).................... 19,365 24,030
---------- ----------
Net income.......................................... $ 57,096 $ 70,971
========== ==========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-68
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
1996 1995
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income............................................. $ 57,096 $ 70,971
Adjustments to reconcile net income to net cash
provided by (used in) operating activities;
Depreciation......................................... 75,884 87,978
Loss on sale of equipment............................ -- 19,042
Deferred income taxes................................ (638) 976
Decrease (increase) in receivables................... 7,553 (100,177)
Decrease (increase) in income tax receivable......... 42,036 (52,221)
Decrease (increase) in inventories................... (173,399) 98,447
Decrease (increase) in prepaid expenses.............. (19,470) 13,394
Decrease in deposits................................. 1,057 --
Decrease in accounts payable......................... (25,384) (136,448)
Increase (decrease) in income taxes payable.......... -- (70,568)
Increase (decrease) in accrued liabilities........... 173,837 (4,759)
--------- ---------
Net cash provided by (used in) operating
activities........................................ 138,572 (73,565)
Cash flows from investing activities:
Purchase of property and equipment..................... (73,853) (98,163)
--------- ---------
Net cash used in investing activities.............. (73,853) (98,163)
Cash flows from financing activities:
Proceeds from notes payable and long-term debt......... 523,000 741,000
Repayment of notes payable and long-term debt.......... (673,036) (809,899)
--------- ---------
Net cash used in financing activities.............. (150,036) (68,899)
--------- ---------
Net decrease in cash............................... (85,317) (240,627)
Cash and cash equivalents, beginning of year............. 248,127 488,754
--------- ---------
Cash and cash equivalents, end of year................... $ 162,810 $ 248,127
========= =========
Supplemental disclosures of cash flow information:
Interest paid.......................................... $ 49,059 $ 61,705
Income taxes paid...................................... 13,302 75,212
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-69
<PAGE>
SWEET SHOP CANDIES, INC.
STATEMENTS OF CHANGES IN SHAREHOLDER'S EQUITY
YEARS ENDED JUNE 30, 1996 AND 1995
<TABLE>
<CAPTION>
COMMON PAID-IN RETAINED TREASURY
STOCK CAPITAL EARNINGS STOCK TOTAL
------- ------- ---------- --------- --------
<S> <C> <C> <C> <C> <C>
Balance, June 30, 1994........... $54,494 $83,673 $ 874,103 $(560,000) $452,270
Net income..................... -- -- 70,971 -- 70,971
------- ------- ---------- --------- --------
Balance, June 30, 1995........... 54,494 83,673 945,074 (560,000) 523,241
Net income..................... -- -- 57,096 -- 57,096
------- ------- ---------- --------- --------
Balance, June 30, 1996........... $54,494 $83,673 $1,002,170 $(560,000) $580,337
======= ======= ========== ========= ========
</TABLE>
The Notes to Financial Statements are an integral part of these statements.
F-70
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS
YEARS ENDED JUNE 30, 1996 AND 1995
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Sweet Shop Candies, Inc. (the "Company") is incorporated as a Texas
Corporation. The accounting policy relative to the carrying value of property
and equipment is indicated in the caption of the balance sheets. Nature of
operations and other significant accounting policies are as follows:
Nature of Operations
The Company produces and markets handmade chocolate and other types of
candies. Customers consist of retail chains and distributors who operate
within this industry throughout the United States. The Company performs
ongoing credit evaluation of its customers and generally requires no
collateral from them.
Property and Equipment
Property and equipment is stated at cost. Depreciation is computed using the
straight-line method over the estimated useful lives of the assets, ranging
from 3 to 10 years.
Maintenance, repairs and minor replacements are charged to income as
incurred; major replacements and betterments are capitalized. The cost of
assets sold or retired and the related accumulated depreciation are removed
from the accounts at the time of disposition, and any resulting gain or loss
is reflected in the statement of income.
Inventories
Inventories are stated at the lower of cost, first-in, first-out, or market.
Prepaid Expenses
The Company capitalizes certain costs associated with the development and
design of packaging materials for products. These costs are amortized over a
period of twenty-four to forty-eight months. As of June 30, 1996 and 1995, the
net amount of these marketing and development costs capitalized was $33,580
and $29,646, respectively.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statement and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Financial Instruments
Financial instruments of the Company consist of cash and cash equivalents,
trade accounts receivable, notes receivable, trade accounts receivable, notes
receivable, trade accounts payable, line of credit, notes payable, and long-
term debt. Recorded values of cash and cash equivalents, trade receivables and
payables approximate fair values due to short maturities of the instruments.
The carrying amounts of the Company's notes receivable, line of credit,
notes payable and long-term debt approximate fair values of instruments with
similar risk and maturities.
Cash Flows
For purposes of the statement of cash flows, the Company considers all
highly liquid investments with original maturities of less than three months
to be cash equivalents.
F-71
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
NOTE 2. CONCENTRATIONS OF CREDIT RISK
Financial instruments which potentially subject the Company to
concentrations of credit risk consist principally of cash, cash equivalents,
trade receivables and notes receivable. At June 30, 1996, cash consisted of
demand deposits in financial institutions which participate in the FDIC
insurance program. Cash equivalents consist of short-term repurchase
agreements in government securities maintained in an account with the same
bank. Total cash and cash equivalents held with the bank, at times, may exceed
Federally insured limits. The Company has not experienced any losses in such
accounts and believes it is not exposed to any significant credit risk with
respect to cash and cash equivalents.
Concentrations of credit risk with respect to trade receivables is limited
due to the Company's credit granting policies and due to the large number of
customers comprising the Company's customer base.
Credit risk with respect to notes receivable, trade consist of a guaranteed
note with a current customer. The note bears interest at 10% and is due
October 1997.
NOTE 3. INVENTORIES
Inventories at June 30 consist of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Finished goods.......................................... $ 85,299 $ 45,646
Work-in-process......................................... 12,675 25,464
Raw materials........................................... 68,358 69,740
Packaging material...................................... 476,019 328,102
-------- --------
Total............................................... $642,351 $468,952
======== ========
</TABLE>
NOTE 4. LINE OF CREDIT
<TABLE>
<CAPTION>
1996 1995
------- ----
<S> <C> <C>
Borrowings under a $500,000 line of credit agreement bearing
interest at the bank's base rate plus 1.0% (9.75% at June
30, 1996), due October 1996, secured by equipment,
receivables, and inventory................................. $50,000 --
======= ===
</TABLE>
NOTE 5. NOTES PAYABLE
Notes payable at June 30 consist of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to shareholder, interest at the greater of
8.75% or Overton Bank & Trust's prime rate, payable
monthly (beginning June 28, 1996), matures in December
1996.................................................. $168,000 $282,000
Note payable to Overton Bank and Trust, payable in
monthly installments of $1,054 including interest at
1.0% above the bank's base rate (9.75% at June 30,
1996), due April 1997, collateralized by
transportation equipment.............................. 9,106 --
Note payable to entity related through ownership,
interest at the greater of 9.5% or Overton Bank &
Trust's prime rate, retired February 1996 (Note 8).... -- 54,000
-------- --------
$177,106 $336,000
======== ========
</TABLE>
F-72
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
YEARS ENDED JUNE 30, 1996 AND 1995
NOTE 6. LONG-TERM DEBT
Long-term debt at June 30 consists of:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Note payable to shareholder for purchase of treasury
stock, interest at Overton Bank and Trust's base
rate (8.75% at June 30, 1996), principal payable in
monthly installments of $3,429 through January 1,
2006, collateralized by common stock held by a
former shareholder and treasury stock held by the
Company............................................. $394,283 $435,425
Less current portion................................. 41,142 41,142
-------- --------
$353,141 $394,283
======== ========
</TABLE>
Annual maturities of long-term debt are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 41,142
1998............................................................. 41,142
1999............................................................. 41,142
2000............................................................. 41,142
2001............................................................. 41,142
Thereafter....................................................... 188,573
--------
$394,283
========
</TABLE>
NOTE 7. ADVERTISING COSTS
The Company produces brochures which are used by customers to place orders.
The costs to produce these brochures are capitalized and expensed over the
estimated response period of twelve months. Other advertising costs are
expensed as incurred. Included in prepaid expenses at June 30, 1996 and 1995
is $33,062 and $20,312 respectively, of unamortized brochure costs. Total
advertising costs included in selling expenses for the years ended June 30,
1996 and 1995 were $37,369 and $20,434, respectively.
NOTE 8. RELATED PARTY TRANSACTIONS
The Company has a contract with a company related through common ownership
to pay annual licensing and royalty fees based on sales volume for the use of
the formulas and trademarks. Licensing fees of $48,000 for each year are
included in cost of sales and royalty fees of $159,646 and $166,663 are
included in selling expenses for the years ended June 30, 1996 and 1995,
respectively. Included in accrued expenses at June 30, 1996 is $159,696 for
unpaid licensing and royalty fees. Included in interest expense for the years
ended June 30, 1996 and 1995 is $54,702 and $44,921, respectively, on notes
payable to shareholders and an affiliate company.
Receivables, related parties consist of two notes receivable from key
employees of $23,688 at June 30, 1996 bearing interest at 9.25% payable
December 1996. Remaining balances represent advances to various employees and
are unsecured, non interest bearing and do not contain scheduled payout
provisions.
Included in trade accounts payable at June 30, 1996 and 1995 is $16,770 and
$-0- respectively, due to other companies owned by the stockholder. Also,
included in trade accounts payable at June 30, 1996 and 1995 is $2,931 and $-
0-, due to various employees.
F-73
<PAGE>
SWEET SHOP CANDIES, INC.
NOTES TO FINANCIAL STATEMENTS--(CONCLUDED)
YEARS ENDED JUNE 30, 1996 AND 1995
NOTE 9. OPERATING LEASES
The Company leases its office and warehouse facilities and certain equipment
under operating leases. Rental expense for the years ended June 30, 1996 and
1995 was $120,037 and $135,781, respectively.
Subsequent to year end, the Company's shareholder purchased the leased
office and warehouse facilities. Effective September 1, 1996, the Company
entered into a new lease agreement with the shareholder. Annual lease payments
for the years ended June 30 are as follows:
<TABLE>
<S> <C>
1997............................................................. $ 93,750
1998............................................................. 112,500
1999............................................................. 112,500
2000............................................................. 9,375
--------
$328,125
========
</TABLE>
NOTE 10. EMPLOYEE PROFIT SHARING PLAN
The Company maintains a defined contribution profit sharing plan under
Internal Revenue Service Code Section 401(k). The plan covers substantially
all employees with one year's service. Employer contributions are made at the
discretion of the Board of Directors. Contributions for the years ended June
30, 1996 and 1995 were $12,929 and $17,764, respectively.
Administrative costs paid on behalf of the plan for the years ended June 30,
1996 and 1995 were $2,906 and $-0-, respectively.
NOTE 11. INCOME TAXES
Components of the Company's provision for income tax are as follows:
<TABLE>
<CAPTION>
1996 1995
------- -------
<S> <C> <C>
Current taxes--federal.................................. $20,003 $23,054
Deferred taxes--federal................................. (638) 976
------- -------
$19,365 $24,030
======= =======
</TABLE>
The Company's deferred tax assets and liabilities consisted of the following
at June 30:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Deferred tax assets..................................... $119,214 $118,576
Deferred tax liability.................................. -- --
-------- --------
$119,214 $118,576
======== ========
</TABLE>
Deferred income taxes are provided for temporary differences in the basis of
assets and liabilities for financial reporting and income tax purposes.
Basis differences result from different financial accounting and tax methods
used for depreciation, amortization, recognition of bad debts, and inventory
valuation.
F-74
<PAGE>
[The inside back cover of the Prospectus contains photographs of certain of
the Company's gourmet confections and premium appetizers including MRS.
PRINDABLE'S gourmet apples, AMERICAN CARAMEL COMPANY assorted caramel treats,
and SWEET SHOP chocolate and truffles in holiday gift packaging.]
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO PERSON, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE
OFFERING OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN
AUTHORIZED BY THE COMPANY OR THE UNDERWRITERS. THIS PROSPECTUS DOES NOT
CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF ANY OFFER TO BUY ANY
SECURITIES OTHER THAN THE SHARES OF COMMON STOCK TO WHICH IT RELATES OR AN
OFFER TO, OR A SOLICITATION OF, ANY PERSON IN ANY JURISDICTION WHERE SUCH AN
OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
AN IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY OR
THAT INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 3
Risk Factors.............................................................. 9
Company History and Acquisitions.......................................... 14
Use of Proceeds........................................................... 17
Proposed Credit Facility.................................................. 18
Dividend Policy........................................................... 18
Capitalization............................................................ 19
Dilution.................................................................. 20
Selected Consolidated Financial Data...................................... 21
Unaudited Pro Forma Condensed Consolidated Financial Information.......... 23
Notes to Unaudited Pro Forma Statements of Operations..................... 28
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 30
Business.................................................................. 37
Management................................................................ 50
Certain Relationships and Related Transactions............................ 58
Security Ownership of Certain Beneficial Owners and Management; Selling
Stockholders............................................................. 59
Description of Capital Stock.............................................. 60
Shares Eligible for Future Sale........................................... 62
Underwriting.............................................................. 64
Legal Matters............................................................. 65
Experts................................................................... 65
Change in Independent Accountants......................................... 66
Additional Information.................................................... 67
Index to Financial Statements............................................. F-1
</TABLE>
----------------
UNTIL , 1998 (25 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEALERS
EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES OFFERED HEREBY, WHETHER OR
NOT PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A
PROSPECTUS. THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A
PROSPECTUS WHEN ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD
ALLOTMENTS OR SUBSCRIPTIONS.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Shares
LOGO
Common Stock
----------------
PROSPECTUS
----------------
BT ALEXl BROWN
BANCAMERICA ROBERTSON STEPHENS
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN THE PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
Set forth below is an estimate of the approximate amount of fees and
expenses (other than underwriting commissions and discounts) payable by the
Registrant in connection with the issuance and distribution of the Common
Stock pursuant to the Prospectus contained in this Registration Statement. The
Registrant will pay all of these expenses.
<TABLE>
<CAPTION>
APPROXIMATE
AMOUNT
-----------
<S> <C>
Securities and Exchange Commission registration fee........... $17,700
NASD filing fee............................................... 6,500
New York Stock Exchange application fee....................... *
Accountants' fees and expenses................................ *
Blue Sky fees and expenses.................................... *
Legal fees and expenses....................................... *
Transfer Agent and Registrar fees and expenses................ *
Printing and engraving........................................ *
Miscellaneous expenses........................................ *
-------
Total..................................................... $ *
=======
</TABLE>
- --------
* To be provided by amendment
All expenses other than the Securities and Exchange Commission registration
fee and NASD filing fee are estimated.
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Article VIII of the Registrant's Certificate of Incorporation will provide
that the Registrant shall indemnify its directors to the full extent permitted
by the General Corporation Law of the State of Delaware and may indemnify its
officers and employees to such extent, except that the Registrant shall not be
obligated to indemnify any such person (i) with respect to proceedings, claims
or actions initiated or brought voluntarily by any such person and not by way
of defense, or (ii) for any amounts paid in settlement of an action
indemnified against by the Registrant without the prior written consent of the
Registrant. Prior to consummation of the Offering, the Registrant will enter
into indemnity agreements with each of its directors. These agreements may
require the Registrant, among other things, to indemnify such directors
against certain liabilities that may arise by reason of their status or
service as directors, to advance expenses to them as they are incurred,
provided that they undertake to repay the amount advanced if it is ultimately
determined by a court that they are not entitled to indemnification, and to
obtain directors' liability insurance if available on reasonable terms.
In addition, Article VIII of the Registrant's Amended and Restated
Certificate of Incorporation will also provide that a director of the
Registrant shall not be personally liable to the Registrant or its
stockholders for monetary damages for breach of his or her fiduciary duty as a
director, except for liability (i) for any breach of the director's duty of
loyalty to the Registrant or its stockholders, (ii) for acts or omissions not
in good faith or which involve intentional misconduct or a knowing violation
of law, (iii) for willful or negligent conduct in paying dividends or
repurchasing stock out of other than lawfully available funds or (iv) for any
transaction from which the director derives an improper personal benefit.
Reference is made to Section 145 of the General Corporation Law of the State
of Delaware which provides for indemnification of directors and officers in
certain circumstances.
II-1
<PAGE>
Prior to the effective date of the Offering, the Registrant intends to
purchase a directors' and officers' liability insurance policy.
Under the terms of the Underwriting Agreement, the Underwriters have agreed
to indemnify, under certain conditions, the Registrant, its directors, certain
of its officers and persons who control the Company within the meaning of the
Securities Act of 1933, as amended (the "Securities Act"), against certain
liabilities.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
The following information reflects a 1,000 for 1 split of Diversified Food
Group, L.L.C.'s (the "Limited Liability Company") membership interests as of
January 1, 1998. It does not reflect the transactions to be affected
immediately prior to the consummation of the Offering described in the
Prospectus under the heading "Company History and Acquisitions--The
Conversion." No underwriters were involved in any of the transactions
described below. All of the securities issued in the foregoing transactions
are membership interests ("Membership Interests") in the Limited Liability
Company and were issued by the Limited Liability Company in reliance upon the
exemption of registration provided by Regulation 701 and Section 4(2) of the
Securities Act of 1933, as amended, including Regulation D promulgated
thereunder.
1. On March 25, 1996 the Limited Liability Company was formed with
contributions totalling $775,000 from Lawrence Gould ("Gould") and Andrew Zahn
("Zahn"). The Limited Liability Company issued a total of 1,000,000 Membership
Interests in this transaction.
2. As of December 30, 1996, Lowell Kraff ("Kraff") contributed $198,000 to
the Limited Liability Company for 142,850 Membership Interests. In addition,
effective as of such date, Dennis Kessler contributed $7,920 (in addition
$31,680 was paid in 1998 and another $7,920 in the quarter ended April 3,
1998) for 6,000 Membership Interests.
3. Effective as of January 4, 1997, the Limited Liability Company issued:
(i) 5,740 Membership Interests to Katten Muchin & Zavis for $100; (ii) 5,740
Membership Interests to Primus Capital Fund III Limited Partnership for $100;
and (iii) 5,760 Membership Interests to Walter F. McLallen, IV for $5,700.
4. On October 7, 1997, the Limited Liability Company issued: (i) 72,810
Membership Interests to the Charles Mok Trust dated 2/14/89 in exchange for
250 shares of Restauranic, Inc. and a promissory note from Restauranic, Inc.;
(ii) 72,810 Membership Interests to the Wiley-Mok Trust dated 3/9/89 for 250
shares of Restauranic, Inc. and a promissory note from Restauranic, Inc.;
(iii) 31,000 Membership Interests to Gail Robinson in return for her 5%
ownership interest in Classic Confectionery, L.L.C. and all other rights she
had as a member thereof; (iv) 24,190 Membership Interests to Corey Rogin in
return for her 5% ownership interest in Classic Confectionery, L.L.C. and all
other rights she had as a member thereof; and (v) 24,190 Membership Interests
to Michelle Robinson in return for her 5% ownership interest in Classic
Confectionery, L.L.C. and all other rights she had as a member thereof.
5. As of October 15, 1997, the Limited Liability Company issued a note to
Cohen's Famous Frozen Foods, Inc. in the amount of $1,218,280 convertible into
38,300 Membership Interests upon an initial public offering of the Limited
Liability Company or a successor entity thereto in connection with the
acquisition of all the assets of Cohen's Famous Frozen Foods, Inc. In
addition, in connection with such acquisition and pursuant to employments
agreements dated as of October 15, 1997, the Limited Liability Company issued
options to acquire Membership Interests to: (i) Sid Cohen with the right to
purchase 11,930 Membership Interests at an exercise price of $47; (ii) Edward
Cohen with the right to purchase 11,930 Membership Interests at an exercise
price of $47; and (iii) Neil Cohen with the right to purchase 39,760
Membership Interests at an exercise price of $47.
6. On October 23, 1997, in connection with certain financing, the Limited
Liability Company issued the following warrants to buy Membership Interests:
II-2
<PAGE>
(i) Purchase Warrant in favor of Madeleine L.L.C. to purchase 142,040
Membership Interests at an exercise price of $7.04 per Interest;
(ii) Purchase Warrant in favor of Madeleine L.L.C. to purchase 23,670
Membership Interests at an exercise price of $7.04 per Interest; and
(iii) Purchase Warrants in favor of Canadian Imperial Bank of Commerce to
purchase 48,460 Membership Interests at an exercise price of $32 per
Interest.
7. On February 27, 1998, the Limited Liability Company issued a warrant in
favor of Madeleine L.L.C. to purchase 164,587.25 Membership Interests at an
exercise price of $7.04 per Membership Interest.
8. On March 5, 1998, the Limited Liability Company issued 38,617 Membership
Interests to James Webb as part of the purchase of 100% of the stock of Sweet
Shop Candies, Inc. from Mr. Webb. The Limited Liability Company valued the
Membership Interests issued to Webb at $1,815,000.
9. The Limited Liability Company issued options to the following employees
to acquire the following number of Membership Interests: (i) on March 15,
1997, to Trevor Toppen, to acquire 26,318 Membership Interests at an exercise
price of $21.57 per Interest; (ii) on January 4, 1998, to Philip Gay to
acquire 98,765 Membership Interests at an exercise price of $47 per Interest;
(iii) on March 15, 1998 to Phillip Sexauer, to acquire 10,000 Membership
Interests at an exercise price of $47 per Interest; (iv) on February 3, 1998
to Michael Ricciardi, to acquire 26,318 Membership Interests at an exercise
price of $47 per Interest; and (v) on March 5, 1998, to Paul Anderson, to
acquire 4,000 Membership Interests at an exercise price of $47 per Interest.
No underwriters were involved in any of the transactions described above.
All of the securities issued in the foregoing transactions were issued by the
Registrant in reliance upon the exemption from registration available under
Section 4(2) of the Securities Act, including Regulation D promulgated
thereunder.
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) EXHIBITS.
<TABLE>
<C> <S> <C>
1* Form of
Underwriting
Agreement.
3.1 Form of
Certificate of
Incorporation
of the
Registrant.
3.2 Form of By-
laws of the
Registrant.
4.1* Specimen stock
certificate
representing
Common Stock.
5* Opinion of
Katten Muchin
& Zavis as to
the legality
of the
securities
being
registered
(including
consent).
10.1 Asset Purchase
Agreement
dated as of
October 9,
1997 among the
Registrant,
Cohen's Famous
Frozen Foods,
Inc., Sydney
Cohen and
Edward Cohen.
10.2 Stock Purchase
Agreement
dated February
23, 1998
between the
Registrant,
Sweet Shop
Candies, Inc.
and James H.
Webb.
10.3 Form of
Indemnification
Agreement
10.4 1998 Employee
Stock Option
Plan
10.5 Non-Employee
Director Stock
Option Plan
10.6 Credit
Agreement
dated as of
October 16,
1997 among the
Registrant, as
borrower, the
several
lenders, as
named therein
and Canadian
Imperial Bank
of Commerce as
agent.
10.7 Term Loan
Agreement
dated as of
October 23,
1997 by and
among the
Registrant and
Madeleine
L.L.C., as
amended.
10.8 Registration
Rights
Agreement
dated as of
October 23,
1997, between
the Registrant
and Madeleine
L.L.C.
</TABLE>
II-3
<PAGE>
<TABLE>
<C> <S> <C>
10.9 Ownership Interest Purchase Warrant dated as of October
23, 1997 between the Registrant and Madeleine L.L.C.
10.10 Ownership Interest Purchase Warrant dated as of October
23, 1997 between the Registrant and Madeleine L.L.C.
10.11 Ownership Interest Purchase Warrant dated as of February
27, 1998 between the Registrant and Madeleine L.L.C.
16* Letter re change in certifying accountants.
21 Subsidiaries of the Registrant
23.1 Consent of BDO Seidman, LLP with respect to financial
statements of the Registrant.
23.2 Consent of BDO Seidman, LLP with respect to financial
statements of Cohen.
23.3 Consent of Fishman Ostroff Ruchowitz Hausman with
respect to financial statements of Cohen.
23.4 Consent of Weaver and Tidwell, LLP with respect to
financial statements of Sweet Shop.
23.5 Consent of Altschuler, Melvoin and Glasser LLP with
respect to financial statements of Restauranic and the
Registrant.
23.6 Consent of Katten Muchin & Zavis (contained in its
opinion to be filed as Exhibit 5 hereto).
24 Power of Attorney (included on signature page hereto).
27 Financial Data Schedule
</TABLE>
- --------
* To be filed by amendment.
ITEM 17. UNDERTAKINGS
The Registrant hereby undertakes:
(1) To provide to the Underwriters at the closing specified in the
underwriting agreement, certificates in such denominations and registered
in such names as required by the Underwriters to permit prompt delivery to
each purchaser.
(2) Insofar as indemnification for liabilities arising under the
Securities Act may be permitted to directors, officers and controlling
persons of the Registrant pursuant to the foregoing provisions, or
otherwise, the Registrant has been advised that, in the opinion of the
Securities and Exchange Commission, such indemnification is against public
policy as expressed in the Securities Act and is, therefore, unenforceable.
In the event that a claim for indemnification against such liabilities
(other than the payment by the Registrant of expenses incurred or paid by a
director, officer or controlling person of the Registrant in the successful
defense of any action, suit or proceeding) is asserted by such director,
officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
(3) For purposes of determining any liability under the Securities Act,
(i) the information omitted from the form of prospectus filed as part of
this Registration Statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective and (ii)
each post-effective amendment that contains a form of prospectus shall be
deemed to be a new registration statement relating to the securities
offered therein, and the offering of such securities at that time shall be
deemed to be the initial bona fide offering thereof.
II-4
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
HAS DULY CAUSED THIS REGISTRATION STATEMENT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED, THEREUNTO DULY AUTHORIZED, IN THE CITY OF CHICAGO, AND STATE OF
ILLINOIS ON THE 12TH DAY OF JUNE, 1998.
Diversified Food Group, Inc.
/s/ Andrew J. Zahn
By: _________________________________
Andrew J. Zahn
Chief Executive Officer
POWER OF ATTORNEY
Each person whose signature appears below hereby constitutes and appoints
Andrew J. Zahn, Lawrence R. Gould and Philip Gay, and each of them, his true
and lawful attorneys-in-fact and agents, with full power of substitution, to
sign on his behalf, individually and in each capacity stated below, all
amendments and post-effective amendments to this Registration Statement on
Form S-1 (including any registration statement filed pursuant to Rule 462(b)
under the Securities Act of 1933, and all amendments thereto) and to file the
same, with all exhibits thereto and any other documents in connection
therewith, with the Securities and Exchange Commission under the Securities
Act of 1933, granting unto said attorneys-in-fact and agents full power and
authority to do and perform each and every act and thing requisite and
necessary to be done in and about the premises, as fully and to all intents
and purposes as each might or could do in person, hereby ratifying and
confirming each act that said attorneys-in-fact and agents may lawfully do or
cause to be done by virtue thereof.
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS IN THE
CAPACITIES INDICATED ON JUNE 12, 1998.
<TABLE>
<CAPTION>
SIGNATURE TITLE
--------- -----
<S> <C>
/s/ Andrew J. Zahn Chief Executive Officer (Principal
___________________________________________ Executive Officer) and Chairman of the
Andrew J. Zahn Board of Directors
/s/ Philip J. Sexauer Chief Financial Officer (Principal
___________________________________________ Financial and Accounting Officer)
Philip J. Sexauer
/s/ Lawrence R. Gould Director
___________________________________________
Lawrence R. Gould
</TABLE>
II-5
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C. AND SUBSIDIARIES
S-X SCHEDULE
<TABLE>
<CAPTION>
BALANCE BALANCE
AT ADDITIONS AT END
BEGINNING CHARGED TO TO/(DEDUCTIONS) OF
OF PERIOD OPERATIONS FROM RESERVES PERIOD
--------- ---------- --------------- --------
<S> <C> <C> <C> <C>
Allowance for uncollectible
accounts
Period ended January 3, 1997.. $ -- $ 67,000 $ -- $ 67,000
======== ======== ====== ========
Year ended January 2, 1998.... $ 67,000 $282,000 $ -- $349,000
======== ======== ====== ========
Inventory reserve
Period ended January 3, 1997.. $ -- $180,000 $ -- $180,000
======== ======== ====== ========
Year ended January 2, 1998.... $180,000 $310,221 $ -- $490,221
======== ======== ====== ========
</TABLE>
S-1
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS ON SCHEDULE
Diversified Food Group, L.L.C.
Lincolnwood, Illinois
The audit referred to in our report to Diversified Food Group, L.L.C., dated
April 17, 1998 which is contained in the Prospectus constituting part of this
Registration Statement included the audit of the schedule listed under Item
16(b) for the year ended January 2, 1998. This financial statement schedule is
the responsibility of the Company's management. Our responsibility is to
express an opinion on this financial statement schedule based upon our audit.
In our opinion, such schedule presents fairly, in all material respects, the
information set forth therein.
BDO Seidman, LLP
Chicago, Illinois
April 17, 1998
S-2
<PAGE>
REPORT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
To the Members of Diversified Food Group, L.L.C.
In connection with our audit of the consolidated financial statements of
Diversified Food Group, L.L.C. referred to in our audit report, dated May 2,
1997, which is included in this Form S-1, we have also audited the schedule
listed under Item 16(b) for the year ended January 3, 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
Chicago, Illiniois
May 2, 1997
S-3
<PAGE>
EXHIBIT 3.1
CERTIFICATE OF INCORPORATION
OF
DIVERSIFIED FOOD GROUP, INC.
Diversified Food Group, Inc. (the "Corporation"), a corporation organized
and existing under and by virtue of the General Corporation Law of the State of
Delaware (the "DGCL"), does hereby certify:
A. That the Board of Directors of the Corporation adopted a resolution
setting forth the Certificate of Incorporation set forth below, declaring it
advisable and submitting it to the stockholders entitled to vote in respect
thereof for their consideration of such Certificate of Incorporation.
B. That by written consent executed in accordance with Section 228 of the
DGCL, the holders of a majority of the outstanding stock has voted in favor of
the adoption of the Certificate of Incorporation set forth below.
C. That the Certificate of Incorporation set forth below has been duly
adopted in accordance with Sections 242 and 245 of the DGCL:
ARTICLE I
The name of the corporation is Diversified Food Group, Inc.
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Corporation Trust Center, Wilmington, County of New
Castle, Delaware 19801. The name of its registered agent at such address is The
Corporation Trust Company.
ARTICLE III
The nature of the business to be conducted or promoted is to engage in any
lawful act or activity for which corporations may be organized under the DGCL.
<PAGE>
ARTICLE IV
A. The Corporation shall have authority to issue the following
classes of stock, in the number of shares and at the par value as indicated
opposite the name of the class:
<TABLE>
<CAPTION>
NUMBER OF
SHARES PAR VALUE
CLASS AUTHORIZED PER SHARE
- --------------------------------------- ---------- ---------
<S> <C> <C>
Common Stock (the"Common Stock") 50,000,000 $.001
Preferred Stock (the "Preferred Stock") 1,000,000 $.001
</TABLE>
B. The designations and the powers, preferences and relative,
participating, optional or other rights of the Common Stock and the Preferred
Stock, in general, and the qualifications, limitations or restrictions thereof
are as follows:
1. Common Stock.
------------
a. Voting Rights: Except as otherwise required by law or
expressly provided herein, the holders of shares of Common Stock shall
be entitled to one vote per share on each matter submitted to a vote
of the stockholders of the Corporation.
b. Dividends: Subject to the rights of the holders, if any, of
Preferred Stock, the holders of Common Stock shall be entitled to
receive cash dividends as, when and if declared, and at such times and
in such amounts as may be determined, by the Board of Directors of the
Corporation.
c. Liquidation Rights: In the event of any liquidation,
dissolution or winding up of the Corporation, whether voluntary or
involuntary, after payment or provision for payment of the debts and
other liabilities of the Corporation and the preferential amounts to
which the holders of any outstanding shares of Preferred Stock shall
be entitled upon dissolution, liquidation or winding up, the assets of
the Corporation available for distribution to stockholders shall be
distributed ratably among the holders of the shares of Common Stock.
2. Preferred Stock.
---------------
Preferred Stock may be issued from time to time in one or more
series. Subject to the other provisions of this Certificate of
Incorporation and any limitations prescribed by law, the Board of Directors
is authorized to provide for the issuance of and to issue shares of the
Preferred Stock in one or more series, and by filing a certificate pursuant
to the laws of the State of Delaware, to establish from time to time the
number of shares to be included in each such series, and to fix the
designation, powers,
-2-
<PAGE>
preferences and rights of the shares of each such series and any
qualifications, limitations or restrictions thereof. The number of
authorized shares of Preferred Stock may be increased or decreased (but not
below the number of shares thereof then outstanding) by the affirmative
vote of the holders of a majority of the Common Stock, without a vote of
the holders of any Preferred Stock, or of any series thereof, unless a vote
of any such holders is required pursuant to the certificate or certificates
establishing such series of Preferred Stock.
ARTICLE V
The name and mailing address of the incorporator is:
David J. Kaufman
Katten Muchin & Zavis
525 West Monroe Street
Suite 1600
Chicago, Illinois 60661-3693
ARTICLE VI
The business and affairs of the Corporation shall be managed by or under
the direction of a board of directors consisting of not less than one (1) nor
more than nine (9) directors. The number of directors shall be determined from
time to time by resolution adopted by the affirmative vote of a majority of the
directors in office at the time of adoption of such resolution. Initially, the
number of directors shall be two (2) and shall consist of the following persons:
Andrew J. Zahn and Lawrence R. Gould.
Such directors shall be divided into three classes, Class I, Class II and
Class III; with Class I having one member, Class II having one member and Class
III having no members. Class I shall initially consist of the following
director: Andrew J. Zahn. Class II shall initially consist of the following
director: Lawrence R. Gould. Class III shall initially consist of persons to be
named at a later date. The initial term of office of the Class I, Class II and
Class III directors shall expire at the annual meeting of stockholders in 1999,
2000, and 2001, respectively. Beginning in 1999, at each annual meeting of
stockholders, successors to the class of directors whose term expires at that
annual meeting shall be elected for a three-year term. If the number of
directors is changed, any increase or decrease shall be apportioned among the
classes by the Board of Directors so as to maintain the number of directors in
each class as nearly equal as is reasonably possible, and any additional
director of any class elected to fill a vacancy resulting from an increase in
such class shall hold office for a term that shall coincide with the remaining
term of that class. In no case will a decrease in the number of directors
shorten the term of any incumbent director even though such decrease may result
in an inequality of the classes until the expiration of such term. A director
shall hold office until the
-3-
<PAGE>
annual meeting of stockholders in the year in which his or her term expires and
until his or her successor shall be elected and shall qualify, subject, however,
to such director's prior death, resignation, retirement or removal from office.
Directors may only be removed for cause, except as otherwise provided by law, by
the holders of at least sixty-six and two-thirds percent (66 2/3%) of the shares
entitled to vote at an election of directors. Except as required by law or the
provisions of this Certificate of Incorporation, all vacancies on the Board of
Directors and newly-created directorships shall be filled by the Board of
Directors. Any director elected to fill a vacancy not resulting from an
increase in the number of directors shall have the same remaining term as that
of his or her predecessor.
Notwithstanding the foregoing, whenever the holders of any one or more
classes or series of Preferred Stock issued by the Corporation shall have the
right, voting separately by class or series, to elect directors at an annual or
special meeting of stockholders, the election, term of office, filling of
vacancies and other features of such directorships shall be governed by the
terms of this Certificate of Incorporation and any resolutions of the Board of
Directors applicable thereto, and such directors so elected shall not be divided
into classes pursuant to this Article VI. Notwithstanding anything to the
contrary contained in this Certificate of Incorporation, the affirmative vote of
the holders of at least eighty percent (80%) of the voting power of the shares
entitled to vote generally in the election of directors shall be required to
amend, alter or repeal, or to adopt any provision inconsistent with, this
Article VI.
ARTICLE VII
The Board of Directors of the Corporation may adopt a resolution proposing
to amend, alter, change or repeal any provision contained in this Certificate of
Incorporation, in the manner now or hereafter prescribed by statute.
ARTICLE VIII
C. Indemnification of Officers and Directors: The Corporation shall:
1. indemnify, to the fullest extent permitted by the DGCL, any
director and any officer, employee or agent of the Corporation selected by
the Board of Directors for indemnification, such selection to be evidenced
by an indemnification agreement, 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 (other
than an action by or in the right of the Corporation) by reason of the fact
that such person is or was a director, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, or if
such person has previously been designated for indemnification by a
resolution of the Board of Directors, an officer, employee or agent of the
Corporation, against expenses (including attorneys' fees), judgments, fines
-4-
<PAGE>
and amounts paid in settlement actually and reasonably incurred by such
person in connection with such action, suit or proceeding if such person
acted in good faith and in a manner such person reasonably believed to be
in, or not opposed to, the best interests of the Corporation, and, with
respect to any criminal action or proceeding, had no reasonable cause to
believe such person's conduct was unlawful. The termination of any action,
suit or proceeding by judgment, order, settlement, conviction, or upon a
plea of nolo contendere or its equivalent, shall not, of itself, create a
presumption that the person did not act in good faith and in a manner which
such person reasonably believed to be in, or not opposed to, the best
interests of the Corporation, and, with respect to any criminal action or
proceeding, had reasonable cause to believe that such person's conduct was
unlawful; and
2. indemnify any director and any officer, employee or agent of the
Corporation selected by the Board of Directors for indemnification, such
selection to be evidenced by an indemnification agreement, who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action or suit by or in the right of the Corporation to procure a
judgment in its favor by reason of the fact that such person is or was a
director, or is or was serving at the request of the Corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, or if such person has previously
been designated for indemnification by a resolution of the Board of
Directors, an officer, employee or agent of the Corporation, against
expenses (including attorneys' fees) actually and reasonably incurred by
him in connection with the defense or settlement of such action or suit if
such person acted in good faith and in a manner such person reasonably
believed to be in or not opposed to the best interests of the Corporation
and except that no indemnification shall be made in respect of any claim,
issue or matter as to which such person shall have been adjudged to be
liable to the Corporation unless and only to the extent that the Court of
Chancery or the court in which such action or suit was brought shall
determine upon application that, despite the adjudication of liability but
in view of all the circumstances of the case, such person is fairly and
reasonably entitled to indemnity for such expenses which the Court of
Chancery or such other court shall deem proper; and
3. indemnify any director, officer, employee or agent against
expenses (including attorneys' fees) actually and reasonably incurred by
such person in connection therewith, to the extent that such director,
officer, employee or agent of the Corporation has been successful on the
merits or otherwise in defense of any action, suit or proceeding referred
to in Article VIII.A.1. and 2., or in defense of any claim, issue or matter
therein; and
4. make any indemnification under Article VIII.A.1. and 2. (unless
ordered by a court) only as authorized in the specific case upon a
determination that indemnification of the director, officer, employee or
agent is proper in the circumstances because such director, officer,
employee or agent has met the applicable standard of
-5-
<PAGE>
conduct set forth in Article VIII.A.1. and 2. Such determination shall be
made, with respect to a person who is an officer or director at the time of
such determination, (1) by the Board of Directors by a majority vote of the
directors who are not parties to such action, suit or proceeding, even if
less than a quorum, or (2) by a committee of such directors designated by a
majority vote of such directors, even if less than a quorum, or (3) if
there are no such directors, or if such directors so direct, by independent
legal counsel in a written opinion, or (4) by the stockholders of the
Corporation; and
5. pay expenses incurred by a director or officer in defending a
civil or criminal action, suit or proceeding in advance of the final
disposition of such action, suit or proceeding upon receipt of an
undertaking by or on behalf of such director or officer to repay such
amount if it shall ultimately be determined that such director or officer
is not entitled to be indemnified by the Corporation as authorized in this
Article VIII.
Notwithstanding anything to the contrary in this Article VIII.A, (i)
the Corporation shall not be obligated to pay expenses incurred by a
director or officer with respect to any threatened, pending, or completed
claims, suits or actions, whether civil, criminal, administrative,
investigative or otherwise ("Proceedings"), initiated or brought
voluntarily by such director or officer and not by way of defense (other
than Proceedings brought to establish or enforce a right to indemnification
under the provisions of this Article VIII, unless a court of competent
jurisdiction determines that each of the material assertions made by such
director or officer in such Proceedings were not made in good faith or were
frivolous) and (ii) the Corporation shall not be obligated to indemnify
such director or officer for any amount paid in settlement of a Proceeding
covered hereby without the prior written consent of the Corporation to such
settlement; and
6. not deem the indemnification and advancement of expenses provided
by, or granted pursuant to, the other subsections of this Article VIII as
exclusive of any other rights to which those seeking indemnification or
advancement of expenses may be entitled under any By-law, agreement, or
vote of stockholders or disinterested directors, or otherwise, both as to
action in such director's or officer's official capacity and as to action
in another capacity while holding such office; and
7. have the right, authority and power to purchase and maintain
insurance on behalf of any person who is or was a director, officer,
employee or agent of the Corporation, or is or was serving at the request
of the Corporation as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise against
any liability asserted against such person and incurred by such person in
any such capacity, or arising out of such person's status as such, whether
or not the Corporation would have the power to indemnify such person
against such liability under the provisions of this Article VIII; and
8. deem the provisions of this Article VIII to be a contract between
the Corporation and each director, or appropriately designated officer,
employee or agent
-6-
<PAGE>
who serves in such capacity at any time while this Article VIII is in
effect and any repeal or modification of this Article VIII shall not affect
any rights or obligations then existing with respect to any state of facts
then or theretofore existing or any action, suit or proceeding theretofore
or thereafter brought or threatened based in whole or in part upon such
state of facts. The provisions of this Article VIII shall not be deemed to
be a contract between the Corporation and any directors, officers,
employees or agents of any other corporation (the "Second Corporation")
which shall merge into or consolidate with the Corporation when the
Corporation shall be the surviving or resulting Corporation, and any such
directors, officers, employees or agents of the Second Corporation shall be
indemnified to the extent required under the DGCL only at the discretion of
the board of directors of the Corporation; and
9. continue the indemnification and advancement of expenses provided
by, or granted pursuant to, this Article VIII, unless otherwise provided
when authorized or ratified, as to a person who has ceased to be a
director, officer, employee or agent of the Corporation, and the
indemnification and advancement of expenses provided by, or granted
pursuant to, this Article VIII shall inure to the benefit of the heirs,
executors and administrators of such a person.
D. Elimination of Certain Liability of Directors: No director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director, except for
liability (i) for any breach of the director's duty of loyalty to the
Corporation or its stockholders, (ii) for acts or omissions not in good faith or
which involve intentional misconduct or a knowing violation of law, (iii) under
Section 174 of the DGCL, as the same exists or hereafter may be amended, or (iv)
for any transaction from which the director derived an improper personal
benefit. If the DGCL is amended to authorize the further elimination or
limitation of liability of directors, then the liability of a director of the
Corporation existing at the time of such elimination or limitation, in addition
to the limitation on personal liability provided herein, shall be limited to the
fullest extent permitted by the amended DGCL. Any repeal or modification of
this Article VIII by the stockholders of the Corporation shall be prospective
only, and shall not adversely affect any limitation on the personal liability of
a director of the Corporation existing at the time of such repeal or
modification.
ARTICLE IX
A director of the Corporation shall not, in the absence of fraud, be
disqualified by his office from dealing or contracting with the Corporation
either as a vendor, purchaser or otherwise, nor in the absence of fraud shall a
director of the Corporation be liable to account to the Corporation for any
profit realized by him from or through any transaction or contract of the
Corporation by reason of the fact that such director, or any firm of which such
director is a member or any corporation of which such director is an officer,
director or stockholder, was
-7-
<PAGE>
interested in such transaction or contract if such transaction or contract has
been authorized, approved or ratified in a manner provided in the DGCL for
authorization, approval or ratification of transactions or contracts 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 are directors or
officers or have a financial interest.
ARTICLE X
A. Written Consent. At any time after the closing of a public offering
of the Corporation's Common Stock, any action required or permitted to be taken
by the stockholders of the Corporation shall be effected only at a duly called
annual or special meeting of stockholders of the Corporation and shall not be
effected by consent in writing by the holders of outstanding stock pursuant to
Section 228 of the DGCL or any other provision of the DGCL.
B. Special Meetings. Special meetings of stockholders of the Corporation
may be called upon not less than ten (10) nor more than sixty (60) days' written
notice only by the Board of Directors pursuant to a resolution approved by a
majority of the Board of Directors.
C. Amendment. Notwithstanding anything contained in this Certificate of
Incorporation to the contrary, the affirmative vote of the holders of at least
eighty percent (80%) of the shares entitled to vote generally in the election of
directors shall be required to amend, alter or repeal, or to adopt any provision
inconsistent with, this Article X.
ARTICLE XI
Meetings of stockholders may be held within or without the State of
Delaware as the By-laws of the Corporation may provide. The books of the
Corporation may be kept outside the State of Delaware at such place or places as
may be designated from time to time by the Board of Directors of the Corporation
or in the By-laws of the Corporation. Election of directors need not be by
written ballot unless the By-laws of the Corporation so provide.
ARTICLE XII
Whenever a compromise or arrangement is proposed between the Corporation
and its creditors or any class of them and/or between the Corporation and its
stockholders or any class of them, any court of equitable jurisdiction within
the State of Delaware may, on the application in a summary way of the
Corporation or of any creditor or stockholder thereof or on the application of
any receiver or receivers appointed for the Corporation under the provisions of
Section 291 of the DGCL or on the application of trustees in dissolution or of
any receiver or receivers appointed for the Corporation under the provisions of
Section 279 of the DGCL, order
-8-
<PAGE>
a meeting of the creditors or class of creditors and/or the stockholders or
class of stock of the Corporation, as the case may be, to be summoned in such
manner as the said court directs. If a majority in number representing three-
fourths (3/4) of the value of the creditors or class of creditors and/or the
stockholders or class of stockholders of the Corporation, as the case may be,
agree to any compromise or arrangement or to any reorganization of the
Corporation as a consequence of such compromise or arrangement, said compromise
or arrangement of said reorganization shall, if sanctioned by the Court to which
said application has been made, be binding on all the creditors or class of
creditors and/or on all the stockholders or class of stockholders, of the
Corporation, as the case may be, and also on the Corporation.
ARTICLE XIII
In furtherance and not in limitation of the powers conferred by
statute, the Board of Directors is expressly authorized to adopt, alter amend or
repeal the By-laws of the Corporation. The By-laws of the Corporation may be
altered, amended, or repealed or new By-laws may be adopted, by the Board of
Directors in accordance with the preceding sentence or by the vote of the
holders of at least eighty percent (80%) of the voting power of the shares of
the Corporation entitled to vote generally in the election of directors at an
annual or special meeting of stockholders, provided that if such alteration,
amendment, repeal or adoption of new By-laws is effected at a duly called
special meeting, notice of such alteration, amendment, repeal or adoption of new
By-laws is contained in the notice of such special meeting.
IN WITNESS WHEREOF, the Corporation has caused this Certificate of
Incorporation to be signed by its Chief Executive Officer on June 2, 1998.
DIVERSIFIED FOOD GROUP, INC.
By:
------------------------------
Andrew J. Zahn
Chief Executive Officer
-9-
<PAGE>
EXHIBIT 3.2
BY-LAWS
OF
DIVERSIFIED FOOD GROUP, INC.
ARTICLE I
---------
OFFICES
-------
Section 1.1. Registered Office. The registered office of Diversified Food
Group, Inc. (the "Corporation") shall be in the City of Wilmington, County of
New Castle, State of Delaware.
Section 1.2. Other 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 the business of the Corporation may
require.
ARTICLE II
----------
MEETINGS OF STOCKHOLDERS
------------------------
Section 2.1. Place of Meeting. All meetings of the stockholders for the
election of directors shall be held at such place either within or without the
State of Delaware as shall be designated from time to time by the Board of
Directors and stated in the notice of the meeting. Meetings of stockholders for
any other purpose may be held at such time and place, within or without the
State of Delaware, as shall be stated by the Board of Directors in its notice of
the meeting or in a duly executed waiver of notice thereof.
Section 2.2. Time of Annual Meeting. Annual meetings of stockholders
shall be held on the [third Thursday in June], if not a legal holiday, and 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 be designated from time to time by the Board of
Directors and stated in the notice of the meeting, at which stockholders shall
elect directors to hold office for the term provided in Section 3.2 of these By-
laws and conduct such other business as shall be considered.
Section 2.3. Notice of Annual Meetings. Except as otherwise required by
law, written notice of the annual meeting stating the place, date and hour of
the meeting shall be given to each stockholder entitled to vote at such meeting
not fewer than ten (10) nor more than sixty (60) days before the date of the
meeting.
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Section 2.4. Director Nominations. Only persons who are nominated in
accordance with the following procedures shall be eligible to serve as
directors. Nominations of persons for election to the Board of Directors of the
Corporation at a meeting of stockholders may be made (i) by or at the direction
of the Board of Directors, or (ii) by any stockholder of the Corporation
entitled to vote in the election of directors at the meeting who complies with
the notice procedures set forth in this Article II, Section 2.4. Such
nominations, other than those made by or at the direction of the Board of
Directors, shall be made pursuant to timely notice in writing to the Secretary
of the Corporation. To be timely, a stockholder's notice must be delivered to,
or mailed and received by, the Secretary of the Corporation at the principal
executive offices of the Corporation not less than ninety (90) days prior to the
first anniversary of the date of the previous year's annual meeting of
stockholders; provided, however, that if no annual meeting of stockholders was
held in the previous year or if the date of the annual meeting is advanced by
more than thirty (30) days prior to, or delayed by more than sixty (60) days
after, such anniversary date, notice by the stockholder to be timely must be so
delivered, or mailed and received, not later than the close of business on the
later of (a) the sixtieth (60th) day prior to such annual meeting or (b) the
tenth (10th) day following the day on which the date of such meeting has been
first "publicly disclosed" (in the manner provided in the last sentence of this
Article II, Section 2.4) by the Corporation. Notwithstanding the foregoing, in
the event that the number of directors to be elected to the Board of Directors
is increased and the names of all of the nominees for director position are not
"publicly disclosed" by the Corporation at least seventy (70) days prior to the
date of the first anniversary of the prior year's annual meeting of
stockholders, a stockholder's notice pursuant to this Article II, Section 2.4
shall also be considered timely, but only with respect to nominees for any new
positions created by such increase, if it shall be delivered to, or mailed and
received by, the Secretary of the Corporation at the principal executive offices
of the Corporation not later than the close of business on the tenth (10th) day
following the day on which such names have been first "publicly disclosed" by
the Corporation. Any stockholder's notice pursuant to this Article II, Section
2.4 shall set forth (i) as to each person whom the stockholder proposes to
nominate for election or re-election as a director, all information relating to
such person that is required to be disclosed in solicitations of proxies for
election of directors, or is otherwise required, in each case pursuant to
Regulation 14A under the Securities Exchange Act of 1934, as amended (including
such person's written consent to being named in the proxy statement as a nominee
and to serving as director if elected); and (ii) as to the stockholder giving
notice (A) the name and address, as they appear on the Corporation's books, of
such stockholder and (B) the class and number of shares of the Corporation which
are beneficially owned by such stockholder. At the request of the Board of
Directors, any person nominated by the Board of Directors for election as a
director shall furnish to the Secretary of the Corporation that information
required to be set forth in a stockholder's notice of nomination which pertains
to the nominee. No person shall be eligible to serve as a director of the
Corporation unless nominated in accordance with the procedures set forth herein.
The presiding officer shall, if the facts so warrant, determine and declare to
the meeting that a nomination was not made in accordance with the procedures
prescribed by the By-laws, and if such officer should so determine, such officer
shall so declare to the meeting, and the defective nomination shall be
disregarded. For purposes of these By-laws, "publicly disclosed" or "public
disclosure" shall mean disclosure in a press release reported by the Dow Jones
News Service, Associated Press or a comparable national news service or in a
document publicly filed by the Corporation with the Securities and Exchange
Commission.
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Section 2.5. Annual Meeting Agenda Items. At an annual meeting of the
stockholders, only such business shall be conducted as shall have been brought
before the meeting (i) by or at the direction of the Board of Directors, or (ii)
by any stockholder of the Corporation who complies with the notice procedures
set forth in this Article II, Section 2.5, in the time herein provided. For
business to be properly brought before an annual meeting by a stockholder, the
stockholder must deliver written notice to, or mail such written notice so that
it is received by, the Secretary of the Corporation, at the principal executive
offices of the Corporation, not less than ninety (90) days prior to the first
anniversary of the date of the previous year's annual meeting of stockholders;
provided, however, that if no annual meeting of stockholders was held in the
previous year or if the date of the annual meeting is advanced by more than
thirty (30) days prior to, or delayed by more than sixty (60) days after, such
anniversary date, notice by the stockholder to be timely must be so delivered,
or mailed and received, not later than the close of business on the later of (a)
the sixtieth (60th) day prior to such annual meeting or (b) the tenth (10th) day
following the day on which the date of the meeting has been first "publicly
disclosed" (in the manner provided in Article II, Section 2.4 above) by the
Corporation. Any stockholder's notice pursuant to this Article II, Section 2.5
shall set forth as to each matter the stockholder proposes to bring before the
annual meeting (A) a brief description of the business desired to be brought
before the annual meeting and the reasons for conducting such business at the
annual meeting, (B) the name and address, as they appear on the Corporation's
books, of the stockholder proposing such business, (C) the class and number of
shares of the Corporation which are beneficially owned by the stockholder and
(D) any material interest of the stockholder in such business. At an annual
meeting, the presiding officer shall, if the facts warrant, determine and
declare to the meeting that business was not properly brought before the meeting
in accordance with the provisions of this Article, Section 2.5, and if such
officer should so determine, such officer shall so declare to the meeting, and
any such business not properly brought before the meeting shall not be
transacted. Whether or not the foregoing procedures are followed, no matter
which is not a proper matter for stockholder consideration shall be brought
before the meeting.
Section 2.6. Special Meetings of the Stockholders. Special meetings of
the stockholders of the Corporation may be called only by the Board of Directors
pursuant to a resolution approved by a majority of the Board of Directors. The
business transacted at any special meeting of the stockholders shall be limited
to the purposes stated in the notice for the meeting transmitted to
stockholders.
Section 2.7. Notice of Special Meetings. Written notice of a special
meeting stating the place, date and hour of the meeting and the purpose or
purposes for which the meeting is called, shall be given by the Secretary of the
Corporation not fewer than ten (10) nor more than sixty (60) days before the
date of the meeting, to each stockholder entitled to vote at such meeting.
Section 2.8. Fixing of Record Date. In order that the Corporation may
determine the stockholders entitled to notice of or to vote at any meeting of
stockholders or any adjournment thereof, or entitled to receive payment of any
dividend or other distribution or allotment of any rights, or entitled to
exercise any rights in respect of any change, conversion or exchange of stock or
for the purpose of any other lawful action, the Board of Directors may fix a
record date, which shall not precede the date upon which the resolution fixing
the record date is adopted, and which shall be (i) not more than sixty (60) nor
less than ten (10) days before the
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date of a meeting, and (ii) not more than sixty (60) days prior to 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;
provided, however, that the Board of Directors may fix a new record date for any
adjourned meeting.
Section 2.9. Voting Lists. The officer who has charge of the stock ledger
of the Corporation shall prepare and make, at least ten (10) 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 (10) days prior to the meeting, either at a place within the city where the
meeting is to be held, which place shall be specified in the notice of the
meeting, or, if not so specified, at the place where the meeting is to be held.
The list shall also be produced and kept at the time and place of the meeting
during the whole time thereof, and may be inspected by any stockholder who is
present.
Section 2.10. Quorum and Adjournments. The holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall constitute a quorum at all
meetings of the stockholders for the transaction of business, except as
otherwise provided by statute or by the Corporation's Certificate of
Incorporation. If, however, such quorum shall not be present or represented at
any such meeting of the stockholders, the stockholders entitled to vote thereat,
present in person or represented by proxy, shall have power to adjourn the
meeting from time to time, without notice other than announcement at the
meeting, until a quorum shall be present or represented; provided that if the
adjournment is for more than thirty (30) days, or if after the adjournment a new
record date is fixed by the directors for the adjourned meeting, a new notice
shall be transmitted to the stockholders of record entitled to vote at the
adjourned meeting. At such adjourned meeting at which a quorum shall be present
or represented, any business may be transacted which might have been transacted
at the meeting as originally notified.
Section 2.11. Vote Required. When a quorum is present at any meeting of
all stockholders, the affirmative vote of the holders of a majority of the
voting power of the stock issued and outstanding and entitled to vote thereat,
present in person or represented by proxy, shall decide any question brought
before such meeting, unless the question is one upon which by express provision
of statute or of the Corporation's Certificate of Incorporation, a different
vote is required in which case such express provision shall govern and control
the decision of such question; provided, however, all elections of directors
shall be determined by a plurality of the votes cast.
Section 2.12. Voting Rights. Unless otherwise provided in the
Corporation's Certificate of Incorporation, each stockholder having voting power
shall at every meeting of the stockholders be entitled to one (1) vote in person
or by proxy for each share of the capital stock having voting power held by such
stockholder, but no proxy shall be voted on after three (3) years from its date,
unless the proxy provides for a longer period. At any meeting of the
stockholders, every stockholder entitled to vote may vote in person or by proxy
authorized by an instrument in writing or by a transmission permitted by law
filed in accordance with the procedure established for the meeting. Any copy,
facsimile telecommunication or other reliable
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reproduction of the writing or transmission created pursuant to this paragraph
may be substituted or used in lieu of the original writing or transmission for
any and all purposes for which the original writing or transmission could be
used; provided that such copy, facsimile telecommunication or other reproduction
shall be a complete reproduction of the entire original writing or transmission.
All voting, including on the election of directors may (except where otherwise
required by law) be by a voice vote; provided, however, that upon demand
therefor by a stockholder entitled to vote or by his or her proxy, a stock vote
shall be taken. Every stock vote shall be taken by ballots, each of which shall
state the name of the stockholder or proxy voting and such other information as
may be required under the procedure established for the meeting. The
Corporation may, and to the extent required by law shall, in advance of any
meeting of stockholders, appoint one or more inspectors to act at the meeting
and make a written report thereof. The Corporation may designate one or more
persons as alternate inspectors to replace any inspector who fails to act. If
no inspector or alternate is able to act at a meeting of stockholders, the
person presiding at the meeting may, and to the extent required by law shall,
appoint one or more inspectors to act at the meeting. Each inspector, before
entering upon the discharge of his or her duties, shall take and sign an oath to
faithfully execute the duties of inspector with strict impartiality and
according to the best of his or her ability. Every vote taken by ballots shall
be counted by an inspector or inspectors appointed by the chairman of the
meeting.
Section 2.13. Presiding Over Meetings. The Chairman of the Board of
Directors shall preside at all meetings of the stockholders. In the absence or
inability to act of the Chairman, the Vice Chairman, the President or a Vice
President (in that order) shall preside, and in their absence or inability to
act another person designated by one of them shall preside. The Secretary of
the Corporation shall act as Secretary of each meeting of the stockholders. In
the event of his or her absence or inability to act, the chairman of the meeting
shall appoint a person who need not be a stockholder to act as Secretary of the
meeting.
Section 2.14. Conducting Meetings. Meetings of the stockholders shall be
conducted in a fair manner but need not be governed by any prescribed rules of
order. The presiding officer of the meeting shall establish an agenda for the
meeting. The presiding officer's rulings on procedural matters shall be final.
The presiding officer is authorized to impose reasonable time limits on the
remarks of individual stockholders and may take such steps as such officer may
deem necessary or appropriate to assure that the business of the meeting is
conducted in a fair and orderly manner.
ARTICLE III
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DIRECTORS
---------
Section 3.1. General Powers. The business and affairs of the Corporation
shall be under the direction of and managed by, a board comprised of directors,
which may exercise all such powers of the Corporation and do all such lawful
acts and things as are not required by statute, by the Corporation's Certificate
of Incorporation or by these By-laws to be done by the stockholders. Directors
need not be residents of the State of Delaware or stockholders of the
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Corporation. The number of directors shall be determined in the manner provided
in the Corporation's Certificate of Incorporation.
Section 3.2. Election. Directors shall be elected by class for three (3)
year or other terms as specified in the Corporation's Certificate of
Incorporation, and each director elected shall hold office during the term for
which he or she is elected and until his or her successor is elected and
qualified, subject, however, to his or her prior death, resignation, retirement
or removal from office.
Section 3.3. Removal. Directors may only be removed for cause, except as
otherwise provided by law, by the holders of at least sixty-six and two-thirds
percent (66-2/3%) of the voting power of the shares entitled to vote at an
election of directors.
Section 3.4. Vacancies. Any vacancies occurring in the Board of Directors
and newly created directorships shall be filled in the manner provided in the
Corporation's Certificate of Incorporation.
Section 3.5. Place of Meetings. The Board of Directors of the Corporation
may hold meetings, both regular and special, either within or without the State
of Delaware. The first meeting of each newly elected Board of Directors shall
be held immediately following the adjournment of the annual meeting of the
stockholders at the same place as such annual meeting and no notice of such
meeting shall be necessary to the newly elected directors in order to legally
constitute the meeting, provided a quorum shall be present. In the event such
meeting is not held at such time and place, the meeting may be held at such time
and place as shall be specified in a notice given as hereinafter provided for
special meetings of the Board of Directors, or as shall be specified in a
written waiver signed by all of the directors.
Section 3.6 Participation by Conference Telephone. Unless otherwise
restricted by the Corporation's Certificate of Incorporation or these By-laws,
members of the Board of Directors, or any committee designated by the Board of
Directors, may participate in a meeting of the Board of Directors, or committee,
by means of conference telephone or similar communications equipment by means of
which all persons participating in the meeting can hear each other, and
participation by such means shall constitute presence in person at such meeting.
Section 3.7. Regular Meetings. Regular meetings of the Board of Directors
may be held without notice at such time and at such place as shall from time to
time be determined by the Board of Directors.
Section 3.8. Special Meetings. Special meetings of the Board of Directors
may be called by the Chairman of the Board, the Chief Executive Officer or the
President on at least one day's notice to each director, either personally, or
by courier, telephone, telefax, mail or telegram. Special meetings shall be
called by the Chairman of the Board, the Chief Executive Officer or the
President in like manner and on like notice at the written request of two or
more of the directors comprising the Board of Directors stating the purpose or
purposes for which such meeting is requested. Notice of any meeting of the
Board of Directors for which a notice is required may be waived in writing
signed by the person or persons entitled to such notice, whether before or after
the time of such meeting, and such waiver shall be equivalent to the
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giving of such notice. Attendance of a director at any such meeting shall
constitute a waiver of notice thereof, except where a director attends a meeting
for the express purpose of objecting to the transaction of any business because
such meeting is not lawfully convened. Neither the business to be transacted at
nor the purpose of any meeting of the Board of Directors for which a notice is
required need be specified in the notice, or waiver of notice, of such meeting.
The Chairman of the Board shall preside at all meetings of the Board of
Directors. In the absence or inability to act of the Chairman of the Board, the
Vice Chairman of the Board (if one shall have been chosen by the Board), the
Chief Executive Officer, the President or the Chief Financial Officer (in that
order) shall preside, and in their absence or inability to act another director
designated by one of them shall preside.
Section 3.9. Quorum; No Action on Certain Matters. At all meetings of the
Board of Directors, a majority of the then duly elected directors 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
statute or by the Corporation's Certificate of Incorporation. If a quorum shall
not be present at any meeting of the Board of Directors, the directors present
thereat may adjourn the meeting from time to time, without notice other than
announcement at the meeting, until a quorum shall be present.
Section 3.10. Resignations. Any director of the Corporation may resign at
any time by giving written notice to the Board of Directors, the Chairman of the
Board or the President. Such resignation shall take effect at the time
specified therein and, unless tendered to take effect upon acceptance thereof,
the acceptance of such resignation shall not be necessary to make it effective.
Section 3.11. Informal Action. Unless otherwise restricted by the
Corporation's Certificate of Incorporation or these By-laws, any action required
or permitted to be taken at any meeting of the Board of Directors or of any
committee thereof may be taken without a meeting, if all members of the Board of
Directors or committee consent thereto in writing, and the writing or writings
are filed with the minutes of proceedings of the Board of Directors or
committee.
Section 3.12. Presumption of Assent. A director of the Corporation who is
present at a meeting of the Board of Directors at which action on any corporate
matter is taken shall be conclusively presumed to have assented to the action
taken unless his or her dissent shall be entered in the minutes of the meeting
or unless he or she shall file his or her written dissent to such action with
the person acting as the Secretary of the meeting before the adjournment thereof
or shall forward such dissent by registered mail to the secretary of the
Corporation immediately after the adjournment of the meeting. Such right to
dissent shall not apply to a director who voted in favor of such action.
Section 3.13. Compensation of Directors. In the discretion of the Board
of Directors, the directors may be paid their expenses, if any, of attendance at
each meeting of the Board of Directors or a committee thereof, may be paid a
stated salary or a fixed sum for attendance at each meeting of the Board of
Directors or a committee thereof, and may be awarded other compensation for
their services as directors. No such payment or award shall preclude any
director from serving the Corporation in any other capacity and receiving
compensation therefor.
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Members of special or standing committees may be allowed like compensation for
attending committee meetings.
ARTICLE IV
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COMMITTEES OF DIRECTORS
-----------------------
Section 4.1. Appointment and Powers. The Board of Directors may, by
resolution passed by a majority of the whole Board of Directors, designate one
or more committees, each committee to consist of one or more of the directors of
the Corporation. The Board of Directors may designate one or more directors as
alternate members of any committee, who may replace any absent or disqualified
member at any meeting of the committee. In the absence or disqualification of a
member of a committee, the member or members thereof present at any meeting and
not disqualified from voting, whether or not such member or members constitute a
quorum, may unanimously appoint another member of the Board of Directors to act
at the meeting in the place of any such absent or disqualified member. Any such
committee, to the extent provided in the resolution of the Board of Directors,
shall have and may exercise all the powers and authority of the Board of
Directors in the management of the business and affairs of the Corporation, and
may authorize the seal of the Corporation to be affixed to all papers which may
require it; but no such committee shall have the power or authority in reference
to the following matters: (a) approving or adopting, or recommending to the
stockholders, any action or matter expressly required by the Delaware General
Corporation Law to be submitted to stockholders for approval or (b) adopting,
amending or repealing any of the By-laws.
Section 4.2. Committee Minutes. Each committee shall keep regular minutes
of its meetings and shall file such minutes and all written consents executed by
its members with the Secretary of the Corporation. Each committee may determine
the procedural rules for meeting and conducting its business and shall act in
accordance therewith, except as otherwise provided herein or required by law.
Adequate provision shall be made for notice to members of all meetings; one-
third of the members shall constitute a quorum unless the committee shall
consist of one or two members, in which event one member shall constitute a
quorum; and all matters shall be determined by a majority vote of the members
present. Action may be taken by any committee without a meeting if all members
thereof consent thereto in writing, and the writing or writings are filed with
the minutes of the proceedings of such committee.
ARTICLE V
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NOTICES
-------
Section 5.1. Manner of Notice. Whenever, under applicable law or the
Corporation's Certificate of Incorporation or these By-laws, notice is required
to be given to any director or stockholder, unless otherwise provided in the
Corporation's Certificate of Incorporation or these By-laws, such notice may be
given in writing, by courier or mail, addressed to such director or stockholder,
at such director's or stockholder's address as it appears on the records of the
Corporation, with freight or postage thereon prepaid, and such notice shall be
deemed to be given at the time when the same shall have been deposited with such
courier or in the United States mail. Notice may be given orally if such notice
is confirmed in writing in a manner
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provided therein. Notice to directors may also be given by telegram, mailgram,
telex or telecopier.
Section 5.2. Waiver. Whenever any notice is required to be given under
applicable law or the provisions of the Corporation's Certificate of
Incorporation or these By-laws, a waiver thereof in writing, signed by the
person or persons entitled to said notice, whether before or after the time
stated therein, shall be deemed equivalent thereto.
ARTICLE VI
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OFFICERS
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Section 6.1. Number and Qualifications. The officers of the Corporation
shall be chosen by the Board of Directors and shall be a Chairman of the Board,
a Chief Executive Officer, a President, a Chief Financial Officer, one or more
Vice Presidents, a Secretary and a Treasurer. The Board of Directors may also
choose a Vice Chairman of the Board (or Vice Chairmen), one or more Assistant
Secretaries and Assistant Treasurers and such additional officers as the Board
of Directors may deem necessary or appropriate from time to time. Membership on
the Board of Directors shall not be a prerequisite to the holding of any other
office. Any number of offices may be held by the same person, unless the
Corporation's Certificate of Incorporation or these By-laws otherwise provide.
Section 6.2. Election. The Board of Directors at its first meeting after
each annual meeting of stockholders shall elect a Chairman of the Board, a Chief
Executive Officer, a President, a Chief Financial Officer, one or more Vice-
Presidents, a Secretary and a Treasurer, and may choose a Vice Chairman of the
Board, one or more Assistant Secretaries and Assistant Treasurers and such other
officers as the Board of Directors shall deem desirable.
Section 6.3. Other Officers and Agents. The Board of Directors may choose
such other officers and agents as it shall deem necessary, which officers and
agents shall hold their offices for such terms and shall exercise such powers
and perform such duties as shall be determined from time to time by the Board of
Directors.
Section 6.4. Salaries. The salaries or other compensation of the officers
and agents of the Corporation shall be fixed from time to time by the Board of
Directors, and no officer shall be prevented from receiving such salary or other
compensation by reason of the fact that such officer is also a director of the
Corporation.
Section 6.5. Term of Office. The officers of the Corporation shall hold
office until their successors are chosen and qualify or until their earlier
resignation or removal. Any officer elected or appointed by the Board of
Directors may be removed at any time, either with or without cause, by the
affirmative vote of a majority of the directors then in office at any meeting of
the Board of Directors. If a vacancy shall exist in the office of the
Corporation, the Board of Directors may elect any person to fill such vacancy,
such person to hold office as provided in Section 6.1 of this Article VI.
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Section 6.6. The Chairman of the Board. The Chairman of the Board shall
preside at all meetings of the stockholders and of the Board of Directors and
shall see that orders and resolutions of the Board of Directors are carried into
effect. The Chairman of the Board shall perform such duties as may be assigned
to him by the Board of Directors.
Section 6.7. The Chief Executive Officer. The Chief Executive Officer
shall be the principal executive officer of the Corporation and shall, in
general, supervise and control all of the business and affairs of the
Corporation, unless otherwise provided by the Board of Directors. In the
absence of the Chairman of the Board, the Chief Executive Officer shall preside
at all meetings of the stockholders and of the Board of Directors and shall see
that orders and resolutions of the Board of Directors are carried into effect.
The Chief Executive Officer may sign bonds, mortgages, certificates for shares
and all other contracts and documents whether or not under the seal of the
Corporation except in cases where the signing and execution thereof shall be
expressly delegated by law, by the Board of Directors or by these By-laws to
some other officer or agent of the Corporation. The Chief Executive Officer
shall have general powers of supervision and shall be the final arbiter of all
differences between officers of the Corporation and the Chief Executive
Officer's decision as to any matter affecting the Corporation shall be final and
binding as between the officers of the Corporation subject only to its Board of
Directors.
Section 6.8. The President. Unless another party has been designated as
Chief Operating Officer, the President shall be the Chief Operating Officer of
the Corporation responsible for the day-to-day active management of the business
of the Corporation, under the general supervision of the Chief Executive
Officer. In the absence of the Chief Executive Officer, the President shall
perform the duties of the Chief Executive Officer, and when so acting, shall
have all the powers of and be subject to all the restrictions upon the Chief
Executive Officer. The President shall have concurrent power with the Chief
Executive Officer to sign bonds, mortgages, certificates for shares and other
contracts and documents, whether or not under the seal of the Corporation except
in cases where the signing and execution thereof shall be expressly delegated by
law, by the Board of Directors, or by these By-laws to some other officer or
agent of the Corporation. In general, the President shall perform all duties
incident to the office of the President and such other duties as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
Section 6.9. The Chief Financial Officer. The Chief Financial Officer
shall be the principal financial and accounting officer of the Corporation. The
Chief Financial Officer shall: (a) have charge of and be responsible for the
maintenance of adequate books of account for the Corporation; (b) have charge
and custody of all funds and securities of the Corporation, and be responsible
therefor and for the receipt and disbursement thereof; and (c) perform all the
duties incident to the office of the Chief Financial Officer and such other
duties as from time to time may be assigned to him by the President or by the
Board of Directors. If required by the Board of Directors, the Chief Financial
Officer shall give a bond for the faithful discharge of the Chief Financial
Officer's duties in such sum and with such surety or sureties as the Board of
Directors may determine.
Section 6.10. The Vice-Presidents. In the absence of the President or in
the event of the President's inability or refusal to act, the Vice-Presidents
(in the order designated, or in the
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absence of any designation, then in the order of their election) shall perform
the duties of the President, and when so acting, shall have all the powers of
and be subject to all the restrictions upon the President. The Vice-Presidents
shall perform such other duties and have such other powers as the Chief
Executive Officer or the Board of Directors may from time to time prescribe.
Section 6.11. The Secretary. The Secretary shall attend all meetings of
the Board of Directors and all meetings of the stockholders and record all the
proceedings of the meetings of the Corporation and of the Board of Directors in
a book to be kept for that purpose and shall perform like duties for the
standing committees when required. The Secretary shall give, or cause to be
given, or cause to be given notice of all meetings of the stockholders and
special meetings of the Board of Directors, and shall perform such other duties
as may be prescribed by the Board of Directors or the Chief Executive Officer,
under whose supervision the Secretary shall be. The Secretary shall have
custody of the corporate seal of the Corporation and the Secretary or an
Assistant Secretary, shall have authority to affix the same to any instrument
requiring it and when so affixed, it may be attested by the Secretary's
signature or by the signature of such 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 by such officer's signature.
Section 6.12. The Treasurer. In the absence of the Chief Financial
Officer or in the event of the Chief Financial Officer's inability or refusal to
act, the Treasurer shall perform the duties of the Chief Financial Officer, and
when so acting, shall have all the powers of and be subject to all the
restrictions upon the Chief Financial Officer. The Treasurer shall perform such
other duties and have such other powers as the Chief Executive Officer or the
Board of Directors may from time to time prescribe.
Section 6.13. The Assistant Secretary. The Assistant Secretary, or if
there be more than one, the Assistant Secretaries in the order determined by the
Board of Directors (or if there be no such determination, then in the order of
their election), shall, in the absence of the Secretary or in the event of the
Secretary's inability or refusal to act, perform the duties and exercise the
powers of the Secretary and shall perform such other duties and have such other
powers as the Chief Executive Officer or the Board of Directors may from time to
time prescribe.
Section 6.14. The Assistant Treasurer. The Assistant Treasurer, or if
there shall be more than one, the Assistant Treasurers in the order determined
by the Board of Directors (or if there be no such determination, then in the
order of their election), shall, in the absence of the Treasurer or in the event
of the Treasurer's inability or refusal to act, perform the duties and exercise
the powers of the Treasurer and shall perform such other duties and have such
other powers as the Chief Executive Officer or the Board of Directors may from
time to time prescribe.
-11-
<PAGE>
ARTICLE VII
-----------
CERTIFICATES OF STOCK, TRANSFERS AND RECORD DATES
-------------------------------------------------
Section 7.1. Form of Certificates. Every holder of stock in the
Corporation shall be entitled to have a certificate, signed by, or in the name
of the Corporation by (a) the Chairman of the Board, the Vice-Chairman of the
Board, the President or the Chief Executive Officer, and (b) the Chief Financial
Officer, Treasurer, Secretary, an Assistant Secretary or an Assistant Treasurer
of the Corporation; certifying the number of shares owned by such holder in the
Corporation. If the Corporation shall be authorized to issue more than one
class of stock or more than one series of any class, the powers, designations,
preferences and relative, participating, optional or other special rights of
each class of stock or series thereof and the qualifications, limitations or
restrictions of such preferences and/or rights shall be set forth in full or
summarized on the face or back of the certificate which the Corporation shall
issue to represent such class or series of stock; provided that, except as
otherwise provided in Section 202 of the General Corporation Law of Delaware, in
lieu of the foregoing requirements, there may be set forth on the face or back
of the certificate which the Corporation shall issue to represent such class or
series of stock, a statement that the Corporation will furnish without charge to
each stockholder who so requests the powers, designations, preferences and
relative, participating, optional or other special rights of each class of stock
or series thereof and the qualifications, limitations or restrictions of such
preferences and/or rights. Subject to the foregoing, certificates of stock of
the Corporation shall be in such form as the Board of Directors may from time to
time prescribe.
Section 7.2. Facsimile Signatures. Where a certificate is countersigned
(1) by a transfer agent other than the Corporation or its employee, or (2) by a
registrar other than the Corporation or its employee, any other signatures on
the certificate may be facsimile. In case any officer, transfer agent or
registrar who has signed or whose facsimile signature has been placed upon a
certificate shall have ceased to be such officer, transfer agent or registrar
before such certificate is issued, it may be issued by the Corporation with the
same effect as if such person were such officer, transfer agent or registrar at
the date of issue.
Section 7.3. Lost Certificates. The Board of Directors may direct a
new certificate or certificates to be issued in place of any certificate or
certificates theretofore issued by the Corporation alleged to have been lost,
stolen or destroyed, upon the making of an affidavit of that fact by the person
claiming the certificate of stock to be lost, stolen or destroyed. When
authorizing such issue of a new certificate or certificates, the Board of
Directors may, in its discretion and as a condition precedent to the issuance
thereof, require the owner of such lost, stolen or destroyed certificate or
certificates, or such owner's legal representative, to advertise the same in
such manner as the Corporation shall require and/or give the Corporation a bond
in such sum as it may direct as indemnity against any claim that may be made
against the Corporation or its transfer agent or registrar with respect to the
certificate alleged to have been lost, stolen or destroyed.
Section 7.4. Transfers of Stock. Upon surrender to the Corporation or the
transfer agent of the Corporation of a certificate for shares duly endorsed or
accompanied by proper evidence of succession, assignment or authority to
transfer, it shall be the duty of the
-12-
<PAGE>
Corporation to issue a new certificate to the person entitled thereto, cancel
the old certificate and record the transaction upon its books.
Section 7.5. Registered Stockholders. The Corporation shall be entitled
to recognize the exclusive right of a person registered on its books as the
owner of shares to receive dividends and to vote as such owner and to hold
liable for calls and assessments a person registered on its books as the owner
of shares, and shall not be bound to recognize any equitable or other claim to
or interest in such share or shares on the part of any other person, whether or
not the Corporation shall have express or other notice thereof, except as
otherwise provided by the laws of Delaware.
ARTICLE VIII
------------
CONFLICT OF INTERESTS
---------------------
Section 8.1. Contract or Relationship Not Void. No contract or
transaction 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 are directors or officers, or have a financial interest, shall be void
or voidable solely for this reason, or solely because such director or officer
is present at or participates in the meeting of the Board of Directors or
committee thereof which authorizes the contract or transaction, or solely
because such director's or officer's vote is counted for such purpose, if:
(i) The material facts as to such director's or officer's relationship or
interest and as to the contract or transaction are disclosed or are
known to the Board of Directors or the committee, and the board or
committee in good faith authorizes the contract or transaction by the
affirmative vote of a majority of the disinterested directors, even
though the disinterested directors be less than a quorum; or
(ii) The material facts as to such director's or officer's relationship or
interest and as to the contract or transaction are disclosed or are
known to the stockholders entitled to vote thereon, and the contract
or transaction is specifically approved in good faith by vote of the
stockholders; or
(iii) The contract or transaction is fair as to the Corporation as of the
time it is authorized, approved or ratified, by the Board of
Directors, a committee thereof, or the stockholders.
Section 8.2. Quorum. Common or interested directors may be counted in
determining the presence of a quorum at a meeting of the Board of Directors or
of a committee which authorizes the contract or transaction.
-13-
<PAGE>
ARTICLE IX
----------
GENERAL PROVISIONS
------------------
Section 9.1. Dividends. Dividends upon the capital stock of the
Corporation, subject to the provisions of the Certificate of Incorporation, if
any, may be declared by the Board of Directors at any regular or special
meeting, pursuant to law. Dividends may be paid in cash, in property, or in
shares of the capital stock or rights to acquire same, subject to the provisions
of the Corporation's Certificate of Incorporation. Before payment of any
dividend, there may be set aside out of any funds of the Corporation available
for dividends such sum or sums as the directors from time to time, in their
absolute discretion, think proper as a reserve or reserves to meet
contingencies, or for equalizing dividends, or for repairing or maintaining any
property of the Corporation, or for such other purpose as the directors shall
think conducive to the interest of the Corporation, and the directors may modify
or abolish any such reserve in the manner in which it was created.
Section 9.2. Checks. All checks or demands for money and notes of
the Corporation shall be signed by such officer or officers or such other person
or persons as the Board of Directors may from time to time designate.
Section 9.3. Fiscal Year. The fiscal year of the Corporation shall be
fixed by resolution of the Board of Directors.
Section 9.4. Seal. The corporate seal shall have inscribed thereon the
name of the Corporation and the words "Corporate Seal, Delaware." The seal may
be used by causing it or a facsimile thereof to be impressed or affixed or
reproduced or otherwise.
Section 9.5. Stock in Other Corporations. Shares of any other corporation
which may from time to time be held by this Corporation may be represented and
voted at any meeting of stockholders of such corporation by the Chairman of the
Board, the Chief Executive Officer, the President, the Chief Financial Officer
or a Vice President of the Corporation, or by any proxy appointed in writing by
the Chairman of the Board, the Chief Executive Officer, the President, the Chief
Financial Officer or a Vice President of the Corporation, or by any other person
or persons thereunto authorized by the Board of Directors. Shares represented by
certificates standing in the name of the Corporation may be endorsed for sale or
transfer in the name of the Corporation by the Chairman of the Board, the Chief
Executive Officer, the President, the Chief Financial Officer or any Vice
President of the Corporation or by any other officer of officers thereunto
authorized by the Board of Directors. Shares belonging to the Corporation need
not stand in the name of the Corporation, but may be held for the benefit of the
Corporation in the individual name of the Chief Financial Officer or of any
other nominee designated for the purpose of the Board of Directors.
-14-
<PAGE>
ARTICLE X
---------
AMENDMENTS
----------
These By-laws may be altered, amended, or repealed or new by-laws may be
adopted only in the manner provided in the Corporation's Certificate of
Incorporation.
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<PAGE>
EXHIBIT 10.1
ASSET PURCHASE AGREEMENT
BY AND AMONG
DIVERSIFIED FOOD GROUP, L.L.C.
OR ITS ASSIGNEE,
BUYER,
COHEN'S FAMOUS FROZEN FOODS, INC.,
SELLER
AND
SIDNEY COHEN & EDWARD COHEN,
PRINCIPAL SHAREHOLDERS
Dated as of October 9, 1997
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I
DEFINITIONS................................ 1
1.1 Definitions....................................................... 1
ARTICLE II
PURCHASE AND SALE............................. 5
2.1 Purchased Assets.................................................. 5
2.2 Excluded Assets................................................... 6
2.3 Assumed Liabilities............................................... 7
2.4 Excluded Liabilities.............................................. 7
ARTICLE III
PURCHASE PRICE.............................. 8
3.1 Purchase Price.................................................... 8
3.2 Allocation of Purchase Price...................................... 8
3.3 Adjustment of Purchase Price...................................... 8
ARTICLE IV
CLOSING................................. 9
4.1 Closing Date...................................................... 9
4.2 Payment of the Purchase Price..................................... 9
4.3 Buyer's Additional Deliveries..................................... 9
4.4 Seller's Deliveries............................................... 10
ARTICLE V
REPRESENTATIONS AND WARRANTIES
OF SELLER AND THE PRINCIPAL SHAREHOLDERS................ 11
5.1 Organization of Seller............................................ 11
5.2 Subsidiaries and Investments...................................... 11
5.3 Authority of Seller............................................... 11
5.4 Financial Statements.............................................. 12
5.5 Operations Since the Balance Sheet Date........................... 12
5.6 No Undisclosed Liabilities........................................ 13
5.7 Taxes............................................................. 14
5.8 Inventories....................................................... 14
</TABLE>
(i)
<PAGE>
<TABLE>
<C> <S> <C>
5.9 Governmental Permits.............................................. 14
5.10 Personal Property................................................. 15
5.11 Entire Assets..................................................... 15
5.12 Personal Property Leases.......................................... 15
5.13 Intellectual Property............................................. 15
5.14 Real Properties................................................... 16
5.15 Condemnation...................................................... 16
5.16 Employees and Related Agreements; ERISA........................... 16
5.17 Employee Relations................................................ 19
5.18 Contracts......................................................... 19
5.19 Status of Contracts............................................... 20
5.20 No violation, Litigation or Regulatory Action..................... 20
5.21 Environmental and Health/Safety Matters........................... 20
5.22 Insurance......................................................... 22
5.23 Product Warranty and Product Liability............................ 22
5.24 Suppliers......................................................... 22
5.25 Customers......................................................... 22
5.26 No Finder......................................................... 22
5.27 Disclosure........................................................ 22
5.28 Prior Transactions................................................ 22
ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER............... 23
6.1 Organization of Buyer............................................. 23
6.2 Authority of Buyer................................................ 23
6.7 No Finder......................................................... 24
ARTICLE VII
ACTION PRIOR TO THE CLOSING DATE.................. 25
7.1 Investigation of the Business by Buyer............................ 25
7.2 Preserve Accuracy of Representations and Warranties............... 25
7.3 Consents of Third Parties; Governmental Approvals................. 25
7.4 Operations Prior to the Closing Date.............................. 26
7.5 Notification by Seller of Certain Matters......................... 27
7.6 Exclusive Dealing................................................. 28
7.7 Labor Negotiations................................................ 28
ARTICLE VIII
ADDITIONAL AGREEMENTS........................ 28
8.1 Taxes and Transfer Taxes.......................................... 28
8.2 Discharge of Liabilities.......................................... 29
</TABLE>
(ii)
<PAGE>
<TABLE>
<C> <S> <C>
8.3 Employees and Employee Benefit Plans.............................. 29
ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER............... 30
9.1 Due Diligence..................................................... 30
9.2 No Misrepresentation or Breach of Covenants and Warranties........ 30
9.3 No Restraint or Litigation........................................ 30
9.4 Necessary Consents................................................ 30
9.5 Lease............................................................. 30
9.6 Employment Contracts.............................................. 31
9.7 Title Insurance................................................... 31
9.8 Opinion of Counsel................................................ 31
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER.............. 31
10.1 No Misrepresentation or Breach of Covenants and Warranties........ 31
10.2 No Restraint or Litigation........................................ 32
10.3 Opinion of Counsel................................................ 32
10.4 Executed Employment Contracts..................................... 32
10.5 Executed Lease Agreement.......................................... 32
ARTICLE XI
INDEMNIFICATION............................. 32
11.1 Indemnification by Seller and Principal Shareholders.............. 32
11.2 Environmental Indemnification..................................... 33
11.3 Indemnification by Buyer.......................................... 34
11.4 Notice of Payments of Claims -- Limitation........................ 35
11.5 Third Person Claims............................................... 36
11.6 Resolution of Disputes; Remedies.................................. 36
11.7 Exclusivity of Indemnification.................................... 38
ARTICLE XII
TERMINATION............................... 38
12.1 Termination....................................................... 38
12.2 Notice of Termination............................................. 38
12.3 Effect of Termination............................................. 38
ARTICLE XIII
</TABLE>
(iii)
<PAGE>
<TABLE>
<C> <S> <C>
GENERAL PROVISIONS........................... 38
13.1 Survival of Obligations.......................................... 38
13.2 Confidential Nature of Information............................... 39
13.3 No Public Announcement........................................... 39
13.4 Notices.......................................................... 39
13.5 Successors and Assigns........................................... 41
13.6 Access to Records after Closing.................................. 41
13.7 Entire Agreement; Amendments..................................... 42
13.8 Interpretation................................................... 42
13.9 Waivers.......................................................... 42
13.10 Expenses......................................................... 42
13.11 Severability..................................................... 42
13.12 Execution in Counterparts........................................ 43
13.13 Further Assurances............................................... 43
13.14 Governing Law.................................................... 43
13.15 Submission to Jurisdiction....................................... 43
Signatures................................................................... 42
</TABLE>
(iv)
<PAGE>
LIST OF EXHIBITS
A - Assumption Agreement
B - Instrument of Assignment
C - Sidney Cohen Employment Agreement
D - Edward Cohen Employment Agreement
E - Neil Cohen Employment Agreement
F - Craig Cohen Employment Agreement
G - Lease
H - Escrow Agreement
I - Seller's Attorney's Opinion of Counsel
J - Buyer's Attorney's Opinion of Counsel
K - Subordinated Note
(v)
<PAGE>
ASSET PURCHASE AGREEMENT
------------------------
ASSET PURCHASE AGREEMENT, dated as of October 9, 1997 (the "Agreement")
among Diversified Food Group, L.L.C., a Delaware Limited Liability Company, or
its assignee ("Buyer"), Cohen's Famous Frozen Foods, Inc., a New Jersey
corporation, ("Seller") and Sidney Cohen and Edward Cohen (collectively herein
referred to as "Principal Shareholders").
R E C I T A L S:
- - - - - - - -
A. Seller is engaged in the business of manufacturing and selling
appetizers, hors d'oeuvres and similar types of food products;
B. Seller desires to sell to Buyer, and Buyer desires to purchase from
Seller, on a going concern basis, substantially all of its assets, properties
and business of Seller, all on the terms and subject to the conditions set forth
herein; and
C. Principal Shareholders are the majority shareholders of Seller and
have agreed to assume certain obligations, and to join with Seller in making
certain warranties and representations, hereunder;
NOW, THEREFORE, in consideration of the mutual covenants and agreement
hereinafter set forth, it is hereby agreed among the parties as follows:
ARTICLE I
DEFINITIONS
-----------
1.1 Definitions. In this Agreement, the following terms have the meanings
specified or referred to in this Section 1.1 and shall be equally applicable to
both the singular and plural forms. Any agreement referred to below shall mean
such agreement as amended, supplemented and modified from time to time to the
extent permitted by the applicable provisions thereof and by this Agreement.
"Affiliate" means, with respect to any Person, any other Person which
directly or indirectly controls, is controlled by or is under control with such
Person.
"Assumption Agreement" means the Assumption Agreement in the form of
Exhibit A.
"Balance Sheet" means the audited balance sheet of the Seller as of
December 31, 1996 included in Schedule 5.4.
<PAGE>
"Balance Sheet Date" means December 31, 1996.
"Buyer Ancillary Agreements" means all agreements, instruments, and
documents being or to be executed and delivered by Buyer under this Agreement or
in connection herewith.
"CERCLA" means the Comprehensive Environmental Response Compensation and
Liability Act, as amended.
"Closing" means the closing of the transfer of the Purchased Assets from
Seller to Buyer.
"Code" means the Internal Revenue Code of 1986, as amended.
"Court Order" means any judgment, order, award or decree of any foreign,
federal, state, local or other court or tribunal and any award in any
arbitration proceeding.
"Encumbrance" means any lien, claim, charge, security interest, mortgage,
pledge, easement, conditional sale or other title retention agreement, defect in
title, covenant or other restriction of any kind.
"Environmental Encumbrance" means an Encumbrance in favor of any
Governmental Body for (i) any liability under any Environmental Law, or (ii)
damages arising from, or costs incurred by such Governmental Body in response
to, a Release or threatened Release of a Hazardous Substance into the
environment.
"Environmental Law" means all Requirements of Law derived from or relating
to all federal, state and local laws or regulations relating to or addressing
the environment, health or safety, including but not limited to CERCLA, OSHA and
RCRA and any state equivalent thereof.
"Employment Agreements" means the Employment Agreements between Buyer and
each of the Principal Shareholders and Buyer and each of Neil Cohen and Craig
Cohen in the form of Exhibits C, D, E & F.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Benefit Plan" means a "pension benefit plan" (as defined in Section
3(2) of ERISA) or a "welfare benefit plan" (as defined in Section 3(1) of
ERISA).
"Escrow Agreement" means the Escrow Agreement among Seller, Buyer and the
Principal Shareholders in the form of Exhibit H.
"Expenses" means any and all expenses incurred in connection with defending
or asserting any claim, action, suit or proceeding incident to any matter
indemnified against hereunder (including, without limitation, court filing fees,
court costs, arbitration fees or costs, witness fees,
2
<PAGE>
and reasonable fees and disbursements of legal counsel, investigators, expert
witnesses and accountants).
"Governmental Body" means any foreign, federal, state, local or other
governmental authority or regulatory body.
"Hazardous Substances" means any substance, chemical or waste that is
listed, or contains material amounts of one or more components that are defined,
designated, classified, considered or listed, as hazardous, toxic or radioactive
under any Environmental Law; as well as any asbestos or asbestos-containing
material, petroleum, petroleum product or by-product, crude oil or any fraction
thereof, natural gas, natural gas liquids, liquefied natural gas, synthetic gas
usable as fuel, or polychlorinated biphenyls ("PCBs").
"Instrument of Assignment" means the Instrument of Assignment in the form
of Exhibit B.
"IRS" means the Internal Revenue Service.
"Knowledge." The term "to the Seller's knowledge," "to the best of the
Seller's knowledge", or words to that effect as used herein refer to the actual
personal knowledge of the Principal Shareholders, Neil Cohen, Craig Cohen, Cindy
L. Cohen, and Lori Sue Cohen. Actual knowledge shall not include constructive
knowledge of any matters of which such Persons may be deemed to have knowledge
as a matter of legal presumption or otherwise.
"Lease" means the Lease between Buyer and the Principal Shareholders in the
form of Exhibit G.
"Losses" means any direct, out-of-pocket loss, cost, obligation, liability,
settlement payment, award, judgment, fine, penalty, damage, expense, deficiency
or other charge, but not including either Expenses or consequential damages.
"Material." The terms "material" or "materially" or "materiality" shall
mean the existence of a fact or condition or facts or conditions which has or
have a value, either individually or in the aggregate, of more than $10,000.
"Permitted Liabilities" means (a) liens of carriers, warehousemen,
mechanics and materialmen and other like liens arising in the ordinary course of
business for sums not yet due and payable, (b) other lien or imperfections on
property which are not material in amount or do not materially detract from the
value of or materially impair the existing use of the property affected by such
lien or imperfection, and (c) Seller's accounts payable and accrued expenses
incurred by Seller in the ordinary course of business.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
Governmental Body.
3
<PAGE>
"Property" means any real or personal property, plant, building, facility,
structure, underground storage tank, equipment or unit, or other asset owned,
leased or operated by the Seller prior to the Closing Date (including any
surface water thereon or adjacent thereto, and soil or groundwater thereunder).
"Purchased Contracts" means the contracts, leases, licenses and other
agreement listed in Schedule 5.19.
"RCRA" means the Resource Conservation and Recovery Act, as amended.
"Release" means release, spill, emission, leaking, pumping, injection,
deposit, disposal, discharge, dispersal, leaching or migration of a Hazardous
Substance into the indoor or outdoor environment or into or out of any Property,
including the movement of Hazardous Substances through or in the air, soil,
surface water, groundwater or Property.
"Remedial Action" means actions required to (i) clean up, remove, treat or
in any other way address Hazardous Substances in the indoor or outdoor
environment; (ii) prevent the Release or threatened Release or minimize the
further Release of Hazardous Substances or (iii) investigate and determine if a
remedial response is needed and to design such a response and post-remedial
investigation, monitoring, operation and maintenance and care.
"Requirements of Laws" means any foreign, federal, state and local laws,
statutes, regulations, rules, codes or ordinances enacted, adopted, issued or
promulgated by any Governmental Body (including, without limitation, those
pertaining to building, zoning, environmental and occupational safety and health
requirements) or common law.
"Seller Ancillary Agreements" means all agreements, instruments and
documents being or to be executed and delivered by Seller under this Agreement
or in connection herewith.
"Tax" means any federal, state, local or foreign net income, alternative or
add-on minimum, gross income, gross receipts, property, franchise, sales, use,
transfer, gains, license, excise, employment, payroll, withholding or minimum
tax, or any other tax custom, duty, governmental fee or other like assessment or
charge of any kind whatsoever, together with any interest or any penalty,
addition to tax or additional amount imposed by any Governmental Body.
"Tax Return" means any return, report or similar statement required to be
filed with respect to any Tax (including any attached schedules), including,
without limitation, any information return, claim for refund, amended return and
declaration of estimated Tax.
"Valuation Date" means the close of business on the last day prior to the
Closing Date.
"Valuation Date Amount" means an amount determined by adding (i) all trade
accounts receivable less any allowance for uncollectible debts (if any), (ii)
inventory determined in accordance with the provisions of Section 3.3(a) hereof,
and (iii) prepaid expenses (other than
4
<PAGE>
prepaid taxes and prepaid premiums for insurance policies which Buyer does not
elect to have assigned to it), reduced by (x) accounts payable for trade
payables incurred in the ordinary course of business, (y) accrued expenses for
all expense items related to revenue that has been recognized, including but not
limited to, product returns, rebates and commissions.
Index of Terms Defined in Other Sections
----------------------------------------
Acquisition Proposal Section 7.6
Agreement Recitals
Assumed Liabilities Section 2.3
Business Section 2.1
Buyer Recitals
Cash Purchase Price Section 3.1
Claim Notice Section 11.4
Closing Date Section 4.1
Conflict of Interest Section 5.16(m)
Excluded Assets Section 2.2
Excluded Liabilities Section 2.4
Governmental Permits Section 5.9
Indemnified Party Section 11.4(a)
Indemnitor Section 11.4(a)
Intellectual Property Section 2.1(e)
Leased Real Properties Section 5.14
Multiemployer Plan Section 5.18(i)
Personal Property Lease Section 5.12
Principal Shareholders Recitals
Purchased Assets Section 2.1
Purchase Price Section 3.1
Seller Recitals
Seller Indemnitors Section 11.1
Union Agreement Section 5.17
Valuation Date Statement Section 3.3
ARTICLE II
PURCHASE AND SALE
-----------------
2.1 Purchased Assets. Upon the terms and subject to the conditions of
this Agreement, on the Closing Date, Seller shall sell, transfer, assign, convey
and deliver to Buyer, and Buyer shall purchase from Seller, on a going concern
basis, free and clear of all Encumbrances (except for Permitted Liabilities),
all of the business and operations of Seller (such
5
<PAGE>
business and operations being herein called the "Business") and all of the
assets and properties owned by Seller of every kind and description, wherever
located, tangible or intangible, used in connection with the Business as the
same shall exist on the Closing Date (herein collectively called the "Purchased
Assets"), including, without limitation, all right, title and interest of Seller
in, to and under:
(a) All of the assets of Seller including those reflected on the
Balance Sheet, except those disposed of or converted into cash or cash
equivalents after the Balance Sheet Date in the ordinary course of
business, including, but not limited to, all of Seller's inventory
(including raw materials, work-in process, finished goods and other
materials and supplies), accounts receivable, fixtures, machinery,
equipment, leasehold improvements, furniture, vehicles and prepaid expenses
(other than prepaid taxes) and those insurance policies which Buyer elects
to have assigned to it);
(b) The Governmental Permits listed in Schedule 5.9;
(c) The Personal Property Lease listed in Schedule 5.12;
(d) The Purchased Contracts listed in Schedule 5.19;
(e) The trademarks, trade names, service marks, and copyright (and all
goodwill associated therewith), registered or unregistered, and the
applications for registration thereof, and the patents and applications
therefore, and the licenses relating to any of the foregoing listed in
Schedule 5.13 (the "Intellectual Property");
(f) All mailing lists, customer lists, subscriber lists, processes,
computer software, manuals or business procedures, trade secrets, designs,
engineering drawing and reports, know how and other proprietary or
confidential information used in the Business;
(g) All books and records (including all data and other information
stored on discs, tapes or other media) of Seller relating to the assets,
properties and operations of the Business;
(h) All of Seller's rights, claims or causes of action against third
parties relating to the assets, properties or operations of the Business
arising out of transactions occurring prior to the Closing Date; and
(i) Seller's interest in and to all telephone, telex and telephone
facsimile numbers and other directory listings of the Business and any
assumed or fictitious names related to the Business.
2.2 Excluded Assets. Notwithstanding the provisions of Section 2.1, the
Purchased Assets shall not include the following (herein referred to as the
"Excluded Assets"):
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(a) All cash, bank deposits, cash equivalents and security deposits;
(b) All notes receivable;
(c) All corporate minute books and stock transfer books and the
corporate seal of Seller;
(d) All contracts of insurance (except to the extent of policies Buyer
elects to have assigned to it); and
(e) Seller's employment benefit agreements, plans or arrangements
referenced in Section 5.16 or otherwise maintained by Seller with respect
to Persons employed by the Seller.
2.3 Assumed Liabilities. On the Closing Date, Buyer shall deliver to
Seller the Assumption Agreement pursuant to which Buyer shall assume and agree
to discharge the following obligations and liabilities of Seller in accordance
with their respective terms and subject to the respective conditions thereof:
(a) The Permitted Liabilities; and
(b) All liabilities and obligations of Seller to be paid or performed
after the Closing Date under the Purchased Contracts, except (A) to the
extent such liabilities and obligations, but for a breach or default by
Seller, would have been paid, performed or otherwise discharged on or prior
to the Closing Date or to the extent such liabilities and obligations arise
out of any such breach or default; and (B) to the extent such liabilities
and obligations would be required to be reflected on a statement as of the
Valuation Date prepared in accordance with Section 3.3 and were not so
reflected in the Valuation Date Statement and not taken into account as a
deduction in connection with the adjustment of the Purchase Price pursuant
to Section 3.3; and
(c) All obligations of Seller incurred in the ordinary course of
business with respect to any and all purchase orders outstanding on the
Closing Date.
All of the foregoing liabilities and obligations to be assumed by Buyer
hereunder (excluding any Excluded Liabilities) are referred to herein as the
"Assumed Liabilities."
2.4 Excluded Liabilities. Buyer shall not assume or be obligated to pay,
perform or otherwise discharge any liability or obligation of Seller, direct or
indirect, known or unknown, absolute or contingent, not expressly assumed by
Buyer pursuant to the Assumption Agreement (all such liabilities and obligations
not being assumed being herein called the "Excluded Liabilities") and,
notwithstanding anything to the contrary in Section 2.3, none of the following
shall be "Assumed Liabilities" for purposes of this Agreement:
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(a) Any liabilities of Seller in respect of any Taxes of Seller for
which Seller is liable pursuant to Section 8.1;
(b) Any liabilities or obligations of the Seller to any of its
Affiliates;
(c) Any costs and expenses incurred by Seller incident to its
negotiation and preparation of this Agreement and its performance and
compliance with the agreements and conditions contained herein;
(d) Any liabilities or obligations in respect of any Excluded Assets
including, but not limited to, any ERISA Benefit Plan;
(e) Any liabilities in respect of the claims or proceedings described
in Schedule 5.20; or
(f) Liabilities of any kind required to be reflected on the Valuation
Date Statement which were not reflected thereon as a dollar amount other
than obligations referred to in Section 2.3(c) above.
ARTICLE III
PURCHASE PRICE
--------------
3.1 Purchase Price. The cash purchase price for the Assets (the "Cash
Purchase Price") shall be equal to $17,100,467, as adjusted pursuant to Section
3.3. In addition thereto the non-cash portion of the purchase price shall be a
$1,197,082 million unsecured subordinated note, convertible into 38.3 membership
interests of Buyer in the form of Exhibit K (the "Subordinated Note"). The Cash
Purchase Price and the Subordinated Note are collectively referred to as the
"Purchase Price".
3.2 Allocation of Purchase Price. The Buyer shall have the right to
allocate the Purchase Price among the Purchased Assets in accordance with
Schedule 3.2. Seller shall sign and submit all necessary forms to report this
transaction for federal and state income tax purposes in accordance with Buyer's
allocation and shall not take a position for tax purposes inconsistent
therewith.
3.3 Adjustment of Purchase Price.
(a) Immediately prior to the Closing Date (but not later than one day
prior thereto) Buyer and Seller shall jointly prepare a statement
calculating the Valuation Date Amount (the "Valuation Date Statement"). In
connection with the preparation of the Valuation Date Statement, Buyer and
Seller shall jointly (i) on the Valuation Date (or such other time as they
may agree), take a physical inventory of the inventory to be
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included in the Purchased Assets and (ii) within three days of taking such
physical inventory, determine the value of such inventory using the lower
of cost or market method. The cost of such inventory shall be based on the
cost to Seller as reflected on its books and records.
(b) If the Valuation Date Amount is a positive, the Cash Purchase
Price shall be increased by such amount. If the Valuation Date Amount is a
negative, the Cash Purchase Price shall be decreased by such amount.
ARTICLE IV
CLOSING
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4.1 Closing Date. The Closing shall be consummated at 10:00 A.M., local
time, on October 9, 1997, or such later time or date as may be agreed upon by
Buyer and Seller after the conditions set forth in Articles IX and X have been
satisfied or waived, at the offices of Shefsky & Froelich Ltd. or at such other
place as shall be agreed upon by Buyer and Seller. The time and date on which
the Closing is actually held is sometimes referred to herein as the "Closing
Date."
4.2 Payment of the Purchase Price. Subject to fulfillment or waiver of
the conditions set forth in Article IX, at Closing Buyer shall pay by wire
transfer of immediately available funds an amount equal to $200,000 to the agent
under the Escrow Agreement or to an account designated by such agent in writing
prior to the Closing Date and an amount equal to the Cash Purchase Price reduced
by the amount deposited into escrow and adjusted as provided in Section 3.3 to
an account designated by Seller in writing prior to the Closing Date and shall
deliver to Seller the Subordinated Note.
4.3 Buyer's Additional Deliveries. Subject to fulfillment or waiver of
the conditions set forth in Article IX, at Closing Buyer shall deliver to Seller
all the following:
(a) A certificate of good standing for Buyer, issued as of a recent
date by the Secretary of State of the State of Delaware;
(b) The Assumption Agreement duly executed by Buyer;
(c) The certificate contemplated by Section 10.1, duly executed by an
executive officer of Buyer;
(d) The Employment Agreements duly executed by Buyer;
(e) The Lease duly executed by Buyer;
(f) The Escrow Agreement duly executed by Buyer; and
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(g) Any Buyer Ancillary Agreement duly executed by Buyer.
4.4 Seller's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article X, at Closing Seller and Principal Shareholders
shall deliver to Buyer all the following:
(a) A certificate of good standing of Seller issued as of a recent
date by the Secretary of State of the State of New Jersey;
(b) Such Uniform Commercial Code, federal tax lien, judgment and other
searches as may be reasonably requested by Buyer;
(c) A certificate of the Secretary of Seller, dated the Closing Date,
in form and substance reasonably satisfactory to Buyer, as to (i) no
amendments to the Articles of Incorporation of Seller since July 24, 1997;
(ii) the By-laws of Seller; (iii) the resolutions of the Board of Directors
of Seller authorizing the execution and performance of this Agreement and
the contemplated transactions; and (iv) incumbency and signatures of the
officers of Seller executing this Agreement and any Seller Ancillary
Agreement;
(d) The Instrument of Assignment duly executed by Seller;
(e) Certificates of title or origin (or like documents) with respect
to any vehicles or other equipment included in the Purchased Assets for
which a certificate of title or origin is required in order to transfer
title;
(f) The consents, waivers or approvals obtained by Seller with respect
to the Purchased Assets or the consummation of the transactions
contemplated by this Agreement;
(g) The certificate contemplated by Section 9.2, duly executed by the
authorized officer of Seller;
(h) The Employment Agreement duly executed by each of the Principal
Shareholders, Neil Cohen and Craig Cohen;
(i) An assignment, in recordable form, with respect to the
Intellectual Property;
(j) The Lease duly executed by the lessors thereunder;
(k) Such other bills of sale, assignments and other instruments of
transfer or conveyance as Buyer may reasonably request or as may be
otherwise necessary to evidence and effect the sale, assignment, transfer,
conveyance and delivery of the Purchased Assets to Buyer duly executed by
Seller;
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(l) The Escrow Agreement duly executed by Seller and Principal
Shareholders; and
(m) Any Seller Ancillary Agreements duly executed by Seller.
In addition to the above deliveries, Seller shall take all steps and actions as
Buyer may reasonably request or as may otherwise be necessary to put Buyer in
actual possession or control of the Purchased Assets and the Business.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
------------------------------
OF SELLER AND THE PRINCIPAL SHAREHOLDERS
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As an inducement to Buyer to enter into this Agreement and to consummate
the transactions contemplated hereby, Seller and Principal Shareholders, jointly
and severally, represent and warrant to Buyer and agree as follows:
5.1 Organization of Seller. Seller is a corporation duly organized,
validly existing and in good standing under the laws of the State of New Jersey.
Seller is duly qualified to transact business as a foreign corporation and is in
good standing under the laws of each state in which it leases or owns property
or conducts such business to require such qualification, except where the
failure to so qualify would not have a materially adverse effect upon Seller's
Business, properties or operations. No other jurisdiction has demanded,
requested or otherwise indicated that Seller is required so to qualify on
account of the ownership or leasing of the Purchased Assets or the conduct of
the Business. Seller has full power and authority to own or lease and to operate
and use the Purchased Assets and to carry on the Business as now conducted.
5.2 Subsidiaries and Investments. Seller does not, directly or
indirectly, (i) own, of record or beneficially, any outstanding voting
securities or other equity interests in any corporation, partnership, joint
venture or other entity which is involved in or relates to the Business or (ii)
control any corporation, partnership, joint venture or other entity which is
involved in or relates to the Business.
5.3 Authority of Seller. Seller and the Principal Shareholders have full
power and authority to execute, deliver and perform this Agreement and the
Seller Ancillary Agreements. The execution, delivery and performance of this
Agreement and the Seller Ancillary Agreements by Seller have been duly
authorized and approved by necessary corporate action of Seller and does not
require any further authorization or consent of Seller or its stockholders. This
Agreement has been duly authorized, executed and delivered by Seller and is the
legal, valid and binding agreement of Seller enforceable in accordance with its
terms and each of the Seller Ancillary Agreements has been duly authorized by
Seller and upon execution and delivery by
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Seller will be a legal, valid and binding obligation of Seller enforceable in
accordance with its terms.
Except as set forth in Schedule 5.3. neither the execution and delivery of
this Agreement or any Seller Ancillary Agreement nor the consummation of any of
the transactions contemplated hereby or thereby nor compliance with or
fulfillment of the terms, conditions and provisions hereof or thereof will:
(a) Conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon any of the Purchased Assets, under (1) the charter or by-laws of
Seller, (2) any material note, instrument, agreement, mortgage, lease,
license, franchise, permit or other authorization, right, restriction or
obligation to which Seller is a party or any of the Purchased Assets is
subject or by which Seller is bound, (3) any Court Order to which Seller is
a party or any of the Purchased Assets is subject or by which Seller is
bound, or (4) any Requirements of Laws affecting Seller or the Purchased
Assets; or
(b) Require the approval, consent, authorization or act of, or the
making by Seller of any declaration, filing or registration with, any
Person.
5.4 Financial Statements. Schedule 5.4 contains the audited balance
sheet of the Seller as of December 31, 1996 (the "Balance Sheet") and the
related statements of income for the year then ended. Except as set forth
therein or in the notes thereto, the Balance Sheet and statement of income have
been prepared in conformity with generally accepted accounting principles
consistently applied, and the Balance Sheet and related statement of income
present fairly the financial position and results of operations of the Seller as
of the date and for the respective period covered thereby. All accounting,
financial, business, tax and other books and records of the Seller related to
the Seller, taken as a whole, accurately reflect in all material respects the
business and financial condition of the Seller.
5.5 Operations Since the Balance Sheet Date.
(a) Except as set forth in Schedule 5.5(a), since the Balance Sheet
Date, there has been:
(i) No material adverse change in the Purchased Assets or, to the
knowledge of Seller, the Business or the operations, liabilities,
profits or condition (financial or otherwise) of the Seller, and to
the knowledge of Seller, no fact or condition exists or is
contemplated or threatened which might reasonably be expected to cause
such a change in the future, and
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(ii) No damage, destruction, loss or claim, whether or not
covered by insurance, or condemnation or other taking adversely
affecting in any material respect any of the Purchased Assets or the
Business.
(b) Except as set forth in Schedule 5.5(b), since the Balance Sheet
Date, Seller has conducted the Business only in the ordinary course and in
conformity with past practice. Without limiting the generality of the
foregoing, since the Balance Sheet Date, except as set forth in such
Schedule, Seller has not, in respect of the Business:
(i) Sold, leased (as lessor), transferred or otherwise disposed
of, or mortgaged or pledged, or imposed or suffered to be imposed any
Encumbrance on, any of the assets reflected on the Balance Sheet or
any assets acquired by the Seller after the Balance Sheet Date, except
for inventory and minor amounts of personal property sold or otherwise
disposed of for fair value in the ordinary course of the Business
consistent with past practice and except for Permitted Encumbrances;
(ii) Canceled any debts owed to or claims (including the
settlement of any claims or litigation) other than in the ordinary
course of the Business consistent with past practice;
(iii) Created, incurred or assumed, or agreed to create, incur or
assume, any indebtedness for borrowed money or entered into, as
lessee, any capitalized lease obligations (as defined in Statement of
Financial Accounting Standards No. 13);
(iv) Delayed or accelerated payment of any account payable or
other liability of the Business beyond or in advance of its due date
or the date when such liability would have been paid in the ordinary
course of the Business consistent with past practice;
(v) Allowed the levels of raw materials, supplies, work-in-
process or other materials included in the inventory to vary in any
material respect from the levels customarily maintained in the
Business; and
(vi) Instituted any material increase in any compensation payable
to any employee of Seller or in any profit-sharing, bonus, incentive,
deferred compensation, insurance, pension, retirement, medical,
hospital, disability, welfare or other benefits made available to
employees of Seller.
5.6 No Undisclosed Liabilities. Except as set forth in Schedule 5.6,
Seller is not subject to any liability (including, without limitation,
unasserted claims, whether known or unknown), whether absolute, contingent,
accrued or otherwise, which is not shown or which is in excess of amounts shown
or reserved for in the Balance Sheet, other than liabilities of the
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same nature as those set forth in the Balance Sheet and the notes thereto and
reasonably incurred in the ordinary course of the Business after the Balance
Sheet Date.
5.7 Taxes. Seller has, in respect of the Business, filed all Tax Returns
which are required to be filed and has paid all Taxes which have become due
pursuant to such Tax Returns or pursuant to any assessment which has become
payable. All monies required to be withheld by Seller from employees for income
Taxes and social security and other payroll Taxes have been collected or
withheld, and either paid to the respective Governmental Bodies, set aside in
accounts for such purpose, or accrued, reserved against and entered upon the
books of the Seller.
5.8 Inventories. The inventories of the Seller (including raw materials,
work-in-process, finished goods and other materials and supplies) are in good,
merchantable and usable condition and are reflected in the Balance Sheet at the
lower of cost or market and will be reflected in the Valuation Date Statement at
the lower of cost or market value.
5.9 Governmental Permits.
(a) Seller owns, holds or possesses all licenses, franchises, permits,
privileges, immunities, approvals and other authorizations from a
Governmental Body which are necessary to entitle it to own or lease,
operate and use the Purchased Assets and to carry on and conduct the
Business as currently conducted on the real property occupied by Seller
(herein collectively called "Governmental Permits") except for such
Governmental Permits as to which the failure to own, hold or possess would
not have a material adverse effect on the Purchased Assets or the Business.
Schedule 5.9 sets forth a list and brief description of each Governmental
Permit, except for such incidental licenses, permits and other
authorizations which would be readily obtainable by any qualified applicant
without undue burden in the event of any lapse, termination, cancellation
or forfeiture thereof. Complete and correct copies of all of the
Governmental Permits have heretofore been delivered to Buyer by Seller.
