<PAGE>
U. S. SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-QSB
[x] Quarterly report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the quarterly period ended December 31, 1997
[ ] Transition report under Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the transition period from ____________ to ____________
Commission file number: 33-93982-LA
ANNIE'S HOMEGROWN, INC.
- --------------------------------------------------------------------------------
(Exact Name of Small Business Issuer as Specified in Its Charter)
Delaware 06-1258214
- -------------------------------- --------------------
(State or Other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
180 Second Street, Suite 202
Chelsea, MA 02150
----------------------------------------------------
(Address of Principal Executive Offices)
617-889-2822
--------------------------------------------------------
(Issuer's Telephone Number, Including Area Code)
NONE
- --------------------------------------------------------------------------------
(Former Name, Former Address and Former Fiscal Year,
if Changed Since Last Report)
Check whether the issuer: (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No
--- ---
As of December 31, 1997, there were issued and outstanding 4,548,168 shares of
the issuer's Common Stock, $.001 par value.
Transitional Small Business Disclosure Format (check one): Yes No X
----- -----
<PAGE>
ANNIE'S HOMEGROWN, INC.
Index
Page No.
--------
Part I. Financial Information
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
December 31, 1997 (unaudited) 3
Consolidated Statements of Operations for the Three and
Nine Months Ended December 31, 1997 and 1996 (unaudited) 4
Consolidated Statements of Cash Flows for the
Nine Months Ended December 31, 1997 and 1996 (unaudited) 5
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operation 6-10
Part II Other Information
Item 6. Exhibits and Reports on Form 8-K 11
Signatures 11
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<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements.
ANNIE'S HOMEGROWN, INC.
Consolidated Balance Sheet
Unaudited
December 31, 1997
-----------------
Assets
Current assets
Cash and cash equivalents $ 81,525
Accounts receivable
Trade 132,357
Related parties 19,413
Inventory 1,033,166
Other current assets 62,018
-----------
Total current assets 1,328,479
Office equipment 109,272
Accumulated depreciation (54,480)
-----------
Office equipment, net 54,792
Due from officer 75,000
Goodwill, net of amortization 391,849
Other assets 43,829
-----------
Total assets $ 1,893,949
===========
Liabilities and Stockholders' Equity
Current liabilities
Accounts payable, trade $ 817,676
Advances from distributor 108,471
Accrued expenses 26,385
Due to employees 33,946
-----------
Total current liabilities 986,478
Commitments
Stockholders' equity
Common stock, $.001 par value
Authorized 10,000,000 shares
issued 4,660,074 shares 4,660
Additional paid in capital 2,306,658
Accumulated deficit (1,127,079)
Notes receivable stockholders (186,768)
Treasury stock, 111,906 common shares at cost (90,000)
-----------
Total stockholders equity 907,471
Total liabilities and stockholders' equity $ 1,893,949
===========
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ANNIE'S HOMEGROWN, INC.
Consolidated Statements of Operations
Unaudited
<TABLE>
<CAPTION>
Three months ended Nine months ended
December 31, December 31,
-------------------- -------------------
1996 1997 1996 1997
------------ ------------ ------------ -------------
<S> <C> <C> <C> <C>
Net sales $ 1,389,789 $ 1,534,399 $ 3,403,279 $ 4,407,932
Cost of sales 706,951 945,410 1,896,398 2,651,729
----------- ----------- ----------- -----------
Gross profit 682,838 588,989 1,506,881 1,756,203
Operating expenses:
Selling 320,326 345,630 915,461 1,132,545
General and administrative 186,631 268,676 509,952 722,331
Slotting fees 11,705 12,197 169,676 53,790
Compensation of outside directors -- -- 6,000 --
----------- ----------- ----------- -----------
Total operating expenses 518,662 626,503 1,601,089 1,908,666
----------- ----------- ----------- -----------
Operating income (loss) 164,176 (37,514) (94,208) (152,463)
Other income (loss)
Interest expense and other charges (18,680) (7,939) (35,683) (31,307)
Interest and other income (4,804) 2,637 3,244 7,428
----------- ----------- ----------- -----------
Income (loss) before income tax 140,692 (42,816) (126,647) (176,342)
Income tax expense 1,016 162 1,239 667
----------- ----------- ----------- -----------
Net income (loss) $ 139,676 $ (42,978) $ (127,886) $ (177,009)
----------- ----------- ----------- -----------
Weighted average common
shares outstanding (in 000's):
Basic 4,257 4,548 4,188 4,326
Diluted 4,990 5,014 4,921 4,995
Net income (loss) per share:
Basic .03 (.01) (.03) (.04)
Diluted .03 (.01) (.03) (.04)
</TABLE>
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<PAGE>
ANNIE'S HOMEGROWN, INC.
Consolidated Statements of Cash Flows
Unaudited
<TABLE>
<CAPTION>
Nine months ended
December 31,
--------------------
1996 1997
------------- --------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (127,886) $ (177,009)
Adjustments to reconcile net income (loss) to net
cash (used in) provided by operating activities:
Depreciation and amortization 8,173 23,835
Outside directors compensation 6,000 --
Changes in
Accounts receivable, trade 268,279 (90,510)
Affiliate accounts, net (70,314) 22,237
Inventory (1,001,034) 143,217
Other assets 14,002 (69,327)
Accounts payable, trade 514,884 175,669
Accrued expenses (65,322) (61,108)
Advances from distributor 535,068 (315,753)
Due to employees (5,053) (12,760)
--------- ---------
Net cash (used in) provided by
operating activities 76,797 (361,509)
Cash flows from investing activities:
Acquisition of Raw Materials Food Co. -- (19,946)
Purchases of equipment (16,153) (21,484)
--------- ---------
Net cash (used in) investing activities (16,153) (41,430)
Cash flows from financing activities:
Repayment of notes payable (117,556) --
Issuance of common stock and exercise
of stock options, net 849,981
---------- ---------
Net cash (used in) provided by
financing activities 732,425 --
Net (decrease) increase in cash and cash equivalents 793,069 (402,939)
Cash and cash equivalents, beginning of period 67,433 484,464
----------- -----------
Cash and cash equivalents, end of period $ 860,502 $ 81,525
=========== ===========
Supplemental disclosure of cash flow information
Cash paid for interest $ 18,680 $ 31,307
----------- -----------
Cash paid for income taxes $ 1,236 $ 667
=========== ===========
</TABLE>
Supplemental disclosure of noncash financing activities - See Note 2
- 5 -
<PAGE>
ANNIE'S HOMEGROWN, INC. NOTES TO
CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1--BASIS OF PRESENTATION:
In the opinion of management, the accompanying unaudited consolidated
financial statements contain all adjustments (which include only normal
recurring adjustments) necessary to present fairly the Company's financial
position at December 31, 1997, its results of operations for the three and nine
month periods ended December 31, 1997 and 1996, and its cash flows for the nine
month periods ended December 31, 1997 and 1996. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
from the accompanying consolidated financial statements. For further
information, reference should be made to the consolidated financial statements
and notes thereto included in the Company's Annual Report on Form 10-K for the
fiscal year ended December 31, 1996, on file with the Securities and Exchange
Commission.
NOTE 2--SUPPLEMENTAL DISCLOSURE OF NONCASH FINANCING ACTIVITIES ARE AS FOLLOWS:
During 1996, $6,000 in compensation expense was recorded for stock options
granted to four outside directors.
On July 31, 1997, the Company issued 60,000 shares of common stock ($6.00
per share) in exchange for the outstanding common stock of Raw Materials Food
Company.
On October 1, 1997, three Officers of the Company exercised stock options
for an aggregate of 231,273 shares by issuing notes to the Company for $185,018.
NOTE 3--CHANGE IN FISCAL YEAR
On March 27, 1997, the Board of Directors approved a change in the fiscal
year of the Company from December 31st to March 31st. For further information,
reference should be made to the Company's report on Form 8-K dated April 7,
1997, on file with the Securities and Exchange Commission.
NOTE 4--LINE OF CREDIT
During the quarter ended December 31, 1997, the Company was negotiating a line
of credit of $600,000 which was signed on February 3, 1998. The line of credit
with a financial institution is for a term of two years and allows for borrowing
of 75% or 90% of certain categories of the Company's accounts receivables with
interest at the "Prime Rate" as published by the Wall Street Journal plus 3%.
The financial institution also charges an annual facility fee of $6,000. The
line of credit calls for minimum monthly interest based on borrowing $400,000.
The line of credit is secured by all of the assets of the Company and guaranteed
by the two largest stockholders of the Company. This information provided herein
is for summary purposes only and is qualified in its entirety by the Loan and
Security Agreement which is filed herewith as Exhibit 10.8.
NOTE 5--EARNINGS PER SHARE
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (FASB No. 128). FASB
No. 128 supersedes APB No. 15 and specifies the computation, presentation, and
disclosure requirements and earnings per share. FASB No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997 and early application is not permitted. Accordingly, the Company
adopted FASB No. 128 for the quarter ended December 31, 1997 and restated prior
period information as required under the statement.
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<PAGE>
Item 2. Management's Discussion and Analysis or Plan of Operation.
Overview
Annie's Homegrown, Inc. sells premium totally natural pasta products to the
natural food, specialty food and supermarket trades. The pasta products include
eight macaroni and cheese dinners under the Annie's name and Annie's One-Step
pasta dinners which combine different pasta shapes with five sauce recipes and
provide the convenience of one-step, one-pot cooking. The Company also has an
agreement with a specialty retailer to provide a private label house brand using
the Company's premium all natural white cheddar cheese formula together with
elbow macaroni.
Most of the Company's products are distributed in the continental United States
by Liberty Richter, Inc. ("Liberty"). Pursuant to a master distribution
agreement, the Company sells its products to Liberty who in turn resells the
products to the natural and specialty food stores and supermarket chains via
distributors or directly to the supermarkets.
Forward Looking Statements
From time to time, information provided by the Company, statements made by its
employees or information included in its filings with the Securities and
Exchange Commission (including this Form 10-QSB) may contain statements which
are not historical facts, so called "forward looking statements", which involve
risks and uncertainties. Forward looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995.
When used in this form 10-QSB, the terms "anticipates", "expects", "estimates",
"believes" and other similar terms as they relate to the Company or its
management are intended to identify such forward looking statements. In
particular, statements made in Item 2., Management's Discussion and Analysis of
Financial Condition and Results of Operations, relating to the sufficiency of
funds for the Company's working capital requirements during 1998 and the
Company's expectation that future cash flow will continue to be provided from
operations are forward looking statements. The Company's actual future results
may differ significantly from those stated in any forward looking statements.
Factors that may cause such differences include, but are not limited to: (i)
competitive factors in the market place; (ii) reliance on the Liberty agreement
and relative mix of sales through distributors and direct to supermarkets; (iii)
fluctuation in quarterly and annual operating results due to seasonality
(macaroni and cheese are consumed mostly during colder months of the year and
based on the Company's promotional schedule); (iv) dependence on key personnel;
(v) availability and cost of capital; (vi) consumers tastes and preferences on
current products as well as acceptance of new product introductions; and (vii)
general economic conditions, among others. These factors, and others, are
discussed from time to time in the Company's filings with the Securities and
Exchange Commission including the Company's annual report on Form 10-KSB for the
year ended December 31, 1996.
Results of Operations
Nine Months Ended December 31, 1997 Compared to Nine Months Ended December 31,
1996
Net sales. Net sales increased by $1,004,653 or 29.52% from $3,403,279 in 1996
to $4,407,932 in 1997. The net sales increase was a result of increased demand
in all market sectors for the Company's existing products. The increase in sales
are as follows: same product sales are 3.71%; new products are 19.20%; private
label is 3.40% and RMFC is 3.21%. Same product sales increases are lower than
historical increases due to new products partially diluting same product sales.
The Company believes that it has penetrated all major supermarket chains in the
New England states, and sells in several major supermarket chains in New York
and California. The Company continues to expand its supermarket business in the
Mid-Atlantic states and the Rocky Mountain region as well as new expansion into
the Southern California region and the south eastern region of the United
States. The Company believes it has penetrated all of
-7-
<PAGE>
the major natural food market stores across the country. Additionally, the
Company continues to produce for a specialty retailer their private label brand
macaroni and cheese dinner.
In January 1997, the Company introduced a new line of all natural pasta dinners
called Annie's One-Step. The dinners combine different pasta shapes with five
sauce recipes which provide the convenience of one-step, one-pot cooking as
follows: Annie's One-Step Rotini with Four Cheese Sauce, Annie's One-Step Penne
Pasta with Alfredo Sauce, Annie's One-Step Radiatore Pasta with Sundried Tomato
and Basil Sauce, Annie's One-Step Corkscrew Pasta with Savory Herb and Garlic
Sauce and Annie's One-Step Curly Fettuccine with White Cheddar and Broccoli
Sauce.
The Company introduced, in April 1997, two premium macaroni and cheese dinners:
Pizza Pasta and Mild Cheddar. The Mild Cheddar product is being promoted in
conjunction with the Free Willy Keiko Foundation with a portion of sales going
to the foundation. In the quarter ended December 31, 1997, the Company
introduced two additional premium macaroni and cheese dinners: Annie's Bunny
Shape Pasta with Yummy Cheese and Annie's Family Size Shells and Cheddar. The
Company introduced two non pasta products in the quarter ending December 31,
1997. The first is Annie's Popcorn & White Cheddar which is based on Ms.
Withey's recipe when she started Smartfood Popcorn, now a division of Frito Lay
which is owned by Pepsico, Inc. The second is Annie's New Zealand Organic
Creamed Honey which is a totally natural creamed honey produced in New Zealand
without the pesticides, herbicides or antibiotics commonly found in American
honey products.
