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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-KSB
(Mark One)
XX Annual Report pursuant to section 13 or 15(d) of the Securities Exchange
- --
Act of 1934 for the fiscal year ended July 31, 1997 or
__ Transition report pursuant to section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from _______________ to
________________.
For the fiscal year ended July 31, 1997
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Commission file number 0-22556
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UNCLE B'S BAKERY, INC.
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(Exact name of small business issuer as specified in its charter)
Iowa 42-1267239
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
441 Dubuque Street, Ellsworth, Iowa 50075
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(Address of principal executive offices) (Zip Code)
Issuer's telephone number: (515) 836-4000
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Securities registered pursuant to Section 12(b) of the Exchange Act:
Title of each class Name of each exchange on which registered
________________________ ___________________________
________________________ ___________________________
Securities registered under Section 12(g) of the Exchange Act:
Common Stock, $.01 Par Value
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(Title of class)
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(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12
months (or for such shorter period that the Issuer was required to file such
reports), and (2) has been subject to such filing requirements for the past 90
days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-B is not contained herein, and will not be contained, to the
best of issuer's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-KSB or any amendment to
this Form 10-KSB. [ X ]
State issuer's revenues for its most recent fiscal year: $20,778,565
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The aggregate market value of the voting stock held by non-affiliates of the
issuer as of September 30, 1997, was approximately $1,986,386 (based on the
closing price of such stock as reported by NASDAQ on such date).
The number of shares outstanding of each of the issuer's classes of common
stock, as of September 30, 1997 was: Common Stock, $.01 par value; 3,656,258
shares.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the issuer's definitive Proxy Statement for its 1997 Annual
Meeting of Shareholders are incorporated by reference into Part III, as
specifically set forth in said Part III.
Transitional Small Business Disclosure Format (Check One): Yes No X
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PART I
Unless the context indicates otherwise, all references to the
"Company," "Uncle B's" or "Registrant" in this Annual Report on Form 10-KSB
relates to Uncle B's Bakery, Inc. The following United States trademarks owned
by the Company appear in this Form 10-KSB: Uncle B's(R), Millspring(TM),
RESEALABLE ZIP STRIP(TM) and Bagel To Go(TM).
Item 1. Description of Business.
GENERAL
Uncle B's Bakery, Inc. is a commercial bakery whose "Uncle B's" and
"Millspring" brands of fresh-tasting, never frozen bagels are displayed and
sold through supermarket refrigerated dairy cases and supermarket bread aisles
and deli departments. The Company's products, an alternative to frozen bagels,
are currently available in approximately 11,000 supermarkets in 47 states,
including locations in 38 of the top 52 food market territories in the United
States. Six of the top ten grocery chains in the nation now carry the
Company's products. The Company's packaging process permits Uncle B's bagels
to be stocked by grocers for up to four months in the refrigerated dairy case
and Millspring bagels up to twenty-one days in the bread aisle and deli
department without appreciable loss of quality.
Uncle B's was formed by William T. Rose, Jr. in 1985 as a retail bagel
bakery and restaurant. In 1987, the Company began experiencing demand for its
bagels from supermarkets in the Ames, Iowa area. The Company closed its retail
operations in early 1993 to focus exclusively on commercial baking. In 1989,
Mr. Rose developed the Company's production and packaging process, and in 1992
the Company began the widespread distribution of its fresh-tasting, never
frozen bagels. In 1996, the Company was the first in the industry to introduce
a consumer friendly RESEALABLE ZIP STRIP bagel package.
PRODUCTS
The Company can produce a complete range of bagels for the retail and
foodservice markets. The Company currently produces its fresh-tasting, never
frozen bagels using its proprietary recipies and production processes for sale
under two of its own brands, Uncle B's and Millspring, and produces bagels
using other formulas for sale in private label programs with certain major
retail chains. The Uncle B's product is the Company's refrigerated bagel with
a four month shelf life provided by the Company's proprietary packaging
process. The Millspring product is the Company's bread aisle/deli department
bagel with a 21-day shelf life due to this proprietary process. The Company
introduced in 1997, the Uncle B's "Bagel To Go" product, a single-serve bagel
with or without condiments, for convenience stores and vending machines. The
Bagel To Go product is currently in the initial stages of distribution.
The Company's branded bagels are not only packaged in a proprietary
manner to retain the freshness and taste of a traditional, fresh, "water"
bagel, but the Company also utilizes quality ingredients, production and
baking processes to produce what management believes are the highest quality
commercially baked bagels in the nation.
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For private label customers in the foodservice (bake off) or bagel
shop markets, the Company offers bagels in any form a customer desires -
fresh, refrigerated, frozen unbaked, frozen partially baked ("par baked"), or
frozen fully baked.
PRODUCT MARKET
The history of the bagel dates back to 1683, when a Viennese coffee
shop owner created a roll in the shape of the King of Poland's stirrup in
honor of the King's actions to end a siege by the Turks. Since 1683, the shape
of bagels has evolved from a stirrup to a circle and the availability has
evolved from coffee shops and bakeries to include supermarkets. The popularity
of the bagel has been firmly established for many years on the United States
East and West Coasts.
The Bakery Production & Marketing magazine reports that the bagel is
now seen as an alternative to sandwich bread in addition to being a breakfast
staple. Industry experts say the market for boiled bread is no where near the
saturation point.
American Bagel Association put American bagel consumption at 26 bagels
per person per year in 1996. Even though this was an increase from prior
reports, the Company believes there is still room for significant growth.
Sales trends show a consumer preference for fresh and refrigerated
bagels which are the markets targeted by the Company's refrigerated Uncle B's
product and its fresh-tasting bread aisle/deli department Millspring product.
The Company continues to be the market leader for refrigerated bagels with a
reported 35.4% share of the market. The IRI report for the 52 weeks ended in
July 1997 did not include sales of Uncle B's blueberry flavor and if included
would have increased the Company's computed market share.
Management believes that the Company's future growth will be from (1)
producing bagels for strategic alliances with foodservice companies, retail
bagel shops, supermarkets and convenience stores; (2) growing sales of the
Bagel-To-Go product in the convenience stores and vending machines; (3)
increasing Uncle B's market penetration and same store market share within the
markets currently served; and (4) expanding the distribution of Uncle B's
refrigerated bagels into the remaining 14 of the top 52 food market
territories within the United States. The degree of growth from these
strategies and the manner in which they will be pursued will depend upon the
opportunities for enhancing shareholder value.
SALES AND MARKETING
The Company sells its products to supermarket chains and independent
wholesalers primarily through food brokers. The brokers, which are independent
contractors, coordinate product promotions in their geographic areas and are
compensated on a percentage of net sales. As of July 31, 1997, the Company had
an active network of 64 food brokers.
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The Company has four regional sales managers who provide assistance to
the food brokers in the major markets served by Uncle B's in the eastern,
southeastern, midwestern and western United States. Each of the managers has
an extensive background and experience with large, national food companies.
The Company's Executive Vice President provides direction and policy
development for the Company's regional managers and food brokers.
The Company currently has accounts with supermarket chains selling one
or both of the branded products in approximately 11,000 stores in 38 of the
top 52 food market territories in the United States, which are:
Los Angeles Richmond New Haven/Hartford
New York Baltimore Salt Lake City
Chicago Syracuse Memphis
Houston Tampa Nashville
Philadelphia Seattle Orlando
Dallas Phoenix Louisville
Detroit Jacksonville Birmingham
Washington DC Des Moines Albany
Miami New Orleans Denver
Boston Milwaukee Atlanta
St. Louis San Antonio Raleigh/Durham
Pittsburgh Kansas City Omaha
Charlotte Portland
The Company expects over time to expand its sales coverage to each of the 52
largest food market territories in the continental United States.
The Company's marketing strategy is to meet consumer demands in the
refrigerated and bread aisle/deli department bagels along with foodservice
segments of the bagel industry. The Company has positioned the Uncle B's and
Millspring products as new brand categories (dairy case and bread aisle/deli
bagels) in order to satisfy consumer preference and further develop brand name
recognition. The refrigerated dairy case, bread aisle and deli departments are
high volume areas of a grocery store which offer high visibility and
facilitate impulse buying. The Company believes it is the only national bagel
producer to provide the consumer with high quality, fresh-tasting, never
frozen bagels. The Company's Uncle B's and Millspring logos are distinctive
and are intended to promote sales, brand identity and name recognition.
The Company's other marketing techniques include display racks,
billboards, point of purchase promotions, end of aisle bunkers, in-store
banners, and similar in-store advertising. The Company employs in-store
sampling and uses a special training manual to develop knowledgeable, well-
trained product demonstrators. The Company also uses radio advertisements.
BAGEL PRODUCTION
Uncle B's production methods closely follow the traditional "water
bagel" recipes and methods of production. The Company has custom designed its
production line equipment to permit use of the traditional methods on a mass
production scale.
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Uncle B's bagels are prepared and baked using a proprietary, seven
step process:
- Mixing high quality ingredients in a custom built mixer, which also
kneads the dough.
- Cutting individual portions of dough and forming them into balls
with a motion that simulates hand rolling. The dough is then allowed
to "relax" for a few minutes before being machine formed into the
recognizable bagel shape.
- Holding the bagels in a warm, humid environment that activates the
yeast.
- Cooling the bagels in a holding cooler in a process calling
"retarding." While this step is costly, it is necessary to produce a
superior product with a distinctive, rich flavor. Most mass
producing bagel companies skip this time consuming and capital
intensive step.
- Boiling the bagels in water which results in the shiny crust and
chewy texture which is characteristic of traditional "water" bagels.
Some manufacturers use steam injunction ovens to eliminate the
boiling step.
- Baking the bagel in a four-stage tunnel oven which duplicates the
baking effect of stone hearths and results in an authentic,
traditional, "water" bagel.
- Packing the bagels in heat sealed, tamper evident bags which are
date-coded and kept in storage until shipment to supermarket
warehouses. The bagels are never frozen. The Uncle B's product is
kept in refrigerated storage until shipment, while the Millspring
product is kept in unrefrigerated storage until shipment to the
customer. The Company believes that all other nationally distributed
bagel products are frozen at some point in the production or
distribution process.
Eight varieties of Uncle B's bagels were available during fiscal year
1997: Plain, Onion, Honey Wheat, Cinnamon Raisin, Sourdough, Egg, Blueberry
and Italian Herb. Millspring bagels are available in the same flavors, except
Egg, Italian Herb, and Sourdough. Uncle B's and Millspring bagels, depending
on flavor, contain on average 210 calories each. They contain approximately 9
grams of protein, 1.0 gram of fat, 44 grams of carbohydrates, and
approximately 300 milligrams of sodium. The Company's bagels are currently
available in a 15 ounce, five bagel package.
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PRODUCTION AND PACKAGING PROCESS
The Company's production and packaging process gives Uncle B's bagels
either a four month refrigerated or twenty-one day non-refrigerated shelf life
without freezing. In the process, a modified atmosphere is sealed into a
plastic package made to the Company's specifications. Management believes that
the Company's production and packaging process is a significant improvement
over other preservation techniques, including freezing.
A traditional, unfrozen bagel with no artificial preservatives has an
expected shelf life of one to three days and, if refrigerated, of up to 10
days. The Company's product has a non-refrigerated shelf life in an unopened
bag of approximately 21 days and a refrigerated shelf life of four months.
Frozen bagels begin to deteriorate in 7 to 10 days after being placed in the
refrigerator. Use of the Company's technology significantly reduces product
returns. The Company protects its production and packaging process as a trade
secret and has filed a patent application to protect its ownership of the
packaging process as applied to bagels. See "Business - Patent and Trademarks."
The Company continues to explore enhancements in its production and
packaging techniques in an effort to extend the shelf life and improve the
taste of its products. The Company introduced in April 1996 a RESEALABLE ZIP
STRIP bag which will ensure continued freshness and flavor to the customers.
The Company also intends to introduce new bagel varieties when justified by
market demand, and it continues to study new bakery products that can be
marketed using its technology.
COMPETITION
Management believes that the Company is the first to offer, on a
widespread basis, never frozen refrigerated and bread aisle/deli bagels with
an extended shelf life. Management is not aware of any other never frozen
bagel marketed from a supermarket dairy case, bread aisle or deli department of
a supermarket on a national basis.
The Company's products compete primarily with frozen bagels, and with
fresh bagels from supermarkets' in-store bakeries. Some frozen bagel producers
have turned to the "slacked-out" approach whereby a frozen bagel is thawed
prior to display and purchased by the consumer. The Company believes such
thawed bagels are inferior in quality to the Company's never frozen bagels.
The Company believes that the manufacturers of "slacked-out" bagel products
are attempting to capture a portion of the Company's success without the
quality product and packaging technology.
There are two major producers of bagels who have nationwide
distribution: Lenders, a division of Kellogg, and Sara Lee Corporation. Sara
Lee is reported to have test marketed fresh bagels in three areas. The Company
believes that Lenders is distributing a frozen bagel that is thawed and sold
either as a refrigerated or unrefrigerated bagel. The Company's bagels are
competitive with these national brands in product weight and retail price.
Additionally, management believes the Company's products are superior in terms
of freshness and flavor due to the high quality production and proprietary
packaging process. The remainder of the bagel market is fragmented in terms of
brand names for the consumer.
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KOSHER CERTIFICATION
The Company has received a "Circle U" designation from the Union of
Orthodox Jewish Congregations of America. The "Circle U" is the highest level
of Kosher certification and requires that the Company comply with specific
manufacturing procedures and standards.
SUPPLIERS
The Company uses a number of suppliers for essential raw materials. It
is not dependent on any one supplier for its food ingredients. Flour, the
primary ingredient, is a commodity that fluctuates in price. The Company has a
bulk flour storage facility and purchases flour by the ton on a fixed-price
contract basis. Other ingredients are also purchased in bulk, on a competitive
basis.
The Company has developed a new and improved higher quality bag with a
RESEALABLE ZIP STRIP which can be supplied by different suppliers. The
suppliers are believed to be capable of meeting the Company's anticipated
demand for packaging material.
The Company purchased approximately $6.9 million of raw materials in
fiscal 1997. The primary purchases in order of magnitude includes flour, bags
and boxes.
DISTRIBUTION
The Company utilizes contract carriers with refrigerated trucks to
distribute its Uncle B's and Millspring products directly to the supermarket
warehouses. The warehouses then deliver the bagels to their stores. Uncle B's
plant location in central Iowa, one-quarter mile off Interstate 35 and 50
miles north of Interstate 80, provides distribution efficiencies to all parts
of the continental United States.
Distribution of the foodservice product is performed by the customer.
GOVERNMENT REGULATION
The Company is subject to licensing and regulation by various state
and federal agencies, including those dealing with health, sanitation,
environment, building, planning, safety and fire. These agencies include, but
are not limited to, the Iowa Public Health Department, the Environmental
Protection Agency, the Department of Labor, the Food and Drug Administration,
the Consumer Product Safety Commission, and the Occupational Safety and Health
Administration. The failure of the Company to comply with laws and regulations
applicable to it could result in sanctions and penalties which could
materially and adversely affect the Company's business.
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Management does not believe that compliance with federal, state and
local laws and regulations relating to the discharge of materials into the
environment, or otherwise relating to the protection of the environment, will
have a material effect on the Company's capital expenditures, earnings or
competitive position. However, the use of non-recyclable food packaging is
receiving increased attention by various state governments. The Company's
proprietary film packaging is not easily recyclable, and the Company could be
materially adversely affected if jurisdictions including its major marketing
areas adopted such regulations.
The Company's products currently comply with the Food and Drug
Administration's ("FDA") manufacturing and labeling requirements. No assurance
can be given that the FDA or other regulatory agencies will not enact new, or
change existing, regulations that would adversely affect the Company.
PATENTS AND TRADEMARKS
The Company has applied for a patent covering its packaging technology
invented by William T. Rose, Jr. and Dr. Ricardo Molins. Mr. Rose and Dr.
Molins assigned their rights to the technology to the Company. The patent
application discloses the invention of a refrigerated bagel which has an
extended four month shelf life without freezing through the use, in
combination, of a specially-designed package, a modified atmosphere and a
bagel composite. The claims in the patent application have been refused by the
patent examiner, and thus, it is possible that the patent will not be issued or,
if issued, may be significantly reduced in scope. Consequently, there is no
assurance that the patent application will result in the issuance of a patent
or, if issued, will provide significant protection.
The Company also relies upon trade secret protection for its
confidential and proprietary information. There is no assurance that others
have not developed, or will not develop, substantially equivalent production
and packaging techniques or otherwise gain access to the Company's trade
secrets or technology, or that the Company can protect its trade secrets. The
Company requires its employees, consultants, and advisors to execute
confidentiality agreements upon the commencement of an employment or
consulting relationship with the Company. Each agreement provides that all
confidential information developed or made known during the course of the
relationship will be kept confidential and not disclosed to any third parties
except in specified circumstances. There can be no assurance, however, that
these agreements will provide meaningful protection, or adequate remedies, for
the Company's trade secrets in the event of unauthorized use of disclosure of
such information.
The Company has filed and received a federal trademark registration
for the wordmark "Uncle B's." The Company has also filed a trademark
application for the Uncle B's logo, which has been approved for publication by
the United States Patent and Trademark Office. The Company has filed an
application with the U.S. Patent and Trademark for the mark "Millspring." This
application is pending.
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EMPLOYEES
In fiscal year 1997, the Company averaged 188 full-time employees, 34
of whom fill administrative, sales, and clerical positions, and 154 of whom
are engaged in production and maintenance. As of September 30, 1997, the
Company had 155 full-time employees. The Company implemented staff reductions in
the third and fourth quarter of fiscal 1997 to reduce operating costs.
All employees are required to sign a Non Compete/Confidentially
Agreement. There have been no management-labor disputes and the Company is not
a party to any collective bargaining agreement. Employees receive Company
provided health insurance and 401(K) benefits after a specified period of
employment. The cost of this benefit is shared by both the employee and the
Company. Employment contracts with Mr. William T. Rose, Jr. and Mr. William T.
Rose, Sr. provide for such company-paid benefits. In addition, the Company has
established a vacation and paid holiday policy. All employees receive stock
options after one year of employment. Further, production and sales employees
participate in monthly and quarterly gain-sharing programs.
PRODUCT LIABILITY
The Company maintains $1,000,000 of product liability coverage per
event and $2,000,000 in the aggregate, with an additional $10,000,000 in
umbrella coverage in either circumstance.
Item 2. Description of Property.
The Company's 70,000 square foot baking plant is located in Ellsworth,
Iowa, approximately 50 miles north of Des Moines, Iowa, and approximately one-
quarter mile west of Interstate Highway 35. This facility was purchased in
March 1990 with the proceeds from an industrial development revenue bond
offering. The plant has been modified and additional equipment has been added
since the 1990 acquisition. In fiscal 1998, the Company expects to complete an
expansion project begun in fiscal 1996. The plant is located on six acres and
includes several maintenance and storage buildings totaling 8,000 square feet.
The facility includes 190,000 cubic feet of refrigerated storage and
approximately 16,500 cubic feet of freezer storage.
At current operating capacity, the Company's plant can produce an
average of approximately 28,000 Uncle B's or Millspring bagels per hour based
on a twenty two hour day. When the expansion is complete, the capacity will be
doubled. Capacity could change depending upon customer product specifications
and product mix. The Company expects to incur approximately $800,000 in
additional machinery and equipment purchases during fiscal 1998 to complete
the expansion project. The plant is in good condition and management believes
the Company is adequately protected by fire and casualty insurance.
Item 3. Legal Proceedings.
The Company is not a party to any material litigation and is not aware
of any threatened litigation that would have a material adverse effect on the
Company.
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Item 4. Submission of Matters to a Vote of Security Holders.
None.
PART II
Item 5. Market for Common Equity and Related Stockholder Matters.
The Company completed its initial public offering on October 13, 1993.
The Company's Common Stock is traded on the NASDAQ Small-Cap Marketsm under
the symbol "UNCB." As of October 17, 1997, the number of holders of record of
the Company's Common Stock was approximately 1430.
The following table, based on the NASD monthly statistical report,
sets forth the range of high and low closing prices, and the closing price on
the last trading day of the quarter, per share of Common Stock. Such
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission, and may not necessarily represent actual transactions.
High Low Close
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Fiscal 1996
1st Quarter Ending October 31, 1995 3 2 1/8 2 1/8
2nd Quarter Ending January 31, 1996 3 1/8 2 1/8 2 1/2
3rd Quarter Ending April 30, 1996 3 5/8 2 3/8 2 3/4
4th Quarter Ending July 31, 1996 4 3/4 2 5/8 3 5/8
Fiscal 1997
1st Quarter Ending October 31, 1996 3 9/16 2 2 1/8
2nd Quarter Ending January 31, 1997 3 1 7/8 2 1/4
3rd Quarter Ending April 30, 1997 2 5/8 1 5/8 1 5/8
4th Quarter Ending July 31, 1997 2 1 1 1/8
No dividends have been paid on the Company's Common Stock since the
Company's inception. The Company intends to retain future earnings to reduce
outstanding indebtedness and to finance growth, and, accordingly, it is
anticipated that no cash dividends will be paid for the foreseeable future. In
addition, the Company's outstanding industrial revenue bonds and the Company's
agreement with its lender both prohibit the Company from paying dividends
unless certain conditions are satisfied.
The Company's transfer agent and registrar is American Stock Transfer
and Trust Company, New York, New York.
Item 6. Management's Discussion and Analysis
GENERAL
Uncle B's Bakery, Inc. manufactures and distributes Uncle B's brand
refrigerated bagels which are displayed and sold in supermarket dairy cases
and Millspring brand fresh-tasting, never frozen bagels which are displayed
and sold in supermarket bread aisles or deli departments. The Company's
products are sold in over 11,000 supermarkets and in 38 of the top 52 food
market territories in the United States. The Company enhanced its position as
a branded product innovator with the introduction of a consumer friendly
RESEALABLE ZIP STRIP bagel package in April 1996.
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The loss in fiscal year 1997 was primarily the result of greater than
planned, yet necessary, expenses associated with the plant expansion,
manufacturing inefficiencies and a lower than expected sales volume. The lower
than expected sales volume was primarily in the fourth quarter and relates to
the mutual cancellation of a foodservice contract in the third quarter of the
fiscal year, while the manufacturing inefficiencies due to expansion were
occurring throughout the fiscal year. At the end of the fiscal year the
Company began initial testing and shipment of product to a retail bagel chain
which would partially replace lost sales volume.
RESULTS OF OPERATIONS
The following table sets forth, for the periods indicated, information
derived from the Statements of Operations and the percentage of net sales
represented by each item.
<TABLE>
<CAPTION>
$ Amount Percentage of Net Sales
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Year Ended July 31 Year Ended July 31
1997 1996 1997 1996
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<S> <C> <C> <C> <C>
Net sales $20,778,565 $17,404,528 100.0% 100.0%
Cost of goods sold:
Materials & ingredients 6,947,437 5,209,372 33.5% 29.9%
Labor & manufacturing overhead 6,528,422 4,676,592 31.4% 26.9%
----------- ----------- ------ ------
Total cost of goods sold 13,475,859 9,885,964 64.9% 56.8%
----------- ----------- ------ ------
Gross profit 7,302,706 7,518,564 35.1% 43.2%
Distribution expense 1,605,511 1,562,552 7.7% 9.0%
Selling, general &
administrative expense 5,945,926 7,634,379 28.6% 43.8%
----------- ----------- ------ ------
Loss from operations (248,731) (1,678,367) (1.2%) (9.6%)
Other income (expense):
Interest expense (531,568) (503,301) (2.6%) (2.9%)
Other 19,719 10,388 0.1% 0.1%
----------- ----------- ------ ------
Loss before income
taxes and cumulative effect
of accounting change (760,580) (2,171,280) (3.7%) (12.4%)
Income taxes -- -- -- --
----------- ----------- ------ ------
Loss before
cumulative effect of
accounting change (760,580) (2,171,280) (3.7%) (12.4%)
Cumulative effect on prior years
of change in accounting for new
account allowances -- (1,406,050) -- (8.1%)
----------- ----------- ------ ------
Net loss $(760,580) $(3,577,330) (3.7%) (20.5%)
=========== =========== ====== ======
</TABLE>
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YEAR ENDED JULY 31, 1997 COMPARED TO YEAR ENDED JULY 31, 1996
The Company's net sales in fiscal 1997 increased 19.4% to $20,778,565 as
compared to $17,404,528 in fiscal 1996. The sales growth is primarily due to
unit volume generated by the bake off product. Bagel sales increased to
2,197,000 cases in fiscal 1997 from 1,804,000 cases shipped in fiscal 1996. This
growth is less than the Company had expected. The principal reason for this is
the mutually canceled Heinz Bakery contract. This resulted in lower than
expected sales volume, primarily in the fourth quarter.
Material and ingredient costs at $6,947,437 were 33.5% of net sales in
fiscal 1997 as compared to 29.9% in fiscal 1996. The increase is primarily
related to a higher mix of the bake off product which comprised 28.4% of sales.
Labor and manufacturing costs were $6,528,422 (31.4% of net sales) in
fiscal 1997 as compared to $4,676,592 (26.9% of net sales) in fiscal 1996. This
increase reflects manufacturing inefficiencies related to new equipment
installation, additional new product specification requirements, along with the
lower margin for the bake off product as previously mentioned. The manufacturing
inefficiencies were primarily related to labor and utility costs.
Gross profit in 1997 decreased $215,858 to $7,302,706. Gross profit as a
percent of net sales was 35.1% versus 43.2% in fiscal 1996. This is a result of
the factors discussed above.
Distribution expense at $1,605,511 was 7.7% of net sales in fiscal 1997
as compared to 9.0% of net sales in fiscal 1996. The decrease is due to the bake
off product shipping costs being absorbed by the customer.
Selling, general and administrative expenses decreased $1,688,453 to
$5,945,926 or 28.6% of net sales in fiscal 1997, as compared to 43.8% in fiscal
1996. Trade allowance and advertising decreased $1,592,587 to $3,433,795, or
16.5% of net sales in fiscal 1997 as compared to 28.9% of net sales in fiscal
1996. One significant reason for the decrease was the addition of the bake off
sales (28.4% of net sales) which has minimal selling, general and
administrative expenses compared to the Company's branded products. The other
reason was the implemetation of the Company's program of selective advertising
and promotional spending that focuses on profitability by supporting the more
profitable supermarket customers.