(b) Seller has performed its obligations under each Governmental
Permit, and no event has occurred or condition or state of facts exists
which constitutes or, after notice or lapse of time or both, would
constitute a breach or default under any such Governmental Permit or which
permits or, after notice or lapse of time or both, would permit revocation
or termination of any such Governmental Permit, or which might adversely
affect in any material respect the rights of Seller under any such
Governmental Permit. No notice of cancellation, of default or of any
dispute concerning any Governmental Permit, or of any event, condition or
state of facts described in the preceding sentence, has been received by,
or is known to, Seller. Except as set forth on Schedule 5.9, each
Governmental Permit is valid, subsisting and in full force and effect and
may be assigned and transferred to Buyer in accordance with this Agreement
and will continue in full force and effect thereafter, in each case without
(A) the occurrence of any breach, default or forfeiture of rights
thereunder, or (B) the consent, approval, or act of, or the making of any
filing with, any Governmental Body.
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5.10 Personal Property. Schedule 5.10 contains a detailed list of all
machinery, equipment, vehicles, furniture and other personal property owned by
Seller having an original cost of $5,000 or more and used in or relating to the
Business. All such personal property is (i) in good operating condition, usable
in the ordinary cause of business, (ii) in a state of normal maintenance and
repair, (iii) sufficient and adequate to carry on the Seller's operations as now
conducted and (iv) complies in all material respects with applicable laws.
5.11 Entire Assets. Except for the Excluded Assets, the Purchased Assets
constitute all the assets used in the Business (including, but not limited to,
all books, records, computers and computer programs and data processing systems)
and such assets are in good and serviceable condition (subject to normal wear
and tear) and are suitable for the uses for which intended.
5.12 Personal Property Leases. Schedule 5.12 contains a brief
description of each lease or other agreement or right, whether written or oral
(including in each case the annual rental, the expiration date thereof and a
brief description of the property covered), under which Seller is lessee of, or
holds or operates, any machinery, equipment, vehicle or other tangible personal
property owned by a third Person and used in or relating to the Business, except
for any such lease, agreement or right that involves the payment by Seller of
rentals of less than $1,000 per year (the "Personal Property Leases").
5.13 Intellectual Property.
(a) All United States and foreign trademarks, trade names, service
marks, copyrights and patents, and applications for each of the foregoing,
and assumed names and fictitious names, owned by the Seller and used in the
Business and all licenses or agreements under which the Seller has granted
or received the right to use any of the foregoing are listed in Schedule
5.13(a). The Seller has not, during the preceding five years, used in the
Business any trade name, trade style, or assumed name other than the trade
names and assumed names listed on Schedule 5.13(a).
(b) Other than as set forth in Schedule 5.13(b), no proceedings have
been instituted or are pending or, to Seller's knowledge, threatened which
challenge the validity of, or otherwise adversely affect the ownership or
use of such trademarks, trade names, patents and applications. Except as
set forth in Schedule 5.13(b), the Seller has no knowledge of the
infringing use of any of such trademarks and trade names or the
infringement of any of such patents by any other Person. Except as set
forth on Schedule 5.13(b), the Seller owns (or possesses adequate and
enforceable licenses or other rights to use) all trademarks, trade names,
patents, inventions, processes and other technical know-how and other
proprietary rights now used in the Business, and has not infringed and, to
Seller's knowledge, is not infringing on the trademarks, trade names,
patents, inventions, processes or other technical know-how or other
proprietary rights of any other Person.
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5.14 Real Properties.
(a) Schedule 5.14 contains a brief description (i) of the parcels of
real property leased by Seller and used in or relating to the Business (the
"Leased Real Properties"), showing the record title holder, permanent index
number, location, improvements, the uses being made thereof and any
indebtedness secured by a mortgage or other Encumbrance thereon, and (ii)
of each option held by Seller to acquire any real property for use in the
Business.
(b) The lease, occupancy, operation or use of the Leased Real
Properties, including all buildings, structures and improvements located
thereon (i) comply with and do not violate any restrictions imposed by any
declaration, covenant running with the land, lease, Governmental Permit,
deed of restriction, or other agreement affecting the Leased Real
Properties and (ii) in all material respects comply with and do not violate
any Requirements of Law, including, without limitation, fire and zoning.
The Seller and Principal Shareholders have not received notice that the
ownership, occupancy, operation or use of the Leased Real Properties,
including all buildings, structures and improvements located thereon do not
comply with or violate the requirements of insurance policies presently
maintained with respect thereto.
(c) There are no pending claims or, to Seller's or Principal
Shareholders' knowledge, any facts or circumstances which with notice or
the passage of time or both could give rise to any claim of possession by
the lessors of the Leased Real Properties as adverse possession by any
Person with respect the Leased Real Properties.
5.15 Condemnation. Neither the whole nor any part of the Leased Real
Properties is subject to any pending suit for condemnation or other taking by
any public authority, and, to the knowledge of Seller and Principal
Shareholders, no such condemnation or other taking is threatened or
contemplated.
5.16 Employees and Related Agreements; ERISA.
(a) Except as described in Schedule 5.16(a), Seller is not a party to
or bound by any oral or written:
(i) Employee collective bargaining agreement, employment
agreement, consulting, advisory or service agreement, deferred
compensation agreement, confidentiality agreement or covenant not to
compete;
(ii) Contract or agreement with any officer, director or employee
(other than employment agreements disclosed in response to clause
(i)), agent, or attorney-in-fact of Seller;
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(iii) Stock option, stock purchase, bonus or other incentive plan
or agreement;
(iv) Employee insurance plan, supplemental unemployment benefits,
vacation, severance or similar benefits; or
(v) ERISA Benefit Plan.
(b) Seller is in compliance with the health care continuation
requirements of Section 601, et. seq., of ERISA with respect to its
employees and their spouses, former spouses and dependents.
(c) All of the ERISA Benefit Plans have been operated in material
compliance with applicable provisions of ERISA, the Code, and regulations
thereunder; (ii) each of the ERISA Benefit Plans that is intended to be
qualified within the meaning of Section 401(a) of the Code is so qualified
and satisfies the requirements of Sections 401(a) and 501(a) of the Code;
and (iii) with respect to such ERISA Benefit Plans, Seller is in material
compliance with all applicable provisions of ERISA and the Code.
(d) No "reportable event" (as defined in Section 4043(b) of ERISA) has
occurred with respect to any plan covered under Title IV of ERISA that is
maintained for any employee of Seller.
(e) Seller has filed all reports and returns, and has made all
disclosures required by applicable provisions of ERISA and the Code.
(f) With respect to each ERISA Benefit Plan to Seller, the applicable
minimum funding standards of ERISA and the Code have been met without any
waiver thereof. Full payment has been (or prior to the Closing Date will
be) made of all amounts which are required or expected under the terms of
each ERISA Benefit Plan to have been paid for the period ending on the
Closing Date.
(g) 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 of the ERISA Benefit Plans which is qualified, or is
intended to qualify, under the Code. The "current value" of assets of each
such ERISA Benefit Plan will equal or exceed the "present value" of all
"accrued benefits" thereunder as of the Closing Date (as such terms are
defined in Section 3 of ERISA), as determined by Seller's enrolled actuary
based on actuarial assumptions and methods used in the most recent
actuarial valuation of each such ERISA Benefit Plan.
(h) On the Closing Date, Seller shall not have incurred nor will be
assessable for any liability to the PBGC (excluding premiums payable to the
PBGC) and
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there will not have occurred any event or condition which presents the risk
of assessment of any liability or termination of any plan by the PBGC.
(i) Assuming that each of Seller's ERISA Benefit Plans which is
subject to Title IV of ERISA (other than multiemployer plans as defined in
Section 3(37) or 4001(a)(3) (the "Multiemployer Plans")) were terminated as
of the Closing Date, Seller would have no liability under Title IV of ERISA
as a result of such termination. Except as described in Schedule 5.16(i),
Seller does not participate in any Multiemployer Plans and has no
withdrawal liability under any such Multiemployer Plan. No withdrawal
liability has been assessed and remains unpaid against Seller by any
Multiemployer Plan pursuant to the provisions of Part 1 of Subtitle E of
Title IV of ERISA, and Seller has no reason to believe that any such
withdrawal liability would be assessed against Seller if, as a result of
the transactions contemplated by this Agreement, there occurred a complete
withdrawal from each Multiemployer Plan.
(j) On the Closing Date, no transaction shall have occurred in
connection with which Seller could be subject to a civil penalty pursuant
to Section 502(i) of ERISA or which would constitute a prohibited
transaction under ERISA or be subject to a tax imposed under Section 4975
of the Code.
(k) Except as described in Schedule 5.16(k), there are no material
actions, suits or claims pending or threatened in connection with any of
the ERISA Benefit Plans.
(l) Schedule 5.16(l) contains: (i) a list of all employees of the
Seller as of December 31, 1996; (ii) the then current annual compensation
of such employees; (iii) a list of all present or former employees of the
Seller paid in excess of $25,000 in calendar year 1996 or 1997 who have
terminated or given notice of their intention to terminate their
relationship with Seller since January 1, 1997; and (iv) a list of any
increase, effective after January 1, 1997, in the rate of compensation of
any employees.
(m) Except as set forth in Schedule 5.16(m), (i) to its knowledge, the
Seller is not involved in any transaction or other situation with any
employee, officer, director or affiliate of Seller which may be generally
characterized as a "conflict of interest", including, but not limited to,
direct or indirect interests in the business of competitors, suppliers or
customers of the Seller, and (ii) there is no situation with respect to the
Business which involved or involves (A) the use of any corporate funds for
unlawful contributions, gifts, entertainment or other unlawful expenses
related to political activity, (B) the making of any direct or indirect
unlawful payments to government officials or others from corporate funds or
the establishment or maintenance of any unlawful or unrecorded funds, (C)
the violation of any of the provisions of The Foreign Corrupt Practices Act
of 1977, or any rules or regulations promulgated thereunder, (D) the
receipt of any illegal discounts or rebates or any other violation of the
antitrust laws, or (E) any investigation by the Securities and Exchange
Commission or any other federal, foreign, state or local government agency
or authority.
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5.17 Employee Relations. Except as set forth in Schedule 5.17, Seller
has complied in respect of the Business in all material respects with all
Requirements of Law which relate to prices, wages, hours, discrimination in
employment and collective bargaining and is not liable for any arrears of wages
or any Taxes or penalties for failure to comply with any of the foregoing.
Seller believes that its relations with its employees are satisfactory. Except
as set forth in Schedule 5.17, Seller is not a party to, and is not affected by
or threatened with, any dispute or controversy with a union or with respect to
unionization or collective bargaining involving the employees of Seller and all
agreements with unions have been reduced to writing. The Seller has delivered
to Buyer a true and complete copy of the most recent draft of the Agreement
between the Seller and Local 174, United Food & Commercial Workers International
Union, AFL-CIO & CLC (the "Union Agreement"). The terms of the final Union
Agreement will be in all material respects the same as the terms of the draft
Union Agreement delivered to Buyer, and will not contain any terms that are more
burdensome on the Buyer then the terms set forth in the draft Union Agreement.
5.18 Contracts. Except as set forth in Schedule 5.18 or any other
Schedule hereto, Seller is not a party to or bound by:
(a) Any contract for the purchase, sale or lease of real property or
any machinery, equipment or similar type personal property;
(b) Any contract for the purchase of goods or services which involved
the payment of more than $100,000 in 1996 or 1997, which Seller reasonably
anticipates will involve the payment of more than $100,000 in 1997, which
extends beyond December 31, 1997 or which requires aggregate payments over
$100,000 during the term;
(c) Any contract for the purchase, licensing or development of
software to be used by Seller;
(d) Any guarantee of the obligations of any Person other than
endorsements of negotiable instruments in the ordinary course of business;
(e) Any agreement which provides for, or relates to, the incurrence by
Seller of debt for borrowed money;
(f) Any contract not made in the ordinary course of the Business; or
(g) Any other contract, agreement, commitment, understanding or
instrument which is material to the Business.
5.19 Status of Contracts. Except as set forth in Schedule 5.19, each of
the contracts listed in Schedule 5.19 (the "Purchased Contracts") constitutes a
valid and binding obligation of the parties thereto, is in full force and
effect, may be transferred to Buyer pursuant to this Agreement, and will
continue in full force and effect thereafter, in each case without breaching
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the terms thereof or resulting in the forfeiture or impairment of any rights
thereunder and without the consent, approval or act of, or the making of any
filing with, any other party. Seller has fulfilled and performed in all material
respects its obligations under each of the Purchased Contracts, and Seller is
not in, or alleged to be in, breach or default under, nor is there or is there
alleged to be any basis for termination of, any of the Purchased Contracts and,
to the Seller's knowledge, no other party to any of the Purchased Contracts has
materially breached or defaulted thereunder, and no event has occurred and no
condition or state of facts exists which, with the passage of time or the giving
of notice or both, would constitute such a default or breach by Seller or, to
the knowledge of Seller, by any such other party. Seller is not currently
renegotiating any of the Purchased Contracts or paying liquidated damages in
lieu of performance thereunder. Complete and correct copies of each of the
Purchased Contracts have heretofore been delivered to Buyer by Seller.
5.20 No violation, Litigation or Regulatory Action. Except as set forth
in Schedule 5.20:
(a) The Purchased Assets and their uses comply in all material
respects with all applicable Requirements of Laws and Court Orders;
(b) Seller has complied in all material respects with all Requirements
of Laws and Court Orders;
(c) There are no lawsuits, claims, suits, proceedings or
investigations pending or, to the knowledge of Seller, threatened against
or affecting Seller nor, to the knowledge of Seller, is there any basis for
any of the same, and there is no lawsuit, suit or proceeding pending in
which Seller is the plaintiff or claimant which relates to the Purchased
Assets or the Business; and
(d) There is no action, suit or proceeding pending or, to the
knowledge of Seller, threatened which questions the legality or propriety
of the transactions contemplated by this Agreement.
5.21 Environmental and Health/Safety Matters. Except as set forth in
Schedule 5.21:
(a) The operations of the Seller is and has at all times been in
compliance in all material respects with all applicable Environmental Laws;
(b) The Seller has in all material respects obtained, maintained and
complied with all Governmental Permits required by Environmental Laws and
necessary for the operation of the Business, and such Governmental Permits
are transferable to the Buyer without any change to their respective terms
and conditions;
(c) No Hazardous Substances have been generated, transported, stored,
treated, recycled or otherwise handled in any way in the operation of the
Business;
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(d) There are no locations not owned or operated by the Seller where
Hazardous Substances have been stored, treated, recycled or disposed of;
(e) No Hazardous Substances are located on, contained in or otherwise
form a part of the Property of the Seller used in the Business;
(f) There is no past or ongoing Release from any of the Leased Real
Properties or, from Properties associated with the operation of the
Business or from other locations where Hazardous Substances associated with
the operation of the Business have been or are located except for federally
permitted Releases;
(g) There is no information indicating that any Person may have
impaired health as a result of the operation of the Business or the
ownership or use of any Property associated with the operation of the
Business or as the result of the Release from such Properties;
(h) The Seller has not treated, stored for more than ninety (90) days,
or disposed of any hazardous waste (as such term is used within the meaning
of the RCRA or similar applicable state or municipal Law);
(i) The Seller has not received any notice from any Governmental Body
or other Person advising that any of them is potentially responsible for
Remedial Action with respect to a Release or threatened Release;
(j) No underground storage tanks are or, ever were, located on any
Property owned or leased by the Seller;
(k) No Order, litigation, settlement or citation with respect to
Hazardous Substances exists to which the Seller is a party;
(l) There has been no environmental investigation conducted by any
Governmental Body with respect to the Seller; and
(m) There are no PCBs which are located on, contained in or otherwise
form a part of any of the Purchase Assets, the Leased Real Properties or
any other Property.
5.22 Insurance. Schedule 5.22 sets forth a list and brief description
(including nature of coverage, limits, deductibles, premiums and the loss
experience for the most recent five years with respect to each type of coverage)
of all policies of insurance maintained, owned or held by Seller on the date
hereof. Seller shall keep or cause such insurance or comparable insurance in
full force and effect through the Closing Date. Seller has complied with each
of such insurance policies and has not failed to give any notice or present any
claim thereunder in a due and timely manner.
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5.23 Product Warranty and Product Liability. Except as set forth on
Schedule 5.23, there are no material product warranty or material product
liability claims pending or to Seller's knowledge, threatened against the Seller
and to Seller's knowledge there is no state of facts or the occurrence of any
event forming the basis for any such product warranty, product liability or
other tort claim. Schedule 5.23 sets forth a complete and accurate list of all
product warranty and product liability claims made against Seller within the
past five years.
5.24 Suppliers. Except as set forth on Schedule 5.24, to Seller's
knowledge there exist no present condition or state of facts involving the
largest 10 suppliers to the Seller (based on purchases by the Seller during the
past twelve (12) months), which could have a material adverse affect on the
future financial condition or results of operation of the Seller or any present
product line of the Seller.
5.25 Customers. Except as set forth on Schedule 5.25, to Seller's
knowledge there exist no present condition or state of facts involving the
largest 10 customers of the Seller (based on sales by the Seller during the past
twelve (12) months), which could have material adverse affect on the future
financial condition or results of operation of the Seller or any present product
line of the Seller.
5.26 No Finder. Neither Seller nor any Person acting on its behalf has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
5.27 Disclosure. None of the representations or warranties of Seller
contained herein, none of the information contained in the Schedules referred to
in Article V, and none of the other information or documents furnished or to be
furnished to Buyer or any of its representatives by Seller or its
representatives pursuant to the terms of this Agreement, is false or misleading
in any material respect or omits to state a fact herein or therein necessary to
make the statements herein or therein not misleading in any material respect.
To the knowledge of Seller and excluding general business conditions, there is
no fact which adversely affects or in the future is likely to adversely affect
the Purchased Assets or the Business in any material respect which has not been
set forth or referred to in this Agreement or the Schedules hereto.
5.28 Prior Transactions. All prior transactions to which the Seller may
have been a party with respect to the sale of the assets of Seller or stock of
Seller have been terminated and Seller has no further obligation thereunder
including, but not limited to, the payment of any costs, fees, damages or other
payments with respect thereto.
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ARTICLE VI
REPRESENTATIONS AND WARRANTIES OF BUYER
---------------------------------------
As an inducement to Seller to enter into this Agreement and to consummate
the transactions contemplated hereby, Buyer hereby represents and warrants to
Seller and agrees as follows:
6.1 Organization of Buyer. (a) Buyer is a limited liability corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware and has full power and authority to own or lease and to
operate and use its properties and assets and to carry on its business as now
conducted. The Buyer, or its assigns which closes title to the assets of the
Seller, is, or at Closing, will be, duly qualified to do business in the State
of New Jersey.
(b) The Buyer has furnished to the Seller true and complete copies
(including any attachments and amendments thereto) of the Articles of
Organization, Operating Agreements and Illinois Forms LLC-45.5 of the
following subsidiaries:
(i) Diversified Foods Group, L.L.C.
(ii) Classic Confectionery, L.L.C.
(iii) Great American Ice Cream Co., L.L.C.
(c) The Buyer has furnished to the Seller true and complete copies
(including any attachments and amendments thereto) of the Articles of
Incorporation, Bylaws, Certificate of Good Standing and Illinois Forms BCA-
11.25 and BCA-5.10 of Restauranic, Inc.
6.2 Authority of Buyer. Buyer has full power and authority to execute,
deliver and perform this Agreement and the Buyer Ancillary Agreements. The
execution, delivery and performance of this Agreement and the Buyer Ancillary
Agreements have been duly authorized and approved by Buyer's Members. This
Agreement has been duly authorized, executed and delivered by Buyer and is the
legal, valid and binding agreement of Buyer enforceable in accordance with its
terms and each of the Buyer Ancillary Agreements has been duly authorized by
Buyer and upon execution and delivery by Buyer will be a legal, valid and
binding obligation of Buyer enforceable in accordance with its terms.
Neither the execution and delivery of this Agreement or of any Buyer
Ancillary Agreements or the consummation of any of the transactions contemplated
hereby or thereby nor compliance with or fulfillment of the terms, conditions
and provisions hereof or thereof will:
(a) Conflict with, result in a breach of the terms, conditions or
provisions of, or constitute a default, an event of default or an event
creating rights of acceleration, termination or cancellation or a loss of
rights under, or result in the creation or imposition of any Encumbrance
upon any of Buyer's assets, under (1) Buyer's Operating Agreement
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or Articles of Organization, (2) any material note, instrument, agreement,
mortgage, lease, license, franchise, permit or other authorization, right,
restriction or obligation to which Buyer is a party of any of its assets is
subject or by which Buyer is bound, (3) any Court Order to which Buyer is a
party or any of its assets is subject or by which Buyer is bound, or (4)
any Requirements of Laws affecting Buyer or its assets; or
(b) Require the approval, consent, authorization or act of, or the
making by Buyer of any declaration, filing or registration with, any
Person.
6.3 Capitalization. Schedule 6.3 contains a true and complete list of
the record holders of the Buyer's membership interests, and sets forth the full
name and percentage owned by each member. All such outstanding membership
interests have been duly authorized and validly issued, and are fully paid and
non-assessable. Except as set forth in Schedule 6.3, there are no options,
warrants, conversion privileges or other rights presently outstanding to
purchase or otherwise acquire any unissued securities of Buyer, nor any
agreement or understandings with respect thereto.
6.4 Financial Statements. Schedule 6.4 contains the audited balance
sheet of the Buyer as of December 31, 1996 and the related statements of income
for the years then ended. Except as set forth therein or in the notes thereto,
the balance sheet and statement of income have been prepared in conformity with
generally accepted accounting principals consistently applied, and the balance
sheet and related statement of income present fairly the financial position and
results of operations of the Buyer as of the date and for the respective period
covered thereby. All accounting, financial, business, tax and other books and
records of the buyer related to the Buyer, taken as a while, accurately reflect
in all material respects the business and financial condition of the Buyer.
6.5 No Material Omissions. None of the representations or warranties of
Buyer contained herein or on the Schedules hereto is false or misleading in any
material respect or omits to state a fact herein or therein necessary to make
the statements herein or therein not misleading in any material respect.
6.6 No Material Adverse Events or Conditions. Since June 30, 1997, no
event or condition has occurred which would materially adversely affect the
financial forecasts set forth in Exhibit V or the conclusion regarding value
reached in Section 6.0 of the Appraisal of the Fair Market Value of the Common
Stock of the Company, dated June 30, 1997, prepared by Rome Associates, LLP.
6.7 No Finder. Neither Buyer nor any Person acting on its behalf has
paid or become obligated to pay any fee or commission to any broker, finder or
intermediary for or on account of the transactions contemplated by this
Agreement.
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ARTICLE VII
ACTION PRIOR TO THE CLOSING DATE
--------------------------------
The respective parties hereto covenant and agree to take the following
actions between the date hereof and the Closing Date:
7.1 Investigation of the Business by Buyer. Seller shall afford to the
officers, employees and authorized representatives of Buyer (including, without
limitation, independent public accountants and attorneys) complete access during
normal business hours to the offices, properties, employees and business and
financial records (including computer files, retrieval programs and similar
documentation) of Seller to the extent Buyer shall deem necessary or desirable
(including, but not limited to, to enable Buyer to do an environmental study)
and shall furnish to Buyer or its authorized representatives such additional
information as shall be reasonably requested, including all such information as
shall be necessary to enable Buyer or its representatives to verify the accuracy
of the representations and warranties contained in this Agreement, to verify
that the covenants of Seller contained in this Agreement have been complied with
and to determine whether the conditions set forth in Article IX have been
satisfied. Buyer agrees that such investigation shall be conducted in such a
manner as not to interfere unreasonably with the operations of Seller. No
investigation made by Buyer or its representatives hereunder shall affect the
representations and warranties of Seller hereunder. Under no circumstances
shall Buyer conduct any environmental studies of the Seller's premises other
than a Phase I study without Seller's written consent.
7.2 Preserve Accuracy of Representations and Warranties. Each of the
parties hereto shall refrain from taking any action which would render any
representation or warranty contained in Articles V or VI of this Agreement
inaccurate as of the Closing Date. Each party shall promptly notify the other
of any action, suit or proceeding that shall be instituted or threatened against
such party to restrain, prohibit or otherwise challenge the legality of any
transaction contemplated by this Agreement. Seller shall promptly notify Buyer
of any lawsuit, claim, proceeding or investigation that may be threatened,
brought, asserted or commenced against Seller which would have been listed in
Schedule 5.20 if such lawsuit, claim, proceeding or investigation had arisen
prior to the date hereof.
7.3 Consents of Third Parties; Governmental Approvals.
(a) Seller will act diligently and reasonably to secure, before the
Closing Date, any consent, approval or waiver, in form and substance
reasonably satisfactory to Buyer, from any party to any Purchased Contract
required to be obtained to assign or transfer such Purchased Contract to
Buyer or to otherwise satisfy the conditions set forth in Section 9.4;
provided that neither Seller nor Buyer shall have any obligation to offer
or pay any consideration in order to obtain any such consent, or approval;
and provided, further, that Seller shall not make any agreement or
understanding affecting the Purchased Assets or the Business as a condition
for obtaining any such consent, approval or waiver
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except with prior written consent of Buyer. During the period prior to the
Closing Date, Buyer shall act diligently and reasonably to cooperate with
Seller to obtain the consents, approvals and waivers contemplated by this
Section 7.3(a).
(b) During the period prior to the Closing Date, Seller and Buyer
shall act diligently and reasonably, and shall cooperate with each other,
to secure any consents and approvals of any Governmental Body required to
be obtained by them in order to assign or transfer any Governmental Permits
to Buyer, to permit the consummation of the transactions contemplated by
this Agreement, or to otherwise satisfy the conditions set forth in Section
9.4; provided that Seller shall not make any agreement or understanding
affecting the Purchased Assets or the Business as a condition for obtaining
any such consents or approvals except with the prior written consent of
Buyer.
(c) During the period prior to the Closing Date, Seller and Buyer
shall act diligently and reasonably, and shall cooperate with each other,
to secure the consent of the Seller's bank to the assumption of any bank
indebtedness by Buyer and the general release of the Seller and Principal
Shareholder therefrom and to secure the consent of Buyer's bank, if
required, to the transactions contemplated hereunder.
7.4 Operations Prior to the Closing Date.
(a) Seller shall operate and carry on the Business only in the
ordinary course and substantially as presently operated. Consistent with
the foregoing, Seller shall keep and maintain the Purchased Assets in good
operating condition and repair and shall use its best efforts consistent
with good business practice to maintain the business organization of the
Seller intact and to preserve the goodwill of the suppliers, customers,
licensors, employees, and others having business relations with the Seller.
In connection therewith, Seller shall not (i) offer employment after the
Closing Date to any such employee or agent or (ii) otherwise attempt to
persuade any such person to terminate his or her relationship with the
Seller.
(b) Notwithstanding Section 7.4(a), except as expressly contemplated
by this Agreement or except with the express written approval of Buyer,
Seller shall not:
(i) make any capital expenditure or enter into any contract or
commitment therefor in excess of $15,000 for any one item;
(ii) enter into any contract, agreement, undertaking or
commitment which would have been required to be set forth in Schedule
5.18;
(iii) enter into any contract for the purchase or lease of real
property to be used for the Business;
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(iv) sell, lease (as lessor), transfer or otherwise dispose of,
or mortgage or pledge, or impose or suffer to be imposed any
Encumbrance on, any of the Purchased Assets, other than inventory and
minor amounts of personal property sold or otherwise disposed of for
fair value in the ordinary course of the Business consistent with past
practice and other than Permitted Encumbrances;
(v) cancel any debts owed to or claims held by Seller (including
the settlement of any claims or litigation) other than in the ordinary
course of the Business consistent with past practice;
(vi) create, incur or assume, or agree to create, incur or
assume, any indebtedness for borrowed money or enter into, as lessee,
any capitalized lease obligations (as defined in Statement of
Financial Accounting Standards No. 13);
(vii) delay or accelerate payment of any account payable or other
liability of the Business beyond or in advance of its due date or the
date when such liability would have been paid in the ordinary course
of the Business consistent with past practice;
(viii) allow the levels of raw materials, supplies, work-in-
process or other material included in inventory to vary in any
material respect from the levels customarily maintained in the
Business;
(ix) institute any material increase in any profit-sharing,
bonus, incentive, deferred compensation, insurance, pension,
retirement, medical, hospital, disability, welfare or other employee
benefit plan with respect to Seller's employees; or
(x) make any material change in the compensation of Seller's
employees, other than changes made in accordance with normal
compensation practices and consistent with past compensation
practices.
7.5 Notification by Seller of Certain Matters. During the period prior
to the Closing Date, Seller will promptly advise Buyer in writing of (i) any
material adverse change in the condition of the Purchased Assets or the
Business, (ii) any notice or other communication from any third Person alleging
that the consent of such third Person is or may be required in connection with
the transactions contemplated by this Agreement, and (iii) any material default
under any Purchased Contract or event which, with notice or lapse of time or
both, would become such a default on or prior to the Closing Date and of which
Seller has knowledge.
7.6 Exclusive Dealing. From the date hereof and until the Closing or, if
earlier, upon the termination of this Agreement pursuant to Section 12.1, Seller
agrees that neither it nor
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any of its employees, agents and representatives (including, without limitation,
any investment banking, legal or accounting firm retained by it and any
individual member or employee of the foregoing) (each, an "Agent") not to (a)
initiate, solicit or seek, directly or indirectly, any inquiries or the making
or implementation of any proposal or offer (including, without limitation, any
proposal or offer to its stockholders or any of them) with respect to a merger,
acquisition, consolidation, recapitalization, liquidation, dissolution or
similar transaction involving, or any purchase of all or any substantial portion
of the assets or any equity securities of, Seller (any such proposal or offer
being hereinafter referred to as an "Acquisition Proposal"), or (b) engage in
any negotiations concerning, or provide any confidential information or data to,
or have any substantive discussions with, any persons relating to an Acquisition
Proposal, or (c) otherwise cooperate in any effort or attempt to make, implement
or accept an Acquisition Proposal.
7.7 Labor Negotiations. Seller shall not enter into any collective
bargaining or other labor negotiations without the prior written consent of the
Buyer, which consent shall not be unreasonably withheld. Seller shall use its
reasonable efforts to permit Buyer to attend and observe (but not participate
in, unless requested by the Seller) any negotiating sessions. The Seller shall
consult with Buyer during all such negotiations.
ARTICLE VIII
ADDITIONAL AGREEMENTS
---------------------
8.1 Taxes and Transfer Taxes.
(a) Seller shall be liable for and shall pay all Taxes (whether
assessed or unassessed) applicable to the Business or the Purchased Assets,
in each case attributable to periods (or portions thereof) ending on or
prior to the Closing Date.
(b) Any Tax (including a sales Tax, use Tax, or gains Tax) directly
attributable to the sale or transfer of the Purchased Assets (but in no
event including any income Tax) shall be paid by Seller. Buyer and Seller
agree to timely sign and delivery such certificates or forms as may be
necessary or appropriate to establish an exemption from (or otherwise
reduce), or make a report with respect to, such Taxes.
(c) Seller or Buyer, as the case may be, shall provide reimbursement
for any Tax paid by one party all or a portion of which is the
responsibility of the other party in accordance with the terms of Section
8.1(a). Within a reasonable time prior to the payment of any such Tax, the
party paying such Tax shall give notice to the other party of the Tax
payable and the portion which is the liability of each party, although
failure to do so will not relieve the other party from its liability
hereunder.
8.2 Discharge of Liabilities. Seller and the Principal Shareholders,
jointly and severally, covenant and agree that they will pay and discharge, and
hold Buyer harmless from,
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each and every liability and obligation of Seller in respect of the Business or
the Purchased Assets arising from events occurring on or prior to the Closing
Date, excepting only the Assumed Liabilities assumed by Buyer at the Closing
pursuant to the Assumption Agreement, it being understood and agreed that Buyer
is assuming no liabilities or obligations of Seller other than the Assumed
Liabilities.
8.3 Employees and Employee Benefit Plans.
(a) Buyer shall offer employment to each of the employees of the
Seller (other than those covered by the Employment Agreements) who are
actively at work or on an approved vacation or leave of absence on the
Closing Date effective on the Closing Date. The Seller shall use its
reasonable efforts to encourage each of its employees to accept Buyer's
offer of employment, and shall terminate each of the employees of the
Seller, effective as of the Closing Date. Each such employee shall be
deemed to have accepted the offer of employment with Buyer by reporting to
work on the Closing Date or, if such employee was on an approved vacation
or leave of absence on such date, by reporting to work on the first
scheduled work day following the expiration of such vacation or leave.
Buyer's initial offer of employment shall be on terms and conditions
substantially equal to those provided by Seller immediately prior to the
Closing Date. Buyer shall provide its employees with welfare benefits
similar to the welfare benefits Seller's employees are currently receiving.
Notwithstanding the foregoing, this Section 8.3 shall not be construed to
confer upon any person other than the parties hereto any rights or remedies
hereunder and shall not be construed to limit Buyer's ability to promote,
demote, terminate and otherwise manage its employees, or to amend or
terminate its employee benefit plans or adjust its employee compensation
arrangements after the Closing Date.
(b) Buyer shall not be liable, and Seller shall retain sole
responsibility and liability, for (i) any claim made by or with respect to
any employee of the Seller who resigns or is or was terminated by Seller
prior to the Closing Date or is on a leave of absence from Seller and does
not return to active service, (ii) any claim made by any employee or former
employee of the Seller for severance pay or other post-termination benefits
by reason of the transactions contemplated by this Agreement, (iii) all
ERISA Benefit Plans maintained by Seller prior to the Closing Date; (iv)
any claim made by or with respect to any employee or former employee of the
Seller with respect to acts or omissions of Seller or any of its ERISA
Benefit Plans prior to the Closing Date, including all claims incurred but
not reported under such ERISA Benefit Plans prior to the Closing Date, or
(v) any retroactive adjustment or payment which may be required under any
insurance arrangement or contract relating to such ERISA Benefit Plans
which may be determined as of the Closing Date. All of such liabilities
shall be treated as part of the Excluded Liabilities for all purposes
hereunder.
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ARTICLE IX
CONDITIONS PRECEDENT TO OBLIGATIONS OF BUYER
--------------------------------------------
The obligations of Buyer under this Agreement shall, at the option of
Buyer, be subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
9.1 Due Diligence. Buyer shall be satisfied, as Buyer shall, in its sole
discretion, determine, with the results of the investigation of the business of
Seller as provided in Section 7.1. The Buyer shall have the right to terminate
this Agreement in the event it is not satisfied with the investigation provided
that it gives Seller notice of such dissatisfaction more than 20 days prior to
the Closing Date.
9.2 No Misrepresentation or Breach of Covenants and Warranties. There
shall have been no material adverse change in the Business and Purchased Assets
and no material damage (whether or not covered by insurance) to the Purchased
Assets and no material breach by Seller or the Principal Shareholders in the
performance of any of their covenants and agreements herein; each of the
representations and warranties of Seller and the Principal Shareholders
contained or referred to herein shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date, except for
changes therein specifically permitted by this Agreement or resulting from any
transaction expressly consented to in writing by Buyer or any transaction
permitted by Section 7.4; and there shall have been delivered to Buyer a
certificate or certificates to such effect, dated the Closing Date, signed on
behalf of Seller by the President or any Vice President of Seller and by the
Principal Shareholders.
9.3 No Restraint or Litigation. No action, suit, investigation or
proceeding shall have been instituted or threatened to restrain or prohibit or
otherwise challenge the legality or validity of the transactions contemplated
hereby.
9.4 Necessary Consents. Seller shall have received the consents
specified in Section 7.3 and Buyer shall have received consent from Buyer's
lenders, in form and substance reasonably satisfactory to Buyer. The parties
shall have received all approvals and actions of or by all Governmental Bodies
which are necessary to consummate the transactions contemplated hereby, which
are either specified herein or otherwise required to be obtained prior to the
Closing by applicable Requirements of Law or which are necessary to prevent a
material adverse change in the Purchased Assets, the Business or the operations,
liabilities, profits, or condition (financial or otherwise) of the Business.
9.5 Lease. The owners of the existing facility being occupied by the
Seller in Newark, New Jersey shall lease said facility to Buyer on a triple-net
lease basis for a period of three years at an annual rental of $220,000 per
year, payable in twelve equal monthly installments commencing from the Closing.
Said Lease shall contain such other terms and provisions as the Buyer may
reasonably require including, but not limited to, options to renew and shall be
substantially in the form and text of the lease attached hereto as Exhibit G.
Seller and the
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Principal Shareholders agree to use their best efforts to cause the owner of the
subject facility to enter said Lease. Seller shall obtain the written consent of
the mortgagee of the property upon which the facility is located.
9.6 Employment Contracts. Sidney Cohen, Edward Cohen, Neil Cohen and
Craig Cohen will have entered into employment contracts with Buyer in the form
and text of the employment agreements attached hereto as Exhibits C, D, E and F,
respectively and the Principal Shareholders will use their best efforts to cause
Neil Cohen and Craig Cohen to execute such employment agreements.
9.7 Title Insurance. Buyer shall have received, with respect to the
property which is the subject of the Lease, a current title insurance
commitment, written by a nationally recognized title insurance company in an
amount, form and substance satisfactory to Buyer showing that the lessor under
the Lease has good and marketable title thereto, free and clear of all
Encumbrances, except for real estate taxes not yet due and payable and for any
mortgages where the mortgagees have delivered to Buyer a non-disturbance
agreement and estoppel certificate in forms reasonably satisfactory to Buyer.
9.8 Opinion of Counsel. Buyer shall have received a written opinion from
Seller's counsel addressed to Buyer dated as of the Closing Date in form and
substance reasonably satisfactory to Buyer and its counsel, to the effect set
forth in Exhibit I.
ARTICLE X
CONDITIONS PRECEDENT TO OBLIGATIONS OF SELLER
---------------------------------------------
The obligations of Seller under this Agreement shall, at the option of
Seller, be subject to the satisfaction, on or prior to the Closing Date, of the
following conditions:
10.1 No Misrepresentation or Breach of Covenants and Warranties. There
shall have been no material breach by Buyer in the performance of any of its
covenants and agreements herein; each of the representations and warranties
contained or referred to herein shall be true and correct in all material
respects on the Closing Date as though made on the Closing Date, except for
changes therein specifically permitted by this Agreement or resulting from any
transaction expressly consented to in writing by Seller or any transaction
contemplated by this Agreement; and there shall have been delivered to Seller a
certificate or certificates to such effect, dated the Closing Date and signed on
behalf of Buyer by a duly authorized officer or member.
10.2 No Restraint or Litigation. No action, suit or proceeding by any
Governmental Body shall have been instituted or threatened to restrain, prohibit
or otherwise challenge the legality or validity of the transactions contemplated
hereby.
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10.3 Opinion of Counsel. Seller shall have received a written opinion
from Buyer's counsel addressed to Seller dated as of the Closing Date in form
and substance reasonably satisfactory to Buyer and its counsel, to the effect
set forth in Exhibit J.
10.4 Executed Employment Contracts. Buyer shall have entered into
employment contracts with Sidney Cohen, Edward Cohen, Neil Cohen and Craig Cohen
in the form and text of the employment agreements attached hereto as Exhibits C,
D, E and F, respectively.
10.5 Executed Lease Agreement. Buyer shall have entered into the Lease.
ARTICLE XI
INDEMNIFICATION
---------------
11.1 Indemnification by Seller and Principal Shareholders. Seller and
the Principal Shareholders, jointly and severally agree to indemnify and hold
harmless Buyer from and against any and all Losses and Expenses incurred by
Buyer in connection with or arising from:
(a) Any breach by Seller, Principal Shareholders or any of them
("Seller Indemnitors") of any of its covenants in this Agreement or in any
Seller Ancillary Agreement, or any failure of Seller Indemnitors to perform
any of its obligations in this Agreement or in any Seller Ancillary
Agreement;
(b) Any breach of any warranty or the inaccuracy of any representation
of Seller Indemnitors contained or referred to in this Agreement or any
certificate delivered by or on behalf of Seller pursuant hereto;
(c) The failure to comply with any applicable bulk sales law, except
that this clause shall not affect the obligation of Buyer to pay and
discharge the Assumed Liabilities; and
(d) The failure of Seller to satisfy any Excluded Liability,
including, without limitation:
(i) All liabilities of Seller in respect of Taxes for which
Seller is liable pursuant to Section 8.1;
(ii) All liabilities and obligations in respect of the claims or
proceedings described in Schedule 5.2; and
(iii) All product liability claims, whenever made, relating to
products made, distributed or sold by the Seller on or prior to the
Closing Date.
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The indemnification provided for in this Section 11.1 shall terminate three
years after the Closing Date (and no claims shall be made by Buyer under this
Section 11.1 thereafter), except that the indemnification by the Seller
Indemnitors shall continue as to:
(w) The obligations and representations of Seller under the Instrument
of Assignment, as to which no time limitation shall apply;
(x) The representations and warranties set forth in Section 5.7 and
5.16 and the covenants of Seller set forth in Sections 8.1, 13.2 and 13.13,
as to all of which no time limitation shall apply;
(y) The representations and warranties set forth in Section 5.21,
which shall survive for seven years after the Closing Date; and
(z) Any Loss or Expense of which Buyer has notified Seller Indemnitors
in accordance with the requirements of Section 11.4 on or prior to the date
such indemnification would otherwise terminate in accordance with this
Section 11.1, as to which the obligation of Seller Indemnitors shall
continue until the liability of Seller Indemnitors shall have been
determined pursuant to this Article XI, and Seller Indemnitors shall have
reimbursed Buyer for the full amount of such Loss and Expense in accordance
with this Article XI.
11.2 Environmental Indemnification.
(a) Except as otherwise limited by this Article XI, from and after the
Closing Date, Seller Indemnitors agree to indemnify and hold harmless Buyer
from and against any and all Losses and Expenses incurred or suffered by
Buyer resulting from or arising out of:
(i) Any liability or obligation under any Environmental Law as a
result of the operation of the Business or the use, lease, ownership
or possession of any Properties on or prior to the Closing Date or any
condition of the Properties existing on or prior to the Closing Date;
(ii) The violation or claimed violation (by a third party) of any
Environmental Law or the imposition of any Environmental Encumbrance
for the recovery of any Losses or Expenses arising from acts or
omissions of the Seller, or any predecessor thereof or conditions of
any of the Properties existing or arising on or prior to the Closing
Date;
(iii) The use, generation, storage, treatment or disposal of any
Hazardous Substance by the Seller or any predecessor thereof or any
prior owner or operator of the Leased Real Properties or any other
Property;
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(iv) The Release of Hazardous Substances onto or beneath any
Properties from any other property or onto or beneath any other
property from any Properties existing or arising on or before the
Closing Date;
(v) The disposal of Hazardous Substances on any Properties by any
Person on or before the Closing Date;
(vi) The removal, treatment, remediation, or disposal of
Hazardous Substances or any other materials on or from any Properties
on or before the Closing Date;
(vii) Any personal injuries or property damages, any orders of
Governmental Bodies, and any actions brought or threatened arising out
of or in any way related to Hazardous Substances on, in, from, under,
affecting or otherwise resulting from operations of the Business or
any Properties existing or arising on or before the Closing Date; or
(viii) Any inaccuracy in or breach of any representation or
warranty contained in Section 5.21.
(b) To the extent Buyer is entitled to indemnification pursuant to
Section 11.2(a), Seller Indemnitors and their Affiliates, successors and
assigns hereby forever waive, release and agree not to make any claim or
bring any cost recovery action against Buyer its successors and assigns
under CERCLA or any other Environmental Law existing or hereinafter enacted
relating to the operation of the Business or the use, lease, ownership, or
possession of any of the Properties prior to the Closing.
(c) Any Loss or Expense of which Buyer has notified Seller Indemnitors
in accordance with the requirements of Section 11.4 on or prior to the date
such indemnification would otherwise terminate in accordance with Section
11.1, as to which the obligation of Seller Indemnitors shall continue until
their liability shall have been determined pursuant to this Article XI, and
Seller Indemnitors shall have reimbursed Buyer for the full amount of such
Loss and Expense in accordance with this Article XI.
11.3 Indemnification by Buyer. Buyer agrees to indemnify and hold
harmless Seller from and against any and all Losses and Expenses incurred by
Seller in connection with or arising from:
(a) Any breach by Buyer of any of its covenants or agreements in this
Agreement or in any Buyer Ancillary Agreement or any failure by Buyer to
perform any of its obligations in this Agreement or in any Buyer Ancillary
Agreement; and
34
<PAGE>
(b) Any breach of any warranty or the inaccuracy of any representation
of Buyer contained or referred to in this Agreement or in any certificate
delivered by or on behalf of Buyer pursuant hereto; and
(c) Any claim or liability arising out of the conduct by Buyer of the
Business from and after the Closing Date.
The indemnification provided for in this Section 11.3 shall terminate five
years after the Closing Date (and no claims shall be made by Seller under this
Section 11.3 thereafter), except that the indemnification by Buyer shall
continue as to:
(a) The covenants of Buyer set forth in Sections 13.2. and 13.13, as
to all of which no time limitation shall apply; and
(b) Any Loss or Expense of which Seller has notified Buyer in
accordance with the requirements of Section 11.4 on or prior to the date
such indemnification would otherwise terminate in accordance with this
Section 11.3, as to which the obligation of Buyer shall continue until the
liability of Buyer shall have been determined pursuant to this Article XI,
and Buyer shall have reimbursed Seller for the full amount of such Loss and
Expense in accordance with this Article XI.
11.4 Notice of Payments of Claims -- Limitation.
(a) Any party (the "Indemnified Party") seeking indemnification
hereunder shall give to the party or parties obligated to provide
indemnification to such Indemnified Party (the "Indemnitor") a notice (a
"Claim Notice") describing in reasonable detail the facts giving rise to
any claim for indemnification hereunder and shall include in such Claim
Notice (if then known) the amount or the method of computation of the
amount of such claim, and a reference to the provision of this Agreement or
any agreement, document or instrument executed pursuant hereto or in
connection herewith upon which such claim is based; provided, that a Claim
Notice in respect of any action at law or suit in equity by or against a
third Person as to which indemnification will be sought shall be given
promptly after the action or suit is commenced; provided further that
failure to give such notice shall not relieve the Indemnitor of its
obligations hereunder except to the extent it shall have been prejudiced by
such failure.
(b) After the giving of any Claim Notice pursuant hereto, the amount
of indemnification to which an Indemnified Party shall be entitled under
this Article XI shall be determined: (i) by the written agreement between
the Indemnified Party and the Indemnitor; (ii) by a final judgment or
decree of any court of competent jurisdiction; or (iii) by an arbitration
award entered pursuant to Section 11.6 The judgment or decree of a court
shall be deemed final when the time for appeal, if any, shall have expired
and no appeal shall have been taken or when all appeals taken shall have
been finally determined.
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The Indemnified Party shall have the burden of proof in establishing the
amount of Loss and Expense suffered by it.
(c) If the Indemnified Party is Buyer, Buyer shall seek reimbursement
from the escrow prior to seeking reimbursement from the Seller Indemnitors.
(d) Anything herein to the contrary notwithstanding, the Seller and
Principal Shareholders shall not be obligated to indemnify Buyer for any
Losses or Expenses until, and only to the extent that, the aggregate amount
of all Losses and Expenses exceeds $100,000 and Seller and Principal
Shareholders shall not be obligated to indemnify the Buyer for any amounts
in excess of the amounts paid by Buyer to Seller hereunder.
11.5 Third Person Claims.
(a) The Indemnitor shall have the right to conduct and control,
through counsel of its choosing, the defense, compromise or settlement of
any third Person claim, action or suit against the Indemnified Party as to
which indemnification will be sought by any Indemnified Party from any
Indemnitor hereunder if the Indemnitor has acknowledged and agreed in
writing that if the same is adversely determined, the Indemnitor has an
obligation to provide indemnification to the Indemnified Party in respect
thereof. In any such case, the Indemnified Party shall cooperate in
connection therewith and shall furnish such records, information and
testimony and attend such conferences, discovery proceedings, hearings,
trials and appeals as may be reasonably requested by the Indemnitor in
connection therewith. The Indemnified Party may participate, through
counsel chosen by it and at its own expense, in the defense of any such
claim, action or suit as to which the Indemnitor has so elected to conduct
and control the defense thereof. Notwithstanding the foregoing, the
Indemnified Party shall have the right to pay, settle or compromise any
such claim, action or suit, provided that in such event the Indemnified
Party shall waive any right to indemnity therefor hereunder unless such
consent is unreasonably withheld in which event no claim for indemnity
therefor hereunder shall be waived.
11.6 Resolution of Disputes; Remedies.
(a) Any dispute, controversy or claim arising out of or relating to
this Agreement or any contract or agreement entered into pursuant hereto or
the performance by the parties of its or their terms shall be settled by
binding arbitration held in the City of Chicago, Illinois in the event the
arbitration proceedings are commenced by Buyer or the City of Newark, New
Jersey in the event the arbitration proceedings are commenced by Seller or
the Principal Shareholders, in accordance with the Commercial Arbitration
Rules of the American Arbitration Association then in effect, except as
specifically otherwise provided in this Section.
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<PAGE>
(b) If the matter in controversy (exclusive of attorney fees and
expenses) shall appear, as at the time of the demand for arbitration, to
exceed $250,000, then the panel to be appointed shall consist of three
neutral arbitrators; otherwise, one neutral arbitrator.
(c) The arbitrator(s) shall allow such discovery as the arbitrator(s)
determine appropriate under the circumstances and shall resolve the dispute
as expeditiously as practicable, and if reasonably practicable, within 120
days after the selection of the arbitrator(s). The arbitrator(s) shall
give the parties written notice of the decision, with the reasons therefor
set out, and shall have 30 days thereafter to reconsider and modify such
decision if any party so requests within 10 days after the decision.
Thereafter, the decision of the arbitrator(s) shall be final, binding, and
nonappealable with respect to all persons, including (without limitation)
persons who have failed or refused to participate in the arbitration
process.
(d) The arbitrator(s) shall have authority to award relief under legal
or equitable principles, including interim or preliminary relief, and to
allocate responsibility for the costs of the arbitration and to award
recovery of attorneys fees and expenses in such manner as is determined to
be appropriate by the arbitrator(s).
(e) Judgment upon the award rendered by the arbitrator(s) may be
entered in any court having in persona and subject matter jurisdiction.
Seller and Buyer hereby submit to the persona jurisdiction of the Federal
and State courts as herein provided for the purpose of confirming any such
award and entering judgment thereon.
(f) All proceedings under this Section, and all evidence given or
discovered pursuant hereto, shall be maintained in confidence by all
parties.
(g) The fact that the dispute resolution procedures specified in this
Section shall have been or may be invoked shall not excuse any party from
performing its obligations under this Agreement and during the pendency of
any such procedure all parties shall continue to perform their respective
obligations in good faith, subject to any rights to terminate this
Agreement that may be available to any party and to the right of setoff,
which any party may exercise pending resolution of any dispute, controversy
or claim.
(h) The arbitration procedure in this Section 11.6 shall be the
exclusive remedy available to Buyer and Seller hereunder to resolve any
claim, controversy or dispute arising hereunder.
11.7 Exclusivity of Indemnification. Indemnification under Sections
11.1, 11.2 and 11.3 of this Agreement shall be the sole remedy available to
Buyer and Seller in respect of any Losses and Expenses incurred by Buyer or
Seller arising under Sections 11.1, 11.2 or 11.3.
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<PAGE>
ARTICLE XII
TERMINATION
-----------
12.1 Termination. Anything contained in this Agreement to the contrary
notwithstanding, this Agreement may be terminated at any time prior to the
Closing Date:
(a) By the mutual consent of Buyer and Seller;
(b) By Buyer in the event of any material breach by Seller or the
Principal Shareholders of any of Seller's or the Principal Shareholders'
agreements, representations, or warranties contained herein and the failure
of such party to cure such breach within seven days after receipt of notice
from Buyer requesting such breach to be cured;
(c) By Seller in the event of any material breach by Buyer of any of
Buyer's agreements, representations, or warranties contained herein and the
failure of Buyer to cure such breach within seven days after receipt of
notice from Seller requesting such breach to be cured; or
(d) By Buyer as provided in Section 9.1.
12.2 Notice of Termination. Any party desiring to terminate this
Agreement pursuant to Section 12.1 shall give notice of such termination to the
other party to this Agreement.
12.3 Effect of Termination. In the event that this Agreement shall be
terminated pursuant to this Article XII all further obligations of the parties
under this Agreement (other than Sections 13.2 and 13.10) shall be terminated
without further liability of any party to the other, provided that nothing
herein shall relieve any party from liability for its breach of this Agreement.
ARTICLE XIII
GENERAL PROVISIONS
------------------
13.1 Survival of Obligations. All representations, warranties, covenants
and obligations contained in this Agreement shall survive for such time as the
indemnity for the breach thereof shall survive as set forth in Sections 11.1,
11.2 and 11.3.
13.2 Confidential Nature of Information. Each party agrees that it will
treat in confidence all documents, materials and other information which it
shall have obtained regarding the other party during the course of the
negotiations leading to the consummation of the transactions contemplated hereby
(whether obtained before or after the date of this Agreement),
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<PAGE>
the investigation provided for herein and the preparation of this Agreement and
other related documents. Such documents, materials and information shall not be
communicated to any third Person (other than, in the case of Buyer, to its
counsel, accountants, financial advisors or lenders, and in the case of Seller,
to its counsel, accountants or financial advisors). No other party shall use any
confidential information in any manner whatsoever except solely for the purpose
of evaluating the proposed purchase and sale of the Purchased Assets; provided,
however, that after the Closing Buyer may use or disclose any confidential
information included in the Purchased Assets or otherwise reasonably related to
the Business or the Purchased Assets. The obligation of each party to treat such
documents, materials and other information in confidence shall not apply to any
information which (i) is or becomes available to such party from a source other
than such party, (ii) is or becomes available to the public other than as a
result of disclosure by such party or its agents, (iii) is required to be
disclosed under applicable law or judicial process, but only to the extent it
must be disclosed, or (iv) such party reasonably deems necessary to disclose to
obtain any of the consents or approvals contemplated hereby.
13.3 No Public Announcement. Neither Buyer nor Seller shall, without the
approval of the other, make any press release or other public announcement
concerning the transactions contemplated by this Agreement, except as and to the
extent that any such party shall be so obligated by law, in which case the other
party shall be advised and the parties shall use their best efforts to cause a
mutually agreeable release or announcement to be issued; provided that the
foregoing shall not preclude communications or disclosures necessary to
implement the provisions of this Agreement or to comply with any accounting and
Securities and Exchange Commission disclosure obligations.
13.4 Notices. All notices or other communications required or permitted
hereunder shall be in writing and shall be deemed given, delivered and received
(a) when delivered, if delivered personally by a commercial messenger delivery
service with verification of delivery, (b) four days after mailing, when sent by
registered or certified mail, return receipt requested and postage prepaid, (c)
one business day after delivery to a private courier service, when delivered to
a private courier service providing documented overnight service, (d) on the
date of delivery if delivered by facsimile and electronically confirmed before
5:00 p.m. (local time) on any business day, or (e) on the next business day if
delivered by facsimile and electronically confirmed either after 5:00 p.m.
(local time) or on a non-business day, in each case addressed as follows:
If to Seller:
Cohen's Famous Frozen Foods, Inc.
c/o 22 Tremont Terrace
Livingston, New Jersey 07039
Attn: Sidney Cohen
PH: (201) 824-2700
FAX: (201) 648-0871
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with a copy to:
Lampf, Lipkind, Prupis, Petigrow & LaBue
80 Main Street
West Orange, New Jersey 07052
Attn: William D. Lipkind
PH: (973) 325-2100
FAX: (973) 325-2839
If to Buyer:
Diversified Food Group, L.L.C.
6901 North Hamlin Avenue
Lincolnwood, Illinois 60645
Attn: Andrew Zahn
PH: (847) 763-9500
FAX: (847) 763-0022
with a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue, Suite 2500
Chicago, Illinois 60611
Attn: Howard A. Davis
PH: (312) 836-4011
FAX: (312) 527-1007
or to such other address or addresses as may hereafter be specified by notice
given by any of the above to the others.
If to Principal Shareholders:
Sidney Cohen
22 Tremont Terrace
Livingston, New Jersey 07039
PH: (201) 824-2700
FAX: (201) 648-0871
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<PAGE>
with a copy to:
Lampf, Lipkind, Prupis, Petigrow & LaBue
80 Main Street
West Orange, New Jersey 07052
Attn: William D. Lipkind
PH: (973) 325-2100
FAX: (973) 325-2839
13.5 Successors and Assigns.
(a) The rights of any party under this Agreement shall not be
assignable by such party hereto prior to the Closing without the written
consent of the other, except that the rights of Diversified Food Group,
L.L.C. may be assigned to an entity controlled by Diversified Food Group,
L.L.C. or its lender without the consent of Seller provided Diversified
Food Group, L.L.C. shall not be released from any liabilities hereunder.
(b) This Agreement shall be binding upon and inure to the benefit of
the parties hereto and their successors and permitted assigns. Nothing in
this Agreement, expressed or implied, is intended or shall be construed to
confer upon any Person other than the parties and successors and assigns
permitted by this Section 13.5 any right, remedy or claim under or by
reason of this Agreement.
13.6 Access to Records after Closing. For a period of six years after
the Closing Date, Seller and its representatives shall have reasonable access to
all of the books and records of the Business transferred to Buyer hereunder to
the extent that such access may reasonably be required by Seller in connection
with matters relating to or affected by the operations of the Business prior to
the Closing Date. Such access shall be afforded by Buyer upon receipt of
reasonable advance notice and during normal business hours. Seller shall be
solely responsible for any costs or expenses incurred by it pursuant to this
Section 13.6. If Buyer shall desire to dispose of any of such books and records
prior to the expiration of such six-year period, Buyer shall, prior to such
disposition, give Seller a reasonable opportunity, at Seller's expense, to
segregate and remove such books and records as Seller may select.
For a period of six years after the Closing Date, Buyer and its
representatives shall have reasonable access to all of the books and records
relating to the Business which Seller may retain after the Closing Date. Such
access shall be afforded by Seller and its Affiliates upon receipt of reasonable
advance notice and during normal business hours. Buyer shall be solely
responsible for any costs and expenses incurred by it pursuant to this Section
13.6. If Seller or any of its Affiliates shall desire to dispose of any of such
books and records prior to the expiration of such three-year period, Seller
shall, prior to such disposition, give Buyer a reasonable opportunity, at
Buyer's expense, to segregate and remove such books and records as Buyer may
select.
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13.7 Entire Agreement; Amendments. This Agreement and the Exhibits and
Schedules referred to herein and the documents delivered pursuant hereto contain
the entire understanding of the parties hereto with regard to the subject matter
contained herein or therein, and supersede all prior agreements, understandings
or letters of intent between or among any of the parties hereto. This Agreement
shall not be amended, modified or supplemented except by a written instrument
signed by an authorized representative of each of the parties hereto.
13.8 Interpretation. Article titles and headings to sections herein are
inserted for convenience of reference only and are not intended to be a part of
or to affect the meaning or interpretation of this Agreement. The Schedules and
Exhibits referred to herein shall be construed with and as an integral part of
this Agreement to the same extent as if they were set forth verbatim herein.
13.9 Waivers. Any term or provision of this Agreement may be waived, or
the time for its performance may be extended, by the party or parties entitled
to the benefit thereof. Any such waiver shall be validly and sufficiently
authorized for the purposes of this Agreement if, as to any party, it is
authorized in writing by an authorized representative of such party. The
failure of any party hereto to enforce at any time any provision of this
Agreement shall not be construed to be a waiver of such provision, nor in any
way to affect the validity of this Agreement or any part hereof or the right of
any party thereafter to enforce each and every such provision. No waiver of any
breach of this Agreement shall be held to constitute a waiver of any other or
subsequent breach.
13.10 Expenses. Each party hereto will pay all costs and expenses
incident to its negotiation and preparation of this Agreement and to its
performance and compliance with all agree ments and conditions contained herein
on its part to be performed or complied with, including the fees, expenses and
disbursements of its counsel and accountants.
13.11 Severability.
(a) If any provision of this Agreement shall, for any reason, be held
unenforceable, such provision to the extent enforceable shall be severed
from this Agreement unless, as a result of such severance, the Agreement
fails to reflect the basic intent of the parties. If the Agreement
continues to reflect the basic intent of the parties, then the invalidity
of such specific provision shall not affect the enforceability of any other
provision herein, and the remaining provisions shall remain in full force
and effect.
(b) In the event that any covenant or restriction contained herein is
determined by a court of law to be overly broad, thereby making the
covenant unenforceable, the parties hereto agree, and it is their desire,
that such court shall substitute a judicially enforceable limitation in its
place, and that as so modified the covenant shall be binding upon the
parties as if originally set forth herein.
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13.12 Execution in Counterparts. This Agreement may be executed in one
or more counterparts, each of which shall be considered an original instrument,
but all of which shall be considered one and the same agreement, and shall
become binding when one or more counterparts have been signed by each of the
parties hereto and delivered to each of Seller and Buyer.
13.13 Further Assurances. On the Closing Date Seller shall (i) deliver
to Buyer such other bills of sale, deeds, endorsements, assignments and other
good and sufficient instruments of conveyance and transfer, in form reasonably
satisfactory to Buyer and its counsel, as Buyer may reasonably request or as may
be otherwise reasonably necessary to vest in Buyer all the right, title and
interest of Seller in, to or under any or all of the Purchased Assets, and (ii)
take all steps as may be reasonably necessary to put Buyer in actual possession
and control of all the Purchased Assets. From time to time following the
Closing, Seller shall execute and deliver, or cause to be executed and
delivered, to Buyer such other instruments of conveyance and transfer as Buyer
may reasonably request or as may be otherwise necessary to more effectively
convey and transfer to, and vest in, Buyer and put Buyer in possession of, any
part of the Purchased Assets.
13.14 Governing Law. This Agreement shall be governed by and construed
in accordance with the internal laws (as opposed to the conflicts of law
provisions) of the State of Delaware.
13.15 Submission to Jurisdiction. Seller and Buyer hereby irrevocably
submit in any suit, action or proceeding arising out of or related to this
Agreement or any of the transactions contemplated hereby or thereby to the
jurisdiction of the United States District Court for the Northern District of
Illinois or any court of the State of Illinois located in Chicago if the suit,
action or proceeding is commenced by Buyer or the District of New Jersey and the
jurisdiction of any court of the State of New Jersey located in Newark if the
suit, action or proceeding is commenced by Seller or the Principal Shareholders,
and the parties waive any and all objections to jurisdiction that they may have
under the laws of the State of the United States in which the suit, action or
proceeding is brought in accordance with the foregoing provisions.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed the day and year first above written.
DIVERSIFIED FOOD GROUP, L.L.C.
By: /s/ Andrew J. Zahn
--------------------------------
COHEN'S FAMOUS FROZEN FOODS, INC.
By: /s/ Sidney R. Cohen
--------------------------------
Sidney R. Cohen, President
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SIDNEY COHEN, a Principal Shareholder
/s/ Sidney R. Cohen
________________________________________
EDWARD COHEN, a Principal Shareholder
/s/ Edward B. Cohen
________________________________________
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<PAGE>
EXHIBIT 10.2
- --------------------------------------------------------------------------------
STOCK PURCHASE AGREEMENT
FOR
COMMON STOCK
OF
SWEET SHOP CANDIES, INC.,
a Texas corporation
BY AND BETWEEN
DIVERSIFIED FOOD GROUP, L.L.C.,
SWEET SHOP CANDIES, INC.
and
JAMES H. WEBB
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
PAGE
<S> <C>
ARTICLE I PURCHASE AND SALE OF PURCHASED SECURITIES 1
1.1 Purchase and Sale of Stock............................ 1
1.2 Purchase Price........................................ 1
1.3 Adjustment to Purchase Price.......................... 2
1.4 Earn-Out Interests.................................... 2
1.5 The Closing........................................... 3
ARTICLE II REPRESENTATIONS AND WARRANTIES OF THE PURCHASER.............. 6
2.1 Status................................................ 6
2.2 Power and Authority................................... 6
2.3 Enforceability........................................ 6
2.4 No Commissions........................................ 7
2.5 Records............................................... 7
2.6 Financial Statements.................................. 7
2.7 Capitalization........................................ 7
2.8 Subsidiaries.......................................... 8
2.9 No Violation.......................................... 8
2.10 Changes Since the Current Balance Sheet Date.......... 8
2.11 Accuracy of Information Furnished by DFG.............. 9
2.12 Restrictions.......................................... 9
2.13 Litigation............................................ 9
2.14 Compliance with Laws.................................. 9
2.15 Tax Matters........................................... 10
2.16 Environmental and Safety Matters...................... 10
2.17 Investor Status....................................... 11
ARTICLE III REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDER
AND THE COMPANY.............................................. 12
3.1 Class I Representations............................... 12
3.2 Class II Representations.............................. 16
3.3 Class III Representations............................. 18
3.4 Class IV Representations.............................. 23
3.5 Class V Representations............................... 26
ARTICLE IV CONDUCT OF BUSINESS PENDING THE CLOSING...................... 30
4.1 Conduct of Company Business Pending the Closing....... 30
ARTICLE V ADDITIONAL AGREEMENTS........................................ 32
5.1 Further Assurances.................................... 32
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
5.2 Compliance with Covenants............................. 32
5.3 Cooperation........................................... 32
5.4 Access to Information................................. 33
5.5 Notification of Certain Matters....................... 33
5.6 Tax Treatment......................................... 33
5.7 Confidentiality; Publicity............................ 33
5.8 No Other Discussions.................................. 33
5.9 Environmental Assessment.............................. 34
5.10 Other Agreements...................................... 34
5.11 Necessary Authority................................... 34
5.12 Certification of Tax Status........................... 34
5.13 Put Right............................................. 34
5.14 Reinvestment Right.................................... 35
5.15 Building Lease........................................ 36
5.16 Assignment............................................ 37
5.17 Waiver of Preemptive Rights........................... 37
ARTICLE VI CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER............... 37
6.1 Accuracy of Representations and Compliance with
Obligations........................................... 37
6.2 No Material Adverse Change or Destruction of
Property.............................................. 38
6.3 Corporate Certificate................................. 38
6.4 Opinion of Counsel.................................... 38
6.5 Consents.............................................. 38
6.6 Governmental Approvals................................ 38
6.7 Securities Laws....................................... 39
6.8 Company Stock......................................... 39
6.9 No Adverse Litigation................................. 39
6.10 Purchase Review....................................... 39
6.11 The Purchaser's Approvals............................. 39
6.12 Due Diligence......................................... 39
6.13 Employment and Consulting Agreements.................. 39
6.14 Other Closing Deliveries.............................. 40
ARTICLE VII CONDITIONS TO THE OBLIGATIONS OF THE COMPANY
AND THE SHAREHOLDER.......................................... 40
7.1 Accuracy of Representations and Warranties and
Compliance with Obligations........................... 40
7.2 Delivery of the Purchase Price........................ 40
7.3 No Adverse Litigation................................. 41
7.4 Opinion of Counsel.................................... 41
7.5 Other Closing Deliveries.............................. 41
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
ARTICLE VIII INDEMNIFICATION.............................................. 41
8.1 Agreement by the Shareholder to Indemnify............. 41
8.2 Agreement by the Purchaser to Indemnify............... 44
8.3 Conditions of Indemnification......................... 46
8.4 Escrowed Interests and Rights of Setoff to Secure
the Shareholder's Indemnification Obligation.......... 46
ARTICLE IX SECURITIES LAW MATTERS....................................... 48
9.1 Disposition of the Purchaser Securities............... 48
9.2 Legend................................................ 48
ARTICLE X DEFINITIONS.................................................. 49
10.1 Defined Terms......................................... 49
10.2 Other Definitional Provisions......................... 57
ARTICLE XI TERMINATION, AMENDMENT AND WAIVER............................ 57
11.1 Termination........................................... 57
11.2 Effect of Termination................................. 58
11.3 Confidentiality....................................... 58
ARTICLE XII GENERAL PROVISIONS........................................... 58
12.1 Notices............................................... 58
12.2 Entire Agreement...................................... 60
12.3 Expenses.............................................. 60
12.4 Amendment; Waiver..................................... 60
12.5 Binding Effect; Assignment............................ 60
12.6 Counterparts.......................................... 60
12.7 Interpretation........................................ 60
12.8 Governing Law; Interpretation......................... 61
12.9 Arm's Length Negotiations............................. 61
12.10 Arbitration Procedures................................ 61
</TABLE>
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<TABLE>
<CAPTION>
INDEX OF SCHEDULES
------------------
<C> <S>
Schedule 2.6 - DFG Financial Statements
Schedule 2.7(a) - DFG Capitalization Table, including options
Schedule 2.8 - List of DFG Subsidiaries
Schedule 2.9 - Violations
Schedule 2.10 - Changes Since Current Balance Sheet Date
Schedule 2.12(a) - Restrictions on DFG Doing Business
Schedule 2.13(a) - Litigation
Schedule 2.14 - Compliance with Laws
Schedule 2.15 - Tax Matters
Schedule 2.16 - Environmental and Safety Matters
Schedule 2.18 - Prior History
Schedule 3.1(b) - Shareholder Power and Authority
Schedule 3.1(d)(i) - Capitalization Table
Schedule 3.1(d)(ii) - Violations of Capital Structure
Schedule 3.1(e) - Shareholders
Schedule 3.1(f) - No Violations
Schedule 3.1(g) - Company Records
Schedule 3.1(h) - Subsidiaries
Schedule 3.1(i) - Litigation
Schedule 3.1(j)(i) - Compliance with the Laws
Schedule 3.1(j)(iv) - Limitations on Company's ability to carry on business
Schedule 3.1(k) - Intellectual Property
Schedule 3.1(l) - Names Prior/Acquisitions
Schedule 3.1(m) - Restrictions
Schedule 3.2(a) - Financial Statements
Schedule 3.2(b) - Changes since Current Balance Sheet Date
Schedule 3.2(c) - Liabilities
Schedule 3.2(d) - Receivables
Schedule 3.2(e) - Customer List and recurring revenue
Schedule 3.2(f) - Inventory
Schedule 3.3(a) - Labor and Employment Matters
Schedule 3.3(b) - Employee Benefit Plans and Arrangements
Schedule 3.3(c) - Tax Mattes
Schedule 3.4(a) - Owned Properties
Schedule 3.4(a)(ii) - Leases
Schedule 3.4(b)(i) - Indefeasible Title and Condition of Assets
Schedule 3.4(b)(ii) - Fixed Assets
Schedule 3.4(b)(iii) - Vehicles
Schedule 3.4(c) - Adequacy of Assets
Schedule 3.5(a) - Environmental and Safety Matters
</TABLE>
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<TABLE>
<CAPTION>
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Schedule 3.5(a)(vii) - Company Health Concerns
Schedule 3.5(a)(x) - Underground Storage Tanks
Schedule 3.5(b) - Insurance
Schedule 3.5(c) - License and Permits
Schedule 3.5(d) - Contracts
Schedule 3.5(h) - Update Schedules
Schedule 4.1 - Conduct of Company business pending closing
Schedule 4.2 - Conduct of DFG business pending closing
</TABLE>
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STOCK PURCHASE AGREEMENT
------------------------
THIS PURCHASE AGREEMENT (the "Agreement") is entered into and effective as
of February ___, 1998, by and among DIVERSIFIED FOOD GROUP, L.L.C., a Delaware
limited liability company ("DFG"), an assignee (if any) that is controlled by
DFG (together with DFG, the "Purchaser"), SWEET SHOP CANDIES, INC., a Texas
corporation ( the "Company") and JAMES H. WEBB, the sole shareholder of the
Company (the "Shareholder"). Certain other capitalized terms used herein are
defined in Article X or elsewhere throughout this Agreement.
RECITALS
--------
A. Subject to certain shares held in escrow which will be released at
Closing, the Shareholder owns, and until the Closing (as defined herein) will
own, all of the issued and outstanding capital stock and equity securities of
the Company (the "Stock").
B. The Purchaser desires to purchase and the Shareholder desires to sell
the Stock upon the terms and subject to the conditions set forth in this
Agreement.
TERMS OF AGREEMENT
------------------
In consideration of the mutual representations, warranties, covenants and
agreements contained herein, the parties hereto agree as follows:
ARTICLE I
PURCHASE AND SALE OF PURCHASED SECURITIES
-----------------------------------------
1.1 Purchase and Sale of Stock. Subject to the terms and conditions of this
Agreement, at the Closing Date, the Purchaser agrees to purchase from the
Shareholder and the Shareholder agrees to sell, transfer and convey to the
Purchaser, the Stock free of all Liens and encumbrances thereon.
1.2 Purchase Price. The aggregate purchase price for the Stock (the
"Purchase Price") shall be payable as follows:
(a) SIX MILLION TWO HUNDRED TWENTY-FOUR THOUSAND TWO HUNDRED EIGHTY-
SIX DOLLARS ($6,224,286), subject to reduction under Section 1.3 hereof
(the "Cash Portion");
(b) 38,617 Interests (the "Put Interests"), which the parties have
agreed have a fair market value of ONE MILLION EIGHT HUNDRED FIFTEEN
THOUSAND DOLLARS ($1,815,000); and
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(c) The Earn-Out Interests, as issued pursuant to Section 1.4 hereof.
1.3 Adjustment to Purchase Price. On the Closing Date, the difference
between the Total Assets and Total Liabilities for the Company ("Company Net
Worth") shall not be less then Eight Hundred Eighty Thousand Nine Hundred Fifty-
One Dollars ($880,951). If Company Net Worth is less than Eight Hundred Eighty
Thousand Nine Hundred Fifty-One Dollars ($880,951), the Purchaser shall notify
the Shareholder of the shortfall and submit a proposal for an adjustment to the
Purchase Price. If the Shareholder and the Purchase cannot agree on the amount
of such adjustment, the Purchaser may terminate this Agreement under Section
11.1(b).
1.4 Earn-Out Interests.
(a) As part of the Purchase Price described in Section 1.2 hereof, the
Shareholder shall receive an amount (the "Earn-Out Amount") equal to the
amount by which EBITDA for the Company for the fiscal year from July 1,
1998 through June 30, 1999 exceeds $950,000.00. The Earn-Out Amount shall
be paid in the form of additional Interests (the "Earn-Out Interests") and
the number of Earn-Out Interests shall be equal to the result determined by
dividing the Earn-Out Amount by $47.00 per Interest, which shall be
proportionately adjusted to reflect the effect of any Interest split,
dividend, or other similar adjustment by the Company to the number of
Interests owned by each Member.
(b) The Purchaser shall cause the Company to compute EBITDA under the
Company's method of accounting in accordance with the example on Exhibit
"A", using the information the Company shall submit to its independent
auditors in connection with the preparation of its financial statements.
The Company shall use accounting procedures which are consistent with those
it has used since its stock was acquired by the Purchaser and which are in
accordance with GAAP, consistently applied. The Purchaser shall submit the
result of its computation of EBITDA to the Shareholder, along with the work
papers and other information used in making this calculation.
(c) In the event the Shareholder does not agree with the Company's
calculation of EBITDA, he shall deliver a written notice to the Company
within twenty-one (21) days after delivery of the EBITDA calculation, which
notice shall state the reason for such disagreement. If the Shareholder
does not provide such written notice, he shall be deemed to have agreed to
the EBITDA calculation. If the Shareholder and the Company fail to resolve
the dispute within twenty-one (21) days after receipt of the written
notice, the Company shall have its auditors review the Company's books and
records to compute the Company's EBITDA. The Company shall deliver the
auditor's determination of EBITDA, and the Shareholder and his advisors
shall have reasonable access to the working papers of the Company's
auditors for purpose of confirming the accuracy of the calculation of
EBITDA. If the Shareholder does not agree with this calculation of EBITDA
he shall deliver a written notice to the Company within 21 days after
delivery of the auditor's determination of EBITDA, which notice shall state
the reason for such disagreement. If the Shareholder
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<PAGE>
does not provide such written notice, he shall be deemed to have agreed to
the auditor's EBITDA determination. If the Shareholder and the Company are
still unable to resolve any disputes regarding the EBITDA calculation
following the auditor's determination thereof, the dispute shall be
resolved through binding arbitration. The dispute shall be submitted for
binding arbitration pursuant to the Arbitration Procedures set forth in
Section 12.10 hereof.
(d) The Shareholder's right to receive the Earn-Out Interests does not
impose an absolute obligation on the Purchaser or the Company to maximize
the sales of the Company during the period in which the Earn-Out Amount
shall be determined, but does obligate the Purchaser to operate the Company
in a good faith manner consistent with prior operating policies and
practices and to not shift sales away from the Company to a Subsidiary or
Affiliate that would normally have been made by the Company based on past
practices of the Company prior to closing.
1.5 The Closing.
(a) Closing Date. The closing of the purchase and sale of the Stock
(the "Closing") shall take place on or before March 5, 1998 or as promptly
as practicable (and in any event within five business days) after
satisfaction or waiver of the conditions set forth in Articles VI and VII
(the "Closing Date"), at the offices of Michener & Larimore in Fort Worth,
Texas or such other place as the parties may otherwise agree.
(b) Payments and Deliveries. The Purchaser shall make the following
payments and deliveries:
(i) on the date this Agreement is executed, DFG shall deposit
$500,000 (the "Deposit") with the Deposit Escrow Agent in accordance
with the Deposit Escrow Agreement which shall represent a deposit to
be applied against the Cash Portion and which shall be non-refundable
and shall be transferred by the Deposit Escrow Agent to the
Shareholder as liquidated damages in the event the Purchaser wrongly
fails to timely perform on its obligations hereunder; provided,
however, if the Shareholder or the Company fail to make all Closing
Deliveries in Section 1.5(d) or otherwise wrongly fail to comply with
his or its obligations hereunder, the Deposit Escrow Agent will
transfer the Deposit to the Purchaser;
(ii) subject to fulfillment or waiver of the conditions set forth
in Article VI, at Closing, Purchaser shall pay by wire transfer of
immediately available funds to an account designated by Shareholder in
writing prior to the Closing Date the Cash Portion reduced by the
amount of the Deposit;
(iii) deliver to Shareholder certificates evidencing the Put
Interests; and
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(iv) contribute the amount, if any, needed to allow the Company
to pay in full and retire the Shareholder Note, which amount shall be
paid in full directly to the Shareholder at the direction of the
Company upon the Closing.
(c) Purchaser's Additional Deliveries. Subject to fulfillment or
waiver of the conditions set forth in Article VII, at Closing, the
Purchaser shall deliver to Seller all the following:
(i) A certificate of good standing for Purchaser, issued as of
a recent date in 1998 by the Secretary of State of the State of
Delaware;
(ii) The certificate contemplated by Section 7.1, duly executed
by the chief executive officer of Purchaser;
(iii) The Employment and Consulting Agreements contemplated in
Section 6.13 duly executed by Purchaser;
(iv) The Building Lease, the form of which is attached hereto
as Exhibit "B", duly executed by the Purchaser on behalf of the
Company;
(v) The Escrow Agreement duly executed by Purchaser; and
(vi) Any Purchaser Ancillary Agreement duly executed by
Purchaser.
(d) Shareholder's Deliveries. Subject to fulfillment or waiver of the
conditions set forth in Article VII, at Closing the Company and the
Shareholder shall deliver to Purchaser all the following:
(i) The stock certificates representing the Stock endorsed in
blank;
(ii) A certificate of good standing of the Company issued as of
a recent date in 1998 by the Office of the Controller of the State of
Texas;
(iii) Such Uniform Commercial Code, federal tax lien, judgment
and other searches as may be reasonably requested by Purchaser,
including but not limited to Form UCC-3s described in Section
1.5(d)(xv) below;
(iv) A certificate of the Secretary of the Company, dated the
Closing Date, in form and substance reasonably satisfactory to
Purchaser, as to (A) no amendments to the Articles of Incorporation of
the Company since February 10, 1998; (B) the By-laws of the Company;
(C) the resolutions of the Board of Directors of the Company
authorizing the execution and performance and delivery of this
Agreement and the
4
<PAGE>
contemplated transactions; and (D) incumbency and signatures of the
officers of the Company executing this Agreement and any Company
Ancillary Agreement;
(v) The certificate contemplated by Section 6.1, duly executed
by the Shareholder and an authorized officer of the Company and all
documents set forth in Section 6.13 hereof;
(vi) The Employment and/or Consulting Agreements contemplated
in Section 6.3 duly executed by the appropriate parties;
(vii) The Building Lease, the form of which is attached hereto
as Exhibit "B", duly executed by the landlord thereunder;
(viii) The Escrow Agreement duly executed by the Company and the
Shareholder;
(ix) (INTENTIONALLY OMITTED)
(x) a current title policy insuring title to the real property
owned by the Company as set forth on Schedule 3.4 (a) and insuring
leasehold estates to the Leased Properties as set forth on Schedule
3.4(a)(ii) which shows no Liens other than Liens disclosed on such
Schedules 3.4(a) and 3.4(a)(ii);
(xi) each Other Agreements executed by the Company and/or the
Shareholder, as the case may be, who is a party thereto;
(xii) resignations effective as of the Closing Date from all
officers and directors of the Company;
(xiii) the stock books, stock ledgers, minute books, corporate
seal and other books and records of the Company;
(xiv) evidence satisfactory to Purchaser that all exceptions
described on Scheduled 6.8 have been eliminated, including but not
limited to, "pay-off letters" from Bernard M. Spooner and Billy F.
Rice indicating satisfaction of all terms of the certain escrow
related to the sale of their shares to the Company or evidence that
the notes evidencing amounts owed to them by the Shareholder have been
paid-in-full, retired and canceled;
(xv) a "pay-off letter" from Overton Bank and Trust National
Association and appropriate Form UCC-3s evidencing release of all
security interests it has in the assets of the Company;
5
<PAGE>
(xvi) all documents reasonably requested by the Purchaser's
lender;
(xvii) evidence satisfactory to Purchaser of transfers to the
Company of all trademarks, tradenames, secret recipes and formulae and
all other Intellectual Property used or contemplated to be used in the
Company's business;
(xviii) The Shareholder Note, a copy of which is attached hereto
as Exhibit "C", marked "paid in full"; and
(xix) All other previously undelivered agreements,
certificates, documents, instruments or writings required to be
delivered by the Company and/or the Shareholder at or prior to the
Closing pursuant to this Agreement or otherwise in connection
herewith, duly executed by the Company and/or the Shareholder, as the
case may be, who is a party thereto, as reasonably requested by DFG's
Lenders.
In addition to the above deliveries, the Company shall take all steps and
actions as Purchaser may reasonably request or as may otherwise be reasonably
necessary to put Purchaser in actual possession or control of the Company and
its assets and operation.
ARTICLE II
REPRESENTATIONS AND WARRANTIES
OF THE PURCHASER
----------------
As a material inducement to the Shareholder to enter into this Agreement
and to consummate the transactions contemplated hereby, the Purchaser makes the
following representations and warranties to the Shareholder.
2.1 Status. The Purchaser is a limited liability company duly organized,
validly existing and in good standing under the laws of the State of Delaware.
2.2 Power and Authority. The Purchaser has the power and authority to
execute and deliver this Agreement, to perform its obligations hereunder and to
consummate the transactions contemplated hereby. The Purchaser has, or will have
at the time of Closing, taken all action necessary to authorize its execution
and delivery of this Agreement, the performance of its obligations hereunder and
the consummation of the transactions contemplated hereby.
2.3 Enforceability. This Agreement has been, or will have been at the time
of Closing, duly executed and delivered by the Purchaser and constitutes a
legal, valid and binding obligation of the Purchaser, enforceable against the
Purchaser in accordance with its terms, except as the same may be limited by
applicable bankruptcy, insolvency, reorganization, moratorium or similar laws
6
<PAGE>
affecting the enforcement of creditors' rights generally and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
2.4 No Commissions. Except for amounts payable to J.H. Chapman pursuant to
that certain agreement dated May 30, 1997, the Purchaser has incurred no
obligation for any finder's or broker's or agent's fees or commissions or
similar compensation in connection with the transactions contemplated hereby.
2.5 Records. The copies of the Operating Agreement and certificate of
formation for the Purchaser which were provided to the Shareholder are true,
accurate and complete and reflect all amendments made through the date of this
Agreement. All material "actions" taken by the Purchaser have been duly
authorized or ratified. All accounts, books, ledgers and official and other
records of the Purchaser have been fully, properly and accurately kept and
completed in all material respects, and there are no material inaccuracies or
discrepancies of any kind contained therein. The books and records of the
Purchaser, as previously provided to the Seller, contain accurate and complete
records of all issuances, transfers and cancellations of Interest.
2.6 Financial Statements. The Purchaser has delivered to the Seller: (i)
the consolidated financial statements of DFG as of January 3, 1997, including
the notes thereto, audited by Altshuler Melvoin & Glasser; and (ii) the
unaudited consolidated financial statement of DFG as of November 30, 1997 ("DFG
Current Balance Sheet" and together with the statements in (i) above,
collectively the "DFG Financial Statements"), copies of which are attached to
Schedule 2.6. To the best of the Purchaser's knowledge, after reasonable
investigation: (i) The DFG Financial Statements fairly present the combined and
consolidated financial position of DFG at each of the balance sheet dates and
the results of operations for the periods covered thereby, and have been
prepared in accordance with GAAP consistently applied throughout the periods
indicated; (ii) the books and records of the Purchaser and DFG fully and fairly
reflect the transactions, properties, assets and liabilities of the Purchaser
and DFG; (iii) there are no material special or non-recurring items of income or
expense during the periods covered by the DFG Financial Statements, and the
balance sheets included in the DFG Financial Statements do not reflect any
write-up or revaluation increasing the book value of any assets, except as
specifically disclosed in the notes thereto; and (iv) the DFG Financial
Statements reflect all adjustments necessary for a fair presentation of the
financial information contained therein.
2.7 Capitalization. Schedule 2.7(a) sets forth the capitalization chart
for DFG showing all owners of interests and options to acquire Interests
existing as of the date hereof. As of the date hereof, DFG has outstanding only
one class of membership interests, but is authorized to issue classes with
different rights. Except as set forth on Schedule 2.7(a), the Company has no
current obligation to issue additional Interests, but does intend to issue
Interests in the future. Except as set forth on Schedule 2.7(a), all of the
issued and outstanding membership interests of the Company: (i) have been duly
authorized and validly issued and are fully paid and non- assessable; (ii) were
issued in compliance with all applicable state and federal securities laws; and
(iii) were not issued in violation of any preemptive rights or rights of first
refusal.
7
<PAGE>
2.8 Subsidiaries. Schedule 2.8 sets forth all entities (the "Subsidiaries"
and together with DFG, the "DFG Group") in which DFG currently owns equity
securities, along with the percentage it owns. DFG does not own, directly or
indirectly, any outstanding voting securities of or other interests in, or
control, any other corporation, partnership, joint venture or other business
entity other than the Subsidiaries, and does not have any liabilities or
obligations, whether accrued, absolute, contingent or otherwise, arising from
its interest in any such entities.
2.9 No Violation. Except as set forth on Schedule 2.9, to the best of
DFG's knowledge after reasonable investigation, the execution and delivery of
this Agreement by DFG, the performance of its obligation hereunder and the
consummation by it of the transactions contemplated by this Agreement will not:
(i) contravene any provision of the DFG Operating Agreement; (ii) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or enforceable
against DFG; (iii) conflict with, result in any breach of, or constitute a
default (or an event which would, with the passage of time or the giving of
notice or both, constitute a default) under, or give rise to a right to
terminate, amend, modify, abandon or accelerate, any Contract which is
applicable to, binding upon or enforceable against DFG or any Subsidiary; (iv)
result in or require the creation or imposition of any Lien upon or with respect
to any of the property or assets of DFG or any Subsidiary; or (v) require the
consent, approval, authorization or permit of, or filing with or notification
to, any Governmental Authority, any court or tribunal or any other Person.
2.10 Changes Since the Current Balance Sheet Date. Except as disclosed in
Schedule 2.10, to the best of DFG's knowledge after reasonable investigation,
since the date of the DFG Current Balance Sheet, to the best of DFG's knowledge
after reasonable investigation, neither DFG nor any of the Subsidiaries has: (i)
issued any capital stock or other securities; (ii) made any distribution of or
with respect to its Interests or purchased or redeemed any of its Interests
other than distributions designed to enable the members of DFG to pay tax on
their share of DFG's income; (iii) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business consistent
with past practice; (iv) made or obligated itself to make capital expenditures
out of the ordinary course of business consistent with past practice; (v) made
any payment in respect of its liabilities other than in the ordinary course of
business consistent with past practice; (vi) incurred any obligations or
liabilities (including any indebtedness) or entered into any transaction or
series of transactions involving in excess of $500,000 in the aggregate out of
the ordinary course of business, except for this Agreement and the transactions
contemplated hereby; (vii) suffered any theft, damage, destruction or casualty
loss, not covered by insurance and for which a timely claim was filed, in excess
of $100,000 in the aggregate; (viii) suffered any extraordinary losses (whether
or not covered by insurance); (ix) waived, canceled, compromised or released any
rights having a value in excess of $100,000 in the aggregate; (x) made or
adopted any change in its accounting practice or policies; (xi) made any
adjustment to its books and records other than in respect of the conduct of its
business activities in the ordinary course consistent with past practice; (xii)
entered into any transaction with any Affiliate other than intercompany
transactions in the ordinary course of business
8
<PAGE>
consistent with past practice; (xiii) terminated, amended or modified any
agreement involving an amount in excess of $100,000; (xiv) imposed any security
interest or other Lien on any of its assets other than in the ordinary course of
business consistent with past practice; (xv) delayed paying any accounts payable
which is due and payable except to the extent being contested in good faith and
except in the ordinary course of its business; or (xvi) entered into any other
transaction or been subject to any event which has or may have a Material
Adverse Effect on DFG or any Subsidiary.
2.11 Accuracy of Information Furnished by DFG. To the best of DFG's
knowledge after reasonable investigation, no representation, statement or
information made or furnished by DFG to the Shareholder or any of the
Shareholder's representatives, including those contained in this Agreement and
the various Schedules attached hereto and the other information and statements
referred to herein and previously furnished by DFG, contains or shall contain
any untrue statement of a material fact or omits or shall omit any material fact
necessary to make the information contained therein not misleading. DFG has
provided the Shareholder with true, accurate and complete copies of all
documents listed or described in the various Schedules attached hereto.
2.12 Restrictions.
(a) Except as set forth on Schedule 2.12(a), to the best of DFG's
knowledge after reasonable investigation, there are no contracts or other
conditions, circumstances, events or agreements which would in any way
limit or restrict the rights of the DFG Group or the Company after the
consummation of this transaction from engaging in any business anywhere in
the world;
(b) Except as fully described on Schedule 2.12(a), to the best of
DFG's knowledge after reasonable investigation, DFG is not subject to any
Contract, decree or injunction which restricts the continued operation of
any business or the expansion thereof to other geographical areas,
customers and suppliers or lines of business.
2.13 Litigation. To the best of DFG's knowledge, after reasonable
investigation, except as set forth on Schedule 2.13, there is no action, suit,
or other legal or administrative proceeding or governmental investigation,
pending or threatened, anticipated or contemplated against, by or affecting DFG
or any Subsidiary or any of their properties or which question the validity or
enforceability of this Agreement or the transactions contemplated hereby, and
there is no basis for any of the foregoing. There are no outstanding orders,
decrees or stipulations issued by any Governmental Authority in any proceeding
to which DFG or any Subsidiary is or was a party which have not been complied
with in full or which continue to impose any material obligations on DFG or any
Subsidiary .
2.14 Compliance with Laws. To the best of DFG's knowledge, after reasonable
investigation:
9
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(a) DFG and the Subsidiaries are in material compliance with all
laws, regulations and orders applicable to it, its respective business and
operations (as conducted by it now and in the past), and any other
properties and assets (in each case owned or used by it now or in the
past), including but not limited to, all requirements imposed by the USDA,
the FDA or any comparable agencies established by state or local
governments. Except as set forth on Schedule 2.14, neither DFG nor any
Subsidiary has since the formation of DFG or the acquisition or formation
of the Subsidiary been cited, fined or otherwise notified of any asserted
past or present material failure to comply with any laws, regulations or
orders and no proceeding with respect to any such material violation is
pending or threatened.
(b) Neither DFG nor any Subsidiary has made any payment of funds in
connection with their business which is prohibited by law, and no funds
have been set aside to be used in connection with its business for any
payment prohibited by law.
2.15 Tax Matters. To the best of DFG's knowledge, after reasonable
investigation, except as set forth in Schedule 2.15 hereto, all Tax Returns
required to be filed prior to the date hereof with respect to DFG, or any of its
income, properties, franchises or operations have been filed, each such Tax
Return has been prepared in compliance with all applicable laws and regulations,
and all such Tax Returns are true, complete and accurate in all respects. Except
as set forth in Schedule 2.5 hereto: (i) with respect to each taxable period of
DFG, no taxable period has been audited by the relevant taxing authority; (ii)
no deficiency or proposed adjustment which has not been settled or otherwise
resolved for any amount of Taxes has been asserted or assessed by any taxing
authority; (iii) DFG has not consented to extend the time in which any Taxes may
be assessed or collected by any taxing authority; (iv) there is no action, suit,
taxing authority proceeding, or audit or claim for refund now in progress,
pending or threatened against or with respect to DFG regarding Taxes; (v) there
are no Liens for Taxes (other than for current Taxes not yet due and payable)
upon the assets of DFG; (vi) there is no basis for any assessment, deficiency
notice, 30-day letter or similar notice with respect to any Tax to be issued to
DFG with respect to any period on or before the Closing Date; (vii) no claim has
ever been made by a taxing authority in a jurisdiction where DFG does not file
Tax Returns that is or may be subject to Taxes assessed by such jurisdiction;
(viii) DFG has no permanent establishments in any foreign country, as defined in
the relevant tax treaty between the United States of America and such foreign
country; and (ix) DFG has collected and remitted to the appropriate governmental
authority all taxes related to employees, including FICA and federal and state
wage withholding.
2.16 Environmental and Safety Matters. To the best of DFG's knowledge,
after reasonable investigation, except as set forth on Schedule 2.16:
(i) The operations of DFG and each Subsidiary is and has at all
times since the acquisition or formation of each Subsidiary been in
compliance in all material respects with all applicable Environmental
Health and Safety Laws;
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(ii) DFG and each Subsidiary at all times since the acquisition
or formation of each Subsidiary has in all material respects obtained,
maintained and complied with all Governmental Permits required by
Environmental Laws and necessary for the operation of its business;
(iii) Except for cleaning and janitorial supplies, no Hazardous
Substances are located on, contained in or otherwise form a part of
the property of DFG or any Subsidiary;
(iv) Except as set forth on Schedule 2.16, there is no
information indicating that any Person may have impaired health as a
result of the operation of DFG's business or the ownership or use of
any property associated with the operation of DFG's business or as the
result of the Release from such properties;
(v) Neither DFG nor any Subsidiary has received any notice
from any governmental body or other person advising that any of them
is potentially responsible for remedial action with respect to a
release or threatened release or with regard to DFG's treatment of its
cleaning and janitorial supplies;
(vi) No order, litigation, settlement or citation with respect
to Hazardous Substances exists with respect to or in connection with
the operation of the business of DFG or any Subsidiary;
(vii) There has been no environmental investigation conducted by
any governmental body with respect to the operation of the business of
DFG or any Subsidiary;
2.17 Investor Status. DFG has such knowledge and experience in business and
financial matters that it is capable of evaluating the merits and risks of an
investment in the Stock and is capable of bearing the economic risks of the
purchase of the Stock and is able to bear a complete loss of its purchase price.
DFG acknowledges that the Stock has not been registered under the Securities Act
and understands that the Stock it receives must be held indefinitely unless it
is subsequently registered under the Securities Act or such sale is permitted
pursuant to an available exemption from such registration requirement.
2.18 Prior History. Schedule 2.18 sets forth an accurate description of the
history of DFG since its formation in 1995 and its acquisitions through the date
hereof.
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ARTICLE III
REPRESENTATIONS AND WARRANTIES OF
THE SHAREHOLDER AND THE COMPANY
-------------------------------
3.1 Class I Representations. As a material inducement to the Purchaser
to enter into this Agreement and to consummate the transactions contemplated
hereby, the Shareholder hereby makes the following representations and
warranties to the Purchaser for matters and claims that arose or occurred before
January 1, 1993, which representations and warranties shall be limited to the
Shareholder's knowledge after reasonable investigation:
(a) Corporate Status. The Company is a corporation duly organized,
validly existing and in good standing under the laws of Texas. The Company
has the requisite power and authority to own or lease its property and to
carry on its business as now being conducted. The Company is legally
qualified to transact business in interstate commerce as a foreign
corporation in all jurisdictions where it conducts its business and is in
good standing in the State of Texas but does not have a permit or other
evidence of qualification to do business in any other jurisdiction and does
not believe that any such qualifications are necessary. In addition, the
Company has no tangible assets, employees or ownership of real estate other
than in the State of Texas sufficient to require it to obtain a permit or
other form of qualification to do business in any other state, conducts
operations outside of the State of Texas only through independent
contractors and does not otherwise actively carry on a trade or business in
any other state except through non-employee salesmen and brokers and
distributors or employee salesmen based in Texas. There is no pending or
threatened proceeding for the dissolution, liquidation, insolvency or
rehabilitation of the Company.
(b) Power and Authority. Except as set forth on Schedule 3.1(b),
which exceptions will be eliminated prior to the closing, the Company and
the Shareholder each have the power and authority to execute and deliver
this Agreement, to perform their respective obligations hereunder and to
consummate the transactions contemplated hereby. The Company has taken all
action necessary to authorize the execution and delivery of this Agreement,
the performance of its respective obligations hereunder and the
consummation of the transactions contemplated hereby. The Shareholder is a
resident of the State of Texas and has the requisite competence to execute
and deliver this Agreement and to perform his obligations hereunder and to
consummate the transactions contemplated hereby.
(c) Enforceability. This Agreement has been duly executed and
delivered by the Company and the Shareholder and constitutes the legal,
valid and binding obligation of each of them, enforceable against them in
accordance with its terms, except as the same may be limited by the
applicable bankruptcy, insolvency, reorganization, moratorium or similar
laws affecting the enforcement of creditor's rights and general equitable
principles regardless of whether such enforceability is considered in a
proceeding at law or in equity.
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(d) Capitalization.
(i) Schedule 3.1(d)(i) sets forth, with respect to the Company:
(1) the number of authorized shares of each class of its capital
stock; (2) the number of issued and outstanding shares of each class
of its capital stock; and (3) the number of shares of each class of
its capital stock which are held in treasury. All of the issued and
outstanding shares of capital stock of the Company: (1) have been duly
authorized and validly issued and are fully paid and non-assessable;
(2) were issued in compliance with all applicable state and federal
securities laws; and (3) were not issued in violation of any
preemptive rights or rights of first refusal.
(ii) Except as set forth in Schedule 3(d)(ii), there are no: (1)
preemptive rights or rights of first refusal with respect to the
shares of capital stock of the Company, and no such rights arise by
virtue of or in connection with the transactions contemplated hereby;
(2) outstanding or authorized rights, options, warrants, convertible
securities, subscription rights, conversion rights, exchange rights or
other agreements or commitments of any kind that could require the
Company to issue or sell any shares of its capital stock (or
securities convertible into or exchangeable for shares of its capital
stock); (3) outstanding stock appreciation, phantom stock, profit
participation or other similar rights with respect to the Company; (4)
proxies, voting rights or other agreements or understandings with
respect to the voting or transfer of the capital stock of the Company;
or (5) obligations of the Company to redeem or otherwise acquire any
of its outstanding shares of capital stock.
(e) Shareholders of the Company. Except as set forth on Schedule
3.1(e), the Shareholder is the sole legal, record and beneficial owner of
all Stock and the Shareholder owns such shares free and clear of all Liens,
restrictions and claims of any kind. Such Stock is not subject to any
voting trust agreement, proxy or other Contract. At or before Closing, the
Shareholder will eliminate all exceptions described on Schedule 3.1(e) so
as to own all of the Stock, and at Closing, the Shareholder will sell,
convey and transfer to Purchaser good and marketable title to the Stock,
free and clear of all Liens and encumbrances.
(f) No Violation. Except as set forth on Schedule 3.1(f), the
execution and delivery of this Agreement by the Company and the
Shareholder, the performance by each of them of their respective
obligations hereunder and the consummation by them of the transactions
contemplated by this Agreement will not: (i) contravene any provision of
the articles of incorporation or bylaws of the Company; (ii) violate or
conflict with any law, statute, ordinance, rule, regulation, decree, writ,
injunction, judgment or order of any Governmental Authority or of any
arbitration award which is either applicable to, binding upon or
enforceable against the Company or the Shareholder; (iii) conflict with,
result in any breach of, or constitute a default (or an event which would,
with the passage of time or the giving of notice or both, constitute a
default) under, or give rise to a right to terminate, amend, modify,
abandon or accelerate, any Contract which is applicable to, binding upon or
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enforceable against the Company or the Shareholder; (iv) result in or
require the creation or imposition of any Lien upon or with respect to any
of the property or assets of the Company; or (v) require the consent,
approval, authorization or permit of, or filing with or notification to,
any Governmental Authority, any court or tribunal or any other Person.
(g) Records. The copies of the articles of incorporation and bylaws
of the Company which were or will be provided to the Purchaser are true,
accurate and complete and reflect all amendments made through the date of
this Agreement. The minute books for the Company provided to the Purchaser
for review were correct and complete as of the date of such review except
as set forth on Schedule 3.1(g), no further entries have been made through
the date of this Agreement, such minute books contain the true signatures
of the persons purporting to have signed them, and such minute books
contain an accurate record of all corporate actions of the shareholders and
directors (and any committees thereof) of the Company taken by written
consent or at a meeting since incorporation. All material corporate actions
taken by the Company have been duly authorized or ratified. All accounts,
books, ledgers and official and other records of the Company have been
fully, properly and accurately kept and completed in all material respects,
and there are no material inaccuracies or discrepancies of any kind
contained therein. The stock ledgers of the Company, as provided to the
Purchaser, contain accurate and complete records of all issuances,
transfers and cancellations of shares of the capital stock of the Company.
(h) Subsidiaries. Except as set forth on Schedule 3.1(h), the Company
does not own, directly or indirectly, any outstanding voting securities of
or other interests in, or control, any other corporation, partnership,
joint venture or other business entity, and to the best of the
Shareholder's knowledge, none of the items reflected on Schedule 3.1(h)
constitute more than 10% of the outstanding voting securities of, or equity
interests in, such entities.
(i) Litigation. Except as set forth on Schedule 3.1(i), there is no
action, suit, or other legal or administrative proceeding or governmental
investigation, pending or threatened, anticipated or contemplated against,
by or affecting the Company or any of its properties or assets, or the
Shareholder, or which question the validity or enforceability of this
Agreement or the transactions contemplated hereby, and there is no basis
for any of the foregoing. There are no outstanding orders, decrees or
stipulations issued by any Governmental Authority in any proceeding to
which the Company is or was a party which have not been complied with in
full or which continue to impose any material obligations on any Company.
(j) Compliance with Laws.
(i) The Company is in material compliance with all laws,
regulations and orders applicable to it, its respective business and
operations (as conducted by it now and in the past), the Assets and
the Leased Premises and any other properties and
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assets (in each case owned or used by it now or in the past),
including but not limited to, all requirements imposed by the USDA,
the FDA or any comparable agencies established by state or local
governments. Except as set forth on Schedule 3.1(j)(i), the Company
has not been cited, fined or otherwise notified of any asserted past
or present material failure to comply with any laws, regulations or
orders and no proceeding with respect to any such material violation
is pending or threatened.
(ii) The Company has not made any payment of funds in connection
with its business which is prohibited by law, and no funds have been
set aside to be used in connection with its business for any payment
prohibited by law.
(iii) The Company is in full compliance with the terms and
provisions of the Immigration Reform and Control Act of 1986, as
amended (the "Immigration Act"). With respect to each "employee" (as
defined in 8 C.F.R. 274a.1(f)) of the Company for whom compliance with
the Immigration Act as employer is required, the Company has on file a
true, accurate and complete copy of: (1) each employee's Form I-9
(Employment Eligibility Verification Form); and (2) all other records,
documents or other papers prepared, procured and/or retained by such
Company pursuant to the Immigration Act. The Company has not been
cited, fined, served with a Notice of Intent to Fine or with a Cease
and Desist Order (as such terms are defined as applied under the
Immigration Act), nor has any action or administrative proceeding been
initiated or threatened against it, by the Immigration and
Naturalization Service by reason of any actual or alleged failure to
comply with the Immigration Act.
(iv) Except as fully described on Schedule 3.1(j)(iv), the
Company is not subject to any Contract, decree or injunction which
restricts the continued operation of any business or the expansion
thereof to other geographical areas, customers and suppliers or lines
of business.
(k) Intellectual Property. Except as set forth on Schedule 3.1(k), the
Company has full legal right, title and interest in and to all trademarks,
servicemarks, tradenames, copyrights, know-how, recipes, formulae, patents,
trade secrets, licenses (including licenses for the use of computer
software programs), and other intellectual property used or contemplated to
be used in the conduct of its business (the "Intellectual Property"),
including but not limited to trademarks for the following names, "Cocoa
Factory", "Sweet Shop", "Highland Fling", "1919", "The Sweet Shop USA",
"Texas Brags", and "Fudge Love" (in the case of "Fudge Love" as applied
for). The conduct of the business of the Company as presently conducted or
contemplated, and the unrestricted conduct and the unrestricted use and
exploitation of the Intellectual Property, does not infringe or
misappropriate any rights held or asserted by any Person, and no Person is
infringing on the Intellectual Property. Except as set forth on Schedule
3.1(k), no payments are required for the continued use of the Intellectual
Property. Except as set forth on Schedule 3.1(k), none of the Intellectual
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Property has ever been declared invalid or unenforceable, or is the subject
of any pending or threatened action for opposition, cancellation,
declaration, infringement, or invalidity, unenforceability or
misappropriation or like claim, action or proceeding.
(l) Names; Prior Acquisitions. All names under which the Company does
business as of the date hereof are specified on Schedule 3.1(l). Except as
set forth on Schedule 3.1(l), the Company has not changed its name or used
any assumed or fictitious name, or been the surviving entity in a merger,
acquired any business or changed its principal place of business or chief
executive office, within the past 10 years. The Company has all rights to
use such names and has filed all documents to protect the use of such
names.
(m) Restrictions. Schedule 3.1(m) sets forth a list of all non-
competition, non-solicitation, confidentiality and other restrictive
covenants to which the Company and/or the Shareholder is a party or
otherwise bound. Except as set forth on Schedule 3.1(m), there are no
contracts or other conditions, circumstances, events or agreements which
would in any way limit or restrict the rights of the Purchaser, or any
Company from engaging in any business anywhere in the world.
3.2 Class II Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Financial Statements. The Shareholder has delivered to the
Purchaser: (i) the financial statements of the Company as of June 30, 1997
and 1996, including the notes thereto, audited by Weaver & Tidwell; and
(ii) the January 23, 1998 unaudited financial statements of the Company
(collectively, the "Financial Statements"), copies of which are attached as
Schedule 3.2(a) hereto. The balance sheet dated as of January 23, 1998
included in the Financial Statements is referred to herein as the "Current
Balance Sheet." The Financial Statements fairly present the financial
position of the Company at each of the balance sheet dates and the results
of operations for the periods covered thereby, and have been prepared in
accordance with GAAP consistently applied throughout the periods indicated.
The books and records of the Company fully and fairly reflect the
transactions, properties, assets and liabilities of the Company. There are
no material special or non-recurring items of income or expense during the
periods covered by the Financial Statements, and the balance sheets
included in the Financial Statements do not reflect any writeup or
revaluation increasing the book value of any assets, except as specifically
disclosed in the notes thereto. The Financial Statements reflect all
adjustments necessary for a fair presentation of the financial information
contained therein.
(b) Changes Since the Current Balance Sheet Date. Except as disclosed
in Schedule 3.2(b), since the date of the Current Balance Sheet, the
Company has not: (i) issued any capital stock or other securities; (ii)
made any distribution of or with respect to
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its capital stock or other securities or purchased or redeemed any of its
securities; (iii) paid any bonus to or increased the rate of compensation
of any of its officers or salaried employees or amended any other terms of
employment of such persons; (iv) sold, leased or transferred any of its
properties or assets other than in the ordinary course of business
consistent with past practice; (v) made or obligated itself to make capital
expenditures out of the ordinary course of business consistent with past
practice; (vi) made any payment in respect of its liabilities other than in
the ordinary course of business consistent with past practice; (vii)
incurred any obligations or liabilities (including any indebtedness) or
entered into any transaction or series of transactions involving in excess
of $10,000 in the aggregate out of the ordinary course of business, except
for this Agreement and the transactions contemplated hereby; (viii)
suffered any theft, damage, destruction or casualty loss, not covered by
insurance and for which a timely claim was filed, in excess of $10,000 in
the aggregate; (ix) suffered any extraordinary losses (whether or not
covered by insurance); (x) waived, canceled, compromised or released any
rights having a value in excess of $10,000 in the aggregate; (xi) made or
adopted any change in its accounting practice or policies; (xii) made any
adjustment to its books and records other than in respect of the conduct of
its business activities in the ordinary course consistent with past
practice; (xiii) entered into any transaction with any Affiliate other than
intercompany transactions in the ordinary course of business consistent
with past practice; (xiv) entered into any employment agreement calling for
annual salary payments in excess of $25,000; (xv) terminated, amended or
modified any agreement involving an amount in excess of $10,000; (xvi)
imposed any security interest or other Lien on any of its assets other than
in the ordinary course of business consistent with past practice; (xvii)
delayed paying any accounts payable which is due and payable except to the
extent being contested in good faith and except in the ordinary course of
its business; (xviii) made or pledged to make any charitable contribution
other than in the ordinary course of business consistent with past
practice; (xix) entered into any other transaction or been subject to any
event which has or may have a Material Adverse Effect on the Company; or
(xx) agreed to do or authorized any of the foregoing.
(c) Liabilities. Except as set forth on Schedule 3.2(c), the Company
has no liabilities or obligations, whether accrued, absolute, contingent or
otherwise, except: (i) to the extent reflected or taken into account in the
Current Balance Sheet and not heretofore paid or discharged; (ii) to the
extent specifically set forth in or incorporated by express reference in
any of the Schedules attached hereto; (iii) liabilities incurred in the
ordinary course of business consistent with past practice since the date of
the Current Balance Sheet (none of which relates to breach of contract,
breach of warranty, tort, infringement or violation of law, or which arose
out of any action, suit, claim, governmental investigation or arbitration
proceeding); (iv) normal accruals, reclassifications, and audit adjustments
which would be reflected on an audited financial statement and which would
not be material in the aggregate; and (v) liabilities incurred in the
ordinary course of business prior to the date of the Current Balance Sheet
which, in accordance with GAAP consistently applied, were not recorded
thereon.
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(d) Receivables. Except as set forth on Schedule 3.2(d): (i) all of
the Receivables (as hereinafter defined) are valid and legally binding,
represent bona fide transactions and arose in the ordinary course of
business of the Company; and (ii) all of the Receivables are good
receivables, and are reasonably expected (based on currently available
information) to be collected in full in accordance with the terms of such
receivables without material set off or counterclaims, subject to the
allowance for doubtful accounts, if any, set forth on the Current Balance
Sheet as reasonably adjusted since the date of the Current Balance Sheet in
the ordinary course of business consistent with past practice. For purposes
of this Agreement, the term "Receivables" means all receivables of the
Company, including all trade account receivables arising from the sale of
inventory to wholesalers, retailers or retail customers.
(e) Customer Lists and Recurring Revenue. The Company has prepared and
made available to the Purchaser a true, correct and complete list of the
Company's 20 largest customers ("Material Customers") and suppliers
together with the applicable percentage of total sales or purchases, as
applicable. True, correct and complete copies of any agreements with such
customers or suppliers which are anticipated to endure beyond the Closing
have been furnished by the Shareholder to the Purchaser, and are attached
hereto as Schedule 3.2(e). Other than Material Customers, no customer of
the Company as of the date of this Agreement accounts for more than one
percent (1%) of its combined annual revenue. Subject to Section 11.3
hereof, the Company has made available to the Purchaser each Material
Customer's name, address, account number, term of franchise or agreement,
billing cycle, type of service and rates charged and percentage of the
Company's annual revenue.
(f) Inventory. Except as set forth on Schedule 3.2(f), all Assets that
consist of inventory (including raw materials and work-in-progress): (i)
were acquired in the ordinary course of business consistent with past
practice; (ii) are of a quality, quantity, and condition useable or
saleable in the ordinary course of business within the Company's normal
inventory turnover experience; and (iii) are valued at the lower of cost or
net realizable market value. The Company does not have any material
liability with respect to the return or repurchase of any goods in the
possession of any customer, except for amounts set forth on the Current
Balance Sheet to reflect obsolescence. All inventory is stored at the
Company's principal location at 625 Stayton Street, Fort Worth, Texas, with
the exception of inventory stored at the kiosk at the Trade Center and
which has a value of less than $5,000.
3.3 Class III Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Labor and Employment Matters. Schedule 3.3(a) sets forth the name,
address, social security number and current rate of compensation of each of
the employees of the Company. The Company is not a party to or bound by any
collective bargaining agreement
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or any other agreement with a labor union, and there have been no efforts
by any labor union during the thirty-six (36) months prior to the date
hereof to organize any employees of the Company into one or more collective
bargaining units. There is no pending or threatened labor dispute, strike
or work stoppage which affects or which may affect the business of the
Company which may interfere with its continued operations. The Company has
not committed any unfair labor practice as defined in the National Labor
Relations Act, as amended, and there is no pending or threatened charge or
complaint against the Company by or with the National Labor Relations Board
or any representative thereof. There has been never been a strike, walkout
or work stoppage involving any of the employees of the Company which had a
material adverse effect on the Company. No executive or key employee or
group of employees has any plans to terminate his, her or their employment
with the Company as a result of this Agreement or otherwise. Schedule
3.3(a) contains detailed information about each contract, agreement or plan
of the following nature, whether formal or informal, and whether or not in
writing, to which the Company is a party or under which it has an
obligation: (i) employment agreements, (ii) employee handbooks, policy
statements and similar plans, (iii) noncompetition agreements, and (iv)
consulting agreements. The Company has complied with applicable laws, rules
and regulations relating to employment, civil rights and equal employment
opportunities, including but not limited to, the Civil Rights Act of 1964,
the Fair Labor Standards Act and the Worker Adjustment and Retraining
Notification Act of 1988.
(b) Employee Benefit Plans.
(i) Employee Benefit Plans. Schedule 3.3(b) contains a list
setting forth each employee benefit plan or arrangement of the
Company, including but not limited to employee pension benefit plans,
as defined in Section 3(2) of the Employee Retirement Income Security
Act of 1974, as amended ("ERISA"), multiemployer plans, as defined in
Section 3(37) of ERISA, employee welfare benefit plans, as defined in
Section 3(1) of ERISA, deferred compensation plans, stock option
plans, bonus plans, stock purchase plans, hospitalization, disability
and other insurance plans, severance or termination pay plans and
policies, whether or not described in Section 3(3) of ERISA, in which
employees, their spouses or dependents, of the Company participate
("Employee Benefit Plans") (true and accurate copies of which,
together with the three (3) most recent annual reports on Form 5500
and summary plan descriptions with respect thereto, were furnished to
the Purchaser).