Gross profit. As a percentage of net sales, gross profit decreased from 44.27%
in 1996 to 39.84% in 1997. This decrease was a result of lower profit margins
due to a greater percentage of the Company's sales being sold to distributors
rather than going direct through supermarket warehouses. The Company is
expanding its supermarket business using distributors instead of directly
selling to the supermarkets which allows the Company to consolidate its
distribution in new areas. Also, the price of ingredients and packaging costs
increased in the quarter ended December 31, 1997.
Selling expenses. Selling expenses increased by $217,084 or 23.71% from $915,461
in 1996 to $1,132,545 in 1997 but decreased as a percentage of net sales from
26.90% in 1996 to 25.69% in 1997. The increase in selling expenses reflected an
increase in spending in marketing costs, including price reductions and trade
show appearances, associated with the continued roll-out of the Company's new
products in 1997.
General and administrative expenses. General and administrative expenses
increased by $212,379 or 41.65% from $509,952 in 1996 to $722,331 in 1997 and
increased as a percentage of net sales from 14.98% in 1996 to 16.39% in 1997.
The increase in general and administrative expenses is primarily a result of
increased spending in four areas: (i) increase in the management fee from
Liberty Richter due to the increase in volume; (ii) increased payroll costs and
related benefits;(iii) increased cost for outside services to handle specific
projects; and (iv) printing costs and product development costs relating to new
products.
Slotting fees. Slotting expenses decreased by $115,886 or 68.30% from $169,676
in 1996 to $53,790 in 1997, and decreased as a percentage of net sales from
4.99% in 1996 to 1.22% in 1997. The decrease was due to the Company's decision
to scale back the expansion of purchasing additional shelf space which requires
paying introductory slotting fees for the acquisition of shelf space at
supermarkets. These slotting fees are required by most supermarkets and are
expensed at the time of product introduction.
Compensation of outside directors. In 1996, $6,000 in compensation for stock
options granted was recorded for the four outside directors of the Company.
-8-
<PAGE>
Three Months Ended December 31, 1997 Compared to Three Months Ended December 31,
1996
Net sales. Net sales increased by $144,610 or 10.41% from $1,389,789 in 1996 to
$1,534,399 in 1997. The net sales increase was a result of new product sales and
RMFC sales netted against same product sales which decreased due to running a
fall promotion in the previous quarter. The increase (decrease) in sales are as
follows: same product sales are (12.47)%; new products are 17.43% and RMFC is
5.45%.
Gross profit. As a percentage of net sales, gross profit decreased from 49.13%
in 1996 to 39.39% in 1997. This decrease was a result of lower profit margins
due to a greater percentage of the Company's sales being sold to distributors
rather than going direct through supermarket warehouses. The Company is
expanding its supermarket business using distributors instead of directly
selling to the supermarkets which allows the Company to consolidate its
distribution in new areas. Also, the price of ingredients and packaging costs
increased in the quarter ended December 31, 1997.
Selling expenses. Selling expenses increased by $25,304 or 7.90% from $320,326
in 1996 to $345,630 in 1997 and decreased as a percentage of net sales from
23.05% in 1996 to 22.53% in 1997. The decrease in selling expenses as a
percentage of net sales reflected the fall promotion running in the previous
quarter this year versus the current quarter last year.
General and administrative expenses. General and administrative expenses
increased by $82,045 or 43.96% from $186,631 in 1996 to $268,676 in 1997 and
increased as a percentage of net sales from 13.43% in 1996 to 17.51% in 1997.
The increase in general and administrative expenses is primarily a result of
increased spending in three areas: (i) increase in the management fee from
Liberty Richter due to the increase in volume; (ii) increased cost for outside
services to handle specific projects; and (iii) increased payroll costs and
related benefits.
Slotting fees. Slotting expenses increased by $492 or 4.20% from $11,705 in 1996
to $12,197 in 1997, and decreased as a percentage of net sales from 0.84% in
1996 to 0.79% in 1997. The decrease was due to the Company's decision to scale
back the expansion of purchasing additional shelf space which requires paying
introductory slotting fees for the acquisition of shelf space at supermarkets.
These slotting fees are required by most supermarkets and are expensed at the
time of product introduction.
Liquidity and Capital Resources
At December 31, 1997, the Company had $81,525 in cash and cash equivalents, a
decrease of $51,812 from a balance of $133,337 at September 30, 1997, a decrease
of $159,312 from a balance of $240,837 at June 30, 1997 and a decrease of
$402,939 from a balance of $484,464 at March 31, 1997. The decrease in cash is
primarily the net result of funding operating losses and a reduction in advances
from the distributor.
The Company's primary capital needs are for developing new products to sell to
its existing customer base and expansion into national supermarket distribution.
The Company has scaled back its plan to expand its supermarket distribution
throughout the United States which requires purchasing shelf space or new
"slots" (one product in one store equals one slot). These slotting fees are
required by most supermarkets and are expensed at the time of product
introduction
The Company has financed its operations to date through the proceeds of a public
offering of Common Stock, private sales of Common Stock and convertible debt
securities, a line of credit from a financial institution and cash generated
from operations. During the quarter ended December 31, 1997, the Company
negotiated a line of credit with a financial institution for $600,000 on which
it was closed on February 3, 1998 ("Line of Credit"). The Line of Credit is for
a term of two years and is secured by all of the assets of the Company and
guaranteed by the two largest stockholders of the Company. The Loan and Security
Agreement dated February 3, 1998 between Fremont
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<PAGE>
Financial Corporation and Annie's Homegrown, Inc. is filed with this report as
Exhibit 10.8. Also, the Company initiated discussions with other parties for the
purpose of raising additional capital. The Company anticipates that the funds
available from the Line of Credit, together with funds generated from
operations, will be sufficient to meet its liquidity needs for the next twelve
months. However, the Company needs additional capital in the future to fully
implement its business strategy as set forth herein. If such capital is
unavailable either because of general market conditions or the results of the
Company's operations, the Company will have to continue to scale back either its
investments in new products, or its national supermarket expansion, or both.
Most of the Company's sales are made to Liberty under contract terms allowing
certain rights of return on unsold product held by Liberty. The contract calls
for Liberty to pay the Company based on terms relating to the receipt of the
Company's products by Liberty. The Company defers recognition of such sales
until the product is sold by Liberty to distributors or supermarket chains. As a
result, if Liberty pays the Company before Liberty sells the products to a third
party, the Company has an advance from Liberty. If Liberty sells the products to
a third party before it pays the Company, the Company has a receivable from
Liberty.
Net cash used in operating activities for the nine months ended December 31,
1997 was $361,509, consisting of payments for funding operating losses and a
reduction in advances from the distributor.
Net cash used in investing activities consisted of capital expenditures totaling
$21,484 which related principally to the purchase of plates and dies for the new
products as well as office equipment and $19,946 used for the acquisition of Raw
Materials Food Company.
In February 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 128, Earnings per Share (FASB No. 128). FASB
No. 128 supersedes APB No. 15 and specifies the computation, presentation, and
disclosure requirements and earnings per share. FASB No. 128 is effective for
financial statements for both interim and annual periods ending after December
15, 1997 and early application is not permitted. Accordingly, the Company
adopted FASB No. 128 for the quarter ended December 31, 1997 and restate prior
period information as required under the statement.
In June 1997, the Financial Accounting Standards Board issued Financial
Accounting Standards No. 130, Reporting Comprehensive Income and No. 131,
Disclosure about Segments of an Enterprise and Related Information, which are
effective for fiscal years beginning after December 15, 1997. The Company is
currently evaluating the effects of these new standards.
In January, 1998, the Securities and Exchange Commission issued SEC Staff
Bulletin No. 5 regarding the materiality of the so called "Year 2000" problem.
The Company is aware of the potential software logic anomalies associated with
the year 2000 date change. The Company is in the process of evaluating the
potential issues that might need to be addressed in connection with its
operations. Based on preliminary information, costs of addressing the issue are
not expected to have any material effect upon the Company's financial position,
results of operations, or cash flows in future periods.
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<PAGE>
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
Exhibit Number
--------------
11 Statement re: computation of per share earnings
27 Financial Data Schedule
10.8 Loan and Security Agreement dated as of February 3, 1998
between Fremont Financial Corporation and Annie's
Homegrown, Inc.
(b) Reports on Form 8-K.
No reports on Form 8-K were filed by the Company during the quarter for
which this report is being filed.
SIGNATURES
In accordance with the requirements of the Exchange Act, the registrant
caused this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
ANNIE'S HOMEGROWN, INC.
-----------------------
(Registrant)
Date: February 12, 1998 /s/ Paul B. Nardone
---------------------------------
Paul B. Nardone
President and Chief Operating Officer
Date: February 12, 1998 /s/ Neil Raiff
----------------------------
Neil Raiff
Chief Financial Officer & Treasurer
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<PAGE>
Exhibit 11
Statement re: computation of per share earnings
Annie's Homegrown, Inc.
Computation of Earnings Per Common Share
(in 000s except for per share data)
Three months ended December 31, 1996
Basic Computation
- -----------------
Net income per statement of operations $ 140
=====
Weighted average number of common
shares outstanding 4,257
=====
Basic income per common share $ .03
=====
Diluted Computation
- -------------------
Net income per statement of operations $ 140
=====
Weighted average number of common
shares outstanding 4,257
Stock options 733
-----
Weighted average number of common
shares as adjusted 4,990
=====
Diluted income per common share $ .03
=====
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<PAGE>
Annie's Homegrown, Inc.
Computation of Earnings Per Common Share (Continued)
(in 000s except for per share data)
Three months ended December 31, 1997
Basic Computation
Net loss per statement of operations $ (43)
======
Weighted average number of common
shares outstanding 4,548
=====
Basic loss per common share $(.01)
======
Diluted Computation
- -------------------
Net loss per statement of operations $ (43)
======
Weighted average number of common
shares outstanding 4,548
Stock options 466
------
Weighted average number of common
shares as adjusted 5,014
======
Diluted loss per common share $(.01)
======
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<PAGE>
Annie's Homegrown, Inc.
Computation of Earnings Per Common Share
(in 000s except for per share data)
Nine months ended December 31, 1996
Basic Computation
- -----------------
Net loss per statement of operations $(128)
======
Weighted average number of common
shares outstanding 4,188
======
Basic loss per common share $(.03)
======
Diluted Computation
- -------------------
Net loss per statement of operations $(128)
======
Weighted average number of common
shares outstanding 4,188
Stock options 733
------
Weighted average number of common
shares as adjusted 4,921
======
Diluted loss per common share $(.03)
======
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<PAGE>
Annie's Homegrown, Inc.
Computation of Earnings Per Common Share (Continued)
(in 000s except for per share data)
Nine months ended December 31, 1997
Basic Computation
- -----------------
Net loss per statement of operations $ (177)
=======
Weighted average number of common
shares outstanding 4,326
Basic loss per common share $ (.04)
=======
Diluted Computation
- -------------------
Net loss per statement of operations $ (177)
=======
Weighted average number of common
shares outstanding 4,326
Stock options 669
-------
Weighted average number of common
shares as adjusted 4,995
=======
Diluted loss per common share $ (.04)
=======
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<PAGE>
LOAN AND SECURITY AGREEMENT
This LOAN AND SECURITY AGREEMENT is entered into as of February 3,
1998 between FREMONT FINANCIAL CORPORATION, a California corporation (Fremont),
with a place of business located at 666 Fifth Avenue, 21st Floor, New York, New
York 10103 and ANNIE'S HOMEGROWN INC., a Delaware corporation (Borrower), with
its chief executive office located at 180 Second Street, Chelsea, Massachusetts
02150.
The parties agree as follows:
1. DEFINITIONS AND CONSTRUCTION
1.1 Terms. In addition to the terms that are defined within this
Agreement, the following terms shall have the following definitions when used in
this Agreement:
Account Debtor means any Person who is or who may become
obligated under, with respect to, or on account of an Account.
Accounts means all presently existing and hereafter arising
accounts receivable, contract rights, and all other forms of obligations owing
to Borrower arising out of the sale or lease of goods or the rendition of
services by Borrower, whether or not earned by performance, all credit
insurance, guaranties, and other security therefor, as well as all goods
returned to or reclaimed by Borrower, and Borrower's Books relating to any of
the foregoing.
Agreement means this Loan and Security Agreement and any riders,
addenda, extensions, supplements, amendments or modifications to or in
connection with this Loan and Security Agreement.
Authorized Representative means (i) Borrower's chief financial
officer and (ii) any other officers, employees or other representatives of
Borrower authorized in writing by Borrower to transact business with Fremont on
the certificate delivered as of the date hereof, as such certificate may be
amended in writing from time to time.
Bankruptcy Code means the United States Bankruptcy Code (11
U.S.C. Sections 101 et seq.), as amended, and any successor statute.
Borrower's Books means all of Borrower's books and records
including all of the following: ledgers; records indicating, summarizing or
evidencing Borrower's assets (including the Collateral) or liabilities; all
information relating to Borrower's business operations or financial condition;
and all computer programs, disk or tape files, printouts, runs or other computer
prepared information, and the equipment containing such information.
Business Day means any day which is not a Saturday, Sunday or
other day on which banks in the State of New York are authorized or required to
close.
