<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON OCTOBER 14, 1997
REGISTRATION NO. 333-10775
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
------------------------
PRE-EFFECTIVE
AMENDMENT NO. 3 TO
FORM S-3
REGISTRATION STATEMENT
UNDER THE SECURITIES ACT OF 1933
------------------
MONTEREY PASTA COMPANY
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
------------------------------
<TABLE>
<S> <C> <C>
DELAWARE 2096 77-0227341
(STATE OR OTHER JURISDICTION (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
OF INCORPORATION OR CLASSIFICATION NUMBER) IDENTIFICATION
ORGANIZATION) NO.)
</TABLE>
1528 MOFFETT STREET, SALINAS, CALIFORNIA 93905
(408) 753-6262
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
------------------------------
R. LANCE HEWITT
CHIEF EXECUTIVE OFFICER
MONTEREY PASTA COMPANY
1528 MOFFETT STREET, SALINAS, CALIFORNIA 93905
(408) 753-6262
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
COPIES TO:
ERIC J. LAPP
GILBERT GALLARDO
GRAY CARY WARE & FREIDENRICH
400 HAMILTON AVE.
PALO ALTO, CALIFORNIA 94301
--------------------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If the only securities being registered on this Form are being offered
pursuant to dividend or interest reinvestment plans, please check the following
box: / /
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, other than securities offered only in connection with dividend or interest
reinvestment plans, check the following box: /X/
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following box
and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. / /
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering: / /
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box: / /
CALCULATION OF REGISTRATION FEE
<TABLE>
<CAPTION>
PROPOSED MAXIMUM PROPOSED MAXIMUM
TITLE OF EACH CLASS OF AMOUNT TO BE OFFERING PRICE PER AGGREGATE OFFERING AMOUNT OF
SECURITIES TO BE REGISTERED REGISTERED SHARE PRICE REGISTRATION FEE
<S> <C> <C> <C> <C>
Common Stock ($.001 par value per
share).......................... 5,782,869(1) $1.78(2) $10,293,506.82(3) $3,119.24(4)
</TABLE>
(1) Includes all of the shares of Common Stock that may be offered from time to
time by the Selling Stockholders.
(2) Estimated solely for the purpose of computing the registration fee
calculated pursuant to Rule 457(c) and based on the average of the high and
low prices of the Common Stock of Monterey Pasta Company as reported on the
Nasdaq National Market on May 5, 1997.
(3) This registration statement covers an additional indeterminate number of
shares of Common Stock which may be issued in accordance with Rule 416.
(4) Paid upon initial filing.
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to such Section 8(a),
may determine.
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<PAGE>
5,782,869 SHARES
MONTEREY PASTA COMPANY
------------------
COMMON STOCK
------------------------
Of the 5,782,869 shares of common stock of Monterey Pasta Company ("Monterey
Pasta" or the "Company") being offered hereby (the "Shares"), 400,750 shares may
be issued upon exercise of warrants issued in July 1996; up to 2,343,750 shares
may be issued upon conversion of 3,000 shares of the Company's Series A-1
Convertible Preferred Stock issued in March 1997; up to 195,313 shares may be
issued upon conversion of 250 shares of the Company's Series B-1 Convertible
Preferred Stock issued in April 1997 (the Series A-1 Convertible Preferred Stock
and the Series B-1 Convertible Preferred Stock are collectively referred to
herein as the "Preferred Stock"); 160,256 shares were issued in April 1997 upon
the conversion of 250 shares of Series B Preferred Stock issued in August 1996;
1,600,000 shares were issued in a private placement in March 1997; 532,800
shares may be issued upon exercise of warrants issued in April 1997 and 550,000
shares were issued to Kenneth A. Steel, Jr. in April 1997 subject to vesting
upon achievement of time in service and performance criteria. All of such Shares
may be sold from time to time by or on behalf of shareholders of the Company
(the "Selling Stockholders") described in this Prospectus under "Selling
Stockholders". The Selling Stockholders acquired the common stock and the
Preferred Stock from the Company in private placement transactions exempt from
registration under the Securities Act of 1933, as amended (the "Securities
Act"). The Company is obligated to register under the Securities Act the Shares
issuable upon conversion of the Preferred Stock and to use its best efforts to
cause this Registration Statement covering the Shares to be declared effective
and to remain effective for up to thirty (30) months following the effective
date of this Registration Statement. The holders of the Shares issued or
issuable in the transactions described above have the right to participate in
such registration.
The Company will not receive any of the proceeds from the sale of the Shares
by the Selling Stockholders.
The Company has been advised by the Selling Stockholders that they may sell
all or a portion of the Shares in the Nasdaq National Market, in negotiated
transactions or otherwise, and on terms and at prices then obtainable. The
Selling Stockholders and any broker-dealers, agents or underwriters that
participate with the Selling Stockholders in the distribution of any of the
Shares may be deemed to be "underwriters" within the meaning of the Securities
Act, and any commission received by them and any profit on the resale of the
Shares purchased by them may be deemed to be underwriting commissions or
discounts under the Securities Act. The Company and the Selling Stockholders
have agreed to certain indemnification and contribution arrangements. See "Plan
of Distribution."
The Company will bear the cost of preparing and printing the Registration
Statement, the Prospectus and any Prospectus Supplements and all filing fees and
legal and accounting expenses associated with registration under federal and
state securities laws. The Selling Stockholders will pay all other expenses
related to the distribution of the Shares.
THE SHARES HAVE NOT BEEN REGISTERED FOR SALE UNDER THE SECURITIES LAWS OF ANY
STATE OR JURISDICTION AS OF THE DATE OF THIS PROSPECTUS. BROKERS OR DEALERS
EFFECTING TRANSACTIONS IN THE SHARES SHOULD CONFIRM THE REGISTRATION OF
THE SHARES UNDER THE SECURITIES LAWS OF THE STATES IN WHICH SUCH
TRANSACTIONS OCCUR, OR THE EXISTENCE OF ANY EXEMPTIONS FROM
SUCH REGISTRATION.
The Company's common stock is listed on the National Market of the National
Association of Securities Dealers, Inc. (the "NASD") and is traded under the
symbol "PSTA". On October 9, 1997, the last sales price of the Company's common
stock as reported on the NASD Automatic Quotation System was $1.8125.
--------------------------
SEE "RISK FACTORS" BEGINNING ON PAGE 4 HEREOF FOR INFORMATION THAT SHOULD BE
CONSIDERED BY PROSPECTIVE PURCHASERS OF THE SHARES OFFERED HEREBY.
--------------------------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS OCTOBER 14, 1997.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934, as amended (the "Exchange Act"), and in accordance
therewith files reports, proxy and information statements and other information
with the Securities and Exchange Commission (the "Commission"). Such reports,
proxy and information statements and other information filed by the Company may
be inspected and copied at the public reference facilities maintained by the
Commission at 450 Fifth Street, N.W., Room 1024, Washington, D.C. 20549, and at
the Commission's Regional Offices located at 500 West Madison Street, Suite
1400, Chicago, Illinois 60661 and Seven World Trade Center, Suite 1300, New
York, New York 10048. Copies of such material may be obtained by mail from the
Public Reference Section of the Commission at 450 Fifth Street, N.W.,
Washington, D.C. 20549 at prescribed rates. Documents filed with the Commission
via the Electronic Data Gathering, Analysis and Retrieval System ("EDGAR") may
be obtained through the Commission's website at http://www.sec.gov. Reports,
proxy and information statements and other information concerning the Company
may be inspected at, and also be obtained at, the National Association of
Securities Dealers, Inc., Market Listing Section, 1735 K Street, N.W.,
Washington, D.C. 20006.
The Company has also filed with the Commission a Registration Statement on
Form S-3 (together with all amendments and exhibits thereto, the "Registration
Statement") under the Securities Act with respect to the Shares offered hereby.
This Prospectus does not contain all of the information set forth in the
Registration Statement and the exhibits and schedules thereto. Statements
contained in this Prospectus or in any document incorporated by reference herein
as to the contents of any contract or other document referred to herein or
therein are not necessarily complete and in each instance reference is made to
the copy of such contract or other document filed as an exhibit to the
Registration Statement or incorporated herein by reference. Each such statement
is qualified in all respects by such reference to such exhibit. For further
information with respect to the Company and the Shares offered hereby, reference
is made to the Registration Statement and the exhibits and schedules thereto.
The Registration Statement may be inspected without charge, and copies thereof
may be obtained at prescribed rates from, the Public Reference Section of the
Commission, at 450 Fifth Street, N.W., Washington, D.C. 20549.
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents filed by the Company with the Commission pursuant to
the Exchange Act are incorporated herein by reference: (1) the Company's Annual
Report on Form 10-K for the year ended December 29, 1996, as amended by Form
10-K/A-4 for the year ended December 29, 1996 as filed on October 10, 1997; (2)
the Company's Quarterly Report on Form 10-Q for the quarter ended March 30, 1997
as amended by Form 10-Q/A for the quarter ended March 30, 1997 as filed on
August 28, 1997; (3) the Company's quarterly report on Form 10-Q for the quarter
ended June 30, 1997 as filed on August 13, 1997; (4) the Company's Quarterly
Report on Form 10-Q/A for the quarter ended March 31, 1996 as filed on May 12,
1997; (5) the Company's Quarterly Report on Form 10-Q/A for the quarter ended
March 31, 1996 as filed on May 14, 1997; (6) the Company's Quarterly Report on
Form 10-Q/A for the quarter ended June 30, 1996 as filed on June 3, 1997; and
(7) the Company's Quarterly Report of Form 10-Q/A for the quarter ended
September 29, 1996 as filed on June 3, 1997.
All documents filed by the Company pursuant to Sections 13(a), 13(c), 14 or
15(d) of the Exchange Act prior to the termination of this offering shall be
deemed to be incorporated by reference herein and to be a part hereof from the
date of filing of such documents. Any statement contained in a document
incorporated by reference herein or deemed to be incorporated by reference
herein shall be deemed to be modified or superseded for purposes of this
Prospectus to the extent that a statement contained herein or in any other
subsequently filed document which also is or is deemed to be incorporated by
reference herein modifies or supersedes such statement. Any statement so
modified or superseded shall not be deemed, except as so modified or superseded,
to constitute a part of this Prospectus.
2
<PAGE>
The Company will provide without charge to each person, including any
beneficial owner, to whom this Prospectus is delivered, upon written or oral
request, a copy of any or all of the foregoing documents incorporated by
reference in this Prospectus (not including the exhibits to such documents,
unless such exhibits are specifically incorporated by reference into such
documents or into this Prospectus). Requests for such documents should be
directed to Monterey Pasta Company at 1528 Moffett Street, Salinas, California
93905, Attn: Secretary (telephone: (408) 753-6262).
GENERAL
The following discussion should be read in conjunction with the financial
statements and related notes and other information, reports and documents
incorporated by reference included in this Prospectus. Other than the historical
facts contained herein, this Prospectus contains forward-looking statements that
involve substantial risks and uncertainties. For a discussion of such risks and
uncertainties, please see the Company's Annual and Quarterly Reports
incorporated by reference herein.
In addition to the risks and uncertainties discussed in such reports and
discussed below, the following factors should be considered. As the Company has
continued to expand its retail distribution, it has expended substantial
resources on slotting allowances and other incentives in order to attract new
customers. There can be no assurance that such expenditures will generate
sufficient revenues to cover costs or that such new customers will be retained.
New markets increase the risk of significant product returns resulting from
slower selling product than expected. In addition, grocery and club store chains
continually re-evaluate the products carried in their stores and no assurance
can be given that the chains currently offering the Company's products will
continue to do so in the future. Should these channels choose to reduce or
eliminate products, the Company could experience a significant reduction in
product sales. The Company also adjusts its manufacturing schedules in
accordance with sales forecasts with the result that it may incur additional
fixed manufacturing expenses in anticipation of sales increases. In the event
that such sales increases are not achieved or such forecasts prove to be
inaccurate, such increased manufacturing expenses would negatively affect the
Company's profitability. The Company's business continues to be dominated by
several very large competitors which have significantly greater resources than
the Company; such competitors can outspend the Company and negatively affect the
Company's market share and results of operations. The Company also continues to
be dependent on common carriers to distribute its products. Any disruption in
the Company's distribution system or increase in the costs thereof could have a
material adverse impact on the Company's business.
THE COMPANY
The Company produces and markets premium quality refrigerated pasta and
pasta sauces, emphasizing superior flavors and innovative products. The Company
seeks to build national brand recognition and customer loyalty by employing an
aggressive marketing program that focuses on developing multiple points of sale
for the Company's products.
The Company sells its pasta and pasta sauces through leading grocery store
chains, including Safeway, Albertsons, Giant Foods, Hannaford Bros., Brunos,
H.E. Butt, Star Markets, Kroger, Shaws, Nob Hill and Smitty's and club store
chains such as Price/Costco, Sams and BJs. As of December 29, 1996, a total of
3,585 grocery and club stores offered the Company's products.
Monterey Pasta currently offers 38 varieties of contemporary gourmet pasta
products that are produced using the Company's proprietary recipes, including
refrigerated cut pasta, ravioli, tortelloni, tortellini, and pasta sauces.
Examples of the Company's pasta and pasta sauces include: Snow Crab Ravioli,
Smoked Salmon Ravioli, Gorgonzola Roasted Walnut Ravioli, Sweet Red Pepper
Fettuccini, Sun Dried Tomato Pesto Sauce, Roasted Garlic Artichoke Sauce and the
new Reduced Fat Herb Alfredo and Reduced Fat Sundried Tomato Cream sauces. Other
products introduced in 1996 include Five Cheese Tortelloni, Low Fat Ravioli,
Chicken Sausage Ravioli, Chicken Tarragon Ravioli, and Roasted Garlic
3
<PAGE>
Chicken Ravioli, as well as the new dessert raviolis, Apple Cinnamon and
Chocolate Raspberry and dessert sauces, Vanilla Creme and Raspberry. Monterey
Pasta believes its pasta products appeal to health-conscious consumers who are
seeking excellent quality, convenience and value as well as innovative taste
combinations.
Effective December 31, 1995, the Company discontinued the business of its
restaurant and franchise subsidiaries, and wrote off its entire $7,693,000
investment. Accordingly, the restaurant and franchise businesses are accounted
for as discontinued operations in the consolidated financial statements
incorporated by reference herein for all periods presented. In 1996, the Company
sold its restaurant subsidiary to an entity owned by Mr. Lance H. Mortensen, a
former Chairman, Chief Executive Officer, and Board member of the Company. In
late 1996, the Company discontinued its efforts to sell to national food service
distributors/contract feeders, and nontraditional venues such as sports
coliseums and universities.
The Company's executive offices are located at 1528 Moffett Street Salinas,
California 93905; its telephone number at that address is (408) 753-6262.
RISK FACTORS
IN ADDITION TO OTHER INFORMATION CONTAINED IN THIS PROSPECTUS OR
INCORPORATED BY REFERENCE, THE FOLLOWING FACTORS SHOULD BE CONSIDERED CAREFULLY
IN EVALUATING THE COMPANY AND ITS BUSINESS BEFORE PURCHASING THE SHARES OFFERED
HEREBY.
HISTORY OF LOSSES
RECENT OPERATING LOSSES: NO ASSURANCE OF PROFITABILITY. The Company's
profitability began to decline in 1994. In the second quarter of 1994, the
Company reported its first operating loss from continuing operations. The
Company reported additional operating losses from continuing operations in eight
of ten quarters since then. The Company's operating loss for the quarter ended
December 1996 was $1,345,000. At December 29, 1996, the Company had an
accumulated deficit of $34,320,000. There can be no assurance that the Company
will return to profitability in the short term or ever.
DEPENDENCE ON GROCERY AND CLUB STORE SALES
The success of the Company's efforts in its restructured business will
depend on a number of factors, including whether grocery and club store chains
will continue to expand the number of their stores offering the Company's
products and whether the Company can continue to increase the number of grocery
and club store chains offering its products. Grocery and club store chains
continually re-evaluate the products carried in their stores and no assurance
can be given that the chains currently offering the Company's products will
continue to do so in the future.
DEPENDENCE UPON MAJOR CUSTOMERS
For the years 1994, 1995, and 1996, Price/Costco and Safeway each accounted
for approximately 45% and 13%, 47% and 12%, and 41% and 9% respectively, of
total revenues. No other customer accounted for greater than 10% of the
Company's total revenues during this period. The Company currently sells its
products to three separate Price/Costco regions which make purchasing decisions
independently of one another. These regions re-evaluate, on a regular basis, the
products carried in their stores. There can be no assurance that these
Price/Costco regions will continue to offer Monterey Pasta's products in the
future or continue to allocate Monterey Pasta the same amount of shelf space.
The loss of or significant decrease in products sold to either of those
customers would materially adversely affect the Company's business operations.
4
<PAGE>
COMPETITION
The Company's business is subject to significant competition. The
refrigerated pasta and pasta sauce category is highly competitive and is
dominated by a small number of very large national companies, such as Nestle
with its Contadina-Registered Trademark- brand, and Kraft, with its
DiGiorno-Registered Trademark- brand, along with a number of regional
competitors, such as Mallards, Romance and Trios. Regional competitors also
include grocery chains such as Safeway that offer private label refrigerated
pasta. The national competitors and many of the regional competitors have
significantly more brand name recognition, marketing personnel, and cash
resources than the Company. Moreover, competition for shelf space in grocery
stores is intense and poses great difficulty for smaller food companies. The
Company seeks to compete in the premium segment of the category, by selling high
quality, innovative products with flavor and appearance which it believes
compare favorably with its competitors' products.
To date, the Company has benefitted from the marketing efforts of Nestle and
Kraft and certain large regional companies. These companies have committed
significant financial resources towards advertisement, promotion and development
of the refrigerated pasta and pasta sauce category. No assurance can be given
that these large companies will continue to expend such resources in the future
or that the Company will continue to enjoy such benefits. The Company in the
future may be required to incur significantly greater expenses for promotion,
advertisement and marketing, which could adversely affect profitability. There
can be no assurance that the Company will be able to commit funds to promotion,
advertisement and marketing while operating profitably.
GOVERNMENT REGULATION
The Company is subject to various federal, state and local regulations
relating to cleanliness, maintenance of food production equipment, food storage,
cooking and cooling temperatures and food handling, and is subject to
unannounced on-site inspections of production facilities. As a producer and
distributor of foods, the Company is subject to the regulations of the U.S. Food
and Drug Administration, state food and health boards and local health boards
for the production, handling, storage, transportation, labeling and processing
of food products. Regulations in new markets and future changes in existing
regulations may adversely impact the Company by raising the cost of production
and delivery of pasta and pasta sauces and/or by affecting the perceived
healthfulness of the Company's products. A failure to comply with one or more
regulatory requirements could result in a variety of sanctions, including fines
and the withdrawal of the Company's products from store shelves.