(ii) Compliance with Law. With respect to each Employee Benefit
Plan: (1) each has been administered in all material respects in
compliance with its terms and with all applicable laws, including, but
not limited to, ERISA and the Internal Revenue Code of 1986, as
amended (the "Code"); (2) no actions, suits, claims or disputes are
pending, or threatened; (3) no audits, inquiries, reviews,
proceedings, claims, or demands are pending with any governmental or
regulatory agency; (4)
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there are no facts which could give rise to any material liability in
the event of any such investigation, claim, action, suit, audit,
review, or other proceeding; (5) all material reports, returns, and
similar documents required to be filed with any governmental agency or
distributed to any plan participant have been duly or timely filed or
distributed; and (6) no "prohibited transaction" has occurred within
the meaning of the applicable provisions of ERISA or the Code.
(iii) Qualified Plans. With respect to each Employee Benefit Plan
intended to qualify under Code Section 401(a) or 403(a): (1) the
Internal Revenue Service has issued a favorable determination letter,
true and correct copies of which have been furnished to the Purchaser,
that such plans are qualified and exempt from federal income taxes;
(2) no such determination letter has been revoked nor has revocation
been threatened, nor has any amendment or other action or omission
occurred with respect to any such plan since the date of its most
recent determination letter or application therefor in any respect
which would adversely affect its qualification or materially increase
its costs; (3) no such plan has been amended in a manner that would
require security to be provided in accordance with Section 401(a)(29)
of the Code; (4) no reportable event (within the meaning of Section
4043 of ERISA) has occurred, other than one for which the 30-day
notice requirement has been waived; and (5) as of the Effective Date,
the present value of all liabilities that would be "benefit
liabilities" under Section 4001(a)(16) of ERISA if benefits described
in Code Section 411(d)(6)(B) were included will not exceed the then
current fair market value of the assets of such plan (determined using
the actuarial assumptions used for the most recent actuarial valuation
for such plan); (6) except as disclosed on Schedule 3.3(b), all
contributions to, and payments from and with respect to such plans,
which may have been required to be made in accordance with such plans
and, when applicable, Section 302 of ERISA or Section 412 of the Code,
have been timely made; (7) all such contributions to the plans, and
all payments under the plans (except those to be made from a trust
qualified under Section 401(a) of the Code) and all payments with
respect to the plans (including, without limitation, PBGC and
insurance premiums) for any period ending before the Closing Date that
are not yet, but will be, required to be made are properly accrued and
reflected on the Current Balance Sheet or are disclosed on Schedule
3.3(b).
(iv) Multiemployer Plans. With respect to any multiemployer plan,
as described in Section 4001(a)(3) of ERISA ("MPPA Plan") (1) all
contributions required to be made with respect to employees of the
Company have been timely paid; (2) the Company has neither incurred
nor is it expected to incur, directly or indirectly, any withdrawal
liability under ERISA with respect to any such plan (whether by reason
of the transactions contemplated by the Agreement or otherwise); (3)
Schedule 3.3(b) sets forth (A) the withdrawal liability under ERISA to
each MPPA Plan, (B) the date as of which such amount was calculated,
and (C) the method for determining the withdrawal liability; and (4)
no such plan is (or is
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expected to be) insolvent or in reorganization and no accumulated
funding deficiency (as defined in Section 302 of ERISA and Section 412
of the Code), whether or not waived, exists or is expected to exist
with respect to any such plan.
(v) Welfare Plans. Other than as disclosed in Schedule 3.3(b):
(1) the Company is not obligated under any employee welfare benefit
plan as described in Section 3(1) of ERISA ("Welfare Plan"), whether
or not disclosed in Schedule 3.3(b), to provide medical or death
benefits with respect to any employee or former employee of any
Company, or their predecessors after termination of employment except
with respect to coverage under federal or state continuation coverage
laws including, but not limited to, Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended; (2) the Company has complied
with the notice and continuation coverage requirements of Section
4980B of the Code and the regulations thereunder with respect to each
Welfare Plan that is, or was during any taxable year for which the
statute of limitations on the assessment of federal income taxes
remains, open, by consent or otherwise, a group health plan within the
meaning of Section 5000(b)(1) of the Code, and (3) there are no
reserves, assets, surplus or prepaid premiums under any Welfare Plan
which is an Employee Benefit Plan. The consummation of the
transactions contemplated by this Agreement will not entitle any
individual to severance pay, and, will not accelerate the time of
payment or vesting, or increase the amount of compensation, due to any
individual.
(vi) Controlled Group Liability. Neither the Company, nor any
entity that would be aggregated with them under Code Section 414(b),
(c), (m) or (o): (1) has ever terminated or withdrawn from an employee
benefit plan under circumstances resulting (or expected to result) in
liability to the Pension Benefit Guaranty Corporation ("PBGC"), the
fund by which the employee benefit plan is funded, or any employee or
beneficiary for whose benefit the plan is or was maintained (other
than routine claims for benefits); (2) has any assets subject to (or
expected to be subject to) a lien for unpaid contributions to any
employee benefit plan; (3) has failed to pay premiums to the PBGC when
due; (4) is subject to (or expected to be subject to) an excise tax
under Code Section 4971; (5) has engaged in any transaction which
would give rise to liability under Section 4069 or Section 4212(c) of
ERISA; or (6) has violated Code Section 4980B or Section 601 through
608 of ERISA.
(vii) Other Liabilities. Except as set forth on Schedule 3.3(b):
(1) none of the Employee Benefit Plans obligates the Company to pay
separation, severance, termination or similar benefits solely as a
result of any transaction contemplated by this Agreement or solely as
a result of a "change of control" (as such term is defined in Section
280G of the Code); (2) all required or discretionary (in accordance
with historical practices) payments, premiums, contributions,
reimbursements, or accruals for all periods ending prior to or as of
the Effective Date shall have been made or properly accrued on the
Current Balance Sheet or will be properly accrued on the
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books and records of the Company as of the Effective Date; and (3)
none of the Employee Benefit Plans has any unfunded liabilities which
are not reflected on the Current Balance Sheet or the books and
records of the Company.
(c) Tax Matters. Except as set forth in Schedule 3.3(c) hereto, all
Tax Returns required to be filed prior to the date hereof with respect to
the Company, or any of its income, properties, franchises or operations
have been filed, each such Tax Return has been prepared in compliance with
all applicable laws and regulations, and all such Tax Returns are true,
complete and accurate in all respects. All Taxes due and payable by or with
respect to the Company have been paid or accrued on the Current Balance
Sheet or will be accrued on its books and records as of the Closing. Except
as set forth in Schedule 3.3(c) hereto: (i) with respect to each taxable
period of the Company, no taxable period has been audited by the relevant
taxing authority; (ii) no deficiency or proposed adjustment which has not
been settled or otherwise resolved for any amount of Taxes has been
asserted or assessed by any taxing authority; (iii) the Company has not
consented to extend the time in which any Taxes may be assessed or
collected by any taxing authority; (iv) the Company has not requested or
been granted an extension of the time for filing any Tax Return to a date
later than the Closing Date; (v) there is no action, suit, taxing authority
proceeding, or audit or claim for refund now in progress, pending or
threatened against or with respect to the Company regarding Taxes; (vi) the
Company has not made an election or filed a consent under Section 341(f) of
the Code (or any corresponding provision of state, local or foreign law) on
or prior to the Closing Date; (vii) there are no Liens for Taxes (other
than for current Taxes not yet due and payable) upon the assets of the
Company; (viii) the Company will not be required (A) as a result of a
change in method of accounting for a taxable period ending on or prior to
the Closing Date, to include any adjustment under Section 481(c) of the
Code (or any corresponding provision of state, local or foreign law) in
taxable income for any taxable period (or portion thereof) beginning after
the Closing Date or (B) as a result of any "closing agreement," as
described in Section 7121 of the Code (or any corresponding provision of
state, local or foreign law), to include any item of income or exclude any
item of deduction from any taxable period (or portion thereof) beginning
after the Closing Date; (ix) the Company is not a party to or bound by any
tax allocation or tax sharing agreement or has any current or potential
contractual obligation to indemnify any other Person with respect to Taxes;
(x) there is no basis for any assessment, deficiency notice, 30-day letter
or similar notice with respect to any Tax to be issued to the Company with
respect to any period on or before the Closing Date; (xi) the Company has
not made any payments, and is or will not become obligated (under any
contract entered into on or before the Closing Date) to make any payments,
that will be non-deductible under Section 280G of the Code (or any
corresponding provision of state, local or foreign law); (xii) the Company
is not and has not been a United States real property holding corporation
within the meaning of Section 897(c)(2) of the Code (or any corresponding
provision of state, local or foreign law) during the applicable period
specified in Section 897(c)(1)(a)(ii) of the Code (or any corresponding
provision of state, local or foreign law); (xiii) no claim has ever been
made by a taxing authority in a jurisdiction where the Company does not
file Tax Returns that is or may be
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subject to Taxes assessed by such jurisdiction; and (xiv) the Company has
no permanent establishments in any foreign country, as defined in the
relevant tax treaty between the United States of America and such foreign
country; (xv) true, correct and complete copies of all income and sales Tax
Returns filed by or with respect to the Company for the past two years has
been furnished or made available to the Purchaser; (xvi) the Company will
not be subject to any Taxes for the period ending at the Closing Date for
any period for which a Tax Return has not been filed imposed pursuant to
Section 1374 or Section 1375 of the Code (or any corresponding provision of
state, local or foreign law); (xvii) no sales or use tax or property
transfer tax (other than sales tax on aircraft, boats, mobile homes and
motor vehicles), non-recurring intangibles tax, documentary stamp tax or
other excise tax (or comparable tax imposed by any Governmental Authority)
will be payable by the Company or the Purchaser by virtue of the
transactions completed in this Agreement; (xviii) the Company has collected
and remitted to the appropriate governmental authority all taxes related to
employees, including FICA and federal and state wage withholding.
3.4 Class IV Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Real Estate.
(i) The Company does not own any real property or any interest
therein except as set forth on Schedule 3.4(a)(i) (the "Owned
Properties"), which Schedule sets forth the location and size of, and
principal improvements and buildings on, the Owned Properties.
(ii) Schedule 3.4(a)(ii) sets forth a list of all leases,
licenses or similar agreements ("Leases") to which the Company is a
party (copies of which have previously been furnished to the
Purchaser), in each case, setting forth (1) the lessor and lessee
thereof and the date and term of each of the Leases, (2) the legal
description or street address of each property covered thereby, and
(3) a brief description (including size and function) of the principal
improvements and buildings thereon (the "Leased Premises"), all of
which are within the property set-back and building lines of the
respective property. The Leases are in full force and effect and have
not been amended except as set forth on Schedule 3.4(a)(ii), and no
party thereto is in default or breach under any such Lease. No event
has occurred which, with the passage of time or the giving of notice
or both, would cause a material breach of or default under any of such
Leases. There is no breach or anticipated breach by any other party to
such Leases. Except as set forth on Schedule 3.4(a)(ii), with respect
to each such Leased Premises:
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(iii) the Company has valid leasehold interests in the Leased
Premises leased by it, which leasehold interests are free and clear of
any Liens, covenants and easements or title defects of any nature
whatsoever;
(iv) the portions of the buildings located on the Leased Premises
that are used in the business of the Company are in functional repair
and condition, normal wear and tear excepted, and are sufficient to
satisfy the Company's current and reasonably anticipated normal
business activities as conducted thereat;
(v) the Leased Premises: (a) have direct access to public roads
or access to public roads by means of a perpetual access easement,
such access being sufficient to satisfy the current and reasonably
anticipated normal transportation requirements of the Company's
respective business as presently conducted at such parcel; and (b) are
served by all utilities in such quantity and quality as are sufficient
to satisfy the current normal business activities as conducted at such
parcel;
(vi) neither the Company nor the Shareholder has received notice
of: (a) any condemnation proceeding with respect to any portion of the
Leased Premises or any access thereto, and no such proceeding is
contemplated by any Governmental Authority; or (b) any special
assessment which may affect any of the Leased Premises and no such
special assessment is contemplated by any Governmental Authority;
(vii) the legal descriptions for the parcels of Leased Properties
describe such parcels fully and adequately; the buildings and
improvements are located within the boundary lines of the described
parcels of land, are not in violation of applicable setback
requirements, local comprehensive plan provisions, zoning laws and
ordinances (and none of the properties or buildings or improvements
thereon are subject to "permitted non-conforming use" or "permitted
non-conforming structure" classifications), building code
requirements, permits, licenses or other forms of approval by any
Governmental Authority, and do not encroach on any easement which may
burden the land; the land does not serve any adjoining property for
any purpose inconsistent with the use of the land; and the Leased
Properties are not located within any flood plain (such that a
mortgagee would require a mortgagor to obtain flood insurance) or
subject to any similar type restriction for which any permits or
licenses necessary to the use thereof have not been obtained; and
(viii) all facilities have received all approvals of Governmental
Authorities (including licenses and permits) required in connection
with the ownership or operation thereof and have been operated and
maintained in material compliance with applicable laws, ordinances,
rules and regulations.
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(b) Indefeasible Title to and Condition of Assets.
(i) Except as set forth on Schedule 3.4(b)(i), the Company has
good and indefeasible title to all of its respective Assets (as
hereinafter defined), free and clear of any Liens or restrictions on
use. For purposes of this Agreement, the term "Assets" means all of
the properties and assets of the Company, other than the Owned
Properties and the Leased Premises, whether personal or mixed,
tangible or intangible, wherever located.
(ii) Except as set forth on Schedule 3.4(b)(ii), the Fixed Assets
(as hereinafter defined) currently in use or necessary for the
business and operations of the Company are in functional operating
condition, normal wear and tear excepted and have been maintained in
accordance with sound industry practices. For purposes of this
Agreement, the term "Fixed Assets" means all vehicles, machinery,
equipment, tools, supplies, leasehold improvements, furniture and
fixtures used by or located on the premises of the Company or set
forth on the Current Balance Sheet or acquired by the Company since
the date of the Current Balance Sheet. Schedule 3.4(b)(iii) lists the
vehicles owned, leased or used by the Company, setting forth the make,
model, description of body and chassis, vehicle identification number,
and year of manufacture, and for each vehicle, whether it is owned or
leased, and if owned, the name of any lienholder and the amount of the
lien, and if leased, the name of the lessor and the general terms of
the lease, and, whether owned or leased, if it is used to transport,
transfer, handle, dispose or haul Waste materials.
(c) Adequacy of the Assets; Relationships with Customers and
Suppliers; Affiliated Transactions. The Assets and Leased Premises
constitute, in the aggregate, all of the assets and properties necessary
for the conduct of the business of the Company in the manner in which and
to the extent to which such business is currently being conducted. No
current supplier to the Company of items essential to the conduct of its
business will or has threatened to terminate its respective business
relationship with it for any reason. Except as set forth on Schedule
3.4(c), neither the Shareholder nor the Company has any direct or indirect
interest in any customer, supplier or competitor of the Company, or in any
person from whom or to whom such Company leases real or personal property.
Except as set forth on Schedule 3.4(c), no officer, director or shareholder
of the Company, nor any person related by blood or marriage to any such
person, nor any entity in which any such person owns any beneficial
interest, is a party to any Contract or transaction with the Company or has
any interest in any property used by the Company.
(d) Accuracy of Information Furnished by the Shareholder. No
representation, statement or information made or furnished by the
Shareholder to the Purchaser or any of the Purchaser's representatives,
including those contained in this Agreement and the various Schedules
attached hereto and the other information and statements referred to herein
and previously furnished by the Company and the Shareholder, contains or
shall contain any
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<PAGE>
untrue statement of a material fact or omits or shall omit any material
fact necessary to make the information contained therein not misleading.
The Shareholder has provided the Purchaser with true, accurate and complete
copies of all documents listed or described in the various Schedules
attached hereto.
3.5 Class V Representations. As an additional material inducement to the
Purchaser to enter into this Agreement and to consummate the transactions
contemplated hereby, the Shareholder makes the following representations and
warranties, which representations and warranties are hereby made to the best of
the Shareholder's knowledge after having made a reasonable investigation:
(a) Environmental and Safety Matters. Except as set forth on Schedule
3.5(a):
(i) The operations of the Company is and has at all times been in
compliance in all material respects with all applicable Environmental
Health and Safety Laws;
(ii) The Company has in all material respects obtained,
maintained and complied with all Governmental Permits required by
Environmental Laws and necessary for the operation of its business,
and such Governmental Permits are transferable to the Purchaser
without any change to their respective terms and conditions;
(iii) No Hazardous Substances have been generated, transported,
stored, treated, recycled or otherwise handled in any way in the
operation of Company's business, except for inventories of raw
materials and cleaning and janitorial supplies used or to be used in
the ordinary and normal course of operating the business (all of which
were or are stored in all material respects in accordance with
applicable Environmental Health and Safety Laws);
(iv) There are no locations not owned or operated by the Company
where Hazardous Substances associated with the operation of Company's
business have been stored, treated, recycled or disposed of, except
for inventories of raw materials and supplies used or to be used in
the ordinary and normal course of operating Company's business (all of
which were or are stored in all material respects in accordance with
applicable Environmental Health and Safety Laws);
(v) Except for cleaning and janitorial supplies, no Hazardous
Substances are located on, contained in or otherwise form a part of
the property of the Company;
(vi) There is no past or ongoing release (as defined in the
Environmental Health and Safety Laws) from properties associated with
the operation of the Company's business or from other locations where
Hazardous Substances associated
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with the operation of Company's business have been or are located
except for federally permitted releases;
(vii) Except as set forth on Schedule 3.5(a)(vii), there is no
information indicating that any Person may have impaired health as a
result of the operation of the Company's business or the ownership or
use of any property associated with the operation of the Company's
business or as the result of the Release from such properties;
(viii) Except as allowed by law, the Company has not treated,
stored for more than ninety (90) days, or disposed of any hazardous
waste (as such term is used within the meaning of the RCRA or similar
applicable state or municipal law) associated with the operation of
the Company's business;
(ix) The Company has not received any notice from any
governmental body or other person advising that any of them is
potentially responsible for remedial action with respect to a release
or threatened release or with regard to the Company's treatment of its
cleaning and janitorial supplies;
(x) Except as set forth on Schedule 3.5(a)(x), no underground
storage tanks are or, to the Shareholder's knowledge, ever were
located on any properties owned or leased by the Company;
(xi) No order, litigation, settlement or citation with respect to
Hazardous Substances exists with respect to or in connection with the
operation of the Company's business;
(xii) There has been no environmental investigation conducted by
any governmental body with respect to the operation of the Company's
business;
(xiii) To the best of the Company's knowledge, there are no PCBs
which are located on, contained in or otherwise form a part of any of
the Company's assets or the Leased Property.
(xiv) As used in this Section 3.5(a), the term "Company" is
deemed to refer to the Company or any of their subsidiaries and
predecessors in interest.
(xv) As used in Section 3.5(a), the properties of the Company
(whether owned or leased) are deemed to refer to any properties
previously owned or leased by the Company.
(b) Insurance. The Company is covered by valid, outstanding and
enforceable policies of insurance issued to it by insurers it reasonably
believed were reputable covering
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its properties, assets and businesses against risks of the nature normally
insured against by businesses in the same or similar lines of business and
in coverage amounts typically and reasonably carried by such businesses
(the "Insurance Policies"). Such Insurance Policies are in full force and
effect, and all premiums due thereon have been paid. As of the Closing Date
each of the Insurance Policies will be in full force and effect. None of
the Insurance Policies will lapse or terminate as a result of the
transactions contemplated by this Agreement. The Company has complied with
the provisions of such Insurance Policies. Schedule 3.5(b) contains (i) a
complete and correct list of all Insurance Policies and all amendments and
riders thereto (copies of which have been provided to the Purchaser) and
(ii) a detailed description of each pending claim under any of the
Insurance Policies for an amount in excess of $5,000 that relates to loss
or damage to the properties, assets or businesses of the Company. The
Company has not failed to give, in a timely manner, any notice required
under any of the Insurance Policies to preserve its rights thereunder.
(c) Licenses and Permits. The Company possesses all licenses and
required governmental or official approvals, permits or authorizations
(collectively, the "Permits") for its business and operations, including
the operation of the Owned Properties and Leased Premises, which Permits
are listed on Schedule 3.5(c). All such Permits are valid and in full force
and effect, the Company is in material compliance with the requirements
thereof, and no proceeding is pending or threatened to revoke or amend any
of them. None of such Permits is or will be impaired or in any way affected
by the execution and delivery of this Agreement or the consummation of the
transactions contemplated hereby.
(d) Contracts. Schedule 3.5(d) sets forth a list of each Contract to
which the Company is a party or by which its properties and assets are
bound and which is material to its business, assets, properties or
prospects (the "Designated Contracts"), true and correct copies of which
have been provided to the Purchaser. The copy of each Designated Contract
furnished to the Purchaser is a true and complete copy of the document it
purports to represent and reflects all amendments thereto made through the
date of this Agreement. Except as set forth on Schedule 3.5(d), the Company
has not violated any of the material terms or conditions of any Designated
Contract or any term or condition which would permit termination or
material modification of any Designated Contract, and all of the covenants
to be performed by any other party thereto have been fully performed and
there are no claims for breach or indemnification or notice of default or
termination under any Designated Contract. Except as set forth on Schedule
3.5(d), no event has occurred which constitutes, or after notice or the
passage of time, or both, would constitute, a material default by the
Company under any Designated Contract, and no such event has occurred which
constitutes or would constitute a material default by any other party. The
Company is not subject to any material liability or payment resulting from
renegotiation of amounts paid it under any Designated Contract. As used in
this Section, Designated Contracts shall include, without limitation: (i)
loan agreements, indentures, mortgages, pledges, hypothecations, deeds of
trust, conditional sale or title retention agreements, security agreements,
equipment financing obligations or guaranties, or other sources of
contingent liability in respect of any
28
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indebtedness or obligations to any other Person, or letters of intent or
commitment letters with respect to same; (ii) contracts obligating the
Company to purchase or sell products or services; (iii) leases of real
property, and leases of personal property not cancelable without penalty on
notice of 60 days or less or calling for payment of an annual gross rental
exceeding $10,000.00; (iv) distribution, sales agency or franchise or
similar agreements, or agreements providing for an independent contractor's
services, or letters of intent with respect to same; (v) employment
agreements, management service agreements, consulting agreements,
confidentiality agreements, noncompetition agreements and any other
agreements relating to any employee, officer or director of the Company;
(vi) licenses, assignments or transfers of trademarks, trade names, service
marks, patents, copyrights, trade secrets or know how, or other agreements
regarding proprietary rights or intellectual property; (vii) any Contract
relating to pending capital expenditures by the Company; and (viii) other
material Contracts or understandings, irrespective of subject matter and
whether or not in writing, not entered into in the ordinary course of
business by the Company and not otherwise disclosed on the Schedules.
(e) Investment Intent; Accredited Investor Status; Securities
Documents. The Shareholder is acquiring the Interests for his own account
for investment and not with a view to, or for the sale in connection with,
any distribution of the Interests, except in compliance with applicable
state and federal securities laws. The Shareholder has been provided, to
his satisfaction, the opportunity to discuss the transactions contemplated
hereby with the Purchaser and has had the opportunity to obtain such
information pertaining to the Purchaser as has been requested. The
Shareholder is an "accredited investor" within the meaning of Regulation D
promulgated under the Securities Act. The Shareholder has such knowledge
and experience in business and financial matters that he is capable of
evaluating the merits and risks of an investment in the Interests and is
capable of bearing the economic risks of such investment and is able to
bear a complete loss of his investment in the Interests. The Shareholder
acknowledges that the Interests have not been registered under the
Securities Act and understands that the Interests he receives, including
but not limited to the Put Interests, the Earn-Out Interests and the
Interests received from the exercise of the Reinvestment Right must be held
indefinitely unless they are subsequently registered under the Securities
Act or such sale is permitted pursuant to an available exemption from such
registration requirement. The Shareholder further acknowledges that the
Operating Agreement imposes limitations on his ability to transfer the
Interests he will receive in connection with the transactions contemplated
hereunder and that he will abide by such restrictions and the other terms
of the Operating Agreement.
(f) Business Locations. As of the date hereof, the Company's only
office or place of business is identified on Schedules 3.4(a)(i) or (ii)
and the Company's principal place of business and chief executive office
(as such terms are used in subsection 9-401 of the Uniform Commercial Code
as enacted in the State of Texas as of the date hereof) are indicated on
Schedule 3.4(a)(i) or (ii), and, all locations where the equipment,
inventory,
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chattel paper and books and records of the Company are located as of the
date hereof are fully identified on Schedules 3.4(a)(i) or (ii).
(g) No Commissions. Neither the Company nor the Shareholder has
incurred any obligation for any finder's or broker's or agent's fees or
commissions or similar compensation in connection with the transactions
contemplated hereby.
(h) Identification, Acquisition and Disposition of Assets and
Liabilities. Schedule 3.5(h) sets forth a listing of substantially all of
the assets and properties (including real, personal and mixed) owned by the
Company as of January 23, 1998. Not more than two (2) business days prior
to the Closing, the Shareholders shall deliver to the Purchaser a schedule
reflecting any additions or deletions to Schedule 3.5(h) as of such date
relating to items which individually have a value (defined as the higher of
book value or fair market value) of $10,000 or more (the "Asset Update
Schedule") other than changes to accounts receivable that occur in the
ordinary course of business. Schedule 3.5(h) sets forth a listing of all of
the liabilities of the Company as of January 23, 1998. Not more than two
(2) business days prior to the Closing, the Shareholders shall deliver to
the Purchaser a schedule reflecting any additions or deletions to Schedule
3.5(h) as of such date relating to items which individually have a value
(defined as the higher of book value or fair market value) of $10,000 or
more (the "Liability Update Schedule") other than changes to accounts
payable that occur in the ordinary course of business. All additions and
deletions reflected in the Asset Update Schedule and the Liability Update
Schedule shall be the result of transactions occurring in the ordinary
course of business and no such additions or deletions will violate the
covenants contained in Section 4.1 nor would such additions or deletions
have violated the covenants contained in Section 4.1 if such addition or
deletion had occurred after the date of this Agreement.
ARTICLE IV
CONDUCT OF BUSINESS PENDING THE CLOSING
---------------------------------------
4.1 Conduct of Company Business Pending the Closing . Except as set forth
on Schedule 4.1, the Shareholder and the Company covenant and agree that,
between the date of this Agreement and the Closing Date, the business of the
Company shall be conducted only in, and the Company shall not take any action
except in, the ordinary course of business, consistent with past practice and in
substantial compliance with all rules, regulations and laws. The Company shall
use its best efforts to preserve intact its business organization, to keep
available the services of its respective current officers, employees and
consultants, and to preserve its respective present relationships with
customers, suppliers and other persons with which it has significant business
relations. By way of amplification and not limitation, except as contemplated by
this Agreement, the Company shall not, between the date of this Agreement and
the Closing Date, directly or indirectly, do or propose or agree to do any of
the following without the prior written consent of the Purchaser:
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(a) amend or otherwise change its articles of incorporation or bylaws;
(b) issue, sell, pledge, dispose of, encumber, or, authorize the
issuance, sale, pledge, disposition, grant or encumbrance of: (i) any
shares of its capital stock of any class, or any options, warrants,
convertible securities or other rights of any kind to acquire any shares of
such capital stock, or any other ownership interest, of it; or (ii) any of
its assets, tangible or intangible, except in the ordinary course of
business consistent with past practice;
(c) declare, set aside, make or pay any dividend or other
distribution, payable in cash, stock, property or otherwise, with respect
to any of its capital stock;
(d) reclassify, combine, split, subdivide or redeem, purchase or
otherwise acquire, directly or indirectly, any of its capital stock;
(e) (i) acquire (including, without limitation, for cash or shares of
stock, by merger, consolidation, or acquisition of stock or assets) any
interest in any corporation, partnership or other business organization or
division thereof or any assets, or make any investment either by purchase
of stock or securities, contributions of capital or property transfer, or,
except in the ordinary course of business, consistent with past practice,
purchase any property or assets of any other Person; (ii) incur any
indebtedness for borrowed money or issue any debt securities or assume,
guarantee or endorse or otherwise as an accommodation become responsible
for, the obligations of any Person, or make any loans or advances; or (iii)
enter into any Contract other than in the ordinary course of business,
consistent with past practice;
(f) increase the compensation payable or to become payable to its
officers, directors or any person earning compensation in excess of $25,000
(including by declaring or paying any bonus), or, except as presently bound
to do, grant any severance or termination pay to, or enter into any
employment or severance agreement with, any such persons, or establish,
adopt, enter into or amend or take any action to accelerate any rights or
benefits under any collective bargaining, bonus, profit sharing, trust,
compensation, stock option, restricted stock, pension, retirement, deferred
compensation, employment, termination, severance or other plan, agreement,
trust, fund, policy or arrangement for the benefit of any directors,
officers or employees;
(g) except as previously disclosed to the Purchaser, take any action
other than in the ordinary course of business and in a manner consistent
with past practice with respect to accounting policies or procedures;
(h) except as previously disclosed to the Purchaser, pay, discharge or
satisfy any existing claims, liabilities or obligations (absolute, accrued,
asserted or unasserted, contingent or otherwise), other than the payment,
discharge or satisfaction in the ordinary
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course of business and consistent with past practice of due and payable
liabilities reflected or reserved against in its financial statements, as
appropriate, or liabilities incurred after the date hereof in the ordinary
course of business and consistent with past practice;
(i) except with the written consent of the Purchaser, increase or
decrease prices charged to its customers, except for previously announced
price changes or except in the ordinary course of business, or take any
other action which might reasonably result in any material increase in the
loss of customers through non-renewal or termination of contracts or other
causes; or
(j) agree, in writing or otherwise, to take or authorize any of the
foregoing actions or any action which would make any representation or
warranty in Article III materially untrue or incorrect.
4.2 Conduct of DFG Business Pending the Closing. Except as set forth on
Schedule 4.2, DFG covenants and agrees that between the this Agreement and the
Closing Date, the business of the Company and the Subsidiaries shall be
conducted only in, and DFG shall not take any action except in, the ordinary
course of business, consistent with past practices and in compliance with all
rules, regulations and laws.
ARTICLE V
ADDITIONAL AGREEMENTS
---------------------
5.1 Further Assurances. Each party shall execute and deliver such
additional instruments and other documents and shall take such further actions
as may be necessary or appropriate to effectuate, carry out and comply with all
of the terms of this Agreement and the transactions contemplated hereby.
5.2 Compliance with Covenants. The Shareholder shall cause the Company to
comply with all of the respective covenants of the Company under this Agreement
through the date of Closing or this Agreement is terminated.
5.3 Cooperation. Each of the parties agrees to cooperate with the other in
the preparation and filing of all forms, notifications, reports and information,
if any, required or reasonably deemed advisable pursuant to any law, rule or
regulation or the rules of any stock exchanges and to use their respective best
efforts to agree jointly on a method to overcome any objections by any
Governmental Authority to any such transactions, so long as it does not cause
such party to incur additional costs other than legal fees.
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5.4 Access to Information.
(a) From the date hereof to the Closing Date, the Company and the
Purchaser shall (and shall cause its respective directors, officers,
employees, auditors, counsel and agents to) afford each other and their
officers, employees, auditors, counsel and agents reasonable access at all
reasonable times to its properties, offices, and other facilities, to its
officers and employees and to all books and records, and shall furnish such
persons with all financial, operating and other data and information as may
be requested.
(b) The Purchaser hereby acknowledges that the Shareholder and the
Company have provided it and its representatives, with substantial
information regarding the Company and its past and present operations,
including, but not limited to, information related to items contained on
the Schedules attached hereto. Based on the information provided to the
Purchaser, including information related to the items on the Schedules, the
Purchaser acknowledges and agrees that it is not aware at this time of any
violations of the Shareholder's representations and warranties set forth in
Article III hereof.
5.5 Notification of Certain Matters. The Shareholder and the Purchaser
shall give prompt notice to the other of the occurrence or non-occurrence of any
event which would likely cause any representation or warranty contained herein
to be materially untrue or inaccurate, or any covenant, condition, or agreement
contained herein not to be complied with or satisfied.
5.6 Tax Treatment. Each party to this Agreement has sought and received its
own advice as to the tax treatment of the transactions covered by this Agreement
and is not relying on any representations of the other parties or their
respective advisers with respect thereto. All parties hereto agree to fully and
completely comply with the reporting requirements of the Internal Revenue
Service.
5.7 Confidentiality; Publicity. Except as may be required by law or as
otherwise permitted or expressly contemplated herein, no party hereto or their
respective Affiliates, employees, agents and representatives shall disclose to
any third party this Agreement or the subject matter or terms hereof without the
prior consent of the other parties hereto. No press release or other public
announcement related to this Agreement or the transactions contemplated hereby
shall be issued by any party hereto without the prior approval of the other
parties, except that the Purchaser may make such public disclosure which the
Purchaser believes in good faith is required by law or by the terms of any
listing agreement with or requirements of a securities exchange.
5.8 No Other Discussions. Neither the Company nor the Shareholder, and
their respective Affiliates, employees, agents or representatives shall: (i)
initiate or encourage the initiation by others of discussions or negotiations
with third parties or respond to solicitations by third persons relating to any
merger, sale or other disposition of any substantial part of the assets,
business or properties of the Company (whether by merger, consolidation, sale of
stock or otherwise); or (ii) enter into any agreement or commitment (whether or
not binding) with respect to any of the foregoing transactions.
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The Shareholder will immediately notify the Purchaser if any third party
attempts to initiate any solicitation, discussion or negotiation with respect to
any of the foregoing transactions after the date hereof but prior to closing in
the same manner he has done from December 30, 1997 until the date hereof.
5.9 Environmental Assessment. The Purchaser shall be entitled to have
conducted prior to Closing at its sole cost and expense an environmental
assessment and compliance review of the Leased Premises (hereinafter referred to
as the "Environmental Assessment") and their operations. The Environmental
Assessment may include, but not be limited to, a physical examination of the
Owned Property or Leased Premises, and any structures, facilities, or equipment
located thereon, soil samples, ground and surface water samples, storage tank
testing, review of pertinent permits, reports and records, documents, and
Licenses of the Company. The Shareholder shall provide the Purchaser or its
designated agents or consultants with the access to such property and all
permits, records and reports which the Purchaser, its respective agents or
consultants require to conduct the Environmental Assessment. If the
Environmental Assessment identifies any conditions or environmental
contamination which requires remediation or further evaluation under the
Environmental, Health, and Safety Laws or if the results of the Environmental
Assessment are otherwise not reasonably satisfactory to the Purchaser in its
sole discretion, and if the Company elects not to remediate or otherwise satisfy
the Purchaser (in the sole discretion of the Purchaser), then the Purchaser may
elect not to close the transactions contemplated by this Agreement as provided
in Section 11.1. The Purchaser acknowledges receipt of such reports, has
reviewed such reports and will proceed with the transaction.
5.10 Other Agreements. Upon the Closing, each party hereto that is a
signatory to any of Exhibits "B" through "F" (the "Other Agreements") agrees to
execute and deliver such Other Agreements, as appropriate, to the other parties
to such Other Agreements. The parties agree that the non-competition covenants
contained in the employment and consulting agreements are attached as Exhibits
"A" and "H" are an integral part of this Agreement.
5.11 Necessary Authority. The Purchaser, the Company and the Shareholder
agree to use their individual best efforts to obtain the authorizations required
for each to execute and deliver this Agreement and to perform each of their
respective obligations hereunder and to consummate the transactions contemplated
hereby.
5.12 Certification of Tax Status. The Shareholder shall deliver to the
Purchaser either: (i) a Certificate of Nonforeign Status under Treasury
Regulation Section 1.1445-2(b)(1), or (ii) a Certificate meeting the
requirements of Treasury Regulation Sections 1.987-2(g) and 1.897-2(h)(2) that
the Stock does not constitute a U.S. real property interest.
5.13 Put Right.
(a) During the period from January 1, 2001 through the later of April
30, 2001 or thirty (30) days after the Shareholder's receipt of a copy of
DFG's audited financial
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statement for the year ending December 31, 2000 (the "Put Period"), the
Shareholder shall have the absolute, unconditional and irrevocable right
(the "Put Right") to require DFG to purchase all, but not less than all, of
the Put Interests received at a price equal to ONE MILLION EIGHT HUNDRED
FIFTEEN THOUSAND DOLLARS ($1,815,000).
(b) The Shareholder may exercise the Put Right by providing written
notice to DFG before the end of the Put Period. The closing of the purchase
of the Put Interests by DFG shall take place by mail, or if not practicable
at the offices of counsel for DFG, at a date mutually agreed upon by the
Shareholder and DFG, and if no date can be agreed upon, then thirty (30)
days after the end of the Put Period. At the time of the transfer of the
Put Interest to DFG, the Shareholder shall provide reasonable and customary
representations and warranties, including but not limited to,
representations that the Shareholder has the authority to enter into the
transaction and that there are no liabilities encumbering the Put
Interests.
(c) At the Closing, DFG shall pay and deliver to the Shareholder the
aggregate purchase price for the Put Interests by wire transfer of
immediately available funds; provided, however, if DFG or any Affiliate is
owed money by the Shareholder, DFG may elect to offset the aggregate
purchase price by such amounts owed by the Shareholder to Purchaser or DFG
which exceeds the amount of the amounts held back under Section 8.4, but
not to exceed the maximum liability exposure of the Shareholder under
Section 8.1(d) as to each class or category of Shareholder representations,
and pay the remaining portion of the purchase price to the Shareholder.
(d) Any disputes regarding this provision shall be decided through
binding arbitration pursuant to the Arbitration Procedures in Section 12.10
hereof, and any amounts not subject to the dispute that is the subject of
the Arbitration shall be promptly remitted to the Shareholder.
5.14 Reinvestment Right.
(a) During the three-year (3) period following the Closing Date (the
"Reinvestment Period"), the Shareholder shall have the right (the
"Reinvestment Right") to invest no less than ONE MILLION DOLLARS
($1,000,000) and no more than TWO MILLION TWENTY-FIVE THOUSAND DOLLARS
($2,025,000) in DFG in return for Interests. The Shareholder shall have one
opportunity to exercise the Reinvestment Right.
(b) Except for any proposed adjustments which may be required to
reflect the effect of an interest split, dividend or other adjustment to
the capital structure of the Purchaser, upon the price per Interest set
forth below, the number of Interests the Shareholder will receive for his
investment under Section 5.14 hereof shall be equal to the amount of the
investment divided by a price per Interest equal to:
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(i) for the first year after the Closing Date, Forty Seven
Dollars ($47) per Interest subject to adjustment for any Interest
splits, dividends or any similar changes; and
(ii) after the first anniversary of the Closing Date, the greater
of: (A) Forty Seven Dollars ($47) per Interest subject to adjustment
for any Interest splits, dividends or any similar changes; or (B) the
Fair Market Value per Interest.
(c) For purposes of this Section 5.14, Fair Market Value shall mean
either the price agreed to by the Shareholder and DFG or if no agreement
can be reached, the Appraised Value.
(d) The Shareholder can exercise the Reinvestment Right by giving
written notice to DFG on or before the end of the Reinvestment Period.
Within ten (10) days of receipt of such written notice, DFG shall provide
the Shareholder with its most recent audited and unaudited financial
statements and other information which DFG believes is appropriate for
determining the Fair Market Value for its Interests. Within twenty (20)
days after DFG provides such information, the Shareholder shall provide
written notice of whether it intends to exercise the Reinvestment Right and
the dollar amount of the Shareholder's investment. Within ten (10) days of
receipt of such written notice from the Shareholders, DFG shall provide
written notice to the Shareholder of its determination as to the Fair
Market Value per Interest and within ten (10) days thereafter, the
Shareholder can either in writing to DFG agree to such price or indicate
in writing to DFG that it wishes to use the Appraised Value as Fair Market
Value.
(e) The Shareholder shall make this investment on a date agreed to by
the Shareholder and DFG, and if no date can be agreed upon, then on the
thirtieth (30th) day after notice of an agreement as to price or the
determination of the Appraised Value as applicable. The Shareholder and
DFG shall give customary representations and warranties at the time of the
investment.
(f) Notwithstanding the foregoing and subject to compliance with
federal and state securities laws and the requirements and/or terms
imposed by the underwriter of any, if there is a public offering of equity
or debt in DFG pursuant to a registration statement filed with the
Securities and Exchange Commission under the Securities Act (an "IPO")
during the Reinvestment Period, DFG will give the Shareholder notice of the
IPO within ninety (90) days of the expected date of the IPO or as soon as
practicable if the IPO is expected to occur in fewer than ninety (90) days,
and the Shareholder shall have fifteen (15) days after receipt of such
notice to exercise his Reinvestment Right, or such right shall lapse even
if the IPO is delayed beyond the ninety-day (90) period.
5.15 Building Lease. At the Closing, the Purchaser shall cause the Company
to execute a lease, in a form substantially similar to that attached hereto as
Exhibit "B" (the "Building Lease")
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for the building and land located at 625 Stayton St., Fort Worth, Texas 76107
(the "Building"). The term of the Building Lease shall be from the Closing Date
until February 28, 2003 (the "Initial Term"), with a right to extend the term
for an additional five (5) years thereafter (the "Extension Term") so long as
the Company gives notice of its intention to extend the lease on or before
February 28, 2002. The payments on the Building Lease from March 1, 1998
through February 28, 1999 shall be $9,375 per month and shall thereafter
increase by three percent (3%) from the prior year for each year during the
Initial Term. The rent for the Extension Term shall be set for the first year
thereof at the greater of the average annual rental rate for the Initial Term or
a "market rental rate" and shall then increase by three percent (3%) per year
for each year thereafter. If the Company and the Landlord are unable to agree
upon a market rental rate, then the market rental rate shall be equal to the
average of the rental rates determined by two independent real estate leasing
brokers, each of whom shall work for national leasing companies familiar with
the Dallas/Ft. Worth rental market for industrial properties, with one broker
selected by the Company and one broker selected by the Landlord.
5.16 Assignment. DFG shall have the right to assign its right to purchase
the Stock to an entity that is controlled by DFG. Notwithstanding this
assignment, DFG shall remain obligated to issue Interests to the Shareholder in
compliance with the terms hereof and shall remain liable and bound for breaches
of the representations and warranties and to pay and perform all other
applicable provisions of this Agreement to the extent the assets of such
assignee are not sufficient to fulfill such claims.
5.17 Waiver of Preemptive Rights. The Shareholder agrees that he shall
waive any preemptive rights he will receive by virtue of owning Interests, but
only to the same extent as waived by the managing members of DFG, and shall sign
any documents reasonably requested by DFG to reflect such waiver and shall cause
all transferees to similarly waive such rights.
5.18 Retirement of Note. To the extent the Company does not have available
funds after the Closing, DFG agrees to pay and contribute sufficient funds to
the Company to allow the Company to retire, pay, satisfy and fully discharge the
entire remaining principal balance of the Shareholder Note at the Closing.
ARTICLE VI
CONDITIONS TO THE OBLIGATIONS OF THE PURCHASER
----------------------------------------------
The obligations of the Purchaser hereunder shall be subject to the
fulfillment at or prior to the Closing Date of the following conditions, any or
all of which may be waived in whole or in part by the Purchaser.
6.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Shareholder contained in
this Agreement shall be true and
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correct at and as of the Closing Date with the same force and effect as though
made at and as of that time except (i) for changes specifically permitted by or
disclosed pursuant to this Agreement, and (ii) that those representations and
warranties which address matters only as of a particular date shall remain true
and correct as of such date. The Shareholder shall have performed and complied
with all of their respective obligations required by this Agreement to be
performed or complied with at or prior to the Closing Date. The Company and the
Shareholder shall have delivered to the Purchaser a certificate, dated as of the
Closing Date, duly signed, stating that, applying the Knowledge Standards set
forth in Article III, such representations and warranties are true and correct
(subject to qualifications and limitations contained therein) and that all such
obligations have been performed and complied with.
6.2 No Material Adverse Change or Destruction of Property. Between the
date hereof and the Closing Date, applying the knowledge standards set forth in
Article III: (i) there shall have been no Material Adverse Change to the
Company; (ii) there shall have been no adverse federal, state or local
legislative or regulatory change affecting in any material respect the services,
products or business of the Company; and (iii) none of the properties and assets
of the Company shall have been damaged by fire, flood, casualty, act of God or
the public enemy or other cause (regardless of insurance coverage for such
damage) and there shall have been delivered to the Purchaser a certificate to
that effect, dated the Closing Date and signed by or on behalf of the Company,
which as to (ii) will be limited to the best of the Shareholder's knowledge
after reasonable investigation.
6.3 Corporate Certificate. The Shareholder shall have delivered to the
Purchaser: (i) copies of the articles of incorporation and bylaws of the
Company as in effect immediately prior to the Closing Date; (ii) copies of
resolutions adopted by the Board of Directors of the Company and the
Shareholders authorizing the transactions contemplated by this Agreement; (iii)
certificates of good standing of the Company issued by the State of Texas and
each other state in which each of them is qualified to do business as of a date
not more than thirty days prior to the Closing Date, certified in each case as
of the Closing Date by the Secretary as being true, correct and complete; (iv)
all other Shareholder's deliveries in Section 1.5(d).
6.4 Opinion of Counsel. The Purchaser shall have received an opinion
dated as of the Closing Date from counsel for the Company and the Shareholder,
in form and substance reasonably acceptable to the Purchaser.
6.5 Consents. The Purchaser shall have received written consents to the
transactions contemplated hereby and waivers of rights to terminate or modify
any material rights or obligations of the Company from any Person from whom such
consent or waiver is required under any Designated Contract or instrument as of
a date not more than ten days prior to the Closing Date, or who, as a result of
the transactions contemplated hereby, would have such rights to terminate or
modify such Contracts or instruments, either by the terms thereof or as a matter
of law.
6.6 Governmental Approvals. All consents, authorizations and approvals
from, and all declarations, filings and registrations with any governmental
authority required to consummate the
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transactions contemplated by this Agreement, including those set forth on
Schedule 3.1(f), shall have been obtained or made without the imposition of any
material conditions.
6.7 Securities Laws. The Purchaser shall have received all necessary
consents and otherwise complied with any state Blue Sky or securities laws
applicable to the purchase of the stock and issuance of the Interests, in
connection with the transactions contemplated hereby.
6.8 Company Stock. At the Closing, the Shareholder shall have delivered
all certificates evidencing the Stock held by him, including but not limited to,
the Stock certificates currently held in escrow with Cecilia A. Thomas, Esq. in
connection with the Shareholder's purchase of such Stock from Bernard Spooner
and Billy F. Rice and with Cecilia A. Thomas, Esq. in connection with the
Shareholder's purchase of such Stock from William F. Byrd, together with stock
powers duly executed in blank and otherwise in form acceptable to the Purchaser
for transfer on the books of the Company.
6.9 No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Agreement or any other transaction contemplated hereby, and which, in the
judgment of the Purchaser, makes it inadvisable to proceed with the Agreement
and other transactions contemplated hereby.
6.10 Purchase Review. At least two (2) business days prior to the Closing,
the Purchaser's independent public accountants shall have reviewed the assets,
liabilities, and net worth of the Company and the results of such review shall
be determined to be acceptable in form and content to the Purchaser in its sole
discretion.
6.11 The Purchaser's Approvals. At least two (2) business days prior to
the Closing, the Purchaser shall have complied with all requirements under the
Operating Agreement and its governing documents and received any necessary
consents from its lenders.
6.12 Due Diligence. At least two (2) business days prior to the Closing,
the Purchaser shall have completed its due diligence review of the Company's
assets, liabilities, business, environmental matters, and prospects and the
results of such due diligence review shall have been judged satisfactory in all
respects by the Purchaser, in its sole discretion.
6.13 Employment and Consulting Agreements.
(a) The Shareholder shall have entered into a consulting agreement,
substantially in the form of Exhibit "D" attached hereto;
(b) Paul Anderson ("Anderson"), currently administrative treasurer of
the Company, shall have entered into an employment agreement, substantially
in the form of Exhibit "E" attached hereto provided, however, if Anderson
does not execute his
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Employment Agreement, Webb will agree to enter into an employment contract
which will be similar in form to the Consulting Agreement attached hereto
as Exhibit D, with the only fundamental changes being an increase in pay to
$150,000 per annum, and a requirement that Webb provide full time
employment to the Company rather than the more limited duties and time
committment required under the Consulting Agreement.
6.14 Other Closing Deliveries. At Closing, the Purchaser and/or the
Company (as appropriate) shall have received each of the Agreements to which
Shareholder is a party, duly executed by the appropriate party or parties,
including those set forth in Section 1.5(c).
ARTICLE VII
CONDITIONS TO THE OBLIGATIONS OF
THE COMPANY AND THE SHAREHOLDER
-------------------------------
The obligations of the Company and the Shareholder to effect the
transaction contemplated hereunder shall be subject to the fulfillment at or
prior to the Closing Date of the following conditions, any or all of which may
be waived in whole or in part by the Company and the Shareholder.
7.1 Accuracy of Representations and Warranties and Compliance with
Obligations. The representations and warranties of the Purchaser contained in
this Agreement shall be true and correct at and as of the Closing Date with the
same force and effect as though made at and as of that time except (i) for
changes specifically permitted by or disclosed pursuant to this Agreement, and
(ii) that those representations and warranties which address matters only as of
a particular date shall remain true and correct as of such date. The Purchaser
shall have performed and complied with all of its obligations required by this
Agreement to be performed or complied with at or prior to the Closing Date. The
Purchaser shall have delivered to the Shareholder a certificate, dated as of the
Closing Date, and signed by an executive officer, certifying that applying the
Knowledge Standards set forth in Article II, such representations and warranties
(subject to the qualifications and limitations contained therein) are true,
correct and complete and that all such obligations have been performed and
complied with and reaffirming its acknowledgment and agreement under Sections
5.4(b), 6.11 and 6.12 through the Closing Date.
7.2 Delivery of the Purchase Price. At the Closing, the Purchaser shall
have delivered to the Shareholder: (i) the cash required under Section 1.2(a);
(ii) cash sufficient to pay and retire the Shareholder Note under Section
1.5(b)(iv) and the other fees and expenses referred to in Section 5.18, which
payment shall be made directly to the Shareholder and the other providers named
by the Shareholder at the direction of the Company; and (iii) the certificates
for the Put Interests in the name of the Shareholder, which certificate has been
duly signed and sealed by the appropriate officers at DFG.
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7.3 No Adverse Litigation. There shall not be pending or threatened any
action or proceeding by or before any court or other governmental body which
shall seek to restrain, prohibit, invalidate or collect damages arising out of
the Agreement or any of the transactions contemplated hereby or any other matter
pertaining to the business affairs of DFG or any of the Subsidiaries which in
the judgment of the Shareholder makes it inadvisable to proceed with the
Agreement or any other transaction contemplated hereby.
7.4 Opinion of Counsel. The Shareholder shall have received an opinion
dated as of the Closing Date from counsel for the Purchaser, in form and
substance reasonably acceptable to the Shareholder.
7.5 Other Closing Deliveries. At Closing, the Company and/or the
Shareholder (as appropriate) shall have received each Other Agreement to which
the Purchaser is a party, duly executed by the Purchaser, including those set
forth in Section 1.5(d).
ARTICLE VIII
INDEMNIFICATION
---------------
8.1 Agreement by the Shareholder to Indemnify. Subject to the conditions
and limitations contained in this Article VIII, the Shareholder agrees to
indemnify, defend and hold the Purchaser harmless from and against the aggregate
of all Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "Indemnifiable Damages" means,
without duplication, the aggregate of all expenses, losses, costs,
deficiencies, liabilities and damages (including, without limitation,
reasonable attorney's and paralegal fees and expenses) incurred or suffered
by the Purchaser, on a pre-tax consolidated basis, to the extent: (i)
resulting from any breach of a representation or warranty made by the
Company or the Shareholder in or pursuant to this Agreement; (ii) resulting
from any breach of the covenants or agreements made by the Company or the
Shareholder pursuant to this Agreement; or (iii) resulting from any
inaccuracy in any certificate or environmental report delivered by the
Company or the Shareholder pursuant to this Agreement. The amount of
Indemnifiable Damages shall be reduced to the extent that the Purchaser or
the Company receives proceeds or other payments from any insurance policy
with relation to the actions causing Purchaser to have a right to receive
Indemnifiable Damages hereunder.
(b) Without limiting the generality of the foregoing, with respect to
the measurement of Indemnifiable Damages, the Purchaser shall have the
right to be put in the same pre-tax consolidated financial position as the
Purchaser would have been in had each of the representations and warranties
of the Shareholder hereunder been true and correct and had the covenants
and agreements of the Company and the Shareholder hereunder been performed
in full.
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(c) The representations and warranties made by the Shareholder in this
Agreement or pursuant hereto shall survive for the following periods: (i)
Class I Representations shall survive until sixty (60) months after the
Closing Date for all Class I Representations other than those under Section
3.1(i), which representations and warranties shall survive until forty
eight (48) months after the Closing Date; (ii) Class II Representations
shall survive until the earlier of: (1) ninety (90) days after the receipt
by the Company of its first annual audited financial statement following
the acquisition of the Stock by the Purchaser to reflect operations from
the period ending December 31, 1998; or (2) June 30, 1999; (iii) Class III
Representations shall survive for twenty-four (24) months with regard to
the representations and warranties in Section 3.3(a) and Section 3.3(b),
and at the time the period of limitations (including any extensions thereof
pursuant to the delivery of waivers of applicable period of limitations)
expires for the assessment by the taxing authorities of additional Taxes
with respect to the representations and warranties contained in Section
3.3(c); and (iv) Class IV and Class V Representations shall survive until
eighteen (18) months after the Closing Date. No claim for the recovery of
Indemnifiable Damages may be asserted by the Purchaser against the
Shareholder after such representations and warranties shall thus expire;
provided, however, that claims for Indemnifiable Damages first asserted
within the applicable period shall not thereafter be barred, so long as the
Purchaser diligently pursues either arbitration or litigation with regard
to this matter within twelve (12) months following the assertion of such
claims, unless filing within such twelve (12) month period would, in the
sole discretion of the Purchaser, cause additional cost or expense that
would arise if such claim were not then asserted. Notwithstanding any
knowledge of facts determined or determinable by any party by
investigation, each party shall have the right to fully rely on the
representations, warranties, covenants and agreements of the other parties
contained in this Agreement or in any other documents or papers delivered
in connection herewith, subject to the terms at Sections 5.4(b) and 7.1.
Each representation, warranty, covenant and agreement of the parties
contained in this Agreement is independent of each other representation,
warranty, covenant and agreement; provided, each representation is subject
to limitation or modification to the extent of the information and
documentation supplied by the Shareholder or the Company to Purchaser in
connection with its due diligence, as well as by the schedules accompanying
and made a part of this Agreement and the documentation to which such
schedules refer.
(d) In the event that the Purchaser believes it is entitled to a claim
for any Indemnifiable Damages hereunder, the Purchaser shall promptly give
written notice to the Shareholder of such claim and the amount or the
estimated amount of such claim, and the basis for such claim. If the
Shareholder does not pay the amount of the claim for Indemnifiable Damages
to the Purchaser within 10 days, then the Purchaser may exercise its
respective rights under Section 8.4 and/or take any action or exercise any
remedy available to them by appropriate legal proceedings to collect the
Indemnifiable Damages, subject to the limitations set forth in Section
8.1(e).
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(e) Notwithstanding anything to the contrary contained in this Section
8.1, the Shareholder's liability for Indemnifiable Damages shall be limited
as follows:
(i) With regard to all Class I Representations other than those
in Section 3.1(i): (1) the Purchaser shall have no claim for
Indemnifiable Damages unless and until all Indemnifiable Damages with
respect to breaches of the Class I Representations other than those in
Section 3.1(i) incurred by the Purchaser exceed $50,000; and (2) the
total amount of Indemnifiable Damages for which the Shareholder shall
be liable to the Purchaser shall not exceed $1,750,000 reduced by
$50,000;
(ii) With regard to the Class I Representations set forth in
Section 3.1(i): (1) the Purchaser shall have no claim for
Indemnifiable Damages unless and until all Indemnifiable Damages with
respect to breaches of representations and warranties set forth in
Section 3.1(i) exceed $50,000; and (2) the total amount of
Indemnifiable Damages for which the Shareholder shall be liable to the
Purchaser shall not exceed $1,500,000, reduced by $50,000;
(iii) With regard to Class II Representations: (1) the
Purchaser shall have no claim for Indemnifiable Damages unless and
until all Indemnifiable Damages with respect to breaches of Class II
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000 in which event the Shareholder shall be liable for only
such Indemnifiable Damages in excess of $100,000; and (2) The total
amount of Indemnifiable Damages for which the Shareholder shall be
liable to the Purchaser shall not exceed $1,750,000 reduced by
$100,000;
(iv) With regard to Class III Representations: (1) the Purchaser
shall have no claim for Indemnifiable Damages unless and until all
Indemnifiable Damages with respect to breaches of Class III
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000 with regard to Class III Representations set forth in
Section 3.3(a), $50,000 with regard to breaches of representations and
warranties set forth in Section 3.3(b) and $50,000 with regard to
breaches of representations and warranties set forth in Section
3.3(c), which amounts shall not be cumulative; and (2) amount of
Indemnifiable Damages for which the Shareholder shall be liable to the
Purchaser shall not exceed $1,750,000 reduced by $50,000;
(v) With regard to Class IV Representations: (1) the Purchaser
shall have no claim for Indemnifiable Damages unless and until all
Indemnifiable Damages with respect to breaches of Class IV
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000, in which event the Shareholder shall be liable for only
such Indemnifiable Damages in excess of $100,000; and (2) the total
amount of Indemnifiable Damages for which the Shareholder shall be
liable to the
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Purchaser shall not exceed $1,750,000 reduced by $100,000;
(vi) With regard to Class V Representations, (1) the Purchaser
shall have no claim for Indemnifiable Damages unless and until all
Indemnifiable Damages with respect to breaches of Class V
Representations incurred by the Purchaser exceed the aggregate amount
of $100,000, in which event the Shareholder shall be liable for only
such Indemnifiable Damages in excess of $100,000; and (2) the total
amount of Indemnifiable Damages for which the Shareholder shall be
liable to the Purchaser shall not exceed $500,000 reduced by $100,000.
(f) Notwithstanding anything to the contrary hereinabove set forth, in
no event shall the Shareholder be liable for claims under any and all
classes or categories set forth in Section 8.1(e) which aggregate in excess
of $1,750,000, it being the intent of the parties to unconditionally and
irrevocably restrict and limit the aggregate of Indemnifiable Damages which
the Shareholder may be or become obligated to pay to an aggregate amount
not exceeding $1,750,000.
8.2 Agreement by the Purchaser to Indemnify. Subject to the conditions
and limitations contained in this Article VIII, the Purchaser agrees to
indemnify, defend and hold the Shareholder harmless from and against the
aggregate of all Shareholder Indemnifiable Damages (as defined below).
(a) For purposes of this Agreement, "Shareholder Indemnifiable
Damages" means, without duplication, the aggregate of all expenses, losses,
costs, deficiencies, liabilities and damages (including, without
limitation, related counsel and paralegal fees and expenses) incurred or
suffered by the Shareholder with regard to an amount equal to the value of
the Interests he receives under the terms hereof, on a pre-tax consolidated
basis, to the extent: (i) resulting from any breach of a representation or
warranty made by the Purchaser in or pursuant to this Agreement; (ii)
resulting from any breach of the covenants or agreements made by the
Purchaser in or pursuant to this Agreement; or (iii) resulting from any
inaccuracy in any certificate delivered by the Purchaser pursuant to this
Agreement. The amount of Shareholder Indemnifiable Damages shall be
reduced to the extent that the Shareholder receives proceeds or other
payments from any insurance policy with relation to the actions causing the
Shareholder to have a right to receive Shareholder Indemnifiable Damages
hereunder.
(b) Without limiting the generality of the foregoing, with respect to
the measurement of Shareholder's Indemnifiable Damages, the Shareholder has
the right to be put in the same pre-tax consolidated financial position as
he would have been in had each of the representations and warranties of the
Purchaser hereunder been true and correct and had the covenants and
agreements of the Purchaser hereunder been performed in full.
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(c) Each of the representations and warranties made by the Purchaser
in this Agreement or pursuant hereto shall survive for a period of twenty-
four (24) months after the Closing Date, notwithstanding any investigation
at any time made by or on behalf of the Shareholder, and upon expiration of
such twenty-four month period, such representations and warranties shall
expire, except for the representations contained in Sections 2.1, 2.2, 2.3,
2.4, 2.5, 2.7, 2.8 and 2.9 shall expire sixty (60) months after the Closing
Date. No claim for the recovery of Shareholder Indemnifiable Damages may
be asserted by the Shareholder against the Purchaser after such
representations and warranties shall thus expire; provided, however, that
claims for Indemnifiable Damages first asserted within the applicable
period shall not thereafter be barred. Notwithstanding any knowledge of
facts determined or determinable by any party by investigation, each party
shall have the right to fully rely on the representations, warranties,
covenants and agreements of the other parties contained in this Agreement
or in any other documents or papers delivered in connection herewith. Each
representation, warranty, covenant and agreement of the parties contained
in this Agreement is independent of each other representation, warranty,
covenant and agreement.
(d) In the event that the Shareholder believes he is entitled to a
claim for any Indemnifiable Damages hereunder, the Shareholder shall
promptly give written notice to the Purchaser of such claim and the amount
or the estimated amount of such claim, and the basis for such claim.
(e) Notwithstanding anything to the contrary contained in this Section
8.2, the Purchaser's liability for Indemnifiable Damages shall be limited
as follows:
(i) the Shareholder shall have no claim for Indemnifiable Damages
unless and until all Indemnifiable Damages incurred by the Shareholder
exceed an aggregate of $100,000, in which event, the Purchaser shall
be liable for only such Indemnifiable Damages in excess of $100,000;
and
(ii) the total amount of Indemnifiable Damages for which the
Purchaser shall be liable to the Shareholder shall not exceed
$1,750,000.00;
(f) Notwithstanding anything to the contrary hereinabove set forth, in
no event shall the Purchaser be liable for claims under class or category
set forth in Section 8.1(e) which aggregate in excess of $1,750,000, it
being the intent of the parties to unconditionally and irrevocably restrict
and limit the aggregate of Indemnifiable Damages which the Purchaser may be
or become obligated to pay to an aggregate amount not exceeding $1,750,000.
(g) The limitations set forth in this Section 8.2(e) shall not limit
the liability of the Purchaser to the Shareholder for amounts which are
unrelated to Shareholder Indemnifiable Damages, such as damages related to
failure to pay the full amount of the Purchase Price, any bonuses and
payments under the Consulting Agreement with the
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Shareholder, amounts owed to the Shareholder in his capacity as the
landlord under the Lease, or failure to distribute the Earn-Out Interests
or fulfill its obligations pursuant to the Put Right.
8.3 Conditions of Indemnification. The obligations and liabilities of the
Shareholder and the Purchaser hereunder with respect to their respective
indemnities pursuant to this Article VIII resulting from any claim or other
assertion of liabilities by third parties (hereinafter called collectively
"Claims"), shall be subject to the following terms and conditions:
(a) the party seeking indemnification (the "Indemnified Party") must
give the other party or parties, as the case may be (the "Indemnifying
Party"), notice of any such Claim 20 days after the Indemnified Party
receives notice thereof;
(b) the Indemnifying Party shall have the right to undertake, by
counsel or other representatives of its own choosing, the defense of such
Claim; provided, however, if a Claim is made against the Purchaser which
exceeds the value of the Indemnification at such time, the Purchaser shall
have the right to control the defense of the Claim;
(c) in the event that the Indemnifying Party shall elect not to
undertake such defense, or within a reasonable time after notice of any
such Claim from the Indemnified Party shall fail to defend, the Indemnified
Party (upon further written notice to the Indemnifying Party) shall have
the right to undertake the defense, compromise or settlement of such Claim,
by counsel or other representatives of its own choosing, on behalf of and
for the account and risk of the Indemnifying Party (subject to the right of
the Indemnifying Party to assume defense of such Claim at any time prior to
settlement, compromise or final determination thereof);
(d) anything in this Section 8.3 to the contrary notwithstanding: (A)
the Indemnified Party shall have the right, at its own cost and expense, to
have its own counsel to protect its own interests and participate in the
defense, compromise or settlement of the Claim; (B) the Indemnifying Party
shall not, without the Indemnified Party's written consent, settle or
compromise any Claim or consent to entry of any judgement which does not
include as an unconditional term thereof the giving by the claimant or the
plaintiff to the Indemnified Party of a release from all liability in
respect of such Claim; and (C) the Indemnified Party, by counsel or other
representatives of its own choosing and at its sole cost and expense, shall
have the right to consult with the Indemnifying Party and its counsel or
other representatives concerning such Claim, and the Indemnifying Party and
the Indemnified Party and their respective counsel shall cooperate with
respect to such Claim.
8.4 Escrowed Interests and Rights of Setoff to Secure the Shareholder's
Indemnification Obligation. As security for the agreement by the Shareholder to
indemnify and hold the Purchaser harmless as described in Section 8.1, at the
Closing, the Purchaser shall transfer to the Escrow Agent
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the certificates representing the Put Interests (the "Escrowed Interests") in
accordance with the terms of the Escrow Agreement.
(a) The Purchaser may, in its sole discretion, direct the Escrow Agent
to set off against the Escrowed Interests any Indemnification Damages for
which the Shareholder may be responsible pursuant to this Agreement whether
or not indemnified pursuant to Section 8.1 of this Agreement, subject,
however, to the following terms and conditions:
(i) Purchaser shall give written notice to the Shareholder of any
claim for Indemnifiable Damages or any other damages hereunder, which
notice shall set forth (i) the amount of Indemnifiable Damages or
other loss, damage, cost or expense which the Purchaser claims to have
sustained by reason thereof, and (ii) the basis of such claim;
(ii) Such set off shall be effected on the later to occur of the
expiration of twenty (20) days from the date of such notice (the
"Notice of Contest Period") or, if such claim is contested, the date
the dispute is resolved, and such set off shall be charged
proportionally against the shares set aside;
(iii) If, prior to the expiration of the Notice of Contest
Period, the Shareholders shall notify the Purchaser in writing of an
intention to dispute the claim and if such dispute is not resolved
within 30 days after expiration of such period (the "Resolution
Period"), then the dispute shall be resolved through binding
arbitration using the Arbitration Procedures set forth in Section
12.10 hereof;
(iv) For purposes of this Section 8.4, the value for purposes of
set off against the Escrowed Shares shall be equal to the greater of:
(i) $47 per interest (subject to adjustment for Interest splits,
dividends and other similar transactions); or (ii) the per Interests
price used by DFG in any transaction in which it issued Interests in
return for the assets or equity interests of another entity if such
issuance occurred within 90 days of the date of the determination of
value or, if no such determination was made within the 90 day period,
then determined by DFG using its most current and consistently applied
methodology for establishing value.
(v) The Shareholder shall have the right to substitute cash for
all or any portion of the Escrowed Interests at any time prior to the
expiration of any time limits set forth in this Section 8.4(a).
(b) Except with respect to interests transferred pursuant to the
foregoing right of set off (and in the case of such interests, until the
same are transferred), all Escrowed Interests shall be deemed to be owned
by the Shareholder and the Shareholder shall be entitled to vote the same;
provided, however, that there shall also be deposited with the Purchaser
subject to the terms of this Section 8.4, all of the Interests issued to
the
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Shareholder as a result of any Interest distribution, Interest split or
other similar transaction. All cash distributions paid upon the Escrowed
Interests shall be distributed to the Shareholder at the same time or times
when distributed to the other members of DFG, and he will receive all tax
forms as the owner of the Escrowed Interests.
(c) The Purchaser agrees to deliver to the Shareholder no later than
twenty-four (24) months after the Closing Date any Escrowed Interests then
held by it (or proceeds from the Escrowed Interests) unless there then
remains unresolved any claim for Indemnifiable Damages or other damages
hereunder as to which notice has been given, in which event any Escrowed
Interests remaining on deposit (or proceeds from the sale of Escrowed
Interests) after such claim shall have been satisfied shall be returned to
the Shareholder promptly after the time of settlement.
ARTICLE IX
SECURITIES LAW MATTERS
----------------------
The parties agree as follows with respect to the sale or other disposition
after the Closing Date of the Interests.
9.1 Disposition of the Purchaser Securities. The Shareholder represents
and warrants that each of the Interests being acquired by him hereunder is being
acquired and will be acquired for his own account and will not be sold or
otherwise disposed of, except pursuant to: (i) an exemption from the
registration requirements under the Securities Act, which does not require the
filing by the Purchaser with the SEC of any registration statement, offering
circular or other document, in which case the Shareholder shall first supply to
the Purchaser an opinion of counsel (which counsel and opinions shall be
reasonably satisfactory to the Purchaser) that such exception is available; or
(ii) an effective registration statement filed by the Purchaser with the SEC
under the Securities Act.
9.2 Legend. Each of the Interests shall bear the following legend:
"THE INTERESTS REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND THEY MAY NOT BE SOLD OR OFFERED FOR
SALE IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE ACT AS TO
SAID INTEREST OR AN OPINION, IN FORM IN SUBSTANCE SATISFACTORY TO THE COMPANY
AND GIVEN BY COUNSEL SATISFACTORY TO THE COMPANY, THAT SUCH REGISTRATION IS NOT
REQUIRED. THE INTERESTS REPRESENTED BY THIS CERTIFICATE ARE ALSO SUBJECT TO
CERTAIN RESTRICTIONS ON TRANSFER SET FORTH IN THE OPERATING AGREEMENT OF THE
COMPANY, A COPY OF WHICH OPERATING AGREEMENT CAN BE OBTAINED AT THE PRINCIPAL
OFFICE OF THE COMPANY."
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The Purchaser may, unless a registration statement is in effect covering the
Interests, place stop transfer orders with its transfer agents with respect to
such certificates in accordance with federal securities laws.
ARTICLE X
DEFINITIONS
-----------
10.1 Defined Terms. As used herein, the following terms shall have the
following meanings:
"Aboveground Storage Tanks" "Aboveground Storage Tanks" and
"Underground Storage Tanks" shall have the meanings given them in Section
6901 et seq., as amended, of RCRA, or any applicable state or local
statute, law, ordinance, code, rule, regulation, order ruling, or decree
governing Aboveground Storage Tanks or Underground Storage Tanks.
"Affiliate" shall have the meaning ascribed to it in Rule 12b-2 of the
General Rules and Regulations under the Exchange Act, as in effect on the
date hereof.
"Appraised Value" shall mean the value of the Interests in DFG
determined as follows:
(i) If the parties needing to determine Appraised Value mutually
select an Appraiser, then the valuation determined by such Appraiser
shall be the Appraised Value;
(ii) If the parties do not agree upon a single Appraiser within
ten (10) business days, then DFG shall have the right to retain an
Appraiser to determine value. The valuation determined by such
Appraiser shall be submitted to the other party within five (5)
business days after the receipt of the appraisal report by DFG. If the
other party agrees to such value, then it shall constitute the
Appraised Value.
(iii) If the other party does not agree to the valuation
determined by the first Appraiser, it shall retain a second Appraiser.
The value determined by the second Appraiser shall be presented to
DFG, and if DFG does not agree to the second valuation, then: (A) if
the first value and the second value are within 10% of each other,
then the Appraised Value shall be equal to the average of the two
values; (B) if the first value and the second value are more than 10%
apart, and DFG and the other party still cannot agree as to the
Appraised Value, then the first Appraiser and the second Appraiser
shall select a third Appraiser within ten (10) days, and the third
Appraiser who shall review the values determined by the first two
Appraisers and
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select as Appraised Value either one of the values determined by the
first two Appraisers or the average of such two values.
(iv) Each Appraiser selected to provide a net fair market value
of the Interests shall be specifically instructed to value DFG in an
amount equal to the price that would be paid by a sophisticated,
independent third party purchaser for all the Interests of the
Interest Holders and the Company in an arm's-length transaction, with
appropriate reductions for indebtedness of the Company. Any and all
fees and/or costs incurred with respect to determining the Appraised
Value, including but not limited to, any fees paid to the Appraisers
selected and any legal and/or accounting fees incurred in connection
therewith shall be paid by DFG. Any and all controversies, disputes
or claims related to or arising out of the determination of Appraised
Value shall be decided through the binding Arbitration Procedures
described in Section 12.10 hereof.
"Appraiser" means an independent third party who is qualified and
experienced in the appraisal of closely held businesses, and is not
affiliated with the Purchaser, the Shareholder or the Company in any way.
"Arbitration Procedures" defined in Section 12.10.
"Asset Update Schedule" defined in Section 3.5(h).
"Assets" defined in Section 3.4(b)(i).
"Building" defined in Section 5.15.
"Building Lease" defined in Section 5.15.
"Cash Portion" defined in Section 1.2(a).
"CERCLA" defined in the definition of "Hazardous Substances."
"Claims" defined in Section 8.3.
"Class I Representations" means the representations and warranties set
forth in Section 3.1.
"Class II Representations" means the representations and warranties
set forth in Section 3.2.
"Class III Representations" means the representations and warranties
set forth in Section 3.3.
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"Class IV Representations" means the representations and warranties
set forth in Section 3.4.
"Class V Representations" means the representations and warranties set
forth in Section 3.5.
"Closing" defined in Section 1.5(a).
"Closing Date" defined in Section 1.5(a).
"Code" defined in Section 3.3(b).
"Company" defined in the introductory paragraph of this Agreement.
"Company Net Worth" defined in Section 1.3.
"Contract" means any indenture, lease, sublease, license, loan
agreement, mortgage, note, indenture, restriction, will, trust, commitment,
obligation or other contract, agreement or instrument, whether written or
oral.
"Current Balance Sheet" defined in Section 3.2(a).
"Designated Contracts" defined in Section 3.5(d).
"Deposit" defined in Section 1.5(b).
"Deposit Escrow Agent" is defined as Michener, Larimore, Swindle,
Whitaker, Flowers, Sawyer, Reynolds & Chalk, L.L.P., or any successor
designated under the Deposit Escrow Agreement.
"Deposit Escrow Agreement" is defined as that certain escrow agreement
entered into between the parties, a copy of which is attached hereto as
Exhibit "G".
"DFG" means Diversified Food Class, L.L.C., a Delaware limited
liability company.
"DFG Financial Statements" defined in Section 2.6.
"DFG Group" defined in Section 2.8.
"DFG Current Balance Sheet" defined in Section 2.10.
"Discharge" shall have the meanings given them in the Environmental,
Health and Safety Laws.
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"Earn-Out Amount" defined in Section 1.4(a).
"Earn-Out Interests" defined in Section 1.4(a).
"EBITDA" means earnings before interest, taxes, debt service and
amortization and depreciation, determined for financial accounting purposes
using GAAP.
"Employee Benefit Plans" defined in Section 3.3(b).
"Employment and Consulting Agreements" mean the employment and
consulting agreements described in Section 6.13, and attached hereto as
Exhibits "D" and "B".
"Environmental Assessment" defined in Section 5.9.
"Environmental, Health and Safety Laws" means all federal, state,
regional or local statutes, laws, rules, regulations, codes, orders, plans,
injunctions, decrees, rulings, and changes or ordinances or judicial or
administrative interpretations thereof, whether currently in existence or
hereafter enacted or promulgated, any of which govern (or purport to
govern) or relate to pollution, protection of the environment, public
health and safety, air emissions, water discharges, hazardous or toxic
substances, solid or hazardous waste or occupational health and safety, as
any of these terms are or may be defined in such statutes, laws, rules,
regulations, codes, orders, plans, injunctions, decrees, rulings and
changes or ordinances, or judicial or administrative interpretations
thereof, including, without limitation, RCRA, CERCLA, the Hazardous
Materials Transportation Act, the Toxic Substances Control Act, the Clean
Air Act, the Clean Water Act, FIFRA, EPCRA and OSHA.
"EPCRA" defined in the definition of "Hazardous Substances."
"ERISA" defined in Section 3.3(b).
"Escrow Agreement" defined in Section 1.5(b).
"Escrowed Interests" defined in Section 8.4.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Extension Term" defined in Section 5.15.
"FDA" shall mean the Food and Drug Administration, an agency of the
United States government or any agency that assumes the duties it carries
out at this time.
"FIFRA" defined in the definition of "Hazardous Substances."
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"Fair Market Value" defined in Section 5.14.
"Financial Statements" defined in Section 3.2(a).
"Fixed Assets" defined in Section 3.4(b)(i).
"GAAP" means generally accepted accounting principles in effect in the
United States of America from time to time.
"Governmental Authority" means any nation or government, any state,
regional, local or other political subdivision thereof, and any entity or
official exercising executive, legislative, judicial, regulatory or
administrative functions of or pertaining to government.
"Hazardous Substances" shall be defined broadly to include any toxic
or hazardous substance, material, or waste, and any other contaminant,
pollutant or constituent thereof, whether liquid, solid, semi-solid, sludge
and/or gaseous, including without limitation, chemicals, compounds, metals,
by-products, pesticides, asbestos containing materials, petroleum or
petroleum products, and polychlorinated biphenyls, the presence of which
requires investigation or remediation under any Environmental, Health and
Safety Laws or which are or become regulated, listed or controlled by,
under or pursuant to any Environmental Health and Safety Laws, including,
without limitation, the United States Department of Transportation Table
(49 CFR 172, 101) or by the Environmental Protection Agency as hazardous
substances (40 CFR Part 302) and any amendments thereto; the Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
by the Superfund Amendment and Reauthorization Act of 1986, 42 U.S.C.
(S)9601, et seq. (hereinafter collectively "CERCLA"); the Solid Waste
Disposal Act, as amended by the Resource Conversation and Recovery Act of
1976 and subsequent Hazardous and Solid Waste Amendments of 1984, 42 U.S.C.
(S)6901 et seq. (hereinafter, collectively "RCRA"); the Hazardous Materials
Transportation Act, as amended, 49 U.S.C. (S)1801, et seq.; the Clean Water
Act, as amended, 33 U.S.C. (S)1311, et seq.; the Clean Air Act, as amended
(42 U.S.C. (S)7401-7642); Toxic Substances Control Act, as amended, 15
U.S.C. (S)2601 et seq.; the Federal Insecticide, Fungicide, and Rodenticide
Act as amended, 7 U.S.C. (S)136-136y ("FIFRA"); the Emergency Planning and
Community Right-to-Know Act of 1986 as amended, 42 U.S.C. (S)11001, et seq.
(Title III of SARA) ("EPCRA"); the Occupational Safety and Health Act of
1970, as amended, 29 U.S.C. (S)651, et seq. ("OSHA"); any similar state
statute, or any future amendments to, or regulations implementing such
statutes, laws, ordinances, codes, rules, regulations, orders, rulings, or
decrees, or which has been or shall be determined or interpreted at any
time by any Governmental Authority to be a hazardous or toxic substance
regulated under any other statute, law, regulation, order, code, rule,
order, or decree.
"Held Back Interests" defined in Section 8.4.
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"Immigration Act" defined in Section 3.1(j)(iii).
"Indemnifiable Damages" defined in Section 8.1 (a).
"Indemnified Party" defined in Section 8.3 (a).
"Initial Term" defined in Section 5.15.
"Insurance Policies" defined in Section 3.5(b).
"Intellectual Property" defined in Section 3.1(k).
"Interest" means limited liability company membership interests in DFG
of the same class and providing the same rights and obligations as all of
the members in DFG have as of the date hereof and any shares of stock,
interests or other similar property into which the Interests are converted,
exchanged or otherwise transferred in the future.
"Landlord" means James Webb as landlord of the Building.
"Leased Premises" defined in Section 3.4(a)(ii).
"Leases" defined in Section 3.4(a)(ii).
"Liability Update Schedule" defined in Section 3.5(h).
"Licenses" means all licenses, certificates, permits, approvals and
registrations (collectively "Licenses") required by the Environmental,
Health and Safety Laws for the ownership of its properties and assets and
the operation of its business as presently conducted.
"Lien" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, but not limited to, any conditional
sale or other title retention agreement, any lease in the nature thereof,
and the filing of or agreement to give any financing statement under the
Uniform Commercial Code or comparable law or any jurisdiction in connection
with such mortgage, pledge, security interest, encumbrance, lien or
charge).
"Material Adverse Change (or Effect)" means a change (or effect), in
the condition (financial or otherwise), properties, assets, liabilities,
rights, obligations, operations, business or prospects which change (or
effect) individually or in the aggregate, is materially adverse to such
condition, properties, assets, liabilities, rights, obligations,
operations, business or prospects.
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"Material Customers" defined in Section 3.2(e).
"MPPA Plan" defined in Section 3.3(b)(iv).
"Operating Agreement" means the limited liability operating agreement
of DFG dated as of March 25, 1995 and all amendments thereto entered into
from time to time.
"Other Agreements" defined in Section 5.10.
"OSHA" defined in the definition of "Hazardous Substances."
"Owned Properties" defined in Section 3.4(a)(i).
"Permits" defined in Section 3.5(c).
"Person" means an individual, partnership, corporation, business
trust, joint stock company, estate, trust, unincorporated association,
joint venture, Governmental Authority or other entity, of whatever nature.
"PBGC" defined in Section 3.3(b)(vi).
"Purchaser Ancillary Agreement" means all agreements, instruments and
documents being or to be executed and delivered by Seller under this
Agreement or in connection herewith.
"Purchase Price" defined in Section 1.2.
"Put Interest" defined in Section 1.2(b).
"Put Period" defined in Section 5.13(a).
"Put Right" defined in Section 5.13(a).
"RCRA" defined in Section 3.5(a).
"Receivables" defined in Section 3.2(d).
"Register", "registered" and "registration" refer to a registration of
the offering and sale of securities effected by preparing and filing a
registration statement in compliance with the Securities Act and the
declaration or ordering of the effectiveness of such registration
statement.
"Reinvestment Period" defined in Section 5.14.
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"Reinvestment Right" defined in Section 5.14.
"Release" shall have the meanings given them in the Environmental,
Health and Safety Laws.
"SEC" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Seller Ancillary Agreements" means all agreements, instruments and
documents being or to be executed by Seller hereunder or in connection
herewith.
"Shareholder" defined in the introductory paragraph of this Agreement
"Shareholder Indemnifiable Damages" defined in Section 8.2 (a).
"Shareholder Note" shall mean that certain promissory note issued on
January 1, 1991, as amended as of April 1, 1992 held by the Shareholder in
the principal amount of $325,714.
"Stock" defined in Recitals.
"Subsidiaries" defined in Section 2.8.
"Tax Return" means any tax return, filing or information statement
required to be filed in connection with or with respect to any Taxes; and
"Taxes" means all taxes, fees or other assessments, including, but not
limited to, income, excise, property, sales, franchise, intangible,
withholding, social security and unemployment taxes imposed by any federal,
state, local or foreign governmental agency, and any interest or penalties
related thereto.
"USDA" means the United States Department of Agriculture or any agency
or instrumentality that assumes the duties it carries out at this time.
"Underground Storage Tanks" defined in Section 3.5(a).
"Waste" shall be defined broadly to include agricultural wastes,
biomedical wastes, biological wastes, bulky wastes, construction and
demolition debris, garbage, household wastes, industrial solid wastes,
liquid wastes, recyclable materials, sludge, solid wastes, special wastes,
used oils, white goods, and yard trash.
"Welfare Plan" defined in Section 3.3(b)(v).
56
<PAGE>
10.2 Other Definitional Provisions.
(a) All terms defined in this Agreement shall have the defined
meanings when used in any certificates, reports or other documents made or
delivered pursuant hereto or thereto, unless the context otherwise
requires.
(b) Terms defined in the singular shall have a comparable meaning when
used in the plural, and vice versa.
(c) All matters of an accounting nature in connection with this
Agreement and the transactions contemplated hereby shall be determined in
accordance with GAAP applied on a basis consistent with prior periods,
where applicable.
(d) As used herein, the neuter gender shall also denote the masculine
and feminine, and the masculine gender shall also denote the neuter and
feminine, where the context so permits.
ARTICLE XI
TERMINATION, AMENDMENT AND WAIVER
---------------------------------
11.1 Termination. This Agreement may be terminated at any time prior to
the Closing Date:
(a) at any time prior to the Closing Date, by mutual written consent
of all of the parties hereto at any time prior to the Closing;
(b) at any time prior to the Closing Date, by the Purchaser in the
event of a material breach by the Company or the Shareholder of any
provision of this Agreement;
(c) at any time prior to the Closing Date by the Shareholder in the
event of a material breach by the Purchaser or DFG of any provision of this
Agreement;
(d) at any time prior to the Closing Date by the Purchaser in the
event: (i) the Purchaser is not satisfied, in its sole discretion, with
the results of the Environmental Assessment; (ii) the Purchaser has not
received authorization and approval of this Agreement and the transactions
contemplated hereby under the Operating Agreement and its other governing
documents; (iii) the Purchaser is not satisfied, in its sole discretion,
with its due diligence review of the Company;
(e) at any time prior to the Closing Date if permitted pursuant to
any other term or provision hereof; or
57
<PAGE>
(f) at any time prior to the Closing Date, by any of the Purchaser or
the Shareholders if the Closing shall not have occurred by March 5, 1998;
provided, however, that neither the Purchaser, nor the Shareholders shall
be entitled to terminate this Agreement pursuant to this Section 11.1(c),
if such party's knowing or willful breach of this Agreement has prevented
the consummation of the transactions contemplated hereby.
11.2 Effect of Termination. Except as provided in Article VI, in the event
of termination of this Agreement pursuant to Section 11.1, this Agreement shall
forthwith become void; provided, however, that nothing herein shall relieve any
party from liability for the willful breach of any of its representations,
warranties, covenants or agreements set forth in this Agreement, and Section
11.3 shall remain valid and applicable.
11.3 Confidentiality. Purchaser agrees that (except as may be required by
law), it will not disclose or use and it will cause its officers, directors,
employees, representatives, agents, and advisors not to disclose or use any
Confidential Information (as hereinafter defined) with respect to the
Shareholder and/or the Company furnished, or to be furnished, by Shareholder or
the Company to Purchaser in connection herewith at any time or in any manner and
will not use such information other than in connection with its evaluation of
this Agreement. For the purposes of this paragraph "Confidential Information"
means all supplier lists, customer lists, financial statements and tax returns,
formulae, recipes, cooking, manufacturing and production of the Company, and
confectionary products and any other information identified as such in writing
to Purchaser by Shareholder or the Company. If this Agreement is not
consummated, Purchaser will promptly return all documents, contracts, records or
properties to Seller or the Company, including any copies Purchaser made of
documents provided by the Shareholder or the Company. In addition, all
documents received by the Purchaser (including copies thereof) shall be labeled
as trade secrets, and will not be used by the Purchaser or disseminated to any
other person to the detriment of the Company. The Company may recover actual
and consequential damages from the Purchaser for the breach or violation of this
paragraph.
ARTICLE XII
GENERAL PROVISIONS
------------------
12.1 Notices. All notices, requests, demands, claims, and other
communications hereunder shall be in writing and shall be delivered by certified
or registered mail (first class postage prepaid), guaranteed overnight delivery,
or facsimile transmission if such transmission is confirmed by delivery by
certified or registered mail (first class postage pre-paid) or guaranteed
overnight delivery, to the following addresses and telecopy numbers (or to such
other addresses or telecopy numbers which such party shall designate in writing
to the other party):
58
<PAGE>
(a) if to the Purchaser to:
Diversified Food Group, L.L.C.
6901 North Hamlin Avenue
Lincolnwood, Illinois 60645
Attn: Andrew J. Zahn
Telecopy No.: (847) 763-0022
with a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Suite 2500
Chicago, Illinois 60611
Attn: Howard A. Davis
Telecopy No.: (312) 527-5921
(b) if to the Company to:
Sweet Shop Candies, Inc.
625 Stayton Street
Ft. Worth, Texas 76107
Attn: President
Telecopy No.: (817) 336-9169
(c) if to the Shareholder to:
Mr. James H. Webb
2416 Lofton Terrace
Ft. Worth, Texas 76109
Telecopy No.: (817) 923-4024
with a copy to:
Michener, Larimore, Swindle, Whitaker,
Flowers, Sawyer, Reynolds & Chalk, L.L.P.
3500 City Center Tower II
301 Commerce Street
Ft. Worth, Texas 76102-4135
Attn: H.S. Sparks, III
Telecopy No.: (817) 335-6935
59
<PAGE>
12.2 Entire Agreement. This Agreement (including the Exhibits and
Schedules attached hereto) and other documents delivered at the Closing pursuant
hereto, contains the entire understanding of the parties in respect of its
subject matter and supersedes all prior agreements and understandings (oral or
written) between or among the parties with respect to such subject matter. The
Exhibits and Schedules constitute a part hereof as though set forth in full
above.
12.3 Expenses. The Purchaser and the Shareholder shall each pay their own
fees and expenses, including their own counsel fees, incurred in connection with
this Agreement or any transaction contemplated hereby; provided however, the
Company shall pay, after the Closing, legal fees of the Company attributable to
this transaction, in an amount not to exceed the lesser of $12,000 or 25% of the
total legal fees for the law firm that is jointly representing the Company and
the Shareholder.
12.4 Amendment; Waiver. This Agreement may not be modified, amended,
supplemented, canceled or discharged, except by written instrument executed by
all parties. No failure to exercise, and no delay in exercising, any right,
power or privilege under this Agreement shall operate as a waiver, nor shall any
single or partial exercise of any right, power or privilege hereunder preclude
the exercise of any other right, power or privilege. No waiver of any breach of
any provision shall be deemed to be a waiver of any preceding or succeeding
breach of the same or any other provision, nor shall any waiver be implied from
any course of dealing between the parties. No extension of time for performance
of any obligations or other acts hereunder or under any other agreement shall be
deemed to be an extension of the time for performance of any other obligations
or any other acts. The rights and remedies of the parties under this Agreement
are in addition to all other rights and remedies, at law or equity, that they
may have against each other.
12.5 Binding Effect; Assignment. The rights and obligations of this
Agreement shall bind and inure to the benefit of the parties and their
respective successors and assigns. Nothing expressed or implied herein shall be
construed to give any other person any legal or equitable rights hereunder.
Except as expressly provided herein, the rights and obligations of this
Agreement may not be assigned by any of the Shareholders without the prior
written consent of the Purchaser.
12.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original but all of which together shall
constitute one and the same instrument.
12.7 Interpretation. When a reference is made in this Agreement to an
article, section, paragraph, clause, schedule or exhibit, such reference shall
be deemed to be to this Agreement unless otherwise indicated. The headings
contained herein and on the schedules are for reference purposes only and shall
not affect in any way the meaning or interpretation of this Agreement or the
schedules. Whenever the words "include," "includes" or "including" are used in
this Agreement, they shall be deemed to be followed by the words "without
limitation." Time shall be of the essence in this Agreement.
60
<PAGE>
12.8 Governing Law; Interpretation. This Agreement shall be construed in
accordance with and governed for all purposes by the laws of the State of Texas
applicable to contracts executed and to be wholly performed within such State.
12.9 Arm's Length Negotiations. Each party herein expressly represents and
warrants to all other parties hereto that (a) before executing this Agreement,
said party has fully informed itself of the terms, contents, conditions and
effects of this Agreement; (b) said party has relied solely and completely upon
its own judgment in executing this Agreement; (c) said party has had the
opportunity to seek and has obtained the advice of counsel before executing this
Agreement; (d) said party has acted voluntarily and of its own free will in
executing this Agreement; (e) said party is not acting under duress, whether
economic or physical, in executing this Agreement; and (f) this Agreement is the
result of arm's length negotiations conducted by and among the parties and their
respective counsel.
12.10 Arbitration Procedures. To the extent this Agreement indicates
that any dispute arising between the parties shall be decided by binding
arbitration, such arbitration proceeding will be conducted in Memphis, Tennessee
and except as otherwise provided herein, will be conducted at the offices of
JAMS/ENDISPUTE, in accordance with the then current Commercial Arbitration Rules
of the American Arbitration Association. One arbitrator shall conduct the
proceedings. The arbitrator shall allow such discovery as the arbitrator
determines appropriate under the circumstances. The arbitrator shall determine
which party, if either, prevailed and shall award the prevailing party its costs
and reasonable attorney's fees. The award and decision of the arbitrator shall
be conclusive and binding on all parties to this Agreement and judgment on the
award may be entered in any court of competent jurisdiction. The parties
acknowledge and agree that any arbitration award may be enforced either or both
of them in a court of competent jurisdiction and each waives any right to
contest the validity or enforceability of such award. The parties further agree
to be bound by any statute of limitations which would be applicable in a court
of law to the controversy which is the subject of any arbitration proceeding
initiated under this Agreement. The parties further agree that they are
entitled to any arbitration proceeding to the entry of an order, by a court of
competent jurisdiction pursuant to an opinion of the arbitrator for specific
performance of any of the requirements of this Agreement. The parties further
agree that the arbitrator shall provide a statement of reasons explaining the
basis of the decision rendered. All matters relating to arbitration shall be
governed by the Federal Arbitration Act (9 U.S.C. (S)1, et seq.).
12.11 Conversion of DFG. If DFG decides to convert from a limited
liability company to a corporation, whether through a merger, a contribution of
membership interests, a contribution of properties, or through any other means,
the Shareholder agrees to cooperate with such conversion and to act in concert
with the Managing Members in connection therewith and his rights shall, to the
greatest extent possible, be converted or exchanged into similar rights in the
resulting corporation.
12.12 Post Closing Matters. Following the Closing, the Shareholder
shall obtain for the Company an estoppel certificate (the "Estoppel
Certificate") and a subordination, non-disturbance and attornment agreement (the
"Subordination Agreement"), each dated no earlier than thirty (30)
61
<PAGE>
days prior to the Closing Date from the landlord on the Leased Properties. Each
such Estoppel Certificate and Subordination Agreement shall be in a form to be
reasonably agreed upon by the parties and shall contain such provisions
reasonably requested by the Purchaser.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
duly executed and delivered as of the day and year first above written.
PURCHASER:
---------
DIVERSIFIED FOOD GROUP, L.L.C., a Delaware limited
liability company
By: /s/ Andrew J. Zahn
--------------------------------
Its: CEO
-----------------------------
SHAREHOLDER:
-----------
/s/ James H. Webb
-----------------------------------
JAMES H. WEBB
COMPANY:
SWEET SHOP CANDIES, INC., a Texas
corporation
By: /s/ James H. Webb
--------------------------------
Its: CEO
-----------------------------
62
<PAGE>
Exhibit 10.3
FORM OF
-------
INDEMNIFICATION AGREEMENT
-------------------------
THIS INDEMNIFICATION AGREEMENT (the "Agreement") is entered into as of this
___ day of _______________, 1998, by and between DIVERSIFIED FOOD GROUP, INC., a
Delaware corporation (the "Corporation"), and ____________________
("Indemnitee").
RECITALS
--------
A. The Corporation is aware that because of the increased exposure to
litigation costs and risks resulting from service to corporations, talented and
experienced persons are increasingly reluctant to serve or continue serving as
directors or executive officers of corporations unless they are protected by
comprehensive liability insurance and indemnification;
B. Plaintiffs often seek damages in such large amounts, and the costs of
litigation may be so great (whether or not the case is meritorious), that the
defense and/or settlement of such litigation is usually beyond the personal
resources of directors and executive officers;
C. Based upon their experience as business managers, the Board of
Directors of the Corporation (the "Board") has concluded that, to retain and
attract talented and experienced individuals to serve as directors and executive
officers of the Corporation, it is appropriate for the Corporation to
contractually indemnify its directors and certain of its executive officers, and
to assume for itself liability for expenses and damages in connection with
claims against such directors and executive officers in connection with their
service to the Corporation; and
D. The Corporation believes that it is fair and proper to protect its
directors and certain executive officers of the Corporation from the risk of
judgments, settlements and other expenses which may occur as a result of their
service to the Corporation.
NOW, THEREFORE, the parties, intending to be legally bound, for good and
valuable consideration, hereby agree as follows:
1. Definitions.
-----------
(a) Agent. "Agent" means a director or executive officer of the
Corporation or a director or executive officer of another foreign or
domestic corporation, partnership, joint venture, trust or other enterprise
serving at the request, for the convenience, or to represent the interests
of the Corporation.
(b) Corporation. "Corporation" means Diversified Food Group, Inc., a
Delaware corporation, its successors or assigns, or any Subsidiary of the
Corporation. "Subsidiary" means, and "Subsidiaries" include, (i) any
company of which more than fifty percent (50%) of the outstanding voting
securities are owned directly or indirectly
<PAGE>
by the Corporation, or which is otherwise controlled by the Corporation,
and (ii) any partnership, joint venture, trust or other entity of which
more than fifty percent (50%) of the equity interest is owned directly or
indirectly by the Corporation, or which is otherwise controlled by the
Corporation.
(c) Liabilities. "Liabilities" means losses, claims, damages,
liabilities, obligations, penalties, judgments, fines, settlement payments,
awards, costs, expenses and disbursements (and any and all costs, expenses
or disbursements in giving testimony or furnishing documents in response to
a subpoena or otherwise), including, without limitation, all reasonable
attorneys' fees, costs, expenses and disbursements, as and when incurred.
(d) Proceeding. "Proceeding" means any threatened, pending, or
completed action, suit or other proceeding, whether civil, criminal,
administrative, investigative or any other type whatsoever.
(e) Control. "Control" means, with respect to any person or entity,
the possession, direct or indirect, of the power to direct or cause the
direction of the management and policies of such person or entity, whether
through the ownership of voting securities, by contract or otherwise.
2. Maintenance of Liability Insurance.
----------------------------------
The Corporation hereby covenants and agrees to and with Indemnitee
that, so long as Indemnitee shall continue to serve as an Agent and
thereafter so long as Indemnitee shall be subject to any claim or
Proceeding by reason of the fact that Indemnitee was an Agent or in
connection with Indemnitee's acts as such an Agent, the Corporation shall
obtain and maintain in full force and effect directors' and officers'
liability insurance ("D&O Insurance") in reasonable amounts from
established and reputable insurers. In all policies of D&O Insurance,
Indemnitee shall be named as an insured.
3. Indemnification of Agent.
------------------------
(a) Third Party Actions. If Indemnitee is a person who was or is a
party or is threatened to be made a party to any Proceeding (other than an
action by or in the right of the Corporation) by reason of the fact that
Indemnitee is or was an Agent of the Corporation, or by reason of anything
done or not done by Indemnitee in any such capacity or otherwise at the
request of the Corporation or of its officers, directors or stockholders,
the Corporation shall indemnify, defend and hold harmless Indemnitee
against any and all Liabilities actually and reasonably incurred by
Indemnitee in connection with the investigation, defense, settlement or
appeal of such Proceeding, so long as Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in, or not opposed to, the
best interests of the Corporation, and, with respect to any criminal action
or Proceeding, if Indemnitee had no reasonable cause to believe his conduct
was unlawful.
-2-
<PAGE>
(b) Derivative Actions. If Indemnitee is a person who was or is a
party, or is threatened to be made a party, to any Proceeding by or in the
right of the Corporation to procure a judgment in its favor by reason of
the fact that Indemnitee is or was an Agent of the Corporation, or by
reason of anything done or not done by Indemnitee in any such capacity or
otherwise at the request of the Corporation or of its officers, directors
or stockholders, the Corporation shall indemnify, defend and hold harmless
Indemnitee against all Liabilities actually and reasonably incurred by such
person in connection with the investigation, defense, settlement or appeal
of such Proceeding, if Indemnitee acted in good faith and in a manner
Indemnitee reasonably believed to be in or not opposed to the best
interests of the Corporation; provided, however, that no indemnification
under this Section 3(b) shall be made in respect of any claim, issue or
matter for which such person is adjudged to be liable for gross negligence
or willful misconduct in the performance of Indemnitee's duties to the
Corporation, unless, and only to the extent that, the court in which such
Proceeding was brought shall determine upon application that, despite the
adjudication of liability, but in view of all the circumstances of the
case, Indemnitee is fairly and reasonably entitled to indemnity for such
Liabilities as the court shall deem proper.
(c) Actions Where Indemnitee Is Deceased. If Indemnitee is a person
who was or is a party or is threatened to be made a party to any Proceeding
by reason of the fact that he is or was an Agent of the Corporation, or by
reason of anything done or not done by Indemnitee in any such capacity, and
prior to, during the pendency of, or after completion of, such Proceeding,
Indemnitee shall die, then the Corporation shall indemnify, defend and hold
harmless the estate, heirs and legatees of Indemnitee against any and all
Liabilities incurred by such estate, heirs or legatees in connection with
the investigation, defense, settlement or appeal of such Proceeding on the
same basis as provided for Indemnitee in Sections 3(a) and 3(b) above.
(d) Reduction of Liabilities. The Liabilities covered hereby shall be
net of any payments to or on behalf of Indemnitee by D&O Insurance carriers
or others with respect to the subject Proceeding.
4. Indemnification as Witness.
--------------------------
Notwithstanding any other provision of this Agreement, to the extent
Indemnitee is, by reason of the fact that Indemnitee is or was an Agent of
the Corporation, involved in any investigative Proceeding, including, but
not limited to, testifying as a witness or furnishing documents in response
to a subpoena or otherwise, Indemnitee shall be indemnified against any and
all Liabilities actually and reasonably incurred by or for Indemnitee in
connection therewith.
5. Advancement of Liabilities.
--------------------------
Subject to the provisions of Section 6(c), until a determination that
Indemnitee is not entitled to be indemnified by the Corporation under the
terms hereof, and unless the provisions of Section 9 apply, the Corporation
shall reimburse Indemnitee for Liabilities previously paid by Indemnitee
and may advance Liabilities which the
-3-
<PAGE>
Corporation reasonably determines will be due and payable by Indemnitee
within a reasonable time after a request for advancement is made by
Indemnitee. The execution and delivery of this Agreement by the Corporation
evidences the specific approval by the Board of the reimbursement and
advancement of Liabilities as provided for in this Section 5. As a
condition to such reimbursement and/or advancement, Indemnitee shall, at
the request of the Corporation, undertake in a manner satisfactory to the
Corporation to repay such amounts reimbursed and/or advanced, without
interest, if it shall ultimately be determined pursuant to Section 7 or 9
below that Indemnitee is not entitled to be indemnified by the Corporation
under the terms of this Agreement. Subject to the foregoing, the
reimbursement and/or advances to be made hereunder shall be paid by the
Corporation to Indemnitee within twenty (20) business days following
delivery of a written request by Indemnitee to the Corporation, which
request shall be accompanied by vouchers, invoices and similar evidence
documenting the amounts incurred or to be incurred by Indemnitee.
6. Indemnification Procedures.
--------------------------
(a) Notice by Indemnitee. Promptly after receipt by Indemnitee of
notice of the commencement or threat of commencement of any Proceeding,
Indemnitee shall, if Indemnitee believes that indemnification with respect
thereto may be sought from the Corporation under this Agreement, notify the
Corporation of the commencement or threat of commencement thereof, provided
that any failure to so notify the Corporation shall not relieve the
Corporation of its obligations hereunder, except to the extent that such
failure or delay increases the liability of the Corporation hereunder.
(b) D & O Insurance. If, at the time of receipt of a notice pursuant
to Section 6(a) above, the Corporation has D&O Insurance in effect, the
Corporation shall give prompt notice of the Proceeding or claim to its
insurers in accordance with the procedures set forth in the applicable
policies. The Corporation shall thereafter take all necessary or desirable
action to cause such insurers to pay all amounts payable as a result of
such Proceeding in accordance with the terms of such policies, and
Indemnitee shall not take any action (by waiver, settlement or otherwise)
which would adversely affect the ability of the Corporation to obtain
payment from its insurers.
(c) Assumption of Defense. In the event the Corporation shall be
obligated under this Agreement to pay the Liabilities of Indemnitee, the
Corporation shall be entitled to assume the defense (with counsel
reasonably acceptable to Indemnitee, approval thereof not to be
unreasonably withheld) of the Proceeding to which the Liabilities relate.
The Corporation agrees to promptly notify Indemnitee upon its election to
assume such defense. Once the Corporation (i) provides Indemnitee with
notice of its election to assume such defense and (ii) obtains approval
from Indemnitee of the counsel retained, the Corporation will not be liable
to Indemnitee under this Agreement for any attorney's fees or other
Liabilities subsequently incurred by Indemnitee with respect to such
Proceeding, unless (x) the Liabilities incurred by Indemnitee were
previously authorized by the Corporation or (y) counsel for Indemnitee
shall have provided the Corporation with an opinion of counsel stating that
there is a likelihood that a conflict
-4-
<PAGE>
of interest exists between the Corporation and Indemnitee in the conduct of
any such defense.
7. Determination of Right to Indemnification.
-----------------------------------------
(a) Successful Proceeding. To the extent Indemnitee has been
successful, on the merits or otherwise, in the defense of any Proceeding
referred to in Sections 3(a) or 3(b) above, the Corporation shall indemnify
Indemnitee against all Liabilities incurred by him in connection therewith.
If Indemnitee is not wholly successful in such Proceeding, but is
successful, on the merits or otherwise, as to one or more but less than all
claims, issues or matters in such Proceeding, then the Corporation shall
indemnify Indemnitee against all Liabilities actually or reasonably
incurred by or for him in connection with each successfully resolved claim,
issue or matter. For purposes of this Section 7(a), and without limitation,
the termination of any Proceeding, or any claim, issue or matter in such a
Proceeding, by dismissal, with or without prejudice, shall be deemed to be
a successful result as to such Proceeding, claim, issue or matter, so long
as there has been no finding (either adjudicated or pursuant to Section
7(c) below) that Indemnitee (i) did not act in good faith, (ii) did not act
in a manner reasonably believed to be in, or not opposed to, the best
interests of the Corporation, or (iii) with respect to any criminal
proceeding, had reasonable grounds to believe his conduct was unlawful.
(b) Other Proceedings. In the event that Section 7(a) above is
inapplicable, the Corporation shall nevertheless indemnify Indemnitee,
unless and only to the extent that the forum listed in Section 7(c) below
determines that Indemnitee has not met the applicable standard of conduct
set forth in Sections 3(a) or 3(b) above required to entitle Indemnitee to
such indemnification.
(c) Forum in Event of Dispute. The determination that indemnification
of Indemnitee is proper in the circumstances because Indemnitee has met the
applicable standard of conduct set forth in Sections 3(a) or 3(b) shall be
made (i) by the Board, by a majority vote of the directors who are not
parties to such Proceeding, even though less than a quorum or (ii) by a
committee of such disinterested directors designated by a majority of such
disinterested directors, even though less than a quorum, or (iii) if there
are no such disinterested directors, or if such disinterested directors
shall so direct, by independent legal counsel in a written opinion, or (iv)
by the stockholders of the Corporation. The choice of which forum shall
make the determination shall be made by the Board. The forum shall act in
the utmost good faith to assure Indemnitee a complete opportunity to
present to the forum Indemnitee's case that Indemnitee has met the
applicable standard of conduct.
(d) Appeal to Court. Notwithstanding a determination by any forum
listed in Section 7(c) above that Indemnitee is not entitled to
indemnification with respect to a specific Proceeding, Indemnitee shall
have the right to apply to the court in which that Proceeding is or was
pending or any other court of competent jurisdiction for the purpose of
enforcing Indemnitee's right to indemnification pursuant to this Agreement.
-5-
<PAGE>
(e) Indemnity for Liabilities in Enforcement of Agreement.
Notwithstanding any other provision in this Agreement to the contrary, the
Corporation shall indemnify Indemnitee against all Liabilities incurred by
Indemnitee in connection with any other Proceeding between the Corporation
and Indemnitee involving the interpretation or enforcement of the rights of
Indemnitee under this Agreement, unless a court of competent jurisdiction
finds that the material claims and/or defenses of Indemnitee in any such
Proceeding were frivolous or made in bad faith.
8. Contribution.
------------
If and to the extent that a final adjudication shall specify that the
Corporation is not obligated to indemnify Indemnitee under this Agreement
for any reason (including but not limited to the exclusion set forth in
Section 9 hereof), then in respect of any Proceeding in which the
Corporation is jointly liable with Indemnitee (or would be so liable if
joined in such action, suit or proceeding), the Corporation shall
contribute to the amount of Liabilities reasonably incurred and paid or
payable by Indemnitee in connection with such Proceeding in such proportion
as is appropriate to reflect (i) the relative benefits received by the
Corporation, on the one hand, and Indemnitee, on the other hand, from the
transaction with respect to which such Proceeding arose, and (ii) the
relative fault of the Corporation, on the one hand, and Indemnitee, on the
other hand in connection with the circumstances which resulted in such
Liabilities, as well as any other relevant equitable considerations. The
relative fault of the Corporation, on the one hand, and Indemnitee, on the
other hand, shall be determined by reference to, among other things, the
parties' relative intent, knowledge, access to information and opportunity
to correct or prevent the circumstances resulting in such Liabilities. The
Corporation agrees that it would not be just and equitable if contribution
pursuant to this Section 8 were determined by pro rata allocation or any
other method of allocation which does not take account of the foregoing
equitable considerations.
9. Exceptions.
----------
(a) Claims Initiated by Indemnitee. Notwithstanding any other
provision herein to the contrary, the Corporation shall not be obligated
pursuant to the terms of this Agreement to indemnify or advance Liabilities
to Indemnitee with respect to Proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
Proceedings brought to establish or enforce a right to indemnification
under this Agreement, but such indemnification or advancement of expenses
may be provided by the Corporation in specific cases if the Board finds it
to be appropriate.
(b) Unauthorized Settlements. Notwithstanding any other provision
herein to the contrary, the Corporation shall not be obligated pursuant to
the terms of this Agreement to indemnify Indemnitee under this Agreement
for any amount paid in settlement of a Proceeding without the prior written
consent of the Corporation to such settlement.
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<PAGE>
(c) No Duplicative Payment. The Corporation shall not be liable under
this Agreement to make any payment of amounts otherwise indemnifiable
hereunder if and to the extent that Indemnitee has otherwise actually
received such payment under any insurance policy, contract, agreement or
otherwise.
10. Certificate of Incorporation and By-laws.
----------------------------------------
The Corporation agrees that the Certificate of Incorporation and By-
laws of the Corporation in effect on the date hereof shall not be amended
to reduce, limit, hinder or delay (a) the rights of Indemnitee granted
hereby, or (b) the ability of the Corporation to indemnify Indemnitee as
required hereby. The Corporation further agrees that it shall exercise the
powers granted to it under its Certificate of Incorporation and By-laws and
by applicable law to indemnify any Indemnitee to the fullest extent
possible as required hereby.
11. Non-exclusivity.
---------------
The provisions for indemnification and advancement of Liabilities set
forth in this Agreement shall not be deemed exclusive of any other rights
which Indemnitee may have under any provision of law, the Corporation's
Certificate of Incorporation or By-laws, the vote of the Corporation's
stockholders or disinterested directors, other agreements or otherwise.
12. Interpretation of Agreement.
---------------------------
It is understood that the parties hereto intend this Agreement to be
interpreted and enforced so as to provide indemnification to Indemnitee to
the fullest extent now or hereafter permitted by law.
13. Severability.
------------
If any provision or provisions of this Agreement shall be held to be
invalid, illegal or unenforceable for any reason whatsoever, (a) the
validity, legality and enforceability of the remaining provisions of the
Agreement (including, without limitation, all portions of any paragraphs of
this Agreement containing any such provision held to be invalid, illegal or
unenforceable) shall not in any way be effected or impaired thereby, and
(b) to the fullest extent possible, the provisions of this Agreement
(including, without limitation, all portions of any paragraph of this
Agreement containing any such provision held to be invalid, illegal, or
unenforceable that are not themselves invalid, illegal, or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable and to give effect to
Section 12 hereof.
14. Modification and Waiver.
-----------------------
No supplement, modification or amendment to this Agreement shall be
binding unless executed in writing by both of the parties hereto. No waiver
of any of the provisions of this Agreement shall be deemed, or shall
constitute, a waiver of any other
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<PAGE>
provisions hereof (whether or not similar), nor shall such waiver
constitute a continuing waiver.
15. Subrogation.
-----------
In the event that the Corporation makes any payment under this
Agreement, the Corporation shall be subrogated to the extent of such
payment to all of the rights of recovery of Indemnitee, who shall execute
all papers and do all things that may be necessary to secure such rights,
including but not limited to the execution of such documents as shall be
necessary to enable the Company effectively to bring suit to enforce such
rights.
16. Survival, Successors, and Assigns.
---------------------------------
Indemnitee's rights under this Agreement shall continue after
Indemnitee has ceased acting as an Agent of the Corporation. The terms of
this Agreement shall be binding on and inure to the benefit of the
Corporation and its successors and assigns and shall be binding on and
inure to the benefit of Indemnitee and Indemnitee's heirs, executors and
administrators.
17. Notices.
-------
All notices, demands, consents, requests, approvals and other
communications between the parties pursuant to this Agreement must be in
writing and will be deemed given when delivered in person, one (1) business
day after being dispatched by a nationally recognized overnight courier
service, three (3) business days after being deposited in the U.S. Mail,
registered or certified mail, return receipt requested, or one (1) business
after being sent by facsimile (with receipt acknowledged), to the
Corporation at the address of its principal office in Lincolnwood, Illinois
and to Indemnitee at Indemnitee's address as shown on the Corporation's
records. Indemnitee may change Indemnitee's address for notice purposes by
delivering notice to the Corporation in accordance with this Section 17.
All notices sent to the Corporation shall also be delivered to Katten
Muchin & Zavis, 525 West Monroe Street, Suite 1600, Chicago, Illinois
60661-3693, Attention: David J. Kaufman, Esq., Facsimile No. (312-902-
1061).
18. Governing Law.
-------------
This Agreement shall be governed exclusively by and construed
according to the laws of the State of Illinois, without regard to its
principles of conflicts of laws.
19. Counterparts.
------------
This agreement may be executed in counterparts, each of which when so
executed and delivered shall be deemed an original, and such counterparts
together shall constitute one instrument.
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<PAGE>
The parties hereto have entered into this Indemnification Agreement
effective as of the date first above written.
DIVERSIFIED FOOD GROUP, INC.
By:
-----------------------------------
Name:
-----------------------------
Its:
-----------------------------
INDEMNITEE:
---------------------------------------
(Sign name)
---------------------------------------
(Print name)
---------------------------------------
---------------------------------------
(Print Address)
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LIST OF DIRECTORS AND EXECUTIVE OFFICERS
TO RECEIVE INDEMNIFICATION AGREEMENTS
1 Andrew J. Zahn
2 Lawrence R. Gould
3 _______________
4 _______________
5 _______________
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<PAGE>
EXHIBIT 10.4
DIVERSIFIED FOOD GROUP, INC.
1998 EMPLOYEE STOCK OPTION PLAN
-------------------------------
SECTION 1. Purpose; Definitions.
The purpose of the Diversified Food Group, Inc. 1998 Employee Stock
Option Plan (the "Plan") is to enable Diversified Food Group, Inc. (the
"Company") to attract, retain and reward officers, employees, service providers
and key advisors to the Company and its Subsidiaries and Affiliates, and
strengthen the mutuality of interests between such persons and the Company's
shareholders, by offering them performance-based stock incentives in the
Company.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Committee at the time of grant
and subject to the Plan.
For purposes of the Plan, the following terms shall be defined as set
forth below:
(a) "Affiliate" means any entity other than the Company and its
Subsidiaries that is designated by the Board as a participating employer
under the Plan, provided that the Company directly or indirectly owns at
least 20% of the combined voting power of all classes of stock of
such entity or more than 50% of the ownership interests in such entity.
(b) "Board" means the Board of Directors of the Company.
(c) "Cause" means a felony conviction of a participant or the failure
of a participant to contest prosecution for a felony, or a participant's
willful misconduct or dishonesty, or other unauthorized activity any of
which, in the good faith opinion of the Committee, is directly and
materially harmful to the business or reputation of the Company, a
Subsidiary or an Affiliate.
(d) "Code" means the Internal Revenue Code of 1986, as amended from
time to time, and any successor thereto.
(e) "Committee" means the Committee referred to in Section 2 of the
Plan. If at any time no Committee shall be in office, then the functions
of the Committee specified in the Plan may be exercised by the Board, as
set forth in Section 2 hereof.
(f) "Company" means Diversified Food Group, Inc., a corporation
organized under the laws of the State of Delaware or any successor
corporation.