Code means the New York Uniform Commercial Code, as amended from
time to time.
Collateral means all of the following: the Accounts; the
Equipment; the General Intangibles; the Inventory; the Negotiable Collateral;
the Letter of Credit; any money or other assets of Borrower which hereafter come
into the possession, custody or control of Fremont; and all proceeds and
products, whether tangible or intangible, of any of the foregoing, including
proceeds of insurance covering any or all of the Collateral, and any and all
Accounts, Equipment, General Intangibles, Inventory, Negotiable Collateral,
money, deposit accounts or other tangible or intangible property resulting from
the sale or other disposition of the Collateral, or any portion thereof or
interest therein, and the proceeds thereof.
Eligible Accounts means those Accounts created by Borrower in
the ordinary course of business that arise out of Borrower's sale of goods or
rendition of services, are owing from Account Debtors that are acceptable to
Fremont, strictly comply with all of Borrower's representations and warranties
to Fremont set forth in Sections 5.1, 5.2, 5.6 and 5.17 hereof and
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are, and at all times continue to be, acceptable to Fremont in all respects;
provided, however, that standards of eligibility may be fixed and revised from
time to time by Fremont in Fremont's exclusive judgment. In determining such
eligibility, Fremont may, but is not obligated to, rely on agings, reports and
schedules of Accounts furnished by Borrower, but reliance by Fremont thereon
from time to time shall not be deemed to limit Fremont's right to revise
standards of eligibility at any time as to both Borrower's present and future
Accounts. Eligible Accounts shall not include any of the following: (a) Accounts
which the Account Debtor has failed to pay within ninety (90) days after the
original invoice date; (b) all Accounts owed by any Account Debtor that has
failed to pay fifty percent (50%) or more of its Accounts owed to Borrower
ninety (90) days after the original invoice date; (c) Accounts with respect to
which the Account Debtor is an officer, director, employee or agent of Borrower;
(d) Accounts with respect to which the Account Debtor is a subsidiary of,
related to, affiliated with or has common shareholders, officers or directors
with Borrower; (e) Accounts with respect to which goods are placed on
consignment (other than Accounts with respect to which the Account Debtor is
Liberty Richter), guaranteed sale, sale or return, sale on approval, bill and
hold, or which contain other terms by reason of which payment by the Account
Debtor may be conditional; (f) Accounts with respect to which the Account Debtor
is not a resident of the United States or Canada except for any such Account
covered by foreign credit insurance acceptable to Fremont, in Fremont's
exclusive discretion; (g) Accounts with respect to which the Account Debtor is
the United States or any department, agency or instrumentality of the United
States unless such Accounts are subject to the Assignment of Claims Act of 1940,
as amended, and all required notifications and assignments under such Act have
been duly signed, filed and acknowledged by the appropriate contracting officer
as required under such Act; (h) Accounts with respect to which Borrower is or
may become liable to the Account Debtor for goods sold or services rendered by
the Account Debtor to Borrower or, except for Liberty Eligible Accounts, for any
other reason, are subject to any right of offset in favor of the Account Debtor;
(i) Accounts with respect to an Account Debtor whose total obligations to
Borrower exceed fifteen percent (15%) of all Accounts, except for Accounts due
from Trader's Joe which will be subject to a $50,000 limit, to the extent such
obligations exceed such percentage (or dollar limit, for Trader's Joe) (other
than Accounts with respect to which the Account Debtor is Liberty Richter); (j)
Accounts with respect to which the Account Debtor disputes liability or makes
any claim with respect thereto, or is subject to any Insolvency Proceeding, or
becomes insolvent, or goes out of business; (k) Accounts that represent progress
billings or other advance billings that are due prior to the completion of
performance by Borrower of the subject contract for goods or services; or (l)
Accounts that are payable in currency other than United States dollars.
Eligible Inventory means Inventory consisting of first quality
finished goods held for sale in the ordinary course of Borrower's business and
raw materials for such finished goods that are located at Borrower's premises
(or at the premises of other Persons that have entered into lien waiver and
access agreements with Fremont satisfactory to Fremont, in its exclusive
discretion), that strictly comply with all of Borrower's representations and
warranties to Fremont set forth in Sections 5.1 through 5.17 hereof, and that
are, and at all times continue to be, acceptable to Fremont in all respects;
provided, however, that general criteria for Eligible Inventory may be
established and revised from time to time by Fremont in Fremont's exclusive
judgment. In determining such eligibility, Fremont may, but is not obligated to,
rely on reports and schedules of Inventory furnished to Fremont by Borrower, but
reliance thereon by Fremont from time to time shall not be deemed to limit
Fremont's right to revise standards of eligibility at any time. Eligible
Inventory shall not include raw materials, slow moving or obsolete items, custom
or proprietary items, work in process, components which are not part of finished
goods, spare parts, packaging and shipping materials, supplies used or consumed
in Borrower's business, goods returned to, repossessed by, or stopped in transit
by Borrower, Inventory in the possession of Persons other than Borrower or
subject to a security interest or lien in favor of any Person other than
Fremont, bill and hold goods, Inventory which is not subject to Fremont's first
priority, perfected security interest, returned or defective goods, "seconds"
and Inventory acquired on consignment. Eligible Inventory shall be valued at the
lower of cost or wholesale market value.
Environmental Law means the Comprehensive Environmental
Response, Compensation, and Liability Act of 1980, as amended, the Resource
Conservation and Recovery Act of 1976, the Hazardous Materials Transportation
Act, the Toxic Substances Control Act, the regulations pertaining to such
statutes, and any other safety, health or environmental statutes, laws,
regulations or ordinances of the United States or of any state, county or
municipality in which Borrower conducts its business or the Collateral is
located.
Equipment means all of Borrower's present and hereafter acquired
equipment, machinery, machine tools, motors, furniture, furnishings, fixtures,
motor vehicles, rolling stock, processors, tools, parts, dies, jigs, goods
(other than consumer goods, farm products or Inventory), wherever located, and
any interest of Borrower in any of the foregoing, and all attachments,
accessories, accessions, replacements, substitutions, additions and improvements
to any of the foregoing, wherever
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located.
ERISA means the Employee Retirement Income Security Act of 1974,
as amended, and the regulations thereunder.
ERISA Affiliate means each trade or business (whether or not
incorporated and whether or not foreign) which is or may hereafter become a
member of a group of which Borrower is a member and which is treated as a single
employer under ERISA Section 4001(b)(1), or IRC Section 414.
Event of Default means the events specified in Section 8.
Fremont Expenses means all of the following: costs and expenses
(including taxes, assessments and insurance premiums) required to be paid by
Borrower under any of the Loan Documents which are paid or advanced by Fremont;
filing, recording, publication, appraisal (including periodic Collateral
appraisals), real estate survey, environmental audit and search fees assessed,
paid or incurred by Fremont in connection with Fremont's transactions with
Borrower; costs and expenses incurred by Fremont in the disbursement or
collection of funds to or from Borrower; charges resulting from the dishonor of
checks; costs and expenses paid or incurred by Fremont to correct any default or
enforce any provision of the Loan Documents, or in gaining possession of,
maintaining, handling, preserving, storing, shipping, selling, preparing for
sale or advertising to sell the Collateral, or any portion thereof, irrespective
of whether a sale is consummated; costs and expenses paid or incurred by Fremont
that result from third party claims against Fremont covered by Borrower's
indemnification of Fremont in Section 11.4; costs and expenses paid or incurred
by Fremont in enforcing or defending the Loan Documents; and Fremont's
reasonable attorneys fees and expenses incurred (including the allocated costs
of Fremont's in-house counsel) in advising, structuring, drafting, reviewing,
administering, amending, terminating, enforcing, defending or otherwise
representing Fremont in connection with the Loan Documents or the Obligations
(including attorneys fees and expenses incurred in connection with a workout, a
restructuring, an action to lift the automatic stay of Section 362 of the
Bankruptcy Code, any other action or participation by Fremont in an Insolvency
Proceeding concerning Borrower or any guarantor of the Obligations or any
defense or participation by Fremont in any lender liability, preference or
fraudulent conveyance actions).
General Intangibles means all of Borrower's present and future
general intangibles and other personal property (including contract rights,
rights arising under common law, statutes or regulations, choses or things in
action, goodwill, patents, trade names, trademarks, service marks, copyrights,
blueprints, drawings, purchase orders, customer lists, monies due or recoverable
from pension funds, monies due under any royalty or licensing agreements, route
lists, infringement claims, computer programs, computer discs, computer tapes,
literature, reports, catalogs, deposit accounts, insurance premium rebates, tax
refunds and tax refund claims) other than goods and Accounts, and Borrower's
Books relating to any of the foregoing.
Hazardous Material means any substance, material, emission or
waste which is or hereafter becomes regulated or classified as a hazardous
substance, hazardous material, toxic substance or solid waste under any
Environmental Law, asbestos, petroleum products, urea formaldehyde,
polychlorinated biphenyls (PCBs), radon and any other hazardous or toxic
substance, material, emission or waste.
Insolvency Proceeding means any proceeding commenced by or
against any Person under any provision of the Bankruptcy Code or under any other
bankruptcy or insolvency law, including assignments for the benefit of
creditors, formal or informal moratoria, compositions, extensions generally with
its creditors or proceedings seeking reorganization, liquidation, arrangement or
other similar relief.
Inventory means all present and future inventory in which
Borrower has any interest, including goods held for sale or lease or to be
furnished under a contract of service, Borrower's present and future raw
materials, work in process, finished goods and materials used in or consumed in
Borrower's business, goods which have been returned to, repossessed by or
stopped in transit by Borrower, packing and shipping materials, wherever
located, any documents of title representing any of the above, and Borrower's
Books relating to any of the foregoing.
IRC means the Internal Revenue Code of 1986, as amended, and the
regulations thereunder.
Letter of Credit means the irrevocable letter of credit issued
to Fremont by CoreStates Bank, N.A. or
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another bank satisfactory to Fremont, in its exclusive discretion, in the amount
of not less than $500,000 and substantially in the form of Exhibit A hereto or
in such other form as may be satisfactory to Fremont, in its exclusive
discretion.
Liberty Eligible Accounts means Eligible Accounts owing from
Liberty Richter that are, and at all times continue to be secured on a dollar
for dollar payment basis by the Letter of Credit.
Liberty Richter means Liberty Richter, Inc., a New Jersey
corporation, and its successors and assigns.
Loan Documents means, collectively, this Agreement, any Notes,
any security agreements, pledge agreements, deeds of trust, mortgages or other
encumbrances or agreements which secure the Obligations, any guaranties of the
Obligations, any lock box or blocked account agreements and any other agreement
entered into between Borrower or any guarantor of the Obligations and Fremont
relating to or in connection with this Agreement.
Multiemployer Plan means a multiemployer plan as defined in
ERISA Sections 3(37) or 4001(a)(3) or IRC Section 414(f) which covers employees
of Borrower or any ERISA Affiliate.
Negotiable Collateral means all of Borrower's present and future
letters of credit, notes, drafts, instruments, certificated and uncertificated
securities, securities entitlements, securities accounts, documents, leases and
chattel paper, and Borrower's Books relating to any of the foregoing.
Note means any promissory note made by Borrower to the order of
Fremont concurrently herewith or at any time hereafter.
Obligations means all loans, advances, debts, liabilities
(including all amounts charged to Borrower's loan account pursuant to any
agreement authorizing Fremont to charge Borrower's loan account), obligations,
fees, lease payments, guaranties, covenants and duties owing by Borrower to
Fremont of any kind and description (whether pursuant to or evidenced by the
Loan Documents or by any other agreement between Fremont and Borrower, and
irrespective of whether for the payment of money), whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter arising,
by, and all interest thereon, including any interest that, but for the
provisions of the Bankruptcy Code, would have accrued, and all Fremont Expenses
which Borrower is required to pay or reimburse pursuant to the Loan Documents,
by law or otherwise.
Person means and includes natural persons, corporations, limited
partnerships, general partnerships, joint ventures, trusts, land trusts,
business trusts or other organizations, irrespective of whether they are legal
entities, and governments and agencies and political subdivisions thereof.
Plan means any plan described in ERISA Section 3(2) maintained
for employees of Borrower or any ERISA Affiliate, other than a Multiemployer
Plan.
Reference Rate means the variable rate of interest, per annum,
published by The Wall Street Journal as the "Prime Rate" and based on "the base
rate on corporate loans posted by at least 75% of the nation's 30 largest
banks". The Reference Rate is nothing more nor less than an index for
determining the interest rate payable under the terms of this Agreement. The
Reference Rate is not necessarily the best rate, or any other definition of
rates, offered by the banks that establish the rate or by Fremont. In the event
The Wall Street Journal ceases to publish the "Prime Rate", Fremont may
substitute any similar index for the Reference Rate.
1.2 Construction. Unless the context of this Agreement clearly
requires otherwise, references to the plural include the singular, references to
the singular include the plural, the term "including" is not limiting and the
term "or"
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has the inclusive meaning generally represented by the phrase "and/or". The
words hereof, herein, hereby, hereunder, and similar terms in this Agreement
refer to this Agreement as a whole and not to any particular provision of this
Agreement. Section, subsection, clause, exhibit and schedule references are to
this Agreement unless otherwise specified. Any reference in this Agreement or in
any of the other Loan Documents to this Agreement or any of the other Loan
Documents shall include all alterations, amendments, changes, extensions,
modifications, renewals, replacements, substitutions and supplements thereto and
thereof.
