-----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, KTgvmC+VVzwpFn8yoq7QC+A3w7dLsyGM9boAMhQkN5aEW9cwNT9uvZ8qZybGDdZg /pAuMxYWDu9uL8H2hp/5mQ== 0000950147-98-000935.txt : 19981118 0000950147-98-000935.hdr.sgml : 19981118 ACCESSION NUMBER: 0000950147-98-000935 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 10 CONFORMED PERIOD OF REPORT: 19980930 FILED AS OF DATE: 19981116 FILER: COMPANY DATA: COMPANY CONFORMED NAME: POORE BROTHERS INC CENTRAL INDEX KEY: 0000944508 STANDARD INDUSTRIAL CLASSIFICATION: MISCELLANEOUS FOOD PREPARATIONS & KINDRED PRODUCTS [2090] IRS NUMBER: 860786101 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-14556 FILM NUMBER: 98750983 BUSINESS ADDRESS: STREET 1: 3500 S LA COMETA DR CITY: GOODYEAR STATE: AZ ZIP: 85338 BUSINESS PHONE: 6029326200 MAIL ADDRESS: STREET 1: 2664 SOUTH LITCHFIELD RD CITY: GOODYEAR STATE: AZ ZIP: 85338 10-Q 1 QUARTERLY REPORT FOR THE QTR ENDED 9/30/98 U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-QSB (Mark One) [ X ] Quarterly Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the quarterly period ended September 30, 1998 OR [ ] Transition Report under Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from _______ to _______ Commission File Number 1-14556 POORE BROTHERS, INC. ----------------------------------------------------------------- (Exact name of small business issuer as specified in its charter) DELAWARE 86-0786101 -------- ---------- (State or other jurisdiction of incorporation or (I.R.S. Employer Organization) Identification No.) 3500 S. LA COMETA DRIVE, GOODYEAR, ARIZONA 85338 ------------------------------------------------ (Address of principal executive offices) (602) 932-6200 -------------- (Issuer's telephone number) Check whether the Registrant: (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] As of September 30, 1998, the number of issued and outstanding shares of common stock of the Registrant was 7,126,657. Transitional Small Business Disclosure Format (check one): Yes [ ] No [X] TABLE OF CONTENTS PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS Consolidated Balance Sheets as of September 30, 1998 and December 31, 1997.............................................. 3 Consolidated Statements of Operations for the three and nine months ended September 30,1998 and 1997.................. 4 Consolidated Statements of Cash Flows for the nine months ended September 30, 1998 and 1997..................... 5 Notes to Financial Statements....................................... 6 ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION.................................. 8 PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS................................................... 12 ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS........................... 12 ITEM 3. DEFAULTS UPON SENIOR SECURITIES..................................... 13 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS................. 13 ITEM 5. OTHER INFORMATION................................................... 13 ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.................................... 14 2 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS POORE BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS SEPTEMBER 30, DECEMBER 31, 1998 1997 ---- ---- ASSETS (unaudited) Current assets: Cash and cash equivalents .................. $655,944 $1,622,751 Accounts receivable, net of allowance of $177,000 in 1998 and $174,000 in 1997 . 1,236,659 1,528,318 Note receivable ............................ -- 78,414 Inventories ................................ 440,790 473,025 Other current assets ....................... 259,907 175,274 ------------ ------------ Total current assets ..................... 2,593,300 3,877,782 Property and equipment, net ................. 6,262,939 6,602,435 Intangible assets, net ...................... 2,162,483 2,294,324 Other assets ................................ 107,399 100,673 ------------ ------------ Total assets ............................. $11,126,121 $12,875,214 ============ ============ LIABILITIES AND SHAREHOLDERS' EQUITY Current liabilities: Accounts payable ........................... $507,621 $824,129 Accrued liabilities ........................ 499,573 502,793 Current portion of long-term debt .......... 535,894 1,127,217 ------------ ------------ Total current liabilities ................ 1,543,088 2,454,139 Long-term debt, less current portion ........ 4,826,291 5,017,724 ------------ ------------ Total liabilities ........................ 6,369,379 7,471,863 ------------ ------------ Shareholders' equity: Preferred stock, $100 par value; 50,000 shares authorized; None issued and outstanding in 1998 and 1997 ............. -- -- Common stock, $.01 par value; 15,000,000 shares authorized; 7,126,657 and 7,051,657 shares issued and outstanding in 1998 and 1997, respectively ................... 71,267 70,516 Additional paid-in capital ................. 10,875,134 10,794,768 Accumulated deficit ........................ (6,189,659) (5,461,933) ------------ ------------ Total shareholders' equity ............... 4,756,742 5,403,351 ------------ ------------ Total liabilities and shareholders' equity ................... $11,126,121 $12,875,214 ============ ============ The accompanying notes are an integral part of these financial statements. 3 POORE BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED NINE MONTHS ENDED SEPTEMBER 30, SEPTEMBER 30, -------------------------- --------------------------- 1998 1997 1998 1997 ---- ---- ---- ---- (unaudited) (unaudited) (unaudited) (unaudited) Net sales ......................... $3,014,738 $3,334,303 $9,475,956 $12,658,902 Cost of sales ..................... 2,295,323 3,011,936 7,108,610 11,139,582 ----------- ----------- ----------- ------------ Gross profit ................... 719,415 322,367 2,367,347 1,519,320 Selling, general and administrative expenses .......................... 941,036 1,009,093 2,724,126 3,020,292 Closing of Tennessee manufacturing operation ......................... -- 470,021 -- 470,021 Sale of Texas distribution business -- -- -- 150,000 ----------- ----------- ----------- ------------ Operating loss ................. (221,621) (1,156,747) (356,779) (2,120,993) ----------- ----------- ----------- ------------ Interest income ................... 12,602 29,266 37,724 109,725 Interest expense .................. (134,340) (141,660) (408,669) (307,053) ----------- ----------- ----------- ------------ Net interest expense .......... (121,738) (112,394) (370,945) (197,328) ----------- ----------- ----------- ------------ Net loss ...................... $(343,359) $(1,269,141) $(727,724) $(2,318,321) =========== =========== =========== ============ Net loss per common share: Basic ........................... $(0.05) $(0.18) $(0.10) $(0.33) =========== =========== =========== ============ Diluted ......................... $(0.05) $(0.18) $(0.10) $(0.33) =========== =========== =========== ============ Weighted average number of common shares: Basic ........................... 7,126,657 7,051,657 7,104,335 7,007,091 =========== =========== =========== ============ Diluted ......................... 7,126,657 7,051,657 7,104,335 7,007,091 =========== =========== =========== ============
The accompanying notes are an integral part of these financial statements. 4 POORE BROTHERS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED SEPTEMBER 30, ------------------------------ 1998 1997 ---- ---- (unaudited) (unaudited) CASH FLOWS FROM OPERATING ACTIVITIES: Net loss ................................................. $(727,724) $(2,318,321) Adjustments to reconcile net loss to net cash provided by (used in) operating activities: Depreciation ........................................... 434,244 249,707 Amortization ........................................... 150,115 131,841 Bad debt expense ....................................... 68,000 61,000 Loss on disposition of business ....................... -- 428,000 Change in operating assets and liabilities: Accounts receivable .................................... 223,659 (31,572) Inventories ............................................ 32,235 187,761 Other assets and liabilities ........................... (109,634) (88,873) Accounts payable and accrued liabilities ............... (319,728) (748,655) ----------- ----------- Net cash provided by (used in) operating activities ......................................... (170,418) (2,065,968) ----------- ----------- CASH FLOWS FROM INVESTING ACTIVITIES: Proceeds on disposal of property ........................ 27,268 770,559 Sale of Texas distribution business ..................... -- 78,414 Purchase of short term investments ...................... -- (1,022,439) Purchase of property and equipment ...................... (122,016) (2,789,287) ----------- ----------- Net cash (used in) investing activities ............. (94,748) (2,962,753) ----------- ----------- CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from issuance of common stock .................. 81,116 1,253,431 Net decrease in restricted certificate of deposit ............................................. -- 1,250,000 Stock issuance costs .................................... -- (157,575) Proceeds from issuance of long-term debt ................ -- 1,734,627 Payments made on long-term debt ......................... (436,925) (2,069,812) Net increase (decrease) in working capital line of credit ................................. (345,832) 351,607 ----------- ----------- Net cash (used in) provided by financing activities ............................... (701,640) 2,362,278 ----------- ----------- Net (decrease) in cash and cash equivalents ............... (966,806) (2,666,443) Cash and cash equivalents at beginning of period .......... 1,622,751 3,603,850 ----------- ----------- Cash and cash equivalents at end of period ................ $655,944 $937,407 =========== =========== SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION: Summary of non cash investing and financing activities: Construction loan for new facility ...................... $ -- $998,746 Capital lease obligation incurred - equipment acquisition -- 70,859 Mortgage impounds for interest, taxes and insurance ..... -- 35,990 Note received for sale of Texas distribution business ... -- 78,414 Cash paid during the nine months for interest, net of amounts capitalized ............................. 397,370 330,223
The accompanying notes are an integral part of these financial statements. 5 POORE BROTHERS, INC. AND SUBSIDIARIES NOTES TO FINANCIAL STATEMENTS 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: GENERAL Poore Brothers, Inc. (the "Company"), a Delaware corporation, was organized in February 1995 as a holding company and on May 31, 1995 acquired substantially all of the equity of Poore Brothers Southeast, Inc. ("PB Southeast") in an exchange transaction pursuant to which 1,560,000 previously unissued shares of the Company's common stock, par value $.01 per share (the "Common Stock"), were exchanged for 150,366 issued and outstanding shares of PB Southeast's common stock. The exchange transaction with PB Southeast has been accounted for similar to a pooling-of interests since both entities had common ownership and control immediately prior to the transaction. In December 1996, the Company completed an initial public offering of its common stock. During 1997, the Company sold its Houston, Texas distribution business and closed its Tennessee manufacturing operation. The Company manufactures and distributes potato chips under the Poore Brothers(TM) brand name, as well as private label potato chips, and also distributes a variety of other independently manufactured snack food items. BASIS OF PRESENTATION The consolidated financial statements include the accounts of Poore Brothers, Inc. and all of its controlled subsidiaries. In all situations, the Company owns from 99% to 100% of the voting interests of the controlled subsidiaries. All significant intercompany amounts and transactions have been eliminated. The financial statements have been prepared in accordance with the instructions for Form 10-QSB and, therefore, do not include all the information and footnotes required by generally accepted accounting principles. In the opinion of management, the consolidated financial statements include all adjustments, consisting only of normal recurring adjustments, necessary in order to make the consolidated financial statements not misleading. A description of the Company's accounting policies and other financial information is included in the audited financial statements filed with the Form 10-KSB for the fiscal year ended December 31, 1997. The results of operations for the nine months ended September 30, 1998 are not necessarily indicative of the results expected for the full year. LOSS PER SHARE During 1997, the Company adopted Statement of Financial Accounting Standards ("SFAS") 128, "Earnings Per Share". Pursuant to SFAS 128, basic earnings per common share is computed by dividing net income (loss) by the weighted average number of shares of common stock outstanding during the period. Exercises of outstanding stock options and conversion of convertible debentures were not assumed to be exercised for purposes of calculating diluted earnings per share for the three and nine months ended September 30, 1998 and 1997, as their effect was anti-dilutive.
Three months ended Nine months ended September 30, September 30, -------------------------------------------------------- 1998 1997 1998 1997 ----------- ----------- ----------- ----------- Basic loss per share: Loss available to common shareholders $ (343,359) $(1,269,141) $ (727,724) $(2,318,321) Weighted average common shares 7,126,657 7,051,657 7,104,335 7,007,791 ----------- ----------- ----------- ----------- Loss per share-basic $ (0.05) $ (0.18) $ (0.10) $ (0.33) =========== =========== =========== =========== Diluted loss per share: Loss available to common shareholders $ (343,359) $(1,269,141) $ (727,724) $(2,318,321) Weighted average common shares 7,126,657 7,051,657 7,104,335 7,007,791 Common stock equivalents -- -- -- -- ----------- ----------- ----------- ----------- Loss per share-diluted $ (0.05) $ (0.18) $ (0.10) $ (0.33) =========== =========== =========== ===========
6 2. DEBT The Company's $1.0 million working capital line of credit from First Community Financial Corporation (the "First Community Line of Credit") was renewed as of May 31, 1998 for a six-month period. At September 30, 1998, the Company had over $1.0 million of eligible receivables. The balance outstanding was $240,265 and $586,097 at September 30, 1998 and December 31, 1997, respectively. On November 4, 1998, the Company signed a new $2.5 million Credit Agreement with Norwest Business Credit, Inc. ("Norwest") which includes a $2.0 million working capital line of credit (the "Norwest Line of Credit") and a $0.5 million term loan (the "Norwest Term Loan"). Borrowings under the Norwest Credit Agreement were used to pay off the First Community Line of Credit and to finance a portion of the consideration paid by the Company in connection with the Tejas Snacks acquisition (see Note 4), and will also be used for general working capital needs. The Norwest Line of Credit bears interest at an annual rate of prime plus 1.5% and matures in November 2001 while the Norwest Term Loan bears interest at an annual rate of prime plus 3% and requires monthly principal payments of approximately $28,000, plus interest, until maturity on May 1, 2000. The Norwest Credit Agreement is secured by receivables, inventories, equipment and general intangibles. Borrowings under the line of credit are based on 85% of eligible receivables and 60% of eligible inventories. As of November 4, 1998, the Company was eligible to borrow approximately $1,000,000 under the Norwest Line of Credit and $0.5 million under the Norwest Term Loan. The Norwest Credit Agreement requires the Company to be in compliance with certain financial performance criteria, including minimum debt service coverage ratio, minimum quarterly net income/maximum net loss, minimum annual net income/maximum net loss, minimum quarterly increase in book net worth, and minimum annual increase/maximum decrease in book net worth. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to be in compliance with these financial performance criteria; however, there can be no assurance that the Company will attain any such profitability or be in compliance. Any acceleration under the Norwest Credit Agreement prior to the scheduled maturity of the Norwest Line of Credit or the Norwest Term Loan could have a material adverse effect upon the Company. At September 30, 1998, the Company had outstanding 9% Convertible Debentures due July 1, 2002 (the "9% Convertible Debentures") in the principal amount of $2,219,000. The Company was not in compliance with a required interest coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date, resulted in an event of default because the holders of the 9% Convertible Debentures have granted the Company a waiver effective through June 30, 1999. After that time, the Company will be required to be in compliance with the following financial ratios, so long as the 9% Convertible Debentures remain outstanding: working capital of at least $500,000; minimum shareholders' equity (net worth) of $4.5 million; an interest coverage ratio of at least 1:1; and a current ratio at the end of any fiscal quarter of at least 1.1:1. Interest on the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly principal payments of approximately $20,000 are required to be made by the Company through July 2002. For the period November 1, 1998 through October 31, 1999, Renaissance Capital (the holder of $1,718,000 of 9% Convertible Debentures) has agreed to waive all mandatory principal redemption payments and to accept stock in lieu of cash interest payments. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to be in compliance with the financial ratios; however, there can be no assurance that the Company will attain any such profitability or be in compliance with the financial ratios upon the expiration of the waivers. Any acceleration under the 9% Convertible Debentures prior to their maturity on July 1, 2002 could have a material adverse effect upon the Company. 7 3. LITIGATION On October 22, 1998, a jury rendered a verdict, but no judgement has been entered by the Court, against the defendants, Mark S. Howells and Jeffrey J. Puglisi (directors of the Company and PB Southeast), and awarded the plantiff Gossett $90,000. The jury also rendered a verdict, but no judgement has been entered by the Court, against Gossett and awarded Poore Brothers Southeast $2,000. As of this date, the defendants have requested the Court to award them attorneys' fees arising from additional plantiff's claims that were dismissed earlier in the litigation. The parties have agreed to suspend all further action and litigation until November 30, 1998 so that the parties may attempt to settle the case. In July 1998, the Company settled the litigation with Chris Ivey and his company, Shelby and Associates. The settlement included the release of all claims and the dismissal of his lawsuit. 4. ACQUISITION OF ASSETS OF TEJAS SNACKS On November 4, 1998, the Company signed a definitive purchase agreement to acquire the business and certain assets of Tejas Snacks, L.P., a Texas-based potato chip manufacturer. The assets, which were acquired through a newly-formed wholly-owned subsidiary of the Company, Tejas PB Distributing, Inc., included the Bob's Texas StyleTM Potato Chips brand, inventories and certain capital equipment. In exchange for these assets, the Company issued 523,077 unregistered shares of Common Stock and paid approximately $1.2 million in cash. The Company utilized available cash as well as funds available pursuant to the Norwest Line of Credit and the Norwest Term Loan to satisfy the cash portion of the consideration. Tejas Snacks had sales of approximately $2.8 million for the nine months ended September 30, 1998. The Company has transferred production of the Bob's brand to its Goodyear, Arizona facility. The acquisition will be accounted for using the purchase method of accounting. 5. NEW ACCOUNTING PRONOUNCEMENTS In July 1998, the Financial Accounting Standards Board (FASB) issued SFAS No. 133, "Accounting for Derivative Instruments and for Hedging Activities", which is effective for years beginning after June 15, 1999. The SFAS requires that a company must formally document, designate and assess the effectiveness of transactions that receive hedge accounting. Upon adoption in the first quarter of 2000, the Company expects there will be no impact on its financial condition or results of operations. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION RESULTS OF OPERATIONS QUARTER ENDED SEPTEMBER 30, 1998 COMPARED TO THE QUARTER ENDED SEPTEMBER 30, 1997 Net sales for the three months ended September 30, 1998 were $3,015,000 down $319,000 or 10%, from $3,334,000 for the three months ended September 30, 1997. Poore Brothers manufactured potato chip sales for the third quarter of 1998 were $2,309,000, down $365,000, or 14%, from $2,674,000. This decrease was primarily the result of the third quarter 1997 discontinuance of low-fat potato chips ($110,000) and the elimination of deep discount pricing and promotion programs. Gross profit for the three months ended September 30, 1998, was $719,000, or 24% of net sales, as compared to $322,000, or 10% of net sales, for the three months ended September 30, 1997. The $397,000 increase in gross profit, or 123%, occurred despite 10% lower sales. This improvement resulted from the Company's 1997 manufacturing consolidation, benefits from negotiated raw material cost savings and a continued improvement in manufacturing and operating efficiencies at the Goodyear, Arizona facility. Operating expenses decreased to $941,000 for the three months ended September 30, 1998 from $1,479,000 for the same period in 1997. The decrease of $538,000, or 36%, compared to the third quarter of 1997 was attributable primarily to a $470,000 charge recorded by the Company in September 1997 related to severance, equipment write-downs and lease termination costs in connection 8 with the closing of the Tennessee manufacturing facility. Selling, general and administrative expenses for the three months ended September 30, 1998 decreased $68,000 to $941,000, from $1,009,000 during the same period in 1997. Decreases in administrative payroll costs, advertising and promotional spending, travel and entertainment and bad debt expense were offset by increases in professional services related to litigation and organizational changes. Net interest expense increased to $122,000 for the quarter ended September 30, 1998 from $112,000 for the quarter ended September 30, 1997. This was due primarily to a decrease in interest income generated from investment of the remaining proceeds of the initial public offering. The Company's net losses for the quarters ended September 30, 1998 and September 30, 1997 were $343,000 and $1,269,000, respectively. The reduction in net loss was attributable primarily to the increased gross profit and to the absence of any charges for closing the Tennessee manufacturing facility in 1997. NINE MONTHS ENDED SEPTEMBER 30, 1998 COMPARED TO THE NINE MONTHS ENDED SEPTEMBER 30, 1997 Net sales for the nine months ended September 30, 1998 were $9,476,000, down $3,183,000, or 25%, from $12,659,000 for the nine months ended September 30, 1997. The sale of the Texas distribution business in June 1997 contributed approximately $1,452,000 to the sales decline, consisting of $1,213,000 in sales of products manufactured by others and $239,000 in sales of Poore Brothers manufactured potato chips. An additional $697,000 decrease occurred in sales of products manufactured by others due to the elimination of several unprofitable product lines during the second quarter of 1997. Poore Brothers manufactured potato chip sales for the nine months of 1998 were $7,543,000, down $1,035,000, or 12%, from $8,578,000 (excluding Texas) for the nine months of 1997. This decrease was driven principally by lower volume as a result of the Company's discontinuance of unprofitable promotion programs with certain customers and the shutdown of the Tennessee manufacturing facility in the third quarter of 1997. Gross profit for the nine months ended September 30, 1998, was $2,367,000, or 25% of net sales, as compared to $1,519,000, or 12% of net sales, for the nine months ended September 30, 1997. The $848,000 increase in gross profit, or 56%, occurred despite 25% lower sales. This increase is a result of the restructuring actions implemented in 1997, benefits from negotiated raw material cost savings and a continued improvement in manufacturing and operating efficiencies at the Company's Goodyear, Arizona facility. Operating expenses decreased to $2,724,000 for the nine months ended September 30, 1998 from $3,640,000 for the same period in 1997. This represented a $916,000 decrease, or 25%, compared to the same period in 1997. The decrease was primarily attributable: to a $150,000 charge recorded by the Company in June 1997 related to severance, equipment write-downs and lease termination costs in connection with the sale of the Company's Texas distribution business; a $470,000 charge recorded by the Company in September 1997 in connection with the closure of the Tennessee manufacturing facility; and a decrease in selling, general and administrative expenses. Selling, general and administrative expenses decreased $296,000, or 10%, to $2,724,000 for the nine month period ended September 30, 1998 from $3,020,292 for the same period in 1997. A 25% increase in advertising and promotional spending offset a 25% decrease in payroll costs. In addition, higher professional service costs in 1998 were offset by lower sales-related expenses, office expenses and occupancy costs. Net interest expense increased to $371,000 for the nine months ended September 30, 1998 from $197,000 for the same period in 1997. This increase was due primarily to interest expense related to the permanent financing on the Company's Arizona manufacturing facility and production equipment, and a decrease in interest income generated from investment of the remaining proceeds of the initial public offering. The Company's net losses for the nine months ended September 30, 1998 and September 30, 1997 were $728,000 and $2,318,000, respectively. The reduction in net loss was attributable primarily to the increased gross profit and lower operating expenses, offset by higher net interest expense. 9 LIQUIDITY AND CAPITAL RESOURCES Net working capital was $1,050,000 at September 30, 1998, with a current ratio of 1.7:1. At December 31, 1997, net working capital was $1,424,000 with a current ratio of 1.6:1. The $374,000 decrease in working capital was primarily attributable to the Company's use of cash for operating activities and payments on long term debt. The Company's $1.0 million working capital line of credit from First Community Financial Corporation (the "First Community Line of Credit") was renewed as of May 31, 1998 for a six-month period. At September 30, 1998, the Company had over $1.0 million of eligible receivables. The balance outstanding was $240,265 and $586,097 at September 30, 1998 and December 31, 1997, respectively. On November 4, 1998, the Company signed a new $2.5 million Credit Agreement with Norwest Business Credit, Inc. ("Norwest") which includes a $2.0 million working capital line of credit (the "Norwest Line of Credit") and a $0.5 million term loan (the "Norwest Term Loan"). Borrowings under the Norwest Credit Agreement were used to pay off the First Community Line of Credit and to finance a portion of the consideration paid by the Company in connection with the Tejas Snacks acquisition (see Part II, Item 5), and will also be used for general working capital needs. The Norwest Line of Credit bears interest at an annual rate of prime plus 1.5% and matures in November 2001 while the Norwest Term Loan bears interest at an annual rate of prime plus 3% and requires monthly principal payments of approximately $28,000, plus interest, until maturity on May 1, 2000. The Norwest Credit Agreement is secured by receivables, inventories, equipment and general intangibles. Borrowings under the line of credit are based on 85% of eligible receivables and 60% of eligible inventories. As of November 4, 1998, the Company was eligible to borrow approximately $1,000,000 of the working capital line of credit and $0.5 million under the Norwest Term Loan. The Norwest Credit Agreement requires the Company to be in compliance with certain financial performance criteria, including: minimum debt service coverage ratio; minimum quarterly net income/maximum net loss; minimum annual net income/maximum net loss; minimum quarterly increase in book net worth; and minimum annual increase/decrease in book net worth. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to be in compliance with these financial performance criteria; however, there can be no assurance that the Company will attain any such profitability or be in compliance. Any acceleration under the Norwest Credit Agreement prior to the scheduled maturity of the Norwest Line of Credit or the Norwest Term Loan could have a material adverse effect upon the Company. As of November 12, 1998, there was an outstanding balance of $709,000 on the Norwest Line of Credit and $500,000 on the Norwest Term Loan. At September 30, 1998, the Company had outstanding 9% Convertible Debentures due July 1, 2002 (the "9% Convertible Debentures") in the principal amount of $2,219,000. The Company was not in compliance with a required interest coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date, resulted in an event of default because the holders of the Debentures have granted the Company a waiver effective through June 30, 1999. After that time, the Company will be required to be in compliance with the following financial ratios, so long as the 9% Convertible Debentures remain outstanding: working capital of at least $500,000; minimum shareholders' equity (net worth) of $4.5 million; an interest coverage ratio of at least 1:1; and a current ratio at the end of any fiscal quarter of at least 1.1:1. Interest on the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly principal payments of approximately $20,000 are required to be made by the Company through July 2002. For the period November 1, 1998 through October 31, 1999, Renaissance Capital (the holder of $1,718,000 of 9% Convertible Debentures) has agreed to waive all mandatory principal redemption payments and to accept stock in lieu of cash interest payments. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient 10 level of profitability to be in compliance with the financial ratios; however, there can be no assurance that the Company will attain any such profitability or be in compliance with the financial ratios upon the expiration of the waivers. Any acceleration under the 9% Convertible Debentures prior to their maturity on July 1, 2002 could have a material adverse effect upon the Company. As a result of the Company's strategy to expand the Company's operations through acquisitions and otherwise, as well as general competitive conditions in the snack food industry, the Company may incur additional operating losses in the future. Expenditures relating to marketing, territory expansion and new product development may adversely affect selling, general and administrative expenses in the future and, consequently, may adversely affect operating and net income. These types of expenditures are expensed for accounting purposes as incurred, while sales generated from the result of such expansion may benefit future periods. Management believes that current working capital, together with available line of credit borrowings, and anticipated cash flows from operations, will be sufficient to finance the operations of the Company for at least the next twelve months. This belief is based on current operating plans and certain assumptions, including those relating to the Company's future sales levels and expenditures, industry and general economic conditions and other conditions. If any of these plans, assumptions or factors change, or if the Company pursues additional strategic acquisitions, the Company may require future debt or equity financing to meet its capital requirements. There can be no assurance that such financing will be available or, if available, on terms attractive to the Company. YEAR 2000 COMPLIANCE The Year 2000 issue is the result of computer programs being written using two digits rather than four to identify the applicable year. For example, computer programs that utilize date-sensitive information may recognize a date using "00" as the year 1900 rather than the year 2000. This could result in system failures or miscalculations. The Company processes much of its data using licensed computer programs from third parties, including its accounting software. Such third parties have advised the Company that they have made all necessary programming changes to such computer programs to address the Year 2000 issue. The Company tested its systems for Year 2000 compliance during the first half of 1998 and discovered that certain database information utilized by the Company for purposes of order entry, billing and accounts receivables is not Year 2000 compliant, although the underlying database software is Year 2000 compliant. The Company intends to implement corrective measures with respect to such database information on or prior to the first quarter of 1999. The Company does not expect to incur significant expenses in connection with such corrective measures. In addition, the Company believes that, notwithstanding the foregoing, it has no material internal risk in connection with the potential impact of the Year 2000 issue on the processing of date sensitive information by the Company's computerized information systems. The Company is in the process of determining the effect of the Year 2000 issue on its vendors' and customers' systems. There can be no assurance that the systems of such third parties will be Year 2000 compliant on a timely basis, or that the Company's results of operations will not be adversely affected by the failure of systems operated by third parties to properly operate in the Year 2000. FORWARD LOOKING STATEMENTS WHEN USED IN THIS FORM 10-QSB AND IN FUTURE FILINGS BY THE COMPANY WITH THE SECURITIES AND EXCHANGE COMMISSION (THE "COMMISSION"), THE WORDS OR PHRASES "WILL LIKELY RESULT," "THE COMPANY EXPECTS," "WILL CONTINUE," "IS ANTICIPATED," "ESTIMATED," "PROJECT," OR "OUTLOOK," OR SIMILAR WORDS OR EXPRESSIONS, ARE INTENDED TO IDENTIFY "FORWARD-LOOKING STATEMENTS" WITHIN THE MEANING OF SECTION 11 27A OF THE SECURITIES ACT OF 1933, AS AMENDED, AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS AMENDED. THE COMPANY WISHES TO CAUTION READERS NOT TO PLACE UNDUE RELIANCE ON ANY SUCH FORWARD-LOOKING STATEMENTS, EACH OF WHICH SPEAK ONLY AS OF THE DATE MADE. SUCH STATEMENTS ARE SUBJECT TO CERTAIN RISKS AND UNCERTAINTIES THAT COULD CAUSE ACTUAL RESULTS TO DIFFER MATERIALLY FROM HISTORICAL EARNINGS AND THOSE PRESENTLY ANTICIPATED OR PROJECTED. IN LIGHT OF SUCH RISKS AND UNCERTAINTIES, THERE CAN BE NO ASSURANCE THAT FORWARD-LOOKING INFORMATION CONTAINED IN THIS FORM 10-QSB WILL, IN FACT, TRANSPIRE OR PROVE TO BE ACCURATE. THE COMPANY HAS NO OBLIGATION TO PUBLICLY RELEASE THE RESULT OF ANY REVISIONS THAT MAY BE MADE TO ANY FORWARD-LOOKING STATEMENTS TO REFLECT ANTICIPATED OR UNANTICIPATED EVENTS OR CIRCUMSTANCES OCCURRING AFTER THE DATE OF SUCH STATEMENTS. PART II. OTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS On October 22, 1998, a jury rendered a verdict, but no judgement has been entered by the Court, against the defendants, Mark S. Howells and Jeffrey J. Puglisi (directors of the Company and PB Southeast), and awarded the plantiff Gossett $90,000. The jury also rendered a verdict, but no judgement has been entered by the Court, against Gossett and awarded Poore Brothers Southeast $2,000. As of this date, the defendants have requested the Court to award them attorneys' fees arising from additional plantiff's claims that were dismissed earlier in the litigation. The parties have agreed to suspend all further action and litigation until November 30, 1998 so that the parties may attempt to settle the case. Reference is made to "PART II, ITEM 1. LEGAL PROCEEDINGS" of the Company's Quarterly Report on Form 10-QSB for the three-month period ended March 31, 1998 (which was filed with the Commission on May 14, 1998). In July 1998, the Company settled the litigation with Chris Ivey and his company, Shelby and Associates. The settlement included the release of all claims and the dismissal of his lawsuit ITEM 2. CHANGES IN SECURITIES AND USE OF PROCEEDS On November 4, 1998, pursuant to the terms of the Norwest Credit Agreement, the Company issued to Norwest a Warrant (the "Norwest Warrant") to purchase 50,000 shares of Common Stock for an exercise price of $0.93375 per share. The Norwest Warrant is exercisable until November 3, 2003, the date of termination of the Norwest Warrant, and provides the holder thereof certain demand and piggyback registration rights. The issuance of the Warrant was made in reliance upon the exemption from registration under the Securities Act of 1933, as amended (the "Securities Act"), set forth in Section 4(2) as it did not involve a public offering. On November 12, 1998, the Company issued 523,077 unregistered shares of Common Stock in connection with the acquisition by the Company of the business and certain assets of Tejas Snacks, L.P. The shares were issued in lieu of cash in satisfaction of $450,000 of the total $1.6 million purchase price. These issuances were made in reliance upon the exemption from registration under the Securities Act set forth in Section 4(2) as they did not involve a public offering. The Company has agreed to issue 183,263 unregistered shares of Common Stock to Renaissance Capital in consideration for its waiver of all mandatory principal redemption payments due under the 9% Convertible Debentures held by Renaissance Capital for the period from November 1, 1998 through October 31, 1999. The issuance will be made in reliance upon the exemption from registration under the Securities Act set forth in Section 4(2) as it will not involve a public offering. 12 ITEM 3. DEFAULTS UPON SENIOR SECURITIES At September 30, 1998, the Company had outstanding 9% Convertible Debenturesdue July 1, 2002 (the "9% Convertible Debentures") in the principal amount of $2,219,000. The Company was not in compliance with a required interest coverage ratio of 2:1 (actual of -1.2:1). Such non-compliance has not, to date, resulted in an event of default because the holders of the 9% Convertible Debentures have granted the Company a waiver effective through June 30, 1999. After that time, the Company will be required to be in compliance with the following financial ratios, so long as the 9% Convertible Debentures remain outstanding: working capital of at least $500,000; minimum shareholders' equity (net worth) of $4.5 million; an interest coverage ratio of at least 1:1; and a current ratio at the end of any fiscal quarter of at least 1.1:1. Interest on the 9% Convertible Debentures is paid by the Company on a monthly basis. Monthly principal payments of approximately $20,000 are required to be made by the Company through July 2002. For the period November 1, 1998 through October 31, 1999, however, Renaissance (the holder of $1,718,000 of 9% Convertible Debentures) has agreed to waive all mandatory principal redemption payments and to accept stock in lieu of cash interest payments. Management believes that the fulfillment of the Company's plans and objectives will enable the Company to attain a sufficient level of profitability to be in compliance with the financial ratios; however, there can be no assurance that the Company will attain any such profitability or be in compliance with the financial ratios upon the expiration of the waivers. Any acceleration under the 9% Convertible Debentures prior to their maturity on July 1, 2002 could have a material adverse effect upon the Company. ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS None ITEM 5. OTHER INFORMATION On July 9, 1998, the Company filed a Registration Statement of Form S-3, Amendment No. 1, with the Commission in connection with the registration of 2,604,717 shares of Common Stock, including 300,000 shares issuable upon the exercise of the Warrant issued by the Company to Westminster Capital, Inc. in September 1996 and 2,109,717 shares issuable upon conversion of the 9% Convertible Debentures. The Registration Statement has not to date been declared effective by the Commission. On August 14, 1998, Scott D. Fullmer resigned as Vice President - Sales and Marketing of the Company. In connection with the acquisition of Tejas Snacks, Kevin M. Kohl and Thomas G. Bigham were made Vice Presidents of Tejas PB Distributing, Inc. On August 18, 1998, the Company entered into an agreement with Everen Securities, Inc. ("Everen") pursuant to which the Company retained Everen as financial advisor to assist the Company in its pursuit of strategic acquisitions. Everen is entitled to fees in connection with the Tejas Snacks acquisition and the Norwest financing pursuant to the agreement. On November 4, 1998, the Company signed a definitive purchase agreement to acquire the business and certain assets of Tejas Snacks, L.P., a Texas-based potato chip manufacturer. The assets, which were acquired through a newly-formed wholly-owned subsidiary of the Company, Tejas PB Distributing, Inc., included the Bob's Texas StyleTM Potato Chips brand, inventories and certain capital equipment. In exchange for these assets, the Company issued 523,077 unregistered shares of Common Stock and paid approximately $1.2 million in cash. The Company utilized available cash as well as funds available pursuant to the Norwest Line of Credit and the Norwest Term Loan to satisfy the cash portion of the consideration. Tejas Snacks had sales of approximately $2.8 million for the nine months ended September 30, 1998. The Company has transferred production of the Bob's brand to its Goodyear, Arizona facility. In connection with the acquisition, the Company entered into employment agreements with certain key personnel of Tejas. On November 4, 1998, the Company entered into the Norwest Credit Agreement with Norwest which provides the Company with a $2.0 million working capital line of credit and a $0.5 million term loan. See "PART I, ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION - LIQUIDITY AND CAPITAL RESOURCES." 13 As of November 9, 1998, the closing bid price of the Company's Common Stock had remained below $1.00 per share for thirty consecutive trading days. As a result, the Company has received a notice from the NASDAQ Stock Market, Inc. ("NASDAQ") that the Company was not in compliance with the closing bid price requirements for the continued listing of the Common Stock on the NASDAQ SmallCap Market and that such Common Stock would be delisted after February 15, 1999 if the closing bid price is not equal to or greater than $1.00 per share for a period of at least ten consecutive trading days during the ninety-day period ending February 15, 1999. As of November 13, 1998, the Company has not satisfied this closing bid price requirement. In the event that the Company is unable to achieve compliance, it will consider seeking further procedural remedies to delay or avoid the delisting of the Common Stock or consider listing in the over-the-counter market of the National Association of Securities Dealers, Inc. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits: EXHIBIT NUMBER DESCRIPTION 10.1 Separation Agreement and Release of All Claims dated August 14, 1998, by and between the Company and Scott D. Fullmer. * 10.2 Letter Agreement dated August 18, 1998, by and between the Company and Everen.* 10.3 Credit and Security Agreement dated October 23, 1998, by and between the Company (and certain of its subsidiaries) and Norwest. * 10.4 Patent and Trademark Security Agreement dated October 23, 1998, by and between the Company (and certain of its subsidiaries) and Norwest. * 10.5 Warrant dated November 4, 1998, issued by the Company to Norwest. * 10.6 Agreement for Purchase and Sale of Assets dated October 29, 1998, by and among the Company, Tejas, Kevin Kohl and Tom Bigham. * 10.7 Employment Agreement dated November 12, 1998, by and between Tejas PB Distributing, Inc. and Thomas G. Bigham. * 10.8 Employment Agreement dated November 12, 1998, by and between Tejas PB Distributing, Inc. and Kevin M. Kohl. * 27.1 Financial Data Schedule. * * Filed herewith. (b) Current Reports on Form 8-K: Current Report on Form 8-K, reporting the signing of a letter of intent by and between the Company and Tejas to acquire the business of Tejas (filed with the Commission on September 29, 1998). 14 SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. POORE BROTHERS, INC. By: /s/ Eric J. Kufel ------------------------------------------ Dated: November 16, 1998 Eric J. Kufel President and Chief Executive Officer (principal executive officer) By: /s/ Thomas W. Freeze ------------------------------------------ Dated: November 16, 1998 Thomas W. Freeze Vice President, Chief Financial Officer, Treasurer and Secretary (principal financial and accounting officer) 15 EXHIBIT INDEX EXHIBIT NUMBER DESCRIPTION 10.1 Separation Agreement and Release of All Claims dated August 14, 1998, by and between the Company and Scott D. Fullmer. 10.2 Letter Agreement dated August 18, 1998, by and between the Company and Everen. 10.3 Credit and Security Agreement dated October 23, 1998, by and between the Company (and certain of its subsidiaries) and Norwest. 10.4 Patent and Trademark Security Agreement dated October 23, 1998, by and between the Company (and certain of its subsidiaries) and Norwest. 10.5 Warrant dated November 4, 1998, issued by the Company to Norwest. 10.6 Agreement for Purchase and Sale of Assets dated October 29, 1998, by and among the Company, Tejas, Kevin Kohl and Tom Bigham. 10.7 Employment Agreement dated November 12, 1998, by and between Tejas PB Distributing, Inc. and Thomas G. Bigham. 10.8 Employment Agreement dated November 12, 1998, by and between Tejas PB Distributing, Inc. and Kevin M. Kohl. 27.1 Financial Data Schedule. EX-10.1 2 SEPARATION AGREEMENT AND RELEASE EXHIBIT 10.1 SEPARATION AGREEMENT AND --- RELEASE OF ALL CLAIMS --------------------- This Separation Agreement and Release of All Claims ("Agreement") is entered into this 14th day of August, 1998, between Scott D. Fullmer ("Employee") and Poore Brothers, Inc. ("Employer"). The term "parties" shall refer collectively to both of these entities. In consideration of the mutual promises herein contained, the adequacy of which consideration is hereby acknowledged, the parties agree as follows. 1. Employee's employment by Employer is terminated by mutual agreement as of August 7, 1998 (the "Termination Date"). 2. Employer shall provide the following severance benefits to Employee: a. Employer shall pay Employee severance pay until December 7, 1998. This severance pay, subject to appropriate withholding and deductions as required by law, shall be paid to Employee by continuing to pay Employee amounts equaling Employee's regular base salary, on the regular paydays of Employer, until the obligation to pay severance is completed. b. Vested stock options held by Employee shall expire on February 7, 1999. Employee may exercise such stock options at any time prior to the expiration date. c. Any unvested stock options held by Employee that were scheduled to vest prior to February 7, 1999 will vest as of the execution of this Agreement and will be subject to the expiration date stated in paragraph 2b above. d. Unvested stock options held by Employee will expire on the Termination Date stated in paragraph 1 above. e. Employer shall continue Employee's medical and life insurance during the severance period specified in subparagraph 2a above. Upon the expiration of the severance period, Employee shall have all rights to continuation of such coverage as may be provided by law, including without limitation COBRA. f. Employer shall pay Employee his/her accrued vacation and sick days not yet taken or paid (total of 4.75 days). g. Employer shall provide outplacement and job search assistance to the Employee as outlined on the attached Exhibit A. h. Employee shall have use of his/her company-owned automobile until December 7, 1998, or until such earlier time as the Employee finds employment, at which time it shall be returned to Employer. Employee is responsible for all gasoline expenses. i. The parties acknowledge that the above payments and benefits are consideration in addition to anything of value to which Employee is already entitled. 3. Employee, on behalf of himself/herself and his/her marital community, heirs, executors, assigns and personal representatives, does hereby release and forever discharge Employer and any parent company, subsidiary company, and any other company affiliated with or under common ownership with Employer, and each of their respective current and former officers, partners, principals, directors, shareholders, attorneys, employees, agents, servants, representatives, independent contractors, guarantors, heirs, successors, insurers, assigns, and all affiliated entities, hereinafter collectively referred to as the "the Released Parties," from any and all claims, or demands, causes of actions, or liability of any kind or character, known or unknown, arising or accruing through the date this Agreement is executed by Employee, including without limitation all claims that are in any way related to Employee's employment by Employer or the termination thereof. Without limiting the generality of the foregoing, the full release contained in this paragraph applies to all claims arising under the Civil Rights Act of 1964; the Age Discrimination in Employment Act of 1967; the Americans With Disabilities Act of 1990; the Labor Management Relations Act; the Employee Retirement Income Security Act of 1974; the Fair Labor Standards Act; the Family and Medical Leave Act; the Immigration Reform and Control Act; the Consolidated Omnibus Budget Reconciliation Act; the Occupational Safety and Health Act, or any comparable state occupational safety and health statute; the Workers' Adjustment and Retraining Act; 42 U.S.C. ss. 1981; the Arizona Civil Rights Act; the Arizona Wage Act; or under any other applicable state or federal statute; and to any common law cause of action, including without limitation claims for breach of contract, wrongful discharge, unpaid wages, tort, personal injury, or any claim for attorney's fees or other damages, costs or expenses of any kind or nature. 4. Employer, on behalf of any parent company, subsidiary company and any other company affiliated with or under common ownership with Employer does hereby release and forever discharge Employee and his/her marital community, heirs, executors, assigns and personal representatives, from any and all claims, or demands, causes of actions, or liability of any kind or character, known or unknown, arising or accruing through the date this Agreement is executed by Employee, including without limitation all claims that are in any way related to Employee's employment by Employer or the termination thereof. 5. Notwithstanding the foregoing, the releases contained in paragraphs 3 and 4 do not waive any claim arising out of any breach or alleged breach of this Agreement, or any claim that may arise after the date this waiver is executed. 6. Each of the persons identified as a subject or beneficiary of the release provisions of paragraphs 3 and 4 above is intended as, and is expressly designated as, a third party beneficiary of this Agreement. 7. On or before the effective date of termination set forth above, Employee shall return all of Employer's property in his/her possession, custody, or control, including without limitation all records, files, goods, equipment, documents, computer, software, data, disks, and any other property of any kind or description whatsoever, including (if applicable) all copies thereof. 8. Employee agrees to keep the terms of this Agreement confidential, and not to disclose the terms of this Agreement to any person except as may be required by law. This obligation shall be equally be binding upon Employee's counsel and upon his/her spouse (if any), who shall also keep the terms of this Agreement confidential and not disclose them to any person except as may be required by law. 9. Consistent with the full release contained in paragraph 3 above, Employee agrees not to file or lodge any type of complaint alleging violation of any law by Employer with any agency, or otherwise disparage Employer in statements to any person or assert any claims or demands against it. In the event that Employee brings such a lawsuit or files or lodges such a complaint in breach of this paragraph, then Employee shall be required (in addition to such damages as may be recoverable by Employer) to reimburse Employer the sum and/or value of all severance benefits received pursuant to paragraph 2 of this Agreement. 10. Employee understands and agrees that the execution of this Agreement and the provision of severance benefits described herein are not to be construed as an admission by Employer of any liability to Employee, liability being expressly denied; but this Agreement instead represents a compromise and settlement of disputed and unliquidated claims. 11. Employee is hereby advised to consult with an attorney before executing this Agreement. By his/her signature hereon, Employee acknowledges that he/she has been so advised, and that he/she has had an opportunity to consult with, and has consulted with, an attorney before executing this Agreement. 12. Employee acknowledges that he/she has been given a period of twenty-one (21) days within which to consider this Agreement. 13. For a period of seven (7) days following the execution of this Agreement by Employee, Employee may revoke the Agreement, and the Agreement shall not become effective or enforceable until the revocation period has expired. This Agreement shall become effective upon the eighth day following Employee's signature hereon, provided that Employee has delivered this signed Agreement to Employer within the same period (the "Effective Date"). 14. This Agreement constitutes the entire Agreement and understanding among the parties hereto with respect to the subject matter hereof and supersedes all prior and contemporaneous agreements, understandings, inducements and conditions express or implied, oral or written, of any nature whatsoever with respect to the subject matter hereof. This Agreement may not be modified or amended other than by an agreement in writing signed by the party to be charged with such modification or amendment. 15. Should any litigation be commenced between the parties hereto concerning the terms of this Agreement, or the rights and duties of the parties hereto under this Agreement, the prevailing party in such litigation shall be entitled, in addition to such other relief as may be granted, to a reasonable sum as and for the prevailing party's attorneys' fees, expert's fees, and expenses of litigation. 16. The provisions of this Agreement are independent of and separate and severable from each other, and no provision shall be affected or rendered invalid or unenforceable by virtue of the fact that for any reason any other or others of them may be invalid or unenforceable in whole or in part. If any provision of this Agreement is held by a court of competent jurisdiction to be invalid or unenforceable, that provision shall be deemed modified and replaced by a provision, as similar in form, content and effect as possible, to the invalid or unenforceable provision and the Agreement shall be deemed reformed accordingly. Notwithstanding the foregoing, however, the obligations of either party shall be rendered null and void if any part of the material consideration for that party's obligations is or becomes unenforceable and no reasonable substitute provision with the same material effect is available to the parties. 17. Neither the failure nor any delay on the part of any party to exercise any right, remedy, power or privilege under this Agreement shall operate as a waiver thereof, nor shall any single or partial exercise of any right, power, or privilege preclude any other or further exercise of the same or of any other right, remedy, power or privilege, nor shall any waiver of any right, remedy, power or privilege with respect to any occurrence be construed as a waiver of such rights, remedy, power, or privilege with respect to any other occurrence. 18. This Agreement is the product of negotiation between the parties. This Agreement shall be construed in accordance with its plain meaning and shall not be construed for or against any party on account of the role of any party or its counsel in the drafting of this Agreement. 19. This Agreement shall be governed by the substantive laws of Arizona and any action to enforce or construe this Agreement or to declare the rights of the parties hereunder shall be commenced and maintained in a state or federal court in Arizona. 20. Employee has read this Agreement, and understand the extent and effect of its terms, the relinquishment of his/her legal rights and the legal consequences involved in entering into this Agreement. Employee is satisfied with the terms and conditions of settlement represented by this Agreement. Employee is signing this Agreement voluntarily. [Employee must initial the following paragraph, if applicable; that is, if Employee chooses to sign this Agreement before the expiration of twenty-one days after it was offered to Employee.] 21. Employee hereby waives the twenty-one day period within which to consider this Agreement (but not the seven day period within which Employee may revoke this Agreement), because it is Employee's desire and request to have the severance pay paid as promptly as possible. Employee acknowledges that Employee has had a reasonable time to consider this Agreement, and that Employee could have and would have taken the full twenty-one days to consider this Agreement had Employee needed or desired it. Employee acknowledges that no pressure has been applied or deadline stated by Employer in connection with Employee's execution of this Agreement and that Employee was guided by Employee's own judgment and desire to expedite payment of the severance pay, in determining to sign this Agreement before the expiration of the twenty-one day period. _________(initial here, if applicable) "Employee": Scott D. Fullmer --------------------------------------- (Print name) /s/ Scott D. Fullmer --------------------------------------- (Signature) "Employer": POORE BROTHERS, INC. By: /s/ Eric J. Kufel ----------------------------------- Its: President and CEO ------------------------------ EX-10.2 3 LETTER AGREEMENT DATED AUGUST 18, 1998 EXHIBIT 10.2 August 18, 1998 Poore Brothers, Inc. 3500 South La Cometa Goodyear, AZ 85338 Attention: Eric Kufel President and Chief Executive Officer Dear Eric: We are pleased to set forth the terms of the retention of EVEREN Securities, Inc. ("EVEREN") by Poore Brothers, Inc. (collectively with its affiliates, the "Acquiror") to assist the Acquiror as its exclusive financial advisor and exclusive agent in connection with the Acquiror's efforts to acquire certain business entities ("Acquisition Candidates"). This Agreement will confirm EVEREN's engagement by the Acquiror on the following terms and conditions: l. Description of Engagement. EVEREN will advise the Acquiror on a variety of subjects relating to Acquisition Candidates and any Transaction (as defined below), including, but not limited to: (a) the market value of the Acquisition Candidates, taking into account competitive factors; (b) the pricing of acquisition proposals; (c) the form and terms of consideration to be utilized in acquisition proposals; and (d) strategies to be utilized in approaches and negotiations; EVEREN will use its best efforts to identify Acquisition Candidates meeting Acquirors criteria, and assist the Acquiror in providing advisory support from the negotiation process through closing and, if requested, will assist the Acquiror in obtaining any financing it may need to consummate the Transaction ("the Financing"). 