Net loss in fiscal 1997 was $760,580 versus a net loss of $3,577,330 in
fiscal 1996. Before the cumulative effect of accounting change the Company had a
loss of $760,580 in fiscal 1997 versus a loss of $2,171,280 in fiscal 1996. The
Company's lower net loss in fiscal 1997 is a result of the factors identified
above.
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LIQUIDITY AND CAPITAL RESOURCES
As indicated above, in fiscal 1997 the Company experienced a lower than
expected sales increase and higher than expected costs. For these reasons,
working capital needs increased. In addition, the Company purchased $3,350,582
of new equipment and machinery during fiscal 1997.
The necessary funds for expansion purposes was provided by term loan
proceeds, working capital and construction fund balance. Repayment of the term
loan begins in August 1998. During fiscal 1997 the Company also had drawn
$50,000 on the revolving credit loan bringing the balance to $1,400,000.
Management believes this will remain outstanding throughout fiscal 1998. The
revolving credit loan is scheduled to expire in July 2000. Finally, of the
$3,122,000 outstanding Industrial Revenue Bonds, $125,000 is scheduled to mature
in fiscal 1998.
The Company projects cash provided by operations for fiscal 1998 to be
approximately $900,000. The Company also expects to expend approximately
$800,000 during fiscal 1998 to complete its expansion program.
Due to a reduction in sales volume during the second half of fiscal 1997
and projected sales volumes over the first half of fiscal 1998 because of the
mutual cancellation of a contract, the Company's short-term liquidity has been
adversely affected. As a result, the Company has implemented various action
plans in order to maintain adequate cash flow. The actions taken during the
fourth quarter of fiscal 1997 included: reduction in employment levels by
approximately 33%, reduction of all corporate officers' salaries in a range of
25% to 43%, reduction of other management salaries in a range of 5% to 15%, and
curtailment of certain employee benefits. The Company is continuing to
aggressively pursue new business to replace the lost volume.
In order to manage its working capital, the Company has not made timely
payments to certain trade creditors and has routinely extended payment of trade
payables beyond standard terms. However, to date delivery of goods from
suppliers has not been adversely affected. The Company expects this to continue
over the near term.
As a result of the third and fourth quarter losses, the Company did
not meet certain financial covenants of its primary loan agreement. In August
1997, these financial covenants were amended and the violations were waived.
For further information see Note 3 to the financial statements on page 24. The
Company forecasts that it may not comply with certain existing loan covenants
during some interim periods of fiscal 1998, however, based on past experience
it believes that these violations should be waived by the lender or that
satisfactory amendments to the covenants should be made. Due to a lack of a
written waiver or amendment at this time, the long-term debt has been
classified as a current liability for financial statement reporting purposes.
The Company plans to pursue various other alternatives to improve liquidity.
There can be no assurance as to the ultimate outcome of the constraint
on short-term liquidity. However, the Company believes its projected operating
cash flow, along with pursuing other sources, together with bank loans in
place at July 31, 1997, and subsequent $750,000 loan agreement signed August
25, 1997, should be sufficient to maintain adequate liquidity during fiscal
1998.
13
<PAGE>
CASH FLOWS FOR YEAR ENDED JULY 31, 1997
Net cash provided by operating activities during fiscal 1997 was
$1,729,983. The increase in the cash provided by operating activities was
primarily related to the reduction in net loss and the impact of a decrease in
working capital.
Net cash used by investing activities during fiscal 1997 was $3,140,384
due primarily to purchases of property, plant and equipment to continue with the
plant expansion.
Net cash provided by financing activities during fiscal 1997 was
$1,351,277. The primary source of financing was the decrease in the construction
fund balance along with proceeds from debt and sale of stock.
SEASONALITY AND INFLATION
The Company believes that there are certain seasonal trends in bagel
sales. December and January are months which reflect the lowest levels of sales
during the year. This is believed due to the Christmas holidays in which
consumers and supermarkets have concentrations on seasonal products. In July and
August, sales are lower due to more buns being consumed for hamburgers and hot
dogs instead of bagels.
Flour is a primary ingredient in the Company's products. Fluctuations in
flour's cost are due to factors beyond the control of the Company. After
considering competitive pressures in its market place, the Company would attempt
to offset the increased cost impact through increased sales prices. However,
this is not always possible.
The Company does not anticipate inflation will have a major impact on
future operations. However, the Company would attempt to either pass along
increases in its costs through increased sales prices or offset any such
increases by improved operating efficiencies and purchasing practices.
Item 7. Financial Statements.
Page Number
-----------
Report of Independent Auditors 15
Balance Sheets 16
Statements of Operations 18
Statements of Stockholders' Equity 19
Statements of Cash Flows 20
Notes to Financial Statements 21
14
<PAGE>
Report of Independent Auditors
The Board of Directors and Shareholders
Uncle B's Bakery, Inc.
We have audited the accompanying balance sheets of Uncle B's Bakery, Inc. as of
July 31, 1997 and 1996, and the related statements of operations, stockholders'
equity and cash flows for the years then ended. These financial statements are
the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Uncle B's Bakery, Inc. at
July 31, 1997 and 1996, and the results of its operations and its cash flows for
the years then ended in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, the Company has incurred
past operating losses and has a working capital deficiency. In addition, the
Company forecasts it may not be in compliance with certain loan covenants in
fiscal 1998, which may require a waiver from the lender. These conditions
raise substantial doubt about the Company's ability to continue as a going
concern. Management's plans as to these matters are also described in Note 1.
The financial statements do not include any adjustments that may result from
the outcome of this uncertainty.
As discussed in Note 1 to the financial statements, in 1996 the Company changed
its method of accounting for new account allowances.
/s/ ERNST & YOUNG LLP
Des Moines, Iowa
September 10, 1997
15
<PAGE>
Uncle B's Bakery, Inc.
Balance Sheets
<TABLE>
<CAPTION>
JULY 31
1997 1996
-------------------------------
<S> <C> <C>
Assets (Note 3)
Current assets:
Cash and cash equivalents $ 6,441 $ 65,565
Accounts receivable 1,023,606 1,690,319
Inventories (Note 2) 552,420 478,162
Prepaid expenses 137,873 88,307
-------------------------------
Total current assets 1,720,340 2,322,353
Property, plant and equipment, at cost:
Land 16,000 16,000
Building and improvements 2,709,056 2,375,297
Machinery and equipment 8,917,524 8,108,900
Construction in progress 6,604,078 4,452,634
-------------------------------
18,246,658 14,952,831
Less accumulated depreciation 3,874,816 2,854,472
-------------------------------
14,371,842 12,098,359
Other assets:
Construction fund balance (Note 3) -- 952,773
Deferred financing costs, net of
amortization of $165,877 in 1997
and $103,510 in 1996 421,139 468,734
Other 40,719 40,719
-------------------------------
461,858 1,462,226
-------------------------------
Total assets $16,554,040 $15,882,938
===============================
</TABLE>
16
<PAGE>
<TABLE>
<CAPTION>
JULY 31
1997 1996
-------------------------------
<S> <C> <C>
Liabilities and stockholders' equity
Current liabilities:
Accounts payable $ 2,000,631 $ 2,130,498
Accrued expenses 1,077,274 1,025,188
Long-term debt due within one
year (Notes 1 and 3) 12,065,759 110,000
-------------------------------
Total current liabilities 15,143,664 3,265,686
Long-term debt due after one year (Note 3) 760,187 11,456,483
Commitments and contingent liability
(Notes 4 and 9)
Stockholders' equity (Notes 3, 6 and 7):
Preferred stock, $.01 par value; 10,000,000
shares authorized, none issued -- --
Common stock, $.01 par value; 40,000,000
shares authorized, 3,656,258 and 3,545,147
shares issued and outstanding at July 31,
1997 and July 31, 1996, respectively 36,563 35,451
Additional paid-in capital 7,987,701 7,738,813
Deficit (7,374,075) (6,613,495)
-------------------------------
Total stockholders' equity 650,189 1,160,769
-------------------------------
Total liabilities and stockholders' equity $16,554,040 $15,882,938
===============================
</TABLE>
See accompanying notes.
17
<PAGE>
Uncle B's Bakery, Inc.
Statements of Operations
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1997 1996
-----------------------------------
<S> <C> <C>
Net sales $20,778,565 $17,404,528
Cost of goods sold:
Materials and ingredients 6,947,437 5,209,372
Labor and manufacturing overhead 6,528,422 4,676,592
-----------------------------------
Total cost of goods sold 13,475,859 9,885,964
-----------------------------------
Gross profit 7,302,706 7,518,564
Distribution expense 1,605,511 1,562,552
Selling, general and administrative expense 5,945,926 7,634,379
-----------------------------------
Loss from operations (248,731) (1,678,367)
Other income (expense):
Interest expense (531,568) (503,301)
Other 19,719 10,388
-----------------------------------
(511,849) (492,913)
-----------------------------------
Loss before income taxes and cumulative
effect of accounting change (760,580) (2,171,280)
Income taxes (Note 5) -- --
-----------------------------------
Loss before cumulative effect of
accounting change (760,580) (2,171,280)
Cumulative effect on prior years of change in
accounting for new account allowances (Note 1) -- (1,406,050)
-----------------------------------
Net loss $ (760,580) $(3,577,330)
===================================
Per share:
Loss before cumulative effect of accounting change $(.21) $(.61)
Cumulative effect of accounting change -- $(.40)
Net loss $(.21) $(1.01)
Weighted average number of common and common equivalent
shares outstanding 3,623,990 3,545,147
</TABLE>
See accompanying notes.
18
<PAGE>
Uncle B's Bakery, Inc.
Statements of Stockholders' Equity
<TABLE>
<CAPTION>
COMMON STOCK ADDITIONAL TOTAL
-------------------------- PAID-IN STOCKHOLDERS'
SHARES AMOUNT CAPITAL DEFICIT EQUITY
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, July 31, 1995 3,545,147 $35,451 $7,738,813 $(3,036,165) $ 4,738,099
Net loss -- -- -- (3,577,330) (3,577,330)
-------------------------------------------------------------------------------
Balance, July 31, 1996 3,545,147 35,451 7,738,813 (6,613,495) 1,160,769
Net loss -- -- -- (760,580) (760,580)
Issuance of common stock (Note 3) 111,111 1,112 248,888 -- 250,000
-------------------------------------------------------------------------------
Balance, July 31, 1997 3,656,258 $36,563 $7,987,701 $(7,374,075) $ 650,189
===============================================================================
</TABLE>
See accompanying notes.
19
<PAGE>
Uncle B's Bakery, Inc.
Statements of Cash Flows
<TABLE>
<CAPTION>
YEAR ENDED JULY 31
1997 1996
----------------------------------
<S> <C> <C>
Operating activities
Net loss $ (760,580) $(3,577,330)
Adjustments to reconcile net loss to net cash provided
(used) by operating activities:
Cumulative effect of accounting change -- 1,406,050
Depreciation 1,030,373 896,050
Amortization 62,367 58,840
Loss on sale of equipment 14,361 --
Changes in operating assets and liabilities:
Accounts receivable 666,713 (646,879)
Inventories (74,258) 135,986
Prepaid expenses (49,566) 51,933
Accounts payable 788,487 481,244
Accrued expenses 52,086 556,503
----------------------------------
Net cash provided (used) by operating activities 1,729,983 (637,603)
INVESTING ACTIVITIES
Purchases of property, plant and equipment (3,172,749) (5,094,537)
Proceeds from sale of equipment 32,365 --
----------------------------------
Net cash used by investing activities (3,140,384) (5,094,537)
FINANCING ACTIVITIES
Proceeds from long-term debt 273,276 6,809,920
Decrease (increase) in construction fund balance 952,773 (952,773)
Payments on long-term debt (110,000) (187,657)
Payments for deferred financing costs (14,772) (35,845)
Proceeds from issuance of common stock 250,000 --
----------------------------------
Net cash provided by financing activities 1,351,277 5,633,645
----------------------------------
Net decrease in cash and cash equivalents (59,124) (98,495)
Cash and cash equivalents at beginning of year 65,565 164,060
----------------------------------
Cash and cash equivalents at end of year $ 6,441 $ 65,565
==================================
SUPPLEMENTAL DISCLOSURES
Interest paid (net of amount capitalized) $ 413,368 $ 276,349
Noncash investing activity -- accounts payable for
property and equipment additions $ 177,833 $ 264,977
Noncash financing activity -- accounts payable converted
to long-term debt $ 1,096,187 $ --
</TABLE>
See accompanying notes.
20
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements
July 31, 1997
1. SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION
Uncle B's Bakery, Inc. (the Company) was incorporated as an Iowa corporation in
1985. The Company's fiscal year ends on July 31. The Company is a commercial
bakery which manufactures and distributes bagels throughout the United States.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
BASIS OF PRESENTATION
The accompanying financial statements have been prepared on a basis which
contemplates the realization of assets and satisfaction of liabilities in the
normal course of business. The Company had a net loss in fiscal 1997 and has
incurred losses in prior years. In addition, at July 31, 1997 the Company had
a working capital deficiency and forecasts that it may not be in compliance
with certain loan covenants during certain measurement dates of fiscal 1998.
The financial statements do not include any adjustments to reflect the
possible future effects on the recoverability and classification of assets or
the amounts and classification of liabilities that may result from the outcome
of this uncertainty.
As a result of past operating losses and the mutual cancellation of a major
customer contract (see Note 4), the Company has implemented various action
plans to maintain adequate cash flow. Actions taken include reduction in
employment levels and management salaries and a curtailment of certain
employee benefits. The Company plans to pursue various other alternatives to
improve liquidity and continues to agressively pursue new business to replace
the lost volume. Management believes that cash flow from ongoing operations,
along with possible sources of additional capital, should allow the Company to
continue operations.
CASH EQUIVALENTS
The Company considers all highly liquid investments with a maturity of three
months or less to be cash equivalents.
ACCOUNTS RECEIVABLE
Concentrations of credit risk with respect to trade receivables are limited due
to the number of customers and their geographic dispersion. The Company
performs initial and periodic credit evaluations of its customers and generally
does not require collateral.
INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market.
PROPERTY, PLANT AND EQUIPMENT
Depreciation of property, plant and equipment is provided over the estimated
useful lives of the assets using the straight-line method for financial
reporting.
Interest of approximately $692,000 and $361,000 was capitalized in fiscal 1997
and 1996, respectively. The capitalized interest is recorded as part of the
asset to which it relates and is amortized over the asset's estimated useful
life.
NEW ACCOUNT ALLOWANCES
Prior to August 1, 1995, the Company capitalized fees paid to customers to
obtain retail shelf or warehouse space. These costs were amortized on a
straight-line basis over the estimated benefit periods of 12 and 36 months. If
a customer was lost, unamortized fees were written off.
21
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Effective August 1, 1995, the Company changed its method of accounting for new
account allowances from the capitalization method to expensing the costs as
incurred. The change was made to conform with predominant industry practice and
because the new method is more practical to account for and will reflect more
conservative accounting. The change has been applied retroactively to costs
paid in prior years and results in a cumulative effect adjustment in fiscal 1996
of $1,406,050 (no income tax effect). The effect of the change was to decrease
the loss before cumulative effect of accounting change for 1996 by approximately
$969,000 ($.27 per share) and to increase the net loss by approximately $437,000
($.12 per share).
ADVERTISING COSTS
Advertising costs are expensed as incurred by the Company. Advertising expense
was approximately $570,000 and $789,000 in fiscal 1997 and 1996, respectively.
DEFERRED FINANCING COSTS
Deferred financing costs are amortized over the term of the related debt.
INCOME TAXES
The Company uses the liability method of accounting for income taxes. Under
this method, deferred income tax assets and liabilities are determined based on
the difference between financial reporting and income tax bases of assets and
liabilities using the enacted marginal tax rates. Deferred income tax expense
or benefit is based on changes in the asset or liability from period to period.
FAIR VALUE OF FINANCIAL INSTRUMENTS
Financial instruments include cash equivalents, accounts receivable, accounts
payable, and long-term debt. Except as indicated in the following sentence,
management believes the fair value of each of these financial instruments
approximate their carrying value in the balance sheet as of each balance sheet
date. A vendor note payable at July 31, 1997 with a carrying value of
$1,096,187 has an estimated fair value of $975,000.
LOSS PER SHARE
Loss per share amounts are computed based on the loss divided by the weighted
average number of shares of common stock and common stock equivalents
outstanding. The dilutive effect of common stock options and warrants is
determined using the treasury stock method.
EMERGING ACCOUNTING ISSUES
The Company is not aware of any accounting standards which have been issued and
which will require the Company to change current accounting policies or adopt
new policies, the effect of which would be material to the financial statements.
22
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
1. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
RECLASSIFICATIONS
Certain amounts in the 1996 financial statements have been reclassified to
conform to the 1997 presentation.
2. INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
JULY 31
1997 1996
------------------------------
<S> <C> <C>
Raw ingredients and packaging $414,266 $410,341
Finished goods 138,154 67,821
------------------------------
$552,420 $478,162
==============================
</TABLE>
3. LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
<CAPTION>
JULY 31
1997 1996
--------------------------------
<S> <C> <C>
Industrial Development Revenue Bonds, due in varying
semiannual principal payments through January 15, 2011,
interest payable semiannually at 8.5% (adjustable every
three years beginning July 1998), secured by certain
property, plant and equipment. (A) $ 3,122,000 $ 3,232,000
Revolving credit loan, due July 11, 2000, interest
payable quarterly at the base lending rate plus 1.5%
(10.0% at July 31, 1997). (B) 1,400,000 1,350,000
Term loan, interest payable quarterly at the base
lending rate plus 2% (10.5% at July 31, 1997),
principal payable in quarterly installments of $178,750
beginning August 1998, balance due May 1, 2002. (B) 7,150,000 6,900,000
Note payable to vendor, unsecured, due in weekly
principal payments of $7,000 beginning September 1,
1997, non-interest bearing to March 1999 then interest 1,096,187 --
at prime plus 1.5%, balance due October 1999.
Other 57,759 84,483
--------------------------------
12,825,946 11,566,483
Less amounts due within one year 12,065,759 110,000
--------------------------------
Long-term debt due after one year $ 760,187 $11,456,483
================================
</TABLE>
As discussed in Note 1, the Company forecasts that it may not comply with
certain existing loan covenants during certain measurement dates of fiscal
1998. The Company believes based on past experience that these future
violations should be waived by the lender and/or satisfactory amendments to
the covenants should be made. Due to the lack of a written waiver or amendment
at this time, the long-term debt has been classified as a current liability
for financial statement reporting purposes.
(A) Under the terms of Industrial Development Revenue Bond financing
agreements, the Company is subject to various restrictive covenants which,
among other things, require it to maintain certain financial covenants as
defined in the agreements.
23
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
(B) The revolving credit loan and term loan were made pursuant to a Loan and
Security Agreement, as amended, and are secured by a first or second
security interest in essentially all assets of the Company now owned or
subsequently acquired. The agreement has an interest rate option based on
either a defined base lending rate or quoted Eurodollar rate. The
agreement allows revolving loans up to the lesser of $1,500,000 or a
defined borrowing base determined by accounts receivable and inventory.
Borrowings up to an initial maximum of $6,900,000 (increased to $7,150,000
in November 1996) were available for draw under the term loan, subject to
the conditions in the agreement and generally for property and equipment
purchases. Certain term loan proceeds were held in a construction fund at
July 31, 1996, to be utilized for payment of property and equipment
purchases. In connection with a loan amendment in November 1996, the
lender purchased 111,111 shares of common stock for $250,000 cash and
received common stock warrants for 205,000 shares, both at a defined
average market price per share of $2.25.
The Company is required to pay a commitment fee of .5% per annum on the
unused amount of the revolving credit loan. The agreement also provides
for future interest rate reductions ranging from .25% to 1%, dependent on
meeting certain leverage ratios. The agreement contains various
restrictive covenants, including restrictions on capital expenditures,
payment of dividends and additional debt. The Company is also required to
maintain certain defined financial amounts and ratios including tangible
net worth, interest coverage, leverage and indebtedness/cash flow.
In August 1997, the Company obtained an additional term loan with cash
proceeds of $750,000. The new term loan bears interest at 3% payable in-
kind and is due in August 2002. The Company also issued warrants and re-
priced certain existing warrants held by the lender, as further described
in Note 6. In fiscal 1998, the total cash proceeds received will be
allocated based on fair value to the new term loan and the related
warrants, resulting in a debt discount of approximately $600,000 which will
be amortized over the loan term. In connection with these transactions,
certain financial covenants and other terms of the Loan and Security
Agreement were amended, including a deferral of the initial installment
payments on the $7,150,000 term loan (initially beginning August 1997) to
August 1998.
24
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
3. LONG-TERM DEBT (CONTINUED)
Aggregate maturities of long-term debt for years after July 31,
1998 are as follows:
1999 $ 345,548
2000 414,639
------------------
$ 760,187
==================
4. COMMITMENTS, MAJOR CUSTOMER AND RELATED PARTY TRANSACTIONS
The Company leases certain equipment under the terms of various operating
leases. Rental expense was approximately $46,000 and $39,000 for fiscal 1997
and 1996, respectively. At July 31, 1997, future minimum lease payments under
operating leases were not material.
The Company periodically enters into forward fixed-price purchase commitments
with market risk. Management believes such commitments are routinely settled in
the ordinary course of business and will have no adverse impact on the Company.
The Company has employment agreements with two officers for terms through July
1998, renewable annually thereafter. The agreements provide for a base salary
with annual adjustments, as well as various insurance and other benefits. The
agreements also provide certain registration rights for common shares held by
the individuals, which entitle each officer to one company-paid registration,
subject to certain restrictions.
In fiscal 1997, the Company had net sales to a major customer of approximately
$5.8 million (28%). The contract with this customer has been mutually canceled
and sales were discontinued effective in April 1997.
In fiscal 1996, the Company purchased equipment totaling approximately
$2,347,000 (none in 1997) which was sold or arranged by a bakery equipment
distributor which is affiliated with a former director of the Company.
5. INCOME TAXES
At July 31, 1997, net operating loss (NOL) carryforwards for income tax purposes
were approximately $9.1 million, expiring in 2005 through 2012. Due to various
capital transactions occurring in prior years, the Company will have annual
limitations of approximately $323,000 on the utilization of approximately $3.7
million of the NOL carryforwards under Section 382 of the Internal Revenue Code.
The remaining NOL carryforwards of approximately $5.4 million at July 31, 1997
are available without limitation.
25
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
5. INCOME TAXES (CONTINUED)
Due to existing NOL carryforwards and a related valuation allowance, the Company
has no net deferred tax asset or liability at July 31, 1997 or 1996. Components
of the net deferred balance are as follows:
<TABLE>
<CAPTION>
JULY 31
1997 1996
---------------------------------
<S> <C> <C>
Deferred tax assets:
NOL carryforwards $ 3,104,000 $ 2,600,000
Accounting for new account allowances 172,000 373,000
Other 54,000 67,000
Deferred tax liability - tax depreciation in excess of
financial statement amounts (920,000) (907,000)
---------------------------------
Net deferred tax asset 2,410,000 2,133,000
Valuation allowance (2,410,000) (2,133,000)
---------------------------------
Net deferred balance $ -- $ --
=================================
</TABLE>
A reconciliation of income tax expense (benefit) with the amount computed by
applying the statutory federal income tax rate to the pre-tax income or loss is
as follows:
<TABLE>
<CAPTION>
1997 1996
----------------------------------
<S> <C> <C>
Benefit based on federal statutory rate $(259,000) $(1,216,000)
Deferred benefit not recognized due to deferred tax
valuation allowance 259,000 1,216,000
----------------------------------
Income tax benefit $ -- $ --
==================================
</TABLE>
6. COMMON STOCK OPTIONS AND WARRANTS
The Company has various warrants outstanding (summarized below) for the purchase
of common stock, all of which are currently exercisable. The warrants issued in
July 1995, November 1996 and August 1997 may be exercised for the purchase of
either common stock or convertible preferred stock, at the option of the holder.
No warrants had been exercised as of July 31, 1997.
In August 1997, in connection with a loan amendment (see Note 3), the Company
issued a warrant to the lender for 650,000 shares at an exercise price of $.55
per share. In addition, the exercise price on the July 1995 and November 1996
warrants held by the lender was amended from $2.25 to $.55 per share.
26
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
6. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
Warrants outstanding, after giving effect to the August 1997 transaction, are as
follows:
<TABLE>
<CAPTION>
NUMBER OF EXERCISE PRICE
ISSUE DATE SHARES PER SHARE EXPIRATION
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
June 1993 283,500 $2.81 June 1998
October 1993 160,300 $3.75 October 1998
July 1995 215,000 $ .55 July 2005
November 1996 205,000 $ .55 November 2006
August 1997 650,000 $ .55 August 2007
----------------
1,513,800
================
</TABLE>
The Company has established stock option plans pursuant to which options for up
to 650,000 shares may be granted to employees and certain non-employees and
50,000 shares may be granted to directors. At July 31, 1997, options for an
aggregate of 592,650 shares had been granted as shown below. The options become
exercisable and vest based on the below vesting schedules. Vesting and
exercisability under the employee plan representing 239,650 shares may be
accelerated upon achieving certain profitability goals of the Company. Certain
officer options also become fully vested in the event of a change in control of
the Company. At July 31, 1997, no options had been exercised. The Company
accounts for stock options in accordance with APB Opinion No. 25, and no
compensation expense has been recorded in 1997 or 1996 related to stock options.
<TABLE>
<CAPTION>
EXERCISE
NUMBER OF SHARES PRICE
---------------------------------
PLAN OUTSTANDING EXERCISABLE PER SHARE VESTING SCHEDULE EXPIRATION
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Employee 335,000 335,000 $2.86 - 3.25 All currently vested 2008 - 2009
Employee 239,650 49,982 $1.63 - 4.19 33-1/3% each in third, eighth and
ninth anniversary of grant 2003 - 2007
Director 8,000 6,000 $2.75 - 3.00 20% annually or at grant date 2003 - 2006
Non-employee 10,000 10,000 $2.86 All currently vested 2010
---------------------------------
Total at July 31, 1997 592,650 400,982
=================================
</TABLE>
27
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
6. COMMON STOCK OPTIONS AND WARRANTS (CONTINUED)
A summary of option activity is as follows:
<TABLE>
<CAPTION>
NUMBER OF Weighted Average
SHARES Exercise Price
---------------------------------------
<S> <C> <C>
Outstanding at July 31, 1995 561,650 $2.89
Options granted 35,600 $3.02
Options forfeited (18,000) $2.86
---------------
Outstanding at July 31, 1996 579,250 $3.01
Options granted 41,250 $2.72
Options forfeited (27,850)
--------------- $3.01
Outstanding at July 31, 1997 592,650 $2.99
===============
</TABLE>
The weighted-average exercise price for options which were exercisable at July
31, 1997 was $3.06.