1.3 Accounting Terms. All accounting terms not specifically defined
herein shall be construed in accordance with generally accepted accounting
principles (GAAP) as in effect from time to time. When used herein, the term
financial statements shall include the notes and schedules thereto.
1.4 Riders, Exhibits, Etc. The Conditions Precedent Rider to this
Agreement and all of the other riders, exhibits, addenda and schedules to this
Agreement shall be deemed incorporated herein by reference.
1.5 Code. Any terms used in this Agreement which are defined in the
Code shall be construed and defined as set forth in the Code unless otherwise
defined herein.
2. ADVANCES AND TERMS OF PAYMENT
2.1 Loans.
A. Revolving Advances; Revolving Advance Limit. Upon the request
of an Authorized Representative, made at any time or from time to time during
the term hereof, and so long as no Event of Default has occurred and is
continuing, Fremont shall, in its sole and absolute discretion, make advances
(the Revolving Advances) to Borrower in an amount up to (a) the lesser of Four
Hundred Fifty Thousand Dollars ($450,000.00) or ninety percent (90%) of (i) the
aggregate outstanding amount of Liberty Eligible Accounts or (ii) the undrawn
amount of the Letter of Credit, plus (b) the lesser of (1) seventy-five (75%) of
the aggregate outstanding amount of Eligible Accounts owing from Account Debtors
other than Liberty Richter or (2) One Hundred Fifty Thousand Dollars
($150,000.00), plus, subject to Section 2.1C hereof, (c) the lesser of (1) fifty
percent (50%) of the aggregate value of the Elizible Inventory or (2) Two
Hundred Thousand Dollars ($200,000.00); provided, however, that in no event
shall the aggregate amount of the outstanding Revolving Advances be greater
than, at any time, the sum of Six Hundred Thousand Dollars ($600,000.00) (the
Revolving Advance Limit). Fremont may reduce its advance rates on Eligible
Accounts or Eligible Inventory, reduce the Revolving Advance Limit or establish
reserves with respect to borrowing availability if Fremont determines, in its
sole discretion, that there has occurred, or is likely to occur, an impairment
of the prospect of repayment of all or any portion of the Obligations, the value
of the Collateral or the validity or priority of Fremont's security interests in
the Collateral. Fremont will endeavor to promptly notify Borrower of any such
reduction in advance rates and/or additional reserves against Eligible Accounts
or Eligible Inventory provided that the failure of Fremont to furnish any such
notice shall not affect such action by Fremont, any of its rights and remedies
hereunder or give rise to a cause of action or claim against Fremont by
Borrower.
B. Advance Limit. The Revolving Advance Limit also is referred
to herein as the Advance Limit.
C. Inventory Revolving Advances. The Borrower acknowledges and
agrees that until such time as VJI enters into an agreement with Lender,
satisfactory to Lender, in its sole discretion, relating to the Inventory
located at VJI's Bradford, Illinois facility, no Revolving Advances shall be
made or available to Borrower pursuant to
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Section 2.1A(c) hereof.
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2.2 Overadvances. All Revolving Advances made hereunder shall be
added to and deemed part of the Obligations when made. If, at any time and for
any reason, the aggregate amount of the outstanding Revolving Advances exceeds
the dollar or percentage limitations contained in Section 2.1A (an Overadvance),
then Borrower shall, upon demand by Fremont, immediately pay to Fremont, in
cash, the amount of such excess.
2.3 Overadvance Fee. Without affecting Borrower's obligation to
immediately repay to Fremont the amount of each Overadvance in accordance with
the provisions of Section 2.2, in the event Fremont agrees to permit any
Overadvance to exist and continue and in consideration for permitting such
Overadvance to exist and continue, Fremont shall be entitled, in its sole
discretion, to charge Borrower a fee in an amount equal to Four Hundred Fifty
Dollars ($450) per day for each day any Overadvance exists or, alternatively,
such other fee as Fremont and Borrower may agree to at the time the Overadvance
is made or discovered.
2.4 Authorization to Make Revolving Advances. Borrower hereby
authorizes Fremont to make Revolving Advances based upon telephonic or other
instructions received from anyone purporting to be an Authorized Representative,
or, at the discretion of Fremont without instructions from or notice to
Borrower, if such Revolving Advances are necessary to satisfy any Obligations.
All requests for Revolving Advances hereunder shall specify the date on which
the requested Revolving Advance is to be made (which day shall be a day that
Fremont is open for business) and the amount of the requested Revolving Advance.
Requests received after 11:00 a.m. Eastern time on any day shall be deemed to
have been made as of the opening of business on the immediately following
Business Day. All Revolving Advances made under this Agreement shall be
conclusively presumed to have been made to, at the request of, and for the
benefit of Borrower when deposited to the credit of Borrower or otherwise
disbursed in accordance with the instructions of Borrower or in accordance with
the terms and conditions of this Agreement.
2.5 Interest.
A. Basic Rate; Default Rate. Except where specified to the
contrary in any Loan Document, the aggregate outstanding amount of all
Obligations shall bear interest at the rate of three percent (3%) per annum
above the Reference Rate. The aggregate outstanding amount of all Obligations
shall bear interest, from and after written notice by Fremont to Borrower of the
occurrence of an Event of Default and without constituting a waiver of any such
Event of Default, at the rate of six percent (6%) per annum above the Reference
Rate; provided, however, that in the event an Insolvency Proceeding is commenced
by or against Borrower, Fremont may charge such default rate of interest without
providing written notice thereof to Borrower. All interest payable under the
Loan Documents shall be computed on the basis of a three hundred sixty (360) day
year for the actual number of days elapsed, based on the aggregate amount of the
Obligations that are outstanding on each day. Interest shall continue to accrue
until all of the Obligations are paid in full.
B. Initial Rate. The Reference Rate as of the date of this
Agreement is eight and one-half percent (8.5%) per annum, and, therefore, the
effective rate of interest hereunder as of the date of this Agreement eleven and
one-half percent (11.5%) per annum. The interest rate payable by Borrower under
the terms of this Agreement shall be adjusted in accordance with any change in
the Reference Rate from time to time on the date of any such change. All
interest payable by Borrower shall be due and payable on the first day of each
calendar month during the term of this Agreement.
C. Minimum Interest. Notwithstanding anything to the
contrary contained in the Loan Documents, Borrower shall pay Fremont a minimum
monthly interest charge in respect of the Obligations equal to the amount of the
aggregate interest charges which would have been payable during such month had
the average outstanding daily balance of Obligations during such month been
equal to Four Hundred Thousand Dollars ($400,000.00), where such amount exceeds
the actual interest charges payable in respect of the Obligations for such
month.
2.6 Verification and Collection of Accounts. Fremont or Fremont's
designee may, at any time, with or without notice to Borrower, (a) notify
Account Debtors of Borrower that the Accounts have been assigned to Fremont and
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that Fremont has a security interest in the Accounts; (b) contact Account
Debtors of Borrower, either in writing or by telephone, for the purpose of
verifying the validity, amount or any other matter relating to any Accounts; and
(c) collect the Accounts directly and charge the collection costs and expenses
to Borrower's loan account. Unless and until Fremont begins direct collection of
the Accounts or gives Borrower other written instructions, Borrower shall
collect all Accounts and the proceeds of other Collateral for the benefit of
Fremont, receive in trust all payments thereon as Fremont's trustee and
immediately deliver said payments to Fremont in their original form as received
by Borrower (subject to the terms of any lockbox, blocked account or similar
agreement entered into for the purpose of collection of the Accounts).
2.7 Crediting Payments. For the purpose of calculating the
availability of Revolving Advances under Section 2.1A, the receipt by Fremont of
any wire transfer of funds, check or other item of payment shall be applied
immediately to provisionally reduce the Obligations, but such receipt shall not
be considered a payment on account unless such wire transfer is of immediately
available federal funds and is made to the appropriate deposit account of
Fremont or unless and until such check or other item of payment is honored when
presented for payment. For the purpose of calculating interest under Section
2.5A, the receipt by Fremont of any wire transfer of funds, check or other item
of payment shall be deemed to have occurred three (3) Business Days after the
date Fremont actually receives such item of payment. In the event any check or
other item of payment is not honored when presented for payment, Borrower shall
be deemed not to have made such payment. Notwithstanding anything to the
contrary contained herein, any wire transfer, check or other item of payment
received by Fremont after 11:00 a.m. Eastern time shall be deemed to have been
received by Fremont as of the opening of business on the immediately following
Business Day.
2.8 Annual Facility Fee. Borrower shall pay Fremont an annual fee
(the Annual Facility Fee) in the amount of Six Thousand Dollars ($6,000.00). The
Annual Facility Fee shall be fully earned and is due and payable annually on the
anniversary of the date of this Agreement for the entire term of this Agreement,
including all renewal terms, or so long as any of the Obligations are
outstanding.
2.9 Loan Origination Fee. Borrower shall pay Fremont a fee (the
Loan Origination Fee) in the amount of Seventeen Thousand Dollars ($17,000.00)
($11,000 of which is payable to Peter Morse, a business broker). The Loan
Origination Fee shall be fully earned and is due and payable on the date that
the initial Revolving Advance is made hereunder.
2.10 Audit Fee. Borrower shall pay Fremont an audit fee in an
amount equal to Six Hundred Dollars
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($600.00) per day per auditor plus out-of-pocket expenses incurred by Fremont
for each audit or examination of Borrower performed by Fremont. On the date of
this Agreement, Fremont anticipates that four (4) audits or examinations of
Borrower will be required in each year during the term of this Agreement
although Fremont reserves the right to change the frequency of such audits and
examinations as it determines to be necessary or appropriate, in Fremont's
exclusive discretion.
2.11 Late Reporting Fee. Borrower shall pay Fremont a fee in an
amount equal to Fifty Dollars ($50.00) per document per day for each Business
Day any report, financial statement or schedule required to be delivered to
Fremont by this Agreement is past due.
2.12 Miscellaneous Fees. Borrower shall pay Fremont its customary
fees for wire transfers (including a premium for early and late transfers),
returned checks, letter of credit guarantees and any other services provided by
Fremont to Borrower that are incidental to this Agreement. Upon Borrower's
request, Fremont shall provide Borrower with a written schedule of the amounts
of all such miscellaneous fees.
2.13 Maximum Charges. In no event shall interest on the Obligations
exceed the highest lawful rate in effect from time to time. It is not the
intention of the parties hereto to make an agreement which violates any
applicable state or federal usury laws. In no event shall Borrower pay or
Fremont accept or charge any interest which, together with any other charges
upon the principal or any portion thereof, exceeds the maximum lawful rate of
interest allowable under any applicable state or federal usury laws. Should any
provision of this Agreement or any existing or future Notes or Loan Documents
between the parties be construed to require the payment of interest which,
together with any other charges upon the principal or any portion thereof,
exceeds the maximum lawful rate of interest, then any such excess shall be
applied to the remaining principal balance, if any, and the remainder refunded
to Borrower.
2.14 Monthly Statements. Fremont shall render monthly statements to
Borrower of all Obligations, including statements of all principal, interest,
fees and Fremont Expenses charged, and such statements shall be conclusively
presumed to be correct and accurate and constitute an account stated between
Borrower and Fremont unless, within thirty (30) days after receipt thereof by
Borrower, Borrower shall deliver to Fremont, by registered or certified mail or
overnight courier service, at Fremont's address stated in Section 12, written
objection to Fremont's statement specifying the error or errors, if any,
contained in such statements.
2.15 Payment Mechanics. As an administrative convenience to
Borrower to ensure the timely payment of amounts owing by Borrower to Fremont
under this Agreement, Borrower hereby requests Fremont to advance for the
account of Borrower an amount each month sufficient to pay interest accrued on
the principal amount of the Obligations during the immediately preceding month
and all monthly principal installments or other payments due under a Note or
other Loan Document and amounts from time to time sufficient to pay all fees and
Fremont Expenses owing by Borrower under this Agreement. Borrower authorizes
Fremont, in Fremont's sole discretion, to make a Revolving Advance for
Borrower's account of a sum sufficient each month to pay, on the due date
thereof, all interest accrued on the principal amount of the Obligations during
the immediately preceding month and all monthly principal installments or other
payments due under a Note or other Loan Document and sums from time to time
sufficient to pay, on the due date thereof, all fees and Fremont Expenses owing
by Borrower under this Agreement, and Fremont may apply the proceeds of each
such Revolving Advance to the payment of such interest, installments, fees and
Fremont Expenses. Each such Revolving Advance shall thereafter accrue interest
at the rate then applicable under this Agreement. Fremont, however, shall not be
obligated to make any such Revolving Advance and Borrower acknowledges that
Fremont will be particularly disinclined to do so if an Event of Default or an
Overadvance exists at the time of, or would result from the making of, such
Revolving Advance.
3. TERM OF AGREEMENT AND EARLY TERMINATION
3.1 Term. This Agreement shall become effective in accordance with
Section 14.1 and shall continue in full force and effect for a term ending two
(2) years after the date hereof and shall be deemed automatically renewed for
successive terms of one (1) year thereafter until terminated as of the end of
the initial term or any renewal term (each a Term) by either party giving the
other written notice at least sixty (60) days prior to the end of the then
current Term.
