-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, BA28h19MiRFihtcSki4DIuvejbHrRqC7SHtf4ji/o74VMnVGNfGjgUTVaoUsAMHN aEIR2Mf5u5VsHhgi9XrlVw== 0000921895-00-000294.txt : 20000417 0000921895-00-000294.hdr.sgml : 20000417 ACCESSION NUMBER: 0000921895-00-000294 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000414 FILER: COMPANY DATA: COMPANY CONFORMED NAME: DELICIOUS BRANDS INC CENTRAL INDEX KEY: 0001059976 STANDARD INDUSTRIAL CLASSIFICATION: WHOLESALE-GROCERIES & RELATED PRODUCTS [5140] IRS NUMBER: 061255882 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-24941 FILM NUMBER: 602428 BUSINESS ADDRESS: STREET 1: 2070 MAPLE STREET CITY: DES PLAINES STATE: IL ZIP: 60018 BUSINESS PHONE: 8476995900 MAIL ADDRESS: STREET 1: 2720 RIVER RD STREET 2: STE 126 CITY: DES PLAINES STATE: IL ZIP: 60018 FORMER COMPANY: FORMER CONFORMED NAME: DELICIOUS FROOKIE CO INC /DE/ DATE OF NAME CHANGE: 19980417 10-K 1 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 Form 10-K [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1999 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _______________ to _______________ Commission file number 000-24941 DELICIOUS BRANDS, INC. . (Exact name of the registrant as specified in its charter) DELAWARE 06-1255882 -------- ---------- (State or other jurisdiction of (I.R.S. Employer Identification Number) incorporation or organization) 2070 MAPLE STREET, DES PLAINES, ILLINOIS 60018 - ---------------------------------------- ----- (Address of principal executive offices) (Zip code) Registrant's telephone number including area code: (847) 699-3200 ----------------------------- ------------------------------ Securities Registered Pursuant to Section 12(b) of the Act: NONE Securities Registered Pursuant to Section 12(g) of the Act: Common Stock, $.01 par value Indicate by check mark whether the Registrant: (1) has filed all reports required to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO --- ---- Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of Registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. YES X NO --- ---- As of March 31, 2000, the aggregate market value of the Registrant's Common Stock held by non-affiliates of the Registrant was $4,837,998. Solely for the purposes of this calculation, shares held by directors and officers of the Registrant have been excluded. Such exclusion should not be deemed a determination or an admission by the Registrant that such individuals are in fact, affiliates of the Registrant. As of March 31, 2000, there were 4,697,085 shares outstanding of the Registrant's Common Stock. Documents Incorporated by Reference: Portions of the Registrant's definitive proxy statement to be filed pursuant to Regulation 14A within 120 days after the end of the Registrant's fiscal year are incorporated by reference in Part III. TABLE OF CONTENTS ----------------- ITEM PAGE - ---- ---- PART I 1. BUSINESS...............................................................4 2. PROPERTIES.............................................................6 3. LEGAL PROCEEDINGS......................................................6 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS....................6 PART II 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS....................................................7 6. SELECTED FINANCIAL DATA................................................8 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................................8 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK............13 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA...........................13 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES.............................................13 PART III 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT....................13 11. EXECUTIVE COMPENSATION................................................13 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT........13 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS........................13 PART IV 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K......14 15. SIGNATURES............................................................15 PART I ITEM 1. BUSINESS GENERAL Delicious Brands, Inc. (the "Company") develops, markets and sells cookies, crackers and related food products under the Delicious(R), Salerno(R), Mama's(R) and Frookie(R) labels. These products are sold primarily in the United States to independent direct-store delivery distributors for resale to supermarkets and other retail outlets, through large wholesalers to natural food stores and also directly to supermarkets and other retail outlets. The Company was founded in 1989 originally to market the Frookie cookie product, one of the first all-natural, low-fat cookies produced with fruit juice sweeteners. Through the acquisition of Delicious Cookie Company, Inc. ("Delicious") in 1994, the Company broadened its product offering into three lines: (i) high-quality, value priced snack products ("Value Oriented"), (ii) licensed and co-branded snack products (i.e., packaged under both a licensed label and the Delicious label) ("Co-Branded") and (iii) all-natural snack products ("All-Natural"). All of the Company's products are produced by independent food processors ("co-packers") using the Company's proprietary specifications and formulations. The Company was incorporated under the laws of the State of Delaware in 1989. Its principal executive offices are located at 2070 Maple Street, Des Plaines, Illinois 60018 and its telephone number is (847) 699-3200. RECENT HISTORY The Company's failure to satisfy the Nasdaq SmallCap Market maintenance requirements resulted in the Common Stock being delisted from the Nasdaq SmallCap Market. Trading of the Company's Common Stock, if any, is conducted in the Over-the-Counter Bulletin Board. As a result of the delisting of the Common Stock from the Nasdaq SmallCap Market, an investor may find it more difficult to dispose of, or to obtain accurate quotations as to the market value of the Common Stock. Furthermore, the regulations of the Securities and Exchange Commission ("Commission") promulgated under the Securities Exchange Act of 1934, as amended, require additional disclosure relating to the market for penny stocks. Commission regulations generally define a penny stock to be an equity security that has a market price of less than $5.00 per share, subject to certain exceptions. A disclosure schedule explaining the penny stock market and the risks associated therewith is required to be delivered to a purchaser and various sales practice requirements are imposed on broker-dealers who sell penny stocks to persons other than established customers and accredited investors (generally institutions). In addition, the broker-dealer must provide the customer with current bid and offer quotations for the penny stock, the compensation of the broker-dealer and its salesperson in the transaction and monthly account statements showing the market value of each penny stock held in the customer's account. If the Company's securities become subject to the regulations applicable to penny stocks, the market liquidity for the Company's securities could be severely affected. In such an event, the regulations on penny stock could limit the ability of broker-dealers to sell the Company's securities and thus the ability of purchaser of the Company's securities to sell their securities in the secondary market. On April 5, 2000, the Company entered into an Asset Purchase Agreement (the "APA") with BF USB, Inc., a Delaware corporation and indirect subsidiary of Parmalat Canada, Ltd., who is affiliated with certain of the Company's suppliers and customers and who has acquired businesses from and entered into a consulting agreement with the Company's Chairman of the Board of Directors. Under the terms of the APA, the Company will sell substantially all of its assets for $26,680,000 less a $1,700,000 working capital adjustment, plus (minus) actual working capital (deficit), delivered at closing, as defined, in cash and the assumption of certain liabilities that are related to the ongoing operations of the Company. The APA requires that $5,336,000 of the cash to be delivered at Closing be deposited into an escrow account to satisfy indemnification obligations (if any) of the Company which may arise under the APA. The provisions of the escrow agreement provide for release of funds in varying amounts on the six-, twelve- and eighteen-month anniversary of the closing date. After payment of all outstanding debt and redemption of its preferred stock the Company believes the -4- proceeds from the sale will not represent a premium to current market capitalization. The purchase price is subject to adjustments and indemnifications as provided in the APA. The APA requires the Company to pay a break-up fee of $1,500,000 in the event this agreement is terminated by the Company, if the Company were to accept a superior proposal for the sale of the assets or otherwise. The Company has agreed not to compete in the snack food industry without the consent of BF USB and does not plan to operate in the snack food industry after consummation of the asset sale. The Company's Board of Directors is exploring its alternatives and opportunities and may seek to enter into a new line of business after the closing of the asset sale; however, the Board of Directors has not identified any new business at present and if the Board of Directors does not successfully identify a new line of business, it may seek to sell or liquidate the Company and pay out the net cash to its shareholders. Additionally, the sale is subject to regulatory and shareholder approval. This transaction is subject to satisfaction of various conditions, including, the approval of a majority of the shareholders of Delicious, Hart Scott Rodino Act approval, and other governmental approvals and the obtaining of all necessary consents. Delicious has received an opinion from its financial advisor, Valuemetrics, Inc., that the amount of consideration to be received by the Company is fair from a financial perspective. The Company's auditors have questioned the ability of the Company to continue as a going concern due to recurring losses from operations, a significant net working capital deficit and the fact that the Company's existing revolving line of credit will not be renewed beyond June, 15, 2000. Although management believes that the Company will continue operations until the pending asset sale described below is completed, there is no guarantee that the Company can remain viable until the conclusion of the pending transaction. There can be no assurance that the Company will successfully complete the transaction contemplated in the APA or, if such transaction is completed, the Company will have funds sufficient to meet its obligations. Should the Company be unable to complete the transaction discussed above, the Company will likely need to seek another buyer, raise additional debt or equity financing and/or curtail its operations. DESCRIPTION OF BUSINESS Products and Distribution The Company develops, markets and sells cookies, crackers and related food products under the Delicious(R), Salerno(R), Mama's(R) and Frookie(R) labels, as well as licensed names including Butterfinger(TM), Chiquita(TM), Heath(R), and Raisinets(TM). The Company's product lines include a variety of different cookie, cracker and snack categories comprising more than 200 stock keeping units ("SKUs"). These products are sold primarily in the United States to independent direct-store delivery distributors for resale to supermarkets and other retail outlets, through large wholesalers to natural food stores and also directly to supermarkets and other retail outlets. New Products During 1999 the Company focused a majority of its research and development efforts to extend and enhance its All-Natural product line and developing its single-serve product line. The liquidity problems experienced by the Company in 1999 inhibited the introduction of new products. See "Management's Discussion and Analysis of Financial Conditions and Results of Operations - Liquidity and Capital Resources" below. Raw Materials The Company relies exclusively on outside manufacturers to produce its products. The main ingredients that these manufacturers use to produce the Company's products are flour, sugar, chocolate, shortening and milk. The Company's manufacturers also use paper products, as well as films and plastics to package its products. Certain of the Company's suppliers have withdrawn credit terms and require that the Company pay cash in advance for shipments. During the first quarter of 2000 a major supplier of the Company has experienced financial difficulties which have at times delayed the availability of product. There is no guarantee that the supplier will continue to produce product or that the Company will be able to find an alternative product source. Other than these situations, there are no current or anticipated problems with respect to the availability of the Company's products or any of the ingredients or materials used in the production or packaging of these products. Patents, Trademarks and Licenses The Company has filed for and obtained trademark protection for a number of its products and trade names, including the names "Delicious," "Frookie," "Frookies," "Fruitin," "Salerno," "Mama's" and "R.W. Frookies." The Company generally files its trademark applications in the Unites States and several foreign countries, including Canada, -5- France, Great Britain and Japan. In connection with its Co-Branded product line, the Company has entered into license agreements with major companies that own the trademarks that are licensed to the Company. Seasonality of Business The Company believes it has limited seasonality influences. Working Capital (Deficit) As of December 31, 1999, the Company's current ratio (current assets divided by current liabilities) was 1.0 to 3.7. See "Management's Discussion and Analysis of Financial Condition and Results of Operations - Liquidity and Capital Resources" for discussion of liquidity and plans to meet future liquidity needs. Reliance on Major Distributors The Company relies on third-party distributors to sell and deliver certain of its products to supermarkets, mass merchandisers, club stores and convenience stores. Effective August 2, 1999, the Company terminated business with its largest distributor of Delicious brand products due to poor performance. The distributor represented approximately 15% of the Company's sales during 1998. While the Company has replaced this distributor with new distributors, the Company continues to experience a decline in sales. In response to the termination, the owner of this distributor ceased carrying the Company's products in their other divisions. During 1999, industry consolidation led to several major customers being purchased by competitors resulting in Company products being replaced by competitor merchandise. Competition The marketing and sale of cookies, crackers and related snack foods is highly competitive. Many of the Company's competitors have developed nationally and regionally recognized brand names. In addition, competitors may succeed in developing new or enhanced products that are more popular than any that may be sold or developed by the Company, and competitors may also be more successful than the Company in marketing and selling their respective products, obtaining premium shelf space and entering into arrangements with independent distributors. Research and Development The Company's limited research and development team works to create new products and line extensions and improve existing products. The Company's packaging design is jointly created by an in-house design staff and outside design firms. The Company has focused and currently intends to continue to focus a majority of its research and development efforts extending and enhancing its All-Natural product line and developing its single-serve product line. Environmental Matters To date, compliance with federal, state and local laws and regulations enacted to regulate the discharge of materials into the environment has not had, and is not expected to have, a material effect upon the Company's business, financial condition or results of operations. Employees As of December 31, 1999, the Company had 91 full-time employees, 24 of which are represented by Teamsters Local 734. The Company's collective bargaining agreements with Teamsters Local 734 expire on May 12, 2001. The Company believes its relations with its employees is good. ITEM 2. PROPERTIES The Company's headquarters are located in 73,600 square feet of leased office and warehouse space in Des Plaines, Illinois. The Company's lease expires May 31, 2003. The Company also leases two warehouses in Michigan and New York. All leased warehouse space are primarily used for the distribution of Salerno and Mama's product lines. -6- ITEM 3. LEGAL PROCEEDINGS On October 9, 1999 one of the Company's suppliers filed suit against the Company in the Circuit Court of Cook County, Illinois claiming breach of contract and bad faith dealing. The Company answered the complaint and filed a counterclaim for breach of contract due to poor quality of products. The Company continues to do business with this supplier; however, the Company has terminated its contract with this supplier. In the opinion of management, this suit is without merit but unfavorable disposition could have a material effect on the Company's financial position, results of operations or liquidity. In addition, from time to time, the Company may be subject to claims and lawsuits arising in the normal course of business. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY There were no matters submitted during 1999 to a vote of security holders, through the solicitation of proxies or otherwise. Currently, the sale of certain assets and liabilities of the Company (as previously discussed in "Recent History") will be submitted for approval to the security holders. PART II ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS Market Information The Company's Common Stock was traded over-the-counter on the Nasdaq SmallCap Market System ("Nasdaq") (ticker symbol: DBSI) during the year ended December 31, 1999. On February 2, 2000 the Company's Common Stock was delisted from the Nasdaq Stock Market (see "Recent History" for previous discussions.) and is currently traded on the Over the Counter Bulletin Board. The following table sets forth, for the periods indicated, the high and low bid quotations for the Common Stock, as reported by Nasdaq. These quotations reflect the inter-dealer prices, without retail markup, markdown or commission and may not necessarily represent actual transactions. Bid Prices ---------- Fiscal Year 1999 High Low ---------------- ---- --- First Quarter $12 3/4 $11_ Second Quarter $12 1/8 $6 7/8 Third Quarter $9 1/8 $3 5/8 Fourth Quarter $4 7/8 $1 5/16 ---------------------------------------------------------------- Bid Prices ---------- Fiscal Year 1998 High Low ---------------- ---- --- Fourth Quarter (1) $12 _ $11 1/2 ---------------------------------------------------------------- (1) The Company's Common Stock commenced trading on November 12, 1998. Holders As of December 31, 1999, there were 181 holders of record of the Company's Common Stock holding 2,928,142 shares of common stock with 1,769,825 shares of common stock being held in street name. -7- Dividends There have been no dividends declared on the Company's Common Stock in 1999 or 1998. The Company instead intends to retain any earnings to support the growth of the Company. Any future cash dividends on the Common Stock will depend on the Company's future earnings, capital requirements, financial condition and other factors deemed relevant by the Company's Board of Directors. In addition, under the terms of the Company's financing agreement, as amended, with U.S. Bancorp Republic Commercial Finance, Inc. ("Republic"), the Company may not pay dividends without Republic's prior written consent. Lastly, the holders of shares of Series A, C and D Preferred Stock are entitled to receive in preference and prior to the Common Stock, semi-annual dividends of five, six and six percent, respectively, of the aggregate stated value of the Series A, C and D Preferred Stock. During 1999 the Company paid one semi-annual dividend to the holders of shares of Series A Preferred Stock aggregating $73,300. Any accrued but unpaid dividends on the Series A, C and D Preferred Stock must be paid by the Company prior to paying a dividend on the Common Stock. ITEM 6. SELECTED FINANCIAL DATA The following selected financial data of the Company are qualified by reference to and should be read in connection with the financial statements, including the notes, thereto, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere herein. Year ended December 31, (in thousands, except per share information)
1995 1996 1997 1998(1) 1999 ---- ---- ---- ---- ---- Net Sales $ 52,722 $ 36,848 $ 30,665 $ 53,030 $ 41,086 Net (Loss) $ (6,955) $ (898) $ (3,398) $ (5,308) $ (7,635) Net (Loss) Per Share $ (2.57) $ (.32) $ (1.16) $ (1.57) $ (1.70) Total Assets $ 9,719 $ 7,592 $ 6,487 $ 17,828 $ 14,234 Long-term Debt (excluding current portion $ 2,151 $ 2,110 $ 1,960 $ 0 $ 0
(1) In April 1998, the Company acquired substantially all of the assets and assumed certain liabilities of Salerno Foods, L.L.C. ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The Company's auditors have questioned the ability of the Company to continue as a going concern due to recurring losses from operations, a significant net working capital deficit and the fact that the Company's existing revolving line of credit will not be renewed beyond June, 15, 2000. Although management believes that the Company will continue operations until the pending asset sale is completed, there is no guarantee that the Company can remain viable until the conclusion of the pending transaction. The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result in the event the Company's plans are not successful. Set forth below is a discussion of the financial condition and results of operations for the years ended December 31, 1999, 1998, and 1997. The 1998 results of operations include financial results relating to the acquisition of Salerno Foods, L.L.C. ("Salerno") since April 3, 1998, the date of acquisition. The following discussion of results of operations and liquidity and capital resources should be read in conjunction with the information set forth in "Selected Financial Data" and financial statements and the related notes thereto appearing elsewhere in this Form 10-K. -8- RESULTS OF OPERATIONS MATTERS AFFECTING COMPARABILITY - ACQUISITION OF ASSETS On April 3, 1998, the Company acquired substantially all of the assets and assumed certain liabilities of Salerno ("Salerno"). Accordingly, the Company's results of operations for the twelve months ended December 31, 1999 include the operating results of Salerno whereas the comparable twelve months ended for the prior year include the results of Salerno beginning April 3, 1998. YEAR ENDED DECEMBER 31, 1999 COMPARED WITH YEAR ENDED DECEMBER 31, 1998 NET SALES Net sales decreased 23% to $41.1 million for the year ended December 31, 1999 from $53.0 million for the year ended December 31, 1998. Delicious brand product sales decreased 45% partially as a result of changes in the buying habits of distributors as well as increased competition from private label and national brands. Distributors formerly visited retailers multiple times each week and relied on unit volume to earn profits. Distributors currently rely on less visits per week, lower volume sales and a higher gross margin. Effective August 2, 1999 the Company terminated business with its largest distributor of Delicious brand products due to poor performance. The distributor represented approximately 15% of the Company's sales during 1998. While the Company has replaced this distributor with new distributors, the Company continues to experience a decline in sales. In response to the termination of this distributor, the owner ceased carrying the Company's products in their other divisions. Also during 1999, industry consolidation led to several major customers being purchased by competitors and the loss of sales. Salerno brand product sales as compared to 1998 declined 24% primarily as a result of reduced sales to certain national accounts. Sales were negatively affected by the Company's inability to obtain inventory, as discussed in "Liquidity and Capital Resources" below. GROSS PROFIT Gross profit decreased 16% to $9.4 million for the year ended December 31, 1999 from $11.2 million for the year ended December 31, 1998. Gross profit as a percentage of sales increased 1.8% as Delicious and Frookie gross margins increased 1.7% while Salerno's gross margins decreased 1.3%. The gross margin percentage increased for Delicious and Frookie product lines as the Company concentrated on increasing gross margin by reducing promotional costs and obtaining lower supplier costs. Salerno's decrease in gross margin percentage resulted from higher promotional allowances caused by competitive pressures in the market sector for premium cookies. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased 8% to $15.8 million for the year ended December 31, 1999 from $14.7 million for the year ended December 31, 1998. The increase in selling, general and administrative expense was due to the inclusion of twelve months of operating expenses for the year ended 1999 versus nine months of expenses in 1998 due to the April 3, 1998 purchase of Salerno Foods, L.L.C. The higher expenses were offset by lower selling expenses related to reduced sales as well as a decline in general and administrative expenses caused by the elimination of redundant expenses associated with the April 3, 1998 acquisition of Salerno. OTHER INCOME (EXPENSE) Other expenses decreased 37% to $1.2 million for the year ended December 31, 1999 from $1.9 million for the year ended December 31, 1998. Financing fees and interest expense declined 56% and 36% respectively due to additional expenses related to the April 3, 1998 acquisition of Salerno. PROVISION FOR INCOME TAX The provision for income tax for the year ended December 31, 1999 was zero as a result of there being a net operating loss for the period for which a valuation allowance was provided to reduce the tax benefit of the loss. The valuation allowance increased $2.9 million primarily due to the uncertainty of the future utilization of the net loss -9- generated in 1999. At December 31, 1999, the Company has available for tax reporting purposes approximately $21,228,000 of net operating loss carryforwards expiring in varying amounts through 2019. As a result of the private placement of Series B Preferred Stock in 1999, the utilization of net operating loss carryforwards generated prior to the transaction are limited under Section 382 of the Internal Revenue Code. NET LOSS Net loss increased 44% to $7.6 million for the year ended December 31, 1999 from $5.3 million for the year ended December 31, 1998. The increased losses were a result of the factors discussed above. YEAR ENDED DECEMBER 31, 1998 COMPARED WITH YEAR ENDED DECEMBER 31, 1997 NET SALES Net sales increased 73% to $53.0 million for the year ended December 31, 1998 from $30.7 million for the year ended December 31, 1997. The net sales increase resulted from the inclusion of the April 3, 1998 acquisition of Salerno which totaled $26.8 million for the period from April 3, 1998 to December 31, 1998. Sales of Frookie products declined as marketing and promotion efforts were reduced in anticipation of the introduction of a new reformulated Frookie product line which was partially introduced during the fourth quarter of 1998. The sales volume related to the Company's Value Oriented products declined as promotional and marketing expenses were reduced on this lower margin product line. GROSS PROFIT Gross profit increased 104% to $11.2 million for the year ended December 31, 1998 from $5.5 million for the year ended December 31, 1997. The gross profit increase resulted primarily from the inclusion of the April 3, 1998 acquisition of Salerno which totaled $7.3 million. Gross profit as a percentage of sales, excluding Salerno's gross profit, decreased 2.9%. The decline was caused by lower sales in the higher margin Frookie product discussed above, as well as higher promotional allowances required to sell inventory and introduce new products. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES Selling, general and administrative expenses increased 115% to $14.7 million for the year ended December 31, 1998 from $6.8 million for the year ended December 31, 1997. The increase resulted primarily from the inclusion of the April 3, 1998 acquisition of Salerno which totaled $8.2 million. Operating results in 1998 included the amortization of goodwill related to the Salerno acquisition that exceeded 1997 charges by $291,000. Non-recurring expenses for relocation of employees and the principal executive offices of the Company of $250,000, startup costs of $275,000 to develop international sales and costs of $165,000 associated with litigation settlement and additional insurance cost offset the reduction in marketing and promotional expenses of $557,000 discussed in the Net Sales analysis. RESTRUCTURING CHARGE The Company recognized a one-time $1.5 million restructuring charge in 1997 primarily consisting of the expensing of consulting agreements the Company entered into with former executive officers, Richard and Randye Worth. In 1998, a $150,000 reduction of the restructuring liability occurred based on the revision of an estimate. OTHER INCOME (EXPENSE) Other expense increased 293% to $1.9 million for the year ended December 31, 1998 from $484,000 for the year ended December 31, 1997. The increase was primarily due to increased interest expense and financing fees of $1.2 million related to borrowings used in the acquisition of Salerno and for working capital needed to operate the Salerno product line. -10- PROVISION FOR INCOME TAX The provision for income taxes for the year ended December 31, 1998 was zero as a result of there being a net operating loss for the period for which a valuation allowance was provided to reduce the tax benefit of the loss. The valuation loss increased $1.6 million primarily due to the uncertainty of the future utilization of the net loss generated in 1998. NET LOSS Net loss increased 56% to $5.3 million for the year ended December 31, 1998 from $3.4 million for the year ended December 31, 1997 as a result of the factors discussed above. Liquidity and Capital Resources - ------------------------------- Currently, the Company has insufficient funds for its needs. The Company is seeking funds from the sale of certain assets and liabilities (see "Recent History" for previous discussion); however, this transaction is subject to satisfaction of various conditions, including the approval of a majority of the shareholders of the Company, Hart Scott Rodino Act approval, other governmental approvals and obtaining all necessary consents. There is no assurance that this transaction will be completed and that an alternate source of additional funds can be obtained on acceptable terms, if at all. If the Company is unable to obtain additional financing or generate positive cash flow or sell substantially all its assets, the Company's business will be materially adversely affected. In recent periods, the Company has utilized its working capital and proceeds from both private placements and the Company's initial public offering (the "Initial Public Offering") of common stock, $.01 par value per share ("Common Stock") to cover operating deficits. Because the Company purchases its products from co-packers, it does not intend to invest in plant or equipment relating to the manufacture of products for sale. Further, the Company believes that its existing fleet of leased trucks is sufficient for the foreseeable future. In addition, the Company's introduction of new products represents an immaterial capital expenditure because co-packers are responsible for the research, development and ingredients costs. The only costs incurred by the Company are packaging design costs, which did not exceed $100,000 in either 1999 or 1998. Consequently, additions to property and equipment are not expected to be material in future periods. On February 6, 1998, the Company consummated a second closing of the October Private Placement (the "Second Closing") pursuant to which it issued an aggregate of 140,000 shares of Common Stock for an aggregate price of $840,000. The net proceeds of $695,610 from the Second Closing, were applied by the Company to increase cash balances and reduce outstanding trade payables balances. On March 30, 1998, the Company borrowed $500,000 (the "Acquisition Loan"). Such indebtedness bears interest at the rate of 12% per annum and matured on the consummation of the Company's initial Public Offering on November 17, 1998. The Acquisition Loan and accrued interest thereon were repaid from the proceeds of the Initial Public Offering. On April 3, 1998, the Company entered into an amendment to a revolving credit facility with U.S. Bancorp Republic Commercial Finance, Inc. ("Republic") for a revolving line of credit of up to $7.0 million. Borrowings under the revolving credit facility are due upon demand and bear interest at 1.50% per annum above the reference rate of interest publicly announced from time to time by U.S. Bank National Association (10.0% at December 31, 1999). Borrowings under the revolving credit facility at December 31, 1999 were $1.3 million. Borrowings under the revolving credit facility are collateralized by a first lien on substantially all of the assets of the Company. The revolving credit facility expired on November 30, 1999. Republic has notified the Company that it will not renew the agreement but has granted an extension of the expiration date to June 15, 2000. No assurance can be made that the Company will be able to enter into a new facility on acceptable terms or at all. Failure to obtain a new facility would have a material adverse effect on the Company's business and financial condition. On April 3, 1998, the Company consummated the Salerno Acquisition. The purchase price for Salerno consisted of (i) $3.3 million in cash, (ii) a $1.5 million promissory note from the Company to Salerno (the "Salerno Promissory Note"), bearing interest at a rate of 12% per annum, secured by a second lien on substantially all of the Company's assets, and (iii) the assumption of substantially all of the liabilities of Salerno. In connection therewith, the Company entered into a loan agreement with American Pacific Financial Corporation ("APFC") pursuant to which the Company borrowed $4.6 million, bearing interest at a rate of 12% per annum through August 3, 1998 and 15% per -11- annum thereafter, from APFC (the "APFC Loan") consisting of $3.0 million in cash used by the Company to fund a portion of the cash purchase price for Salerno, $1.5 million in the form of APFC assuming the Salerno Promissory Note and $100,000 as a fee for the APFC Loan. In addition, the Company issued to APFC a promissory note in the principal amount of $100,000, bearing interest at a rate of 12% per annum, as a fee for assuming the Salerno Promissory Note. The notes and accrued interest thereon were repaid from the proceeds of the Initial Public Offering. As of August 1, 1998, holders of approximately $1.6 million aggregate principal amount of 9% Subordinated Convertible Promissory Notes (the "9% Notes") exchanged such notes for an aggregate of 195,834 shares of Series A Preferred Stock pursuant to an offer to exchange made by the Company. Annual dividends of 10% paid semi-annually are payable on the shares of Series A Preferred Stock out of the assets of the Company legally available for payment thereof. The expiration date of warrants to purchase 107,730 shares of Common Stock collectively held by the holders of the 9% Notes exchanged for the Series A Preferred Stock was extended to April 27, 2001 from April 27, 1999. On November 17, 1998, the Company consummated an Initial Public Offering of 1,000,000 shares of Common Stock, at a price of $12.00 per share. On December 31, 1998, the Company consummated the sale of 150,000 shares of Common Stock, at a price of $12.00 per share, pursuant to the underwriters' exercise of the over-allotment option on December 29, 1998. After deducting underwriting discounts and expenses, the Company received approximately $10.7 million of net proceeds from the Initial Public Offering. On April 12, 1999, the Company consummated a private placement of 35,000 shares of Series B Preferred Stock and a warrant to purchase 700,000 shares of Common Stock for an aggregate price of $1.75 million. The net proceeds of $1.5 million were applied by the Company to primarily reduce outstanding trade payables balances. Each share of Series B Preferred Stock is currently convertible into approximately seven shares of Common Stock, subject to certain antidilution provisions. The warrant to purchase 700,000 shares of Common Stock has an initial exercise price of $0.01 per share, subject to certain antidilution provisions, for a term of ten years from the date of its issuance. The warrant was exercised on April 7. 2000. On April 27, 1999, 9% promissory notes in the aggregate principal amount of approximately $393,000 matured. The Company did not repay the promissory notes and currently does not have funds to repay the promissory notes, and expects to repay the notes as funds become available. On August 18, 1999, the Company issued promissory notes in the aggregate principal amount of $360,000 (the "Notes"). Interest on the Notes accrues at a rate of 10% per annum. A Note in the principal amount of $250,000 was converted at the holder's request to an 8% Note (as defined below) on August 30, 1999. The remaining Note in the principal amount of $110,000, along with all accrued interest on the Note, was paid on September 3, 1999. On August 30, 1999, the Company issued an 8% non-negotiable unsecured convertible promissory note in the principal amount of $5,250,000 (the "8% Notes"). The 8% Notes and accrued interest thereon are due and payable one year from issuance of the 8% Notes. The 8% Notes are convertible, at the option of the 8% Note holder, into shares of the Company's Common Stock at the rate of one share for each $5.00 of outstanding principal amount. On December 23, 1999, the Company consummated an initial closing of a private placement to which it issued an aggregate of 170,038 share of 12% Cumulative Series C Preferred Stock for an aggregate price of $3,401,000. The net proceeds of $2,993,000 were applied by the Company to increase cash balances and reduce outstanding trade payable balances. On January 7, 2000, the Company consummated a second closing of a private placement to which it issued an aggregate of 83,625 shares of 12% Cumulative Series C Preferred Stock for an aggregate price of $1,673,000. The net proceeds of $1,467,000 were applied by the Company to increase cash balances and reduce outstanding trade payable balances. On April 6, 2000, the Company consummated the closing of a private placement to which it issued an aggregate 100,000 shares of 12% Cumulative Series D Preferred Stock for an aggregate price of $2,000,000. The net proceeds of $1,725,000 were used as follows: (1) $500,000 was deposited into a special escrow reserve account related to the pending sale of certain assets and liabilities of the Company (see "Recent History" for previous discussion), and (2) $1,225,000 to increase cash balances, paydown the bank loan and reduce outstanding trade payable balances. During July, August, November and December 1999, the Company was unable to obtain all the inventory needed to fill customer orders, due to its inability to meet vendor obligations. Certain vendors who refused to ship -12- merchandise have begun to supply inventory. YEAR 2000 PROGRAM The Company's computer hardware and software have been modified to be Year 2000 compliant. It appears that the Company's suppliers are also Year 2000 compliant and any Year 2000 failures have not and will not have a material impact on the Company's results of operations, liquidity or financial condition. FORWARD LOOKING STATEMENTS This report contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this report will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as a representation by the Company or any other person that the objectives and plans of the Company will be achieved. ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET At December 31, 1999, the Company had no outstanding derivative financial instruments. All of the Company's transactions occur in U.S. dollars. Therefore, the Company is not subject to significant foreign currency exchange risk. ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA See the Financial Statements listed in the accompanying Index to Financial Statements on Page F-1 herein. Information required for financial schedules under Regulation S-X is either not applicable or is included in the financial statements or notes thereto. ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE None. PART III ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT The information required by this Item 10 will be in the Company's definitive proxy materials to be filed with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K by this reference. ITEM 11. EXECUTIVE COMPENSATION The information required by this Item 11 will be in the Company's definitive proxy materials to be filed with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K by this reference. ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT The information required by this Item 12 will be in the Company's definitive proxy materials to be filed with the Securities and Exchange Commission and is incorporated in this Annual Report on Form 10-K by this reference. ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS During the period January 1, 1999 through April 6, 2000, the Company entered into the following transactions -13- with Donald Schmitt, Chairman of the Board: (A) On December 8, 1999 the Company issued Mr. Schmitt 25,000 shares of Common Stock with a market value of $39,844 for services rendered during the year. (B) On December 23, 1999 Mr. Schmitt purchased 15,000 shares of Series C Preferred Stock for $300,000. The terms were the same as those given other investors and the purchase represented approximately 6% of the total shares issued to investors. (C) On April 6, 2000 Mr. Schmitt purchased 25,000 shares of Series D Preferred Stock for $500,000. The terms were the same as those given other investors and the purchase represented 25% of the total shares issued to investors. Additionally, on March 15, 2000 Mr. Schmitt paid $100,000 and issued a personal promissory note for $401,084 to settle a dispute with a former Company supplier. The Company reimbursed Mr. Schmitt for the $100,000 and intends to reimburse him for the $401,084 after Mr. Schmitt pays the promissory note when due on July 31, 2000. The Company entered into an arrangement with a company, which one of the members of the board of directors serves as president, to pay a fee for raising capital as follows: 5% on the first $5.0 million and 3% thereafter on the proceeds of all future debt and equity financings. The fees paid included $325,750 in cash, 3,413 shares of Series C Preferred Stock valued at $68,250. Additional fees of $60,000 in cash will be paid on the Series D Preferred Stock offering. PART IV ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K (a) Documents Filed as Part of this Form 10-K 1. Financial Statements The Financial Statements listed in the accompanying Index to Financial Statements which appears on page F-1 herein are filed as part of this Form 10-K. 2. Financial Statement Schedule The Financial Statement Schedule listed in the accompanying Index to Financial Statements which appears on page F-1 herein is filed as part of this Form 10-K. (b) The Company did not file any 8-K filings during the last quarter of the year ending December 31, 1999. (c) Exhibits: 3.1 Amended Bylaws 3.2 Amended and Restated Certificate of the Designations, Powers, Preferences and Rights of the Series B Convertible Preferred Stock 3.3 Certificate of Designation of Series C Preferred Stock 3.4 Certificate of Designation of Series D Preferred Stock 10.1 Stock Purchase Agreement relating to Series C 10.2 Stock Purchase Agreement relating to Series D 10.3 Asset Purchase Agreement dated April 5, 2000 27.1 Financial Data Schedule 99.1 Press Release dated April 7, 2000 -14- SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DELICIOUS BRANDS, INC. (Registrant) Dated: April 14, 2000 /s/ Thomas J. Guinan ---------------------------------------------- Thomas J. Guinan President, Director and Chief Executive Officer Dated: April 14, 2000 /s/ Jeffry W. Weiner ---------------------------------------------- Jeffry W. Weiner Executive Vice President and Chief Financial Officer Known all men by these presents, that each person whose signature appears below hereby constitutes and appoints Thomas J. Guinan and Jeffry W. Weiner his true and lawful attorney-in-fact and agent, with full power of substitution and resubstitution for him and in his name, place and stead, in any and all capacities, to sign any and all amendments to this Form 10-K and to file the same, with exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorney-in-fact and agent full power and authority to do and perform each and every act and thing requisite and necessary to be done, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said might or could do in person, hereby ratifying and confirming all that said attorney-in-fact and agent or either of them, or their or his substitutes or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the dates indicated. DATE SIGNATURE - ---- --------- April 14, 2000 /s/ Donald C. Schmitt ------------------------------------------- Donald C. Schmitt Director and Chairman April 14, 2000 /s/ Michael P. Schall ------------------------------------------- Michael P. Schall Director April 14, 2000 /s/ Edward R. Sousa ------------------------------------------- Edward R. Sousa Director April 14, 2000 /s/ John H. Wyant ------------------------------------------- John H. Wyant Director April 14, 2000 /s/ Thomas J. Guinan ------------------------------------------- Thomas J. Guinan President, Chief Executive Officer and Director -15- April 14, 2000 /s/ Russell D. Glass ------------------------------------------- Director -16- DELICIOUS BRANDS, INC. INDEPENDENT AUDITORS' REPORT AND FINANCIAL STATEMENTS DECEMBER 31, 1999 DELICIOUS BRANDS, INC. INDEX TO FINANCIAL STATEMENTS Page INDEPENDENT AUDITORS' REPORT F-2 FINANCIAL STATEMENTS: Balance Sheets, December 31, 1999 and 1998 F-3 Statement of Operations, Years Ended December 31, 1999, 1998 and 1997 F-4 Statement of Stockholders' Equity, Years Ended December 31, 1999, 1998 and 1997 F-5 Statement of Cash Flows, Years Ended December 31, 1999, 1998 and 1997 F-6 - F-7 Notes to the Financial Statements F-8 - F-20 ADDITIONAL FINANCIAL DATA: Independent Auditors' Report on Schedules S-1 Valuation and Qualifying Accounts (Schedule II) S-2 F-1 INDEPENDENT AUDITORS' REPORT To the Board of Directors of Delicious Brands, Inc. We have audited the accompanying balance sheets of DELICIOUS BRANDS, INC. as of December 31, 1999 and 1998, and the related statements of operations, stockholders' equity and cash flows for each of the three years in the period ended December 31, 1999. These financial statements are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the aforementioned financial statements present fairly, in all material respects, the financial position of Delicious Brands, Inc. as of December 31, 1999 and 1998, and the results of its operations and its cash flows for each of the three years in the period ended December 31, 1999 in conformity with generally accepted accounting principles. The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company has suffered recurring losses from operations and has a net working capital deficit raising substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. As described in Note 1, on April 5, 2000, the Company entered into an agreement to sell substantially all of its assets for cash and the assumption of certain of its liabilities. ALTSCHULER, MELVOIN AND GLASSER LLP /S/ Altschuler, Melvoin and Glasser LLP Chicago, Illinois February 24, 2000, except for Notes 1, 4, 6 and 10 as to which the date is April 7, 2000 F-2 DELICIOUS BRANDS, INC. Balance Sheets December 31, 1999 and 1998
Assets 1999 1998 ---- ---- Current Assets: Cash $ 600,762 $ 981,646 Accounts receivable (including $213,040 and $324,070, respectively, due from related parties), net of allowances of $2,857,970 and $2,489,260, respectively 1,797,900 3,795,948 Inventory 1,043,400 1,879,041 Due from distributors 0 13,770 Prepaid expenses and other current assets 247,761 327,964 ---------- ---------- 3,689,823 6,998,369 ---------- ---------- Property and Equipment, Net of Accumulated Depreciation 269,833 381,185 ---------- ---------- Other Assets: Goodwill 9,460,852 10,011,946 Other 813,919 436,261 10,274,771 10,448,207 ----------- ----------- $14,234,427 $17,827,761 =========== =========== Liabilities and Stockholders' Equity Current Liabilities: Bank loan payable $ 1,326,033 $ 3,665,828 Current portion of subordinated debt 5,643,332 393,332 Accounts payable (including $60,460 and $82,040, respectively, due to related parties) 3,839,756 7,173,870 Due to distributors 308,559 532,769 Accrued expenses 1,796,091 1,556,043 Current portion of long-term liabilities 791,354 904,838 ----------- ----------- 13,705,125 14,226,680 ----------- ----------- Long-term Liabilities: Restructuring liability 335,454 544,679 Packaging loss liability 0 200,000 ----------- ------------ 335,454 744,679 ----------- ------------ Commitments and Contingencies Stockholders' Equity: Preferred stock, $.01 par value,1,000,000 shares authorized: Series A, 183,334 and 195,834 shares issued and outstanding in 1999 and 1998, respectively 1,466,668 1,566,668 Series B, 35,000 shares issued and outstanding in 1999, liquidation value equals stated value 1,750,000 0 Series C, 170,038 shares issued and outstanding in 1999, liquidation value of $5,101,140 3,400,760 0 Class A common stock, voting, $.01 par value, 25,000,000 shares authorized, 4,746,010 and 4,481,767 shares issued in 1999 and 1998, respectively 47,460 44,818 Additional paid-in capital 18,335,918 18,343,209 Accumulated deficit (24,645,909) (16,937,244) ----------- ----------- 354,897 3,017,451 Less, common stock in treasury at cost (161,049) (161,049) ----------- ----------- Total stockholders' equity 193,848 2,856,402 ----------- ----------- $14,234,427 $17,827,761 =========== ===========
The accompanying notes are an integral part of this statement. F-3 DELICIOUS BRANDS, INC. Statement of Operations Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ------------- -------------- ------------- Net Sales (including approximately $1,020,000, $5,920,000 and $5,325,000, respectively, to related parties) $ 41,085,899 $ 53,030,115 $ 30,664,723 Cost of Sales (including approximately $19,000, $589,000 and $395,000, respectively, from related parties) 31,671,826 41,855,211 25,193,264 ------------- -------------- ------------- Gross Profit 9,414,073 11,174,904 5,471,459 ------------- -------------- ------------- Operating Expenses: Selling, general and administrative 15,847,244 14,729,305 6,836,996 Restructuring charge 0 (150,382) 1,548,035 ------------- -------------- ------------- 15,847,244 14,578,923 8,385,031 ------------- -------------- ------------- Loss from Operations (6,433,171) (3,404,019) (2,913,572) ------------- -------------- ------------- Other Income (Expense): Amortization of deferred financing costs (308,056) (700,629) (33,418) Interest expense (777,255) (1,213,168) (416,913) Other, net (116,849 9,708 (34,223) ------------- -------------- ------------- (1,202,160) (1,904,089) (484,554) ------------- -------------- ------------- Loss before Provision for Income Taxes (7,635,331) (5,308,108) (3,398,126) Provision for Income Taxes 0 0 0 ------------- -------------- ------------- Net Loss $(7,635,331) $(5,308,108) $(3,398,126) Earnings per Share: Basic and diluted: Net loss per common share $( 1.70) $( 1.57) $( 1.16) ============= ============== ============= Weighted average number of common shares outstanding 4,537,265 3,389,993 2,933,623 ============= ============== =============
The accompanying notes are an part of this statement. F-4 DELICIOUS BRANDS, INC. Statement of Stockholders' Equity Years Ended December 31, 1999, 1998 and 1997