ONGOING NEED FOR NEW CAPITAL
The Company required additional capital in 1995, 1996 and 1997 to continue
to meet its expected growth needs and to finance its operations and
restructuring plans.
In April and May 1996, the Company received approximately $4,000,000 from
its sale of 916,000 shares in a private offering to accredited investors at a
gross price of $4.375 per share. Such shares are currently eligible for sale
pursuant to Rule 144 and are not included in the Shares offered hereby. Spelman
& Co., Inc. acted as placement agent (the "Placement Agent") on a "best efforts,
"any or all" basis. The Placement Agent received no cash commissions in the
offering but received warrants to purchase one share of common stock for each
$10 in shares sold, exercisable at a price of $6.50 per share, for a term of
seven years. Warrants for 400,750 shares have been issued, and the shares
underlying such warrants are included in the Shares being offered hereby. The
net proceeds from the offering have been used by the Company for advertising,
marketing, promotion, capital equipment and working capital.
5
<PAGE>
In August 1996 the Company sold 3,000 shares of Series A Convertible
Preferred Stock and 500 shares of Series B Convertible Preferred Stock at a face
amount of $1,000 per share, with aggregate gross proceeds of approximately
$3,500,000 to be used for capital expenditures, working capital and other
general corporate purposes.
In March 1997 the Company received approximately $2,160,000 in aggregate
gross proceeds from the sale of 1,600,000 shares of its Common Stock at a price
of $1.35 per share.
There can be no assurance that the Company will not require additional
financing or, if the Company requires additional financing, that it will secure
adequate financing on satisfactory terms when needed.
DECLINE IN INDUSTRY
Industry sources report that from 1987 to 1992, the refrigerated pasta sauce
category experienced dramatic double digit growth as major players, Nestle and
Kraft, rolled out their brands nationally with strong advertising and
promotional support. The refrigerated pasta and pasta sauce category has
experienced modest single digit declines since 1992. No assurance can be given
that the fresh pasta and pasta sauce category will experience any further
growth.
DEPENDENCE ON NEW PRODUCTS
The Company is investing resources into expanding its existing product lines
and developing new products and product lines. The Company's goal is to
introduce new products on a timely and regular basis to maintain customer
interest. There can be no assurance that such investment of resources will
result in successful new products or product lines or that new products can be
developed and introduced on a timely and regular basis. If the Company's new
products are not successful, the Company's grocery and club store sales may be
adversely affected as customers seek new products.
DEPENDENCE ON EFFECTIVE DISTRIBUTION SYSTEM
The Company's success depends upon an effective system of distribution for
its products. The Company uses its direct store delivery system ("DSD") to
deliver its products to certain customers in Northern California. To distribute
its products to other customers and to other parts of the country, the Company
uses common carriers. The dependence on other companies for delivery of its
products poses a risk to the Company, particularly as the Company increases its
distribution to the eastern United States. There can be no assurance that the
Company will continue to be able to negotiate acceptable freight rates in the
future or that delivery will not be disrupted for reasons including, but not
limited to, adverse weather, natural disasters or labor disputes in the trucking
industry.
DEPENDENCE ON SINGLE PRODUCTION FACILITY
The Company currently produces and distributes its pasta and pasta sauce
products for its grocery and club store and food service accounts from its
production facility in Monterey County, California, which was expanded from
10,000 square feet to 37,666 square feet in March 1995. The Company expects that
the present facility will be adequate to accommodate the Company's growth needs
for 1997. There can be no assurance, however, that this facility will be
adequate to meet future demand for the Company's products. Furthermore, since
the Company's business is heavily dependent upon production and delivery from
one production facility, adverse weather, natural disasters such as earthquakes,
local strikes and other occurrences may have a severe adverse impact upon the
Company's operations. The Company develops its manufacturing schedules in
accordance with sales forecasts with the result that it may incur additional
fixed manufacturing expenses in anticipation of sales increases. In the event
that such sales increases are not achieved or such forecasts prove to be
inaccurate, such increased manufacturing expenses would negatively affect the
Company's profitability. There can be no assurance that the Company will sell
enough products to cover its production and operating costs.
6
<PAGE>
SEASONALITY AND QUARTERLY FLUCTUATIONS
The Company's grocery and club store accounts are expected to experience
minor seasonal fluctuations. The Company's business in general may be affected
by a variety of other factors, including, but not limited to, general economic
trends, competition, marketing programs and special or unusual events. Such
effects, however, may not be apparent in the Company's operating results during
a period of significant expansion.
HIRING AND RETENTION OF KEY PERSONNEL; MANAGEMENT TRANSITION
The success of the Company depends on the efforts of key management
personnel. In the fourth quarter of 1996, a number of corporate officers left
the Company. These included its President and Chief Executive Officer, Executive
Vice President and Vice President-Legal Affairs, who resigned on October 4, 1996
together with three additional Board members, and its Chief Financial Officer,
who resigned on November 8, 1996. In addition, the interim President appointed
in December 1996 resigned in March 1997. The Company currently has a Chief
Executive Officer and a new Chief Financial Officer, neither of whom has
previously been a part of the Company's management team, and both of whom may
not continue in their current positions on a long-term basis. The Board of
Directors began a search for a new Chief Executive Officer in the first quarter
of 1997. The Company's success will depend on its ability to operate under new
management, to attract qualified candidates, to effect a smooth transition to
new management with minimal disruption in operations, and to motivate and retain
key employees and officers. There can be no assurance that the Company will be
able to effect smooth transitions from its management team to a new management
team, that new officers will be hired or if hired will be able to perform
effectively, or that significant management turnover will not continue in the
future.
POSSIBLE INADEQUACY OF GENERAL LIABILITY AND COMMERCIAL INSURANCE AND PRODUCT
LIABILITY INSURANCE
Although the Company carries general liability, product liability and
commercial insurance, there can be no assurance that this insurance will be
adequate to protect the Company against any general, commercial and/or product
liability claims. Any general, commercial and/or product liability claim which
is not covered by such policy, or is in excess of the limits of liability of
such policy, could have a material adverse effect on the financial condition of
the Company. There can be no assurance that the Company will be able to maintain
this insurance on reasonable terms.
POSSIBLE IMPACT ON COMMON STOCK FROM ABILITY TO ISSUE PREFERRED STOCK;
REGISTRATION RIGHTS AND WARRANTS
The Board of Directors has the authority to issue up to 1,000,000 shares of
preferred stock and to fix the rights, preferences, privileges and restrictions,
including dividend, liquidation, conversion, voting, redemption or other rights
without any further vote or action by the stockholders, which rights could
adversely affect the voting power or other rights of the holders of common
stock. As indicated above, the Company has issued to certain of the Selling
Stockholders 3,500 shares of Preferred Stock at a price of $1,000 per share
("Preferred Stock"), of which 250 shares have been converted to Common Stock and
3,250 shares are convertible into shares of Common Stock of the Company. The
rights of the holders of the common stock will be subject to, and may be
adversely affected by, the rights of the holders of such Preferred Stock and any
holders of Preferred Stock that may be issued in the future. The issuance of
Preferred Stock, while providing desired flexibility in connection with possible
acquisitions and other corporate purposes, could have the effect of making it
more difficult for a third party to acquire a majority of the outstanding voting
stock of the Company, thereby delaying, deferring or preventing a change in
control of the Company. Furthermore, such Preferred Stock, has other rights,
including economic rights senior to the common stock, and, as a result, the
issuance thereof could have a material adverse effect on the market value of the
common stock.
7
<PAGE>
The Company has issued warrants to Franklin-Lord, Inc., the representative
of the underwriters in the Company's initial public offering in December 1993,
and three affiliates of Franklin-Lord (the "Franklin-Lord Warrants"), which are
exercisable at any time through December 7, 1998, to purchase up to an aggregate
of 205,000 shares of common stock for $8.40 per share. The exercise of the
Franklin-Lord Warrants would further dilute the ownership interest of the
holders of common stock.
The Company also issued to Spelman & Co., Inc. (the "Placement Agent"),
warrants to purchase 400,750 shares of Common Stock, at a price of $6.50 per
share, for a term of seven years, in connection with the Placement Agent's
services in soliciting and obtaining purchasers of 916,000 shares of the
Company's Common Stock, in April 1996. Such Placement Agent warrants ("Placement
Agent Warrants") provide for piggy-back registration rights at any time until
May 1, 2003 and one demand registration right for a term of three years. The
exercise of the Placement Agent Warrants would further dilute the ownership
interest of the holders of Common Stock. The shares underlying such Placement
Agent Warrants are included in the Shares being offered hereby.
The Company issued warrants to purchase an aggregate of 532,800 shares of
Common Stock at an exercise price of $2.25 to Sentra Securities Corporation the
Placement Agent in connection with the Company's March 1997 private placement.
Such warrants (the "Sentra Warrants") have a term of three years, expiring in
March 2000. The shares underlying the Sentra Warrants are included in the Shares
being offered hereby. Exercise of the Sentra Warrants would further dilute the
ownership interest of the holders of Common Stock.
LACK OF DIVIDENDS
The Company has never paid any cash dividends on its Common stock. The
Company presently intends to retain future earnings for use in its business and
does not anticipate paying cash dividends on its Common Stock in the foreseeable
future.
RISKS INHERENT IN FOOD PRODUCTION
The Company faces all of the risks inherent in the production and
distribution of refrigerated food products, including contamination,
adulteration and spoilage, and the associated risks of product liability
litigation and declines in the price of its stock may be associated with even an
isolated event. There can be no assurance that the Company's procedures will be
adequate to prevent the occurrence of such events.
MATERIAL CHANGES
REINCORPORATION IN DELAWARE
On August 7, 1996, the Company changed its state of incorporation from
California to Delaware. In connection with the reincorporation, the Company
increased the number of shares of common stock authorized from 20,000,000 to
70,000,000 and decreased the number of shares of Preferred Stock authorized from
5,000,000 to 1,000,000. The Delaware Certificate of Incorporation and Bylaws
provide that a director may be removed with or without cause by the affirmative
vote of the holders of at least 66 2/3 percent of the voting power of the then
outstanding voting stock of the Company, voting together as a single class.
Under the Delaware Certificate of Incorporation and Bylaws, the Company's
stockholders do not have the ability to act by written consent without a meeting
of the stockholders, nor do they have the right to cumulative voting for
directors.
In addition, Section 203 of the Delaware General Corporation Law restricts
certain business combinations with any "interested stockholder" as defined by
such statute. Section 203 may have the effect of delaying, deferring or
preventing a change in control of the Company and limit the flexibility of
stockholders to determine the composition of the Company's Board of Directors or
make other changes, even in circumstances where a majority of the stockholders
may desire change. Further, certain other
8
<PAGE>
provisions of the Company's Certificate of Incorporation and Bylaws and of
Delaware law could delay or make more difficult a merger, tender offer or proxy
contest involving the Company.
ADOPTION OF SHAREHOLDER RIGHTS PLAN
As disclosed by the Company's Form 8-A and its Report on Form 8-K filed with
the Commission on May 28, 1996, the Company adopted a shareholder rights plan
pursuant to a Rights Agreement dated as of May 15, 1996 with Corporate Stock
Transfer, as rights agent (the "Rights Agreement"). The Company declared a
dividend of one right for each outstanding share of common stock of the Company,
payable on May 20, 1996, to shareholders of record on that date. If the rights
under the Rights Agreement are not exercised, such rights will expire on the
earliest of (i) December 31, 2004, (ii) redemption by the Company or (iii)
consummation of a Permitted Offer (defined as full tender offer approved by a
majority of the Company's outside directors) on terms that are fair to the
Company's stockholders.
ADOPTION OF EMPLOYEE BENEFITS PLAN
In July 1996, the Company established a voluntary defined contribution
401(k) plan to be effective as of January 1996. The plan covers all employees
that are not covered by a collective bargaining agreement, which includes all of
the Company's employees, beginning on the first day of the calendar quarter
after having completed six months of service. The plan allows for employer
matching contributions. The Company is currently matching fifty percent (50%) of
the first six percent (6%) contributed by employees. Employee and employer
matching contributions are one hundred (100%) percent vested. The plan also
provides for a voluntary profit sharing contribution by the Company at its
election based on the eligible employees salary as a percent of total eligible
salaries. Profit sharing contributions vest over five years at twenty percent
(20%) per year.
AMENDMENT OF STOCK OPTION PLAN
Effective August 1, 1996, the Company amended its First Amended and Restated
1993 Stock Option Plan to increase the number of shares of common stock reserved
for issuance upon exercise of options granted thereunder from 1,200,000 to
1,740,000.
SELLING STOCKHOLDERS
In April 1997, the Company issued 550,000 shares of common stock at $1.875
per share to Kenneth A. Steel, Jr., Chief Executive Officer and President of the
Company and a Selling Stockholder, in a private sale pursuant to an exemption
from registration under the Securities Act and exemptions available under
applicable state securities laws and regulations. Such shares vested based upon
time in service and performance criteria, with unvested shares required to be
repurchased at cost by the Company in 1997. Pursuant to the terms of such
Agreement, the Company is repurchasing 250,000 shares and the 300,000 vested
shares issued to Mr. Steel are being included in the Shares offered hereby.
In connection with a private offering in March 1997, the Company entered
into Registration Rights Agreements with each of the purchasers of the 1,600,000
shares, which entitled each holder to include his or her or its shares in any
registration of the Company's securities either for its own account or the
account of a security holder or holders exercising their respective demand
registration rights. All of the participants in such private offering have
elected to include their shares in this Prospectus. As discussed under "Ability
to Issue Preferred Stock; Registration Rights and Warrants" above, the holders
of the Sentra Warrants have requested that the shares underlying such warrants,
which aggregate 532,800 shares, be included in this Prospectus. The exercise of
the Sentra Warrants would further dilute the ownership interest of holders of
the Company's common stock.
In August 1996, the Company issued 3,000 shares of Series A Convertible
Preferred Stock (the "Series A Preferred Stock") Preferred Stock and 500 shares
of Series B Preferred Stock (the "Series B Preferred Stock") at $1,000 per share
to certain Selling Stockholders in a private offering pursuant to an exemption
from registration under the Securities Act and exemptions available under
applicable state
9
<PAGE>
securities laws and regulations. In connection therewith, the Company granted
such Selling Stockholders registration rights pursuant to a Registration Rights
Agreement.
The Series A Preferred Stock and Series B Preferred Stock were convertible
into shares of common stock of the Company at any time commencing 90 days after
the date of issuance and within two (2) years of such date of issuance. The
conversion price was computed at 80% of the average closing bid prices of the
Company's common stock as quoted on NASDAQ for the five-day trading period
ending on the day prior to the date of conversion, and such price may not be
greater than $9.00 per share. The Company had the right to redeem the Series A
Preferred Stock and Series B Preferred Stock in whole or in part (i) at 115% of
the subscription price at any time prior to 90 days from the closing date and
(ii) at 120% of the subscription price at any time thereafter. The Series A
Preferred Stock and Series B Preferred Stock had a cumulative dividend of $40.00
per annum per share, accruing from the date of issuance and payable quarterly
out of funds legally available for such purpose.
In March 1997, the Selling Stockholder holding all 500 shares of Series B
Preferred Stock converted 250 of such shares into 160,256 shares of Common Stock
of the Company. Pursuant to the terms of the Registration Rights Agreement, the
Company has included such shares in the Shares offered by this Prospectus.
In March 1997, the Company issued 3,000 shares of Series A-1 Convertible
Preferred Stock (the "Series A-1 Preferred Stock") to a Selling Stockholder in
exchange for the 3,000 shares of Series A Preferred Stock held by such Selling
Stockholder in a private offering pursuant to an exemption from registration
under the Securities Act and exemptions available under applicable state
securities laws and regulations. In April 1997, the Company issued 250 shares of
Series B-1 Convertible Preferred Stock (the "Series B-1 Preferred Stock") to a
Selling Stockholder in exchange for the remaining 250 outstanding shares of
Series B Preferred Stock held by such Selling Stockholder in a private offering
pursuant to an exemption from registration under the Securities Act and
exemptions available under applicable state securities laws and regulations. In
connection therewith, the Company also amended the Registration Rights Agreement
described above in order to grant the holders of Series A-1 and Series B-1
Preferred Stock registration rights pursuant to the Registration Rights
Agreement. Pursuant to the terms of such Registration Rights Agreement, the
Company has prepared this Prospectus.
The Series A-1 Preferred Stock is convertible into shares of common stock of
the Company at any time commencing 90 days after the date of issuance and after
the effective date of this Registration Statement and within two (2) years of
such date of issuance. The conversion price is computed at 80% of the average
closing bid prices of the Company's common stock as quoted on NASDAQ for the
five-day trading period ending on the day prior to the date of conversion, and
such conversion price may not be greater than $4.40 per share. The Company has
no rights to redeem and has no obligation to declare or pay dividends on the
Series A-1 Preferred Stock.
The Series B-1 Preferred Stock is convertible into shares of common stock of
the Company at any time commencing 90 days after the date of issuance and after
the earlier of (i) July 31, 1997 and (ii) the effective date of this
Registration Statement, and within two (2) years of such date of issuance. The
conversion price is computed at 80% of the average closing bid prices of the
Company's common stock as quoted on NASDAQ for the five-day trading period
ending on the day prior to the date of conversion, and such conversion price may
not be greater than $4.40 per share. The Company has rights to redeem the Series
B-1 Preferred Stock. The Series B-1 Preferred Stock has a cumulative dividend of
$80.00 per annum per share, accruing from the date of issuance and payable
quarterly out of funds legally available for such purpose.
10
<PAGE>
The holders of the Placement Agent Warrants have requested that the shares
underlying such warrants, which aggregate 400,750 shares, be included in this
Prospectus, pursuant to Section 3 of each Placement Agent Warrant executed by
each respective holder and the Company. The exercise of the Placement Agent
Warrants would further dilute the ownership interest of holders of the Company's
Common Stock.
The following table sets forth the number of shares of the Company's Common
Stock which each Selling Stockholder owned as of October 1, 1997, or will have
the right to acquire upon the exercise of the Placement Agent Warrants or the
Sentra Warrants or upon conversion of the Preferred Stock, and the number of
shares of the Company's Common Stock being registered on behalf of each Selling
Stockholder.
