U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-QSB
(Mark One)
[ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange
Act of 1934 For the quarterly period ended September 30, 1998
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
POORE BROTHERS, INC.
-----------------------------------------------------------------
(Exact name of small business issuer as specified in its charter)
DELAWARE 86-0786101
-------- ----------
(State or other jurisdiction of incorporation or (I.R.S. Employer
Organization) Identification No.)
3500 S. LA COMETA DRIVE, GOODYEAR, ARIZONA 85338
------------------------------------------------
(Address of principal executive offices)
(602) 932-6200
--------------
(Issuer's telephone number)
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 [ ]
As of September 30, 1998, the number of issued and outstanding shares of common
stock of the Registrant was 7,126,657.
Transitional Small Business Disclosure Format (check one): Yes [ ] No [X]
<PAGE>
TABLE OF CONTENTS
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
Consolidated Balance Sheets as of September 30, 1998
and December 31, 1997.............................................. 3
Consolidated Statements of Operations for the three
and nine months ended September 30,1998 and 1997.................. 4
Consolidated Statements of Cash Flows for the
nine months ended September 30, 1998 and 1997..................... 5
Notes to Financial Statements....................................... 6
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF
OPERATIONS AND FINANCIAL CONDITION.................................. 8
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS................................................... 12
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 12
ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 13
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 13
ITEM 5. OTHER INFORMATION................................................... 13
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 14
2
<PAGE>
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, DECEMBER 31,
1998 1997
---- ----
ASSETS (unaudited)
Current assets:
Cash and cash equivalents .................. $655,944 $1,622,751
Accounts receivable, net of allowance
of $177,000 in 1998 and $174,000 in 1997 . 1,236,659 1,528,318
Note receivable ............................ -- 78,414
Inventories ................................ 440,790 473,025
Other current assets ....................... 259,907 175,274
------------ ------------
Total current assets ..................... 2,593,300 3,877,782
Property and equipment, net ................. 6,262,939 6,602,435
Intangible assets, net ...................... 2,162,483 2,294,324
Other assets ................................ 107,399 100,673
------------ ------------
Total assets ............................. $11,126,121 $12,875,214
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable ........................... $507,621 $824,129
Accrued liabilities ........................ 499,573 502,793
Current portion of long-term debt .......... 535,894 1,127,217
------------ ------------
Total current liabilities ................ 1,543,088 2,454,139
Long-term debt, less current portion ........ 4,826,291 5,017,724
------------ ------------
Total liabilities ........................ 6,369,379 7,471,863
------------ ------------
Shareholders' equity:
Preferred stock, $100 par value; 50,000
shares authorized; None issued and
outstanding in 1998 and 1997 ............. -- --
Common stock, $.01 par value; 15,000,000
shares authorized; 7,126,657 and 7,051,657
shares issued and outstanding in 1998
and 1997, respectively ................... 71,267 70,516
Additional paid-in capital ................. 10,875,134 10,794,768
Accumulated deficit ........................ (6,189,659) (5,461,933)
------------ ------------
Total shareholders' equity ............... 4,756,742 5,403,351
------------ ------------
Total liabilities and
shareholders' equity ................... $11,126,121 $12,875,214
============ ============
The accompanying notes are an integral part of these financial statements.
3
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------------- ---------------------------
1998 1997 1998 1997
---- ---- ---- ----
(unaudited) (unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C>
Net sales ......................... $3,014,738 $3,334,303 $9,475,956 $12,658,902
Cost of sales ..................... 2,295,323 3,011,936 7,108,610 11,139,582
----------- ----------- ----------- ------------
Gross profit ................... 719,415 322,367 2,367,347 1,519,320
Selling, general and administrative
expenses .......................... 941,036 1,009,093 2,724,126 3,020,292
Closing of Tennessee manufacturing
operation ......................... -- 470,021 -- 470,021
Sale of Texas distribution business -- -- -- 150,000
----------- ----------- ----------- ------------
Operating loss ................. (221,621) (1,156,747) (356,779) (2,120,993)
----------- ----------- ----------- ------------
Interest income ................... 12,602 29,266 37,724 109,725
Interest expense .................. (134,340) (141,660) (408,669) (307,053)
----------- ----------- ----------- ------------
Net interest expense .......... (121,738) (112,394) (370,945) (197,328)
----------- ----------- ----------- ------------
Net loss ...................... $(343,359) $(1,269,141) $(727,724) $(2,318,321)
=========== =========== =========== ============
Net loss per common share:
Basic ........................... $(0.05) $(0.18) $(0.10) $(0.33)
=========== =========== =========== ============
Diluted ......................... $(0.05) $(0.18) $(0.10) $(0.33)
=========== =========== =========== ============
Weighted average number of
common shares:
Basic ........................... 7,126,657 7,051,657 7,104,335 7,007,091
=========== =========== =========== ============
Diluted ......................... 7,126,657 7,051,657 7,104,335 7,007,091
=========== =========== =========== ============
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
NINE MONTHS ENDED SEPTEMBER 30,
------------------------------
1998 1997
---- ----
(unaudited) (unaudited)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss ................................................. $(727,724) $(2,318,321)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities:
Depreciation ........................................... 434,244 249,707
Amortization ........................................... 150,115 131,841
Bad debt expense ....................................... 68,000 61,000
Loss on disposition of business ....................... -- 428,000
Change in operating assets and liabilities:
Accounts receivable .................................... 223,659 (31,572)
Inventories ............................................ 32,235 187,761
Other assets and liabilities ........................... (109,634) (88,873)
Accounts payable and accrued liabilities ............... (319,728) (748,655)
----------- -----------
Net cash provided by (used in) operating
activities ......................................... (170,418) (2,065,968)
----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds on disposal of property ........................ 27,268 770,559
Sale of Texas distribution business ..................... -- 78,414
Purchase of short term investments ...................... -- (1,022,439)
Purchase of property and equipment ...................... (122,016) (2,789,287)
----------- -----------
Net cash (used in) investing activities ............. (94,748) (2,962,753)
----------- -----------
CASH FLOWS FROM FINANCING
ACTIVITIES:
Proceeds from issuance of common stock .................. 81,116 1,253,431
Net decrease in restricted certificate
of deposit ............................................. -- 1,250,000
Stock issuance costs .................................... -- (157,575)
Proceeds from issuance of long-term debt ................ -- 1,734,627
Payments made on long-term debt ......................... (436,925) (2,069,812)
Net increase (decrease) in working
capital line of credit ................................. (345,832) 351,607
----------- -----------
Net cash (used in) provided by
financing activities ............................... (701,640) 2,362,278
----------- -----------
Net (decrease) in cash and cash equivalents ............... (966,806) (2,666,443)
Cash and cash equivalents at beginning of period .......... 1,622,751 3,603,850
----------- -----------
Cash and cash equivalents at end of period ................ $655,944 $937,407
=========== ===========
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Summary of non cash investing and financing activities:
Construction loan for new facility ...................... $ -- $998,746
Capital lease obligation incurred - equipment acquisition -- 70,859
Mortgage impounds for interest, taxes and insurance ..... -- 35,990
Note received for sale of Texas distribution business ... -- 78,414
Cash paid during the nine months for interest,
net of amounts capitalized ............................. 397,370 330,223
</TABLE>
The accompanying notes are an integral part of these financial statements.
5
<PAGE>
POORE BROTHERS, INC. AND SUBSIDIARIES
NOTES TO FINANCIAL STATEMENTS
1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
GENERAL
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. The exchange transaction with PB Southeast has been accounted for similar
to a pooling-of interests since both entities had common ownership and control
immediately prior to the transaction. In December 1996, the Company completed an
initial public offering of its common stock. During 1997, the Company sold its
Houston, Texas distribution business and closed its Tennessee manufacturing
operation.
The Company manufactures and distributes potato chips under the Poore
Brothers(TM) brand name, as well as private label potato chips, and also
distributes a variety of other independently manufactured snack food items.
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of Poore
Brothers, Inc. and all of its controlled subsidiaries. In all situations, the
Company owns from 99% to 100% of the voting interests of the controlled
subsidiaries. All significant intercompany amounts and transactions have been
eliminated. The financial statements have been prepared in accordance with the
instructions for Form 10-QSB and, therefore, do not include all the information
and footnotes required by generally accepted accounting principles. In the
opinion of management, the consolidated financial statements include all
adjustments, consisting only of normal recurring adjustments, necessary in order
to make the consolidated financial statements not misleading. A description of
the Company's accounting policies and other financial information is included in
the audited financial statements filed with the Form 10-KSB for the fiscal year
ended December 31, 1997. The results of operations for the nine months ended
September 30, 1998 are not necessarily indicative of the results expected for
the full year.
LOSS PER SHARE
During 1997, the Company adopted Statement of Financial Accounting
Standards ("SFAS") 128, "Earnings Per Share". Pursuant to SFAS 128, basic
earnings per common share is computed by dividing net income (loss) by the
weighted average number of shares of common stock outstanding during the period.
Exercises of outstanding stock options and conversion of convertible debentures
were not assumed to be exercised for purposes of calculating diluted earnings
per share for the three and nine months ended September 30, 1998 and 1997, as
their effect was anti-dilutive.
<TABLE>
<CAPTION>
Three months ended Nine months ended
September 30, September 30,
--------------------------------------------------------
1998 1997 1998 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Basic loss per share:
Loss available to common shareholders $ (343,359) $(1,269,141) $ (727,724) $(2,318,321)
Weighted average common shares 7,126,657 7,051,657 7,104,335 7,007,791
----------- ----------- ----------- -----------
Loss per share-basic $ (0.05) $ (0.18) $ (0.10) $ (0.33)
=========== =========== =========== ===========
Diluted loss per share:
Loss available to common shareholders $ (343,359) $(1,269,141) $ (727,724) $(2,318,321)
Weighted average common shares 7,126,657 7,051,657 7,104,335 7,007,791
Common stock equivalents -- -- -- --
----------- ----------- ----------- -----------
Loss per share-diluted $ (0.05) $ (0.18) $ (0.10) $ (0.33)
=========== =========== =========== ===========
</TABLE>
6
<PAGE>
2. DEBT
The Company's $1.0 million working capital line of credit from First
Community Financial Corporation (the "First Community Line of Credit") was
renewed as of May 31, 1998 for a six-month period. At September 30, 1998, the
Company had over $1.0 million of eligible receivables. The balance outstanding
was $240,265 and $586,097 at September 30, 1998 and December 31, 1997,
respectively.
On November 4, 1998, the Company signed a new $2.5 million Credit Agreement
with Norwest Business Credit, Inc. ("Norwest") which includes a $2.0 million
working capital line of credit (the "Norwest Line of Credit") and a $0.5 million
term loan (the "Norwest Term Loan"). Borrowings under the Norwest Credit
Agreement were used to pay off the First Community Line of Credit and to finance
a portion of the consideration paid by the Company in connection with the Tejas
Snacks acquisition (see Note 4), and will also be used for general working
capital needs. The Norwest Line of Credit bears interest at an annual rate of
prime plus 1.5% and matures in November 2001 while the Norwest Term Loan bears
interest at an annual rate of prime plus 3% and requires monthly principal
payments of approximately $28,000, plus interest, until maturity on May 1, 2000.
The Norwest Credit Agreement is secured by receivables, inventories, equipment
and general intangibles. Borrowings under the line of credit are based on 85% of
eligible receivables and 60% of eligible inventories. As of November 4, 1998,
the Company was eligible to borrow approximately $1,000,000 under the Norwest
Line of Credit and $0.5 million under the Norwest Term Loan. The Norwest Credit
Agreement requires the Company to be in compliance with certain financial
performance criteria, including minimum debt service coverage ratio, minimum
quarterly net income/maximum net loss, minimum annual net income/maximum net
loss, minimum quarterly increase in book net worth, and minimum annual
increase/maximum decrease in book net worth. 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 these
financial performance criteria; however, there can be no assurance that the
Company will attain any such profitability or be in compliance. Any acceleration
under the Norwest Credit Agreement prior to the scheduled maturity of the
Norwest Line of Credit or the Norwest Term Loan could have a material adverse
effect upon the Company.
At September 30, 1998, the Company had outstanding 9% Convertible
Debentures due July 1, 2002 (the "9% Convertible Debentures") in the principal
amount of $2,219,000. The Company was not in compliance with a required interest
coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date,
resulted in an event of default because the holders of the 9% Convertible
Debentures have granted the Company a waiver effective through June 30, 1999.
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 $500,000; minimum shareholders' equity
(net worth) of $4.5 million; an interest coverage ratio of at least 1:1; and a
current ratio at the end of any fiscal quarter of at least 1.1:1. Interest on
the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly
principal payments of approximately $20,000 are required to be made by the
Company through July 2002. For the period November 1, 1998 through October 31,
1999, Renaissance Capital (the holder of $1,718,000 of 9% Convertible
Debentures) has agreed to waive all mandatory principal redemption payments and
to accept stock in lieu of cash interest payments. 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 or be in compliance with the financial ratios upon
the expiration 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.
7
<PAGE>
3. LITIGATION
On October 22, 1998, a jury rendered a verdict, but no judgement has been
entered by the Court, against the defendants, Mark S. Howells and Jeffrey J.
Puglisi (directors of the Company and PB Southeast), and awarded the plantiff
Gossett $90,000. The jury also rendered a verdict, but no judgement has been
entered by the Court, against Gossett and awarded Poore Brothers Southeast
$2,000. As of this date, the defendants have requested the Court to award them
attorneys' fees arising from additional plantiff's claims that were dismissed
earlier in the litigation. The parties have agreed to suspend all further action
and litigation until November 30, 1998 so that the parties may attempt to settle
the case.
In July 1998, the Company settled the litigation with Chris Ivey and his
company, Shelby and Associates. The settlement included the release of all
claims and the dismissal of his lawsuit.
4. ACQUISITION OF ASSETS OF TEJAS SNACKS
On November 4, 1998, the Company signed a definitive purchase agreement to
acquire the business and certain assets of Tejas Snacks, L.P., a Texas-based
potato chip manufacturer. The assets, which were acquired through a newly-formed
wholly-owned subsidiary of the Company, Tejas PB Distributing, Inc., included
the Bob's Texas StyleTM Potato Chips brand, inventories and certain capital
equipment. In exchange for these assets, the Company issued 523,077 unregistered
shares of Common Stock and paid approximately $1.2 million in cash. The Company
utilized available cash as well as funds available pursuant to the Norwest Line
of Credit and the Norwest Term Loan to satisfy the cash portion of the
consideration. Tejas Snacks had sales of approximately $2.8 million for the nine
months ended September 30, 1998. The Company has transferred production of the
Bob's brand to its Goodyear, Arizona facility. The acquisition will be accounted
for using the purchase method of accounting.
5. NEW ACCOUNTING PRONOUNCEMENTS
In July 1998, the Financial Accounting Standards Board (FASB) issued SFAS
No. 133, "Accounting for Derivative Instruments and for Hedging Activities",
which is effective for years beginning after June 15, 1999. The SFAS requires
that a company must formally document, designate and assess the effectiveness of
transactions that receive hedge accounting. Upon adoption in the first quarter
of 2000, the Company expects there will be no impact on its financial condition
or results of operations.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND
FINANCIAL CONDITION
RESULTS OF OPERATIONS
QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER
30, 1997
Net sales for the three months ended September 30, 1998 were $3,015,000
down $319,000 or 10%, from $3,334,000 for the three months ended September 30,
1997. Poore Brothers manufactured potato chip sales for the third quarter of
1998 were $2,309,000, down $365,000, or 14%, from $2,674,000. This decrease was
primarily the result of the third quarter 1997 discontinuance of low-fat potato
chips ($110,000) and the elimination of deep discount pricing and promotion
programs.
Gross profit for the three months ended September 30, 1998, was $719,000,
or 24% of net sales, as compared to $322,000, or 10% of net sales, for the three
months ended September 30, 1997. The $397,000 increase in gross profit, or 123%,
occurred despite 10% lower sales. This improvement resulted from the Company's
1997 manufacturing consolidation, benefits from negotiated raw material cost
savings and a continued improvement in manufacturing and operating efficiencies
at the Goodyear, Arizona facility.
Operating expenses decreased to $941,000 for the three months ended
September 30, 1998 from $1,479,000 for the same period in 1997. The decrease of
$538,000, or 36%, compared to the third quarter of 1997 was attributable
primarily to a $470,000 charge recorded by the Company in September 1997 related
to severance, equipment write-downs and lease termination costs in connection
8
<PAGE>
with the closing of the Tennessee manufacturing facility. Selling, general and
administrative expenses for the three months ended September 30, 1998 decreased
$68,000 to $941,000, from $1,009,000 during the same period in 1997. Decreases
in administrative payroll costs, advertising and promotional spending, travel
and entertainment and bad debt expense were offset by increases in professional
services related to litigation and organizational changes.
Net interest expense increased to $122,000 for the quarter ended September
30, 1998 from $112,000 for the quarter ended September 30, 1997. This was due
primarily to a decrease in interest income generated from investment of the
remaining proceeds of the initial public offering.
The Company's net losses for the quarters ended September 30, 1998 and
September 30, 1997 were $343,000 and $1,269,000, respectively. The reduction in
net loss was attributable primarily to the increased gross profit and to the
absence of any charges for closing the Tennessee manufacturing facility in 1997.
NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED
SEPTEMBER 30, 1997
Net sales for the nine months ended September 30, 1998 were $9,476,000,
down $3,183,000, or 25%, from $12,659,000 for the nine months ended September
30, 1997. The sale of the Texas distribution business in June 1997 contributed
approximately $1,452,000 to the sales decline, consisting of $1,213,000 in sales
of products manufactured by others and $239,000 in sales of Poore Brothers
manufactured potato chips. An additional $697,000 decrease occurred in sales of
products manufactured by others due to the elimination of several unprofitable
product lines during the second quarter of 1997. Poore Brothers manufactured
potato chip sales for the nine months of 1998 were $7,543,000, down $1,035,000,
or 12%, from $8,578,000 (excluding Texas) for the nine months of 1997. This
decrease was driven principally by lower volume as a result of the Company's
discontinuance of unprofitable promotion programs with certain customers and the
shutdown of the Tennessee manufacturing facility in the third quarter of 1997.
Gross profit for the nine months ended September 30, 1998, was $2,367,000,
or 25% of net sales, as compared to $1,519,000, or 12% of net sales, for the
nine months ended September 30, 1997. The $848,000 increase in gross profit, or
56%, occurred despite 25% lower sales. This increase is a result of the
restructuring actions implemented in 1997, benefits from negotiated raw material
cost savings and a continued improvement in manufacturing and operating
efficiencies at the Company's Goodyear, Arizona facility.
Operating expenses decreased to $2,724,000 for the nine months ended
September 30, 1998 from $3,640,000 for the same period in 1997. This represented
a $916,000 decrease, or 25%, compared to the same period in 1997. The decrease
was primarily attributable: to a $150,000 charge recorded by the Company in June
1997 related to severance, equipment write-downs and lease termination costs in
connection with the sale of the Company's Texas distribution business; a
$470,000 charge recorded by the Company in September 1997 in connection with the
closure of the Tennessee manufacturing facility; and a decrease in selling,
general and administrative expenses. Selling, general and administrative
expenses decreased $296,000, or 10%, to $2,724,000 for the nine month period
ended September 30, 1998 from $3,020,292 for the same period in 1997. A 25%
increase in advertising and promotional spending offset a 25% decrease in
payroll costs. In addition, higher professional service costs in 1998 were
offset by lower sales-related expenses, office expenses and occupancy costs.
Net interest expense increased to $371,000 for the nine months ended
September 30, 1998 from $197,000 for the same period in 1997. This increase was
due primarily to interest expense related to the permanent financing on the
Company's Arizona manufacturing facility and production equipment, and a
decrease in interest income generated from investment of the remaining proceeds
of the initial public offering.
The Company's net losses for the nine months ended September 30, 1998 and
September 30, 1997 were $728,000 and $2,318,000, respectively. The reduction in
net loss was attributable primarily to the increased gross profit and lower
operating expenses, offset by higher net interest expense.
9
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
Net working capital was $1,050,000 at September 30, 1998, with a current
ratio of 1.7:1. At December 31, 1997, net working capital was $1,424,000 with a
current ratio of 1.6:1. The $374,000 decrease in working capital was primarily
attributable to the Company's use of cash for operating activities and payments
on long term debt.
The Company's $1.0 million working capital line of credit from First
Community Financial Corporation (the "First Community Line of Credit") was
renewed as of May 31, 1998 for a six-month period. At September 30, 1998, the
Company had over $1.0 million of eligible receivables. The balance outstanding
was $240,265 and $586,097 at September 30, 1998 and December 31, 1997,
respectively.
On November 4, 1998, the Company signed a new $2.5 million Credit Agreement
with Norwest Business Credit, Inc. ("Norwest") which includes a $2.0 million
working capital line of credit (the "Norwest Line of Credit") and a $0.5 million
term loan (the "Norwest Term Loan"). Borrowings under the Norwest Credit
Agreement were used to pay off the First Community Line of Credit and to finance
a portion of the consideration paid by the Company in connection with the Tejas
Snacks acquisition (see Part II, Item 5), and will also be used for general
working capital needs. The Norwest Line of Credit bears interest at an annual
rate of prime plus 1.5% and matures in November 2001 while the Norwest Term Loan
bears interest at an annual rate of prime plus 3% and requires monthly principal
payments of approximately $28,000, plus interest, until maturity on May 1, 2000.
The Norwest Credit Agreement is secured by receivables, inventories, equipment
and general intangibles. Borrowings under the line of credit are based on 85% of
eligible receivables and 60% of eligible inventories. As of November 4, 1998,
the Company was eligible to borrow approximately $1,000,000 of the working
capital line of credit and $0.5 million under the Norwest Term Loan. The Norwest
Credit Agreement requires the Company to be in compliance with certain financial
performance criteria, including: minimum debt service coverage ratio; minimum
quarterly net income/maximum net loss; minimum annual net income/maximum net
loss; minimum quarterly increase in book net worth; and minimum annual
increase/decrease in book net worth. 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 these financial
performance criteria; however, there can be no assurance that the Company will
attain any such profitability or be in compliance. Any acceleration under the
Norwest Credit Agreement prior to the scheduled maturity of the Norwest Line of
Credit or the Norwest Term Loan could have a material adverse effect upon the
Company. As of November 12, 1998, there was an outstanding balance of $709,000
on the Norwest Line of Credit and $500,000 on the Norwest Term Loan.
At September 30, 1998, the Company had outstanding 9% Convertible
Debentures due July 1, 2002 (the "9% Convertible Debentures") in the principal
amount of $2,219,000. The Company was not in compliance with a required interest
coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date,
resulted in an event of default because the holders of the Debentures have
granted the Company a waiver effective through June 30, 1999. 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 $500,000; minimum shareholders' equity (net worth) of $4.5
million; an interest coverage ratio of at least 1:1; and a current ratio at the
end of any fiscal quarter of at least 1.1:1. Interest on the 9% Convertible
Debentures is paid by the Company on a monthly basis. Monthly principal payments
of approximately $20,000 are required to be made by the Company through July
2002. For the period November 1, 1998 through October 31, 1999, Renaissance
Capital (the holder of $1,718,000 of 9% Convertible Debentures) has agreed to
waive all mandatory principal redemption payments and to accept stock in lieu of
cash interest payments. Management believes that the fulfillment of the
Company's plans and objectives will enable the Company to attain a sufficient
10
<PAGE>
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 or
be in compliance with the financial ratios upon the expiration 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.
As a result of the Company's strategy to expand the Company's operations
through acquisitions and otherwise, as well as general competitive conditions in
the snack food industry, the Company may incur additional operating losses in
the future. Expenditures relating to marketing, territory expansion and new
product development may adversely affect selling, general and administrative
expenses in the future and, consequently, may adversely affect operating and net
income. These types of expenditures are expensed for accounting purposes as
incurred, while sales generated from the result of such expansion may benefit
future periods.
Management believes that current working capital, together with available
line of credit borrowings, and anticipated cash flows from operations, will be
sufficient to finance the operations of the Company for at least the next twelve
months. This belief is based on current operating plans and certain assumptions,
including those relating to the Company's future sales levels and expenditures,
industry and general economic conditions and other conditions. If any of these
plans, assumptions or factors change, or if the Company pursues additional
strategic acquisitions, the Company may require future debt or equity financing
to meet its capital requirements. There can be no assurance that such financing
will be available or, if available, on terms attractive to the Company.
YEAR 2000 COMPLIANCE
The Year 2000 issue is the result of computer programs being written using
two digits rather than four to identify the applicable year. For example,
computer programs that utilize date-sensitive information may recognize a date
using "00" as the year 1900 rather than the year 2000. This could result in
system failures or miscalculations.
The Company processes much of its data using licensed computer programs
from third parties, including its accounting software. Such third parties have
advised the Company that they have made all necessary programming changes to
such computer programs to address the Year 2000 issue. The Company tested its
systems for Year 2000 compliance during the first half of 1998 and discovered
that certain database information utilized by the Company for purposes of order
entry, billing and accounts receivables is not Year 2000 compliant, although the
underlying database software is Year 2000 compliant. The Company intends to
implement corrective measures with respect to such database information on or
prior to the first quarter of 1999. The Company does not expect to incur
significant expenses in connection with such corrective measures. In addition,
the Company believes that, notwithstanding the foregoing, it has no material
internal risk in connection with the potential impact of the Year 2000 issue on
the processing of date sensitive information by the Company's computerized
information systems.
The Company is in the process of determining the effect of the Year 2000
issue on its vendors' and customers' systems. There can be no assurance that the
systems of such third parties will be Year 2000 compliant on a timely basis, or
that the Company's results of operations will not be adversely affected by the
failure of systems operated by third parties to properly operate in the Year
2000.
FORWARD LOOKING STATEMENTS
WHEN USED IN THIS FORM 10-QSB 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
11
<PAGE>
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. IN LIGHT OF
SUCH RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING
INFORMATION CONTAINED IN THIS FORM 10-QSB WILL, IN FACT, TRANSPIRE OR PROVE TO
BE ACCURATE. THE COMPANY HAS NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY
REVISIONS THAT MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT
ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF
SUCH STATEMENTS.
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On October 22, 1998, a jury rendered a verdict, but no judgement has been
entered by the Court, against the defendants, Mark S. Howells and Jeffrey J.
Puglisi (directors of the Company and PB Southeast), and awarded the plantiff
Gossett $90,000. The jury also rendered a verdict, but no judgement has been
entered by the Court, against Gossett and awarded Poore Brothers Southeast
$2,000. As of this date, the defendants have requested the Court to award them
attorneys' fees arising from additional plantiff's claims that were dismissed
earlier in the litigation. The parties have agreed to suspend all further action
and litigation until November 30, 1998 so that the parties may attempt to settle
the case. Reference is made to "PART II, ITEM 1. LEGAL PROCEEDINGS" of the
Company's Quarterly Report on Form 10-QSB for the three-month period ended March
31, 1998 (which was filed with the Commission on May 14, 1998).
In July 1998, the Company settled the litigation with Chris Ivey and his
company, Shelby and Associates. The settlement included the release of all
claims and the dismissal of his lawsuit
ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS
On November 4, 1998, pursuant to the terms of the Norwest Credit Agreement,
the Company issued to Norwest a Warrant (the "Norwest Warrant") to purchase
50,000 shares of Common Stock for an exercise price of $0.93375 per share. The
Norwest Warrant is exercisable until November 3, 2003, the date of termination
of the Norwest Warrant, and provides the holder thereof certain demand and
piggyback registration rights. The issuance of the Warrant was made in reliance
upon the exemption from registration under the Securities Act of 1933, as
amended (the "Securities Act"), set forth in Section 4(2) as it did not involve
a public offering.
On November 12, 1998, the Company issued 523,077 unregistered shares of
Common Stock in connection with the acquisition by the Company of the business
and certain assets of Tejas Snacks, L.P. The shares were issued in lieu of cash
in satisfaction of $450,000 of the total $1.6 million purchase price. These
issuances were made in reliance upon the exemption from registration under the
Securities Act set forth in Section 4(2) as they did not involve a public
offering.
The Company has agreed to issue 183,263 unregistered shares of Common Stock
to Renaissance Capital in consideration for its waiver of all mandatory
principal redemption payments due under the 9% Convertible Debentures held by
Renaissance Capital for the period from November 1, 1998 through October 31,
1999. The issuance will be made in reliance upon the exemption from registration
under the Securities Act set forth in Section 4(2) as it will not involve a
public offering.
12
<PAGE>
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
At September 30, 1998, the Company had outstanding 9% Convertible
Debenturesdue July 1, 2002 (the "9% Convertible Debentures") in the principal
amount of $2,219,000. The Company was not in compliance with a required interest
coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date,
resulted in an event of default because the holders of the 9% Convertible
Debentures have granted the Company a waiver effective through June 30, 1999.
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 $500,000; minimum shareholders' equity
(net worth) of $4.5 million; an interest coverage ratio of at least 1:1; and a
current ratio at the end of any fiscal quarter of at least 1.1:1. Interest on
the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly
principal payments of approximately $20,000 are required to be made by the
Company through July 2002. For the period November 1, 1998 through October 31,
1999, however, Renaissance (the holder of $1,718,000 of 9% Convertible
Debentures) has agreed to waive all mandatory principal redemption payments and
to accept stock in lieu of cash interest payments. 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 or be in compliance with the financial ratios upon
the expiration 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.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 5. OTHER INFORMATION
On July 9, 1998, the Company filed a Registration Statement of Form S-3,
Amendment No. 1, with the Commission in connection with the registration of
2,604,717 shares of Common Stock, including 300,000 shares issuable upon the
exercise of the Warrant issued by the Company to Westminster Capital, Inc. in
September 1996 and 2,109,717 shares issuable upon conversion of the 9%
Convertible Debentures. The Registration Statement has not to date been declared
effective by the Commission.
On August 14, 1998, Scott D. Fullmer resigned as Vice President - Sales and
Marketing of the Company. In connection with the acquisition of Tejas Snacks,
Kevin M. Kohl and Thomas G. Bigham were made Vice Presidents of Tejas PB
Distributing, Inc.
On August 18, 1998, the Company entered into an agreement with Everen
Securities, Inc. ("Everen") pursuant to which the Company retained Everen as
financial advisor to assist the Company in its pursuit of strategic
acquisitions. Everen is entitled to fees in connection with the Tejas Snacks
acquisition and the Norwest financing pursuant to the agreement.
On November 4, 1998, the Company signed a definitive purchase agreement to
acquire the business and certain assets of Tejas Snacks, L.P., a Texas-based
potato chip manufacturer. The assets, which were acquired through a newly-formed
wholly-owned subsidiary of the Company, Tejas PB Distributing, Inc., included
the Bob's Texas StyleTM Potato Chips brand, inventories and certain capital
equipment. In exchange for these assets, the Company issued 523,077 unregistered
shares of Common Stock and paid approximately $1.2 million in cash. The Company
utilized available cash as well as funds available pursuant to the Norwest Line
of Credit and the Norwest Term Loan to satisfy the cash portion of the
consideration. Tejas Snacks had sales of approximately $2.8 million for the nine
months ended September 30, 1998. The Company has transferred production of the
Bob's brand to its Goodyear, Arizona facility. In connection with the
acquisition, the Company entered into employment agreements with certain key
personnel of Tejas.
On November 4, 1998, the Company entered into the Norwest Credit
Agreement with Norwest which provides the Company with a $2.0 million working
capital line of credit and a $0.5 million term loan. See "PART I, ITEM 2.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION - LIQUIDITY AND CAPITAL RESOURCES."
13
<PAGE>
As of November 9, 1998, the closing bid price of the Company's Common
Stock had remained below $1.00 per share for thirty consecutive trading days. As
a result, the Company has received a notice from the NASDAQ Stock Market, Inc.
("NASDAQ") that the Company was not in compliance with the closing bid price
requirements for the continued listing of the Common Stock on the NASDAQ
SmallCap Market and that such Common Stock would be delisted after February 15,
1999 if the closing bid price is not equal to or greater than $1.00 per share
for a period of at least ten consecutive trading days during the ninety-day
period ending February 15, 1999. As of November 13, 1998, the Company has not
satisfied this closing bid price requirement. In the event that the Company is
unable to achieve compliance, it will consider seeking further procedural
remedies to delay or avoid the delisting of the Common Stock or consider listing
in the over-the-counter market of the National Association of Securities
Dealers, Inc.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
EXHIBIT
NUMBER DESCRIPTION
10.1 Separation Agreement and Release of All Claims dated August 14, 1998,
by and between the Company and Scott D. Fullmer. *
10.2 Letter Agreement dated August 18, 1998, by and between the Company and
Everen.*
10.3 Credit and Security Agreement dated October 23, 1998, by and between
the Company (and certain of its subsidiaries) and Norwest. *
10.4 Patent and Trademark Security Agreement dated October 23, 1998, by and
between the Company (and certain of its subsidiaries) and Norwest. *
10.5 Warrant dated November 4, 1998, issued by the Company to Norwest. *
10.6 Agreement for Purchase and Sale of Assets dated October 29, 1998, by
and among the Company, Tejas, Kevin Kohl and Tom Bigham. *
10.7 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Thomas G. Bigham. *
10.8 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Kevin M. Kohl. *
27.1 Financial Data Schedule. *
* Filed herewith.
(b) Current Reports on Form 8-K:
Current Report on Form 8-K, reporting the signing of a letter of intent
by and between the Company and Tejas to acquire the business of Tejas
(filed with the Commission on September 29, 1998).
14
<PAGE>
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant
has caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
------------------------------------------
Dated: November 16, 1998 Eric J. Kufel
President and Chief Executive Officer
(principal executive officer)
By: /s/ Thomas W. Freeze
------------------------------------------
Dated: November 16, 1998 Thomas W. Freeze
Vice President, Chief Financial Officer,
Treasurer and Secretary
(principal financial and accounting officer)
15
<PAGE>
EXHIBIT INDEX
EXHIBIT
NUMBER DESCRIPTION
10.1 Separation Agreement and Release of All Claims dated August 14, 1998,
by and between the Company and Scott D. Fullmer.
10.2 Letter Agreement dated August 18, 1998, by and between the Company and
Everen.
10.3 Credit and Security Agreement dated October 23, 1998, by and between
the Company (and certain of its subsidiaries) and Norwest.
10.4 Patent and Trademark Security Agreement dated October 23, 1998, by and
between the Company (and certain of its subsidiaries) and Norwest.
10.5 Warrant dated November 4, 1998, issued by the Company to Norwest.
10.6 Agreement for Purchase and Sale of Assets dated October 29, 1998, by
and among the Company, Tejas, Kevin Kohl and Tom Bigham.
10.7 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Thomas G. Bigham.
10.8 Employment Agreement dated November 12, 1998, by and between Tejas PB
Distributing, Inc. and Kevin M. Kohl.
27.1 Financial Data Schedule.
EXHIBIT 10.1
SEPARATION AGREEMENT
AND
---
RELEASE OF ALL CLAIMS
---------------------
This Separation Agreement and Release of All Claims ("Agreement") is entered
into this 14th day of August, 1998, between Scott D. Fullmer ("Employee") and
Poore Brothers, Inc. ("Employer"). The term "parties" shall refer collectively
to both of these entities.
In consideration of the mutual promises herein contained, the adequacy
of which consideration is hereby acknowledged, the parties agree as follows.
1. Employee's employment by Employer is terminated by mutual agreement
as of August 7, 1998 (the "Termination Date").
2. Employer shall provide the following severance benefits to Employee:
a. Employer shall pay Employee severance pay until December 7,
1998. This severance pay, subject to appropriate withholding and deductions as
required by law, shall be paid to Employee by continuing to pay Employee amounts
equaling Employee's regular base salary, on the regular paydays of Employer,
until the obligation to pay severance is completed.
b. Vested stock options held by Employee shall expire on
February 7, 1999. Employee may exercise such stock options at any time prior to
the expiration date.
c. Any unvested stock options held by Employee that were
scheduled to vest prior to February 7, 1999 will vest as of the execution of
this Agreement and will be subject to the expiration date stated in paragraph 2b
above.
d. Unvested stock options held by Employee will expire on the
Termination Date stated in paragraph 1 above.
e. Employer shall continue Employee's medical and life
insurance during the severance period specified in subparagraph 2a above. Upon
the expiration of the severance period, Employee shall have all rights to
continuation of such coverage as may be provided by law, including without
limitation COBRA.
f. Employer shall pay Employee his/her accrued vacation and
sick days not yet taken or paid (total of 4.75 days).
g. Employer shall provide outplacement and job search
assistance to the Employee as outlined on the attached Exhibit A.
h. Employee shall have use of his/her company-owned automobile
until December 7, 1998, or until such earlier time as the Employee finds
employment, at which time it shall be returned to Employer. Employee is
responsible for all gasoline expenses.
i. The parties acknowledge that the above payments and
benefits are consideration in addition to anything of value to which Employee is
already entitled.
3. Employee, on behalf of himself/herself and his/her marital
community, heirs, executors, assigns and personal representatives, does hereby
release and forever discharge Employer and any parent company, subsidiary
company, and any other company affiliated with or under common ownership with
Employer, 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 "the Released Parties," from any and all claims, or demands,
causes of actions, or liability of any kind or character, known or unknown,
arising or accruing through the date this Agreement is executed by Employee,
including without limitation all claims that are in any way related to
Employee's employment by Employer or the termination thereof.
Without limiting the generality of the foregoing, the full release
contained in this paragraph applies to all claims arising 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 Employee
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; or under any other applicable state or federal statute;
and to 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.
4. Employer, on behalf of any parent company, subsidiary company and
any other company affiliated with or under common ownership with Employer does
hereby release and forever discharge Employee and his/her marital community,
heirs, executors, assigns and personal representatives, from any and all claims,
or demands, causes of actions, or liability of any kind or character, known or
unknown, arising or accruing through the date this Agreement is executed by
Employee, including without limitation all claims that are in any way related to
Employee's employment by Employer or the termination thereof.
5. Notwithstanding the foregoing, the releases contained in paragraphs
3 and 4 do not waive any claim arising out of any breach or alleged breach of
this Agreement, or any claim that may arise after the date this waiver is
executed.
6. Each of the persons identified as a subject or beneficiary of the
release provisions of paragraphs 3 and 4 above is intended as, and is expressly
designated as, a third party beneficiary of this Agreement.
7. On or before the effective date of termination set forth above,
Employee shall return all of Employer's property in his/her possession, custody,
or control, including without limitation all records, files, goods, equipment,
documents, computer, software, data, disks, and any other property of any kind
or description whatsoever, including (if applicable) all copies thereof.
8. Employee agrees to keep the terms of this Agreement confidential,
and not to disclose the terms of this Agreement to any person except as may be
required by law. This obligation shall be equally be binding upon Employee's
counsel and upon his/her spouse (if any), who shall also keep the terms of this
Agreement confidential and not disclose them to any person except as may be
required by law.
9. Consistent with the full release contained in paragraph 3 above,
Employee agrees not to file or lodge any type of complaint alleging violation of
any law by Employer with any agency, or otherwise disparage Employer in
statements to any person or assert any claims or demands against it. In the
event that Employee brings such a lawsuit or files or lodges such a complaint in
breach of this paragraph, then Employee shall be required (in addition to such
damages as may be recoverable by Employer) to reimburse Employer the sum and/or
value of all severance benefits received pursuant to paragraph 2 of this
Agreement.
10. Employee understands and agrees that the execution of this
Agreement and the provision of severance benefits described herein are not to be
construed as an admission by Employer of any liability to Employee, liability
being expressly denied; but this Agreement instead represents a compromise and
settlement of disputed and unliquidated claims.
11. Employee is hereby advised to consult with an attorney before
executing this Agreement. By his/her signature hereon, Employee acknowledges
that he/she has been so advised, and that he/she has had an opportunity to
consult with, and has consulted with, an attorney before executing this
Agreement.
12. Employee acknowledges that he/she has been given a period of
twenty-one (21) days within which to consider this Agreement.
13. For a period of seven (7) days following the execution of this
Agreement by Employee, Employee may revoke the Agreement, and the Agreement
shall not become effective or enforceable until the revocation period has
expired. This Agreement shall become effective upon the eighth day following
Employee's signature hereon, provided that Employee has delivered this signed
Agreement to Employer within the same period (the "Effective Date").
14. This Agreement constitutes the entire Agreement and understanding
among the parties hereto with respect to the subject matter hereof and
supersedes all prior and contemporaneous agreements, understandings, inducements
and conditions express or implied, oral or written, of any nature whatsoever
with respect to the subject matter hereof. This Agreement may not be modified or
amended other than by an agreement in writing signed by the party to be charged
with such modification or amendment.
15. Should any litigation be commenced between the parties hereto
concerning the terms of this Agreement, or the rights and duties of the parties
hereto under this Agreement, the prevailing party in such litigation shall be
entitled, in addition to such other relief as may be granted, to a reasonable
sum as and for the prevailing party's attorneys' fees, expert's fees, and
expenses of litigation.
16. The provisions of this Agreement are independent of and separate
and severable from each other, and no provision shall be affected or rendered
invalid or unenforceable by virtue of the fact that for any reason any other or
others of them may be invalid or unenforceable in whole or in part. If any
provision of this Agreement is held by a court of competent jurisdiction to be
invalid or unenforceable, that provision shall be deemed modified and replaced
by a provision, as similar in form, content and effect as possible, to the
invalid or unenforceable provision and the Agreement shall be deemed reformed
accordingly. Notwithstanding the foregoing, however, the obligations of either
party shall be rendered null and void if any part of the material consideration
for that party's obligations is or becomes unenforceable and no reasonable
substitute provision with the same material effect is available to the parties.
17. Neither the failure nor any delay on the part of any party to
exercise any right, remedy, power or privilege under this Agreement shall
operate as a waiver thereof, nor shall any single or partial exercise of any
right, power, or privilege preclude any other or further exercise of the same or
of any other right, remedy, power or privilege, nor shall any waiver of any
right, remedy, power or privilege with respect to any occurrence be construed as
a waiver of such rights, remedy, power, or privilege with respect to any other
occurrence.
18. This Agreement is the product of negotiation between the parties.
This Agreement shall be construed in accordance with its plain meaning and shall
not be construed for or against any party on account of the role of any party or
its counsel in the drafting of this Agreement.
19. This Agreement shall be governed by the substantive laws of Arizona
and any action to enforce or construe this Agreement or to declare the rights of
the parties hereunder shall be commenced and maintained in a state or federal
court in Arizona.
20. Employee has read this Agreement, and understand the extent and
effect of its terms, the relinquishment of his/her legal rights and the legal
consequences involved in entering into this Agreement. Employee is satisfied
with the terms and conditions of settlement represented by this Agreement.
Employee is signing this Agreement voluntarily.
[Employee must initial the following paragraph, if applicable; that is, if
Employee chooses to sign this Agreement before the expiration of twenty-one days
after it was offered to Employee.]
21. Employee hereby waives the twenty-one day period within which to
consider this Agreement (but not the seven day period within which Employee may
revoke this Agreement), because it is Employee's desire and request to have the
severance pay paid as promptly as possible. Employee acknowledges that Employee
has had a reasonable time to consider this Agreement, and that Employee could
have and would have taken the full twenty-one days to consider this Agreement
had Employee needed or desired it. Employee acknowledges that no pressure has
been applied or deadline stated by Employer in connection with Employee's
execution of this Agreement and that Employee was guided by Employee's own
judgment and desire to expedite payment of the severance pay, in determining to
sign this Agreement before the expiration of the twenty-one day period.
_________(initial here, if applicable)
"Employee":
Scott D. Fullmer
---------------------------------------
(Print name)
/s/ Scott D. Fullmer
---------------------------------------
(Signature)
"Employer":
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
-----------------------------------
Its: President and CEO
------------------------------
EXHIBIT 10.2
August 18, 1998
Poore Brothers, Inc.
3500 South La Cometa
Goodyear, AZ 85338
Attention: Eric Kufel
President and Chief Executive Officer
Dear Eric:
We are pleased to set forth the terms of the retention of EVEREN
Securities, Inc. ("EVEREN") by Poore Brothers, Inc. (collectively with its
affiliates, the "Acquiror") to assist the Acquiror as its exclusive financial
advisor and exclusive agent in connection with the Acquiror's efforts to acquire
certain business entities ("Acquisition Candidates"). This Agreement will
confirm EVEREN's engagement by the Acquiror on the following terms and
conditions:
l. Description of Engagement. EVEREN will advise the Acquiror on a
variety of subjects relating to Acquisition Candidates and any Transaction (as
defined below), including, but not limited to:
(a) the market value of the Acquisition Candidates, taking into
account competitive factors;
(b) the pricing of acquisition proposals;
(c) the form and terms of consideration to be utilized in
acquisition proposals; and
(d) strategies to be utilized in approaches and negotiations;
EVEREN will use its best efforts to identify Acquisition Candidates meeting
Acquirors criteria, and assist the Acquiror in providing advisory support from
the negotiation process through closing and, if requested, will assist the
Acquiror in obtaining any financing it may need to consummate the Transaction
("the Financing").
2. Definition of Transaction. As used in this Agreement, the term
"Transaction" shall mean an acquisition (a) by merger, consolidation,
reorganization, recapitalization, business combination or other transaction
pursuant to which an Acquisition Candidate is acquired by or combined with the
Acquiror, or (b) the acquisition, directly or indirectly, by the Acquiror (or by
one or more persons acting together with the Acquiror pursuant to a written
agreement or otherwise) in a single Transaction or a series of Transactions of
(i) any subsidiary, business segment or operation divisions or assets of the
Acquisition Candidate or (ii) 25% or more of the Acquisition Candidate's
outstanding stock (whether by way of tender or exchange offer, open market
purchases, negotiated purchases or otherwise).
3. Information. In connection with EVEREN's activities on the
Acquiror's behalf, the Acquiror will cooperate with EVEREN and will furnish
EVEREN with all reasonable information and data concerning the Acquiror, any
Transaction and, to the extent available to the Acquiror, each Acquisition
Candidate (the "Information") which EVEREN deems appropriate and will provide
EVEREN with access to the Acquiror's officers, directors, employees, independent
accountants and legal counsel. To the extent that the Acquiror has access to the
officers, directors, employees, independent accountants and legal counsel of any
Acquisition Candidate, it will provide such access to EVEREN. The Acquiror
represents and warrants that all Information (a) made available to EVEREN by the
Acquiror or (b) contained in any filing by the Acquiror with any court or
governmental regulatory agency, commission or instrumentality with respect to
any Transaction will, at all times during the period of the engagement of EVEREN
hereunder, be complete and correct in all material respects and will not contain
any untrue statement of a material fact or omit to state a material fact
necessary in order to make the statements therein not misleading in the light of
the circumstances under which such statements are made. The Acquiror further
represents and warrants that any projections provided by it to EVEREN will have
been prepared in good faith and will be based upon assumptions which, in light
of the circumstances under which they are made, are reasonable. The Acquiror
acknowledges and agrees that, in rendering its services hereunder, EVEREN will
be using and relying on the Information (and information available from public
sources and other sources deemed reliable by EVEREN) without independent
verification thereof by EVEREN or independent appraisal by EVEREN of any of the
Acquiror's or the Acquisition Candidate's assets. EVEREN does not assume
responsibility for the accuracy or completeness of the Information or any other
information regarding the Acquiror, any Acquisition Candidate or any
Transaction. Any advice rendered by EVEREN pursuant to this Agreement may not be
disclosed publicly without EVEREN's prior written consent, except as may be
required by applicable law.