Additional Preferred Stock Common Stock Paid-in Shares Amount Shares Amount Capital ------ ------ ------ ------ ------- Balance, January 1, 1997 0 $ 0 2,976,767 $ 29,768 $ 6,013,494 Proceeds from Issuance of Common Stock, Net of $303,829 in Expenses 210,000 2,100 954,071 Issuance of Stock for Services 5,000 50 2,250 Net Loss ----- --------- --------- --------- ------------ Balance, December 31, 1997 0 0 3,191,767 31,918 6,969,815 Proceeds from Issuance of Common Stock, Net of $144,390 in Expenses 140,000 1,400 694,210 Conversion of 9% Subordinated Convertible Notes to Preferred Stock 195,834 1,566,668 Proceeds from Issuance of Common Stock in an Initial Public Offering, Net of $3,109,316 in Expenses 1,150,000 11,500 10,679,184 Net Loss ------- --------- --------- --------- ------------ Balance, December 31, 1998 195,834 1,566,668 4,481,767 44,818 18,343,209 Proceeds from Issuance of Common Stock 61,743 617 242,172 Issuance of Common Stock for Services 190,000 1,900 397,944 Dividends Paid on Series A Preferred Stock Conversion of Series A Preferred Stock to Common Stock (12,500) (100,000) 12,500 125 99,875 Proceeds from Issuance of Series B Preferred Stock, Net of $339,536 in Expenses 35,000 1,750,000 (339,536) Proceeds from Issuance of Series C Preferred Stock, Net of $407,746 in Expenses (inclusive of 17,538 shares issued in exchange for placement services) 170,038 3,400,760 (407,746) Net Loss ------- --------- --------- --------- ------------ Balance, December 31, 1999 388,372 $6,617,428 4,746,010 $ 47,460 $ 18,335,918 ======= ========== ========= ========= ============
Total Stockholders' Accumulated Treasury Stock Equity (Deficit) Shares Amount (Deficit) --------- ------ ------ --------- Balance, January 1, 1997 $(8,231,010) (48,925) $(161,049) $(2,348,797) Proceeds from Issuance of Common Stock, Net of $303,829 in Expenses 956,171 Issuance of Stock for Services 2,300 Net Loss (3,398,126) (3,398,126) ----------- ------- -------- ----------- Balance, December 31, 1997 (11,629,136) (48,925) (161,049) (4,788,452) Proceeds from Issuance of Common Stock, Net of $144,390 in Expenses 695,610 Conversion of 9% Subordinated Convertible Notes to Preferred Stock 1,566,668 Proceeds from Issuance of Common Stock in an Initial Public Offering, Net of $3,109,316 in Expenses 10,690,684 Net Loss ( 5,308,108) (5,308,108) ----------- ------- -------- ----------- Balance, December 31, 1998 (16,937,244) (48,925) (161,049) 2,856,402 Proceeds from Issuance of Common Stock 242,789 Issuance of Common Stock for Services 399,844 Dividends Paid on Series A Preferred Stock (73,334) (73,334) Conversion of Series A Preferred Stock to Common Stock 0 Proceeds from Issuance of Series B Preferred Stock, Net of $339,536 in Expense 1,410,464 Proceeds from Issuance of Series C Preferred Stock, Net of $407,746 in Expenses (inclusive of 17,538 shares issued in exchange for placement services) 2,993,014 Net Loss (7,635,331) (7,635,331) ------------ ------- -------- ----------- Balance, December 31, 1999 $(24,645,909) (48,925) $(161,049) $ 193,848 ============ ======= ========= ===========
The accompanying notes are an part of this statement. F-5 DELICIOUS BRANDS, INC. Statement of Cash Flows Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- Cash Flows from Operating Activities: Net loss $(7,635,331) $(5,308,108) $(3,398,126) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization 1,053,172 1,326,714 352,320 Provision for bad debts 949,853 444,330 40,487 Loss on disposal of property and equipment 0 0 50,899 Restructuring charge 0 (150,382) 1,548,035 Issuance of common stock for services 399,844 0 2,300 Increase (Decrease) in cash (exclusive of Salerno acquisition) from changes in: Accounts receivable 1,048,195 ( 83,823) (76,217) Inventory 835,641 (334,943) 616,248 Due from distributors 13,770 158,406 15,653 Prepaid expenses and other current assets 80,203 67,366 240,652 Other assets 160,058 90,336 (90,020) Accounts payable and accrued expenses (3,094,066) 176,235 437,799 Due to distributors ( 224,210) 206,757 158,460 Accrued restructuring liabilities ( 212,611) (224,814) (399,128) Other liabilities ( 308,179) (827,297) 186,964 ------------ ------------ ----------- Net cash used in operating activities (6,933,661) (4,459,223) (313,674) ------------ ------------ ----------- Cash Flows from Investing Activities: Payment for purchase of assets of Salerno Foods, L.L.C. (net of cash acquired of $12,564) 0 (5,129,943) 0 Purchase of property and equipment (91,204) (107,400) (47,730) ------------ ------------ ----------- Net cash used in investing activities (91,204) (5,237,343) (47,730) Cash Flows from Financing Activities: Payments of long-term debt (1,919) ( 21,101) (17,420) Payments of financing costs (837,241) (692,621) 0 Payments of bank loan payable, net (2,339,795) (1,135,465) 0 Proceeds from issuance of notes payable 5,250,000 5,200,000 (430,704) Payments of notes payable 0 (5,200,000) 0 Proceeds from issuance of common and preferred stock 5,042,792 14,640,000 1,260,000 Dividends paid (73,334) 0 0 Payment of stock issuance costs (396,522) (2,920,950) (303,829) ------------ ------------ ----------- Net cash provided by financing activities 6,643,981 9,869,863 508,047 ----------- ----------- ---------- Increase (Decrease) in Cash (380,884) 173,297 146,643 Cash, Beginning of Year 981,646 808,349 661,706 ------------ ------------ ----------- Cash, End of Year $ 600,762 $ 981,646 $ 808,349 ============ ============ ===========
F-6 DELICIOUS BRANDS, INC. Statement of Cash Flows Years Ended December 31, 1999, 1998 and 1997
1999 1998 1997 ---- ---- ---- Supplemental Disclosure of Cash Flow Information: Cash paid during the year for: Interest $ 640,262 $ 1,201,291 $ 420,296 ========= =========== ========= Supplemental Disclosure of Noncash Investing and Financing Activities: On April 3, 1998, the Company acquired substantially all of the assets and assumed certain liabilities of Salerno Foods, L.L.C. (Note 12). In conjunction with the acquisition, liabilities were assumed as follows: Fair value of assets acquired, including goodwill and transaction costs $13,447,134 Cash paid (net of $220,000 purchase price adjustment) (4,780,000) Transaction costs ( 362,507) ----------- Liabilities assumed $ 8,304,627 ===========
During 1999, 17,538 shares of Class C Preferred Stock were issued for payment of $350,760 in placement fees. During 1998, in exchange for 9% Subordinated Convertible Notes of $1,566,668, the Company issued 195,834 shares of Series A Preferred Stock. As of December 31, 1998, unpaid transaction costs of $332,756, were included in accounts payable and accrued expenses. During March and October of 1997, in satisfaction for payments of trade accounts receivable, an aggregate $150,000 of subordinated debt was redeemed and cancelled. The accompanying notes are an part of this statement. F-7 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 1--Nature of Activities Delicious Brands, Inc. (the "Company"), a Delaware corporation, operates in one industry segment consisting of marketing and selling pre-packaged cookies, crackers and related food products under the Delicious, Salerno, Mama's and Frookie labels as well as licensed names. These products are sold primarily in the United States to independent direct-store delivery distributors for resale to supermarkets and other retail outlets, through large wholesalers to natural food stores and also directly to supermarkets and other retail outlets. All of the Company's products are baked by independent food processors using the Company's proprietary specifications and formulations. On April 3, 1998, the Company acquired substantially all of the assets of Salerno Foods, L.L.C. (Note 12). The accompanying financial statements have been prepared on the basis that the Company will continue as a going concern. The Company has suffered recurring losses since 1994, has negative working capital at December 31, 1999 of approximately $10,015,000 and expects to incur additional net losses in the foreseeable future. The Company has experienced a decline in sales (including the loss of a major customer) during 1999 of 33%, as compared to the comparable prior period on a pro forma basis (Note 12) and several of its suppliers have reduced or eliminated their credit terms (thereby requiring the Company to pay for its products upon delivery). Additionally, U.S. Bancorp has notified the Company of its intention to not renew the revolving line of credit (Note 4). Company management is currently unable to predict the extent of any future losses or the time required to achieve profitability. These factors raise substantial doubt about the Company's ability to continue as a going concern. The Company has previously funded its operating losses as well as the Salerno acquisition through increases in working capital deficits and proceeds received from private placements of common stock, preferred stocks, subordinated notes payable and an initial public offering of common stock. The following is a summary of the private placements and public offering that the Company completed from January 1, 1997 through April 7, 2000: (a) an initial closing of a private placement whereby the Company sold 210,000 shares of common stock and received proceeds of $956,171 net of expenses of $303,829 in December 1997; (b) a second closing of the private placement whereby the Company sold 140,000 shares of common stock and received proceeds of $695,610 net of expenses of $144,390 in February 1998; (c) the issuance of 1,150,000 shares of its common stock, at $12.00 per share, in an initial public offering whereby the Company received $10,690,684, net of commissions and other related expenses totalling $3,109,316 during the fourth quarter of 1998; (d) the consummation of a private placement whereby the Company received proceeds of $1,410,464, net of expenses of $339,536, in exchange for 35,000 shares of Series B Preferred Stock (convertible at any time into 175,000 shares of common stock -- to be adjusted baesd on an antidilution provision, as defined) and a warrant to purchase 700,000 (to be adjusted based on an antidilution provision, as defined) shares of common stock for $0.01 per share (exercised on April 7, 2000 for 1,005,780 shares as adjusted for the antidilution provisions) in April 1999; (e) a private placement of $5,250,000 subordinated notes payable whereby the Company received $4,412,759 net of expenses of $837,241 in August 1999; (f) an initial closing of a private placement to the chairman of the board and other shareholders whereby the Company sold 170,038 shares of 12% Cumulative Series C Preferred Stock (to be redeemed at a rate of $30 per share) and received $2,993,014 net of expenses of $407,746 (inclusive of 17,538 shares of Series C Preferred Stock issued for placement services) in December 1999; (g) a second closing of a private placement whereby the Company sold to an existing shareholder 83,625 shares of 12% Cumulative Series C Preferred Stock and received approximately $1,466,718 net F-8 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 1--Nature of Activities, Continued of expenses of $205,782 (inclusive of 8,625 shares of Series C Preferred Stock issued for placement services) in January 2000 and (h) a private placement to the chairman of the board and other shareholders whereby the Company sold 100,000 shares of 12% Cumulative Series D Preferred Stock (to be redeemed at a rate of $30 per share six months after closing of the sale of the Company's assets -- see below) and received approximately $1,725,000 net of expenses of approximately $275,000 on April 3, 2000. The funds raised to date have not provided the Company with sufficient cash to continue its business operations and accordingly, on April 3, 2000 the board of directors approved and on April 5, 2000, the Company entered into an Asset Purchase Agreement (the "APA") with BF USB, Inc., who is affiliated with certain of the Company's suppliers and customers and who has acquired businesses from and entered into a consulting agreement with the Company's chairman of the board of directors. The APA provides for the Company to sell substantially all of its assets for $26,680,000 less $1,700,000 for a working capital adjustment, plus (minus) actual working capital (deficit), delivered at closing, as defined, in cash and the assumption of certain liabilities that are related to the ongoing operations of the Company. The APA requires $5,336,000 of cash to be deposited into escrow to satisfy the indemnification obligations of the Company. The provisions of the escrow agreement provide for release of funds in varying amounts on the six-, twelve- and eighteen- month anniversary of the closing date. The purchase price is subject to adjustments and indemnifications as provided in the APA. The APA requires the Company to pay a break-up fee of $1,500,000 in the event this agreement is terminated by the Company, under certain conditions. The APA may be terminated in certain circumstances, including, among others, (a) by either party, if the transaction contemplated by the APA is not completed by June 15, 2000; (b) by the mutual written agreement of the parties; (c) by the Company if prior to the closing, the Board of Directors approves or accepts a superior proposal as allowed by the terms of the APA; and (d) by either party, if prior to the closing there is a material breach of any of the representations, warranties or covenants by the other party. Additionally, the sale is subject to regulatory and shareholder approval. The Company has agreed not to operate in the snack food industry without the consent of BF USB, Inc. The Company, subsequent to the closing of the transaction, will explore and review opportunities in a new line of business or seek to liquidate the Company. There can be no assurance that the Company will successfully complete the transaction contemplated in the APA or, if such transaction is completed, that the Company will have funds sufficient to meet its obligations. Should the Company be unable to complete the transaction discussed above, the Company will likely need to seek another buyer, raise additional debt or equity financing and/or curtail its operations. The Company's financial statements have been presented on the basis that it is a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. The financial statements do not include any adjustments to reflect the possible future effects on the recoverability and classification of assets or the amounts and classifications of liabilities that may result in the event the Company's plans are not successful. The Company grants credit to its customers in the normal course of business. Sales to one customer in 1999 approximated 14%, and sales to another customer represented 15% and 21% of total Company sales for 1998, and 1997, respectively. No other customer accounted for more than 10% of the Company's sales. Amounts due from such customer represented approximately 16% of the Company's net trade accounts receivable at December_31, 1999 and 1998. Approximately 51%, 41% and 52% of the Company's inventory purchases for the years ended December 31, 1999, 1998, and 1997, respectively, were from two major vendors. F-9 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 1--Nature of Activities, Continued The Company has several customers and vendors who are also holders of the Company's preferred and/or common stock. During the years ended December 31, 1999, 1998 and 1997, respectively, net sales to these customers were approximately $1,020,000, $5,920,000 and $5,325,000 while purchases from such vendors were approximately $19,000, $589,000 and $395,000. Note 2--Summary of Significant Accounting Policies A summary of significant accounting policies is as follows: Revenue Recognition--The Company recognizes revenue from product sales upon shipment to its customers. All discounts and allowances provided to customers are recorded as allowances in determining net sales. Inventory--Inventory is stated at the lower of cost or market with cost determined by the first-in, first-out (FIFO) method and consists primarily of prepackaged products which are ready to be sold to customers. Advertising and Promotion--All costs associated with advertising, promotion, marketing and slotting are charged to operations as incurred. Such expenses are included in selling, general and administrative expenses in the statement of operations and amounted to $2,050,865, $3,431,505 and $2,227,242 for the years ended December 31, 1999, 1998 and 1997, respectively. Amounts due to/from Distributors--The Company offers some of its distributors promotional allowances which can be earned based on percentages of their purchases from the Company. Amounts due from distributors represent overspent allowances. These will either be earned by the distributors in the future or paid to the Company. Amounts due to distributors represent promotional allowances earned but unspent by the distributors. Property and Equipment--Property and equipment is stated at cost. For financial reporting purposes, depreciation is provided using the straight-line method over the estimated useful lives of the assets. For income tax reporting purposes, depreciation is computed under accelerated methods, as permitted under the Internal Revenue Code. When capital assets are sold, retired or otherwise disposed of, the cost of the assets and the related accumulated depreciation are removed from the respective accounts and any gains or losses are included in operations. Major improvements are capitalized and repairs and maintenance are charged to operations as incurred. Goodwill--Goodwill represents the excess of cost over the fair value of net assets of acquired businesses, and is being amortized on a straight-line basis over a period of twenty years. Accumulated amortization amounted to $1,560,994 and $1,009,900 at December_31, 1999 and 1998, respectively. Upon the closing of the transaction contemplated in the APA discussed in Note 1, the remaining unamortized goodwill will be written off and charged against the proceeds to be received. Deferred Financing Costs--Costs incurred in connection with obtaining financing are amortized over the life of the related debt. F-10 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 2--Summary of Significant Accounting Policies, Continued Impairment of Long-lived Assets--In the event that facts and circumstances indicate that the cost of any long-lived assets may be impaired, an evaluation of recoverability would be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset would be compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required. Income Taxes--Deferred income taxes are provided for temporary differences between financial and income tax reporting (see Note 7). Stock Option Plans--The Company has adopted only the disclosure provisions of FAS No. 123, Accounting for Stock-Based Compensation, and continues to account for stock options in accordance with APB Opinion 25. Use of Estimates--The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates. Earnings Per Share--The Company computes "Basic Earnings per Share" under Financial Accounting Standard (FAS) No. 128, "Earnings per Share," by dividing net income (loss) available to common stockholders by the weighted average number of shares of common stock outstanding during the period. In arriving at net income (loss) available to common shareholders, preferred stock dividends of $73,334 were deducted for the year ended December 31, 1999. "Diluted Earnings per Share" reflects the potential dilution that could occur if warrants and options or other contracts to issue common stock were exercised and resulted in the issuance of additional common shares. For the years ended December_31, 1999, 1998 and 1997, diluted earnings per share and basic earnings per share are identical because of the losses incurred during those years. All options and warrants discussed in Notes 5 and 8 were omitted from the computation of diluted earnings (loss) per share because the options and warrants are antidilutive when net losses are reported. Fair Value of Financial Instruments--Because the interest rate of the revolving loan with U.S. Bancorp Republic Commercial Finance, Inc. ("U.S. Bancorp") adjusts with changes in the market rate of interest, management believes the fair value is equivalent to the carrying value. Management believes that the interest rate on the subordinated debt is approximately equal to the current rate available for similar debt. Accordingly, the fair value of the subordinated debt approximates its carrying value. Reclassifications--Certain amounts reported in the 1998 and 1997 financial statements have been reclassified to conform with the 1999 presentation without affecting previously reported net losses. Recent Accounting Pronouncements--In June 1998, the Financial Accounting Standards Board issued FAS No. 133, "Accounting for Derivative Instruments and Hedging Activities", which the Company is required to adopt effective January 1, 2001. FAS No. 133 requires the recording of all derivatives on the balance sheet at fair value. The adoption of this standard is expected to have no impact on the Company's results of operations, financial position or cash flows because the Company does not participate in derivative transactions. F-11 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 3--Property and Equipment Property and equipment consists of the following:
December 31, Estimated 1999 1998 Life ---- ---- ---- Office and warehouse equipment $ 589,841 $ 570,439 2 to 10 years Molds and die 384,525 312,723 3 years Promotion and display equipment 44,444 44,444 5 years ----------- ------------- 1,018,810 927,606 Less accumulated depreciation 748,977 546,421 ----------- ------------- $ 269,833 $ 381,185 =========== =============
Depreciation expense amounted to $202,556, $172,089 and $158,578 for the years ended December_31, 1999, 1998 and 1997, respectively. Note 4--Bank Loan Payable The Company is obligated to U.S. Bancorp under a Financing Agreement (the "Agreement"), dated November 27, 1996 as last amended March 31, 2000, for a revolving line of credit limited to the lesser of $2,000,000 or the sum of eligible accounts receivable and eligible inventories as defined. Borrowings under the Agreement are due upon demand and bear interest at 1.50% per annum above the reference rate of interest publicly announced by U.S. Bank National Association (10.00% at December 31, 1999). Borrowings under the Agreement are collateralized by substantially all of the assets of the Company. Availability under the Agreement as of December 31, 1999 approximated $830,000. U.S. Bancorp has notified the Company of its intention not to renew the Agreement but has granted an extension of the expiration date to June 15, 2000. The weighted average interest rates on the aforementioned borrowings were 9.5%, 10.0% and 11.7% for the years ended December 31, 1999, 1998, and, 1997 respectively. Note 5--Subordinated Debt The Company was obligated on 8% Subordinated Convertible Notes aggregating $5,250,000 at December 31, 1999. The notes, and accrued interest thereon at 8% per annum, are due August 30, 2000. The notes are convertible, subject to certain conditions, into the Company's common stock at the rate of $5 per share. The Company was obligated on 9% Subordinated Convertible Notes aggregating $393,332 at December 31, 1999 and 1998. The notes were due April 27, 1999 with interest payable semiannually in January and July at 9% per annum. The Company did not repay the Subordinated notes and currently does not have funds to repay such amounts. The Company believes its credit facility with U.S. Bancorp (see Note 4) prohibits repayment of the principal portion of these subordinated notes. One of the noteholders has filed a lawsuit against the Company seeking repayment of these notes. The notes are convertible, at the option of the noteholder, into the Company's common stock at the rate of $8 per share in the event of a default by the Company. When the notes were originally issued on April 28, 1994, a total of 145,188 common stock purchase warrants were issued. The warrants were exercisable at any time through April 27, 1999 and each warrant gives the holder the right to purchase one share of common stock at an exercise price of $4 per share. Effective April 28, 1999 all of the warrants, with the exception of warrants to purchase 107,730 shares of common stock (see below), were unexercised and expired. F-12 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 5--Subordinated Debt, Continued Effective August 1, 1998, $1,566,668 of the Company's 9% Subordinated Convertible Notes were exchanged for 195,834 shares of Series A Preferred Stock pursuant to an offer to exchange made by the Company. Upon liquidation, dissolution or winding up, the holders of Series A Preferred Stock are entitled to, prior and in preference to any distribution to the holders of common stock or any other class of Preferred Stock, the amount they would have received had they converted all of the Series A Preferred Stock into shares of common stock immediately prior to liquidation and any declared but unpaid dividends prior and in preference to any distribution to the holders of common stock, any other class of Preferred Stock or any other class of the Company's capital stock, whether now existing or hereafter created. If, upon the occurrence of a liquidation, the costs and funds distributed among the holders of Series A Preferred Stock is insufficient to permit the payment to such holders of the full preferential amounts, the entire assets and funds of the Company legally available for distribution are to be distributed notably among the holders of the Series A Preferred Stock in proportion to the preferential amount each such holder is entitled to receive. Upon the exchange, the expiration date of warrants to purchase 107,730 shares of common stock was extended to April 27, 2001 from April 27, 1999. The holders of shares of Series A Preferred Stock are entitled to receive, when and as declared by the Board of Directors out of the assets of the Company legally available for payment, dividends at the rate per share of ten percent (10%) per annum on the aggregated stated value ($8.00 per share) of the Series A Preferred Stock. Dividends totalling $73,334 were declared and paid during 1999. No other dividends have been declared or paid since August 1, 1999. Each holder of Series A Preferred Stock has the right to convert each of such holder's shares of Series A Preferred Stock into one share of common stock until July 31, 2001. However, on August 1, 2001, each share of Series A Preferred Stock will automatically convert into one share of common stock. During 1999, holders of 12,500 shares of Series A Preferred Stock with a stated value of $100,000 elected to convert such shares into 12,500 of the Company's common stock. Note 6--Packaging Loss Liability Packaging for the Company's products is generally purchased directly by the Company's suppliers based upon the Company's projected sales of a product. Upon discontinuance of a product or in instances where sales do not meet expectations, the Company may incur a liability to its suppliers for unused packaging. At December 31, 1999 and 1998, the Company has accrued $565,710 and $873,889, respectively, to provide for future potential liability including certain amounts already agreed to with certain suppliers (see below). Of this amount, management estimates that $565,710 will be paid during 2000. During 1997, the Company entered into an agreement to settle various disputes with one of its suppliers (whose sole shareholder is a shareholder of the Company and was a director of the Company until December 1997) that required the Company to pay the supplier $1,400,000. Subsequent to December 31, 1999, the Company entered into an agreement with the supplier and the Company's chairman of the board whereby the chairman of the board personally assumed the remaining liability by paying $100,000 in cash and issuing a promissory note, due July 31, 2000, for $401,084. The Company has reimbursed the chairman of the board for the $100,000 paid in cash and intends to reimburse the chairman of the board for payments made on its behalf. The unpaid balance at December 31, 1999 of approximately $501,000 is included in the above-mentioned accrual. As of December 31, 1998, $200,000 of the outstanding balance was reflected as noncurrent. F-13 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 7--Income Taxes Because of the Company's losses there is no current income tax provision (benefit). The Company uses the asset and liability method for determining deferred income taxes. The provision (benefit) for income taxes consists of the following: 1999 1998 1997 ---- ---- ---- Deferred (net): Federal $(2,444,000) $(1,374,000) $(1,223,800) State ( 431,000) ( 243,000) ( 216,000) ----------- ----------- ------------ 2,875,000 1,617,000 1,439,800 ----------- ------------ ------------ Increase in valuation allowance for deferred tax benefit 2,875,000 1,617,000 1,439,800 ----------- ----------- ------------ $ 0 $ 0 $ 0 =========== =========== =========== A reconciliation of the provision for income taxes on income and the amount computed by applying the federal income tax rate to net loss before income tax expense is as follows: 1999 1998 1997 ---- ---- ---- Computed income tax expense (benefit) at federal statutory rate $(2,596,000) $(1,804,000) $(1,155,000) State income taxes ( 350,000) ( 238,000) ( 156,000) Nondeductible amortization of intangible assets 55,000 55,000 55,000 Adjustment to net operating loss carryforward 16,000 370,000 ( 183,800) Increase in valuation allowance for deferred tax benefit 2,875,000 1,617,000 1,439,800 ------------ ---------- ---------- $ 0 $ 0 $ 0 ============ ========== ========== The Company's net deferred income tax asset consisted of the following: 1999 1998 ---- ---- Gross deferred tax assets: Net operating loss carryforwards $ 8,067,000 $5,768,000 Accounts receivable allowances 1,075,000 335,000 Amortization of goodwill 11,000 97,000 Restructuring liability 213,000 294,000 Other 173,000 200,000 ------------ ---------- Total gross deferred tax assets 9,539,000 6,694,000 Less valuation allowance ( 9,539,000) (6,664,000) ------------ ---------- Net deferred tax assets 0 30,000 Gross deferred tax liabilities: Depreciation and amortization expense 0 30,000 ------------ ---------- Net deferred taxes $ 0 $ 0 ============ ========== F-14 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 7--Income Taxes, Continued Deferred income tax assets and liabilities result from the recognition of temporary differences. Temporary differences are differences between the tax basis of assets and liabilities and their reported amounts in the financial statements that will result in differences between income for tax purposes and income for financial statement purposes in future years. At December 31, 1999, the Company has available for tax reporting purposes approximately $21,228,000 of net operating loss carryforwards expiring in varying amounts through 2019. As a result of the private placement of Series B Preferred Stock in 1999, the utilization of net operating loss carryforwards generated prior to the transaction are limited under Section 382 of the Internal Revenue Code. Note 8--Stock Options and Warrants Pursuant to the 1989 Stock Option Plan (the "1989 Plan") and the 1995 Stock Option Plan (the "1995 Plan"), the Company is authorized to grant stock options for a maximum of 1,125,000 shares, collectively, of the Company's common stock. Incentive stock options and nonqualified stock options may be granted to employees and employee directors and nonqualified stock options may be granted to consultants, nonemployee directors and other nonemployees. The exercise price of incentive stock options shall not be less than 100% of the fair market value of the shares at the time of grant (110% in the cases of persons owning 10% or more of the Company's voting stock) and the term of incentive stock options shall not exceed ten years from the date of the grant. Incentive stock options may be granted to an employee owning more than ten percent of the combined voting powers of all classes of stock only if such options are exercisable within five years from the date of grant. The exercise price of nonqualified options under the 1989 Plan shall not be less than the lesser of either the book value of the shares covered by the options or 50% of the fair market value of those shares. The exercise price of nonqualified options under the 1995 Plan shall not be less than par value. Pursuant to the 1994 Formula Stock Option Plan (the "1994 Plan") the Company is authorized to grant, to nonemployee directors who are not holders of more than 5% of the outstanding shares of stock of the Company, nonqualified stock options to purchase up to 75,000 shares of the Company's common stock. Options granted pursuant to the plan shall be at the fair market value of the stock and all options shall be for a term of ten years. Pursuant to the 1994 Plan, each eligible director who becomes a director will receive on the date of the eligible director's election options to purchase a total of 1,500 shares that vest and become exercisable in three equal installments, one-third on the date of grant and one-third on each of the first and second anniversaries of such grant. Each eligible director on January 1 of each year who has served as director for at least one full year and has met other specified requirements will receive options to purchase a total of 1,500 shares that vest and become exercisable in two equal installments, one-half on the date of grant and one-half on the first anniversary of such grant. The exercise price of these options shall be the fair market value of the shares of Common Stock on the date of grant. In addition, on August 15, 1994, eligible directors were granted options for a total of 27,500 shares of common stock representing options for 1994 as well as for past service. Options granted to individuals who were directors on August 15, 1994 vested and became exercisable in two equal installments on the date of the grant and on the first anniversary of the grant. F-15 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 8--Stock Options and Warrants, Continued Following is a table indicating the activity during the years 1999, 1998, and 1997 for such plans: Weighted Average Exercise Shares Price ------ ----- Options outstanding at January 1, 1997 614,785 $ 5.22 Granted during year 150,000 $ 9.80 Exercised during year 0 Forfeited ( 278,166) $ 6.00 --------- Options outstanding at December 31, 1997 486,619 $ 6.18 Granted during year 4,500 $ 6.00 Exercised during year 0 Forfeited ( 5,334) $ 6.00 --------- Options outstanding at December 31, 1998 485,785 $ 6.20 Granted during year 57,500 $ 10.43 Exercised during year ( 1,743) $ 1.60 Forfeited ( 326,846) $ 6.81 Options outstanding at December 31, 1999 214,696 $ 6.30 ========= The following table summarizes information about outstanding and exercisable stock options as of December 31, 1999:
Weighted Average Weighted Range of Remaining Contractual Average Average Exercise Number Life Exercise Number Exercise Prices Outstanding (Months) Price Exercisable Price ------ ----------- -------- ----- ----------- ----- $ 2.80 to $3.20 13,700 21 $ 2.84 13,700 $ 2.84 $ 6.00 177,830 65 $ 6.00 176,582 $ 6.00 $ 10.75 to $12.38 6,500 109 $ 11.74 3,000 $ 11.74 $ 10.25 16,666 113 $ 10.25 16,666 $ 10.25
In addition to the stock options issued pursuant to the above plans, the Company has granted options which are not covered by a formal plan for the purchase of shares of its common stock. At December 31, 1999 there were 45,000 of these options outstanding, all of which are exercisable, with a weighted average contractual life of 66 months, respectively, and a weighted average exercise price of $6.52. As permitted under generally accepted accounting principles, grants under the plans are accounted for following provisions of APB Opinion 25 and its related interpretations. Accordingly, no compensation cost has been recognized for grants made to date. Had compensation been determined based on the fair value method prescribed in FAS No. 123, the reported net loss for 1999 and 1998 would have been approximately the same as that which is presented in the statement of operations and the net loss for 1997 would have been $130,000 ($0.04 per share) greater than what is presented in the statement of operations. F-16 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 8--Stock Options and Warrants, Continued In determining the compensation based on the fair value method prescribed by FAS No. 123, the following assumptions were used: 1999 1998 1997 ---- ---- ---- Risk-free interest rate 5.82% 5.71% 5.71% Expected option life 84 months 84 months 84 months Expected volatility 100% 100% 100% Expected dividends None None None Additionally, during 1998 the Company issued warrants to purchase 50,000 shares of the Company's common stock, at $11.00 per share. Such warrants, which expire in April 2008, were issued in conjunction with the execution of a manufacturing agreement with one of the Company's suppliers. The supplier's principal stockholder is also a principal stockholder of American Pacific Financial Corporation, and a principal member of Salerno Foods, L.L.C. (Note 12). Management believes that the warrants had no value at the date of issuance. The underwriting agreement entered into in connection with the Company's initial public offering granted the underwriter a warrant, expiring in November 2002, to purchase 100,000 shares of common stock at 165% of the offering price ($19.80 per share). Subsequent to the initial public offering, the underwriter has received a fee equal to 10% of the gross proceeds received from private debt and equity placements. Note 9--Employee Benefit Plan The Company maintains 401(k) savings plans for the benefit of all eligible employees, as defined. Participants may elect to contribute a percentage of their salary to the plan. The Company may make matching and discretionary contributions at its discretion, subject to limitations imposed by the plans. No Company contributions were made in 1999 and 1997. Company contributions amounted to $28,540 in 1998. The Company's two collective bargaining agreements require the Company to participate in two multi-employer, union-administered, defined contribution health and welfare and pension plans covering all union employees. Contributions to these plans by the Company were approximately $179,420 and $141,082 for the years ended December 31, 1999 and 1998, respectively. F-17 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 10--Commitments and Contingencies The Company leases office and warehouse space, vehicles and office equipment under various operating leases expiring through 2004. Minimum future rental payments under noncancellable operating leases as of December 31, 1999, are as follows: Year Ending December 31, Amount ------------ ------ 2000 $ 665,000 2001 653,000 2002 636,000 2003 278,000 2004 8,000 $2,240,000 ========== Total rent expense for the years ended December 31, 1999, 1998, and 1997 was $860,900, $676,989 and $91,656, respectively. On October 5, 1999, one of the Company's suppliers filed suit against the Company claiming breach of contract and bad faith dealing. The Company answered the complaint in February 2000 and filed a counterclaim for breach of contract due to poor quality of products. As of December 31, 1999 the Company has recorded a liability of $500,000 in excess of the normal trade payable representing management's best estimate of the cost to settle this claim. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. In the opinion of management, all such matters are adequately covered by insurance, or, if not so covered, are without merit or are of such kind, or involve such amounts, that unfavorable disposition would not have a material effect on the Company's financial position, results of operations or liquidity. Pursuant to the private placement of Series B Preferred Stock (Note 1) the Company entered into an agreement that requires the Company to pay a fee to an affiliate of the holder of the Series B Preferred Stock of 5% on the first $5,000,000 and 3% thereafter of the proceeds of all future debt and equity financings. A member of the Company's board of directors serves as president of the affiliate to the holder of the Series B Preferred Stock. During 1999, the affiliate of the holder of Series B Preferred Stock received 2,288 shares of Series C Preferred Stock and $257,500 in cash. In January 2000, the affiliate of Series B Preferred Stock received $45,760 in cash representing amounts due as of December 31, 1999. The Company is obligated under the terms of a consulting agreement, which expires December 31, 2003, to pay a consulting corporation, who is also a shareholder, a monthly fee of $12,000. In the event of a dissolution or liquidation of the Company, the consulting corporation is to be paid in one lump sum an amount equal to $12,000 multiplied by the number of months between the date of dissolution or liquidation and December 31, 2003. During 1999, 1998 and 1997, respectively, the Company charged $917,404 (including noncash consideration of $240,000 used to exercise previously issued options), $266,743 and $71,059 to expense related to services provided by the consulting corporation and related out-of-pocket expenses. On March 30, 2000, the Company entered into employment and severance agreements with certain executives requiring payments aggregating a maximum of $210,000. In addition, one executive's agreement provides for health insurance benefits for one year upon termination of employment. F-18 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 11--Restructuring Effective August 13, 1997, two Company executives/stockholders resigned and entered into agreements to provide consulting services to the Company. The agreements required the former executives to be available to provide consulting services to the Company through August 1998 and include a clause restricting the former executives from competing with the Company. The agreements cumulatively provide for (a) consulting fees aggregating $200,000 per year for five years, (b) automobile and office allowances aggregating $83,600 per year for three years, (c) life and health insurance coverage for five years and (d) forgiveness of debts aggregating $88,030. In addition, the Company exchanged its Cool Fruits Fruit Juice Freezers product line and assigned the Company's license agreement for Chiquita Tropical Freezers product line to one of the individuals for the cancellation of options to purchase 250,000 shares of the Company's common stock. The cost of the benefits being paid to the former executives was charged to expense in 1997 and accrued using a present value method over the expected term of the agreements. For the year ended December 31, 1997, the Company recognized $1,548,035 as a restructuring charge. For the year ended December 31, 1998, the Company recognized $150,382 as a restructuring benefit relating to the reversal of excess accruals in 1997. The Company recognized $73,663, $102,118 and $44,908 as related interest expense for the years ended December 31, 1999, 1998 and 1997, respectively. At December 31, 1999, and 1998, the balance sheet reflected a liability of $561,098 and $773,709, respectively, of which $225,644 and $229,031, respectively, was included in the current portion of long-term liabilities. Note 12--Acquisition of Assets of Salerno Foods, L.L.C. On April 3, 1998, the Company acquired substantially all of the assets of Salerno Foods, L.L.C. ("Salerno"). The purchase price was $5,000,000, which was reduced by $220,000 subsequent to closing and the assumption of substantially all of the liabilities of Salerno. The Company paid a substantial portion of the purchase price with a portion of the net proceeds of the initial public offering. The Salerno acquisition has been accounted for as a purchase. The total purchase price and the fair value of liabilities assumed have been allocated to the tangible and intangible assets of the Company based on their respective fair values. The following provides an allocation of the purchase price: Purchase price, net of a purchase price adjustment of $220,000 $ 4,780,000 Transaction costs 362,507 Liabilities assumed 8,304,627 ----------- Total consideration 13,447,134 Less fair value of assets acquired (including $12,564 of cash) 5,679,367 ----------- Goodwill $ 7,767,767 =========== F-19 DELICIOUS BRANDS, INC. Notes to the Financial Statements Note 12--Acquisition of Assets of Salerno Foods, L.L.C., Continued Results of operations for Salerno from April 3, 1998 to December 31, 1998 have been included in the accompanying statement of operations for the year ended December 31, 1998. The following unaudited pro forma information has been prepared assuming the acquisition had taken place at January 1, 1997. The unaudited pro forma information includes adjustments for interest expense that would have been incurred to finance the purchase, additional depreciation of the property and equipment acquired, amortization of the goodwill arising from the acquisition and the result of conforming Salerno's accounting policy for slotting fees to the Company's policy. The unaudited pro forma results of operations are not necessarily indicative of the results had the Salerno acquisition been effected on the assumed date. For the Years Ending December 31, December 31, 1998 1997 ---- ---- Net sales $ 61,534,856 $69,812,414 ============= =========== Loss from operations $( 4,452,138) $(3,504,723) ============== ============ Net loss $( 6,437,897) $(4,975,444) ============== ============ Net loss per share: Basic and Diluted $( 1.90) $( 1.70) ============== ============ Weighted Average Shares Outstanding 3,389,993 2,933,623 ============= =========== F-20 ADDITIONAL FINANCIAL DATA INDEPENDENT AUDITORS' REPORT ON SCHEDULES To the Board of Directors of Delicious Brands, Inc. In connection with our audit of the financial statements of DELICIOUS BRANDS, INC. referred to in our report dated February 24, 2000 which is included in this Form 10-K, we have also audited Schedule II as of and for the years ended December 31, 1999, 1998 and 1997. In our opinion, this schedule presents fairly, in all material respects, the information required to be set forth therein. ALTSCHULER, MELVOIN AND GLASSER LLP /s/ Altschuler, Melvoin and Glasser LLP Chicago, Illinois February 24, 2000 S-1 SCHEDULE II DELICIOUS BRANDS, INC. Valuation and Qualifying Accounts Years Ended December 31, 1999, 1998 and 1997
Column B Column C Column E Balance at Charged Charged Balance Beginning to Costs to Other Column D at End of Period and Expense Accounts (a) Writeoffs of Period --------------------------------------------------------------------------- 1999: Allowances on trade accounts receivable $ 2,489,260 $ 4,491,203 $ 0 $ 4,122,493 $ 2,857,970 ============ =========== ========== =========== =========== Reserve for inventory obsolescence $ 153,160 $ 0 $ 0 $ 0 $ 153,160 ============ =========== ========== =========== =========== Valuation allowance for deferred tax assets $ 6,664,000 $ 2,875,000 $ 0 $ 0 $ 9,539,000 ============ =========== ========== =========== =========== 1998: Allowances on trade accounts receivable $ 575,000 $ 444,330 $1,688,280 $ 218,350 $ 2,489,260 ============ =========== ========== =========== =========== Reserve for inventory obsolescence $ 209,275 $ 0 $ 0 $ 56,115 153,160 ============ =========== ========== =========== =========== Valuation allowance for deferred tax assets $ 5,047,000 $ 1,617,000 $ 0 $ 0 $ 6,664,000 ============ =========== ========== =========== =========== 1997: Allowances on trade accounts receivable $ 572,872 $ 40,487 $ 0 $ 38,359 $ 575,000 ============ =========== ========== =========== =========== Reserve for inventory obsolescence $ 56,521 $ 152,754 $ 0 $ 0 $ 209,275 ============ =========== ========== =========== =========== Valuation allowance for deferred tax assets $ 3,607,200 $ 1,439,800 $ 0 $ 0 $ 5,047,000 ============ =========== ========== =========== ===========
