SECURITIES AND EXCHANGE COMMISSION
Washington D.C. 20549
FORM 10-KSB
(Mark One)
[ X ] Annual Report under Section 13 or 15(d) of the Securities Exchange Act of
1934
For the fiscal year ended December 31, 1996
OR
[ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the transition period from _______ to _______
Commission File Number 1-14556; 0-21857
POORE BROTHERS, INC.
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(Name of Small Business Issuer in Its Charter)
Delaware 86-0786101
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(State or Other Jurisdiction of Incorporation or (I.R.S. Employer
Organization) Identification No.)
2664 South Litchfield Rd., Goodyear, Arizona 85338
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(Address of principal executive offices) (Zip Code)
(602) 925-0731
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(Issuer's Telephone Number, Including Area Code)
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Common Stock , $.01 par value
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(Title of Class)
Check whether the Registrant: (1) filed all reports required to be filed by
Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such
shorter period that the Registrant was required to file such reports), and (2)
has been subject to such filing requirements for the past 90 days. Yes X No
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Check if no disclosure of delinquent filers in response to Item 405 of
Regulation S-B is contained in this form, and no disclosure will be contained,
to the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to the Form 10-KSB. [ ]
The Registrant's revenues for the most recent fiscal year were: $17,219,641.
At February 28, 1997, the aggregate market value of the Registrant's common
stock held by non-affiliates of the Registrant was approximately $19,750,000.
At February 28, 1997, the number of issued and outstanding shares of common
stock of the Registrant was 6,986,324.
Transitional Small Business Disclosure Format (check one): Yes No X
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DOCUMENTS INCORPORATED BY REFERENCE
Portions of the Registrant's definitive proxy statement, which the Registrant
anticipates mailing in April 1997, are incorporated by reference in Part III of
this Annual Report on Form 10-KSB.
FORWARD LOOKING STATEMENTS
WHEN USED IN THIS FORM 10-KSB AND IN FUTURE FILINGS BY THE COMPANY WITH THE
SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE WORDS OR PHRASES
"WILL LIKELY RESULT," "THE COMPANY EXPECTS," "WILL CONTINUE," "IS ANTICIPATED,"
"ESTIMATED," "PROJECT," OR "OUTLOOK," OR SIMILAR WORDS OR EXPRESSIONS, ARE
INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION
27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES
EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY WISHES TO CAUTION READERS NOT TO
PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, EACH OF WHICH SPEAK
ONLY AS OF THE DATE MADE. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND
UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM
HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. SEE "ITEM 1.
DESCRIPTION OF BUSINESS -- RISK FACTORS." IN LIGHT OF SUCH RISKS AND
UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING INFORMATION
CONTAINED IN THIS FORM 10-KSB WILL, IN FACT, TRANSPIRE OR PROVE TO BE ACCURATE.
THE COMPANY HAS NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS
WHICH MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT ANTICIPATED OR
UNANTICIPATED EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF SUCH
STATEMENTS.
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PART I
Item 1. Description of Business
Business
Poore Brothers, Inc. (the "Company") is engaged in the production,
marketing and distribution of salty snack food products that are sold primarily
throughout the southern and western United States. The Company has three
distinct lines of business: it manufactures and sells its own brand of potato
chips under the Poore Brothers logo; it manufactures private label potato chips
for grocery store chains; and it distributes food products that are manufactured
by others. For the year ended December 31, 1996, revenues totaled $17,219,641.
Approximately 57% of such sales were attributable to the Company's Poore
BrothersTM brand potato chips; approximately 38% of such sales were attributable
to the distribution by the Company of food products manufactured by other
companies; and approximately 5% of such sales were attributable to potato chips
produced by the Company for sale under the private labels of customers.
Poore BrothersTM brand potato chips consist of two primary types,
regular and low-fat. The Poore BrothersTM brand regular potato chips, which are
produced with a batch frying process that the Company believes enhances
crispness and flavor, are currently offered in eleven flavors: Original, Salt &
Vinegar, Au Gratin, Barbecue, Cajun, Dill Pickle, Grilled Steak & Onion, Hot
Mustard, Jalapeno, No Salt and Parmesan & Garlic. The Poore BrothersTM brand of
low-fat potato chips, which were introduced in June 1996, are produced using
batch frying and then processed to remove most of the cooking oil while
retaining the taste of frying. The low-fat potato chips are currently available
in five flavors: Original, No Salt, Au Gratin, Salt & Vinegar and Barbecue. The
Company also manufactures potato chips for sale on a private label basis using
modified cooking methods. The Company currently has two Arizona grocery chains
as private label customers.
The Company, a Delaware corporation, was organized in February 1995 and
has four operating subsidiaries, all acquired on May 31, 1995: two manufacturing
companies, Poore Brothers Arizona, Inc. ("PB Arizona") and Poore Brothers
Southeast, Inc. ("PB Southeast"); and two distribution companies, Poore Brothers
Distributing, Inc. ("PB Distributing") and Poore Brothers of Texas, Inc. ("PB
Texas"). See "-- Company History." In December 1996, the Company completed an
initial public offering of its Common Stock.
The Company's executive offices are located at 2664 South Litchfield
Rd., Goodyear, Arizona 85338, and its telephone number is (602) 925-0731.
Risk Factors
Brief Operating History; Significant Losses to Date; Accumulated
Deficit. Although certain of the Company's subsidiaries have operated for
several years, the Company as a whole has a relatively brief operating history.
The Company has had significant operating losses to date and has never made a
profit. The Company incurred losses of $691,678 and $1,194,910 for the years
ended December 31, 1996 and 1995, respectively. At December 31, 1996, the
Company had an accumulated deficit of $2,427,836. See "Item 6. Management's
Discussion and Analysis of Results of Operations and Financial Condition."
Even if the Company is successful in expanding the production and
distribution of its products and in increasing revenues, it may be expected to
incur substantial additional expenses, including advertising and promotional
costs and "slotting" expenses (i.e., the costs of obtaining shelf space in
certain stores.) Accordingly, the Company may incur additional losses in the
future as a result of the implementation of the Company's business strategy,
even if revenues increase significantly. There can be no assurance that the
Company's business strategy will prove successful or that the Company will ever
become profitable.
Possible Need for Additional Financing. Continued expansion of the
Company's business may result in requirements for funds in excess of cash flow
generated from operations and its existing financial resources.
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Accordingly, the Company may require future debt or equity financing to meet its
business requirements. There can be no assurance that such financing will be
available or, if available, on terms attractive to the Company.
Competition. The market for salty snack foods, such as those sold by
the Company, primarily potato chips, tortilla chips, popcorn and pretzels, is
large and intensely competitive. Competitive factors in the salty snack food
industry include product quality and taste, brand awareness among consumers,
access to supermarket shelf space, price, advertising and promotion, variety of
snacks offered, nutritional content, product packaging and package design. The
Company competes in that market principally on the basis of product quality and
taste.
The snack food industry is primarily dominated by Frito-Lay, Inc.,
which has substantially greater financial and other resources than the Company
and sells brands that are more widely recognized than are the Company's
products. Numerous other companies that are actual or potential competitors of
the Company, many with greater financial and other resources (including more
employees and more extensive facilities) than the Company, offer products
similar to those of the Company. Local or regional markets often have
significant smaller competitors, many of whom offer batch fried or low-fat
products similar to those of the Company. Expansion of Company operations into
new markets has and will continue to encounter significant competition from
national, regional and local competitors that may be greater than that
encountered by the Company in its existing markets. While the Company believes
that its products and method of operations will enable it to compete
successfully, there can be no assurance of its ability to do so.
Promotional and Shelf Space Costs. Successful marketing of food
products generally depends upon obtaining adequate retail shelf space for
product display, particularly in supermarkets. Frequently, food manufacturers
and distributors, such as the Company, incur additional costs in order to obtain
additional shelf space. Whether or not the Company incurs such costs in a
particular market is dependent upon a number of factors, including existing
demand for the Company's products, relative availability of shelf space and
general competitive conditions. There can be no assurance that the Company will
not incur significant shelf space or other promotional costs as a necessary
condition of entering into competition in particular markets or stores. Such
costs may materially affect the Company's financial performance.
Status of Private Label Products. In 1996, the Company entered into
agreements with two Arizona grocery chains for the manufacture and distribution
by the Company of their respective private label potato chips. The Company
manufactures potato chips for these customers in various types and flavors as
specified by them. The Company's private label potato chips are currently
produced using batch frying. In order to meet potential demand for these
products, and to more closely emulate standard cooking processes for this
category of private label products, the Company acquired continuous line cooking
equipment which is currently being installed at the Company's new Arizona
facility. Until the equipment is operational, there can be no assurance that
private label products cooked via batch frying will continue to meet customer
specifications, or that once operational, the Company will obtain sufficient
business to recoup the costs related to the purchase and installation of such
equipment. Failure to meet customer specifications could result in cancellation
of an agreement.
Status of Low-Fat Products. In June 1996, the Company began producing
low-fat potato chips using a patented oil extraction process pursuant to an
agreement (the "Great Snaxx Agreement") between the Company and Great Snaxx of
AZ. L.L.C. ("Great Snaxx"). Great Snaxx has granted the Company rights in the
states of Arizona, California, Nevada and New Mexico, to market low-fat potato
chips produced using this process. The Company is dependent upon the resources
of Great Snaxx as Great Snaxx has the sole right, under the Great Snaxx
Agreement, to apply the oil extraction process to products manufactured by the
Company.
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The Great Snaxx Agreement expires on September 19, 2006. In addition,
the Company may lose its rights to market low-fat potato chips produced under
the Great Snaxx Agreement if certain minimum fees are not paid to Great Snaxx.
The Company is not currently producing in sufficient quantities to meet these
minimum fee requirements. In addition, Great Snaxx has certain rights to
terminate the agreement. The termination by Great Snaxx of the Great Snaxx
Agreement or the failure by Great Snaxx to perform its obligations under the
Great Snaxx Agreement for any reason could have a material adverse effect on the
Company's ability to produce low-fat potato chips. In the case of such a
termination or failure, the Company would consider producing low-fat potato
chips using an alternative production method, such as baking or the use of
alternative cooking oils. There can be no assurance, however, that the Company
would be successful in utilizing such alternative production methods or that
low-fat potato chips produced by the Company will be accepted in the
marketplace.
Non-compliance with Financial Covenants. At December 31, 1996, the
Company had outstanding 9% Convertible Debentures in the principle amount of
$2,299,591. The Company was not in compliance with a required interest coverage
ratio of 1:1 that the Company is required to maintain while the 9% Convertible
Debentures are outstanding. However, the holders of the 9% Convertible
Debentures have granted the Company a waiver effective through September 30,
1997. After that time, the Company will be required to be in compliance with the
following financial ratios, so long as the 9% Convertible Debentures remain
outstanding: working capital of at least $1,000,000; minimum shareholders'
equity (net worth) that will be calculated based upon the earnings of the
Company and the consideration received by the Company from issuances of
securities by the Company; an interest coverage ratio of at least 1.5:1; and a
current ratio at the end of any fiscal quarter of at least 1.1:1. Management
believes that the fulfillment of the Company's plans and objectives will enable
the Company to attain a sufficient level of profitability to be in compliance
with the financial ratios; however, there can be no assurance that the Company
will attain any such profitability, be in compliance with the financial ratios
upon the expiration of the waivers or be able to obtain an extension or renewal
of the waivers. Any acceleration under the 9% Convertible Debentures prior to
their maturity on July 1, 2002 could have a material adverse effect upon the
Company.
Lack of Proprietary Manufacturing Methods. The taste and quality of
Poore BrothersTM products is largely due to two elements of its manufacturing
process: the Company's use of batch frying and its use of distinctive seasonings
to produce a variety of flavors. The Company does not have exclusive rights to
the use of either element; consequently, competitors may incorporate such
elements into their own processes. While management believes that the successful
use of batch frying involves certain techniques and methods used by the Company
that may not be readily available to or known by other manufacturers, there can
by no assurance that competitors will not develop the same or similar techniques
or methods.
Legal Proceeding. In June 1996, a lawsuit was commenced in an Arizona
state court against two Directors of the Company, Mark S. Howells and Jeffrey J.
Puglisi, and PB Southeast which alleges, among other things, that the plaintiff,
James Gossett, had an oral agreement with Mr. Howells to receive up to a 49%
ownership interest in PB Southeast, that PB Southeast and Messrs. Howells and
Puglisi breached fiduciary duties and other obligations to Mr. Gossett and that
Mr. Gossett is entitled to exchange such alleged stock interest for shares in
the Company. Mr. Gossett further alleges that PB Southeast and Messrs. Howells
and Puglisi failed to honor the terms of an alleged distribution agreement
between Poore Brothers Foods, Inc. ("PB Foods") and an entity associated with
Mr. Gossett. The complaint seeks unspecified amounts of damages, fees and costs.
In February 1997, plaintiffs filed pleadings indicating they are seeking $3
million in damages; plaintiffs may not be limited by this damage amount at
trial. Management of the Company believes that the lawsuit has no merit and that
the Company has defenses thereto. There can be no assurance, however, of an
outcome that will be favorable to the Company or, if unfavorable, that such
outcome will not have a material adverse effect on the Company. The Company has
agreed to indemnify the two Directors named in the lawsuit. See "Item 3. Legal
Proceedings."
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Company History
PB Foods was founded in 1986 by Donald and James Poore (the "Poore
Brothers"), each of whom has substantial experience in the potato chip industry.
The Poore Brothers also founded PB Distributing in 1990 and PB Texas in 1986,
which provide distribution capabilities for the Company's Poore BrothersTM brand
products. Prior to forming PB Foods, the Poore Brothers co-founded Groff's of
Texas, Inc. in 1983, which also manufactured batch fried potato chips. The Poore
Brothers had previously been employed for over thirteen years by Mira-Pak, Inc.,
a designer and manufacturer of packaging equipment for the potato chip industry.
In May 1993, Mark S. Howells, a Director of the Company, and associated
individuals formed PB Southeast, which acquired a license from PB Foods to
manufacture and distribute Poore BrothersTM brand products. In 1994, PB
Southeast opened a manufacturing plant in LaVergne, Tennessee.
In November 1994, PB Southeast entered into a Purchase Agreement (the
"Purchase Agreement") with PB Foods, the Poore Brothers and Amelia E. Poore,
that provided for the acquisition by PB Southeast of (i) substantially all of
the assets, subject to certain liabilities, of PB Foods; (ii) a 100% equity
interest in PB Distributing; and (iii) an 80% equity interest in PB Texas, after
giving effect to a 32% equity interest to be purchased from other stockholders
of PB Texas not parties to the Purchase Agreement. Thereafter, the Company was
formed as a holding company and the rights and obligations of PB Southeast under
the Purchase Agreement were assigned to the Company. The transactions
contemplated by the Purchase Agreement were consummated on May 31, 1995.
Subsequent to the acquisition date, the Company acquired an additional 14%
equity interest in PB Texas. The aggregate purchase price paid by the Company in
connection with these transactions was $4,052,631, of which $3,228,061 was paid
in cash, $500,000 of which was payable pursuant to a five-year promissory note
(the "Poore Promissory Note") which was paid off in February 1997, and the
remainder of which was satisfied by the issuance of 300,000 shares of Common
Stock. The Purchase Agreement contains a noncompetition covenant pursuant to
which each of the Poore Brothers agreed not to compete against the Company,
directly or indirectly, in various states for a five-year period expiring on May
31, 2000.
Also in May 1995, the Company entered into an exchange agreement with
certain stockholders of PB Southeast, including Mark S. Howells, Jeffrey J.
Puglisi and Parris H. Holmes, Jr., all of whom are Directors of the Company,
pursuant to which the Company agreed to acquire from them approximately 99% of
the outstanding shares of the capital stock of PB Southeast, in exchange for the
issuance to them of 1,560,000 shares of Common Stock, concurrently with and
subject to the consummation of the closing under the Purchase Agreement. Such
exchange was consummated on May 31, 1995. The acquisition by the Company of its
subsidiaries on May 31, 1995 is sometimes herein referred to as the "PB
Acquisition."
Business Strategy
The Company's business objective is to become a leading manufacturer
and distributor of specialty potato chips and other salty snack foods by
providing a high quality, healthier line of products at competitive prices that
are intended to be superior in taste to comparable products. The Company plans
to expand its promotional efforts to increase its penetration of existing
markets and to expand into new markets. Such market expansion would consist of
promotional efforts to increase consumer awareness of the Company's brand-name
products and seeking additional private label customers for the Company's
products. The Company's growth is planned to be accomplished via a combination
of internal growth and acquisition. The key elements of the Company's business
strategy are as follows:
Expand Market Acceptance of the Company's Brand Name Products. The
Company's products have achieved significant market acceptance in Phoenix,
Arizona, Houston, Texas, San Antonio, Texas, St. Louis, Missouri and Nashville,
Tennessee. The Company attributes the success of its products in these cities
largely to its batch frying process and the variety of flavors, sizes and types
of products offered by the Company. To increase awareness and acceptance of its
products, the Company intends to increase its advertising and
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distribution efforts in existing markets and, in addition, to focus a portion of
its advertising and distribution efforts on selected new markets. Such efforts
will include, among other things, joint advertising with supermarkets and other
product manufacturers, in-store product tastings, coupon distribution and Poore
BrothersTM in-store displays.
Expand Private Label Business. In the first quarter of 1996, the
Company entered into agreements with two Arizona grocery chains for the
manufacture and distribution by the Company of their respective private label
potato chips. The Company manufactures potato chips for these customers in
various types and flavors as specified by them. The Company believes that many
opportunities exist for the Company to expand this segment of its business both
in revenues generated and as a percentage of the Company's total sales.
Consequently, upon the successful installation of its continuous line machinery
at its new Arizona manufacturing facility, the Company intends to pursue
opportunities to produce private label products for additional grocery chains in
Arizona and California.
Develop Low-Fat Potato Chip Business. In June 1996, the Company began
offering a new low-fat potato chip under the Poore BrothersTM brand name. The
low-fat area of salty snack foods is believed by the Company to be rapidly
expanding, with reduced fat potato chip sales increasing by 85% from 1994 to
1995. In order to increase demand for Poore BrothersTM low-fat potato chips, the
Company intends to focus its marketing and distribution efforts on expanding the
region where its low-fat potato chips are currently sold and increasing consumer
awareness for the Company's product.
Utilize Consumer Acceptance of Poore BrothersTM Brand Potato Chips to
Expand Product Line. The Company intends to establish a broad product line of
high quality, good tasting salty snack foods under the Poore BrothersTM brand
name, capitalizing on customer acceptance of Poore BrothersTM brand potato
chips. Such new product lines are expected to include, among others, popcorn and
tortilla chips. The Company believes that offering a broad variety of high
quality, good tasting and healthy snack food products will enable it to increase
its shelf space in stores and may encourage retailers to create separate Poore
BrothersTM brand sections in their snack food aisles.
Continue to improve operations. The Company plans to continue to focus
its efforts on producing a high quality snack food at an economical price. The
Company is in the process of designing and implementing a new quality control
program that will monitor production volumes as well as the overall flavor,
appearance and quality of its products.
Products
Potato Chips. Poore BrothersTM brand potato chips were first introduced
by the Poore Brothers in 1986 and have accounted for substantially all of the
Company's manufacturing sales to date. The potato chips are marketed by the
Company as a premium product based on their distinctive combination of cooking
method and variety of distinctive flavors. The potato chips manufactured by the
Company consist of two primary types, regular and low-fat. The Company's regular
potato chips are currently offered in eleven flavors: Original, Salt & Vinegar,
Au Gratin, Barbecue, Cajun, Dill Pickle, Grilled Steak & Onion, Hot Mustard,
Jalapeno, No Salt and Parmesan & Garlic. The Company's low-fat potato chips,
which were introduced in June 1996, are available in five flavors: Original, No
Salt, Au Gratin, Salt & Vinegar and Barbecue. Also in 1996, the Company entered
into agreements with two grocery chains in Arizona pursuant to which the Company
produces their respective private label potato chips in the styles and flavors
specified by such grocery chains.
Other Snack Food Products. Through its two distribution subsidiaries, PB
Distributing and PB Texas, the Company purchases and resells snack food products
manufactured by others. Such products include pretzels, popcorn, cookies and
candy. The Company also sells tortilla chips and cheese products manufactured by
others but packaged under the Poore BrothersTM brand name.
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Manufacturing
The Company believes that a key element of its growth to date has been
its use of certain cooking techniques and key ingredients in the manufacturing
process to produce potato chips with improved flavor. These techniques currently
involve two elements: the Company's use of a batch frying process for its brand
name products, as opposed to the conventional continuous line cooking method,
and the Company's use of distinctive seasonings to produce potato chips in a
variety of flavors. The Company believes that its batch frying process is
superior to conventional continuous line cooking methods because it enhances
crispness and flavor through greater control over temperature and other cooking
conditions. Although this manufacturing method produces less volume than the
continuous line techniques of larger manufacturers, the Company believes that
the method facilitates the production of potato chips with enhanced crispness
and flavor.
Private Label Products. The Company's potato chips for sale on a
private label basis are currently produced using batch frying. In order to meet
potential demand for these products, the Company has acquired continuous line
cooking equipment which is currently being installed in the Company's new
Arizona facility. The equipment is expected to be operational in the second
quarter of 1997. Continuous line cooking differs from batch frying in that the
potato chips are cooked using a continuous conveyor mechanism. Until the
equipment is operational, the Company's private label products will continue to
be produced using batch frying. There can be no assurance that the Company will
obtain sufficient business to recoup the costs of its investment in, and
alteration of its facilities. Alternatively, if the installation of the
continuous line equipment is delayed, the Company may not be able to meet
customer specifications or to meet anticipated production requirements, and may
have to decline production opportunities.
Low-Fat Potato Chips. In September 1995, the Company and Great Snaxx
entered into the Great Snaxx Agreement pursuant to which Great Snaxx granted the
Company rights in the states of Arizona, California, Nevada and New Mexico to
market low-fat potato chips processed by Great Snaxx. The Company pays a per
pound processing fee to Great Snaxx for the application of Great Snaxx's
patented oil extraction process. The Company began selling low-fat potato chips
processed by Great Snaxx in June 1996. The processed potato chips have
approximately two grams of fat per serving, in contrast to the 8 to 10 grams of
most standard potato chips.
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The Great Snaxx Agreement expires on September 19, 2006. The Company
may lose its marketing rights in Arizona, California, Nevada and New Mexico if
certain minimum fees are not paid to Great Snaxx during prescribed periods. The
Company is not currently producing in sufficient quantities to meet these
minimum fee requirements. In addition, Great Snaxx has certain rights to
terminate the Great Snaxx Agreement. The termination by Great Snaxx of the Great
Snaxx Agreement or the failure by Great Snaxx to perform its obligations under
the Great Snaxx Agreement for any reason could have a material adverse effect on
the Company's ability to produce low-fat potato chips. In the case of such a
termination or failure, the Company would consider producing low-fat potato
chips using an alternative production method, such as baking or the use of
alternative cooking oils. There can be no assurance, however, that the Company
would be successful in utilizing an alternative method or that low-fat potato
chips produced by the Company will be accepted in the marketplace.
Production Capacity. The Company is in the process of relocating its
manufacturing operations in Arizona to its newly constructed Goodyear, Arizona
facility. See "Item 2. Description of Property." The Company anticipates that
the relocation will be completed during the second quarter of 1997. At that
time, the new facility will have the capacity to produce approximately 3,000
pounds of potato chips per hour, with approximately 2,100 pounds of such amount
being produced using a continuous conveyor mechanism and the remainder being
produced using the Company's batch frying method. Recently installed machinery
at the Company's LaVergne, Tennessee facility has increased its capacity to
approximately 720 pounds of potato chips per hour using the Company's batch
frying method. In contrast to such increased capacities, at January 1, 1996 the
Company had production capacity of approximately 540 pounds of potato chips per
hour at its Arizona facility and 360 pounds of potato chips per hour at its
Tennessee facility.
Marketing and Distribution
The Company currently sells its products primarily in selected markets
in the southern and western United States. The Company's products are
distributed for the Company by a select group of independent distributors.
The Company's Arizona distribution subsidiary operates throughout
Arizona, with approximately 35 independently operated service routes. Each route
is operated by an independent contractor who carries in excess of 250 items to
most major grocery store chains in Arizona, such as Albertson's, ABCO, Basha's,
Fry's, Safeway, Smith's and Smitty's Food Stores. In addition to servicing major
supermarket chains, the Company's distributors service many independent grocery
stores, delicatessens, club stores, including PriceCostco, sports complexes,
including America West Arena, and military facilities throughout Arizona. In
addition to Poore BrothersTM brand products, the Company distributes a wide
variety of other items throughout Arizona manufactured by other companies,
including pretzels, popcorn, candies, cookies and coffee. The Company also sells
Poore BrothersTM brand potato chips to America West Airlines and Trans World
Airlines for passenger service.
The Company, through its PB Texas subsidiary, distributes Poore
BrothersTM brand products and other snack foods throughout southeastern Texas.
Using independently contracted route distributors, the Company currently
distributes products in Houston, Austin, Waco and Corpus Christi. The Company
distributes approximately 150 different items in Texas, including its own
products and products manufactured by other companies. The Company distributes
to approximately 75% of the grocery store chains in Houston, Austin, and their
surrounding areas. These grocery store chains include Randall's, Kroger,
Brookshire Brothers, Rice-Price Busters, Super K-Mart, and Albertson's.
Additionally, the Company distributes to many independent grocery stores and
several military commissaries in Texas.
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Outside of Arizona and Texas the Company selects distributors primarily
on the basis of quality of service, call frequency on customers, financial
capability and relationships they have with supermarkets, including access to
shelf space in the store's snack aisles. As of December 31, 1996, the Company
had arrangements with over 35 distributors in a number of major cities,
including St. Louis, San Diego, Los Angeles, Minneapolis, San Antonio, Honolulu,
Nashville, Kansas City, Orlando, Tampa and Miami.
Successful marketing of the Company's products depends, in part, upon
obtaining adequate retail shelf space for such products, particularly in
supermarkets. Frequently, the Company incurs additional marketing costs in order
to obtain additional shelf space. Whether or not the Company will continue to
incur such costs in the future will depend upon a number of factors, including
existing demand for the Company's products, relative availability of shelf space
and general competitive conditions. There can be no assurance that the Company
will not incur significant shelf space or other promotional costs as a necessary
condition of entering into competition in particular markets or stores. Such
costs may materially affect the Company's financial performance.
Suppliers
The principal raw materials used by the Company are potatoes and oil.
The Company believes that the raw materials it needs to produce its products are
readily available from numerous suppliers on commercially reasonable terms.
Potatoes are widely available year-round, either freshly harvested or from
storage during the winter months. The Company uses a low in saturated fat
sunflower oil in the production of its Poore BrothersTM brand potato chips,
which is supplied by AC Humko Corporation. The Company believes that alternative
cooking oils that are low in saturated fat are readily abundant and available.
The Company also uses flavorings and packaging material in its manufacturing
process. The Company chooses its suppliers based primarily on price,
availability and quality and does not have any long-term arrangements with any
supplier. Although the Company believes that its requirements for products and
ingredients are readily available, and that its business success is not
dependent on any single supplier, the failure of certain suppliers to meet the
Company's performance specifications, quality standards or delivery schedules
could have a material adverse effect on the Company's operations. In particular,
a sudden scarcity, a substantial price increase, or an unavailability of product
ingredients could materially adversely affect the Company's operations. There
can be no assurance that alternative ingredients would be available when needed
and on commercially attractive terms, if at all.