4. Compensation. In consideration of EVEREN's services pursuant to this
Agreement, EVEREN shall be entitled to receive, and the Acquiror agrees to pay
EVEREN, the following compensation:
(a) Upon execution of this Agreement, the Acquiror shall pay to
EVEREN an initial cash fee of $25,000, the amount of which
shall be credited to any fees payable to EVEREN under
subparagraphs (c) and (d) below.
(b) Upon execution of this Agreement and for every 90 day period
thereafter until the termination of this Agreement, the
Acquiror shall pay EVEREN, a cash fee of $5,000 on the first
of such 90-day period, the aggregate amount of which shall be
credited to any fees payable to EVEREN under subparagraphs (c)
and (d) below.
(c) If a Transaction is consummated during the term of this
Agreement, then the Acquiror shall pay EVEREN, upon such
consummation, cash fee equal to 2% of the value of the total
consideration paid by the Acquiror in the Transaction in
respect of (i) assets of the Acquisition Candidate, (ii)
capital stock of the Acquisition Candidate (and any securities
convertible into, or options, warrants or other rights to
acquire, such capital stock) and (iii) the assumption,
directly or indirectly (by operation of law or otherwise), or
repayment of indebtedness (including, without limitation,
indebtedness secured by assets of the Acquisition Candidate),
less amounts paid pursuant to (a) and (b) above. The value of
total consideration paid will be calculated as the sum of the
following values at closing:
(i) Cash and cash equivalents paid to an Acquisition
Candidate or its shareholders;
(ii) Market value of any common stock issued to an
Acquisition Candidate or its shareholders;
(iii) The liquidation preference of any preferred stock
issued to an Acquisition Candidate or its
shareholders, unless market value is easily
determinable;
(iv) The face value of any notes issued to an Acquisition
Candidate or its shareholders, unless market value is
easily determinable;
(v) Consideration paid or payable under covenants not to
compete, earn-outs (determinable upon consummation)
and consulting arrangements (such terms not to
encompass standard employment agreements).
(vi) The face value of any debt owed or preferred stock
issued by an Acquisition Candidate or its
shareholders which is assumed and/or forgiven, unless
market value is easily determinable; and
(vii) The difference between the exercise price of any
stock options and the fair market value per share of
common stock even though such differences may be paid
to the option holder in cash rather than through
exercise of the options.
(d) Upon the closing of each and any part of a Financing obtained
by EVEREN or negotiation with the assistance of EVEREN, the
Acquiror shall pay EVEREN a cash fee equal to:
(i) 1.0% of the aggregate principal amount of any senior
debt Financing raised: plus
(ii) 3% of the aggregate principal amount of any
subordinated debt Financing raised: plus
(iii) 3% of any preferred equity Financing raised: plus
(iv) 7% of the aggregate of any common equity Financing
raised,
less the amounts paid pursuant to (a) and (b) above.
Any financing involving a public offering of senior
subordinated debt to be based on terms as may from time to
time be agreed upon by EVEREN and the Acquiror.
(e) In no event shall the aggregate fees earned by EVEREN pursuant
to this Agreement for Transactions consummated during the
first two years after the date of this Agreement, be less than
$100,000; provided, however, that such minimum required fee
amount shall be reduced pro rata in the event that this
Agreement is terminated by EVEREN for any reason at any time
prior to the expiration of such two-year period.
(f) EVEREN shall receive from the Acquiror warrants to purchase up
to 2.5% of the fully diluted shares of common stock of the
Acquiror upon execution of this Agreement. Such warrants will
have an aggregated exercise price to be no greater than the
fair market value of the underlying common stock, and shall
have such other terms (including, without limitation,
customary anti-dilution and piggy back registration
provisions) as shall be mutually agreed upon in good faith by
EVEREN and the Acquiror. The above warrants will have a 5 year
term, be issued effective upon execution of this Agreement and
vest as follows: 50% when the Acquiror's annual Sales are at
$50,000,000 on a pro forma basis and the additional 50% when
the Acquiror's annual sales are at $100,000,000 on a pro forma
basis.
For purposes of this subparagraph 4(f), "Acquiror's Sales"
shall mean sales of the businesses owned by Acquiror on the
date hereof, plus sales of the businesses acquired in a
Transaction pursuant to which EVEREN is eligible for
compensation pursuant to subparagraph 4(c) above,
(g) EVEREN shall be entitled to the fees enumerated in any
preceding subparagraph of this Paragraph 4 with respect to any
event specified in any such subparagraph if both: (i) the
transaction is consummated during the term of this Agreement
or within one year after the date of termination of this
Agreement; and (ii) prior to the termination of this Agreement
EVEREN, at the request of the Acquiror, participates and plays
a material role in connection with the identification,
analysis, structuring and/or negotiation of such Transaction.
(h) If a Transaction is not consummated, but the Acquiror receives
a "break-up" fee or any other payment as a result of the
termination or cancellation of an Acquisition Candidate's
efforts to effect a Transaction, a judgment for damages, or an
amount in settlement of any dispute relating to a Transaction
or Alternate Transaction, then the Acquiror shall pay to
EVEREN a cash fee equal to 25% of such fee, payment, judgment
or amount, not to exceed the fee EVEREN would otherwise have
received if the Transaction had been consummated.
(i) For purposes of this paragraph 4, the term "Acquiror" includes
any person acting together with the Acquiror pursuant to a
written agreement or otherwise.
5. No Assurances. EVEREN makes no representations, express or implied
that EVEREN will succeed in its efforts to assist the Acquiror in consummating a
Transaction.
6. Right of First Refusal. (a) If the Acquiror requires Financing to
consummate the Transaction during the term of this Agreement, then EVEREN shall
have the right to act as the Acquiror's sole managing underwriter or exclusive
agent, as the case may be, in connection with raising such financing, subject to
approval of EVEREN's Capital Commitment Committee and the good faith negotiation
of customary and mutually agreeable terms; provided that EVEREN's compensation
in connection with such engagement shall be as set forth on Paragraph 4(d)
hereof.
7. Expenses. In addition to the fees described above, the Acquiror
agrees to promptly reimburse EVEREN, upon request from time to time, for all
reasonable out-of-pocket expenses incurred by EVEREN (including without
limitation, fees and disbursements of counsel, and of other consultants and
advisors retained by EVEREN) in connection with the matters contemplated by this
Agreement. Such expenses shall not exceed $5,000 in the aggregate without prior
approval of the Acquiror, which approval shall not be unreasonably withheld.
8. Indemnification. The Acquiror hereby agrees to indemnify EVEREN in
accordance with the indemnification provisions (the "Indemnification
Provisions") attached to this Agreement, which Indemnification Provisions are
incorporated herein and made a part hereof.
9. Termination; Survival. Either party hereto may terminate this
Agreement at any time upon written notice, without liability or continuing
obligation except as set forth in the following sentence. Neither termination
nor completion of this assignment shall affect: (i) any compensation earned by
EVEREN up to the date of termination or completion, or after termination, as the
case may be, pursuant to the paragraph herein entitled "Compensation", (ii) the
reimbursement of expenses incurred by EVEREN up to the date of termination or
completion, as the case may be, pursuant to the paragraph herein entitled
"Expenses", (iii) the attached Indemnification Provisions, and (iv) the
provisions of the paragraphs herein entitled "Governing Law; Jurisdiction" and
"Successors and Assigns" of this Agreement, all of which shall remain operative
and in full force and effect.
10. Governing Law; Jurisdiction. The validity and interpretation of
this agreement shall be governed by the laws of the State of Illinois applicable
to agreements made and to be fully performed therein. The Acquiror irrevocably
submits to the jurisdiction of any court of the State of Illinois or the United
States District Court for the Northern District of the State of Illinois for the
purpose of any suit, action or other proceeding arising out of this Agreement or
any of the agreements or transactions contemplated hereby, which is brought by
or against the Acquiror, and (i) hereby irrevocably agrees that all claims in
respect of any such suit, action or proceeding may be heard and determined in
any such court and (ii) to the extent that the Acquiror has acquired, or
hereafter may acquire, any immunity from jurisdiction of any such court or from
any legal process therein, the Acquiror hereby waives, to the fullest extent
permitted by law, such immunity. The Acquiror hereby waives and agrees not to
assert in any such suit, action or proceeding, in each case, the fullest extent
permitted by applicable law, any right to trial by jury and any claim that (a)
the Acquiror is not personally subject to the jurisdiction of any such court,
(b) the Acquiror is immune from any legal process (whether through service or
notice, attachment prior to judgment, attachment in aid of execution, execution
or otherwise) with respect to the Acquiror's property or (c) any such suit,
action or proceeding is brought in an inconvenient forum.
11. Assignment. This agreement shall be binding upon and insure to the
benefit of the parties hereto and their respective successors, but the rights
and obligations of the parties shall not be assignable by either of the parties
hereto without the prior written consent of the other party.
12. Advertisement. EVEREN or the Acquiror may publish an advertisement,
at its own expense with prior approval of the other party, which approval shall
not be unreasonably withheld, or issue a press release announcing the hiring of
EVEREN or the completion of a Transaction and EVEREN's role therein after the
consummation of such event.
13. Conflicts. EVEREN acknowledges their professional responsibility
regarding conflicts of interest and agrees that EVEREN will act accordingly in
representing other premium food companies.
14. Counterparts; Amendments. For the convenience of the parties, any
number of counterparts of this Agreement may be executed by the parties hereto.
Each such counterpart shall be, and shall be deemed to be, an original
instrument, but all such counterparts taken together shall constitute one and
the same Agreement. This Agreement may not be modified or amended except in
writing signed by the parties hereto.
If the foregoing correctly sets forth our Agreement, please sign the
enclosed copy of this letter in the space provided and return it to us.
Very truly yours,
EVEREN SECURITIES, INC.
By: /s/ Larry C. Bain
------------------------------
Lawrence D. Bain
Managing Director - Corporate Finance
Accepted and Agreed to this 18th day of August, 1998.
POORE BROTHERS, INC.
By: /s/ Eric J. Kufel
------------------------------
Name: Eric J. Kufel
Title: President and Chief Executive Officer
EXHIBIT 10.3
----------------------------------------------
----------------------------------------------
CREDIT AND SECURITY AGREEMENT
BY AND BETWEEN
POORE BROTHERS, INC., POORE BROTHERS ARIZONA, INC.,
POORE BROTHERS DISTRIBUTING, INC.
AND
TEJAS PB DISTRIBUTING, INC.
AND
NORWEST BUSINESS CREDIT, INC.
Dated as of: October 23, 1998
NORWEST
----------------------------------------------
----------------------------------------------
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
PAGE
----
<S> <C> <C> <C>
ARTICLE 1. Definitions..................................................................................1
Section 1.1 Definitions...........................................................................1
Section 1.2 Cross References.....................................................................11
ARTICLE 2. Amount and Terms of the Credit Facility.....................................................11
Section 2.1 Revolving Advances and Term Loan Advance.............................................11
Section 2.2 Monthly Payments; Minimum Interest Charge; Default Interest;
Participations; Usury................................................................12
Section 2.3 Fees.................................................................................14
Section 2.4 Computation of Interest and Fees; When Interest Due and Payable......................15
Section 2.5 Capital Adequacy.....................................................................15
Section 2.6 Voluntary Prepayment; Termination of the Credit Facility by the
Borrower.............................................................................16
Section 2.7 Termination Fee; Waiver of Termination Fee...........................................16
Section 2.8 Mandatory Prepayment.................................................................17
Section 2.9 Payment..............................................................................17
Section 2.10 Payment on Non-Banking Days..........................................................17
Section 2.11 Use of Proceeds......................................................................17
Section 2.12 Liability Records....................................................................18
ARTICLE 3. Security Interest; Occupancy; Setoff........................................................18
Section 3.1 Grant of Security Interest...........................................................18
Section 3.2 Notification of Account Debtors and Other Obligors...................................18
Section 3.3 Assignment of Insurance..............................................................18
Section 3.4 Occupancy............................................................................19
Section 3.5 License..............................................................................19
Section 3.6 Financing Statement..................................................................19
Section 3.7 Setoff...............................................................................20
Section 3.8 Assignment of Asset Purchase Agreement...............................................20
ARTICLE 4. Conditions of Lending.......................................................................21
Section 4.1 Conditions Precedent to the Initial Revolving Advance................................21
Section 4.2 Conditions Precedent to Term Loan Advance............................................23
Section 4.2 Conditions Precedent to All Advances.................................................25
ARTICLE 5. Representations and Warranties..............................................................25
Section 5.1 Corporate Existence and Power; Name; Chief Executive Office;
Inventory and Equipment Locations; Tax Identification Number.........................25
Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements......................25
Section 5.3 Legal Agreements.....................................................................26
Section 5.4 Subsidiaries.........................................................................26
Section 5.5 Financial Condition; No Adverse Change...............................................26
Section 5.6 Litigation...........................................................................26
Section 5.7 Regulation U.........................................................................27
Section 5.8 Taxes................................................................................27
Section 5.9 Titles and Liens.....................................................................27
Section 5.10 Plans................................................................................27
Section 5.11 Default..............................................................................28
Section 5.12 Environmental Matters................................................................28
Section 5.13 Submissions to Lender................................................................29
Section 5.14 Financing Statements.................................................................29
Section 5.15 Rights to Payment....................................................................29
Section 5.16 Financial Solvency...................................................................30
Section 5.17 Year 2000 Compliance.................................................................30
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE 6. Borrower's Affirmative Covenants............................................................31
Section 6.1 Reporting Requirements...............................................................31
Section 6.2 Books and Records; Inspection and Examination........................................33
Section 6.3 Account Verification.................................................................34
Section 6.4 Compliance with Laws.................................................................34
Section 6.5 Payment of Taxes and Other Claims....................................................34
Section 6.6 Maintenance of Properties............................................................35
Section 6.7 Insurance............................................................................35
Section 6.8 Preservation of Existence............................................................35
Section 6.9 Delivery of Instruments, etc.........................................................35
Section 6.10 Collateral Account...................................................................35
Section 6.11 INTENTIONALLY DELETED................................................................36
Section 6.12 Performance by the Lender............................................................36
Section 6.13 Year 2000 Compliance.................................................................37
Section 6.14 Minimum Debt Service Coverage Ratio..................................................37
Section 6.15 Minimum Net Income or Maximum Net Loss From Ordinary Operations......................38
Section 6.16 Minimum Book Net Worth Increase......................................................38
ARTICLE 7. Negative Covenants..........................................................................39
Section 7.1 Liens................................................................................39
Section 7.2 Indebtedness.........................................................................40
Section 7.3 Guaranties...........................................................................40
Section 7.4 Investments and Subsidiaries.........................................................41
Section 7.5 Dividends and Voluntary Redemption Payments..........................................41
Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations........................41
Section 7.7 Consolidation and Merger; Asset Acquisitions.........................................42
Section 7.8 Sale and Leaseback...................................................................42
Section 7.9 Restrictions on Nature of Business...................................................42
Section 7.10 Capital Expenditures.................................................................42
Section 7.11 Accounting...........................................................................42
Section 7.12 Discounts, etc.......................................................................42
Section 7.13 Defined Benefit Pension Plans........................................................42
Section 7.14 Other Defaults.......................................................................43
Section 7.15 Place of Business; Name..............................................................43
Section 7.16 Organizational Documents; C Corporation Status.......................................43
Section 7.17 Salaries.............................................................................43
Table of Contents -ii-
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
<S> <C> <C> <C>
ARTICLE 8. Events of Default, Rights and Remedies......................................................43
Section 8.1 Events of Default....................................................................43
Section 8.2 Rights and Remedies..................................................................45
Section 8.3 Certain Notices......................................................................46
ARTICLE 9. Miscellaneous...............................................................................46
Section 9.1 No Waiver; Cumulative Remedies.......................................................46
Section 9.2 Amendments, Etc......................................................................47
Section 9.3 Addresses for Notices, Etc...........................................................47
Section 9.4 INTENTIONALLY DELETED................................................................47
Section 9.5 Further Documents....................................................................47
Section 9.6 Collateral...........................................................................48
Section 9.7 Costs and Expenses...................................................................48
Section 9.8 Indemnity............................................................................48
Section 9.9 Participants.........................................................................49
Section 9.10 Execution in Counterparts............................................................49
Section 9.11 Binding Effect; Assignment; Complete Agreement; Exchanging Information...............49
Section 9.12 Confidential Information.............................................................50
Section 9.13 Severability of Provisions...........................................................50
Section 9.14 Headings.............................................................................50
Section 9.15 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.............................50
ARTICLE 10. Joint Borrower Provisions...................................................................51
Section 10.1 Reliance on Acts of any Borrower.....................................................51
Section 10.3 Single Obligation....................................................................51
Section 10.3 Knowing Waiver.......................................................................54
Section 10.4 Information..........................................................................54
-iii-
</TABLE>
<PAGE>
CREDIT AND SECURITY AGREEMENT
Dated as of October 23, 1998
POORE BROTHERS, INC., a Delaware corporation, POORE BROTHERS ARIZONA,
INC., an Arizona corporation, POORE BROTHERS DISTRIBUTING, INC., an Arizona
corporation, and TEJAS PB DISTRIBUTING, INC., an Arizona corporation
(individually and collectively, the "Borrower"), and NORWEST BUSINESS CREDIT,
INC., a Minnesota corporation (the "Lender"), hereby agree as follows:
ARTICLE 1
DEFINITIONS
SECTION 1.1 DEFINITIONS. For all purposes of this Agreement, except as
otherwise expressly provided or unless the context otherwise requires:
(a) the terms defined in this Article have the meanings
assigned to them in this Article, and include the plural as well as the
singular; and
(b) all accounting terms not otherwise defined herein have the
meanings assigned to them in accordance with GAAP.
"Accounts" means all of the Borrower's accounts, as such term
is defined in the UCC, whether now existing or hereafter arising, and all
proceeds thereof, including, without limitation, the aggregate unpaid
obligations of customers and other account debtors to the Borrower arising out
of the sale or lease of goods or rendition of services by the Borrower on an
open account or deferred payment basis.
"Advance" means a Revolving Advance and/or the Term Loan
Advance.
"Affiliate" or "Affiliates" mean with respect to any Person,
any other Person controlled by, controlling or under common control with such
Person. With respect to each Borrower, individually, "Affiliate" or "Affiliates"
means each other Borrower and La Cometa Properties, Inc., an Arizona
corporation, and any other Person controlled by, controlling or under common
control with the Borrower, including (without limitation) any Subsidiary of the
Borrower. For purposes of this definition, "control," when used with respect to
any specified Person, means the power to direct the management and policies of
such Person, directly or indirectly, whether through the ownership of voting
securities, by contract or otherwise.
"Agreement" means this Credit and Security Agreement, as
amended, modified, supplemented, replaced or restated from time to time.
"Asset Purchase Agreement" means the Agreement for Purchase
and Sale of Assets dated October 29, 1998 between Tejas Snacks, L.P., Kevin
Kohl, Tom Bigham and Poore Brothers, Inc., as amended, modified, supplemented,
restated or replaced from time to time with the prior written consent of Lender.
"Banking Day" means a day other than a Saturday, Sunday or
other day on which banks are generally not open for business in Phoenix, Arizona
or Minneapolis, Minnesota.
"Base Rate" means the rate of interest publicly announced from
time to time by Norwest Bank Minnesota as its "base rate" or, if such bank
ceases to announce a rate so designated, any similar successor rate designated
by the Lender.
"Book Net Worth" means the aggregate of the common and
preferred stockholders' equity in the Borrower and its Subsidiaries, determined
in accordance with GAAP, without giving effect to the conversion of any
Debentures to capital stock.
"Borrowing Base" means, at any time the lesser of:
(a) the Maximum Line; or
(b) subject to change from time to time in the
Lender's sole discretion,
(i) 85% of Eligible Accounts, plus
(ii) the lesser of (A) 60% of Eligible
Inventory or (B) $350,000, minus
(iii) the aggregate amount, without
duplication, of all claims under
PACA or any other federal, state or
local law, statute or ordinance
granting a lien or security interest
on perishable agricultural
commodities.
"Capital Expenditures" for a period means any expenditure of
money for the lease, purchase or other acquisition of any capital asset, or for
the lease of any other asset whether payable currently or in the future.
"Change of Control" means the occurrence of any of the
following: (i) the sale, lease, transfer, conveyance or other disposition (other
than by way of merger or consolidation), in one or a series of related
transactions, of all or substantially all of the assets of the Borrower taken as
a whole as to any Person (as such term is used in Section 13(d)(3) of the
Exchange Act), or group of related Persons, together with any affiliates
thereof, (ii) the adoption by the Borrower of a plan relating to the liquidation
or dissolution of the Borrower taken as a whole, (iii) the first day on which a
majority of the members of the Board of Directors of any Borrower are not
Continuing Directors, or (iv) the consummation of any transaction (including,
without limitation, any merger or consolidation) the result of which is that any
Person or group of related Persons, together with any affiliates thereof becomes
the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5
under the Exchange Act), directly or indirectly, of more than 50% of the common
capital stock of Poore Brothers, Inc. (measured by voting power rather than
number of shares) .
"Collateral" means all of the Borrower's Equipment, General
Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in
any Collateral Account, and any items in any Lockbox; together with (i) all
substitutions and replacements for and products of any of the foregoing; (ii)
proceeds of any and all of the foregoing; (iii) in the case of all tangible
goods, all accessions; (iv) all accessories, attachments, parts, equipment and
repairs now or hereafter attached or affixed to or used in connection with any
tangible goods; and (v) all warehouse receipts, bills of lading and other
documents of title now or hereafter covering such goods.
"Collateral Account" has the meaning given in the Collateral
Account Agreement.
"Collateral Account Agreement" means the Collateral Account
Agreement of even date herewith by and among the Borrower, Norwest Bank Arizona
and the Lender.
"Commitment" means the Lender's commitment to make Advances to
or for the Borrower's account pursuant to Article 2.
"Continuing Director" means, as of any date of determination,
any member of the Board of Directors of such Borrower who (i) was a member of
such Board of Directors on the date twelve (12) months prior to the date of
determination or (ii) was nominated for election or elected to such Board of
Directors with the approval of a majority of the Continuing Directors who were
members of such Board at the time of such nomination or election.
"Conversion Date" means each date on which any holder of the
Debentures notifies Borrower in writing of its intent to exercise all or any
portion of the conversion rights granted under the Debentures.
"Credit Facility" or "Credit Facilities" means, individually,
the Term Loan or the Revolving Advances, and, collectively, the Term Loan and
the Revolving Advances.
"Current Maturities of Long Term Debt" as of a given date
means the amount of the Borrower's and its Subsidiaries' long-term debt and
capitalized leases which became due during the period ending on the designated
date.
"Debenture Holders" means Wells Fargo Small Business
Investment Co., Inc., formerly known as First Interstate Equity Corporation, and
Renaissance Capital Growth & Income Fund III, Inc., a Texas corporation, and
their successors and permitted assigns.
"Debentures" means that certain 9.00% Convertible Debenture
No. 1 dated May 31, 1995 issued by Poore Brothers, Inc. and its Subsidiaries in
favor of Renaissance Capital Growth & Income Fund III, Inc., that certain 9.00%
Convertible Debenture No. 2 dated May 31, 1995 issued by Poore Brothers, Inc.
and its Subsidiaries in favor of First Interstate Equity Corporation, now known
as Wells Fargo Small Business Investment Co., Inc., and that certain Convertible
Debenture Loan Agreement dated May 31, 1995 between Poore Brothers, Inc. and its
Subsidiaries, as co-borrowers, and Renaissance Capital Growth & Income Fund III,
Inc. and First Interstate Equity Corporation, as lenders, as any of the above
may be amended, modified, supplemented, restated or replaced from time to time.
"Debt" of any Person means all items of indebtedness or
liability which in accordance with GAAP would be included in determining total
liabilities as shown on the liabilities side of a balance sheet of that Person
as of the date on which the Debt is to be determined. For purposes of
determining a Person's aggregate Debt at any time, "Debt" shall also include the
aggregate payments required to be made by such Person at any time under any
lease that is considered a capitalized lease under GAAP.
"Debt Service Coverage Ratio" means the ratio of (i) the sum
of (A) Funds from Operations and (B) Interest Expense minus (C) Unfinanced
Capital Expenditures to (ii) the sum of (A) Current Maturities of Long Term Debt
and (B) Interest Expense.
"Default" means an event that, with giving of notice or
passage of time, or both, would constitute an Event of Default.
"Default Period" means (a) in the case of a Default or Event
of Default caused solely by Borrower's non-performance of its obligations under
Section 6.1, the period of time beginning on the date that such Default or Event
of Default occurs and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived, and (b)
in the case of any other Default or Event of Default, the period of time
beginning on the first day of any month during which a Default or Event of
Default occurs and ending on the date the Lender notifies the Borrower in
writing that such Default or Event of Default has been cured or waived.
"Default Rate" means, with respect to the Revolving Note, an
annual rate equal to the Floating Rate plus 300 basis points (3%), which rate
shall change when and as the Floating Rate changes, and, with respect to the
Term Loan Note, an annual rate equal to the Term Loan Rate plus 300 basis
points, which rate shall change when and as the Term Loan Rate changes.
"ERISA" means the Employee Retirement Income Security Act of
1974, as amended.
"Eligible Accounts" means all unpaid Accounts, net of any
credits, except the following shall not in any event be deemed Eligible
Accounts:
(i) That portion of Accounts unpaid 90 days or more
after the invoice date;
(ii) That portion of Accounts that is disputed or
subject to a claim of offset or a contra account;
(iii) That portion of Accounts not yet earned by the
final delivery of goods or rendition of services, as applicable, by the Borrower
to the customer;
(iv) Accounts owed by any unit of government, whether
foreign or domestic (provided, however, that there shall be included in Eligible
Accounts that portion of Accounts owed by such units of government for which the
Borrower has provided evidence satisfactory to the Lender that (A) the Lender
has a first priority perfected security interest and (B) such Accounts may be
enforced by the Lender directly against, and payments with respect to such
Accounts received by the Lender directly from, such unit of government under all
applicable laws);
(v) Accounts owed by an account debtor located
outside the United States which are not (A) backed by a bank letter of credit
naming the Lender as beneficiary or assigned to the Lender, in the Lender's
possession and acceptable to the Lender in all respects, in its sole discretion,
(B) covered by a foreign receivables insurance policy acceptable to the Lender
in its sole discretion;
(vi) Accounts owed by an account debtor that is
insolvent, the subject of bankruptcy proceedings or has gone out of business;
(vii) Accounts owed by a shareholder, Subsidiary,
Affiliate, officer or employee of the Borrower;
(viii) Accounts not subject to a duly perfected
security interest in the Lender's favor or which are subject to any lien,
security interest or claim in favor of any Person other than the Lender,
including, without limitation, any payment or performance bond;
(ix) That portion of Accounts that has been
restructured, extended, amended or modified;
(x) That portion of Accounts that constitutes
advertising, finance charges, service charges or sales or excise taxes;
(xi) Accounts owed by an account debtor, regardless
of whether otherwise eligible, if 15% or more of the total amount due under
Accounts from such debtor is ineligible under clauses (i), (ii)or (ix) above;
(xii) That portion of an otherwise Eligible Account
that exceeds 20% of total Accounts; and
(xiii) Accounts, or portions thereof, otherwise
deemed ineligible by the Lender in its sole discretion.
"Eligible Inventory" means all Inventory of the Borrower, at
the lower of cost or market value as determined in accordance with GAAP;
provided, however, that the following shall not in any event be deemed Eligible
Inventory:
(i) Inventory that is: in-transit; located
at any warehouse, job site or other premises not approved by the Lender
in writing; located outside of the states, or localities, as
applicable, in which the Lender has filed financing statements to
perfect a first priority security interest in such Inventory; covered
by any negotiable or non-negotiable warehouse receipt, bill of lading
or other document of title; on consignment from any Person; on
consignment to any Person or subject to any bailment unless such
consignee or bailee has executed an agreement with the Lender;
(ii) Supplies, film and packaging or sample
Inventory;
(iii) Work-in-process Inventory;
(iv) Inventory that is damaged, obsolete,
slow moving or not currently saleable in the normal course of the
Borrower's operations;
(v) Inventory that the Borrower has
returned, has attempted to return, is in the process of returning or
intends to return to the vendor thereof;
(vi) Inventory that is raw materials or that
has not been sold prior to its expiration date;
(vii) Inventory manufactured by the Borrower
pursuant to a license unless the applicable licensor has agreed in
writing to permit the Lender to exercise its rights and remedies
against such Inventory;
(viii) Inventory that is subject to any
lien, security interest or claim in favor of any Person other than the
Lender, including, without limitation, any payment or performance bond;
(ix) Private Label Inventory in excess of
$50,000 of cost in the aggregate; and
(x) Inventory otherwise deemed ineligible by
the Lender in its sole discretion.
"Environmental Law" has the meaning specified in Section 5.12.
"Equipment" means all of the Borrower's equipment, as such
term is defined in the UCC, whether now owned or hereafter acquired, including
but not limited to all present and future machinery, vehicles, furniture,
fixtures, manufacturing equipment, shop equipment, office and recordkeeping
equipment, parts, tools, computers, hardware and software and related items,
supplies, and including specifically (without limitation) the goods described in
any equipment schedule or list herewith or hereafter furnished to the Lender by
the Borrower.
"Event of Default" has the meaning specified in Section 8.1.
"Floating Rate" means an annual rate equal to the sum of the
Base Rate plus one-hundred fifty (150) basis points, which annual rate shall
change when and as the Base Rate changes.
"Funding Date" has the meaning given in Section 2.1.
"Funds From Operations" for a given period means the sum of
(i) Net Income, (ii) depreciation and amortization, and (iii) other non-cash
items, each as determined for such period in accordance with GAAP.
"GAAP" means generally accepted accounting principles, applied
on a basis consistent with the accounting practices applied in the financial
statements described in Section 5.5, and, with respect to the interim financial
statements, subject to normal and customary non-material year-end adjustments.
"General Intangibles" means all of the Borrower's general
intangibles, as such term is defined in the UCC, whether now owned or hereafter
acquired, and all proceeds thereof, including (without limitation) all present
and future patents, patent applications, copyrights, trademarks, trade names,
trade secrets, customer or supplier lists and contracts, manuals, operating
instructions, permits, franchises, the right to use Borrower's names, and the
goodwill of Borrower's business .
"Hazardous Substance" has the meaning given in Section 5.12.
"Intercreditor Agreement" means the Intercreditor Agreement of
even date herewith, executed by the Debenture Holders and Lender, and
acknowledged by the Borrower, and any other intercreditor agreement accepted by
the Lender from time to time, as the same may hereafter be amended, modified,
supplemented, replaced or restated from time to time.
"Interest Expense" means, for the period of determination, the
Borrower's and its Subsidiaries' total gross interest expense during such period
(excluding interest income), and shall in any event include, without limitation,
(i) interest expensed (whether or not paid) on all Debt, (ii) the amortization
of debt discounts, (iii) the amortization of all fees payable in connection with
the incurrence of Debt to the extent included in interest expense, and (iv) the
portion of any capitalized lease obligation allocable to interest expense.
"Inventory" means all of the Borrower's inventory, as such
term is defined in the UCC, whether now owned or hereafter acquired, whether
consisting of whole goods, spare parts or components, supplies or materials,
whether acquired, held or furnished for sale, for lease or under service
contracts or for manufacture or processing, and wherever located.
"Investment Property" means all of the Borrower's investment
property, as such term is defined in the UCC, whether now owned or hereafter
acquired, including but not limited to all securities, security entitilements,
securities accounts, commodity contracts, commodity accounts, stocks, bonds,
mutual fund shares, money market shares and U.S. Government securities.
"Loan Documents" means this Agreement, the Notes, the Warrant
and the Security Documents.
"Lockbox" has the meaning given in the Lockbox Agreement.
"Lockbox Agreement" means the Lockbox Agreement by and among
the Borrower, Norwest Bank Arizona and the Lender, of even date herewith.
"Maturity Date" means, with respect to the Revolving Advances,
November 4, 2001, and, with respect to the Term Loan, the Term Loan Maturity
Date.
"Maximum Line" means $2,000,000.
"Minimum Interest Charge" has the meaning given in Section
2.2(c).
"Mortgagee" means Morgan Guaranty Trust Company of New York, a
New York banking corporation, its successors and assigns, as beneficiary under
that certain Deed of Trust and Security Agreement dated June 4, 1997, recorded
on June 5, 1997 as Instrument No. 97-0381371, Records of Maricopa County,
Arizona, encumbering the Premises.
"Net Income" or "Net Loss" means after-tax net income or net
loss from continuing operations of Borrower and its Subsidiaries, as determined
in accordance with GAAP.
"Norwest Bank Arizona" means Norwest Bank Arizona, National
Association, its successors and assigns.
"Norwest Bank Minnesota" means Norwest Bank Minnesota,
National Association, its successors and assigns.
"Note" or "Notes" means, individually, the Revolving Note or
the Term Loan Note, and, collectively, the Revolving Note and the Term Loan
Note.
"Obligations" means the Notes and each and every other debt,
liability and obligation of every type and description which the Borrower may
now or at any time hereafter owe to the Lender, whether such debt, liability or
obligation now exists or is hereafter created or incurred, whether it arises in
a transaction involving the Lender alone or in a transaction involving other
creditors of the Borrower, and whether it is direct or indirect, due or to
become due, absolute or contingent, primary or secondary, liquidated or
unliquidated, or sole, joint, several or joint and several, and including
specifically, but not limited to, all indebtedness of the Borrower arising under
this Agreement, the Notes or any other loan or credit agreement or guaranty
between the Borrower and the Lender, whether now in effect or hereafter entered
into.
"PACA" means the Perishable Agricultural Commodities Act,
1930, 7 U.S.C. ss. 499a through 499t, as it may be amended, restated or replaced
from time to time, and any regulations, orders, decrees, standards, policies and
guidelines now or hereafter relating thereto.
"Patent and Trademark Security Agreement" means the Patent and
Trademark Security Agreement by the Borrower in favor of the Lender of even date
herewith, as it may be amended, modified, supplemented, restated or replaced
from time to time.
"Permitted Lien" has the meaning given in Section 7.1.
"Person" means any individual, corporation, partnership, joint
venture, limited liability company, association, joint-stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Plan" means an employee benefit plan or other plan maintained
for the Borrower's employees and covered by Title IV of ERISA.
"Premises" means all premises where the Borrower conducts its
business and has any rights of possession, including (without limitation) the
premises legally described in Exhibit D attached hereto.
"Private Label Inventory" means Inventory manufactured for the
account of other wholesalers, distributors, retailers or third parties or
otherwise intended to be marketed and sold under a tradename other than that
owned by, or licensed to, Borrower.
"Receivables" means each and every and every right of Borrower
to the payment of money, whether such right to payment now exists or hereafter
arises, and all proceeds thereof, whether such right to payment arises out of a
sale, lease or other disposition of goods or other property, out of a rendering
of services, out of a loan, out of the overpayment of taxes or other
liabilities, or otherwise arises under any contract or agreement, whether such
right to payment is created, generated or earned by the Borrower or by some
other person who subsequently transfers such person's interest to Borrower,
whether such right to payment is or is not already earned by performance, and
howsoever such right to payment may be evidenced, together with all other rights
and interests (including all liens and security interests) which Borrower may at
any time have by law or agreement against any account debtor or other obligor
obligated to make any such payment or against any property of such account
debtor or other obligor; all including but not limited to all present and future
accounts, contract rights, loans and obligations receivable, chattel paper,
bonds, notes and other debt instruments, tax refunds and rights to payment in
the nature of general intangibles; and those documents, General Intangibles,
chattel papers, instruments, contracts, licenses, ledger sheets, files, records,
computer programs, tapes and agreements relating to Borrower's right to receive
payment, all as such items are defined in the UCC.
"Reportable Event" shall have the meaning assigned to that
term in Title IV of ERISA.
"Revolving Advance" has the meaning given in Section 2.1(a).
"Revolving Note" means the Borrower's revolving promissory
note, payable to the order of the Lender in substantially the form of Exhibit A
hereto, as the same may hereafter be amended, modified, supplemented, replaced
or restated from time to time, and any note or notes issued in substitution
therefor, as the same may hereafter be amended, modified, supplemented, replaced
or restated from time to time and any note or notes issued in substitution
therefor.
"Security Documents" means this Agreement, the Collateral
Account Agreement, the Lockbox Agreement, the Patent and Trademark Security
Agreement, and any other document delivered to the Lender from time to time to
secure the Obligations, as the same may hereafter be amended, supplemented or
restated from time to time.
"Security Interest" has the meaning given in Section 3.1.
"Seller" means Tejas Snacks, L.P., a Texas limited
partnership.
"Subordinated Debt" means Debt of the Borrower and its
Subsidiaries which is expressly subordinated and made junior to the payment and
performance in full of the Borrower's Obligations to the Lender, and is
evidenced by written instruments containing subordination provisions and in an
amount approved by the Lender in its sole discretion.
"Subordination Agreement" means any subordination agreement
accepted by the Lender from time to time, as the same may thereafter be amended,
modified, supplemented, replaced or restated from time to time.
"Subordinated Creditors" means any Person now or hereafter
executing a Subordination Agreement accepted by Lender.
"Subsidiary" means any corporation of which more than 50% of
the outstanding shares of capital stock having general voting power under
ordinary circumstances to elect a majority of the board of directors of such
corporation, irrespective of whether or not at the time stock of any other class
or classes shall have or might have voting power by reason of the happening of
any contingency, is at the time directly or indirectly owned by the Borrower, by
the Borrower and one or more other Subsidiaries, or by one or more other
Subsidiaries.
"Term Loan Maturity Date" means the first day of the
nineteenth (19th) month (including the month in which the Term Loan Advance is
made) after the making of the Term Loan Advance.
"Term Loan Note" means the Borrower's term loan promissory
note, payable to the order of the Lender in substantially the form of Exhibit B
hereto, as the same may hereafter be amended, modified, supplemented, replaced
or restated from time to time, and any note or notes issued in substitution
therefor, as the same may hereafter be amended, modified, supplemented, replaced
or restated from time to time and any note or notes issued in substitution
therefor.
"Term Loan Rate" means an annual rate equal to the sum of the
Base Rate plus three hundred (300) basis points, which annual rate shall change
when and as the Base Rate changes.
"Termination Date" means the earliest of (i) the Maturity
Date, (ii) the date the Borrower terminates the Credit Facilities, or (iii) the
date the Lender demands payment of the Obligations after an Event of Default
pursuant to Section 8.2.
"UCC" means the Uniform Commercial Code as in effect from time
to time in the state designated in Section 9.15 as the state whose laws shall
govern this Agreement, or in any other state whose laws are held to govern this
Agreement or any portion hereof.
"Unfinanced Capital Expenditures" means, for the period of
determination, any Capital Expenditures or the portion of any Capital
Expenditures paid or payable by Borrower and its Subsidiaries during such period
and not constituting Debt.
"Warrant" means that certain Warrant to Purchase Common Stock
of Poore Brothers, Inc. No. 3 dated November 4, 1998 issued to Lender, as it may
be amended, modified, supplemented, restated or replaced from time to time.
SECTION 1.2 CROSS REFERENCES. All references in this Agreement to
Articles, Sections and subsections, shall be to Articles, Sections and
subsections of this Agreement unless otherwise explicitly specified.
ARTICLE 2
AMOUNT AND TERMS OF THE CREDIT FACILITIES
SECTION 2.1 REVOLVING ADVANCES AND TERM LOAN ADVANCE.
(a) REVOLVING ADVANCES. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make advances to the
Borrower from time to time from the date all of the conditions set forth in
Section 4.1 are satisfied (the "Funding Date") to the Termination Date, on the
terms and subject to the conditions herein set forth (the "Revolving Advances").
The Lender shall have no obligation to make a Revolving Advance if, after giving
effect to such requested Revolving Advance, the sum of the outstanding and
unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's
obligation to pay the Revolving Advances shall be evidenced by the Revolving
Note and shall be secured by the Collateral as provided in Article 3. Within the
limits set forth in this Section 2.1(a), the Borrower may borrow, prepay
pursuant to Section 2.6 and reborrow Revolving Advances. The Borrower agrees to
comply with the following procedures in requesting Revolving Advances under this
Section 2.1(a):
(i) The Borrower shall make each request for
a Revolving Advance to the Lender before 11:00 a.m. (Phoenix time) of the day of
the requested Revolving Advance. Requests may be made in writing or by
telephone, specifying the date of the requested Revolving Advance and the amount
thereof. Each request shall be by (i) any officer of the Borrower; or (ii) any
person designated as the Borrower's agent by any officer of the Borrower in a
writing delivered to the Lender; or (iii) any person whom the Lender reasonably
believes to be an officer of the Borrower or such a designated agent.
(ii) Upon fulfillment of the applicable
conditions set forth in Article 4, the Lender shall disburse the proceeds of the
requested Revolving Advance by crediting the same to the Borrower's demand
deposit account maintained with Norwest Bank Arizona, unless the Lender and the
Borrower shall agree in writing to another manner of disbursement. Upon the
Lender's request, the Borrower shall promptly confirm each telephonic request
for an Advance by executing and delivering an appropriate confirmation
certificate to the Lender. The Borrower shall repay all Advances even if the
Lender does not receive such confirmation and even if the person requesting an
Advance was not in fact authorized to do so. Any request for an Advance, whether
written or telephonic, shall be deemed to be a representation by the Borrower
that the conditions set forth in Section 4.3 have been satisfied as of the time
of the request.
(b) TERM LOAN ADVANCE. The Lender agrees, on the
terms and subject to the conditions herein set forth, to make a single advance
in the amount of $500,000 (the "Term Loan" or the "Term Loan Advance") to the
Borrower upon the written request of Borrower and on the date that all of the
conditions set forth in Section 4.2 are satisfied, and otherwise on the terms
and subject to the conditions herein set forth. The Borrower's obligation to pay
the Term Loan shall be evidenced by the Term Loan Note and shall be secured by
the Collateral as provided in Article 3. If all of the conditions to the Term
Loan Advance set forth in Section 4.2 have not been satisfied, or Borrower has
not given written notice to Lender to make the Term Loan Advance by November 30,
1998, Lender shall have no further obligation to make the Term Loan Advance to
Borrower, although Lender, in its sole, absolute and unfettered discretion, may
thereafter make the Term Loan Advance.
SECTION 2.2 MONTHLY PAYMENTS; MINIMUM INTEREST CHARGE; DEFAULT
INTEREST; PARTICIPATIONS; USURY. Interest accruing on the Notes shall be due and
payable in arrears on the first day of each month.
(a) REVOLVING NOTE. Except as set forth in Sections
2.2(d) and 2.2(e), the outstanding principal balance of the Revolving Note shall
bear interest at the Floating Rate.
(b) TERM LOAN NOTE. Except as set forth in Sections
2.2(d) and 2.2(e), the outstanding principal balance of the Term Loan Note shall
bear interest at the Term Loan Rate. The Term Loan Note will be payable in equal
monthly installments of principal of $27,777.78, plus interest, payable on the
first day of each month, commencing on the first day of the month immediately
succeeding the Term Loan Advance and continuing on the first day of each
succeeding month until the Term Loan Date or the Termination Date, whichever is
earlier, at which time the entire outstanding principal balance of the Term
Loan, all accrued and unpaid interest and all other charges shall be due and
payable; provided, however, commencing on the first day of the month immediately
following any Conversion Date (or on the first payment date if any Conversion
Date occurs before the first payment date), the Term Loan Note level principal
payments will be increased as provided below and the increased level principal
payment amount (not to exceed $41,667.67), plus interest, shall be payable on
the first day of such month and shall continue on the first day of each
succeeding month until the Term Loan Maturity Date or the Termination Date,
whichever is earlier, at which time the entire outstanding principal balance of
the Term Loan, all accrued and unpaid interest and all other charges shall be
due and payable, or until the Term Loan is earlier paid in full. The amount of
the increase of the Term Loan Note level principal payment shall be calculated
as follows: the quotient of the Principal Amount of the Debenture converted to
common stock divided by the Principal Amount of the Debenture immediately prior
to such conversion, multiplied by the difference between $41,667.67 (the maximum
Term Loan Note principal payment amount) and less the Term Loan Note principal
payment for the month immediately preceding such Conversion Date. An example of
the calculation of the Term Loan Note level principal payment increase and Term
Loan Note level principal payment amount is attached hereto as Exhibit E and
incorporated herein by this reference.
(c) MINIMUM INTEREST CHARGE. Notwithstanding the
interest payable pursuant to Section 2.2(a), the Borrower shall pay to the
Lender interest on the Revolving Advances and Term Loan Advances of not less
than $3,500 per calendar month in the aggregate (the "Minimum Interest Charge")
during the term of this Agreement, and the Borrower shall pay any deficiency
between the Minimum Interest Charge and the amount of interest otherwise
calculated under Sections 2.2(a), 2.2(b), 2.2(d) and 2.2(e) on the date and in
the manner provided in Section 2.4.
(d) DEFAULT INTEREST RATE. At any time during any
Default Period, in the Lender's sole discretion and without waiving any of its
other rights and remedies, the principal of the Advances outstanding from time
to time shall bear interest at the Default Rate, effective for any periods
designated by the Lender from time to time during that Default Period.
(e) USURY. In any event no rate change shall be put
into effect which would result in a rate greater than the highest rate permitted
by law. Notwithstanding anything to the contrary contained in any Loan Document,
all agreements which either now are or which shall become agreements between the
Borrower and the Lender are hereby limited so that in no contingency or event
whatsoever shall the total liability for payments in the nature of interest,
additional interest and Additional Sums (as defined below) exceed the applicable
limits imposed by any applicable usury laws. If any payments in the nature of
interest, additional interest and Additional Sums made under any Loan Document
are held to be in excess of the limits imposed by any applicable usury laws, it
is agreed that in compliance with the desires of the Borrower and the Lender the
amount of interest, additional interest and Additional Sums payable pursuant to
this lending transaction shall be reduced to the maximum amount permitted by
law, any excess amount previously collected from Borrower in connection with
this lending transaction that exceeded the maximum amount permitted by law,
shall be credited against the principal balance of the Obligations then
outstanding, and, if the outstanding principal balance hereunder has been paid
in full, the excess amount paid shall be refunded to Borrower and Borrower
agrees to accept such refund. This provision shall never be superseded or waived
and shall control every other provision of the Loan Documents and all agreements
between the Borrower and the Lender, or their successors and assigns. For
purposes hereof, all fees, charges, goods, things in action or any other sums or
things of value (other than the interest resulting from the interest rate or the
Default Rate paid or payable by Borrower (collectively, the "Additional Sums"),
whether pursuant to this Agreement, the Notes or any other document or
instrument in any way pertaining to this lending transaction, or otherwise with
respect to this lending transaction, that, under the laws of the State of
Arizona, may be deemed to be interest with respect to this lending transaction,
for the purpose of any laws of the State of Arizona that may limit the maximum
amount of interest to be charged with respect to this lending transaction, shall
be payable by Borrower as, and shall be deemed to be, additional interest, and
for such purposes only, the agreed upon and "contracted for rate of interest" of
this lending transaction shall be deemed to be increased by the rate of interest
resulting from the Additional Sums.