(a) Amounts charged to other accounts in 1998 represents allowances on trade accounts receivable that were assumed upon the acquisition of Salerno Foods, L.L.C. S-2 EX-3.1 2 BYLAWS BYLAWS OF THE DELICIOUS BRANDS, INC. (as amended through December 8, 1999) Article I. Offices. Section 1. Registered Office. The registered office of the Corporation shall be at Prentice-Hall Corporate Services, 229 South State Street, City of Dover, County of Kent, State of Delaware 19901. Section 2. Additional Offices. The Corporation may also have offices at such other places, both within and without the State of Delaware, as the Board of Directors may from time to time determine or as the business of the Corporation may require. Article II. Meetings of Stockholders. Section 1. Time and Place. A meeting of stockholders for any purpose may be held at such time and place within or without the State of Delaware as shall be stated in the notice of the meeting or in a duly executed waiver of notice thereof. Section 2. Annual Meeting. Annual meetings of stockholders, commencing with the year 1990, shall be held on the fourth Tuesday in April, if not a legal holiday, or, if a legal holiday, then on the next secular day following, at 10:00 a.m., or at such other date and time as shall, from time to time, be designated by the Board of Directors and stated in the notice of the meeting. At such annual meetings, the stockholders shall elect a Board of Directors and transact such other business as may properly be brought before the meetings. Section 3. Notice of annual Meeting. Written notice of the annual meeting, stating the place, date, and time thereof, shall be given to each stockholder entitled to vote at such meeting not less than ten (unless a longer period is required by law) nor more than sixty days prior to the meeting. Section 4. Special Meetings. Special meetings of the stockholders may be called for any purpose or purposes, unless otherwise prescribed by statute or by the Certificate of Incorporation, by the Chairman of the Board, if any, or the President, and shall be called by the President or Secretary at the request, in writing, of a majority of the Board of Directors vote. Such request shall state the purpose of the proposed meeting. Section 5. Notice of Special Meeting. Written notice of a special meeting, stating the place, date, and time thereof and the purpose or purposes for which the meeting is called, shall be given to each stockholder entitled to vote at such meeting not less than ten (unless a longer period is required by law) nor more than sixty days prior to the meeting. Section 6. List of Stockholders. The transfer agent or the officer in charge of the stock ledger of the Corporation shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten days prior to the meeting, at a place within the city where the meeting is to be held, which place, if other than the place of the meeting, shall be specified in the notice of the meeting. The list shall also be produced and kept at the place of the meeting during the whole time thereof and may be inspected by any stockholder who is present in person thereat. Section 7. Presiding Officer and Order of Business. (a) Meetings of stockholders shall be presided over by the Chairman of the Board. If he is not present or there is none, they shall be presided over by the President, or, if he is not present or there is none, by a Vice President, or, if he is not present or there is none, by a person chosen by the Board of Directors, or, if no such person is present or has been chosen, by a chairman to be chosen by the stockholders owning a majority of the shares of -2- capital stock of the Corporation issued and outstanding and entitled to vote at the meeting and who are present in person or represented by proxy. The Secretary of the Corporation, or, if he is not present, an Assistant Secretary, or, if he is not present, a person chosen by the Board of Directors, shall act as Secretary at meetings of stockholders; if no such person is present or has been chosen, the stockholders owning a majority of the shares of capital stock of the Corporation issued and outstanding and entitled to vote at the meeting who are present in person or represented by proxy shall choose any person present to act as secretary of the meeting. (b) The following order of business, unless otherwise determined at the meeting, shall be observed as far as practicable and consistent with the purposes of the meeting: (1) Call of the meeting to order. (2) Presentation of proof of mailing of the notice of the meeting and, if the meeting is a special meeting, the call thereof. (3) Presentation of proxies. (4) Announcement that a quorum is present. (5) Reading and approval of the minutes of the previous meeting. (6) Reports, if any, of officers. (7) Election of directors, if the meeting is an annual meeting or a meeting called for that purpose. (8) Consideration of the specific purpose or purposes, other than the election of directors, for which the meeting has been called, if the meeting is a special meeting. (9) Transaction of such other business as may properly come before the meeting. (10) Adjournment. Section 8. Quorum and Adjournment. The presence in person or representation by proxy of the holders of a majority of the shares of the capital stock of the Corporation issued and outstanding and entitled to vote shall be necessary to, and shall constitute a quorum for, the transaction of business at all meetings of the stockholders, except as otherwise provided by statute or by the Certificate of Incorporation. If, however, a -3- quorum shall not be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time until a quorum shall be present or represented. If the time and place of the adjourned meeting are announced at the meeting at which the adjournment is taken, no further notice of the adjourned meeting need be given. Even if a quorum shall be present or represented at any meeting of the stockholders, the stockholders entitled to vote thereat who are present in person or represented by proxy shall have the power to adjourn the meeting from time to time for good cause to a date that is not more than thirty days after the date of the original meeting. Further notice of the adjourned meeting need not be given if the time and place thereof are announced at the meeting at which the adjournment is taken. At any adjourned meeting at which a quorum is present in person or represented by proxy, any business may be transacted that might have been transacted at the meeting as originally called. If the adjournment is for more than thirty days, or if, after the adjournment, a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote thereat. Section 9. Voting. (a) At any meeting of the stockholders, every stockholder having the right to vote shall be entitled to vote in person or by proxy. Except as otherwise provided by law or the Certificate of Incorporation, each stockholder of record shall be entitled to one vote for each share of capital stock registered in his name on the books of the Corporation. (b) All elections shall be determined by a plurality vote, and, except as otherwise provided by law or the Certificate of Incorporation, all other matters shall be determined by a vote of a majority of the shares present in person or represented by proxy and voting on such other matters. Section 10. Action by Consent. Any action required or permitted by law or the Certificate of Incorporation to be taken at any meeting of stockholders may be taken without a meeting, without prior notice if a written consent, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary -4- to authorize or take such action at a meeting at which all shares entitled to vote thereon were present or represented by proxy and voted. Such written consent shall be filed with the minutes of the meetings of stockholders. Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing thereto. Section 11. Advance Notice of Stockholder Nominees for Director. (a) The matters to be considered and brought before any annual or special meeting of stockholders of the Corporation shall be limited to the nomination and election of directors, as shall be brought properly before such meeting in compliance with the procedures set forth in this Section 11. (b) For the nomination and election of directors to be properly brought before any annual meeting of stockholders, the matter must be (i) specified in the notice of annual meeting given by or at the direction of the Board of Directors, (ii) otherwise brought before the annual meeting by or at the direction of the Board of Directors or (iii) brought before the annual meeting in the manner specified in this Section 11(b) (x) by a stockholder that holds of record stock of the Corporation entitled to vote at the annual meeting on such matter or (y) by a person (a "Nominee Holder") that holds such stock through a nominee or "street name" holder of record of such stock and can demonstrate to the Corporation such indirect ownership of, and such Nominee Holder's entitlement to vote, such stock on such matter. In addition to any other requirements under applicable law, the certificate of incorporation and these by-laws, persons nominated by stockholders for election as directors of the Corporation shall be properly brought before an annual meeting of stockholders only if notice of any such matter to be presented by a stockholder at such meeting (a "Stockholder Notice") shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not less than ninety nor more than one hundred and twenty days prior to the first anniversary date of the annual meeting for the preceding year; provided, however, that if and only if the annual meeting is not scheduled to be held within a period that commences thirty days before and ends thirty days after such anniversary date (an annual meeting date outside such period being referred to -5- herein as an "Other Meeting Date"), such Stockholder Notice shall be given in the manner provided herein by the later of (i) the close of business on the date ninety days prior to such Other Meeting Date or (ii) the close of business on the tenth day following the date on which such Other Meeting Date is first publicly announced or disclosed. Any stockholder desiring to nominate any person or persons (as the case may be) for election as a director or directors of the Corporation at an annual meeting of stockholders shall deliver, as part of such Stockholder Notice, a statement in writing setting forth the name of the person or persons to be nominated, the number and class of all shares of each class of stock of the Corporation owned of record and beneficially by each such person, as reported to such stockholder by such person, the information regarding each such person required by paragraphs (a), (e) and (f) of Item 401 of Regulation S-K adopted by the Securities and Exchange Commission, each such person's signed consent to serve as a director of the Corporation if elected, such stockholder's name and address, the number and class of all shares of each class of stock of the Corporation owned of record and beneficially by such stockholder and, in the case of a Nominee Holder, evidence establishing such Nominee Holder's indirect ownership of stock and entitlement to vote such stock for the election of directors at the annual meeting. As used in these by-laws, shares "beneficially owned" shall mean all shares which such person is deemed to beneficially own pursuant to Rules 13d-3 and 13d-5 under the Securities Exchange Act of 1934 (the "Exchange Act"). If a stockholder is entitled to vote only for a specific class or category of directors at a meeting (annual or special), such stockholder's right to nominate one or more individuals for election as a director at the meeting shall be limited to such class or category of directors. Notwithstanding any provision of this Section 11 to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation at the next annual meeting of stockholders is increased by virtue of an increase in the size of the Board of Directors and either all of the nominees for director at the next annual meeting of stockholders or the size of the increased Board of Directors is not publicly announced or disclosed by the Corporation at least one hundred days prior to the first anniversary of the preceding year's annual meeting, a Stockholder Notice shall also be considered timely hereunder, but only with respect to nominees to stand for election at the next -6- annual meeting as the result of any new positions created by such increase, if it shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not later than the close of business on the tenth day following the first day on which all such nominees or the size of the increased Board of Directors shall have been publicly announced or disclosed. (c) Except as provided in the immediately following sentence, no matter shall be properly brought before a special meeting of stockholders unless such matter shall have been brought before the meeting pursuant to the Corporation's notice of such meeting. In the event the Corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any stockholder entitled to vote for the election of such director(s) at such meeting may nominate a person or persons (as the case may be) for election to such position(s) as are specified in the Corporation's notice of such meeting, but only if the Stockholder Notice required by Section 11(b) hereof shall be delivered to the Secretary of the Corporation at the principal executive office of the Corporation not later than the close of business on the tenth day following the first day on which the date of the special meeting and either the names of all nominees proposed by the Board of Directors to be elected at such meeting or the number of directors to be elected shall have been publicly announced or disclosed. (d) For purposes of this Section 11, a matter shall be deemed to have been "publicly announced or disclosed" if such matter is disclosed in a press release reported by the Dow Jones News Service, the Associated Press or a comparable national news service or in a document publicly filed by the Corporation with the Securities and Exchange Commission. (e) In no event shall the adjournment of an annual meeting or a special meeting, or any announcement thereof, commence a new period for the giving of notice as provided in this Section 11. This Section 11 shall not apply to (i) any stockholder proposal made pursuant to Rule 14a-8 under the Exchange Act or (ii) any nomination of a director in an election in which only the holders of one or more series of Preferred Stock of the Corporation issued pursuant to Article FOURTH of the certificate of incorporation are entitled to vote (unless otherwise provided in the terms of such stock). -7- (f) The chairman of any meeting of stockholders, in addition to making any other determinations that may be appropriate to the conduct of the meeting, shall have the power and duty to determine whether notice of nominees has been duly given in the manner provided in this Section 11 and, if not so given, shall direct and declare at the meeting that such nominees shall not be considered. Article III. Directors. Section 1. General Powers, Number, and Tenure. The business of the Corporation shall be managed by its Board of Directors, which may exercise all powers of the Corporation and perform all lawful acts that are not by law, the Certificate of Incorporation, or these Bylaws directed or required to be exercised or performed by the stockholders. The number of directors shall be determined by the Board of Directors; if no such determination is made, the number of directors shall be one. The directors shall be elected at the annual meeting of the stockholders, except as provided in Section 2 of this Article, and each director elected shall hold office until the next annual meeting and until his successor is elected and shall qualify. Directors need not be stockholders. Section 2. Vacancies. If any vacancies occur in the Board of Directors, or if any new directorships are created, they may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director. Each director so chosen shall hold office until the next annual meeting of stockholders and until his successor is duly elected and shall qualify. If there are no directors in office, any officer or stockholder may call a special meeting of stockholders in accordance with the provisions of the Certificate of Incorporation or these Bylaws, at which meeting such vacancies shall be filled. Section 3. Removal or Resignation. (a) Except as otherwise provided by law or the Certificate of Incorporation, any director or the entire Board of Directors may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors. (b) Any director may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board, if -8- any, or the President or Secretary of the Corporation. Unless otherwise specified in such written notice, a resignation shall take effect on delivery thereof to the Board of Directors or the designated officer. It shall not be necessary for a resignation to be accepted before it becomes effective. Section 4. Place of Meetings. The Board of Directors may hold meetings, both regular and special, either within or without the State of Delaware. Section 5. Annual Meeting. The annual meeting of each newly elected Board of Directors shall be held immediately following the annual meeting of stockholders, and no notice of such meeting shall be necessary to the newly elected directors in order to constitute the meeting legally, provided a quorum shall be present. Section 6. Regular Meetings. Additional regular meetings of the Board of Directors may be held without notice of such time and place as may be determined from time to time by the Board of Directors. Section 7. Special Meetings. Special meetings of the Board of Directors may be called by the Chairman of the Board or the President, on at least two days' notice to each director, if such notice is delivered personally or sent by telecopy, or on at least three days' notice if sent by mail. Special meetings shall be called by the Chairman of the Board or the President in like manner and on like notice on the written request of two or more of the directors then in office. Any such notice need not state the purpose or purposes of such meeting. Section 8. Quorum and Adjournments. At all meetings of the Board of Directors, a majority of the directors then in office shall constitute a quorum for the transaction of business, and the act of a majority of the directors present at any meeting at which there is a quorum shall be the act of the Board of Directors, except as may be otherwise specifically provided by law or the Certificate of Incorporation. If a quorum is not present at any meeting of the Board of Directors, the directors present may adjourn the meeting from time to time, without notice other than -9- announcement at the meeting at which the adjournment is taken, until a quorum shall be present. Section 9. Compensation. Directors shall be entitled to such compensation for their services as directors and to such reimbursement for any reasonable expenses incurred in attending directors' meetings as may from time to time be fixed by the Board of Directors. The compensation of directors may be on such basis as is determined by the Board of Directors. Any director may waive compensation for any meeting. Any director receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and receiving compensation and reimbursement for reasonable expenses for such other services. Section 10. Action by Consent. Any action required or permitted to be taken at any meeting of the Board of Directors may be taken without a meeting, and without prior notice, if a written consent to such action is signed by all members of the Board of Directors and such written consent is filed with the minutes of its proceedings. Section 11. Meetings by Telephone or Similar Communications Equipment. The Board of Directors may participate in a meeting by conference telephone or similar communications equipment by means of which all directors participating in the meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such director at such meeting. Article IV. Committees. Section 1. Executive Committee. The Board of Directors, by resolution adopted by a majority of the whole Board, may appoint an Executive Committee consisting of one or more directors, one of whom shall be designated as Chairman of the Executive Committee. Each member of the Executive Committee shall continue as a member thereof until the expiration of his term as a director or his earlier resignation, unless sooner removed as a member or as a director. Section 2. Powers. The Executive Committee shall have and may exercise those rights, powers, and authority of the Board of Directors as may from time to time be granted to it by the Board of -10- Directors to the extent permitted by law, and may authorize the seal of the Corporation to be affixed to all papers that may require it. Section 3. Procedure and Meetings. The Executive Committee shall fix its own rules of procedure and shall meet at such times and at such place or places as may be provided by such rules or as the members of the Executive Committee shall fix. The Executive Committee shall keep regular minutes of its meetings, which is shall deliver to the Board of Directors from time to time. The Chairman of the Executive Committee or, in his absence, a member of the Executive Committee chosen by a majority of the members present, shall preside at meetings of the Executive Committee; and another member chosen by the Executive Committee shall act as Secretary of the Executive Committee. Section 4. Quorum. A majority of the Executive Committee shall constitute a quorum for the transaction of business, and the affirmative vote of a majority of the members present at any meeting at which there is a quorum shall be required for any action of the Executive Committee; provided, however, that when an Executive Committee of one member is authorized under the provisions of Section 1 of this Article, that one member shall constitute a quorum. Section 5. A Nominating Committee consisting of three directors, at least one member of which must be the Director elected by the holders of Series B Preferred Stock voting separately as a class (the "Series B Director"), shall select the persons who shall be the Company's nominees to stand for election to the Board. The nominee to be selected to stand for election as the Series B Director shall be nominated by the current Series B Director. Each person who shall be a nominee of the Company for election as a Director shall be approved by at least a majority of the members of the Nominating Committee, and at least two (2) of the these nominees shall have been approved by the Series B Director or, if there is no Series B Director, by one of the other Directors approved by the Series B Director. If either or both of the Directors approved by the Series B Director resigns or must otherwise be replaced on the Board of Directors, the person or persons selected to replace such Directors must be approved by the Series B Director. -11- Section 6. Other Committees. The Board of Directors, by resolutions adopted by a majority of the whole Board, may appoint such other committee or committees as it shall deem advisable and with such rights, power, and authority as it shall prescribe. Each such committee shall consist of one or more directors. Section 7. Committee Changes. The Board of Directors shall have the power at any time to fill vacancies in, to change the membership of, and to discharge any committee. Section 8. Compensation. Members of any committee shall be entitled to such compensation for their services as members of the committee and to such reimbursement for any reasonable expenses incurred in attending committee meetings as may from time to time be fixed by the Board of Directors. Any member may waive compensation for any meeting. Any committee member receiving compensation under these provisions shall not be barred from serving the Corporation in any other capacity and from receiving compensation and reimbursement of reasonable expenses for such other services. Section 9. Action by Consent. Any action required or permitted to be taken at any meeting of any committee of the Board of Directors may be taken without a meeting if a written consent to such action is signed by all members of the committee and such written consent is filed with the minutes of its proceedings. Section 10. Meetings by Telephone or Similar Communications Equipment. The members of any committee designated by the Board of Directors may participate in a meeting of such committee by conference telephone or similar communications equipment by means of which all persons participating in such meeting can hear each other, and participation in such a meeting shall constitute presence in person by any such committee member at such meeting. Article V. Notices. Section 1. Form and Delivery. Whenever a provision of any law, the Certificate of Incorporation, or these Bylaws requires that notice be given to any director or stockholder, it shall not be construed to require personal notice unless so specifically provided, but such notice may be given in writing, by mail -12- addressed to the address of the director or stockholder as it appears on the records of the Corporation, with postage prepaid. These notices shall be deemed to be given when they are deposited in the United States mail. Notice to a director may also be given personally or by telephone or by telegram sent to his address as it appears on the records of the Corporation. Section 2. Waiver. Whenever any notice is required to be given under the provisions of any law, the Certificate of Incorporation, or these Bylaws, a written waiver thereof signed by the person entitled to said notice, whether before or after the time stated therein, shall be deemed to be equivalent to such notice. In addition, any stockholder who attends a meeting of stockholders in person or is represented at such meeting by proxy, without protesting at the commencement of the meeting the lack of notice thereof to him, or any director who attends a meeting of the Board of Directors without protesting at the commencement of the meeting of the lack of notice, shall be conclusively deemed to have waived notice of such meeting. Article VI. Officers. Section 1. Designations. The officers of the Corporation shall be chosen by the Board of Directors. The Board of Directors may choose a Chairman of the Board, a President, a Vice President or Vice Presidents, a Secretary, a Treasurer, one or more Assistant Secretaries and/or Assistant Treasurers, and other offices and agents that it shall deem necessary or appropriate. All officers of the Corporation shall exercise the powers and perform the duties that shall from time to time be determined by the Board of Directors. Any number of offices may be held by the same person, unless the Certificate of Incorporation or these Bylaws provide otherwise. Section 2. Term of, and Removal From, Office. At its first regular meeting after each annual meeting of stockholders, the Board of Directors shall choose a President, a Secretary, and a Treasurer. It may also choose a Chairman of the Board, a Vice President or Vice Presidents, one or more Assistant Secretaries and/or Assistant Treasurers, and such other officers and agents as it shall deem necessary or appropriate. Each officer of the Corporation shall hold office until his successor is chosen and -13- shall qualify. Any officer elected or appointed by the Board of Directors may be removed, with or without cause, at any time by the affirmative vote of a majority of the directors then in office. Removal from office, however, shall not prejudice the contract rights, if any, of the person removed. Any vacancy occurring in any office of the Corporation may be filled for the unexpired portion of the term by the Board of Directors. Section 3. Compensation. The salaries of all officers of the Corporation shall be fixed from time to time by the Board of Directors, and no officer shall be prevented from receiving a salary because he is also a director of the Corporation. Section 4. The Chairman of the Board. The Chairman of the Board, if any, shall be an officer of the Corporation and, subject to the direction of the Board of Directors, shall perform such executive, supervisory, and management functions and duties as may be assigned to him from time to time by the Board of Directors. He shall, if present, preside at all meeting of stockholders and of the Board of Directors. Section 5. The President. (a) The President shall be the chief executive officer of the Corporation and, subject to the direction of the Board of Directors, shall have general charge of the business, affairs, and property of the Corporation and general supervision over its other officers and agents. In general, he shall perform all duties incident to the office of President and shall see that all orders and resolutions of the Board of Directors are carried into effect. (b) Unless otherwise prescribed by the Board of Directors, the President shall have full power and authority to attend, act, and vote on behalf of the Corporation at any meeting of the security holders of other corporations in which the Corporation may hold securities. At any such meeting, the President shall possess and may exercise any and all rights and powers incident to the ownership of such securities that the Corporation might have possessed and exercised if it had been present. The Board of Directors may from time to time confer like powers upon any other person or persons. -14- Section 6. The Vice President. The Vice President, if any, or in the event there by more than one, the Vice Presidents in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the President or in the event of his disability, perform the duties and exercise the powers of the President and shall generally assist the President and perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 7. The Secretary. The Secretary shall attend all meetings of the Board of Directors and the stockholders and record all votes and the proceedings of the meetings in a book to be kept for that purpose. He shall perform like duties for the Executive Committee or other committees, if required. He shall give, or cause to be given, notice of all meetings of stockholders and special meetings of the Board of Directors, and shall perform such other duties as may from time to time be prescribed by the Board of Directors, the Chairman of the Board, or the President, under whose supervision he shall act. He shall have custody of the seal of the Corporation, and he, or an Assistant Secretary, shall have authority to affix it to any instrument requiring it, and, when so affixed, the seal may be attested by his signature or by the signature of the Assistant Secretary. The Board of Directors may give general authority to any other officer to affix the seal of the Corporation and to attest the affixing thereof by his signature. Section 8. The Assistant Secretary. The Assistant Secretary, if any, or in the event there be more than one, the Assistant Secretaries in the order designated, or in the absence of any designation, in the order of their election, shall, in the absence of the Secretary or in the event of his disability, perform the duties and exercise the powers of the Secretary and shall perform such other duties and have such other powers as may from time to time be prescribed by the Board of Directors. Section 9. The Treasurer. The Treasurer shall have custody of the corporate funds and other valuable effects, including securities, and shall keep full and accurate accounts of receipts and disbursements in books belonging to the Corporation and shall deposit all moneys and other valuable effects in the name and to the credit of the Corporation in such depositories as may from time to time be designated by the Board of Directors. He -15- shall disburse the funds of the Corporation in accord with the orders of the Board of Directors, taking proper vouchers for such disbursements, and shall render to the Chairman of the Board, if any, the President, and the Board of Directors, whenever they may require it or at regular meetings of the Board, an account of all his transactions as Treasurer and of the financial condition of the Corporation. Section 10. The Assistant Treasurer. The Assistant Treasurer, if any, or in the event there shall be more than one, the Assistant Treasurers in the order designed, or in the absence of any designation, in the order of their election, shall, in the absence of the Treasurer or in the event of his disability, perform such other duties and have such other powers as may from time to time be prescribed in the Board of Directors. Article VII. Indemnification. Reference is made to Section 145 and any other relevant provisions of the General Corporation Law of the State of Delaware. Particular reference is made to the class of persons, hereinafter called "Indemnitees", who may be indemnified by a Delaware corporation pursuant to the provisions of such Section 145, namely, any person, or the heirs, executors, or administrators of such person, who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit, or proceeding, whether civil, criminal, administrative, or investigative, by reason of the fact that such person is or was a director, officer, employee, or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee, or agent of such corporation or is or was serving at the request of such corporation as a director, officer, employee, or agent of another corporation, partnership, joint venture, trust, or other enterprise. The Corporation shall, and is hereby obligated to, indemnify the Indemnitees, and each of them, in each and every situation where the Corporation is obligated to make such indemnification pursuant to the aforesaid statutory provisions. The Corporation shall indemnify the Indemnitees, and each of them, in each and every situation where, under the aforesaid statutory provisions, the Corporation is not obligated, but is nevertheless permitted or empowered, to make such -16- indemnification, it being understood that, before making such indemnification with respect to any situation covered under this sentence, (i) the Corporation shall promptly make or cause to be made, by any of the methods referred to in Subsection (d) of such Section 145, a determination as to whether each Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, in the case of any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful, and (ii) that no such indemnification shall be made unless it is determined that such Indemnitee acted in good faith and in a manner he reasonably believed to be in, or not opposed to, the best interests of the Corporation, and, in the case of any criminal action or proceeding, had no reasonable cause to believe that his conduct was unlawful. Article VIII. Affiliated Transactions. Section 1. Affiliated Transactions. All transactions between the Corporation and one or more of its directors or officers, or between the Corporation and any other corporation, partnership, association or other organization in which one or more of its directors or officers have a financial interest, or between the Corporation and any other person or entity controlling, controlled by or under common control with, the Corporation, must be approved in advance by a majority of the Board of Directors, including all of the independent and disinterested members of the Board of Directors or, if required by law, a majority of disinterested stockholders, and must be on terms no less favorable to the Corporation than could be obtained in arm's length transactions from unaffiliated third parties. Article IX. Stock Certificates. Section 1. Form and Signatures. (a) Every holder of stock of the Corporation shall be entitled to a certificate stating the number and class, and series, if any, of shares owned by him, signed by the Chairman of the Board, if any, or the President and the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Corporation, and bearing the seal of the Corporation. The signatures and the seal may be facsimiles. A certificate may be -17- signed, manually or by facsimile, by a transfer agent or registrar other than the Corporation or its employee. In case any officer who has signed, or whose facsimile signature was placed on, a certificate shall have ceased to be such officer before the certificate is issued, it may nevertheless be issued by the Corporation with the same effect as if he were such officer at the date of its issue. (b) All stock certificates representing shares of capital stock that are subject to restrictions on transfer or to other restrictions may have imprinted thereon any notation to that effect determined by the Board of Directors. Section 2. Registration of Transfer. Upon surrender to the Corporation or any transfer agent of the Corporation of a certificate for shares duly endorsed or accompanied by proper evidence of succession, assignment, or authority to transfer, the Corporation or its transfer agent shall issue a new certificate to the person entitled thereto, cancel the old certificate, and record the transaction upon the books of the Corporation. Section 3. Registered Stockholders. (a) Except as otherwise provided by law, the Corporation shall be entitled to recognize the exclusive right of a person who is registered on its books as the owner of shares of its capital stock to receive dividends or other distributions and to vote or consent as such owner, and to hold liable for calls and assessments any person who is registered on its books as the owner of shares of its capital stock. The Corporation shall not be bound to recognize any equitable or legal claim to, or interest in, such shares on the part of any other person. (b) If a stockholder desires that notices and/or dividends shall be sent to a name or address other than the name or address appearing on the stock ledger maintained by the Corporation, or its transfer agent or registrar, if any, the stockholder shall have the duty to notify the Corporation, or its transfer agent or registrar, if any, in writing of his desire and specify the alternate name or address to be used. Section 4. Record Date. In order that the Corporation may determine the stockholders of record who are entitled to receive -18- notice of, or to vote at, any meeting of stockholders or any adjournment thereof or to express consent to corporate action in writing without a meeting, to receive payment of any dividend or other distribution or allotment of any rights, or to exercise any rights in respect of any change, conversion, or exchange of stock or for the purpose of any lawful action, the Board of Directors may, in advance, fix a date as the record date for any such determination. Such date shall not be more than sixty nor less than ten days before the date of such meeting, nor more than sixty days prior to the date of any other action. A determination of stockholders of record entitled to notice of, or to vote at, a meeting of stockholders shall apply to any adjournment of the meeting taken pursuant to Section 8 of Article II; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. Section 5. Lost, Stolen, or Destroyed Certificates. The Board of Directors may direct that a new certificate be issued to replace any certificate theretofore issued by the Corporation that, it is claimed, has been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate to be lost, stolen, or destroyed. When authorizing the issue of a new certificate, the Board of Directors may, in its discretion and as a condition precedent to the issuance thereof, require the owner of the lost, stolen, or destroyed certificate, or his legal representative, to advertise the same in such manner as it shall require, and/or to give the Corporation a bond in such sum, or other security in such form, as it may direct as indemnity against any claims that may be made against the Corporation with respect to the certificate claimed to have been lost, stolen, or destroyed. Article X. General Provisions. Section 1. Dividends. Subject to the provisions of law and the Certificate of Incorporation, dividends upon the outstanding capital stock of the Corporation may be declared by the Board of Directors at any regular or special meeting, and may be paid in cash, in property, or in shares of the Corporation's capital stock. Section 2. Reserves. The Board of Directors shall have full power, subject to the provisions of law and the Certificate of -19- Incorporation, to determine whether any, and, if so, what part, of the funds legally available for the payment of dividends shall be declared as dividends and paid to the stockholders of the Corporation. The Board of Directors, in its sole discretion, may fix a sum that may be set aside or reserved over and above the paid-in capital of the Corporation as a reserve for any proper purpose, and may, from time to time, increase, diminish, or vary such amount. Section 3. Fiscal Year. Except as from time to time otherwise provided by the Board of Directors, the fiscal year of the Corporation shall end on December 31 in each year. Section 4. Seal. The corporate seal shall have inscribed thereon the name of the Corporation, the year of its incorporation, and the words "Corporate Seal" and "Delaware". Article XI Amendments. The Board of Directors shall have the power to alter and repeal these Bylaws and to adopt new Bylaws by an affirmative vote of a majority of the whole Board, provided that notice of the proposal to alter or repeal these Bylaws or to adopt new Bylaws must be included in the notice of the meeting of the Board of Directors at which such action takes place. -20- EX-3.2 3 AMENDED CERTIFICATE OF DESIGNATION AMENDED CERTIFICATE OF THE DESIGNATIONS, POWERS PREFERENCES AND RIGHTS OF THE SERIES B CONVERTIBLE PREFERRED STOCK ($.01 PAR VALUE PER SHARE) OF DELICIOUS BRANDS, INC. A DELAWARE CORPORATION --------------------- PURSUANT TO SECTION 151 OF THE GENERAL CORPORATION LAW OF THE STATE OF DELAWARE --------------------- DELICIOUS BRANDS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Company"), DOES HEREBY CERTIFY that, pursuant to authority conferred upon the Board of Directors of the Company (the "Board") by the Certificate of Incorporation of , and pursuant to the provisions of Section 151 of the Delaware General Corporation Law, that the Board adopted a resolution providing for the amendment to and restatement of the certificate of the designations, powers, preferences and rights, of the Series B Convertible Preferred Stock, which resolution is as follows: RESOLVED, that the Amended Certificate of the Designations, Powers, Preferences and Rights of the Series B Convertible Preferred Stock ("Certificate of Designation") be and is hereby authorized and approved, which Certificate of Designation shall be filed with the Delaware Secretary of State in the form as follows: 1. Designations and Amount. Thirty Five Thousand (35,000) shares of the Preferred Stock of the Company, $.01 par value per share, shall constitute a class of Preferred Stock designated as "Series B Convertible Preferred Stock" (the "Series B Convertible Stock"). After the initial issuance of shares of Series B Convertible Stock, no additional shares of Series B Convertible Stock may be issued by the Company except as provided in Section 4(c) hereof. 2. Rank. Except as specifically provided below, the Series B Convertible Stock shall, with respect to dividend rights, rights on redemption and rights on liquidation, winding up and dissolution, rank pari passu with all classes of Common Stock, $.01 par value per share, of the Company (the "Common Stock"). 3. Dividends. Holders of the Series B Convertible Stock shall not be entitled to receive dividends except in the event the Company shall declare a distribution, whether in cash, in kind or otherwise, with respect to the Common Stock, and then, in each such case, the holders of the Series B Convertible Stock shall be entitled to a proportionate share of any such distribution (whether made in cash, securities of the Company (other than shares of Common Stock) or other assets) as though the holders of the Series B Convertible Stock were the holders of the number of shares of Common Stock into which their shares of Series B Convertible Stock are convertible as of the record date fixed for the determination of the holders of Common Stock entitled to receive such distribution. 4. Voting Rights. (a) Each share of Series B Convertible Stock shall entitle the holder thereof to such number of votes as shall equal the number of whole and fractional shares of Common Stock into which such shares of Series B Convertible Stock is convertible pursuant to Section 5 hereof. Except as otherwise required by law, the holders of Series B Convertible Stock shall be entitled to vote on all matters as to which holders of Common Stock of any class shall be entitled to vote, in the same manner and with the same effect as such holders of Common Stock, voting together with the holders of the Common Stock (or such class thereof) as one class. (b) So long as the initial holder of record of the Series B Convertible Stock or an affiliate of such holder, beneficially owns at least 11% of the Common Stock (determined in accordance with the provisions of Rule 13d-3 under the Securities Exchange Act of 1934, as amended), then the holders of a majority of the outstanding shares of Series B Convertible Stock shall have, in addition to the voting rights set forth above, the exclusive right, voting separately as a single class, to: (i) elect one (1) director of the Company, as well as to elect a replacement for any such director in the event that any such director resigns, dies or otherwise must be replaced (any such person being referred to herein as the "Approved Director"); and (ii) upon the filing of a petition under any federal or state bankruptcy laws by or with respect to the Company, the exclusive right, voting separately as a single class, to elect up to that number of directors that would equal one-half (1/2) of the number of directors that then constitute the whole board of directors, plus one (1) member, of the Board (including the directors previously appointed by such holders pursuant to this subsection (b)) (for which purpose, immediately upon the filing of a petition under any federal or state bankruptcy laws by or with respect to the Company, the number of directors constituting the Board shall, automatically and without any further action on the part of the Board or the stockholders of the Company, be increased to such number as shall permit the majority of the holders of the Series B Convertible Stock to so elect one-half (1/2) of the number of directors that then constitute the whole board of directors, plus one (1) member, of the Board). Any vacancy in the office of any director elected or otherwise entitled to be filled by the holders of Series B Convertible Stock pursuant to this subsection (b) (including, without limitation, vacancies created upon the increase in the size of the Board as provided by clause (ii) above) shall be filled only by the holders of a majority of the outstanding shares of Series B Convertible Stock voting as a single class. Pending any such action by the holders of Series B Convertible Stock, any vacancy in the office of any such director shall not be filled by the vote of the remaining directors. The one director elected by the holders of Series B Preferred Stock pursuant to this Section 4 shall have the right (but not the -2- obligation) to be appointed to each of the committees of the Board, including, without limitation, any executive committee and nominating committee of the Board, unless such director would cause such committee to not be in compliance with such committee's applicable director qualification requirements. (c) The Company shall not take any of the following actions without the approval by the affirmative vote of the holders of a majority of the then outstanding shares of Series B Convertible Stock, voting as a separate class: (i) amend, alter or repeal any provision of the Certificate of Incorporation or the Bylaws so as to adversely affect the relative powers, preferences, rights, privileges or limitations provided for herein for the benefit of any shares of Series B Convertible Stock so as to adversely affect the rights of the holders of Series B Convertible Stock; (ii) increase the authorized number of shares of, or issue, Series B Convertible Stock; (iii) effect any reclassification of the Series B Convertible Stock; (iv) increase the number of directors to more than nine (9), except as provided by Section 4(b)(ii) above; (v) designate any additional class of capital stock which grants to the holders thereof the right to elect a separate class of directors of the Company; or (vi) amend the by-laws of the Company with respect to any provision relating to the establishment and powers of the nominating committee (the "Nominating Committee") of the Board pursuant to which the Board nominates persons to stand for election to the Board. Subject to these limitations, additional classes of preferred stock may be designated and issued from time to time in one or more series with such designations, voting powers, or other preferences and relative rights or qualifications as are determined by the Board. (d) The director elected by the holders of Series B Convertible Stock pursuant to this Section 4 shall have one vote on all matters decided by the Board, provided that the Company may not, without the affirmative vote or consent of the director elected by the holders of Series B Convertible Stock, file a voluntary petition or consent to the filing of a petition under any federal or state bankruptcy laws. (e) Without limiting anything contained in Section 4(b) above, the Approved Director shall have the right to serve on the Nominating Committee. As a member of such Nominating Committee, the Approved Director shall have the right to himself nominate the person to stand for election to the Board as the director to be elected by the holders of the Series B Convertible Stock, and to vote on the nominations of the other persons nominated by the -3- Nominating Committee to stand for election to the Board (the "Other Directors"). The provisions of the Company's By-Laws establishing the Nominating Committee shall provide that: (A) all nominations of the Other Directors to be made by the Board and/or the Company shall be approved by at least a majority of the members of the Nominating Committee; (B) in order for the nominations of the Other Directors to be approved by the Nominating Committee, the nominations of at least two (2) of the Other Directors shall have been approved by the Approved Director or, in the event that the holders of the Series B Convertible Stock are no longer entitled to elect an Approved Director in accordance with the provisions of Section 4(b) hereof, by the Alternate Approved Director (as defined below) (such two approved Other Directors being referred to herein as the "Designated Directors"); and (C) at such time as the Designated Directors are designated in accordance with clause (B) above, the Approved Director or the then serving Alternate Approved Director, as the case may be, shall designate one of the Designated Directors as the person who shall be entitled to approve of future nominations of Designated Directors in accordance with clause (B) above under circumstances in which the holders of the Series B Convertible Stock are no longer entitled to elect an Approved Director in accordance with the provisions of Section 4(b) hereof (such Designated Director being referred to herein as the "Alternate Approved Director"), it being understood that a then serving Alternate Approved Director shall be permitted to designate himself to serve as the Alternate Approved Director in a succeeding period, so long as such person continues to be one of the Designated Directors. 