Customers
One customer of the Company, Fry's Food Stores, a subsidiary of Kroger,
Inc., accounted for 16% of the Company's 1996 sales, with the remainder of the
Company's revenues being derived from sales to a limited number of additional
customers, either grocery chains or regional distributors, none of which
individually accounted for more than 10% of the Company's sales for 1996.
Market Overview and Competition
According to the Snack Food Association ("SFA"), the U.S. market for
salty snack foods reached $15.1 billion at retail in 1995, with potato chips and
tortilla chips accounting for approximately 53% of the market with pretzels,
popcorn and other products accounting for the balance. Per capita snack
consumption, in dollar terms, has increased every year during the past five
years, ranging from 6.0% (in 1990) to 0.4% (in 1994), with a 1995 increase of
1.4% to a rate of $57.90 per person per annum. Potato chip sales have similarly
increased steadily over the same period, with 1995 retail sales of $4.8 billion
(a 2.5% increase over 1994) contrasted to 1990 sales of $4.3 billion.
The Company's products compete generally against other salty snack
foods, including potato chips, tortilla chips, popcorn and pretzels. The salty
snack food industry, large and highly competitive, is dominated primarily by
Frito-Lay, Inc., a subsidiary of PepsiCo, Inc. Frito-Lay possesses substantially
greater financial,
10
<PAGE>
production, marketing, distribution and other resources than the Company and
distributes brands that are more widely recognized than the Company's products.
In addition, numerous other companies that are actual or potential competitors
of the Company have greater financial and other resources (including more
employees and more extensive facilities) than the Company. Local or regional
markets often have significant smaller competitors, many of whom offer batch
fried or low-fat products similar to those of the Company. Expansion of Company
operations to other areas of the United States has and will continue to
encounter significant competition from national, regional and local competitors
that may be greater than that encountered by the Company in its existing
markets. In addition, such competitors may challenge the Company's position in
its existing markets. While the Company believes that its specialized products
and method of operations will enable it to compete successfully, there can be no
assurance of its ability to do so.
The principal competitive factors affecting the market for the
Company's products include product quality and taste, brand awareness among
consumers, supermarket shelf space, price, advertising and promotion, variety of
snacks offered, nutritional content, product packaging and package design.
Management believes that the Company's potato chips compete based primarily upon
their taste, distinctive cooking method and variety of flavors that are
available.
Government Regulation
The manufacture, labeling and distribution of the Company's products
are subject to the rules and regulations of various federal, state and local
health agencies, including the Food and Drug Administration. In May 1994,
regulations under the Nutrition Labeling and Education Act of 1990 ("NLEA")
concerning labeling of food products, including permissible use of nutritional
claims such as "fat-free" and "low-fat," became effective. In order to comply
with the NLEA regulations, products labeled as "fat-free" may not contain more
than 0.5 grams of fat per ounce, and products labeled as "low-fat" may not
contain more than 3.0 grams of fat per ounce. Fat-free products containing less
than 0.3 grams of fat per ounce are required under the NLEA regulations to be
labeled as containing 0 grams of fat.
The Company is complying with the NLEA regulations and closely monitors
the fat content of its products through various testing and quality control
procedures. The Company does not believe that compliance with the NLEA
regulations materially increases the Company's manufacturing costs. There can be
no assurance that new laws or regulations will not further reduce the
permissible fat content of "fat-free" and "low-fat" products, which could
require the Company to alter the taste or composition of its products. Such
changes could affect sales of the Company's products and have a material adverse
effect on the Company.
In addition to laws relating to food products, the Company's operations
are governed by laws relating to environmental matters, workplace safety and
worker health, principally the Occupational Safety and Health Act. The Company
believes that it presently complies in all material respects with such laws and
regulations.
Employees
As of December 31, 1996, the Company had 132 full-time employees,
including 99 in manufacturing and production, 12 in sales and marketing and 21
in administration and finance. The Company's employees are not represented by
any collective bargaining organization and the Company has never experienced a
work stoppage. The Company believes that its relations with its employees are
good.
Item 2. Description of Property
The Company owns a 61,000 square foot facility located on 7.7 acres of
land in Goodyear, Arizona, approximately 15 miles west of Phoenix, Arizona, that
is in the final stages of construction. In March 1997, the Company began
relocating its corporate headquarters and its Arizona distribution and
manufacturing operations to the facility. Such relocation is anticipated to be
completed by July 1, 1997. The site will enable the Company to expand its
facilities in the future to a total building size of 120,000 square feet. The
facility is partially financed by a construction loan with National Bank of
Arizona. The construction loan matures on June 11, 1997.
11
<PAGE>
On February 28, 1997, the Company sold its three 12,000 square foot
buildings in Goodyear, Arizona, which house the Company's Arizona operations
and which will be replaced by the new facility. The net proceeds from the sale
of the properties, which approximated $710,000, were used to repay mortgages
which encumbered the properties and to repay the $500,000 principal amount of
the Poore Promissory Note. The Company is leasing the properties from the
purchaser on a month-to-month basis until the Company's relocation to its new
facility is completed.
PB Southeast leases a 16,900 square foot manufacturing facility located
in LaVergne, Tennessee, approximately 15 miles south of Nashville, Tennessee.
The facility is leased under a lease agreement that expires in November 1998.
The Company has an option to renew the lease agreement for an additional
five-year period.
PB Texas' facility is located in Houston, Texas and includes 2,400
square feet of office space, and approximately 13,600 square feet of warehouse
space. The PB Texas facility is leased on a month-to-month basis, with 60 days
advance notice required for termination by either PB Texas or the lessor.
The Company believes that its facilities are adequately covered by
insurance.
Item 3. Legal Proceedings
On June 19, 1996, James Gossett and an associated entity commenced a
lawsuit in an Arizona state court against two Directors of the Company, Mark S.
Howells and Jeffrey J. Puglisi, and the Company's PB Southeast subsidiary,
alleging, inter alia, that Mr. Gossett had an oral agreement with Mr. Howells to
receive up to a 49% ownership interest in PB Southeast, that Messrs. Howells and
Puglisi breached fiduciary duties and other obligations to Mr. Gossett and that
Mr. Gossett is entitled to exchange such alleged stock interest for shares in
the Company. Mr. Gossett further alleges that PB Southeast and Messrs. Howells
and Puglisi failed to honor the terms of an alleged distribution agreement
between PB Foods (allegedly entered into prior to the acquisition of PB Foods by
the Company), and Mr. Gossett's associated entity, whereby such entity was
allegedly granted exclusive distribution rights to Poore Brothers products in
California. The complaint seeks unspecified amounts of damages, fees and costs.
In February 1997, plaintiffs filed pleadings indicating they are seeking $3
million in damages; plaintiffs may not be limited by this damage amount at
trial. Messrs. Howells and Puglisi and PB Southeast have filed an answer and
counterclaim against Mr. Gossett, denying the major provisions of the complaint,
alleging various acts of nonperformance and breaches of fiduciary duty on the
part of Mr. Gossett and seeking various compensatory and punitive damages. The
Company has agreed to indemnify Messrs. Howells and Puglisi in regard to this
lawsuit. Management of the Company believes the lawsuit has no merit and that
the Company has defenses thereto. However, the ultimate outcome of the
proceeding is not presently determinable. There can be no assurance of an
outcome that will be favorable to the Company or, if unfavorable, that such
outcome will not have a material adverse effect on the Company.
The Company is plaintiff in various other litigation matters incidental
to its business, none of which is deemed material by the Company.
Item 4. Submission of Matters to a Vote of Security Holders
None.
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<PAGE>
PART II
Item 5. Market for Common Equity and Related Stockholder Matters
The common stock, $.01 par value, of the Company (the "Common Stock")
began trading on the Nasdaq SmallCap Market tier of the Nasdaq Stock Market on
December 6, 1996 under the symbol "POOR." The following table sets forth the
high and low bid prices of the Common Stock as reported by Nasdaq for the period
beginning December 6, 1996 and ending December 31, 1996.
High Low
---- ---
December 6, 1996 - December 31, 1996 5 1/8 3 1/4
On February 28, 1997, there were 6,986,324 shares of Common Stock
outstanding. Those shares were held of record by approximately 1,300
shareholders.
The Company has never declared or paid any dividends on the shares of
Common Stock. Management intends to retain any future earnings for the operation
and expansion of the Company's business and does not anticipate paying any
dividends at any time in the foreseeable future.
Item 6. Management's Discussion and Analysis of Results of Operations and
Financial Condition
Results of Operations
Year ended December 31, 1996 compared to the year ended December 31,
1995
Revenues increased to $17,219,641 for the year ended December 31, 1996
from $6,868,923 for the year ended December 31, 1995. This represents an
increase of $10,350,718, or 151%. The 1996 results include the revenue effect of
the PB Acquisition on May 31, 1995 for the entire year, as compared to seven
months in the 1995 period. On a pro forma basis, assuming the PB Acquisition had
occurred on January 1, 1995 (see "Item 7. Financial Statements"), revenues for
the 1995 period would have totaled $11,456,320. Therefore, on a pro forma basis,
revenues increased by $5,763,321, or 50%, from 1995 to 1996. The increase is due
to the expansion of sales of Poore BrothersTM brand products to new markets,
increased sales in existing markets and the introduction of Poore BrothersTM
brand low-fat potato chips and potato chips sold on a private label basis to
grocery chains. For 1996, revenues from the private label business (sales of
which began in February 1996) totaled $913,272 and revenues from the sale of the
low-fat potato chips (sales of which began in June 1996) totaled $297,895. For
1996 and 1995, sales of products manufactured by the Company accounted for 62%
and 54%, respectively, of total sales, and sales of products manufactured by
others accounted for 38% and 46%, respectively, of total sales. The increased
percentage of sales attributable to products manufactured by the Company is due
to increased sales of such products by PB Southeast and increased sales in
Arizona and California.
Gross profit for the year ended December 31, 1996 was $4,128,447, or
24% of revenues, as compared to $1,564,723, or 23% of revenues, for the year
ended December 31, 1995. The increase in gross profits is due to the increase in
the Company's revenues. Gross profit margin percentage for 1996 did not increase
significantly from 1995.
Selling, general and administrative expenses increased to $3,969,462 in
1996 from $2,198,757 in 1995. The $1,770,705, or 81%, increase is due to
operating expenses of the companies acquired in the PB Acquisition,
administrative expenses resulting from the creation of staff positions at the
Company's headquarters, and increased selling expenses associated with market
expansion. If the Company expands its marketing efforts to additional cities, it
is expected that the Company will incur additional selling expenses for
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<PAGE>
market entry. As a percentage of revenues, selling, general and administrative
expenses were 23% for 1996 and 32% for 1995. This percentage decrease resulted
from economies of scale realized from the PB Acquisition, which increased
revenues without resulting in a corresponding increase in expenses.
Depreciation and amortization totaled $460,197 for the year ended
December 31, 1996 and $319,493 for the year ended December 31, 1995. The
increase of $140,704, or 44%, is due to the increase in depreciable assets
resulting from the PB Acquisition and the related goodwill and organizational
costs. Moreover, the 1996 period included twelve months of depreciation and
amortization expense, while the 1995 period included only seven months.
Net interest expense increased to $390,466 for the year ended December
31, 1996 from $241,383 for the year ended December 31, 1995. This increase was
due to indebtedness incurred by the Company in connection with the PB
Acquisition on May 31, 1995. Such indebtedness is included for twelve months in
the 1996 period as compared to seven months in the 1995 period. The indebtedness
included assumed mortgages relating to the Company's Arizona facilities that
were sold on February 28, 1997, working capital lines, and indebtedness incurred
to finance the PB Acquisition.
The Company's net losses for the years ended December 31, 1996 and
December 31, 1995 were $691,678 and $1,194,910, respectively. On a pro forma
basis, assuming the PB Acquisition occurred on January 1, 1995, the net loss for
the year ended December 31, 1995 was $1,664,045. The decreased net loss is
attributable primarily to the revenue impact of market expansion.
Liquidity and Capital Resources
Net working capital was $4,185,602 at December 31, 1996, with a current
ratio of 2.2:1. At December 31, 1995, the Company's net working capital was
$363,303, with a current ratio of 1.2:1. The increase in working capital is
primarily attributable to net proceeds from sales of Common Stock of $6,186,564,
reduced by the Company's cash operating loss of $568,047 for the year and
equipment acquisitions of $675,620.
The Company is in the final stages of construction of a 61,000 square
foot facility in Goodyear, Arizona. The construction was financed by a
construction loan from the National Bank of Arizona in the amount of $2,400,000.
The loan is secured by a first deed of trust on the land and the building. The
loan bears interest at the prime rate plus 2% (10.25% at December 31, 1996),
with the entire principal amount due on June 11, 1997. At December 31, 1996, a
total of $1,248,117, had been advanced under the construction loan. Prior to
December 27, 1996, the construction loan was also secured by United States
treasury bills in an aggregate principal amount of $1,400,000 and with an
assumed collateral value of $1,250,000 (the "Treasury Bills"), which were
provided by Westminster Capital, Inc. ("Westminster"). On December 27, 1996, the
Company replaced the Treasury Bills as collateral with a $1,250,000 certificate
of deposit and thereafter applied the certificate of deposit against the loan
balance, reducing the total amount of the construction loan from $2,400,000 to
$1,150,000. While at the present time the Company has no commitment to refinance
the construction loan, the Company desires to obtain permanent mortgage
financing to repay the loan.
On July 26, 1996, the Company entered into a $1,000,000 Receivable
Financing Agreement, to provide working capital, with First Community Financial
Corporation (the "Credit Agreement") pursuant to which it initially borrowed
$675,000, a portion of which was used to retire the Company's previous working
capital line. The Credit Agreement, as amended, expires on November 30, 1997 and
bears interest at the prime rate plus 3.50%, with minimum monthly interest
payments of $2,500. The Company may borrow up to an amount equal to 75% of
eligible receivables, representing accounts receivable outstanding less than 60
days, subject to concentration limits. At December 31, 1996, the Company had
borrowed $351,270 under the facility. The Credit Agreement contains various
covenants that impose restrictions on certain activities by the Company
including, without limitation, incurrence of additional indebtedness and liens,
disposition of assets, changes in management, and mergers or consolidations.
14
<PAGE>
On May 31, 1995, the Company issued $2,700,000 of its 9% Convertible
Debentures with principal installments beginning in July 1998 and maturing July
1, 2002 in connection with the PB Acquisition. As of December 31, 1996,
$2,299,591 principal amount of the 9% Convertible Debentures remained
outstanding, and the Company was not in compliance with a required interest
coverage ratio of 1:1 that the Company is required to maintain while the 9%
Convertible Debentures are outstanding. As a result of the Company's default
under this requirement, the holders of the 9% Convertible Debentures have the
right, upon written notice and after a thirty-day period during which such
default may be cured, to demand immediate payment of the then unpaid principal
amount of, and accrued but unpaid interest on, the Debentures. However, the
holders of the 9% Convertible Debentures have granted the Company a waiver
effective through September 30, 1997. After that time, the Company will be
required to be in compliance with the following financial ratios, so long as the
9% Convertible Debentures remain outstanding: working capital of at least
$1,000,000; minimum shareholders' equity (net worth) that will be calculated
based upon the earnings of the Company and the consideration received by the
Company from issuances of securities by the Company; an interest coverage ratio
of at least 1.5:1; and a current ratio at the end of any fiscal quarter of at
least 1.1:1. Management believes that the fulfillment of the Company's plans and
objectives will enable the Company to attain a sufficient level of profitability
to be in compliance with the financial ratios; however, there can be no
assurance that the Company will attain any such profitability, be in compliance
with the financial ratios upon the expiration of the waivers or be able to
obtain an extension or renewal of the waivers. Any acceleration under the 9%
Convertible Debentures prior to their maturity on July 1, 2002 could have a
material adverse effect upon the Company. The 9% Convertible Debentures, and a
loan agreement entered into by and among the Company and the holders of the 9%
Convertible Debentures in connection with the issuance of the 9% Convertible
Debentures, contain various covenants that impose restrictions on certain
activities by the Company including the incurrence of additional encumbrances on
assets, investments by the Company, the amendment of material agreements, sales
of assets other than in the ordinary course of business, and mergers,
consolidations or sales of substantially all of the Company's assets.
The Company has entered into a variety of finance and operating leases
for the acquisition of equipment and vehicles. The leases generally have
five-year terms, and in the case of finance leases, contain an option to
purchase the equipment at lease-end for $1. In 1996, the Company entered into
leases with a fair market value of $186,220.
As of December 31, 1996, the Company has net operating loss
carry-forwards for federal income tax purposes aggregating $1,500,000 which
begin to expire in 2010.
As a result of the expansion of the Company's operations, the Company
may incur additional operating losses in the future. Expenditures relating to
market and territory expansion, new product development and equipment relocation
may adversely affect selling, general and administrative expenses and
consequently operating and net income. These types of expenditures are expensed
for accounting purposes as incurred, while revenue generated from the result of
such expansion may benefit future periods.
Management believes that existing working capital, together with
available borrowings under the Credit Agreement and anticipated cash flow from
operations, will be sufficient to finance the operations of the Company for at
least the next twelve months. This belief is based upon current operating plans
and certain assumptions, including those relating to the Company's future
revenue levels and expenditures, industry and general economic conditions and
other conditions. If any of these factors change, the Company may require future
debt or equity financing to meet its business requirements. There can be no
assurance that such financing will be available or, if available, on terms
attractive to the Company.
Inflation
While inflation has not had a significant effect on operations in the
last year, management recognizes that inflationary pressures may have an adverse
effect on the Company as a result of higher asset replacement costs and related
depreciation and higher material costs. Additionally, the Company may be subject
to seasonal
15
<PAGE>
price increases for raw materials. The Company attempts to minimize the
fluctuation in seasonal costs by entering into purchase commitments in advance,
which have the effect of smoothing out price volatility. The Company will
attempt to minimize overall price inflation, if any, through increased sales
prices and productivity improvements.
Item 7. Financial Statements
<TABLE>
<S> <C>
Reports Page
----
Report of independent accountants with respect to financial statements ......... 25
Financial Statements
Consolidated balance sheets as of December 31, 1996 and December 31, 1995 ..... 26
Consolidated statements of operations for the years ended December 31, 1996
and 1995 ...................................................................... 27
Consolidated statements of shareholders' equity (deficit) for the years ended
December 31, 1996 and 1995 .................................................... 28
Consolidated statements of cash flows for the years ended December 31, 1996
and 1995 ...................................................................... 29
Notes to financial statements .................................................. 30
Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
</TABLE>
16
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PART III
Item 9. Directors and Executive Officers of the Company
The executive officers and Directors of the Company, and their ages,
are as follows:
Name Age Position
---- --- --------
Eric J. Kufel 30 President, Chief Executive Officer, Director
Jeffrey H. Strasberg 39 Vice President, Chief Financial Officer,
Treasurer, Secretary
Scott D. Fullmer 33 Vice President - Sales and Marketing
Glen E. Flook 38 Vice President - Manufacturing
James M. Poore 49 Vice President
Wendell T. Jones 56 Director of Sales - Arizona and California
Mark S. Howells 43 Chairman, Director
Jeffrey J. Puglisi 38 Director
David J. Brennan 49 Director
Parris H. Holmes, Jr. 52 Director
Robert C. Pearson 61 Director
Eric J. Kufel. Mr. Kufel has served as President, Chief Executive
Officer and a Director of the Company since February 1997. From November 1995 to
January 1997, Mr. Kufel was Senior Brand Manager at The Dial Corporation and was
responsible for the operating results of Purex Laundry Detergent. From June 1994
to November 1995, Mr. Kufel was Senior Brand Manager for The Coca-Cola Company
where he was responsible for the marketing and development of Minute Maid
products. From January 1993 to November 1995, Mr. Kufel was employed by The
Kellogg Company in various capacities including being responsible for
introducing the Healthy Choice line of cereal and executing the marketing plan
for Kellogg's Frosted Flakes cereal. Mr. Kufel earned a Masters of International
Management from the American Graduate School of International Management in
December 1992.
Jeffrey H. Strasberg. Mr. Strasberg has served as Vice President, Chief
Financial Officer, Treasurer and Secretary of the Company since July 1995. From
January 1993 to January 1995, he was Vice President - Finance for Pacific
Atlantic Systems Leasing, Inc., a seller and lessor of computer systems. From
1984 to 1993, Mr. Strasberg served in various officer capacities with
subsidiaries of PacifiCorp, an electric utility with headquarters in Portland,
Oregon, including Assistant Controller with NERCO, Inc., a mining company. Prior
to 1984, Mr. Strasberg was an audit manager with Price Waterhouse. Mr. Strasberg
is a certified public accountant.
Scott D. Fullmer. Mr. Fullmer has served as Vice President - Sales and
Marketing of the Company since February 1997. From September 1993 to February
1997, Mr. Fullmer served in various capacities with The Dial Corporation
including Senior Brand Manager where he was responsible for managing the sales
and advertising for Dial Soap. From February 1992 to September 1993, Mr. Fullmer
was Senior Product Manager for Sara Lee Corp. From April 1989 to February 1992,
Mr. Fullmer served in various capacities with Borden, Inc. including Product
Manager, Snack Foods, where he was responsible for managing the merchandising of
selected snack food products including potato chips. From May 1986 to April
1989, Mr. Fullmer was in sales management at Frito Lay, Inc.
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<PAGE>
Glen E. Flook. Mr. Flook has served as Vice President - Manufacturing
since March 1997. From January 1994 to February 1997, Mr. Flook was employed by
The Dial Corporation as a Plant Manager for a manufacturing operation that
generated $40 million in annual revenues. From January 1983 to January 1994, Mr.
Flook served in various capacities with Frito-Lay, Inc., including Plant Manager
and Production Manager.
James M. Poore. Mr. Poore has served as a Vice President of the Company
since June 1995. Mr. Poore co-founded PB Foods in 1986 and served as its Vice
President, Secretary, Treasurer and Director until the PB Acquisition in May
1995. In addition, Mr. Poore served as the Secretary and a Director of PB
Distributing from January 1990 to May 1995, and as Chairman of the Board and a
Director of PB Texas from May 1991 to May 1995. In 1983, he co-founded Groff's
of Texas, Inc., a potato chip manufacturer in Brookshire, Texas, and served as
its President until January 1986.
Wendell T. Jones. Since February 1997, Mr. Jones has been the Director
of Sales-Arizona and California. Previously, Mr. Jones was National Sales
Manager of the Company from January 1996 to February 1997. From 1969 to 1996,
Mr. Jones served in various capacities at Frito-Lay, Inc., including Director of
Sales, Operations Manager and Manager - Trade Development.
Mark S. Howells. Mr. Howells has served as Chairman of the Company
since March 1995. For the period from March 1995 to August 1995, Mr. Howells
also served as President and Chief Executive Officer of the Company. He has
served as the Chairman of PB Southeast since its inception in May 1993 and
served as its President and Chief Executive Officer from May 1993 to August
1994. Since 1988, Mr. Howells has devoted a majority of his time to serving as
the President and Chairman of Arizona Securities Group, Inc., a registered
securities broker-dealer.
Jeffrey J. Puglisi. Mr. Puglisi has served as a Director of the Company
since March 1995. From March 1996 to August 1996, Mr. Puglisi also served as
Vice Chairman of the Company. For the period from August 1995 to March 1996, Mr.
Puglisi served as Chief Executive Officer of the Company. For the period from
March 1995 to August 1995, Mr. Puglisi served as Executive Vice President, Chief
Operating Officer, Secretary and Treasurer of the Company. He also served as
President, Chief Executive Officer and a Director of PB Southeast from August
1994 to August 1995. Since 1988, Mr. Puglisi has also served as the Senior Vice
President of Arizona Securities Group, Inc.
David J. Brennan. Mr. Brennan has served as a Director of the Company
since March 1996. From March 1996 to February 1997, Mr. Brennan also served as
the Company's President and Chief Executive Officer. From 1990 to 1995, Mr.
Brennan provided consulting services to several companies involved in the
Mexican food industry including Signature Brands (which owns Food Products
Corporation, Inc.). From 1967 to 1990, Mr. Brennan served in various capacities
with Food Products Corporation, Inc., a company that manufactured and
distributed tortilla and salty snack foods, eventually becoming President and
majority owner. He also helped to establish the Tortilla Industry Association
and was a member of its Board of Directors from 1989 to 1992.
Parris H. Holmes, Jr. Mr. Holmes has served as a Director of the
Company since March 1995. Since August 1, 1996, Mr. Holmes has served as
Chairman of the Board and Chief Executive Officer of Billing Information
Concepts Corp., a third-party provider of billing clearing house and information
services to the telecommunications industry. Prior to August 1996, Mr. Holmes
served as Chief Executive Officer of U. S. Long Distance Corp. ("USLD"). In
addition, Mr. Holmes has served as Chairman of the Board of USLD since
September 1986. Mr. Holmes is also a director of Medical Polymers Technologies,
Inc., a biomedical firm specializing in development of polymer based
technologies, and a member of the Board of Directors of Tanisys Technology,
Inc., a developer and marketer of computer peripheral equipment.
Mr. Holmes has advised the Company that the staff of the Commission has
determined to terminate an investigation of certain transactions in the
securities of USLD, a company with publicly traded securities of which Mr.
Holmes is a director. The investigation had concerned whether
18
<PAGE>
certain persons had purchased securities while in possession of material
non-public information or disclosed this information to others. Mr. Holmes has
also advised the Company that on December 18, 1996, the Commission filed a civil
injunctive action in federal court alleging that Mr. Holmes failed to file
timely twelve reports regarding certain transactions made in 1991 and 1992 in
the stock of USLD, as required by Section 16(a) of the Securities Exchange Act
of 1934, as amended. Mr. Holmes settled this action on December 18, 1996,
without admitting or denying the allegations of the complaint, by consenting to
the entry of an injunction barring future violations with respect to these
requirements and paying a civil penalty of $50,000.
Robert C. Pearson. Mr. Pearson has served as a Director of the Company
since March 1996. Since 1994, Mr. Pearson has been an independent financial and
management consultant specializing in investments with emerging growth
companies. He has performed services for Renaissance Capital Partners ("RCP") in
connection with the Company and other RCP investments. RCP is the operating
manager of Renaissance (as defined below), the owner of a 9% Convertible
Debenture. From 1990 to 1994, Mr. Pearson served as Executive Vice President and
Chief Financial Officer of Thomas Group, Inc., a publicly traded consulting
firm. Prior to 1990, Mr. Pearson was Vice President - Finance of Texas
Instruments, Incorporated.
Pursuant to the Debenture Loan Agreement, so long as the 9% Convertible
Debentures have not been fully converted into shares of Common Stock or redeemed
or paid by the Company, Renaissance Capital Growth & Income Fund III, Inc.
("Renaissance"), a holder of a portion of the 9% Convertible Debentures, shall
be entitled to designate a nominee to the Company's Board of Directors subject
to election by the Company's stockholders. Mr. Pearson was designated as a
nominee to the Board of Directors by Renaissance.
Items 9 - 12. Documents Incorporated by Reference
Information with respect to a portion of Item 9 and Items 10, 11, and
12 of Form 10-KSB is hereby incorporated by reference into this Part III of the
Annual Report on Form 10-KSB from the Company's Proxy Statement relating to the
Company's 1997 Annual Meeting of Stockholders to be filed by the Company with
the Securities and Exchange Commission on or before April 25, 1997.
Item 13. Exhibits and Reports on Form 8-K
The following documents are filed as part of this Annual Report on Form
10-KSB:
(a) Financial Statements.