SECTION 2.3 FEES.
(a) ORIGINATION FEE. The Borrower hereby agrees to
pay the Lender a fully earned and non-refundable origination fee of $25,000, due
and payable upon the execution of this Agreement.
(b) UNUSED LINE FEE. For the purposes of this Section
2.3(b), "Unused Amount" means the Maximum Line reduced by outstanding Revolving
Advances. The Borrower agrees to pay to the Lender an unused line fee at the
rate of one-half of one percent (0.5%) per annum on the average daily Unused
Amount from the date of this Agreement to and including the Termination Date,
due and payable monthly in arrears on the first day of the month and on the
Termination Date.
(c) AUDIT FEES. The Borrower hereby agrees to pay the
Lender, on demand, audit fees in connection with any audits or inspections
conducted by the Lender of any Collateral or the Borrower's operations or
business at the rates established from time to time by the Lender as its audit
fees (which fees are currently $60 per hour per auditor), together with all
actual out-of-pocket costs and expenses incurred in conducting any such audit or
inspection.
SECTION 2.4 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND
PAYABLE. Interest accruing on the outstanding principal balance of the Advances
and fees hereunder outstanding from time to time shall be computed on the basis
of actual number of days elapsed in a year of 360 days. Interest shall be
payable in arrears on the first day of each month and on the Termination Date.
SECTION 2.5 CAPITAL ADEQUACY. If any Related Lender determines at any
time that its Return has been reduced as a result of any Rule Change, such
Related Lender may require the Borrower to pay it the amount necessary to
restore its Return to what it would have been had there been no Rule Change. For
purposes of this Section 2.5:
(a) "Capital Adequacy Rule" means any law, rule,
regulation, guideline, directive, requirement or request regarding capital
adequacy, or the interpretation or administration thereof by any governmental or
regulatory authority, central bank or comparable agency, whether or not having
the force of law, that applies to any Related Lender. Such rules include rules
requiring financial institutions to maintain total capital in amounts based upon
percentages of outstanding loans, binding loan commitments and letters of
credit.
(b) "Return", for any period, means the return as
determined by such Related Lender on the Advances based upon its total capital
requirements and a reasonable attribution formula that takes account of the
Capital Adequacy Rules then in effect. Return may be calculated for each
calendar quarter and for the shorter period between the end of a calendar
quarter and the date of termination in whole of this Agreement.
(c) "Rule Change" means any change in any Capital
Adequacy Rule occurring after the date of this Agreement, but the term does not
include any changes in applicable requirements that at the Closing Date are
scheduled to take place under the existing Capital Adequacy Rules or any
increases in the capital that any Related Lender is required to maintain to the
extent that the increases are required due to a regulatory authority's
assessment of the financial condition of such Related Lender.
(d) "Related Lender" includes (but is not limited to)
the Lender, any parent corporation of the Lender and any assignee of any
interest of the Lender hereunder and any participant in the loans made
hereunder.
Certificates of any Related Lender sent to the Borrower from time to time
claiming compensation under this Section 2.5, stating the reason therefor and
setting forth in reasonable detail the calculation of the additional amount or
amounts to be paid to the Related Lender hereunder to restore its Return shall
be conclusive absent manifest error. In determining such amounts, the Related
Lender may use any reasonable averaging and attribution methods.
SECTION 2.6 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITIES
BY THE BORROWER.
(a) VOLUNTARY PREPAYMENT. Except as otherwise
provided herein, the Borrower may prepay the Revolving Advances in whole at any
time or from time to time in part. The Borrower may terminate the Credit
Facilities (Revolving Advances and Term Loan) at any time if it (i) gives the
Lender at least 30 days' prior written notice and (ii) pays the Lender
termination fees in accordance with Section 2.7. Borrower may not terminate the
Revolving Advances unless the Term Loan is contemporaneously or previously
terminated. If the Borrower terminates the Credit Facilities, all Obligations
shall be immediately due and payable. Upon termination of the Credit Facilities
and payment and performance of all Obligations, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
(b) TERM LOAN PREPAYMENT. The Borrower may prepay the
Term Loan in whole at any time or from time to time in part, without premium
except as provided in Section 2.7(a). Provided that no Default or Event of
Default has occurred and is continuing, all prepayments under the Term Loan will
be applied first, to outstanding charges due under the Term Loan; second, to
accrued and unpaid interest on the then outstanding principal balance of the
Term Loan; and the remainder to the installment payments due under the Term
Loan, in the inverse order of maturity. During a Default Period, any payment
received by the Lender under this Section 2.6(b) may be applied to the
Obligations in such order and in such amounts as the Lender, in its discretion,
may from time to time determine.
(c) TERMINATION OF CREDIT FACILITIES. Upon
termination of the Credit Facilities (Revolving Advances and Term Loan) and
payment and performance of all Obligations, the Lender shall release or
terminate the Security Interest and the Security Documents to which the Borrower
is entitled by law.
SECTION 2.7 TERMINATION FEE; WAIVER OF TERMINATION FEE.
(a) TERMINATION FEE. If the Revolving Advances are
terminated for any reason as of a date or dates other than the Maturity Date,
including, without limitation, acceleration upon the occurrence of an Event of
Default, the Borrower shall pay to the Lender a fee in an amount equal to a
percentage of the Maximum Line plus the original principal amount of the Term
Loan as follows: (A) three percent (3%) if the termination occurs on or before
the first anniversary of the Funding Date; (B) two percent (2%) if the
termination occurs after the first anniversary of the Funding Date but on or
before the second anniversary of the Funding Date; and (C) one percent (1%) if
the termination occurs after the second anniversary of the Funding Date. So long
as the Revolving Advances are not terminated as of a date other than the
Maturity Date, the termination of the Term Loan will not, in and of itself,
obligate Borrower to pay a termination fee to Lender.
(b) WAIVER OF TERMINATION FEE. The Borrower will not
be required to pay the termination fee otherwise due under Section 2.7(a) if the
Credit Facilities are (i) voluntarily terminated due to a refinancing by an
Affiliate of the Lender; or (ii) voluntarily terminated on or before six (6)
months after the date on which Lender notifies Borrower in writing of a
discretionary reduction of Eligible Accounts in excess of 25% pursuant to clause
(xiii) of the definition of "Eligible Accounts"; or (iii) terminated during the
continuance of a declared Event of Default based solely on Borrower's breach of
the financial covenants in Sections 6.14, 6.15 or 6.16.
SECTION 2.8 MANDATORY PREPAYMENT. Without notice or demand, if the
outstanding principal balance of the Revolving Advances shall at any time exceed
the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances
to the extent necessary to eliminate such excess. Except as otherwise provided
in Section 2.6(b), provided that no other Default or Event of Default has
occurred and is continuing, any payment received by the Lender under this
Section 2.8 or under Section 2.6 shall be applied first, to reimbursable costs
and expenses incurred by Lender and not yet paid; second, to accrued and unpaid
interest (or Default Interest) on the Revolving Advances then due and payable;
and the remainder to the principal balance of the Revolving Obligations. During
a Default Period, any payment received by the Lender under this Section 2.8 or
under Section 2.6 may be applied to the Obligations in such order and in such
amounts as the Lender, in its discretion, may from time to time determine. For
each day or portion thereof that the Revolving Advances shall exceed the
Borrowing Base, the Borrower shall pay to the Lender an overadvance charge in
the amount of $100; provided, however, that if such day occurs during a Default
Period, the overadvance charge for such day shall be $200.
SECTION 2.9 PAYMENT. All payments to the Lender shall be made in
immediately available funds and shall be applied to the Obligations upon receipt
by the Lender. The Lender may hold all payments not constituting immediately
available funds for three (3) days before applying them to the Obligations.
Notwithstanding anything in Section 2.1(a), the Borrower hereby authorizes the
Lender, in its discretion at any time or from time to time without the
Borrower's request and even if the conditions set forth in Section 4.3 would not
be satisfied, to make a Revolving Advance in an amount equal to the portion of
the Obligations from time to time due and payable.
SECTION 2.10 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be
made hereunder shall be stated to be due on a day which is not a Banking Day,
such payment may be made on the next succeeding Banking Day, and such extension
of time shall in such case be included in the computation of interest on the
Advances or the fees hereunder, as the case may be.
SECTION 2.11 USE OF PROCEEDS. The Borrower shall use the proceeds of
the initial Revolving Advance and the Term Loan Advance to refinance Borrower's
existing indebtedness to First Community Financial Corporation and to acquire
certain assets of Tejas Snacks L.P. and, thereafter, Borrower shall use the
proceeds of the Revolving Advances for general working capital purposes.
SECTION 2.12 LIABILITY RECORDS. The Lender may maintain from time to
time, at its discretion, liability records as to the Obligations. All entries
made on any such record shall be presumed correct until the Borrower establishes
the contrary. Upon the Lender's demand, the Borrower will admit and certify in
writing the exact principal balance of the Obligations that the Borrower then
asserts to be outstanding. Any billing statement or accounting rendered by the
Lender shall be conclusive and fully binding on the Borrower unless the Borrower
gives the Lender specific written notice of exception within 30 days after
receipt.
ARTICLE 3
SECURITY INTEREST; OCCUPANCY; SETOFF
SECTION 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges,
assigns and grants to the Lender a security interest (collectively referred to
as the "Security Interest") in the Collateral, as security for the payment and
performance of the Obligations.
SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. Without
limiting Lender's rights under Sections 6.2 and 6.3 below, the Lender may at any
time after an Event of Default and, at any other time upon prior written notice
to Borrower, notify any account debtor or other person obligated to pay the
amount due that such right to payment has been assigned or transferred to the
Lender for security and shall be paid directly to the Lender. The Borrower will
join in giving such notice if the Lender so requests. At any time after the
Borrower or the Lender gives such notice to an account debtor or other obligor,
the Lender may, but need not, in the Lender's name or in the Borrower's name,
(a) demand, sue for, collect or receive any money or property at any time
payable or receivable on account of, or securing, any such right to payment, or
grant any extension to, make any compromise or settlement with or otherwise
agree to waive, modify, amend or change the obligations (including collateral
obligations) of any such account debtor or other obligor; and (b) as the
Borrower's agent and attorney-in-fact, notify the United States Postal Service
to change the address for delivery of the Borrower's mail to any address
designated by the Lender, otherwise intercept the Borrower's mail, and receive,
open and dispose of the Borrower's mail, applying all Collateral as permitted
under this Agreement and holding all other mail for the Borrower's account or
forwarding such mail to the Borrower's last known address.
SECTION 3.3 ASSIGNMENT OF INSURANCE. As additional security for the
payment and performance of the Obligations, the Borrower hereby assigns to the
Lender any and all monies (including, without limitation, proceeds of insurance
and refunds of unearned premiums) due or to become due under, and all other
rights of the Borrower with respect to, any and all policies of insurance now or
at any time hereafter covering the Collateral or any evidence thereof or any
business records or valuable papers pertaining thereto, and the Borrower hereby
directs the issuer of any such policy to pay all such monies directly to the
Lender. At any time, whether or not a Default Period then exists, with respect
to any Collateral in which Lender now or hereafter holds a first lien consensual
security interest (or is intended to hold a first lien consensual security
interest under the Loan Documents), the Lender may (but need not), in the
Lender's name or in the Borrower's name, execute and deliver proof of claim,
receive all such monies, endorse checks and other instruments representing
payment of such monies, and adjust, litigate, compromise or release any claim
against the issuer of any such policy.
SECTION 3.4 OCCUPANCY.
(a) Subject to the rights of the Mortgagee, if any,
the Borrower hereby irrevocably grants to the Lender the right to take
possession of the Premises at any time during a Default Period.
(b) The Lender may use the Premises only to hold,
process, manufacture, sell, use, store, liquidate, realize upon or otherwise
dispose of goods that are Collateral and for other purposes that the Lender may
in good faith deem to be related or incidental purposes.
(c) The Lender's right to hold the Premises shall
cease and terminate upon the earlier of (i) payment in full and discharge of all
Obligations and termination of the Commitment, and (ii) final sale or
disposition of all goods constituting Collateral and delivery of all such goods
to purchasers.
(d) The Lender shall not be obligated to pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises; provided, however, that if the Lender does pay or
account for any rent or other compensation for the possession, occupancy or use
of any of the Premises, the Borrower shall reimburse the Lender promptly for the
full amount thereof. In addition, the Borrower will pay, or reimburse the Lender
for, all taxes, fees, duties, imposts, charges and expenses at any time incurred
by or imposed upon the Lender by reason of the execution, delivery, existence,
recordation, performance or enforcement of this Agreement or the provisions of
this Section 3.4.
SECTION 3.5 LICENSE. Without limiting the generality of the Patent and
Trademark Security Agreement, the Borrower hereby grants to the Lender a
non-exclusive, worldwide and royalty-free license to use or otherwise exploit
all trademarks, franchises, trade names, copyrights and processes of the
Borrower for the purpose of selling, leasing or otherwise disposing of any or
all Collateral during any Default Period.
SECTION 3.6 FINANCING STATEMENT. A carbon, photographic or other
reproduction of this Agreement or of any financing statements signed by the
Borrower is sufficient as a financing statement and may be filed as a financing
statement in any state to perfect the security interests granted hereby. For
this purpose, the following information is set forth:
Name and address of Debtor:
Poore Brothers, Inc.
Federal Tax Identification No. 86-0786101
Poore Brothers Arizona, Inc.
Federal Tax Identification No. 86-0793689
Poore Brothers Distributing, Inc.
Federal Tax Identification No. 86-0661705
Tejas PB Distributing, Inc.
Federal Tax Identification No. 86-0932767
3500 South La Cometa Drive
Goodyear, Arizona 85338
Name and address of Secured Party:
Norwest Business Credit, Inc.
3003 North Central Avenue
M.S. 9025
Phoenix, Arizona 85012-2501
Federal Tax Identification No. 41-1237652
SECTION 3.7 SETOFF. The Borrower agrees that the Lender may at any time
or from time to time, at its sole discretion and without demand and without
notice to anyone, setoff any liability owed to the Borrower by the Lender,
whether or not due, against any Obligation, whether or not due. In addition, any
assignee of Lender of which Borrower has received written notice and any loan
participant of which Borrower has received written notice shall have the right
to appropriate or setoff any deposit or other liability then owed by such Person
to the Borrower, whether or not due, and apply the same to the payment of the
Obligations or the loan participant's interest, as fully as if such Person had
lent directly to the Borrower the Obligations or the amount of such loan
participant's interest. Lender or such other Person shall endeavor to provide
written notice of any such appropriation or setoff as soon as reasonably
practicable after the occurrence of such appropriation or setoff, but neither
Lender nor such other Person shall have any liability to Borrower or any other
Person for its failure to provide such notice.
SECTION 3.8 ASSIGNMENT OF ASSET PURCHASE AGREEMENT.. As additional
security for the payment and performance of the Obligations, the Borrower hereby
assigns to the Lender, and grants a security interest in favor of the Lender in
and to, all of its right, title, interest and privileges under the Asset
Purchase Agreement and all agreements, instruments and documents delivered by
Seller or any other Person in favor of Borrower in connection with the Asset
Purchase Agreement, including, without limitation all of Borrower's rights and
remedies with respect to a breach or non-performance of the Seller's
representations, warranties, covenants and agreements, all of Seller's indemnity
obligations to Borrower and all of Borrower's right, title and interest in the
Escrow Agreement (as defined in the Asset Purchase Agreement) and any security
entitlement and proceeds held therein, and all of Borrower's right, title and
interest in the Assignment (as defined in the Asset Purchase Agreement). From
time to time, upon the written request of Lender, Borrower shall execute, and
shall cause the securities intermediary to execute, such agreements, documents
and instruments as the Lender shall reasonably require to evidence and perfect
the collateral assignment and security interest granted by Borrower in favor of
the Lender.
ARTICLE 4
CONDITIONS OF LENDING
SECTION 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE. The
Lender's obligation to make the initial Revolving Advance hereunder shall be
subject to the condition precedent that the Lender shall have received all of
the following, each in form and substance satisfactory to the Lender in its sole
and absolute discretion:
(a) This Agreement, properly executed by the
Borrower.
(b) The Revolving Note, properly executed by the
Borrower.
(c) The Term Loan Note, properly executed by the
Borrower.
(d) The Warrant, properly executed by the Borrower.
(e) A true and correct copy of any and all leases
pursuant to which the Borrower is leasing the Premises, together with a
landlord's disclaimer, consent and subordination with respect to each such
lease.
(f) A true and correct copy of any and all mortgages
pursuant to which the Borrower or any Affiliate has mortgaged the Premises,
together with a mortgagee's disclaimer and consent with respect to each such
mortgage.
(g) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any Person
other than the Borrower, together with, in the case of any goods held by such
Person for resale, (i) a consignee's acknowledgment and waiver of liens, (ii)
UCC financing statements sufficient to protect the Borrower's and the Lender's
interests in such goods, and (iii) UCC searches showing that no other secured
party has filed a financing statement against such Person and covering property
similar to the Borrower's other than the Borrower, or if there exists any such
secured party, evidence that each such secured party has received notice from
the Borrower and the Lender sufficient to protect the Borrower's and the
Lender's interests in the Borrower's goods from any claim by such secured party.
(h) An acknowledgment and waiver of liens from each
warehouse in which the Borrower is storing Inventory, if any.
(i) A true and correct copy of any and all agreements
pursuant to which the Borrower's property is in the possession of any Person
other than the Borrower, together with, (i) an acknowledgment and waiver of
liens from each subcontractor who has possession of the Borrower's goods from
time to time, (ii) UCC financing statements sufficient to protect the Borrower's
and the Lender's interests in such goods, and (iii) UCC searches showing that no
other secured party has filed a financing statement covering such Person's
property other than the Borrower, or if there exists any such secured party,
evidence that each such secured party has received notice from the Borrower and
the Lender sufficient to protect the Borrower's and the Lender's interests in
the Borrower's goods from any claim by such secured party.
(j) An acknowledgment and agreement from each
licensor in favor of the Lender, together with a true, correct and complete copy
of all license agreements.
(k) The Collateral Account Agreement, properly
executed by the Borrower and Norwest Bank Arizona.
(l) The Lockbox Agreement, properly executed by the
Borrower and Norwest Bank Arizona.
(m) The Patent and Trademark Security Agreement,
properly executed by the Borrower.
(n) The Intercreditor Agreement, properly executed by
the Debenture Holders and acknowledged by the Borrower.
(o) Current searches of appropriate filing offices
showing that (i) no state or federal tax liens or judgments have been filed or
recorded and remain in effect against the Borrower or the Collateral, (ii) no
financing statements or assignments of patents, trademarks or copyrights have
been filed and remain in effect against the Borrower or the Collateral, except
those financing statements and assignments of patents, trademarks or copyrights
relating to Permitted Liens or to liens held by Persons who have agreed in
writing that upon receipt of proceeds of the Advances, they will deliver UCC
releases and/or terminations and releases of such assignments of patents,
trademarks or copyrights satisfactory to the Lender, and (iii) the Lender has
duly filed all financing statements necessary to perfect the Security Interest,
to the extent the Security Interest is capable of being perfected by filing.
(p) A certificate of each Borrower's Secretary or
Assistant Secretary certifying as to (i) the resolutions of the Borrower's
directors and, if required, shareholders, authorizing the execution, delivery
and performance of the Loan Documents, (ii) the Borrower's articles of
incorporation and bylaws, and (iii) the signatures of the Borrower's officers or
agents authorized to execute and deliver the Loan Documents and other
instruments, agreements and certificates, including Advance requests, on the
Borrower's behalf.
(q) A current certificate issued by the applicable
governmental authorities of each Borrower's state of incorporation or formation,
certifying that the Borrower is in compliance with all applicable organizational
requirements of such states and has paid all franchise and other taxes necessary
to be in good standing in such jurisdiction.
(r) Evidence that the Borrower is duly licensed or
qualified to transact business in all jurisdictions where the character of the
property owned or leased or the nature of the business transacted by it makes
such licensing or qualification necessary.
(s) A certificate of an officer of the Borrower
confirming the representations and warranties set forth in Article 5.
(t) An opinion of counsel to the Borrower, addressed
to the Lender.
(u) Certificates of the insurance required hereunder,
with all hazard insurance containing a lender's loss payable endorsement in the
Lender's favor and with all liability insurance naming the Lender as an
additional insured.
(v) Payment of the fees due to Lender through the
date of the initial Advance under Section 2.3 and expenses incurred by the
Lender through such date and required to be paid by the Borrower under Section
9.7, including all legal expenses incurred through the date of this Agreement.
(w) A current update of the status of any pending
material litigation from Borrower's counsel.
(x) A written waiver from the Debenture Holders with
respect to the financial covenant defaults and any other existing defaults (that
have not been previously waived) under the Debentures.
(y) A written agreement from Renaissance Capital
Growth & Income Fund III, Inc. to waive all mandatory principal redemption
installments under its Debenture through October 31, 1999.
(z) Such other documents as the Lender in its sole
discretion may require.
SECTION 4.2 CONDITIONS PRECEDENT TO TERM LOAN ADVANCE. The Lender's
obligation to make the Term Loan Advance hereunder shall be subject to the
condition precedent that the Lender shall have received all of the following,
each in form and substance satisfactory to the Lender in its sole and absolute
discretion, and shall be subject to the further conditions precedent that on
such date:
(a) All of the conditions precedent to the making of
the Initial Revolving Advance have been satisfied or waived in writing by
Lender.
(b) Evidence that the transactions contemplated by
the Asset Purchase Agreement will concurrently be consummated and that all
filings necessary to effect the transfer of the assets from Seller to Borrower
will concurrently occur, together with copies of the fully executed Asset
Purchase Agreement and all instruments, agreements, bills of sale, assignments,
certificates and other documents required to be delivered by Borrower or Seller
under the Asset Purchase Agreement, including, without limitation, lien releases
and payoff letters from any Person holding a lien on the assets acquired by
Borrower pursuant to the Asset Purchase Agreement, certified as true, correct
and complete copies of the original of such items by the Secretary or Assistant
Secretary of Borrower, together with evidence of all payments pursuant to the
payoff letters.
(c) An assignment of all of Borrower's right, title
and interest in, to and under the Asset Purchase Agreement, including, without
limitation, any representations, warranties, covenants, agreements and
indemnities of Seller that survive the closing of the transaction.
(d) Current searches of appropriate filing offices
showing that (i) no state or federal tax liens or judgments have been filed or
recorded and remain in effect against the Seller or the assets to be acquired by
Borrower from Seller, (ii) no financing statements or assignments of patents,
trademarks or copyrights have been filed and remain in effect against the Seller
or the assets to be acquired by Borrower from Seller, except those financing
statements and assignments of patents, trademarks or copyrights relating to
Permitted Liens or to liens held by Persons who have agreed in writing that upon
receipt of proceeds of the Advances, they will deliver UCC releases and/or
terminations and releases of such assignments of patents, trademarks or
copyrights satisfactory to the Lender, and (iii) the Lender has duly filed all
financing statements necessary to perfect the Security Interest, to the extent
the Security Interest is capable of being perfected by filing.
(e) An opinion of counsel to the Seller, addressed to
the Lender, or a separate reliance letter in favor of Lender with respect to
such opinion from counsel to the Seller, in the form required by the Asset
Purchase Agreement.
(f) Payment of the fees due to Lender through the
date of the Term Loan Advance under Section 2.3 and expenses incurred by the
Lender through such date and required to be paid by the Borrower under Section
9.7, including all legal expenses incurred through the date of this Agreement.
(g) The representations and warranties contained in
Article 5 are correct on and as of the date of such Advance as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date.
(h) No event has occurred and is continuing, or would
result from such Advance which constitutes a Default or an Event of Default.
(i) Such other documents as the Lender in its sole
discretion may require.
SECTION 4.3 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender's
obligation to make each Advance shall be subject to the further conditions
precedent that on such date:
(a) the representations and warranties contained in
Article 5 are correct on and as of the date of such Advance as though made on
and as of such date, except to the extent that such representations and
warranties relate solely to an earlier date; and
(b) no event has occurred and is continuing, or would
result from such Advance which constitutes a Default or an Event of Default.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES
Each Borrower individually, and all of the Borrowers jointly, represent
and warrant to the Lender as follows:
SECTION 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE
OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. Each
Borrower is a corporation, duly organized, validly existing and in good standing
under the laws of its state of incorporation or formation and is duly licensed
or qualified to transact business in all jurisdictions where the character of
the property owned or leased or the nature of the business transacted by it
makes such licensing or qualification necessary. Each Borrower has all requisite
power and authority, corporate or otherwise, to conduct its business, to own its
properties and to execute and deliver, and to perform all of its obligations
under, the Loan Documents, including, with respect to Poore Brothers, Inc., the
Warrant. During its existence, each Borrower has done business solely under the
names set forth in Schedule 5.1 hereto. Each Borrower's chief executive office
and principal place of business is located at the address set forth in Schedule
5.1 hereto, and each of the Borrower's records relating to its business or the
Collateral are kept at that location. All Inventory and Equipment is located at
that location or at one of the other locations set forth in Schedule 5.1 hereto.
Each Borrower's tax identification number is correctly set forth in Section 3.6
hereto.
SECTION 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR
AGREEMENTS. The execution, delivery and performance by each Borrower of the Loan
Documents (including, with respect to Poore Brothers, Inc. only, the Warrant)
and the borrowings from time to time hereunder have been duly authorized by all
necessary corporate action and do not and will not (i) require any consent or
approval of the Borrower's stockholders; (ii) require any authorization, consent
or approval by, or registration, declaration or filing with, or notice to, any
governmental department, commission, board, bureau, agency or instrumentality,
domestic or foreign, or any third party, except such authorization, consent,
approval, registration, declaration, filing or notice as has been obtained,
accomplished or given prior to the date hereof and any normal and customary
subsequent disclosure filings required under the Securities Exchange Act of
1934, as amended, and the rules and regulations promulgated thereunder, that do
not affect the validity or enforceability of the Loan Documents; (iii) violate
any provision of any law, rule or regulation (including, without limitation,
Regulation X of the Board of Governors of the Federal Reserve System) or of any
order, writ, injunction or decree presently in effect having applicability to
the Borrower or of the Borrower's articles of incorporation or bylaws; (iv)
result in a breach of or constitute a default under any indenture or loan or
credit agreement or any other material agreement, lease or instrument to which
the Borrower is a party or by which it or its properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any
mortgage, deed of trust, pledge, lien, security interest or other charge or
encumbrance of any nature (other than the Security Interest) upon or with
respect to any of the properties now owned or hereafter acquired by the
Borrower.
SECTION 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon due
execution by the Borrower, the other Loan Documents will constitute the legal,
valid and binding obligations of the Borrower, enforceable against the Borrower
in accordance with their respective terms.
SECTION 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4, the
Borrower has no Subsidiaries.
SECTION 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has
heretofore furnished to the Lender audited financial statements of the Borrower
for its fiscal year ended December 31, 1997 and unaudited financial statements
of the Borrower for the fiscal year-to-date period ended September 30, 1998, and
those statements fairly present the Borrower's financial condition on the dates
thereof and the results of its operations and cash flows for the periods then
ended and were prepared in accordance with GAAP. Since the date of the most
recent financial statements, there has been no material adverse change in the
Borrower's business, properties or condition (financial or otherwise), except as
disclosed in public disclosure filings with the United States Securities and
Exchange Commission after September 30, 1998 and received by Lender.
SECTION 5.6 LITIGATION. There are no actions, suits or proceedings
pending or, to the Borrower's knowledge, threatened against or affecting the
Borrower or any of its Affiliates or the properties of the Borrower or any of
its Affiliates before any court or governmental department, commission, board,
bureau, agency or instrumentality, domestic or foreign, which, if determined
adversely to the Borrower or any of its Affiliates, would have a material
adverse effect on the financial condition, properties or operations of the
Borrower or any of its Affiliates, except as disclosed in public disclosure
filings with the Securities and Exchange Commission after September 30, 1998 and
received by Lender, and except as disclosed in the letter dated March 3, 1998
from Mariscal, Weeks, McIntyre & Friedlander, P.A. to Poore Brothers, Inc.
responding to the auditor's request for information (the "Audit Response
Letter").
SECTION 5.7 REGULATION U. The Borrower is not engaged in the business
of extending credit for the purpose of purchasing or carrying margin stock
(within the meaning of Regulation U of the Board of Governors of the Federal
Reserve System), and no part of the proceeds of any Advance will be used by
Borrower to purchase or carry any margin stock or to extend credit to others for
the purpose of purchasing or carrying any margin stock.
SECTION 5.8 TAXES. The Borrower and its Affiliates have paid or caused
to be paid to the proper authorities when due all federal, state and local taxes
withheld by each of them. The Borrower and its Affiliates have paid or caused to
be paid to the proper authorities when due all federal, state and local taxes
which to the knowledge of the officers of the Borrower or any Affiliate, as the
case may be, are required to be withheld by each of them and neither Borrower
nor any of its Affiliates has any information or reason to believe that it has
failed to properly withhold any federal, state or local taxes required to be
withheld under applicable law. The Borrower and its Affiliates have filed all
federal, state and local tax returns which to the knowledge of the officers of
the Borrower or any Affiliate, as the case may be, are required to be filed, and
the Borrower and its Affiliates have paid or caused to be paid to the respective
taxing authorities all taxes as shown on said returns or on any assessment
received by any of them to the extent such taxes have become due.
SECTION 5.9 TITLES AND LIENS. The Borrower has good and absolute title
to all Collateral described in the collateral reports provided to the Lender and
all other Collateral, properties and assets reflected in the latest financial
statements referred to in Section 5.5 and all proceeds thereof, free and clear
of all mortgages, security interests, liens and encumbrances, except for
Permitted Liens, and upon the consummation of the Asset Purchase Agreement, the
Borrower will have good and absolute title to all of the property and assets
intended to be assigned, transferred or conveyed pursuant to the Asset Purchase
Agreement, free and clear of all mortgages, security interests, liens and
encumbrances, except for Permitted Liens. No financing statement naming the
Borrower or the Seller (with respect to the property and assets intended to be
assigned, transferred or conveyed pursuant to the Asset Purchase Agreement) as
debtor is on file in any office except to perfect only Permitted Liens.
SECTION 5.10 PLANS. Except as disclosed to the Lender in writing prior
to the date hereof, neither the Borrower nor any of its Affiliates maintains or
has maintained any Plan. Neither the Borrower nor any Affiliate has received any
notice or has any knowledge to the effect that it is not in full compliance with
any of the requirements of ERISA. No Reportable Event or other fact or
circumstance which may have an adverse effect on the Plan's tax qualified status
exists in connection with any Plan. Neither the Borrower nor any of its
Affiliates has:
(a) Any accumulated funding deficiency within the
meaning of ERISA; or
(b) Any liability or knows of any fact or
circumstances which could result in any liability to the Pension Benefit
Guaranty Corporation, the Internal Revenue Service, the Department of Labor or
any participant in connection with any Plan (other than accrued benefits which
or which may become payable to participants or beneficiaries of any such Plan).
SECTION 5.11 DEFAULT. To the best of the Borrower's knowledge after due
and diligent inquiry, the Borrower is in compliance (or any such non-compliance
has been waived in writing) with all provisions of all agreements, instruments,
decrees and orders to which it is a party or by which it or its property is
bound or affected, the breach or default of which could have a material adverse
effect on the Borrower's financial condition, properties or operations.
SECTION 5.12 ENVIRONMENTAL MATTERS.
(a) Definitions. As used in this Agreement, the
following terms shall have the following meanings:
(i) "Environmental Law" means any federal,
state, local or other governmental statute, regulation, law or ordinance dealing
with the protection of human health and the environment.
(ii) "Hazardous Substances" means
pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and
fractions thereof, and all other chemicals, wastes, substances and materials
listed in, regulated by or identified in any Environmental Law.
(b) To the Borrower's best knowledge, there are not
present in, on or under the Premises any Hazardous Substances in such form or
quantity as to create any liability or obligation for either the Borrower or the
Lender under common law of any jurisdiction or under any Environmental Law, and
no Hazardous Substances have ever been stored, buried, spilled, leaked,
discharged, emitted or released in, on or under the Premises in such a way as to
create any such liability.
(c) To the Borrower's best knowledge, the Borrower
has not disposed of Hazardous Substances in such a manner as to create any
liability under any Environmental Law.
(d) There are not and there never have been any
requests, claims, notices, investigations, demands, administrative proceedings,
hearings or litigation, relating in any way to the Premises or the Borrower,
alleging liability under, violation of, or noncompliance with any Environmental
Law or any license, permit or other authorization issued pursuant thereto. To
the Borrower's best knowledge, no such matter is threatened or impending.
(e) To the Borrower's best knowledge, the Borrower's
businesses are, and since Borrower's acquisition of the business and operations
of the Borrower have always been, conducted in accordance with all Environmental
Laws, and all licenses, permits and other authorizations required pursuant to
any Environmental Law and necessary for the lawful and efficient operation of
such businesses are in the Borrower's possession and are in full force and
effect. No permit required under any Environmental Law is scheduled to expire
within 12 months and, to the Borrower's best knowledge, there is no threat that
any such permit will be withdrawn, terminated, limited or materially changed.
(f) To the Borrower's best knowledge, the Premises
are not and never have been listed on the National Priorities List, the
Comprehensive Environmental Response, Compensation and Liability Information
System or any similar federal, state or local list, schedule, log, inventory or
database.
(g) The Borrower has delivered to Lender all
environmental assessments, audits, reports, permits, licenses and other
documents describing or relating in any way to the Premises or Borrower's
businesses.
SECTION 5.13 SUBMISSIONS TO LENDER. All financial and other information
provided to the Lender by or on behalf of the Borrower in connection with the
Borrower's request for the credit facilities contemplated hereby is true and
correct in all material respects and, as to projections, valuations or proforma
financial statements, are based on assumptions that Borrower believes in good
faith are likely to be true and present a good faith opinion as to such
projections, valuations and proforma financial statements.
SECTION 5.14 FINANCING STATEMENTS. The Borrower has provided to the
Lender signed financing statements sufficient when filed to perfect the Security
Interest and the other security interests created by the Security Documents.
When such financing statements are filed in the offices noted therein, the
Lender will have a valid and perfected security interest in all Collateral and
all other collateral described in the Security Documents which is capable of
being perfected by filing financing statements. None of the Collateral or other
collateral covered by the Security Documents is or will become a fixture on real
estate, unless a sufficient fixture filing is in effect with respect thereto.
SECTION 5.15 RIGHTS TO PAYMENT. Each right to payment and each
instrument, document, chattel paper and other agreement constituting or
evidencing Collateral or other collateral covered by the Security Documents is
(or, in the case of all future Collateral or such other collateral, will be when
arising or issued) the valid, genuine and legally enforceable obligation,
subject to no defense, setoff or counterclaim known to Borrower (or in the
course of Borrower's normal and customary diligence should have been known), of
the account debtor or other obligor named therein or in the Borrower's records
pertaining thereto as being obligated to pay such obligation.
SECTION 5.16 FINANCIAL SOLVENCY. Both before and after giving effect to
the acquisition and all of the transactions contemplated in the Loan Documents,
none of the Borrower or its Affiliates:
(a) was or will be insolvent, as that term is used
and defined in Section 101(32) of the United States Bankruptcy Code and Section
2 of the Uniform Fraudulent Transfer Act;
(b) has unreasonably small capital or is engaged or
about to engage in a business or a transaction for which any remaining assets of
the Borrower or such Affiliate are unreasonably small;
(c) by executing, delivering or performing its
obligations under the Loan Documents or other documents to which it is a party
or by taking any action with respect thereto, intends to, nor believes that it
will, incur debts beyond its ability to pay them as they mature;
(d) by executing, delivering or performing its
obligations under the Loan Documents or other documents to which it is a party
or by taking any action with respect thereto, intends to hinder, delay or
defraud either its present or future creditors; and
(e) at this time contemplates filing a petition in
bankruptcy or for an arrangement or reorganization or similar proceeding under
any law any jurisdiction, nor, to the best knowledge of the Borrower, is the
subject of any actual, pending or threatened bankruptcy, insolvency or similar
proceedings under any law of any jurisdiction.
SECTION 5.17 YEAR 2000 COMPLIANCE. Borrower and its Subsidiaries have
conducted a comprehensive internal review and assessment of Borrower's state of
readiness, the costs to address Borrower's Year 2000 issues, the risks of
Borrower's Year 2000 issues and the Borrower's contingency plans, in accordance
with the Securities and Exchange Commission's Release No. 33-7558, DISCLOSURE OF
YEAR 2000 ISSUES AND CONSEQUENCES BY PUBLIC COMPANIES, INVESTMENT ADVISERS,
INVESTMENT COMPANIES AND MUNICIPAL SECURITIES ISSUERS (issued August 5, 1998)
(the "SEC Year 2000 Release") and, subject to the qualifications, exceptions and
discussion in Borrower's June 30, 1998 Form 10-QSB quarterly report, Borrower
has determined that its computer systems and applications, microprocessor based
goods and equipment owned or used by Borrower and its Subsidiaries in their
business, and all products currently sold by Borrower and its Subsidiaries are
Year 2000 compliant and as such will calculate and perform prior to, during, and
after the Year 2000 and, to Borrower's best knowledge, third parties providing
services or materials to Borrower that are material to Borrower will continue to
provide such service or materials without interruption caused by Year 2000
compliance. For purposes of this Agreement, Year 2000 compliant is defined as
accurately processing date-related data (including, but not limited to,
calculating, comparing and sequencing) from, into and between the year 1999 and
the Year 2000, including leap year calculations, and specifically including any
error relating to, or the product of, date data or date information that
represents or references different centuries or more than one century. Based on
the foregoing review, assessment and inquiry, Borrower reasonably believes that
any problem related to Year 2000 compliance will not result in a material
adverse effect on any of the operations, business or properties of Borrower or
its Subsidiaries.
ARTICLE 6
BORROWER'S AFFIRMATIVE COVENANTS
So long as the Obligations shall remain unpaid, or either Credit
Facility shall remain outstanding, the Borrower will comply with the following
requirements, unless the Lender shall otherwise consent in writing:
SECTION 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or cause
to be delivered, to the Lender each of the following, which shall be in form and
detail acceptable to the Lender:
(a) as soon as available, and in any event within 90
days after the end of each fiscal year of the Borrower, the Borrower's and its
Subsidiaries' audited financial statements with the unqualified opinion of
Arthur Andersen (or any other so-called "Big 5" accounting firm or any other
independent certified public accountants selected by the Borrower and, if not a
so-called "Big 5" accounting firm, acceptable to the Lender), which annual
financial statements shall include the Borrower's and its Subsidiaries' balance
sheet as of the end of such fiscal year and the related statements of the
Borrower's and its Subsidiaries' income, retained earnings and cash flows for
the fiscal year then ended, prepared, if the Lender so requests, on a
consolidating and consolidated, all in reasonable detail and prepared in
accordance with GAAP, together with (i) copies of all management letters
prepared by such accountants; (ii) a report signed by such accountants stating
that in making the investigations necessary for said opinion nothing has come to
their attention, except as specifically stated, that would cause them to believe
that a Default or Event of Default has occurred hereunder, and all relevant
facts in reasonable detail to evidence, and the computations as to, whether or
not the Borrower is in compliance with the requirements set forth in Sections
6.14, 6.15 and 6.16; and (iii) a certificate of the Borrower's chief financial
officer stating that such financial statements have been prepared in accordance
with GAAP and whether or not such officer has knowledge of the occurrence of any
Default or Event of Default hereunder and, if so, stating in reasonable detail
the facts with respect thereto;
(b) as soon as available and in any event within 20
days after the end of each month, an unaudited/internal balance sheet and
statements of income and retained earnings of the Borrower as of the end of and
for such month and for the year to date period then ended, prepared, if the
Lender so requests, on a consolidating and consolidated basis to include any
Subsidiaries, in reasonable detail and stating in comparative form the figures
for the corresponding date and periods in the previous year, all prepared in
accordance with GAAP; and accompanied by a certificate of the Borrower's chief
financial officer, substantially in the form of Exhibit C hereto stating (i)
that such financial statements have been prepared in accordance with GAAP, (ii)
whether or not such officer has knowledge of the occurrence of any Default or
Event of Default hereunder not theretofore reported and remedied and, if so,
stating in reasonable detail the facts with respect thereto, and (iii) all
relevant facts in reasonable detail to evidence, and the computations as to,
whether or not the Borrower is in compliance with the requirements set forth in
Sections 6.14, 6.15 and 6.16;
(c) within 15 days after the end of each month or
more frequently if the Lender so requires, agings of the Borrower's accounts
receivable and its accounts payable, and a calculation of the Borrower's
Accounts and Eligible Accounts as of the end of such month or such shorter time
period, and within 15 days after the end of each month (or more frequently
during a Default Period if the Lender so requires), an inventory certification
report and a calculation of the Borrower's Inventory and Eligible Inventory as
of the end of such month or, during a Default Period, such shorter time period
if the Lender so requires;
(d) within 30 days after the end of Borrower's 1998
fiscal year and at least 30 days before the beginning of each fiscal year of the
Borrower thereafter, the projected balance sheets and income statements for each
month of such year, each in reasonable detail, representing the Borrower's good
faith projections and certified by the Borrower's chief financial officer as
being the most accurate projections available and identical to the projections
used by the Borrower for internal planning purposes, together with such
supporting schedules and information as the Lender may in its discretion
require;
(e) immediately after the commencement thereof,
notice in writing of all litigation and of all proceedings before any
governmental or regulatory agency affecting the Borrower of the type described
in Section 5.12 or which seek a monetary recovery against the Borrower in excess
of $10,000;
(f) as promptly as practicable (but in any event not
later than 5 business days) after an officer of the Borrower obtains knowledge
of the occurrence of any breach, default or event of default under any Security
Document or any event which constitutes a Default or Event of Default hereunder,
notice of such occurrence, together with a detailed statement by a responsible
officer of the Borrower of the steps being taken by the Borrower to cure the
effect of such breach, default or event;
(g) as soon as possible and in any event within 30
days after the Borrower knows or has reason to know that any Reportable Event
with respect to any Plan has occurred, the statement of the Borrower's chief
financial officer setting forth details as to such Reportable Event and the
action which the Borrower proposes to take with respect thereto, together with a
copy of the notice of such Reportable Event to the Pension Benefit Guaranty
Corporation;
(h) as soon as possible, and in any event within 10
days after the Borrower fails to make any quarterly contribution required with
respect to any Plan under Section 412(m) of the Internal Revenue Code of 1986,
as amended, the statement of the Borrower's chief financial officer setting
forth details as to such failure and the action which the Borrower proposes to
take with respect thereto, together with a copy of any notice of such failure
required to be provided to the Pension Benefit Guaranty Corporation;
(i) promptly upon knowledge thereof, notice of (i)
any disputes or claims by the Borrower's customers exceeding $10,000
individually or $25,000 in the aggregate during any fiscal year; (ii) credit
memos; (iii) any goods returned to or recovered by the Borrower; and (iv) any
change in the persons constituting the Borrower's officers and directors;
(j) promptly upon knowledge thereof, notice of any
loss of or material damage to any Collateral or other collateral covered by the
Security Documents or of any substantial adverse change in any Collateral or
such other collateral or the prospect of payment thereof;
(k) promptly upon their distribution, copies of all
financial statements, reports and proxy statements which the Borrower shall have
sent to its stockholders;
(l) promptly after the sending or filing thereof,
copies of all regular and periodic and special reports which the Borrower shall
file with the Securities and Exchange Commission or any national securities
exchange and copies of all press releases prepared by or on behalf of Borrower;
(m) promptly upon knowledge thereof, notice of the
Borrower's violation of any law, rule or regulation, the non-compliance with
which could materially and adversely affect the Borrower's business or its
financial condition; and
(n) from time to time, with reasonable promptness,
any and all receivables schedules, collection reports, deposit records,
equipment schedules, copies of invoices to account debtors, shipment documents
and delivery receipts for goods sold, and such other material, reports, records
or information as the Lender may request.
SECTION 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The Borrower
will keep accurate books of record and account for itself pertaining to the
Collateral and pertaining to the Borrower's and its Subsidiaries' business and
financial condition and such other matters as the Lender may from time to time
request in which true and complete entries will be made in accordance with GAAP
and, upon the Lender's request, will permit any officer, employee, attorney or
accountant for the Lender to audit, review, make extracts from or copy any and
all corporate and financial books and records of the Borrower and its
Subsidiaries at all times during ordinary business hours, to send and discuss
with account debtors and other obligors requests for verification of amounts
owed to the Borrower or its Subsidiaries, and to discuss the Borrower's affairs
with any of its directors, officers, employees or agents. The Borrower will
permit the Lender, or its employees, accountants, attorneys or agents, to
examine and inspect any Collateral, other collateral covered by the Security
Documents or any other property of the Borrower or its Subsidiaries at any time
during ordinary business hours.
SECTION 6.3 ACCOUNT VERIFICATION. The Lender may at any time and from
time to time send or require the Borrower to send requests for verification of
accounts or notices of assignment to account debtors and other obligors. The
Lender may also at any time and from time to time telephone account debtors and
other obligors to verify accounts.
SECTION 6.4 COMPLIANCE WITH LAWS.
(a) The Borrower will (i) comply with, and cause its
Subsidiaries to comply with, the requirements of applicable laws and
regulations, the non-compliance with which would materially and adversely affect
its or their business or its or their financial condition and (ii) use and keep
the Collateral, and require that others use and keep the Collateral, only for
lawful purposes, without violation of any federal, state or local law, statute
or ordinance.
(b) Without limiting the foregoing undertakings, the
Borrower specifically agrees that it will comply with, and cause its
Subsidiaries to comply with, all applicable Environmental Laws and obtain and
comply with all permits, licenses and similar approvals required by any
Environmental Laws, and Borrower will not, nor will it permit its Subsidiaries
to, generate, use, transport, treat, store or dispose of any Hazardous
Substances in such a manner as to create any liability or obligation under the
common law of any jurisdiction or any Environmental Law.
(c) The Borrower will comply with the reporting
requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, as
amended (the "1934 Act"), so long as it is required to do so pursuant to the
1934 Act. Until the earlier of (i) two years from the issuance date of the
Warrant, or (ii) the sale by Lender of all of the securities to be issued under
the Warrant and the termination of the Warrant, the Borrower shall comply with
the disclosure obligations set forth Paragraph (c) of Rule 144 promulgated under
the Securities Act of 1933, as amended ("Rule 144"), or any successor rule or
regulation thereto or any statute hereafter adopted to replace or establish the
exemption that is now covered by Rule 144.