(g) "Disability" means disability as determined under procedures
established by the Committee for purposes of this Plan and shall in all
events be interpreted and applied so as to be consistent with the
definition of disability provided in Section 22(e)(3) or 422 of the Code
(or any successor provision).
<PAGE>
(h) "Disinterested Person" shall have the meaning set forth in Rule
16b-3 as promulgated by the Securities and Exchange Commission under the
Securities Exchange Act of 1934 (the "Exchange Act"), or any successor
definition adopted by the Commission. To be a "Disinterested Person"
pursuant to such rule, as of the date hereof, a director may not, during
the one-year period prior to service or during such service, be granted or
awarded equity securities of the Company pursuant to the plan or any other
plan of the Company (subject to certain exceptions).
(i) "Early Retirement" means retirement, with the express written
consent of the Company (or subsidiary, if appropriate) at or before the
time of such retirement, from active employment with the Company and any
Subsidiary pursuant to the early retirement provisions of the applicable
pension plan of such entity.
(j) "Fair Market Value" means, as of any given date, unless otherwise
determined by the Committee in good faith:
(i) if the Stock is listed on an established stock exchange or
exchanges, or traded on the NASDAQ National Market System
("NASDAQ/NMS") the highest closing price of the Stock as listed
thereon on the applicable day, or if no sale of Stock has been made on
any exchange or on NASDAQ/NMS on that date, on the next day on
which there was sale of Stock;
(ii) if the Stock is not listed on an established stock exchange
or NASDAQ/NMS but is instead traded over-the-counter, the mean of the
"bid" and "ask" prices of the Stock in the over-the-counter market on
the applicable day, as reported by the National Association of
Security Dealers. Inc.;
(iii) if the Stock is not listed on any exchange or traded over-
the-counter, the value determined in good faith by the Committee.
(k) "Incentive Stock Option" means any Option intended to be and
designated as an "Incentive Stock Option" within the meaning of Section 422
of the Code and the regulations thereunder (or any successor provisions).
(l) "Non-Qualified Stock Option" means any Stock Option that is not an
Incentive Stock Option.
(m) "Normal Retirement" means retirement from active employment with
the Company and any Subsidiary or Affiliate on or after age 65.
(n) "Option Agreement" means a written agreement between the Company
and a Participant granting Options to the Participant and containing
specific terms and procedures related to the rights and obligations of the
Participants and the Company.
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<PAGE>
(o) "Outstanding Stock" shall include all shares of Common Stock, $.01
par value, of the Company as well as the number of shares of Common Stock
into which then outstanding shares of capital stock of the Company, of
whatever class, are convertible as of the year-end immediately preceding
the date of calculation thereof (as adjusted by the Committee for certain
events).
(p) "Participant" means an officer, director, employee, advisor or
other service provider to the Company, its Subsidiaries or Affiliates to
whom Options are granted hereunder.
(q) "Plan" means this Diversified Food Group, Inc. 1998 Employee Stock
Option Plan, as hereinafter amended from time to time.
(r) "Retirement" means Normal or Early Retirement.
(s) "Share" means a share of Stock, as adjusted in accordance with
Section 5 of the Plan.
(t) "Stock" means the Common Stock, $.01 par value per share, of the
Company.
(u) "Stock Option" or "Option" means any option(s) to purchase shares
of Stock granted pursuant to Section 5 below.
(v) "Subsidiary" means any corporation (other than the Company) in an
unbroken chain of corporations beginning with the Company if each of the
corporations (other than the last corporation in the unbroken chain) owns
stock possessing 100% or more of the total combined voting power of all
classes of stock in one of the other corporations in the chain.
SECTION 2. Administration.
The Plan shall be administered by a Committee of not less than two persons,
who need not be Disinterested Persons unless the Company's securities are
registered under the Exchange Act, who shall be members of the Board and who
shall serve at the pleasure of the Board. The functions of the Committee
specified in the Plan may be exercised by the Board, if and to the extent that
no Committee exists which has the authority to so administer the Plan and if a
resolution to such effect is adopted by the Board after due consideration of the
impact of such resolution upon the status of the Plan under Rule 16b-3
promulgated pursuant to the Exchange Act.
All decisions made by the Committee pursuant to the provisions of the Plan
shall be made in the Committee's sole discretion and shall be final and binding
on all persons, including the Company and Participants. The Committee shall
have full authority to grant, pursuant to the terms of the Plan, to officers and
other persons eligible under Section 4 hereof.
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<PAGE>
In particular, the Committee shall have the authority:
(a) subject to Section 4 hereof, to select the Participants
to whom Stock Options may from time to time be granted hereunder;
(b) to determine whether and to what extent Incentive Stock
Options and/or Non-Qualified Stock Options, or any combination
thereof, are to be granted hereunder to one or more Participants;
(c) to determine the number of shares of Stock to be covered
by each such Option granted hereunder;
(d) to determine the terms and conditions, not inconsistent
with the terms of the Plan, of any Options granted hereunder
(including, but not limited to, the share price and any
restriction or limitation (including vesting requirements,
forfeiture provisions and non-compete and non-solicitation
requirements), or any modification to the terms of any previously
granted Option (including vesting acceleration or waiver of
forfeiture restrictions) regarding any Stock Option or other
award and/or the shares of Stock relating thereto, based in each
case on such factors as the Committee shall determine, in its
sole discretion);
(e) to determine the terms and provisions of each Option
Agreement;
(f) to determine whether and under what circumstances a
Stock Option may be settled in cash;
(g) to determine whether, to what extent and under what
circumstances Option grants and/or other awards under the Plan
and/or other cash awards made by the Company are to be made, and
operate, on a tandem basis vis-a-vis other awards under the Plan
and/or cash awards made outside of the Plan, or on an additive
basis;
(h) to determine whether, to what extent and under what
circumstances Stock and other amounts payable with respect to an
award under this Plan shall be deferred either automatically or
at the election of the participant (including providing for and
determining the amount (if any) of any deemed earnings on any
deferred amount during any deferral period);
(i) to adopt, alter and repeal such rules, guidelines and
practices governing the Plan as it shall, from time to time, deem
advisable, as well as to
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<PAGE>
interpret the terms and provisions of the Plan and any award
issued under the Plan (and any agreements relating thereto);
(j) to approve forms of agreement for use under the Plan;
(k) to reduce the exercise price of any Option to the then
current Fair Market Value if the Fair Market Value of the Common
Stock covered by such Option shall have declined since the date
the Option was granted;
(l) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(m) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option
previously granted by the Administrator;
(n) to determine the terms and restrictions applicable to
Options; and
(o) to otherwise supervise and make all other determinations
deemed necessary or advisable for the administration of the Plan.
Effect of Committee's Decision. The Committee's decisions,
determinations and interpretations shall be final and binding on all Optionees
and any other holders of Options.
SECTION 3. Stock Subject to Plan.
The total number of shares of Stock reserved and available for distribution
under the Plan shall be _______ shares (the "Option Shares"). Such Option
Shares may consist, in whole or in part, of authorized and unissued shares or
treasury shares.
Subject to Section 6(b)(iv) below, if any Option Shares that have been
optioned hereunder cease to be subject to a Stock Option, or any such award
otherwise terminates without a payment being made to the participant in the form
of Stock, such Option Shares shall again be available for distribution in
connection with future awards under the Plan.
In the event of any merger, reorganization, consolidation,
recapitalization, stock dividends, stock split or other changes in corporate
structure affecting the Stock, and subject to Sections 5(k) and 5(m) below, such
substitution or adjustment shall be made in the aggregate number of Option
Shares reserved for issuance under the Plan, in the number and option price of
Option Shares subject to outstanding Options granted under the Plan and in the
number of Option Shares subject to other outstanding awards granted under the
Plan as may be determined to be appropriate by the Committee, in its sole
discretion, provided that the number of Option Shares subject to any award shall
always be a whole number.
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<PAGE>
SECTION 4. Eligibility and Limitations.
(a) Eligibility. Officers, employees, advisors and other service
providers of the Company or its Subsidiaries and Affiliates who are
responsible for, or contribute to, the management, growth and/or
profitability of the business of the Company and/or its Subsidiaries and
Affiliates are eligible to be Participants and receive Stock Options under
the Plan; provided, however, Options shall not be transferred to any member
of the Committee and Incentive Stock Option shall not be granted to any
person who is not an employee of the Company or its Subsidiaries and
Affiliates. In addition, the Committee may grant awards, other than
Incentive Stock Options, to consultants or advisors who have provided bona
fide services to the Company, its Subsidiaries and Affiliates in connection
with matters other than the offer and sale or securities in a capital-
raising transaction.
(b) Limitations.
(i) Each Option shall be designated in the Notice of Grant as
either an Incentive Stock Option or a Nonstatutory Stock Option.
However, notwithstanding such designations, to the extent that the
aggregate Fair Market Value:
A. of Shares subject to an Optionee's Incentive Stock
Options granted by the Company, any Parent or Subsidiary, which
B. become exercisable for the first time during any
calendar year (under all plans of the Company or any Parent or
Subsidiary)
exceeds $100,000, such excess Options shall be treated as
Nonstatutory Stock Options. For purposes of this Section 4,
Incentive Stock Options shall be taken into account in the order
in which they were granted, and the Fair Market Value of the
Shares shall be determined as of the time of grant.
(ii) Neither the Plan nor any Option shall confer upon an
Optionee any right with respect to continuing the Optionee's
employment or consulting relationship with the Company, nor shall they
interfere in any way with the Optionee's right or the Company's right
to terminate such employment or consulting relationship at any time,
with or without cause.
(iii) The following limitations shall apply to grants of Options
to Employees:
A. No Employee shall be granted, in any fiscal year of the
Company, Options to purchase more than 500,000 Shares.
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<PAGE>
B. The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's
capitalization.
C. If an Option is canceled in the same fiscal year of the
Company in which it was granted (other than in connection with a
transaction described in Section 12 below), the canceled Option
will be counted against the limit set forth in Section 6(c)(i).
For this purpose, if the exercise price of an Option is reduced,
the transaction will be treated as a cancellation of the Option
and the grant of a new Option.
SECTION 5. Stock Options.
Stock Options may be granted alone, in addition to or in tandem with other
awards granted under the Plan and/or cash awards made outside of the Plan. Any
Stock Option granted under the Plan shall be in such form as the Committee may
from time to time approve.
Stock Options granted under the Plan may be of two types: (i) Incentive
Stock Options, and (ii) Non-Qualified Stock Options.
Subject to the restrictions contained in Section 4 hereof, the Committee
shall have the authority to grant Incentive Stock Options, Non-Qualified Stock
Options or both types of Stock Options to any Participant.
Options granted under the Plan shall be subject to the following terms and
conditions and shall contain such additional terms and conditions, not
inconsistent with the terms of the Plan, as the Committee shall deem desirable
to include in the applicable Option Agreement:
(a) Exercise Price. The per share exercise price for the Shares to be
issued pursuant to exercise of an Option shall be determined by the
Committee, subject to the following:
(i) In the case of an Incentive Stock Option
A. granted to an Employee who, at the time the Incentive
Stock Option is granted, owns stock representing more than
percent (10%) of the voting power of all cases of stock of the
Company or any Parent or Subsidiary, the per Share exercise price
shall be no less than 110% of the Fair Market Value per Share on
the date of the grant.
B. granted to any Employee other than an Employee described
in paragraph (A) immediately above, the per Share exercise price
shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
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<PAGE>
(ii) In the case of a Nonstatutory Stock Option, the per Share
exercise price shall be determined by the Committee.
(b) Option Term. The term of each Stock Option shall be fixed by the
Committee, but no Stock Option shall be exercised more than ten years (or,
more than five years in the case of a Participant who is an employee and
who owns stock possessing more than 10 percent of the total combined voting
power of all classes of stock of the Company, a Subsidiary or an Affiliate)
after the date the Option is granted.
(c) Exercisability. Stock Options shall be exercised at such time or
times and subject to such terms and conditions as shall be determined by
the Committee at or after grant; provided, however, that, except as
provided in Sections 5(f), 5(g), or 5(k) below unless otherwise determined
by the Committee in an Option Agreement or after grant, no Stock Option
shall be exercisable prior to the first anniversary date of the granting of
the Option. If the Committee provides, in its sole discretion, that any
Stock Option is exercisable only in installments, the Committee may waive
such installment exercise provisions at any time at or after grant in whole
or in part, based on such factors as the Committee shall determine, in its
sole discretion.
(d) Method of Exercise. Subject to whatever installment exercise
provisions apply under Section 5(c) above and the terms of the Option
Agreement entered into at the time of the grant, Stock Options may be
exercised in whole or in part at any time during the option period, by
giving written notice of exercise to the Company specifying the number of
Option Shares to be purchased.
Such notice shall be accompanied by payment in full of the purchase
price, either by check, note or such other instrument as the Committee may
accept. As determined by the Committee, in its sole discretion, at or
after grant, payment in full or in part may also be made in the form of
shares of unrestricted Stock already owned by the Participant based, in
each case, on the Fair Market Value of the Stock on the date the Option is
exercised.
No shares of Stock shall be issued until full payment therefor has
been made. A Participant shall generally have the rights to dividends or
other rights of a shareholder with respect to shares subject to the Option
only when the Participant has: (i) given written notice of exercise; (ii)
has paid in full for such Option Shares; and (iii) has given any requested
representation and warranties.
(e) Non-Transferability of Options. No Stock Option shall be
transferable by the Participant otherwise than by will or by the laws of
descent and distribution or pursuant to a qualified domestic relations
order as defined by the Internal Revenue Code of 1986, as amended 26 U.S.C.
(S) 1 et. seq. or Title I of the Employee Retirement Income Security Act,
or the rules thereunder, and all Stock Options shall be exercisable, during
the Participant's lifetime, only by the Participant.
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<PAGE>
(f) Termination by Death. Subject to Section 5(k) below, if a
Participant's employment by the Company, a Subsidiary or an Affiliate
terminates by reason of death any Stock Option held by such Participant may
thereafter be exercised to the extent such Option was exercisable at the
time of death or on such accelerated basis as the Committee may determine
at or after grant (or as may be determined in accordance with procedures
established by the Committee), by the legal representative of the estate or
by the legatee of the Participant under the will of the Participant, for a
period of up to one (1) year (or such other period as the Committee may
specify in the Option Agreement) from the date of such death or until the
expiration of the stated term of such Option, whichever period is the
shorter. If, at the time of death, the Optionee was not entitled to
exercise his or her entire Option, the Shares covered by the unexercisable
portion of the Option shall immediately revert to the Plan. If, after
death, the Optionee's estate or a person who acquired the right to exercise
the Option by bequest or inheritance does not exercise the Option within
the time specified herein, the Option shall terminate, and the Shares
covered by such Option shall revert to the Plan.
(g) Termination by Reason of Disability. Subject to Section 5(k)
below, if a Participant's employment by the Company, a Subsidiary or an
Affiliate terminates by reason of Disability, any Stock Option held by such
Participant may thereafter be exercised by the Participant, to the extent
it was exercisable at the time of termination or on such accelerated basis
as the Committee may determine at or after grant (or as may be determined
in accordance with procedures established by the Committee), for a period
of up to one (1) year (or such other period as the Committee may specify at
grant) from the date of such termination of employment or until the
expiration of the stated term of such Stock Option, whichever period is the
shorter; provided, however, that if the Participant dies within such one-
year period (or such other period as the Committee shall specify at grant),
any unexercised Stock Option held by such Participant shall thereafter be
exercisable pursuant to Section 5(f) above. In the event of termination of
employment by Disability, if a Stock Option heretofore designated as an
Incentive Stock Option is exercised more than one (1) year after such
termination of employment, such Option shall be treated as a Non-Qualified
Stock Option. If, at the date of termination, the Optionee is not entitled
to exercise his or her entire Option, the Shares covered by the
unexercisable portion of the Option shall revert to the Plan. If, after
termination, the Optionee does not exercise his or her option within the
time specified herein, the Option shall terminate, and the Shares covered
by such Option shall revert to the Plan.
(h) Termination by Reason of Retirement. Subject to Section 5(k)
below, if an Participant's employment by the Company and any Subsidiary or
Affiliate terminates by reason of Normal or Early Retirement, any Stock
Option held by such Participant may be exercised by the Participant, to the
extent it was exercisable at the time of such Retirement or on such
accelerated basis as the Committee may determine at or after grant (or as
may be determined in accordance with procedures established by the
Committee), for a period of three years (or such other period as the
Committee may specify in the Option Agreement)
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<PAGE>
from the date of such termination or the expiration of the stated term of
such Stock Option, whichever period is the shorter; provided, however, that
if the Participant dies within such three-year period (or such other period
as the Committee may specify in the Option Agreement), any unexercised
Option held by such Participant shall thereafter be exercisable pursuant to
Section 5(f) above. In the event of termination of employment by
Retirement, if a Stock Option theretofore designated as an Incentive Stock
Option is exercised more than ninety (90) days after such termination of
employment, such Option shall be treated as a Non-Qualified Stock Option.
(i) Other Termination. Unless otherwise determined by the Committee
(or pursuant to procedures established by the Committee) at or after grant,
if a Participant's employment by or otherwise qualifying relationship with,
the Company and any Subsidiary or Affiliate terminates:
(i) due to voluntary resignation of employment by the Participant
(other than Normal or Early Retirement), all unexercised Stock Options
shall thereupon terminate;
(ii) due to death, Disability, Normal or Early Retirement, then
the provisions of Sections 5(f), 5(g), 5(h) above, as appropriate,
shall apply;
(iii) due to involuntary termination of the Participant's
employment by the Company, any Subsidiary or Affiliate without Cause,
unexercised Stock Option shall thereupon terminate, except that the
Stock Option may be exercised, to the extent otherwise then
exercisable, for the lesser of ninety (90) days or the balance of such
Option's term;
(iv) for any other reason, including termination of the
Participant's employment for Cause, the Stock Option shall thereupon
terminate.
(j) Buy-Out Provisions. The Committee may at any time offer to
purchase an Option previously granted, based on such terms and conditions
as the Committee shall establish in the Option Agreement or at the time
that such offer is made.
(k) Certain Recapitalizations. In general, if the Company is merged
into or consolidated with another corporation under circumstances in which
the Company is not the surviving corporation, or if the Company is
liquidated, or sells or otherwise disposes of substantially all of its
assets to another corporation (any such merger, consolidation, etc.,
being hereinafter referred to as a "Non-Acquiring Transaction") while
unexercised Stock Options are outstanding under the Plan, after the
effective date of a Non-Acquiring Transaction each holder of an outstanding
Option shall be entitled, upon exercise of such Stock Option, to receive
such stock or other securities as the holders of the same class of stock as
those shares subject to the Stock Option shall be entitled to receive in
such Non-
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Acquiring Transaction based upon the agreed upon conversion ratio or per
share distribution. However, in the discretion of the Committee, determined
at the time of grant or at any time in the future, any limitations on
exercisability of Stock Options may be waived so that all Stock Options,
from and after a date prior to the effective date of such Non-Acquiring
Transaction shall be exercisable in full. Furthermore, in the discretion of
the Committee, the right to exercise may be given to each Participant
during a 30-day period preceding the effective date of such Non-Acquiring
Transaction. Any outstanding Stock Options not exercised within such 30-day
period may be canceled by the Committee as of the effective date of any
such Non-Acquiring Transaction. To the extent that the foregoing
adjustments relate to stock or securities of the Company, such adjustments
shall be made by the Committee, whose determination in that respect shall
be final, binding and conclusive.
(l) Subdivision or Consolidation. Except as set forth in this Plan,
Participants shall have no rights by reason of any subdivision or
consolidation of shares of stock of any class or the payment of any stock
divided or any other increase or decrease in the number of shares of stock
of any class or by reason of any dissolution, liquidation, merger, or
consolidation or spinoff of stock of another corporation, and no issue by
the Company of shares of stock of any class affect, and no adjustment by
reason thereof shall be made with respect to, the number or price of shares
subject to the Option. The grant of any Stock Option pursuant to the Plan
shall not affect in any way the right or power of the Company to make
adjustments, reclassifications, reorganizations or changes of its capital
or business structure or to merge or to consolidate or to dissolve,
liquidate or sell, or to transfer all or any part of its business or
assets.
(m) Fractional Shares. If any adjustment referred to herein shall
result in a fractional share for any Participant under any option
hereunder, such fraction shall be completely disregarded and the
Participant shall only be entitled to the whole number of shares resulting
from such adjustment.
SECTION 6. Amendments and Termination.
(a) Form of Consideration. The Administrator shall determine the
acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the
Administrator shall determine the acceptable form of consideration at the
time of grant. Such consideration may consist entirely of:
(i) cash;
(ii) check;
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired upon
exercise of an option, have been owned by Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on
the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised;
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(v) delivery of a properly exercise notice together with such
other documentation as the Administrator and the broker, if
applicable, shall require to effect an exercise of the Option and
delivery to the Company of the sale or loan proceeds required to pay
the exercise price;
(vi) a reduction in the amount of any Company liability to the
Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program
or arrangement;
(vii) any combination of the foregoing methods of payment; or
(viii) such other consideration and method of payment for the
issuance of Shares to the extent permitted by Applicable Laws.
(b) Amendment and Termination. The Board may at any time amend,
alter, suspend or terminate the Plan.
(c) Shareholder Approval. The Company shall obtain shareholder
approval of any Plan amendment to the extent necessary and desirable to
comply with Rule 16b-3 or with Section 422 of the Code (or any successor
rule or statute or other applicable law, rule or regulation, including the
requirements of any exchange or quotation system on which the Common Stock
is listed or quoted). Such shareholder approval, if required, shall be
obtained in such a manner and to such a degree as is required by the
applicable law, rule or regulation.
(d) Effect of Amendment or Termination. No amendment, alteration,
suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the
Optionee and the Company.
The Board may amend, alter, suspend, or discontinue the Plan (or any
provision hereof), but, except as otherwise provided herein, no amendment,
alteration, or discontinuation shall be made which would impair the rights of a
Participant under a Stock Option theretofore granted, without the Participant's
consent, or which, without the approval of the Company's stockholders, would:
(e) materially increase the benefits accruing to Participants under
the Plan;
(f) materially increase the number of securities which may be issued
under the Plan; or
(g) materially modify the requirements as to eligibility for
participation in the Plan.
The Committee may amend the terms of any Option or other award theretofore
granted, prospectively or retroactively, but, subject to Section 3 above, no
such amendment shall impair the rights of any holder without the holder's
consent. The Committee may also substitute new Options
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for previously granted Options (on a one for one or other basis), including
previously granted Options having higher option exercise prices.
Subject to the above provisions, the Board shall have broad authority to
amend the Plan to take into account changes in applicable securities and tax
laws and accounting rules, as well as other developments.
SECTION 7. Unfunded Status of Plan.
The Plan is intended to constitute an "unfunded" plan for incentive and
deferred compensation. With respect to any payments not yet made to a
participant or Participant by the Company, nothing contained herein shall give
any such participant or Participant any rights that are greater than those of a
general creditor of the Company. In its sole discretion, the Committee may
authorize the creation of trusts or other arrangements to meet the obligations
created under the Plan to deliver Stock or payments in lieu of or with respect
to awards hereunder; provided, however, that, unless the Committee otherwise
determines with the consent of the affected participant, the existence of such
trusts or other arrangements is consistent with the "unfunded" status of the
Plan.
SECTION 8. General Provisions.
(a) (i) The Committee may require each person acquiring Option
Shares pursuant to a Stock Option to represent to and agree with the
Company in writing that they are acquiring the Option Shares for investment
and without a view to distribution thereof. The certificates for such
Option Shares may include any legend which the Committee deems appropriate
to reflect any restrictions on transfer.
(ii) All certificates for Option Shares or other securities
delivered under the Plan shall be subject to such conditions, stop-transfer
orders and other restrictions as the Committee may deem advisable under the
rules, regulations, and other requirements of the Securities and Exchange
Commission, any stock exchange upon which the Stock is then listed, and any
applicable Federal or state securities law, and the Committee may cause a
legend or legends to be put on any such certificates to make appropriate
reference to such restrictions.
(b) Nothing contained in this Plan shall prevent the Board from
adopting other or additional compensation arrangements, subject to
stockholder approval if such approval is required; and such arrangements
may be either generally applicable or applicable only in specific cases.
(c) The adoption of the Plan shall not confer upon any employee of the
Company, a Subsidiary or an Affiliate any right to continued employment
with the Company, a Subsidiary or an Affiliate, as the case may be, nor
shall it interfere in any way with the right of the Company, a Subsidiary
or an Affiliate to terminate the employment of any of its employees at any
time.
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(d) No later than the date as of which an amount first becomes
includable in the gross income of the participant for Federal income tax
purposes with respect to the exercise of any Option or any award under the
Plan, the Participant shall pay to the Company, or make arrangements
satisfactory to the Committee regarding the payment of, any Federal, state,
or local taxes of any kind required by law to be withheld with respect to
such amount. The obligations of the Company under the Plan shall be
conditional on such payment or arrangements and the Company and its
Subsidiaries or Affiliates shall, to the extent permitted by law, have the
right to deduct any such taxes from any payment of any kind otherwise due
to the participant.
(e) The actual or deemed reinvestment of dividends or dividend
equivalents in additional types of Plan awards at the time of any dividend
payment shall only be permissible if sufficient shares of Stock are
available under Section 3 for such reinvestment, taking into account other
Plan awards then outstanding.
(f) The Plan and all awards made and actions taken thereunder shall be
governed by and construed in accordance with the laws of the State of
Illinois.
SECTION 9. Conditions Upon Issuance of Shares.
(a) Legal Compliance. Shares shall not be issued pursuant to the
exercise of an Option unless the exercise of such Option and the issuance
and delivery of such Shares shall comply with all relevant provisions of
law, including, without limitation, the Securities Act of 1933, as amended,
the Exchange Act, the rules and regulations promulgated thereunder,
Applicable Laws, and the requirements of any stock exchange or quotation
system upon which the Shares may then be listed or quoted, and shall be
further subject to the approval of counsel for the Company with respect to
such compliance.
(b) Investment Representations. As a condition to the exercise of an
Option, the Company may require the person exercising such Option to
represent and warrant at the time of any such exercise that the Shares are
being purchased only for investment and without any present intention to
sell or distribute such Shares if, in the opinion of counsel for the
Company, such a representation is required.
SECTION 10. Liability of Company.
(a) Inability to Obtain Authority. The inability of the Company to
obtain authority from any regulatory body having jurisdiction, which
authority is deemed by the Company's counsel to be necessary to the lawful
issuance and sale of any Shares hereunder, shall relieve the Company of any
liability in respect of the failure to issue or sell such Shares as to
which such requisite authority shall not have been obtained.
(b) Grants Exceeding Allotted Shares. If the Optioned Stock covered
by an Option exceeds, as of the date of grant, the number of Shares which
may be issued under the Plan without additional shareholder approval, such
Option shall be void with respect to such excess Optioned Stock, unless
shareholder approval of an amendment sufficiently increasing
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the number of Shares subject to the Plan is timely obtained in accordance
with Section 14(b) of the Plan.
SECTION 11. Reservation of Shares.
The Company, during the term of this Plan, will at all times reserve and
keep available such number of Shares as shall be sufficiently to satisfy the
requirements of the Plan.
SECTION 12. Shareholder Approval.
Continuance of the Plan shall be subject to approval by the shareholders of
the Company within twelve (12) months before or after the date the Plan is
adopted. Such shareholder approval shall be obtained in the manner and to the
agree required under applicable federal and state law.
SECTION 13. Effective Date of Plan.
The Plan shall be effective as of ____________, 1998, upon the approval of
the Plan by a majority of the votes cast by the holders of the Company's capital
stock entitled to vote hereon.
SECTION 14. Term of Plan.
No Stock Option shall be granted pursuant to the Plan on or after the tenth
anniversary of the effective date of the Plan, but awards granted prior to such
tenth anniversary may extend beyond that date, subject to the terms of the
Option Agreement entered into at the time of grant.
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AMENDED AND RESTATED
DIVERSIFIED FOOD GROUP, INC
INDEPENDENT DIRECTOR STOCK OPTION PLAN
ARTICLE I
GENERAL
1.1 PURPOSE:
Diversified Food Group, Inc., a Delaware corporation (the "Corporation"),
hereby adopts this Independent Director Stock Option Plan (the "Plan"). The
purpose of the Plan is to foster and promote the long-term financial success of
the Corporation by attracting and retaining outstanding non-employee directors
by enabling them to participate in the Corporation's growth through the granting
of Options (as defined in Article II) which entitle them to purchase shares of
the Company's common stock, par value $.001 per share ("Common Stock").
1.2 PARTICIPATION:
Only directors of the Corporation who at the time an Option is granted meet
the following criteria ("Directors") shall receive an Option under the Plan:
(a) the director is not, and has not been for at least two years, an employee or
officer of the Corporation or any subsidiary of the Corporation; and (b) the
director is a "disinterested person" as such term is defined in Rule 16b-3
promulgated under the Securities Exchange Act of 1934 (the "Exchange Act") or
any similar rule which may subsequently be in effect ("Rule 16b-3").
1.3 SHARES SUBJECT TO THE PLAN:
Shares of Common Stock to be issued upon exercise of Options granted under
the Plan may be in whole or in part from authorized but unissued shares or
treasury shares of the Corporation's Common Stock. A maximum of ______ shares
of Common Stock (the "Plan Maximum") may be issued for all purposes under the
Plan (subject to adjustment pursuant to Section 3.2). Any shares of Common
Stock reserved for issuance under Options which for any reason are canceled or
terminated without having been exercised shall not be counted in determining
whether the Plan Maximum has been reached. Options for fractional shares shall
not be granted.
1.4 GENDER AND NUMBER:
Except when otherwise indicated by the context, words in the masculine
gender when used in the Plan shall include the feminine gender, the singular
shall include the plural, and the plural shall include the singular.
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ARTICLE II
STOCK OPTION AWARDS
2.1 AWARD OF STOCK OPTIONS:
Effective on the date on which a Director becomes a member of the
Board of Directors with the Company, each Director who satisfies the conditions
set forth in Section 1.2 will automatically be awarded a stock option (an
"Initial Option" or the "Initial Options") under the Plan to purchase _____
(subject to adjustment pursuant to Section 3.2) shares of Common Stock.
Effective on the date of each Annual Meeting, commencing with the Annual Meeting
in 1998, each Director then in office who satisfies the conditions set forth in
Section 1.2 will automatically be awarded a stock option (a "Subsequent Option"
or the "Subsequent Options", collectively with the "Initial Options" referred to
herein as an "Option" or "Options") to purchase ___ (subject to adjustment
pursuant to Section 3.2) shares of Common Stock. The Options are not intended
to qualify as "incentive stock options" as defined in Section 422A of the
Internal Revenue Code of 1986, as amended (the "Code").
2.2 STOCK OPTION CERTIFICATES:
The award of an Option shall be evidenced by a certificate executed by an
officer of the Corporation.
2.3 OPTION PRICE:
The purchase price of Common Stock (the "Option Price") under each
Initial Option granted shall be the Fair Market Value (as defined in Section
3.5) of the Common Stock on the date of the grant.
2.4 EXERCISE AND TERM OF OPTIONS:
(a) Options may be exercised by the delivery of written notice of
exercise and payment of the aggregate Option Price for the shares to be
purchased to the Corporate Secretary of the Corporation. The Option Price may
be paid in cash (including check, bank draft or money order) or, unless in the
opinion of counsel to the Corporation to do so may result in a possible
violation of law, by delivery of Common Stock already owned by the Director,
valued at Fair Market Value on the date of the exercise. As soon as practicable
after receipt of each notice and full payment, the Corporation shall deliver to
the Director a certificate or certificates representing the acquired shares of
Common Stock.
(b) Each certificate for Shares issued upon exercise of an Option,
unless at the time of exercise such Shares are registered with the Securities
and Exchange Commission (the "Commission"), under the Securities Act of 1933, as
amended (the "Act"), shall bear the following legend:
NO SALE, TRANSFER, PLEDGE OR OTHER DISPOSITION OF THESE SHARES SHALL BE
MADE EXCEPT PURSUANT TO REGISTRATION UNDER THE
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SECURITIES ACT OF 1933, AS AMENDED, OR PURSUANT TO AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY THAT REGISTRATION IS NOT REQUIRED.
Any certificate issued at any time in exchange or substitution for any
certificate bearing such legend (except a new certificate issued upon completion
of a public distribution pursuant to a registration statement under the Act of
the securities represented thereby) shall also bear the above legend unless, in
the opinion of such counsel as shall be reasonably approved by the Company, the
securities represented thereby need no longer be subject to such restrictions.
(c) A Director's Options shall become exercisable on the first anniversary
of the date of grant and shall continue to be exercisable until the first to
occur of the tenth anniversary of the date of grant or three months following
the date the Director ceases to be a Director. In the event that the death or
disability of the Director occurs, all outstanding Options will be exercisable
by the Director (or his legal representative or designated beneficiary) for one
year following the Director's death or disability, provided, however, if the
Option is exercised within the first six months after it becomes exercisable,
any shares of Common Stock issued on such exercise may not be sold until the six
month anniversary of the date of the grant of the Option.
ARTICLE III
MISCELLANEOUS PROVISIONS
3.1 NONTRANSFERABILITY; BENEFICIARIES:
No Option awarded under the Plan shall be transferable by the Director
otherwise than by will or, if the Director dies intestate, by the laws of
descent and distribution. All Options shall be exercisable during the
Director's lifetime only by the Director or his legal representative. Any
transfer contrary to this Section 3.1 will nullify the Option. In the event of
a Director's death prior to the exercise of any Options which were then
exercisable, such Options may be exercised within one year after the Director's
death (regardless of the expiration date of such Options under Section 2.4(b))
by the Director's beneficiary, designated as provided below or, in the absence
of any such designation, his estate.
3.2 ADJUSTMENT UPON CERTAIN CHANGES:
(a) If the outstanding shares of Common Stock are (i) increased,
decreased, or (ii) changed into, or exchanged for, a different number or kind of
shares or securities of the Corporation, through a reorganization or merger in
which the Corporation is the surviving entity, or through a combination,
recapitalization, reclassification, stock split, stock dividend, stock
consolidation or otherwise, an appropriate adjustment shall be made in the
number and kind of shares that may be issued pursuant to an Option. A
corresponding adjustment to the consideration payable with respect to all
Options granted prior to any such change shall also be made. Any such
adjustment, however, shall be made without change in the total payment, if any,
applicable to the portion of the Option not exercised but with a corresponding
adjustment in the price for each share.
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(b) Upon the dissolution or liquidation of the Corporation, or upon a
reorganization, merger or consolidation of the Corporation with one or more
corporations as a result of which the Corporation is not the surviving
corporation or upon sale of all or substantially all of the Corporation's
property, the Plan shall terminate, and any outstanding Options shall terminate
and be forfeited. Notwithstanding the foregoing, the Board of Directors may
provide in writing in connection with, or in contemplation of, any such
transaction for any or all of the following alternatives (separately or in
combinations): (i) for the assumption by the successor corporation of the
Options theretofore granted or the substitution by such corporation for such
Options of awards covering the stock of the successor corporation, or a parent
or subsidiary thereof, with appropriate adjustments as to the number and kind of
shares and prices; (ii) for the continuance of the Plan by such successor
corporation in which event the Plan and the Options shall continue in the manner
and under the terms so provided; or (iii) for the payment in cash or shares of
Common Stock in lieu of and in complete satisfaction of such Options.
3.3 AMENDMENT, SUSPENSION AND TERMINATION OF PLAN:
The Board of Directors may suspend or terminate the Plan or any portion
thereof at any time and may amend it from time to time in such respects as the
Board of Directors may deem advisable in order that any Options thereunder shall
conform to or otherwise reflect any change in applicable laws or regulations, or
to permit the Corporation or the Directors to enjoy the benefits of any change
in applicable laws or regulations, or in any other respect the Board of
Directors may deem to be in the best interests of the Corporation; provided,
however, that no such amendment shall, without stockholder approval to the
extent required by law, agreement or the rules of any exchange upon which the
Common Stock may be listed or national market on which it may be traded: (a)
except as provided in Section 3.2, materially increase the number of shares of
Common Stock which may be issued under the Plan; (b) materially modify the
requirements as to eligibility for participation in the Plan; (c) materially
increase the benefits accruing to Directors under the Plan; or (d) extend the
termination date of the Plan. No such amendment, suspension or termination
shall: (x) impair the rights of Directors under any outstanding Option without
the consent of the Directors affected thereby; or (y) make any change that would
disqualify the Plan, or any other plan of the Corporation intended to be so
qualified, from the exemption provided by Rule 16b-3. No provision of the Plan
which states the amount and price of securities to be awarded, specifies the
timing of awards or sets forth the formula that determines the amount, price and
timing of awards may be amended more than once every six months, except to
comply with changes in the Code, or the Employee Retirement Income Security Act,
as amended ("ERISA"), or the rules thereunder.
3.4 TAX WITHHOLDING:
(a) The Corporation shall have the power to withhold, or require a
Director to remit to the Corporation, an amount sufficient to satisfy any
withholding or other tax due from the Corporation with respect to any amount
payable and/or shares issuable under the Plan, and the Corporation may defer
such payment or issuance unless indemnified to its satisfaction.
(b) Subject to the consent of the Board of Directors, due to the exercise
of an Option, a Director may make an irrevocable election (an "Election") to:
(A) have shares of Common Stock
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otherwise issuable hereunder withheld; or (B) tender back to the Corporation
shares of Common Stock received; or (C) deliver back to the Corporation
previously acquired shares of Common Stock of the Corporation having a Fair
Market Value sufficient to satisfy all or part of the Director's estimated tax
obligations associated with the transaction. Such Election must be made by a
Director prior to the date on which the relevant tax obligation arises (the "Tax
Date"). The Board of Directors may disapprove of any Election, may suspend or
terminate the right to make Elections, or may provide with respect to any Option
under this Plan that the right to make Elections shall not apply to such
Option.
3.5 DEFINITION OF FAIR MARKET VALUE:
The term "Fair Market Value" as it relates to Common Stock on any given
date means: (a) the average of the high and low sales prices of the
Corporation's Common Stock as reported on any national exchange on which the
Common Stock is traded; or (b) if the Common Stock is not listed on any national
stock exchange, the mean of the high and low sales prices of the Corporation's
Common Stock as reported by the National Association of Securities Dealers
Automated Quotation System (or, if not so reported, by the system then regarded
as the most reliable source of such quotations) or, if there are no reported
sales on such date, the mean of the closing bid and asked prices as so reported;
or (c) if the Common Stock is listed on a national exchange or quoted in the
domestic over-the-counter market, but there are no reported sales or quotations,
as the case may be, on the given date, the value determined pursuant to (a) or
(b) above using the reported sale prices or quotations on the last previous date
on which so reported; or (d) if none of the foregoing clauses apply, the fair
value as determined in good faith by the Corporation's Board of Directors
consistently with the provisions of Section 2.3.
3.6 PLAN NOT EXCLUSIVE:
The adoption of the Plan shall not preclude the adoption by appropriate
means of any other stock option or other incentive plan for Directors.
3.7 LISTING, REGISTRATION AND LEGAL COMPLIANCE:
Each Option shall be subject to the requirement that if at any time counsel
to the Corporation shall determine that the listing, registration or
qualification thereof or of any shares of Common Stock or other property subject
thereto upon any securities exchange or under any foreign, federal or state
securities or other law or regulation, or the consent or approval of any
governmental body or the taking of any other action to comply with or otherwise,
with respect to any such law or regulation, is necessary or desirable as a
condition to or in connection with the award of such Option or the issue,
delivery or purchase of shares of Common Stock or other property thereunder, no
such Option may be exercised or paid in Common Stock or other property unless
such listing, registration, qualification, consent, approval or other action
shall have been effected or obtained free of any conditions not acceptable to
the Corporation, and the holder of the award will supply the Corporation with
such certificates, representations and information as the Corporation shall
request and shall otherwise cooperate with the Corporation in effecting or
obtaining such listing, registration, qualification, consent, approval or other
action. The Corporation may at any time impose any
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limitations upon the exercise, delivery or payment of any Option which, in the
opinion of the Board of Directors, are necessary or desirable in order to cause
the Plan or any other plan of the Corporation to comply with Rule 16b-3. If the
Corporation as part of an offering of securities or otherwise, finds it
desirable because of foreign, federal or state legal or regulatory requirements
to reduce the period during which Options may be exercised, the Board of
Directors may, without the holders' consent, so reduce such period on not less
than 15 days written notice to the holders thereof.
3.8 RIGHTS OF DIRECTORS:
Nothing in the Plan shall confer upon any Director any right to serve as a
Director for any period of time or to continue his present or any other rate of
compensation.
3.9 REQUIREMENTS OF LAW; GOVERNING LAW:
The granting of Options under this Plan shall be subject to all applicable
laws, rules, and regulations, and to such approvals by any governmental agencies
or national securities exchanges as may be required. The Plan, and all
agreements hereunder, shall be construed in accordance with and governed by the
laws of the State of Illinois. The provisions of this Plan shall be interpreted
so as to comply with the conditions or requirements of Rule 16b-3 under the
Exchange Act, unless a contrary interpretation of any such provision is
otherwise required by applicable law.
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Exhibit 10.6
================================================================================
CREDIT AGREEMENT
among
DIVERSIFIED FOOD GROUP, L.L.C.,
Borrower,
The Several Lenders
from Time to Time Parties Hereto,
and
CANADIAN IMPERIAL BANK OF COMMERCE
as Agent
Dated as of October 16, 1997
================================================================================
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SECTION 1. DEFINITIONS................................................1
1.1 Defined Terms....................................................l
1.2 Other Definitional Provisions...................................21
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS.................22
2.1 Term Loan Commitments...........................................22
2.2 Term Notes......................................................22
2.3 Procedure for Term Loan Borrowing...............................22
SECTION 3. AMOUNT AND TERMS OF BRIDGE LOAN COMMITMENTS...............23
3.1 Bridge Loan Commitments.........................................23
3.2 Bridge Loan Notes...............................................23
3.3 Procedure for Bridge Loan Borrowing.............................23
SECTION 4. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS..........24
4.1 Revolving Credit Commitments....................................24
4.2 Revolving Credit Notes..........................................24
4.3 Procedure for Revolving Credit Borrowing........................25
4.4 Commitment Fee..................................................25
4.5 Termination or Reduction of Revolving Credit Commitments........26
SECTION 5. LETTERS OF CREDIT.........................................26
5.1 L/C Commitment..................................................26
5.2 Procedure for Issuance of Letters of Credit.....................27
5.3 Fees, Commissions and Other Charges.............................27
5.4 L/C Participations..............................................27
5.5 Reimbursement Obligations of the Borrower.......................28
5.6 Obligations Absolute............................................29
5.7 Letter of Credit Payments.......................................29
5.8 Application.....................................................30
SECTION 6. GENERAL PROVISIONS APPLICABLE TO LOANS....................30
6.1 Interest Rates and Payment Dates................................30
6.2 Conversion and Continuation Options.............................30
6.3 Minimum Amounts and Maximum Number of Tranches..................31
6.4 Optional Prepayments............................................31
6.5 Mandatory Prepayments...........................................32
6.6 Computation of Interest and Fees................................33
6.7 Inability to Determine Interest Rate............................34
6.8 Pro Rata Treatment and Payments.................................34
6.9 Illegality......................................................35
6.10 Requirements of Law............................................35
6.11 Taxes..........................................................36
6.12 Indemnity......................................................38
6.13 Lending Offices; Change of Lending Office......................38
SECTION 7. REPRESENTATIONS AND WARRANTIES............................39
7.1 Financial Condition.............................................39
7.2 No Change.......................................................41
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7.3 Existence; Compliance with Law.........................................41
7.4 Power; Authorization; Enforceable Obligations..........................41
7.5 No Legal Bar...........................................................41
7.6 No Material Litigation.................................................42
7.7 No Default.............................................................42
7.8 Ownership of Property; Liens...........................................42
7.9 Intellectual Property..................................................42
7.10 No Burdensome Restrictions............................................42
7.11 Taxes.................................................................42
7.12 Federal Regulations...................................................43
7.13 ERISA.................................................................43
7.14 Investment Company Act; Other Regulations.............................43
7.15 Subsidiaries..........................................................44
7.16 Security Documents....................................................44
7.17 Accuracy and Completeness of Information..............................44
7.18 Labor Relations.......................................................45
7.19 Insurance.............................................................45
7.20 Cohen's Acquisition Documents.........................................45
7.21 Solvency..............................................................46
7.22 Purpose of Loans......................................................46
7.23 Environmental Matters.................................................47
SECTION 8. CONDITIONS PRECEDENT.............................................48
8.1 Conditions to Initial Extensions of Credit.............................48
8.2 Conditions to Each Extension of Credit.................................53
SECTION 9. AFFIRMATIVE COVENANTS............................................54
9.1 Financial Statements...................................................54
9.2 Certificates; Other Information........................................55
9.3 Payment of Obligations.................................................56
9.4 Conduct of Business and Maintenance of Existence.......................56
9.5 Maintenance of Property; Insurance.....................................56
9.6 Inspection of Property; Books and Records; Discussions.................57
9.7 Notices................................................................57
9.8 Environmental Laws.....................................................58
9.9 Changes to Advance Rates, Standards of Eligibility and Reserves........58
9.10 Periodic Audit of Accounts Receivable and Inventory...................58
9.11 Additional Collateral; Additional Guarantors..........................59
9.12 Interest Rate Protection..............................................59
9.13 Warehouse Bailment Agreements.........................................59
9.14 Key-Person Life Insurance.............................................60
SECTION 10. NEGATIVE COVENANTS..............................................60
10.1 Financial Condition Covenants.........................................60
10.2 Limitation on Indebtedness............................................62
10.3 Limitation on Liens...................................................62
10.4 Limitation on Guarantee Obligations...................................63
10.5 Limitation on Fundamental Changes.....................................64
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<C> <S> <C>
10.6 Limitation on Sale of Assets............................ 64
10.7 Limitation on Leases.................................... 64
10.8 Limitation on Dividends................................. 64
10.9 Limitation on Capital Expenditures...................... 65
10.10 Limitation on Investments, Loans and Advances........... 65
10.11 Limitation on Optional Payments and Modifications of
Certain Agreements...................................... 66
10.12 Limitation on Transactions with Affiliates.............. 66
10.13 Limitation on Sales and Leasebacks...................... 66
10.14 Limitation on Changes in Fiscal Year.................... 66
10.15 Limitation on Negative Pledge Clauses................... 66
10.16 Limitation on Lines of Business......................... 66
10.17 Governing Documents..................................... 67
10.18 Limitation on Subsidiary Formation...................... 67
10.19 Limitation on Securities Issuances...................... 67
SECTION 11. EVENTS OF DEFAULT................................... 67
SECTION 12. THE AGENT........................................... 71
12.1 Appointment............................................. 71
12.2 Delegation of Duties.................................... 71
12.3 Exculpatory Provisions.................................. 71
12.4 Reliance by Agent....................................... 71
12.5 Notice of Default....................................... 72
12.6 Non-Reliance on Agent and Other Lenders................. 72
12.7 Indemnification......................................... 73
12.8 Agent in Its Individual Capacity........................ 73
12.9 Successor Agent......................................... 73
SECTION 13. MISCELLANEOUS....................................... 74
13.1 Amendments and Waivers.................................. 74
13.2 Notices................................................. 74
13.3 No Waiver; Cumulative Remedies.......................... 75
13.4 Survival of Representations and Warranties.............. 75
13.5 Payment of Expenses and Taxes........................... 75
13.6 Successors and Assigns; Participations and Assignments.. 76
13.7 Adjustments; Set-off.................................... 78
13.8 Counterparts............................................ 79
13.9 Severability............................................ 79
13.10 Integration............................................. 79
13.11 Governing Law........................................... 79
13.12 Submission To Jurisdiction; Waivers..................... 80
13.13 Acknowledgments......................................... 80
13.14 WAIVERS OF JURY TRIAL................................... 81
13.15 Confidentiality......................................... 81
</TABLE>
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<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
SCHEDULES
Schedule 1.0 Lenders, Commitments and Applicable Lending Offices
Schedule 1.1 Terms of Permitted Junior Takeout Securities
Schedule 1.2 Roll-Up Documents
Schedule 2.2 Scheduled Term Loan Repayments
Schedule 7.15 Subsidiaries
Schedule 7.16 Filing Jurisdictions
Schedule 7.19 Insurance
Schedule 7.20 Transactions Costs
Schedule 7.23 Environmental Matters
Schedule 8.1(d) Employment Agreements, Incentive Plans
Schedule 10.2A Existing Indebtedness to be Repaid
Schedule 10.2B Existing Indebtedness to Remain Outstanding
EXHIBITS
Exhibit A-1 Form of Term Note
Exhibit A-2 Form of Bridge Loan Note
Exhibit A-3 Form of Revolving Credit Note
Exhibit B Form of Bridge Guarantee
Exhibit C Form of Borrower Pledge Agreement
Exhibit D Form of Borrower Security Agreement
Exhibit E Form of Borrowing Base Certificate
Exhibit F Form of Subsidiaries Guarantee
Exhibit G Form of Subsidiaries Security Agreement
Exhibit H Form of Non-Bank Status Certificate
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
Exhibit I Form of Closing Certificate
Exhibit J-1 Form of Opinion of Katten, Muchin & Zabel
Exhibit J-2 Form of Opinion of Shefsky & Froelich, Ltd.
Exhibit K Form of Assignment and Acceptance
</TABLE>
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CREDIT AGREEMENT, dated as of October 16, 1997, among DIVERSIFIED FOOD
GROUP, L.L.C., a Delaware limited liability company (the "Borrower"), the
lenders from time to time parties to this Agreement (the "Lenders") and CANADIAN
IMPERIAL BANK OF COMMERCE, as agent for the Lenders hereunder.
RECITALS
Pursuant to that Asset Purchase Agreement, dated as of October 9, 1997
(as amended, supplemented or otherwise modified as permitted hereunder, the
"Cohen's Purchase Agreement"), among the Borrower, Cohen's Famous Frozen Foods,
Inc., a New Jersey corporation ("Old Cohen's"), Sidney Cohen and Edward Cohen,
the Borrower (or an assignee thereof) will purchase (the "Cohen's Acquisition")
substantially all of the assets of Old Cohen's on a going concern basis. The
Borrower has requested that (a) certain of the Lenders make a term loan to the
Borrower in the aggregate principal amount of $23,000,000, (b) certain of the
Lenders make a bridge loan to the Borrower in the aggregate principal amount of
S5,000,000, and (c) certain of the Lenders make available to the Borrower
revolving credit loans and letters of credit in an aggregate principal and face
amount at any one time outstanding not to exceed $9,000,000, the proceeds of
which loans and letters of credit would be used (i) to finance a portion of the
purchase price of the Cohen's Acquisition, (ii) to refinance substantially all
indebtedness of the Borrower and its subsidiaries, (iii) to finance the working
capital requirements of the Borrower and its subsidiaries in the ordinary course
of business and (iv) to pay fees and expenses incurred in connection with the
foregoing and in connection herewith. The Lenders are willing to make such
extensions of credit available to the Borrower, but only on the terms, and
subject to the conditions, set forth in this Agreement.
The parties hereto hereby agree as follows:
SECTION 1. DEFINITIONS
1.1 Defined Terms. As used in this Agreement, the following terms
shall have the following meanings:
"Account": as defined in the Uniform Commercial Code as in effect in
the State of New York on the date hereof.
"Affiliate": as to any Person, any other Person (other than a
Subsidiary) which, directly or indirectly, is in control of, is controlled
by, or is under common control with, such Person. For purposes of this
definition, "control" of a Person (including, with its correlative
meanings, "controlled by" and "under common control with") means the power,
directly or indirectly, either to (a) vote 10% or more of the securities
having ordinary voting power for the election of directors of such Person
or (b) direct or cause the direction of the management and policies of such
Person, whether by contract or otherwise.
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"Agent": CIBC. together with its affiliates, as the arranger of the
Commitments and as the agent for the Lenders under this Agreement and the
other Loan Documents.
"Aggregate Outstanding RC Extensions of Credit": as to any Lender at
any time, an amount equal to the sum of (a) the aggregate principal amount
of all Revolving Credit Loans made by such Lender then outstanding and (b)
such Lender's Revolving Credit Commitment Percentage of the L/C Obligations
then outstanding.
"Agreement": this Credit Agreement, as amended, supplemented or
otherwise modified from time to time.
"Applicable Lending Office": for each Lender and for each Type of
Loan, the lending office of such Lender designated for such Type of Loan on
Schedule I hereto (or any other lending office from time to time notified
to the Agent by such Lender) as the office at which its Loans of such Type
are to be made and maintained.
"Applicable Margin": for any Loan of any Type, the rate per annum set
forth under the relevant column heading below:
<TABLE>
<CAPTION>
Base Rate Eurodollar
Loans Loans
--------- ----------
<S> <C>
1.00% 2.75%
</TABLE>
"Application": an application, in such form as the Issuing Bank may
specify from time to time, requesting the Issuing Bank to open a Letter of
Credit.
"Arranger": CIBC WG, as arranger of the Commitments.
"Assigned Policy": any life insurance policy assigned to the Agent
pursuant to an Assignment of Life Insurance.
"Assignee": as defined in Section 13.6(c).
"Assignment and Acceptance": as defined in Section 13.6(c).
"Assignments of Life Insurance": the collective reference to the
Borrower Assignment of Life Insurance and the Subsidiaries Assignment of
Life Insurance.
"Available RC Commitment": as to any Lender, at any time, an amount
equal to the excess, if any, of (a) such Lender's Revolving Credit
Commitment over (b) such Lender's Aggregate Outstanding RC Extensions of
Credit.
"Base Rate": for any day, the rate per annum (rounded upward, if
necessary, to the next 1/16 of 1%) equal to the greater of (a) the Prime
Rate in effect on such day and (b) the Federal Funds Effective Rate in
effect on such day plus 1/2 of 1%. For purposes hereof: "Prime Rate" shall
mean the rate of interest publicly announced by CIBC in
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New York, New York from time to time as its base rate (the base rate not
being intended to be the lowest rate of interest charged by CIBC in
connection with extensions of credit to debtors).
"Base Rate Loans": Loans the rate of interest applicable to which is
based upon the Base Rate.
"Borrower": as defined in the heading to this Agreement.
"Borrower Assignment of Life Insurance": the Assignment of Life
Insurance to be executed and delivered by the Borrower, in form and
substance reasonably satisfactory to the Agent (or similar instrument
sufficient to provide the Agent, for the benefit of the Lenders, with
collateral security in the life insurance policies referenced in Section
9.14), as the same may be amended, supplemented or otherwise modified from
time to time.
"Borrower Patent Assignment": the Patent Assignment to be executed and
delivered by the Borrower, substantially in the form of Annex A to the
Borrower Security Agreement, as the same may be amended, supplemented or
otherwise modified from time to time.
"Borrower Pledge Agreement": the Pledge Agreement to be executed and
delivered by the Borrower, substantially in the form of Exhibit C, as the
same may be amended, supplemented or otherwise modified from time to time.
"Borrower Security Agreement": the Security Agreement to be executed
and delivered by the Borrower, substantially in the form of Exhibit D, as
the same may be amended, supplemented or otherwise modified from time to
time.
"Borrower Security Documents": the collective reference to the
Borrower Assignment of Life Insurance, the Borrower Patent Assignment, the
Borrower Pledge Agreement, the Borrower Security Agreement, and the
Borrower Trademark Assignment.
"Borrower Trademark Assignment": each Memorandum of Security Interest
in Trademarks to be executed and delivered by the Borrower, substantially
in the form of Annex B to the Borrower Security Agreement, as the same may
be amended, supplemented or otherwise modified from time to time.
"Borrowing Base": at any time, the sum of (a) 85% (or such other
percentage as the Agent shall determine in accordance with Section 9.9) of
the then Eligible Accounts and (b) 50% (or such other percentage as the
Agent shall determine in accordance with Section 9.9) of the then Eligible
Inventory. The Borrowing Base in effect at any time shall be the Borrowing
Base as shown on the Borrowing Base Certificate most recently delivered by
the Borrower pursuant to this Agreement; provided, however, that if the
Borrower shall
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Certificate when required pursuant to Section 9.2(c), the Borrowing Base in
effect shall be zero until such Borrowing Base Certificate is delivered.
"Borrowing Base Certificate": a certificate, substantially in the form
of Exhibit E, with appropriate insertions, showing the Borrowing Base as of
the date set forth therein, and executed on behalf of the Borrower by a
duly authorized officer thereof.
"Borrowing Date": any Business Day specified in a notice pursuant to
Section 2.3, 3.3 or 4.3 as a date on which the Borrower requests the
Lenders to make Loans hereunder.
"Bridge Guarantees": the Limited Guarantees to be executed and
delivered by each of Zahn and Gould, substantially in the form of Exhibit
B, as the same may be amended, supplemented or otherwise modified from time
to time.
"Bridge Loan": as defined in Section 3.1.
"Bridge Loan Commitment": as to any Lender, its obligation to make a
Bridge Loan to the Borrower pursuant to Section 3.1 in the amount set forth
opposite such Lender's name on Schedule 1.0 under the caption "Bridge
Loan".
"Bridge Loan Commitment Percentage": as to any Lender, the percentage
equal to the quotient of such Lender's Bridge Loan Commitment divided by
the aggregate Bridge Loan Commitments.
"Bridge Loan Note": as defined in Section 3.2.
"Business": as defined in Section 7.23(b).
"Business Day": a day other than a Saturday, Sunday or other day on
which commercial banks in New York City or Chicago, Illinois are authorized
or required by law to close, and, if such day relates to a borrowing of, a
payment or prepayment of principal of or interest on, or a Conversion of or
into, or an Interest Period for, a Eurodollar Loan or a notice by the
Borrower with respect to any such borrowing, payment, prepayment,
Conversion or Interest Period, which is also a day on which dealings in
Dollar deposits arc carried out in the London interbank market.
"Capital Stock": any and all shares, interests, participations or
other equivalents (however designated) of capital stock of a corporation,
any and all similar ownership interests in a Person (other than a
corporation) and any and all warrants or options to purchase any of the
foregoing.
"Cash Equivalents": (a) securities with maturities of 90 days or less
from the date of acquisition issued or fully guaranteed or insured by the
United States Government or any agency thereof, (b) certificates of deposit
and eurodollar time
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<PAGE>
deposits with maturities of 90 days or less from the date of acquisition
and overnight bank deposits of any Lender or of any commercial bank having
capital and surplus in excess of $500,000,000, (c) repurchase obligations
of any Lender or of any commercial bank satisfying the requirements of
clause (b) of this definition, having a term of not more than seven days
with respect to securities issued or fully guaranteed or insured by the
United States Government, (d) commercial paper of a domestic issuer rated
at least A-1 or the equivalent thereof by Standard and Poor's Ratings Group
("S&P") or P-1 or the equivalent thereof by Moody's Investors Service, Inc.
("Moody's") and in either case maturing within 90 days after the day of
acquisition, (e) securities with maturities of 90 days or less from the
date of acquisition issued or fully guaranteed by any state, commonwealth
or territory of the United States, by any political subdivision or taxing
authority of any such state, commonwealth or territory or by any foreign
government, the securities of which state, commonwealth, territory,
political subdivision, taxing authority or foreign government (as the case
may be) are rated at least A by S&P or A by Moody's, (f) securities with
maturities of 90 days or less from the date of acquisition backed by
standby letters of credit issued by any Lender or any commercial bank
satisfying the requirements of clause (b) of this definition or (g) shares
of money market mutual or similar funds which invest exclusively in assets
satisfying the requirements of clauses (a) through (f) of this definition.
"CIBC": Canadian Imperial Bank of Commerce.
"CIBC WG": CIBC Wood Gundy Securities Corp.
"Clean-Down Period": during each fiscal year of the Borrower during
the Revolving Credit Commitment Period, any period of 30 consecutive days
specified by the Borrower in a notice to the Agent identified as a "Notice
of Clean-Down Period" no later than five Business Days after the end of
such period, or if no such notice shall be delivered for any such fiscal
year, the last 30 days of such fiscal year.
"Closing Date": the date on which the conditions precedent set forth
in Section 8.1 shall be satisfied or waived pursuant to the terms hereof.
"Code": the Internal Revenue Code of 1986, as amended from time to
time.
"Cohen Employment Agreements": collectively, the Employment and Non-
Competition Agreements to be entered into between each of Sidney Cohen,
Edward Cohen, Neil Cohen, Craig Cohen and the Borrower, substantially in
the form of Exhibits C, D, E and F to the Cohen's Purchase Agreement, as
the same may be amended, supplemented or otherwise modified as permitted
hereunder; each, a"Cohen Employment Agreement".
"Cohen's Acquisition": as defined in the recitals hereto.
"Cohen's Acquisition Documents": collectively, the Cohen's Purchase
Agreement, the Cohen's Assumption, the Cohen's Assignment, the Cohen
Employment
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<PAGE>
Agreements, the Neil Cohen Option Agreement, the Cohen's Escrow Agreement,
the Cohen's Lease and the Cohen's Subordinated Seller Note, and all other
agreements, instruments and documents executed and delivered pursuant to
any thereof.
"Cohen's Assignment": the Instrument of Assignment to be entered into
among the Borrower, Old Cohen's, Sidney Cohen and Edward Cohen,
substantially in the form of Exhibit B to the Cohen's Purchase Agreement,
as the same may be amended, supplemented or otherwise modified as permitted
hereunder.
"Cohen's Assumption": the Assumption Agreement to be entered into by
the Borrower and Old Cohen's, substantially in the form of Exhibit A to the
Cohen's Purchase Agreement, as the same may be amended, supplemented or
otherwise modified as permitted hereunder.
"Cohen's Escrow Agreement": the Escrow Agreement to be entered into
among Old Cohen's, Sidney Cohen, Edward Cohen, Neil Cohen, Craig Cohen, New
Cohen's and Lampf, Lipkind, Prupis, Petigrow & LaBue, as escrow agent,
substantially in the form of Exhibit H to the Cohen's Purchase Agreement,
as the same may be amended, supplemented or otherwise modified as permitted
hereunder.
"Cohen's Lease": the Lease to be entered into between the Borrower, as
lessee and Sidey Cohen and Edward Cohen, as lessors, substantially in the
form of Exhibit G to the Cohen's Purchase Agreement, as the same may be
amended, supplemented or otherwise modified as permitted hereunder.
"Cohen's Purchase Agreement": as defined in the recitals hereto.
"Cohen's Subordinated Seller Note": the Borrower's 8.5% Convertible
Unsecured Subordinated Note due October 9, 2002, made by the Borrower in
favor of Old Cohen's, in the original principal amount of $1,197,082,
substantially in the form of Exhibit K to the Cohen's Purchase Agreement,
as the same may be amended, supplemented or otherwise modified as permitted
hereunder.
"Collateral": all property and interests in property of the Loan
Parties, now owned or hereinafter acquired, upon which a Lien is purported
to be created by any Security Document.
"Commercial Letter of Credit": as defined in Section 5.1(b)(1)(B).
"Commmitments": the collective reference to the Bridge Loan
Commitments. The Revolving Credit Commitments and the Term Loan
Commitments.
"Commonly Controlled Entity": an entity, whether or not incorporated,
which is under common control with the Borrower within the meaning of
Section 4001 of ERISA or is part of a group which includes the Borrower and
which is treated as a single employer under Section 414 of the Code.
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"Consolidated Current Assets": at a particular date, all amounts which
would, in conformity with GAAP, be included under current assets on a
consolidated balance sheet of the Borrower and the Subsidiaries as at such
date.
"Consolidated Current Liabilities": at a particular date, all amounts
which would, in conformity with GAAP, be included under current liabilities
on a consolidated balance sheet of the Borrower and the Subsidiaries as at
such date.
"Consolidated EBITDA": for any period, the sum for such period of (a)
Consolidated Net Income, and (b) the sum of provisions for income taxes,
interest expense, and depreciation and amortization expense used in
determining such Consolidated Net Income.
"Consolidated Fixed Charges": for any period, the sum of (i) the
amounts deducted for Consolidated Interest Expense and Consolidated Lease
Expense in determining Consolidated Net Income for such period, (ii) the
amount of scheduled payments of principal of Indebtedness during such
period, and (iii) the provision for income taxes used in determining
Consolidated Net Income for such period.
"Consolidated Indebtedness": at any time, the sum of (a) aggregate
Indebtedness of the Borrower and its consolidated Subsidiaries, excluding
the Cohen's Subordinated Seller Note. at such time determined on a
consolidated basis in accordance with GAAP, and (b) without duplication,
the aggregate amount of the Revolving Credit Commitments at such time.
"Consolidated Interest Expense": for any period, the amount which, in
conformity with GAAP, would be set forth opposite the caption "interest
expense" or any like caption (including without limitation, imputed
interest included in payment under Financing Leases) on a consolidated
income statement of the Borrower and the Subsidiaries for such period
excluding the amortization of any original issue discount.
"Consolidated Lease Expense": for any period, the aggregate amount of
fixed or contingent rentals payable by the Borrower and its Subsidiaries,
determined on a consolidated basis in accordance with GAAP, for such period
with respect to leases of real and personal property.
"Consolidated Net Income": for any period, the consolidated net income
(or deficit) of the Borrower and the Subsidiaries for such period (taken as
a cumulative whole), determined in accordance with GAAP; provided that
there shall be excluded (a) the income (or deficit) of any Person accrued
prior to the date it becomes a Subsidiary or is merged into or consolidated
with the Borrower or any Subsidiary, (except with respect to any such
merger or consolidation accounted for on a pooling of interest basis), (b)
the income (or deficit) of any Person (other than a Subsidiary) in which
the Borrower or any Subsidiary has an ownership interest, except to the
extent that any such income has been actually received by the Borrower or
such Subsidiary in the form of dividends or similar distributions, (c) the
undistributed earnings of any
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<PAGE>
Subsidiary to the extent that the declaration or payment of dividends or
similar distributions by such Subsidiary is not at the time permitted by
the terms of any Contractual Obligation or Requirement of Law applicable to
such Subsidiary, (d) any restoration to income of any contingency reserve,
except to the extent that provision for such reserve was made out of income
accrued during such period, (e) any aggregate net gain (but not any
aggregate net loss) during such period arising from the sale, exchange or
other disposition of capital assets (such term to include all fixed assets,
whether tangible or intangible, all inventory sold in conjunction with the
disposition of fixed assets and all securities), (f) any write-up of any
asset, (g) any net gain from the collection of the proceeds of life
insurance policies, (h) any gain arising from the acquisition of any
securities, or the extinguishment, under GAAP, of any Indebtedness, of the
Borrower or any Subsidiary, (i) in the case of a successor to the Borrower
by consolidation or merger or as a transferee of its assets, any earnings
of the successor corporation prior to such consolidation, merger or
transfer of assets, and (j) any deferred credit representing the excess of
equity in any Subsidiary at the date of acquisition over the cost of the
investment in such Subsidiary.
"Continue", "Continuation" and "Continued" shall refer to the
continuation of a Eurodollar Loan from one Interest Period to the next
Interest Period.
"Contractual Obligation": as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Convert", "Conversion" and "Converted" shall refer to a conversion of
Base Rate Loans into Eurodollar Loans or of Eurodollar Loans into Base Rate
Loans, which may be accompanied by the transfer by a Lender (at its sole
discretion) of a Loan from one Applicable Lending Office to another.
"Credit Exposure": as to any Lender at any time, the sum of (a) its
Revolving Credit Commitment (or, if the Revolving Credit Commitments shall
have expired or been terminated, the aggregate unpaid principal amount of
its Revolving Credit Loans plus the amount of its Revolving Credit
Commitment Percentage of any L/C Obligations), (b) the unpaid principal
amount of its Term Loan and (c) the unpaid principal amount of its Bridge
Loan.
"Credit Exposure Percentage": as to any Lender at any time, the
fraction (expressed as a percentage), the numerator of which is the Credit
Exposure of such Lender at such time and the denominator of which is the
aggregate Credit Exposures of all of the Lenders at such time.
"Default": any of the events specified in Section 11, whether or not
any requirement for the giving of notice, the lapse of time, or both, or
any other condition, has been satisfied.
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<PAGE>
"Designated Beneficiary": Zahn or Gould or any other Person for whom a
key person life insurance policy that is subject to an Assignment of Life
Insurance is taken out.
"Dollars" and "$": dollars in lawful currency of the United States of
America.
"Eligible Accounts" as to the Borrower and the other Loan Parties, at
a particular date, the total outstanding balance of Accounts of the Loan
Parties, minus (without duplication): (a) Accounts which are not bona fide,
valid and legally enforceable obligations of the obligor in respect thereof
that arise from the actual sale and delivery of goods or rendition and
acceptance of services in the ordinary course of business to such obligor;
(b) Accounts which have not been documented by an invoice in a customary
form used by the Loan Parties, and reasonably acceptable to the Agent; (c)
Accounts which contravene, or arise from sales which contravene in any
material respect, any Requirement of Law applicable thereto; (d) Accounts
which have been invoiced by the relevant Loan Party which have been
outstanding and unpaid for ninety (90) days or more from the date of
invoice ("Past Due Receivables"); (e) the lesser of (i) Accounts of any
obligor which is both a customer of and a vendor to any Loan Party and (ii)
the amount owing by such Loan Party to such obligor; (f) if more than 50%
of the Accounts of any obligor constitute Past Due Receivables, the
Accounts of such obligor; (g) Accounts which arise from a bill and hold
sale prior to the shipment of the goods that are the subject thereof; (h)
Accounts of any obligor which is an Affiliate or Subsidiary of the Borrower
or any other Loan Party; (i) without limitation of clause (p) of this
definition, Accounts of any obligor which is organized under the laws of a
jurisdiction outside the United States of America ("Foreign Accounts"),
unless each such Foreign Account is supported by a letter of credit
approved by the Agent in favor of the Borrower or by credit insurance
reasonably acceptable to the Agent, in either case subject to a perfected
first priority security interest in favor of the Agent for the ratable
benefit of the Lenders; (j) Accounts of the United States of America or any
instrumentality thereof, unless the relevant Loan Party duly assigns its
rights to payment of such Accounts to the Agent for the ratable benefit of
the Lenders pursuant to the Assignment of Claims Act of 1940, as amended
from time to time (31 U.S.C. (S) 3723 et seq.); (k) without limitation of
clause (p) of this definition, Accounts which are not denominated and
payable in Dollars in the United States of America; (l) without limitation
of clause (p) of this definition. Accounts which are not subject to a
perfected first priority security interest in favor of the Agent for the
ratable benefit of the Lenders pursuant to the Security Agreements, other
than Foreign Accounts; (m) Accounts which do not conform in all material
respects to the representations and warranties contained in the Security
Agreements with respect thereto; (n) Accounts of obligors which are
insolvent or the subject of any bankruptcy or insolvency proceeding of any
kind; and (o) such other Accounts as the Agent, in its commercially
reasonable judgment, believes will not be paid in full within ninety (90)
days of the date of invoice thereof, (p) Accounts of any obligor which is
organized under the laws of the United Kingdom of Great Britain and
Northern Ireland or any political subdivision thereof, provided that
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the aggregate amount of Accounts included as Eligible Accounts pursuant to
this clause (p) may not to exceed $750,000 at any time.
"Eligible Inventory": as to the Borrower and the other Loan Parties,
at a particular date, the aggregate amount of Inventory as recorded at cost
on a first in, first out basis in its accounting records, minus (without
duplication) the sum of: (a) Inventory which is not owned solely by the
Borrower or another Loan Party free and clear of all Liens or other rights
or claims of any other Person (except in favor of the Agent for the ratable
benefit of the Lenders); (b) Inventory which is not subject to a perfected
first priority security interest in favor of the Agent for the ratable
benefit of the Lenders pursuant to the Security Agreements; (c) Inventory
which is damaged; (d) work-in-process; (e) seventy percent (70%) of
packaging materials; (f) Inventory which is allocable to a contract with
the United States of America or any instrumentality thereof, unless the
relevant Loan Party duly assigns its rights to payment for such Inventory
to the Agent for the ratable benefit of the Lenders pursuant to the
Assignment of Claims Act of 1940, as amended from time to time (31 U.S.C.
(S) 3723 et seq.); (g) Inventory that is more than twelve (12) months old
and any additional reserve provided by the Loan Parties for obsolete,
second quality or slow-moving goods; (h) Inventory which does not conform
in all material respects to the representations and warranties contained in
the applicable Security Agreement; (i) Inventory of the Loan Parties which
is held by any Person (other than a Loan Party) that has not executed and
delivered a Warehouse Bailment Agreement in form and substance reasonably
satisfactory to the Agent; and (j) such other Inventory as the Agent,
exercising its commercially reasonable judgment, has otherwise determined
to be unacceptable because the Agent believes that such Inventory is not
readily saleable on the customary terms on which it is usually sold.
"Employment Agreements": as defined in Section 8.1(d)(iv).
"Environmental Laws": any and all foreign, Federal, state, local or
municipal laws, rules, orders, regulations, statutes, ordinances, codes,
decrees, requirements of any Governmental Authority or other Requirements
of Law (including common law) regulating, relating to or imposing liability
or standards of conduct concerning protection of human health or the
environment, as now or may at any time hereafter be in effect.
"ERISA": the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Eurocurrency Reserve Requirements": for any day as applied to a
Eurodollar Loan, the aggregate (without duplication) of the rates
(expressed as a decimal fraction) of reserve requirements in effect on such
day (including, without limitation, basic, supplemental, marginal and
emergency reserves under any regulations of the Board of Governors of the
Federal Reserve System or other Governmental Authority having jurisdiction
with respect thereto) dealing with reserve requirements prescribed for
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Borrower for such fiscal year, (iv) the amount of capital expenditures
actually made during such fiscal year to the extent permitted by Section
6.8, (v) the increase (if any) in the amount of the excess of Consolidated
Current Assets (excluding cash and cash equivalents) over Consolidated
Current Liabilities at the end of such fiscal year compared to the amount
of the excess of Consolidated Current Assets (excluding cash and cash
equivalents) over Consolidated Current Liabilities at the end of the
immediately preceding fiscal year of the Borrower, and (vi) the aggregate
amount of distributions actually made in respect of such fiscal year by
the Borrower to the extent permitted by the proviso to Section 10.8.
"Existing Financing Documents": all credit agreements, indentures,
notes, guarantees and other financing documents evidencing or governing the
Indebtedness listed on Schedule 10.2A.
"Family Group": with respect to any Person, such Person's spouse,
descendants and ancestors (in each case whether natural or adopted), a
spouse of any such descendant or ancestor and a trustee of any trust
established primarily for the benefit of any one or more of the foregoing.
"Federal Funds Effective Rate": for any day, the weighted average of
the rates on overnight federal funds transactions with members of the
Federal Reserve System arranged by federal funds brokers, as published on
the next succeeding Business Day by the Federal Reserve Bank of New York,
or, if such rate is not so published for any day which is a Business Day,
the average of the quotations for the day of such transactions received by
the Agent from three federal funds brokers of recognized standing selected
by it.
"Fee Letter": that certain Fee Letter, dated September 25, 1997,
between CIBC and the Borrower, as amended, supplemented or otherwise
modified from time to time.
"Financing Lease": any lease of property, real or personal, the
obligations of the lessee in respect of which are required in accordance
with GAAP to be capitalized on a balance sheet of the lessee.
"GAAP": generally accepted accounting principles in the United States
of America in effect from time to time.
"Gould": Lawrence Gould, an individual residing at 551 Monroe Avenue,
Glencoe, Illinois 60022.
"Governing Documents": as to any Person, its articles or certificate
of incorporation and by-laws, its partnership agreement, its certificate of
information and operating agreement, and/or the other organizational or
governing documents of such Person.
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"Governmental Authority": any nation or government, any state or other
political subdivision thereof and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or
pertaining to government.
"Guarantee Obligation": as to any Person (the "guaranteeing person"),
any obligation of (a) the guaranteeing person or (b) another Person
(including, without limitation, any bank under any letter of credit) to
induce the creation of which the guaranteeing person has issued a
reimbursement, counterindemnity or similar obligation, in either case
guaranteeing or in effect guaranteeing any Indebtedness, leases, dividends
or other obligations (the "primary obligations") of any other third Person
(the "primary obligor") in any manner, whether directly or indirectly,
including, without limitation, any obligation of the guaranteeing person,
whether or not contingent, (i) to purchase any such primary obligation or
any property constituting direct or indirect security therefor, (ii) to
advance or supply funds (1) for the purchase or payment of any such primary
obligation or (2) to maintain working capital or equity capital of the
primary obligor or otherwise to maintain the net worth or solvency of the
primary obligor, (iii) to purchase property, securities or services
primarily for the purpose of assuring the owner of any such primary
obligation of the ability of the primary obligor to make payment of such
primary obligation or (iv) otherwise to assure or hold harmless the owner
of any such primary obligation against loss in respect thereof; provided,
however, that the term Guarantee Obligation shall not include endorsements
of instruments or similar items of payment for deposit or collection in the
ordinary course of business. The terms "Guarantee" and "Guaranteed" used as
a verb shall have a correlative meaning. The amount of any Guarantee
Obligation of any guaranteeing person shall be deemed to be the lower of
(a) an amount equal to the stated or determinable amount of the primary
obligation in respect of which such Guarantee Obligation is made and (b)
the maximum amount for which such guaranteeing person may be liable
pursuant to the terms of the instrument embodying such Guarantee
Obligation, unless such primary obligation and the maximum amount for which
such guaranteeing person may be liable are not stated or determinable, in
which case the amount of such Guarantee Obligation shall be such
guaranteeing person's maximum reasonably anticipated liability in respect
thereof as determined by the Borrower in good faith.
"Guarantor": any Person delivering a Bridge Guarantee or the
Subsidiaries Guarantee (or which becomes party to the Subsidiaries
Guarantee by supplement thereto) pursuant to this Agreement.
"Incentive Plan": as defined in Section 8.1(d)(iv).
"Incremental Taxable Income": with respect to any period, an amount
equal to the excess of (a) the aggregate amount of taxable income (and
gain) of the Borrower for such period and for all prior taxable years over
(b) the sum of (i) the aggregate amount of ordinary taxable loss of the
Borrower for such periods and taxable years plus (ii) the aggregate amount
of capital loss of the Borrower for such periods and taxable years,
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taking into account any capital loss only to the extent of capital gains
recognized in or after the taxable year of the capital loss (and only to
the extent any capital gain was not used to allow any other capital loss to
be taken into account), plus (iii) the aggregate positive Incremental
Taxable Income for all such prior periods and taxable years in which
Incremental Taxable Income was positive.
"Indebtedness": of any Person at any date, without duplication, (a)
all indebtedness of such Person for borrowed money (whether by loan or the
issuance and sale of debt securities) or for the deferred purchase price of
property or services (other than current trade liabilities incurred in the
ordinary course of business and payable in accordance with customary
practices), (b) any other indebtedness of such Person which is evidenced by
a note, bond, debenture or similar instrument, (c) all obligations of such
Person under Financing Leases, (d) all obligations of such Person in
respect of letters of credit, acceptances or similar instruments issued or
created for the account of such Person and (e) all liabilities secured by
any Lien on any property owned by such Person even though such Person has
not assumed or otherwise become liable for the payment thereof.
"Insolvency": with respect to any Multiemployer Plan, the condition
that such Plan is insolvent within the meaning of Section 4245 of ERISA.
"Insolvent": pertaining to a condition of Insolvency.
"Interest Payment Date": (a) as to any Base Rate Loan, the last day of
each March, June, September and December, (b) as to any Eurodollar Loan
having an Interest Period of three months or less, the last day of such
Interest Period, and (c) as to any Eurodollar Loan having an Interest
Period longer than three months, (i) each day which is three months, or a
whole multiple thereof, after the first day of such Interest Period, and
(ii) the last day of such Interest Period.
"Interest Period": with respect to any Eurodollar Loan:
(i) initially, the period commencing on the borrowing or
Conversion date, as the case may be, with respect to such Eurodollar
Loan and ending one, two, three or six months thereafter, as selected
by the Borrower in its notice of borrowing or notice of Conversion, as
the case may be, given with respect thereto; and
(ii) thereafter, each period commencing on the last day of the
next preceding Interest Period applicable to such Eurodollar Loan and
ending one, two, three or six months thereafter, as selected by the
Borrower by irrevocable notice to the Agent not less than three
Business Days prior to the last day of the then current Interest
Period with respect thereto;
provided that, all of the foregoing provisions relating to Interest Periods
are subject to the following:
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(1) if any Interest Period pertaining to a Eurodollar Loan would
otherwise end on a day that is not a Business Day, such Interest
Period shall be extended to the next succeeding Business Day unless
the result of such extension would be to carry such Interest Period
into another calendar month in which event such Interest Period shall
end on the immediately preceding Business Day;
(2) any Interest Period that would otherwise extend beyond the
Termination Date or beyond the date final payment is due on the Term
Loans shall end on the Termination Date or such date of final payment,
as the case may be;
(3) any Interest Period pertaining to a Eurodollar Loan that
begins on the last Business Day of a calendar month (or on a day for
which there is no numerically corresponding day in the calendar month
at the end of such Interest Period) shall end on the last Business Day
of a calendar month; and
(4) during the period commencing on the Closing Date and ending
30 days following the Closing Date, the Borrower may only select
Interest Periods having a duration of one month.
"Issuing Bank": CIBC, in its capacity as issuer of any Letter of
Credit.
"Landlord Agreement": each Landlord Agreement executed and delivered
by the lessee of premises leased by the Borrower or any other Loan Party,
in a form heretofore approved by the Agent or such other form as the Agent
may approve, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the terms hereof.
"L/C Commitment": $9,000,000.
"L/C Fee Payment Date": the last day of each March, and June,
September and December.
"L/C Obligations": at any time, an amount equal to the sum of (a) the
aggregate then undrawn and unexpired amount of the then outstanding Letters
of Credit and (b) the aggregate amount of drawings under Letters of Credit
which have not then been reimbursed pursuant to Section 5.5(a).
"L/C Participants": the collective reference to all the Lenders other
than the Issuing Bank.
"Letters of Credit": as defined in Section 5.1(a).
"Lien": any mortgage, pledge, hypothecation, assignment, deposit
arrangement, encumbrance, lien (statutory or other), charge or other
security interest or
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any preference, priority or other security agreement or preferential
arrangement of any kind or nature whatsoever (including, without
limitation, any conditional sale or other title retention agreement and any
Financing Lease having substantially the same economic effect as any of the
foregoing), and the filing of any financing statement under the Uniform
Commercial Code or comparable law of any jurisdiction in respect of any of
the foregoing.
"Loan": any loan made by any Lender pursuant to this Agreement.
"Loan Documents": this Agreement, the Notes, the Applications, the
Subsidiaries Guarantee and the Security Documents.
"Loan Parties": the Borrower and each Subsidiary of the Borrower which
is a party to a Loan Document.
"Material Adverse Effect": a material adverse effect on (a) the
business, operations, property, condition (financial or otherwise) or
prospects of the Borrower and its Subsidiaries taken as a whole or (b) the
validity or enforceability of this or any of the other Loan Documents or
the rights or remedies of the Agent or the Lenders hereunder or thereunder.
"Material Environmental Amount": an amount payable by the Borrower
and/or its Subsidiaries in excess of $500,000 for remedial costs,
compliance costs, compensatory damages, punitive damages, fines, penalties
or any combination thereof.
"Materials of Environmental Concern": any gasoline or petroleum
(including crude oil or any fraction thereof) or petroleum products or any
hazardous or toxic substances, materials or wastes, defined or regulated as
such in or under any Environmental Law, including, without limitation,
asbestos, polychlorinated biphenyls and urea-formaldehyde insulation.
"Multiemplover Plan": a Plan which is a multiemployer plan as defined
in Section 4001(a)(3) of ERISA.
"Net Proceeds": (i) the aggregate cash consideration received by the
Borrower or a Subsidiary in connection with any transaction referred to in
Section 6.5(e) less (ii) the expenses (including out-of-pocket expenses)
incurred by the Borrower or such Subsidiary in connection with such
transaction (including, in the case of any issuance of debt or equity
securities, underwriters' commissions and fees) less (iii) the amount of
any federal and state taxes incurred in connection with such transaction,
in each case as certified by a Responsible Officer to the Agent at the time
of such transaction less (iv) in the case of any sale of assets, the
outstanding principal amount of any Indebtedness (other than the Secured
Obligations (as defined in the Borrower Security Agreement and the
Subsidiaries Security Agreement)) secured thereby.
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"New Cohen's": Cohen's Kosher Food, L.L.C., a Delaware limited
liability company.
"Non-Bank Status Certificate": as defined in Section 6.11(b)(i)(B).
"Non-Excluded Taxes": as defined in Section 6.11.
"Notes": the collective reference to the Revolving Credit Notes, the
Bridge Notes and the Term Notes.
"Obligations": the unpaid principal amount of, and interest
(including, without limitation, interest accruing after the maturity of the
Loans and interest accruing after the filing of any petition in bankruptcy,
or the commencement of any insolvency, reorganization or like proceeding,
relating to the Borrower, whether or not a claim for post-filing or post-
petition interest is allowed in such proceeding) on the Loans, and all
other obligations and liabilities of the Loan Parties to the Agent and the
Lenders, whether direct or indirect, absolute or contingent, due or to
become due, or now existing or hereafter incurred, which may arise under,
or out of or in connection with this Agreement, the Notes, the Bridge
Guarantee, the Subsidiaries Guarantee, the Security Documents and any other
Loan Documents and any other document made, delivered or given in
connection therewith or herewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses
(including, without limitation, all fees and disbursements of counsel to
the Agent or to the Lenders that are required to be paid by a Loan Party
pursuant to the terms of the Loan Documents) or otherwise.
"Old Cohen's": as defined in the Recitals hereto.
"Participant": as defined in Section 13.6(b).
"Patent Assignments": the collective reference to the Borrower Patent
Assignment, and the Subsidiaries Patent Assignment.
"PBGC": the Pension Benefit Guaranty Corporation established pursuant
to Subtitle A of Title IV of ERISA.
"Permitted Junior Takeout Securities": subordinated indebtedness of
the Borrower to be issued not later than December 31, 1997 in an aggregate
principal amount at least sufficient to refinance the Bridge Loans then
outstanding, having the terms set forth on Schedule 1.1 and such other
terms and conditions as may be acceptable to the Agent and the Required
Lenders, and the net proceeds of which shall be applied to the payment of
the Bridge Loans and the other Obligations in accordance with the terms of
Section 6.5(c), as such subordinated indebtedness may be amended,
supplemented or otherwise modified from time to time in accordance with the
terms of Section 10.11.
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"Person": an individual, partnership, corporation, limited liability
company, business trust, joint stock company, trust, unincorporated
association, joint venture, Governmental Authority or other entity of
whatever nature.
"Plan": at a particular time, any employee benefit plan which is
covered by ERISA and in respect of which the Borrower or a Commonly
Controlled Entity is (or, if such plan were terminated at such time, would
under Section 4069 of ERISA be deemed to be) an "employer" as defined in
Section 3(5) of ERISA.
"Pro Forma Balance Sheet": as defined in Section 7.1(c).
"Properties": as defined in Section 7.23(a).
"Register": as defined in Section 13.6(d).
"Regulation G": Regulation G of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Regulation U": Regulation U of the Board of Governors of the Federal
Reserve System as in effect from time to time.
"Reimbursement Obligation": the obligation of the Borrower to
reimburse the Issuing Bank pursuant to Section 5.5(a) for amounts drawn
under Letters of Credit.
"Related Fund": with respect to any Lender that is a fund that invests
in bank loans, any other fund that invests in bank loans and is managed by
the same investment advisor as such Lender or by an Affiliate of such
investment advisor.
"Reorganization": with respect to any Multiemployer Plan, the
condition that such plan is in reorganization within the meaning of Section
4241 of ERISA.
"Reportable Event": any of the events set forth in Section 4043(b) of
ERISA, other than those events as to which the thirty day notice period is
waived under Sections .13, .14, .16, .18. .19 or .20 of PBGC Reg. (S) 4043.
"Required Lenders": at any time, Lenders the Credit Exposure
Percentages of which aggregate at least 51%.
"Requirement of Law": as to any Person, the certificate of
incorporation and by-laws or other organizational or Governing Documents of
such Person. and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case
applicable to or binding upon such Person or any of its property or to which
such Person or any of its property is subject.
"Responsible Officer": the chief executive officer, the chief
operating officer and the president of the Borrower or, with respect to
financial matters, the chief financial officer of the Borrower.
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eurocurrency funding (currently referred to as "Eurocurrency Liabilities"
in Regulation D of such Board) maintained by a member bank of such System.
"Eurodollar Base Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, (a) the rate per annum (rounded
upwards, if necessary, to the nearest 1/100 of 1%) appearing on Telerate
Page 375O (or any successor page) as the London interbank offered rate for
deposits in Dollars at approximately 11:00 a.m. (London time) two Business
Days prior to the first day of such Interest Period for a term comparable
to such Interest Period, or (b) if for any reason such rate is not
available, the rate per annum equal to the rate at which CIBC is offered
Dollar deposits at or about 10:00 A.M., New York City time, two Business
Days prior to the beginning of such Interest Period in the interbank
eurodollar market where the eurodollar and foreign currency and exchange
operations in respect of its Eurodollar Loans are then being conducted for
delivery on the first day of such Interest Period for the number of days
comprised therein and in an amount comparable to the amount of its
Eurodollar Loan to be outstanding during such Interest Period.
"Eurodollar Loans": Loans the rate of interest applicable to which is
based upon the Eurodollar Rate.
"Eurodollar Rate": with respect to each day during each Interest
Period pertaining to a Eurodollar Loan, a rate per annum determined for
such day in accordance with the following formula (rounded upward to the
nearest 1/l00th of 1%):
Eurodollar Base Rate
----------------------------
1.00 - Eurocurrency Reserve Requirements
"Event of Default": any of the events specified in Section 8; provided
that any requirement for the giving of notice, the lapse of time, or both,
or any other condition, has been satisfied.
"Excess Cash Flow": as to the Borrower for each fiscal year:
(a) Consolidated EBITDA of the Borrower for such fiscal year;
plus (b) the decrease (if any) in the amount of the excess of
Consolidated Current Assets (excluding cash and cash equivalents) over
Consolidated Current Liabilities at the end of such fiscal year compared to
the amount of the excess of Consolidated Current Assets (excluding cash and
cash equivalents) over Consolidated Current Liabilities at the end of the
immediately preceding fiscal year of the Borrower;
minus (c) the sum of (i) the amount of all regularly scheduled
payments of principal of the Term Loan actually made during such fiscal
year and the amount of any voluntary prepayment of principal of the Term
Loan made during such fiscal year, (ii) the amount of all interest payments
actually made in cash during such fiscal year by the Borrower and its
consolidated Subsidiaries, (iii) Consolidated Lease Expense of the
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"Revolving Credit Commitment": as to any Lender, the obligation of
such Lender to make Revolving Credit Loans to and for issue or participate
in Letters of Credit issued on behalf of the Borrower pursuant to Section
4.1 in an aggregate principal and/or face amount at any one time
outstanding not to exceed the amount set forth opposite such Lender's name
on Schedule 1.0 under the caption "Revolving Credit Loan" or in an
Assignment and Acceptance, as such amount may be reduced from time to time
in accordance with the provisions of this Agreement.
"Revolving Credit Commitment Percentage": as to any Lender at any
time, the percentage which such Lender's Revolving Credit Commitment then
constitutes of the aggregate Revolving Credit Commitments (or, at any time
after the Revolving Credit Commitments shall have expired or terminated,
the percentage which the aggregate principal amount of such Lender's
Revolving Credit Loans then outstanding constitutes of the aggregate
principal amount of the Revolving Credit Loans then outstanding).
"Revolving Credit Commitment Period": the period from and including
the date hereof to but not including the Termination Date or such earlier
date on which the Revolving Credit Commitments shall terminate as provided
herein.
"Revolving Credit Loans": as defined in Section 4.1.
"Revolving Credit Note": as defined in Section 4.2.
"Roll-Up Documents": the documents set forth on Schedule 1.2.
"Roll-Up Transactions": the transactions described in and/or effected
by the Roll-Up Documents.
"Security Agreements": the collective reference to the Borrower
Security Agreement and the Subsidiaries Security Agreement.
"Security Documents": the collective reference to the Assignments of
Life Insurance, the Borrower Pledge Agreement, the Patent Assignments, the
Security Agreements, the Trademark Assignments and all other security
documents hereafter delivered to the Agent granting a Lien on any asset or
assets of any Person to secure any of the Obligations or to secure any
guarantee of any such Obligations.
"Single Employer Plan": any Plan which is covered by Title IV of
ERISA, but which is not a Multiemployer Plan.
"Standby Letter of Credit": as defined in Section 5.1(b)(1)(A).
"Subsidiaries Guarantee": the Guarantee to be executed and delivered
by each Subsidiary of the Borrower, substantially in the form of Exhibit F,
as the same may be amended, supplemented or otherwise modified from time to
time.
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"Subsidiaries Patent Assignment": the Patent Assignment to be executed
and delivered by each Subsidiary, substantially in the form of Annex A to
the Subsidiaries Security Agreement, as the same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiaries Security Agreement": the Security Agreement to be
executed and delivered by each Subsidiary in favor of the Agent,
substantially in the form of Exhibit G, as the same may be amended,
supplemented or otherwise modified from time to time.
"Subsidiaries Security Documents": the collective reference to the
Subsidiaries Patent Assignment, the Subsidiaries Security Agreement, and
the Subsidiaries Trademark Assignment.
"Subsidiaries Trademark Assignment": each Memorandum of Security
Interests in Trademarks to be executed and delivered by each Subsidiary,
substantially in the form of Annex B to the Subsidiaries Security
Agreement, as the same may be amended, supplemented or otherwise modified
from time to time.
"Subsidiary": as to any Person, a corporation, partnership, limited
liability company or other entity of which shares of stock, membership
interests, or other ownership interests having ordinary voting power (other
than stock, membership interests, or such other ownership interests having
such power only by reason of the happening of a contingency) to elect a
majority of the board of directors or other managers of such corporation.
partnership, limited liability company or other entity are at the time
owned, or the management of which is otherwise controlled, directly or
indirectly through one or more intermediaries, or both, by such Person.
Unless otherwise qualified. all references to a "Subsidiary" or to
"Subsidiaries" in this Agreement shall refer to a Subsidiary or
Subsidiaries of the Borrower.
"Subsidiary Guarantor": any Subsidiary party to the Subsidiaries
Guarantee as a guarantor.
"Termination Date": March 31, 2004.
"Term Loan": as defined in Section 2.1.
"Term Loan Commitment": as to any Lender, its obligation to make a
Term Loan to the Borrower pursuant to Section 2.1 in the amount set forth
opposite such Lender's name on Schedule 1.0 under the caption "Term Loan".
"Term Loan Commitment Percentage": as to any Lender, the percentage
equal to the quotient of such Lender's Term Loan Commitment divided by the
aggregate Term Loan Commitments.
"Term Note": as defined in Section 2.2.
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"Trademark Assignments": the collective reference to the Borrower
Trademark Assignment and the Subsidiaries Trademark Assignment.
"Tranche": the collective reference to Eurodollar Loans the then
current Interest Periods with respect to all of which begin on the same
date and end on the same later date (whether or not such Loans shall
originally have been made on the same day).
"Transferee": as defined in Section 13.6(f).
"Type": as to any Loan, its nature as a Base Rate Loan or a Eurodollar
Loan.
"Uniform Customs": the Uniform Customs and Practice for Documentary
Credits (1993 Revision), International Chamber of Commerce Publication No.
500, as the same may be amended from time to time.
"Warehouse Bailment Agreement": each Warehouse Bailment Agreement to
be made among the Agent, the Borrower and each Person holding any inventory
of any Loan Party in a warehouse operated by such Person, in such form as
has been heretofore approved by the Agent or such other form as the Agent
may approve, as the same may be amended, supplemented or otherwise modified
from time to time in accordance herewith.
"Warrant Agreement": the Warrant Agreement, to be entered into between
the Borrower and CIBC, as the same may be amended, supplemented or
otherwise modified from time to time.
"Warrants": the warrants for the purchase of membership interests in
the Borrower referenced in the Warrant Agreement.
"Zahn": Andrew Zahn, an individual residing at 45 Lacaweed Place,
Highland Park, Illinois 60035.
1.2 Other Definitional Provisions. (a) Unless otherwise specified
therein, all terms defined in this Agreement shall have the defined meanings
when used in any Notes or any certificate or other document made or delivered
pursuant hereto.
(b) As used herein and in any Notes, and any certificate or other
document made or delivered pursuant hereto, accounting terms relating to the
Borrower and its Subsidiaries not defined in Section 1.1 and accounting terms
partly defined in Section 1.1, to the extent not defined, shall have the
respective meanings given to them under GAAP.
(c) The words "hereof", "herein" and "hereunder" and words of similar
import when used in this Agreement shall refer to this Agreement as a whole and
not to any particular provision of this Agreement, and Section, Schedule and
Exhibit references are to this Agreement unless otherwise specified.
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(d) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
SECTION 2. AMOUNT AND TERMS OF TERM LOAN COMMITMENTS
2.1 Term Loan Commitments. Subject to the terms and conditions hereof,
each Lender severally agrees to make a term loan (a "Term Loan") to the Borrower
on the Closing Date in an amount not to exceed the amount of the Term Loan
Commitment of such Lender then in effect; provided, that the Term Loan
Commitments shall terminate at 3:00 p.m., New York City time, on October 22,
1997 if the Term Loans have not been made prior to that time. The Term Loans may
from time to time be (a) Eurodollar Loans, (b) Base Rate Loans or (c) a
combination thereof, as determined by the Borrower and notified to the Agent in
accordance with Sections 2.3 and 6.2.
2.2 Term Notes. The Term Loan of each Lender shall be evidenced by a
promissory note of the Borrower, substantially in the form of Exhibit A-1 with
appropriate insertions as to payee, date and principal amount (a "Term Note"),
payable to the order of such Lender and representing the obligation of the
Borrower to pay the amount of the Term Loan made by such Lender. Each Lender is
hereby authorized to record the date, Type and amount of its Term Loan and the
date and amount of each payment or prepayment of principal thereof and each
Conversion of all or a portion thereof to another Type and, and in the case of
Eurodollar Loans, the Interest Period with respect thereto, on the schedule
annexed to and constituting a part of its Term Note, and any such recordation
shall constitute prima facie evidence of the accuracy of the information so
recorded; provided, that the failure of such Lender to make any such recordation
shall not impair or otherwise affect the validity or enforceability of its Term
Note. Each Term Note shall (a) be dated the Closing Date, (b) be stated to
mature in installments in amounts equal to such Lender's Term Loan Commitment
Percentage of the amounts, and payable on the dates, set forth on Schedule 2.2,
and (c) bear interest for the period from the date thereof on the unpaid
principal amount thereof at the applicable interest rates per annum specified in
Section 6.1. Interest on the Term Notes shall be payable on the dates specified
in Section 6.1(d).
2.3 Procedure for Term Loan Borrowing. The Borrower shall give the
Agent irrevocable notice (which notice must be received by the Agent prior to
10:00 a.m., New York City time, (a) three Business Days prior to the Closing
Date, if all or any part of the Term Loans are to be initially Eurodollar Loans,
or (b) one Business Day prior to the Closing Date, otherwise) requesting that
the Lenders make the Term Loans on the Closing Date and specifying (i) the
Closing Date, (ii) the amount to be borrowed, (iii) whether the Term Loans are
to be initially Eurodollar Loans, Base Rate Loans or a combination thereof and
(iv) if the Term Loans are to be entirely or partly Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Periods therefor. Upon receipt of such notice the Agent shall
promptly notify each Lender thereof. Not later than 11:00 a.m. on the Closing
Date each Lender shall make available to the Agent at its office specified in
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Section 13.2 the amount of such Lender's pro rata share of such borrowing in
immediately available funds. The Agent shall on such date credit the account of
the Borrower on the books of such office of the Agent with the aggregate of the
amounts made available to the Agent by the Lenders and in like funds as received
by the Agent.
SECTION 3. AMOUNT AND TERMS OF BRIDGE LOAN COMMITMENTS
3.1 Bridge Loan Commitments. Subject to the terms and conditions
hereof, each Lender severally agrees to make a term loan (a "Bridge Loan") to
the Borrower on the Closing Date in an amount not to exceed the amount of the
Bridge Loan Commitment of such Lender then in effect; provided, that the Bridge
Loan Commitments shall terminate at 3:00 p.m., New York City time, on October
22, 1997, if the Bridge Loans have not been made prior to that time. The Bridge
Loans may from time to time be (a) Eurodollar Loans, (b) Base Rate Loans or (c)
a combination thereof, as determined by the Borrower and notified to the Agent
in accordance with Sections 2.3 and 6.2.
3.2 Bridge Loan Notes. The Bridge Loan of each Lender shall be
evidenced by a promissory note of the Borrower, substantially in the form of
Exhibit A-2 with appropriate insertions as to payee, date and principal amount
(a "Bridge Loan Note"), payable to the order of such Lender and representing the
obligation of the Borrower to pay the amount of the Bridge Loan made by such
Lender. Each Lender is hereby authorized to record the date, Type and amount of
its Bridge Loan and the date and amount of each payment or prepayment of
principal thereof and each Conversion of all or a portion thereof to another
Type and, and in the case of Eurodollar Loans, the Interest Period with respect
thereto, on the schedule annexed to and constituting a part of its Bridge Loan
Note, and any such recordation shall constitute prima facie evidence of the
accuracy of the information so recorded; provided, that the failure of such
Lender to make any such recordation shall not impair or otherwise affect the
validity or enforceability of its Bridge Loan Note. Each Bridge Loan Note shall
(a) be dated the Closing Date, (b) be stated to mature in a single installment
on December 31, 1997, and (c) bear interest for the period from the date thereof
on the unpaid principal amount thereof at the applicable interest rates per
annum specified in Section 6.1. Interest on the Bridge Loan Notes shall be
payable on the dates specified in Section 6.1(d).
3.3 Procedure for Bridge Loan Borrowing. The Borrower shall give the
Agent irrevocable notice (which notice must be received by the Agent prior to
10:00 a.m., New York City time, (a) three Business Days prior to the Closing
Date, if all or any part of the Bridge Loans are to be initially Eurodollar
Loans, or (b) one Business Day prior to the Closing Date, otherwise) requesting
that the Lenders make the Bridge Loans on the Closing Date and specifying (i)
the Closing Date, (ii) the amount to be borrowed, (iii) whether the Bridge Loans
are to be initially Eurodollar Loans, Base Rate Loans or a combination thereof,
and (iv) if the Bridge Loans are to be entirely or partly Eurodollar Loans, the
respective amounts of each such Type of Loan and the respective lengths of the
initial Interest Periods therefor. Upon receipt of such notice the Agent shall
promptly notify each Lender thereof. Not later than
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11:00 a.m. on the Closing Date each Lender shall make available to the Agent at
its office specified in Section 13.2 the amount of such Lender's pro rata share
of such borrowing in immediately available funds. The Agent shall on such date
credit the account of the Borrower on the books of such office of the Agent
with the aggregate of the amounts made available to the Agent by the Lenders and
in like funds as received by the Agent.
SECTION 4. AMOUNT AND TERMS OF REVOLVING CREDIT COMMITMENTS
4.1 Revolving Credit Commitments. (a) Subject to the terms and
conditions hereof, each Lender severally agrees to make revolving credit loans
("Revolving Credit Loans") to the Borrower from time to time during the
Revolving Credit Commitment Period in an aggregate principal amount at any one
time outstanding which, when added to such Lender's Revolving Credit Commitment
Percentage of the outstanding L/C Obligations, does not exceed the lesser of (i)
the amount of such Lender's Revolving Credit Commitment then in effect and (ii)
such Lender's Revolving Credit Commitment Percentage of the Borrowing Base then
in effect; provided, that the Revolving Credit Commitments shall terminate at
3:00 p.m., New York City time, on October 22, 1997 if the Term Loans have not
been made prior to that time. During the Revolving Credit Commitment Period the
Borrower may use the Revolving Credit Commitments by borrowing, prepaying the
Revolving Credit Loans in whole or in part, and reborrowing, all in accordance
with the terms and conditions hereof.
(b) The Revolving Credit Loans may from time to time be (i) Eurodollar
Loans, (ii) Base Rate Loans, or (iii) a combination thereof, as determined by
the Borrower and notified to the Agent in accordance with Sections 4.3 and 6.2,
provided that no Revolving Credit Loan shall be made as a Eurodollar Loan after
the day that is one month prior to the Termination Date.
4.2 Revolving Credit Notes. The Revolving Credit Loans made by each
Lender shall be evidenced by a promissory note of the Borrower, substantially in
the form of Exhibit A-3 with appropriate insertions as to payee, date and
principal amount (a "Revolving Credit Note"), payable to the order of such
Lender and evidencing the obligation of the Borrower to pay a principal amount
equal to the lesser of (a) the amount of the Revolving Credit Commitment of such
Lender and (b) the aggregate unpaid principal amount of all Revolving Credit
Loans made by such Lender. Each Lender is hereby authorized to record the date,
type and amount of each Revolving Credit Loan made or Converted by such Lender,
the date and amount of each payment or prepayment of principal thereof, and, in
the case of Eurodollar Loans, the Interest Period with respect thereto, on the
schedule annexed to and constituting a part of its Revolving Credit Note, and
any such recordation shall constitute prima facie evidence of the accuracy of
the information so recorded. Each Revolving Credit Note shall (x) be dated the
Closing Date, (y) be stated to mature on the Termination Date and (z) bear
interest on the unpaid principal amount thereof from time to time outstanding at
the applicable interest rate per annum determined as provided in Section 6.1.
Interest on each Revolving Credit Note shall be payable on the dates specified
in Section 6.1(d).
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4.3 Procedure for Revolving Credit Borrowing. The Borrower may borrow
under the Revolving Credit Commitments during the Revolving Credit Commitment
Period on any Business Day in an aggregate principal amount not exceeding the
lesser of (A) the aggregate Available RC Commitments then in effect and (B) the
Borrowing Base then in effect, provided that the Borrower shall give the Agent
irrevocable notice (which notice must be received by the Agent prior to 10:00
a.m., New York City time, (a) three Business Days prior to the requested
Borrowing Date, if all or any part of the requested Revolving Credit Loans are
to be initially Eurodollar Loans, or (b) one Business Day prior to the requested
Borrowing Date, otherwise), specifying (i) the amount to be borrowed, (ii) the
requested Borrowing Date, (iii) whether the borrowing is to be of Eurodollar
Loans, Base Rate Loans or a combination thereof and (iv) if the borrowing is to
be entirely or partly of Eurodollar Loans, the respective amounts of each such
Type of Loan and the respective lengths of the initial Interest Periods
therefor. Each borrowing under the Revolving Credit Commitments shall be in an
amount equal to (x) in the case of Base Rate Loans, $100,000 or a whole multiple
thereof (or, if the then Available RC Commitments are less than $100,000, such
lesser amount) and (y) in the case of Eurodollar Loans, $500,000 or a whole
multiple of $100,000 in excess thereof. Upon receipt of any such notice from the
Borrower, the Agent shall promptly notify each Lender thereof. Each Lender will
make the amount of its pro rata share of each borrowing available to the Agent
for the account of the Borrower at the office of the Agent specified in Section
13.2 prior to 11:00 a.m., New York City time, on the Borrowing Date requested by
the Borrower in funds immediately available to the Agent. Such borrowing will
then be made available to the Borrower by the Agent crediting the account of the
Borrower on the books of such office with the aggregate of the amounts made
available to the Agent by the Lenders and in like funds as received by the
Agent.
4.4 Commitment Fee. The Borrower agrees to pay to the Agent for the
account of each Lender a commitment fee for the period from and including the
first day of the Revolving Credit Commitment Period to the Termination Date,
computed at the rate of 1/2 of 1% per annum on the average daily amount of the
Available RC Commitment of such Lender during the period for which payment is
made, payable quarterly in arrears on the last day of each March, June,
September and December and on the Termination Date or such earlier date as the
Revolving Credit Commitments shall terminate as provided herein, commencing on
the first of such dates to occur after the date hereof.
4.5 Termination or Reduction of Revolving Credit Commitments. The
Borrower shall have the right, upon not less than five Business Days' notice to
the Agent, to terminate the Revolving Credit Commitments or, from time to time,
to reduce the amount of the Revolving Credit Commitments provided that no such
termination or reduction shall be permitted if, after giving effect thereto and
to any prepayments of the Revolving Credit Loans made on the effective date
thereof, the aggregate principal amount of the Revolving Credit Loans then
outstanding. when added to the then outstanding L/C Obligations, would exceed
the Revolving Credit Commitments then in effect. Any such reduction shall be in
an amount equal to $100,000 or a whole multiple thereof and shall reduce
permanently the Revolving Credit Commitments then in effect.
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SECTION 5. LETTERS OF CREDIT
5.1 L/C Commitment
(a) Subject to the terms and conditions hereof, the Issuing Bank, in
reliance on the agreements of the other Lenders set forth in Section 5.4(a),
agrees to issue letters of credit ("Letters of Credit") for the account of the
Borrower on any Business Day during the Revolving Credit Commitment Period in
such form as may be approved from time to time by the Issuing Bank; provided
that the Issuing Bank shall have no obligation to issue any Letter of Credit if,
after giving effect to such issuance, (1) the L/C Obligations would exceed the
L/C Commitment or (2) the Available Revolving Credit Commitment would be less
than zero.
(b) Each Letter of Credit shall:
(1) be denominated in Dollars and shall be either (A) a standby
letter of credit issued to support obligations of the Borrower, contingent or
otherwise, to workman's compensation board or similar Governmental Authority for
workman's compensation liabilities of the Borrower, to replace the Borrower's
existing letter of credit arrangement with a co-packer and for such other
purposes as may be approved by the Issuing Lender and the Agent (a "Standby
Letter of Credit"), or (B) a commercial letter of credit issued in respect of
the purchase of goods or services by the Borrower and its Subsidiaries in the
ordinary course of business (a "Commercial Letter of Credit") and
(2) expire no later than the Termination Date.
(c) Each Letter of Credit shall be subject to the Uniform Customs and,
to the extent not inconsistent therewith, the laws of the State of New York.
(d) The Issuing Bank shall not at any time be obligated to issue any
Letter of Credit hereunder if such issuance would conflict with, or cause the
Issuing Bank or any L/C Participant to exceed any limits imposed by, any
applicable Requirement of Law.
5.2 Procedure for Issuance of Letters of Credit.
The Borrower may from time to time request that the Issuing Bank issue
a Letter of Credit by delivering to the Issuing Bank at its address for notices
specified herein an Application therefor, completed to the satisfaction of the
Issuing Bank, and such other certificates, documents and other papers and
information as the Issuing Bank may request. Upon receipt of any Application,
the Issuing Bank will process such Application and the certificates, documents
and other papers and information delivered to it in connection therewith in
accordance with its customary procedures and shall promptly issue the Letter of
Credit requested thereby (but in no event shall the Issuing Bank be required to
issue any Letter of Credit earlier than [three] Business Days after its receipt
of the Application therefor and all such other certificates, documents and other
papers and information relating thereto) by issuing the original of such Letter
of Credit to the beneficiary thereof or as otherwise may be agreed
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by the Issuing Bank and the Borrower. The Issuing Bank shall furnish a copy of
such Letter of Credit to the Borrower promptly following the issuance thereof.
5.3 Fees, Commissions and Other Charges.
(a) The Borrower shall pay to the Agent, for the account of the
Issuing Bank and the L/C Participants, a letter of credit commission with
respect to each Letter of Credit, computed for the period from the date of such
payment to the date upon which the next such payment is due hereunder at the
rate of 3.00% per annum, calculated on the basis of a 360 day year, of the
aggregate amount available to be drawn under such Letter of Credit on the date
on which such fee is calculated. 0.25% of such fee shall be payable to the
Issuing Bank, and the remaining 2.75% of such fee shall be payable to the L/C
Participants to be shared ratably among them in accordance with their respective
Commitment Percentages. Such commissions shall be payable in advance on the date
of issuance of each Letter of Credit and on each L/C Fee Payment Date to occur
thereafter and shall be nonrefundable.
(b) In addition to the foregoing fees and commissions, the Borrower
shall pay or reimburse the Issuing Bank for such normal and customary costs and
expenses as are incurred or charged by the Issuing Bank in issuing, effecting
payment under, amending or otherwise administering any Letter of Credit.
(c) The Agent shall, promptly following its receipt thereof,
distribute to the Issuing Bank and the L/C Participants all fees and commissions
received by the Agent for their respective accounts pursuant to this subsection.
5.4 L/C Participations.
(a) The Issuing Bank irrevocably agrees to grant and hereby grants to
each L/C Participant, and, to induce the Issuing Bank to issue Letters of Credit
hereunder, each L/C Participant irrevocably agrees to accept and purchase and
hereby accepts and purchases from the Issuing Bank, on the terms and conditions
hereinafter stated, for such L/C Participant's own account and risk, an
undivided interest equal to such L/C Participant's Revolving Credit Commitment
Percentage in the Issuing Bank's obligations and rights under each Letter of
Credit issued hereunder and the amount of each draft paid by the Issuing Bank
thereunder. Each L/C Participant unconditionally and irrevocably agrees with the
Issuing Bank that, if a draft is paid under any Letter of Credit for which the
Issuing Bank is not reimbursed in full by the Borrower in accordance with the
teens of this Agreement, such L/C Participant shall pay to the Issuing Bank upon
demand at the Issuing Bank's address for notices specified herein an amount
equal to such L/C Participant's Revolving Credit Commitment Percentage of the
amount of such draft, or any part thereof, which is not so reimbursed.
(b) If any amount required to be paid by any L/C Participant to the
Issuing Bank pursuant to Section 5.4(a) in respect of any unreimbursed portion
of any payment made by the Issuing Bank under any Letter of Credit is paid to
the Issuing Bank within three Business Days after the date such payment is due,
such L/C Participant shall pay to the Issuing Bank on demand an amount equal to
the product of (1) such amount, times (2) the daily
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average Federal funds rate, as quoted by the Issuing Bank, during the period
from and including the date such payment is required to the date on which such
payment is immediately available to the Issuing Bank, times (3) a fraction the
numerator of which is the number of days that elapse during such period and the
denominator of which is 360. If any such amount required to be paid by any L/C
Participant pursuant to Section 5.4(a) is not in fact made available to the
Issuing Bank by such L/C Participant within three Business Days after the date
such payment is due, the Issuing Bank shall be entitled to recover from such L/C
Participant, on demand, such amount with interest thereon calculated form such
due date at the rate per annum applicable to Base Rate Loans hereunder. A
certificate of the Issuing Bank submitted to any L/C Participant with respect to
any amounts owing under this Section shall be conclusive in the absence of
manifest error.
(c) Whenever, at any time after the Issuing Bank has made payment
under any Letter of Credit and has received from any L/C Participant its pro
rata share of such payment in accordance with Section 5.4(a), the Issuing Bank
receives any payment related to such Letter of Credit (whether directly from the
Borrower or otherwise, including proceeds of collateral applied thereto by the
Issuing Bank), or any payment of interest on account thereof, the Issuing Bank
will distribute to such L/C Participant its pro rata share thereof; provided,
however, that in the event that any such payment received by the Issuing Bank
shall be required to be returned by the Issuing Bank, such L/C Participant shall
return to the Issuing Bank the portion thereof previously distributed by the
Issuing Bank to it.
5.5 Reimbursement Obligations of the Borrower.
(a) The Borrower agrees to reimburse the Issuing Bank on each date on
which the Issuing Bank notifies the Borrower of the date and amount of a draft
presented under any Letter of Credit and paid by the Issuing Bank for the amount
of (1) such draft so paid and (2) any taxes and any reasonable fees, charges or
other costs or expenses incurred by the Issuing Bank at its address for notices
specified herein in lawful money of the United States of America and in
immediately available funds.