(b) The following exhibits as required by Item 601 of Regulation S-B:
Exhibit
Number Description
- ------ -----------
3.1 -- Certificate of Incorporation of the Company filed with the Secretary of
State of the State of Delaware on February 23, 1995. (1)
3.2 -- Certificate of Amendment to the Certificate of Incorporation of the
Company filed with the Secretary of State of the State of Delaware on
March 3, 1995. (1)
3.3 -- By-Laws of the Company. (1)
4.1 -- Specimen Certificate for shares of Common Stock. (2)
4.2 -- Form of Underwriter's Warrant issued by the Company to Paradise Valley
Securities, Inc. on December 11, 1996. (3)
4.3 -- Convertible Debenture Loan Agreement dated May 31, 1995 (the "Debenture
Loan Agreement") by and among the Company, PB Arizona, PB Distributing,
PB Texas, PB Southeast, Renaissance and Wells Fargo Equity Capital,
Inc. ("Wells Fargo.")(2)
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<PAGE>
4.4 -- 9.00% Convertible Debenture dated May 31, 1995, in the principal amount
of $2,100,000, issued by the Company to Renaissance. (1)
4.5 -- 9.00% Convertible Debenture dated May 31, 1995, in the principal amount
of $600,000, issued by the Company to Wells Fargo. (1)
10.1 -- Employment Agreement dated March 11, 1996, by and between the Company
and David J. Brennan. (1)
10.2 -- Employment Agreement dated July 21, 1995, by and between the Company
and Jeffrey H. Strasberg, as amended. (1)
10.3 -- Employment Agreement dated May 31, 1995, by and between PB Arizona and
James M. Poore. (1)
10.4 -- Employment Agreement dated May 20, 1996, by and between the Company and
Wendell T. Jones. (1)
10.5 -- Amendment dated January 28, 1997 amending Employment Agreement by and
between the Company and Wendell T. Jones. (5)
10.6 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Mark S. Howells. (1)
10.7 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Mark S. Howells. (1)
10.8 -- Non-Qualified Stock Option Agreement dated August 31, 1995, by and
between the Company and Mark S. Howells. (1)
10.9 -- Non-Qualified Stock Option Agreement dated February 29, 1996, by and
between the Company and Mark S. Howells. (1)
10.10 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Jeffrey J. Puglisi. (1)
10.11 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Jeffrey J. Puglisi. (1)
10.12 -- Non-Qualified Stock Option Agreement dated August 31, 1995, by and
between the Company and Jeffrey J. Puglisi. (1)
10.13 -- Non-Qualified Stock Option Agreement dated February 29, 1996, by and
between the Company and Jeffrey J. Puglisi. (1)
10.14 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Parris H. Holmes, Jr. (1)
10.15 -- Accounts Receivable Security Agreement dated July 26, 1996, by and
between PB Arizona and First Community Financial Corporation ("First
Community.")(1)
10.16 -- Guaranty and Subordination dated July 26, 1996, issued by PB Arizona to
First Community.(1)
10.17 -- Multiple Advance Promissory Note dated July 26, 1996, issued by PB
Arizona to First Community. (1)
10.18 -- Accounts Receivable Security Agreement dated July 26, 1996, by and
between PB Distributing and First Community, with exhibits. (1)
10-19 -- Guaranty and Subordination Agreement dated July 26, 1996, issued by PB
Distributing to First Community. (1)
10.20 -- Multiple Advance Promissory Note dated July 26, 1996, issued by PB
Distributing to First Community. (1)
10.21 -- Security Agreement dated July 26, 1996, by and between PB Southeast and
First Community. (1)
10.22 -- Security Agreement dated July 26, 1996, by and between PB Texas and
First Community. (1)
10.23 -- Form of Security Agreements dated May 31, 1995, by and among
Renaissance, Wells Fargo and each of the Company, PB Arizona, PB
Southeast, PB Texas and PB Distributing. (1)
10.24 -- Commercial Lease dated November 30, 1995, by and between the Company
and Arizona Limited Partnership #1. (1)
10.25 -- Lease Agreement dated July 23, 1993, by and among PB Southeast and
Jerome Rosenblum, Fred Yazdian and Sol Rosenblum. (1)
10.26 -- Commercial Lease dated July 22, 1993, by and between PB Texas and North
Shepherd Business Center Associates, as amended. (1)
20
<PAGE>
10.27 -- Security Agreement dated October 14, 1993, by and among PB Southeast,
Department of Economic and Community Development of the State of
Tennessee and Rutherford County, Tennessee. (1)
10.28 -- Master Equipment Lease Agreement dated September 22, 1995, by and
between Banc One Arizona Leasing Corporation and PB Arizona ("Banc One
Lease Agreement"), with equipment schedules. (1)
10.29 -- Corporate Guaranty dated September 25, 1995, issued by PB Distributing
to Banc One Arizona Leasing Corporation in connection with the Banc One
Lease Agreement. (1)
10.30 -- Equipment Lease Agreement dated December 12, 1995, by and between PB
Arizona and FINOVA Capital Corporation. (1)
10.31 -- Guaranty dated December 12, 1995, issued by the Company to FINOVA
Capital Corporation. (1)
10.32 -- Master Lease Agreement (the "LCA Lease Agreement") dated February 1,
1996, by and between PB Arizona and LCA Capital Corp. (also known as
LCA, a Division of Associates Commercial Corporation) ("LCA"). (1)
10.33 -- Purchase Agreement dated February 1, 1996, by and between PB Arizona
and LCA in connection with the LCA Lease Agreement. (1)
10.34 -- Corporate Guaranty dated as of February 1, 1996, issued by the Company
to LCA in connection with LCA Lease Agreement. (1)
10.35 -- Loan Agreement dated September 11, 1996, by and between the Company and
National Bank of Arizona ("NBA"). (1)
10.36 -- Promissory Note dated September 11, 1996, in the principal amount of
$2,400,000, issued by the Company to NBA. (1)
10.37 -- Deed of Trust, Security Agreement and Financing Statement dated
September 11, 1996, by and between the Company and NBA. (1)
10.38 -- Assignment Of Permits, Licenses, Approvals, Deposits, Contracts and
Documents dated September 11, 1996, by and between the Company and NBA.
(1)
10.39 -- Specific Assignment of Development Agreement dated September 11, 1996,
by and between the Company and NBA. (1)
10.40 -- Development Agreement dated May 14, 1996, by and between the Company
and the City of Goodyear, Arizona. (1)
10.41 -- Agreement dated August 29, 1996, by and between the Company and
Westminster, as amended. (1)
10.42 -- Secured Promissory Note dated September 11, 1996, in the principal
amount of $1,250,000, issued by the Company to Westminster. (1)
10.43 -- Unsecured Environmental Indemnity Agreement dated September 11, 1996,
by the Company in favor of Westminster. (1)
10.44 -- Commercial Pledge and Security Agreement dated September 11, 1996, by
and among the Company, NBA and Westminster. (1)
10.45 -- Subordinated Deed of Trust, Security Agreement, Assignment of Leases
and Rents and Fixture Filing dated September 11, 1996, by and among the
Company, First American Title Insurance Company and Westminster. (1)
10.46 -- Standard Form of Agreement between Owner and Contractor dated August 8,
1996, between the Company and Newcon, Inc. (1)
10.47 -- Agreement for the Purchase and Sale of Assets and Assumption of
Liabilities dated November 11, 1994, by and between PB Arizona, PB
Foods, James Poore, Donald Poore and Amelia Poore. (1)
10.48 -- Assignment Letter dated March 8, 1995, by and between PB Southeast and
PB Foods. (1)
10.49 -- Form of Independent Distributor Agreement by and between PB
Distributing and independent distributors. (1)
10.50 -- Agreement for the Exclusive Right to Purchase, Package, Distribute and
Sell "Low Fat" Snack Foods dated September 11, 1996, by and between the
Company and Great Snaxx. (Certain portions of this document are omitted
pursuant to a confidential treatment request which was granted by the
Commission.) (2)
21
<PAGE>
10.51 -- Amendment No. 1 dated October 14, 1996, to Warrant dated September 11,
1996, issued by the Company to Westminster. (2)
10.52 -- Poore Brothers, Inc. 1995 Stock Option Plan, as amended. (2)
10.53 -- Waiver Letter dated August 1, 1996, from Renaissance, in connection
with the Debenture Loan Agreement. (2)
10.54 -- Waiver Letter dated August 27, 1996, from Wells Fargo, in connection
with the Debenture Loan Agreement. (2)
10.55 -- Letter Agreement dated November 5, 1996, amending the Non-Qualified
Stock Option Agreement dated February 29, 1996, by and between the
Company and Mark S. Howells. (2)
10.56 -- Letter Agreement dated November 5, 1996, amending the Non-Qualified
Stock Option Agreement dated February 29, 1996, by and between the
Company and Jeffrey J. Puglisi. (2)
10.57 -- Non-Qualified Stock Option Agreement dated as of October 22, 1996, by
and between the Company and Mark S. Howells. (2)
10.58 -- Letter Agreement dated as of November 5, 1996, by and between the
Company and Jeffrey J. Puglisi. (2)
10.59 -- Letter Agreement dated as of November 5, 1996, by and between the
Company and David J. Brennan. (2)
10.60 -- Stock Option Agreement dated October 22, 1996, by and between the
Company and David J. Brennan. (3)
10.61 -- Amendment to Accounts Receivable Security Agreement dated November 1,
1996, by and between PB Arizona and First Community. (2)
10.62 -- Amendment to Accounts Receivable Security Agreement dated November 1,
1996, by and between PB Distributing and First Community. (2)
10.63 -- Letter Agreement dated December 4, 1996, by and between the Company and
Jeffrey J. Puglisi, relating to stock options. (3)
10.64 -- Letter Agreement dated December 4, 1996, by and between the Company and
Mark S. Howells, relating to stock options. (3)
10.65 -- Letter Agreement dated December 4. 1996, by and between the Company and
Parris H. Holmes, Jr., relating to stock options. (3)
10.66 -- Letter Agreement dated December 4, 1996, by and between the Company and
David J. Brennan, relating to stock options. (3)
10.67 -- Letter Agreement dated December 4, 1996, by and between the Company and
Jeffrey H. Strasberg, relating to stock options. (3)
10.68 -- Letter Agreement dated November 1, 1996, by and among the Company, Mark
S. Howells, Jeffrey J. Puglisi, David J. Brennan and Parris H. Holmes,
Jr. (2)
10.69 -- Form of Underwriting Agreement entered into on December 6, 1996, by and
between the Company, Paradise Valley Securities, Inc., Renaissance and
Wells Fargo. (4)
10.70 -- Employment Agreement dated January 24, 1997, by and between the Company
and Eric J. Kufel. (5)
10.71 -- First Amendment to Employment Agreement dated February 2, 1997,
amending Employment Agreement by and between the Company and David J.
Brennan. (5)
10.72 -- Employment Agreement dated February 4, 1997, by and between the Company
and Scott D. Fullmer. (5)
10.73 -- Employment Agreement dated February 14, 1997, by and between the
Company and Glen E. Flook. (5)
10.74 -- Second Loan modification agreement dated January 10, 1997, by and
between the Company and NBA. (5)
10.75 -- Amendment to Accounts Receivable Security Agreement dated December 30,
1996, by and between PB Distributing and First Community. (5)
10.76 -- Amendment to Accounts Receivable Security Agreement dated December 30,
1996, by and between PB Arizona and First Community. (5)
10.77 -- Promissory Note Modification Agreement dated December 30, 1996, by and
between PB Distributing and First Community. (5)
22
<PAGE>
10.78 -- Promissory Note Modification Agreement dated December 30, 1996, by and
between PB Arizona and First Community. (5)
10.79 -- Commercial Real Estate Purchase Contract and Receipt for Deposit dated
January 22, 1997, by and between the Company and D.F. Properties, Inc.
(5)
10.80 -- Warrant dated September 11, 1996, issued by the Company to Westminster.
(1)
11.1 -- Statement regarding computation of per share earnings. (5)
21.1 -- List of Subsidiaries of the Company. (1)
27.1 -- Financial Data Schedule. (5)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 filed with the Commission on September 20, 1996 (Registration
No. 333-5594-LA).
(2) Incorporated by reference to Amendment No. 1 to the Company's
Registration Statement on Form SB-2 filed with the Commission on
November 8, 1996 (Registration No. 333-5594-LA).
(3) Incorporated by reference to Amendment No. 3 to the Company's
Registration Statement on Form SB-2 filed with the Commission on
December 5, 1996 (Registration No. 333-5594-LA).
(4) Incorporated by reference to Amendment No. 4 to the Company's
Registration Statement on Form SB-2 filed with the Commission on
December 6, 1996 (Registration No. 333-5594-LA).
(5) Filed herewith.
(c) Exhibits on Form 8-K.
None.
23
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: March 31, 1997 POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
----------------------------
Eric J. Kufel
President and Chief Executive Officer
Pursuant to the requirements of the Securities Act of 1934, this report
has been signed below by the following persons on behalf of the Registrant, in
the capacities and on the dates indicated.
Signature Title Date
/s/ Eric J. Kufel President, Chief Executive March 31, 1997
- -------------------------- Officer and Director
Eric J. Kufel (Principal Executive Officer)
/s/ Jeffrey H. Strasberg Vice President, Chief Financial March 31, 1997
- ------------------------- Officer, Treasurer and Secretary
Jeffrey H. Strasberg (Principal Financial Officer and
Principal Accounting Officer)
/s/ Mark S. Howells Chairman of the Board of Directors March 31, 1997
- --------------------------
Mark S. Howells
/s/ Jeffrey J. Puglisi Director March 31, 1997
- --------------------------
Jeffrey J. Puglisi
/s/ David J. Brennan Director March 31, 1997
- --------------------------
David J. Brennan
/s/ Parris H. Holmes, Jr. Director March 31, 1997
- --------------------------
Parris H. Holmes, Jr.
/s/ Robert C. Pearson Director March 31, 1997
- --------------------------
Robert C. Pearson
24
<PAGE>
Report of Independent Accountants
To the Shareholders and Board of Directors
Poore Brothers, Inc.
We have audited the accompanying consolidated balance sheets of Poore Brothers,
Inc. and Subsidiaries as of December 31, 1996 and 1995, and the related
consolidated statements of operations, shareholders' equity (deficit), and cash
flows for the years then ended. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of Poore
Brothers, Inc. and Subsidiaries as of December 31, 1996 and 1995, and the
consolidated results of their operations and their cash flows for the years then
ended in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.
Phoenix, Arizona
March 4, 1997
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents ................................ $ 3,603,850 $ 200,603
Restricted certificate of deposit ........................ 1,250,000
Accounts receivable, net of allowance of $121,000 in 1996
and $86,000 in 1995 .................................... 1,912,064 1,198,215
Inventories .............................................. 863,309 681,791
Other current assets ..................................... 193,581 2,383
------------ ------------
Total current assets .................................. 7,822,804 2,082,992
Property and equipment, net ................................ 4,032,343 1,593,479
Goodwill, net .............................................. 2,295,617 2,415,385
Organizational costs, net .................................. 174,614 226,048
Other assets ............................................... 15,067 31,881
------------ ------------
Total assets .......................................... $ 14,340,445 $ 6,349,785
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................................ $ 1,318,952 $ 633,281
Accrued and other current liabilities .................... 500,192 450,397
Current portion of long-term debt ........................ 1,818,058 636,011
------------ ------------
Total current liabilities ............................. 3,637,202 1,719,689
Long-term debt, less current portion ....................... 3,355,651 3,793,420
Other liabilities .......................................... 6,000 20,379
------------ ------------
Total liabilities ..................................... 6,998,853 5,533,488
------------ ------------
Shareholders' equity
Common stock, $.01 par value; 15,000,000 shares authorized,
shares issued and outstanding 6,648,824 (1996),
3,598,924 (1995) ........................................ 66,488 35,989
Additional paid-in capital ............................... 9,702,940 2,516,466
Accumulated deficit ...................................... (2,427,836) (1,736,158)
------------ ------------
Total shareholders' equity ............................ 7,341,592 816,297
------------ ------------
Total liabilities and shareholders' equity ............ $ 14,340,445 $ 6,349,785
============ ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
26
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Revenues ............................................ $ 17,219,641 $ 6,868,923
Cost of sales ....................................... 13,091,194 5,304,200
------------ ------------
Gross profit ..................................... 4,128,447 1,564,723
Selling, general and administrative expenses ........ 3,969,462 2,198,757
Depreciation and amortization ....................... 460,197 319,493
------------ ------------
Operating loss ................................... (301,212) (953,527)
------------ ------------
Interest income ..................................... 13,211
Interest expense .................................... (403,677) (241,383)
------------ ------------
Total ............................................ (390,466) (241,383)
------------ ------------
Net loss ............................................ $ (691,678) $ (1,194,910)
============ ============
Loss per common share and common share
equivalent ......... ............................. $ (0.15) $ (0.35)
============ ============
Loss per common share-assuming full dilution * *
Weighted average common and common
equivalent shares outstanding ............ .. 4,493,307 3,448,601
============ ============
*Anti-dilutive.
</TABLE>
The accompanying notes are an integral part of these financial statements.
27
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY (DEFICIT)
<TABLE>
<CAPTION>
Common Stock
------------------------ Paid-in Accumulated
Shares Amount Capital Deficit Total
------ ------ ------- ------- -----
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1994 .............. 1,107,322 $ 11,073 $ 363,854 $ (541,248) $ (166,321)
Conversion of notes payable to related
parties to common stock ............ 161,668 1,617 141,011 142,628
Issuance of common stock in
connection with acquisition ........ 300,200 3,002 321,570 324,572
Sale of common stock ................. 2,029,734 20,297 1,690,031 1,710,328
Net loss ............................. (1,194,910) (1,194,910)
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1995 .............. 3,598,924 35,989 2,516,466 (1,736,158) 816,297
Purchases of common stock ............ (50,100) (501) (56,209) (56,710)
Conversion of convertible debentures . 367,348 3,674 396,735 400,409
Sales of common stock ................ 2,732,652 27,326 6,215,948 6,243,274
Issuance of financing warrant ........ 630,000 630,000
Net loss ............................. (691,678) (691,678)
---------- ----------- ----------- ----------- -----------
Balance, December 31, 1996 .............. 6,648,824 $ 66,488 $ 9,702,940 $(2,427,836) $ 7,341,592
========== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these financial statements.
28
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net loss .................................................... $ (691,678) $(1,194,910)
Adjustments to reconcile net loss to net cash used
in operating activities:
Depreciation and amortization ............................ 460,197 319,493
Bad debt expense ......................................... 60,230 50,861
Change in operating assets and liabilities,
net of effects of acquisition:
Accounts receivable ................................. (767,179) 197,089
Inventories ......................................... (181,518) (159,286)
Other assets and liabilities ........................ (172,786) 585
Accounts payable and accrued liabilities ............ 724,687 45,906
----------- -----------
Net cash provided by (used in) operating activities ........... (568,047) (740,262)
----------- -----------
Cash flows from investing activities:
Payment for acquisition, net of cash acquired ............ (3,145,269)
Purchase of equipment .................................... (675,620) (68,421)
----------- -----------
Net cash used in investment activities ........................ (675,620) (3,213,690)
----------- -----------
Cash flows from financing activities:
Proceeds from issuance and purchase of common
stock, net ............................................... 7,579,072 1,854,328
Stock issuance costs ..................................... (1,392,508) (144,000)
Proceeds from issuance of debt ........................... 2,700,000
Debt issuance costs ...................................... (257,170)
Investment in restricted certificate of deposit .......... (1,250,000)
Payments made on long-term debt .......................... (267,920) (51,603)
Net increase (decrease) in working capital line .......... (21,730) 53,000
----------- -----------
Net cash provided by financing activities ..................... 4,646,914 4,154,555
----------- -----------
Net increase in cash and cash equivalents ..................... 3,403,247 200,603
Cash and cash equivalents at beginning of period .............. 200,603
----------- -----------
Cash and cash equivalents at end of period .................... $ 3,603,850 $ 200,603
=========== ===========
Supplemental disclosures of cash flow information:
Summary of noncash investing and financing activities:
Conversion of debt to common stock ....................... $ 400,409 $ 142,628
Construction loan for new facility ....................... 1,248,117
Warrants issued .......................................... 630,000
Capital lease obligation incurred - equipment acquisition. 186,220 195,317
Long-term debt issued in connection with acquisition ..... 500,000
Stock issued in connection with acquisition .............. 324,572
In conjunction with the acquisition (see Note 2), the Company
purchased and assumed the following amounts:
Fair value of assets acquired ............................ 5,612,882
Purchase price ........................................... (4,052,631)
Liabilities assumed ...................................... 1,560,251
Cash paid during the year for interest, net of amounts
capitalized ................................................. 416,764 251,311
</TABLE>
The accompanying notes are an integral part of these financial statements.
29
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies:
Poore Brothers, Inc. (the "Company"), a Delaware corporation, was
organized in February 1995 as a holding company and on May 31, 1995 acquired
substantially all of the equity of Poore Brothers Southeast, Inc. ("PB
Southeast") in an exchange transaction pursuant to which 1,560,000 previously
unissued shares of the Company's common stock, par value $.01 per share (the
"Common Stock"), were exchanged for 150,366 issued and outstanding shares of PB
Southeast's common stock. See Note 2. The exchange transaction with PB Southeast
has been accounted for similar to a pooling since both entities had common
ownership and control immediately prior to the transaction. The financial
information for the period prior to the May 31, 1995 exchange transaction
relates solely to the results of operations of PB Southeast, the operations of
which have been continued by the Company.
The Company manufactures and distributes potato chip and other snack
food products under the Poore BrothersTM brand name, as well as private label
potato chips and also distributes a wide variety of other independently
manufactured food items.
Principles of Consolidation
The consolidated financial statements include the accounts of Poore
Brothers, Inc. and all of its controlled subsidiaries. In all situations, the
Company owns from 94% to 100% of the voting interests of the controlled
subsidiaries.
All significant intercompany amounts and transactions have been
eliminated.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Cash and Cash Equivalents
Cash equivalents consist of highly liquid investments with a maturity
of three months or less when purchased.
Restricted Certificate of Deposit
Restricted certificate of deposit represents amounts segregated as
collateral for a construction loan.
Inventory
Inventories are stated at the lower of first-in, first-out (FIFO) cost
or market.
Property and Equipment
Property and equipment are recorded at cost. Cost includes expenditures
for major improvements and replacements. Maintenance and repairs are charged to
operations when incurred. When assets are retired or
30
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies: (Continued)
otherwise disposed of, the related costs and accumulated depreciation are
removed from the appropriate accounts, and the resulting gain or loss is
included in operations.
During construction, the Company capitalizes interest monthly by
applying the effective interest rate on certain borrowings to the average
balance of the expenditures. Capitalized interest for 1996 was $687,177 and $0
in 1995. Total interest costs incurred were $1,090,854 and $251,311 for 1996 and
1995, respectively.
Depreciation expense is computed using the straight-line method over
the estimated useful lives of the assets, ranging from 2 to 30 years.
Loss Per Share
Loss per common share and common share equivalent ("loss per common
share") is computed by dividing the net loss by the weighted average number of
shares of Common Stock and common stock equivalents outstanding during each
period. Pursuant to the Securities and Exchange Commission Staff Accounting
Bulletin ("SAB") No. 83, Company issuance of Common Stock, and options and
warrants to purchase Common Stock granted by the Company during the 12 months
immediately preceding the initial filing date of the public offering have been
included in the calculation of weighted average number of shares of Common Stock
outstanding as if the underlying shares were outstanding for all periods
presented (even if anti-dilutive, using the treasury stock method and an
offering price of $3.50 per share). The effect on loss per common share for the
outstanding options and warrants issued prior to the one year period preceding
the initial public offering have been excluded from the loss per common share
computation as they are anti-dilutive. For 1996, the principles of SAB No. 83
were applied for the first three quarters of the year before the initial public
offering became effective. For the fourth quarter, the principles of Accounting
Principles Board Opinion No. 15 were followed. Accordingly, the effect on loss
per common share of the outstanding options and warrants in the fourth quarter
have been excluded from the computation as they are anti-dilutive. Loss per
common share, assuming full dilution, is not applicable for loss periods as it
is anti-dilutive.
Intangible Assets
Organizational costs are recorded at cost. Amortization expense is
computed using the straight-line method over a five-year period. Goodwill is
amortized under the straight-line method over twenty years. The Company assesses
the recoverability of goodwill at each balance sheet date by determining whether
amortization of the assets over their original estimated useful life can be
recovered through estimated future undiscounted operating income, excluding
amortization.
Revenue Recognition
Sales and related cost of sales are recognized upon shipment of
products.
Income Taxes
Deferred tax assets and liabilities are recognized for the expected
future tax consequences of events that have been included in the financial
statements or income tax returns. Deferred tax assets and liabilities are
determined based on the difference between the financial statement and tax basis
of assets and liabilities using enacted rates expected to apply to taxable
income in the years in which those differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a change in tax
rates is recognized in income in the period that includes the enactment date.
31
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. Organization and Summary of Significant Accounting Policies: (Continued)
Stock-Based Compensation
In October 1995, the Financial Accounting Standards Board issued
Financial Accounting Standard No. 123, Accounting for Stock-Based Compensation
("FAS 123"), which defines a fair value based method of accounting for employee
stock options or similar equity instruments. However, it also allows an entity
to continue to account for these plans according to Accounting Principles Board
Opinion No. 25 ("APB 25"), provided pro forma disclosures of net income and
earnings per share are made as if the fair value based method of accounting
defined by FAS 123 had been applied. The Company has elected to continue to
measure compensation expense cost related to employee stock purchase options
using APB 25, and in Note 9 provides required pro forma disclosures.
2. Business Acquisition:
On May 31, 1995, the Company acquired (i) substantially all of the
assets, subject to certain liabilities of Poore Brothers Foods, Inc.; (ii) a
100% equity interest in Poore Brothers Distributing, Inc.; and (iii) an 80%
equity interest in Poore Brothers of Texas, Inc. Over the course of the
remainder of 1995, the Company acquired an additional equity interest in Poore
Brothers of Texas, Inc. of 14% bringing the Company's total equity interest to
94%. The total purchase price for these acquisitions was $4,052,631, and the
assets acquired were primarily property and equipment, accounts receivable and
inventory. The purchase was financed with $500,000 of notes payable, 300,000
shares of Common Stock issued to the sellers, and by the issuance of Convertible
Debentures and the sale of Common Stock in a private offering.
The above acquisitions have been accounted for as purchases and,
accordingly, the results of their operations subsequent to acquisition have been
included in the Company's results. In connection with the acquisitions, the
Company recorded goodwill which is being amortized on a straight-line basis over
a twenty-year period.
Presented below are the results of operations for the year ended
December 31, 1995 on a pro forma basis as if the above acquisitions had occurred
at the beginning of 1995:
Revenues ................................................ $11,456,320
Net loss ................................................ (1,664,045)
Net loss per common share and common share equivalent ... (0.39)
3. Concentrations of Credit Risk:
The Company's cash and restricted cash are placed with major banks. The
Company, in the normal course of business, maintains balances in excess of
Federal insurance limits. The balance in excess of the insurance limit at
December 31, 1996 was $4,376,179.
Financial instruments subject to credit risk consist primarily of trade
accounts receivable. In the normal course of business, the Company extends
unsecured credit to its customers. Substantially all of the Company's customers
are distributors whose sales are concentrated to retailers in the grocery
industry, in the southern and western United States. The Company investigates a
customer's credit worthiness before extending credit.