Under FASB Statement No. 123, certain pro forma information is required as if
the Company had accounted for options under the alternative fair value method of
Statement No. 123. Pro forma net loss and net loss per share amounts were not
materially different from amounts as reported.
7. STOCKHOLDERS' EQUITY
The Company has reserved a total of 2,213,800 common shares for issuance under
options and warrants outstanding (includes warrants for 650,000 shares issued in
August 1997 -- see Note 6).
The Company's articles of incorporation provide for authorization of 10,000,000
shares of preferred stock. The board of directors may determine the
preferences, rights and other terms of any preferred stock. At July 31, 1997,
420,000 shares of convertible preferred stock had been authorized (none issued).
The preferred stock generally has no voting rights, has dividend rights ratable
and on a parity with common stock, and is convertible into common stock on a
share-for-share basis.
8. EMPLOYEE BENEFIT PLAN
The Company has a profit-sharing and 401(k) plan covering substantially all
full-time employees. Under the terms of the plan, participants may contribute
up to 20% of their salary to the plan. Provisions of the plan also allow the
Company to contribute annual amounts at the discretion of the Company's Board of
Directors. Expense related to the plan was not material in 1997 or 1996.
28
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
9. ECONOMIC DEVELOPMENT AND TRAINING INCENTIVES
In October 1995, the Company received economic development incentives from
certain governmental agencies totaling $500,000 in cash, including a $375,000
direct incentive and a $125,000 forgivable loan. The $375,000 was recorded in
income in fiscal 1996 as a reduction to the related expenses. The $125,000 loan
is forgiven if certain additional employment levels are met in the future. The
forgivable loan was initially recorded as long-term debt and is amortized to
income as the related employment levels are achieved (approximately $26,000 and
$41,000 recognized in 1997 and 1996, respectively). In connection with these
incentive awards, the Company is contingently liable to repay a portion of the
incentive if its employment level declines below a specified number prior to
January 1998.
In January 1996, the Company was also awarded a new jobs training incentive with
potential training cost reimbursements totaling approximately $134,000. In 1997
and 1996 approximately $19,000 and $83,000, respectively, of the incentive was
earned and was recorded as a reduction of the related expenses.
10. QUARTERLY FINANCIAL DATA (UNAUDITED)
Summarized unaudited quarterly financial information for the fiscal years ended
July 31, 1997 and 1996 is as follows:
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997
Net sales $6,381,279 $5,589,613 $5,330,566 $3,477,107 $20,778,565
Gross profit 2,445,460 2,024,533 1,578,438 1,254,275 7,302,706
Net income (loss) 267,994 15,330 (377,355) (666,549) (760,580)
Per share:
Net income (loss) $ 0.08 $ 0.00 $ (0.10) $ (0.18) $ (0.21)
Weighted average number of
common and common equivalent
shares outstanding 3,545,147 3,670,605 3,656,258 3,656,258 3,623,990
</TABLE>
29
<PAGE>
Uncle B's Bakery, Inc.
Notes to Financial Statements (continued)
10. QUARTERLY FINANCIAL DATA (UNAUDITED) (CONTINUED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER TOTAL
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1996
Net sales $ 4,034,981 $4,540,774 $4,513,563 $ 4,315,210 $17,404,528
Gross profit 2,024,109 2,064,407 2,205,297 1,224,751 7,518,564
Income (loss) before cumulative
effect of accounting change 150,202 (437,740) (89,450) (1,794,292) (2,171,280)
Net loss (1,255,848) (437,740) (89,450) (1,794,292) (3,577,330)
Per share:
Income (loss) before cumulative
effect of accounting change
$.04 $(.12) $(.03) $(.51) $(.61)
Net loss $(.35) $(.12) $(.03) $(.51) $(1.01)
Weighted average number of
common and common equivalent
shares outstanding 3,545,147 3,545,147 3,545,147 3,545,147 3,545,147
</TABLE>
30
<PAGE>
Item 8. Changes in and Disagreements With Accountants on Accounting and
Financial Disclosure.
None.
PART III
Item 9. Directors, Executive Officers, Promoters and Control Persons;
Compliance With Section 16(a) of the Exchange Act.
The information contained under the heading "Election of Directors,"
"Executive Officers of the Company" and "Certain Relationships and Related
Transactions" of the Company's definitive Proxy Statement for its Annual Meeting
of Shareholders (the "Proxy Statement"), which the Company will file within 120
days after the close of the Company's fiscal year, is hereby incorporated by
reference.
Item 10. Executive Compensation.
The information under the heading "Executive Compensation" in the Proxy
Statement is hereby incorporated by reference.
Item 11. Security Ownership of Certain Beneficial Owners and Management.
The information contained under the heading "Security Ownership of
Certain Beneficial Owners and Management" in the Proxy Statement is hereby
incorporated by reference.
Item 12. Certain Relationships and Related Transactions.
The information contained under the heading "Certain Relationships and
Related Transactions" in the Proxy Statement is hereby incorporated by
reference.
Item 13. Exhibits and Reports on Form 8-K.
(a) Exhibits
31
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
UNCLE B'S BAKERY, INC.
Dated: October 30, 1997 By:/s/ William T. Rose, Jr.
----------------------- ---------------------------------
William T. Rose, Jr.
President and Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Name Title Date
/s/ William T. Rose, Jr. Chairman, President, October 30, 1997
- ------------------------------
William T. Rose, Jr. Chief Executive Officer
(Principal Executive Officer)
and Director
/s/ Wm. Howard McClennan, Jr. Chief Financial Officer October 30, 1997
- ------------------------------
Wm. Howard McClennan, Jr. (Principal Financial and
Accounting Officer)
/s/ William T. Rose, Sr. Vice Chairman, Executive October 30, 1997
- ------------------------------
William T. Rose, Sr. Vice President & Director
/s/ Edward L. Campbell Director October 30, 1997
- ------------------------------
Edward L. Campbell
32
<PAGE>
Exhibit
Number Description
- ------- -----------
3.1 Restated Articles of Incorporation *
3.2 Restated Bylaws *
3.3 Articles of Amendment dated July 12, 1995 ***
3.4 Articles of Amendment dated November 14, 1996 *****
3.5 Articles of Amendment dated August 25, 1997 *****
4.3 Form of Warrants issued to
Series 1993 Debenture Holders *
4.4 Industrial Development Revenue Bond Loan
Agreement and Security Agreement *
4.7 Supplemental Indenture No. 3 to Indenture
of Trust **
4.8 Amendment No. 2 to Loan Agreement **
4.9 Reissuance Tax Certificate
Industrial Development Revenue Bonds **
4.10 Amended and Restated Loan Agreement
dated July 1, 1995 ***
4.11 Amended and Restated Indenture of Trust
dated July 1, 1995 ***
4.12 Warrant Agreement with Creditanstalt Corporate
Finance Inc. dated July 12, 1995 ***
4.13 First Amendment to Warrant Agreement with
Creditanstalt American Corporation,
dated November 15, 1996 ****
9.1 Voting Agreement Between William T. Rose,
Jr. and William T. Rose, Sr. *
10.1 Employment Agreement for William T. Rose, Jr. *
10.2 Employment Agreement for William T. Rose, Sr. *
10.3 1993 Stock Option Plan *
10.4 Form of Incentive Stock Option Agreement *
10.5 Non-Employee Director Stock Option Plan *
10.6 Form of Non-Employee Option Agreement *
10.7 Non-Qualified Stock Option Agreement
for William T. Rose, Jr. *
10.8 Non-Qualified Stock Option Agreement
for William T. Rose, Sr. *
10.10 Bakery License Agreement -
Metz Baking Company **
10.11 Employment Agreement dated April 20, 1995
for William Rose, Jr. ***
10.12 Employment Agreement dated April 20, 1995
for William Rose, Sr. ***
10.13 Non-Qualified Stock Option Agreement dated
October 18, 1994 for William Rose, Jr. ***
10.14 Non-Qualified Stock Option Agreement dated
October 18, 1994 for William Rose, Sr. ***
10.15 Loan and Security Agreement with
Creditanstalt Corporate Finance Inc. dated
July 12, 1995 ***
10.16 Purchase Order Dunbar Systems, Inc. ***
1
<PAGE>
10.17 Waiver & First Amendment to Loan & Security
Agreement dated October 28, 1996 ****
10.18 Second Amendment to Loan & Security Agreement
dated November 15, 1996 ****
10.19 Waiver & Third Amendment to Loan & Security
Agreement dated August 25, 1997 *****
10.20 Second Amendment to Warrant Agreement dated
August 22, 1997 *****
11 Statement Re: Computation of Earnings per Share *****
* Incorporated by Reference from Registrant's SB-2
** Incorporated by Reference from the Company's 1994 Form 10-KSB
*** Incorporated by Reference from the Company's 1995 Form 10-KSB
**** Filed Electonically with the Company's Form10Q for the period
ended October 31, 1996
***** Filed Electronically with the Company's 1997 Form 10-KSB
(b) Reports on Form 8-K
None.
2
<PAGE>
Exhibit 3.4
ARTICLES OF AMENDMENT
of
UNCLE B's BAKERY, INC.
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to section 1002 of the Iowa Business Corporation Act (the "Act"),
the undersigned corporation adopts the following amendment to the corporation's
articles of incorporation.
I. The name of the corporation is Uncle B's Bakery, Inc. (referred to
herein as the "Corporation").
II. The Corporation's Articles of Incorporation are hereby amended by
designating a series of the Corporation's Class B Stock, such series to
be known as the "Class B, Series 2 Preferred Stock" (referred to herein
as the "Series 2 Preferred Stock"). The preferences, limitations and
relative rights of the Series 2 Preferred Stock shall be as follows:
Section 1. Designation and Rank. The number of shares which shall
constitute the Series 2 Preferred Stock shall be four hundred twenty thousand
(420,000) shares, $0.01 par value per share. All shares of Series 2 Preferred
Stock shall rank equally and be identical in all respects. The Corporation shall
not be restricted from issuing additional securities of any kind, including
shares of preferred stock of any class, series or designation (including,
without limitation, preferred stock ranking in parity as to rights and
preferences with the Series 2 Preferred Stock now or hereafter authorized),
provided that issuances of the Series 2 Preferred Stock shall be limited to
issuances upon exercise of warrants (the "Warrants") issued pursuant to the
Warrant Agreement (the "Warrant Agreement") dated as of July 12, 1995, as
amended, between the Corporation and Creditanstalt Corporate Finance, Inc.
("Creditanstalt").
Section 2. Dividends. Dividends and other distributions, payable in cash
or other property shall be paid on the Series 2 Preferred Stock equally, ratably
and on a parity with such dividends and other distributions paid on the Class A
Stock, as and when such dividends and other distributions are declared by the
Board of Directors of the Corporation, as though the Class A Stock and Series 2
Preferred Stock were one and the same class; provided that in determining the
number of shares of Series 2 Preferred Stock outstanding and entitled to receipt
of any such dividend or other distribution, each share of Series 2 Preferred
Stock outstanding shall be deemed to be equal to the number of shares of Class A
Stock into which one share of Series 2 Preferred Stock could have been converted
on the record date for determining the holders of Class A Stock and Series 2
Preferred Stock entitled to receive payment of such dividend or other
distribution, after giving effect to any adjustments.
<PAGE>
Section 3. Voting Rights. Except as otherwise specifically provided by the
Iowa Business Corporation Act, as amended, the holders of Series 2 Preferred
Stock shall not be entitled to vote or give a consent to or on any matters
required or permitted to be submitted to the shareholders of the Corporation for
their approval.
Section 4. Liquidation. The Series 2 Preferred Stock shall be preferred
upon liquidation over the Class A Stock and any other class or classes of stock
of the Corporation which by its terms expressly provides that it ranks junior in
rights and preferences to the Series 2 Preferred Stock upon liquidation, so that
holders of shares of Series 2 Preferred Stock shall be entitled to be paid,
after full payment is made on any stock ranking prior to the Series 2 Preferred
Stock as to rights and preferences, but before any distribution is made to the
holders of the Class A Stock and such junior stock upon the voluntary or
involuntary dissolution, liquidation or winding up of the Corporation. The
amount payable on each share of Series 2 Preferred Stock in the event of the
voluntary or involuntary dissolution, liquidation or winding up of the
Corporation shall be $0.01 per share. If, upon any such liquidation, dissolution
or winding up of the Corporation, its net assets are insufficient to permit the
payment in full of the amounts to which the holders of all outstanding shares of
Series 2 Preferred Stock are entitled as above provided, the entire net assets
of the Corporation remaining (after full payment is made on any classes or
series of stock ranking prior to the Series 2 Preferred Stock) shall be
distributed among the holders of shares of Series 2 Preferred Stock in amounts
proportionate to the full preferential amounts to which they and holders of
shares of preferred shares ranking in parity with the Series 2 Preferred Stock
are entitled. After such payment shall have been made in full to the holders of
the Series 2 Preferred Stock, the holders of the outstanding Series 2 Preferred
Stock shall be entitled to no further participation in such distribution of the
assets of the Corporation and the remaining assets of the Corporation shall be
divided and distributed among the holders of the other classes of stock then
outstanding according to their respective rights and shares. For the purpose of
this Section 4, the voluntary sale, lease, exchange or transfer, for cash,
shares of stock, securities or other consideration, of all or substantially all
the Corporation's property or assets to, or its consolidation or merger with,
one or more corporations shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation, voluntary or involuntary. Notwithstanding the
foregoing, in the event that any holder of Series 2 Preferred Stock converts its
Series 2 Preferred Stock to Class A Stock pursuant to Section 5 hereof, the
right to preferential liquidation rights with respect to such converted stock
pursuant to this Section 4 shall be immediately terminated.
Section 5. Conversion Provisions.
(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Series 2 Preferred Stock shall be convertible at any time at the option
of the holder thereof, upon surrender to the transfer agent for the Series 2
Preferred Stock of the Corporation of the certificate or certificates evidencing
the shares so to be converted, into one fully paid and non-assessable share of
Class A Stock of the Corporation. Notwithstanding the foregoing provisions of
this Section 5, a holder of Series 2 Preferred Stock shall not have the right to
-2-
<PAGE>
convert the Series 2 Preferred Stock held by it if the Class A Stock to be
received upon conversion would, when aggregated with the shares of Class A Stock
(other than shares of Non-Attributable Stock (as defined herein)) previously
issued as Warrant Shares (as that term is defined herein) or issued in
conversion of Series 2 Preferred Stock previously issued as Warrant Shares or
owned or previously owned by such Holder, exceed 4.99% of the then outstanding
Class A Stock, unless the holder is a party other than a bank or an Affiliate of
a bank which is subject to the provisions of the Bank Holding Company Act of
1956 and the Class A Stock to be issued upon such conversion will constitute
Non-Attributable Stock, as hereinafter defined. For purposes of this provision,
"Non-Attributable Stock" shall mean shares of Class A Stock or Series 2
Preferred Stock which have been previously sold, or were issued pursuant to the
exercise of Warrants which were previously sold, either (i) in a widely
dispersed public offering; (ii) in a private placement in which no purchaser,
individually or in concert with others, acquired Class A Stock, Series 2
Preferred Stock, Warrants or any combination thereof, representing (upon
conversion, in the case of the Series 2 Preferred Stock, and upon exercise for
Class A Stock, in the case of the Warrants) more than 2% of the outstanding
Class A Stock; (iii) in compliance with Rule 144 (or any rule which is a
successor thereto) of the Securities Act of 1933, as amended; or (iv) in the
secondary market in a market transaction executed through a registered broker-
dealer in blocks of no more than 2.0% of the shares outstanding of the
Corporation in any six month period. The Corporation is entitled to rely on any
certificate provided to the Corporation by the holder of the Series 2 Preferred
Stock with respect to the holder's compliance with this Section 5. For purposes
of this provision, "Affiliate" of any individual, corporation, trust,
partnership or other entity shall mean any other individual, corporation, trust,
partnership or other entity directly or indirectly controlling, controlled by or
under direct or indirect common control with such individual, corporation,
trust, partnership or other entity. For purposes of this definition, as to
Creditanstalt, Affiliate shall include any partnership a majority of the
partners of which are officers, directors, employees or Affiliates of
Creditanstalt, and as to the Corporation, Affiliate shall not include
Creditanstalt.
(b) The number of shares of Class A Stock into which an issued and
outstanding share of Series 2 Preferred Stock is convertible shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall (x) declare a dividend on the Class A
Stock in shares of its capital stock (whether shares of Class A Stock, Series 2
Preferred Stock or of capital stock of any other class), (y) split or subdivide
the outstanding Class A Stock or (z) combine the outstanding Class A Stock into
a smaller number of shares, each share of Series 2 Preferred Stock outstanding
at the time of the record date for such dividend or of the effective date of
such split, subdivision or combination shall thereafter entitle the holder of
such share of Series 2 Preferred Stock to receive the aggregate number and kind
of shares which, if such share of Series 2 Preferred Stock had been converted
immediately prior to such time, such holder would have owned or have become
entitled to receive by virtue of such dividend, subdivision or combination. Such
adjustment shall be made successively whenever any event listed above shall
occur and, if a dividend which is declared is not paid,
-3-
<PAGE>
each share of Series 2 Preferred Stock outstanding shall again entitle the
holder thereof to receive the number of shares of Class A Stock as would have
been the case had such dividend not been declared. If at any time, as a result
of an adjustment made pursuant to this subsection 5(b)(i), the holder of any
share of Series 2 Preferred Stock thereafter converted shall become entitled to
receive any shares of capital stock of the Corporation other than shares of
Class A Stock, thereafter the number of such other shares so receivable upon
conversion of any share of Series 2 Preferred Stock shall be subject to
adjustment from time to time in a manner and on terms as nearly equivalent as
practicable to the provisions with respect to the Class A Stock contained in
this subsection 5(b).
(ii) If the Corporation shall issue any shares of Class A Stock
without consideration or at a price per share less than the Current Market Price
Per Share (as herein defined) of the Class A Stock as at the date of such
issuance, including any shares of Class A Stock deemed to have been issued
pursuant to this subsection 5(b)(ii) but excluding any Exempted Securities or
shares of Class A Stock issued upon the exercise of Subsequent Warrants (both as
herein defined), each share of Series 2 Preferred Stock outstanding on the date
of such issuance shall thereafter entitle the holder of such share of Series 2
Preferred Stock to receive upon conversion thereof a number of shares of Class A
Stock equal to the product of (y) the number of shares of Class A Stock to which
the holder of such share of Series 2 Preferred Stock was entitled immediately
prior to such issuance and (z) the quotient that is obtained by dividing:
(A) the total number of shares of Class A Stock outstanding
immediately after such issuance (including any shares of
Class A Stock deemed to have been issued pursuant to this
subsection 5(b)(ii))
by
(B) the sum of
(i) the number of shares of Class A Stock outstanding
immediately prior to such issuance plus
(ii) the number of shares of Class A Stock which the aggregate
consideration received (or deemed to be received) by the
Corporation upon such issuance would purchase at such
Current Market Price Per Share.
For purposes of any adjustment of the number of shares of Class A Stock
obtainable upon the conversion of any shares of Series 2 Preferred Stock
pursuant to this subsection 5(b)(ii), the following provisions shall be
applicable:
-4-
<PAGE>
(1) In the case of the issuance of Class A Stock for cash, the
consideration therefor shall be deemed to be the amount of cash paid therefor,
without deducting therefrom any discounts, commissions or other expenses
allowed, paid or incurred by the Corporation in connection with the issuance or
sale thereof.
(2) In the case of the issuance of Class A Stock for a consideration part
or all of which shall be in a form other than cash, the value of such
consideration shall be as determined by agreement between the holders of a
majority of the shares of Series 2 Preferred Stock outstanding and the
Corporation or, in the absence of such an agreement, by an independent
investment banking firm or an independent appraiser engaged by the Corporation
and reasonably acceptable to the holders of a majority of the shares of Series 2
Preferred Stock outstanding. The cost of such independent investment banking
firm or independent appraiser will be borne by the Corporation unless the
refusal of the holders of the Series 2 Preferred Stock to agree with the
Corporation's position was not reasonable, in which case such cost shall be
borne by the holders of Series 2 Preferred Stock who did not agree. In the case
of any issuance of Class A Stock upon the exercise of any warrants, options or
other rights or the conversion or exchange of any convertible or exchangeable
securities, the aggregate consideration received by the Corporation upon such
issuance shall be deemed to include the consideration, if any, received by the
Corporation upon the issuance of such warrants, options or rights or such
convertible or exchangeable securities (excluding any cash received on account
of accrued interest or accrued dividends) and, in the case of any conversion or
exchange of securities, shall not include any amount attributable to the
converted or exchanged securities.
(3) If (A) the Corporation shall issue warrants or options to purchase or
rights to subscribe for Class A Stock other than Exempted Securities (as defined
herein), and (B) the consideration, if any, received by the Corporation upon the
issuance of such warrants, options or rights plus the minimum aggregate
consideration required to be paid upon exercise of such warrants, options or
rights (the amount of such consideration to be determined in each case as set
forth above) shall be less than the product of the Current Market Price Per
Share on the date of such issuance multiplied by the maximum number of shares of
Class A Stock deliverable upon such exercise, then such aggregate maximum number
of shares shall be deemed to have been issued at the time such warrants, options
or rights were issued and for a consideration equal to such minimum aggregate
consideration.
(4) If (A) the Corporation shall issue (y) securities which are by their
terms convertible into or exchangeable for Class A Stock or (z) warrants or
options to purchase or rights to subscribe for any such convertible or
exchangeable securities, and (B) the consideration received by the Corporation
for any such securities or any such options or rights (excluding any cash
received on account of accrued interest or accrued dividends) plus the minimum
aggregate consideration (not including any amount attributed to the converted or
exchanged securities), if any, to be received by
-5-
<PAGE>
the Corporation upon the conversion or exchange of such securities or upon
the exercise of such options and the conversion or exchange of the
securities received upon such exercise, as the case may be (the amount of
such consideration to be determined in each case as set forth above) shall
be less than the product of the Current Market Price Per Share on the date
of such issuance multiplied by the maximum number of shares deliverable
upon conversion of or in exchange for such convertible or exchangeable
securities or upon the exercise of any such options and subsequent
conversion or exchanges thereof, then such aggregate maximum number of
shares shall be deemed to have been issued at the time such securities were
issued or such options or rights were issued and for a consideration equal
to such minimum aggregate consideration.
(5) Upon any reduction in the exercise price payable upon exercise of
any of such warrants, options or rights as are referred to in this
subsection 5(b)(ii) or any reduction in the amount of consideration
required to be paid or the conversion or exchange price or ratio payable
upon conversion or exchange of any of such convertible or exchangeable
securities, in each case other than a change resulting from any
antidilution provisions thereof which are no more favorable in such
instance to the holder thereof than the provisions of this subsection 5(b)
are to the holders of the Series 2 Preferred Stock, (A) if an adjustment
shall previously have been made pursuant to this subsection 5(b)(ii) in
respect of such warrants, options or rights or such securities, the number
of shares of Class A Stock obtainable upon the conversion of the shares of
Series 2 Preferred Stock shall forthwith be readjusted to such number of
shares as would have obtained had the adjustment made upon the issuance of
such warrants, options, rights or securities as have not been exercised,
converted or exchanged prior to such change (or any prior adjustment made
pursuant to this subdivision (5)) been made upon the basis of such change,
and (B) if an adjustment has not previously been made pursuant to this
subsection 5(b)(ii) in respect of such options or rights or such
securities, then such warrants, options or rights or such securities shall
be deemed to have been granted or issued (as the case may be) for purposes
of this subsection 5(b)(ii) as of the date of such reduction, and any
adjustments required to be made pursuant to this subsection 5(b)(ii) as a
result of such deemed grant or issuance shall forthwith be made effective
as of such date.
(6) All grants or issuances of options or other rights to acquire
shares of Class A Stock (or securities convertible into or exchangeable for
shares of Class A Stock) issued to any officer, director or employee of the
Corporation or of any Subsidiary of the Corporation or to members of the
immediate family of any of them ("Management Options"), and all issuances
of shares of Class A Stock (or securities convertible into or exchangeable
for shares of Class A Stock) under or pursuant to such Management Options
shall, for purposes of subsection 5(b)(ii), be deemed to be granted and
issued for no consideration except to the extent cash or notes are paid
therefor.
-6-
<PAGE>
(7) If and when any shares of Series 2 Preferred Stock shall be
converted as set forth herein, (A) if there shall be any outstanding
warrants or options (other than Subsequent Warrants) to purchase or rights
to subscribe for shares of Class A Stock and any outstanding warrants or
options (other than Subsequent Warrants) to purchase or rights to subscribe
for or securities which are by their terms convertible into or exchangeable
for Class A Stock which in each case would, if issued on the date of such
conversion, result in an adjustment pursuant to either subdivisions (3) or
(4) of this subsection 5(b)(ii), then such warrants or options shall be
deemed to have been exercised in full immediately prior to the conversion
of such shares of Series 2 Preferred Stock for a consideration equal to the
consideration, if any, received by the Corporation upon the issuance of
such options or rights plus the minimum aggregate consideration required to
be paid upon exercise of such options or rights (the amount of such
consideration to be determined in each case as set forth above), and (B) if
there shall be any outstanding securities which are by their terms
convertible into or exchangeable for Class A Stock at the time of such
conversion or at any time thereafter which in each case would, if issued on
the date of such conversion, result in an adjustment pursuant to
subdivision (4) of this subsection, then such securities shall be deemed to
have been converted or exchanged in full immediately prior to the
conversion of such shares of Series 2 Preferred Stock for a consideration
equal to the consideration received by the Corporation for any such
securities plus the minimum aggregate consideration (not including any
amount attributed to the converted or exchanged securities), if any,
required to be paid upon the conversion or exchange of such securities (the
amount of such consideration to be determined in each case as set forth
above); provided that any adjustment made pursuant to this subdivision (7)
of subsection 5(b)(ii) shall only be made with respect to such shares of
Series 2 Preferred Stock as are then being converted.