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES BEING
SELLING STOCKHOLDER OFFERING REGISTERED
- ----------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
GFL Performance Fund Limited(1).............................................. 2,574,519 2,574,519
Kenneth A. Steel, Jr. (2).................................................... 485,180 455,180
Pangaea Fund Limited (1)..................................................... 374,800 374,800
S & J Family Limited Partnership............................................. 177,940 177,940
Robert and Jennifer Steel, as joint tenants (2).............................. 150,000 150,000
Bradley T. Shaw.............................................................. 184,954 137,954
Bert Coyle................................................................... 132,978 122,978
James K. Farrelly............................................................ 142,979 122,979
Jim Carrazza................................................................. 131,519 126,519
Duck Partners, L.P........................................................... 75,000 75,000
Glenn C. Smigiel and Lynne M. Smigiel, as joint tenants...................... 74,000 74,000
Sunbeam Ventures Ltd......................................................... 168,000 68,000
Spelman & Co., Inc........................................................... 67,882 67,882
Sentra Securities Corporation................................................ 53,120 53,120
Vernon F. Sanders............................................................ 62,000 62,000
H. Wayne Lewis and Janet A. Lewis, trustees FBO Lewis Family Trust dtd
4/29/92.................................................................... 50,000 50,000
Lyonshare Venture Capital, a General Partnership............................. 65,000 50,000
Howard Falco................................................................. 70,152 70,152
Timothy E. Young, Trustee and Julienne Young, Trustee Arinu Corp. Retirement
Plan & Trust dtd 2-22-95................................................... 38,000 38,000
Lanny Stout.................................................................. 42,463 42,463
Mark A. Turk and Karen S. Turk, as joint tenants............................. 37,000 37,000
Steve Harrington............................................................. 30,550 30,550
Dan Chiappetta............................................................... 30,000 30,000
Richard M. Steel (2)......................................................... 30,000 30,000
Mateo Lettunich.............................................................. 25,000 25,000
Sylvanus V. Tunstall......................................................... 25,000 25,000
Steven L. and Faith H. Chinskey.............................................. 25,000 20,000
Rob Brumbaugh................................................................ 25,000 25,000
Ronald J. Faust.............................................................. 30,000 20,000
Dennis R. Graue.............................................................. 20,000 20,000
Dwight Hiscox and Judy Hiscox, as joint tenants.............................. 25,000 20,000
</TABLE>
11
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES BEING
SELLING STOCKHOLDER OFFERING REGISTERED
- ----------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
Gerald W. King and Edith C. King, trustees FBO King Family Trust dtd
1/22/93.................................................................... 20,000 20,000
Milton Koffman............................................................... 20,000 20,000
Lanny Lahr................................................................... 30,000 20,000
Karl Reisel.................................................................. 20,000 20,000
Nicholas Rizzo or Lori Rizzo Co-TTEES for the Trust Account dtd 11/7/94...... 32,500 20,000
Lori Rizzo or Sam Rosenfarb Co-TTEES FBO The Sheri Rizzo Trust dtd
11/26/84................................................................... 20,000 20,000
Drew Siler and Chris Siler, as joint tenants................................. 20,000 20,000
Jerry A. Mikus and Jean M. Mikus, as joint tenants........................... 20,000 20,000
E. Lee Pinney................................................................ 18,750 18,750
Richard Fineberg............................................................. 22,000 17,000
Patrick Harrington........................................................... 15,750 15,750
George Connelly and Kathleen Connelly, as joint tenants...................... 25,000 25,000
Scott J. Wooley.............................................................. 15,000 15,000
Steve Mallia................................................................. 14,404 14,404
Alan Jablon.................................................................. 12,000 12,000
John E. Cramer TTE FBO John E. Cramer Defined Benefit Plan DTD 12/28/85...... 15,000 10,000
John J. Cresto............................................................... 10,000 10,000
Foley Family Limited Partnership............................................. 10,000 10,000
William Fowler and Susan Fowler.............................................. 10,000 10,000
Robert G. Grummond and Roberta P. Grummond, as joint tenants................. 10,000 10,000
Kenneth Hersh................................................................ 10,000 10,000
Byron Kilpatrick and Myriam Kilpatrick....................................... 10,000 10,000
Dr. Jonathan Kind and Leslie Kind, as joint tenants.......................... 10,000 10,000
Brian J. Koos and Mary Pat Koos, as joint tenants............................ 10,000 10,000
Thomas G. and Susan E. Lusty, as joint tenants............................... 15,000 10,000
John B. Marsala.............................................................. 10,000 10,000
Stephen G. Meisel, DDS....................................................... 10,000 10,000
Phoenix Metropolitan Investors, Ltd.......................................... 20,000 10,000
Lori Rizzo................................................................... 22,500 10,000
Mark Rubin................................................................... 10,000 10,000
Walter W. Schroeder and Karen Schroeder, as joint tenants.................... 10,000 10,000
Sharon H. Semple............................................................. 20,000 10,000
Constance J. Steel(2)........................................................ 12,000 12,000
David H. Welch............................................................... 10,000 10,000
Michael J. Hurley and Denise Enright Hurley, as joint tenants................ 10,000 10,000
Daniel E. Shulgin and Geraldene F. Shulgin, as joint tenants................. 8,000 8,000
Donahue Bunch................................................................ 15,000 10,000
Ira Biderman................................................................. 8,000 8,000
</TABLE>
12
<PAGE>
<TABLE>
<CAPTION>
SHARES
BENEFICIALLY
OWNED PRIOR TO SHARES BEING
SELLING STOCKHOLDER OFFERING REGISTERED
- ----------------------------------------------------------------------------- ----------------- ---------------
<S> <C> <C>
G. Lee and Janet Brookshire.................................................. 10,000 10,000
Francis Carlson.............................................................. 10,000 10,000
Howard S. Falco Profit Sharing Plan.......................................... 10,000 6,000
Greg Stoia................................................................... 10,143 5,143
Ann McCarty.................................................................. 5,231 5,231
Donald S. Cleverly........................................................... 5,000 5,000
John B. Grabowski............................................................ 5,000 5,000
Robert L. Kinsman and Annette M. Kinsman, Family Limited Partnership......... 5,000 5,000
Edward McManus............................................................... 5,000 5,000
Edward Penry................................................................. 5,000 5,000
Theron L. Sims............................................................... 5,000 5,000
Richard A. Singer and Jacqueline C. Singer, trustees, FBO Singer Family Trust
dtd 6-1-92................................................................. 5,000 5,000
James S. Tiernan............................................................. 5,000 5,000
James S. Serbin.............................................................. 5,000 5,000
The Investment Company, Inc.................................................. 4,700 4,700
James H. McCarthy TTEE for Self-Employed Retirement Plan FBO James H.
McCarthy dtd 1-1-85........................................................ 3,000 3,000
Gary Falco................................................................... 2,500 2,500
Richard N. Rothenberg........................................................ 2,000 2,000
Burton Sutker................................................................ 2,000 2,000
Timothy Watters.............................................................. 2,000 2,000
Steven Laslewicz............................................................. 2,000 2,000
Greg K. Smith................................................................ 6,625 1,355
----------------- ---------------
Total:....................................................................... 6,119,139 5,782,869
</TABLE>
- ------------------------
(1) The shares being registered upon conversion of the Series A-1 and Series B-1
Preferred Stock held by such Selling Stockholder are calculated based on a
hypothetical market price of $1.38 with resulting conversion at $1.10. Such
number will increase or decrease if the price of the Company's Common Stock
is lower or higher respectively, than such amount at the time of conversion.
(2) Kenneth A. Steel, Jr. is a Selling Stockholder, and is the former President
and Chief Executive Officer and a current Director of the Company. Constance
J. Steel is Mr. Steel's wife. Robert Steel is Mr. Steel's brother and a
Director of the Company. Richard M. Steel is the brother of Kenneth and
Robert Steel.
Because the Selling Stockholders may offer all or some of the shares of
common stock which they hold pursuant to the offering contemplated by this
Prospectus, and because such offering is not being underwritten on a firm
commitment basis, no estimate can be given as to the number of shares that will
be held by the Selling Stockholders after completion of such offering.
13
<PAGE>
PLAN OF DISTRIBUTION
The Company has been advised by the Selling Stockholders that they may sell
all or a portion of the Shares from time to time on the Nasdaq National Market,
or otherwise, at prices and on terms prevailing at the time of sale or at prices
related to the then current market price, or in negotiated transactions. The
Shares may be sold by one or more of the following methods: (a) a block trade in
which the broker or dealer so engaged will attempt to sell the Shares as agent,
but may position and resell a portion of the block as principal to facilitate
the transaction; (b) purchases by a broker or dealer as principal and resale by
such broker or dealer for its own account pursuant to this Prospectus; (c) an
over-the-counter distribution in accordance with the rules of the Nasdaq
National Market; (d) ordinary brokerage transactions and transactions in which
the broker solicits purchasers; and (e) in privately negotiated transactions.
There is no assurance that the Selling Stockholders will offer or sell any or
all of the Shares registered hereunder.
The Selling Stockholders and any underwriters, dealers or agents that
participate in the distribution of the Shares may be deemed to be underwriters
within the meaning of the Securities Act and any discounts, commissions or
concessions received by them and any provided pursuant to the sale of the shares
by them might be deemed to be underwriting discounts and commissions under the
Securities Act.
In order to comply with the securities laws of certain states, if
applicable, the Shares will be sold in such jurisdictions only through
registered or licensed brokers or dealers. In addition, in certain states the
Shares may not be sold unless such Shares have been registered or qualified for
sale in the applicable state or an exemption from the registration or
qualification requirement is available and is complied with.
Under applicable rules and regulations under the Exchange Act, any person
engaged in the distribution of the Shares may not simultaneously engage in
market making activities with respect to such Shares for a period of nine
business days prior to the commencement of such distribution. In addition and
without limiting the foregoing, each Selling Stockholder will be subject to
applicable provisions of the Exchange Act and the rules and regulations
thereunder, including, without limitation, Rules 10b-2, 10b-6 and 10b-7, which
may limit the timing of purchases and sales of the Shares by the Selling
Stockholders. All of the foregoing may affect the marketability of the Shares.
The Shares registered hereby are being registered pursuant to Registration
Rights Agreements and Warrants between the Selling Stockholders and the Company.
Pursuant to such Registration Rights Agreements and Warrants the Company has
agreed to bear certain expenses of registration of the Shares under the
Securities Act. In addition, the Registration Rights Agreements provide for
cross-indemnification and contribution of the Company and the Selling
Stockholders against certain liabilities, including liabilities under the
Securities Act.
The Company has agreed with certain of the Selling Stockholders to keep the
Registration Statement of which this Prospectus constitutes a part hereof
effective for up to thirty (30) months following the date on which such
Registration Statement becomes effective. The Company intends to de-register any
of the Shares not sold by the Selling Stockholder at the end of such thirty (30)
month period.
USE OF PROCEEDS
The Company will not receive any proceeds from the sale of Shares by the
Selling Stockholders.
LEGAL MATTERS
The legality of the Shares is being passed upon by Gray Cary Ware &
Freidenrich, A Professional Corporation, Palo Alto, California.
14
<PAGE>
EXPERTS
The consolidated financial statements for the year ended December 29, 1996
of the Company incorporated in this Prospectus by reference from the Company's
Annual Report on Form 10-K for year ended December 29, 1996, as amended by Form
10-K/A have been audited by BDO Seidman, LLP, independent certified public
accountants, as set forth in their report which is incorporated herein by
reference in reliance upon such report given upon the authority of such firm as
experts in auditing and accounting.
The consolidated financial statements for the year ended December 31, 1995
of the Company included in the Company's Annual Report on Form 10-K for the year
ended December 29, 1996, as amended by Form 10-K/A, have been audited by
Deloitte & Touche LLP, independent auditors, as set forth in their report
included therein and are incorporated herein by reference in reliance upon such
report given upon the authority of such firm as experts in auditing and
accounting.
The consolidated financial statements for the year ended January 1, 1995 of
the Company included in the Company's Annual Report on Form 10-K for the year
ended December 29, 1996, as amended by Form 10-K/A have been audited by Arthur
Andersen LLP, independent public accountants, as set forth in their report
included therein, and are incorporated herein by reference in reliance upon such
report of said firm as experts in auditing and accounting.
On October 18, 1996, Deloitte & Touche LLP ("Deloitte") resigned as
independent auditors for the Company. Deloitte's report on the Company's
financial statements for 1995 (1) did not contain an adverse opinion or a
disclaimer of opinion and (2) was not qualified or modified as to uncertainty,
audit scope or accounting principles.
Deloitte advised the Company that this registration statement on Form S-3
should be amended due to recent changes in management and deterioration of
operations. Additionally, in a letter dated October 31, 1996, Deloitte indicated
that Item 4.1 of a Form 8-K filed by the Company on October 25, 1996, should
have included the following statement regarding auditing scope:
"Deloitte & Touche LLP ("D&T") advised the Company that allegations of
potential violations by Board members of Company policy on insider
trading would have caused D&T to expand the scope of their work if they
would have audited 1996. D&T recommended an independent investigation of
such allegations."
In response to notification about alleged potential violations of the
Company's policy, the Company's newly-elected Chief Executive Officer conducted
a preliminary investigation into the allegations. The investigation revealed,
that in connection with margin calls, a former Director incurred a Section 16(b)
violation of the Securities and Exchange Act of 1934, and another Director
incurred violations of internal Company policy as a result of margin calls. The
Company's outside attorneys, Gray Cary Ware & Freidenrich, a Professional
Corporation, are finalizing an independent investigation into the foregoing
charges.
There were no disagreements with Deloitte on any matter of accounting
principles and practices, financial statement disclosure, or auditing scope or
procedure.
As disclosed in the Company's Current Reports on Form 8-K filed on December
26, 1995 and December 27, 1995, the Company engaged Deloitte & Touche LLP to
serve as its independent public accountants, replacing Arthur Andersen LLP, who
resigned as the Company's independent public accountants. The reports of Arthur
Andersen LLP on the financial statements of the Company neither contained any
adverse opinion or disclaimer of opinion nor were qualified or modified as to
uncertainty, audit scope or accounting principles. The Company's Current Reports
on Form 8-K referenced above set forth the only disagreements between the
Company and Arthur Andersen LLP with respect to any matters of accounting
principles or practices, financial statement disclosure or auditing scope or
procedure, which if not resolved to the satisfaction of Arthur Andersen LLP,
would have caused it to make reference to the subject matter of the disagreement
in its report. Such matters were resolved to the satisfaction of Arthur Andersen
LLP.
15
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALES REPRESENTATIVE OR ANY OTHER PERSON HAS BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THIS
OFFERING OTHER THAN THOSE CONTAINED OR INCORPORATED BY REFERENCE IN THIS
PROSPECTUS, AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT
BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY, ANY SELLING STOCKHOLDER
OR ANY UNDERWRITER. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO BUY, ANY SECURITIES OTHER THAN THE REGISTERED
SECURITIES TO WHICH IT RELATES OR AN OFFER TO, OR A SOLICITATION OF, ANY PERSON
IN ANY JURISDICTION WHERE SUCH OFFER OR SOLICITATION WOULD BE UNLAWFUL. NEITHER
THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CONTAINED
HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF.
------------------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Available Information..................................................... 2
Incorporation of Certain Documents by Reference........................... 2
General................................................................... 3
The Company............................................................... 3
Risk Factors.............................................................. 4
Material Changes.......................................................... 8
Selling Stockholders...................................................... 9
Plan of Distribution...................................................... 14
Use of Proceeds........................................................... 14
Legal Matters............................................................. 14
Experts................................................................... 15
</TABLE>
5,782,869 SHARES
MONTEREY PASTA
COMPANY
COMMON STOCK
---------------------
PROSPECTUS
---------------------
OCTOBER 14, 1997
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 14. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the costs and expenses in connection with the
sale and distribution of the securities being registered, other than
underwriting discounts and commissions. All of the amounts shown are estimates
except the Securities and Exchange Commission registration fees and the NASD
filing fee. The Company intends to pay all expenses of registration, issuance
and distribution, excluding Underwriter's discounts and commissions, with
respect to the Shares being sold by the Selling Stockholders.
<TABLE>
<CAPTION>
AMOUNT TO
ITEM BE PAID
- ---------------------------------------------------------------------------------- ----------
<S> <C>
SEC Registration Fee.............................................................. $ 4,975
NASD Registration Fee............................................................. 17,500
Printing and Engraving Expenses................................................... 30,000
Legal Fees and Expenses........................................................... 35,000
Accounting Fees and Expenses...................................................... 30,000
Blue Sky Fees and Expenses........................................................ 5,000
Miscellaneous..................................................................... 5,000
----------
Total....................................................................... $ 127,475
----------
----------
</TABLE>
ITEM 15. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation Law authorizes a court to
award, or a corporation's Board of Directors to grant, indemnity to directors
and officers in terms sufficiently broad to indemnify such persons, under
certain circumstances, for liabilities (including reimbursement of expenses
incurred) arising under the Securities Act of 1933, as amended (the "Securities
Act"). The Registrant's Certificate of Incorporation and Bylaws provide for
indemnification of its officers and directors to the fullest extent permitted by
Section 145 of the Delaware General Corporation Law and applicable law. The
Registrant has also entered into indemnification agreements with each of its
officers and directors and certain employees providing for indemnification of
such officers and directors by the Company to the maximum extent permitted by
law.
ITEM 16. EXHIBITS.
The following exhibits are filed with this Registration Statement:
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated August 7, 1996 by and between Monterey Pasta Company, a California
corporation and Monterey Pasta Company, a Delaware corporation (incorporated by reference from Exhibit A
to the Company's Proxy Statement for the Special Meeting of Shareholders held on August 1, 1996, filed
with the Securities and Exchange Commission on June 27, 1996 ("1996 Proxy"))
3.1 Certificate of Incorporation dated August 1, 1996 (incorporated by reference from Exhibit B to the 1996
Proxy.
3.2 Certificate of Designations of Series A Convertible Preferred Stock (incorporated by reference from
Annex I to the Subscription Agreement dated July 31, 1996, filed as Exhibit 4.1 to the 1996 Proxy.)