32
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
4. Inventories:
Inventories consist of the following:
December 31,
------------
1996 1995
---- ----
Finished goods ............................ $609,918 $610,108
Raw materials ............................. 253,391 71,683
-------- --------
$863,309 $681,791
======== ========
5. Property and Equipment:
Property and equipment consist of the following:
December 31,
------------
1996 1995
---- ----
Buildings and improvements ....................... $ 2,652,548 $ 658,735
Equipment ........................................ 1,307,417 916,428
Land ............................................. 401,842 142,302
Vehicles ......................................... 251,559 193,553
Furniture and office equipment ................... 118,965 63,869
----------- -----------
4,732,331 1,974,887
Less accumulated depreciation and amortization ... (699,988) (381,408)
----------- -----------
$ 4,032,343 $ 1,593,479
=========== ===========
Included in equipment are assets which are under capital leases with an
original cost of $463,857 and accumulated amortization of $33,888 at December
31, 1996, and original cost of $277,637 and accumulated amortization of $18,128
at December 31, 1995.
Depreciation expense was $284,409 and $221,262 for 1996 and 1995,
respectively.
The Company is completing the construction of a new manufacturing
facility in Arizona. Included in land, buildings and improvements is the
carrying value of the current Arizona manufacturing facility of the Company that
was subsequently sold. At December 31, 1996, the Company reflected a charge of
$30,000 in its Statement of Operations to reduce the carrying value of the sold
facility to its net realizable value of $710,000 (see Note 14.)
33
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
6. Long-Term Debt:
Long-term debt consists of the following:
<TABLE>
<CAPTION>
December 31,
------------
1996 1995
---- ----
<S> <C> <C>
Convertible Debentures; interest rate is at 9%; interest and
principal due in monthly installments over varying
periods through 2002; collateralized by land, buildings,
equipment and intangibles ...................................... $2,299,591 $2,700,000
Construction loan due June 11, 1997; interest rate at bank
prime plus 2% (10.25% at December 31, 1996);
collateralized by first deed of trust on land and building
and certificate of deposit totaling $1,250,000 ................. 1,248,117
Notes payable due May 31, 2000; interest rate is at bank
prime rate plus 1.75% (10.00% at December 31, 1996) ............ 500,000 500,000
Note payables; due in monthly installments through
December 2000; interest rates ranging from 3% to
11.75%; collateralized by equipment and vehicles ............... 234,071 290,363
Working capital line; interest rate is at bank prime plus
4.50% (12.75% at December 31, 1996); collateralized
by accounts receivable and inventories; due November
30, 1997 ....................................................... 351,270
Bank operating line; interest rate is at bank prime plus
1.75% (10.50% at December 31, 1995); collateralized
by accounts receivable and inventories ......................... 373,000
Mortgage loans due 1997 to 1998; interest at bank prime
rate plus 1.75% (10.00% at December 31, 1996);
collateralized by land and buildings ........................... 156,740 301,399
Capital lease obligations ........................................... 383,920 264,669
---------- ----------
5,173,709 4,429,431
Less current portion ................................................ 1,818,058 636,011
---------- ----------
$3,355,651 $3,793,420
========== ==========
</TABLE>
Annual maturities under long-term debt at December 31, 1996 are as
follows:
1997 .................................. $1,818,058
1998 .................................. 326,818
1999 .................................. 385,081
2000 .................................. 879,923
2001 .................................. 307,424
Thereafter ............................ 1,456,405
----------
$5,173,709
==========
In September 1996, the Company entered into a $2,400,000 loan agreement
to finance the construction of its new Arizona facility collateralized by a
first deed of trust on the land and building and additionally collateralized by
U.S. treasury bills provided by an independent investor. As consideration for
the treasury bills, the Company issued to the investor a warrant which, as
amended, entitles the investor to purchase
34
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
6. Long-Term Debt: (Continued)
300,000 shares of Common Stock at an exercise price of $1.40 per share and
expires September 11, 2006. In connection with the warrant, the Company recorded
an increase to Additional paid-in capital and Other assets (debt issuance costs)
of $630,000 which represents the fair value of the warrant at the date of award.
The recorded asset was amortized as interest expense and capitalized as part of
the new Arizona facility through December 1996, at which time the U.S treasury
bills provided by the investor as collateral were replaced by the Company with a
$1,250,000 certificate of deposit.
Various debt agreements of the Company contain covenants requiring the
maintenance of financial ratios. The most restrictive covenants require the
Company to maintain an interest coverage ratio of 1.1:1, minimum working capital
of $1,000,000 and a calculated minimum amount of shareholders' equity. At
December 31, 1996, the Company was in violation of the interest coverage ratio.
The Company has received waivers from lenders for this covenant violation
through September 30, 1997.
Based on the borrowing rates currently available to the Company,
management estimates that the fair value of the long-term debt approximates the
carrying value as of December 31, 1996 and 1995, respectively.
7. Commitments and Contingencies:
At December 31, 1996, the Company was obligated under non-cancelable
leases for real property used in its operations. Rental expense under leases
that meet the criteria of operating leases were $171,612 and $73,699 for the
years 1996 and 1995. Minimum future rental commitments under non-cancelable
long-term leases as of December 31, 1996 are as follows:
Capital Operating
Leases Leases Total
------ ------ -----
1997 ............................... $116,881 $121,316 $238,197
1998 ............................... 114,440 91,040 205,480
1999 ............................... 111,651 34,632 146,283
2000 ............................... 91,706 34,632 126,338
2001 ............................... 14,837 14,837
-------- -------- --------
Total .............................. 449,515 $281,620 $731,135
======== ========
Less amount representing interest 65,595
--------
Present value ...................... $383,920
========
8. Capital Stock:
In connection with the acquisition of the Poore Brothers companies (see
Note 2), the Company issued 300,000 shares of Common Stock to the sellers of the
companies. The Company has the right to repurchase these shares for an aggregate
purchase price of $500,000 by May 31, 1998.
At issuance, the Company's Convertible Debentures (see Note 6) were
convertible into 2,477,065 shares of Common Stock at an effective price of $1.09
per share, subject to anti-dilution adjustments. In December 1996, $400,409 of
such debentures were converted into 367,348 shares of Common Stock, leaving a
debt balance convertible into 2,109,717 shares of Common Stock.
35
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
8. Capital Stock: (Continued)
The Company has authorized 50,000 shares of Preferred Stock, $100 par
value per share, of which there are no shares issued or outstanding.
9. Stock Options:
The Company's 1995 Stock Option Plan (the "Plan"), as amended in August
1996, provides for the issuance of options to purchase 1,000,000 shares of
Common Stock. The options granted pursuant to the Plan expire over a five-year
period and generally vest over three-year periods. In addition to options
granted under the Plan, the Company also issued non-qualified options to
purchase Common Stock to certain Directors which were exercisable on issuance
and expire ten years from date of grant. All options are issued at fair market
value and are noncompensatory. Fair market value is determined based on the
price of sales of Common Stock occurring at or near the time of the option
award. Outstanding options have exercise prices ranging from $1.08 to $3.50 per
share. Stock option activity is as follows:
Plan Options Non-Plan Options
------------ ----------------
Average Average
Options Option Price Options Option Price
Outstanding per Share Outstanding per Share
----------- --------- ----------- ---------
Balance, December 31, 1994 ....... 0 0
Granted ..................... 485,000 $1.08 600,000 $1.08
------- -------
Balance, December 31, 1995 ....... 485,000 1.08 600,000 1.08
Granted ..................... 420,000 1.69 220,000 1.46
Canceled ....................(250,000) 1.08
------- -------
Balance, December 31, 1996 ....... 655,000 1.47 820,000 1.18
======= =======
At December 31, 1996, outstanding Plan options had an average remaining
term of 4.1 years. Plan options that were exercisable at December 31, 1996
totaled 122,334, with an average exercise price per share of $1.88. At December
31, 1995, there were 10,000 Plan options that were exercisable at an exercise
price of $1.08 per share. Non-Plan options at December 31, 1996 had an average
remaining term of 8.3 years.
Had compensation cost for the Company's stock options been determined
based on the fair value at the date of grant for awards in 1995 and 1996
consistent with the provisions of FAS 123, the Company's net loss and net loss
per share would have been reduced to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
1996
----
<S> <C>
Net loss - as reported .............................................. $ (691,678)
Net loss - pro forma ................................................ (907,000)
Net loss per common share and common share equivalent - as reported.. (0.15)
Net loss per common share and common share equivalent - pro forma ... (0.20)
</TABLE>
The assumption regarding the stock options issued was that 100% of such
options vested when granted, rather than the 64% currently vested as required by
the awards. The fair value of options granted prior to the Company's initial
public offering was computed using the minimum value calculation method. For all
other options, the fair value of each option grant is estimated on the date of
grant using the Black-Scholes option-pricing model with the following
weighted-average assumptions: dividend yield of 0%; expected volatility of 102%;
risk-free interest rate of 6.14%; and expected lives of 5 years.
36
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
10. Income Taxes:
For the period prior to the exchange transaction on May 31, 1995, PB
Southeast had elected to be taxed as an S Corporation under Section 1362 of the
Internal Revenue Code, and as such, taxes on net earnings were payable
personally by the shareholders.
There was no current or deferred benefit for income taxes for the years
ended December 31, 1995 and 1996.
The following table provides a reconciliation between the amount
determined by applying the statutory federal income tax rate to the pretax loss
and benefit for income taxes:
Years ended December 31,
------------------------
1996 1995
---- ----
Benefit at statutory rate ................ $ 235,170 $ 337,588
Valuation allowance ...................... (265,000) (379,000)
State income tax, net .................... 29,830 41,412
--------- ---------
$ 0 $ 0
========= =========
The income tax effects of loss carryforwards and temporary differences
between financial and income tax reporting that give rise to the deferred income
tax assets and liabilities are as follows:
December 31,
------------
1996 1995
---- ----
Net operating loss carryforward .................... $ 658,000 $ 393,000
Accrued bad debt expense ........................... 48,000 34,000
Accrued liabilities ................................ 14,000 17,000
--------- ---------
Gross deferred tax assets ..................... 720,000 444,000
Deferred tax asset valuation allowance ............. (655,000) (379,000)
Gross deferred tax liabilities (depreciation and
amortization) ................................. (65,000) (65,000)
--------- ---------
Net deferred tax assets ............................ $ 0 $ 0
========= =========
Gross deferred tax assets are reduced by a valuation allowance based on
management's estimate that it is more likely than not that the tax benefits will
not be realized.
At December 31, 1996, the Company has net operating losses available
for federal and state income taxes of approximately $1,500,000 which begin to
expire in the year 2010 if not used.
11. Major Customers:
One Arizona grocery chain comprised $2,820,000, or 16%, of the
Company's consolidated revenues for the year ended December 31, 1996. For the
year ended December 31, 1995, two Arizona grocery chains comprised $1,057,714,
or 15%, and $724,560, or 11%, of the Company's consolidated revenues.
12. Litigation:
On June 19, 1996 , James Gossett and an associated entity commenced a
lawsuit in an Arizona state court against two directors of the Company, Mark S.
Howells and Jeffrey J. Puglisi, and the Company's
37
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
12. Litigation: (Continued)
subsidiary, PB Southeast, alleging, inter alia, that Mr. Gossett had an oral
agreement with Mr. Howells to receive up to a 49% ownership interest in PB
Southeast, that Messrs. Howells and Puglisi breached fiduciary duties and other
obligations to Mr. Gossett and that he is entitled to exchange such alleged
stock interest for shares in the Company. Mr. Gossett further alleges that PB
Southeast and Messrs. Howells and Puglisi failed to honor the terms of an
alleged distribution agreement between Poore Brothers Foods, Inc. and Mr.
Gossett's associated entity, whereby such entity was granted exclusive
distribution rights to Poore Brothers products in California. The complaint
seeks unspecified amounts of damages, fees and costs. In February 1997,
plaintiffs filed pleadings indicating they are seeking $3 million in damages;
plaintiffs may not be limited by this damage amount at trial. Messrs. Howells
and Puglisi and PB Southeast have filed an answer and counterclaim against Mr.
Gossett, denying the major provisions of the complaint, alleging various acts of
nonperformance and breaches of fiduciary duty on the part of Mr. Gossett and
seeking various compensatory and punitive damages. The Company has agreed to
indemnify Messrs. Howells and Puglisi in connection with this lawsuit.
Management of the Company believes the complaint has no merit and that the
Company has defenses to the action. However, the ultimate outcome of the
proceeding is not presently determinable.
13. Related Parties:
In connection with a sale of stock in March 1996, Arizona Securities
Group, Inc. received a fee of $46,875. Arizona Securities Group, Inc. is managed
and owned by Messrs. Howells and Puglisi.
In connection with the sale of Common Stock and Convertible Debentures
in the May 31, 1995 acquisitions of the Poore Brothers companies, the Company
paid Arizona Securities Group, Inc. $120,000 in sales commissions and $22,000 as
reimbursement of expenses incurred in its services as Placement Agent. On
January 23, 1995, PB Southeast entered into an agreement with Parris H. Holmes,
Jr., a director, pursuant to which PB Southeast borrowed $140,000 from Mr.
Holmes, evidenced by three 7% promissory notes with an aggregate principal
amount of $140,000, which were repaid by the Company on June 2, 1995. In 1995,
Mr. Holmes purchased 420,000 shares of Common Stock of the Company for $280. In
addition, in 1995, Mr. Holmes provided certain consulting services to PB
Southeast at a cost of $35,000.
14. Subsequent Events:
In January 1997, the Company sold 337,500 additional shares of Common
Stock pursuant to an over-allotment option granted to the underwriter of its
Initial Public Offering. Net proceeds from the sale approximated $1,000,000.
In January 1997, the Company modified its construction loan by applying
a certificate of deposit totaling $1,250,000 against the outstanding loan
proceeds. The maximum amount of the loan was reduced from $2,400,000 to
$1,150,000.
On February 28, 1997, in connection with the construction of a new
manufacturing facility, the Company sold existing land and buildings for net
proceeds of approximately $710,000. The carrying value of the disposed property
approximated the net proceeds and the sale had an immaterial impact on the
results of operations. Proceeds from the sale were used to pay off related
mortgage debt and notes payable totaling approximately $650,000.
38
<PAGE>
EXHIBIT INDEX
Exhibit
Number Description
3.1 -- Certificate of Incorporation of the Company filed with the Secretary of
State of the State of Delaware on February 23, 1995. (1)
3.2 -- Certificate of Amendment to the Certificate of Incorporation of the
Company filed with the Secretary of State of the State of Delaware on
March 3, 1995. (1)
3.3 -- By-Laws of the Company. (1)
4.1 -- Specimen Certificate for shares of Common Stock. (2)
4.2 -- Form of Underwriter's Warrant issued by the Company to Paradise Valley
Securities, Inc. on December 11, 1996. (3)
4.3 -- Convertible Debenture Loan Agreement dated May 31, 1995 (the "Debenture
Loan Agreement") by and among the Company, PB Arizona, PB Distributing,
PB Texas, PB Southeast, Renaissance and Wells Fargo Equity Capital,
Inc. ("Wells Fargo.")(2)
4.4 -- 9.00% Convertible Debenture dated May 31, 1995, in the principal amount
of $2,100,000, issued by the Company to Renaissance. (1)
4.5 -- 9.00% Convertible Debenture dated May 31, 1995, in the principal amount
of $600,000, issued by the Company to Wells Fargo. (1)
10.1 -- Employment Agreement dated March 11, 1996, by and between the Company
and David J. Brennan. (1)
10.2 -- Employment Agreement dated July 21, 1995, by and between the Company
and Jeffrey H. Strasberg, as amended. (1)
10.3 -- Employment Agreement dated May 31, 1995, by and between PB Arizona and
James M. Poore. (1)
10.4 -- Employment Agreement dated May 20, 1996, by and between the Company and
Wendell T. Jones. (1)
10.5 -- Amendment dated January 28, 1997 amending Employment Agreement by and
between the Company and Wendell T. Jones. (5)
10.6 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Mark S. Howells. (1)
10.7 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Mark S. Howells. (1)
10.8 -- Non-Qualified Stock Option Agreement dated August 31, 1995, by and
between the Company and Mark S. Howells. (1)
10.9 -- Non-Qualified Stock Option Agreement dated February 29, 1996, by and
between the Company and Mark S. Howells. (1)
10.10 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Jeffrey J. Puglisi. (1)
10.11 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Jeffrey J. Puglisi. (1)
10.12 -- Non-Qualified Stock Option Agreement dated August 31, 1995, by and
between the Company and Jeffrey J. Puglisi. (1)
10.13 -- Non-Qualified Stock Option Agreement dated February 29, 1996, by and
between the Company and Jeffrey J. Puglisi. (1)
10.14 -- Non-Qualified Stock Option Agreement dated August 1, 1995, by and
between the Company and Parris H. Holmes, Jr. (1)
10.15 -- Accounts Receivable Security Agreement dated July 26, 1996, by and
between PB Arizona and First Community Financial Corporation ("First
Community.")(1)
10.16 -- Guaranty and Subordination dated July 26, 1996, issued by PB Arizona to
First Community.(1)
10.17 -- Multiple Advance Promissory Note dated July 26, 1996, issued by PB
Arizona to First Community. (1)
<PAGE>
Exhibit
Number Description
10.18 -- Accounts Receivable Security Agreement dated July 26, 1996, by and
between PB Distributing and First Community, with exhibits. (1)
10-19 -- Guaranty and Subordination Agreement dated July 26, 1996, issued by PB
Distributing to First Community. (1)
10.20 -- Multiple Advance Promissory Note dated July 26, 1996, issued by PB
Distributing to First Community. (1)
10.21 -- Security Agreement dated July 26, 1996, by and between PB Southeast and
First Community. (1)
10.22 -- Security Agreement dated July 26, 1996, by and between PB Texas and
First Community. (1)
10.23 -- Form of Security Agreements dated May 31, 1995, by and among
Renaissance, Wells Fargo and each of the Company, PB Arizona, PB
Southeast, PB Texas and PB Distributing. (1)
10.24 -- Commercial Lease dated November 30, 1995, by and between the Company
and Arizona Limited Partnership #1. (1)
10.25 -- Lease Agreement dated July 23, 1993, by and among PB Southeast and
Jerome Rosenblum, Fred Yazdian and Sol Rosenblum. (1)
10.26 -- Commercial Lease dated July 22, 1993, by and between PB Texas and North
Shepherd Business Center Associates, as amended. (1)
10.27 -- Security Agreement dated October 14, 1993, by and among PB Southeast,
Department of Economic and Community Development of the State of
Tennessee and Rutherford County, Tennessee. (1)
10.28 -- Master Equipment Lease Agreement dated September 22, 1995, by and
between Banc One Arizona Leasing Corporation and PB Arizona ("Banc One
Lease Agreement"), with equipment schedules. (1)
10.29 -- Corporate Guaranty dated September 25, 1995, issued by PB Distributing
to Banc One Arizona Leasing Corporation in connection with the Banc One
Lease Agreement. (1)
10.30 -- Equipment Lease Agreement dated December 12, 1995, by and between PB
Arizona and FINOVA Capital Corporation. (1)
10.31 -- Guaranty dated December 12, 1995, issued by the Company to FINOVA
Capital Corporation. (1)
10.32 -- Master Lease Agreement (the "LCA Lease Agreement") dated February 1,
1996, by and between PB Arizona and LCA Capital Corp. (also known as
LCA, a Division of Associates Commercial Corporation) ("LCA"). (1)
10.33 -- Purchase Agreement dated February 1, 1996, by and between PB Arizona
and LCA in connection with the LCA Lease Agreement. (1)
10.34 -- Corporate Guaranty dated as of February 1, 1996, issued by the Company
to LCA in connection with LCA Lease Agreement. (1)
10.35 -- Loan Agreement dated September 11, 1996, by and between the Company and
National Bank of Arizona ("NBA"). (1)
10.36 -- Promissory Note dated September 11, 1996, in the principal amount of
$2,400,000, issued by the Company to NBA. (1)
10.37 -- Deed of Trust, Security Agreement and Financing Statement dated
September 11, 1996, by and between the Company and NBA. (1)
10.38 -- Assignment Of Permits, Licenses, Approvals, Deposits, Contracts and
Documents dated September 11, 1996, by and between the Company and NBA.
(1)
10.39 -- Specific Assignment of Development Agreement dated September 11, 1996,
by and between the Company and NBA. (1)
10.40 -- Development Agreement dated May 14, 1996, by and between the Company
and the City of Goodyear, Arizona. (1)
10.41 -- Agreement dated August 29, 1996, by and between the Company and
Westminster, as amended. (1)
10.42 -- Secured Promissory Note dated September 11, 1996, in the principal
amount of $1,250,000, issued by the Company to Westminster. (1)
<PAGE>
Exhibit
Number Description
10.43 -- Unsecured Environmental Indemnity Agreement dated September 11, 1996,
by the Company in favor of Westminster. (1)
10.44 -- Commercial Pledge and Security Agreement dated September 11, 1996, by
and among the Company, NBA and Westminster. (1)
10.45 -- Subordinated Deed of Trust, Security Agreement, Assignment of Leases
and Rents and Fixture Filing dated September 11, 1996, by and among the
Company, First American Title Insurance Company and Westminster. (1)
10.46 -- Standard Form of Agreement between Owner and Contractor dated August 8,
1996, between the Company and Newcon, Inc. (1)
10.47 -- Agreement for the Purchase and Sale of Assets and Assumption of
Liabilities dated November 11, 1994, by and between PB Arizona, PB
Foods, James Poore, Donald Poore and Amelia Poore. (1)
10.48 -- Assignment Letter dated March 8, 1995, by and between PB Southeast and
PB Foods. (1)
10.49 -- Form of Independent Distributor Agreement by and between PB
Distributing and independent distributors. (1)
10.50 -- Agreement for the Exclusive Right to Purchase, Package, Distribute and
Sell "Low Fat" Snack Foods dated September 11, 1996, by and between the
Company and Great Snaxx. (Certain portions of this document are omitted
pursuant to a confidential treatment request which was granted by the
Commission.) (2)
10.51 -- Amendment No. 1 dated October 14, 1996, to Warrant dated September 11,
1996, issued by the Company to Westminster. (2)
10.52 -- Poore Brothers, Inc. 1995 Stock Option Plan, as amended. (2)
10.53 -- Waiver Letter dated August 1, 1996, from Renaissance, in connection
with the Debenture Loan Agreement. (2)
10.54 -- Waiver Letter dated August 27, 1996, from Wells Fargo, in connection
with the Debenture Loan Agreement. (2)
10.55 -- Letter Agreement dated November 5, 1996, amending the Non-Qualified
Stock Option Agreement dated February 29, 1996, by and between the
Company and Mark S. Howells. (2)
10.56 -- Letter Agreement dated November 5, 1996, amending the Non-Qualified
Stock Option Agreement dated February 29, 1996, by and between the
Company and Jeffrey J. Puglisi. (2)
10.57 -- Non-Qualified Stock Option Agreement dated as of October 22, 1996, by
and between the Company and Mark S. Howells. (2)
10.58 -- Letter Agreement dated as of November 5, 1996, by and between the
Company and Jeffrey J. Puglisi. (2)
10.59 -- Letter Agreement dated as of November 5, 1996, by and between the
Company and David J. Brennan. (2)
10.60 -- Stock Option Agreement dated October 22, 1996, by and between the
Company and David J. Brennan. (3)
10.61 -- Amendment to Accounts Receivable Security Agreement dated November 1,
1996, by and between PB Arizona and First Community. (2)
10.62 -- Amendment to Accounts Receivable Security Agreement dated November 1,
1996, by and between PB Distributing and First Community. (2)
10.63 -- Letter Agreement dated December 4, 1996, by and between the Company and
Jeffrey J. Puglisi, relating to stock options. (3)
10.64 -- Letter Agreement dated December 4, 1996, by and between the Company and
Mark S. Howells, relating to stock options. (3)
<PAGE>
Exhibit
Number Description
10.65 -- Letter Agreement dated December 4. 1996, by and between the Company and
Parris H. Holmes, Jr., relating to stock options. (3)
10.66 -- Letter Agreement dated December 4, 1996, by and between the Company and
David J. Brennan, relating to stock options. (3)
10.67 -- Letter Agreement dated December 4, 1996, by and between the Company and
Jeffrey H. Strasberg, relating to stock options. (3)
10.68 -- Letter Agreement dated November 1, 1996, by and among the Company, Mark
S. Howells, Jeffrey J. Puglisi, David J. Brennan and Parris H. Holmes,
Jr. (2)
10.69 -- Form of Underwriting Agreement entered into on December 6, 1996, by and
between the Company, Paradise Valley Securities, Inc., Renaissance and
Wells Fargo. (4)
10.70 -- Employment Agreement dated January 24, 1997, by and between the Company
and Eric J. Kufel. (5)
10.71 -- First Amendment to Employent Agreement dated February 2, 1997, amending
Employment Agreement by and between the Company and David J. Brennan.
(5)
10.72 -- Employment Agreement dated February 4, 1997, by and between the Company
and Scott D. Fullmer. (5)
10.73 -- Employment Agreement dated February 14, 1997, by and between the
Company and Glen E. Flook. (5)
10.74 -- Second loan modification agreement dated January 10, 1997, by and
between the Company and NBA. (5)
10.75 -- Amendment to Accounts Receivable Security Agreement dated December 30,
1996, by and between PB Distributing and First Community. (5)
10.76 -- Amendment to Accounts Receivable Security Agreement dated December 30,
1996, by and between PB Arizona and First Community. (5)
10.77 -- Promissory Note Modification Agreement dated December 30, 1996, by and
between PB Distributing and First Community. (5)
10.78 -- Promissory Note Modification Agreement dated December 30, 1996, by and
between PB Arizona and First Community. (5)
10.79 -- Commercial Real Estate Purchase Contract and Receipt for Deposit dated
January 22, 1997, by and between the Company and D.F. Properties, Inc.
(5)
10.80 -- Warrant dated September 11, 1996, issued by the Company to Westminster.
(1)
11.1 -- Statement regarding computation of per share earnings. (5)
21.1 -- List of Subsidiaries of the Company. (1)
27.1 -- Financial Data Schedule. (5)
(1) Incorporated by reference to the Company's Registration Statement on
Form SB-2 filed with the Commission on September 20, 1996 (Registration
No. 333-5594-LA).
(2) Incorporated by reference to Amendment No. 1 to Company's Registration
Statement on Form SB-2 filed with the Commission on November 8, 1996
(Registration No. 333-5594-LA).
(3) Incorporated by reference to Amendment No. 3 to the Company's
Registration Statement on Form SB-2 filed with the Commission on
December 5, 1996 (Registration No. 333-5594-LA).
(4) Incorporated by reference to Amendment No. 4 to the Company's
Registration Statement on Form SB-2 filed with the Commission on
December 6, 1996 (Registration No. 333-5594-LA).
(5) Filed herewith.
January 28, 1997
Mr. Wendell Jones
6152 West Blackhawk Drive
Glendale, AZ 85308
Dear Mr. Jones:
This letter represents an amendment to the agreement by and between Poore
Brothers, Inc. (the "Employer") and Wendell T. Jones (the "Employee") dated May
20, 1996, pertaining to the Employee's employment with the Employer.
The Employer and the Employee agree as follows:
1. Effective February 1, 1997, the Employee shall be appointed as Director of
Sales, Arizona. It is understood that Employee will work 32 hours per week.
2. The Employee's initial compensation shall be Eleven Hundred Fifty Four
Dollars ($1,154.00) per week. Employee shall receive annual performance
reviews.
3. Employer shall provide Employee with exclusive use of a company owned or
leased vehicle. Employer shall pay all costs of maintenance, taxes, license
fees and insurance. In addition, Employer shall reimburse Employee for the
cost of any gasoline utilized in the vehicle.