(8) Shares of Class A Stock owned by or held for the account of the
Corporation or any majority-owned subsidiary of the Corporation shall not
be deemed outstanding for the purpose of any computation made pursuant to
this subsection 5(b)(ii). Any adjustment required to be made pursuant to
this subsection 5(b)(ii) shall be made successively whenever the date of
issuance or deemed issuance of any such Class A Stock or any such options,
rights or convertible or exchangeable securities is fixed (which date of
issuance shall be the record date for such issuance if a record date
therefor is fixed) and, in the event that (A) such shares or options,
rights, warrants or convertible or exchangeable securities are not so
issued, or (B) any such option, right, warrant or convertible or
exchangeable security (or the conversion or exchange right thereunder)
expires according to its terms without having been exercised, converted or
exchanged, each share of Series 2 Preferred Stock outstanding shall, as of
the date of cancellation of such issuance in the case of clause (A) above
and the date of such expiration in the case of clause (B) above, entitle
the holder thereof to receive the number of shares of Class A Stock as
would have been the case had the date of such issuance of such unissued
options, rights, warrants or convertible or
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exchangeable securities not been fixed or such expired options, rights,
warrants or convertible or exchangeable securities not been issued, as the
case may be.
(iii) In the event of any capital reorganization of the Corporation,
or of any reclassification of the Class A Stock (other than a subdivision or
combination of outstanding shares of Class A Stock), or in case of the
consolidation of the Corporation with or the merger of the Corporation with or
into any other corporation or of the sale of the properties and assets of the
Corporation as, or substantially as, an entirety to any other corporation, each
share of Series 2 Preferred Stock shall after such capital reorganization,
reclassification of Class A Stock, consolidation, merger or sale be convertible
upon the terms and conditions specified herein, for the number of shares of
stock or other securities or assets to which a holder of the number of shares of
Class A Stock into which such share of Series 2 Preferred Stock shall be
convertible (at the time of such capital reorganization, reclassification of
Class A Stock, consolidation, merger or sale) would have been entitled upon such
capital reorganization, reclassification of Class A Stock, consolidation, merger
or sale; and in any such case, if necessary, the provisions set forth in this
subsection 5(b) with respect to the rights thereafter of the holders of the
shares of Series 2 Preferred Stock shall be appropriately adjusted so as to be
applicable, as nearly as may reasonably be, to any shares of stock or other
securities or assets thereafter deliverable upon the conversion of the shares of
Series 2 Preferred Stock.
(iv) If any event occurs, as to which, in the good faith opinion of
the Board of Directors of the Corporation, the other provisions of this
subsection 5(b) are not strictly applicable or (if strictly applicable) would
not fairly protect the conversion rights of the shares of Series 2 Preferred
Stock in accordance with the essential intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid, but in no event shall any such
adjustment have the effect of decreasing the number of shares of Class A Stock
obtainable upon the conversion of each 1 share of Series 2 Preferred Stock from
that which would otherwise be determined pursuant to this subsection 5(b).
(v) No adjustment in the number of shares of Class A Stock into
which a share of Series 2 Preferred Stock shall be convertible shall be required
unless such adjustment would require an increase or decrease in the aggregate
number of such shares of Class A Stock obtainable of at least 1%, provided that
any adjustments which by reason of this subsection 5(b)(v) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this subsection 5(b) shall be made to the
nearest cent or to the nearest hundredth of a share, as the case may be.
(vi) Irrespective of any adjustments in the number or kind of shares
obtainable upon the conversion of a share of Series 2 Preferred Stock,
certificates theretofore or thereafter issued may continue to express the same
number and kind of shares as are stated on the certificates initially issuable
therefor.
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(vii) If any question shall at any time arise with respect to the
number of shares of Class A Stock into which a share of Series 2 Preferred Stock
is then convertible following any adjustment pursuant to this subsection 5(b),
such question shall be determined by agreement between the holders of a majority
of the shares of Series 2 Preferred Stock and the Corporation or, in the absence
of such an agreement, by an independent investment banking firm or an
independent appraiser engaged by the Corporation and reasonably acceptable to
the Corporation and the holders of a majority of shares of Series 2 Preferred
Stock and such determination shall be binding upon the Corporation and the
holders of the shares of Series 2 Preferred Stock. The cost of such independent
investment banking firm or independent appraiser will be borne by the
Corporation unless the refusal of the holders of the Series 2 Preferred Stock to
agree with the Corporation's position was not reasonable, in which case such
cost shall be borne by the holders of Series 2 Preferred Stock who did not
agree.
(viii) Anything in this subsection 5(b) to the contrary
notwithstanding, the Corporation shall be entitled to make such increases in the
number of shares of Class A Stock into which a share of Series 2 Preferred Stock
shall be convertible, in addition to those adjustments required by this
subsection 5(b), as it in its sole discretion shall determine to be advisable in
order that any consolidation or subdivision of the Class A Stock, or any
issuance wholly for cash or any shares of Class A Stock at less than the Current
Market Price Per Share, or any issuance wholly for cash or shares of Class A
Stock or securities which by their terms are convertible into or exchangeable
for shares of Class A Stock or any stock dividend, or any issuance of rights,
options or warrants referred to hereinabove in this subsection 5(b), hereinafter
made by the Corporation to the holders of its Class A Stock shall not be taxable
to them.
(ix) For purposes of this subsection 5(b), the following terms shall
have the following meanings:
"Current Market Price Per Share" shall mean, with respect to any
shares of the Class A Stock, as of any particular date of determination:
(A) if the Class A Stock is then reported on the Composite
Transactions Tape, the average of the daily closing prices for the 20
consecutive trading days immediately prior to such date as reported on
the Composite Transactions Tape (as adjusted for any stock dividend,
split, combination or reclassification that occurred during such 20-
day period); or
(B) if the Class A Stock is not then reported on the Composite
Transaction Tape but is then listed or admitted to trading on a
national securities exchange, the average of the daily last sale
prices regular way of the Class A Stock, for the 20 consecutive
trading days immediately prior to such date (as adjusted for any stock
dividend, split, combination or reclassification
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<PAGE>
that occurred during such 20-day period), on the principal national
securities exchange on which the Class A Stock is traded or, in case
no such sale takes place on any such day, the average of the closing
bid and asked prices regular way, in either case on such national
securities exchange; or
(C) if the Class A Stock is not then reported on the Composite
Transaction Tape but is then traded in the over-the-counter market,
the average of the daily closing sales prices, or, if there is no
closing sales price, the average of the closing bid and asked prices,
in the over-the-counter market, for the 20 consecutive trading days
immediately prior to such date (as adjusted for any stock dividend,
split, combination or reclassification that occurred during such 20-
day period), as reported by the National Association of Securities
Dealers' Automated Quotation System, or, if not so reported, as
reported by the National Quotation Bureau, Incorporated or any
successor thereof, or, if not so reported the average of the closing
bid and asked prices as furnished by any member of the National
Association of Securities Dealers, Inc. selected from time to time by
the Board of Directors of the Corporation for that purpose; or
(D) if no such prices are then furnished, the higher of (x) the
Exercise Price for the Warrants and (y) the fair market value of a
share of Class A Stock as determined by agreement between the holders
of a majority of the shares of Series 2 Preferred Stock and the
Corporation or, in the absence of such an agreement, by an independent
investment banking firm or an independent appraiser engaged by the
Corporation (in either case the cost of which engagement will be borne
one-half by the Corporation and one-half by the holders of a majority
of the shares of Series 2 Preferred Stock outstanding) and reasonably
acceptable to the holders of a majority of the shares of Series 2
Preferred Stock.
"Exempted Securities" shall mean (A) Warrant Shares, (B) shares of the
Corporation's capital stock issued as a stock dividend described in subsection
5(b)(i), (C) options and warrants granted as of the date hereof to purchase up
to 1.010,200 shares of Class A Stock of the Corporation and shares of Class A
Stock issuable upon exercise of such options and warrants, (D) up to 750,000
shares of the Corporation's Class A Stock to be sold to an Employee Stock
Ownership Plan to be established by the Corporation at a purchase price not less
than the fair market value of such shares as determined in accordance with the
applicable provisions of the Internal Revenue Code of 1986, as amended, or the
regulations promulgated thereunder, and (E) employee options granted after the
date hereof at not less than the Current Market Price Per Share to purchase up
to 388,600 shares of Class A Stock and shares of Class A Stock issuable upon
exercise of such options. The limit in clauses (A) through (E) shall be
proportionately adjusted for dividends and other distributions payable in and
for subdivisions and combinations of shares of Class A Stock.
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"Subsequent Warrants" shall mean warrants to purchase not more than
500,000 shares of Class A Stock issued after the date hereof for services
or property which the Board of Directors of the Corporation believes in
good faith to be of value to the Corporation at an exercise price not less
than the Current Market Price Per Share on the date of issuance of such
warrants. The limit on the number of shares subject to Subsequent Warrants
shall be proportionately adjusted for dividends and other distributions
payable in and for subdivisions and combinations of shares of Class A
Stock.
"Warrant Agreement" shall mean the Warrant Agreement dated July 12,
1995 between the Corporation and Creditanstalt, as amended.
"Warrant Shares" shall mean the shares of Class A Stock or Series 2
Preferred Stock issued or issuable upon the exercise of the Warrants or
Class A Stock issued or issuable upon conversion of the Series 2 Preferred
Stock, in each case as the number of such shares may be adjusted from time
to time pursuant to the Warrant Agreement.
"Warrants" shall mean the warrants issued pursuant to the Warrant
Agreement.
(c) Upon any adjustment of the number of the shares of Class A Stock
issuable upon conversion of shares of Series 2 Preferred Stock pursuant to this
Section 5, the Corporation shall promptly but in any event within 20 days
thereafter, cause to be given to each of the registered holders of the Series 2
Preferred Stock, at its address appearing on the Register for the Series 2
Preferred Stock by registered mail, postage prepaid, return receipt requested a
certificate signed by its chairman, president or chief financial officer setting
forth the number of shares of Class A Stock issuable upon conversion of shares
of Class A Stock as so adjusted and describing in reasonable detail the facts
accounting for such adjustment and the method of calculation used. Where
appropriate, such certificate may be given in advance and included as a part of
the notice required to be mailed under the other provisions of this resolution.
(d) The Corporation will at all times have authorized, and reserve and
keep available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue shares of Class A Stock upon the conversion of
the Series 2 Preferred Stock, the number of shares of Class A Stock deliverable
upon conversion of the Series 2 Preferred Stock.
(e) The Corporation shall not be required to issue fractional shares of
Class A Stock upon conversion of the Series 2 Preferred Stock but shall pay for
any such fraction of a share an amount in cash equal to the current market price
per share of Class A Stock of such share (determined in accordance with the
provisions of subsection 5(b)(ix) hereof) multiplied by such fraction.
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<PAGE>
(f) The Corporation will pay all taxes attributable to the issuance of
shares of Class A Stock upon conversion of shares of Series 2 Preferred Stock,
provided that the Corporation shall not be required to pay any income tax
incurred by the holder upon issuance, conversion, sale or exchange of the Series
2 Preferred Stock or any tax which may be payable in respect of any transfer
involved in the issue of any shares of Class A Stock in a name other than that
of the registered holder of the Series 2 Preferred Stock surrendered for
conversion, and the Corporation shall not be required to issue or deliver such
certificate unless or until the person or persons requesting the issuance
thereof shall have paid to the Corporation the amount of such tax or shall have
established to the satisfaction of the Corporation that such tax has been paid.
Section 6. Notices to Holders of Series 2 Preferred Stock. In the event:
(a) that the Corporation shall authorize the issuance to all holders
of Class A Stock of rights or warrants to subscribe for or purchase capital
stock of the Corporation or of any other subscription rights or warrants;
or
(b) that the Corporation shall authorize the distribution to all
holders of Class A Stock of evidences of its indebtedness or assets
(including, without limitation cash dividends or cash distributions payable
out of consolidated earnings or earned surplus or dividends payable in
Class A Stock); or
(c) of any consolidation or merger to which the Corporation is a party
and for which approval of any stockholders of the Corporation is required,
or of the conveyance or transfer of the properties and assets of the
Corporation substantially as an entirety, or of any capital reorganization
or reclassification or change of the Class A Stock (other than a change in
par value, or from par value to no par value, or from no par value to par
value, or as a result of a subdivision or combination); or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; or
(e) that the Corporation proposes to take any other action which would
require an adjustment in the number of shares of Class A Stock or other
securities or assets issuable upon conversion of shares of Series 2
Preferred Stock pursuant to Section 5;
then the Corporation shall cause to be given to each of the registered holders
of the Series 2 Preferred Stock at its address appearing on the Register for the
Series 2 Preferred Stock, at least 10 calendar days prior to the applicable
record date, if any, hereinafter specified, or, if no such record date is
specified, 10 calendar days prior to the taking of any action referred to in
clause (a) through (e) above, by registered mail, postage prepaid, return
receipt requested, a written notice stating (i) the date as of which the holders
of record of Class A Stock to be
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<PAGE>
entitled to receive any such rights, warrants or distribution are to be
determined, or (ii) the date on which any such consolidation, merger,
conveyance, transfer, dissolution, liquidation or winding up is expected to
become effective or (iii) the date on which such other action is to be effected,
and the date as of which it is expected that holders of record of Class A Stock
shall be entitled to exchange their shares for securities or other property, if
any, deliverable upon such reclassification, consolidation, merger, conveyance,
transfer, dissolution, liquidation or winding up or other action. The failure to
give the notice required by this Section 6 or any defect therein shall not
affect the legality or validity of any distribution, right, warrant,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up or other action referred to above, or the vote upon any such action.
III. The date of adoption of the amendment was November 14, 1996.
IV. Pursuant to sections 602 and 1002 of the Act, shareholder approval is not
required for this Amendment.
Dated this 15th day of November, 1996.
UNCLE B's BAKERY, INC.
By /s/ Wm. Howard McClennan, Jr.
---------------------------------
Wm. Howard McClennan, Jr.
Secretary and Treasurer
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Exhibit 3.5
ARTICLES OF AMENDMENT
of
UNCLE B's BAKERY, INC.
TO THE SECRETARY OF STATE OF THE STATE OF IOWA:
Pursuant to section 1002 of the Iowa Business Corporation Act (the "Act"),
the undersigned corporation adopts the following amendment to the
corporation's articles of incorporation.
I. The name of the corporation is Uncle B's Bakery, Inc. (referred to herein
as the "Corporation").
II. The Corporation's Articles of Incorporation are hereby amended by
designating a series of the Corporation's Class B Stock, such series to
be known as the "Class B, Series 3 Preferred Stock" (referred to herein
as the "Series 3 Preferred Stock"). The preferences, limitations and
relative rights of the Series 3 Preferred Stock shall be as follows:
Section 1. Designation and Rank. The number of shares which shall
constitute the Series 3 Convertible Preferred Stock (the "Series 3 Preferred
Stock") shall be One Million Seventy Thousand (1,070,000) shares, $0.01 par
value per share. All shares of Series 3 Preferred Stock shall rank equally and
be identical in all respects. The Corporation shall not be restricted from
issuing additional securities of any kind, including shares of preferred stock
of any class, series or designation (including, without limitation, preferred
stock ranking in parity as to rights and preferences with the Series 3 Preferred
Stock now or hereafter authorized), provided that issuances of the Series 3
Preferred Stock shall be limited to issuances upon exercise of warrants (the
"Warrants") issued pursuant to the Warrant Agreement, as amended (the "Warrant
Agreement"), dated as of July 12, 1995, between the Corporation and
Creditanstalt Corporate Finance, Inc. ("Creditanstalt").
Section 2. Dividends. Dividends and other distributions, payable in cash
or other property shall be paid on the Series 3 Preferred Stock equally, ratably
and on a parity with such dividends and other distributions paid on the Class A
Stock, as and when such dividends and other distributions are declared by the
Board of Directors of the Corporation, as though the Class A Stock and Series 3
Preferred Stock were one and the same class; provided that in determining the
number of shares of Series 3 Preferred Stock outstanding and entitled to receipt
of any such dividend or other distribution, each share of Series 3 Preferred
Stock outstanding shall be deemed to be equal to the number of shares of Class A
Stock into which one share of Series 3 Preferred Stock could have been converted
on the date on which the holders of Class A Stock and Series 3 Preferred Stock
were determined to receive payment of such dividend or other distribution, after
giving effect to any adjustments.
<PAGE>
Section 3. Voting Rights. Except as otherwise specifically provided by
the Iowa Business Corporation Act, as amended, the holders of Series 3 Preferred
Stock shall not be entitled to vote or give a consent to or on any matters
required or permitted to be submitted to the shareholders of the Corporation for
their approval.
Section 4. Liquidation. The Series 3 Preferred Stock shall be preferred
upon liquidation over the Class A Stock and any other class or classes of
stock of the Corporation which by its terms expressly provides that it ranks
junior in rights and preferences to the Series 3 Preferred Stock upon
liquidation, so that holders of shares of Series 3 Preferred Stock shall be
entitled to be paid, after full payment is made on any stock ranking prior to
the Series 3 Preferred Stock as to rights and preferences, but before any
distribution is made to the holders of the Class A Stock and such junior stock
upon the voluntary or involuntary dissolution, liquidation or winding up of
the Corporation. The amount payable on each share of Series 3 Preferred Stock
in the event of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation shall be $0.01 per share. If, upon any such
liquidation, dissolution or winding up of the Corporation, its net assets are
insufficient to permit the payment in full of the amounts to which the holders
of all outstanding shares of Series 3 Preferred Stock are entitled as above
provided, the entire net assets of the Corporation remaining (after full
payment is made on any classes or series of stock ranking prior to the Series
3 Preferred Stock) shall be distributed among the holders of shares of Series
3 Preferred Stock in amounts proportionate to the full preferential amounts to
which they and holders of shares of preferred shares ranking in parity with
the Series 3 Preferred Stock are entitled. After such payment shall have been
made in full to the holders of the Series 3 Preferred Stock, the remaining
assets of the Corporation shall be divided and distributed among the holders
of the outstanding Series 3 Preferred Stock and the holders of the other
classes of stock then outstanding according to their respective rights and
shares, with the holders of the Series 3 Preferred Stock being entitled in
such distribution to participate with the holders of the Class A Stock ratably
in proportion to the number of shares of Class A Stock into which the Series 3
Preferred Stock is then convertible. For the purpose of this Section 4, the
voluntary sale, lease, exchange or transfer, for cash, shares of stock,
securities or other consideration, of all or substantially all the
Corporation's property or assets to, or its consolidation or merger with, one
or more corporations shall not be deemed to be a liquidation, dissolution or
winding up of the Corporation, voluntary or involuntary. Notwithstanding the
foregoing, in the event that any holder of Series 3 Preferred Stock converts
its Series 3 Preferred Stock to Class A Stock pursuant to Section 5 hereof,
the right to preferential liquidation rights with respect to such converted
stock pursuant to this Section 4 shall be immediately terminated.
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<PAGE>
Section 5. Conversion Provisions.
(a) Subject to the provisions for adjustment hereinafter set forth, each
share of Series 3 Preferred Stock shall be convertible at any time at the option
of the holder thereof, upon surrender to the transfer agent for the Series 3
Preferred Stock of the Corporation of the certificate or certificates evidencing
the shares so to be converted, into one fully paid and non-assessable share of
Class A Stock of the Corporation. Notwithstanding the foregoing provisions of
this Section 5, a holder of Series 3 Preferred Stock shall not have the right to
convert the Series 3 Preferred Stock held by it if the Class A Stock to be
received upon conversion would, when aggregated with all other shares of Class A
Stock (other than shares of Non-Attributable Stock) currently or previously held
by or currently issuable without restriction to such holder, exceed 4.99% of the
then outstanding Class A Stock, unless the holder is a party other than a bank
or an Affiliate of a bank which is subject to the provisions of the Bank Holding
Company Act of 1956 and the Class A Stock to be issued upon such conversion will
constitute Non-Attributable Stock, as hereinafter defined. For purposes of this
provision, "Non-Attributable Stock" shall mean shares of Class A Stock or Series
3 Preferred Stock which have been previously sold, or were issued pursuant to
the exercise of Warrants which were previously sold, either (i) in a widely
dispersed public offering; (ii) in a private placement in which no purchaser,
individually or in concert with others, acquired Class A Stock, Series 3
Preferred Stock, Warrants or any combination thereof, representing (upon
conversion, in the case of the Series 3 Preferred Stock, and upon exercise for
Class A Stock, in the case of the Warrants) more than 2% of the outstanding
Class A Stock; (iii) in compliance with Rule 144 (or any rule which is a
successor thereto) of the Securities Act of 1933, as amended; or (iv) in the
secondary market in a market transaction executed through a registered broker-
dealer in blocks of no more than 2.0% of the shares outstanding of the
Corporation in any six month period. For purposes of this provision,
"Affiliate" of any individual, corporation, trust, partnership or other entity
shall mean any other individual, corporation, trust, partnership or other entity
directly or indirectly controlling, controlled by or under direct or indirect
common control with such individual, corporation, trust, partnership or other
entity. For purposes of this definition, as to Creditanstalt, Affiliate shall
include any partnership a majority of the partners of which are officers,
directors, employees or Affiliates of Creditanstalt, and as to the Corporation,
Affiliate shall not include Creditanstalt.
(b) The number of shares of Class A Stock into which an issued and
outstanding share of Series 3 Preferred Stock is convertible shall be subject to
adjustment from time to time as follows:
(i) If the Corporation shall (x) declare a dividend on the Class A
Stock in shares of its capital stock (whether shares of Class A Stock, Series 3
Preferred Stock or of capital stock of any other class), (y) split or subdivide
the outstanding
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Class A Stock or (z) combine the outstanding Class A Stock into a smaller
number of shares, each share of Series 3 Preferred Stock outstanding at the
time of the record date for such dividend or of the effective date of such
split, subdivision or combination shall thereafter entitle the holder of such
share of Series 3 Preferred Stock to receive the aggregate number and kind of
shares which, if such share of Series 3 Preferred Stock had been converted
immediately prior to such time, such holder would have owned or have become
entitled to receive by virtue of such dividend, subdivision or combination.
Such adjustment shall be made successively whenever any event listed above
shall occur and, if a dividend which is declared is not paid, each share of
Series 3 Preferred Stock outstanding shall again entitle the holder thereof to
receive the number of shares of Class A Stock as would have been the case had
such dividend not been declared. If at any time, as a result of an adjustment
made pursuant to this subsection 5(b)(i), the holder of any share of Series 3
Preferred Stock thereafter converted shall become entitled to receive any
shares of capital stock of the Corporation other than shares of Class A Stock,
thereafter the number of such other shares so receivable upon conversion of
any share of Series 3 Preferred Stock shall be subject to adjustment from time
to time in a manner and on terms as nearly equivalent as practicable to the
provisions with respect to the Class A Stock contained in this subsection
5(b).
(ii) If the Corporation shall issue any shares of Class A Stock
without consideration or at a price per share less than the Current Market Price
Per Share (as herein defined) of the Class A Stock as at the date of such
issuance, including any shares of Class A Stock deemed to have been issued
pursuant to this subsection 5(b)(ii) but excluding any Exempted Securities (as
herein defined), each share of Series 3 Preferred Stock outstanding on the date
of such issuance shall thereafter entitle the holder of such share of Series 3
Preferred Stock to receive upon conversion thereof a number of shares of Class A
Stock equal to the product of (y) the number of shares of Class A Stock to which
the holder of such share of Series 3 Preferred Stock was entitled immediately
prior to such issuance and (z) the quotient that is obtained by dividing:
(A) the total number of shares of Class A Stock outstanding
immediately after such issuance (including any shares of Class A Stock deemed to
have been issued pursuant to this subsection 5(b)(ii))
by
(B) the sum of
(i) the number of shares of Class A Stock outstanding immediately
prior to such issuance plus
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(ii) the number of shares of Class A Stock which the aggregate
consideration received (or deemed to be received) by the Corporation upon such
issuance would purchase at such Current Market Price Per Share.
For purposes of any adjustment of the number of shares of Class A Stock
obtainable upon the conversion of any shares of Series 3 Preferred Stock
pursuant to this subsection 5(b)(ii), the following provisions shall be
applicable:
(1) In the case of the issuance of Class A Stock for cash, the
consideration therefor shall be deemed to be the amount of cash paid
therefor, without deducting therefrom any discounts, commissions or other
expenses allowed, paid or incurred by the Corporation in connection with
the issuance or sale thereof.
(2) In the case of the issuance of Class A Stock for a consideration
part or all of which shall be in a form other than cash, the value of
such consideration shall be as determined by agreement between the
holders of a majority of the shares of Series 3 Preferred Stock
outstanding and the Corporation or, in the absence of such an agreement,
by an independent investment banking firm or an independent appraiser
engaged by the Corporation and reasonably acceptable to the holders of a
majority of the shares of Series 3 Preferred Stock outstanding. The cost
of such independent investment banking firm or appraiser will be borne by
the Corporation unless the refusal of the holders of the Series 3
Preferred Stock to agree with the Corporation's position was not
reasonable, in which case such cost shall be borne by the holders of
Series 3 Preferred Stock who did not agree. In the case of any issuance
of Class A Stock upon the exercise of any warrants, options or other
rights or the conversion or exchange of any convertible or exchangeable
securities, the aggregate consideration received by the Corporation upon
such issuance shall be deemed to include the consideration, if any,
received by the Corporation upon the issuance of such warrants, options
or rights or such convertible or exchangeable securities (excluding any
cash received on account of accrued interest or accrued dividends) and,
in the case of any conversion or exchange of securities, shall not
include any amount attributable to the converted or exchanged securities.
(3) If (A) the Corporation shall issue warrants or options to
purchase or rights to subscribe for Class A Stock other than Exempted
Securities, and (B) the consideration, if any, received by the
Corporation upon the issuance of such warrants, options or rights plus
the minimum aggregate consideration required to be paid upon exercise of
such warrants, options or rights (the amount of such consideration to be
determined in each case as set forth above) shall be less than the
product of the Current Market Price Per Share on the date of such
issuance multiplied by the maximum number of
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shares of Class A Stock deliverable upon such exercise, then such
aggregate maximum number of shares shall be deemed to have been issued at
the time such warrants, options or rights were issued and for a
consideration equal to such minimum aggregate consideration.