2. Definition of Transaction. As used in this Agreement, the term "Transaction" shall mean an acquisition (a) by merger, consolidation, reorganization, recapitalization, business combination or other transaction pursuant to which an Acquisition Candidate is acquired by or combined with the Acquiror, or (b) the acquisition, directly or indirectly, by the Acquiror (or by one or more persons acting together with the Acquiror pursuant to a written agreement or otherwise) in a single Transaction or a series of Transactions of (i) any subsidiary, business segment or operation divisions or assets of the Acquisition Candidate or (ii) 25% or more of the Acquisition Candidate's outstanding stock (whether by way of tender or exchange offer, open market purchases, negotiated purchases or otherwise). 3. Information. In connection with EVEREN's activities on the Acquiror's behalf, the Acquiror will cooperate with EVEREN and will furnish EVEREN with all reasonable information and data concerning the Acquiror, any Transaction and, to the extent available to the Acquiror, each Acquisition Candidate (the "Information") which EVEREN deems appropriate and will provide EVEREN with access to the Acquiror's officers, directors, employees, independent accountants and legal counsel. To the extent that the Acquiror has access to the officers, directors, employees, independent accountants and legal counsel of any Acquisition Candidate, it will provide such access to EVEREN. The Acquiror represents and warrants that all Information (a) made available to EVEREN by the Acquiror or (b) contained in any filing by the Acquiror with any court or governmental regulatory agency, commission or instrumentality with respect to any Transaction will, at all times during the period of the engagement of EVEREN hereunder, be complete and correct in all material respects and will not contain any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances under which such statements are made. The Acquiror further represents and warrants that any projections provided by it to EVEREN will have been prepared in good faith and will be based upon assumptions which, in light of the circumstances under which they are made, are reasonable. The Acquiror acknowledges and agrees that, in rendering its services hereunder, EVEREN will be using and relying on the Information (and information available from public sources and other sources deemed reliable by EVEREN) without independent verification thereof by EVEREN or independent appraisal by EVEREN of any of the Acquiror's or the Acquisition Candidate's assets. EVEREN does not assume responsibility for the accuracy or completeness of the Information or any other information regarding the Acquiror, any Acquisition Candidate or any Transaction. Any advice rendered by EVEREN pursuant to this Agreement may not be disclosed publicly without EVEREN's prior written consent, except as may be required by applicable law. 4. Compensation. In consideration of EVEREN's services pursuant to this Agreement, EVEREN shall be entitled to receive, and the Acquiror agrees to pay EVEREN, the following compensation: (a) Upon execution of this Agreement, the Acquiror shall pay to EVEREN an initial cash fee of $25,000, the amount of which shall be credited to any fees payable to EVEREN under subparagraphs (c) and (d) below. (b) Upon execution of this Agreement and for every 90 day period thereafter until the termination of this Agreement, the Acquiror shall pay EVEREN, a cash fee of $5,000 on the first of such 90-day period, the aggregate amount of which shall be credited to any fees payable to EVEREN under subparagraphs (c) and (d) below. (c) If a Transaction is consummated during the term of this Agreement, then the Acquiror shall pay EVEREN, upon such consummation, cash fee equal to 2% of the value of the total consideration paid by the Acquiror in the Transaction in respect of (i) assets of the Acquisition Candidate, (ii) capital stock of the Acquisition Candidate (and any securities convertible into, or options, warrants or other rights to acquire, such capital stock) and (iii) the assumption, directly or indirectly (by operation of law or otherwise), or repayment of indebtedness (including, without limitation, indebtedness secured by assets of the Acquisition Candidate), less amounts paid pursuant to (a) and (b) above. The value of total consideration paid will be calculated as the sum of the following values at closing: (i) Cash and cash equivalents paid to an Acquisition Candidate or its shareholders; (ii) Market value of any common stock issued to an Acquisition Candidate or its shareholders; (iii) The liquidation preference of any preferred stock issued to an Acquisition Candidate or its shareholders, unless market value is easily determinable; (iv) The face value of any notes issued to an Acquisition Candidate or its shareholders, unless market value is easily determinable; (v) Consideration paid or payable under covenants not to compete, earn-outs (determinable upon consummation) and consulting arrangements (such terms not to encompass standard employment agreements). (vi) The face value of any debt owed or preferred stock issued by an Acquisition Candidate or its shareholders which is assumed and/or forgiven, unless market value is easily determinable; and (vii) The difference between the exercise price of any stock options and the fair market value per share of common stock even though such differences may be paid to the option holder in cash rather than through exercise of the options. (d) Upon the closing of each and any part of a Financing obtained by EVEREN or negotiation with the assistance of EVEREN, the Acquiror shall pay EVEREN a cash fee equal to: (i) 1.0% of the aggregate principal amount of any senior debt Financing raised: plus (ii) 3% of the aggregate principal amount of any subordinated debt Financing raised: plus (iii) 3% of any preferred equity Financing raised: plus (iv) 7% of the aggregate of any common equity Financing raised, less the amounts paid pursuant to (a) and (b) above. Any financing involving a public offering of senior subordinated debt to be based on terms as may from time to time be agreed upon by EVEREN and the Acquiror. (e) In no event shall the aggregate fees earned by EVEREN pursuant to this Agreement for Transactions consummated during the first two years after the date of this Agreement, be less than $100,000; provided, however, that such minimum required fee amount shall be reduced pro rata in the event that this Agreement is terminated by EVEREN for any reason at any time prior to the expiration of such two-year period. (f) EVEREN shall receive from the Acquiror warrants to purchase up to 2.5% of the fully diluted shares of common stock of the Acquiror upon execution of this Agreement. Such warrants will have an aggregated exercise price to be no greater than the fair market value of the underlying common stock, and shall have such other terms (including, without limitation, customary anti-dilution and piggy back registration provisions) as shall be mutually agreed upon in good faith by EVEREN and the Acquiror. The above warrants will have a 5 year term, be issued effective upon execution of this Agreement and vest as follows: 50% when the Acquiror's annual Sales are at $50,000,000 on a pro forma basis and the additional 50% when the Acquiror's annual sales are at $100,000,000 on a pro forma basis. For purposes of this subparagraph 4(f), "Acquiror's Sales" shall mean sales of the businesses owned by Acquiror on the date hereof, plus sales of the businesses acquired in a Transaction pursuant to which EVEREN is eligible for compensation pursuant to subparagraph 4(c) above, (g) EVEREN shall be entitled to the fees enumerated in any preceding subparagraph of this Paragraph 4 with respect to any event specified in any such subparagraph if both: (i) the transaction is consummated during the term of this Agreement or within one year after the date of termination of this Agreement; and (ii) prior to the termination of this Agreement EVEREN, at the request of the Acquiror, participates and plays a material role in connection with the identification, analysis, structuring and/or negotiation of such Transaction. (h) If a Transaction is not consummated, but the Acquiror receives a "break-up" fee or any other payment as a result of the termination or cancellation of an Acquisition Candidate's efforts to effect a Transaction, a judgment for damages, or an amount in settlement of any dispute relating to a Transaction or Alternate Transaction, then the Acquiror shall pay to EVEREN a cash fee equal to 25% of such fee, payment, judgment or amount, not to exceed the fee EVEREN would otherwise have received if the Transaction had been consummated. (i) For purposes of this paragraph 4, the term "Acquiror" includes any person acting together with the Acquiror pursuant to a written agreement or otherwise. 5. No Assurances. EVEREN makes no representations, express or implied that EVEREN will succeed in its efforts to assist the Acquiror in consummating a Transaction. 6. Right of First Refusal. (a) If the Acquiror requires Financing to consummate the Transaction during the term of this Agreement, then EVEREN shall have the right to act as the Acquiror's sole managing underwriter or exclusive agent, as the case may be, in connection with raising such financing, subject to approval of EVEREN's Capital Commitment Committee and the good faith negotiation of customary and mutually agreeable terms; provided that EVEREN's compensation in connection with such engagement shall be as set forth on Paragraph 4(d) hereof. 7. Expenses. In addition to the fees described above, the Acquiror agrees to promptly reimburse EVEREN, upon request from time to time, for all reasonable out-of-pocket expenses incurred by EVEREN (including without limitation, fees and disbursements of counsel, and of other consultants and advisors retained by EVEREN) in connection with the matters contemplated by this Agreement. Such expenses shall not exceed $5,000 in the aggregate without prior approval of the Acquiror, which approval shall not be unreasonably withheld. 8. Indemnification. The Acquiror hereby agrees to indemnify EVEREN in accordance with the indemnification provisions (the "Indemnification Provisions") attached to this Agreement, which Indemnification Provisions are incorporated herein and made a part hereof. 9. Termination; Survival. Either party hereto may terminate this Agreement at any time upon written notice, without liability or continuing obligation except as set forth in the following sentence. Neither termination nor completion of this assignment shall affect: (i) any compensation earned by EVEREN up to the date of termination or completion, or after termination, as the case may be, pursuant to the paragraph herein entitled "Compensation", (ii) the reimbursement of expenses incurred by EVEREN up to the date of termination or completion, as the case may be, pursuant to the paragraph herein entitled "Expenses", (iii) the attached Indemnification Provisions, and (iv) the provisions of the paragraphs herein entitled "Governing Law; Jurisdiction" and "Successors and Assigns" of this Agreement, all of which shall remain operative and in full force and effect. 10. Governing Law; Jurisdiction. The validity and interpretation of this agreement shall be governed by the laws of the State of Illinois applicable to agreements made and to be fully performed therein. The Acquiror irrevocably submits to the jurisdiction of any court of the State of Illinois or the United States District Court for the Northern District of the State of Illinois for the purpose of any suit, action or other proceeding arising out of this Agreement or any of the agreements or transactions contemplated hereby, which is brought by or against the Acquiror, and (i) hereby irrevocably agrees that all claims in respect of any such suit, action or proceeding may be heard and determined in any such court and (ii) to the extent that the Acquiror has acquired, or hereafter may acquire, any immunity from jurisdiction of any such court or from any legal process therein, the Acquiror hereby waives, to the fullest extent permitted by law, such immunity. The Acquiror hereby waives and agrees not to assert in any such suit, action or proceeding, in each case, the fullest extent permitted by applicable law, any right to trial by jury and any claim that (a) the Acquiror is not personally subject to the jurisdiction of any such court, (b) the Acquiror is immune from any legal process (whether through service or notice, attachment prior to judgment, attachment in aid of execution, execution or otherwise) with respect to the Acquiror's property or (c) any such suit, action or proceeding is brought in an inconvenient forum. 11. Assignment. This agreement shall be binding upon and insure to the benefit of the parties hereto and their respective successors, but the rights and obligations of the parties shall not be assignable by either of the parties hereto without the prior written consent of the other party. 12. Advertisement. EVEREN or the Acquiror may publish an advertisement, at its own expense with prior approval of the other party, which approval shall not be unreasonably withheld, or issue a press release announcing the hiring of EVEREN or the completion of a Transaction and EVEREN's role therein after the consummation of such event. 13. Conflicts. EVEREN acknowledges their professional responsibility regarding conflicts of interest and agrees that EVEREN will act accordingly in representing other premium food companies. 14. Counterparts; Amendments. For the convenience of the parties, any number of counterparts of this Agreement may be executed by the parties hereto. Each such counterpart shall be, and shall be deemed to be, an original instrument, but all such counterparts taken together shall constitute one and the same Agreement. This Agreement may not be modified or amended except in writing signed by the parties hereto. If the foregoing correctly sets forth our Agreement, please sign the enclosed copy of this letter in the space provided and return it to us. Very truly yours, EVEREN SECURITIES, INC. By: /s/ Larry C. Bain ------------------------------ Lawrence D. Bain Managing Director - Corporate Finance Accepted and Agreed to this 18th day of August, 1998. POORE BROTHERS, INC. By: /s/ Eric J. Kufel ------------------------------ Name: Eric J. Kufel Title: President and Chief Executive Officer EX-10.3 4 CREDIT AND SECURITY AGR. DATED OCTOBER 23, 1998 EXHIBIT 10.3 ---------------------------------------------- ---------------------------------------------- CREDIT AND SECURITY AGREEMENT BY AND BETWEEN POORE BROTHERS, INC., POORE BROTHERS ARIZONA, INC., POORE BROTHERS DISTRIBUTING, INC. AND TEJAS PB DISTRIBUTING, INC. AND NORWEST BUSINESS CREDIT, INC. Dated as of: October 23, 1998 NORWEST ---------------------------------------------- ----------------------------------------------
TABLE OF CONTENTS ----------------- PAGE ---- ARTICLE 1. Definitions..................................................................................1 Section 1.1 Definitions...........................................................................1 Section 1.2 Cross References.....................................................................11 ARTICLE 2. Amount and Terms of the Credit Facility.....................................................11 Section 2.1 Revolving Advances and Term Loan Advance.............................................11 Section 2.2 Monthly Payments; Minimum Interest Charge; Default Interest; Participations; Usury................................................................12 Section 2.3 Fees.................................................................................14 Section 2.4 Computation of Interest and Fees; When Interest Due and Payable......................15 Section 2.5 Capital Adequacy.....................................................................15 Section 2.6 Voluntary Prepayment; Termination of the Credit Facility by the Borrower.............................................................................16 Section 2.7 Termination Fee; Waiver of Termination Fee...........................................16 Section 2.8 Mandatory Prepayment.................................................................17 Section 2.9 Payment..............................................................................17 Section 2.10 Payment on Non-Banking Days..........................................................17 Section 2.11 Use of Proceeds......................................................................17 Section 2.12 Liability Records....................................................................18 ARTICLE 3. Security Interest; Occupancy; Setoff........................................................18 Section 3.1 Grant of Security Interest...........................................................18 Section 3.2 Notification of Account Debtors and Other Obligors...................................18 Section 3.3 Assignment of Insurance..............................................................18 Section 3.4 Occupancy............................................................................19 Section 3.5 License..............................................................................19 Section 3.6 Financing Statement..................................................................19 Section 3.7 Setoff...............................................................................20 Section 3.8 Assignment of Asset Purchase Agreement...............................................20 ARTICLE 4. Conditions of Lending.......................................................................21 Section 4.1 Conditions Precedent to the Initial Revolving Advance................................21 Section 4.2 Conditions Precedent to Term Loan Advance............................................23 Section 4.2 Conditions Precedent to All Advances.................................................25 ARTICLE 5. Representations and Warranties..............................................................25 Section 5.1 Corporate Existence and Power; Name; Chief Executive Office; Inventory and Equipment Locations; Tax Identification Number.........................25 Section 5.2 Authorization of Borrowing; No Conflict as to Law or Agreements......................25 Section 5.3 Legal Agreements.....................................................................26 Section 5.4 Subsidiaries.........................................................................26 Section 5.5 Financial Condition; No Adverse Change...............................................26 Section 5.6 Litigation...........................................................................26 Section 5.7 Regulation U.........................................................................27 Section 5.8 Taxes................................................................................27 Section 5.9 Titles and Liens.....................................................................27 Section 5.10 Plans................................................................................27 Section 5.11 Default..............................................................................28 Section 5.12 Environmental Matters................................................................28 Section 5.13 Submissions to Lender................................................................29 Section 5.14 Financing Statements.................................................................29 Section 5.15 Rights to Payment....................................................................29 Section 5.16 Financial Solvency...................................................................30 Section 5.17 Year 2000 Compliance.................................................................30
ARTICLE 6. Borrower's Affirmative Covenants............................................................31 Section 6.1 Reporting Requirements...............................................................31 Section 6.2 Books and Records; Inspection and Examination........................................33 Section 6.3 Account Verification.................................................................34 Section 6.4 Compliance with Laws.................................................................34 Section 6.5 Payment of Taxes and Other Claims....................................................34 Section 6.6 Maintenance of Properties............................................................35 Section 6.7 Insurance............................................................................35 Section 6.8 Preservation of Existence............................................................35 Section 6.9 Delivery of Instruments, etc.........................................................35 Section 6.10 Collateral Account...................................................................35 Section 6.11 INTENTIONALLY DELETED................................................................36 Section 6.12 Performance by the Lender............................................................36 Section 6.13 Year 2000 Compliance.................................................................37 Section 6.14 Minimum Debt Service Coverage Ratio..................................................37 Section 6.15 Minimum Net Income or Maximum Net Loss From Ordinary Operations......................38 Section 6.16 Minimum Book Net Worth Increase......................................................38 ARTICLE 7. Negative Covenants..........................................................................39 Section 7.1 Liens................................................................................39 Section 7.2 Indebtedness.........................................................................40 Section 7.3 Guaranties...........................................................................40 Section 7.4 Investments and Subsidiaries.........................................................41 Section 7.5 Dividends and Voluntary Redemption Payments..........................................41 Section 7.6 Sale or Transfer of Assets; Suspension of Business Operations........................41 Section 7.7 Consolidation and Merger; Asset Acquisitions.........................................42 Section 7.8 Sale and Leaseback...................................................................42 Section 7.9 Restrictions on Nature of Business...................................................42 Section 7.10 Capital Expenditures.................................................................42 Section 7.11 Accounting...........................................................................42 Section 7.12 Discounts, etc.......................................................................42 Section 7.13 Defined Benefit Pension Plans........................................................42 Section 7.14 Other Defaults.......................................................................43 Section 7.15 Place of Business; Name..............................................................43 Section 7.16 Organizational Documents; C Corporation Status.......................................43 Section 7.17 Salaries.............................................................................43 Table of Contents -ii-
ARTICLE 8. Events of Default, Rights and Remedies......................................................43 Section 8.1 Events of Default....................................................................43 Section 8.2 Rights and Remedies..................................................................45 Section 8.3 Certain Notices......................................................................46 ARTICLE 9. Miscellaneous...............................................................................46 Section 9.1 No Waiver; Cumulative Remedies.......................................................46 Section 9.2 Amendments, Etc......................................................................47 Section 9.3 Addresses for Notices, Etc...........................................................47 Section 9.4 INTENTIONALLY DELETED................................................................47 Section 9.5 Further Documents....................................................................47 Section 9.6 Collateral...........................................................................48 Section 9.7 Costs and Expenses...................................................................48 Section 9.8 Indemnity............................................................................48 Section 9.9 Participants.........................................................................49 Section 9.10 Execution in Counterparts............................................................49 Section 9.11 Binding Effect; Assignment; Complete Agreement; Exchanging Information...............49 Section 9.12 Confidential Information.............................................................50 Section 9.13 Severability of Provisions...........................................................50 Section 9.14 Headings.............................................................................50 Section 9.15 Governing Law; Jurisdiction, Venue; Waiver of Jury Trial.............................50 ARTICLE 10. Joint Borrower Provisions...................................................................51 Section 10.1 Reliance on Acts of any Borrower.....................................................51 Section 10.3 Single Obligation....................................................................51 Section 10.3 Knowing Waiver.......................................................................54 Section 10.4 Information..........................................................................54 -iii-
CREDIT AND SECURITY AGREEMENT Dated as of October 23, 1998 POORE BROTHERS, INC., a Delaware corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING, INC., an Arizona corporation (individually and collectively, the "Borrower"), and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), hereby agree as follows: ARTICLE 1 DEFINITIONS SECTION 1.1 DEFINITIONS. For all purposes of this Agreement, except as otherwise expressly provided or unless the context otherwise requires: (a) the terms defined in this Article have the meanings assigned to them in this Article, and include the plural as well as the singular; and (b) all accounting terms not otherwise defined herein have the meanings assigned to them in accordance with GAAP. "Accounts" means all of the Borrower's accounts, as such term is defined in the UCC, whether now existing or hereafter arising, and all proceeds thereof, including, without limitation, the aggregate unpaid obligations of customers and other account debtors to the Borrower arising out of the sale or lease of goods or rendition of services by the Borrower on an open account or deferred payment basis. "Advance" means a Revolving Advance and/or the Term Loan Advance. "Affiliate" or "Affiliates" mean with respect to any Person, any other Person controlled by, controlling or under common control with such Person. With respect to each Borrower, individually, "Affiliate" or "Affiliates" means each other Borrower and La Cometa Properties, Inc., an Arizona corporation, and any other Person controlled by, controlling or under common control with the Borrower, including (without limitation) any Subsidiary of the Borrower. For purposes of this definition, "control," when used with respect to any specified Person, means the power to direct the management and policies of such Person, directly or indirectly, whether through the ownership of voting securities, by contract or otherwise. "Agreement" means this Credit and Security Agreement, as amended, modified, supplemented, replaced or restated from time to time. "Asset Purchase Agreement" means the Agreement for Purchase and Sale of Assets dated October 29, 1998 between Tejas Snacks, L.P., Kevin Kohl, Tom Bigham and Poore Brothers, Inc., as amended, modified, supplemented, restated or replaced from time to time with the prior written consent of Lender. "Banking Day" means a day other than a Saturday, Sunday or other day on which banks are generally not open for business in Phoenix, Arizona or Minneapolis, Minnesota. "Base Rate" means the rate of interest publicly announced from time to time by Norwest Bank Minnesota as its "base rate" or, if such bank ceases to announce a rate so designated, any similar successor rate designated by the Lender. "Book Net Worth" means the aggregate of the common and preferred stockholders' equity in the Borrower and its Subsidiaries, determined in accordance with GAAP, without giving effect to the conversion of any Debentures to capital stock. "Borrowing Base" means, at any time the lesser of: (a) the Maximum Line; or (b) subject to change from time to time in the Lender's sole discretion, (i) 85% of Eligible Accounts, plus (ii) the lesser of (A) 60% of Eligible Inventory or (B) $350,000, minus (iii) the aggregate amount, without duplication, of all claims under PACA or any other federal, state or local law, statute or ordinance granting a lien or security interest on perishable agricultural commodities. "Capital Expenditures" for a period means any expenditure of money for the lease, purchase or other acquisition of any capital asset, or for the lease of any other asset whether payable currently or in the future. "Change of Control" means the occurrence of any of the following: (i) the sale, lease, transfer, conveyance or other disposition (other than by way of merger or consolidation), in one or a series of related transactions, of all or substantially all of the assets of the Borrower taken as a whole as to any Person (as such term is used in Section 13(d)(3) of the Exchange Act), or group of related Persons, together with any affiliates thereof, (ii) the adoption by the Borrower of a plan relating to the liquidation or dissolution of the Borrower taken as a whole, (iii) the first day on which a majority of the members of the Board of Directors of any Borrower are not Continuing Directors, or (iv) the consummation of any transaction (including, without limitation, any merger or consolidation) the result of which is that any Person or group of related Persons, together with any affiliates thereof becomes the "beneficial owner" (as such term is defined in Rule 13d-3 and Rule 13d-5 under the Exchange Act), directly or indirectly, of more than 50% of the common capital stock of Poore Brothers, Inc. (measured by voting power rather than number of shares) . "Collateral" means all of the Borrower's Equipment, General Intangibles, Inventory, Receivables, Investment Property, all sums on deposit in any Collateral Account, and any items in any Lockbox; together with (i) all substitutions and replacements for and products of any of the foregoing; (ii) proceeds of any and all of the foregoing; (iii) in the case of all tangible goods, all accessions; (iv) all accessories, attachments, parts, equipment and repairs now or hereafter attached or affixed to or used in connection with any tangible goods; and (v) all warehouse receipts, bills of lading and other documents of title now or hereafter covering such goods. "Collateral Account" has the meaning given in the Collateral Account Agreement. "Collateral Account Agreement" means the Collateral Account Agreement of even date herewith by and among the Borrower, Norwest Bank Arizona and the Lender. "Commitment" means the Lender's commitment to make Advances to or for the Borrower's account pursuant to Article 2. "Continuing Director" means, as of any date of determination, any member of the Board of Directors of such Borrower who (i) was a member of such Board of Directors on the date twelve (12) months prior to the date of determination or (ii) was nominated for election or elected to such Board of Directors with the approval of a majority of the Continuing Directors who were members of such Board at the time of such nomination or election. "Conversion Date" means each date on which any holder of the Debentures notifies Borrower in writing of its intent to exercise all or any portion of the conversion rights granted under the Debentures. "Credit Facility" or "Credit Facilities" means, individually, the Term Loan or the Revolving Advances, and, collectively, the Term Loan and the Revolving Advances. "Current Maturities of Long Term Debt" as of a given date means the amount of the Borrower's and its Subsidiaries' long-term debt and capitalized leases which became due during the period ending on the designated date. "Debenture Holders" means Wells Fargo Small Business Investment Co., Inc., formerly known as First Interstate Equity Corporation, and Renaissance Capital Growth & Income Fund III, Inc., a Texas corporation, and their successors and permitted assigns. "Debentures" means that certain 9.00% Convertible Debenture No. 1 dated May 31, 1995 issued by Poore Brothers, Inc. and its Subsidiaries in favor of Renaissance Capital Growth & Income Fund III, Inc., that certain 9.00% Convertible Debenture No. 2 dated May 31, 1995 issued by Poore Brothers, Inc. and its Subsidiaries in favor of First Interstate Equity Corporation, now known as Wells Fargo Small Business Investment Co., Inc., and that certain Convertible Debenture Loan Agreement dated May 31, 1995 between Poore Brothers, Inc. and its Subsidiaries, as co-borrowers, and Renaissance Capital Growth & Income Fund III, Inc. and First Interstate Equity Corporation, as lenders, as any of the above may be amended, modified, supplemented, restated or replaced from time to time. "Debt" of any Person means all items of indebtedness or liability which in accordance with GAAP would be included in determining total liabilities as shown on the liabilities side of a balance sheet of that Person as of the date on which the Debt is to be determined. For purposes of determining a Person's aggregate Debt at any time, "Debt" shall also include the aggregate payments required to be made by such Person at any time under any lease that is considered a capitalized lease under GAAP. "Debt Service Coverage Ratio" means the ratio of (i) the sum of (A) Funds from Operations and (B) Interest Expense minus (C) Unfinanced Capital Expenditures to (ii) the sum of (A) Current Maturities of Long Term Debt and (B) Interest Expense. "Default" means an event that, with giving of notice or passage of time, or both, would constitute an Event of Default. "Default Period" means (a) in the case of a Default or Event of Default caused solely by Borrower's non-performance of its obligations under Section 6.1, the period of time beginning on the date that such Default or Event of Default occurs and ending on the date the Lender notifies the Borrower in writing that such Default or Event of Default has been cured or waived, and (b) in the case of any other Default or Event of Default, the period of time beginning on the first day of any month during which a Default or Event of Default occurs and ending on the date the Lender notifies the Borrower in writing that such Default or Event of Default has been cured or waived. "Default Rate" means, with respect to the Revolving Note, an annual rate equal to the Floating Rate plus 300 basis points (3%), which rate shall change when and as the Floating Rate changes, and, with respect to the Term Loan Note, an annual rate equal to the Term Loan Rate plus 300 basis points, which rate shall change when and as the Term Loan Rate changes. "ERISA" means the Employee Retirement Income Security Act of 1974, as amended. "Eligible Accounts" means all unpaid Accounts, net of any credits, except the following shall not in any event be deemed Eligible Accounts: (i) That portion of Accounts unpaid 90 days or more after the invoice date; (ii) That portion of Accounts that is disputed or subject to a claim of offset or a contra account; (iii) That portion of Accounts not yet earned by the final delivery of goods or rendition of services, as applicable, by the Borrower to the customer; (iv) Accounts owed by any unit of government, whether foreign or domestic (provided, however, that there shall be included in Eligible Accounts that portion of Accounts owed by such units of government for which the Borrower has provided evidence satisfactory to the Lender that (A) the Lender has a first priority perfected security interest and (B) such Accounts may be enforced by the Lender directly against, and payments with respect to such Accounts received by the Lender directly from, such unit of government under all applicable laws); (v) Accounts owed by an account debtor located outside the United States which are not (A) backed by a bank letter of credit naming the Lender as beneficiary or assigned to the Lender, in the Lender's possession and acceptable to the Lender in all respects, in its sole discretion, (B) covered by a foreign receivables insurance policy acceptable to the Lender in its sole discretion; (vi) Accounts owed by an account debtor that is insolvent, the subject of bankruptcy proceedings or has gone out of business; (vii) Accounts owed by a shareholder, Subsidiary, Affiliate, officer or employee of the Borrower; (viii) Accounts not subject to a duly perfected security interest in the Lender's favor or which are subject to any lien, security interest or claim in favor of any Person other than the Lender, including, without limitation, any payment or performance bond; (ix) That portion of Accounts that has been restructured, extended, amended or modified; (x) That portion of Accounts that constitutes advertising, finance charges, service charges or sales or excise taxes; (xi) Accounts owed by an account debtor, regardless of whether otherwise eligible, if 15% or more of the total amount due under Accounts from such debtor is ineligible under clauses (i), (ii)or (ix) above; (xii) That portion of an otherwise Eligible Account that exceeds 20% of total Accounts; and (xiii) Accounts, or portions thereof, otherwise deemed ineligible by the Lender in its sole discretion. "Eligible Inventory" means all Inventory of the Borrower, at the lower of cost or market value as determined in accordance with GAAP; provided, however, that the following shall not in any event be deemed Eligible Inventory: (i) Inventory that is: in-transit; located at any warehouse, job site or other premises not approved by the Lender in writing; located outside of the states, or localities, as applicable, in which the Lender has filed financing statements to perfect a first priority security interest in such Inventory; covered by any negotiable or non-negotiable warehouse receipt, bill of lading or other document of title; on consignment from any Person; on consignment to any Person or subject to any bailment unless such consignee or bailee has executed an agreement with the Lender; (ii) Supplies, film and packaging or sample Inventory; (iii) Work-in-process Inventory; (iv) Inventory that is damaged, obsolete, slow moving or not currently saleable in the normal course of the Borrower's operations; (v) Inventory that the Borrower has returned, has attempted to return, is in the process of returning or intends to return to the vendor thereof; (vi) Inventory that is raw materials or that has not been sold prior to its expiration date; (vii) Inventory manufactured by the Borrower pursuant to a license unless the applicable licensor has agreed in writing to permit the Lender to exercise its rights and remedies against such Inventory; (viii) Inventory that is subject to any lien, security interest or claim in favor of any Person other than the Lender, including, without limitation, any payment or performance bond; (ix) Private Label Inventory in excess of $50,000 of cost in the aggregate; and (x) Inventory otherwise deemed ineligible by the Lender in its sole discretion. "Environmental Law" has the meaning specified in Section 5.12. "Equipment" means all of the Borrower's equipment, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all present and future machinery, vehicles, furniture, fixtures, manufacturing equipment, shop equipment, office and recordkeeping equipment, parts, tools, computers, hardware and software and related items, supplies, and including specifically (without limitation) the goods described in any equipment schedule or list herewith or hereafter furnished to the Lender by the Borrower. "Event of Default" has the meaning specified in Section 8.1. "Floating Rate" means an annual rate equal to the sum of the Base Rate plus one-hundred fifty (150) basis points, which annual rate shall change when and as the Base Rate changes. "Funding Date" has the meaning given in Section 2.1. "Funds From Operations" for a given period means the sum of (i) Net Income, (ii) depreciation and amortization, and (iii) other non-cash items, each as determined for such period in accordance with GAAP. "GAAP" means generally accepted accounting principles, applied on a basis consistent with the accounting practices applied in the financial statements described in Section 5.5, and, with respect to the interim financial statements, subject to normal and customary non-material year-end adjustments. "General Intangibles" means all of the Borrower's general intangibles, as such term is defined in the UCC, whether now owned or hereafter acquired, and all proceeds thereof, including (without limitation) all present and future patents, patent applications, copyrights, trademarks, trade names, trade secrets, customer or supplier lists and contracts, manuals, operating instructions, permits, franchises, the right to use Borrower's names, and the goodwill of Borrower's business . "Hazardous Substance" has the meaning given in Section 5.12. "Intercreditor Agreement" means the Intercreditor Agreement of even date herewith, executed by the Debenture Holders and Lender, and acknowledged by the Borrower, and any other intercreditor agreement accepted by the Lender from time to time, as the same may hereafter be amended, modified, supplemented, replaced or restated from time to time. "Interest Expense" means, for the period of determination, the Borrower's and its Subsidiaries' total gross interest expense during such period (excluding interest income), and shall in any event include, without limitation, (i) interest expensed (whether or not paid) on all Debt, (ii) the amortization of debt discounts, (iii) the amortization of all fees payable in connection with the incurrence of Debt to the extent included in interest expense, and (iv) the portion of any capitalized lease obligation allocable to interest expense. "Inventory" means all of the Borrower's inventory, as such term is defined in the UCC, whether now owned or hereafter acquired, whether consisting of whole goods, spare parts or components, supplies or materials, whether acquired, held or furnished for sale, for lease or under service contracts or for manufacture or processing, and wherever located. "Investment Property" means all of the Borrower's investment property, as such term is defined in the UCC, whether now owned or hereafter acquired, including but not limited to all securities, security entitilements, securities accounts, commodity contracts, commodity accounts, stocks, bonds, mutual fund shares, money market shares and U.S. Government securities. "Loan Documents" means this Agreement, the Notes, the Warrant and the Security Documents. "Lockbox" has the meaning given in the Lockbox Agreement. "Lockbox Agreement" means the Lockbox Agreement by and among the Borrower, Norwest Bank Arizona and the Lender, of even date herewith. "Maturity Date" means, with respect to the Revolving Advances, November 4, 2001, and, with respect to the Term Loan, the Term Loan Maturity Date. "Maximum Line" means $2,000,000. "Minimum Interest Charge" has the meaning given in Section 2.2(c). "Mortgagee" means Morgan Guaranty Trust Company of New York, a New York banking corporation, its successors and assigns, as beneficiary under that certain Deed of Trust and Security Agreement dated June 4, 1997, recorded on June 5, 1997 as Instrument No. 97-0381371, Records of Maricopa County, Arizona, encumbering the Premises. "Net Income" or "Net Loss" means after-tax net income or net loss from continuing operations of Borrower and its Subsidiaries, as determined in accordance with GAAP. "Norwest Bank Arizona" means Norwest Bank Arizona, National Association, its successors and assigns. "Norwest Bank Minnesota" means Norwest Bank Minnesota, National Association, its successors and assigns. "Note" or "Notes" means, individually, the Revolving Note or the Term Loan Note, and, collectively, the Revolving Note and the Term Loan Note. "Obligations" means the Notes and each and every other debt, liability and obligation of every type and description which the Borrower may now or at any time hereafter owe to the Lender, whether such debt, liability or obligation now exists or is hereafter created or incurred, whether it arises in a transaction involving the Lender alone or in a transaction involving other creditors of the Borrower, and whether it is direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, or sole, joint, several or joint and several, and including specifically, but not limited to, all indebtedness of the Borrower arising under this Agreement, the Notes or any other loan or credit agreement or guaranty between the Borrower and the Lender, whether now in effect or hereafter entered into. "PACA" means the Perishable Agricultural Commodities Act, 1930, 7 U.S.C. ss. 499a through 499t, as it may be amended, restated or replaced from time to time, and any regulations, orders, decrees, standards, policies and guidelines now or hereafter relating thereto. "Patent and Trademark Security Agreement" means the Patent and Trademark Security Agreement by the Borrower in favor of the Lender of even date herewith, as it may be amended, modified, supplemented, restated or replaced from time to time. "Permitted Lien" has the meaning given in Section 7.1. "Person" means any individual, corporation, partnership, joint venture, limited liability company, association, joint-stock company, trust, unincorporated organization or government or any agency or political subdivision thereof. "Plan" means an employee benefit plan or other plan maintained for the Borrower's employees and covered by Title IV of ERISA. "Premises" means all premises where the Borrower conducts its business and has any rights of possession, including (without limitation) the premises legally described in Exhibit D attached hereto. "Private Label Inventory" means Inventory manufactured for the account of other wholesalers, distributors, retailers or third parties or otherwise intended to be marketed and sold under a tradename other than that owned by, or licensed to, Borrower. "Receivables" means each and every and every right of Borrower to the payment of money, whether such right to payment now exists or hereafter arises, and all proceeds thereof, whether such right to payment arises out of a sale, lease or other disposition of goods or other property, out of a rendering of services, out of a loan, out of the overpayment of taxes or other liabilities, or otherwise arises under any contract or agreement, whether such right to payment is created, generated or earned by the Borrower or by some other person who subsequently transfers such person's interest to Borrower, whether such right to payment is or is not already earned by performance, and howsoever such right to payment may be evidenced, together with all other rights and interests (including all liens and security interests) which Borrower may at any time have by law or agreement against any account debtor or other obligor obligated to make any such payment or against any property of such account debtor or other obligor; all including but not limited to all present and future accounts, contract rights, loans and obligations receivable, chattel paper, bonds, notes and other debt instruments, tax refunds and rights to payment in the nature of general intangibles; and those documents, General Intangibles, chattel papers, instruments, contracts, licenses, ledger sheets, files, records, computer programs, tapes and agreements relating to Borrower's right to receive payment, all as such items are defined in the UCC. "Reportable Event" shall have the meaning assigned to that term in Title IV of ERISA. "Revolving Advance" has the meaning given in Section 2.1(a). "Revolving Note" means the Borrower's revolving promissory note, payable to the order of the Lender in substantially the form of Exhibit A hereto, as the same may hereafter be amended, modified, supplemented, replaced or restated from time to time, and any note or notes issued in substitution therefor, as the same may hereafter be amended, modified, supplemented, replaced or restated from time to time and any note or notes issued in substitution therefor. "Security Documents" means this Agreement, the Collateral Account Agreement, the Lockbox Agreement, the Patent and Trademark Security Agreement, and any other document delivered to the Lender from time to time to secure the Obligations, as the same may hereafter be amended, supplemented or restated from time to time. "Security Interest" has the meaning given in Section 3.1. "Seller" means Tejas Snacks, L.P., a Texas limited partnership. "Subordinated Debt" means Debt of the Borrower and its Subsidiaries which is expressly subordinated and made junior to the payment and performance in full of the Borrower's Obligations to the Lender, and is evidenced by written instruments containing subordination provisions and in an amount approved by the Lender in its sole discretion. "Subordination Agreement" means any subordination agreement accepted by the Lender from time to time, as the same may thereafter be amended, modified, supplemented, replaced or restated from time to time. "Subordinated Creditors" means any Person now or hereafter executing a Subordination Agreement accepted by Lender. "Subsidiary" means any corporation of which more than 50% of the outstanding shares of capital stock having general voting power under ordinary circumstances to elect a majority of the board of directors of such corporation, irrespective of whether or not at the time stock of any other class or classes shall have or might have voting power by reason of the happening of any contingency, is at the time directly or indirectly owned by the Borrower, by the Borrower and one or more other Subsidiaries, or by one or more other Subsidiaries. "Term Loan Maturity Date" means the first day of the nineteenth (19th) month (including the month in which the Term Loan Advance is made) after the making of the Term Loan Advance. "Term Loan Note" means the Borrower's term loan promissory note, payable to the order of the Lender in substantially the form of Exhibit B hereto, as the same may hereafter be amended, modified, supplemented, replaced or restated from time to time, and any note or notes issued in substitution therefor, as the same may hereafter be amended, modified, supplemented, replaced or restated from time to time and any note or notes issued in substitution therefor. "Term Loan Rate" means an annual rate equal to the sum of the Base Rate plus three hundred (300) basis points, which annual rate shall change when and as the Base Rate changes. "Termination Date" means the earliest of (i) the Maturity Date, (ii) the date the Borrower terminates the Credit Facilities, or (iii) the date the Lender demands payment of the Obligations after an Event of Default pursuant to Section 8.2. "UCC" means the Uniform Commercial Code as in effect from time to time in the state designated in Section 9.15 as the state whose laws shall govern this Agreement, or in any other state whose laws are held to govern this Agreement or any portion hereof. "Unfinanced Capital Expenditures" means, for the period of determination, any Capital Expenditures or the portion of any Capital Expenditures paid or payable by Borrower and its Subsidiaries during such period and not constituting Debt. "Warrant" means that certain Warrant to Purchase Common Stock of Poore Brothers, Inc. No. 3 dated November 4, 1998 issued to Lender, as it may be amended, modified, supplemented, restated or replaced from time to time. SECTION 1.2 CROSS REFERENCES. All references in this Agreement to Articles, Sections and subsections, shall be to Articles, Sections and subsections of this Agreement unless otherwise explicitly specified. ARTICLE 2 AMOUNT AND TERMS OF THE CREDIT FACILITIES SECTION 2.1 REVOLVING ADVANCES AND TERM LOAN ADVANCE. (a) REVOLVING ADVANCES. The Lender agrees, on the terms and subject to the conditions herein set forth, to make advances to the Borrower from time to time from the date all of the conditions set forth in Section 4.1 are satisfied (the "Funding Date") to the Termination Date, on the terms and subject to the conditions herein set forth (the "Revolving Advances"). The Lender shall have no obligation to make a Revolving Advance if, after giving effect to such requested Revolving Advance, the sum of the outstanding and unpaid Revolving Advances would exceed the Borrowing Base. The Borrower's obligation to pay the Revolving Advances shall be evidenced by the Revolving Note and shall be secured by the Collateral as provided in Article 3. Within the limits set forth in this Section 2.1(a), the Borrower may borrow, prepay pursuant to Section 2.6 and reborrow Revolving Advances. The Borrower agrees to comply with the following procedures in requesting Revolving Advances under this Section 2.1(a): (i) The Borrower shall make each request for a Revolving Advance to the Lender before 11:00 a.m. (Phoenix time) of the day of the requested Revolving Advance. Requests may be made in writing or by telephone, specifying the date of the requested Revolving Advance and the amount thereof. Each request shall be by (i) any officer of the Borrower; or (ii) any person designated as the Borrower's agent by any officer of the Borrower in a writing delivered to the Lender; or (iii) any person whom the Lender reasonably believes to be an officer of the Borrower or such a designated agent. (ii) Upon fulfillment of the applicable conditions set forth in Article 4, the Lender shall disburse the proceeds of the requested Revolving Advance by crediting the same to the Borrower's demand deposit account maintained with Norwest Bank Arizona, unless the Lender and the Borrower shall agree in writing to another manner of disbursement. Upon the Lender's request, the Borrower shall promptly confirm each telephonic request for an Advance by executing and delivering an appropriate confirmation certificate to the Lender. The Borrower shall repay all Advances even if the Lender does not receive such confirmation and even if the person requesting an Advance was not in fact authorized to do so. Any request for an Advance, whether written or telephonic, shall be deemed to be a representation by the Borrower that the conditions set forth in Section 4.3 have been satisfied as of the time of the request. (b) TERM LOAN ADVANCE. The Lender agrees, on the terms and subject to the conditions herein set forth, to make a single advance in the amount of $500,000 (the "Term Loan" or the "Term Loan Advance") to the Borrower upon the written request of Borrower and on the date that all of the conditions set forth in Section 4.2 are satisfied, and otherwise on the terms and subject to the conditions herein set forth. The Borrower's obligation to pay the Term Loan shall be evidenced by the Term Loan Note and shall be secured by the Collateral as provided in Article 3. If all of the conditions to the Term Loan Advance set forth in Section 4.2 have not been satisfied, or Borrower has not given written notice to Lender to make the Term Loan Advance by November 30, 1998, Lender shall have no further obligation to make the Term Loan Advance to Borrower, although Lender, in its sole, absolute and unfettered discretion, may thereafter make the Term Loan Advance. SECTION 2.2 MONTHLY PAYMENTS; MINIMUM INTEREST CHARGE; DEFAULT INTEREST; PARTICIPATIONS; USURY. Interest accruing on the Notes shall be due and payable in arrears on the first day of each month. (a) REVOLVING NOTE. Except as set forth in Sections 2.2(d) and 2.2(e), the outstanding principal balance of the Revolving Note shall bear interest at the Floating Rate. (b) TERM LOAN NOTE. Except as set forth in Sections 2.2(d) and 2.2(e), the outstanding principal balance of the Term Loan Note shall bear interest at the Term Loan Rate. The Term Loan Note will be payable in equal monthly installments of principal of $27,777.78, plus interest, payable on the first day of each month, commencing on the first day of the month immediately succeeding the Term Loan Advance and continuing on the first day of each succeeding month until the Term Loan Date or the Termination Date, whichever is earlier, at which time the entire outstanding principal balance of the Term Loan, all accrued and unpaid interest and all other charges shall be due and payable; provided, however, commencing on the first day of the month immediately following any Conversion Date (or on the first payment date if any Conversion Date occurs before the first payment date), the Term Loan Note level principal payments will be increased as provided below and the increased level principal payment amount (not to exceed $41,667.67), plus interest, shall be payable on the first day of such month and shall continue on the first day of each succeeding month until the Term Loan Maturity Date or the Termination Date, whichever is earlier, at which time the entire outstanding principal balance of the Term Loan, all accrued and unpaid interest and all other charges shall be due and payable, or until the Term Loan is earlier paid in full. The amount of the increase of the Term Loan Note level principal payment shall be calculated as follows: the quotient of the Principal Amount of the Debenture converted to common stock divided by the Principal Amount of the Debenture immediately prior to such conversion, multiplied by the difference between $41,667.67 (the maximum Term Loan Note principal payment amount) and less the Term Loan Note principal payment for the month immediately preceding such Conversion Date. An example of the calculation of the Term Loan Note level principal payment increase and Term Loan Note level principal payment amount is attached hereto as Exhibit E and incorporated herein by this