SECTION 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower and its
Subsidiaries will pay or discharge, when due, (a) all taxes, assessments and
governmental charges levied or imposed upon it or upon its income or profits,
upon any properties belonging to it (including, without limitation, the
Collateral) or upon or against the creation, perfection or continuance of the
Security Interest, prior to the date on which penalties attach thereto, (b) all
federal, state and local taxes required to be withheld by it, and (c) all lawful
claims for labor, materials and supplies which, if unpaid, might by law become a
lien or charge upon any properties of the Borrower or its Subsidiaries;
provided, that neither the Borrower nor its Subsidiaries shall be required to
pay any such tax, assessment, charge or claim whose amount, applicability or
validity is being contested in good faith by appropriate proceedings and for
which proper reserves have been made.
SECTION 6.6 MAINTENANCE OF PROPERTIES.
(a) The Borrower will keep and maintain the
Collateral, the other collateral covered by the Security Documents and all of
its other properties necessary or useful in its business in good condition,
repair and working order (normal wear and tear excepted) and will from time to
time replace or repair any worn, defective or broken parts; provided, however,
that nothing in this Section 6.6 shall prevent the Borrower from discontinuing
the operation and maintenance of any of its properties if such discontinuance
is, in the Lender's reasonable judgment, desirable in the conduct of the
Borrower's business and not disadvantageous in any material respect to the
Lender.
(b) The Borrower will defend the Collateral against
all claims or demands of all persons (other than the Lender) claiming the
Collateral or any interest therein.
(c) The Borrower will keep all Collateral and other
collateral covered by the Security Documents free and clear of all security
interests, liens and encumbrances except Permitted Liens.
SECTION 6.7 INSURANCE. The Borrower and its Subsidiaries will obtain
and at all times maintain insurance with insurers believed by the Borrower to be
responsible and reputable, in such amounts and against such risks as may from
time to time be required by the Lender, but in all events in such amounts and
against such risks as is usually carried by companies engaged in similar
business and owning similar properties in the same general areas in which the
Borrower operates. Without limiting the generality of the foregoing, the
Borrower and its Subsidiaries will at all times maintain business interruption
insurance including coverage for force majeure and keep all tangible Collateral
insured against risks of fire (including so-called extended coverage), theft,
collision (for Collateral consisting of motor vehicles) and such other risks and
in such amounts as the Lender may reasonably request, with any loss payable to
the Lender to the extent of its interest, and all policies of such insurance
shall contain a lender's loss payable endorsement for the Lender's benefit
acceptable to the Lender. All policies of liability insurance required hereunder
shall name the Lender as an additional insured.
SECTION 6.8 PRESERVATION OF EXISTENCE. The Borrower and its
Subsidiaries will preserve and maintain their existence and all of their rights,
privileges and franchises necessary or desirable in the normal conduct of their
business and shall conduct their business in an orderly, efficient and regular
manner.
SECTION 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender,
the Borrower will promptly deliver to the Lender in pledge all instruments,
documents and chattel papers constituting Collateral, duly endorsed or assigned
by the Borrower.
SECTION 6.10 COLLATERAL ACCOUNT.
(a) If, notwithstanding the instructions to debtors
to make payments to the Lockbox, the Borrower receives any payments on
Receivables, the Borrower shall deposit such payments into the Collateral
Account. Until so deposited, the Borrower shall hold all such payments in trust
for and as the property of the Lender and shall not commingle such payments with
any of its other funds or property.
(b) Amounts deposited in the Collateral Account shall
not bear interest and shall not be subject to withdrawal by the Borrower, except
after full payment and discharge of all Obligations.
(c) All deposits in the Collateral Account shall
constitute proceeds of Collateral and shall not constitute payment of the
Obligations. Subject to Section 2.9 and provided that no Default or Event of
Default has occurred and is continuing, after confirmation of good, collected
funds, the Lender shall apply deposited funds in the Collateral Account to the
payment of the Obligations in the following order by transferring such funds to
the Lender's general account: first, to outstanding charges due under the Credit
Facilities; second, to accrued and unpaid interest then due and payable on the
Revolving Advances; third; to the principal installment payments and accrued and
unpaid interest then due and payable under the Term Loan; and fourth, to the
principal amount of the Revolving Advances. Any remaining funds in the
Collateral Account shall be transferred to Borrower's general account. During
the continuance of a Default or Event of Default, after confirmation of good,
collected funds, the Lender may hold all funds in the Collateral Account as
additional security for the Obligations and/or may apply deposited funds in the
Collateral Account to the payment of the Obligations by transferring such funds
to the Lender's general account in such order and in such amounts as the Lender,
in its discretion, may from time to time determine.
(d) All items deposited in the Collateral Account
shall be subject to final payment. If any such item is returned uncollected, the
Borrower will immediately pay the Lender, or, for items deposited in the
Collateral Account, the bank maintaining such account, the amount of that item,
or such bank at its discretion may charge any uncollected item to the Borrower's
commercial account or other account. The Borrower shall be liable as an endorser
on all items deposited in the Collateral Account, whether or not in fact
endorsed by the Borrower.
SECTION 6.11 INTENTIONALLY DELETED
SECTION 6.12 PERFORMANCE BY THE LENDER. Without limiting Lender's
remedies in Section 8.2, if the Borrower at any time fails to perform or observe
any of the foregoing covenants contained in this Article 6 or elsewhere herein,
and if such failure shall continue for a period of thirty (30) calendar days
after the Lender gives the Borrower written notice thereof (or in the case of
the agreements contained in Sections 6.4, 6.5, 6.6, 6.7 and 6.10, immediately
upon the occurrence of such failure, without notice or lapse of time), the
Lender may, but need not, perform or observe such covenant on behalf and in the
name, place and stead of the Borrower (or, at the Lender's option, in the
Lender's name) and may, but need not, take any and all other actions which the
Lender may reasonably deem necessary to cure or correct such failure (including,
without limitation, the payment of taxes, the satisfaction of security
interests, liens or encumbrances, the performance of obligations owed to account
debtors or other obligors, the procurement and maintenance of insurance, the
execution of assignments, security agreements and financing statements, and the
endorsement of instruments); and the Borrower shall thereupon pay to the Lender
on demand the amount of all monies expended and all costs and expenses
(including reasonable attorneys' fees and legal expenses) incurred by the Lender
in connection with or as a result of the performance or observance of such
agreements or the taking of such action by the Lender, together with interest
thereon from the date expended or incurred at the Term Loan Rate. To facilitate
the Lender's performance or observance of such covenants of the Borrower, the
Borrower hereby irrevocably appoints the Lender, or the Lender's delegate,
acting alone, as the Borrower's attorney in fact (which appointment is coupled
with an interest) with the right (but not the duty) from time to time to create,
prepare, complete, execute, deliver, endorse or file in the name and on behalf
of the Borrower any and all instruments, documents, assignments, security
agreements, financing statements, applications for insurance and other
agreements and writings required to be obtained, executed, delivered or endorsed
by the Borrower under this Section 6.12.
SECTION 6.13 YEAR 2000 COMPLIANCE. Borrower will diligently and
continuously comply with the disclosure obligations, and update requirements
with respect to material changes in the Borrower's Year 2000 issues, pursuant to
the SEC Year 2000 Release. Borrower and its Subsidiaries will continue to follow
their Year 2000 Compliance Plan, and promptly notify Lender of any amendments
thereto. Borrower and its Subsidiaries shall promptly notify Lender of (1) any
material non-compliance with its Year 2000 Compliance Plan; (2) any material
negative testing of its hardware or software systems; (3) any third party
providing services or materials to Borrower or its Subsidiaries that are
material to Borrower or its Subsidiaries and is either not Year 2000 Compliant
or Borrower reasonably believes is not or will not be Year 2000 compliant; or
(4) any other matters that Borrower is required to disclose regarding Year 2000
issues under the SEC Year 2000 Release. Borrower shall promptly provide such
additional information as Lender shall reasonably request concerning Borrower's
Year 2000 Compliance Plan. In addition, Borrower and its Subsidiaries shall give
representatives of Lender access during all business hours to, and permit such
representatives to examine, copy, any and all books, records and documents in
possession of Borrower relating to Year 2000 compliance and to permit Lender or
its representatives to project test all computer systems of Borrower and its
Subsidiaries to determine if they are Year 2000 Compliant in an integrated
environment, all at the sole cost and expense of Borrower.
SECTION 6.14 MINIMUM DEBT SERVICE COVERAGE RATIO. The Borrower and its
Subsidiaries (including La Cometa Properties, Inc.), on a consolidated basis,
will maintain a Debt Service Coverage Ratio of not less than 0.50:1.00 for the
four-quarter period ending December 31, 1998, determined as of December 31,
1998; a Debt Service Coverage Ratio of not less than 1.00:1.00 for the
one-quarter period ending March 31, 1999, determined as of March 31, 1999; a
Debt Service Coverage Ratio of not less than 1.00:1.00 for the two-quarter
period ending June 30, 1999, determined as of June 30, 1999; a Debt Service
Coverage Ratio of not less than 1.00:1.00 for the three-quarter period ending
September 30, 1999; a Debt Service Coverage Ratio of not less than 1.00:1.00 for
the four-quarter period ending December 31, 1999; and a Debt Service Coverage
Ratio of not less than 1.00:1.00, determined as of the end of each fiscal
quarter thereafter for the immediately preceding four-quarter period.
SECTION 6.15 MINIMUM NET INCOME OR MAXIMUM NET LOSS FROM ORDINARY
OPERATIONS. The Borrower's and its Subsidiaries' (including La Cometa
Properties, Inc.) Net Income or Net Loss, as the case may be, on a consolidated
basis, determined as of the end of each fiscal quarter for such fiscal quarter,
shall not be less than or more than the following:
- ---------------------------------------- ----------------------------------
Quarter Ending Net Income or Net Loss
- -------------- ----------------------
- ---------------------------------------- ----------------------------------
12/31/98 ($50,000)
- ---------------------------------------- ----------------------------------
3/31/99 $50,000
- ---------------------------------------- ----------------------------------
6/30/99 $50,000
- ---------------------------------------- ----------------------------------
9/30/99 $50,000
- ---------------------------------------- ----------------------------------
12/31/99 $50,000
- ---------------------------------------- ----------------------------------
and each quarter thereafter $50,000
- ---------------------------------------- ----------------------------------
and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.)
Net Income or Net Loss, as the case may be, on a consolidated basis, determined
as of the end of each fiscal year for such fiscal year, shall not be less than
or more than the following:
- ---------------------------------------- ----------------------------------
Year Ending Net Income
----------- ----------
- ---------------------------------------- ----------------------------------
12/31/98 ($780,000)
- ---------------------------------------- ----------------------------------
12/31/99 $200,000
- ---------------------------------------- ----------------------------------
and each fiscal year thereafter $200,000
- ---------------------------------------- ----------------------------------
and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.)
Net Loss, on a consolidated basis, shall not be more than $50,000, determined as
of the end of any fiscal month, for such fiscal month, and the Borrower's and
its Subsidiaries' (including La Cometa Properties, Inc.) Net Loss, on a
consolidated basis, shall not be more than $75,000 in the aggregate, determined
as of the end of any fiscal month, for the immediately preceding two fiscal
months.
SECTION 6.16 MINIMUM BOOK NET WORTH INCREASE. The Borrower's
and its Subsidiaries' (including La Cometa Properties, Inc.) Book Net Worth, on
a consolidated basis, determined as of the end of each such period, shall have
increased from the Borrower's and its Subsidiaries' (including La Cometa
Properties, Inc.) Book Net Worth, on a consolidated basis, determined as of the
end of the immediately preceding period, by the amount set forth opposite such
period:
- ------------------------------------- ---------------------------------------
Quarter Ending Increase in Book Net Worth from Prior
- -------------- -------------------------------------
Fiscal Quarter End
------------------
- ------------------------------------- ---------------------------------------
3/31/99 $50,000
- ------------------------------------- ---------------------------------------
6/30/99 $50,000
- ------------------------------------- ---------------------------------------
9/30/99 $50,000
- ------------------------------------- ---------------------------------------
12/31/99 $50,000
- ------------------------------------- ---------------------------------------
and each fiscal quarter thereafter $50,000
- ------------------------------------- ---------------------------------------
and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.)
Book Net Worth, on a consolidated basis, determined as of the end of each fiscal
year, shall have increased from the Borrower's and its Subsidiaries' (including
La Cometa Properties, Inc.) Book Net Worth, on a consolidated basis, determined
as of the end of the immediately preceding fiscal year, by the amount set forth
opposite such period (or in the case of December 31, 1998, shall not have
decreased by more than the amount set forth opposite such period):
- ------------------------------------- ---------------------------------------
Fiscal Year Ending Increase (or Decrease) in Book Net
- ------------------ ----------------------------------
Worth from Prior Fiscal Year End
--------------------------------
- ------------------------------------- ---------------------------------------
12/31/98 ($780,000)
- ------------------------------------- ---------------------------------------
12/31/99 $200,000
- ------------------------------------- ---------------------------------------
and each fiscal year thereafter $200,000
- ------------------------------------- ---------------------------------------
ARTICLE 7
NEGATIVE COVENANTS
So long as the Obligations shall remain unpaid, or either Credit
Facility shall remain outstanding, the Borrower agrees that, without the
Lender's prior written consent:
SECTION 7.1 LIENS. The Borrower will not create, incur or suffer to
exist any mortgage, deed of trust, pledge, lien, security interest, assignment
or transfer upon or of any of its assets, now owned or hereafter acquired, to
secure any indebtedness; excluding, however, from the operation of the
foregoing, the following (collectively, "Permitted Liens"):
(a) in the case of any of the Borrower's property
which is not Collateral or other collateral described in the Security Documents,
covenants, restrictions, rights, easements and minor irregularities in title
which do not materially interfere with the Borrower's business or operations as
presently conducted;
(b) mortgages, deeds of trust, pledges, liens,
security interests and assignments in existence on the date hereof and listed in
Schedule 7.1 hereto, securing indebtedness for borrowed money permitted under
Section 7.2;
(c) the Security Interest and liens and security
interests created by the Security Documents; and
(d) purchase money security interests relating to the
acquisition of machinery and equipment of the Borrower not exceeding the cost or
fair market value thereof and so long as no Default Period is then in existence
and none would exist immediately after such acquisition.
SECTION 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume
or permit to exist any indebtedness or liability on account of deposits or
advances or any indebtedness for borrowed money or letters of credit issued on
the Borrower's behalf, or any other indebtedness or liability evidenced by
notes, bonds, debentures or similar obligations, except:
(a) indebtedness arising hereunder;
(b) indebtedness of the Borrower in existence on the
date hereof and listed in Schedule 7.2 hereto; and
(c) indebtedness relating to liens permitted in
accordance with Section 7.1.
SECTION 7.3 GUARANTIES. The Borrower will not assume, guarantee,
endorse or otherwise become directly or contingently liable in connection with
any obligations of any other Person, except:
(a) the endorsement of negotiable instruments by the
Borrower for deposit or collection or similar transactions in the ordinary
course of business;
(b) guarantees of indebtedness intended to be
incurred for normal and customary business purposes by the Borrower's executive
officers, such as company-issued credit cards, telephone calling cards, cellular
phone service charges or the like; and
(c) guaranties, endorsements and other direct or
contingent liabilities in connection with the obligations of other Persons, in
existence on the date hereof and listed in Schedule 7.2 hereto.
SECTION 7.4 INVESTMENTS AND SUBSIDIARIES.
(a) The Borrower will not purchase or hold
beneficially any stock or other securities or evidences of indebtedness of, make
or permit to exist any loans or advances to, or make any investment or acquire
any interest whatsoever in, any other Person, including specifically but without
limitation any partnership or joint venture, except:
(i) investments in direct obligations of the
United States of America or any agency or instrumentality thereof whose
obligations constitute full faith and credit obligations of the United States of
America having a maturity of one year or less, commercial paper issued by U.S.
corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or
"P-2" by Moody's Investors Service or certificates of deposit or bankers'
acceptances having a maturity of one year or less issued by members of the
Federal Reserve System having deposits in excess of $100,000,000 (which
certificates of deposit or bankers' acceptances are fully insured by the Federal
Deposit Insurance Corporation);
(ii) travel advances or loans to the
Borrower's officers and employees not exceeding at any one time an aggregate of
$15,000; and
(iii) advances in the form of progress
payments, prepaid rent not exceeding one month or security deposits not
exceeding one month's rent.
(b) The Borrower will not create or permit to exist
any new Subsidiaries and will not conduct any business in or through Poore
Brothers Southeast, Inc. or Poore Brothers Texas, Inc.
SECTION 7.5 DIVIDENDS AND VOLUNTARY REDEMPTION PAYMENTS. The Borrower
will not declare or pay any dividends (other than dividends payable solely in
stock of the Borrower) on any class of its stock or make any payment on account
of the purchase, redemption or other retirement of any shares of such stock or
make any distribution in respect thereof, either directly or indirectly, or give
notice of, or directly or indirectly make, any voluntary principal redemption
payment to any Debenture Holder, except that any Subsidiary may declare and pay
dividends or make other distributions to any Borrower, and (ii) Borrower may
repurchase stock or options from former directors, officers and employees (or
their legal representatives) in the ordinary course of business in accordance
with any stock option plan, stock repurchase agreement, employment agreement or
similar agreement existing as of the date of this Agreement, provided that at
the time of such repurchase and immediately after giving effect to such
repurchase no Default or Event of Default shall have occurred and be continuing.
SECTION 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS
OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise
dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of
its assets, or (iii) any Collateral or any interest therein (whether in one
transaction or in a series of transactions) to any other Person other than the
sale of Inventory in the ordinary course of business and the annual aggregate
sale of not more than $25,000 of excess or obsolete equipment not required for
the continuation of Borrower's business to bona fide third party purchasers in
an arm's length transactions, and Borrower will not liquidate, dissolve or
suspend business operations. The Borrower will not in any manner transfer any
property without prior or present receipt of full and adequate consideration.
SECTION 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower
will not consolidate with or merge into any Person, or permit any other Person
to merge into it, or acquire (in a transaction analogous in purpose or effect to
a consolidation or merger) all or substantially all the assets of any other
Person, except for the transactions contemplated by the Asset Purchase
Agreement.
SECTION 7.8 SALE AND LEASEBACK. The Borrower will not enter into any
arrangement, directly or indirectly, with any other Person whereby the Borrower
shall sell or transfer any real or personal property, whether now owned or
hereafter acquired, and then or thereafter rent or lease as lessee such property
or any part thereof or any other property which the Borrower intends to use for
substantially the same purpose or purposes as the property being sold or
transferred, except for the sale and leaseback of equipment occurring within
thirty (30) days after Borrower's purchase of such equipment.
SECTION 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not
engage in any line of business other than the manufacturing and distribution of
salted snack foods, and Borrower will not purchase, lease or otherwise acquire
assets not related to its business.
SECTION 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or
contract to incur total Capital Expenditures (including Unfinanced Capital
Expenditures) of more than $250,000 in the aggregate during any fiscal year or
Unfinanced Capital Expenditures of more than $200,000 in the aggregate during
any fiscal year.
SECTION 7.11 ACCOUNTING. The Borrower will not adopt any material
change in accounting principles other than as required by GAAP, provided that
Borrower may adopt changes in its accounting principles permitted by GAAP so
long as such changes, either individually or in the aggregate, do not have a
material effect on the measurement of the financial covenants in this Agreement
and the comparison of such financial covenants to periods prior to such changes.
The Borrower will not adopt, permit or consent to any change in its fiscal year.
SECTION 7.12 DISCOUNTS, ETC. The Borrower will not, after notice from
the Lender, grant any discount, credit or allowance to any customer of the
Borrower or accept any return of goods sold, or at any time (whether before or
after notice from the Lender) modify, amend, subordinate, cancel or terminate
the obligation of any account debtor or other obligor of the Borrower.
SECTION 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not
adopt, create, assume or become a party to any defined benefit pension plan,
unless disclosed to the Lender pursuant to Section 5.10.
SECTION 7.14 OTHER DEFAULTS. The Borrower will not permit any breach,
default or event of default to continue beyond the expiration of the applicable
period of grace, if any, specified under any note, loan agreement, indenture,
lease, mortgage, contract for deed, security agreement or other contractual
obligation binding upon the Borrower.
SECTION 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer
its chief executive office or principal place of business, or move, relocate,
close or sell any business location. The Borrower will not permit any tangible
Collateral or any records pertaining to the Collateral to be located in any
state or area in which, in the event of such location, a financing statement
covering such Collateral would be required to be, but has not in fact been,
filed in order to perfect the Security Interest. The Borrower will not change
its name.
SECTION 7.16 ORGANIZATIONAL DOCUMENTS; C CORPORATION STATUS. The
Borrower will not amend its certificate of incorporation, articles of
incorporation or bylaws, except for non-material changes or changes required by
applicable law. The Borrower shall not change or rescind its status as a C
Corporation.
SECTION 7.17 SALARIES. The Borrower will not pay excessive or
unreasonable salaries, bonuses, commissions, consultant fees or other
compensation; or increase the salary, bonus, commissions, consultant fees or
other compensation of any director, officer or consultant, or any member of
their families, by more than 20% in any one year, either individually or for all
such persons in the aggregate, or pay any such increase from any source other
than profits earned in the year of payment. Borrower may issue stock options to
any director, officer or consultant pursuant to a duly instituted stock option
plan and provided that Borrower reserves sufficient shares for such options.
ARTICLE 8
EVENTS OF DEFAULT, RIGHTS AND REMEDIES
SECTION 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used
herein, means any one of the following events:
(a) Default in the payment of the Obligations when
they become due and payable;
(b) Default in the payment of any fees, commissions,
costs or expenses required to be paid by the Borrower under this Agreement;
(c) Default in the performance, or breach, of any
covenant or agreement of the Borrower contained in this Agreement;
(d) The Borrower or any Subsidiary, guarantor, surety
or accommodation party shall be or become insolvent, or admit in writing its or
his inability to pay its or his debts as they mature, or make an assignment for
the benefit of creditors; or the Borrower or any Subsidiary, guarantor, surety
or accommodation party shall apply for or consent to the appointment of any
receiver, trustee, or similar officer for it or him or for all or any
substantial part of its or his property; or such receiver, trustee or similar
officer shall be appointed without the application or consent of the Borrower or
such Subsidiary, guarantor, surety or accommodation party, as the case may be;
or the Borrower or any Subsidiary, guarantor, surety or accommodation party
shall institute (by petition, application, answer, consent or otherwise) any
bankruptcy, insolvency, reorganization, arrangement, readjustment of debt,
dissolution, liquidation or similar proceeding relating to it or him under the
laws of any jurisdiction; or any such proceeding shall be instituted (by
petition, application or otherwise) against the Borrower or any such Subsidiary,
guarantor, surety or accommodation party; or any judgment, writ, warrant of
attachment or execution or similar process shall be issued or levied against a
substantial part of the property of the Borrower or any Subsidiary, guarantor,
surety or accommodation party;
(e) The occurrence of a Change of Control;
(f) Any representation or warranty made by the
Borrower in this Agreement, by any guarantor, surety or accommodation party in
any guaranty delivered to the Lender, or by the Borrower (or any of its
officers) or any Subsidiary, guarantor, surety or accommodation party in any
agreement, certificate, instrument or financial statement or other statement
contemplated by or made or delivered pursuant to or in connection with this
Agreement or any such guaranty shall prove to have been incorrect in any
material respect when deemed to be effective;
(g) The rendering against the Borrower or any
Subsidiary of a final judgment, decree or order for the payment of money in
excess of $25,000 and the continuance of such judgment, decree or order
unsatisfied and in effect for any period of 30 consecutive days without a stay
of execution;
(h) A default under any bond, debenture, convertible
debenture, note or other evidence of indebtedness of the Borrower or any
Subsidiary owed to any Person other than the Lender, or under any indenture or
other instrument under which any such evidence of indebtedness has been issued
or by which it is governed, or under any lease of any of the Premises, or under
any material license, contract, warrant or other agreement, and the expiration
of the applicable period of grace, if any, specified in such evidence of
indebtedness, indenture, other instrument, lease, material license, contract,
warrant or other agreement;
(i) Any Reportable Event, which the Lender determines
in good faith might constitute grounds for the termination of any Plan or for
the appointment by the appropriate United States District Court of a trustee to
administer any Plan, shall have occurred and be continuing 30 days after written
notice to such effect shall have been given to the Borrower by the Lender; or a
trustee shall have been appointed by an appropriate United States District Court
to administer any Plan; or the Pension Benefit Guaranty Corporation shall have
instituted proceedings to terminate any Plan or to appoint a trustee to
administer any Plan; or the Borrower shall have filed for a distress termination
of any Plan under Title IV of ERISA; or the Borrower shall have failed to make
any quarterly contribution required with respect to any Plan under Section
412(m) of the Internal Revenue Code of 1986, as amended, which the Lender
determines in good faith may by itself, or in combination with any such failures
that the Lender may determine are likely to occur in the future, result in the
imposition of a lien on the Borrower's assets in favor of the Plan;
(j) An event of default shall occur under any Loan
Document or under any other security agreement, mortgage, deed of trust,
assignment or other instrument or agreement securing the Borrower's Obligations
hereunder;
(k) The Borrower or any Subsidiary shall liquidate,
dissolve, terminate or suspend its business operations or otherwise fail to
operate its business in the ordinary course, or sell all or substantially all of
its assets, without the Lender's prior written consent;
(l) The Borrower or any Subsidiary shall fail to pay,
withhold, collect or remit any tax or tax deficiency when assessed or due (other
than any tax deficiency which is being contested in good faith and by proper
proceedings and for which it shall have set aside on its books adequate reserves
therefor) or notice of any state or federal tax liens shall be filed or issued;
(m) Default in the payment of any amount owed by the
Borrower to the Lender other than any indebtedness arising hereunder;
(n) Any Subsidiary, guarantor, surety or
accommodation party shall repudiate, purport to revoke or fail to perform any
such Subsidiary's, guarantor's, surety's or accommodation party's obligations
under any agreement in favor of the Lender, any individual guarantor, surety or
accommodation party shall die or any other guarantor, surety or accommodation
party shall cease to exist;
(o) The Borrower shall take or participate in any
action which would be prohibited under the provisions of any Subordination
Agreement or make any payment on the Subordinated Debt that any Person was not
entitled to receive under the provisions of the Subordination Agreement, or
Borrower shall take or participate in any action which would be prohibited under
the provisions of the Intercreditor Agreement, or give notice of, or directly or
indirectly make, any voluntary principal redemption payment to any Debenture
Holder or directly or indirectly make any mandatory principal redemption
installment payment to any Debenture Holder before its due date; or
(p) Any breach, default or event of default by or
attributable to any Affiliate under any agreement between such Affiliate and the
Lender.
SECTION 8.2 RIGHTS AND REMEDIES. During any Default Period, the Lender
may exercise any or all of the following rights and remedies:
(a) the Lender may, by notice to the Borrower,
declare the Commitment to be terminated, whereupon the same shall forthwith
terminate;
(b) the Lender may, by notice to the Borrower,
declare the Obligations to be forthwith due and payable, whereupon all
Obligations shall become and be forthwith due and payable, without presentment,
notice of dishonor, protest or further notice of any kind, all of which the
Borrower hereby expressly waives;
(c) the Lender may, without notice to the Borrower
and without further action, apply any and all money owing by the Lender to the
Borrower to the payment of the Obligations;
(d) the Lender may exercise and enforce any and all
rights and remedies available upon default to a secured party under the UCC,
including, without limitation, the right to take possession of Collateral, or
any evidence thereof, proceeding without judicial process or by judicial process
(without a prior hearing or notice thereof, which the Borrower hereby expressly
waives) and the right to sell, lease or otherwise dispose of any or all of the
Collateral, and, in connection therewith, the Borrower will on demand assemble
the Collateral and make it available to the Lender at a place to be designated
by the Lender which is reasonably convenient to both parties;
(e) the Lender may exercise and enforce its rights
and remedies under the Loan Documents; and
(f) the Lender may exercise any other rights and
remedies available to it by law or agreement.
Notwithstanding the foregoing, upon the occurrence of an Event of Default
described in Sections 8.1(d) or (e), the Obligations shall be immediately due
and payable automatically without presentment, demand, protest or notice of any
kind.
SECTION 8.3 CERTAIN NOTICES. If notice to the Borrower of any intended
disposition of Collateral or any other intended action is required by law in a
particular instance, such notice shall be deemed commercially reasonable if
given (in the manner specified in Section 9.3) at least ten calendar days before
the date of intended disposition or other action.
ARTICLE 9
MISCELLANEOUS
SECTION 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by the
Lender in exercising any right, power or remedy under the Loan Documents shall
operate as a waiver thereof; nor shall any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy under the Loan Documents. The
remedies provided in the Loan Documents are cumulative and not exclusive of any
remedies provided by law.
SECTION 9.2 AMENDMENTS, ETC. No amendment, modification, termination or
waiver of any provision of any Loan Document or consent to any departure by the
Borrower therefrom or any release of a Security Interest shall be effective
unless the same shall be in writing and signed by the Lender, and then such
waiver or consent shall be effective only in the specific instance and for the
specific purpose for which given. No notice to or demand on the Borrower in any
case shall entitle the Borrower to any other or further notice or demand in
similar or other circumstances.
SECTION 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly
provided herein, all notices, requests, demands and other communications
provided for under the Loan Documents shall be in writing and shall be (a)
personally delivered, (b) sent by first class United States mail, (c) sent by
overnight courier of national reputation, or (d) transmitted by telecopy, in
each case addressed or telecopied to the party to whom notice is being given at
its address or telecopier number as set forth below:
If to the Borrower:
Poore Brothers, Inc.
3500 South La Cometa
Goodyear, AZ 85338
Telecopier: (602) 925-2363
Attention: Mr. Thomas Freeze,
Vice President and Chief Financial Officer
If to the Lender:
Norwest Business Credit, Inc.
3003 North Central Avenue, 5th Floor
M.S. 9025
Phoenix, AZ 85012-2501
Telecopier: (602) 263-6215
Attention: Ms. Darcy Della Flora
or, as to each party, at such other address or telecopier number as may
hereafter be designated by such party in a written notice to the other party
complying as to delivery with the terms of this Section. All such notices,
requests, demands and other communications shall be deemed to have been given on
(a) the date received if personally delivered, (b) when deposited in the mail if
delivered by mail, (c) the date sent if sent by overnight courier, or (d) the
date of transmission if delivered by telecopy, except that notices or requests
to the Lender pursuant to any of the provisions of Article 2 shall not be
effective until received by the Lender.
SECTION 9.4 INTENTIONALLY DELETED
SECTION 9.5 FURTHER DOCUMENTS. The Borrower will from time to time
execute and deliver or endorse any and all instruments, documents, conveyances,
assignments, security agreements, financing statements and other agreements and
writings that the Lender may reasonably request in order to secure, protect,
perfect or enforce the Security Interest or the Lender's rights under the Loan
Documents (but any failure to request or assure that the Borrower executes,
delivers or endorses any such item shall not affect or impair the validity,
sufficiency or enforceability of the Loan Documents and the Security Interest,
regardless of whether any such item was or was not executed, delivered or
endorsed in a similar context or on a prior occasion).
SECTION 9.6 COLLATERAL. This Agreement does not contemplate a sale of
accounts, contract rights or chattel paper, and, as provided by law, the
Borrower is entitled to any surplus and shall remain liable for any deficiency.
The Lender's duty of care with respect to Collateral in its possession (as
imposed by law) shall be deemed fulfilled if it exercises reasonable care in
physically keeping such Collateral, or in the case of Collateral in the custody
or possession of a bailee or other third person, exercises reasonable care in
the selection of the bailee or other third person, and the Lender need not
otherwise preserve, protect, insure or care for any Collateral. The Lender shall
not be obligated to preserve any rights the Borrower may have against prior
parties, to realize on the Collateral at all or in any particular manner or
order or to apply any cash proceeds of the Collateral in any particular order of
application.
SECTION 9.7 COSTS AND EXPENSES. The Borrower agrees to pay on demand
all costs and expenses, including (without limitation) attorneys' fees, incurred
by the Lender in connection with the Obligations, this Agreement, the Loan
Documents, and any other document or agreement related hereto or thereto, and
the transactions contemplated hereby, including without limitation all such
costs, expenses and fees incurred in connection with the negotiation,
preparation, execution, amendment, administration, performance, collection and
enforcement of the Obligations and all such documents and agreements and the
creation, perfection, protection, satisfaction, foreclosure or enforcement of
the Security Interest.
SECTION 9.8 INDEMNITY. In addition to the payment of expenses pursuant
to Section 9.7, the Borrower agrees to indemnify, defend and hold harmless the
Lender, and any of its participants, parent corporations, subsidiary
corporations, affiliated corporations, successor corporations, and all present
and future officers, directors, employees, attorneys and agents of the foregoing
(the "Indemnitees") from and against any of the following, unless caused solely
by the gross negligence or willful malfeasance of any Indemnitee (collectively,
"Indemnified Liabilities"):
(a) any and all transfer taxes, documentary taxes,
assessments or charges made by any governmental authority by reason of the
execution and delivery of the Loan Documents or the making of the Advances;
(b) any and all liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel) to which any Indemnitee may be subjected under Environmental Laws in
any manner related to or arising out of or in connection with the transactions
contemplated under this Agreement; and
(c) any and all other liabilities, losses, damages,
penalties, judgments, suits, claims, costs and expenses of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel) in connection with the foregoing and any other investigative,
administrative or judicial proceedings, whether or not such Indemnitee shall be
designated a party thereto, which may be imposed on, incurred by or asserted
against any such Indemnitee, in any manner related to or arising out of or in
connection with the making of the Advances and the Loan Documents or the use or
intended use of the proceeds of the Advances.
If any investigative, judicial or administrative proceeding arising from any of
the foregoing is brought against any Indemnitee, upon such Indemnitee's request,
the Borrower, or counsel designated by the Borrower and satisfactory to the
Indemnitee, will resist and defend such action, suit or proceeding to the extent
and in the manner directed by the Indemnitee, at the Borrower's sole costs and
expense. Each Indemnitee will use its best efforts to cooperate in the defense
of any such action, suit or proceeding. If the foregoing undertaking to
indemnify, defend and hold harmless may be held to be unenforceable because it
violates any law or public policy, the Borrower shall nevertheless make the
maximum contribution to the payment and satisfaction of each of the Indemnified
Liabilities which is permissible under applicable law. The Borrower's obligation
under this Section 9.8 shall survive the termination of this Agreement and the
discharge of the Borrower's other obligations hereunder. BORROWER UNDERSTANDS
AND IT IS THE INTENT OF BORROWER AND THE INDEMNITEES THAT THE INDEMNITY
OBLIGATIONS IN THIS PARAGRAPH INCLUDE ANY CLAIMS RELATING IN ANY WAY TO THE
NEGLIGENCE OF THE INDEMNITEE.
SECTION 9.9 PARTICIPANTS. The Lender and its participants, if any, are
not partners or joint venturers, and the Lender shall not have any liability or
responsibility for any obligation, act or omission of any of its participants.
All rights and powers specifically conferred upon the Lender may be transferred
or delegated to any of the Lender's participants, successors or assigns.
SECTION 9.10 EXECUTION IN COUNTERPARTS. This Agreement and other Loan
Documents may be executed in any number of counterparts, each of which when so
executed and delivered shall be deemed to be an original and all of which
counterparts, taken together, shall constitute but one and the same instrument.
SECTION 9.11 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT; EXCHANGING
INFORMATION. The Loan Documents shall be binding upon and inure to the benefit
of the Borrower and the Lender and their respective successors and assigns,
except that the Borrower shall not have the right to assign its rights
thereunder or any interest therein without the Lender's prior written consent.
Lender will endeavor to provide written notice of any assignment or grant of
participation rights to any Person, but the failure to provide such notice shall
not affect the validity or enforceability of this Agreement or such assignment
or grant of participation rights, except that no assignee or participant may
setoff any liability owed to the Borrower by such assignee or participant unless
and until Borrower receives written notice of such assignment or participation
interest. This Agreement, together with the Loan Documents, comprises the
complete and integrated agreement of the parties on the subject matter hereof
and supersedes all prior agreements, written or oral, on the subject matter
hereof. Without limiting the Lender's right to share information regarding the
Borrower and its Affiliates with the Lender's participants, accountants, lawyers
and other advisors, the Lender, Norwest Corporation, and all direct and indirect
subsidiaries of Norwest Corporation, may exchange any and all information they
may have in their possession regarding the Borrower and its Affiliates, and the
Borrower waives any right of confidentiality it may have with respect to such
exchange of such information.
SECTION 9.12 CONFIDENTIAL INFORMATION. Lender agrees to keep
confidential (and to use its reasonable efforts to cause its respective agents
and representatives to keep confidential) the Confidential Information (as
defined below) and all copies thereof, extracts therefrom and analyses or other
materials based thereon, except that Lender shall be permitted to disclose
Confidential Information (a) to such of its respective officers, directors,
employees, attorneys, accountants, agents, Affiliates and representatives as
need to know such Confidential Information, (b) to the extent requested by any
regulatory authority, (c) to the extent otherwise required by applicable laws
and regulations or by any subpoena or similar legal process, (d) in connection
with any suit, action or proceeding relating to the enforcement of its rights
hereunder or under the other Loan Documents or (e) to the extent such
Confidential Information (i) becomes publicly available other than as a result
of a breach of this Section 9.12 or (ii) becomes available to Lender on a
non-confidential basis from a source other than Borrower. For the purposes of
this Section, "Confidential Information" means all non-public information
relating to the Borrower or its Subsidiaries received from the Borrower or its
attorneys, accountants, officers, directors, employees or agents which are
clearly identified at the time of delivery as confidential. The provisions of
this Section 9.12 shall remain operative and in full force and effect regardless
of the expiration of the term of this Agreement. Lender may, in connection with
any assignment or participation, proposed assignment or participation, or
merger, consolidation or sale involving the Lender or any Affiliate disclose to
such Persons any Confidential Information, provided that Lender advises such
Person of this confidentiality agreement.
SECTION 9.13 SEVERABILITY OF PROVISIONS. Any provision of this
Agreement which is prohibited or unenforceable shall be ineffective to the
extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof.
SECTION 9.14 HEADINGS. Article and Section headings in this Agreement
are included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
SECTION 9.15 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL.
The Loan Documents shall be governed by and construed in accordance with the
substantive laws (other than conflict laws) of the State of Arizona. The parties
hereto hereby (i) consents to the personal jurisdiction of the state and federal
courts located in the State of Arizona in connection with any controversy
related to this Agreement; (ii) waives any argument that venue in any such forum
is not convenient, (iii) agrees that any litigation initiated by the Lender or
the Borrower in connection with this Agreement or the other Loan Documents shall
be venued in either the Superior Court of Maricopa County or the United States
District Court, District of Arizona (Division 1); and (iv) agrees that a final
judgment in any such suit, action or proceeding shall be conclusive and may be
enforced in other jurisdictions by suit on the judgment or in any other manner
provided by law.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
ON OR PERTAINING TO THIS AGREEMENT.
ARTICLE 10
JOINT BORROWER PROVISIONS
SECTION 10.1 RELIANCE ON ACTS OF ANY BORROWER. Lender is entitled to
rely, and shall be exonerated from any liability for relying upon, any request
for a Revolving Advance or similar request made by any Borrower without the need
for any consent or other authorization of any other Borrower and upon any
information or certificate provided on behalf of any Borrower by an officer,
partner, manager or other representative of such Borrower.
SECTION 10.2 SINGLE OBLIGATION. The parties hereto intend that all of
the Obligations shall constitute one indebtedness, and that each Borrower shall
constitute a borrower (and not a guarantor, surety or accommodation party), with
respect to all of the Obligations. In the event that (and only to the extent
that), notwithstanding the contrary intent of the parties, any court of
competent jurisdiction determines that any Borrower is a guarantor, surety or
accommodation party with respect to any portion of the Obligations, or has
granted a lien or security interest on its property to secure the debt of
another, the waivers and other provisions of this Section 10.2 shall apply to
such Borrower in connection with the portion(s) of the Obligations (the
"Guaranteed Obligations") with respect to which such Borrower is held not to be
a borrower.
(a) Each Borrower consents and agrees that Lender
may, at any time and from time to time, agree with any one Borrower, without
notice or demand to any other Borrower, and without affecting the enforceability
of or security for the Guaranteed Obligations under any Loan Document, to:
(i) supplement, modify, amend, extend,
renew, or otherwise change the time for payment or the terms of the Guaranteed
Obligations or any part thereof, including any increase or decrease of the
rate(s) of interest thereon;
(ii) supplement, modify, amend or waive, or
enter into or give any agreement, approval or consent with respect to, the
Guaranteed Obligations or any part thereof or any of the Loan Documents or any
additional security or guaranties, or any condition, covenant, default, remedy,
right, representation or term thereof or thereunder;
(iii) accept new or additional instruments,
documents or agreements relative to any of the Loan Documents or the Guaranteed
Obligations or any part thereof;
(iv) accept partial payments on the
Guaranteed Obligations;
(v) receive and hold additional security or
guaranties for the Guaranteed Obligations or any part thereof;
(vi) release, reconvey, terminate, waive,
abandon, subordinate, exchange, substitute, transfer and enforce any security or
guaranties for the Guaranteed Obligations, and apply any security and direct the
order or manner of sale thereof, in its sole and absolute discretion may
determine;
(vii) release any Person or any guarantor
from any personal liability with respect to the Guaranteed Obligations or any
part thereof;
(viii) settle, release on terms satisfactory
to Lender or by operation of applicable laws or otherwise liquidate or enforce
any Guaranteed Obligations and any security or guaranty therefor in any manner,
consent to the transfer of any security and bid and purchase at any sale; and
(ix) consent to the merger, change or any
other restructuring or termination of the corporate existence of any Borrower or
any other Person, and correspondingly restructure the Guaranteed Obligations,
and any such merger, change, restructuring or termination shall not affect the
liability of any other Borrower or the continuing existence of any Security
Interest securing the Guaranteed Obligations under any Loan Document to which
any such Borrower is a party or the enforceability hereof or thereof with
respect to all or any part of the Guaranteed Obligations.
(b) Upon the occurrence of and during the
continuance of any Event of Default, Lender may enforce each Loan Document
independently as to each Borrower and independently of any other remedy or
security Lender at any time may have or hold in connection with the Guaranteed
Obligations, and it shall not be necessary for Lender to marshal assets in favor
of any Borrower or any other Person or to proceed upon or against and/or exhaust
any other security or remedy before proceeding to enforce such Loan Document.
Each Borrower expressly waives any right to require Lender to marshal assets in
favor of any Borrower or any other Person or to proceed against any other Person
or any Collateral provided by any other Person, and agrees that Lender may
proceed against any Persons and/or Collateral in such order as it shall
determine in its sole and absolute discretion. The Lender may file a separate
action or actions against any Borrower, whether any action is brought or
prosecuted with respect to any other Collateral or against any other Person, or
whether any other Person is joined in any such action or actions. Each Borrower
expressly waives the benefit of any statute(s) of limitations affecting its
liability under the Loan Documents or the enforcement of the Guaranteed
Obligations or any Security Interests created or granted by any Loan Document.
The rights of Lender hereunder and under the Loan Documents shall be reinstated
and revived, and the enforceability of this Agreement and the Loan Documents
shall continue, with respect to any amount at any time paid on account of the
Obligations which thereafter shall be required to be restored or returned by
Lender upon the bankruptcy, insolvency or reorganization of any Borrower or any
other Person, or otherwise, all as though such amount had not been paid. The
enforceability of the Loan Documents at all times shall remain effective as to
each Borrower as to the Guaranteed Obligations of such Borrower even though such
Guaranteed Obligations, including any part thereof, may be or hereafter may
become invalid or otherwise unenforceable as against any other Borrower or any
other Person and whether or not any other Borrower or any other Person shall
have any personal liability with respect thereto.
(c) Each Borrower expressly waives in respect of the
Guaranteed Obligations any and all defenses now or hereafter arising or asserted
by reason of (a) any disability or other defense of any other Borrower or any
other Person with respect to the Guaranteed Obligations, (b) the
unenforceability or invalidity of any security or guaranty for the Guaranteed
Obligations or the lack of perfection or continuing perfection or failure of
priority of any security for the Guaranteed Obligations, (c) the cessation for
any cause whatsoever of the liability of any other Borrower or any other Person
(other than by reason of the full payment and performance of all Obligations),
(d) any failure of Lender to marshal assets in favor of any Borrower or any
other Person, (e) except as otherwise required by law or as provided in any Loan
Document, any failure of Lender to give notice of sale or other disposition of
Collateral to any other Borrower or any other Person or any defect in any notice
that may be given in connection with any sale or disposition of Collateral, (f)
except as otherwise required by law or as provided in any Loan Document, any
failure of Lender to comply with applicable laws in connection with the sale or
other disposition of any Collateral or other security for any Obligation,
including, without limitation, any failure of Lender to conduct a commercially
reasonable sale or other disposition of any Collateral or other security for any
Guaranteed Obligation, (g) any act or omission of Lender or others that directly
or indirectly results in or aids the discharge or release of any other Borrower
or any other Person or any other security or guaranty for the Guaranteed
Obligations by operation of law or otherwise, (h) any law which provides that
the obligation of a surety or guarantor must neither be larger in amount nor in
other respects more burdensome than that of the principal or which reduces a
surety's or guarantor's obligation in proportion to the principal obligation,
(i) any failure of Lender to file or enforce a claim in any bankruptcy or other
proceeding with respect to any Person, (j) the election by Lender in any
bankruptcy proceeding of any Person of the application or non-application of
Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of
credit or the grant of any Security Interest under Section 364 of the United
States Bankruptcy Code, (l) any use of cash collateral under Section 363 of the
United States Bankruptcy Code, (m) any agreement or stipulation with respect to
the provision of adequate protection in any bankruptcy proceeding of any Person,
(n) the avoidance of any Security Interest in favor Lender for any reason, or
(o) any bankruptcy, insolvency, reorganization, arrangement, readjustment of
debt, liquidation or dissolution proceeding commenced by or against any Person,
including any discharge of, or bar or stay against collecting, all or any of the
Guaranteed Obligations (or any interest thereon) in or as a result of any such
proceeding.
(d) Each Borrower waives all rights and defenses
arising out of an election of remedies by Lender, even though that election of
remedies with respect to security for a Guaranteed Obligation, has destroyed
such Borrower's rights of subrogation and reimbursement against the principal.
(e) Notwithstanding anything to the contrary
elsewhere contained herein or in any other Loan Document to which any Borrower
is a party, each Borrower hereby waives with respect to each other Borrower and
its respective successors and assigns (including any surety) and any other party
any and all rights at law or in equity, to subrogation, to reimbursement, to
exoneration, to contribution, to setoff or to any other rights that could accrue
to a surety against a principal, to a guarantor against a maker or obligor, to
an accommodation party against the party accommodated, or to a holder or
transferee against a maker and which each Borrower may have or hereafter acquire
against any other Borrower or any other party in connection with or as a result
of any Borrower's execution, delivery and/or performance of this Agreement or
any other Loan Document to which any such Borrower is a party until payment in
full of all Obligations. Each Borrower agrees that it shall not have or assert
any such rights against any other Borrower or any such Borrower's successors and
assigns or any other Person (including any surety), either directly or as an
attempted setoff to any action commenced against such Borrower by such other
Borrower (as borrower or in any other capacity) or any other Person. Each
Borrower hereby acknowledges and agrees that this waiver is intended to benefit
Lender and shall not limit or otherwise affect any of such Borrower's liability
hereunder, under any other Loan Document to which any Borrower is a party, or
the enforceability hereof or thereof.