(4) If (A) the Corporation shall issue (y) securities (other than
Exempted Securities) which are by their terms convertible into or
exchangeable for Class A Stock or (z) warrants or options to purchase or
rights to subscribe for any such convertible or exchangeable securities,
and (B) the consideration received by the Corporation for any such
securities or any such options or rights (excluding any cash received on
account of accrued interest or accrued dividends) plus the minimum
aggregate consideration (not including any amount attributed to the
converted or exchanged securities), if any, to be received by the
Corporation upon the conversion or exchange of such securities or upon
the exercise of such options and the conversion or exchange of the
securities received upon such exercise, as the case may be (the amount of
such consideration to be determined in each case as set forth above)
shall be less than the product of the Current Market Price Per Share on
the date of such issuance multiplied by the maximum number of shares
deliverable upon conversion of or in exchange for such convertible or
exchangeable securities or upon the exercise of any such options and
subsequent conversion or exchanges thereof, then such aggregate maximum
number of shares shall be deemed to have been issued at the time such
securities were issued or such options or rights were issued and for a
consideration equal to such minimum aggregate consideration.
(5) Upon any reduction in the exercise price payable upon exercise
of any of such warrants, options or rights as are referred to in this
subsection 5(b)(ii) or any reduction in the amount of consideration
required to be paid or the conversion or exchange price or ratio payable
upon conversion or exchange of any of such convertible or exchangeable
securities, in each case other than a change resulting from any
antidilution provisions thereof which are no more favorable in such
instance to the holder thereof than the provisions of this subsection
5(b) are to the holders of the Series 3 Preferred Stock, (A) if an
adjustment shall previously have been made pursuant to this subsection
5(b)(ii) in respect of such warrants, options or rights or such
securities, the number of shares of Class A Stock obtainable upon the
conversion of the shares of Series 3 Preferred Stock shall forthwith be
readjusted to such number of shares as would have obtained had the
adjustment made upon the issuance of such warrants, options, rights or
securities as have not been exercised, converted or exchanged prior to
such change (or any prior adjustment made pursuant to this subdivision
(5)) been made upon the basis of such change, and (B) if an adjustment
has not previously been made pursuant to this subsection 5(b)(ii) in
respect of such
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options or rights or such securities, then such warrants, options or
rights or such securities shall be deemed to have been granted or issued
(as the case may be) for purposes of this subsection 5(b)(ii) as of the
date of such reduction, and any adjustments required to be made pursuant
to this subsection 5(b)(ii) as a result of such deemed grant or issuance
shall forthwith be made effective as of such date.
(6) All grants or issuances of options or other rights to acquire
shares of Class A Stock (or securities convertible into or exchangeable
for shares of Class A Stock) issued to any officer, director or employee
of the Corporation or of any Subsidiary of the Corporation or to members
of the immediate family of any of them ("Management Options"), and all
issuances of shares of Class A Stock (or securities convertible into or
exchangeable for shares of Class A Stock) under or pursuant to such
Management Options shall, for purposes of subsection 5(b)(ii), be deemed
to be granted and issued for no consideration except to the extent cash or
notes are paid therefor.
(7) If and when any shares of Series 3 Preferred Stock shall be
converted as set forth herein, (A) if there shall be any outstanding
warrants (other than the Warrants) or options to purchase or rights to
subscribe for shares of Class A Stock and any outstanding warrants (other
than the Warrants) or options to purchase or rights to subscribe for or
securities which are by their terms convertible into or exchangeable for
Class A Stock which in each case would, if issued on the date of such
conversion, result in an adjustment pursuant to either subdivisions (3) or
(4) of this subsection 5(b)(ii), then such warrants or options shall be
deemed to have been exercised in full immediately prior to the conversion
of such shares of Series 3 Preferred Stock for a consideration equal to
the consideration, if any, received by the Corporation upon the issuance
of such options or rights plus the minimum aggregate consideration
required to be paid upon exercise of such options or rights (the amount of
such consideration to be determined in each case as set forth above), and
(B) if there shall be any outstanding securities which are by their terms
convertible into or exchangeable for Class A Stock at the time of such
conversion or at any time thereafter which in each case would, if issued
on the date of such conversion, result in an adjustment pursuant to
subdivision (4) of this subsection, then such securities shall be deemed
to have been converted or exchanged in full immediately prior to the
conversion of such shares of Series 3 Preferred Stock for a consideration
equal to the consideration received by the Corporation for any such
securities plus the minimum aggregate consideration (not including any
amount attributed to the converted or exchanged securities), if any,
required to be paid upon the conversion or exchange of such securities
(the amount of such consideration to be determined in each case as set
forth above); provided that any adjustment made pursuant to this
subdivision (7) of subsection 5(b)(ii) shall
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<PAGE>
only be made with respect to such shares of Series 3 Preferred Stock as
are then being converted.
(8) Shares of Class A Stock owned by or held for the account of the
Corporation or any majority-owned subsidiary of the Corporation shall not
be deemed outstanding for the purpose of any computation made pursuant to
this subsection 5(b)(ii). Any adjustment required to be made pursuant to
this subsection 5(b)(ii) shall be made successively whenever the date of
issuance or deemed issuance of any such Class A Stock or any such options,
rights or convertible or exchangeable securities is fixed (which date of
issuance shall be the record date for such issuance if a record date
therefor is fixed) and, in the event that (A) such shares or options,
rights, warrants or convertible or exchangeable securities are not so
issued, or (B) any such option, right, warrant or convertible or
exchangeable security (or the conversion or exchange right thereunder)
expires according to its terms without having been exercised, converted or
exchanged, each share of Series 3 Preferred Stock outstanding shall, as of
the date of cancellation of such issuance in the case of clause (A) above
and the date of such expiration in the case of clause (B) above, entitle
the holder thereof to receive the number of shares of Class A Stock as
would have been the case had the date of such issuance of such unissued
options, rights, warrants or convertible or exchangeable securities not
been fixed or such expired options, rights, warrants or convertible or
exchangeable securities not been issued, as the case may be.
(iii) In the event of any capital reorganization of the Corporation,
or of any reclassification of the Class A Stock (other than a subdivision or
combination of outstanding shares of Class A Stock), or in case of the
consolidation of the Corporation with or the merger of the Corporation with or
into any other corporation or of the sale of the properties and assets of the
Corporation as, or substantially as, an entirety to any other corporation,
each share of Series 3 Preferred Stock shall after such capital
reorganization, reclassification of Class A Stock, consolidation, merger or
sale be convertible upon the terms and conditions specified herein, for the
number of shares of stock or other securities or assets to which a holder of
the number of shares of Class A Stock into which such share of Series 3
Preferred Stock shall be convertible (at the time of such capital
reorganization, reclassification of Class A Stock, consolidation, merger or
sale) would have been entitled upon such capital reorganization,
reclassification of Class A Stock, consolidation, merger or sale; and in any
such case, if necessary, the provisions set forth in this subsection 5(b) with
respect to the rights thereafter of the holders of the shares of Series 3
Preferred Stock shall be appropriately adjusted so as to be applicable, as
nearly as may reasonably be, to any shares of stock or other securities or
assets thereafter deliverable upon the conversion of the shares of Series 3
Preferred Stock.
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<PAGE>
(iv) If any event occurs, as to which, in the good faith opinion of
the Board of Directors of the Corporation, the other provisions of this
subsection 5(b) are not strictly applicable or (if strictly applicable) would
not fairly protect the conversion rights of the shares of Series 3 Preferred
Stock in accordance with the essential intent and principles of such provisions,
then the Board of Directors shall make an adjustment in the application of such
provisions, in accordance with such essential intent and principles, so as to
protect such purchase rights as aforesaid, but in no event shall any such
adjustment have the effect of decreasing the number of shares of Class A Stock
obtainable upon the conversion of each share of Series 3 Preferred Stock from
that which would otherwise be determined pursuant to this subsection 5(b).
(v) No adjustment in the number of shares of Class A Stock into which
a share of Series 3 Preferred Stock shall be convertible shall be required
unless such adjustment would require an increase or decrease in the aggregate
number of such shares of Class A Stock obtainable of at least 1%, provided that
any adjustments which by reason of this subsection 5(b)(v) are not required to
be made shall be carried forward and taken into account in any subsequent
adjustment. All calculations under this subsection 5(b) shall be made to the
nearest cent or to the nearest hundredth of a share, as the case may be.
(vi) Irrespective of any adjustments in the number or kind of shares
obtainable upon the conversion of a share of Series 3 Preferred Stock,
certificates theretofore or thereafter issued may continue to express the same
number and kind of shares as are stated on the certificates initially issuable
therefor.
(vii) If any question shall at any time arise with respect to the
number of shares of Class A Stock into which a share of Series 3 Preferred Stock
is then convertible following any adjustment pursuant to this subsection 5(b),
such question shall be determined by agreement between the holders of a majority
of the shares of Series 3 Preferred Stock outstanding and the Corporation or, in
the absence of such an agreement, by an independent investment banking firm or
an independent appraiser engaged by the Corporation and reasonably acceptable to
the holders of a majority of the shares of Series 3 Preferred Stock outstanding.
The cost of such independent investment banking firm or appraiser will be borne
by the Corporation unless the refusal of the holders of the Series 3 Preferred
Stock to agree with the Corporation's position was not reasonable, in which case
such cost shall be borne by the holders of Series 3 Preferred Stock who did not
agree.
(viii) Anything in this subsection 5(b) to the contrary
notwithstanding, the Corporation shall be entitled to make such increases in
the number of shares of Class A Stock into which a share of Series 3 Preferred
Stock shall be convertible, in addition to those adjustments required by this
subsection 5(b), as it in its sole discretion shall determine to be advisable
in order that any consolidation or
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subdivision of the Class A Stock, or any issuance wholly for cash or any
shares of Class A Stock at less than the Current Market Price Per Share, or
any issuance wholly for cash or shares of Class A Stock or securities which by
their terms are convertible into or exchangeable for shares of Class A Stock
or any stock dividend, or any issuance of rights, options or warrants referred
to hereinabove in this subsection 5(b), hereinafter made by the Corporation to
the holders of its Class A Stock shall not be taxable to them.
(ix) For purposes of this subsection 5(b), the following terms shall
have the following meanings:
"Current Market Price Per Share" shall mean, with respect to any
shares of the Class A Stock, as of any particular date of determination:
(A) if the Class A Stock is then reported on the Composite
Transactions Tape, the average of the daily closing prices for the
20 consecutive trading days immediately prior to such date as
reported on the Composite Transactions Tape (as adjusted for any
stock dividend, split, combination or reclassification that occurred
during such 20-day period); or
(B) if the Class A Stock is not then reported on the Composite
Transaction Tape but is then listed or admitted to trading on a
national securities exchange, the average of the daily last sale
prices regular way of the Class A Stock, for the 20 consecutive
trading days immediately prior to such date (as adjusted for any
stock dividend, split, combination or reclassification that occurred
during such 20-day period), on the principal national securities
exchange on which the Class A Stock is traded or, in case no such
sale takes place on any such day, the average of the closing bid and
asked prices regular way, in either case on such national securities
exchange; or
(C) if the Class A Stock is not then reported on the Composite
Transaction Tape but is then traded in the over-the-counter market,
the average of the daily closing sales prices, or, if there is no
closing sales price, the average of the closing bid and asked
prices, in the over-the-counter market, for the 20 consecutive
trading days immediately prior to such date (as adjusted for any
stock dividend, split, combination or reclassification that occurred
during such 20-day period), as reported by the National Association
of Securities Dealers' Automated Quotation System, or, if not so
reported, as reported by the National Quotation Bureau, Incorporated
or any successor thereof, or, if not so reported the average of the
closing bid and asked prices as furnished by any member of the
National Association of Securities
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<PAGE>
Dealers, Inc. selected from time to time by the Board of Directors of
the Corporation for that purpose; or
(D) if no such prices are then furnished, the higher of (x) the
Exercise Price for the Warrants and (y) the fair market value of a
share of Class A Stock as determined by agreement between the holders
of a majority of the shares of Series 3 Preferred Stock and the
Corporation or, in the absence of such an agreement, by an
independent investment banking firm or an independent appraiser
engaged by the Corporation (in either case the cost of which
engagement will be borne one-half by the Corporation and one-half by
the holders of a majority of the shares of Series 3 Preferred Stock
outstanding) and reasonably acceptable to the holders of a majority
of the shares of Series 3 Preferred Stock.
"Exempted Securities" shall mean (A) the Warrant Shares (as defined
in the Warrant Agreement), (B) shares of the Corporation's capital stock
issued as a stock dividend described in subsection 5(b)(i) and (C)
options which constitute Exempted Securities under the Warrant Agreement
and shares of Class A Stock issuable upon exercise of such options.
(c) Upon any adjustment of the number of the shares of Class A Stock
issuable upon conversion of shares of Series 3 Preferred Stock pursuant to this
Section 5, the Corporation shall promptly but in any event within 20 days
thereafter, cause to be given to each of the registered holders of the Series 3
Preferred Stock, at its address appearing on the Register for the Series 3
Preferred Stock by registered mail, postage prepaid, return receipt requested a
certificate signed by its chairman, president or chief financial officer setting
forth the number of shares of Class A Stock issuable upon conversion of shares
of Class A Stock as so adjusted and describing in reasonable detail the facts
accounting for such adjustment and the method of calculation used. Where
appropriate, such certificate may be given in advance and included as a part of
the notice required to be mailed under the other provisions of this resolution.
(d) The Corporation will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue shares of Class A Stock upon the conversion of
the Series 3 Preferred Stock, the number of shares of Class A Stock deliverable
upon conversion of the Series 3 Preferred Stock.
(e) The Corporation shall not be required to issue fractional shares of
Class A Stock upon conversion of the Series 3 Preferred Stock but shall pay for
any such fraction of a share an amount in cash equal to the current market price
per share of
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Class A Stock of such share (determined in accordance with the provisions of
subsection 5(b)(ix) hereof) multiplied by such fraction.
(f) The Corporation will pay all taxes attributable to the issuance of
shares of Class A Stock upon conversion of shares of Series 3 Preferred Stock,
provided that the Corporation shall not be required to pay any income tax
incurred by the holder upon conversion of the Series 3 Preferred Stock or any
tax which may be payable in respect of any transfer involved in the issue of any
shares of Class A Stock in a name other than that of the registered holder of
the Series 3 Preferred Stock surrendered for conversion, and the Corporation
shall not be required to issue or deliver such certificate unless or until the
person or persons requesting the issuance thereof shall have paid to the
Corporation the amount of such tax or shall have established to the satisfaction
of the Corporation that such tax has been paid.
Section 6. Notices to Holders of Series 3 Preferred Stock. In the event:
(a) that the Corporation shall authorize the issuance to all holders
of Class A Stock of rights or warrants to subscribe for or purchase
capital stock of the Corporation or of any other subscription rights or
warrants; or
(b) that the Corporation shall authorize the distribution to all
holders of Class A Stock of evidences of its indebtedness or assets
(including, without limitation cash dividends or cash distributions
payable out of consolidated earnings or earned surplus or dividends
payable in Class A Stock); or
(c) of any consolidation or merger to which the Corporation is a
party and for which approval of any stockholders of the Corporation is
required, or of the conveyance or transfer of the properties and assets
of the Corporation substantially as an entirety, or of any capital
reorganization or reclassification or change of the Class A Stock (other
than a change in par value, or from par value to no par value, or from no
par value to par value, or as a result of a subdivision or combination);
or
(d) of the voluntary or involuntary dissolution, liquidation or
winding up of the Corporation; or
(e) that the Corporation proposes to take any other action which
would require an adjustment in the number of shares of Class A Stock or
other securities or assets issuable upon conversion of shares of Series 3
Preferred Stock pursuant to Section 5;
then the Corporation shall cause to be given to each of the registered holders
of the Series 3
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Preferred Stock at its address appearing on the Register for the
Series 3 Preferred Stock, at least 10 calendar days prior to the applicable
record date, if any, hereinafter specified, or, if no such record date is
specified, 10 calendar days prior to the taking of any action referred to in
clause (a) through (e) above, by registered mail, postage prepaid, return
receipt requested, a written notice stating (i) the date as of which the holders
of record of Class A Stock to be entitled to receive any such rights, warrants
or distribution are to be determined, or (ii) the date on which any such
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up is expected to become effective or (iii) the date on which such other action
is to be effected, and the date as of which it is expected that holders of
record of Class A Stock shall be entitled to exchange their shares for
securities or other property, if any, deliverable upon such reclassification,
consolidation, merger, conveyance, transfer, dissolution, liquidation or winding
up or other action. The failure to give the notice required by this Section 6
or any defect therein shall not affect the legality or validity of any
distribution, right, warrant, consolidation, merger, conveyance, transfer,
dissolution, liquidation or winding up or other action referred to above, or the
vote upon any such action.
III. The date of adoption of the amendment was August 21, 1997.
IV. Pursuant to sections 602 and 1002 of the Act, shareholder approval is not
required for this Amendment.
Dated this 25th day of August, 1997.
UNCLE B's BAKERY, INC.
By /s/ Wm. Howard McClennan, Jr.
------------------------------
Wm. Howard McClennan, Jr.
Secretary and Treasurer
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Exhibit 10.19
WAIVER AND THIRD AMENDMENT
TO LOAN AND SECURITY AGREEMENT
THIS WAIVER AND THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT (the
"Amendment") is made and entered into the 25th day of August, 1997 by and
between UNCLE B'S BAKERY, INC., an Iowa corporation ("Borrower"), and
CREDITANSTALT CORPORATE FINANCE, INC., a Delaware corporation ("Lender").
W I T N E S S E T H :
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WHEREAS, Borrower and Lender are parties to a certain Loan and Security
Agreement, dated as of July 12, 1995 (the "Loan Agreement"), which Loan
Agreement was amended on October 28, 1996 pursuant to the Waiver and First
Amendment to the Loan and Security Agreement, and was further amended on
November 15, 1996 pursuant to that certain Second Amendment to Loan and Security
Agreement, and which Loan Agreement currently provides for a term loan in the
original principal amount of Seven Million One Hundred Fifty Thousand Dollars
($7,150,000) and for a revolving credit facility from Lender to Borrower in the
aggregate principal amount of up to One Million Five Hundred Thousand Dollars
($1,500,000) at any one time outstanding; and
WHEREAS, Borrower has requested that Lender waive any Event of Default
arising out of the Borrower's failure to make the initial principal payment on
the Term Loan and that Lender further amend the Loan Agreement (i) to defer
certain principal payments in respect of the Term Loan, (ii) to permit the
existence of certain unsecured indebtedness to one of the Borrower's
suppliers, and (ii) to revise the financial covenants contained therein; and
WHEREAS, Lender has agreed to grant Borrower's request, subject to the
terms and conditions set forth herein;
NOW, THEREFORE, for and in consideration of the premises, the terms and
conditions set forth herein and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
hereby agree as follows:
1. DEFINED TERMS. Capitalized terms used herein and not otherwise defined
shall have the meanings ascribed to such terms in the Loan Agreement, to the
extent defined therein.
2. AMENDMENTS.
2.1 Section 1.1 of the Loan Agreement is hereby amended by deleting
the definition of "Borrowing Base" contained therein, and substituting in lieu
thereof a new definition of "Borrowing Base", to read as follows:
<PAGE>
"Borrowing Base" shall mean, in respect of Borrower, for the period
beginning on the Third Amendment Effective Date and ending on January 31,
1998, a fixed amount equal to One Million Four Hundred Thousand Dollars
($1,400,000), and thereafter, the sum of (a) up to eighty-five percent
(85%) of the net amount of Borrower's Eligible Accounts plus (b) up to
seventy percent (70%) of the value, calculated at the lower of cost or
market, with cost determined on an a first-in, first-out basis, of
Borrower's Eligible Finished Goods and Ingredients Inventory plus (c) up to
fifty percent (50%) of the value, calculated at the lower of cost or
market, with cost determined on a first-in, first-out basis, of Borrower's
other Eligible Inventory less (d) reserves for unpaid Inventory storage
costs and for costs, expenses and liabilities, if any, which Lender is
authorized to charge to Borrower's revolving loan account hereunder.
2.2 Section 1.1 of the Loan Agreement is hereby further amended by
deleting the definition of "Default Rate" contained therein, and substituting
in lieu thereof a new definition of "Default Rate", to read as follows:
"Default Rate" shall mean (a) with respect to any Loan (other than the
Additional Term Loan II) or portion thereof, an interest rate per annum
equal to two percent (2%) above the rate set forth for such Loan in Section
3.1(a) hereof, or (b) with respect to any portion of the Obligations other
than Loans, two percent (2%) above the rate set forth in Section 3.1(a)(iv)
hereof.
2.3 Section 1.1 of the Loan Agreement is hereby further amended by
deleting the first sentence contained in the definition of "Interest Period"
contained therein, and substituting in lieu thereof a new first sentence, to
read as follows:
"Interest Period" shall mean, in connection with any Eurodollar Loan,
the period beginning on the date such Eurodollar Loan is made, Continued
or Converted and continuing for one (1) month.
2.4 Section 1.1 of the Loan Agreement is hereby further amended by
deleting the definition of "Loans" contained therein, and substituting in lieu
thereof a new definition of "Loans", to read as follows:
"Loans" shall mean, collectively, the Revolving Credit Loans, the
Term Loans and the Additional Term Loan II, and "Loan" shall mean either
a Revolving Credit Loan, a Term Loan or the Additional Term Loan II.
2.5 Section 1.1 of the Loan Agreement is hereby further amended by
deleting the definition of "Notes" contained therein, and substituting in lieu
thereof a new definition of "Notes", to read as follows:
"Notes" shall mean, collectively, the Revolving Credit Note, the Term
Note, the Additional Term Note, and the Capitalized Interest Note, and
"Note" shall mean either the Revolving Credit Note, the Term Note, the
Additional Term Note or the Capitalized Interest
2
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Note.
2.6 Section 1.1 of the Loan Agreement is hereby further amended by
deleting the definition of "Term Loans" contained therein, and substituting in
lieu thereof a new definition of "Term Loans", to read as follows:
"Term Loans" shall mean, collectively, the loans made pursuant to
Section 2.2(a) hereof, and "Term Loan" shall mean any loan made pursuant
to Section 2.2(a) hereof. Term Loans may consist of either a Base Rate
Loan, a Eurodollar Loan or a combination thereof, each of which is a type
of Loan.
2.7 Section 1.1 of the Loan Agreement is hereby further amended by
adding thereto the following new definitions, in appropriate alphabetical
order:
"Additional Term Loan II" shall mean the loan made pursuant to
Section 2.2(c) hereof.
"Additional Term Loan II Repayment Date" shall mean August 25, 2002.
"Additional Term Note" shall have the meaning given to such term in
Section 2.2 hereof.
"Third Amendment Effective Date" shall mean the date on which all of
the conditions to the effectiveness of the waiver and amendments
contained in that certain Waiver and Third Amendment to Loan and Security
Agreement, dated as of August 25, 1997, between the Borrower and the
Lender, are met.
"Capitalized Interest Note" shall have the meaning given to such term
in Section 3.1(d) hereof.
2.8 Section 1.3 of the Loan Agreement is hereby amended by adding to
the end of such Section the following new sentences, to read as follows:
For the purpose of determining compliance with the financial covenants
contained in Sections 8.1, 8.2, and 8.4, the Borrower shall exclude from
its calculation the impact, if any, of (a) accounting for any reduction
in earnings caused by the issuance to the Lender or any Affiliate of the
Lender after August 1, 1997 of any warrants to purchase capital stock of
the Borrower with an exercise price or prices below the market price for
such stock, determined in accordance with GAAP; (b) accounting for any
reduction in earnings caused by the reduction of the exercise price of
any warrants to purchase capital stock of the Borrower issued to the
Lender or any Affiliate of the Lender prior to August 1, 1997; (c) the
creation or amortization of any deferred financing charge asset resulting
from the transactions consummated in connection with the Third Amendment;
and (d) any consulting expenses incurred by the Borrower arising in
consulting services provided by Regent Pacific Management Corporation. In
addition, for the purpose of calculating the financial covenant
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<PAGE>
set forth in Section 8.2, Interest Expense shall exclude any interest in
respect of the Additional Term Loan II.
2.9 Section 2.2 of the Loan Agreement is hereby amended by deleting
subsection (b) thereof in its entirety and by substituting therefor a new
subsections (b) and (c), to read as follows:
(b) The principal amount of the Term Loan shall be repayable in
sixteen (16) quarterly installments of principal, payable on each
Amortization Date, commencing August 1, 1998, with the first fifteen (15)
such installments each being in the amount of One Hundred Seventy Eight
Thousand Seven Hundred Fifty Dollars ($178,750) and the sixteenth (16th)
such installment being in an amount equal to the outstanding principal
balance thereof, payable on the Final Maturity Date.
(c) Subject to the terms and conditions hereof and provided there
exists no Default or Event of Default, the Lender agrees to make a loan
(the "Additional Term Loan II"), on or after the Third Amendment
Effective Date, to Borrower in an aggregate amount equal to Seven Hundred
Fifty Thousand Dollars ($750,000). The Additional Term Loan II (exclusive
of capitalized interest under Section 3.1(d)) shall be evidenced by a
promissory note, substantially in the form of Exhibit J attached hereto,
payable to the Lender in the amount of the Additional Term Loan II
(exclusive of any capitalized interest) (such promissory note, together
with any and all amendments, modifications and supplements thereto, and
any renewals, replacements or extensions thereof, in whole or in part,
the "Additional Term Note"). The Additional Term Loan II, once borrowed
and repaid, may not be reborrowed.
(d) The then-unpaid aggregate principal amount of the Additional Term
Loan II shall be repayable on the Additional Term Loan II Repayment Date.
2.10 Subsection 2.10(a) of the Loan Agreement is hereby amended by
deleting such subsection in its entirety, and substituting in lieu thereof a
new subsection 2.10(a), to read as follows:
(a) Subject to the other terms and conditions hereof, upon written
notice to the Lender in accordance with Section 2.11, Borrower may, at
its option, prepay the Term Loan and/or the Additional Term Loan II
and/or reduce either Commitment, in whole or in part, in integral
multiples of $100,000 on the date specified in such notice, by paying to
the Lender the amount of such prepayment, in the case of a prepayment of
the Term Loan and the Additional Term Loan II, and/or the accrued amount
of the Commitment Fee applicable to the amount of the Commitment
reduction, as the case may be.