reference. (c) MINIMUM INTEREST CHARGE. Notwithstanding the interest payable pursuant to Section 2.2(a), the Borrower shall pay to the Lender interest on the Revolving Advances and Term Loan Advances of not less than $3,500 per calendar month in the aggregate (the "Minimum Interest Charge") during the term of this Agreement, and the Borrower shall pay any deficiency between the Minimum Interest Charge and the amount of interest otherwise calculated under Sections 2.2(a), 2.2(b), 2.2(d) and 2.2(e) on the date and in the manner provided in Section 2.4. (d) DEFAULT INTEREST RATE. At any time during any Default Period, in the Lender's sole discretion and without waiving any of its other rights and remedies, the principal of the Advances outstanding from time to time shall bear interest at the Default Rate, effective for any periods designated by the Lender from time to time during that Default Period. (e) USURY. In any event no rate change shall be put into effect which would result in a rate greater than the highest rate permitted by law. Notwithstanding anything to the contrary contained in any Loan Document, all agreements which either now are or which shall become agreements between the Borrower and the Lender are hereby limited so that in no contingency or event whatsoever shall the total liability for payments in the nature of interest, additional interest and Additional Sums (as defined below) exceed the applicable limits imposed by any applicable usury laws. If any payments in the nature of interest, additional interest and Additional Sums made under any Loan Document are held to be in excess of the limits imposed by any applicable usury laws, it is agreed that in compliance with the desires of the Borrower and the Lender the amount of interest, additional interest and Additional Sums payable pursuant to this lending transaction shall be reduced to the maximum amount permitted by law, any excess amount previously collected from Borrower in connection with this lending transaction that exceeded the maximum amount permitted by law, shall be credited against the principal balance of the Obligations then outstanding, and, if the outstanding principal balance hereunder has been paid in full, the excess amount paid shall be refunded to Borrower and Borrower agrees to accept such refund. This provision shall never be superseded or waived and shall control every other provision of the Loan Documents and all agreements between the Borrower and the Lender, or their successors and assigns. For purposes hereof, all fees, charges, goods, things in action or any other sums or things of value (other than the interest resulting from the interest rate or the Default Rate paid or payable by Borrower (collectively, the "Additional Sums"), whether pursuant to this Agreement, the Notes or any other document or instrument in any way pertaining to this lending transaction, or otherwise with respect to this lending transaction, that, under the laws of the State of Arizona, may be deemed to be interest with respect to this lending transaction, for the purpose of any laws of the State of Arizona that may limit the maximum amount of interest to be charged with respect to this lending transaction, shall be payable by Borrower as, and shall be deemed to be, additional interest, and for such purposes only, the agreed upon and "contracted for rate of interest" of this lending transaction shall be deemed to be increased by the rate of interest resulting from the Additional Sums. SECTION 2.3 FEES. (a) ORIGINATION FEE. The Borrower hereby agrees to pay the Lender a fully earned and non-refundable origination fee of $25,000, due and payable upon the execution of this Agreement. (b) UNUSED LINE FEE. For the purposes of this Section 2.3(b), "Unused Amount" means the Maximum Line reduced by outstanding Revolving Advances. The Borrower agrees to pay to the Lender an unused line fee at the rate of one-half of one percent (0.5%) per annum on the average daily Unused Amount from the date of this Agreement to and including the Termination Date, due and payable monthly in arrears on the first day of the month and on the Termination Date. (c) AUDIT FEES. The Borrower hereby agrees to pay the Lender, on demand, audit fees in connection with any audits or inspections conducted by the Lender of any Collateral or the Borrower's operations or business at the rates established from time to time by the Lender as its audit fees (which fees are currently $60 per hour per auditor), together with all actual out-of-pocket costs and expenses incurred in conducting any such audit or inspection. SECTION 2.4 COMPUTATION OF INTEREST AND FEES; WHEN INTEREST DUE AND PAYABLE. Interest accruing on the outstanding principal balance of the Advances and fees hereunder outstanding from time to time shall be computed on the basis of actual number of days elapsed in a year of 360 days. Interest shall be payable in arrears on the first day of each month and on the Termination Date. SECTION 2.5 CAPITAL ADEQUACY. If any Related Lender determines at any time that its Return has been reduced as a result of any Rule Change, such Related Lender may require the Borrower to pay it the amount necessary to restore its Return to what it would have been had there been no Rule Change. For purposes of this Section 2.5: (a) "Capital Adequacy Rule" means any law, rule, regulation, guideline, directive, requirement or request regarding capital adequacy, or the interpretation or administration thereof by any governmental or regulatory authority, central bank or comparable agency, whether or not having the force of law, that applies to any Related Lender. Such rules include rules requiring financial institutions to maintain total capital in amounts based upon percentages of outstanding loans, binding loan commitments and letters of credit. (b) "Return", for any period, means the return as determined by such Related Lender on the Advances based upon its total capital requirements and a reasonable attribution formula that takes account of the Capital Adequacy Rules then in effect. Return may be calculated for each calendar quarter and for the shorter period between the end of a calendar quarter and the date of termination in whole of this Agreement. (c) "Rule Change" means any change in any Capital Adequacy Rule occurring after the date of this Agreement, but the term does not include any changes in applicable requirements that at the Closing Date are scheduled to take place under the existing Capital Adequacy Rules or any increases in the capital that any Related Lender is required to maintain to the extent that the increases are required due to a regulatory authority's assessment of the financial condition of such Related Lender. (d) "Related Lender" includes (but is not limited to) the Lender, any parent corporation of the Lender and any assignee of any interest of the Lender hereunder and any participant in the loans made hereunder. Certificates of any Related Lender sent to the Borrower from time to time claiming compensation under this Section 2.5, stating the reason therefor and setting forth in reasonable detail the calculation of the additional amount or amounts to be paid to the Related Lender hereunder to restore its Return shall be conclusive absent manifest error. In determining such amounts, the Related Lender may use any reasonable averaging and attribution methods. SECTION 2.6 VOLUNTARY PREPAYMENT; TERMINATION OF THE CREDIT FACILITIES BY THE BORROWER. (a) VOLUNTARY PREPAYMENT. Except as otherwise provided herein, the Borrower may prepay the Revolving Advances in whole at any time or from time to time in part. The Borrower may terminate the Credit Facilities (Revolving Advances and Term Loan) at any time if it (i) gives the Lender at least 30 days' prior written notice and (ii) pays the Lender termination fees in accordance with Section 2.7. Borrower may not terminate the Revolving Advances unless the Term Loan is contemporaneously or previously terminated. If the Borrower terminates the Credit Facilities, all Obligations shall be immediately due and payable. Upon termination of the Credit Facilities and payment and performance of all Obligations, the Lender shall release or terminate the Security Interest and the Security Documents to which the Borrower is entitled by law. (b) TERM LOAN PREPAYMENT. The Borrower may prepay the Term Loan in whole at any time or from time to time in part, without premium except as provided in Section 2.7(a). Provided that no Default or Event of Default has occurred and is continuing, all prepayments under the Term Loan will be applied first, to outstanding charges due under the Term Loan; second, to accrued and unpaid interest on the then outstanding principal balance of the Term Loan; and the remainder to the installment payments due under the Term Loan, in the inverse order of maturity. During a Default Period, any payment received by the Lender under this Section 2.6(b) may be applied to the Obligations in such order and in such amounts as the Lender, in its discretion, may from time to time determine. (c) TERMINATION OF CREDIT FACILITIES. Upon termination of the Credit Facilities (Revolving Advances and Term Loan) and payment and performance of all Obligations, the Lender shall release or terminate the Security Interest and the Security Documents to which the Borrower is entitled by law. SECTION 2.7 TERMINATION FEE; WAIVER OF TERMINATION FEE. (a) TERMINATION FEE. If the Revolving Advances are terminated for any reason as of a date or dates other than the Maturity Date, including, without limitation, acceleration upon the occurrence of an Event of Default, the Borrower shall pay to the Lender a fee in an amount equal to a percentage of the Maximum Line plus the original principal amount of the Term Loan as follows: (A) three percent (3%) if the termination occurs on or before the first anniversary of the Funding Date; (B) two percent (2%) if the termination occurs after the first anniversary of the Funding Date but on or before the second anniversary of the Funding Date; and (C) one percent (1%) if the termination occurs after the second anniversary of the Funding Date. So long as the Revolving Advances are not terminated as of a date other than the Maturity Date, the termination of the Term Loan will not, in and of itself, obligate Borrower to pay a termination fee to Lender. (b) WAIVER OF TERMINATION FEE. The Borrower will not be required to pay the termination fee otherwise due under Section 2.7(a) if the Credit Facilities are (i) voluntarily terminated due to a refinancing by an Affiliate of the Lender; or (ii) voluntarily terminated on or before six (6) months after the date on which Lender notifies Borrower in writing of a discretionary reduction of Eligible Accounts in excess of 25% pursuant to clause (xiii) of the definition of "Eligible Accounts"; or (iii) terminated during the continuance of a declared Event of Default based solely on Borrower's breach of the financial covenants in Sections 6.14, 6.15 or 6.16. SECTION 2.8 MANDATORY PREPAYMENT. Without notice or demand, if the outstanding principal balance of the Revolving Advances shall at any time exceed the Borrowing Base, the Borrower shall immediately prepay the Revolving Advances to the extent necessary to eliminate such excess. Except as otherwise provided in Section 2.6(b), provided that no other Default or Event of Default has occurred and is continuing, any payment received by the Lender under this Section 2.8 or under Section 2.6 shall be applied first, to reimbursable costs and expenses incurred by Lender and not yet paid; second, to accrued and unpaid interest (or Default Interest) on the Revolving Advances then due and payable; and the remainder to the principal balance of the Revolving Obligations. During a Default Period, any payment received by the Lender under this Section 2.8 or under Section 2.6 may be applied to the Obligations in such order and in such amounts as the Lender, in its discretion, may from time to time determine. For each day or portion thereof that the Revolving Advances shall exceed the Borrowing Base, the Borrower shall pay to the Lender an overadvance charge in the amount of $100; provided, however, that if such day occurs during a Default Period, the overadvance charge for such day shall be $200. SECTION 2.9 PAYMENT. All payments to the Lender shall be made in immediately available funds and shall be applied to the Obligations upon receipt by the Lender. The Lender may hold all payments not constituting immediately available funds for three (3) days before applying them to the Obligations. Notwithstanding anything in Section 2.1(a), the Borrower hereby authorizes the Lender, in its discretion at any time or from time to time without the Borrower's request and even if the conditions set forth in Section 4.3 would not be satisfied, to make a Revolving Advance in an amount equal to the portion of the Obligations from time to time due and payable. SECTION 2.10 PAYMENT ON NON-BANKING DAYS. Whenever any payment to be made hereunder shall be stated to be due on a day which is not a Banking Day, such payment may be made on the next succeeding Banking Day, and such extension of time shall in such case be included in the computation of interest on the Advances or the fees hereunder, as the case may be. SECTION 2.11 USE OF PROCEEDS. The Borrower shall use the proceeds of the initial Revolving Advance and the Term Loan Advance to refinance Borrower's existing indebtedness to First Community Financial Corporation and to acquire certain assets of Tejas Snacks L.P. and, thereafter, Borrower shall use the proceeds of the Revolving Advances for general working capital purposes. SECTION 2.12 LIABILITY RECORDS. The Lender may maintain from time to time, at its discretion, liability records as to the Obligations. All entries made on any such record shall be presumed correct until the Borrower establishes the contrary. Upon the Lender's demand, the Borrower will admit and certify in writing the exact principal balance of the Obligations that the Borrower then asserts to be outstanding. Any billing statement or accounting rendered by the Lender shall be conclusive and fully binding on the Borrower unless the Borrower gives the Lender specific written notice of exception within 30 days after receipt. ARTICLE 3 SECURITY INTEREST; OCCUPANCY; SETOFF SECTION 3.1 GRANT OF SECURITY INTEREST. The Borrower hereby pledges, assigns and grants to the Lender a security interest (collectively referred to as the "Security Interest") in the Collateral, as security for the payment and performance of the Obligations. SECTION 3.2 NOTIFICATION OF ACCOUNT DEBTORS AND OTHER OBLIGORS. Without limiting Lender's rights under Sections 6.2 and 6.3 below, the Lender may at any time after an Event of Default and, at any other time upon prior written notice to Borrower, notify any account debtor or other person obligated to pay the amount due that such right to payment has been assigned or transferred to the Lender for security and shall be paid directly to the Lender. The Borrower will join in giving such notice if the Lender so requests. At any time after the Borrower or the Lender gives such notice to an account debtor or other obligor, the Lender may, but need not, in the Lender's name or in the Borrower's name, (a) demand, sue for, collect or receive any money or property at any time payable or receivable on account of, or securing, any such right to payment, or grant any extension to, make any compromise or settlement with or otherwise agree to waive, modify, amend or change the obligations (including collateral obligations) of any such account debtor or other obligor; and (b) as the Borrower's agent and attorney-in-fact, notify the United States Postal Service to change the address for delivery of the Borrower's mail to any address designated by the Lender, otherwise intercept the Borrower's mail, and receive, open and dispose of the Borrower's mail, applying all Collateral as permitted under this Agreement and holding all other mail for the Borrower's account or forwarding such mail to the Borrower's last known address. SECTION 3.3 ASSIGNMENT OF INSURANCE. As additional security for the payment and performance of the Obligations, the Borrower hereby assigns to the Lender any and all monies (including, without limitation, proceeds of insurance and refunds of unearned premiums) due or to become due under, and all other rights of the Borrower with respect to, any and all policies of insurance now or at any time hereafter covering the Collateral or any evidence thereof or any business records or valuable papers pertaining thereto, and the Borrower hereby directs the issuer of any such policy to pay all such monies directly to the Lender. At any time, whether or not a Default Period then exists, with respect to any Collateral in which Lender now or hereafter holds a first lien consensual security interest (or is intended to hold a first lien consensual security interest under the Loan Documents), the Lender may (but need not), in the Lender's name or in the Borrower's name, execute and deliver proof of claim, receive all such monies, endorse checks and other instruments representing payment of such monies, and adjust, litigate, compromise or release any claim against the issuer of any such policy. SECTION 3.4 OCCUPANCY. (a) Subject to the rights of the Mortgagee, if any, the Borrower hereby irrevocably grants to the Lender the right to take possession of the Premises at any time during a Default Period. (b) The Lender may use the Premises only to hold, process, manufacture, sell, use, store, liquidate, realize upon or otherwise dispose of goods that are Collateral and for other purposes that the Lender may in good faith deem to be related or incidental purposes. (c) The Lender's right to hold the Premises shall cease and terminate upon the earlier of (i) payment in full and discharge of all Obligations and termination of the Commitment, and (ii) final sale or disposition of all goods constituting Collateral and delivery of all such goods to purchasers. (d) The Lender shall not be obligated to pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises; provided, however, that if the Lender does pay or account for any rent or other compensation for the possession, occupancy or use of any of the Premises, the Borrower shall reimburse the Lender promptly for the full amount thereof. In addition, the Borrower will pay, or reimburse the Lender for, all taxes, fees, duties, imposts, charges and expenses at any time incurred by or imposed upon the Lender by reason of the execution, delivery, existence, recordation, performance or enforcement of this Agreement or the provisions of this Section 3.4. SECTION 3.5 LICENSE. Without limiting the generality of the Patent and Trademark Security Agreement, the Borrower hereby grants to the Lender a non-exclusive, worldwide and royalty-free license to use or otherwise exploit all trademarks, franchises, trade names, copyrights and processes of the Borrower for the purpose of selling, leasing or otherwise disposing of any or all Collateral during any Default Period. SECTION 3.6 FINANCING STATEMENT. A carbon, photographic or other reproduction of this Agreement or of any financing statements signed by the Borrower is sufficient as a financing statement and may be filed as a financing statement in any state to perfect the security interests granted hereby. For this purpose, the following information is set forth: Name and address of Debtor: Poore Brothers, Inc. Federal Tax Identification No. 86-0786101 Poore Brothers Arizona, Inc. Federal Tax Identification No. 86-0793689 Poore Brothers Distributing, Inc. Federal Tax Identification No. 86-0661705 Tejas PB Distributing, Inc. Federal Tax Identification No. 86-0932767 3500 South La Cometa Drive Goodyear, Arizona 85338 Name and address of Secured Party: Norwest Business Credit, Inc. 3003 North Central Avenue M.S. 9025 Phoenix, Arizona 85012-2501 Federal Tax Identification No. 41-1237652 SECTION 3.7 SETOFF. The Borrower agrees that the Lender may at any time or from time to time, at its sole discretion and without demand and without notice to anyone, setoff any liability owed to the Borrower by the Lender, whether or not due, against any Obligation, whether or not due. In addition, any assignee of Lender of which Borrower has received written notice and any loan participant of which Borrower has received written notice shall have the right to appropriate or setoff any deposit or other liability then owed by such Person to the Borrower, whether or not due, and apply the same to the payment of the Obligations or the loan participant's interest, as fully as if such Person had lent directly to the Borrower the Obligations or the amount of such loan participant's interest. Lender or such other Person shall endeavor to provide written notice of any such appropriation or setoff as soon as reasonably practicable after the occurrence of such appropriation or setoff, but neither Lender nor such other Person shall have any liability to Borrower or any other Person for its failure to provide such notice. SECTION 3.8 ASSIGNMENT OF ASSET PURCHASE AGREEMENT.. As additional security for the payment and performance of the Obligations, the Borrower hereby assigns to the Lender, and grants a security interest in favor of the Lender in and to, all of its right, title, interest and privileges under the Asset Purchase Agreement and all agreements, instruments and documents delivered by Seller or any other Person in favor of Borrower in connection with the Asset Purchase Agreement, including, without limitation all of Borrower's rights and remedies with respect to a breach or non-performance of the Seller's representations, warranties, covenants and agreements, all of Seller's indemnity obligations to Borrower and all of Borrower's right, title and interest in the Escrow Agreement (as defined in the Asset Purchase Agreement) and any security entitlement and proceeds held therein, and all of Borrower's right, title and interest in the Assignment (as defined in the Asset Purchase Agreement). From time to time, upon the written request of Lender, Borrower shall execute, and shall cause the securities intermediary to execute, such agreements, documents and instruments as the Lender shall reasonably require to evidence and perfect the collateral assignment and security interest granted by Borrower in favor of the Lender. ARTICLE 4 CONDITIONS OF LENDING SECTION 4.1 CONDITIONS PRECEDENT TO THE INITIAL REVOLVING ADVANCE. The Lender's obligation to make the initial Revolving Advance hereunder shall be subject to the condition precedent that the Lender shall have received all of the following, each in form and substance satisfactory to the Lender in its sole and absolute discretion: (a) This Agreement, properly executed by the Borrower. (b) The Revolving Note, properly executed by the Borrower. (c) The Term Loan Note, properly executed by the Borrower. (d) The Warrant, properly executed by the Borrower. (e) A true and correct copy of any and all leases pursuant to which the Borrower is leasing the Premises, together with a landlord's disclaimer, consent and subordination with respect to each such lease. (f) A true and correct copy of any and all mortgages pursuant to which the Borrower or any Affiliate has mortgaged the Premises, together with a mortgagee's disclaimer and consent with respect to each such mortgage. (g) A true and correct copy of any and all agreements pursuant to which the Borrower's property is in the possession of any Person other than the Borrower, together with, in the case of any goods held by such Person for resale, (i) a consignee's acknowledgment and waiver of liens, (ii) UCC financing statements sufficient to protect the Borrower's and the Lender's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement against such Person and covering property similar to the Borrower's other than the Borrower, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrower and the Lender sufficient to protect the Borrower's and the Lender's interests in the Borrower's goods from any claim by such secured party. (h) An acknowledgment and waiver of liens from each warehouse in which the Borrower is storing Inventory, if any. (i) A true and correct copy of any and all agreements pursuant to which the Borrower's property is in the possession of any Person other than the Borrower, together with, (i) an acknowledgment and waiver of liens from each subcontractor who has possession of the Borrower's goods from time to time, (ii) UCC financing statements sufficient to protect the Borrower's and the Lender's interests in such goods, and (iii) UCC searches showing that no other secured party has filed a financing statement covering such Person's property other than the Borrower, or if there exists any such secured party, evidence that each such secured party has received notice from the Borrower and the Lender sufficient to protect the Borrower's and the Lender's interests in the Borrower's goods from any claim by such secured party. (j) An acknowledgment and agreement from each licensor in favor of the Lender, together with a true, correct and complete copy of all license agreements. (k) The Collateral Account Agreement, properly executed by the Borrower and Norwest Bank Arizona. (l) The Lockbox Agreement, properly executed by the Borrower and Norwest Bank Arizona. (m) The Patent and Trademark Security Agreement, properly executed by the Borrower. (n) The Intercreditor Agreement, properly executed by the Debenture Holders and acknowledged by the Borrower. (o) Current searches of appropriate filing offices showing that (i) no state or federal tax liens or judgments have been filed or recorded and remain in effect against the Borrower or the Collateral, (ii) no financing statements or assignments of patents, trademarks or copyrights have been filed and remain in effect against the Borrower or the Collateral, except those financing statements and assignments of patents, trademarks or copyrights relating to Permitted Liens or to liens held by Persons who have agreed in writing that upon receipt of proceeds of the Advances, they will deliver UCC releases and/or terminations and releases of such assignments of patents, trademarks or copyrights satisfactory to the Lender, and (iii) the Lender has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing. (p) A certificate of each Borrower's Secretary or Assistant Secretary certifying as to (i) the resolutions of the Borrower's directors and, if required, shareholders, authorizing the execution, delivery and performance of the Loan Documents, (ii) the Borrower's articles of incorporation and bylaws, and (iii) the signatures of the Borrower's officers or agents authorized to execute and deliver the Loan Documents and other instruments, agreements and certificates, including Advance requests, on the Borrower's behalf. (q) A current certificate issued by the applicable governmental authorities of each Borrower's state of incorporation or formation, certifying that the Borrower is in compliance with all applicable organizational requirements of such states and has paid all franchise and other taxes necessary to be in good standing in such jurisdiction. (r) Evidence that the Borrower is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. (s) A certificate of an officer of the Borrower confirming the representations and warranties set forth in Article 5. (t) An opinion of counsel to the Borrower, addressed to the Lender. (u) Certificates of the insurance required hereunder, with all hazard insurance containing a lender's loss payable endorsement in the Lender's favor and with all liability insurance naming the Lender as an additional insured. (v) Payment of the fees due to Lender through the date of the initial Advance under Section 2.3 and expenses incurred by the Lender through such date and required to be paid by the Borrower under Section 9.7, including all legal expenses incurred through the date of this Agreement. (w) A current update of the status of any pending material litigation from Borrower's counsel. (x) A written waiver from the Debenture Holders with respect to the financial covenant defaults and any other existing defaults (that have not been previously waived) under the Debentures. (y) A written agreement from Renaissance Capital Growth & Income Fund III, Inc. to waive all mandatory principal redemption installments under its Debenture through October 31, 1999. (z) Such other documents as the Lender in its sole discretion may require. SECTION 4.2 CONDITIONS PRECEDENT TO TERM LOAN ADVANCE. The Lender's obligation to make the Term Loan Advance hereunder shall be subject to the condition precedent that the Lender shall have received all of the following, each in form and substance satisfactory to the Lender in its sole and absolute discretion, and shall be subject to the further conditions precedent that on such date: (a) All of the conditions precedent to the making of the Initial Revolving Advance have been satisfied or waived in writing by Lender. (b) Evidence that the transactions contemplated by the Asset Purchase Agreement will concurrently be consummated and that all filings necessary to effect the transfer of the assets from Seller to Borrower will concurrently occur, together with copies of the fully executed Asset Purchase Agreement and all instruments, agreements, bills of sale, assignments, certificates and other documents required to be delivered by Borrower or Seller under the Asset Purchase Agreement, including, without limitation, lien releases and payoff letters from any Person holding a lien on the assets acquired by Borrower pursuant to the Asset Purchase Agreement, certified as true, correct and complete copies of the original of such items by the Secretary or Assistant Secretary of Borrower, together with evidence of all payments pursuant to the payoff letters. (c) An assignment of all of Borrower's right, title and interest in, to and under the Asset Purchase Agreement, including, without limitation, any representations, warranties, covenants, agreements and indemnities of Seller that survive the closing of the transaction. (d) Current searches of appropriate filing offices showing that (i) no state or federal tax liens or judgments have been filed or recorded and remain in effect against the Seller or the assets to be acquired by Borrower from Seller, (ii) no financing statements or assignments of patents, trademarks or copyrights have been filed and remain in effect against the Seller or the assets to be acquired by Borrower from Seller, except those financing statements and assignments of patents, trademarks or copyrights relating to Permitted Liens or to liens held by Persons who have agreed in writing that upon receipt of proceeds of the Advances, they will deliver UCC releases and/or terminations and releases of such assignments of patents, trademarks or copyrights satisfactory to the Lender, and (iii) the Lender has duly filed all financing statements necessary to perfect the Security Interest, to the extent the Security Interest is capable of being perfected by filing. (e) An opinion of counsel to the Seller, addressed to the Lender, or a separate reliance letter in favor of Lender with respect to such opinion from counsel to the Seller, in the form required by the Asset Purchase Agreement. (f) Payment of the fees due to Lender through the date of the Term Loan Advance under Section 2.3 and expenses incurred by the Lender through such date and required to be paid by the Borrower under Section 9.7, including all legal expenses incurred through the date of this Agreement. (g) The representations and warranties contained in Article 5 are correct on and as of the date of such Advance as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date. (h) No event has occurred and is continuing, or would result from such Advance which constitutes a Default or an Event of Default. (i) Such other documents as the Lender in its sole discretion may require. SECTION 4.3 CONDITIONS PRECEDENT TO ALL ADVANCES. The Lender's obligation to make each Advance shall be subject to the further conditions precedent that on such date: (a) the representations and warranties contained in Article 5 are correct on and as of the date of such Advance as though made on and as of such date, except to the extent that such representations and warranties relate solely to an earlier date; and (b) no event has occurred and is continuing, or would result from such Advance which constitutes a Default or an Event of Default. ARTICLE 5 REPRESENTATIONS AND WARRANTIES Each Borrower individually, and all of the Borrowers jointly, represent and warrant to the Lender as follows: SECTION 5.1 CORPORATE EXISTENCE AND POWER; NAME; CHIEF EXECUTIVE OFFICE; INVENTORY AND EQUIPMENT LOCATIONS; TAX IDENTIFICATION NUMBER. Each Borrower is a corporation, duly organized, validly existing and in good standing under the laws of its state of incorporation or formation and is duly licensed or qualified to transact business in all jurisdictions where the character of the property owned or leased or the nature of the business transacted by it makes such licensing or qualification necessary. Each Borrower has all requisite power and authority, corporate or otherwise, to conduct its business, to own its properties and to execute and deliver, and to perform all of its obligations under, the Loan Documents, including, with respect to Poore Brothers, Inc., the Warrant. During its existence, each Borrower has done business solely under the names set forth in Schedule 5.1 hereto. Each Borrower's chief executive office and principal place of business is located at the address set forth in Schedule 5.1 hereto, and each of the Borrower's records relating to its business or the Collateral are kept at that location. All Inventory and Equipment is located at that location or at one of the other locations set forth in Schedule 5.1 hereto. Each Borrower's tax identification number is correctly set forth in Section 3.6 hereto. SECTION 5.2 AUTHORIZATION OF BORROWING; NO CONFLICT AS TO LAW OR AGREEMENTS. The execution, delivery and performance by each Borrower of the Loan Documents (including, with respect to Poore Brothers, Inc. only, the Warrant) and the borrowings from time to time hereunder have been duly authorized by all necessary corporate action and do not and will not (i) require any consent or approval of the Borrower's stockholders; (ii) require any authorization, consent or approval by, or registration, declaration or filing with, or notice to, any governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, or any third party, except such authorization, consent, approval, registration, declaration, filing or notice as has been obtained, accomplished or given prior to the date hereof and any normal and customary subsequent disclosure filings required under the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder, that do not affect the validity or enforceability of the Loan Documents; (iii) violate any provision of any law, rule or regulation (including, without limitation, Regulation X of the Board of Governors of the Federal Reserve System) or of any order, writ, injunction or decree presently in effect having applicability to the Borrower or of the Borrower's articles of incorporation or bylaws; (iv) result in a breach of or constitute a default under any indenture or loan or credit agreement or any other material agreement, lease or instrument to which the Borrower is a party or by which it or its properties may be bound or affected; or (v) result in, or require, the creation or imposition of any mortgage, deed of trust, pledge, lien, security interest or other charge or encumbrance of any nature (other than the Security Interest) upon or with respect to any of the properties now owned or hereafter acquired by the Borrower. SECTION 5.3 LEGAL AGREEMENTS. This Agreement constitutes and, upon due execution by the Borrower, the other Loan Documents will constitute the legal, valid and binding obligations of the Borrower, enforceable against the Borrower in accordance with their respective terms. SECTION 5.4 SUBSIDIARIES. Except as set forth in Schedule 5.4, the Borrower has no Subsidiaries. SECTION 5.5 FINANCIAL CONDITION; NO ADVERSE CHANGE. The Borrower has heretofore furnished to the Lender audited financial statements of the Borrower for its fiscal year ended December 31, 1997 and unaudited financial statements of the Borrower for the fiscal year-to-date period ended September 30, 1998, and those statements fairly present the Borrower's financial condition on the dates thereof and the results of its operations and cash flows for the periods then ended and were prepared in accordance with GAAP. Since the date of the most recent financial statements, there has been no material adverse change in the Borrower's business, properties or condition (financial or otherwise), except as disclosed in public disclosure filings with the United States Securities and Exchange Commission after September 30, 1998 and received by Lender. SECTION 5.6 LITIGATION. There are no actions, suits or proceedings pending or, to the Borrower's knowledge, threatened against or affecting the Borrower or any of its Affiliates or the properties of the Borrower or any of its Affiliates before any court or governmental department, commission, board, bureau, agency or instrumentality, domestic or foreign, which, if determined adversely to the Borrower or any of its Affiliates, would have a material adverse effect on the financial condition, properties or operations of the Borrower or any of its Affiliates, except as disclosed in public disclosure filings with the Securities and Exchange Commission after September 30, 1998 and received by Lender, and except as disclosed in the letter dated March 3, 1998 from Mariscal, Weeks, McIntyre & Friedlander, P.A. to Poore Brothers, Inc. responding to the auditor's request for information (the "Audit Response Letter"). SECTION 5.7 REGULATION U. The Borrower is not engaged in the business of extending credit for the purpose of purchasing or carrying margin stock (within the meaning of Regulation U of the Board of Governors of the Federal Reserve System), and no part of the proceeds of any Advance will be used by Borrower to purchase or carry any margin stock or to extend credit to others for the purpose of purchasing or carrying any margin stock. SECTION 5.8 TAXES. The Borrower and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes withheld by each of them. The Borrower and its Affiliates have paid or caused to be paid to the proper authorities when due all federal, state and local taxes which to the knowledge of the officers of the Borrower or any Affiliate, as the case may be, are required to be withheld by each of them and neither Borrower nor any of its Affiliates has any information or reason to believe that it has failed to properly withhold any federal, state or local taxes required to be withheld under applicable law. The Borrower and its Affiliates have filed all federal, state and local tax returns which to the knowledge of the officers of the Borrower or any Affiliate, as the case may be, are required to be filed, and the Borrower and its Affiliates have paid or caused to be paid to the respective taxing authorities all taxes as shown on said returns or on any assessment received by any of them to the extent such taxes have become due. SECTION 5.9 TITLES AND LIENS. The Borrower has good and absolute title to all Collateral described in the collateral reports provided to the Lender and all other Collateral, properties and assets reflected in the latest financial statements referred to in Section 5.5 and all proceeds thereof, free and clear of all mortgages, security interests, liens and encumbrances, except for Permitted Liens, and upon the consummation of the Asset Purchase Agreement, the Borrower will have good and absolute title to all of the property and assets intended to be assigned, transferred or conveyed pursuant to the Asset Purchase Agreement, free and clear of all mortgages, security interests, liens and encumbrances, except for Permitted Liens. No financing statement naming the Borrower or the Seller (with respect to the property and assets intended to be assigned, transferred or conveyed pursuant to the Asset Purchase Agreement) as debtor is on file in any office except to perfect only Permitted Liens. SECTION 5.10 PLANS. Except as disclosed to the Lender in writing prior to the date hereof, neither the Borrower nor any of its Affiliates maintains or has maintained any Plan. Neither the Borrower nor any Affiliate has received any notice or has any knowledge to the effect that it is not in full compliance with any of the requirements of ERISA. No Reportable Event or other fact or circumstance which may have an adverse effect on the Plan's tax qualified status exists in connection with any Plan. Neither the Borrower nor any of its Affiliates has: (a) Any accumulated funding deficiency within the meaning of ERISA; or (b) Any liability or knows of any fact or circumstances which could result in any liability to the Pension Benefit Guaranty Corporation, the Internal Revenue Service, the Department of Labor or any participant in connection with any Plan (other than accrued benefits which or which may become payable to participants or beneficiaries of any such Plan). SECTION 5.11 DEFAULT. To the best of the Borrower's knowledge after due and diligent inquiry, the Borrower is in compliance (or any such non-compliance has been waived in writing) with all provisions of all agreements, instruments, decrees and orders to which it is a party or by which it or its property is bound or affected, the breach or default of which could have a material adverse effect on the Borrower's financial condition, properties or operations. SECTION 5.12 ENVIRONMENTAL MATTERS. (a) Definitions. As used in this Agreement, the following terms shall have the following meanings: (i) "Environmental Law" means any federal, state, local or other governmental statute, regulation, law or ordinance dealing with the protection of human health and the environment. (ii) "Hazardous Substances" means pollutants, contaminants, hazardous substances, hazardous wastes, petroleum and fractions thereof, and all other chemicals, wastes, substances and materials listed in, regulated by or identified in any Environmental Law. (b) To the Borrower's best knowledge, there are not present in, on or under the Premises any Hazardous Substances in such form or quantity as to create any liability or obligation for either the Borrower or the Lender under common law of any jurisdiction or under any Environmental Law, and no Hazardous Substances have ever been stored, buried, spilled, leaked, discharged, emitted or released in, on or under the Premises in such a way as to create any such liability. (c) To the Borrower's best knowledge, the Borrower has not disposed of Hazardous Substances in such a manner as to create any liability under any Environmental Law. (d) There are not and there never have been any requests, claims, notices, investigations, demands, administrative proceedings, hearings or litigation, relating in any way to the Premises or the Borrower, alleging liability under, violation of, or noncompliance with any Environmental Law or any license, permit or other authorization issued pursuant thereto. To the Borrower's best knowledge, no such matter is threatened or impending. (e) To the Borrower's best knowledge, the Borrower's businesses are, and since Borrower's acquisition of the business and operations of the Borrower have always been, conducted in accordance with all Environmental Laws, and all licenses, permits and other authorizations required pursuant to any Environmental Law and necessary for the lawful and efficient operation of such businesses are in the Borrower's possession and are in full force and effect. No permit required under any Environmental Law is scheduled to expire within 12 months and, to the Borrower's best knowledge, there is no threat that any such permit will be withdrawn, terminated, limited or materially changed. (f) To the Borrower's best knowledge, the Premises are not and never have been listed on the National Priorities List, the Comprehensive Environmental Response, Compensation and Liability Information System or any similar federal, state or local list, schedule, log, inventory or database. (g) The Borrower has delivered to Lender all environmental assessments, audits, reports, permits, licenses and other documents describing or relating in any way to the Premises or Borrower's businesses. SECTION 5.13 SUBMISSIONS TO LENDER. All financial and other information provided to the Lender by or on behalf of the Borrower in connection with the Borrower's request for the credit facilities contemplated hereby is true and correct in all material respects and, as to projections, valuations or proforma financial statements, are based on assumptions that Borrower believes in good faith are likely to be true and present a good faith opinion as to such projections, valuations and proforma financial statements. SECTION 5.14 FINANCING STATEMENTS. The Borrower has provided to the Lender signed financing statements sufficient when filed to perfect the Security Interest and the other security interests created by the Security Documents. When such financing statements are filed in the offices noted therein, the Lender will have a valid and perfected security interest in all Collateral and all other collateral described in the Security Documents which is capable of being perfected by filing financing statements. None of the Collateral or other collateral covered by the Security Documents is or will become a fixture on real estate, unless a sufficient fixture filing is in effect with respect thereto. SECTION 5.15 RIGHTS TO PAYMENT. Each right to payment and each instrument, document, chattel paper and other agreement constituting or evidencing Collateral or other collateral covered by the Security Documents is (or, in the case of all future Collateral or such other collateral, will be when arising or issued) the valid, genuine and legally enforceable obligation, subject to no defense, setoff or counterclaim known to Borrower (or in the course of Borrower's normal and customary diligence should have been known), of the account debtor or other obligor named therein or in the Borrower's records pertaining thereto as being obligated to pay such obligation. SECTION 5.16 FINANCIAL SOLVENCY. Both before and after giving effect to the acquisition and all of the transactions contemplated in the Loan Documents, none of the Borrower or its Affiliates: (a) was or will be insolvent, as that term is used and defined in Section 101(32) of the United States Bankruptcy Code and Section 2 of the Uniform Fraudulent Transfer Act; (b) has unreasonably small capital or is engaged or about to engage in a business or a transaction for which any remaining assets of the Borrower or such Affiliate are unreasonably small; (c) by executing, delivering or performing its obligations under the Loan Documents or other documents to which it is a party or by taking any action with respect thereto, intends to, nor believes that it will, incur debts beyond its ability to pay them as they mature; (d) by executing, delivering or performing its obligations under the Loan Documents or other documents to which it is a party or by taking any action with respect thereto, intends to hinder, delay or defraud either its present or future creditors; and (e) at this time contemplates filing a petition in bankruptcy or for an arrangement or reorganization or similar proceeding under any law any jurisdiction, nor, to the best knowledge of the Borrower, is the subject of any actual, pending or threatened bankruptcy, insolvency or similar proceedings under any law of any jurisdiction. SECTION 5.17 YEAR 2000 COMPLIANCE. Borrower and its Subsidiaries have conducted a comprehensive internal review and assessment of Borrower's state of readiness, the costs to address Borrower's Year 2000 issues, the risks of Borrower's Year 2000 issues and the Borrower's contingency plans, in accordance with the Securities and Exchange Commission's Release No. 33-7558, DISCLOSURE OF YEAR 2000 ISSUES AND CONSEQUENCES BY PUBLIC COMPANIES, INVESTMENT ADVISERS, INVESTMENT COMPANIES AND MUNICIPAL SECURITIES ISSUERS (issued August 5, 1998) (the "SEC Year 2000 Release") and, subject to the qualifications, exceptions and discussion in Borrower's June 30, 1998 Form 10-QSB quarterly report, Borrower has determined that its computer systems and applications, microprocessor based goods and equipment owned or used by Borrower and its Subsidiaries in their business, and all products currently sold by Borrower and its Subsidiaries are Year 2000 compliant and as such will calculate and perform prior to, during, and after the Year 2000 and, to Borrower's best knowledge, third parties providing services or materials to Borrower that are material to Borrower will continue to provide such service or materials without interruption caused by Year 2000 compliance. For purposes of this Agreement, Year 2000 compliant is defined as accurately processing date-related data (including, but not limited to, calculating, comparing and sequencing) from, into and between the year 1999 and the Year 2000, including leap year calculations, and specifically including any error relating to, or the product of, date data or date information that represents or references different centuries or more than one century. Based on the foregoing review, assessment and inquiry, Borrower reasonably believes that any problem related to Year 2000 compliance will not result in a material adverse effect on any of the operations, business or properties of Borrower or its Subsidiaries. ARTICLE 6 BORROWER'S AFFIRMATIVE COVENANTS So long as the Obligations shall remain unpaid, or either Credit Facility shall remain outstanding, the Borrower will comply with the following requirements, unless the Lender shall otherwise consent in writing: SECTION 6.1 REPORTING REQUIREMENTS. The Borrower will deliver, or cause to be delivered, to the Lender each of the following, which shall be in form and detail acceptable to the Lender: (a) as soon as available, and in any event within 90 days after the end of each fiscal year of the Borrower, the Borrower's and its Subsidiaries' audited financial statements with the unqualified opinion of Arthur Andersen (or any other so-called "Big 5" accounting firm or any other independent certified public accountants selected by the Borrower and, if not a so-called "Big 5" accounting firm, acceptable to the Lender), which annual financial statements shall include the Borrower's and its Subsidiaries' balance sheet as of the end of such fiscal year and the related statements of the Borrower's and its Subsidiaries' income, retained earnings and cash flows for the fiscal year then ended, prepared, if the Lender so requests, on a consolidating and consolidated, all in reasonable detail and prepared in accordance with GAAP, together with (i) copies of all management letters prepared by such accountants; (ii) a report signed by such accountants stating that in making the investigations necessary for said opinion nothing has come to their attention, except as specifically stated, that would cause them to believe that a Default or Event of Default has occurred hereunder, and all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the requirements set forth in Sections 6.14, 6.15 and 6.16; and (iii) a certificate of the Borrower's chief financial officer stating that such financial statements have been prepared in accordance with GAAP and whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder and, if so, stating in reasonable detail the facts with respect thereto; (b) as soon as available and in any event within 20 days after the end of each month, an unaudited/internal balance sheet and statements of income and retained earnings of the Borrower as of the end of and for such month and for the year to date period then ended, prepared, if the Lender so requests, on a consolidating and consolidated basis to include any Subsidiaries, in reasonable detail and stating in comparative form the figures for the corresponding date and periods in the previous year, all prepared in accordance with GAAP; and accompanied by a certificate of the Borrower's chief financial officer, substantially in the form of Exhibit C hereto stating (i) that such financial statements have been prepared in accordance with GAAP, (ii) whether or not such officer has knowledge of the occurrence of any Default or Event of Default hereunder not theretofore reported and remedied and, if so, stating in reasonable detail the facts with respect thereto, and (iii) all relevant facts in reasonable detail to evidence, and the computations as to, whether or not the Borrower is in compliance with the requirements set forth in Sections 6.14, 6.15 and 6.16; (c) within 15 days after the end of each month or more frequently if the Lender so requires, agings of the Borrower's accounts receivable and its accounts payable, and a calculation of the Borrower's Accounts and Eligible Accounts as of the end of such month or such shorter time period, and within 15 days after the end of each month (or more frequently during a Default Period if the Lender so requires), an inventory certification report and a calculation of the Borrower's Inventory and Eligible Inventory as of the end of such month or, during a Default Period, such shorter time period if the Lender so requires; (d) within 30 days after the end of Borrower's 1998 fiscal year and at least 30 days before the beginning of each fiscal year of the Borrower thereafter, the projected balance sheets and income statements for each month of such year, each in reasonable detail, representing the Borrower's good faith projections and certified by the Borrower's chief financial officer as being the most accurate projections available and identical to the projections used by the Borrower for internal planning purposes, together with such supporting schedules and information as the Lender may in its discretion require; (e) immediately after the commencement thereof, notice in writing of all litigation and of all proceedings before any governmental or regulatory agency affecting the Borrower of the type described in Section 5.12 or which seek a monetary recovery against the Borrower in excess of $10,000; (f) as promptly as practicable (but in any event not later than 5 business days) after an officer of the Borrower obtains knowledge of the occurrence of any breach, default or event of default under any Security Document or any event which constitutes a Default or Event of Default hereunder, notice of such occurrence, together with a detailed statement by a responsible officer of the Borrower of the steps being taken by the Borrower to cure the effect of such breach, default or event; (g) as soon as possible and in any event within 30 days after the Borrower knows or has reason to know that any Reportable Event with respect to any Plan has occurred, the statement of the Borrower's chief financial officer setting forth details as to such Reportable Event and the action which the Borrower proposes to take with respect thereto, together with a copy of the notice of such Reportable Event to the Pension Benefit Guaranty Corporation; (h) as soon as possible, and in any event within 10 days after the Borrower fails to make any quarterly contribution required with respect to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended, the statement of the Borrower's chief financial officer setting forth details as to such failure and the action which the Borrower proposes to take with respect thereto, together with a copy of any notice of such failure required to be provided to the Pension Benefit Guaranty Corporation; (i) promptly upon knowledge thereof, notice of (i) any disputes or claims by the Borrower's customers exceeding $10,000 individually or $25,000 in the aggregate during any fiscal year; (ii) credit memos; (iii) any goods returned to or recovered by the Borrower; and (iv) any change in the persons constituting the Borrower's officers and directors; (j) promptly upon knowledge thereof, notice of any loss of or material damage to any Collateral or other collateral covered by the Security Documents or of any substantial adverse change in any Collateral or such other collateral or the prospect of payment thereof; (k) promptly upon their distribution, copies of all financial statements, reports and proxy statements which the Borrower shall have sent to its stockholders; (l) promptly after the sending or filing thereof, copies of all regular and periodic and special reports which the Borrower shall file with the Securities and Exchange Commission or any national securities exchange and copies of all press releases prepared by or on behalf of Borrower; (m) promptly upon knowledge thereof, notice of the Borrower's violation of any law, rule or regulation, the non-compliance with which could materially and adversely affect the Borrower's business or its financial condition; and (n) from time to time, with reasonable promptness, any and all receivables schedules, collection reports, deposit records, equipment schedules, copies of invoices to account debtors, shipment documents and delivery receipts for goods sold, and such other material, reports, records or information as the Lender may request. SECTION 6.2 BOOKS AND RECORDS; INSPECTION AND EXAMINATION. The Borrower will keep accurate books of record and account for itself pertaining to the Collateral and pertaining to the Borrower's and its Subsidiaries' business and financial condition and such other matters as the Lender may from time to time request in which true and complete entries will be made in accordance with GAAP and, upon the Lender's request, will permit any officer, employee, attorney or accountant for the Lender to audit, review, make extracts from or copy any and all corporate and financial books and records of the Borrower and its Subsidiaries at all times during ordinary business hours, to send and discuss with account debtors and other obligors requests for verification of amounts owed to the Borrower or its Subsidiaries, and to discuss the Borrower's affairs with any of its directors, officers, employees or agents. The Borrower will permit the Lender, or its employees, accountants, attorneys or agents, to examine and inspect any Collateral, other collateral covered by the Security Documents or any other property of the Borrower or its Subsidiaries at any time during ordinary business hours. SECTION 6.3 ACCOUNT VERIFICATION. The Lender may at any time and from time to time send or require the Borrower to send requests for verification of accounts or notices of assignment to account debtors and other obligors. The Lender may also at any time and from time to time telephone account debtors and other obligors to verify accounts. SECTION 6.4 COMPLIANCE WITH LAWS. (a) The Borrower will (i) comply with, and cause its Subsidiaries to comply with, the requirements of applicable laws and regulations, the non-compliance with which would materially and adversely affect its or their business or its or their financial condition and (ii) use and keep the Collateral, and require that others use and keep the Collateral, only for lawful purposes, without violation of any federal, state or local law, statute or ordinance. (b) Without limiting the foregoing undertakings, the Borrower specifically agrees that it will comply with, and