5. Conversion of Series B Convertible Stock. (a) General. Each holder of Series B Convertible Stock shall have the right, at such holder's option, at any time or from time to time from and after the day immediately following the date the Series B Convertible Stock is first issued, to convert each share of Series B Convertible Stock into fully-paid and non-assessable shares of Common Stock. The number of shares of Common Stock to which a holder of Series B Convertible Stock shall be entitled to receive upon conversion at any particular time shall be the sum of (x) the product obtained by multiplying the Conversion Rate (determined as provided in Section 5(b)) by the number of shares of Series B Convertible Stock being converted at such time, plus (y) the product obtained by multiplying the Excess Value (determined as provided in Section 6(a)) by the number of shares of Series B Convertible Stock being converted at such time. (b) Conversion Rate. The conversion rate in effect at any time for the Series B Convertible Stock shall be the quotient obtained by dividing the number five (5) by the Conversion Value, calculated as provided in Section 5(c) (the "Conversion Rate"). (c) Conversion Value. The Conversion Value in effect from time to time, shall initially be the number one (1) and shall be adjusted from time to time as set forth and in accordance with Section 5(d) with respect to the Series B Convertible Stock (the "Conversion Value"). (d) Adjustments to Conversion Value. (i) Upon Dilutive Issuances of Common Stock or Convertible Securities. If the Company shall issue or sell shares of its Common Stock or Common Stock Equivalents (as -4- hereafter defined) without consideration or at a price per share less than the greater of: (x) the then current Fair Market Value (as defined in Section 5(h) hereof) of such securities so issued or sold; or (y) $8.00, then the Conversion Value, except as hereinafter provided, shall be reduced so as to be equal to an amount determined by multiplying the Conversion Value by a fraction: (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock or Common Stock Equivalents (calculated on a fully-diluted basis assuming the conversion of all presently exercisable options, warrants, purchase rights or convertible securities), plus (2) the number of shares of Common Stock or Common Stock Equivalents which the aggregate consideration, if any, received by the Company for the total number of such additional shares of Common Stock or Common Stock Equivalents so issued would purchase at the greater of: (x) the then current Fair Market Value of such securities so issued or sold; or (y) $8.00, and (B) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock or Common Stock Equivalents (calculated on a fully-diluted basis assuming the exercise or conversion of all presently exercisable options, warrants, purchase rights or convertible securities), plus (2) the number of such additional shares of Common Stock or Common Stock Equivalents so issued. (ii) Upon Dilutive Issuances of Warrants, Options and Purchase Rights to Common Stock or Convertible Securities. For the purposes of this Section 5, the issuance of any warrants, options, subscription or purchase rights with respect to shares of Common Stock and the issuance of any securities convertible into or exchangeable for shares of Common Stock, or the issuance of any warrants, options, subscriptions or purchase rights with respect to such convertible or exchangeable securities (collectively, "Common Stock Equivalents"), shall be deemed an issuance of Common Stock with respect to adjustments in the Conversion Value of the Series B Convertible Stock if the Consideration Per Share (as hereinafter determined) which may be received by the Company for such Common Stock shall be less than the greater of: (x) the then current Fair Market Value of such securities so issued or sold; or (y) $8.00. Any obligation, agreement or undertaking to issue Common Stock Equivalents at any time in the future shall be deemed to be an issuance of Common Stock Equivalents at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Conversion Value shall be made under this Section 5 upon the issuance of any shares of Common Stock which are issued pursuant to the exercise, conversion or exchange of any Common Stock Equivalents if any adjustment shall previously have been made upon the issuance of any such Common Stock Equivalents as above provided. (iii) Adjustments for Cancellation or Expiration of Common Stock Equivalents. Should the Consideration Per Share of any such Common Stock Equivalents be decreased from time to time, then, upon the effectiveness of each such change, the Conversion Value will be that which would have been obtained (A) had the adjustments made upon the issuance of such Common Stock Equivalents been made upon the basis of the decreased Consideration Per Share of such securities, and (B) had the adjustments made to the Conversion Value since the date of issuance of such Common Stock Equivalents been made to such Conversion Value as adjusted -5- pursuant to clause (A) above. Any adjustment of the Conversion Value pursuant to this paragraph which relates to any Common Stock Equivalent shall be eliminated if, as, and when such Common Stock Equivalent expires or is canceled without being exercised, or is repurchased by the Company at a price per share at or less than the original purchase price, so that the Conversion Value for the Series B Convertible Stock effective immediately upon such cancellation or expiration shall be equal to the Conversion Value that would have been in effect had the expired or canceled Common Stock Equivalent not been issued. (iv) Consideration Per Share. For purposes of Sections 5 and 6 hereof, the "Consideration Per Share" which may be received by the Company shall be determined as follows: (A) The "Consideration Per Share" shall mean the amount equal to the total amount of consideration, if any, received by the Company for the issuance of such Common Stock Equivalents, plus the minimum amount of consideration, if any, payable to the Company upon exercise, or conversion or exchange thereof, divided by the aggregate number of shares of Common Stock that would be issued if all such Common Stock Equivalents were exercised, exchanged or converted. (B) The "Consideration Per Share" which may be received by the Company shall be determined in each instance as of the date of issuance of Common Stock Equivalents without giving effect to any possible future upward price adjustments or rate adjustments which may be applicable with respect to such Common Stock Equivalents. (v) Consideration Other than Cash. If a part or all of the consideration received by the Company in connection with the issuance of shares of the Common Stock or the issuance of any of the securities described in this Section 5 or in Section 6 hereof consists of property other than cash, such consideration shall be deemed to have a fair market value as is reasonably determined in good faith by the Board. In the event of any dispute between the holders of the Series B Convertible Stock and the Company regarding the determination of fair market value of any securities or property, at the written request of the holders of a majority of the outstanding shares of Series B Convertible Stock, the Company shall engage a consulting firm or an investment banking firm, selected by the Board and approved by such holders of a majority of the outstanding shares of Series B Convertible Stock, to prepare an independent appraisal of the fair market value of such securities or property. The determination of such appraiser shall be final and binding for all purposes. The expenses of any appraisal by such consulting or investment banking firm shall be borne by the Company. (vi) Exceptions to Anti-dilution Adjustments; Reserved Employee Shares. Sections 5(d)(i) through (d)(vi) and 6(d)(i) through 6(d)(iv) shall not apply under any of the circumstances which would constitute an Extraordinary Common Stock Event (as defined below). Notwithstanding anything herein to the contrary, such sections shall not apply with respect to (i) the conversion of the Series A Preferred Stock and (ii) the issuance or sale of up to 1,277,730 shares of Common Stock issued or issuable pursuant to options and warrants outstanding as of the date hereof and at the exercise price for such as of the date hereof. The foregoing numbers shall be subject to -6- adjustment in the event of any stock dividend, stock split, reorganization, recapitalization, or other similar event. (vii) Upon Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common Stock Event, the Conversion Value (and all other conversion values set forth in Section 5 above) shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying the Conversion Value by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Conversion Value and the Conversion Value as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events. An "Extraordinary Common Stock Event" shall mean (A) the issue of additional shares of Common Stock as a dividend or other distribution on outstanding shares of Common Stock, (B) a subdivision of outstanding shares of Common Stock into a greater number of shares of Common Stock, or (C) a combination or reverse stock split of outstanding shares of Common Stock into a smaller number of shares of Common Stock, or any recapitalization or reorganization. (e) Capital Reorganization or Reclassification. If the Common Stock issuable upon the conversion of the Series B Convertible Stock shall be changed into the same or different number of shares of any class or classes of capital stock, whether by capital reorganization, recapitalization, reclassification or otherwise (other than a subdivision or combination of shares or stock dividend provided for elsewhere in this Section 5, or the sale of all or substantially all of the Company's capital stock or assets to any other person), then and in each such event the holder of each share of Series B Convertible Stock shall have the right thereafter to convert such share into the kind and amount of shares of capital stock and other securities and property receivable upon such reorganization, recapitalization, reclassification or other change by the holders of the number of shares of Common Stock into which such shares of Series B Convertible Stock might have been converted immediately prior to such reorganization, recapitalization, reclassification or change, all subject to further adjustment as provided herein. (f) Certificate as to Adjustments; Notice by Company. In each case of an adjustment or readjustment of the Conversion Rate and/or the Excess Value Conversion Rate (as hereinafter defined), the Company at its expense will furnish each record holder of Series B Convertible Stock, at such holder's registered address as shall appear on the stock records of the Company, a certificate prepared by the Treasurer or Chief Financial Officer of the Company, showing such adjustment or readjustment, and stating in detail the facts upon which such adjustment or readjustment is based. (g) Exercise of Conversion Right. Before any holder of Series B Convertible Stock shall be entitled to convert the same into shares of Common Stock, such holder shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Company or of any transfer agent for the Series B Convertible Stock, and shall give written notice to the Company at its -7- principal executive office, of the election to convert the same and shall state therein the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Company shall, as soon as practicable (but in no event more than five (5) Business Days) thereafter, execute and deliver or cause to be executed and delivered at such office to such holder of Series B Convertible Stock, or to the nominee or nominees of such holder, a certificate or certificates for the number of shares of Common Stock to which such holder shall be entitled as aforesaid. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Series B Convertible Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (h) Cash in Lieu of Fractional Shares. No fractional shares shall be issued upon the conversion of any share or shares of the Series B Convertible Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Company shall make a cash payment equal to the Fair Market Value (as hereinafter defined) of the Common Stock as of two business days prior to payment multiplied by such fraction. "Fair Market Value" shall mean the closing price of the Common Stock on the national securities exchange on which the Common Stock is listed (if the Common Stock is so listed) or on the Nasdaq National Market or Small Cap Market (if the Common Stock is regularly quoted on the Nasdaq National Market or Small Cap Market), or, if not so listed or regularly quoted or if there is no such closing price, the mean between the closing bid and asked prices of the Common Stock in the over-the-counter market or on such exchange or on Nasdaq, or if such bid and asked prices shall not be available, as reported by any nationally recognized quotation service, or if the price is not so reported, as determined in good faith by the Board. The determination as to whether or not any fractional shares are issuable shall be based upon the aggregate number of shares of Series B Convertible Stock being converted at any one time by any holder thereof, not upon each share of Series B Convertible Stock being converted. (i) Partial Conversion. In the event some but not all of the shares of Series B Convertible Stock represented by a certificate(s) surrendered by a holder are converted, the Company shall execute and deliver to or on the order of the holder, at the expense of the Company, a new certificate representing the number of shares of Series B Convertible Stock which were not converted. (j) Reservation of Common Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series B Convertible Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series B Convertible Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series B Convertible Stock, in addition to such other remedies as shall be available to the holder of such Series B Convertible Stock, the Company shall take such corporate action as may, in the opinion of its counsel, be necessary to increase, and shall increase, its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes. -8- (k) No Reissuance of Series B Convertible Stock. In the event any shares of Series B Preferred Stock shall be converted pursuant to this Section 5 or otherwise reacquired by the Company, the shares so converted or reacquired shall be canceled. The Certificate of Incorporation of the Company may be appropriately amended from time to time to effect the corresponding reduction in the Company's authorized capital stock. (l) In the event of any taking by the Company of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Company shall mail to each holder of Series B Convertible Stock, at least 20 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (m) The Company shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Company upon conversion of any shares of Series B Convertible Stock; provided, however, that the Company shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the shares of Series B Convertible Stock in respect of which such shares are being issued. (n) All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Company, be validly issued, fully paid and nonassessable and free from all taxes (except income taxes), liens or charges with respect thereto. 6. Excess Value. (a) Excess Value. "Excess Value" shall be an amount equal to the Aggregate Excess Value (as defined below) divided by the number of shares of Series B Convertible Stock outstanding as of the date on which the calculation pursuant to Section 5(a) above is being performed. For purposes of this Section 6, the "Aggregate Excess Value" shall be an amount equal to the amount, if any, by which: (1) the product of (x) the number of shares of Common Stock (the "Mandatory Exercise Shares") which the holder of the warrant dated April 12, 1999 (the "Warrant") to purchase 700,000 shares of Common Stock, issued by the Company to Little Meadow Corp. ("Little Meadow"), is required by the Company to exercise the Warrant into (the "Mandatory Exercise") pursuant to the letter agreement by and between Little Meadow and the Company dated September 7, 1999, and (y) the Excess Value Conversion Rate (determined as provided in Section 6(b)); exceeds (2) the number of Mandatory Exercise Shares. (b) Excess Value Conversion Rate. The excess value conversion rate in effect at any time shall be the quotient obtained by dividing the number one (1) by the Excess Conversion Value, calculated as provided in Section 6(c) (the "Excess Value Conversion Rate"). -9- (c) Excess Conversion Value. The Excess Conversion Value in effect from time to time, shall initially be the number one (1) and shall be adjusted from time to time as set forth and in accordance with Section 6(d) with respect to the Series B Convertible Stock (the "Excess Conversion Value"). (d) Adjustments to Excess Conversion Value. For a period of ten years commencing on the date of the Mandatory Exercise, the Excess Conversion Value shall be subject to the following adjustments: (i) Upon Dilutive Issuances of Common Stock or Convertible Securities. If the Company shall issue or sell shares of its Common Stock or Common Stock Equivalents without consideration or at a price per share less than the greater of: (x) the then current Fair Market Value (as defined in Section 5(h) hereof) of such securities so issued or sold; or (y) $8.00, then the Excess Conversion Value, except as hereinafter provided, shall be reduced so as to be equal to an amount determined by multiplying the Excess Conversion Value by a fraction: (A) the numerator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock or Common Stock Equivalents (calculated on a fully-diluted basis assuming the conversion of all presently exercisable options, warrants, purchase rights or convertible securities), plus (2) the number of shares of Common Stock or Common Stock Equivalents which the aggregate consideration, if any, received by the Company for the total number of such additional shares of Common Stock or Common Stock Equivalents so issued would purchase at the greater of: (x) the then current Fair Market Value of such securities so issued or sold; or (y) $8.00, and (B) the denominator of which shall be (1) the number of shares of Common Stock outstanding immediately prior to the issuance of such additional shares of Common Stock or Common Stock Equivalents (calculated on a fully-diluted basis assuming the exercise or conversion of all presently exercisable options, warrants, purchase rights or convertible securities), plus (2) the number of such additional shares of Common Stock or Common Stock Equivalents so issued. (ii) Upon Dilutive Issuances of Warrants, Options and Purchase Rights to Common Stock or Convertible Securities. For the purposes of this Section 6, the issuance of any Common Stock Equivalents, shall be deemed an issuance of Common Stock with respect to adjustments in the Excess Conversion Value of the Series B Convertible Stock if the Consideration Per Share (as determined in accordance with the provisions of Section 5 above) which may be received by the Company for such Common Stock shall be less than the greater of: (x) the then current Fair Market Value of such securities so issued or sold; or (y) $8.00. Any obligation, agreement or undertaking to issue Common Stock Equivalents at any time in the future shall be deemed to be an issuance of Common Stock Equivalents at the time such obligation, agreement or undertaking is made or arises. No adjustment of the Excess Conversion Value shall be made under this Section 6 upon the issuance of any shares of Common Stock which are issued pursuant to the exercise, conversion or exchange of any Common Stock Equivalents if any adjustment shall -10- previously have been made upon the issuance of any such Common Stock Equivalents as above provided. (iii) Adjustments for Cancellation or Expiration of Common Stock Equivalents. Should the Consideration Per Share of any such Common Stock Equivalents be decreased from time to time, then, upon the effectiveness of each such change, the Excess Conversion Value will be that which would have been obtained (A) had the adjustments made upon the issuance of such Common Stock Equivalents been made upon the basis of the decreased Consideration Per Share of such securities, and (B) had the adjustments made to the Excess Conversion Value since the date of issuance of such Common Stock Equivalents been made to such Excess Conversion Value as adjusted pursuant to clause (A) above. Any adjustment of the Excess Conversion Value pursuant to this paragraph which relates to any Common Stock Equivalent shall be eliminated if, as, and when such Common Stock Equivalent expires or is canceled without being exercised, or is repurchased by the Company at a price per share at or less than the original purchase price, so that the Excess Conversion Value for the Series B Convertible Stock effective immediately upon such cancellation or expiration shall be equal to the Excess Conversion Value that would have been in effect had the expired or canceled Common Stock Equivalent not been issued. (iv) Upon Extraordinary Common Stock Event. Upon the happening of an Extraordinary Common Stock Event, the Excess Conversion Value (and all other conversion values set forth in Section 6 above) shall, simultaneously with the happening of such Extraordinary Common Stock Event, be adjusted by multiplying the Excess Conversion Value by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such Extraordinary Common Stock Event and the denominator of which shall be the number of shares of Common Stock outstanding immediately after such Extraordinary Common Stock Event, and the product so obtained shall thereafter be the Excess Conversion Value and the Excess Conversion Value as so adjusted, shall be readjusted in the same manner upon the happening of any successive Extraordinary Common Stock Event or Events. 7. Merger, Consolidation, Etc. (a) If at any time or from time to time there shall be (i) a merger, or consolidation of the Company with or into another corporation, (ii) the sale of all or substantially all of the Company's capital stock or assets to any other person, (iii) any other form of business combination or reorganization in which the Company shall not be the continuing or surviving entity of such business combination or reorganization, or (iv) any transaction or series of transactions by the Company in which in excess of 50 percent of the Company's voting power is transferred (each, a "Reorganization"), then as a part of such Reorganization, provision shall be made so that the holders of the Series B Convertible Stock shall thereafter be entitled to receive upon conversion of the Series B Convertible Stock the same kind and amount of stock or other securities or property (including cash) of the Company, or of the successor corporation resulting from such Reorganization, to which such holder would have been entitled if such holder had converted its shares of Series B Convertible Stock immediately prior to the effective time of such Reorganization. In any such case, appropriate adjustment shall be made in the application of the provisions of Sections 5 and 6 to the end that the -11- provisions of such sections (including adjustment of the Conversion Value and/or Excess Conversion Value then in effect and the number of shares of Common Stock or other securities issuable upon conversion of such shares of Series B Convertible Stock) shall be applicable after that event in as nearly equivalent a manner as may be practicable. (b) The provisions of this Section 7 are in addition to and not in lieu of the provisions of Section 4 hereof. 8. No Impairment The Company will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Company, but will at all times in good faith assist in the carrying out of all the provisions of this Certificate of Designation and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series B Convertible Stock against impairment. -12- IN WITNESS WHEREOF, Delicious Brands, Inc. has caused this Certificate of Designation to be executed this April 12, 1999. DELICIOUS BRANDS, INC. By:/s/ Tom Guinan ------------------------------------------------ Name: Tom Guinan Title: President and Chief Executive Officer By: /s/ Jeffry W. Weiner ----------------------------------------------- Name: Jeffry W. Weiner Title: Secretary -13- EX-3.3 4 CERTIFICATE OF DESIGNATION DELICIOUS BRANDS, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND OTHER RIGHTS AND QUALIFICATIONS OF SERIES C PREFERRED STOCK DELICIOUS BRANDS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That, pursuant to authority conferred upon the Board of Directors of the Corporation (the "Board") by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Sections 151 of the Delaware General Corporation Law, there is hereby created, out of 1,000,000 shares of Preferred Stock of the Corporation, authorized in Article FOURTH of the Certificate of Incorporation (the Preferred Stock"), a series of the Preferred Stock consisting of 240,000 shares, par value $.01 per share, to be designated "Series C Convertible Preferred Stock," and to that end the Board adopted a resolution providing for the designation, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions, of the Series C Convertible Preferred Stock, which resolution is as follows: RESOLVED, that the Certificate of Designation, Preferences and Other Rights and Qualifications of the Series C Preferred Stock ("Certificate of Designation") be and is hereby authorized and approved, which Certificate of Designation shall be filed with the Delaware Secretary of State in the form as follows: 1. Designation and Amount. Two Hundred and Forty Thousand (240,000) shares of the Preferred Stock of the Corporation, par value $.01 per share, shall constitute a class of Preferred Stock designated as "Series C Convertible Preferred Stock" (the "Series C Preferred Stock"). 2. Dividends. The holders of shares of Series C Preferred Stock shall be entitled to receive dividends with respect thereto ("Preferred Dividends") if, as and when declared by the Board of Directors of the Corporation (the "Board") out of assets of the Corporation legally available for payment thereof at the rate per share of twelve percent (12%) per annum of the aggregate Stated Value (the "Aggregate Stated Value") of the Series C Preferred Stock. The "Stated Value" of each share of Series C Preferred Stock shall be $20.00. Such Preferred Dividends shall accrue semi-annually at the rate of Six Percent (6%) per six-month period of the Aggregate Stated Value from the date of issuance or the last Dividend Record Date (as hereinafter defined) and be payable to holders of record of Series C Preferred Stock on each Dividend Record Date (each May 15 and November 15 being hereinafter called a "Dividend Record Date" and each of the six-month periods, or portions thereof, ending on the last day of the preceding month, respectively, being hereinafter called a "Dividend Period") and shall be paid in cash on each May 31 and November 30 only if, when and as declared by the Board of Directors of the Corporation, out of funds legally available for that purpose, unless sooner declared by the Board of Directors. Preferred Dividends on shares of Series C Preferred Stock shall be cumulative (whether or not there shall be net profits or net assets of the Corporation legally available for the payment of such dividends), so that if at any time the Preferred Dividends upon the Series C Preferred Stock to the end of the last completed Dividend Period shall not have been paid or declared and a sum sufficient for the payment thereof set apart, the amount of the deficiency in such Preferred Dividends shall be fully paid (but without interest), or Preferred Dividends in such amounts shall have been declared on the shares of the Series C Preferred Stock and a sum sufficient for the payment thereof shall have been set apart for such payment, before any dividend shall be declared or paid or any other distribution ordered or made upon any class of stock ranking as to dividends or upon liquidation junior to the Series C Preferred Stock (other than a dividend payable in such junior stock) and before any sum or sums shall be set aside for or applied to the purchase or redemption of any shares of any class of stock ranking as to dividends or upon liquidation junior to the Series C Preferred Stock (with respect to rights to dividends and on liquidation, the Series C Preferred Stock shall rank prior to the Common Stock (as hereinafter defined)), the Preferred Dividends must be paid. All Preferred Dividends declared upon the Series C Preferred Stock shall be declared pro rata per share. Holders of shares of Series C Preferred Stock shall not be entitled to any Preferred Dividends, whether payable in cash, property or stock, in excess of the Preferred Dividends at the rate set forth above. All payments due under this Section 2 to any holder of shares of Series C Preferred Stock shall be made to the nearest cent. 3. Rights on Liquidation In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a "Liquidation"), the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, shall be distributed as follows: -2- (i) The holders of Series C Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of the Corporation's common stock, par value $.01 per share (the "Common Stock"), or any other series or class of Preferred Stock, other than the Corporation's Series A Convertible Preferred Stock (the "Series A Preferred Stock"), whether now existing or hereafter created, and after the payment in full of any liquidation preference of the Series A Preferred Stock, an amount equal to (A) $30.00 per share for each share of Series C Preferred Stock then outstanding plus (B) an amount equal to the declared and unpaid Preferred Dividends on the Series C Preferred Stock to the date of Liquidation. If, upon the occurrence of a Liquidation, the assets and funds available for distribution to the holders of Series C Preferred Stock are insufficient to permit the payment to such holders in full the preferential amount referred to above, then the assets and funds of the Corporation available for distribution to holders of the Series C Preferred Stock shall be distributed ratably among such holders in proportion to the preferential amount each such holder is otherwise entitled to receive. (ii) After distribution of the amounts set forth in Section 3(a)(i) hereof, the remaining assets of the Corporation available for distribution, if any, to the stockholders of the Corporation shall be distributed to the holders of issued and outstanding shares of the Corporation's Series B Convertible Stock (the "Series B Preferred Stock") and the Common Stock in accordance with the provisions of the Certificate of Designation for the Series B Preferred Stock and the Corporation's Certificate of Incorporation. 4. Voting Rights. (a) So long as any shares of Series C Preferred Stock remain outstanding, the holders of shares of Series C Preferred Stock shall be entitled to such number of votes in respect of such shares of Series C Preferred Stock as shall equal the largest whole number of shares of Common Stock into which such shares of Series C Preferred Stock are then convertible pursuant to Section 5 hereof. Except as otherwise required by law or as provided in Section 4(b), the holders of Series C Preferred Stock shall be entitled to vote on all matters on which holders of Common Stock shall be entitled to vote, voting together as one class in the same manner and with the same effect as such holders of Common Stock. (b) The holders of a majority of the outstanding shares of Series C Preferred Stock shall have the right, voting separately as a class, to approve all matters adversely affecting the rights, value or ranking of the Series C Preferred Stock, including any issuance by the Corporation after the date of initial issuance of the Series C Preferred Stock (the "Series C Issuance Date") of any capital stock that is in any respect senior to or pari passu with the Series C Preferred Stock. -3- 5. Conversion of Series C Preferred Stock. (a) The holders of Series C Preferred Stock shall each have the right, at such holder's option, at any time or from time to time, to convert each share of Series C Preferred Stock into such whole number of shares of Common Stock as is equal to the number of fully paid and non-assessable shares of Common Stock which results from multiplying the number of shares of Series C Preferred Stock to be converted by $20.00 and dividing the result by the Conversion Price per share for the Series C Preferred Stock in effect at the time of conversion. The initial Conversion Price per share of the Series C Preferred Stock shall be $2.00. The holder of any shares of Series C Preferred Stock exercising the aforesaid right to convert such shares into shares of Common Stock shall be entitled to receive, in cash, an amount equal to all declared and unpaid Preferred Dividends with respect to such shares of Series C Preferred Stock up to and including the respective conversion date of the Series C Preferred Stock. Notwithstanding anything herein to the contrary, unless the issuance of the Series C Preferred Stock is ratified by a vote of the shareholders of the Company, the Company is delisted from Nasdaq or Nasdaq approval is not otherwise required, the holders of the Series C Preferred Stock may only convert up to such number of shares of Series C Preferred Stock as results in the issuance of an aggregate number of shares of Common Stock equal to or less than 19% of the number of shares of Common Stock issued and outstanding on the date the Series C Preferred Stock is first issued. (b) Upon the affirmative vote of the holders of at least a majority of the outstanding shares of Series C Preferred Stock directing that the Series C Preferred Stock be converted to Common Stock, each share of Series C Preferred Stock then outstanding shall automatically be converted into shares of Common Stock at the Conversion Price then in effect in accordance with this Section 5. Notwithstanding anything herein to the contrary, unless the issuance of the Series C Preferred Stock is ratified by a vote of the shareholders of the Company, the Company is delisted from Nasdaq or Nasdaq approval is not otherwise required, the holders of the Series C Preferred Stock may only convert up to such number of shares of Series C Preferred Stock as results in the issuance of an aggregate number of shares of Common Stock equal to or less than 19% of the number of shares of Common Stock issued and outstanding on the date the Series C Preferred Stock is first issued. (c) Before any holder of Series C Preferred Stock shall be entitled to convert the same into shares of Common Stock pursuant to Section 5(a) hereof, and upon conversion of the Series C Preferred Stock pursuant to Section 5(b) hereof, the holder or holders of such Series C Preferred Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series C Preferred Stock, and shall give written notice to the Corporation at its principal corporate office of the election to convert the same (in case of conversion pursuant to Section 5(a) hereof) and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder or holders of Series C Preferred Stock, or to the nominee or nominees thereof, a certificate or certificates for the number of shares of Common Stock to which such holder or holders shall be entitled as -4- aforesaid. Conversion under this Section 5 shall be deemed to have been made (i) with respect to conversion pursuant to Section 5(a) hereof, immediately prior to the close of business on the date of such surrender of the shares of Series C Preferred Stock to be converted, and (ii) with respect to conversion pursuant to Section 5(b) hereof, on the date of consummation of the event giving rise to the conversion, and in either case the Person or Persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (d) The Conversion Price of the Series C Preferred Stock shall be subject to adjustment from time to time as follows: (i) In the event the Corporation should at any time or from time to time after the Series C Issuance Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or Common Stock equivalents without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series C Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of such Series C Preferred Stock shall be increased in proportion to such increase in the aggregate of shares of Common Stock outstanding and issuable with respect to such Common Stock equivalents. (ii) If the number of shares of Common Stock outstanding at any time after the Series C Issuance Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series C Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of each series shall be decreased in proportion to such decrease in outstanding shares. (e) In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 5(d) hereof to the holders of Common Stock, then, in each such case for the purpose of this Section 5(e), the holders of the Series C Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series C Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. -5- (f) If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 5), provision shall be made so that the holders of the Series C Preferred Stock shall thereafter be entitled to receive upon conversion of the Series C Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series C Preferred Stock after the recapitalization to the end that the provisions of this Section 5 (including adjustment of the Conversion Price for the Series C Preferred Stock then in effect and the number of shares issuable upon conversion of the Series C Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series C Preferred Stock against impairment. (h) If the Corporation should effect any capital reorganization or reclassification of its capital stock or merger or consolidation with any other entity or sale of all or substantially all its assets while any shares of Series C Preferred Stock are outstanding in such a manner that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, merger, consolidation or sale, lawful and adequate provision shall be made whereby each holder of Series C Preferred Stock shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon conversion of Series C Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore so receivable had such reorganization, reclassification, merger, consolidation or sale not taken place, and in such case appropriate provision shall be made with respect to the rights and interests of the holders of Series C Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price of the Series C Preferred Stock and of the number of shares of Common Stock issuable upon conversion thereof) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such shares of Series C Preferred Stock. (i) (A) No fractional shares shall be issued upon the conversion of any share or shares of the Series C Preferred Stock, and the number of shares of Common Stock to be -6- issued shall be rounded to the nearest whole share. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall make a cash payment equal to the Fair Market Value (as hereinafter defined) of the Common Stock as of two business days prior to payment multiplied by such fraction. "Fair Market Value" shall mean the value of the Common Stock as determined in good faith by the Board. (B) Upon the occurrence of each adjustment of the Conversion Price of Series C Preferred Stock pursuant to this Section 5, the Corporation, at its expense, shall promptly compute such adjustment in accordance with the terms hereof and prepare and furnish to each holder of Series C Preferred Stock a statement, setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Corporation shall, upon the written request at any time of any holder of Series C Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment, (ii) the Conversion Price for such Series C Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such Series C Preferred Stock. (j) In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series C Preferred Stock, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (k) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series C Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series C Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series C Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series C Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these provisions. The Corporation shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Corporation upon conversion of any shares of Series C Preferred Stock; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the shares of Series C Preferred Stock in respect of which such shares are being issued. All shares of Common Stock which may be issued in connection with the -7- conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable and free from all taxes, liens or charges with respect thereto. (l) Any notice required by the provisions of this Section 5 to be given to the holders of shares of Series C Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the stock books of the Corporation. (m) In the event any shares of Series C Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so converted shall be canceled. The Certificate of Incorporation of the Corporation may be appropriately amended from time to time to effect the corresponding reduction in the Corporation's authorized capital stock. 6. Holders' Right of Redemption. The Corporation shall give the holders of Series C Preferred Stock written notice (a "Disposition Notice") of any proposed Disposition Transaction (as herein defined) at least 15 days prior to the consummation thereof. If such Disposition Transaction is consummated, each holder of Series C Preferred Stock shall have the right to require the Corporation to redeem all or any part of the shares of Series C Preferred Stock then held it, if such holder has given a written notice to the Corporation not later than 15 days after the Disposition Notice is given to it, specifying the number of shares of Series C Preferred Stock it wishes to have redeemed. The price at which shares of Series C Preferred Stock shall be redeemed pursuant to this Section (the "Redemption Price") shall equal (a) $30.00 per share for each share of Series C Preferred Stock being redeemed plus (b) an amount equal to the declared and unpaid Preferred Dividends on such shares of Preferred Stock to the date of consummation of the Disposition Transaction. If the funds of the Corporation legally available to effect a redemption in accordance with this Section are insufficient to pay the aggregate Redemption Price for all shares of Series C Preferred Stock to be redeemed, the aggregate Redemption Price shall be reduced to an amount equal to the maximum amount of funds legally available therefor and shall be payable to the holders of the Series C Preferred Stock that exercised their redemption rights in accordance with this Section (the "Redeeming Holders") in proportion to the number of shares of Series C Preferred Stock to be redeemed by each Redeeming Holder. At any time on or after the date on which the Disposition Transaction is consummated, each Redeeming Holder shall be entitled to receive upon delivering to the Corporation (or its successor in interest) the certificates representing the shares to be redeemed (i) the Redemption Price with respect to such shares and (ii) if the number of shares represented by the certificates delivered by such holder exceeds the number of shares to be redeemed by it, a certificate or certificates in the name of such holder representing a number of shares of Series C Preferred Stock equal to such excess. For purposes of this Certificate:(i) the term "Disposition Transaction" means (x) a merger or consolidation of the Corporation with or into another entity or entities that results in a Change of Control (as hereinafter defined) or (y) the sale by the Corporation of at least 60% of its assets and (ii) the term "Change of Control" after a transaction means that the effect of such transaction is that the then existing stockholders of the Corporation hold less than 50% of the combined voting power of the then outstanding securities of the -8- surviving entity in such transaction ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors. Notice to holders of Series C Preferred Stock or to the Corporation shall be deemed given when delivered by hand or responsible courier or 7 days after being deposited, first class postage paid, in the United States mail, return receipt requested, properly addressed: in the case of the Corporation, at its address as it appears on the Corporation's most recent report or other communication to security holders or annual or quarterly report under the Securities Exchange Act of 1934 and, in case of a holder of Series C Preferred Stock, at such holder's address as it appears in the records of the Corporation. -9- Such resolution was signed by the Chairman and Secretary of the Corporation. Dated as of December 10, 1999 DELICIOUS BRANDS, INC. By:/s/ Thomas J. Guinan ------------------------------------- Thomas J. Guinan, President By:/s/ Jeffry W. Weiner ------------------------------------- Jeffry W. Weiner, Secretary -10- EX-3.4 5 SERIES D CERTIFICATE OF DESIGNATION DELICIOUS BRANDS, INC. CERTIFICATE OF DESIGNATION, PREFERENCES AND OTHER RIGHTS AND QUALIFICATIONS OF SERIES D PREFERRED STOCK DELICIOUS BRANDS, INC., a corporation organized and existing under the General Corporation Law of the State of Delaware (the "Corporation"), DOES HEREBY CERTIFY: FIRST: That, pursuant to authority conferred upon the Board of Directors of the Corporation (the "Board") by the Certificate of Incorporation of the Corporation, and pursuant to the provisions of Sections 151 and 241 of the Delaware General Corporation Law, there is hereby created, out of 1,000,000 shares of Preferred Stock of the Corporation, authorized in Article FOURTH of the Certificate of Incorporation (the Preferred Stock"), a series of the Preferred Stock consisting of 100,000 shares, par value $.01 per share, to be designated "Series D Convertible Preferred Stock," and to that end the Board adopted a resolution providing for the designation, preferences and relative, participating, optional or other rights, and the qualifications, limitations and restrictions, of the Series D Convertible Preferred Stock, which resolution is as follows: RESOLVED, that the Certificate of Designation, Preferences and Other Rights and Qualifications of the Series D Preferred Stock ("Certificate of Designation") be and is hereby authorized and approved, which Certificate of Designation shall be filed with the Delaware Secretary of State in the form as follows: 1. Designation and Amount. One Hundred Thousand (100,000) shares of the Preferred Stock of the Corporation, par value $.01 per share, shall constitute a class of Preferred Stock designated as "Series D Convertible Preferred Stock" (the "Series D Preferred Stock"). 2. Dividends. (a) The holders of shares of Series D Preferred Stock shall be entitled to receive dividends with respect thereto ("Preferred Dividends") if, as and when declared by the Board of Directors of the Corporation (the "Board") out of assets of the Corporation legally available for payment thereof at the rate per share of twelve percent (12%) per annum of the aggregate Stated Value (the "Aggregate Stated Value") of the Series D Preferred Stock. The "Stated Value" of each share of Series D Preferred Stock shall be $20.00. Such Preferred Dividends shall accrue semi-annually at the rate of Six Percent (6%) per six-month period of the Aggregate Stated Value from the date of issuance or the last Dividend Record Date (as hereinafter defined) and be payable to holders of record of Series D Preferred Stock on each Dividend Record Date (each May 15 and November 15 being hereinafter called a "Dividend Record Date" and each of the six-month periods, or portions thereof, ending on the last day of the preceding month, respectively, being hereinafter called a "Dividend Period") and shall be paid in cash on each May 31 and November 30 only if, when and as declared by the Board of Directors of the Corporation, out of funds legally available for that purpose, unless sooner declared by the Board of Directors. Preferred Dividends on shares of Series D Preferred Stock shall be cumulative (whether or not there shall be net profits or net assets of the Corporation legally available for the payment of such dividends), so that if at any time the Preferred Dividends upon the Series D Preferred Stock to the end of the last completed Dividend Period shall not have been paid or declared and a sum sufficient for the payment thereof set apart, the amount of the deficiency in such Preferred Dividends shall be fully paid (but without interest), or Preferred Dividends in such amounts shall have been declared on the shares of the Series D Preferred Stock and a sum sufficient for the payment thereof shall have been set apart for such payment, before any dividend shall be declared or paid or any other distribution ordered or made upon any class of stock ranking as to dividends or upon liquidation junior to the Series D Preferred Stock (other than a dividend payable in such junior stock) and before any sum or sums shall be set aside for or applied to the purchase or redemption of any shares of any class of stock ranking as to dividends or upon liquidation junior to the Series D Preferred Stock (with respect to rights to dividends and on liquidation, the Series D Preferred Stock shall rank prior to the Common Stock (as hereinafter defined)), the Preferred Dividends must be paid. All Preferred Dividends declared upon the Series D Preferred Stock shall be declared pro rata per share. Holders of shares of Series D Preferred Stock shall not be entitled to any Preferred Dividends, whether payable in cash, property or stock, in excess of the Preferred Dividends at the rate set forth above. All payments due under this Section 2 to any holder of shares of Series D Preferred Stock shall be made to the nearest cent. (b) If at any time a dividend or distribution of assets is declared and paid on the Corporation's Series C Convertible Preferred Stock, par value $.01 per share (the "Series C Preferred Stock") the Corporation shall, at the same time, declare and pay to each holder of Series D Preferred Stock a dividend with respect thereto equal to the dividend set forth in subsection (a) above. -2- 3. Rights on Liquidation In the event of any voluntary or involuntary liquidation, dissolution or winding up of the Corporation (a "Liquidation"), the assets of the Corporation available for distribution to its stockholders, whether from capital, surplus or earnings, shall be distributed as follows: (i) The holders of Series D Preferred Stock shall be entitled to receive, prior and in preference to any distribution to the holders of the Corporation's common stock, par value $.01 per share (the "Common Stock"), or any other series or class of Preferred Stock, other than the Corporation's Series C Convertible Preferred Stock (the "Series C Preferred Stock") which shall rank pari passu with the Series D Preferred Stock or Series A Convertible Preferred Stock (the "Series A Preferred Stock"), whether now existing or hereafter created, and after the payment in full of any liquidation preference of the Series A Preferred Stock, an amount equal to (A) $30.00 per share for each share of Series D Preferred Stock then outstanding plus (B) an amount equal to the declared and unpaid Preferred Dividends on the Series D Preferred Stock to the date of Liquidation. If, upon the occurrence of a Liquidation, the assets and funds available for distribution to the holders of Series D Preferred Stock are insufficient to permit the payment to such holders in full the preferential amount referred to above, then the assets and funds of the Corporation available for distribution to holders of the Series D Preferred Stock shall be distributed ratably among such holders in proportion to the preferential amount each such holder is otherwise entitled to receive. (ii) After distribution of the amounts set forth in Section 3(a)(i) hereof, the remaining assets of the Corporation available for distribution, if any, to the stockholders of the Corporation shall be distributed to the holders of issued and outstanding shares of the Corporation's Series B Convertible Stock (the "Series B Preferred Stock") and the Common Stock in accordance with the provisions of the Certificate of Designation for the Series B Preferred Stock and the Corporation's Certificate of Incorporation. 4. Voting Rights. (a) So long as any shares of Series D Preferred Stock remain outstanding, the holders of shares of Series D Preferred Stock shall be entitled to such number of votes in respect of such shares of Series D Preferred Stock as shall equal the largest whole number of shares of Common Stock into which such shares of Series D Preferred Stock are then convertible pursuant to Section 5 hereof. Except as otherwise required by law or as provided in Section 4(b), the holders of Series D Preferred Stock shall be entitled to vote on all matters on which holders of Common Stock shall be entitled to vote, voting together as one class in the same manner and with the same effect as such holders of Common Stock. -3- (b) The holders of a majority of the outstanding shares of Series D Preferred Stock shall have the right, voting separately as a class, to approve all matters adversely affecting the rights, value or ranking of the Series D Preferred Stock, including any issuance by the Corporation after the date of initial issuance of the Series D Preferred Stock (the "Series D Issuance Date") of any capital stock that is in any respect senior to or pari passu with the Series D Preferred Stock. 5. Conversion of Series D Preferred Stock. (a) The holders of Series D Preferred Stock shall each have the right, at such holder's option, at any time or from time to time, to convert each share of Series D Preferred Stock into such whole number of shares of Common Stock as is equal to the number of fully paid and non-assessable shares of Common Stock which results from multiplying the number of shares of Series D Preferred Stock to be converted by $20.00 and dividing the result by the Conversion Price per share for the Series D Preferred Stock in effect at the time of conversion. The initial Conversion Price per share of the Series D Preferred Stock shall be $2.00. The holder of any shares of Series D Preferred Stock exercising the aforesaid right to convert such shares into shares of Common Stock shall be entitled to receive, in cash, an amount equal to all declared and unpaid Preferred Dividends with respect to such shares of Series D Preferred Stock up to and including the respective conversion date of the Series D Preferred Stock. (b) Upon the affirmative vote of the holders of at least a majority of the outstanding shares of Series D Preferred Stock directing that the Series D Preferred Stock be converted to Common Stock, each share of Series D Preferred Stock then outstanding shall automatically be converted into shares of Common Stock at the Conversion Price then in effect in accordance with this Section 5. (c) Before any holder of Series D Preferred Stock shall be entitled to convert the same into shares of Common Stock pursuant to Section 5(a) hereof, and upon conversion of the Series D Preferred Stock pursuant to Section 5(b) hereof, the holder or holders of such Series D Preferred Stock shall surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Series D Preferred Stock, and shall give written notice to the Corporation at its principal corporate office of the election to convert the same (in case of conversion pursuant to Section 5(a) hereof) and the name or names in which the certificate or certificates for shares of Common Stock are to be issued. The Corporation shall, as soon as practicable thereafter, issue and deliver at such office to such holder or holders of Series D Preferred Stock, or to the nominee or nominees thereof, a certificate or certificates for the number of shares of Common Stock to which such holder or holders shall be entitled as aforesaid. Conversion under this Section 5 shall be deemed to have been made (i) with respect to conversion pursuant to Section 5(a) hereof, immediately prior to the close of business on the date of such surrender of the shares of Series D Preferred Stock to be converted, and (ii) with respect to conversion pursuant to Section 5(b) hereof, on the date of consummation of the event giving rise to the conversion, and in either case the Person or Persons entitled to receive the shares of -4- Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock as of such date. (d) The Conversion Price of the Series D Preferred Stock shall be subject to adjustment from time to time as follows: (i) In the event the Corporation should at any time or from time to time after the Series D Issuance Date fix a record date for the effectuation of a split or subdivision of the outstanding shares of Common Stock or the determination of holders of Common Stock entitled to receive a dividend or other distribution payable in additional shares of Common Stock or Common Stock equivalents without payment of any consideration by such holder for the additional shares of Common Stock or the Common Stock equivalents (including the additional shares of Common Stock issuable upon conversion or exercise thereof), then, as of such record date (or the date of such dividend distribution, split or subdivision if no record date is fixed), the Conversion Price of the Series D Preferred Stock shall be appropriately decreased so that the number of shares of Common Stock issuable upon conversion of each share of such Series D Preferred Stock shall be increased in proportion to such increase in the aggregate of shares of Common Stock outstanding and issuable with respect to such Common Stock equivalents. (ii) If the number of shares of Common Stock outstanding at any time after the Series D Issuance Date is decreased by a combination of the outstanding shares of Common Stock, then, following the record date of such combination, the Conversion Price for the Series D Preferred Stock shall be appropriately increased so that the number of shares of Common Stock issuable on conversion of each share of each series shall be decreased in proportion to such decrease in outstanding shares. (e) In the event the Corporation shall declare a distribution payable in securities of other persons, evidences of indebtedness issued by the Corporation or other persons, assets (excluding cash dividends) or options or rights not referred to in Section 5(d) hereof to the holders of Common Stock, then, in each such case for the purpose of this Section 5(e), the holders of the Series D Preferred Stock shall be entitled to a proportionate share of any such distribution as though they were the holders of the number of shares of Common Stock of the Corporation into which their shares of Series D Preferred Stock are convertible as of the record date fixed for the determination of the holders of Common Stock of the Corporation entitled to receive such distribution. (f) If at any time or from time to time there shall be a recapitalization of the Common Stock (other than a subdivision, combination or merger or sale of assets transaction provided for elsewhere in this Section 5), provision shall be made so that the holders of the Series D Preferred Stock shall thereafter be entitled to receive upon conversion of the Series D Preferred Stock the number of shares of stock or other securities or property of the Corporation or otherwise, to which a holder of Common Stock deliverable upon conversion would have been -5- entitled on such recapitalization. In any such case, appropriate adjustment shall be made in the application of the provisions of this Section 5 with respect to the rights of the holders of the Series D Preferred Stock after the recapitalization to the end that the provisions of this Section 5 (including adjustment of the Conversion Price for the Series D Preferred Stock then in effect and the number of shares issuable upon conversion of the Series D Preferred Stock) shall be applicable after that event as nearly equivalent as may be practicable. (g) The Corporation will not, by amendment of its Certificate of Incorporation or through any reorganization, recapitalization, transfer of assets, consolidation, merger, dissolution, issue or sale of securities or any other voluntary action, avoid or seek to avoid the observance or performance of any of the terms to be observed or performed hereunder by the Corporation, but will at all times in good faith assist in the carrying out of all the provisions of this Section 5 and in the taking of all such action as may be necessary or appropriate in order to protect the conversion rights of the holders of the Series D Preferred Stock against impairment. (h) If the Corporation should effect any capital reorganization or reclassification of its capital stock or merger or consolidation with any other entity or sale of all or substantially all its assets while any shares of Series D Preferred Stock are outstanding in such a manner that holders of shares of Common Stock shall be entitled to receive stock, securities or assets with respect to or in exchange for Common Stock, then, as a condition of such reorganization, reclassification, merger, consolidation or sale, lawful and adequate provision shall be made whereby each holder of Series D Preferred Stock shall thereafter have the right to receive upon the basis and upon the terms and conditions specified herein and in lieu of the shares of Common Stock immediately theretofore receivable upon conversion of Series D Preferred Stock, such shares of stock, securities or assets as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such Common Stock immediately theretofore so receivable had such reorganization, reclassification, merger, consolidation or sale not taken place, and in such case appropriate provision shall be made with respect to the rights and interests of the holders of Series D Preferred Stock to the end that the provisions hereof (including, without limitation, provisions for adjustment of the Conversion Price of the Series D Preferred Stock and of the number of shares of Common Stock issuable upon conversion thereof) shall thereafter be applicable, as nearly as may be possible, in relation to any shares of stock, securities or assets thereafter deliverable upon the conversion of such shares of Series D Preferred Stock. (i) (A) No fractional shares shall be issued upon the conversion of any share or shares of the Series D Preferred Stock, and the number of shares of Common Stock to be issued shall be rounded to the nearest whole share. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall make a cash payment equal to the Fair Market Value (as hereinafter defined) of the Common Stock as of two business days prior to payment multiplied by such fraction. "Fair Market Value" shall mean the value of the Common Stock as determined in good faith by the Board. -6- (B) Upon the occurrence of each adjustment of the Conversion Price of Series C Preferred Stock pursuant to this Section 5, the Corporation, at its expense, shall promptly compute such adjustment in accordance with the terms hereof and prepare and furnish to each holder of Series D Preferred Stock a statement, setting forth such adjustment and showing in detail the facts upon which such adjustment is based. The Corporation shall, upon the written request at any time of any holder of Series D Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustment, (ii) the Conversion Price for such Series D Preferred Stock at the time in effect, and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of a share of such Series D Preferred Stock. (j) In the event of any taking by the Corporation of a record of the holders of any class of securities for the purpose of determining the holders thereof who are entitled to receive any dividend (other than a cash dividend) or other distribution, any right to subscribe for, purchase or otherwise acquire any shares of stock of any class or any other securities or property, or to receive any other right, the Corporation shall mail to each holder of Series D Preferred Stock, at least 10 days prior to the date specified therein, a notice specifying the date on which any such record is to be taken for the purpose of such dividend, distribution or right, and the amount and character of such dividend, distribution or right. (k) The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock, solely for the purpose of effecting the conversion of the shares of the Series D Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all outstanding shares of the Series D Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Series D Preferred Stock, in addition to such other remedies as shall be available to the holder of such Series D Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purposes, including, without limitation, engaging in best efforts to obtain the requisite stockholder approval of any necessary amendment to these provisions. The Corporation shall pay all documentary, stamp or other transactional taxes attributable to the issuance or delivery of shares of capital stock of the Corporation upon conversion of any shares of Series D Preferred Stock; provided, however, that the Corporation shall not be required to pay any taxes which may be payable in respect of any transfer involved in the issuance or delivery of any certificate for such shares in a name other than that of the holder of the shares of Series D Preferred Stock in respect of which such shares are being issued. All shares of Common Stock which may be issued in connection with the conversion provisions set forth herein will, upon issuance by the Corporation, be validly issued, fully paid and nonassessable and free from all taxes, liens or charges with respect thereto. (l) Any notice required by the provisions of this Section 5 to be given to the holders of shares of Series D Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at his address appearing on the stock books of the Corporation. -7- (m) In the event any shares of Series D Preferred Stock shall be converted pursuant to Section 5 hereof, the shares so converted shall be canceled. The Certificate of Incorporation of the Corporation may be appropriately amended from time to time to effect the corresponding reduction in the Corporation's authorized capital stock. 6. Holders' Right of Redemption. The Corporation shall give the holders of Series D Preferred Stock written notice (a "Disposition Notice") of any proposed Disposition Transaction (as herein defined) at least 15 days prior to the consummation thereof. If such Disposition Transaction is consummated, each holder of Series D Preferred Stock shall have the right to require the Corporation to redeem all or any part of the shares of Series D Preferred Stock then held it, if such holder has given a written notice to the Corporation not later than 15 days after the Disposition Notice is given to it, specifying the number of shares of Series D Preferred Stock it wishes to have redeemed. Such redemption shall occur on the six-month anniversary of the consummation of the Disposition Event that gave rise to this redemption option. The price at which shares of Series D Preferred Stock shall be redeemed pursuant to this Section (the "Redemption Price") shall equal (a) $30.00 per share for each share of Series D Preferred Stock being redeemed plus (b) an amount equal to the declared and unpaid Preferred Dividends on such shares of Preferred Stock to the date of consummation of the Disposition Transaction. If the funds of the Corporation legally available to effect a redemption in accordance with this Section are insufficient to pay the aggregate Redemption Price for all shares of Series D Preferred Stock to be redeemed, the Corporation shall redeem that pro-rata portion of Series D Preferred Stock in an amount equal to the proportional Redemption Price for which it has funds legally available and shall pay such proportional Redemption Price to the holders of the Series D Preferred Stock that exercised their redemption rights in accordance with this Section (the "Redeeming Holders") in proportion to the number of shares of Series D Preferred Stock to be redeemed by each Redeeming Holder with the remaining shares of the Series D Preferred Stock to remain outstanding until the Redemption Price is paid by the Corporation for such shares of Series D Preferred Stock. At any time on or after the six-month anniversary of the date on which the Disposition Transaction is consummated, each Redeeming Holder shall be entitled to receive upon delivering to the Corporation (or its successor in interest) the certificates representing the shares to be redeemed (i) the Redemption Price with respect to such shares and (ii) if the number of shares represented by the certificates delivered by such holder exceeds the number of shares to be redeemed by it, a certificate or certificates in the name of such holder representing a number of shares of Series D Preferred Stock equal to such excess. For purposes of this Certificate:(i) the term "Disposition Transaction" means (x) a merger or consolidation of the Corporation with or into another entity or entities that results in a Change of Control (as hereinafter defined) or (y) the sale by the Corporation of at least 60% of its assets and (ii) the term "Change of Control" after a transaction means that the effect of such transaction is that the then existing stockholders of the Corporation hold less than 50% of the combined voting power of the then outstanding securities of the surviving entity in such transaction ordinarily (and apart from rights accruing under special circumstances) having the right to vote in the election of directors. Notice to holders of Series D Preferred Stock or to the Corporation shall be deemed -8- given when delivered by hand or responsible courier or 7 days after being deposited, first class postage paid, in the United States mail, return receipt requested, properly addressed: in the case of the Corporation, at its address as it appears on the Corporation's most recent report or other communication to security holders or annual or quarterly report under the Securities Exchange Act of 1934 and, in case of a holder of Series D Preferred Stock, at such holder's address as it appears in the records of the Corporation. -9- Such resolution was signed by the Chairman and Secretary of the Corporation. Dated as of March , 2000 DELICIOUS BRANDS, INC. By:/s/ Thomas J. Guinan ------------------------------------------ Thomas J. Guinan, President By:/s/ Jeffry W. Weiner ------------------------------------------ Jeffry W. Weiner, Secretary -10- EX-10.2 6 SERIES C STOCK PURCHASE AGREEMENT FORM OF STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement") made and entered as of this 7th day of January 2000, by and among DELICIOUS BRANDS, INC., a Delaware corporation (the "Company") and the purchasers set forth on Schedule A attached hereto (each a "Purchaser" and, collectively, the "Purchasers"). WITNESSETH: WHEREAS, the Company desires to issue and sell, and the Purchasers desire to purchase, all upon the terms and subject to the conditions set forth in this Agreement, shares of the Series C Convertible Preferred Stock of the Company, par value $.01 per share (the "Series C Preferred Stock"). NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements of the parties herein contained, the parties hereby agree as follows: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series C Preferred Stock. (a) A Certificate of Designation, as amended (the "Certificate"), setting forth the designation, preferences and other rights and qualifications of the Series C Preferred Stock (the "Series C Preferred Stock") in the form attached hereto as Exhibit A has been filed with the Secretary of State of the State of Delaware and the Company has authorized the issuance and sale of up to 253,663 shares of the Series C Preferred Stock (the "Shares"). (b) Subject to the terms and conditions of this Agreement, each Purchaser severally agrees to purchase at the Closing (as defined below), and the Company agrees to sell and issue to each Purchaser at the Closing, the number of shares of the Series C Preferred Stock set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto as Schedule A, at a purchase price of $20.00 per share. 1.2 Closing. (a) The First Closing. The closing of the purchase and the sale of the Shares of Series C Preferred Stock hereunder (the "Closing") shall be held at the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York 10022 at 10 a.m., local time, on the date hereof, or at such other time and place upon which the Company and the Purchasers participating in such Closing shall agree (the "First Closing Date"). (b) Subsequent Closings. One or more additional closings of the purchase and sale of the Shares of Series C Preferred Stock may occur solely at the discretion of the Company. Any such additional closing may be evidenced by the execution of an additional signature page to this Agreement by the Company and an additional Purchaser, and the inclusion of such additional Purchaser's name (along with the number of Shares such additional Purchaser is purchasing, together with the aggregate purchase price to be paid for such Shares) on the Schedule of Purchasers, without any requirement on the part of the Company to seek the consent or approval of the Purchasers. (c) General. For purposes of this Agreement, unless the context otherwise requires, the specific closing at which the sale and purchase of Shares occurs shall be referred to herein as the "Closing" for such sale and purchase. The applicable date of each such sale and purchase of Shares is referred to herein for purposes of such sale and purchase as the "Closing Date." (d) Delivery. At the Closing, the Company shall deliver to each Purchaser a certificate or certificates, registered in such Purchaser's name as set forth on the Schedule of Purchasers, representing the number of Shares designated on the Schedule of Purchasers to be purchased by such Purchaser, against payment of the purchase price therefor. The purchase price for the Shares may be paid by (i) check payable to the Company, (ii) wire transfer pursuant to the Company's instructions or (iii) cancellation of indebtedness. 2. Representations, Warranties and Covenants of the Company. The Company represents warrants and covenants to the Purchasers as follows: 2.1 Corporate Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as and in the places where such properties are now owned, operated and leased or such business is now being conducted. 2.2 Authorization. The Company has the necessary corporate power and authority to enter into this Agreement and to assume and perform its obligations hereunder. The execution and delivery of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized by the Board of Directors of the Company. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii) other laws of general application affecting the enforcement of creditors' rights generally and general principles of equity, (iii) the discretion of the court before which any proceeding therefor may be brought, and (iv) as rights to indemnity may be limited by federal or state securities laws or by public policy. -2- 2.3 Approvals and Consents. No action, approval, consent or authorization, including, but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau, or instrumentality is necessary or required as to the Company in order to constitute this Agreement as a valid, binding and enforceable obligation of the Company in accordance with its terms, except for the consent of U.S. Bancorp Republic Commercial Finance, Inc., which the Company has obtained. 3. Representations and Warranties of the Purchasers. Each of the Purchasers represents and warrants to the Company as to itself as follows: 3.1 Organization and Existence. To the extent indicated on the signature pages hereto, such Purchaser is either (i) a limited partnership duly organized and validly existing under the laws of its respective state of formation, (ii) a limited liability company duly organized and validly existing under the laws of its respective state of formation, (iii) a corporation duly organized and validly existing under the laws of its respective state of incorporation or (iv) an individual. Each Purchaser represents that it was not organized for the purpose of making an investment in the Company. 3.2 Authorization. The execution, delivery and performance of this Agreement by such Purchaser and the consummation by such Purchaser of the transactions contemplated hereby and thereby are within the powers of such Purchaser and have been duly authorized by all necessary individual, corporate, partnership or limited liability company action, as appropriate, on the part of such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and constitutes a legal, valid and binding obligation of the Purchaser enforceable against such Purchaser in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii) other laws of general application affecting the enforcement of creditors' rights generally and general principles of equity, (iii) the discretion of the court before which any proceeding therefor may be brought, and (iv) as rights to indemnity may be limited by federal or state securities laws or by public policy. 3.3 Approvals and Consents. No action, approval, consent or authorization, including, but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau, or instrumentality is necessary or required as to such Purchaser in order to constitute this Agreement as a valid, binding and enforceable obligation of such Purchaser in accordance with its terms. 3.4 Investment. Such Purchaser is acquiring the Shares being purchased by it for its own account as principal, not as a nominee or agent, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part and no other person or entity has a direct or indirect beneficial interest in such Shares. Such Purchaser does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participations to such person or entity or to any third person or entity with respect to any of such Shares. -3- 3.5 Exemption From Registration. Such Purchaser acknowledges that the offering and sale of the Shares (the "Offering") is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder ("Regulation D"). In furtherance thereof, such Purchaser represents and warrants to the Company as follows: (i) Such Purchaser realizes that the basis for the exemption may not be present if, notwithstanding any representations and/or warranties to the contrary herein contained, such Purchaser has in mind merely acquiring the Shares for a fixed or determinable period in the future; (ii) Such Purchaser has the financial ability to bear the economic risk of his investment, has adequate means for providing for its current needs and contingencies and has no need for liquidity with respect to its investment in the Company; and (iii) Such Purchaser has such knowledge and experience in financial, and business matters as to be capable of evaluating the merits and risks of an investment in the Shares. 3.6 Accredited Investor. Such Purchaser is an "accredited investor," as that term is defined in Rule 501 of Regulation D. 3.7 Available Information. Such Purchaser: (i) Has been furnished with any and all documents that may have been made available by the Company upon request of the Purchaser for a reasonable time prior to the date hereof including, but not limited to, those documents set forth on Annex A hereto; (ii) Has been provided an opportunity for a reasonable time prior to the date hereof to obtain additional information concerning the Offering, the Company and all other information to the extent the Company possesses such information or can acquire it without unreasonable effort or expense; (iii) Has been given the opportunity for a reasonable time prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the terms and conditions of the Offering and other matters pertaining to an investment in the Shares, or that which was otherwise provided in order for them to evaluate the merits and risks of a purchase of the Shares to the extent the Company possesses such information or can acquire it without unreasonable effort or expense; -4- (iv) Has not been furnished with any oral representation or oral information in connection with the Offering; and (v) Has determined that the Shares are a suitable investment for such Purchaser and that at this time such Purchaser could bear a complete loss of such investment. 3.8 Purchaser Representative. Such Purchaser is not relying on any statements or representations made by the Company or its affiliates or any purchaser representative with respect to economic considerations involved in an investment in the Shares. 3.9 Transfer Restrictions. Such Purchaser shall not sell or otherwise transfer any of the Shares without registration under the Securities Act or an exemption therefrom and such Purchaser fully understands and agrees that such Purchaser must bear the economic risk of such Purchaser's purchase because, among other reasons, the Shares have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or unless exemptions from such registration requirements are available. In particular, such Purchaser is aware that the Shares are "restricted securities," as such term is defined in Rule 144 promulgated under the Securities Act. Such Purchaser also understands that the Company is under no obligation to register the Shares on such Purchaser's behalf or to assist such Purchaser in complying with any exemption from the registration requirements of the Securities Act or applicable state securities laws. Such Purchaser further understands that sales or transfers of the Shares are further restricted by state securities laws and the provisions of this Agreement. 3.10 Entire Agreement. No representations or warranties have been made to such Purchaser by the Company, or any officer, director, employee, agent, affiliate or subsidiary of the Company other than those contained herein and in subscribing for Shares such Purchaser is not relying upon any representations other than those contained herein. 3.11 Purchaser Information. Any information that such Purchaser has heretofore furnished or is simultaneously herewith furnishing to the Company with respect to such Purchaser's financial position and business experience is correct and complete as of the date of this Agreement and, if there should be any material change in such information, such Purchaser will immediately furnish revised or corrected information to the Company. 3.12 Legends. The Purchaser understands and acknowledges that the Shares and the shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), issuable upon conversion of the Shares (the "Conversion Shares") shall bear a legend substantially as follows until (i) such securities shall have been registered under the Securities Act and effectively been disposed of in accordance with an effective registration statement thereunder; -5- or (ii) in the opinion of counsel for the Company such securities may be sold without registration under the Securities Act as well as any applicable "Blue Sky" or state securities laws: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO DELICIOUS BRANDS, INC. (THE "CORPORATION"), OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR OTHER STATE SECURITIES LAW." 3.13 Purchaser Address. The address set forth on the signature pages of this Agreement is such Purchaser's true and correct business, residence or domicile address. 3.14 Non-Marketable Investments. Such Purchaser's overall commitment to investments that are not readily marketable is not disproportionate to such Purchaser's net worth, and an investment in the Shares will not cause such overall commitment to become excessive. 3.15 Finders. Such Purchaser represents and warrants that such Purchaser has not retained any finder, broker, agent, financial advisor or other intermediary in connection with the transactions contemplated by this Agreement and agrees to indemnify and hold harmless the Company, its officers, directors, affiliates, subsidiaries, employees and agents from liability for any compensation to any such intermediary retained by such Purchaser and the fees and expenses of defending against such liability or alleged liability. 3.16 Survival. The foregoing representations, warranties and agreements shall survive the execution of this Agreement. -6- 4. Piggyback Registration. 4.1 Registration Rights. If, at any time commencing after the date hereof, the Company proposes to register any of its securities under the Securities Act (other than pursuant to Form S-8, S-4 or a comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Purchasers of its intention to do so. If any of the Purchasers notifies the Company within twenty (20) days after receipt of any such notice of its desire to include any of the Conversion Shares in such proposed registration statement, the Company shall afford such Purchaser the opportunity to have any such Conversion Shares (referred to in this Section 4 as the "Securities") registered under such registration statement. Notwithstanding the provisions of this Section 4.1, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 4.1 (irrespective of whether a written request for inclusion of any such Securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 4.2 Provisions With Respect to Registration. In connection with any registration under Section 4.1 hereof, the following provisions shall apply: (a) The Company (i) shall use its best efforts to file a registration statement within sixty (60) days of receipt of any request by a Purchaser to have its Securities included therein, (ii) shall use its best efforts to have such registration statement declared effective at the earliest possible time, and (iii) shall furnish to each Purchaser whose Securities have been included in such registration statement (each a "Participant" and, collectively, the "Participants") such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding any underwriting or selling commissions or other charges of any broker-dealer acting on behalf of a Participant), fees and expenses in connection with all registration statements filed pursuant to this Section 4, including, without limitation, the Company's legal and accounting fees, printing expenses and blue sky fees and expenses. (c) The Company will take all necessary action which may be required in qualifying or registering the Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Participants, provided that the Company shall not be obligated to (i) execute or file any general consent to service of process, (ii) qualify as a foreign corporation to do business under the laws of any such jurisdiction or (iii) subject itself to taxation in such jurisdiction. (d) The Company shall indemnify each Participant and each person, if any, who controls such Participant within the meaning of Section 15 of the Securities Act -7- or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement (excluding any loss, claim, damage, expense or liability arising from information furnished in writing by or on behalf of such Participant, or its successors or assigns, for specific inclusion in such registration statement). (e) Each Participant and its successors and assigns, shall indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising solely from the inclusion in such registration statement of information furnished in writing by or on behalf of such Participant, or its successors or assigns, specifically for use in such registration statement; provided that each Participant's liability hereunder shall not exceed the net proceeds of the sale of Securities by such Participant pursuant to such registration statement. (f) Nothing contained in this Agreement shall be construed as requiring a Purchaser to convert its Shares prior to the initial filing of any registration statement or the effectiveness thereof. (g) In the case of an underwritten offering pursuant to Section 4.1, if the managing underwriter with respect to such offering requests in writing that the number of the Company's securities to be offered by selling security holders in the registration be reduced because, in the judgment of the managing underwriter, the proposed offering would be materially and adversely affected, then such securities shall be reduced by such amount as the managing underwriter may determine in writing so as to not materially and adversely affect the proposed offering, which reduced number of securities shall be included in the offering, selected, first, from any persons or entities participating in such offering pursuant to demand registration rights and, next, to the extent available, among the other selling security holders participating in such offering, as nearly as possible pro rata, on the basis of the number of the Company's securities so requested by each holder thereof to be included therein. (h) Each Participant, if, as and when its Securities are covered by a registration statement filed pursuant to this Section 4, agrees if and to the extent requested by the managing underwriter, in the case of an underwritten sale of its Securities (to the extent timely notified in writing by the Company or the managing underwriter), not to effect any public sale or distribution of its Securities included in such registration statement, including a sale pursuant to Rule 144 (or any similar rule then in force) under the Act, except as part of such underwritten registration, during the 30-day period prior to, and a period of up to 180 days (as determined by the managing -8- underwriter) beginning on, the effective date of any underwritten sale of its Securities made pursuant to such registration statement. 5. General Provisions. 5.1 Entire Agreement; Amendment and Waiver. This Agreement and that certain letter agreement dated February 5, 2000 constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior oral or written agreements, if any, between the parties hereto with respect to such subject matter and, except as otherwise expressly provided herein, is not intended to confer upon any other person any rights or remedies hereunder. Any amendments hereto or modifications hereof must be made in writing and executed by each of the parties hereto. Any failure by the Company or the Purchasers to enforce any rights hereunder shall not be deemed a waiver of such rights. 5.2 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified, (ii) four (4) days after deposit with the United States Post Office, by registered or certified mail, postage prepaid, or (iii) one day after deposit with a reputable overnight courier service and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties, with a copy (which shall not constitute notice) for the Company to Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York 10022-1170, Attention: Steven Wolosky, Esq. 5.3 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to conflict of laws principles. 5.4 Binding Effect; Assignment. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Company and the Purchasers and each of their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties hereto. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 5.5 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 5.6 Headings. The headings or captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. -9- 5.7 Pronouns. Whenever the pronouns "it" or "its" are used herein, they shall also be deemed to mean "he" or "his" or "she" or "hers" whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. 5.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by virtue of any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the maximum extent possible. 5.9 Information Confidential. Each Purchaser acknowledges that the information received by it pursuant hereto may be confidential and is for such Purchaser's use only. Such Purchaser agrees that it will not use such information in violation of the Exchange Act, or reproduce, disclose or disseminate such information to any other person , unless the Company has made such information available to the public generally. 5.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. [Remainder of this page intentionally left blank] -10- [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: DELICIOUS BRANDS, INC. By: ----------------------------------------- Name: Title: Address: PURCHASERS: By: ----------------------------------------- Name: Title: Address: -11- EX-10.3 7 STOCK PURCHASE AGREEMENT FORM OF STOCK PURCHASE AGREEMENT STOCK PURCHASE AGREEMENT (this "Agreement") made and entered as of this 3rd day of March, 2000, by and among DELICIOUS BRANDS, INC., a Delaware corporation (the "Company") and the purchasers set forth on Schedule A attached hereto (each a "Purchaser" and, collectively, the "Purchasers"). WITNESSETH: WHEREAS, the Company desires to issue and sell, and the Purchasers desire to purchase, all upon the terms and subject to the conditions set forth in this Agreement, shares of the Series D Convertible Preferred Stock of the Company, par value $.01 per share (the "Series D Preferred Stock"). NOW, THEREFORE, in consideration of the premises and of the mutual covenants and agreements of the parties herein contained, the parties hereby agree as follows: 1. Purchase and Sale of Stock. 1.1 Sale and Issuance of Series D Preferred Stock. (a) A Certificate of Designation (the "Certificate"), setting forth the designation, preferences and other rights and qualifications of the Series D Preferred Stock (the "Series D Preferred Stock") in the form attached hereto as Exhibit A has been filed with the Secretary of State of the State of Delaware and the Company has authorized the issuance and sale of up to 100,000 shares of the Series D Preferred Stock (the "Shares"). (b) Subject to the terms and conditions of this Agreement, each Purchaser severally agrees to purchase at the Closing (as defined below), and the Company agrees to sell and issue to each Purchaser at the Closing, the number of shares of the Series D Preferred Stock set forth opposite such Purchaser's name on the Schedule of Purchasers attached hereto as Schedule A, at a purchase price of $20.00 per share. 1.2 Closing. (a) The First Closing. The closing of the purchase and the sale of the Shares of Series D Preferred Stock hereunder (the "Closing") shall be held at the offices of Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York 10022 at 10 a.m., local time, on the date hereof, or at such other time and place upon which the Company and the Purchasers participating in such Closing shall agree (the "First Closing Date"). (b) Subsequent Closings. One or more additional closings of the purchase and sale of the Shares of Series D Preferred Stock may occur solely at the discretion of the Company. Any such additional closing may be evidenced by the execution of an additional signature page to this Agreement by the Company and an additional Purchaser, and the inclusion of such additional Purchaser's name (along with the number of Shares such additional Purchaser is purchasing, together with the aggregate purchase price to be paid for such Shares) on the Schedule of Purchasers, without any requirement on the part of the Company to seek the consent or approval of the Purchasers. (c) General. For purposes of this Agreement, unless the context otherwise requires, the specific closing at which the sale and purchase of Shares occurs shall be referred to herein as the "Closing" for such sale and purchase. The applicable date of each such sale and purchase of Shares is referred to herein for purposes of such sale and purchase as the "Closing Date." (d) Delivery. At the Closing, the Company shall deliver to each Purchaser a certificate or certificates, registered in such Purchaser's name as set forth on the Schedule of Purchasers, representing the number of Shares designated on the Schedule of Purchasers to be purchased by such Purchaser, against payment of the purchase price therefor. The purchase price for the Shares may be paid by (i) check payable to the Company, (ii) wire transfer pursuant to the Company's instructions or (iii) any combination of the foregoing. 2. Representations, Warranties and Covenants of the Company. The Company represents warrants and covenants to the Purchasers as follows: 2.1 Corporate Organization. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware, and has all requisite corporate power and authority to own, operate and lease its properties and to carry on its business as and in the places where such properties are now owned, operated and leased or such business is now being conducted. 2.2 Authorization. The Company has the necessary corporate power and authority to enter into this Agreement and to assume and perform its obligations hereunder. The execution and delivery of this Agreement and the performance by the Company of its obligations hereunder have been duly authorized by the Board of Directors of the Company. This Agreement has been duly executed and delivered by the Company and constitutes a legal, valid and binding obligation of the Company enforceable against it in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii) other laws of general application affecting the enforcement of creditors' rights generally and general principles of equity, (iii) the discretion of the court before which any proceeding therefor may be brought, and (iv) as rights to indemnity may be limited by federal or state securities laws or by public policy. -2- 2.3 Approvals and Consents. No action, approval, consent or authorization, including, but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau, or instrumentality is necessary or required as to the Company in order to constitute this Agreement as a valid, binding and enforceable obligation of the Company in accordance with its terms, except for the consent of U.S. Bancorp Republic Commercial Finance, Inc., which the Company has obtained. 2.4 Commissions; Use of Proceeds. Icahn Associates Corp. will earn a 3% fee on the gross proceeds of this transaction and Network 1 Financial Securities, Inc. ("Network 1") will earn a 10% fee on the gross proceeds of all sales of Shares by the Company to Network 1's clients for which Network 1 acts as placement agent on this transaction. The commissions shall be paid in cash, except such commission may be deferred at the recipients' sole discretion. The net proceeds received by the Company from this transaction will be used for general corporate purposes, including capital expenditures, product development, marketing and sales and working capital and to establish a working capital reserve in connection with a potential sale of substantially all of the assets of the Company at the request of a potential purchaser against unanticipated expenses which may arise prior to the potential closing. The proceeds allocated to general corporate purposes may be utilized in the discretion of the Board of Directors of the Company. 3. Representations and Warranties of the Purchasers. Each of the Purchasers represents and warrants to the Company as to itself as follows: 3.1 Organization and Existence. To the extent indicated on the signature pages hereto, such Purchaser is either (i) a limited partnership duly organized and validly existing under the laws of its respective state of formation, (ii) a limited liability company duly organized and validly existing under the laws of its respective state of formation, (iii) a corporation duly organized and validly existing under the laws of its respective state of incorporation or (iv) an individual. Each Purchaser represents that it was not organized for the purpose of making an investment in the Company. 3.2 Authorization. The execution, delivery and performance of this Agreement by such Purchaser and the consummation by such Purchaser of the transactions contemplated hereby and thereby are within the powers of such Purchaser and have been duly authorized by all necessary individual, corporate, partnership or limited liability company action, as appropriate, on the part of such Purchaser. This Agreement has been duly executed and delivered by such Purchaser and constitutes a legal, valid and binding obligation of the Purchaser enforceable against such Purchaser in accordance with its terms, subject to (i) applicable bankruptcy, insolvency, reorganization and moratorium laws, (ii) other laws of general application affecting the enforcement of creditors' rights generally and general principles of equity, (iii) the discretion of the court before which any proceeding therefor may be brought, and (iv) as rights to indemnity may be limited by federal or state securities laws or by public policy. -3- 3.3 Approvals and Consents. No action, approval, consent or authorization, including, but not limited to, any action, approval, consent or authorization by any governmental or quasi-governmental agency, commission, board, bureau, or instrumentality is necessary or required as to such Purchaser in order to constitute this Agreement as a valid, binding and enforceable obligation of such Purchaser in accordance with its terms. 3.4 Investment. Such Purchaser is acquiring the Shares being purchased by it for its own account as principal, not as a nominee or agent, for investment purposes only, and not with a view to, or for, resale, distribution or fractionalization thereof in whole or in part and no other person or entity has a direct or indirect beneficial interest in such Shares. Such Purchaser does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participations to such person or entity or to any third person or entity with respect to any of such Shares. 3.5 Exemption From Registration. Such Purchaser acknowledges that the offering and sale of the Shares (the "Offering") is intended to be exempt from registration under the Securities Act of 1933, as amended (the "Securities Act"), by virtue of Section 4(2) of the Securities Act and the provisions of Regulation D promulgated thereunder ("Regulation D"). In furtherance thereof, such Purchaser represents and warrants to the Company as follows: (i) Such Purchaser realizes that the basis for the exemption may not be present if, notwithstanding any representations and/or warranties to the contrary herein contained, such Purchaser has in mind merely acquiring the Shares for a fixed or determinable period in the future; (ii) Such Purchaser has the financial ability to bear the economic risk of his investment, has adequate means for providing for its current needs and contingencies and has no need for liquidity with respect to its investment in the Company; and (iii) Such Purchaser has such knowledge and experience in financial, and business matters as to be capable of evaluating the merits and risks of an investment in the Shares. 3.6 Accredited Investor. Such Purchaser is an "accredited investor," as that term is defined in Rule 501 of Regulation D. 3.7 Available Information. Such Purchaser: (i) Has been furnished with any and all documents that may have been made available by the Company upon request of the Purchaser for a reasonable time prior to the date hereof including, but not limited to, those documents set forth on Annex A hereto; -4- (ii) Has been provided an opportunity for a reasonable time prior to the date hereof to obtain additional information concerning the Offering, the Company and all other information to the extent the Company possesses such information or can acquire it without unreasonable effort or expense; (iii) Has been given the opportunity for a reasonable time prior to the date hereof to ask questions of, and receive answers from, the Company or its representatives concerning the terms and conditions of the Offering and other matters pertaining to an investment in the Shares, or that which was otherwise provided in order for them to evaluate the merits and risks of a purchase of the Shares to the extent the Company possesses such information or can acquire it without unreasonable effort or expense; (iv) Has not been furnished with any oral representation or oral information in connection with the Offering; and (v) Has determined that the Shares are a suitable investment for such Purchaser and that at this time such Purchaser could bear a complete loss of such investment. 3.8 Purchaser Representative. Such Purchaser is not relying on any statements or representations made by the Company or its affiliates or any purchaser representative with respect to economic considerations involved in an investment in the Shares. 3.9 Transfer Restrictions. Such Purchaser shall not sell or otherwise transfer any of the Shares without registration under the Securities Act or an exemption therefrom and such Purchaser fully understands and agrees that such Purchaser must bear the economic risk of such Purchaser's purchase because, among other reasons, the Shares have not been registered under the Securities Act or under the securities laws of any state and, therefore, cannot be resold, pledged, assigned or otherwise disposed of unless they are subsequently registered under the Securities Act and under the applicable securities laws of such states, or unless exemptions from such registration requirements are available. In particular, such Purchaser is aware that the Shares are "restricted securities," as such term is defined in Rule 144 promulgated under the Securities Act. Such Purchaser also understands that the Company is under no obligation to register the Shares on such Purchaser's behalf or to assist such Purchaser in complying with any exemption from the registration requirements of the Securities Act or applicable state securities laws. Such Purchaser further understands that sales or transfers of the Shares are further restricted by state securities laws and the provisions of this Agreement. 3.10 Entire Agreement. No representations or warranties have been made to such Purchaser by the Company, or any officer, director, employee, agent, affiliate or subsidiary -5- of the Company other than those contained herein, and in subscribing for Shares such Purchaser is not relying upon any representations other than those contained herein. 3.11 Purchaser Information. Any information that such Purchaser has heretofore furnished or is simultaneously herewith furnishing to the Company with respect to such Purchaser's financial position and business experience is correct and complete as of the date of this Agreement and, if there should be any material change in such information, such Purchaser will immediately furnish revised or corrected information to the Company. 3.12 Legends. The Purchaser understands and acknowledges that the Shares and the shares of the Company's Common Stock, par value $.01 per share ("Common Stock"), issuable upon conversion of the Shares (the "Conversion Shares") shall bear a legend substantially as follows until (i) such securities shall have been registered under the Securities Act and effectively been disposed of in accordance with an effective registration statement thereunder; or (ii) in the opinion of counsel for the Company such securities may be sold without registration under the Securities Act as well as any applicable "Blue Sky" or state securities laws: "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), AND THEY MAY NOT BE OFFERED, SOLD, PLEDGED, HYPOTHECATED, ASSIGNED OR TRANSFERRED EXCEPT (i) PURSUANT TO A REGISTRATION STATEMENT UNDER THE SECURITIES ACT WHICH HAS BECOME EFFECTIVE AND IS CURRENT WITH RESPECT TO THESE SECURITIES, OR (ii) PURSUANT TO A SPECIFIC EXEMPTION FROM REGISTRATION UNDER THE SECURITIES ACT BUT ONLY UPON A HOLDER HEREOF FIRST HAVING OBTAINED THE WRITTEN OPINION OF COUNSEL TO DELICIOUS BRANDS, INC. (THE "CORPORATION"), OR OTHER COUNSEL REASONABLY ACCEPTABLE TO THE CORPORATION, THAT THE PROPOSED DISPOSITION IS CONSISTENT WITH ALL APPLICABLE PROVISIONS OF THE SECURITIES ACT AS WELL AS ANY APPLICABLE "BLUE SKY" OR OTHER STATE SECURITIES LAW." 3.13 Purchaser Address. The address set forth on the signature pages of this Agreement is such Purchaser's true and correct business, residence or domicile address. 3.14 Non-Marketable Investments. Such Purchaser's overall commitment to investments that are not readily marketable is not disproportionate to such Purchaser's net worth, and an investment in the Shares will not cause such overall commitment to become excessive. -6- 3.15 Finders. Such Purchaser represents and warrants that such Purchaser has not retained any finder, broker, agent, financial advisor or other intermediary in connection with the transactions contemplated by this Agreement and agrees to indemnify and hold harmless the Company, its officers, directors, affiliates, subsidiaries, employees and agents from liability for any compensation to any such intermediary retained by such Purchaser and the fees and expenses of defending against such liability or alleged liability. 3.16 Survival. The foregoing representations, warranties and agreements shall survive the execution of this Agreement. 4. Piggyback Registration. 4.1 Registration Rights. If, at any time commencing after the date hereof, the Company proposes to register any of its securities under the Securities Act (other than pursuant to Form S-8, S-4 or a comparable registration statement) it will give written notice by registered mail, at least thirty (30) days prior to the filing of each such registration statement, to the Purchasers of its intention to do so. If any of the Purchasers notifies the Company within twenty (20) days after receipt of any such notice of its desire to include any of the Conversion Shares in such proposed registration statement, the Company shall afford such Purchaser the opportunity to have any such Conversion Shares (referred to in this Section 4 as the "Securities") registered under such registration statement. Notwithstanding the provisions of this Section 4.1, the Company shall have the right at any time after it shall have given written notice pursuant to this Section 4.1 (irrespective of whether a written request for inclusion of any such Securities shall have been made) to elect not to file any such proposed registration statement, or to withdraw the same after the filing but prior to the effective date thereof. 