3.3 Certificate of Designations of Series B Convertible Preferred Stock (incorporated by reference from
Annex I to the Subscription Agreement dated August 9, 1996, filed as Exhibit 4.3 to the 1996 Proxy.)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
3.4 Bylaws of the Company (incorporated by reference from Exhibit C to the Company's 1996 Proxy)
3.5 Certificate of Designations of Series A-1 Convertible Preferred Stock (incorporated by reference from
Exhibits with corresponding numbers filed with the Company's Annual Report on Form 10-K/A on April 29,
1997 ("1996 Form 10-K/A"))
3.6 Certificate of Designations of Series B-1 Convertible Preferred Stock (incorporated by reference from
Exhibits with corresponding numbers filed with the 1996 Form 10-K/A)
4.1 Subscription Agreement, dated as of July 31, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the Company's Registration Statement on Form S-3 on August 23, 1996
("1996 Form S-3"))
4.2 Registration Rights Agreement, dated as of July 31, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the 1996 Form S-3)
4.3 Subscription Agreement, dated as of August 9, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the 1996 Form S-3)
4.4 Registration Rights Agreement, dated as of August 9, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the 1996 Form S-3)
4.5 Form of Warrant for purchase of the Company's Common Stock, dated as of July 1, 1996 (incorporated by
reference from Exhibits with corresponding numbers filed with the 1996 Form S-3)
4.6 Form of Registration Rights Agreement dated April 1996, among the Company, Spelman & Co., Inc. and
investor (incorporated by reference from Exhibit 10.42 filed with the Company's Original Quarterly
Report on Form 10-Q on May 1, 1996 ("1996 Q1 10-Q"))
4.7 Shareholder Rights Agreement dated as of May 15, 1996 between the Company and Corporate Stock Transfer,
as rights agent (incorporated by reference from Item 2 of Form 8-A filed with the Securities and
Exchange Commission on May 28, 1996)
4.8 Form of Subscription Agreement dated April 1996, among the Company, Spelman & Co., Inc. and investor
(incorporated by reference from Exhibits with corresponding numbers filed with the Company's 1996 Form
10-K/A)
4.9 Form of Amendment to Registration Rights Agreement dated as of April 20, 1997 among the Company, Spelman
& Co., Inc. and Investor, amending the Registration Rights Agreement entered into as of April 1996
(incorporated by reference from Exhibits with corresponding numbers filed with the 1996 Form 10-K/A)
4.10 Series A Convertible Preferred Stock Exchange Agreement dated as of March 10, 1997 by and between the
Company and GFL Performance Fund Limited (incorporated by reference from Exhibits with corresponding
numbers filed with the Company's 1996 Form 10-K/A)
4.11 Series B Convertible Preferred Stock Exchange Agreement dated as of April 2, 1997 by and between the
Company and Pangaea Fund Limited (incorporated by reference from Exhibits with corresponding numbers
filed with the Company's 1996 Form 10-K/A)
4.12 Registration Rights Agreement dated as of December 31, 1996 among the Company, Sentra Securities
Corporation and Investor (incorporated by reference from Exhibits with corresponding numbers filed with
the Company's 1996 Form 10-K/A)
4.13 Form of Warrant ("Sentra Warrant") for purchase of Company's Common Stock dated March 1997 issued in
connection with the Company's March 1997 private placement (incorporated by reference from Exhibits with
corresponding numbers filed with the Company's Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-3 on May 6, 1997 ("1997 Amended No. 1 to Form S-3"))
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.14* Stock Purchase Agreement between the Company and Kenneth A. Steel, Jr. dated April 29, 1997
(incorporated by reference from Exhibits with corresponding numbers filed with the Company's 1997
Amendment No. 1 to Form S-3)
5.1 Opinion and Consent of Gray Cary Ware & Freidenrich, a Professional Corporation (incorporated by
reference from Exhibits with corresponding numbers filed with the Company's 1997 Amendment No. 1 to Form
S-3)
10.1* Second Amended and Restated 1993 Stock Option Plan (as amended on August 1, 1996) (incorporated by
reference to the Company's 1996 Form 10-K)
10.2* 1995 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.15 to the Company's 1994
Form 10-K)
10.3 Blackhawk Plaza Lease of the Company (incorporated by reference from Exhibit 10.02 to the Company's
Registration Statement No. 33-69590-LA on Form SB-2 (the "SB-2")
10.4 353 Sacramento Street Office Lease dated as of December 27, 1995 with John Hancock Mutual Life Insurance
Company, together with letter agreement dated March 20, 1996 regarding basement storage (incorporated by
reference to the Company's Annual Report on Form 10-K filed April 1, 1996 (the "1995 Form 10-K")
10.5 Monterey County Production Facility Lease of the Company, as amended (incorporated by reference from
Exhibit 10.03 to the SB-2)
10.6 Amendment No. 1 dated February 1, 1995 and Amendment No. 2 dated March 1, 1995 to Monterey County
Production Facility Lease of the Company (incorporated by reference from Exhibits with corresponding
numbers filed with the 1995 Form 10-K)
10.7 Christie Avenue Warehouse Lease of the Company (incorporated by reference from Exhibit 10.04 to the
SB-2)
10.8 Loan and Security Agreement dated December 8, 1995 with Coast Business Credit, a Division of Southern
Pacific Thrift and Loan Association, and Schedule thereto (incorporated by reference from Exhibit 10.8
to the 1995 Form 10-K)
10.9 Equipment Collateral Security Agreement dated December 8, 1995 with Coast Business Credit (incorporated
by reference from Exhibit 10.9 to the 1995 Form 10-K)
10.10 Secured Promissory Note dated December 8, 1995 in the original principal amount of $500,000 in favor of
Coast Business Credit (incorporated by reference from Exhibit 10.10 to the 1995 Form 10-K)
10.11 Secured Promissory Note dated December 8, 1995 in the original principal amount of $750,000 in favor of
Coast Business Credit (incorporated by reference from Exhibit 10.11 to the 1995 Form 10-K)
10.12 Investment Agreement dated July 12, 1995 with The Seychelles Fund, Ltd. (incorporated by reference from
Exhibit 10.12 to the 1995 Form 10-K)
10.13 Master Lease dated August 1, 1995 with Sentry Financial Corporation (incorporated by reference from
Exhibit 10.13 to the 1995 Form 10-K)
10.14 Letter Agreement dated July 26, 1995 between Monterey Pasta Development Company and California Pasta
Company (incorporated by reference from Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 2, 1995 ("1995 Q3 10-Q"))
10.15 Asset Purchase Agreement dated July 26, 1995 between Upscale Food Outlets, Inc. and California Pasta
Company (incorporated by reference from Exhibit 10.22 to the Company's 1995 Q3 10-Q)
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.16 Franchise Termination Agreement and Release dated March 8, 1996 among the Company, Upscale Food Outlets,
Inc., Monterey Pasta Development Company, The Lance H. Mortensen Unitrust dated December 3, 1994, and
LBJ Restaurants, LLC (incorporated by reference from Exhibit 10.16 to the 1995 Form 10-K)
10.17 Acquisition Agreement between the Company and Upscale Food Outlets, Inc. (incorporated by reference from
Exhibit 10.05 to the SB-2)
10.18* Employment Agreement with Lance H. Mortensen (incorporated by reference from Exhibit 10.06 to the SB-2)
10.19* Employment Agreement dated September 5, 1995 with Mr. Norman E. Dean (incorporated by reference from
Exhibit 10.20 to the Company's 1995 Q3 10-Q)
10.20* Consulting Agreement dated May 25, 1995 with Daniel J. Gallery (incorporated by reference from Exhibit
10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1995 ("1995 Q2
10-Q"))
10.21* Employment Agreement dated June 30, 1993 with Anthony W. Giannini (incorporated by reference from
Exhibits with corresponding numbers filed with the 1994 Form 10-K.
10.22* Employment Agreement with Mr. David J. Massara (incorporated by reference from Exhibit 10.18 to the
Company's 1994 Form 10-K)
10.23 Trademark Registration--MONTEREY PASTA COMPANY, under Registration No. 1,664,278, registered on November
12, 1991 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit 10.09 to the
SB-2)
10.24 Trademark Registration--MONTEREY PASTA COMPANY, under Registration No. 1,943,602, registered on December
26, 1995 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit 10.24 to the
1995 Form 10-K)
10.25 Trademark Registration--MONTEREY PASTA COMPANY and Design, under Registration No. 1,945,131, registered
on January 2, 1996 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit
10.25 to the 1995 Form 10-K)
10.26 Trademark Registration--MONTEREY PASTA COMPANY and Design, under Registration No. 1,951,624, registered
on January 23, 1996 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit
10.26 to the 1995 Form 10-K)
10.27 Trademark Registration--MONTEREY PASTA COMPANY, under Registration No. 1,953,489, registered on January
30, 1996 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit 10.27 to the
1995 Form 10-K)
10.28 Subscription Agreement dated as of June 21, 1995 with GFL Advantage Fund Limited (incorporated by
reference from Exhibit 10.19 to the 1995 Q2 10-Q)
10.29 Registration Rights Agreement dated as of June 15, 1995 with GFL Advantage Fund Limited, as amended on
October 13 and 19, 1995, respectively (incorporated by reference from Exhibit 10.2 to the Company's 1995
Q2 10-Q, and Exhibits 10.6 and 10.7 to the Company's S-3 Registration Statement No. 33-96684, filed on
December 12, 1995 (the "1995 S-3"))
10.30 Joint Escrow Instructions dated as of October 1995 (incorporated by reference from Exhibit 10.5 to the
1995 S-3)
10.31 Note Purchase Agreement dated as of October 19, 1995 with GFL Advantage Fund Limited (incorporated by
reference from Exhibit 10.3 to the Company's 1995 S-3)
10.32 Convertible Note dated as of October 25, 1995, executed by the Company in favor of GFL Advantage Fund
Limited (incorporated by reference from Exhibit 10.32 to the 1995 Form 10-K)
10.33 Trademark Purchase (Burns) (incorporated by reference from Exhibit 10.12 to the SB-2)
10.34 Purchase of Stock and Exhibits (Burns- Mortensen-Hill) (incorporated by reference from Exhibit 10.13 to
the SB-2)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.35 Non-Recourse Promissory Note (Hill-Mortensen) (incorporated by reference from Exhibit 10.15 to the SB-2)
10.36 Asset Purchase Agreement dated March 1, 1994 between Upscale Food Outlets, Inc., Lucca's Pasta Bar,
Inc., Timothy John Morris and Marian Kathryn Morris (incorporated by reference from Exhibit 10.16 to the
Company's 1993 Form 10-K)
10.39 Franchise Termination Agreement and Release dated as of March 27, 1996, among the Company, Upscale Food
Outlets, Inc., Monterey Pasta Development Company, California Pasta Company, and James G. Schlicher
(incorporated by reference from Exhibit 10.39 to the 1996 Q1 10-Q)
10.40 Stock Purchase Agreement dated April 1, 1996 between Upscale Acquisitions, Inc. and the Company
(incorporated by reference from Exhibit 10.40 to the 1996 Q1 10-Q)
10.41 Placement Agent Agreement dated April 12, 1996 between the Company and Spelman & Co., Inc. (incorporated
by reference from Exhibit 10.41 to the 1996 Q1 10-Q)
10.44* The Company's 401(k) Plan, established to be effective as of January 1, 1996, adopted by the Board of
Directors on June 7, 1996 (incorporated by reference from Exhibit 10.44 to the Company's Original June
30, 1996 Quarterly Report on Form 10-Q filed August 13, 1996 ("1996 Q2 10-Q")
10.45* Directed Employee Benefit Trust Agreement dated June 17, 1996 between the Company and The Charles Schwab
Trust Company, as Trustee of the Company's 401(k) Plan (incorporated by reference from Exhibit 10.45 to
the Company's 1996 Q2 10-Q)
10.46* Employment Agreement dated February 12, 1996 with Mr. Robert J. Otto (incorporated by reference from
Exhibit 10.24 to the Company's 1996 Q1 10-Q)
10.47 Security and Loan Agreement (Accounts Receivable and/or Inventory) dated July 24, 1997 between the
Company and Imperial Bank.
10.48* Agreement Regarding Employment Trade Secrets, Inventions and Competition effective May 26, 1997 between
the Company and Lance Hewitt.
16.1 Letter from Deloitte & Touche LLP dated October 31, 1996 (incorporated by reference to the Company's
Report on Form 8-K/A filed November 8, 1996)
21.1 Subsidiaries of the Company (incorporated by reference to the Company's 1996 Form 10-K)
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation (included in Exhibit 5.1.)
24.1 Power of Attorney (included in the Signature Page contained in Part II of 1997 Amendment No. 1 to Form
S-3)
27.1 Financial Data Schedule (incorporated by reference to the Company's 1996 Form 10-K)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement covering executive
officers or directors of Monterey Pasta Company.
ITEM 17. UNDERTAKINGS.
A. The undersigned Registrant hereby undertakes:
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement: (i) to include any
prospectus required by section 10(a)(3) of the Securities Act of 1933 (the
"Securities Act"); (ii) to reflect in the prospectus any facts or events arising
after the effective
II-5
<PAGE>
date of the registration statement (or the most recent post-effective amendment
thereof) which, individually or in the aggregate, represent a fundamental change
in the information set forth in the registration statement; notwithstanding the
foregoing, any increase or decrease in volume of securities offered (if the
total dollar value of securities offered would not exceed that which was
registered) and any deviation from the low or high end of the estimated maximum
offering range may be reflected in the form of prospectus filed with the
Commission pursuant to Rule 424(b) if, in the aggregate, the changes in volume
and price represent no more than a 20% change in the maximum aggregate offering
price set forth in the "Calculation of Registration Fee" table in the effective
registration statement; (iii) to include any material information with respect
to the plan of distribution not previously disclosed in the registration
statement or any material change to such information in the registration
statement; PROVIDED, HOWEVER, that paragraphs (a)(1)(i) and (a)(1)(ii) do not
apply if the registration statement is on Form S-3, and the information required
to be included in a post-effective amendment by those paragraphs is contained in
periodic reports filed by the Registrant pursuant to Section 13 or Section 15(d)
of the Securities Exchange Act of 1934 that are incorporated by reference in the
registration statement.
(2) That, for the purpose of determining any liability under the Securities
Act, each such post-effective amendment shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of such
securities at that time shall be deemed to be the initial bona fide offering
thereof.
(3) To remove from registration by means of a post-effective amendment any
of the securities being registered which remain unsold at the termination of the
offering.
B. The undersigned Registrant hereby undertakes that, for purposes of
determining any liability under the Securities Act, each filing of the
Registrant's annual report pursuant to section 13(a) or section 15(d) of the
Securities Exchange Act of 1934 (and, where applicable, each filing of an
employee benefit plan's annual report pursuant to Section 15(d) of the
Securities Exchange Act of 1934) that is incorporated by reference in the
registration statement shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering thereof.
C. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Securities Act
and is, therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by such
director, officer or controlling person in connection with the securities being
registered, the Registrant will, unless in the opinion of its counsel the matter
has been settled by controlling precedent, submit to a court of appropriate
jurisdiction the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the final
adjudication of such issue.
D. The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h)
under the Securities Act shall be deemed to be part of the registration
statement as of the time it was declared effective.
(2) For the purpose of determining any liability under the Securities Act,
each post-effective amendment that contains a form of prospectus shall be deemed
to be a new registration statement relating to the securities offered therein,
and the offering of such securities at that time shall be deemed to be the
initial bona fide offering thereof.
II-6
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
certifies that it has reasonable grounds to believe that it meets all of the
requirements for filing on Form S-3 and has duly caused this Pre-effective
Amendment No. 3 to Registration Statement to be signed on its behalf by the
undersigned, thereunto duly authorized, in the City of San Francisco, State of
California, on October 9, 1997.
MONTEREY PASTA COMPANY
By: /s/ R. LANCE HEWITT
-----------------------------------------
R. Lance Hewitt
PRESIDENT AND CHIEF EXECUTIVE OFFICER
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that the persons whose signatures appear
below, hereby constitute and appoint R. Lance Hewitt, his true and lawful
attorney-in-fact and agent, with full power of substitution and resubstitution,
for him and in his name, place and stead, in any and all capacities, to sign any
and all amendments, including post-effective amendments, to this Registration
Statement, and to file the same, with exhibits thereto and other documents in
connection therewith, with the Securities and Exchange Commission, granting unto
said attorney-in-fact and agent, full power and authority to do and perform each
and every act and thing requisite and necessary to be done, as fully to all
intents and purposes as he might or could do in person, hereby ratifying and
confirming all that said attorney-in-fact and agent or his substitute or
substitutes may lawfully do or cause to be done by virtue hereof. This Power of
Attorney may be executed in counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and the same
instrument.
Pursuant to the requirements of the Securities Act of 1933, this
Pre-effective Amendment No. 3 to Registration Statement has been signed by the
following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
President, Chief Executive
/s/ R. LANCE HEWITT Officer and Director
- ------------------------------ (Principal Executive October 9, 1997
R. Lance Hewitt Officer)
Chief Financial Officer
/s/ STEPHEN L. BRINKMAN (Principal Financial
- ------------------------------ Officer and Principal October 9, 1997
Stephen L. Brinkman Accounting Officer)
/s/ CHARLES B. BONNER
- ------------------------------ Director October 9, 1997
Charles B. Bonner
/s/ DANIEL J. GALLERY
- ------------------------------ Director October 9, 1997
Daniel J. Gallery
</TABLE>
II-7
<PAGE>
<TABLE>
<CAPTION>
NAME TITLE DATE
- ------------------------------ -------------------------- -------------------
<C> <S> <C>
- ------------------------------ Director October 9, 1997
Floyd R. Hill
/s/ KENNETH A. STEEL, JR.
- ------------------------------ Director October 9, 1997
Kenneth A. Steel, Jr.
/s/ TIMOTHY J. RYAN
- ------------------------------ Director October 9, 1997
Timothy J. Ryan
/s/ ROBERT F. STEEL
- ------------------------------ Director October 9, 1997
Robert F. Steel
/s/ VAN TUNSTALL
- ------------------------------ Director October 9, 1997
Van Tunstall
- ------------------------------ Director October 9, 1997
James Wong
</TABLE>
II-8
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
2.1 Agreement and Plan of Merger dated August 7, 1996 by and between Monterey Pasta Company, a California
corporation and Monterey Pasta Company, a Delaware corporation (incorporated by reference from Exhibit A
to the Company's Proxy Statement for the Special Meeting of Shareholders held on August 1, 1996, filed
with the Securities and Exchange Commission on June 27, 1996 ("1996 Proxy"))
3.1 Certificate of Incorporation dated August 1, 1996 (incorporated by reference from Exhibit B to the 1996
Proxy.
3.2 Certificate of Designations of Series A Convertible Preferred Stock (incorporated by reference from
Annex I to the Subscription Agreement dated July 31, 1996, filed as Exhibit 4.1 to the 1996 Proxy.)
3.3 Certificate of Designations of Series B Convertible Preferred Stock (incorporated by reference from
Annex I to the Subscription Agreement dated August 9, 1996, filed as Exhibit 4.3 to the 1996 Proxy.)