cause its Subsidiaries to comply with, all applicable Environmental Laws and obtain and comply with all permits, licenses and similar approvals required by any Environmental Laws, and Borrower will not, nor will it permit its Subsidiaries to, generate, use, transport, treat, store or dispose of any Hazardous Substances in such a manner as to create any liability or obligation under the common law of any jurisdiction or any Environmental Law. (c) The Borrower will comply with the reporting requirements of Section 13 and 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), so long as it is required to do so pursuant to the 1934 Act. Until the earlier of (i) two years from the issuance date of the Warrant, or (ii) the sale by Lender of all of the securities to be issued under the Warrant and the termination of the Warrant, the Borrower shall comply with the disclosure obligations set forth Paragraph (c) of Rule 144 promulgated under the Securities Act of 1933, as amended ("Rule 144"), or any successor rule or regulation thereto or any statute hereafter adopted to replace or establish the exemption that is now covered by Rule 144. SECTION 6.5 PAYMENT OF TAXES AND OTHER CLAIMS. The Borrower and its Subsidiaries will pay or discharge, when due, (a) all taxes, assessments and governmental charges levied or imposed upon it or upon its income or profits, upon any properties belonging to it (including, without limitation, the Collateral) or upon or against the creation, perfection or continuance of the Security Interest, prior to the date on which penalties attach thereto, (b) all federal, state and local taxes required to be withheld by it, and (c) all lawful claims for labor, materials and supplies which, if unpaid, might by law become a lien or charge upon any properties of the Borrower or its Subsidiaries; provided, that neither the Borrower nor its Subsidiaries shall be required to pay any such tax, assessment, charge or claim whose amount, applicability or validity is being contested in good faith by appropriate proceedings and for which proper reserves have been made. SECTION 6.6 MAINTENANCE OF PROPERTIES. (a) The Borrower will keep and maintain the Collateral, the other collateral covered by the Security Documents and all of its other properties necessary or useful in its business in good condition, repair and working order (normal wear and tear excepted) and will from time to time replace or repair any worn, defective or broken parts; provided, however, that nothing in this Section 6.6 shall prevent the Borrower from discontinuing the operation and maintenance of any of its properties if such discontinuance is, in the Lender's reasonable judgment, desirable in the conduct of the Borrower's business and not disadvantageous in any material respect to the Lender. (b) The Borrower will defend the Collateral against all claims or demands of all persons (other than the Lender) claiming the Collateral or any interest therein. (c) The Borrower will keep all Collateral and other collateral covered by the Security Documents free and clear of all security interests, liens and encumbrances except Permitted Liens. SECTION 6.7 INSURANCE. The Borrower and its Subsidiaries will obtain and at all times maintain insurance with insurers believed by the Borrower to be responsible and reputable, in such amounts and against such risks as may from time to time be required by the Lender, but in all events in such amounts and against such risks as is usually carried by companies engaged in similar business and owning similar properties in the same general areas in which the Borrower operates. Without limiting the generality of the foregoing, the Borrower and its Subsidiaries will at all times maintain business interruption insurance including coverage for force majeure and keep all tangible Collateral insured against risks of fire (including so-called extended coverage), theft, collision (for Collateral consisting of motor vehicles) and such other risks and in such amounts as the Lender may reasonably request, with any loss payable to the Lender to the extent of its interest, and all policies of such insurance shall contain a lender's loss payable endorsement for the Lender's benefit acceptable to the Lender. All policies of liability insurance required hereunder shall name the Lender as an additional insured. SECTION 6.8 PRESERVATION OF EXISTENCE. The Borrower and its Subsidiaries will preserve and maintain their existence and all of their rights, privileges and franchises necessary or desirable in the normal conduct of their business and shall conduct their business in an orderly, efficient and regular manner. SECTION 6.9 DELIVERY OF INSTRUMENTS, ETC. Upon request by the Lender, the Borrower will promptly deliver to the Lender in pledge all instruments, documents and chattel papers constituting Collateral, duly endorsed or assigned by the Borrower. SECTION 6.10 COLLATERAL ACCOUNT. (a) If, notwithstanding the instructions to debtors to make payments to the Lockbox, the Borrower receives any payments on Receivables, the Borrower shall deposit such payments into the Collateral Account. Until so deposited, the Borrower shall hold all such payments in trust for and as the property of the Lender and shall not commingle such payments with any of its other funds or property. (b) Amounts deposited in the Collateral Account shall not bear interest and shall not be subject to withdrawal by the Borrower, except after full payment and discharge of all Obligations. (c) All deposits in the Collateral Account shall constitute proceeds of Collateral and shall not constitute payment of the Obligations. Subject to Section 2.9 and provided that no Default or Event of Default has occurred and is continuing, after confirmation of good, collected funds, the Lender shall apply deposited funds in the Collateral Account to the payment of the Obligations in the following order by transferring such funds to the Lender's general account: first, to outstanding charges due under the Credit Facilities; second, to accrued and unpaid interest then due and payable on the Revolving Advances; third; to the principal installment payments and accrued and unpaid interest then due and payable under the Term Loan; and fourth, to the principal amount of the Revolving Advances. Any remaining funds in the Collateral Account shall be transferred to Borrower's general account. During the continuance of a Default or Event of Default, after confirmation of good, collected funds, the Lender may hold all funds in the Collateral Account as additional security for the Obligations and/or may apply deposited funds in the Collateral Account to the payment of the Obligations by transferring such funds to the Lender's general account in such order and in such amounts as the Lender, in its discretion, may from time to time determine. (d) All items deposited in the Collateral Account shall be subject to final payment. If any such item is returned uncollected, the Borrower will immediately pay the Lender, or, for items deposited in the Collateral Account, the bank maintaining such account, the amount of that item, or such bank at its discretion may charge any uncollected item to the Borrower's commercial account or other account. The Borrower shall be liable as an endorser on all items deposited in the Collateral Account, whether or not in fact endorsed by the Borrower. SECTION 6.11 INTENTIONALLY DELETED SECTION 6.12 PERFORMANCE BY THE LENDER. Without limiting Lender's remedies in Section 8.2, if the Borrower at any time fails to perform or observe any of the foregoing covenants contained in this Article 6 or elsewhere herein, and if such failure shall continue for a period of thirty (30) calendar days after the Lender gives the Borrower written notice thereof (or in the case of the agreements contained in Sections 6.4, 6.5, 6.6, 6.7 and 6.10, immediately upon the occurrence of such failure, without notice or lapse of time), the Lender may, but need not, perform or observe such covenant on behalf and in the name, place and stead of the Borrower (or, at the Lender's option, in the Lender's name) and may, but need not, take any and all other actions which the Lender may reasonably deem necessary to cure or correct such failure (including, without limitation, the payment of taxes, the satisfaction of security interests, liens or encumbrances, the performance of obligations owed to account debtors or other obligors, the procurement and maintenance of insurance, the execution of assignments, security agreements and financing statements, and the endorsement of instruments); and the Borrower shall thereupon pay to the Lender on demand the amount of all monies expended and all costs and expenses (including reasonable attorneys' fees and legal expenses) incurred by the Lender in connection with or as a result of the performance or observance of such agreements or the taking of such action by the Lender, together with interest thereon from the date expended or incurred at the Term Loan Rate. To facilitate the Lender's performance or observance of such covenants of the Borrower, the Borrower hereby irrevocably appoints the Lender, or the Lender's delegate, acting alone, as the Borrower's attorney in fact (which appointment is coupled with an interest) with the right (but not the duty) from time to time to create, prepare, complete, execute, deliver, endorse or file in the name and on behalf of the Borrower any and all instruments, documents, assignments, security agreements, financing statements, applications for insurance and other agreements and writings required to be obtained, executed, delivered or endorsed by the Borrower under this Section 6.12. SECTION 6.13 YEAR 2000 COMPLIANCE. Borrower will diligently and continuously comply with the disclosure obligations, and update requirements with respect to material changes in the Borrower's Year 2000 issues, pursuant to the SEC Year 2000 Release. Borrower and its Subsidiaries will continue to follow their Year 2000 Compliance Plan, and promptly notify Lender of any amendments thereto. Borrower and its Subsidiaries shall promptly notify Lender of (1) any material non-compliance with its Year 2000 Compliance Plan; (2) any material negative testing of its hardware or software systems; (3) any third party providing services or materials to Borrower or its Subsidiaries that are material to Borrower or its Subsidiaries and is either not Year 2000 Compliant or Borrower reasonably believes is not or will not be Year 2000 compliant; or (4) any other matters that Borrower is required to disclose regarding Year 2000 issues under the SEC Year 2000 Release. Borrower shall promptly provide such additional information as Lender shall reasonably request concerning Borrower's Year 2000 Compliance Plan. In addition, Borrower and its Subsidiaries shall give representatives of Lender access during all business hours to, and permit such representatives to examine, copy, any and all books, records and documents in possession of Borrower relating to Year 2000 compliance and to permit Lender or its representatives to project test all computer systems of Borrower and its Subsidiaries to determine if they are Year 2000 Compliant in an integrated environment, all at the sole cost and expense of Borrower. SECTION 6.14 MINIMUM DEBT SERVICE COVERAGE RATIO. The Borrower and its Subsidiaries (including La Cometa Properties, Inc.), on a consolidated basis, will maintain a Debt Service Coverage Ratio of not less than 0.50:1.00 for the four-quarter period ending December 31, 1998, determined as of December 31, 1998; a Debt Service Coverage Ratio of not less than 1.00:1.00 for the one-quarter period ending March 31, 1999, determined as of March 31, 1999; a Debt Service Coverage Ratio of not less than 1.00:1.00 for the two-quarter period ending June 30, 1999, determined as of June 30, 1999; a Debt Service Coverage Ratio of not less than 1.00:1.00 for the three-quarter period ending September 30, 1999; a Debt Service Coverage Ratio of not less than 1.00:1.00 for the four-quarter period ending December 31, 1999; and a Debt Service Coverage Ratio of not less than 1.00:1.00, determined as of the end of each fiscal quarter thereafter for the immediately preceding four-quarter period. SECTION 6.15 MINIMUM NET INCOME OR MAXIMUM NET LOSS FROM ORDINARY OPERATIONS. The Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Net Income or Net Loss, as the case may be, on a consolidated basis, determined as of the end of each fiscal quarter for such fiscal quarter, shall not be less than or more than the following: - ---------------------------------------- ---------------------------------- Quarter Ending Net Income or Net Loss - -------------- ---------------------- - ---------------------------------------- ---------------------------------- 12/31/98 ($50,000) - ---------------------------------------- ---------------------------------- 3/31/99 $50,000 - ---------------------------------------- ---------------------------------- 6/30/99 $50,000 - ---------------------------------------- ---------------------------------- 9/30/99 $50,000 - ---------------------------------------- ---------------------------------- 12/31/99 $50,000 - ---------------------------------------- ---------------------------------- and each quarter thereafter $50,000 - ---------------------------------------- ---------------------------------- and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Net Income or Net Loss, as the case may be, on a consolidated basis, determined as of the end of each fiscal year for such fiscal year, shall not be less than or more than the following: - ---------------------------------------- ---------------------------------- Year Ending Net Income ----------- ---------- - ---------------------------------------- ---------------------------------- 12/31/98 ($780,000) - ---------------------------------------- ---------------------------------- 12/31/99 $200,000 - ---------------------------------------- ---------------------------------- and each fiscal year thereafter $200,000 - ---------------------------------------- ---------------------------------- and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Net Loss, on a consolidated basis, shall not be more than $50,000, determined as of the end of any fiscal month, for such fiscal month, and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Net Loss, on a consolidated basis, shall not be more than $75,000 in the aggregate, determined as of the end of any fiscal month, for the immediately preceding two fiscal months. SECTION 6.16 MINIMUM BOOK NET WORTH INCREASE. The Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Book Net Worth, on a consolidated basis, determined as of the end of each such period, shall have increased from the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Book Net Worth, on a consolidated basis, determined as of the end of the immediately preceding period, by the amount set forth opposite such period: - ------------------------------------- --------------------------------------- Quarter Ending Increase in Book Net Worth from Prior - -------------- ------------------------------------- Fiscal Quarter End ------------------ - ------------------------------------- --------------------------------------- 3/31/99 $50,000 - ------------------------------------- --------------------------------------- 6/30/99 $50,000 - ------------------------------------- --------------------------------------- 9/30/99 $50,000 - ------------------------------------- --------------------------------------- 12/31/99 $50,000 - ------------------------------------- --------------------------------------- and each fiscal quarter thereafter $50,000 - ------------------------------------- --------------------------------------- and the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Book Net Worth, on a consolidated basis, determined as of the end of each fiscal year, shall have increased from the Borrower's and its Subsidiaries' (including La Cometa Properties, Inc.) Book Net Worth, on a consolidated basis, determined as of the end of the immediately preceding fiscal year, by the amount set forth opposite such period (or in the case of December 31, 1998, shall not have decreased by more than the amount set forth opposite such period): - ------------------------------------- --------------------------------------- Fiscal Year Ending Increase (or Decrease) in Book Net - ------------------ ---------------------------------- Worth from Prior Fiscal Year End -------------------------------- - ------------------------------------- --------------------------------------- 12/31/98 ($780,000) - ------------------------------------- --------------------------------------- 12/31/99 $200,000 - ------------------------------------- --------------------------------------- and each fiscal year thereafter $200,000 - ------------------------------------- --------------------------------------- ARTICLE 7 NEGATIVE COVENANTS So long as the Obligations shall remain unpaid, or either Credit Facility shall remain outstanding, the Borrower agrees that, without the Lender's prior written consent: SECTION 7.1 LIENS. The Borrower will not create, incur or suffer to exist any mortgage, deed of trust, pledge, lien, security interest, assignment or transfer upon or of any of its assets, now owned or hereafter acquired, to secure any indebtedness; excluding, however, from the operation of the foregoing, the following (collectively, "Permitted Liens"): (a) in the case of any of the Borrower's property which is not Collateral or other collateral described in the Security Documents, covenants, restrictions, rights, easements and minor irregularities in title which do not materially interfere with the Borrower's business or operations as presently conducted; (b) mortgages, deeds of trust, pledges, liens, security interests and assignments in existence on the date hereof and listed in Schedule 7.1 hereto, securing indebtedness for borrowed money permitted under Section 7.2; (c) the Security Interest and liens and security interests created by the Security Documents; and (d) purchase money security interests relating to the acquisition of machinery and equipment of the Borrower not exceeding the cost or fair market value thereof and so long as no Default Period is then in existence and none would exist immediately after such acquisition. SECTION 7.2 INDEBTEDNESS. The Borrower will not incur, create, assume or permit to exist any indebtedness or liability on account of deposits or advances or any indebtedness for borrowed money or letters of credit issued on the Borrower's behalf, or any other indebtedness or liability evidenced by notes, bonds, debentures or similar obligations, except: (a) indebtedness arising hereunder; (b) indebtedness of the Borrower in existence on the date hereof and listed in Schedule 7.2 hereto; and (c) indebtedness relating to liens permitted in accordance with Section 7.1. SECTION 7.3 GUARANTIES. The Borrower will not assume, guarantee, endorse or otherwise become directly or contingently liable in connection with any obligations of any other Person, except: (a) the endorsement of negotiable instruments by the Borrower for deposit or collection or similar transactions in the ordinary course of business; (b) guarantees of indebtedness intended to be incurred for normal and customary business purposes by the Borrower's executive officers, such as company-issued credit cards, telephone calling cards, cellular phone service charges or the like; and (c) guaranties, endorsements and other direct or contingent liabilities in connection with the obligations of other Persons, in existence on the date hereof and listed in Schedule 7.2 hereto. SECTION 7.4 INVESTMENTS AND SUBSIDIARIES. (a) The Borrower will not purchase or hold beneficially any stock or other securities or evidences of indebtedness of, make or permit to exist any loans or advances to, or make any investment or acquire any interest whatsoever in, any other Person, including specifically but without limitation any partnership or joint venture, except: (i) investments in direct obligations of the United States of America or any agency or instrumentality thereof whose obligations constitute full faith and credit obligations of the United States of America having a maturity of one year or less, commercial paper issued by U.S. corporations rated "A-1" or "A-2" by Standard & Poors Corporation or "P-1" or "P-2" by Moody's Investors Service or certificates of deposit or bankers' acceptances having a maturity of one year or less issued by members of the Federal Reserve System having deposits in excess of $100,000,000 (which certificates of deposit or bankers' acceptances are fully insured by the Federal Deposit Insurance Corporation); (ii) travel advances or loans to the Borrower's officers and employees not exceeding at any one time an aggregate of $15,000; and (iii) advances in the form of progress payments, prepaid rent not exceeding one month or security deposits not exceeding one month's rent. (b) The Borrower will not create or permit to exist any new Subsidiaries and will not conduct any business in or through Poore Brothers Southeast, Inc. or Poore Brothers Texas, Inc. SECTION 7.5 DIVIDENDS AND VOLUNTARY REDEMPTION PAYMENTS. The Borrower will not declare or pay any dividends (other than dividends payable solely in stock of the Borrower) on any class of its stock or make any payment on account of the purchase, redemption or other retirement of any shares of such stock or make any distribution in respect thereof, either directly or indirectly, or give notice of, or directly or indirectly make, any voluntary principal redemption payment to any Debenture Holder, except that any Subsidiary may declare and pay dividends or make other distributions to any Borrower, and (ii) Borrower may repurchase stock or options from former directors, officers and employees (or their legal representatives) in the ordinary course of business in accordance with any stock option plan, stock repurchase agreement, employment agreement or similar agreement existing as of the date of this Agreement, provided that at the time of such repurchase and immediately after giving effect to such repurchase no Default or Event of Default shall have occurred and be continuing. SECTION 7.6 SALE OR TRANSFER OF ASSETS; SUSPENSION OF BUSINESS OPERATIONS. The Borrower will not sell, lease, assign, transfer or otherwise dispose of (i) the stock of any Subsidiary, (ii) all or a substantial part of its assets, or (iii) any Collateral or any interest therein (whether in one transaction or in a series of transactions) to any other Person other than the sale of Inventory in the ordinary course of business and the annual aggregate sale of not more than $25,000 of excess or obsolete equipment not required for the continuation of Borrower's business to bona fide third party purchasers in an arm's length transactions, and Borrower will not liquidate, dissolve or suspend business operations. The Borrower will not in any manner transfer any property without prior or present receipt of full and adequate consideration. SECTION 7.7 CONSOLIDATION AND MERGER; ASSET ACQUISITIONS. The Borrower will not consolidate with or merge into any Person, or permit any other Person to merge into it, or acquire (in a transaction analogous in purpose or effect to a consolidation or merger) all or substantially all the assets of any other Person, except for the transactions contemplated by the Asset Purchase Agreement. SECTION 7.8 SALE AND LEASEBACK. The Borrower will not enter into any arrangement, directly or indirectly, with any other Person whereby the Borrower shall sell or transfer any real or personal property, whether now owned or hereafter acquired, and then or thereafter rent or lease as lessee such property or any part thereof or any other property which the Borrower intends to use for substantially the same purpose or purposes as the property being sold or transferred, except for the sale and leaseback of equipment occurring within thirty (30) days after Borrower's purchase of such equipment. SECTION 7.9 RESTRICTIONS ON NATURE OF BUSINESS. The Borrower will not engage in any line of business other than the manufacturing and distribution of salted snack foods, and Borrower will not purchase, lease or otherwise acquire assets not related to its business. SECTION 7.10 CAPITAL EXPENDITURES. The Borrower will not incur or contract to incur total Capital Expenditures (including Unfinanced Capital Expenditures) of more than $250,000 in the aggregate during any fiscal year or Unfinanced Capital Expenditures of more than $200,000 in the aggregate during any fiscal year. SECTION 7.11 ACCOUNTING. The Borrower will not adopt any material change in accounting principles other than as required by GAAP, provided that Borrower may adopt changes in its accounting principles permitted by GAAP so long as such changes, either individually or in the aggregate, do not have a material effect on the measurement of the financial covenants in this Agreement and the comparison of such financial covenants to periods prior to such changes. The Borrower will not adopt, permit or consent to any change in its fiscal year. SECTION 7.12 DISCOUNTS, ETC. The Borrower will not, after notice from the Lender, grant any discount, credit or allowance to any customer of the Borrower or accept any return of goods sold, or at any time (whether before or after notice from the Lender) modify, amend, subordinate, cancel or terminate the obligation of any account debtor or other obligor of the Borrower. SECTION 7.13 DEFINED BENEFIT PENSION PLANS. The Borrower will not adopt, create, assume or become a party to any defined benefit pension plan, unless disclosed to the Lender pursuant to Section 5.10. SECTION 7.14 OTHER DEFAULTS. The Borrower will not permit any breach, default or event of default to continue beyond the expiration of the applicable period of grace, if any, specified under any note, loan agreement, indenture, lease, mortgage, contract for deed, security agreement or other contractual obligation binding upon the Borrower. SECTION 7.15 PLACE OF BUSINESS; NAME. The Borrower will not transfer its chief executive office or principal place of business, or move, relocate, close or sell any business location. The Borrower will not permit any tangible Collateral or any records pertaining to the Collateral to be located in any state or area in which, in the event of such location, a financing statement covering such Collateral would be required to be, but has not in fact been, filed in order to perfect the Security Interest. The Borrower will not change its name. SECTION 7.16 ORGANIZATIONAL DOCUMENTS; C CORPORATION STATUS. The Borrower will not amend its certificate of incorporation, articles of incorporation or bylaws, except for non-material changes or changes required by applicable law. The Borrower shall not change or rescind its status as a C Corporation. SECTION 7.17 SALARIES. The Borrower will not pay excessive or unreasonable salaries, bonuses, commissions, consultant fees or other compensation; or increase the salary, bonus, commissions, consultant fees or other compensation of any director, officer or consultant, or any member of their families, by more than 20% in any one year, either individually or for all such persons in the aggregate, or pay any such increase from any source other than profits earned in the year of payment. Borrower may issue stock options to any director, officer or consultant pursuant to a duly instituted stock option plan and provided that Borrower reserves sufficient shares for such options. ARTICLE 8 EVENTS OF DEFAULT, RIGHTS AND REMEDIES SECTION 8.1 EVENTS OF DEFAULT. "Event of Default", wherever used herein, means any one of the following events: (a) Default in the payment of the Obligations when they become due and payable; (b) Default in the payment of any fees, commissions, costs or expenses required to be paid by the Borrower under this Agreement; (c) Default in the performance, or breach, of any covenant or agreement of the Borrower contained in this Agreement; (d) The Borrower or any Subsidiary, guarantor, surety or accommodation party shall be or become insolvent, or admit in writing its or his inability to pay its or his debts as they mature, or make an assignment for the benefit of creditors; or the Borrower or any Subsidiary, guarantor, surety or accommodation party shall apply for or consent to the appointment of any receiver, trustee, or similar officer for it or him or for all or any substantial part of its or his property; or such receiver, trustee or similar officer shall be appointed without the application or consent of the Borrower or such Subsidiary, guarantor, surety or accommodation party, as the case may be; or the Borrower or any Subsidiary, guarantor, surety or accommodation party shall institute (by petition, application, answer, consent or otherwise) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, dissolution, liquidation or similar proceeding relating to it or him under the laws of any jurisdiction; or any such proceeding shall be instituted (by petition, application or otherwise) against the Borrower or any such Subsidiary, guarantor, surety or accommodation party; or any judgment, writ, warrant of attachment or execution or similar process shall be issued or levied against a substantial part of the property of the Borrower or any Subsidiary, guarantor, surety or accommodation party; (e) The occurrence of a Change of Control; (f) Any representation or warranty made by the Borrower in this Agreement, by any guarantor, surety or accommodation party in any guaranty delivered to the Lender, or by the Borrower (or any of its officers) or any Subsidiary, guarantor, surety or accommodation party in any agreement, certificate, instrument or financial statement or other statement contemplated by or made or delivered pursuant to or in connection with this Agreement or any such guaranty shall prove to have been incorrect in any material respect when deemed to be effective; (g) The rendering against the Borrower or any Subsidiary of a final judgment, decree or order for the payment of money in excess of $25,000 and the continuance of such judgment, decree or order unsatisfied and in effect for any period of 30 consecutive days without a stay of execution; (h) A default under any bond, debenture, convertible debenture, note or other evidence of indebtedness of the Borrower or any Subsidiary owed to any Person other than the Lender, or under any indenture or other instrument under which any such evidence of indebtedness has been issued or by which it is governed, or under any lease of any of the Premises, or under any material license, contract, warrant or other agreement, and the expiration of the applicable period of grace, if any, specified in such evidence of indebtedness, indenture, other instrument, lease, material license, contract, warrant or other agreement; (i) Any Reportable Event, which the Lender determines in good faith might constitute grounds for the termination of any Plan or for the appointment by the appropriate United States District Court of a trustee to administer any Plan, shall have occurred and be continuing 30 days after written notice to such effect shall have been given to the Borrower by the Lender; or a trustee shall have been appointed by an appropriate United States District Court to administer any Plan; or the Pension Benefit Guaranty Corporation shall have instituted proceedings to terminate any Plan or to appoint a trustee to administer any Plan; or the Borrower shall have filed for a distress termination of any Plan under Title IV of ERISA; or the Borrower shall have failed to make any quarterly contribution required with respect to any Plan under Section 412(m) of the Internal Revenue Code of 1986, as amended, which the Lender determines in good faith may by itself, or in combination with any such failures that the Lender may determine are likely to occur in the future, result in the imposition of a lien on the Borrower's assets in favor of the Plan; (j) An event of default shall occur under any Loan Document or under any other security agreement, mortgage, deed of trust, assignment or other instrument or agreement securing the Borrower's Obligations hereunder; (k) The Borrower or any Subsidiary shall liquidate, dissolve, terminate or suspend its business operations or otherwise fail to operate its business in the ordinary course, or sell all or substantially all of its assets, without the Lender's prior written consent; (l) The Borrower or any Subsidiary shall fail to pay, withhold, collect or remit any tax or tax deficiency when assessed or due (other than any tax deficiency which is being contested in good faith and by proper proceedings and for which it shall have set aside on its books adequate reserves therefor) or notice of any state or federal tax liens shall be filed or issued; (m) Default in the payment of any amount owed by the Borrower to the Lender other than any indebtedness arising hereunder; (n) Any Subsidiary, guarantor, surety or accommodation party shall repudiate, purport to revoke or fail to perform any such Subsidiary's, guarantor's, surety's or accommodation party's obligations under any agreement in favor of the Lender, any individual guarantor, surety or accommodation party shall die or any other guarantor, surety or accommodation party shall cease to exist; (o) The Borrower shall take or participate in any action which would be prohibited under the provisions of any Subordination Agreement or make any payment on the Subordinated Debt that any Person was not entitled to receive under the provisions of the Subordination Agreement, or Borrower shall take or participate in any action which would be prohibited under the provisions of the Intercreditor Agreement, or give notice of, or directly or indirectly make, any voluntary principal redemption payment to any Debenture Holder or directly or indirectly make any mandatory principal redemption installment payment to any Debenture Holder before its due date; or (p) Any breach, default or event of default by or attributable to any Affiliate under any agreement between such Affiliate and the Lender. SECTION 8.2 RIGHTS AND REMEDIES. During any Default Period, the Lender may exercise any or all of the following rights and remedies: (a) the Lender may, by notice to the Borrower, declare the Commitment to be terminated, whereupon the same shall forthwith terminate; (b) the Lender may, by notice to the Borrower, declare the Obligations to be forthwith due and payable, whereupon all Obligations shall become and be forthwith due and payable, without presentment, notice of dishonor, protest or further notice of any kind, all of which the Borrower hereby expressly waives; (c) the Lender may, without notice to the Borrower and without further action, apply any and all money owing by the Lender to the Borrower to the payment of the Obligations; (d) the Lender may exercise and enforce any and all rights and remedies available upon default to a secured party under the UCC, including, without limitation, the right to take possession of Collateral, or any evidence thereof, proceeding without judicial process or by judicial process (without a prior hearing or notice thereof, which the Borrower hereby expressly waives) and the right to sell, lease or otherwise dispose of any or all of the Collateral, and, in connection therewith, the Borrower will on demand assemble the Collateral and make it available to the Lender at a place to be designated by the Lender which is reasonably convenient to both parties; (e) the Lender may exercise and enforce its rights and remedies under the Loan Documents; and (f) the Lender may exercise any other rights and remedies available to it by law or agreement. Notwithstanding the foregoing, upon the occurrence of an Event of Default described in Sections 8.1(d) or (e), the Obligations shall be immediately due and payable automatically without presentment, demand, protest or notice of any kind. SECTION 8.3 CERTAIN NOTICES. If notice to the Borrower of any intended disposition of Collateral or any other intended action is required by law in a particular instance, such notice shall be deemed commercially reasonable if given (in the manner specified in Section 9.3) at least ten calendar days before the date of intended disposition or other action. ARTICLE 9 MISCELLANEOUS SECTION 9.1 NO WAIVER; CUMULATIVE REMEDIES. No failure or delay by the Lender in exercising any right, power or remedy under the Loan Documents shall operate as a waiver thereof; nor shall any single or partial exercise of any such right, power or remedy preclude any other or further exercise thereof or the exercise of any other right, power or remedy under the Loan Documents. The remedies provided in the Loan Documents are cumulative and not exclusive of any remedies provided by law. SECTION 9.2 AMENDMENTS, ETC. No amendment, modification, termination or waiver of any provision of any Loan Document or consent to any departure by the Borrower therefrom or any release of a Security Interest shall be effective unless the same shall be in writing and signed by the Lender, and then such waiver or consent shall be effective only in the specific instance and for the specific purpose for which given. No notice to or demand on the Borrower in any case shall entitle the Borrower to any other or further notice or demand in similar or other circumstances. SECTION 9.3 ADDRESSES FOR NOTICES, ETC. Except as otherwise expressly provided herein, all notices, requests, demands and other communications provided for under the Loan Documents shall be in writing and shall be (a) personally delivered, (b) sent by first class United States mail, (c) sent by overnight courier of national reputation, or (d) transmitted by telecopy, in each case addressed or telecopied to the party to whom notice is being given at its address or telecopier number as set forth below: If to the Borrower: Poore Brothers, Inc. 3500 South La Cometa Goodyear, AZ 85338 Telecopier: (602) 925-2363 Attention: Mr. Thomas Freeze, Vice President and Chief Financial Officer If to the Lender: Norwest Business Credit, Inc. 3003 North Central Avenue, 5th Floor M.S. 9025 Phoenix, AZ 85012-2501 Telecopier: (602) 263-6215 Attention: Ms. Darcy Della Flora or, as to each party, at such other address or telecopier number as may hereafter be designated by such party in a written notice to the other party complying as to delivery with the terms of this Section. All such notices, requests, demands and other communications shall be deemed to have been given on (a) the date received if personally delivered, (b) when deposited in the mail if delivered by mail, (c) the date sent if sent by overnight courier, or (d) the date of transmission if delivered by telecopy, except that notices or requests to the Lender pursuant to any of the provisions of Article 2 shall not be effective until received by the Lender. SECTION 9.4 INTENTIONALLY DELETED SECTION 9.5 FURTHER DOCUMENTS. The Borrower will from time to time execute and deliver or endorse any and all instruments, documents, conveyances, assignments, security agreements, financing statements and other agreements and writings that the Lender may reasonably request in order to secure, protect, perfect or enforce the Security Interest or the Lender's rights under the Loan Documents (but any failure to request or assure that the Borrower executes, delivers or endorses any such item shall not affect or impair the validity, sufficiency or enforceability of the Loan Documents and the Security Interest, regardless of whether any such item was or was not executed, delivered or endorsed in a similar context or on a prior occasion). SECTION 9.6 COLLATERAL. This Agreement does not contemplate a sale of accounts, contract rights or chattel paper, and, as provided by law, the Borrower is entitled to any surplus and shall remain liable for any deficiency. The Lender's duty of care with respect to Collateral in its possession (as imposed by law) shall be deemed fulfilled if it exercises reasonable care in physically keeping such Collateral, or in the case of Collateral in the custody or possession of a bailee or other third person, exercises reasonable care in the selection of the bailee or other third person, and the Lender need not otherwise preserve, protect, insure or care for any Collateral. The Lender shall not be obligated to preserve any rights the Borrower may have against prior parties, to realize on the Collateral at all or in any particular manner or order or to apply any cash proceeds of the Collateral in any particular order of application. SECTION 9.7 COSTS AND EXPENSES. The Borrower agrees to pay on demand all costs and expenses, including (without limitation) attorneys' fees, incurred by the Lender in connection with the Obligations, this Agreement, the Loan Documents, and any other document or agreement related hereto or thereto, and the transactions contemplated hereby, including without limitation all such costs, expenses and fees incurred in connection with the negotiation, preparation, execution, amendment, administration, performance, collection and enforcement of the Obligations and all such documents and agreements and the creation, perfection, protection, satisfaction, foreclosure or enforcement of the Security Interest. SECTION 9.8 INDEMNITY. In addition to the payment of expenses pursuant to Section 9.7, the Borrower agrees to indemnify, defend and hold harmless the Lender, and any of its participants, parent corporations, subsidiary corporations, affiliated corporations, successor corporations, and all present and future officers, directors, employees, attorneys and agents of the foregoing (the "Indemnitees") from and against any of the following, unless caused solely by the gross negligence or willful malfeasance of any Indemnitee (collectively, "Indemnified Liabilities"): (a) any and all transfer taxes, documentary taxes, assessments or charges made by any governmental authority by reason of the execution and delivery of the Loan Documents or the making of the Advances; (b) any and all liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel) to which any Indemnitee may be subjected under Environmental Laws in any manner related to or arising out of or in connection with the transactions contemplated under this Agreement; and (c) any and all other liabilities, losses, damages, penalties, judgments, suits, claims, costs and expenses of any kind or nature whatsoever (including, without limitation, the reasonable fees and disbursements of counsel) in connection with the foregoing and any other investigative, administrative or judicial proceedings, whether or not such Indemnitee shall be designated a party thereto, which may be imposed on, incurred by or asserted against any such Indemnitee, in any manner related to or arising out of or in connection with the making of the Advances and the Loan Documents or the use or intended use of the proceeds of the Advances. If any investigative, judicial or administrative proceeding arising from any of the foregoing is brought against any Indemnitee, upon such Indemnitee's request, the Borrower, or counsel designated by the Borrower and satisfactory to the Indemnitee, will resist and defend such action, suit or proceeding to the extent and in the manner directed by the Indemnitee, at the Borrower's sole costs and expense. Each Indemnitee will use its best efforts to cooperate in the defense of any such action, suit or proceeding. If the foregoing undertaking to indemnify, defend and hold harmless may be held to be unenforceable because it violates any law or public policy, the Borrower shall nevertheless make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under applicable law. The Borrower's obligation under this Section 9.8 shall survive the termination of this Agreement and the discharge of the Borrower's other obligations hereunder. BORROWER UNDERSTANDS AND IT IS THE INTENT OF BORROWER AND THE INDEMNITEES THAT THE INDEMNITY OBLIGATIONS IN THIS PARAGRAPH INCLUDE ANY CLAIMS RELATING IN ANY WAY TO THE NEGLIGENCE OF THE INDEMNITEE. SECTION 9.9 PARTICIPANTS. The Lender and its participants, if any, are not partners or joint venturers, and the Lender shall not have any liability or responsibility for any obligation, act or omission of any of its participants. All rights and powers specifically conferred upon the Lender may be transferred or delegated to any of the Lender's participants, successors or assigns. SECTION 9.10 EXECUTION IN COUNTERPARTS. This Agreement and other Loan Documents may be executed in any number of counterparts, each of which when so executed and delivered shall be deemed to be an original and all of which counterparts, taken together, shall constitute but one and the same instrument. SECTION 9.11 BINDING EFFECT; ASSIGNMENT; COMPLETE AGREEMENT; EXCHANGING INFORMATION. The Loan Documents shall be binding upon and inure to the benefit of the Borrower and the Lender and their respective successors and assigns, except that the Borrower shall not have the right to assign its rights thereunder or any interest therein without the Lender's prior written consent. Lender will endeavor to provide written notice of any assignment or grant of participation rights to any Person, but the failure to provide such notice shall not affect the validity or enforceability of this Agreement or such assignment or grant of participation rights, except that no assignee or participant may setoff any liability owed to the Borrower by such assignee or participant unless and until Borrower receives written notice of such assignment or participation interest. This Agreement, together with the Loan Documents, comprises the complete and integrated agreement of the parties on the subject matter hereof and supersedes all prior agreements, written or oral, on the subject matter hereof. Without limiting the Lender's right to share information regarding the Borrower and its Affiliates with the Lender's participants, accountants, lawyers and other advisors, the Lender, Norwest Corporation, and all direct and indirect subsidiaries of Norwest Corporation, may exchange any and all information they may have in their possession regarding the Borrower and its Affiliates, and the Borrower waives any right of confidentiality it may have with respect to such exchange of such information. SECTION 9.12 CONFIDENTIAL INFORMATION. Lender agrees to keep confidential (and to use its reasonable efforts to cause its respective agents and representatives to keep confidential) the Confidential Information (as defined below) and all copies thereof, extracts therefrom and analyses or other materials based thereon, except that Lender shall be permitted to disclose Confidential Information (a) to such of its respective officers, directors, employees, attorneys, accountants, agents, Affiliates and representatives as need to know such Confidential Information, (b) to the extent requested by any regulatory authority, (c) to the extent otherwise required by applicable laws and regulations or by any subpoena or similar legal process, (d) in connection with any suit, action or proceeding relating to the enforcement of its rights hereunder or under the other Loan Documents or (e) to the extent such Confidential Information (i) becomes publicly available other than as a result of a breach of this Section 9.12 or (ii) becomes available to Lender on a non-confidential basis from a source other than Borrower. For the purposes of this Section, "Confidential Information" means all non-public information relating to the Borrower or its Subsidiaries received from the Borrower or its attorneys, accountants, officers, directors, employees or agents which are clearly identified at the time of delivery as confidential. The provisions of this Section 9.12 shall remain operative and in full force and effect regardless of the expiration of the term of this Agreement. Lender may, in connection with any assignment or participation, proposed assignment or participation, or merger, consolidation or sale involving the Lender or any Affiliate disclose to such Persons any Confidential Information, provided that Lender advises such Person of this confidentiality agreement. SECTION 9.13 SEVERABILITY OF PROVISIONS. Any provision of this Agreement which is prohibited or unenforceable shall be ineffective to the extent of such prohibition or unenforceability without invalidating the remaining provisions hereof. SECTION 9.14 HEADINGS. Article and Section headings in this Agreement are included herein for convenience of reference only and shall not constitute a part of this Agreement for any other purpose. SECTION 9.15 GOVERNING LAW; JURISDICTION, VENUE; WAIVER OF JURY TRIAL. The Loan Documents shall be governed by and construed in accordance with the substantive laws (other than conflict laws) of the State of Arizona. The parties hereto hereby (i) consents to the personal jurisdiction of the state and federal courts located in the State of Arizona in connection with any controversy related to this Agreement; (ii) waives any argument that venue in any such forum is not convenient, (iii) agrees that any litigation initiated by the Lender or the Borrower in connection with this Agreement or the other Loan Documents shall be venued in either the Superior Court of Maricopa County or the United States District Court, District of Arizona (Division 1); and (iv) agrees that a final judgment in any such suit, action or proceeding shall be conclusive and may be enforced in other jurisdictions by suit on the judgment or in any other manner provided by law. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT. ARTICLE 10 JOINT BORROWER PROVISIONS SECTION 10.1 RELIANCE ON ACTS OF ANY BORROWER. Lender is entitled to rely, and shall be exonerated from any liability for relying upon, any request for a Revolving Advance or similar request made by any Borrower without the need for any consent or other authorization of any other Borrower and upon any information or certificate provided on behalf of any Borrower by an officer, partner, manager or other representative of such Borrower. SECTION 10.2 SINGLE OBLIGATION. The parties hereto intend that all of the Obligations shall constitute one indebtedness, and that each Borrower shall constitute a borrower (and not a guarantor, surety or accommodation party), with respect to all of the Obligations. In the event that (and only to the extent that), notwithstanding the contrary intent of the parties, any court of competent jurisdiction determines that any Borrower is a guarantor, surety or accommodation party with respect to any portion of the Obligations, or has granted a lien or security interest on its property to secure the debt of another, the waivers and other provisions of this Section 10.2 shall apply to such Borrower in connection with the portion(s) of the Obligations (the "Guaranteed Obligations") with respect to which such Borrower is held not to be a borrower. (a) Each Borrower consents and agrees that Lender may, at any time and from time to time, agree with any one Borrower, without notice or demand to any other Borrower, and without affecting the enforceability of or security for the Guaranteed Obligations under any Loan Document, to: (i) supplement, modify, amend, extend, renew, or otherwise change the time for payment or the terms of the Guaranteed Obligations or any part thereof, including any increase or decrease of the rate(s) of interest thereon; (ii) supplement, modify, amend or waive, or enter into or give any agreement, approval or consent with respect to, the Guaranteed Obligations or any part thereof or any of the Loan Documents or any additional security or guaranties, or any condition, covenant, default, remedy, right, representation or term thereof or thereunder; (iii) accept new or additional instruments, documents or agreements relative to any of the Loan Documents or the Guaranteed Obligations or any part thereof; (iv) accept partial payments on the Guaranteed Obligations; (v) receive and hold additional security or guaranties for the Guaranteed Obligations or any part thereof; (vi) release, reconvey, terminate, waive, abandon, subordinate, exchange, substitute, transfer and enforce any security or guaranties for the Guaranteed Obligations, and apply any security and direct the order or manner of sale thereof, in its sole and absolute discretion may determine; (vii) release any Person or any guarantor from any personal liability with respect to the Guaranteed Obligations or any part thereof; (viii) settle, release on terms satisfactory to Lender or by operation of applicable laws or otherwise liquidate or enforce any Guaranteed Obligations and any security or guaranty therefor in any manner, consent to the transfer of any security and bid and purchase at any sale; and (ix) consent to the merger, change or any other restructuring or termination of the corporate existence of any Borrower or any other Person, and correspondingly restructure the Guaranteed Obligations, and any such merger, change, restructuring or termination shall not affect the liability of any other Borrower or the continuing existence of any Security Interest securing the Guaranteed Obligations under any Loan Document to which any such Borrower is a party or the enforceability hereof or thereof with respect to all or any part of the Guaranteed Obligations. (b) Upon the occurrence of and during the continuance of any Event of Default, Lender may enforce each Loan Document independently as to each Borrower and independently of any other remedy or security Lender at any time may have or hold in connection with the Guaranteed Obligations, and it shall not be necessary for Lender to marshal assets in favor of any Borrower or any other Person or to proceed upon or against and/or exhaust any other security or remedy before proceeding to enforce such Loan Document. Each Borrower expressly waives any right to require Lender to marshal assets in favor of any Borrower or any other Person or to proceed against any other Person or any Collateral provided by any other Person, and agrees that Lender may proceed against any Persons and/or Collateral in such order as it shall determine in its sole and absolute discretion. The Lender may file a separate action or actions against any Borrower, whether any action is brought or prosecuted with respect to any other Collateral or against any other Person, or whether any other Person is joined in any such action or actions. Each Borrower expressly waives the benefit of any statute(s) of limitations affecting its liability under the Loan Documents or the enforcement of the Guaranteed Obligations or any Security Interests created or granted by any Loan Document. The rights of Lender hereunder and under the Loan Documents shall be reinstated and revived, and the enforceability of this Agreement and the Loan Documents shall continue, with respect to any amount at any time paid on account of the Obligations which thereafter shall be required to be restored or returned by Lender upon the bankruptcy, insolvency or reorganization of any Borrower or any other Person, or otherwise, all as though such amount had not been paid. The enforceability of the Loan Documents at all times shall remain effective as to each Borrower as to the Guaranteed Obligations of such Borrower even though such Guaranteed Obligations, including any part thereof, may be or hereafter may become invalid or otherwise unenforceable as against any other Borrower or any other Person and whether or not any other Borrower or any other Person shall have any personal liability with respect thereto. (c) Each Borrower expressly waives in respect of the Guaranteed Obligations any and all defenses now or hereafter arising or asserted by reason of (a) any disability or other defense of any other Borrower or any other Person with respect to the Guaranteed Obligations, (b) the unenforceability or invalidity of any security or guaranty for the Guaranteed Obligations or the lack of perfection or continuing perfection or failure of priority of any security for the Guaranteed Obligations, (c) the cessation for any cause whatsoever of the liability of any other Borrower or any other Person (other than by reason of the full payment and performance of all Obligations), (d) any failure of Lender to marshal assets in favor of any Borrower or any other Person, (e) except as otherwise required by law or as provided in any Loan Document, any failure of Lender to give notice of sale or other disposition of Collateral to any other Borrower or any other Person or any defect in any notice that may be given in connection with any sale or disposition of Collateral, (f) except as otherwise required by law or as provided in any Loan Document, any failure of Lender to comply with applicable laws in connection with the sale or other disposition of any Collateral or other security for any Obligation, including, without limitation, any failure of Lender to conduct a commercially reasonable sale or other disposition of any Collateral or other security for any Guaranteed Obligation, (g) any act or omission of Lender or others that directly or indirectly results in or aids the discharge or release of any other Borrower or any other Person or any other security or guaranty for the Guaranteed Obligations by operation of law or otherwise, (h) any law which provides that the obligation of a surety or guarantor must neither be larger in amount nor in other respects more burdensome than that of the principal or which reduces a surety's or guarantor's obligation in proportion to the principal obligation, (i) any failure of Lender to file or enforce a claim in any bankruptcy or other proceeding with respect to any Person, (j) the election by Lender in any bankruptcy proceeding of any Person of the application or non-application of Section 1111(b)(2) of the United States Bankruptcy Code, (k) any extension of credit or the grant of any Security Interest under Section 364 of the United States Bankruptcy Code, (l) any use of cash collateral under Section 363 of the United States Bankruptcy Code, (m) any agreement or stipulation with respect to the provision of adequate protection in any bankruptcy proceeding of any Person, (n) the avoidance of any Security Interest in favor Lender for any reason, or (o) any bankruptcy, insolvency, reorganization, arrangement, readjustment of debt, liquidation or dissolution proceeding commenced by or against any Person, including any discharge of, or bar or stay against collecting, all or any of the Guaranteed Obligations (or any interest thereon) in or as a result of any such proceeding. (d) Each Borrower waives all rights and defenses arising out of an election of remedies by Lender, even though that election of remedies with respect to security for a Guaranteed Obligation, has destroyed such Borrower's rights of subrogation and reimbursement against the principal. (e) Notwithstanding anything to the contrary elsewhere contained herein or in any other Loan Document to which any Borrower is a party, each Borrower hereby waives with respect to each other Borrower and its respective successors and assigns (including any surety) and any other party any and all rights at law or in equity, to subrogation, to reimbursement, to exoneration, to contribution, to setoff or to any other rights that could accrue to a surety against a principal, to a guarantor against a maker or obligor, to an accommodation party against the party accommodated, or to a holder or transferee against a maker and which each Borrower may have or hereafter acquire against any other Borrower or any other party in connection with or as a result of any Borrower's execution, delivery and/or performance of this Agreement or any other Loan Document to which any such Borrower is a party until payment in full of all Obligations. Each Borrower agrees that it shall not have or assert any such rights against any other Borrower or any such Borrower's successors and assigns or any other Person (including any surety), either directly or as an attempted setoff to any action commenced against such Borrower by such other Borrower (as borrower or in any other capacity) or any other Person. Each Borrower hereby acknowledges and agrees that this waiver is intended to benefit Lender and shall not limit or otherwise affect any of such Borrower's liability hereunder, under any other Loan Document to which any Borrower is a party, or the enforceability hereof or thereof. (f) Without limiting the generality of the foregoing and to the extent otherwise applicable, each Borrower hereby waives discharge by waiving all defenses based on suretyship or impairment of collateral securing the Guaranteed Obligations and, to the extent permitted by applicable law, waives the provisions of Arizona Revised Statutes, Sections 12-1566, 12-1641 et seq., 44-142 and 16 Arizona Revised Statutes, Rules of Civil Procedure, Rule 17(f), and Guarantor agrees that its obligations shall not be affected by any circumstances, whether or not referred to herein, which might otherwise constitute a legal or equitable discharge of a guarantor, surety or accommodation party. SECTION 10.3 KNOWING WAIVER. Each Borrower warrants and agrees that each of the waivers and consents set forth herein is made with full knowledge of its significance and consequences, with the understanding that events giving rise to any defense waived may diminish, destroy or otherwise adversely affect rights which each Borrower otherwise may have against each other Borrower, Lender, or others, or against any Collateral securing the Guaranteed Obligations. If any of the waivers or consents herein are determined to be contrary to any applicable law or public policy, such waivers and consents shall be effective to the maximum extent permitted by law. SECTION 10.4 INFORMATION. Each Borrower represents and warrants to Lender that such Borrower has established adequate means of obtaining from each other Borrower, on a continuing basis, financial and other information pertaining to the businesses, operations and condition (financial and otherwise) of each other Borrower and their respective properties, and each Borrower now is and hereafter will be completely familiar with the businesses, operations and condition (financial and otherwise) of each other Borrower and its respective properties. Each Borrower hereby expressly waives and relinquishes any duty on the part of Lender to disclose to such Borrower any matter, fact or thing related to the businesses, operations or condition (financial or otherwise) of any other Borrower or such other Borrower's properties, whether now known or hereafter known by Lender during the term of this Agreement. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by their respective officers thereunto duly authorized as of the date first above written. LENDER: NORWEST BUSINESS CREDIT, INC., a Minnesota corporation By: ------------------------------------- Name: Darcy Della Flora ----------------------------------- Title: Vice President ---------------------------------- BORROWER: POORE BROTHERS, INC., a Delaware corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- POORE BROTHERS ARIZONA, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- TEJAS PB DISTRIBUTING, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- Table of Exhibits and Schedules Exhibit A Form of Revolving Note Exhibit B Form of Term Loan Note Exhibit C Compliance Certificate Exhibit D Premises Exhibit E Example Calculation of Term Loan Principal Payment Increase and Amount ------------------- Schedule 2.11 Use of Proceeds Schedule 5.1 Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral Schedule 5.4 Subsidiaries Schedule 7.1 Permitted Liens Schedule 7.2 Permitted Indebtedness and Guaranties Exhibit A to Credit and Security Agreement REVOLVING NOTE $2,000,000.00 PHOENIX, ARIZONA OCTOBER 23, 1998 For value received, the undersigned, POORE BROTHERS, INC., a Delaware corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING, INC., an Arizona corporation (individually and collectively, the "Borrower"), hereby jointly and severally promise to pay on the Termination Date under the Credit Agreement (defined below), to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Phoenix, Arizona, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of TWO MILLION AND NO/100 DOLLARS ($2,000,000.00) or, if less, the aggregate unpaid principal amount of all Revolving Advances made by the Lender to the Borrower under the Credit Agreement, together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement of even date herewith by and between the Lender and the Borrower (as the same may hereafter be amended, supplemented or restated from time to time, the "Credit Agreement"). The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement. This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Revolving Note referred to in the Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents, as therein defined, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. The Borrower, jointly and severally, hereby agree to pay all costs of collection, including attorneys' fees and legal expenses in the event this Note is not paid when due, whether or not legal proceedings are commenced. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. IN WITNESS WHEREOF, this Note is executed as of the date first above written. BORROWER: POORE BROTHERS, INC., a Delaware corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- POORE BROTHERS ARIZONA, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- TEJAS PB DISTRIBUTING, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- Exhibit B to Credit and Security Agreement TERM LOAN NOTE $500,000.00 PHOENIX, ARIZONA OCTOBER 23, 1998 For value received, the undersigned, POORE BROTHERS, INC., a Delaware corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING, INC., an Arizona corporation (individually and collectively, the "Borrower"), hereby jointly and severally promise to pay to the order of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Lender"), at its main office in Phoenix, Arizona, or at any other place designated at any time by the holder hereof, in lawful money of the United States of America and in immediately available funds, the principal sum of FIVE HUNDRED THOUSAND AND NO/100 DOLLARS ($500,000.00), together with interest on the principal amount hereunder remaining unpaid from time to time, computed on the basis of the actual number of days elapsed and a 360-day year, from the date hereof until this Note is fully paid at the rate from time to time in effect under the Credit and Security Agreement of even date herewith by and between the Lender and the Borrower (as the same may hereafter be amended, supplemented or restated from time to time, the "Credit Agreement"). The principal hereof and interest accruing thereon shall be due and payable as provided in the Credit Agreement. This Note may be prepaid only in accordance with the Credit Agreement. This Note is issued pursuant, and is subject, to the Credit Agreement, which provides, among other things, for acceleration hereof. This Note is the Term Loan Note referred to in the Credit Agreement. This Note is secured, among other things, pursuant to the Credit Agreement and the Security Documents, as therein defined, and may now or hereafter be secured by one or more other security agreements, mortgages, deeds of trust, assignments or other instruments or agreements. The Borrower, jointly and severally, hereby agree to pay all costs of collection, including attorneys' fees and legal expenses in the event this Note is not paid when due, whether or not legal proceedings are commenced. Presentment or other demand for payment, notice of dishonor and protest are expressly waived. IN WITNESS WHEREOF, this Note is executed as of the date first above written. BORROWER: POORE BROTHERS, INC., a Delaware corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- POORE BROTHERS ARIZONA, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- TEJAS PB DISTRIBUTING, INC., an Arizona corporation By: ------------------------------------- Name: Thomas W. Freeze ----------------------------------- Title: Vice President ---------------------------------- Exhibit D to Credit and Security Agreement PREMISES The Premises referred to in the Credit and Security Agreement are commonly known as and legally described as follows: 3500 S. La Cometa Drive Goodyear, AZ 85338 Lots 2A and 3A, of AIRPORT COMMERCENTER SUBDIVISION No. 3 AMENDED, according to the plat of record in the office of the County Recorder of Maricopa County, Arizona, recorded in Book 287 of Maps, Page 1. Exhibit E to Credit and Security Agreement EXAMPLE CALCULATION OF TERM LOAN PRINCIPAL PAYMENT INCREASE AND AMOUNT ---------------------------------------------------------------------- The following are examples of the recalculation of the Term Loan Note payments upon the exchange of all or any part of the Principal Amount of the Debentures for common stock of Poore Brothers, Inc.: EXAMPLE 1: On November 15, 1998, prior to the making of the Term Loan Advance, the Principal Amount of the Debentures is $2,700,000 and a Conversion Date occurs due to a Debenture Holder notifying Borrower of its election to exchange $500,000 of the Principal Amount for common stock.. On November 20, 1998, Lender makes the Term Loan Advance to Borrower. Therefore, the Term Loan Note level principal payment commencing on December 1, 1998 will be calculated as follows: $500,000 / $2,700,000 = .185; $41,667.67 - $27,777.78 = $13,889.89; $13,889.89 x .185 = $2,569.63; $27,777.78 + $2,569.63 = $30,347.41. Thus, the Term Loan Note level principal payment commencing on December 1, 1998 will be $30,347.41, and such level principal payment, plus interest, shall be payable on the first day of such month and shall continue on the first day of each succeeding month (subject to further increases following a subsequent Conversion Date) until the Term Loan Maturity Date or the Termination Date, whichever is earlier, at which time the entire outstanding principal balance of the Term Loan, all accrued and unpaid interest and all other charges shall be due and payable, or until the Term Loan is earlier paid in full. EXAMPLE 2: On February 5, 1999, the Principal Amount of the Debentures has been reduced to $2,200,000 due to the exchange referenced in example 1 above and a Conversion Date occurs due to a Debenture Holder notifying Borrower of its election to exchange $300,000 of the remaining Principal Amount for common stock. Therefore, the Term Loan Note level principal payment commencing on March 1, 1999 will be calculated as follows: $300,000 / $2,200,000 = .136; $41,667.67 - - $30,347.41 = $11,320.26; $11,320.26 x .136 = $1,539.56; $30,347.41 + $1,539.56 = $31,886.97. Thus, the Term Loan Note level principal payment commencing on March 1, 1999 will be $31,886.97, and such level principal payment, plus interest, shall be payable on the first day of such month and shall continue on the first day of each succeeding month (subject to further increases following a subsequent Conversion Date) until the Term Loan Maturity Date or the Termination Date, whichever is earlier, at which time the entire outstanding principal balance of the Term Loan, all accrued and unpaid interest and all other charges shall be due and payable, or until the Term Loan is earlier paid in full. EXAMPLE 3: On December 15, 1999, the Principal Amount of the Debentures has been reduced to $1,800,000 due to the exchanges referenced in examples 1 and 2 and the mandatory principal redemption installments made by Borrower, and a Conversion Date occurs due to a Debenture Holder notifying Borrower of its election to exchange $100,000 of the remaining Principal Amount for common stock. Therefore, the Term Loan Note level principal payment commencing on January 1, 2000 will be calculated as follows: $100,000 / $1,800,000 = .056; $41,667.67 - $31,886.97 = $9,780.70; $9,780.70 x .056 = $547.72; $31,886.97 + $547.72 = $32,434.69. Thus, the Term Loan Note level principal payment commencing on January 1, 2000 will be $32,434.69, and such level principal payment, plus interest, shall be payable on the first day of such month and shall continue on the first day of each succeeding month (subject to further increases following a subsequent Conversion Date) until the Term Loan Maturity Date or the Termination Date, whichever is earlier, at which time the entire outstanding principal balance of the Term Loan, all accrued and unpaid interest and all other charges shall be due and payable, or until the Term Loan is earlier paid in full. EXAMPLE 4: On February 1, 2000, the Principal Amount of the Debentures has been reduced to $1,600,000 due to the exchanges referenced in examples 1, 2 and 3 and the mandatory principal redemption installments made by Borrower, and a Conversion Date occurs due to a Debenture Holder notifying Borrower of its election to exchange the remaining Principal Amount of $1,600,000 for common stock. Therefore, the Term Loan Note level principal payment commencing on March 1, 2000 will be calculated as follows: $1,600,000 / $1,600,000 = 1; $41,667.67 - $32,434.69 = $9,232.98; $9,232.98 x 1 = $9,232.98; $32,434.69 + $9,232.98 = $41,667.67. Thus, the Term Loan Note level principal payment commencing on March 1, 2000 will be $41,667.67, and such level principal payment, plus interest, shall be payable on the first day of such month and shall continue on the first day of each succeeding month (subject to further increases following a subsequent Conversion Date) until the Term Loan Maturity Date or the Termination Date, whichever is earlier, at which time the entire outstanding principal balance of the Term Loan, all accrued and unpaid interest and all other charges shall be due and payable, or until the Term Loan is earlier paid in full. Schedule 2.11 to Credit and Security Agreement Sources and Uses of Funds
- ---------------------------------------------- ------------------------- ------------------------- SOURCES AMOUNT USES AMOUNT - -------------------------- -------------------- ------------------------- ------------------------- - -------------------------- -------------------- ------------------------- ------------------------- Advance on NBCI ROLOC $1,000,000.00 Payoff FCFC $344,526.54 - -------------------------- -------------------- ------------------------- ------------------------- NBCI Overadvance* 500,000.00 Cash to Tejas Snacks* 275,000.00 - -------------------------- -------------------- ------------------------- ------------------------- Cash on hand 400,000.00 Cash to Bob's, Inc.* 245,000.00 - -------------------------- -------------------- ------------------------- ------------------------- Cash to Prime Bank* 585,654.65 - -------------------------- -------------------- ------------------------- ------------------------- Closing costs - -------------------------- -------------------- ------------------------- ------------------------- Origination fee 25,000.00 - -------------------------- -------------------- ------------------------- ------------------------- Other payables - -------------------------- -------------------- ------------------------- ------------------------- Total Sources $1,900,000.00 Total Uses $1,475,181.19 - -------------------------- -------------------- ------------------------- ------------------------- Excess Availability $424,818.81 - -------------------------- -------------------- ------------------------- -------------------------
*to be funded upon compliance with conditions to Term Loan Advance Schedule 5.1 to Credit and Security Agreement Trade Names, Chief Executive Office, Principal Place of Business, and Locations of Collateral TRADE NAMES ----------- POORE BROTHERS IF WE DIDN'T TELL YOU - YOU WOULDN'T KNOW! AN INTENSELY DIFFERENT TASTE TEJAS SNACKS TEJAS DISTRIBUTING TEJAS MERCHANDISING BOB'S TEXAS STYLE POTATO CHIPS TEXAS STYLE POTATO CHIPS TEXAS STYLE LONGHORN STYLE COLORADO STYLE CHIEF EXECUTIVE OFFICE/PRINCIPAL PLACE OF BUSINESS -------------------------------------------------- 3500 S. La Cometa Drive Goodyear, AZ 85338 OTHER INVENTORY AND EQUIPMENT LOCATIONS --------------------------------------- NONE Schedule 5.4 to Credit and Security Agreement SUBSIDIARIES ------------ Poore Brothers Southeast, Inc., an Arizona corporation (no operations) Poore Brothers Texas, Inc., a Texas corporation (no operations) La Cometa Properties, Inc., an Arizona corporation (owns Premises) Poore Brothers Arizona, Inc., an Arizona corporation (manufactures and distributes snack foods) Poore Brothers Distributing, Inc., an Arizona corporation (distributes snack foods) Tejas PB Distributing, Inc., an Arizona corporation (distributes snack foods) Schedule 7.1 to Credit and Security Agreement PERMITTED LIENS ---------------
==================================================================================================================================== Creditor(s) Collateral Jurisdiction Filing Date Filing No. ----------- ---------- ------------ ----------- ---------- - ------------------------------------------------------------------------------------------------------------------------------------ Arnold Machinery Company of Arizona Lien on Specific Equipment Arizona 08/27/93 756209-0 Hyster Credit Company - ------------------------------------------------------------------------------------------------------------------------------------ First Interstate Equity Corporation Blanket Lien on all Assets Arizona 05/31/95 833113-0 Renaissance Capital Growth & Income (Lien on Inventory, Accounts and Fund III Inc. General Intangibles subordinated per Intercreditor Agreement) - ------------------------------------------------------------------------------------------------------------------------------------ First Interstate Equity Corporation Blanket Lien on all Assets Arizona 05/31/95 833114-0 Renaissance Capital Growth & Income (Lien on Inventory, Accounts and Fund III Inc. General Intangibles subordinated per Intercreditor Agreement) - ------------------------------------------------------------------------------------------------------------------------------------ First Interstate Equity Corporation Blanket Lien on all Assets Arizona 05/31/95 833115-0 Renaissance Capital Growth & Income (Lien on Inventory, Accounts and Fund III Inc. General Intangibles subordinated per Intercreditor Agreement) - ------------------------------------------------------------------------------------------------------------------------------------ Renaissance Capital Growth & Income Blanket Lien on all Assets Arizona 05/31/95 833117-0 Fund III Inc. (Lien on Inventory, Accounts and Wells Fargo Small Business General Intangibles subordinated per Investment Co. Inc. Intercreditor Agreement) - ------------------------------------------------------------------------------------------------------------------------------------ Bank One Arizona NA Blanket Lien on All Equipment, Arizona 08/02/95 841015-0 Except Specifically Released Equipment - ------------------------------------------------------------------------------------------------------------------------------------ Banc One Arizona Leasing Corporation Lien on Specific Leased Equipment Arizona 09/29/95 848668-0 (Precautionary Filing) - ------------------------------------------------------------------------------------------------------------------------------------ Finova Capital Corporation Lien on Specific Leased Equipment Arizona 12/18/95 858348-0 (Precautionary Filing) - ------------------------------------------------------------------------------------------------------------------------------------ Banc One Arizona Lease Corporation Lien on Specific Leased Equipment Arizona 12/22/95 859712-0 (Precautionary Filing) - ------------------------------------------------------------------------------------------------------------------------------------ LCA Lien on Specific Equipment Arizona 02/20/96 867041-0 - ------------------------------------------------------------------------------------------------------------------------------------ Associates Commercial Corporation Lien on Specific Leased Equipment Arizona 04/04/96 892074-0 LCA and All Chattel Paper, General Intangibles, Instruments, Accounts and Contract Rights Arising with Respect Thereto (Precautionary Filing) - ------------------------------------------------------------------------------------------------------------------------------------ Inter Tel Leasing Inc. Lien on Specific Leased Equipment Arizona 11/04/96 942274-0 (Precautionary Filing) - ------------------------------------------------------------------------------------------------------------------------------------ Finova Capital Corporation Lien on Specific Equipment Arizona 05/02/97 966189-0 - ------------------------------------------------------------------------------------------------------------------------------------ Morgan Guaranty Trust Company of Lien on Specific Real Property Maricopa County, AZ 06/05/97 97-0381371 New York - ------------------------------------------------------------------------------------------------------------------------------------ Finova Capital Corporation Lien on Specific Equipment Arizona 06/26/97 973996-0 - ------------------------------------------------------------------------------------------------------------------------------------ Finova Capital Corporation Lien on Specific Equipment Arizona 10/08/97 988041-0 ====================================================================================================================================
Schedule 7.2 to Credit and Security Agreement PERMITTED INDEBTEDNESS AND GUARANTIES INDEBTEDNESS Creditor Principal Amount Maturity Date Monthly Payment Collateral -------- ---------------- ------------- --------------- ---------- NONE GUARANTIES Primary Obligor Amount and Description of Obligation Beneficiary of Guaranty - --------------- ------------------------------------ ----------------------- Guaranteed ---------- NONE EX-10.4 5 PATENT AND TRADEMARK SECURITY AGREEMENT EXHIBIT 10.4 PATENT AND TRADEMARK SECURITY AGREEMENT THIS PATENT AND TRADEMARK SECURITY AGREEMENT (the "Agreement"), dated as of October 23, 1998, is made by and between POORE BROTHERS, INC., a Delaware corporation, POORE BROTHERS ARIZONA, INC., an Arizona corporation, POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation, and TEJAS PB DISTRIBUTING, INC., an Arizona corporation (individually and collectively, the "Debtor"), whose address and principal place of business is 3500 South La Cometa Drive, Goodyear, Arizona 85338, and NORWEST BUSINESS CREDIT, INC., a Minnesota corporation (the "Secured Party"), whose address and principal place of business is 3300 North Central Avenue, M.S. 9025, Phoenix, Arizona 85012-2501. RECITALS: WHEREAS, the Debtor and the Secured Party have entered into a Credit and Security Agreement of even date herewith (as the same may hereafter be amended, supplemented or restated from time to time, the "Credit Agreement") setting forth the terms on which the Secured Party may now or hereafter make certain loans or other financial accommodations to or for the account of the Debtor; WHEREAS, as a further condition to making any loan or other financial accommodation under the Credit Agreement or otherwise, the Secured Party has required the execution and delivery of this Agreement by the Debtor; NOW, THEREFORE, in consideration of the mutual covenants contained in the Credit Agreement and herein, and other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereby agree as follows: 1. Definitions. All terms defined in the Recitals hereto or in the Credit Agreement that are not otherwise defined herein shall have the meanings given to them therein. In addition, the following terms have the meanings set forth below: "Obligations" means each and every debt, liability and obligation of every type and description arising under or in connection with any Loan Document (as defined in the Credit Agreement) which the Debtor may now or at any time hereafter owe to the Secured Party, whether such debt, liability or obligation now exists or is hereafter created or incurred and whether it is or may be direct or indirect, due or to become due, absolute or contingent, primary or secondary, liquidated or unliquidated, independent, joint, several or joint and several, and including specifically, but not limited to, the Obligations (as defined in the Credit Agreement). "Patents" means all of the Debtor's right, title and interest in and to patents or applications for patents, fees or royalties with respect to each, and including, without limitation, the right to sue for past infringement and damages therefor, and licenses thereunder, all as presently existing or hereafter arising or acquired, including, without limitation, the patents listed on Exhibit "A" attached hereto and incorporated herein by this reference. "Trademarks" means all of the Debtor's right, title and interest in and to trademarks, service marks, trade dress, collective membership marks, the respective goodwill associated with each, and licenses thereunder, all as presently existing or hereafter arising or acquired, including, without limitation, the marks listed on Exhibit "B" attached hereto and incorporated herein by this reference. 2. Security Interest. The Debtor hereby irrevocably pledges and assigns to, and grants the Secured Party a security interest, with power of sale to the extent permitted by law (the "Security Interest"), in, to and under the Patents and the Trademarks to secure the prompt payment and performance of the Obligations. 3. Representations, Warranties and Agreements. The Debtor hereby represents, warrants and agrees as follows: (a) Existence; Authority. Each Debtor is a corporation, duly formed, validly existing and in good standing under the laws of its state of incorporation and is duly qualified to transact business in each jurisdiction where the nature of its business requires such qualification. Each Debtor has the corporate power and corporate authority to execute and deliver this Agreement and to perform its obligations under this Agreement. This Agreement has been duly and validly authorized by all necessary action, corporate or otherwise on behalf of each Debtor. The execution, delivery and performance of this Agreement by the Debtor have been duly authorized by all necessary action of the Debtor's board of directors, and if necessary its stockholders, and do not and will not violate the provisions of, or constitute a default under, any presently applicable law or its articles of incorporation or bylaws or any agreement presently binding on it. This Agreement has been duly executed and delivered by the Debtor and constitutes the Debtor's valid, binding and legally enforceable obligation. The correct names of the Debtor are Poore Brothers, Inc., Poore Brothers Arizona, Inc., Poore Brothers Distributing, Inc. and Tejas PB Distributing, Inc. The authorization, execution, delivery and performance of this Agreement do not require notification to, registration with, or consent or approval by, any federal, state or local regulatory body or administrative agency or any other Person. (b) Patents. Exhibit "A" accurately lists all Patents owned or controlled by the Debtor as of the date hereof and accurately reflects the existence and status of registrations pertaining to the Patents as of the date hereof. (c) Trademarks. Exhibit "B" accurately lists all Trademarks owned or controlled by the Debtor as of the date hereof and accurately reflects the existence and status of Trademarks and all registrations pertaining thereto as of the date hereof. (d) Title. The Debtor has absolute title to each Patent and each Trademark listed on Exhibits "A" and "B", free and clear of all security interests, liens and encumbrances, except the Security Interest and the Permitted Liens. The Debtor (i) will have, at the time the Debtor acquires any rights in Patents or Trademarks hereafter arising, absolute title to each such Patent or Trademark free and clear of all security interests, liens and encumbrances, except the Security Interest and the Permitted Liens, and (ii) will keep all Patents and Trademarks free and clear of all security interests, liens and encumbrances except the Security Interest and the Permitted Liens. -2- (e) No Sale. The Debtor will not sell or otherwise dispose of the Patents or Trademarks, or any interest therein, without the Secured Party's prior written consent. (f) Defense. The Debtor will at its own expense, and using its best efforts, protect and defend the Patents and Trademarks against all claims or demands of all persons other than the Secured Party. (g) Maintenance. The Debtor will at its own expense maintain the Patents and the Trademarks to the extent reasonably advisable in its business including, but not limited to, filing all applications to register and all affidavits and renewals possible with respect to issued registrations. The Debtor covenants that it will not abandon nor fail to pay any maintenance fee or annuity due and payable on any Patent or Trademark, nor fail to file any required affidavit in support thereof, without first providing the Secured Party: (i) sufficient written notice, as provided in the Credit Agreement, to allow the Secured Party to timely pay any such maintenance fees or annuity which may become due on any of said Patents or Trademarks, or to file any affidavit with respect thereto, and (ii) a separate written power of attorney or other authorization to pay such maintenance fees or annuities, or to file such affidavit, should such be necessary or desirable. (h) Secured Party's Right to Take Action. If the Debtor fails to perform or observe any of its covenants or agreements set forth in this Section 3, and if such failure continues for a period of ten (10) calendar days after the Secured Party gives the Debtor written notice thereof (or, in the case of the agreements contained in subsection (g), immediately upon the occurrence of such failure, without notice or lapse of time), or if the Debtor notifies the Secured Party that it intends to abandon a Patent or Trademark, the Secured Party may (but need not) perform or observe such covenant or agreement on behalf and in the name, place and stead of the Debtor (or, at the Secured Party's option, in the Secured Party's own name) and may (but need not) take any and all other actions which the Secured Party may reasonably deem necessary to cure or correct such failure. (i) Costs and Expenses. Except to the extent that the effect of such payment would be to render any loan or forbearance of money usurious or otherwise illegal under any applicable law, the Debtor shall pay the Secured Party on demand the amount of all moneys expended and all costs and expenses (including reasonable attorneys' fees) incurred by the Secured Party in connection with or as a result of the Secured Party's taking action under subsection (h) or exercising its rights under Section 6, together with interest thereon from the date expended or incurred by the Secured Party at the highest rate then applicable to any of the Obligations. (j) Power of Attorney. To facilitate the Secured Party's taking action under subsection (h) and exercising its rights under Section 6, the Debtor hereby irrevocably appoints (which appointment is coupled with an interest) the Secured Party, or its delegate, as the attorney-in-fact of the Debtor with the right (but not the duty) from time to time after any notice required pursuant to subsection (h), to create, prepare, complete, execute, deliver, endorse or file, in the name and on behalf of the Debtor, any and all instruments, documents, applications, financing statements, and other agreements and writings required to be obtained, executed, delivered or endorsed by the Debtor under this Section 3, or, necessary for the Secured Party, -3- after an Event of Default, to enforce or use the Patents or Trademarks or to grant or issue any exclusive or non-exclusive license under the Patents or Trademarks to any third party, or to sell, assign, transfer, pledge, encumber or otherwise transfer title in or dispose of the Patents or Trademarks to any third party. The Debtor hereby ratifies all that such attorney shall lawfully do or cause to be done by virtue hereof. The power of attorney granted herein shall terminate upon the termination of the Credit Agreement as provided therein and the payment and performance of all Obligations. 4. Debtor's Use of the Patents and Trademarks. The Debtor shall be permitted to control and manage the Patents and Trademarks, including the right to exclude others from making, using or selling items covered by the Patents and Trademarks and any licenses thereunder, in the same manner and with the same effect as if this Agreement had not been entered into, so long as no Event of Default occurs and remains uncured. 5. Events of Default. Each of the following occurrences shall constitute an event of default under this Agreement (herein called "Event of Default"): (a) an Event of Default, as defined in the Credit Agreement, shall occur; or (b) the Debtor shall fail promptly to observe or perform any covenant or agreement herein binding on it; or (c) any of the representations or warranties contained in Section 3 shall prove to have been false or misleading in any material respect when made. 6. Remedies. Upon the occurrence of, and during the continuation of any Event of Default, Secured Party may, without notice (except as set forth in the Credit Agreement) or demand upon Debtor, declare any part or all of the Obligations immediately due and payable and Secured Party shall have the following rights and remedies, to the extent permitted by applicable law, in addition to all other rights and remedies of a secured party under the UCC: (a) The Secured Party may exercise any or all remedies available under the Credit Agreement. (b) The Secured Party may sell, assign, transfer, pledge, encumber or otherwise dispose of the Patents and Trademarks. (c) The Secured Party may enforce the Patents and Trademarks and any licenses thereunder, and if Secured Party shall commence any suit for such enforcement, the Debtor shall, at the request of Secured Party, do any and all lawful acts and execute any and all proper documents required by Secured Party in aid of such enforcement. (d) The Secured Party may transfer to or register in the name or Secured Party or any of its nominees all or any of the Patents and Trademarks. (e) The Secured Party may exercise any and all rights of collection, conversion and exchange and any and all other rights, privileges, options or powers of Debtor pertaining or relating to the Patents and Trademarks, as though Secured Party were the absolute owner thereof. -4- (f) The Secured Party may collect and receive any payments, license fees, royalties, dividends or distributions of any kind whatsoever with respect to the Patents and Trademarks and apply the same in satisfaction of the Obligations. (g) The Secured Party may sell all or any of the Patents and Trademarks, either at public auction or private sale, with or without demand for performance or advertisement of the time or place of sale or the adjournment thereof or otherwise, and deliver the Patents and Trademarks sold to the purchaser or purchasers, without right of redemption (all of which are hereby waived by Debtor), for cash, credit or other property, for immediate or future delivery, and for such price and on such terms as Secured Party in its sole discretion may determine. Secured Party reserves the right to reject any and all bids at any auction or sale which, in its discretion, it shall deem inadequate. At any auction or sale, Secured Party may bid for and purchase, free from any right of equity or redemption (which are hereby waived by Debtor, to the extent permitted by law), any of the Patents and Trademarks that are offered for sale and Secured Party, upon compliance with the terms of sale, may hold, retain and dispose of the purchased Patents and Trademarks without further accountability therefor. In the event that Secured Party has and exercises remedies under the UCC pursuant to and in accordance with the terms of this Section 6, any notice of sale required by law shall be deemed "commercially reasonable" if such notice is given at least ten (10) days prior to the time of such sale. Secured Party shall not have any duty to exercise any of the rights, privileges, options or powers conferred on Secured Party under this Agreement or to sell or otherwise dispose of the Patents and Trademarks and shall not be responsible for any failure or delay in so doing. 7. Miscellaneous. This Agreement can be waived, modified, amended, terminated or discharged, and the Security Interest can be released, only explicitly in a writing signed by the Secured Party. A waiver signed by the Secured Party shall be effective only in the specific instance and for the specific purpose given. Mere delay or failure to act shall not preclude the exercise or enforcement of any of the Secured Party's rights or remedies. All rights and remedies of the Secured Party shall be cumulative and may be exercised singularly or concurrently, at the Secured Party's option, and the exercise or enforcement of any one such right or remedy shall neither be a condition to nor bar the exercise or enforcement of any other right or remedy. The Secured Party shall not be obligated to preserve any rights the Debtor may have against prior parties, to realize on the Patents and Trademarks at all or in any particular manner or order, or to apply any cash proceeds of Patents and Trademarks in any particular order of application. This Agreement shall be binding upon and inure to the benefit of the Debtor and the Secured Party and their respective participants, successors and assigns and shall take effect when signed by the Debtor and delivered to the Secured Party, and the Debtor waives notice of the Secured Party's acceptance hereof. The Secured Party may execute this Agreement if appropriate for the purpose of filing, but the failure of the Secured Party to execute this Agreement shall not affect or impair the validity or effectiveness of this Agreement. A carbon, photographic or other reproduction of this Agreement or of any financing statement signed by the Debtor shall have the same force and effect as the original for all purposes of a financing statement. This Agreement shall be governed by the internal law of the State of Arizona, without regard to its conflicts of law provisions. If any provision or application of this Agreement is held unlawful or unenforceable in any respect, such illegality or unenforceability shall not affect other provisions or applications which can be given effect and this Agreement shall be construed as if the unlawful or unenforceable provision -5- or application had never been contained herein or prescribed hereby. All representations and warranties contained in this Agreement shall survive the execution, delivery and performance of this Agreement and the creation and payment of the Obligations. THE PARTIES WAIVE ANY RIGHT TO TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED ON OR PERTAINING TO THIS AGREEMENT. [THE REMAINDER OF THIS PAGE IS LEFT INTENTIONALLY BLANK] -6- IN WITNESS WHEREOF, the parties have executed this Patent and Trademark Security Agreement as of the date written above. SECURED PARTY: NORWEST BUSINESS CREDIT, INC., a Minnesota corporation By:____________________________ Name: Darcy Della Flora Title: Vice President DEBTOR: POORE BROTHERS, INC., a Delaware corporation By:____________________________ Name: Thomas W. Freeze Title: Vice President POORE BROTHERS ARIZONA, INC., an Arizona corporation By:____________________________ Name: Thomas W. Freeze Title: Vice President POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation By:____________________________ Name: Thomas W. Freeze Title: Vice President TEJAS PB DISTRIBUTING, INC., an Arizona corporation By:____________________________ Name: Thomas W. Freeze Title: Vice President _______________________________ Witness -7- STATE OF ARIZONA ) ) County Of Maricopa ) The foregoing instrument was acknowledged before me this __ day of November, 1998 by Thomas W. Freeze, the Vice President of POORE BROTHERS, INC., a Delaware corporation, on behalf of the corporation. ________________________________ Notary Public Commission Expiration Date: ___________________________ STATE OF ARIZONA ) ) County Of Maricopa ) The foregoing instrument was acknowledged before me this __ day of November, 1998 by Thomas W. Freeze, the Vice President of POORE BROTHERS ARIZONA, INC., an Arizona corporation, on behalf of the corporation. ________________________________ Notary Public Commission Expiration Date: ___________________________ -8- STATE OF ARIZONA ) ) County Of Maricopa ) The foregoing instrument was acknowledged before me this __ day of November, 1998 by Thomas W. Freeze, the Vice President of POORE BROTHERS DISTRIBUTING, INC., an Arizona corporation, on behalf of the corporation. ________________________________ Notary Public Commission Expiration Date: __________________________ STATE OF ARIZONA ) ) County Of Maricopa ) The foregoing instrument was acknowledged before me this __ day of November, 1998 by Thomas W. Freeze, the Vice President of TEJAS PB DISTRIBUTING, INC., an Arizona corporation, on behalf of the corporation. ________________________________ Notary Public Commission Expiration Date: __________________________ -9- STATE OF ARIZONA ) ) County Of Maricopa ) The foregoing instrument was acknowledged before me this __ day of November, 1998 by Darcy Della Flora, a Vice President of NORWEST BUSINESS CREDIT, INC., a Minnesota corporation, on behalf of the corporation. ________________________________ Notary Public Commission Expiration Date: __________________________ -10- EXHIBIT A --------- UNITED STATES ISSUED PATENTS ---------------------------- Title Patent Number Issue Date ----- ------------- ---------- FOREIGN ISSUED PATENTS ---------------------- Title Country Patent Number Issue Date ----- ------- ------------- ---------- EXHIBIT B --------- UNITED STATES TRADEMARK APPLICATIONS, ------------------------------------- ISSUED TRADEMARKS, AND SERVICE MARKS ------------------------------------ REGISTRATIONS ------------- Mark Registration Number Registration Date ---- ------------------- ----------------- [GRAPHIC OMITTED] 1,911,595 August 15, 1995 [GRAPHIC OMITTED] 1,911,595 August 15, 1995 POORE BROTHERS 2,117,466 December 2, 1997 IF WE DIDN'T TELL YOU - YOU WOULDN'T KNOW! 2,137,865 February 17, 1998 TEXAS STYLE (and logo) 1,453,343 February 14, 1991 TEXAS STYLE 1,467,561 February 14, 1991 APPLICATIONS ------------
Mark Mark Type Application Serial Number File Date ---- --------- ----------- ------------- --------- Case No. -------- AN INTENSELY DIFFERENT TASTE Trademark 4927.34 75/455,988 March 24, 1998
3 EX-10.5 6 WARRANT TO PURCHASE COMMON STOCK EXHIBIT 10.5 THIS WARRANT AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT. WARRANT TO PURCHASE COMMON STOCK OF POORE BROTHERS, INC. Date of Issuance: November 4, 1998 Warrant No. 3 This certifies that, for value received, POORE BROTHERS, INC., a Delaware corporation (the "Company"), grants to Norwest Business Credit, Inc., or registered assigns (the "Registered Holder"), the right to subscribe for and purchase from the Company, at the price of $0.9375 per share, as such price may be adjusted from time to time (the "Exercise Price"), from and after 9:00 a.m., Phoenix time, on the date of issuance of this Warrant (the "Exercise Commencement Date") and to and including 5:00 p.m., Phoenix time, on November 4, 2003 (the "Expiration Date"), fifty thousand (50,000) shares, as such number of shares may be adjusted from time to time (the "Warrant Shares"), of the Company's common stock, par value $0.01 per share (the "Common Stock"), subject to the provisions and upon the terms and conditions herein set forth. The Exercise Price and the number of Warrant Shares purchasable upon exercise of this Warrant are subject to adjustment from time to time as provided in Section 7 hereof. Section 1. Registration. The Company shall register this Warrant, upon records to be maintained by the Company for that purpose (the "Warrant Records"), in the name of the Registered Holder. The Company may deem and treat the Registered Holder as the absolute owner of this Warrant for the purpose of any exercise hereof or any distribution to the Registered Holder, and for all other purposes, and the Company shall not be affected by any notice to the contrary. Section 2. Registration of Transfers and Exchanges. (a) Subject to Section 10 hereof, the Company shall register the transfer of this Warrant, in whole or in part, upon records to be maintained by the Company for that purpose, upon surrender of this Warrant, with the Form of Assignment attached hereto completed and duly endorsed by the Registered Holder, to the Company at the office specified in or pursuant to Section 3(b). Upon any such registration of transfer, a new Warrant, in substantially the form of this Warrant, evidencing the Common Stock purchase rights so transferred shall be issued to the transferee and a new Warrant, in similar form, evidencing the remaining Common Stock purchase rights not so transferred, if any, shall be issued to the Registered Holder. (b) This Warrant is exchangeable, upon the surrender hereof by the Registered Holder at the office of the Company specified in or pursuant to Section 3(b) hereof, for new Warrants, in substantially the form of this Warrant evidencing, in the aggregate, the right to purchase the number of Warrant Shares which may then be purchased hereunder, each of such new Warrants to have the same date as the date of issuance set forth in this Warrant and to represent the right to purchase such number of Warrant Shares as shall be designated by the Registered Holder at the time of such surrender. Section 3. Duration and Exercise of this Warrant. (a) This Warrant shall be exercisable by the Registered Holder in whole, or from time to time in part, on any business day before 5:00 p.m., Phoenix time, during the period beginning on the Exercise Commencement Date and ending on the Expiration Date. At 5:00 p.m., Phoenix time, on the Expiration Date, this Warrant, to the extent not previously exercised, shall become void and of no further force or effect. 4 (b) Subject to Sections 4 and 10 hereof, upon exercise or surrender of this Warrant, with the Form of Election to Purchase attached hereto completed and duly endorsed by the Registered Holder, to the Company at its office at 3500 South La Cometa Drive, Goodyear, Arizona 85338, Attention: Chief Financial Officer, or at such other address as the Company may specify in writing to the Registered Holder, and upon payment of the Exercise Price multiplied by up to the number of Warrant Shares then issuable upon exercise of this Warrant in lawful money of the United States of America (except as otherwise provided for in Section 3(c) below), all as specified by the Registered Holder in the Form of Election to Purchase, the Company shall promptly (and in any event, no later than three (3) days after the receipt by the Company of a completed Form of Election to Purchase) issue and cause to be delivered to or upon the written order of the Registered Holder, and in such name or names as the Registered Holder may designate, a certificate for the Warrant Shares issued upon such exercise. Subject to Section 10 hereof, any person so designated in the Form of Election to Purchase, duly endorsed by the Registered Holder, as the person to be named on the certificates for the Warrant Shares, shall be deemed to have become holder of record of such Warrant Shares, evidenced by such certificates, as of the Date of Exercise (as hereinafter defined) of such Warrant. (c) The Registered Holder may pay the applicable Exercise Price pursuant to Section 3(b), at the option of the Registered Holder, either (i) in cash or by cashier's or certified bank check payable to the Company in an amount equal to the Aggregate Exercise Price (as hereinafter defined), (ii) by wire transfer of immediately available funds in an amount equal to the Aggregate Exercise Price to the account which shall be indicated in writing by the Company to the Registered Holder, or (iii) by written notice to the Company that the Registered Holder is exercising this Warrant and is authorizing the Company to withhold from the issuance to such Registered Holder that number of Warrant Shares which when multiplied by the Market Price (as hereinafter defined) for the Common Stock on the Date of Exercise is equal to the Aggregate Exercise Price. Any Warrant Shares withheld by the Company in connection with an exercise of this Warrant pursuant to clause (iii) of this Section 3(c) shall no longer be issuable under this Warrant and this Warrant shall be deemed to be automatically amended to reduce the number of Warrant Shares issuable hereunder by an amount equal to the amount of such withheld Warrant Shares. (d) The "Date of Exercise" of any Warrant means the date on which the Company shall have received both: (i) this Warrant, with the Form of Election to Purchase attached hereto appropriately completed and duly endorsed; and (ii) either payment of the Aggregate Exercise Price as provided herein or a designation on the Form of Election to Purchase referred to (i) above that the Registered Holder has elected to make a cashless exercise as permitted in Paragraph (iii) of Section 3(c). (e) This Warrant shall be exercisable, either as an entirety or for part only of the number of Warrant Shares issuable upon the exercise hereof; provided, however, that no partial exercise of this Warrant shall involve less than 5,000 Warrant Shares unless the aggregate remaining Warrant Shares available for purchase pursuant to this Warrant is less than 5,000, in which case this Warrant shall be exercisable for only all such remaining Warrant Shares. If fewer than all of the Warrant Shares evidenced by this Warrant are exercised at any time, the Company shall issue, at its expense, a new Warrant, in substantially the form of this Warrant, for the remaining number of Warrant Shares evidenced by this Warrant, if any. (f) Definition of Market Price. As used in this Warrant, the term "Market Price" shall mean the closing price per share of the Common Stock on the Date of Exercise. The closing price shall be the last reported sale price or, in case no such sale takes place on such day, the average of the reported closing bid and asked prices, in either case on the New York Stock Exchange, or, if the shares of the Common Stock are not listed or admitted to trading on the New York Stock Exchange, on the principal national securities exchange on which the shares are listed or admitted to trading, or, if the shares are not so listed or admitted to trading, the average of the highest reported bid and lowest reported asked prices as furnished by the National Association of Securities Dealers, Inc. (the "NASD") through NASDAQ or through a similar organization if NASDAQ is no longer reporting such information or as reported on the NASD's OTC Electronic Bulletin Board ("OTC"). If shares of the Common Stock are not listed or admitted to trading on any exchange or quoted through NASDAQ or any similar organization or reported on OTC, the Market Price shall be deemed to be the fair value thereof determined in good faith by the Company's Board of Directors as expressed by a resolution of such board as of a date which is within fifteen (15) days of the date as of which the determination is to be made. 5 (g) Definition of Aggregate Exercise Price. As used in this Warrant, the term "Aggregate Exercise Price" means the product of the Exercise Price multiplied by the number of Warrant Shares being purchased upon an exercise (in whole or in part) of this Warrant pursuant to this Section 3. Section 4. Payment of Taxes and Expenses. (a) The Company will pay all expenses and taxes (other than any federal or state income tax or similar obligations of the Registered Holder) and other governmental charges attributable to the preparation, execution, issuance and delivery of this Warrant, any new Warrant and the Warrant Shares; provided, however, that the Company shall not be required to pay any tax in respect of the transfer of this Warrant or the Warrant Shares, or the issuance or delivery of certificates for Warrant Shares upon the exercise of this Warrant, to a person or entity other than a Registered Holder or an Affiliate (as hereinafter defined) of such Registered Holder. (b) An "Affiliate" of any person or entity means any other person or entity directly or indirectly controlling, controlled by or under direct or indirect common control with such person or entity. Section 5. Mutilated or Missing Warrant Certificate. If this Warrant shall be mutilated, lost, stolen or destroyed, upon request by the Registered Holder, the Company will issue, in exchange for and upon cancellation of the mutilated Warrant, or in substitution for the lost, stolen or destroyed Warrant, a new Warrant, in substantially the form of this Warrant, of like tenor, but, in the case of loss, theft or destruction, only upon receipt of evidence reasonably satisfactory to the Company of such loss, theft or destruction of this Warrant and, if requested by the Company, indemnity also reasonably satisfactory to it. Section 6. Reservation, Listing and Issuance of Warrant Shares. (a) The Company will at all times have authorized, and reserve and keep available, free from preemptive rights, for the purpose of enabling it to satisfy any obligation to issue Warrant Shares upon the exercise of the rights represented by this Warrant, the number of Warrant Shares deliverable upon exercise of this Warrant. The Company will, at its expense, use its best efforts to cause such shares to be included in or listed on (subject to issuance or notice of issuance of Warrant Shares) all markets or stock exchanges in or on which the Common Stock is included or listed not later than the date on which the Common Stock is first included or listed on any such market or exchange and will thereafter maintain such inclusion or listing of all shares of Common Stock from time to time issuable upon exercise of this Warrant. (b) Before taking any action which could cause an adjustment pursuant to Section 7 hereof reducing the Exercise Price below the par value of the Warrant Shares, the Company will take any corporate action which may be necessary in order that the Company may validly and legally issue at the Exercise Price, as so adjusted, Warrant Shares that are fully paid and non-assessable. (c) The Company covenants that all Warrant Shares will, upon issuance in accordance with the terms of this Warrant, be (i) duly authorized, fully paid and nonassessable, and (ii) free from all taxes with respect to the issuance thereof and from all liens, charges and security interests. Section 7. Adjustments of Exercise Price and Number of Warrant Shares. (a) The Exercise Price at which Warrant Shares may be purchased hereunder, and the number of Warrant Shares to be purchased upon exercise hereof, are subject to change or adjustment from time to time as hereinafter provided. Upon each adjustment of such Exercise Price pursuant to this Section 7, the holder of this Warrant shall thereafter prior to the Expiration Date thereof be entitled to purchase, at the Exercise Price resulting from such adjustment, the number of Warrant Shares obtained by multiplying the Exercise Price in effect immediately prior to such adjustment by the number of Warrant Shares issuable upon exercise of such Warrant immediately prior to such adjustment and dividing the product thereof by the Exercise Price resulting from such adjustment. 