4. Employee will be a participant in a bonus plan subject to the terms and
conditions established by the Board of Directors.
<PAGE>
5. The Employee will have a one year guaranteed contract with Employer.
Sincerely,
Eric J. Kufel
President and Chief Executive Officer
ADOPTED AND AGREED TO
this _________________ day of _______________, 1997
_______________________________________________
Wendell T. Jones
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into
effective as of the 24th day of January, 1997 ("Effective Date"), by and
between POORE BROTHERS, INC. ("Company"), a Delaware corporation, and ERIC J.
KUFEL ("Employee"), a married man.
In consideration of the mutual promises and covenants contained herein,
and other good and valuable consideration, the receipt of which is acknowledged,
Company and Employee agree as provided in this Agreement.
1. Employment. Company hereby employs Employee, and Employee accepts
employment by Company, upon the terms and conditions contained in this
Agreement.
2. Term. Employee's employment by Company shall commence on February 3,
1997, and shall continue until either Company or Employee gives to the other
party written notice of termination. Employee shall be an employee at will and
if Employee's employment is terminated, Employee's status as officer and
director of Company shall also be terminated. Either Company or Employee may
terminate Employee's employment by Company with or without cause upon written
notice of termination to the other party.
3. Title. During the period of Employee's employment by Company,
Employee shall be the President and Chief Executive Officer of Company and shall
have all rights, powers and authority inherent in such positions including,
without limitation, the authority to direct the day-to-day operations of
Company. In addition, during the period of Employee's employment by Company,
Employee shall serve on the board of directors of Company and on Company's
compensation committee, so long as he desires to serve in such capacities.
4. Compensation. During the period of Employee's employment by Company,
Employee shall receive from Company an annual salary of $115,000, which shall be
payable proportionately on Company's regular payroll payment dates for its
employees. Employee's annual salary shall be subject to change at the discretion
of Company's compensation committee.
5. Bonuses. During and for the period of Employee's employment by
Company, Employee shall receive such bonuses, whether incentive, merit or
otherwise and whether cash, stock or otherwise, as Company's compensation
committee shall determine from time to time.
<PAGE>
6. Fringe Benefits. During the period of Employee's employment by
Company, Employee shall be entitled to participate in all of Company's qualified
retirement plans and welfare benefit plans (e.g., group health insurance) on the
same basis as Company's other employees. In addition, during the period of
Employee's employment by Company, Employee shall be entitled to participate in
all non-qualified deferred compensation and similar compensation, bonus and
stock plans offered, sponsored or established by Company on substantially the
same or a more favorable basis as any other employee of Company.
7. Automobile, Telephone and Card. During the period of Employee's
employment by Company, Company shall furnish to Employee the following:
(a) Company shall furnish to Employee a Company owned or leased
automobile to be used by Employee for Company purposes and Employee's personal
use. The year, make and model of such automobile shall be reasonably agreed upon
by Company and Employee from time to time. Company shall pay for all of the
insurance (with coverage reasonably satisfactory to Employee), gasoline, oil,
tires, warranty and routine service and other maintenance and repairs for the
automobile. Employee acknowledges that he may recognize taxable income in
connection with Company's furnishing the automobile for his use.
(b) Company shall furnish to Employee a mobile or cellular
telephone for Employee's use and shall pay all charges in connection therewith
(except Employee shall reimburse Company for the charges each month that are in
excess of $200 of charges in such month which are not accounted for by Employee
as charges for the purposes of Company). The telephone to be furnished to
Employee shall be agreed upon by Company and Employee from time to time.
(c) Company shall furnish to Employee a Company credit card for
Employee to use solely for purposes of Company.
8. Options.
Company hereby grants to Employee the right and option to purchase
300,000 shares of Company's $0.01 par value voting common stock ("Common
Stock"), in accordance with Company's 1995 Stock Option Plan ("Plan"), at a
price per share equal to $3.5625 per share. These options will vest in equal
100,000 share increments on the first, second and third anniversaries of the
Effective Date. Employee acknowledges receipt of a copy of the
<PAGE>
Plan and agrees to the terms set forth therein. Employee further recognizes that
the Plan is subject to change from time to time by the Board of Directors of
Company. All of the terms and conditions of the Options described herein shall
otherwise be governed by the terms of the Plan including, without limitation,
exercise dates and times, payment of option prices, revisions of the Options,
expiration and the like, all of the terms and conditions of which Plan are
incorporated by reference into this portion of this Agreement as if fully
rewritten herein.
9. Confidentiality.
(a) During the period of Employee's employment by Company and for a
one year period thereafter, Employee shall hold in confidence and shall not
disclose or publish, except in the performance of his duties under this
Agreement, any Confidential Information (as defined below) that is presented or
disclosed to him in connection with his employment by Company.
(b) Subject to the provisions of Section 9(c) below, for purposes
of this Agreement the term "Confidential Information" shall mean information or
material that is proprietary to and owned by Company. Such Confidential
Information shall include, without limitation, Company's recipes for specialty
potato chips, manufacturing processes, customer lists, supplier lists and
pricing information.
(c) Notwithstanding the foregoing, the term Confidential
Information shall not include any information or material that:
(i) is in, or has passed into, the public domain;
(ii) is lawfully received by Employee from a third party;
(iii) is required to be disclosed by Employee by law or
pursuant to an order determination issued by a court or any
federal, state or municipal regulatory or administrative agency; or
(iv) was in the possession of, or known by, Employee prior to
his Employment by Company.
(d) Employee acknowledges that the Confidential Information of
Company is unique in character and that Company
<PAGE>
would not have an adequate remedy at law for a material breach or threatened
material breach by Employee of his covenants under this Section 9. Employee
therefor agrees that, in the event of any such material breach or threat
thereof, Company may obtain a temporary and/or permanent injunction or
restraining order to enjoin Employee from such material breach or threat
thereof, in addition to any other rights or remedies available to Company at law
or in equity.
(e) Notwithstanding the foregoing, Employee may disclose
Confidential Information to his attorneys and other advisors on a need to know
basis provided the recipient is directed and required to maintain the disclosed
Confidential Information in confidence.
10. Indemnification.
(a) Company shall indemnify and hold Employee harmless and defend
Employee for, from and against all claims, liabilities, obligations, fines,
penalties and other matters and all costs and expenses relating thereto that
Company and/or such subsidiary or affiliated entity is permitted by applicable
law, except as any of the foregoing arises out of or relates to Employee's
negligence, willful malfeasance and/or breach of this Agreement.
(b) Company represents and warrant to Employee that neither its
articles of incorporation nor its bylaws nor any resolutions of its shareholders
or board of directors restricts or limits Companies rights or obligations to
indemnify Employee as provided in subsection (a) of this Section 10, except to
the extent such restrictions or limitations are required by applicable law.
11. Noncompete. During the period of Employee's employment by Company,
Employee shall not, directly or indirectly, whether as principal, consultant,
employee, agent, officer, director, trustee or otherwise, engage in the business
of manufacturing specialty potato chips, salted snack foods or popcorn or engage
in the business of distributing specialty potato chips, salted snack foods or
<PAGE>
popcorn. In addition, Employee shall not, for a period of one year beginning on
the date of termination of his employment, directly or indirectly, whether as
principal, consultant, employee, agent, officer, director, trustee or otherwise,
engage in the United States in the business of manufacturing specialty potato
chips, salted snack foods or popcorn or engage in the United States in the
business of distributing specialty potato chips, salted snack foods or popcorn.
Employee acknowledges that the foregoing limitations are minimum limitations
which are necessary to protect the legitimate interests of Company because of
Employee's sensitive executive position with Company. Therefore, if a breach of
the foregoing shall occur, in addition to any action for damages which Company
may have, Company shall have the right to obtain an injunction as a matter of
right prohibiting Employee's competition in violation of the foregoing. In the
event that the time period of non-competition is deemed to be unreasonable,
Employee acknowledges that 11 months shall be deemed reasonable. In the event 11
months is deemed unreasonable, then 10 months is deemed reasonable, and so on,
until the foregoing covenant is enforceable to the fullest extent permitted by
law. Similarly, in the event the entire United States is deemed unreasonable,
states shall be eliminated one by one beginning with Maine, continuing down the
east coast of the United States and in roughly in north to south linear fashion
across the United States until the geographical limit set forth above is deemed
reasonable to the fullest extent permitted by law.
12. Additional Provisions.
(a) This Agreement shall not be assigned by either Company or
Employee without the other party's prior written consent; otherwise, this
Agreement shall be binding upon, and shall inure to the benefit of, the heirs,
personal representatives, successors and assigns of Company and Employee
respectively.
(b) This Agreement and the rights and obligations of Company and
Employee shall be governed by, and shall be construed in accordance with, the
laws of the State of Arizona without the application of any laws of conflicts of
laws that would require or permit the application of the laws of any other
jurisdiction.
(c) Time is of the essence of this Agreement and each provision
hereof.
(d) This Agreement sets forth the entire understanding of Company
and Employee with respect to the matters set forth herein and cannot be amended
or modified except by an instrument in writing signed by the party against whom
enforcement is sought.
(e) This Agreement is the result of negotiations between Company
and Employee, and Company and Employee hereby waive the application of any rule
of law that otherwise would be applicable in connection with the interpretation
and construction
<PAGE>
of this Agreement that ambiguous or conflicting terms or provisions are to be
interpreted or construed against the party who (or whose attorney) prepared the
executed Agreement or any earlier draft of the same.
(f) If any provision or any portion of any provision of this
Agreement shall be deemed to be invalid, illegal or unenforceable, the same
shall not alter the remaining portion of such provision or any other provision
of this Agreement, as each provision of this Agreement and portion thereof shall
be deemed severable.
(g) Except as may be otherwise required by law, any notice required
or permitted to be given under this Agreement shall be given in writing and
shall be given either by (i) personal delivery, or (ii) overnight courier
service, or (iii) facsimile transmission, or (iv) United States certified or
registered mail, in each case with postage prepaid to the following address or
to such other address as Company or Employee may designate by notice given to
the other party pursuant to this section. Notice shall be effective on (v) the
day notice is personally delivered, if notice is given by personal delivery, or
(vi) the first business day after the date of delivery to the overnight delivery
service, if notice is given by such a delivery service, (vii) the day notice is
received, if notice is given by facsimile, or (viii) the fourth business day
after notice is deposited in the United States mail, if notice is given by
United States certified or registered mail.
<PAGE>
Company: Poore Brothers, Inc.
2664 South Litchfield Road
Goodyear, Arizona 85338-1500
Fax No. (602) 925-2363
Employee: Eric J. Kufel
851 E. Village Cir. Dr. S.
Phoenix, AZ 85022
Fax No. -- ______________
(h) If any action, suit or proceeding is brought in connection with
this Agreement, or on account of any breach of this Agreement, or to enforce or
interpret any of the terms, covenants and conditions of this Agreement, the
prevailing party shall be entitled to recover from the other party or parties,
the prevailing party's reasonable attorneys' fees and costs, and the amount
thereof shall be determined by the court (not by a jury) or the arbitrator and
shall be made a part of any judgment or award rendered.
POORE BROTHERS, INC.
By___________________________________
Its________________________________
[Company]
-------------------------------------
Eric J. Kufel
[Employee]
FIRST AMENDMENT
TO
EMPLOYMENT AGREEMENT
This First Amendment to Employment Agreement ("Amendment") is made by
POORE BROTHERS, INC. ("Company"), a Delaware corporation, and DAVID J. BRENNAN
("Consultant"), a married man, is effective February 2, 1997 ("Modification
Date"), and is a modification of and an amendment to that certain Employment
Agreement dated March 11, 1996 by and between Poore Brothers, Inc. and David J.
Brennan ("Agreement").
Company and Consultant desire that Consultant's employment by Company
terminate and that Consultant be engaged as an independent contractor for
Company, as provided in this Amendment.
In consideration of the mutual promises and covenants contained herein,
and other good and valuable consideration, the receipt of which is acknowledged,
Company and Consultant agree as provided in this Amendment.
1. Section 1 of the Agreement is hereby amended, effective on the
Modification Date, to read in its entirety as follows:
Company retains Consultant, and Consultant agrees to render
services to Company, upon the terms and conditions of this
Agreement. Company and Consultant agree that Consultant will
be an independent contractor, that Consultant will not be an
employee of Company for federal tax or other purposes, that
Consultant may render consulting services for third parties
(provided he is not in breach of this Agreement), that
Consultant will not be eligible for the employee benefits
offered by Company to its employees in general (except for
such benefits as are specifically provided in this Agreement),
and that Company will not withhold any taxes from the
compensation it pays to Consultant hereunder. Consultant shall
be responsible for any quarterly estimated tax payments, and
shall indemnify Company against Consultant's income and
self-employment tax liabilities, on such compensation paid to
him by Company.
2. Section 2 of the Agreement is hereby amended, effective on the
Modification Date, to read in its entirety as follows:
<PAGE>
Consultant shall be retained as a consultant for Company for a
period 90 days beginning February 2, 1997. In addition,
Company shall have the one time option to extend Consultant's
engagement hereunder for an additional 60 days by giving
written notice to Consultant of Company's election to exercise
such option provided such notice is given before the
expiration of the 90-day consulting period. However, if
Consultant receives and negotiates a payment from Company for
compensation for the period following the expiration of such
90-day period, then Company and Consultant shall be deemed to
have extended Consultant's engagement hereunder as a
consultant for Company for such additional 60-day period.
Company and Consultant agree that the change of Consultant's
title and duties and the termination of Consultant's employment by Company shall
be, for all purposes, deemed to be a voluntary resignation by Consultant and not
a breach of the Agreement by Consultant. Consultant hereby resigns as an officer
of Company effective on the Modification Date.
3. Section 3 of the Agreement is hereby amended, effective on the
Modification Date, to read in its entirety as follows:
During the period of Consultant's engagement with Company,
Consultant shall perform such consulting services as may be
reasonably requested by Company from time to time including,
without limitation, the following:
(a) Assisting Company in making the transition from
Consultant being the president and chief executive officer of
Company to his successor assuming such duties;
(b) Consulting with Company in connection with its
possible disposition of its subsidiary Poore Brothers of
Texas, Inc.; and
(c) Consulting with Company in connection with any
proposed acquisition by Company of other companies or
businesses.
In addition, during the period of Consultant's engagement by
Company as a consultant, Consultant may continue to serve on
the board of directors of Company at the
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<PAGE>
pleasure of the shareholders of Company. Consultant desires to
continue serving on the Board of Directors of Company.
Accordingly, Company shall nominate Consultant for reelection
to the board of directors of Company.
4. Section 4 of the Agreement is hereby deleted effective on the
Modification Date. Consultant hereby resigns as an officer and as a member of
the board of directors of each of Company's subsidiary or affiliated
corporations who agree to and accept this Amendment by their execution below.
5. Section 5 of the Agreement is hereby amended, effective on the
Modification Date, to read in its entirety as follows:
During the period of Consultant's engagement by Company,
Consultant shall receive from Company compensation equal to
$5,000 per month.
In addition, Consultant shall receive from Company the sum of
$4,807.69, less all applicable withholding, for two weeks of vacation pay which
was accrued but unpaid as of the Modification Date, and such sum shall be
payable to Consultant on Company's next payroll payment date.
6. Section 6 of the Agreement is hereby deleted effective on the
Modification Date.
7. Section 7 of the Agreement is hereby amended, effective on the
Modification Date, to read in its entirety as follows:
Company shall continue covering Consultant on Company's health
insurance plan, at Company's expense, for the period
Consultant is engaged as a consultant hereunder. Company shall
provide such coverage for Consultant's dependents, at
Consultant's expense, if Consultant elects such additional
coverage. Consultant's COBRA rights shall commence upon the
expiration of his engagement as a consultant for Company under
this Agreement.
8. Section 8(c) of the Agreement is hereby amended, effective on the
Modification Date, by deleting therefrom the words "(including those named in
Section 4 above)".
9. Company and Consultant acknowledge that Consultant exercised his
option under, and purchased 100,000 shares of Company's $0.01 par value voting
common stock pursuant to, Section 9(a) of the Agreement. Company and Consultant
further
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<PAGE>
acknowledge that Consultant purchased from Company, and currently owns, an
additional 100,000 shares of Company's $0.01 par value voting common stock. In
addition, Company and Consultant agree that the option granted by Company to
Consultant pursuant to that certain Incentive Stock Option Agreement dated
October 22, 1996 to purchase 30,000 shares of Company's $0.01 par value common
stock for $3.50 per share is fully vested and the Incentive Stock Option
Agreement is otherwise hereby ratified and confirmed. Consultant acknowledges
that he has been granted no options, and is not entitled to be granted any
additional options, to purchase shares of Company's capital stock except as
specifically provided for or referenced in the Agreement and this Amendment.
The last sentence of Section 9(b) of the Agreement is hereby amended,
effective on the Modification Date, to read as follows:
The option granted under this subsection
shall be fully vested on April 1, 1997.
Sections 9(c) and 9(d) of the Agreement are hereby
deleted effective on the Modification Date.
10. Company and Consultant agree that all references in
Section 10 of the Agreement and in all other sections of the Agreement to
"Employee" are to "Consultant", effective on the Modification Date.
11. Section 11(a) of the Agreement is hereby amended,
effective on the Modification Date, to delete the phrase "for a one-year period
thereafter" on the second line thereof and to insert in lieu thereof the phrase
"and thereafter through January 31, 1998."
12. Section 12(c) of the Agreement is hereby deleted effective
on the Modification Date.
13. Section 13 of the Agreement is hereby amended, effective
on the Modification Date, to delete the words "named in Section 4 above" from
the second line thereof and to delete the words "(including those named in
Section 4 above)" in both places such words appear therein.
14. Section 14 of the Agreement is hereby amended, effective
on the Modification Date, to delete the words "or popcorn" and the words "and
popcorn" wherever they appear therein and to delete the words "the date of
termination of Consultant's employment by Company" in the second sentence
thereof and to insert in lieu thereof the words "February 2, 1997".
15. Section 15 of the Agreement is hereby amended, effective
on the Modification Date, by renumbering such section as Section 16. A new
section 15 is hereby added to the Agreement, effective on the Modification Date,
as follows:
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<PAGE>
15. Releases.
(a) Consultant, on behalf of himself and his marital
community, heirs, executors, personal representatives and
assigns, does hereby release and forever discharge Company and
any subsidiary company and any other company affiliated with
or under common ownership with Company, and each of their
respective current and former officers, partners, principals,
directors, shareholders, attorneys, employees, agents,
servants, representatives, independent contractors,
guarantors, heirs, successors, insurers, assigns, and all
affiliated entities, hereinafter collectively referred to as
the "Released Parties," from any and all claims, demands,
causes of actions, or liabilities of any kind or character,
known or unknown, arising or accruing through February 2,
1997, including, without limitation, all claims that are in
any way related to Consultant's employment by Company under
this Agreement (except for the provisions hereof which are
specifically stated herein to survive) or the change in
Consultant's status from an employee to that of an independent
contractor.
(i) Without limiting the generality of the
foregoing, the full release contained in this subsection (a)
applies to all claims arising prior to February 2, 1997 under
the Civil Rights Act of 1964, the Age Discrimination in
Employment Act of 1967, the Americans with Disabilities Act of
1990, the Labor Management Relations Act, the Consultant
Retirement Income Security Act of 1974, the Fair Labor
Standards Act, the Family and Medical Leave Act, the
Immigration Reform and Control Act, the Consolidated Omnibus
Budget Reconciliation Act, the occupational Safety and Health
Act, or any comparable state occupational safety and health
statute, the Workers' Adjustment and Retraining Act, 42 U.S.C.
ss. 1981, the Arizona Civil Rights Act, the Arizona Wage Act,
and any other applicable state or federal statute, and any
common law cause of action, including without limitation
claims for breach of contract, wrongful discharge, unpaid
wages, tort, personal injury, or any claim for attorney's fees
or other damages, costs or expenses of any kind or nature.
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<PAGE>
(ii) Notwithstanding the foregoing, the
release by Consultant contained in this subsection (a) does
not waive any claim arising out of any breach or alleged
breach of this Agreement from and after February 2, 1997 by
Consultant, or any claim that may arise under or by reason of
Consultant's engagement by Company as an independent
contractor for Company.
(iii) Each of the Released Parties (other
than Company) is intended as, and is expressly designated as,
a third party beneficiary of this subsection (a).
(iv) Upon termination of Consultant's
employment by Company, Consultant shall return all of
Company's property that is in his possession, custody, or
control including, without limitation, the automobile, credit
card and cellular telephone to which reference is made below,
and all records, files, goods, equipment, documents, computer
software, data, disks, and any other property of Company and
any copies thereof.
(v) Consultant agrees not to make any
defamatory comments about Company to any person after February
2, 1997.
(vi) Consultant agrees not to bring a lawsuit
against Company or to file or lodge any type of complaint
against Company alleging violation of any law by Company with
any governmental agency arising from Consultant's employment
by Company through February 1, 1997.
(vii) The remedies specifically provided by
this subsection (a) are not exclusive, and are cumulative
with, and in addition to, any other remedy now or hereafter
available at law. Without limiting the generality of the
foregoing, Company may pursue injunctive relief, actual
damages, and/or any other remedy provided at law.
(viii) Consultant understands and agrees that
Company is not admitting to any liability to Consultant and is
making a compromise and settlement.
-6-
<PAGE>
(ix) Consultant is advised to consult with an
attorney respecting this subsection (a). By his signature
below, Consultant acknowledges that he has been so advised,
and that he has had an opportunity to consult with an
attorney.
(x) Consultant acknowledges that he has been
given a period of twenty-one (21) days within which to
consider this Subsection (a).
(xi) For a period of seven days following
February 2, 1997, Consultant may revoke this Agreement, as
amended effective February 2, 1997, in which case it shall not
become effective or enforceable. The provisions of this
Agreement, as amended effective February 2, 1997, shall become
effective upon the eighth day following such date provided
Consultant has not revoked the same as provided above.
(b) Company, on its behalf and on behalf of its
successors and assigns, and each of Company's subsidiary and
affiliated companies, on their behalf and on behalf of their
respective successors and assigns, herein collectively the
"Company Releasors", hereby freely and voluntarily forever
release and discharge Consultant and his spouse, and their
respective heirs, personal representatives, successors and
assigns, and their respective attorneys, agents and
representatives, herein collectively the "Consultant
Releasees", of and from any and all claims, demands, causes of
action, suits, damages, losses, costs and expenses of any kind
or nature whatsoever (collectively "Company Claims") resulting
from, arising out of, or any way connected with or concerning
Consultant's employment by Company through February 1, 1997,
or the change in Consultant's titles and duties on February 2,
1997.
(i) This subsection (b) is intended by the
Company Releasors and the Consultant Releasees as a full and
complete settlement of the rights and obligations among them
concerning such employment and such change in titles and
duties, and the release and discharge of the Company Claims
includes all claims and causes of action under federal
statutes and regulations, Arizona statutes and regulations,
all other statutes and governmental ordinances, rules and
regulations, and all constitutional, common law, tort and
contract claims and remedies that the Company Releasors have
ever had or now has, known or unknown,
-7-
<PAGE>
suspected or unsuspected, contingent or otherwise, or that
anyone claiming through or under the Company Releasors or any
of them ever had or now has or claim to have against the
Consultant Releasees or any of them.
(ii) Notwithstanding the foregoing, the
release and discharge by Company of the Company Claims does
not waive any claim arising out of any breach or alleged
breach of this Agreement from and after February 2, 1997 by
Consultant, or any claim that may arise by reason of
Consultant's engagement as an independent contractor for
Company.
(iii) Each of the Consultant Releasees (other
than Consultant) is intended to be, and is expressly
designated as, a third party beneficiary of this subsection
(b).
(iv) Company agrees that none of the Company
Releasors and none of the Released Parties described under
subsection (a) shall make any defamatory comments about
Consultant or Consultant's employment by Company or any of its
subsidiary or affiliated companies after February 2, 1997.
(v) Company and its subsidiary and affiliated
companies, by their execution below, agree not to bring a
lawsuit against any of the Consultant Releasees or to file or
lodge any type of complaint against Consultant alleging
violation of any law by Consultant with any governmental
agency arising from Consultant's employment by Company or any
of such subsidiary or affiliated companies or the change in
Consultant's titles and duties.
(vi) The remedies provided in this subsection
(b) are not exclusive and are cumulative with, and in addition
to, any other rights and remedies now or hereafter available
at law or in equity. Without limiting the generality of the
foregoing, the Consultant Releasees may pursue injunctive
relief, actual damages and/or any other remedy provided at law
or in equity.
(vii) The Company Releasors understand and
agree that Consultant is not admitting to any liability to any
of the Company Releasors and is making a compromise and
settlement.
16. Sections 16(a), (b), (d) and (e) (formerly subsections of
Section 15) of the Agreement are hereby amended by deleting from each such
subsection the words "(and its subsidiaries named in Section 4 above)" and
inserting in lieu
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<PAGE>
thereof the words "and its subsidiaries and affiliates". Section 16(j) (formerly
Section 15(j)) of the Agreement is hereby amended, effective on the Modification
Date, by deleting therefrom the words "which includes those named in Section 4".
17. Subsection (g) of Section 16 (formerly Section 15) of the
Agreement is hereby amended, effective on the Modification Date, to read in its
entirety as follows:
This Agreement is being approved and accepted by
Poore Brothers Arizona, Inc., Poore Brothers Distributing,
Inc., Poore Brothers of Texas, Inc., and Poore Brothers
Southeast, Inc., and is also being approved and accepted by
Mary C. Brennan. By their execution below, each of such
subsidiaries or affiliates of Company agree to be bound by all
of the terms and provisions of this Agreement that are
applicable to Company or to any of such subsidiaries or
affiliates. By her execution below, Mary C. Brennan, who is
the wife of Consultant, agrees to be bound by all of the terms
and provisions of this Agreement that are applicable to
Consultant.
18. New subsections (k) and (l) are hereby added to Section 16
(formerly Section 15) of the Agreement, effective on the Modification Date, as
follows:
(k) This Agreement may be executed in any number of
counterparts, each of which shall be deemed to be an original,
and all of which taken together shall be deemed to be one and
the same agreement. This Agreement may be executed and
delivered by facsimile transmission upon confirmation of
receipt by the other party, which will have the same effect as
delivery of the written Agreement.
(l) The provisions of Sections 9 through 16 of this
Agreement shall survive the termination of Consultant's
employment by Company and his engagement as a consultant for
Company.
-9-
<PAGE>
In witness whereof, Company and Consultant have executed this
Amendment as of the Modification Date.
POORE BROTHERS, INC.
By___________________________ _____________________________
David J. Brennan
Its__________________________
[Company] [Consultant]
Agreed and Accepted by each of: Agreed and Accepted by:
POORE BROTHERS ARIZONA, INC. _____________________________
Mary C. Brennan
By______________________________
Its_____________________________
POORE DISTRIBUTING, INC.
By______________________________
Its_____________________________
POORE BROTHERS OF TEXAS, INC.
By______________________________
Its_____________________________
POORE BROTHERS SOUTHEAST, INC.
By______________________________
Its_____________________________
-10-
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into
effective as of the 4th day of February, 1997 ("Effective Date"), by and
between POORE BROTHERS, INC. ("Company"), a Delaware corporation, and SCOTT
FULLMER ("Employee"), a married man.
In consideration of the mutual promises and covenants contained herein,
and other good and valuable consideration, the receipt of which is acknowledged,
Company and Employee agree as provided in this Agreement.
1. Employment. Company hereby employs Employee, and Employee accepts
employment by Company, upon the terms and conditions contained in this
Agreement.