3.4 Bylaws of the Company (incorporated by reference from Exhibit C to the Company's 1996 Proxy)
3.5 Certificate of Designations of Series A-1 Convertible Preferred Stock (incorporated by reference from
Exhibits with corresponding numbers filed with the Company's Annual Report on Form 10-K/A on April 29,
1997 ("1996 Form 10-K/A"))
3.6 Certificate of Designations of Series B-1 Convertible Preferred Stock (incorporated by reference from
Exhibits with corresponding numbers filed with the 1996 Form 10-K/A)
4.1 Subscription Agreement, dated as of July 31, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the Company's Registration Statement on Form S-3 on August 23, 1996
("1996 Form S-3"))
4.2 Registration Rights Agreement, dated as of July 31, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the 1996 Form S-3)
4.3 Subscription Agreement, dated as of August 9, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the 1996 Form S-3)
4.4 Registration Rights Agreement, dated as of August 9, 1996 (incorporated by reference from Exhibits with
corresponding numbers filed with the 1996 Form S-3)
4.5 Form of Warrant for purchase of the Company's Common Stock, dated as of July 1, 1996 (incorporated by
reference from Exhibits with corresponding numbers filed with the 1996 Form S-3)
4.6 Form of Registration Rights Agreement dated April 1996, among the Company, Spelman & Co., Inc. and
investor (incorporated by reference from Exhibit 10.42 filed with the Company's Original Quarterly
Report on Form 10-Q on May 1, 1996 ("1996 Q1 10-Q"))
4.7 Shareholder Rights Agreement dated as of May 15, 1996 between the Company and Corporate Stock Transfer,
as rights agent (incorporated by reference from Item 2 of Form 8-A filed with the Securities and
Exchange Commission on May 28, 1996)
4.8 Form of Subscription Agreement dated April 1996, among the Company, Spelman & Co., Inc. and investor
(incorporated by reference from Exhibits with corresponding numbers filed with the Company's 1996 Form
10-K/A)
4.9 Form of Amendment to Registration Rights Agreement dated as of April 20, 1997 among the Company, Spelman
& Co., Inc. and Investor, amending the Registration Rights Agreement entered into as of April 1996
(incorporated by reference from Exhibits with corresponding numbers filed with the 1996 Form 10-K/A)
4.10 Series A Convertible Preferred Stock Exchange Agreement dated as of March 10, 1997 by and between the
Company and GFL Performance Fund Limited (incorporated by reference from Exhibits with corresponding
numbers filed with the Company's 1996 Form 10-K/A)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
4.11 Series B Convertible Preferred Stock Exchange Agreement dated as of April 2, 1997 by and between the
Company and Pangaea Fund Limited (incorporated by reference from Exhibits with corresponding numbers
filed with the Company's 1996 Form 10-K/A)
4.12 Registration Rights Agreement dated as of December 31, 1996 among the Company, Sentra Securities
Corporation and Investor (incorporated by reference from Exhibits with corresponding numbers filed with
the Company's 1996 Form 10-K/A)
4.13 Form of Warrant ("Sentra Warrant") for purchase of Company's Common Stock dated March 1997 issued in
connection with the Company's March 1997 private placement (incorporated by reference from Exhibits with
corresponding numbers filed with the Company's Pre-Effective Amendment No. 1 to the Registration
Statement on Form S-3 on May 6, 1997 ("1997 Amended No. 1 to Form S-3"))
4.14* Stock Purchase Agreement between the Company and Kenneth A. Steel, Jr. dated April 29, 1997
(incorporated by reference from Exhibits with corresponding numbers filed with the Company's 1997
Amendment No. 1 to Form S-3)
5.1 Opinion and Consent of Gray Cary Ware & Freidenrich, a Professional Corporation (incorporated by
reference from Exhibits with corresponding numbers filed with the Company's 1997 Amendment No. 1 to Form
S-3)
10.1* Second Amended and Restated 1993 Stock Option Plan (as amended on August 1, 1996) (incorporated by
reference to the Company's 1996 Form 10-K)
10.2* 1995 Employee Stock Purchase Plan (incorporated by reference from Exhibit 10.15 to the Company's 1994
Form 10-K)
10.3 Blackhawk Plaza Lease of the Company (incorporated by reference from Exhibit 10.02 to the Company's
Registration Statement No. 33-69590-LA on Form SB-2 (the "SB-2")
10.4 353 Sacramento Street Office Lease dated as of December 27, 1995 with John Hancock Mutual Life Insurance
Company, together with letter agreement dated March 20, 1996 regarding basement storage (incorporated by
reference to the Company's Annual Report on Form 10-K filed April 1, 1996 (the "1995 Form 10-K")
10.5 Monterey County Production Facility Lease of the Company, as amended (incorporated by reference from
Exhibit 10.03 to the SB-2)
10.6 Amendment No. 1 dated February 1, 1995 and Amendment No. 2 dated March 1, 1995 to Monterey County
Production Facility Lease of the Company (incorporated by reference from Exhibits with corresponding
numbers filed with the 1995 Form 10-K)
10.7 Christie Avenue Warehouse Lease of the Company (incorporated by reference from Exhibit 10.04 to the
SB-2)
10.8 Loan and Security Agreement dated December 8, 1995 with Coast Business Credit, a Division of Southern
Pacific Thrift and Loan Association, and Schedule thereto (incorporated by reference from Exhibit 10.8
to the 1995 Form 10-K)
10.9 Equipment Collateral Security Agreement dated December 8, 1995 with Coast Business Credit (incorporated
by reference from Exhibit 10.9 to the 1995 Form 10-K)
10.10 Secured Promissory Note dated December 8, 1995 in the original principal amount of $500,000 in favor of
Coast Business Credit (incorporated by reference from Exhibit 10.10 to the 1995 Form 10-K)
10.11 Secured Promissory Note dated December 8, 1995 in the original principal amount of $750,000 in favor of
Coast Business Credit (incorporated by reference from Exhibit 10.11 to the 1995 Form 10-K)
10.12 Investment Agreement dated July 12, 1995 with The Seychelles Fund, Ltd. (incorporated by reference from
Exhibit 10.12 to the 1995 Form 10-K)
10.13 Master Lease dated August 1, 1995 with Sentry Financial Corporation (incorporated by reference from
Exhibit 10.13 to the 1995 Form 10-K)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.14 Letter Agreement dated July 26, 1995 between Monterey Pasta Development Company and California Pasta
Company (incorporated by reference from Exhibit 10.21 to the Company's Quarterly Report on Form 10-Q for
the quarter ended October 2, 1995 ("1995 Q3 10-Q"))
10.15 Asset Purchase Agreement dated July 26, 1995 between Upscale Food Outlets, Inc. and California Pasta
Company (incorporated by reference from Exhibit 10.22 to the Company's 1995 Q3 10-Q)
10.16 Franchise Termination Agreement and Release dated March 8, 1996 among the Company, Upscale Food Outlets,
Inc., Monterey Pasta Development Company, The Lance H. Mortensen Unitrust dated December 3, 1994, and
LBJ Restaurants, LLC (incorporated by reference from Exhibit 10.16 to the 1995 Form 10-K)
10.17 Acquisition Agreement between the Company and Upscale Food Outlets, Inc. (incorporated by reference from
Exhibit 10.05 to the SB-2)
10.18* Employment Agreement with Lance H. Mortensen (incorporated by reference from Exhibit 10.06 to the SB-2)
10.19* Employment Agreement dated September 5, 1995 with Mr. Norman E. Dean (incorporated by reference from
Exhibit 10.20 to the Company's 1995 Q3 10-Q)
10.20* Consulting Agreement dated May 25, 1995 with Daniel J. Gallery (incorporated by reference from Exhibit
10.18 to the Company's Quarterly Report on Form 10-Q for the quarter ended July 2, 1995 ("1995 Q2
10-Q"))
10.21* Employment Agreement dated June 30, 1993 with Anthony W. Giannini (incorporated by reference from
Exhibits with corresponding numbers filed with the 1994 Form 10-K.
10.22* Employment Agreement with Mr. David J. Massara (incorporated by reference from Exhibit 10.18 to the
Company's 1994 Form 10-K)
10.23 Trademark Registration--MONTEREY PASTA COMPANY, under Registration No. 1,664,278, registered on November
12, 1991 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit 10.09 to the
SB-2)
10.24 Trademark Registration--MONTEREY PASTA COMPANY, under Registration No. 1,943,602, registered on December
26, 1995 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit 10.24 to the
1995 Form 10-K)
10.25 Trademark Registration--MONTEREY PASTA COMPANY and Design, under Registration No. 1,945,131, registered
on January 2, 1996 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit
10.25 to the 1995 Form 10-K)
10.26 Trademark Registration--MONTEREY PASTA COMPANY and Design, under Registration No. 1,951,624, registered
on January 23, 1996 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit
10.26 to the 1995 Form 10-K)
10.27 Trademark Registration--MONTEREY PASTA COMPANY, under Registration No. 1,953,489, registered on January
30, 1996 with the U.S. Patent and Trademark Office (incorporated by reference from Exhibit 10.27 to the
1995 Form 10-K)
10.28 Subscription Agreement dated as of June 21, 1995 with GFL Advantage Fund Limited (incorporated by
reference from Exhibit 10.19 to the 1995 Q2 10-Q)
10.29 Registration Rights Agreement dated as of June 15, 1995 with GFL Advantage Fund Limited, as amended on
October 13 and 19, 1995, respectively (incorporated by reference from Exhibit 10.2 to the Company's 1995
Q2 10-Q, and Exhibits 10.6 and 10.7 to the Company's S-3 Registration Statement No. 33-96684, filed on
December 12, 1995 (the "1995 S-3"))
10.30 Joint Escrow Instructions dated as of October 1995 (incorporated by reference from Exhibit 10.5 to the
1995 S-3)
10.31 Note Purchase Agreement dated as of October 19, 1995 with GFL Advantage Fund Limited (incorporated by
reference from Exhibit 10.3 to the Company's 1995 S-3)
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER EXHIBIT TITLE
- ----------- --------------------------------------------------------------------------------------------------------
<S> <C>
10.32 Convertible Note dated as of October 25, 1995, executed by the Company in favor of GFL Advantage Fund
Limited (incorporated by reference from Exhibit 10.32 to the 1995 Form 10-K)
10.33 Trademark Purchase (Burns) (incorporated by reference from Exhibit 10.12 to the SB-2)
10.34 Purchase of Stock and Exhibits (Burns- Mortensen-Hill) (incorporated by reference from Exhibit 10.13 to
the SB-2)
10.35 Non-Recourse Promissory Note (Hill-Mortensen) (incorporated by reference from Exhibit 10.15 to the SB-2)
10.36 Asset Purchase Agreement dated March 1, 1994 between Upscale Food Outlets, Inc., Lucca's Pasta Bar,
Inc., Timothy John Morris and Marian Kathryn Morris (incorporated by reference from Exhibit 10.16 to the
Company's 1993 Form 10-K)
10.39 Franchise Termination Agreement and Release dated as of March 27, 1996, among the Company, Upscale Food
Outlets, Inc., Monterey Pasta Development Company, California Pasta Company, and James G. Schlicher
(incorporated by reference from Exhibit 10.39 to the 1996 Q1 10-Q)
10.40 Stock Purchase Agreement dated April 1, 1996 between Upscale Acquisitions, Inc. and the Company
(incorporated by reference from Exhibit 10.40 to the 1996 Q1 10-Q)
10.41 Placement Agent Agreement dated April 12, 1996 between the Company and Spelman & Co., Inc. (incorporated
by reference from Exhibit 10.41 to the 1996 Q1 10-Q)
10.44* The Company's 401(k) Plan, established to be effective as of January 1, 1996, adopted by the Board of
Directors on June 7, 1996 (incorporated by reference from Exhibit 10.44 to the Company's Original June
30, 1996 Quarterly Report on Form 10-Q filed August 13, 1996 ("1996 Q2 10-Q")
10.45* Directed Employee Benefit Trust Agreement dated June 17, 1996 between the Company and The Charles Schwab
Trust Company, as Trustee of the Company's 401(k) Plan (incorporated by reference from Exhibit 10.45 to
the Company's 1996 Q2 10-Q)
10.46* Employment Agreement dated February 12, 1996 with Mr. Robert J. Otto (incorporated by reference from
Exhibit 10.24 to the Company's 1996 Q1 10-Q)
10.47 Security and Loan Agreement (Accounts Receivable and/or Inventory) dated July 24, 1997 between the
Company and Imperial Bank.
10.48* Agreement Regarding Employment Trade Secrets, Inventions and Competition effective May 26, 1997 between
the Company and Lance Hewitt.
16.1 Letter from Deloitte & Touche LLP dated October 31, 1996 (incorporated by reference to the Company's
Report on Form 8-K/A filed November 8, 1996)
21.1 Subsidiaries of the Company (incorporated by reference to the Company's 1996 Form 10-K)
23.1 Consent of BDO Seidman, LLP
23.2 Consent of Deloitte & Touche LLP
23.3 Consent of Arthur Andersen LLP
23.4 Consent of Gray Cary Ware & Freidenrich, A Professional Corporation (included in Exhibit 5.1.)
24.1 Power of Attorney (included in the Signature Page contained in Part II of 1997 Amendment No. 1 to Form
S-3)
27.1 Financial Data Schedule (incorporated by reference to the Company's 1996 Form 10-K)
</TABLE>
- ------------------------
* Management contract or compensatory plan or arrangement covering executive
officers or directors of Monterey Pasta Company.
<PAGE>
AGREEMENT REGARDING EMPLOYMENT, TRADE SECRETES, INVENTIONS, AND
COMPETITION
This Agreement regarding Employment, Trade Secrets, Inventions, and
Competition ("Agreement") is made and entered into effective May 26, 1997, by
and between MONTEREY PASTA COMPANY, a Delaware corporation (the "Company")
and Lance Hewitt ("Executive").
WITNESSETH
WHEREAS, the Company is a Delaware corporation with its office located
at 1528 Moffett Street, Salinas, California, 93805.
WHEREAS, the Company desires to employ Executive as its President and
Chief Executive Officer, and Executive has agreed to accept such employment
upon the terms set forth herein; and
NOW, THEREFORE, in consideration of the promises contained herein and
other good and valuable consideration, the receipt and sufficiency of which
is hereby acknowledged, the parties agree as follows:
1. DUTIES. Subject to the terms and conditions below, the Company
hereby employs Executive and Executive accepts such employment. Initially,
Executive shall be given the title of President and Chief Operating Officer.
On July 31, 1997, Executive will become the President and Chief Executive
Officer of the Company. Upon execution of this Agreement, all Company
operating decisions are the responsibility of Executive. The interim Chief
Executive Officer, Kenneth Steel, may not alter any of Executive's duties or
responsibilities without approval from a written majority of the Board of
Directors after a duly constituted meeting. Kenneth Steel will, however, be
available to Executive to provide transitional information to Executive at
the request of Executive. During employment, the Executive agrees to devote
his full-time attention, energies and his best efforts to further the
Company's business with respect to such duties and services of an executive,
administrative, and managerial nature as shall be specified and designated
from time to time by the Company or its designated representative and which
are of the type of duties normally performed by a Chief Executive Officer of
a company of similar size and condition. The Executive will report directly
to the Company's Board of Directors and will promptly perform all duties and
tasks as may be directed by said Board.
2. AT-WILL EMPLOYMENT. The Parties acknowledge and agree that
Executive's employment is at-will and that either the Company or Executive
may, at any time, with or without cause and with or without notice, terminate
the employment relationship, including all compensation and benefits under
this Agreement. It is the express intent of the parties that Executive be
employed at-will; nothing in this Agreement or the relationship between the
parties now or in the future may be construed or interpreted to create an
employment relationship for a specific length of time or a right to continued
employment. Notwithstanding any termination of the parties' employment
relationship, this Agreement shall remain a valid and enforceable contract
with respect to all
<PAGE>
remaining provisions, including but not limited to the terms and provisions
contained in Paragraphs 7 through 10.
3. COMPENSATION. The Company agrees to pay Executive a base salary
("Salary") in the gross amount of One Hundred Seventy-five Thousand Dollars
($175,000.00) annually (less deductions required by law or lawfully
authorized by Executive), payable in accordance with the Company's
procedures, as from time to time amended, regarding the payment of
compensation to senior management personnel. Provided Executive completes one
full year of service at the Company, Executive will receive a 35% bonus for
completing this first year of employment as President and Chief Executive
Officer. For every year of employment thereafter, Executive shall receive a
bonus equal to 15% of his Salary should the Company achieve Plan Income
(defined as the annual operating plan income as approved by the Board of
Directors), and an additional 20% of his Salary for exceeding Plan Income by
10%. Executive shall also receive 50,000 stock options for the stock of the
Company at the first anniversary date of the execution of this Agreement, and
50,000 additional stock options on the second anniversary date of execution
of this Agreement. Executive may also receive, at the sole discretion of the
Board of Directors, an additional 200,000 stock options during the first two
(2) years of employment, which shall be allocated as follows: (i) 120,000
options for achieving agreed upon business goals in the first year, and
80,000 options for achieving agreed upon business goals for the second year.
The first year goals shall be set by the Board of Directors within the first
30 days of Executive's employment. Such business goals shall be aggressive,
but reasonable. Executive shall be allowed to present such goals to the
Board. Each year, Executive shall present his business goals to the Board for
Board approval. The option price for all options granted herein shall be
closing price of the stock on the day this Agreement is executed by the
Executive and the Company. Except as expressly provided herein, Executive
understands and agrees that his compensation under this Paragraph 3 will
constitute the full and exclusive monetary consideration and compensation for
all services rendered by Executive and performance of all his promises and
obligations hereunder.
4. FRINGE BENEFITS. Executive may participate in all employee
benefit policies and plans for which Executive is eligible in accordance with
the terms of each such program, policy or plan, that the Company shall make
available from time to time at its sole discretion to its senior management
personnel. Executive's rights under any benefits policies or plans now in
force or later adopted by the company shall be governed solely by the terms
of such policies or plans. Executive acknowledges and agrees that the Company
and its designated benefit plan administrators have the exclusive authority
and discretion to determine all issues of eligibility and all questions of
interpretation of each Company benefit plan, program or policy. The following
is a list of current benefits that the Company will make available to the
Executive:
a. medical and dental insurance and disability insurance of
such coverage as shall be not less than that provided to other
eligible senior management personnel, with a $100 deductible on
medical insurance and a $50 deductible on dental insurance at no
cost to Executive:
2
<PAGE>
b. One week's paid vacation accrued for every three months of
employment;
c. participation in the Company's retirement plan; to be
defined by the Monterey Pasta Compensation Committee within the
next 60 days.
d. term life insurance equal to twice the base salary of
Executive.
e. coverage under all applicable Company insurance policies,
including directors and officer insurance. Employee is to be fully
indemnified up to limits of California law against any litigation
brought as a result of Company business.