6 (b) Adjustment for Certain Special Dividends. In case the Company shall declare a dividend upon the Common Stock payable otherwise than out of earnings or earned surplus, determined in accordance with generally accepted accounting principles, and otherwise than in Common Stock, the Exercise Price in effect immediately prior to the declaration of such dividend shall be reduced by an amount equal, in the case of a dividend in cash, to the amount per share of the Common Stock so declared as payable otherwise than out of earnings or earned surplus or, in the case of any other dividend, to the fair value per share of the Common Stock of the property so declared as payable otherwise than out of earnings or earned surplus, as determined, in good faith and in the exercise of reasonable business judgment, by the board of directors of the Company on a non-discriminatory basis. For the purposes of the foregoing, a dividend other than in cash shall be considered payable out of earnings or earned surplus (other than revaluation or paid-in-surplus) only to the extent that such earnings or earned surplus are charged an amount equal to the fair value of such dividend as determined, reasonably and in good faith, by the board of directors of the Company on a non-discriminatory basis. Such reductions shall take effect as of the date on which a record is taken for the purpose of such dividend, or, if a record is not taken, the date as of which the holders of Common Stock of record entitled to such dividend are determined. (c) Subdivisions or Combinations of Stock. In case the Company shall at any time subdivide the outstanding shares of Common Stock into a greater number of shares, the Exercise Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock shall be combined into a smaller number of shares, the Exercise Price in effect immediately prior to such combination shall be proportionately increased. (d) Adjustments for Consolidation, Merger, Sale of Assets, Reorganization, etc. In case the Company (i) consolidates with or merges into any other corporation and is not the continuing or surviving corporation of such consolidation or merger, or (ii) permits any other corporation to consolidate with or merge into the Company and the Company is the continuing or surviving corporation but, in connection with such consolidation or merger, the Common Stock is changed into or exchanged for stock or other securities of any other corporation or cash or any other assets, or (iii) transfers all or substantially all of its properties and assets to any other corporation, or (iv) effects a capital reorganization or reclassification of the capital stock of the Company in such a way that holders of the Common Stock shall be entitled to receive stock, securities, cash and/or assets with respect to or in exchange for the Common Stock, then, and in each such case, proper provision shall be made so that the holder of this Warrant, upon the exercise of this Warrant at any time after the consummation of such consolidation, merger, transfer, reorganization or reclassification, shall be entitled to receive (at the aggregate Exercise Price in effect for all Warrant Shares issuable upon such exercise immediately prior to such consummation as adjusted to the time of such transaction), in lieu of shares of Common Stock issuable upon such exercise prior to such consummation, the stock and other securities, cash and/or assets to which such holder would have been entitled upon such consummation if such holder had so exercised such Warrant immediately prior thereto (subject to adjustments subsequent to such corporate action as nearly equivalent as possible to the adjustments provided for in this Section 7). (e) Notice of Adjustment. Upon any adjustment of any Exercise Price, then and in each such case the Company shall promptly deliver to the registered holder of this Warrant written notice consisting of a certificate of the chief financial officer of the Company, which notice shall state the Exercise Price resulting from such adjustment, and the increase or decrease, if any, in the number of shares purchasable at such price upon the exercise of this Warrant, setting forth in reasonable detail the method of calculation and the facts upon which such calculation is based. Section 8. No Rights or Liabilities as a Stockholder. The Registered Holder shall not be entitled to vote or be deemed the holder of Common Stock or any other securities of the Company which may at any time be issuable on the exercise hereof, nor shall anything contained herein be construed to confer upon the holder of this Warrant, as such, the rights of a stockholder of the Company or the right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or give or withhold consent to any corporate action or to receive notice of meetings or other actions affecting stockholders (except as provided herein), or to receive dividends or subscription rights or otherwise, until the Date of Exercise shall have occurred. No provision of this Warrant, in the absence of affirmative action by the Registered Holder hereof to purchase shares of Common Stock, and no mere enumeration herein of the rights and privileges of the 7 Registered Holder, shall give rise to any liability of such holder for the Exercise Price or as a stockholder of the Company, whether such liability is asserted by the Company or by creditors of the Company. Section 9. Fractional Warrant Shares. The Company shall not be required to issue fractions of Warrant Shares upon exercise of this Warrant (or specified portion hereof) or to distribute certificates which evidence fractional Warrant Shares. If any fraction of a Warrant Share would, except for the provisions of this Section 9, be issuable on the exercise of this Warrant, the Company shall pay to the Registered Holder an amount in cash equal to the Market Price of a Warrant Share as of the Date of Exercise, multiplied by such fraction. Section 10. Transfer Restrictions; Registration of the Warrant and Warrant Shares. (a) Neither the Warrant nor the Warrant Shares have been registered under the Act. The Registered Holder, by acceptance hereof, represents that it is acquiring this Warrant to be issued to it for its own account and not with a view to the distribution thereof, and agrees not to sell, transfer, pledge or hypothecate this Warrant, any purchase rights evidenced hereby or any Warrant Shares unless a registration statement is effective for this Warrant or the Warrant Shares under the Act or in the opinion of such Registered Holder's counsel reasonably satisfactory to the Company, a copy of which opinion shall be delivered to the Company, such transaction is exempt from the registration requirements of the Act. (b) Subject to the provisions of the following paragraph of this Section 11, each Certificate for Warrant Shares shall be stamped or otherwise imprinted with a legend in substantially the following form: THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR APPLICABLE STATE SECURITIES LAWS AND MAY NOT BE OFFERED FOR SALE, SOLD, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE ACT, OR AN OPINION OF COUNSEL, SATISFACTORY TO THE ISSUER HEREOF, TO THE EFFECT THAT REGISTRATION IS NOT REQUIRED UNDER THE ACT. (c) The restrictions and requirements set forth in the foregoing paragraph shall apply with respect to Warrant Shares unless and until such Warrant Shares are sold or otherwise transferred pursuant to an effective registration statement under the Act or are otherwise no longer subject to the restrictions of the Act, at which time the Company agrees to promptly cause such restrictive legends to be removed and stop transfer restrictions applicable to such Warrant Shares to be rescinded. (d) The Company will comply with the reporting requirements of Sections 13 and 15(d) of the Securities Exchange Act of 1934, as amended (the "1934 Act"), so long as it is required to do so pursuant to the 1934 Act. Until the earlier of (i) two years from the issuance date of this Warrant, or (ii) the sale by the Registered Holder of all of the Warrant Shares and the termination of this Warrant, the Company shall comply with the disclosure obligations set forth Paragraph (c) of Rule 144 promulgated under the Act (Rule 144") or any successor rule or regulation thereto or any statute hereafter adopted to replace or establish the exemption that is now covered by Rule 144. The Company also will cooperate with the Registered Holder and with each holder of any Warrant Shares in supplying such information as may be necessary for any such holders to complete and file any information reporting forms presently or hereafter required by the Securities and Exchange Commission as a condition to the availability of an exemption from the Act for the sale of restricted securities. Section 11. Registration Rights. The Company covenants and agrees as follows: (a) Definitions. For purposes of this Section 11: 8 (i) The term "Holder" means each of the persons who at the time holds Registrable Securities or a warrant or warrants (including this Warrant) to purchase Registrable Securities. (ii) The terms "register," "registered" and "registration" refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and such registration statement or document becoming effective. (iii) The term "Registrable Securities" means the Warrant Shares issuable upon the exercise of this Warrant; provided, however, that any such securities shall cease to be Registrable Securities when (i) one or more registration statements with respect to the sale of such securities shall have become effective under the Act and all such securities shall have been disposed of in accordance with the plan of distribution set forth therein; (ii) such securities shall have been disposed of in accordance with Rule 144 promulgated under the Act, or any successor rule or regulation thereto, or any statute hereafter adopted to replace or to establish the exemption that is now covered by said Rule 144; (iii) such securities may be sold by a Holder in a transaction pursuant to the provisions of Rule 144 provided that such rule shall be at such time available for the sale of all such securities which the Holder at such time desires to sell; or (iv) such securities may otherwise be sold to the public in a transaction not requiring registration under the Act. (v) The term "Registration Expenses" means all registration, qualification and filing fees, printing expenses, escrow fees and blue sky fees, fees and disbursements of counsel for the Company and of the Company's independent certified public accountants, in each case incident to or required by the registration under this Warrant, and any other fees and expenses of the registration under this Warrant which are not Selling Expenses. (vi) The term "Selling Expenses" means all underwriting discounts, selling commissions and stock transfer taxes applicable to the securities registered by the Holders and all fees and disbursements of counsel for any Holder. (vii) All other capitalized terms used in this Section that are not defined herein shall have the meaning otherwise given in this Warrant. (b) Piggyback Registration Rights. (i) If, at any time or from time to time, the Company shall determine to register any of its Common Stock, either for its own account or for the account of a security holder or holders, other than (A) a registration relating solely to stock option or employee benefit plans or (B) a registration relating solely to a transaction covered by Rule 145 under the Act, the Company will (X) promptly give the Holders written notice thereof, and (Y) include in such registration, and in any underwriting involved therein, all of the Registrable Securities specified in a written request or requests made by a Holder or Holders within ten (10) days after receipt of such written notice from the Company. (ii) If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holder as part of the written notice given pursuant to Paragraph (b)(i) of this Section 11. In such event, the right of each Holder to registration pursuant to this Section 11 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of the Registrable Securities owned by such Holder in the underwriting to the extent provided under this Section 11. If a Holder proposes to distribute its Registrable Securities through such underwriting it shall (together with the Company and any other holders of securities of the Company distributing their securities through such underwriting) enter into an underwriting agreement with the managing or lead managing underwriter selected by the Company in the form customarily used by such underwriter with such changes thereto as the parties thereto shall agree. Notwithstanding any other provision of this Section 11, if the managing or lead managing underwriter determines that market factors require that the number of Registrable Securities and other securities requested to be included in the registration be limited, the managing or lead managing underwriter may reduce the number of Registrable Securities and securities of any other holders of securities to be included in the registration. If the registration includes an underwritten primary registration on behalf of the Company, the reduction shall be 9 taken (i) first from and to the extent of the securities requested to be included in such registration by the Holders and the holders of any other securities pro rata according to the number of securities requested by the Holders and such holders to be included in the registration, and (ii) thereafter from the securities to be registered on behalf of the Company. If the registration consists only of any underwritten secondary registration on behalf of holders of securities of the Company, the reduction shall be taken (i) first from and to the extent of the securities requested to be included in the such registration by the Holders and any other holders of securities included in the registration other than pursuant to demand registration rights pro rata according to the number of securities requested by the Holders and such other holders to be included in the registration and (ii) thereafter from securities, if any, to be registered on behalf of holders of securities included in the registration pursuant to demand registration rights. The Company shall advise any Holders and other holders participating in such underwriting as to any such limitation and the number of shares that may be included in the registration and underwriting. If a Holder disapproves of the terms of such underwriting, such Holder may elect to withdraw therefrom by written notice to the Company and the managing or lead underwriter. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. (iii) IN ACCORDANCE WITH PARAGRAPH (b)(i) OF THIS SECTION 11, THE COMPANY HEREBY GIVES NOTICE TO THE HOLDER OF THIS WARRANT THAT THE COMPANY HAS FILED A REGISTRATION STATEMENT ON FORM S-3 (THE "FORM S-3") WITH THE COMMISSION FOR THE REGISTRATION OF SHARES OF THE COMPANY'S COMMON STOCK, WHICH REGISTRATION STATEMENT HAS NOT YET BEEN DECLARED EFFECTIVE BY THE COMMISSION. SHOULD THE HOLDER OF THIS WARRANT ELECT TO INCLUDE THE REGISTRABLE SECURITIES IN SUCH REGISTRATION (SUCH REGISTRATION BEING HEREINAFTER REFERRED TO AS THE "FORM S-3 REGISTRATION") PURSUANT TO THIS SECTION 11, THEN THE HOLDER MUST DELIVER WRITTEN NOTICE OF SUCH ELECTION TO THE COMPANY IN ACCORDANCE WITH PARAGRAPH (b)(i) ABOVE. (iv) The Company may withdraw a registration for which registration rights have been exercised pursuant to this Section 11 at any time prior to the time it becomes effective. (c) Contingent Demand Registration Right. (i) If both (A) the Holder elects to include the Registrable Securities in the Form S-3 Registration in accordance with the provisions of Subsection (b) of this Section 11, and (B) thereafter, the Company cancels the Form S-3 Registration prior to the Form S-3 being declared effective (the effective date of such cancellation being hereinafter referred to as the "Registration Cancellation Date"), then the Holders of a majority of the Registrable Securities shall have a one-time demand registration right as set forth below in Paragraphs (ii) through (vi) this Subsection (c). (ii) Subject to the satisfaction of the conditions set forth in Paragraph (i) above, if, at any time during the period beginning on the Registration Cancellation Date and expiring on the date which is two hundred and seventy days (270) after the date of issuance of this Warrant, the Company shall receive a written request from the Holders of a majority of the Registrable Securities that the Company file a registration statement under the Act covering such number of Registrable Securities specified by them, then the Company shall, subject to the limitations of this Section 11(c), use reasonable efforts consistent with the terms contained in this Section 11 to effect the registration under the Act of all such Registrable Securities as soon as practicable thereafter; provided, however, that any registration request pursuant to this Paragraph (ii) must be made by the Holder or Holders prior to the expiration of a period of two hundred and seventy (270) days after the date of issuance of this Warrant. (iii) The Company shall not be obligated to take any action to effect any registration, qualification or compliance pursuant to this Section 11(c), (A) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required by the Act, or (B) if, within ten (10) days after receipt by the Company of a request for registration pursuant to Section 11(c)(ii), the Company gives notice to the Holder or Holders so requesting such registration that it is engaged, or has a bona fide intention to engage, within ninety (90) days of the date of 10 such request, in a firmly underwritten public offering as to which each Holder will be entitled to include Registrable Securities pursuant to Section 11(b) hereof, and the Company does engage in such firmly underwritten public offering in which each Holder will be entitled to include Registrable Securities pursuant to Section 11(b) hereof within said 90-day period or such longer period as may be required to complete such offering. (iv) If a registration is requested by a Holder or Holders pursuant to Section 11(c)(ii), the Company may include in such registration securities for offering by the Company and any other holder of securities who has the right to request the Company to register securities of the Company in such registration. (v) Notwithstanding anything to the contrary contained herein, the Company need not cause a registration statement filed pursuant to the provisions of this Section 11(c) to become effective under the Securities Act on more than one (1) occasion; provided, however, that any registration requested by a Holder or Holders pursuant to this Section 11(c) which shall not have become effective or remained effective in accordance with the provisions of this Section 11(c) shall not be deemed to be a registration for any purpose hereunder. (vi) Notwithstanding the foregoing, if the Company shall furnish to the Holders a certificate signed by the Chief Executive Officer of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company may direct that a registration pursuant to this Section 11(c) be delayed for so long as the basis for the Board of Directors' judgment exists; provided; however, that (A) the Company may not delay such registration for a period of more than sixty (60) days from the date notice is first received by the Company from a Holder or Holders pursuant to subsection (ii) above, and (B) the Company may not defer its obligation in this manner more than once. (d) Expenses of Registration. All Registration Expenses incurred in connection with a registration pursuant to this Section 11 shall be borne by the Company. All Selling Expenses relating to the Registrable Securities registered on behalf of a Holder shall be borne by such Holder. (e) Registration Procedures. (i) In connection with the registration of Registrable Securities pursuant to this Section 11, the Company shall as expeditiously as is reasonable: (A) prepare and file with the SEC on any appropriate form a registration statement with respect to such Registrable Securities and use reasonable efforts to cause such registration statement to become effective; (B) prepare and file with the SEC such amendments (including post-effective amendments) and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective and to comply with the provisions of the Act with respect to the disposition of all Registrable Securities and other securities covered by such registration statement until the earlier to occur of (1) the first anniversary of the date of issuance of this Warrant and (2) the completion by the Holder or Holders of the distribution described in such registration statement; (C) furnish to each seller of such Registrable Securities such number of conformed copies of such registration statement and of each such amendment and supplement thereto (at least one of which shall include all exhibits), such number of copies of the prospectus included in such registration statement (including each preliminary prospectus and any summary prospectus), in conformity with the requirements of the Act, such documents incorporated by reference in such registration statement or prospectus, and such other documents, as such seller may reasonably request in order to facilitate the sale or disposition of such Registrable Securities; 11 (D) immediately notify each seller of Registrable Securities, at any time when a prospectus relating thereto is required to be delivered under the Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state any material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing or if it is necessary, in the opinion of counsel to the Company, to amend or supplement such prospectus to comply with law, and at the request of any such seller prepare and furnish to any such seller a reasonable number of copies of a supplement to or an amendment of such prospectus as may be necessary so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus shall not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing and shall otherwise comply in all material respects with law and so that such prospectus, as amended or supplemented, will comply with law; and (E) use reasonable efforts to list such securities on each securities exchange or over-the-counter market on which shares of Common Stock are then listed, if any. (ii) The Holder or Holders of Registrable Securities included in any registration shall furnish to the Company such information regarding such Holder or Holders, the Registrable Securities held by them and the distribution proposed by such Holder or Holders as the Company may from time to time reasonably request and as shall be reasonably required in connection with any registration, qualification or compliance referred to in this Section. (iii) The Holder or Holders of Registrable Securities included in any registration shall, upon request by the Company and any managing or lead managing underwriter, execute and deliver custodian agreements and powers of attorney in form and substance reasonably satisfactory to the Company and as shall be reasonably necessary to consummate the offering. (f) Indemnification. (i) The Company will indemnify each Holder with respect to which a registration has been effected pursuant to this Agreement against any and all losses, claims, damages, liabilities or expenses (or actions in respect thereof), including any of the foregoing incurred in settlement of any litigation, commenced or threatened, arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any registration statement or prospectus, or any amendment or supplement thereto, incident to any such registration, qualification or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein, in the light of the circumstances in which they were made, not misleading, or any violation by the Company of the Act or any rule or regulation promulgated under the Act applicable to the Company in connection with any such registration, and the Company will reimburse each such Holder, each such underwriter and each person who controls any such underwriter, for any legal and other expenses reasonably incurred, as such expenses are incurred, in connection with investigating, preparing or defending any such claims, loss, damage, liability or action; provided, however, that the Company will not be liable in any such case to the extent that any such claim, loss, damage, liability or expense arises out of or is based on any untrue statement or omission or alleged untrue statement or omission, made in reliance upon and in conformity with written information furnished to the Company by an instrument duly executed by such Holder or underwriter and stated to be specifically for use therein. (ii) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration is being effected, indemnify the Company, each of its directors and officers, each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Act and each other such holder of securities included in the registration against any and all losses, claims, damages, liabilities and expenses (or actions in respect thereof), arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement or prospectus, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statement therein, in the light of the circumstances under which they were made, not misleading, and will reimburse the Company, such holders, underwriters or control persons for any legal or any other expenses reasonably incurred, as such expenses are incurred, in connection with investigating or defending any such 12 claim, loss, damage, liability or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement or prospectus in reliance upon and in conformity with written information furnished to the Company by such Holder. (iii) Each party entitled to indemnification under this Section 11 (the "Indemnified Party") shall give notice to the party required to provide indemnification (the "Indemnifying Party") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of any such claims or any litigation resulting therefrom; provided, however, that counsel for the Indemnifying Party, who shall conduct the defense of such claim or litigation, shall be approved by the Indemnified Party (which approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such Indemnified Party's expense; provided, however, that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Agreement unless the failure to give such notice is materially prejudicial to an Indemnifying Party's ability to defend such action. Notwithstanding the foregoing, the Indemnifying Party shall not be entitled to assume the defense for matters as to which there is, in the opinion of counsel to the Indemnifying Party, a conflict of interest or separate and different defenses. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement which does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect of such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with the defense of such claim and the litigation resulting therefrom. (g) 1934 Act Registration. The Company covenants and agrees that until such time as there shall be no Registrable Securities outstanding: (i) it will, if required by law, maintain an effective registration statement (containing such information and documents as the Commission shall specify) with respect to the Common Stock under Section 12(g) of the 1934 Act and will file in a timely manner such information, documents and reports as the Commission may require or prescribe for companies whose stock has been registered pursuant to said Section 12(g); (ii) it will, if a registration statement with respect to the Common Stock under Section 12(b) or Section 12(g) of the 1934 Act is effective, make whatever filings with the SEC or otherwise make generally available to the public such financial and other information as may be necessary in order to enable the Holders to sell shares of Common Stock pursuant to the provisions of Rule 144 promulgated under the Act, or any successor rule or regulation thereto or any statute hereafter adopted to replace or to establish the exemption that is now covered by said Rule 144; and (iii) it will, if no longer required to file reports pursuant to Section 12 (g) of the 1934 Act, upon the request of the Holder, make publicly available the information specified in subparagraph (c) (2) of Rule 144, and will take such further action as any Holder may reasonably request, all to the extent required from time to time to enable such Holder to sell Registrable Securities without registration under the Act within the limitation of the exemptions provided by Rule 144 or any similar rule or regulation hereafter adopted by the SEC. Section 12. Notices. All notices, requests, demands and other communications relating to this Warrant shall be in writing and shall be deemed to have been duly given if delivered personally or sent by United States certified or registered first-class mail, postage prepaid, return receipt requested, to the parties hereto at the following addresses or at such other address as any party hereto shall hereafter specify by notice to the other party hereto: (a) If to the Registered Holder of this Warrant or the holder of the Warrant Shares, addressed to the address of such Registered Holder or holder as set forth on books of the Company or otherwise furnished by the Registered Holder or holder to the Company. 13 (b) If to the Company, addressed to Poore Brothers, Inc., 3500 South La Cometa Drive, Goodyear, Arizona 85338, Attention: Chief Financial Officer. Section 13. Binding Effect. This Warrant shall be binding upon and inure to the sole and exclusive benefit of the Company, its successors and assigns, and the holder or holders from time to time of this Warrant and the Warrant Shares. Section 14. Survival of Rights and Duties. This Warrant shall terminate and be of no further force and effect on the earlier of (i) 5:00 p.m., Phoenix time, on the Expiration Date and (ii) the date on which this Warrant and all purchase rights evidenced hereby have been exercised, except that the provisions of Sections 4 and 11(f) hereof shall continue in full force and effect after such termination date. Section 15. Governing Law. This Warrant shall be construed in accordance with and governed by the laws of the State of Arizona. Section 16. Section Headings. The Section headings in this Warrant are for purposes of convenience only and shall not constitute a part hereof. Section 17. Amendment or Waiver. This Warrant and any term hereof may be amended, waived, discharged or terminated only by and with the written consent of the Company and the holder of this Warrant. IN WITNESS WHEREOF, the Company has caused this Warrant to be executed under its corporate seal by its officers thereunto duly authorized as of the date hereof. POORE BROTHERS, INC. By: __________________________ Name: Title: ATTEST: By: __________________________ Name: Title: 14 FORM OF ELECTION TO PURCHASE (To Be Executed Upon Exercise of this Warrant) To Poore Brothers, Inc.: The undersigned, the record holder of this Warrant, hereby irrevocably elects to exercise the right, represented by this Warrant (Warrant No. ___), to purchase ___________ of the Warrant Shares and herewith tenders payment for such Warrant Shares to the order of Poore Brothers, Inc. of $_________ representing the full purchase price for such shares at the price per share provided for in such Warrant and the delivery of any applicable taxes payable by the undersigned pursuant to such Warrant. In lieu of paying the purchase price as provided in the preceding paragraph, the undersigned will/will not (circle appropriate word(s)) make a cashless exercise pursuant to Section 3(c) of the attached Warrant. The undersigned requests that certificates for such shares be issued in the name of: _______________________________ PLEASE INSERT SOCIAL SECURITY OR TAX IDENTIFICATION NUMBER _______________________________ _______________________________ _______________________________ _______________________________ (Please print name and address) In the event that not all of the purchase rights represented by the Warrant are exercised, a new Warrant, substantially identical to the attached Warrant, representing the rights formerly represented by the attached Warrant which have not been exercised, shall (subject to applicable transfer restrictions) be issued in the name of and delivered to: _____________________________________________________________________ (Please print name) _____________________________________________________________________ (Please print address) Dated: ______________________ Name of Holder (Print): By: ________________________________ (Name): ____________________________ (Title): ___________________________ FORM OF ASSIGNMENT FOR VALUE RECEIVED, _______________________ hereby sells, assigns and transfers to each assignee set forth below all of the rights of the undersigned under the attached Warrant (Warrant No. _____) with respect to the number of shares of Common Stock covered thereby set forth opposite the name of such assignee unto: Name of Assignee Address Number of Shares of ---------------- ------- Common Stock ------------ If the total of said purchase rights represented by the Warrant shall not be assigned, the undersigned requests that a new Warrant Certificate evidencing the purchase rights not so assigned be issued in the name of and delivered to the undersigned. Dated: ___________________ Name of Holder (Print): By: ________________________________ (Name): ____________________________ (Title): ___________________________ 2 NOTICE OF EXERCISE OF PIGGYBACK REGISTRATION RIGHTS To Poore Brothers, Inc.: The undersigned, the record holder of that certain Warrant dated November 4, 1998, issued by Poore Brothers, Inc. (the "Company") to Norwest Business Credit, Inc. ("Norwest"), hereby notifies the Company of its election to exercise its piggyback registration rights contained in Section 11 of the Warrant for the purpose of including all of the Warrant Shares (as such term is defined in the Warrant) in the registration of which the Company has provided notification to Norwest (in accordance with Paragraph (b) of Section 11 of the Warrant). Sincerely, NORWEST BUSINESS CREDIT, INC. By: _________________________ Name: Title: 3 EX-10.6 7 AGREEMENT FOR PURCHASE AND SALE OF ASSETS EXHIBIT 10.6 AGREEMENT FOR PURCHASE AND SALE OF ASSETS THIS AGREEMENT FOR PURCHASE AND SALE OF ASSETS (this "Agreement") is executed this 29th day of October, 1998 (the "Effective Date"), by and between TEJAS SNACKS, L.P., a Texas limited partnership ("Seller"); KEVIN KOHL ("Kohl"); TOM BIGHAM ("Bigham"); and POORE BROTHERS, INC., a Delaware corporation ("Poore Brothers"), and/or nominee or assignee (collectively with Poore Brothers, "Buyer"). Kohl and Bigham are sometimes referred to in this Agreement collectively as the "Principals". Buyer, the Principals and Seller are sometimes referred to in this Agreement collectively as the "Parties" or individually as a "Party". RECITALS: A. Seller is engaged in the business of the manufacture, distribution and sale of potato chips and other snack foods including, but without limitation, "cheese curls" and tortilla chips, all under the so-called "Bob's Texas Style Potato Chips" (and similar names herein described) tradename and trade dress, primarily within the State of Texas (the "Business"). B. On or about March 25, 1997, Seller acquired certain of the assets of Bob's Texas Style Potato Chips, Inc., a Texas corporation ("Bob's") and Tejas Style Distributing, Inc., a Texas corporation ("Tejas Distributing", collectively, with Robert Rod ("Rod") and Tejas Distributing, the "Prior Owners") pursuant to that certain Agreement for Sale of all Assets ("Original Sale Agreement"), undated, by and among the Prior Owners, on one hand, and Seller, on the other hand. As consideration for such sale, among other things, those parties executed, delivered and consummated the following: (1) That certain Promissory Note, dated March 25, 1997 (the "Prior Owners' Note"), in the original principal amount of $230,000.00; and (2) Consulting arrangement and other obligations (collectively, "Commission Claim") described in and secured by that certain Security Agreement, dated March, 1997 (the "Security Agreement"). C. Pursuant to that certain Agreement to Exchange Claims ("Claims Agreement") dated June 24, 1998 by and among the Prior Owners, Seller and D.T.M.E.S., Inc., a Texas corporation ("D.T.M.E.S."), the Prior Owners agreed to either transfer and assign to Seller or its nominee, or discharge, waive, remise and render null and void, at the option of Seller, all of the Prior Owners' claims against Seller of any kind, type or nature (collectively, "Prior Owners' Claims") including, without limitation, the Note and the Commission Claim, in exchange for certain consideration to be delivered to Bob's, Tejas Distributing and/or Rod, as more fully set forth in the Claims Agreement. D. Seller desires to sell to Buyer and Buyer desires to purchase from Seller, on the terms and subject to the conditions of this Agreement, all of the assets and properties of Seller of any kind, type or nature, with the exception only of those assets and properties described in Exhibit A (the "Excluded Assets"). 4 AGREEMENTS: NOW, THEREFORE, in consideration of the foregoing and the mutual covenants, conditions and agreements contained in this Agreement, and for other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, the Parties agree as follows: 1. Purchase and Sale. Subject to the terms and conditions of this Agreement and with the exception of the Excluded Assets, Seller agrees to sell, convey, transfer, assign and deliver to Buyer, and Buyer agrees to purchase from Seller on the Closing Date (as defined below), all of the assets and properties of Seller of every kind, character and description, whether tangible, intangible, personal or mixed, and wherever located, all of which are referred to collectively in this Agreement as the "Assets". The Assets to be conveyed, transferred, assigned and delivered as provided by this Agreement shall include, without limitation, the following: 1.1 Inventory. All raw materials, work in process and finished goods produced or used in the Business, wherever located ("Inventory"); 1.2 Personal Property. All equipment, tools, machinery, supplies, materials and other tangible personal property used in any manner in connection with the Business, wherever located ("Personal Property"), including, without limitation, the Personal Property described in Exhibit C attached to this Agreement; 1.3 Contractual Rights. Any and all rights in any manner related to the ownership or use of the Assets or to the ownership, operation or conduct of the Business, rights in or claims under leases, permits, licenses, purchase and sales orders, covenants not to compete, stock, stock rights, and all other contracts of any nature whatsoever ("Contractual Rights"), including, without limitation, the Contractual Rights described in Exhibit D attached to this Agreement, but excluding all accounts receivable as of the Closing Date; and 1.4 Intellectual Property. All of the following in any manner related to the ownership, possession or use of the Assets or to the ownership, operation or conduct of the Business ("Intellectual Property"), including, without limitation, the Intellectual Property described in Exhibit E attached to this Agreement and set forth immediately below; (A) To the extent Seller has rights therein, all trade names, including but not limited to "Tejas Snacks", "Tejas Distributing", "Tejas Merchandising", "Bob's Texas Style Potato Chips", "Texas Style Potato Chips", "Texas Style", "Longhorn Style", "Colorado Style" and all trade dress (collectively, the "Trademarks"); and (B) All know-how, confidential business information, processes, drawings, formulae, customer lists, supplier and distribution lists, price lists, customer files, computer programs, technical and engineering data, trade information and marketing materials (collectively, the "Other Proprietary Rights"). 2. No Assumed Liabilities. This Agreement specifically excludes, and Buyer does not under any circumstances agree to assume, any liabilities of Seller. All obligations accruing to and existing on the Closing Date (as defined below) are and shall remain the sole obligation and responsibility of Seller. 5 3. Purchase Price. 3.1 Payment of the Purchase Price. The Purchase Price (herein so called) shall be One Million Six Hundred Thirty Thousand and No/100 Dollars ($1,630,000.00), subject to adjustment and payable as set forth below: 3.1.1 Deposit. The total sum of Seventy Five Thousand and No/100 Dollars ($75,000.00) (the "Deposit") shall be paid by check, wire transfer or other form of funds as follows: (1) Two Deposits of Twenty Five Thousand and No/100 Dollars ($25,000.00), each were deposited by Buyer with Seller on or about September 16, 1998 and on or about September 25, 1998. Seller acknowledges that the same were or will be applied to the payment of any accounts payable (collectively "Payables") of Seller in such order and with such priority as Seller and Buyer may reasonably determine. If the Closing fails to occur for any reason other than Buyer's breach hereof, the Deposit shall be returned to Buyer in the method provided in the Production Agreement (as herein defined); and (2) On or before October 15, 1998, Buyer shall deposit with Seller an additional Twenty Five Thousand and No/100 Dollars ($25,000.00) and, if so deposited, such sum shall be applied at Closing to the payment of any Payables of Seller in such order and with priority as Seller and Buyer may reasonably determine. If the Closing fails to occur for any reason other than Buyer's breach hereof, the Deposit shall be returned to Buyer in the method provided in the Production Agreement; 3.1.2 SBA Loan. The sum of Five Hundred Eighty Five Thousand and No/100 Dollars ($585,000.00), subject to adjustment as set forth below, shall be paid by Buyer repaying, or causing to be repaid, on the Closing Date (as defined below) the existing SBA Loan (herein so called) to Seller with a principal balance in the approximate amount of Five Hundred Eighty Five Thousand and No/100 Dollars ($585,000.00); the SBA Loan is evidenced by that certain promissory note dated March 7, 1997, in the original principal amount of Six Hundred Thousand and No/100 Dollars ($600,000.00); 3.1.3 Claim Agreement Obligations. The sum of Three Hundred Forty Five Thousand and No/100 ($345,000.00) shall be paid by Buyer on the Closing Date as follows: (1) The sum of Two Hundred Forty Five Thousand and No/100 Dollars ($245,000.00) shall be paid by cash, wire transfer or other form of immediately available or same day funds on the Closing Date on behalf of Seller to the Prior Owners in accordance with Section 4 of the Claims Agreement and the instructions of the Prior Owners; and (2) The sum of One Hundred Thousand and No/100 Dollars ($100,000.00) shall be paid by Buyer issuing to the Prior Owners, in accordance with Section 4 of the Claims Agreement and the instructions of the Prior Owners, unregistered common stock of Poore Brothers (the "Prior Owners' Stock") with a value of One Hundred Thousand and No/100 Dollars ($100,000.00); the value of such Prior Owners' Stock shall be determined in the manner set forth below, as of 5:00 p.m. (MST) on the day immediately preceding the Closing Date (the "Computation Date") and shall be 6 delivered to the Prior Owners on the Closing Date, or as soon thereafter as is reasonably practicable, given the requirements of Poore Brothers' transfer agent and the like. 3.1.4 Stock. The sum of Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00) shall be paid by Buyer issuing to Seller (or to such of Seller's principals as Seller may reasonably direct, so long as such direct issuance is approved, in its sole discretion, by securities counsel for Buyer and said distributees execute such documents and certificates as may be required by Buyer or its counsel in connection therewith) Four Hundred Thousand (400,000) shares of unregistered common stock of Poore Brothers (the "Stock") with a stipulated value of Three Hundred Fifty Thousand and No/100 Dollars ($350,000.00). The certificates representing said Stock shall be delivered to Seller on the Closing Date, or as soon thereafter as is reasonably practicable, given the requirements of Poore Brothers' transfer agent and the like. Seller hereby acknowledges that the Stock will be so-called "restricted" or "144" stock, and that the same will not be tradable or transferable except in accordance with Securities and Exchange Commission Rule 144 in effect from time to time. The Stock will be so legended in accordance with the legend set forth in Schedule 3.1.4 attached. 3.1.5 Balance of the Purchase Price. The sum of Two Hundred Seventy Five Thousand and No/100 Dollars ($275,000.00), calculated by applying all Deposits theretofore made by Buyer, shall be paid in cash by Buyer at Closing and shall be applied by Seller to Payables in such order and with such priority as Seller and Buyer may reasonably determine. 3.2 Deposit. Any Deposits made hereunder shall be utilized by Seller to pay Payables and, at the request of Buyer, Seller shall provide to Buyer reasonable evidence of the utilization of such monies. Deposits shall be utilized and credited in accordance with the terms of this Agreement, but if this Agreement fails to close through failure of a condition precedent, Deposits shall be subject to recoupment by Buyer under the Production Agreement. 3.3 Adjustment of the Purchase Price . 3.3.1 SBA Loan Adjustment. The Purchase Price is based on the assumption that the unpaid principal balance and accrued but unpaid interest and penalties (if any) and all other sums owed under the SBA Loan as of the Closing Date (collectively, the "SBA Loan Balance") is, or will be, Five Hundred Eighty Five Thousand and No/100 Dollars ($585,000.00). In the event the actual SBA Loan Balance on the Closing Date is less or more than such amount, then the cash payable by Buyer at Closing pursuant to Section 3.1.5 above shall be adjusted upward or downward by a like amount, but no adjustment shall be made to the Purchase Price. Seller shall keep the SBA Loan in good standing, with all required payments timely made, until the Closing. 3.4 Allocation of the Purchase Price. Buyer and Seller agree to cooperate in connection with the preparation of Form 8594 attached hereto as Exhibit F, and agree to report the allocation of the Purchase Price among the four classes of assets (described in I.R.C. ss. 1060 and the regulations thereunder) as follows, such figures being subject to pro rata adjustment at Closing if the cash portion of the Purchase Price is adjusted because of variations in the balance of the SBA Loan: 7 Class I: $ 0.00 Class II: $ 0.00 Class III: $ 100,000.00 Class IV: $1,530,000.00 3.5 Payment of Taxes and Other Charges. Seller shall pay any transaction privilege tax, use tax, excise tax or other transfer fee or tax which may be imposed by any governmental agency with respect to the sale, transfer, conveyance and assignment of the Assets pursuant to this Agreement. 4. Employment Agreement. Subject to the terms and conditions of this Agreement, at the Closing, Buyer, on the one hand, and Kohl and Bigham, on the other, shall execute and deliver to each other two (2) original counterparts of Employment Agreements (herein so called), each of which shall be dated as of the Closing Date and in form and content identical to Exhibit G-1 and G-2. The Employment Agreement shall provide for each Principal's employment with Buyer for an initial one (1) year term commencing on the Closing Date, at a annual salary of Eighty Thousand and No/100 Dollars ($80,000.00). 5. Conditions to Obligation of Buyer to Perform. The obligation of Buyer to purchase the Assets at the Closing is subject to the satisfaction, on or before the Closing Date, of all of the following conditions precedent, any or all of which may be waived by Buyer by delivery to Seller of a written notice of such waiver: 5.1 Representations and Warranties True on the Closing Date. The representations and warranties of Seller contained in this Agreement, in the Exhibits or in any certificate, document or statement delivered pursuant to the provisions of this Agreement shall be true and correct on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date. 5.2 Compliance with Agreement. Seller and each of the Principals shall have performed and complied with all agreements, covenants, conditions and obligations required by this Agreement to be performed or complied with by Seller and/or any one (1) or more of the Principals prior to or on the Closing Date. 5.3 Opinion of Seller's Counsel. Buyer shall have received an opinion of counsel for Seller, addressed to Buyer and Buyer's lender(s) ("Lender"), in form and substance reasonably satisfactory to Buyer and its counsel to the effect that: (A) Seller is a Texas limited partnership, duly organized and validly existing and has the requisite partnership power and partnership authority: (a) to own, lease and operate its properties; (b) to carry on the Business in the places where and in the manner in which it is presently being conducted; and (c) to consummate the transactions contemplated by, and to perform its obligations under, this Agreement. The execution and delivery of this Agreement, the consummation of the transactions contemplated by, and the performance of the obligations under, this Agreement have been duly authorized by the partners of Seller and no other partnership proceedings on the part of Seller are necessary in connection therewith. 8 (B) Although acknowledging that Texas law does not apply to this Agreement or to any of the documents described herein, but assuming, without justifying said assumption, that Texas law governed this Agreement and said other documents, this Agreement would constitute, and each other agreement or instrument to be executed and delivered by Seller pursuant to the terms of this Agreement would constitute, a legal, valid and binding obligation of Seller, enforceable against Seller in accordance with their respective terms, and when the Assignment Documents (as defined below) are executed, delivered and/or recorded and/or filed, as appropriate, title to the Assets will be vested in Buyer, to such counsel's knowledge and based upon a UCC search provided by Buyer, free and clear of all liens and encumbrances except as are set forth in said opinion. (C) Neither the execution and delivery of this Agreement by Seller nor the consummation of the transactions contemplated by, nor the performance of Seller's obligations under, this Agreement will: (a) violate any provisions of the Partnership Agreement of Seller; (b) violate any statute, code, ordinance, rule or regulation of the State of Texas applicable to Seller, the Assets or the operation and conduct of the Business; (c) to said counsel's knowledge, violate any judgment, order, writ, decree, injunction or award of any court, arbitrator, mediator, government or governmental agency or instrumentality to which Seller is a party or by which Seller or the Assets are bound; (d) to said counsel's knowledge, violate, breach, conflict with, constitute a default under, result in the termination of or accelerate the performance required by, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller is a party or by which Seller or the Assets are bound; or (e) result in the creation of any lien, security interest, charge or other encumbrance upon any of the Assets. (D) To said counsel's knowledge, there is no pending or threatened litigation or other legal proceeding against Seller or affecting the Assets or the operation or conduct of the Business or challenging the validity or propriety of or seeking to enjoin or to set aside the transactions contemplated by this Agreement. (E) No consent, approval, authorization or other action by, or filing with, any federal, state or local governmental agency or instrumentality is required in connection with the execution and delivery by Seller of this Agreement, the consummation by Seller of the transactions contemplated by, or the performance of Seller's obligations under, this Agreement. 5.4 Approval of Documentation. The form and substance of all certificates, instruments, opinions and other documents delivered to Buyer under this Agreement and required to carry out this Agreement, shall be reasonably approved by counsel for Buyer. 5.5 Third Party Consents; SBA and Rod Performances. Buyer shall have received evidence that all consents, waivers, permits, approvals and authorizations which are required by the transactions contemplated by this Agreement and have been made and/or obtained, if any. The SBA shall be in a position to accept prepayment of the SBA Loan as set forth in Section 3.1.2 above, and all parties to the Claims Agreement shall be in a position to, and shall, close the transactions contemplated thereby. 5.6 Transfer of Licenses; Assignment of Warranties. Seller shall have transferred or assigned to Buyer on or before the Closing Date: (a) all licenses, permits, franchises, certificates and authorizations, if any, which are required or necessary to enable Buyer to operate and conduct the Business 9 in the manner in which Seller operates and conducts the Business; and (b) any and all warranties covering or affecting the Personal Property and/or Inventory. 5.7 [RESERVED] 5.8 Failure of Conditions. Seller agrees to use commercially reasonable efforts to satisfy the conditions set forth in this Section 5. If Seller should be unable to satisfy any condition or conditions set forth in this Section 5, Seller shall notify Buyer, and Buyer, by written notice to Seller to be given prior to the Closing, shall either: (i) waive such condition or conditions and proceed to close; or (ii) cancel this Agreement. If Buyer elects to cancel this Agreement pursuant to the foregoing provisions of this Section 5, and the failure of condition is not due to Seller's breach hereunder, the provisions of the Production Agreement dealing with return of the Deposit shall immediately become effective, Buyer shall have returned to it all other documents Buyer either deposited with, or delivered to, Seller and thereupon this Agreement shall be deemed null and void and neither Party shall have any further obligation or liability under this Agreement, except as otherwise expressly provided in this Agreement. If Buyer's cancellation is due to Seller's breach hereunder, Seller shall immediately repay to Buyer all of the Deposit theretofore made by Buyer and the balance of the provisions of the immediately succeeding sentence shall also be in full force and effect without Buyer, however, waiving any rights it may otherwise have at law or in equity on account of Seller's breach hereunder. 6. Conditions to Obligation of Seller to Perform. The obligation of Seller to sell the Assets at the Closing is subject to the satisfaction, on or before the Closing Date, of all of the following conditions precedent, any or all of which may be waived by Seller by delivery to Buyer of a written notice of such waiver: 6.1 Representations and Warranties True on the Closing Date. The representations and warranties of Buyer contained in this Agreement, in the Exhibits or in any certificate, document or statement delivered pursuant to the provisions of this Agreement shall be true and correct on and as of the Closing Date as though such representations and warranties were made on and as of the Closing Date. 6.2 Compliance with Agreement. Buyer shall have performed and complied with all agreements, covenants, conditions and obligations required by this Agreement to be performed or complied with by Buyer prior to or on the Closing Date. 6.3 Opinion of Buyer's Counsel. Seller shall have received an opinion of counsel for Buyer, addressed to Seller, in form and substance reasonably satisfactory to Seller and its counsel to the effect that: (A) Buyer is an Arizona corporation, duly organized, validly existing, in good standing and has the requisite corporate power and corporate authority to consummate the transactions contemplated by, and to perform its obligations under, this Agreement. The execution and delivery of this Agreement, the consummation of the transactions contemplated by, and the performance of the obligations under, this Agreement have been duly authorized by requisite corporate action on the part of Buyer. 10 (B) This Agreement constitutes, and each other agreement or instrument to be executed and delivered by Buyer pursuant to the terms of this Agreement constitutes, a legal, valid and binding obligation of Buyer, enforceable against Buyer in accordance with their respective terms. (C) Neither the execution and delivery of this Agreement by Buyer nor the consummation of the transactions contemplated by, nor the performance of Buyer's obligations under, this Agreement will: (a) violate any provisions of the Articles or Bylaws of Buyer; (b) violate any statute, code, ordinance, rule or regulation of the State of Arizona applicable to Buyer; (c) to said counsel's knowledge, violate any judgment, order, writ, decree, injunction or award of any court, arbitrator, mediator, government or governmental agency or instrumentality to which Buyer is a party or by which Buyer is bound; and (d) to said counsel's knowledge, violate, breach, conflict with, constitute a default under, result in the termination of or accelerate the performance required by, any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer is a party or by which Buyer is bound. (D) To said counsel's knowledge, there is no pending or threatened litigation or other legal proceeding against Buyer or affecting the Assets or the operation or conduct of the Business or challenging the validity or propriety of or seeking to enjoin or to set aside the transactions contemplated by this Agreement, except as set forth in Poore Brothers' public filings, reports and/or announcements and in so-called "audit letters" from such counsel to auditors of Poore Brothers, the content of which letters need not be disclosed to Seller. (E) No consent, approval, authorization or other action by, or filing with, any federal, state or local governmental agency or instrumentality is required in connection with the execution and delivery by Buyer of this Agreement, the consummation by Buyer of the transactions contemplated by, or the performance of Buyer's obligations under, this Agreement; provided, however, that counsel need not opine to securities issues or to issues of Texas law, but only to Arizona law and Delaware corporate law. 6.4 Approval of Documentation. The form and substance of all certificates, instruments, opinions and other documents delivered to Seller under this Agreement and required to carry out this Agreement, shall be reasonably approved by counsel for Seller. 6.5 Failure of Condition. Buyer agrees to use its best efforts to satisfy the conditions set forth in this Section 6. If Buyer should be unable to satisfy any condition or conditions set forth in this Section 6, Buyer shall notify Seller, and Seller, by written notice Buyer to be given prior to the Closing, shall either: (i) waive such condition or conditions and proceed to close; or (ii) cancel this Agreement. If Seller elects to cancel this Agreement pursuant to the foregoing provisions of this Section 6, the provisions of the Production Agreement shall immediately become effective and the Deposit shall be returned to Buyer pursuant to the performance of the Production Agreement, and thereupon this Agreement shall be deemed null and void and neither Party shall have any further obligation or liability under this Agreement, except as otherwise expressly provided in this Agreement. 7. Representations and Warranties of Seller. Seller represents and warrants to Buyer that, as of the date of this Agreement and as of the Closing Date: 11 7.1 Organization and Standing. Seller is a limited partnership, duly organized and validly existing under the laws of the State of Texas. Seller has the requisite partnership power and authority to own, lease and operate its properties and is duly authorized and licensed to carry on the Business in the places where and in the manner in which the Business is presently being conducted. Attached hereto as Schedule 7.1 is a list of the names and addresses of each person who, directly or indirectly, is a beneficial owner of a general partnership interest, limited partnership interest or other equity interest in Seller, along with a description of such person's beneficial interest. 7.2 Capacity. Seller has full partnership power and Seller has full legal capacity and authority to execute and deliver this Agreement, to consummate the transactions contemplated by, and to perform their respective obligations under this Agreement. The execution and delivery of, the consummation of the transactions contemplated by, and the performance of Seller's obligations under, this Agreement have been duly authorized by the partners of Seller and no other partnership proceedings on the part of Seller are necessary in connection therewith. This Agreement constitutes, and each other agreement or instrument to be executed and delivered by Seller and the Principals shall constitute, the valid and binding obligation of Seller and the Principals, enforceable against Seller and the Principals, respectively, in accordance with their respective terms. 7.3 Authority. Neither the execution and delivery of this Agreement by Seller, the consummation by Seller and the Principals of the transactions contemplated by, nor the performance of Seller's obligations under, this Agreement will: (a) violate any provisions of the Partnership Agreement of Seller; (b) violate any statute, code, ordinance, rule or regulation of any jurisdiction applicable to Seller or the Assets; (c) violate any judgment, order, writ, decree, injunction or award of any court, arbitrator, mediator, government or governmental agency or instrumentality, which is binding upon Seller or which would have an adverse effect on the Assets or the operation and conduct of the Business; or (d) violate, breach, conflict with, constitute a default under (whether with or without notice or lapse of time, or both), result in termination of or accelerate the performance required by any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Seller and/or one (1) or more of the Principals is a party or by which one (1) or more of them, the Assets or the Business is bound. 7.4 Consents. No consent, approval, filing or registration with or by any governmental agency or instrumentality or any other person or entity is necessary in connection with the execution and delivery by Seller of this Agreement, the consummation by Seller and the Principals of the transactions contemplated by, or the performance of Seller's obligations under, this Agreement. 