(b) Interest shall be payable on any and all amounts remaining unpaid
by the Borrower under this Section from the date such amounts become payable
(whether at stated maturity, by acceleration or otherwise) until payment in full
at the rate which would be payable on any outstanding Base Rate Loans which were
then overdue.
(c) Each drawing under any Letter of Credit shall constitute a request
by the Borrower to the Agent for a borrowing pursuant to Section 4.3 of Base
Rate Loans in the amount of such drawing. The Borrowing Date with respect to
such borrowing shall be the date of such drawing.
5.6 Obligations Absolute.
(a) The Borrower's obligations under this Section 5 shall be absolute
and unconditional under any and all circumstances and irrespective of any set-
off, counterclaim or
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defense to payment which the Borrower may have or have had against the Issuing
Bank or any beneficiary of a Letter of Credit.
(b) The Borrower also agrees with the Issuing Bank that the Issuing
Bank shall not be responsible for, and the Borrower's Reimbursement Obligations
under Section 5.5(a) shall not be affected by, among other things, (1) the
validity or genuineness of documents or of any endorsements thereon, even though
such documents shall in fact prove to be invalid, fraudulent or forged, or (2)
any dispute between or among the Borrower and any beneficiary of any Letter of
Credit or any other party to which such Letter of Credit may be transferred or
(3) any claims whatsoever of the Borrower against any beneficiary of such Letter
of Credit or any such transferee.
(c) The Issuing Bank shall not be liable for any error, omission,
interruption or delay in transmission, dispatch or delivery of any message or
advice, however transmitted, in connection with any Letter of Credit, except for
errors or omissions caused by the Issuing Bank's gross negligence or willful
misconduct.
(d) The Borrower agrees that any action taken or omitted by the
Issuing Bank under or in connection with any Letter of Credit or the related
drafts or documents, if done in the absence of gross negligence or willful
misconduct and in accordance with the standards of care specified in the Uniform
Commercial Code of the State of New York, shall be binding on the Borrower and
shall not result in any liability of the Issuing Bank to the Borrower.
5.7 Letter of Credit Payments.
If any draft shall be presented for payment under any Letter of
Credit, the Issuing Bank shall promptly notify the Borrower of the date and
amount thereof. The responsibility of the Issuing Bank to the Borrower in
connection with any draft presented for payment under any Letter of Credit
shall, in addition to any payment obligation expressly provided for in such
Letter of Credit, be limited to determining that the documents (including each
draft) delivered under such Letter of Credit in connection with such presentment
are in conformity with such Letter of Credit.
5.8 Application.
To the extent that any provision of any Application related to any
Letter of Credit is inconsistent with the provisions of this Section 5, the
provisions of this Section 5 shall apply.
SECTION 6. GENERAL PROVISIONS APPLICABLE TO LOANS
6.1 Interest Rates and Payment Dates. (a) Each Eurodollar Loan shall
bear interest for each day during each Interest Period with respect thereto at a
rate per annum equal to the Eurodollar Rate determined for such day plus the
Applicable Margin.
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(b) Each Base Rate Loan shall bear interest at a rate per annum equal
to the Base Rate plus the Applicable Margin.
(c) If all or a portion of (i) any principal of any Loan, (ii) any
interest payable thereon, (iii) any commitment fee or (iv) any other amount
payable hereunder shall not be paid when due (whether at the stated maturity, by
acceleration or otherwise), the principal of the Loans and any such overdue
interest, commitment fee or other amount shall bear interest at a rate per annum
which is (x) in the case of principal, the rate that would otherwise be
applicable thereto pursuant to the foregoing provisions of this Section plus 2%
or (y) in the case of any such overdue interest, commitment fee or other amount,
the rate described in paragraph (b) of this Section plus 2%, in each case from
the date of such non-payment until such overdue principal, interest, commitment
fee or other amount is paid in full (as well after as before judgment).
(d) Interest shall be payable in arrears on each Interest Payment
Date, provided that interest accruing pursuant to paragraph (c) of this Section
shall be payable from time to time on demand.
6.2 Conversion and Continuation Options. (a) The Borrower may elect
from time to time to Convert Eurodollar Loans or to Base Rate Loans by giving
the Agent at least two Business Days' prior irrevocable notice of such election,
provided that any such Conversion of Eurodollar Loans may only be made on the
last day of an Interest Period with respect thereto. The Borrower may elect from
time to time to Convert Base Rate Loans to Eurodollar Loans by giving the Agent
at least three Business Days' prior irrevocable notice of such election. Any
such notice of Conversion to Eurodollar Loans shall specify the length of the
initial Interest Period or Interest Periods therefor. Upon receipt of any such
notice the Agent shall promptly notify each Lender thereof. All or any part of
outstanding Eurodollar Loans and Base Rate Loans may be Convened as provided
herein, provided that (i) no Loan may be Converted into a Eurodollar Loan when
any Event of Default has occurred and is continuing and the Agent has or the
Required Lenders have determined that such a Conversion is not appropriate, (ii)
any such Conversion may only be made if, after giving effect thereto, Section
6.3 shall not have been contravened, and (iii) no Loan may be converted into a
Eurodollar Loan after the date that is one month prior to the Termination Date
(in the case of Conversions of Revolving Credit Loans) or the date of the final
installment of principal (in the case of Conversions of Term Loans or Bridge
Loans).
(b) Any Eurodollar Loans may be Continued as such upon the expiration
of the then current Interest Period with respect thereto by the Borrower giving
notice to the Agent, in accordance with the applicable provisions of the term
"Interest Period" set forth in Section 1.1, of the length of the next Interest
Period to be applicable to such Loans, provided that no Eurodollar Loan may be
Continued as such (i) when any Event of Default has occurred and is continuing
and the Agent has or the Required Lenders have determined that such a
Continuation is not appropriate, (ii) if, after giving effect thereto, Section
6.3 would be contravened or (iii) after the date that is one month prior to the
Termination Date (in the case of Continuations of Revolving Credit Loans) or the
date of the final installment of principal (in
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the case of Continuations of Term Loans or Bridge Loans) and provided, further,
that if the Borrower shall fail to give such notice or if such Continuation is
not permitted such Loans shall be automatically converted to Base Rate Loans on
the last day of such then expiring Interest Period.
6.3 Minimum Amounts and Maximum Number of Tranches. All borrowings,
conversions and continuations of Loans hereunder and all selections of Interest
Periods hereunder shall be in such amounts and be made pursuant to such
elections so that, after giving effect thereto, the aggregate principal amount
of the Loans comprising each Tranche shall be equal to $500,000 or a whole
multiple of $100,000 in excess thereof.
6.4 Optional Prepayments. The Borrower may on the last day of any
Interest Period with respect thereto, in the case of Eurodollar Loans, or at any
time and from time to time, in the case of Base Rate Loans, prepay the Loans, in
whole or in part, without premium or penalty, upon at least four Business Days'
irrevocable notice to the Agent, specifying the date and amount of prepayment
and whether the prepayment is of Eurodollar Loans, Base Rate Loans or a
combination thereof, and, if of a combination thereof, the amount allocable to
each. Upon receipt of any such notice the Agent shall promptly notify each
Lender thereof. If any such notice is given, the amount specified in such notice
shall be due and payable on the date specified therein, together with any
amounts payable pursuant to Section 6.12 and, in the case of prepayments of the
Term Loans and the Bridge Loans only, accrued interest to such date on the
amount prepaid. Partial prepayments of the Term Loans and the Bridge Loans
pursuant to this Section shall be applied to the installments of principal
thereof in the inverse order of their scheduled maturities. Amounts prepaid on
account of the Term Loans and the Bridge Loans may not be reborrowed. Partial
prepayments pursuant to this Section shall be in an aggregate principal amount
of $500,000 or a whole multiple of $100,000 in excess thereof.
6.5 Mandatory Prepayments. (a) Subject to Section 6.12, if on any date
on which a Borrowing Base Certificate is delivered pursuant to Section 9.2(c),
the Aggregate Outstanding RC Extensions of Credit of all the Lenders exceeds the
Borrowing Base, the Borrower shall prepay the Revolving Credit Loans and/or cash
collateralize or replace Letters of Credit in an amount equal to the amount of
such excess no later than the Business Day immediately following the date of
delivery of such Borrowing Base Certificate.
(b) Subject to Section 6.12, (i) if on any date the Aggregate
Outstanding RC Extensions of Credit of all the Lenders exceeds the Revolving
Credit Commitments, the Borrower shall immediately prepay the Revolving Credit
Loans and/or cash collateralize or replace Letters of Credit in an amount equal
to the amount of such excess; and (ii) if on any date during any Clean-Down
Period the Aggregate Outstanding RC Extensions of Credit of all Lenders exceeds
$3,000,000, the Borrower shall immediately prepay the Revolving Credit Loans
and/or cash collateralize or replace Letters of Credit in an amount equal to
such excess.
(c) Unless the Required Lenders otherwise agree, the Borrower shall
prepay the Loans and reduce the Commitments in an amount equal to (i) 100% of
the Net Proceeds of
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any sale or issuance of Permitted Junior Takeout Securities, (ii) 100% of the
Net Proceeds of any sale or issuance of any other debt securities, and 100% of
the Net Proceeds of any sale or issuance of any equity securities, in either
case by the Borrower or any Subsidiary, whether in a public offering, a private
placement or otherwise, (iii) 100% of the Net Proceeds of any sale, lease,
assignment, exchange or other disposition for cash of any asset or group of
assets (including, without limitation, but subject to clause (e) of this Section
6.5, insurance proceeds paid as a result of any destruction, casualty or taking
of any property of the Borrower or any Subsidiary) not made in the ordinary
course of business, by the Borrower or any Subsidiary of the Borrower, (iv) 100%
of the cash proceeds received in respect of any Assigned Policy upon the death
of a Designated Beneficiary, and (v) 100% of the Net Proceeds of any amounts
received by the Borrower as a release of funds escrowed pursuant to the Cohen's
Escrow Agreement, in any such case no later than three Business Days following
receipt by the Borrower or such Subsidiary of such proceeds, together with
accrued interest to such date on the amount prepaid; provided that no such
prepayment shall be required pursuant to subclause (iii) of this Section 6.5(c)
unless the aggregate amount of such Net Proceeds received by the Borrower and
its Subsidiaries and not previously applied to prepayment of the Term Loans and
Bridge Loans and the reduction of the Commitments pursuant to Section
6.5(c)(iii) is at least $250,000. Amounts prepaid pursuant to this Section
6.5(c) shall be applied first to installments of principal of the Term Loans and
Bridge Loans until paid in full, pro rata, and second to the reduction of the
Revolving Credit Commitments and the prepayment of the Revolving Credit Loans
and cash collateralization of the Letters of Credit; provided that Net Proceeds
of any Permitted Junior Takeout Securities shall be applied first to the
principal of, and accrued and unpaid interest on, the Bridge Loans until paid in
full, and then as otherwise provided in this sentence. Prepayments of
installments of Term Loans shall be applied in the inverse order of maturity and
such amounts so prepaid may not be reborrowed. Nothing in this Section 6.5(c)
shall be construed to derogate any restriction or limitation contained in any
Loan Document imposed on any transaction of the types described in this Section
6.5(c), including without limitation the restrictions set forth in Sections
10.2. 10.5 and 10.6 hereof.
(d) On or before the earlier of the date on which the financial
statements referred to in Section 9.1(a) are required to be delivered in respect
of a fiscal year of the Borrower, beginning with the fiscal year ending December
31, 1997, and the date on which such financial statements are actually
delivered, the Borrower shall prepay the Term Loans and permanently reduce the
Commitments in the amount of 75% of Excess Cash Flow for the fiscal year covered
by such financial statements, together with accrued interest to such date on the
amount prepaid. Amounts prepaid pursuant to this Section 6.5(d) shall be applied
first to installments of principal of the Term Loans until paid in full, and
second to the reduction of the Revolving Credit Commitments and the prepayment
of the Revolving Credit Loans and the cash collateralization of the Letters of
Credit. Prepayments of installments of Term Loans shall be applied in the
inverse order of maturity and such amounts so prepaid may not be reborrowed.
(e) Net Proceeds received by the Borrower or any Subsidiary as
proceeds of insurance upon any destruction, casualty or taking with respect to
any property of the Borrower or any Subsidiary need not be applied as set forth
in Section 6.5(c) to the extent that
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such Net Proceeds are applied to the repair, rebuilding or replacement of the
property which was the subject of such destruction, casualty or taking within 60
days after the receipt of such Net Proceeds. If required by the Agent, such Net
Proceeds shall be held in an interest-bearing special collateral account,
subject to the sole dominion and control of the Agent and in a manner reasonably
satisfactory to the Agent, as additional Collateral for the Obligations and the
Subsidiaries Guarantee, until such time as it is released by Agent at the
request of the Borrower or such Subsidiary to be applied to such repair,
rebuilding or replacement.
6.6 Computation of Interest and Fees. (a) All commitment fees and
interest shall be calculated on the basis of a 360-day year for the actual days
elapsed. The Agent shall as soon as practicable notify the Borrower and the
Lenders of each determination of a Eurodollar Rate. Any change in the interest
rate on a Loan resulting from a change in the Base Rate or the Eurocurrency
Reserve Requirements, shall become effective as of the opening of business on
the day on which such change becomes effective. The Agent shall as soon as
practicable notify the Borrower and the Lenders of the effective date and the
amount of each such change in interest rate.
(b) Each determination of an interest rate by the Agent pursuant to
any provision of this Agreement shall be conclusive and binding on the Borrower
and the Lenders in the absence of manifest error. The Agent shall, at the
request of the Borrower, deliver to the Borrower a statement showing the
quotations used by the Agent in determining any interest rate pursuant to
Section 6.1(a).
6.7 Inability to Determine Interest Rate. If prior to the first day of
any Interest Period:
(a) the Agent shall have determined (which determination shall be
conclusive and binding upon the Borrower) that, by reason of circumstances
affecting the relevant market, adequate and reasonable means do not exist
for ascertaining the Eurodollar Rate for such Interest Period, or
(b) the Agent shall have received notice from the Majority Lenders
that the Eurodollar Rate determined or to be determined for such Interest
Period will not adequately and fairly reflect the cost to such Lenders (as
conclusively certified by such Lenders) of making or maintaining their
affected Loans during such Interest Period,
the Agent shall give telecopy or telephonic notice thereof to the Borrower and
the Lenders as soon as practicable thereafter. If such notice is given (x) any
Eurodollar Loans requested to be made on the first day of such Interest Period
shall be made as Base Rate Loans, (y) any Loans that were to have been Converted
on the first day of such Interest Period to Eurodollar Loans shall be Converted
to or Continued as Base Rate Loans and (z) any outstanding Eurodollar Loans
shall be Converted, on the first day of such Interest Period, to Base Rate
Loans. Until such notice has been withdrawn by the Agent, no further Eurodollar,
shall be made or Continued as such, nor shall the Borrower have the right to
Convert Loans to Eurodollar Loans.
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6.8 Pro Rata Treatment and Payments. (a) Each borrowing by the
Borrower from the Lenders hereunder, each payment by the Borrower on account of
any commitment fee hereunder and any reduction of the Term Loan Commitments,
Bridge Loan Commitments or the Revolving Credit Commitments of the Lenders shall
be made pro rata according to the respective Term Loan Commitment Percentages,
Bridge Loan Commitment Percentages or Revolving Credit Commitment Percentages,
as applicable, of the Lenders. Each payment (including each prepayment) by the
Borrower on account of principal of and interest on the Term Loans, the Bridge
Loans or the Revolving Credit Loans shall be made pro rata according to the
respective outstanding principal amounts of the Term Loans, the Bridge Loans or
the Revolving Credit Loans, as applicable, then held by the Lenders. All
payments (including prepayments) to be made by the Borrower hereunder, whether
on account of principal, interest, fees or otherwise, shall be made without set-
off or counterclaim and shall be made prior to 12:00 noon, New York City time,
on the due date thereof to the Agent, for the account of the Lenders, at the
Agent's office specified in Section 13.2, in Dollars and in immediately
available funds. The Agent shall distribute such payments to the Lenders
promptly upon receipt in like funds as received. If any payment hereunder (other
than payments on Eurodollar Loans) becomes due and payable on a day other than a
Business Day, such payment shall be extended to the next succeeding Business
Day, and, with respect to payments of principal, interest thereon shall be
payable at the then applicable rate during such extension. If any payment on a
Eurodollar Loan becomes due and payable on a day other than a Business Day, the
maturity thereof shall be extended to the next succeeding Business Day unless
the result of such extension would be to extend such payment into another
calendar month in which event such payment shall be made on the immediately
preceding Business Day.
(b) Unless the Agent shall have been notified in writing by any Lender
prior to a borrowing that such Lender will not make the amount that would
constitute its Term Loan Commitment Percentage, Bridge Loan Commitment
Percentage or Revolving Credit Commitment Percentage, as applicable, of such
borrowing available to the Agent, the Agent may assume that such Lender is
making such amount available to the Agent, and the Agent may, in reliance upon
such assumption, make available to the Borrower a corresponding amount. If such
amount is not made available to the Agent by the required time on the Borrowing
Date therefor, such Lender shall pay to the Agent, on demand, such amount with
interest thereon at a rate equal to the daily average Federal Funds Effective
Rate for the period until such Lender makes such amount immediately available to
the Agent. A certificate of the Agent submitted to any Lender with respect to
any amounts owing under this Section shall be conclusive in the absence of
manifest error. If such Lender's Term Loan Commitment Percentage, Bridge Loan
Commitment Percentage or Revolving Credit Commitment Percentage, as applicable,
of such borrowing is not made available to the Agent by such Lender within three
Business Days of such Borrowing Date, the Agent shall also be entitled to
recover such amount with interest thereon at the rate per annum applicable to
Base Rate Loans hereunder, on demand, from the Borrower.
6.9 Illegality. Notwithstanding any other provision herein, if the
adoption of or any change in any Requirement of Law or in the interpretation or
application thereof shall make it unlawful for any Lender to make or maintain
Eurodollar Loans as contemplated by this
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Agreement, (a) the commitment of such Lender hereunder to make Eurodollar Loans,
Continue Eurodollar Loans as such and Convert Base Rate Loans to Eurodollar
Loans shall forthwith be cancelled and (b) such Lender's Loans then outstanding
as Eurodollar Loans, if any, shall be Converted automatically to Base Rate Loans
on the respective last days of the then current Interest Periods with respect to
such Loans or within such earlier period as required by law. If any such
Conversion of a Eurodollar Loan occurs on a day which is not the last day of the
then current Interest Period with respect thereto, the Borrower shall pay to
such Lender such amounts, if any, as may be required pursuant to Section 6.12.
6.10 Requirements of Law. (a) If the adoption of or any change in any
Requirement of Law or in the interpretation or application thereof or compliance
by any Lender with any request or directive (whether or not having the force of
law) from any central bank or other Governmental Authority made subsequent to
the date hereof:
(i) shall subject any Lender to any tax of any kind whatsoever with
respect to this Agreement, any Note, any Letter of Credit, any Application,
or any Eurodollar Loan made by it, or change the basis of taxation of
payments to such Lender in respect thereof (except for Non-Excluded Taxes
covered by Section 6.11 and changes in the rate of tax on the overall net
income of such Lender);
(ii) shall impose, modify or hold applicable any reserve, special
deposit, compulsory loan or similar requirement against assets held by,
deposits or other liabilities in or for the account of, advances, loans or
other extensions of credit by, or any other acquisition of funds by, any
office of such Lender which is not otherwise included in the determination
of the Eurodollar Rate hereunder; or
(iii) shall impose on such Lender any other condition;
and the result of any of the foregoing is to increase the cost to such Lender,
by an amount which such Lender deems to be material, of making, Converting into,
Continuing or maintaining Eurodollar Loans or to reduce any amount receivable
hereunder in respect thereof, then, in any such case, the Borrower shall
promptly pay such Lender such additional amount or amounts as will compensate
such Lender for such increased cost or reduced amount receivable.
(b) If any Lender shall have determined that the adoption of or any
change in any Requirement of Law regarding capital adequacy or in the
interpretation or application thereof or compliance by such Lender or any
corporation controlling such Lender with any request or directive regarding
capital adequacy (whether or not having the force of law) from any Governmental
Authority made subsequent to the date hereof shall have the effect of reducing
the rate of return on such Lender's or such corporation's capital as a
consequence of its obligations hereunder or under any Lender of Credit to a
level below that which such Lender or such corporation could have achieved but
for such adoption, change or compliance (taking into consideration such Lender's
or such corporation's policies with respect to capital adequacy) by an amount
deemed by such Lender to be material, then from time to time, the
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Borrower shall promptly pay to such Lender such additional amount or amounts as
will compensate such Lender for such reduction.
(c) If any Lender becomes entitled to claim any additional amounts
pursuant to this Section, it shall promptly notify the Borrower (with a copy to
the Agent) of the event by reason of which it has become so entitled. A
certificate as to any additional amounts payable pursuant to this Section
submitted by such Lender to the Borrower (with a copy to the Agent) shall be
conclusive in the absence of manifest error. The agreements in this Section
shall survive the termination of this Agreement and the payment of the Loans and
all other amounts payable hereunder.
6.11 Taxes. (a) All payments made by the Borrower under this Agreement
and any Notes shall be made free and clear of, and without deduction or
withholding for or on account of, any present or future income, stamp or other
taxes, levies, imposts, duties, charges, fees, deductions or withholdings, now
or hereafter imposed, levied, collected, withheld or assessed by any
Governmental Authority, excluding net income taxes and franchise taxes (imposed
in lieu of net income taxes) imposed on the Agent or any Lender as a result of a
present or former connection between the Agent or such Lender and the
jurisdiction of the Governmental Authority imposing such tax or any political
subdivision or taxing authority thereof or therein (other than any such
connection arising solely from the Agent or such Lender having executed,
delivered or performed its obligations or received a payment under, or enforced,
this Agreement or any Note). If any such non-excluded taxes, levies, imposts,
duties, charges, fees deductions or withholdings ("Non-Excluded Taxes") are
required to be withheld from any amounts payable to the Agent or any Lender
hereunder or under any Note, the amounts so payable to the Agent or such Lender
shall be increased to the extent necessary to yield to the Agent or such Lender
(after payment of all Non-Excluded Taxes) interest or any such other amounts
payable hereunder at the rates or in the amounts specified in this Agreement,
provided, however, that the Borrower shall not be required to increase any such
amounts payable to any Lender that is not organized under the laws of the United
States of America or a state thereof if such Lender fails to comply with the
requirements of clause (b) of this Section. Whenever any Non-Excluded Taxes are
payable by the Borrower, as promptly as possible thereafter the Borrower shall
send to the Agent for its own account or for the account of such Lender, as the
case may be, a certified copy of an original official receipt received by the
Borrower showing payment thereof. If the Borrower fails to pay any Non-Excluded
Taxes when due to the appropriate taxing authority or fails to remit to the
Agent the required receipts or other required documentary evidence, the Borrower
shall indemnify the Agent and the Lenders for any incremental taxes, interest or
penalties that may become payable by the Agent or any Lender as a result of any
such failure. The agreements in this Section shall survive the termination of
this Agreement and the payment of the Loans and all other amounts payable
hereunder.
(b) Each Lender that is not incorporated under the laws of the United
States of America or a state thereof shall:
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(i) (A) if such Lender is a "bank" within the meaning of Section
881(c)(3)(A) of the Code, deliver to the Borrower and the Agent (x) two
duly completed copies of United States Internal Revenue Service Form 1001
or 4224, or successor applicable form, as the case may be, and (y) an
Internal Revenue Service Form W-8 or W-9, or successor applicable form, as
the case may be, or (B) if such Lender is not a "bank" within the meaning
of Section 881(c)(3)(A) of the Code and cannot deliver either Internal
Revenue Service Form 1001 or 4224, deliver (x) a certificate substantially
in the form of Exhibit I (a "Non-Bank Status Certificate") and (y) two
completed and signed copies of Internal Revenue Service Form W-8 or
successor applicable form;
(ii) deliver to the Borrower and the Agent two further copies of any
such form or certification on or before the date that any such form or
certification expires or becomes obsolete and after the occurrence of any
event requiring a change in the most recent form previously delivered by it
to the Borrower; and
(iii) obtain such extensions of time for filing and complete such
forms or certifications as may reasonably be requested by the Borrower or
the Agent;
unless in any such case an event (including, without limitation, any change in
treaty, law or regulation) has occurred prior to the date on which any such
delivery would otherwise be required which renders all such forms inapplicable
or which would prevent such Lender from duly completing and delivering any such
form with respect to it and such Lender so advises the Borrower and the Agent.
Such Lender shall certify (i) in the case of a Form 1001 or 4224, that it is
entitled to receive payments under this Agreement without deduction or
withholding of any United States federal income taxes, (ii) in the case of a
Non-bank Status Certificate, that it is not a "bank" as such term is defined in
Section 881(c)(3)(A) of the Code, and (iii) in the case of a Form W-8 or W-9,
that it is entitled to an exemption from United States backup withholding tax.
Each Person that shall become a Lender or a Participant pursuant to Section 13.6
shall, upon the effectiveness of the related transfer, be required to provide
all of the forms and statements required pursuant to this Section, provided that
in the case of a Participant such Participant shall furnish all such required
forms and statements to the Lender from which the related participation shall
have been purchased.
6.12 Indemnity. The Borrower agrees to indemnify each Lender and to
hold each Lender harmless from any actual loss or expense which such Lender may
sustain or incur as a consequence of (a) default by the Borrower in making a
borrowing of, Conversion into or Continuation of Eurodollar Loans after the
Borrower has given a notice requesting the same in accordance with the
provisions of this Agreement, (b) default by the Borrower in making any
prepayment after the Borrower has given a notice thereof in accordance with the
provisions of this Agreement or (c) the making of a prepayment of Eurodollar
Loans on a day which is not the last day of an Interest Period with respect
thereto. This covenant shall survive the termination of this Agreement and the
payment of the Loans and all other amounts payable hereunder.
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6.13 Lending Offices; Change of Lending Office. (a) Loans of each Type
made by any Lender shall be made and maintained at such Lender's Applicable
Lending Office for Loans of such Type.
(b) Each Lender agrees that if it makes any demand for payment under
Section 6.10 or 6.11(a), or if any adoption or change of the type described in
Section 6.9 shall occur with respect to it, it will use reasonable efforts
(consistent with its internal policy and legal and regulatory restrictions and
so long as such efforts would not be disadvantageous to it, as determined in its
sole discretion) to designate a different lending office if the making of such a
designation would reduce or obviate the need for the Borrower to make payments
under Section 6.10 or 6.11(a), or would eliminate or reduce the effect of any
adoption or change described in Section 6.9.
SECTION 7. REPRESENTATIONS AND WARRANTIES
To induce the Agent and the Lenders to enter into this Agreement and
to make the Loans and issue or participate in the Letters of Credit, the
Borrower hereby represents and warrants to the Agent and each Lender that:
7.1 Financial Condition. (a) The consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at January 3, 1997 and the related
consolidated statements of income and of cash flows for the fiscal year ended on
such date, reported on by Altschuler, Melvoin and Glasser LLP, copies of which
have heretofore been furnished to each Lender, are complete and correct and
present fairly the consolidated financial condition of the Borrower and its
consolidated Subsidiaries as at such date, and the consolidated results of their
operations and their consolidated cash flows for the fiscal year then ended. The
unaudited consolidated balance sheet of the Borrower and its consolidated
Subsidiaries as at June 27, 1997 and the related unaudited consolidated
statements of income and of cash flows for the six-month period ended on such
date, certified by a Responsible Officer, copies of which have heretofore been
furnished to each Lender, are complete and correct and present fairly the
consolidated financial condition of the Borrower and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the six-month period then ended (subject
to normal year-end audit adjustments). All such financial statements, including
the related schedules and notes thereto, have been prepared in accordance with
GAAP applied consistently throughout the periods involved (except as approved by
such accountants or Responsible Officer, as the case may be, and as disclosed
therein). Neither the Borrower nor any of its consolidated Subsidiaries had, at
the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction
or other financial derivative, which is not reflected in the foregoing
statements or in the notes thereto. During the period from June 27, 1997 to and
including the date hereof there has been no sale, transfer or other disposition
by the Borrower or any of its consolidated Subsidiaries of any material part of
its business or property and no purchase or other acquisition of any business or
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property (including any Capital Stock of any other Person) material in relation
to the consolidated financial condition of the Borrower and its consolidated
Subsidiaries at June 30, 1997.
(b) To the best of Borrower's knowledge the consolidated balance sheet
of Old Cohen's and its consolidated Subsidiaries as at December 31, 1996 and the
related consolidated statements of income and of cash flows for the fiscal year
ended on such date, reported on by Fishman Ostroff Ruchowitz Hausman, copies of
which have heretofore been furnished to each Lender, are complete and correct in
all material respects and present fairly the consolidated financial condition of
Old Cohen's and its consolidated Subsidiaries as at such date, and the
consolidated results of their operations and their consolidated cash flows for
the fiscal year then ended. To the best of Borrower's knowledge the unaudited
consolidated balance sheet of Old Cohen's and its consolidated Subsidiaries as
at June 30, 1997 and the related unaudited consolidated statements of income and
of cash flows for the six-month period ended on such date, certified by a
Responsible Officer, copies of which have heretofore been furnished to each
Lender, are complete and correct in all material respects and present fairly the
consolidated financial condition of Old Cohen's and its consolidated
Subsidiaries as at such date, and the consolidated results of their operations
and their consolidated cash flows for the six-month period then ended (subject
to normal year-end audit adjustments). To the best of Borrower's knowledge all
such financial statements, including the related schedules and notes thereto,
have been prepared in accordance with GAAP applied consistently throughout the
periods involved (except as approved by such accountants or Responsible Officer,
as the case may be, and as disclosed therein). To the best of Borrower's
knowledge neither Old Cohen's nor any of its consolidated Subsidiaries had, at
the date of the most recent balance sheet referred to above, any material
Guarantee Obligation, contingent liability or liability for taxes, or any long-
term lease or unusual forward or long-term commitment, including, without
limitation, any interest rate or foreign currency swap or exchange transaction
or other financial derivative, which is not reflected in the foregoing
statements or in the notes thereto. To the best of Borrower's knowledge during
the period from June 30, 1997 to and including the date hereof there has been no
sale, transfer or other disposition by Old Cohen's or any of its consolidated
Subsidiaries of any material part of its business or property and no purchase or
other acquisition of any business or property (including any Capital Stock of
any other Person) material in relation to the consolidated financial condition
of Old Cohen's and its consolidated Subsidiaries at June 30, 1997.
(c) The pro forma consolidated balance sheet of the Borrower and its
consolidated Subsidiaries as at September 30, 1997, certified by a Responsible
Officer of the Borrower (the "Pro Forma Balance Sheet"), a copy of which has
been provided to the Agent and each Lender, is the unaudited consolidated
balance sheet of the Borrower and its consolidated Subsidiaries adjusted to give
effect (as if such events had occurred on such date) to (i) the Roll-Up
Transactions, (ii) the Cohen's Acquisition, (iii) the making of the Term Loans
and the Bridge Loans, (iv) the making of the Revolving Credit Loans to be made
on the Closing Date, (v) the application of the proceeds of the foregoing in
accordance with the terms of the Loan Documents and (vi) the payment of all fees
and expenses related to the foregoing transactions, as estimated in good faith
as of the date of the Pro Forma Balance Sheet. The
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Pro Forma Balance Sheet, together with the notes thereto, presents fairly in all
material respects, on a pro forma basis, the consolidated financial position of
the Borrower and its Subsidiaries as at September 30, 1997, assuming that the
events specified in the preceding sentence had actually occurred on such date.
(d) The operating forecast and cash flow projections of the Borrower
and its consolidated Subsidiaries, copies of which have heretofore been
furnished to the Lenders, have been prepared in good faith under the direction
of a Responsible Officer of the Borrower. The Borrower has no reason to believe
that as of the date of delivery thereof such operating forecast and cash flow
projections are materially incorrect or misleading in any material respect, or
omit to state any material fact which would render them misleading in any
material respect.
7.2 No Change. (a) January 3, 1997 there has been no development or
event which has had or could reasonably be expected to have a Material Adverse
Effect, and (b) except for the Roll-Up Transactions and distributions to members
of the Borrower in respect of tax liability of such members attributable to the
income of the Borrower, during the period from January 3, 1997 to and including
the date hereof no dividends or other distributions have been declared, paid or
made upon the Capital Stock of the Borrower nor has any of the Capital Stock of
the Borrower been redeemed, retired, purchased or otherwise acquired for value
by the Borrower or any of its Subsidiaries.
7.3 Existence; Compliance with Law. Each of the Borrower and its
Subsidiaries (a) is duly organized, validly existing and in good standing under
the laws of the jurisdiction of its organization, (b) has the corporate power
and authority, and the legal right, to own and operate its property, to lease
the property it operates as lessee and to conduct the business in which it is
currently engaged, (c) is duly qualified as a foreign corporation or foreign
limited liability company, as applicable, and in good standing under the laws of
each jurisdiction where its ownership, lease or operation of property or the
conduct of its business requires such qualification and (d) is in compliance
with all Requirements of Law except to the extent that the failure to comply
therewith could not, in the aggregate, reasonably be expected to have a Material
Adverse Effect.
7.4 Power; Authorization; Enforceable Obligations. Each Loan Party has
the power and authority, and the legal right, to make, deliver and perform the
Loan Documents to which it is a party and, in the case of the Borrower, to
borrow hereunder, and has taken all necessary action to authorize, in the case
of the Borrower, the borrowings on the terms and conditions of this Agreement
and any Notes and to authorize the execution, delivery and performance of the
Loan Documents to which it is a party. No consent or authorization of, filing
with, notice to or other act by or in respect of, any Governmental Authority or
any other Person is required in connection with the borrowings hereunder or with
the execution, delivery, performance, validity or enforceability of the Loan
Documents to which such Loan Party is a party. Each Loan Document to which a
Loan Party is a party has been, duly executed and delivered on behalf of such
Loan Party. Each Loan Document to which a Loan Party is a party constitutes a
legal, valid and binding obligation of such Loan Party enforceable
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against such Loan Party in accordance with its terms, subject to the effects of
bankruptcy, insolvency, fraudulent conveyance, reorganization, moratorium and
other similar laws relating to or affecting creditors' rights generally, general
equitable principles (whether considered in a proceeding in equity or at law)
and an implied covenant of good faith and fair dealing.
7.5 No Legal Bar. The execution, delivery and performance of the Loan
Documents to which any Loan Party is a party, the borrowings hereunder and the
use of the proceeds thereof, and the execution, delivery and performance of the
Cohen's Acquisition Documents, will not violate in any material respect any
Requirement of Law or Contractual Obligation of any Loan Party or of any of its
Subsidiaries and will not result in, or require, the creation or imposition of
any Lien on any of its or their respective properties or revenues pursuant to
any such Requirement of Law or Contractual Obligation (other than Liens created
by the Security Documents in favor of the Agent).
7.6 No Material Litigation. No litigation, investigation or proceeding
of or before any arbitrator or Governmental Authority is pending or, to the
knowledge of the Borrower, threatened by or against the Borrower or any of its
Subsidiaries or against any of its or their respective properties or revenues
(a) with respect to any of the Loan Documents, the Cohen's Acquisition Documents
or any of the transactions contemplated hereby or thereby, or (b) which could
reasonably be expected to have a Material Adverse Effect.
7.7 No Default. Neither the Borrower nor any of its Subsidiaries is in
default under or with respect to any of its Contractual Obligations in any
respect which could reasonably be expected to have a Material Adverse Effect. No
Default or Event of Default has occurred and is continuing.
7.8 Ownership of Property; Liens. Each of the Borrower and its
Subsidiaries has good record and marketable title in fee simple to, or a valid
leasehold interest in, all its real property, and good title to, or a valid
leasehold interest in, all its other property, and none of such property is
subject to any Lien except as permitted by Section 10.3.
7.9 Intellectual Property. Each of the Borrower and its Subsidiaries
owns, or is licensed to use, all trademarks, tradenames, copyrights, technology,
know-how and processes necessary for the conduct of its business as currently
conducted that are material to the conduct of its business (the "Intellectual
Property"). No claim has been asserted and is pending by any Person challenging
or questioning the use of any such Intellectual Property or the validity or
effectiveness of any such Intellectual Property, nor does any Loan Party know of
any valid basis for any such claim. The use of such Intellectual Property by the
Borrower and its Subsidiaries does not infringe on the rights of any Person,
except for such claims and infringements that, in the aggregate, could not
reasonably be expected to have a Material Adverse Effect.
7.10 No Burdensome Restrictions. No Requirement of Law or Contractual
Obligation of the Borrower or any of its Subsidiaries could reasonably be
expected to have a Material Adverse Effect.
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7.11 Taxes. Each of the Borrower and its Subsidiaries has filed or
caused to be filed all tax returns which, to the knowledge of the Borrower, are
required to be filed and has paid all taxes shown to be due and payable on said
returns or on any assessments made against it or any of its property and all
other taxes, fees or other charges imposed on it or any of its property by any
Governmental Authority (other than any the amount or validity of which are
currently being contested in good faith by appropriate proceedings and with
respect to which reserves in conformity with GAAP have been provided on the
books of the Borrower or its Subsidiaries, as the case may be); except as set
forth on Schedule 10.3, no tax Lien has been filed, and, to the knowledge of the
Borrower, no claim is being asserted, with respect to any such tax, fee or other
charge.
7.12 Federal Regulations. No part of the proceeds of any Loans will be
used for "purchasing" or "carrying" any "margin stock" within the respective
meanings of each of the quoted terms under Regulation G or Regulation U, or for
any purpose which violates, or which would be inconsistent with, the provisions
of the regulations of the Board of Governors of the Federal Reserve System as
now and from time to time hereafter in effect. If requested by any Lender or the
Agent, the Borrower will furnish to the Agent and each Lender a statement to the
foregoing effect in conformity with the requirements of FR Form G-1 or FR Form
U-1 referred to in Regulation G or Regulation U, as the case may be.
7.13 ERISA. Neither a Reportable Event nor an "accumulated funding
deficiency" (within the meaning of Section 412 of the Code or Section 302 of
ERISA) has occurred during the five-year period prior to the date on which this
representation is made or deemed made with respect to any Plan, and each Plan
has complied in all material respects with the applicable provisions of ERISA
and the Code. No termination of a Single Employer Plan has occurred, and no Lien
in favor of the PBGC or a Plan has arisen, during such five-year period. The
present value of all accrued benefits under each Single Employer Plan (based on
those assumptions used to fund such Plans) did not, as of the last annual
valuation date prior to the date on which this representation is made or deemed
made, exceed the value of the assets of such Plan allocable to such accrued
benefits. Neither the Borrower nor any Commonly Controlled Entity has had a
complete or partial withdrawal from any Multiemployer Plan, and neither the
Borrower nor any Commonly Controlled Entity would become subject to any
liability under ERISA if the Borrower or any such Commonly Controlled Entity
were to withdraw completely from all Multiemployer Plans as of the valuation
date most closely preceding the date on which this representation is made or
deemed made. No such Multiemployer Plan is in Reorganization or Insolvent. The
present value (determined using actuarial and other assumptions which are
reasonable in respect of the benefits provided and the employees participating)
of the liability of the Borrower and each Commonly Controlled Entity for post
retirement benefits to be provided to their current and former employees under
Plans which are welfare benefit plans (as defined in Section 3(1) of ERISA) does
not, in the aggregate, exceed the assets under all such Plans allocable to such
benefits by an amount in excess of $100,000.
7.14 Investment Company Act; Other Regulations. The Borrower is not an
"investment company", or a company "controlled" by an "investment company",
within the
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meaning of the Investment Company Act of 1940, as amended. The Borrower is not
subject to regulation under any Federal or State statute or regulation (other
than Regulation X of the Board of Governors of the Federal Reserve System) which
limits its ability to incur Indebtedness.
7.15 Subsidiaries. Schedule 7.15 sets forth the name of each direct or
indirect Subsidiary of the Borrower, its form of organization, its jurisdiction
of organization, the total number of issued and outstanding shares, membership
interests, or other interests of Capital Stock thereof, the classes and number
of issued and outstanding shares, membership interests, or other interests of
Capital Stock of each such class, the name of each holder of Capital Stock
thereof and the number of shares, membership interests, or other interests of
such Capital Stock held by each such holder and the percentage of all
outstanding shares, membership interests, or other interests of such class of
Capital Stock held by such holders.
7.16 Security Documents. (a) The provisions of each Security Agreement
are effective to create in favor of the Agent for the ratable benefit of the
Lenders a legal, valid and enforceable security interest in all right, title and
interest of the Loan Party party thereto in the "Collateral" described therein.
The provisions of the Borrower Pledge Agreement are effective to create in favor
of the Agent for the ratable benefit of the Lenders a legal, valid and
enforceable security interest in all right, title and interest of the Loan Party
party thereto in the "Pledged Collateral" described therein.
(b)(i) When financing statements have been filed in the offices in the
jurisdictions listed in Schedule 7.16, the Security Agreements shall each
constitute a fully perfected first Lien on, and security interest in, all right,
title and interest of the Borrower in the "Collateral" described therein, which
can be perfected by such filing.
(ii) When certificates representing the Pledged Stock (as defined in
the Borrower Pledge Agreement) are delivered to the Agent, together with stock
powers endorsed in blank by a duly authorized officer of the pledgors thereof,
the Borrower Pledge Agreement shall constitute a fully perfected first Lien on,
and security interest in, all right, title and interest of the pledgors parties
thereto in the Pledged Stock and all "Proceeds" (as defined in the Borrower
Pledge Agreement) described therein.
(iii) When the financing statements listed in Schedule II to the
Borrower Pledge Agreement have been filed, the Borrower Pledge Agreement shall
constitute a fully perfected first Lien on, and security interest in, all right,
title and interest of the Borrower in the "Pledged LLC Interests" and "Proceeds"
thereof described therein.
(c) Neither the Borrower nor any Subsidiary owns any property, or has
any interest in any property, that is not subject to a fully perfected first
priority Lien on, or security interest in, such property in favor of the Agent,
other than any such property having an aggregate fair market value at any one
time not exceeding $100,000.
7.17 Accuracy and Completeness of Information. (a) All factual
information, reports and other papers and data with respect to the Loan Parties
(other than projections)
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furnished, and all factual statements and representations made, to the Agent or
the Lenders by a Loan Party, or on behalf of a Loan Party, were, at the time the
same were so furnished or made, when taken together with all such other factual
information, reports and other papers and data previously so furnished and all
such other factual statements and representations previously so made, complete
and correct in all material respects, to the extent necessary to give the Agent
and the Lenders true and accurate knowledge of the subject matter thereof in all
material respects, and did not, as of the date so furnished or made, contain any
untrue statement of a material fact or omit to state any material fact necessary
in order to make the statements contained therein not misleading in light of the
circumstances in which the same were made.
(b) All projections with respect to the Loan Parties furnished by or
on behalf of a Loan Party to the Agent or the Lenders were prepared and
presented in good faith by or on behalf of such Loan Party. No fact is known to
a Loan Party which materially and adversely affects or in the future is
reasonably likely (so far as such Loan Party can reasonably foresee) to have a
Material Adverse Effect which has not been set forth in the financial statements
referred to in Section 7.1 or in such information, reports, papers and data or
otherwise disclosed in writing to the Agent or the Lenders prior to the Closing
Date.
7.18 Labor Relations. No Loan Party is engaged in any unfair labor
practice which could reasonably be expected to have a Material Adverse Effect.
There is (a) no unfair labor practice complaint pending or, to the best
knowledge of each Loan Party and each of the Subsidiaries of each Loan Party,
threatened against a Loan Party before the National Labor Relations Board which
could reasonably be expected to have a Material Adverse Effect and no grievance
or arbitration proceeding arising out of or under a collective bargaining
agreement is so pending or threatened; (b) no strike, labor dispute, slowdown or
stoppage pending or, to the best knowledge of each Loan Party, threatened
against a Loan Party; and (c) no union representation question existing with
respect to the employees of a Loan Party and no union organizing activities are
taking place with respect to any thereof.
7.19 Insurance. Each Loan Party has, with respect to its properties
and business, insurance covering the risks, in the amounts, with the deductible
or other retention amounts, and with the carriers, listed on Schedule 7.19,
which insurance meets the requirements of Section 7.5 hereof and Section 5(m) of
the Security Agreements as of the date hereof and the Closing Date.
7.20 Cohen's Acquisition Documents. (a) Each Lender has received
complete copies in all material respects of each of the Cohen's Acquisition
Documents (including all exhibits, schedules and disclosure letters referred to
therein or delivered pursuant thereto) and all amendments thereto, waivers
relating thereto and other side letters or agreements affecting the terms
thereof. None of such documents and agreements has been amended or supplemented,
nor have any of the provisions thereof been waived, in any material respect,
except pursuant to a written agreement or instrument which has heretofore been
consented to by the Lenders. Each Cohen's Acquisition Document has been duly
executed and delivered by each Loan Party which is a party thereto and is in
full force and effect; and the Cohen's
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Acquisition has been duly consummated in accordance with the terms of the
Cohen's Purchase Agreement. The representations and warranties of each Loan
Party contained in each Cohen's Acquisition Document to which it is a party is
true and correct in all material respects, and will be true and correct in all
material respects on the Closing Date as if made on and as of the Closing Date,
and each Lender shall be entitled to rely on such representations and warranties
with the same force and effect as if they were incorporated in this Agreement
and made to each Lender directly. To the best knowledge of each Loan Party after
due investigation, the representations and warranties of each party to each
Cohen's Acquisition Document other than a Loan Party contained therein are true
and correct in all material respects and will be true and correct in all
material respect on the Closing Date as if made on and as of the Closing Date.
(b) A schedule of substantially all transaction costs relating to the
Cohen's Acquisition, the entering into of the Cohen's Purchase Agreement and the
transactions contemplated thereby, including, without limitation, all investment
banking, commitment and attorneys' fees relating thereto (but excluding
transaction costs which are set forth on the Fee Letter) is set forth on
Schedule 7.20. Any costs not invoiced as of the date hereof, consisting solely
of attorney's or accountant's fees and any out-of-pocket expenses of the Loan
Parties, may be based upon, and noted on Schedule 7.20 as, reasonable estimates
thereof.
7.21 Solvency. On the Closing Date, after giving effect to the Roll-
up Transactions, the Cohen's Acquisition. the refinancing of the Indebtedness of
the Loan Parties set forth on Schedule 10.2A, and the incurrence of all
indebtedness and obligations being incurred on or prior to such date in
connection herewith and therewith, (i) the amount of the "present fair saleable
value" of the assets of the Borrower and of the Borrower and its Subsidiaries,
taken as a whole, will, as of such date, exceed the amount of all "liabilities
of the Borrower and of the Borrower and its Subsidiaries, taken as a whole,
contingent or otherwise", as of such date, as such quoted terms are determined
in accordance with applicable federal and state laws governing determinations of
the insolvency of debtors, (ii) the present fair saleable value of the assets of
the Borrower and of the Borrower and its Subsidiaries, taken as a whole, will,
as of such date, be greater than the amount that will be required to pay the
liabilities of the Borrower and of the Borrower and its Subsidiaries, taken as a
whole, on their respective debts as such debts become absolute and matured,
(iii) neither the Borrower nor the Borrower and its Subsidiaries, taken as a
whole, will have, as of such date, an unreasonably small amount of capital with
which to conduct their respective businesses, and (iv) each of the Borrower and
the Borrower and its Subsidiaries, taken as a whole, will be able to pay their
respective debts as they mature. For purposes of this Section 7.20, "debt" means
"liability on a claim", "claim" means any (x) right to payment, whether or not
such a right is reduced to judgment, liquidated, unliquidated, fixed,
contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured
or unsecured, and (y) right to an equitable remedy for breach of performance if
such breach gives rise to a right to payment, whether or not such right to an
equitable remedy is reduced to judgment, fixed, contingent, matured or
unmatured, disputed, undisputed, secured or unsecured.
7.22 Purpose of Loans. The proceeds of the Term Loans and the Bridge
Loans shall be used by the Borrower to finance a portion of the purchase price
of the Cohen's
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Acquisition, and to pay a portion of the costs and expenses incurred in
connection therewith. The proceeds of the Revolving Credit Loans and the Letters
of Credit shall be used by the Borrower for working capital purposes in the
ordinary course of business and for general corporate purposes.
7.23 Environmental Matters. Except as set forth on Schedule 7.23:
(a) The facilities and properties owned, leased or operated by the
Borrower or any of its Subsidiaries (the "Properties") do not contain, and have
not previously contained, any Materials of Environmental Concern in amounts or
concentrations which (i) constitute or constituted a violation of, or (ii) could
reasonably be expected to give rise to liability under, any Environmental Law,
except in either case insofar as such violation or liability, or any aggregation
thereof, is not reasonably likely to result in the payment of a Material
Environmental Amount.
(b) The Properties and all operations at the Properties are in
compliance, and have in the last five years been in compliance, in all material
respects, with all applicable Environmental Laws, and there is no contamination
at, under or about the Properties or violation of any Environmental Law with
respect to the Properties or the business operated by the Borrower or any of its
Subsidiaries (the "Business") which could materially interfere with the
continued operation of the Properties or materially impair the fair saleable
value thereof.
(c) Neither the Borrower nor any of its Subsidiaries has received any
notice of violation, alleged violation, non-compliance, liability or potential
liability regarding environmental matters or compliance with Environmental Laws
with regard to any of the Properties or the Business, nor does the Borrower have
knowledge or reason to believe that any such notice will be received or is being
threatened, except insofar as such notice or threatened notice, or any
aggregation thereof, does not involve a matter or matters that is or are
reasonably likely to result in the payment of a Material Environmental Amount.
(d) Materials of Environmental Concern have not been transported or
disposed of from the Properties in violation of, or in a manner or to a location
which could reasonably be expected to give rise to liability under, any
Environmental Law. nor have any Materials of Environmental Concern been
generated, treated, stored or disposed of at, on or under any of the Properties
in violation of, or in a manner that could reasonably be expected to give rise
to liability under, any applicable Environmental Law, except insofar as any such
violation or liability referred to in this Section 7.23(d), or any aggregation
thereof, is not reasonably likely to result in the payment of a Material
Environmental Amount.
(e) No judicial proceeding or governmental or administrative action
is pending or, to the knowledge of the Borrower, threatened, under any
Environmental Law to which the Borrower or any Subsidiary is or will be named as
a party with respect to the Properties or the Business, nor are there any
consent decrees or other decrees, consent orders, administrative orders or other
orders, or other administrative or judicial requirements outstanding under any
Environmental Law with respect to the Properties or the Business, except insofar
as such proceeding, action, decree, order or other requirement, or any
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aggregation thereof, is not reasonably likely to result in the payment of a
Material Adverse Amount.
(f) There has been no release or threat of release of Materials of
Environmental Concern at or from the Properties, or arising from or related to
the operations of the Borrower or any Subsidiary in connection with the
Properties or otherwise in connection with the Business, in violation of or in
amounts or in a manner that could reasonably give rise to liability under
Environmental Laws except insofar as any such violation or liability referred to
in this paragraph, or any aggregation thereof, is not reasonably likely to
result in the payment of a Material Environmental Amount.
SECTION 8. CONDITIONS PRECEDENT
8.1 Conditions to Initial Extensions of Credit. The agreement of each
Lender to make the initial extension of credit requested to be made by it is
subject to the satisfaction, immediately prior to or concurrently with the
making of such extension of credit on the Closing Date, of the following
conditions precedent:
(a) Loan Documents. The Agent shall have received:
(i) this Agreement, executed and delivered by a duly authorized
officer of the Borrower, with a counterpart for each Lender,
(ii) for the account of each Lender having a Term Loan
Commitment, a Term Loan Note of the Borrower conforming to the
requirements hereof and executed by a duly authorized officer of the
Borrower,
(iii) for the account of each Lender having a Bridge Loan
Commitment, a Bridge Loan Note of the Borrower conforming to the
requirements hereof and executed by a duly authorized officer of the
Borrower,
(iv) for the account of each Lender having a Revolving Credit
Commitment, a Revolving Credit Note of the Borrower conforming to the
requirements hereof and executed by a duly authorized officer of the
Borrower,
(v) the Borrower Pledge Agreement, executed and delivered by a
duly authorized officer of the Borrower, with a counterpart or a
conformed copy for each Lender,
(vi) the Subsidiaries Guarantee, executed and delivered by a duly
authorized officer of each of the Subsidiaries of the Borrower, with a
counterpart or a conformed copy for each Lender,
(vii) each of the Security Agreements, each executed and
delivered by a duly authorized officer of the party thereto, with a
counterpart or a conformed copy for each Lender,
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(viii) each of the Patent Assignments, each executed and
delivered by a duly authorized officer of the parties thereto, with a
counterpart or a conformed copy for each Lender,
(ix) each of the Trademark Assignments, each executed and
delivered by a duly authorized officer of the parties thereto, with a
counterpart or a conformed copy for each Lender, and
(x) a Bridge Guarantee executed and delivered by each of Zahn and
Gould.
(b) Related Agreements. The Agent shall have received, with a copy for
each Lender, true and correct copies, certified as to authenticity by the
Borrower, each of the Roll-Up Documents and the Cohen's Acquisition
Documents, and of such other documents or instruments as may be reasonably
requested by the Agent, including, without limitation, a copy of any debt
instrument, security agreement or other material contract to which the
Borrower, or its Subsidiaries may be a party.
(c) Permitted Junior Takeout Securities. The Agent shall have
received, with a copy for each Lender, a written commitment from Madeleine
LLC or another financing party satisfactory to the Agent to provide the
financing under the Permitted Junior Takeout Securities on terms and
conditions consistent with the definition of Permitted Junior Takeout
Securities, such commitment to be subject only to completion of definitive
documentation for the Permitted Junior Takeout Securities and to be
otherwise in form and substance acceptable to the Agent.
(d) Concurrent Transactions. (i) The Agent shall have received
evidence satisfactory to it that the Roll-up Transactions shall have been
consummated on or prior to the date of this Agreement in accordance with
the Roll-up Documents.
(ii) The Cohen's Acquisition shall have been, or shall be
concurrently with the making of the initial Loans, consummated in
accordance with the terms of the Cohen's Purchase Agreement, without
any amendment, modification or waiver thereof except with the consent
of the Required Lenders, and the Agent shall have received evidence
satisfactory to it to that effect. The Agent shall have received
evidence reasonably satisfactory to it that the aggregate
consideration paid by the Borrower in connection with the Cohen's
Acquisition, together with the transaction costs referred to in
Section 7.20(b), shall not exceed $18,797,549, up to $17,100,467 of
which shall be payable in cash plus an adjustment payable for a
working capital adjustment plus the Cohen's Subordinated Seller Note.
(iii) All amounts owing under the Existing Financing Documents
shall have been, or shall be concurrently with the making of the
initial Loans, repaid in full, and any Liens created pursuant to the
Existing Financing Documents shall have been or shall, concurrently
with the making of the initial Loans, released, and the Existing
Financing Documents shall terminate and be of no further force and
effect upon such
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repayment; in each case pursuant to such payout letters, Lien
releases, termination statements, mortgage satisfactions and other
documents as the Agent may require, each of which shall be in form and
substance satisfactory to the Agent.
(iv) The Borrower shall have entered into the executive
employment agreements (the "Employment Agreements") and management
incentive plans (the "Incentive Plans") listed on Schedule 8.1(d),
copies of each of which shall have been delivered to the Agent, and
each of which Employment Agreements and Incentive Plans shall be in
form and substance satisfactory to the Agent.
(v) The Borrower shall have executed and delivered the Warrant
Agreement, and the Warrants contemplated thereby shall have been duly
issued to CIBC, for its sole account.
(e) Closing Certificate. The Agent shall have received, with a
counterpart for each Lender, a certificate of each Loan Party, dated the
Closing Date, substantially in the form of Exhibit I-1, or I-2, as
applicable, with appropriate insertions and attachments, satisfactory in
form and substance to the Agent, executed by the President or any Vice
President and the Secretary or any Assistant Secretary of such Loan Party.
(f) Borrowing Base Certificate. The Agent shall have received, with a
counterpart for each Lender, a Borrowing Base Certificate showing the
Borrowing Base as of September 28, 1997, with appropriate insertions and
dated the Closing Date, satisfactory in form and substance to the Agent,
executed by the President or any Vice President of the Borrower.
(g) Proceedings of the Borrower. The Agent shall have received, with a
counterpart for each Lender, a copy of the resolutions, in form and
substance satisfactory to the Agent, of the Managing Members of the
Borrower authorizing (i) the execution, delivery and performance of this
Agreement and the other Loan Documents to which it is a party, (ii) the
borrowings contemplated hereunder and (iii) the granting by it of the Liens
created pursuant to the Borrower Security Documents, certified by the
Secretary or an Assistant Secretary of the Borrower as of the Closing Date,
which certificate shall be in form and substance satisfactory to the Agent
and shall state that the resolutions thereby certified have not been
amended, modified, revoked or rescinded.
(h) Borrower Incumbency Certificate. The Agent shall have received,
with a counterpart for each Lender, a certificate of the Borrower, dated
the Closing Date, as to the incumbency and signature of the officers of the
Borrower executing any Loan Document satisfactory in form and substance to
the Agent, executed by the President or any Vice President and the
Secretary or any Assistant Secretary of the Borrower.
(i) Proceedings of Subsidiaries. The Agent shall have received, with a
counterpart for each Lender, a copy of the resolutions, in form and
substance satisfactory to the Agent, of the Board of Directors, or Managing
Member, as
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applicable, of each Subsidiary of the Borrower which is a party to a Loan
Document authorizing (i) the execution, delivery and performance of the
Loan Documents to which it is a party and (ii) the granting by it of the
Liens created pursuant to the Subsidiaries Security Documents to which it
is a party, certified by the Secretary or an Assistant Secretary of each
such Subsidiary as of the Closing Date, which certificate shall be in form
and substance satisfactory to the Agent and shall state that the
resolutions thereby certified have not been amended, modified, revoked or
rescinded.
(j) Subsidiary Incumbency Certificates. The Agent shall have received,
with a counterpart for each Lender, a certificate of each Subsidiary of the
Borrower which is a Loan Party, dated the Closing Date, as to the
incumbency and signature of the officers of such Subsidiaries executing any
Loan Document, satisfactory in form and substance to the Agent, executed by
the President or any Vice President and the Secretary or any Assistant
Secretary of each such Subsidiary.
(k) Governing Documents. The Agent shall have received, with a
counterpart for each Lender, true and complete copies of the operating
agreement or incorporation and by-laws or other Governing Documents of the
Borrower and each Loan Party, certified as of the Closing Date as complete
and correct copies thereof by the Secretary or an Assistant Secretary of
the Borrower and each such Loan Party.
(l) Good Standing Certificates. The Agent shall have received, with a
copy for each Lender, certificates dated as of a recent date from the
Secretary of State or other appropriate authority, evidencing the good
standing of each Loan Party (i) in the jurisdiction of its organization and
(ii) in each other jurisdiction where its ownership, lease or operation of
property or the conduct of its business requires it to qualify as a foreign
Person except, as to this subclause (ii), where the failure to so qualify
could not reasonably be expected to have a Material Adverse Effect.
(m) Consents, Licenses and Approvals. The Agent shall have received,
with a counterpart for each Lender, a certificate of a Responsible Officer
of the Borrower (i) attaching copies of all consents, authorizations and
filings referred to in Section 7.4, and (ii) stating that such consents,
licenses and filings are in full force and effect, and each such consent,
authorization and filing shall be in form and substance satisfactory to the
Agent.
(n) Fees. The Agent shall have received the fees to be received on the
Closing Date referred to in the Fee Letter.
(o) Legal Opinions. The Agent shall have received, with a counterpart
for each Lender, the following executed legal opinions:
(i) the executed legal opinions of Katten, Muchin & Zavis,
counsel to the Borrower and the other Loan Parties, substantially in
the form of Exhibit J-1; and
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(ii) the executed legal opinion of Shefsky & Froelich Ltd.,
counsel to the Borrower and the other Loan Parties, substantially in
the form of Exhibit J-2.
Each such legal opinion shall cover such other matters incident to the
transactions contemplated by this Agreement as the Agent may reasonably
require.
(p) Pledged Stock; Stock Powers; Pledged Interests. The Agent shall
have received:
(i) the certificates representing the shares of stock pledged
pursuant to each of the Borrower Pledge Agreement, together with an
undated stock power for each such certificate executed in blank by a
duly authorized officer of the pledgor thereof,
(ii) all certificates, if any, representing the limited liability
company interests pledged pursuant to the Borrower Pledge Agreement,
together with an undated power for each such certificate executed in
blank by a duly authorized officer of the pledgor thereof, and, if
applicable, an Initial Transaction Statement with respect to each
pledged interest executed by a duly authorized officer of the pledgor
thereof.
Each issuer referred to in the Borrower Pledge Agreement shall have
delivered an acknowledgment of and consent to the Borrower Pledge
Agreement, executed by a duly authorized officer of such Issuer, in
substantially the form appended to the Borrower Pledge Agreement.
(q) Lockbox System. The Agent shall have received evidence
satisfactory to it that the system of lockboxes, collection accounts and
letters of instruction contemplated by the Security Agreements shall have
been established and remains in existence in accordance with the terms of
the Security Agreements.
(r) Actions to Perfect Liens. The Agent shall have received evidence
in form and substance satisfactory to it that all filings, recordings.
registrations and other actions, including, without limitation, the filing
of duly executed financing statements on form UCC-1, necessary or, in the
opinion of the Agent, desirable to perfect the Liens created by the
Security Documents shall have been completed. The Agent shall have
received, with a counterpart for each Lender, the Collateral Certificate of
each Loan Party referred to in each Security Agreement completed and
executed and delivered by a duly authorized officer of such Loan Party.
(s) Lien Searches. The Agent shall have received the results of a
recent search by a Person satisfactory to the Agent, of the Uniform
Commercial Code, judgment and tax lien filings which may have been filed
with respect to personal property of the Borrower and each subsidiary, and
the results of such search shall be satisfactory to the Agent.
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(t) Insurance. The Agent shall have received evidence in form and
substance satisfactory to it that all of the requirements of Section 9.5
hereof and Section 5(m) of the Security Agreements shall have been
satisfied.
(u) Environmental Reports. The Agent shall have received Phase I
environmental reports, prepared by a Person satisfactory to the Agent, and
which such Person shall have confirmed in writing that the Agent and the
Lenders shall be entitled to rely upon, with respect to each of the
Properties, and such environmental reports shall be in form and substance
satisfactory to the Agent.
(v) Landlord Agreements. The Agent shall have received a Landlord
Agreement with respect to each parcel of real property leased by any Loan
Party as of the Closing Date duly executed and delivered on behalf of the
lessee of such real property.
(w) Warehouse Bailment Agreements. The Borrower shall have used its
best efforts to cause the Agent to receive a Warehouse Bailment Agreement
from the operator of each warehouse at which any Loan Party may have any
inventory; provided, however, that if a Warehouse Bailment Agreement has
not been received by the Agent with respect to any such warehouse, the
Borrower shall cause such Warehouse Bailment Agreement to be delivered by
the time specified in Section 9.13.
8.2 Conditions to Each Extension of Credit. The agreement of each
Lender to make any extension of credit requested to be made by it on any date
(including, without limitation, its initial extension of credit) is subject to
the satisfaction of the following conditions precedent:
(a) Representations and Warranties. Each of the representations and
warranties made by the Borrower and the other Loan Parties in or pursuant
to the Loan Documents shall be true and correct in all material respects on
and as of such date as if made on and as of such date.
(b) No Default. No Default or Event of Default shall have occurred and
be continuing on such date or after giving effect to the extension of
credit requested to be made on such date.
(c) Borrowing Base. In the case of any Revolving Credit Loans
requested to be made, the Agent shall have timely received a Borrowing Base
Certificate for the most recent period for which such Borrowing Base
Certificate is required to be delivered, in accordance with Section 9.2(c).
(d) Additional Matters. All corporate and other proceedings, and all
documents, instruments and other legal matters in connection with the
transactions contemplated by this Agreement, the other Loan Documents and
the Cohen's Acquisition Documents shall be satisfactory in form and
substance to the Agent, and the Agent shall have received such other
documents and legal opinions in respect of any
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aspect or consequence of the transactions contemplated hereby or thereby as
it shall reasonably request.
Each borrowing by and each Letter of Credit issued on behalf of the Borrower
hereunder shall constitute a representation and warranty by the Borrower as of
the date thereof that the conditions contained in this Section 8.2 have been
satisfied.
SECTION 9. AFFIRMATIVE COVENANTS
The Borrower hereby agrees that, so long as any of the Commitments
remain in effect or any amount is owing to any Lender or the Agent hereunder or
under any other Loan Document or any Letter of Credit remains outstanding, the
Borrower shall and (except in the case of delivery of financial information,
reports and notices) shall cause each of its Subsidiaries to:
9.1 Financial Statements. Furnish to each Lender:
(a) as soon as available, but in any event within 90 days after the
end of each fiscal year of the Borrower, a copy of the consolidated balance
sheet of the Borrower and its consolidated Subsidiaries as at the end of
such year and the related consolidated statements of income and retained
earnings and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a
"going concern" or like qualification or exception, or qualification
arising out of the scope of the audit, by BDO Seidman LLP or other
independent certified public accountants of nationally recognized standing;
(b) as soon as available, but in any event not later than 45 days
after the end of each of the first three quarterly periods of each fiscal
year of the Borrower, the unaudited consolidated balance sheet of the
Borrower and its consolidated Subsidiaries as at the end of such quarter
and the related unaudited consolidated statements of income and retained
earnings and of cash flows of the Borrower and its consolidated
Subsidiaries for such quarter and the portion of the fiscal year through
the end of such quarter, setting forth in each case in comparative form the
figures for the previous year, certified by a Responsible Officer as being
fairly stated in all material respects (subject to normal year-end audit
adjustments); and
(c) as soon as available, but in any event not later than 30 days
after the end of each calendar month, the unaudited consolidated and
consolidating balance sheet of the Borrower and its consolidated
Subsidiaries as at the end of such month and the related unaudited
consolidated and consolidating statements of income and retained earnings
and of cash flows of the Borrower and its consolidated Subsidiaries for
such month and the portion of the fiscal year through the end of such
month, setting forth in each case in comparative form the figures for the
previous year, certified by a Responsible Officer as being fairly stated in
all material respects (subject to normal year-end audit adjustments);
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all such financial statements shall be complete and correct in all material
respects and shall be prepared in reasonable detail and in accordance with GAAP
applied consistently throughout the periods reflected therein and with prior
periods (except as approved by such accountants or officer, as the case may be,
and disclosed therein).
9.2 Certificates; Other Information. Furnish to each Lender:
(a) concurrently with the delivery of the financial statements
referred to in Section 9.1(a), a certificate of the independent certified
public accountants reporting on such financial statements stating that in
making the examination necessary therefor no knowledge was obtained of any
Default or Event of Default, except as specified in such certificate;
(b) concurrently with the delivery of the financial statements
referred to in Sections 9.1(a), (b) and (c), a certificate of a Responsible
Officer (i) stating that, to the best of such Officer's knowledge, the
Borrower during such period has observed or performed in all material
respects all of its covenants and other agreements, and satisfied every
material condition, contained in this Agreement and the other Loan
Documents to be observed, performed or satisfied by it, and that such
Officer has obtained no knowledge of any Default or Event of Default except
as specified in such certificate and (ii) showing in detail the
calculations supporting such Officer's certification of the Borrower's
compliance with the requirements of Section 10.1(a) through 10.1(d) and
Section 10.9;
(c) within fifteen days following the end of each calendar month, a
Borrowing Base Certificate showing the Borrowing Base as of the last day of
such month, and a summary accounts receivable aging, in each case certified
as complete and correct by a Responsible Officer;
(d) not later than thirty days prior to the end of each fiscal year of
the Borrower, a copy of the projections by the Borrower of the operating
budget and cash flow budget of the Borrower and its Subsidiaries for the
succeeding fiscal year, such projections to be accompanied by a certificate
of a Responsible Officer to the effect that such projections have been
prepared in good faith on the basis of sound financial planning practice
and that such Officer has no reason to believe they are incorrect or
misleading in any material respect;
(e) within five days after the same are sent, copies of all financial
statements and reports which the Borrower sends to its members, and within
five days after the same are filed, copies of all financial statements and
reports which the Borrower may make to, or file with, the Securities and
Exchange Commission or any successor or analogous Governmental Authority;
(f) during the month of September in each calendar year, a report of a
reputable insurance broker with respect to the insurance maintained by the
Borrower and its Subsidiaries in accordance with Section 9.5 of this
Agreement and Section 5(m)
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of each Security Agreement, and such supplemental reports as the Agent may
from time to time request; and
(g) promptly, such additional financial and other information as any
Lender may from time to time reasonably request.
9.3 Payment of Obligations. Pay, discharge or otherwise satisfy at or
before maturity or before they become delinquent, as the case may be, all its
obligations of whatever nature, except where the amount or validity thereof is
currently being contested in good faith by appropriate proceedings and reserves
in conformity with GAAP with respect thereto have been provided on the books of
the Borrower or its Subsidiaries, as the case may be.
9.4 Conduct of Business and Maintenance of Existence. Continue to
engage in business of the same general type as now conducted by it and preserve,
renew and keep in full force and effect its corporate existence and take all
reasonable action to maintain all rights, privileges and franchises necessary or
desirable in the normal conduct of its business except as otherwise permitted
pursuant to Section 10.5; comply with all Contractual Obligations and
Requirements of Law except to the extent that failure to comply therewith could
not, in the aggregate, be reasonably expected to have a Material Adverse Effect.
9.5 Maintenance of Property; Insurance. Keep all property useful and
necessary in its business in good working order and condition; maintain with
financially sound and reputable insurance companies insurance on all its
property in at least such amounts and against at least such risks (but including
in any event public liability, product liability and business interruption) as
are usually insured against in the same general area by companies engaged in the
same or a similar business, which insurance shall name the Agent as lender loss
payee, in the case of property or casualty insurance, and as an additional
insured, in the case of liability insurance, and shall provide for at least 30
days prior written notice to the Agent of any modification or cancellation
thereof; and furnish to each Lender, upon written request, full information as
to the insurance carried.
9.6 Inspection of Property; Books and Records; Discussions. Keep
proper books of records and account in which full, true and correct entries in
conformity with GAAP and all Requirements of Law shall be made of all dealings
and transactions in relation to its business and activities; and permit
representatives of any Lender to visit and inspect any of its properties and
examine and make abstracts from any of its books and records at any reasonable
time and as often as may reasonably be desired and to discuss the business,
operations, properties and financial and other condition of the Borrower and its
Subsidiaries with officers and employees of the Borrower and its Subsidiaries
and with its independent certified public accountants.
9.7 Notices. Promptly give notice to the Agent and each Lender of:
(a) the occurrence of any Default or Event of Default;
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(b) any (i) default or event of default under any Contractual
Obligation of the Borrower or any of its Subsidiaries or (ii) litigation,
investigation or proceeding which may exist at any time between the
Borrower or any of its Subsidiaries and any Governmental Authority, which
in either case, if not cured or if adversely determined, as the case may
be, could reasonably be expected to have a Material Adverse Effect;
(c) any litigation or proceeding affecting the Borrower or any of its
Subsidiaries in which the amount involved is $250,000 or more and not
covered by insurance or in which injunctive or similar relief is sought;
(d) of the acquisition by any Loan Party of any property or interest
in property (including, without limitation, real property), that is not
subject to a perfected Lien in favor of the Agent pursuant to the Security
Documents;
(e) of the occurrence of any transaction or occurrence referred to in
Section 6.5(c), and the receipt of any Net Proceeds or any insurance
proceeds as a result thereof (whether or not such Net Proceeds or proceeds
are then required to be applied to the repayment of Loans and reduction of
Revolving Credit Commitments as specified in Section 6.5(c));
(f) the following events, as soon as possible and in any event within
30 days after the Borrower knows or has reason to know thereof: (i) the
occurrence or expected occurrence of any Reportable Event with respect to
any Plan, a failure to make any required contribution to a Plan, the
creation of any Lien in favor of the PBGC or a Plan or any withdrawal from,
or the termination, Reorganization or Insolvency of, any Multiemployer Plan
or (ii) the institution of proceedings or the taking of any other action by
the PBGC or the Borrower or any Commonly Controlled Entity or any
Multiemployer Plan with respect to the withdrawal from, or the terminating,
Reorganization or Insolvency of, any Plan; and
(g) any development or event which could reasonably be expected to
have a Material Adverse Effect
Each notice pursuant to this Section shall be accompanied by a statement of a
Responsible Officer setting forth details of the occurrence referred to therein
and stating what action the Borrower proposes to take with respect thereto.
9.8 Environmental Laws (a) Comply with, and ensure compliance by all
tenants and subtenants, if any, with, all applicable Environmental Laws and
obtain and comply with and maintain, and use its reasonable efforts to ensure
that all tenants and subtenants obtain and comply with and maintain, any and all
material licenses, approvals, notifications, registrations or permits required
by applicable Environmental Laws.
(b) Conduct and complete all investigations, studies, sampling and
testing, and all remedial, removal and other actions required under
Environmental Laws and promptly comply with all lawful orders and directives of
all Governmental Authorities regarding
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Environmental Laws except to the extent that the same are being contested in
good faith by appropriate proceedings and the pendency of such proceedings could
not be reasonably expected to have a Material Adverse Effect.
9.9 Changes to Advance Rates, Standards of Eligibility and Reserves.
The Agent shall be entitled to (a) reduce the advance rates, increase the
standards of eligibility and establish or increase any reserves under this
Agreement on ten days' prior written notice to the Borrower, and (b) with the
prior written consent of the Lenders, increase the advance rates, reduce the
standards of eligibility and reduce any reserves under this Agreement, in each
case in its reasonable judgment.
9.10 Periodic Audit of Accounts Receivable and Inventory. The Agent
shall be entitled to perform a periodic due diligence inspection, test and
review of the accounts receivable and inventory of the Borrower and its
Subsidiaries on a mutually convenient Business Day twice during each calendar
year and shall in each case be satisfied in all material respects with the
results thereof; provided however, if the Agent in its reasonable judgment is
not satisfied that the results of any due diligence inspection, test, and review
performed pursuant to this Section 9.10 establish that the Loan Parties' most
recent determination of the Borrowing Base was made in compliance with the
applicable provisions of this Agreement, the Agent shall be entitled to perform
additional due diligence inspections, tests and reviews of such inventory and
accounts receivable on mutually convenient Business Days during the succeeding
twelve-month period until the Agent shall be so satisfied; and provided further,
that upon the occurrence and during the continuation of an Event of Default, the
Agent shall be entitled to perform such additional due diligence inspections,
tests and review of such accounts receivable as any Lender shall deem necessary
or advisable.
9.11 Additional Collateral; Additional Guarantors. (a) In the event
that the Borrower or any Subsidiary acquires any property or interest in
property (including, without limitation, real property) other than property made
subject to a Lien permitted under Section 10.3(g), that is not subject to a
perfected Lien in favor of the Agent pursuant to the Security Documents, the
Borrower shall, and shall cause Subsidiary to, take such action (including,
without limitation, the preparation and filing of mortgages or deeds of trust in
form and substance satisfactory to the Agent) as the Agent shall reasonably
request in order to create and/or perfect a Lien in favor of the Agent on such
property.
(b) In the event that the Borrower is permitted to acquire or form any
additional Subsidiary, such Subsidiary shall execute a guarantee and a security
agreement, or supplements to the Subsidiaries Guarantee and the Subsidiaries
Security Agreement, and the Borrower and/or any Subsidiary which is a holder of
any Capital Stock of such Subsidiary shall execute such pledge agreements or
supplements to the Borrower Pledge Agreement, each in form and substance
reasonably satisfactory to the Agent, and shall take such other action as shall
be necessary or advisable (including. without limitation, the execution of
financing statements on form UCC-1) in order to perfect the Liens granted by
such Subsidiary in favor of the Agent for the benefit of the Lenders and to
effect and perfect the pledge of all of the Capital Stock of such Subsidiary in
favor of the Agent for the benefit of the Lenders. Such
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Subsidiary shall thereupon become a Guarantor for all purposes under the Loan
Documents, including, without limitation, Section 9.11(a) of this Agreement. The
Agent shall be entitled to receive legal opinions of one or more counsel to the
Borrower and such Subsidiary addressing such matters as the Agent or its counsel
may reasonably request, including, without limitation, the enforceability of the
guaranty and the security agreement to which such Subsidiary becomes a party and
the pledge of the Capital Stock of such Subsidiary, and the creation, validity
and perfection of the Liens so granted by such Subsidiary and the Borrower
and/or other Subsidiaries to the Agent for the benefit of the Lenders.
9.12 Interest Rate Protection. As promptly as practicable, and in any
event within 60 days after the Closing Date, the Borrower will enter into with
one or more Lenders, and thereafter for a period of not less than three years
will maintain in effect, one or more interest rate protection agreements on such
terms as shall be reasonably satisfactory to the Agent, the effect of which
shall be to fix or limit the interest cost to the Borrower with respect to at
least 50% of the outstanding Term Loans.
9.13 Warehouse Bailment Agreements. As promptly as practicable, and in
any event within 30 days after the Closing Date, the Borrower will deliver to
the Agent a Warehouse Bailment Agreement with respect to each warehouse at which
any Loan Party may have inventory for which a Warehouse Bailment Agreement was
not provided on the Closing Date, duly executed and delivered on behalf of the
operator of such warehouse.
9.14 Key - Person Life Insurance. As promptly as practicable. and in
any event within 30 days following the Closing Date, the Borrower shall have
obtained a policy of "key-person" life insurance, in the amount of $5,000,000,
on each of Zahn and Gould, with such carriers and on such terms as are
satisfactory to the Agent. Such policies shall have been assigned to the Agent
for the benefit of the Lenders pursuant to a Borrower Assignment of Life
Insurance.
SECTION 10. NEGATIVE COVENANTS
The Borrower hereby agrees that, so long as any of the Commitments
remain in effect or any amount is owing to any Lender or the Agent hereunder or
under any other Loan Document, the Borrower shall not, and (except with respect
to Sections 10.1 or 10.8) shall not permit any of its Subsidiaries to, directly
or indirectly:
10.1 Financial Condition Covenants.
(a) Maintenance of Consolidated EBITDA. Permit Consolidated EBITDA for
any twelve-month period ending on the last day of each month during the periods
set forth below to be less than the following amounts during the following
periods:
<TABLE>
<CAPTION>
Period Amount
------ ------
<S> <C>
Closing Date through December 31, 1997 $ 6,300,000
January 1, 1998 through September 30, 1998 6,300,000
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
September 30, 1998 through November 30, 1998 8,000,000
November 30, 1998 through December 31, 1998 9,000,000
January 1, 1999 through September 30, 1999 9,000,000
September 30, 1999 through November 30, 1999 10,000,000
November 30, 1999 through December 31, 1999 11,000,000
January 1, 2000 through September 30, 2000 11,000,000
September 30, 2000 through November 30, 2000 11,750,000
November 30, 2000 through December 31, 2000 12,500,000
January 1, 2001 through September 30, 2001 12,500,000
October 1, 2001 through November 30, 2001 13,250,000
November 30, 2001 through December 31, 2001 14,000,000
</TABLE>
(b) Indebtedness to EBITDA. Permit the ratio at any date set forth in
the table below of (i) the sum of Consolidated Indebtedness and aggregate the
Available RC Commitments of the Borrower at such date to (ii) Consolidated
EBITDA for the period of four consecutive fiscal quarters ending on or about
such date to be less the ratio set forth opposite such date below:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
December 31, 1997 5.8 to 1
March 31, 1998 5.8 to 1
June 30, 1998 5.8 to 1
September 30, 1998 4.6 to 1
December 31, 1998 3.5 to 1
March 31, 1999 3.5 to 1
June 30, 1999 3.5 to 1
September 30, 1999 3.25 to 1
December 31, 1999 3.0 to 1
March 31, 2000 3.0 to 1
June 30, 2000 3.0 to 1
September 30, 2000 2.75 to 1
December 31, 2000 2.5 to 1
March 31, 2001 2.5 to 1
June 30, 2001 2.5 to 1
September 30, 2001 2.25 to 1
December 31, 2001 2.0 to 1
</TABLE>
(c) Interest Coverage. Permit the ratio at any date set forth below of
(i) Consolidated EBITDA for the period of four consecutive fiscal quarters
ending on such date minus capital expenditures made during such four-quarter
period to (ii) Consolidated Interest Expense for such four-quarter period to be
less than the ratio set forth below opposite such date:
<TABLE>
<CAPTION>
Date Ratio
---- -----
<S> <C>
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
December 31, 1997 3.00 to 1
March 31, 1998 3.00 to 1
June 30, 1998 3.00 to 1
September 30, 1998 3.00 to 1
December 31, 1998 3.25 to 1
March 31, 1999 3.25 to 1
June 30, 1999 3.25 to 1
September 30, 1999 3.25 to 1
December 31, 1999 4.00 to 1
March 31, 2000 4.00 to 1
June 30, 2000 4.00 to 1
September 30, 2000 4.00 to 1
December 31, 2000 and thereafter 4.5 to 1
</TABLE>
(d) Fixed Charge Coverage. Permit the ratio at any time, commencing
January 1, 1998. of (i) Consolidated EBITDA for any twelve-month period ending
on the last day of each month minus capital expenditures made during such
twelve-month period to (ii) Consolidated Fixed Charges for such twelve-month
period to be less than 1.15 to 1.00.
10.2 Limitation on Indebtedness. Create, incur, assume or suffer to
exist any Indebtedness, except:
(a) Indebtedness of the Borrower under this Agreement and the other
Loan Documents;
(b) Indebtedness in respect of the Permitted Junior Takeout
Securities, provided that the Net Proceeds thereof have been applied as
required under Section 6.4(c) to repay in full the Bridge Loans and all
accrued and unpaid interest thereon;
(c) Indebtedness of the Borrower to any Subsidiary Guarantor and of
any Subsidiary Guarantor to the Borrower or any other Subsidiary Guarantor;
(d) Indebtedness of the Borrower and any of itS Subsidiaries incurred
to finance the acquisition of fixed or capital assets (whether pursuant to
a loan, a Financing Lease or otherwise) in an aggregate principal amount
not exceeding as to the Borrower and its Subsidiaries $100,000 at any time
outstanding; and
(e) Indebtedness outstanding on the date hereof and listed on Schedule
10.2B and, prior to the Closing Date, Indebtedness outstanding on the date
hereof and listed on Schedule 10.2A.
10.3 Limitation on Liens. Create, incur, assume or suffer to exist any
Lien upon any of its property, assets or revenues, whether now owned or
hereafter acquired, except for:
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(a) Liens for taxes not yet due or which are being contested in good
faith by appropriate proceedings, provided that adequate reserves with
respect thereto are maintained on the books of the Borrower or its
Subsidiaries, as the case may be, in conformity with GAAP;
(b) carriers', warehousemen's, mechanics', materialmen's, repairmen's
or other like Liens arising in the ordinary course of business which are
not overdue for a period of more than 60 days or which are being contested
in good faith by appropriate proceedings;
(c) pledges or deposits in connection with workers' compensation,
unemployment insurance and other social security legislation and deposits
securing liability to insurance carriers under insurance or self-insurance
arrangements;
(d) deposits to secure the performance of bids, trade contracts (other
than for borrowed money), leases, statutory obligations, surety and appeal
bonds, performance bonds and other obligations of a like nature incurred in
the ordinary course of business;
(e) easements, rights-of-way, restrictions and other similar
encumbrances incurred in the ordinary course of business which, in the
aggregate, are not substantial in amount and which do not in any case
materially detract from the value of the property subject thereto or
materially interfere with the ordinary conduct of the business of the
Borrower or such Subsidiary;
(f) Liens in existence on the date hereof listed on Schedule 10.3,
securing indebtedness permitted by Section 10.2(e), provided that no such
Lien is spread to cover any additional property after the Closing Date and
that the amount of Indebtedness secured thereby is not increased, and
provided, further, that none of the Liens set forth on part A of Schedule
10.3 may remain outstanding after the Closing Date;
(g) Liens securing Indebtedness of the Borrower and its Subsidiaries
permitted by Section 10.2(c) incurred to finance the acquisition of fixed
or capital assets, provided that (i) such Liens shall be created
substantially simultaneously with the acquisition of such fixed or capital
assets, (ii) such Liens do not at any time encumber any property other than
the property financed by such Indebtedness, (iii) the amount of
Indebtedness secured thereby is not increased and (iv) the principal amount
of Indebtedness secured by any such Lien shall at no time exceed 100% of
the original purchase price of such property of such property at the time
it was acquired; and
(h) Liens created pursuant to the Security Documents.
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10.4 Limitation on Guarantee Obligations. Create, incur, assume or
suffer to exist any Guarantee Obligation except:
(a) Guarantee Obligations in existence on the date hereof and listed
on Schedule 10.4B and, prior to the Closing Date, Guarantee Obligations in
existence on the date hereof and listed on Schedule 10.4A;
(b) Guarantee Obligations in respect of the undrawn portion of the
face amount of Letters of Credit; and
(c) the Subsidiaries Guarantee.
10.5 Limitation on Fundamental Changes. Enter into any merger,
consolidation or amalgamation, or liquidate, wind up or dissolve itself (or
suffer any liquidation or dissolution), or convey, sell, lease, assign, transfer
or otherwise dispose of, all or substantially all of its property, business or
assets, or make any material change in its present method of conducting
business, except:
(a) any Subsidiary of the Borrower may be merged or consolidated with
or into the Borrower (provided that the Borrower shall be the continuing or
surviving corporation) or with or into any one or more wholly owned
Subsidiaries of the Borrower (provided that the wholly owned Subsidiary or
Subsidiaries shall be the continuing or surviving corporation); and
(b) any wholly owned Subsidiary may sell, lease, transfer or otherwise
dispose of any or all of its assets (upon voluntary liquidation or
otherwise) to the Borrower or any other wholly owned Subsidiary of the
Borrower.
10.6 Limitation on Sale of Assets. Convey, sell, lease, assign,
transfer or otherwise dispose of any of its property, business or assets
(including, without limitation, receivables and leasehold interests), whether
now owned or hereafter acquired, or, in the case of any Subsidiary, issue or
sell any shares of or other interests in such Subsidiary's Capital Stock to any
Person other than the Borrower or any wholly owned Subsidiary of the Borrower,
except:
(a) the sale or other disposition of obsolete or worn out property in
the ordinary course of business; provided that the Net Proceeds of each
such transaction are applied to the prepayment of the Loans as provided in
Section 6.5(c);
(b) the sale of inventory in the ordinary course of business;
(c) the sale or discount without recourse of accounts receivable
arising in the ordinary course of business in connection with the
compromise or collection thereof; and
(d) as permitted by Section 10.5(b).
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10.7 Limitation on Leases. Permit Consolidated Lease Expense for any
fiscal year of the Borrower to exceed $700,000.
10.8 Limitation on Dividends. Declare or pay any dividend on, or make
any payment on account of, or set apart assets for a sinking or other analogous
fund for, the purchase, redemption, defeasance, retirement or other acquisition
of, any shares or interests of any class of Capital Stock of the Borrower or any
warrants or options to purchase any such Capital Stock, whether now or hereafter
outstanding, or make any other distribution in respect thereof, either directly
or indirectly, whether in cash or property or in obligations of the Borrower or
any Subsidiary; provided, however that, the Borrower may make the distributions
to its members on the dates and in the amounts specified in Section 4.4 of the
Borrower's Operating Agreement (as in effect on the date hereof), so long as (a)
the Borrower is and was during the entire period of such quarter a partnership
for Federal income tax purposes that is not taxed as an association taxable as a
corporation pursuant to Section 7701 of the Code or as a corporation pursuant to
Section 7704 of the Code, (b) solely with respect to any such distribution to
Zahn, Gould and Lowell Kraff, no Default or Event of Default has occurred and is
continuing under Sections 11(a) or (f) of this Agreement at the time of such
distribution to Messrs. Zahn, Gould or Kraff, and (c) at least five Business
Days prior to the making of any such distribution, the Borrower shall (i) notify
each Lender of the amount and date of the proposed distribution and the
aggregate amount of all distributions previously made pursuant to this proviso
in respect of such calendar quarter, and provide a statement from the chief
financial officer of the Borrower setting forth in reasonable detail a
calculation of the amount of such distributions under such Section 4.4 of such
Operating Agreement.
10.9 Limitation on Capital Expenditures. Make or commit to make (by
way of the acquisition of securities of a Person or otherwise) any expenditure
in respect of the purchase or other acquisition of fixed or capital assets
(excluding any such asset acquired in connection with normal replacement and
maintenance programs properly charged to current operations), except for
expenditures in the ordinary course of business not exceeding, in the aggregate
for the Borrower and its Subsidiaries (a) $150,000 during the period beginning
on the Closing Date and ending December 31, 1997; (b) $1,000,000 during fiscal
year of the Borrower ending on the Friday closest to December 31, 1998; and (c)
$600,000 during each fiscal year of the Borrower thereafter.
10.10 Limitation on Investments, Loans and Advances. Make any advance,
loan, extension of credit or capital contribution to, or purchase any stock,
bonds, notes, debentures or other securities of or any assets constituting a
business unit of, or make any other investment in, any Person, except:
(a) extensions of trade credit in the ordinary course of business;
(b) investments in Cash Equivalents;
(c) the Cohen's Acquisition;
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(d) loans pursuant to Section 5(b) of the Agreement, dated as of
October 7, 1997, between the Borrower, Charles Mok, Charles Mok Trust dated
February 14, 1989, Wylie Mok and Wylie Mok Trust dated March 9, 1989, as
amended prior to the date hereof, in an aggregate amount not to exceed
$120,000; and
(e) investments by the Borrower in Subsidiary Guarantors and
investments by such Subsidiary Guarantors in the Borrower and in other
Subsidiary Guarantors.
10.11 Limitation on Optional Payments and Modifications of Certain
Agreements. (a) Make any optional payment or prepayment on or redemption or
purchase of any Indebtedness (other than the Loans), (b) amend, modify or
change, or consent or agree to any amendment, modification or change to any of
the terms of any such Indebtedness (other than any such amendment, modification
or change which would extend the maturity or reduce the amount of any payment of
principal thereof or which would reduce the rate or extend the date for payment
of interest thereon), or (c) amend, modify or change the terms of, or consent or
otherwise agree to any amendment, modification or change to the terms of, or
waive or otherwise relinquish any rights or causes of action under or arising
out of, any Cohen's Acquisition Document, any Employment Agreement, any
Incentive Plan, any Landlord's Agreement or any Warehouse Bailment Agreement.
10.12 Limitation on Transactions with Affiliates. Enter into any
transaction, including, without limitation, any purchase, sale, lease or
exchange of property or the rendering of any service, with any Affiliate unless
such transaction is (a) otherwise permitted under this Agreement, (b) in the
ordinary course of the Borrower's or such Subsidiary's business and (c) upon
fair and reasonable terms no less favorable to the Borrower or such Subsidiary,
as the case may be, than it would obtain in a comparable arm's length
transaction with a Person which is not an Affiliate.
10.13 Limitation on Sales and Leasebacks. Enter into any arrangement
with any Person providing for the leasing by the Borrower or any Subsidiary of
real or personal property which has been or is to be sold or transferred by the
Borrower or such Subsidiary to such Person or to any other Person to whom funds
have been or are to be advanced by such Person on the security of such property
or rental obligations of the Borrower or such Subsidiary.
10.14 Limitation on Changes in Fiscal Year. Permit the fiscal year of
the Borrower to end on a day other than the Friday closest to December 31.
10.15 Limitation on Negative Pledge Clauses. Enter into with any
Person any agreement, other than (a) this Agreement, (b) the Permitted Junior
Takeout Securities and (c) any industrial revenue bonds, purchase money
mortgages or Financing Leases permitted by this Agreement (in which cases, any
prohibition or limitation shall only be effective against the assets financed
thereby), which prohibits or limits the ability of the Borrower or any of its
Subsidiaries to create, incur, assume or suffer to exist any Lien upon any of
its property, assets or revenues, whether now owned or hereafter acquired.
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10.16 Limitation on Lines of Business. Enter into any business, either
directly or through any Subsidiary, except for those businesses in which the
Borrower and its Subsidiaries are engaged on the date of this Agreement.
10.17 Governing Documents. Amend its certificate of formation,
operating agreement, (except to increase the number of authorized units of
membership interests), partnership agreement or other Governing Documents,
without the prior written consent of the Required Lenders, which shall not be
unreasonably withheld or delayed.
10.18 Limitation on Subsidiary Formation. Form any Subsidiaries
unless, immediately upon the formation of such Subsidiary, all requirements of
Section 9.11 shall have been satisfied.
10.19 Limitation on Securities Issuances. (a) Permit any Subsidiary to
issue any shares or interests of Capital Stock, except such shares or interests
as constitute either (i) "certificated securities" (as defined in (S)8-102 of
the Uniform Commercial Code as in effect in the State of New York on the date
hereof (the "New York UCC")) or (ii) which constitute "general intangibles" as
defined in (S)9-106 of the Uniform Commercial Code as in effect in the
jurisdiction of such Subsidiary's organization (the "State of Formation UCC")
and, if such jurisdiction has adopted Revised Article 8 of the Uniform
Commercial Code (1994 Version) promulgated by The American Law institute and the
National Conference of Commissioners on Uniform State Laws and do not constitute
"securities" pursuant to (S)8-103(c) of the State of Formation UCC and in either
such case are pledged to the Agent pursuant to the Borrower Pledge Agreement or
(b) issue, or permit any Subsidiary to issue, any shares of preferred stock or
other preferred equity interests.
SECTION 11. EVENTS OF DEFAULT
If any of the following events shall occur and be continuing:
(a) The Borrower shall fail to pay any principal of any Loan or any
Reimbursement Obligation or any interest on any Loan, or any other amount
payable hereunder or under the other Loan Documents or the Fee Letter,
beyond the period of grace, not to exceed three business days from the date
due in accordance with the terms thereof or hereof; or
(b) Any representation or warranty made or deemed made by the Borrower
or any other Loan Party herein or in any other Loan Document or which is
contained in any certificate, document or financial or other statement
furnished by it at any time under or in connection with this Agreement or
any such other Loan Document shall prove to have been incorrect in any
material respect on or as of the date made or deemed made; or
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(c) The Borrower or any other Loan Party shall default in the
observance or performance of any agreement contained in Section 10, Section
5 of the Borrower Pledge Agreement, and Section 5 of any Security
Agreement; or
(d) The Borrower or any other Loan Party shall default in the
observance or performance of any other agreement contained in this
Agreement or any other Loan Document (other than as provided in paragraphs
(a) through (c) of this Section), and such default shall continue
unremedied or waived for a period of 30 days; or
(e) The Borrower or any of its Subsidiaries shall (i) default in any
payment of principal of or interest of any Indebtedness (other than the
Loans) or in the payment of any Guarantee Obligation, beyond the period of
grace, if any, provided in the instrument or agreement under which such
Indebtedness or Guarantee Obligation was created, if the aggregate amount
of the Indebtedness and/or Guarantee Obligations in respect of which such
default or defaults shall have occurred is at least $500,000; or (ii)
default in the observance or performance of any other agreement or
condition relating to any such Indebtedness or Guarantee Obligation or
contained in any instrument or agreement evidencing, securing or relating
thereto, or any other event shall occur or condition exist, the effect of
which default or other event or condition is to cause, or to permit the
holder or holders of such Indebtedness or beneficiary or beneficiaries of
such Guarantee Obligation (or a trustee or agent on behalf of such holder
or holders or beneficiary or beneficiaries) to cause, with the giving of
notice if required, such Indebtedness to become due prior to its stated
maturity or such Guarantee Obligation to become payable; or
(f) (i) The Borrower or any of itS Subsidiaries shall commence any
case, proceeding or other action (A) under any existing or future law of
any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency,
reorganization or relief of debtors, seeking to have an order for relief
entered with respect to it, or seeking to adjudicate it a bankrupt or
insolvent, or seeking reorganization, arrangement, adjustment, winding-up,
liquidation, dissolution, composition or other relief with respect to it or
its debts, or (B) seeking appointment of a receiver, trustee, custodian,
conservator or other similar official for it or for all or any substantial
part of its assets, or the Borrower or any of its Subsidiaries shall make a
general assignment for the benefit of its creditors; or (ii) there shall be
commenced against the Borrower or any of its Subsidiaries any case,
proceeding or other action of a nature referred to in clause (i) above
which (A) results in the entry of an order for relief or any such
adjudication or appointment or (B) remains undismissed, undischarged or
unbonded for a period of 60 days; or (iii) there shall be commenced against
the Borrower or any of its Subsidiaries any case, proceeding or other
action seeking issuance of a warrant of attachment, execution, distraint or
similar process against all or any substantial part of its assets which
results in the entry of an order for any such relief which shall not have
been vacated, discharged, or stayed or bonded pending appeal within 30 days
from the entry thereof; or (iv) the Borrower or any of its Subsidiaries
shall take any action in furtherance of, or indicating its consent to,
approval of, or acquiescence in, any of the
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acts set forth in clause (i), (ii), or (iii) above; or (v) the Borrower or
any of its Subsidiaries shall generally not, or shall be unable to, or
shall admit in writing its inability to, pay its debts as they become due;
or
(g) (i) Any Person shall engage in any "prohibited transaction" (as
defined in Section 406 of ERISA or Section 4975 of the Code) involving any
Plan, (ii) any "accumulated funding deficiency" (as defined in Section 302
of ERISA), whether or not waived, shall exist with respect to any Plan or
any Lien in favor of the PBGC or a Plan shall arise on the assets of the
Borrower or any Commonly Controlled Entity, (iii) a Reportable Event shall
occur with respect to, or proceedings shall commence to have a trustee
appointed, or a trustee shall be appointed, to administer or to terminate,
any Single Employer Plan, which Reportable Event or commencement of
proceedings or appointment of a trustee is, in the reasonable opinion of
the Required Lenders, likely to result in the termination of such Plan for
purposes of Title IV of ERISA, (iv) any Single Employer Plan shall
terminate for purposes of Title IV of ERISA, (v) the Borrower or any
Commonly Controlled Entity shall, or in the reasonable opinion of the
Required Lenders is likely to, incur any liability in connection with a
withdrawal from, or the Insolvency or Reorganization of, a Multiemployer
Plan or (vi) any other event or condition shall occur or exist with respect
to a Plan; and in each case in clauses (i) through (vi) above, such event
or condition, together with all other such events or conditions, if any,
could reasonably be expected to have a Material Adverse Effect; or
(h) One or more judgments or decrees shall be entered against the
Borrower or any of its Subsidiaries involving in the aggregate a liability
(not paid or fully covered by insurance) of $250,000 or more, and all such
judgments or decrees shall not have been vacated, discharged, stayed or
bonded pending appeal within 60 days from the entry thereof; or
(i) (i) Any of the Security Documents shall cease, for any reason, to
be in full force and effect, or the Borrower or any other Loan Party which
is a party to any of the Security Documents shall so assert or (ii) the
Lien created by any of the Security Documents shall cease to be enforceable
and of the same effect and priority purported to be created thereby other
than a partial or full release in accordance with the terms thereof; or
(j) The Subsidiaries Guarantee shall cease, for any reason, to be in
full force and effect or any Guarantor shall so assert; or
(k) (i) Zahn and Gould and/or members of their respective Family
Groups shall at any time cease to own, collectively, at least 45% of the
issued and outstanding Capital stock of the Borrower, or (ii) any Person or
"group" (within the meaning of Section 13(d) or 14(d) of the Securities
Exchange Act of 1934, as amended) (other than members of the Borrower owing
more than 20% of the membership interests of the Borrower as of the date
hereof) (A) shall have acquired beneficial ownership of 20% or more of any
outstanding class of Capital Stock of the Borrower or (B) shall obtain the
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power (whether or not exercised) to direct or cause the direction of the
management and policies of the Borrower, whether by contract or otherwise,
or (ii) the Managing Members of the Borrower shall not consist of Zahn;
then, and in any such event, (A) if such event is an Event of Default specified
in clause (i) or (ii) of paragraph (f) of this Section with respect to the
Borrower. automatically the Commitments shall immediately terminate and the
Loans hereunder (with accrued interest thereon) and all other amounts owing
under this Agreement (including, without limitation, all amounts of L/C
Obligations, whether or not the beneficiaries of the then outstanding Letters of
Credit shall have presented the documents required thereunder) shall immediately
become due and payable, and (B) if such event is any other Event of Default,
either or both of the following actions may be taken: (i) with the consent of
the Required Lenders, the Agent may, or upon the request of the Required
Lenders, the Agent shall, by notice to the Borrower declare the Commitments to
be terminated forthwith, whereupon the Commitments shall immediately terminate;
and (ii) with the consent of the Required Lenders, the Agent may, or upon the
request of the Required Lenders, the Agent shall, by notice to the Borrower,
declare the Loans hereunder (with accrued interest thereon) and all other
amounts owing under this Agreement (including, without limitation, all amounts
of L/C Obligations, whether or not the beneficiaries of the then outstanding
Letters of Credit shall have presented the documents required thereunder) to be
due and payable forthwith, whereupon the same shall immediately become due and
payable.
With respect to all Letters of Credit with respect to which
presentment for honor shall not have occurred at the time of an acceleration
pursuant to the preceding paragraph, the Borrower shall at such time deposit in
a cash collateral account opened by the Agent an amount equal to the aggregate
then undrawn and unexpired amount of such Letters of Credit. The Borrower hereby
grants to the Agent, for the benefit of the Issuing Bank and the L/C
Participants, a security interest in such cash collateral to secure all
obligations of the Borrower under this Agreement and the other Loan Documents.
Amounts held in such cash collateral account shall be applied by the Agent to
the payment of drafts drawn under such Letters of Credit, and the unused portion
thereof after all such Letters of Credit shall have expired or been fully drawn
upon, if any, shall be applied to repay other obligations of the Borrower
hereunder and under the Notes. After all such Letters of Credit shall have
expired or been fully drawn upon, all Reimbursement Obligations shall have been
satisfied and all other obligations of the Borrower hereunder and under the
Notes shall have been paid in full, the balance, if any, in such cash collateral
account shall be returned to the Borrower. The Borrower shall execute and
deliver to the Agent, for the account of the Issuing Bank and the L/C
Participants, such further documents and instruments as the Agent may request to
evidence the creation and perfection of the within security interest in such
cash collateral account.
Except as expressly provided above in this Section and elsewhere in
this Agreement and the other Loan Documents, presentment, demand, protest and
all other notices of any kind are hereby expressly waived.
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SECTION 12. THE AGENT
12.1 Appointment. Each Lender hereby irrevocably designates and
appoints the Agent as the agent of such Lender under this Agreement and the
other Loan Documents, and each such Lender irrevocably authorizes the Agent, in
such capacity, to take such action on its behalf under the provisions of this
Agreement and the other Loan Documents and to exercise such powers and perform
such duties as are expressly delegated to the Agent by the terms of this
Agreement and the other Loan Documents, together with such other powers as are
reasonably incidental thereto. Notwithstanding any provision tO the contrary
elsewhere in this Agreement, the Agent shall not have any duties or
responsibilities, except those expressly set forth herein, or any fiduciary
relationship with any Lender, and no implied covenants, functions,
responsibilities, duties, obligations or liabilities shall be read into this
Agreement or any other Loan Document or otherwise exist against the Agent.
12.2 Delegation of Duties. The Agent may execute any of its duties
under this Agreement and the other Loan Documents by or through agents or
attorneys-in-fact and shall be entitled to advice of counsel concerning all
matters pertaining to such duties. The Agent shall not be responsible for the
negligence or misconduct of any agents or attorneys in-fact selected by it with
reasonable care.
12.3 Exculpatory Provisions. Neither the Agent nor any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates shall be
(i) liable for any action lawfully taken or omitted to be taken by it or such
Person under or in connection with this Agreement or any other Loan Document
(except for its or such Person's own gross negligence or willful misconduct) or
(ii) responsible in any manner to any of the Lenders for any recitals,
statements, representations or warranties made by the Borrower or any officer
thereof contained in this Agreement or any other Loan Document or in any
certificate, report, statement or other document referred to or provided for in,
or received by the Agent under or in connection with, this Agreement or any
other Loan Document or for the value, validity, effectiveness, genuineness,
enforceability or sufficiency of this Agreement or any other Loan Document or
for any failure of the Borrower to perform its obligations hereunder or
thereunder. The Agent shall not be under any obligation to any Lender to
ascertain or to inquire as to the observance or performance of any of the
agreements contained in, or conditions of, this Agreement or any other Loan
Document, or to inspect the properties, books or records of the Borrower.
12.4 Reliance by Agent. The Agent shall be entitled to rely, and shall
be fully protected in relying, upon any Note, writing, resolution, notice,
consent, certificate, affidavit, letter, cablegram, telegram, telecopy, telex or
teletype message, statement, order or other document or conversation believed by
it to be genuine and correct and to have been signed, sent or made by the proper
Person or Persons and upon advice and statements of legal counsel (including,
without limitation, counsel to the Borrower or any other Loan Party),
independent accountants and other experts selected by the Agent. The Agent may
deem and treat the payee of any Note as the owner thereof for all purposes
unless a written notice of assignment, negotiation or transfer thereof shall
have been filed with the Agent. The Agent
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shall be fully justified in failing or refusing to take any action under this
Agreement or any other Loan Document unless it shall first receive such advice
or concurrence of the Required Lenders as it deems appropriate or it shall first
be indemnified to its satisfaction by the Lenders against any and all liability
and expense which may be incurred by it by reason of taking or continuing to
take any such action. The Agent shall in all cases be fully protected in acting,
or in refraining from acting, under this Agreement and the other Loan Documents
in accordance with a request of the Required Lenders, and such request and any
action taken or failure to act pursuant thereto shall be binding upon all the
Lenders and all future holders of the Loans.
12.5 Notice of Default. The Agent shall not be deemed to have
knowledge or notice of the occurrence of any Default or Event of Default
hereunder unless the Agent has received notice from a Lender or the Borrower
referring to this Agreement, describing such Default or Event of Default and
stating that such notice is a "notice of default". In the event that the Agent
receives such a notice, the Agent shall give notice thereof to the Lenders. The
Agent shall take such action with respect to such Default or Event of Default as
shall be reasonably directed by the Required Lenders; provided that unless and
until the Agent shall have received such directions, the Agent may (but shall
not be obligated to) take such action, or refrain from taking such action, with
respect to such Default or Event of Default as it shall deem advisable in the
best interests of the Lenders.
12.6 Non-Reliance on Agent and Other Lenders. Each Lender expressly
acknowledges that neither the Agent nor any of its officers, directors,
employees, agents, attorneys-in-fact or Affiliates has made any representations
or warranties to it and that no act by the Agent hereinafter taken, including
any review of the affairs of the Borrower or any other Loan Party, shall be
deemed to constitute any representation or warranty by the Agent to any Lender.
Each Lender represents to the Agent that it has, independently and without
reliance upon the Agent or any other Lender, and based on such documents and
information as it has deemed appropriate, made its own appraisal of and
investigation into the business, operations, property, financial and other
condition and creditworthiness of the Borrower and the other Loan Parties and
made its own decision to make its Loans hereunder and enter into this Agreement.
Each Lender also represents that it will, independently and without reliance
upon the Agent or any other Lender, and based on such documents and information
as it shall deem appropriate at the time, continue to make its own credit
analysis, appraisals and decisions in taking or not taking action under this
Agreement and the other Loan Documents, and to make such investigation as it
deems necessary to inform itself as to the business, operations, property,
financial and other condition and creditworthiness of the Borrower. Except for
notices, reports and other documents expressly required to be furnished to the
Lenders by the Agent hereunder or under the other Loan Documents, the Agent
shall not have any duty or responsibility to provide any Lender with any credit
or other information concerning the business, operations, property, condition
(financial or otherwise), prospects or creditworthiness of the Borrower or any
other Loan Party which may come into the possession of the Agent or any of its
officers, directors, employees, agents, attorneys-in-fact or Affiliates.
12.7 Indemnification. The Lenders agree to indemnify the Agent in its
capacity as such (to the extent not reimbursed by the Borrower and without
limiting the
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obligation of the Borrower to do so), ratably according to their respective
Credit Exposure Percentages in effect on the date on which indemnification is
sought, from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses or disbursements of any
kind whatsoever which may at any time (including, without limitation, at any
time following the payment of the Loans) be imposed on, incurred by or asserted
against the Agent in any way relating to or arising out of, the Commitments,
this Agreement, any of the other Loan Documents or any documents contemplated by
or referred to herein or therein or the transactions contemplated hereby or
thereby or any action taken or omitted by the Agent under or in connection with
any of the foregoing; provided that no Lender shall be liable for the payment of
any portion of such liabilities, obligations, losses, damages, penalties,
actions, judgments, suits, costs, expenses or disbursements resulting solely
from the Agent's gross negligence or willful misconduct. The agreements in this
Section shall survive the payment of the Loans and all other amounts payable
hereunder.
12.8 Agent in Its Individual Capacity. The Agent and its Affiliates
may make loans to, accept deposits from and generally engage in any kind of
business with the Borrower and the other Loan Parties as though the Agent were
not the Agent hereunder and under the other Loan Documents. With respect to the
Loans made by it and with respect to any Letter of Credit issued or participated
in by it, the Agent shall have the same rights and powers under this Agreement
and the other Loan Documents as any Lender and may exercise the same as though
it were not the Agent, and the terms "Lender" and "Lenders" shall include the
Agent in its individual capacity.
12.9 Successor Agent. The Agent may resign as Agent upon 10 days'
notice to the Lenders and the Borrower. If the Agent shall resign as Agent under
this Agreement and the other Loan Documents, then the Required Lenders shall
appoint from among the Lenders a successor agent for the Lenders, which
successor agent shall be approved by the Borrower, whereupon such successor
agent shall succeed to the rights, powers and duties of the Agent, and the term
"Agent" shall mean such successor agent effective upon such appointment and
approval, and the former Agent's rights, powers and duties as Agent shall be
terminated, without any other or further act or deed on the part of such former
Agent or any of the parties to this Agreement or any holders of the Loans. After
any retiring Agent's resignation as Agent, the provisions of this Section 10
shall inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent under this Agreement and the other Loan Documents.
SECTION 13. MISCELLANEOUS
13.1 Amendments and Waivers. Neither this Agreement nor any other Loan
Document, nor any terms hereof or thereof may be amended, supplemented or
otherwise modified except in accordance with the provisions of this Section
13.1. The Required Lenders may, or, with the written consent of the Required
Lenders, the Agent may, from time to time, (a) enter into with the Borrower
written amendments, supplements or modifications hereto and to the other Loan
Documents for the purpose of adding any provisions to this Agreement or the
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other Loan Documents or changing in any manner the rights of the Lenders or of
the Borrower hereunder or thereunder or (b) waive, on such terms and conditions
as the Required Lenders or the Agent, as the case may be, may specify in such
instrument, any of the requirements of this Agreement or the other Loan
Documents or any Default or Event of Default and its consequences; provided,
however, that no such waiver and no such amendment, supplement or modification
shall (i) reduce the amount or extend the scheduled date of maturity of any Loan
or of any installment thereof, or reduce the stated rate of any interest or fee
payable hereunder or extend the scheduled date of any payment thereof or
increase the amount or extend the expiration date of any Lender's Commitments,
in each case without the consent of each Lender affected thereby, or (ii) amend,
modify or waive any provision of this Section 13.1 or reduce the percentage
specified in the definition of Required Lenders or Majority Lenders, or consent
to the assignment or transfer by the Borrower of any of its rights and
obligations under this Agreement and the other Loan Documents or release all or
substantially all of the Collateral or release all or substantially all of the
Guarantors from their obligations under the Subsidiaries Guarantee, in each case
without the written consent of each of the Lenders directly affected thereby, or
(iii) amend, modify or waive any provision of Section 12 without the written
consent of the then Agent. Any such waiver and any such amendment, supplement or
modification shall apply equally to each of the Lenders and shall be binding
upon the Borrower, the Lenders, the Agent and all future holders of the Loans.
In the case of any waiver, the Borrower, the Lenders and the Agent shall be
restored to their former positions and rights hereunder and under the other Loan
Documents, and any Default or Event of Default waived shall be deemed to be
cured and not continuing; but no such waiver shall extend to any subsequent or
other Default or Event of Default or impair any right consequent thereon.
13.2 Notices. All notices, requests and demands to or upon the
respective parties hereto to be effective shall be in writing (including by
facsimile transmission) and, unless otherwise expressly provided herein, shall
be deemed to have been duly given or made (a) in the case of delivery by hand,
when delivered, (b) in the case of delivery by mail, three Business Days after
being deposited in the mails, postage prepaid, or (c) in the case of delivery by
facsimile transmission, when sent and receipt has been electronically confirmed,
addressed as follows in the case of the Borrower and the Agent, and as set forth
in Schedule 1.0 in the case of the other parties hereto, or to such other
address as may be hereafter notified by the respective parties hereto:
The Borrower: Diversified Food Group, L.L.C.
6901 North Hamlin Avenue
Lincolnwood, Illinois 60645
Attention: Mr. Andrew Zahn
Telephone: (847) 763-9500
Fax: (847) 763-0022
The Agent: Canadian Imperial Bank of Commerce
425 Lexington Avenue, 3rd Floor
New York, New York 10017
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Attention: Mr. Dayl W. Pearson
Telephone: (212) 885-4722
Fax: (212) 885-4998
provided that any notice, request or demand to or upon the Agent or the Lenders
pursuant to Section 2.3, 3.3, 4.3, 4.5, 6.2, 6.4 or 6.8(b) shall not be
effective until received.
13.3 No Waiver; Cumulative Remedies. No failure to exercise and no
delay in exercising, on the part of the Agent or any Lender, any right, remedy,
power or privilege hereunder or under the other Loan Documents shall operate as
a waiver thereof; nor shall any single or partial exercise of any right, remedy,
power or privilege hereunder preclude any other or further exercise thereof or
the exercise of any other right, remedy, power or privilege. The rights,
remedies, powers and privileges herein provided are cumulative and not exclusive
of any rights, remedies, powers and privileges provided by law.
13.4 Survival of Representations and Warranties. All representations
and warranties made hereunder, in the other Loan Documents and in any document,
certificate or statement delivered pursuant hereto or in connection herewith
shall survive the execution and delivery of this Agreement and the making of the
Loans hereunder.
13.5 Payment of Expenses and Taxes. The Borrower agrees (a) to pay or
reimburse the Agent for all its reasonable out-of-pocket costs and expenses
incurred in connection with the development, preparation and execution of, and
any amendment, supplement or modification to, this Agreement and the other Loan
Documents and any other documents prepared in connection herewith or therewith,
and the consummation and administration of the transactions contemplated hereby
and thereby, including, without limitation, fees and disbursements of counsel to
the Agent, (b) to pay or reimburse each Lender and the Agent for all its costs
and expenses incurred in connection with the enforcement or preservation of any
rights under this Agreement, the other Loan Documents and any such other
documents, including, without limitation, the fees and disbursements of counsel
(including the allocated fees and expenses of in-house counsel) to each Lender
and of counsel to the Agent, (c) to pay, indemnify, and hold each Lender and the
Agent harmless from, any and all recording and filing fees and any and all
liabilities with respect to, or resulting from any delay in paying, stamp,
excise and other taxes, if any, which may be payable or determined to be payable
in connection with the execution and delivery of, or consummation or
administration of any of the transactions contemplated by, or any amendment,
supplement or modification of, or any waiver or consent under or in respect of,
this Agreement, the other Loan Documents and any such other documents, and (d)
to pay, indemnify, and hold each Lender and the Agent harmless from and against
any and all other liabilities, obligations, losses, damages, penalties, actions,
judgments, suits, costs, expenses or disbursements of any kind or nature
whatsoever with respect to the execution, delivery, enforcement, performance and
administration of this Agreement, the other Loan Documents, the Cohen's
Acquisition Documents, the Cohen's Acquisition, or the use of the proceeds of
the Loans in connection with the Cohen's Acquisition and the other transactions
contemplated by the Cohen's Acquisition Documents and this Agreement and any
such other documents,
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including, without limitation, any of the foregoing relating to the violation
of, noncompliance with or liability under, any Environmental Law applicable to
the operations of the Borrower, any of its Subsidiaries, or any of the
Properties (all the foregoing in this clause (d), collectively, the "indemnified
liabilities"), provided, that the Borrower shall have no obligation hereunder to
the Agent or any Lender with respect to indemnified liabilities arising from (i)
the gross negligence or willful misconduct of the Agent or any such Lender or
(ii) legal proceedings commenced against the Agent or any such Lender by any
security holder or creditor thereof arising out of and based upon rights
afforded any such security holder or creditor solely in its capacity as such.