2.11 Subsection 2.11(a) of the Loan Agreement is hereby amended by
deleting such subsection in its entirety, and substituting a new subsection
2.11(a) in lieu thereof, to read as follows:
4
<PAGE>
(a) All notices given by Borrower to the Lender hereunder of
terminations or reductions of the Commitments, or of borrowings,
Conversions, Continuations or prepayments of Loans hereunder or of
requests for the issuance of Letters of Credit shall either be oral, with
prompt written confirmation, which may be by telecopy; or in writing,
with such written confirmation or writing, in the case of a borrowing, to
be substantially in the form of Exhibit D attached hereto (a "Notice of
Borrowing"), and, in the case of a request for a Letter of Credit, to be
substantially in the form of Exhibit E attached hereto (a "Request for
Letter of Credit"); shall be irrevocable; shall be effective only if
received by Lender prior to 10:00 a.m. (prevailing Eastern time) on a
Business Day which is: (i) at least fifteen (15) days prior to such
termination or reduction of the Commitment; (ii) on the date such Loan is
to be made as, Converted to or Continued as a Base Rate Loan; (iii) at
least three (3) Business Days prior to the date such Loan is to be made
as, Converted to or Continued as a Eurodollar Loan; (iv) at least five
(5) days prior to any such prepayment, in the case of a prepayment of a
Eurodollar Loan; (v) not later than the date of any such prepayment, in
the case of a prepayment of any Loan other than a Eurodollar Loan; or
(vi) at least three (3) Business Days prior to the date such Letter of
Credit is to be issued. Each such notice to reduce the Commitment or to
prepay the Loans shall specify the amount of the Commitment to be reduced
or of the Loans to be prepaid and the date of such reduction or
prepayment. Each such notice of borrowing, Conversion or Continuation
shall specify: (1) the amount of such borrowing, Conversion or
Continuation; (2) that the amount of the Loan to be made, Converted or
Continued, when aggregated with all other Loans to be outstanding
following the funding, Conversion or Continuation of such Loan, does not
exceed the Borrowing Base; (3) whether such Loan will be made, Converted
or Continued as a Eurodollar Loan or as a Base Rate Loan; and (4) the
date such Loan is to be made, Converted or Continued (which shall be a
Business Day and, if such Loan is to Convert or Continue a Eurodollar
Loan then outstanding, shall not be prior to the last day of the then
current Interest Period for such outstanding Loan). Each request for a
borrowing, Conversion or Continuation of a Loan, for the issuance of a
Letter of Credit or for any other financial accommodation by Borrower
pursuant to this Agreement or the other Loan Documents shall constitute
(x) an automatic warranty and representation by Borrower to Lender that
there does not then exist a Default or Event of Default or any event or
condition which, with the making of such Loan or the issuance of such
Letter of Credit, would constitute a Default or Event of Default and (y)
an affirmation that as of the date of such request all of the
representations and warranties of Borrower contained in this Agreement
and the other Loan Documents are true and correct in all material
respects, both before and after giving effect to the making of such Loan
or the issuance of such Letter of Credit. If on the last day of the
Interest Period of any Eurodollar Loan hereunder, Lender has not received
a timely notice hereunder to Convert, Continue or prepay such Loan,
Borrower shall be deemed to have submitted a notice to Convert such Loan
to a Base Rate Loan. All notices required to be sent to Lender pursuant
to this Section 2.11(a) shall be sent to Lender at Two Greenwich Plaza,
Fourth Floor, Greenwich Connecticut 06830, Attn. Dennis O'Dowd, Facsimile
No. (203) 861-6430 or Attn: Robert M. Biringer, Facsimile No: (770) 390-
1851, in addition to the "Address for Notices" specified below Lender's
name on the signature pages hereto.
5
<PAGE>
2.12 Subsection 3.1(a) of the Loan Agreement is hereby amended by
redesignating clause (iii) of such subsection as clause (iv), and inserting a
new clause (iii) in such subsection to read as follows:
(iii) the outstanding principal amount of the Additional Term Loan II
shall bear interest at a fixed amount equal to three percent (3%) per
annum.
2.13 Subsection 3.1(b) of the Loan Agreement is hereby amended by
adding thereto the parenthetical "(other than the Additional Term Loan II)"
immediately following the phrase "the applicable interest payable on the
Loans" contained in such subsection.
2.14 Subsection 3.1(c) of the Loan Agreement is hereby amended by
deleting clause (i) contained therein and substituting in lieu thereof a new
clause (i), to read as follows:
(i) in the case of Base Rate Loans, monthly on the first day of each
month for the previous month or portion thereof;
2.15 Subsection 3.1(c) of the Loan Agreement is hereby further
amended by redesignating clauses (iii), (iv) and (v) contained therein as
clauses (iv), (v) and (vi), respectively, and by adding thereto a new clause
(iii), to read as follows:
(iii) in the case of the Additional Term Loan II, as provided in
subsection (d) below,
2.16 Section 3.1 of the Loan Agreement is hereby further amended by
adding thereto a new subsection (d), to read as follows:
(d) On the first day of each month, unless the Borrower shall pay all
accrued interest on the Additional Term Loan II as of such date, such
accrued interest shall be capitalized. Capitalized interest under this
subsection (d) shall itself be evidenced by a promissory note,
substantially in the form of Exhibit I attached hereto, payable to the
Lender in the amount of such capitalized interest (together with any and
all amendments, modifications and supplements thereto, and any renewals,
replacements or extensions thereof, in whole or in part, the "Capitalized
Interest Note"). For all purposes under this Agreement, capitalized
interest shall be treated as additional principal of the Additional Term
Loan II, and shall itself bear interest at the interest rate then in
effect for the Additional Term Loan II, and shall be repaid on the
Additional Term Loan II Repayment Date.
2.17 Section 3.2 of the Loan Agreement is hereby amended by deleting
such section in its entirety, and substituting in lieu thereof a new
Section 3.2, to read as follows:
3.2 INTEREST PERIOD. The Interest Period for any Eurodollar Loan
shall commence on the date such Loan is made, Converted or Continued as
specified in the notice delivered pursuant to Section 2.11 hereof
applicable thereto and shall continue for a
6
<PAGE>
period of one (1) month.
2.18 Subsection 3.8(b) of the Loan Agreement is hereby amended by
adding thereto the parenthetical "(other than the Additional Term Loan II)"
immediately following the phrase "as a consequence of its making or
maintaining any Loan" contained in such subsection.
2.19 Section 3.11 of the Loan Agreement is hereby amended by deleting
the phrase "either of the Notes" contained in the second sentence of such
Section, and substituting in lieu thereof the phrase "any of the Notes".
2.20 Section 5.14 of the Loan Agreement is hereby amended by adding
to the beginning thereof the phrase "Except as set forth on Schedule 5.14,".
2.21 Section 5.22 of the Loan Agreement is hereby amended by adding
to the beginning thereof the phrase "Except as set forth on Schedule 5.22,".
2.22 Sections 8.1 through 8.5 of the Loan Agreement are hereby
amended by deleting such Sections in their entirety and by substituting in
lieu thereof new Sections 8.1 through 8.5, to read as follows:
8.1 TANGIBLE NET WORTH. Borrower shall maintain as of the end of
each month during the applicable periods set forth below, a Tangible Net
Worth of not less than the amount set forth opposite each such applicable
period:
Applicable Period Amount
----------------- ------
08/01/97 - 10/31/97 $ 150,000
11/01/97 - 01/31/98 $ 200,000
02/01/98 - 04/30/98 $ 400,000
05/01/98 - 07/31/98 $ 650,000
08/01/98 - 10/31/98 $ 850,000
11/01/98 - 01/31/99 $1,050,000
02/01/99 - 04/30/99 $1,250,000
05/01/99 - 07/31/99 $1,450,000
08/01/99 - 10/31/99 $1,650,000
11/01/99 - 01/31/00 $1,850,000
02/01/00 - 04/30/00 $2,050,000
05/01/00 - 07/31/00 $2,250,000
08/01/00 - 10/31/00 $2,450,000
11/01/00 - 01/31/01 $2,650,000
02/01/01 - 04/30/01 $2,850,000
05/01/01 - 07/31/01 $3,050,000
08/01/01 - 10/31/01 $3,250,000
11/01/01 - 01/31/02 $3,450,000
All time thereafter $3,650,000
7
<PAGE>
8.2 INTEREST COVERAGE RATIO. Borrower shall maintain, as of the end
of each fiscal quarter of Borrower during the applicable periods set forth
below, an Interest Coverage Ratio of not less than the ratio set forth
below opposite each such applicable period, calculated for the fiscal
quarter then ending:
Applicable Period Ratio
----------------- -----
08/01/97 - 01/31/98 1.30:1.0
02/01/98 - 04/30/98 2.00:1.0
At all times thereafter 2.50:1.0
8.3 [INTENTIONALLY DELETED]
8.4 INDEBTEDNESS/CASH FLOW RATIO. Borrower shall maintain as of the
end of each fiscal quarter of Borrower during the applicable periods set
forth below a ratio of Indebtedness to Cash Flow with Cash Flow calculated
as follows: (a) in the case of the fiscal quarter ending October 31, 1997,
calculated for such fiscal quarter and then multiplied by four (4); (b) in
the case of the fiscal quarter ending January 31, 1998, calculated for the
two fiscal quarter period then ending and then multiplied by two (2); (c)
in the case of the fiscal quarter ending April 30, 1998, calculated for the
three fiscal quarter period then ending and then multiplied by four-thirds
(4/3); and (d) in the case of each subsequent fiscal quarter, for the four
fiscal quarter period then ending of not greater than the ratio set forth
below opposite the applicable period during which such quarter occurs:
Applicable Period Ratio
----------------- -----
08/01/97 - 10/31/97 8.00:1.0
11/01/97 - 01/31/98 6.50:1.0
02/01/98 - 04/30/98 5.25:1.0
05/01/98 - 01/31/99 4.75:1.0
At all times thereafter 4.50:1.0
8.5 CAPITAL EXPENDITURES. Make any Capital Expenditure at any time
(a) during the Fiscal Year ending on July 31, 1998 if the aggregate amount
of such Capital Expenditures during such Fiscal Year would exceed $800,000;
and (b) during any subsequent Fiscal Year, if the aggregate amount of such
Capital Expenditures during such Fiscal Year would exceed $500,000.
2.23 Schedules 1.1, 5.18 and 7.2 to the Loan Agreement are hereby
amended by deleting such schedules in their entirety and by substituting in
lieu thereof new Schedules 1.1, 5.18 and 7.2, in the forms of Exhibits A-1,
A-2, and A-3 attached hereto.
2.24 The Loan Agreement is hereby further amended by adding thereto
new Schedules 5.14 and 5.22, in the forms of Exhibits F-1 and F-2 attached
hereto.
8
<PAGE>
2.25 The Loan Agreement is hereby further amended by adding thereto
new Exhibits I and J, in the forms of Exhibits B and C attached hereto.
2.26 The Loan Agreement is hereby further amended by deleting Exhibit
D attached thereto, and substituting in lieu thereof a new Exhibit D, in the
form of Exhibit G attached hereto.
3. WAIVER. Lender hereby waives any Event of Default under the Loan
Agreement prior to the date hereof arising solely out of (i) the Borrower's
failure to make the initial scheduled payment of the Term Loan on August 1,
1997, as required under Section 2.2(b) of the Loan Agreement; provided,
however, that the foregoing waiver is a waiver solely as to the timing of the
initial principal installment of the Term Loan, and shall not be deemed a
waiver of the Borrower's obligation to repay the entire amount of the Term
Loan in accordance with the Loan Agreement, as amended by through and
including the effective date of this Amendment; (ii) the Borrower's failure to
repay immediately the Revolving Loans, to the extent that the outstanding
principal balance thereof exceeded the Borrowing Base; (iii) the Borrower's
failure to comply with the financial covenant set forth in Section 8.1 for the
period beginning on May 1, 1997 and ending on the Third Amendment Effective
Date, and the financial covenants set forth in Sections 8.2 and 8.4 of the
Loan Agreement for the fiscal quarter ending July 31, 1997; and (iv) the
Borrower's failure to comply with the provisions of Section 7.1, to the extent
that any such failure to comply arose out of the existence of the mechanics
lien described on Schedule 1.1 attached hereto as Exhibit A-1.
4. EXPENSES. Borrower agrees to pay, immediately upon demand by Lender,
all costs, expenses, attorneys' fees, and other charges and expenses incurred
by Lender in connection with the negotiation, preparation, execution and
delivery of this Amendment. In addition, Borrower agrees to pay all of the
expenses of Regent Pacific Management Corporation relating to consulting
services provided by such Person, and to indemnify and reimburse the Lender to
the extent that the Lender pays any such expenses.
5. DEFAULTS HEREUNDER. The breach of any representation, warranty or
covenant contained herein or in any document executed in connection herewith,
or the failure to observe or comply with any term or agreement contained
herein or in any document executed in conjunction herewith, shall constitute
an Event of Default under the Loan Documents and Lender shall be entitled to
exercise all rights and remedies it may have under the Loan Agreement, any of
the other Loan Documents and applicable law.
6. REPRESENTATIONS AND WARRANTIES. All of the representations and
warranties made by Borrower under the Loan Agreement and the Loan Documents
shall be true and correct in all material respects as of the date hereof with
the same force and effect as if made on and as the date hereof except for such
changes in such representations and warranties which do not constitute a
Default or Event of Default, which do not, individually or in the aggregate,
have a Material Adverse Effect and which have, to the extent required, been
disclosed to the Bank pursuant to Section 6.2 of the Loan Agreement or
otherwise. Borrower further represents and warrants to Lender on and as of the
date of this Amendment, and after giving effect thereto, no Default or Event
of Default has occurred and is continuing.
9
<PAGE>
7. NO MATERIAL ADVERSE CHANGE. Since June 30, 1997, and other than as set
forth on Exhibit D attached hereto, there has not occurred any material adverse
change in the assets, liabilities, business, operations or condition (financial
or otherwise) of the Borrower, or any event, condition, or state of facts which
would be expected to have a Material Adverse Effect subsequent to the date
hereof.
8. CONDITIONS PRECEDENT. This Amendment shall not become effective unless
and until:
(i) the Lender shall have received the following documents, each duly
executed and delivered to Lender, and each to be satisfactory in form and
substance to Lender and its counsel:
(a) the Amendment;
(b) the Replacement Term Note, in the form of Exhibit E attached
hereto;
(c) the Additional Term Note, in the form of Exhibit C attached
hereto;
(d) the Capitalized Interest Note, in the form of Exhibit B
attached hereto
(e) a certificate signed by the executive vice president and
chief financial officer of Borrower, stating that, giving
effect to this Amendment, the representations and warranties
set forth in Article 5 of the Loan Agreement are true and
correct in all material respects on the date hereof,
Borrower is on the date hereof in compliance with all the
terms and conditions set forth in the Loan Agreement, as
amended hereby, and the Loan Documents on its part to be
observed or performed, and on the date hereof, after giving
effect to this Amendment, no Default or Event of Default has
occurred or is continuing;
(f) a certificate of the Secretary of Borrower certifying that
attached thereto is a true and correct copy of the
resolutions adopted by its Board of Directors, authorizing
the execution, delivery and performance of the Amendment,
the Replacement Term Note, the Additional Term Note, the
Capitalized Interest Note and the other documents
contemplated hereby;
(g) the written opinion of Dorsey & Whitney LLP, counsel to
Borrower, in the form and substance satisfactory to Lender;
(h) the Written Direction to Trustee to Waive Default, executed
by Creditanstalt Municipal Leasing Company ("CMLC") and
acknowledged by Norwest Bank Iowa, National Association, as
Trustee (the "Trustee"), pursuant to which CMLC shall direct
the Trustee to waive certain events of default thereunder
and to cause the City of Ellsworth, Iowa, as issuer of the
Bonds, to amend the Bond Loan Agreement to reflect the
amendments to the financial covenants contained in the Loan
Agreement
10
<PAGE>
contained herein;
(i) a disbursement direction letter; and
(j) such other documents, instruments and agreements with
respect to the transactions contemplated by this Amendment,
in each case in such form and containing such additional
terms and conditions as may be reasonably satisfactory to
Lender, and containing, without limitation, representations
and warranties which are customary and usual in such
documents.
(ii) the Borrower shall have reached a written settlement with North
Dakota Mill concerning the dispute with such Person involving approximately
$1,320,000 in accounts payable allegedly owing by the Borrower to such Person,
on terms and conditions in form and substance satisfactory to the Lender; and
(iii) the Borrower shall have used the proceeds, in part, to pay (a)
accrued interest on the Loans (other than Eurodollar Loans) as of July 31,
1997, and (b) the fees and expenses of the Lender in connection with the
preparation, negotiation and documentation of this Amendment and the
consummation of the transactions contemplated hereby or otherwise in
connection herewith.
9. REFERENCES IN LOAN DOCUMENTS. All references in the Loan Agreement and
the other Loan Documents to the Loan Agreement shall hereafter be deemed to be
references to the Loan Agreement as amended hereby and as the same may hereafter
be amended from time to time.
10. NO CLAIMS, OFFSET. Borrower hereby represents, warrants, acknowledges
and agrees to and with Lender that (a) Borrower does not hold or claim any right
of action, claim, cause of action or damages, either at law or in equity,
against Lender which arises from, may arise from, allegedly arise from, are
based upon or are related in any manner whatsoever to the Loan Agreement and the
Loan Documents or which are based upon acts or omissions of Lender in connection
therewith and (b) the Obligations are absolutely owed to Lender, without offset,
deduction or counterclaim.
11. NO NOVATION. The terms of this Amendment are not intended to and do
not serve to effect a novation as to the Loan Agreement. The parties hereto
expressly do not intend to extinguish any debt or security interest created
pursuant to the Loan Agreement. Instead, it is the express intention of the
parties hereto to affirm the Loan Agreement and the security created thereby.
12. LIMITATION OF AMENDMENT. Except as expressly set forth herein, this
Amendment shall not be deemed to waive, amend or modify any term or condition
of the Loan Agreement or any of the other Loan Documents, each of which is
hereby ratified and reaffirmed, and which shall remain in full force and
effect, nor to serve as a consent to any matter prohibited by the terms and
conditions thereof.
13. COUNTERPARTS. This Amendment may be executed in any number of
counterparts,
11
<PAGE>
and any party hereto may execute any counterpart, each of which, when executed
and delivered, will be deemed to be an original and all of which, taken
together, will be deemed to be but one and the same agreement. Any signature
page to this Amendment may be witnessed by a telecopy or other facsimile of
any original signature page or any counterpart hereof may be appended to any
other counterpart hereof to form a completely executed counterpart hereof.
14. SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and inure
to the benefit of the successors and permitted assigns of the parties hereto.
15. SECTION REFERENCES. Section titles and references used in this
Amendment shall be without substantive meaning or content of any kind
whatsoever and are not a part of the agreements among the parties hereto
evidenced hereby.
16. GOVERNING LAW. This Amendment shall be governed by, and construed in
accordance with, the laws of the State of New York, without regard to
principles of conflicts of law.
12
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Amendment under
seal as of the date first written above.
"BORROWER"
UNCLE B'S BAKERY, INC.
By: /s/ William T. Rose, Jr.
----------------------------------
William T. Rose, Jr.
President
Attest: /s/ Wm. Howard McClennan, Jr.
------------------------------
Wm. Howard McClennan, Jr.
Secretary
"LENDER"
CREDITANSTALT CORPORATE FINANCE, INC.
By: /s/ W. Craig Stamm
---------------------------------
W. Craig Stamm
Vice President
By: /s/ Scott Kray
----------------------------------
Scott Kray
Vice President
<PAGE>
Exhibit A-1
SCHEDULE 1.1
PERMITTED LIENS
D&S Sheetmetal, Inc. filed a mechanics lien against the Realty on July 31,
1997 in the sum of $59,859.51, plus interest and costs. The Company intends to
work out a payment schedule with this creditor and to make payment against
such debt with the proceeds of Additional Term Loan II.
<PAGE>
SCHEDULE 5.18
Summary of Patents and Trademarks
Brand Names and Products Products Covered Status
Processes Currently by Trademark
Marketed
- ------------------------------------------------------------------------------
Uncle B's(R) bagels Class 30 bakery Filed 11/4/91.
goods Reg. # 1,699,292.
Expires 11/4/01.
Uncle B's(R) and bagels Class 30 bakery Filed 10/27/95.
design goods Reg. # 2,029,901.
Expires 1/14/07.
[LOGO]
Bagel Packaging bagels Process patent Filed 9/4/90.
Composition Serial # 08/396,090.
Application pending.
Millspring(TM) bagels Class 30 bakery Filed 6/28/94.
goods Serial # 74/543,342
Application pending.
Zip Strip(TM) bagels Class 30 bakery Filed 10/6/95.
goods Serial #75/002,340.
Application pending.
Bagel to Go(TM) bagels Class 30 bakery Application process
goods progress.
- ------------------------------------------------------------------------------
<PAGE>
SCHEDULE 7.2
Indebtedness
1) As of August 15, 1997, the Company accounts payable outstanding over 90
days is approximately $876,000.
2) The Company has entered into a letter agreement dated August 21, 1997
with North Dakota Mill ("NDM") whereby NDM gives the Company a $225,000 credit
toward its account payable with NDM, in exchange for a release from liability
for claims relating to performance of flour previously provided by NDM. The
balance of the account payable ($1,096,187.27) is converted into a long-term
note at 0% interest for 78 weeks and at prime plus 1.5% after 78 weeks on a
repayment schedule of $7,000 per week, and the note is due in 113 weeks from
the date of signing. The Company also agrees to purchase flour from NDM for 26
months as long as price and quality remain competitive.
<PAGE>
EXHIBIT B
TO WAIVER AND THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 25, 1997
FORM OF CAPITALIZED INTEREST NOTE
GREENWICH, CONNECTICUT
AS OF AUGUST_____, 1997
FOR VALUE RECEIVED, the undersigned UNCLE B'S BAKERY, INC., an Iowa
corporation (hereinafter referred to as "Maker"), promises to pay to the order
of CREDITANSTALT CORPORATE FINANCE, INC. (hereinafter to as the "Holder"), at
Holder's office located at Two Greenwich Plaza, Greenwich, Connecticut 06830,
or at such other place as Holder may from time to time designate in writing,
the aggregate outstanding amount of all capitalized interest owing to the
Holder in respect of the Additional Term Loan II, as such term is defined in
the Loan Agreement referred to below, payable on the Additional Term Loan II
Repayment Date, as defined in the Loan Agreement.
Interest on capitalized interest from time to time outstanding hereunder
shall accrue at the rates and shall be payable in the manner set forth in the
Loan Agreement referred to below. In no contingency or event whatsoever shall
the interest rate charged pursuant to the terms of this Note exceed the
highest rate permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the event that
such a court determines that Holder has received interest hereunder in excess
of the highest applicable rate, Holder shall promptly refund such excess
interest to Maker.
This Note is subject to all of the terms and conditions of the Loan
Agreement, including, but not limited to, those relating to prepayments
hereon, and those relating to the acceleration of the indebtedness represented
hereby upon the occurrence of an Event of Default (as such term is defined in
the Loan Agreement). Payment of this Note is secured by the "Collateral", the
"Realty" and any "Additional Realty" (as such terms are defined in the Loan
Agreement). All prepayments under this Note shall be applied to the principal
installments hereof in the inverse order of their maturities.
In the event that all or any portion of the indebtedness evidenced hereby
shall be collected by or through an attorney-at-law, Holder shall be entitled
to collect from Maker all costs of collection, including reasonable attorneys'
fees.
Maker hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor and all other notices in connection with this
Note. This Note shall be payable without right of setoff, any defense or want
or failure of consideration, nonperformance of any condition precedent,
nondelivery or delivery for a special purpose or any other defense of any
nature whatsoever.
THIS NOTE, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER,
SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF
NEW YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). MAKER HEREBY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT FOR
THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING IN NEW
YORK CITY FOR THE PURPOSE OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
<PAGE>
RELATING TO THIS NOTE AND (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE REGARDING
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE HOLDER TO BRING
PROCEEDINGS AGAINST MAKER IN THE COURTS OF ANY OTHER JURISDICTION WITHIN THE
UNITED STATES OF AMERICA OR IN WHICH ANY COLLATERAL IS LOCATED.
MAKER HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND
ALL RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING
BASED ON OR ARISING OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS NOTE,
THE TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF
DEALING, STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF MAKER OR HOLDER.
THIS PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO MAKE THE LOANS
EVIDENCED BY THIS NOTE TO MAKER.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its duly authorized officer as of the day and year first written above.
UNCLE B'S BAKERY, INC., an Iowa
corporation
By:
-------------------------------
Title:
----------------------------
Attest:
---------------------------
Title:
----------------------------
3
<PAGE>
EXHIBIT C
TO WAIVER AND THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 25, 1997
FORM OF ADDITIONAL TERM NOTE
$750,000 GREENWICH, CONNECTICUT
AS OF AUGUST_____, 1997
FOR VALUE RECEIVED, the undersigned UNCLE B'S BAKERY, INC., an Iowa
corporation (hereinafter referred to as "Maker"), promises to pay to the order
of CREDITANSTALT CORPORATE FINANCE, INC. (hereinafter to as the "Holder"), at
Holder's office located at Two Greenwich Plaza, Greenwich, Connecticut 06830,
or at such other place as Holder may from time to time designate in writing,
the principal sum of Seven Hundred Fifty Thousand United States Dollars (U.S.
$750,000), payable on the Additional Term Loan II Repayment Date.
Interest on the principal balance from time to time outstanding hereunder
shall accrue at the rates and shall be payable in the manner set forth in the
Loan Agreement referred to below. In no contingency or event whatsoever shall
the interest rate charged pursuant to the terms of this Note exceed the
highest rate permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the event that
such a court determines that Holder has received interest hereunder in excess
of the highest applicable rate, Holder shall promptly refund such excess
interest to Maker.
This Note is subject to all of the terms and conditions of the Loan
Agreement, including, but not limited to, those relating to prepayments
hereon, and those relating to the acceleration of the indebtedness represented
hereby upon the occurrence of an Event of Default (as such term is defined in
the Loan Agreement) or the reduction of the Term Loan Commitment. Payment of
this Note is secured by the "Collateral", the "Realty" and any "Additional
Realty" (as such terms are defined in the Loan Agreement). All prepayments
under this Note shall be applied to the principal installments hereof in the
inverse order of their maturities.
In the event that all or any portion of the indebtedness evidenced hereby
shall be collected by or through an attorney-at-law, Holder shall be entitled
to collect from Maker all costs of collection, including reasonable attorneys'
fees.