7.5 Absence of Defaults. Except for certain Payables of Seller which are past due (all of Seller's Payables being set forth on Schedule 7.5 hereto), Seller is not in default under, or in violation of, any provision of its Partnership Agreement or under any indenture, mortgage, deed of trust, loan agreement or similar debt instrument, or any other agreement to which Seller is a party or by which Seller is bound or to which any of its properties is subject, nor does there exist any fact, circumstance or event that has occurred which, upon notice, lapse of time or both, would constitute such a default or violation. Neither Seller nor the Assets are in violation of any statute, rule, regulation or order of any court or Federal, state or local governmental agency or instrumentality having jurisdiction over Seller, any of the Assets or any of Seller's properties. 12 7.6 Financial Statements. Within ten (10) days of the Effective Date, Seller shall deliver to Buyer: (a) statements of Seller's income and expenses for the twelve (12) months ended December 31, 1997, and the balance sheets of Seller as of such date, prepared by Seller; (b) unaudited statements of Seller's income and expenses for the six (6) month period ended June 30, 1998 and the balance sheet of Seller as of such date; (c) unaudited statements of income and expenses for the monthly periods ended July 31, 1998 and August 31, 1998, each of items (b) and (c) immediately preceding being certified as being accurate and complete by the Chief Financial Officer of Seller (collectively referred to as "Financial Statements"); and (d) Seller shall give access to Buyer or Buyer's representatives to all other financial information related to Seller. The Financial Statements do not contain any untrue statement of material fact or omit to state any material fact necessary to make the statements or information in them not misleading. The Financial Statements have been prepared in accordance with generally accepted accounting principles applied consistently by Seller throughout the periods indicated and present fairly the financial position and results of operations of Seller as of the dates and for the periods represented. Seller is solvent from a balance sheet standpoint and, assuming Closing and application of the Purchase Price in the manner set forth herein, will not be rendered insolvent by the consummation of the transactions contemplated by this Agreement. 7.7 Liabilities, Labor Issues, etc. Except as set forth in the Financial Statements, Seller has no material liabilities or obligations of any kind, type or nature, contingent or fixed, or accrued or to accrue. Without limiting the foregoing, Seller is not a party to any collective bargaining agreement, profit sharing or pension agreement or plan or any other item which, under any circumstances, could bind either Buyer, any of the Assets or the Business after the Closing. Seller has enjoyed and continues to enjoy good relations with its labor force and Seller will cooperate with Buyer in all reasonable manners to endeavor to cause such of Seller's existing employees, as Buyer may request, to continue their employment with Buyer after the Closing. Except as set forth on Schedule 7.7, Seller is not indebted or obligated to any of its officers, directors or employees in any manner. 7.8 Capital Structure. The capital structure of Seller consists solely of a one percent (1%) partnership interest held by its general partner and a ninety nine percent (99%) partnership interest held by its limited partners, all of which are held as set forth in the Financial Statements. All of such units have been validly issued and are fully paid and non-assessable. Seller has granted no other equity interests, options, rights or other items of any kind, type or nature convertible into units to any other person or entity. 7.9 Absence of Specified Changes. From August 31, 1998, there has not been any: (A) Transaction by Seller except in the ordinary course of business; (B) Material adverse change in the Assets, the financial condition, liabilities, business, operations or prospects of Seller; (C) Destruction, damage to or loss of any of the Assets (whether or not covered by insurance) that materially and adversely affects the financial condition, business, operations or prospects of Seller or the Business; 13 (D) Loss of employees, suppliers or customers or other event or condition of any character materially and adversely affecting the Assets or the financial condition, business or prospects of Seller or the Business, except for the Resignation (herein so called) of Mark Peeks ("Peeks") during September, 1998, relating to which, or to his employment with Seller, Peeks has no known claim against Seller; (E) Change in accounting methods or practices (including, without limitation, any change in depreciation or amortization policies or rates) by Seller; (F) Except for ordinary and normal depreciation taken in accordance with generally accepted accounting principals, revaluation by Seller of any of the Assets; (G) Except as set forth on Schedule 7.9, increase in the salary or other compensation payable, or to become payable, by Seller to any of its officers, directors or employees, or any declaration, payment, commitment or obligation of any kind for the payment by Seller of a bonus or other additional salary or compensation to any such person; (H) Acquisition or disposition of any of the Assets, except in the ordinary course of business; (I) Amendment or termination of any contract, agreement or license to which Seller is a party, except in the ordinary course of business; (J) Loan by Seller to any person or entity, or guaranty by Seller of any loan or any other obligation or liability of any kind, type or nature of any third party; (K) Mortgage, pledge, security interest, lien or other encumbrance of any of the Assets; (L) Waiver or release of any right or claim of Seller, except in the ordinary course of business; (M) Other event or condition of any character that has or might have a materially adverse effect on the Assets or the financial condition, business or prospects of Seller or the Business; (N) Incurrence of any liability or obligation (whether absolute, accrued or contingent) affecting Seller or the Business, except in the ordinary course of business which, from August 31, 1998, through Closing, shall not exceed, in the aggregate, $25,000.00, or as to any individual liability or obligation, $25,000.00; (O) Distribution on account of any class of stock or other equity security, including without limitation, any dividend or redemption; or (P) Agreement by Seller to do any of the things described in the preceding Subsections A. through O., inclusive. 14 7.10 Litigation and Claims. Except as set forth on Schedule 7.10 attached, Seller is not a party to any, and there is no pending or threatened, suit, action, arbitration, legal, administrative or other proceeding or governmental investigation against Seller or affecting the Assets, the operation and conduct of the Business or its prospects, or challenging the validity or propriety of, or seeking to enjoin or to set aside the transactions contemplated by, this Agreement. To the best of Seller's knowledge, there is no basis for the assertion of any proceeding, claim, action or governmental investigation. Seller is not a party to any judgment or decree, nor is Seller in default with respect to any order, writ, injunction or decree of any Federal, state, local or foreign court, department, agency or instrumentality which will, or is likely to, affect the Assets, Seller's title to the Assets, the ability of Seller to perform its obligations under this Agreement or the Business or prospects of Seller. 7.11 Compliance with Laws. To the best of Seller's knowledge, Seller is in compliance with, and is not in default under, any applicable federal, state and local statutes, regulations, ordinances, zoning laws, engineering standards, safety standards, environmental standards and any other applicable law (collectively, "Laws") in connection with the ownership and use of the Assets or the conduct and operation of the Business. Seller holds all required franchises, permits, licenses, certificates and authorizations (collectively, "Permits") necessary or appropriate in connection with the ownership and use of the Assets and the conduct and operation of the Business and all of said items are current and valid as of the Effective Date. 7.12 Inventory. The portion of the Inventory consisting of food items ("Food Inventory") now, and on the Closing Date will, consists of items of a quality usable and saleable in the usual and ordinary course of the Business and does not and will not include obsolete or damaged items. Unless otherwise requested by Buyer, all Inventory will be transferred to Buyer at Closing. 7.13 Personal Property. All items of Personal Property described in Exhibit C are in the possession of Seller and Seller has or will have good and clear title to same. Seller will deliver to Buyer, immediately after execution hereof, documentation acceptable to Buyer indicating that Seller purchased all items of Personal Property and Intellectual Property (described immediately below) from Prior Owners; such documentation shall include appropriate and acceptable instruments of assignment to Seller. Seller represents and warrants that D.T.M.E.S. has no claim or any ownership interest in or to any Asset to be conveyed or transferred hereunder or, if it does, Seller shall cause D.T.M.E.S. to execute all documents of conveyance set forth herein as to any Asset in which D.T.M.E.S. claims or may claim to have an interest. If requested by Buyer, Seller shall cause D.T.M.E.S. to execute appropriate instruments of quit-claim as to all of the Assets at the Closing. All items of Personal Property shall be conveyed "AS-IS" and "WHERE-IS" and without any representation or warranty to as their physical condition including, without limitation, ANY WARRANTY OF MERCHANTABILITY OR OF FITNESS FOR A PARTICULAR PURPOSE. The foregoing shall not impair Seller's warranty of title thereto. 7.14 Intellectual Property. (A) Except for liens to be extinguished at Closing, Seller owns and possesses all right, title and interest in and to the Intellectual Property, free and clear of all liens, security interests and encumbrances and no claim has been made or threatened by any third party against Seller contesting the validity, enforceability, use or ownership of the Intellectual Property; 15 (B) To the best of Seller's knowledge, there is no infringement of, misappropriation by or conflict with any third party with respect to the Intellectual Property (a "Third Party Infringement"); (C) To the best of Seller's knowledge, Seller has not infringed, misappropriated or otherwise engaged in any conduct which conflicted with any proprietary rights of any third parties in or to the Intellectual Property, nor will any infringement, misappropriation or conflict occur as a result of the continued operation of the Business as it is presently conducted (a "Seller Infringement"); (D) Except as set forth in the Production Agreement, Seller has not granted to any third party any license, right or other interest in the Intellectual Property; and (E) Seller believes it has, or will at Closing have, taken commercially reasonable actions to protect its rights with respect to the Intellectual Property, and will continue to preserve and protect its rights in the Intellectual Property prior to the Closing, all as set forth on Schedule 7.14. Without limiting the generality of the foregoing, Seller has, or will at Closing have, registered (collectively, "Registration") the Intellectual Property including, without limitation, the Trademarks with the federal and state authorities, and all of such Trademarks are believed, in good faith, by Seller to be in good standing and not infringed, all as set forth on Schedule 7.14. At the Closing, Seller shall take all steps and execute all documents reasonably requested or required by Buyer to transfer all of the Intellectual Property to Buyer. 7.15 Title to Assets. Seller has good and marketable title to the Assets, free and clear of all liens, pledges, charges, security interests, encumbrances, claims, conditional sales agreements, licenses, covenants, conditions, restrictions on transfer, or other restrictions or other rights of third parties, except as disclosed in Exhibit C. All such liens and encumbrances disclosed on Exhibit C shall be released on or before the Closing Date. No partner, contractor or employee of Seller owns or has any interest, directly or indirectly, in any of the Assets. 7.16 Suppliers and Customers. Exhibit H contains a list of Seller's customers purchasing more than $10,000.00 from Seller in goods or services in the last twelve (12) months during the twelve-month period immediately preceding the Effective Date. Except as described in Exhibit H, Seller has not made and shall not make any commitment to any such customer or to any employee, agent or representative of such customer to provide any special discount, allowance or other accommodation to the customer. Except as further set forth in Exhibit H, Seller has no information and is aware of no facts indicating that any of the suppliers or customers listed in Exhibit H intend to cease doing business with Seller or to materially alter the amount of business that they are presently doing with Seller. Seller shall, post-Closing, cooperate with Buyer in effecting an orderly transition of the suppliers and customers to Buyer and shall take all steps as are requested by Buyer (including, without limitation, executing letters of recommendation, transfer and the like) in order to effect such a transition if the Closing occurs. 7.17 Insurance Policies and Coverages. Exhibit I is a list of and brief description of all insurance polices (including policy amounts) which provide coverage to Seller, including without limitation, product liability, general liability, fire insurance policies on or covering the Business and on or covering each item of Inventory and Personal Property. To the best knowledge of Seller, Seller's insurance coverages are adequate for the conduct of the Business. Seller's product and general liability 16 coverages include both "premises and operations" coverage and "products and completed operations" coverage, and such insurance is written on an "occurrence" form policy. Seller has not received notice of termination of any policy and there are no facts or conditions which, with notice or lapse of time, or both, could result in a termination of any of the policies. The insurance policies listed in Exhibit I will be continued in full force and effect until the Closing Date. There has been no rating termination or refusal to issue insurance involving any aspect of the Business, including without limitation, for products liability in any manner pertaining to the Inventory and/or the items sold by the Business. 7.18 Contractual Rights. Exhibit D is a list of all written contracts to which Seller is a party. No contract, agreement or other obligation of Seller shall bind or affect the Assets or Buyer after the Closing, unless Buyer specifically assumes the same pursuant to the terms hereof. The parties understand that Buyer does not intend to assume any Contracts with Seller post-Closing, except as otherwise set forth herein. 7.19 Brokers. No broker or finder has acted for Seller in connection with this Agreement or the transactions contemplated hereby and no broker or finder is entitled to any brokerage commissions, finder's fee or other compensation based on agreements or arrangements made by Seller. 7.20 Full Disclosure. The representations, warranties and statements of Seller in this Agreement, in any Exhibit or in any certificate or other document furnished by Seller to Buyer pursuant to, or in furtherance of, this Agreement, are complete, current and accurate, do not contain or will not contain any untrue statement of material fact, and do not omit or will not omit to state any material fact necessary to make each representation, warranty or statement accurate and not misleading in any material respect. Certificates or documents furnished by either Principal to Seller in the context of this transaction and which relate to Buyer shall be deemed to have been furnished by Seller for purposes of this Section 7.20. Seller has, and prior to Closing shall have, provided to Buyer, in writing, any information necessary to ensure that the representations, warranties, or statements made to Buyer are complete, current and accurate and are not misleading in any material respect. 7.21 Certain Definition. When used in this Section 7, the word "material" (and grammatical variants thereof) shall mean and refer to any item, act, omission or occurrence which, individually, or in the aggregate, would or could lead to a claim against Seller or the Assets, or any of them, of greater than $10,000.00. 8. Representations and Warranties of Buyer. Buyer represents and warrants to Seller that, as of the date of this Agreement and as of the Closing Date: 8.1 Organization and Standing. Poore Brothers is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. Buyer has the requisite corporate power and corporate authority to own, lease and operate its properties and is duly authorized and licensed to carry on the business in the places where and in the manner in which such business is presently being conducted. 8.2 Capacity. Buyer has full corporate power, legal capacity and authority to execute and deliver this Agreement and to consummate the transactions contemplated by, and the performance of the obligations under, this Agreement. The execution and delivery of this Agreement, the consummation 17 of the transactions contemplated by, and the performance of the obligations under, this Agreement have been duly authorized by the Board of Directors of Buyer and no other corporate proceedings on the part of Buyer are necessary in connection therewith. This Agreement constitutes, and each other agreement or instrument to be executed and delivered by Buyer pursuant to this Agreement will constitute, valid and binding obligations of the Buyer, enforceable against Buyer in accordance with their respective terms. 8.3 Authority. Neither the execution and delivery of this Agreement by Buyer, the consummation of the transactions contemplated by, nor the performance of Buyer's obligations under, this Agreement will: (a) violate any provision of the Articles of Incorporation or Bylaws of Buyer; (b) violate any statute, code, ordinance, rule or regulation of any jurisdiction applicable to Buyer or to its properties or assets; (c) violate any judgment, order, writ, decree, injunction or award of any court, arbitrator, mediator, government or governmental agency or instrumentality which is binding upon Buyer or which would have an adverse effect on its properties or assets; or (d) violate, breach, conflict with, constitute a default under or result in termination of or accelerate the performance required by any of the terms, conditions or provisions of any note, bond, mortgage, indenture, deed of trust, license, lease, agreement or other instrument or obligation to which Buyer is a party or by which Buyer or any of its properties or assets is bound. 8.4 Consents. No consents, approvals, filings or registrations with or by any governmental agency or instrumentality or any other person or entity are necessary in connection with the execution and delivery by Buyer of this Agreement, the consummation by Buyer of the transactions contemplated by, or the performance of Buyer's obligations under, this Agreement. 8.5 Brokers. Except for brokerage or consulting fees due Everen Securities, Inc. of which Buyer has heretofore made Seller aware and which Buyer shall defray in their entireties, no broker or finder has acted for Buyer in connection with this Agreement or the transactions contemplated hereby and no broker or finder is entitled to any brokerage commissions, finder's fee or other compensation based on agreements or arrangements made by Buyer. 9. Covenants of Seller. Seller covenants and agrees as follows: 9.1 Right of Inspection. From the Effective Date through the Closing Date, Seller shall permit Buyer and its authorized representatives to have full access to Seller's properties during regular business hours, shall make its employees and authorized representatives available to confer with Buyer and its authorized representatives and shall make available to Buyer and its authorized representatives all books, papers and records relating to the Assets, the Business or the obligations and liabilities of Seller relating thereto which may be reasonably requested by Buyer, including, but not limited to, all books of account (including the general ledger), tax records, organizational documents, contracts and agreements, filings with any regulatory authority, any financial operating data and any other business information relating to Seller's business activities or prospects as Buyer may from time to time request. No such investigation by Buyer shall affect the representations, statements and warranties of Seller and each such representation, statement and warranty shall survive any such investigation. 9.2 Conduct of Business. From the Effective Date until the Closing Date: 18 (A) Except as provided below, Seller shall conduct the Business and shall engage in transactions only in the usual and ordinary course of business and in a commercially reasonable manner and will do so diligently and in substantially the same manner as it has previously. Seller will use all commercially reasonable efforts to preserve its business organization intact and to preserve all present relationships of Seller with, and the goodwill of, suppliers, customers, and others having a business relationship with Seller. Seller further agrees to protect the Assets and to maintain the Inventory and Personal Property in the ordinary course of business until Closing. (B) Seller will not, except in the usual and ordinary course of business or as otherwise consented to or approved by Buyer in writing, or as permitted or required by this Agreement: (a) institute any method of manufacture, purchase, sale, lease, management, accounting or operation that will vary from those methods used by Seller as of the Effective Date; (b) cancel any existing policy of insurance; (c) enter into any new contract, commitment or other transaction not in the usual and ordinary course of business and, if in the usual and ordinary course of business, not in an amount exceeding $25,000.00 per transaction or $25,000.00 in the aggregate; (d) make any capital expenditures in an amount exceeding $5,000.00 for any single item or $5,000.00 in the aggregate, or enter into any lease of capital equipment or property which has a term exceeding thirty (30) days or under which the annual lease charge is in excess of $2,000.00; (e) sell, dispose of or encumber any of the Assets; (f) incur any new indebtedness or other liabilities other than in the usual and ordinary course of business, and, if in the usual and ordinary course of business, not in an amount exceeding $25,000.00 per transaction or $25,000.00 in the aggregate; (g) waive or compromise any right or claim or cancel, without full payment, any note, loan or other obligation owing to Seller; (h) modify, amend, cancel, renew or terminate any Contract listed in Exhibits C and D; (i) take any action or fail to take any action which would cause any of Seller's and Principals' representations in this Agreement to be untrue as of the Closing Date; or (j) enter into any agreement obligating Seller to do any of the foregoing prohibited acts. (C) Seller shall maintain its partnership existence and powers and will not dissolve or liquidate. (D) Seller will not do any act or omit to do any act that will cause a breach or default of any contract, obligation, lease, license or other agreement to which Seller is a party or which affects the Assets, Seller's title to the Assets or the operation and conduct of the Business. Notwithstanding the foregoing, immediately upon the execution and delivery hereof, Seller shall, in accordance with the provisions of Exhibit J hereto, transfer all of Seller's production requirements to Buyer. Said Production requirements shall continue to be serviced by Buyer until either the Closing or the failure of a condition to Closing hereunder, whereupon, except for the business of Hecht (as herein defined as respects Deposits to be returned to Buyer), Buyer shall reasonably cooperate with Seller to retransfer said production business to Seller. 9.3 Local Law Issues. Seller represents that Texas has repealed its so-called "bulk transfer act" and therefore no compliance is necessary therewith. Seller also believes that no sales, transaction privilege or similar tax will be due with regard to the transactions contemplated hereby, but if any such tax is payable, Seller shall be entirely responsible for same and Buyer shall have no responsibility therefor. 19 Seller also represents to Buyer that Seller does not pay any tax at the entity level, except for ad valorem real and personal property taxes including, without limitation, income or transaction privilege or sales taxes and therefore no liens or obligations relating to said taxes will bind or effect the Assets or Buyer post-Closing. Seller will, at or prior to Closing, pay all personal property taxes relating to any of the Assets transferred hereby and exhibit to Buyer reasonable evidence of receipts therefor. Seller shall be responsible, and shall timely pay and exhibit receipts to Buyer, for all 1998 personal property taxes relating to the Assets. 9.4 Consents. Seller shall obtain any and all necessary consents, waivers, permits, approvals and authorizations of, and complete any and all filings or registrations with, all Federal, state and local governmental bodies which are necessary to consummate the transactions contemplated by this Agreement or to permit Buyer to continue the Business after the Closing Date. Seller shall obtain any and all consents, waivers, approvals or authorizations of all other persons or entities as may be required for the sale, assignment and transfer to Buyer of the Assets. 9.5 Cooperation. Seller agrees to take, or cause to be taken, all action and to do, or cause to be done, all things necessary, proper or advisable to consummate the transactions contemplated by, and to perform its obligations under, this Agreement. 9.6 Disclosure of Changes. Seller will promptly notify Buyer in writing of: (a) the commencement or threat of any threatened lawsuit or claim against Seller or affecting the Assets, the operation and conduct of the Business or its prospects or challenging the validity or propriety of, or seeking to enjoin or to set aside the transactions contemplated by, this Agreement; (b) any adverse change in the financial condition of Seller or the Business; or (c) any change in any representations or warranties of Seller set forth in this Agreement or in any Exhibit, certificate or other documents delivered to Buyer by Seller pursuant to this Agreement. 9.7 Restrictive Covenants. 9.7.1 Restricted Activities. Principals and Seller covenant and agree as follows: (A) For a period of five (5) years from and after: i) the Closing Date, as to Seller; and, ii) their respective terminations of employment, as to the Principals (collectively, the "Time Limit"), neither the Principals nor Seller will compete with the Business, or directly or indirectly own any interest in, operate, manage or control in any manner any entity which competes with the Business in the State of Texas. The foregoing provision, however, shall not prohibit Seller and/or Principals from investing in securities of any corporation whose securities are listed on a national securities exchange or traded in the over the counter market if Seller and the Principals shall collectively be the owner(s), beneficially or of record, of less than one percent (1%) of any class of the stock of such corporation. (B) Neither the Principals nor Seller shall, for the duration of the Time Limit: (a) directly or indirectly solicit or service in any way, on behalf of themselves or on behalf of or in conjunction with others, any customer, distributor, manufacturer's representative or client or in any other way seek to induce the discontinuance of any business relationship between the Business and said customers or clients; or (b) directly or indirectly solicit, on behalf of themselves or on behalf of or in 20 conjunction with others, any employee or supplier of Buyer to terminate his or her employment or other relationship with Buyer. (C) Neither the Principals nor Seller will, for the duration of the Time Limit, without authorization of Buyer, use for themselves or for any person or corporation or other entity, or disclose to any entity which competes with the Business, any confidential information concerning the suppliers and customers of the Business. Confidential information shall mean information available to Seller and/or the Principals as a consequence of their respective ownership, use or control of the Assets and the operation of the Business and not otherwise generally known in the industry. 9.7.2 Reasonable Restrictions. Seller and the Principals acknowledge and agree that the duration and geographical limits of the restrictions set forth in this Section 9.7 have been reviewed by Seller's and Principals' legal counsel and specifically discussed and negotiated and are reasonable in view of all the facts and circumstances known to Seller and Principals. 9.7.3 Material Minimum. Seller and the Principals acknowledge and agree that the duration of time and geographical restrictions set forth in this Section 9.7 are reasonably necessary to protect the Assets and interests transferred pursuant to this Agreement, that any violation of such restrictions would cause Buyer substantial injury and that Buyer would not have entered into this Agreement without Seller's and the Principals' agreements to be bound by such restrictions. 9.7.4 Enforcement of Restrictions. Seller and the Principals further acknowledge and agree that an action for damages would not provide full and adequate compensation in the event of a violation of such restrictions. Therefore, in the event of any violation of such restrictions by Seller and/or the Principals, Buyer shall be entitled, in addition to any other remedy, to preliminary and permanent injunctive relief. 9.7.5 Severability of Initial Provisions. If a court in any jurisdiction should conclude that the foregoing covenants are unenforceable according to their terms either because of their duration or the geographic area covered, the Parties agree that a court of competent jurisdiction shall reduce such duration or geographic area, insofar as that jurisdiction only is concerned, so that the resulting duration and geographic area shall be the maximum that such court shall conclude is enforceable in that jurisdiction, which reduction shall be performed as follows: in the case of duration, the duration shall be reduced by one (1) month at a time until it shall be the maximum enforceable duration; and in the case of geographic area, such area shall be reduced by eliminating individual counties within states one (1) at a time therefrom until such area shall be the maximum enforceable geographical coverage. The Parties acknowledge that the remedies of specific performance and/or injunctive relief shall be available and proper in the event of the actual or imminent refusal or failure of Seller or the Principals to perform their respective obligations under this Agreement. 9.8 Information. Seller shall deliver the following materials to Buyer not less than five (5) days prior to the Closing Date (and, if prior to the Closing Date Seller receives or discovers any additional materials required to be delivered to Buyer, as soon as reasonably possible after such receipt or discovery): 21 (A) Copies of all contracts and leases set forth in Exhibits C and D, together with all modifications and amendments thereto; (B) Copies of all security interests, mortgages, pledge agreements, conditional sales contracts, financing statements or other documents or instruments evidencing any security interests, liens, charges, claims, encumbrances or other interest in any part of the Assets, together with a listing of the current amount of indebtedness secured by each such document or instrument; (C) Copies of all relevant court, administrative, arbitral and governmental papers and all other documents relating to the matters set forth in Section 6.10, if any; (D) Copies of all insurance policies listed in Exhibit I; and (E) Copies of such other materials as may be reasonably requested by Buyer. 9.9 Securities Issues. Each of Seller, Kohl and Bigham hereby acknowledges that Buyer will be relying upon exemptions from the registration requirements of the Securities Act of 1933, as amended (the "1933 Act"), and The Securities Act of 1957 of Texas (the "Texas Act") in connection with the issuance of the Stock to Seller. Each of Seller, Kohl and Bigham further acknowledges that the availability of the exemption under the Texas Act is dependent upon a number of factors, including, without limitation: the receipt by Seller of certain information regarding Buyer; whether Seller is a "sophisticated investor" (as such term is used in the rules promulgated under the Texas Act); and the imposition on Seller of certain restrictions on the resale or transfer of the Stock. In connection with establishing the applicability of the above-mentioned exemptions, each of Seller, Kohl and Bigham represents and warrants to, and agrees with, Buyer as follows: (A) The total value of the Stock will not exceed twenty percent (20%) of Seller's net worth at the time of issuance of the Stock by Buyer to Seller. Seller has no need for liquidity in the Stock and Seller can afford to lose its entire investment in the Stock. (B) The principals of Seller have such knowledge of finance, securities and/or investments, generally, as well as experience and skill in investments based upon actual participation, that they are capable of evaluating the merits and risks of the issuance of the Stock to Seller, and such persons do not require a purchaser representative to assist in any such evaluation. (C) The Stock is being acquired by Seller for its own account for purposes of investment and not "with a view to" the "distribution" thereof, as such terms are used in the 1933 Act, and the rules and regulations thereunder; (D) Seller acknowledges that the Stock constitutes "restricted securities" under federal and state securities laws insofar as it has not been registered under the 1933 Act or the securities laws of any other jurisdiction, that it may not be resold or transferred without compliance with the registration or qualification provisions of the 1933 Act or applicable federal and state securities laws or an opinion of counsel that an exemption from such registration and qualification requirements is available. Each of Seller, Kohl and Bigham is familiar with Rule 144 promulgated under the 1933 Act, as presently in effect, and the resale limitations imposed thereby and by the 1933 Act; 22 (E) Seller, Kohl and Bigham acknowledge that any certificate or certificates representing the Stock that are issued by Buyer will bear the following legend or a legend similar thereto: THE STOCK REPRESENTED BY THIS CERTIFICATE HAS NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER ANY STATE SECURITIES LAWS. SUCH STOCK HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES ONLY AND NOT WITH A VIEW TO THE DISTRIBUTION THEREOF. SUCH STOCK MAY NOT BE SOLD, OFFERED FOR SALE, TRANSFERRED OR OTHERWISE DISPOSED OF IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER SAID ACT AND COMPLIANCE WITH THE REQUIREMENTS OF ANY APPLICABLE STATE SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION AND/OR COMPLIANCE IS NOT REQUIRED; (F) Each of Seller, Kohl and Bigham has the requisite knowledge and experience in financial and business matters, including investments of this type, to be capable of evaluating the merits and risks of an investment in the Stock and of making an informed investment decision with respect thereto. Seller is able to: (i) bear the economic risk of its investment in the Stock; (ii) hold the Stock for an indefinite period of time; and (iii) afford a complete loss of its investment; (G) Seller has received from Buyer, and each of Kohl and Bigham has reviewed, recent reports filed by Buyer with the Securities and Exchange Commission (the "Commission") pursuant to the Securities Exchange Act of 1934, as amended, recent press releases issued by Buyer and a Registration Statement on Form S-3 (the "Form S-3") recently filed by Buyer with the Commission pursuant to the 1933 Act (including, without limitation, the "Risk Factors" sections contained in Buyer's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998 and the Form S-3) (such recent reports, press releases and the Form S-3 being hereinafter collectively referred to as the "Disclosure Documents"), and has reviewed such additional documentation and information and has conducted such research regarding Buyer as each such person has deemed prudent and necessary in connection with the acquisition of a portion of the Stock by Seller. Based upon such review and research, each such person believes that he or she is fully aware of the current condition (financial and otherwise) and prospects of Buyer. Seller, Kohl and Bigham have obtained sufficient information to evaluate the merits and risks of Seller's acquisition of the Stock and to make an informed investment decision; and (H) All documents, records and other information relating to Buyer that have been requested by Seller, Kohl and Bigham and that are considered by such persons to be material in making a decision to acquire the Stock, have been delivered or made available to them, and Seller's, Kohl's and Bigham's investment decision is based upon his or its own investigation and analysis and not the representations or inducements of Buyer or any party or parties acting on its behalf. Prior to the Closing date: (i) Seller shall deliver to each general and limited partner of Seller a copy of the Disclosure Documents delivered by Buyer to Seller; and (ii) Seller shall obtain and deliver to Buyer a 23 Certificate from Seller and a Purchaser Representative Certificate in the respective forms attached hereto as Exhibit 9.9. Seller, Kohl and Bigham understand that Buyer will rely on the representations and warranties contained in this Section 9.9 and in the Certificates delivered to Buyer pursuant to the previous paragraph in connection with the issuance of the Stock. Seller shall obtain from Prior Owners, as a condition to Closing, similar statements and/or certificates as required by securities counsel for Buyer. 9.10 Payables. Seller agrees to deliver to Buyer on, or within thirty (30) days after, the Closing Date an itemization of all Payables which Seller is paying with the Deposit and with the Cash Payment and copies of cancelled checks or other evidence reasonably satisfactory to Buyer of such payments. 10. Closing Date. The "Closing Date" or "Closing" shall occur on or prior to November 15, 1998 (or earlier if Buyer so notifies Seller in writing at least two (2) business days prior to the accelerated Closing Date) and shall take place either at Buyer's principal place of business in Goodyear, Arizona, or at the principal offices of Buyer's or Lender's counsel in Phoenix, Arizona, or at such other time and place as the Parties may agree in writing. 11. Obligations at Closing. 11.1 Seller's Obligations at Closing. At the Closing, Seller shall deliver or cause to be delivered to Buyer the following: (A) All instruments of transfer (collectively, the "Assignment Documents"), properly executed by Seller and acknowledged, including but not limited to a bill of sale, deeds and assignments, transferring and assigning to Buyer all of Seller's right, title and interest in and to the Assets, including, but not necessarily limited to, the following: (1) General Warranty Bill of Sale in a form substantially identical to Exhibit K; and (2) General Warranty Assignment in a form substantially identical to Exhibit L; (B) All instruments evidencing any and all consents, waivers, permits, approvals, authorizations, filings or registrations as provided for in Sections 5.9, 7.2, 7.3 and 7.4; (C) The opinion of Seller's counsel as provided in Section 5.7; (D) Certified resolutions of Seller's partners authorizing the execution and performance of this Agreement and all actions taken by Seller in furtherance of this Agreement pursuant to Section 7.2; 24 (E) The certificate, in the form of Exhibit M ("Seller's Closing Certificate"), executed by Seller, dated as of the Closing Date, certifying that the representations and warranties of Seller in this Agreement are true and correct on the Closing Date, as though each such representation and warranty had been made on the Closing Date; and (F) The list and evidence of payment as provided in Section 9.10, which may be delivered post-Closing in accordance with Section 9.10. 11.2 Buyer's Obligations at Closing. On the Closing Date, Buyer shall deliver, or cause to be delivered, the following: (A) The payment to be delivered to the Prior Owners as provided in Section 3.1.3(1); (B) All cash to be applied to Payables and to repay the SBA Loan as contemplated hereby; (C) The Stock to be delivered to the Prior Owners as provided in Section 3.1.3(2); (D) The Stock to be delivered as provided in Section 3.1.4; a portion of said Stock shall be delivered into the Escrow (as herein defined); (E) The opinion of Buyer's counsel as provided in Section 6.3; (F) Two (2) original counterparts of each of the Employment Agreements executed by Buyer, one (1) counterpart of each Employment Agreement to be delivered to the Principal which is a party to such Employment Agreement; (G) Certified resolutions of Buyer's Board of Directors authorizing the execution and performance of this Agreement and the execution and delivery of the Employment Agreements contemplated by this Agreement and all actions taken by Buyer in furtherance of this Agreement pursuant to Section 8.3; and (H) A certificate, in the form of Exhibit N attached, executed by the President and Secretary of Buyer, dated as of the Closing Date, certifying that the representations and warranties of Buyer in this Agreement are true and correct on the Closing Date, as though each such representation and warranty had been made on the Closing Date. 11.3 Obligations of Principals; Limited Warranty as to Claims. On the Closing Date, the Principals shall deliver or cause to be delivered to Buyer two (2) original counterparts of each Employment Agreement, each executed by the Principal who is a party to such Employment Agreement, with one (1) counterpart of each Employment Agreement to be delivered to Buyer. The Principals represent and warrant to Buyer that the Principals have no claim against Seller or any of the Assets, nor do they hold any interest therein except as specifically disclosed herein or as may arise 25 pursuant to this Agreement, the Employment Agreements or the Production Agreement and, if requested by Buyer, the Principals will execute appropriate releases and quit-claim instruments at Closing to confirm the foregoing. 12. Obligations After Closing. 12.1 Change of Corporate Name; License. Seller agrees that immediately after the Closing Date it will take all action required to change its corporate name to eliminate the term "Tejas Snacks". Seller shall also, and do hereby, agree that for an unlimited period after the Closing Date, Buyer or its successors and assigns shall have an exclusive license to utilize the term "Tejas Snacks" (or any reasonable variant of such name) in connection with the distribution and sale of potato chip and/or other snack food products now or heretofore distributed by Seller shall, at the request of Buyer, execute all reasonable documentation necessary to evidence the foregoing license, which shall be deemed fully-paid and irrevocable upon consummation of the transactions contemplated by this Agreement 12.2 Indemnification. (A) SELLER AGREES TO PAY, DEFEND, INDEMNIFY AND HOLD BUYER HARMLESS FOR, FROM, OF AND AGAINST ANY AND ALL CLAIMS, LOSSES, EXPENSES, DAMAGES, OBLIGATIONS, DEFICIENCIES OR LIABILITIES OF ANY KIND, TYPE OR NATURE, INCLUDING, WITHOUT LIMITATION, COSTS OF INVESTIGATION, INTEREST, PENALTIES, REASONABLE ATTORNEYS' AND EXPERT WITNESS' FEES AND ANY AND ALL COSTS, EXPENSES AND FEES INCIDENT TO ANY SUIT, ACTION OR PROCEEDING INCURRED OR SUSTAINED BY BUYER WHICH ARISE OUT OF, RESULT FROM OR ARE IN ANY WAY RELATED TO: (A) SELLER'S BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN THIS AGREEMENT OR IN ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED BY SELLER IN CONNECTION WITH THIS AGREEMENT; (B) ANY AND ALL LIABILITIES OR OBLIGATIONS RELATING TO THE OPERATION OF THE BUSINESS AND/OR THE ASSETS ON OR PRIOR TO THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION, ALL TAX LIABILITIES, LIABILITIES FOR BREACH OF CONTRACT, PRODUCT LIABILITIES, LIABILITIES ARISING IN TORT, LIABILITIES FOR MATERIALS SOLD OR SERVICES RENDERED AND LIABILITIES TO ANY CREDITORS; (C) ANY AND ALL LIABILITIES OR OBLIGATIONS, INCLUDING CLAIMS BY THIRD PARTIES, RELATING TO THE NON-COMPLIANCE OF SELLER, ITS BUSINESS OR ANY OF THE ASSETS WITH, OR ANY DEFAULT UNDER, LAWS; (D) THE FAILURE OF SELLER OR THE ASSETS TO HOLD OR HAVE AVAILABLE ALL NECESSARY PERMITS; (E) THE EXISTENCE OF A THIRD PARTY INFRINGEMENT OR A SELLER INFRINGEMENT; (F) ANY CLAIMS MADE BY PEEKS ARISING OUT OF HIS EMPLOYMENT OR THE RESIGNATION; (G) ANY FAILURE TO EFFECT ANY REGISTRATION; (H) A PENDING INVESTIGATION BY THE TEXAS ATTORNEY GENERAL'S OFFICE (OR OTHER STATE OR LOCAL BODY) RELATING TO THE PRIOR USE OF ALLEGEDLY IMPROPER PACKAGING OR MARKING MATERIALS RESPECTING PRODUCTS HERETOFORE SOLD OR DELIVERED BY SELLER OR ITS PREDECESSOR; OR (I) ANY CLAIM BY ANY THIRD PARTY CREDITOR OF SELLER, OR ANY TRUSTEE IN BANKRUPTCY OF SELLER OR SIMILAR PERSON OR ENTITY MADE AGAINST THE ASSETS OR BUYER ARISING OUT OF OR IN CONNECTION WITH THE TRANSACTIONS CONTEMPLATED HEREBY, WHETHER OR NOT ANY OF THE FOREGOING ITEMS SET FORTH IN 26 CLAUSES (C), (D), (E), (F), (G) OR (H) IMMEDIATELY ABOVE ARE KNOWN TO SELLER AT CLOSING. (B) BUYER AGREES TO PAY, DEFEND, INDEMNIFY AND HOLD SELLER HARMLESS FOR, FROM, OF AND AGAINST ANY AND ALL CLAIMS, LOSSES, EXPENSES, DAMAGES, OBLIGATIONS, DEFICIENCIES OR LIABILITIES OF ANY KIND, TYPE OR NATURE, INCLUDING, WITHOUT LIMITATION, COSTS OF INVESTIGATION, INTEREST, PENALTIES, REASONABLE ATTORNEYS' AND EXPERT WITNESS' FEES AND ANY AND ALL COSTS, EXPENSES AND FEES INCIDENT TO ANY SUIT, ACTION OR PROCEEDING INCURRED OR SUSTAINED BY SELLER WHICH ARISE OUT OF, RESULT FROM OR ARE IN ANY WAY RELATED TO: (A) BUYER'S BREACH OF ANY REPRESENTATION, WARRANTY OR COVENANT CONTAINED IN THIS AGREEMENT OR IN ANY OTHER INSTRUMENT OR DOCUMENT EXECUTED AND DELIVERED BY BUYER IN CONNECTION WITH THIS AGREEMENT; OR (B) ANY AND ALL LIABILITIES OR OBLIGATIONS RELATING TO THE OPERATION OF THE BUSINESS AND/OR THE ASSETS AFTER THE CLOSING DATE, INCLUDING, WITHOUT LIMITATION, ALL TAX LIABILITIES, LIABILITIES FOR BREACH OF CONTRACT, PRODUCT LIABILITIES, LIABILITIES ARISING IN TORT LIABILITIES FOR MATERIALS SOLD OR SERVICES RENDERED AND LIABILITIES TO ANY CREDITORS. (C) Buyer and Seller agree that, upon receipt by either Party of a third-party claim in respect of which indemnity may be sought under this Section 12.2, said party (the "Claimant") shall give written notice within thirty (30) days of such claim (the "Notice of Claim") to the party from whom indemnification may be sought hereunder (the "Indemnitor"). No indemnification under this Section 12.2 shall be available to any party who fails to give the required Notice of Claim within thirty (30) days if the party to whom such notice should have been given was unaware of the claim and was prejudiced by the failure to receive the Notice of Claim in a timely manner. The Indemnitor shall be entitled at its own expense to participate in the defense of any claim or action against the Claimant. The Indemnitor shall have the right to assume the entire defense of such claim, provided that: (a) Indemnitor gives written notice of its desire to defend such claim (the "Notice of Defense") to the Claimant within fifteen (15) days after Indemnitor's receipt of the Notice of Claim; (b) Indemnitor's defense of such claim shall be without cost of Claimant or prejudice to Claimant's rights under this Section 12.2; (c) counsel chosen by Indemnitor to defend such claim shall be reasonably acceptable to Claimant; (d) the Indemnitor shall bear all costs and expenses in connection with the defense of such claim; (e) Claimant shall have the right, at Claimant's expense, to have Claimant's counsel participate in the defense of such claim; and (f) Claimant shall have the right to receive periodic reports from Indemnitor and Indemnitor's counsel with respect to the status and details of the defense of such claim and shall have the right to make direct inquiries to Indemnitor's counsel in this regard. Solely for the purpose of subparagraph (f) above, Indemnitor shall waive its attorney-client privilege. 12.3 [RESERVED] 12.4 Office Space. Buyer shall have the right, for a reasonable time post-Closing, to utilize, on a rent-free basis, existing office facilities and areas within the building currently occupied by a majority of the business of Seller. Buyer and Seller understand that the Principals will utilize this office space, rent free, until substitute office space can be obtained and built out on lease terms satisfactory to Buyer. 27 12.5 Transition. Seller shall use commercially reasonable efforts to maintain the goodwill of the Seller's suppliers, employees, contractors, customers and Business, and shall otherwise cooperate with Buyer to effectuate a smooth and orderly transition in the operation and conduct of the Business following the Closing Date. Without limiting the foregoing, Buyer is immediately permitted to interview Seller's employees and solicit employment post-Closing. If at least fifty percent (50%) of the employees of Seller which are offered post-Closing employment by Buyer do not accept, Buyer shall have the option of cancelling this Agreement due to a failure of a condition precedent. 28 13. Remedies Prior to or on Closing. 13.1 Remedies Prior to or on Closing. 13.1.1 Remedies of Buyer Prior to or on Closing. In the event of any breach or default of any warranty, covenant, agreement, condition or other obligation of Seller under this Agreement, Buyer may at its option, and without prejudice to any other rights or remedies provided under this Agreement for any such breach or default, terminate this Agreement by delivering written notice of termination to Seller on or before the Closing Date. The notice shall specify with particularity the breach or default on which the notice is based. Notwithstanding the foregoing, the Parties acknowledge that the Assets are unique and that, in the event of a breach or default by Seller under this Agreement, it would be extremely impracticable to measure monetary damages and such damages would be an inadequate remedy for Buyer. Therefore, in the event of any such breach or default, Buyer may, at its option, sue for specific performance. Buyer's other option in the event of breach by Seller under this Agreement shall be to bring an action against Seller to recover Buyer's reasonable attorneys' fees, together with all other expenses incurred, expended and/or paid by Buyer in connection with the transactions contemplated by this Agreement, including, without limitation, financing costs, investigation costs, travel costs, reimbursement for experts' fees and other fees. Without limiting the generality of the foregoing, if Seller refuses to close and Buyer is ready, willing and able to close and has fulfilled all conditions hereunder, Seller shall pay to Buyer the sum of Seven Hundred Fifty Thousand and No/100 Dollars ($750,000.00) as and for liquidated damages and not as a penalty and as a so-called "break up fee". Buyer and Seller acknowledge that the foregoing is a reasonable liquidated damage in that Buyer's damages at the time and place of breach would be difficult, because of their nature of future profitability, to ascertain with precision, but that the foregoing represents a reasonable liquidated damage in the estimation of the Parties at this date. Notwithstanding the foregoing, it is specifically agreed that the liquidated damage remedy set forth above is declared to be severable specifically from the balance of this Agreement. 13.1.2 Remedies of Seller Prior to or on Closing. In the event of any breach or default of any warranty, covenant, agreement, condition or other obligation of Buyer under this Agreement, Seller's sole and exclusive remedy shall be to terminate this Agreement by delivering written notice of termination to Buyer on or before the Closing Date. The notice shall specify with particularity the breach or default on which the notice is based. Further, in the event of such a breach by Buyer, Seller shall be entitled to retain the Deposit (together with interest accrued thereon) as and for liquidated damages (and not as a penalty) arising out of Buyer's breach. 13.1.3 Termination. In the event of termination of this Agreement by either Buyer or Seller as provided in this Section 13.1, this Agreement shall become null and void, other than Section 12.2 above, which shall remain in full force and effect. Upon termination, Buyer shall deliver to Seller and Seller shall deliver to Buyer any and all documentation provided by each Party to the other pursuant to the terms of this Agreement. 13.2 Remedies Subsequent to Closing. In the event of any breach or default of any warranty, covenant, agreement, condition or other obligation by any Party post-Closing, the non-defaulting Party may pursue whatever rights and remedies are available to such Party at law or in equity, including without limitation, the rights and remedies provided in this Agreement. 29 14. Nondisclosure. No Party will disclose the existence or contents of this Agreement or any of the discussions or communications regarding the transactions contemplated by this Agreement to any third persons without the prior written consent of the other Party or Parties, except as required by applicable law; provided, however, that disclosures shall be permitted without the prior written consent of the other Party or Parties: (i) to Seller's and Buyer's respective partners, directors, shareholders, key employees, attorneys, accountants and lenders; (ii) to agents and advisors of Seller or Buyer who may be retained to render services in connection with the transactions contemplated by this Agreement; and (iii) to all persons from whom consents, approvals or amendments are required for the consummation of the transactions contemplated by this Agreement. Notwithstanding the foregoing, Seller recognizes the "public" status of Buyer and any public filings and/or statements made or caused to be made by Buyer shall be an exception to the foregoing. 15. General Provisions. 15.1 Publicity. All notices to third parties and all other publicity concerning the transactions contemplated by this Agreement shall be jointly planned and coordinated by and between Buyer and Seller. Neither Buyer nor Seller shall act unilaterally in this regard without the prior written approval of the other Party; however, this approval shall not be unreasonably withheld or delayed. Notwithstanding the foregoing, Seller recognizes the "public" status of Buyer and any public filings and/or statements made or caused to be made by Buyer shall be an exception to the foregoing. 15.2 Expenses. Except as otherwise specifically provided, each Party shall be responsible for its own fees, costs and other expenses incurred in negotiating and preparing, and in closing and carrying out the transactions contemplated by, this Agreement. 15.3 Survival of Representations, Warranties and Covenants. The respective representations, warranties and covenants of Buyer and Seller made in this Agreement or in any certificate or other document delivered pursuant to this Agreement, including without limitation the obligations of indemnity under this Agreement, shall survive the Closing Date and the consummation of the transactions contemplated by this Agreement, until the applicable statute of limitations has run, notwithstanding any examination made by or for the Party to whom such representations, warranties or covenants were made, the knowledge of any officers, directors, shareholders, employees or agents of the Party, or the acceptance of any certificate or opinion. 15.4 Notices. All notices, requests, demands and other communications required under this Agreement shall be in writing and shall be deemed duly given and received: (i) if personally delivered, on the date of delivery, (ii) if mailed, three (3) days after deposit in the United States Mail, registered or certified, return receipt requested, postage prepaid and addressed as provided below, (iii) if by a courier delivery service providing overnight or "next-day" delivery, on the next business day after deposit with such service, addressed as follows: 30 If to Seller: Tejas Snacks, L.P. Attn: Mr. Tom Bigham Route 1, Box 66A Brookshire, Texas 77423 With copy to: Stumpf Falgout Craddock & Massey Attn: Michael B. Massey, Esq. 1400 Post Oak Blvd., #400 Houston, Texas 77056 If to Buyer: Poore Brothers, Inc. Attn: Mr. Eric Kufel 3500 South La Cometa Goodyear, Arizona 85338 With copy to: Mariscal, Weeks, McIntyre & Friedlander, P.A. Attn: Fred C. Fathe, Esq. 2901 North Central Ave., #200 Phoenix, Arizona 85012 Any Party may change its above-designated address by giving the other Party written notice of such change in the manner set forth herein. 15.5 Headings. Headings contained in this Agreement are inserted only as a matter of convenience and in no way define, limit, extend or describe the scope of this Agreement or any of its provisions. 15.6 Entire Agreement; Modification. Except as set forth below, this Agreement constitutes the entire agreement among the Parties and supersedes all prior and contemporaneous agreements and undertakings of the Parties with respect to its subject matter, including, but not limited to, that certain Letter of Intent between Buyer and Seller, dated September 16, 1998. Notwithstanding the foregoing, that certain Production Agreement (herein so called), between Buyer and Seller, dated September 16, 1998, shall survive any termination of this Agreement and is specifically deemed not to be integrated herein. Said Production Agreement shall remain a fully binding agreement between the parties in accordance with its terms. Said Production Agreement deals with, among other things, Buyer distributing certain snack food product to Hecht Distributing ("Hecht") in recoupment of certain Deposit monies which may be repayable from Seller to Buyer hereunder if the transactions contemplated hereby do not close. No supplement, modification or amendment of this Agreement shall be binding and enforceable unless executed in writing by the Parties. 15.7 Waiver. No waiver of any of the provisions of this Agreement shall be deemed, or shall constitute, a waiver of any other provision of this Agreement (whether or not similar) nor shall such waiver constitute a continuing waiver, and no waiver shall be binding unless executed in writing by the Party making the waiver. 