4.2 Provisions With Respect to Registration. In connection with any registration under Section 4.1 hereof, the following provisions shall apply: (a) The Company (i) shall use its best efforts to file a registration statement within sixty (60) days of receipt of any request by a Purchaser to have its Securities included therein, (ii) shall use its best efforts to have such registration statement declared effective at the earliest possible time, and (iii) shall furnish to each Purchaser whose Securities have been included in such registration statement (each a "Participant" and, collectively, the "Participants") such number of prospectuses as shall reasonably be requested. (b) The Company shall pay all costs (excluding any underwriting or selling commissions or other charges of any broker-dealer acting on behalf of a Participant), fees and expenses in connection with all registration statements filed pursuant to this Section 4, including, without limitation, the Company's legal and accounting fees, printing expenses and blue sky fees and expenses. -7- (c) The Company will take all necessary action which may be required in qualifying or registering the Securities included in a registration statement for offering and sale under the securities or blue sky laws of such states as reasonably are requested by the Participants, provided that the Company shall not be obligated to (i) execute or file any general consent to service of process, (ii) qualify as a foreign corporation to do business under the laws of any such jurisdiction or (iii) subject itself to taxation in such jurisdiction. (d) The Company shall indemnify each Participant and each person, if any, who controls such Participant within the meaning of Section 15 of the Securities Act or Section 20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), against all loss, claim, damage, expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which any of them may become subject under the Securities Act, the Exchange Act or otherwise, arising from such registration statement (excluding any loss, claim, damage, expense or liability arising from information furnished in writing by or on behalf of such Participant, or its successors or assigns, for specific inclusion in such registration statement). (e) Each Participant and its successors and assigns, shall indemnify the Company, its officers and directors and each person, if any, who controls the Company within the meaning of Section 15 of the Securities Act or Section 20(a) of the Exchange Act, against all loss, claim, damage or expense or liability (including all expenses reasonably incurred in investigating, preparing or defending against any claim whatsoever) to which they may become subject under the Securities Act, the Exchange Act or otherwise, arising solely from the inclusion in such registration statement of information furnished in writing by or on behalf of such Participant, or its successors or assigns, specifically for use in such registration statement; provided that each Participant's liability hereunder shall not exceed the net proceeds of the sale of Securities by such Participant pursuant to such registration statement. (f) Nothing contained in this Agreement shall be construed as requiring a Purchaser to convert its Shares prior to the initial filing of any registration statement or the effectiveness thereof. (g) In the case of an underwritten offering pursuant to Section 4.1, if the managing underwriter with respect to such offering requests in writing that the number of the Company's securities to be offered by selling security holders in the registration be reduced because, in the judgment of the managing underwriter, the proposed offering would be materially and adversely affected, then such securities shall be reduced by such amount as the managing underwriter may determine in writing so as to not materially and adversely affect the proposed offering, which reduced number of securities shall be included in the offering, selected, first, from any persons or entities participating in such offering pursuant to demand registration rights and, next, to the extent available, among the other selling security holders participating in such offering, as -8- nearly as possible pro rata, on the basis of the number of the Company's securities so requested by each holder thereof to be included therein. (h) Each Participant, if, as and when its Securities are covered by a registration statement filed pursuant to this Section 4, agrees if and to the extent requested by the managing underwriter, in the case of an underwritten sale of its Securities (to the extent timely notified in writing by the Company or the managing underwriter), not to effect any public sale or distribution of its Securities included in such registration statement, including a sale pursuant to Rule 144 (or any similar rule then in force) under the Act, except as part of such underwritten registration, during the 30-day period prior to, and a period of up to 180 days (as determined by the managing underwriter) beginning on, the effective date of any underwritten sale of its Securities made pursuant to such registration statement. 5. Consent. Each Purchaser hereby consents to the increase of the authorized shares for issuance of the Series D Preferred Stock, par value $.01 from 100,000 shares to 150,000 shares, provided that, a majority of the Board of Directors of the Company at such later date deems such increase necessary in the Board of Directors' business judgment and the Board of Directors approves such increase. 6. General Provisions. 6.1 Entire Agreement; Amendment and Waiver. This Agreement constitutes the entire agreement between the parties hereto with respect to the subject matter contained herein and supersedes all prior oral or written agreements, if any, between the parties hereto with respect to such subject matter and, except as otherwise expressly provided herein, is not intended to confer upon any other person any rights or remedies hereunder. Any amendments hereto or modifications hereof must be made in writing and executed by each of the parties hereto. Any failure by the Company or the Purchasers to enforce any rights hereunder shall not be deemed a waiver of such rights. 6.2 Notices. Unless otherwise provided, any notice required or permitted under this Agreement shall be given in writing and shall be deemed effectively given (i) upon personal delivery to the party to be notified, (ii) four (4) days after deposit with the United States Post Office, by registered or certified mail, postage prepaid, or (iii) one day after deposit with a reputable overnight courier service and addressed to the party to be notified at the address indicated for such party on the signature page hereof, or at such other address as such party may designate by ten (10) days' advance written notice to the other parties, with a copy (which shall not constitute notice) for the Company to Olshan Grundman Frome Rosenzweig & Wolosky LLP, 505 Park Avenue, New York, New York 10022-1170, Attention: Steve Wolosky, Esq. 6.3 Governing Law. This Agreement shall be governed by, and construed in accordance with, the laws of the State of New York without giving effect to conflict of laws principles. -9- 6.4 Binding Effect; Assignment. This Agreement and the various rights and obligations arising hereunder shall inure to the benefit of and be binding upon the Company and the Purchasers and each of their respective successors and assigns. Neither this Agreement nor any of the rights, interests or obligations hereunder shall be transferred or assigned (by operation of law or otherwise) by any of the parties hereto without the prior written consent of the other parties hereto. Any transfer or assignment of any of the rights, interests or obligations hereunder in violation of the terms hereof shall be void and of no force or effect. 6.5 Expenses. All costs and expenses incurred in connection with this Agreement and the transactions contemplated hereby shall be paid by the party incurring such costs and expenses. 6.6 Headings. The headings or captions contained in this Agreement are for reference purposes only and shall not affect in any way the meaning or interpretation of this Agreement. 6.7 Pronouns. Whenever the pronouns "it" or "its" are used herein, they shall also be deemed to mean "he" or "his" or "she" or "hers" whenever applicable. Words in the singular shall be read and construed as though in the plural and words in the plural shall be read and construed as though in the singular in all cases where they would so apply. 6.8 Severability. If any term or other provision of this Agreement is invalid, illegal or incapable of being enforced by virtue of any rule of law, or public policy, all other conditions and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner to the end that the transactions contemplated hereby are fulfilled to the maximum extent possible. 6.9 Information Confidential. Each Purchaser acknowledges that the information received by it pursuant hereto may be confidential and is for such Purchaser's use only. Such Purchaser agrees that it will not use such information in violation of the Exchange Act, or reproduce, disclose or disseminate such information to any other person , unless the Company has made such information available to the public generally. 6.10 Counterparts. This Agreement may be executed in one or more counterparts, each of which shall be deemed an original, but all of which taken together shall constitute one and the same instrument. [Remainder of this page intentionally left blank] -10- [SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT] IN WITNESS WHEREOF, the parties have executed this Agreement as of the date first above written. COMPANY: DELICIOUS BRANDS, INC. By: ------------------------------------------ Name: Title: Address: PURCHASERS: --------------------------------------------- Name: Address: --------------------------------------------- Name: Address: -11- EX-10.6 8 ASSET PURCHASE AGREEMENT 4 ASSET PURCHASE AGREEMENT By and Between Delicious Brands, Inc., and BF USB Inc. THIS ASSET PURCHASE AGREEMENT (this "Agreement"), dated as of April 5, 2000, is by and between BF USB Inc., a Delaware corporation ("Purchaser"), and Delicious Brands, Inc., a Delaware corporation ("Seller"). Seller and Purchaser may hereinafter be referred to collectively as "Parties" and individually as a "Party". WHEREAS, the Parties wish to provide for the terms and conditions upon which Purchaser will acquire substantially all of the assets of Seller. WHEREAS, the Parties wish to make certain representations, warranties, covenants and agreements in connection with the purchase of the assets and also to prescribe various terms and conditions to such transaction. NOW THEREFORE, in consideration of the mutual covenants and promises contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the Parties hereby agree as follows: Section 1 Premises, Exhibits and Schedules The premises, Exhibits and Schedules hereto constitute an integral and substantive part of this Agreement. Section 2 Definitions 2.1 Certain Defined Terms. As used in this Agreement, the term: (a) "AAA" shall have the meaning set forth in Section 11(l). (b) "Agreement" shall have the meaning set forth in the preamble. (c) "Allocation Certificate" shall have the meaning set forth in Section 3(e). (d) "Antitrust Division" shall have the meaning set forth in Section 6(f). (e) "Appointing Authority" shall have the meaning set forth in Section 11(l). (f) "Assigned Contracts" shall have the meaning set forth in Exhibit 3(a)(ii). (g) "Assumed Liabilities" shall have the meaning set forth in the Liability Undertaking. (h) "Auditor" shall have the meaning set forth in Section 3(c). (i) "Audited Closing Balance Sheet" shall have the meaning set forth in Section 3(c). (j) "Authority" and "Authorities" shall have the meanings set forth in Section 4(e). (k) "Bank" shall have the meaning set forth in Section 6(o). (l) "Bank Extension" shall have the meaning set forth in Section 6(o). (m) "Basket Amount" shall have the meaning set forth in Section 10(f). (n) "Benefit Arrangement" shall have the meaning set forth in Section 4(r)(iv). (o) "Benefit Plans" shall have the meaning set forth in Section 4(r)(xii). (p) "Break-up Fee" shall have the meaning set forth in Section 6(c)(ii). (q) "Business Day" shall mean a day, other than a Saturday or a Sunday, on which commercial banks are not closed in New York City, U.S.A. and in the City of Parma, Italy. (r) "Closing" shall have the meaning set forth in Section 3(d). (s) "Closing Date" shall have the meaning set forth in Section 3(d). (t) "Closing Working Capital Balance Adjustment" shall have the meaning set forth in Section 3(c). (u) "Closing Working Capital Balance/(Deficit)" shall have the meaning set forth in Section 3(c). (v) "COBRA" shall have the meaning set forth in Section 4(r)(xii). (w) "Code" shall have the meaning set forth in Section 4(r)(i). (x) "Consent" and "Consents" shall have the meaning set forth in Section 4(f). (y) "Disclose" shall have the meaning set forth in Section 6(e). (z) "Disclosure Schedule" shall have the meaning set forth in Section 4(a). (aa) "DOL" shall have the meaning set forth in Section 4(r)(i)(B). (bb) "Dollars" and "$" shall mean lawful money of the United States of America. (cc) "ERISA" shall have the meaning set forth in Section 4(r)(i). (dd) "Escrow Account" shall have the meaning set forth in Section 3 of the Escrow Agreement. (ee) "Escrow Agent" shall have the meaning ascribed thereto in the preamble of the Escrow Agreement. (ff) "Escrow Agreement" shall mean the escrow agreement substantially in the form of Exhibit 7(g) hereto and to be delivered by the parties at Closing pursuant to this Agreement. (gg) "Escrow Amount" shall have the meaning set forth in Section 3(b)(A)(ii). (hh) "Estimated Closing Working Capital Balance/(Deficit)" shall have the meaning set forth in Section 3 (c). (ii) "Excluded Assets" shall have the meaning set forth in Section 3(a)(iv). (jj) "FTC" shall have the meaning set forth in Section 6(f). (kk) "GAAP" and "general accepted accounting principles" shall have the meaning set forth in Section 2.2. (ll) "Hazardous Material" shall have the meaning set forth in Section 4(z)(i). 2 (mm) "HSR Act" shall have the meaning set forth in Section 3(d). (nn) "Indemnified Party" shall have the meaning set forth in Section 10(g). (oo) "Indemnifying Party" shall have the meaning set forth in Section 10(g). (pp) "Independent Accountants" shall have the meaning set forth in Section 3(c). (qq) "Information" shall have the meaning set forth in Section 6(e). (rr) "IP Assignments" shall have the meaning set forth in Section 3(a)(iii). (ss) "Intellectual Property Rights" shall have the meaning set forth in Section 4(n). (tt) "Latest Balance Sheet" shall have the meaning set forth in Section 4(g). (uu) "Law" and "Laws" shall have the meaning set forth in Section 4(e). (vv) "Liability Undertaking" shall have the meaning set forth in Section 3(b)(B). (ww) "Lien" shall mean any restriction on personal or real property of any kind, including without limitation, any mortgage, pledge, lien, hypothecation, security interest, encumbrance, claim of any kind, easement, right-of-way, tenancy, covenant, encroachment, restriction or charge of any kind or nature (whether or not of record). (xx) "Loss Contingency" shall have the meaning set forth in Section 4(h). (yy) "New Name" shall have the meaning set forth in Section 7(j). (zz) "Party" or "Parties" shall have the meaning set forth in the preamble. (aaa) "Payoff Schedule" shall have the meaning set forth in Section 6(q). (bbb) "PBGC" shall have the meaning set forth in Section 4(r)(i)(B). (ccc) "Pension Plan" shall have the meaning set forth in Section 4(r)(i). (ddd) "Permitted Liens" shall have the meaning set forth in Section 3(a). (eee) "Properties" shall have the meaning set forth in Section 4(z)(i). (fff) "Purchase Price" shall have the meaning set forth in Section 3(b)(A). (ggg) "Purchaser" shall mean BF USB Inc. or any other entity that: (A) (x) owns or controls BF USB Inc.; (y) BF USB Inc. owns or controls; or (z) is owned and controlled by the same parent company or companies or the same ultimate beneficial owner as BF USB Inc., and (B) to which BF USB Inc. may have assigned this Agreement as of the Closing. (hhh) "Reserve Escrow Agreement" shall have the meaning set forth in Section 6(n). (iii) "Seller" shall mean Delicious Brands, Inc. (jjj) "Seller's Assets" shall have the meaning set forth in Section 3(a). (kkk) "Seller Capital Stock" shall have the meaning set forth in Section 4(c). (lll) "Special Reserve Fund" shall have the meaning set forth in Section 6(n). (mmm) "Subsidiary" and "Subsidiaries" shall have the meaning set forth in Section 4(b). (nnn) "Tax Returns" shall have the meaning set forth in Section 4(p). 3 (ooo) "Third Party" shall have the meaning set forth in Section 6(c)(i)(A). (ppp) "Termination Date" shall have the meaning set forth in Section 3(d). (qqq) "Treasury" shall have the meaning set forth in Section 4(r)(i)(B). (rrr) "Transferred Employees" shall have the meaning set forth in Section 6(l)(i). (sss) "Welfare Plan" shall have the meaning set forth in Section 4(r)(iii). (ttt) "Worth Agreements" shall have the meaning set forth in Section 6(p)(ii). 2.2 Accounting Terms and Determinations. All references in this Agreement to "generally accepted accounting principles" or "GAAP" shall mean generally accepted accounting principles in effect in the United States of America at the time of application thereof. Unless otherwise specified herein, all accounting terms used herein shall be interpreted, all determinations with respect to accounting matters hereunder shall be made, and all financial statements and certificates and reports as to financial matters required to be furnished hereunder shall be prepared, in accordance with generally accepted accounting principles, applied on a consistent basis. Section 3 Purchase of Assets (a) Assets to be Purchased. Upon the terms and subject to the conditions set forth in this Agreement (other than such conditions as shall have been waived in accordance with the terms hereof), Seller shall sell, transfer, convey, assign and deliver to Purchaser, and Purchaser shall purchase from Seller, at the Closing hereunder, all of the assets, properties, goodwill and rights of Seller, as a going concern, of every nature, kind and description, tangible and intangible, wheresoever located and whether or not carried or reflected on the books and records of Seller (hereinafter sometimes collectively referred to as "Seller's Assets"), including without limitation (i) the right to use the names and all variations thereof listed on Exhibit 3(a)(i) hereto; (ii) the assets referred to in the form(s) of Bill (or Bills) of Sale listed on Exhibit 3(a)(ii) hereto; (iii) the trademarks, licenses, and other Intellectual Property Rights set forth in the assignment and transfer documents set forth in Exhibit 3(a)(iii) (the "IP Assignments"); and (iv) the assets reflected on the Latest Balance Sheet, with only such dispositions of such assets as shall have occurred in the ordinary course of Seller's business between December 31, 1999 and the Closing and which are permitted by the terms hereof; and excluding only (x) the minute books, corporate seal and stock records of Seller, and (y) the assets specifically set forth on Exhibit 3(a)(iv) hereto (the assets referred to in Sections 3(a)(iv)(x) and (y), hereinafter, collectively, the "Excluded Assets"). All real property assets and fixtures included among Seller's Assets shall be conveyed free and clear of any Lien, except for those Liens described on Exhibit 3(a) hereto (the "Permitted Liens"). All machinery, equipment, vehicles and other personal property, including without limitation inventories, accounts and notes receivable, trade notes, trade accounts and Intellectual Property Rights, shall be conveyed free and clear of any Liens except for the Permitted Liens. Purchaser shall not assume any liabilities of Seller whether or not associated with Seller's Assets or in any other way associated with Seller or any of its businesses except as specifically set forth in the Liability Undertaking set forth in Exhibit 3(b)(B). (b) Purchase Price. Upon the terms and subject to the conditions set forth in this Agreement, in consideration for Seller's Assets and the covenants contained herein (including, without limitation, the restrictive covenants set forth in the Noncompetition and Confidentiality Agreement of the Seller and the covenant to procure the other Noncompetition and Confidentiality 4 Agreements set forth on Exhibit 7(h)) and in full payment thereof, at Closing, Purchaser shall: (A) pay to Seller a total purchase price of Twenty Six Million Six Hundred Eighty Thousand Dollars ($26,680,000) (the "Purchase Price") as follows: (i) By federal wire transfer of immediately available funds to the account(s) designated by Seller (including pursuant to Section 6(q)(i)(z)) by written notice to be delivered to Purchaser at least five (5) Business Days prior to Closing, the sum of the Purchase Price, less (1) (x) the amount of One Million Seven Hundred Thousand Dollars ($1,700,000) representing the agreed upon working capital adjustment, plus or less (as the case may be), (y) the Estimated Closing Working Capital Balance/(Deficit) pursuant to Section 3(c); and less (2) the Escrow Amount to be deposited pursuant to subparagraph (ii) below. (ii) By federal wire transfer of immediately available funds to the Escrow Account, the sum of Five Million Three Hundred Thirty-Six Thousand Dollars ($5,336,000) (the "Escrow Amount"); and (B) execute and deliver to Seller a Liability Undertaking in the form of Exhibit 3(b)(B) hereto ("Liability Undertaking"). (c) Closing Working Capital Balance Adjustment. The "Closing Working Capital Balance Adjustment" shall be the amount stated in Exhibit 3(c), Paragraph C, Item VI(c), equaling to the difference between: (x) the "Estimated Closing Working Capital Balance/(Deficit)", as stated on Exhibit 3(c), Paragraph C, Item V(a), and (y) the "Closing Working Capital Balance/(Deficit)", as stated in Exhibit 3(c), Paragraph C, Item V(b). The Estimate Closing Working Capital Balance/(Deficit) is Seller's estimate of the Closing Working Capital Balance/(Deficit) calculated pursuant to Exhibit 3(c) using the figures notified by Seller to Purchaser at least five (5) Business Days prior to Closing. The Closing Working Capital Balance/(Deficit) shall be calculated using the figures set forth in the Seller's Audited Closing Balance Sheet and the Closing Working Capital Balance Adjustment shall be due to (xx) Purchaser, if positive, or (yy) Seller, if negative, pursuant to Section 10(d). Within forty-five (45) days after the Closing Date, Seller shall deliver to Purchaser a (consolidated) balance sheet for the Seller (and its Subsidiaries) as of 11:59 p.m. of the day immediately prior to the Closing Date (the "Audited Closing Balance Sheet"), prepared by Seller in accordance with GAAP and consistently with the method of preparation of the Latest Balance Sheet; provided, however, that audit fees and expenses with respect to the audit of the Audited Closing Balance Sheet, any entries or adjustments by reason of any Code election, any entries or adjustments by reason of a change in the business or operations of Seller after the Closing and any finders or brokers or similar fees and all legal fees and expenses payable by Seller in connection with the transactions contemplated hereby shall not be included in such Audited Closing Date Balance Sheet. The Audited Closing Date Balance Sheet shall be audited by auditors appointed by Seller (the "Auditor"). All Parties shall have the right to review the Auditor's audit work papers. Auditor shall prepare a computation of the Closing Working Capital Balance Adjustment based on the Audited Closing Balance Sheet and in accordance with the terms of this Agreement and shall submit such computation to Purchaser and Seller in writing at the same time that copies of the Audited Closing Balance Sheet are delivered. The Audited Closing Balance Sheet shall become 5 final and binding upon the parties unless, within thirty (30) days following submission of the Audited Closing Balance Sheet and the Closing Working Capital Balance Adjustment calculation, a Party notifies the other Party in writing of its objection thereto (the "First Notification"). The Parties shall negotiate in good faith to resolve their differences. If the Parties are unable to resolve their differences within twenty (20) days of receipt of the First Notification by the non-objecting Party, the Parties shall submit the dispute to an independent accounting firm mutually selected by the Parties (the "Independent Accountants") for resolution. The Independent Accountants shall be limited to determining whether the Audited Closing Balance Sheet was prepared in accordance with GAAP and consistently with the method of preparation of the Latest Balance Sheet, and the calculation of the Closing Working Capital Balance Adjustment was calculated appropriately from the figures contained in the Audited Closing Balance Sheet and pursuant to the method set forth in Exhibit 3(c). The Parties shall instruct the Independent Accountants to use their reasonable efforts to make their determination within thirty (30) days of submission. The determination of the Independent Accountants shall be final and non-appealable, and shall be binding upon the Parties. The fees and expenses of the Independent Accountants shall be divided and paid equally by Seller and Purchaser. (d) Closing. Unless this Agreement shall have been terminated and the transactions contemplated herein shall have been abandoned pursuant to Section 9 hereof, a closing (the "Closing") will be held as soon as practicable but in no event later than May 31, 2000 (the "Closing Date"), provided, however, that if any of the conditions provided for in Section 7 and Section 8 hereof shall not have been satisfied or waived by such date, then the Party to this Agreement that is unable to satisfy such condition or conditions, despite the best efforts of such Party, shall be entitled to postpone the Closing by notice to the other Parties until such condition or conditions shall have been satisfied (which such notifying Party will seek to cause to happen at the earliest practicable date) or waived, but in no event shall the Closing occur later than the "Termination Date" which shall be the later to occur of: (i) ten (10) days after the expiration of the waiting period (including any extension thereof by reason of a request for further information) under the Hart-Scott Rodino Antitrust Improvements Act of 1976, as amended, and the rules and regulations promulgated thereunder (the "HSR Act"), and (ii) five (5) Business Days after any necessary authority and approval of Seller's shareholders of this Agreement and the transactions contemplated herein, but in no event later than June 15, 2000, unless the Parties shall agree in writing to extend the date of such Closing. The Closing shall be held at the offices of BBLP-Pavia e Ansaldo at the address set forth in Section 11(e) or at such other location as the Parties may agree in writing, at 10:00 a.m., local time or such other time as the Parties may agree, at which time and place the documents and instruments necessary or appropriate to effect the transactions contemplated herein will be exchanged by the Parties. (e) Allocation. Seller and Purchaser agree that the consideration paid to Seller pursuant to this Section 3 shall be allocated for purposes of this Agreement and for federal, state and local tax purposes as set forth on the Allocation Certificate attached hereto as Exhibit 3(e) (the "Allocation Certificate"). The Allocation Certificate shall be completed on or before the Closing Date. Purchaser and Seller shall file all federal, state and local tax returns in accordance with the allocation set forth on the Allocation Certificate. Section 4 Representations and Warranties of Seller Seller hereby represents and warrants to Purchaser as of the date hereof as follows: 6 (a) Disclosure Schedule. The disclosure schedule marked as Exhibit 4 hereto (the "Disclosure Schedule") is divided into "parts" which correspond to the subsections of this Section 4. The Disclosure Schedule includes all information concerning Seller and each of its subsidiaries which is responsive to each section hereof to make such Disclosure Schedule accurate and complete in all material respects for each such part. (b) Corporate Organization. The Disclosure Schedule sets forth each Subsidiary (as defined below) of Seller. Seller is a corporation duly organized, validly existing and in good standing under the laws of the state of its incorporation, has full corporate power and authority to carry on its business as it is now being conducted and to own, lease and operate its properties and assets, is duly qualified or licensed to do business as a foreign corporation in good standing in every other jurisdiction in which the character or location of the properties and assets owned, leased or operated by it or the conduct of its business requires such qualification or licensing, except in such jurisdictions in which the failure to be so qualified or licensed and in good standing would not, individually or in the aggregate, have a material adverse effect on its condition (financial or otherwise), results of operations, assets, properties and going concern value; and has heretofore delivered to Purchaser complete and correct copies of its articles or certificate of incorporation and bylaws, as presently in effect. The Disclosure Schedule contains for Seller and its subsidiaries a list of all jurisdictions in which each is qualified or licensed to do business. The Disclosure Schedule sets forth the name and jurisdiction of incorporation of each corporation as to which more than fifty percent (50%) of the outstanding equity securities having ordinary voting rights or power at the time of determination is being made is owned or controlled, directly or indirectly, by Seller (individually, a "Subsidiary" and collectively, the "Subsidiaries"). Except as set forth in the Disclosure Schedule, in the case of each Subsidiary: (i) all outstanding capital stock and other equity securities are owned or controlled directly or indirectly by Seller; (ii) there are no contractual or consensual limitations on Seller's ability to vote or alienate such securities; (iii) there are no outstanding options, warrants or other rights to purchase or acquire securities of such corporation or securities owned or held by Seller; (iv) there are no other contractual or consensual charges or impediments which would materially limit or impair the ownership of such equity interests or the ability effectively to exercise the full rights of ownership or control of such equity interests, including without limitation any voting trusts, voting agreements, or rights of first refusal or first option; and (v) there are no contracts, commitments, understandings, arrangements or restrictions by which any such corporation is bound to issue, sell, transfer or to purchase or acquire any shares of its capital stock or other equity securities or options, warrants or rights. Except as set forth on the Disclosure Schedule, all shares of capital stock and other equity interests of each Subsidiary are owned or controlled directly or indirectly by Seller free and clear of all Liens. Except as set forth in the Disclosure Schedule, all of the outstanding capital stock of Seller and each Subsidiary is duly authorized, validly issued, fully paid, nonassessable and was not issued in violation of preemptive rights. (c) Capitalization. All authorized capital stock of Seller of all classes ("Seller Capital Stock") is set forth on the Disclosure Schedule. The number of shares of capital stock of Seller outstanding and the number of shares of capital stock of Seller held in treasury as of the date of this Agreement are set forth on the Disclosure Schedule. All issued and outstanding shares of capital stock of Seller are duly authorized, validly issued, fully paid, nonassessable and are without, and were not issued in violation of, preemptive rights. Except as set forth on the Disclosure Schedule: (x) there are no shares of capital stock or other equity securities of Seller outstanding or any securities convertible into or exchangeable for such shares, securities or rights; (y) there are no outstanding options, warrants, conversion privileges or other rights to purchase or acquire any capital stock or other equity securities of Seller granted by Seller, or any securities convertible into or exchangeable for such shares, securities or rights; and (z) there are no contracts, commitments, understandings, arrangements or restrictions by which Seller is bound to issue or acquire any additional shares of its capital stock or other equity securities or any options, warrants, conversion privileges or other rights to 7 purchase or acquire any capital stock or other equity securities of Seller or any securities convertible into or exchangeable for such shares, securities or rights. (d) Authorization. Seller has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Board of Directors of Seller has taken all action required by law, its articles or certificate of incorporation and bylaws and otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein. This Agreement has been duly and validly executed and delivered by Seller and no other corporate action is necessary other than approval of the Shareholders of Seller. This Agreement is the valid and binding legal obligation of Seller, enforceable against Seller in accordance with its terms, except that such enforceability may be subject to (i) applicable bankruptcy, insolvency, reorganization, fraudulent transfer, conveyance or moratorium or other similar laws affecting or relating to the enforcement of creditor's rights generally, (ii) general principles of equity relating to enforceability (regardless of whether considered in a proceeding at law or equity) and (iii) as rights to indemnity may be limited by federal and state securities laws and public policy. (e) Non-Contravention. Except as set forth in the Disclosure Schedule, neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate or be in conflict with any provision of the articles or certificate of incorporation or bylaws of Seller or the certificates of the designations, powers, preferences and rights of any outstanding series of stock or other securities of Seller (including, without limitation, the Series A, B, C, and D Convertible Preferred Stock); or (ii) be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation (including without limitation any agreement with stockholders) to which Seller is a party or by which its properties or assets are or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents shall have been obtained at or prior to the Closing) or result in the creation or imposition of any third party claim or cause of action against Seller or Purchaser (which in the aggregate would result in a loss in excess of Ten Thousand Dollars ($10,000)), or Liens (which in the aggregate would encumber assets of Seller in excess of Ten Thousand Dollars ($10,000)), upon any property or asset of Seller under any debt, obligation, contract, agreement or commitment to which Seller is a party or by which Seller or any of its assets or properties is or may be bound; or (iii) to the best of Seller's knowledge, violate any statute, treaty, law, judgment, writ, injunction, decision, decree, order, regulation, ordinance or other similar authoritative matters (sometimes hereinafter separately referred to as a "Law" and sometimes collectively as "Laws") of any foreign, federal, state or local governmental or quasi-governmental, administrative, regulatory or judicial court, department, commission, agency, board, bureau, instrumentality or other authority (hereinafter sometimes separately referred to as an "Authority" and sometimes collectively as "Authorities"). (f) Consents and Approvals. Except as set forth in the Disclosure Schedule, with 8 respect to Seller, no consent, approval, order or authorization of or from, or registration, notification, declaration or filing with (hereinafter sometimes separately referred to as a "Consent" and sometimes collectively as "Consents") any individual or entity, including without limitation any Authority, is required in connection with the execution, delivery or performance of this Agreement by Seller or the consummation by Seller of the transactions contemplated herein, other than shareholder approval or consents which if not made or obtained, will not, individually or in the aggregate, have a material adverse effect on the business of Seller and its Subsidiaries taken as a whole. (g) Financial Statements. Seller has furnished to Purchaser the (consolidated) balance sheets and statements of operations (or income or loss), changes in shareholders' equity and changes in cash flow (or financial position) and the reports of independent public accountants described on the Disclosure Schedule. The most recent audited (consolidated) balance sheet provided by Seller to Purchaser shall be for the period ending December 31, 1999 and is referred to herein as the "Latest Balance Sheet". Prior to Closing, Seller will furnish the (consolidated) financial statements and the reports of independent public accountants described on the Disclosure Schedule to the Purchaser. Except as disclosed therein, the aforesaid financial statements (i) are or will be, as the case may be, in accordance with the books and records of Seller and have been, or will be, as the case may be, prepared in conformity with GAAP consistently applied for all periods, and (ii) fairly present and will fairly present, as the case may be, the (consolidated) financial position of Seller as of the respective dates thereof, and the (consolidated) results of operations (or income or loss), changes in shareholders' equity and changes in cash flow (or financial position) for the periods then ended, all in accordance with generally accepted accounting principles consistently applied for all periods. (h) Loss Contingencies; Other Non-Accrued Liabilities; Employee Accruals. Except for those items listed in subparagraphs (i), (ii) and (iii) below which do not exceed individually or in the aggregate Ten Thousand Dollars ($10,000), and except as described in the Disclosure Schedule, Seller does not have (i) any loss contingencies which are not required by GAAP to be accrued; (ii) any loss contingencies involving an unasserted claim or assessment (known to Seller) which are not required by GAAP to be disclosed because the potential claimants have not manifested to Seller an awareness of a possible claim or assessment; or (iii) any categories of liabilities or obligations which are not required by GAAP to be accrued. For purposes of this Agreement, "Loss Contingency" shall have the meaning accorded to it by GAAP. All accruals for unpaid vacation pay; premiums for employment insurance; health premiums; accrued wages, salaries and commissions; and employee benefit plan payments have been reflected in the books and records of Seller. (i) Absence of Certain Changes. Except as set forth in the Disclosure Schedule, since the date of the Latest Balance Sheet, Seller has owned and operated its assets, properties and businesses in the ordinary course of business and consistent with past practice; without limiting the generality of the foregoing, Seller has not, subject to the aforesaid exceptions: (i) suffered, as of the date hereof, any adverse change in its condition (financial or otherwise), assets or properties or experienced any event or failed to take any action which reasonably could be expected to result in such a change that results in a cost in excess of Five Thousand Dollars ($5,000) individually, or Ten Thousand Dollars ($10,000) in the aggregate other than in the ordinary course of business; (ii) other than in the ordinary course of business, suffered any loss, damage, destruction or other casualty (whether or not covered by insurance) or any loss of 9 officers, employees, dealers, distributors, independent contractors, customers, or suppliers which, individually or in the aggregate, could have a material adverse effect on its business or operations,; (iii) declared, set aside, made or paid any dividend or other distribution in respect of its capital stock; or purchased or redeemed any shares of its capital stock; (iv) issued or sold any shares of its capital stock, or any options, warrants, conversion, exchange or other rights to purchase or acquire any such shares or any securities convertible into or exchangeable for such shares; (v) incurred any indebtedness for borrowed money; (vi) mortgaged, pledged, or subjected to any Lien, or lease, any of its properties or assets, tangible or intangible; (vii) acquired or disposed of any assets or properties valued in excess of Fifteen Thousand Dollars ($15,000) other than in the ordinary course of business; (viii) forgiven or canceled any debts or claims, or waived any rights; (ix) entered into any transaction in excess of Twenty-Five Thousand Dollars ($25,000) other than in the ordinary course of business; (x) granted to any officer or salaried employee or any other employee any increase in compensation in any form or paid any severance or termination pay other than in the ordinary course of business; (xi) entered into any commitment for capital expenditures for additions to plant, property or equipment in excess of twenty-five thousand dollars ($25,000); or (xii) agreed, whether in writing or otherwise, to take any action described in this subsection. (j) Real Properties. Except as set forth in the Disclosure Schedule, Seller has good and marketable fee simple record title in and to, or a leasehold interest in and to, all of their real property and real property assets and fixtures reflected in the Latest Balance Sheet and all of their real property assets and fixtures purchased or otherwise acquired since the date of the Latest Balance Sheet (except for real property assets and fixtures sold in the ordinary course of business since the date of the Latest Balance Sheet). Except as set forth in the Disclosure Schedule, such leasehold interests are valid and in full force and effect and, to the best of Seller's knowledge, enforceable in accordance with their terms and there does not exist any violation, breach or default thereof or thereunder. Except as set forth in the Disclosure Schedule, none of the real property assets or fixtures owned by Seller is subject to any Lien except for Permitted Liens. Except as set forth in the Disclosure Schedule, to the best of Seller's knowledge, all real properties owned by and leased to Seller used in the conduct of its business are free from structural defects, in good operating condition and repair, with no maintenance, repair or replacement having an estimated cost exceeding Twenty Five Thousand Dollars ($25,000) in the aggregate having been deferred or neglected, suitable for the intended use and free from other material defects. Except as set forth in the Disclosure Schedule, to the best of Seller's knowledge, each such real property and its present use conform in all respects to all occupational, safety or health, zoning, planning, subdivision, platting and similar Laws. Except as set forth in the Disclosure Schedule, all public utilities necessary for the use and operation of any facilities on the aforesaid real properties are, to the best of Seller's knowledge, available for 10 use or access at such properties and there is no legal or physical impairment to free ingress or egress from any of such facilities or real properties. Seller is not a foreign person and is not controlled by a foreign person, as the term "foreign person" is defined in Section 1445(f)(3) of the Code. (k) Machinery, Equipment, Vehicles and Personal Property. Except as set forth in the Disclosure Schedule, Seller has good and merchantable right, title and interest in and to, or a leasehold interest in and to, all its machinery, equipment, vehicles and other personal property reflected in the Latest Balance Sheet and purchased or otherwise acquired since the date of the Latest Balance Sheet (except for such items sold or leased in the ordinary course of business since the date of the Latest Balance Sheet). Except as set forth in the Disclosure Schedule, all of such leasehold interests relating to machinery, equipment, vehicles and other personal property are valid and in full force and effect and enforceable in accordance with their terms and there does not exist any violation, breach or default thereof or thereunder. Except as set forth in the Disclosure Schedule, none of such machinery, equipment, vehicles or other personal property owned by Seller is subject to any Lien except for Permitted Liens. Except as set forth in the Disclosure Schedule, the machinery, equipment, vehicles and other personal property of Seller which are necessary to the conduct of its business are in good operating condition and repair and readily usable for the intended purposes thereof and no necessary maintenance, replacement or repair has been deferred or neglected. (l) Inventories. Except as set forth in the Disclosure Schedule: (i) all inventory of Seller, whether reflected in the Latest Balance Sheet or otherwise, consists of a quality and quantity usable and salable on normal trading terms in the industry; and the present quantities of all Seller's inventory are reasonable in the present circumstances of the business as currently conducted or as proposed to be conducted. (ii) none of Seller's inventory is being held or is otherwise regularly held by any third party whatsoever on a consignment basis. (iii) Seller owns free of all Liens, all packaging inventory and related materials maintained by suppliers and other third party packers or co-packers held for Seller as shown on the Latest Balance Sheet. (m) Receivables and Payables. Except as set forth on the Disclosure Schedule: (A) Seller has good right, title and interest in and to all its accounts and notes receivable and trade notes and trade accounts reflected in the Latest Balance Sheet and those acquired and generated since the date of the Latest Balance Sheet (except for those paid since the date of the Latest Balance Sheet); (B) none of such accounts and notes receivable and trade notes and trade accounts is subject to any Lien other than Permitted Liens; (C) except to the extent of applicable reserves shown in the Latest Balance Sheet, all of the accounts and notes receivable, trade notes and trade accounts owing to Seller constitute valid and enforceable claims arising from bona fide transactions in the ordinary course of business, and, to the best of Seller's knowledge, there are no claims, refusals to pay or other rights of set-off against any thereof; (D) no account or note debtor whose account or note balance exceeds Twenty-Five Thousand Dollars ($25,000) has been delinquent in payment by more than sixty (60) days; (E) the aging schedules of (x) the accounts, trade notes and trade accounts of Seller previously furnished to Purchaser on March 6, 2000 for the period ended March 3, 2000 annexed to the Disclosure Schedule, and (y) the accounts receivable of Seller furnished to Purchaser on March 6, 2000 for the period ended February 29, 2000 annexed to the Disclosure Schedule, are complete and accurate in all material respects; and (F) the reserves established therefore and reflected in the Latest Balance Sheet are reasonable. 