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3.2 Early Termination. Borrower, subject to the payment of the fee
described below, may terminate this Agreement other than at the end of the then
current Term by giving Fremont prior written notice of its intention to effect
an early termination of this Agreement. Fremont may terminate this Agreement at
any time upon or after the occurrence of an Event of Default. In view of the
impracticability and extreme difficulty of ascertaining actual damages and by
mutual agreement of the parties as to a reasonable calculation of Fremont's lost
profits as a result of an early termination of this Agreement, in either of the
instances described in the preceding two sentences, Borrower shall pay to
Fremont, upon the effective date of such early termination and in addition to
all other Obligations, an early termination fee (the Early Termination Fee) in
an amount equal to: (a) four percent (4.0%) of the Advance Limit if such
termination occurs at any time during the first year of the initial Term; and
(b) two percent (2.0%) of the Advance Limit if such termination occurs at any
time during the second year of the initial Term. The Early Termination Fee shall
be presumed to be the amount of damages sustained by Fremont as the result of
the early termination and Borrower agrees that it is reasonable under the
circumstances currently existing. The Early Termination Fee shall be deemed
included in the Obligations. Notwithstanding anything herein to the contrary, if
and to the extent the Early Termination Fee constitutes interest under
applicable law, the Early Termination Fee, when added to all other interest
contracted for, charged or received under this Agreement or any other Loan
Documents, shall not exceed, and shall be limited to an amount which
constitutes, interest at the maximum lawful rate of interest allowable under
applicable law.
3.3 Effect of Termination. Upon termination of this Agreement, all
of the Obligations shall be immediately due and payable in full. No termination
of this Agreement shall relieve or discharge Borrower of Borrower's duties,
obligations and covenants hereunder until all of the Obligations have been fully
and indefeasibly paid and satisfied, and Fremont's continuing security interest
in the Collateral shall remain in effect until all of the Obligations have been
fully and indefeasibly paid and satisfied.
4. CREATION OF SECURITY INTEREST
4.1 Grant of Security Interest. Borrower hereby grants to Fremont
a continuing security interest in all presently existing and hereafter acquired
or arising Collateral in order to secure prompt repayment of any and all
Obligations and in order to secure prompt performance by Borrower of each and
all of its covenants and duties under the Loan Documents. Fremont's security
interest in the Collateral shall attach to all Collateral without further act on
the part of Fremont or Borrower. Other than sales of Inventory to buyers in the
ordinary course of business, Borrower has no authority, express or implied, to
dispose of any item or portion of the Collateral.
4.2 Negotiable Collateral. In the event that any Collateral,
including proceeds, is evidenced by or consists of Negotiable Collateral,
Borrower shall, upon the request of Fremont, immediately endorse and assign such
Negotiable Collateral to Fremont and deliver physical possession of such
Negotiable Collateral to Fremont.
4.3 Delivery of Additional Documentation Required. Borrower shall
execute and deliver to Fremont, concurrently with Borrower's execution and
delivery of this Agreement and at any time thereafter at the request of Fremont,
all financing statements, continuation financing statements, fixture filings,
security agreements, chattel mortgages, pledges, assignments, endorsements of
certificates of title, applications for title, affidavits, reports, notices,
schedules of accounts, letters of authority, and all other documents that
Fremont may reasonably request, in form satisfactory to Fremont, to perfect and
continue perfected Fremont's security interest in the Collateral and in order to
fully consummate all of the transactions contemplated hereunder and under the
other Loan Documents.
4.4 Power of Attorney. Borrower hereby irrevocably designates,
makes, constitutes and appoints Fremont (and any of Fremont's officers,
employees or agents designated by Fremont) as Borrower's true and lawful
attorney-in-fact, and Fremont, or Fremont's agent, may, without notice to
Borrower and in either Borrower's or Fremont's name, but at the cost and expense
of Borrower, at such time or times as Fremont in its sole discretion may
determine: (a) demand payment of the Accounts from the Account Debtors, enforce
payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of Borrower's rights and remedies with respect to the collection of
the Accounts; (b) take control, in any manner, of any item of payment or
proceeds relating to any Collateral; (c) prepare, file and sign Borrower's name
to a proof of claim in bankruptcy or similar document against any Account Debtor
or to any notice of lien, assignment or satisfaction of lien or
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similar document in connection with any of the Collateral; (d) sign Borrower's
name on any of documents described in Section 4.3 or on any other similar
documents to be executed, recorded or filed in order to perfect or continue
perfected Fremont's security interest in the Collateral; (e) sign Borrower's
name on any invoices, bills of lading, freight bills, chattel paper, documents,
instruments or similar documents or agreements relating to the Accounts,
Inventory or other Collateral, drafts against Account Debtors, schedules and
assignments of Accounts, verifications of Accounts and notices to Account
Debtors; (f) send requests for verification of Accounts; (g) endorse Borrower's
name on any checks, notes, acceptances, money orders, drafts or other items of
payment or proceeds relating to any Collateral that may come into Fremont's
possession and deposit the same to the account of Fremont for application to the
Obligations; (h) do all other acts and things necessary, in Fremont's
determination, to fulfill Borrower's obligations under this Agreement or any of
the other Loan Documents; (i) at any time that an Event of Default has occurred
and is continuing, notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Fremont, to receive and
open all mail addressed to Borrower, and to retain all mail relating to the
Collateral and forward all other mail to Borrower; (j) at any time that an Event
of Default has occurred and is continuing, use the information recorded on or
contained in any data processing equipment and computer hardware and software
relating to the Accounts, Inventory, Equipment and any other Collateral and to
which Borrower has access; (k) at any time that an Event of Default has occurred
and is continuing, make, settle and adjust all claims under Borrower's policies
of insurance, make all determinations and decisions with respect to such
policies of insurance and endorse the name of Borrower on any check, draft,
instrument or other item of payment for the proceeds of such policies of
insurance; (l) at any time that an Event of Default has occurred and is
continuing, sell or assign any of the Accounts and other Collateral upon such
terms, for such amounts and at such time or times as Fremont deems advisable;
and (m) at any time that an Event of Default has occurred and is continuing,
settle, adjust or compromise disputes and claims respecting the Accounts
directly with Account Debtors, for amounts and upon terms that Fremont
determines to be reasonable, and, in furtherance thereof, execute and deliver
any documents and releases that Fremont determines to be necessary. The
appointment of Fremont as Borrower's attorney-in-fact and each and every one of
Fremont's rights and powers, being coupled with an interest, is irrevocable
until all of the Obligations have been fully repaid and performed and this
Agreement has been terminated.
4.5 Right To Inspect. Fremont, through any of its officers,
employees or agents, shall have the right at any time or times during Borrower's
usual business hours, or during the usual business hours of any third party
having control over any of Borrower's Books, to inspect Borrower's Books in
order to verify the amount or condition of, or any other matter relating to, the
Collateral or Borrower's financial condition. Fremont also shall have the right
at any time or times during Borrower's usual business hours to inspect and
examine the Inventory and the Equipment and to check and test the same as to
quality, quantity, value and condition. If an Event of Default has occurred or
if Fremont reasonably believes that an Event of Default has occurred, Fremont
may conduct any of the inspections referenced in this Section 4.5 at any time
without regard to Borrower's or any third party's usual business hours.
5. REPRESENTATIONS AND WARRANTIES
Borrower makes the following representations and warranties to
Fremont and each such representation and warranty shall be deemed to be repeated
with each Revolving Advance made by Fremont and shall be conclusively presumed
to have been relied on by Fremont regardless of any investigation made or
information possessed by Fremont. The following representations and warranties
shall be cumulative and in addition to any and all other representations and
warranties which Borrower shall now or hereafter give, or cause to be given, to
Fremont.
5.1 No Prior Encumbrances; Security Interests. Borrower has good
and indefeasible title to the Collateral, free and clear of liens, claims,
security interests or encumbrances, except for those permitted under Section
7.2.
5.2 Accounts. All of Borrower's Accounts constitute bona fide
existing obligations created by the sale and delivery of Inventory or the
rendition of services to Account Debtors in the ordinary course of Borrower's
business, and, in the case of Accounts created by the sale and delivery of
Inventory, the Inventory giving rise to such Accounts has been delivered to the
Account Debtor. At the time of the creation of each Eligible Account or the
assignment thereof to Fremont, each such Eligible Account is unconditionally
owed to Borrower without defense, dispute, offset, counterclaim or right of
return or cancellation and Borrower has not received notice of actual or
imminent bankruptcy, insolvency or material impairment of the financial
condition of the Account Debtor regarding such Eligible Account.
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5.3 Eligible Inventory. All Eligible Inventory is of good and
merchantable quality, free from defects.
5.4 Location of Inventory and Equipment. The Inventory and
Equipment are not stored with a bailee, warehouseman, processor or similar party
unless Fremont has consented thereto in writing and are located only at the
following locations: Tighe Warehouse, 390 Oakland Street, Mansfield,
Massachusetts; VJI, 6410 W74th Street, Bradford, Illinois.
5.5 Inventory Records. Borrower keeps correct and accurate records
itemizing and describing the kind, type, quality and quantity of the Inventory
and Borrower's cost therefor.
5.6 Location of Chief Executive Office. The chief executive office
of Borrower is located at the address stated in the first paragraph of this
Agreement.
5.7 Due Incorporation and Qualification. Borrower is a corporation
duly organized and existing and in good standing under the laws of the state of
its incorporation and is qualified or licensed to do business in, and is in good
standing in, any state in which the failure to be qualified or licensed and in
good standing could have a material adverse effect on Borrower's business or the
Collateral.
5.8 Fictitious Name(s). Borrower is conducting its business at the
present time under the following trade or fictitious name(s): Annie's. Borrower
has complied with the fictitious name laws of all jurisdictions in which
compliance is required in connection with its use of such name(s). During the
five (5) years prior to the date of this Agreement, Borrower has not conducted
business under any trade or fictitious name(s) in addition to those stated
above.
5.9 Permits and Licenses. Borrower holds all licenses, permits,
franchises, approvals and consents as are required in the conduct of its
business and the ownership and operation of its properties.
5.10 Due Authorization; No Conflict. The execution, delivery and
performance of the Loan Documents to which Borrower is a party are within
Borrower's corporate powers, have been duly authorized and are not in conflict
with nor constitute a breach of any provision contained in Borrower's Articles
or Certificate of Incorporation or Bylaws, nor will they create a default under
any material agreement to which Borrower is a party.
5.11 Litigation. There are no actions or proceedings pending by or
against Borrower before any court or administrative agency and Borrower has no
knowledge or notice of any pending, threatened or imminent litigation,
governmental investigations, or claims, complaints, actions or prosecutions
involving Borrower, except for ongoing collection matters in which Borrower is
the plaintiff and such matters as have been disclosed to Fremont in writing.
5.12 Taxes. All assessments and taxes, whether real, personal or
otherwise, due or payable by, or imposed, levied or assessed against Borrower or
any of its property or in connection with Borrower's business have been paid in
full prior to delinquency or the expiration of any extension period.
5.13 No Material Adverse Change in Financial Condition. All
financial statements relating to Borrower which have been or may hereafter be
delivered by Borrower to Fremont have been prepared in accordance with GAAP and
fairly present Borrower's financial condition as of the date thereof and
Borrower's results of operations for the period then ended. There has been no
material adverse change in the financial condition of Borrower since the date of
the most recent of such financial statements submitted to Fremont.
5.14 Solvency. Borrower is solvent and able to pay its debts
(including trade debts) as they mature. No transfer of property is being made by
Borrower and no obligation is being incurred by Borrower in connection with the
transactions contemplated by this Agreement or the other Loan Documents with the
intent to hinder, delay or defraud either
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present or future creditors of Borrower.
5.15 ERISA. Neither Borrower, nor any ERISA Affiliate nor any Plan is
or has been in violation of any of the provisions of ERISA, any of the
qualification requirements of IRC Section 401(a), or any of the published
interpretations thereof. No lien upon the assets of Borrower has arisen with
respect to any Plan. No prohibited transaction within the meaning of ERISA
Section 406 or IRC Section 4975(c) has occurred with respect to any Plan.
Neither Borrower nor any ERISA Affiliate has incurred any withdrawal liability
with respect to any Multiemployer Plan. Borrower and each ERISA Affiliate have
made all contributions required to be made by them to any Plan or Multiemployer
Plan when due. There is no accumulated funding deficiency in any Plan, whether
or not waived.
5.16 Environmental Laws and Hazardous Materials. Borrower has
complied with all Environmental Laws. Except as previously disclosed to Fremont
in writing and for de minimus amounts of Hazardous Materials used in the
ordinary course of Borrower's business in strict compliance with all applicable
Environmental Laws, Borrower has not caused or permitted any Hazardous Materials
to be located, incorporated, generated, stored, manufactured, transported to or
from, released, disposed of or used at, upon, under or within any premises at
which Borrower conducts its business, or in connection with Borrower's business.
To the best of Borrower's knowledge, no prior owner or operator of any premises
at which Borrower conducts its business has caused or permitted any of the above
to occur at, upon, under or within any of such premises.
5.17 Intellectual Property. Borrower does not own or have rights as
licensee in or to any trademarks or patents or have any trademark or patent
applications pending, except as has been disclosed in writing to Fremont.
5.18 Labor and Employment Disputes. There are no pending grievances,
disputes or controversies with any union or other organization of Borrower's
employees, or pending threats of strikes or work stoppages, or demands for
collective bargaining by any union or other organization of Borrower's
employees.