2. Term. Employee's employment by Company shall commence on February
20, 1997, and shall continue until either Company or Employee gives to the other
party written notice of termination. Employee shall be an employee at will and
if Employee's employment is terminated, Employee's status as officer of Company
shall also be terminated. Either Company or Employee may terminate Employee's
employment by Company with or without cause upon written notice of termination
to the other party.
3. Title. During the period of Employee's employment by Company,
Employee shall be the Vice President--Sales & Marketing of Company and shall
have such rights, powers and authority in such positions as may be designated by
Company's Board of Directors from time to time.
4. Compensation. During the period of Employee's employment by Company,
Employee shall receive from Company an annual salary of $90,000.00, which shall
be payable proportionately on Company's regular payroll payment dates for its
employees. Employee's annual salary shall be subject to change at the discretion
of Company's compensation committee.
5. Bonuses. During and for the period of Employee's employment by
Company, Employee shall receive such bonuses, whether incentive, merit or
otherwise and whether cash, stock or otherwise, as Company's compensation
committee shall determine from time to time.
6. Fringe Benefits. During the period of Employee's employment by
Company, Employee shall be entitled to participate in all of Company's qualified
retirement plans and welfare benefit plans (e.g., group health insurance) on the
same basis as Company's other employees. In addition, during the period of
<PAGE>
Employee's employment by Company, Employee shall be entitled to participate in
all non-qualified deferred compensation and similar compensation, bonus and
stock plans offered, sponsored or established by Company.
7. Automobile, Telephone and Credit Card. During the period of
Employee's employment by Company, Company shall furnish to Employee the
following:
(a) Company shall furnish to Employee a Company owned or
leased automobile to be used by Employee for Company purposes and Employee's
personal use. The year, make and model of such automobile shall be reasonably
agreed upon by Company and Employee from time to time. Company shall pay for all
of the insurance (with coverage reasonably satisfactory to Employee), gasoline,
oil, tires, warranty and routine service and other maintenance and repairs for
the automobile. Employee acknowledges that he may recognize taxable income in
connection with Company's furnishing the automobile for his use.
(b) Company shall furnish to Employee a mobile or cellular
telephone for Employee's use and shall pay all charges in connection therewith
(except Employee shall reimburse Company for the charges each month that are in
excess of $200 of charges in such month which are not accounted for by Employee
as charges for the purposes of Company). The telephone to be furnished to
Employee shall be agreed upon by Company and Employee from time to time.
(c) Company shall furnish to Employee a Company credit card
for Employee to use solely for purposes of Company.
8. Options. Company hereby grants to Employee the right and option to
purchase 75,000 shares of Company's $0.01 par value voting common stock ("Common
Stock"), in accordance with Company's 1995 Stock Option Plan ("Plan"), at a
price per share equal to $3.875 per share. These options will vest in equal
25,000 share increments on the first, second and third anniversaries of the
Effective Date. Employee acknowledges receipt of a copy of the Plan and agrees
to the terms set forth therein. Employee further recognizes that the Plan is
subject to change from time to time by the Board of Directors of Company. All of
the terms and conditions of the options described herein shall otherwise be
governed by the terms of the Plan including, without limitation, exercise dates
and times, payment of option prices, revisions of the options, expiration and
the like, all of the terms and
<PAGE>
conditions of which Plan are incorporated by reference into this portion of this
Agreement as if fully rewritten herein.
9. Confidentiality.
(a) During the period of Employee's employment by Company and
for a one year period thereafter, Employee shall hold in confidence and shall
not disclose or publish, except in the performance of his duties under this
Agreement, any Confidential Information (as defined below) that is presented or
disclosed to him in connection with his employment by Company.
(b) Subject to the provisions of Section 9(c) below, for
purposes of this Agreement the term "Confidential Information" shall mean
information or material that is proprietary to and owned by Company. Such
Confidential Information shall include, without limitation, Company's recipes
for specialty potato chips, manufacturing processes, customer lists, supplier
lists and pricing information.
(c) Notwithstanding the foregoing, the term Confidential
Information shall not include any information or material that:
(i) is in, or has passed into, the public domain;
(ii) is lawfully received by Employee from a third
party;
(iii) is required to be disclosed by Employee by law
or pursuant to an order determination issued by a court or any
federal, state or municipal regulatory or administrative
agency; or
(iv) was in the possession of, or known by, Employee
prior to his Employment by Company.
(d) Employee acknowledges that the Confidential Information of
Company is unique in character and that Company would not have an adequate
remedy at law for a material breach or threatened material breach by Employee of
his covenants under this Section 9. Employee therefor agrees that, in the event
of any such material breach or threat thereof, Company may obtain a temporary
and/or permanent injunction or restraining order to enjoin Employee from such
material breach or threat thereof, in
<PAGE>
addition to any other rights or remedies available to Company at law or in
equity.
(e) Notwithstanding the foregoing, Employee may disclose
Confidential Information to his attorneys and other advisors on a need to know
basis provided the recipient is directed and required to maintain the disclosed
Confidential Information in confidence.
10. Indemnification.
(a) Company shall indemnify and hold Employee harmless and
defend Employee for, from and against all claims, liabilities, obligations,
fines, penalties and other matters and all costs and expenses relating thereto
that Company and/or such subsidiary or affiliated entity is permitted by
applicable law, except as any of the foregoing arises out of or relates to
Employee's negligence, willful malfeasance and/or breach of this Agreement.
(b) Company represents and warrant to Employee that neither
its articles of incorporation nor its bylaws nor any resolutions of its
shareholders or board of directors restricts or limits Companies rights or
obligations to indemnify Employee as provided in subsection (a) of this Section
10, except to the extent such restrictions or limitations are required by
applicable law.
11. Noncompete. During the period of Employee's employment by Company,
Employee shall not, directly or indirectly, whether as principal, consultant,
employee, agent, officer, director, trustee or otherwise, engage in the business
of manufacturing specialty potato chips, salted snack foods or popcorn or engage
in the business of distributing specialty potato chips, salted snack foods or
popcorn. In addition, Employee shall not, for a period of one year beginning on
the date of termination of his employment, directly or indirectly, whether as
principal, consultant, employee, agent, officer, director, trustee or otherwise,
engage in the United States in the business of manufacturing specialty potato
chips, salted snack foods or popcorn or engage in the United States in the
business of distributing specialty potato chips, salted snack foods or popcorn.
Employee acknowledges that the foregoing limitations are minimum limitations
which are necessary to protect the legitimate interests of Company because of
Employee's sensitive executive position with Company. Therefore, if a breach of
the foregoing shall occur, in addition to any action for damages which Company
may have, Company shall have the right to obtain an injunction as
<PAGE>
a matter of right prohibiting Employee's competition in violation of the
foregoing. In the event that the time period of non-competition is deemed to be
unreasonable, Employee acknowledges that 11 months shall be deemed reasonable.
In the event 11 months is deemed unreasonable, then 10 months is deemed
reasonable, and so on, until the foregoing covenant is enforceable to the
fullest extent permitted by law. Similarly, in the event the entire United
States is deemed unreasonable, states shall be eliminated one by one beginning
with Maine, continuing down the east coast of the United States and in roughly
in north to south linear fashion across the United States until the geographical
limit set forth above is deemed reasonable to the fullest extent permitted by
law.
12. Additional Provisions.
(a) This Agreement shall not be assigned by either Company or
Employee without the other party's prior written consent; otherwise, this
Agreement shall be binding upon, and shall inure to the benefit of, the heirs,
personal representatives, successors and assigns of Company and Employee
respectively.
(b) This Agreement and the rights and obligations of Company
and Employee shall be governed by, and shall be construed in accordance with,
the laws of the State of Arizona without the application of any laws of
conflicts of laws that would require or permit the application of the laws of
any other jurisdiction.
(c) Time is of the essence of this Agreement and each
provision hereof.
(d) This Agreement sets forth the entire understanding of
Company and Employee with respect to the matters set forth herein and cannot be
amended or modified except by an instrument in writing signed by the party
against whom enforcement is sought.
(e) This Agreement is the result of negotiations between
Company and Employee, and Company and Employee hereby waive the application of
any rule of law that otherwise would be applicable in connection with the
interpretation and construction of this Agreement that ambiguous or conflicting
terms or provisions are to be interpreted or construed against the party who (or
whose attorney) prepared the executed Agreement or any earlier draft of the
same.
<PAGE>
(f) If any provision or any portion of any provision of this
Agreement shall be deemed to be invalid, illegal or unenforceable, the same
shall not alter the remaining portion of such provision or any other provision
of this Agreement, as each provision of this Agreement and portion thereof shall
be deemed severable.
(g) Except as may be otherwise required by law, any notice
required or permitted to be given under this Agreement shall be given in writing
and shall be given either by (i) personal delivery, or (ii) overnight courier
service, or (iii) facsimile transmission, or (iv) United States certified or
registered mail, in each case with postage prepaid to the following address or
to such other address as Company or Employee may designate by notice given to
the other party pursuant to this section. Notice shall be effective on (v) the
day notice is personally delivered, if notice is given by personal delivery, or
(vi) the first business day after the date of delivery to the overnight delivery
service, if notice is given by such a delivery service, (vii) the day notice is
received, if notice is given by facsimile, or (viii) the fourth business day
after notice is deposited in the United States mail, if notice is given by
United States certified or registered mail.
<PAGE>
Company: Poore Brothers, Inc.
2664 South Litchfield Road
Goodyear, Arizona 85338-1500
Fax No. (602) 925-2363
Employee: Scott Fullmer
9209 N. Arroya Vista W.
Phoenix, AZ 85028
Fax No. -- ______________
(h) If any action, suit or proceeding is brought in connection
with this Agreement, or on account of any breach of this Agreement, or to
enforce or interpret any of the terms, covenants and conditions of this
Agreement, the prevailing party shall be entitled to recover from the other
party or parties, the prevailing party's reasonable attorneys' fees and costs,
and the amount thereof shall be determined by the court (not by a jury) or the
arbitrator and shall be made a part of any judgment or award rendered.
POORE BROTHERS, INC.
By___________________________________
Its________________________________
[Company]
-------------------------------------
Scott Fullmer
[Employee]
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into
effective as of the 14th day of February, 1997 ("Effective Date"), by and
between POORE BROTHERS, INC. ("Company"), a Delaware corporation, and GLEN E.
FLOOK ("Employee"), a married man.
In consideration of the mutual promises and covenants contained herein,
and other good and valuable consideration, the receipt of which is acknowledged,
Company and Employee agree as provided in this Agreement.
1. Employment. Company hereby employs Employee, and Employee accepts
employment by Company, upon the terms and conditions contained in this
Agreement.
2. Term. Employee's employment by Company shall commence on March 3,
1997, and shall continue until either Company or Employee gives to the other
party written notice of termination. Employee shall be an employee at will and
if Employee's employment is terminated, Employee's status as officer of Company
shall also be terminated. Either Company or Employee may terminate Employee's
employment by Company with or without cause upon written notice of termination
to the other party.
3. Title. During the period of Employee's employment by Company,
Employee shall be the Vice President--Manufacturing of Company and shall have
such rights, powers and authority in such positions as may be designated by
Company's Board of Directors from time to time.
4. Compensation. During the period of Employee's employment by Company,
Employee shall receive from Company an annual salary of $95,000.00, which shall
be payable proportionately on Company's regular payroll payment dates for its
employees. Employee's annual salary shall be subject to change at the discretion
of Company's compensation committee.
5. Bonuses. For the year 1997, so long as Employee is employed by
Company at December 31, 1997, Employee shall be entitled to a performance bonus
of at least Fifteen Thousand Dollars ($15,000.00), the precise amount thereof to
be determined in the discretion of Company's Compensation Committee. In
addition, upon completion to Company's satisfaction of the continuous production
manufacturing line located at Company's new place of business in Goodyear,
Arizona, on South Poore Brothers Drive, Employee shall be entitled to receive a
bonus of Fifteen Thousand Dollars ($15,000.00). The parties presently
contemplate such opening shall occur on or about April 1, 1997. Thereafter,
<PAGE>
during and for the balance, if any, of the period of Employee's employment by
Company, Employee shall receive such bonuses, whether incentive, merit or
otherwise and whether cash, stock or otherwise, as Company's compensation
committee shall determine from time to time.
6. Fringe Benefits. During the period of Employee's employment by
Company, Employee shall be entitled to participate in all of Company's qualified
retirement plans and welfare benefit plans (e.g., group health insurance) on the
same basis as Company's other employees. In addition, during the period of
Employee's employment by Company, Employee shall be entitled to participate in
all non-qualified deferred compensation and similar compensation, bonus and
stock plans offered, sponsored or established by Company.
7. Telephone, Credit Card and Expense Allowance. During the period of
Employee's employment by Company, Company shall furnish to Employee the
following:
(a) Company shall furnish to Employee a mobile or cellular
telephone for Employee's use and shall pay all charges in connection therewith
(except Employee shall reimburse Company for the charges each month that are in
excess of $200 of charges in such month which are not accounted for by Employee
as charges for the purposes of Company). The telephone to be furnished to
Employee shall be agreed upon by Company and Employee from time to time.
(b) Company shall furnish to Employee a Company credit card
for Employee to use solely for purposes of Company.
(c) Company shall also pay to Employee a $30,000.00
nonaccountable expense allowance to defray Employee's reasonable costs of moving
and relocation. Of this allowance, $15,000.00 shall be paid within five (5) days
after execution of this Agreement and the balance shall be payable on March 3,
1997 if Employee commences employment with Company in Goodyear, Arizona on or
before said date; provided, that if Employee terminates this Agreement prior to
commencing employment, Employee shall repay to Company the $15,000.00
theretofore received from Company.
8. Options. Company hereby grants to Employee the right and option to
purchase 75,000 shares of Company's $0.01 par value voting common stock ("Common
Stock"), in accordance with Company's 1995 Stock Option Plan ("Plan"), at a
price per share equal to $3.9375 per share. These options will vest in equal
25,000 share
<PAGE>
increments on the first, second and third anniversaries of the Effective Date.
Employee acknowledges receipt of a copy of the Plan and agrees to the terms set
forth therein. Employee further recognizes that the Plan is subject to change
from time to time by the Board of Directors of Company. All of the terms and
conditions of the options described herein shall otherwise be governed by the
terms of the Plan including, without limitation, exercise dates and times,
payment of option prices, revisions of the options, expiration and the like, all
of the terms and conditions of which Plan are incorporated by reference into
this portion of this Agreement as if fully rewritten herein.
9. Confidentiality.
(a) During the period of Employee's employment by Company and
for a one year period thereafter, Employee shall hold in confidence and shall
not disclose or publish, except in the performance of his duties under this
Agreement, any Confidential Information (as defined below) that is presented or
disclosed to him in connection with his employment by Company.
(b) Subject to the provisions of Section 9(c) below, for
purposes of this Agreement the term "Confidential Information" shall mean
information or material that is proprietary to and owned by Company. Such
Confidential Information shall include, without limitation, Company's recipes
for specialty potato chips, manufacturing processes, customer lists, supplier
lists and pricing information.
(c) Notwithstanding the foregoing, the term Confidential
Information shall not include any information or material that:
(i) is in, or has passed into, the public domain;
(ii) is lawfully received by Employee from a third
party;
(iii) is required to be disclosed by Employee by law
or pursuant to an order determination issued by a court or any
federal, state or municipal regulatory or administrative
agency; or
(iv) was in the possession of, or known by, Employee
prior to his Employment by Company.
<PAGE>
(d) Employee acknowledges that the Confidential Information of
Company is unique in character and that Company would not have an adequate
remedy at law for a material breach or threatened material breach by Employee of
his covenants under this Section 9. Employee therefor agrees that, in the event
of any such material breach or threat thereof, Company may obtain a temporary
and/or permanent injunction or restraining order to enjoin Employee from such
material breach or threat thereof, in addition to any other rights or remedies
available to Company at law or in equity.
(e) Notwithstanding the foregoing, Employee may disclose
Confidential Information to his attorneys and other advisors on a need to know
basis provided the recipient is directed and required to maintain the disclosed
Confidential Information in confidence.
10. Indemnification.
(a) Company shall indemnify and hold Employee harmless and
defend Employee for, from and against all claims, liabilities, obligations,
fines, penalties and other matters and all costs and expenses relating thereto
that Company and/or such subsidiary or affiliated entity is permitted by
applicable law, except as any of the foregoing arises out of or relates to
Employee's negligence, willful malfeasance and/or breach of this Agreement.
(b) Company represents and warrant to Employee that neither
its articles of incorporation nor its bylaws nor any resolutions of its
shareholders or board of directors restricts or limits Companies rights or
obligations to indemnify Employee as provided in subsection (a) of this Section
10, except to the extent such restrictions or limitations are required by
applicable law.
11. Noncompete. During the period of Employee's employment by Company,
Employee shall not, directly or indirectly, whether as principal, consultant,
employee, agent, officer, director, trustee or otherwise, engage in the business
of manufacturing specialty potato chips, salted snack foods or popcorn or engage
in the business of distributing specialty potato chips, salted snack foods or
<PAGE>
popcorn. In addition, Employee shall not, for a period of one year beginning on
the date of termination of his employment, directly or indirectly, whether as
principal, consultant, employee, agent, officer, director, trustee or otherwise,
engage in the United States in the business of manufacturing specialty potato
chips, salted snack foods or popcorn or engage in the United States in the
business of distributing specialty potato chips, salted snack foods or popcorn.
Employee acknowledges that the foregoing limitations are minimum limitations
which are necessary to protect the legitimate interests of Company because of
Employee's sensitive executive position with Company. Therefore, if a breach of
the foregoing shall occur, in addition to any action for damages which Company
may have, Company shall have the right to obtain an injunction as a matter of
right prohibiting Employee's competition in violation of the foregoing. In the
event that the time period of non-competition is deemed to be unreasonable,
Employee acknowledges that 11 months shall be deemed reasonable. In the event 11
months is deemed unreasonable, then 10 months is deemed reasonable, and so on,
until the foregoing covenant is enforceable to the fullest extent permitted by
law. Similarly, in the event the entire United States is deemed unreasonable,
states shall be eliminated one by one beginning with Maine, continuing down the
east coast of the United States and in roughly in north to south linear fashion
across the United States until the geographical limit set forth above is deemed
reasonable to the fullest extent permitted by law.
12. Additional Provisions.
(a) This Agreement shall not be assigned by either Company or
Employee without the other party's prior written consent; otherwise, this
Agreement shall be binding upon, and shall inure to the benefit of, the heirs,
personal representatives, successors and assigns of Company and Employee
respectively.
(b) This Agreement and the rights and obligations of Company
and Employee shall be governed by, and shall be construed in accordance with,
the laws of the State of Arizona without the application of any laws of
conflicts of laws that would require or permit the application of the laws of
any other jurisdiction.
(c) Time is of the essence of this Agreement and each
provision hereof.
(d) This Agreement sets forth the entire understanding of
Company and Employee with respect to the matters set forth herein and cannot be
amended or modified except by an instrument in writing signed by the party
against whom enforcement is sought.
(e) This Agreement is the result of negotiations between
Company and Employee, and Company and Employee hereby waive the application of
any rule of law that otherwise would be
<PAGE>
applicable in connection with the interpretation and construction of this
Agreement that ambiguous or conflicting terms or provisions are to be
interpreted or construed against the party who (or whose attorney) prepared the
executed Agreement or any earlier draft of the same.
(f) If any provision or any portion of any provision of this
Agreement shall be deemed to be invalid, illegal or unenforceable, the same
shall not alter the remaining portion of such provision or any other provision
of this Agreement, as each provision of this Agreement and portion thereof shall
be deemed severable.
(g) Except as may be otherwise required by law, any notice
required or permitted to be given under this Agreement shall be given in writing
and shall be given either by (i) personal delivery, or (ii) overnight courier
service, or (iii) facsimile transmission, or (iv) United States certified or
registered mail, in each case with postage prepaid to the following address or
to such other address as Company or Employee may designate by notice given to
the other party pursuant to this section. Notice shall be effective on (v) the
day notice is personally delivered, if notice is given by personal delivery, or
(vi) the first business day after the date of delivery to the overnight delivery
service, if notice is given by such a delivery service, (vii) the day notice is
received, if notice is given by facsimile, or (viii) the fourth business day
after notice is deposited in the United States mail, if notice is given by
United States certified or registered mail. When Employee completes his move to
Maricopa County, he shall promptly give notice of his new notice address to
Company
Company: Poore Brothers, Inc.
2664 South Litchfield Road
Goodyear, Arizona 85338-1500
Fax No. (602) 925-2363
Employee: Glen E. Flook
8 Thoroughbred Dr.
Holland, PA 18966
(h) If any action, suit or proceeding is brought in connection
with this Agreement, or on account of any breach of this Agreement, or to
enforce or interpret any of the terms, covenants and conditions of this
Agreement, the prevailing party shall be entitled to recover from the other
party or parties, the prevailing party's reasonable attorneys' fees and costs,
and the amount thereof shall be determined by the court (not by a jury) or the
arbitrator and shall be made a part of any judgment or award rendered.
POORE BROTHERS, INC.
By___________________________________
Its________________________________
[Company]
-------------------------------------
Glen E. Flook
[Employee]
SECOND LOAN MODIFICATION AGREEMENT
----------------------------------
DATE: As of January 10 , 1997
---------------------
PARTIES: NATIONAL BANK OF ARIZONA
3101 North Central Avenue
Post office Box 80440
Phoenix, Arizona 85060-0440 [ "Bank"]
POORE BROTHERS, INC.
2664 South Litchfield Road
Goodyear, Arizona 85338 [ "Borrower"]
RECITALS:
A. Borrower executed a Promissory Note dated September 11, 1996, in the
original principal sum of $2,400,000.00, payable to the order of Bank (the
"Note").
B. In connection with Borrower' s executing the Note, Borrower and Bank
entered into the Loan Agreement, with an effective date of September 11, 1996
(the "Loan Agreement").
C. The Note is secured by, among others, the following documents, all
of which documents securing the Note are hereinafter referred to collectively as
the "Security Documents:"
Deed of Trust, Security Agreement and Financing Statement, dated
September 11, 1996, recorded September 13, 1996 an Instrument No.
96-0650008, official records of Maricopa County, Arizona.
Assignment of Permits, Licenses, Approvals, Deposits, Contracts and
Documents, dated September 11, 1996.
Specific Assignment of Development Agreement, dated September 11, 1996.
UCC-1 Financing Statement, dated September 11, 1996, recorded September
13, 1996, as Instrument No. 96-0650009, official records of Maricopa
County, Arizona.
UCC-1 Financing Statement, dated September 11, 1996, filed September
18, 1996, in File No. 935579, Arizona Secretary of State:
D. At Borrower's request, the Bank and Borrower entered into the Loan
Modification Agreement dated December 23, 1996 (the "First Modification").
1
<PAGE>
E. Borrower has requested that the Bank further modify the Note to
again adjust the interest rate and apply the proceeds of the Bank-issued
certificate of deposit in the amount of $1,250,000.00 currently held by Bank as
additional collateral to permanently reduce the outstanding principal balance
and maximum amount of the Note and establish an account from which funds shall
be disbursed to pay for the cost of the Improvements prior to the disbursement
of any additional proceeds of the Loan. Bank has agreed to do the foregoing, but
only on the terms and subject to the conditions set forth hereinafter.
NOW, THEREFORE, in consideration of the mutual promises contained
herein, the parties agree as follows:
AGREEMENTS:
- -----------
1. Accuracy of Recitals. Borrower hereby acknowledges the accuracy of
the Recitals of this Agreement.
2. Balance Due; Reduction of Loan Amount to be Advanced. Borrower
acknowledges and agrees that the current principal balance of the Note is
$1,248,117.42, and that interest under the Note has been paid to December 1,
1996 . Anything in the Note, the Loan Agreement or the Security Documents to the
contrary notwithstanding, the maximum principal amount Bank shall be obligated
to advance to Borrower shall be limited to $1,150,000.00 rather than the
$2,400,000.00 amount previously provided for, and the Note, the Loan Agreement
and the Security Documents are hereby amended accordingly.
3. Amendment to Note. As of the date of this Agreement, the Note is
hereby amended as follows: Any reference in the Note to the Principal Amount
shall refer to $1,150,000.00 and not $2,400,000.00. The fifth (5th) sentence of
the "VARIABLE INTEREST RATE" paragraph on the first page of the Note shall be
revised in its entirety to read as follows:
"The interest rate to be applied to the unpaid principal balance will
be at a rate two (2.00) percentage points over the Index."
The second (2nd) sentence of the "LENDER'S RIGHTS" paragraph on the second page
of the Note shall be revised in its entirety as follows:
"Upon default, including failure to pay upon final maturity, Lender at
its option, may also increase the variable interest rate on this Note
to six (6.00) percentage points over the Index."
4. Amendment to Loan Agreement. As of the date of this Agreement, the
Loan Agreement is hereby amended as follows: The fifth sentence of the "VARIABLE
INTEREST RATE" paragraph on page 4 of the Loan Agreement shall be revised in its
entirety to read as follows:
"The interest rate to be applied to the unpaid principal balance will
be at a rate two (2.00) percentage points over the Index."
2
<PAGE>
The Loan Agreement is hereby modified so that any reference in the Loan
Agreement to the Loan Amount shall refer to $1,150,000.00 and not $2,400,000.00.
5. Application of Proceeds of Certificate of Deposit. Contemporaneously
with the execution of this Agreement and as a condition precedent to its
effectiveness, Borrower shall authorize Bank to liquidate the Bank-issued
certificate of deposit in the amount of $1,250,000.00 (account number
0005004270-1) (the "CD") currently held by Bank as additional collateral. The
Bank shall use the proceeds of the CD to: (i) reduce the current principal
balance of the Note to zero; and (ii) with the balance of such proceeds,
establish a Bank-controlled interest bearing bank account (the "Reserve
Account"). All interest accruing in the Reserve Account shall accrue to the
Borrower's benefit and be added to the Reserve Account. So long as Borrower is
not in default, the Reserve Account, rather than the proceeds of the Loan, shall
be used to fund Advances until the Reserve Account has been reduced to zero.
Thereafter, proceeds of the Loan shall be used to fund advances but only up to
the maximum amount of $1,150,000.00. This Agreement shall not be effective
unless and until the foregoing application of proceeds of the CD shall have
occurred.
6. Continuation of Liens and Security Interests. Borrower acknowledges
and agrees that the Security Documents shall continue to secure the Note as
amended herein. No payment or discharge of the lien of the Security Documents is
intended by this Agreement and such liens and security interests shall continue
in full force unimpaired from the date of their recording or filing.
7. Representations. The Borrower represents, warrants and reaffirms
that:
(a) Borrower has no defense, setoff or counterclaim against Bank
in regard to any of Borrower's obligations under the Note as modified herein.
(b) The Note, the Loan Agreement and the Security Documents, as
modified herein, is valid and binding upon Borrower and are enforceable in
accordance with their terms.
(c) The Security Documents secure the Note as modified herein.
(d) No default or event of default has occurred and is
continuing under the Note or the Loan Agreement and no event has occurred which,
with the giving of notice or the passage of time, or both, would constitute such
a default or event of default.
(e) All representations and warranties made by the Borrower in
the Note as amended and in the Loan Agreement as amended and the Security
Documents continue to be true and correct and are hereby restated and
reaffirmed.
(f) Any financial statements and other financial information
submitted to Bank with respect to the Borrower in order to induce Bank to enter
into this Agreement are true, correct and complete.