11 (n) Intellectual Property Rights. Seller owns or has the right to use (as specified in the Disclosure Schedule) the industrial and intellectual property rights, including without limitation the patents, patent applications, patent rights, trademarks, trademark applications, trade names, service marks, service mark applications, copyrights, computer programs and other computer software, inventions, know-how, trade secrets, technology, proprietary processes, methods, systems, recipes, and formulae (collectively, "Intellectual Property Rights") described on the Disclosure Schedule. Except as set forth on the Disclosure Schedule, the use of all Intellectual Property Rights necessary or required for the conduct of the businesses of Seller as presently conducted and as proposed to be conducted does not and will not infringe or violate or allegedly infringe or violate the intellectual property rights of any person or entity. Except as described on the Disclosure Schedule, neither Seller nor any Subsidiary owns or uses any Intellectual Property Rights pursuant to any license agreement or has granted any person or entity any rights, pursuant to license agreement or otherwise, to use the Intellectual Property Rights. Such agreements as set forth on the Disclosure Schedule include written and oral agreements. (o) Litigation. Except as set forth in the Disclosure Schedule, there is no legal, administrative, arbitration, or other proceeding, suit, claim or action of any nature or, to the best of Seller's knowledge, investigation, review or audit of any kind, judgment, decree, decision, injunction, writ or order pending, noticed, scheduled or, to the best of the Seller's knowledge, threatened by or against or involving Seller, its assets, properties or businesses or its directors, officers, agents or employees, whether at law or in equity, before or by any person or entity or Authority, or which questions or challenges the validity of this Agreement or any action taken or to be taken by the Parties pursuant to this Agreement or in connection with the transactions contemplated herein. (p) Tax Returns. Seller has duly and timely filed all tax and information reports, returns and related documents required to be filed by Seller with respect to the income-type, sales/use-type and employment-related taxes of the United States, the states, municipalities, and other foreign or domestic jurisdictions set forth in the Disclosure Schedule (and the political subdivisions thereof). Except as set forth in the Disclosure Schedule, Seller has duly and timely filed all tax and information reports, returns and related documents required to be filed by it with any Authority, including without limitation all returns and reports of income, franchise, gross receipts, sales, use, occupation, employment, withholding, excise, transfer, real and personal property and other taxes, charges, assessments, and levies (collectively, the "Tax Returns") and, except as set forth in the Disclosure Schedule, have duly paid, or made adequate provision for the due and timely payment of all such taxes and other charges, including without limitation interest, penalties, assessments and deficiencies, due or claimed to be due from them by any such Authorities, except where failure to pay would not result in a loss, cost, or damages exceeding Ten Thousand Dollars ($10,000) in the aggregate; the reserves for all of such taxes and other charges reflected in the Latest Balance Sheet are adequate; and, to the best of Seller's knowledge, there are no Liens for such taxes or other charges upon any property or assets of Seller. There is no omission, deficiency, error, misstatement or misrepresentation, whether innocent, intentional or fraudulent, in any Tax Return filed by Seller for any period which could result in an actual tax liability in excess of Ten Thousand Dollars ($10,000). The federal income tax returns (consolidated, if applicable) of Seller have been examined by the Internal Revenue Service for all periods to and including those expressly set forth in the Disclosure Schedule, and, except to the extent shown therein, all deficiencies asserted as a result of such 12 examinations have been paid or finally settled and no issue has been raised by the Internal Revenue Service in any such examination which, by application of similar principles, reasonably could be expected to result in a proposed deficiency for any other period not so examined. Except as set forth in the Disclosure Schedule, all deficiencies and assessments levied or assessed to date resulting from examination of the Tax Returns of Seller have been paid. Except as set forth in the Disclosure Schedule, there are no outstanding agreements or waivers extending the statutory period of limitation applicable to any Tax Return for any period. (q) Insurance. The Disclosure Schedule contains an accurate and complete list of all policies of fire and other casualty, general liability, theft, life, workers' compensation, health, directors and officers, business interruption and other all other forms of insurance owned or held by Seller, specifying the insurer, the policy number and the term of the coverage. All present policies are in full force and effect and all premiums with respect thereto have been paid. Seller has not been denied any form of insurance and no policy of insurance has been revoked or rescinded during the past three (3) years, except as described on the Disclosure Schedule. (r) Benefit Plans. Except as set forth in the Disclosure Schedule: (i) Seller does not sponsor, administer, maintain or contribute to, nor has Seller at any time ever sponsored, administered, maintained, contributed to, directly or indirectly, nor had an obligation to contribute or been required to contribute to any "employee pension benefit plan" ("Pension Plan", not including any union-sponsored plan) as such term is defined in Section 3(2) of the Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or under which Seller may incur any liability, including without limitation, solely for purposes of this subsection a plan excluded from coverage by Section 4(b)(5) of ERISA and, including without limitation any such Pension Plan which is a "Multiemployer Plan" within the meaning of Section 4001(a)(3) of ERISA, without regard to whether or not any of the foregoing is funded, whether formal or informal, whether or not subject to ERISA and whether legally binding or not. Each such Pension Plan is in compliance with the applicable provisions of ERISA, the applicable provisions of the Internal Revenue Code of 1986, as amended, and the regulations promulgated thereunder (the "Code"), and all other applicable Law. No Pension Plan is subject to Title IV of ERISA or to Section 412 of the Code. Seller has satisfied all payment and contribution obligations for all union sponsored plans. Set forth on the Disclosure Schedule is a list of all Union-sponsored pension plans to which Seller contributes or Seller's employees are entitled to benefits, and (A) Each Pension Plan which is intended to meet the requirements of Section 401(a) and where applicable, Section 401(k) of the Code, now meets and since its inception has met, the requirements for qualification under Section 401(a) and, where applicable, Section 401(k) of the Code, and its related trust is now, and since its inception has been, exempt from taxation under Section 501(a) of the Code and nothing has occurred which would adversely affect the qualified status of such Pension Plan. (B) Seller has performed all obligations required to be performed by it under, and is not in default under or in violation of, any and all of the Pension Plans, and is in compliance in all material respects with, and each Pension Plan has been operated and administered in all material respects in accordance with its provisions and in compliance in all material respects with the laws governing each such Pension Plan, including without limitation, rules and regulations promulgated by the Department of the Treasury ("Treasury"), the Internal Revenue Service, Department of Labor 13 ("DOL"), and the Pension Benefit Guaranty Corporation ("PBGC") pursuant to the provisions of ERISA and the Code. (C) No event has occurred and there has been no failure to act on the part of the Seller, as fiduciary of any Pension Plan, or a plan official that violates Section 404 of ERISA or could subject Seller, a Pension Plan, or a plan official to the imposition of any tax, penalty, or other liability, further by way of indemnity or otherwise. (D) Seller does not owe any accrued but unpaid contributions to any of the Pension Plans. (E) No reportable event (as defined in Section 4043(e) of ERISA), or requirement to provide security to a Pension Plan (pursuant to Sections 401(a) 29 or Section 412(f) of the Code), or plan termination (as defined in Title IV of ERISA or Section 411(d) of the Code), has occurred with respect to any of the Pension Plans. (F) The present value of accrued benefits (as agreed to by Seller's actuary in writing) under any of the Pension Plans that are covered by Title IV of ERISA does not exceed the value of the assets of such Pension Plan. As of the last day of the last plan year of each Pension Plan and as of the Closing Date, the amount of "unfunded benefit liabilities" as defined in Section 4001(a)(18) of ERISA (but excluding from the definition of "current value" of "assets" of such Pension Plan, accrued but unpaid contributions) did not and will not exceed zero. No "accumulated funding deficiency" for which there is an excise tax due (or would be due in the absence of a waiver), as defined in Section 412 of the Code or as defined in Section 302(a)(2) of ERISA, whichever may apply, has been incurred with respect to any Pension Plan with respect to any plan year, whether or not waived. Seller has no liability for unpaid contributions with respect to any Pension Plan pursuant to Section 412(m) of the Code. (G) Seller has paid all premiums (and interest charges and penalties for late payment, if applicable) due to the PBGC with respect to each Pension Plan for each plan year thereof for which such premiums are required. Seller has not engaged in, nor is a successor to an entity that has engaged in, a transaction described in Section 4069 of ERISA. There has been no reportable event as defined in Section 4043(b) of ERISA and the PBGC regulations under such section) with respect to any Pension Plan. No filing has been made by Seller with PBGC, and no proceeding has been commenced by the PBGC, to terminate any Pension Plan. No condition exists and no event has occurred that could constitute grounds for termination of any Pension Plan by the PBGC. (ii) Seller has not ceased operations at any facility or withdrawn from any Pension Plan or otherwise acted or omitted to act in a manner which could subject it to liability under Section 4062, Section 4063, Section 4064, Section 4068, or Section 4069 of ERISA and there are no facts of circumstances which might give rise to any liability of Seller to the PBGC under Title IV of ERISA or which could reasonably be anticipated to result in any claims being made against Purchaser, or Seller to the PBGC. Seller has not incurred any withdrawal liability (including without limitation any contingent or secondary withdrawal liability) within the meaning of Section 4201 and Section 4204 of ERISA to any Multiemployer Plan. Seller has not, with respect to any Pension Plan which is a Multiemployer Plan, suffered or otherwise caused a "complete withdrawal" or a "partial withdrawal," as such terms are defined respectively in Sections 4201, 4203, 4204 and 4205 of ERISA. Seller has no liability to any such Multiemployer Plan in the event of a complete or partial withdrawal therefrom as of the close 14 of the most recent fiscal year of any such Multiemployer Plan ended prior to the date hereof. (iii) Seller does not sponsor, administer, maintain, contribute to, or has not at any time ever sponsored, administered, maintained, contributed to, or been required to contribute to any "employee welfare benefit plan" ("Welfare Plan"), as such term is defined in Section 3(1) of ERISA (including without limitation a plan excluded from coverage by Section 4(b)(5) of ERISA), or under which Seller may incur any liability, whether insured or otherwise, without regard to whether or not any of the foregoing is funded, whether formal or informal, whether or not subject to ERISA and whether legally binding or not, and any such Welfare Plan maintained by Seller is in compliance with the provisions of ERISA and all other applicable Laws. Seller has not established or contributed to any "voluntary employees' beneficiary association" within the meaning of Section 501(c)(9) of the Code. Seller does not maintain any Welfare Plan which is a "Group Health Plan" (as such the term is defined in Section 607(1) of ERISA and Section 4980B(g)(2) of the Code) that has not been administered and operated in all respects in compliance with the applicable requirements of Section 601 of ERISA and Section 4980B of the Code and Seller is not subject to any liability, including but not limited to, additional contributions, fines or penalties, or loss of tax deductions as a result of such administration and operation. (iv) Seller does not maintain or contribute to any employment, consulting, severance, or other similar contract arrangement, procedures, or policy and each plan, arrangement (written or oral), program, agreement or commitment providing for insurance coverage (including any self-insured arrangements), workers' compensation, disability benefits, supplemental unemployment benefits, vacation benefits, retirement benefits, life, health, disability, or accident benefits (including, without limitation, any "voluntary employees' beneficiary association" as defined in Section 501(c)(9) of the Code providing for the same or other benefits), dependent care spending accounts or assistance, split dollar arrangements, cafeteria plans, supplemental retirement, termination pay, dental, salary, continuation or deferred compensation, profit-sharing bonuses, stock options, stock appreciation rights, stock purchases or other forms of incentive compensation or post-retirement insurance, compensation or benefits which (A) is not a Welfare Plan, Pension Plan, or Multiemployer Plan, (B) is entered into, maintained, contributed to, or required to be contributed to, as the case may be, by Seller, or under which Seller may incur any liability, without regard to whether or not any of the foregoing is funded, whether formal or informal, whether or not subject to ERISA, and whether legally binding or not, and (C) covers any individual who is currently, or was previously, retained or employed by Seller ("Benefit Arrangement"). (v) As of or subsequent to the Closing Date, neither Seller, nor any Welfare Plan or Benefit Arrangement maintained by Seller, has any present or future obligation to maintain, sponsor, provide, or make any payment to any present or former employee of Seller pursuant to any Welfare Plan or Benefit Arrangement. Seller does not maintain any Welfare Plan or Benefit Arrangement, which is funded by a trust described in Section 501(c)(9) of the Code or subject to the provisions of Section 505 of the Code. No Welfare Plan or Benefit Arrangement of Seller provides or is required to provide health, dental, medical, life, death, or survivor benefits to any former or retired employee or beneficiary thereof except to the extent required under any state insurance law providing for a conversion option under a group insurance policy under Section 601 of ERISA or Section 4980B of the Code. (vi) Neither any of Pension Plans or Welfare Plans or Benefit Arrangements, nor any trust created or insurance contract issued thereunder nor any trustee or 15 administrator thereof nor any officer, director or employee of Seller, custodian or any other "disqualified person" within the meaning of Section 4975(e)(2) of the Code, or "party in interest" within the meaning of Section 3(14) of ERISA, with respect to any such Pension Plans or Welfare Plans or Benefit Arrangements or any such trust or insurance contract or any trustee, custodian or administrator thereof, or any disqualified person, party in interest or person or entity dealing with such Pension Plans or Benefit Arrangements or any such trust, insurance contract or any trustee is subject to a tax or penalty on prohibited transactions imposed by Section 4975 of the Code or to a civil penalty imposed by Section 502 of ERISA. There are no facts or circumstances which could subject Seller to any excise tax under Section 4972 or Sections 4976 through 4980, both inclusive, of the Code. (vii) Full payment has been made of all amounts which Seller is required, under applicable Law, with respect to any Pension Plan or Welfare Plan or Benefit Arrangement, or any agreement relating to any Pension Plan or Welfare Plan or Benefit Arrangement, to have paid as a contribution thereto. No accumulated funding deficiency (as defined in Section 302 of ERISA and Section 412 of the Code), whether or not waived, exists with respect to any Pension Plan. Seller does not maintain or contribute to, nor has it ever sponsored, maintained or contributed to or been required to contribute to, any Pension Plan subject to Part 3 of Title I of ERISA or Section 412(n) of the Code. Seller has made adequate provisions for reserves to meet contributions which have not been made because they are not yet due under the terms of any Pension Plan or Welfare Plan or Benefit Arrangement or related agreements. All Pension Plans which Seller operates as plans that are qualified under the provisions of Section 401(a) of the Code satisfy the requirements of Section 401(a) and all other sections of the Code incorporated therein, including without limitation Sections 401(k), 401(l) and 401(m) of the Code; and the Internal Revenue Service has issued favorable determination letters with respect to the current statement of all Pension Plans and, to Seller's knowledge, nothing has occurred since the issuance of any such letters that could adversely affect such favorable determination. There will be no change on or before Closing in the operation of any Pension Plan, Welfare Plan or Benefit Arrangement or any documents with respect thereto which will result in an increase in the benefit liabilities under such plans, except as may be required by Law. (viii) Seller has complied with all reporting and disclosure obligations with respect to the Pension Plans, Welfare Plans and Benefit Arrangements imposed by Title I of ERISA or other applicable Law. (ix) There are no pending or, to Seller's knowledge, threatened claims, suits or other proceedings against Seller, the Pension Plan, Welfare Plan, Benefit Arrangement, or any other party, including but not limited to any fiduciary with respect to such plans or arrangements by present or former employees of Seller, plan participants, beneficiaries or spouses of any of the above, including without limitation claims against the assets of any trust, involving any Pension Plan, Welfare Plan, or Benefit Arrangement, or any rights or benefits thereunder, other than the ordinary and usual claims for benefits by participants or beneficiaries. (x) The transactions contemplated herein do not result in the acceleration or accrual, vesting, funding or payment of any contribution or benefit under any Pension Plan, Welfare Plan or Benefit Arrangement. (xi) No action or omission of Seller or any director, officer, employee, or agent thereof or any condition, circumstance, or verbal requirement exists which in any way restricts, impairs or prohibits Purchaser or Seller or any successor from amending, merging, or 16 terminating any Pension Plan, Welfare Plan or Benefit Arrangement in accordance with the express terms of any such plan and applicable Law. (xii) (A) Each Pension Plan, Welfare Plan, Benefit Arrangement, related trust agreement, annuity contract, or other funding instrument complies and has been maintained, in all material respects, in compliance with its terms and, both as to its form, operation, and procedures with all applicable requirements, including all record keeping, reporting, and disclosure requirements, prescribed by any and all statutes, orders, rules, and regulations including, but not limited to, ERISA, the Consolidated Omnibus Budget Reconciliation Act, as amended ("COBRA"), and the Code; (B) Seller has performed, in all material respects, all obligations required to be performed under, and is not in default under or in violation of, any and all of the Pension Plans, Welfare Plans, and Benefit Arrangements (collectively "Benefit Plans") is, in all material respects, in compliance with, and each Benefit Plan has been operated and administered in accordance with its provisions and in compliance with, the laws governing each such plan, including without limitation, rules and regulations promulgated by the DOL, PBGC, and the Treasury, pursuant to the provisions of ERISA, COBRA, and the Code; (C) no event has occurred and there has been no failure to act on the part of Seller, a fiduciary of any Benefit Plan, or a "plan official" (as defined in Section 412 of ERISA) that violates Section 404 of ERISA or could subject the Purchaser, any Benefit Plan, a fiduciary, or plan official to the imposition of any tax, penalty, or other liability, whether by way of indemnity or otherwise; and (D) no filing, application, or other matter with respect to any of the Benefit Plans or the Seller is pending with the IRS, PBGC, DOL, or other governmental body. (xiii) The Disclosure Schedule contains a true and complete list of all of the Benefit Plans which the Seller is now or was previously obligated, directly or indirectly, to contribute or maintain, regardless of whether formal or informal and without regard to whether or not it was funded. Seller has delivered to the Purchaser (A) true and complete copies of all documents embodying or relating to the Benefit Plans, including without limitation, with respect to each Benefit Plan, all amendments to the Benefit Plans, and any trust or other funding arrangement, including certified financial statements which fairly present the assets and liabilities of each of the Benefit Plans as of the date thereof and there have been no material changes in the assets and liabilities since the date of such financial statements; (B) the most recent annual and periodic actuarial evaluations, if any, prepared for any Benefit Plan; (C) the most recent annual reports (series Form 5500 and all schedules thereto), if any, required under ERISA, including those prepared for the most recent three (3) years for each Benefit Plan; (D) if the Benefit Plan is funded, the most recent annual and periodic accounting of the Benefit Plan's assets, including the most recent three (3) years of the plan; (E) the most recent determination letter received from the IRS, if any, and a copy of the most recent summary plan description together with the most recent summary of modifications required under ERISA with respect to each Benefit Plan and all employee communications and/or written interpretations or descriptions thereof relating to each Benefit Plan; (F) with respect to each Benefit Plan, a description setting forth the amount of any liability of the Seller as of the date hereof or as of the Closing Date or which arises or accrues in connection with the Closing Date for: (1) payments which are or will be more than thirty (30) days past due, or (2) unfunded accrued benefits, including severance benefits, the present value of which on an aggregate estimated basis exceeds or will exceed Twenty-Five Thousand Dollars ($25,000); and (G) any correspondence between any Benefit Plan and any governmental agency during the last three (3) years. 17 (xiv) There is no contract, agreement, plan, or arrangement covering any employee or former employee of the Seller that, individually or collectively, provides for the payment by the Seller of any amount (A) that is not deductible under Section 162(a)(1) or 404 of the Code or (B) that is an "excess parachute payment" pursuant to Section 280G of the Code. (xv) Neither the Seller nor any plan fiduciary of any Pension Plan or Welfare Plan engaged in any transaction in violation of Sections 101 or 106 of ERISA or any "prohibited transaction," as defined in Section 4975(c)(1) of the Code, for which no exemption exists under Section 408 of ERISA or Section 4975(c)(2) or (d) of the Code. (xvi) Seller has not announced any plan or legally binding commitment to create any additional Pension Plans, Welfare Plans, or Benefit Arrangements or to amend or modify any existing Benefit Plan. (xvii) No event has occurred in connection with which Seller or any Pension Plan, Welfare Plan, or Benefit Arrangement, directly or indirectly, could be subject to any liability (A) under any statute, regulation, or governmental order relating to any Benefit Plans, or (B) pursuant to any obligation of the Seller to indemnify any person against liability incurred under any statute, regulation or order as they relate to the Benefit Plans. (s) Bank Accounts; Powers of Attorney. The Disclosure Schedule sets forth: (i) the names of all financial institutions, investment banking and brokerage houses, and other similar institutions at which the Seller maintain accounts, deposits, safe deposit boxes of any nature, and the names of all persons authorized to draw thereon or make withdrawals there from; (ii) the terms and conditions thereof and any limitations or restrictions as to use, withdrawal or otherwise; and (iii) the names of all persons or entities holding general or special powers of attorney from Seller and a summary of the terms thereof. (t) Contracts and Commitments; No Default. (i) Except as set forth in the Disclosure Schedule, Seller: (A) does not have any written contract, commitment, agreement or arrangement with any person or, to Seller's knowledge, any oral contract, commitment, agreement or arrangement which (1) requires payments individually in excess of $5,000 annually or in excess of $10,000 over its term (including without limitation periods covered by any option to extend or renew by either party) and (2) is not terminable on ninety (90) days' or less notice without cost or other liability; (B) does not pay any person or entity cash remuneration at the annual rate (including without limitation guaranteed bonuses) of more than Forty Thousand Dollars ($40,000) for services rendered; (C) is not restricted by agreement from carrying on their businesses or any part thereof anywhere in the world or from competing in any line of business with any person or entity; (D) is not subject to any obligation or requirement to provide funds to or make any investment (in the form of a loan, capital contribution or otherwise) in any person or entity; (E) is not party to any agreement, contract, commitment or loan to which any of its directors, officers or shareholders or any "affiliate" or "associate" (as defined in Rule 405 as promulgated under the Securities Act of 1933) (or former affiliate or associate) thereof is a party; 18 (F) is not subject to any outstanding sales or purchase contracts, commitments or proposals which will result in any loss upon completion or performance thereof; (G) is not a party to any purchase or sale contract or agreement that calls for aggregate purchases or sales in excess over the course of such contract or agreement of Ten Thousand Dollars ($10,000) or which continues for a period of more than twelve (12) months (including without limitation periods covered by any option to renew or extend by either party) which is not terminable on ninety (90) days' or less notice without cost or other liability at or any time after the Closing; (H) is not subject to any contract, commitment, agreement or arrangement with any "disqualified individual" (as defined in Section 280G(c) of the Code) which contains any severance or termination pay liabilities which would result in a disallowance of the deduction for any "excess parachute payment" (as defined in Section 280G(b)(1) of the Code) under Section 280G of the Code; or (I) has any distributorship, dealer, manufacturer's representative, franchise or similar sales contract relating to the payment of a commission. (ii) True and complete copies (or summaries with all material terms and conditions, in the case of oral contracts and commitments) of all oral contracts and commitments in excess of Ten Thousand Dollars ($10,000) and written contracts and commitments in excess of Twenty Thousand Dollars ($20,000) disclosed pursuant to Section 4(t)(i) have been made available to Purchaser for review. Except as set forth in the Disclosure Schedule, all such contracts and commitments are valid and enforceable by and against Seller in all material respects in accordance with their respective terms; Seller is not in breach, violation or default, however defined, in the performance of any of its obligations thereunder, and to the best of Seller's knowledge, no facts and circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof; and, to the best of Seller's knowledge, no other parties thereto are in a breach, violation or default, however defined, thereunder or thereof, and no facts or circumstances exist which, whether with the giving of due notice, lapse of time, or both, would constitute such a breach, violation or default thereunder or thereof which would have a material adverse effect on the business and operations of Seller. (u) Orders, Commitments and Returns. Except as set forth in the Disclosure Schedule, all accepted and unfulfilled orders for the sale of products and the performance of services entered into by Seller and all outstanding contracts or commitments for the purchase of supplies, materials and services were made in bona fide transactions in the ordinary course of business. Except as set forth in the Disclosure Schedule, to the best of Seller's knowledge, there are no claims (in excess of $5,000 individually, or $10,000 in the aggregate) against Seller to return products by reason of alleged over-shipments, defective products or otherwise, or of products in the hands of customers, retailers or distributors under an understanding that such products would be returnable. (v) Labor Matters. (i) The Disclosure Schedule set forth a complete and accurate list of all employees of Seller as of the date hereof. 19 (ii) Except as set forth in the Disclosure Schedule: (A) Seller has been in material compliance with all applicable Laws respecting employment and employment practices, terms and conditions of employment and wages and hours, including without limitation any such Laws respecting employment discrimination and occupational safety and health requirements; labor and management relations; affirmative action plans; pension/employee benefits laws; worker's compensation laws and has not and is not engaged in any unfair labor practice and to Seller's knowledge no charge is being brought with regard thereto nor has been threatened; (B) there is no unfair labor practice complaint or investigation against the Seller for any violation of any employment law or discrimination pending or, to the best of Seller's knowledge, threatened before the National Labor Relations Board or any other comparable Authority; (C) there is no labor strike, dispute, slowdown or stoppage actually pending or, to the best of Seller's knowledge, threatened against or directly affecting Seller; (D) to the best of Seller's knowledge, no labor representation question exists respecting the employees of Seller and there is not pending or, to the best of Seller's knowledge, threatened any activity intended or likely to result in a labor representation vote respecting the employees of the Seller; (E) to the best of Seller's knowledge, no grievance or any arbitration proceeding arising out of or under collective bargaining agreements is pending and no claims therefore exist or, to the best of Seller's knowledge, have been threatened; (F) no collective bargaining agreement is binding and in force against Seller or currently being negotiated by Seller; (G) Seller has not experienced any significant work stoppage or other significant labor difficulties; (H) Seller is not delinquent in payments to any persons for any wages, salaries, commissions, bonuses or other direct or indirect compensation for any services performed by them or amounts required to be reimbursed to such persons, including without limitation any amounts due under any Pension Plan, Welfare Plan or Benefit Arrangement; (I) upon termination of the employment of any person, neither Seller, any Subsidiary, Purchaser or any subsidiary of Purchaser will, by reason of anything done at or prior to or as of the Closing Date, be liable to any of such persons for so-called "severance pay" or any other payments other than in accordance with existing severance policies; (J) Seller has no policies, practices, or procedures which require the Purchaser or the Seller to provide severance benefits to any employees terminated by the Purchaser or the Seller; (K) Seller has made no contract, agreement, handbook, practice, procedure, policy or written, oral or other representation to its employees that are inconsistent with their status as employees-at-will who may be terminated at any time without cause; (L) Seller has made no written or oral representation to its employees that Purchaser will retain them as employees or employ them for any period of time subsequent to the Closing Date, and Seller has made no other representation inconsistent with their employment by Purchaser on an at-will basis; and (M) Seller has complied and will comply, to the extent required by law, with all notices to employees and their unions required by the transactions contemplated hereunder including without limitation those required by the Federal "Warn Act" statute and all applicable similar state law statutes. (w) Permits and Other Operating Rights. Except as set forth in the Disclosure Schedule, Seller does not require the Consent of any Authority to permit them to operate in the manner in which it presently is being operated, and possess all permits and other authorizations from all Authorities presently required to permit them to operate its businesses in the manner in which its businesses are presently conducted except where failure to possess such permits or other authorizations would result in a loss, liability or damage, in the aggregate, in excess of Ten Thousand Dollars ($10,000). 20 (x) Compliance with Law. (i) Except as set forth in the Disclosure Schedule, and without limiting the scope of any other representations or warranties contained in this Agreement, the assets, properties, businesses and operations of Seller are and have been in compliance with all Laws applicable to the ownership and conduct of their assets, properties, Seller's businesses and operations, including without limitation all franchising and similar licensing Laws, all applicable rules of the Civil Rights Act of 1964, as amended, Executive Order No.11246, the Occupational Safety and Health Act of 1970, as amended, the Clayton Act, as amended, the Sherman Act, as amended, the Foreign Corrupt Practices Act, as amended, the boycott and export control regulations promulgated by the U.S. Department of Commerce, the boycott regulations promulgated by the Internal Revenue Service, the Equal Employment Opportunity Act of 1974, as amended, the Clean Air Act as amended, the Clean Water Act, as amended, the Resource Conservation and Recovery Act, as amended, the Toxic Substances Control Act, as amended, the Comprehensive Environmental Response, Liability and Compensation Act of 1980, as amended, and the related employee and public right-to- know provisions. There are no outstanding and unsatisfied deficiency reports, plans of correction, notices of noncompliance or work orders relating to any such Authorities, and no such discussions with any such Authorities are scheduled or pending, to the best of Seller's knowledge. (ii) No Franchise. Except as set forth in the Disclosure Schedule, Seller has not been, for the past three (3) years, and is not currently a party to any contract, agreement, or arrangement which would require Seller to comply with, and Seller has not violated, any applicable federal or state law, rule, or regulation governing franchises and franchisor-franchisee relationships. (y) Assets of Business. Except as set forth in Exhibit 3(a)(iv) and the Disclosure Schedule, the assets owned or leased by Seller constitute all of the assets held for use or used primarily in connection with its businesses and are adequate to carry on such businesses as presently conducted. (z) Hazardous Substances and Hazardous Wastes. Except as set forth in the Disclosure Schedule, to the best of Seller's knowledge: (i) there is not now, nor has there ever been, any disposal, release or threatened release of Hazardous Materials (as defined below) on, from or under properties now or ever owned or leased by or to Seller or by or to any former subsidiary (the "Properties"). There has not been generated by or on behalf of Seller or any former subsidiary (while owned by Seller) any Hazardous Material. No Hazardous Material has been disposed of or allowed to be disposed of on or off any of the Properties which may give rise to a clean-up responsibility, personal injury liability or property damage claim against Seller, or Seller being named a potentially responsible party for any such clean-up costs, personal injuries or property damage or create any cause of action by any third party against Seller. For purposes of this subsection, the terms "disposal," "release," and "threatened release" shall have the definitions assigned to them by the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended, and the term "Hazardous Material" means any hazardous or toxic substance, material or waste or pollutants, contaminants or asbestos containing material which is or becomes regulated by any Authority in any jurisdiction in which any of the Properties is located. The term "Hazardous Material" includes without limitation any material or substance which is (A) defined as a "hazardous waste" or a "hazardous substance" under applicable Law; (B) designated as a "hazardous substance" pursuant to Section 311 of the Federal Water 21 Pollution Control Act; (C) defined as a "hazardous waste" pursuant to Section 1004 of the Federal Resource Conservation and Recovery Act; or (D) defined as a "hazardous substance" pursuant to Section 101 of the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended. (ii) None of Properties is (or, with respect to past Properties and Properties of former subsidiaries, was at the time of disposition) in violation of any Law (with respect to past Properties and Properties of former subsidiaries, Laws in effect at the time of disposition) relating to industrial hygiene or to the environmental conditions on, under or about such Properties, including without limitation soil and ground water condition and there are (or at the time of disposition were) no underground tanks or related piping, conduits or related structures which would result in a loss, liability or damage in excess of Ten Thousand Dollars ($10,000). During the period that Seller or former subsidiaries owned or leased the Properties, neither Seller nor its Subsidiaries nor its former subsidiaries nor, to Seller's knowledge, any third party used, generated, manufactured or stored on, under or about such Properties or transported to or from such Properties any Hazardous Materials and there has been no litigation or other claim or action brought or threatened against Seller or any settlements reached by Seller with any third party or third parties alleging the presence, disposal, release or threatened release of any Hazardous Materials on, from or under any of such Properties which would result in a loss, liability or damage, in the aggregate, in excess of Ten Thousand Dollars ($10,000). (aa) Brokers. Except as set forth in the Disclosure Schedule, neither Seller nor its Subsidiaries, nor any of its directors, officers or employees has employed any broker, finder or financial advisor or incurred any liability for any brokerage fee or commission, finder's fee or financial advisory fee, in connection with the transactions contemplated hereby, nor is there any basis known to Seller for any such fee or commission to be claimed by any person or entity. (bb) SEC Reports. Seller has duly made all required filings with the Securities and Exchange Commission under the Securities Exchange Act of 1934 and all similar required filings with any other Authority and all of the reports, forms and documents so filed complied in all material respects with all applicable requirements and Laws. Seller will promptly furnish to Purchaser an accurate and complete copy of the reports, forms and documents filed after the date of this Agreement or such reports, forms or documents reasonably requested by Purchaser. (cc) Financial Capacity. As of the Closing Date, Seller shall have the financial capacity to pay its debts as they become due and funds sufficient to carry on its business as conducted and as proposed to be conducted. (dd) Ralcorp. Without limiting the generality of any of Seller's representations and warranties herein, Seller represents and warrants that, except as set forth in the Disclosure Schedule: (i) Seller has no written agreement with Ralcorp; (ii) the main provisions, terms (including pricing) and conditions of Seller's oral agreement with Ralcorp (including without limitation, invoicing procedures between Seller and Ralcorp, on the one hand, and among Seller, Ralcorp and customers on the other) are set forth on the Disclosure Schedule; (iii) Purchaser will be able, at any time after Closing, to terminate Seller's agreement with Ralcorp without any liability except as such liability relates to the purchase of products, inventory, and packaging, or the exhaustion of such through manufacture upon termination as is customary in the existing relationship between the Parties described in the Disclosure Schedule; and 22 (iv) Seller has not at any time disclosed any of its customers lists to Ralcorp. (ee) Y2K. Sellers' computer and information technology systems are all Y2K compliant and Seller has not experienced any damages, costs, expenses or interruptions in its systems or of its business as a result of Y2K resulting in costs, losses, or damages exceeding $25,000 in the aggregate. (ff) Accuracy of Information. No representation or warranty by Seller in this Agreement contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which they were made, not misleading as of the date of the representation or warranty. Section 5 Representations and Warranties of Purchaser Purchaser represents and warrants to Seller as of the date hereof as follows: (a) Corporate Organization. Purchaser is a corporation duly organized, validly existing and in good standing under the law of the State of Delaware. (b) Authorization. Purchaser has full corporate power and authority to enter into this Agreement and to carry out the transactions contemplated herein. The Board of Directors of Purchaser has taken all action required by law, its articles or certificate of incorporation and bylaws or otherwise to authorize the execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein. This Agreement is the valid and binding legal obligation of Purchaser enforceable against it in accordance with its terms. (c) Non-Contravention. Neither the execution, delivery and performance of this Agreement nor the consummation of the transactions contemplated herein will: (i) violate any provision of the articles or certificate of incorporation or bylaws of Purchaser, which violation will materially adversely affect Purchaser's ability to consummate the transactions contemplated herein; or (ii) violate, be in conflict with, or constitute a default, however defined (or an event which, with the giving of due notice or lapse of time, or both, would constitute such a default), under, or cause or permit the acceleration of the maturity of, or give rise to, any right of termination, cancellation, imposition of fees or penalties under, any debt, note, bond, lease, mortgage, indenture, license, obligation, contract, commitment, franchise, permit, instrument or other agreement or obligation to which Purchaser or any subsidiary of Purchaser is a party or by which they or any of their properties or assets is or may be bound (unless with respect to which defaults or other rights, requisite waivers or consents shall have been obtained at or prior to the Closing), which violation will materially adversely affect Purchaser's ability to consummate the transactions contemplated herein, or (iii) result in the creation or imposition of any Lien, upon any property or assets of Purchaser or any subsidiary of Purchaser under any debt, obligation, contract, agreement or commitment to which Purchaser or any subsidiary of Purchaser is a party or by which Purchaser or any subsidiary of Purchaser or any of their assets or properties is or may be bound, which Lien will materially adversely affect Purchaser's ability to consummate the transactions contemplated herein; or 23 (iv) to the knowledge of Purchaser, violate any Law which violation will materially adversely affect Purchaser's ability to consummate the transactions contemplated herein. (d) Consents and Approvals. Except for the Consents identified on Exhibit 5(d) hereto, no Consent is required by any person or entity, including without limitation any Authority, in connection with the execution, delivery and performance by Purchaser of this Agreement, or the consummation of the transactions contemplated herein, other than any Consent which, if not made or obtained, will not, individually or in the aggregate, have a material adverse effect on the business of Purchaser and its subsidiaries taken as a whole. (e) Brokers. Except as disclosed on Exhibit 5(e) hereto, neither Purchaser nor any of its directors, officers or key employees have employed any broker or finder, or incurred any liability for any brokerage fee or commission or finder's fee, in connection with the transactions contemplated hereby, nor is there any basis known to Purchaser for any such fee or commission to be claimed by any person or entity. (f) Disclosure. No representation or warranty by Purchaser in this Agreement contains or will contain any untrue statement of material fact or omits or will omit to state any material fact necessary in order to make the statements herein or therein, in light of the circumstances under which made, not misleading as of the date of the representation or warranty. (g) Current Business Practices. Purchaser will use its reasonable commercial efforts to continue the Seller's customary practice relating to the termination of services with its third-party manufacturers and suppliers by purchasing unsold or unused product, inventory, and packaging, or allowing such third party to continue manufacturing throughout the exhaustion of such product, inventory, and packaging. A description of such practices is set forth on Exhibit 5(g). (h) Availability of Funds. Purchaser has the assets, resources and the financial capacity necessary to consummate the transactions (including without limitation the payment of the Purchase Price) contemplated by this Agreement. Section 6 Covenants (a) Seller's Agreements as to Specified Matters. Except as specifically set forth on the Disclosure Schedule, except in the ordinary course of business and consistent with past practice, and except as may be otherwise agreed in writing by Purchaser, from the date hereof until the Closing, Seller shall not: (i) Amend its articles or certificate of incorporation or bylaws; (ii) Borrow or agree to borrow any funds; (iii) Incur, assume, suffer or become subject to, whether directly or by way of guarantee or otherwise, any claims, obligations, liabilities or loss contingencies which, individually or in the aggregate, is or are in excess of Twenty-Five Thousand Dollars ($25,000) or would have an adverse effect on the financial condition of Seller; (iv) Pay, discharge or satisfy any claims, liabilities or obligations; 24 (v) Permit or allow any of its properties or assets to be subjected to any Lien, except the Permitted Liens; (vi) Write down the value of any inventory or write-off as uncollectible any notes or accounts receivable or any trade accounts or trade notes; (vii) Cancel or amend any debts, waive any claims or rights or sell, transfer or otherwise dispose of any properties or assets; (viii) License, sell, transfer, pledge, modify, disclose, dispose of or permit to lapse any right to the use of any Intellectual Property Rights; (ix) (A) Terminate, enter into, adopt, institute or otherwise become subject to or amend in any material respect any collective bargaining agreement or employment or similar agreement or arrangement with any of its directors, officers or employees; (B) terminate, enter into, adopt, institute or otherwise become subject to or amend in any material respect any Benefit Arrangement; (C) contribute, set aside for contribution or authorize the contribution of any amounts for any such Benefit Arrangement except as required (and not discretionary) by the terms of such Benefit Arrangement; or (D) grant or become obligated to grant any general increase in the compensation of any directors, officers or employees (including without limitation any such increase pursuant to any Benefit Arrangement); (x) Make or enter into any commitment for capital expenditures for additions to property, plant or equipment individually, or in the aggregate, in excess of Twenty-Five Thousand Dollars ($25,000) unless consented to in writing by Purchaser which consent may not be unreasonably withheld; (xi) (A) Declare, pay or set aside for payment any dividend or other distribution in respect of its capital stock or other securities (including without limitation distributions in redemption or liquidation) or redeem, purchase or otherwise acquire any shares of its capital stock or other securities, except with respect to securities comprising Seller Capital Stock outstanding as of the date hereof; (B) issue, grant or sell any shares of its capital stock or equity securities of any class, or any options, warrants, conversion or other rights to purchase or acquire any such shares or equity securities or any securities convertible into or exchangeable for such shares or equity securities, except issuance of securities pursuant to the terms of issuance of Seller Capital Stock outstanding as of the date hereof and the issuance of additional Seller capital stock consisting of Series C and Series D Preferred Stock to raise the working capital funds required hereunder; (C) become a party to any merger, exchange, reorganization, recapitalization, liquidation, dissolution or other similar corporate transaction; or (D) organize any new subsidiary, acquire any capital stock or other equity securities or other ownership interest in, or assets of, any person or entity or otherwise make any investment by purchase of stock or securities, contributions to capital, property transfer or purchase of any properties or assets of any person or entity; (xii) Pay, lend or advance any amounts to, or sell, transfer or lease any properties or assets to, or enter into any agreement or arrangement with, any director, officer, employee or shareholder; (xiii) Terminate, enter into or amend in any material respect any item identified in Part 4(t) of the Disclosure Schedule, or take any action or omit to take any action which will cause a breach, violation or default (however defined) under any such item; or (xiv) Agree, whether in writing or otherwise, to take any action described in this subsection. 25 (b) Conduct of Seller Business. Except as set forth in the Disclosure Schedule, Seller shall maintain its assets and properties and carry on its businesses and operations in the ordinary course of business in substantially the same manner as previously operated; and Seller shall use its best efforts to preserve intact its business organizations, existing business relationships (including without limitation its relationships with officers, employees, dealers, distributors, independent contractors, customers and suppliers), good will and going concern value. (c) No Seller Solicitation of Alternate Transaction. (i) Seller shall not, and will use its best efforts to ensure that its directors, officers and employees, independent contractors, consultants, counsel, accountants, investment advisors and other representatives and agents shall not, directly or indirectly, solicit, initiate or encourage discussions or negotiations with, provide any confidential or nonpublic information to, or enter into any agreement with, any third party concerning (or concerning the business of Seller in connection with) any tender offer (including a self tender offer), exchange offer, merger, consolidation, sale of substantial assets or of a significant amount of assets, sale of securities, acquisition of beneficial ownership of or the right to vote securities representing more than five percent (5%) of the total voting power of Seller, liquidation, dissolution or similar transactions; provided, however, that the foregoing shall not prohibit Seller (either directly or indirectly through its directors, officers, employees, independent advisors, consultants, counsel, and accountants) from: (A) furnishing information concerning the Seller and its businesses, properties, or assets to any person, corporation, entity, or "group" as defined in Section 13(d) of the Exchange Act, other than Purchaser or any of its affiliates (a "Third Party") in response to any bona fide unsolicited inquiry, proposal or offer by such Third Party; (B) engaging in discussions or negotiations with such Third Party that has made such bona fide unsolicited inquiry, proposal, or offer; (C) following receipt of such a bona fide unsolicited proposal for acquisition of the Seller or its Assets, taking and disclosing to its shareholders a position contemplated by Rule 14c-2(a) under the Exchange Act or otherwise making disclosure to its shareholders; and (D) taking any non-appealable, final action ordered to be taken by the Seller by any court of competent jurisdiction but in each case referred to in the foregoing clauses (A) through (C), only to the extent that the Board of Directors of the Seller shall have concluded in good faith that such action is required to prevent the Board of Directors of the Seller from breaching its fiduciary duties to the shareholders of the Seller under applicable law. (ii) Break-up Fee. If for the reasons set forth in this Section 6(c), this Agreement and the transactions contemplated hereby shall be terminated by Seller pursuant to Section 9(a)(iv) without the Closing having occurred (whether such Third Party offer results in the consummation of a transaction or not), then Seller agrees to pay Purchaser a "Break-up Fee". The Break-up Fee shall consist of the sum of One Million Five Hundred Thousand Dollars ($1,500,000), payable immediately upon termination hereof. The Parties acknowledge that the Break-up Fee represents a negotiated figure which is not a penalty and constitutes a reasonable estimate of the damages and costs that would be incurred by Purchaser in the event of termination giving rise thereto. 