The agreements in this Section shall survive repayment of the Loans and all
other amounts payable hereunder.
13.6 Successors and Assigns; Participations and Assignments. (a) This
Agreement shall be binding upon and inure to the benefit of the Borrower, the
Lenders, the Agent and their respective successors and assigns, except that the
Borrower may not assign or transfer any of its rights or obligations under this
Agreement without the prior written consent of each Lender.
(b) Any Lender may, in the ordinary course of its commercial lending
or investment business and in accordance with applicable law, at any time sell
to one or more banks or other entities ("Participants") participating interests
in any Loan owing to such Lender, any Commitment of such Lender or any other
interest of such Lender hereunder and under the other Loan Documents. In the
event of any such sale by a Lender of a participating interest to a Participant,
such Lender's obligations under this Agreement to the other parties to this
Agreement shall remain unchanged, such Lender shall remain solely responsible
for the performance thereof, such Lender shall remain the holder of any such
Loan for all purposes under this Agreement and the other Loan Documents, and the
Borrower and the Agent shall continue to deal solely and directly with such
Lender in connection with such Lender's rights and obligations under this
Agreement and the other Loan Documents. The Borrower agrees that if amounts
outstanding under this Agreement are due or unpaid, or shall have been declared
or shall have become due and payable upon the occurrence of an Event of Default,
each Participant shall, to the maximum extent permitted by applicable law, be
deemed to have the right of setoff in respect of its participating interest in
amounts owing under this Agreement to the same extent as if the amount of its
participating interest were owing directly to it as a Lender under this
Agreement, provided that, in purchasing such participating interest, such
Participant shall be deemed to have agreed to share with the Lenders the
proceeds thereof as provided in Section 13.7(a) as fully as if it were a Lender
hereunder. The Borrower also agrees that each Participant shall be entitled to
the benefits of Sections 6.10, 6.11, and 6.12 with respect to its participation
in the Commitments and the Loans outstanding from time to time as if it was a
Lender; provided that, in the case of Section 6.11, such Participant shall have
complied with the requirements of said Section and provided, further, that no
Participant shall be entitled to receive any greater amount pursuant to any such
Section than the transferor Lender would have been entitled to receive in
respect of the amount of the participation transferred by such transferor Lender
to such Participant had no such transfer occurred.
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(c) Any Lender may, in the ordinary course of its commercial lending
or investment business and in accordance with applicable law, at any time and
from time to time assign to any other Lender or any affiliate or Related Fund
thereof or, with the consent of the Borrower and the Agent (which shall not be
unreasonably withheld), to an additional bank or financial institution (an
"Assignee") all or any part of its rights and obligations under this Agreement
and the other Loan Documents pursuant to an Assignment and Acceptance,
substantially in the form of Exhibit K, with appropriate completions (an
"Assignment and Acceptance"), executed by such Assignee, such assigning Lender
(and, in the case of an Assignee that is not then a Lender or an affiliate
thereof, by the Borrower and the Agent) and delivered to the Agent for its
acceptance and recording in the Register, provided that, in the case of any such
assignment to an additional bank or financial institution, if such assignment is
of less than all of the rights and obligations of the assigning Lender, the sum
of the aggregate principal amount of the Loans, the aggregate amount of the L/C
Obligations and the aggregate amount of the unused Revolving Credit Commitments
being assigned and, the sum of the aggregate principal amount of the Loans, the
aggregate amount of the L/C Obligations and the aggregate amount of the unused
Revolving Credit Commitments remaining with the assigning Lender are each not
less than $5,000,000 (or such lesser amount as may be agreed to by the Agent and
the Borrower). Upon such execution, delivery, acceptance and recording, from and
after the effective date determined pursuant to such Assignment and Acceptance,
(x) the Assignee thereunder shall be a party hereto and, to the extent provided
in such Assignment and Acceptance, have the rights and obligations of a Lender
hereunder with Commitments as set forth therein, and (y) the assigning Lender
thereunder shall, to the extent provided in such Assignment and Acceptance, be
released from its obligations under this Agreement (and, in the case of an
Assignment and Acceptance covering all or the remaining portion of an assigning
Lender's rights and obligations under this Agreement, such assigning Lender
shall cease to be a party hereto). Notwithstanding any provision of this
paragraph (c) and paragraph (e) of this Section, unless requested by the
Assignee and/or the assigning Lender, new Notes shall not be required to be
executed and delivered by the Borrower, for any assignment which occurs at any
time when any Event of Default shall have occurred and be continuing.
(d) The Agent, on behalf of the Borrower, shall maintain at the
address of the Agent referred to in Section 13.2 a copy of each Assignment and
Acceptance delivered to it and a register (the "Register") for the recordation
of the names and addresses of the Lenders and the Commitments of, and principal
amounts of the Loans owing to, each Lender from time to time. The entries in the
Register shall be conclusive, in the absence of manifest error, and the
Borrower, the Agent and the Lenders may (and, in the case of any Loan or other
obligation hereunder not evidenced by a Note, shall) treat each Person whose
name is recorded in the Register as the owner of a Loan or other obligation
hereunder as the owner thereof for all purposes of this Agreement and the other
Loan Documents, notwithstanding any notice to the contrary. Any assignment of
any Loan or other obligation hereunder not evidenced by a Note shall be
effective only upon appropriate entries with respect thereto being made in the
Register. The Register shall be available for inspection by the Borrower or any
Lender at any reasonable time and from time to time upon reasonable prior
notice.
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(e) Upon its receipt of an Assignment and Acceptance executed by an
assigning Lender and an Assignee (and, in the case of an Assignee that is not
then a Lender or an affiliate thereof, by the Borrower and the Agent) together
with payment to the Agent of a registration and processing fee of $3,500, the
Agent shall (i) promptly accept such Assignment and Acceptance and (ii) on the
effective date determined pursuant thereto record the information contained
therein in the Register and give notice of such acceptance and recordation to
the Lenders and the Borrower.
(f) The Borrower authorizes each Lender to disclose to any Participant
or Assignee (each, a "Transferee") and any prospective Transferee subject to the
provisions of Section 13.15, any and all financial information in such Lender's
possession concerning the Borrower and its Affiliates which has been delivered
to such Lender by or on behalf of the Borrower pursuant to this Agreement or
which has been delivered to such Lender by or on behalf of the Borrower in
connection with such Lender's credit evaluation of the Borrower and its
Affiliates prior to becoming a party to this Agreement.
(g) For avoidance of doubt, the parties to this Agreement acknowledge
that the provisions of this Section concerning assignments of Loans and Notes
relate only to absolute assignments and that such provisions do not prohibit
assignments creating security interests, including, without limitation, any
pledge or assignment by a Lender of any Loan or Note to any Federal Reserve
Bank, in accordance with applicable law.
13.7 Adjustments; Set-off. (a) If any Lender (a "benefitted Lender")
shall at any time receive any payment of all or part of its Loans or the
Reimbursement Obligations owing to it, or interest thereon, or receive any
collateral in respect thereof (whether voluntarily or involuntarily, by set-off,
pursuant to events or proceedings of the nature referred to in Section 11(f), or
otherwise), in a greater proportion than any such payment to or collateral
received by any other Lender, if any, in respect of such other Lender's Loans or
the Reimbursement Obligations owing to it, or interest thereon, such benefitted
Lender shall purchase for cash from the other Lenders a participating interest
in such portion of each such other Lender's Loan or the Reimbursement
Obligations owing to it, or shall provide such other Lenders with the benefits
of any such collateral, or the proceeds thereof, as shall be necessary to cause
such benefitted Lender to share the excess payment or benefits of such
collateral or proceeds ratably with each of the Lenders; provided, however, that
if all or any portion of such excess payment or benefits is thereafter recovered
from such benefitted Lender, such purchase shall be rescinded, and the purchase
price and benefits returned, to the extent of such recovery, but without
interest. The Borrower agrees that each Lender so purchasing a portion of
another Lender's Loan may exercise all rights of payment (including, without
limitation, rights of set-off) with respect to such portion as fully as if such
Lender were the direct holder of such portion.
(b) In addition to any rights and remedies of the Lenders provided by
law, each Lender shall have the right, without prior notice to the Borrower, any
such notice being expressly waived by the Borrower to the extent permitted by
applicable law, upon any amount becoming due and payable by the Borrower
hereunder (whether at the stated maturity, by
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acceleration or otherwise) to set-off and appropriate and apply against such
amount any and all deposits (general or special, time or demand, provisional or
final), in any currency, and any other credits, indebtedness or claims, in any
currency, in each case whether direct or indirect, absolute or contingent,
matured or unmatured, at any time held or owing by such Lender or any branch or
agency thereof to or for the credit or the account of the Borrower. Each Lender
agrees promptly to notify the Borrower and the Agent after any such set-off and
application made by such Lender, provided that the failure to give such notice
shall not affect the validity of such set-off and application.
13.8 Counterparts. This Agreement may be executed by one or more of
the parties to this Agreement on any number of separate counterparts (including
by facsimile transmission of signature pages hereto), and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A set of the copies of this Agreement signed by all the parties
shall be lodged with the Borrower and the Agent.
13.9 Severability. Any provision of this Agreement which is prohibited
or unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
13.10 Integration. This Agreement and the other Loan Documents
represent the agreement of the Borrower, the Agent and the Lenders with respect
tO the subject matter hereof, and there are no promises, undertakings,
representations or warranties by the Agent or any Lender relative to the subject
matter hereof not expressly set forth or referred to herein or in the other Loan
Documents.
13.11 GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND OBLIGATIONS OF
THE PARTIES HEREUNDER SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN
ACCORDANCE WITH, THe LAW OF THE STATE OF NEW YORK.
13.12 Submission To Jurisdiction; Waivers. The Borrower hereby
irrevocably and unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement and the other Loan Documents to which
it is a party, or for recognition and enforcement of any judgment in
respect thereof, to the non-exclusive general jurisdiction of the courts of
the State of New York. the courts of the United States of America for the
Southern District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in such
courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not to
plead or claim the same;
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(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail
(or any substantially similar form of mail), postage prepaid, to the
Borrower at its address set forth in Section 13.2 or at such other address
of which the Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(c) waives, to the maximum extent not prohibited by law, any right it
may have to claim or recover in any legal action or proceeding referred to
in this Section any special, exemplary, or punitive damages.
13.13 Acknowledgments. The Borrower hereby acknowledges that:
(a) it has been advised by counsel in the negotiation, execution and
delivery of this Agreement and the other Loan Documents;
(b) neither the Agent nor any Lender has any fiduciary relationship
with or duty to the Borrower arising out of or in connection with this
Agreement or any of the other Loan Documents, and the relationship between
the Borrower and the other Loan Parties, on one hand, and Agent and
Lenders, on the other hand, in connection herewith or therewith is solely
that of debtor and creditor; and
(c) no joint venture is created hereby or by the other Loan Documents
or otherwise exists by virtue of the transactions contemplated hereby among
the Lenders or among the Borrower and the Lenders.
13.14 WAIVERS OF JURY TRIAL. THE BORROWER, THE AGENT AND THE LENDERS
HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVE TRIAL BY JURY IN ANY LEGAL ACTION
OR PROCEEDING RELATING TO THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT AND FOR ANY
COUNTERCLAIM THEREIN.
13.15 Confidentiality. Each Lender agrees to keep confidential all
non-public written information provided to it by any Loan Party pursuant to this
Agreement or any other Loan Document that is designated by such Loan Party in
writing as confidential; provided that nothing herein shall prevent any Lender
from disclosing any such information (i) to the Agent or any other Lender, (ii)
to any Transferee which agrees in writing prior to such disclosure to comply
with the provisions of this Section 13.15, (iii) to its employees, directors,
agents, attorneys, accountants and other professional advisors, (iv) upon the
request or demand of any examiner or other Governmental Authority having
jurisdiction over such Lender, (v) in response to any order of any court or
other Governmental Authority or as may otherwise be required pursuant to any
Requirement of Law, (vi) which has been publicly disclosed other
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than in breach of this Agreement, or (vii) in connection with the exercise of
any remedy hereunder.
[Signature Pages Follow]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
DIVERSIFIED FOOD GROUP, L.L.C.
By: /s/ Andrew J. Zahn
-------------------------------------
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Agent and as a Lender
By:
-------------------------------------
Title:
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be duly executed and delivered by their proper and duly authorized officers as
of the day and year first above written.
DIVERSIFIED FOOD GROUP, L.L.C.
By:
-------------------------------------
Title:
CANADIAN IMPERIAL BANK OF COMMERCE,
as Agent and as a Lender
By: /s/
-------------------------------------
Title:
<PAGE>
EXHIBIT 10.7
TERM LOAN AGREEMENT
Dated as of October 23, 1997
by and among
DIVERSIFIED FOOD GROUP, L.L.C.,
CERTAIN SUBSIDIARIES OF DIVERSIFIED FOOD
GROUP, L.L.C.
and
MADELEINE LLC,
as Lender
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE I DEFINITIONS; CERTAIN TERMS...................................... 1
SECTION 1.01. Definitions............................................... 1
SECTION 1.02. Construction.............................................. 13
SECTION 1.03. Accounting and Other Terms................................ 14
SECTION 1.04. Time References........................................... 14
ARTICLE II THE LOAN....................................................... 14
SECTION 2.01. The Loan.................................................. 14
SECTION 2.02. Making the Loan........................................... 14
SECTION 2.03. Notes; Repayment of Loan.................................. 15
SECTION 2.04. Interest.................................................. 15
(a) Interest Rate..................................................... 15
(b) Default Interest.................................................. 15
(c) Interest Payment and Deferral..................................... 15
(d) General........................................................... 16
SECTION 2.05. Prepayment of Loan........................................ 16
(a) Mandatory Prepayment; Disposition of Assets, etc.................. 16
(b) Optional Prepayment............................................... 16
(c) Interest with Prepayment.......................................... 17
SECTION 2.06. Fees...................................................... 17
(a) Closing Fee....................................................... 17
(b) Servicing Fee..................................................... 17
(c) Exit Fee.......................................................... 17
ARTICLE III PAYMENTS AND OTHER COMPENSATION............................... 17
SECTION 3.01. Payments; Computations and Statements..................... 17
SECTION 3.02. Contribution.............................................. 18
ARTICLE IV CONDITIONS OF CLOSING.......................................... 19
SECTION 4.01. Conditions Precedent to Closing........................... 19
(a) Payment of Fees, Etc.............................................. 19
(b) Representations and Warranties; No Event of Default............... 20
(c) Legality.......................................................... 20
(d) Delivery of Documents............................................. 20
(e) Senior Debt Closing............................................... 21
(f) Material Adverse Effect........................................... 21
(g) Closing Deadline.................................................. 21
(h) Due Diligence..................................................... 21
(i) Consents.......................................................... 21
(j) Minimum Availability.............................................. 22
ARTICLE V REPRESENTATIONS AND WARRANTIES.................................. 22
SECTION 5.01. Representations and Warranties............................ 22
(a) Organization, Good Standing, Etc.................................. 22
(b) Authorization, Etc................................................ 22
</TABLE>
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<TABLE>
<S> <C>
(c) Governmental Approvals............................................ 22
(d) Enforceability of Loan Documents.................................. 22
(e) Locations; Places of Business; Chief Executive Office............. 23
(f) Subsidiaries...................................................... 23
(g) Litigation........................................................ 23
(h) Financial Condition............................................... 23
(i) Compliance with Law, Etc.......................................... 24
(j) ERISA............................................................. 24
(k) Taxes, Etc........................................................ 25
(1) Regulation U...................................................... 25
(m) Adverse Agreements, Etc........................................... 25
(n) Permits, Etc...................................................... 25
(o) Title to Properties............................................... 25
(p) Full Disclosure................................................... 26
(q) Environmental Matters............................................. 26
(r) Schedules......................................................... 26
(s) Insurance......................................................... 26
(t) Use of Proceeds................................................... 27
(u) Tradenames........................................................ 27
(v) Solvency.......................................................... 27
(w) Power to Carry on Businesses...................................... 27
(x) Location of Bank Accounts......................................... 27
(y) No Event of Default............................................... 27
(z) Intellectual Property............................................. 27
(aa) Material Contracts............................................... 28
(bb) Senior Loan Documents............................................ 28
ARTICLE VI COVENANTS OF THE BORROWER AND GUARANTORS....................... 28
SECTION 6.01 Affirmative Covenants...................................... 29
(a) Reporting Requirements............................................ 29
(b) Compliance with Laws, Etc. ....................................... 32
(c) Preservation of Existence, Etc. .................................. 32
(d) Keeping of Records and Books of Account........................... 32
(e) Inspection Rights................................................. 32
(f) Maintenance of Properties, Etc. .................................. 32
(g) Maintenance of Insurance.......................................... 33
(h) Environmental..................................................... 33
(i) Further Assurances................................................ 33
(j) Executive Committee............................................... 34
(k) Cohen's Intercreditor Agreement................................... 34
SECTION 6.02. Negative Covenants........................................ 34
(a) Liens, Etc........................................................ 34
(b) Indebtedness...................................................... 35
(c) Guaranties, Etc................................................... 36
(d) Merger, Consolidation, Sale of Assets, Etc. ...................... 36
(e) Change in Nature of Business...................................... 36
</TABLE>
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<TABLE>
<S> <C>
(f) Loans, Advances, Investments, Etc. ............................... 37
(g) Lease Obligations................................................. 37
(h) Capital Expenditures.............................................. 37
(i) Dividends, Prepayments, Etc. ..................................... 37
(g) Federal Reserve Regulations....................................... 38
(k) Transactions with Affiliates...................................... 38
(l) Environmental..................................................... 38
(m) ERISA............................................................. 38
(n) Financial Covenants............................................... 38
ARTICLE VII GUARANTY...................................................... 40
SECTION 7.01. Guaranty.................................................. 40
SECTION 7.02. Obligations Unconditional................................. 41
SECTION 7.03. Waivers................................................... 41
SECTION 7.04. Subrogation............................................... 42
SECTION 7.05. No Waiver; Remedies....................................... 42
SECTION 7.06. Stay of Acceleration...................................... 42
ARTICLE VIII EVENTS OF DEFAULT............................................ 42
SECTION 8.01. Events of Default......................................... 42
ARTICLE IX MISCELLANEOUS.................................................. 45
SECTION 9.01. Notices, Etc.............................................. 45
SECTION 9.02. Amendments, Etc........................................... 46
SECTION 9.03. No Waiver; Remedies, Etc.................................. 46
SECTION 9.04. Expenses; Taxes; Attorneys' Fees.......................... 47
SECTION 9.05. Right of Set-off.......................................... 47
SECTION 9.06. Severability.............................................. 48
SECTION 9.07. Assignments and Participations............................ 48
SECTION 9.08. Counterparts.............................................. 49
SECTION 9.09. GOVERNING LAW............................................. 49
SECTION 9.10. CONSENT TO JURISDICTION; SERVICE OF PROCESS
AND VENUE................................................. 49
SECTION 9.11. WAIVER OF JURY TRIAL, ETC. ............................... 50
SECTION 9.12. Consent by the Lender..................................... 50
SECTION 9.13. No Party Deemed Drafter................................... 50
SECTION 9.14. Reinstatement; Certain Payments........................... 51
SECTION 9.15. Indemnification........................................... 51
SECTION 9.16. Records................................................... 51
SECTION 9.17. Binding Effect............................................ 52
SECTION 9.18. Preemptive Rights......................................... 52
SECTION 9.19. Warrants.................................................. 52
</TABLE>
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Schedule 5.01(e) Locations
Schedule 5.01(f) Subsidiaries
Schedule 5.01(g) Litigation
Schedule 5.01(h) Projections
Schedule 5.01(j) ERISA
Schedule 5.01(o) Properties
Schedule 5.01(q) Environmental Matters
Schedule 5.01(s) Insurance
Schedule 5.01(u) Tradenames
Schedule 5.01(x) Bank Accounts
Schedule 5.01(z) Intellectual Property
Schedule 5.01(aa) Material Contracts
Schedule 5.01(bb) Cohen's Acquisition Documents
Schedule 6.02(a) Existing Liens
Schedule 6.02(b) Existing Indebtedness
Schedule 6.02(c) Existing Guarantees
Schedule 6.02(k) Affiliate Transactions
Exhibit A Form of Note
Exhibit B Form of Warrant
Exhibit C Form of Members' Agreement
Exhibit D Form of Registration Rights Agreement
Exhibit E Form of Senior Intercreditor Agreement
Exhibit F Form of Opinion of Counsel
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<PAGE>
TERM LOAN AGREEMENT
Term Loan Agreement, dated as of October 23, 1997, by and among
Diversified Food Group, L.L.C., a Delaware limited liability company (the
"Borrower"), Classic Confectionery, L.L.C., a Delaware limited liability company
("Classic"), Restauranic, Inc., an Illinois corporation ("Restauranic"), Great
American Ice Cream Company, LLC, a Delaware limited liability company ("Great
American"), and Cohen's Kosher Food, L.L.C., a Delaware limited liability
company ("New Cohen's" and, together with Classic, Restauranic and Great
American, each, a "Guarantor", and collectively, the "Guarantors") and Madeleine
LLC (the "Lender").
RECITALS
The Borrower and the Guarantors have asked the Lender to make a term
loan to the Borrower on the Closing Date (as hereinafter defined) in the
original principal amount of $6,000,000. $5,000,000 of the proceeds from the
term loan will be used to repay the Senior Debt (as hereinafter defined). The
remaining proceeds from the term loan (less all fees and expenses paid from the
proceeds of the term loan on the Closing Date, including any fees and expenses
the payment of which is required pursuant to Section 4.01 (a) hereof) will be
used to repay the amortizations of the Senior Debt on a pro rata basis. The
Lender is willing to extend such credit to the Borrower subject to the terms and
conditions hereinafter set forth. Accordingly, the Borrower, the Guarantors and
the Lender hereby agree as follows:
ARTICLE I
DEFINITIONS; CERTAIN TERMS
SECTION 1.01. Definitions. As used in this Agreement, the following
terms shall have the respective meanings indicated below, such meanings to be
applicable equally to both the singular and plural forms of such terms:
"Action" has the meaning specified therefor in Section 9.12.
"Affiliate" means, as to any Person, any other Person that directly or
indirectly through one or more intermediaries, controls, is controlled by, or is
under common control with, such Person. For purposes of this definition,
"control" of a Person means the power, directly or indirectly, either to (i)
vote 10% or more of the Capital Stock having ordinary voting power for the
election of directors of such Person or (ii) direct or cause the direction of
the management and policies of such Person whether by contract or otherwise.
"Aggregate Deficit Amount" has the meaning specified therefor in
Section 3.02(a) hereof.
<PAGE>
"Aggregate Excess Amount" has the meaning specified therefor in
Section 3.02(a) hereof.
"Agreement" means this Term Loan Agreement, as amended, supplemented,
restated or otherwise modified from time to time.
"Authorized Officer" means any officer of the relevant Loan Party or,
where no Loan Party is specified, any officer of the Borrower.
"Available RC Commitments" has the meaning specified therefor in the
Senior Credit Agreement.
"Benefit Amount" has the meaning specified therefor in Section 3.02(a)
hereof.
"Board" means the Board of Governors of the Federal Reserve System of
the United States.
"Borrower" has the meaning specified therefor in the preamble hereto.
"Business Day" means any day other than a Saturday, Sunday or other
day on which commercial banks in New York City are authorized or required to
close.
"Capital Expenditures" means, with respect to any Person for any
period, the sum, without duplication, of the aggregate amount of all
expenditures of such Person during such period which, in accordance with GAAP,
is required to be included in, or is properly included by such Person as
additions to, property, plant or equipment or other similar fixed asset accounts
of such Person. For purposes of the definition, the purchase price of equipment
which is purchased simultaneously with the trade-in of existing equipment owned
by such Person or with insurance proceeds shall be included in Capital
Expenditures only to the extent that the gross amount of such purchase price
exceeds the amount of the trade-in credit or insurance proceeds applied to such
purchase, as the case may be.
"Capitalized Lease" means any lease which is required under GAAP to be
capitalized on the balance sheet of the lessee.
"Capitalized Lease Obligations" means obligations for the payment of
rent for any real or personal property under leases or agreements to lease that,
in accordance with GAAP, have been or should be capitalized on the books of the
lessee and, for purposes hereof, the amount of any such obligation shall be the
capitalized amount thereof determined in accordance with such principles.
"Capital Stock" means any and all shares, interests, participations,
warrants, options or other equivalents (however designated) of capital stock of
a corporation or any and all equivalent ownership interests in a Person (other
than a corporation).
"Cash Payable Interest Rate" means 12% per annum.
2
<PAGE>
"Change of Control" shall be deemed to have occurred at such time as
(a) a "person" or "group" (within the meaning of Sections 13(d) and 14(d)(2) of
the Securities Exchange Act of 1934, as amended) other than members of the
Borrower (including Affiliates, spouses and lineal descendants thereof) owning
more than 20% of the membership interests in the Borrower on the date hereof
either (i) becomes the "beneficial owner" (as defined in Rule 13d-3 under the
Securities Exchange Act of 1934, as amended), directly or indirectly, of 20% or
more of the Capital Stock of the Borrower then outstanding or (ii) obtains the
power (whether or not exercised) to direct or cause the direction of the
management and policies of the Borrower, whether by contract or otherwise, (b)
Zahn and Gould and their respective spouses or lineal descendants shall cease to
own, collectively, at least 45% of the issued and outstanding Capital Stock of
the Borrower, or (c) the managing members of the Borrower do not include Zahn
or, in the event of Zahn's death or disability, Gould.
"CIBC" means Canadian Imperial Bank of Commerce.
"Closing Date" has the meaning specified therefor in Section 4.01
hereof.
"Closing Fee" has the meaning specified therefore in Section 2.06(a).
"Code" means the Internal Revenue Code of 1986, as amended, and any
successor statute of similar import, and regulations thereunder, in each case as
in effect from time to time.
"Cohen's" means Cohen's Famous Frozen Foods, Inc., a New Jersey
corporation.
"Cohen's Intercreditor Agreement" means the Intercreditor Agreement,
among the Lender, the Loan Parties and Cohen's, in form and substance
satisfactory to the Lender, in which Cohen's agrees, inter alia, that all
purchase money financing provided to the Borrower by Cohen's is fully
subordinated to the repayment in full and in cash of the Obligations.
"Cohen's Purchase Money Note" means that certain 8.5% Convertible
Unsecured Subordinated Note, dated October 9, 1997, issued by the Borrower in
favor of Cohen's.
"Consolidated Current Assets" means all assets that, as of the date of
determination thereof and in accordance with GAAP, should be classified as
current assets on a consolidated balance sheet of the Borrower and its
Subsidiaries.
"Consolidated Current Liabilities" means all Indebtedness and other
liabilities that, as of the date of determination thereof and in accordance with
GAAP should be classified as current liabilities on a consolidated balance sheet
of the Borrower and its Subsidiaries, including, without limitation, all
Indebtedness (including, without limitation, the Obligations) payable on demand
or within one year after such date (whether by final maturity, required
prepayment or otherwise) without any option on the part of the obligor to extend
or renew beyond such year.
"Consolidated EBITDA" means, for any period, the sum for such period
of (a) Consolidated Net Income, and (b) the sum of, without duplication, (i)
income tax expense, (ii) interest expense, (iii) depreciation expense, (iv)
amortization expense, (v) extraordinary or
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unusual non-cash losses, which include the cumulative effect on earnings from
the adoption of GAAP pronouncements, in each case as used in determining such
Consolidated Net Income.
"Consolidated Indebtedness" means, at any time, the sum of (a) the
aggregate Indebtedness of the Borrower and its Consolidated Subsidiaries at such
time determined on a consolidated basis in accordance with GAAP, excluding the
Cohen's Purchase Money Note plus (b) without duplication, the aggregate amount
of Revolving Credit Commitments (as defined in the Senior Credit Agreement).
"Consolidated Interest Expense" means, for any period, the amount
which, in conformity with GAAP, would be set forth opposite the caption
"interest expense" or any like caption (including without limitation, imputed
interest included in payment under Capitalized Leases) on a consolidated income
statement of the Borrower and the Subsidiaries for such period excluding the
amortization of any original issue discount.
"Consolidated Lease Expense" means, for any period, the aggregate
amount of fixed or contingent rentals payable by the Borrower and its
Consolidated Subsidiaries, determined on a consolidated basis in accordance with
GAAP, for such period with respect to leases of real and personal property.
"Consolidated Net Income" means, for any period, the consolidated net
income (or deficit) of the Borrower and its Subsidiaries for such period (taken
as a cumulative whole), determined in accordance with GAAP; provided that there
shall be excluded (a) the income (or deficit) of any Person accrued prior to the
date it becomes a Subsidiary or is merged into or consolidated with the Borrower
or any Subsidiary, (except with respect to any such merger or consolidation
accounted for on a pooling of interest basis), (b) the income (or deficit) of
any Person (other than a Subsidiary) in which the Borrower or any Subsidiary has
an ownership interest, except to the extent that any such income has been
actually received by the Borrower or such Subsidiary in the form of dividends or
similar distributions, (c) the undistributed earnings of any Subsidiary to the
extent that the declaration or payment of dividends or similar distributions by
such Subsidiary is not at the time permitted by the terms of any Contractual
Obligation or Requirement of Law applicable to such Subsidiary, (d) any
restoration to income of any contingency reserve, except to the extent that
provision for such reserve was made out of income accrued during such period,
(e) any aggregate net gain (but not any aggregate net loss) during such period
arising from the sale, exchange or other disposition of capital assets (such
term to include all fixed assets, whether tangible or intangible, all inventory
sold in conjunction with the disposition of fixed assets and all securities),
(f) any write-up of any asset, (g) any net gain from the collection of the
proceeds of life insurance policies, (h) any gain arising from the acquisition
of any securities, or the extinguishment, under GAAP, of any Indebtedness, of
the Borrower or any Subsidiary, (i) in the case of a successor to the Borrower
by consolidation or merger or as a transferee of its assets, any earnings of the
successor corporation prior to such consolidation, merger or transfer of assets,
and (j) any deferred credit representing the excess of equity in any Subsidiary
at the date of acquisition over the cost of the investment in such Subsidiary.
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"Consolidated Senior Indebtedness" means, at any time, the aggregate
at such time of (i) all Indebtedness of the Borrower secured by a Lien on any
assets of the Borrower, (ii) all Indebtedness of the Borrower to which the
repayment of the Obligations is contractually subordinated and (iii) all
Indebtedness of the Borrower's Consolidated Subsidiaries, determined on a
consolidated basis in accordance with GAAP.
"Consolidated Subsidiaries" means, with respect to any Person, those
Subsidiaries of such Person whose accounts are or should in accordance with GAAP
be consolidated with those of such Person.
"Consolidated Total Assets" means, with respect to the Borrower and
its Consolidated Subsidiaries, the aggregate net book value of the assets (other
than goodwill and other intangible assets (other than accounts receivable)
classified as such in accordance with GAAP) of the Borrower and its Consolidated
Subsidiaries on a consolidated basis after making all appropriate adjustments in
accordance with GAAP (including, without limitation, reserves for doubtful
receivables, obsolescence, depreciation and amortization (except with respect to
goodwill and other intangible assets excluded above) and excluding the amount of
any write-up or revaluation of any asset).
"Consolidated Total Liabilities" means, for the Borrower and its
Consolidated Subsidiaries, at any date, without duplication, all obligations
which in conformity with GAAP would be included in determining total liabilities
as shown on the liabilities side of a balance sheet of the Borrower and its
Consolidated Subsidiaries and including, without limitation, in any event, all
Consolidated Indebtedness at such date whether or not the same would be shown.
"Contractual Obligation" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or other
undertaking to which such Person is a party or by which it or any of its
property is bound.
"Contribution Percentage" has the meaning specified therefor in
Section 3.02(a) hereof.
"Contributor" has the meaning specified therefor in Section 3.02(a)
hereof.
"Debt-to-EBITDA Ratio" means, on any date, the ratio of (a)
Consolidated Indebtedness on such date to (b) Consolidated EBITDA for the twelve
month period ending on the last day of the calendar month immediately prior to
the month in which such determination is made.
"Default" means an event which, with the giving of notice or the lapse
of time or both, would constitute an Event of Default.
"Dollar," "Dollars" and the symbol "$" means lawful money of the
United States of America.
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"Employee Plan" means an employee benefit plan (other than a
Multiemployer Plan) covered by Title IV of ERISA and maintained (or was
maintained at any time during the six (6) calendar years preceding the date of
any borrowing hereunder) for employees of a Loan Party or any ERISA Affiliate.
"Environmental Actions" refers to any complaint, summons, citation,
notice, directive, order, claim, litigation, investigation, judicial or
administrative proceeding, judgment, letter or other communication from any
governmental agency, department, bureau, office or other authority, or any third
party involving violations of Environmental Laws or Releases of Hazardous
Materials from (i) any assets, properties or businesses of the Borrower or any
of its Subsidiaries or any predecessor in interest; (ii) from adjoining
properties or businesses; or (iii) from or onto any facilities which received
Hazardous Materials generated by the Borrower or any of its Subsidiaries or any
predecessor in interest.
"Environmental Law" means the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. (S) 9601, et seq.), the Hazardous
Materials Transportation Act (49 U.S.C. (S) 1801, et seq.), the Resource
Conservation and Recovery Act (42 U.S.C. (S) 6901, et seq.), the Federal Water
Pollution Control Act (33 U.S.C. (S) 1251 et seq.), the Clean Air Act (42 U.S.C.
(S) 7401 et seq.), the Toxic Substances Control Act (15 U.S.C. (S) 2601 et seq.)
and the Occupational Safety and Health Act (29 U.S.C. (S) 651 et seq.), as such
laws may be amended or supplemented from time to time, and any other present or
future federal (United States or Canada), state, provincial, local or foreign
statute, ordinance, rule, regulation, order, judgment, decree, permit, license
or other binding determination of any Governmental Authority imposing liability
or establishing standards of conduct for protection of the environment.
"Environmental Liabilities and Costs" shall mean all liabilities,
monetary obligations, Remedial Actions, losses, damages, punitive damages,
consequential damages, treble damages, costs and expenses (including all
reasonable fees, disbursements and expenses of counsel, expert and consulting
and costs of investigation and feasibility studies), fines, penalties, sanctions
and interest incurred as a result of any claim or demand by any Governmental
Authority or any third party, and which relate to any environmental condition or
a Release of Hazardous Materials from or onto (i) any property presently or
formerly owned by the Borrower or any of its Subsidiaries or (ii) any facility
which received Hazardous Materials generated by the Borrower or any of its
Subsidiaries.
"Environmental Lien" shall mean any Lien in favor of any Governmental
Authority for Environmental Liabilities and Costs.
"ERISA" shall mean the Employee Retirement Income Security Act of
1974, as amended, and any successor statute of similar import, and regulations
thereunder, in each case as in effect from time to time. References to sections
of ERISA shall be construed also to refer to any successor sections.
"ERISA Affiliate" means, with respect to any Person, any trade or
business (whether or not incorporated) which is a member of a group of which
such Person is a member
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and which would be deemed to be a "controlled group" within the meaning of
Sections 414(b), (c), (m) and (o) of the Code.
"Event of Default" means any of the Events set forth in Section 8.01
hereof.
"Financial Statements" means the unaudited financial statements of
Borrower and its Consolidated Subsidiaries for the six month period ended June
30, 1997, and of the Borrower for the twelve month period ended on the Friday
closest to December 31, 1996.
"Fiscal Year" means the twelve-month period of the Borrower ending on
the Friday nearest to December 31 of each year or such other fiscal year of the
Borrower that is agreed to in writing by the Lender.
"GAAP" means generally accepted accounting principles in effect from
time to time in the United States, applied on a consistent basis, provided that
for the purposes of Section 6.02(n) and the definitions used therein, "GAAP"
shall mean generally accepted accounting principles in effect on the date hereof
and consistent with those used in the preparation of the Financial Statements.
"Gould" means Lawrence Gould, an individual residing at 551 Monroe
Avenue, Glencoe, Illinois 60022.
"Governing Documents" means, as to any Person, its articles or
certificate of incorporation and by-laws, its partnership agreement, its
certificate of formation and operating agreement, and/or the other
organizational or governing documents of such Person.
"Governmental Authority" means any nation or government, any state,
province or other political subdivision thereof and any department, commission,
board, bureau, instrumentality, agency or other entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Guaranteed Obligations" means (i) with respect to the Borrower, all
Obligations of the Borrower, including, without limitation, all amounts now or
hereafter owing by the Borrower in respect of the Loan Documents and (ii) with
respect to each Guarantor, all Obligations of the Borrower including, without
limitation, all amounts now or hereafter owing by the Borrower in respect of the
Loan Documents.
"Guarantors" has the meaning specified therefor in the preamble
hereto.
"Hazardous Materials" shall include (a) any element, compound or
chemical that is defined, listed or otherwise classified as a contaminant,
pollutant, toxic pollutant, toxic or hazardous substances, extremely hazardous
substance or chemical, hazardous waste, special waste, or solid waste under
Environmental Laws; (b) petroleum and its refined products; (c) polychlorinated
biphenyls; (d) any substance exhibiting a hazardous waste characteristic
including but not limited to corrosivity, ignitability, toxicity or reactivity
as well as any radioactive or explosive materials; and (e) any raw materials,
building components, including but
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not limited to asbestos-containing materials and manufactured products
containing Hazardous Substances.
"Hedging Agreement" means any interest rate swap, collar, cap, floor
or forward rate agreement or other agreement regarding the hedging of interest
rate risk exposure executed in connection with hedging the interest rate
exposure of the Borrower, and any confirming letter executed pursuant to such
agreement, all as amended, supplemented, restated or otherwise modified from
time to time.
"Indebtedness" means, without duplication, as to any Person (i)
indebtedness for borrowed money; (ii) indebtedness for the deferred purchase
price of property or services (other than current trade payables incurred in the
ordinary course of business and payable in accordance with customary practices);
(iii) indebtedness evidenced by bonds, debentures, notes or other similar
instruments (other than performance, surety and appeal or other similar bonds
arising in the ordinary course of business); (iv) obligations and liabilities
secured by a Lien upon property owned by such Person, whether or not owing by
such Person and even though such Person has not assumed or become liable for the
payment thereof; (v) obligations and liabilities directly or indirectly
guaranteed by such Person; (vi) obligations or liabilities created or arising
under any conditional sales contract or other title retention agreement with
respect to property used and/or acquired by such Person, even though the rights
and remedies of the lessor, seller and/or lender thereunder are limited to
repossession of such property; (vii) Capitalized Lease Obligations; (viii) all
liabilities in respect of letters of credit, acceptances and similar obligations
created for the account of such Person; and (ix) net liabilities of such Person
under Hedging Agreements and foreign currency exchange agreements, as calculated
on a basis satisfactory to the Lender and in accordance with accepted practice.
"Indemnified Matters" has the meaning specified therefor in
Section 9.15.
"Indemnitees" has the meaning specified therefor in Section 9.15.
"Intercreditor Agreements" means the Cohen's Intercreditor Agreement
and the Senior Intercreditor Agreement.
"Interest Coverage Ratio" means, on any date, the ratio of (a)
Consolidated EBITDA for the twelve month period ending on the last day of the
calendar month immediately prior to the month in which such determination is
made less the Capital Expenditures made by the Borrower and its Consolidated
Subsidiaries during such twelve month period to (b) Consolidated Interest
Expense for such twelve month period.
"Inventory" means all goods and merchandise of the Borrower including,
but not limited to, all raw materials, work-in-process, piece goods, trim,
finished goods, whether now owned or hereafter acquired and all such property
the sale or other disposition of which would give rise to accounts receivable or
cash.
"Kraff" means Lowell D. Kraff, an individual residing at 210 E.
Walton, Chicago, Illinois 60611.
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"Lease" means any lease of real property to which the Borrower or a
Guarantor is a party as lessor or lessee.
"Lender" has the meaning specified therefor in the preamble hereto.
"Lender Account" means an account in the name of the Lender designated
by the Lender from time to time as the account into which the Borrower shall
make all payments to the Lender under this Agreement.
"Lien" means any mortgage, deed of trust, pledge, lien, security
interest, charge, encumbrance, security arrangement, restriction, covenant,
encroachment or other title imperfection of any nature whatsoever, including but
not limited to any conditional sale or title retention arrangement, and any
assignment, deposit arrangement or lease intended as, or having the effect of,
security.
"Loan" means the loan made by the Lender to the Borrower on the
Closing Date pursuant to Article II hereof.
"Loan Account" means an account maintained hereunder by the Lender on
its books of account at the Lender's office in the name of the Borrower in
which the Borrower will be charged with all Loans made to, and all other
Obligations incurred by, the Borrower.
"Loan Documents" means this Agreement, the Note, the Warrant
Agreement, the Members' Agreement, the Registration Rights Agreement, the
Intercreditor Agreements and all other instruments, agreements and other
documents executed and delivered pursuant hereto or thereto.
"Loan Party" means, collectively, the Borrower and the Guarantors.
"Material Adverse Effect" means a material adverse effect upon (i) the
business, operations, financial condition prospects or properties of the
Borrower or any Guarantor, (ii) the ability of the Borrower or any Guarantor to
perform its obligations under any Loan Document to which it is a party or (iii)
the legality, validity or enforceability of this Agreement or any other Loan
Document.
"Material Contract" means, with respect to any Person, each contract
or agreement to which such Person is a party involving aggregate consideration
payable to or by such Person of $250,000 or more (other than purchase orders in
the ordinary course of the business of the Borrower and other than contracts
that by their terms may be terminated by any party thereto in the ordinary
course of its business upon less than 60 days' notice) or otherwise material to
the business, operations, financial condition, performance, prospects or
properties of such Person.
"Maturity Date" means the seventh anniversary of the Closing Date.
"Members' Agreement" means that certain Members' Agreement, dated as
of the date hereof, among the Lender and Zahn, Gould and Kraff, as the same may
be amended,
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supplemented or otherwise modified from time to time, attached as Exhibit C
hereto, in form and substance satisfactory to the Lender.
"Multiemployer Plan" means a "multiemployer plan" as defined in
Section 4001(a)(3) of ERISA for which the Borrower or any ERISA Affiliate has
contributed to, or has been obligated to contribute to, at any time during the
preceding six (6) years.
"Net Sales Proceeds" shall mean, for any asset sale or disposition,
the amount of cash and other payments received (directly or indirectly) by the
Borrower or a Guarantor (or, in the case of Section 2.06(c), holder of Capital
Stock of the Borrower) net of the sum of (a) the principal amount of any
Indebtedness secured by any Lien permitted by Section 6.02(a) hereof on such
asset (other than Indebtedness assumed by the purchaser of such asset) which is
required to be, and is, repaid in connection with the sale or other disposition
thereof (other than Indebtedness under this Agreement), (b) reasonable expenses
incurred by the Borrower or a Guarantor (or such holder) in connection
therewith, and (c) transfer taxes paid by the Borrower or a Guarantor (or such
holder) in connection therewith.
"New Cohen's" has the meaning specified therefor in the preamble
hereto.
"Note" means the promissory note of the Borrower, substantially in the
form of Exhibit A hereto, made payable to the order of the Lender and evidencing
the Indebtedness resulting from the making by the Lender to the Borrower of the
Loan and delivered to the Lender pursuant to Article IV hereof, as such
promissory note may be modified or extended from time to time, and any
promissory note or notes issued in exchange or replacement therefor.
"Obligations" means (a) the joint and several obligations of the Loan
Parties to pay, as and when due and payable (by scheduled maturity, required
prepayment, acceleration, demand or otherwise), all amounts from time to time
owing by them in respect of any Loan Document, whether for principal, interest
(including without limitation all interest that accrues after the commencement
of any case, proceeding or other action relating to bankruptcy, insolvency or
reorganization of a Loan Party), fees, indemnification payments, expense
reimbursements or otherwise, and (b) the joint and several obligations of the
Loan Parties to perform or observe all of their obligations from time to time
existing under any Loan Document.
"Obligor" has the meaning specified therefor in Section 3.02(a)
hereof.
"Office" means with respect to the Lender, its office located at 450
Park Avenue, New York, New York 10022 or at such other office or offices of the
Lender as may be designated in writing from time to time by the Lender to the
Borrower.
"Operating Agreement" means the Operating Agreement of the Borrower,
dated as of March 25, 1996, as amended and in effect on the date hereof.
"PBGC" means the Pension Benefit Guaranty Corporation or any successor
thereto.
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"Permitted Investments" means (a) marketable direct obligations issued
or unconditionally guaranteed by the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within six months from the date of acquisition thereof; (b)
commercial paper, maturing not more than 270 days after the date of issue rated
P-1 by Moody's Investors Service, Inc. or A-1 by Standard & Poor's Ratings
Group, (c) certificates of deposit maturing not more than 270 days after the
date of issue, issued by commercial banking institutions and money market or
demand deposit accounts maintained at commercial banking institutions, each of
which is a member of the Federal Reserve System and has a combined capital and
surplus and undivided profits of not less than $500,000,000, and (d) repurchase
agreements having maturities of not more than 90 days from the date of
acquisition which are entered into with major money center banks included in the
commercial banking institutions described in clause (c) above and which are
secured by readily marketable direct obligations of the Government of the United
States of America or any agency thereof.
"Permitted Liens" has the meaning specified therefor in Section
6.02(a) hereof.
"Person" means an individual, corporation, limited liability company,
partnership, association, joint-stock company, trust, unincorporated
organization, joint venture or Governmental Authority.
"PIK Interest" has the meaning specified therefor in Section 2.04(c)
hereof.
"PIK Interest Rate" means a rate of interest equal to 13% per annum.
"Post-Default Rate" means a rate of interest per annum equal to the
rate of interest otherwise in effect from time to time pursuant to the terms of
this Agreement plus 5%.
"Registration Rights Agreement" means that certain Registration Rights
Agreement, dated as of the date of this Agreement, among the Lender and the
holders of the membership interests in the Borrower, as the same may be amended,
supplemented or otherwise modified from time to time, attached as Exhibit D
hereto, in form and substance satisfactory to the Lender.
"Release" means any spilling, leaking, pumping, pouring, emitting,
emptying, discharging, injecting, escaping, leaching, seeping, migrating,
dumping or disposing of any Hazardous Material (including the abandonment or
discarding of barrels, containers and other closed receptacles containing any
Hazardous Material) into the indoor or outdoor environment, including ambient
air, soil, surface or ground water.
"Relevant Pavment" has the meaning specified therefor in Section
3.02(a) hereof.
"Remedial Action" means all actions taken to (i) clean up, remove,
remediate, contain, treat, monitor, assess, evaluate or in any other way address
Hazardous Materials in the indoor or outdoor environment; (ii) prevent or
minimize a Release or threatened Release of Hazardous Materials so they do not
migrate or endanger or threaten to endanger public health or
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welfare or the indoor or outdoor environment; (iii) perform pre-remedial studies
and investigations and post-remedial operation and maintenance activities; or
(iv) any other actions authorized by 42 U.S.C. 9601.
"Reportable Event" means an event described in Section 4043 of ERISA
(other than an event not subject to the provision for 30-day notice to the PBGC
under the regulations promulgated under such Section).
"Requirement of Law" means, as to any Person, the certificate of
incorporation and by-laws or other organizational or Governing Documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other Governmental Authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
"Responsible Officer" means the chief executive officer, the chief
operating officer and the president of the Borrower or, with respect to
financial matters, the chief financial officer of the Borrower.
"Senior Credit Agreement" means that certain Credit Agreement, dated
as of October 16, 1997 among the Borrower, the lenders party thereto and the
Senior Lender, as agent.
"Senior Debt" means all amounts owed by the Loan Parties to the Senior
Lender pursuant to the Senior Loan Documents.
"Senior Debt-to-EBITDA Ratio" means, on any date, the ratio of (a) the
sum of (i) Consolidated Senior Indebtedness on such date plus (ii) the aggregate
Available RC Commitments on such Date to (b) Consolidated EBITDA for the twelve
month period ending on the last day of the calendar month immediately prior to
the month in which such determination is made.
"Senior Intercreditor Agreement" means the Intercreditor Agreement,
dated as of the date of this Agreement, among the Lender, the Loan Parties and
the Senior Lender, attached as Exhibit E hereto, in form and substance
satisfactory to the Lender.
"Senior Lender" means CIBC, as lender and agent for the lenders party
to the Senior Credit Agreement.
"Senior Loan Availability" means, on any date, the difference of (a)
the Borrowing Base under, and as defined in, the Senior Credit Agreement on such
date less (b) the total Aggregate Outstanding RC Extensions of Credit under, and
as defined in, the Senior Credit Agreement on such date.
"Senior Loan Documents" means the Senior Credit Agreement and all
other Loan Documents (as defined therein) relating to the Senior Debt.
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"Solvent" means, with respect to any Person on a particular date, that
on such date (a) the fair value of the property of such Person is not less than
the total amount of its liabilities of such Person, (b) the present fair
saleable value of the assets of such Person is not less than the amount that
will be required to pay the probable liability of such Person on its existing
debts as they become absolute and matured, (c) such Person is able to realize
upon its assets and pay its debts and other liabilities, contingent obligations
and other commitments as they mature in the normal course of business, (d) such
Person does not intend to, and does not believe that it will, incur debts or
liabilities beyond such Person's ability to pay as such debts and liabilities
mature, and (e) as of the Closing Date, such Person is not engaged in business
or a transaction, and is not about to engage in business or a transaction, for
which such Person's property would constitute unreasonably small capital.
"Subsidiary" means, as to any Person, any corporation, limited or
general partnership, limited liability company, trust, association or other
business entity of which more than 50% of the outstanding Capital Stock having
(in the absence of contingencies) ordinary voting power to elect directors (or
Persons performing similar functions) of such entity is, at the time of
determination, owned directly, or indirectly through one or more intermediaries,
by such Person.
"Termination Event" means (i) a Reportable Event with respect to any
Employee Plan, (ii) any event that causes the Borrower or any of its ERISA
Affiliates to incur liability under Section 409, 502(i), 502(1), 515, 4062,
4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of the
Code, (iii) the filing of a notice of intent to terminate an Employee Plan or
the treatment of an Employee Plan amendment as a termination under Section 4041
of ERISA, (iv) the institution of proceedings by the PBGC to terminate an
Employee Plan, or (v) any other event or condition which might constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Employee Plan.
"Warrants" means the two Warrants to be entered into between the
Lender and the Borrower, representing warrants to purchase 9% and 1.5%,
respectively, of the ownership interests in the Borrower on a fully-diluted
basis, as the same may be amended, supplemented or otherwise modified from time
to time, each in the form attached as Exhibit B hereto, in form and substance
satisfactory to the Lender.
"Working Capital" means an amount, which may be negative or positive,
equal to Consolidated Current Assets minus Consolidated Current Liabilities.
"Zahn" means Andrew Zahn, an individual residing at 45 Lakewood Place,
Highland Park, Illinois 60035.
SECTION 1.02. Construction. Unless the context of this Agreement
otherwise clearly requires, references to the plural include the singular, the
singular the plural and the part the whole and "or" has the inclusive meaning
represented by the phrase "and/or." References in this Agreement to
"determination" by the Lender include good faith estimates by the Lender (in the
case of quantitative determinations) and good faith beliefs by the Lender (in
the case of qualitative determinations). The words "hereof", "herein",
"hereunder" and similar terms in this
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Agreement refer to this Agreement as a whole and not to any particular provision
of this Agreement. The section and other headings contained in this Agreement
and the Table of Contents preceding this Agreement are for reference purposes
only and shall not control or affect the construction of this Agreement or the
interpretation thereof in any respect. Section, subsection, schedule and exhibit
references are to this Agreement unless otherwise specified.
SECTION 1.03. Accounting and Other Terms. Unless otherwise expressly
provided herein, each accounting term used herein shall have the meaning given
it under GAAP applied on a basis consistent with those used in preparing the
Financial Statements delivered pursuant to Section 6.01 (a)(i). All terms used
in this Agreement which are defined in Article 9 of the Uniform Commercial Code
in effect in the State of New York on the date hereof and which are not
otherwise defined herein shall have the same meanings herein as set forth
therein.
SECTION 1.04. Time References. Unless otherwise indicated herein, all
references to time of day refer to Eastern standard time or Eastern daylight
saving time, as in effect in New York City on such day. For purposes of the
computation of a period of time from a specified date to a later specified date,
the word "from" means "from and including" and the words "to" and "until" each
means "to but excluding", provided, however, that with respect to a computation
of fees or interest payable to the Lender, such period shall in any event
consist of at least one full day.
ARTICLE II
THE LOAN
SECTION 2.01. The Loan. Subject to the terms and conditions, and
relying upon the representations and warranties set forth herein, the Lender
agrees to make a Loan to the Borrower on the Closing Date in the principal
amount of $6,000,000. The Lender shall have no obligation to make a Loan
hereunder after the Closing Date. Any principal amount of the Loan which is
repaid or prepaid by the Borrower may not be reborrowed.
SECTION 2.02. Making the Loan. The Lender will make the proceeds of
the Loan available to the Borrower on the Closing Date by causing $6,000,000, in
immediately available funds, to be deposited in an account or accounts
designated in writing by the Borrower to the Lender at a commercial bank chosen
by the Borrower and reasonably satisfactory to the Lender.
SECTION 2.03. Notes; Repayment of Loan. (a) The obligations of the
Borrower to repay the Loan and interest thereon shall be evidenced by the Note,
duly executed by the Borrower, dated the Closing Date and delivered and payable
to the order of the Lender in the original principal amount of $6,000,000.
(b) The Borrower agrees to record the Loan on the Register referred to
in Section 9.07(b) hereof. The Loan recorded on the Register ("Registered
Loan") may not be evidenced by a promissory note other than a Registered Note
(as defined below) and, upon the
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registration of the Loan, any promissory note (other than a Registered Note)
evidencing the same shall be null and void and shall be returned to the
Borrower. The Borrower agrees to execute and deliver to the Lender one
promissory note in registered form to evidence such Registered Loan and
registered as provided in Section 9.07(b) hereof (herein, a "Registered Note"),
dated the date hereof, payable to the Lender and otherwise duly completed. The
Loan, once recorded on the Register, may not be removed from the Register so
long as it remains outstanding and a Registered Note may not be exchanged for a
promissory note that is not a Registered Note.
(c) Payable on Maturity Date. To the extent not due and payable
earlier pursuant to the terms of this Term Loan Agreement, all Obligations shall
be due and payable on the Maturity Date.
SECTION 2.04. Interest.
(a) Interest Rate. The Loan shall bear interest on the principal
amount thereof from time to time outstanding from the date of the Loan until
such principal amount becomes due (i) at the Cash Payable Interest Rate or (ii)
at the option of the Borrower (to be elected, in writing, not later than thirty
(30) days prior to the date on which the first interest payment subject to such
election is due), accrue at the PIK Interest Rate in each of the first, second
and third years after the Closing Date, and at the Cash Payable Interest Rate
thereafter. After making the election referred to in clause (ii) of the
immediately preceding sentence, the Borrower may elect to pay interest in cash
at the Cash Payable Interest Rate by providing the Lender with written notice of
such election not later than thirty (30) days prior to the date on which the
first interest payment subject to such election is due.
(b) Default Interest. To the extent permitted by law, after there
shall have occurred and so long as there is continuing an Event of Default
(unless the Borrower repays all Obligations in full within seven Business Days
of its first receipt of written notice of the occurrence of an Event of
Default), all principal, interest, fees, indemnities or any other Obligations of
the Borrower under this Agreement, the Note and other Loan Documents (including
interest accrued under this Section 2.04(b)) shall bear interest from the day
when due until such amount is paid in full at a rate per annum equal at all
times to the Post-Default Rate.
(c) Interest Payment and Deferral. Interest on the Loan at the Cash
Payable Interest Rate shall be payable quarterly in arrears on the first day of
each fiscal quarter, commencing on the first day of the first fiscal quarter
after the Closing Date, and at maturity (whether upon demand, by acceleration or
otherwise). Interest on the Loan at the PIK Interest Rate ("PIK Interest") shall
accrue quarterly in arrears on the first day of each fiscal quarter, commencing
on the first day of the first fiscal quarter after the Closing Date; all such
accrued interest shall be added by the Lender to the principal amount of the
Loan. The Borrower hereby authorizes the Lender to, and the Lender may, from
time to time, charge the Loan Account pursuant to Section 3.01 hereof with the
amount of any interest payment due or accrued hereunder.
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(d) General. All interest shall be computed on the basis of a year of
360 days for the actual number of days, including the first day but excluding
the last day, elapsed.
SECTION 2.05. Prepayment of Loan.
(a) Mandatory Prepayment; Disposition of Assets, etc. Except as
provided in the Senior Intercreditor Agreement, without limiting any other
provision of this Agreement or any other Loan Document permitting or requiring
prepayment of the Loan in whole or part, the Borrower shall be required to
prepay the Loan (i) if a Change of Control shall have occurred and (ii) upon the
sale, lease, transfer or other disposition of any of the Borrower's assets
outside the ordinary course of business either (A) in any transaction or series
of related transactions the Net Sales Proceeds from which are greater than 40%
of the gross revenue of the Borrower (calculated in accordance with GAAP) for
the twelve month period ending on the last day of the calendar month immediately
preceding the date of such transaction, (B) to the extent that the aggregate Net
Sales Proceeds from all such transactions in any twelve month period is greater
than 40% of the gross revenues of the Borrower (calculated in accordance with
GAAP) for the twelve month period ending on the last day of the calendar month
immediately preceding the date of the last of such transactions, or (C) in any
transaction or series of transactions pursuant to which the Borrower sells any
business which business generated 40% or more of the gross revenues of the
Borrower (calculated in accordance with GAAP) for the twelve month period ending
on the last day of the calendar month immediately preceding the date of the last
of such transactions. Any prepayment required under subclause (i) of this clause
(a) shall be in an amount equal to 102.5% of the amount of the Loan then
outstanding, together with all other Obligations than owed by the Loan Parties
to the Lender; such prepayment shall be made on the same Business Day as that on
which the Change of Control occurs. Any prepayment required under subclause (ii)
of this clause (a) shall be made, in the case of Net Sales Proceeds constituting
cash, on the first Business Day after the consummation of such transfer, sale,
disposition, settlement, issuance or other event triggering a prepayment and, in
the case of Net Sales Proceeds not constituting cash, on the first Business Day
after the receipt of any cash on account of such non-cash consideration.
(b) Optional Prepayment. The Borrower may prepay the Loan, in whole or
in part, at any time prior to the Maturity Date at a price equal to 102.5% of
the principal amount being repaid; each partial prepayment must be in an
integral multiple of $10,000.
(c) Interest with Prepayment. Any prepayment made pursuant to this
Section 2.05 shall be accompanied by accrued interest on the principal amount
being prepaid to the date of prepayment.
SECTION 2.06. Fees.
(a) Closing Fee. On the Closing Date, the Borrower shall pay in cash
to the Lender a non-refundable fee (the "Closing Fee") of $210,000 in
immediately available funds.
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(b) Anniversary Fee. From and after the Closing Date, the Borrower
shall pay to the Lender an anniversary fee equal to (i) 3.0% of the principal
amount of the Loan outstanding on the fourth anniversary of the Closing Date,
payable in cash on such anniversary, (ii) 3.5% of the principal amount of the
Loan outstanding on the fifth anniversary of the Closing Date, payable in cash
on such anniversary, (iii) 4.0% of the average principal amount of the Loan
outstanding during the year preceding the sixth anniversary of the Closing Date,
payable in cash on such anniversary and (iv) 4.5% of the average principal
amount of the Loan outstanding during the year preceding all subsequent
anniversaries of the Closing Date, payable in cash on such anniversary.
(c) Exit Fee. The Borrower shall pay to the Lender a non-refundable
fee (the "Exit Fee") of $1,166,000, payable in full in cash on the earlier of,
and only if the following shall occur on or prior to the seventh anniversary of
the Closing Date: (i) the date on which a Change of Control shall have occurred,
and (ii) the date on which the Borrower consummates an initial public offering
of any of its debt or equity securities; provided, however, that (1) if the
Borrower repays in full in cash all of the Obligations hereunder (other than the
Exit Fee) prior to the third anniversary of the Closing Date, the Exit Fee shall
be reduced to $1,000,000 and (2) if the Exit Fee is paid pursuant to clause (i)
of this Section 2.06(c) and the holders of Capital Stock of the Borrower sell
any of such Capital Stock in connection with such Change in Control, the Exit
Fee shall be the lesser of (A) the Exit Fee otherwise payable and (B) 10.5% of
the amount obtained by dividing (I) the Net Sales Proceeds received by the
holders of Capital Stock of the Borrower in connection with such Change of
Control by (II) the percentage, expressed as a decimal fraction, equal to the
percentage of the Capital Stock of the Borrowers sold by such holders. The
obligation of the Borrower to pay the Exit Fee shall survive, and the Exit Fee
shall be payable notwithstanding, the payment of all other Obligations
hereunder.
ARTICLE III
PAYMENTS AND OTHER COMPENSATION
SECTION 3.01. Payments; Computations and Statements. (a) The Borrower
will make each payment hereunder or under the Note not later than 4:00 p.m. (New
York City time) on the day when due, in lawful money of the United States of
America and in immediately available funds, to the Lender at the Lender Account.
All payments received by the Lender after 4:00 p.m. (New York City time) on any
Business Day will be credited to the Loan Account on the next succeeding
Business Day. All payments shall be made by the Borrower without defense, set-
off or counterclaim to the Lender. The Borrower hereby authorize the Lender to,
and the Lender may, from time to time charge the Loan Account with all
Obligations and any other amount due and payable under any Loan Document to
which the Borrower is a party whether or not any Event of Default or Default
shall have occurred or be continuing or whether any of the conditions precedent
in Article IV have been satisfied. The Borrower confirms that any charges which
the Lender may so make to the Loan Account as herein provided will be made as an
accommodation to the Borrower and solely at the Lender's discretion. The Lender
shall maintain a Loan Account on its books in the name of the Borrower
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for the account of the Borrower. It is expressly understood and agreed by the
Borrower that the Lender shall have no responsibility to inquire into the
correctness of the apportionment, allocation or disposition of the Loan made to
the Borrower or any fees, costs or expenses for which the Borrower is obligated
under this Agreement. Whenever any payment to be made under any such Loan
Document shall be stated to be due on a day other than a Business Day, such
payment shall be made on the next succeeding Business Day and such extension of
time shall in such case be included in the computation of interest or fees, as
the case may be. All computations of fees shall be made by the Lender on the
basis of a year of 360 days for the actual number of days (including the first
day but excluding the last day) occurring in the period for which such fee is
payable. Each determination by the Lender of an interest rate or fees hereunder
shall be conclusive and binding for all purposes in the absence of manifest
error.
(b) The Lender shall provide the Borrower, promptly after the end of
each calendar quarter, a summary statement (in the form from time to time used
by the Lender) of (i) the opening and closing daily balances in the Loan Account
during such quarter, (ii) the amounts and dates of all payments on account of
the Loan during such quarter, (iii) the amount of interest accrued on the Loan
during such quarter, and (iv) the amount and nature of any charges to the Loan
Account made during such quarter on account of fees, commissions, expenses and
other Obligations. All entries on any such statement shall, 30 days after the
same is sent, be presumed to be correct and shall constitute presumptive
evidence of the information contained in such statement and shall be final and
conclusive absent manifest error, provided, however, that no error shall affect
the rights of the Lender or the obligations of the Borrower with respect to any
amounts due to the Lender hereunder.
SECTION 3.02. Contribution. (a) On any date a payment in respect of
the Obligations is made, the right of contribution, if any, of the Borrower or
each Guarantor (each an "Obligor") against each Contributor shall be determined
as provided in the immediately succeeding sentence, with the right of
contribution of each Obligor to be revised and restated as of each such date. At
any time that a payment (a "Relevant Payment") is made by an Obligor in respect
of the Obligations and results in the aggregate payments made by such Obligor in
respect of the Obligations to and including the date of such Relevant Payment
exceeding such Obligor's Contribution Percentage of the aggregate payments made
by all Obligors in respect of the Obligations to and including such date (such
excess, the "Aggregate Excess Amount"), each such Obligor shall have a right of
contribution against each Contributor who has made payments in respect of the
Obligations to and including such date in an aggregate amount less than such
Contributor's Contribution Percentage of the aggregate payments made to and
including such date by all Obligors in respect of the Obligations (the aggregate
amount of such deficit, the "Aggregate Deficit Amount") in an amount equal to
(x) a fraction the numerator of which is the Aggregate Excess Amount of such
Obligor and the denominator of which is the sum of the Aggregate Excess Amounts
of all Obligors multiplied by (y) the Aggregate Deficit Amount of such
Contributor. An Obligor's right of contribution, if any, pursuant to this
paragraph shall arise at the time of each computation, subject to adjustment at
the time of subsequent computations, provided that such Obligor may not take any
action to enforce such right until the Obligations have been paid in full, it
being expressly recognized and agreed by all Obligors that any Obligor's right
of contribution arising pursuant hereto against any Contributor shall be
expressly
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junior and subordinate to such Contributor's obligations and liabilities in
respect of the Obligations. As used in this Section 3.02, (i) "Contributor"
shall mean each Obligor required to make any payment to any other Obligor
pursuant to this Section 3.02, (ii) the "Contribution Percentage" of each
Obligor shall mean the percentage obtained by dividing (x) the Benefit Amount of
such Obligor by (y) the aggregate Benefit Amount of all Obligors and (iii) the
"Benefit Amount" of each Obligor shall mean the net value of the benefits to
such Obligor from the credit extensions made under the Loan Documents.
(b) Each of the Obligors recognizes and agrees that, except for any
right of contribution arising pursuant to Section 3.02(a) hereof, each Obligor
which makes any payment in respect of the Obligations shall have no right of
contribution, reimbursement or subrogation against any other Obligor in respect
of such payment, any such right of contribution, reimbursement or subrogation
arising under law or otherwise being expressly waived by all Obligors.
(c) Each of the Obligors recognizes and acknowledges that the rights
to contribution arising hereunder shall constitute an asset in favor of the
party entitled to such contribution. In this connection each Obligor has the
right to waive its contribution right against any Contributor to the extent that
after giving effect to such waiver such Obligor would remain Solvent in the
determination of the Lender.
ARTICLE IV
CONDITIONS OF CLOSING
SECTION 4.01. Conditions Precedent to Closing. The obligation of the
Lender to make the Loan hereunder is subject to the satisfaction of each of the
following conditions precedent (the first Business Day on which each of the
following conditions precedent has been satisfied, or waived by the Lender being
the "Closing Date"):
(a) Payment of Fees, Etc. The Borrower shall have paid on or before
the date of this Agreement, all fees, costs, expenses and taxes then payable by
the Borrower pursuant to Sections 2.06 and 9.04 hereof which payment may be
funded from the proceeds of the Loan.
(b) Representations and Warranties; No Event of Default. The
representations and warranties contained in Section 5.01 of this Agreement and
in each other Loan Document and certificate or other writing delivered to the
Lender pursuant hereto on or prior to the Closing Date shall be correct on and
as of the Closing Date as though made on and as of such date (except for
representations and warranties which relate to a specific date); and no Default
or Event of Default shall have occurred and be continuing on the Closing Date or
would result from this Agreement becoming effective in accordance with its
terms.
(c) Legality. The making of the initial Loans shall not contravene any
law, rule or regulation applicable to the Lender or the Borrower or any of the
Guarantors.
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(d) Delivery of Documents. The Lender shall have received on or
before the Closing Date the following, each in form and substance satisfactory
to the Lender and, unless indicated otherwise, dated the Closing Date:
(i) the Note payable to the order of the Lender, duly executed
by the Borrower;
(ii) a copy of the resolutions of the Borrower and each
Guarantor, certified as of the Closing Date by an authorized officer thereof,
authorizing (A) the borrowings hereunder and the transactions contemplated by
the Loan Documents to which such Person is or will be a party, and (B) the
execution, delivery and performance by each such Person of each Loan Document
and the execution and delivery of the other documents to be delivered by each
such Person in connection herewith;
(iii) a certificate of an authorized officer of the Borrower and
each Guarantor, certifying the names and true signatures of the representatives
of such Person authorized to sign each Loan Document to which such Person is or
will be a party and the other documents to be executed and delivered by such
Person in connection herewith, together with evidence of the incumbency of such
authorized officers;
(iv) a certificate of the appropriate official(s) of the state
of organization and each state of foreign qualification of the Borrower and each
Guarantor certifying as to the subsistence in good standing of, and the payment
of taxes by, such Person in such states, together with confirmation by telephone
facsimile or telegram on the Closing Date as to such matters from such
official(s) or from a recognized service company specializing in the
verification of organizational good standing;
(v) a true and complete copy of the Governing Documents of the
Borrower and each Guarantor certified as of a date not more than 30 days prior
to the Closing Date by an appropriate official of the state of organization of
each such Person;
(vi) an opinion of Shefsky & Froelich Ltd., counsel to the
Borrower and the Guarantors, substantially in the form of Exhibit F hereto;
(vii) a certificate of an Authorized Officer of the Borrower and
each Guarantor, certifying as to the matters set forth in subsection (b) of this
Section 4.01;
(viii) the Senior Intercreditor Agreement;
(ix) the Members' Agreement, in form and substance satisfactory
to the Lender, duly executed by all holders of membership interests, and
warrants to acquire membership interests, in the Borrower;
(x) the Registration Rights Agreement, in form and substance
satisfactory to the Lender, duly executed by the holders of the common stock of
the Borrower;
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(xi) the Warrants, in the form attached as Exhibit B, duly
executed by the Borrower, together with evidence, satisfactory to the Lender in
its sole discretion, of the waiver of all preemptive rights held by each holder
of ownership interests (other than Dennis Kessler), or warrants to acquire
ownership interests, in the Borrower arising on account of the issuance of
Warrants (whether on the Closing Date or thereafter) to the Lender;
(xii) such other agreements, instruments, approvals, opinions
and other documents as the Lender may reasonably request.
(e) Senior Debt Closing. The closing under the Senior Loan Documents
shall have occurred.
(f) Material Adverse Effect. The Lender shall have determined, in its
sole judgment, that no Material Adverse Effect shall have occurred after June
30, 1997.
(g) Closing Deadline. The conditions precedent to the Closing Date
shall have been satisfied, or waived by the Lender in its sole discretion, on or
before October 24, 1997.
(h) Due Diligence. The Lender shall be satisfied, in its sole and
absolute discretion, with its legal and business due diligence review of the
Loan Parties, including, without limitation, the Borrower's capital structure,
all tax, accounting, ERISA, labor, environmental, litigation and other matters
related to the Loan Parties and their respective assets, liabilities and
businesses.
(i) Consents. The Loan Parties shall have received all consents,
licenses, approvals or evidence of other action required by any Governmental
Authority in connection with the execution by any Loan Party of this Agreement
and any of the other Loan Documents and with the consummation of the
transactions contemplated hereby and thereby.
(j) Minimum Availability. The Borrower shall have provided evidence
reasonably satisfactory to the Lender that the Senior Loan Availability is at
least $4,000,000.
ARTICLE V
REPRESENTATIONS AND WARRANTIES
SECTION 5.01. Representations and Warranties. Each Loan Party
represents and warrants as follows:
(a) Organization, Good Standing, Etc. Each Loan Party (i) is a
corporation or limited liability company, as the case may be, duly organized,
validly existing and in good standing under the laws of the state of its
organization, (ii) has all requisite power and authority to conduct its business
as now conducted and as presently contemplated and to make the borrowings
hereunder, in the case of the Borrower, and to consummate the transactions
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contemplated hereby, and (iii) is duly qualified to do business and is in good
standing in each jurisdiction in which the character of the properties owned or
leased by it or in which the transaction of its business makes such
qualification necessary or where the failure to qualify would have a Material
Adverse Effect.
(b) Authorization, Etc. The execution, delivery and performance by
any Loan Party of each Loan Document to which it is a party, (i) have been duly
authorized by all necessary corporate or company action, (ii) do not and will
not contravene such Loan Party's Governing Documents, or any applicable law or
any contractual restriction binding on or otherwise affecting it or any of its
properties, (iii) do not and will not result in or require the creation of any
Lien upon or with respect to any of its properties (except in favor of the
Lender or its assignees), and (iv) do not and will not result in any suspension,
revocation, impairment, forfeiture or nonrenewal of any permit, license,
authorization or approval applicable to its operations or any of its properties.
(c) Governmental Approvals. No authorization or approval or other
action by, and no notice to or filing with, any Governmental Authority or other
regulatory body is required in connection with the due execution, delivery and
performance by each Loan Party of any Loan Document to which it is or will be a
party.
(d) Enforceability of Loan Documents. This Agreement is, and each
other Loan Document to which each Loan Party is or will be a party, when
delivered hereunder, will be, a legal, valid and binding obligation of such Loan
Party, enforceable against principles in accordance with its terms, except as
may be limited by applicable bankruptcy, insolvency, reorganization, moratorium
or other similar laws and general equity principles affecting the enforcement of
creditors' rights generally.
(e) Locations; Places of Business; Chief Executive Office. Schedule
5.01(e) hereto sets forth a complete and accurate list as of the date hereof of
(A) each place of business of the Borrower and each Guarantor and (B) the chief
executive office of the Borrower and each Guarantor.
(f) Subsidiaries. Schedule 5.01(f) hereto is a complete and correct
description of the name, jurisdiction of incorporation and ownership of the
outstanding Capital Stock of each Subsidiary of each Loan Party in existence on
the date hereof. All such Capital Stock owned by the Borrower or one or more of
its Subsidiaries, as indicated in such Schedule, is owned free and clear of all
Liens.
(g) Litigation. Except as set forth in Schedule 5.01(g) hereto, there
is no pending or, to the knowledge of the Borrower or the Guarantors, threatened
action, suit or proceeding affecting any Loan Party before any court or other
Governmental Authority or any arbitrator which, individually or in the aggregate
could have a Material Adverse Effect.
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(h) Financial Condition.
(i) The Financial Statements, copies of which have been
delivered to the Lender, fairly present the financial condition of the Loan
Parties as at the date thereof and the results of operations of the Loan Parties
for the fiscal period ended on such date, all in accordance with GAAP, and since
June 30, 1997 there has been no Material Adverse Effect.
(ii) The Loan Parties have heretofore furnished to the Lender a
projected income statement and statement of cash flow of the Loan Parties for
the period from January 1, 1997 through December 31, 2002, attached as Schedule
5.01(h) hereto. Such projections were believed at the time furnished to be
reasonable, have been prepared on a reasonable basis and in good faith by the
Loan Parties, and have been based on assumptions believed by the Loan Parties to
be reasonable at the time made and upon the best information then reasonably
available to the Loan Parties.
(iii) The Loan Parties each make and keep books, records and
accounts which, in reasonable detail, accurately and fairly reflect their
respective transactions and dispositions of their respective assets and each
Loan Party maintains a system of internal accounting controls sufficient to
provide reasonable assurances that (i) transactions are executed in accordance
with management's general or specific authorization, (ii) transactions are
recorded as necessary (A) to permit preparation of financial statements in
conformity with GAAP except as previously disclosed to the Lender and (B) to
maintain accountability for assets, and (iii) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
(iv) To the best of the Borrower's knowledge, the consolidated
balance sheet of Cohen's and its Consolidated Subsidiaries as at December 31,
1996 and the related consolidated statements of income and of cash flows for the
fiscal year ended on such date, reported on by Fishman Ostroff Ruchowitz
Hausman, copies of which have heretofore been furnished to the Lender, are
complete and correct in all material respects and present fairly the
consolidated financial condition of Cohen's and its Consolidated Subsidiaries as
at such date, and the consolidated results of their operations and their
consolidated cash flows for the fiscal year then ended. To the best of the
Borrower's knowledge, the unaudited consolidated balance sheet of Cohen's and
its Consolidated Subsidiaries as at June 30, 1997 and the related unaudited
consolidated statements of income and of cash flows for the six-month period
ended on such date, certified by a Responsible Officer, copies of which have
heretofore been furnished to the Lender, are complete and correct in all
material respects and present fairly the consolidated financial condition of
Cohen's and its Consolidated Subsidiaries as at such date, and the consolidated
results of their operations and their consolidated cash flows for the six-month
period then ended (subject to normal year-end audit adjustments). To the best of
the Borrower's knowledge, all such financial statements, including the related
schedules and notes thereto, have been prepared in accordance with GAAP applied
consistently throughout the periods involved (except as approved by such
accountants or Responsible Officer, as the case may be, and as disclosed
therein). To the best of the Borrower's knowledge, neither Cohen's nor any of
its
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Consolidated Subsidiaries had, at the date of the most recent balance sheet
referred to above, any material Guarantee Obligation, contingent liability or
liability for taxes, or any long-term lease or unusual forward or long-term
commitment, including, without limitation, any interest rate or foreign currency
swap or exchange transaction or other financial derivative, which is not
reflected in the foregoing statements or in the notes thereto. To the best of
the Borrower's knowledge, during the period from June 30, 1997 to and including
the date hereof, except for transactions in the ordinary course of business,
there has been no sale, transfer or other disposition by Cohen's or any of its
Consolidated Subsidiaries of any material part of its business or property and
no purchase or other acquisition of any business or property (including any
Capital Stock of any other Person) material in relation to the consolidated
financial condition of Cohen's and its Consolidated Subsidiaries at June 30,
1997.
(i) Compliance with Law, Etc. No Loan Party, both before and
after giving effect to this Agreement, is in violation of its charter or by-laws
or any law or any material term of any agreement or instrument binding on or
otherwise affecting it or any of its properties where such violation would have
a Material Adverse Effect.
(j) ERISA. Except as set forth on Schedule 5.01(j) hereto, (i)
each Employee Plan is in substantial compliance with ERISA and the Code, (ii) no
Termination Event has occurred nor is reasonably expected to occur with respect
to any Employee Plan, (iii) the most recent annual report (Form 5500 Series)
with respect to each Employee Plan, including any required Schedule B (Actuarial
Information) thereto, copies of which have been filed with the Internal Revenue
Service and, if requested, delivered to the Lender, is complete and correct and
fairly presents the funding status of such Employee Plan, and since the date of
such report there has been no material adverse change in such funding status,
(iv) no Employee Plan had an accumulated or waived funding deficiency or
permitted decreases which would create a deficiency in its funding standard
account or has applied for an extension of any amortization period within the
meaning of Section 412 of the Code at any time during the previous 60 months,
and (v) no Lien imposed under the Code or ERISA exists or is likely to arise on
account of any Employee Plan within the meaning of Section 412 of the Code at
any time during the previous 60 months. Except as set forth on Schedule 5.01(j)
hereto, neither any Loan Party nor any ERISA Affiliate has incurred any
withdrawal liability under ERISA with respect to any Multiemployer Plan, and is
not aware of any facts indicating that any Loan Party or any ERISA Affiliate may
in the future incur any such withdrawal liability. Except as required by Section
4980B of the Code, neither any Loan Party nor any ERISA Affiliate maintains an
employee welfare benefit plan (as defined in Section 3(1) of ERISA) which
provides health or welfare benefits (through the purchase of insurance or
otherwise) for any retired or former employee of any Loan Party or any ERISA
Affiliate or coverage after a participant's termination of employment. Neither
any Loan Party nor any ERISA Affiliate has incurred any liability or obligation
under the Worker Adjustment and Retraining Notification Act ("WARN") or similar
state law, which remains unpaid or unsatisfied.
(k) Taxes, Etc. All federal, state, provincial and local tax
returns and other reports required by applicable law to be filed by each Loan
Party have been filed, or extensions have been obtained, and all taxes,
assessments and other governmental charges
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imposed upon each Loan Party or any property of each Loan Party and which have
become due and payable on or prior to the date hereof have been paid (or
installment arrangements made with respect thereto), except to the extent
contested in good faith by proper proceedings which stay the imposition of any
penalty, fine or Lien resulting from the non-payment thereof and with respect to
which adequate reserves have been set aside for the payment thereof.
(l) Regulation U. Each Loan Party is not nor will be engaged in the
business of extending credit for the purpose of purchasing or carrying margin
stock (within the meaning of Regulation U issued by the Board), and no proceeds
of any Loan will be used to purchase or carry any margin stock or to extend
credit to others for the purpose of purchasing or carrying any margin stock.
(m) Adverse Agreements, Etc. No Loan Party is a party to any
agreement or instrument, or subject to any partnership agreement, charter or
other corporate or partnership restriction or any judgment, order, regulation,
ruling or other requirement of a court or other Governmental Authority or
regulatory body, which has a Material Adverse Effect, or, to the best knowledge
of any Loan Party, in the future is reasonably likely to have a Material Adverse
Effect.
(n) Permits, Etc. Each Loan Party has all material permits, licenses,
authorizations and approvals required for it lawfully to own and operate its
business.
(o) Title to Properties. Except as set forth on Schedule 5.01(o)
hereto, each Loan Party has good and marketable title in fee simple to all of
its properties and assets, free and clear of all Liens and other types of
encumbrances and preferential arrangements except such as are permitted by
Section 6.02(a) hereof.
(p) Full Disclosure. No Loan Document or schedule or exhibit thereto
and no certificate, report, statement or other document or information prepared
by Borrower and furnished to the Lender in connection herewith or therewith or
with the consummation of the transactions contemplated hereby or thereby,
contains any material misstatement of fact or omits to state a material fact or
any fact necessary to make the statements contained herein or therein not
misleading. There is no fact materially adversely affecting the condition or
operations, financial or otherwise, or the business or prospects of any Loan
Party (except that, as to financial information provided with respect to any
Subsidiary with respect to periods prior to the Borrower's acquisition thereof,
this representation shall be to the best of Borrower's knowledge) which has not
been set forth in a footnote included in the Financial Statements or a schedule
hereto.
(q) Environmental Matters. Except as set forth in Schedule 5.01(q)
hereto, to the best of Borrower's knowledge, (i) the operations of each Loan
Party are in compliance with Environmental Laws; (ii) there has been no Release
at any of the properties owned or operated by a Loan Party or a predecessor in
interest, or at any disposal or treatment facility which received Hazardous
Materials generated by a Loan Party or any predecessor in interest which Release
was a violation of Environmental Law and is reasonably likely to have a Material
Adverse Effect; (iii) no Environmental Actions have been asserted against a Loan
Party
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or any predecessor in interest nor does any Loan Party have knowledge or notice
of any threatened or pending Environmental Action against any Loan Party or any
predecessor in interest which is reasonably likely to have a Material Adverse
Effect; and (iv) no Loan Party has received notice that any Environmental
Actions have been asserted against any facilities that may have received
Hazardous Materials generated by any Loan Party or any predecessor in interest
which is reasonably likely to result in a Material Adverse Effect.
(r) Schedules. All of the information which is required to be
scheduled to this Agreement (subject to the qualifications set forth in the
representation to which such Schedule relates) is set forth on the Schedules
attached hereto, is correct and accurate and does not omit to state any
information material thereto.
(s) Insurance. Each Loan Party keeps its properties adequately (based
upon industry standards for comparable companies) insured and maintains (i)
insurance to such extent and against such risks, including fire, as is customary
with companies in the same or similar businesses, (ii) workmen's compensation
insurance in the amount required by applicable law, (iii) public liability
insurance, which shall include product liability insurance, in the amount
customary with companies in the same or similar business against claims for
personal injury or death on properties owned, occupied or controlled by it, and
(iv) such other insurance as may be required by law or as may be reasonably
required in writing by the Lender. Schedule 5.01(s) hereto sets forth a list of
all insurance maintained by each Loan Party on the Closing Date.
(t) Use of Proceeds. $5,000,000 of the proceeds of the Loan will be
used either (i) to fund $5,000,000 of the purchase price to be paid by the
Borrower for all or substantially all of the common stock or assets of Cohen's,
or (ii) to repay the Senior Debt. The remaining proceeds of the Loan (less all
fees and expenses paid from the proceeds of the Loan on the Closing Date) will
be used to repay the Senior Debt.
(u) Tradenames. Schedule 5.01(u) hereto sets forth a complete and
accurate list as of the Closing Date of all tradenames used by the Borrower and
each Guarantor.
(v) Solvency. After giving effect to the transactions contemplated by
this Agreement and the Senior Credit Agreement and before and after giving
effect to the Loan and each Senior Loan, each of the Borrower and the Guarantors
is, individually and together with its Consolidated Subsidiaries, Solvent.
(w) Power to Carry on Businesses. Each of the Loan Parties has all of
the requisite power and authority to own and operate its properties and carry on
its business as now conducted and as presently planned to be conducted.
(x) Location of Bank Accounts. Schedule 5.01(x) hereto sets forth a
complete and accurate list as of the Closing Date of all deposit and other
accounts maintained by the Borrower and each Guarantor together with a
description thereof (i.e., the bank at which such deposit or other account is
maintained and the account number and the purpose thereof).
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(y) No Event of Default. No event has occurred and is continuing and
no condition exists which constitutes a Default or an Event of Default.
(z) Intellectual Property. The Borrower and each Guarantor owns or
licenses or otherwise has the right to use all material licenses, permits,
patents, patent applications, trademarks, trademark applications, service marks,
tradenames, copyrights, copyright applications, franchises, authorizations and
other intellectual property rights that are necessary for the operations of its
business, which to the best of Borrower's knowledge are without infringement
upon or conflict with the rights of any other Person with respect thereto,
except for such infringements and conflicts which, individually or in the
aggregate, could not have a Material Adverse Effect. Set forth in Schedule
5.01(z) is a complete and accurate list as of the Closing Date of all such
material licenses, permits, patents, patent applications, trademarks, trademark
applications, service marks, tradenames, copyrights, copyright applications,
franchises, authorizations and other intellectual property rights of the
Borrower and each Guarantor. To the knowledge of the Loan Parties, no slogan or
other advertising device, product, process, method, substance, part or other
material now employed, or now contemplated to be employed, by the Borrower or
any Guarantor infringes upon or conflicts with any rights owned by any other
Person, and, except as set forth in Schedule 5.01(z), no claim or litigation
regarding any of the foregoing is pending or threatened, except for such
infringements and conflicts which could not have, individually or in the
aggregate, a Material Adverse Effect. To the knowledge of the Borrower and each
Guarantor, no patent, invention, device, application, principle or any statute,
law, rule, regulation, standard or code is pending or proposed, which,
individually or in the aggregate, could have a Material Adverse Effect.
(aa) Material Contracts. Set forth in Schedule 5.01(aa) is a complete
and accurate list as of the Closing Date of all Material Contracts of the
Borrower and each Guarantor, showing the parties and subject matter thereof and
amendments and modifications thereto. Each such Material Contract, to the best
of Borrower's knowledge, (i) is in full force and effect and is binding upon and
enforceable against the Borrower and each Guarantor party thereto and all other
parties thereto in accordance with its terms, (ii) has not been otherwise
amended or modified, and (iii) there exists no default under any Material
Contract by the Borrower or Guarantors party thereto or any other party thereto.
(bb) Senior Loan Documents. Set forth in Schedule 5.01(bb) are
complete copies in all material respects of each of the Cohen's Acquisition
Documents (as defined in the Senior Credit Agreement) (including all exhibits,
schedules and disclosure letters referred to therein or delivered pursuant
thereto) and all amendments thereto, waivers relating thereto and other side
letters or agreements affecting the terms thereof. None of such documents and
agreements has been amended or supplemented, nor have any of the provisions
thereof been waived, in any material respect, except pursuant to a written
agreement or instrument which has heretofore been consented to by the Lender.
Each Cohen's Acquisition Document has been duly executed and delivered by each
Loan Party which is a party thereto and is in full force and effect; and the
Cohen's Acquisition (as defined in the Senior Credit Agreement) has been duly
consummated in accordance with the terms of the Cohen's Purchase Agreement (as
defined in the Senior Credit Agreement), unless otherwise provided in the
Cohen's Acquisition Documents.
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The representations and warranties of each Loan Party contained in each Cohen's
Acquisition Document to which it is a party is true and correct in all material
respects, and will be true and correct in all material respects on the Closing
Date as if made on and as of the Closing Date, and the Lender shall be entitled
to rely on such representations and warranties with the same force and effect as
if they were incorporated in this Agreement and made to the Lender directly. To
the best knowledge of each Loan Party after due investigation, the
representations and warranties of each party to each Cohen's Acquisition
Document other than a Loan Party contained therein are true and correct in all
material respects and will be true and correct in all material respects on the
Closing Date as if made on and as of the Closing Date.
ARTICLE VI
COVENANTS OF THE BORROWER AND GUARANTORS
SECTION 6.01 Affirmative Covenants. So long as any principal of or
interest on the Loan or any other Obligations (whether or not due) shall remain
unpaid, the Borrower and the Guarantors will, unless the Lender shall otherwise
consent in writing:
(a) Reporting Requirements. Furnish to the Lender:
(i) As soon as practicable and in any event within 90 days after
the end of each fiscal year of the Borrower, consolidated and consolidating
balance sheets, consolidated and consolidating statements of income and retained
earnings and consolidated and consolidating statements of operations and cash
flow of the Loan Parties as at the end of such fiscal year, and notes to each,
setting forth in comparative form the corresponding figures for the immediately
preceding fiscal year all in reasonable detail and prepared in accordance with
GAAP, and accompanied by a report and an unqualified opinion, prepared in
accordance with generally accepted auditing standards, of BDO Seidman or other
independent certified public accountants of recognized national standing
selected by the Loan Parties and satisfactory to the Lender, together with a
written statement of such accountants to the effect that (A) such accountants
examined such statements and balance sheet in accordance with generally accepted
auditing standards and accordingly made such tests of accounting records and
such other auditing procedures as such accountants considered necessary in the
circumstances and (B) in the opinion of such accountants such statements and
balance sheets present fairly, in all material respects, the consolidated
financial position of the Loan Parties and their Consolidated Subsidiaries as of
the end of such fiscal year and the results of its operations and the changes in
its financial position for such fiscal year, in conformity with GAAP applied on
a basis consistent with that of the preceding fiscal year (except for changes in
application in which such accountants concur). A copy of such certificate or
report shall be delivered to the Lender and signed by such independent public
accountants and, as soon as available, a copy of any management letter received
by each Loan Party from its independent public accountants, shall be delivered
to the Lender. Each set of statements and balance sheets delivered pursuant to
this Section 6.01(a)(i) shall be accompanied by a certificate or report dated
the date of such statements and balance sheets by the accountants
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who certified or reported on such statements and balance sheets stating in
substance that they have reviewed this Agreement and that in making the
examination necessary for their certification of such statements and balance
sheets they did not become aware of any Event of Default or Default based upon
any financial covenant, or if they did become so aware, such certificate or
report shall state the nature and period of existence thereof, if determinable.
(ii) As soon as available and in any event (A) within 45 days after
the end of each of the first three fiscal quarters of the Borrower, unaudited
consolidated and consolidating balance sheets, consolidated and consolidating
statements of income and retained earnings and consolidated and consolidating
statements of cash flow of the Loan Parties as at the end of such quarter, and
for the period commencing at the end of the immediately preceding fiscal year
and ending with the end of such quarter, setting forth in each case in
comparative form the figures for the corresponding date or period of the
immediately preceding fiscal year, all in reasonable detail and certified by a
duly authorized officer of the Borrower as fairly presenting, in all material
respects, the financial position of the Loan Parties as of the end of such
quarter and the results of operations and changes in financial position of the
Loan Parties for such quarter, in accordance with GAAP applied in a manner
consistent with that of the most recent audited financial statements of such
Person furnished to the Lender, subject to year end adjustments. Each set of
statements and balance sheets delivered pursuant to this Section 6.01(a)(ii)
shall be accompanied by a certificate dated the date of such statements and
balance sheet by a duly authorized of officer of each Loan Party stating in
substance that he has reviewed this Agreement and that to the best of his
knowledge he did not become aware of any Event of Default or Default, or if he
did become so aware, such certificate shall state the nature and period of
existence thereof, if determinable.
(iii) As soon as available, and in any event within 30 days of the
end of each month, unaudited consolidated and consolidating balance sheets,
consolidated and consolidating statements of income and retained earnings and
consolidated and consolidating statements of cash flow of the Loan Parties for
such month and for the period from the beginning of such fiscal year to the end
of such month all in reasonable detail and certified by a duly authorized
officer of the Borrower as fairly presenting, in all material respects, the
financial position of the Loan Parties as of the end of such month and the
results of operations and changes in financial position of the Loan Parties for
such month, in accordance with GAAP applied in a manner consistent with that of
the most recent audited financial statements furnished to the Lender, subject to
year end adjustments. Each set of statements and balance sheets delivered
pursuant to this Section 6.01(a)(iii) shall be accompanied by a certificate
dated the date of such statements and balance sheet by a duly authorized
officer of each Loan Party stating in substance that he has reviewed this
Agreement and that to the best of his knowledge he did not become aware of any
Event of Default or Default, or if he did become so aware, such certificate
shall state the nature and period of existence thereof, if determinable.
(iv) At the same time provided to the Senior Lender, each Borrowing
Base Certificate (as defined in the Senior Loan Documents), together with all
back-up therefor provided to the Senior Lender.
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(v) On or before January 31 of each year, financial projections, in
form and substance satisfactory to the Lender, for the succeeding fiscal year
for the Borrower, and all such financial projections to be reasonable, to be
prepared on a reasonable basis and in good faith, and to be based on assumptions
believed by the Borrower to be reasonable at the time made and from the best
information then available to the Borrower.
(vi) Promptly upon their becoming available, a copy of (A) all
consultants' reports addressing financial or strategic affairs, investment
bankers' reports, accountants' management letters, and final business plans, (B)
all reports, financial statements or other information delivered by the Borrower
to its members, (C) all reports, proxy statements, financial statements and
other information generally distributed by any Loan Party to its creditors or
the financial community in general; and (D) any audit or other reports submitted
to any Loan Party by independent accountants in connection with any annual,
interim or special audit.
(vii) Promptly after submission to any Government Authority all
documents and information furnished to such Government Authority in connection
with any investigation of any Loan Party other than routine inquiries by such
Governmental Authority, provided that furnishing such documents and information
will not waive any privilege or confidentiality obligation of any Loan Party.
(viii) As soon as possible, and in any event within five days after
the occurrence of an Event of Default or Default or a Material Adverse Effect,
the written statement of a duly authorized officer setting forth the details of
such Event of Default, Default or Material Adverse Effect and the action which
the Loan Parties propose to take with respect thereto.
(ix) (A) As soon as possible and in any event (1) within 30 days
after any Borrower or Guarantor knows that any Termination Event described in
clause (i) of the definition of Termination Event with respect to any Employee
Plan has occurred, (2) within 10 Business Days after the Borrower or any
Guarantor knows that any other Termination Event with respect to any Employee
Plan has occurred, or (3) within 10 Business Days after the Borrower or any
Guarantor knows that an accumulated funding deficiency has been incurred or an
application has been made to the Secretary of the Treasury for a waiver or
modification of the minimum funding standard (including installment payments) or
an extension of any amortization period under Section 412 of the Code with
respect to an Employee Plan, a statement of a duly authorized officer setting
forth the details of such occurrence and the action, if any, which the Borrower
and the Guarantors propose to take with respect thereto, (B) promptly and in any
event within two Business Days after receipt thereof by the Borrower or any
Guarantor from the Pension Benefit Guaranty Corporation, copies of each notice
received by the Borrower or any Guarantor of the Pension Benefit Guaranty
Corporation's intention to terminate any Plan or to have a trustee appointed to
administer any Plan, (C) promptly and in any event within 30 days after the
filing thereof with the Internal Revenue Service, if requested by the Lender
copies of each Schedule B (Actuarial Information) to the annual report (Form
5500 Series) with respect to each Employee Plan and Multiemployer Plan, (D)
promptly and in any event within 10 Business Days after the Borrower or any
Guarantor knows or has reason to know that a required
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installment within the meaning of Section 412 of the Code has not been made when
due with respect to an Employee Plan, a statement of a duly authorized
officer setting forth the details of such occurrence and the action, if any,
which the Borrower and the Guarantors propose to take with respect thereto, (E)
promptly and in any event within 10 Business Days after receipt thereof by the
Borrower or any Guarantor from a sponsor of a Multiemployer Plan or from the
Pension Benefit Guaranty Corporation, a copy of each notice received by the
Borrower or any Guarantor concerning the imposition or amount of withdrawal
liability under Section 4202 of ERISA or indicating that such Multiemployer Plan
may enter reorganization status under Section 4241 of ERISA, and (F) promptly
and in any event within 10 days after the Borrower or any Guarantor or any of
its ERISA Affiliates sends notice of a plant closing or mass layoff (as defined
in WARN) to employees, copies of each such notice sent by the Borrower or such
Guarantor or any of its ERISA Affiliates.
(x) Promptly upon request, such other information concerning the
condition or operations, financial or otherwise, of any Loan Party as the Lender
may, from time to time may reasonably request.
(b) Compliance with Laws, Etc. Comply, and cause each of their
respective Subsidiaries to comply, in all material respects with all applicable
laws, rules, regulations and orders (including, without limitation, all
Environmental Laws), such compliance to include, without limitation, (i) paying
before the same become delinquent all taxes, assessments and governmental
charges or levies imposed upon it or upon its income or profits or upon any of
its properties, (ii) paying all lawful claims which if unpaid might become a
Lien or charge upon any of its properties, except to the extent (A) contested in
good faith by proper proceedings which stay the imposition of any penalty, fine
or Lien resulting from the nonpayment thereof and with respect to which adequate
reserves have been set aside for the payment thereof and (B) any notices thereof
or relating thereto have been vacated and discharged from title to any of the
Collateral affected thereby, and (iii) immediately discharging or vacating from
title to any and all of the Collateral affected thereby Liens other than
Permitted Liens.
(c) Preservation of Existence, Etc. Maintain and preserve, and cause
each of their Subsidiaries to maintain and preserve, its existence, rights and
privileges, and become or remain duly qualified and in good standing in each
jurisdiction in which the character of the properties owned or leased by them or
in which the transaction of their business makes such qualification necessary.
(d) Keeping of Records and Books of Account. Keep, and cause each of
their Subsidiaries to keep, adequate records and books of account, with complete
entries made in accordance with GAAP.
(e) Inspection Rights. Permit, and cause each of their Subsidiaries
to permit, the Lender, or any agents or representatives thereof at any time and
from time to time during normal business hours and, upon at least two Business
Days' notice, to examine and make copies of and abstracts from their records and
books of account, to visit and inspect their properties, to verify materials,
leases, notes, accounts receivable, deposit accounts and other
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assets of the Borrower and each Guarantor to conduct audits, physical counts,
valuations or examinations and to discuss their affairs, finances and accounts
with any of the directors, officers, managerial employees, independent
accountants or other representatives thereof.
(f) Maintenance of Properties, Etc. Maintain and preserve, and cause
each of its Subsidiaries to maintain and preserve, all of their properties which
are necessary or useful in the proper conduct of their business in good working
order and condition, ordinary wear and tear excepted, and comply, and cause each
of its Subsidiaries to comply, at all times with the provisions of all leases to
which each of them is a party as lessee or under which each of them occupies
property, so as to prevent any loss or forfeiture thereof or thereunder.
(g) Maintenance of Insurance. Maintain, and cause each of its
Subsidiaries to maintain, with responsible and reputable insurance companies or
associations insurance (including, without limitation, comprehensive general
liability, hazard, rent and business interruption insurance) with respect to
their properties (including all real properties leased or owned by them) and
business, in such amounts and covering such risks, as is required by any
Governmental Authority having jurisdiction with respect thereto or as is carried
generally in accordance with sound business practice by companies in similar
businesses similarly situated and in any event in amount, adequacy and scope
reasonably satisfactory to the Lender. All certificates of insurance are to be
delivered with the loss payable and additional insured endorsement in the
Lender's favor, and shall provide for not less than 30 days' prior written
notice to the Lender of the exercise of any right of cancellation. If the
Borrower or any Guarantor fails to maintain such insurance, the Lender may
arrange for such insurance, but at the Borrower's expense and without any
responsibility on the Lender's part for obtaining the insurance, the solvency of
the insurance companies, the adequacy of the coverage, or the collection of
claims. Upon the occurrence and during the continuance of an Event of Default,
the Lender (or, to the extent that it is the primary loss payee, the Senior
Lender, subject to the terms of the Senior Intercreditor Agreement) shall have
the sole right, in the name of the Lender and the Borrower and Guarantors, to
file claims under any insurance policies, to receive, receipt and give
acquittance for any payments that may be payable thereunder, and to execute any
and all endorsements, receipts, releases, assignments, reassignments or other
documents that may be necessary to effect the collection, compromise or
settlement of any claims under any such insurance policies.
(h) Environmental. (i) Keep any property either owned or operated by
it or any of its Subsidiaries free of any Environmental Liens or post bonds or
other financial assurances sufficient to satisfy the obligations or liability
evidenced by such Environmental Lien; (ii) comply, and cause its Subsidiaries to
comply, in all material respects with Environmental Laws and shall provide to
the Lender documentation of such compliance which the Lender reasonably
requests; (iii) promptly notify the Lender of any Release of a Hazardous
Material in excess of any reportable quantity from or onto property owned or
operated by any Loan Party or any of its Subsidiaries and take any Remedial
Actions required to abate said Release or otherwise to come into compliance with
applicable Environmental Law; and (iv) promptly provide the Lender with written
notice within ten (10) days of the receipt of any of the following: (a) notice
that an Environmental Lien has been filed against any of the real or personal
property of any
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Loan Party; (b) commencement of any Environmental Action or notice that an
Environmental Action will be filed against any Loan Party; and (c) notice of a
violation, citation or other administrative order which would reasonably be
expected to have a Material Adverse Effect.
(i) Further Assurances. Take such action and execute, acknowledge
and deliver, and cause each of its Subsidiaries to take such action and execute,
acknowledge and deliver, at its sole cost and expense such agreements,
instruments or other documents as the Lender may reasonably require from time to
time in order (i) to carry out more effectively the purposes of this Agreement
and the other Loan Documents, (ii) to maintain the validity and effectiveness of
any of the Loan Documents, and (iii) to better assure, convey, grant, assign,
transfer and confirm unto the Lender the rights now or hereafter intended to be
granted to the Lender under this Agreement or any other Loan Document.
(j) Executive Committee. If the Borrower shall at any time become a
corporation, its Governing Documents shall provide (i) for the existence of an
executive committee or similar body and (ii) the right for the Lender to appoint
a member to such body upon the occurrence of an Event of Default.
(k) Cohen's Intercreditor Agreement. On or before the date that is
six months after the Closing Date, the Borrower shall deliver to the Lender the
Cohen's Intercreditor Agreement, in form and substance satisfactory to the
Lender, duly executed by Cohen's, the Borrower and the Guarantors.
SECTION 6.02. Negative Covenants. So long as any principal of or
interest on any Loan or any other Obligations (whether or not due) shall remain
unpaid, the Borrower and each Guarantor will not, unless the Lender shall
otherwise consent in writing:
(a) Liens, Etc. Create or suffer to exist, or permit any of its
Subsidiaries to create or suffer to exist, any Lien upon or with respect to any
of its properties, rights or other assets, whether now owned or hereafter
acquired, or assign or otherwise transfer, or permit any of its Subsidiaries to
assign or otherwise transfer, any right to receive income, other than the
following ("Permitted Liens"):
(i) Liens or security interests created pursuant to the Senior
Loan Documents, and any extension of maturity, refinancing or modification of
the terms thereof; provided, however, that such extension, refinancing or
modification (A) is pursuant to terms that are not materially less favorable to
the Loan Parties than the terms of the Indebtedness created under the Senior
Loan Documents and (B) after giving effect to the extension, refinancing or
modification, the Borrower remains in compliance with the covenants set forth in
Section 6.02(n) hereof; and any Liens permitted under the Senior Loan Documents;
(ii) Liens existing on the date hereof, as set forth in Schedule
6.02(a) hereto, but not the extension of coverage thereof to other property or
the extension of maturity, refinancing or other modification of the terms
thereof or of the Indebtedness secured thereby;
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(iii) Liens created by operation of law (other than Environmental
Liens, except to the extent permitted by Section 6.01(h) hereof), such as
materialmen's liens, mechanics' liens and other similar Liens, arising in the
ordinary course of business and securing claims the payment of which shall not
be required by Section 6.01(b) hereof;
(iv) deposits, pledges or Liens (other than Liens arising under ERISA
or the Code) securing (A) obligations incurred in respect of workers'
compensation, unemployment insurance or other forms of governmental insurance or
benefits, (B) the performance of bids, tenders, leases, contracts (other than
for the payment of money) and statutory obligations, or (C) obligations on
surety or appeal bonds, but only to the extent such deposits, pledges or Liens
are incurred or otherwise arise in the ordinary course of business and secure
obligations which are not past due;
(v) restrictions or covenants on the use of real property and minor
irregularities in the title thereto which do not (A) secure obligations for the
payment of money or (B) materially adversely impair the value or marketability
of such property or its use by the Borrower or any Guarantor in the normal
conduct of such Person's business, provided that in all such cases the Borrower
or relevant Guarantor complies in all material respects with all of its
obligations under such title restrictions or covenants;
(vi) Liens securing Capitalized Leases permitted by Section 6.02(g);
(vii) Purchase money Liens on or purchase money security interests in
equipment securing Indebtedness permitted by Section 6.02(b)(v) and 6.02(h); and
(viii) Non-consensual Liens, but only if the Borrower has posted a
bond or other financial assurance sufficient to satisfy the Indebtedness
secured by such Lien.
(b) Indebtedness. Create, incur or suffer to exist, or permit any of its
Subsidiaries to create, incur or suffer to exist, any Indebtedness, other than:
(i) Indebtedness created hereunder, under the Note, the Cohen's
Purchase Money Note or the Senior Loan Documents;
(ii) Indebtedness existing on the date hereof, as set forth in
Schedule 6.02(b) hereto, and any extension of maturity, refinancing or
modification of the terms thereof; provided, however, that such extension,
refinancing or modification (A) is pursuant to terms that are not materially
less favorable to the Loan Parties than the terms of the Indebtedness being
extended, refinanced or modified and (B) after giving effect to the extension,
refinancing or modification, such Indebtedness is not greater than the amount of
Indebtedness outstanding immediately prior to such extension, refinancing or
modification;
(iii) Indebtedness under Capitalized Leases permitted by Section
6.02(g);
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(iv) Indebtedness secured by Liens permitted by Section
6.02(a)(vii); and
(v) Other Indebtedness only if, after giving effect to such
Indebtedness, the Loan Parties would maintain compliance with the covenants set
forth in Section 6.02(n) herein.
(c) Guaranties, Etc. Assume, guarantee, endorse or otherwise become
directly or contingently liable (including, without limitation, liable by way of
agreement, contingent or otherwise, to purchase, to provide funds for payment,
to supply funds to or otherwise invest in the debtor or otherwise to assure the
creditor against loss), in connection with any Indebtedness of any other Person
(other than, in the case of the Borrower, guaranties of Indebtedness of the
Guarantors), other than
(i) guaranties by endorsement of negotiable instruments for
deposit or collection in the ordinary course of business; and
(ii) guaranties existing on the date hereof, as set forth in
Schedule 6.02(c) hereto, but not any renewal or other modification thereof.
(d) Merger, Consolidation, Sale of Assets, Etc. (i) Merge or
consolidate with any Person, or permit any of its Subsidiaries to merge or
consolidate with any Person (a) if such merger results in a Change of Control or
(b) if, upon giving effect to such merger, the Borrower, on a pro forma basis,
would not be in compliance with any covenant set forth in this Article VI;
provided, however, that any direct or indirect Subsidiary of the Borrower may be
merged into the Borrower or another such Subsidiary of the Borrower, or may
consolidate with another such Subsidiary of the Borrower or may split into
separate corporations (as long as such split does not affect the Borrower's
direct or indirect ownership of such Subsidiaries), so long as (x) no other
provision of this Agreement would be violated thereby, (y) the Borrower gives
the Lender at least 30 days' prior written notice of such merger or
consolidation or split, and (z) no Default or Event of Default shall have
occurred and be continuing either before or after giving effect to such
transaction.
(ii) Sell, assign, lease or otherwise transfer or dispose of, or
permit any of its Subsidiaries to sell, assign, lease or otherwise transfer or
dispose of, whether in one transaction or in a series of related transactions,
any of its properties, rights or other assets whether now owned or hereafter
acquired to any Person, provided that (A) the Borrower and each Guarantor may
sell Inventory in the ordinary course of business, (B) the Borrower and each of
the Guarantors may dispose of obsolete or worn-out property in the ordinary
course of business, and (C) the Borrower and each of the Guarantors may sell or
otherwise dispose of assets, other than Inventory, for fair market value, but
only to the extent permitted by the Senior Lender.
(e) Change in Nature of Business. Make, or permit any of its
Subsidiaries to make, any material change in the nature of its business as
carried on at the date hereof outside of the general scope and market of the
Loan Parties' present business, provided
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that nothing herein shall prohibit the Loan Parties from ceasing operations in a
particular market or seeking to enter new markets or introduce new products,
provide such activities are within the general scope of their business as
currently conducted.
(f) Loans, Advances, Investments, Etc. Make, or permit any of its
Subsidiaries to make, any loan or advance to any Person or purchase or otherwise
acquire, or permit any of its Subsidiaries to purchase or otherwise acquire, any
capital stock, properties, assets or obligations of, or any interest in, any
Person, other than (i) raw materials purchased in the ordinary course of
business, (ii) trade credit extended in the ordinary course of business and
(iii) Permitted Investments.
(g) Lease Obligations. Create, incur or suffer to exist, or permit
any of its Subsidiaries to create, incur or suffer to exist, any obligations as
lessee (i) for the payment of rent for any real or personal property in
connection with any sale and leaseback transaction, or (ii) for the payment of
rent for any real or personal property under leases or agreements to lease other
than (A) obligations under Capitalized Leases which would not cause the
aggregate amount of all obligations under Capitalized Leases entered into after
the Closing Date owing by the Borrower and the Guarantors in any Fiscal Year to
exceed the amounts set forth in subsection (h) of this Section 6.02, and (B)
Consolidated Lease Expense which would not cause the aggregate amount of all
Consolidated Lease Expense owing by the Borrower and the Guarantors in any
Fiscal Year to exceed $1,350,000 or such greater amount as shall be approved by
the Lender.
(h) Capital Expenditures. Make or be committed to make, or permit
any of its Subsidiaries to make or be committed to make, any Capital Expenditure
(by purchase or capitalized lease) other than Capital Expenditures (including
obligations under Capitalized Leases) which would not cause the aggregate amount
of all such Capital Expenditures to exceed (a) $250,000 during the period from
the closing date under the Senior Credit Agreement through December 31, 1997,
(b) $1,000,000 during the Fiscal Year of the Borrower ending on the Friday
closest to December 31, 1998, and (c) $600,000 in any, Fiscal Year of the
Borrower thereafter.
(i) Dividends, Prepayments, Etc. Declare or pay any dividends,
purchase or otherwise acquire for value any of its membership interests or other
Capital Stock now or hereafter outstanding, return any capital to its members as
such, or make any other payment or distribution of assets to its stockholders as
such, or permit any of its Subsidiaries to do any of the foregoing or to
purchase or otherwise acquire for value any stock of the Borrower or its
Subsidiaries, or make any payment or prepayment of principal of, premium, if
any, or interest on, or redeem, defease or otherwise retire, any Indebtedness
before its scheduled due date; provided, however, that the Borrower may make
distributions to each of its members on the dates and in the amounts specified
in Section 4.4 of the Borrower's Operating Agreement (as in effect on the date
hereof), so long as (i) the Borrower is and was during the entire period of such
quarter a partnership for federal income tax purposes that is not taxed as an
association taxable as a corporation pursuant to Section 7701 of the Code or as
a corporation pursuant to Section 7704 of the Code, (ii) solely with respect to
such distributions to Zahn, Gould and Kraff, no Default or Event of Default has
occurred and is continuing under Sections 8.01(a), (e) (solely with respect to
payment default under the Senior Loan Documents), (g) and (h) at the time of
such
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<PAGE>
distribution, and (iii) at least five Business Days prior to the making of any
such distribution, the Borrower shall (A) notify the Lender of the amount and
date of the proposed distribution and the aggregate amount of all distributions
previously made pursuant to this proviso in respect of such calendar quarter,
and (B) provide a statement from the chief financial officer of the Borrower
setting forth in reasonable detail a calculation of the amount of such
distributions for such members for such calendar quarter. Notwithstanding
anything herein to the contrary contained herein, until one calendar quarter
following the occurrence of an Event of Default of which the Lender provides
written notice the Borrower may fund the amount as provided in this Section
6.02(i), but not thereafter.
(j) Federal Reserve Regulations. Permit the Loan or the proceeds of
the Loan under this Agreement to be used for any purpose which violates or is
inconsistent with the provisions of Regulations G, T, U or X of the Board.
(k) Transactions with Affiliates. Enter into or be a party to, or
permit any Subsidiary to enter into or be a party to any transaction with any
Affiliate of the Borrower except in the ordinary course of business in a manner
and to an extent consistent with past practice and necessary or desirable for
the prudent operation of its business for fair consideration and on terms no
less favorable to the Borrower or any Guarantor as are available from
unaffiliated third parties. The Affiliate transactions set forth in Schedule
6.02(k) are expressly permitted.
(1) Environmental. The Borrower and the Guarantors shall not allow
the use, handling, generation, storage, treatment, release or disposal of
Hazardous Materials at any property owned or leased by each Loan Party except in
compliance with Environmental Laws and so long as such use, handling,
generation, storage, treatment, release or disposal of Hazardous Materials does
not result in a violation of Environmental Law which would have a Material
Adverse Effect.
(m) ERISA. (A) Engage or permit any ERISA Affiliate to engage, in any
transaction described in Section 4069 of ERISA; (B) engage, or permit any ERISA
Affiliate to engage, in any prohibited transaction described in Section 406 of
ERISA or 4975 of the Code for which a statutory or class exemption is not
available or a private exemption has not previously been obtained from the
Department of Labor; (C) adopt or permit any ERISA Affiliate to adopt any
employee welfare benefit plan within the meaning of Section 3(1) of ERISA which
provides benefits to employees after termination of employment other than as
required by Section 601 of ERISA or applicable law; (D) fail to make any
contribution or payment to any Multiemployer Plan which any of the Loan Parties
or any ERISA Affiliate may be required to make under any agreement relating to
such Multiemployer Plan, or any law pertaining thereto; (E) fail, or permit any
ERISA Affiliate to fail, to pay any required installment or any other payment
required under Section 412 of the Code on or before the due date for such
installment or other payment.
(n) Financial Covenants.