3
<PAGE>
(g) The Claims referred to in paragraph 8 hereof, if any such
Claims exist, are owed by the persons granting the releases made therein and
they have not previously been assigned in whole or in part.
8. Release of Claims. Borrower hereby releases Bank and its affiliates,
subsidiaries, shareholders, directors, officers, employees and agents of and
from all claims, complaints, demands, causes of action,damages, costs, expenses,
fees, debts, liabilities or obligations of every kind, whether in law or in
equity, direct or indirect, fixed or contingent, known or unknown, whether or
not liquidated, and whether arising heretofore or hereafter, out of, by reason
of, or related in any way to, any act or omission of Bank prior to the date
hereof with respect to the Loan evidenced by the Note as amended herein, or with
respect to the negotiation, execution, performance or enforcement of the Note as
amended herein and the Loan Agreement and the Security Documents (collectively,
the "Claims"). The Borrower acknowledges and understands that a general release
may not, in some jurisdictions, extend to claims that the party granting the
release does not know or suspect to exist in his favor at the time of executing
the release and which, if known by such party, may have materially affected his
determination to give a release. The Borrower waives the provisions of any law
that purports to limit the foregoing release.
9. Entire Agreement. This Agreement contains the entire understanding
of the parties with respect to the subject matter hereof and may not be altered
or amended in any respect except in a writing signed by the party to be charged.
10. No Waiver. This Agreement shall not constitute a waiver by Bank of
any default by Borrower under the Note, the Loan Agreement or the Security
Documents.
11. Continuing Effectiveness. Except as modified herein, the Note, the
Security Documents and the Loan Agreement shall remain in full force and effect.
12. Binding Effect. This Agreement applies to, is binding upon, and
inures to the benefit of, the parties hereto and their respective heirs,
personal representatives, successors and assigns.
13. Further Assurances. The parties shall execute, acknowledge and
deliver any other documents or agreements an may reasonably be required in order
to evidence or give effect to the provisions of this Agreement or to evidence
the continuing effectiveness and perfection of the lien and the security
interests created by the Security Documents, and/or any document executed in
connection with this Agreement.
14. Captions. Captions are for reference purposes only and shall not be
used to construe this Agreement.
15. Mutual Drafting. This Agreement has been drafted mutually by the
parties and shall be interpreted neither for nor against any party.
16. Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona.
4
<PAGE>
17. Arbitration Disclosures.
a. ARBITRATION IS USUALLY FINAL AND BINDING ON THE PARTIES AND
SUBJECT TO ONLY VERY LIMITED REVIEW BY A COURT.
b. THE PARTIES ARE WAIVING THEIR RIGHT TO LITIGATE IN COURT,
INCLUDING THEIR RIGHT TO A JURY TRIAL.
c. PRE-ARBITRATION DISCOVERY IS GENERALLY MORE LIMITED AND
DIFFERENT FROM COURT PROCEEDINGS.
d. ARBITRATORS' AWARDS ARE NOT REQUIRED TO INCLUDE FACTUAL
FINDINGS OR LEGAL REASONING AND ANY PARTY'S RIGHT TO APPEAL OR TO SEEK
MODIFICATION OF RULINGS BY ARBITRATORS IS STRICTLY LIMITED.
e. A PANEL OF ARBITRATORS MIGHT INCLUDE AN ARBITRATOR WHO IS OR
WAS AFFILIATED WITH THE BANKING INDUSTRY.
18. Arbitration Provisions. The Borrower hereby agrees an follows:
a. Any controversy or claim between or among the parties,
including but not limited to those arising out of or relating to the Loan, this
Agreement or any agreements or instruments relating to the Loan or hereto or
delivered in connection with the Loan or herewith, and including but not limited
to a claim based on or arising from an alleged tort, shall at the request of any
party be determined by arbitration in accordance with the Commercial
Arbitration Rules of the American Arbitration Association. The arbitration
proceedings shall be conducted in Phoenix, Arizona. The arbitrator(s) shall have
the qualifications set forth in subparagraph (c) hereto. All statutes of
limitations which would otherwise be applicable in a judicial action brought by
a party shall apply to any arbitration or reference proceeding hereunder.
b. In any judicial action or proceeding arising out of or
relating to the Loan, this Agreement or any agreements or instruments relating
to the Loan or hereto or delivered in connection with the Loan or herewith,
including but not limited to a claim based on or arising from an alleged tort,
if the controversy or claim is not submitted to arbitration as provided and
limited in subparagraph (a) hereto, all decisions of fact and law shall be
determined by a reference in accordance with Rule 53 of the Federal Rules of
Civil Procedure or Rule 53 of the Arizona Rules of Civil Procedure or other
comparable, applicable reference procedure. The parties shall designate to the
court the referee(s) selected under the auspices of the American Arbitration
Association in the same manner as arbitrators are selected in Association
sponsored arbitration proceedings. The referee(s) shall have the qualifications
set forth in subparagraph (c ) hereto.
c. The arbitrator(s) or referees(s) shall be selected in
accordance with the rules of the American Arbitration Association from panels
maintained by the Association. A single arbitrator or referee shall be
knowledgeable in the subject matter of the dispute. Where three arbitrators or
referees conduct an arbitration or reference proceeding, the claim shall be
decided by a majority vote
5
<PAGE>
of the three arbitrators or referees, at least one of whom must be knowledgeable
in the subject matter of the dispute and at least one of whom must be a
practicing attorney. The arbitrator(s) or referee(s) shall award recovery of
all costs and fees (including attorneys' fees, administrative fees, arbitrator's
fees, and court costs). The arbitrator(s) or referee(s) also may grant
provisional or ancillary remedies such as, for example, injunctive relief,
attachment, or the appointment of a receiver, either during the pendency of the
arbitration or reference proceeding or as part of the arbitration or reference
award.
d. Judgment upon an arbitration or reference award may be
entered in any court having jurisdiction, subject to the following limitation:
the arbitration or reference award is binding upon the parties only if the
amount does not exceed Four Million Dollars ($4,000,000.00); if the award
exceeds that limit, either party may commence legal action for a court trial de
novo. Such legal action must be filed within thirty (30) days following the date
of the arbitration or reference award; if such legal action is not filed within
that time period, the amount of the arbitration or reference award shall be
binding. The computation of the total amount of an arbitration or reference
award shall include amounts awarded for arbitration fees, attorneys' fees,
interest and all other related costs.
e. At the Bank's option, foreclosure under a deed of trust or
mortgage may be accomplished either by exercise of a power of sale under the
deed of trust or mortgage or by judicial foreclosure. The institution and
maintenance of an action for judicial relief or pursuit of a provisional or
ancillary remedy shall not constitute a waiver of the right of any party,
including the plaintiff, to submit the controversy or claim to arbitration if
any other party contests such action for judicial relief.
f. Notwithstanding the applicability of other law to any other
provision of this Agreement, the Federal Arbitration Act, 9 U.S.C. 1 et seq.,
shall apply to the construction and interpretation of this arbitration
paragraph.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
NATIONAL BANK OF ARIZONA
By: /s/ Keith Maio
-----------------------------
Its: Sr. Vice President
-----------------------
["Bank"]
POORE BROTHERS, INC., a Delaware corporation
By: /s/ Jeffrey H. Strasberg
-----------------------------
Jeffrey H. Strasberg
Its: Secretary/CFO
-----------------------
["Borrower"]
6
AMENDMENT TO ACCOUNTS RECEIVABLE
SECURITY AGREEMENT
FOR A VALUABLE CONSIDERATION, First Community Financial Corporation, an Arizona
corporation (FCFC) and Poore Brothers Distributing, Inc., an Arizona corporation
(Borrower) do hereby agree to amend the following paragraphs of that certain
Accounts Receivable Security Agreement dated July 26, 1996, between the parties
(as the same may have been amended from time to time) and executed by the
aforementioned parties, in the following respects:
Paragraph 2.2 shall be amended as follows:
2.2 Effective January 1, 1997, the Obligations of Borrower to FCFC
shall bear interest, for the actual days outstanding at a rate equal to the
Prime Rate plus 3.5 % per annum, computed on the basis of a 360-day year for
actual days elapsed. The Prime Rate of 8.25% is the rate in effect as of this
date. In the event of changes in the Prime Rate from time to time, the rate of
interest to be charged to Borrower shall be correspondingly adjusted as of the
date of the Prime Rate change. Notwithstanding the foregoing, in no event shall
the interest rate chargeable hereunder be less than 11.75% per annum. Interest
is due and payable to FCFC under this Agreement on the first day of each month.
Any interest not paid when due shall become a part of Borrower's Obligations
under this Agreement, and shall thereafter bear interest as provided herein.
FCFC shall render statements to Borrower of the Obligations,
including all principal, interest and FCFC's Costs owing, and such statements
shall be conclusively presumed to be correct and accurate and constitute an
account stated between Borrower and FCFC unless, within thirty (30) days after
receipt thereof by Borrower, Borrower notifies FCFC in writing specifying the
error or errors, if any, contained in any such statements.
Paragraph 2.5 shall be amended as follows:
2.5 Effective January 1, 1997, in order to further induce FCFC to grant
the Credit Facility to Borrower, Borrower agrees that the minimum amount of
interest to be paid monthly by Borrower to FCFC, during the original and each
renewal term of this Agreement, shall not be less than $2,000 per month.
Notwithstanding any default by Borrower, or a termination of this Agreement by
FCFC because of such default, this minimum interest shall be charged to and paid
by Borrower for the unexpired term of this Agreement. In the event the monthly
interest earned by FCFC on advances made by FCFC to Borrower under this
Agreement is less than the minimum set forth above, Borrower will pay to FCFC
such difference at the same time as such accrued interest is due and payable.
<PAGE>
Except as amended hereby, all other terms and provisions of the Accounts
Receivable Security Agreement (as the same may have been amended from time to
time) shall continue in full force and effect and are hereby ratified, confirmed
and approved.
Dated this 30th day of December, 1996.
Agreed & Accepted Agreed & Accepted
Poore Brothers Distributing, Inc. First Community Financial Corporation
an Arizona corporation
an Arizona corporation
By: /s/ David J. Brennan By: /s/ James C. Adamany
------------------------------- ---------------------------------
David J. Brennan, President and James C. Adamany, President
Chief Executive Officer
ACKNOWLEDGMENT & CONSENT OF GUARANTORS
Poore Brothers, Inc. Fka Poore Brothers Arizona, Inc.
Poore Brothers Holdings, Inc. Fka Poore Brothers Southwest, Inc.,
an Arizona corporation
By: /s/ David J. Brennan By: /s/ David J. Brennan
------------------------------ --------------------------------
David J. Brennan David J. Brennan
Its: President and Chief Executive Its: President and Chief Executive
----------------------------- -----------------------------
Officer Officer
------- -------
AMENDMENT TO ACCOUNTS RECEIVABLE
SECURITY AGREEMENT
FOR A VALUABLE CONSIDERATION, First Community Financial Corporation, an Arizona
corporation (FCFC) and Poore Brothers Arizona, Inc. Fka Poore Brothers
Southwest, Inc., an Arizona corporation (Borrower) do hereby agree to amend the
following paragraphs of that certain Accounts Receivable Security Agreement
dated July 26, 1996, between the parties (as the same may have been amended from
time to time) and executed by the aforementioned parties, in the following
respects:
Paragraph 2.2 shall be amended as follows:
2.2 Effective January 1, 1997, the Obligations of Borrower to FCFC
shall bear interest, for the actual days outstanding at a rate equal to the
Prime Rate plus 3.5 % per annum, computed on the basis of a 360-day year for
actual days elapsed. The Prime Rate of 8.25% is the rate in effect as of this
date. In the event of changes in the Prime Rate from time to time, the rate of
interest to be charged to Borrower shall be correspondingly adjusted as of the
date of the Prime Rate change. Notwithstanding the foregoing, in no event shall
the interest rate chargeable hereunder be less than 11.75% per annum. Interest
is due and payable to FCFC under this Agreement on the first day of each month.
Any interest not paid when due shall become a part of Borrower's Obligations
under this Agreement, and shall thereafter bear interest as provided herein.
FCFC shall render statements to Borrower of the Obligations,
including all principal, interest and FCFC's Costs owing, and such statements
shall be conclusively presumed to be correct and accurate and constitute an
account stated between Borrower and FCFC unless, within thirty (30) days after
receipt thereof by Borrower, Borrower notifies FCFC in writing specifying the
error or errors, if any, contained in any such statements.
Paragraph 2.5 shall be amended as follows:
2.5 Effective January 1, 1997, in order to further induce FCFC to grant
the Credit Facility to Borrower, Borrower agrees that the minimum amount of
interest to be paid monthly by Borrower to FCFC, during the original and each
renewal term of this Agreement, shall not be less than $500 per month.
Notwithstanding any default by Borrower, or a termination of this Agreement by
FCFC because of such default, this minimum interest shall be charged to and paid
by Borrower for the unexpired term of this Agreement. In the event the monthly
interest earned by FCFC on advances made by FCFC to Borrower under this
Agreement is less than the minimum set forth above, Borrower will pay to FCFC
such difference at the same time as such accrued interest is due and payable.
<PAGE>
Except as amended hereby, all other terms and provisions of the Accounts
Receivable Security Agreement (as the same may have been amended from time to
time) shall continue in full force and effect and are hereby ratified, confirmed
and approved.
Dated this 30th day of December, 1996.
Agreed & Accepted Agreed & Accepted
Poore Brothers Arizona, Inc. First Community Financial Corporation
Fka Poore Brothers Southwest, Inc., an Arizona corporation
an Arizona corporation
By: /s/ David J. Brennan By: /s/ James C. Adamany
------------------------------- ---------------------------------
David J. Brennan, President and James C. Adamany, President
Chief Executive Officer
ACKNOWLEDGMENT & CONSENT OF GUARANTORS
Poore Brothers, Inc. Fka Poore Brothers Distributing, Inc.
Poore Brothers Holdings, Inc. an Arizona corporation
By: /s/ David J. Brennan By: /s/ David J. Brennan
------------------------------ --------------------------------
David J. Brennan David J. Brennan
Its: President and Chief Executive Its: President and Chief Executive
----------------------------- -----------------------------
Officer Officer
------- -------
FIRST COMMUNITY
FINANCIAL CORPORATION
PROMISSORY NOTE MODIFICATION AGREEMENT
Modification # 2
Date: December 30, 1996 Borrower: Poore Brothers Distributing, Inc.,
Obligation #00011 an Arizona corporation
The undersigned (individually/collectively "Borrower"), is indebted to
First Community Financial Corporation ("Lender") under that certain Multiple
Advance Promissory Note, dated July 26, 1996, in the original amount of
$800,000.00, which has been amended and modified from time to time (the "Note").
Borrower and Lender hereby agree that the Note shall be modified in the
following respects:
1). Effective January 1, 1997, interest shall be charged on the unpaid
principal balance hereof, to the date of maturity on a daily basis for
the actual number of days any portion of said principal is outstanding,
at the rate (the "Note Rate") equal to the prime rate announced from
time to time by Bank One, Phoenix, Arizona (whether or not it is the
lowest rate actually charged by such bank) plus 3.5 % per annum. The
current Note Rate under the note is 11.75 % per annum based upon a
prime rate of 8.25 %. In the event such prime rate is from time to time
hereafter changed, the Note Rate of interest shall correspondingly be
adjusted as of the effective date of the prime rate change; provided,
however, that the Note Rate payable hereunder shall in no event be less
than 11.75% per annum.
2). All other terms and conditions shall remain-unchanged.
Except as amended hereby, the Note (as the same may have been amended from time
to time) shall continue in full force and effect and is hereby ratified and
confirmed.
DATED this 30th day of December, 1996.
Agreed & Accepted Agreed & Accepted
Poore Brothers Distributing, Inc. First Community Financial Corporation
an Arizona corporation An Arizona corporation
FIRST COMMUNITY
FINANCIAL CORPORATION
PROMISSORY NOTE MODIFICATION AGREEMENT
Modification # 2
Date: December 30, 1996 Borrower: Poore Brothers Arizona, Inc., Fka
Obligation #00011 Poore Brothers Southwest, Inc.
an Arizona corporation
The undersigned (individually/collectively "Borrower"), is indebted to
First Community Financial Corporation ("Lender") under that certain Multiple
Advance Promissory Note, dated July 26, 1996, in the original amount of
$200,000.00, which has been amended and modified from time to time (the "Note").
Borrower and Lender hereby agree that the Note shall be modified in the
following respects:
1). Effective January 1, 1997, interest shall be charged on the unpaid
principal balance hereof, to the date of maturity on a daily basis for
the actual number of days any portion of said principal is outstanding,
at the rate (the "Note Rate") equal to the prime rate announced from
time to time by Bank One, Phoenix, Arizona (whether or not it is the
lowest rate actually charged by such bank) plus 3.5 % per annum. The
current Note Rate under the note is 11.75 % per annum based upon a
prime rate of 8.25 %. In the event such prime rate is from time to time
hereafter changed, the Note Rate of interest shall correspondingly be
adjusted as of the effective date of the prime rate change; provided,
however, that the Note Rate payable hereunder shall in no event be less
than 11.75% per annum.
2) All other terms and conditions shall remain-unchanged.
Except as amended hereby, the Note (as the same may have been amended from time
to time) shall continue in full force and effect and is hereby ratified and
confirmed.
Dated this 30th day of December, 1996.
Agreed & Accepted Agreed & Accepted
Poore Brothers Arizona, Inc. First Community Financial Corporation
Fka Poore Brothers Southwest, Inc. an Arizona corporation
an Arizona corporation
"Borrower" "Lender"
By: /s/ David J. Brennan By: /s/ James C. Adamany
------------------------------- ---------------------------------
David J. Brennan, President and James C. Adamany, President
Chief Executive Officer
Its: President and Chief Executive Its: President
----------------------------- ---------
Officer
-------
Dated: December 30, 1996 Dated: December 30, 1996
----------------- -----------------
COMMERCIAL REAL ESTATE PURCHASE CONTRACT
AND RECEIPT FOR DEPOSIT
<TABLE>
<CAPTION>
THE PRINTED PORTION OF THIS CONTRACT HAS BEEN APPROVED BY THE ARIZONA ASSOCIATION OF REALTORS(R). THIS IS INTENDED TO BE A BINDING
CONTRACT. NO REPRESENTATION IS MADE AS TO THE LEGAL VALIDITY, ADEQUACY OF ANY PROVISION OR THE TAX CONSEQUENCES THEREOF. IF YOU
DESIRE LEGAL, TAX OR OTHER PROFESSIONAL ADVICE, CONSULT YOUR ATTORNEY, TAX ADVISOR OR PROFESSIONAL CONSULTANT.
- ------------------------------------------------------------------------------------------------------------------------------------
RECEIPT
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Received From: D.F. Properties, Inc. ("Buyer")
Agency Confirmation: Selling Company/Salesperson named on lines 16 and 17 is the agent of (check one):
|X| the Buyer exclusively; or |_| the Seller exclusively; or |_| both the Buyer and Seller
Title: The manner of taking title may have significant legal and tax consequences. Therefore, please consult your legal or tax
advisor if you have any questions.
Buyer will take title as:
|X| Determined before Close of Escrow |_| Community Property |_| Joint Tenants with Right of Survivorship
|_| Sole and Separate Property |_| Tenants in Common |_| Other:
Earnest Money: Earnest money shall be held by Broker until offer is accepted. Upon acceptance, Broker is authorized to deposit the
earnest money with any Escrow Company to which the check is payable. If the check is payable to Broker, Broker may deposit the check
in Broker's trust account or endorse the check without recourse and deposit it with a duly licensed Escrow Company. Buyer agrees
that, if Buyer breaches this Contract, any earnest money is subject to forfeiture. All earnest money is subject to collection. In
the event any check for earnest money is uncollectible, at Seller's option, Seller shall be immediately released from all
obligations under this Contract notwithstanding any provisions contained herein. Unless otherwise provided herein, all earnest money
is considered to be part of the purchase price for the Premises described below. At Buyer's election and expense, said Escrow
Company shall place earnest deposit in an interest bearing account to the benefit of the Buyer.
a. Amount of Earnest b. Form of |X| Check c. To Be |_| Broker's Trust Account
Deposit $ 10,000 Earnest Deposit |_| Deposited With: |X| Escrow Company: Fidelity National Title Company
Received By:
------------------------------------------------------------------------------------------------------------------------
(PRINT SALESPERSON'S NAME) (SALESPERSON'S SIGNATURE) MO/DA/YR
Grubb & Ellis Company
- ------------------------------------------------------------------------------------------------------------------------------------
(PRINT NAME OF SELLING COMPANY)
- ------------------------------------------------------------------------------------------------------------------------------------
OFFER
- ------------------------------------------------------------------------------------------------------------------------------------
Property Description and Offer: Buyer agrees to purchase the real property which includes, at no additional cost to Buyer, the
permanent improvements thereon, as well as the following items, if any, owned by Seller and presently located in the Property:
electrical distribution systems (power panels, buss ducting, conduits, disconnects, lighting fixtures), telephone distribution
systems (lines, jacks and connections), space heaters, air conditioning equipment, air lines, carpets, window coverings, wall
coverings, security systems/alarms and, --------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
plus personal property described herein or in attached addendum (collectively the "Property"). Improvements and personal property
shall be free of liens unless otherwise specified.
Property Address: 2608 S. Litchfield Rd., 2665 S. La Luna, 2664 S. Litchfield Rd. Zoning: I-1
----------------------------------------------------------------------------------------------------------------
City: Goodyear County: Maricopa AZ, Zip Code: 85338
---------------------------------------- ------------------------------------------ -----------------
Assessors # Legal Description:
-----------------------------------------------------------------------------------------------------------------------
Lot 26, Lot 20, Lot 25 Airport Commercenter Subdivision #1, Goodyear, Arizona
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Additional Existing Personal Property Included:
------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Fixtures and Leased Equipment NOT included: Storage Racks, Fireproof Electrical Equip. in Low Fat Processing Room
- ------------------------------------------------------------------------------------------------------------------------------------
Addenda Incorporated: |_| AAR Addendum |_| Schedule of personal property |_| Other
$ 765,000 Full purchase price, payable as follows:
--------------------------------
$ 10,000 Earnest deposit as indicated above.
-------------------------------- --------------------------------------------------------------
$ 755,000 Additional cash at close of escrow. $100,000 to be held in escrow - See Line 66
---------------------------------------------------------------------------------------------------------------------------------
$
-------------------------------- ------------------------------------------------------------------------------------------------
---------------------------------------------------------------------------------------------------------------------------------
Seller shall pay a 6% commission at closing to be split 50/50 between Grubb & Ellis Co. and Don Bennett & Associates.
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Closing Date: Seller and Buyer will comply with all terms and conditions of this Contract and close escrow on Feb. 28, 1997 Any
other closing date requires mutual agreement of Seller and Buyer. Seller and Buyer hereby agree that the close of escrow shall be
defined as recordation of the documents. If escrow does not close by such date, this Contract is subject to cancellation as provided
in LINES 298-305.
Possession And Keys: Possession and occupancy shall be delivered to Buyer |_| on date of recordation, or |X| subject to the rights
of tenants under existing leases. Seller shall provide Buyer keys and/or means to operate all locks, security system/alarms and
subject to lease agreement between the parties as described in the additional terms and conditions.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 1 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
GENERAL LOAN PROVISIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Release Of Broker. Any financing described in this Contract will be independently investigated and evaluated by Seller and/or Buyer,
who hereby acknowledge that any decision to enter into any financing arragnements with any person or entity will be based solely
upon such independent investigation and evaluation. Buyer and Seller further hold harmless and release Broker and acknowledge that
Broker is not responsible for Buyer's or Seller's decisions concerning the desirability or acceptability of any financing or any
terms thereof.
Changes. Buyer shall not make any changes to financing terms described in this Contract without the prior written consent of Seller
unless such changes do not advrsely affect Buyer's ability to qualify for the financing, Increase Seller's closing costs or delay
the closing date.
Return of Earnest Deposit. Unless otherwise provided herein, Buyer is entitled to a return of the earnest deposit, if after a
diligent and good faith effort, Buyer does not qualify for the financing described in this Contract. Buyer acknowledges that prepaid
items paid separately from earnes money are not refundable.
RESPA: The Real Estate Settlement Procedures Act (RESPA) requires that no Seller of property that will be purchased with the
assistance of a federally related mortgage loan shall require, directly or indirectly, as a condition of selling the property, that
title insurance covering the property be purchased by the Buyer from any particular title company.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 2 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
<PAGE>
- ------------------------------------------------------------------------------------------------------------------------------------
OTHER TERMS AND CONDITIONS
- ------------------------------------------------------------------------------------------------------------------------------------
Other Terms: Buyer shall have until Feb. 15, the approval period, to determine if property is suitable for Buyer's use. Buyer shall
inspect and investigate the property. Buyer's election to proceed and close this transaction will be deemed as Buyer's approval of
the condition of the premises. In the event Buyer notifies Escrow Co. (Agent) of its disapproval of the Property for any reason
whatsoever during the approval period, Buyer will have the absolute right to cancel the contract and all of Buyer's earnest money
shall be returned to Buyer.
Seller shall provide Buyer with a Phase 1 Environmental Survey within 30 days from opening of escrow. Buyer shall have fifteen (15)
days after receipt of the Environmental Survey to approve or disapprove such survey in its sole and absolute discretion.
$ 100,000 of the purchase price proceeds and interest therein shall be held in escrow and released to Seller when all the buildings
are delivered to Buyer broom clean and good working order. Good working order is defined as in the same condition, less normal wear
and tear, as of the close of escrow.
Seller shall make lease payments to Buyer of $3,500 per month gross lease per building.
Seller shall guarantee a minimum of one month, March 1 - March 30, 1997 for 2665 S. La Luna and three months, March 1 - May 30, 1997
for 2664 S. Litchfield Road.
Seller shall have the right to initiate a lease for 2608 S. Litchfield Road or extend the lease term for each of the other two
buildings for three (3) thirty (30) day periods provided Seller provides Buyer with prior written notification to initiate or extend
such term of at least two (2) weeks.
Buyer and Seller shall mutually agree and execute a lease for each leased premises on or before the end of the approval period in a
form and content mutually agreed to in writing by Buyer and Seller on or prior to close of escrow.
Within twenty (20) days from opening of escrow, Seller shall provide to Buyer a list of any items Seller intends to remove from the
property. Buyer shall approve such list of items in writing and any repairs necessary in connection with said removal.
Notwithstanding anything to the contrary contained within this contract, Buyer in its sole and absolute discretion, may cancel this
contract for any reason during the approval period (on or before February 15, 1997) or within fifteen (15) days after receipt of the
Environmental Survey. Upon cancellation, all earnest money shall be returned to Buyer.
Escrow Instructions: |_| This Contract will be used as escrow instructions |X| Separate escrow instructions will be executed
(a) If Seller and Buyer elect to execute escrow instructions to fulfill the terms hereof, they shall deliver the same to escrow
company within 15 days of the acceptance of this Contract. (b) All documents necessary to close this transaction shall be executed
promptly by Seller and Buyer in the standard form used by escrow company. Escrow Company is hereby instructed to modify such
documents to the extent necessary to be consistent with the Contract. (c) If any conflict exists between this Contract and any
escrow instructions executed pursuant hereto, the provisions of this Contract shall b e controlling. (d) Escrow fees shall be paid
by |_| Seller |_| Buyer |X| Both equally All closing and escrow costs, unless otherwise stated herein, shall be allocated between
Seller and Buyer in accordance with local custom and applicable laws and regulations. (e) Escrow company is hereby instructed to
send to Brokers copies of all notices and communications directed to Seller or Buyer. Escrow company shall provide to such Brokers
access to escrowed materials and information regarding the escrow. (f) Any documents necessary to close the escrow may be signed in
counterparts, each of which shall be effective as an original upon execution, and all of which together shall constitute one and the
same instrument.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 3 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
<PAGE>
Title and Vesting: Escrow Company is hereby instructed to obtain and distribute to Buyer a Commitment for Title Insurance together
with complete and legible copies of all documents which will remain as exceptions to Buyer's policy of title insurance unless same
are disposed of to the satisfaction of the Title Company. Buyer is allowed 10 calendar days after receipt of the Commitment for
Title Insurance to provide written notice to Seller of any of the preceding items disapproved. READ LINES ??? FOR IMPORTANT TERMS.