6. AFFIRMATIVE COVENANTS
Borrower covenants and agrees that during the term of this Agreement
and until payment in full of the Obligations, and unless Fremont shall otherwise
consent in writing, Borrower shall do all of the following:
6.1 Accounting System. Borrower at all times shall maintain a
standard and modern system of accounting in accordance with GAAP with ledger and
account cards or computer tapes, disks, printouts and records pertaining to the
Collateral which contain information as may from time to time be requested by
Fremont. Borrower also shall keep proper books of account showing all sales,
claims and allowances on its Inventory.
6.2 Collateral Reports. Borrower shall deliver to Fremont, no later
than the fifteenth day of each month during the term of this Agreement, a
detailed aging of the Accounts, a reconciliation statement and a summary aging,
by vendor, of all accounts payable. Borrower shall deliver to Fremont, as
Fremont may from time to time require, collection reports, sales journals,
invoices, original delivery receipts, customers' purchase orders, shipping
instructions, bills of lading and other documentation respecting shipment
arrangements. Absent such a request by Fremont, copies of all such documentation
shall be held by Borrower as custodian for Fremont.
6.3 Returns. Returns and allowances, if any, as between Borrower and
its Account Debtors, shall be permitted by Borrower on the same basis and in
accordance with the usual and customary practices of Borrower as they exist at
the time of the execution and delivery of this Agreement. If any Account Debtor
returns any Inventory to Borrower, Borrower shall promptly determine the reason
for such return and, if Borrower accepts such return, issue a credit memorandum
(with a copy to be sent to Fremont) in the appropriate amount to such Account
Debtor. Borrower shall promptly notify Fremont of all returns and recoveries and
of all disputes and claims.
6.4 Designation of Inventory. Borrower shall now and from time to
time hereafter, but not less frequently than weekly, execute and deliver to
Fremont a designation of Inventory specifying Borrower's cost and the
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wholesale market value of Borrower's finished goods, and further specifying such
other information as Fremont may reasonably request.
6.5 Financial Statements, Reports, Certificates. Borrower shall
deliver to Fremont: (a) as soon as available, but in any event within thirty
(30) days after the end of each month during each of Borrower's fiscal years, a
company prepared balance sheet and profit and loss statement covering Borrower's
operations during such period; and (b) as soon as available, but in any event
within ninety (90) days after the end of each of Borrower's fiscal years,
financial statements of Borrower for each such fiscal year, audited by
independent certified public accountants acceptable to Fremont. All such annual
financial statements shall include a balance sheet and profit and loss
statement, together with the accountants' letter to management. Borrower shall
also deliver Borrower's Form 10-Qs, 10-Ks or 8-Ks, and any other filings made by
Borrower with the Securities and Exchange Commission, if any, as soon as the
same shall be filed therewith, and any other report reasonably requested by
Fremont relating to the Collateral or the financial condition of Borrower,
including financial projections, and a certificate signed by the chief financial
officer of Borrower to the effect that all reports, statements or computer
prepared information of any kind or nature delivered or caused to be delivered
to Fremont under this Section 6.5 fairly present the financial condition of
Borrower and that there exists on the date of delivery of such certificate to
Fremont no condition or event which constitutes an Event of Default. If Borrower
is a parent company of one or more subsidiaries or is a subsidiary of another
company, then, in addition to the financial statements referred to above,
Borrower agrees to deliver financial statements prepared on a consolidating
basis so as to present Borrower and each such related entity separately, and on
a consolidated basis.
6.6 Litigation. Borrower shall promptly notify Fremont in writing of
any litigation, governmental investigations or criminal prosecutions involving
Borrower, other than collection matters in which Borrower is the plaintiff.
6.7 Tax Returns, Receipts. Borrower shall deliver to Fremont copies
of each of Borrower's federal income tax returns, and any amendments thereto,
within thirty (30) days after the filing thereof with the Internal Revenue
Service. Furthermore, Borrower shall deliver to Fremont, promptly upon request
by Fremont, satisfactory evidence of Borrower's payment of all federal
withholding taxes required to be paid by Borrower.
6.8 Guarantor Tax Returns. Borrower shall cause each guarantor of
the Obligations to deliver to Fremont copies of such guarantor's federal income
tax returns within thirty (30) days after the filing thereof with the Internal
Revenue Service.
6.9 Title to Equipment. Upon Fremont's request, Borrower shall
immediately deliver to Fremont, properly endorsed, any and all evidences of
ownership of, or certificates of title or applications for title to, any items
of Equipment.
6.10 Maintenance of Equipment. Borrower shall keep and maintain the
Equipment in good operating condition and repair and shall make all necessary
replacements thereto so that the value and operating efficiency thereof shall at
all times be maintained and preserved. Borrower shall not permit any item of
Equipment to become a fixture to real estate or an accession to other property,
and the Equipment is now and shall at all times remain personal property.
6.11 Taxes. All assessments and taxes, whether real, personal or
otherwise, due or payable by, or imposed, levied or assessed against Borrower or
any of its property or in connection with Borrower's business shall be paid in
full prior to delinquency or the expiration of any extension period except (a)
as to which a bona fide dispute may arise and as to which Borrower is diligently
contesting in good faith in all appropriate proceedings and (b) no lien in
respect thereof has arisen or is applicable to any of the Collateral and (c) for
which Borrower has made provision, acceptable to Fremont, for payment in the
event that it may become obligated to make such payment. Borrower shall make due
and timely payment or deposit of all federal, state and local taxes, assessments
or contributions required of it by law and will execute and deliver to Fremont,
on demand, appropriate certificates attesting to the payment or deposit thereof.
Borrower shall make timely payment or deposit of all tax payments and
withholding taxes required of it by applicable laws, including those laws
concerning F.I.C.A., F.U.T.A., state disability and local, state and federal
income taxes, and shall, upon request, furnish Fremont with proof satisfactory
to Fremont indicating that Borrower has made such payments or deposits.
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6.12 Insurance. Borrower, at its expense, shall keep and maintain the
Collateral insured against all risk of loss or damage from fire, theft,
vandalism, malicious mischief, explosion, sprinklers and all other hazards and
risks of physical damage included within the meaning of the term "extended
coverage" in such amounts as are ordinarily insured against by other similar
businesses. Borrower shall also keep and maintain comprehensive general public
liability insurance and property damage insurance, and insurance against loss
from business interruption, insuring against all risks relating to or arising
from Borrower's ownership and use of the Collateral and Borrower's other assets
and the operation of Borrower's business. All such policies of insurance shall
be in such form, with such companies and in such amounts as may be satisfactory
to Fremont. Borrower shall deliver to Fremont certified copies of such policies
of insurance and evidence of the payments of all premiums therefor. All such
policies of insurance (except those of public liability and property damage)
shall contain a Lender's Loss Payable endorsement in a form satisfactory to
Fremont, naming Fremont as loss payee thereof (as its interests appear), and
shall contain a waiver of warranties. All proceeds payable under any such policy
shall be payable to Fremont to be applied to the Obligations.
6.13 No Offsets or Counterclaims. All payments hereunder and under
the other Loan Documents made by or on behalf of Borrower shall be made without
offset or counterclaim, and Borrower hereby waives any right to offset, against
the repayment of the Obligations, any claims it may have against Fremont.
6.14 Fremont Expenses. Borrower shall immediately and without demand
reimburse Fremont for all sums expended by Fremont which constitute Fremont
Expenses and Borrower hereby authorizes and approves all Revolving Advances and
payments by Fremont for items constituting Fremont Expenses. Borrower
acknowledges that Fremont Expenses include, among other things, (a) Fremont's
reasonable attorneys fees and expenses incurred in defending or otherwise
representing Fremont concerning the Loan Documents or the Obligations and (b)
charges resulting from the dishonor of checks. Since Fremont Expenses are a part
of the Obligations which are secured by the Collateral, Fremont shall not be
required to discharge any lien or terminate any security interest in the
Collateral unless and until (y) Borrower and Fremont execute a mutual general
release of liability and indemnification in favor of and acceptable to Fremont
and (z) to the extent another financial institution refinances the Obligations,
such financial institution delivers an agreement, acceptable to Fremont, to
indemnify Fremont for loss arising from checks delivered to Fremont for
collection and payment of the Obligations which are returned for non-payment or
for any other reason.
6.15 Compliance with Law. Borrower shall comply with the requirements
of all applicable laws, rules, regulations and orders of governmental
authorities relating to Borrower and the conduct of Borrower's business,
including the Fair Labor Standards Act and the Americans with Disabilities Act.
6.16 Location of Inventory and Equipment. Borrower shall keep the
Inventory and Equipment only at the locations identified in Section 5.4.
6.17 Environmental Laws and Hazardous Materials. Borrower shall not
permit any lien under any Environmental Law to be filed against any of the
Collateral or any of Borrower's real property in which Fremont holds a lien, and
will promptly notify Fremont of any proceeding, inquiry or claim relating to any
alleged violation of any Environmental Law, or any alleged loss, damage or
injury resulting from any Hazardous Material. Fremont shall have the right to
join and participate in, as a party if it so elects, any legal or administrative
proceeding initiated against Borrower or any guarantor of the Obligations with
respect to any Hazardous Material or in connection with any Environmental Law.
6.18 Letter of Credit. Borrower shall cause the Letter of Credit to
be maintained in effect in a minimum amount of $500,000.00.
7. NEGATIVE COVENANTS
Borrower covenants and agrees that during the term of this Agreement
and until payment in full of the Obligations, Borrower will not do any of the
following without Fremont's prior written consent:
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7.1 Indebtedness. Create, incur, assume, permit or otherwise become
liable with respect to any indebtedness outside of the ordinary and usual course
of Borrower's business, except (a) indebtedness set forth in Borrower's latest
financial statements submitted to Fremont prior to the date of this Agreement
and renewals or extensions of such indebtedness and (b) the Obligations.
7.2 Security Interests. Create, incur, assume or permit to exist any
security interest, lien, pledge, mortgage or encumbrance on any Collateral or on
any of Borrower's real property in which Fremont holds a lien, except (a) the
security interests granted to Fremont by Borrower, (b) the security interests
disclosed in the UCC searches obtained by Fremont prior to the funding of the
initial Revolving Advance hereunder and (c) any security interest which Borrower
has disclosed in writing to Fremont and to which Fremont has given its prior
written consent.
7.3 Extraordinary Transactions. Enter into any transaction not in
the ordinary and usual course of Borrower's business, including the sale, lease
or other disposition of, whether by sale or otherwise, any of Borrower's assets
other than sales of Inventory in the ordinary and usual course of Borrower's
business; or make any advance, loan or capital contribution to any Person except
in the ordinary and usual course of Borrower's business.
7.4 Change Name. Change Borrower's name, business structure or
identity, or add any new fictitious name.
7.5 Fundamental Changes. Enter into any acquisition, merger,
consolidation, reorganization or recapitalization, or reclassify its capital
stock, or liquidate, wind up or dissolve itself (or suffer any liquidation or
dissolution), or acquire by purchase or otherwise all or substantially all of
the assets, stock or other beneficial ownership interest of any other Person.
7.6 Guaranty. Guaranty or otherwise become in any way liable with
respect to the obligations of any third party except by endorsement of
instruments or items of payment for deposit to the account of Borrower for
negotiation and delivery to Fremont.
7.7 Restructure. Make any change in Borrower's capital structure or
in the principal nature of Borrower's business operations.
7.8 Prepayments. Prepay any indebtedness owing to any third party.
7.9 Change of Ownership. Cause, permit or suffer any transfer,
whether direct or indirect, of the ownership of ten percent (10%) or more of
Borrower's outstanding capital stock or other beneficial ownership interest in
any single transaction or series of transactions, except as may be required
under existing agreements between Borrower and its stockholders as in effect on
the date hereof and disclosed to Fremont.
7.10 Compensation. Pay total compensation, including salaries,
withdrawals, fees, bonuses, commissions, drawing accounts, management fees or
other payments, whether directly or indirectly, in money or otherwise, during
any fiscal year to all of Borrower's executives, officers, shareholders,
affiliates, and directors (or any relatives thereof) in an aggregate amount in
excess of one hundred thirty percent (130%) of those paid in the prior fiscal
year.
7.11 Loans to Insiders. Make any loans, advances or extensions of
credit to any officer, director, executive, employee or shareholder of Borrower,
or any relative of any of the foregoing, or to any entity which is a subsidiary
of, related to, affiliated with or has common shareholders, officers or
directors with Borrower, which when aggregated with all other loans, advances or
extensions of credit to any or all of the above Persons at any time outstanding
during the term of this Agreement, exceeds Ten Thousand Dollars ($10,000.00);
except (i) reasonable advances in respect of salary and travel expenses to
directors, officers and employees including under the provisions of corporate
credit cards in the usual and ordinary course of Borrower's business and in an
aggregate amount not to exceed $15,000, (ii) loans to optionees as may be
permitted under the terms of Borrower's stockholder approved incentive
compensation plans as in effect on this date hereof in an aggregate amount not
in excess of $186,768 and (iii) the loans outstanding on the date
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hereof in the aggregate amount of $105,810.
7.12 Capital Expenditures. Make any capital expenditure, or any
commitment therefor, in excess of Ten Thousand Dollars ($10,000.00) for any
individual transaction or where the aggregate amount of such capital
expenditures, made or committed for in any fiscal year, is in excess Fifty
Thousand Dollars ($50,000.00).
7.13 Consignments. Consign any Inventory (except to Liberty in
accordance with past policies and practices of Borrower as previously disclosed
to Fremont); or sell any Inventory on bill and hold, sale on approval or other
conditional terms of sale.