5. OTHER COMPENSATION. Executive understands and agrees that any
additional compensation awarded to him, whether as a bonus, opportunity to
acquire stock, or other form of additional compensation, shall rest in the
sole discretion of the Board of Directors, and that by his employment
hereunder, Executive shall not earn or accrue any right to additional
compensation.
6. BUSINESS EXPENSES. Subject to the Company's policies and
procedures regarding corporate expenses as may be from time to time be
established or changed by the Company at its sole discretion, the Company
will reimburse Executive for all substantiated reasonable travel and
out-of-pocket expenses incurred or directly attributable to Executives
execution of his duties under this Agreement, including a $750 per month car
allowance, which includes the costs of insurance. Executive understands and
agrees to provide the Company with appropriate documentation of any such
expenses in accordance with Company policies and procedures. In addition,
should Executive relocate his principal residence from Los Gatos, California
to the Salinas/Monterey area within the first two (2) years of employment
hereunder, Company shall reimburse Executive for all reasonable relocation
costs and expenses.
7. INVENTIONS AND PATENTS. Executive agrees that all inventions,
innovations, discoveries, improvements, developments, methods, designs,
analyses, drawings, reports, and all similar or related imformation that
Executive has conceived or made or may conceive or make during his employment
herunder that relate to the Company's actual or anticipated business,
systems, research and development or existing or future products or
services, including but not limited to new contributions, improvements, ideas
and discoveries, whether patentable or not ("Work Product"), shall be the
sole and exclusive property of the Company, and Executive shall assign, and
hereby does assign, to the Company the Executive's entire right, title and
interest in and to all such Work Product. Executive will promptly disclose
and assign to the Company any such Work Product and perform all actions
reasonably requested by the Company to establish and conform the Company's
ownership. The obligations outlined in this Paragraph 7, except for the
requirement as to disclosure, do not apply to any invention that qualifies
fully under California Labor Code Section 2870. The Company agrees that any
inventions, discoveries or ideas that Executive has created or possesses
prior to his employment hereunder, and that are specified in Appendix A to
this Agreement signed by Executive and the Company, will not be considered to
be the property of the Company.
8. CONFIDENTIAL INFORMATION. Executive acknowledges and agrees that
the information, observations and data obtained by him during the course of
his performance under this Agreement
3
<PAGE>
the Company as confidential information with procedures designed to ensure
secrecy and none of which is readily available to the public. Executive
acknowledges and agrees that this information constitutes the Company's trade
secrets and that the Company has spent and spends substantial time, effort
and resources in discovering, creating, and/or protecting its trade secrets.
Executive agrees that he will not disclose to any unauthorized persons or use
for his own account or for the benefit of any party other than the Company
any of such confidential trade secret information, either during employment
hereunder or at any time thereafter without the Board of Directors' written
consent. Executive acknowledges and agrees that the reasons for the
requirements of confidentiality and secrecy in this Paragraph 8 are that the
totality and combination of this information and material gives the Company a
competitive advantage not possessed by the Company's competitors, is a part
of the good will of the Company's business, and is the sole property of the
Company.
9. COMPANY PROPERTY. Executive agrees to deliver to the Company at
the termination of his employment, or at any other time that the Company may
request, all files, documents, memoranda, notes, plans, records, reports,
inventions, equipment and similar items, including any and all abstracts,
copies and/or summaries thereof, relating to the business of the Company that
he may then possess or have under his control. Executive acknowledges and
agrees that all such information or material is and shall remain exclusively
the property of the Company and shall be removed from the premises of the
Company only with prior written consent of the Board of Directors. Executive
agrees that he shall not use or retain possession, custody or control of any
such Company property at any time following termination of Executive's
employment hereunder.
10. NON-COMPETITION AND RELATED AGREEMENTS
a. In further consideration of the compensation to be paid to
Executive hereunder and the severance compensation provided in Paragraph 14b
below, Executive agrees that during the period commencing as of the effective
date hereof and ending of the second anniversary of the date of termination
of his employment with the Company (the "Noncompetition Period"), he will
not directly or indirectly (whether as Executive, director, owner,
stockholder, consultant, partner (limited, general or otherwise) engage in
any business similar to the Company as now conducted, or as previously
conducted, or have any interest, directly or indirectly in any such business,
within the counties of the State of California, it being agreed that the
Company presently carries on substantial business in those counties;
provided, however, that nothing herein will prevent Executive from owning 1%
or less of the outstanding stock of any class of a corporation that is
publicly traded, so long as Executive does not have any participation in the
conduct of the business of such corporation.
b. The Agreement contained in this Paragraph 10 is intended as an
Agreement authorized by Section 16601 of the California Business and
Professions Code as it exists as of the date of this Agreement. If, at the
time of enforcement of any provisions of Paragraph 10a above, a court holds
that the restrictions stated therein go beyond the scope of restrictions
allowed under Section 16601, the parties hereto agree that the maximum
period, scope or geographical area allowable under Section 16601 will be
substituted for the stated period, scope or area.
4
<PAGE>
c. During the Noncompetition Period, Executive shall not (i) induce or
attempt to induce any other employee of the Company to leave the employ of
the Company, or (ii) in any way interfere with the relationship between the
Company and any other employee of the Company, or induce or attempt to induce
any customer, supplier, licensee, or other business relation of the Company
to cease doing business with the Company, or in any way interfere with the
relationship between any customer, supplier or other business relation and
the Company.
d. Executive agrees that the covenants made in this Paragraph 10 shall
be construed as an Agreement independent of any other provisions of this
Agreement, and shall survive the termination of Executive's employment under
this Agreement. Moreover, the existence of any claim or cause of action of
Executive against the Company or any of its affiliates, whether or not
predicated upon the terms of this Agreement, shall not constitute a defense
to the enforcement of this covenant.
e. The Company and Executive further agree that in the event the
Executive violates the provisions contained in Paragraph 10 hereof, and the
Company brings an action against the Executive to enforce such provisions,
payment of Executive's salary, benefits and severance shall be suspended,
without penalty to the Company, pending the outcome of such litigation or
arbitration. If it is determined by a court of competent jurisdiction or
arbitrator that Executive breached this Agreement, Executive's right to
severance shall cease.
11. WAIVER. The failure of either party to insist, in any one or more
instances, upon performance of the terms or conditions of this Agreement
shall not be construed as a waiver or a relinquishment of any right granted
hereunder or of the future performance of any such term, covenants or
condition.
12. SUBMISSION TO JURISDICTION; ARBITRATION
a. Any action initiated by the Company seeking specific performance or
other equitable relief in connection with any breach or violation of this
Agreement may be maintained in any federal or state court having jurisdiction
over Monterey County, California. The parties hereby submit themselves to the
jurisdiction of any such court for the purpose of resolving all such actions,
waive any objections to the service of any such court, and agree not to
challenge the exclusive jurisdiction of such court. Executive and the Company
further agree that in the event Executive violates any of the provisions and
the Company brings an action against Executive to enforce such provisions,
Executive's employment and the Company's payment of salary and benefits
shall cease, without penalty to the Company, pending the outcome of such
action or, if the parties submit any such claim to arbitration hereunder
pending the outcome of such arbitration.
b. Except as provided in Paragraph 12a hereinabove, in the event that
there is any dispute arising out of Executive's employment with the Company,
the termination of that employment, or arising out of this Agreement, whether
such dispute gives rise or any give rise to a cause of action in contract or
tort or based on any other theory or statute, including but not limited to
the California Fair Employment & Housing Act, Title VII of the Civil Rights
Act of 1964, the Age Discrimination
5
<PAGE>
in Employment Act, the Americans with Disabilities Act, or any other act or
statute, Executive and the Company agree that exclusive recourse shall be to
submit any such dispute to final and binding arbitration pursuant to the
provisions of Title 9 of Part III of the California Code of Civil Procedure,
commencing at Section 1280, or any successor or replacement statutes, upon a
request submitted in writing in accordance with the notice provisions of this
Agreement to the other party to this Agreement within one (1) year of the
date of dispute arose, or, in the case of a dispute arising out of the
termination of Executive's employment was terminated. The failure timely to
request arbitration hereunder shall constitute a complete waiver of all
rights to raise any claims in any forum, arising out any dispute described
herein. The one (1) year limitations period within which to request
arbitration shall not be subject to tolling, equitable or otherwise.
c. The Company and Executive further agree that in arbitration, the
exclusive remedy for alleged violation of this Agreement or the terms,
conditions, or covenants of employment, and for any harm alleged in
connection with any dispute subject to arbitration hereunder (including,
without limitation, causes of action arising in tort), shall be a money award
not to exceed the amount of actual damages for breach of contract, less any
proper offset or mitigation of such damages, and the parties shall not be
entitled to any other remedy at law or in equity, including but not limited
to other money damages, specific performance, and/or injunctive relief.
d. Prior to submitting any dispute to arbitration hereunder, the
parties shall attempt to settle such dispute themselves. If the parties
cannot settle the dispute, the parties will use best efforts for a period of
fifteen (15) days following delivery of the written request for arbitration
to the other party to agree upon a mutually acceptable attorney to act as a
neutral arbitrator of such claim or dispute. If the parties are not able to
agree on a mutually acceptable arbitrator within the foregoing fifteen (15)
day period, each party will designate an attorney, and the two attorneys so
designated shall select a third attorney to act as a neutral arbitrator of
such dispute. The decision of any arbitrator selected in accordance with this
Paragraph will be final and binding upon the parties. The fees of any
arbitrator will be borne by the parties hereto equally. The fees of any
attorney designated by a party for purposes of selecting an arbitrator will
be borne by such party. Any arbitration hereunder shall be held in Monterey
County, California. The arbitrator shall not have the power to alter, amend,
or modify any of the provisions of this Agreement. Nothing herein shall be
construed to abridge any party's rights and remedies under state workers'
compensation statutes.
13. SALE, CONSOLIDATION, OR MERGER. In the event of (i) any
consolidation or merger of the Company with or into another corporation or
entity, or (ii) the sale of substantially all of the operating assets of the
Company to another corporation, entity or individual (collectively, a
"Sale"), the Company may assign its rights and obligations under this
Agreement to its successor-in-interest, and such successor-in-interest shall
be deemed to have acquired all rights and assumed all obligations of the
Company hereunder. In the event of the occurrence of a Sale, Executive shall
be entitled to receive the Severance Compensation as defined in Paragraph 14b
of this Agreement if his employment is terminated. Executive shall become
fully and immediately vested in all stock options in the event of a Sale. In
the event Executive's services are continued after a Sale, Executive's
options shall be
6
<PAGE>
fully and immediately vested and Executive's severance benefits will continue
for a period of 12 months after sale.
14. TERMINATION OF EMPLOYMENT.
a. TERMINATION OF EMPLOYMENT FOR CAUSE. The Executive shall
not be entitled to any Severance Compensation (as defined in
Paragraph 13b below) if the Company terminates Executive's
employment hereunder for "cause".
"Cause" shall mean (i) Executive's theft or embezzlement,
or attempted theft or embezzlement, of money tangible or
intangible assets or property of the Company; (ii) any act
or acts of moral turpitude by Executive injurious to the
interest, property, operations, business or reputation of
the Company, or Executive's conviction of a crime the
commission of which results in a material injury to the
Company; (iii) any acts by Executive that establish
Executive's loyalty to a business or other conflict of
interest with the Company; (iv) gross negligence or
willful misconduct in the performance of Executive's
duties (v) conviction of a felony; or (vi) a material
breach of this Agreement.
b. TERMINATION OF EMPLOYMENT OTHER THAN FOR CAUSE. If the
Company terminates Executive's employment hereunder other than
for "cause" as defined in Paragraph 14a herein, the Company will
pay Executive severance compensation in a total gross amount
equal to one (1) year of the Executive's Base Salary, and all
fringe benefits at the time of termination of employment (less
lawful deductions) to be paid in equal pro rata installments in
accordance with the Company's then current schedule for the
payment of compensation to senior management personnel until
said sum is paid in full ("Severance Compensation"). Said
payments are subject to the terms contained in Paragraphs 10
and 12 herein.
c. VOLUNTARY TERMINATION BY EXECUTIVE. If Executive
voluntarily terminates his employment, he shall not be entitled
to any Severance Compensation.
15. EFFECT OF DEATH OR DISABILITY.
a. EXECUTIVE'S DEATH. This Agreement shall terminate upon the
death of Executive. In the event of Executive's death, the
Company will pay Executive's estate a death benefit in an amount
equal to six (6) months Salary then in effect at the time of
Executive's death in addition to any other benefits that the
Company is obligated to pay pursuant to any benefit plan or
program in which Executive was a participant immediately prior
to his death. In the event of Executive's death, no other
payments or benefits will be due to Executive's estate, his
designated beneficiary, or
7
<PAGE>
any other person on behalf of Executive, including but not
limited to payments pursuant to the provisions of Paragraph 13b.
b. EXECUTIVE'S DISABILITY.
(i) If Executive shall become disabled due to non-work
related causes ("Disabled"), Executives employment shall
terminate, and the Company will pay Executive an amount equal
to six (6) months Salary then in effect at the time Executive
becomes Disabled. Said payments will be made in periodic, equal
installments in accordance with the Company's schedule for
payment of compensation to its senior management personnel. The
Company will also continue to provide Executive with health
insurance coverage provided to other senior management personnel
for a period of six (6) months following the date on which
Executive becomes Disabled. In the event Executive becomes
Disabled, no other payment or benefits will be paid to the
Executive, including but not limited to payments pursuant to
Paragraph 13b or Paragraph 14a.
(ii) The Company shall deduct from the amounts paid to
Executive under this Paragraph 15b, any amounts actually paid to
Executive pursuant to any Company sponsored benefit plan or
program or any benefits paid to Executive by the federal or state
government (or any agency thereof) related to Executive's
Disability. Executive agrees, within five (5) days of receipt of
such payment, to inform the Company of any payments received that
may result in a reduction of his benefits under this
Paragraph 15b.
(iii) For purposes of this Agreement, "Disabled" means
Executive's inability due to illness, injury, physical or mental
incapacity, or other disability to carry out his duties and
obligations hereunder fully and effectively or to participate
actively and effectively in the management of the Company for
four (4) months total, whether cumulative or consecutive,
of a single disability during any 12-month period. If Executive
shall not agree with the Company's determination that he is
Disabled, the question shall be submitted to a reputable
physician selected by the Company, and such physician's decision
shall be final and binding. The meaning of "Disabled" herein
shall be construed in a manner consistent with the Americans with
Disabilities Act.
16. COMPLETE AGREEMENT. This Agreement embodies the complete
agreement and understanding between the parties relating to trade secrets,
inventions, employment and competition, and supersedes and prior
contemporaneous understandings, agreements or representations by or between
the parties, written or oral, express or implied, that relate to the subject
matter hereof in any way. Each party hereto acknowledges and agrees that no
representations, inducements, promises or agreements, orally or otherwise,
have been made by a party or anyone acting on behalf of a party that
8
<PAGE>
are not embodied herein and that no other agreement or promise not contained
herein, whether oral or written, express or implied, shall be valid or
binding.
17. NOTICES. Any notice provided for in this Agreement shall be in
writing and shall be either personally delivered, mailed first class mail
(postage prepaid), or sent by facsimile or reputable overnight courier
service (charges prepaid) to the recipient at the following addresses (or at
such address as the recipient party has specified by prior written notice to
the sending party). Notice to the Company shall be to the following:
Monterey Pasta Company
1528 Moffett Street
Salinas, CA 93905
Notice to Executive shall be to Executive's address in the records of the
Company at the time of the notice. Each party shall be responsible for
keeping such party's address current. Notices will be deemed to have been
given hereunder when delivered personally, three days after deposit in the
U.S. mail, on the date of delivery by facsimile, and/or one day after deposit
with a reputable overnight courier service.
18. SEVERABILITY. In the event that any provision of this Agreement
shall be held to be invalid or unenforceable for any reason whatsoever, it is
agreed such invalidity or unenforceability shall not affect any other
provision of this Agreement, and the remaining covenants, restrictions and
provisions hereof shall remain in full force and effect; any court of
competent jurisdiction may so modify any invalid or unenforceable provision
to the extent necessary to make it valid and enforceable if the result is
consistent with the parties' intent at the time of contracting. The express
intention of the parties is that the employment relationship shall be
at-will. In the event of any change in the controlling law that would affect
the at-will status of Executive's employment relationship with the Company,
the parties agree to execute such amendment to this Agreement as may be
necessary in the judgement of the Company in insure the at-will status of
Executive's employment.
19. AMENDMENT. This Agreement may not be modified or amended by
oral Agreement, or course of conduct, but only by an Agreement in writing
signed by the parties hereto.
20. GOVERNING LAW. The parties agree that this Agreement shall be
construed and enforced in accordance with the law of the State of California,
excluding its choice of law rules. The parties agree that this Agreement
shall be interpreted in accordance with the plain meaning of its terms and
not strictly for or against either party.
21. COUNTERPARTS. This Agreement may be executed in separate
counterparts, each of which is deemed to be original an all of which taken
together constitute one and the same Agreement.
9
<PAGE>
22. VOLUNTARY AGREEMENT. Executive and the Company represent and
agree that each has reviewed all aspects of this Agreement, has carefully
read and fully understands all provisions of this Agreement, and is
voluntarily entering into this Agreement. Each party represents and agrees
that such party has the opportunity to review any or all aspects of this
Agreement with the legal, tax or other advisor or advisors of such party's
choice before executing this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the day, month, and year first above written.
MONTEREY PASTA COMPANY
/s/ R. Lance Hewitt By: /s/ Timothy J. Ryan
- ------------------------ -----------------------------
Timothy Ryan
Date: 5/26/97 Title: Member, Board of Directors
- ------------------------ --------------------------
Date: 5/28/97
---------------------------
By: /s/ Van Tunstall
-----------------------------
Van Tunstall
Title: Member, Board of Directors
--------------------------
Date: May 26, 1997
---------------------------
10
<PAGE>
[LOGO]
SECURITY AND LOAN AGREEMENT
(ACCOUNTS RECEIVABLE AND/OR INVENTORY)
This Agreement is entered into between MONTEREY PASTA COMPANY, a Corporation
(herein called "Borrower") and IMPERIAL BANK (herein called "Bank").