Maker hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor and all other notices in connection with this
Note. This Note shall be payable without right of setoff, any defense or want
or failure of consideration, nonperformance of any condition precedent,
nondelivery or delivery for a special purpose or any other defense of any
nature whatsoever.
THIS NOTE, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). MAKER HEREBY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING
IN NEW
<PAGE>
YORK CITY FOR THE PURPOSE OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR RELATING TO
THIS NOTE AND (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW,
ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE REGARDING THE LAYING OF THE
VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS BEEN BROUGHT IN AN
INCONVENIENT FORUM. NOTWITHSTANDING ANYTHING HEREIN TO THE CONTRARY, NOTHING
HEREIN SHALL LIMIT THE RIGHT OF THE HOLDER TO BRING PROCEEDINGS AGAINST MAKER IN
THE COURTS OF ANY OTHER JURISDICTION WITHIN THE UNITED STATES OF AMERICA OR IN
WHICH ANY COLLATERAL IS LOCATED.
MAKER HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED
ON OR ARISING OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS NOTE, THE
TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF MAKER OR HOLDER. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO MAKE THE LOANS EVIDENCED
BY THIS NOTE TO MAKER.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its duly authorized officer as of the day and year first written above.
UNCLE B'S BAKERY, INC., an Iowa
corporation
By:
-------------------------------
Title:
----------------------------
Attest:
---------------------------
Title:
----------------------------
3
<PAGE>
EXHIBIT D
TO WAIVER AND THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 25, 1997
MATERIAL ADVERSE CHANGES
None.
<PAGE>
EXHIBIT E
TO WAIVER AND THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 25, 1997
FORM OF TERM NOTE
$7,150,000 GREENWICH, CONNECTICUT
AS OF AUGUST_____, 1997
FOR VALUE RECEIVED, the undersigned UNCLE B'S BAKERY, INC., an Iowa
corporation (hereinafter referred to as "Maker"), promises to pay to the order
of CREDITANSTALT CORPORATE FINANCE, INC. (hereinafter to as the "Holder"), at
Holder's office located at Two Greenwich Plaza, Greenwich, Connecticut 06830,
or at such other place as Holder may from time to time designate in writing,
the principal sum of Seven Million One Hundred Fifty Thousand United States
Dollars (U.S. $7,150,000), payable in sixteen (16) quarterly installments of
principal, payable on each Amortization Date, as defined in the Loan Agreement
referred to below, commencing August 1, 1998 with the first fifteen (15) such
installments each being in an amount of One Hundred Seventy Eight Thousand
Seven Hundred and Fifty Dollars ($178,750) and the sixteenth (16th) and final
installment being an amount equal to the then-outstanding unpaid aggregate
principal amount of the Term Loan, payable on the Final Maturity Date.
Interest on the principal balance from time to time outstanding hereunder
shall accrue at the rates and shall be payable in the manner set forth in the
Loan Agreement referred to below. In no contingency or event whatsoever shall
the interest rate charged pursuant to the terms of this Note exceed the
highest rate permissible under any law which a court of competent jurisdiction
shall, in a final determination, deem applicable hereto. In the event that
such a court determines that Holder has received interest hereunder in excess
of the highest applicable rate, Holder shall promptly refund such excess
interest to Maker.
This Note is a replacement note for that certain Term Note dated as of
November 15, 1996 in the principal amount of Seven Million One Hundred Fifty
Thousand Dollars ($7,150,000) executed by Maker in favor of Holder, which was,
in part, a replacement note for that certain Term Note dated July 12, 1995 in
the principal amount of Six Million Nine Hundred Thousand Dollars ($6,900,000)
executed by Maker in favor of Holder and is the Term Note referred to in that
certain Loan and Security Agreement dated July 12, 1995, by and between Maker
and Holder (as the same has been, and as the same may be further amended,
restated, supplemented or otherwise modified from time to time, the "Loan
Agreement"). This Note is subject to all of the terms and conditions of the
Loan Agreement, including, but not limited to, those relating to prepayments
hereon, and those relating to the acceleration of the indebtedness represented
hereby upon the occurrence of an Event of Default (as such term is defined in
the Loan Agreement) or the reduction of the Term Loan Commitment. Payment of
this Note is secured by the "Collateral", the "Realty" and any "Additional
Realty" (as such terms are defined in the Loan Agreement). All prepayments
under this Note shall be applied to the principal installments hereof in the
inverse order of their maturities.
In the event that all or any portion of the indebtedness evidenced hereby
shall be collected by or through an attorney-at-law, Holder shall be entitled
to collect from Maker all costs of collection, including reasonable attorneys'
fees.
<PAGE>
Maker hereby waives presentment, demand for payment, protest and notice of
protest, notice of dishonor and all other notices in connection with this
Note. This Note shall be payable without right of setoff, any defense or want
or failure of consideration, nonperformance of any condition precedent,
nondelivery or delivery for a special purpose or any other defense of any
nature whatsoever.
THIS NOTE, AND THE RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL
BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW
YORK (WITHOUT REGARD TO PRINCIPLES OF CONFLICTS OF LAW). MAKER HEREBY (A)
SUBMITS TO THE NONEXCLUSIVE JURISDICTION OF THE UNITED STATES DISTRICT COURT
FOR THE SOUTHERN DISTRICT OF NEW YORK AND OF ANY NEW YORK STATE COURT SITTING
IN NEW YORK CITY FOR THE PURPOSE OF ALL LEGAL PROCEEDINGS ARISING OUT OF OR
RELATING TO THIS NOTE AND (B) IRREVOCABLY WAIVES, TO THE FULLEST EXTENT
PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE REGARDING
THE LAYING OF THE VENUE OF ANY SUCH PROCEEDING BROUGHT IN SUCH A COURT HAS
BEEN BROUGHT IN AN INCONVENIENT FORUM. NOTWITHSTANDING ANYTHING HEREIN TO THE
CONTRARY, NOTHING HEREIN SHALL LIMIT THE RIGHT OF THE HOLDER TO BRING
PROCEEDINGS AGAINST MAKER IN THE COURTS OF ANY OTHER JURISDICTION WITHIN THE
UNITED STATES OF AMERICA OR IN WHICH ANY COLLATERAL IS LOCATED.
MAKER HEREBY KNOWINGLY, INTELLIGENTLY AND INTENTIONALLY WAIVES ANY AND ALL
RIGHTS IT MAY HAVE TO A TRIAL BY JURY IN RESPECT OF ANY LEGAL PROCEEDING BASED
ON OR ARISING OUT OF, UNDER, IN CONNECTION WITH, OR RELATING TO THIS NOTE, THE
TRANSACTIONS CONTEMPLATED HEREBY, OR ANY COURSE OF CONDUCT, COURSE OF DEALING,
STATEMENTS (WHETHER ORAL OR WRITTEN), OR ACTIONS OF MAKER OR HOLDER. THIS
PROVISION IS A MATERIAL INDUCEMENT FOR THE HOLDER TO MAKE THE LOANS EVIDENCED
BY THIS NOTE TO MAKER.
2
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Note to be executed by
its duly authorized officer as of the day and year first written above.
UNCLE B'S BAKERY, INC., an Iowa
corporation
By:
-------------------------------
Title:
----------------------------
Attest:
---------------------------
Title:
----------------------------
3
<PAGE>
SCHEDULE 5.14
DEFAULTS
The Company has been in violation of certain of the financial covenants
contained in Appendix A to the Loan Agreement between the City of Ellsworth,
Iowa and the Company, relating to the Bonds (the "Bond Loan Agreement"). In
addition, defaults under Section 6.1(f), (g) and (h) of the Bond Loan
Agreement have occurred due to Events of Default under the Loan Agreement, and
defaults under Section 6.1(a) of the Bond Loan Agreement have occurred due to
failure of timely make a payment on the Bonds in July 1997 (which payment has
subsequently been made). The Bondholder has instructed the Bond Trustee to
waive these defaults and to enter into an amendment to the Bond documents
consistent with this Amendment.
<PAGE>
Exhibit F-2
SCHEDULE 5.22
Trade Relations
As disclosed in Section 7.2 the Company anticipates entering into a
definitive agreement with a trade supplier to repay the amounts owed over a 26
month period.
As disclosed in Schedule 1.1 a mechanics lien has been filed in the
amount of approximately $59,860 plus cost and Interest. Company anticipates
this will be satisfied with an agreed upon payment schedule and payment from
loan proceeds.
<PAGE>
EXHIBIT G
TO WAIVER AND THIRD AMENDMENT TO LOAN AND SECURITY AGREEMENT
DATED AS OF AUGUST 25, 1997
EXHIBIT D
Notice of Borrowing
Creditanstalt Corporate Finance, Inc.
Two Greenwich Plaza
Greenwich, Connecticut 06830
Re: Loan and Security Agreement dated as of July 15, 1997 (the "Loan
Agreement") among Uncle B's Bakery, Inc. (the "Borrower") and
Creditanstalt Corporate Finance, Inc. ("Lender")
Gentlemen:
The undersigned, UNCLE B'S BAKERY, INC., hereby gives you notice,
irrevocably, pursuant to Section 2.11 of the Loan Agreement, that the
undersigned hereby requests a [Loan] [Conversion] [Continuation] under the
Loan Agreement and in connection therewith, sets forth the information
relating to such [Loan] [Conversion] [Continuation] as required by Section
2.11 of the Loan Agreement. Capitalized terms used herein and not otherwise
defined shall have the meanings ascribed to them in the Loan Agreement.
Borrower hereby irrevocably requests for the following Loan:
1. Amount of [Loan] [Conversion]
[Continuation] $
----------------
2. Borrowing Base:
a. Availability before Loan $
----------------
b. Availability after Loan $
----------------
3. Type of [Loan] [Conversion]
[Continuation] (check one): ___ Base Rate Loan
___ Eurodollar Loan
4. Date of [Loan] [Conversion]
[Continuation] __________, 19____
<PAGE>
The undersigned hereby certifies to the Lender as follows:
(a) The representations and warranties set forth in Article 5 of the Loan
Agreement, the terms of which are incorporated herein by reference, are true and
correct in all material respects on and as of the date hereof except for such
changes in such representations and warranties which do not constitute a Default
or Event of Default under the Loan Agreement, which are not, individually or in
the aggregate, materially adverse to the assets, liabilities, financial
condition or results of operations of Borrower or any of its Subsidiaries and
which, to the extent required, have been disclosed to the Lender pursuant to
Section 6.2 of the Loan Agreement or otherwise; and
(b) On the date hereof, and after giving effect to the Loan requested
hereby, when aggregated with all of the other Loans currently outstanding, no
Default or Event of Default has occurred or is continuing.
Very truly yours,
UNCLE B'S BAKERY, INC.
By:
------------------------------
Title:
2
<PAGE>
Exhibit 10.20
SECOND AMENDMENT TO
WARRANT AGREEMENT
THIS SECOND AMENDMENT TO WARRANT AGREEMENT (this "Second Amendment") is
made and entered into as of this 22nd day of August, 1997, by and between UNCLE
B'S BAKERY, INC., an Iowa corporation (the "Issuer"), and CREDITANSTALT-
BANKVEREIN, an Austrian banking corporation ("Creditanstalt").
W I T N E S S E T H:
-------------------
WHEREAS, pursuant to the Loan and Security Agreement dated as of July 12,
1995, between the Issuer and Creditanstalt Corporate Finance, Inc. ("CFI") (the
"Loan Agreement"), CFI made a loan to the Issuer upon the terms set forth in the
Loan Agreement; and
WHEREAS, in order to induce CFI to structure and to provide the loan
pursuant to the Loan Agreement, the Issuer executed and delivered a Warrant
Agreement dated as of July 12, 1995 (as amended by the First Amendment (as
defined below) and as may be amended, supplemented or otherwise modified from
time to time, the "Warrant Agreement") and issued to CFI Series A Warrants to
purchase 215,000 shares of Common Stock or Convertible Preferred Stock of the
Issuer, which Warrants were later transferred by CFI to Creditanstalt American
Corporation ("CAC"), an affiliate of CFI; and
WHEREAS, on October 28, 1996, the Issuer and CFI entered into a Waiver and
First Amendment to Loan and Security Agreement which modified certain
definitions and covenants and waived certain defaults, and on November 15, 1996,
the Issuer and CFI entered into a Second Amendment to Loan and Security
Agreement (the "Second Loan Agreement Amendment") to provide for the loan of
additional funds; and
WHEREAS, in connection with and to induce CFI to enter into the Second Loan
Agreement Amendment, the Issuer amended the Warrant Agreement on November 15,
1996 (the "First Amendment") and issued to CAC Series B Warrants to purchase
205,000 shares of Common Stock or Convertible Preferred Stock of the Issuer; and
WHEREAS, also on November 15, 1996, CAC made an equity investment in
111,111 shares of Common Stock of the Issuer, which equity investment has been
transferred to Creditanstalt; and
WHEREAS, the Issuer and CFI wish to enter into a Waiver and Third
Amendment to Loan and Security Agreement dated of even date herewith (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Third Loan Agreement Amendment"); and
WHEREAS, in connection with and to induce CFI to enter into the Third Loan
Agreement Amendment, the Issuer has agreed to substitute Creditanstalt as the
Warrantholder of
<PAGE>
the Series A Warrants and Series B Warrants, and to amend the Warrant
Agreement, as further set forth herein, in order to provide for the issuance
of certain additional Warrants to Creditanstalt and make certain other changes
set forth herein;
NOW, THEREFORE, in consideration of these premises, the terms and
conditions herein, and other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree
as follows:
Section 1. Definitions. As used in this Second Amendment, unless
otherwise defined herein, terms defined in the Warrant Agreement and the First
Amendment shall have the meaning set forth therein when used herein.
Section 2. Amendment of Definition of "Closing Date". The term "Closing
Date," as set forth in Section 1 of the Warrant Agreement, is hereby deleted in
its entirety and the following definition is substituted in lieu thereof:
"Closing Date" shall mean (i) with respect to the Series A
Warrants, July 12, 1995, (ii) with respect to the Series B Warrants
and the Purchased Shares, November 15, 1996, and (iii) with respect
to the Series C Warrants, August 22, 1997.
Section 3. Amendment of Definition of "Convertible Preferred Stock". The
term "Convertible Preferred Stock," as set forth in Section 1 of the Warrant
Agreement, is hereby deleted in its entirety and the following definition is
substituted in lieu thereof:
"Convertible Preferred Stock" shall mean the Class B Preferred
Stock, Series 3 of the Issuer, par value $.01 per share, which shall
be convertible into Common Stock of the Issuer, and shall include
any stock into which such Convertible Preferred Stock shall have
been changed or any stock resulting from any reclassification of
such Convertible Preferred Stock.
Section 4. Deletion of Definition of "Exchange Right". The term "Exchange
Right," as set forth in Section 1 of the Warrant Agreement, is hereby deleted in
its entirety.
Section 5. Amendment of Definition of "Exercise Price". The term
"Exercise Price," as set forth in Section 1 of the Warrant Agreement, is
hereby deleted in its entirety and the following definition is substituted in
lieu thereof:
"Exercise Price" shall mean the exercise price of a Warrant,
which shall be $0.55 per Warrant.
Section 6. Amendment of Definition of "Expiration Date". The term
"Expiration Date," as set forth in Section 1 of the Warrant Agreement, is hereby
deleted in its entirety and the following definition is substituted in lieu
thereof:
2
<PAGE>
"Expiration Date" shall mean (i) with respect to the Series A
Warrants, July 12, 2005, (ii) with respect to the Series B Warrants,
November 15, 2006, and (iii) with respect to the Series C Warrants,
August 22, 2007.
Section 7. Definitions of "Mandatory Exchange" and "Mandatory Redemption".
Section 1 of the Warrant Agreement is hereby amended by adding following the
definition of "Expiration Date," new definitions of "Mandatory Exchange" and
"Mandatory Redemption" as follows:
"Mandatory Exchange" shall have the meaning given to such term
in subsection 16(b).
"Mandatory Redemption" shall have the meaning given to such term
in subsection 16(a)(i).
Section 8. Definition of "Series C Warrants". Section 1 of the Warrant
Agreement is hereby amended by adding following the definition of "Series B
Warrants," a new definition of "Series C Warrants" as follows:
"Series C Warrants" shall mean the stock purchase warrants
issued pursuant to this Warrant Agreement entitling the record
holders thereof to purchase from the Issuer at the Warrant Office
650,000 shares of Common Stock or Convertible Preferred Stock (in
the percentages and to the extent provided in subsections 6(e) and
6(f) hereof and subject in each case to adjustments as provided in
Section 12) at the Exercise Price therefor at any time after August
22, 1997 and before 5:00 p.m., New York time, on the Expiration Date
therefor, individually, a "Series C Warrant."
Section 9. Definition of "Trigger Date". Section 1 of the Warrant
Agreement is hereby amended by adding following the definition of
"Subsidiary," a new definition of "Trigger Date" as follows:
"Trigger Date" shall have the meaning given to such term in
subsection 16(a)(i).
Section 10. Amendment of Definition of "Warrants". The term "Warrants,"
as set forth in Section 1 of the Warrant Agreement, is hereby deleted in its
entirety and the following definition is substituted in lieu thereof:
"Warrants" shall mean the Series A Warrants, the Series B
Warrants and the Series C Warrants, collectively; individually, a
"Warrant."
3
<PAGE>
Section 11. Duration and Exercise of Warrants. Section 6 of the Warrant
Agreement is hereby amended to delete subsection (a) thereof in its entirety
and to substitute therefor a new subsection (a) to read as follows:
(a) (i) The Series A Warrants evidenced by a Series
A Warrant Certificate shall be exercisable in whole or in part by the
registered holder thereof on any Business Day after July 12, 1995 and
on or before 5:00 p.m., New York time, on the Expiration Date
therefor.
(ii) The Series B Warrants evidenced by a Series B Warrant
Certificate shall be exercisable in whole or in part by the
registered holder thereof on any Business Day after November 15,
1996 and on or before 5:00 p.m., New York time, on the Expiration
Date therefor.
(iii) The Series C Warrants evidenced by a Series C
Warrant Certificate shall be exercisable in whole or in part by the
registered holder thereof on any Business Day after August 22, 1997
and on or before 5:00 p.m., New York time, on the Expiration Date
therefor.
Section 12. Duration and Exercise of Warrants. Section 6 of the Warrant
Agreement is hereby amended to delete subsections (e) and (f) thereof in their
entirety and to substitute therefor new subsections (e) and (f) to read as
follows:
(e) At the election of the Warrant Holder made at the time of
exercise, the Warrant Shares to be issued upon such exercise may be
either Common Stock or Convertible Preferred Stock (or a combination
thereof), provided that the Warrant Holder shall not have the right
to have issued to it upon exercise Common Stock which, when
aggregated with all other shares of Common Stock (other than shares
of Non-Attributable Stock) currently or previously held by or
currently issuable without restriction to the Warrant Holder, will
exceed 4.99% of the then outstanding Common Stock unless such
Warrant Holder certifies that such Warrants have previously been
transferred either (i) in a widely dispersed public offering of the
Warrants, or (ii) in a private placement in which no purchaser,
individually or in concert with others, would have acquired more
than 2% of the outstanding Common Stock if the Warrants so
transferred had been exercised for Common Stock, or (iii) in
compliance with Rule 144 (or any rule which is a successor thereto)
of the Securities Act, or (iv) into the secondary market in a market
transaction executed through a registered broker-dealer in blocks of
no more than 2.0% of the shares
4
<PAGE>
outstanding of the Issuer in any six month period; provided further
that if the Warrant Holder is a bank or an Affiliate of a bank
subject to the provisions of the Bank Holding Company Act of 1956,
as amended, such Common Stock, together with all other shares of
Common Stock currently or previously held by or currently issuable
without restriction to such Warrant Holder and its Affiliates (not
including Non-Attributable Stock), will not exceed 4.99% of the then
outstanding Common Stock. In the event two or more Warrant Holders
attempt to exercise Warrants for Common Stock simultaneously and, if
permitted, such exercises would cause the 4.99% limitation to be
exceeded, then the Issuer shall notify the Warrant Holders who had
attempted to exercise Warrants for Common Stock and each such
Warrant Holder shall be entitled to exercise for Common Stock only
such number of Warrants as shall equal the product of (i) the number
of Warrants the Warrant Holder sought to exercise for Common Stock
times (ii) a fraction, the numerator of which is the maximum number
of Warrants which may be exercised for Common Stock without
exceeding the 4.99% limitation and the denominator of which is the
maximum number of Warrants sought to be exercised for Common Stock
by such Warrant Holders.
(f) Notwithstanding the foregoing provisions of this Section 6,
in no event shall any Warrant be exercisable for shares of Common
Stock or Convertible Preferred Stock which, when aggregated with all
other shares of capital stock of the Issuer (other than shares of
Non-Attributable Stock) currently held or previously held by or
currently issuable without restriction to Creditanstalt or its
Affiliates, would, upon issuance, represent in excess of 24.99% of
the Equity of the Issuer unless such shares, when issued, would
constitute Non-Attributable Stock.
Section 13. Restrictions on Transfer. Section 14 of the Warrant Agreement
is hereby amended by deleting the proviso in the first sentence of subsection
(e) in its entirety and substituting in lieu therefor a new proviso to read as
follows:
. . . provided, however, that after two (2) years from the date of
issuance of any Warrants (or such shorter period as may be provided
by Rule 144(k) promulgated under the Securities Act), such
restrictions will automatically terminate (without the necessity of
any opinion of counsel) as to such Warrants and as to any Warrant
Shares issued in respect of such Warrants upon exercise of the
Conversion Right set forth in subsection 6(b) above.
5
<PAGE>
Section 14. Mandatory Redemption and Mandatory Exchange. Section 16 of
the Warrant Agreement is hereby amended by deleting subsections (a) and (b) in
their entirety and substituting in lieu therefor new subsections (a) and (b)
that shall read as follows:
(a) (i) Subject to the limitations hereinafter set forth, if
the Issuer takes any action with respect to its capital stock
(including, without limitation, any purchase of its shares or any
combination of shares or reverse stock split and elimination of
fractional shares) which would cause the capital stock currently or
previously held by or currently issuable without restriction to
Creditanstalt and its Affiliates (not including Non-Attributable
Stock) to exceed 24.99% of the Equity of the Issuer, then prior to
or simultaneously with such action, the Issuer shall purchase from
Creditanstalt and/or its Affiliates such number of Warrants, Warrant
Shares or other shares of capital stock as will reduce the shares of
capital stock currently or previously held by or currently issuable
without restriction to Creditanstalt and its Affiliates (not
including Non-Attributable Stock) to 24.99% of the Equity of the
Issuer (any such mandatory purchase being herein referred to as a
"Mandatory Redemption"). The price to be paid to the holder upon a
Mandatory Redemption shall be an amount equal to the Put Price at
the date the event causing such Mandatory Redemption occurs (the
"Trigger Date"). The "Put Price" on any such Trigger Date shall be
the amount which is determined when the Current Market Price Per
Share of Common Stock on the Trigger Date is multiplied by the
aggregate number of shares of Common Stock of the Issuer (i)
comprising the Warrant Shares to be purchased by the Issuer, and/or
(ii) issuable upon exercise of the Warrants to be purchased by the
Issuer, and/or (iii) issuable upon conversion of the Convertible
Preferred Stock comprising the Warrant Shares to be purchased by the
Issuer, and/or (iv) issuable upon conversion of the Convertible
Preferred Stock issuable upon exercise of the Warrants to be
purchased by the Issuer (assuming Convertible Preferred Stock,
rather than Common Stock, is then issuable under such Warrants),
and/or (v) comprising any other shares of capital stock of the
Issuer then held or previously held by Creditanstalt or its
Affiliates (excluding Non-Attributable Stock).
(ii) The completion of all purchases and sales of Warrants,
Warrant Shares or other shares of capital stock of the Issuer
pursuant to a Mandatory Redemption shall take place on the thirtieth
(30th) day following the Trigger Date, unless another date is
mutually agreed upon by the Issuer and the selling holder (the "Put
Closing Date"). The Put Prices for all such purchases and sales
shall be paid by the Issuer to the selling holder in immediately
available
6
<PAGE>
funds against delivery of certificates representing the Warrants,
Warrant Shares and/or other shares of capital stock of the Issuer to
be purchased, duly endorsed for transfer to the Issuer.
(b) If the Issuer takes any action with respect to its
capital stock (including, without limitation, any purchase of its
shares or any combination of shares or reverse stock split and
elimination of fractional shares) which would cause the Common Stock
currently or previously held by or currently issuable without
restriction to Creditanstalt and its Affiliates (other than shares
of Non-Attributable Stock) to exceed 4.99% of the aggregate number
of issued and outstanding shares of Common Stock, then prior to or
simultaneously with such action, the Issuer shall exchange such
portion of Common Stock for Convertible Preferred Stock as will
reduce the shares of Common Stock currently or previously held by or
currently issuable without restriction to Creditanstalt and its
Affiliates (not including Non-Attributable Stock) to 4.99% of the
aggregate number of issued and outstanding shares of Common Stock (a
"Mandatory Exchange").
Section 15. Exhibit A. The Warrant Agreement is hereby further amended by
deleting Exhibit A thereto in its entirety and by substituting therefore new
Exhibits A-1, A-2 and A-3 in the forms attached as Exhibits A-1, A-2 and A-3
hereto.
Section 16. Representations and Warranties. The Issuer hereby represents
and warrants to Creditanstalt, for the benefit of Creditanstalt and any other
Warrant Holder, as follows:
(a) The Issuer is a corporation duly incorporated and validly
existing under the laws of the State of Iowa, has the corporate power and
authority to conduct its business as presently conducted and as intended
to be conducted, has the corporate power and authority to execute and
deliver this Second Amendment and the Warrant Certificates, to issue the
Warrants and to perform its obligations under this Second Amendment and
the Warrant Certificates, has the corporate power and authority and legal
right to own and lease its properties and is duly qualified and in good
standing as a foreign corporation in each jurisdiction in which it owns
or leases real property or in which the conduct of its business requires
such qualification, except where failure to be so qualified could not be
reasonably expected to have a material adverse effect on the business,
properties, financial condition or results of operations of the Issuer
and its Subsidiaries taken as a whole.