7.14 Distributions. Make any distribution or declare or pay any
dividends (in cash or in stock) on, or purchase, acquire, redeem or retire any
of Borrower's capital stock, of any class, whether now or hereafter outstanding.
7.15 Accounting Methods. Modify or change its method of accounting
(except as may be required by changes in GAAP occurring after the date hereof as
recommended by the Borrower's independent public accountants) or enter into,
modify or terminate any agreement currently existing or at any time hereafter
entered into with any third party accounting firm or service bureau for the
preparation or storage of Borrower's accounting records without said accounting
firm or service bureau agreeing to provide Fremont information regarding the
Collateral or Borrower's financial condition. Borrower waives the right to
assert a confidential relationship, if any, it may have with any accounting firm
or service bureau in connection with any information requested by Fremont
pursuant to or in accordance with this Agreement, and agrees that Fremont may
contact directly any such accounting firm or service bureau in order to obtain
such information.
7.16 Suspension. Suspend or go out of business.
7.17 Location of Chief Executive Office. Relocate its chief executive
office to a new location unless Fremont is given thirty (30) days prior written
notice thereof.
8. EVENTS OF DEFAULT
The occurrence of any one or more of the following events shall
constitute an "Event of Default" under this Agreement:
8.1 Failure to Pay. Borrower fails to pay when due and payable, or
when declared due and payable, any portion of the Obligations (whether
principal, interest, fees and charges due Fremont, reimbursement of Fremont
Expenses, or other amounts constituting Obligations);
8.2 Failure to Perform. Borrower fails or neglects to perform, keep
or observe any term, provision, condition, representation, warranty, covenant or
agreement contained in this Agreement, in any of the other Loan Documents or in
any other present or future agreement between Borrower and Fremont;
8.3 Misrepresentation. Any warranty, representation, statement or
report made to Fremont by Borrower (other than those warranties,
representations, statements or reports covered by Section 8.4) or any officer,
employee, agent or director of Borrower shall when made or deemed made be false
or misleading in any material respect, or if any such warranty or representation
is withdrawn by any of them;
8.4 Misrepresentation of Collateral. Any writing, document, aging,
certificate or other evidence of the Eligible Accounts or Eligible Inventory
shall be incomplete, incorrect or misleading at the time the same is furnished
to Fremont; or Borrower shall fail to immediately remit to Fremont proceeds of
Accounts and other Collateral, pursuant to the terms of Section 2.6;
16
<PAGE>
8.5 Material Adverse Change. There is a material adverse change in
Borrower's business or financial condition;
8.6 Material Impairment. There is a material impairment of the
prospect of repayment of any portion of the Obligations owing to Fremont or a
material impairment of the value or priority of Fremont's security interests in
the Collateral;
8.7 Levy or Attachment. Any material portion of Borrower's assets is
attached, seized, subjected to a writ or distress warrant, or is levied upon, or
comes into the possession of any judicial officer;
8.8 Insolvency by Borrower. An Insolvency Proceeding is commenced by
Borrower;
8.9 Insolvency Against Borrower. An Insolvency Proceeding is
commenced against Borrower;
8.10 Injunction Against Borrower. Borrower is enjoined, restrained or
in any way prevented by court order from continuing to conduct all or any
material part of its business affairs;
8.11 Government Lien. A notice of lien, levy or assessment is filed
of record with respect to any of Borrower's assets by the United States
government, or any department, agency or instrumentality thereof, or by any
state, county, municipal or other governmental agency, or any taxes or debts
owing at any time hereafter to any one or more of such entities becomes a lien,
whether choate or otherwise, upon any of Borrower's assets and the same is not
paid on the payment date thereof;
8.12 Judgment. Any judgment for the payment of money is entered
against Borrower in excess of $25,000 and shall remain undischarged or unvacated
for a period in excess of ten (10) days or execution thereon shall at any time
not be effectively stayed;
8.13 Cross Default to Material Agreements. There is a default in any
material agreement to which Borrower is a party with one or more third parties
or by which Borrower or Borrower's property or assets are bound;
8.14 Subordinated Debt Payments. Borrower makes any payment on
account of indebtedness that has been contractually subordinated in right of
payment to the payment of the Obligations, except to the extent such payment is
permitted by the terms of the subordination agreement applicable to such
indebtedness;
8.15 Loss of Guarantor. Any guarantor of the Obligations dies,
terminates his/her/its guaranty, or contests his/her/its obligations under such
a guaranty; or if any such guaranty of the Obligations ceases to be valid or
enforceable for any reason;
8.16 ERISA Violation. A prohibited transaction within the meaning of
ERISA Section 406 or IRC Section 4975(c) shall occur with respect to a Plan
which could have a material adverse effect on the financial condition of
Borrower; any lien upon the assets of Borrower in connection with any Plan shall
arise; Borrower or any ERISA Affiliate shall completely or partially withdraw
from a Multiemployer Plan and such withdrawal could, in the opinion of Fremont,
have a material adverse effect on the financial condition of Borrower; Borrower
or any of its ERISA Affiliates shall fail to make full payment when due of all
amounts which Borrower or any of its ERISA Affiliates may be required to pay to
any Plan or any Multiemployer Plan as one or more contributions thereto;
Borrower or any of its ERISA Affiliates creates or permits the creation of any
accumulated funding deficiency, whether or not waived; the voluntary or
involuntary termination of any Plan which termination could, in the opinion of
Fremont, have a material adverse effect on the financial condition of Borrower;
or Borrower shall fail to notify Fremont promptly and in any event within ten
(10) days of the occurrence of any event which constitutes an Event of Default
under this clause or would constitute such an Event of Default upon the exercise
of Fremont's judgment; or
8.17 Criminal Proceedings. Criminal proceedings are instituted
against Borrower, any member of
17
<PAGE>
Borrower's senior management or any guarantor of the Obligations that could
result in the forfeiture or loss of Collateral or a material impairment of the
financial condition of Borrower or any guarantor of the Obligations.
Notwithstanding anything contained in this Section 8 to the contrary,
Fremont shall refrain from exercising its rights and remedies and an Event of
Default shall not be deemed to have occurred by reason of the occurrence of any
of the events set forth in Sections 8.7, 8.9 or 8.11 of this Agreement if,
within ten (10) days from the date thereof, the same is released, discharged,
dismissed, bonded against or satisfied; provided, however, Fremont shall not be
obligated to make Revolving Advances to Borrower during such period or during
the ten (10) day cure period allowed under Section 8.12.
9. FREMONT'S RIGHTS AND REMEDIES
9.1 Rights and Remedies. Upon the occurrence and during the
continuance of an Event of Default, Fremont may, at its election, without notice
of its election and without demand, do any one or more of the following, all of
which are authorized by Borrower:
(a) Declare all Obligations, whether evidenced by this
Agreement, any of the other Loan Documents or otherwise, immediately due and
payable in full;
(b) Cease advancing money or extending credit to or for the
benefit of Borrower under this Agreement, any of the other Loan Documents or any
other agreement between Borrower and Fremont;
(c) Terminate this Agreement and any of the other Loan
Documents as to any future liability or obligation of Fremont, but without
affecting Fremont's rights and security interest in the Collateral and without
affecting the Obligations;
(d) Settle or adjust disputes and claims directly with
Account Debtors for amounts and upon terms which Fremont considers advisable
and, in such cases, Fremont will credit Borrower's loan account with only the
net amounts received by Fremont in payment of such disputed Accounts, after
deducting all Fremont Expenses incurred or expended in connection therewith;
(e) Cause Borrower to hold all returned Inventory in trust
for Fremont, segregate all returned Inventory from all other property of
Borrower or in Borrower's possession and conspicuously label said returned
Inventory as the property of Fremont;
(f) Without notice to or demand upon Borrower or any
guarantor, make such payments and do such acts as Fremont considers necessary or
reasonable to protect its security interest in the Collateral. Borrower agrees
to assemble the Collateral if Fremont so requires and to deliver or make the
Collateral available to Fremont at a place designated by Fremont. Borrower
authorizes Fremont to enter any premises where the Collateral is located, to
take and maintain possession of the Collateral, or any part of it, and to pay,
purchase, contest or compromise any encumbrance, charge or lien that in
Fremont's determination appears to be prior or superior to its security interest
and to pay all expenses incurred in connection therewith. With respect to any of
Borrower's owned premises, Borrower hereby grants Fremont a license to enter
into possession of such premises and to occupy the same, without charge, in
order to exercise any of Fremont's rights or remedies provided herein, at law,
in equity, or otherwise;
(g) Without notice to Borrower (such notice being expressly
waived) and without constituting a retention of any collateral in satisfaction
of an obligation (within the meaning of Section 9505 of the Code), set off and
apply to the Obligations any and all (i) balances and deposits of Borrower held
by Fremont (including any amounts received in a lockbox or blocked account), or
(ii) indebtedness at any time owing to or for the credit or the account of
Borrower held by Fremont;
(h) Hold, as cash collateral, any and all balances and
deposits of Borrower held by Fremont (including any amounts received in a
lockbox or blocked account) to secure the Obligations;
18
<PAGE>
(i) Ship, reclaim, recover, store, finish, maintain, repair,
prepare for sale, advertise for sale and sell (in the manner provided for
herein) the Collateral. Fremont is hereby granted a license or other right to
use, without charge, Borrower's labels, patents, copyrights, rights of use of
any name, trade secrets, trade names, trademarks, service marks, and advertising
matter, or any property of a similar nature, as it pertains to the Collateral,
in completing production of, advertising for sale and selling any Collateral.
Borrower's rights under all licenses and all franchise agreements shall inure to
Fremont's benefit;
(j) Sell the Collateral at either a public or private sale,
or both, by way of one or more contracts or transactions, for cash or on terms,
in such manner and at such places (including Borrower's premises) as Fremont
determines is commercially reasonable. It is not necessary that the Collateral
be present at any such sale;
(k) Fremont shall give notice of the disposition of the
Collateral as follows:
(1) Fremont shall give the Borrower and each holder of a
security interest in the Collateral who has filed with Fremont a written request
for notice, a notice in writing of the time and place of public sale or, if the
sale is a private sale or some other disposition other than a public sale is to
be made, then the time on or after which the private sale or other disposition
is to be made;
(2) The notice shall be personally delivered or mailed,
postage prepaid, to Borrower as provided in Section 12, at least five (5)
calendar days before the date fixed for the sale, or at least five (5) calendar
days before the date on or after which the private sale or other disposition is
to be made, unless the Collateral is perishable or threatens to decline speedily
in value. Notice to Persons other than Borrower claiming an interest in the
Collateral shall be sent to such addresses as they have furnished to Fremont;
(l) Fremont may credit bid and purchase at any public sale;
(m) Any deficiency that exists after disposition of the
Collateral as provided above shall be paid immediately by Borrower. Any excess
will be remitted without interest by Fremont to the party or parties legally
entitled to such excess; and
(n) In addition to the foregoing, Fremont shall have all
rights and remedies provided by law and any rights and remedies contained in any
other Loan Documents. All such rights and remedies shall be cumulative.
9.2 No Waiver. No delay on the part of Fremont 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 under this Agreement
or otherwise, preclude other or further exercise of the right, power or
privilege or the exercise of any other right, power or privilege.
10. TAXES AND EXPENSES REGARDING THE COLLATERAL
If Borrower fails to pay any monies (whether taxes, assessments,
insurance premiums or otherwise) due to third parties regarding the Collateral,
or fails to make any deposits or furnish any required proof of payment or
deposit, or fails to perform any of Borrower's other covenants under the terms
of this Agreement, then in its discretion and without prior notice to Borrower,
Fremont may do any or all of the following: (a) make any payment which Borrower
has failed to pay or any part thereof; (b) set up such reserves in Borrower's
loan account as Fremont deems necessary to protect Fremont from the exposure
created by such failure; (c) obtain and maintain insurance policies of the type
described in Section 6.12 and take any action with respect to such policies as
Fremont deems prudent; or (d) take any other action deemed necessary by Fremont
to preserve and protect its interests and rights under this Agreement. Any
payments made by Fremont shall not constitute an agreement by Fremont to make
similar payments in the future or a waiver by Fremont of any Event of Default
under this Agreement. Fremont need not inquire as to, or contest the validity
of, any such expense, tax, security interest, encumbrance or lien and the
receipt of notice for the payment thereof shall be conclusive evidence that the
same was validly due and owing.
11. WAIVERS AND INDEMNIFICATIONS
19
<PAGE>
11.1 Waivers. Borrower waives demand, protest, notice of protest,
notice of default or dishonor, notice of payment and nonpayment, notice of any
default, notice of nonpayment at maturity, notice of intention to accelerate and
notice of acceleration, so that Fremont may exercise any and all rights and
remedies under the Loan Agreement or any other Loan Documents, or as otherwise
provided at law or in equity, immediately upon the occurrence of any Event of
Default, without any further notice, grace or opportunity to cure whatsoever.
Borrower further waives notice prior to Fremont's taking possession or control
of the Collateral, any bond or security which might be required by any court
prior to allowing Fremont to exercise any of Fremont's remedies, and the benefit
of all valuation, appraisement and exemption laws. Borrower agrees that Fremont
may compromise, settle or release without notice to Borrower any accounts,
documents, instruments, chattel paper or guaranties at any time held by Fremont
on which Borrower may in any way be liable.
11.2 No Marshaling. Borrower, on its own behalf and on behalf of its
successors and assigns, hereby expressly waives all rights, if any, to require a
marshaling of assets by Fremont or to require that Fremont first resort to some
or any portion of the Collateral before foreclosing upon, selling or otherwise
realizing on any other portion thereof.