1. Bank hereby commits, subject to all the terms and conditions of this
Agreement and prior to the termination of its commitment as hereinafter
provided, to make loans to Borrower from time to time in such amounts as
may be determined by Bank up to, but not exceeding in the aggregate
unpaid principal balance, the following Borrowing Base:
100% of Imperial Bank Time Certificate(s) of Deposit
pledged in support hereof
70.000% of Eligible Accounts
30.000% of the Value of Inventory Not to Exceed $250,000.00
and in no event more than $1,500,000.00.
2. The amount of each loan made by Bank to Borrower hereunder shall be
debited to the loan ledger account of Borrower maintained by Bank
(herein called "Loan Account") and Bank shall credit the Loan Account
with all loan repayments made by Borrower. Borrower promises to pay
Bank (a) the unpaid balance of Borrower's Loan Account on demand and (b)
on or before the tenth day of each month, interest on the average daily
unpaid balance of the Loan Account during the immediately preceding
month at the rate of Two percent (2.000%) per annum in excess of the
rate of interest which Bank has announced as its prime lending rate
("Prime Rate") which shall vary concurrently with any change in such
Prime Rate. Interest shall be computed at the above rate on the basis
of the actual number of days during which the principal balance of the
loan account is outstanding divided by 360, which shall for Interest
computation purposes be considered one year. Bank at its option may
demand payment of any or all of the amount due under the Loan Account
Including accrued but unpaid interest at any time. Such notice may be
given verbally or in writing and should be effective upon receipt by
Borrower. The amount of interest payable each month by Borrower shall
not be less than a minimum monthly charge of $250.00. Bank is hereby
authorized to charge Borrower's deposit account(s) with Bank for all
sums due Bank under this Agreement.
3. Requests for loans hereunder shall be in writing duly executed by
Borrower in a form satisfactory to Bank and shall contain a
certification setting forth the matters referred to in Section 1, which
shall disclose that Borrower is entitled to the amount of loan being
requested.
4. As used in this Agreement, the following terms shall have the following
meanings:
A. "Accounts" means any right to payment for goods sold or
leased, or to be sold or to be leased, or for services
rendered or to be rendered no matter how evidenced, Including
accounts receivable, contract rights, chattel paper,
instruments, purchase orders, notes, drafts, acceptances,
general intangibles and other forms of obligations and
receivables.
B. "Inventory" means all of the Borrower's goods,
merchandise and other personal property which are held for
sale or lease, including those held for display or
demonstration or out on lease or consignment or to be
furnished under a contract of service or are raw materials,
work in process or materials used or consumed, or to be used
or consumed in Borrower's business, and shall include all
property rights, patents, plans, drawings, diagrams,
schematics, assembly and display materials relating thereto.
C. "Collateral" means any and all personal property of
Borrower which is assigned or hereafter is assigned to Bank as
security or in which Bank now has or hereafter acquires a
security interest.
D. "Eligible Accounts" means all of Borrower's Accounts
excluding, however, (1) all Accounts under which payment is
not received within 90 days from any invoice date, (2) all
Accounts against which the account debtor or any other person
obligated to make payment thereon asserts any defense, offset,
counterclaim or other right to avoid or reduce the liability
represented by the Account and (3) any Accounts if the account
debtor or any other person liable in connection therewith is
in solvent, subject to bankruptcy or receivership proceedings
or has made an assignment for the benefit of creditors or
whose credit standing is unacceptable to Bank and Bank has so
notified Borrower. Eligible Accounts shall only include such
accounts as Bank in its sole discretion shall determine are
eligible from time to time.
E. "Value of Inventory" means the value of Borrower's
Inventory determined in accordance with generally accepted
accounting principles consistently applied excluding, however,
the amount of progress payments, pre-delivery payments,
deposits and any other sums received by Borrower in
anticipation of the sale and delivery of Inventory, all
Inventory on consignment or lease to others, and all property
on consignment or lease from others to Borrower.
5. Borrower hereby assigns to Bank all Borrower's present and future
Accounts, including all proceeds due thereunder, all guaranties and
security therefor and all merchandise giving rise thereto, and hereby
grants to Bank a continuing security interest in all Borrower's
Inventory and in all proceeds and products thereof, whether now owned or
hereafter existing or acquired, including all moneys in the Collateral
Account referred to in Section 6 hereof, as security for any and all
obligations of Borrower to Bank, whether now owing or hereafter incurred
and whether direct, indirect, absolute or contingent. So long as
Borrower is indebted to Bank or Bank is committed to extend credit to
Borrower, Borrower will execute and deliver to Bank such assignments,
including Bank's standard forms of Specific or General Assignment
covering Individual Accounts, notices, financing statements, and other
documents and papers as Bank may require in order to affirm, effectuate
or further assure the assignment to Bank of the Collateral or to give
any third party, including the account debtors obligated on the
Accounts, notice of Bank's interest in the Collateral.
6. Until Bank exercises its rights to collect the Accounts and Inventory
proceeds pursuant to paragraph 10, Borrower will collect with diligence
all Borrower's Accounts and Inventory proceeds, provided that no legal
action shall be maintained thereon or in connection therewith without
Bank's prior written consent. Any collection of Accounts or inventory
proceeds by Borrower, whether in the form of cash, checks, notes, or
other instruments for the payment of money (properly endorsed or
assigned where required to enable Bank to collect same), shall be in
trust for Bank, and Borrower shall keep all such collections separate
and apart from all other funds and property so as to be capable of
identification as the property of Bank and deliver said collections,
together with the proceeds of all cash sales, daily to Bank in the
identical form received. The proceeds of such collections when received
by Bank may be applied by Bank directly to the payment of Borrower's
Loan Account or any other obligation secured hereby. Any credit given
by Bank upon receipt of said proceeds shall be conditional credit
subject to collection. Returned items at Bank's option may be charged
to Borrower's general account. All collections of the Accounts and
inventory proceeds shall be set forth on an itemized schedule, showing
the name of the account debtor, the amount of each payment and such
other information as Bank may request.
7. Until Bank exercises its rights to collect the Accounts or Inventory
proceeds pursuant to paragraph 10, Borrower may continue its present
policies with respect to returned merchandise and adjustments. However,
Borrower shall immediately notify Bank of all cases involving returns,
repossessions, and loss or damage of or to merchandise represented by
the Accounts or constituting Inventory and of any credits, adjustments
or disputes arising in connection with the goods or services represented
by the Accounts or constituting Inventory and, in any of such events,
Borrower will immediately pay to Bank its own funds (and not from the
proceeds of Accounts or Inventory) for application to Borrower's Loan
Account or any other obligation secured hereby the amount of any credit
for such returned or repossessed merchandise and adjustments made to any
of the Accounts. Until payment is made as provided herein or until
release by Bank from its security interest, all merchandise returned to or
Page 1 of 2
<PAGE>
repossessed by Borrower shall be set aside and identified as the
property of Bank and Bank shall be entitled to enter upon any premises
where such merchandise is located and take immediate possession thereof
and remove same.
8. Borrower represents and warrants to Bank: (i) If Borrower is a
corporation, that Borrower is duly organized and existing in the State
of its incorporation and the execution, delivery and performance hereof
are within Borrower's corporate powers, have been duly authorized and
are not in conflict with law or the terms of any charter, by-law or
other incorporation papers, or of any indenture, agreement or undertaking
to which Borrower is a party or by which Borrower is found or affected;
(ii) Borrower is, or at the time the collateral becomes subject to
Bank's security interest will be, the true and lawful owner of and has,
or at the time the Collateral becomes subject to Bank's security
interest will have, good and clear title to the Collateral, subject only
to Bank's rights therein; (iii) Each Account is, or at the time the
Account comes into existence will be, a true and correct statement of a
bona fide indebtedness incurred by the debtor named therein in the
amount of the Account for either merchandise sold or delivered (or being
held subject to Borrower's delivery instructions) to, or services
rendered, performed and accepted by, the account debtor; (iv) That there
are or will be no defenses, counterclaims, or setoffs which may be
asserted against the Accounts; and (v) any and all financial
information, including information relating to the Collateral, submitted
by Borrower to Bank, whether previously or in the future, is or will be
true and correct.
9. Borrower will: (i) Furnish Bank from time to time such financial
statements and information as Bank may reasonably request and inform
Bank immediately upon the occurrence of a material adverse change
therein; (ii) Furnish Bank periodically, in such form and detail and at
such times as Bank may require, statements showing aging and
reconciliation of the Accounts and collections thereon, and reports as to
the Inventory and sales thereof; (iii) Permit representatives of Bank to
inspect the Inventory and Borrower's books and records relating to the
Collateral and make extracts therefrom at any reasonable time and to
arrange for verification of the Accounts, under reasonable procedures,
acceptable to Bank, directly with the account debtors or otherwise at
Borrower's expense; (iv) Promptly notify Bank of any attachment or other
legal process levied against any of the Collateral and any information
received by Borrower relative to the Collateral, including the Accounts,
the account debtors or other persons obligated in connection therewith,
which may in any way affect the value of the Collateral or the rights
and remedies of Bank in respect thereto; (v) Reimburse Bank upon demand
for any and all legal costs, including reasonable attorneys' fees, and
other expense incurred in collecting any sums payable by Borrower under
Borrower's Loan Account or any other obligation secured hereby,
enforcing any term or provision of this Security Agreement or otherwise
or in the checking, handling and collection of the Collateral and the
preparation and enforcement of any agreement relating thereto; (vi)
Notify Bank of each location at which the Inventory is or will be kept,
other than for temporary processing, storage or similar purposes, and of
any removal thereof to a new location and of each office of Borrower at
which records of Borrower relating to the Accounts are kept; (vii)
Provide, maintain and deliver to Bank policies insuring the Collateral
against loss or damage by such risks and in such amounts, forms and
companies as Bank may require and with loss payable solely to Bank, and,
in the event Bank takes possession of the Collateral, the Insurance
policy or policies and any unearned or returned premium thereon shall at
the option of Bank become the sole property of Bank, such policies and
the proceeds of any other insurance covering or in any way relating to
the Collateral, whether now in existence or hereafter obtained, being
hereby assigned to Bank; (viii) Do all acts necessary to maintain,
preserve and protect all Inventory, keep all Inventory in good condition
and repair and not to cause any waste or unusual or unreasonable
depreciation thereof, and (ix) In the event the unpaid balance of
Borrower's Loan Account shall exceed the maximum amount of outstanding
loans to which Borrower is entitled under Section 1 hereof, Borrower
shall immediately pay to Bank, from its own funds and not from the
proceeds of Collateral, for credit to Borrower's Loan Account the amount
of such excess.
10. Bank may at any time, without prior notice to Borrower, collect the
Accounts and Inventory proceeds and may give notice of assignment to any
and all account debtors, and Borrower does hereby make, constitute and
appoint Bank its irrevocable, true and lawful attorney with power to
receive, open and dispose of all mail addressed to Borrower, to endorse
the name of Borrower upon any checks or other evidences of payment that
may come into the possession of Bank upon the Accounts or as proceeds of
Inventory; to endorse the name of the undersigned upon any document or
Instrument relating to the Collateral; in its name or otherwise, to
demand, sue for, collect and give acquittances for any and all moneys
due or to become due upon the Accounts; to compromise, prosecute or
defend any action, claim or proceeding with respect thereto; and to do
any and all things necessary and proper to carry out the purpose herein
contemplated.
11. Until Borrower's Loan Account and all other obligations secured hereby
shall have been repaid in full, Borrower shall not sell, dispose of or
grant a security interest in any of the Collateral other than to Bank,
or execute any financing statements covering the Collateral in favor of
any secured party or person other than Bank.
12. Should: (i) Default be made in the payment of any obligation, or
breach be made in any warranty, statement, promise, term or condition,
contained herein or hereby secured; (ii) Any statement or representation
made for the purpose of obtaining credit hereunder prove false; (iii)
Bank deem the Collateral inadequate or unsafe or in danger of misuse;
(iv) Borrower become insolvent or make an assignment for the benefit of
creditors; or (v) Any proceeding be commended by or against Borrower
under any bankruptcy, reorganization, arrangement, readjustment of debt
or moratorium law or statute; then in any such event, Bank may, at its
option and without demand first made and without notice to Borrower, do
any one or more of the following: (a) Terminate its obligation to make
loans to Borrower as provided in Section 1 hereof; (b) Declare all sums
secured hereby immediately due and payable; (c) Immediately take
possession of the Collateral wherever it may be found, using all
necessary force so to do, or require Borrower to assemble the Collateral
and make it available to Bank at a place designated by Bank which is
reasonably convenient to Borrower and Bank, and Borrower waives all
claims for damages due to or arising from or connected with any such
taking; (d) Proceed in the foreclosure of Bank's security interest and
sale of the Collateral in any manner permitted by law, or provided for
herein; (e) Sell, lease or otherwise dispose of the Collateral at public
or private sale, with or without having the Collateral at the place of
sale, and upon terms and in such manner as Bank may determine, and Bank
may purchase same at any such sale; (f) Retain the Collateral in full
satisfaction of the obligations secured thereby; (g) Exercise any
remedies of a secured party under the Uniform Commercial Code. Prior to
any such disposition, Bank may, at its option, cause any of the
Collateral to be repaired or reconditioned in such manner and to such
extent as Bank may deem advisable, and any sums expended therefor by
Bank shall be repaid by Borrower and secured hereby. Bank shall have
the right to enforce one or more remedies hereunder successively or
concurrently, and any such action shall not estop or prevent Bank from
pursuing any further remedy which it may have hereunder or by law. If a
sufficient sum is not realized from any such disposition of Collateral
to pay all obligations secured by this Security Agreement, Borrower
hereby promises and agrees to pay Bank any deficiency.
13. If any writ of attachment, garnishment, execution or other legal process
be issued against any property of Borrower, or if any assessment for
taxes against Borrower, other than real property, is made by the Federal
or State government or any department thereof, the obligation of Bank to
make loans to Borrower as provided in Section 1 hereof shall immediately
terminate and the unpaid balance of the Loan Account, all other
obligations secured hereby and all other sums due hereunder shall
immediately become due and payable without demand, presentment or notice.
14. Borrower authorizes Bank to destroy all invoices, delivery receipts,
reports and other types of documents and records submitted to Bank in
connection with the transactions contemplated herein at any time
subsequent to four months from the time such items are delivered to Bank.
15. Nothing herein shall in any way limit the effect of the conditions set
forth in any other security or other agreement executed by Borrower, but
each and every condition hereof shall be in addition thereto.
*16. Additional Provisions: see attached Addendum
Executed this 24th day of July, 1997.
MONTEREY PASTA COMPANY
-----------------------------------------
(Name of Borrower)
IMPERIAL BANK BY: /s/ Kenneth A. Steel, Jr. CEO
--------------------------------------
(Authorized Signature and Title)
BY: /s/ Douglas E. Weber BY: /s/ James S. Serbin, CFO
- --------------------------------- --------------------------------------
Vice-President (Authorized Signature and Title)
*If none, insert "None"
Page 2 of 2
<PAGE>
ADDENDUM TO SECURITY AND LOAN AGREEMENT (ACCOUNTS RECEIVABLE AND/OR
INVENTORY) ("SECURITY AND LOAN AGREEMENT") BETWEEN MONTEREY PASTA COMPANY AND
IMPERIAL BANK DATED: JULY 24, 1997
This Addendum is made and entered into July 24, 1997 between Monterey Pasta
Company ("Borrower") and Imperial Bank ("Bank"). This Addendum amends and
supplements the Security and Loan Agreement. In the event of any
inconsistency between the terms herein and the terms of the Security and Loan
Agreement, the terms herein shall in all cases govern and control. All
capitalized terms herein, unless otherwise defined herein, shall have the
meaning set forth in the Security and Loan Agreement.
1. Any commitment of Bank, pursuant to the terms of the Security and Loan
Agreement, to make advances against Eligible Accounts and Inventory shall
expire on July 23, 1998, subject to Bank's right to renew said commitment in
its sole discretion. Any such renewal of the commitment shall not be binding
upon Bank unless it is in writing and signed by an officer of the Bank. If
Bank decides to terminate this line of credit prior to July 23, 1998, Bank
shall give Borrower 90 days prior written notice of termination. In the event
of default, however, Bank shall give five (5) days prior notice. It is
further agreed that the full commitment amount of $1,500,000 shall only be
available upon receipt by Bank of an unanimous written request from the Board
of Directors of Borrower. Prior to receipt of said request, the commitment
shall be limited to $1,000,000.
2. As a condition precedent to Bank's obligation to make any advances to
Borrower, Borrower shall, among other things (i) provide to Bank a perfected
security interest in all it owned patents and trademarks in form and
substance satisfactory to Bank and (ii) cause any material copyright
registerable works including software to be promptly registered in the U.S.
Copyright Office and execute and deliver a mortgage of copyrights and
amendments appropriate and acceptable to Bank to perfect Bank's security
interest in all proceeds of such works.
3. The interest rate cited in paragraph 2 of the Security and Loan
Agreement shall be reduced by one and one half percent (1.5%) per annum ten
calendar days after receipt by Bank of (i) Borrower's audited financial
statement for the year ending December 31, 1997, evidencing net profit after
taxes in an amount equal to or greater than $400,000 and (ii) a certification
from an officer of Borrower that it is in full and complete compliance with
all terms and conditions of the Security and Loan Agreement and this
Addendum. In addition, interest shall accrue on advances hereunder, in an
amount not to exceed the total amount of Imperial Bank Time Certificates of
Deposit, at
1
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 2
the rate of two (2) percent over the interest rate (if more than one Time
Certificate of Deposit, then the weighted average thereof) paid on said Time
Certificate of Deposit.
4. In addition to the provisions in the Security and Loan Agreement,
Eligible Accounts shall only include such accounts as Bank in its sole
discretion shall from time to time determine are eligible. Eligible Accounts
shall also not include any of the following:
a. Accounts with respect to which the account debtor is an officer,
director, shareholder, employee, subsidiary or affiliate of Borrower.
b. Accounts due from a customer if more than twenty five percent (25%)
or more of the aggregate amount of accounts of such customer have at that
time remained unpaid for more than ninety (90) days from the invoice date.
c. Accounts representing billings for service or maintenance contracts
or for inventory or equipment on rent to the account debtor.
d. Accounts with respect to international transactions unless insured
or covered by a letter of credit in a manner and form acceptable to the Bank.
e. Salesman's accounts for promotional purposes.
f. The amount by which any one account exceeds ten percent (10%)
(thirty five percent [35%] in the case of Price/Costco and Walmart/Sam's
Club, and fifteen percent [15%] in the case of Safeway Stores, Kroger, Stop &
Shop American Stores/Lucky and Albertson's) of the total accounts receivable
balance. Bank may allow higher concentration limits from time to time, as
evidenced in writing and signed by an officer of Bank.
g. Accounts where the account debtor is a seller to borrower, to the
extent that a potential offset exists.