(b) The execution, delivery and performance by the Issuer of
this Second Amendment and the Warrant Certificates, the issuance of the
Warrants and the issuance of the Warrant Shares upon the exercise of the
Warrants and the issuance of Common Stock upon conversion of the
Convertible Preferred Stock have been duly authorized by all necessary
corporate action and do not and will not violate, or result in a breach
of, or constitute a default under, or require any consent under, or
result in the creation of any lien, charge or encumbrance upon the assets
of the Issuer pursuant to, any law, statute, ordinance, rule, regulation,
order or decree of any court, governmental
7
<PAGE>
body or regulatory authority or administrative agency having jurisdiction
over the Issuer or its Subsidiaries or the Issuer's Articles of
Incorporation or any contract, mortgage, loan agreement, note, lease or
other instrument binding upon the Issuer or its Subsidiaries or by which
their properties are bound.
(c) This Second Amendment has been duly executed and delivered
by the Issuer and constitutes a legal, valid, binding and enforceable
obligation of the Issuer. When the Warrants and Warrant Certificates have
been issued as contemplated hereby, (i) the Warrants and the Warrant
Certificates will constitute legal, valid, binding and enforceable
obligations of the Issuer and (ii) the Warrant Shares, when issued upon
exercise of the Warrants in accordance with the terms hereof, and the
Common Stock, when issued upon conversion of the Convertible Preferred
Stock in accordance with the terms of the Issuer's Articles of
Incorporation relating to the Convertible Preferred Stock, will be duly
authorized, validly issued, fully paid and nonassessable shares of the
Common Stock and Convertible Preferred Stock, as applicable.
(d) The Issuer has authorized capital stock consisting of
40,000,000 Class A shares, par value $.01 per share, of which 3,656,258
shares are issued and outstanding, and 10,000,000 Class B shares, par
value $.01 per share, 215,000 shares of which have been designated as
Series 1 Convertible Preferred Stock, none of which are issued and
outstanding, 420,000 shares of which have been designated as Series 2
Convertible Preferred Stock, none of which are issued and outstanding,
and 1,070,000 shares of which have been designated as Series 3
Convertible Preferred Stock, none of which are issued and outstanding.
Except as set forth on SCHEDULE I hereto, there are no outstanding
options, warrants, subscriptions, rights, convertible or exchangeable
securities or other agreements or plans under which the Issuer may be or
become obligated to issue, sell or transfer shares of its capital stock
of other securities. The Convertible Preferred Stock has no voting
rights, except as required by law, and is convertible on a share-for-
share basis into Common Stock of the Issuer. To the Issuer's best
knowledge, there are no voting agreements, voting trusts, proxies or
other agreements or understandings with respect to the voting of any
capital stock of the Issuer or any Subsidiary, other than the Voting
Agreement between William T. Rose, Jr. and William T. Rose, Sr. dated
August 14, 1993, the provisions of Section 9(c) of the Warrant Agreement
as amended hereby, and the provisions of Section 3 of the Subscription
Agreement dated November 15, 1996 between the Issuer and CAC.
(e) Except as set forth on SCHEDULE II hereto, no holder of
securities of the Issuer has any right to the registration of such
securities under the Securities Act and any applicable state securities
law.
(f) The Issuer has filed all proxy statements, reports and other
documents required to be filed by it under the Exchange Act. The Issuer
has furnished Creditanstalt with copies of its Report on Form 10-KSB for
the fiscal year ended July 31, 1996 and copies of its Reports on Form 10-
QSB for the fiscal quarters ended October 31, 1996, January 31, 1997 and
April 30, 1997 (the "SEC Reports"). Each SEC Report was in substantial
compliance with the requirements of its respective form and none of the
SEC Reports, nor the financial statements (and the notes thereto)
included in the SEC Reports, as of their respective dates, contained any
untrue statement of a material fact or
8
<PAGE>
omitted to state a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances
under which they were made, not misleading.
Section 17. Expenses. Issuer agrees to pay, immediately upon demand by
Creditanstalt, all costs, expenses, attorneys' fees, and other charges and
expenses incurred by Creditanstalt in connection with the negotiation,
preparation, execution and delivery of this Second Amendment and any other
instrument, document, agreement or amendment executed in connection with this
Second Amendment.
Section 18. Limitation of Amendment. Except as expressly set forth
herein, this Second Amendment shall not be deemed to waive, amend or modify
any term or condition of the Warrant Agreement, each of which is hereby
ratified and reaffirmed and shall remain in full force and effect, nor to
serve as a consent to any matter prohibited by the terms and conditions
thereof.
Section 19. Counterparts. This Second Amendment may be executed in any
number of counterparts and any party hereto may execute any counterpart, each
of which when executed and delivered will be deemed to be an original and all
of which, taken together, will be deemed but one and the same agreement.
Section 20. Governing Law; Jurisdiction. THIS SECOND AMENDMENT, AND THE
RIGHTS AND OBLIGATIONS OF THE PARTIES HEREUNDER, SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK (WITHOUT
REGARD TO THE PRINCIPLES OF CONFLICTS OF LAW).
[Remainder of page intentionally left blank]
9
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Second Amendment
under seal as of the date and year first above written.
UNCLE B'S BAKERY, INC.
By: /s/ William T. Rose, Sr.
----------------------------------------
Name: William T. Rose, Sr.
Title: Executive Vice President
Attest: /s/ William Howard McClellan, Jr.
------------------------------------
Name: William Howard McClellan, Jr.
Title: Corporate Secretary
CREDITANSTALT-BANKVEREIN
By: /s/ Scott Kray
----------------------------------------
Name: Scott Kray
Title: Vice President
By: /s/ W. Craig Stamm
----------------------------------------
Name: W. Craig Stamm
Title: Vice President
<PAGE>
EXHIBIT A-1
FORM OF SERIES A WARRANT CERTIFICATE
THE WARRANTS AND SHARES REPRESENTED BY THIS SERIES A WARRANT CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW.
SUCH WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER PROVISIONS OF THE WARRANT
AGREEMENT, DATED AS OF JULY 12, 1995, (AS AMENDED) BETWEEN THE ISSUER AND
CREDITANSTALT CORPORATE FINANCE, INC., A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN MANDATORY
REDEMPTION AND EXCHANGE RIGHTS MORE FULLY SET FORTH IN THE WARRANT AGREEMENT.
Certificate No. A-__
[Date]
EXERCISABLE ONLY ON OR BEFORE
July 12, 2005
Warrant Certificate
This Series A Warrant Certificate (this "Warrant Certificate") certifies
that Creditanstalt-Bankverein ("Creditanstalt"), or registered assigns, is the
registered holder of 215,000 Warrants (the "Warrants") to purchase Common
Stock or Convertible Preferred Stock of Uncle B's Bakery, Inc., an Iowa
corporation (the "Issuer"). Each Warrant entitles the holder, but only subject
to the conditions set forth herein and in the Warrant Agreement referred to
below, to purchase from the Issuer before 5:00 P.M., New York time, on July
12, 2005 (the "Expiration Date"), one (1) fully paid and nonassessable share
of the Common Stock or Convertible Preferred Stock of the Issuer (the "Warrant
Shares") in the percentages and to the extent set forth in the Warrant
Agreement, at a price (the "Exercise Price") of $0.55 per Warrant payable in
lawful money of the United States of America, upon surrender of this Warrant
Certificate, execution of the annexed Form of Election to Purchase and payment
of the Exercise Price at the office of the Issuer at 441 Dubuque Street,
Ellsworth, Iowa 50075, or such other address as the Issuer may specify in
writing to the registered holder of Warrants evidenced hereby (the "Warrant
Office"). In lieu of exercising Warrants pursuant to the immediately preceding
sentence, the Warrant holder shall have the right to require the Issuer to
convert the Warrants, in whole or in part and at
A-1-1
<PAGE>
any time or times, into Warrant Shares, by surrendering to the Issuer the
Warrant Certificate evidencing the Warrants to be converted, accompanied by
the annexed Form of Notice of Conversion which has been duly completed and
signed. The Exercise Price and number of Warrant Shares purchasable upon
exercise of the Warrants are subject to adjustment prior to the Expiration
Date as set forth in the Warrant Agreement. In no event shall this Warrant be
exercisable for shares of Common Stock or Convertible Preferred Stock which,
when aggregated with all other capital stock of the Issuer (other than shares
of Non-Attributable Stock) then held or previously held by or currently
issuable without restriction to Creditanstalt or its Affiliates would, upon
issuance, represent in excess of 24.99% of the Equity of the Issuer (defined
in the Warrant Agreement) unless such shares, when issued, would constitute
Non-Attributable Stock (as defined in the Warrant Agreement).
No Warrant may be exercised after 5:00 P.M., New York time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement)
all rights of the registered holders of the Warrants shall cease after 5:00
P.M., New York time, on the Expiration Date.
The Issuer may deem and treat the registered holders of the Warrants
evidenced hereby as the absolute owners thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and of any distribution to the holders hereof and for all
other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the office of the Issuer at the
Warrant Office by the registered holder hereof in person or by a legal
representative duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement, dated as of July 12, 1995, (as amended) between the
Issuer and Creditanstalt Corporate Finance, Inc.. Said Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Issuer and the holders.
A-1-2
<PAGE>
IN WITNESS WHEREOF the Issuer has caused this Warrant Certificate to be
signed by its duly authorized officers and has caused its corporate seal to be
affixed hereunto.
ATTEST: UNCLE B'S BAKERY, INC.
__________________________ By:__________________________
________________, Secretary ________________, President
[Corporate Seal]
A-1-3
<PAGE>
ANNEX to Form
of Series A Warrant
Certificate
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ____________ Warrant
Shares* and herewith tenders payment for such Warrant Shares to the order of
the Issuer in the amount of $_____________ in accordance with the terms
hereof. The undersigned requests that a certificate for such Warrant Shares be
registered in the name of __________________ whose address is ______________
and that such certificate be delivered to ___________________ whose address is
________________. If said number of Warrant Shares is less than all of the
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the remaining balance of the Warrant Shares
be registered in the name of ____________________ whose address is
______________________ and that such Warrant Certificate be delivered to
________________ whose address is _____________________.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Common Stock
_____ shares of Convertible Preferred Stock
A-1-4
<PAGE>
ANNEX to Form
of Series A Warrant
Certificate
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to convert Warrants represented
hereby into ________________________ Warrant Shares* in accordance with the
terms hereof. The undersigned requests that a certificate for such Warrant
Shares be registered in the name of ___________________ whose address is
_______________ and that such certificate be delivered to __________________
whose address is ________________. If said number of Warrant Shares is less
than all of the Warrant Shares obtainable hereunder, the undersigned requests
that a new Warrant Certificate representing the remaining balance of the
Warrant Shares be registered in the name of _________________ whose address is
_________________ and that such Warrant Certificate be delivered to
__________________ whose address is_______________________.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Common Stock
_____ shares of Convertible Preferred Stock
A-1-5
<PAGE>
EXHIBIT A-2
FORM OF SERIES B WARRANT CERTIFICATE
THE WARRANTS AND SHARES REPRESENTED BY THIS SERIES B WARRANT CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW.
SUCH WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER PROVISIONS OF THE WARRANT
AGREEMENT, DATED AS OF JULY 12, 1995, (AS AMENDED) BETWEEN THE ISSUER AND
CREDITANSTALT CORPORATE FINANCE, INC., A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN MANDATORY
REDEMPTION AND EXCHANGE RIGHTS MORE FULLY SET FORTH IN THE WARRANT AGREEMENT.
Certificate No. B-__
[Date]
EXERCISABLE ONLY ON OR BEFORE
November 15, 2006
Series B Warrant Certificate
This Series B Warrant Certificate (this "Warrant Certificate") certifies
that Creditanstalt-Bankverein ("Creditanstalt"), or registered assigns, is the
registered holder of 205,000 Warrants (the "Warrants") to purchase Common
Stock or Convertible Preferred Stock of Uncle B's Bakery, Inc., an Iowa
corporation (the "Issuer"). Each Warrant entitles the holder, but only subject
to the conditions set forth herein and in the Warrant Agreement referred to
below, to purchase from the Issuer before 5:00 P.M., New York time, on
November 15, 2006 (the "Expiration Date"), one (1) fully paid and
nonassessable share of the Common Stock or Convertible Preferred Stock of the
Issuer (the "Warrant Shares") in the percentages and to the extent set forth
in the Warrant Agreement, at a price (the "Exercise Price") of $0.55 per
Warrant payable in lawful money of the United States of America, upon
surrender of this Warrant Certificate, execution of the annexed Form of
Election to Purchase and payment of the Exercise Price at the office of the
Issuer at 441 Dubuque Street, Ellsworth, Iowa 50075, or such other address as
the Issuer may specify in writing to the registered holder of Warrants
evidenced hereby (the "Warrant Office"). In lieu of exercising Warrants
pursuant to the immediately preceding sentence, the Warrant holder shall have
the right to require the Issuer to convert the
A-2-1
<PAGE>
Warrants, in whole or in part and at any time or times, into Warrant Shares,
by surrendering to the Issuer the Warrant Certificate evidencing the Warrants
to be converted, accompanied by the annexed Form of Notice of Conversion which
has been duly completed and signed. The Exercise Price and number of Warrant
Shares purchasable upon exercise of the Warrants are subject to adjustment
prior to the Expiration Date as set forth in the Warrant Agreement. In no
event shall this Warrant be exercisable for shares of Common Stock or
Convertible Preferred Stock which, when aggregated with all other capital
stock of the Issuer (other than shares of Non-Attributable Stock) then held or
previously held by or currently issuable without restriction to Creditanstalt
or its Affiliates would, upon issuance, represent in excess of 24.99% of the
Equity of the Issuer (defined in the Warrant Agreement) unless such shares,
when issued, would constitute Non-Attributable Stock (as defined in the
Warrant Agreement).
No Warrant may be exercised after 5:00 P.M., New York time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement)
all rights of the registered holders of the Warrants shall cease after 5:00
P.M., New York time, on the Expiration Date.
The Issuer may deem and treat the registered holders of the Warrants
evidenced hereby as the absolute owners thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and of any distribution to the holders hereof and for all
other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the office of the Issuer at the
Warrant Office by the registered holder hereof in person or by a legal
representative duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement, dated as of July 12, 1995, (as amended) between the
Issuer and Creditanstalt Corporate Finance, Inc.. Said Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Issuer and the holders.
A-2-2
<PAGE>
IN WITNESS WHEREOF the Issuer has caused this Warrant Certificate to be signed
by its duly authorized officers and has caused its corporate seal to be affixed
hereunto.
ATTEST: UNCLE B'S BAKERY, INC.
__________________________ By:___________________________
________________, Secretary ________________, President
[Corporate Seal]
A-2-3
<PAGE>
ANNEX to Form
of Series B Warrant
Certificate
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase _______________ Warrant
Shares* and herewith tenders payment for such Warrant Shares to the order of
the Issuer in the amount of $_____________ in accordance with the terms
hereof. The undersigned requests that a certificate for such Warrant Shares be
registered in the name of _____________ whose address is ______________ and
that such certificate be delivered to whose address is ____________________.
If said number of Warrant Shares is less than all of the Warrant Shares
purchasable hereunder, the undersigned requests that a new Warrant Certificate
representing the remaining balance of the Warrant Shares be registered in the
name of __________________ whose address is ______________ and that such
Warrant Certificate be delivered to _________________ whose address is
_______________________.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Common Stock
_____ shares of Convertible Preferred Stock
A-2-4
<PAGE>
ANNEX to Form
of Series B Warrant
Certificate
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to convert Warrants represented
hereby into ______________________ Warrant Shares* in accordance with the
terms hereof. The undersigned requests that a certificate for such Warrant
Shares be registered in the name of ___________________ whose address is
__________________ and that such certificate be delivered to ________________
whose address is ____________________. If said number of Warrant Shares is
less than all of the Warrant Shares obtainable hereunder, the undersigned
requests that a new Warrant Certificate representing the remaining balance of
the Warrant Shares be registered in the name of _______________ whose address
is and that such Warrant Certificate be delivered to _______________ whose
address is ___________________.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Common Stock
_____ shares of Convertible Preferred Stock
A-2-5
<PAGE>
EXHIBIT A-3
FORM OF SERIES C WARRANT CERTIFICATE
THE WARRANTS AND SHARES REPRESENTED BY THIS SERIES C WARRANT CERTIFICATE HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY
APPLICABLE STATE SECURITIES LAW AND MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SUCH ACT OR LAW.
SUCH WARRANTS AND SHARES MAY BE TRANSFERRED ONLY IN COMPLIANCE WITH THE
CONDITIONS SPECIFIED IN AND ARE SUBJECT TO OTHER PROVISIONS OF THE WARRANT
AGREEMENT, DATED AS OF JULY 12, 1995, (AS AMENDED) BETWEEN THE ISSUER AND
CREDITANSTALT CORPORATE FINANCE, INC., A COMPLETE AND CORRECT COPY OF WHICH IS
AVAILABLE FOR INSPECTION AT THE PRINCIPAL OFFICE OF THE ISSUER AND WILL BE
FURNISHED TO THE HOLDER HEREOF UPON WRITTEN REQUEST AND WITHOUT CHARGE.
THE WARRANTS REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN MANDATORY
REDEMPTION AND EXCHANGE RIGHTS MORE FULLY SET FORTH IN THE WARRANT AGREEMENT.
Certificate No. C-__
[Date]
EXERCISABLE ONLY ON OR BEFORE
August 22, 2007
Series C Warrant Certificate
This Series C Warrant Certificate (this "Warrant Certificate") certifies
that Creditanstalt-Bankverein ("Creditanstalt"), or registered assigns, is the
registered holder of 650,000 Warrants (the "Warrants") to purchase Common
Stock or Convertible Preferred Stock of Uncle B's Bakery, Inc., an Iowa
corporation (the "Issuer"). Each Warrant entitles the holder, but only subject
to the conditions set forth herein and in the Warrant Agreement referred to
below, to purchase from the Issuer before 5:00 P.M., New York time, on August
22, 2007 (the "Expiration Date"), one (1) fully paid and nonassessable share
of the Common Stock or Convertible Preferred Stock of the Issuer (the "Warrant
Shares") in the percentages and to the extent set forth in the Warrant
Agreement, at a price (the "Exercise Price") of $0.55 per Warrant payable in
lawful money of the United States of America, upon surrender of this Warrant
Certificate, execution of the annexed Form of Election to Purchase and payment
of the Exercise Price at the office of the Issuer at 441 Dubuque Street,
Ellsworth, Iowa 50075, or such other address as the Issuer may specify in
writing to the registered holder of Warrants evidenced hereby (the "Warrant
Office"). In lieu of exercising Warrants pursuant to the immediately preceding
sentence, the Warrant holder shall have the right to require the Issuer to
convert the Warrants, in whole or in part and at
A-3-1
<PAGE>
any time or times, into Warrant Shares, by surrendering to the Issuer the
Warrant Certificate evidencing the Warrants to be converted, accompanied by
the annexed Form of Notice of Conversion which has been duly completed and
signed. The Exercise Price and number of Warrant Shares purchasable upon
exercise of the Warrants are subject to adjustment prior to the Expiration
Date as set forth in the Warrant Agreement. In no event shall this Warrant be
exercisable for shares of Common Stock or Convertible Preferred Stock which,
when aggregated with all other capital stock of the Issuer (other than shares
of Non-Attributable Stock) then held or previously held by or currently
issuable without restriction to Creditanstalt or its Affiliates would, upon
issuance, represent in excess of 24.99% of the Equity of the Issuer (defined
in the Warrant Agreement) unless such shares, when issued, would constitute
Non-Attributable Stock (as defined in the Warrant Agreement).
No Warrant may be exercised after 5:00 P.M., New York time, on the
Expiration Date and (except as otherwise provided in the Warrant Agreement)
all rights of the registered holders of the Warrants shall cease after 5:00
P.M., New York time, on the Expiration Date.
The Issuer may deem and treat the registered holders of the Warrants
evidenced hereby as the absolute owners thereof (notwithstanding any notation
of ownership or other writing hereon made by anyone), for the purpose of any
exercise hereof and of any distribution to the holders hereof and for all
other purposes, and the Issuer shall not be affected by any notice to the
contrary.
Warrant Certificates, when surrendered at the office of the Issuer at the
Warrant Office by the registered holder hereof in person or by a legal
representative duly authorized in writing, may be exchanged, in the manner and
subject to the limitations provided in the Warrant Agreement, but without
payment of any service charge, for another Warrant Certificate or Warrant
Certificates of like tenor evidencing in the aggregate a like number of
Warrants.
Upon due presentment for registration of transfer of this Warrant
Certificate at the Warrant Office, a new Warrant Certificate or Warrant
Certificates of like tenor and evidencing in the aggregate a like number of
Warrants shall be issued in exchange for this Warrant Certificate to the
transferee(s) and, if less than all the Warrants evidenced hereby are to be
transferred, to the registered holder hereof, subject to the limitations
provided in the Warrant Agreement, without charge except for any tax or other
governmental charge imposed in connection therewith.
This Warrant Certificate is one of the Warrant Certificates referred to
in the Warrant Agreement, dated as of July 12, 1995, (as amended) between the
Issuer and Creditanstalt Corporate Finance, Inc.. Said Warrant Agreement is
hereby incorporated by reference in and made a part of this instrument and is
hereby referred to for a description of the rights, limitation of rights,
obligations, duties and immunities thereunder of the Issuer and the holders.
A-3-2
<PAGE>
IN WITNESS WHEREOF the Issuer has caused this Warrant Certificate to be
signed by its duly authorized officers and has caused its corporate seal to be
affixed hereunto.
ATTEST: UNCLE B'S BAKERY, INC.
__________________________ By:__________________________
________________, Secretary ________________, President
[Corporate Seal]
A-3-3
<PAGE>
ANNEX to Form
of Series C Warrant
Certificate
FORM OF ELECTION TO PURCHASE
(To be executed upon exercise of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to purchase ________________ Warrant
Shares* and herewith tenders payment for such Warrant Shares to the order of
the Issuer in the amount of $______________ in accordance with the terms
hereof. The undersigned requests that a certificate for such Warrant Shares be
registered in the name of _______________________ whose address is
________________ and that such certificate be delivered to whose address is
___________________. If said number of Warrant Shares is less than all of the
Warrant Shares purchasable hereunder, the undersigned requests that a new
Warrant Certificate representing the remaining balance of the Warrant Shares
be registered in the name of __________________ whose address is
_______________________ and that such Warrant Certificate be delivered to
___________________ whose address is _________________________.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Common Stock
_____ shares of Convertible Preferred Stock
A-3-4
<PAGE>
ANNEX to Form
of Series C Warrant
Certificate
FORM OF NOTICE OF CONVERSION
(To be executed upon conversion of Warrant)
The undersigned hereby irrevocably elects to exercise the right,
represented by this Warrant Certificate, to convert Warrants represented
hereby into ______________________ Warrant Shares* in accordance with the
terms hereof. The undersigned requests that a certificate for such Warrant
Shares be registered in the name of ___________________ whose address is
__________________ and that such certificate be delivered to
__________________ whose address is ___________________. If said number of
Warrant Shares is less than all of the Warrant Shares obtainable hereunder,
the undersigned requests that a new Warrant Certificate representing the
remaining balance of the Warrant Shares be registered in the name of
___________________ whose address is ________________________ and that such
Warrant Certificate be delivered to ________________ whose address
is__________________.
Signature:
__________________________________________
(Signature must conform in all respects to name of holder as specified on the
face of the Warrant Certificate.)
Date:_____________
* Consisting of:
_____ shares of Common Stock
_____ shares of Convertible Preferred Stock
A-3-5
<PAGE>
SCHEDULE I
OUTSTANDING OPTIONS, WARRANTS, SUBSCRIPTIONS, RIGHTS, CONVERTIBLE OR
EXCHANGEABLE SECURITIES OR OTHER AGREEMENTS OF PLANS UNDER WHICH ISSUER MAY BE
OR BECOME OBLIGATED TO ISSUE, SELL OR TRANSFER SHARES OF CAPITAL STOCK OR OTHER
SECURITIES
<PAGE>
SCHEDULE II
REGISTRATION RIGHTS
1. Employment Agreement dated July 23, 1993 by and between Uncle B's Bakery,
Inc. (formerly known as It Works, Inc.) and William T. Rose, Jr.
2. Employment Agreement dated July 23, 1993 by and between Uncle B's Bakery,
Inc. (formerly known as It Works, Inc.) and William T. Rose, Sr.
3. Warrant to purchase 160,030 shares of Common Stock of Uncle B's Bakery,
Inc. issued to John G. Kinnard and Company, Incorporated pursuant to an
Underwriting Agreement dated October 13, 1993.
4. Warrant Agreement dated as of July 12, 1995 by and between Uncle B's
Bakery, Inc. and Creditanstalt Corporate Finance, Inc., as amended by the
First Amendment to Warrant Agreement and this Second Amendment to Warrant
Agreement.
<PAGE>
EXHIBIT 11
STATEMENT RE: COMPUTATION OF EARNINGS PER SHARE
YEAR ENDED
JULY 31
1997 1996
---------- -----------
Average common shares outstanding 3,623,990 3,545,147
Net effect of dilutive common stock
equivalents-based on treasury stock method -0- -0-
---------- -----------
Total weighted average common and
common equivalent shares outstanding 3,623,990 3,545,147
========== ===========
Loss before cumulative effect of
accounting change $ (760,580) $(2,171,280)
Cumulative effect on prior years of
change in accounting for new
account allowances $ $(1,406,050)
---------- -----------
Net loss $ (760,580) $(3,577,330)
========== ===========
Per share:
Loss before cumulative effect of
accounting change $ (0.21) $ (0.61)
Cumulative effect of accounting change $ -- $ (0.40)
Net loss $ (0.21) $ (1.01)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM FISCAL 1997
FINANCIAL STATEMENTS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUL-31-1997
<PERIOD-START> AUG-01-1996
<PERIOD-END> JUL-31-1997
<CASH> 6,441
<SECURITIES> 0
<RECEIVABLES> 1,023,606
<ALLOWANCES> 0
<INVENTORY> 552,420
<CURRENT-ASSETS> 1,720,340
<PP&E> 18,246,658
<DEPRECIATION> 3,874,816
<TOTAL-ASSETS> 16,554,040
<CURRENT-LIABILITIES> 3,596,664
<BONDS> 12,307,187
0
0
<COMMON> 36,563
<OTHER-SE> 613,626
<TOTAL-LIABILITY-AND-EQUITY> 16,554,040
<SALES> 20,778,565
<TOTAL-REVENUES> 20,778,565
<CGS> 13,475,859
<TOTAL-COSTS> 13,475,859
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