11.3 Fremont's Liability for Collateral. So long as Fremont complies
with its obligations, if any, under Section 9207 of the Code, Fremont shall not
in any way or manner be liable or responsible for: (a) the safekeeping of the
Collateral; (b) any loss or damage thereto occurring or arising in any manner or
fashion from any cause; (c) any diminution in the value thereof; or (d) any act
or default of any carrier, warehouseman, bailee, forwarding agency or other
Person. All risk of loss, damage or destruction of the Collateral shall be borne
by Borrower.
11.4 Indemnification. Borrower shall defend, indemnify and hold
harmless Fremont, its directors, officers, agents, employees, participants and
assigns (each, an "Indemnified Party"), from and against any and all claims,
suits, actions, causes of action, debts, liabilities, damages, losses,
obligations, charges, judgments and expenses, including attorneys fees and
costs, of any nature whatsoever, in any way relating to or arising from the
transactions contemplated by this Agreement or any other Loan Document
(including those relating to or arising from any alleged or actual violation of
any Environmental Law, or any loss, damage or injury resulting from any
Hazardous Material); provided that the foregoing indemnification shall not
extend to liabilities, damages, losses, obligations, judgments and expenses of
an Indemnified Party proximately caused by the gross negligence or willful
misconduct of such Indemnified Party. This indemnification provision shall
survive the termination of this Agreement.
12. NOTICES
Unless otherwise provided in this Agreement, all notices or demands
by any party relating to this Agreement, the Loan Documents or any other
agreement entered into in connection herewith shall be in writing and (except
for financial statements and other informational documents which may be sent by
first-class mail, postage prepaid) shall be personally delivered or sent by
registered or certified mail, postage prepaid, return receipt requested, or by
receipted overnight delivery service to Borrower or to Fremont, as the case may
be, at their addresses set forth below:
If to Borrower: Annie's Homegrown, Inc.
180 Second Street, Suite 202
Chelsea, MA 02150
Attn: President
If to Fremont: FREMONT FINANCIAL CORPORATION
666 Fifth Avenue, 21st Floor
New York, New York 10103
Attn: Regional Credit Manager
The parties hereto may change the address at which they are to
receive notices hereunder by notice in writing in the foregoing manner given to
the other. All notices or demands sent in accordance with this Section 12, other
than notices by Fremont in connection with Sections 9504 and 9505 of the Code,
shall be deemed received on the earlier of the date of actual
20
<PAGE>
receipt or three (3) calendar days after the deposit thereof in the mail.
Borrower acknowledges and agrees that notices sent by Fremont in connection with
Sections 9504 or 9505 of the Code shall be deemed sent when deposited in the
mail or otherwise sent by Fremont in accordance with the delivery methods set
forth above.
13. DESTRUCTION OF BORROWER'S DOCUMENTS
All documents, schedules, invoices, agings or other papers delivered
to Fremont may be destroyed or otherwise disposed of by Fremont four (4) months
after they are delivered to or received by Fremont unless Borrower requests, in
writing, the return of said documents, schedules, invoices, agings or other
papers and makes arrangements, at Borrower's expense, for their return.
14. GENERAL PROVISIONS
14.1 Effectiveness. This Agreement and the other Loan Documents
shall be binding and deemed effective when executed by Borrower and Fremont.
14.2 Successors and Assigns. This Agreement shall bind and inure
to the benefit of the respective successors and assigns of each of the parties;
provided, however, that Borrower may not assign this Agreement or any rights or
duties hereunder without Fremont's prior written consent and any prohibited
assignment shall be void and of no effect as against Fremont. No consent to an
assignment by Fremont shall release Borrower from its Obligations. Fremont and
its successors and assigns may assign this Agreement and any other Loan Document
and its rights and duties hereunder and thereunder. Fremont reserves the right
to sell, assign, transfer, negotiate or grant participations in all or any part
of, or any interest in Fremont's rights and benefits hereunder. In connection
therewith, Fremont may disclose all documents and information which Fremont now
or hereafter may have relating to Borrower or Borrower's business. Borrower
expressly consents to any assignment by Fremont to its wholly owned subsidiary,
Fremont Funding Inc., of certain of Fremont's rights hereunder and under the
other Loan Documents, including the beneficial interest in loans made by
Fremont, and any subsequent assignment by Fremont Funding Inc. to LaSalle
National Bank (or any successor trustee), as trustee of the Fremont Small
Business Loan Master Trust, of such rights.
14.3 Section Headings. Headings and numbers have been set forth
herein for convenience only. Unless the contrary is compelled by the context,
everything contained in each paragraph applies equally to this entire Agreement.
14.4 Interpretation. Neither this Agreement nor any uncertainty or
ambiguity herein shall be construed or resolved against Fremont or Borrower,
whether under any rule of construction or otherwise. On the contrary, this
Agreement has been reviewed by all parties and shall be construed and
interpreted according to the ordinary meaning of the words used so as to fairly
accomplish the purposes and intentions of all parties hereto.
14.5 Severability of Provisions. Each provision of this Agreement
shall be severable from every other provision of this Agreement for the purpose
of determining the legal enforceability of any specific provision.
14.6 Amendments in Writing. Neither this Agreement nor any
provision hereof shall be amended, modified, waived or terminated orally or by
course of conduct or pattern of dealing, but only by a written agreement signed
by an authorized officer of Fremont. Any purported amendment, modification,
waiver or termination of this Agreement or any provision hereof that is not in
writing and signed by an authorized officer of Fremont shall be void and of no
effect.
14.7 Integration. This Agreement, together with the other Loan
Documents, reflects the entire agreement between the parties with respect to the
subject matter hereof. This Agreement, together with the other Loan Documents,
supersedes all prior agreements, understandings and negotiations, if any, which
are merged into this Agreement and the other Loan Documents.
14.8 Counterparts. This Agreement may be executed in any number of
counterparts and by different
21
<PAGE>
parties on separate counterparts each of which, when executed and delivered,
shall be deemed to be an original and all of which, when taken together, shall
constitute but one and the same Agreement.
14.9 Revival and Reinstatement of Obligations. If the incurrence or
payment of the Obligations by Borrower or any guarantor of the Obligations or
the transfer by either or both of such parties to Fremont of any property of
either or both of such parties should for any reason subsequently be declared to
be void or voidable under any state or federal law relating to creditors'
rights, including provisions of the Bankruptcy Code relating to fraudulent
conveyances, preferences and other voidable or recoverable payments of money or
transfers of property (a Voidable Transfer), and if Fremont is required to repay
or restore, in whole or in part, any such Voidable Transfer, or elects to do so
upon the reasonable advice of its counsel, then, as to any such Voidable
Transfer, or the amount thereof that Fremont is required or elects to repay or
restore, and as to all reasonable costs, expenses and attorneys fees of Fremont
related thereto, the liability of Borrower or such guarantor automatically shall
be revived, reinstated and restored and shall exist as though such Voidable
Transfer had never been made.
14.10 Consultation with Counsel. Borrower and Fremont acknowledge that
they have been given the opportunity to consult with counsel and other advisors
of their choice prior to entering into this Agreement.
14.11 Limitation of Liability. No claim may be made by Borrower or any
other Person against Fremont or the officers, directors, employees or agents of
Fremont for any special, indirect, punitive or consequential damages in respect
of any claim for breach of contract or any other theory of liability arising out
of or related to the transactions contemplated by this Agreement, or any act,
omission or event occurring in connection therewith, and Borrower hereby waives,
releases and agrees not to sue upon any claim for any such damages.
14.12 Telefacsimile Execution. Delivery of an executed counterpart of
this Agreement or any other Loan Document by telefacsimile transmission shall be
equally as effective as delivery of an executed hard copy of the same. Any party
delivering an executed counterpart of this Agreement or any other Loan Document
by telefacsimile transmission shall also deliver an executed hard copy of the
same, but the failure by such party to deliver an executed hard copy shall not
affect the validity, enforceability and binding effect of this Agreement or such
other Loan Document.
14.13 Finance Lender License. Fremont is licensed as a Finance Lender
by the California Department of Corporations, file number 603 2362.
15. CHOICE OF LAW AND VENUE
THE VALIDITY OF THIS AGREEMENT, ITS CONSTRUCTION, INTERPRETATION, AND
ENFORCEMENT AND THE RIGHTS OF THE PARTIES HERETO SHALL BE DETERMINED UNDER,
GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK;
PROVIDED, HOWEVER, THAT THE LAWS OF THE STATE IN WHICH THE COLLATERAL IS LOCATED
SHALL GOVERN WITH RESPECT TO (A) THE CREATION OF LIENS ON COLLATERAL LOCATED IN
SUCH STATE AND (B) THE METHOD, MANNER AND PROCEDURE FOR FORECLOSURE OF FREMONT'S
LIENS UPON ANY PORTION OF THE COLLATERAL LOCATED IN SUCH STATE AND THE
ENFORCEMENT IN SUCH STATE OF FREMONT'S OTHER REMEDIES WITH RESPECT TO THE
COLLATERAL LOCATED IN SUCH STATE.
THE PARTIES AGREE THAT ALL ACTIONS OR PROCEEDINGS ARISING IN CONNECTION
WITH THIS AGREEMENT SHALL BE TRIED AND LITIGATED ONLY IN THE STATE COURTS
LOCATED IN THE COUNTY OF NEW YORK, STATE OF NEW YORK, THE FEDERAL COURTS WHOSE
VENUE INCLUDES THE COUNTY OF NEW YORK, STATE OF NEW YORK, OR, AT THE SOLE OPTION
OF FREMONT, IN ANY OTHER COURT IN WHICH FREMONT SHALL INITIATE LEGAL OR
EQUITABLE PROCEEDINGS AND WHICH HAS SUBJECT MATTER JURISDICTION OVER THE MATTER
IN CONTROVERSY. THE PARTIES EXPRESSLY SUBMIT AND CONSENT IN ADVANCE TO SUCH
JURISDICTION IN ANY ACTION OR PROCEEDING COMMENCED IN ANY SUCH COURT, AND THE
PARTIES HEREBY WAIVE ANY OBJECTION WHICH EITHER MAY HAVE BASED UPON LACK OF
PERSONAL JURISDICTION AND HEREBY CONSENT TO THE GRANTING OF SUCH LEGAL OR
EQUITABLE RELIEF AS IS DEEMED APPROPRIATE BY ANY SUCH COURT. FURTHERMORE,
BORROWER AND FREMONT
22
<PAGE>
EACH WAIVES, TO THE EXTENT PERMITTED UNDER APPLICABLE LAW, ANY RIGHT EACH MAY
HAVE TO ASSERT THE DOCTRINE OF "FORUM NON CONVENIENS" OR TO OBJECT TO VENUE TO
THE EXTENT ANY PROCEEDING IS BROUGHT IN ACCORDANCE WITH THIS SECTION 15.
23
<PAGE>
16. WAIVER OF JURY TRIAL
BORROWER AND FREMONT HEREBY WAIVE THEIR RESPECTIVE RIGHTS TO A JURY
TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON OR ARISING OUT OF THIS
AGREEMENT OR ANY OF THE OTHER LOAN DOCUMENTS OR ANY OF THE TRANSACTIONS
CONTEMPLATED HEREIN OR THEREIN, INCLUDING CONTRACT CLAIMS, TORT CLAIMS, BREACH
OF DUTY CLAIMS AND ALL OTHER COMMON LAW OR STATUTORY CLAIMS. BORROWER AND
FREMONT REPRESENT THAT EACH HAS REVIEWED THIS WAIVER AND EACH KNOWINGLY AND
VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. IN THE EVENT OF LITIGATION, A COPY OF THIS AGREEMENT MAY BE FILED AS A
WRITTEN CONSENT TO A TRIAL BY THE COURT.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed in Boston, Massachusetts and accepted by Fremont at Fremont's place
of business in New York, New York.
BORROWER:
ANNIE'S HOMEGROWN, INC.,
a Delaware corporation
Signed By: /s/ Neil Raiff
-----------------------------
Print Name: Neil Raiff
Title/Capacity: Chief Financial Officer
FREMONT FINANCIAL CORPORATION,
a California corporation
Signed By: /s/ Robert J. Ostrowe
-----------------------------
Print Name: Robert J. Ostrowe
Title/Capacity: Vice President
24
<PAGE>
EXHIBIT A
FORM OF LETTER OF CREDIT
FOR LIBERTY RICHTER ACCOUNTS
25
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> DEC-31-1997
<CASH> 81,525
<SECURITIES> 0
<RECEIVABLES> 151,770
<ALLOWANCES> 0
<INVENTORY> 1,033,166
<CURRENT-ASSETS> 62,018
<PP&E> 109,272
<DEPRECIATION> 54,480
<TOTAL-ASSETS> 1,893,949
<CURRENT-LIABILITIES> 986,478
<BONDS> 0
0
0
<COMMON> 4,660
<OTHER-SE> 902,811
<TOTAL-LIABILITY-AND-EQUITY> 1,893,949
<SALES> 4,407,932
<TOTAL-REVENUES> 4,407,932
<CGS> 2,651,729
<TOTAL-COSTS> 1,908,666
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 23,879
<INCOME-PRETAX> 176,342
<INCOME-TAX> 667
<INCOME-CONTINUING> (177,009)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (177,009)
<EPS-PRIMARY> (.04)
<EPS-DILUTED> (.04)
</TABLE>