Seller shall convey title by Special Warranty Deed. Buyer shall be provided at Seller's expense a standard owner's policy showing
the title vested in Buyer as above. Buyer may acquire extended coverage at Buyer's expense.
Surveys: Survey [ ] required [x] not required to be paid by [ ] Seller [ ] Buyer or
Such survey shall be [ ] current and certified by a licensed surveyor acceptable to Buyer and the Title Company in sufficient detail
for an American Land Title Association ("ALTA") Owner's Policy of Title Insurance with boundary, encroachment or survey exceptions
and showing all improvements, utility lines and easements on the Property or within 5 feet thereof, OR [x] (describe): Seller shall
provide the plat & engineering drawings on the buildings.
This Contract [ ] is [ ] is not continginent upon Buyer's acceptance of this survey within ??? days of receipt. READ LINES ??? FOR
IMPORTANT TERMS.
Prorations, Expenses and Adjustments: Taxes: Real property taxes payable by the owner of the Property shall be prorated through
Escrow as of the date of the closing, based upon the latest tax bill available. Insurance: If Buyer elects to take an assignment of
the existing casualty and/or liability insurance that is maintained by Seller, the current premium shall be prorated through Escrow
as of the date of Closing. Rents, Interest and Expenses. Collected rents, interest on Existing Notes, utilities, and operating
expenses shall be prorated as of the date of Closing. The Parties agree to promptly adjust between themselves outside of Escrow any
rents received after the Closing. Deposits: All deposits held by Seller pursuant to rent/lease agreement(s) shall be given to Buyer
by a credit to the cash required of Buyer at the closing. Post Closing Matters: Any item to be prorated that is not determined or
determinable at the Closing shall be promptly adjusted by the Parties by appropriate cash payment outside of the Escrow when the
amount due is determined. Escrow Company and Brokers are relieved of any responsibilities for said adjustments.
Assessments: The amount of any assessment which is a lien as of the close of escrow shall be [x] Paid in Full By Seller
[ ] Prorated and Assumed by Buyer
Any assessment that becomes a lien after close of escrow is the Buyer's responsibility.
Wood Infestation Report: Wood Infestation Report [x] is [ ] is not required. If required x Seller Buyer will, at his expense, place
in escrow a wood infestation report by a qualified licensed pest control operator, which when considered in its entirety, indicates
that all buildings are free from evidence of current infestation and damage from wood destroying pests or organisms. Seller agrees
to pay up to [ ] one percent of the Purchase Price or [ ] $ 500.00 for the treatment and repair of the damage caused by infestation
and correct any conditions conducive to infestation. If such costs exceed the amount mentioned above: (1) Buyer may elect to cancel
this Contract. Or (2) Seller may elect to cancel this Contract unless Buyer agrees in writing to either accept the )Property or to
pay such costs, in excess of the amount the Seller has agreed to pay.
Seller Property Disclosure Statement (SPDS):
(a) [ ] Buyer has received, read, and approved the SPDS.
(b) [ ] Buyer waives review and approval of the SPDS. Seller to provide Phase 1 Environmental Survey.
(c) [ ] Seller shall deliver the SPDS within five (5) calendar days after acceptance of the Contract, after which Buyer shall have
five (5) calendar days after receipt by Buyer to immediately terminate this Contract notwithstanding any other provisions contained
herein by delivering written notice of termination to either the Seller or to the Escrow Company, and in such event, Buyer is
entitled to a return of the earnest deposit without further consent of the Seller. (AAAR FORM 1417, OR EQUIVALENT, SHALL SATISFY
THIS REQUIREMENT.)
Seller's Notice of Violations: Seller has no knowledge of any notice of violations of City, County, State, or Federal building,
zoning, fire, or health laws, codes, statutes, ordinances, regulations, or rules filed or issued against the Property. If Seller
receives notice of violations prior to Close of Escrow, Seller shall immediately notify Buyer in writing. Buyer is allowed five (5)
calendar days after receipt of notice to provide written notice to Seller of any items disapproved. READ LINES ??? FOR IMPORTANT
TERMS.
Seller shall provide to Buyer in writing within 20 days the following items: (1) any known pending special assessments, association
fees, claims, or litigation, and (2) copies of covenants, conditions, and restrictions, articles or incorporation, by-laws, other
governing documents, any other documents required by law, (3) any rent rolls, deposit rolls, personal property lists, copies of all
leases, service contracts and any other agreements relating to the property, and
Buyer has the right to disapprove the above documents in accordance with Lines ???.
No Tenant Bankruptcy Proceedings. Seller has no notice or knowledge that any tenant of the Property is the subject of a bankruptcy
or insolvency proceeding.
No Seller Bankruptcy Proceedings. Seller is not the subject of a bankruptcy, insolvency or probate proceeding.
Sanitation and Waste Disposal Systems: Buyer is aware and Seller warrants that the Premises is on a :
[x] Sewer system [ ] Septic Tank [ ] Other
Obligations Regarding Waste Disposal Systems: At [ ] Sellers [ ] Buyers expense, any septic tank on the Premises shall be pumped and
certified by an inspector and/or contractor recognized by the applicable governmental authority. Certification and/or documentation
required shall be delivered to the Escrow Company. The Seller warrants that the system is being operated in compliance with the
established standards of the applicable governmental authority.
Seller's Obligations Regarding Wells: If any well is located on the Premises, Seller shall deliver to Escrow Company, before Close
of Escrow, a copy of the Arizona Department of Water Resources (ADWR) "Registration of Existing Wells." Escrow Company is hereby
instructed to send to the ADWR a "Change of Well Information." (ARS 45-593).
Property with Pools: Buyer and Seller acknowledge that, if the Property contains an above or below ground swimming pool, or
contained body of water intended for swimming, there will be compliance with any applicable state, county, and municipal pool
barrier and notice requirements prior to possession by the Buyer. Buyer sand Seller expressly relieve and indemnify brokers from any
and all liability and responsibility for such compliance.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 4 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
<PAGE>
Flood Hazard Disclosure: If the Property is situated in an area identified as having any special flood hazards by any governmental
entity, including but not limited to, being designated as a special flood hazard area by the Federal Emergency Management Agency
(FEMA), Seller shall, with 5 calendar days after acceptance of the offer, disclose this fact in writing to the Buyer. Flood
insurance may be required by lender. Buyer is allowed 20 calendar days from receipt of the disclosure to make further inquiries at
appropriate governmental agencies, lenders, insurance agents, or other appropriate entities. Buyer shall provide written notice to
Seller of any items disapproved within this latter time period. READ LINES ??? FOR IMPORTANT TERMS.
Physical and Environmental Inspection: Buyer shall have the right, at [xx] Buyer's expense [ ] Seller's expense [ ] Seller to
provide at its cost Phase One Environmental Report (See Lines ????) to select an inspector(s), to make "Inspections" (including
tests, surveys, and other studies) of the Property, including but not limited to structural, plumbing, sewer/septic, well, heating,
air conditioning, electrical, and mechanical systems, built-in appliances, roof, soil, cathodic protection, foundation, pool/spa and
related equipment, possible environmental hazards (such as asbestos, formaldehyde, radon gas, lead-based paint, fuel or chemical
storage tanks, hazardous waste, and other substances, materials or products), geologic conditions, location of property lines, sign
usage, zoning regulations, water/utility and use restrictions. Seller shall make the Property available for all inspections. It is
understood that this inspection requires that the utilities be on and the Seller is responsible for providing same at his expense.
Buyer shall keep the Property free and clear of liens, shall indemnify and hold Seller harmless from all liability, claims, demands,
damages, and costs, and shall repair all damages arising from the inspections. Buyer shall provide Seller and Brokers, at no cost,
copies of all reports concerning the Property obtained by Buyer. Buyer shall provide written notice to Seller of any items
reasonably disapproved, within |_| ten (1) calendar days or |_| after acceptance of the Contract. REFER TO LINES ??? FOR IMPORTANT
TERMS.
Physical Inspection Waiver: The Buyer has been advised of the benefits of an independent physical inspection of the entire property
in order to determine the condition thereof. The Buyer hereby waives the inspection and agrees not to make any claims against the
Seller, Brokers or Agents regarding the condition of the property. This waiver does not release the Seller from warranties or
disclosure requirements that may be expressed elsewhere in this contract.
BUYER BUYER SELLER SELLER
Environmental Waiver: The Buyer has been advised of the benefits of an independent environmental inspection of the entire property
in order to determine the condition thereof. The Buyer hereby waives the inspection and agrees not to make any claims against the
Seller, Brokers or Agents regarding the condition of the property. This waiver does not release the Seller from warranties or
disclosure requirements that may be expressed elsewhere in this contract.
BUYER BUYER SELLER SELLER
SQUARE FOOTAGE: BUYER IS AWARE THAT ANY REFERENCE TO THE SQUARE FOOTAGE OF THE PREMISES IS APPROXIMATE. IF SQUARE FOOTAGE IS A
MATTER TO THE BUYER, IT MUST BE VERIFIED BY BUYER PRIOR TO CLOSE OF ESCROW.
Warranties: The Seller grants Buyer or Buyer's representative reasonable access to enter and walk through the Premises for the
purpose of satisfying Buyer that any items warranted by Seller are in working condition, and except as otherwise provided in this
Contract, Seller has maintained the Property in substantially the same conditionas on the effective date of this Contract. At the
earlier of possession or Close of Escrow, Buyer acknowledges that all warranties concerning the Property have been satisfied or
extinguished. Any personal property included herein shall be transferred in AS IS CONDITION and SELLER MAKES NO WARRANTY of any
kind, express or implied (including, without limitation, ANY WARRANTY OF MERCHANTABILITY). Brokers are hereby relieved of any and
all liability and responsibility for everything stated in this paragraph and the following paragraph.
Warranties that Survive Closing: Prior to the Close of Escrow, Seller warrants that payment in full will have been made for all
rental and/or privilege taxes, labor, professional services, materials, machinery, fixtures or tools furnished within the 120 days
immediately preceding the Close of Escrow in connection with the construction, alteration or repair of any structure on or
improvement to the Property. Seller warrants that the information in the current listing agreement, if any, regarding connection to
a public sewer system, septic tank or other sanitation system is correct to the best of his knowledge. Seller warrants that he has
disclosed to Buyer and Brokers all material latent defects concerning the Property that are known to Seller. Seller further warrants
that he has disclosed to all parties any information, excluding opinions of value, that he possesses which materially and adversely
affects the consideration to be paid by Buyer.
Representations and Releases: By signing this contract, Buyer represents that he has or will have prior to close of escrow,
conducted all desired independent investigations of any and all matters concerning this purchase and by closing escrow accts the
Property. Seller and Buyer hereby expressly release, hold harmless and indemnify all brokers in this transaction from any and all
liability and responsibility regarding the condition, square footage, lot lines, or boundaries, value, rent rolls, environmental
problems, sanitation systems, roof, wood infestation and wood infestation report, compliance with building codes or other
governmental regulations, or any other material matters relating to the Property. Neither Seller, Buyer nor any broker shall be
bound by any understanding, agreement, promise or representation, express or implied, written or verbal, not specified herein.
Default and Remedies: If either party defaults in any respect on any material obligations under this Contract, the non-defaulting
party may elect to be released from all obligations under this Contract by canceling this Contract as provided in Lines 298-305
below. The non-defaulting party may thereafter proceed against the party indefault upon any claim or remedy which the non-defaulting
party may have in law or equity. In the case of the Seller, because it would be difficult to fix actual damages in the event of
Buyer's default, the amount of the earnest money may be deemed a reasonable estimate of the damages; and Seller may at Seller's
option retain the earnest money deposit, subject to any compensation to Brokers, as Seller's sole right to damages. In the event
that the non-defaulting party elects not to cancel this Contract, the non-defaulting party may proceed against the party in default
for specific performance of this Contract or any of its terms, in addition to any claim or remedy which the non-defaulting party may
have in law or equity. In the event that either party pursues specific performance of this Contract, that party does not waive the
right to cancel this Contract pursuant to Lines ??? below at any time, and proceed against the defaulting party as otherwise
provided herein, or in law or equity. If Buyer or Seller files suit against the other to enforce any provision of this Contract or
for damages sustained by reason of its breach, all parties prevailing in such action, on trial and appeal, shall receive their
reasonable attorneys' fees and costs as awarded by the court. In addition, both Seller and Buyer agree to indemnify and hold
harmless all Brokers against all costs and expenses, which any Broker may incur or sustain in connection with any lawsuit arising
from this Contract and will pay the same on demand unless the court shall grant judgment in such action against the party to be
indemnified. Costs shall include, but not be limited to, attorneys' fees, expert witness fees, fees paid to investigators, and court
costs.
Cancellation: Any party who wishes to cancel this Contract because of any breach by another party, or because escrow fails to close
by the agreed date, and who is not himself in breach of this Contract, except as occasioned by a breach by the other party, may
cancel this Contract by delivering a notice to either the breaching party or to the escrow company stating the nature of the breach
and that this Contract shall be canceled unless the breach is cured within 13 days following the delivery of the notice. If this
notice is delivered to the escrow company, it shall contain the address of the party in breach. Any notice delivered to any party
must be delivered to the Brokers and the escrow company. Within three days after receipt of such notice, the escrow company shall
send the notice by United States Mail to the party in breach at the address contained in the notice. No further notice shall be
required. In the event that the breach is not cured within 13 days following the delivery of the notice to the party in breach or to
the escrow company, this Contract shall be canceled; and the non-breaching party shall have all rights and remedies available at law
or equity for the breach of this Contract by the breaching party, as provided in Lines ??? above.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 5 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
<PAGE>
Release of Deposit Based On Contingency Or Condition: a) If this Contract is contingent upon or conditioned upon the occurrence of
some future event (such as financing) and that event fails to occur thereby rendering this contract unenforceable, the Contract will
be terminated immediately and a thirteen (13) day cancellation notice will not be required to terminate the obligation of all
parties under this Contract as a result of the failed contingency or condition, provided that this Contract shall remain enforceable
if the party for whose benefit the contingency or condition existed waives such contingency or condition. Notice of the failed
contingency escrow holder by benefiting party and this contract shall be deemed immediately canceled without further written consent
required by other party. In such event, Buyer's deposit shall be returned to Buyer without further written consent of Seller and
without regard for the cancellation provisions in Lines 298-305.
Recommendations: If any Broker recommends a builder, contractor, inspector, or any other person or entity to Seller or Buyer for any
purpose, such recommendation will be independently investigated and evaluated by Seller or Buyer, who hereby acknowledge that any
decision to enter into any contractual arrangements with any such person or entity recommended by any Broker will be based solely
upon such independent investigation and evaluation. Seller and Buyer understand that said contractual arrangement may result in a
commission or fee to Broker, which shall be disclosed in writing to the Seller and Buyer.
Risk Of Loss: If there is any loss or damage to the Property between the date hereof and the close of escrow, by reason of the
vandalism, flood earthquake or act of God, the risk of loss shall be in the Seller, provided, however, that the cost of repairing
such loss or damage would exceed ten percent (10%) of the purchase price, either Seller or Buyer may elect to cancel the Contract.
Broker's Rights: If any Broker hires an attorney to enforce the collection of the commission payable pursuant to the Contract, and
is successful in collecting some or all of such commission, responsible party agrees to pay such Broker's costs including, but not
limited to, attorney's fees, expert witness fees, fees paid to investigators, and court costs. The Seller and the Buyer acknowledge
that the Brokers are third-party beneficiaries of this Contract.
Buyer Disapproval: If Buyer gives written notice of disapproval of items as provided herein, Seller shall respond in writing within
five (5) calendar days after receipt of such notice. If Seller is unwilling or unable to correct items reasonable disapproved by
Buyer, including making any repairs in a workmanlike manner, then Buyer may cancel this Contract by giving written notice of
cancellation to Seller within five (5) calendar days after receipt of Seller's response, or after expiration of the time for
Seller's response, whichever occurs first, in which case Buyer's deposit shall be returned to Buyer, without further written consent
of Seller, and without regard for the cancellation provisions in Lines 298-305 above. Notwithstanding the foregoing, if the items
reasonably disapproved by the Buyer exceed ten percent (10%) of the purchase price, the Buyer shall be entitled to cancel this
Contract. BUYER'S FAILURE TO GIVE WRITTEN NOTICE OF DISAPPROVAL OF ITEMS OR CANCELLATION OF THIS CONTRACT WITHIN THE SPECIFIED TIME
PERIODS SHALL CONCLUSIVELY BE DEEMED BUYER'S ELECTION TO PROCEED WITH THE TRANSACTION WITHOUT CORRECTION OF ANY DISAPPROVED ITEMS
WHICH SELLER HAS NOT AGREED TO CORRECT.
FIRPTA: If applicable Seller agrees to complete, sign and deliver to escrow company a certificate indicating whether Seller is a
foreign person or a non-resident alien pursuant to the Foreign Investment in Real Property Tax Act. (FIRPTA).
Permission: Buyer and Seller grant Brokers permission to advise the public of the sale upon execution of this Contract, and Brokers
may disclose price and terms herein after close of escrow.
Attorney's Fees: In any action, proceeding or arbitration arising out of this agreement, if the prevailing party shall be entitled
to reasonable attorney's fees and costs.
Mediation: Any dispute or claim arising out of or relating to this Contract, any alleged breach of this Contract or services
provided in relation to the Contract shall be submitted to mediation in accordance with the NATIONAL ASSOCIATION OF REALTORS(R)
Rules and Procedures of the Dispute Resolution System or, if not available, another mediation provider. disputes shall include
representations made by the Buyer, Seller or any Broker or other person or entity in connection with the sale, purchase, financing,
condition or other aspect of the Premises to which this Contract pertains, including without limitation allegations of concealment,
misrepresentation, negligence and/or fraud. Any agreement signed by the parties pursuant to the mediation conference shall be
binding. The following matters are excluded from mediation hereunder: (a) judicial or nonjudicial foreclosure or other action or
proceeding to enforce a deed of trust, mortgage, or land Contract; (b) an unlawful detainer action; (C) the filing or enforcement of
a mechanic's lien; or (d) any matter which is within the jurisdiction of a probate court. The filing of a judicial action to enable
the recording of a notice of pending action, for order of attachment, receivership, Injunction, or other provisional remedies, shall
not constitute a waiver of the obligation to mediate under this provision, nor shall it constitute a breach of the duty to mediate.
Entire Agreement: This Contract, any attached exhibits and any addenda or supplements signed by the parties, shall constitute the
entire agreement between Seller and Buyer, and shall supersede any other written or oral agreement between Seller and Buyer. This
contract can be modified only by a wring signed by Seller and Buyer. A fully executed facsimile copy in total or in counterpart of
the entire agreement shall be treated as an original Contract.
Arizona Law: This Contract shall be governed by Arizona law. Any legal action will take place in the county in which property is
located.
Broker/Fee: Buyer and Seller each represent and warrant to the other that he/she/it has had no dealings with any person, firm,
broker or finder in connection with the negotiation of this Agreement and/or the consummation of the purchase and sale contemplated
herein, other than the Broker(s) named herein and no Broker or other person, firm, or entity, other than said Broker(s) is/are
entitled to any commission or finder's fee in connection with this transaction as the result of any dealings or acts of such party.
Buyer and Seller do each hereby agree to indemnify, defend, protect and hold the other harmless from and against any costs, expenses
or liability for compensation, commission or charges which may be claimed by any broker, finder or other similar party, other than
said named Broker(s) by reason of any dealings or act of the indemnifying Party.
Compensation: Seller and Buyer acknowledge that Brokers shall be compensated for services rendered as previously agreed by separate
written agreement(s). Any separate written agreement(s) shall be delivered to escrow company for payment at close of escrow. If not
previously paid. COMMISSIONS PAYABLE FOR THE SALE, LEASING OR MANAGEMENT OF PROPERTY ARE NOT SET BY ANY BOARD OR ASSOCIATION OR
REALTORS(R), OR ANY LISTING SERVICE, OR IN ANY MANNER OTHER THAN BETWEEN THE BROKER AND THE CLIENT.
Additional Compensation: RESPA prohibits the paying or receiving of any fee, kickback, or thing of value for the referral of any
business related to settlement or closing of a federally regulated mortgage loan, including, but not limited to, any services
related to the origination, processing, or funding of a federally regulated mortgage loan, and includes such settlement related
business as termite inspections and home warranties. RESPA does not prohibit fees, salaries, compensation or other payments for
services actually performed. If any Broker performs any such service for a fee, Seller and Buyer consent to the payment of this
additional compensation for such services actually performed as follows:
Broker's Notice to Buyer and Seller: BUYER AND SELLER HEREBY ACKNOWLEDGE THAT THEY HAVE BEEN AND ARE NOW ADVISED BY THE BROKER(S) TO
CONSULT AND RETAIN THEIR OWN EXPERTS TO ADVISE AND REPRESENT THEM CONCERNING THE LEGAL AND INCOME TAX EFFECTS OF THIS AGREEMENT, AS
WELL AS THE CONDITION AND/OR LEGALITY OF THE PROPERTY, THE IMPROVEMENTS AND EQUIPMENT THEREIN. THE SOIL THEREOF, THE CONDITION OF
TITLE THERETO, THE SURVEY THEREOF, THE ENVIRONMENTAL ASPECTS THERE, THE INTENDED AND/OR PERMITTED USAGE THEREOF, THE EXISTENCE AND
NATURE OF TENANCIES THEREIN. THE OUTSTANDING OTHER AGREEMENTS, IF ANY, WITH RESPECT THERETO, AND THE EXISTING OR CONTEMPLATED
FINANCING THEREOF, AND THAT THE BROKER(S) IS/ARE NOT TO BE RESPONSIBLE FOR PURSUING THE INVESTIGATION OF ANY SUCH MATTERS UNLESS
EXPRESSLY OTHERWISE AGREED TO IN WRITING BY BROKER(S) AND BUYER OR SELLER.
Time For Acceptance: This is an offer to purchase The property. Unless acceptance is signed by Seller and a signed copy delivered in
person, by mail, or facsimile, and personally received by Buyer or by Selling Broker, by , 19 at AM/PM Mountain Standard Time, or
unless this offer has been previously withdrawn by Buyer, this offer shall be deemed revoked and the deposit shall be returned.
Buyer has read and acknowledges receipt of a copy of this offer.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 6 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
<PAGE>
The undersigned agree to purchase the Property on the terms and conditions herein stated and acknowledge receipt of a copy hereof.
Dated this day of January, 1997 at a.m.
Buyer: D.F. Properties
Address:
City, State, Zip:
Telephone/Fax:
Dated this day of 19 at am/pm
Buyer:
Address:
City, State, Zip:
Telephone/Fax:
- ------------------------------------------------------------------------------------------------------------------------------------
ACCEPTANCE
- ------------------------------------------------------------------------------------------------------------------------------------
Agency Confirmation: the following agency relationship(s) are hereby confirmed for this transaction: Listing Company/Salesperson:
Don Bennett & Associates
Is the Agent of (check one) [x] the Seller exclusively; or [ ] both Buyer and Seller
Subsequent Offers: Seller releases the Broker from the obligation to submit any subsequent offers to purchase the Premises until
after cancellation of this Contract.
Seller Receipt of Copy: The undersigned acknowledge receipt of a copy hereof and grant permission to Broker named on lines ?? to
deliver a copy to Buyer.
|_| Counter Offer is attached, which is incorporated herein by reference. If there is a conflict between this Contract and the
Counter Offer, the provisions of the Counter Offer shall be controlling. (NOTE: If this box is checked, Seller should sign both the
Contract and the Counter Offer.)
Dated this day of 1997 at a.m/pm.
Dated this 22nd day of January 1997 at am/pm
Seller: PB Southwest mo/da/yr
Seller: Ken Charbonneau 1 / 22/ 97
Seller: mo/da/yr
Seller: Vice President mo / da / yr
Address: 2664 S. Litchfield Rd.
Address:
City, State, Zip: Goodyear, Arizona 85338
City, State, Zip:
Telephone/Fax: 9602) 925-0731 FAX: (602) 925-2363
Telephone/Fax:
For Broker Use Only: Brokerage File/Log No. Manager's Initials Broker's Initials Date
This form is available for use by the entire real estate industry. The use of this form is not intended to identify the user as a
REALTOR(R). REALTOR(R) is a registered collective membership mark which may be used only by real estate licensees who are members of
the
NATIONAL ASSOCIATION OF REALTORS(R) and who subscribe to its Code of Ethics.
(C)Arizona Association of REALTORS(R) April 1994 this Form Available Through Your Local Board of REALTORS(R) Form No. 1535-830.
Buyer and Seller acknowledge receipt of a copy of this page which constitutes page 7 of 7 pages.
Initials: /s/ /s/
- ------------------------------------------------------------------------
BUYER BUYER SELLER SELLER
</TABLE>
EXHIBIT 11.1
STATEMENT REGARDING COMPUTATION OF PER SHARE EARNINGS
POORE BROTHERS, INC.
<TABLE>
<CAPTION>
Years ended December 31,
------------------------
1996 1995
---- ----
<S> <C> <C>
Net loss $691,678 $1,194,910
--------------------------------------------
Weighted average common shares outstanding 3,924,498 2,690,189
Common stock equivalents from stock options
and warrants (1) 568,809 758,412
--------------------------------------------
Total weighted average common shares
outstanding 4,493,307 3,448,601
--------------------------------------------
Loss per common share and common share
equivalent (2) $(0.15) $(0.35)
============================================
</TABLE>
(1) Anti-dilutive common stock equivalents included for 1995 and the first nine
months of 1996 in accordance with Securities and Exchange Commission Staff
Accounting Bulletin No. 83.
(2) Fully diluted loss per share of common stock is not applicable for loss
periods as it is anti-dilutive.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL
INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL
STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 1996,
INCLUDED WITH FORM 10-KSB, AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH FINANCIAL
STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<EXCHANGE-RATE> 1
<CASH> 3,603,850
<SECURITIES> 1,250,000
<RECEIVABLES> 2,033,064
<ALLOWANCES> 121,000
<INVENTORY> 863,309
<CURRENT-ASSETS> 7,822,804
<PP&E> 4,732,331
<DEPRECIATION> 699,988
<TOTAL-ASSETS> 14,340,445
<CURRENT-LIABILITIES> 3,637,202
<BONDS> 3,355,651
0
0
<COMMON> 66,488
<OTHER-SE> 7,275,104
<TOTAL-LIABILITY-AND-EQUITY> 14,340,445
<SALES> 17,219,641
<TOTAL-REVENUES> 17,219,641
<CGS> 13,091,194
<TOTAL-COSTS> 13,091,194
<OTHER-EXPENSES> 3,969,462
<LOSS-PROVISION> 60,230
<INTEREST-EXPENSE> 403,677
<INCOME-PRETAX> (691,678)
<INCOME-TAX> 0
<INCOME-CONTINUING> (691,678)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (691,678)
<EPS-PRIMARY> (0.15)
<EPS-DILUTED> 0.00
</TABLE>