5. Pursuant to the provisions in the Security and Loan Agreement, Bank will
advance up to thirty percent (30%) of the Value of Inventory at the request
of Borrower made from time to time, up to a maximum amount outstanding of
$250,000.00 (Inventory Sublimit). Value of Inventory shall only include such
inventory as Bank in its sole discretion shall from time to time determine is
eligible. Value of Inventory shall include Inventory consisting of raw
materials in the original manufacturer's packaging, bulk raw materials, all
property stored, and readily salable and shall not include Inventory
consisting of unused packaging, work in progress, ingredients which have been
mixed with others or finished goods.
6. Borrower represents and warrants that:
a. There is no litigation or other proceeding pending or threatened
against or affecting Borrower, and Borrower is not in default with respect to
any order, writ, injunction, decree or demand of any court or other
governmental or regulatory authority.
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 3
b. The balance sheet of Borrower dated as of May 31, 1997, and the
related profit and loss statement for the five fiscal months then ended, a
copy of which has heretofore been delivered to Bank by Borrower, and all
other statements and data submitted in writing by Borrower to Bank in
connection with its request for credit are true and correct, and said balance
sheet and profit and loss statement truly present the financial condition of
Borrower as of the date thereof and the results of the operations of Borrower
for the period covered thereby, and have been prepared in accordance with
generally accepted accounting principles on a basis consistently maintained.
Since such date, there have been no material adverse changes in the financial
condition or business of Borrower. Borrower has no knowledge of any
liabilities, contingent or otherwise, at such date not reflected in said
balance sheet, and Borrower has not entered into any special commitments or
substantial contracts which are not reflected in said balance sheet, other
than in the ordinary and normal course of its business, which may have a
materially adverse effect upon its financial condition, operations or
business as now conducted.
c. Borrower has no liability for any delinquent state, local or
federal taxes, and, if Borrower has contracted with any government agency,
Borrower has no liability for renegotiation of profits.
d. Borrower, as of the date hereof, possesses all necessary
trademarks, trade names, copyrights, patents, patent rights, and licenses to
conduct its business as now operated (collectively, these rights are
sometimes hereinafter referred to as "Intellectual Property"), without any
known conflict with valid trademarks, trade names, copyrights, patents and
license rights of others. Further, Borrower agrees to do all things necessary
for Bank to file its security interest in any such Intellectual Property with
the appropriate recording office, and shall notify Bank when any such
Intellectual Property is acquired or otherwise becomes owned by Borrower.
7. Borrower agrees that so long as it is indebted to Bank, it will not,
without prior written consent of Bank:
a. Make any substantial change in the character of its business; or
make any change in its executive management.
b. Create, incur, assume or permit to exist any indebtedness for
borrowed monies other than loans from Bank except obligations now existing as
shown in financial statement dated May 31, 1997, excluding those being
refinanced by Bank; or sell or transfer, either with or without recourse, any
accounts or notes receivable or any monies due or to become due.
c. Create, incur, or assume any mortgage, pledge, encumbrance, lien or
charge of any kind (including the charge upon property at any time purchased
or acquired under conditional sale or other title retention agreement) upon
any asset now owned or hereafter acquired by it, other than liens for taxes
not delinquent and liens in Bank's favor.
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 4
d. Make any loans or advances to any person or other entity other than
in the ordinary and normal course of its business as now conducted or make
any investment in the securities of any person or other entity other than the
United States Government; or guarantee or otherwise become liable upon the
obligation of any person or other entity, except by endorsement of negotiable
instruments for deposit or collection in the ordinary and normal course of
its business.
e. Purchase or otherwise acquire the assets or business of any person
or other entity; or liquidate, dissolve, merge or consolidate, or commence
any proceedings therefore; or except in the ordinary and normal course of its
business, sell (including without limitation the selling of any property or
other asset accompanied by the leasing back of the same) any assets including
any fixed assets, any property, or other assets necessary for the continuance
of its business as now conducted.
f. Declare or pay any dividend or make any other distribution on any
of its capital stock now outstanding or hereafter issued or purchase, redeem
or retire any of such stock, except that a cash or stock dividend of up to
twenty five percent (25%) of net profit after tax may be paid on Borrower's
preferred stock issued and outstanding as of the date of this Security and
Loan Agreement.
g. Make, or incur obligations for, capital expenditures in excess of
$40,000.00 for any one project, or $100,000.00 in the period from the date
hereof to December 31, 1997, or in excess of $100,000.00 in any one fiscal
year thereafter. Bank will not consider any request to exceed these
limitations unless said request is accompanied by written evidence of the
unanimous approval of such request by the Board of Directors of Borrower.
h. Make, or incur liability for, payments of rent under leases of real
property in excess of $40,000.00, and personal property in excess of
$40,000.00, in any one fiscal year. Bank will not consider any request to
exceed these limitations unless said request is accompanied by written
evidence of the unanimous approval of such request by the Board of Directors
of Borrower.
8. All financial covenants and financial information referenced herein
shall be interpreted and prepared in accordance with generally accepted
accounting principles applied on a basis consistent with previous years.
Compliance with financial covenants shall be calculated and monitored on a
fiscal monthly, quarterly or annual basis.
9. Borrower affirmatively covenants that so long as any loans, obligations
or liabilities remain outstanding or unpaid to Bank, it will:
a. At all times maintain a minimum tangible net worth (meaning the
excess of all assets, excluding any value for goodwill, trademarks, patents,
copyrights, organization expense and other similar intangible items, over its
liabilities, less subordinated debt) of not less than $6,600,000.00. The
minimum tangible net worth
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 5
shall increase by $250,000.00 by December 31, 1997 and $200,000.00 each
fiscal quarter thereafter.
b. At all times maintain a maximum ratio of total debt to tangible net
worth not to exceed 0.75 to 1.00.
c. At all times maintain a minimum working capital (Borrower's current
assets minus current liabilities) of not less than $2,200,000.00.
d. Maintain profitable operations on a fiscal year end basis in the
minimum amount of $250,000.00.
e. As of each fiscal year end, achieve a Debt Service Coverage Ratio
(net profit after tax plus depreciation and amortization expense for the
period divided by the current portion of long term debt and capital leases)
of not less than 2.5 to 1.0.
f. As soon as it is available, but not later than fifteen (15) days
after and as of the end of each fiscal month, deliver to Bank an accounts
receivable aging, accounts payable aging, inventory summary, and transaction
report (in the form of Exhibit 9.f., attached) together with supporting
schedules in form satisfactory to Bank, and certified by an officer of
Borrower.
g. As soon as it is available, but not later than thirty (30) days
after and as of the end of each fiscal month (which is not a fiscal quarter,
or fiscal year, end), deliver to Bank a financial statement consisting of a
balance sheet and profit and loss statement in form satisfactory to Bank, and
a Compliance Certificate in the form of Exhibit 9.g. (attached) certified by
an officer of Borrower.
h. As soon as it is available, but not later than forty five (45)
days after the end of Borrower's fiscal quarter, deliver to Bank a form 10-Q
containing a financial statement consisting of a balance sheet and profit and
loss statement in form satisfactory to Bank, together with a Compliance
Certificate in the form of Exhibit 8.g. (attached) certified by an officer of
Borrower.
i. As soon as it is available, but not later than ninety (90) days
after the end of Borrower's fiscal year, deliver to Bank a 10-K report
containing a report of audit of Borrower's financial statements together with
changes in financial position certified without negative qualification by an
independent certified public accountant selected by Borrower but acceptable
to Bank together with a Compliance Certificate in the form of Exhibit 8.g
(attached) certified by an officer of Borrower.
j. Maintain and preserve all rights, franchises and other authority
adequate for the conduct of its business; maintain its properties, equipment
and facilities in good order and repair; conduct its business or partnership,
maintain and preserve its existence.
k. Maintain public liability, property damage and workers
compensation insurance and insurance on all its insurable property against
fire and other hazards with responsible insurance carriers to the extent
usually maintained by similar businesses. Borrower shall provide evidence of
property insurance in amounts and types acceptable to Bank, and certificates
naming Bank loss payee.
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 6
I. Pay and discharge, before the same become delinquent and before
penalties accrue thereon, all taxes, assessments and governmental charges
upon or against it or any of its properties, and any of its other liabilities
at any time existing, except to the extent and so long as:
(i) The same are being contested in good faith and by appropriate
proceedings in such manner as not to cause any materially adverse
effect upon its financial condition or the loss of any right of
redemption from any sale thereunder; and
(ii) It shall have set aside on its books reserves (segregated to the
extent required by generally accepted accounting practice) deemed
by it adequate with respect thereto.
m. Maintain a standard and modern system of accounting in accordance
with generally accepted accounting principles on a basis consistently
maintained; permit Banks's representatives to have access to, and to examine
its properties, books and records at all reasonable times.
10. At such times as Borrower chooses (or Bank requires) reporting of
collateral and loan activity on a daily basis with submission of "payment in
kind" for credit to Loan Account ("Streamline Reporting"), all sums received
by Bank, whether from Borrower or from Borrower's account debtors shall be
applied to the outstanding loan balance on the second (2nd) day following
receipt thereof by the Bank. Interest shall continue to accrue on all loans
outstanding pursuant to the Security and Loan Agreement until sums received
are applied as herein provided. While Borrower reports on a basis other than
daily ("Formula Reporting"), Borrower may retain its collections for its own
account, in trust for Bank.
11. In addition to any other amounts due, or to become due, Borrower agrees
to pay to Bank;
a. Audit fees in the amount of $2,500.00 for periodic examinations of
Borrower's books and records by Bank conducted at intervals, absent default,
of once each six months during the initial term of this agreement.
b. An initial loan fee of $5,000.00 or at Borrower's option, deliver
to Bank a warrant to purchase shares of common stock in Borrower in an amount
equal to five percent of the total commitment amount ($100,000) at an
exercise price of $2.00 per share or the most recent offering price received
(in an offering of at least one thousand shares) prior to consummation of
this transaction, if higher. Should Borrower choose the warrant option,
Borrower agrees to execute a warrant agreement in form and substance
acceptable to Bank.
c. An unused line fee in an amount of one quarter of one percent
(0.25%) per annum times the monthly average unused Line, payable quarterly.
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 7
d. Documentation fee of $250.00 in connection with this Line of
Credit.
e. The reimbursement of all out of pocket expenses incurred by
Bank in connection with this Security and Loan Agreement.
12. Borrower will maintain substantially all its banking relationship
with Bank. It is acceptable that Borrower maintains a payroll disbursement
account for the accommodation of its employees at another financial
institution of its choosing.
13. No failure or delay on the part of Bank or any holder of Notes
issued hereunder, in the exercise of any power, right or privilege hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise
thereof. All rights and remedies existing under this agreement or any not
issued in connection with a loan that Bank may make hereunder, are cumulative
to, and not exclusive of, any rights or remedies otherwise available. In the
event of a default under this Agreement or any other agreement or instrument
with Bank, Bank at its option without demand after notice may charge interest
at the "Default Rate" equal to five percent (5%) in excess of the rate
otherwise applicable.
14. If any installment payment, interest payment, principal payment, or
principal balance payment due hereunder is delinquent ten or more days,
Borrower agrees to pay Bank a late charge in the amount of 5% of the payment
so due unpaid, in addition to the payment, but nothing in this paragraph is
to be construed as any obligation on the part of the holder of this Loan and
Security Agreement to accept payment of any payment past due or less than the
total unpaid principal balance after maturity. All payments shall be applied
first to any late charges owing, then to interest and the remainder, if any,
to principal.
15. a. Other than (i) non-judicial foreclosure and all matters in
connection therewith regarding security interests in real or personal
property; or personal property; or (ii) the appointment of a receiver, or the
exercise of other provisional remedies (any and all of which may be initiated
pursuant to applicable law), each controversy, dispute or claim between the
parties arising out of or relating to this Note ("Agreement"), which
controversy, dispute or claim is not settled in writing within thirty (30)
days after the "Claim Date" (defined as the date on which a party subject to
the Agreement gives written notice to all other parties that a controversy,
dispute or claim exists), will be settled by a reference proceeding in
California in accordance with the provisions of Section 638 ET SEQ. of the
California Code of Civil Procedure, or their successor section ("CCP"), which
shall constitute the exclusive remedy for the settlement of any controversy,
dispute or claim concerning this Agreement, including whether such
controversy, dispute or claim is subject to the reference proceeding and
except as set forth above, the parties waive their rights to initiate any
legal proceedings against each other in any court or jurisdiction other than
the
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 8
Superior Court in the County where the real property securing this Agreement,
if any, is located or Los Angeles County if none (the "Court"). The referee
shall be a retired Judge of the Court selected by mutual agreement of the
parties, and if they cannot so agree within forty-five (45) days after the
Claim Date, the referee shall be promptly selected by the Presiding Judge of
the Court (or his representative). The referee shall be appointed to sit as a
temporary judge, with all of the powers of a temporary judge, as authorized
by law, and upon selection should take and subscribe to the oath of the
office as provided for in Rule 244 of the California Rules of Court (or any
subsequently enacted Rule). Each party shall have one peremptory challenge
pursuant to CCP Section 170.6. The referee shall (a) be requested to set the
matter for hearing within sixty (60) days after the Claim Date and (b) try
any and all issues of law or fact and report a statement of decision upon
them, if possible, within ninety (90) days of the Claim Date. Any decision
rendered by the referee will be final, binding and conclusive and judgment
shall be entered pursuant to CCP Section 644 in any court in the State of
California having jurisdiction. Any party may apply for a reference
proceeding at any time after thirty (30) days following notice to any other
party of the nature of the controversy, dispute or claim, by filing a
petition for a hearing and/or trial. All discovery permitted by this
Agreement shall be completed no later than fifteen (15) days before the first
hearing date established by the referee. The referee may extend such period
in the event of a party's refusal to provide requested discovery for any
reason whatsoever, including, without limitation, legal objections raised to
such discovery or unavailability of a witness due to absence or illness. No
party shall be entitled to "priority" in conducting discovery. Depositions
may be taken by either party upon seven (7) days written notice, and request
for production or inspection of documents shall be responded to within ten
(10) days after service. All disputes relating to discovery which cannot be
resolved by the parties shall be submitted to the referee whose decision
shall be final and binding upon the parties. Pending appointment of the
referee as provided herein, the Superior Court is empowered to issue
temporary and/or provisional remedies, as appropriate.
b. Except as expressly set forth in this Agreement, the referee
shall determine the manner in which the reference proceeding is conducted
including the time and place of all hearings, the order of presentation of
evidence, and all other questions that arise with respect to the course of
the reference proceeding. All proceedings and hearings conducted before the
referee, except for trial, shall be conducted without a court reporter,
except that when any party so requests, a court reporter will be used at any
hearing conducted before the referee. The party making such a request shall
have the obligation to arrange for and pay for the court reporter. The costs
of the court reporter at the trial shall be borne equally by the parties.
c. The referee shall be required to determine all issues in
accordance with existing case law and the statutory laws of the State of
California. The rules of evidence
<PAGE>
Addendum to Security and Loan Agreement
Monterey Pasta Company
Dated July 28, 1997, Page 9
applicable to proceedings at law in the State of California will be
applicable to the reference proceeding. The referee shall be empowered to
enter equitable as well as legal relief, to provide all temporary and/or
provisional remedies and to enter equitable orders that will be binding upon
the parties. The referee shall issue a single judgment at the close of the
reference proceeding which shall dispose of all of the claims of the parties
that are the subject of the reference. The parties hereto expressly reserve
the right to contest or appeal from the final judgment or any appealable
order or appealable judgment entered by the referee. The parties hereto
expressly reserve the right to findings of fact, conclusions of law, a
written statement of decision, and the right to move for a new trial or a
different judgment, which new trial, if granted, is also to be a reference
proceeding under this provision.
d. In the event that the enabling legislation which provides for
appointment of a referee is repealed (and no successor statute is enacted),
any dispute between the parties that would otherwise be determined by the
reference procedure herein described will be resolved and determined by
arbitration. The arbitration will be conducted by a retired judge of the
Court, in accordance with the California Arbitration Act, Section 1280
through Section 1294.2 of the CCP as amended from time to time. The
limitations with respect to discovery as set forth hereinabove shall apply to
any such arbitration proceeding."
16. This Security and Loan Agreement and Addendum extends to all
obligations of Borrower to Bank.
"BORROWER" IMPERIAL BANK "BANK"
BY /s/ Kenneth A. Steel, Jr. BY /s/ Brian Santos
-------------------------------- ------------------------------
TITLE CEO TITLE Vice President
----------------------------- ---------------------------
BY /s/ James S. Serbin BY /s/ Lance Hewitt
-------------------------------- ------------------------------
TITLE CFO TITLE
----------------------------- ---------------------------
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS
We hereby consent to the incorporation by reference in this pre-effective
Amendment No. 3 to Registration Statement of Monterey Pasta Company on Form S-3
of our report dated March 26, 1997, except for Notes 6 and 19, which are as of
September 19, 1997, appearing in the Annual Report on Form 10-K of Monterey
Pasta Company for the year ended December 29, 1996, as amended by Form 10-K/ A,
and to the reference to us under the heading "Experts" in the Prospectus, which
is part of this Registration Statement.
/s/ BDO SEIDMAN, LLP
San Francisco, California
October 14, 1997
<PAGE>
EXHIBIT 23.2
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in this Pre-effective Amendment
No. 3 to Registration Statement No. 333-10775 of Monterey Pasta Company on Form
S-3 of our report dated March 29, 1996, September 30, 1997 as to Note 19 (which
expresses an unqualified opinion and includes an explanatory paragraph relating
to the restatement described in Note 19) appearing in the annual report of Form
10-K/A of Monterey Pasta Company for the year ended December 29, 1996, and to
the reference to us under the heading "Experts" in the Prospectus, which is part
of this Registration Statement.
/s/ DELOITTE & TOUCHE LLP
San Francisco, California
October 14, 1997
<PAGE>
EXHIBIT 23.3
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
report dated March 6, 1995 incorporated by reference in this Pre-effective
Amendment No. 3 to Registration Statement No. 333-10775 of Monterey Pasta
Company. It should be noted that we have performed no audit procedures
subsequent to March 6, 1995, the date of our report. Furthermore, we have not
audited any financial statements of Monterey Pasta Company as of any date or for
any period subsequent to January 1, 1995.
<TABLE>
<CAPTION>
<S> <C>
Oakland, California /s/ ARTHUR ANDERSEN LLP
October 14, 1997 ARTHUR ANDERSEN LLP
</TABLE>