26 (d) Full Access to Purchaser. Seller has and shall provide Purchaser all information in its possession requested by Purchaser after using best efforts to procure such information and afford to Purchaser and its directors, officers, employees, counsel, accountants, investment advisors and other authorized representatives and agents free and full access during normal business hours to the facilities, properties, books and records of Seller in order that Purchaser may have full opportunity to make such investigations as it shall desire to make of the affairs of Seller; provided, however, that any such investigation shall be conducted in such a manner as not to interfere unreasonably with business operations; and Seller shall furnish such additional financial and operating data and other information as Purchaser shall, from time to time, reasonably request, including without limitation access to the working papers of their independent certified public accountants (as and to the extent permitted by such independent certified public accountants); and, provided, further, that any such investigation shall not affect or otherwise diminish or obviate in any respect any of the representations and warranties of Seller herein. (e) Confidentiality. Each of the Parties agrees that it will not use, or permit the use of, any of the information relating to any other Party hereto furnished to it in connection with the transactions contemplated herein ("Information") in a manner or for a purpose detrimental to such other Party or otherwise than in connection with the transaction, and that they will not disclose, divulge, provide or make accessible (collectively, "Disclose"), or permit the Disclosure of, any of the Information to any person or entity, other than their responsible directors, officers, employees, investment advisors, accountants, counsel and other authorized representatives and agents, except as may be required by judicial or administrative process or, in the opinion of such Party's regular counsel, by other requirements of Law; provided, however, that prior to any Disclosure of any Information permitted hereunder, the disclosing Party shall first obtain the recipients' undertaking to comply with the provisions of this subsection with respect to such information. The term "Information" as used herein shall not include any information relating to a Party which the Party disclosing such information can show: (i) to have been in its possession prior to its receipt from another Party hereto; (ii) to be now or to later became generally available to the public through no fault of the disclosing Party; (iii) to have been available to the public at the time of its receipt by the disclosing Party; (iv) to have been received separately by the disclosing Party in an unrestricted manner from a person entitled to disclose such information; or (v) to have been developed independently by the disclosing Party without regard to any information received in connection with this transaction. Each Party hereto also agrees to promptly return to the Party from whom originally received all original and duplicate copies of written materials containing Information should the transactions contemplated herein not occur. A Party hereto shall be deemed to have satisfied its obligations to hold the Information confidential if it exercises the same care as it takes with respect to its own similar information. The Parties acknowledge that the transaction described herein is of a confidential nature, and agree that the terms hereof, including the purchase price hereunder, shall be maintained in confidence. Sellers, with the prior approval of Purchaser, at a time and in a manner that is acceptable to both Purchaser and Sellers, may notify employees of the fact of the subject transaction. (f) Filings; Consents; Removal of Objections. Subject to the terms and conditions herein provided, the Parties shall use their best efforts to take or cause to be taken all actions and do or cause to be done all things necessary, proper or advisable under applicable Laws to consummate and make effective, as soon as reasonably practicable, the transactions contemplated hereby, including without limitation obtaining all Consents of any person or 27 entity, whether private or governmental, required in connection with the consummation of the transactions contemplated herein. In furtherance, and not in limitation of the foregoing, it is the intent of the parties to consummate the transactions contemplated herein at the earliest practicable time, and they respectively agree to exert their best efforts to that end, including without limitation, if required: (i) the filing with the Federal Trade Commission ("FTC") and the Antitrust Division of the Department of Justice (the "Antitrust Division") all requisite documents and notifications in connection with the transactions contemplated hereby pursuant to the HSR Act as soon as practicable following the date hereof, and to respond as promptly as practicable to all inquiries from the FTC or the Antitrust Division in connection therewith; (ii) the removal or satisfaction, if possible, of any objections to the validity or legality of the transactions contemplated herein; and (iii) the satisfaction of the conditions to consummation of the transactions contemplated hereby. (g) Further Assurances; Cooperation; Notification. (i) Each Party hereto shall, before, at and after Closing, execute and deliver such instruments and take such other actions as the other Party or Parties may reasonably require in order to carry out the intent of this Agreement. (ii) Seller shall cooperate with Purchaser to promptly develop plans for the management of the businesses after the Closing, including without limitation plans relating to productivity, marketing, operations and improvements, and Seller shall further cooperate with Purchaser to provide for the implementation of such plans as soon as practicable after the Closing. Subject to applicable Law, Seller shall confer on a regular and reasonable basis with one or more representatives of Purchaser to report on material operational matters and the general status of ongoing operations. (iii) At all times from the date hereof until the Closing, each Party shall promptly notify the other in writing of the occurrence of any event which it reasonably believes will or may result in a failure by such Party to satisfy the conditions specified in Section 7 and Section 8 hereof within seven (7) days. (h) Supplements to Disclosure Schedule. Within a reasonable time (but in no event later than three (3) Business Days) prior to the Closing, Seller shall supplement or amend the Disclosure Schedule with respect to any event or development which, if existing or occurring at or prior to the date of this Agreement, would have been required to be set forth or described in the Disclosure Schedule or which is necessary to correct any information in the Disclosure Schedule or in any representation and warranty of Seller which has been rendered inaccurate by reason of such event or development. For purposes of determining the accuracy as of the date hereof of the representations and warranties of Seller contained in Section 4 hereof in order to determine the fulfillment of the conditions set forth in Section 7, the Disclosure Schedule shall be deemed to exclude any information contained in any supplement or amendment hereto delivered after the delivery of the Disclosure Schedule. (i) Public Announcements. None of the Parties shall make any public announcement with respect to the transactions contemplated herein or the purchase price hereunder without the prior written consent of the other Party; provided, however, that any of the Parties may at any time make any announcements which are required by applicable Law so long as the Party so required to make an announcement, promptly upon learning of such requirement, notifies the other Party of such requirement and discusses with it in good faith the exact proposed wording of any such announcement for such other Party's reasonable approval which shall not be unreasonably withheld. Without limiting the generality of the foregoing, 28 Seller hereby agrees to deliver to Purchaser final draft(s) of any information statements (any such information statement, an "Information Statement") to be distributed to its shareholders pursuant to applicable Law in connection with this Agreement and the terms and conditions contemplated hereby and the issuance of the securities disclosed in Part 6(a)(xi)(B) of the Disclosure Schedule, it being understood and agreed that any such Information Statement shall be (x) in form and substance reasonably acceptable to Purchaser and (y) provided to Purchaser at least two (2) Business Days prior to its distribution to Seller's securities holders or filing with any applicable Authority. (j) Transactional Tax Undertakings. (i) The Parties shall cooperate to make any necessary filings with state and local taxing authorities and to furnish any required supplemental information to any federal, state, local, and foreign tax liabilities resulting from the consummation of the transactions contemplated herein. (ii) In the event that any sales or use tax, or any tax in the nature of a sales or use tax, or any transactional tax is payable or assessed relative to the transactions contemplated herein, Seller shall pay all such taxes and shall not collect any part thereof from Purchaser, provided, however, that Purchaser shall pay any excise tax required with respect to the relicensing of any motor vehicles which are part of Seller's Assets. (k) Bulk Transfers. Seller has requested that Purchaser waive, and Purchaser hereby agrees to waive, the requirements of the Uniform Commercial Code concerning bulk transfers, as in effect in the various states in which Seller has assets, including without limitation the requirement of notice to creditors. It is expressly agreed by the Parties that the obligation to indemnify Purchaser under Section 10(e) includes any and all liability (including claims, suits or demands against Purchaser), loss, cost (including reasonable attorney's fees), expense or damage of any kind which Purchaser may suffer in connection with such request and waiver. (l) Employee Benefits. (i) Employees. On the Closing Date, Purchaser: (A) will assume the employees covered by the collective bargaining agreements listed in Part 4(v)(ii)(F), and in Part 4(v)(i) under "union" employees, of the Disclosure Schedule and (B) shall have the right (but not the obligation) to offer to all or any number of the other employees then employed with respect to the businesses relating to Seller's Assets the opportunity to maintain such employee's current employment and shall provide within thirty (30) days after the execution of this Agreement, but not later than ten (10) Business Days prior to Closing, a list of those employees of Seller to whom it will offer employment (collectively, the "Transferred Employees"); provided, that Purchaser, in its sole discretion and considering its best interests, may terminate the employment of any employees who accept such offer at any time after such Closing Date. During the first twelve (12) months after the Closing Date, the compensation and benefits provided by Purchaser shall be reasonably comparable on an overall basis (including without limitation all compensation and benefits accrued by such employees as of the Closing Date under all Pension Plans, Welfare Plans and Benefit Arrangements irrespective of whether such accrued benefits are actually received by such employees) to those provided to such employees prior to the Closing Date with credit given for the length of actual service with Seller (or both) prior to the Closing Date. Purchaser has not agreed to assume any obligation or liability under any Pension Plans, Welfare Plans, Benefit Arrangements, severance obligation or other employment benefit related obligation but may do so in its sole discretion. 29 (ii) Severance. If the employment of any employee who accepts the offer referred to in Section 6(1)(i) above is terminated by Purchaser other than for cause within the twelve (12) months after the Closing Date, Purchaser shall be responsible for making payment of severance compensation to such employee in accordance with the practice of Seller or any of its Subsidiaries (as applicable) at the Closing Date, as described on Exhibit 6(1) hereto, with credit being given for the length of actual service with Seller (or both) prior to the Closing Date. (iii) 401(k) Plan. Purchaser shall take appropriate measures with Seller's assistance as reasonably requested so that Seller's 401(k) plans shall be, upon Closing: (x) assumed by Purchaser (and amended, if required by Purchaser), (y) merged into an existing 401(k) plan maintained by Purchaser, and/or (z) frozen or terminated and replaced with new plans (within Purchaser's sole discretion). (iv) Retention of Employees. Neither Seller nor any Subsidiary shall, for a period of three (3) years after the Closing Date, take any action, other than with the written consent of Purchaser, to induce any employee who accepts an offer pursuant to Section 6(1)(i) above, while still employed by Purchaser or any subsidiary of Purchaser, to enter into the employ of Seller or other affiliate of Seller. (m) Use of Trade Names and Corporate Name. As of and after the Closing, Seller shall not use any of the names listed on Exhibit 3(a)(i) or title similar to such name or any other trade names or trademarks being transferred hereunder. (n) Special Reserve Fund. Seller has raised from among its current shareholders through the issuance of new Series D Preferred Convertible Stock the aggregate amount of One Million Five-Hundred Thousand Dollars ($1,500,000), of which Five-Hundred Thousand Dollars ($500,000) have been set aside as a separate cash reserve (the "Special Reserve Fund"), for the purpose of assuring that Seller meets its payment obligations and working capital requirements from the date hereof through the Closing Date; the amount of the Special Reserve Fund has been set on the basis of Seller's Monthly Cash Flow Forecasts prepared by Seller for the period from February 1 through May 31, 2000, attached hereto as Schedule 6(n). The balance of One-Million Dollars ($1,000,000) shall be injected into Seller for normal business and operational purposes. The Special Reserve Fund, which is free of any Liens, may be drawn upon only on the terms and for the purposes set forth in the "Reserve Escrow Agreement" delivered to Purchaser on the date hereof substantially in the form of Exhibit 6(n). (o) Bank Extension. Annexed hereto as Exhibit 6(o) is an executed copy of the Fourth Amendment to Financing Agreement, dated as of March 31, 2000 (the "Bank Extension"), entered into by Seller and U.S. Bancorp Republic Commercial Finance, Inc. (the "Bank"). Seller represents and warrants that: (x) the Bank Extension is effective as of the date of execution of this Agreement, and (y) Seller has complied with all of the conditions set forth therein.. (p) Noncompetition and Confidentiality Agreements. At the Closing, Seller shall: (i) provide Purchaser with copies of the Noncompetition and Confidentiality Agreements dated as of the Closing Date, executed by Thomas J. Guinan, Jeffrey Weiner and Adnan Durrani substantially in the forms respectively set forth in Exhibit 7(h), and (ii) assign to Purchaser all of Seller's rights, benefits, and interests under each of the Worth Agreements with respect to Protection of Confidential Information and Noncompetition so that the provisions of Sections 4, 5 and 6 of each of the Worth Agreements 30 shall inure in full to the sole benefit of the Purchaser; it being understood and agreed that (x) Purchaser shall not assume any obligations whatsoever under the Worth Agreements and, except as expressly set forth above, Seller shall retain all rights and obligations under the Worth Agreements, and (y) in the event of any breach of the provisions of those rights under the Worth Agreements assigned to Purchaser, Seller shall, at Purchaser's cost, take any and all reasonable action requested by Purchaser to enforce those provisions. As used herein, the "Worth Agreements" shall mean: (A) that certain Consulting, Loan Repayment and Noncompetition Agreement dated as of August 13, 1997 between Richard S. Worth and Seller, and (B) that certain Consulting, Loan Repayment and Noncompetition Agreement dated as of August 13, 1997 between Randye Worth and Seller. (q) Payoff Schedule; Termination of Financing Agreement. (i) At least five (5) Business Days prior to Closing, Seller shall deliver to Purchaser a "Payoff Schedule" to be attached hereto as Exhibit 6(q), setting forth (x) a list of every creditor of Seller (including but not limited to: stock, note, warrant, option, and securities holders of Seller; banks and financial institutions; trade creditors other than those assumed by Purchaser; suppliers other than those assumed by Purchaser; and other third parties) to which Seller owes amounts which are due or to become due within ninety (90) days after Closing in excess of Ten Thousand Dollars ($10,000), (y) each such amount with respect to each creditor as of a date which shall not be more than five (5) Business Days prior to the Closing, and (z) for each creditors to be paid off at or immediately after the Closing, the payment instructions to Purchaser with information on the relevant bank account into which payment of the respective payoff amounts shall be made at or immediately after the Closing. (ii) On or before the Closing, Seller shall provide Purchaser with fully executed originals, in form and substance acceptable to Purchaser, of: (A) an agreement in writing between Bank and Seller providing for (x) Seller's payment in full of all amounts due or outstanding under the Financing Agreement (as defined in, and amended by, the Bank Extension), and (y) the termination of such Financing Agreement and of any and all Liens granted to the Bank on any of Seller's Assets, and (B) an instrument in writing of the Bank releasing any and all of its Liens in any of Seller's Intellectual Property Rights, and whereby the Bank covenants and agrees to execute and deliver to Purchaser any further documents and instruments as may be necessary or reasonably requested by Purchaser in order to fully release such Intellectual Property Rights and other Seller's Assets from any Liens held in Bank's favor. (r) Further Covenants of Seller. Without limiting the generality of any other provision of this Agreement, (i) On or prior to Closing, Seller shall: (A) be qualified to do business and be in good standing in the state of Illinois or indemnify Purchaser pursuant to Section 10(c) from and against any and all loss, liability, or damage suffered or incurred by Purchaser in connection with Seller's failure to so qualify or be in good standing; (B) obtain acknowledgement and consent of Condor Ventures, Inc.; Laner, Muchin, Dombrow, Becker, Levin and Tominberg, Ltd. (LMDBLT), and the Bank that the execution of this Agreement and consummation of the transactions contemplated hereby do not contravene the agreements set forth in Part 4(e)(ii) of the Disclosure Schedule or indemnify Purchaser pursuant to Section 10(c) from and against any and all loss, liability, or damage suffered or incurred by Purchaser in connection with Seller's failure to obtain acknowledgement and consent; (C) in relation to the Pate's litigation disclosed in Part 4(o) of the Disclosure Schedule, indemnify and hold Purchaser harmless to the fullest extent set forth in Section 10 below, against all claims or causes of action commenced, directly or indirectly, by Pate's Bakery, LLC against Purchaser; and (D) make all 31 necessary filings, cure any outstanding deficiencies and pay all fees and penalties necessary to bring the 401(k) plans set forth in Part 4(r) of the Disclosure Schedule in full compliance with law or, if Purchaser so chooses, at Purchaser's sole discretion, indemnify Purchaser pursuant to Section 10(c) from and against any and all loss, liability, or damage suffered or incurred by Purchaser in connection with Seller's failure to make such filings, cure such deficiencies or pay such fees and penalties; (ii) Except as provided in Section 6(l)(i), Seller represents, warrants and covenants that Purchaser has not, and will not, assume any obligation whatsoever for any employment agreement(s) of Seller with any of its employees including, but not limited to those with Mark Robson, Thomas Guinan and Jeffrey Weiner. Section 7 Conditions to Obligations of Purchaser Notwithstanding any other provision of this Agreement to the contrary, the obligation of Purchaser to effect the transactions contemplated herein shall be subject to the satisfaction at or prior to the Closing of each of the following conditions: (a) Representations and Warranties True. The representations and warranties of Seller contained in this Agreement, including without limitation in the Disclosure Schedule initially delivered to Purchaser as Exhibit 4 (and not including any changes or additions delivered to Purchaser pursuant to Section 6(h)), shall be in all material respects true, complete and accurate as of the date when made and at and as of the Closing as though such representations and warranties were made at and as of such time, except for changes specifically permitted or contemplated by this Agreement. (b) Performance. Seller shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Seller on or prior to the Closing. (c) Required Approvals and Consents. (i) All action required by law and otherwise to be taken by the Board of Directors of Seller and the shareholders of Seller to authorize the execution, delivery and performance of this Agreement by the Seller and the consummation of the transactions contemplated hereby shall have been duly and validly taken. (ii) All Consents of or from all Authorities required hereunder to consummate the transactions contemplated herein including, without limitation, those required by the HSR Act, and all Consents of from all persons and entities other than Authorities that are identified in the Disclosure Schedule shall have been delivered, made or obtained, and Purchaser shall have received copies thereof. (d) No Proceeding or Litigation. To the best of Seller's knowledge, no suit, action, investigation, inquiry or other proceeding by any Authority or other person or entity shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby or which, if successfully asserted, would individually or in the aggregate, otherwise have an adverse effect on the conduct of the businesses relating to Seller's Assets. (e) Opinion of Seller Counsel. Purchaser shall have received an opinion from Olshan, Grundman, Frome, Rosenzweig & Wolosky, LLP, counsel to Seller, dated the Closing Date, substantially in the form and substance set forth as Exhibit 7(e) hereto. 32 (f) Certificates. Purchaser shall have received such certificates of Seller's officers (including but not limited to an officer certificate certifying that the Estimated Closing Working Capital Balance/(Deficit) and the other unaudited financial statements and balance sheets provided by Seller hereunder are in compliance with Section 4(g)) in a form and substance reasonably satisfactory to Purchaser, dated the Closing Date, to evidence compliance with the conditions set forth in this Section 7 and such other matters as may be reasonably requested by Purchaser. (g) Escrow Agreements. The parties thereto shall have executed and delivered an Escrow Agreement in the form of Exhibit 7(g) hereto and the Reserve Escrow Agreement in the form of Exhibit 6(n). (h) Noncompetition and Confidentiality Agreements. On or before the Closing Date, Seller shall have delivered to Purchaser Noncompetition and Confidentiality Agreements dated as of the Closing Date and executed by Thomas J. Guinan, Jeffrey Weiner and Adnan Durrani respectively, substantially in the forms respectively set forth in Exhibit 7(h). (i) Documentation for Conveyance of Seller's Assets. Purchaser shall have received, in form and substance reasonably satisfactory to Purchaser, dated the Closing Date, all of the Bill(s) of Sale, deeds, assignments including, without limitation, assignments of trademarks and other intellectual property rights, certificates of title, and any and all other conveyance and transfer documentation listed on Exhibit 7(i) hereto as may be supplemented after the date hereof but before Closing. (j) Certificates of Amendment. On the Closing Date, Seller's shall deliver: (i) Certificate of Amendment of its certificate of incorporation to be filed in the State of Delaware amending its corporate name from "Delicious Brands, Inc." to any other name which is in compliance with Section 6(m) (the "New Name"), (ii) Certificates of Amendment (or equivalent) amending its certificates of authority to be filed in Illinois, New York and Michigan, respectively, amending its corporate name from "Delicious Brands, Inc." to the New Name, (iii) any other documents for any other jurisdiction in which it is qualified to do business or uses the "Delicious Brands, Inc." name, and (iv) any other documents otherwise necessary or convenient to consummate the transactions contemplated in this Agreement, including but not limited to, certificates of good standing from the States of Delaware, Illinois, New York and Michigan dated no earlier than two (2) Business Days prior to Closing. All such certificates shall be in form and substance reasonably satisfactory to Purchaser. (k) Environmental Phase I. The "Phase I" environmental report on Seller's premises (which Purchaser in its discretion may procure prior to Closing) does not require, in Purchaser's reasonable discretion, any material repairs to any of Seller's premises or will not cause or require the interruption of the use of Seller's premises, interfere with the carrying out of the business in the regular course, or otherwise present material liabilities or other legal risks. (l) Employees. Purchaser shall provide a list of the Transferred Employees pursuant to Section 6(l). Seller shall be solely responsible for any severance and all other employment benefits to and rights of the Transferred Employees through the Closing Date and for the remainder of Seller's employees that are not assumed or employed by Purchaser through and after Closing. (m) Payoff Schedule. At Closing, Purchaser shall have received the Payoff Schedule pursuant to Section 6(q), with any amendments as necessary to make it current as of the Closing Date; it being understood and agreed that Seller shall provide Purchaser with a draft 33 of the updated Payoff Schedule at least five (5) Business Days prior to Closing. Section 8 Conditions to Seller's Obligations Notwithstanding anything in this Agreement to the contrary, the obligation of Seller to effect the transactions contemplated herein shall be subject to the satisfaction at or prior to the Closing of each of the following conditions: (a) Representations and Warranties True. The representations and warranties of Purchaser contained in this Agreement shall be in all material respects true, complete and accurate as of the date when made and at and as of the Closing, as though such representations and warranties were made at and as of such time, except for changes permitted or contemplated in this Agreement. (b) Performance. Purchaser shall have performed and complied in all material respects with all agreements, covenants, obligations and conditions required by this Agreement to be performed or complied with by Purchaser at or prior to the Closing. (c) Corporate Approvals. The shareholders of Seller shall have approved the transactions contemplated hereby. All Consents listed on Exhibit 5(d) hereto shall have been delivered, made or obtained. All action required to be taken by Purchaser to authorize the execution, delivery and performance of this Agreement by Purchaser and the consummation of the transactions contemplated hereby shall have been duly and validly taken. (d) No Proceeding or Litigation. No suit, action, investigation, inquiry or other proceeding by any Authority or other person or entity shall have been instituted or threatened which questions the validity or legality of the transactions contemplated hereby. (e) Certificates. Purchaser shall have furnished Seller with such certificates of Seller officers, in a form and substance reasonably acceptable to Seller, dated the Closing Date, to evidence compliance with the conditions set forth in this Section 6 and such other matters as may be reasonably requested by Seller. (f) Opinion of Purchaser Counsel. Purchaser shall have delivered to Seller an opinion from BBLP - Pavia e Ansaldo Beiten Burkhardt Mittl & Wegener Moquet Borde & Associes Meyer Lustenberger, Professional Corporation, counsel to Purchaser, dated the Closing Date, in the form and substance set forth as Exhibit 8(f) hereto. (g) Payment of Consideration. Seller shall have received satisfactory evidence that the wire transfers required by Sections 3(b)(A)(i) and 3(b)(A)(ii) hereof have been completed and the Liability Undertaking required by Section 3(b)(B) hereof has been executed and delivered. (h) Escrow Agreements. The parties thereto shall have executed and delivered an Escrow Agreement in the form of Exhibit 7(g) hereto and the Reserve Escrow Agreement in the form of Exhibit 6 (n) hereto. Section 9 Termination and Abandonment (a) Methods of Termination. This Agreement may be terminated and the transactions contemplated herein may be abandoned at any time notwithstanding approval 34 thereof by the shareholders of Seller, but not later than the Closing: (i) By mutual written consent of Purchaser and Seller; or (ii) By Purchaser on or after the Termination Date or such later date as may be established pursuant to Section 3 hereof, if any of the conditions provided for in Section 7 of this Agreement shall not have been satisfied or waived in writing by Purchaser prior to such date; or (iii) By Seller on or after the Termination Date or such later date as may be established pursuant to Section 3 hereof, if any of the conditions provided for in Section 8 of this Agreement shall not have been satisfied or waived in writing by Seller prior to such date; or (iv) By Seller if, prior to Closing, in good faith, based upon written advice from outside counsel, and in order to prevent the Board of Directors from breaching its fiduciary duty, the Board of Directors of Seller shall have withdrawn or modified, in a manner adverse to Purchaser, its approval or recommendation of this Agreement or its recommendation that shareholders of the Seller adopt and approve this Agreement in order to permit Seller to execute a definitive agreement providing for the acquisition of the assets of the Seller or in order to approve a tender or exchange offer for any or all of the Seller's Common Stock, in either case, that is determined, by the Board of Directors of the Company to be a superior proposal. In the foregoing event, Seller shall pay Purchaser the Break-up Fee as set forth above in Section 6(c)(ii). (v) By any Party if the Closing shall not have occurred on or before June 15, 2000. (b) Procedure Upon Termination. In the event of termination and abandonment pursuant to subsection (a), written notice thereof shall forthwith be given to the other Party or Parties, and the provisions of this Agreement (except to the extent provided in Section 11(a)) shall terminate, and the transactions contemplated herein shall be abandoned, without further action by any Party hereto. If this Agreement is terminated as provided herein: (i) each Party will, upon request, redeliver all documents, work papers and other material of any other Party (and all copies thereof) relating to the transactions contemplated herein, whether so obtained before or after the execution hereof, to the Party furnishing the same; (ii) the confidentiality obligations of Section 6 (e) shall continue to be applicable; and (iii) except as provided in this subsection, no Party shall have any liability for a breach of any representation, warranty, agreement, covenant or other provision of this Agreement, unless such breach was due to a willful or bad faith action or omission of such Party or any representative, agent, employee or independent contractor thereof. Section 10 Survival and Indemnification (a) Survival. The representations and warranties of each of the Parties shall survive the Closing for a period of two (2) years from the Closing Date. (b) Indemnification by Purchaser. Purchaser agrees to indemnify Seller from and against any and all loss, liability or damage suffered or incurred by it by reason of (i) any untrue representation of, or breach of warranty or covenant by, Purchaser in any part of this Agreement, provided, however, that no claim for indemnity may be made pursuant to this subsection after the second anniversary of the Closing Date; (ii) any nonfulfillment of any covenant, agreement or undertaking of Purchaser in any part of this Agreement which by its 35 terms is to remain in effect after the Closing and has not been specifically waived in writing at the Closing by the Party or Parties hereof entitled to the benefits thereof; and (iii) any obligations of Seller assumed by Purchaser in the Liability Undertaking. (c) Indemnification by Seller; Untrue Representation or Breach of Warranty or Covenant. Seller agrees to indemnify Purchaser from and against any and all loss, liability or damage suffered or incurred by it by reason of any untrue representation of, or breach of warranty or covenant by Seller in this Agreement, provided, however, that Purchaser shall make any claim(s) pursuant to this subsection (c): (A) exclusively against the Escrow Fund (and then to the Seller only in the event that the Escrow Fund is no longer available or lacks sufficient funds) until the aggregate amount of all such claims exceeds Five-Hundred Thousand Dollars ($500,000), and (B) either against the Escrow Fund or directly against Seller, in Purchaser's sole discretion, once the amount of all such claims exceeds Five-Hundred Thousand Dollars ($500,000), and provided, further, that no claims for indemnity may be made pursuant to this subsection after the second anniversary of the Closing Date. (d) Indemnification by Parties; Closing Working Capital Balance Adjustment. Seller and Purchaser agree to indemnify each other for the amount of the Closing Working Capital Balance Adjustment determined pursuant to Section 3(c) and resulting in any shortfall or excess, as the case may be. Any shortfall shall result in a dollar-for-dollar reduction in the Purchase Price in the full amount of such shortfall. Purchaser shall, in its sole discretion, either make a claim for such amount under the Escrow Agreement or directly in writing against Seller, which shall be payable within ten (10) Business Days of receipt by Seller. Any excess shall result in a dollar-for-dollar increase in the Purchase Price in the full amount of such excess. Seller shall make a written demand to Purchaser and such excess amount shall be payable within ten (10) Business Days of receipt thereof by Purchaser. (e) Indemnification by Seller; Other. Seller agrees to indemnify Purchaser from and against: (i) any and all loss, liability or damage suffered or incurred by it by reason of any nonfulfillment of any covenant, agreement or undertaking of Seller in this Agreement which by its terms is to remain in effect after the Closing and has not been specifically waived in writing at the Closing by the Party or Parties entitled to the benefits thereof; (ii) any obligations of Seller not specifically assumed by Purchaser in the Liability Undertaking; and (iii) any and all costs and expenses, including, without limitation, legal fees and expenses, in connection with enforcing the indemnification rights of Purchaser pursuant to Sections 10(c), 10(d) and 10(e). (f) Basket Amount. Notwithstanding anything in Sections 10(b), (c) and 10(e) to the contrary, neither Party shall be entitled to any indemnification under such subsections against the other Party if the aggregate amount of all claims of the Indemnified Party (as defined below) thereunder is less than One-Hundred Twenty-Five Thousand Dollars ($125,000) (the "Basket Amount"), but if the aggregate amount of all such Indemnified Party's claims exceeds the Basket Amount, then the Indemnified Party shall be entitled to full indemnification of all claims and there shall be no Basket Amount. Notwithstanding anything in this Agreement to the contrary, for the purposes of calculating the Basket Amount, Purchaser and Seller agree that each dollar from the very first dollar on the very first claim incurred by the Indemnified Party shall be included in calculating the Basket Amount regardless of any threshold set forth in any provision of this Agreement. The Parties do not intend that the Basket Amount be deemed to be a definition of what is "material" for any purpose in this Agreement. Neither Party shall be entitled to any indemnification under the subsection hereof in excess of the Purchase Price. The foregoing notwithstanding, there shall be no Basket Amount applicable to claims under Section 10(d). 36 (g) Claims for Indemnification. Whenever any claim shall arise for indemnification hereunder, the Party seeking indemnification (the "Indemnified Party") shall promptly notify the Party from whom indemnification is sought (the "Indemnifying Party") of the claim and, when known, the facts constituting the basis for such claim. In the case of any such claim for indemnification, hereunder resulting from or in connection with any claim or legal proceedings of a third party, the notice to the Indemnifying Party shall specify, if known, the amount or an estimate of the amount of the liability arising there from. The Indemnified Party shall not settle or compromise any claim by a third party for which it is entitled to indemnification hereunder without the prior written consent of the Indemnifying Party, which shall not be unreasonably withheld. If the Indemnifying Party is of the opinion that the Indemnified Party is not entitled to indemnification, or is not entitled to indemnification in the amount claimed in such notice, it shall deliver, within thirty (30) days after the receipt of such notice, a written objection to such claim and written specifications in reasonable detail of the aspects or details objected to, and the grounds for such objection. If the Indemnifying Party shall file timely written notice of objection to any claim for indemnification, the validity and amount of such claim shall be determined by arbitration pursuant to Section 11(l) hereof. If timely notice of objection is not delivered or if a claim by an Indemnified Party is admitted in writing by an Indemnifying Party or if an arbitration award is made in favor of an Indemnified Party pursuant to Section 11(1), the Indemnified Party, as a non-exclusive remedy, shall have the right to (i) receive from the Escrow Agent, upon five (5) days prior written notice to the other party by the Escrow Agent of such release of funds, the amount of such claim or award on a dollar-for-dollar basis in order to satisfy such claim or award; (ii) set off the amount of such claim or award against any amount yet owed, whether due or to become due, by the Indemnified Party or any subsidiary thereof to any Indemnifying Party by reason of this Agreement or any agreement or arrangement or contract to be entered into at the Closing; or (iii) recover the amount of such claim or award by using a combination of subparagraphs (i) and (ii). (h) The Parties here agree and acknowledge that certain representations, warranties, covenants and indemnification rights may survive the term of the Escrow Agreement and, therefore, the availability of any Escrow Funds (as defined therein). In the event that after termination of the Escrow Agreement, a Party intends to make a claim to an Indemnifying Party pursuant to a right hereunder, the Indemnified Party shall do so directly setting forth in a written notice the basis for the claim and the amount sought. If the Parties cannot mutually agree to resolve such claim within thirty (30) days after receipt by the Indemnifying Party of such notice, the Indemnified Party may pursue its remedies, under Section 11(l) of this Agreement. Section 11 Miscellaneous Provisions (a) Expense. Each of the Parties shall bear its own costs, fees and expenses in connection with the negotiation, preparation, execution, delivery and performance of this Agreement and the consummation of the transactions contemplated hereby, including without limitation fees, commissions and expenses payable to brokers, finders, investment bankers, consultants, exchange or transfer agents, attorneys, accountants and other professionals, whether or not the transactions contemplated herein are consummated; provided, however, that each Party shall bear fifty percent (50%) of the fees and expenses of the Independent Accountant and each Party shall bear fifty percent (50%) of the fees of the Escrow Agent. (b) Amendment and Modification. Subject to applicable Law, this Agreement may be amended or modified by the Parties at any time prior to the Closing with respect to any of the 37 terms contained herein; provided, however, that all such amendments and modifications must be in writing duly executed by all of the Parties. (c) Waiver of Compliance; Consents. Any failure of a Party to comply with any obligation, covenant, agreement or condition herein may be expressly waived in writing by the Party entitled hereby to such compliance, but such waiver or failure to insist upon strict compliance with such obligation, covenant, agreement or condition shall not operate as a waiver of, or estoppel with respect to, any subsequent or other failure. No single or partial exercise of a right or remedy shall preclude any other or further exercise thereof or of any other right or remedy hereunder. Whenever this Agreement requires or permits the consent by or on behalf of a Party, such consent shall be given in writing in the same manner as for waivers of compliance. (d) No Third Party Beneficiaries. Nothing in this Agreement shall entitle any person or entity (other than an assignee of Purchaser or a Party hereto and his, her or its respective successors and assigns permitted hereby) to any claim, cause of action, remedy or right of any kind. (e) Notices. All notices, requests, demands and other communications to either party hereunder shall be in writing delivered by certified or registered mail, return receipt requested; reputable overnight courier, by hand and a copy by facsimile transmission and shall be given to: if to Purchaser, to: Parmalat Bakery Division 135 Otonabee Drive Kitchener, Ontario N2C 1L7 Canada Attn.: Mr. Ray Kingdon, President Facsimile No.: 519-893-9223 Telephone No.: 519-893-6400 x 227 and Parmalat Canada 405 The West Mall Suite 1000, 10th Floor Etobicoke, Ontario M9C 5J1 Canada Attn.: Mr. Peter Quintiliani, Chief Financial Officer Mr. Peter Ferraro, VP and General Counsel Facsimile No.: 416-620-3626 Telephone No.: 416-620-3623 with a copy to: Parmalat S.p.A. Via O. Grassi 22/26 43044 Collecchio Parma, Italy Attn.: Mr. Fausto Tonna, Chief Financial Officer Facsimile No.: (+39) 0521 808 327 Telephone No.: (+39) 0521 8081 38 BBLP - Pavia e Ansaldo Beiten Burkhardt Mittl & Wegener Moquet Borde & Associes Meyer Lustenberger, Professional Corporation 460 Park Avenue, 21st Floor New York, NY 10022 Attn.: Gian Paolo Zini Richard P. Altieri Facsimile No.: (212) 980 1453 Telephone No.: (212) 980 1633 or to such other person or address as Purchaser shall furnish to the other Parties in writing in accordance with this subsection. if to Seller, to: Delicious Brands, Inc. 2070 Maple Street Des Plaines, Illinois 60018 Attn.: Mr. Thomas J. Guinan, Chief Executive Officer with a copy to: Olshan, Grundman, Frome, Rosenzweig & Wolosky, LLP 505 Park Avenue New York, New York 10022 Attn.: Steven Wolosky, Esq. Facsimile No.: (212) 980-7177 Telephone No.: (212) 753-7200 or to such other person or address as Seller shall furnish to the other Parties in writing in accordance with this subsection. All such notices, requests and other communications shall be deemed received on the date of receipt by the recipient thereof if received prior to 5 p.m. in the place of receipt and such day is a Business Day in the place of receipt. Otherwise, any such notice, request or communication shall be deemed not to have been received until the next succeeding Business Day in the place of receipt. For notice to be effective against the respective Parties, all copies must be delivered as set forth above. (f) Assignment. This Agreement and all of the provisions hereof shall be binding upon and inure to the benefit of the Parties and their respective successors and permitted assigns, but neither this Agreement nor any of the rights, interests or obligations hereunder shall be assigned (whether voluntarily, involuntarily, by operation of law or otherwise) by any of the Parties without the prior written consent of the other parties; provided, however, that Purchaser may assign this Agreement, in whole or in any part, and from time to time as set forth in this Agreement. (g) Governing Law. The validity, interpretation, enforceability, and performance of this Agreement shall be governed by and construed in accordance with the laws of the State of New York, without regard to the principles of conflicts of law thereof. (h) Counterparts. This Agreement may be executed simultaneously in one or more 39 counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument. (i) Headings. The table of contents and the headings of the sections and subsections of this Agreement are inserted for convenience only and shall not constitute a part hereof. (j) Entire Agreement. The Disclosure Schedule and the exhibits and other writings referred to in this Agreement or in the Disclosure Schedule or any such exhibit or other writing are part of this Agreement: together they embody the entire agreement and understanding of the Parties in respect of the transactions contemplated by this Agreement and together they are referred to as "this Agreement" or the "Agreement". There are no restrictions, promises, warranties, agreements, covenants or undertakings, other than those expressly set forth or referred to in this Agreement. This Agreement supersedes all prior agreements and understandings between the parties with respect to the transaction or transactions contemplated by this Agreement and the subject matter hereof (including without limitation (i) the letter of intent dated October 7, 1999, from [Parmalat] to Seller, (ii) the memorandum dated October 27, 1999, from Seller to [Parmalat], (iii) the letter dated November 4, 1999, from Pricewaterhouse Coopers to Seller, (iv) the Exclusivity Letter dated October 27, 1999, between [Parmalat] and Seller and (v) the Confidentiality and Non-Disclosure Agreement dated June 24, 1999, between [Parmalat] and Seller, and all amendments and extensions thereof). (k) Injunctive Relief. It is expressly agreed among the Parties that monetary damages would be inadequate to compensate a party hereto for any breach by any other Party of its covenants and agreements in Sections 6(c) and 6(e) hereof. Accordingly, the Parties agree and acknowledge that any such violation or threatened violation will cause irreparable injury to the non-breaching Party and that, in addition to any other remedies which may be available, the non-breaching Party shall be entitled to injunctive relief against the threatened breach of Sections 6(c) and 6(e) hereof or the continuation of any such breach without the necessity or proving actual damages and may seek to specifically enforce the terms thereof. (1) Arbitration. With the sole exception of the injunctive relief contemplated by Section 11(k), any dispute, controversy or claim arising out of, or relating to, this Agreement including, without limitation, the interpretation or the breach, termination or invalidity thereof, shall be exclusively and finally resolved by arbitration in accordance with the Commercial Rules of the American Arbitration Association ("AAA") then obtaining. The arbitration panel shall consist of three (3) arbitrators. The claimant shall propose one arbitrator; the respondent shall propose the second arbitrator; and the third arbitrator, who shall serve as chairman, shall be appointed by the AAA. If any of the Parties shall fail to propose an arbitrator, such arbitrator shall be appointed by the AAA (the "Appointing Authority"). The place of arbitration shall be New York City, USA and the English language shall be used throughout the arbitral proceedings. By agreeing to arbitrate, the Parties waive their right to any form of appeal or recourse to a court of law or other judicial authority, to the fullest extent permitted by law. Notwithstanding the foregoing, this agreement to arbitrate shall not bar either party from seeking temporary or provisional remedies in any Court of competent jurisdiction. Judgment upon any arbitration award may be entered in any court having jurisdiction thereon. The Parties hereby consent to the exclusive jurisdiction of the state and federal courts located in New York county, New York State. (m) Severability. If any provision of this Agreement, or the application thereof to any person, place, or circumstance, shall be held by a court of competent jurisdiction to be 40 invalid, unenforceable, or void, the remainder of this Agreement and such provisions as applied to other persons, places, and circumstances shall remain in full force and effect. [Signatures on following page] 41 IN WITNESS WHEREOF, the Parties have executed this Agreement as of this 5th, day of April, 2000. PURCHASER: BF USB Inc. By: /s/ Brian M. Paluch By: /s/ Peter Quintilian ------------------- -------------------- Name: Brian M. Paluch Name: Peter Quintilian Title: President Title: Treasurer ATTEST: By: ____________________ Name: Title: STATE OF Missouri ) ) ss.: COUNTY OF St. Louis ) On this 5th day of April, 2000, before me personally came Brian Paluch, _______________ of BF USB Inc., a Delaware corporation, to me known, and known to me to be the person who executed the foregoing instrument, who, being by me duly sworn, did depose and say that he is the President of BF USB Inc., a Delaware corporation; and that he executed the foregoing instrument on behalf of such corporation and affixed the corporate seal to the foregoing instrument by order of the Board of Directors of said corporation and signed his name thereto by like order. /s/ Barbara Ann Brown -------------------- Notary Public 3/10/2002 [seal] 42 SELLER: DELICIOUS BRANDS, INC. By: /s/ Tom Guinan -------------------- Name: Tom Guinan Title: President ATTEST: By: /s/ Jeffry Weiner ---------------------- Name: Jeffry Weiner Title: CFO STATE OF IL ) ) ss.: COUNTY OF DuPage ) On this 5th day of April, 2000, before me personally came Tom Guinan, President of DELICIOUS BRANDS, INC., a Delaware corporation, to me known, and known to me to be the person who executed the foregoing instrument, who, being by me duly sworn, did depose and say that he is the President of DELICIOUS BRANDS, INC., a Delaware corporation; and that he executed the foregoing instrument on behalf of such corporation and affixed the corporate seal to the foregoing instrument by order of the Board of Directors of said corporation and signed his name thereto by like order. /s/ Doreen Lindsey -------------------- Notary Public [seal] 43 EX-99.1 9 PRESS RELEASE FOR IMMEDIATE RELEASE CONTACT: Tom Guinan, CEO or Jeff Weiner, CFO Delicious Brands, Inc. 2070 Maple Street Des Plaines, IL 60018 DATE: April 7, 2000 Delicious Brands Enters Into Agreement To Sell Assets To Parmalat Delicious Brands, Inc. (OTCBB: DBSI) announced today that it had entered into an definitive agreement to sell substantially all of its assets to BF USB, Inc., a subsidiary of Parmalat Canada Ltd. The purchase price anticipated to be paid at closing in the proposed agreement is $26,680,000, less a working capital adjustment. However, after payment of all outstanding debt by Delicious, redemption of its Series C Preferred Stock and Series D Preferred Stock, continuing losses from operations and expenses associated with this transaction, the Company's management cautioned that the net proceeds to Delicious will not likely represent a premium to its current market capitalization. This transaction is subject to satisfaction of various conditions, including, the approval of a majority of the shareholders of Delicious, Hart Scott Rodino Act approval, and other governmental approvals and the obtaining of all necessary consents. Delicious has received an opinion from its financial advisor, Valuemetrics, Inc., that the terms of the transaction are in best interests of the Delicious and its shareholders. Thomas J. Guinan, CEO of Delicious Brands, Inc., commented by stating: "Given Delicious Brands' losses and declining sales, the Board of Directors, after much deliberation and after receiving a fairness opinion from their investment banker, decided it was in the best interests of the shareholders to sell the assets of the Company. Unfortunately, Delicious Brands does not have the critical mass to successfully compete in the cookie and cracker segment, whereas an international organization like Parmalat, especially through its bakery division including Mrs. Alison's cookies subsidiary, could successfully roll-up the assets of Delicious Brands, Inc into their currently impressive portfolio of cookie and snack companies. Upon shareholder approval of this transaction, the Board of Delicious will evaluate all alternatives and determine the best course to maximize shareholder value." Delicious has consummated a private placement raising an additional $2,000,000 through the issuance of 100,000 shares of Series D Preferred Stock, par value $0.01 per share, at a purchase price of $20.00 per share as of April 3, 2000. The proceeds will be used by Delicious for working capital purposes and for the purpose of establishing a special reserve escrow fund under the terms of the definitive agreement for the sale of substantially all of Delicious' assets. Delicious Brands, Inc. currently markets branded cookie and cracker products. Its list of established proprietary brand names includes Salerno(R), Delicious(R), and Mama's(R), and Frookies(R). The Company's stock trades on the NASDAQ OTC Bulletin Board. Parmalat's bakery division brands include Colonial, Mrs. Alison's and General Henry. BF USB Inc. is an indirectly held subsidiary of Parmalat Canada Ltd. The Group holding company, Parmalat Finanziaria S.p.A. is listed on the Milan Stock Exchange (PRFI.MI), and is one of the world's leading food group companies with headquarters in Parma, Italy. Parmalat generates over $6 Billion in total sales and has operations in 27 countries employing over 40,000 people. # # # # # # # # # This press release contains certain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, which are intended to be covered by the safe harbors created thereby. Investors are cautioned that all forward-looking statements involve risks and uncertainty including, without limitations, the ability of the Company to consummate the transaction, the ability to fund continuing losses and market and develop its products. Although the Company believes that the assumptions underlying the forward-looking statements contained herein are reasonable, any of the assumptions could be inaccurate, and therefore, there can be no assurance that the forward-looking statements included in this press release will prove to be accurate. In light of the significant uncertainties inherent in the forward-looking statements included herein, the inclusion of such information should not be regarded as representation by the Company or any other person that the objectives and plans of the Company will be achieved. EX-27 10 ARTICLE 5 FDS FOR 10-K
5 THE SCHEDULE CONTAINS A SUMMARY OF FINANCIAL INFORMATION EXTRACTED FROM DELICIOUS BRANDS, INC. FINANCIAL STATEMENT AS OF DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS. 12-MOS DEC-31-1999 JAN-01-1999 DEC-31-1999 600,762 0 4,655,870 2,857,970 1,043,400 3,689,823 1,018,810 748,977 14,234,427 13,705,125 335,454 0 6,617,428 47,460 (6,471,040) 14,234,427 41,085,899 41,085,899 31,671,826 31,671,826 14,844,697 1,002,547 777,255 (7,635,331) 0 (7,635,331) 0 0 0 (7,635,331) (1.70) (1.70)
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