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(i) The Borrower shall not permit its Consolidated EBITDA for
any twelve month period ending on the last day of each month during the periods
set forth below to be less than the amount specified below opposite such period:
<TABLE>
<CAPTION>
Period Consolidated EBITDA
------ -------------------
<S> <C>
Closing Date through December 31, 1997 $ 5,750,000
January 1, 1998 through September 30, 1998 $ 5,750,000
September 30, 1998 through November 30, 1998 $ 7,500,000
December 1, 1998 through December 31, 1998 $ 8,500,000
January 1, 1999 through September 30, 1999 $ 8,500,000
October 1, 1999 through November 30, 1999 $ 9,500,000
December 1, 1999 through December 31, 1999 $10,500,000
January 1, 2000 through September 30, 2000 $10,500,000
October 1, 2000 through November 30, 2000 $11,250,000
December 1, 2000 through December 31, 2000 $12,000,000
January 1, 2001 through September 30, 2001 $12,000,000
October 1, 2001 through November 30, 2001 $12,750,000
December 1, 2001 through December 31, 2001 $13,250,000
</TABLE>
(ii) The Borrower shall not permit its Interest Coverage Ratio,
measured at the end of each fiscal quarter ending on the Friday closest to the
dates listed below to be less than the figure specified below:
<TABLE>
<CAPTION>
Year Interest Coverage Ratio
---- -----------------------
<S> <C>
December 31, 1997 2.75
March 31, 1998 2.75
June 30, 1998 2.75
September 30, 1998 3.00
December 31, 1998 3.00
March 31, 1999 3.00
June 30, 1999 3.00
September 30, 1999 3.00
December 31, 1999 and thereafter 3.75
</TABLE>
(iii) The Borrower shall not permit its Debt-to-EBITDA Ratio
measured at the end of each fiscal quarter ending on the Friday closest to the
dates listed below to be greater than the figure specified below:
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<PAGE>
<TABLE>
<CAPTION>
Year Debt-to-EBITDA Ratio
---- --------------------
<S> <C>
December 31, 1997 6.40
March 31, 1998 6.40
June 30, 1998 6.40
September 30, 1998 5.20
December 31, 1998 4.25
March 31, 1999 4.25
June 30, 1999 4.25
September 30, 1999 3.75
December 31, 1999 3.75
March 31, 2000 and thereafter 3.50
</TABLE>
(iv) At any time following any repayment or refinancing of the
amounts outstanding under the Senior Loan Documents with any lender other than
CIBC, the Borrower shall not permit its Senior Debt-to-EBITDA Ratio measured at
the end of each fiscal quarter ending on the Friday closest to the dates listed
below to be greater than the figure specified below:
Year Senior Debt-to-EBITDA Ratio
---- ---------------------------
December 31, 1997 6.15
March 31, 1998 6.15
June 30, 1998 6.15
September 30, 1998 5.05
December 31, 1998 4.10
March 31, 1999 4.10
June 30, 1999 4.10
September 30, 1999 3.60
December 31, 1999 3.60
March 31, 2000 and thereafter 3.25
(v) The Borrower shall maintain its fiscal year to mean the
twelve-month period ending on the Friday nearest to December 31 of each year.
ARTICLE VII
GUARANTY
SECTION 7.01. Guaranty. Each of the Borrower and each Guarantor,
jointly and severally, hereby (i) irrevocably, absolutely and unconditionally
guarantees the prompt payment, as and when due and payable (whether by scheduled
maturity, required prepayment, acceleration, demand or otherwise), of (A) all of
the Guaranteed Obligations of such Guarantor, including, without limitation, all
amounts now or hereafter owing in respect of the Loan Documents, whether for
principal, interest, fees, expenses or otherwise, and (B) all indebtedness,
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obligations and other liabilities, direct or indirect, absolute or contingent,
now existing or hereafter arising of the Borrower to the Lender and (ii) agrees
to pay any and all expenses (including reasonable counsel fees and expenses)
incurred by the Lender in enforcing its rights under this Article VII.
SECTION 7.02. Obligations Unconditional.
(a) Each of the Borrower and each of the Guarantors hereby jointly
and severally guarantees that the Guaranteed Obligations will be paid strictly
in accordance with the terms of the Loan Documents, regardless of any law,
regulation or order now or hereafter in effect in any jurisdiction affecting any
of such terms or the rights of the Lender with respect thereto. Each Guarantor
agrees that its guarantee constitutes a guaranty of payment when due and not of
collection, and waives any right to require that any resort be had by the Lender
to any security held for payment of the Guaranteed Obligations or to any balance
of any deposit account or credit on the books of the Lender in favor of the
Borrower or for any other reason. The liability of the Borrower and each of the
Guarantors hereunder shall be absolute and unconditional, joint and several,
irrespective of: (i) any lack of validity or enforceability of any Loan Document
or any agreement or instrument relating thereto; (ii) any extension or change in
the time, manner or place of payment of, or in any other term in respect of, all
or any of the Guaranteed Obligations (including, without limitation, any
extension for longer than the original period), or any other amendment or waiver
of or consent to any departure from any provision of any Loan Document; (iii)
any release or amendment or waiver of or consent to any departure from any other
guaranty, for all or any of the Guaranteed Obligations; or (iv) any other
circumstance which might otherwise constitute a defense available to, or a
discharge of, the Borrower or any other guarantor in respect of the Guaranteed
Obligations of the Guarantors in respect hereof.
(b) This Guaranty (i) is a continuing guaranty and shall remain in
full force and effect until such date on which all of the Guaranteed Obligations
and all other expenses to be paid by the Borrower or any Guarantors pursuant
hereto shall have been satisfied in full, (ii) shall continue to be effective or
shall be reinstated, as the case may be, if at any time any payment of any of
the Guaranteed Obligations is rescinded or must otherwise be returned by the
Lender upon the insolvency, bankruptcy or reorganization of the Borrower or any
Guarantor or otherwise, all as though such payment had not been made, and (iii)
shall be binding upon the Borrower, each Guarantor, their successors and
assigns.
SECTION 7.03. Waivers. The Borrower and each of the Guarantors hereby
waive, to the extent permitted by applicable law, (i) promptness and diligence,
(ii) notice of acceptance and notice of the incurrence of any Guaranteed
Obligation, (iii) notice of any action taken by the Lender or the Borrower or
any other agreement or instrument relating thereto, (iv) all other notices,
demands and protests, and all other formalities of every kind in connection with
the enforcement of the Guaranteed Obligations or of the obligations of the
Borrower and the Guarantors hereunder, the omission of or delay in which, but
for the provisions of this Section 7.03, might constitute grounds for relieving
the Borrower or the Guarantors of their obligations hereunder, (v) any
requirement that the Lender protect, secure, perfect or insure any security
40
<PAGE>
interest or lien or any property subject thereto or exhaust any right or take
any action against any Person or any Collateral, and (vi) any other defenses
available to the Borrower or any such Guarantor. All such waivers by any
Guarantor shall be effective only to the extent permitted by applicable law.
SECTION 7.04. Subrogation. Except as provided in Section 3.02 hereof,
the Borrower and each of the Guarantors hereby irrevocably waives and agrees
that it will not exercise any and all rights which it has or may have at any
time or from time to time (whether arising directly or indirectly by operation
of law or contract) to assert any claim against the Borrower or any Guarantor on
account of any payments made under this Agreement, including, without
limitation, and all existing and future rights of subrogation, reimbursement,
exoneration, contribution and/or indemnity. If any amount shall be paid to the
Borrower or any Guarantor on account of such rights at any time when all of such
Guaranteed Obligations and all other Guaranteed Obligations shall not have been
paid in full, such amount shall be held in trust for the benefit of the Lender,
shall be segregated from the other funds of the Borrower or such Guarantor and
shall forthwith be paid over to the Lender to be applied in whole or in part by
the Lender against the Guaranteed Obligations, whether matured or unmatured, in
accordance with the terms of this Agreement.
SECTION 7.05. No Waiver; Remedies. No failure on the part of the Lender to
exercise, and no delay in exercising, any right hereunder shall operate as a
waiver thereof; nor shall any single or partial exercise of any right hereunder
preclude any other or further exercise thereof or the exercise of any other
right. The remedies herein provided are cumulative and not exclusive of any
remedy provided by law.
SECTION 7.06. Stay of Acceleration. If acceleration of the time for
payment of any amount payable by the Borrower in respect of the Guaranteed
Obligations is stayed upon the insolvency, bankruptcy or reorganization of the
Borrower, all such amounts otherwise subject to acceleration under the terms of
this Agreement shall nonetheless be payable by the Borrower and the Guarantors
hereunder forthwith on demand by the Lender.
ARTICLE VIII
EVENTS OF DEFAULT
SECTION 8.01. Events of Default. If any of the following ("Events of
Default") shall occur and be continuing:
(a) Any Loan Party fails to pay any principal of the Loan when due
(whether by scheduled maturity, required prepayment, acceleration, demand or
otherwise); or any Loan Party fails to pay any interest on the Loan, or fails to
pay any other amount payable under this Agreement or any other Loan Document
when due;
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<PAGE>
(b) Any representation or warranty made by any Loan Party or any
officer of such Loan Party under or in connection with any Loan Document shall
have been incorrect in any material respect when made;
(c) Any Loan Party fails to perform or observe any covenant contained
in Section 6.02 hereof;
(d) Any Loan Party fails to perform or observe any other term,
covenant or agreement contained in any Loan Document and to be performed or
observed by such Loan Party and such failure, if capable of being remedied,
shall remain unremedied for 15 days after written notice thereof shall have been
given by the Lender to such Loan Party;
(e) Any Event of Default under, and as defined in, the Senior Loan
Documents or the Cohen's Purchase Money Note occurs and is continuing;
(f) Any Loan Party fails to pay any principal or interest on any of
its Indebtedness (excluding Indebtedness evidenced by the Note) in excess of
$1,000,000 outstanding in the aggregate at any time, or any interest or premium
thereon, when due (whether by scheduled maturity, required prepayment,
acceleration, demand or otherwise) and such failure shall continue after the
applicable grace period, if any, specified in the agreement or instrument
relating to such Indebtedness, or any other default under any agreement or
instrument relating to any such Indebtedness, or any other event, shall occur
and shall continue after the applicable grace period, if any, specified in such
agreement or instrument, if the effect of such default or event is to
accelerate, or to permit the acceleration of, the maturity of such Indebtedness;
or any such Indebtedness in excess of such amount shall be declared to be due
and payable, or required to be prepaid (other than by a regularly scheduled
required prepayment), prior to the stated maturity thereof;
(g) Any Loan Party (i) shall institute any proceeding or voluntary
case seeking to adjudicate it a bankrupt or insolvent, or seeking dissolution,
liquidation, winding up, reorganization, arrangement, adjustment, protection,
relief or composition of it or its debts under any law relating to bankruptcy,
insolvency, reorganization or relief of debtors, or seeking the entry of an
order for relief or the appointment of a receiver, trustee, custodian or other
similar official for such Loan Party or for any substantial part of its
property, (ii) shall be generally not paying its debts as such debts become due,
or shall admit in writing its inability to pay its debts generally, (iii) shall
make a general assignment for the benefit of creditors, or (iv) shall take any
action to authorize or effect any of the actions set forth above in this
subsection (g);
(h) Any proceeding shall be instituted against any Loan Party seeking
to adjudicate it a bankrupt or insolvent, or seeking dissolution, liquidation,
winding up, reorganization, arrangement, adjustment, protection, relief of
debtors, or seeking the entry of an order for relief or the appointment of a
receiver, trustee, custodian or other similar official for such Loan Party or
for any substantial part of its property, and either such proceeding shall
remain undismissed or unstayed for a period of 45 days or any of the actions
sought in such proceeding (including, without limitation, the entry of an order
for relief against it or the
42
<PAGE>
appointment of a receiver, trustee, custodian or other similar official for it
or for any substantial part of its property) shall occur;
(i) Any material provision of any Loan Document shall at any time for
any reason be declared to be null and void, or the validity or enforceability
thereof shall be contested by any party thereto, or a proceeding shall be
commenced by any Loan Party or any Governmental Authority or other regulatory
body having jurisdiction over such Loan Party, seeking to establish the
invalidity or unenforceability thereof, or any Loan Party shall deny in writing
that such Loan Party has any liability or obligation purported to be created
under any Loan Document;
(j) One or more judgments or orders (other than a judgment or award
described in subsections (g) or (h) of this Section 8.01) for the payment of
money exceeding any applicable insurance or bond coverage by more than
$1,000,000 in the aggregate shall be rendered against any Loan Party and either
(i) enforcement proceedings shall have been commenced by any creditor upon any
such judgment or order, or (ii) there shall be any period of 30 consecutive days
during which a stay of enforcement of any such judgment or order, by reason of a
pending appeal or otherwise, shall not be in effect;
(k) The Borrower or any Guarantor or any ERISA Affiliate shall have
made a complete or partial withdrawal from a Multiemployer Plan, and, as a
result of such complete or partial withdrawal, the Borrower or such Guarantor or
such ERISA Affiliate incurs a withdrawal liability in an annual amount exceeding
$1,000,000; or a Multiemployer Plan enters reorganization status under Section
4241 of ERISA, and, as a result thereof, the Borrower's, such Guarantor's or
such ERISA Affiliate's annual contribution requirement with respect to such
Multiemployer Plan increases in an annual amount exceeding $1,000,000;
(l) Any Termination Event with respect to any Employee Plan shall
have occurred, and, 30 days after notice thereof shall have been given to the
Borrower by the Lender, (i) such Termination Event (if correctable) shall not
have been corrected, and (ii) the then current value of such Employee Plan's
vested benefits exceeds the then current value of assets allocable to such
benefits in such Employee Plan by more than $1,000,000 (or, in the case of a
Termination Event involving liability under Section 409, 502(i), 502(1), 515,
4062, 4063, 4064, 4069, 4201, 4204 or 4212 of ERISA or Section 4971 or 4975 of
the Code, the liability is in excess of such amount);
(m) Any of the Loan Parties shall have entered into any consent or
settlement decree or agreement or similar arrangement with a Governmental
Authority (other than those disclosed on Schedule 5.01(q) hereto) or any
judgment, order, decree or similar action shall have been entered against any of
the Loan Parties based on or arising from the violation of or pursuant to any
Environmental Law, or the generation, storage, transportation, treatment,
disposal or Release of any Hazardous Material and, in connection with all of the
foregoing, the Loan Parties incur Environmental Liabilities and Costs which are
unstayed, due and owing in an amount in excess of $1,000,000 in the aggregate;
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<PAGE>
(n) Any non-monetary judgment or order shall be entered against any
Loan Party which does or could reasonably be expected to have a Material Adverse
Effect, and there shall be a period of ten consecutive days during which a stay
or enforcement of such judgment or order shall not be in effect; or
(o) Any property (if the aggregate of the higher of the original
purchase price and the replacement cost for such property is in excess of
$200,000) of any Loan Party shall be seized or otherwise attached by any Person
or Governmental Authority pursuant to any legal process or other means
including, without limitation, distress, execution or similar action and such
seizure or attachment is not released, bonded, satisfied, discharged, stayed or
vacated within 15 days;
then, and in any such event, the Lender may, by notice to the Borrower, (i)
declare the Loan, all interest thereon and all other amounts payable under this
Agreement to be forthwith due and payable, whereupon the Loan, all such interest
and all such amounts shall become and be forthwith due and payable, without
presentment, demand, protest or further notice of any kind, all of which are
hereby expressly waived by each Loan Party, provided, however, that upon the
occurrence of any Event of Default described in subsection (g) or (h) of this
Section 8.01, the Loan, all such interest and all such amounts shall become and
be forthwith due and payable, without presentment, demand, protest or further
notice of any kind, all of which are expressly waived by each Loan Party, (ii)
appoint a designee as a member of the Borrower's executive committee or similar
body (if the Borrower is a corporation) and (iii) exercise any and all of its
other rights under applicable law, hereunder and under the other Loan Documents.
ARTICLE IX
MISCELLANEOUS
SECTION 9.01. Notices, Etc. All notices and other communications provided
for hereunder shall be in writing and shall be mailed, telecopied, telexed,
telegraphed or delivered, if to the Borrower, at the following address:
Diversified Food Group LLC
6901 North Hamlin Avenue
Lincolnwood, IL 60645
Attention: Andrew Zahn
Telephone: (847) 763-3310
Telecopier: (847) 763-0022
with a copy to:
Shefsky & Froelich Ltd.
444 North Michigan
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Chicago, lllinois 60611
Attention: Howard Davis, Esq.
Telephone: (312) 527-4000
Telecopier: (312) 527-5921
if to the Lender, to it at the following address:
Madeleine LLC
450 Park Avenue, 28th Floor
New York, New York 10022
Attention: Robert Davenport
Telephone: (212) 891-2117
Telecopier: (212) 758-5305
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Mark A. Neporent, Esq.
Telephone: (212) 756-2000
Telecopier: (212) 593-5955
or, as to each party, at such other address as shall be designated by such party
in a written notice to the other party complying as to delivery with the terms
of this Section 9.01. All such notices and other communications shall be
effective, (i) if mailed, when received or five days after deposited in the
mails, whichever occurs first (ii) if telecopied, when transmitted, (iii) if
telexed, when sent and the appropriate answerback is received, (iv) if
telegraphed, when delivered to the telegraph company, or (v) if delivered, upon
delivery.
SECTION 9.02. Amendments, Etc. No amendment or waiver of any provision of
this Agreement or the other Loan Documents, and no consent to any departure by
any Loan Party therefrom, shall in any event be effective unless the same shall
be in writing and signed by such Loan Party and the Lender, and then such waiver
or consent shall be effective only in the specific instance and for the specific
purpose for which given.
SECTION 9.03. No Waiver; Remedies, Etc. No failure on the part of the
Lender to exercise, and no delay in exercising, any right hereunder or under any
other Loan Document shall operate as a waiver thereof; nor shall any single or
partial exercise of any right under any Loan Document preclude any other or
further exercise thereof or the exercise of any other right. The rights and
remedies of the Lender provided herein and in the other Loan Documents are
cumulative and are in addition to, and not exclusive of, any rights or remedies
provided by law. The rights of the Lender under any Loan Document against any
party thereto are not conditional
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<PAGE>
or contingent on any attempt by the Lender to exercise any of their rights under
any other Loan Document against such party or against any other Person.
SECTION 9.04. Expenses; Taxes; Attorneys' Fees. The Borrower agrees to
pay or cause to be paid, on demand, and to save the Lender harmless against
liability for the payment of, all reasonable out-of-pocket expenses, regardless
of whether the transactions contemplated hereby are consummated, including but
not limited to reasonable fees and expenses of counsel for the Lender,
accounting, due diligence, periodic field audits (not to exceed one audit per
year), investigation, monitoring of assets, syndication, miscellaneous
disbursements, examination, travel, lodging and meals, incurred by the Lender
from time to time arising from or relating to: (i) the negotiation, preparation,
execution, delivery, performance and administration of this Agreement and the
other Loan Documents, (ii) any requested amendments, waivers or consents to this
Agreement or the other Loan Documents whether or not such documents become
effective or are given, (iii) the preservation and protection of any of the
Lender's rights under this Agreement or the other Loan Documents, (iv) the
defense of any claim or action asserted or brought against the Lender by any
Person that arises from or relates to this Agreement, any other Loan Document,
the Lender's claims against the Loan Party, or any and all matters in connection
therewith, (v) the commencement or defense of, or intervention in, any court
proceeding arising from or related to this Agreement or any other Loan Document,
(vi) the filing of any petition, complaint, answer, motion or other pleading by
the Lender in connection with this Agreement or any other Loan Document, (vii)
any attempt to collect from any Loan Party, (viii) the receipt of any advice
with respect to any of the foregoing, (ix) all liabilities and costs arising
from or in connection with the past, present or future operations of the Loan
Parties involving any damage to real or personal property or natural resources
or harm or injury alleged to have resulted from any Release of Hazardous
Materials on, upon or into such property, (x) any Environmental Liabilities and
Costs incurred in connection with the investigation, removal, cleanup and/or
remediation of any Hazardous Materials present or arising out of the operations
of any facility of any Loan Party, or (xi) any Environmental Liabilities and
Costs incurred in connection with any Environmental Lien. Without limitation of
the foregoing or any other provision of any Loan Document: (A) the Borrower
agrees to pay all stamp, document, transfer, recording or filing taxes or fees
and similar impositions now or hereafter determined by the Lender to be payable
in connection with this Agreement or any other Loan Document, and the Borrower
agrees to save the Lender harmless from and against any and all present or
future claims, liabilities or losses with respect to or resulting from any
omission to pay or delay in paying any such taxes, fees or impositions, and (B)
if the Borrower fails to perform any covenant or agreement contained herein or
in any other Loan Document, the Lender may itself perform or cause performance
of such covenant or agreement, and the expenses of the Lender incurred in
connection therewith shall be reimbursed on demand by the Borrower.
SECTION 9.05. Right of Set-off. Upon the occurrence and during the
continuance of any Event of Default, the Lender may, and is hereby authorized
to, at any time and from time to time, without notice to any Loan Party (any
such notice being expressly waived by the Loan Party) and to the fullest extent
permitted by law, set off and apply any and all deposits (general or special,
time or demand, provisional or final) at any time held and other indebtedness at
any time owing by the Lender to or for the credit or the account of any Loan
46
<PAGE>
Party against any and all obligations of the Borrower now or hereafter existing
under any Loan Document, irrespective of whether or not the Lender shall have
made any demand hereunder or thereunder and although such obligations may be
contingent or unmatured. The Lender agrees to notify the Borrower promptly after
any such set-off and application made by the Lender provided that the failure to
give such notice shall not affect the validity of such set-off and application.
SECTION 9.06. Severability. Any provision of this Agreement, or of any
other Loan Document to which any Loan Party is a party, which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining portions hereof or thereof or affecting the validity or enforceability
of such provision in any other jurisdiction.
SECTION 9.07. Assignments and Participations.
(a) This Agreement and the Note shall be binding upon and inure to
the benefit of the Loan Parties and the Lender and their respective successors
and assigns, except that the Loan Parties may not assign or transfer any of
their rights hereunder, or under the Note, without the prior written consent of
the Lender. Except as provided in this Section 9.07, this Agreement shall not
inure to the benefit of any party other than the Loan Party and the Lender.
(b) (i) The Borrower shall maintain, or cause to be maintained, a
register (the "Register") on which it enters the name of the Lender as the
registered owner of each Loan held by the Lender. A Registered Loan (and the
Registered Note, if any, evidencing the same) may be assigned or sold in whole
or in part only by registration of such assignment or sale on the Register (and
each Registered Note shall expressly so provide). Any assignment or sale of all
or part of such Registered Loan (and the Registered Note, if any, evidencing the
same) may be effected only by registration of such assignment or sale on the
Register, together with the surrender of the Registered Note, if any, evidencing
the same duly endorsed by (or accompanied by a written instrument of assignment
or sale duly executed by) the holder of such Registered Note, whereupon, at the
request of the designated assignee(s) or transferee(s), one or more new
Registered Notes in the same aggregate principal amount shall be issued to the
designated assignee(s) or transferee(s). Prior to the registration of assignment
or sale of any Registered Loan (and the Registered Note, if any evidencing the
same), the Borrower shall treat the Person in whose name such Loan (and the
Registered Note, if any, evidencing the same) is registered as the owner thereof
for the purpose of receiving all payments thereon and for all other purposes,
notwithstanding notice to the contrary.
(ii) In the event that the Lender sells participations in any
Registered Loan, the Lender shall, as the Borrower's agent, maintain a register
on which it enters the name of all participants in such Registered Loan (the
"Participant Register"). A Registered Loan (and the Registered Note, if any,
evidencing the same) may be participated in whole or in part only by
registration of such participation on the Participant Register (and each
Registered Note shall expressly so provide). Any participation of such
Registered Loan (and the Registered Note, if any, evidencing the same) may be
effected only by the registration of such participation on the Participant
Register.
47
<PAGE>
(iii) Any foreign Person who purchases or is assigned or
participates in any portion of any Loan shall provide the Borrower (in the case
of a purchase or assignment) or the Lender (in the case of a participation) with
a completed Internal Revenue Service Form W-8 (Certificate of Foreign Status) or
a substantially similar form for such purchaser, participant or any other
affiliate who is a holder of beneficial interests in any Loan.
(c) The Lender may at any time sell, assign or participate all or any
portion of its rights and obligations under this Agreement (including, without
limitation, all or a portion of the Loan made by it, or the Note held by it)
without the consent of the Loan Parties. The Loan Parties shall execute and
deliver such Notes and any amendment or other modification or restatement of
this Agreement or any Loan Document as may be requested by the Lender to reflect
any such sale or assignment.
SECTION 9.08. Counterparts. This Agreement may be executed in any number
of counterparts and by different parties hereto in separate counterparts, each
of which shall be deemed to be an original, but all of which taken together
shall constitute one and the same agreement.
SECTION 9.09. GOVERNING LAW. THIS AGREEMENT AND THE NOTE SHALL BE
GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK
APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED IN THE STATE OF NEW YORK
WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES.
SECTION 9.10. CONSENT TO JURISDICTION; SERVICE OF PROCESS AND VENUE.
ANY LEGAL ACTION OR PROCEEDING WITH RESPECT TO THIS AGREEMENT OR ANY OTHER LOAN
DOCUMENT MAY BE BROUGHT IN THE COURTS OF THE STATE OF NEW YORK IN THE COUNTY OF
NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW
YORK, AND, BY EXECUTION AND DELIVERY OF THIS AGREEMENT, EACH LOAN PARTY HEREBY
IRREVOCABLY ACCEPTS IN RESPECT OF ITS PROPERTY, GENERALLY AND UNCONDITIONALLY,
THE JURISDICTION OF THE AFORESAID COURTS. EACH LOAN PARTY FURTHER IRREVOCABLY
CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS AND
IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY REGISTERED
OR CERTIFIED MAIL, POSTAGE PREPAID, TO SUCH LOAN PARTY AT ITS ADDRESS FOR
NOTICES AS SET FORTH IN SECTION 9.01, SUCH SERVICE TO BECOME EFFECTIVE TEN (10)
DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL AFFECT THE RIGHT OF THE LENDER TO
SERVICE OF PROCESS IN ANY OTHER MANNER PERMITTED BY LAW OR TO COMMENCE LEGAL
PROCEEDINGS OR OTHERWISE PROCEED AGAINST EACH LOAN PARTY IN ANY OTHER
JURISDICTION. EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE
FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER
HAVE TO THE JURISDICTION OR LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN
ANY SUCH COURT REFERRED TO ABOVE AND ANY
48
<PAGE>
CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM. TO THE
EXTENT THAT EACH LOAN PARTY HAS OR HEREAFTER MAY ACQUIRE ANY IMMUNITY FROM
JURISDICTION OF ANY COURT OR FROM ANY LEGAL PROCESS (WHETHER THROUGH SERVICE OR
NOTICE, ATTACHMENT PRIOR TO JUDGMENT, ATTACHMENT IN AID OF EXECUTION OR
OTHERWISE) WITH RESPECT TO ITSELF OR ITS PROPERTY, EACH LOAN PARTY HEREBY
IRREVOCABLY WAIVES SUCH IMMUNITY IN RESPECT OF ITS OBLIGATIONS UNDER THIS
AGREEMENT AND THE OTHER LOAN DOCUMENTS.
SECTION 9.11. WAIVER OF JURY TRIAL, ETC. EACH LOAN PARTY AND THE LENDER
HEREBY WAIVE ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR
COUNTERCLAIM CONCERNING ANY RIGHTS UNDER THIS AGREEMENT, THE NOTE OR OTHER LOAN
DOCUMENTS, OR UNDER ANY AMENDMENT, WAIVER, CONSENT, INSTRUMENT, DOCUMENT OR
OTHER AGREEMENT DELIVERED OR WHICH IN THE FUTURE MAY BE DELIVERED IN CONNECTION
THEREWITH, OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH
THIS AGREEMENT, AND AGREE THAT ANY SUCH ACTION, PROCEEDINGS OR COUNTERCLAIM
SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY. EACH LOAN PARTY CERTIFIES
THAT NO OFFICER, REPRESENTATIVE, AGENT OR ATTORNEY OF THE LENDER HAS
REPRESENTED, EXPRESSLY OR OTHERWISE, THAT THE LENDER WOULD NOT, IN THE EVENT OF
ANY ACTION, PROCEEDING OR COUNTERCLAIM, SEEK TO ENFORCE THE FOREGOING WAIVERS.
EACH LOAN PARTY HEREBY ACKNOWLEDGES THAT THIS PROVISION IS A MATERIAL INDUCEMENT
FOR THE LENDER ENTERING INTO THIS AGREEMENT.
SECTION 9.12. Consent by the Lender. Except as otherwise expressly set
forth herein to the contrary, if the consent, approval, satisfaction,
determination, judgment, acceptance or similar action (an "Action") of the
Lender shall be permitted or required pursuant to any provision hereof or any
provision of any other agreement to which each Loan Party is a party and to
which the Lender has succeeded thereto, such Action shall be required to be in
writing and may be withheld or denied by the Lender with or without any reason,
and without being subject to question or challenge on the grounds that such
Action was not taken in good faith.
SECTION 9.13. No Party Deemed Drafter. The Loan Parties and the Lender
agree that no party hereto shall be deemed to be the drafter of this Agreement.
SECTION 9.14. Reinstatement; Certain Payments. If claim is ever made upon
the Lender for repayment or recovery of any amount or amounts received by the
Lender in payment or on account of any of the Obligations, the Lender shall give
prompt notice of such claim to the Borrower, and if the Lender repays all or
part of such amount by reason of (i) any judgment, decree or order of any court
or administrative body having jurisdiction over the Lender or any of its
property, or (ii) any good faith settlement or compromise of any such claim
effected by the Lender with any such claimant, then and in such event the
Borrower agrees that (A) any such judgment, decree, order, settlement or
compromise shall be binding upon it
49
<PAGE>
notwithstanding the cancellation of the Note or other instrument evidencing the
Obligations or the other Loan Documents or the termination of this Agreement or
the other Loan Documents, and (B) it shall be and remain liable to the Lender
hereunder for the amount so repaid or recovered to the same extent as if such
amount had never originally been received by the Lender.
SECTION 9.15. Indemnification. In addition to all of the other
Obligations of the Loan Parties under this Agreement each Loan Party agrees to
defend, protect, indemnify and hold harmless the Lender and all of the
respective officers, directors, employees, attorneys, consultants and agents
of the Lender (collectively called the "Indemnitees") from and against any and
all losses, damages, liabilities, obligations, penalties, fees, reasonable costs
and expenses (including, without limitation, reasonable attorneys' fees, costs
and expenses) incurred by such Indemnitees, whether prior to or from and after
the Closing Date, whether direct, indirect or consequential, as a result of or
arising from or relating to or in connection with any of the following: (i) the
negotiation, preparation, execution or performance or enforcement of this
Agreement, any other Loan Document or of any other document executed in
connection with the transactions contemplated by this Agreement, (ii) the
Lender's furnishing of funds to such Loan Party for the account of such Loan
Party under this Agreement, (iii) any matter relating to the financing
transactions contemplated by this Agreement or by any document executed in
connection with the transactions contemplated by this Agreement, or (iv) any
claim, litigation, investigation or proceeding relating to any of the foregoing,
whether or not any Indemnitee is a party thereto (collectively, the "Indemnified
Matters"); provided, however, that the Loan Parties shall not have any
obligation to any Indemnitee under this Section 9.15 for any Indemnified Matter
caused by the gross negligence or willful misconduct of such Indemnitee, as
determined by a final judgment of a court of competent jurisdiction or by
settlement agreement among the Lender and the other parties in question. Such
indemnification for all of the foregoing losses, damages, fees, costs and
expenses of the Indemnitees are chargeable against the Loan Account. To the
extent that the undertaking to indemnify, pay and hold harmless set forth in
this Section 9.15 may be unenforceable because it is violative of any law or
public policy, the Loan Parties shall contribute the maximum portion which it is
permitted to pay and satisfy under applicable law, to the payment and
satisfaction of all Indemnified Matters incurred by the Indemnitees. This
Indemnity shall survive the repayment of the Obligations and the discharge of
the Liens granted under the Loan Documents.
SECTION 9.16. Records. The unpaid principal of and interest on the Note,
the interest rate or rates applicable to such unpaid principal and interest, the
duration of such applicability, and the accrued and unpaid Servicing Fee shall
at all times be ascertained from the records of the Lender, which shall be
conclusive and binding absent manifest error.
SECTION 9.17. Binding Effect. This Agreement shall become effective when
it shall have been executed by the Loan Parties and the Lender and when the
conditions precedent set forth in Section 4.01 hereof have been satisfied or
waived by the Lender, and thereafter shall be binding upon and inure to the
benefit of the Loan Parties and the Lender, and their respective successors and
assigns, except that the Loan Parties shall not have the right to assign their
rights hereunder or any interest herein without the prior written consent of the
Lender, and the assignment by the Lender shall be governed by Section 9.07
hereof.
50
<PAGE>
SECTION 9.18. Preemptive Rights. As long as any Obligations remain
outstanding, if any Loan Party intends to obtain any financing other than any
traditional LIBOR- or prime rate-based financing provided by an institutional
lender, the Borrower shall provide the Lender with written notice of the
intention to obtain such financing. The Lender shall have the right to negotiate
with such Loan Party or Parties to provide such financing (provided that the
Lender must give the Borrower written notice of its intent to exercise its right
to negotiate within five (5) days of its receipt of the notice referred to in
the immediately preceding sentence). The Loan Parties agree to negotiate with
the Lender in good faith, and shall not negotiate with any other entity with
respect to such financing for fifteen (15) days following the Borrower's receipt
of notice from the Lender of its intent to exercise its right to negotiate. If
the Lender and such Loan Party or Parties do not enter into a written
commitment to provide such financing within such fifteen day period, the such
Loan Party or Parties may negotiate and enter into such financing with any other
entity.
51
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
--------
By: /S/
------------------------------
Title: President
--------------------
GUARANTORS:
----------
CLASSIC CONFECTIONERY, L.L.C.
By: /S/
-----------------------------
Title: President
--------------------
RESTAURANIC, INC.
By: /S/
-----------------------------
Title: President
--------------------
GREAT AMERICAN ICE CREAM
COMPANY, LLC
By: /S/
-----------------------------
Title: President
--------------------
COHEN'S KOSHER FOOD, L.L.C.
By: /S/
-----------------------------
Title: President
--------------------
LENDER:
MADELEINE LLC
By: /S/
-----------------------------
Title:
--------------------
52
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed by their respective officers thereunto duly authorized, as of the
date first above written.
BORROWER:
---------
DIVERSIFIED FOOD GROUP, L.L.C.
By:
------------------------------
Title:
---------------------
GUARANTORS:
----------
CLASSIC CONFECTIONERY, L.L.C.
By:
------------------------------
Title:
---------------------
RESTAURANIC, INC.
By:
------------------------------
Title:
---------------------
GREAT AMERICAN ICE CREAM
COMPANY, LLC
By:
------------------------------
Title:
---------------------
COHEN'S KOSHER FOOD, L.L.C.
By:
------------------------------
Title:
---------------------
LENDER:
------
MADELEINE LLC
By: Bob Davenport
------------------------------
Title:
---------------------
52
<PAGE>
EXHIBIT 10.8
EXECUTION COPY
REGISTRATION RIGHTS AGREEMENT
by and between
DIVERSIFIED FOOD GROUP, L.L.C.
and
MADELEINE LLC
Dated as of October 23, 1997
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Section Page
<C> <S>
1. DEFINITIONS............................................................. 1
2. REGISTRATION UNDER THE SECURITIES ACT................................... 6
2.1 DEMAND REGISTRATION................................................ 6
2.2 INCIDENTAL REGISTRATION............................................ 10
2.3 SHELF REGISTRATION................................................. 12
2.4 EXPENSES........................................................... 12
2.5 UNDERWRITTEN OFFERINGS............................................. 12
2.6 CONVERSIONS; EXERCISES............................................. 13
3. HOLDBACK--ARRANGEMENTS.................................................. 13
3.1 RESTRICTIONS ON SALE BY HOLDERS OF REGISTRABLE SECURITIES.......... 13
3.2 RESTRICTIONS ON SALE BY THE COMPANY AND OTHERS..................... 14
4. REGISTRATION PROCEDURES................................................. 14
4.1 OBLIGATIONS OF THE COMPANY......................................... 14
4.2 SELLER INFORMATION................................................. 19
4.3 NOTICE TO DISCONTINUE.............................................. 19
5. INDEMNIFICATION; CONTRIBUTION........................................... 20
5.1 INDEMNIFICATION BY THE COMPANY..................................... 20
5.2 INDEMNIFICATION BY HOLDERS......................................... 21
5.3 CONDUCT OF INDEMNTFICATION PROCEEDINGS............................. 21
5.4 CONTRIBUTION....................................................... 22
5.5 OTHER INDEMNIFICATION.............................................. 23
5.6 INDEMNIFICATION PAYMENTS........................................... 23
6. GENERAL................................................................. 23
6.1 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES....................... 23
6.2 REGISTRATION RIGHTS TO OTHERS...................................... 23
6.3 AVAILABILITY OF INFORMATION; RULE 144; RULE 144A; OTHER EXEMPTIONS. 24
6.4 AMENDMENTS AND WAIVERS............................................. 25
6.5 NOTICES............................................................ 25
6.6 SUCCESSORS AND ASSIGNS............................................. 26
6.7 COUNTERPARTS....................................................... 27
6.8 DESCRIPTIVE HEADINGS, ETC.......................................... 27
6.9 SEVERABILITY....................................................... 27
6.10 GOVERNING LAW...................................................... 27
6.11 REMEDIES; SPECIFIC PERFORMANCE..................................... 27
6.12 ENTIRE AGREEMENT................................................... 28
6.13 NOMINEES FOR BENEFICIAL OWNERS..................................... 28
6.14 CONSENT TO JURISDICTION; WAIVER OF JURY............................ 28
6.15 FURTHER ASSURANCES................................................. 29
6.16 NO INCONSISTENT AGREEMENTS......................................... 29
6.17 CONSTRUCTION....................................................... 29
</TABLE>
<PAGE>
REGISTRATION RIGHTS AGREEMENT (this or the "Agreement"), dated as of
October 23, 1997, by and between Diversified Food Group, L.L.C., a Delaware
limited liability company (the "Company"), and Madeleine LLC, a New York limited
liability company (the "Initial Holder").
W I T N E S S E T H :
WHEREAS, simultaneously herewith, the Company, Classic Confectionery,
L.L.C., a Delaware limited liability company, Restauranic, Inc., an Illinois
corporation, Great American Ice Cream Company, LLC, a Delaware limited liability
company, and Cohen's Kosher Food, L.L.C. a Delaware limited liability company
and the Initial Holder are entering into a Term Loan Agreement, dated the date
hereof (as amended or otherwise modified from time to time, the "Term Loan
Agreement"), pursuant to which the Initial Holder is making a term loan to the
Company subject to the terms of the Term Loan Agreement;
WHEREAS, pursuant to the terms of the Term Loan Agreement, the Initial
Holder is receiving warrants to purchase Interests as set forth in the Warrant
Agreement, dated the date hereof, from the Company to the Initial Holder; and
WHEREAS, in order to induce the Initial Holder to enter into the Term
Loan Agreement, the Company has agreed to provide certain registration rights on
the terms and subject to the conditions set forth herein;
NOW, THEREFORE, in consideration of the premises and of the mutual
agreements contained herein, and for other good and valuable consideration the
receipt and sufficiency of which is hereby acknowledged, and intending to be
legally bound hereby, the parties hereto agree as follows:
1. DEFINITIONS. As used in this Agreement, the following terms shall have the
following meanings:
"Affiliate" shall mean (i) with respect to any Person, any other
Person directly or indirectly controlling or controlled by or under direct or
indirect common control with such Person, and (ii) with respect to any
individual, shall also mean the spouse, sibling, child, step-child, grandchild,
niece, nephew or parent of such Person, or the spouse thereof.
"Company" shall have the meaning set forth in the preamble.
"Demand Registration" shall mean a registration required to be
effected by the Company pursuant to Section 2.1.
"Demand Registration Statement" shall mean a registration statement of
the Company which covers the Registrable Securities requested to be included
therein pursuant to the provisions of Section 2.1 and all amendments and
supplements to such
<PAGE>
registration statement, including post-effective amendments, in each case
including the Prospectus contained therein, all exhibits thereto and all
material incorporated by reference (or deemed to be incorporated by reference)
therein.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended from time to time, and the rules and regulations thereunder, or any
similar or successor statute.
"Exempt Offerings" shall mean a sale, issuance or other conveyance by
the Company of Interests, or securities convertible into, exercisable for, or
exchangeable for, Interests (i) in connection with the acquisition by the
Company of the outstanding capital stock or assets of an entity or business,
(ii) in connection with the merger of the Company with or into another entity,
(iii) upon the exercise of the Warrants, or (iv) upon an initial public offering
by the Company.
"Term Loan Agreement" shall have the meaning set forth in the
preamble.
"Holders" shall mean the Initial Holder for so long as it owns any
Registrable Securities and such of its respective heirs, successors and
permitted assigns (including any permitted transferees of Registrable
Securities) who acquire or are otherwise the transferee of Registrable
Securities, directly or indirectly, from such Initial Holder (or any subsequent
Holder), for so long as such heirs, successors and permitted assigns own any
Registrable Securities. For purposes of this Agreement, a Person will be deemed
to be a Holder whenever such Person holds an option to purchase, or a security
convertible into or exercisable or exchangeable for, Registrable Securities,
whether or not such purchase, conversion, exercise or exchange has actually been
effected and disregarding any legal restrictions upon the exercise of such
rights. Registrable Securities issuable upon exercise of an option or upon
conversion, exchange or exercise of another security shall be deemed outstanding
for the purposes of this Agreement.
"Holders' Counsel" shall mean one firm of counsel (per registration)
to the Holders of Registrable Securities participating in such registration,
which counsel shall be selected (i) in the case of a Demand Registration, by the
Initiating Holders holding a majority of the Registrable Securities for which
registration was requested in the Request, and (ii) in all other cases, by the
Majority Holders of the Registration.
"Incidental Registration" shall mean a registration required to be
effected by the Company pursuant to Section 2.2.
"Incidental Registration Notice" shall mean the notice delivered by
the Company pursuant to Section 2.2 (a).
"Incidental Registration Statement" shall mean a registration
statement of the Company which covers the Registrable Securities requested to be
included therein pursuant to the provisions of Section 2.2 and all amendments
and supplements to such registration statement, including post-effective
amendments, in each case including the
-2-
<PAGE>
Prospectus contained therein, all exhibits thereto and all material incorporated
by reference (or deemed to be incorporated by reference) therein.
"Initial Holder" shall mean the Person specified as such in the
preamble.
"Initial Public Offering" shall mean the first public offering of any
class of securities of the Company pursuant to a registration statement filed
with and declared effective by the SEC.
"Initiating Holders" shall mean, with respect to a particular
registration, the Holders who initiated the Request for such registration.
"Inspectors" shall have the meaning set forth in Section 4.1(g).
"Interests" shall mean membership interests in the Company.
"Majority Holders" shall mean one or more Holders of Registrable
Securities who would hold a majority of the Registrable Securities then
outstanding.
"Majority Holders of the Registration" shall mean, with respect to a
particular registration, one or more Holders of Registrable Securities who would
hold a majority of the Registrable Securities to be included in such
registration.
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Person" shall mean any individual, firm, partnership, corporation,
trust, joint venture, association, joint stock company, limited liability
company, unincorporated organization or any other entity or organization,
including a government or agency or political subdivision thereof, and shall
include any successor (by merger or otherwise) of such entity.
"Prospectus" shall mean the prospectus included in a Registration
Statement (including, without limitation, any preliminary prospectus and any
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), and any such Prospectus as amended or
supplemented by any prospectus supplement, and all other amendments and
supplements to such Prospectus, including post-effective amendments, and in each
case including all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Registrable Securities" shall mean (i) the Warrants, (ii) any Warrant
Interests issued or issuable upon exercise of the Warrants, (iii) any Interests
otherwise or hereafter purchased or acquired by the Holders or any of their
Affiliates and (iv) any other securities of the Company (or any successor or
assign of the Company, whether by merger, consolidation, sale of assets or
otherwise) which may be issued or issuable with respect to, in exchange for, or
in substitution of, Registrable Securities referenced in
-3-
<PAGE>
clauses (ii) and (iii) above by reason of any dividend or stock split,
combination of shares, merger, consolidation, recapitalization,
reclassification, reorganization, sale of assets or similar transaction. As to
any particular Registrable Securities, such securities shall cease to be
Registrable Securities when (A) a registration statement with respect to the
sale of such securities shall have been declared effective under the Securities
Act and such securities shall have been disposed of in accordance with such
registration statement, (B) such securities are sold pursuant to Rule 144 (or
any similar provisions then in force) under the Securities Act or, if the
Company has completed an initial public offering of its Interests, when such
securities are eligible for sale pursuant to Rule 144 (or any similar provisions
then in force) under the Securities Act, (C) such securities have been otherwise
transferred, a new certificate or other evidence of ownership for them not
bearing the legend restricting further transfer shall have been delivered by the
Company and subsequent public distribution of them shall not require
registration under the Securities Act, or (D) such securities shall have ceased
to be outstanding.
"Registration Expenses" shall mean any and all expenses incident to
performance of or compliance with this Agreement by the Company and its
subsidiaries, including, without limitation (i) all SEC, stock exchange, NASD
and other registration, listing and filing fees, (ii) all fees and expenses
incurred in connection with compliance with state securities or blue sky laws
and compliance with the rules of any stock exchange (including fees and
disbursements of counsel in connection with such compliance and the preparation
of a blue sky memorandum and legal investment survey), (iii) all expenses of any
Persons in preparing or assisting in preparing, word processing, printing,
distributing, mailing and delivering any Registration Statement, any Prospectus,
any underwriting agreements, transmittal letters, securities sales agreements,
securities certificates and other documents relating to the performance of or
compliance with this Agreement, (iv) the fees and disbursements of counsel for
the Company, (v) the fees and disbursements of Holders' Counsel, (vi) the fees
and disbursements of all independent public accountants (including the expenses
of any audit and/or "cold comfort" letters) and the fees and expenses of other
Persons, including experts, retained by the Company, (vii) the expenses incurred
in connection with making road show presentations and holding meetings with
potential investors to facilitate the distribution and sale of Registrable
Securities which are customarily borne by the issuer, (viii) any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities, (ix) premiums and other costs of policies of insurance against
liabilities arising out of the public offering of the Registrable Securities
being registered, and (x) all internal expenses of the Company (including all
salaries and expenses of officers and employees performing legal or accounting
duties); provided, however, Registration Expenses shall not include discounts
and commissions payable to underwriters, selling brokers, dealer managers or
other similar Persons engaged in the distribution of any of the Registrable
Securities; and provided further, that in any case where Registration Expenses
are not to be borne by the Company, such expenses shall not include salaries of
Company personnel or general overhead expenses of the Company, auditing fees,
premiums or other expenses relating to liability insurance required by
underwriters of the Company or other expenses for the preparation of financial
statements or other data normally prepared by the Company in
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the ordinary course of its business or which the Company would have incurred in
any event; and provided further, that in the event the Company shall, in
accordance with Section 2.2 hereof, not register any securities with respect to
which it had given written notice of its intention to register to Holders,
notwithstanding anything to the contrary in the foregoing, all of the costs
incurred by the Holders in connection with such registration shall be deemed to
be Registration Expenses.
"Registration Statement" shall mean any registration statement of the
Company which covers any Registrable Securities and all amendments and
supplements to any such Registration Statement, including post-effective
amendments, in each case including the Prospectus contained therein, all
exhibits thereto and all material incorporated by reference (or deemed to be
incorporated by reference) therein.
"Request" shall have the meaning set forth in Section 2.1(a).
"SEC" shall mean the Securities and Exchange Commission, or any
successor agency having jurisdiction to enforce the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended
from time to time, and the rules and regulations thereunder, or any similar or
successor statute.
"Shelf Registration" shall have the meaning set forth in Section 2.1
(a).
"Underwriters" shall mean the underwriters, if any, of the offering
being registered under the Securities Act.
"Underwritten Offering" shall mean a sale of securities of the Company
to an Underwriter or Underwriters for reoffering to the public.
"Warrant Interests" shall mean the Interests or other equity
securities issued or issuable upon the exercise of the Warrants.
"Warrants" shall mean the warrants issued to the Initial Holder
pursuant to the Term Loan Agreement, together with any additional warrants
issued in accordance with the terms thereof.
"Withdrawn Demand Registration" shall have the meaning set forth in
Section 2.1(a).
"Withdrawn Request" shall have the meaning set forth in Section
2.1(a).
2. REGISTRATION UNDER THE SECURITIES ACT.
2.1 Demand Registration.
(a) Right to Demand Registration. Subject to Section 2.1(c), at any
time or from time to time the Majority Holders shall have the right to request
in writing
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that the Company register all or a part of such Holders' Registrable Securities
(a "Request") (which Request shall specify the amount of Registrable Securities
intended to be disposed of by such Holders and the intended method of
disposition thereof) by filing with the SEC a Demand Registration Statement. As
promptly as practicable, but no later than 10 days after receipt of a Request,
the Company shall give written notice of such requested registration to all
Holders of Registrable Securities. Subject to Section 2.1(b), the Company shall
include in a Demand Registration (i) the Registrable Securities intended to be
disposed of by the Initiating Holders and (ii) the Registrable Securities
intended to be disposed of by any other Holder which shall have made a written
request (which request shall specify the amount of Registrable Securities to be
registered and the intended method of disposition thereof) to the Company for
inclusion thereof in such registration within 20 days after the receipt of such
written notice from the Company. The Company shall, as expeditiously as possible
following a Request, use its best efforts to cause to be filed with the SEC a
Demand Registration Statement providing for the registration under the
Securities Act of the Registrable Securities which the Company has been so
requested to register by all such Holders, to the extent necessary to permit the
disposition of such Registrable Securities so to be registered in accordance
with the intended methods of disposition thereof specified in such Request or
further requests (including, without limitation, by means of a shelf
registration pursuant to Rule 415 under the Securities Act (a "Shelf
Registration") if so requested and if the Company is then eligible to use such a
registration). The Company shall use its best efforts to have such Demand
Registration Statement declared effective by the SEC as soon as practicable
thereafter and to keep such Demand Registration Statement continuously effective
for the period specified in Section 4.1(b).
A Request may be withdrawn prior to the filing of the Demand
Registration Statement by the Majority Holders of the Registration (a "Withdrawn
Request") and a Demand Registration Statement may be withdrawn prior to the
effectiveness thereof by the Majority Holders of the Registration (a "Withdrawn
Demand Registration"), and such withdrawals shall be treated as a Demand
Registration which shall have been effected pursuant to this Section 2.1, unless
the Holders of Registrable Securities to be included in such Registration
Statement reimburse the Company for its reasonable out-of-pocket expenses
relating to the preparation and filing of such Demand Registration Statement (to
the extent actually incurred); provided, however, that if a Withdrawn Request or
Withdrawn Registration Statement is made (A) because of a material adverse
change in the business, financial condition or prospects of the Company, or
(B) because the sole or lead managing Underwriter advises that the amount of
Registrable Securities to be sold in such offering be reduced pursuant to
Section 2.1(b) by more than 50% of the Registrable Securities to be included in
such Registration Statement, then such withdrawal shall not be treated as a
Demand Registration effected pursuant to this Section 2.1 (and shall not be
counted toward the number of Demand Registrations), and the Company shall pay
all Registration Expenses in connection therewith. Any Holder requesting
inclusion in a Demand Registration may, at any time prior to the effective date
of the Demand Registration Statement (and for any reason),
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revoke such request by delivering written notice to the Company revoking such
requested inclusion.
The registration rights granted pursuant to the provisions of
this Section 2.1 shall be in addition to the registration rights granted
pursuant to the other provisions of Section 2 hereto.
(b) Priority in Demand Registrations. If a Demand Registration
involves an Underwritten Offering, and the sole or lead managing Underwriter, as
the case may be, of such Underwritten Offering shall advise the Company in
writing (with a copy to each Holder requesting registration) on or before the
date five days prior to the date then scheduled for such offering that, in its
opinion, the amount of Registrable Securities requested to be included in such
Demand Registration exceeds the number which can be sold in such offering within
a price range acceptable to the Majority Holders of the Registration (such
writing to state the basis of such opinion and the approximate number of
Registrable Securities which may be included in such offering), the Company
shall include in such Demand Registration, to the extent of the number which the
Company is so advised may be included in such offering, (A) first, the
securities that the Company Proposes to register for its own account (but solely
to the extent that the proceeds thereof shall not be used to purchase Capital
Stock of the Company) and (B) second, the Registrable Securities requested to be
included in the Demand Registration by the Holders allocated pro rata in
proportion to the number of Registrable Securities requested to be included in
such Demand Registration by each of them; provided, however, that if the Holders
are unable to include in such Demand Registration at least 80% of the
Registrable Securities of the Holders initially proposed to be included in such
Demand Registration, such Underwritten Offering shall not constitute a Demand
Registration. In the event the Company shall not, by virtue of this Section
2.1(b), include in any Demand Registration all of the Registrable Securities of
any Holder requesting to be included in such Demand Registration, such Holder
may, upon written notice to the Company given within five days of the time such
Holder first is notified of such matter, reduce the amount of Registrable
Securities it desires to have included in such Demand Registration, whereupon
only the Registrable Securities, if any, it desires to have included will be so
included and the Holders not so reducing shall be entitled to a corresponding
increase in the amount of Registrable Securities to be included in such Demand
Registration.
(c) Limitations on Registrations. The rights of Holders of
Registrable Securities to request Demand Registrations pursuant to Section
2.1(a) are subject to the following limitations: (i) in no event shall the
Company be required to effect a Demand Registration until after the earlier of
(A) twelve months after the Company consummates an Initial Public Offering, and
(B) the fourth anniversary of this Agreement, (ii) that in no event shall the
Company be required to pay Registration Expenses of more than two Demand
Registrations per year, as long as the second Demand Registration is at least
twelve months after the first Demand Registration; provided, however, that such
number shall be increased to the extent the Company (x) does not include in what
would
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otherwise be the final registration for which the Company is required to pay
Registration Expenses the number of Registrable Securities requested to be
registered by the Holders by reason of Section 2.1(b) or (y) terminates a Shelf
Registration pursuant to Section 2.3 prior to the time that all Registrable
Securities covered by such Shelf Registration have been sold; provided, further,
that after either (a) the consummation of the first Demand Registration, or (b)
the first anniversary of the date on which the Company consummates an Initial
Public Offering and in either case if the Company is a registrant entitled to
use Form S-3 or any successor form thereto to register the Registrable
Securities, then each of the aforementioned Demand Registrations shall be on
such Form S-3; and provided, further' that the Registration Expenses in
connection with each other Demand Registration shall be allocated pro rata among
all Persons on whose behalf securities of the Company are included in such
registration, on the basis of the respective amounts of the securities then
being registered on their behalf, and (iii) that no Request may be made after
the receipt by the Holders of an Incidental Registration Notice; provided,
however, that the Incidental Registration Statement related to such Incidental
Registration Notice is declared effective within 90 days of the Holders receipt
of such Incidental Registration Notice.
(d) Underwriting; Selection of Underwriters. Notwithstanding anything
to the contrary contained in Section 2.1(a), if the Initiating Holders holding a
majority of the Registrable Securities for which registration was requested in
the Request so elect, the offering of such Registrable Securities pursuant to
such Demand Registration shall be in the form of a firm commitment
Underwritten Offering; and such Initiating Holders may require that all Persons
(including other Holders) participating in such registration sell their
Registrable Securities to the Underwriters at the same price and on the same
terms of underwriting applicable to the Initiating Holders. If any Demand
Registration involves an Underwritten Offering, the sole or managing
Underwriters and any additional investment bankers and managers to be used in
connection with such registration must be reputable and nationally recognized
and shall be selected by the Company, provided that such Underwriter must be
capable of consummating the Underwritten Offering; otherwise the Underwriter
shall be selected by the Initiating Holders holding a majority of the
Registrable Securities for which registration was requested in the Request,
subject to the approval of the Company (such approval not to be unreasonably
withheld). If the Company maintains a contractual relationship with an
Underwriter at the time of the aforesaid selection (the "Existing Underwriter"),
and the Existing Underwriter is capable of consummating the Underwritten
Offering, the Underwriter for the Underwritten Offering shall be the Existing
Underwriter unless the Initiating Holders agree to reimburse the Company for all
liabilities and obligations owed by the Company to the Existing Underwriter
arising pursuant to contract out of the Company's failure to use the Existing
Underwriter as the Underwriter for such Underwritten Offering.
(e) Registration of Other securities. Whenever the Company shall
effect a Demand Registration, no securities other than the Registrable
Securities shall be
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<PAGE>
covered by such registration unless the Majority Holders of the Registration
shall have consented in writing to the inclusion of such other securities.
(f) Effective Registration Statement; Suspension. A Demand
Registration Statement shall not be deemed to have become effective (and the
related registration will not be deemed to have been effected) (i) unless it has
been declared effective by the SEC and remains effective in compliance with the
provisions of the Securities Act with respect to the disposition of all
Registrable Securities covered by such Demand Registration Statement for the
time period specified in Section 4.1(b); provided, however, that sale of
Registrable Securities in connection with a Shelf Registration may be suspended
pursuant to a stop order issued by the SEC for no more than 60 days in any 360
day period, (ii) if the offering of any Registrable Securities pursuant to such
Demand Registration Statement is interfered with by any stop order, injunction
or other order or requirement of the SEC or any other governmental agency or
court; provided, however, that sale of Registrable Securities in connection with
a Shelf Registration may be suspended pursuant to a stop order issued by the SEC
for no more than 60 days in any 360 day period, or (iii) if, in the case of an
Underwritten Offering, the conditions to closing specified in an underwriting
agreement to which the Company is a party are not satisfied other than by the
sole reason of any breach or failure by the Holders of Registrable Securities or
are not otherwise waived by the Holders of a majority of the Registrable
Security subject to such Underwritten Offering.
(g) Other Registrations. During the period (i) beginning on the date
of a Request and (ii) ending on the date that is 90 days after the date that a
Demand Registration Statement filed pursuant to such Request has been declared
effective by the SEC or, if the Holders shall withdraw such Request or such
Demand Registration Statement, on the date of such Withdrawn Request or such
Withdrawn Registration Statement, the Company shall not, without the consent of
the Majority Holders of the Registration, file a registration statement
pertaining to any other securities of the Company of the same class of
securities.
(h) Registration Statement Form. Registrations under this Section 2.1
shall be on such appropriate registration form of the SEC (i) as shall be
selected by the Initiating Holders holding a majority of the Registrable
Securities for which registration was requested in the Request (unless, pursuant
to Section 2.1(c), the Registration Statement must be filed on Form S-3), and
(ii) which shall be available for the sale of Registrable Securities in
accordance with the intended method or methods of disposition specified in the
requests for registration. The Company agrees to include in any such
Registration Statement all information which any selling Holder, upon advice of
counsel, shall reasonably request.
2.2 Incidental Registration.
(a) Right to Include Registrable Securities. If the Company at any
time or from time to time proposes to register any of its securities under the
Securities
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<PAGE>
Act (other than in a registration on Form S-4 or S-8 or any successor form to
such forms and other than pursuant to Section 2.1 or 2.3) whether or not
pursuant to registration rights granted to other holders of its securities and
whether or not for sale for its own account, the Company shall deliver prompt
written notice (which notice shall be given at least 30 days prior to such
proposed registration) to all Holders of Registrable Securities of its intention
to undertake such registration (an "Incidental Registration Notice"), describing
in reasonable detail the proposed registration and distribution (including the
anticipated range of the proposed offering price, the class and number of
securities proposed to be registered and the distribution arrangements to the
extent known to the Company) and of such Holders' right to participate in such
registration under this Section 2.2 as hereinafter provided. Subject to the
other provisions of this paragraph (a) and Section 2.2(b), upon the written
request of any Holder made within 20 days after the receipt of such written
notice (which request shall specify the amount of Registrable Securities to be
registered and the intended method of disposition thereof), the Company shall
effect the registration under the Securities Act of all Registrable Securities
requested by Holders to be so registered (an "Incidental Registration"), to the
extent requisite to permit the disposition (in accordance with the intended
methods thereof as aforesaid) of the Registrable Securities so to be registered,
by inclusion of such Registrable Securities in the Registration Statement which
covers the securities which the Company proposes to register and shall cause
such Registration Statement to become and remain effective with respect to such
Registrable Securities in accordance with the registration procedures set forth
in Section 4. If an Incidental Registration involves an Underwritten Offering,
immediately upon notification to the Company from the Underwriter of the price
at which such securities are to be sold, the Company shall so advise each
participating Holder. The Holders requesting inclusion in an Incidental
Registration may, at any time prior to the effective date of the Incidental
Registration Statement (and for any reason), revoke such request by delivering
written notice to the Company revoking such requested inclusion.
If at any time after giving written notice of its intention to
register any securities and prior to the effective date of the Incidental
Registration Statement filed in connection with such registration, the Company
shall determine for any reason not to register or to delay registration of such
securities, the Company may, at its election, give written notice of such
determination to each Holder of Registrable Securities and, thereupon, (A) in
the case of a determination not to register, the Company shall be relieved of
its obligation to register any Registrable Securities in connection with such
registration (but not from its obligation to pay the Registration Expenses
incurred in connection therewith), without prejudice, however, to the rights of
Holders to cause such registration to be effected as a registration under
Section 2.1, and (B) in the case of a determination to delay such registration,
the Company shall be permitted to delay the registration of such Registrable
Securities for the same period as the delay in registering such other
securities; provided, however, that if such delay shall extend beyond 120 days
from the date the Company received a request to include Registrable Securities
in such Incidental Registration, then the Company shall again give all Holders
the opportunity to participate therein and shall follow the notification
procedures set forth in the preceding
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paragraph. There is no limitation on the number of such Incidental Registrations
pursuant to this Section 2.2 which the Company is obligated to effect.
The registration rights granted pursuant to the provisions of this
Section 2.2 shall be in addition to the registration rights granted pursuant to
the other provisions of Section 2 hereof.
(b) Priority in Incidental Registration. If an Incidental
Registration involves an Underwritten Offering (on a firm commitment basis), and
the sole or the lead managing Underwriter, as the case may be, of such
Underwritten Offering shall advise the Company to the date then scheduled for
such offering that, in its opinion, the amount of securities (including
Registrable Securities) requested to be included in such registration exceeds
the amount which can be sold in such offering without materially interfering
with the successful marketing of the securities being offered, the Company shall
include in such registration, to the extent of the number which the Company is
so advised may be included in such offering without such effect, (i) in the case
of a registration initiated by the Company, (A) first, the securities that the
Company proposes to register for its own account (but solely to the extent that
the proceeds thereof shall not be used to purchase Common Shares or other
securities of the Company), (B) second, the Registrable Securities requested to
be included in such registration by the Holders, allocated pro rata in
proportion to the number of Registrable Securities requested to be included in
such registration by each of them, and (C) third, other securities of the
Company to be registered on behalf of any other Person, and (ii) in the case of
a registration initiated by a Person other than the Company, (A) first, the
securities requested to be included in such registration by any Persons
initiating such registration, (B) second, securities that the Company proposes
to register for its own account, and (C) third, Registrable Securities requested
to be included in such registration by Holders and by all other Persons,
allocated pro rata in proportion to the number of securities requested to be
included in such registration by each of them; provided, however, that in any
event the Holders shall be entitled to include in such Incidental Registration
the number of Registrable Securities equal to the highest of (1) the Holders'
pro rata proportion set forth in the immediately preceding clause (C), (2) the
number of Registrable Securities included in the Incidental Registration by Zahn
(as defined in the Term Loan Agreement) and (3) the number of Registrable
Securities included in the Incidental Registration by Gould (as defined in the
Term Loan Agreement); provided, further, that in the event the Company will not,
by virtue of this Section 2.2(b), include in any such registration all of the
Registrable Securities of any Holder requested to be included in such
registration, such Holder may, upon written notice to the Company given within
three days of the time such Holder first is notified of such matter, reduce the
amount of Registrable Securities it desires to have included in such
registration, whereupon only the Registrable Securities, if any, it desires to
have included will be so included and the Holders not so reducing shall be
entitled to a corresponding increase in the amount of Registrable Securities to
be included in such registration.
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2.3 Shelf Registration. If a request made pursuant to Section 2.1 is for a
Shelf Registration, the Company shall use its best efforts to keep the Shelf
Registration continuously effective through the date on which all of the
Registrable Securities covered by such Shelf Registration may be sold pursuant
to Rule 144(k) under the Securities Act (or any successor provision having
similar effect); provided, however, that prior to the termination of such Shelf
Registration, the Company shall first furnish to each Holder of Registrable
Securities participating in such Shelf Registration (i) an opinion, in form and
substance satisfactory to the Majority Holders of the Registration, of counsel
for the Company satisfactory to the Majority Holders of the Registration stating
that such Registrable Securities are freely salable pursuant to Rule 144(k)
under the Securities Act (or any successor provision having similar effect) or
(ii) a "No-Action Letter" from the staff of the SEC stating that the SEC would
not recommend enforcement action if the Registrable Securities included in such
Shelf Registration were sold in a public sale other than pursuant to an
effective registration statement.
2.4 Expenses. The Company shall pay all reasonable Registration Expenses
in connection with any Demand Registration, Incidental Registration (except for
expenses incurred by Holders) or Shelf Registration, whether or not such
registration shall become effective and whether or not all Registrable
Securities originally requested to be included in such registration are
withdrawn or otherwise ultimately not included in such registration, except as
otherwise provided with respect to a Withdrawn Request and a Withdrawn Demand
Registration in Section 2.1(a). Each Holder shall pay all discounts and
commissions payable to underwriters, selling brokers, managers or other similar
Persons engaged in the distribution of such Holder's Registrable Securities
pursuant to any registration pursuant to this Section 2.
2.5 Underwritten Offerings.
(a) Demand Underwritten Offerings. If requested by the sole or lead
managing Underwriter for any Underwritten Offering effected pursuant to a Demand
Registration, the Company shall enter into a customary underwriting agreement
with the Underwriters for such offering, such agreement to be reasonably
satisfactory in substance and form to each Holder of Registrable Securities
participating in such offering and to contain such representations and
warranties by the Company and such other terms as are generally prevailing in
agreements of that type, including, without limitation, indemnification and
contribution to the effect and to the extent provided in Section 5.
(b) Holders of Registrable Securities to be Parties to Underwriting
Agreement. The Holders of Registrable Securities to be distributed by
Underwriters in an Underwritten Offering contemplated by this Section 2 shall be
parties to the underwriting agreement between the Company and such Underwriters
and may, at such Holders' option, require that any or all of the representations
and warranties by, and the other agreements on the part of, the Company to and
for the benefit of such Underwriters shall also be made to and for the benefit
of such Holders of Registrable Securities and that any or all of the conditions
precedent to the obligations of such Underwriters under such
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underwriting agreement be conditions precedent to the obligations of such
Holders of Registrable Securities; provided, however, that the Company shall not
be required to make any representations or warranties with respect to written
information specifically provided by a selling Holder for inclusion in the
Registration Statement. No Holder shall be required to make any representations
or warranties to, or agreements with, the Company or the Underwriters other than
representations, warranties or agreements regarding such Holder, such Holder's
Registrable Securities and such Holder's intended method of disposition.
(c) Participation in Underwritten Registration. Notwithstanding
anything herein to the contrary, no Person may participate in any underwritten
registration hereunder unless such Person (i) agrees to sell its securities on
the same terms and conditions provided in any underwritten arrangements approved
by the Persons entitled hereunder to approve such arrangement and (ii)
accurately completes and executes in a timely manner all questionnaires, powers
of attorney, indemnities, custody agreements, underwriting agreements and other
documents reasonably required under the terms of such underwriting arrangements.
2.6 Conversions; Exercises. Notwithstanding anything to the contrary
herein, in order for any Registrable Securities that are issuable upon the
exercise of conversion rights, options or warrants to be included in any
registration pursuant to Section 2 hereof, the exercise of such conversion
rights, options or warrants must be effected no later than immediately prior to
the closing of any sales under the Registration Statement pursuant to which such
Registrable Securities are to be sold.
3. HOLDBACK ARRANGEMENTS.
3.1 Restrictions on Sale by Holders of Registrable Securities. Each Holder
of Registrable Securities agrees, by acquisition of such Registrable Securities,
if requested in writing by the sole or lead managing Underwriter in an
Underwritten Offering of any Registrable Securities, not to make any short sale
of, loan, grant any option for the purchase of or effect any public sale or
distribution, including a sale pursuant to Rule 144 (or any successor provision
having similar effect) under the Securities Act of any Registrable Securities or
any other equity security of the Company (or any security convertible into or
exchangeable or exercisable for any equity security of the Company) (except as
part of such underwritten registration), during the thirty business days (as
such term is used in Rule 10b-6 under the Exchange Act) prior to, and during the
time period reasonably requested by the sole or lead managing Underwriter not to
exceed 180 days, beginning on the effective date of the applicable Registration
Statement.
3.2 Restrictions on Sale by the Company and Others. The Company agrees
that (i) if requested in writing by the sole or lead managing Underwriter in an
Underwritten Offering of any Registrable Securities, not to make any short sale
of, loan, grant any option for the purchase of or effect any public sale or
distribution of any of the Company's securities (or any security convertible
into or exchangeable or exercisable for
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any of the Company's securities) during the thirty business days (as such term
is used in Rule 10b-6 under the Exchange Act) prior to, and during the time
period reasonably requested by the sole or lead managing Underwriter not to
exceed 180 days, beginning on the effective date of the applicable Registration
Statement (except as part of such underwritten registration or pursuant to
registrations on Forms S-4 or S-8 or any successor form to such forms), and (ii)
it will use its best efforts to cause each holder of securities (or any security
convertible into or exchangeable or exercisable for any of its securities) of
the Company purchased from the Company at any time after the date of this
Agreement (other than in a registered public offering) to so agree.
4. REGISTRATION PROCEDURES.
4.1 Obligations of the Company. Whenever the Company is required to effect
the registration of Registrable Securities under the Securities Act pursuant to
Section 2 of this Agreement, the Company shall, as expeditiously as possible:
(a) prepare and file with the SEC (promptly, and in any event within
60 days after receipt of a request to register Registrable Securities) the
requisite Registration Statement to effect such registration, which Registration
Statement shall comply as to form in all material respects with the requirements
of the applicable form and include all financial statements required by the SEC
to be filed therewith, and the Company shall use its good faith efforts to cause
such Registration Statement to become effective (provided, that the Company may
discontinue any registration of its securities that are not Registrable
Securities, and, under the circumstances specified in Section 2.2, its
securities that are Registrable Securities); provided, however, that before
filing a Registration Statement or Prospectus or any amendments or supplements
thereto, or comparable statements under securities or blue sky laws of any
jurisdiction, the Company shall (i) provide Holders' Counsel and any other
Inspector with an adequate and appropriate opportunity to participate in the
preparation of such Registration Statement and each Prospectus included therein
(and each amendment or supplement thereto or comparable statement) to be filed
with the SEC, which documents shall be subject to the review and comment of
Holders' Counsel, and (ii) not file any such Registration Statement or
Prospectus (or amendment or supplement thereto or comparable statement) with the
SEC to which Holder's Counsel, any selling Holder or any other Inspector shall
have reasonably objected on the grounds that such filing does not comply in all
material respects with the requirements of the Securities Act or of the rules or
regulations thereunder;
(b) prepare and file with the SEC such amendments and supplements to
such Registration Statement and the Prospectus used in connection therewith as
may be necessary (i) to keep such Registration Statement effective, and (ii) to
comply with the provisions of the Securities Act with respect to the disposition
of all Registrable Securities covered by such Registration Statement, in each
case until such time as all of such Registrable Securities have been disposed of
in accordance with the intended methods of disposition by the seller(s) thereof
set forth in such Registration Statement;
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provided, that except with respect to any Shelf Registration, such period need
not extend beyond nine months after the effective date of the Registration
Statement; and provided further, that with respect to any Shelf Registration,
such period need not extend beyond the time period provided in Section 2.3, and
which periods, in any event, shall terminate when all Registrable Securities
covered by such Registration Statement have been sold (but not before the
expiration of the 90 day period referred to in Section 4(3) of the Securities
Act and Rule 174 thereunder, if applicable);
(c) furnish, without charge, to each selling Holder of such
Registrable Securities and each Underwriter, if any, of the securities covered
by such Registration Statement, such number of copies of such Registration
Statement, each amendment and supplement thereto (in each case including all
exhibits), and the Prospectus included in such Registration Statement (including
each preliminary Prospectus) in conformity with the requirements of the
Securities Act, and other documents, as such selling Holder and Underwriter may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Securities owned by such selling Holder (the Company hereby
consenting to the use in accordance with applicable law of each such
Registration Statement (or amendment or post-effective amendment thereto) and
each such Prospectus (or preliminary prospectus or supplement thereto) by each
such selling Holder of Registrable Securities and the Underwriters, if any, in
connection with the offering and sale of the Registrable Securities covered by
such Registration Statement or Prospectus);
(d) prior to any public offering of Registrable Securities, use its
good faith efforts to register or qualify all Registrable Securities and other
securities covered by such Registration Statement under such other securities or
blue sky laws of such jurisdictions as any selling Holder of Registrable
Securities covered by such Registration Statement or the sole or lead managing
Underwriter, if any, may reasonably request to enable such selling Holder to
consummate the disposition in such jurisdictions of the Registrable Securities
owned by such selling Holder and to continue such registration or qualification
in effect in each such jurisdiction for as long as such Registration Statement
remains in effect (including through new filings or amendments or renewals), and
do any and all other acts and things which may be necessary or advisable to
enable any such selling Holder to consummate the disposition in such
jurisdictions of the Registrable Securities owned by such selling Holder;
provided, however, that the Company shall not be required to (i) qualify
generally to do business in any jurisdiction where it would not otherwise be
required to qualify but for this Section 4.1(d), (ii) subject itself to taxation
in any such jurisdiction, or (iii) consent to general service of process in any
such jurisdiction;
(e) use its good faith efforts to obtain all other approvals,
consents, exemptions or authorizations from such governmental agencies or
authorities as may be necessary to enable the selling Holders of such
Registrable Securities to consummate the disposition of such Registrable
Securities;
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(f) promptly notify Holders' Counsel, each Holder of Registrable
Securities covered by such Registration Statement and the sole or lead managing
Underwriter, if any: (i) when the Registration Statement, any pre-effective
amendment, the Prospectus or any prospectus supplement related thereto or post-
effective amendment to the Registration Statement has been filed and, with
respect to the Registration Statement or any post-effective amendment, when the
same has become effective, (ii) of any request by the SEC or any state
securities or blue sky authority for amendments or supplements to the
Registration Statement or the Prospectus related thereto or for additional
information, (iii) of the issuance by the SEC of any stop order suspending the
effectiveness of the Registration Statement or the initiation or threat of any
proceedings for that purpose, (iv) of the receipt by the Company of any
notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the securities or blue sky laws of any
jurisdiction or the initiation of any proceeding for such purpose, (v) of the
existence of any fact of which the Company becomes aware or the happening of any
event which results in (A) the Registration Statement containing an untrue
statement of a material fact or omitting to state a material fact required to be
stated therein or necessary to make any statements therein not misleading, or
(B) the Prospectus included in such Registration Statement containing an untrue
statement of a material fact or omitting to state a material fact required to be
stated therein or necessary to make any statements therein, in the light of the
circumstances under which they were made, not misleading, (vi) if at any time
the representations and warranties contemplated by Section 2.5(b) cease to be
true and correct in all material respects, and (vii) of the Company's reasonable
determination that a post-effective amendment to a Registration Statement would
be appropriate or that there exists circumstances not yet disclosed to the
public which make further sales under such Registration Statement inadvisable
pending such disclosure and post-effective amendment; and, if the notification
relates to an event described in any of the clauses (ii) through (vii) of this
Section 4.1(f), the Company shall promptly prepare a supplement or post-
effective amendment to such Registration Statement or related Prospectus or any
document incorporated therein by reference or file any other required document
so that (1) such Registration Statement shall not contain any untrue statement
of a material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, and (2) as
thereafter delivered to the purchasers of the Registrable Securities being sold
thereunder, such Prospectus shall not include an untrue statement of a material
fact or omit to state a material fact required to be stated therein or necessary
to make the statements therein in the light of the circumstances under which
they were made not misleading (and shall furnish to each such Holder and each
Underwriter, if any, a reasonable number of copies of such Prospectus so
supplemented or amended); and if the notification relates to an event described
in clause (iii) of this Section 4.1(f), the Company shall take all reasonable
action required to prevent the entry of such stop order or to remove it if
entered;
(g) make available for inspection by any selling Holder of
Registrable Securities, any sole or lead managing Underwriter participating in
any disposition pursuant to such Registration Statement, Holders' Counsel and
any attorney, accountant or other agent retained by any such seller or any
Underwriter (each, an "Inspector" and,
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collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company and any subsidiaries thereof
as may be in existence at such time (collectively, the "Records") as shall be
necessary, in the opinion of such Holders' and such Underwriters' respective
counsel, to enable them to exercise their due diligence responsibility and to
conduct a reasonable investigation within the meaning of the Securities Act, and
cause the Company's and any subsidiaries' officers, directors and employees, and
the independent public accountants of the Company, to supply all information
reasonably requested by any such Inspectors in connection with such Registration
Statement, provided that the Company shall not be required to provide
information in a manner that would violate the Company's attorney-client
privilege except with respect to such information that the Underwriter
reasonably determines is necessary to consummate the Underwritten Offering;
(h) obtain an opinion from the Company's counsel and a "cold comfort"
letter from the Company's independent public accountants who have certified the
Company's financial statements included or incorporated by reference in such
Registration Statement, in each case dated the effective date of such
Registration Statement (and if such registration involves an Underwritten
Offering, dated the date of the closing under the underwriting agreement), in
customary form and covering such matters as are customarily covered by such
opinions and "cold comfort" letters delivered to underwriters in underwritten
public offerings, which opinion and letter shall be reasonably satisfactory to
the sole or lead managing Underwriter, if any, and to the Majority Holders of
the Registration, and furnish to each Holder participating in the offering and
to each Underwriter, if any, a copy of such opinion and letter addressed to such
Holder (in the case of the opinion) and Underwriter (in the case of the opinion
and the "cold comfort" letter);
(i) provide a CUSIP number for all Registrable Securities and provide
and cause to be maintained a transfer agent and registrar for all such
Registrable Securities covered by such Registration Statement not later than the
effectiveness of such Registration Statement;
(j) otherwise use its best efforts to comply with all applicable
rules and regulations of the SEC and any other governmental agency or authority
having jurisdiction over the offering, and make available to its security
holders, as soon as reasonably practicable but no later than 90 days after the
end of any 12-month period, an earnings statement (i) commencing at the end of
any month in which Registrable Securities are sold to Underwriters in an
Underwritten Offering and (ii) commencing with the first day of the Company's
calendar month next succeeding each sale of Registrable Securities after the
effective date of a Registration Statement, which statement shall cover such 12-
month periods, in a manner which satisfies the provisions of Section 11(a) of
the Securities Act and Rule 158 thereunder;
(k) if so requested by the Majority Holders of the Registration, use
its best efforts to cause all such Registrable Securities to be listed (i) on
each national
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securities exchange on which the Company's securities are then listed or (ii) if
securities of the Company are not at the time listed on any national securities
exchange (or if the listing of Registrable Securities is not permitted under the
rules of each national securities exchange on which the Company's securities are
then listed), on a national securities exchange designated by the Majority
Holders of the Registration;
(l) keep each selling Holder of Registrable Securities advised in
writing as to the initiation and progress of any registration under Section 2
hereunder;
(m) enter into and perform customary agreements (including, if
applicable, an underwriting agreement in customary form) and provide officers'
certificates and other customary closing documents;
(n) cooperate with each selling Holder of Registrable Securities and
each Underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the NASD and make reasonably available its employees and personnel and
otherwise provide reasonable assistance to the Underwriters (taking into account
the needs of the Company's businesses and the requirements of the marketing
process) in the marketing of Registrable Securities in any Underwritten
Offering;
(o) furnish to each Holder participating in the offering and the sole
or lead managing Underwriter, if any, without charge, at least one manually-
signed copy of the Registration Statement and any post-effective amendments
thereto, including financial statements and schedules, all documents
incorporated therein by reference and all exhibits (including those deemed to be
incorporated by reference);
(p) cooperate with the selling Holders of Registrable Securities and
the sole or lead managing Underwriter, if any, to facilitate the timely
preparation and delivery of certificates not bearing any restrictive legends
representing the Registrable Securities to be sold, and cause-such Registrable
Securities to be issued in such denominations and registered in such names in
accordance with the underwriting agreement prior to any sale of Registrable
Securities to the Underwriters or, if not an Underwritten Offering, in
accordance with the instructions of the selling Holders of Registrable
Securities at least three business days prior to any sale of Registrable
Securities;
(q) if requested by the sole or lead managing Underwriter or any
selling Holder of Registrable Securities, promptly incorporate in a prospectus
supplement or post-effective amendment such information concerning such Holder
of Registrable Securities, the Underwriters or the intended method of
distribution as the sole or lead managing Underwriter or the selling Holder of
Registrable Securities reasonably requests to be included therein and as is
appropriate in the reasonable judgment of the Company, including, without
limitation, information with respect to the number of shares of the Registrable
Securities being sold to the Underwriters, the purchase price being paid
therefor by such Underwriters and with respect to any other terms of the
Underwritten
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Offering of the Registrable Securities to be sold in such offering; make all
required filings of such Prospectus supplement or post-effective amendment
promptly after notified of the matters to be incorporated in such Prospectus
supplement or post-effective amendment; and supplement or make amendments to any
Registration Statement if requested by the sole or lead managing Underwriter of
such Registrable Securities; and
(r) use its good faith efforts to take all other steps necessary to
expedite or facilitate the registration and disposition of the Registrable
Securities contemplated hereby.
4.2 Seller Information. The Company may require each selling Holder of
Registrable Securities as to which any registration is being effected to furnish
to the Company such information regarding such Holder, such Holder's Registrable
Securities and such Holder's intended method of disposition as the Company may
from time to time reasonably request in writing; provided that such information
shall be used only in connection with such registration.
If any Registration Statement or comparable statement under "blue sky"
laws refers to any Holder by name or otherwise as the Holder of any securities
of the Company, then such Holder shall have the right to require (i) the
insertion therein of language, in form and substance satisfactory to such Holder
and the Company, to the effect that the holding by such Holder of such
securities is not to be construed as a recommendation by such Holder of the
investment quality of the Company's securities covered thereby and that such
holding does not imply that such Holder will assist in meeting any future
financial requirements of the Company, and (ii) in the event that such reference
to such Holder by name or otherwise is not in the judgment of the Company, as
advised by its counsel, required by the Securities Act or any similar federal
statute or any state "blue sky" or securities law then in force, the deletion of
the reference to such Holder, if so requested by the Holder.
4.3 Notice to Discontinue. Each Holder of Registrable Securities agrees by
acquisition of such Registrable Securities that, upon receipt of any notice from
the Company of the happening of any event of the kind described in Section
4.1(f)(ii) through (vii), such Holder shall forthwith discontinue disposition of
Registrable Securities pursuant to the Registration Statement covering such
Registrable Securities until such Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 4.1(f) and, if so
directed by the Company, such Holder shall deliver to the Company (at the
Company's expense) all copies, other than permanent file copies, then in such
Holder's possession of the Prospectus covering such Registrable Securities which
is current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such Registration
Statement shall be maintained effective pursuant to this Agreement (including,
without limitation, the period referred to in Section 4.1(b)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 4.1(f) to and including the date when the Holder shall have
received the copies
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of the supplemented or amended prospectus contemplated by and meeting the
requirements of Section 4.1(f).
5. INDEMNIFICATION; CONTRIBUTION.
5.1 Indemnification by the Company. The Company agrees to indemnify and
hold harmless, to the fullest extent permitted by law, each Holder of
Registrable Securities, its officers, directors, partners, members,
shareholders, employees, Affiliates and agents (collectively, "Agents") and each
Person who controls such Holder (within the meaning of the Securities Act) and
its Agents with respect to each registration which has been effected pursuant to
this Agreement, against any and all losses, claims, damages or liabilities,
joint or several, actions or proceedings (whether commenced or threatened) in
respect thereof, and expenses (as incurred or suffered and including, but not
limited to, any and all expenses incurred in investigating, preparing or
defending any litigation or proceeding, whether commenced or threatened, and the
reasonable fees, disbursements and other charges of legal counsel) in respect
thereof (collectively, "Claims"), insofar as such Claims arise out of or are
based upon any untrue or alleged untrue statement of a material fact contained
in any Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to any such
registration or any omission or alleged omission to state a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or any violation by the Company of the Securities Act or any rule or
regulation thereunder applicable to the Company and relating to action or
inaction required of the Company in connection with any such registration, or
any qualification or compliance incident thereto; provided, however, that the
Company will not be liable in any such case to the extent that any such Claims
arise out of or are based upon any untrue statement or alleged untrue statement
of a material fact or omission or alleged omission of a material fact so made in
reliance upon and in conformity with written information furnished to the
Company in an instrument duly executed by such Holder specifically stating that
it was expressly for use therein. The Company shall also indemnify any
Underwriters of the Registrable Securities, their Agents and each Person who
controls any such Underwriter (within the meaning of the Securities Act) to the
same extent as provided above with respect to the indemnification of the Holders
of Registrable Securities. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of any Person who may be
entitled to indemnification pursuant to this Section 5 and shall survive the
transfer of securities by such Holder or Underwriter.
5.2 Indemnification by Holders. Each Holder, if Registrable Securities
held by it are included in the securities as to which a registration is being
effected, agrees to, severally and not jointly, indemnify and hold harmless, to
the fullest extent permitted by law, the Company, its directors and officers,
each other Person who participates as an Underwriter in the offering or sale of
such Securities and its Agents and each Person who controls the Company or any
such Underwriter (within the meaning of the Securities Act) and its Agents
against any and all Claims, insofar as such Claims arise out of or are based
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upon any untrue or alleged untrue statement of a material fact contained in any
Registration Statement or Prospectus (including any preliminary, final or
summary prospectus and any amendment or supplement thereto) related to such
registration, or any omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
not misleading, to the extent, but only to the extent, that such untrue
statement or alleged untrue statement or omission or alleged omission was made
in reliance upon and in conformity with written information furnished to the
Company in an instrument duly executed by such Holder specifically stating that
it was expressly for use therein; provided, however, that the aggregate amount
which any such Holder shall be required to pay pursuant to this Section 5.2
shall in no event be greater than the amount of the net proceeds received by
such Holder upon the sale of the Registrable Securities pursuant to the
Registration Statement giving rise to such Claims less all amounts previously
paid by such Holder with respect to any such Claims. Such indemnity shall remain
in full force and effect regardless of any investigation made by or on behalf of
such indemnified party and shall survive the transfer of such securities by such
Holder or Underwriter.
5.3 Conduct of Indemnification Proceedings. Promptly after receipt by an
indemnified party of notice of any Claim or the commencement of any action or
proceeding involving a Claim under this Section 5, such indemnified party shall,
if a claim in respect thereof is to be made against the indemnifying party
pursuant to Section 5, (i) notify the indemnifying party in writing of the Claim
or the commencement of such action or proceeding; provided, that the failure of
any indemnified party to provide such notice shall not relieve the indemnifying
party of its obligations under this Section 5, except to the extent the
indemnifying party is materially and actually prejudiced thereby and shall not
relieve the indemnifying party from any liability which it may have to any
indemnified party otherwise than under this Section 5, and (ii) permit such
indemnifying party to assume the defense of such claim with counsel reasonably
satisfactory to the indemnified party; provided, however, that any indemnified
party shall have the right to employ separate counsel and to participate in the
defense of such claim, but the fees and expenses of such counsel shall be at the
expense of such indemnified party unless (A) the indemnifying party has agreed
in writing to pay such fees and expenses, (B) the indemnifying party shall have
failed to assume the defense of such claim and employ counsel reasonably
satisfactory to such indemnified party within 10 days after receiving notice
from such indemnified party that the indemnified party believes it has failed to
do so, (C) in the reasonable judgment of any such indemnified party, based upon
advice of counsel, a conflict of interest may exist between such indemnified
party and the indemnifying party with respect to such claims (in which case, if
the indemnified party notifies the indemnifying party in writing that it elects
to employ separate counsel at the expense of the indemnifying party, the
indemnifying party shall not have the right to assume the defense of such claim
on behalf of such indemnified party) or (D) such indemnified party is a
defendant in an action or proceeding which is also brought against the
indemnifying party and reasonably shall have concluded that there may be one or
more legal defenses available to such indemnified party which are not available
to the indemnifying party; provided that in no event will the Company be
required to pay the
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legal costs, fees and expenses of more than one law firm acting as independent
counsel for the Holders. No indemnifying party shall be liable for any
settlement of any such claim or action effected without its written consent,
which consent shall not be unreasonably withheld. In addition, without the
consent of the indemnified party (which consent shall not be unreasonably
withheld), no indemnifying party shall be permitted to consent to entry of any
judgment with respect to, or to effect the settlement or compromise of any
pending or threatened action or claim in respect of which indemnification or
contribution may be sought hereunder (whether or not the indemnified party is an
actual or potential party to such action or claim), unless such settlement,
compromise or judgment (1) includes an unconditional release of the indemnified
party from all liability arising out of such action or claim, (2) does not
include a statement as to or an admission of fault, culpability or a failure to
act, by or on behalf of any indemnified party, and (3) does not provide for any
action on the part of any party other than the payment of money damages which is
to be paid in full by the indemnifying party.
5.4 Contribution. If the indemnification provided for in Section 5.1 or
5.2 from the indemnifying party for any reason is unavailable to (other than by
reason of exceptions provided therein), or is insufficient to hold harmless, an
indemnified party hereunder in respect of any Claim, then the indemnifying
party, in lieu of indemnifying such indemnified party, shall contribute to the
amount paid or payable by such indemnified party as a result of such Claim in
such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and the indemnified party, on the other
hand, in connection with the actions which resulted in such Claim, as well as
any other relevant equitable considerations. The relative fault of such
indemnifying party and indemnified party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission to
state a material fact, has been made by, or relates to information supplied by,
such indemnifying party or indemnified party, and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
action. If, however, the foregoing allocation is not permitted by applicable
law, then each indemnifying party shall contribute to the amount paid or payable
by such indemnified party in such proportion as is appropriate to reflect not
only such relative faults but also the relative benefits of the indemnifying
party and the indemnified party as well as any other relevant equitable
considerations.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 5.4 were determined by pro rata allocation
or by any other method of allocation which does not take into account the
equitable considerations referred to in the immediately preceding paragraph. The
amount paid or payable by a party as a result of any Claim referred to in the
immediately preceding paragraph shall be deemed to include, subject to the
limitations set forth in Section 5.3, any legal or other fees, costs or expenses
reasonably incurred by such party in connection with any investigation or
proceeding. Notwithstanding anything in this Section 5.4 to the contrary, no
indemnifying party (other than the Company) shall be required pursuant to this
Section 5.4 to contribute any amount in excess of the net proceeds received by
such
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indemnifying party from the sale of the Registrable Securities pursuant to the
Registration Statement giving rise to such Claims, less all amounts previously
paid by such indemnifying party with respect to such Claims. No person guilty of
fraudulent misrepresentation (within the meaning of Section 11(f) of the
Securities Act) shall be entitled to contribution from any person who was not
guilty of such fraudulent misrepresentation.
5.5 Other Indemnification. Indemnification similar to that specified in
the preceding Sections 5.1 and 5.2 (with appropriate modifications) shall be
given by the Company and each selling Holder of Registrable Securities with
respect to any required registration or other qualification of securities under
any Federal or state law or regulation of any governmental authority, other
than the Securities Act. The indemnity agreements contained herein shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law or contract.
5.6 Indemnification Payments. The indemnification and contribution
required by this Section 5 shall be made by periodic payments of the amount
thereof during the course of any investigation or defense, as and when bills are
received or any expense, loss, damage or liability is incurred.
6. GENERAL.
6.1 Adjustments Affecting Registrable Securities. The Company agrees that
it shall not effect or permit to occur any combination or subdivision of
interests which would adversely affect the ability of the Holder of any
Registrable Securities to include such Registrable Securities in any
registration contemplated by this Agreement or the marketability of such
Registrable Securities in any such registration.
6.2 Registration Rights to Others. The Company has not previously entered
into an agreement with respect to its securities granting any registration
rights to any Person, except to certain of its members pursuant to the Company's
Operating Agreement, dated March 25, 1996, as amended. If the Company shall at
any time hereafter provide to any holder of any securities of the Company rights
with respect to the registration of such securities under the Securities Act,
(i) such rights shall not be in conflict with or adversely affect any of the
rights provided in this Agreement to the Holders and (ii) if such rights are
provided on terms or conditions more favorable to such holder than the terms and
conditions provided in this Agreement, the Company shall provide (by way of
amendment to this Agreement or otherwise) such more favorable terms or
conditions to the Holders.
6.3 Availability of Information: Rule 144; Rule 144A; Other Exemptions.
So long as the Company shall not have filed a registration statement pursuant to
Section 12 of the Exchange Act or a registration statement pursuant to the
requirements of the Securities Act, the Company shall, at any time and from time
to time, upon the request of any Holder of Registrable Securities and upon the
request of any Person designated by such Holder as a prospective purchaser of
any Registrable Securities, furnish in writing to
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such Holder or such prospective purchaser, as the case may be, a statement as of
a date not earlier than 12 months prior to the date of such request of the
nature of the business of the Company and the products and services it offers
and copies of the Company's most recent balance sheet and profit and loss and
retained earnings statements, together with similar financial statements for
such part of the two preceding fiscal years as the Company shall have been in
operation, all such financial statements to be audited to the extent audited
statements are available, provided that, in any event the most recent financial
statements so furnished shall include a balance sheet as of a date less than 16
months prior to the date of such request, statements of profit and loss and
retained earnings for the 12 months preceding the date of such balance sheet,
and, if such balance sheet is not as of a date less than 6 months prior to the
date of such request, additional statements of profit and loss and retained
earnings for the period from the date of such balance sheet to a date less than
6 months prior to the date of such request; and provided, further, that any
prospective purchaser that is to receive the aforementioned information shall
first sign a confidentiality agreement with confidentiality provisions
reasonably acceptable to the Company. If the Company shall have filed a
registration statement pursuant to the requirements of Section 12 of the
Exchange Act or a registration statement pursuant to the requirements of the
Securities Act, the Company covenants that it shall timely file any reports
required to be filed by it under the Securities Act or the Exchange Act
(including, but not limited to, the reports under Sections 13 and 15(d) of the
Exchange Act referred to in subparagraph (c) of Rule 144 under the Securities
Act), and that it shall take such further action as any Holder of Registrable
Securities may reasonably request, all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (i) Rule
144 and Rule 144A under the Securities Act, as such rules may be amended from
time to time, or (ii) any other rule or regulation now existing or hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company shall deliver to such Holder a written statement as to whether it
has complied with such requirements.
6.4 Amendments and Waivers. The provisions of this Agreement may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, without the written
consent of the Company and the Holders of not less than 50% of the Registrable
Securities then outstanding; provided, however, that no such amendment,
modification, supplement, termination, waiver or consent shall reduce the
aforesaid percentage of Registrable Securities without the written consent of
all of the Holders of Registrable Securities; and provided further, that nothing
herein shall prohibit any amendment, modification, supplement, termination,
waiver or consent to departure the effect of which is limited only to those
Holders who have agreed to such amendment, modification, supplement,
termination, waiver or consent to departure.
6.5 Notices. All notices and other communications provided for or permitted
hereunder shall be made in writing by hand delivery, telecopier, any courier
guaranteeing overnight delivery or first class registered or certified mail,
return receipt requested,
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postage prepaid, addressed to the applicable party at the address set forth
below or such other address as may hereafter be designated in writing by such
party to the other parties in accordance with the provisions of this Section:
(i) If to the Company, to:
Diversified Food Group, L.L.C.
6901 North Hamlin Avenue
Lincolnwood,IL 60201
Attention: Andrew Zahn
Telephone: (847) 763-3310
Telecopier: (847) 763-0022
with a copy to:
Shefsky & Froelich Ltd.
444 North Michigan Avenue
Chicago,IL 60611
Attention: Howard Davis
Telephone: (312) 527-4000
Telecopier: (312) 527-5921
(ii) If to the Initial Holder, to:
Madeleine LLC
450 Park Avenue
New York, New York 10022
Attention: Robert Davenport
Telephone: (212) 421-6300
Telecopier: (212) 758-5305
with a copy to:
Schulte Roth & Zabel LLP
900 Third Avenue
New York, New York 10022
Attention: Mark A. Neporent
Telephone: (212) 756-2000
Telecopier: (212) 593-5955
(iii) If to any subsequent Holder, to the address
of such Person set forth in the records of the
Company.
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All such notices and communications shall be deemed to have been duly
given: at the time delivered by hand, if personally delivered; when receipt is
acknowledged, if telecopied; on the next business day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid.
6.6 Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective heirs, successors
and permitted assigns (including any permitted transferee of Registrable
Securities). Any Holder may assign to any permitted transferee of its
Registrable Securities (other than a transferee that acquires such Registrable
Securities in a registered public offering or pursuant to a sale under Rule 144
of the Securities Act (or any successor rule)), its rights and obligations under
this Agreement; provided, however, if any permitted transferee shall take and
hold Registrable Securities, such transferee shall promptly notify the Company
and by taking and holding such Registrable Securities such permitted transferee
shall automatically be entitled to receive the benefits of and be conclusively
deemed to have agreed to be bound by and to perform all of the terms and
provisions of this Agreement as if it were a party hereto (and shall, for all
purposes, be deemed a Holder under this Agreement). If the Company shall so
request, any heir, successor or permitted assign (including any permitted
transferee) shall agree in writing to acquire and hold the Registrable
Securities subject to all of the terms hereof. For purposes of this Agreement,
"successor" for any entity other than a natural person shall mean a successor to
such entity as a result of such entity's merger, consolidation, liquidation,
dissolution, sale of substantially all of its assets, or similar transaction.
Except as provided above or otherwise permitted by this Agreement, neither this
Agreement nor any right, remedy, obligation or liability arising hereunder or by
reason hereof shall be assignable by any Holder or by the Company without the
consent of the other parties hereto.
6.7 Counterparts. This Agreement may be executed in two or more
counterparts, each of which, when so executed and delivered, shall be deemed to
be an original, but all of which counterparts, taken together, shall constitute
one and the same instrument.
6.8 Descriptive Headings. Etc. The headings in this Agreement are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Agreement
otherwise requires: (1) words of any gender shall be deemed to include each
other gender; (2) words using the singular or plural number shall also include
the plural or singular number, respectively; (3) the words "hereof", "herein"
and "hereunder" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not to any particular provision of this
Agreement, and Section and paragraph references are to the Sections and
paragraphs of this Agreement unless otherwise specified; (4) the word
"including" and words of similar import when used in this Agreement shall mean
"including, without limitation," unless otherwise specified; (5) "or" is not
exclusive; and (6) provisions apply to successive events and transactions.
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<PAGE>
6.9 Severability. In the event that any one or more of the provisions,
paragraphs, words, clauses, phrases or sentences contained herein, or the
application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision, paragraph, word, clause, phrase or
sentence in every other respect and of the other remaining provisions,
paragraphs, words, clauses, phrases or sentences hereof shall not be in any way
impaired, it being intended that all rights, powers and privileges of the
parties hereto shall be enforceable to the fullest extent permitted by law.
6.10 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 the
conflict of laws principles thereof).
6.11 Remedies; Specific Performance. The parties hereto acknowledge that
money damages would not be an adequate remedy at law if any party fails to
perform in any material respect any of its obligations hereunder, and
accordingly agree that each party, in addition to any other remedy to which it
may be entitled at law or in equity, shall be entitled to seek to compel
specific performance of the obligations of any other party under this Agreement,
without the posting of any bond, in accordance with the terms and conditions of
this Agreement in any court of the United States or any State thereof having
jurisdiction, and if any action should be brought in equity to enforce any of
the provisions of this Agreement, none of the parties hereto shall raise the
defense that there is an adequate remedy at law. Except as otherwise provided
by law, a delay or omission by a party hereto in exercising any right or remedy
accruing upon any such breach shall not impair the right or remedy or constitute
a waiver of or acquiescence in any such breach. No remedy shall be exclusive of
any other remedy. All available remedies shall be cumulative.
6.12 Entire Agreement. This Agreement is intended by the parties as a final
expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises or
undertakings, other than those set forth or referred to herein. This Agreement
supersedes all prior agreements and understandings between the Company and the
other parties to this Agreement with respect to such subject matter.
6.13 Nominees for Beneficial Owners. In the event that any Registrable
Securities are held by a nominee for the beneficial owner thereof, the
beneficial owner thereof may, at its election in writing delivered to the
Company, be treated as the holder of such Registrable Securities for purposes of
any request or other action by any holder or holders of Registrable Securities
pursuant to this Agreement or any determination of any number or percentage of
shares of Registrable Securities held by any holder or holders of Registrable
Securities contemplated by this Agreement. If the beneficial owner of any
Registrable Securities so elects, the Company may require assurances reasonably
satisfactory to it of such owner's beneficial ownership of such Registrable
Securities.
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<PAGE>
6.14 Consent to Jurisdiction: Waiver of Jury. The Company hereby
irrevocably and unconditionally agrees that any legal action, suit or proceeding
arising out of or relating to this Agreement or any agreements or transactions
contemplated hereby may be brought in any federal court of the Southern District
of New York or any state court located in New York County, State of New York,
and hereby irrevocably and unconditionally expressly submits to the personal
jurisdiction and venue of such courts for the purposes thereof and hereby
irrevocably and unconditionally waives any claim (by way of motion, as a defense
or otherwise) of improper venue, that it is not subject personally to the
jurisdiction of such court, that such courts are an inconvenient forum or that
this Agreement or the subject matter may not be enforced in or by such court.
The Company hereby irrevocably and unconditionally consents to the service of
process of any of the aforementioned courts in any such action, suit or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth or provided for in Section 6.5 of this
Agreement (with copies of such process also being sent to the Company's counsel
referred to in such section), such service to become effective 10 days after
such mailing. Nothing herein contained shall be deemed to affect the right of
the Initial Holder to serve process in any manner permitted by law or commence
legal proceedings or otherwise proceed against any other party in any other
jurisdiction to enforce judgments obtained in any action, suit or proceeding
brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY WAIVES TRIAL BY
JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR EQUITY, BROUGHT IN
CONNECTION WITH THIS AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
6.15 Further Assurances. Each party hereto shall do and perform or cause to
be done and performed all such further acts and things and shall execute and
deliver all such other agreements, certificates, instruments and documents as
any other party hereto reasonably may request in order to carry out the intent
and accomplish the purposes of this Agreement and the consummation of the
transactions contemplated hereby.
6.16 No Inconsistent Agreements. The Company will not hereafter enter into
any agreement which is inconsistent with the rights granted to the Holders in
this Agreement.
6.17 Construction. The Company and the Initial Holder acknowledge that each
of them has had the benefit of legal counsel of its own choice and has been
afforded an opportunity to review this Agreement with its legal counsel and that
this Agreement shall be construed as if jointly drafted by the Company and the
Holders.
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<PAGE>
Exhibit 10.9
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DIVERSIFIED FOOD GROUP, L.L.C.
Ownership Interest Purchase Warrant
Dated as of October 23, 1997
------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION
RIGHTS AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN DIVERSIFIED FOOD GROUP,
L.L.C., AND THE HOLDERS SPECIFIED THEREIN.
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
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Page
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<S> <C>
1. Exercise of Warrant................................................................ 1
1.1. Manner of Exercise............................................................ 1
1.2. When Exercise Effective....................................................... 2
1.3. Exercise or Exchange of Warrants; Issuance of Certificates.................... 2
1.4. Company to Reaffirm Obligations............................................... 3
1.5. Payment by Application of Notes............................................... 3
1.6. Payment by Application of Interests Otherwise Issuable........................ 3
1.7. Tax Basis..................................................................... 3
1.8. Early Termination............................................................. 3
2. Adjustment of Interests Issuable Upon Exercise..................................... 4
2.1. General; Interest Quantity.................................................... 4
2.2. Adjustment of Interest Quantity............................................... 4
2.2.1 Issuance of Additional Interests........................................... 4
2.2.2 Distributions.............................................................. 4
2.3. Treatment of Option and Convertible Securities................................ 5
2.4. Computation of Consideration.................................................. 7
2.5. Adjustments for Combinations, etc............................................. 8
2.6 Minimum Adjustment of Warrant Quantity......................................... 8
2.7 Exclusions to Antidilution Rights.............................................. 8
3. Consolidation, Merger,etc.......................................................... 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc.... 9
3.2. Assumption of Obligations..................................................... 9
4. Other Dilutive Events.............................................................. 10
5. No Dilution or Impairment.......................................................... 10
6. Accountants' Report as to Adjustments.............................................. 10
7. Financial and Business Information................................................. 11
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
7.1. Quarterly Information.............................................11
7.2. Annual Information................................................11
7.3. Filings...........................................................12
7.4 Notices of Corporate action.......................................12
8. Registration of Interests.............................................12
9. Restrictions on Transfer..............................................13
9.1. Restrictive Legends...............................................13
9.2. Transfers to Comply With the Securities Act.......................14
9.4. Termination of Restrictions.......................................14
10. Reservation of Interests, etc.........................................14
11. Registration and Transfer of Warrants, etc............................15
11.1. Warrant Register; Ownership of Warrants..........................15
11.2. Transfer of Warrants.............................................15
11.3. Replacement of Warrants..........................................15
11.4. Adjustments To Interest Quantity.................................15
11.5. Fractional Interests.............................................16
12. Definitions...........................................................16
13. Remedies; Specific Performance........................................19
14. No Rights or Liabilities as Member....................................19
15. Notices...............................................................19
16. Amendments..............................................................19
17. Descriptive Headings, Etc...............................................20
18. GOVERNING LAW...........................................................20
19. Judicial Proceedings; Waiver of Jury....................................20
</TABLE>
ii
<PAGE>
<TABLE>
<CAPTION>
<C> <S> <C>
20. Registration Rights Agreement...........................................20
</TABLE>
iii
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C.
Ownership Interest Purchase Warrant
Void After October 23, 2004
No. W-2 New York, New York
October 23, 1997
DIVERSIFIED FOOD GROUP, L.L.C. (the "Company"), a Delaware limited
liability company, for value received, hereby certifies that MADELEINE LLC, a
New York limited liability company, or registered assigns (the "Holder"), is
entitled to purchase from the Company up to 23.67 (subject to adjustment) (the
"Interest Quantity") ownership interests of the Company (the "Interests") at an
initial exercise price (subject to adjustment) of $7,040.00 per Interest, at any
time or from time to time from October 23, 2000 (the "Commencement Date") until
5:30 PM, New York City time, on the earlier of (i) the date that is three months
after the date on which the Company consummates an initial public offering of
its debt or equity securities and (ii) October 23, 2004 (the "Expiration Date"),
all subject to the terms, conditions and adjustments set forth below in this
Warrant.
This Warrant is the Ownership Interest Purchase Warrant (the
"Warrant", such term to include any such warrants issued in substitution
therefor) originally issued in connection with the Term Loan Agreement, dated as
of the date hereof, by and among the Company, Classic Confectionery, L.L.C., a
Delaware limited liability company, Restauranic, Inc., an Illinois corporation,
Great American Ice Cream Company, LLC, a Delaware limited liability company,
Cohen's Kosher Food, L.L.C., a Delaware limited liability company and the Holder
(as amended or otherwise modified from time to time, the "Term Loan Agreement").
The Warrant originally so issued evidences the right to purchase a number of
Interests equal to the Interest Quantity, subject to adjustment as provided
herein. Certain capitalized terms used in this Warrant are defined in Section
12; references to an "Exhibit" are, unless otherwise specified, to one of the
Exhibits attached to this Warrant and references to a "Section" are, unless
otherwise specified, to one of the Sections of this Warrant.
1. Exercise of Warrant.
-----------------------
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, during normal business hours on any Business Day, by
surrender of this Warrant to the Company at its principal office, accompanied by
the Form of Subscription in substantially the form attached as Exhibit A to this
Warrant (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment, in cash, by certified or official bank check payable to
the order of the Company, or in the manner provided in Section 1.5 or Section
1.6 (or by any combination of such methods), in the amount obtained by
multiplying (a) the number of Interests designated in such Form of Subscription
by (b) the Warrant Price and such Holder shall thereupon be entitled to receive
such number of duly authorized, validly issued Interests.
<PAGE>
1.2. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any Interests shall be issuable upon such exercise, as provided in Section
1.3, shall be deemed to have become the Holder or holders of record thereof.
1.3. Exercise or Exchange of Warrants: Issuance of Certificates. (a)
The Warrants initially are exercisable at a price of S7,040.00 per Interest,
payable in cash or by check to the order of the Company, or any combination of
cash or check. The Warrants are exchangeable for their value in Interests based
upon the current market price per Interest. The value of each of the Warrants
shall equal the current market price per Interest minus the Exercise Price per
Warrant. Upon surrender of a Warrant Certificate duly executed, and in the case
of an exercise of the Warrants, together with payment of the Exercise Price for
the Interests purchased, at the Company's principal offices located at 6901
North Hamlin Avenue, Lincolnwood, Illinois 60645, and an executed counterpart of
the Operating Agreement of the Company (or, if the Company is converted into
another non-corporate entity, the equivalent agreement) the registered holder of
the Warrant Certificate shall be registered on the books and records of the
Company as the owner of the Interests so exchanged or purchased and, if such
Interests are evidenced by certificates, shall be entitled to receive a
certificate or certificates for the Interests so exchanged or purchased. The
purchase and exchange rights represented by each Warrant are exercisable at the
option of the holder thereof, in whole or in part. In the case of the purchase
or exchange of less than all the Interests purchasable under any Warrant, the
Company shall cancel said Warrant upon the surrender thereof and shall execute
and deliver a new Warrant of like tenor for the balance of the Interests
purchasable or exchangeable thereunder.
(b) Upon the exercise or exchange of the Warrants, the registration
of the holder thereof as the owner of the Interests on the books and records of
the Company and, if applicable, the issuance of certificates for the Interests,
shall be made forthwith (and in any event within two business days thereafter)
without charge to the holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the restrictions of Section 9) be issued in the name of, or in
such names as may be directed by, the holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in such registration and the issuance and delivery of
any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The Warrant and the certificates
representing the Interests shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Managing Members or
President or Vice President of the Company, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. The Warrant shall be dated the date of execution by
the Company upon initial issuance, division, exchange, substitution or transfer.
1.4. Company to Reaffirm Obligations. The Company will, at the time
of each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing
2
<PAGE>
obligation to afford to such Holder all rights (including, without limitation,
any rights to registration of the Interests issued upon such exercise) to which
such Holder shall continue to be entitled after such exercise in accordance with
the terms of this Warrant, provided that if the Holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford such rights to such Holder.
1.5. Payment by Application of Notes. Upon any exercise of this
Warrant, the Holder may, at its option, instruct the Company, by written notice
accompanying the surrender of this Warrant at the time of such exercise, to
apply to the payment required by Section 1.1 all or any part of the unpaid
principal amount of any one or more Notes at the time held by such Holder, in
which case the Company will accept the principal amount specified in such
notice in satisfaction of a like amount of such payment. In case less than the
entire unpaid principal amount of any Note shall be so specified, the principal
amount so specified shall be credited, as of the date of such exercise, against
the required prepayments of principal then remaining unpaid on such Note in the
inverse order of their maturity dates.
1.6. Payment by Application of Interests Otherwise Issuable. Upon
any exercise of this Warrant, the Holder may, at its option, instruct the
Company, by written notice accompanying the surrender of this Warrant at the
time of such exercise, to apply to the payment required by Section 1.1 such
number of Interests otherwise issuable to such Holder upon such exercise as
shall be specified in such notice, in which case an amount equal to the excess
of the aggregate Current Market Price of such specified number of Interests on
the date of exercise over the portion of the payment required by Section 1.1
attributable to such Interests shall be deemed to have been paid to the Company
and the number of Interests issuable upon such exercise shall be reduced by such
specified number.
1.7. Tax Basis. The Company and the Holder shall mutually agree as
to the tax basis of this Warrant for purposes of the Internal Revenue Code of
1986, as amended (the "Code"), and the treatment of this Warrant under the Code
by each of the Company and the Holder shall be consistent with such agreement.
1.8. Early Termination. Notwithstanding anything in this Warrant to
the contrary, this Warrant shall not be exercisable, and the Holder shall have
no rights hereunder, if, prior to the Commencement Date, the Company shall have
repaid to the Holder in full all Obligations under the Term Loan Agreement;
provided, however, that if the Holder is required to disgorge all or part of any
payment received with resect to the Obligations by reason of (i) any judgment,
decree or order of any court or administrative body having jurisdiction over the
Holder or any of its property, or (ii) any good faith settlement or compromise
of any such claim effected by the Holder, then, in such case, the Holder shall
be entitled to all rights hereunder, including, without limitation, the right to
exercise all or any part of this Warrant.
2. Adjustment of Interests Issuable Upon Exercise.
2.1. General; Interest Quantity. This Warrant initially evidences
the right to purchase a number of Interests equal to the Interest Quantity,
subject to adjustment as provided in this Section 2. The "Warrant Price" shall
be fixed at $7,040.00 per Interest received upon exercise of this Warrant.
3
<PAGE>
2.2. Adjustment of Interest Quantity.
2.2.1 Issuance of Additional Interests. In case the Company at any
time or from time to time after the date hereof shall issue or sell any
Additional Interests (including Additional Interests deemed to be issued
pursuant to Section 2.3 or 2.4) without consideration or for a consideration per
unit less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.6, the Interest
Quantity shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying the Interest Quantity by a fraction
(a) the numerator of which shall be the number of Interests
outstanding immediately after such issue or sale, provided that, for the
purposes of this Section 2.2.1, immediately after any Additional Interests
are deemed to have been issued pursuant to Section 2.3 or 2.4, such
Additional Interests shall be deemed to be outstanding, and
(b) the denominator of which shall be (i) the number of Interests
outstanding immediately prior to such issue or sale plus (ii) the number of
Interests which the aggregate consideration received by the Company for the
total number of such Additional Interests so issued or sold would purchase
at such Current Market Price.
2.2.2 Distributions. In case the Company at any time or from time to
time after the date hereof shall declare, order, pay or make a distribution
(including, without limitation, any distribution of other securities or
property) on the Interests other than (a) a dividend payable in Additional
Interests, (b) regularly scheduled cash dividend payable out of
consolidated earnings or earned surplus, determined in accordance with
generally accepted accounting principles, or (c) a payment of amounts set
forth in Section 4.4 of the Operating Agreement (as defined in the Term
Loan Agreement), to the extent permitted pursuant to the terms of the Term
Loan Agreement, then, in each such case, subject to Section 2.6, at the
Company's option, either (1) the Interest Quantity in effect immediately
prior to the close of business on the record date fixed for the
determination of holders of any class of securities entitled to receive
such dividend or distribution shall be increased, effective as of the close
of business on such record date, to an amount determined by multiplying
such Interest Quantity by a fraction
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Interests trade on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price, less
the amount of such dividend or distribution (as determined in good faith by
the Board of Directors of the Company) applicable to one Interest,
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
Interests at the time issuable to such Holder; or (2) adequate provision shall
be made so that the
4
<PAGE>
Holder of this Warrant shall receive a pro rata share of such dividend based
upon the maximum number of Interests at the time issuable to such Holder.