(f) Without limiting the generality of the foregoing
and to the extent otherwise applicable, each Borrower hereby waives discharge by
waiving all defenses based on suretyship or impairment of collateral securing
the Guaranteed Obligations and, to the extent permitted by applicable law,
waives the provisions of Arizona Revised Statutes, Sections 12-1566, 12-1641 et
seq., 44-142 and 16 Arizona Revised Statutes, Rules of Civil Procedure, Rule
17(f), and Guarantor agrees that its obligations shall not be affected by any
circumstances, whether or not referred to herein, which might otherwise
constitute a legal or equitable discharge of a guarantor, surety or
accommodation party.
SECTION 10.3 KNOWING WAIVER. Each Borrower warrants and agrees that
each of the waivers and consents set forth herein is made with full knowledge of
its significance and consequences, with the understanding that events giving
rise to any defense waived may diminish, destroy or otherwise adversely affect
rights which each Borrower otherwise may have against each other Borrower,
Lender, or others, or against any Collateral securing the Guaranteed
Obligations. If any of the waivers or consents herein are determined to be
contrary to any applicable law or public policy, such waivers and consents shall
be effective to the maximum extent permitted by law.
SECTION 10.4 INFORMATION. Each Borrower represents and warrants to
Lender that such Borrower has established adequate means of obtaining from each
other Borrower, on a continuing basis, financial and other information
pertaining to the businesses, operations and condition (financial and otherwise)
of each other Borrower and their respective properties, and each Borrower now is
and hereafter will be completely familiar with the businesses, operations and
condition (financial and otherwise) of each other Borrower and its respective
properties. Each Borrower hereby expressly waives and relinquishes any duty on
the part of Lender to disclose to such Borrower any matter, fact or thing
related to the businesses, operations or condition (financial or otherwise) of
any other Borrower or such other Borrower's properties, whether now known or
hereafter known by Lender during the term of this Agreement.
[THE REMAINDER OF THIS PAGE
IS LEFT INTENTIONALLY BLANK]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized as of the date
first above written.
LENDER:
NORWEST BUSINESS CREDIT, INC., a
Minnesota corporation
By:
-------------------------------------
Name: Darcy Della Flora
-----------------------------------
Title: Vice President
----------------------------------
BORROWER:
POORE BROTHERS, INC., a Delaware
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
POORE BROTHERS ARIZONA, INC., an Arizona
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
POORE BROTHERS DISTRIBUTING, INC., an
Arizona corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
TEJAS PB DISTRIBUTING, INC., an Arizona
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
Table of Exhibits and Schedules
Exhibit A Form of Revolving Note
Exhibit B Form of Term Loan Note
Exhibit C Compliance Certificate
Exhibit D Premises
Exhibit E Example Calculation of Term Loan Principal
Payment Increase and Amount
-------------------
Schedule 2.11 Use of Proceeds
Schedule 5.1 Trade Names, Chief Executive Office, Principal
Place of Business, and Locations of Collateral
Schedule 5.4 Subsidiaries
Schedule 7.1 Permitted Liens
Schedule 7.2 Permitted Indebtedness and Guaranties
<PAGE>
Exhibit A to Credit and Security Agreement
REVOLVING NOTE
$2,000,000.00 PHOENIX, ARIZONA
OCTOBER 23, 1998
For value received, the undersigned, POORE BROTHERS, INC., a Delaware
corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE
BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING,
INC., an Arizona corporation (individually and collectively, the "Borrower"),
hereby jointly and severally promise to pay on the Termination Date under the
Credit Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC.,
a Minnesota corporation (the "Lender"), at its main office in Phoenix, Arizona,
or at any other place designated at any time by the holder hereof, in lawful
money of the United States of America and in immediately available funds, the
principal sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) or, if less, the
aggregate unpaid principal amount of all Revolving Advances made by the Lender
to the Borrower under the Credit Agreement, together with interest on the
principal amount hereunder remaining unpaid from time to time, computed on the
basis of the actual number of days elapsed and a 360-day year, from the date
hereof until this Note is fully paid at the rate from time to time in effect
under the Credit and Security Agreement of even date herewith by and between the
Lender and the Borrower (as the same may hereafter be amended, supplemented or
restated from time to time, the "Credit Agreement"). The principal hereof and
interest accruing thereon shall be due and payable as provided in the Credit
Agreement. This Note may be prepaid only in accordance with the Credit
Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Revolving Note referred to in the Credit Agreement. This Note is secured, among
other things, pursuant to the Credit Agreement and the Security Documents, as
therein defined, and may now or hereafter be secured by one or more other
security agreements, mortgages, deeds of trust, assignments or other instruments
or agreements.
The Borrower, jointly and severally, hereby agree to pay all costs of
collection, including attorneys' fees and legal expenses in the event this Note
is not paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
<PAGE>
IN WITNESS WHEREOF, this Note is executed as of the date first above
written.
BORROWER:
POORE BROTHERS, INC., a Delaware
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
POORE BROTHERS ARIZONA, INC., an Arizona
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
POORE BROTHERS DISTRIBUTING, INC., an
Arizona corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
TEJAS PB DISTRIBUTING, INC., an Arizona
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
Exhibit B to Credit and Security Agreement
TERM LOAN NOTE
$500,000.00 PHOENIX, ARIZONA
OCTOBER 23, 1998
For value received, the undersigned, POORE BROTHERS, INC., a Delaware
corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE
BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING,
INC., an Arizona corporation (individually and collectively, the "Borrower"),
hereby jointly and severally promise to pay to the order of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in
Phoenix, Arizona, or at any other place designated at any time by the holder
hereof, in lawful money of the United States of America and in immediately
available funds, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS
($500,000.00), together with interest on the principal amount hereunder
remaining unpaid from time to time, computed on the basis of the actual number
of days elapsed and a 360-day year, from the date hereof until this Note is
fully paid at the rate from time to time in effect under the Credit and Security
Agreement of even date herewith by and between the Lender and the Borrower (as
the same may hereafter be amended, supplemented or restated from time to time,
the "Credit Agreement"). The principal hereof and interest accruing thereon
shall be due and payable as provided in the Credit Agreement. This Note may be
prepaid only in accordance with the Credit Agreement.
This Note is issued pursuant, and is subject, to the Credit Agreement,
which provides, among other things, for acceleration hereof. This Note is the
Term Loan Note referred to in the Credit Agreement.
This Note is secured, among other things, pursuant to the Credit
Agreement and the Security Documents, as therein defined, and may now or
hereafter be secured by one or more other security agreements, mortgages, deeds
of trust, assignments or other instruments or agreements.
The Borrower, jointly and severally, hereby agree to pay all costs of
collection, including attorneys' fees and legal expenses in the event this Note
is not paid when due, whether or not legal proceedings are commenced.
Presentment or other demand for payment, notice of dishonor and protest
are expressly waived.
<PAGE>
IN WITNESS WHEREOF, this Note is executed as of the date first above
written.
BORROWER:
POORE BROTHERS, INC., a Delaware
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
POORE BROTHERS ARIZONA, INC., an Arizona
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
POORE BROTHERS DISTRIBUTING, INC., an
Arizona corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
TEJAS PB DISTRIBUTING, INC., an Arizona
corporation
By:
-------------------------------------
Name: Thomas W. Freeze
-----------------------------------
Title: Vice President
----------------------------------
<PAGE>
Exhibit D to Credit and Security Agreement
PREMISES
The Premises referred to in the Credit and Security Agreement are
commonly known as and legally described as follows:
3500 S. La Cometa Drive
Goodyear, AZ 85338
Lots 2A and 3A, of AIRPORT COMMERCENTER SUBDIVISION No. 3 AMENDED, according to
the plat of record in the office of the County Recorder of Maricopa County,
Arizona, recorded in Book 287 of Maps, Page 1.
<PAGE>
Exhibit E to Credit and Security Agreement
EXAMPLE CALCULATION OF TERM LOAN PRINCIPAL PAYMENT INCREASE AND AMOUNT
----------------------------------------------------------------------
The following are examples of the recalculation of the Term Loan Note payments
upon the exchange of all or any part of the Principal Amount of the Debentures
for common stock of Poore Brothers, Inc.:
EXAMPLE 1: On November 15, 1998, prior to the making of the Term Loan Advance,
the Principal Amount of the Debentures is $2,700,000 and a Conversion Date
occurs due to a Debenture Holder notifying Borrower of its election to exchange
$500,000 of the Principal Amount for common stock.. On November 20, 1998, Lender
makes the Term Loan Advance to Borrower. Therefore, the Term Loan Note level
principal payment commencing on December 1, 1998 will be calculated as follows:
$500,000 / $2,700,000 = .185; $41,667.67 - $27,777.78 = $13,889.89; $13,889.89 x
.185 = $2,569.63; $27,777.78 + $2,569.63 = $30,347.41. Thus, the Term Loan Note
level principal payment commencing on December 1, 1998 will be $30,347.41, and
such level principal payment, plus interest, shall be payable on the first day
of such month and shall continue on the first day of each succeeding month
(subject to further increases following a subsequent Conversion Date) until the
Term Loan Maturity Date or the Termination Date, whichever is earlier, at which
time the entire outstanding principal balance of the Term Loan, all accrued and
unpaid interest and all other charges shall be due and payable, or until the
Term Loan is earlier paid in full.
EXAMPLE 2: On February 5, 1999, the Principal Amount of the Debentures has been
reduced to $2,200,000 due to the exchange referenced in example 1 above and a
Conversion Date occurs due to a Debenture Holder notifying Borrower of its
election to exchange $300,000 of the remaining Principal Amount for common
stock. Therefore, the Term Loan Note level principal payment commencing on March
1, 1999 will be calculated as follows: $300,000 / $2,200,000 = .136; $41,667.67
- - $30,347.41 = $11,320.26; $11,320.26 x .136 = $1,539.56; $30,347.41 + $1,539.56
= $31,886.97. Thus, the Term Loan Note level principal payment commencing on
March 1, 1999 will be $31,886.97, and such level principal payment, plus
interest, shall be payable on the first day of such month and shall continue on
the first day of each succeeding month (subject to further increases following a
subsequent Conversion Date) until the Term Loan Maturity Date or the Termination
Date, whichever is earlier, at which time the entire outstanding principal
balance of the Term Loan, all accrued and unpaid interest and all other charges
shall be due and payable, or until the Term Loan is earlier paid in full.
EXAMPLE 3: On December 15, 1999, the Principal Amount of the Debentures has been
reduced to $1,800,000 due to the exchanges referenced in examples 1 and 2 and
the mandatory principal redemption installments made by Borrower, and a
Conversion Date occurs due to a Debenture Holder notifying Borrower of its
election to exchange $100,000 of the remaining Principal Amount for common
stock. Therefore, the Term Loan Note level principal payment commencing on
January 1, 2000 will be calculated as follows: $100,000 / $1,800,000 = .056;
$41,667.67 - $31,886.97 = $9,780.70; $9,780.70 x .056 = $547.72; $31,886.97 +
$547.72 = $32,434.69. Thus, the Term Loan Note level principal payment
commencing on January 1, 2000 will be $32,434.69, and such level principal
payment, plus interest, shall be payable on the first day of such month and
shall continue on the first day of each succeeding month (subject to further
increases following a subsequent Conversion Date) until the Term Loan Maturity
Date or the Termination Date, whichever is earlier, at which time the entire
outstanding principal balance of the Term Loan, all accrued and unpaid interest
and all other charges shall be due and payable, or until the Term Loan is
earlier paid in full.
EXAMPLE 4: On February 1, 2000, the Principal Amount of the Debentures has been
reduced to $1,600,000 due to the exchanges referenced in examples 1, 2 and 3 and
the mandatory principal redemption installments made by Borrower, and a
Conversion Date occurs due to a Debenture Holder notifying Borrower of its
election to exchange the remaining Principal Amount of $1,600,000 for common
stock. Therefore, the Term Loan Note level principal payment commencing on March
1, 2000 will be calculated as follows: $1,600,000 / $1,600,000 = 1; $41,667.67 -
$32,434.69 = $9,232.98; $9,232.98 x 1 = $9,232.98; $32,434.69 + $9,232.98 =
$41,667.67. Thus, the Term Loan Note level principal payment commencing on March
1, 2000 will be $41,667.67, and such level principal payment, plus interest,
shall be payable on the first day of such month and shall continue on the first
day of each succeeding month (subject to further increases following a
subsequent Conversion Date) until the Term Loan Maturity Date or the Termination
Date, whichever is earlier, at which time the entire outstanding principal
balance of the Term Loan, all accrued and unpaid interest and all other charges
shall be due and payable, or until the Term Loan is earlier paid in full.
<PAGE>
Schedule 2.11 to Credit and Security Agreement
Sources and Uses of Funds
<TABLE>
<CAPTION>
- ---------------------------------------------- ------------------------- -------------------------
SOURCES AMOUNT USES AMOUNT
<S> <C> <C> <C>
- -------------------------- -------------------- ------------------------- -------------------------
- -------------------------- -------------------- ------------------------- -------------------------
Advance on NBCI ROLOC $1,000,000.00 Payoff FCFC $344,526.54
- -------------------------- -------------------- ------------------------- -------------------------
NBCI Overadvance* 500,000.00 Cash to Tejas Snacks* 275,000.00
- -------------------------- -------------------- ------------------------- -------------------------
Cash on hand 400,000.00 Cash to Bob's, Inc.* 245,000.00
- -------------------------- -------------------- ------------------------- -------------------------
Cash to Prime Bank* 585,654.65
- -------------------------- -------------------- ------------------------- -------------------------
Closing costs
- -------------------------- -------------------- ------------------------- -------------------------
Origination fee 25,000.00
- -------------------------- -------------------- ------------------------- -------------------------
Other payables
- -------------------------- -------------------- ------------------------- -------------------------
Total Sources $1,900,000.00 Total Uses $1,475,181.19
- -------------------------- -------------------- ------------------------- -------------------------
Excess Availability $424,818.81
- -------------------------- -------------------- ------------------------- -------------------------
</TABLE>
*to be funded upon compliance with conditions to Term Loan Advance
<PAGE>
Schedule 5.1 to Credit and Security Agreement
Trade Names, Chief Executive Office, Principal Place of Business, and Locations
of Collateral
TRADE NAMES
-----------
POORE BROTHERS
IF WE DIDN'T TELL YOU - YOU WOULDN'T KNOW!
AN INTENSELY DIFFERENT TASTE
TEJAS SNACKS
TEJAS DISTRIBUTING
TEJAS MERCHANDISING
BOB'S TEXAS STYLE POTATO CHIPS
TEXAS STYLE POTATO CHIPS
TEXAS STYLE
LONGHORN STYLE
COLORADO STYLE
CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS
--------------------------------------------------
3500 S. La Cometa Drive
Goodyear, AZ 85338
OTHER INVENTORY AND EQUIPMENT LOCATIONS
---------------------------------------
NONE
<PAGE>
Schedule 5.4 to Credit and Security Agreement
SUBSIDIARIES
------------
Poore Brothers Southeast, Inc., an Arizona corporation (no operations)
Poore Brothers Texas, Inc., a Texas corporation (no operations)
La Cometa Properties, Inc., an Arizona corporation (owns Premises)
Poore Brothers Arizona, Inc., an Arizona corporation (manufactures and
distributes snack foods)
Poore Brothers Distributing, Inc., an Arizona corporation (distributes snack
foods)
Tejas PB Distributing, Inc., an Arizona corporation (distributes snack foods)
<PAGE>
Schedule 7.1 to Credit and Security Agreement
PERMITTED LIENS
---------------
<TABLE>
<CAPTION>
====================================================================================================================================
Creditor(s) Collateral Jurisdiction Filing Date Filing No.
----------- ---------- ------------ ----------- ----------
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Arnold Machinery Company of Arizona Lien on Specific Equipment Arizona 08/27/93 756209-0
Hyster Credit Company
- ------------------------------------------------------------------------------------------------------------------------------------
First Interstate Equity Corporation Blanket Lien on all Assets Arizona 05/31/95 833113-0
Renaissance Capital Growth & Income (Lien on Inventory, Accounts and
Fund III Inc. General Intangibles subordinated per
Intercreditor Agreement)
- ------------------------------------------------------------------------------------------------------------------------------------
First Interstate Equity Corporation Blanket Lien on all Assets Arizona 05/31/95 833114-0
Renaissance Capital Growth & Income (Lien on Inventory, Accounts and
Fund III Inc. General Intangibles subordinated per
Intercreditor Agreement)
- ------------------------------------------------------------------------------------------------------------------------------------
First Interstate Equity Corporation Blanket Lien on all Assets Arizona 05/31/95 833115-0
Renaissance Capital Growth & Income (Lien on Inventory, Accounts and
Fund III Inc. General Intangibles subordinated per
Intercreditor Agreement)
- ------------------------------------------------------------------------------------------------------------------------------------
Renaissance Capital Growth & Income Blanket Lien on all Assets Arizona 05/31/95 833117-0
Fund III Inc. (Lien on Inventory, Accounts and
Wells Fargo Small Business General Intangibles subordinated per
Investment Co. Inc. Intercreditor Agreement)
- ------------------------------------------------------------------------------------------------------------------------------------
Bank One Arizona NA Blanket Lien on All Equipment, Arizona 08/02/95 841015-0
Except Specifically Released
Equipment
- ------------------------------------------------------------------------------------------------------------------------------------
Banc One Arizona Leasing Corporation Lien on Specific Leased Equipment Arizona 09/29/95 848668-0
(Precautionary Filing)
- ------------------------------------------------------------------------------------------------------------------------------------
Finova Capital Corporation Lien on Specific Leased Equipment Arizona 12/18/95 858348-0
(Precautionary Filing)
- ------------------------------------------------------------------------------------------------------------------------------------
Banc One Arizona Lease Corporation Lien on Specific Leased Equipment Arizona 12/22/95 859712-0
(Precautionary Filing)
- ------------------------------------------------------------------------------------------------------------------------------------
LCA Lien on Specific Equipment Arizona 02/20/96 867041-0
- ------------------------------------------------------------------------------------------------------------------------------------
Associates Commercial Corporation Lien on Specific Leased Equipment Arizona 04/04/96 892074-0
LCA and All Chattel Paper, General
Intangibles, Instruments, Accounts
and Contract Rights Arising with
Respect Thereto (Precautionary
Filing)
- ------------------------------------------------------------------------------------------------------------------------------------
Inter Tel Leasing Inc. Lien on Specific Leased Equipment Arizona 11/04/96 942274-0
(Precautionary Filing)
- ------------------------------------------------------------------------------------------------------------------------------------
Finova Capital Corporation Lien on Specific Equipment Arizona 05/02/97 966189-0
- ------------------------------------------------------------------------------------------------------------------------------------
Morgan Guaranty Trust Company of Lien on Specific Real Property Maricopa County, AZ 06/05/97 97-0381371
New York
- ------------------------------------------------------------------------------------------------------------------------------------
Finova Capital Corporation Lien on Specific Equipment Arizona 06/26/97 973996-0
- ------------------------------------------------------------------------------------------------------------------------------------
Finova Capital Corporation Lien on Specific Equipment Arizona 10/08/97 988041-0
====================================================================================================================================
</TABLE>
<PAGE>
Schedule 7.2 to Credit and Security Agreement
PERMITTED INDEBTEDNESS AND GUARANTIES
INDEBTEDNESS
Creditor Principal Amount Maturity Date Monthly Payment Collateral
-------- ---------------- ------------- --------------- ----------
NONE
GUARANTIES
Primary Obligor Amount and Description of Obligation Beneficiary of Guaranty
- --------------- ------------------------------------ -----------------------
Guaranteed
----------
NONE
EXHIBIT 10.4
PATENT AND TRADEMARK SECURITY AGREEMENT
THIS PATENT AND TRADEMARK SECURITY AGREEMENT (the "Agreement"), dated
as of October 23, 1998, is made by and between POORE BROTHERS, INC., a Delaware
corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE
BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING,
INC., an Arizona corporation (individually and collectively, the "Debtor"),
whose address and principal place of business is 3500 South La Cometa Drive,
Goodyear, Arizona 85338, and NORWEST BUSINESS CREDIT, INC., a Minnesota
corporation (the "Secured Party"), whose address and principal place of business
is 3300 North Central Avenue, M.S. 9025, Phoenix, Arizona 85012-2501.
RECITALS:
WHEREAS, the Debtor and the Secured Party have entered into a Credit
and Security Agreement of even date herewith (as the same may hereafter be
amended, supplemented or restated from time to time, the "Credit Agreement")
setting forth the terms on which the Secured Party may now or hereafter make
certain loans or other financial accommodations to or for the account of the
Debtor;
WHEREAS, as a further condition to making any loan or other financial
accommodation under the Credit Agreement or otherwise, the Secured Party has
required the execution and delivery of this Agreement by the Debtor;
NOW, THEREFORE, in consideration of the mutual covenants contained in
the Credit Agreement and herein, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereby
agree as follows:
1. Definitions. All terms defined in the Recitals hereto or in the
Credit Agreement that are not otherwise defined herein shall have the meanings
given to them therein. In addition, the following terms have the meanings set
forth below:
"Obligations" means each and every debt, liability and obligation of
every type and description arising under or in connection with any Loan Document
(as defined in the Credit Agreement) which the Debtor may now or at any time
hereafter owe to the Secured Party, whether such debt, liability or obligation
now exists or is hereafter created or incurred and whether it is or may be
direct or indirect, due or to become due, absolute or contingent, primary or
secondary, liquidated or unliquidated, independent, joint, several or joint and
several, and including specifically, but not limited to, the Obligations (as
defined in the Credit Agreement).
"Patents" means all of the Debtor's right, title and interest in and to
patents or applications for patents, fees or royalties with respect to each, and
including, without limitation, the right to sue for past infringement and
damages therefor, and licenses thereunder, all as presently existing or
hereafter arising or acquired, including, without limitation, the patents listed
on Exhibit "A" attached hereto and incorporated herein by this reference.
<PAGE>
"Trademarks" means all of the Debtor's right, title and interest in and
to trademarks, service marks, trade dress, collective membership marks, the
respective goodwill associated with each, and licenses thereunder, all as
presently existing or hereafter arising or acquired, including, without
limitation, the marks listed on Exhibit "B" attached hereto and incorporated
herein by this reference.
2. Security Interest. The Debtor hereby irrevocably pledges and assigns
to, and grants the Secured Party a security interest, with power of sale to the
extent permitted by law (the "Security Interest"), in, to and under the Patents
and the Trademarks to secure the prompt payment and performance of the
Obligations.
3. Representations, Warranties and Agreements. The Debtor hereby
represents, warrants and agrees as follows:
(a) Existence; Authority. Each Debtor is a corporation, duly
formed, validly existing and in good standing under the laws of its state of
incorporation and is duly qualified to transact business in each jurisdiction
where the nature of its business requires such qualification. Each Debtor has
the corporate power and corporate authority to execute and deliver this
Agreement and to perform its obligations under this Agreement. This Agreement
has been duly and validly authorized by all necessary action, corporate or
otherwise on behalf of each Debtor. The execution, delivery and performance of
this Agreement by the Debtor have been duly authorized by all necessary action
of the Debtor's board of directors, and if necessary its stockholders, and do
not and will not violate the provisions of, or constitute a default under, any
presently applicable law or its articles of incorporation or bylaws or any
agreement presently binding on it. This Agreement has been duly executed and
delivered by the Debtor and constitutes the Debtor's valid, binding and legally
enforceable obligation. The correct names of the Debtor are Poore Brothers,
Inc., Poore Brothers Arizona, Inc., Poore Brothers Distributing, Inc. and Tejas
PB Distributing, Inc. The authorization, execution, delivery and performance of
this Agreement do not require notification to, registration with, or consent or
approval by, any federal, state or local regulatory body or administrative
agency or any other Person.
(b) Patents. Exhibit "A" accurately lists all Patents owned or
controlled by the Debtor as of the date hereof and accurately reflects the
existence and status of registrations pertaining to the Patents as of the date
hereof.
(c) Trademarks. Exhibit "B" accurately lists all Trademarks
owned or controlled by the Debtor as of the date hereof and accurately reflects
the existence and status of Trademarks and all registrations pertaining thereto
as of the date hereof.
(d) Title. The Debtor has absolute title to each Patent and
each Trademark listed on Exhibits "A" and "B", free and clear of all security
interests, liens and encumbrances, except the Security Interest and the
Permitted Liens. The Debtor (i) will have, at the time the Debtor acquires any
rights in Patents or Trademarks hereafter arising, absolute title to each such
Patent or Trademark free and clear of all security interests, liens and
encumbrances, except the Security Interest and the Permitted Liens, and (ii)
will keep all Patents and Trademarks free and clear of all security interests,
liens and encumbrances except the Security Interest and the Permitted Liens.
-2-
<PAGE>
(e) No Sale. The Debtor will not sell or otherwise dispose of
the Patents or Trademarks, or any interest therein, without the Secured Party's
prior written consent.
(f) Defense. The Debtor will at its own expense, and using its
best efforts, protect and defend the Patents and Trademarks against all claims
or demands of all persons other than the Secured Party.
(g) Maintenance. The Debtor will at its own expense maintain
the Patents and the Trademarks to the extent reasonably advisable in its
business including, but not limited to, filing all applications to register and
all affidavits and renewals possible with respect to issued registrations. The
Debtor covenants that it will not abandon nor fail to pay any maintenance fee or
annuity due and payable on any Patent or Trademark, nor fail to file any
required affidavit in support thereof, without first providing the Secured
Party: (i) sufficient written notice, as provided in the Credit Agreement, to
allow the Secured Party to timely pay any such maintenance fees or annuity which
may become due on any of said Patents or Trademarks, or to file any affidavit
with respect thereto, and (ii) a separate written power of attorney or other
authorization to pay such maintenance fees or annuities, or to file such
affidavit, should such be necessary or desirable.
(h) Secured Party's Right to Take Action. If the Debtor fails
to perform or observe any of its covenants or agreements set forth in this
Section 3, and if such failure continues for a period of ten (10) calendar days
after the Secured Party gives the Debtor written notice thereof (or, in the case
of the agreements contained in subsection (g), immediately upon the occurrence
of such failure, without notice or lapse of time), or if the Debtor notifies the
Secured Party that it intends to abandon a Patent or Trademark, the Secured
Party may (but need not) perform or observe such covenant or agreement on behalf
and in the name, place and stead of the Debtor (or, at the Secured Party's
option, in the Secured Party's own name) and may (but need not) take any and all
other actions which the Secured Party may reasonably deem necessary to cure or
correct such failure.
(i) Costs and Expenses. Except to the extent that the effect
of such payment would be to render any loan or forbearance of money usurious or
otherwise illegal under any applicable law, the Debtor shall pay the Secured
Party on demand the amount of all moneys expended and all costs and expenses
(including reasonable attorneys' fees) incurred by the Secured Party in
connection with or as a result of the Secured Party's taking action under
subsection (h) or exercising its rights under Section 6, together with interest
thereon from the date expended or incurred by the Secured Party at the highest
rate then applicable to any of the Obligations.
(j) Power of Attorney. To facilitate the Secured Party's
taking action under subsection (h) and exercising its rights under Section 6,
the Debtor hereby irrevocably appoints (which appointment is coupled with an
interest) the Secured Party, or its delegate, as the attorney-in-fact of the
Debtor with the right (but not the duty) from time to time after any notice
required pursuant to subsection (h), to create, prepare, complete, execute,
deliver, endorse or file, in the name and on behalf of the Debtor, any and all
instruments, documents, applications, financing statements, and other agreements
and writings required to be obtained, executed, delivered or endorsed by the
Debtor under this Section 3, or, necessary for the Secured Party,
-3-
<PAGE>
after an Event of Default, to enforce or use the Patents or Trademarks or to
grant or issue any exclusive or non-exclusive license under the Patents or
Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or
otherwise transfer title in or dispose of the Patents or Trademarks to any third
party. The Debtor hereby ratifies all that such attorney shall lawfully do or
cause to be done by virtue hereof. The power of attorney granted herein shall
terminate upon the termination of the Credit Agreement as provided therein and
the payment and performance of all Obligations.
4. Debtor's Use of the Patents and Trademarks. The Debtor shall be
permitted to control and manage the Patents and Trademarks, including the right
to exclude others from making, using or selling items covered by the Patents and
Trademarks and any licenses thereunder, in the same manner and with the same
effect as if this Agreement had not been entered into, so long as no Event of
Default occurs and remains uncured.
5. Events of Default. Each of the following occurrences shall
constitute an event of default under this Agreement (herein called "Event of
Default"): (a) an Event of Default, as defined in the Credit Agreement, shall
occur; or (b) the Debtor shall fail promptly to observe or perform any covenant
or agreement herein binding on it; or (c) any of the representations or
warranties contained in Section 3 shall prove to have been false or misleading
in any material respect when made.
6. Remedies. Upon the occurrence of, and during the continuation of any
Event of Default, Secured Party may, without notice (except as set forth in the
Credit Agreement) or demand upon Debtor, declare any part or all of the
Obligations immediately due and payable and Secured Party shall have the
following rights and remedies, to the extent permitted by applicable law, in
addition to all other rights and remedies of a secured party under the UCC:
(a) The Secured Party may exercise any or all remedies
available under the Credit Agreement.
(b) The Secured Party may sell, assign, transfer, pledge,
encumber or otherwise dispose of the Patents and Trademarks.
(c) The Secured Party may enforce the Patents and Trademarks
and any licenses thereunder, and if Secured Party shall commence any suit for
such enforcement, the Debtor shall, at the request of Secured Party, do any and
all lawful acts and execute any and all proper documents required by Secured
Party in aid of such enforcement.
(d) The Secured Party may transfer to or register in the name
or Secured Party or any of its nominees all or any of the Patents and
Trademarks.
(e) The Secured Party may exercise any and all rights of
collection, conversion and exchange and any and all other rights, privileges,
options or powers of Debtor pertaining or relating to the Patents and
Trademarks, as though Secured Party were the absolute owner thereof.
-4-
<PAGE>
(f) The Secured Party may collect and receive any payments,
license fees, royalties, dividends or distributions of any kind whatsoever with
respect to the Patents and Trademarks and apply the same in satisfaction of the
Obligations.
(g) The Secured Party may sell all or any of the Patents and
Trademarks, either at public auction or private sale, with or without demand for
performance or advertisement of the time or place of sale or the adjournment
thereof or otherwise, and deliver the Patents and Trademarks sold to the
purchaser or purchasers, without right of redemption (all of which are hereby
waived by Debtor), for cash, credit or other property, for immediate or future
delivery, and for such price and on such terms as Secured Party in its sole
discretion may determine. Secured Party reserves the right to reject any and all
bids at any auction or sale which, in its discretion, it shall deem inadequate.
At any auction or sale, Secured Party may bid for and purchase, free from any
right of equity or redemption (which are hereby waived by Debtor, to the extent
permitted by law), any of the Patents and Trademarks that are offered for sale
and Secured Party, upon compliance with the terms of sale, may hold, retain and
dispose of the purchased Patents and Trademarks without further accountability
therefor.
In the event that Secured Party has and exercises remedies under the UCC
pursuant to and in accordance with the terms of this Section 6, any notice of
sale required by law shall be deemed "commercially reasonable" if such notice is
given at least ten (10) days prior to the time of such sale. Secured Party shall
not have any duty to exercise any of the rights, privileges, options or powers
conferred on Secured Party under this Agreement or to sell or otherwise dispose
of the Patents and Trademarks and shall not be responsible for any failure or
delay in so doing.
7. Miscellaneous. This Agreement can be waived, modified, amended,
terminated or discharged, and the Security Interest can be released, only
explicitly in a writing signed by the Secured Party. A waiver signed by the
Secured Party shall be effective only in the specific instance and for the
specific purpose given. Mere delay or failure to act shall not preclude the
exercise or enforcement of any of the Secured Party's rights or remedies. All
rights and remedies of the Secured Party shall be cumulative and may be
exercised singularly or concurrently, at the Secured Party's option, and the
exercise or enforcement of any one such right or remedy shall neither be a
condition to nor bar the exercise or enforcement of any other right or remedy.
The Secured Party shall not be obligated to preserve any rights the Debtor may
have against prior parties, to realize on the Patents and Trademarks at all or
in any particular manner or order, or to apply any cash proceeds of Patents and
Trademarks in any particular order of application. This Agreement shall be
binding upon and inure to the benefit of the Debtor and the Secured Party and
their respective participants, successors and assigns and shall take effect when
signed by the Debtor and delivered to the Secured Party, and the Debtor waives
notice of the Secured Party's acceptance hereof. The Secured Party may execute
this Agreement if appropriate for the purpose of filing, but the failure of the
Secured Party to execute this Agreement shall not affect or impair the validity
or effectiveness of this Agreement. A carbon, photographic or other reproduction
of this Agreement or of any financing statement signed by the Debtor shall have
the same force and effect as the original for all purposes of a financing
statement. This Agreement shall be governed by the internal law of the State of
Arizona, without regard to its conflicts of law provisions. If any provision or
application of this Agreement is held unlawful or unenforceable in any respect,
such illegality or unenforceability shall not affect other provisions or
applications which can be given effect and this Agreement shall be construed as
if the unlawful or unenforceable provision
-5-
<PAGE>
or application had never been contained herein or prescribed hereby. All
representations and warranties contained in this Agreement shall survive the
execution, delivery and performance of this Agreement and the creation and
payment of the Obligations.
THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED
ON OR PERTAINING TO THIS AGREEMENT.
[THE REMAINDER OF THIS PAGE
IS LEFT INTENTIONALLY BLANK]
-6-
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Patent and Trademark
Security Agreement as of the date written above.
SECURED PARTY:
NORWEST BUSINESS CREDIT, INC.,
a Minnesota corporation
By:____________________________
Name: Darcy Della Flora
Title: Vice President
DEBTOR:
POORE BROTHERS, INC.,
a Delaware corporation
By:____________________________
Name: Thomas W. Freeze
Title: Vice President
POORE BROTHERS ARIZONA, INC.,
an Arizona corporation
By:____________________________
Name: Thomas W. Freeze
Title: Vice President
POORE BROTHERS DISTRIBUTING,
INC., an Arizona corporation
By:____________________________
Name: Thomas W. Freeze
Title: Vice President
TEJAS PB DISTRIBUTING, INC., an
Arizona corporation
By:____________________________
Name: Thomas W. Freeze
Title: Vice President
_______________________________
Witness
-7-
<PAGE>
STATE OF ARIZONA )
)
County Of Maricopa )
The foregoing instrument was acknowledged before me this __
day of November, 1998 by Thomas W. Freeze, the Vice President of POORE BROTHERS,
INC., a Delaware corporation, on behalf of the corporation.
________________________________
Notary Public
Commission Expiration Date:
___________________________
STATE OF ARIZONA )
)
County Of Maricopa )
The foregoing instrument was acknowledged before me this __
day of November, 1998 by Thomas W. Freeze, the Vice President of POORE BROTHERS
ARIZONA, INC., an Arizona corporation, on behalf of the corporation.
________________________________
Notary Public
Commission Expiration Date:
___________________________
-8-
<PAGE>
STATE OF ARIZONA )
)
County Of Maricopa )
The foregoing instrument was acknowledged before me this __
day of November, 1998 by Thomas W. Freeze, the Vice President of POORE BROTHERS
DISTRIBUTING, INC., an Arizona corporation, on behalf of the corporation.
________________________________
Notary Public
Commission Expiration Date:
__________________________
STATE OF ARIZONA )
)
County Of Maricopa )
The foregoing instrument was acknowledged before me this __
day of November, 1998 by Thomas W. Freeze, the Vice President of TEJAS PB
DISTRIBUTING, INC., an Arizona corporation, on behalf of the corporation.
________________________________
Notary Public
Commission Expiration Date:
__________________________
-9-
<PAGE>
STATE OF ARIZONA )
)
County Of Maricopa )
The foregoing instrument was acknowledged before me this __
day of November, 1998 by Darcy Della Flora, a Vice President of NORWEST BUSINESS
CREDIT, INC., a Minnesota corporation, on behalf of the corporation.
________________________________
Notary Public
Commission Expiration Date:
__________________________
-10-
<PAGE>
EXHIBIT A
---------
UNITED STATES ISSUED PATENTS
----------------------------
Title Patent Number Issue Date
----- ------------- ----------
FOREIGN ISSUED PATENTS
----------------------
Title Country Patent Number Issue Date
----- ------- ------------- ----------
<PAGE>
EXHIBIT B
---------
UNITED STATES TRADEMARK APPLICATIONS,
-------------------------------------
ISSUED TRADEMARKS, AND SERVICE MARKS
------------------------------------
REGISTRATIONS
-------------
Mark Registration Number Registration Date
---- ------------------- -----------------
[GRAPHIC OMITTED]
1,911,595 August 15, 1995
[GRAPHIC OMITTED]
1,911,595 August 15, 1995
POORE BROTHERS 2,117,466 December 2, 1997
IF WE DIDN'T TELL YOU - YOU
WOULDN'T KNOW! 2,137,865 February 17, 1998
TEXAS STYLE (and logo) 1,453,343 February 14, 1991
TEXAS STYLE 1,467,561 February 14, 1991
<PAGE>
APPLICATIONS
------------
<TABLE>
<CAPTION>
Mark Mark Type Application Serial Number File Date
---- --------- ----------- ------------- ---------
Case No.
--------
<S> <C> <C> <C> <C>
AN INTENSELY DIFFERENT TASTE Trademark 4927.34 75/455,988 March 24, 1998
</TABLE>
3
EXHIBIT 10.5
THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR
APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD,
TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION
STATEMENT FOR SUCH SECURITIES UNDER THE ACT, OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT
REQUIRED UNDER THE ACT.
WARRANT TO PURCHASE
COMMON STOCK OF
POORE BROTHERS, INC.
Date of Issuance: November 4, 1998 Warrant No. 3
This certifies that, for value received, POORE BROTHERS, INC., a
Delaware corporation (the "Company"), grants to Norwest Business Credit, Inc.,
or registered assigns (the "Registered Holder"), the right to subscribe for and
purchase from the Company, at the price of $0.9375 per share, as such price may
be adjusted from time to time (the "Exercise Price"), from and after 9:00 a.m.,
Phoenix time, on the date of issuance of this Warrant (the "Exercise
Commencement Date") and to and including 5:00 p.m., Phoenix time, on November 4,
2003 (the "Expiration Date"), fifty thousand (50,000) shares, as such number of
shares may be adjusted from time to time (the "Warrant Shares"), of the
Company's common stock, par value $0.01 per share (the "Common Stock"), subject
to the provisions and upon the terms and conditions herein set forth. The
Exercise Price and the number of Warrant Shares purchasable upon exercise of
this Warrant are subject to adjustment from time to time as provided in Section
7 hereof.
Section 1. Registration. The Company shall register this Warrant, upon
records to be maintained by the Company for that purpose (the "Warrant
Records"), in the name of the Registered Holder. The Company may deem and treat
the Registered Holder as the absolute owner of this Warrant for the purpose of
any exercise hereof or any distribution to the Registered Holder, and for all
other purposes, and the Company shall not be affected by any notice to the
contrary.
Section 2. Registration of Transfers and Exchanges.
(a) Subject to Section 10 hereof, the Company shall register the
transfer of this Warrant, in whole or in part, upon records to be maintained by
the Company for that purpose, upon surrender of this Warrant, with the Form of
Assignment attached hereto completed and duly endorsed by the Registered Holder,
to the Company at the office specified in or pursuant to Section 3(b). Upon any
such registration of transfer, a new Warrant, in substantially the form of this
Warrant, evidencing the Common Stock purchase rights so transferred shall be
issued to the transferee and a new Warrant, in similar form, evidencing the
remaining Common Stock purchase rights not so transferred, if any, shall be
issued to the Registered Holder.
(b) This Warrant is exchangeable, upon the surrender hereof by the
Registered Holder at the office of the Company specified in or pursuant to
Section 3(b) hereof, for new Warrants, in substantially the form of this Warrant
evidencing, in the aggregate, the right to purchase the number of Warrant Shares
which may then be purchased hereunder, each of such new Warrants to have the
same date as the date of issuance set forth in this Warrant and to represent the
right to purchase such number of Warrant Shares as shall be designated by the
Registered Holder at the time of such surrender.
Section 3. Duration and Exercise of this Warrant.
(a) This Warrant shall be exercisable by the Registered Holder in
whole, or from time to time in part, on any business day before 5:00 p.m.,
Phoenix time, during the period beginning on the Exercise Commencement Date and
ending on the Expiration Date. At 5:00 p.m., Phoenix time, on the Expiration
Date, this Warrant, to the extent not previously exercised, shall become void
and of no further force or effect.
4
<PAGE>
(b) Subject to Sections 4 and 10 hereof, upon exercise or surrender of
this Warrant, with the Form of Election to Purchase attached hereto completed
and duly endorsed by the Registered Holder, to the Company at its office at 3500
South La Cometa Drive, Goodyear, Arizona 85338, Attention: Chief Financial
Officer, or at such other address as the Company may specify in writing to the
Registered Holder, and upon payment of the Exercise Price multiplied by up to
the number of Warrant Shares then issuable upon exercise of this Warrant in
lawful money of the United States of America (except as otherwise provided for
in Section 3(c) below), all as specified by the Registered Holder in the Form of
Election to Purchase, the Company shall promptly (and in any event, no later
than three (3) days after the receipt by the Company of a completed Form of
Election to Purchase) issue and cause to be delivered to or upon the written
order of the Registered Holder, and in such name or names as the Registered
Holder may designate, a certificate for the Warrant Shares issued upon such
exercise. Subject to Section 10 hereof, any person so designated in the Form of
Election to Purchase, duly endorsed by the Registered Holder, as the person to
be named on the certificates for the Warrant Shares, shall be deemed to have
become holder of record of such Warrant Shares, evidenced by such certificates,
as of the Date of Exercise (as hereinafter defined) of such Warrant.
(c) The Registered Holder may pay the applicable Exercise Price
pursuant to Section 3(b), at the option of the Registered Holder, either (i) in
cash or by cashier's or certified bank check payable to the Company in an amount
equal to the Aggregate Exercise Price (as hereinafter defined), (ii) by wire
transfer of immediately available funds in an amount equal to the Aggregate
Exercise Price to the account which shall be indicated in writing by the Company
to the Registered Holder, or (iii) by written notice to the Company that the
Registered Holder is exercising this Warrant and is authorizing the Company to
withhold from the issuance to such Registered Holder that number of Warrant
Shares which when multiplied by the Market Price (as hereinafter defined) for
the Common Stock on the Date of Exercise is equal to the Aggregate Exercise
Price. Any Warrant Shares withheld by the Company in connection with an exercise
of this Warrant pursuant to clause (iii) of this Section 3(c) shall no longer be
issuable under this Warrant and this Warrant shall be deemed to be automatically
amended to reduce the number of Warrant Shares issuable hereunder by an amount
equal to the amount of such withheld Warrant Shares.
(d) The "Date of Exercise" of any Warrant means the date on which the
Company shall have received both: (i) this Warrant, with the Form of Election to
Purchase attached hereto appropriately completed and duly endorsed; and (ii)
either payment of the Aggregate Exercise Price as provided herein or a
designation on the Form of Election to Purchase referred to (i) above that the
Registered Holder has elected to make a cashless exercise as permitted in
Paragraph (iii) of Section 3(c).
(e) This Warrant shall be exercisable, either as an entirety or for
part only of the number of Warrant Shares issuable upon the exercise hereof;
provided, however, that no partial exercise of this Warrant shall involve less
than 5,000 Warrant Shares unless the aggregate remaining Warrant Shares
available for purchase pursuant to this Warrant is less than 5,000, in which
case this Warrant shall be exercisable for only all such remaining Warrant
Shares. If fewer than all of the Warrant Shares evidenced by this Warrant are
exercised at any time, the Company shall issue, at its expense, a new Warrant,
in substantially the form of this Warrant, for the remaining number of Warrant
Shares evidenced by this Warrant, if any.
(f) Definition of Market Price. As used in this Warrant, the term
"Market Price" shall mean the closing price per share of the Common Stock on the
Date of Exercise. The closing price shall be the last reported sale price or, in
case no such sale takes place on such day, the average of the reported closing
bid and asked prices, in either case on the New York Stock Exchange, or, if the
shares of the Common Stock are not listed or admitted to trading on the New York
Stock Exchange, on the principal national securities exchange on which the
shares are listed or admitted to trading, or, if the shares are not so listed or
admitted to trading, the average of the highest reported bid and lowest reported
asked prices as furnished by the National Association of Securities Dealers,
Inc. (the "NASD") through NASDAQ or through a similar organization if NASDAQ is
no longer reporting such information or as reported on the NASD's OTC Electronic
Bulletin Board ("OTC"). If shares of the Common Stock are not listed or admitted
to trading on any exchange or quoted through NASDAQ or any similar organization
or reported on OTC, the Market Price shall be deemed to be the fair value
thereof determined in good faith by the Company's Board of Directors as
expressed by a resolution of such board as of a date which is within fifteen
(15) days of the date as of which the determination is to be made.
5
<PAGE>
(g) Definition of Aggregate Exercise Price. As used in this Warrant,
the term "Aggregate Exercise Price" means the product of the Exercise Price
multiplied by the number of Warrant Shares being purchased upon an exercise (in
whole or in part) of this Warrant pursuant to this Section 3.
Section 4. Payment of Taxes and Expenses.
(a) The Company will pay all expenses and taxes (other than any federal
or state income tax or similar obligations of the Registered Holder) and other
governmental charges attributable to the preparation, execution, issuance and
delivery of this Warrant, any new Warrant and the Warrant Shares; provided,
however, that the Company shall not be required to pay any tax in respect of the
transfer of this Warrant or the Warrant Shares, or the issuance or delivery of
certificates for Warrant Shares upon the exercise of this Warrant, to a person
or entity other than a Registered Holder or an Affiliate (as hereinafter
defined) of such Registered Holder.
(b) An "Affiliate" of any person or entity means any other person or
entity directly or indirectly controlling, controlled by or under direct or
indirect common control with such person or entity.
Section 5. Mutilated or Missing Warrant Certificate. If this Warrant
shall be mutilated, lost, stolen or destroyed, upon request by the Registered
Holder, the Company will issue, in exchange for and upon cancellation of the
mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant,
a new Warrant, in substantially the form of this Warrant, of like tenor, but, in
the case of loss, theft or destruction, only upon receipt of evidence reasonably
satisfactory to the Company of such loss, theft or destruction of this Warrant
and, if requested by the Company, indemnity also reasonably satisfactory to it.
Section 6. Reservation, Listing and Issuance of Warrant Shares.