31 15.8 Exhibits and Recitals. The Exhibits attached to this Agreement and the Recitals set forth above are hereby incorporated into and made a part of this Agreement. 15.9 Counterparts; Facsimile Signatures. This Agreement may be executed in several counterparts, and all so executed shall constitute one agreement, binding on all of the Parties. The Parties agree that this Agreement may be transmitted between them via facsimile. The Parties intend that the faxed signatures constitute original signatures and that a faxed agreement containing the signatures (original or faxed) of all the Parties is binding upon the Parties. 15.10 Governing Law; Jurisdiction. Except as expressly provided herein, this Agreement shall be construed in accordance with, and governed by, the laws of the State of Arizona, without regard to the application of conflicts of law principles. Except in respect of an action commenced by a third party in another jurisdiction, the Parties agree that any legal suit, action or proceeding arising out of or relating to this Agreement must be instituted in a State or Federal court in the City of Phoenix, Maricopa County, State of Arizona, and they hereby irrevocably submit to the jurisdiction of any such court. No party shall raise a defense of jurisdiction, venue or forum non-convenience to any action venued in any of those courts. No action shall be commenced elsewhere. 15.11 Attorneys' Fees. In the event an action or suit is brought by any Party to enforce the terms of this Agreement, the prevailing Party shall be entitled to the payment of its reasonable attorneys' fees and costs, as determined by the judge of the court. 15.12 Parties in Interest. Except as expressly provided below, nothing in this Agreement is intended to confer upon any person other than the Parties, their respective heirs, representatives, successors and permitted assigns, any rights or remedies under or by reason of this Agreement, nor is anything in this Agreement intended to relieve or discharge the liability of any Party, nor shall any provision of this Agreement give any entity any right of subrogation against or action over or against any Party. Lender shall be a third party beneficiary of all of the representations, warranties and agreements of Seller made herein, Seller acknowledging that, in order to supply part of the purchase money hereunder, Lender is making a loan to Buyer secured by, among other things, a collateral assignment of Buyer's interest hereunder. Therefore, if Lender succeeds to Buyer's position hereunder, Seller shall recognize Lender for all purposes hereunder and shall perform the representations, warranties, covenants and agreements herein contained and which survive the Closing to Lender in that instance. Seller shall, from time to time, execute such documents as may be reasonably requested by Lender or Buyer in order to evidence such an item including, without limitation, estoppel certificates and recognition agreements. 15.13 Successors in Interest. Except as otherwise provided herein, all provisions of this Agreement shall be binding upon, inure to the benefit of, and be enforceable by and against the respective heirs, executors, administrators, personal representatives, successors and assigns of any of the Parties. 15.14 Severability. The invalidity or unenforceability of all or any part of any particular provision of this Agreement shall not affect the other provisions hereof and this Agreement shall be continued in all respects as if such invalid or unenforceable provision were omitted. 32 15.15 Risk of Loss. Seller shall bear all risk of loss with respect to the Assets arising on or prior to the Closing Date. In the event that all or any part of the Assets are damaged or destroyed by fire, windstorm, flood or any other casualty on or prior to the Closing Date (whether or not insured), Seller shall immediately notify Buyer of such damage or destruction. In such event, Seller and Buyer agree as follows: (A) If the amount of the casualty loss is less than Ten Thousand and No/100 Dollars ($10,000.00), the Purchase Price shall be reduced by the amount of the casualty loss, and Seller shall retain the right to receive proceeds of any insurance policies which cover any such loss. (B) If the amount of the casualty loss is Ten Thousand and No/100 Dollars ($10,000.00) or more, Buyer shall have the option to: (a) terminate this Agreement by written notice to Seller, in which case the Parties shall have no further obligations under this Agreement; or (b) continue to proceed with the transactions contemplated by this Agreement. If the Buyer elects to continue to proceed with the transactions contemplated under this Agreement: (1) all insurance proceeds collectible by reason of such casualty loss shall be deemed to have been absolutely and irrevocably assigned to, and shall be payable directly to, Buyer; (2) Seller shall deliver to Buyer, on or before the Closing Date, a duly executed assignment of all insurance proceeds, in form and substance acceptance to Buyer; (3) Buyer shall have the right to conduct all settlement proceedings with respect to such insurance claims; and (4) Buyer shall have the right and option to extend the Closing Date for a period of up to sixty (60) days from the date of such casualty loss. 15.16 Further Documentation. Each Party will execute and deliver such further instruments and documents and do such further acts and things as may be required to carry out the intent and purpose of this Agreement. 15.17 Interpretation. The Parties agree that each Party and its counsel have reviewed this Agreement and that any rule of construction to the effect that ambiguities are to be resolved against the drafting party shall not apply to the interpretation of this Agreement. 15.18 [RESERVED] 15.19 Stock Escrow; Proceeds Assignment. At Closing, Buyer and Seller shall establish, pursuant to a form of Stock Escrow Agreement (the "Escrow Agreement"), a copy of which is attached hereto as Exhibit O, an Escrow (the "Escrow") wherein Two Hundred Sixty Seven Thousand One Hundred Forty Three (267,143) Shares of Stock shall be deposited at Closing. The Stock shall remain in the Escrow for a period of one (1) year as security for the post-Closing obligations of Seller hereunder including, without limitation, any breach of the truth and correctness of Seller's representations and warranties hereunder and/or Seller's performance of its obligations of indemnity hereunder. Buyer and Seller acknowledge that the Stock, as so escrowed, is, in part, a substitute for the Principals having no liability for Seller's representations and warranties hereunder. Therefore, among other things, in the event of any such breach by Seller hereunder, Buyer may, as Buyer shall choose, either enforce its remedies against the Stock or against Seller or Seller's other assets, the parties acknowledging that the Stock, as so escrowed, shall not be Buyer's sole remedy nor the sole source of assets against which Buyer may pursue claims, but stands as additional security therefore. Release of the Stock from said Escrow, at the end 33 of the term thereof, shall not otherwise release Seller from any of its obligations hereunder, to the extent not theretofore released by the terms hereof. 15.20 Nomination and Assignment. Buyer shall have the ability, without the need to obtain the consent of Seller (as shall Buyer's assignee or nominee), to nominate or assign all or any portion of Buyer's rights under this Agreement to any person and/or entity which is an Affiliate (as defined below) of Buyer for any consideration deemed acceptable to Buyer in its sole discretion. In the event of such nomination and/or assignment, Buyer shall be released from all of its obligations under this Agreement so long as said nominee or assignee of Buyer assumes, in writing reasonably satisfactory to Buyer and Seller, all of Buyer's obligations under this Agreement, whereupon such substitute or assignee Buyer shall be deemed the "Buyer" under this Agreement for all purposes. The term "Affiliate", as applied to any person, means any person directly or indirectly controlling, controlled by, or under common control with, that person or a blood relative or spouse of such person, if such person is a natural person. For the purposes of this definition, "control" (including with correlative meaning, the terms "controlling," "controlled by" and "under common control"), as applied to any person, means the possession, directly or indirectly, of the power to direct or cause the direction of the management and policies of that person, whether through the ownership of voting securities, by contract or otherwise, and "person" means and includes natural persons, corporations, limited partnerships, general partnerships, joint stock companies, joint ventures, associations, companies, trusts, land trusts, business trusts or other organizations, whether or not legal entities. 15.21 Non-Foreign Status. At the Closing, Seller shall deliver to Buyer a so-called "IRC Section 1445" affidavit establishing Seller's non-foreign status. 15.22 Exhibits and Schedules. This Agreement may be executed without all of the Exhibits and Schedules attached. The Parties shall, on or before November 6, 1998, diligently endeavor to complete said Exhibits and Schedules. The approval of both Parties of all of such Exhibits and Schedules shall be a condition precedent to the obligations of the Parties hereunder. If the Parties are unable to complete said Exhibits and Schedules to their mutual reasonable satisfaction with said time, this Agreement shall be cancelled, the Production Agreement shall be in full force and effect as to recoupment by Buyer of the Deposits and neither Party shall have further liability to the other hereunder. . . . . . . . . . 34 IN WITNESS WHEREOF, the Parties have executed this Agreement as of the day and year first set forth above. SELLER: TEJAS SNACKS, L.P., a Texas limited partnership By:__________________________________________ Its:____________________________________ BUYER: POORE BROTHERS, INC., a Delaware corporation By:__________________________________________ Its:____________________________________ PRINCIPALS: _____________________________________________ Kevin Kohl _____________________________________________ Tom Bigham 35 LIST OF EXHIBITS Exhibit A - Excluded Assets Exhibit B - RESERVED Exhibit C - List of Personal Property Exhibit D - Contractual Rights Exhibit E - Intellectual Property Exhibit F - Allocation of Purchase Price Exhibits G-1 and G-2 - Employment Agreements Exhibit H - List of Suppliers and Customers Exhibit I - Description of Insurance Policies Exhibit J - Production Requirements Exhibit K - General Warranty Bill of Sale Exhibit L - General Warranty Assignment Exhibit M - Seller's Closing Certificate Exhibit N - Buyer's Closing Certificate Exhibit O - Stock Escrow Agreement LIST OF SCHEDULES Schedule 3.1.4 - Stock Legend Schedule 7.1 - List of Equity Holders of Seller Schedule 7.5 - Existing Payables Schedule 7.7 - "Insider" Indebtedness and Obligations Schedule 7.9 - Interim Personnel Matters Schedule 7.10 - Litigation and Claims Schedule 7.14 - Intellectual Property Filings, Etc. Schedule 7.17 - Insurance Coverage Refusals Schedule 9.9 - Securities Representative Certificate 36 Exhibit O STOCK ESCROW AGREEMENT This Stock Escrow Agreement (this "Agreement) is made and entered into as of the _____ day of November, 1998, by and among TEJAS PB DISTRIBUTING, INC., an Arizona corporation ("Buyer"), TEJAS SNACKS, LP, a Texas limited partnership ("Seller"), and Everen Securities, Inc. (the "Escrow Agent"). WITNESSETH: WHEREAS, Buyer and Seller are parties to a certain Agreement for Purchase and Sale of Assets, dated as of November ____, 1998 (the "Purchase Agreement"), pursuant to which Buyer has agreed to deliver to the Escrow Agent a certificate or certificates, registered in the name of Seller, representing Two Hundred Sixty Seven Thousand One Hundred Forty Three (267,143) shares of the common stock, par value of $.01 (one cent) per share, of Poore Brothers, Inc., a Delaware corporation (the "Poore Brothers Securities") (such Poore Brothers Securities and any distributions or dividends with respect thereto, together with any interest or other income earned from investment of any such dividends, being referred to herein as the "Escrow Sum"), such Escrow Sum to be held by the Escrow Agent, and released to Seller and/or Buyer, under the conditions and in accordance with the terms hereof. AGREEMENTS: NOW, THEREFORE, in consideration of the mutual covenants and agreements contained herein and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto agree as follows: ARTICLE I: ESCROW AGENT I.1 Appointment. The Escrow Agent is hereby appointed depositary and escrow agent for Buyer and Seller with respect to the Escrow Sum. Escrow Agent is also constituted an agent of Buyer to hold the Poore Brothers Securities in escrow and in pledge for the benefit of Buyer. Seller hereby grants a security interest in and to, and pledges, the Escrow Sum to Buyer to secure the obligations of Seller under and pursuant to the Purchase Agreement, including, without limitation, the obligations of Seller referenced in Section 3.1 below, and Escrow Agent hereby accepts such designation as Buyer's agent for that purpose. I.2 Binding Obligations. Except for this Agreement, the Escrow Agent is not a party to, nor is it bound by, any agreement between Buyer and Seller. Reference in this Agreement to other documents or instruments is for identification purposes only, and such reference shall not modify or affect the terms hereof or cause such documents or instruments to be deemed incorporated herein. The only duties and responsibilities of the Escrow Agent shall be to hold the Escrow Sum as Escrow Agent according to the provisions of this Agreement and to dispose of and deliver the Escrow Sum as provided in this Agreement. I.3 Acts of Escrow Agent. The Escrow Agent's sole responsibilities shall be for the safekeeping and investment of the Escrow Sum and the disbursement of the Escrow Sum and interest 37 thereon in accordance with this Agreement. The Escrow Agent's authority is limited to the express provisions of this Agreement, and the Escrow Agent shall not have any duties other than those expressly set forth herein. The Escrow Agent has no duty to determine or inquire into any happening or occurrence or any performance or failure of performance of Buyer or Seller or any other party with respect to their agreements or arrangements with each other or with any other party other than those imposed by this Agreement or any other agreement to which the Escrow Agent is a party in connection herewith. The Escrow Agent shall not be liable for anything which it may do or refrain from doing in connection with this Agreement, except its own negligence or misconduct or any failure to carry out its duties under this Agreement. The Escrow Agent may confer with legal counsel of its own choosing in the event of any dispute or question as to the construction of any of the provisions hereof, or its duties hereunder, and it shall incur no liability and shall be fully protected in acting in reasonable reliance upon the opinions of such counsel. The Escrow Agent may rely and shall be protected in acting upon any documents which may be submitted to it in connection with its duties hereunder and which he reasonably believes to be genuine and to have been signed or presented by the proper party or parties, and the Escrow Agent shall have no liability or responsibility with respect to the form of execution or validity thereof except as otherwise herein specifically set forth. The Escrow Agent is hereby expressly authorized to comply with and obey any and all orders, judgments, or decrees of any court relating to this Agreement, the Escrow Sum, or the relationship between Buyer and Seller, and in case the Escrow Agent obeys or complies with any such order, judgment, or decree of any court, it shall not be liable to either Buyer or Seller, or to any other person, by reason of such compliance, notwithstanding any such order, judgment, or decree being subsequently reversed, modified, annulled, set aside, or vacated, or found to have been entered without jurisdiction. Buyer and Seller agree jointly and severally to indemnify the Escrow Agent against any expenses or liabilities, claims, losses, or damages incurred by the Escrow Agent that may arise out of or in connection with the Escrow Agent's acting as Escrow Agent under and in strict compliance with the terms of this Agreement or as a result of any litigation or threat of any litigation in connection herewith or performance in accordance herewith, except in those instances where the Escrow Agent has been guilty of negligence or other misconduct or has otherwise acted inconsistently with the terms of this Agreement or inconsistently with the obligations imposed upon the Escrow Agent by law. I.4 Adverse Claims or Demands. In the event of any disagreement resulting in adverse or conflicting claims or demands being made in connection with the subject matter of this Agreement or upon the Escrow Agent, causing the Escrow Agent to have doubt as to what action it should take hereunder, or in the event that the Escrow Agent, in good faith, otherwise has doubt as to what action it should take hereunder, the Escrow Agent may, at its option and in its discretion, petition any court of competent jurisdiction in the State of Arizona, for instructions or interplead the funds or assets so held into such court. The parties agree to the jurisdiction of such court, waive personal service of process, and agree that service of process by certified or registered mail, return receipt requested, to the address set forth in Section 5.1 hereof shall constitute adequate service. The parties hereby agree to indemnify and hold the Escrow Agent harmless from any liability or losses occasioned by such interpleader action or request for instructions and to pay any and all of its costs, expenses, and attorney's fees incurred in any such action and agree that on upon entry of an order permitting interpleader and full compliance therewith, the Escrow Agent, its servants, agents, employees, or officers will be relieved of further liability. I.5 Litigation. The Escrow Agent shall not be required to institute legal proceedings of any kind. In the event litigation is instituted by Buyer against Seller or by Seller against Buyer that: (a) requires additional duties of the Escrow Agent; (b) requires court appearances by or on behalf of the 38 Escrow Agent; or (c) requires the Escrow Agent to incur expenses or make disbursements in the resolution of contested claims against the Escrow Sum, then the Escrow Agent shall be entitled to reimbursement for any reasonable expenses or disbursements, and such reimbursement shall include, but not be limited to, the actual cost of legal services if the Escrow Agent deems it necessary to retain an attorney. I.6 Fees. The fees and expenses of the Escrow Agent shall be paid one-half (1/2) by Buyer and one-half (1/2) by Seller from funds other than the Escrow Sum. ARTICLE II: DELIVERY OF SECURITIES The Escrow Agent hereby acknowledges receipt of the Poore Brothers Securities from Buyer. The Escrow Agent further acknowledges its acceptance of the authorization herein conferred and agrees to carry out and perform the duties contained herein pursuant to the provisions of this Agreement. ARTICLE III: RELEASE OF FUNDS III.1 Release of Escrow Sum to Buyer. (A) If any time prior to November 3, 1999, Buyer learns of facts which lead Buyer to conclude that it may suffer a loss for which Seller may be liable pursuant to the provisions of Sections 12.2 or 13.2 of the Purchase Agreement, then Buyer shall promptly advise the Escrow Agent and Seller of such claim ("Claim") by delivering written notice thereof (the "Notice of Claim") to the Escrow Agent and Seller. The Notice of Claim: (i) shall state the claimed nature of Seller's alleged liability; and (ii) shall state the maximum amount of the payment that Buyer claims it is entitled to receive from the Escrow Sum. Seller shall have thirty (30) days after receipt of the Notice of Claim in which to advise the Escrow Agent and Buyer that it disputes the Claim by delivering written notice of Seller's dispute ("the Notice of Dispute") to the Escrow Agent and to Buyer. The Notice of Dispute may contest all or any portion of the Notice of Claim based on a dispute concerning the existence of a Claim, Seller's liability or the estimated amount of the alleged loss. (B) If Seller fails to deliver a Notice of Dispute within such thirty (30) day period, Seller shall be deemed to have acknowledged that Buyer is entitled to payment as set forth in the Notice of Claim and shall be deemed to have directed the Escrow Agent to disburse such payment (the "Claim Payment") to Buyer in accordance with the provisions of Section 3.4. In the event Seller timely delivers the Notice of Dispute, then the matter shall be determined in accordance with Section 5.9 of this Agreement. In the event a Notice of Dispute is timely delivered, then the undisputed portion of the Claim, if any (the "Undisputed Claim Payment"), shall be promptly disbursed to Buyer in accordance with the provisions of Section 3.4, and only the sum that is subject to a dispute shall be held by the Escrow Agent until the Claim is resolved; provided, however, that any Claim which is based upon the assertion or threat of a third party claim against Buyer shall be conclusively deemed to be resolved four (4) years after the Notice of Claim is delivered unless litigation, arbitration, assessment, or some other formal proceeding is commenced against Buyer within that four (4) year period. If such a formal proceeding is not commenced within the four (4) year period, then the Claim shall be deemed abandoned and of no further force and effect for purposes of this Agreement. In the event a formal proceeding is commenced within the four (4) year period, then the resolution of the Claim will occur only upon the resolution of such proceeding and any related appellate proceedings. 39 (C) Subject to Seller's right to dispute a Claim as set forth above, once a Notice of Claim is delivered to the Escrow Agent, the Escrow Agent shall not permit the Escrow Sum to be reduced by disbursement to Seller pursuant to Section 3.2 to an amount which is less than the amount of the Claim (the Poore Brothers Securities then held by the Escrow Agent being valued for the purpose of any such determination based on the closing price per share of Poore Brothers, Inc. stock on the last trading day before the date for which the valuation is being determined, as reported in the Wall Street Journal (the "Valuation Price")). Furthermore, if the amount of any Claim or the aggregate amount of any Claims should ever exceed the amount of the Escrow Sum (the Poore Brothers Securities then held by the Escrow Agent being valued for such purposes based on the Valuation Price), then no portion of the Escrow Sum shall be disbursed pursuant to Section 3.2 during such time that such a deficit exists. III.2 Release of Remainder of Escrow Sum. On November 4, 1999, the Escrow Agent shall irrevocably and unconditionally disburse to Seller the Escrow Sum in excess of the amount of any Claims previously paid pursuant to the terms of this Agreement and the Purchase Agreement and of the amount of any then existing Claim or Claims. The remainder of the Escrow Sum, if any, shall be irrevocably and unconditionally disbursed to Seller (or Buyer, if appropriate), in one or more disbursements, upon final resolution of all Claims involving such funds. III.3 Delivery. Unless delivery is made in person at the Escrow Agent's office or unless the Escrow Agent is properly instructed in writing by Buyer or Seller, as the case may be, to make delivery in such other manner, the Escrow Agent shall be deemed to have properly delivered to Buyer or Seller, as the case may be, such funds as Buyer or Seller is entitled to receive, upon placing the same in the United States Mail in a suitable package or envelope, registered or certified mail, return receipt requested, postage prepaid, addressed to the address referred to in Section 5.1 hereof or such other address as may be furnished to the Escrow Agent in writing. III.4 Treatment of Poore Brothers Securities. In the event that the Escrow Agent is required to make a Claim Payment or an Undisputed Claim Payment pursuant to the provisions of Section 3.1 at a time when a portion of the Escrow Sum is composed of Poore Brothers Securities, the Escrow Agent shall: (i) first, transfer to Buyer such number of shares of the Poore Brothers Securities as shall be necessary to satisfy the amount of such Claim Payment or Undisputed Claim Payment (such Poore Brothers Securities being valued for such purposes based on the Valuation Price on the date transferred); and (ii) then, if any balance remains to be paid, disburse to Buyer an appropriate portion of the Escrow Sum not represented by Poore Brothers Securities. ARTICLE IV: INVESTMENT AND INTEREST IV.1 Investment. At Seller's written direction and with Buyer's countersignature, the Escrow Agent shall invest the Escrow Sum (other than the Poore Brothers Securities) in interest-bearing, federally insured bank accounts, money market funds or instruments, government securities, financial institution obligations, or similar instruments. All investments in obligations which are not direct obligations of the United States must be rated AI or PI by Moody's or Standard & Poor's, and must have a maturity of one (1) year or less. The Escrow Agent shall not be liable to Buyer or Seller for any claim related to the investment or management of the Escrow Sum, provided that the Escrow Agent compiles strictly with the provisions of this Section 4.1 and Section 4.3. Disbursement by the Escrow Agent of the Escrow Sum shall be made in accordance with and at the time or times specified in Sections 3.1 and 3.2 of this Agreement. 40 IV.2 Interest and Other Income. Any distributions or dividends with respect to the Poore Brothers Securities or any other investments or instruments held in escrow from time to time, together with the proceeds of any sale, transfer, or other disposition thereof and any interest or other income earned from investment of any such proceeds, during the period of these escrow arrangements shall accrue and be held by the Escrow Agent as part of the Escrow Sum. IV.3 Investment Instructions. Seller shall direct the Escrow Agent regarding the investment of the Escrow Sum pursuant to Section 4.1. Seller and Buyer, and not Escrow Agent, shall be solely responsible for following the guidelines for investments set forth in Section 4.1, including, without limitation, investigating and satisfying themselves regarding the liquidity of the firms and/or institutions with which the Escrow Sum is to be placed. Seller shall deliver to Escrow Agent the name(s), address(es), and contact person(s) of the firm(s) and/or banking institution(s) with which the Escrow Sum is to be placed, together with a description of the type of investment to be made. Unless otherwise explicitly stated by Seller in the written instructions to Escrow Agent, at no time will any investment of the Escrow Sum or any portion thereof (other than the Poore Brothers Securities and any direct obligation of the United States) exceed one (1) year in duration, nor will any such investment be subject to automatic renewal. ARTICLE V: MISCELLANEOUS V.1 Notices. Any notice or consent pursuant to or in connection with this Agreement shall be in writing and shaLl be deemed to be delivered (a) upon receipt, if personally delivered or delivered by reputable overnight courier, or (b) at the close of business on the second business day next following the day when placed in the United States mail postage prepaid, certified or registered, addressed to the appropriate party or par-ties, at the address stated below (or at such other address as such party may designate by written notice to all other parties), with a copy thereof sent to the persons indicated: If to Seller: Tejas Snacks, L.P. Attn: Mr. Tom Bigham Route 1, Box 66A Brookshire, Texas 77423 With copy to: Stumpf Falgout Craddock & Massey Attn: Michael B. Massey, Esq. 1400 Post Oak Blvd., #400 Houston, Texas 77056 If to Buyer: Poore Brothers, Inc. Attn: Mr. Eric Kufel 3500 South La Cometa Goodyear, Arizona 85338 With copy to: Mariscal, Weeks, McIntyre & Friedlander, P.A. Attn: Fred C. Fathe, Esq. 2901 North Central Ave., #200 Phoenix, Arizona 85012 41 If to Escrow Agent: Everen Securities, Inc. Attn. Mr. Larry C. Bain, Managing Director 77 West Wacker Drive Chicago, IL 60601-1694 V.2 Entire Agreement, Amendment. Except as otherwise expressly set forth herein, this Agreement contains the entire agreement among the parties with respect to the subject matter hereof, and no representations, inducements, promises, or agreements, oral or otherwise, not embodied herein shall be of any force or effect. This Agreement may be amended, modified, or supplemented, and waivers or consents to departures from the provisions hereof may be given, only pursuant to a written instrument signed by Buyer and Seller, and, if, but only if, the rights and responsibilities of the Escrow Agent are modified by such amendment, modification, or supplement, by the Escrow Agent. V.3 Parties Bound. This Agreement shall be binding upon and shall inure to the benefit of the parties hereto and their respective successors, assigns, and other legal representatives. V.4 Multiple Counterparts. This Agreement may be executed in a number of identical counterparts and it shall not be necessary for each of the parties to execute each of such counterparts, but when all of the parties have executed and delivered one or more of such counterparts, the several parts, when taken together, shall be deemed to constitute one and the same instrument, enforceable against each in accordance with its terms. In making proof of this Agreement, it shall not be necessary to produce or account for more than one such counterpart executed by the party against whom enforcement of this Agreement is sought. V.5 Headings. The headings in tills Agreement are for convenience of reference only and shall not limit or otherwise affect the meaning hereof. V.6 Governing Law. This Agreement shall be governed by and construed in accordance with the laws of the State of Arizona, without regard to principles of conflicts or choice of law. Any action or arbitration brought to enforce or construe this Agreement or to declare the rights of the parties shall be commenced and maintained in an appropriate state or federal court or before an appropriate arbitrator in Phoenix, Arizona, and each party irrevocably consents to exclusive jurisdiction and venue in such forum for such purposes. V.7 Severability. If any provision of this Agreement is held to be illegal invalid, or unenforceable under present or future laws effective during the term of this Agreement, such provision shall be fully severable; this Agreement shall be construed and enforced as if such illegal, invalid, or unenforceable provision had never comprised a part of this Agreement; and the remaining provisions of this Agreement shall remain in full force and effect and shall not be affected by the illegal, invalid, or unenforceable provision or by its severance from this Agreement. Furthermore, in lieu of each such illegal, invalid, or unenforceable provision, there shall be added automatically as a part of this Agreement a provision as similar in terms to such illegal, invalid, or unenforceable provision as may be possible and be legal, valid, and enforceable, and this Agreement shall be reformed accordingly. 42 V.8 Legal Fees and Costs. In the event Buyer or Seller elects to incur legal expenses in connection with any arbitration or litigation to enforce or interpret any provision of this Agreement or to declare the rights of the parties under this Agreement, the prevailing party will be entitled to recover such legal expenses, including attorney's fees, expert witness fees, paralegal expenses, costs and necessary disbursements, in addition to any other relief to which such party shall be entitled. V.9 Arbitration. In the event of a dispute between Buyer and Seller arising out of or related to this Agreement, Buyer and Seller agree to utilize the procedures specified in Section 15.18 of the Purchase Agreement to resolve such dispute. V.10 Resignation and Termination. The Escrow Agent may resign as such by delivering written notice to that effect at least sixty (60) days prior to the effective date of such resignation to Seller and Buyer. Upon expiration of such sixty (60) day notice period, the Escrow Agent may deliver the portion of the Escrow Sum remaining it its possession to any successor Escrow Agent appointed by Seller and Buyer pursuant to this Section 5.10, or if no successor Escrow Agent has been appointed, to any court of competent jurisdiction in Phoenix, Arizona, or in accordance with the joint written instructions of Buyer and Seller. Seller and Buyer, acting jointly, may terminate the Escrow Agent from its position as such by delivering to the Escrow Agent written notice to that effect executed by Seller and Buyer at least thirty (30) days prior to the effective date of such termination. In the event of such resignation or termination of the Escrow Agent, a successor Escrow Agent shall be appointed by mutual agreement between Seller and Buyer, and the Escrow Agent shall deliver the portion of the Escrow Sum remaining in its possession to such successor escrow agent. From and after the appointment of a successor Escrow Agent pursuant to this Section 5.10, all references herein to the Escrow Agent shall be deemed to be to such successor Escrow Agent. The delivery by the Escrow Agent of the Escrow Sum hereunder in accordance with the provisions of this Section 5.10 shall constitute a full and sufficient discharge and acquittance of the Escrow Agent in respect to such sums delivered, and the Escrow Agent shall be entitled to receive releases and discharges therefor. The indemnities in favor of the Escrow Agent contained in this Agreement and the obligations of Buyer and Seller under Section 1.6 hereof shall survive for the benefit of the Escrow Agent after any resignation or termination. V.11 Non-Assignment. The duties, responsibilities, interests, and rights of the parses under this Agreement are non-transferable and nonassignable (without the express written consent of Buyer and Seller), and any purported or attempted transfer or assignment in violation of this provision shall be void and shall vest no rights in the purported transferee or assignee. IN WITNESS THEREOF, the parties hereto have executed this Agreement as of the date first above written. SELLER: TEJAS SNACKS, L.P., a Texas limited partnership By: D.T.M.E.S., a Texas corporation, its duly authorized General Partner By:____________________________________ Tom Bigham, President 43 BUYER: TEJAS PB DISTRIBUTING, INC., an Arizona corporation By:____________________________________ Thomas W. Freeze, Vice President and Chief Financial Officer ESCROW AGENT: Everen Securities, Inc. By:_______________________________________ Larry C. Bain, Managing Director 44 EX-10.7 8 EMPLOYMENT AGREEMENT EXHIBIT 10.7 EMPLOYMENT AGREEMENT This employment agreement ("Agreement") is made and entered into effective as of the __th day of November, 1998 ("Effective Dates"), by and between TEJAS PB DISTRIBUTING, INC. ("Company"), an Arizona corporation, and THOMAS G. BIGHAM ("Employee"), a married man. In consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt of which is acknowledged, Company and Employee agree as provided in this Agreement. 1. Employment. Company hereby employs Employee, and Employee accepts employment by Company, upon the terms and conditions contained in this Agreement. 2. Term. Employee's employment by Company shall commence on November __, 1998, and shall continue for a one year period from the date first written above. 3. Title. During the period of Employee's employment by Company, Employee shall be Vice President of the Company and shall have such rights, powers and authority in such positions as may be designated by Company's Board of Directors from time to time. 4. Compensation. During the period of Employee's employment by Company, Employee shall receive from Company at an annual salary of $80,000.00, which shall be payable proportionately on Company's regular payroll payment dates for its employees. 5. Fringe Benefits. During the period of Employee's employment by Company, Employee shall be entitled to participate in all of Company's qualified retirement plans and welfare benefit plans (e.g., group health insurance) on the same basis as Company's other employees. In addition, during the period of Employee's employment by Company, Employee shall be entitled to participate in all non-qualified deferred compensation and similar compensation, bonus and stock plans offered, sponsored or established by Company. 6. Automobile Allowance, Telephone and Credit Card. During the period of Employee's employment by Company, Company shall furnish to Employee the following: (a) Company shall pay Employee an automobile allowance of $400 per month. In addition, Company shall pay for up to $200 per month (which amount shall be reviewed at three-month intervals) in automobile gasoline expenses charged to Employee's AMEX corporate credit card, or the Company will reimburse Employee if paid directly by Employee up to the agreed limit. In no event shall Company be responsible for any other automobile related expenses, including but not limited to insurance (however Employee shall maintain insurance coverage reasonably satisfactory to Company), oil, tires, warranty and routine service and other maintenance and repairs for the automobile. Employee acknowledges that he may recognize taxable income in connection with Company's providing an auto allowance. (b) Company shall furnish to Employee a mobile or cellular telephone for Employee's use and shall pay all charges in connection therewith (except Employee shall reimburse Company for the charges each month that are in excess of $200). The telephone to be furnished to Employee shall be agreed upon by Company and Employee from time to time. (c) Company shall furnish to Employee a Company AMEX corporate credit card and long distance telephone card for Employee to use solely for purposes of Company. 7. Confidentiality. (a) During the period of Employee's employment by Company and for a one year period thereafter, Employee shall hold in confidence and shall not disclose or publish, except in the performance of his duties under this Agreement, any Confidential Information (as defined below) that is presented or disclosed to him in connection with his employment by Company. (b) Subject to the provisions of Section 9(c) below, for purposes of this Agreement the term "Confidential Information" shall mean information or material that is proprietary to and owned by Company. Such Confidential Information shall include, without limitation, Company's recipes for specialty potato chips, manufacturing processes, customer lists, supplier lists and pricing information. (c) Notwithstanding the foregoing, the term Confidential Information shall not include any information or material that: (i) is in, or has passed into, the public domain; (ii) is lawfully received by Employee from a third party; (iii) is required to be disclosed by Employee by law or pursuant to an order determination issued by a court or any federal, state or municipal regulatory or administrative agency; or (iv) was in the possession of, or known by, Employee prior to his Employment by Company. (d) Employee acknowledges that the Confidential Information of Company is unique in character and that Company would not have an adequate remedy at law for a material breach or threatened material breach by Employee of his covenants under this Section 7. Employee therefor agrees that, in the event of any such material breach or threat thereof, Company may obtain a temporary and/or permanent injunction or restraining order to enjoin Employee from such material breach or threat thereof, in addition to any other rights or remedies available to Company at law or in equity. (e) Notwithstanding the foregoing, Employee may disclose Confidential Information to his attorneys and other advisors on a need to know basis provided the recipient is directed and required to maintain the disclosed Confidential Information in confidence. 8. Indemnification. (a) Company shall indemnify and hold Employee harmless and defend Employee for, from and against all claims, liabilities, obligations, fines, penalties and other matters and all costs and expenses relating thereto that Company and/or such subsidiary or affiliated entity is permitted by applicable law, except as any of the foregoing arises out of or relates to Employee's negligence, willful malfeasance and/or breach of this Agreement. 2 (b) Company represents and warrant to Employee that neither its articles of incorporation nor its bylaws nor any resolutions of its shareholders or board of directors restricts or limits Companies rights or obligations to indemnify Employee as provided in subsection (a) of this Section 8, except to the extent such restrictions or limitations are required by applicable law. 9. Noncompete. During the period of Employee's employment by Company, Employee shall not, directly or indirectly, whether as principal, consultant, employee, agent, officer, director, trustee or otherwise, engage in the business of manufacturing specialty potato chips, salted snack foods or popcorn or engage in the business of distributing specialty potato chips, salted snack foods or popcorn. In addition, Employee shall not, for a period of sixty (60) months beginning on the date of termination of his employment, directly or indirectly, whether as principal, consultant, employee, agent, officer, director, trustee or otherwise, engage in the State of Texas in the business of manufacturing specialty potato chips, salted snack foods or popcorn or engage in the State of Texas in the business of distributing specialty potato chips, salted snack foods or popcorn. Employee acknowledges that the foregoing limitations are minimum limitations which are necessary to protect the legitimate interests of Company because of Employee's sensitive executive position with Company. Therefore, if a breach of the foregoing shall occur, in addition to any action for damages which Company may have, Company shall have the right to obtain an injunction as a matter of right prohibiting Employee's competition in violation of the foregoing. In the event that the time period of non-competition is deemed to be unreasonable, Employee acknowledges that 59 months shall be deemed reasonable. In the event 59 months is deemed unreasonable, then 58 months is deemed reasonable, and so on, until the foregoing covenant is enforceable to the fullest extent permitted by law. Similarly, in the event the entire State of Texas is deemed unreasonable, counties shall be eliminated one by one beginning with the northwest corner of the State of Texas, continuing down the western side of the State of Texas and in roughly a west to east linear fashion across the State of Texas until the geographical limit set forth above is deemed reasonable to the fullest extent permitted by law. 10. Additional Provisions. (a) This Agreement shall not be assigned by either Company or Employee without the other party's prior written consent; otherwise, this Agreement shall be binding upon, and shall inure to the benefit of, the heirs, personal representatives, successors and assigns of Company and Employee respectively. (b) This Agreement and the rights and obligations of Company and Employee shall be governed by, and shall be construed in accordance with, the laws of the State of Arizona without the application of any laws of conflicts of laws that would require or permit the application of the laws of any other jurisdiction. (c) Time is of the essence of this Agreement and each provision hereof. (d) This Agreement sets forth the entire understanding of Company and Employee with respect to the matters set forth herein and cannot be amended or modified except by an instrument in writing signed by the party against whom enforcement is sought. (e) This Agreement is the result of negotiations between Company and Employee, and Company and Employee hereby waive the application of any rule of law that otherwise would be applicable in connection with the interpretation and construction of this Agreement that ambiguous or conflicting terms 3 or provisions are to be interpreted or construed against the party who (or whose attorney) prepared the executed Agreement or any earlier draft of the same. (f) If any provision or any portion of any provision of this Agreement shall be deemed to be invalid, illegal or unenforceable, the same shall not alter the remaining portion of such provision or any other provision of this Agreement, as each provision of this Agreement and portion thereof shall be deemed severable. (g) Except as may be otherwise required by law, any notice required or permitted to be given under this Agreement shall be given in writing and shall be given either by (i) personal delivery, or (ii) overnight courier service, or (iii) facsimile transmission, or (iv) United States certified or registered mail, in each case with postage prepaid to the following address or to such other address as Company or Employee may designate by notice given to the other party pursuant to this section. Notice shall be effective on (v) the day notice is personally delivered, if notice is given by personal delivery, or (vi) the first business day after the date of delivery to the overnight delivery service, if notice is given by such a delivery service, (vii) the day notice is received, if notice is given by facsimile, or (viii) the fourth business day after notice is deposited in the United States mail, if notice is given by United States certified or registered mail. Company: Tejas PB Distributing, Inc. 3500 S. La Cometa Drive Goodyear, Arizona 85338-1500 Fax No. (602) 925-2363 Employee: Thomas G. Bigham _________________________ _________________________ Fax No. (___)____________ (h) If any action, suit or proceeding is brought in connection with this Agreement, or on account of any breach of this Agreement, or to enforce or interpret any of the terms, covenants and conditions of this Agreement, the prevailing party shall be entitled to recover from the other party or parties, the prevailing party's reasonable attorneys' fees and costs, and the amount thereof shall be determined by the court (not by a jury) or the arbitrator and shall be made a part of any judgment or award rendered. Company: Tejas PB Distributing, Inc. By___________________________________ Its________________________________ Employee: _____________________________________ Thomas G. Bigham 4 EX-10.8 9 EMPLOYMENT AGREEMENT EXHIBIT 10.8 EMPLOYMENT AGREEMENT This employment agreement ("Agreement") is made and entered into effective as of the __th day of November, 1998 ("Effective Dates"), by and between TEJAS PB DISTRIBUTING, INC. ("Company"), an Arizona corporation, and KEVIN M. KOHL ("Employee"), a married man. In consideration of the mutual promises and covenants contained herein, and other good and valuable consideration, the receipt of which is acknowledged, Company and Employee agree as provided in this Agreement. 1. Employment. Company hereby employs Employee, and Employee accepts employment by Company, upon the terms and conditions contained in this Agreement. 2. Term. Employee's employment by Company shall commence on November __, 1998, and shall continue for a one year period from the date first written above. 3. Title. During the period of Employee's employment by Company, Employee shall be Vice President of the Company and shall have such rights, powers and authority in such positions as may be designated by Company's Board of Directors from time to time. 4. Compensation. During the period of Employee's employment by Company, Employee shall receive from Company at an annual salary of $80,000.00, which shall be payable proportionately on Company's regular payroll payment dates for its employees. 5. Fringe Benefits. During the period of Employee's employment by Company, Employee shall be entitled to participate in all of Company's qualified retirement plans and welfare benefit plans (e.g., group health insurance) on the same basis as Company's other employees. In addition, during the period of Employee's employment by Company, Employee shall be entitled to participate in all non-qualified deferred compensation and similar compensation, bonus and stock plans offered, sponsored or established by Company. 6. Automobile Allowance, Telephone and Credit Card. During the period of Employee's employment by Company, Company shall furnish to Employee the following: (a) Company shall pay Employee an automobile allowance of $400 per month. In addition, Company shall pay for up to $200 per month (which amount shall be reviewed at three-month intervals) in automobile gasoline expenses charged to Employee's AMEX corporate credit card, or the Company will reimburse Employee if paid directly by Employee up to the agreed limit. In no event shall Company be responsible for any other automobile related expenses, including but not limited to insurance (however Employee shall maintain insurance coverage reasonably satisfactory to Company), oil, tires, warranty and routine service and other maintenance and repairs for the automobile. Employee acknowledges that he may recognize taxable income in connection with Company's providing an auto allowance. (b) Company shall furnish to Employee a mobile or cellular telephone for Employee's use and shall pay all charges in connection therewith (except Employee shall reimburse Company for the charges each month that are in excess of $200). The telephone to be furnished to Employee shall be agreed upon by Company and Employee from time to time. (c) Company shall furnish to Employee a Company AMEX corporate credit card and long distance telephone card for Employee to use solely for purposes of Company. 7. Confidentiality. (a) During the period of Employee's employment by Company and for a one year period thereafter, Employee shall hold in confidence and shall not disclose or publish, except in the performance of his duties under this Agreement, any Confidential Information (as defined below) that is presented or disclosed to him in connection with his employment by Company. (b) Subject to the provisions of Section 9(c) below, for purposes of this Agreement the term "Confidential Information" shall mean information or material that is proprietary to and owned by Company. Such Confidential Information shall include, without limitation, Company's recipes for specialty potato chips, manufacturing processes, customer lists, supplier lists and pricing information. (c) Notwithstanding the foregoing, the term Confidential Information shall not include any information or material that: (i) is in, or has passed into, the public domain; (ii) is lawfully received by Employee from a third party; (iii) is required to be disclosed by Employee by law or pursuant to an order determination issued by a court or any federal, state or municipal regulatory or administrative agency; or (iv) was in the possession of, or known by, Employee prior to his Employment by Company. (d) Employee acknowledges that the Confidential Information of Company is unique in character and that Company would not have an adequate remedy at law for a material breach or threatened material breach by Employee of his covenants under this Section 7. Employee therefor agrees that, in the event of any such material breach or threat thereof, Company may obtain a temporary and/or permanent injunction or restraining order to enjoin Employee from such material breach or threat thereof, in addition to any other rights or remedies available to Company at law or in equity. (e) Notwithstanding the foregoing, Employee may disclose Confidential Information to his attorneys and other advisors on a need to know basis provided the recipient is directed and required to maintain the disclosed Confidential Information in confidence. 8. Indemnification. (a) Company shall indemnify and hold Employee harmless and defend Employee for, from and against all claims, liabilities, obligations, fines, penalties and other matters and all costs and expenses relating thereto that Company and/or such subsidiary or affiliated entity is permitted by applicable law, except as any of the foregoing arises out of or relates to Employee's negligence, willful malfeasance and/or breach of this Agreement. 2 (b) Company represents and warrant to Employee that neither its articles of incorporation nor its bylaws nor any resolutions of its shareholders or board of directors restricts or limits Companies rights or obligations to indemnify Employee as provided in subsection (a) of this Section 8, except to the extent such restrictions or limitations are required by applicable law. 9. Noncompete. During the period of Employee's employment by Company, Employee shall not, directly or indirectly, whether as principal, consultant, employee, agent, officer, director, trustee or otherwise, engage in the business of manufacturing specialty potato chips, salted snack foods or popcorn or engage in the business of distributing specialty potato chips, salted snack foods or popcorn. In addition, Employee shall not, for a period of sixty (60) months beginning on the date of termination of his employment, directly or indirectly, whether as principal, consultant, employee, agent, officer, director, trustee or otherwise, engage in the State of Texas in the business of manufacturing specialty potato chips, salted snack foods or popcorn or engage in the State of Texas in the business of distributing specialty potato chips, salted snack foods or popcorn. Employee acknowledges that the foregoing limitations are minimum limitations which are necessary to protect the legitimate interests of Company because of Employee's sensitive executive position with Company. Therefore, if a breach of the foregoing shall occur, in addition to any action for damages which Company may have, Company shall have the right to obtain an injunction as a matter of right prohibiting Employee's competition in violation of the foregoing. In the event that the time period of non-competition is deemed to be unreasonable, Employee acknowledges that 59 months shall be deemed reasonable. In the event 59 months is deemed unreasonable, then 58 months is deemed reasonable, and so on, until the foregoing covenant is enforceable to the fullest extent permitted by law. Similarly, in the event the entire State of Texas is deemed unreasonable, counties shall be eliminated one by one beginning with the northwest corner of the State of Texas, continuing down the western side of the State of Texas and in roughly a west to east linear fashion across the State of Texas until the geographical limit set forth above is deemed reasonable to the fullest extent permitted by law. 10. Additional Provisions. (a) This Agreement shall not be assigned by either Company or Employee without the other party's prior written consent; otherwise, this Agreement shall be binding upon, and shall inure to the benefit of, the heirs, personal representatives, successors and assigns of Company and Employee respectively. (b) This Agreement and the rights and obligations of Company and Employee shall be governed by, and shall be construed in accordance with, the laws of the State of Arizona without the application of any laws of conflicts of laws that would require or permit the application of the laws of any other jurisdiction. (c) Time is of the essence of this Agreement and each provision hereof. (d) This Agreement sets forth the entire understanding of Company and Employee with respect to the matters set forth herein and cannot be amended or modified except by an instrument in writing signed by the party against whom enforcement is sought. (e) This Agreement is the result of negotiations between Company and Employee, and Company and Employee hereby waive the application of any rule of law that otherwise would be applicable in connection with the interpretation and construction of this Agreement that ambiguous or conflicting terms 3 or provisions are to be interpreted or construed against the party who (or whose attorney) prepared the executed Agreement or any earlier draft of the same. (f) If any provision or any portion of any provision of this Agreement shall be deemed to be invalid, illegal or unenforceable, the same shall not alter the remaining portion of such provision or any other provision of this Agreement, as each provision of this Agreement and portion thereof shall be deemed severable. (g) Except as may be otherwise required by law, any notice required or permitted to be given under this Agreement shall be given in writing and shall be given either by (i) personal delivery, or (ii) overnight courier service, or (iii) facsimile transmission, or (iv) United States certified or registered mail, in each case with postage prepaid to the following address or to such other address as Company or Employee may designate by notice given to the other party pursuant to this section. Notice shall be effective on (v) the day notice is personally delivered, if notice is given by personal delivery, or (vi) the first business day after the date of delivery to the overnight delivery service, if notice is given by such a delivery service, (vii) the day notice is received, if notice is given by facsimile, or (viii) the fourth business day after notice is deposited in the United States mail, if notice is given by United States certified or registered mail. Company: Tejas PB Distributing, Inc. 3500 S. La Cometa Drive Goodyear, Arizona 85338-1500 Fax No. (602) 925-2363 Employee: Kevin M. Kohl _________________________ _________________________ Fax No. (___)____________ (h) If any action, suit or proceeding is brought in connection with this Agreement, or on account of any breach of this Agreement, or to enforce or interpret any of the terms, covenants and conditions of this Agreement, the prevailing party shall be entitled to recover from the other party or parties, the prevailing party's reasonable attorneys' fees and costs, and the amount thereof shall be determined by the court (not by a jury) or the arbitrator and shall be made a part of any judgment or award rendered. Company: Tejas PB Distributing, Inc. By___________________________________ Its________________________________ Employee: _____________________________________ Kevin M. Kohl 4 EX-27 10 FINANCIAL DATA SCHEDULE
5 THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE COMPANY'S FINANCIAL STATEMENTS FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1998, INCLUDED WITH FORM 10-QSB, AND IS QUALIFIED IN ITS ENTIRETY BY REFRERENCE TO SUCH FINANCIAL STATEMENTS. 1 U.S. DOLLARS 9-MOS DEC-31-1998 JAN-01-1998 SEP-30-1998 1 655,944 0 1,413,892 177,233 440,790 2,593,300 7,318,662 1,055,724 11,126,121 1,543,088 4,826,291 0 0 71,267 4,685,475 11,126,121 9,475,956 9,475,956 7,108,610 7,108,610 2,724,126 0 370,945 (727,724) 0 (727,724) 0 0 0 (727,724) (0.10) (0.10)
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