2.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities (other than those referenced in Section 2.7 hereof),
then, and in each such case, the maximum number of Additional Interests (as set
forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Interests issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Interests trade on an ex-
dividend basis, on the date prior to the commencement of ex-dividend trading),
provided that such Additional Interests shall not be deemed to have been issued
unless the consideration per Interest (determined pursuant to Section 2.5) of
such Interests would be less than the Current Market Price in effect on the date
of and immediately prior to such issue, sale, grant or assumption or immediately
prior to the close of business on such record date (or, if the Interests trade
on an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
which Additional Interests are deemed to be issued
(a) whether or not the Additional Interests underlying such Options
or Convertible Securities are deemed to be issued, no further adjustment of
the Interest Quantity shall be made upon the subsequent issue or sale of
Convertible Securities or Units upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, except in the case
of any such Options or Convertible Securities which contain provisions
requiring an adjustment, subsequent to the date of the issue or sale
thereof, of the number of Additional Interests issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities by reason of (x) a change of control of the Company, (y) the
acquisition by any Person or group of Persons of any specified number or
percentage of the Interests or (z) any similar event or occurrence, each
such case to be deemed hereunder to involve a separate issuance of
Additional Interests, Options or Convertible Securities, as the case may
be;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Interests issuable, upon the exercise, conversion or exchange
thereof (by change of rate or otherwise), the Interest Quantity computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of ex-
dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase insofar
as it affects such Options, or the rights of conversion or exchange under
such Convertible Securities, which are outstanding at such time;
5
<PAGE>
(c) upon the expiration (or purchase by the Company and cancellation
or retirement) of any such Options which shall not have been exercised or
the expiration of any rights of conversion or exchange under any such
Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion
or exchange under which) shall not have been exercised, the Interest
Quantity computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration (or such cancellation or retirement, as the case may be), be
recomputed as if:
(i) in the case of Options for Interests or Convertible Securities,
the only Additional Interests issued or sold were the Additional Interests,
if any, actually issued or sold upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration actually received by the Company upon
such exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise
of such Options were issued at the time of the issue or sale, grant or
assumption of such Options, and the consideration received by the Company
for the Additional Interests deemed to have then been issued was the
consideration actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
Section 2.5) upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of decreasing the Interest Quantity by an amount in excess
of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Interest Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
2.4. Computation of Consideration. For the purposes of this
Section 2,
(a) the consideration for the issue or sale of any Additional
Interests shall, irrespective of the accounting treatment of such
consideration,
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(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company (such term to include any similar body, such
as managing members, in the event the Company is not a corporation),
and
(iii) in case Additional Interests are issued or sold together
with other units or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration
so received, computed as provided in clauses (i) and (ii) above,
allocable to such Additional Interests, all as determined in good
faith by the Board of Directors of the Company; and
(b) Additional Interests deemed to have been issued pursuant to
Section 2.3, relating to Options and Convertible Securities, shall be
deemed to have been issued for a consideration per Interest determined by
dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the exercise in
full of such Options or the conversion or exchange of such Convertible
Securities or, in the case of Options for Convertible Securities, the
exercise of such Options for Convertible Securities and the conversion
or exchange of such Convertible Securities, in each case computing
such consideration as provided in the foregoing subdivision (a),
by
(ii) the maximum number of Interests (as set forth in the
instruments relating thereto, without regard to any provision contained
therein for a subsequent adjustment of such number to protect against
dilution) issuable upon the exercise of such Options or the conversion or
exchange of such Convertible Securities.
2.5. Adjustments for Combinations, etc. In case the outstanding
number of Interests shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of Interests, the Interest Quantity in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
decreased.
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2.6 Minimum Adjustment of Interest Quantity. If the amount of
any adjustment of the Interest Quantity required pursuant to this Section 2
would be less than one tenth (1/10) of one percent (1%) of the Interest Quantity
in effect at the time such adjustment is otherwise so required to be made, such
amount shall be carried forward and adjustment with respect thereto made at the
time of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate at
least one tenth (1/10) of one percent (1%) of such Interest Quantity. All
calculations under this Warrant shall be made to the nearest one-hundredth of an
Interest.
2.7 Exclusions to Antidilution Rights. Notwithstanding anything
to the contrary contained herein, any issuances of the following Interests by
the Company (and the existence of options or rights as referenced below) shall
not be subject to Holder's antidilution rights set forth in sections 2.2 or 2.3
of this Agreement and Holder shall be entitled to no increase in the Interest of
Quantity with respect to the following:
(a) Issuances of up to 157.82 Interests (as may be adjusted from
time to time in a manner consistent with the adjustments set forth in
Sections 3 and 4 hereof) to employees and advisers of the Company
other than Andrew Zahn or Lawrence Gould pursuant to option plans of
the Company; and
(b) Issuances of Interests pursuant to options to purchase
Interests issued to Sidney, Edward or Neil Cohen in connection with
the Company's Asset Purchase Agreement with Cohen's Frozen Foods,
Inc., Sidney Cohen and Edward Cohen.
3. Consolidation, Merger, etc.
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other Person and shall not be the continuing
or surviving corporation of such consolidation or merger, or (b) shall permit
any other Person to consolidate with or merge into the Company and the Company
shall be the continuing or surviving Person but, in connection with such
consolidation or merger, the Interests shall be changed into or exchanged for
stock or other securities of any other Person or cash or any other property, or
(c) shall transfer all or substantially all of its properties or assets to any
other Person, or (d) shall effect a capital reorganization or reclassification
of the Interests (other than a capital reorganization or reclassification
resulting in the issue of Additional Interests for which adjustment in the
Interest Quantity is provided in Section 2.2.1 or 2.2.2), then, and in the case
of each such transaction, proper provision shall be made so that, upon the basis
and the terms and in the manner provided in this Warrant, the Holder, upon the
exercise hereof at any time after the consummation of such transaction, shall be
entitled to receive (at the aggregate Warrant Price in effect at the time of
such consummation for all Interests issuable upon such exercise immediately
prior to such consummation), in lieu of the Interests issuable upon such
exercise prior to such consummation, the highest amount of securities, cash or
other property to which such Holder would actually have been entitled as a
shareholder upon such consummation if such Holder had exercised the rights
represented by this Warrant immediately prior thereto, subject to adjustments
(subsequent to such consummation) as nearly equivalent as possible to the
adjustments provided for in Sections 2 through 4, provided
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that if a purchase, tender or exchange offer shall have been made to and
accepted by the holders of more than 50% of the outstanding Interests, and if
the Holder so designates in a notice given to the Company on or before the date
immediately preceding the date of the consummation of such transaction, the
Holder shall be entitled to receive the highest amount of securities, cash or
other property to which such Holder would actually have been entitled as a
shareholder if the Holder had exercised this Warrant prior to the expiration of
such purchase, tender or exchange offer and accepted such offer, subject to
adjustments (from and after the consummation of such purchase, tender or
exchange offer) as nearly equivalent as possible to the adjustments provided for
in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything
contained in the Warrant or in the Term Loan Agreement to the contrary, the
Company will not effect any of the transactions described in clauses (a) through
(d) of Section 3.1 unless, prior to the consummation thereof, each Person (other
than the Company) which may be required to deliver any stock, securities, cash
or property upon the exercise of this Warrant as provided herein shall assume,
by written instrument delivered to, and reasonably satisfactory to, the Holder,
(a) the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), and (b) the obligation to deliver to such
Holder such shares of stock, securities, cash or property as, in accordance with
the foregoing provisions of this Section 3, such Holder may be entitled to
receive, and such Person shall have similarly delivered to such Holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such Holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of this Section 3) shall be applicable to the stock,
securities, cash or property which such Person may be required to deliver upon
any exercise of this Warrant or the exercise of any rights pursuant hereto.
Nothing in this Section 3 shall be deemed to authorize the Company to enter into
any transaction not otherwise permitted by the Term Loan Agreement.
4. Other Dilutive Events. In case any event shall occur as to
which the provisions of Section 2 or Section 3 are not strictly applicable but
the failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment
of its Operating Agreement or through any consolidation, merger, reorganization,
transfer of assets, 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other
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<PAGE>
impairment. Without limiting the generality of the foregoing, the Company (a)
will take all such action as may be necessary or appropriate in order that the
Company may validly and legally issue Interests on the exercise of the Warrants
from time to time outstanding, and (b) will not take any action which results in
any adjustment of the Interest Quantity if the total number of Interests
issuable after the action upon the exercise of all of the Warrants would exceed
the total number of Interests then authorized by the Company's Operating
Agreement and available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the Interests issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation and prepare a report setting forth such adjustment or readjustment
and showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
Additional Interests issued or sold or deemed to have been issued, (b) the
number of Interests outstanding or deemed to be outstanding, and (c) the
Interest Quantity in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 2) on account thereof. The
Company will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any Holder of a
Warrant, furnish to such Holder a like report setting forth the Interest
Quantity at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
7. Financial and Business Information.
7.1 Quarterly Information. Except during any period when the
Company either (i) is subject to the reporting requirements of Section 15(d) of
the Exchange Act or (ii) has securities registered under Section 12(b) or 12(g)
of the Exchange Act (such status being referred to as being a "Public Company"),
the Company will deliver to the Holder, as soon as practicable after the end of
each quarterly fiscal period in each fiscal year of the Company, and in any
event within 60 days thereafter, a copy of the unaudited consolidated balance
sheet as at the close of such quarter, and the related unaudited consolidated
statements of income, shareholders' equity and cash flow of the Company and its
subsidiaries for that portion of the fiscal year ending as of the close of such
quarter. Such financial statements shall be prepared by the Company in
accordance with generally accepted accounting principles, applied on a
consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated
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statements of income, shareholder equity and cash flow of the Company and its
subsidiaries as at the end of such quarter and for such year-to-date period, as
the case may be.
7.2 Annual Information. Except during any period when the
Company is a Public Company, the Company will deliver to the Holder as soon as
practicable after the end of each fiscal year of the Company, and in any event
within 120 days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and its
subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income, shareholders'
equity and cash flow of the Company and its subsidiaries for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment made pursuant
to Section 2 during such year.
7.3. Filings. During any period when the Company is a Public
Company, the Company will file on or before the required date all required
regular or periodic reports (pursuant to the Exchange Act) with the Commission
and will deliver to the Holder promptly upon their becoming available one copy
of each report, notice or proxy statement sent by the Company to its members
generally, and of each regular or periodic report (pursuant to the Exchange Act)
and any Registration Statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which the Interests are
listed.
7.4. Notices of Corporate Action. In the event of
(a) 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 distribution (other than a regular periodic
distribution payable in cash out of earned surplus in an amount not
exceeding the amount of the immediately preceding cash distribution for
such period), or any right to subscribe for, purchase or otherwise acquire
any Interests of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any
reclassification or recapitalization of the capital stock of the Company or
any consolidation or merger
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involving the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or
winding-up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
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, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Interests
shall be entitled to exchange their Interests for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 45 days prior to the date
therein specified.
8. Registration of Interests. If any Interests required to be
reserved for purposes of exercise of this Warrant require registration with or
approval of any governmental authority under any federal or state law (other
than the Securities Act) before such Interests may be issued upon exercise, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such Interests to be duly registered or approved, as the case
may be. At any such time as Interests are listed on any national securities
exchange, the Company will, at its expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of issuance,
the Interests issuable upon exercise of the then outstanding Warrants and
maintain the listing of such units after their issuance.
9. Restrictions on Transfer.
9.1. Restrictive Legends. Except as otherwise permitted by this
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION RIGHTS
AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN DIVERSIFIED FOOD GROUP,
L.L.C., AND THE HOLDERS SPECIFIED THEREIN."
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Except as otherwise permitted by this Section 9, each certificate for Interests
issued upon the exercise of any Warrant, and each certificate issued upon the
transfer of any such Interests, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED 1N CERTAIN OWNERSHIP INTEREST PURCHASE
WARRANTS ISSUED BY DIVERSIFIED FOOD GROUP, L.L.C., PURSUANT TO THE
OWNERSHIP INTEREST PURCHASE WARRANT, DATED OCTOBER 23, 1997, AND PURSUANT
TO THE REGISTRATION RIGHTS AGREEMENT DATED THE DATE THEREOF, BY AND BETWEEN
DIVERSIFIED FOOD GROUP, L.L.C. AND THE HOLDERS SPECIFIED THEREIN. A
COMPLETE AND CORRECT COPY OF THE FORM OF SUCH WARRANT AND REGISTRATION
RIGHTS AGREEMENT IS AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF
DIVERSIFIED FOOD GROUP, L.L.C., OR AT THE OFFICE OR AGENCY MAINTAINED BY
DIVERSIFIED FOOD GROUP, L.L.C., AS PROVIDED IN SUCH WARRANTS AND SUCH
REGISTRATION RIGHTS AGREEMENT AND WILL BE FURNISHED TO THE HOLDER OF SUCH
SECURITIES UPON WRITTEN REQUEST AND WITHOUT CHARGE."
9.2. Transfers to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws
and the terms and conditions hereof.
9.4. Termination of Restrictions. The restrictions imposed by this
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
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Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Interests, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of Interests from time to time issuable upon exercise of
all Warrants at the time outstanding. All Interests issuable upon exercise of
any Warrants shall be duly authorized and, when issued upon such exercise, shall
be validly issued and free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the
Interests, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any of the Company's Interests issuable upon the exercise of
any of the purchase rights represented by this Warrant, are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued Interests as shall be requisite for such
purpose. The Company shall keep copies of this Warrant on file with the Transfer
Agent for the Interests and with every subsequent Transfer Agent for any of the
Company's Interests issuable upon the exercise of the rights of purchase
represented by this Warrant. The Company shall supply such Transfer Agent with
duly executed certificates of Interests for such purpose. All Warrant
certificates surrendered upon the exercise of the rights thereby evidenced shall
be canceled, and such canceled Warrants shall constitute sufficient evidence of
the number of Interests which have been issued upon the exercise of such
Warrants. Subsequent to the Expiration Date, no Interests need be reserved in
respect of any unexercised Warrant.
11. Registration and Transfer of Warrants. etc.
-------------------------------------------
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by the Transfer Agent. The Company shall be entitled to
treat the registered Holder of any Warrant on the Warrant Register as the owner
in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any other
Person, and shall not be affected by any notice to the contrary, except that, if
and when any Warrant is properly assigned in blank, the Company may (but shall
not be obligated to) treat the bearer thereof as the owner of such Warrant for
all purposes. Subject to Section 9, a Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of Interests
with respect to which rights under this Warrant were not so transferred.
11.3. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this
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Warrant and, in the case of any such loss, theft or destruction of this Warrant,
on delivery of an indemnity agreement reasonably satisfactory in form and amount
to the Company or, in the case of any such mutilation, on surrender of such
Warrant to the Company at its principal office and cancellation thereof, the
Company at its expense shall execute and deliver, in lieu thereof, a new Warrant
of like tenor.
11.4. Adjustments To Interest Quantity. Notwithstanding any
adjustment in the Interest Quantity or in the number or kind of Interests
purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter
issued may continue to express the same number and kind of Interests as are
stated in this Warrant, as initially issued.
11.5 Fractional Interests. Notwithstanding any adjustment pursuant
to Section 2 in the number of Interests covered by this Warrant or any other
provision of this Warrant, the Company may, but shall not be required to, issue
fractions of Interests upon exercise of this Warrant or to distribute
certificates which evidence fractional Interests. In lieu of fractional
Interests, the Company shall make payment to the Holder, at the time of exercise
of this Warrant as herein provided, in an amount in cash equal to such fraction
multiplied by the Current Market Price of an Interest on the date of Warrant
exercise.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Interests: All Interests issued or sold (or, pursuant to
Section 2.3 or 2.4, deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than
(a) Interests issued upon the exercise of the Warrant,
(b) such additional number of Interests as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) Interests, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof, and
(d) Interests referred to in Section 2.7 hereof(Pounds)
Affiliate: Any person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the applicable person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Appraised Value: With respect to any Interest on any date herein
specified, the fair market value of such Interest (determined without giving
effect to the discount for (a) a minority, interest, or (b) any lack of
liquidity of such Interest or the fact that the Company may have no class of
securities registered under the Exchange Act) as of the last day of the most
recent fiscal month to end 60 days prior to such date, as determined by a
nationally recognized
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investment banking firm acceptable to the Company and the Holder, it being
understood that for purposes of determining such Appraised Value per Interest,
outstanding at such date shall include such Interests issuable in respect of
such Warrants, other options or warrants to purchase, or securities convertible
into, such Interests.
Book Value: With respect to any Interest on any date herein
specified, the consolidated Members' equity (as reflected on the consolidated
balance sheet of the Company and its Subsidiaries and determined in accordance
with GAAP) of the Company and its consolidated Subsidiaries as of the last day
of the month immediately preceding such date, divided by all such Interests
outstanding at such date and all such Interests issuable in respect of the
Warrants exercisable for such Interests, other options or warrants to purchase,
or securities convertible into, such Interests
Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.7.
Commission: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
Company: As defined in the introduction to this Warrant, such term to
include any company which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of
stock or other securities (other than Interests) directly or indirectly
convertible into or exchangeable for Additional Interests.
Current Market Price: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Interests are then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Exercise Price: The initial exercise price or the adjusted exercise
price, depending upon the context.
Expiration Date: As defined in the introduction to this Warrant.
Holder: As defined in the introduction to this Warrant.
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Interest: As defined in the introduction to this Warrant, such term
to include any security into which such Interest shall have been changed or any
security resulting from any reclassification of such Interest, and all other
securities of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any Interests entitled to
preference.
Interest Quantity: As defined in the introduction to this Warrant.
Loan: The Loan as defined in the Term Loan Agreement.
Market Price: On any date specified herein, the amount per unit of
Interest, equal to (a) the last reported sale price of such Interest, regular
way, on such date or, in case no such sale takes place on such date, the average
of the closing bid and asked prices thereof regular way on such date, in either
case as officially reported on the principal national securities exchange on
which such Interests are then listed or admitted for trading, or (b) if such
Interests are not then listed or admitted for trading on any national securities
exchange but is designated as a national market system security by the NASD, the
last reported trading price of the Interests on such date, or (c) if there shall
have been no trading on such date or if the Interests are not so designated, the
average of the closing bid and asked prices of the Interests on such date as
shown by the NASD automated quotation system, or (d) if such Interests are not
then listed or admitted for trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the Book Value thereof and (y) the
Appraised Value thereof.
NASD: The National Association of Securities Dealers, Inc.
Notes: The Notes (as defined in the Term Loan Agreement), including
any such notes issued in substitution for such Notes.
Obligations: The Obligations as defined in the Term Loan Agreement.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Interests or Convertible Securities.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Registration Rights Agreement: The Registration Rights Agreement,
dated the date hereof, by and between the Company and the holders specified
therein.
Reporting Event: The completion by the Company of an initial public
offering of its Interests or any other transaction pursuant to which the Company
becomes subject to the reporting requirements of Section 15(d) of the Exchange
Act.
Restricted Securities: (a) any Warrants bearing the applicable legend
set forth in Section 9.1, (b) any Interests issued or issuable upon the
exercise of Warrants which are evidenced by a certificate or certificates
bearing the applicable legend set forth in such Section,
17
<PAGE>
and (c) any Interests issued subsequent to the exercise of any of the Warrants
as a dividend or other distribution with respect to, or resulting from a
subdivision of the outstanding Interests into a greater number of Interests by
reclassification, or otherwise, or in exchange for or in replacement of the
Interests issued upon such exercise, which are evidenced by a certificate or
certificates bearing the applicable legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Term Loan Agreement: As defined in the introduction to this Warrant.
Warrant: As defined in the introduction to this Warrant.
Warrant Price: As defined in Section 2.1.
13. Remedies: Specific Performance. The Company stipulates that there
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
14. No Rights or Liabilities as Member. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any rights as a
member of the Company or as imposing any obligation on the Holder to purchase
any securities or as imposing any liabilities on the Holder as a shareholder of
the Company, whether such obligation or liabilities are asserted by the Company
or by creditors of the Company.
15. Notices. All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of Andrew Zahn at its
principal office located at 6901 North Hamlin Avenue, Lincolnwood, Illinois
60645 (with a copy to Shefsky & Froelich Ltd., 444 North Michigan Avenue,
Chicago, Illinois 60611, Attention: Howard Davis, Esq.) or such other address as
may hereafter be designated in writing by the Company to the Holder in
accordance with the provisions of this Section, or (b) if to the Holder, at its
address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally delivered;
when receipt is
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acknowledged, if telecopied; on the next Business Day, if timely delivered to a
courier guaranteeing overnight delivery; and five days after being deposited in
the mail, if sent first class or certified mail, return receipt requested,
postage prepaid; provided, that the exercise of any Warrant shall be effective
in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
17. Descriptive Headings, Etc. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (a) words of any gender shall be deemed to include each other gender;
(b) words using the singular or plural number shall also include the plural or
singular number, respectively; (c) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (d) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (e) "or" is not exclusive; and (f)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed in
accordance with, the laws of the State of New York (without giving effect to the
conflict of laws principles thereof).
19. Judicial Proceedings: Waiver of Jury. Any legal action, suit or
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of the Southern District of New York or any state
court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the service of process of any of the aforementioned
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, at its address set forth or
provided for in Section 15 (with copies of such process also being sent to the
Company's counsel referred to in such section), such service to become effective
10 days after such mailing. Nothing herein contained shall be deemed to affect
the right of any party to serve process in any manner permitted by law or
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR
EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
<PAGE>
EXHIBIT 10.10
DIVERSIFIED FOOD GROUP, L.L.C.
Ownership Interest Purchase Warrant
Dated as of October 23, 1997
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION
RIGHTS AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN DIVERSIFIED FOOD GROUP,
L.L.C., AND THE HOLDERS SPECIFIED THEREIN.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<CAPTION>
Page
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<S> <C>
1. Exercise of Warrant............................................................. l
1.1. Manner of Exercise.......................................................... 1
1.2. When Exercise Effective..................................................... 2
1.3. Exercise or Exchange of Warrants; Issuance of Certificates.................. 2
1.4. Company to Reaffirm Obligations............................................. 3
1.5. Payment by Application of Notes............................................. 3
1.6. Payment by Application of Interests Otherwise Issuable...................... 3
1.7. Tax Basis................................................................... 3
2. Adjustment of Interests Issuable Upon Exercise.................................. 3
2.1. General; Interest Quantity.................................................. 3
2.2. Adjustment of Interest Quantity............................................. 4
2.2.1 Issuance of Additional Interests......................................... 4
2.2.2 Distributions............................................................ 4
2.3. Treatment of Option and Convertible Securities.............................. 5
2.4. Computation of Consideration................................................ 7
2.5. Adjustments for Combinations, etc........................................... 8
2.6 Minimum Adjustment of Warrant Quantity....................................... 8
2.7 Exclusions to Antidilution Rights.............................................. 8
3. Consolidation, Merger, etc...................................................... 8
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc.. 8
3.2. Assumption of Obligations................................................... 9
4. Other Dilutive Events........................................................... 9
5. No Dilution or Impairment....................................................... 10
6. Accountants' Report as to Adjustments........................................... 10
7. Financial and Business Information.............................................. 10
7.1. Quarterly Information....................................................... 10
</TABLE>
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7.2. Annual Information..................................... 11
7.3. Filings................................................ 11
7.4 Notices of Corporate Action............................... 12
8. Registration of Interests.................................. 12
9. Restrictions on Transfer................................... 12
9.1. Restrictive Legends.................................... 12
9.2. Transfers to Comply With the Securities Act............ 14
9.4. Termination of Restrictions............................ 14
10. Reservation of Interests, etc.............................. 14
11. Registration and Transfer of Warrants, etc................. 15
11.1. Warrant Register; Ownership of Warrants................ 15
11.2. Transfer of Warrants................................... 15
11.3. Replacement of Warrants................................ 15
11.4. Adjustments To Interest Quantity....................... 15
11.5. Fractional Interests................................... 15
12. Definitions................................................ 16
13. Remedies; Specific Performance............................. 18
14. No Rights or Liabilities as Member......................... 19
15. Notices.................................................... 19
16. Amendments................................................. 19
17. Descriptive Headings, Etc.................................. 19
18. GOVERNING LAW.............................................. 20
19. Judicial Proceedings; Waiver of Jury....................... 20
20. Registration Rights Agreement.............................. 20
ii
<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C.
Ownership Interest Purchase Warrant
Void After October 23, 2004
No. W-1 New York, New York
October 23, 1997
DIVERSIFIED FOOD GROUP, L.L.C. (the "Company"), a Delaware limited
liability company, for value received, hereby certifies that MADELEINE LLC, a
New York limited liability company, or registered assigns (the "Holder"), is
entitled to purchase from the Company up to 142.04 (subject to adjustment) (the
"Interest Quantity") ownership interests of the Company (the "Interests") at an
initial exercise price (subject to adjustment) of $7,040.00 per Interest, at any
time or from time to time from October 23, 1997 until 5:30 PM, New York City
time, on the earlier of (i) the date that is three months after the date on
which the Company consummates an initial public offering of its debt or equity
securities and (ii) October 23, 2004 (the "Expiration Date"), all subject to the
terms, conditions and adjustments set forth below in this Warrant.
This Warrant is the Ownership Interest Purchase Warrant (the
"Warrant", such term to include any such warrants issued in substitution
therefor) originally issued in connection with the Term Loan Agreement, dated as
of the date hereof, by and among the Company, Classic Confectionery, L.L.C., a
Delaware limited liability company, Restauranic, Inc., an Illinois corporation,
Great American Ice Cream Company, LLC, a Delaware limited liability company,
Cohen's Kosher Food, L.L.C., a Delaware limited liability company and the Holder
(as amended or otherwise modified from time to time, the "Term Loan Agreement").
The Warrant originally so issued evidences the right to purchase a number of
Interests equal to the Interest Quantity, subject to adjustment as provided
herein. Certain capitalized terms used in this Warrant are defined in Section
12; references to an "Exhibit" are, unless otherwise specified, to one of the
Exhibits attached to this Warrant and references to a "Section" are, unless
otherwise specified, to one of the Sections of this Warrant.
1. Exercise of Warrant.
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, during normal business hours on any Business Day, by
surrender of this Warrant to the Company at its principal office, accompanied by
the Form of Subscription in substantially the form attached as Exhibit A to this
Warrant (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment, in cash, by certified or official bank check payable to
the order of the Company, or in the manner provided in Section 1.5 or Section
1.6 (or by any combination of such methods), in the amount obtained by
multiplying (a) the number of Interests designated in such Form of Subscription
by (b) the Warrant Price and such Holder shall thereupon be entitled to receive
such number of duly authorized, validly issued Interests.
<PAGE>
1.2. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any Interests shall be issuable upon such exercise, as provided in Section
1.3, shall be deemed to have become the Holder or holders of record thereof.
1.3. Exercise or Exchange of Warrants; Issuance of Certificates. (a)
The Warrants initially are exercisable at a price of $7,040.00 per Interest,
payable in cash or by check to the order of the Company, or any combination of
cash or check. The Warrants are exchangeable for their value in Interests based
upon the current market price per Interest. The value of each of the Warrants
shall equal the current market price per Interest minus the Exercise Price per
Warrant. Upon surrender of a Warrant Certificate duly executed, and in the case
of an exercise of the Warrants, together with payment of the Exercise Price for
the Interests purchased, at the Company's principal offices located at 6901
North Hamlin Avenue, Lincolnwood, Illinois 60645, and an executed counterpart of
the Operating Agreement of the Company (or, if the Company is converted into
another non-corporate entity, the equivalent agreement) the registered holder of
the Warrant Certificate shall be registered on the books and records of the
Company as the owner of the Interests so exchanged or purchased and, if such
Interests are evidenced by certificates, shall be entitled to receive a
certificate or certificates for the Interests so exchanged or purchased. The
purchase and exchange rights represented by each Warrant are exercisable at the
option of the holder thereof, in whole or in part. In the case of the purchase
or exchange of less than all the Interests purchasable under any Warrant, the
Company shall cancel said Warrant upon the surrender thereof and shall execute
and deliver a new Warrant of like tenor for the balance of the Interests
purchasable or exchangeable thereunder.
(b) Upon the exercise or exchange of the Warrants, the registration of
the holder thereof as the owner of the Interests on the books and records of the
Company and, if applicable, the issuance of certificates for the Interests,
shall be made forthwith (and in any event within two business days thereafter)
without charge to the holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the restrictions of Section 9) be issued in the name of, or in
such names as may be directed by, the holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in such registration and the issuance and delivery of
any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The Warrant and the certificates
representing the Interests shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Managing Members or
President or Vice President of the Company, attested to by the manual or
facsimile signature of the present or any future Secretary or Assistant
Secretary of the Company. The Warrant shall be dated the date of execution by
the Company upon initial issuance, division, exchange, substitution or transfer.
1.4. Company to Reaffirm Obligations. The Company will, at the time of
each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing
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<PAGE>
obligation to afford to such Holder all rights (including, without limitation,
any rights to registration of the Interests issued upon such exercise) to which
such Holder shall continue to be entitled after such exercise in accordance with
the terms of this Warrant, provided that if the Holder shall fail to make any
such request, such failure shall not affect the continuing obligation of the
Company to afford such rights to such Holder.
1.5. Payment bv Application of Notes. Upon any exercise of this
Warrant, the Holder may, at its option, instruct the Company, by written notice
accompanying the surrender of this Warrant at the time of such exercise, to
apply to the payment required by Section 1.1 all or any part of the unpaid
principal amount of any one or more Notes at the time held by such Holder, in
which case the Company will accept the principal amount specified in such notice
in satisfaction of a like amount of such payment. In case less than the entire
unpaid principal amount of any Note shall be so specified, the principal amount
so specified shall be credited, as of the date of such exercise, against the
required prepayments of principal then remaining unpaid on such Note in the
inverse order of their maturity dates.
1.6. Payment by Application of Interests Otherwise Issuable. Upon any
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of
Interests otherwise issuable to such Holder upon such exercise as shall be
specified in such notice, in which case an amount equal to the excess of the
aggregate Current Market Price of such specified number of Interests on the date
of exercise over the portion of the payment required by Section 1.1 attributable
to such Interests shall be deemed to have been paid to the Company and the
number of Interests issuable upon such exercise shall be reduced by such
specified number.
1.7. Tax Basis. The Company and the Holder shall mutually agree as to
the tax basis of this Warrant for purposes of the Internal Revenue Code of 1986,
as amended (the "Code"), and the treatment of this Warrant under the Code by
each of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Interests Issuable Upon Exercise.
2.1. General; Interest Quantity. This Warrant initially evidences the
right to purchase a number of Interests equal to the Interest Quantity, subject
to adjustment as provided in this Section 2. The "Warrant Price" shall be fixed
at $7,040.00 per Interest received upon exercise of this Warrant.
2.2. Adjustment of Interest Quantity.
2.2.1 Issuance of Additional Interests. In case the Company at any
time or from time to time after the date hereof shall issue or sell any
Additional Interests (including Additional Interests deemed to be issued
pursuant to Section 2.3 or 2.4) without consideration or for a consideration per
unit less than the Current Market Price in effect immediately prior to such
issue or sale, then, and in each such case, subject to Section 2.6, the Interest
Quantity shall be increased, concurrently with such issue or sale, to an amount
determined by multiplying the Interest Quantity by a fraction
3
<PAGE>
(a) the numerator of which shall be the number of Interests
outstanding immediately after such issue or sale, provided that, for the
purposes of this Section 2.2.1, immediately after any Additional Interests
are deemed to have been issued pursuant to Section 2.3 or 2.4, such
Additional Interests shall be deemed to be outstanding, and
(b) the denominator of which shall be (i) the number of Interests
outstanding immediately prior to such issue or sale plus (ii) the number of
Interests which the aggregate consideration received by the Company for the
total number of such Additional Interests so issued or sold would purchase
at such Current Market Price.
2.2.2 Distributions. In case the Company at any time or from time to
time after the date hereof shall declare, order, pay or make a distribution
(including, without limitation, any distribution of other securities or
property) on the Interests other than (a) a dividend payable in Additional
Interests, (b) a regularly scheduled cash dividend payable out of consolidated
earnings or earned surplus, determined in accordance with generally accepted
accounting principles, or (c) a payment of amounts set forth in Section 4.4 of
the Operating Agreement (as defined in the Term Loan Agreement), to the extent
permitted pursuant to the terms of the Term Loan Agreement, then, in each such
case, subject to Section 2.6, at the Company's option, either (1) the Interest
Quantity in effect immediately prior to the close of business on the record date
fixed for the determination of holders of any class of securities entitled to
receive such dividend or distribution shall be increased, effective as of the
close of business on such record date, to an amount determined by multiplying
such Interest Quantity by a fraction
(x) the numerator of which shall be the Current Market Price in effect
on such record date or, if the Interests trade on an ex-dividend basis, on
the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price, less
the amount of such dividend or distribution (as determined in good faith by
the Board of Directors of the Company) applicable to one Interest,
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
Interests at the time issuable to such Holder; or (2) adequate provision shall
be made so that the Holder of this Warrant shall receive a pro rata share of
such dividend based upon the maximum number of Interests at the time issuable to
such Holder.
2.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities (other than those referenced in Section 2.7 hereof),
then, and in each such case, the maximum number of Additional Interests (as set
forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall
4
<PAGE>
be deemed to be Additional Interests issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Interests trade on an ex-
dividend basis, on the date prior to the commencement of ex-dividend trading),
provided that such Additional Interests shall not be deemed to have been issued
unless the consideration per Interest (determined pursuant to Section 2.5) of
such Interests would be less than the Current Market Price in effect on the date
of and immediately prior to such issue, sale, grant or assumption or immediately
prior to the close of business on such record date (or, if the Interests trade
on an ex-dividend basis, on the date prior to the commencement of ex-dividend
trading), as the case may be, and provided, further, that in any such case in
which Additional Interests are deemed to be issued
(a) whether or not the Additional Interests underlying such Options or
Convertible Securities are deemed to be issued, no further adjustment of
the Interest Quantity shall be made upon the subsequent issue or sale of
Convertible Securities or Units upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, except in the case
of any such Options or Convertible Securities which contain provisions
requiring an adjustment, subsequent to the date of the issue or sale
thereof, of the number of Additional Interests issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities by reason of (x) a change of control of the Company, (y) the
acquisition by any Person or group of Persons of any specified number or
percentage of the Interests or (z) any similar event or occurrence, each
such case to be deemed hereunder to involve a separate issuance of
Additional Interests, Options or Convertible Securities, as the case may
be;
(b) if such Options or Convertible Securities by their terms provide,
with the passage of time or otherwise, for any increase in the
consideration payable to the Company, or decrease in the number of
Additional Interests issuable, upon the exercise, conversion or exchange
thereof (by change of rate or otherwise), the Interest Quantity computed
upon the original issue, sale, grant or assumption thereof (or upon the
occurrence of the record date, or date prior to the commencement of ex-
dividend trading, as the case may be, with respect thereto), and any
subsequent adjustments based thereon, shall, upon any such increase or
decrease becoming effective, be recomputed to reflect such increase insofar
as it affects such Options, or the rights of conversion or exchange under
such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation
or retirement) of any such Options which shall not have been exercised or
the expiration of any rights of conversion or exchange under any such
Convertible Securities which (or purchase by the Company and cancellation
or retirement of any such Convertible Securities the rights of conversion
or exchange under which) shall not have been exercised, the Interest
Quantity computed upon the original issue, sale, grant or assumption
thereof (or upon the occurrence of the record date, or date prior to the
commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon such
expiration (or such cancellation or retirement, as the case may be), be
recomputed as if:
5
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(i) in the case of Options for Interests or Convertible Securities,
the only Additional Interests issued or sold were the Additional Interests,
if any, actually issued or sold upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration actually received by the Company upon
such exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise
of such Options were issued at the time of the issue or sale, grant or
assumption of such Options, and the consideration received by the Company
for the Additional Interests deemed to have then been issued was the
consideration actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by the Company (pursuant to
Section 2.5) upon the issue or sale of such Convertible Securities with
respect to which such Options were actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall have
the effect of decreasing the Interest Quantity by an amount in excess of the
amount of the adjustment thereof originally made in respect of the issue, sale,
grant or assumption of such Options or Convertible Securities; and
(e) in the case of any such Options which expire by their terms not more
than 30 days after the date of issue, sale, grant or assumption thereof, no
adjustment of the Interest Quantity shall be made until the expiration or
exercise of all such Options, whereupon such adjustment shall be made in the
manner provided in subdivision (c) above.
2.4. Computation of Consideration. For the purposes of this Section 2,
(a) the consideration for the issue or sale of any Additional Interests
shall, irrespective of the accounting treatment of such consideration,
(i) insofar as it consists of cash, be computed at the net amount of cash
received by the Company, without deducting any expenses paid or incurred by the
Company or any commissions or compensations paid or concessions or discounts
allowed to underwriters, dealers or others performing similar services in
connection with such issue or sale,
(ii) insofar as it consists of property (including securities) other than
cash, be computed at the fair value thereof at the time of such issue or sale,
as determined in good faith by the Board of Directors of the Company (such term
to
6
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include any similar body, such as managing members, in the event the
Company is not a corporation), and
(iii) in case Additional Interests are issued or sold together with
other units or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration so
received, computed as provided in clauses (i) and (ii) above, allocable to
such Additional Interests, all as determined in good faith by the Board of
Directors of the Company; and
(b) Additional Interests deemed to have been issued pursuant to Section
2.3, relating to Options and Convertible Securities, shall be deemed to have
been issued for a consideration per Interest determined by dividing
(i) the total amount, if any, received and receivable by the Company
as consideration for the issue, sale, grant or assumption of the Options or
Convertible Securities in question, plus the minimum aggregate amount of
additional consideration (as set forth in the instruments relating thereto,
without regard to any provision contained therein for a subsequent
adjustment of such consideration to protect against dilution) payable to
the Company upon the exercise in full of such Options or the conversion or
exchange of such Convertible Securities or, in the case of Options for
Convertible Securities, the exercise of such Options for Convertible
Securities and the conversion or exchange of such Convertible Securities,
in each case computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of Interests (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number to protect against dilution) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
2.5. Adjustments for Combinations, etc. In case the outstanding number
of Interests shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of Interests, the Interest Quantity in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
decreased.
2.6 Minimum Adjustment of Interest Quantity. If the amount of any
adjustment of the Interest Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Interest Quantity in
effect at the time such adjustment is otherwise so required to be made, such
amount shall be carried forward and adjustment with respect thereto made at the
time of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate at
least one tenth (1/10) of one percent (1%) of such Interest Quantity. All
calculations under this Warrant shall be made to the nearest one-hundredth of
an Interest.
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2.7 Exclusions to Antidilution Rights. Notwithstanding anything to
the contrary contained herein, any issuances of the following Interests by the
Company (and the existence of options or rights as referenced below) shall not
be subject to Holder's antidilution rights set forth in sections 2.2 or 2.3 of
this Agreement and Holder shall be entitled to no increase in the Interest of
Quantity with respect to the following:
(a) Issuances of up to 157.82 Interests (as may be adjusted from time
to time in a manner consistent with the adjustments set forth in Sections 3
and 4 hereof) to employees and advisers of the Company other than Andrew
Zahn or Lawrence Gould pursuant to option plans of the Company; and
(b) Issuances of Interests pursuant to options to purchase Interests
issued to Sidney, Edward or Neil Cohen in connection with the Company's
Asset Purchase Agreement with Cohen's Frozen Foods, Inc., Sidney Cohen and
Edward Cohen.
3. Consolidation, Merger, etc.
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization,
etc. In case the Company after the date hereof (a) shall consolidate with or
merge into any other Person and shall not be the continuing or surviving
corporation of such consolidation or merger, or (b) shall permit any other
Person to consolidate with or merge into the Company and the Company shall be
the continuing or surviving Person but, in connection with such consolidation or
merger, the Interests shall be changed into or exchanged for stock or other
securities of any other Person or cash or any other property, or (c) shall
transfer all or substantially all of its properties or assets to any other
Person, or (d) shall effect a capital reorganization or reclassification of the
Interests (other than a capital reorganization or reclassification resulting in
the issue of Additional Interests for which adjustment in the Interest Quantity
is provided in Section 2.2.1 or 2.2.2), then, and in the case of each such
transaction, proper provision shall be made so that, upon the basis and the
terms and in the manner provided in this Warrant, the Holder, upon the exercise
hereof at any time after the consummation of such transaction, shall be entitled
to receive (at the aggregate Warrant Price in effect at the time of such
consummation for all Interests issuable upon such exercise immediately prior to
such consummation), in lieu of the Interests issuable upon such exercise prior
to such consummation, the highest amount of securities, cash or other property
to which such Holder would actually have been entitled as a shareholder upon
such consummation if such Holder had exercised the rights represented by this
Warrant immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 2 through 4, provided that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than 50% of the
outstanding Interests, and if the Holder so designates in a notice given to the
Company on or before the date immediately preceding the date of the consummation
of such transaction, the Holder shall be entitled to receive the highest amount
of securities, cash or other property to which such Holder would actually have
been entitled as a shareholder if the Holder had exercised this Warrant prior to
the expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such purchase,
tender or exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 2 through 4.
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3.2. Assumption of Obligations. Notwithstanding anything contained in
the Warrant or in the Term Loan Agreement to the contrary, the Company will not
effect any of the transactions described in clauses (a) through (d) of Section
3.1 unless, prior to the consummation thereof, each Person (other than the
Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), and (b) the obligation to deliver to such
Holder such shares of stock, securities, cash or property as, in accordance with
the foregoing provisions of this Section 3, such Holder may be entitled to
receive, and such Person shall have similarly delivered to such Holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such Holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of this Section 3) shall be applicable to the stock,
securities, cash or property which such Person may be required to deliver upon
any exercise of this Warrant or the exercise of any rights pursuant hereto.
Nothing in this Section 3 shall be deemed to authorize the Company to enter into
any transaction not otherwise permitted by the Term Loan Agreement.
4. Other Dilutive Events. In case any event shall occur as to which
the provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
its Operating Agreement or through any consolidation, merger, reorganization,
transfer of assets, 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue Interests on the exercise
of the Warrants from time to time outstanding, and (b) will not take any action
which results in any adjustment of the Interest Quantity if the total number of
Interests issuable after the action upon the exercise of all of the Warrants
would exceed the total number of Interests then authorized by the Company's
Operating Agreement and available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the Interests issuable upon the exercise of this
Warrant, the Company at its
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expense will promptly compute such adjustment or readjustment in accordance with
the terms of this Warrant and cause independent certified public accountants of
recognized national standing (which may be the regular auditors of the Company)
selected by the Company to verify such computation and prepare a report setting
forth such adjustment or readjustment and showing in reasonable detail the
method of calculation thereof and the facts upon which such adjustment or
readjustment is based, including a statement of (a) the consideration received
or to be received by the Company for any Additional Interests issued or sold or
deemed to have been issued, (b) the number of Interests outstanding or deemed to
be outstanding, and (c) the Interest Quantity in effect immediately prior to
such issue or sale and as adjusted and readjusted (if required by Section 2) on
account thereof. The Company will forthwith mail a copy of each such report to
each Holder of a Warrant and will, upon the written request at any time of any
Holder of a Warrant, furnish to such Holder a like report setting forth the
Interest Quantity at the time in effect and showing in reasonable detail how it
was calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
7. Financial and Business Information.
7.1 Quarterly Information. Except during any period when the Company
either (i) is subject to the reporting requirements of Section 15(d) of the
Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of
the Exchange Act (such status being referred to as being a "Public Company"),
the Company will deliver to the Holder, as soon as practicable after the end of
each quarterly fiscal period in each fiscal year of the Company, and in any
event within 60 days thereafter, a copy of the unaudited consolidated balance
sheet as at the close of such quarter, and the related unaudited consolidated
statements of income, shareholders' equity and cash flow of the Company and its
subsidiaries for that portion of the fiscal year ending as of the close of such
quarter. Such financial statements shall be prepared by the Company in
accordance with generally accepted accounting principles, applied on a
consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
7.2 Annual Information. Except during any period when the Company is
a Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and its
subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income, shareholders' equity and
cash flow of the Company and its subsidiaries for such year;
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setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment made pursuant
to Section 2 during such year.
7.3. Filings. During any period when the Company is a Public Company,
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its members generally,
and of each regular or periodic report (pursuant to the Exchange Act) and any
Registration Statement, prospectus or written communication (other than
transmittal letters) (pursuant to the Securities Act), filed by the Company with
(i) the Commission or (ii) any securities exchange on which the Interests are
listed.
7.4. Notices of Corporate Action. In the event of
(a) 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 distribution (other than a regular periodic distribution payable
in cash out of earned surplus in an amount not exceeding the amount of the
immediately preceding cash distribution for such period), or any right to
subscribe for, purchase or otherwise acquire any Interests of any class or any
other securities or property, or to receive any other right, or
(b) any capital reorganization of the Company, any reclassification or
recapitalization of the capital stock of the Company or any consolidation or
merger involving the Company and any other Person or any transfer of all or
substantially all the assets of the Company to any other Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-up of
the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
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, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Interests
shall be entitled to exchange their Interests for the securities or other
property deliverable upon such reorganization, reclassification,
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recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 45 days prior to the date
therein specified.
8. Registration of Interests. If any Interests required to be
reserved for purposes of exercise of this Warrant require registration with or
approval of any governmental authority under any federal or state law (other
than the Securities Act) before such Interests may be issued upon exercise, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such Interests to be duly registered or approved, as the case
may be. At any such time as Interests are listed on any national securities
exchange, the Company will, at its expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of issuance,
the Interests issuable upon exercise of the then outstanding Warrants and
maintain the listing of such units after their issuance.
9. Restrictions on Transfer.
9.1. Restrictive Legends. Except as otherwise permitted by this
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION RIGHTS
AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN DIVERSIFIED FOOD GROUP,
L.L.C., AND THE HOLDERS SPECIFIED THEREIN."
Except as otherwise permitted by this Section 9, each certificate for Interests
issued upon the exercise of any Warrant, and each certificate issued upon the
transfer of any such Interests, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION
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REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN CERTAIN OWNERSHIP INTEREST PURCHASE WARRANTS ISSUED
BY DIVERSIFIED FOOD GROUP, L.L.C., PURSUANT TO THE OWNERSHIP INTEREST
PURCHASE WARRANT, DATED OCTOBER 23, 1997, AND PURSUANT TO THE REGISTRATION
RIGHTS AGREEMENT DATED THE DATE THEREOF, BY AND BETWEEN DIVERSIFIED FOOD
GROUP, L.L.C. AND THE HOLDERS SPECIFIED THEREIN. A COMPLETE AND CORRECT
COPY OF THE FORM OF SUCH WARRANT AND REGISTRATION RIGHTS AGREEMENT IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF DIVERSIFIED FOOD GROUP,
L.L.C., OR AT THE OFFICE OR AGENCY MAINTAINED BY DIVERSIFIED FOOD GROUP,
L.L.C., AS PROVIDED IN SUCH WARRANTS AND SUCH REGISTRATION RIGHTS AGREEMENT
AND WILL BE FURNISHED TO THE HOLDER OF SUCH SECURITIES UPON WRITTEN REQUEST
AND WITHOUT CHARGE."
9.2. Transfers to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws
and the terms and conditions hereof.
9.4. Termination of Restrictions. The restrictions imposed by this
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Interests, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of Interests from time to time issuable upon exercise of
all Warrants at the time outstanding. All Interests issuable upon exercise of
any Warrants shall be duly authorized and, when issued upon such exercise, shall
be validly issued and free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the
Interests, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any of the Company's Interests issuable upon the exercise of
any of the purchase rights represented by this Warrant, are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued Interests as shall be requisite for such
purpose. The
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Company shall keep copies of this Warrant on file with the Transfer Agent for
the Interests and with every subsequent Transfer Agent for any of the Company's
Interests issuable upon the exercise of the rights of purchase represented by
this Warrant. The Company shall supply such Transfer Agent with duly executed
certificates of Interests for such purpose. All Warrant certificates surrendered
upon the exercise of the rights thereby evidenced shall be canceled, and such
canceled Warrants shall constitute sufficient evidence of the number of
Interests which have been issued upon the exercise of such Warrants. Subsequent
to the Expiration Date, no Interests need be reserved in respect of any
unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register; Ownership of Warrants. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by the Transfer Agent. The Company shall be entitled to
treat the registered Holder of any Warrant on the Warrant Register as the owner
in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any other
Person, and shall not be affected by any notice to the contrary, except that, if
and when any Warrant is properly assigned in blank, the Company may (but shall
not be obligated to) treat the bearer thereof as the owner of such Warrant for
all purposes. Subject to Section 9, a Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of Interests with
respect to which rights under this Warrant were not so transferred.
11.3. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Interest Quantity. Notwithstanding any adjustment
in the Interest Quantity or in the number or kind of Interests purchasable upon
exercise of this Warrant, any Warrant theretofore or thereafter issued may
continue to express the same number and kind of Interests as are stated in this
Warrant, as initially issued.
11.5. Fractional Interests. Notwithstanding any adjustment pursuant to
Section 2 in the number of Interests covered by this Warrant or any other
provision of this Warrant, the Company may, but shall not be required to, issue
fractions of Interests upon
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exercise of this Warrant or to distribute certificates which evidence fractional
Interests. In lieu of fractional Interests, the Company shall make payment to
the Holder, at the time of exercise of this Warrant as herein provided, in an
amount in cash equal to such fraction multiplied by the Current Market Price of
an Interest on the date of Warrant exercise.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Interests: All Interests issued or sold (or, pursuant
to Section 2.3 or 2.4, deemed to be issued) by the Company after the date
hereof, whether or not subsequently reacquired or retired by the Company, other
than
(a) Interests issued upon the exercise of the Warrant,
(b) such additional number of Interests as may become issuable
upon the exercise of the Warrant by reason of adjustments required pursuant
to anti-dilution provisions applicable to the Warrant as in effect on the
date hereof,
(c) Interests, warrants, options and other securities issued at
any time to the Holder or any Affiliate thereof, and
(d) Interests referred to in Section 2.7 hereof.
Affiliate: Any person that directly or indirectly, through one
or more intermediaries, controls, is controlled by, or is under common control
with, the applicable person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Appraised Value: With respect to any Interest on any date herein
specified, the fair market value of such Interest (determined without giving
effect to the discount for (a) a minority interest, or (b) any lack of liquidity
of such Interest or the fact that the Company may have no class of securities
registered under the Exchange Act) as of the last day of the most recent fiscal
month to end 60 days prior to such date, as determined by a nationally
recognized investment banking firm acceptable to the Company and the Holder, it
being understood that for purposes of determining such Appraised Value per
Interest, outstanding at such date shall include such Interests issuable in
respect of such Warrants, other options or warrants to purchase, or securities
convertible into, such Interests.
Book Value: With respect to any Interest on any date herein
specified, the consolidated Members' equity (as reflected on the consolidated
balance sheet of the Company and its Subsidiaries and determined in accordance
with GAAP) of the Company and its consolidated Subsidiaries as of the last day
of the month immediately preceding such date, divided by all such Interests
outstanding at such date and all such Interests issuable in respect of the
Warrants exercisable for such Interests, other options or warrants to purchase,
or securities convertible into, such Interests
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Business Day: Any day other than a Saturday or a Sunday or a day
on which commercial banking institutions in the City of New York are authorized
by law to be closed. Any reference to "days" (unless Business Days are
specified) shall mean calendar days.
Code: As defined in Section 1.7.
Commission: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
Company: As defined in the introduction to this Warrant, such
term to include any company which shall succeed to or assume the obligations of
the Company hereunder in compliance with Section 3.
Convertible Securities: Any evidences of indebtedness, shares of
stock or other securities (other than Interests) directly or indirectly
convertible into or exchangeable for Additional Interests.
Current Market Price: On any date specified herein, the average
daily Market Price during the period of the most recent 20 days, ending on such
date, on which the national securities exchanges were open for trading, except
that if no Interests are then listed or admitted to trading on any national
securities exchange or quoted in the over-the-counter market, the Current Market
Price shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
Exercise Price: The initial exercise price or the adjusted
exercise price, depending upon the context.
Expiration Date: As defined in the introduction to this Warrant.
Holder: As defined in the introduction to this Warrant.
Interest: As defined in the introduction to this Warrant, such
term to include any security into which such Interest shall have been changed or
any security resulting from any reclassification of such Interest, and all other
securities of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any Interests entitled to
preference.
Interest Quantity: As defined in the introduction to this
Warrant.
Loan: The Loan as defined in the Term Loan Agreement.
Market Price: On any date specified herein, the amount per unit
of Interest, equal to (a) the last reported sale price of such Interest, regular
way, on such date or, in case no such sale takes place on such date, the average
of the closing bid and asked prices thereof regular way
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on such date, in either case as officially reported on the principal national
securities exchange on which such Interests are then listed or admitted for
trading, or (b) if such Interests are not then listed or admitted for trading on
any national securities exchange but is designated as a national market system
security by the NASD, the last reported trading price of the Interests on such
date, or (c) if there shall have been no trading on such date or if the
Interests are not so designated, the average of the closing bid and asked prices
of the Interests on such date as shown by the NASD automated quotation system,
or (d) if such Interests are not then listed or admitted for trading on any
national exchange or quoted in the over-the-counter market, the higher of (x)
the Book Value thereof and (y) the Appraised Value thereof.
NASD: The National Association of Securities Dealers, Inc.
Notes: The Notes (as defined in the Term Loan Agreement),
including any such notes issued in substitution for such Notes.
Obligations: The Obligations as defined in the Term Loan
Agreement.
Options: Rights, options or warrants to subscribe for,
purchase or otherwise acquire either Additional Interests or Convertible
Securities.
Person: A corporation, an association, a partnership, an
organization, a business, an individual, a government or political subdivision
thereof or a governmental agency.
Registration Rights Agreement: The Registration Rights
Agreement, dated the date hereof, by and between the Company and the holders
specified therein.
Reporting Event: The completion by the Company of an initial
public offering of its Interests or any other transaction pursuant to which the
Company becomes subject to the reporting requirements of Section 15(d) of the
Exchange Act.
Restricted Securities: (a) any Warrants bearing the applicable
legend set forth in Section 9.1, (b) any Interests issued or issuable upon the
exercise of Warrants which are evidenced by a certificate or certificates
bearing the applicable legend set forth in such Section, and (c) any Interests
issued subsequent to the exercise of any of the Warrants as a dividend or other
distribution with respect to, or resulting from a subdivision of the outstanding
Interests into a greater number of Interests by reclassification, or otherwise,
or in exchange for or in replacement of the Interests issued upon such exercise,
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Term Loan Agreement: As defined in the introduction to this
Warrant.
Warrant: As defined in the introduction to this Warrant.
Warrant Price: As defined in Section 2.1.
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13. Remedies: Specific Performance. The Company stipulates that
there would be no adequate remedy at law to the Holder of this Warrant in the
event of any default or threatened default by the Company in the performance of
or compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
14. No Rights or Liabilities as Member. Nothing contained in
this Warrant shall be construed as conferring upon the Holder hereof any rights
as a member of the Company or as imposing any obligation on the Holder to
purchase any securities or as imposing any liabilities on the Holder as a
shareholder of the Company, whether such obligation or liabilities are asserted
by the Company or by creditors of the Company.
15. Notices. All notices and other communications (and
deliveries) provided for or permitted hereunder shall be made in writing by hand
delivery, telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of Andrew Zahn at its
principal office located at 6901 North Hamlin Avenue, Lincolnwood, Illinois
60645 (with a copy to Shefsky & Froelich Ltd., 444 North Michigan Avenue,
Chicago, Illinois 60611, Attention: Howard Davis, Esq.) or such other address as
may hereafter be designated in writing by the Company to the Holder in
accordance with the provisions of this Section, or (b) if to the Holder, at its
address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be
deemed to have been duly given: at the time delivered by hand, if personally
delivered; when receipt is acknowledged, if telecopied; on the next Business
Day, if timely delivered to a courier guaranteeing overnight delivery; and five
days after being deposited in the mail, if sent first class or certified mail,
return receipt requested, postage prepaid; provided, that the exercise of any
Warrant shall be effective in the manner provided in Section 1.
16. Amendment. This Warrant and any term hereof may not be
amended, modified, supplemented or terminated, and waivers or consents to
departures from the provisions hereof may not be given, except by written
instrument duly executed by the party against which enforcement of such
amendment, modification, supplement, termination or consent to departure is
sought.
17. Descriptive Headings. Etc. The headings in this Warrant are
for convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (a) words of any gender
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shall be deemed to include each other gender; (b) words using the singular or
plural number shall also include the plural or singular number, respectively;
(c) the words "hereof", "herein" and "hereunder" and words of similar import
when used in this Warrant shall refer to this Warrant as a whole and not to any
particular provision of this Warrant, and Section and paragraph references are
to the Sections and paragraphs of this Warrant unless otherwise specified; (d)
the word "including" and words of similar import when used in this Warrant shall
mean "including, without limitation," unless otherwise specified; (e) "or" is
not exclusive; and (f) provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and
construed in accordance with, the laws of the State of New York (without giving
effect to the conflict of laws principles thereof).
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit
or proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of the Southern District of New York or any state
court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the service of process of any of the aforementioned
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, at its address set forth or
provided for in Section 15 (with copies of such process also being sent to the
Company's counsel referred to in such section), such service to become effective
10 days after such mailing. Nothing herein contained shall be deemed to affect
the right of any party to serve process in any manner permitted by law or
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR
EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
20. Registration Rights Agreement. This Warrant and the
Interests issuable upon exercise of this Warrant (or upon conversion of any
units of Interests issued upon such exercise) shall constitute Registrable
Securities (as such term is defined in the Registration Rights Agreement). Each
holder of this Warrant shall be entitled to a11 of the benefits afforded to a
holder of any such Registrable Securities under the Registration Rights
Agreement and such holder, by its acceptance of this Warrant, agrees to be bound
by and to comply with the terms and conditions of the Registration Rights
Agreement applicable to such holder as a holder of such Registrable Securities.
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EXHIBIT 10.11
WARRANT
--------------------------------------------------------------
DIVERSIFIED FOOD GROUP, L.L.C.
Ownership Interest Purchase Warrant
Dated as of February 26, 1998
--------------------------------------------------------------
THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS WARRANT HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH
SECURITIES MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN
COMPLIANCE WITH THE CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION
RIGHTS AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN DIVERSIFIED FOOD GROUP,
L.L.C., AND THE HOLDERS SPECIFIED THEREIN. THIS WARRANT ALSO CONTAINS CERTAIN
RESTRICTIONS UPON TRANSFER BY THE HOLDER THEREOF.
<PAGE>
TABLE OF CONTENTS
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<TABLE>
<CAPTION>
Page
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1. Exercise of Warrant............................................................. 1
1.1. Manner of Exercise......................................................... 1
1.2. When Exercise Effective.................................................... 2
1.3. Exercise or Exchange of Warrants; Issuance of Certificates................. 2
1.4. Company to Reaffirm Obligations............................................ 3
1.5. Payment by Application of Notes............................................ 3
1.6. Payment by Application of Interests Otherwise Issuable..................... 3
1.7. Tax Basis.................................................................. 3
2. Adjustment of Interests Issuable Upon Exercise.................................. 3
2.1. General; Interest Quantity................................................. 3
2.2. Adjustment of Interest Quantity............................................ 4
2.2.1 Issuance of Additional Interests........................................ 4
2.2.2 Distributions........................................................... 4
2.2.3 EBITDA Adjustment....................................................... 5
2.3. Treatment of Option and Convertible Securities............................. 5
2.4. Computation of Consideration............................................... 7
2.5. Adjustments for Combinations, etc.......................................... 8
2.6 Minimum Adjustment of Warrant Quantity...................................... 8
2.7 Exclusions to Antidilution Rights.............................................. 8
3. Consolidation, Merger, etc...................................................... 9
3.1. Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. 9
3.2. Assumption of Obligations.................................................. 9
4. Other Dilutive Events...........................................................10
5. No Dilution or Impairment.......................................................10
6. Accountants' Report as to Adjustments...........................................10
7. Financial and Business Information..............................................11
</TABLE>
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<TABLE>
<CAPTION>
<S> <C>
7.1. Quarterly Information....................................................... 11
7.2. Annual Information.......................................................... 11
7.3. Filings..................................................................... 12
7.4 Notices of Corporate Action...................................................... 12
8. Registration of Interests........................................................ 13
9. Restrictions on Transfer......................................................... 13
9.1. Restrictive Legends......................................................... 13
9.2. Transfers to Comply With the Securities Act................................. 14
9.4. Termination of Restrictions................................................. 15
10. Reservation of Interests, etc.................................................... 15
11. Registration and Transfer of Warrants, etc....................................... 15
11.1. Warrant Register; Ownership of Warrants.................................... 15
11.2. Transfer of Warrants....................................................... 16
11.3. Replacement of Warrants.................................................... 16
11.4. Adjustments To Interest Quantity........................................... 16
11.5. Fractional Interests....................................................... 16
12. Definitions...................................................................... 16
13. Remedies; Specific Performance................................................... 19
14. No Rights or Liabilities as Member............................................... 20
15. Notices.......................................................................... 20
16. Amendments....................................................................... 20
17. Descriptive Headings, Etc........................................................ 20
18. GOVERNING LAW.................................................................... 21
19. Judicial Proceedings; Waiver of Jury............................................. 21
20. Registration Rights Agreement.................................................... 21
</TABLE>
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<PAGE>
DIVERSIFIED FOOD GROUP, L.L.C.
Ownership Interest Purchase Warrant
Void After October 23, 2004
No. W-3 New York, New York
February 26, 1998
DIVERSIFIED FOOD GROUP, L.L.C. (the "Company"), a Delaware limited
liability company, for value received, hereby certifies that MADELEINE LLC, a
New York limited liability company, or registered assigns (the "Holder"), is
entitled to purchase from the Company up to (subject to adjustment) (the
"Interest Quantity") ownership interests of the Company (the "Interests") at an
initial exercise price (subject to adjustment) of $7,040.00 per Interest, at any
time or from time to time from February __, 1998 prior to 5:30 PM, New York City
time, on the earlier of (i) the date that is three months after the date on
which the Company consummates an initial public offering of its debt or equity
securities and (ii) October 23, 2004 (the "Expiration Date"), all subject to the
terms, conditions and adjustments set forth below in this Warrant.
This Warrant is the Ownership Interest Purchase Warrant (the
"Warrant", such term to include any such warrants issued in substitution
therefor) originally issued in connection with Amendment No. 1 to Term Loan
Agreement, dated as of the date hereof, by and among the Company, Classic
Confectionery, L.L.C., a Delaware limited liability company, Restauranic, Inc.,
an Illinois corporation, Great American Ice Cream Co., LLC, a Delaware limited
liability company, Cohen's Kosher Food, L.L.C., a Delaware limited liability
company and the Holder (the "Amendment"), and the Term Loan Agreement, dated as
of October 23, 1997, by and among the Company, Classic Confectionery, L.L.C., a
Delaware limited liability company, Restauranic, Inc., an Illinois corporation,
Great American Ice Cream Co., LLC, a Delaware limited liability company, Cohen's
Kosher Food, L.L.C., a Delaware limited liability company and the Holder, as
amended by the Amendment (as further amended or otherwise modified from time to
time, the "Term Loan Agreement"). The Warrant originally so issued evidences the
right to purchase a number of Interests equal to the Interest Quantity, subject
to adjustment as provided herein. Certain capitalized terms used in this Warrant
are defined in Section 12; references to an "Exhibit" are, unless otherwise
specified, to one of the Exhibits attached to this Warrant and references to a
"Section" are, unless otherwise specified, to one of the Sections of this
Warrant.
1. Exercise of Warrant.
1.1. Manner of Exercise. This Warrant may be exercised by the Holder,
in whole or in part, during normal business hours on any Business Day, by
surrender of this Warrant to the Company at its principal office, accompanied by
the Form of Subscription in substantially the form attached as Exhibit A to this
Warrant (or a reasonable facsimile thereof) duly executed by the Holder and
accompanied by payment, in cash, by certified or official bank check payable to
<PAGE>
the order of the Company, or in the manner provided in Section 1.5 or Section
1.6 (or by any combination of such methods), in the amount obtained by
multiplying (a) the number of Interests designated in such Form of Subscription
by (b) the Warrant Price and such Holder shall thereupon be entitled to receive
such number of duly authorized, validly issued Interests.
1.2. When Exercise Effective. Each exercise of this Warrant shall be
deemed to have been effected immediately prior to the close of business on the
Business Day on which this Warrant shall have been surrendered to the Company as
provided in Section 1.1. At such time the Person or Persons in whose name or
names any interests shall be issuable upon such exercise, as provided in Section
1.3, shall be deemed to have become the Holder or holders of record thereof.
1.3. Exercise or Exchange of Warrants; Issuance of Certificates. (a)
The Warrants initially are exercisable at a price of $7,040.00 per Interest,
payable in cash or by check to the order of the Company, or any combination of
cash or check. The Warrants are exchangeable for their value in Interests based
upon the current market price per Interest. The value of each of the Warrants
shall equal the current market price per Interest minus the Exercise Price per
Warrant. Upon surrender of a Warrant Certificate duly executed, and in the case
of an exercise of the Warrants, together with payment of the Exercise Price for
the Interests purchased, at the Company's principal offices located at 6901
North Hamlin Avenue, Lincolnwood, Illinois 60645, and an executed counterpart of
the Operating Agreement of the Company (or, if the Company is converted into
another non-corporate entity, the equivalent agreement) the registered holder of
the Warrant Certificate shall be registered on the books and records of the
Company as the owner of the Interests so exchanged or purchased and, if such
Interests are evidenced by certificates, shall be entitled to receive a
certificate or certificates for the Interests so exchanged or purchased. The
purchase and exchange rights represented by each Warrant are exercisable at the
option of the holder thereof, in whole or in part. In the case of the purchase
or exchange of less than all the Interests purchasable under any Warrant, the
Company shall cancel said Warrant upon the surrender thereof and shall execute
and deliver a new Warrant of like tenor for the balance of the Interests
purchasable or exchangeable thereunder.
(b) Upon the exercise or exchange of the Warrants, the registration
of the holder thereof as the owner of the Interests on the books and records of
the Company and, if applicable, the issuance of certificates for the Interests,
shall be made forthwith (and in any event within two business days thereafter)
without charge to the holder thereof including, without limitation, any tax
which may be payable in respect of the issuance thereof, and such certificates
shall (subject to the restrictions of Section 9) be issued in the name of, or in
such names as may be directed by, the holder thereof; provided, however, that
the Company shall not be required to pay any tax which may be payable in respect
of any transfer involved in such registration and the issuance and delivery of
any such certificates in a name other than that of the Holder and the Company
shall not be required to issue or deliver such certificates unless or until the
person or persons requesting the issuance thereof shall have paid to the Company
the amount of such tax or shall have established to the satisfaction of the
Company that such tax has been paid. The Warrant and the certificates
representing the Interests shall be executed on behalf of the Company by the
manual or facsimile signature of the present or any future Managing Members or
President or Vice President of the Company, attested to by the manual or
facsimile signature of the present or
2
<PAGE>
any future Secretary or Assistant Secretary of the Company. The Warrant shall be
dated the date of execution by the Company upon initial issuance, division,
exchange, substitution or transfer.
1.4. Company to Reaffirm Obligations. The Company will, at the time of
each exercise of this Warrant, upon the request of the Holder, acknowledge in
writing its continuing obligation to afford to such Holder all rights
(including, without limitation, any rights to registration of the Interests
issued upon such exercise) to which such Holder shall continue to be entitled
after such exercise in accordance with the terms of this Warrant, provided that
if the Holder shall fail to make any such request, such failure shall not affect
the continuing obligation of the Company to afford such rights to such Holder.
1.5. Payment by Application of Notes. Upon any exercise of this
Warrant, the Holder may, at its option, instruct the Company, by written notice
accompanying the surrender of this Warrant at the time of such exercise, to
apply to the payment required by Section 1.1 all or any part of the unpaid
principal amount of any one or more Notes at the time held by such Holder, in
which case the Company will accept the principal amount specified in such notice
in satisfaction of a like amount of such payment. In case less than the entire
unpaid principal amount of any Note shall be so specified, the principal amount
so specified shall be credited, as of the date of such exercise, against the
required prepayments of principal then remaining unpaid on such Note in the
inverse order of their maturity dates.
1.6. Payment by Application of Interests Otherwise Issuable. Upon any
exercise of this Warrant, the Holder may, at its option, instruct the Company,
by written notice accompanying the surrender of this Warrant at the time of such
exercise, to apply to the payment required by Section 1.1 such number of
Interests otherwise issuable to such Holder upon such exercise as shall be
specified in such notice, in which case an amount equal to the excess of the
aggregate Current Market Price of such specified number of Interests on the date
of exercise over the portion of the payment required by Section 1.1 attributable
to such Interests shall be deemed to have been paid to the Company and the
number of Interests issuable upon such exercise shall be reduced by such
specified number.
1.7. Tax Basis. The Company and the Holder shall mutually agree as to
the tax basis of this Warrant for purposes of the Internal Revenue Code of 1986,
as amended (the "Code"), and the treatment of this Warrant under the Code by
each of the Company and the Holder shall be consistent with such agreement.
2. Adjustment of Interests Issuable Upon Exercise.
2.1. General; Interest Quantity. This Warrant initially evidences the
right to purchase a number of Interests equal to the Interest Quantity, subject
to adjustment as provided in this Section 2. The "Warrant Price" shall be fixed
at $7,040.00 per Interest received upon exercise of this Warrant.
2.2. Adjustment of Interest Quantity.
2.2.1 Issuance of Additional Interests. In case the Company at any
time or from time to time after the date hereof shall issue or sell any
Additional Interests (including Additional
3
<PAGE>
Interests deemed to be issued pursuant to Section 2.3 or 2.4) without
consideration or for a consideration per unit less than the Current Market Price
in effect immediately prior to such issue or sale, then, and in each such case,
subject to Section 2.6, the Interest Quantity shall be increased, concurrently
with such issue or sale, to an amount determined by multiplying the Interest
Quantity by a fraction
(a) the numerator of which shall be the number of Interests
outstanding immediately after such issue or sale, provided that, for the
purposes of this Section 2.2.1, immediately after any Additional Interests
are deemed to have been issued pursuant to Section 2.3 or 2.4, such
Additional Interests shall be deemed to be outstanding, and
(b) the denominator of which shall be (i) the number of Interests
outstanding immediately prior to such issue or sale plus (ii) the number of
Interests which the aggregate consideration received by the Company for
the total number of such Additional Interests so issued or sold would
purchase at such Current Market Price.
2.2.2 Distributions. In case the Company at any time or from time to
time after the date hereof shall declare, order, pay or make a distribution
(including, without limitation, any distribution of other securities or
property) on the Interests other than (a) a dividend payable in Additional
Interests, (b) a regularly scheduled cash dividend payable out of consolidated
earnings or earned surplus, determined in accordance with generally accepted
accounting principles, or (c) a payment of amounts set forth in Section 4.4 of
the Operating Agreement (as defined in the Term Loan Agreement), to the extent
permitted pursuant to the terms of the Term Loan Agreement, then, in each such
case, subject to Section 2.6, at the Company's option, either (1) the Interest
Quantity in effect immediately prior to the close of business on the record date
fixed for the determination of holders of any class of securities entitled to
receive such dividend or distribution shall be increased, effective as of the
close of business on such record date, to an amount determined by multiplying
such Interest Quantity by a fraction
(x) the numerator of which shall be the Current Market Price in
effect on such record date or, if the Interests trade on an ex-dividend
basis, on the date prior to the commencement of ex-dividend trading, and
(y) the denominator of which shall be such Current Market Price, less
the amount of such dividend or distribution (as determined in good faith by
the Board of Directors of the Company) applicable to one Interest,
provided that, in the event that the amount of such dividend as so determined is
equal to or greater than 10% of such Current Market Price or in the event that
such fraction is greater than 10/9, in lieu of the foregoing adjustment,
adequate provision shall be made so that the Holder of this Warrant shall
receive a pro rata share of such dividend based upon the maximum number of
Interests at the time issuable to such Holder; or (2) adequate provision shall
be made so that the Holder of this Warrant shall receive a pro rata share of
such dividend based upon the maximum number of Interests at the time issuable to
such Holder.
2.2.3 EBITDA Adjustment. (a) If the Consolidated EBITDA of the
Borrower for its fiscal year ending on December 31, 1998 is less than
$9,000,000, then, in such instance,
4
<PAGE>
the Interest Quantity shall, be recomputed as if the Interest Quantity on the
date of the issuance of this Warrant was _____.
(b) If the Consolidated EBITDA of the Borrower for its fiscal year
ending on December 31, 1998 is greater than $11,000,000, then, in such instance,
the Interest Quantity shall, be recomputed as if the interest Quantity on the
date of the issuance of this Warrant was _____. If the Holder has exercised this
Warrant, in whole or in part, such that the holder has purchased a number of
Interests that exceeds the Interests that the Holder would have been entitled to
purchase through the exercise of this Warrant in whole after giving effect to
the reduction in Interest Quantity set forth in this Section 2.2.3(b), then, in
such instance, a number of Interests owned by the Holder equal to (i) the number
of Interests that the Holder has purchased through the exercise of this Warrant
less (ii) the number of Interests that the Holder would have been entitled to
purchase through the exercise of this Warrant in whole after giving effect to
the reduction in Interest Quantity set forth in this Section 2.2.3(b) shall be
automatically canceled. The books and records of the Company will be adjusted to
reflect the canceled Interests, and the Company will issue to the Holder a
replacement certificate representing the reduced number of Interests in exchange
for the surrender by the Holder of the certificate(s) previously received by the
Holder pursuant to its exercise of this Warrant.
2.3. Treatment of Options and Convertible Securities. In case the
Company at any time or from time to time after the date hereof shall issue,
sell, grant or assume, or shall fix a record date for the determination of
holders of any class of securities entitled to receive, any Options or
Convertible Securities (other than those referenced in Section 2.7 hereof),
then, and in each such case, the maximum number of Additional Interests (as set
forth in the instrument relating thereto, without regard to any provisions
contained therein for a subsequent adjustment of such number) issuable upon the
exercise of such Options or, in the case of Convertible Securities and Options
therefor, the conversion or exchange of such Convertible Securities, shall be
deemed to be Additional Interests issued as of the time of such issue, sale,
grant or assumption or, in case such a record date shall have been fixed, as of
the close of business on such record date (or, if the Interests trade on an ex-
dividend basis, on the date prior to the commencement of ex-dividend trading),
provided that such Additional Interests shall not be deemed to have been issued
unless the consideration per Interest (determined pursuant to Section 2.5) of
such Interests would be less than the Current Market Price in effect on the
date of and immediately prior to such issue, sale, grant or assumption or
immediately prior to the close of business on such record date (or, if the
Interests trade on an ex-dividend basis, on the date prior to the commencement
of ex-dividend trading), as the case may be, and provided, further, that in any
such case in which Additional Interests are deemed to be issued
(a) whether or not the Additional Interests underlying such Options
or Convertible Securities are deemed to be issued, no further adjustment of
the Interest Quantity shall be made upon the subsequent issue or sale of
Convertible Securities or Units upon the exercise of such Options or the
conversion or exchange of such Convertible Securities, except in the case
of any such Options or Convertible Securities which contain provisions
requiring an adjustment, subsequent to the date of the issue or sale
thereof, of the number of Additional Interests issuable upon the exercise
of such Options or the conversion or exchange of such Convertible
Securities by reason of (x) a
5
<PAGE>
change of control of the Company, (y) the acquisition by any Person or group of
Persons of any specified number or percentage of the Interests or (z) any
similar event or occurrence, each such case to be deemed hereunder to involve a
separate issuance of Additional Interests, Options or Convertible Securities, as
the case may be;
(b) if such Options or Convertible Securities by their terms provide, with
the passage of time or otherwise, for any increase in the consideration payable
to the Company, or decrease in the number of Additional Interests issuable, upon
the exercise, conversion or exchange thereof (by change of rate or otherwise),
the Interest Quantity computed upon the original issue, sale, grant or
assumption thereof (or upon the occurrence of the record date, or date prior to
the commencement of ex-dividend trading, as the case may be, with respect
thereto), and any subsequent adjustments based thereon, shall, upon any such
increase or decrease becoming effective, be recomputed to reflect such increase
insofar as it affects such Options, or the rights of conversion or exchange
under such Convertible Securities, which are outstanding at such time;
(c) upon the expiration (or purchase by the Company and cancellation or
retirement) of any such Options which shall not have been exercised or the
expiration of any rights of conversion or exchange under any such Convertible
Securities which (or purchase by the Company and cancellation or retirement of
any such Convertible Securities the rights of conversion or exchange under
which) shall not have been exercised, the Interest Quantity computed upon the
original issue, sale, grant or assumption thereof (or upon the occurrence of the
record date, or date prior to the commencement of ex-dividend trading, as the
case may be, with respect thereto), and any subsequent adjustments based
thereon, shall, upon such expiration (or such cancellation or retirement, as the
case may be), be recomputed as if:
(i) in the case of Options for Interests or Convertible Securities,
the only Additional Interests issued or sold were the Additional Interests,
if any, actually issued or sold upon the exercise of such Options or the
conversion or exchange of such Convertible Securities and the consideration
received therefor was the consideration actually received by the Company
for the issue, sale, grant or assumption of all such Options, whether or
not exercised, plus the consideration actually received by the Company upon
such exercise, or for the issue or sale of all such Convertible Securities
which were actually converted or exchanged, plus the additional
consideration, if any, actually received by the Company upon such
conversion or exchange, and
(ii) in the case of Options for Convertible Securities, only the
Convertible Securities, if any, actually issued or sold upon the exercise
of such Options were issued at the time of the issue or sale, grant or
assumption of such Options, and the consideration received by the Company
for the Additional Interests deemed to have then been issued was the
consideration actually received by the Company for the issue, sale, grant
or assumption of all such Options, whether or not exercised, plus the
consideration deemed to have been received by
6
<PAGE>
the Company (pursuant to Section 2.5) upon the issue or sale of such
Convertible Securities with respect to which such Options were
actually exercised;
(d) no readjustment pursuant to subdivision (b) or (c) above shall
have the effect of decreasing the Interest Quantity by an amount in excess
of the amount of the adjustment thereof originally made in respect of the
issue, sale, grant or assumption of such Options or Convertible Securities;
and
(e) in the case of any such Options which expire by their terms not
more than 30 days after the date of issue, sale, grant or assumption
thereof, no adjustment of the Interest Quantity shall be made until the
expiration or exercise of all such Options, whereupon such adjustment shall
be made in the manner provided in subdivision (c) above.
2.4. Computation of Consideration. For the purposes of this Section 2,
(a) the consideration for the issue or sale of any Additional
Interests shall, irrespective of the accounting treatment of such
consideration,
(i) insofar as it consists of cash, be computed at the net
amount of cash received by the Company, without deducting any expenses
paid or incurred by the Company or any commissions or compensations
paid or concessions or discounts allowed to underwriters, dealers or
others performing similar services in connection with such issue or
sale,
(ii) insofar as it consists of property (including securities)
other than cash, be computed at the fair value thereof at the time of
such issue or sale, as determined in good faith by the Board of
Directors of the Company (such term to include any similar body, such
as managing members, in the event the Company is not a corporation),
and
(iii) in case Additional Interests are issued or sold together
with other units or securities or other assets of the Company for a
consideration which covers both, be the portion of such consideration
so received, computed as provided in clauses (i) and (ii) above,
allocable to such Additional Interests, all as determined in good
faith by the Board of Directors of the Company; and
(b) Additional Interests deemed to have been issued pursuant to
Section 2.3, relating to Options and Convertible Securities, shall be
deemed to have been issued for a consideration per Interest determined by
dividing
(i) the total amount, if any, received and receivable by the
Company as consideration for the issue, sale, grant or assumption of
the Options or Convertible Securities in question, plus the minimum
aggregate amount of additional consideration (as set forth in the
instruments relating thereto, without regard to any provision
contained therein for a subsequent adjustment of such consideration to
protect against dilution) payable to the Company upon the
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exercise in full of such Options or the conversion or exchange of such
Convertible Securities or, in the case of Options for Convertible
Securities, the exercise of such Options for Convertible Securities
and the conversion or exchange of such Convertible Securities, in each
case computing such consideration as provided in the foregoing
subdivision (a),
by
(ii) the maximum number of Interests (as set forth in the instruments
relating thereto, without regard to any provision contained therein for a
subsequent adjustment of such number to protect against dilution) issuable
upon the exercise of such Options or the conversion or exchange of such
Convertible Securities.
2.5. Adjustments for Combinations. etc. In case the outstanding
number of Interests shall be combined or consolidated, by reclassification or
otherwise, into a lesser number of Interests, the Interest Quantity in effect
immediately prior to such combination or consolidation shall, concurrently with
the effectiveness of such combination or consolidation, be proportionately
decreased.
2.6 Minimum Adjustment of Interest Quantity. If the amount of any
adjustment of the Interest Quantity required pursuant to this Section 2 would be
less than one tenth (1/10) of one percent (1%) of the Interest Quantity in
effect at the time such adjustment is otherwise so required to be made, such
amount shall be carried forward and adjustment with respect thereto made at the
time of and together with any subsequent adjustment which, together with such
amount and any other amount or amounts so carried forward, shall aggregate at
least one tenth (1/10) of one percent (1%) of such Interest Quantity. All
calculations under this Warrant shall be made to the nearest one-hundredth of an
Interest.
2.7 Exclusions to Antidilution Rights. Notwithstanding anything to
the contrary contained herein, any issuances of the following Interests by the
Company (and the existence of options or rights as referenced below) shall not
be subject to Holder's antidilution rights set forth in sections 2.2 or 2.3 of
this Agreement and Holder shall be entitled to no increase in the Interest of
Quantity with respect to the following:
(a) Issuances of up to 157.82 Interests (as may be adjusted from time
to time in a manner consistent with the adjustments set forth in Sections 3
and 4 hereof) to employees and advisers of the Company other than Andrew
Zahn or Lawrence Gould pursuant to option plans of the Company; and
(b) Issuances of Interests pursuant to options to purchase Interests
issued to Sidney, Edward or Neil Cohen in connection with the Company's
Asset Purchase Agreement with Cohen's Frozen Foods, Inc., Sidney Cohen and
Edward Cohen.
3. Consolidation, Merger, etc.
3.1. Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company after the date hereof (a) shall
consolidate with or merge into any other
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Person and shall not be the continuing or surviving corporation of such
consolidation or merger, or (b) shall permit any other Person to consolidate
with or merge into the Company and the Company shall be the continuing or
surviving Person but, in connection with such consolidation or merger, the
Interests shall be changed into or exchanged for stock or other securities of
any other Person or cash or any other property, or (c) shall transfer all or
substantially all of its properties or assets to any other Person, or (d) shall
effect a capital reorganization or reclassification of the Interests (other than
a capital reorganization or reclassification resulting in the issue of
Additional Interests for which adjustment in the Interest Quantity is provided
in Section 2.2.1 or 2.2.2), then, and in the case of each such transaction,
proper provision shall be made so that, upon the basis and the terms and in the
manner provided in this Warrant, the Holder, upon the exercise hereof at any
time after the consummation of such transaction, shall be entitled to receive
(at the aggregate Warrant Price in effect at the time of such consummation for
all Interests issuable upon such exercise immediately prior to such
consummation), in lieu of the Interests issuable upon such exercise prior to
such consummation, the highest amount of securities, cash or other property to
which such Holder would actually have been entitled as a shareholder upon such
consummation if such Holder had exercised the rights represented by this Warrant
immediately prior thereto, subject to adjustments (subsequent to such
consummation) as nearly equivalent as possible to the adjustments provided for
in Sections 2 through 4, provided that if a purchase, tender or exchange offer
shall have been made to and accepted by the holders of more than 50% of the
outstanding Interests, and if the Holder so designates in a notice given to the
Company on or before the date immediately preceding the date of the consummation
of such transaction, the Holder shall be entitled to receive the highest amount
of securities, cash or other property to which such Holder would actually have
been entitled as a shareholder if the Holder had exercised this Warrant prior to
the expiration of such purchase, tender or exchange offer and accepted such
offer, subject to adjustments (from and after the consummation of such purchase,
tender or exchange offer) as nearly equivalent as possible to the adjustments
provided for in Sections 2 through 4.
3.2. Assumption of Obligations. Notwithstanding anything contained in
the Warrant or in the Term Loan Agreement to the contrary, the Company will not
effect any of the transactions described in clauses (a) through (d) of Section
3.1 unless, prior to the consummation thereof, each Person (other than the
Company) which may be required to deliver any stock, securities, cash or
property upon the exercise of this Warrant as provided herein shall assume, by
written instrument delivered to, and reasonably satisfactory to, the Holder, (a)
the obligations of the Company under this Warrant (and if the Company shall
survive the consummation of such transaction, such assumption shall be in
addition to, and shall not release the Company from, any continuing obligations
of the Company under this Warrant), and (b) the obligation to deliver to such
Holder such shares of stock, securities, cash or property as, in accordance with
the foregoing provisions of this Section 3, such Holder may be entitled to
receive, and such Person shall have similarly delivered to such Holder an
opinion of counsel for such Person, which counsel shall be reasonably
satisfactory to such Holder, stating that this Warrant shall thereafter continue
in full force and effect and the terms hereof (including, without limitation,
all of the provisions of this Section 3) shall be applicable to the stock,
securities, cash or property which such Person may be required to deliver upon
any exercise of this Warrant or the exercise of any rights pursuant hereto.
Nothing in this Section 3 shall be deemed to authorize the Company to enter into
any transaction not otherwise permitted by the Term Loan Agreement.
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4. Other Dilutive Events. In case any event shall occur as to which
the provisions of Section 2 or Section 3 are not strictly applicable but the
failure to make any adjustment would not fairly protect the purchase rights
represented by this Warrant in accordance with the essential intent and
principles of such Sections, then, in each such case, the Company shall appoint
a firm of independent certified public accountants of recognized national
standing (which may be the regular auditors of the Company), which shall give
their opinion upon the adjustment, if any, on a basis consistent with the
essential intent and principles established in Sections 2 and 3, necessary to
preserve, without dilution, the purchase rights represented by this Warrant.
Upon receipt of such opinion, the Company will promptly mail a copy thereof to
the Holder and shall make the adjustments described therein.
5. No Dilution or Impairment. The Company will not, by amendment of
its Operating Agreement or through any consolidation, merger, reorganization,
transfer of assets, 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 of this Warrant, but will at all times in good faith assist in the
carrying out of all such terms and in the taking of all such action as may be
necessary or appropriate in order to protect the rights of the Holder against
dilution or other impairment. Without limiting the generality of the foregoing,
the Company (a) will take all such action as may be necessary or appropriate in
order that the Company may validly and legally issue Interests on the exercise
of the Warrants from time to time outstanding, and (b) will not take any action
which results in any adjustment of the Interest Quantity if the total number of
Interests issuable after the action upon the exercise of all of the Warrants
would exceed the total number of Interests then authorized by the Company's
Operating Agreement and available for the purpose of issue upon such exercise.
6. Accountants' Report as to Adjustments. In each case of any
adjustment or readjustment in the Interests issuable upon the exercise of this
Warrant, the Company at its expense will promptly compute such adjustment or
readjustment in accordance with the terms of this Warrant and cause independent
certified public accountants of recognized national standing (which may be the
regular auditors of the Company) selected by the Company to verify such
computation and prepare a report setting forth such adjustment or readjustment
and showing in reasonable detail the method of calculation thereof and the facts
upon which such adjustment or readjustment is based, including a statement of
(a) the consideration received or to be received by the Company for any
Additional Interests issued or sold or deemed to have been issued, (b) the
number of Interests outstanding or deemed to be outstanding, and (c) the
Interest Quantity in effect immediately prior to such issue or sale and as
adjusted and readjusted (if required by Section 2) on account thereof. The
Company will forthwith mail a copy of each such report to each Holder of a
Warrant and will, upon the written request at any time of any Holder of a
Warrant, furnish to such Holder a like report setting forth the Interest
Quantity at the time in effect and showing in reasonable detail how it was
calculated. The Company will also keep copies of all such reports at its
principal office and will cause the same to be available for inspection at such
office during normal business hours by any Holder of a Warrant or any
prospective purchaser of a Warrant designated by the Holder thereof.
7. Financial and Business Information.
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7.1. Quarterly Information. Except during any period when the Company
either (i) is subject to the reporting requirements of Section 15(d) of the
Exchange Act or (ii) has securities registered under Section 12(b) or 12(g) of
the Exchange Act (such status being referred to as being a "Public Company"),
the Company will deliver to the Holder, as soon as practicable after the end of
each quarterly fiscal period in each fiscal year of the Company, and in any
event within 60 days thereafter, a copy of the unaudited consolidated balance
sheet as at the close of such quarter, and the related unaudited consolidated
statements of income, shareholders' equity and cash flow of the Company and its
subsidiaries for that portion of the fiscal year ending as of the close of such
quarter. Such financial statements shall be prepared by the Company in
accordance with generally accepted accounting principles, applied on a
consistent basis ("GAAP") (subject to normal year end adjustments and the
inclusion of footnotes) and accompanied by the certification of the Company's
chief executive officer or chief financial officer that, to the best of his
knowledge, such financial statements are complete and correct in all material
respects and fairly present in accordance with GAAP (subject to normal year end
adjustments and the inclusions of footnotes) the consolidated financial
position, the consolidated statements of income, shareholder equity and cash
flow of the Company and its subsidiaries as at the end of such quarter and for
such year-to-date period, as the case may be.
7.2. Annual Information. Except during any period when the Company is
a Public Company, the Company will deliver to the Holder as soon as practicable
after the end of each fiscal year of the Company, and in any event within 120
days thereafter, one copy of:
(i) an audited consolidated balance sheet of the Company and its
subsidiaries as at the end of such year, and
(ii) audited consolidated statements of income, shareholders' equity
and cash flow of the Company and its subsidiaries for such year;
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all prepared in accordance with GAAP, and
which audited financial statements shall be accompanied by (i) a certification
of the chief executive officer or chief financial officer of the Company that,
to the best of his knowledge, all such financial statements are complete and
correct in all material respects and present fairly in accordance with GAAP the
consolidated financial position of the Company and its subsidiaries as at the
end of such fiscal year and for the period then ended, (ii) an opinion thereon
of the independent certified public accountants regularly retained by the
Company, or any other firm of independent certified public accountants of
recognized national standing selected by the Company, and (iii) a report of such
independent certified public accountants confirming any adjustment made pursuant
to Section 2 during such year.
7.3. Filings. During any period when the Company is a Public Company,
the Company will file on or before the required date all required regular or
periodic reports (pursuant to the Exchange Act) with the Commission and will
deliver to the Holder promptly upon their becoming available one copy of each
report, notice or proxy statement sent by the Company to its members generally,
and of each regular or periodic report (pursuant to the Exchange Act) and any
Registration Statement, prospectus or written communication (other than
transmittal letters)
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(pursuant to the Securities Act), filed by the Company with (i) the Commission
or (ii) any securities exchange on which the Interests are listed.
7.4. Notices of Corporate Action. In the event of
(a) 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 distribution (other than a regular periodic
distribution payable in cash out of earned surplus in an amount not
exceeding the amount of the immediately preceding cash distribution for
such period), or any right to subscribe for, purchase or otherwise acquire
any Interests of any class or any other securities or property, or to
receive any other right, or
(b) any capital reorganization of the Company, any reclassification
or recapitalization of the capital stock of the Company or any
consolidation or merger involving the Company and any other Person or any
transfer of all or substantially all the assets of the Company to any other
Person, or
(c) any voluntary or involuntary dissolution, liquidation or winding-
up of the Company,
the Company will mail to the Holder a notice specifying (i) the date or expected
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, and (ii) the date or expected date on which any such
reorganization, reclassification, recapitalization, consolidation, merger,
transfer, dissolution, liquidation or winding-up is to take place and the time,
if any such time is to be fixed, as of which the holders of record of Interests
shall be entitled to exchange their Interests for the securities or other
property deliverable upon such reorganization, reclassification,
recapitalization, consolidation, merger, transfer, dissolution, liquidation or
winding-up. Such notice shall be mailed at least 45 days prior to the date
therein specified.
8. Registration of Interests. If any Interests required to be
reserved for purposes of exercise of this Warrant require registration with or
approval of any governmental authority under any federal or state law (other
than the Securities Act) before such Interests may be issued upon exercise, the
Company will, at its expense and as expeditiously as possible, use its best
efforts to cause such Interests to be duly registered or approved, as the case
may be. At any such time as Interests are listed on any national securities
exchange, the Company will, at its expense, obtain promptly and maintain the
approval for listing on each such exchange, upon official notice of issuance,
the Interests issuable upon exercise of the then outstanding Warrants and
maintain the listing of such units after their issuance.
9. Restrictions on Transfer.
9.1. Restrictive Legends. Except as otherwise permitted by this
Section 9, each Warrant (including each Warrant issued upon the transfer of any
Warrant) shall be stamped or otherwise imprinted with a legend in substantially
the following form:
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"THIS WARRANT AND ANY SECURITIES ACQUIRED UPON EXERCISE OF THIS
WARRANT HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR THE SECURITIES LAW OF ANY STATE AND MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN EFFECTIVE
REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE SECURITIES LAWS
OR PURSUANT TO AN APPLICABLE EXEMPTION TO THE REGISTRATION REQUIREMENTS OF
SUCH ACT AND SUCH LAWS. THIS WARRANT AND SUCH SECURITIES MAY NOT BE SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN THIS WARRANT AND IN THE REGISTRATION RIGHTS
AGREEMENT, DATED THE DATE HEREOF, BY AND BETWEEN DIVERSIFIED FOOD GROUP,
L.L.C., AND THE HOLDERS SPECIFIED THEREIN. THIS WARRANT IS POTENTIALLY
SUBJECT TO AUTOMATIC REDUCTION AND ALSO CONTAINS CERTAIN RESTRICTIONS UPON
TRANSFER BY THE HOLDER THEREOF."
Except as otherwise permitted by this Section 9, each certificate for Interests
issued upon the exercise of any Warrant, and each certificate issued upon the
transfer of any such Interests, shall be stamped or otherwise imprinted with a
legend in substantially the following form:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE SECURITIES
LAW OF ANY STATE, AND MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
EXCEPT PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND
APPLICABLE STATE SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION TO
THE REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS. SUCH SECURITIES
MAY NOT BE SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN COMPLIANCE
WITH THE CONDITIONS SPECIFIED IN CERTAIN OWNERSHIP INTEREST PURCHASE
WARRANTS ISSUED BY DIVERSIFIED FOOD GROUP, L.L.C., PURSUANT TO THE
OWNERSHIP INTEREST PURCHASE WARRANT, DATED FEBRUARY 26, 1998 (THE
"WARRANT"), AND PURSUANT TO THE REGISTRATION RIGHTS AGREEMENT DATED AS OF
OCTOBER 23, 1997, BY AND BETWEEN DIVERSIFIED FOOD GROUP, L.L.C. AND THE
HOLDERS SPECIFIED THEREIN. A COMPLETE AND CORRECT COPY OF THE FORM OF SUCH
WARRANT AND REGISTRATION RIGHTS AGREEMENT IS AVAILABLE FOR INSPECTION AT
THE PRINCIPAL OFFICE OF DIVERSIFIED FOOD GROUP, L.L.C., OR AT THE OFFICE OR
AGENCY MAINTAINED BY DIVERSIFIED FOOD GROUP, L.L.C., AS PROVIDED IN SUCH
WARRANTS AND SUCH REGISTRATION RIGHTS AGREEMENT AND WILL BE FURNISHED TO
THE HOLDER OF SUCH SECURITIES UPON
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WRITTEN REQUEST AND WITHOUT CHARGE. THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE POTENTIALLY SUBJECT TO AUTOMATIC CANCELLATION IN PART
PURSUANT TO THE TERMS OF THE WARRANT."
After the adjustment, if any, to the Interest Quantity has been made pursuant to
Section 2.2.3, any certificate for Interests issued upon the exercise of this
Warrant shall not bear the final sentence of such legend, and the Holder may
have the final sentence from each such legend deleted by tendering the Warrant
or any previously issued certificate to the Company in exchange for a new
Warrant or certificate with a new legend reflecting such deletion.
9.2. Transfers to Comply With the Securities Act. Restricted
Securities may not be sold, assigned, pledged, hypothecated, encumbered or in
any manner transferred or disposed of, in whole or in part, except in compliance
with the provisions of the Securities Act and state securities or Blue Sky laws
and the terms and conditions hereof.
9.4. Termination of Restrictions. The restrictions imposed by this
Section 9 on the transferability of Restricted Securities shall cease and
terminate as to any particular Restricted Securities (a) when a registration
statement with respect to the sale of such securities shall have been declared
effective under the Securities Act and such securities shall have been disposed
of in accordance with such registration statement, (b) when such securities are
sold pursuant to Rule 144 (or any similar provision then in force) under the
Securities Act, or (c) when, in the opinion of both counsel for the Holder and
counsel for the Company, such restrictions are no longer required or necessary
in order to protect the Company against a violation of the Securities Act upon
any sale or other disposition of such securities without registration
thereunder. Whenever such restrictions shall cease and terminate as to any
Restricted Securities, the Holder shall be entitled to receive from the Company,
without expense, new securities of like tenor not bearing the applicable legends
required by Section 9.1.
10. Reservation of Interests, etc. The Company shall at all times
reserve and keep available, solely for issuance and delivery upon exercise of
the Warrant, the number of Interests from time to time issuable upon exercise of
all Warrants at the time outstanding. All Interests issuable upon exercise of
any Warrants shall be duly authorized and, when issued upon such exercise, shall
be validly issued and free from all taxes, liens, security interests,
encumbrances, preemptive rights and charges. The transfer agent for the
Interests, which may be the Company ("Transfer Agent"), and every subsequent
Transfer Agent for any of the Company's Interests issuable upon the exercise of
any of the purchase rights represented by this Warrant, are hereby irrevocably
authorized and directed at all times until the Expiration Date to reserve such
number of authorized and unissued Interests as shall be requisite for such
purpose. The Company shall keep copies of this Warrant on file with the Transfer
Agent for the Interests and with every subsequent Transfer Agent for any of the
Company's Interests issuable upon the exercise of the rights of purchase
represented by this Warrant. The Company shall supply such Transfer Agent with
duly executed certificates of Interests for such purpose. All Warrant
certificates surrendered upon the exercise of the rights thereby evidenced shall
be canceled, and such canceled Warrants shall constitute sufficient evidence of
the number of Interest which have
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been issued upon the exercise of such Warrants. Subsequent to the Expiration
Date, no Interests need be reserved in respect of any unexercised Warrant.
11. Registration and Transfer of Warrants, etc.
11.1. Warrant Register, Ownership of Warrants. Each Warrant issued by
the Company shall be numbered and shall be registered in a warrant register (the
"Warrant Register") as it is issued and transferred, which Warrant Register
shall be maintained by the Company at its principal office or, at the Company's
election and expense, by the Transfer Agent. The Company shall be entitled to
treat the registered Holder of any Warrant on the Warrant Register as the owner
in fact thereof for all purposes and shall not be bound to recognize any
equitable or other claim to or interest in such Warrant on the part of any other
Person, and shall not be affected by any notice to the contrary, except that, if
and when any Warrant is properly assigned in blank, the Company may (but shall
not be obligated to) treat the bearer thereof as the owner of such Warrant for
all purposes. Subject to Section 9, a Warrant, if properly assigned, may be
exercised by a new holder without a new Warrant first having been issued.
11.2. Transfer of Warrants. Subject to compliance with Section 9, if
applicable, this Warrant and all rights hereunder are transferable in whole or
in part, without charge to the Holder hereof, upon surrender of this Warrant
with a properly executed Form of Assignment attached hereto as Exhibit B at the
principal office of the Company. Upon any partial transfer, the Company shall at
its expense issue and deliver to the Holder a new Warrant of like tenor, in the
name of the Holder, which shall be exercisable for such number of Interests
with respect to which rights under this Warrant were not so transferred.
Notwithstanding the foregoing, until such time as it has been determined whether
an adjustment in the Interest Quantity pursuant to Section 2.2.3 shall be
required, the Holder may not transfer this Warrant except to the extent that the
transferee executes an acknowledgment, in form and substance reasonably
satisfactory to the Company, of the effect of Section 2.2.3(b) on Interests that
such transferee may purchase through the exercise of this Warrant.
11.3. Replacement of Warrants. On receipt by the Company of evidence
reasonably satisfactory to the Company of the loss, theft, destruction or
mutilation of this Warrant and, in the case of any such loss, theft or
destruction of this Warrant, on delivery of an indemnity agreement reasonably
satisfactory in form and amount to the Company or, in the case of any such
mutilation, on surrender of such Warrant to the Company at its principal office
and cancellation thereof, the Company at its expense shall execute and deliver,
in lieu thereof, a new Warrant of like tenor.
11.4. Adjustments To Interest Quantity. Notwithstanding any
adjustment in the Interest Quantity or in the number or kind of Interests
purchasable upon exercise of this Warrant, any Warrant theretofore or thereafter
issued may continue to express the same number and kind of Interests as are
stated in this Warrant, as initially issued.
11.5. Fractional Interests. Notwithstanding any adjustment pursuant
to Section 2 in the number of Interests covered by this Warrant or any other
provision of this Warrant, the Company may, but shall not be required to, issue
fractions of Interests upon exercise of this Warrant or to distribute
certificates which evidence fractional Interests. In lieu of
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fractional Interests, the Company shall make payment to the Holder, at the time
of exercise of this Warrant as herein provided, in an amount in cash equal to
such fraction multiplied by the Current Market Price of an Interest on the date
of Warrant exercise.
12. Definitions. As used herein, unless the context otherwise
requires, the following terms have the following respective meanings:
Additional Interests: All interests issued or sold (or, pursuant to
Section 2.3 or 2.4, deemed to be issued) by the Company after the date hereof,
whether or not subsequently reacquired or retired by the Company, other than
(a) Interests issued upon the exercise of the Warrant,
(b) such additional number of Interests as may become issuable upon
the exercise of the Warrant by reason of adjustments required pursuant to
anti-dilution provisions applicable to the Warrant as in effect on the date
hereof,
(c) Interests, warrants, options and other securities issued at any
time to the Holder or any Affiliate thereof, and
(d) Interests referred to in Section 2.7 hereof.
Affiliate: Any person that directly or indirectly, through one or
more intermediaries, controls, is controlled by, or is under common control
with, the applicable person. For purposes of this definition "control" has the
meaning specified in Rule 12b-2 under the Exchange Act.
Appraised Value: With respect to any Interest on any date herein
specified, the fair market value of such Interest (determined without giving
effect to the discount for (a) a minority interest, or (b) any lack of liquidity
of such Interest or the fact that the Company may have no class of securities
registered under the Exchange Act) as of the last day of the most recent fiscal
month to end 60 days prior to such date, as determined by a nationally
recognized investment banking firm acceptable to the Company and the Holder, it
being understood that for purposes of determining such Appraised Value per
Interest, outstanding at such date shall include such Interests issuable in
respect of such Warrants, other options or warrants to purchase, or securities
convertible into, such Interests.
Book Value: With respect to any Interest on any date herein
specified, the consolidated Members' equity (as reflected on the consolidated
balance sheet of the Company and its Subsidiaries and determined in accordance
with GAAP) of the Company and its consolidated Subsidiaries as of the last day
of the month immediately preceding such date, divided by all such Interests
outstanding at such date and all such Interests issuable in respect of the
Warrants exercisable for such Interests, other options or warrants to purchase,
or securities convertible into, such Interests.
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Business Day: Any day other than a Saturday or a Sunday or a day on
which commercial banking institutions in the City of New York are authorized by
law to be closed. Any reference to "days" (unless Business Days are specified)
shall mean calendar days.
Code: As defined in Section 1.7.
Commission: The Securities and Exchange Commission or any other
federal agency at the time administering the Securities Act.
Company: As defined in the introduction to this Warrant, such term to
include any company which shall succeed to or assume the obligations of the
Company hereunder in compliance with Section 3.
Consolidated EBITDA: Consolidated EBITDA as defined in the Term Loan
Agreement.
Convertible Securities: Any evidences of indebtedness, shares of
stock or other securities (other than Interests) directly or indirectly
convertible into or exchangeable for Additional Interests.
Current Market Price: On any date specified herein, the average daily
Market Price during the period of the most recent 20 days, ending on such date,
on which the national securities exchanges were open for trading, except that if
no Interests are then listed or admitted to trading on any national securities
exchange or quoted in the over-the-counter market, the Current Market Price
shall be the Market Price on such date.
Exchange Act: The Securities Exchange Act of 1934, or any similar
federal statute, and the rules and regulations of the Commission thereunder, all
as the same shall be in effect at the time.
Exercise Price: The initial exercise price or the adjusted exercise
price, depending upon the context.
Expiration Date: As defined in the introduction to this Warrant.
Holder: As defined in the introduction to this Warrant.
Interest: As defined in the introduction to this Warrant, such term
to include any security into which such Interest shall have been changed or any
security resulting from any reclassification of such Interest, and all other
securities of any class or classes (however designated) of the Company the
holders of which have the right, without limitation as to amount, either to all
or to a share of the balance of current dividends and liquidating dividends
after the payment of dividends and distributions on any Interests entitled to
preference.
Interest Quantity: As defined in the introduction to this Warrant.
Loan: The Loan as defined in the Term Loan Agreement.
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Market Price: On any date specified herein, the amount per unit of
Interest, equal to (a) the last reported sale price of such Interest, regular
way, on such date or, in case no such sale takes place on such date, the average
of the closing bid and asked prices thereof regular way on such date, in either
case as officially reported on the principal national securities exchange on
which such Interests are then listed or admitted for trading, or (b) if such
Interests are not then listed or admitted for trading on any national securities
exchange but is designated as a national market system security by the NASD, the
last reported trading price of the Interests on such date, or (c) if there shall
have been no trading on such date or if the Interests are not so designated, the
average of the closing bid and asked prices of the Interests on such date as
shown by the NASD automated quotation system, or (d) if such Interests are not
then listed or admitted for trading on any national exchange or quoted in the
over-the-counter market, the higher of (x) the Book Value thereof and (y) the
Appraised Value thereof.
NASD: The National Association of Securities Dealers, Inc.
Notes: The Notes (as defined in the Term Loan Agreement), including
any such notes issued in substitution for such Notes.
Obligations: The Obligations as defined in the Term Loan Agreement.
Options: Rights, options or warrants to subscribe for, purchase or
otherwise acquire either Additional Interests or Convertible Securities.
Person: A corporation, an association, a partnership, an organization,
a business, an individual, a government or political subdivision thereof or a
governmental agency.
Registration Rights Agreement: The Registration Rights Agreement,
dated the date hereof, by and between the Company and the holders specified
therein.
Reporting Event: The completion by the Company of an initial public
offering of its Interests or any other transaction pursuant to which the Company
becomes subject to the reporting requirements of Section 15(d) of the Exchange
Act.
Restricted Securities: (a) any Warrants bearing the applicable legend
set forth in Section 9.1, (b) any Interests issued or issuable upon the exercise
of Warrants which are evidenced by a certificate or certificates bearing the
applicable legend set forth in such Section, and (c) any Interests issued
subsequent to the exercise of any of the Warrants as a dividend or other
distribution with respect to, or resulting from a subdivision of the outstanding
Interests into a greater number of Interests by reclassification, or otherwise,
or in exchange for or in replacement of the Interests issued upon such exercise,
which are evidenced by a certificate or certificates bearing the applicable
legend set forth in such Section.
Securities Act: The Securities Act of 1933, or any similar federal
statute, and the rules and regulations of the Commission thereunder, all as the
same shall be in effect at the time.
Term Loan Agreement: As defined in the introduction to this Warrant.
18
<PAGE>
Warrant: As defined in the introduction to this Warrant.
Warrant Price: As defined in Section 2.1.
13. Remedies; Specific Performance. The Company stipulates that there
would be no adequate remedy at law to the Holder of this Warrant in the event of
any default or threatened default by the Company in the performance of or
compliance with any of the terms of this Warrant and accordingly, the Company
agrees that, in addition to any other remedy to which the Holder may be entitled
at law or in equity, the Holder shall be entitled to seek to compel specific
performance of the obligations of the Company under this Warrant, without the
posting of any bond, in accordance with the terms and conditions of this Warrant
in any court of the United States or any State thereof having jurisdiction, and
if any action should be brought in equity to enforce any of the provisions of
this Warrant, the Company shall not raise the defense that there is an adequate
remedy at law. Except as otherwise provided by law, a delay or omission by the
Holder hereto in exercising any right or remedy accruing upon any such breach
shall not impair the right or remedy or constitute a waiver of or acquiescence
in any such breach. No remedy shall be exclusive of any other remedy. All
available remedies shall be cumulative.
14. No Rights or Liabilities as Member. Nothing contained in this
Warrant shall be construed as conferring upon the Holder hereof any rights as a
member of the Company or as imposing any obligation on the Holder to purchase
any securities or as imposing any liabilities on the Holder as a shareholder of
the Company, whether such obligation or liabilities are asserted by the Company
or by creditors of the Company.
15. Notices. All notices and other communications (and deliveries)
provided for or permitted hereunder shall be made in writing by hand delivery,
telecopier, any courier guaranteeing overnight delivery or first class
registered or certified mail, return receipt requested, postage prepaid,
addressed (a) if to the Company, to the attention of Andrew Zahn at its
principal office located at 6901 North Hamlin Avenue, Lincolnwood, Illinois
60645 (with a copy to Shefsky & Froelich Ltd., 444 North Michigan Avenue,
Chicago, Illinois 60611, Attention: Howard Davis, Esq.) or such other address as
may hereafter be designated in writing by the Company to the Holder in
accordance with the provisions of this Section, or (b) if to the Holder, at its
address as it appears in the Warrant Register.
All such notices and communications (and deliveries) shall be deemed
to have been duly given: at the time delivered by hand, if personally delivered;
when receipt is acknowledged, if telecopied; on the next Business Day, if timely
delivered to a courier guaranteeing overnight delivery; and five days after
being deposited in the mail, if sent first class or certified mail, return
receipt requested, postage prepaid; provided, that the exercise of any Warrant
shall be effective in the manner provided in Section 1.
16. Amendments. This Warrant and any term hereof may not be amended,
modified, supplemented or terminated, and waivers or consents to departures from
the provisions hereof may not be given, except by written instrument duly
executed by the party against which enforcement of such amendment, modification,
supplement, termination or consent to departure is sought.
19
<PAGE>
17. Descriptive Headings, Etc. The headings in this Warrant are for
convenience of reference only and shall not limit or otherwise affect the
meaning of terms contained herein. Unless the context of this Warrant otherwise
requires: (a) words of any gender shall be deemed to include each other gender;
(b) words using the singular or plural number shall also include the plural or
singular number, respectively; (c) the words "hereof", "herein" and "hereunder"
and words of similar import when used in this Warrant shall refer to this
Warrant as a whole and not to any particular provision of this Warrant, and
Section and paragraph references are to the Sections and paragraphs of this
Warrant unless otherwise specified; (d) the word "including" and words of
similar import when used in this Warrant shall mean "including, without
limitation," unless otherwise specified; (e) "or" is not exclusive; and (f)
provisions apply to successive events and transactions.
18. GOVERNING LAW. This Warrant shall be governed by, and construed
in accordance with, the laws of the State of New York (without giving effect to
the conflict of laws principles thereof).
19. Judicial Proceedings; Waiver of Jury. Any legal action, suit or
proceeding brought against the Company with respect to this Warrant may be
brought in any federal court of the Southern District of New York or any state
court located in New York County, State of New York, and by execution and
delivery of this Warrant, the Company hereby irrevocably and unconditionally
waives any claim (by way of motion, as a defense or otherwise) of improper
venue, that it is not subject personally to the jurisdiction of such court, that
such courts are an inconvenient forum or that this Warrant or the subject matter
may not be enforced in or by such court. The Company hereby irrevocably and
unconditionally consents to the service of process of any of the aforementioned
courts in any such action, suit or proceeding by the mailing of copies thereof
by registered or certified mail, postage prepaid, at its address set forth or
provided for in Section 15 (with copies of such process also being sent to the
Company's counsel referred to in such section), such service to become effective
10 days after such mailing. Nothing herein contained shall be deemed to affect
the right of any party to serve process in any manner permitted by law or
commence legal proceedings or otherwise proceed against any other party in any
other jurisdiction to enforce judgments obtained in any action, suit or
proceeding brought pursuant to this Section. THE COMPANY HEREBY IRREVOCABLY
WAIVES TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING, WHETHER AT LAW OR
EQUITY, BROUGHT BY IT OR THE HOLDER IN CONNECTION WITH THIS WARRANT OR THE
TRANSACTIONS CONTEMPLATED HEREBY.
20. Registration Rights Agreement. This Warrant and the Interests
issuable upon exercise of this Warrant (or upon conversion of any units of
Interests issued upon such exercise) shall constitute Registrable Securities (as
such term is defined in the Registration Rights Agreement). Each holder of this
Warrant shall be entitled to all of the benefits afforded to a holder of any
such Registrable Securities under the Registration Rights Agreement and such
holder, by its acceptance of this Warrant, agrees to be bound by and to comply
with the terms and conditions of the Registration Rights Agreement applicable to
such holder as a holder of such Registrable Securities.
20
<PAGE>
Exhibit 21
DIVERSIFIED FOOD GROUP, INC. SUBSIDIARIES
1. Classic Confectionery, L.L.C., a Delaware limited liability company
2. Cohen's Kosher Foods, L.L.C., a Delaware limited liability company
3. Great American Ice Cream Co., L.L.C., a Delaware limited liability company
4. Restauranic, Inc., an Illinois corporation
5. Sweet Shop Candies, Inc., a Texas corporation
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Diversified Food Group, L.L.C.
Lincolnwood, Illinois
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated April 17, 1998, relating to the
consolidated financial statements of Diversified Food Group, L.L.C., which is
contained in that Prospectus, and of our report dated April 17, 1998, relating
to the schedule, which is contained in Part II of the Registration Statement.
These reports will be signed upon completion of the Reorganization described in
Note 11 to the consolidated financial statements.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
BDO SEIDMAN, LLP
Chicago, Illinois
June 12, 1998
<PAGE>
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
Cohen's Famous Frozen Foods, Inc.
Newark, New Jersey
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated May 14, 1998, relating to the
financial statements of Cohen's Famous Frozen Foods, Inc., which is contained in
that Prospectus.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
Chicago, Illinois
June 12, 1998
BDO Seidman, LLP
<PAGE>
EXHIBIT 23.3
FISHMAN OSTROFF RUCHOWITZ HAUSMAN
FISHMAN OSTROFF RUCHOWITZ HAUSMAN, A Professional Association
Certified Public Accountants
1371 Morris Avenue Telephone 908-687-0063
Union, NJ 07083-3317 Telefax 908-688-3990
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
Cohen's Famous Frozen Foods, Inc.
We hereby consent to the use in the Prospectus constituting a part of this
Registration Statement of our report dated March 1, 1997, relating to the
consolidated financial statements of Cohen's Famous Frozen Foods, Inc. which is
contained in that Prospectus, and of our qualified audited opinion report dated
April 1, 1996, relating to the schedules, which is contained in Part II of the
Registration Statement.
We also consent to the reference to us under the caption "Experts" in the
Prospectus.
FISHMAN OSTROFF RUCHOWITZ HAUSMAN, PA
June 12, 1998
<PAGE>
EXHIBIT 23.4
INDEPENDENT AUDITOR'S CONSENT
We consent to the incorporation in the registration statement of Diversified
Food Group, Inc., on Form S-1 filed with the Securities and Exchange Commission
on June 11, 1998, of our reports dated April 27, 1998, September 2, 1997,
September 5, 1996 and September 13, 1995 on our audits of the financial
statements of Sweet Shop Candies, Inc. as of January 23, 1998, June 30, 1997,
1996 and 1995. We also consent to the reference of our firm under the caption
"Experts".
/s/ Weaver and Tidwell, LLP
WEAVER AND TIDWELL, L.L.P.
Fort Worth, Texas
June 11, 1998
<PAGE>
EXHIBIT 23.5
CONSENT OF INDEPENDENT
CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the use in the Prospectus constituting part of this
Registration Statement of our reports dated May 2, 1997, relating to the
consolidated financial statements and schedule of Diversified Food Group, L.L.C.
and our report dated March 24, 1997 relating to the financial statements of
Restauranic, Inc., which appear in such Prospectus. We also consent to the
reference to us under the caption "Experts".
Altschuler, Melvoin and Glasser LLP
Chicago, Illinois
June 12, 1998
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