(a) The Company will at all times have authorized, and reserve and keep
available, free from preemptive rights, for the purpose of enabling it to
satisfy any obligation to issue Warrant Shares upon the exercise of the rights
represented by this Warrant, the number of Warrant Shares deliverable upon
exercise of this Warrant. The Company will, at its expense, use its best efforts
to cause such shares to be included in or listed on (subject to issuance or
notice of issuance of Warrant Shares) all markets or stock exchanges in or on
which the Common Stock is included or listed not later than the date on which
the Common Stock is first included or listed on any such market or exchange and
will thereafter maintain such inclusion or listing of all shares of Common Stock
from time to time issuable upon exercise of this Warrant.
(b) Before taking any action which could cause an adjustment pursuant
to Section 7 hereof reducing the Exercise Price below the par value of the
Warrant Shares, the Company will take any corporate action which may be
necessary in order that the Company may validly and legally issue at the
Exercise Price, as so adjusted, Warrant Shares that are fully paid and
non-assessable.
(c) The Company covenants that all Warrant Shares will, upon issuance
in accordance with the terms of this Warrant, be (i) duly authorized, fully paid
and nonassessable, and (ii) free from all taxes with respect to the issuance
thereof and from all liens, charges and security interests.
Section 7. Adjustments of Exercise Price and Number of Warrant Shares.
(a) The Exercise Price at which Warrant Shares may be purchased
hereunder, and the number of Warrant Shares to be purchased upon exercise
hereof, are subject to change or adjustment from time to time as hereinafter
provided. Upon each adjustment of such Exercise Price pursuant to this Section
7, the holder of this Warrant shall thereafter prior to the Expiration Date
thereof be entitled to purchase, at the Exercise Price resulting from such
adjustment, the number of Warrant Shares obtained by multiplying the Exercise
Price in effect immediately prior to such adjustment by the number of Warrant
Shares issuable upon exercise of such Warrant immediately prior to such
adjustment and dividing the product thereof by the Exercise Price resulting from
such adjustment.
6
<PAGE>
(b) Adjustment for Certain Special Dividends. In case the Company shall
declare a dividend upon the Common Stock payable otherwise than out of earnings
or earned surplus, determined in accordance with generally accepted accounting
principles, and otherwise than in Common Stock, the Exercise Price in effect
immediately prior to the declaration of such dividend shall be reduced by an
amount equal, in the case of a dividend in cash, to the amount per share of the
Common Stock so declared as payable otherwise than out of earnings or earned
surplus or, in the case of any other dividend, to the fair value per share of
the Common Stock of the property so declared as payable otherwise than out of
earnings or earned surplus, as determined, in good faith and in the exercise of
reasonable business judgment, by the board of directors of the Company on a
non-discriminatory basis. For the purposes of the foregoing, a dividend other
than in cash shall be considered payable out of earnings or earned surplus
(other than revaluation or paid-in-surplus) only to the extent that such
earnings or earned surplus are charged an amount equal to the fair value of such
dividend as determined, reasonably and in good faith, by the board of directors
of the Company on a non-discriminatory basis. Such reductions shall take effect
as of the date on which a record is taken for the purpose of such dividend, or,
if a record is not taken, the date as of which the holders of Common Stock of
record entitled to such dividend are determined.
(c) Subdivisions or Combinations of Stock. In case the Company shall at
any time subdivide the outstanding shares of Common Stock into a greater number
of shares, the Exercise Price in effect immediately prior to such subdivision
shall be proportionately reduced, and conversely, in case the outstanding shares
of Common Stock shall be combined into a smaller number of shares, the Exercise
Price in effect immediately prior to such combination shall be proportionately
increased.
(d) Adjustments for Consolidation, Merger, Sale of Assets,
Reorganization, etc. In case the Company (i) consolidates with or merges into
any other corporation and is not the continuing or surviving corporation of such
consolidation or merger, or (ii) permits any other corporation to consolidate
with or merge into the Company and the Company is the continuing or surviving
corporation but, in connection with such consolidation or merger, the Common
Stock is changed into or exchanged for stock or other securities of any other
corporation or cash or any other assets, or (iii) transfers all or substantially
all of its properties and assets to any other corporation, or (iv) effects a
capital reorganization or reclassification of the capital stock of the Company
in such a way that holders of the Common Stock shall be entitled to receive
stock, securities, cash and/or assets with respect to or in exchange for the
Common Stock, then, and in each such case, proper provision shall be made so
that the holder of this Warrant, upon the exercise of this Warrant at any time
after the consummation of such consolidation, merger, transfer, reorganization
or reclassification, shall be entitled to receive (at the aggregate Exercise
Price in effect for all Warrant Shares issuable upon such exercise immediately
prior to such consummation as adjusted to the time of such transaction), in lieu
of shares of Common Stock issuable upon such exercise prior to such
consummation, the stock and other securities, cash and/or assets to which such
holder would have been entitled upon such consummation if such holder had so
exercised such Warrant immediately prior thereto (subject to adjustments
subsequent to such corporate action as nearly equivalent as possible to the
adjustments provided for in this Section 7).
(e) Notice of Adjustment. Upon any adjustment of any Exercise Price,
then and in each such case the Company shall promptly deliver to the registered
holder of this Warrant written notice consisting of a certificate of the chief
financial officer of the Company, which notice shall state the Exercise Price
resulting from such adjustment, and the increase or decrease, if any, in the
number of shares purchasable at such price upon the exercise of this Warrant,
setting forth in reasonable detail the method of calculation and the facts upon
which such calculation is based.
Section 8. No Rights or Liabilities as a Stockholder. The Registered
Holder shall not be entitled to vote or be deemed the holder of Common Stock or
any other securities of the Company which may at any time be issuable on the
exercise hereof, nor shall anything contained herein be construed to confer upon
the holder of this Warrant, as such, the rights of a stockholder of the Company
or the right to vote for the election of directors or upon any matter submitted
to stockholders at any meeting thereof, or give or withhold consent to any
corporate action or to receive notice of meetings or other actions affecting
stockholders (except as provided herein), or to receive dividends or
subscription rights or otherwise, until the Date of Exercise shall have
occurred. No provision of this Warrant, in the absence of affirmative action by
the Registered Holder hereof to purchase shares of Common Stock, and no mere
enumeration herein of the rights and privileges of the
7
<PAGE>
Registered Holder, shall give rise to any liability of such holder for the
Exercise Price or as a stockholder of the Company, whether such liability is
asserted by the Company or by creditors of the Company.
Section 9. Fractional Warrant Shares. The Company shall not be required
to issue fractions of Warrant Shares upon exercise of this Warrant (or specified
portion hereof) or to distribute certificates which evidence fractional Warrant
Shares. If any fraction of a Warrant Share would, except for the provisions of
this Section 9, be issuable on the exercise of this Warrant, the Company shall
pay to the Registered Holder an amount in cash equal to the Market Price of a
Warrant Share as of the Date of Exercise, multiplied by such fraction.
Section 10. Transfer Restrictions; Registration of the Warrant and
Warrant Shares.
(a) Neither the Warrant nor the Warrant Shares have been registered
under the Act. The Registered Holder, by acceptance hereof, represents that it
is acquiring this Warrant to be issued to it for its own account and not with a
view to the distribution thereof, and agrees not to sell, transfer, pledge or
hypothecate this Warrant, any purchase rights evidenced hereby or any Warrant
Shares unless a registration statement is effective for this Warrant or the
Warrant Shares under the Act or in the opinion of such Registered Holder's
counsel reasonably satisfactory to the Company, a copy of which opinion shall be
delivered to the Company, such transaction is exempt from the registration
requirements of the Act.
(b) Subject to the provisions of the following paragraph of this
Section 11, each Certificate for Warrant Shares shall be stamped or otherwise
imprinted with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE
OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH
SECURITIES UNDER THE ACT, OR AN OPINION OF COUNSEL,
SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT
REGISTRATION IS NOT REQUIRED UNDER THE ACT.
(c) The restrictions and requirements set forth in the foregoing
paragraph shall apply with respect to Warrant Shares unless and until such
Warrant Shares are sold or otherwise transferred pursuant to an effective
registration statement under the Act or are otherwise no longer subject to the
restrictions of the Act, at which time the Company agrees to promptly cause such
restrictive legends to be removed and stop transfer restrictions applicable to
such Warrant Shares to be rescinded.
(d) The Company will comply with the reporting requirements of Sections
13 and 15(d) of the Securities Exchange Act of 1934, as amended (the "1934
Act"), so long as it is required to do so pursuant to the 1934 Act. Until the
earlier of (i) two years from the issuance date of this Warrant, or (ii) the
sale by the Registered Holder of all of the Warrant Shares and the termination
of this Warrant, the Company shall comply with the disclosure obligations set
forth Paragraph (c) of Rule 144 promulgated under the Act (Rule 144") or any
successor rule or regulation thereto or any statute hereafter adopted to replace
or establish the exemption that is now covered by Rule 144. The Company also
will cooperate with the Registered Holder and with each holder of any Warrant
Shares in supplying such information as may be necessary for any such holders to
complete and file any information reporting forms presently or hereafter
required by the Securities and Exchange Commission as a condition to the
availability of an exemption from the Act for the sale of restricted securities.
Section 11. Registration Rights.
The Company covenants and agrees as follows:
(a) Definitions. For purposes of this Section 11:
8
<PAGE>
(i) The term "Holder" means each of the persons who
at the time holds Registrable Securities or a warrant or warrants (including
this Warrant) to purchase Registrable Securities.
(ii) The terms "register," "registered" and
"registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and such
registration statement or document becoming effective.
(iii) The term "Registrable Securities" means the
Warrant Shares issuable upon the exercise of this Warrant; provided, however,
that any such securities shall cease to be Registrable Securities when (i) one
or more registration statements with respect to the sale of such securities
shall have become effective under the Act and all such securities shall have
been disposed of in accordance with the plan of distribution set forth therein;
(ii) such securities shall have been disposed of in accordance with Rule 144
promulgated under the Act, or any successor rule or regulation thereto, or any
statute hereafter adopted to replace or to establish the exemption that is now
covered by said Rule 144; (iii) such securities may be sold by a Holder in a
transaction pursuant to the provisions of Rule 144 provided that such rule shall
be at such time available for the sale of all such securities which the Holder
at such time desires to sell; or (iv) such securities may otherwise be sold to
the public in a transaction not requiring registration under the Act.
(v) The term "Registration Expenses" means all
registration, qualification and filing fees, printing expenses, escrow fees and
blue sky fees, fees and disbursements of counsel for the Company and of the
Company's independent certified public accountants, in each case incident to or
required by the registration under this Warrant, and any other fees and expenses
of the registration under this Warrant which are not Selling Expenses.
(vi) The term "Selling Expenses" means all
underwriting discounts, selling commissions and stock transfer taxes applicable
to the securities registered by the Holders and all fees and disbursements of
counsel for any Holder.
(vii) All other capitalized terms used in this
Section that are not defined herein shall have the meaning otherwise given in
this Warrant.
(b) Piggyback Registration Rights.
(i) If, at any time or from time to time, the Company
shall determine to register any of its Common Stock, either for its own account
or for the account of a security holder or holders, other than (A) a
registration relating solely to stock option or employee benefit plans or (B) a
registration relating solely to a transaction covered by Rule 145 under the Act,
the Company will (X) promptly give the Holders written notice thereof, and (Y)
include in such registration, and in any underwriting involved therein, all of
the Registrable Securities specified in a written request or requests made by a
Holder or Holders within ten (10) days after receipt of such written notice from
the Company.
(ii) If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holder as part of the written notice given pursuant
to Paragraph (b)(i) of this Section 11. In such event, the right of each Holder
to registration pursuant to this Section 11 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of the Registrable
Securities owned by such Holder in the underwriting to the extent provided under
this Section 11. If a Holder proposes to distribute its Registrable Securities
through such underwriting it shall (together with the Company and any other
holders of securities of the Company distributing their securities through such
underwriting) enter into an underwriting agreement with the managing or lead
managing underwriter selected by the Company in the form customarily used by
such underwriter with such changes thereto as the parties thereto shall agree.
Notwithstanding any other provision of this Section 11, if the managing or lead
managing underwriter determines that market factors require that the number of
Registrable Securities and other securities requested to be included in the
registration be limited, the managing or lead managing underwriter may reduce
the number of Registrable Securities and securities of any other holders of
securities to be included in the registration. If the registration includes an
underwritten primary registration on behalf of the Company, the reduction shall
be
9
<PAGE>
taken (i) first from and to the extent of the securities requested to be
included in such registration by the Holders and the holders of any other
securities pro rata according to the number of securities requested by the
Holders and such holders to be included in the registration, and (ii) thereafter
from the securities to be registered on behalf of the Company. If the
registration consists only of any underwritten secondary registration on behalf
of holders of securities of the Company, the reduction shall be taken (i) first
from and to the extent of the securities requested to be included in the such
registration by the Holders and any other holders of securities included in the
registration other than pursuant to demand registration rights pro rata
according to the number of securities requested by the Holders and such other
holders to be included in the registration and (ii) thereafter from securities,
if any, to be registered on behalf of holders of securities included in the
registration pursuant to demand registration rights. The Company shall advise
any Holders and other holders participating in such underwriting as to any such
limitation and the number of shares that may be included in the registration and
underwriting. If a Holder disapproves of the terms of such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
managing or lead underwriter. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from the registration.
(iii) IN ACCORDANCE WITH PARAGRAPH (b)(i) OF THIS
SECTION 11, THE COMPANY HEREBY GIVES NOTICE TO THE HOLDER OF THIS WARRANT THAT
THE COMPANY HAS FILED A REGISTRATION STATEMENT ON FORM S-3 (THE "FORM S-3") WITH
THE COMMISSION FOR THE REGISTRATION OF SHARES OF THE COMPANY'S COMMON STOCK,
WHICH REGISTRATION STATEMENT HAS NOT YET BEEN DECLARED EFFECTIVE BY THE
COMMISSION. SHOULD THE HOLDER OF THIS WARRANT ELECT TO INCLUDE THE REGISTRABLE
SECURITIES IN SUCH REGISTRATION (SUCH REGISTRATION BEING HEREINAFTER REFERRED TO
AS THE "FORM S-3 REGISTRATION") PURSUANT TO THIS SECTION 11, THEN THE HOLDER
MUST DELIVER WRITTEN NOTICE OF SUCH ELECTION TO THE COMPANY IN ACCORDANCE WITH
PARAGRAPH (b)(i) ABOVE.
(iv) The Company may withdraw a registration for
which registration rights have been exercised pursuant to this Section 11 at any
time prior to the time it becomes effective.
(c) Contingent Demand Registration Right.
(i) If both (A) the Holder elects to include the
Registrable Securities in the Form S-3 Registration in accordance with the
provisions of Subsection (b) of this Section 11, and (B) thereafter, the Company
cancels the Form S-3 Registration prior to the Form S-3 being declared effective
(the effective date of such cancellation being hereinafter referred to as the
"Registration Cancellation Date"), then the Holders of a majority of the
Registrable Securities shall have a one-time demand registration right as set
forth below in Paragraphs (ii) through (vi) this Subsection (c).
(ii) Subject to the satisfaction of the conditions
set forth in Paragraph (i) above, if, at any time during the period beginning on
the Registration Cancellation Date and expiring on the date which is two hundred
and seventy days (270) after the date of issuance of this Warrant, the Company
shall receive a written request from the Holders of a majority of the
Registrable Securities that the Company file a registration statement under the
Act covering such number of Registrable Securities specified by them, then the
Company shall, subject to the limitations of this Section 11(c), use reasonable
efforts consistent with the terms contained in this Section 11 to effect the
registration under the Act of all such Registrable Securities as soon as
practicable thereafter; provided, however, that any registration request
pursuant to this Paragraph (ii) must be made by the Holder or Holders prior to
the expiration of a period of two hundred and seventy (270) days after the date
of issuance of this Warrant.
(iii) The Company shall not be obligated to take any
action to effect any registration, qualification or compliance pursuant to this
Section 11(c), (A) in any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting such
registration, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Act, or (B) if, within ten
(10) days after receipt by the Company of a request for registration pursuant to
Section 11(c)(ii), the Company gives notice to the Holder or Holders so
requesting such registration that it is engaged, or has a bona fide intention to
engage, within ninety (90) days of the date of
10
<PAGE>
such request, in a firmly underwritten public offering as to which each Holder
will be entitled to include Registrable Securities pursuant to Section 11(b)
hereof, and the Company does engage in such firmly underwritten public offering
in which each Holder will be entitled to include Registrable Securities pursuant
to Section 11(b) hereof within said 90-day period or such longer period as may
be required to complete such offering.
(iv) If a registration is requested by a Holder or
Holders pursuant to Section 11(c)(ii), the Company may include in such
registration securities for offering by the Company and any other holder of
securities who has the right to request the Company to register securities of
the Company in such registration.
(v) Notwithstanding anything to the contrary
contained herein, the Company need not cause a registration statement filed
pursuant to the provisions of this Section 11(c) to become effective under the
Securities Act on more than one (1) occasion; provided, however, that any
registration requested by a Holder or Holders pursuant to this Section 11(c)
which shall not have become effective or remained effective in accordance with
the provisions of this Section 11(c) shall not be deemed to be a registration
for any purpose hereunder.
(vi) Notwithstanding the foregoing, if the Company
shall furnish to the Holders a certificate signed by the Chief Executive Officer
of the Company stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed and it is therefore
essential to defer the filing of such registration statement, the Company may
direct that a registration pursuant to this Section 11(c) be delayed for so long
as the basis for the Board of Directors' judgment exists; provided; however,
that (A) the Company may not delay such registration for a period of more than
sixty (60) days from the date notice is first received by the Company from a
Holder or Holders pursuant to subsection (ii) above, and (B) the Company may not
defer its obligation in this manner more than once.
(d) Expenses of Registration. All Registration Expenses
incurred in connection with a registration pursuant to this Section 11 shall be
borne by the Company. All Selling Expenses relating to the Registrable
Securities registered on behalf of a Holder shall be borne by such Holder.
(e) Registration Procedures.
(i) In connection with the registration of
Registrable Securities pursuant to this Section 11, the Company shall as
expeditiously as is reasonable:
(A) prepare and file with the SEC on any
appropriate form a registration statement with respect to such Registrable
Securities and use reasonable efforts to cause such registration statement to
become effective;
(B) prepare and file with the SEC such
amendments (including post-effective amendments) and supplements to such
registration statement and the prospectus used in connection therewith as may be
necessary to keep such registration statement effective and to comply with the
provisions of the Act with respect to the disposition of all Registrable
Securities and other securities covered by such registration statement until the
earlier to occur of (1) the first anniversary of the date of issuance of this
Warrant and (2) the completion by the Holder or Holders of the distribution
described in such registration statement;
(C) furnish to each seller of such
Registrable Securities such number of conformed copies of such registration
statement and of each such amendment and supplement thereto (at least one of
which shall include all exhibits), such number of copies of the prospectus
included in such registration statement (including each preliminary prospectus
and any summary prospectus), in conformity with the requirements of the Act,
such documents incorporated by reference in such registration statement or
prospectus, and such other documents, as such seller may reasonably request in
order to facilitate the sale or disposition of such Registrable Securities;
11
<PAGE>
(D) immediately notify each seller of
Registrable Securities, at any time when a prospectus relating thereto is
required to be delivered under the Act, of the happening of any event as a
result of which the prospectus included in such registration statement, as then
in effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing or if it
is necessary, in the opinion of counsel to the Company, to amend or supplement
such prospectus to comply with law, and at the request of any such seller
prepare and furnish to any such seller a reasonable number of copies of a
supplement to or an amendment of such prospectus as may be necessary so that, as
thereafter delivered to the purchasers of such Registrable Securities, such
prospectus shall not include an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing and shall otherwise comply in all material respects with law and so
that such prospectus, as amended or supplemented, will comply with law; and
(E) use reasonable efforts to list such
securities on each securities exchange or over-the-counter market on which
shares of Common Stock are then listed, if any.
(ii) The Holder or Holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such Holder or Holders, the Registrable Securities held by them and
the distribution proposed by such Holder or Holders as the Company may from time
to time reasonably request and as shall be reasonably required in connection
with any registration, qualification or compliance referred to in this Section.
(iii) The Holder or Holders of Registrable Securities
included in any registration shall, upon request by the Company and any managing
or lead managing underwriter, execute and deliver custodian agreements and
powers of attorney in form and substance reasonably satisfactory to the Company
and as shall be reasonably necessary to consummate the offering.
(f) Indemnification. (i) The Company will indemnify each
Holder with respect to which a registration has been effected pursuant to this
Agreement against any and all losses, claims, damages, liabilities or expenses
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement or prospectus, or any amendment or
supplement thereto, incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Act or any rule or regulation
promulgated under the Act applicable to the Company in connection with any such
registration, and the Company will reimburse each such Holder, each such
underwriter and each person who controls any such underwriter, for any legal and
other expenses reasonably incurred, as such expenses are incurred, in connection
with investigating, preparing or defending any such claims, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage, liability or
expense arises out of or is based on any untrue statement or omission or alleged
untrue statement or omission, made in reliance upon and in conformity with
written information furnished to the Company by an instrument duly executed by
such Holder or underwriter and stated to be specifically for use therein.
(ii) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such registration is
being effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Act and each other such holder of securities
included in the registration against any and all losses, claims, damages,
liabilities and expenses (or actions in respect thereof), arising out of or
based on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement or prospectus, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statement therein, in the light of the circumstances
under which they were made, not misleading, and will reimburse the Company, such
holders, underwriters or control persons for any legal or any other expenses
reasonably incurred, as such expenses are incurred, in connection with
investigating or defending any such
12
<PAGE>
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) is made in such registration statement or
prospectus in reliance upon and in conformity with written information furnished
to the Company by such Holder.
(iii) Each party entitled to indemnification under
this Section 11 (the "Indemnified Party") shall give notice to the party
required to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which indemnity
may be sought, and shall permit the Indemnifying Party to assume the defense of
any such claims or any litigation resulting therefrom; provided, however, that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (which approval shall
not be unreasonably withheld), and the Indemnified Party may participate in such
defense at such Indemnified Party's expense; provided, however, that the failure
of any Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Agreement unless the failure to
give such notice is materially prejudicial to an Indemnifying Party's ability to
defend such action. Notwithstanding the foregoing, the Indemnifying Party shall
not be entitled to assume the defense for matters as to which there is, in the
opinion of counsel to the Indemnifying Party, a conflict of interest or separate
and different defenses. No Indemnifying Party, in the defense of any such claim
or litigation, shall, except with the consent of each Indemnified Party, consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect of such claim or
litigation. Each Indemnified Party shall furnish such information regarding
itself or the claim in question as an Indemnifying Party may reasonably request
in writing and as shall be reasonably required in connection with the defense of
such claim and the litigation resulting therefrom.
(g) 1934 Act Registration. The Company covenants and agrees
that until such time as there shall be no Registrable Securities outstanding:
(i) it will, if required by law, maintain an
effective registration statement (containing such information and documents as
the Commission shall specify) with respect to the Common Stock under Section
12(g) of the 1934 Act and will file in a timely manner such information,
documents and reports as the Commission may require or prescribe for companies
whose stock has been registered pursuant to said Section 12(g);
(ii) it will, if a registration statement with
respect to the Common Stock under Section 12(b) or Section 12(g) of the 1934 Act
is effective, make whatever filings with the SEC or otherwise make generally
available to the public such financial and other information as may be necessary
in order to enable the Holders to sell shares of Common Stock pursuant to the
provisions of Rule 144 promulgated under the Act, or any successor rule or
regulation thereto or any statute hereafter adopted to replace or to establish
the exemption that is now covered by said Rule 144; and
(iii) it will, if no longer required to file reports
pursuant to Section 12 (g) of the 1934 Act, upon the request of the Holder, make
publicly available the information specified in subparagraph (c) (2) of Rule
144, and will take such further action as any Holder may reasonably request, all
to the extent required from time to time to enable such Holder to sell
Registrable Securities without registration under the Act within the limitation
of the exemptions provided by Rule 144 or any similar rule or regulation
hereafter adopted by the SEC.
Section 12. Notices. All notices, requests, demands and other
communications relating to this Warrant shall be in writing and shall be deemed
to have been duly given if delivered personally or sent by United States
certified or registered first-class mail, postage prepaid, return receipt
requested, to the parties hereto at the following addresses or at such other
address as any party hereto shall hereafter specify by notice to the other party
hereto:
(a) If to the Registered Holder of this Warrant or the holder of the
Warrant Shares, addressed to the address of such Registered Holder or holder as
set forth on books of the Company or otherwise furnished by the Registered
Holder or holder to the Company.
13
<PAGE>
(b) If to the Company, addressed to Poore Brothers, Inc., 3500 South La
Cometa Drive, Goodyear, Arizona 85338, Attention: Chief Financial Officer.
Section 13. Binding Effect. This Warrant shall be binding upon and
inure to the sole and exclusive benefit of the Company, its successors and
assigns, and the holder or holders from time to time of this Warrant and the
Warrant Shares.
Section 14. Survival of Rights and Duties. This Warrant shall terminate
and be of no further force and effect on the earlier of (i) 5:00 p.m., Phoenix
time, on the Expiration Date and (ii) the date on which this Warrant and all
purchase rights evidenced hereby have been exercised, except that the provisions
of Sections 4 and 11(f) hereof shall continue in full force and effect after
such termination date.
Section 15. Governing Law. This Warrant shall be construed in
accordance with and governed by the laws of the State of Arizona.
Section 16. Section Headings. The Section headings in this Warrant are
for purposes of convenience only and shall not constitute a part hereof.
Section 17. Amendment or Waiver. This Warrant and any term hereof may
be amended, waived, discharged or terminated only by and with the written
consent of the Company and the holder of this Warrant.
IN WITNESS WHEREOF, the Company has caused this Warrant to be executed
under its corporate seal by its officers thereunto duly authorized as of the
date hereof.
POORE BROTHERS, INC.
By: __________________________
Name:
Title:
ATTEST:
By: __________________________
Name:
Title:
14
<PAGE>
FORM OF ELECTION TO PURCHASE
(To Be Executed Upon Exercise of this Warrant)
To Poore Brothers, Inc.:
The undersigned, the record holder of this Warrant, hereby
irrevocably elects to exercise the right, represented by this Warrant (Warrant
No. ___), to purchase ___________ of the Warrant Shares and herewith tenders
payment for such Warrant Shares to the order of Poore Brothers, Inc. of
$_________ representing the full purchase price for such shares at the price per
share provided for in such Warrant and the delivery of any applicable taxes
payable by the undersigned pursuant to such Warrant.
In lieu of paying the purchase price as provided in the
preceding paragraph, the undersigned will/will not (circle appropriate word(s))
make a cashless exercise pursuant to Section 3(c) of the attached Warrant.
The undersigned requests that certificates for such shares be
issued in the name of:
_______________________________ PLEASE INSERT SOCIAL SECURITY
OR TAX IDENTIFICATION NUMBER
_______________________________
_______________________________
_______________________________ _______________________________
(Please print name and address)
In the event that not all of the purchase rights represented
by the Warrant are exercised, a new Warrant, substantially identical to the
attached Warrant, representing the rights formerly represented by the attached
Warrant which have not been exercised, shall (subject to applicable transfer
restrictions) be issued in the name of and delivered to:
_____________________________________________________________________
(Please print name)
_____________________________________________________________________
(Please print address)
Dated: ______________________ Name of Holder (Print):
By: ________________________________
(Name): ____________________________
(Title): ___________________________
<PAGE>
FORM OF ASSIGNMENT
FOR VALUE RECEIVED, _______________________ hereby sells,
assigns and transfers to each assignee set forth below all of the rights of the
undersigned under the attached Warrant (Warrant No. _____) with respect to the
number of shares of Common Stock covered thereby set forth opposite the name of
such assignee unto:
Name of Assignee Address Number of Shares of
---------------- ------- Common Stock
------------
If the total of said purchase rights represented by the
Warrant shall not be assigned, the undersigned requests that a new Warrant
Certificate evidencing the purchase rights not so assigned be issued in the name
of and delivered to the undersigned.
Dated: ___________________ Name of Holder (Print):
By: ________________________________
(Name): ____________________________
(Title): ___________________________
2
<PAGE>
NOTICE OF EXERCISE
OF
PIGGYBACK REGISTRATION RIGHTS
To Poore Brothers, Inc.:
The undersigned, the record holder of that certain Warrant
dated November 4, 1998, issued by Poore Brothers, Inc. (the "Company") to
Norwest Business Credit, Inc. ("Norwest"), hereby notifies the Company of its
election to exercise its piggyback registration rights contained in Section 11
of the Warrant for the purpose of including all of the Warrant Shares (as such
term is defined in the Warrant) in the registration of which the Company has
provided notification to Norwest (in accordance with Paragraph (b) of Section 11
of the Warrant).
Sincerely,
NORWEST BUSINESS CREDIT, INC.
By: _________________________
Name:
Title:
3
EXHIBIT 10.6
AGREEMENT FOR PURCHASE AND SALE OF ASSETS
THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (this "Agreement") is
executed this 29th day of October, 1998 (the "Effective Date"), by and between
TEJAS SNACKS, L.P., a Texas limited partnership ("Seller"); KEVIN KOHL ("Kohl");
TOM BIGHAM ("Bigham"); and POORE BROTHERS, INC., a Delaware corporation ("Poore
Brothers"), and/or nominee or assignee (collectively with Poore Brothers,
"Buyer"). Kohl and Bigham are sometimes referred to in this Agreement
collectively as the "Principals". Buyer, the Principals and Seller are sometimes
referred to in this Agreement collectively as the "Parties" or individually as a
"Party".
RECITALS:
A. Seller is engaged in the business of the manufacture, distribution
and sale of potato chips and other snack foods including, but without
limitation, "cheese curls" and tortilla chips, all under the so-called "Bob's
Texas Style Potato Chips" (and similar names herein described) tradename and
trade dress, primarily within the State of Texas (the "Business").
B. On or about March 25, 1997, Seller acquired certain of the assets of
Bob's Texas Style Potato Chips, Inc., a Texas corporation ("Bob's") and Tejas
Style Distributing, Inc., a Texas corporation ("Tejas Distributing",
collectively, with Robert Rod ("Rod") and Tejas Distributing, the "Prior
Owners") pursuant to that certain Agreement for Sale of all Assets ("Original
Sale Agreement"), undated, by and among the Prior Owners, on one hand, and
Seller, on the other hand. As consideration for such sale, among other things,
those parties executed, delivered and consummated the following:
(1) That certain Promissory Note, dated March 25, 1997
(the "Prior Owners' Note"), in the original principal
amount of $230,000.00; and
(2) Consulting arrangement and other obligations
(collectively, "Commission Claim") described in and
secured by that certain Security Agreement, dated
March, 1997 (the "Security Agreement").
C. Pursuant to that certain Agreement to Exchange Claims ("Claims
Agreement") dated June 24, 1998 by and among the Prior Owners, Seller and
D.T.M.E.S., Inc., a Texas corporation ("D.T.M.E.S."), the Prior Owners agreed to
either transfer and assign to Seller or its nominee, or discharge, waive, remise
and render null and void, at the option of Seller, all of the Prior Owners'
claims against Seller of any kind, type or nature (collectively, "Prior Owners'
Claims") including, without limitation, the Note and the Commission Claim, in
exchange for certain consideration to be delivered to Bob's, Tejas Distributing
and/or Rod, as more fully set forth in the Claims Agreement.
D. Seller desires to sell to Buyer and Buyer desires to purchase from
Seller, on the terms and subject to the conditions of this Agreement, all of the
assets and properties of Seller of any kind, type or nature, with the exception
only of those assets and properties described in Exhibit A (the "Excluded
Assets").
4
<PAGE>
AGREEMENTS:
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants, conditions and agreements contained in this Agreement, and for other
good and valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, the Parties agree as follows:
1. Purchase and Sale. Subject to the terms and conditions of this
Agreement and with the exception of the Excluded Assets, Seller agrees to sell,
convey, transfer, assign and deliver to Buyer, and Buyer agrees to purchase from
Seller on the Closing Date (as defined below), all of the assets and properties
of Seller of every kind, character and description, whether tangible,
intangible, personal or mixed, and wherever located, all of which are referred
to collectively in this Agreement as the "Assets". The Assets to be conveyed,
transferred, assigned and delivered as provided by this Agreement shall include,
without limitation, the following:
1.1 Inventory. All raw materials, work in process and finished
goods produced or used in the Business, wherever located ("Inventory");
1.2 Personal Property. All equipment, tools, machinery,
supplies, materials and other tangible personal property used in any manner in
connection with the Business, wherever located ("Personal Property"), including,
without limitation, the Personal Property described in Exhibit C attached to
this Agreement;
1.3 Contractual Rights. Any and all rights in any manner
related to the ownership or use of the Assets or to the ownership, operation or
conduct of the Business, rights in or claims under leases, permits, licenses,
purchase and sales orders, covenants not to compete, stock, stock rights, and
all other contracts of any nature whatsoever ("Contractual Rights"), including,
without limitation, the Contractual Rights described in Exhibit D attached to
this Agreement, but excluding all accounts receivable as of the Closing Date;
and
1.4 Intellectual Property. All of the following in any manner
related to the ownership, possession or use of the Assets or to the ownership,
operation or conduct of the Business ("Intellectual Property"), including,
without limitation, the Intellectual Property described in Exhibit E attached to
this Agreement and set forth immediately below;
(A) To the extent Seller has rights therein, all
trade names, including but not limited to "Tejas Snacks", "Tejas Distributing",
"Tejas Merchandising", "Bob's Texas Style Potato Chips", "Texas Style Potato
Chips", "Texas Style", "Longhorn Style", "Colorado Style" and all trade dress
(collectively, the "Trademarks"); and
(B) All know-how, confidential business information,
processes, drawings, formulae, customer lists, supplier and distribution lists,
price lists, customer files, computer programs, technical and engineering data,
trade information and marketing materials (collectively, the "Other Proprietary
Rights").
2. No Assumed Liabilities. This Agreement specifically excludes, and
Buyer does not under any circumstances agree to assume, any liabilities of
Seller. All obligations accruing to and existing on the Closing Date (as defined
below) are and shall remain the sole obligation and responsibility of Seller.
5
<PAGE>
3. Purchase Price.
3.1 Payment of the Purchase Price. The Purchase Price (herein
so called) shall be One Million Six Hundred Thirty Thousand and No/100 Dollars
($1,630,000.00), subject to adjustment and payable as set forth below:
3.1.1 Deposit. The total sum of Seventy Five Thousand
and No/100 Dollars ($75,000.00) (the "Deposit") shall be paid by check, wire
transfer or other form of funds as follows:
(1) Two Deposits of Twenty Five Thousand and
No/100 Dollars ($25,000.00), each were deposited by Buyer with Seller on or
about September 16, 1998 and on or about September 25, 1998. Seller acknowledges
that the same were or will be applied to the payment of any accounts payable
(collectively "Payables") of Seller in such order and with such priority as
Seller and Buyer may reasonably determine. If the Closing fails to occur for any
reason other than Buyer's breach hereof, the Deposit shall be returned to Buyer
in the method provided in the Production Agreement (as herein defined); and
(2) On or before October 15, 1998, Buyer
shall deposit with Seller an additional Twenty Five Thousand and No/100 Dollars
($25,000.00) and, if so deposited, such sum shall be applied at Closing to the
payment of any Payables of Seller in such order and with priority as Seller and
Buyer may reasonably determine. If the Closing fails to occur for any reason
other than Buyer's breach hereof, the Deposit shall be returned to Buyer in the
method provided in the Production Agreement;
3.1.2 SBA Loan. The sum of Five Hundred Eighty Five
Thousand and No/100 Dollars ($585,000.00), subject to adjustment as set forth
below, shall be paid by Buyer repaying, or causing to be repaid, on the Closing
Date (as defined below) the existing SBA Loan (herein so called) to Seller with
a principal balance in the approximate amount of Five Hundred Eighty Five
Thousand and No/100 Dollars ($585,000.00); the SBA Loan is evidenced by that
certain promissory note dated March 7, 1997, in the original principal amount of
Six Hundred Thousand and No/100 Dollars ($600,000.00);
3.1.3 Claim Agreement Obligations. The sum of Three
Hundred Forty Five Thousand and No/100 ($345,000.00) shall be paid by Buyer on
the Closing Date as follows:
(1) The sum of Two Hundred Forty Five
Thousand and No/100 Dollars ($245,000.00) shall be paid by cash, wire transfer
or other form of immediately available or same day funds on the Closing Date on
behalf of Seller to the Prior Owners in accordance with Section 4 of the Claims
Agreement and the instructions of the Prior Owners; and
(2) The sum of One Hundred Thousand and
No/100 Dollars ($100,000.00) shall be paid by Buyer issuing to the Prior Owners,
in accordance with Section 4 of the Claims Agreement and the instructions of the
Prior Owners, unregistered common stock of Poore Brothers (the "Prior Owners'
Stock") with a value of One Hundred Thousand and No/100 Dollars ($100,000.00);
the value of such Prior Owners' Stock shall be determined in the manner set
forth below, as of 5:00 p.m. (MST) on the day immediately preceding the Closing
Date (the "Computation Date") and shall be
6
<PAGE>
delivered to the Prior Owners on the Closing Date, or as soon thereafter as is
reasonably practicable, given the requirements of Poore Brothers' transfer agent
and the like.
3.1.4 Stock. The sum of Three Hundred Fifty Thousand
and No/100 Dollars ($350,000.00) shall be paid by Buyer issuing to Seller (or to
such of Seller's principals as Seller may reasonably direct, so long as such
direct issuance is approved, in its sole discretion, by securities counsel for
Buyer and said distributees execute such documents and certificates as may be
required by Buyer or its counsel in connection therewith) Four Hundred Thousand
(400,000) shares of unregistered common stock of Poore Brothers (the "Stock")
with a stipulated value of Three Hundred Fifty Thousand and No/100 Dollars
($350,000.00). The certificates representing said Stock shall be delivered to
Seller on the Closing Date, or as soon thereafter as is reasonably practicable,
given the requirements of Poore Brothers' transfer agent and the like.
Seller hereby acknowledges that the Stock will be
so-called "restricted" or "144" stock, and that the same will not be tradable or
transferable except in accordance with Securities and Exchange Commission Rule
144 in effect from time to time. The Stock will be so legended in accordance
with the legend set forth in Schedule 3.1.4 attached.
3.1.5 Balance of the Purchase Price. The sum of Two
Hundred Seventy Five Thousand and No/100 Dollars ($275,000.00), calculated by
applying all Deposits theretofore made by Buyer, shall be paid in cash by Buyer
at Closing and shall be applied by Seller to Payables in such order and with
such priority as Seller and Buyer may reasonably determine.
3.2 Deposit. Any Deposits made hereunder shall be utilized by
Seller to pay Payables and, at the request of Buyer, Seller shall provide to
Buyer reasonable evidence of the utilization of such monies. Deposits shall be
utilized and credited in accordance with the terms of this Agreement, but if
this Agreement fails to close through failure of a condition precedent, Deposits
shall be subject to recoupment by Buyer under the Production Agreement.
3.3 Adjustment of the Purchase Price .
3.3.1 SBA Loan Adjustment. The Purchase Price is
based on the assumption that the unpaid principal balance and accrued but unpaid
interest and penalties (if any) and all other sums owed under the SBA Loan as of
the Closing Date (collectively, the "SBA Loan Balance") is, or will be, Five
Hundred Eighty Five Thousand and No/100 Dollars ($585,000.00). In the event the
actual SBA Loan Balance on the Closing Date is less or more than such amount,
then the cash payable by Buyer at Closing pursuant to Section 3.1.5 above shall
be adjusted upward or downward by a like amount, but no adjustment shall be made
to the Purchase Price. Seller shall keep the SBA Loan in good standing, with all
required payments timely made, until the Closing.
3.4 Allocation of the Purchase Price. Buyer and Seller agree
to cooperate in connection with the preparation of Form 8594 attached hereto as
Exhibit F, and agree to report the allocation of the Purchase Price among the
four classes of assets (described in I.R.C. ss. 1060 and the regulations
thereunder) as follows, such figures being subject to pro rata adjustment at
Closing if the cash portion of the Purchase Price is adjusted because of
variations in the balance of the SBA Loan:
7
<PAGE>
Class I: $ 0.00
Class II: $ 0.00
Class III: $ 100,000.00
Class IV: $1,530,000.00
3.5 Payment of Taxes and Other Charges. Seller shall pay any
transaction privilege tax, use tax, excise tax or other transfer fee or tax
which may be imposed by any governmental agency with respect to the sale,
transfer, conveyance and assignment of the Assets pursuant to this Agreement.
4. Employment Agreement. Subject to the terms and conditions of this
Agreement, at the Closing, Buyer, on the one hand, and Kohl and Bigham, on the
other, shall execute and deliver to each other two (2) original counterparts of
Employment Agreements (herein so called), each of which shall be dated as of the
Closing Date and in form and content identical to Exhibit G-1 and G-2. The
Employment Agreement shall provide for each Principal's employment with Buyer
for an initial one (1) year term commencing on the Closing Date, at a annual
salary of Eighty Thousand and No/100 Dollars ($80,000.00).
5. Conditions to Obligation of Buyer to Perform. The obligation of
Buyer to purchase the Assets at the Closing is subject to the satisfaction, on
or before the Closing Date, of all of the following conditions precedent, any or
all of which may be waived by Buyer by delivery to Seller of a written notice of
such waiver:
5.1 Representations and Warranties True on the Closing Date.
The representations and warranties of Seller contained in this Agreement, in the
Exhibits or in any certificate, document or statement delivered pursuant to the
provisions of this Agreement shall be true and correct on and as of the Closing
Date as though such representations and warranties were made on and as of the
Closing Date.
5.2 Compliance with Agreement. Seller and each of the
Principals shall have performed and complied with all agreements, covenants,
conditions and obligations required by this Agreement to be performed or
complied with by Seller and/or any one (1) or more of the Principals prior to or
on the Closing Date.
5.3 Opinion of Seller's Counsel. Buyer shall have received an
opinion of counsel for Seller, addressed to Buyer and Buyer's lender(s)
("Lender"), in form and substance reasonably satisfactory to Buyer and its
counsel to the effect that:
(A) Seller is a Texas limited partnership, duly
organized and validly existing and has the requisite partnership power and
partnership authority: (a) to own, lease and operate its properties; (b) to
carry on the Business in the places where and in the manner in which it is
presently being conducted; and (c) to consummate the transactions contemplated
by, and to perform its obligations under, this Agreement. The execution and
delivery of this Agreement, the consummation of the transactions contemplated
by, and the performance of the obligations under, this Agreement have been duly
authorized by the partners of Seller and no other partnership proceedings on the
part of Seller are necessary in connection therewith.
8
<PAGE>
(B) Although acknowledging that Texas law does not
apply to this Agreement or to any of the documents described herein, but
assuming, without justifying said assumption, that Texas law governed this
Agreement and said other documents, this Agreement would constitute, and each
other agreement or instrument to be executed and delivered by Seller pursuant to
the terms of this Agreement would constitute, a legal, valid and binding
obligation of Seller, enforceable against Seller in accordance with their
respective terms, and when the Assignment Documents (as defined below) are
executed, delivered and/or recorded and/or filed, as appropriate, title to the
Assets will be vested in Buyer, to such counsel's knowledge and based upon a UCC
search provided by Buyer, free and clear of all liens and encumbrances except as
are set forth in said opinion.
(C) Neither the execution and delivery of this
Agreement by Seller nor the consummation of the transactions contemplated by,
nor the performance of Seller's obligations under, this Agreement will: (a)
violate any provisions of the Partnership Agreement of Seller; (b) violate any
statute, code, ordinance, rule or regulation of the State of Texas applicable to
Seller, the Assets or the operation and conduct of the Business; (c) to said
counsel's knowledge, violate any judgment, order, writ, decree, injunction or
award of any court, arbitrator, mediator, government or governmental agency or
instrumentality to which Seller is a party or by which Seller or the Assets are
bound; (d) to said counsel's knowledge, violate, breach, conflict with,
constitute a default under, result in the termination of or accelerate the
performance required by, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Seller is a party or by which Seller or the
Assets are bound; or (e) result in the creation of any lien, security interest,
charge or other encumbrance upon any of the Assets.
(D) To said counsel's knowledge, there is no pending
or threatened litigation or other legal proceeding against Seller or affecting
the Assets or the operation or conduct of the Business or challenging the
validity or propriety of or seeking to enjoin or to set aside the transactions
contemplated by this Agreement.
(E) No consent, approval, authorization or other
action by, or filing with, any federal, state or local governmental agency or
instrumentality is required in connection with the execution and delivery by
Seller of this Agreement, the consummation by Seller of the transactions
contemplated by, or the performance of Seller's obligations under, this
Agreement.
5.4 Approval of Documentation. The form and substance of all
certificates, instruments, opinions and other documents delivered to Buyer under
this Agreement and required to carry out this Agreement, shall be reasonably
approved by counsel for Buyer.
5.5 Third Party Consents; SBA and Rod Performances. Buyer
shall have received evidence that all consents, waivers, permits, approvals and
authorizations which are required by the transactions contemplated by this
Agreement and have been made and/or obtained, if any. The SBA shall be in a
position to accept prepayment of the SBA Loan as set forth in Section 3.1.2
above, and all parties to the Claims Agreement shall be in a position to, and
shall, close the transactions contemplated thereby.
5.6 Transfer of Licenses; Assignment of Warranties. Seller
shall have transferred or assigned to Buyer on or before the Closing Date: (a)
all licenses, permits, franchises, certificates and authorizations, if any,
which are required or necessary to enable Buyer to operate and conduct the
Business
9
<PAGE>
in the manner in which Seller operates and conducts the Business; and (b) any
and all warranties covering or affecting the Personal Property and/or Inventory.
5.7 [RESERVED]
5.8 Failure of Conditions. Seller agrees to use commercially
reasonable efforts to satisfy the conditions set forth in this Section 5. If
Seller should be unable to satisfy any condition or conditions set forth in this
Section 5, Seller shall notify Buyer, and Buyer, by written notice to Seller to
be given prior to the Closing, shall either: (i) waive such condition or
conditions and proceed to close; or (ii) cancel this Agreement. If Buyer elects
to cancel this Agreement pursuant to the foregoing provisions of this Section 5,
and the failure of condition is not due to Seller's breach hereunder, the
provisions of the Production Agreement dealing with return of the Deposit shall
immediately become effective, Buyer shall have returned to it all other
documents Buyer either deposited with, or delivered to, Seller and thereupon
this Agreement shall be deemed null and void and neither Party shall have any
further obligation or liability under this Agreement, except as otherwise
expressly provided in this Agreement. If Buyer's cancellation is due to Seller's
breach hereunder, Seller shall immediately repay to Buyer all of the Deposit
theretofore made by Buyer and the balance of the provisions of the immediately
succeeding sentence shall also be in full force and effect without Buyer,
however, waiving any rights it may otherwise have at law or in equity on account
of Seller's breach hereunder.
6. Conditions to Obligation of Seller to Perform. The obligation of
Seller to sell the Assets at the Closing is subject to the satisfaction, on or
before the Closing Date, of all of the following conditions precedent, any or
all of which may be waived by Seller by delivery to Buyer of a written notice of
such waiver:
6.1 Representations and Warranties True on the Closing Date.
The representations and warranties of Buyer contained in this Agreement, in the
Exhibits or in any certificate, document or statement delivered pursuant to the
provisions of this Agreement shall be true and correct on and as of the Closing
Date as though such representations and warranties were made on and as of the
Closing Date.
6.2 Compliance with Agreement. Buyer shall have performed and
complied with all agreements, covenants, conditions and obligations required by
this Agreement to be performed or complied with by Buyer prior to or on the
Closing Date.
6.3 Opinion of Buyer's Counsel. Seller shall have received an
opinion of counsel for Buyer, addressed to Seller, in form and substance
reasonably satisfactory to Seller and its counsel to the effect that:
(A) Buyer is an Arizona corporation, duly organized,
validly existing, in good standing and has the requisite corporate power and
corporate authority to consummate the transactions contemplated by, and to
perform its obligations under, this Agreement. The execution and delivery of
this Agreement, the consummation of the transactions contemplated by, and the
performance of the obligations under, this Agreement have been duly authorized
by requisite corporate action on the part of Buyer.
10
<PAGE>
(B) This Agreement constitutes, and each other
agreement or instrument to be executed and delivered by Buyer pursuant to the
terms of this Agreement constitutes, a legal, valid and binding obligation of
Buyer, enforceable against Buyer in accordance with their respective terms.
(C) Neither the execution and delivery of this
Agreement by Buyer nor the consummation of the transactions contemplated by, nor
the performance of Buyer's obligations under, this Agreement will: (a) violate
any provisions of the Articles or Bylaws of Buyer; (b) violate any statute,
code, ordinance, rule or regulation of the State of Arizona applicable to Buyer;
(c) to said counsel's knowledge, violate any judgment, order, writ, decree,
injunction or award of any court, arbitrator, mediator, government or
governmental agency or instrumentality to which Buyer is a party or by which
Buyer is bound; and (d) to said counsel's knowledge, violate, breach, conflict
with, constitute a default under, result in the termination of or accelerate the
performance required by, any of the terms, conditions or provisions of any note,
bond, mortgage, indenture, deed of trust, license, lease, agreement or other
instrument or obligation to which Buyer is a party or by which Buyer is bound.
(D) To said counsel's knowledge, there is no pending
or threatened litigation or other legal proceeding against Buyer or affecting
the Assets or the operation or conduct of the Business or challenging the
validity or propriety of or seeking to enjoin or to set aside the transactions
contemplated by this Agreement, except as set forth in Poore Brothers' public
filings, reports and/or announcements and in so-called "audit letters" from such
counsel to auditors of Poore Brothers, the content of which letters need not be
disclosed to Seller.
(E) No consent, approval, authorization or other
action by, or filing with, any federal, state or local governmental agency or
instrumentality is required in connection with the execution and delivery by
Buyer of this Agreement, the consummation by Buyer of the transactions
contemplated by, or the performance of Buyer's obligations under, this
Agreement; provided, however, that counsel need not opine to securities issues
or to issues of Texas law, but only to Arizona law and Delaware corporate law.
6.4 Approval of Documentation. The form and substance of all
certificates, instruments, opinions and other documents delivered to Seller
under this Agreement and required to carry out this Agreement, shall be
reasonably approved by counsel for Seller.
6.5 Failure of Condition. Buyer agrees to use its best efforts
to satisfy the conditions set forth in this Section 6. If Buyer should be unable
to satisfy any condition or conditions set forth in this Section 6, Buyer shall
notify Seller, and Seller, by written notice Buyer to be given prior to the
Closing, shall either: (i) waive such condition or conditions and proceed to
close; or (ii) cancel this Agreement. If Seller elects to cancel this Agreement
pursuant to the foregoing provisions of this Section 6, the provisions of the
Production Agreement shall immediately become effective and the Deposit shall be
returned to Buyer pursuant to the performance of the Production Agreement, and
thereupon this Agreement shall be deemed null and void and neither Party shall
have any further obligation or liability under this Agreement, except as
otherwise expressly provided in this Agreement.
7. Representations and Warranties of Seller. Seller represents and
warrants to Buyer that, as of the date of this Agreement and as of the Closing
Date:
11
<PAGE>
7.1 Organization and Standing. Seller is a limited
partnership, duly organized and validly existing under the laws of the State of
Texas. Seller has the requisite partnership power and authority to own, lease
and operate its properties and is duly authorized and licensed to carry on the
Business in the places where and in the manner in which the Business is
presently being conducted. Attached hereto as Schedule 7.1 is a list of the
names and addresses of each person who, directly or indirectly, is a beneficial
owner of a general partnership interest, limited partnership interest or other
equity interest in Seller, along with a description of such person's beneficial
interest.
7.2 Capacity. Seller has full partnership power and Seller has
full legal capacity and authority to execute and deliver this Agreement, to
consummate the transactions contemplated by, and to perform their respective
obligations under this Agreement. The execution and delivery of, the
consummation of the transactions contemplated by, and the performance of
Seller's obligations under, this Agreement have been duly authorized by the
partners of Seller and no other partnership proceedings on the part of Seller
are necessary in connection therewith. This Agreement constitutes, and each
other agreement or instrument to be executed and delivered by Seller and the
Principals shall constitute, the valid and binding obligation of Seller and the
Principals, enforceable against Seller and the Principals, respectively, in
accordance with their respective terms.
7.3 Authority. Neither the execution and delivery of this
Agreement by Seller, the consummation by Seller and the Principals of the
transactions contemplated by, nor the performance of Seller's obligations under,
this Agreement will: (a) violate any provisions of the Partnership Agreement of
Seller; (b) violate any statute, code, ordinance, rule or regulation of any
jurisdiction applicable to Seller or the Assets; (c) violate any judgment,
order, writ, decree, injunction or award of any court, arbitrator, mediator,
government or governmental agency or instrumentality, which is binding upon
Seller or which would have an adverse effect on the Assets or the operation and
conduct of the Business; or (d) violate, breach, conflict with, constitute a
default under (whether with or without notice or lapse of time, or both), result
in termination of or accelerate the performance required by any of the terms,
conditions or provisions of any note, bond, mortgage, indenture, deed of trust,
license, lease, agreement or other instrument or obligation to which Seller
and/or one (1) or more of the Principals is a party or by which one (1) or more
of them, the Assets or the Business is bound.
7.4 Consents. No consent, approval, filing or registration
with or by any governmental agency or instrumentality or any other person or
entity is necessary in connection with the execution and delivery by Seller of
this Agreement, the consummation by Seller and the Principals of the
transactions contemplated by, or the performance of Seller's obligations under,
this Agreement.
7.5 Absence of Defaults. Except for certain Payables of Seller
which are past due (all of Seller's Payables being set forth on Schedule 7.5
hereto), Seller is not in default under, or in violation of, any provision of
its Partnership Agreement or under any indenture, mortgage, deed of trust, loan
agreement or similar debt instrument, or any other agreement to which Seller is
a party or by which Seller is bound or to which any of its properties is
subject, nor does there exist any fact, circumstance or event that has occurred
which, upon notice, lapse of time or both, would constitute such a default or
violation. Neither Seller nor the Assets are in violation of any statute, rule,
regulation or order of any court or Federal, state or local governmental agency
or instrumentality having jurisdiction over Seller, any of the Assets or any of
Seller's properties.
12
<PAGE>
7.6 Financial Statements. Within ten (10) days of the
Effective Date, Seller shall deliver to Buyer: (a) statements of Seller's income
and expenses for the twelve (12) months ended December 31, 1997, and the balance
sheets of Seller as of such date, prepared by Seller; (b) unaudited statements
of Seller's income and expenses for the six (6) month period ended June 30, 1998
and the balance sheet of Seller as of such date; (c) unaudited statements of
income and expenses for the monthly periods ended July 31, 1998 and August 31,
1998, each of items (b) and (c) immediately preceding being certified as being
accurate and complete by the Chief Financial Officer of Seller (collectively
referred to as "Financial Statements"); and (d) Seller shall give access to
Buyer or Buyer's representatives to all other financial information related to
Seller. The Financial Statements do not contain any untrue statement of material
fact or omit to state any material fact necessary to make the statements or
information in them not misleading. The Financial Statements have been prepared
in accordance with generally accepted accounting principles applied consistently
by Seller throughout the periods indicated and present fairly the financial
position and results of operations of Seller as of the dates and for the periods
represented. Seller is solvent from a balance sheet standpoint and, assuming
Closing and application of the Purchase Price in the manner set forth herein,
will not be rendered insolvent by the consummation of the transactions
contemplated by this Agreement.
7.7 Liabilities, Labor Issues, etc. Except as set forth in the
Financial Statements, Seller has no material liabilities or obligations of any
kind, type or nature, contingent or fixed, or accrued or to accrue. Without
limiting the foregoing, Seller is not a party to any collective bargaining
agreement, profit sharing or pension agreement or plan or any other item which,
under any circumstances, could bind either Buyer, any of the Assets or the
Business after the Closing. Seller has enjoyed and continues to enjoy good
relations with its labor force and Seller will cooperate with Buyer in all
reasonable manners to endeavor to cause such of Seller's existing employees, as
Buyer may request, to continue their employment with Buyer after the Closing.
Except as set forth on Schedule 7.7, Seller is not indebted or obligated to any
of its officers, directors or employees in any manner.
7.8 Capital Structure. The capital structure of Seller
consists solely of a one percent (1%) partnership interest held by its general
partner and a ninety nine percent (99%) partnership interest held by its limited
partners, all of which are held as set forth in the Financial Statements. All of
such units have been validly issued and are fully paid and non-assessable.
Seller has granted no other equity interests, options, rights or other items of
any kind, type or nature convertible into units to any other person or entity.
7.9 Absence of Specified Changes. From August 31, 1998, there
has not been any:
(A) Transaction by Seller except in the ordinary
course of business;
(B) Material adverse change in the Assets, the
financial condition, liabilities, business, operations or prospects of Seller;
(C) Destruction, damage to or loss of any of the
Assets (whether or not covered by insurance) that materially and adversely
affects the financial condition, business, operations or prospects of Seller or
the Business;
13
<PAGE>
(D) Loss of employees, suppliers or customers or
other event or condition of any character materially and adversely affecting the
Assets or the financial condition, business or prospects of Seller or the
Business, except for the Resignation (herein so called) of Mark Peeks ("Peeks")
during September, 1998, relating to which, or to his employment with Seller,
Peeks has no known claim against Seller;
(E) Change in accounting methods or practices
(including, without limitation, any change in depreciation or amortization
policies or rates) by Seller;
(F) Except for ordinary and normal depreciation taken
in accordance with generally accepted accounting principals, revaluation by
Seller of any of the Assets;
(G) Except as set forth on Schedule 7.9, increase in
the salary or other compensation payable, or to become payable, by Seller to any
of its officers, directors or employees, or any declaration, payment, commitment
or obligation of any kind for the payment by Seller of a bonus or other
additional salary or compensation to any such person;
(H) Acquisition or disposition of any of the Assets,
except in the ordinary course of business;
(I) Amendment or termination of any contract,
agreement or license to which Seller is a party, except in the ordinary course
of business;
(J) Loan by Seller to any person or entity, or
guaranty by Seller of any loan or any other obligation or liability of any kind,
type or nature of any third party;
(K) Mortgage, pledge, security interest, lien or
other encumbrance of any of the Assets;
(L) Waiver or release of any right or claim of
Seller, except in the ordinary course of business;
(M) Other event or condition of any character that
has or might have a materially adverse effect on the Assets or the financial
condition, business or prospects of Seller or the Business;
(N) Incurrence of any liability or obligation
(whether absolute, accrued or contingent) affecting Seller or the Business,
except in the ordinary course of business which, from August 31, 1998, through
Closing, shall not exceed, in the aggregate, $25,000.00, or as to any individual
liability or obligation, $25,000.00;
(O) Distribution on account of any class of stock or
other equity security, including without limitation, any dividend or redemption;
or
(P) Agreement by Seller to do any of the things
described in the preceding Subsections A. through O., inclusive.
14
<PAGE>
7.10 Litigation and Claims. Except as set forth on Schedule
7.10 attached, Seller is not a party to any, and there is no pending or
threatened, suit, action, arbitration, legal, administrative or other proceeding
or governmental investigation against Seller or affecting the Assets, the
operation and conduct of the Business or its prospects, or challenging the
validity or propriety of, or seeking to enjoin or to set aside the transactions
contemplated by, this Agreement. To the best of Seller's knowledge, there is no
basis for the assertion of any proceeding, claim, action or governmental
investigation. Seller is not a party to any judgment or decree, nor is Seller in
default with respect to any order, writ, injunction or decree of any Federal,
state, local or foreign court, department, agency or instrumentality which will,
or is likely to, affect the Assets, Seller's title to the Assets, the ability of
Seller to perform its obligations under this Agreement or the Business or
prospects of Seller.
7.11 Compliance with Laws. To the best of Seller's knowledge,
Seller is in compliance with, and is not in default under, any applicable
federal, state and local statutes, regulations, ordinances, zoning laws,
engineering standards, safety standards, environmental standards and any other
applicable law (collectively, "Laws") in connection with the ownership and use
of the Assets or the conduct and operation of the Business. Seller holds all
required franchises, permits, licenses, certificates and authorizations
(collectively, "Permits") necessary or appropriate in connection with the
ownership and use of the Assets and the conduct and operation of the Business
and all of said items are current and valid as of the Effective Date.
7.12 Inventory. The portion of the Inventory consisting of
food items ("Food Inventory") now, and on the Closing Date will, consists of
items of a quality usable and saleable in the usual and ordinary course of the
Business and does not and will not include obsolete or damaged items. Unless
otherwise requested by Buyer, all Inventory will be transferred to Buyer at
Closing.
7.13 Personal Property. All items of Personal Property
described in Exhibit C are in the possession of Seller and Seller has or will
have good and clear title to same. Seller will deliver to Buyer, immediately
after execution hereof, documentation acceptable to Buyer indicating that Seller
purchased all items of Personal Property and Intellectual Property (described
immediately below) from Prior Owners; such documentation shall include
appropriate and acceptable instruments of assignment to Seller. Seller
represents and warrants that D.T.M.E.S. has no claim or any ownership interest
in or to any Asset to be conveyed or transferred hereunder or, if it does,
Seller shall cause D.T.M.E.S. to execute all documents of conveyance set forth
herein as to any Asset in which D.T.M.E.S. claims or may claim to have an
interest. If requested by Buyer, Seller shall cause D.T.M.E.S. to execute
appropriate instruments of quit-claim as to all of the Assets at the Closing.
All items of Personal Property shall be conveyed "AS-IS" and "WHERE-IS" and
without any representation or warranty to as their physical condition including,
without limitation, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A
PARTICULAR PURPOSE. The foregoing shall not impair Seller's warranty of title
thereto.
7.14 Intellectual Property.
(A) Except for liens to be extinguished at Closing,
Seller owns and possesses all right, title and interest in and to the
Intellectual Property, free and clear of all liens, security interests and
encumbrances and no claim has been made or threatened by any third party against
Seller contesting the validity, enforceability, use or ownership of the
Intellectual Property;
15
<PAGE>
(B) To the best of Seller's knowledge, there is no
infringement of, misappropriation by or conflict with any third party with
respect to the Intellectual Property (a "Third Party Infringement");
(C) To the best of Seller's knowledge, Seller has not
infringed, misappropriated or otherwise engaged in any conduct which conflicted
with any proprietary rights of any third parties in or to the Intellectual
Property, nor will any infringement, misappropriation or conflict occur as a
result of the continued operation of the Business as it is presently conducted
(a "Seller Infringement");
(D) Except as set forth in the Production Agreement,
Seller has not granted to any third party any license, right or other interest
in the Intellectual Property; and
(E) Seller believes it has, or will at Closing have,
taken commercially reasonable actions to protect its rights with respect to the
Intellectual Property, and will continue to preserve and protect its rights in
the Intellectual Property prior to the Closing, all as set forth on Schedule
7.14. Without limiting the generality of the foregoing, Seller has, or will at
Closing have, registered (collectively, "Registration") the Intellectual
Property including, without limitation, the Trademarks with the federal and
state authorities, and all of such Trademarks are believed, in good faith, by
Seller to be in good standing and not infringed, all as set forth on Schedule
7.14. At the Closing, Seller shall take all steps and execute all documents
reasonably requested or required by Buyer to transfer all of the Intellectual
Property to Buyer.
7.15 Title to Assets. Seller has good and marketable title to
the Assets, free and clear of all liens, pledges, charges, security interests,
encumbrances, claims, conditional sales agreements, licenses, covenants,
conditions, restrictions on transfer, or other restrictions or other rights of
third parties, except as disclosed in Exhibit C. All such liens and encumbrances
disclosed on Exhibit C shall be released on or before the Closing Date. No
partner, contractor or employee of Seller owns or has any interest, directly or
indirectly, in any of the Assets.
7.16 Suppliers and Customers. Exhibit H contains a list of
Seller's customers purchasing more than $10,000.00 from Seller in goods or
services in the last twelve (12) months during the twelve-month period
immediately preceding the Effective Date. Except as described in Exhibit H,
Seller has not made and shall not make any commitment to any such customer or to
any employee, agent or representative of such customer to provide any special
discount, allowance or other accommodation to the customer. Except as further
set forth in Exhibit H, Seller has no information and is aware of no facts
indicating that any of the suppliers or customers listed in Exhibit H intend to
cease doing business with Seller or to materially alter the amount of business
that they are presently doing with Seller. Seller shall, post-Closing, cooperate
with Buyer in effecting an orderly transition of the suppliers and customers to
Buyer and shall take all steps as are requested by Buyer (including, without
limitation, executing letters of recommendation, transfer and the like) in order
to effect such a transition if the Closing occurs.
7.17 Insurance Policies and Coverages. Exhibit I is a list of
and brief description of all insurance polices (including policy amounts) which
provide coverage to Seller, including without limitation, product liability,
general liability, fire insurance policies on or covering the Business and on or
covering each item of Inventory and Personal Property. To the best knowledge of
Seller, Seller's insurance coverages are adequate for the conduct of the
Business. Seller's product and general liability
16
<PAGE>
coverages include both "premises and operations" coverage and "products and
completed operations" coverage, and such insurance is written on an "occurrence"
form policy. Seller has not received notice of termination of any policy and
there are no facts or conditions which, with notice or lapse of time, or both,
could result in a termination of any of the policies. The insurance policies
listed in Exhibit I will be continued in full force and effect until the Closing
Date. There has been no rating termination or refusal to issue insurance
involving any aspect of the Business, including without limitation, for products
liability in any manner pertaining to the Inventory and/or the items sold by the
Business.
7.18 Contractual Rights. Exhibit D is a list of all written
contracts to which Seller is a party. No contract, agreement or other obligation
of Seller shall bind or affect the Assets or Buyer after the Closing, unless
Buyer specifically assumes the same pursuant to the terms hereof. The parties
understand that Buyer does not intend to assume any Contracts with Seller
post-Closing, except as otherwise set forth herein.
7.19 Brokers. No broker or finder has acted for Seller in
connection with this Agreement or the transactions contemplated hereby and no
broker or finder is entitled to any brokerage commissions, finder's fee or other
compensation based on agreements or arrangements made by Seller.
7.20 Full Disclosure. The representations, warranties and
statements of Seller in this Agreement, in any Exhibit or in any certificate or
other document furnished by Seller to Buyer pursuant to, or in furtherance of,
this Agreement, are complete, current and accurate, do not contain or will not
contain any untrue statement of material fact, and do not omit or will not omit
to state any material fact necessary to make each representation, warranty or
statement accurate and not misleading in any material respect. Certificates or
documents furnished by either Principal to Seller in the context of this
transaction and which relate to Buyer shall be deemed to have been furnished by
Seller for purposes of this Section 7.20. Seller has, and prior to Closing shall
have, provided to Buyer, in writing, any information necessary to ensure that
the representations, warranties, or statements made to Buyer are complete,
current and accurate and are not misleading in any material respect.
7.21 Certain Definition. When used in this Section 7, the word
"material" (and grammatical variants thereof) shall mean and refer to any item,
act, omission or occurrence which, individually, or in the aggregate, would or
could lead to a claim against Seller or the Assets, or any of them, of greater
than $10,000.00.
8. Representations and Warranties of Buyer. Buyer represents and
warrants to Seller that, as of the date of this Agreement and as of the Closing
Date:
8.1 Organization and Standing. Poore Brothers is a corporation
duly organized, validly existing and in good standing under the laws of the
State of Delaware. Buyer has the requisite corporate power and corporate
authority to own, lease and operate its properties and is duly authorized and
licensed to carry on the business in the places where and in the manner in which
such business is presently being conducted.
8.2 Capacity. Buyer has full corporate power, legal capacity
and authority to execute and deliver this Agreement and to consummate the
transactions contemplated by, and the performance of the obligations under, this
Agreement. The execution and delivery of this Agreement, the consummation
17
<PAGE>
of the transactions contemplated by, and the performance of the obligations
under, this Agreement have been duly authorized by the Board of Directors of
Buyer and no other corporate proceedings on the part of Buyer are necessary in
connection therewith. This Agreement constitutes, and each other agreement or
instrument to be executed and delivered by Buyer pursuant to this Agreement will
constitute, valid and binding obligations of the Buyer, enforceable against
Buyer in accordance with their respective terms.
8.3 Authority. Neither the execution and delivery of this
Agreement by Buyer, the consummation of the transactions contemplated by, nor
the performance of Buyer's obligations under, this Agreement will: (a) violate
any provision of the Articles of Incorporation or Bylaws of Buyer; (b) violate
any statute, code, ordinance, rule or regulation of any jurisdiction applicable
to Buyer or to its properties or assets; (c) violate any judgment, order, writ,
decree, injunction or award of any court, arbitrator, mediator, government or
governmental agency or instrumentality which is binding upon Buyer or which
would have an adverse effect on its properties or assets; or (d) violate,
breach, conflict with, constitute a default under or result in termination of or
accelerate the performance required by any of the terms, conditions or
provisions of any note, bond, mortgage, indenture, deed of trust, license,
lease, agreement or other instrument or obligation to which Buyer is a party or
by which Buyer or any of its properties or assets is bound.
8.4 Consents. No consents, approvals, filings or registrations
with or by any governmental agency or instrumentality or any other person or
entity are necessary in connection with the execution and delivery by Buyer of
this Agreement, the consummation by Buyer of the transactions contemplated by,
or the performance of Buyer's obligations under, this Agreement.
8.5 Brokers. Except for brokerage or consulting fees due
Everen Securities, Inc. of which Buyer has heretofore made Seller aware and
which Buyer shall defray in their entireties, no broker or finder has acted for
Buyer in connection with this Agreement or the transactions contemplated hereby
and no broker or finder is entitled to any brokerage commissions, finder's fee
or other compensation based on agreements or arrangements made by Buyer.
9. Covenants of Seller. Seller covenants and agrees as follows:
9.1 Right of Inspection. From the Effective Date through the
Closing Date, Seller shall permit Buyer and its authorized representatives to
have full access to Seller's properties during regular business hours, shall
make its employees and authorized representatives available to confer with Buyer
and its authorized representatives and shall make available to Buyer and its
authorized representatives all books, papers and records relating to the Assets,
the Business or the obligations and liabilities of Seller relating thereto which
may be reasonably requested by Buyer, including, but not limited to, all books
of account (including the general ledger), tax records, organizational
documents, contracts and agreements, filings with any regulatory authority, any
financial operating data and any other business information relating to Seller's
business activities or prospects as Buyer may from time to time request. No such
investigation by Buyer shall affect the representations, statements and
warranties of Seller and each such representation, statement and warranty shall
survive any such investigation.
9.2 Conduct of Business. From the Effective Date until the
Closing Date:
18
<PAGE>
(A) Except as provided below, Seller shall conduct
the Business and shall engage in transactions only in the usual and ordinary
course of business and in a commercially reasonable manner and will do so
diligently and in substantially the same manner as it has previously. Seller
will use all commercially reasonable efforts to preserve its business
organization intact and to preserve all present relationships of Seller with,
and the goodwill of, suppliers, customers, and others having a business
relationship with Seller. Seller further agrees to protect the Assets and to
maintain the Inventory and Personal Property in the ordinary course of business
until Closing.
(B) Seller will not, except in the usual and ordinary
course of business or as otherwise consented to or approved by Buyer in writing,
or as permitted or required by this Agreement: (a) institute any method of
manufacture, purchase, sale, lease, management, accounting or operation that
will vary from those methods used by Seller as of the Effective Date; (b) cancel
any existing policy of insurance; (c) enter into any new contract, commitment or
other transaction not in the usual and ordinary course of business and, if in
the usual and ordinary course of business, not in an amount exceeding $25,000.00
per transaction or $25,000.00 in the aggregate; (d) make any capital
expenditures in an amount exceeding $5,000.00 for any single item or $5,000.00
in the aggregate, or enter into any lease of capital equipment or property which
has a term exceeding thirty (30) days or under which the annual lease charge is
in excess of $2,000.00; (e) sell, dispose of or encumber any of the Assets; (f)
incur any new indebtedness or other liabilities other than in the usual and
ordinary course of business, and, if in the usual and ordinary course of
business, not in an amount exceeding $25,000.00 per transaction or $25,000.00 in
the aggregate; (g) waive or compromise any right or claim or cancel, without
full payment, any note, loan or other obligation owing to Seller; (h) modify,
amend, cancel, renew or terminate any Contract listed in Exhibits C and D; (i)
take any action or fail to take any action which would cause any of Seller's and
Principals' representations in this Agreement to be untrue as of the Closing
Date; or (j) enter into any agreement obligating Seller to do any of the
foregoing prohibited acts.
(C) Seller shall maintain its partnership existence
and powers and will not dissolve or liquidate.
(D) Seller will not do any act or omit to do any act
that will cause a breach or default of any contract, obligation, lease, license
or other agreement to which Seller is a party or which affects the Assets,
Seller's title to the Assets or the operation and conduct of the Business.
Notwithstanding the foregoing, immediately upon the execution and delivery
hereof, Seller shall, in accordance with the provisions of Exhibit J hereto,
transfer all of Seller's production requirements to Buyer. Said Production
requirements shall continue to be serviced by Buyer until either the Closing or
the failure of a condition to Closing hereunder, whereupon, except for the
business of Hecht (as herein defined as respects Deposits to be returned to
Buyer), Buyer shall reasonably cooperate with Seller to retransfer said
production business to Seller.
9.3 Local Law Issues. Seller represents that Texas has
repealed its so-called "bulk transfer act" and therefore no compliance is
necessary therewith. Seller also believes that no sales, transaction privilege
or similar tax will be due with regard to the transactions contemplated hereby,
but if any such tax is payable, Seller shall be entirely responsible for same
and Buyer shall have no responsibility therefor.
19
<PAGE>
Seller also represents to Buyer that Seller does not
pay any tax at the entity level, except for ad valorem real and personal
property taxes including, without limitation, income or transaction privilege or
sales taxes and therefore no liens or obligations relating to said taxes will
bind or effect the Assets or Buyer post-Closing. Seller will, at or prior to
Closing, pay all personal property taxes relating to any of the Assets
transferred hereby and exhibit to Buyer reasonable evidence of receipts
therefor. Seller shall be responsible, and shall timely pay and exhibit receipts
to Buyer, for all 1998 personal property taxes relating to the Assets.
9.4 Consents. Seller shall obtain any and all necessary
consents, waivers, permits, approvals and authorizations of, and complete any
and all filings or registrations with, all Federal, state and local governmental
bodies which are necessary to consummate the transactions contemplated by this
Agreement or to permit Buyer to continue the Business after the Closing Date.
Seller shall obtain any and all consents, waivers, approvals or authorizations
of all other persons or entities as may be required for the sale, assignment and
transfer to Buyer of the Assets.
9.5 Cooperation. Seller agrees to take, or cause to be taken,
all action and to do, or cause to be done, all things necessary, proper or
advisable to consummate the transactions contemplated by, and to perform its
obligations under, this Agreement.
9.6 Disclosure of Changes. Seller will promptly notify Buyer
in writing of: (a) the commencement or threat of any threatened lawsuit or claim
against Seller or affecting the Assets, the operation and conduct of the
Business or its prospects or challenging the validity or propriety of, or
seeking to enjoin or to set aside the transactions contemplated by, this
Agreement; (b) any adverse change in the financial condition of Seller or the
Business; or (c) any change in any representations or warranties of Seller set
forth in this Agreement or in any Exhibit, certificate or other documents
delivered to Buyer by Seller pursuant to this Agreement.
9.7 Restrictive Covenants.
9.7.1 Restricted Activities. Principals and Seller
covenant and agree as follows:
(A) For a period of five (5) years from and
after: i) the Closing Date, as to Seller; and, ii) their respective terminations
of employment, as to the Principals (collectively, the "Time Limit"), neither
the Principals nor Seller will compete with the Business, or directly or
indirectly own any interest in, operate, manage or control in any manner any
entity which competes with the Business in the State of Texas. The foregoing
provision, however, shall not prohibit Seller and/or Principals from investing
in securities of any corporation whose securities are listed on a national
securities exchange or traded in the over the counter market if Seller and the
Principals shall collectively be the owner(s), beneficially or of record, of
less than one percent (1%) of any class of the stock of such corporation.
(B) Neither the Principals nor Seller shall,
for the duration of the Time Limit: (a) directly or indirectly solicit or
service in any way, on behalf of themselves or on behalf of or in conjunction
with others, any customer, distributor, manufacturer's representative or client
or in any other way seek to induce the discontinuance of any business
relationship between the Business and said customers or clients; or (b) directly
or indirectly solicit, on behalf of themselves or on behalf of or in
20
<PAGE>
conjunction with others, any employee or supplier of Buyer to terminate his or
her employment or other relationship with Buyer.
(C) Neither the Principals nor Seller will,
for the duration of the Time Limit, without authorization of Buyer, use for
themselves or for any person or corporation or other entity, or disclose to any
entity which competes with the Business, any confidential information concerning
the suppliers and customers of the Business. Confidential information shall mean
information available to Seller and/or the Principals as a consequence of their
respective ownership, use or control of the Assets and the operation of the
Business and not otherwise generally known in the industry.
9.7.2 Reasonable Restrictions. Seller and the
Principals acknowledge and agree that the duration and geographical limits of
the restrictions set forth in this Section 9.7 have been reviewed by Seller's
and Principals' legal counsel and specifically discussed and negotiated and are
reasonable in view of all the facts and circumstances known to Seller and
Principals.
9.7.3 Material Minimum. Seller and the Principals
acknowledge and agree that the duration of time and geographical restrictions
set forth in this Section 9.7 are reasonably necessary to protect the Assets and
interests transferred pursuant to this Agreement, that any violation of such
restrictions would cause Buyer substantial injury and that Buyer would not have
entered into this Agreement without Seller's and the Principals' agreements to
be bound by such restrictions.
9.7.4 Enforcement of Restrictions. Seller and the
Principals further acknowledge and agree that an action for damages would not
provide full and adequate compensation in the event of a violation of such
restrictions. Therefore, in the event of any violation of such restrictions by
Seller and/or the Principals, Buyer shall be entitled, in addition to any other
remedy, to preliminary and permanent injunctive relief.
9.7.5 Severability of Initial Provisions. If a court
in any jurisdiction should conclude that the foregoing covenants are
unenforceable according to their terms either because of their duration or the
geographic area covered, the Parties agree that a court of competent
jurisdiction shall reduce such duration or geographic area, insofar as that
jurisdiction only is concerned, so that the resulting duration and geographic
area shall be the maximum that such court shall conclude is enforceable in that
jurisdiction, which reduction shall be performed as follows: in the case of
duration, the duration shall be reduced by one (1) month at a time until it
shall be the maximum enforceable duration; and in the case of geographic area,
such area shall be reduced by eliminating individual counties within states one
(1) at a time therefrom until such area shall be the maximum enforceable
geographical coverage. The Parties acknowledge that the remedies of specific
performance and/or injunctive relief shall be available and proper in the event
of the actual or imminent refusal or failure of Seller or the Principals to
perform their respective obligations under this Agreement.
9.8 Information. Seller shall deliver the following materials
to Buyer not less than five (5) days prior to the Closing Date (and, if prior to
the Closing Date Seller receives or discovers any additional materials required
to be delivered to Buyer, as soon as reasonably possible after such receipt or
discovery):
21
<PAGE>
(A) Copies of all contracts and leases set forth in
Exhibits C and D, together with all modifications and amendments thereto;
(B) Copies of all security interests, mortgages,
pledge agreements, conditional sales contracts, financing statements or other
documents or instruments evidencing any security interests, liens, charges,
claims, encumbrances or other interest in any part of the Assets, together with
a listing of the current amount of indebtedness secured by each such document or
instrument;
(C) Copies of all relevant court, administrative,
arbitral and governmental papers and all other documents relating to the matters
set forth in Section 6.10, if any;
(D) Copies of all insurance policies listed in
Exhibit I; and
(E) Copies of such other materials as may be
reasonably requested by Buyer.
9.9 Securities Issues. Each of Seller, Kohl and Bigham hereby
acknowledges that Buyer will be relying upon exemptions from the registration
requirements of the Securities Act of 1933, as amended (the "1933 Act"), and The
Securities Act of 1957 of Texas (the "Texas Act") in connection with the
issuance of the Stock to Seller. Each of Seller, Kohl and Bigham further
acknowledges that the availability of the exemption under the Texas Act is
dependent upon a number of factors, including, without limitation: the receipt
by Seller of certain information regarding Buyer; whether Seller is a
"sophisticated investor" (as such term is used in the rules promulgated under
the Texas Act); and the imposition on Seller of certain restrictions on the
resale or transfer of the Stock. In connection with establishing the
applicability of the above-mentioned exemptions, each of Seller, Kohl and Bigham
represents and warrants to, and agrees with, Buyer as follows:
(A) The total value of the Stock will not exceed
twenty percent (20%) of Seller's net worth at the time of issuance of the Stock
by Buyer to Seller. Seller has no need for liquidity in the Stock and Seller can
afford to lose its entire investment in the Stock.
(B) The principals of Seller have such knowledge of
finance, securities and/or investments, generally, as well as experience and
skill in investments based upon actual participation, that they are capable of
evaluating the merits and risks of the issuance of the Stock to Seller, and such
persons do not require a purchaser representative to assist in any such
evaluation.
(C) The Stock is being acquired by Seller for its own
account for purposes of investment and not "with a view to" the "distribution"
thereof, as such terms are used in the 1933 Act, and the rules and regulations
thereunder;
(D) Seller acknowledges that the Stock constitutes
"restricted securities" under federal and state securities laws insofar as it
has not been registered under the 1933 Act or the securities laws of any other
jurisdiction, that it may not be resold or transferred without compliance with
the registration or qualification provisions of the 1933 Act or applicable
federal and state securities laws or an opinion of counsel that an exemption
from such registration and qualification requirements is available. Each of
Seller, Kohl and Bigham is familiar with Rule 144 promulgated under the 1933
Act, as presently in effect, and the resale limitations imposed thereby and by
the 1933 Act;
22
<PAGE>
(E) Seller, Kohl and Bigham acknowledge that any
certificate or certificates representing the Stock that are issued by Buyer will
bear the following legend or a legend similar thereto:
THE STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, OR UNDER ANY STATE SECURITIES LAWS. SUCH
STOCK HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY
AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF. SUCH
STOCK MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED
OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN
EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND
COMPLIANCE WITH THE REQUIREMENTS OF ANY APPLICABLE
STATE SECURITIES LAWS OR AN OPINION OF COUNSEL
SATISFACTORY TO THE CORPORATION THAT SUCH
REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED;
(F) Each of Seller, Kohl and Bigham has the requisite
knowledge and experience in financial and business matters, including
investments of this type, to be capable of evaluating the merits and risks of an
investment in the Stock and of making an informed investment decision with
respect thereto. Seller is able to: (i) bear the economic risk of its investment
in the Stock; (ii) hold the Stock for an indefinite period of time; and (iii)
afford a complete loss of its investment;
(G) Seller has received from Buyer, and each of Kohl
and Bigham has reviewed, recent reports filed by Buyer with the Securities and
Exchange Commission (the "Commission") pursuant to the Securities Exchange Act
of 1934, as amended, recent press releases issued by Buyer and a Registration
Statement on Form S-3 (the "Form S-3") recently filed by Buyer with the
Commission pursuant to the 1933 Act (including, without limitation, the "Risk
Factors" sections contained in Buyer's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 1998 and the Form S-3) (such recent reports,
press releases and the Form S-3 being hereinafter collectively referred to as
the "Disclosure Documents"), and has reviewed such additional documentation and
information and has conducted such research regarding Buyer as each such person
has deemed prudent and necessary in connection with the acquisition of a portion
of the Stock by Seller. Based upon such review and research, each such person
believes that he or she is fully aware of the current condition (financial and
otherwise) and prospects of Buyer. Seller, Kohl and Bigham have obtained
sufficient information to evaluate the merits and risks of Seller's acquisition
of the Stock and to make an informed investment decision; and
(H) All documents, records and other information
relating to Buyer that have been requested by Seller, Kohl and Bigham and that
are considered by such persons to be material in making a decision to acquire
the Stock, have been delivered or made available to them, and Seller's, Kohl's
and Bigham's investment decision is based upon his or its own investigation and
analysis and not the representations or inducements of Buyer or any party or
parties acting on its behalf.
Prior to the Closing date: (i) Seller shall deliver to each general and limited
partner of Seller a copy of the Disclosure Documents delivered by Buyer to
Seller; and (ii) Seller shall obtain and deliver to Buyer a
23
<PAGE>
Certificate from Seller and a Purchaser Representative Certificate in the
respective forms attached hereto as Exhibit 9.9.
Seller, Kohl and Bigham understand that Buyer will rely on the representations
and warranties contained in this Section 9.9 and in the Certificates delivered
to Buyer pursuant to the previous paragraph in connection with the issuance of
the Stock.
Seller shall obtain from Prior Owners, as a condition to Closing, similar
statements and/or certificates as required by securities counsel for Buyer.
9.10 Payables. Seller agrees to deliver to Buyer on, or within
thirty (30) days after, the Closing Date an itemization of all Payables which
Seller is paying with the Deposit and with the Cash Payment and copies of
cancelled checks or other evidence reasonably satisfactory to Buyer of such
payments.
10. Closing Date. The "Closing Date" or "Closing" shall occur on or
prior to November 15, 1998 (or earlier if Buyer so notifies Seller in writing at
least two (2) business days prior to the accelerated Closing Date) and shall
take place either at Buyer's principal place of business in Goodyear, Arizona,
or at the principal offices of Buyer's or Lender's counsel in Phoenix, Arizona,
or at such other time and place as the Parties may agree in writing.
11. Obligations at Closing.
11.1 Seller's Obligations at Closing. At the Closing, Seller
shall deliver or cause to be delivered to Buyer the following:
(A) All instruments of transfer (collectively, the
"Assignment Documents"), properly executed by Seller and acknowledged, including
but not limited to a bill of sale, deeds and assignments, transferring and
assigning to Buyer all of Seller's right, title and interest in and to the
Assets, including, but not necessarily limited to, the following:
(1) General Warranty Bill of Sale in a form
substantially identical to Exhibit K; and
(2) General Warranty Assignment in a form
substantially identical to Exhibit L;
(B) All instruments evidencing any and all consents,
waivers, permits, approvals, authorizations, filings or registrations as
provided for in Sections 5.9, 7.2, 7.3 and 7.4;
(C) The opinion of Seller's counsel as provided in
Section 5.7;
(D) Certified resolutions of Seller's partners
authorizing the execution and performance of this Agreement and all actions
taken by Seller in furtherance of this Agreement pursuant to Section 7.2;
24
<PAGE>
(E) The certificate, in the form of Exhibit M
("Seller's Closing Certificate"), executed by Seller, dated as of the Closing
Date, certifying that the representations and warranties of Seller in this
Agreement are true and correct on the Closing Date, as though each such
representation and warranty had been made on the Closing Date; and
(F) The list and evidence of payment as provided in
Section 9.10, which may be delivered post-Closing in accordance with Section
9.10.
11.2 Buyer's Obligations at Closing. On the Closing Date,
Buyer shall deliver, or cause to be delivered, the following:
(A) The payment to be delivered to the Prior Owners
as provided in Section 3.1.3(1);
(B) All cash to be applied to Payables and to repay
the SBA Loan as contemplated hereby;
(C) The Stock to be delivered to the Prior Owners as
provided in Section 3.1.3(2);
(D) The Stock to be delivered as provided in Section
3.1.4; a portion of said Stock shall be delivered into the Escrow (as herein
defined);
(E) The opinion of Buyer's counsel as provided in
Section 6.3;
(F) Two (2) original counterparts of each of the
Employment Agreements executed by Buyer, one (1) counterpart of each Employment
Agreement to be delivered to the Principal which is a party to such Employment
Agreement;
(G) Certified resolutions of Buyer's Board of
Directors authorizing the execution and performance of this Agreement and the
execution and delivery of the Employment Agreements contemplated by this
Agreement and all actions taken by Buyer in furtherance of this Agreement
pursuant to Section 8.3; and
(H) A certificate, in the form of Exhibit N attached,
executed by the President and Secretary of Buyer, dated as of the Closing Date,
certifying that the representations and warranties of Buyer in this Agreement
are true and correct on the Closing Date, as though each such representation and
warranty had been made on the Closing Date.
11.3 Obligations of Principals; Limited Warranty as to Claims.
On the Closing Date, the Principals shall deliver or cause to be delivered to
Buyer two (2) original counterparts of each Employment Agreement, each executed
by the Principal who is a party to such Employment Agreement, with one (1)
counterpart of each Employment Agreement to be delivered to Buyer.
The Principals represent and warrant to Buyer that the Principals have no claim
against Seller or any of the Assets, nor do they hold any interest therein
except as specifically disclosed herein or as may arise
25
<PAGE>
pursuant to this Agreement, the Employment Agreements or the Production
Agreement and, if requested by Buyer, the Principals will execute appropriate
releases and quit-claim instruments at Closing to confirm the foregoing.
12. Obligations After Closing.
12.1 Change of Corporate Name; License. Seller agrees that
immediately after the Closing Date it will take all action required to change
its corporate name to eliminate the term "Tejas Snacks". Seller shall also, and
do hereby, agree that for an unlimited period after the Closing Date, Buyer or
its successors and assigns shall have an exclusive license to utilize the term
"Tejas Snacks" (or any reasonable variant of such name) in connection with the
distribution and sale of potato chip and/or other snack food products now or
heretofore distributed by Seller shall, at the request of Buyer, execute all
reasonable documentation necessary to evidence the foregoing license, which
shall be deemed fully-paid and irrevocable upon consummation of the transactions
contemplated by this Agreement
12.2 Indemnification.
(A) SELLER AGREES TO PAY, DEFEND, INDEMNIFY AND HOLD
BUYER HARMLESS FOR, FROM, OF AND AGAINST ANY AND ALL CLAIMS, LOSSES, EXPENSES,
DAMAGES, OBLIGATIONS, DEFICIENCIES OR LIABILITIES OF ANY KIND, TYPE OR NATURE,
INCLUDING, WITHOUT LIMITATION, COSTS OF INVESTIGATION, INTEREST, PENALTIES,
REASONABLE ATTORNEYS' AND EXPERT WITNESS' FEES AND ANY AND ALL COSTS, EXPENSES
AND FEES INCIDENT TO ANY SUIT, ACTION OR PROCEEDING INCURRED OR SUSTAINED BY
BUYER WHICH ARISE OUT OF, RESULT FROM OR ARE IN ANY WAY RELATED TO: (A) SELLER'S
BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN THIS AGREEMENT
OR IN ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED BY SELLER IN
CONNECTION WITH THIS AGREEMENT; (B) ANY AND ALL LIABILITIES OR OBLIGATIONS
RELATING TO THE OPERATION OF THE BUSINESS AND/OR THE ASSETS ON OR PRIOR TO THE
CLOSING DATE, INCLUDING, WITHOUT LIMITATION, ALL TAX LIABILITIES, LIABILITIES
FOR BREACH OF CONTRACT, PRODUCT LIABILITIES, LIABILITIES ARISING IN TORT,
LIABILITIES FOR MATERIALS SOLD OR SERVICES RENDERED AND LIABILITIES TO ANY
CREDITORS; (C) ANY AND ALL LIABILITIES OR OBLIGATIONS, INCLUDING CLAIMS BY THIRD
PARTIES, RELATING TO THE NON-COMPLIANCE OF SELLER, ITS BUSINESS OR ANY OF THE
ASSETS WITH, OR ANY DEFAULT UNDER, LAWS; (D) THE FAILURE OF SELLER OR THE ASSETS
TO HOLD OR HAVE AVAILABLE ALL NECESSARY PERMITS; (E) THE EXISTENCE OF A THIRD
PARTY INFRINGEMENT OR A SELLER INFRINGEMENT; (F) ANY CLAIMS MADE BY PEEKS
ARISING OUT OF HIS EMPLOYMENT OR THE RESIGNATION; (G) ANY FAILURE TO EFFECT ANY
REGISTRATION; (H) A PENDING INVESTIGATION BY THE TEXAS ATTORNEY GENERAL'S OFFICE
(OR OTHER STATE OR LOCAL BODY) RELATING TO THE PRIOR USE OF ALLEGEDLY IMPROPER
PACKAGING OR MARKING MATERIALS RESPECTING PRODUCTS HERETOFORE SOLD OR DELIVERED
BY SELLER OR ITS PREDECESSOR; OR (I) ANY CLAIM BY ANY THIRD PARTY CREDITOR OF
SELLER, OR ANY TRUSTEE IN BANKRUPTCY OF SELLER OR SIMILAR PERSON OR ENTITY MADE
AGAINST THE ASSETS OR BUYER ARISING OUT OF OR IN CONNECTION WITH THE
TRANSACTIONS CONTEMPLATED HEREBY, WHETHER OR NOT ANY OF THE FOREGOING ITEMS SET
FORTH IN
26
<PAGE>
CLAUSES (C), (D), (E), (F), (G) OR (H) IMMEDIATELY ABOVE ARE KNOWN TO SELLER AT
CLOSING.
(B) BUYER AGREES TO PAY, DEFEND, INDEMNIFY AND HOLD
SELLER HARMLESS FOR, FROM, OF AND AGAINST ANY AND ALL CLAIMS, LOSSES, EXPENSES,
DAMAGES, OBLIGATIONS, DEFICIENCIES OR LIABILITIES OF ANY KIND, TYPE OR NATURE,
INCLUDING, WITHOUT LIMITATION, COSTS OF INVESTIGATION, INTEREST, PENALTIES,
REASONABLE ATTORNEYS' AND EXPERT WITNESS' FEES AND ANY AND ALL COSTS, EXPENSES
AND FEES INCIDENT TO ANY SUIT, ACTION OR PROCEEDING INCURRED OR SUSTAINED BY
SELLER WHICH ARISE OUT OF, RESULT FROM OR ARE IN ANY WAY RELATED TO: (A) BUYER'S
BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN THIS AGREEMENT
OR IN ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED BY BUYER IN
CONNECTION WITH THIS AGREEMENT; OR (B) ANY AND ALL LIABILITIES OR OBLIGATIONS
RELATING TO THE OPERATION OF THE BUSINESS AND/OR THE ASSETS AFTER THE CLOSING
DATE, INCLUDING, WITHOUT LIMITATION, ALL TAX LIABILITIES, LIABILITIES FOR BREACH
OF CONTRACT, PRODUCT LIABILITIES, LIABILITIES ARISING IN TORT LIABILITIES FOR
MATERIALS SOLD OR SERVICES RENDERED AND LIABILITIES TO ANY CREDITORS.
(C) Buyer and Seller agree that, upon receipt by
either Party of a third-party claim in respect of which indemnity may be sought
under this Section 12.2, said party (the "Claimant") shall give written notice
within thirty (30) days of such claim (the "Notice of Claim") to the party from
whom indemnification may be sought hereunder (the "Indemnitor"). No
indemnification under this Section 12.2 shall be available to any party who
fails to give the required Notice of Claim within thirty (30) days if the party
to whom such notice should have been given was unaware of the claim and was
prejudiced by the failure to receive the Notice of Claim in a timely manner. The
Indemnitor shall be entitled at its own expense to participate in the defense of
any claim or action against the Claimant. The Indemnitor shall have the right to
assume the entire defense of such claim, provided that: (a) Indemnitor gives
written notice of its desire to defend such claim (the "Notice of Defense") to
the Claimant within fifteen (15) days after Indemnitor's receipt of the Notice
of Claim; (b) Indemnitor's defense of such claim shall be without cost of
Claimant or prejudice to Claimant's rights under this Section 12.2; (c) counsel
chosen by Indemnitor to defend such claim shall be reasonably acceptable to
Claimant; (d) the Indemnitor shall bear all costs and expenses in connection
with the defense of such claim; (e) Claimant shall have the right, at Claimant's
expense, to have Claimant's counsel participate in the defense of such claim;
and (f) Claimant shall have the right to receive periodic reports from
Indemnitor and Indemnitor's counsel with respect to the status and details of
the defense of such claim and shall have the right to make direct inquiries to
Indemnitor's counsel in this regard. Solely for the purpose of subparagraph (f)
above, Indemnitor shall waive its attorney-client privilege.
12.3 [RESERVED]
12.4 Office Space. Buyer shall have the right, for a
reasonable time post-Closing, to utilize, on a rent-free basis, existing office
facilities and areas within the building currently occupied by a majority of the
business of Seller. Buyer and Seller understand that the Principals will utilize
this office space, rent free, until substitute office space can be obtained and
built out on lease terms satisfactory to Buyer.
27
<PAGE>
12.5 Transition. Seller shall use commercially reasonable
efforts to maintain the goodwill of the Seller's suppliers, employees,
contractors, customers and Business, and shall otherwise cooperate with Buyer to
effectuate a smooth and orderly transition in the operation and conduct of the
Business following the Closing Date. Without limiting the foregoing, Buyer is
immediately permitted to interview Seller's employees and solicit employment
post-Closing. If at least fifty percent (50%) of the employees of Seller which
are offered post-Closing employment by Buyer do not accept, Buyer shall have the
option of cancelling this Agreement due to a failure of a condition precedent.
28
<PAGE>
13. Remedies Prior to or on Closing.
13.1 Remedies Prior to or on Closing.
13.1.1 Remedies of Buyer Prior to or on Closing. In
the event of any breach or default of any warranty, covenant, agreement,
condition or other obligation of Seller under this Agreement, Buyer may at its
option, and without prejudice to any other rights or remedies provided under
this Agreement for any such breach or default, terminate this Agreement by
delivering written notice of termination to Seller on or before the Closing
Date. The notice shall specify with particularity the breach or default on which
the notice is based. Notwithstanding the foregoing, the Parties acknowledge that
the Assets are unique and that, in the event of a breach or default by Seller
under this Agreement, it would be extremely impracticable to measure monetary
damages and such damages would be an inadequate remedy for Buyer. Therefore, in
the event of any such breach or default, Buyer may, at its option, sue for
specific performance. Buyer's other option in the event of breach by Seller
under this Agreement shall be to bring an action against Seller to recover
Buyer's reasonable attorneys' fees, together with all other expenses incurred,
expended and/or paid by Buyer in connection with the transactions contemplated
by this Agreement, including, without limitation, financing costs, investigation
costs, travel costs, reimbursement for experts' fees and other fees. Without
limiting the generality of the foregoing, if Seller refuses to close and Buyer
is ready, willing and able to close and has fulfilled all conditions hereunder,
Seller shall pay to Buyer the sum of Seven Hundred Fifty Thousand and No/100
Dollars ($750,000.00) as and for liquidated damages and not as a penalty and as
a so-called "break up fee". Buyer and Seller acknowledge that the foregoing is a
reasonable liquidated damage in that Buyer's damages at the time and place of
breach would be difficult, because of their nature of future profitability, to
ascertain with precision, but that the foregoing represents a reasonable
liquidated damage in the estimation of the Parties at this date. Notwithstanding
the foregoing, it is specifically agreed that the liquidated damage remedy set
forth above is declared to be severable specifically from the balance of this
Agreement.
13.1.2 Remedies of Seller Prior to or on Closing. In
the event of any breach or default of any warranty, covenant, agreement,
condition or other obligation of Buyer under this Agreement, Seller's sole and
exclusive remedy shall be to terminate this Agreement by delivering written
notice of termination to Buyer on or before the Closing Date. The notice shall
specify with particularity the breach or default on which the notice is based.
Further, in the event of such a breach by Buyer, Seller shall be entitled to
retain the Deposit (together with interest accrued thereon) as and for
liquidated damages (and not as a penalty) arising out of Buyer's breach.
13.1.3 Termination. In the event of termination of
this Agreement by either Buyer or Seller as provided in this Section 13.1, this
Agreement shall become null and void, other than Section 12.2 above, which shall
remain in full force and effect. Upon termination, Buyer shall deliver to Seller
and Seller shall deliver to Buyer any and all documentation provided by each
Party to the other pursuant to the terms of this Agreement.
13.2 Remedies Subsequent to Closing. In the event of any
breach or default of any warranty, covenant, agreement, condition or other
obligation by any Party post-Closing, the non-defaulting Party may pursue
whatever rights and remedies are available to such Party at law or in equity,
including without limitation, the rights and remedies provided in this
Agreement.
29
<PAGE>
14. Nondisclosure. No Party will disclose the existence or contents of
this Agreement or any of the discussions or communications regarding the
transactions contemplated by this Agreement to any third persons without the
prior written consent of the other Party or Parties, except as required by
applicable law; provided, however, that disclosures shall be permitted without
the prior written consent of the other Party or Parties: (i) to Seller's and
Buyer's respective partners, directors, shareholders, key employees, attorneys,
accountants and lenders; (ii) to agents and advisors of Seller or Buyer who may
be retained to render services in connection with the transactions contemplated
by this Agreement; and (iii) to all persons from whom consents, approvals or
amendments are required for the consummation of the transactions contemplated by
this Agreement. Notwithstanding the foregoing, Seller recognizes the "public"
status of Buyer and any public filings and/or statements made or caused to be
made by Buyer shall be an exception to the foregoing.
15. General Provisions.
15.1 Publicity. All notices to third parties and all other
publicity concerning the transactions contemplated by this Agreement shall be
jointly planned and coordinated by and between Buyer and Seller. Neither Buyer
nor Seller shall act unilaterally in this regard without the prior written
approval of the other Party; however, this approval shall not be unreasonably
withheld or delayed. Notwithstanding the foregoing, Seller recognizes the
"public" status of Buyer and any public filings and/or statements made or caused
to be made by Buyer shall be an exception to the foregoing.
15.2 Expenses. Except as otherwise specifically provided, each
Party shall be responsible for its own fees, costs and other expenses incurred
in negotiating and preparing, and in closing and carrying out the transactions
contemplated by, this Agreement.
15.3 Survival of Representations, Warranties and Covenants.
The respective representations, warranties and covenants of Buyer and Seller
made in this Agreement or in any certificate or other document delivered
pursuant to this Agreement, including without limitation the obligations of
indemnity under this Agreement, shall survive the Closing Date and the
consummation of the transactions contemplated by this Agreement, until the
applicable statute of limitations has run, notwithstanding any examination made
by or for the Party to whom such representations, warranties or covenants were
made, the knowledge of any officers, directors, shareholders, employees or
agents of the Party, or the acceptance of any certificate or opinion.
15.4 Notices. All notices, requests, demands and other
communications required under this Agreement shall be in writing and shall be
deemed duly given and received: (i) if personally delivered, on the date of
delivery, (ii) if mailed, three (3) days after deposit in the United States
Mail, registered or certified, return receipt requested, postage prepaid and
addressed as provided below, (iii) if by a courier delivery service providing
overnight or "next-day" delivery, on the next business day after deposit with
such service, addressed as follows:
30
<PAGE>
If to Seller: Tejas Snacks, L.P.
Attn: Mr. Tom Bigham
Route 1, Box 66A
Brookshire, Texas 77423
With copy to: Stumpf Falgout Craddock & Massey
Attn: Michael B. Massey, Esq.
1400 Post Oak Blvd., #400
Houston, Texas 77056
If to Buyer: Poore Brothers, Inc.
Attn: Mr. Eric Kufel
3500 South La Cometa
Goodyear, Arizona 85338
With copy to: Mariscal, Weeks, McIntyre & Friedlander, P.A.
Attn: Fred C. Fathe, Esq.
2901 North Central Ave., #200
Phoenix, Arizona 85012
Any Party may change its above-designated address by giving the other Party
written notice of such change in the manner set forth herein.
15.5 Headings. Headings contained in this Agreement are
inserted only as a matter of convenience and in no way define, limit, extend or
describe the scope of this Agreement or any of its provisions.
15.6 Entire Agreement; Modification. Except as set forth
below, this Agreement constitutes the entire agreement among the Parties and
supersedes all prior and contemporaneous agreements and undertakings of the
Parties with respect to its subject matter, including, but not limited to, that
certain Letter of Intent between Buyer and Seller, dated September 16, 1998.
Notwithstanding the foregoing, that certain Production Agreement (herein so
called), between Buyer and Seller, dated September 16, 1998, shall survive any
termination of this Agreement and is specifically deemed not to be integrated
herein. Said Production Agreement shall remain a fully binding agreement between
the parties in accordance with its terms. Said Production Agreement deals with,
among other things, Buyer distributing certain snack food product to Hecht
Distributing ("Hecht") in recoupment of certain Deposit monies which may be
repayable from Seller to Buyer hereunder if the transactions contemplated hereby
do not close. No supplement, modification or amendment of this Agreement shall
be binding and enforceable unless executed in writing by the Parties.
15.7 Waiver. No waiver of any of the provisions of this
Agreement shall be deemed, or shall constitute, a waiver of any other provision
of this Agreement (whether or not similar) nor shall such waiver constitute a
continuing waiver, and no waiver shall be binding unless executed in writing by
the Party making the waiver.
31
<PAGE>
15.8 Exhibits and Recitals. The Exhibits attached to this
Agreement and the Recitals set forth above are hereby incorporated into and made
a part of this Agreement.
15.9 Counterparts; Facsimile Signatures. This Agreement may be
executed in several counterparts, and all so executed shall constitute one
agreement, binding on all of the Parties. The Parties agree that this Agreement
may be transmitted between them via facsimile. The Parties intend that the faxed
signatures constitute original signatures and that a faxed agreement containing
the signatures (original or faxed) of all the Parties is binding upon the
Parties.
15.10 Governing Law; Jurisdiction. Except as expressly
provided herein, this Agreement shall be construed in accordance with, and
governed by, the laws of the State of Arizona, without regard to the application
of conflicts of law principles. Except in respect of an action commenced by a
third party in another jurisdiction, the Parties agree that any legal suit,
action or proceeding arising out of or relating to this Agreement must be
instituted in a State or Federal court in the City of Phoenix, Maricopa County,
State of Arizona, and they hereby irrevocably submit to the jurisdiction of any
such court. No party shall raise a defense of jurisdiction, venue or forum
non-convenience to any action venued in any of those courts. No action shall be
commenced elsewhere.
15.11 Attorneys' Fees. In the event an action or suit is
brought by any Party to enforce the terms of this Agreement, the prevailing
Party shall be entitled to the payment of its reasonable attorneys' fees and
costs, as determined by the judge of the court.
15.12 Parties in Interest. Except as expressly provided below,
nothing in this Agreement is intended to confer upon any person other than the
Parties, their respective heirs, representatives, successors and permitted
assigns, any rights or remedies under or by reason of this Agreement, nor is
anything in this Agreement intended to relieve or discharge the liability of any
Party, nor shall any provision of this Agreement give any entity any right of
subrogation against or action over or against any Party.
Lender shall be a third party beneficiary of all of
the representations, warranties and agreements of Seller made herein, Seller
acknowledging that, in order to supply part of the purchase money hereunder,
Lender is making a loan to Buyer secured by, among other things, a collateral
assignment of Buyer's interest hereunder. Therefore, if Lender succeeds to
Buyer's position hereunder, Seller shall recognize Lender for all purposes
hereunder and shall perform the representations, warranties, covenants and
agreements herein contained and which survive the Closing to Lender in that
instance. Seller shall, from time to time, execute such documents as may be
reasonably requested by Lender or Buyer in order to evidence such an item
including, without limitation, estoppel certificates and recognition agreements.
15.13 Successors in Interest. Except as otherwise provided
herein, all provisions of this Agreement shall be binding upon, inure to the
benefit of, and be enforceable by and against the respective heirs, executors,
administrators, personal representatives, successors and assigns of any of the
Parties.
15.14 Severability. The invalidity or unenforceability of all
or any part of any particular provision of this Agreement shall not affect the
other provisions hereof and this Agreement shall be continued in all respects as
if such invalid or unenforceable provision were omitted.
32
<PAGE>
15.15 Risk of Loss. Seller shall bear all risk of loss with
respect to the Assets arising on or prior to the Closing Date. In the event that
all or any part of the Assets are damaged or destroyed by fire, windstorm, flood
or any other casualty on or prior to the Closing Date (whether or not insured),
Seller shall immediately notify Buyer of such damage or destruction. In such
event, Seller and Buyer agree as follows:
(A) If the amount of the casualty loss is less than
Ten Thousand and No/100 Dollars ($10,000.00), the Purchase Price shall be
reduced by the amount of the casualty loss, and Seller shall retain the right to
receive proceeds of any insurance policies which cover any such loss.
(B) If the amount of the casualty loss is Ten
Thousand and No/100 Dollars ($10,000.00) or more, Buyer shall have the option
to: (a) terminate this Agreement by written notice to Seller, in which case the
Parties shall have no further obligations under this Agreement; or (b) continue
to proceed with the transactions contemplated by this Agreement. If the Buyer
elects to continue to proceed with the transactions contemplated under this
Agreement: (1) all insurance proceeds collectible by reason of such casualty
loss shall be deemed to have been absolutely and irrevocably assigned to, and
shall be payable directly to, Buyer; (2) Seller shall deliver to Buyer, on or
before the Closing Date, a duly executed assignment of all insurance proceeds,
in form and substance acceptance to Buyer; (3) Buyer shall have the right to
conduct all settlement proceedings with respect to such insurance claims; and
(4) Buyer shall have the right and option to extend the Closing Date for a
period of up to sixty (60) days from the date of such casualty loss.
15.16 Further Documentation. Each Party will execute and
deliver such further instruments and documents and do such further acts and
things as may be required to carry out the intent and purpose of this Agreement.
15.17 Interpretation. The Parties agree that each Party and
its counsel have reviewed this Agreement and that any rule of construction to
the effect that ambiguities are to be resolved against the drafting party shall
not apply to the interpretation of this Agreement.
15.18 [RESERVED]
15.19 Stock Escrow; Proceeds Assignment. At Closing, Buyer and
Seller shall establish, pursuant to a form of Stock Escrow Agreement (the
"Escrow Agreement"), a copy of which is attached hereto as Exhibit O, an Escrow
(the "Escrow") wherein Two Hundred Sixty Seven Thousand One Hundred Forty Three
(267,143) Shares of Stock shall be deposited at Closing. The Stock shall remain
in the Escrow for a period of one (1) year as security for the post-Closing
obligations of Seller hereunder including, without limitation, any breach of the
truth and correctness of Seller's representations and warranties hereunder
and/or Seller's performance of its obligations of indemnity hereunder. Buyer and
Seller acknowledge that the Stock, as so escrowed, is, in part, a substitute for
the Principals having no liability for Seller's representations and warranties
hereunder. Therefore, among other things, in the event of any such breach by
Seller hereunder, Buyer may, as Buyer shall choose, either enforce its remedies
against the Stock or against Seller or Seller's other assets, the parties
acknowledging that the Stock, as so escrowed, shall not be Buyer's sole remedy
nor the sole source of assets against which Buyer may pursue claims, but stands
as additional security therefore. Release of the Stock from said Escrow, at the
end
33
<PAGE>
of the term thereof, shall not otherwise release Seller from any of its
obligations hereunder, to the extent not theretofore released by the terms
hereof.
15.20 Nomination and Assignment. Buyer shall have the ability,
without the need to obtain the consent of Seller (as shall Buyer's assignee or
nominee), to nominate or assign all or any portion of Buyer's rights under this
Agreement to any person and/or entity which is an Affiliate (as defined below)
of Buyer for any consideration deemed acceptable to Buyer in its sole
discretion. In the event of such nomination and/or assignment, Buyer shall be
released from all of its obligations under this Agreement so long as said
nominee or assignee of Buyer assumes, in writing reasonably satisfactory to
Buyer and Seller, all of Buyer's obligations under this Agreement, whereupon
such substitute or assignee Buyer shall be deemed the "Buyer" under this
Agreement for all purposes. The term "Affiliate", as applied to any person,
means any person directly or indirectly controlling, controlled by, or under
common control with, that person or a blood relative or spouse of such person,
if such person is a natural person. For the purposes of this definition,
"control" (including with correlative meaning, the terms "controlling,"
"controlled by" and "under common control"), as applied to any person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that person, whether through the
ownership of voting securities, by contract or otherwise, and "person" means and
includes natural persons, corporations, limited partnerships, general
partnerships, joint stock companies, joint ventures, associations, companies,
trusts, land trusts, business trusts or other organizations, whether or not
legal entities.
15.21 Non-Foreign Status. At the Closing, Seller shall deliver
to Buyer a so-called "IRC Section 1445" affidavit establishing Seller's
non-foreign status.
15.22 Exhibits and Schedules. This Agreement may be executed
without all of the Exhibits and Schedules attached. The Parties shall, on or
before November 6, 1998, diligently endeavor to complete said Exhibits and
Schedules. The approval of both Parties of all of such Exhibits and Schedules
shall be a condition precedent to the obligations of the Parties hereunder. If
the Parties are unable to complete said Exhibits and Schedules to their mutual
reasonable satisfaction with said time, this Agreement shall be cancelled, the
Production Agreement shall be in full force and effect as to recoupment by Buyer
of the Deposits and neither Party shall have further liability to the other
hereunder.
. . .
. . .
. . .
34
<PAGE>
IN WITNESS WHEREOF, the Parties have executed this Agreement as of the
day and year first set forth above.
SELLER: TEJAS SNACKS, L.P., a
Texas limited partnership
By:__________________________________________
Its:____________________________________
BUYER: POORE BROTHERS, INC.,
a Delaware corporation
By:__________________________________________
Its:____________________________________
PRINCIPALS:
_____________________________________________
Kevin Kohl
_____________________________________________
Tom Bigham
35
<PAGE>
LIST OF EXHIBITS
Exhibit A - Excluded Assets
Exhibit B - RESERVED
Exhibit C - List of Personal Property
Exhibit D - Contractual Rights
Exhibit E - Intellectual Property
Exhibit F - Allocation of Purchase Price
Exhibits G-1 and G-2 - Employment Agreements
Exhibit H - List of Suppliers and Customers
Exhibit I - Description of Insurance Policies
Exhibit J - Production Requirements
Exhibit K - General Warranty Bill of Sale
Exhibit L - General Warranty Assignment
Exhibit M - Seller's Closing Certificate
Exhibit N - Buyer's Closing Certificate
Exhibit O - Stock Escrow Agreement
LIST OF SCHEDULES
Schedule 3.1.4 - Stock Legend
Schedule 7.1 - List of Equity Holders of Seller
Schedule 7.5 - Existing Payables
Schedule 7.7 - "Insider" Indebtedness and Obligations
Schedule 7.9 - Interim Personnel Matters
Schedule 7.10 - Litigation and Claims
Schedule 7.14 - Intellectual Property Filings, Etc.
Schedule 7.17 - Insurance Coverage Refusals
Schedule 9.9 - Securities Representative Certificate
36
<PAGE>
Exhibit O
STOCK ESCROW AGREEMENT
This Stock Escrow Agreement (this "Agreement) is made and entered into
as of the _____ day of November, 1998, by and among TEJAS PB DISTRIBUTING, INC.,
an Arizona corporation ("Buyer"), TEJAS SNACKS, LP, a Texas limited partnership
("Seller"), and Everen Securities, Inc. (the "Escrow Agent").
WITNESSETH:
WHEREAS, Buyer and Seller are parties to a certain Agreement for
Purchase and Sale of Assets, dated as of November ____, 1998 (the "Purchase
Agreement"), pursuant to which Buyer has agreed to deliver to the Escrow Agent a
certificate or certificates, registered in the name of Seller, representing Two
Hundred Sixty Seven Thousand One Hundred Forty Three (267,143) shares of the
common stock, par value of $.01 (one cent) per share, of Poore Brothers, Inc., a
Delaware corporation (the "Poore Brothers Securities") (such Poore Brothers
Securities and any distributions or dividends with respect thereto, together
with any interest or other income earned from investment of any such dividends,
being referred to herein as the "Escrow Sum"), such Escrow Sum to be held by the
Escrow Agent, and released to Seller and/or Buyer, under the conditions and in
accordance with the terms hereof.
AGREEMENTS:
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto agree as
follows:
ARTICLE I: ESCROW AGENT
I.1 Appointment. The Escrow Agent is hereby appointed depositary and
escrow agent for Buyer and Seller with respect to the Escrow Sum. Escrow Agent
is also constituted an agent of Buyer to hold the Poore Brothers Securities in
escrow and in pledge for the benefit of Buyer. Seller hereby grants a security
interest in and to, and pledges, the Escrow Sum to Buyer to secure the
obligations of Seller under and pursuant to the Purchase Agreement, including,
without limitation, the obligations of Seller referenced in Section 3.1 below,
and Escrow Agent hereby accepts such designation as Buyer's agent for that
purpose.
I.2 Binding Obligations. Except for this Agreement, the Escrow Agent is
not a party to, nor is it bound by, any agreement between Buyer and Seller.
Reference in this Agreement to other documents or instruments is for
identification purposes only, and such reference shall not modify or affect the
terms hereof or cause such documents or instruments to be deemed incorporated
herein. The only duties and responsibilities of the Escrow Agent shall be to
hold the Escrow Sum as Escrow Agent according to the provisions of this
Agreement and to dispose of and deliver the Escrow Sum as provided in this
Agreement.
I.3 Acts of Escrow Agent. The Escrow Agent's sole responsibilities
shall be for the safekeeping and investment of the Escrow Sum and the
disbursement of the Escrow Sum and interest
37
<PAGE>
thereon in accordance with this Agreement. The Escrow Agent's authority is
limited to the express provisions of this Agreement, and the Escrow Agent shall
not have any duties other than those expressly set forth herein. The Escrow
Agent has no duty to determine or inquire into any happening or occurrence or
any performance or failure of performance of Buyer or Seller or any other party
with respect to their agreements or arrangements with each other or with any
other party other than those imposed by this Agreement or any other agreement to
which the Escrow Agent is a party in connection herewith. The Escrow Agent shall
not be liable for anything which it may do or refrain from doing in connection
with this Agreement, except its own negligence or misconduct or any failure to
carry out its duties under this Agreement. The Escrow Agent may confer with
legal counsel of its own choosing in the event of any dispute or question as to
the construction of any of the provisions hereof, or its duties hereunder, and
it shall incur no liability and shall be fully protected in acting in reasonable
reliance upon the opinions of such counsel. The Escrow Agent may rely and shall
be protected in acting upon any documents which may be submitted to it in
connection with its duties hereunder and which he reasonably believes to be
genuine and to have been signed or presented by the proper party or parties, and
the Escrow Agent shall have no liability or responsibility with respect to the
form of execution or validity thereof except as otherwise herein specifically
set forth. The Escrow Agent is hereby expressly authorized to comply with and
obey any and all orders, judgments, or decrees of any court relating to this
Agreement, the Escrow Sum, or the relationship between Buyer and Seller, and in
case the Escrow Agent obeys or complies with any such order, judgment, or decree
of any court, it shall not be liable to either Buyer or Seller, or to any other
person, by reason of such compliance, notwithstanding any such order, judgment,
or decree being subsequently reversed, modified, annulled, set aside, or
vacated, or found to have been entered without jurisdiction. Buyer and Seller
agree jointly and severally to indemnify the Escrow Agent against any expenses
or liabilities, claims, losses, or damages incurred by the Escrow Agent that may
arise out of or in connection with the Escrow Agent's acting as Escrow Agent
under and in strict compliance with the terms of this Agreement or as a result
of any litigation or threat of any litigation in connection herewith or
performance in accordance herewith, except in those instances where the Escrow
Agent has been guilty of negligence or other misconduct or has otherwise acted
inconsistently with the terms of this Agreement or inconsistently with the
obligations imposed upon the Escrow Agent by law.
I.4 Adverse Claims or Demands. In the event of any disagreement
resulting in adverse or conflicting claims or demands being made in connection
with the subject matter of this Agreement or upon the Escrow Agent, causing the
Escrow Agent to have doubt as to what action it should take hereunder, or in the
event that the Escrow Agent, in good faith, otherwise has doubt as to what
action it should take hereunder, the Escrow Agent may, at its option and in its
discretion, petition any court of competent jurisdiction in the State of
Arizona, for instructions or interplead the funds or assets so held into such
court. The parties agree to the jurisdiction of such court, waive personal
service of process, and agree that service of process by certified or registered
mail, return receipt requested, to the address set forth in Section 5.1 hereof
shall constitute adequate service. The parties hereby agree to indemnify and
hold the Escrow Agent harmless from any liability or losses occasioned by such
interpleader action or request for instructions and to pay any and all of its
costs, expenses, and attorney's fees incurred in any such action and agree that
on upon entry of an order permitting interpleader and full compliance therewith,
the Escrow Agent, its servants, agents, employees, or officers will be relieved
of further liability.
I.5 Litigation. The Escrow Agent shall not be required to institute
legal proceedings of any kind. In the event litigation is instituted by Buyer
against Seller or by Seller against Buyer that: (a) requires additional duties
of the Escrow Agent; (b) requires court appearances by or on behalf of the
38
<PAGE>
Escrow Agent; or (c) requires the Escrow Agent to incur expenses or make
disbursements in the resolution of contested claims against the Escrow Sum, then
the Escrow Agent shall be entitled to reimbursement for any reasonable expenses
or disbursements, and such reimbursement shall include, but not be limited to,
the actual cost of legal services if the Escrow Agent deems it necessary to
retain an attorney.
I.6 Fees. The fees and expenses of the Escrow Agent shall be paid
one-half (1/2) by Buyer and one-half (1/2) by Seller from funds other than the
Escrow Sum.
ARTICLE II: DELIVERY OF SECURITIES
The Escrow Agent hereby acknowledges receipt of the Poore Brothers
Securities from Buyer. The Escrow Agent further acknowledges its acceptance of
the authorization herein conferred and agrees to carry out and perform the
duties contained herein pursuant to the provisions of this Agreement.
ARTICLE III: RELEASE OF FUNDS
III.1 Release of Escrow Sum to Buyer. (A) If any time prior to November
3, 1999, Buyer learns of facts which lead Buyer to conclude that it may suffer a
loss for which Seller may be liable pursuant to the provisions of Sections 12.2
or 13.2 of the Purchase Agreement, then Buyer shall promptly advise the Escrow
Agent and Seller of such claim ("Claim") by delivering written notice thereof
(the "Notice of Claim") to the Escrow Agent and Seller. The Notice of Claim: (i)
shall state the claimed nature of Seller's alleged liability; and (ii) shall
state the maximum amount of the payment that Buyer claims it is entitled to
receive from the Escrow Sum. Seller shall have thirty (30) days after receipt of
the Notice of Claim in which to advise the Escrow Agent and Buyer that it
disputes the Claim by delivering written notice of Seller's dispute ("the Notice
of Dispute") to the Escrow Agent and to Buyer. The Notice of Dispute may contest
all or any portion of the Notice of Claim based on a dispute concerning the
existence of a Claim, Seller's liability or the estimated amount of the alleged
loss.
(B) If Seller fails to deliver a Notice of Dispute within such
thirty (30) day period, Seller shall be deemed to have acknowledged that Buyer
is entitled to payment as set forth in the Notice of Claim and shall be deemed
to have directed the Escrow Agent to disburse such payment (the "Claim Payment")
to Buyer in accordance with the provisions of Section 3.4. In the event Seller
timely delivers the Notice of Dispute, then the matter shall be determined in
accordance with Section 5.9 of this Agreement. In the event a Notice of Dispute
is timely delivered, then the undisputed portion of the Claim, if any (the
"Undisputed Claim Payment"), shall be promptly disbursed to Buyer in accordance
with the provisions of Section 3.4, and only the sum that is subject to a
dispute shall be held by the Escrow Agent until the Claim is resolved; provided,
however, that any Claim which is based upon the assertion or threat of a third
party claim against Buyer shall be conclusively deemed to be resolved four (4)
years after the Notice of Claim is delivered unless litigation, arbitration,
assessment, or some other formal proceeding is commenced against Buyer within
that four (4) year period. If such a formal proceeding is not commenced within
the four (4) year period, then the Claim shall be deemed abandoned and of no
further force and effect for purposes of this Agreement. In the event a formal
proceeding is commenced within the four (4) year period, then the resolution of
the Claim will occur only upon the resolution of such proceeding and any related
appellate proceedings.
39
<PAGE>
(C) Subject to Seller's right to dispute a Claim as set forth
above, once a Notice of Claim is delivered to the Escrow Agent, the Escrow Agent
shall not permit the Escrow Sum to be reduced by disbursement to Seller pursuant
to Section 3.2 to an amount which is less than the amount of the Claim (the
Poore Brothers Securities then held by the Escrow Agent being valued for the
purpose of any such determination based on the closing price per share of Poore
Brothers, Inc. stock on the last trading day before the date for which the
valuation is being determined, as reported in the Wall Street Journal (the
"Valuation Price")). Furthermore, if the amount of any Claim or the aggregate
amount of any Claims should ever exceed the amount of the Escrow Sum (the Poore
Brothers Securities then held by the Escrow Agent being valued for such purposes
based on the Valuation Price), then no portion of the Escrow Sum shall be
disbursed pursuant to Section 3.2 during such time that such a deficit exists.
III.2 Release of Remainder of Escrow Sum. On November 4, 1999, the
Escrow Agent shall irrevocably and unconditionally disburse to Seller the Escrow
Sum in excess of the amount of any Claims previously paid pursuant to the terms
of this Agreement and the Purchase Agreement and of the amount of any then
existing Claim or Claims. The remainder of the Escrow Sum, if any, shall be
irrevocably and unconditionally disbursed to Seller (or Buyer, if appropriate),
in one or more disbursements, upon final resolution of all Claims involving such
funds.
III.3 Delivery. Unless delivery is made in person at the Escrow Agent's
office or unless the Escrow Agent is properly instructed in writing by Buyer or
Seller, as the case may be, to make delivery in such other manner, the Escrow
Agent shall be deemed to have properly delivered to Buyer or Seller, as the case
may be, such funds as Buyer or Seller is entitled to receive, upon placing the
same in the United States Mail in a suitable package or envelope, registered or
certified mail, return receipt requested, postage prepaid, addressed to the
address referred to in Section 5.1 hereof or such other address as may be
furnished to the Escrow Agent in writing.
III.4 Treatment of Poore Brothers Securities. In the event that the
Escrow Agent is required to make a Claim Payment or an Undisputed Claim Payment
pursuant to the provisions of Section 3.1 at a time when a portion of the Escrow
Sum is composed of Poore Brothers Securities, the Escrow Agent shall: (i) first,
transfer to Buyer such number of shares of the Poore Brothers Securities as
shall be necessary to satisfy the amount of such Claim Payment or Undisputed
Claim Payment (such Poore Brothers Securities being valued for such purposes
based on the Valuation Price on the date transferred); and (ii) then, if any
balance remains to be paid, disburse to Buyer an appropriate portion of the
Escrow Sum not represented by Poore Brothers Securities.
ARTICLE IV: INVESTMENT AND INTEREST
IV.1 Investment. At Seller's written direction and with Buyer's
countersignature, the Escrow Agent shall invest the Escrow Sum (other than the
Poore Brothers Securities) in interest-bearing, federally insured bank accounts,
money market funds or instruments, government securities, financial institution
obligations, or similar instruments. All investments in obligations which are
not direct obligations of the United States must be rated AI or PI by Moody's or
Standard & Poor's, and must have a maturity of one (1) year or less. The Escrow
Agent shall not be liable to Buyer or Seller for any claim related to the
investment or management of the Escrow Sum, provided that the Escrow Agent
compiles strictly with the provisions of this Section 4.1 and Section 4.3.
Disbursement by the Escrow Agent of the Escrow Sum shall be made in accordance
with and at the time or times specified in Sections 3.1 and 3.2 of this
Agreement.
40
<PAGE>
IV.2 Interest and Other Income. Any distributions or dividends with
respect to the Poore Brothers Securities or any other investments or instruments
held in escrow from time to time, together with the proceeds of any sale,
transfer, or other disposition thereof and any interest or other income earned
from investment of any such proceeds, during the period of these escrow
arrangements shall accrue and be held by the Escrow Agent as part of the Escrow
Sum.
IV.3 Investment Instructions. Seller shall direct the Escrow Agent
regarding the investment of the Escrow Sum pursuant to Section 4.1. Seller and
Buyer, and not Escrow Agent, shall be solely responsible for following the
guidelines for investments set forth in Section 4.1, including, without
limitation, investigating and satisfying themselves regarding the liquidity of
the firms and/or institutions with which the Escrow Sum is to be placed. Seller
shall deliver to Escrow Agent the name(s), address(es), and contact person(s) of
the firm(s) and/or banking institution(s) with which the Escrow Sum is to be
placed, together with a description of the type of investment to be made. Unless
otherwise explicitly stated by Seller in the written instructions to Escrow
Agent, at no time will any investment of the Escrow Sum or any portion thereof
(other than the Poore Brothers Securities and any direct obligation of the
United States) exceed one (1) year in duration, nor will any such investment be
subject to automatic renewal.
ARTICLE V: MISCELLANEOUS
V.1 Notices. Any notice or consent pursuant to or in connection with
this Agreement shall be in writing and shaLl be deemed to be delivered (a) upon
receipt, if personally delivered or delivered by reputable overnight courier, or
(b) at the close of business on the second business day next following the day
when placed in the United States mail postage prepaid, certified or registered,
addressed to the appropriate party or par-ties, at the address stated below (or
at such other address as such party may designate by written notice to all other
parties), with a copy thereof sent to the persons indicated:
If to Seller: Tejas Snacks, L.P.
Attn: Mr. Tom Bigham
Route 1, Box 66A
Brookshire, Texas 77423
With copy to: Stumpf Falgout Craddock & Massey
Attn: Michael B. Massey, Esq.
1400 Post Oak Blvd., #400
Houston, Texas 77056
If to Buyer: Poore Brothers, Inc.
Attn: Mr. Eric Kufel
3500 South La Cometa
Goodyear, Arizona 85338
With copy to: Mariscal, Weeks, McIntyre & Friedlander, P.A.
Attn: Fred C. Fathe, Esq.
2901 North Central Ave., #200
Phoenix, Arizona 85012
41
<PAGE>
If to Escrow Agent: Everen Securities, Inc.
Attn. Mr. Larry C. Bain, Managing Director
77 West Wacker Drive
Chicago, IL 60601-1694
V.2 Entire Agreement, Amendment. Except as otherwise expressly set
forth herein, this Agreement contains the entire agreement among the parties
with respect to the subject matter hereof, and no representations, inducements,
promises, or agreements, oral or otherwise, not embodied herein shall be of any
force or effect. This Agreement may be amended, modified, or supplemented, and
waivers or consents to departures from the provisions hereof may be given, only
pursuant to a written instrument signed by Buyer and Seller, and, if, but only
if, the rights and responsibilities of the Escrow Agent are modified by such
amendment, modification, or supplement, by the Escrow Agent.
V.3 Parties Bound. This Agreement shall be binding upon and shall inure
to the benefit of the parties hereto and their respective successors, assigns,
and other legal representatives.
V.4 Multiple Counterparts. This Agreement may be executed in a number
of identical counterparts and it shall not be necessary for each of the parties
to execute each of such counterparts, but when all of the parties have executed
and delivered one or more of such counterparts, the several parts, when taken
together, shall be deemed to constitute one and the same instrument, enforceable
against each in accordance with its terms. In making proof of this Agreement, it
shall not be necessary to produce or account for more than one such counterpart
executed by the party against whom enforcement of this Agreement is sought.
V.5 Headings. The headings in tills Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
V.6 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona, without regard to principles
of conflicts or choice of law. Any action or arbitration brought to enforce or
construe this Agreement or to declare the rights of the parties shall be
commenced and maintained in an appropriate state or federal court or before an
appropriate arbitrator in Phoenix, Arizona, and each party irrevocably consents
to exclusive jurisdiction and venue in such forum for such purposes.
V.7 Severability. If any provision of this Agreement is held to be
illegal invalid, or unenforceable under present or future laws effective during
the term of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid, or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid, or unenforceable provision, there shall be added automatically as a
part of this Agreement a provision as similar in terms to such illegal, invalid,
or unenforceable provision as may be possible and be legal, valid, and
enforceable, and this Agreement shall be reformed accordingly.
42
<PAGE>
V.8 Legal Fees and Costs. In the event Buyer or Seller elects to incur
legal expenses in connection with any arbitration or litigation to enforce or
interpret any provision of this Agreement or to declare the rights of the
parties under this Agreement, the prevailing party will be entitled to recover
such legal expenses, including attorney's fees, expert witness fees, paralegal
expenses, costs and necessary disbursements, in addition to any other relief to
which such party shall be entitled.
V.9 Arbitration. In the event of a dispute between Buyer and Seller
arising out of or related to this Agreement, Buyer and Seller agree to utilize
the procedures specified in Section 15.18 of the Purchase Agreement to resolve
such dispute.
V.10 Resignation and Termination. The Escrow Agent may resign as such
by delivering written notice to that effect at least sixty (60) days prior to
the effective date of such resignation to Seller and Buyer. Upon expiration of
such sixty (60) day notice period, the Escrow Agent may deliver the portion of
the Escrow Sum remaining it its possession to any successor Escrow Agent
appointed by Seller and Buyer pursuant to this Section 5.10, or if no successor
Escrow Agent has been appointed, to any court of competent jurisdiction in
Phoenix, Arizona, or in accordance with the joint written instructions of Buyer
and Seller. Seller and Buyer, acting jointly, may terminate the Escrow Agent
from its position as such by delivering to the Escrow Agent written notice to
that effect executed by Seller and Buyer at least thirty (30) days prior to the
effective date of such termination. In the event of such resignation or
termination of the Escrow Agent, a successor Escrow Agent shall be appointed by
mutual agreement between Seller and Buyer, and the Escrow Agent shall deliver
the portion of the Escrow Sum remaining in its possession to such successor
escrow agent. From and after the appointment of a successor Escrow Agent
pursuant to this Section 5.10, all references herein to the Escrow Agent shall
be deemed to be to such successor Escrow Agent. The delivery by the Escrow Agent
of the Escrow Sum hereunder in accordance with the provisions of this Section
5.10 shall constitute a full and sufficient discharge and acquittance of the
Escrow Agent in respect to such sums delivered, and the Escrow Agent shall be
entitled to receive releases and discharges therefor. The indemnities in favor
of the Escrow Agent contained in this Agreement and the obligations of Buyer and
Seller under Section 1.6 hereof shall survive for the benefit of the Escrow
Agent after any resignation or termination.
V.11 Non-Assignment. The duties, responsibilities, interests, and
rights of the parses under this Agreement are non-transferable and nonassignable
(without the express written consent of Buyer and Seller), and any purported or
attempted transfer or assignment in violation of this provision shall be void
and shall vest no rights in the purported transferee or assignee.
IN WITNESS THEREOF, the parties hereto have executed this Agreement as
of the date first above written.
SELLER: TEJAS SNACKS, L.P., a Texas limited partnership
By: D.T.M.E.S., a Texas corporation, its duly
authorized General Partner
By:____________________________________
Tom Bigham, President
43
<PAGE>
BUYER: TEJAS PB DISTRIBUTING, INC., an Arizona
corporation
By:____________________________________
Thomas W. Freeze, Vice President
and Chief Financial Officer
ESCROW AGENT: Everen Securities, Inc.
By:_______________________________________
Larry C. Bain, Managing Director
44
EXHIBIT 10.7
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into
effective as of the __th day of November, 1998 ("Effective Dates"), by and
between TEJAS PB DISTRIBUTING, INC. ("Company"), an Arizona corporation, and
THOMAS G. BIGHAM ("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 November
__, 1998, and shall continue for a one year period from the date first written
above.
3. Title. During the period of Employee's employment by Company,
Employee shall be Vice President of the 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 at an annual salary of $80,000.00, which
shall be payable proportionately on Company's regular payroll payment dates for
its employees.
5. 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.
6. Automobile Allowance, Telephone and Credit Card. During the period
of Employee's employment by Company, Company shall furnish to Employee the
following:
(a) Company shall pay Employee an automobile allowance of $400
per month. In addition, Company shall pay for up to $200 per month (which amount
shall be reviewed at three-month intervals) in automobile gasoline expenses
charged to Employee's AMEX corporate credit card, or the Company will reimburse
Employee if paid directly by Employee up to the agreed limit. In no event shall
Company be responsible for any other automobile related expenses, including but
not limited to insurance (however Employee shall maintain insurance coverage
reasonably satisfactory to Company), 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 providing an auto
allowance.
(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). The telephone to be furnished to Employee shall be agreed upon
by Company and Employee from time to time.
<PAGE>
(c) Company shall furnish to Employee a Company AMEX corporate
credit card and long distance telephone card for Employee to use solely for
purposes of Company.
7. 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 7. 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.
8. 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.
2
<PAGE>
(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
8, except to the extent such restrictions or limitations are required by
applicable law.
9. 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 sixty (60) months
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 State of Texas in the business of manufacturing
specialty potato chips, salted snack foods or popcorn or engage in the State of
Texas 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 59 months shall be deemed reasonable.
In the event 59 months is deemed unreasonable, then 58 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 State of
Texas is deemed unreasonable, counties shall be eliminated one by one beginning
with the northwest corner of the State of Texas, continuing down the western
side of the State of Texas and in roughly a west to east linear fashion across
the State of Texas until the geographical limit set forth above is deemed
reasonable to the fullest extent permitted by law.
10. 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
3
<PAGE>
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.
Company: Tejas PB Distributing, Inc.
3500 S. La Cometa Drive
Goodyear, Arizona 85338-1500
Fax No. (602) 925-2363
Employee: Thomas G. Bigham
_________________________
_________________________
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.
Company:
Tejas PB Distributing, Inc.
By___________________________________
Its________________________________
Employee:
_____________________________________
Thomas G. Bigham
4
EXHIBIT 10.8
EMPLOYMENT AGREEMENT
This employment agreement ("Agreement") is made and entered into
effective as of the __th day of November, 1998 ("Effective Dates"), by and
between TEJAS PB DISTRIBUTING, INC. ("Company"), an Arizona corporation, and
KEVIN M. KOHL ("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 November
__, 1998, and shall continue for a one year period from the date first written
above.
3. Title. During the period of Employee's employment by Company,
Employee shall be Vice President of the 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 at an annual salary of $80,000.00, which
shall be payable proportionately on Company's regular payroll payment dates for
its employees.
5. 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.
6. Automobile Allowance, Telephone and Credit Card. During the period
of Employee's employment by Company, Company shall furnish to Employee the
following:
(a) Company shall pay Employee an automobile allowance of $400
per month. In addition, Company shall pay for up to $200 per month (which amount
shall be reviewed at three-month intervals) in automobile gasoline expenses
charged to Employee's AMEX corporate credit card, or the Company will reimburse
Employee if paid directly by Employee up to the agreed limit. In no event shall
Company be responsible for any other automobile related expenses, including but
not limited to insurance (however Employee shall maintain insurance coverage
reasonably satisfactory to Company), 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 providing an auto
allowance.
(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). The telephone to be furnished to Employee shall be agreed upon
by Company and Employee from time to time.
<PAGE>
(c) Company shall furnish to Employee a Company AMEX corporate
credit card and long distance telephone card for Employee to use solely for
purposes of Company.
7. 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 7. 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.
8. 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.
2
<PAGE>
(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
8, except to the extent such restrictions or limitations are required by
applicable law.
9. 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 sixty (60) months
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 State of Texas in the business of manufacturing
specialty potato chips, salted snack foods or popcorn or engage in the State of
Texas 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 59 months shall be deemed reasonable.
In the event 59 months is deemed unreasonable, then 58 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 State of
Texas is deemed unreasonable, counties shall be eliminated one by one beginning
with the northwest corner of the State of Texas, continuing down the western
side of the State of Texas and in roughly a west to east linear fashion across
the State of Texas until the geographical limit set forth above is deemed
reasonable to the fullest extent permitted by law.
10. 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
3
<PAGE>
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.
Company: Tejas PB Distributing, Inc.
3500 S. La Cometa Drive
Goodyear, Arizona 85338-1500
Fax No. (602) 925-2363
Employee: Kevin M. Kohl
_________________________
_________________________
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.
Company:
Tejas PB Distributing, Inc.
By___________________________________
Its________________________________
Employee:
_____________________________________
Kevin M. Kohl
4
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998,
INCLUDED WITH FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFRERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 655,944
<SECURITIES> 0
<RECEIVABLES> 1,413,892
<ALLOWANCES> 177,233
<INVENTORY> 440,790
<CURRENT-ASSETS> 2,593,300
<PP&E> 7,318,662
<DEPRECIATION> 1,055,724
<TOTAL-ASSETS> 11,126,121
<CURRENT-LIABILITIES> 1,543,088
<BONDS> 4,826,291
0
0
<COMMON> 71,267
<OTHER-SE> 4,685,475
<TOTAL-LIABILITY-AND-EQUITY> 11,126,121
<SALES> 9,475,956
<TOTAL-REVENUES> 9,475,956
<CGS> 7,108,610
<TOTAL-COSTS> 7,108,610
<OTHER-EXPENSES> 2,724,126
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 370,945
<INCOME-PRETAX> (727,724)
<INCOME-TAX> 0
<INCOME-CONTINUING> (727,724)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (727,724)
<EPS-PRIMARY> (0.10)
<EPS-DILUTED> (0.10)
</TABLE>
